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EX-32.1 - EXHIBIT 32.1 - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex321q22016.htm
EX-32.2 - EXHIBIT 32.2 - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex322q22016.htm
EX-31.2 - EXHIBIT 31.2 - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex312q22016.htm
EX-31.1 - EXHIBIT 31.1 - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex311q22016.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File Number: 0-17089
BOSTON PRIVATE FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)  
 
 
Commonwealth of Massachusetts
04-2976299
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
Ten Post Office Square
Boston, Massachusetts
02109
(Address of principal executive offices)
(Zip Code)
 
 
Registrant’s telephone number, including area code: (617) 912-1900
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer x
 
 
 
Accelerated filer o    
Non-accelerated filer o   
 
(Do not check if a smaller reporting company)
 
Smaller reporting company o    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of July 31, 2016:
Common Stock, Par Value $1.00 Per Share
83,425,142
(class)
(outstanding)
 



BOSTON PRIVATE FINANCIAL HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3
 
Item 4
 
PART II—OTHER INFORMATION
Item 1
 
Item 1A
 
Item 2
 
Item 3
 
Item 4
 
Item 5
 
Item 6
 
 
 
 
 
Certifications
 



i



PART I. FINANCIAL INFORMATION, ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)

 
June 30, 2016
 
December 31, 2015
 
(In thousands, except share and per share data)
Assets:
 
 
 
Cash and cash equivalents
$
126,167

 
$
238,694

Investment securities available-for-sale (amortized cost of $1,165,906 and $1,084,105 at June 30, 2016 and December 31, 2015, respectively)
1,191,523

 
1,084,510

Investment securities held-to-maturity (fair value of $107,389 and $116,384 at June 30, 2016 and December 31, 2015, respectively)
105,297

 
116,352

Stock in Federal Home Loan Banks
44,374

 
35,181

Loans held for sale
4,677

 
8,072

Total loans
5,751,497

 
5,719,212

Less: Allowance for loan losses
75,753

 
78,500

Net loans
5,675,744

 
5,640,712

Other real estate owned (“OREO”)
2,042

 
776

Premises and equipment, net
31,752

 
31,036

Goodwill
152,082

 
152,082

Intangible assets, net
29,836

 
33,007

Fees receivable
11,129

 
11,258

Accrued interest receivable
18,061

 
17,950

Deferred income taxes, net
36,942

 
51,699

Other assets
149,975

 
121,179

Total assets
$
7,579,601

 
$
7,542,508

Liabilities:
 
 
 
Deposits
$
5,536,092

 
$
6,040,437

Deposits Held For Sale
110,558

 

Securities sold under agreements to repurchase
43,304

 
58,215

Federal funds purchased
180,000

 

Federal Home Loan Bank borrowings
678,012

 
461,324

Junior subordinated debentures
106,363

 
106,363

Other liabilities
135,289

 
111,468

Total liabilities
6,789,618

 
6,777,807

Redeemable Noncontrolling Interests
15,843

 
18,088

Shareholders’ Equity:
 
 
 
Preferred stock, $1.00 par value; authorized: 2,000,000 shares;
 Series D, 6.95% Non-Cumulative Perpetual, issued and outstanding: 50,000 shares at June 30, 2016 and December 31, 2015; liquidation preference: $1,000 per share
47,753

 
47,753

Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 83,380,426 shares at June 30, 2016 and 83,410,961 shares at December 31, 2015
83,380

 
83,411

Additional paid-in capital
597,989

 
600,670

Retained earnings
28,985

 
12,886

Accumulated other comprehensive income/ (loss)
12,654

 
(1,500
)
Total Company’s shareholders’ equity
770,761

 
743,220

Noncontrolling interests
3,379

 
3,393

Total shareholders’ equity
774,140

 
746,613

Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
7,579,601

 
$
7,542,508

See accompanying notes to consolidated financial statements.

1


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except share and per share data)
Interest and dividend income:
 
 
 
 
 
 
 
Loans
$
49,731

 
$
46,663

 
$
99,777

 
$
94,663

Taxable investment securities
1,507

 
1,075

 
3,101

 
2,070

Non-taxable investment securities
1,400

 
1,125

 
2,790

 
2,146

Mortgage-backed securities
2,982

 
2,775

 
6,047

 
5,389

Federal funds sold and other
405

 
282

 
912

 
516

Total interest and dividend income
56,025

 
51,920

 
112,627

 
104,784

Interest expense:
 
 
 
 
 
 
 
Deposits
4,075

 
3,822

 
8,257

 
7,714

Federal Home Loan Bank borrowings
2,139

 
2,017

 
4,092

 
3,948

Junior subordinated debentures
584

 
967

 
1,162

 
1,923

Repurchase agreements and other short-term borrowings
58

 
29

 
68

 
42

Total interest expense
6,856

 
6,835

 
13,579

 
13,627

Net interest income
49,169

 
45,085

 
99,048

 
91,157

Provision/ (credit) for loan losses
(2,535
)
 

 
(5,668
)
 
(2,500
)
Net interest income after provision/ (credit) for loan losses
51,704

 
45,085

 
104,716

 
93,657

Fees and other income:
 
 
 
 
 
 
 
Investment management fees
10,627

 
11,731

 
21,285

 
23,445

Wealth advisory fees
12,551

 
12,678

 
25,263

 
25,353

Wealth management and trust fees
11,208

 
13,545

 
22,124

 
27,103

Other banking fee income
2,982

 
2,031

 
6,215

 
3,941

Gain on sale of loans, net
197

 
362

 
406

 
665

Gain on sale of investments, net
245

 
8

 
246

 
16

Gain/ (loss) on OREO, net

 

 
280

 
89

Other
(1,015
)
 
2,305

 
(1,002
)
 
3,393

Total fees and other income
36,795

 
42,660

 
74,817

 
84,005

Operating expense:
 
 
 
 
 
 
 
Salaries and employee benefits
40,614

 
39,816

 
83,174

 
81,943

Occupancy and equipment
9,928

 
9,095

 
19,515

 
18,130

Professional services
3,015

 
3,214

 
6,530

 
6,235

Marketing and business development
1,811

 
1,706

 
3,981

 
3,054

Contract services and data processing
1,737

 
1,495

 
3,416

 
2,932

Amortization of intangibles
1,586

 
1,655

 
3,172

 
3,257

FDIC insurance
1,015

 
963

 
2,035

 
1,974

Restructuring
905

 
220

 
2,017

 
220

Other
4,120

 
4,254

 
7,600

 
8,100

Total operating expense
64,731

 
62,418

 
131,440

 
125,845

Income before income taxes
23,768

 
25,327

 
48,093

 
51,817

Income tax expense
7,626

 
8,000

 
15,064

 
16,572

Net income from continuing operations
16,142

 
17,327

 
33,029

 
35,245

Net income from discontinued operations
1,245

 
1,546

 
3,310

 
3,640

Net income before attribution to noncontrolling interests
17,387

 
18,873

 
36,339

 
38,885

(Continued)
 
 
 
 
 
 
 
BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Less: Net income attributable to noncontrolling interests
989

 
1,263

 
1,900

 
2,492

Net income attributable to the Company
$
16,398

 
$
17,610

 
$
34,439

 
$
36,393

Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders
$
(970
)
 
$
(1,026
)
 
$
(1,259
)
 
$
(1,989
)
Net income attributable to common shareholders for earnings per share calculation
$
15,428

 
$
16,584

 
$
33,180

 
$
34,404

Basic earnings per share attributable to common shareholders:
 
 
 
 
 
 
 
From continuing operations:
$
0.17

 
$
0.19

 
$
0.37

 
$
0.38

From discontinued operations:
$
0.02

 
$
0.02

 
$
0.04

 
$
0.05

Total attributable to common shareholders:
$
0.19

 
$
0.21

 
$
0.41

 
$
0.43

Weighted average basic common shares outstanding
81,236,809

 
80,778,562

 
81,269,154

 
80,647,191

Diluted earnings per share attributable to common shareholders:
 
 
 
 
 
 
 
From continuing operations:
$
0.17

 
$
0.18

 
$
0.36

 
$
0.37

From discontinued operations:
$
0.01

 
$
0.02

 
$
0.04

 
$
0.04

Total attributable to common shareholders:
$
0.18

 
$
0.20

 
$
0.40

 
$
0.41

Weighted average diluted common shares outstanding
83,519,939

 
83,260,383

 
83,391,057

 
83,111,228


 See accompanying notes to consolidated financial statements.

2


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Net income attributable to the Company
$
16,398

 
$
17,610

 
$
34,439

 
$
36,393

Other comprehensive income/ (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain/ (loss) on securities available-for-sale
6,210

 
(4,317
)
 
15,298

 
(1,986
)
Reclassification adjustment for net realized gain/ (loss) included in net income
157

 
4

 
158

 
9

Net unrealized gain/ (loss) on securities available-for-sale
6,053

 
(4,321
)
 
15,140

 
(1,995
)
Unrealized gain/ (loss) on cash flow hedges
(352
)
 
83

 
(1,498
)
 
(1,017
)
Reclassification adjustment for net realized gain/ (loss) included in net income
(266
)
 
(593
)
 
(512
)
 
(1,184
)
Net unrealized gain/ (loss) on cash flow hedges
(86
)
 
676

 
(986
)
 
167

Net unrealized gain/ (loss) on other

 

 

 

Other comprehensive income/ (loss), net of tax
5,967

 
(3,645
)
 
14,154

 
(1,828
)
Total comprehensive income attributable to the Company, net
$
22,365

 
$
13,965

 
$
48,593

 
$
34,565

 See accompanying notes to consolidated financial statements.


3


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings/
(Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Income/
(Loss)
 
Non-
controlling
Interests
 
Total
 
(In thousands, except share data)
Balance, December 31, 2014
$
47,753

 
$
82,962

 
$
610,903

 
$
(37,396
)
 
$
(697
)
 
$
386

 
$
703,911

Net income attributable to the Company

 

 

 
36,393

 

 

 
36,393

Other comprehensive income/ (loss), net

 

 

 

 
(1,828
)
 

 
(1,828
)
Dividends paid to common shareholders: $0.18 per share

 

 
(14,882
)
 

 

 

 
(14,882
)
Dividends paid to preferred shareholders

 

 
(1,738
)
 

 

 

 
(1,738
)
Net change in noncontrolling interests

 

 

 

 

 
2,510

 
2,510

Net proceeds from issuance of:
 
 
 
 
 
 
 
 
 
 
 
 
 
59,315 shares of common stock

 
59

 
620

 

 

 

 
679

622,523 shares of incentive stock grants, net of 132,067 shares canceled or forfeited and 100,148 shares withheld for employee taxes

 
390

 
(1,638
)
 

 

 

 
(1,248
)
Amortization of stock compensation and employee stock purchase plan

 

 
4,399

 

 

 

 
4,399

Stock options exercised

 
129

 
896

 

 

 

 
1,025

Tax benefit/ (deficiency) from certain stock compensation awards

 

 
95

 

 

 

 
95

Other equity adjustments

 

 
(1,231
)
 

 

 

 
(1,231
)
Balance at June 30, 2015
$
47,753

 
$
83,540

 
$
597,424

 
$
(1,003
)
 
$
(2,525
)
 
$
2,896

 
$
728,085

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2015
$
47,753

 
$
83,411

 
$
600,670

 
$
12,886

 
$
(1,500
)
 
$
3,393

 
$
746,613

Net income attributable to the Company

 

 

 
34,439

 

 

 
34,439

Other comprehensive income/ (loss), net

 

 

 

 
14,154

 

 
14,154

Dividends paid to common shareholders:
$0.20 per share

 

 

 
(16,602
)
 

 

 
(16,602
)
Dividends paid to preferred shareholders

 

 

 
(1,738
)
 

 

 
(1,738
)
Net change in noncontrolling interests

 

 

 

 

 
(14
)
 
(14
)
Repurchase of 399,442 shares of common stock

 
(399
)
 
(4,096
)
 

 

 

 
(4,495
)
Net proceeds from issuance of:
 
 
 
 
 
 
 
 
 
 
 
 
 
76,611 shares of common stock

 
76

 
662

 

 

 

 
738

587,628 shares of incentive stock grants, net of 303,583 shares canceled or forfeited and 63,235 shares withheld for employee taxes

 
221

 
(959
)
 

 

 

 
(738
)
Amortization of stock compensation and employee stock purchase plan

 

 
372

 

 

 

 
372

Stock options exercised

 
71

 
458

 

 

 

 
529

Tax benefit/ (deficiency) from certain stock compensation awards

 

 
(749
)
 

 

 

 
(749
)
Other equity adjustments

 

 
1,631

 

 

 

 
1,631

Balance at June 30, 2016
$
47,753

 
$
83,380

 
$
597,989

 
$
28,985

 
$
12,654

 
$
3,379

 
$
774,140


See accompanying notes to consolidated financial statements.

4


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 
Six months ended June 30,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to the Company
$
34,439

 
$
36,393

Adjustments to arrive at net income from continuing operations
 
 
 
Net income attributable to noncontrolling interests
1,900

 
2,492

Less: Net income from discontinued operations
(3,310
)
 
(3,640
)
Net income from continuing operations
33,029

 
35,245

Adjustments to reconcile net income from continuing operations to net cash provided by/ (used in) operating activities:
 
 
 
Depreciation and amortization
10,927

 
11,391

Net income attributable to noncontrolling interests
(1,900
)
 
(2,492
)
Equity issued as compensation, net of cancellations
372

 
4,399

Provision/ (credit) for loan losses
(5,668
)
 
(2,500
)
Loans originated for sale
(39,923
)
 
(89,008
)
Proceeds from sale of loans held for sale
43,724

 
77,260

Deferred income tax expense/ (benefit)
4,624

 
1,300

Net decrease/ (increase) in other operating activities
(3,472
)
 
(20,254
)
Net cash provided by/ (used in) operating activities of continuing operations
41,713

 
15,341

Net cash provided by/ (used in) operating activities of discontinued operations
3,310

 
3,640

Net cash provided by/ (used in) operating activities
45,023

 
18,981

Cash flows from investing activities:
 
 
 
Available-for-sale investment securities:
 
 
 
Purchases
(196,651
)
 
(274,333
)
Sales
29,132

 
5,835

Maturities, calls, redemptions, and principal payments
82,420

 
99,747

Held-to-maturity investment securities:
 
 
 
Purchases

 

Principal payments
10,698

 
12,061

(Investments)/ distributions in trusts, net
(392
)
 
(365
)
(Purchase)/ redemption of Federal Home Loan Banks stock
(9,193
)
 
(3,387
)
Net (increase)/ decrease in portfolio loans
(37,832
)
 
(194,290
)
Proceeds from recoveries of loans previously charged-off
5,956

 
5,025

Proceeds from sale of OREO
958

 

Capital expenditures, net of sale proceeds
(5,053
)
 
(2,489
)
Net cash provided by/ (used in) investing activities of continuing operations
(119,957
)
 
(352,196
)
Net cash provided by/ (used in) investing activities
(119,957
)
 
(352,196
)
(Continued)
 
 
 

5


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 
Six months ended June 30,
 
2016
 
2015
Cash flows from financing activities:
 
 
 
Net increase/ (decrease) in deposits, excluding transfer to Deposits held for sale
(393,787
)
 
(24,851
)
Net increase/ (decrease) in securities sold under agreements to repurchase
(14,911
)
 
(3,836
)
Net increase/ (decrease) in federal funds purchased
180,000

 
100,000

Net increase/ (decrease) in short-term Federal Home Loan Bank borrowings
235,000

 
120,000

Advances of long-term Federal Home Loan Bank borrowings
47,434

 
67,636

Repayments of long-term Federal Home Loan Bank borrowings
(65,746
)
 
(16,257
)
Dividends paid to common shareholders
(16,602
)
 
(14,882
)
Dividends paid to preferred shareholders
(1,738
)
 
(1,738
)
Repurchase of common stock
(4,495
)
 

Tax benefit/ (deficiency) from certain stock compensation awards
(749
)
 
95

Proceeds from stock option exercises
529

 
1,025

Proceeds from issuance of common stock, net

 
(569
)
Distributions paid to noncontrolling interests
(1,844
)
 
(2,405
)
Other equity adjustments
(684
)
 
(513
)
Net cash provided by/ (used in) financing activities of continuing operations
(37,593
)
 
223,705

Net cash provided by/ (used in) financing activities
(37,593
)
 
223,705

Net increase/ (decrease) in cash and cash equivalents
(112,527
)
 
(109,510
)
Cash and cash equivalents at beginning of year
238,694

 
172,609

Cash and cash equivalents at end of period
$
126,167

 
$
63,099

Supplementary schedule of non-cash investing and financing activities:
 
 
 
Cash paid for interest
$
13,646

 
$
13,627

Cash paid for income taxes, net of (refunds received)
20,834

 
23,038

Change in unrealized gain/ (loss) on available-for-sale securities, net of tax
15,140

 
(1,995
)
Change in unrealized gain/ (loss) on cash flow hedges, net of tax
(986
)
 
167

Change in unrealized gain/ (loss) on other, net of tax

 

Non-cash transactions:
 
 
 
Loans transferred into other real estate owned from loan portfolio
1,944

 

Loans charged-off
(3,035
)
 
(112
)
Premises and equipment transferred into/ (out of) other assets held for sale
891

 

Deposits transferred into/ (out of) held for sale
110,558

 


See accompanying notes to consolidated financial statements.


6

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements



1.     Basis of Presentation and Summary of Significant Accounting Policies
Boston Private Financial Holdings, Inc. (the “Company” or “BPFH”), is a bank holding company (the “Holding Company”) with four reportable segments: Private Banking, Wealth Management and Trust, Investment Management, and Wealth Advisory.
The Private Banking segment is comprised of the banking operations of Boston Private Bank & Trust Company (the “Bank” or “Boston Private Bank”), a trust company chartered by The Commonwealth of Massachusetts, insured by the Federal Deposit Insurance Corporation (the “FDIC”), and a wholly-owned subsidiary of the Company. Boston Private Bank currently operates in three geographic markets: New England, San Francisco Bay Area, and Southern California.
In June 2016, the Bank entered into a definitive agreement to sell two of its offices in the Southern California market, located in Granada Hills and Burbank, California. Certain assets identified as part of the sale are included in assets held for sale, which is included in other assets on the consolidated balance sheet as of June 30, 2016. Certain deposits identified as part of the sale are included in deposits held for sale on the consolidated balance sheet as of June 30, 2016.
The Wealth Management and Trust segment is comprised of the operations of Boston Private Wealth LLC (“Boston Private Wealth”), a wholly-owned subsidiary of Boston Private Bank, and the trust operations of Boston Private Bank. The segment offers investment management, wealth management, family office, and trust services to individuals, families, and institutions. The Wealth Management and Trust segment operates in New England; South Florida; Texas; California; Madison, Wisconsin; and the Washington, D.C. area.
The Investment Management segment has two consolidated affiliates, consisting of Dalton, Greiner, Hartman, Maher & Co., LLC (“DGHM”) and Anchor Capital Advisors, LLC (“Anchor”) (together, the “Investment Managers”).
The Wealth Advisory segment has two consolidated affiliates, consisting of KLS Professional Advisors Group, LLC (“KLS”) and Bingham, Osborn & Scarborough, LLC (“BOS”) (together, the “Wealth Advisors” and, together with the Wealth Management and Trust and Investment Management segments, the “Wealth and Investment businesses”).
The Company conducts substantially all of its business through its four reportable segments. All significant intercompany accounts and transactions have been eliminated in consolidation.
The unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), and include all necessary adjustments of a normal recurring nature which, in the opinion of management, are required for a fair presentation of the results of operations and financial condition of the Company. The interim results of consolidated operations are not necessarily indicative of the results for the entire year.
The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission (“SEC”). Prior period amounts are reclassified whenever necessary to conform to the current period presentation.
The Company’s significant accounting policies are described in Part II. Item 8. “Financial Statements and Supplementary Data - Note 1: Basis of Presentation and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC. For interim reporting purposes, the Company follows the same significant accounting policies.


2.    Earnings Per Share
The treasury stock method of calculating earnings per share (“EPS”) is presented below for the three and six months ended June 30, 2016 and 2015. The following tables present the computations of basic and diluted EPS:

7

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
(In thousands, except share and per share data)
 
Basic earnings per share - Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
16,142

 
$
17,327

 
$
33,029

 
$
35,245

Less: Net income attributable to noncontrolling interests
989

 
1,263

 
1,900

 
2,492

Net income from continuing operations attributable to the Company
15,153

 
16,064

 
31,129

 
32,753

Decrease/ (increase) in noncontrolling interests’ redemption values (1)
(101
)
 
(157
)
 
479

 
(251
)
Dividends on preferred stock
(869
)
 
(869
)
 
(1,738
)
 
(1,738
)
Total adjustments to income attributable to common shareholders (2)
(970
)
 
(1,026
)
 
(1,259
)
 
(1,989
)
Net income from continuing operations attributable to common shareholders, treasury stock method (2)
14,183

 
15,038

 
29,870

 
30,764

Net income from discontinued operations (2)
1,245

 
1,546

 
3,310

 
3,640

Net income attributable to common shareholders, treasury stock method (2)
$
15,428

 
$
16,584

 
$
33,180

 
$
34,404

 
 
 
 
 
 
 
 
Basic earnings per share - Denominator:
 
 
 
 
 
 
 
Weighted average basic common shares outstanding
81,236,809

 
80,778,562

 
81,269,154

 
80,647,191

Per share data - Basic earnings per share from:
 
 
 
 
 
 
 
Continuing operations
$
0.17

 
$
0.19

 
$
0.37

 
$
0.38

Discontinued operations
$
0.02

 
$
0.02

 
$
0.04

 
$
0.05

Total attributable to common shareholders
$
0.19

 
$
0.21

 
$
0.41

 
$
0.43



 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
(In thousands, except share and per share data)
 
 
 
 
 
 
 
Diluted earnings per share - Numerator:
 
 
 
 
 
 
 
Net income from continuing operations attributable to common shareholders, after assumed dilution (2)
$
14,183

 
$
15,038

 
$
29,870

 
$
30,764

Net income from discontinued operations
1,245

 
1,546

 
3,310

 
3,640

Net income attributable to common shareholders, after assumed dilution
$
15,428

 
$
16,584

 
$
33,180

 
$
34,404

Diluted earnings per share - Denominator:
 
 
 
 
 
 
 
Weighted average basic common shares outstanding
81,236,809

 
80,778,562

 
81,269,154

 
80,647,191

Dilutive effect of:
 
 
 
 
 
 
 
Stock options and performance-based and time-based restricted stock (2),(3)
1,058,425

 
1,231,478

 
1,019,488

 
1,249,729

Warrants to purchase common stock (3)
1,224,705

 
1,250,343

 
1,102,415

 
1,214,308

Dilutive common shares
2,283,130

 
2,481,821

 
2,121,903

 
2,464,037

Weighted average diluted common shares outstanding (2), (3)
83,519,939

 
83,260,383

 
83,391,057

 
83,111,228

Per share data - Diluted earnings per share from:
 
 
 
 
 
 
 
Continuing operations
$
0.17

 
$
0.18

 
$
0.36

 
$
0.37

Discontinued operations
$
0.01

 
$
0.02

 
$
0.04

 
$
0.04

Total attributable to common shareholders
$
0.18

 
$
0.20

 
$
0.40

 
$
0.41

Dividends per share declared and paid on common stock
$
0.10

 
$
0.09

 
$
0.20

 
$
0.18

_____________________
(1)
See Part II. Item 8. “Financial Statements and Supplementary Data—Note 14: Noncontrolling Interests” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for a description of the redemption values related to the redeemable noncontrolling interests. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”), an increase in redemption value from period to period reduces income attributable to common shareholders. Decreases in redemption

8

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

value from period to period increase income attributable to common shareholders, but only to the extent that the cumulative change in redemption value remains a cumulative increase since adoption of this standard in the first quarter of 2009.
(2)
The Company presents its EPS based on the treasury stock method. The Company reverted to the treasury stock presentation from the two-class presentation due to the immaterial number of participating shares outstanding as of March 31, 2016. If the EPS presentation had been based on the two-class method, the following adjustments would have been made to the presentation of EPS for the three and six months ended June 30, 2016. Net income attributable to common shareholders would have been reduced by an additional $4 thousand, for the six months ended June 30, 2016, and the allocation of net income to participating securities would have been $1 thousand and $6 thousand, for the three and six months ended June 30, 2016, respectively, reducing net income attributable to common shareholders by a total of $1 thousand and $10 thousand, for the three and six months ended June 30, 2016, respectively. Basic EPS would not change. Weighted average diluted shared outstanding would have been reduced by 3,847 shares and 19,522 shares for the three and six months ended June 30, 2016, respectively. Diluted EPS would not change.
If the EPS presentation had been based on the two-class method, the following adjustments would have been made to the presentation of EPS for the three and six months ended June 30, 2015. Net income attributable to common shareholders would have been reduced by an additional $38 thousand and $80 thousand, for the three and six months ended June 30, 2015, respectively, and the allocation of net income to participating securities would have been $33 thousand and $92 thousand, for the three and six months ended June 30, 2015, respectively, reducing net income attributable to common shareholders by a total of $71 thousand and $172 thousand, for the three and six months ended June 30, 2015, respectively. Basic EPS would decrease by $0.01 per share for both the three and six months ended June 30, 2015. Weighted average diluted shared outstanding would have been reduced by 221,902 shares and 282,399 shares, for the three and six months ended June 30, 2015, respectively. Diluted EPS would not change.
(3)
The diluted EPS computations for the three and six months ended June 30, 2016 and 2015 do not assume the conversion, exercise, or contingent issuance of the following shares for the following periods because the result would have been anti-dilutive for the periods indicated. As a result of the anti-dilution, the potential common shares excluded from the diluted EPS computation are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Shares excluded due to exercise price exceeding the average market price of common shares during the period (total outstanding):
(In thousands)
Potential common shares from:
 
 
 
 
 
 
 
Stock options, restricted stock, or other dilutive securities
315

 
538

 
243

 
585

Total shares excluded due to exercise price exceeding the average market price of common shares during the period
315

 
538

 
243

 
585


3.    Reportable segments
Management Reporting
The Company has four reportable segments (Private Banking, Wealth Management and Trust, Investment Management, and Wealth Advisory) and the Holding Company (Boston Private Financial Holdings, Inc.). The financial performance of the Company is managed and evaluated by these four areas. The segments are managed separately as a result of the concentrations in each function.
Measurement of Segment Profit and Assets
The accounting policies of the segments are the same as those described in Part II. Item 8. “Financial Statements and Supplementary Data - Note 1: Basis of Presentation and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
Revenues, expenses, and assets are recorded by each segment, and separate financial statements are reviewed by their management and the Company’s segment chief executive officers.

9

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

Reconciliation of Reportable Segment Items
The following tables present a reconciliation of the revenues, profits, assets, and other significant items of reportable segments as of and for the three and six months ended June 30, 2016 and 2015. Interest expense on junior subordinated debentures is reported at the Holding Company.
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Private Banking
(In thousands)
Net interest income
$
49,713

 
$
46,017

 
$
100,133

 
$
93,007

Fees and other income
2,227

 
3,437

 
5,605

 
6,221

Total revenues
51,940

 
49,454

 
105,738

 
99,228

Provision/ (credit) for loan losses
(2,535
)
 

 
(5,668
)
 
(2,500
)
Operating expense
32,093

 
28,281

 
63,368

 
57,086

Income before income taxes
22,382

 
21,173

 
48,038

 
44,642

Income tax expense
7,038

 
6,848

 
15,412

 
14,616

Net income from continuing operations
15,344

 
14,325

 
32,626

 
30,026

Net income attributable to the Company
$
15,344

 
$
14,325

 
$
32,626

 
$
30,026

 
 
 
 
 
 
 
 
Assets
$
7,417,465

 
$
6,860,288

 
$
7,417,465

 
$
6,860,288

Amortization of intangibles
$

 
$
45

 
$

 
$
91

Depreciation
$
1,125

 
$
1,159

 
$
2,271

 
$
2,364

 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Wealth Management and Trust
(In thousands)
Fees and other income
$
11,300

 
$
14,647

 
$
22,356

 
$
28,604

Operating expense (1)
13,738

 
12,777

 
29,590

 
25,108

Income/ (loss) before income taxes
(2,438
)
 
1,870

 
(7,234
)
 
3,496

Income tax expense/ (benefit)
(970
)
 
806

 
(2,909
)
 
1,500

Net income/ (loss) from continuing operations
(1,468
)
 
1,064

 
(4,325
)
 
1,996

Net income/ (loss) attributable to the Company
$
(1,468
)
 
$
1,064

 
$
(4,325
)
 
$
1,996

 
 
 
 
 
 
 
 
Assets
$
86,397

 
$
78,480

 
$
86,397

 
$
78,480

Amortization of intangibles
$
745

 
$
624

 
$
1,490

 
$
1,195

Depreciation
$
269

 
$
194

 
$
500

 
$
381


10

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Investment Management
(In thousands)
Net interest income
$
4

 
$
5

 
$
8

 
$
11

Fees and other income
10,646

 
11,739

 
21,305

 
23,461

Total revenues
10,650

 
11,744

 
21,313

 
23,472

Operating expense
7,895

 
8,544

 
15,919

 
17,230

Income before income taxes
2,755

 
3,200

 
5,394

 
6,242

Income tax expense
898

 
1,040

 
1,777

 
2,042

Net income from continuing operations
1,857

 
2,160

 
3,617

 
4,200

Noncontrolling interests
469

 
620

 
946

 
1,257

Net income attributable to the Company
$
1,388

 
$
1,540

 
$
2,671

 
$
2,943

 
 
 
 
 
 
 
 
Assets
$
93,975

 
$
100,029

 
$
93,975

 
$
100,029

Amortization of intangibles
$
651

 
$
739

 
$
1,301

 
$
1,478

Depreciation
$
74

 
$
70

 
$
147

 
$
140

 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Wealth Advisory
(In thousands)
Net interest income
$
4

 
$
2

 
$
7

 
$
4

Fees and other income
12,579

 
12,708

 
25,321

 
25,415

Total revenues
12,583

 
12,710

 
25,328

 
25,419

Operating expense
9,171

 
8,720

 
18,865

 
17,852

Income before income taxes
3,412

 
3,990

 
6,463

 
7,567

Income tax expense
1,266

 
1,483

 
2,414

 
2,804

Net income from continuing operations
2,146

 
2,507

 
4,049

 
4,763

Noncontrolling interests
520

 
643

 
954

 
1,231

Net income attributable to the Company
$
1,626

 
$
1,864

 
$
3,095

 
$
3,532

 
 
 
 
 
 
 
 
Assets
$
76,370

 
$
76,847

 
$
76,370

 
$
76,847

Amortization of intangibles
$
190

 
$
247

 
$
381

 
$
493

Depreciation
$
220

 
$
216

 
$
435

 
$
427


11

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Holding Company and Eliminations
(In thousands)
Net interest income
$
(552
)
 
$
(939
)
 
$
(1,100
)
 
$
(1,865
)
Fees and other income
43

 
129

 
230

 
304

Total revenues
(509
)
 
(810
)
 
(870
)
 
(1,561
)
Operating expense
1,834

 
4,096

 
3,698

 
8,569

Income/ (loss) before income taxes
(2,343
)
 
(4,906
)
 
(4,568
)
 
(10,130
)
Income tax expense/ (benefit)
(606
)
 
(2,177
)
 
(1,630
)
 
(4,390
)
Net income/ (loss) from continuing operations
(1,737
)
 
(2,729
)
 
(2,938
)
 
(5,740
)
Noncontrolling interests

 

 

 
4

Discontinued operations
1,245

 
1,546

 
3,310

 
3,640

Net income/ (loss) attributable to the Company
$
(492
)
 
$
(1,183
)
 
$
372

 
$
(2,104
)
 
 
 
 
 
 
 
 
Assets
$
(94,606
)
 
$
(69,705
)
 
$
(94,606
)
 
$
(69,705
)
Depreciation
$
10

 
$
13

 
$
21

 
$
44

 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Total Company
(In thousands)
Net interest income
$
49,169

 
$
45,085

 
$
99,048

 
$
91,157

Fees and other income
36,795

 
42,660

 
74,817

 
84,005

Total revenues
85,964

 
87,745

 
173,865

 
175,162

Provision/ (credit) for loan losses
(2,535
)
 

 
(5,668
)
 
(2,500
)
Operating expense
64,731

 
62,418

 
131,440

 
125,845

Income before income taxes
23,768

 
25,327

 
48,093

 
51,817

Income tax expense
7,626

 
8,000

 
15,064

 
16,572

Net income from continuing operations
16,142

 
17,327

 
33,029

 
35,245

Noncontrolling interests
989

 
1,263

 
1,900

 
2,492

Discontinued operations
1,245

 
1,546

 
3,310

 
3,640

Net income attributable to the Company
$
16,398

 
$
17,610

 
$
34,439

 
$
36,393

 
 
 
 
 
 
 
 
Assets
$
7,579,601

 
$
7,045,939

 
$
7,579,601

 
$
7,045,939

Amortization of intangibles
$
1,586

 
$
1,655

 
$
3,172

 
$
3,257

Depreciation
$
1,698

 
$
1,652

 
$
3,374

 
$
3,356

____________
(1)
Operating expense includes $0.9 million and $2.0 million of restructuring expense for the three and six months ended June 30, 2016, respectively, related to the Wealth Management and Trust segment. Operating expense includes $0.2 million of restructuring expenses for both the three and six months ended June 30, 2015 related to the Wealth Management and Trust segment.




12

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

4.    Investments
The following table presents a summary of investment securities:
 
Amortized
Cost
 
Unrealized
 
Fair
Value
Gains
 
Losses
 
(In thousands)
As of June 30, 2016
 
 
 
 
 
 
 
Available-for-sale securities at fair value:
 
 
 
 
 
 
 
U.S. government and agencies
$
40,822

 
$
920

 
$
(5
)
 
$
41,737

Government-sponsored entities
335,632

 
7,578

 

 
343,210

Municipal bonds
265,507

 
10,877

 
(68
)
 
276,316

Mortgage-backed securities (1)
503,993

 
7,145

 
(1,109
)
 
510,029

Other
19,952

 
288

 
(9
)
 
20,231

Total
$
1,165,906

 
$
26,808

 
$
(1,191
)
 
$
1,191,523

 
 
 
 
 
 
 
 
Held-to-maturity securities at amortized cost:
 
 
 
 
 
 
 
Mortgage-backed securities (1)
$
105,297

 
$
2,092

 
$

 
$
107,389

Total
$
105,297

 
$
2,092

 
$

 
$
107,389

 
 
 
 
 
 
 
 
As of December 31, 2015
 
 
 
 
 
 
 
Available-for-sale securities at fair value:
 
 
 
 
 
 
 
U.S. government and agencies
$
21,214

 
$
64

 
$
(27
)
 
$
21,251

Government-sponsored entities
345,033

 
874

 
(1,345
)
 
344,562

Municipal bonds
263,661

 
5,099

 
(116
)
 
268,644

Mortgage-backed securities (1)
431,446

 
1,329

 
(5,734
)