REPORTABLE SEGMENTS

Management Reporting

The Company has three reportable segments: Private Banking, Wealth Management and Trust, and Affiliate Partners, as well as 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 Company’s CEO is also the CEO of the Bank which comprises the Private Banking segment. The CEO of the Private Client Group oversees the Wealth Management & Trust segment and reports to the CEO of the Company. The day-to-day activities of the Company’s affiliates (within the Affiliate Partners segment) are managed by the affiliate CEOs. 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 within their segment. The Company’s CEO communicates with the affiliate CEOs regarding profit and loss responsibility, strategic planning, priority setting and other matters. The 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; Southeast Florida and California.

Affiliate Partners

The Affiliate Partners segment is comprised of DGHM and KLS, each of which are RIAs.

DGHM serves the needs of pension funds, endowments, trusts, foundations and select institutions, mutual funds and high net worth individuals and their families throughout the United States and abroad. DGHM specializes in value-driven equity portfolios with products across the capitalization spectrum. DGHM is located in New York, with one affiliate administrative office in South Florida.

KLS provides comprehensive, planning-based financial strategies to high net worth individuals and their families, and nonprofit institutions. The services the firm offers include fee-only financial planning, tax planning, tax preparation, estate and insurance planning, retirement planning, charitable planning and intergenerational gifting and succession planning. KLS manages investments covering a wide range of asset classes for both taxable and tax-exempt portfolios. KLS is located in New York and Southern California.

The Company previously had four reportable segments whereby the Affiliate Partners segment was bifurcated into two segments starting in 2018: Investment Management and Wealth Advisors. At the start of 2018, both the Investment Management and Wealth Advisors segments each had two consolidated affiliates. On April 13, 2018, the Company completed the sale of its ownership interest in Anchor. Anchor was previously in the Investment Management segment. On December 3, 2018, the Company completed the sale of its ownership interest in BOS. BOS was previously in the Wealth Advisory segment. The results of Anchor and BOS for the periods owned are included in the results of the Affiliate Partners segment and the Company.

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, 2018, 2017, and 2016. Interest expense on junior subordinated debentures is reported at the Holding Company.



	Year ended December 31,
	2018			2017			2016
Private Banking	(In thousands)
Net interest income	$	238,036		$	227,280		$	202,702
Fees and other income	9,366			10,856			18,947
Total revenues	247,402			238,136			221,649
Provision/ (credit) for loan losses	(2,198		)	(7,669		)	(6,935		)
Operating expense (1)	165,263			149,008			125,116
Income before income taxes	84,337			96,797			103,468
Income tax expense (2)	16,313			43,356			33,120
Net income from continuing operations	68,024			53,441			70,348
Net income attributable to the Company	$	68,024		$	53,441		$	70,348

Assets	$	8,424,967		$	8,177,304		$	7,816,671
Depreciation	$	8,646		$	5,639		$	4,477



	Year ended December 31,
	2018		2017			2016
Wealth Management and Trust	(In thousands)
Fees and other income	$	47,000	$	45,813		$	44,401
Total revenues	47,000		45,813			44,401
Operating expense (3)	42,987		49,287			64,844
Income/ (loss) before income taxes	4,013		(3,474		)	(20,443		)
Income tax expense / (benefit) (2)	1,108		(509		)	(8,279		)
Net income/ (loss) from continuing operations	2,905		(2,965		)	(12,164		)
Net income/ (loss) attributable to the Company	$	2,905	$	(2,965	)	$	(12,164	)

Assets	$	81,568	$	74,128		$	80,501
Amortization of intangibles	$	2,775	$	2,882		$	2,962
Depreciation	$	1,332	$	1,331		$	1,145



	Year ended December 31,
	2018		2017			2016
Affiliate Partners (4)	(In thousands)
Net interest income	$	348	$	145		$	32
Fees and other income	75,123		98,187			95,129
Total revenues	75,471		98,332			95,161
Operating expense (5)	54,192		94,785			67,654
Income/ (loss) before income taxes	21,279		3,547			27,507
Income tax expense (2)	5,488		10,229			9,873
Net income/ (loss) from continuing operations	15,791		(6,682		)	17,634
Noncontrolling interests	3,487		4,468			4,157
Net income/ (loss) attributable to the Company	$	12,304	$	(11,150	)	$	13,477

Assets	$	55,714	$	144,361		$	172,579
Amortization of intangibles	$	154	$	2,719		$	3,320
Depreciation	$	716	$	1,136		$	1,162



	Year ended December 31,
	2018			2017			2016
Holding Company and Eliminations	(In thousands)
Net interest income	$	(3,818	)	$	(2,739	)	$	(2,296	)
Fees and other income (6)	18,508			(890		)	310
Total revenues	14,690			(3,629		)	(1,986		)
Operating expense	4,913			6,856			7,339
Income/ (loss) before income taxes	9,777			(10,485		)	(9,325		)
Income tax expense/(benefit) (2)(8)	14,628			(6,880		)	(3,751		)
Net (loss) from continuing operations	(4,851		)	(3,605		)	(5,574		)
Discontinued operations (7)	2,002			4,870			5,541
Net income/(loss) attributable to the Company	$	(2,849	)	$	1,265		$	(33	)

Assets (including eliminations)	$	(67,624	)	$	(84,049	)	$	(99,277	)
Depreciation	$	—		$	—		$	54



	Year ended December 31,
	2018			2017			2016
Total Company	(In thousands)
Net interest income	$	234,566		$	224,686		$	200,438
Fees and other income	149,997			153,966			158,787
Total revenues	384,563			378,652			359,225
Provision/ (credit) for loan losses	(2,198		)	(7,669		)	(6,935		)
Operating expense	267,355			299,936			264,953
Income before income taxes	119,406			86,385			101,207
Income tax expense (2)	37,537			46,196			30,963
Net income from continuing operations	81,869			40,189			70,244
Noncontrolling interests	3,487			4,468			4,157
Discontinued operations (7)	2,002			4,870			5,541
Net income attributable to the Company	$	80,384		$	40,591		$	71,628

Assets	$	8,494,625		$	8,311,744		$	7,970,474
Amortization of intangibles	$	2,929		$	5,601		$	6,282
Depreciation	$	10,694		$	8,106		$	6,838

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(1)	Operating expense related to the Private Banking segment includes restructuring expenses of $6.6 million for the year ended December 31, 2018.

(2)

The Company’s effective tax rate for 2018, 2017, and 2016 is not consistent due to the re-measurement of the deferred tax assets in 2017, 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 2018, 2017, and 2016. See Part II. Item 8. “Financial Statements and Supplementary Data - Note 17: Income Taxes” for additional details.


(3)	Operating expense related to the Wealth Management and Trust segment includes restructuring expenses of $0.4 million for the year ended December 31, 2018, restructuring expenses of $2.0 million for the year ended December 31, 2016 and a goodwill impairment charge of $9.5 million for the year ended December 31, 2016.


(4)	The results of Anchor and BOS for the periods owned are included in the results of the Affiliate Partners segment and the Company.


(5)	Operating expense related to the Affiliate Partners segment includes restructuring expenses of $0.8 million for the year ended December 31, 2018 and a goodwill impairment charge of $24.9 million for the year ended December 31, 2017.


(6)	Fees and other income for the Holding Company and Eliminations includes a loss on the sale of Anchor of $1.3 million for the year ended December 31, 2017 related to the classification of Anchor as held for sale. Fees and other income for the Holding Company includes a gain on the sale of BOS of $18.1 million for the year ended December 31, 2018.


(7)	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, 2018, 2017 and 2016 of $2.0 million, $4.9 million, and $5.5 million, respectively.


(8)	Income tax expense for the year ended December 31, 2018 includes $12.7 million in additional expense related to the sale of Anchor in April 2018 and $3.5 million in additional expense related to the sale of BOS in December 2018.