REPORTABLE SEGMENTS

Management Reporting

The Company has three reportable segments: Private Banking, Investment Management, and Wealth Advisory, and the Parent Company (Boston Private Financial Holdings, Inc.) (the “Holding Company”). The financial performance of the Company is managed and evaluated by these three areas. The segments are managed separately as a result of the concentrations in each function.

The Company’s Segment Chief Executive Officers (“CEOs”) manage the segments and have full authority and responsibility for the performance and the allocation of resources within their respective segments. The Company’s CEO is the Company’s Chief Operating Decision Maker (“CODM”). The Segment CEO for the Private Banking segment reports to the Company’s CEO. The Company’s CEO is also the Segment CEO for both the Wealth Advisory and Investment Management segments (the “non-banks”). The Company also has a Bank Segment Chief Financial Officer (“CFO”) and a non-bank Segment Controller who provide financial support to the Segment CEOs.

Under the current management structure, day to day activities of the non-bank affiliates are managed by the affiliate CEOs. There is only one affiliate within the Bank Segment so the affiliate Bank CEO and the Bank Segment CEO are one and the same. The Segment CEOs have authority with respect to the allocation of capital within their segments, management oversight responsibility, performance assessments, and overall authority and accountability for all of the affiliates, if any, within their segment. The Segment CEO for the non-banks communicates with the affiliate CEOs regarding profit and loss responsibility, strategic planning, priority setting and other matters. The Bank CFO and the non-banking Segment Controller review the affiliate financial detail with the relevant Segment CEOs. The Holding Company’s CFO reviews all affiliate financial detail with the CODM on a monthly basis.

Description of Reportable Segments

Private Banking

The Private Banking segment operates primarily in three geographic markets: New England, San Francisco Bay, and Southern California.

The Bank currently conducts business under the name of Boston Private Bank & Trust Company in all markets. The Bank is chartered by The Commonwealth of Massachusetts and is insured by the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is principally engaged in providing wealth management and private banking services to high net worth individuals, privately owned businesses, private partnerships, and nonprofit organizations. In addition, the Bank is an active provider of financing for affordable housing, first-time homebuyers, economic development, social services, community revitalization and small businesses.

Investment Management

The Investment Management segment has two consolidated affiliates, including DGHM and Anchor, both of which are registered investment advisers. The Investment Managers serve the needs of pension funds, endowments, trusts, foundations and select institutions, mutual funds and high net worth individuals and their families throughout the U.S. and abroad. The Investment Managers specialize in value-driven equity portfolios with products across the capitalization spectrum. The specific mix of products, services and clientele varies between affiliates. The Investment Managers are located in New England and New York, with one affiliate administrative office in South Florida.

Wealth Advisory

The Wealth Advisory segment has two consolidated affiliates, including KLS and BOS, both of which are registered investment advisers and wealth management firms. The Wealth Advisors provide comprehensive, planning-based financial strategies to high net worth individuals and their families, and non-profit institutions. The services the firms offer include fee-only financial planning, tax planning, tax preparation, estate and insurance planning, retirement planning, charitable planning and intergenerational gifting and succession planning. The Wealth Advisors manage investments covering a wide range of asset classes for both taxable and tax-exempt portfolios. The Wealth Advisors are located in New York, Southern California and Northern California. In the second quarter of 2012, the Company sold its affiliate DTC. Accordingly, prior period and current financial information related to DTC is included with discontinued operations.

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.”

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 year ended December 31, 2013, 2012, and 2011. Interest expense on junior subordinated debentures is reported at the Holding Company.



	For the year ended December 31,
	Net interest income									Non-interest income (3)									Total revenues
	2013			2012			2011			2013			2012			2011			2013			2012			2011
	(In thousands)
Total Bank(s) (1)	$	178,199		$	189,260		$	186,006		$	49,001		$	34,368		$	39,208		$	227,200		$	223,628		$	225,214
Total Investment Managers	20			31			74			43,875			39,201			39,802			43,895			39,232			39,876
Total Wealth Advisors (2)	66			26			27			42,350			37,647			34,553			42,416			37,673			34,580
Total Segments	178,285			189,317			186,107			135,226			111,216			113,563			313,511			300,533			299,670
Holding Company and Eliminations	(4,267		)	(6,041		)	(7,153		)	1,115			3,750			5,348			(3,152		)	(2,291		)	(1,805		)
Total Company	$	174,018		$	183,276		$	178,954		$	136,341		$	114,966		$	118,911		$	310,359		$	298,242		$	297,865

	For the year ended December 31,
	Non-interest expense (4)									Income tax expense/ (benefit) (5)									Net income/ (loss) from continuing operations
	2013			2012			2011			2013			2012			2011			2013			2012			2011
	(In thousands)
Total Bank(s) (1)	$	139,876		$	149,815		$	152,238		$	32,696		$	25,901		$	19,697		$	64,628		$	51,212		$	40,119
Total Investment Managers	33,195			31,359			31,181			3,493			2,688			2,803			7,207			5,185			5,892
Total Wealth Advisors (2)	29,588			28,001			25,193			4,807			3,561			3,439			8,021			6,111			5,948
Total Segments	202,659			209,175			208,612			40,996			32,150			25,939			79,856			62,508			51,959
Holding Company and Eliminations	18,701			23,279			25,712			(8,688		)	(11,820		)	(11,659		)	(13,165		)	(13,750		)	(15,858		)
Total Company	$	221,360		$	232,454		$	234,324		$	32,308		$	20,330		$	14,280		$	66,691		$	48,758		$	36,101



	For the year ended December 31,
	Net income from continuing operations attributable to noncontrolling interests						Net income/ (loss) attributable to the Company (6)									Amortization of intangibles
	2013		2012		2011		2013			2012			2011			2013		2012		2011
	(In thousands)
Total Bank(s) (1)	$	—	$	—	$	—	$	64,628		$	51,212		$	40,119		$	277	$	133	$	404
Total Investment Managers	2,164		1,599		1,727		5,043			3,586			4,165			3,058		3,201		3,319
Total Wealth Advisors (2)	1,784		1,523		1,421		6,237			4,588			4,527			992		1,035		1,077
Total Segments	3,948		3,122		3,148		75,908			59,386			48,811			4,327		4,369		4,800
Holding Company and Eliminations	—		—		—		(5,373		)	(6,115		)	(9,674		)	—		—		—
Total Company	$	3,948	$	3,122	$	3,148	$	70,535		$	53,271		$	39,137		$	4,327	$	4,369	$	4,800



	For the year ended December 31,						As of December 31,
	Depreciation						Assets						AUM
	2013		2012		2011		2013		2012		2011		2013			2012			2011
	(In thousands)						(In thousands)						(In millions)
Total Bank(s) (1)	$	5,456	$	5,772	$	5,438	$	6,251,087	$	6,269,390	$	5,843,089	$	4,565		$	3,941		$	3,571
Total Investment Managers	221		247		250		100,609		102,843		105,629		10,401			8,444			7,594
Total Wealth Advisors (2)	363		360		358		73,972		66,869		70,086		9,336			8,052			6,994
Total Segments	6,040		6,379		6,046		6,425,668		6,439,102		6,018,804		24,302			20,437			18,159
Holding Company and Eliminations	195		191		190		11,441		25,903		30,568		(22		)	(20		)	(19		)
Total Company	$	6,235	$	6,570	$	6,236	$	6,437,109	$	6,465,005	$	6,049,372	$	24,280		$	20,417		$	18,140

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(1)	In the second quarter of 2011, the Company merged its four Private Banking affiliates into one bank operating under the charter of Boston Private Bank. See Part II. Item 8. “Financial Statements and Supplementary Data-Note 2: Restructuring” for additional details.


(2)	In the second quarter of 2012, the Company sold its Wealth Advisory affiliate, DTC. Accordingly, current and prior period results for DTC have been reclassified into discontinued operations and are included with Holding Company and Eliminations in the tables above.


(3)	Included in Private Banking non-interest income for the year ended December 31, 2013 is the $10.6 million gain on sale of the Bank’s three offices in the Pacific Northwest.

(4)

Non-interest expense for 2013 includes no restructuring expenses. Non-interest expense for 2012 includes $5.9 million of restructuring expenses; restructuring expenses incurred by the Private Banking segment amounted to $4.0 million, with the remaining $1.9 million incurred by the Holding Company. Non-interest expense for 2011 includes $8.1 million of restructuring expenses; restructuring expenses incurred by the Private Banking segment amounted to $5.5 million, with the remaining $2.6 million incurred by the Holding Company.

(5)

The Company’s effective tax rate for 2013, 2012, and 2011 are not consistent due to earnings from tax-exempt investments, non-deductible compensation, state and local taxes, income tax credits and income attributable to noncontrolling interests having a different impact on the effective tax rate due primarily to the different levels of income before taxes in years 2013, 2012, and 2011. See Part II. Item 8. “Financial Statements and Supplementary Data - Note 17: Income Taxes” for additional details.


(6)	Net income from discontinued operations for the years ended December 31, 2013, 2012 and 2011 of $7.8 million, $7.6 million, and $6.2 million, respectively, are included in Holding Company and Eliminations in the calculation of net income attributable to the Company.