REPORTABLE SEGMENTS

Management Reporting

The Company has four reportable segments: Private Banking, Wealth Management and Trust, 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 four 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 day to day activities of the affiliates are managed by the affiliate CEOs, except in the Private Banking segment. The Company’s CEO is also the Bank’s CEO. The president of the Bank is the Private Banking Segment CEO and reports to the Company CEO. 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 Holding Company’s Chief Financial Officer 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, the San Francisco Bay Area, 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 FDIC. The Bank is principally engaged in providing private banking services to high net worth individuals, privately owned businesses and 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.

Wealth Management and Trust

The Wealth Management and Trust segment is comprised of the trust operations of Boston Private Bank and the operations of Boston Private Wealth. Boston Private Wealth combines Boston Private Bank’s existing wealth management business and the business of Banyan, which Boston Private Bank purchased in the fourth quarter of 2014. 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; California; Madison, Wisconsin; and the Washington, D.C. area. For comparative purposes, the Wealth Management and Trust segment data that was previously included within the Private Banking segment has been stated separately for the periods presented in the table below. See Part II. Item 8. “Financial Statements and Supplementary Data - Note 3: Acquisitions, Asset Sales, and Divestitures” for additional details on the acquisition of Banyan.

Investment Management

The Investment Management segment has two consolidated affiliates, including DGHM and Anchor, both of which are registered investment advisers (“RIAs”). 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 RIAs 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.

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, 2016, 2015, and 2014. Interest expense on junior subordinated debentures is reported at the Holding Company.



	Year ended December 31,
	2016			2015			2014
Private Banking	(In thousands)
Net interest income	$	202,702		$	189,501		$	183,424
Fees and other income	18,947			11,352			10,617
Total revenues	221,649			200,853			194,041
Provision/ (credit) for loan losses	(6,935		)	(1,555		)	(6,400		)
Operating expense	125,116			116,575			111,901
Income before income taxes	103,468			85,833			88,540
Income tax expense (2)	33,120			27,844			29,032
Net income from continuing operations	70,348			57,989			59,508
Net income attributable to the Company	$	70,348		$	57,989		$	59,508

Assets	$	7,816,671		$	7,361,202		$	6,611,191
Amortization of intangibles	$	—		$	341		$	219
Depreciation	$	4,477		$	4,599		$	5,294



	Year ended December 31,
	2016			2015			2014
Wealth Management and Trust	(In thousands)
Fees and other income	$	44,401		$	53,336		$	34,584
Operating expense (1)	64,844			54,474			29,401
Income/ (loss) before income taxes	(20,443		)	(1,138		)	5,183
Income tax expense / (benefit) (2)	(8,279		)	(350		)	2,201
Net income/ (loss) from continuing operations	(12,164		)	(788		)	2,982
Net income/ (loss) attributable to the Company	$	(12,164	)	$	(788	)	$	2,982

Assets	$	80,501		$	80,088		$	80,467
Amortization of intangibles	$	2,962		$	2,428		$	676
Depreciation	$	1,145		$	772		$	241



	Year ended December 31,
	2016		2015		2014
Investment Management	(In thousands)
Net interest income	$	16	$	22	$	22
Fees and other income	44,443		45,687		47,119
Total revenues	44,459		45,709		47,141
Operating expense	32,863		33,690		34,848
Income before income taxes	11,596		12,019		12,293
Income tax expense (2)	3,789		3,956		4,078
Net income from continuing operations	7,807		8,063		8,215
Noncontrolling interests	2,077		2,265		2,519
Net income attributable to the Company	$	5,730	$	5,798	$	5,696

Assets	$	92,692	$	92,642	$	100,229
Amortization of intangibles	$	2,601	$	2,956	$	2,955
Depreciation	$	284	$	286	$	240



	Year ended December 31,
	2016		2015		2014
Wealth Advisory	(In thousands)
Net interest income	$	16	$	6	$	10
Fees and other income	50,686		50,558		48,199
Total revenues	50,702		50,564		48,209
Operating expense	34,791		35,379		33,213
Income before income taxes	15,911		15,185		14,996
Income tax expense (2)	6,084		5,819		5,653
Net income from continuing operations	9,827		9,366		9,343
Noncontrolling interests	2,080		2,138		2,189
Net income attributable to the Company	$	7,747	$	7,228	$	7,154

Assets	$	79,887	$	79,543	$	80,804
Amortization of intangibles	$	719	$	986	$	986
Depreciation	$	878	$	864	$	488



	Year ended December 31,
	2016			2015			2014
Holding Company and Eliminations	(In thousands)
Net interest income	$	(2,296	)	$	(3,759	)	$	(3,755	)
Fees and other income	310			236			279
Total revenues	(1,986		)	(3,523		)	(3,476		)
Operating expense	7,339			15,063			17,766
Income/ (loss) before income taxes	(9,325		)	(18,586		)	(21,242		)
Income tax expense/(benefit) (2)	(3,751		)	(6,877		)	(8,599		)
Net income/(loss) from continuing operations	(5,574		)	(11,709		)	(12,643		)
Noncontrolling interests	—			4			42
Discontinued operations (3)	5,541			6,411			6,160
Net income/(loss) attributable to the Company	$	(33	)	$	(5,302	)	$	(6,525	)

Assets	$	(99,277	)	$	(70,967	)	$	(74,817	)
Depreciation	$	54		$	69		$	205



	Year ended December 31,
	2016			2015			2014
Total Company	(In thousands)
Net interest income	$	200,438		$	185,770		$	179,701
Fees and other income	158,787			161,169			140,798
Total revenues	359,225			346,939			320,499
Provision/ (credit) for loan losses	(6,935		)	(1,555		)	(6,400		)
Operating expense	264,953			255,181			227,129
Income before income taxes	101,207			93,313			99,770
Income tax expense (2)	30,963			30,392			32,365
Net income from continuing operations	70,244			62,921			67,405
Noncontrolling interests	4,157			4,407			4,750
Discontinued operations	5,541			6,411			6,160
Net income attributable to the Company	$	71,628		$	64,925		$	68,815

Assets	$	7,970,474		$	7,542,508		$	6,797,874
Amortization of intangibles	$	6,282		$	6,711		$	4,836
Depreciation	$	6,838		$	6,590		$	6,468

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(1)	Operating expense related to the Wealth Management and Trust segment includes restructuring expenses of $2.0 million, $3.7 million, and $0.7 million for 2016, 2015, and 2014, respectively, and a goodwill impairment charge of $9.5 million in 2016.

(2)

The Company’s effective tax rate for 2016, 2015, and 2014 is 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 2016, 2015, and 2014. See Part II. Item 8. “Financial Statements and Supplementary Data - Note 17: Income Taxes” for additional details.


(3)	The Holding Company and Eliminations calculation of Net Income attributable to the Company includes net income from Discontinued Operations for the years ended December 31, 2016, 2015 and 2014 of $5.5 million, $6.4 million, and $6.2 million, respectively.