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 the Bank and the operations of Boston Private Wealth. 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; and Madison, Wisconsin.

Investment Management

The Investment Management segment currently has two consolidated affiliates, including DGHM and Anchor, both of which are registered investment advisers (“RIAs”). After the expected sale of Anchor in the first quarter of 2018, DGHM will be the only affiliate in the Investment Management segment. 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, 2017, 2016, and 2015. Interest expense on junior subordinated debentures is reported at the Holding Company.



	Year ended December 31,
	2017			2016			2015
Private Banking	(In thousands)
Net interest income	$	227,280		$	202,702		$	189,501
Fees and other income	10,856			18,947			11,352
Total revenues	238,136			221,649			200,853
Provision/ (credit) for loan losses	(7,669		)	(6,935		)	(1,555		)
Operating expense	149,008			125,116			116,575
Income before income taxes	96,797			103,468			85,833
Income tax expense (1)	43,356			33,120			27,844
Net income from continuing operations	53,441			70,348			57,989
Net income attributable to the Company	$	53,441		$	70,348		$	57,989

Assets	$	8,177,304		$	7,816,671		$	7,361,202
Amortization of intangibles	$	—		$	—		$	341
Depreciation	$	5,639		$	4,477		$	4,599



	Year ended December 31,
	2017			2016			2015
Wealth Management and Trust	(In thousands)
Fees and other income	$	45,813		$	44,401		$	53,336
Operating expense (2)	49,287			64,844			54,474
Income/ (loss) before income taxes	(3,474		)	(20,443		)	(1,138		)
Income tax expense / (benefit) (1)	(509		)	(8,279		)	(350		)
Net income/ (loss) from continuing operations	(2,965		)	(12,164		)	(788		)
Net income/ (loss) attributable to the Company	$	(2,965	)	$	(12,164	)	$	(788	)

Assets	$	74,128		$	80,501		$	80,088
Amortization of intangibles	$	2,882		$	2,962		$	2,428
Depreciation	$	1,331		$	1,145		$	772



	Year ended December 31,
	2017			2016		2015
Investment Management	(In thousands)
Net interest income	$	21		$	16	$	22
Fees and other income	45,551			44,443		45,687
Total revenues	45,572			44,459		45,709
Operating expense (3)	59,032			32,863		33,690
Income/ (loss) before income taxes	(13,460		)	11,596		12,019
Income tax expense (1)	3,811			3,789		3,956
Net income/ (loss) from continuing operations	(17,271		)	7,807		8,063
Noncontrolling interests	1,973			2,077		2,265
Net income/ (loss) attributable to the Company	$	(19,244	)	$	5,730	$	5,798

Assets	$	66,614		$	92,692	$	92,642
Amortization of intangibles	$	2,524		$	2,601	$	2,956
Depreciation	$	248		$	284	$	286



	Year ended December 31,
	2017		2016		2015
Wealth Advisory	(In thousands)
Net interest income	$	124	$	16	$	6
Fees and other income	52,636		50,686		50,558
Total revenues	52,760		50,702		50,564
Operating expense	35,753		34,791		35,379
Income before income taxes	17,007		15,911		15,185
Income tax expense (1)	6,418		6,084		5,819
Net income from continuing operations	10,589		9,827		9,366
Noncontrolling interests	2,495		2,080		2,138
Net income attributable to the Company	$	8,094	$	7,747	$	7,228

Assets	$	77,747	$	79,887	$	79,543
Amortization of intangibles	$	195	$	719	$	986
Depreciation	$	888	$	878	$	864



	Year ended December 31,
	2017			2016			2015
Holding Company and Eliminations	(In thousands)
Net interest income	$	(2,739	)	$	(2,296	)	$	(3,759	)
Fees and other income (4)	(890		)	310			236
Total revenues	(3,629		)	(1,986		)	(3,523		)
Operating expense	6,856			7,339			15,063
Income/ (loss) before income taxes	(10,485		)	(9,325		)	(18,586		)
Income tax expense/(benefit) (1)	(6,880		)	(3,751		)	(6,877		)
Net income/(loss) from continuing operations	(3,605		)	(5,574		)	(11,709		)
Noncontrolling interests	—			—			4
Discontinued operations (5)	4,870			5,541			6,411
Net income/(loss) attributable to the Company	$	1,265		$	(33	)	$	(5,302	)

Assets (including eliminations)	$	(84,049	)	$	(99,277	)	$	(70,967	)
Depreciation	$	—		$	54		$	69



	Year ended December 31,
	2017			2016			2015
Total Company	(In thousands)
Net interest income	$	224,686		$	200,438		$	185,770
Fees and other income	153,966			158,787			161,169
Total revenues	378,652			359,225			346,939
Provision/ (credit) for loan losses	(7,669		)	(6,935		)	(1,555		)
Operating expense	299,936			264,953			255,181
Income before income taxes	86,385			101,207			93,313
Income tax expense (1)	46,196			30,963			30,392
Net income from continuing operations	40,189			70,244			62,921
Noncontrolling interests	4,468			4,157			4,407
Discontinued operations (5)	4,870			5,541			6,411
Net income attributable to the Company	$	40,591		$	71,628		$	64,925

Assets	$	8,311,744		$	7,970,474		$	7,542,508
Amortization of intangibles	$	5,601		$	6,282		$	6,711
Depreciation	$	8,106		$	6,838		$	6,590

___________________

(1)

The Company’s effective tax rate for 2017, 2016, and 2015 is not consistent due to the re-measurement of the deferred tax assets, impairment of goodwill not deductible for tax purposes, 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 2017, 2016, and 2015. See Part II. Item 8. “Financial Statements and Supplementary Data - Note 17: Income Taxes” for additional details.


(2)	Operating expense related to the Wealth Management and Trust segment includes restructuring expenses of $2.0 million, and $3.7 million for the years ending December 31, 2016 and 2015 respectively, and a goodwill impairment charge of $9.5 million for the year ended December 31, 2016.


(3)	Operating expense related to the Investment Management Segment includes a goodwill impairment charge of $24.9 million for the year ended December 31, 2017.


(4)	Fees and other income for the Holding Company includes a loss on the sale of $1.3 million for the year ended December 31, 2017 related to the classification of Anchor as held for sale.


(5)	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, 2017, 2016 and 2015 of $4.9 million, $5.5 million, and $6.4 million, respectively.