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~~March 31, 2017


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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check One)~~

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~~April 28, 2017:



Common Stock, Par Value $1.00 Per Share	~~83,425,142~~84,135,359
(class)	(outstanding)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

FORM 10-Q

TABLE OF CONTENTS



PART I—FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Changes in Shareholders’ Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4239
	Executive Summary	4340
	Critical Accounting Policies	4441
	Results of Operations	41
	Financial Condition	4546
	Condensed Consolidated Balance Sheets and Discussion	4546
	Loan Portfolio and Credit Quality	4749
	Liquidity	5254
	Capital Resources	54
	~~Results of Operations~~	56
	Recent Accounting Pronouncements	6358
Item 3	Quantitative and Qualitative Disclosures about Market Risk	6459
Item 4	Controls and Procedures	6459
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	6561
Item 1A	Risk Factors	6561
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	6561
Item 3	Defaults upon Senior Securities	6562
Item 4	Mine Safety Disclosures	6562
Item 5	Other Information	6562
Item 6	Exhibits	6662
	Signature Page	6763
	Certifications

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


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)					BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
	June 30, 2016		December 31, 2015			March 31, 2017			December 31, 2016
	(In thousands, except share and per share data)					(In thousands, except share and per share data)
Assets:
Cash and cash equivalents	$	126,167	$	238,694		$	165,186		$	106,557
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
Investment securities available-for-sale (amortized cost of $1,271,760 and $1,283,161 at March 31, 2017 and December 31, 2016, respectively)						1,256,208			1,264,132
Investment securities held-to-maturity (fair value of $98,044 and $92,604 at March 31, 2017 and December 31, 2016, respectively)						98,424			93,079
Stock in Federal Home Loan Banks	44,374		35,181			50,133			44,077
Loans held for sale	4,677		8,072			350			3,464
Total loans	5,751,497		5,719,212			6,250,217			6,114,354
Less: Allowance for loan losses	75,753		78,500			78,031			78,077
Net loans	5,675,744		5,640,712			6,172,186			6,036,277
Other real estate owned (“OREO”)	2,042		776			—			1,690
Premises and equipment, net	31,752		31,036			32,974			31,827
Goodwill	152,082		152,082			142,554			142,554
Intangible assets, net	29,836		33,007			25,299			26,725
Fees receivable	11,129		11,258			12,230			13,400
Accrued interest receivable	18,061		17,950			20,790			20,479
Deferred income taxes, net	36,942		51,699			53,686			55,460
Other assets	149,975		121,179			185,100			130,753
Total assets	$	7,579,601	$	7,542,508		$	8,215,120		$	7,970,474
Liabilities:
Deposits	$	5,536,092	$	6,040,437		$	6,246,620		$	6,085,146
Deposits Held For Sale	110,558		—
Securities sold under agreements to repurchase	43,304		58,215			67,249			59,624
Federal funds purchased	180,000		—			—			80,000
Federal Home Loan Bank borrowings	678,012		461,324			885,445			734,205
Junior subordinated debentures	106,363		106,363			106,363			106,363
Other liabilities	135,289		111,468			110,310			119,683
Total liabilities	6,789,618		6,777,807			7,415,987			7,185,021
Redeemable Noncontrolling Interests	15,843		18,088			17,232			16,972
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
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 March 31, 2017 and December 31, 2016; liquidation preference: $1,000 per share						47,753			47,753
Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 84,134,104 shares at March 31, 2017 and 83,731,769 shares at December 31, 2016						84,134			83,732
Additional paid-in capital	597,989		600,670			602,748			597,454
Retained earnings	28,985		12,886			53,510			47,929
Accumulated other comprehensive income/ (loss)	12,654		(1,500		)	(10,237		)	(12,548		)
Total Company’s shareholders’ equity	770,761		743,220			777,908			764,320
Noncontrolling interests	3,379		3,393			3,993			4,161
Total shareholders’ equity	774,140		746,613			781,901			768,481
Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	7,579,601	$	7,542,508		$	8,215,120		$	7,970,474

See accompanying notes to consolidated financial statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)											BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three months ended June 30,					Six months ended June 30,						Three months ended March 31,
	2016			2015		2016			2015			2017			2016
	(In thousands, except share and per share data)											(In thousands, except share and per share data)
Interest and dividend income:
Loans	$	49,731		$	46,663	$	99,777		$	94,663		$	53,636		$	50,046
Taxable investment securities	1,507			1,075		3,101			2,070			1,670			1,594
Non-taxable investment securities	1,400			1,125		2,790			2,146			1,606			1,390
Mortgage-backed securities	2,982			2,775		6,047			5,389			3,504			3,065
Federal funds sold and other	405			282		912			516			600			507
Total interest and dividend income	56,025			51,920		112,627			104,784			61,016			56,602
Interest expense:
Deposits	4,075			3,822		8,257			7,714			4,531			4,182
Federal Home Loan Bank borrowings	2,139			2,017		4,092			3,948			2,111			1,953
Junior subordinated debentures	584			967		1,162			1,923			671			578
Repurchase agreements and other short-term borrowings	58			29		68			42			61			10
Total interest expense	6,856			6,835		13,579			13,627			7,374			6,723
Net interest income	49,169			45,085		99,048			91,157			53,642			49,879
Provision/ (credit) for loan losses	(2,535		)	—		(5,668		)	(2,500		)	(181		)	(3,133		)
Net interest income after provision/ (credit) for loan losses	51,704			45,085		104,716			93,657			53,823			53,012
Fees and other income:
Investment management fees	10,627			11,731		21,285			23,445			10,839			10,658
Wealth advisory fees	12,551			12,678		25,263			25,353			12,823			12,712
Wealth management and trust fees	11,208			13,545		22,124			27,103			10,826			10,916
Other banking fee income	2,982			2,031		6,215			3,941			1,694			3,233
Gain on sale of loans, net	197			362		406			665			138			209
Gain on sale of investments, net	245			8		246			16
Gain/ (loss) on sale of investments, net												19			1
Gain/ (loss) on OREO, net	—			—		280			89			(46		)	280
Other	(1,015		)	2,305		(1,002		)	3,393			213			13
Total fees and other income	36,795			42,660		74,817			84,005			36,506			38,022
Operating expense:
Salaries and employee benefits	40,614			39,816		83,174			81,943			45,825			42,560
Occupancy and equipment	9,928			9,095		19,515			18,130			10,649			9,587
Professional services	3,015			3,214		6,530			6,235			3,314			3,515
Marketing and business development	1,811			1,706		3,981			3,054			1,660			2,170
Contract services and data processing	1,737			1,495		3,416			2,932			1,580			1,679
Amortization of intangibles	1,586			1,655		3,172			3,257			1,426			1,586
FDIC insurance	1,015			963		2,035			1,974			766			1,020
Restructuring	905			220		2,017			220			—			1,112
Other	4,120			4,254		7,600			8,100			3,560			3,480
Total operating expense	64,731			62,418		131,440			125,845			68,780			66,709
Income before income taxes	23,768			25,327		48,093			51,817			21,549			24,325
Income tax expense	7,626			8,000		15,064			16,572			6,553			7,438
Net income from continuing operations	16,142			17,327		33,029			35,245			14,996			16,887
Net income from discontinued operations	1,245			1,546		3,310			3,640			1,632			2,065
Net income before attribution to noncontrolling interests	17,387			18,873		36,339			38,885			16,628			18,952
(Continued)


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)												BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2016			2015			2016			2015			2017			2016
Less: Net income attributable to noncontrolling interests	989			1,263			1,900			2,492			966			911
Net income attributable to the Company	$	16,398		$	17,610		$	34,439		$	36,393		$	15,662		$	18,041
Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders	$	(970	)	$	(1,026	)	$	(1,259	)	$	(1,989	)	$	(1,166	)	$	(289	)
Net income attributable to common shareholders for earnings per share calculation	$	15,428		$	16,584		$	33,180		$	34,404		$	14,496		$	17,752
Basic earnings per share attributable to common shareholders:
From continuing operations:	$	0.17		$	0.19		$	0.37		$	0.38		$	0.16		$	0.19
From discontinued operations:	$	0.02		$	0.02		$	0.04		$	0.05		$	0.02		$	0.03
Total attributable to common shareholders:	$	0.19		$	0.21		$	0.41		$	0.43		$	0.18		$	0.22
Weighted average basic common shares outstanding	81,236,809			80,778,562			81,269,154			80,647,191			81,951,179			81,301,499
Diluted earnings per share attributable to common shareholders:
From continuing operations:	$	0.17		$	0.18		$	0.36		$	0.37		$	0.15		$	0.19
From discontinued operations:	$	0.01		$	0.02		$	0.04		$	0.04		$	0.02		$	0.02
Total attributable to common shareholders:	$	0.18		$	0.20		$	0.40		$	0.41		$	0.17		$	0.21
Weighted average diluted common shares outstanding	83,519,939			83,260,383			83,391,057			83,111,228			84,560,918			83,279,866

See accompanying notes to consolidated financial statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)												BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2016			2015			2016			2015			2017			2016
	(In thousands)												(In thousands)
Net income attributable to the Company	$	16,398		$	17,610		$	34,439		$	36,393		$	15,662		$	18,041
Other comprehensive income/ (loss), net of tax:
Unrealized gain/ (loss) on securities available-for-sale	6,210			(4,317		)	15,298			(1,986		)	2,094			9,088
Reclassification adjustment for net realized gain/ (loss) included in net income	157			4			158			9			(11		)	(1		)
Net unrealized gain/ (loss) on securities available-for-sale	6,053			(4,321		)	15,140			(1,995		)	2,083			9,087
Unrealized gain/ (loss) on cash flow hedges	(352		)	83			(1,498		)	(1,017		)	36			(1,146		)
Reclassification adjustment for net realized gain/ (loss) included in net income	(266		)	(593		)	(512		)	(1,184		)	180			246
Net unrealized gain/ (loss) on cash flow hedges	(86		)	676			(986		)	167			216			(900		)
Net unrealized gain/ (loss) on other	—			—			—			—			12			—
Other comprehensive income/ (loss), net of tax	5,967			(3,645		)	14,154			(1,828		)	2,311			8,187
Total comprehensive income attributable to the Company, net	$	22,365		$	13,965		$	48,593		$	34,565		$	17,973		$	26,228

See accompanying notes to consolidated financial statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)																				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			Preferred Stock		Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/ (Loss)			Non- controlling Interests			Total
	(In thousands, except share data)																				(In thousands, except share data)
Balance, December 31, 2014	$	47,753	$	82,962		$	610,903		$	(37,396	)	$	(697	)	$	386		$	703,911
Balance, December 31, 2015																					$	47,753	$	83,411		$	600,670		$	12,886		$	(1,500	)	$	3,393		$	746,613
Net income attributable to the Company	—		—			—			36,393			—			—			36,393			—		—			—			18,041			—			—			18,041
Other comprehensive income/ (loss), net	—		—			—			—			(1,828		)	—			(1,828		)	—		—			—			—			8,187			—			8,187
Dividends paid to common shareholders: $0.18 per share	—		—			(14,882		)	—			—			—			(14,882		)
Dividends paid to common shareholders: $0.10 per share																					—		—			—			(8,318		)	—			—			(8,318		)
Dividends paid to preferred shareholders	—		—			(1,738		)	—			—			—			(1,738		)	—		—			—			(869		)	—			—			(869		)
Net change in noncontrolling interests	—		—			—			—			—			2,510			2,510			—		—			—			—			—			(277		)	(277		)
Repurchase of 245,000 shares of common stock																					—		(245		)	(2,505		)	—			—			—			(2,750		)
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		)
76,596 shares of common stock																					—		77			662			—			—			—			739
51,810 shares of incentive stock grants, net of 294,524 shares canceled or forfeited and 14,480 shares withheld for employee taxes																					—		(257		)	96			—			—			—			(161		)
Amortization of stock compensation and employee stock purchase plan	—		—			4,399			—			—			—			4,399			—		—			(442		)	—			—			—			(442		)
Stock options exercised	—		129			896			—			—			—			1,025			—		38			243			—			—			—			281
Tax benefit/ (deficiency) from certain stock compensation awards	—		—			95			—			—			—			95			—		—			(658		)	—			—			—			(658		)
Other equity adjustments	—		—			(1,231		)	—			—			—			(1,231		)	—		—			1,759			—			—			—			1,759
Balance at June 30, 2015	$	47,753	$	83,540		$	597,424		$	(1,003	)	$	(2,525	)	$	2,896		$	728,085
Balance at March 31, 2016																					$	47,753	$	83,024		$	599,825		$	21,740		$	6,687		$	3,116		$	762,145

Balance, December 31, 2015	$	47,753	$	83,411		$	600,670		$	12,886		$	(1,500	)	$	3,393		$	746,613
Balance, December 31, 2016																					$	47,753	$	83,732		$	597,454		$	47,929		$	(12,548	)	$	4,161		$	768,481
Net income attributable to the Company	—		—			—			34,439			—			—			34,439			—		—			—			15,662			—			—			15,662
Other comprehensive income/ (loss), net	—		—			—			—			14,154			—			14,154			—		—			—			—			2,311			—			2,311
Dividends paid to common shareholders: $0.20 per share	—		—			—			(16,602		)	—			—			(16,602		)
Dividends paid to common shareholders: $0.11 per share																					—		—			—			(9,212		)	—			—			(9,212		)
Dividends paid to preferred shareholders	—		—			—			(1,738		)	—			—			(1,738		)	—		—			—			(869		)	—			—			(869		)
Net change in noncontrolling interests	—		—			—			—			—			(14		)	(14		)	—		—			—			—			—			(168		)	(168		)
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		)
72,811 shares of common stock																					—		73			648			—			—			—			721
15,596 incentive stock grant shares canceled or forfeited																					—		(16		)	16			—			—			—			—
Exercise of warrants																					—		260			1,616			—			—			—			1,876
Amortization of stock compensation and employee stock purchase plan	—		—			372			—			—			—			372			—					2,000			—			—			—			2,000
Stock options exercised	—		71			458			—			—			—			529			—		85			595			—			—			—			680
Tax benefit/ (deficiency) from certain stock compensation awards	—		—			(749		)	—			—			—			(749		)
Other equity adjustments	—		—			1,631			—			—			—			1,631			—		—			419			—			—			—			419
Balance at June 30, 2016	$	47,753	$	83,380		$	597,989		$	28,985		$	12,654		$	3,379		$	774,140
Balance at March 31, 2017																					$	47,753	$	84,134		$	602,748		$	53,510		$	(10,237	)	$	3,993		$	781,901

See accompanying notes to consolidated financial statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)						BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Six months ended June 30,						Three months ended March 31,
	2016			2015			2017			2016
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net income attributable to the Company	$	34,439		$	36,393		$	15,662		$	18,041
Adjustments to arrive at net income from continuing operations
Net income attributable to noncontrolling interests	1,900			2,492			966			911
Less: Net income from discontinued operations	(3,310		)	(3,640		)	(1,632		)	(2,065		)
Net income from continuing operations	33,029			35,245			14,996			16,887
Adjustments to reconcile net income from continuing operations to net cash provided by/ (used in) operating activities:
Depreciation and amortization	10,927			11,391			5,325			5,196
Net income attributable to noncontrolling interests	(1,900		)	(2,492		)	(966		)	(911		)
Equity issued as compensation, net of cancellations	372			4,399
Stock compensation, net of cancellations							2,000			(442		)
Provision/ (credit) for loan losses	(5,668		)	(2,500		)	(181		)	(3,133		)
Loans originated for sale	(39,923		)	(89,008		)	(9,078		)	(18,411		)
Proceeds from sale of loans held for sale	43,724			77,260			12,330			21,309
Deferred income tax expense/ (benefit)	4,624			1,300			217			2,348
Net decrease/ (increase) in other operating activities	(3,472		)	(20,254		)	(11,272		)	(4,163		)
Net cash provided by/ (used in) operating activities of continuing operations	41,713			15,341			13,371			18,680
Net cash provided by/ (used in) operating activities of discontinued operations	3,310			3,640			1,632			2,065
Net cash provided by/ (used in) operating activities	45,023			18,981			15,003			20,745
Cash flows from investing activities:
Available-for-sale investment securities:
Purchases	(196,651		)	(274,333		)	(71,498		)	(100,759		)
Sales	29,132			5,835			32,717			15,292
Maturities, calls, redemptions, and principal payments	82,420			99,747			47,994			32,051
Held-to-maturity investment securities:
Purchases	—			—			(9,970		)	—
Principal payments	10,698			12,061			4,485			4,851
(Investments)/ distributions in trusts, net	(392		)	(365		)	(296		)	(240		)
Purchase of additional Bank Owned Life Insurance (“BOLI”)							(50,000		)	—
(Purchase)/ redemption of Federal Home Loan Banks stock	(9,193		)	(3,387		)	(6,056		)	979
Net (increase)/ decrease in portfolio loans	(37,832		)	(194,290		)	(135,514		)	57,880
Proceeds from recoveries of loans previously charged-off	5,956			5,025			193			4,076
Proceeds from sale of OREO	958			—			1,644			958
Capital expenditures, net of sale proceeds	(5,053		)	(2,489		)	(3,153		)	(2,284		)
Net cash provided by/ (used in) investing activities of continuing operations	(119,957		)	(352,196		)	(189,454		)	12,804
Net cash provided by/ (used in) investing activities	(119,957		)	(352,196		)	(189,454		)	12,804
(Continued)


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)						BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Six months ended June 30,						Three months ended March 31,
	2016			2015			2017			2016
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 deposits							161,474			(253,577		)
Net increase/ (decrease) in securities sold under agreements to repurchase	(14,911		)	(3,836		)	7,625			4,967
Net increase/ (decrease) in federal funds purchased	180,000			100,000			(80,000		)	40,000
Net increase/ (decrease) in short-term Federal Home Loan Bank borrowings	235,000			120,000			140,000			70,000
Advances of long-term Federal Home Loan Bank borrowings	47,434			67,636			34,435			25,800
Repayments of long-term Federal Home Loan Bank borrowings	(65,746		)	(16,257		)	(23,195		)	(33,172		)
Dividends paid to common shareholders	(16,602		)	(14,882		)	(9,212		)	(8,318		)
Dividends paid to preferred shareholders	(1,738		)	(1,738		)	(869		)	(869		)
Proceeds from warrant exercises							1,876			—
Repurchase of common stock	(4,495		)	—			—			(2,750		)
Tax benefit/ (deficiency) from certain stock compensation awards	(749		)	95			—			(658		)
Proceeds from stock option exercises	529			1,025			680			281
Proceeds from issuance of common stock, net	—			(569		)	721			578
Distributions paid to noncontrolling interests	(1,844		)	(2,405		)	(938		)	(846		)
Other equity adjustments	(684		)	(513		)	483			267
Net cash provided by/ (used in) financing activities of continuing operations	(37,593		)	223,705			233,080			(158,297		)
Net cash provided by/ (used in) financing activities	(37,593		)	223,705			233,080			(158,297		)
Net increase/ (decrease) in cash and cash equivalents	(112,527		)	(109,510		)	58,629			(124,748		)
Cash and cash equivalents at beginning of year	238,694			172,609			106,557			238,694
Cash and cash equivalents at end of period	$	126,167		$	63,099		$	165,186		$	113,946
Supplementary schedule of non-cash investing and financing activities:
Cash paid for interest	$	13,646		$	13,627		$	7,431		$	6,717
Cash paid for income taxes, net of (refunds received)	20,834			23,038			2,362			3,785
Change in unrealized gain/ (loss) on available-for-sale securities, net of tax	15,140			(1,995		)	2,083			9,087
Change in unrealized gain/ (loss) on cash flow hedges, net of tax	(986		)	167			216			(900		)
Change in unrealized gain/ (loss) on other, net of tax	—			—			12			—
Non-cash transactions:
Loans transferred into other real estate owned from loan portfolio	1,944			—
Loans charged-off	(3,035		)	(112		)	(58		)	(3,016		)
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.

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”~~��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, the 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; and Madison, ~~Wisconsin; and the Washington, D.C. area.~~Wisconsin.

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,~~2016, 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~~2016, as filed with the SEC. For interim reporting purposes, the Company follows the same significant accounting ~~policies.~~policies, except for the new accounting pronouncements from the Financial Accounting Standards Board (the “FASB”) that were adopted effective January 1, 2017, Accounting Standards Update (“ASU”) 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), and ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2016-09 had no cumulative effect on prior periods, and for cash flow purposes the provisions were adopted prospectively. The Company elected to early adopt ASU 2017-04 as of January 1, 2017, and the adoption of ASU 2017-04 could increase or decrease the amount of a goodwill impairment charge should any of the Company’s reporting units with goodwill fail a Step 1 test in the future, as compared to the amount of a goodwill impairment charge under the existing standards depending on the fair value of the reporting unit’s assets.

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,~~March 31, 2017 and 2016 ~~and 2015~~. The following tables present the computations of basic and diluted EPS:

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2016			2015			2016			2015			2017			2016
(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		$	14,996		$	16,887
Less: Net income attributable to noncontrolling interests	989			1,263			1,900			2,492			966			911
Net income from continuing operations attributable to the Company	15,153			16,064			31,129			32,753			14,030			15,976
Decrease/ (increase) in noncontrolling interests’ redemption values (1)	(101		)	(157		)	479			(251		)	(297		)	580
Dividends on preferred stock	(869		)	(869		)	(1,738		)	(1,738		)	(869		)	(869		)
Total adjustments to income attributable to common shareholders ~~(2)~~	(970		)	(1,026		)	(1,259		)	(1,989		)	(1,166		)	(289		)
Net income from continuing operations attributable to common shareholders, treasury stock method ~~(2)~~	14,183			15,038			29,870			30,764			12,864			15,687
Net income from discontinued operations ~~(2)~~	1,245			1,546			3,310			3,640			1,632			2,065
Net income attributable to common shareholders, treasury stock method ~~(2)~~	$	15,428		$	16,584		$	33,180		$	34,404		$	14,496		$	17,752

Basic earnings per share - Denominator:
Weighted average basic common shares outstanding	81,236,809			80,778,562			81,269,154			80,647,191			81,951,179			81,301,499
Per share data - Basic earnings per share from:
Continuing operations	$	0.17		$	0.19		$	0.37		$	0.38		$	0.16		$	0.19
Discontinued operations	$	0.02		$	0.02		$	0.04		$	0.05		$	0.02		$	0.03
Total attributable to common shareholders	$	0.19		$	0.21		$	0.41		$	0.43		$	0.18		$	0.22


	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2016		2015		2016		2015		2017		2016
(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	$	12,864	$	15,687
Net income from discontinued operations	1,245		1,546		3,310		3,640		1,632		2,065
Net income attributable to common shareholders, after assumed dilution	$	15,428	$	16,584	$	33,180	$	34,404	$	14,496	$	17,752
Diluted earnings per share - Denominator:
Weighted average basic common shares outstanding	81,236,809		80,778,562		81,269,154		80,647,191		81,951,179		81,301,499
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
Stock options and performance-based and time-based restricted stock (2)									1,455,333		1,048,428
Warrants to purchase common stock ~~(3)~~(2)	1,224,705		1,250,343		1,102,415		1,214,308		1,154,406		929,939
Dilutive common shares	2,283,130		2,481,821		2,121,903		2,464,037		2,609,739		1,978,367
Weighted average diluted common shares outstanding (2), (3)	83,519,939		83,260,383		83,391,057		83,111,228
Weighted average diluted common shares outstanding (2)									84,560,918		83,279,866
Per share data - Diluted earnings per share from:
Continuing operations	$	0.17	$	0.18	$	0.36	$	0.37	$	0.15	$	0.19
Discontinued operations	$	0.01	$	0.02	$	0.04	$	0.04	$	0.02	$	0.02
Total attributable to common shareholders	$	0.18	$	0.20	$	0.40	$	0.41	$	0.17	$	0.21
Dividends per share declared and paid on common stock	$	0.10	$	0.09	$	0.20	$	0.18	$	0.11	$	0.10

_____________________

(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~~2016 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 value from period to period increase income attributable to common shareholders, but only to the extent that the

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,~~March 31, 2017 and 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,		Three months ended March 31,
	2016	2015	2016	2015	2017	2016
Shares excluded due to exercise price exceeding the average market price of common shares during the period (total outstanding):	(In thousands)				(In thousands)
Potential common shares from:
Stock options, restricted stock, or other dilutive securities	315	538	243	585	121	387
Total shares excluded due to exercise price exceeding the average market price of common shares during the period	315	538	243	585	121	387

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 five areas, including the four ~~areas.~~reportable segments. 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~~2016.

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.

~~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,~~March 31, 2017 and 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



	Three months ended March 31,
	2017			2016
Private Banking	(In thousands)
Net interest income	$	54,256		$	50,420
Fees and other income	1,828			3,378
Total revenues	56,084			53,798
Provision/ (credit) for loan losses	(181		)	(3,133		)
Operating expense	35,058			31,275
Income before income taxes	21,207			25,656
Income tax expense	6,269			8,374
Net income from continuing operations	14,938			17,282
Net income attributable to the Company	$	14,938		$	17,282

Assets	$	8,058,121		$	7,250,371
Depreciation	$	1,371		$	1,146

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 March 31,
	2017			2016
Wealth Management and Trust	(In thousands)
Fees and other income	$	10,921		$	11,056
Operating expense (1)	13,873			15,852
Income/ (loss) before income taxes	(2,952		)	(4,796		)
Income tax expense/ (benefit)	(1,166		)	(1,939		)
Net income/ (loss) from continuing operations	(1,786		)	(2,857		)
Net income/ (loss) attributable to the Company	$	(1,786	)	$	(2,857	)

Assets	$	74,408		$	84,253
Amortization of intangibles	$	727		$	745
Depreciation	$	337		$	231


	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2016		2015		2016		2015		2017		2016
Wealth Advisory	(In thousands)
Investment Management									(In thousands)
Net interest income	$	4	$	2	$	7	$	4	$	4	$	4
Fees and other income	12,579		12,708		25,321		25,415		10,859		10,659
Total revenues	12,583		12,710		25,328		25,419		10,863		10,663
Operating expense	9,171		8,720		18,865		17,852		8,354		8,024
Income before income taxes	3,412		3,990		6,463		7,567		2,509		2,639
Income tax expense	1,266		1,483		2,414		2,804		844		879
Net income from continuing operations	2,146		2,507		4,049		4,763		1,665		1,760
Noncontrolling interests	520		643		954		1,231		462		477
Net income attributable to the Company	$	1,626	$	1,864	$	3,095	$	3,532	$	1,203	$	1,283

Assets	$	76,370	$	76,847	$	76,370	$	76,847	$	92,255	$	93,396
Amortization of intangibles	$	190	$	247	$	381	$	493	$	650	$	650
Depreciation	$	220	$	216	$	435	$	427	$	66	$	73



	Three months ended March 31,
	2017		2016
Wealth Advisory	(In thousands)
Net interest income	$	17	$	3
Fees and other income	12,843		12,742
Total revenues	12,860		12,745
Operating expense	9,443		9,694
Income before income taxes	3,417		3,051
Income tax expense	1,287		1,148
Net income from continuing operations	2,130		1,903
Noncontrolling interests	504		434
Net income attributable to the Company	$	1,626	$	1,469

Assets	$	73,182	$	74,901
Amortization of intangibles	$	49	$	191
Depreciation	$	226	$	215

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2016			2015			2016			2015			2017			2016
Holding Company and Eliminations	(In thousands)												(In thousands)
Net interest income	$	(552	)	$	(939	)	$	(1,100	)	$	(1,865	)	$	(635	)	$	(548	)
Fees and other income	43			129			230			304			55			187
Total revenues	(509		)	(810		)	(870		)	(1,561		)	(580		)	(361		)
Operating expense	1,834			4,096			3,698			8,569			2,052			1,864
Income/ (loss) before income taxes	(2,343		)	(4,906		)	(4,568		)	(10,130		)	(2,632		)	(2,225		)
Income tax expense/ (benefit)	(606		)	(2,177		)	(1,630		)	(4,390		)	(681		)	(1,024		)
Net income/ (loss) from continuing operations	(1,737		)	(2,729		)	(2,938		)	(5,740		)	(1,951		)	(1,201		)
Noncontrolling interests	—			—			—			4
Discontinued operations	1,245			1,546			3,310			3,640			1,632			2,065
Net income/ (loss) attributable to the Company	$	(492	)	$	(1,183	)	$	372		$	(2,104	)	$	(319	)	$	864

Assets	$	(94,606	)	$	(69,705	)	$	(94,606	)	$	(69,705	)	$	(82,846	)	$	(89,258	)
Depreciation	$	10		$	13		$	21		$	44		$	—		$	11


	Three months ended June 30,					Six months ended June 30,						Three months ended March 31,
	2016			2015		2016			2015			2017			2016
Total Company	(In thousands)											(In thousands)
Net interest income	$	49,169		$	45,085	$	99,048		$	91,157		$	53,642		$	49,879
Fees and other income	36,795			42,660		74,817			84,005			36,506			38,022
Total revenues	85,964			87,745		173,865			175,162			90,148			87,901
Provision/ (credit) for loan losses	(2,535		)	—		(5,668		)	(2,500		)	(181		)	(3,133		)
Operating expense	64,731			62,418		131,440			125,845			68,780			66,709
Income before income taxes	23,768			25,327		48,093			51,817			21,549			24,325
Income tax expense	7,626			8,000		15,064			16,572			6,553			7,438
Net income from continuing operations	16,142			17,327		33,029			35,245			14,996			16,887
Noncontrolling interests	989			1,263		1,900			2,492			966			911
Discontinued operations	1,245			1,546		3,310			3,640			1,632			2,065
Net income attributable to the Company	$	16,398		$	17,610	$	34,439		$	36,393		$	15,662		$	18,041

Assets	$	7,579,601		$	7,045,939	$	7,579,601		$	7,045,939		$	8,215,120		$	7,413,663
Amortization of intangibles	$	1,586		$	1,655	$	3,172		$	3,257		$	1,426		$	1,586
Depreciation	$	1,698		$	1,652	$	3,374		$	3,356		$	2,000		$	1,676

~~____________~~_____________________

(1)

Operating expense includes ~~$0.9 million and $2.0 million of~~no restructuring expense for the three ~~and six~~ months ended ~~June 30, 2016, respectively, related to the Wealth Management~~March 31, 2017 and ~~Trust segment. Operating expense includes $0.2~~$1.1 million of restructuring expenses for ~~both~~ the three ~~and six~~ months ended ~~June 30, 2015~~March 31, 2016 related to the Wealth Management and Trust segment.

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		Amortized Cost		Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value		Amortized Cost		Gains		Losses			Fair Value
	(In thousands)
As of June 30, 2016
As of March 31, 2017
Available-for-sale securities at fair value:
U.S. government and agencies										$	45,344	$	70	$	(746	)	$	44,668
Government-sponsored entities										346,363		949		(1,965		)	345,347
Municipal bonds										298,751		3,089		(3,911		)	297,929
Mortgage-backed securities (1)										573,879		753		(14,225		)	560,407
Other										7,423		436		(2		)	7,857
Total										$	1,271,760	$	5,297	$	(20,849	)	$	1,256,208

Held-to-maturity securities at amortized cost:
U.S. government and agencies										$	9,977	$	—	(7		)	$	9,970
Mortgage-backed securities (1)										$	88,447	$	72	$	(445	)	$	88,074
Total										$	98,424	$	72	$	(452	)	$	98,044

As of December 31, 2016
Available-for-sale securities at fair value:
U.S. government and agencies	$	40,822	$	920	$	(5	)	$	41,737	$	40,704	$	86	$	(854	)	$	39,936
Government-sponsored entities	335,632		7,578		—			343,210		337,865		1,058		(2,259		)	336,664
Municipal bonds	265,507		10,877		(68		)	276,316		296,271		2,116		(4,990		)	293,397
Mortgage-backed securities (1)	503,993		7,145		(1,109		)	510,029		584,960		928		(15,561		)	570,327
Other	19,952		288		(9		)	20,231		23,361		447		—			23,808
Total	$	1,165,906	$	26,808	$	(1,191	)	$	1,191,523	$	1,283,161	$	4,635	$	(23,664	)	$	1,264,132

Held-to-maturity securities at amortized cost:
Mortgage-backed securities (1)	$	105,297	$	2,092	$	—		$	107,389	$	93,079	$	1	$	(476	)	$	92,604
Total	$	105,297	$	2,092	$	—		$	107,389	$	93,079	$	1	$	(476	)	$	92,604

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		)	427,041
Other	22,751		268		(7		)	23,012
Total	$	1,084,105	$	7,634	$	(7,229	)	$	1,084,510

Held-to-maturity securities at amortized cost:
Mortgage-backed securities (1)	$	116,352	$	294	$	(262	)	$	116,384
Total	$	116,352	$	294	$	(262	)	$	116,384

~~___________________~~_____________________


(1)	All mortgage-backed securities are guaranteed by U.S. government agencies or ~~Government-sponsored~~government-sponsored entities.

The following table presents the maturities of available-for-sale investment securities, based on contractual maturity, as of ~~June 30, 2016~~March 31, 2017. Certain securities are callable before their final maturity. Additionally, certain securities (such as mortgage-backed securities) are shown within the table below based on their final (contractual) maturity, but due to prepayments and amortization are expected to have shorter lives.


	Available-for-sale Securities				Available-for-sale Securities
	Amortized cost		Fair value		Amortized cost		Fair value
	(In thousands)
Within one year	$	90,599	$	91,045	$	49,047	$	49,545
After one, but within five years	310,027		316,819		378,158		379,294
After five, but within ten years	243,664		250,725		346,856		337,295
Greater than ten years	521,616		532,934		497,699		490,074
Total	$	1,165,906	$	1,191,523	$	1,271,760	$	1,256,208

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table presents the maturities of held-to-maturity investment securities, based on contractual maturity, as of ~~June 30, 2016~~March 31, 2017.


	Held-to-maturity Securities				Held-to-maturity Securities
	Amortized cost		Fair value		Amortized cost		Fair value
	(In thousands)
Within one year	$	—	$	—	$	9,977	$	9,970
After one, but within five years	—		—		—		—
After five, but within ten years	—		—		10,098		10,075
Greater than ten years	105,297		107,389		78,349		77,999
Total	$	105,297	$	107,389	$	98,424	$	98,044

The following table presents the proceeds from sales, gross realized gains and gross realized losses for available-for-sale securities that were sold or called during the following periods:


	Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
	2016		2015		2016			2015		2017		2016
	(In thousands)
Proceeds from sales	$	13,840	$	820	$	29,132		$	5,835
Proceeds from sales and calls										$	32,717	$	15,292
Realized gains	245		8		247			16		19		2
Realized losses	—		—		(1		)	—		—		(1		)

The following table presents information regarding securities as of ~~June 30,~~March 31, 2017 and December 31, 2016 having temporary impairment, due to the fair values having declined below the amortized cost of the individual securities, and the time period that the investments have been temporarily impaired.


	Less than 12 months					12 months or longer					Total						Less than 12 months					12 months or longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			# of securities	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			# of securities
March 31, 2017
Available-for-sale securities	(In thousands)																(In thousands)
U.S. government and agencies	$	—	$	—		$	728	$	(5	)	$	728	$	(5	)	2	$	19,194	$	(740	)	$	293	$	(6	)	$	19,487	$	(746	)	3
Government-sponsored entities	—		—			—		—			—		—			—	156,195		(1,965		)	—		—			156,195		(1,965		)	21
Municipal bonds	—		—			2,762		(68		)	2,762		(68		)	2	111,601		(3,900		)	1,218		(11		)	112,819		(3,911		)	66
Mortgage-backed securities (1)	14,228		(104		)	48,167		(1,005		)	62,395		(1,109		)	35	484,350		(12,662		)	44,271		(1,563		)	528,621		(14,225		)	104
Other	54		(8		)	12		(1		)	66		(9		)	8	18		(2		)	—		—			18		(2		)	2
Total	$	14,282	$	(112	)	$	51,669	$	(1,079	)	$	65,951	$	(1,191	)	47	$	771,358	$	(19,269	)	$	45,782	$	(1,580	)	$	817,140	$	(20,849	)	196

Held-to-maturity securities
U.S. government and agencies																	9,970		(7		)	—		—			9,970		(7		)	2
Mortgage-backed securities (1)	$	—	$	—		$	—	$	—		$	—	$	—		—	$	70,807	$	(445	)	$	—	$	—		$	70,807	$	(445	)	13
Total	$	—	$	—		$	—	$	—		$	—	$	—		—	$	80,777	$	(452	)	$	—	$	—		$	80,777	$	(452	)	15

~~___________________~~

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Less than 12 months					12 months or longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			# of securities
	(In thousands, except number of securities)
December 31, 2016
Available-for-sale securities
U.S. government and agencies	$	19,094	$	(838	)	$	643	$	(16	)	$	19,737	$	(854	)	4
Government-sponsored entities	125,412		(2,259		)	—		—			125,412		(2,259		)	18
Municipal bonds	182,395		(4,957		)	2,720		(33		)	185,115		(4,990		)	109
Mortgage-backed securities (1)	492,008		(13,988		)	41,544		(1,573		)	533,552		(15,561		)	99
Other	—		—			—		—			—		—			—
Total	$	818,909	$	(22,042	)	$	44,907	$	(1,622	)	$	863,816	$	(23,664	)	230

Held-to-maturity securities
Mortgage-backed securities (1)	$	87,483	$	(476	)	$	—	$	—		$	87,483	$	(476	)	15
Total	$	87,483	$	(476	)	$	—	$	—		$	87,483	$	(476	)	15

_____________________


(1)	All mortgage-backed securities are guaranteed by U.S. government agencies or ~~Government-sponsored~~government-sponsored entities.

The U.S. government and agencies securities and mortgage-backed securities in the table above had current Standard and Poor’s credit ratings of ~~AA+.~~AA. The municipal bonds in the table above had a current Standard and Poor’s credit ~~ratings~~rating of at least ~~AA+.~~AA-. The other securities consisted of equity securities. At ~~June 30, 2016,~~March 31, 2017, the Company does not consider these investments other-than-temporarily impaired because the decline in fair value on investments is primarily attributed to changes in interest rates and not credit quality.

At ~~June 30,~~March 31, 2017 and December 31, 2016, ~~and 2015,~~ the amount of investment securities in an unrealized loss position greater than 12 months, as well as in total, was primarily due to changes in interest rates. ~~The~~As of March 31, 2017, the Company ~~has~~had no intent to sell any securities in an unrealized loss position ~~at June 30, 2016~~ and it is not more likely than not that the Company would be forced to sell any of

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

these securities prior to the full recovery of all unrealized loss amounts. Subsequent to June 30, 2016 and through the date of the filing of this Quarterly Report on Form 10-Q, no securities were downgraded to below investment grade, nor were any securities in an unrealized loss position sold.

Cost method investments, which are included in other assets, can be temporarily impaired when the fair values decline below the amortized costs of the individual investments. There were no cost method investments with unrealized losses as of ~~June 30, 2016~~March 31, 2017 or December 31, ~~2015~~2016. The Company’s cost method investments primarily include low income housing partnerships which generate tax credits. The Company also holds partnership interests in venture capital funds formed to provide financing to small businesses and to promote community development. The Company had $~~32.5~~34.7 million and ~~$27.7~~$34.2 million in cost method investments included in other assets as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016, respectively.

5. Fair Value Measurements

Fair value is defined under GAAP as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company determines the fair values of its financial instruments based on the fair value hierarchy established in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value. Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, aggregated by the level in the fair value hierarchy within which those measurements fall:


	As of June 30, 2016		Fair value measurements at reporting date using:						As of March 31, 2017		Fair value measurements at reporting date using:
			Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)				Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Available-for-sale securities:
U.S. government and agencies	$	41,737	$	41,008	$	729	$	—	$	44,668	$	44,375	$	293	$	—
Government-sponsored entities	343,210		—		343,210		—		345,347		—		345,347		—
Municipal bonds	276,316		—		276,316		—		297,929		—		297,929		—
Mortgage-backed securities	510,029		—		510,029		—		560,407		—		560,407		—
Other	20,231		20,231		—		—		7,857		7,857		—		—
Total available-for-sale securities	1,191,523		61,239		1,130,284		—		1,256,208		52,232		1,203,976		—
Derivatives - interest rate customer swaps	28,885		—		28,885		—		16,654		—		16,654		—
Derivatives - customer foreign exchange forwards	2		—		2		—
Derivatives - risk participation agreement	26		—		26		—		13		—		13		—
Other investments	5,994		5,994		—		—		6,406		6,406		—		—

Liabilities:
Derivatives - interest rate customer swaps	$	31,168	$	—	$	31,168	$	—	$	16,504	$	—	$	16,504	$	—
Derivatives - customer foreign exchange forwards	2		—		2		—
Derivatives - interest rate swaps	3,629		—		3,629		—		666		—		666		—
Derivatives - risk participation agreement	23		—		23		—		5		—		5		—
Other liabilities	5,994		5,994		—		—		6,406		6,406		—		—

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


			Fair value measurements at reporting date using:								Fair value measurements at reporting date using:
	As of December 31, 2015		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		As of December 31, 2016		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Available-for-sale securities:
U.S. government and agencies	$	21,251	$	20,251	$	1,000	$	—	$	39,936	$	39,293	$	643	$	—
Government-sponsored entities	344,562		—		344,562		—		336,664		—		336,664		—
Municipal bonds	268,644		—		268,644		—		293,397		—		293,397		—
Mortgage-backed securities	427,041		—		427,041		—		570,327		—		570,327		—
Other	23,012		23,012		—		—		23,808		23,808		—		—
Total available-for-sale securities	1,084,510		43,263		1,041,247		—		1,264,132		63,101		1,201,031		—
Derivatives - interest rate customer swaps	7,960		—		7,960		—		17,032		—		17,032		—
Derivatives - risk participation agreement									15		—		15		—
Other investments	5,602		5,602		—		—		6,110		6,110		—		—

Liabilities:
Derivatives - interest rate customer swaps	$	8,084	$	—	$	8,084	$	—	$	16,560	$	—	$	16,560	$	—
Derivatives - interest rate swaps	1,907		—		1,907		—		1,040		—		1,040		—
Derivatives - risk participation agreement	11		—		11		—		6		—		6		—
Other liabilities	5,602		5,602		—		—		6,110		6,110		—		—

As of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, available-for-sale securities consisted primarily of U.S. government and agencies securities, government-sponsored entities securities, municipal bonds, mortgage-backed securities, and other available-for-sale securities. The equities (which are categorized as other available-for-sale securities) are valued with prices quoted in active markets. ~~Five~~Six U.S. Treasury securities ~~at June 30, 2016~~as of March 31, 2017 and ~~three~~five U.S. Treasury securities atas of December 31, ~~2015,~~2016, are valued with prices quoted in active markets. Therefore, they have been categorized as a Level 1 measurement. The government-sponsored entities securities, municipal bonds, mortgage-backed securities, and certain investments in Small Business Administration (“SBA”) loans (which are categorized as U.S. government and agencies securities) generally have quoted prices but are traded less frequently than exchange-traded securities and can be priced using market data from similar assets. Therefore, they have been categorized as a Level 2 measurement. No investments held ~~at June 30, 2016~~as of March 31, 2017 or December 31, ~~2015~~2016 were categorized as Level 3. There were no changes in the valuation techniques used for measuring the fair value of available-for-sale securities in the three month periods ended March 31, 2017 or 2016.

~~The~~In managing its interest rate risk, the Company ~~uses~~utilizes derivative instruments such as interest rate customer swaps, interest rate swaps, and risk participation ~~agreements, and~~agreements. As a ~~junior subordinated debenture interest rate swap~~service to ~~manage~~ its ~~interest rate risk, and~~customers, the Company may utilize derivative instruments such as customer foreign exchange forward contracts to manage its foreign exchange risk, if any. ~~The junior subordinated debenture interest rate swap agreement matured on December 30, 2015.~~ The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. Therefore, they have been categorized as a Level 2 measurement as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements-Note 8: Derivatives and Hedging Activities” for further details.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of collateral securing the position.

The Company has determined that the ~~majority of the~~ inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, although the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As a result, the Company has

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

~~has~~ determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Other investments, which are not considered available-for-sale investments, consist of deferred compensation trusts, which consist of publicly traded mutual fund investments that are valued at prices quoted in active markets. Therefore, they have been categorized as a Level 1 measurement as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015. The remaining other investments categorized as Level 2 consist of~~2016.

There were no transfers between levels for assets or liabilities recorded at fair value on a recurring basis during the ~~Company’s cost-method investments as of June 30, 2016~~three month periods ended March 31, 2017 and ~~December 31, 2015.~~2016.

There were no Level 3 assets valued on a recurring basis at ~~June 30, 2016~~March 31, 2017 or December 31, ~~2015.~~2016.

There were no collateral-dependent impaired loans held at March 31, 2017 that had write-downs in fair value or whose specific reserve changed during the first three months of 2017. The following ~~tables present~~table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis during the ~~periods~~period ended ~~June 30,~~March 31, 2016, ~~and 2015, respectively,~~ aggregated by the level in the fair value hierarchy within which those measurements fall:


	As of June 30, 2016		Fair value measurements at reporting date using:						Gain (losses) from fair value changes					As of March 31, 2016		Fair value measurements at reporting date using:						Gain (losses) from fair value changes
			Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Three months ended June 30, 2016		Six months ended June 30, 2016					Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Three months ended March 31, 2016
	(In thousands)													(In thousands)
Assets:
Impaired loans (1)	$	7,806	$	—	$	—	$	7,806	$	—	$	(1,164	)	$	2,428	$	—	$	—	$	2,428	$	(2,064	)

~~___________________~~_____________________


(1)	Collateral-dependent impaired loans held at ~~June 30,~~March 31, 2016 that had write-downs in fair value or whose specific reserve changed during the first ~~six~~three months of 2016.

As of June 30, 2015 Fair value measurements at reporting date using: Gain (losses) from fair value changes
Quoted prices in
active markets
for identical
assets (Level 1)

Significant
other
observable
inputs (Level 2)

Significant
unobservable
inputs (Level 3)
Three months ended June 30, 2015 Six months ended June 30, 2015
(In thousands)
Assets:
Impaired loans (1) $ 1,448
$ —
$ —
$ 1,448
$ —
$ —

~~________________~~


~~(1)~~	~~Collateral-dependent impaired loans held at June 30, 2015 that had write-downs in fair value or whose specific reserve changed during the first six months of 2015.~~

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value:

As of June 30, 2016
Fair Value
Valuation
technique

Unobservable
Input

Range of
Inputs
Utilized

Weighted
Average of
Inputs
Utilized
(In thousands)
Impaired Loans $ 7,806
Appraisals of Collateral Discount for costs to sell 6% - 13% 7%
Appraisal adjustments 20% - 40% 37%

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

As of June 30, 2015

As of March 31, 2016

Fair Value

Valuation

technique

Unobservable

Input

Range of

Inputs

Utilized

Weighted

Average of

Inputs

Utilized

Fair Value

Valuation

technique

Unobservable

Input

Range of

Inputs

Utilized

Weighted

Average of

Inputs

Utilized

(In thousands)

Impaired Loans

1,448

Appraisals of Collateral

Discount for costs to sell

11% - 13%

12%

2,428

Appraisals of Collateral

Discount for costs to sell

0% - 7%

Appraisal adjustments

0% - 15%

Appraisal adjustments

10% - 33%

16%

Impaired loans include those loans that were adjusted to the fair value of underlying collateral as required under ASC 310, Receivables. The amount does not include impaired loans that are measured based on expected future cash flows discounted at the respective loan’s original effective interest rate, as that amount is not considered a fair value measurement. The Company uses appraisals, which management may adjust to reflect estimated fair value declines, or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property or consideration of broker quotes. The appraisers use a market, income, and/or a cost approach in determining the value of the collateral. Therefore they have been categorized as a Level 3 measurement.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following tables present the carrying values and fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis (other than certain loans, as noted below):

As of June 30, 2016
Book Value Fair Value
Quoted prices
in active
markets for
identical assets
(Level 1)

Significant
other
observable
inputs (Level 2)

Significant
unobservable
inputs (Level 3)
(In thousands)
FINANCIAL ASSETS:
Cash and cash equivalents $ 126,167
$ 126,167
$ 126,167
$ —
$ —
Held-to-maturity investment securities 105,297
107,389
—
107,389
—
Loans held for sale 4,677
5,549
—
5,549
—
Loans, net 5,675,744
5,757,824
—
—
5,757,824
Other financial assets 126,796
126,796
—
126,796
—
FINANCIAL LIABILITIES:
Deposits 5,536,092
5,538,277
—
5,538,277
—
Deposits held for sale 110,558
113,679
—
113,679
—
Securities sold under agreements to repurchase 43,304
43,304
—
43,304
—
Federal Funds purchased 180,000
180,000
—
180,000
—
Federal Home Loan Bank borrowings 678,012
683,717
—
683,717
—
Junior subordinated debentures 106,363
96,363
—
—
96,363
Other financial liabilities 1,950
1,950
—
1,950
—

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~



	As of March 31, 2017
	Book Value		Fair Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
FINANCIAL ASSETS:
Cash and cash equivalents	$	165,186	$	165,186	$	165,186	$	—	$	—
Investment securities held-to-maturity	98,424		98,044		9,970		88,074		—
Loans held for sale	350		356		—		356		—
Loans, net	6,172,186		6,162,133		—		—		6,162,133
Other financial assets	83,153		83,153		—		83,153		—
FINANCIAL LIABILITIES:
Deposits	6,246,620		6,246,452		—		6,246,452		—
Securities sold under agreements to repurchase	67,249		67,249		—		67,249		—
Federal Home Loan Bank borrowings	885,445		886,546		—		886,546		—
Junior subordinated debentures	106,363		96,363		—		—		96,363
Other financial liabilities	1,884		1,884		—		1,884		—


	As of December 31, 2015										As of December 31, 2016
	Book Value		Fair Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Book Value		Fair Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
FINANCIAL ASSETS:
Cash and cash equivalents	$	238,694	$	238,694	$	238,694	$	—	$	—	$	106,557	$	106,557	$	106,557	$	—	$	—
Held-to-maturity investment securities	116,352		116,384		—		116,384		—
Investment securities held-to-maturity											93,079		92,604		—		92,604		—
Loans held for sale	8,072		8,144		—		8,144		—		3,464		3,428		—		3,428		—
Loans, net	5,640,712		5,658,254		—		—		5,658,254		6,036,277		6,021,611		—		—		6,021,611
Other financial assets	118,233		118,233		—		118,233		—		77,956		77,956		—		77,956		—
FINANCIAL LIABILITIES:
Deposits	6,040,437		6,041,239		—		6,041,239		—		6,085,146		6,084,765		—		6,084,765		—
Securities sold under agreements to repurchase	58,215		58,215		—		58,215		—		59,624		59,624		—		59,624		—
Federal funds purchased											80,000		80,000		—		80,000		—
Federal Home Loan Bank borrowings	461,324		465,100		—		465,100		—		734,205		734,941		—		734,941		—
Junior subordinated debentures	106,363		96,363		—		—		96,363		106,363		96,363		—		—		96,363
Other financial liabilities	1,978		1,978		—		1,978		—		1,942		1,942		—		1,942		—

The estimated fair values have been determined by using available quoted market information or other appropriate valuation methodologies. The aggregate fair value amounts presented do not represent the underlying value ofto the Company taken as a whole. An excess of fair value over book value on financial assets represents a premium, or gain, the Company might recognize if the asset were sold, while an excess of book value over fair value on financial liabilities represents a premium, or gain, the company might recognize if the liability were sold. Conversely, losses would be recognized if an asset was sold where the book value exceeded the fair value or a liability was sold where the fair value exceeded the book value.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The fair value estimates provided are made at a specific point in time, based on relevant market information and the characteristics of the financial instrument. The estimates do not provide for any premiums or discounts that could result from concentrations of ownership of a financial instrument. Because no active market exists for some of the Company’s financial instruments, certain fair value estimates are based on subjective judgments regarding current economic conditions, risk characteristics of the financial instruments, future expected loss experience, prepayment assumptions, and other factors. The resulting estimates involve uncertainties and ~~therefore cannot be determined with precision.~~are considered best estimates. Changes made to any of the underlying assumptions could significantly affect the estimates.

Cash and cash equivalents

The carrying value reported in the balance sheets for cash and cash equivalents approximates fair value due to the short-term nature of their maturities and are classified as Level 1.

Held-to-maturity investment securities

Held-to-maturity securities currently include mortgage-backed ~~securities. All~~securities and a U.S. Treasury security. One U.S. Treasury security as of March 31, 2017 is valued with prices quoted in active markets. Therefore, it has been categorized as a Level 1 measurement. There were no U.S. Treasury securities held-to-maturity as of December 31, 2016. The mortgage-backed securities are fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair value of these securities is based on quoted market prices obtained from external pricing services. The principal market for our securities portfolio is the secondary institutional market, with an exit price that is predominantly reflective of bid level pricing in that market. Accordingly, these held-to-maturity mortgage-backed securities are included in the Level 2 fair value category.

Loans held for sale

Loans held for sale are recorded at the lower of cost or fair value in the aggregate. Fair value estimates are based on actual commitments to sell the loans to investors at an agreed upon price or current market prices if rates have changed since the time the loan closed. Accordingly, loans held for sale are included in the Level 2 fair value category.

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

Loans, net

Fair value estimates are based on loans with similar financial characteristics. Fair values of commercial and residential mortgage loans are estimated by discounting contractual cash flows adjusted for prepayment estimates and using discount rates approximately equal to current market rates on loans with similar credit and interest rate characteristics and maturities. The fair value estimates for home equity and other loans are based on outstanding loan terms and pricing in the local markets. The method of estimating the fair value of the loans disclosed in the table above does not incorporate the exit price concept in the presentation of the fair value of these financial instruments. Net loans are included in the Level 3 fair value category based upon the inputs and valuation techniques used.

Other financial assets

Other financial assets consist of accrued interest and fees receivable, and stock in the Federal Home Loan ~~Banks~~Bank (“~~FHLBs”~~FHLB”), ~~and the cash surrender value of bank-owned life insurance,~~ for which the carrying amount approximates fair value, and are classified as Level 2.

Deposits

The fair values reported for transaction accounts (demand, NOW, savings, and money market) equal their respective book values reported on the balance sheets and are classified as Level 2. The fair values disclosed are, by definition, equal to the amount payable on demand at the reporting date. The fair values for certificates of deposit are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on certificates of deposit with similar remaining maturities and are classified as Level 2.

~~Deposits held for sale~~

The deposits held for sale at June 30, 2016 relate to the two banking offices in Southern California for which the Bank has entered into a Purchase and Assumption Agreement (the “Agreement”). Pursuant to this Agreement, the Bank will transfer certain depository accounts of these offices to the purchaser. The fair value reported for deposits held for sale was estimated based on the deposit premium to be paid per the Agreement and the amount and type of deposits outstanding as of June 30, 2016. The actual premium will be updated based on the average deposits prior to the close. Accordingly, deposits held for sale are included in the Level 2 fair value category.

Securities sold under agreements to repurchase

The fair value of securities sold under agreements to repurchase ~~are~~is estimated based on contractual cash flows discounted at the Bank’s incremental borrowing rate for FHLB borrowings with similar maturities and therefore these securities have been classified as Level 2.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Federal funds purchased

The carrying ~~amount~~amounts of federal funds purchased ~~approximates~~approximate fair value due to their short-term nature and therefore these funds have been classified as Level 2.

Federal Home Loan Bank borrowings

The fair value reported for FHLB borrowings is estimated based on the discounted value of contractual cash flows. The discount rate used is based on the Bank’s estimated current incremental borrowing rate for FHLB borrowings of similar maturities and therefore these borrowings have been classified as Level 2.

Junior subordinated debentures

The fair value of the junior subordinated debentures issued by Boston Private Capital Trust I and Boston Private Capital Trust II were estimated using Level 3 inputs such as the interest rates on these securities, current rates for similar debt, a consideration for illiquidity of trading in the debt, and regulatory changes that would result in an unfavorable change in the regulatory capital treatment of this type of debt.

Other financial liabilities

Other financial liabilities consist of accrued interest payable ~~and deferred compensation~~ for which the carrying amount approximates fair value and ~~are~~is classified as Level 2.

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

Financial instruments with off-balance sheet risk

The Bank’s commitments to originate loans and for unused lines and outstanding letters of credit are primarily at market interest rates and therefore, the carrying amount approximates fair value.

6. Loan Portfolio and Credit Quality

The Bank’s lending activities are conducted principally in the regions of New England, the San Francisco Bay Area, and Southern California. The Bank originates single and multi-family residential loans, commercial real estate loans, commercial and industrial loans, commercial tax exempt loans, construction and land loans, and home equity and other consumer loans. Most loans are secured by borrowers’ personal or business assets. The ability of the Bank’s single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic conditions within the Bank’s lending areas. Commercial, construction, and land borrowers’ ability to repay is generally dependent upon the health of the economy and real estate values, including, in particular, the performance of the construction sector. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio is susceptible to changing conditions in the New England, the San Francisco Bay Area, and Southern California economies and real estate markets.

Total loans include deferred loan origination (fees)/ costs, net, of ~~$6.4~~$6.3 million and ~~$5.6~~$5.9 million as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

The following table presents a summary of the loan portfolio ~~based on the~~by portfolio segment and class of receivable as of the dates indicated:


	June 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
	(In thousands)				(In thousands)
Commercial and industrial	$	1,042,917	$	1,111,555	$	580,354	$	611,370
Commercial tax exempt					409,432		398,604
Total commercial and industrial					989,786		1,009,974
Commercial real estate	1,977,312		1,914,134		2,368,627		2,302,244
Construction and land	142,549		183,434		117,007		104,839
Residential	2,280,116		2,229,540		2,463,616		2,379,861
Home equity	125,486		119,828		114,536		118,817
Consumer and other	183,117		160,721		196,645		198,619
Total Loans	$	5,751,497	$	5,719,212
Total					$	6,250,217	$	6,114,354

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table presents nonaccrual loans receivable by portfolio segment and class of receivable as of the dates indicated:


	June 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
	(In thousands)				(In thousands)
Commercial and industrial	$	1,106	$	1,019	$	572	$	572
Commercial tax exempt					4,337		—
Total commercial and industrial					4,909		572
Commercial real estate	6,934		11,232		3,856		4,583
Construction and land	861		3,297		147		179
Residential	8,967		9,661		10,962		10,908
Home equity	1,295		1,306		1,070		1,072
Consumer and other	25		56		1		1
Total	$	19,188	$	26,571	$	20,945	$	17,315

The Bank’s policy is to discontinue the accrual of interest on a loan when the collectability of principal or interest is in doubt. In certain instances, although infrequent, loans that have become 90 days or more past due may remain on accrual status if the value of the collateral securing the loan is sufficient to cover principal and interest and the loan is in the process of collection. There were ~~$0.1 million and~~ no loans 90 days or more past due, but still accruing ~~respectively,~~ as of ~~June 30, 2016~~both March 31, 2017 and December 31, ~~2015.~~2016. The Bank’s policy for returning a loan to accrual status requires the loan to be brought current and for the client to show a history of making timely payments (generally six consecutive months). For troubled debt restructured loans

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

(“TDRs”), a return to accrual status generally requires timely payments for a period of six months in accordance with the restructured loan terms, along with meeting other criteria.

The following tables show the payment status of loans by class of receivable as of the dates indicated:


	June 30, 2016																				March 31, 2017
	Accruing Past Due								Nonaccrual Loans												Accruing Past Due						Nonaccrual Loans
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Accruing Past Due		Current Payment Status		30-89 Days Past Due		90 Days or Greater Past Due		Total Non-Accrual Loans		Current Accruing Loans		Total Loans Receivable		30-59 Days Past Due		60-89 Days Past Due		Total Accruing Past Due		Current		30-89 Days Past Due		90 Days or Greater Past Due		Total Non-Accrual Loans		Current Accruing Loans		Total Loans Receivable
	(In thousands)																				(In thousands)
Commercial and industrial	$	3,151	$	—	$	—	$	3,151	$	1,106	$	—	$	—	$	1,106	$	1,038,660	$	1,042,917	$	2,115	$	223	$	2,338	$	491	$	—	$	81	$	572	$	577,444	$	580,354
Commercial tax exempt																					—		—		—		—		4,337		—		4,337		405,095		409,432
Commercial real estate	1,329		161		—		1,490		3,922		—		3,012		6,934		1,968,888		1,977,312		8,251		9,518		17,769		1,673		546		1,637		3,856		2,347,002		2,368,627
Construction and land	—		—		115		115		74		29		758		861		141,573		142,549		109		—		109		85		28		34		147		116,751		117,007
Residential	—		2,481		—		2,481		2,843		765		5,359		8,967		2,268,668		2,280,116		6,078		—		6,078		7,618		954		2,390		10,962		2,446,576		2,463,616
Home equity	239		—		—		239		84		—		1,211		1,295		123,952		125,486		780		—		780		—		—		1,070		1,070		112,686		114,536
Consumer and other	75		190		—		265		10		8		7		25		182,827		183,117		1,406		245		1,651		1		—		—		1		194,993		196,645
Total	$	4,794	$	2,832	$	115	$	7,741	$	8,039	$	802	$	10,347	$	19,188	$	5,724,568	$	5,751,497	$	18,739	$	9,986	$	28,725	$	9,868	$	5,865	$	5,212	$	20,945	$	6,200,547	$	6,250,217

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	December 31, 2015																		December 31, 2016
	Accruing Past Due						Nonaccrual Loans												Accruing Past Due						Nonaccrual Loans
	30-59 Days Past Due		60-89 Days Past Due		Total Accruing Past Due		Current Payment Status		30-89 Days Past Due		90 Days or Greater Past Due		Total Non-Accrual Loans		Current Accruing Loans		Total Loans Receivable		30-59 Days Past Due		60-89 Days Past Due		Total Accruing Past Due		Current		30-89 Days Past Due		90 Days or Greater Past Due		Total Non-Accrual Loans		Current Accruing Loans		Total Loans Receivable
	(In thousands)																		(In thousands)
Commercial and industrial	$	2,329	$	338	$	2,667	$	726	$	—	$	293	$	1,019	$	1,107,869	$	1,111,555	$	541	$	1,078	$	1,619	$	537	$	—	$	35	$	572	$	609,179	$	611,370
Commercial tax exempt																			—		—		—		—		—		—		—		398,604		398,604
Commercial real estate	2,091		529		2,620		5,912		—		5,320		11,232		1,900,282		1,914,134		3,096		—		3,096		2,311		835		1,437		4,583		2,294,565		2,302,244
Construction and land	—		—		—		149		34		3,114		3,297		180,137		183,434		—		—		—		129		12		38		179		104,660		104,839
Residential	6,267		873		7,140		924		874		7,863		9,661		2,212,739		2,229,540		3,646		536		4,182		2,148		1,274		7,486		10,908		2,364,771		2,379,861
Home equity	40		—		40		217		—		1,089		1,306		118,482		119,828		245		—		245		—		80		992		1,072		117,500		118,817
Consumer and other	235		392		627		24		9		23		56		160,038		160,721		5,995		—		5,995		1		—		—		1		192,623		198,619
Total	$	10,962	$	2,132	$	13,094	$	7,952	$	917	$	17,702	$	26,571	$	5,679,547	$	5,719,212	$	13,523	$	1,614	$	15,137	$	5,126	$	2,201	$	9,988	$	17,315	$	6,081,902	$	6,114,354

Nonaccrual and delinquent loans are affected by many factors, such as economic and business conditions, interest rates, unemployment levels, and real estate collateral values, among others. In periods of prolonged economic decline, borrowers may become more severely affected over time as liquidity levels decline and the borrower’s ability to continue to make payments deteriorates. With respect to real estate collateral values, the declines from the peak, as well as the value of the real estate at the time of origination versus the current value, can impact the level of problem loans. For instance, if the loan to value ratio at the time of renewal has increased due to the decline in the real estate value since origination, the loan may no longer meet the Bank’s underwriting standards and may be considered for classification as a problem loan dependent upon a review of risk factors.

Generally when a collateral dependent loan becomes impaired, an updated appraisal of the collateral, if appropriate, is obtained. If the impaired loan has not been upgraded to a performing status within a reasonable amount of time, the Bank will continue to obtain updated appraisals as deemed necessary, especially during periods of declining property values.

The past due status of a loan is determined in accordance with its contractual repayment terms. All loan types are reported past due when one scheduled payment is due and unpaid for 30 days or more.

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

Credit Quality Indicators

The Bank uses a risk rating system to monitor the credit quality of its loan portfolio. Loan classifications are assessments made by the Bank of the status of the loans based on the facts and circumstances known to the Bank, including management’s judgment, at the time of assessment. Some or all of these classifications may change in the future if there are unexpected changes in the financial condition of the borrower, including but not limited to, changes resulting from continuing deterioration in general economic conditions on a national basis or in the local markets in which the Bank operates adversely affecting, among other things, real estate values. Such conditions, as well as other factors which adversely affect borrowers’ ability to service or repay loans, typically result in changes in loan default and charge-off rates, and increased provisions for loan losses, which would adversely affect the Company’s financial performance and financial condition. These circumstances are not entirely foreseeable and, as a result, it may not be possible to accurately reflect them in the Company’s analysis of credit risk. Generally, only commercial loans, including commercial real estate, other commercial and industrial loans, commercial tax exempt loans, and construction and land loans, are given a numerical grade.

A summary of the rating system used by the Bank, repeated here from 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,~~2016, follows:

Pass - All loans graded as pass are considered acceptable credit quality by the Bank and are grouped for purposes of calculating the allowance for loan losses. ~~Generally, only commercial loans, including commercial real estate, commercial and industrial loans, and construction and land loans are given a numerical grade.~~ For residential, home equity and consumer loans, the Bank classifies loans as pass unless there is known information such as delinquency or client requests for modifications which, due to financial difficulty, would then generally result in a risk rating such as special mention or more severe depending on the factors.

Special Mention - Loans rated in this category are defined as having potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

deterioration of the repayment prospects for the credit or the Bank’s credit position. These loans are currently protected but have the potential to deteriorate to a substandard rating. For commercial loans, the borrower’s financial performance may be inconsistent or below forecast, creating the possibility of liquidity problems and shrinking debt service coverage. In loans having this rating, the primary source of repayment is still good, but there is increasing reliance on collateral or guarantor support. Collectability of the loan is not yet in jeopardy. In particular, loans in this category are considered more variable than other categories, since they will typically migrate through categories more quickly.

Substandard - Loans rated in this category are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. A substandard credit has a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Substandard loans may be either still accruing or nonaccruing depending upon the severity of the risk and other factors such as the value of the collateral, if any, and past due status.

Doubtful - Loans rated in this category indicate that collection or liquidation in full on the basis of currently existing facts, conditions, and values, is highly questionable and improbable. Loans in this category are usually on nonaccrual and classified as impaired.

The following tables present the loan portfolio’s credit risk profile by internally assigned grade and class of receivable as of the dates indicated:


	June 30, 2016										March 31, 2017
	By Loan Grade or Nonaccrual Status										By Loan Grade or Nonaccrual Status
	Pass		Special Mention		Accruing Substandard		Nonaccrual Loans		Total		Pass		Special Mention		Accruing Substandard		Nonaccrual Loans		Total
	(In thousands)										(In thousands)
Commercial and industrial	$	1,009,528	$	17,084	$	15,199	$	1,106	$	1,042,917	$	558,621	$	10,743	$	10,418	$	572	$	580,354
Commercial tax exempt											399,442		5,653		—		4,337		409,432
Commercial real estate	1,895,974		35,760		38,644		6,934		1,977,312		2,282,055		33,291		49,425		3,856		2,368,627
Construction and land	125,069		12,796		3,823		861		142,549		113,604		109		3,147		147		117,007
Residential	2,264,593		—		6,556		8,967		2,280,116		2,451,267		—		1,387		10,962		2,463,616
Home equity	124,191		—		—		1,295		125,486		113,466		—		—		1,070		114,536
Consumer and other	181,402		1,688		2		25		183,117		196,642		—		2		1		196,645
Total	$	5,600,757	$	67,328	$	64,224	$	19,188	$	5,751,497	$	6,115,097	$	49,796	$	64,379	$	20,945	$	6,250,217



	December 31, 2016
	By Loan Grade or Nonaccrual Status
	Pass		Special Mention		Accruing Substandard		Nonaccrual Loans		Total
	(In thousands)
Commercial and industrial	$	591,388	$	10,133	$	9,277	$	572	$	611,370
Commercial tax exempt	388,544		10,060		—		—		398,604
Commercial real estate	2,230,732		17,233		49,696		4,583		2,302,244
Construction and land	101,254		109		3,297		179		104,839
Residential	2,367,554		—		1,399		10,908		2,379,861
Home equity	117,745		—		—		1,072		118,817
Consumer and other	198,616		—		2		1		198,619
Total	$	5,995,833	$	37,535	$	63,671	$	17,315	$	6,114,354

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

December 31, 2015
By Loan Grade or Nonaccrual Status
Pass Special Mention Accruing Substandard Nonaccrual Loans Total
(In thousands)
Commercial and industrial $ 1,070,438
$ 28,643
$ 11,455
$ 1,019
$ 1,111,555
Commercial real estate 1,841,603
27,594
33,705
11,232
1,914,134
Construction and land 162,563
12,974
4,600
3,297
183,434
Residential 2,213,204
—
6,675
9,661
2,229,540
Home equity 118,522
—
—
1,306
119,828
Consumer and other 158,686
—
1,979
56
160,721
Total $ 5,565,016
$ 69,211
$ 58,414
$ 26,571
$ 5,719,212

The following tables present, by class of receivable, the balance of impaired loans with and without a related allowance, the associated allowance for those impaired loans with a related allowance, and the total unpaid principal on impaired loans:


	As of and for the three and six months ended June 30, 2016														As of and for the three months ended March 31, 2017
	Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		QTD Average Recorded Investment		YTD Average Recorded Investment		QTD Interest Income Recognized while Impaired		YTD Interest Income Recognized while Impaired		Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		YTD Average Recorded Investment		YTD Interest Income Recognized while Impaired
	(In thousands)														(In thousands)
With no related allowance recorded:
Commercial and industrial	$	8,595	$	10,622	n/a		$	5,668	$	4,107	$	59	$	71	$	1,670	$	2,045	n/a		$	1,731	$	13
Commercial tax exempt															4,337		4,337		n/a		3,253		—
Commercial real estate	7,780		14,088		n/a		9,794		10,764		504		542		3,747		8,787		n/a		4,269		246
Construction and land	861		1,793		n/a		2,337		1,797		—		—		147		479		n/a		164		—
Residential	7,653		8,013		n/a		7,565		7,389		57		114		9,401		9,773		n/a		8,465		101
Home equity	—		—		n/a		—		—		—		—		—		—		n/a		—		—
Consumer and other	—		—		n/a		—		—		—		—		—		—		n/a		—		—
Subtotal	24,889		34,516		n/a		25,364		24,057		620		727		19,302		25,421		n/a		17,882		360
With an allowance recorded:
Commercial and industrial	37		37		$	22	44		31		—		1		—		—		$	—	—		—
Commercial tax exempt															—		—		—		—		—
Commercial real estate	7,233		7,662		640		7,266		7,294		78		158		7,041		7,470		475		7,073		75
Construction and land	—		—		—		—		943		—		—		—		—		—		—		—
Residential	5,682		5,682		439		5,630		5,958		36		79		2,931		2,931		517		3,917		39
Home equity	—		—		—		—		—		—		—		37		37		21		37		—
Consumer and other	—		—		—		—		—		—		—		—		—		—		—		—
Subtotal	12,952		13,381		1,101		12,940		14,226		114		238		10,009		10,438		1,013		11,027		114
Total:
Commercial and industrial	8,632		10,659		22		5,712		4,138		59		72		1,670		2,045		—		1,731		13
Commercial tax exempt															4,337		4,337		—		3,253		—
Commercial real estate	15,013		21,750		640		17,060		18,058		582		700		10,788		16,257		475		11,342		321
Construction and land	861		1,793		—		2,337		2,740		—		—		147		479		—		164		—
Residential	13,335		13,695		439		13,195		13,347		93		193		12,332		12,704		517		12,382		140
Home equity	—		—		—		—		—		—		—		37		37		21		37		—
Consumer and other	—		—		—		—		—		—		—		—		—		—		—		—
Total	$	37,841	$	47,897	$	1,101	$	38,304	$	38,283	$	734	$	965	$	29,311	$	35,859	$	1,013	$	28,909	$	474

~~___________________~~_____________________


(1)	Recorded investment represents the client loan balance net of historical charge-offs and historical nonaccrual interest paid, which was applied to principal.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	As of and for the three and six months ended June 30, 2015														As of and for the three months ended March 31, 2016
	Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		QTD Average Recorded Investment		YTD Average Recorded Investment		QTD Interest Income Recognized while Impaired		YTD Interest Income Recognized while Impaired		Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		YTD Average Recorded Investment		YTD Interest Income Recognized while Impaired
	(In thousands)														(In thousands)
With no related allowance recorded:
Commercial and industrial	$	1,479	$	1,537	n/a		$	509	$	1,152	$	1	$	808	$	2,446	$	4,431	n/a		$	2,132	$	12
Commercial tax exempt															—		—		n/a		—		—
Commercial real estate	18,050		25,881		n/a		18,675		19,808		72		966		11,900		20,038		n/a		12,017		38
Construction and land	1,215		2,240		n/a		1,243		4,637		—		92		2,850		4,446		n/a		1,520		—
Residential	10,239		11,026		n/a		9,444		9,527		73		151		6,821		7,181		n/a		7,071		57
Home equity	50		50		n/a		50		50		—		1		—		—		n/a		—		—
Consumer and other	1,007		1,007		n/a		1,007		1,007		1		1		—		—		n/a		—		—
Subtotal	32,040		41,741		n/a		30,928		36,181		147		2,019		24,017		36,096		n/a		22,740		107
With an allowance recorded:
Commercial and industrial	1,701		1,714		$	316	1,350		1,203		20		54		48		48		$	23	22		1
Commercial tax exempt															—		—		—		—		—
Commercial real estate	7,144		7,572		776		8,095		8,504		124		216		7,299		7,728		671		7,323		80
Construction and land	2,200		2,356		172		2,200		2,200		—		—		—		—		—		1,650		—
Residential	7,329		7,681		1,234		7,479		7,257		51		100		5,578		5,578		473		6,192		43
Home equity	—		—		—		—		—		—		—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—		—		—		—		—		—		—
Subtotal	18,374		19,323		2,498		19,124		19,164		195		370		12,925		13,354		1,167		15,187		124
Total:
Commercial and industrial	3,180		3,251		316		1,859		2,355		21		862		2,494		4,479		23		2,154		13
Commercial tax exempt															—		—		—		—		—
Commercial real estate	25,194		33,453		776		26,770		28,312		196		1,182		19,199		27,766		671		19,340		118
Construction and land	3,415		4,596		172		3,443		6,837		—		92		2,850		4,446		—		3,170		—
Residential	17,568		18,707		1,234		16,923		16,784		124		251		12,399		12,759		473		13,263		100
Home equity	50		50		—		50		50		—		1		—		—		—		—		—
Consumer and other	1,007		1,007		—		1,007		1,007		1		1		—		—		—		—		—
Total	$	50,414	$	61,064	$	2,498	$	50,052	$	55,345	$	342	$	2,389	$	36,942	$	49,450	$	1,167	$	37,927	$	231

~~___________________~~_____________________


(1)	Recorded investment represents the client loan balance net of historical charge-offs and historical nonaccrual interest paid, which was applied to principal.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	As of and for the year ended December 31, 2015										As of and for the year ended December 31, 2016
	Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized while Impaired		Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized while Impaired
	(In thousands)										(In thousands)
With no related allowance recorded:
Commercial and industrial	$	2,259	$	2,569	n/a		$	1,638	$	836	$	1,793	$	2,155	n/a		$	5,288	$	249
Commercial tax exempt											—		—		n/a		—		—
Commercial real estate	12,116		20,113		n/a		17,885		1,494		4,488		9,647		n/a		8,520		1,032
Construction and land	1,097		2,132		n/a		3,027		92		179		507		n/a		1,069		48
Residential	7,788		8,576		n/a		9,384		269		8,134		8,506		n/a		7,446		211
Home equity	—		—		n/a		42		2		—		—		n/a		—		—
Consumer and other	—		—		n/a		545		61		—		—		n/a		—		—
Subtotal	23,260		33,390		n/a		32,521		2,754		14,594		20,815		n/a		22,323		1,540
With an allowance recorded:
Commercial and industrial	15		15		$	270	657		66		—		—		$	—	31		1
Commercial tax exempt											—		—		—		—		—
Commercial real estate	7,346		7,775		713		8,749		385		7,115		7,544		548		7,230		314
Construction and land	2,200		2,356		172		2,200		—		—		—		—		507		—
Residential	6,351		6,966		474		6,940		186		4,284		4,284		565		5,505		143
Home equity	—		—		—		—		—		37		37		22		3		—
Consumer and other	—		—		—		—		—		—		—		—		—		—
Subtotal	15,912		17,112		1,629		18,546		637		11,436		11,865		1,135		13,276		458
Total:
Commercial and industrial	2,274		2,584		270		2,295		902		1,793		2,155		—		5,319		250
Commercial tax exempt											—		—		—		—		—
Commercial real estate	19,462		27,888		713		26,634		1,879		11,603		17,191		548		15,750		1,346
Construction and land	3,297		4,488		172		5,227		92		179		507		—		1,576		48
Residential	14,139		15,542		474		16,324		455		12,418		12,790		565		12,951		354
Home equity	—		—		—		42		2		37		37		22		3		—
Consumer and other	—		—		—		545		61		—		—		—		—		—
Total	$	39,172	$	50,502	$	1,629	$	51,067	$	3,391	$	26,030	$	32,680	$	1,135	$	35,599	$	1,998

~~___________________~~_____________________


(1)	Recorded investment represents the client loan balance net of historical charge-offs and historical nonaccrual interest paid, which was applied to principal.

When management determines that it is probable that the Bank will not collect all principal and interest on a loan in accordance with the original loan terms, the loan is designated as impaired.

Loans that are designated as impaired require an analysis to determine the amount of impairment, if any. Impairment would be indicated as a result of the carrying value of the loan exceeding the estimated collateral value, less costs to sell, for collateral dependent loans or the net present value of the projected cash flow, discounted at the loan’s contractual effective interest rate, for loans not considered to be collateral dependent. Generally, shortfalls in the analysis on collateral dependent loans would result in the impairment amount being charged-off to the allowance for loan losses. Shortfalls on cash flow dependent loans may be carried as specific allocations to the general reserve unless a known loss is determined to have occurred, in which case such known loss is charged-off.

Loans in the held for sale category are carried at the lower of amortized cost or estimated fair value in the aggregate and are excluded from the allowance for loan losses analysis.

The Bank may, under certain circumstances, restructure loans as a concession to borrowers who are experiencing financial difficulty. Such loans are classified as TDRs and are included in impaired loans. TDRs typically result from the Bank’s loss mitigation activities which, among other things, could include rate reductions, payment extensions, and/or principal forgiveness. As of June 30, 2016 and December 31, 2015, TDRs totaled $30.4 million and $30.6 million, respectively. As of June 30, 2016, $23.9 million of the $30.4 million in TDRs were on accrual status. As of December 31, 2015, $18.6 million of the $30.6 million in TDRs were on accrual status.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

forgiveness. As of March 31, 2017 and December 31, 2016, TDRs totaled $17.2 million and $18.1 million, respectively. As of March 31, 2017, $12.1 million of the $17.2 million in TDRs were on accrual status. As of December 31, 2016, $12.4 million of the $18.1 million in TDRs were on accrual status.

Since all TDR loans are considered impaired loans, they are individually evaluated for impairment. The resulting impairment, if any, would have an impact on the allowance for loan losses as a specific reserve or charge-off. If, prior to the classification as a TDR, the loan was not impaired, there would have been a general or allocated reserve on the particular loan. Therefore, depending upon the result of the impairment analysis, there could be an increase or decrease in the related allowance for loan losses. Many loans initially categorized as TDRs are already on nonaccrual status and are already considered impaired. Therefore, there is generally not a material change to the allowance for loan losses when a nonaccruing loan is categorized as a TDR.

The following tables present the balance of TDRs that were restructured or defaulted during the periods indicated and the types of concessions ~~granted:~~granted. There were no loans that were restructured or defaulted during the three months ended March 31, 2017:


	As of and for the three months ended June 30, 2016								As of and for the three months ended March 31, 2016
	Restructured current quarter					TDRs that defaulted in the current quarter that were restructured in prior twelve months			Restructured in the current quarter					TDRs that defaulted that were restructured in prior twelve months
	# of Loans	Pre- modification recorded investment		Post- modification recorded investment		# of Loans	Post- modification recorded investment		# of Loans	Pre- modification recorded investment		Post- modification recorded investment		# of Loans	Post- modification recorded investment
	(Dollars in thousands)								(Dollars in thousands)
Commercial and industrial	2	$	7,209	$	7,209	—	$	—	1	$	175	$	—	—	$	—
Commercial tax exempt									—	—		—		—	—
Commercial real estate	1	1,276		1,276		—	—		—	—		—		—	—
Construction and land	—	—		—		—	—		—	—		—		—	—
Residential	1	115		116		—	—		1	145		145		—	—
Home equity	—	—		—		—	—		—	—		—		—	—
Consumer and other	—	—		—		—	—		—	—		—		—	—
Total	4	$	8,600	$	8,601	—	$	—	2	$	320	$	145	—	$	—


	As of and for the three months ended June 30, 2016															As of and for the three months ended March 31, 2016
	Extension of term			Temporary rate reduction			Payment deferral			Combination of concessions (1)			Total concessions			Extension of term			Temporary rate reduction			Payment deferral			Combination of concessions (1)			Total concessions
	# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment
	(Dollars in thousands)															(Dollars in thousands)
Commercial and industrial	2	$	7,209	—	$	—	—	$	—	—	$	—	2	$	7,209	—	$	—	—	$	—	—	$	—	1	$	—	1	$	—
Commercial tax exempt																—	—		—	—		—	—		—	—		—	—
Commercial real estate	—	—		—	—		—	—		1	1,276		1	1,276		—	—		—	—		—	—		—	—		—	—
Construction and land	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—	—		—	—		—	—
Residential	—	—		1	116		—	—		—	—		1	116		—	—		1	145		—	—		—	—		1	145
Home equity	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—	—		—	—		—	—
Consumer and other	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—	—		—	—		—	—

~~______________________~~

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

_____________________


(1)	Combination of concessions includes loans that have had more than one modification, including extension of term, temporary reduction of interest rate, and/or payment deferral.

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

As of and for the six months ended June 30, 2016
Restructured year to date TDRs that defaulted
year to date that were
restructured in prior twelve months

# of
Loans

Pre-
modification
recorded
investment

Post-
modification
recorded
investment

# of
Loans

Post-
modification
recorded
investment
(Dollars in thousands)
Commercial and industrial 3
$ 7,384
$ 7,209
—
$ —
Commercial real estate 1
1,276
1,276
—
—
Construction and land —
—
—
—
—
Residential 2
260
261
—
—
Home equity —
—
—
—
—
Consumer and other —
—
—
—
—
Total 6
$ 8,920
$ 8,746
—
$ —

As of and for the six months ended June 30, 2016
Extension of term Temporary rate reduction Payment deferral Combination of concessions (1) Total concessions
# of
Loans
Post-
modifi-
cation
recorded
invest-
ment
# of
Loans Post-
modifi-
cation
recorded
invest-
ment # of
Loans Post-
modifi-
cation
recorded
invest-
ment # of
Loans Post-
modifi-
cation
recorded
invest-
ment # of
Loans Post-
modifi-
cation
recorded
invest-
ment
(Dollars in thousands)
Commercial and industrial 2
$ 7,209
—
$ —
—
$ —
1
$ —
3
$ 7,209
Commercial real estate —
—
—
—
—
—
1
1,276
1
1,276
Construction and land —
—
—
—
—
—
—
—
—
—
Residential —
—
2
261
—
—
—
—
2
261
Home equity —
—
—
—
—
—
—
—
—
—
Consumer and other —
—
—
—
—
—
—
—
—
—

~~______________________~~


~~(1)~~	~~Combination of concessions includes loans that have had more than one modification, including extension of term, temporary reduction of interest rate, and/or payment deferral.~~

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

As of and for the three months ended June 30, 2015
Restructured current quarter
TDRs that defaulted in the
current quarter that were
restructured in prior twelve months

# of
Loans

Pre-
modification
recorded
investment

Post-
modification
recorded
investment

# of
Loans

Post-
modification
recorded
investment
(Dollars in thousands)
Commercial and industrial 1
$ 1,298
$ 1,304
—
$ —
Commercial real estate 1
4,118
4,118
—
—
Construction and land —
—
—
—
—
Residential 2
131
134
—
—
Home equity —
—
—
—
—
Consumer and other —
—
—
—
—
Total 4
$ 5,547
$ 5,556
—
$ —

As of and for the three months ended June 30, 2015
Extension of term Temporary rate reduction Payment deferral Combination of concessions (1) Total concessions
# of
Loans
Post-
modifi-
cation
recorded
invest-
ment
# of
Loans Post-
modifi-
cation
recorded
invest-
ment # of
Loans Post-
modifi-
cation
recorded
invest-
ment # of
Loans Post-
modifi-
cation
recorded
invest-
ment # of
Loans Post-
modifi-
cation
recorded
invest-
ment
(Dollars in thousands)
Commercial and industrial —
$ —
—
$ —
—
$ —
1
$ 1,304
1
$ 1,304
Commercial real estate 1
4,118
—
—
—
—
—
—
1
4,118
Construction and land —
—
—
—
—
—
�� —
—
—
—
Residential —
—
1
109
1
25
—
—
2
134
Home equity —
—
—
—
—
—
—
—
—
—
Consumer and other —
—
—
—
—
—
—
—
—
—

~~______________________~~


~~(1)~~	~~Combination of concessions includes loans that have had more than one modification, including extension of term, temporary reduction of interest rate, and/or payment deferral.~~

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

As of and for the six months ended June 30, 2015
Restructured year to date
TDRs that defaulted
year to date that were
restructured in prior twelve months

# of
Loans

Pre-
modification
recorded
investment

Post-
modification
recorded
investment

# of
Loans

Post-
modification
recorded
investment
(Dollars in thousands)
Commercial and industrial 1
$ 1,298
$ 1,304
—
$ —
Commercial real estate 1
4,118
4,118
—
—
Construction and land —
—
—
—
—
Residential 8
513
516
—
—
Home equity —
—
—
—
—
Consumer and other —
—
—
—
—
Total 10
$ 5,929
$ 5,938
—
$ —

As of and for the six months ended June 30, 2015
Extension of term Temporary rate reduction Payment deferral Combination of concessions (1) Total concessions
# of
Loans
Post-
modifi-
cation
recorded
invest-
ment
# of
Loans Post-
modifi-
cation
recorded
invest-
ment # of
Loans Post-
modifi-
cation
recorded
invest-
ment # of
Loans Post-
modifi-
cation
recorded
invest-
ment # of
Loans Post-
modifi-
cation
recorded
invest-
ment
(Dollars in thousands)
Commercial and industrial —
$ —
—
$ —
—
$ —
1
$ 1,304
1
$ 1,304
Commercial real estate 1
4,118
—
—
—
—
—
—
1
4,118
Construction and land —
—
—
—
—
—
—
—
—
—
Residential —
—
7
491
1
25
—
—
8
516
Home equity —
—
—
—
—
—
—
—
—
—
Consumer and other —
—
—
—
—
—
—
—
—
—

~~______________________~~


~~(1)~~	~~Combination of concessions includes loans that have had more than one modification, including extension of term, temporary reduction of interest rate, and/or payment deferral.~~

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

7. Allowance for Loan Losses

The allowance for loan losses is reported as a reduction of outstanding loan balances, and totaled ~~$75.8~~$78.0 million and ~~$78.5~~$78.1 million at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~,2016, respectively.

The following tables present a summary of the changes in the allowance for loan losses for the periods indicated:


	As of and for the three months ended June 30,						As of and for the six months ended June 30,						As of and for the three months ended March 31,
	2016			2015			2016			2015			2017			2016
	(In thousands)												(In thousands)
Allowance for loan losses, beginning of period:
Commercial and industrial	$	14,343		$	14,337		$	15,814		$	14,114		$	12,751		$	15,814
Commercial real estate	44,519			43,552			44,215			43,854			50,412			44,215
Construction and land	5,551			5,411			6,322			4,041			3,039			6,322
Residential	10,634			10,397			10,544			10,374			10,449			10,544
Home equity	1,079			1,016			1,085			1,003			1,035			1,085
Consumer and other	301			508			520			382			391			520
Unallocated (1)	—			2,042			—			2,070
Total allowance for loan losses, beginning of period	76,427			77,263			78,500			75,838			78,077			78,500
Provision/ (credit) for loan losses:
Commercial and industrial	(1,179		)	204			(1,836		)	(1,777		)	(547		)	(657		)
Commercial real estate	(803		)	(333		)	(2,650		)	(1,266		)	702			(1,847		)
Construction and land	(811		)	7			(1,809		)	234			158			(998		)
Residential	114			(52		)	705			20			(348		)	591
Home equity	60			8			54			21			(48		)	(6		)
Consumer and other	84			75			(132		)	205			(98		)	(216		)
Unallocated	—			91			—			63
Total provision/(credit) for loan losses	(2,535		)	—			(5,668		)	(2,500		)	(181		)	(3,133		)
Loans charged-off:
Commercial and industrial	—			(3		)	(2,108		)	(3		)	—			(2,108		)
Commercial real estate	—			—			—			—			—			—
Construction and land	—			—			(400		)	—			—			(400		)
Residential	—			—			(501		)	(49		)	(58		)	(501		)
Home equity	—			—			—			—			—			—
Consumer and other	(19		)	(55		)	(26		)	(60		)	—			(7		)
Total charge-offs	(19		)	(58		)	(3,035		)	(112		)	(58		)	(3,016		)
Recoveries on loans previously charged-off:
Commercial and industrial	82			83			1,376			2,287			87			1,294
Commercial real estate	1,791			914			3,942			1,545			50			2,151
Construction and land	—			—			627			1,143			—			627
Residential	4			49			4			49			47			—
Home equity	—			—			—			—			—			—
Consumer and other	3			—			7			1			9			4
Total recoveries	1,880			1,046			5,956			5,025			193			4,076

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	As of and for the three months ended June 30,				As of and for the six months ended June 30,				As of and for the three months ended March 31,
	2016		2015		2016		2015		2017		2016
	(In thousands)								(In thousands)
Allowance for loan losses at end of period:
Commercial and industrial	13,246		14,621		13,246		14,621		12,291		14,343
Commercial real estate	45,507		44,133		45,507		44,133		51,164		44,519
Construction and land	4,740		5,418		4,740		5,418		3,197		5,551
Residential	10,752		10,394		10,752		10,394		10,090		10,634
Home equity	1,139		1,024		1,139		1,024		987		1,079
Consumer and other	369		528		369		528		302		301
Unallocated (1)	—		2,133		—		2,133
Total allowance for loan losses at end of period	$	75,753	$	78,251	$	75,753	$	78,251	$	78,031	$	76,427

~~______________________~~


~~(1)~~	~~As of December 31, 2015, the unallocated reserve was allocated to the qualitative factors as part of the general reserves (ASC 450).~~

The provision/ (credit) for loan losses and related balance in the allowance for loan losses for tax exempt

commercial and industrial loans are included with commercial and industrial. The provision/ (credit) for loan losses and related

balance in the allowance for loan losses for tax exempt commercial real estate loans are included with commercial real estate.

There were no charge-offs or recoveries, for any period presented, for both commercial and industrial and commercial real

estate tax exempt loans.

The following tables present the Company’s allowance for loan losses and loan portfolio at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 by portfolio segment, disaggregated by method of impairment analysis. The Company had no loans acquired with deteriorated credit quality at ~~June 30, 2016~~March 31, 2017 or December 31, ~~2015~~2016.


	June 30, 2016												March 31, 2017
	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total				Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
	Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses
	(In thousands)												(In thousands)
Commercial and industrial	$	8,632	$	22	$	1,034,285	$	13,224	$	1,042,917	$	13,246	$	6,007	$	—	$	983,779	$	12,291	$	989,786	$	12,291
Commercial real estate	15,013		640		1,962,299		44,867		1,977,312		45,507		10,788		475		2,357,839		50,689		2,368,627		51,164
Construction and land	861		—		141,688		4,740		142,549		4,740		147		—		116,860		3,197		117,007		3,197
Residential	13,335		439		2,266,781		10,313		2,280,116		10,752		12,332		517		2,451,284		9,573		2,463,616		10,090
Home equity	—		—		125,486		1,139		125,486		1,139		37		21		114,499		966		114,536		987
Consumer	—		—		183,117		369		183,117		369		—		—		196,645		302		196,645		302
Total	$	37,841	$	1,101	$	5,713,656	$	74,652	$	5,751,497	$	75,753	$	29,311	$	1,013	$	6,220,906	$	77,018	$	6,250,217	$	78,031

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	December 31, 2015												December 31, 2016
	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total				Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
	Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses
	(In thousands)												(In thousands)
Commercial and industrial	$	2,274	$	270	$	1,109,281	$	15,544	$	1,111,555	$	15,814	$	1,793	$	—	$	1,008,181	$	12,751	$	1,009,974	$	12,751
Commercial real estate	19,462		713		1,894,672		43,502		1,914,134		44,215		11,603		548		2,290,641		49,864		2,302,244		50,412
Construction and land	3,297		172		180,137		6,150		183,434		6,322		179		—		104,660		3,039		104,839		3,039
Residential	14,139		474		2,215,401		10,070		2,229,540		10,544		12,418		565		2,367,443		9,884		2,379,861		10,449
Home equity	—		—		119,828		1,085		119,828		1,085		37		22		118,780		1,013		118,817		1,035
Consumer	—		—		160,721		520		160,721		520		—		—		198,619		391		198,619		391
Total	$	39,172	$	1,629	$	5,680,040	$	76,871	$	5,719,212	$	78,500	$	26,030	$	1,135	$	6,088,324	$	76,942	$	6,114,354	$	78,077

8. Derivatives and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and, to a lesser extent, the use of derivative financial instruments. Additionally, as a service to its customers, the Company may utilize derivative instruments such as customer foreign exchange forward contracts to manage its foreign exchange risk, if any. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are generally determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain loans, deposits, and borrowings.

The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015:~~2016:


	June 30, 2016							December 31, 2015							March 31, 2017							December 31, 2016
	Asset derivatives			Liability derivatives				Asset derivatives			Liability derivatives				Asset derivatives			Liability derivatives				Asset derivatives			Liability derivatives
	Balance sheet location	Fair value (1)		Balance sheet location	Fair value (1)			Balance sheet location	Fair value (1)		Balance sheet location	Fair value (1)			Balance sheet location	Fair value (1)		Balance sheet location	Fair value (1)			Balance sheet location	Fair value (1)		Balance sheet location	Fair value (1)
	(In thousands)														(In thousands)
Derivatives designated as hedging instruments:
Interest rate products	Other assets	$	—	Other liabilities	$	(3,629	)	Other assets	$	—	Other liabilities	$	(1,907	)	Other assets	$	—	Other liabilities	$	(666	)	Other assets	$	—	Other liabilities	$	(1,040	)
Derivatives not designated as hedging instruments:
Interest rate products	Other assets	28,885		Other liabilities	(31,168		)	Other assets	7,960		Other liabilities	(8,084		)	Other assets	16,654		Other liabilities	(16,504		)	Other assets	17,032		Other liabilities	(16,560		)
Risk participation agreements	Other assets	26		Other liabilities	(23		)	Other assets	—		Other liabilities	(11		)	Other assets	13		Other liabilities	(5		)	Other assets	15		Other liabilities	(6		)
Foreign exchange contracts	Other assets	2		Other liabilities	(2		)	Other assets	—		Other liabilities	—
Total		$	28,913		$	(34,822	)		$	7,960		$	(10,002	)		$	16,667		$	(17,175	)		$	17,047		$	(17,606	)

~~___________________~~_____________________


(1)	For additional details, see Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements-Note 5: Fair Value Measurements.”

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table presents the effect of the Company’s derivative financial instruments in the consolidated statements of operations for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 and ~~2015:~~2016:



Derivatives in cash flow hedging relationships	Amount of gain or (loss) recognized in OCI on derivatives (effective portion) (1)					Location of gain or (loss) reclassified from accumulated OCI into income (effective portion)	Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion)
	three months ended March 31,						three months ended March 31,
	2017		2016				2017			2016
(In thousands)
Interest rate products	$	67	$	(1,948	)	Interest expense	$	(303	)	$	(461	)
Total	$	67	$	(1,948	)		$	(303	)	$	(461	)

Derivatives in cash
flow hedging
relationships
Amount of gain or (loss) recognized in OCI on derivatives (effective portion) (1) Location of gain or (loss) reclassified from accumulated OCI into income (effective portion) Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion)
three months ended June 30, three months ended June 30,
2016 2015 2016 2015
(In thousands)
Interest rate products $ (643 ) $ 140
Interest expense $ (453 ) $ (1,022 )
Total $ (643 ) $ 140
$ (453 ) $ (1,022 )

~~___________________~~_____________________


(1)	There was an additional $3$(4) thousand related to the ineffective portion for the three months ended as of ~~June 30, 2016~~March 31, 2017 and no ineffective portion for the three months ended as of ~~June 30, 2015.~~March 31, 2016.

Derivatives in cash
flow hedging
relationships
Amount of gain or (loss) recognized in OCI on derivatives (effective portion) (1) Location of gain or (loss) reclassified from accumulated OCI into income (effective portion) Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion)
six months ended June 30, six months ended June 30,
2016 2015 2016 2015
(In thousands)
Interest rate products $ (2,591 ) $ (1,733 ) Interest expense $ (914 ) $ (2,040 )
Total $ (2,591 ) $ (1,733 ) $ (914 ) $ (2,040 )

~~___________________~~


~~(1)~~	~~There was an additional $45 thousand related to the ineffective portion for the six months ended as of June 30, 2016 and no ineffective portion for the six months ended as of June 30, 2015.~~

The following table presents the components of the Company’s accumulated other comprehensive income/ (loss) related to the derivatives for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 and ~~2015:~~2016:


	Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
	2016			2015			2016			2015				2017			2016
	(In thousands)												(In thousands)
Accumulated other comprehensive income/ (loss) on cash flow hedges, balance at beginning of period	$	(2,023	)	$	(2,432	)	$	(1,123	)	$	(1,923	)		$	(605	)	$	(1,123	)
Net change in unrealized gain/ (loss) on cash flow hedges	(86		)	676			(986		)	167				216			(900		)
Accumulated other comprehensive income/ (loss) on cash flow hedges, balance at end of period	$	(2,109	)	$	(1,756	)	$	(2,109	)	$	(1,756	)		$	(389	)	$	(2,023	)

The Bank has agreements with its derivative counterparties that contain provisions where, if the Bank defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Bank could also be declared in default on its derivative obligations. The Bank was in compliance with these provisions as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

The Bank also has agreements with certain of its derivative counterparties that contain provisions where, if the Bank fails to maintain its status as a well- or adequately-capitalized institution, then the counterparty could terminate the derivative positions and the Bank would be required to settle its obligations under the agreements. The Bank was in compliance with these provisions as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Certain of the Bank’s agreements with its derivative counterparties contain provisions where, if specified, events or conditions occur that materially change the Bank’s creditworthiness in an adverse manner, the Bank may be required to fully collateralize its obligations under the derivative instruments. The Bank was in compliance with these provisions as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

2016.

As of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the termination amounts related to collateral determinations of derivatives in a liability position were ~~$34.9~~$1.5 million and ~~$9.7~~$3.4 million, respectively. The Company has minimum collateral posting thresholds with its derivative counterparties and pledged securities with market values of ~~$37.6~~$2.2 million and ~~$9.8~~$1.9 million, respectively, as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016, ~~against its obligations under these agreements. In addition, as of December 31, 2015, the Company had posted cash collateral of $2.0 million~~ against its obligations under these agreements. The collateral posted is typically greater than the current liability ~~position. However,~~position; however, due to timing of liability position changes at period end, the funding of a collateral shortfall may take place shortly following period end.

Cash Flow Hedges of Interest Rate Risk

The Company’s objective in using derivatives is to add stability to interest income and expense and to manage the risk related to exposure to changes in interest rates. ~~To accomplish this objective, the Bank entered into a total of~~ ~~six~~ interest rate swaps, one during 2014 with an effective date of June 1, 2014, and five during 2013 with effective dates of December 1, 2014, September 2, 2014, June 1, 2014, March 1, 2014, and August 1, 2013. The six interest rate swaps each have a notional amount of $25 million and have terms ranging from three to six years. The Bank’s risk management ~~objective and~~ strategy for ~~these~~utilizing interest rate swaps is to reduce its exposure to variability in interest-related cash outflows attributable to changes in the London Interbank Offered Rate (“LIBOR”) swap rate associated with borrowing programs for each of the periods, ~~initially expected~~ to be accomplished with LIBOR-indexed brokered deposits and the LIBOR component of FHLB advances and repurchase agreements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

To accomplish this objective and strategy, the Bank entered into a total of eight interest rate swaps, two during 2017 with effective dates of March 22, 2017, one during 2014 with an effective date of June 1, 2014, and five during 2013 with effective dates of December 1, 2014, September 2, 2014, June 1, 2014, March 1, 2014, and August 1, 2013.

The two interest rate swaps entered into during 2017 have notional amounts of $40 million and $60 million with terms of 1.75 and 2.25 years, respectively. These interest rate swaps will effectively fix the Bank’s interest payments on $100 million in interest-related cash outflows attributable to changes in the LIBOR component of FHLB borrowing liabilities at rates of 1.55% and 1.65%, respectively, with a weighted average rate of 1.61%. The borrowings hedged will initially be expected to be issuances and quarterly rollovers of 3-month FHLB advances but may also then include ~~LIBOR-indexed FHLB advances.~~future issuances of 3-month repurchase agreements with similar characteristics and/or future issuances of either floating or fixed rate borrowings that are issued with the specific intent to replace the quarterly rollovers of the advances or repurchase agreements.

The six interest rate swaps entered into during 2014 and 2013 each have a notional amount of $25 million and have terms ranging from three to six years. The interest rate swaps will effectively fix the Bank’s interest payments on $150 million of its LIBOR-indexed deposit liabilities at rates between 1.17% and 2.32%, and a weighted average rate of 1.85%.

The Company uses the “Hypothetical Derivative Method” described in ASC 815, Derivatives and Hedging (“ASC 815”), for quarterly prospective and retrospective assessments of hedge effectiveness, as well as for measurements of hedge ineffectiveness. Under this method, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. The effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (“OCI”) (outside of earnings) and subsequently reclassified to earnings in interest and dividend income when the hedged transactions affect earnings. Ineffectiveness resulting from the hedge is recorded as a gain or loss in the consolidated statement of operations as part of fees and other income. There was an immaterial amount of hedge ineffectiveness during the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 and no hedge ineffectiveness during the three ~~and six~~ months ended ~~June 30, 2015.~~March 31, 2016. The Company monitors the risk of counterparty default on an ongoing basis.

A portion of the balance reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are made or received on the Company’s interest rate swaps. During the next twelve months, the Company estimates that ~~$1.8~~$0.9 million will be reclassified as an increase in interest expense.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from two different services the Bank provides to qualified commercial clients. The Bank offers certain derivative products directly to such clients. The Bank economically hedges derivative transactions executed with commercial clients by entering into mirror-image, offsetting derivatives with third parties. Derivative transactions executed as part of these programs are not designated in ASC 815-qualifying hedging relationships and are, therefore, marked-to-market through earnings each period. Because the derivatives have mirror-image contractual terms, the changes in fair value substantially offset through earnings. The net effect on earnings is primarily driven by changes in the credit valuation adjustment (“CVA”). The CVA represents the dollar amount of fair value adjustment related to nonperfomance risk of both the Bank and its counterparties. Fees earned in connection with the execution of derivatives related to this program are recognized in the consolidated statement of operations in other income. As of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the Bank had ~~116~~138 and 76136 derivatives, respectively, related to this program, comprised of interest rate swaps and caps, with an aggregate notional amount of ~~$841.5 million and $475.3 million, respectively.~~$1.1 billion for both periods. As of ~~June 30, 2016, the Bank had one derivative with an aggregate notional amount of less than $0.1 million in a foreign currency exchange contract outstanding related to this program. There~~March 31, 2017, there were no foreign currency exchange contracts outstanding related to this program and, as of December 31, ~~2015.~~2016, there was one foreign currency exchange contract with an aggregate notional amount of less than $0.1 million.

In addition, as a participant lender, the Bank has guaranteed performance on athe pro-rated portion of ~~a swap~~two swaps executed by ~~another~~other financial ~~institution.~~institutions. As the participant lender, the Bank is providing a partial guarantee, but is not a direct party to the related swap ~~transaction.~~transactions. The Bank has no obligations under the risk participation ~~agreement~~agreements unless the borrower defaults on their swap transaction with the lead bank and the swap is in a liability position to the borrower. In that instance, the Bank has agreed to pay the lead bank a portion of the swap’s termination value at the time of the default. The derivative ~~transaction~~transactions entered into as part of ~~this transaction is~~these agreements are not designated, as per ASC 815, as a qualifying hedging ~~relationship~~relationships and ~~is,~~are, therefore, marked-to-market through earnings each period. The pro-rated notional amount of ~~this~~these risk participation ~~transaction~~transactions was ~~$8.3~~$13.3 million as of ~~June 30, 2016~~both March 31, 2017 and December 31, ~~2015.~~2016.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The Bank has also participated out to another financial institution a pro-rated portion of ~~a swap~~two swaps executed by the Bank. The other financial institution has no obligations under the risk participation ~~agreement~~agreements unless the ~~borrower defaults~~borrowers default on their swap ~~transaction~~transactions with the Bank and the ~~swap is~~swaps are in a liability ~~position~~positions to the borrower. In ~~that instance,~~those instances, the other financial institution has agreed to pay the Bank a portion of the swap’s termination value at the time of the default. The derivative ~~transaction~~transactions entered into as part of ~~this transaction is~~these agreements are not designated, as per ASC 815, as a qualifying hedging ~~relationship~~relationships and ~~is,~~are, therefore, marked-to-market through earnings each period. The pro-rated notional amount of ~~this~~these risk participation ~~transaction~~transactions was ~~$1.9~~$6.1 million as of ~~June 30, 2016. There were no risk participation agreements participated out as of~~both March 31, 2017 and December 31, ~~2015.~~2016.

The following table presents the effect of the Bank’s derivative financial instruments not designated as hedging instruments in the consolidated statement of operations for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 and ~~2015.~~2016.


		Amount of gain or (loss), net, recognized in income on derivatives											Amount of gain or (loss), net, recognized in income on derivatives
Derivatives not designated as hedging instruments	Location of gain or (loss) recognized in income on derivatives	Three months ended June 30,					Six months ended June 30,					Location of gain or (loss) recognized in income on derivatives	Three months ended March 31,
Derivatives not designated as hedging instruments		2016			2015		2016			2015			2017			2016
		(In thousands)											(In thousands)
Interest rate products	Other income/ (expense)	$	(1,554	)	$	307	$	(2,159	)	$	301	Other income/ (expense)	$	(322	)	$	(605	)
Risk participation agreements	Other income/ (expense)	7			5		13			45		Other income/ (expense)	—			6
Total		$	(1,547	)	$	312	$	(2,146	)	$	346		$	(322	)	$	(599	)

9. Income Taxes

The following table presents the components of income tax expense for continuing operations, discontinued operations, noncontrolling interests and the Company:


	Six months ended June 30,						Three months ended March 31,
	2016			2015			2017			2016
	(In thousands)						(In thousands)
Income from continuing operations:
Income before income taxes	$	48,093		$	51,817		$	21,549		$	24,325
Income tax expense	15,064			16,572			6,553			7,438
Net income from continuing operations	$	33,029		$	35,245		$	14,996		$	16,887
Effective tax rate, continuing operations	31.3		%	32.0		%	30.4		%	30.6		%

Income from discontinued operations:
Income before income taxes	$	5,658		$	6,227		$	2,788		$	3,530
Income tax expense	2,348			2,587			1,156			1,465
Net income from discontinued operations	$	3,310		$	3,640		$	1,632		$	2,065
Effective tax rate, discontinued operations	41.5		%	41.5		%	41.5		%	41.5		%

Less: Income attributable to noncontrolling interests:
Income before income taxes	$	1,900		$	2,492		$	966		$	911
Income tax expense	—			—			—			—
Net income attributable to noncontrolling interests	$	1,900		$	2,492		$	966		$	911
Effective tax rate, noncontrolling interests	—		%	—		%	—		%	—		%

Income attributable to the Company
Income before income taxes	$	51,851		$	55,552		$	23,371		$	26,944
Income tax expense	17,412			19,159			7,709			8,903
Net income attributable to the Company	$	34,439		$	36,393		$	15,662		$	18,041
Effective tax rate attributable to the Company	33.6		%	34.5		%	33.0		%	33.0		%

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The effective tax rate for continuing operations for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 of ~~31.3%~~30.4%, with related tax expense of ~~$15.1~~$6.6 million,, was calculated based on a projected ~~2016~~2017 annual effective tax rate. The effective tax rate was less than the statutory rate of 35% due primarily to earnings from tax-exempt investments, income tax credits, and income attributable to noncontrolling interests. These items were partially offset by state and local income taxes.

The effective tax rate for continuing operations for the ~~six~~three months ended ~~June 30, 2015~~March 31, 2016 of ~~32.0%~~30.6%, with related tax expense of ~~$16.6~~$7.4 million,, was calculated based on a projected ~~2015~~2016 annual effective tax rate. The effective tax rate was less than the statutory rate of 35% due primarily to earnings from tax-exempt investments, income tax credits, and income attributable to noncontrolling interests. These items were partially offset by state and local income taxes.

The effective tax rate for continuing operations for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 is lower than the effective tax rate for the same period in ~~2015~~2016 due primarily to a projected increase in earnings from tax-exempt investments and loans in ~~2016~~2017 as compared to ~~2015.~~2016.

In the first quarter of 2017, the Company adopted ASU 2016-09. The impact of ASU 2016-09 for the three months ended March 31, 2017 was an increase in income tax expense of $0.2 million due primarily to employee stock options expiring unexercised due to being out of the money. There was no significant change to the Company’s effective tax rate related to the adoption of this ASU.

10. Noncontrolling Interests

At the Company, noncontrolling interests ~~typically~~ consist of equity owned by management of the Company’s respective majority-owned affiliates. Net income attributable to noncontrolling interests in the consolidated statements of operations represents the net income allocated to the noncontrolling interest owners of the affiliates. Net income allocated to the noncontrolling interest owners was $1.0 million and ~~$1.3~~$0.9 million for the three month periods ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015, respectively, and $1.9 million and $2.5 million for the six month periods ended June 30, 2016 and 2015,~~ respectively.

On the consolidated balance sheets, noncontrolling interests are included as the sum of the capital and undistributed profits allocated to the noncontrolling interest owners. Typically, this balance is included in a company’s permanent shareholders’ equity in the consolidated balance sheets. When the noncontrolling interest owners’ rights include certain redemption features, as described in ASC 480, Distinguishing Liabilities from Equity, such redeemable noncontrolling interests are classified as mezzanine equity and are not included in permanent shareholders’ equity. Due to the redemption features of the noncontrolling interests, the Company had redeemable noncontrolling interests held in mezzanine equity in the accompanying consolidated balance sheets of ~~$15.8~~$17.2 million and ~~$18.1~~$17.0 million at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. The aggregate amount of such redeemable noncontrolling equity interests are recorded at the estimated maximum redemption values. In addition, the Company had ~~$3.4~~$4.0 million and $4.2 million in noncontrolling interests included in permanent shareholder’s equity at ~~both June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016, respectively.

Each non-wholly owned affiliate operating agreement provides the Company and/or the noncontrolling interests with contingent call or put redemption features used for the orderly transfer of noncontrolling equity interests between the affiliate noncontrolling interest owners and the Company at either a contractually predetermined fair value; multiple of earnings before interest, taxes, depreciation, and amortization (EBITDA); or fair value. The Company may liquidate these noncontrolling interests in cash, shares of the Company’s common stock, or other forms of consideration dependent on the operating agreement. These agreements are discussed in 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.~~2016.

Generally, these put and call redemption features refer to shareholder rights of both the Company and the noncontrolling interest owners of the Company’s majority-owned affiliate companies. The affiliate company noncontrolling interests generally take the form of limited liability company (LLC) units, profits interests, or common stock (collectively, the “noncontrolling equity interests”). In most circumstances, the put and call redemption features generally relate to the Company’s right and, in some cases, obligation to purchase and the noncontrolling equity interests’ right to sell their equity interests. There are various events that could cause the puts or calls to be exercised, such as a change in control, death, disability, retirement, resignation or termination. The puts and calls are generally to be exercised at the then fair value or a contractually agreed upon approximation thereof. The terms of these rights vary and are governed by the respective individual operating and legal documents.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table presents, by affiliate, the noncontrolling interests included as redeemable noncontrolling interests and noncontrolling interests in mezzanine and permanent equity, respectively, at the periods indicated:


	June 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
	(In thousands)				(In thousands)
Anchor	$	10,791	$	11,907	$	10,946	$	10,934
BOS	6,080		6,744		6,564		6,782
DGHM (1)	2,351		2,830		3,715		3,417
Total	$	19,222	$	21,481	$	21,225	$	21,133
Redeemable noncontrolling interests	$	15,843	$	18,088	$	17,232	$	16,972
Noncontrolling interests	$	3,379	$	3,393	$	3,993	$	4,161

~~______________~~_____________________

(1) Only includes redeemable noncontrolling interests.

The following ~~table presents~~tables present a rollforward of the Company’s redeemable noncontrolling interests and noncontrolling interests for the periods indicated:


	Three months ended						Six months ended						Three months ended
	June 30, 2016						June 30, 2016						March 31, 2017
	Redeemable noncontrolling interests			Noncontrolling interests			Redeemable noncontrolling interests			Noncontrolling interests			Redeemable noncontrolling interests			Noncontrolling interests
	(In thousands)												(In thousands)
Noncontrolling interests at beginning of period	$	16,938		$	3,116		$	18,088		$	3,393		$	16,972		$	4,161
Net income attributable to noncontrolling interests	769			220			1,487			413			724			242
Distributions	(788		)	(198		)	(1,404		)	(440		)	(703		)	(235		)
Purchases/ (sales) of ownership interests	(908		)	(18		)	(766		)	(18		)	66			—
Amortization of equity compensation	76			132			187			264			102			256
Adjustments to fair value	(244		)	127			(1,749		)	(233		)	71			(431		)
Noncontrolling interests at end of period	$	15,843		$	3,379		$	15,843		$	3,379		$	17,232		$	3,993


	Three months ended						Six months ended						Three months ended
	June 30, 2015						June 30, 2015						March 31, 2016
	Redeemable noncontrolling interests			Noncontrolling interests			Redeemable noncontrolling interests			Noncontrolling interests			Redeemable noncontrolling interests			Noncontrolling interests
	(In thousands)												(In thousands)
Noncontrolling interests at beginning of period	$	19,911		$	2,601		$	20,905		$	386		$	18,088		$	3,393
Net income attributable to noncontrolling interests	984			279			2,064			428			718			193
Distributions	(1,098		)	(116		)	(2,153		)	(252		)	(616		)	(242		)
Purchases/ (sales) of ownership interests	(1,503		)	—			(1,503		)	419			142			—
Transfers of ownership interests from mezzanine to permanent equity	—			—			(1,652		)	1,652
Amortization of equity compensation	—			118			—			236			111			132
Adjustments to fair value	906			14			1,539			27			(1,505		)	(360		)
Noncontrolling interests at end of period	$	19,200		$	2,896		$	19,200		$	2,896		$	16,938		$	3,116

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

11. Accumulated Other Comprehensive Income

The following table presents a summary of the amounts reclassified from accumulated other comprehensive income/ (loss) for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 and ~~2015:~~2016:


Description of component of accumulated other comprehensive income/ (loss)	Three months ended June 30,						Six months ended June 30,						Affected line item in Statement of Operations	Three months ended March 31,						Affected line item in Statement of Operations
	2016			2015			2016			2015			Affected line item in Statement of Operations	2017			2016			Affected line item in Statement of Operations
	(In thousands)						(In thousands)							(In thousands)
Adjustment for realized gains/ (losses) on available-for-sale securities, net:
Pre-tax	$	245		$	8		$	246		$	16		Gain on sale of investments, net	$	19		$	1		Gain on sale of investments, net
Tax expense/ (benefit)	88			4			88			7			Income tax expense	8			—			Income tax expense
Net	$	157		$	4		$	158		$	9		Net income attributable to the Company	$	11		$	1		Net income attributable to the Company
Net realized gain/ (loss) on cash flow hedges:
Hedge related to junior subordinated debentures:
Pre-tax	$	—		$	(473	)	$	—		$	(944	)	Interest expense on junior subordinated debentures
Tax expense/ (benefit)	—			(202		)	—			(404		)	Income tax expense
Net	$	—		$	(271	)	$	—		$	(540	)	Net income attributable to the Company
Hedges related to deposits:
Pre-tax	$	(453	)	$	(549	)	$	(914	)	$	(1,096	)	Interest expense on deposits	$	(303	)	$	(461	)	Interest expense on deposits
Pre-tax	2			—			45			—			Other income	(3		)	42			Other income
Tax expense/ (benefit)	(185		)	(227		)	(357		)	(452		)	Income tax expense	(126		)	(173		)	Income tax expense
Net	$	(266	)	$	(322	)	$	(512	)	$	(644	)	Net income attributable to the Company	$	(180	)	$	(246	)	Net income attributable to the Company
Total reclassifications for the period, net of tax	$	(109	)	$	(589	)	$	(354	)	$	(1,175	)		$	(169	)	$	(245	)

12. Restructuring

In the fourth quarter of 2014, the Company incurred restructuring charges related to the acquisition of Banyan Partners, LLC. The purpose of this restructuring was to realign the management structure within the Wealth Management and Trust segment. The total cost of the restructuring incurred in Q4 2014 was $0.7 million. In 2015, the Company incurred additional restructuring charges to further refine the management structure within the Wealth Management and Trust ~~Segment.~~segment. The total cost of the restructuring charges in 2015 was $3.7 million.

In ~~Q1 2016~~the first and Q2second quarters of 2016, the Company incurred additional costs of $1.1 million and $0.9 million, respectively, in continued refinement of the management structure within the Wealth Management and Trust segment. The Company does not anticipate any additional restructuring costs related to this plan as of the date of this filing.

Restructuring expenses incurred since the plan of restructuring was first implemented in 2014 totaled $6.4 million, all within the Wealth Management and Trust segment.

The following table presents a summary of the restructuring activity for the three months ended March 31, 2017 and 2016:



	Severance Charges			Total
	(In thousands)
Accrued charges at December 31, 2016	$	1,977		$	1,977
Costs incurred	—			—
Costs paid	(618		)	(618		)
Accrued charges at March 31, 2017	$	1,359		$	1,359


Accrued charges at December 31, 2015	$	3,305		$	3,305
Costs incurred	1,112			1,112
Costs paid	(849		)	(849		)
Accrued charges at March 31, 2016	$	3,568		$	3,568

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

~~The following table presents a summary of the restructuring activity for the three and six months ended June 30, 2016 and 2015:~~

Severance Charges Total
(In thousands)
Accrued charges at December 31, 2015 $ 3,305
$ 3,305
Costs incurred 1,112
1,112
Costs paid (849 ) (849 )
Accrued charges at March 31, 2016 3,568
3,568
Costs incurred 905
905
Costs paid (1,214 ) (1,214 )
Accrued charges at June 30, 2016 $ 3,259
$ 3,259

Accrued charges at December 31, 2014 $ 739
$ 739
Costs incurred —
—
Costs paid (489 ) (489 )
Accrued charges at March 31, 2015 250
250
Costs incurred 220
220
Costs paid (81 ) (81 )
Accrued charges at June 30, 2015 $ 389
$ 389

13. Recent Accounting Pronouncements

~~In January 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-04,~~ ~~Receivables - Troubled Debt Restructuring by Creditors~~ ~~(Subtopic 310-40) -~~ ~~Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure~~. The amendments to this update are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014 and interim periods within annual periods beginning after December 15, 2015. The adoption of this ASU did not have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”)~~, amending~~. ASU 2014-09 replaces existing revenue recognition standards and expands the ~~ASC~~disclosure requirements for revenue agreements with customers. Under the new standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to revenue associated with financial instruments such as loans and ~~creating a~~securities. Therefore, the Company’s net interest income will not be impacted by this new ~~Topic 606,~~ ~~Revenue from Contracts with Customers.~~ This issuance was part of the joint project between the FASB and the International Accounting Standards Board to clarify the principles of recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards.standard. ASU 2014-09 is effective in the first quarter of 2018. Although the Company does not anticipate any material impact of ASU 2014-09, the Company is still assessing the full impact of implementation on its consolidated financial statements and does expect additional financial statement disclosures and associated internal controls to be implemented along with the adoption of this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU update amends current lease accounting and requires all leases, other than short-term leases, to be reported on the balance sheet through the recognition of a right-of-use asset and a corresponding liability for ~~annual reporting periods~~future lease obligations. The amended guidance will be effective for fiscal years beginning after December 15, ~~2016,~~2018, including interim periods within those annual periods and will require transition utilizing a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company expects that ~~reporting period. Early adoption is not permitted. The impact of~~this ASU ~~2014-09~~will gross up the assets and liabilities on the ~~Company’s consolidated financial statements is not yet known. Additionally, ASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ~~(“ASU 2014-09”) was issued in August 2015 which defers adoption~~balance sheet related to ~~annual reporting periods beginning after December 15, 2017.~~the lease assets and liabilities.

In March 2016, the FASB issued ASU ~~2016-09,~~ ~~Stock Compensation~~ ~~(Topic 718):~~ ~~Improvements to Employee Share-Based Payment Accounting.~~2016-09. This update is intended to simplify several aspects of the accounting for employee share-based plans such as income tax consequences, classification of awards as either liabilities or equity on the balance sheet, and classification on the statement of cash flows. ~~This~~The Company adopted this ASU ~~is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Although early adoption is permitted, the Company does not plan~~ on ~~adopting prior to~~January 1, 2017. The ~~Company does not expect that~~adoption of this ASU will ~~have a material effect on its consolidated financial statements although~~result in fluctuations in the Company’s earnings due to changes in the Company’s stock price between issuance date and settlement date of employee share-based ~~transactions~~transactions. In addition, the Company anticipates that certain stock options will ~~lead~~expire unexercised, due to ~~fluctuations in earnings once~~being out of the money, and this ASU ~~is implemented.~~

~~In February 2016,~~requires the ~~FASB issued ASU 2016-02,~~ ~~Leases~~ ~~(Topic 842). This ASU update is intended to increase transparency and comparability among companies by recognizing right of use lease assets and lease liabilities on the balance~~

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Unaudited Consolidated Financial Statements - (Continued)~~

~~sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is~~previous tax benefits to be ~~implemented utilizing a modified retrospective approach. The Company expects that this ASU will gross up the assets and liabilities on the balance sheet related to the lease assets and liabilities.~~reversed.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326) (“(“ASU 2016-13”). This update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU will be effective for fiscal years beginning after December 15, 2019. Early adoption is available as of the fiscal year beginning after December 15, 2018. The Company does not plan on adopting early. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”). This update is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company does not expect that this ASU will have a significant impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04. This update is the result of the first phase of a two phase project by the FASB to reduce the cost and complexity of the goodwill impairment test. The objective of Phase 1 of the project, which resulted in ASU 2017-04, is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. Under the provisions of this update, an entity still has the option to perform the qualitative assessment, or Step 0 test, for a reporting unit to determine if the quantitative impairment test is necessary. This ASU will be effective for any annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company elected to early adopt this ASU as of January 1, 2017. The adoption of this ASU could increase or decrease the amount of a goodwill impairment charge should any of the Company’s reporting units with

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

goodwill fail a Step 1 test in the future, as compared to the amount of a goodwill impairment charge under the existing standards depending on the fair value of the reporting unit’s assets.

In March 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). This update amends the amortization period for certain purchased callable debt securities held at a premium. The amortization period for the premium on such securities is being shortened to the earliest call date. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, including in an interim period. The guidance requires application using a modified retrospective transition method through a cumulative-effect adjustment to beginning retained earnings. The Company plans to early adopt in the third quarter of 2017 and does not expect that this ASU will have a significant impact on its consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As of and for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These statements include, among others, statements regarding our strategy, effectiveness of our investment programs, evaluations of future interest rate trends and liquidity, expectations as to growth in assets, deposits and results of operations, receipt of regulatory approval for pending acquisitions, success of acquisitions, future operations, market position, financial position, and prospects, plans and objectives of management. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond the Company’s control.

Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. The Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among others, factors referenced herein under the section captioned “Risk Factors”; adverse conditions in the capital and debt markets and the impact of such conditions on the Company’s private banking, investment management and wealth advisory activities; changes in interest rates; competitive pressures from other financial institutions; the effects of weakness in general economic conditions on a national basis or in the local markets in which the Company operates; changes in the value of securities and other assets; changes in loan default and charge-off rates; the adequacy of loan loss reserves; reductions in deposit levels necessitating increased borrowing to fund loans and investments; changes in government regulation; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; the risk that the Company’s deferred tax assets may not be realized; risks related to the identification and implementation of acquisitions, dispositions and restructurings; and changes in assumptions used in making such forward-looking statements, as well as the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K and updated in the Company’s Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Executive Summary

Boston Private Financial Holdings, Inc. offers a wide range of wealth management and private banking services to high net worth individuals, families, businesses and select institutions through its four reportable segments: Private Banking, Wealth Management and Trust, Investment Management, and Wealth Advisory. This Executive Summary provides an overview of the most significant aspects of our operating segments and the Company’s operations in the ~~second~~first quarter of ~~2016.~~2017. Details of the matters addressed in this summary are provided elsewhere in this document and, in particular, in the sections immediately following.


	As of and for the three months ended June 30,											As of and for the three months ended March 31,
	2016			2015			$ Change			% Change		2017			2016			$ Change			% Change
	(In thousands, except per share data)											(In thousands, except per share data)
Total revenues	$	85,964		$	87,745		$	(1,781	)	(2	)%	$	90,148		$	87,901		$	2,247		3	%
Provision/ (credit) for loan losses	(2,535		)	—			(2,535		)	nm		(181		)	(3,133		)	2,952			nm
Total operating expense	64,731			62,418			2,313			4	%	68,780			66,709			2,071			3	%
Net income from continuing operations	16,142			17,327			(1,185		)	(7	)%	14,996			16,887			(1,891		)	(11	)%
Net income attributable to noncontrolling interests	989			1,263			(274		)	(22	)%	966			911			55			6	%
Net income attributable to the Company	16,398			17,610			(1,212		)	(7	)%	15,662			18,041			(2,379		)	(13	)%
Diluted earnings per share:
From continuing operations	$	0.17		$	0.18		$	(0.01	)	(6	)%	$	0.15		$	0.19		$	(0.04	)	(21	)%
From discontinued operations	$	0.01		$	0.02		$	(0.01	)	(50	)%	$	0.02		$	0.02		$	—		—	%
Total attributable to common shareholders	$	0.18		$	0.20		$	(0.02	)	(10	)%	$	0.17		$	0.21		$	(0.04	)	(19	)%

ASSETS UNDER MANAGEMENT AND ADVISORY:
Wealth Management and Trust	$	7,313,000		$	9,028,000		$	(1,715,000	)	(19	)%	$	7,260,000		$	7,137,000		$	123,000		2	%
Investment Managers	10,006,000			10,695,000			(689,000		)	(6	)%	10,907,000			9,838,000			1,069,000			11	%
Wealth Advisory	9,974,000			9,941,000			33,000			—	%	10,579,000			9,857,000			722,000			7	%
Less: Inter-company Relationship	(17,000		)	(22,000		)	5,000			(23	)%	(11,000		)	(21,000		)	10,000			(48	)%
Total Assets Under Management and Advisory	$	27,276,000		$	29,642,000		$	(2,366,000	)	(8	)%	$	28,735,000		$	26,811,000		$	1,924,000		7	%

~~__________________~~_____________________

nm - not meaningful

Net income attributable to the Company was ~~$16.4~~$15.7 million for the three months ended ~~June 30, 2016~~March 31, 2017 and ~~$17.6~~$18.0 million for the same period in ~~2015.~~2016. The Company recognized diluted earnings per share of ~~$0.18~~$0.17 and ~~$0.20~~$0.21 for the three month periods ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively.

Key items that affected the Company’s results in the ~~second~~first quarter of ~~2016~~2017 compared to the same period of ~~2015~~2016 include:

▪

The Company recorded a ~~$2.5~~$0.2 million credit to the provision for loan losses for the three months ended ~~June 30, 2016,~~March 31, 2017, compared to noa credit orto the provision for loan losses of $3.1 million for the same period of ~~2015.~~2016. The credit to the provision for the three months ended ~~June 30, 2016~~March 31, 2017 was primarily due to decreases in loss factors, and net recoveries of ~~$1.9~~$0.1 million, ~~and decreases~~partially offset by an increase in criticized loans ~~partially offset by~~and loan growth.

▪

Fees and other income decreased ~~14%~~4% to ~~$36.8~~$36.5 million for the three months ended ~~June 30, 2016,~~March 31, 2017, compared to ~~$42.7~~$38.0 million for the same period of ~~2015.~~2016. This decrease was driven by ~~fee-based~~lower banking fee revenue, ~~including~~due to lower swap volume, and a ~~17% decrease~~loss on the sale of an OREO property, partially offset by a 2% increase in ~~wealth~~investment management ~~and trust~~ fees and a ~~9% decrease~~1% increase in ~~investment management~~wealth advisory fees. Total fees and other income represents ~~43%~~40% of total revenue for the three months ended ~~June 30, 2016,~~March 31, 2017, compared to ~~49%~~43% of total revenue for the same period of ~~2015.~~2016.

▪

Operating expenses increased ~~$2.3 million, or 4%,~~3% to ~~$64.7~~$68.8 million for the three months ended ~~June 30, 2016,~~March 31, 2017, compared to ~~$62.4~~$66.7 million for the same period of ~~2015. The increase is primarily due to increases~~2016. Increases in salaries and employee benefits and occupancy and equipment ~~contract~~expenses were offset by decreases in marketing and business development, professional services, and ~~data processing,~~FDIC insurance expenses. Additionally, the Company incurred no restructuring expense during the three months ended March 31, 2017, compared to $1.1 million during the same period in 2016 related to the Wealth Management and ~~marketing and~~Trust segment.

business development expenses. Additionally, the Company incurred $0.9 million in restructuring expense during the three months ended June 30, 2016 at Boston Private Wealth, compared to $0.2 million during the same period in 2015.

The Company’s Private Banking segment reported net income attributable to the Company of ~~$15.3~~$14.9 million in the ~~second~~first quarter of ~~2016,~~2017, compared to net income attributable to the Company of ~~$14.3~~$17.3 million for the same period of ~~2015.~~2016. The ~~$1.0~~$2.3 million, or 7%14%, ~~increase~~decrease was a result of the ~~increase~~decrease in ~~net interest income and~~ the credit to the provision for loan losses, ~~for the three months ended June 30, 2016,~~an increase in operating expenses, particularly salaries and employee benefits and occupancy and equipment expenses, and a decrease in banking fee revenue related to swap fees. These changes were partially offset by ~~increased operating expenses and a loss on derivatives market value adjustment for~~ the ~~three months ended June 30, 2016.~~increase in net interest income.

The Company’s Wealth Management and Trust segment reported a net loss attributable to the Company of ~~$1.5~~$1.8 million in the ~~second~~first quarter of ~~2016,~~2017, compared to a net ~~income~~loss attributable to the Company of ~~$1.1~~$2.9 million for the same period of ~~2015.~~2016. The ~~$2.5 million decrease~~2017 loss was the result of decreased revenue and increased operating expense, partially offset by decreased tax expense. Operating expenses increased $0.9 million primarily due to an increase in restructuring expenses of $0.7 million. The decrease in revenue was dueattributed to a ~~$2.3 million decrease~~combination of the impact on revenue related to employee turnover and the related loss of clients who followed the departed employees in ~~wealth~~2015 and 2016 as well as elevated operating expenses resulting from the continued integration of the acquisition of Banyan Partners, LLC. Wealth management and trust fee revenue ~~related~~decreased $0.1 million, or 1%, as compared to the ~~loss of AUM during~~same period in 2016, while operating expenses decreased $2.0 million, or 12%, as compared to the same period ~~and $1.1 million of other income recorded~~in 2016. Fee-based revenue in the ~~second quarter~~Wealth Management and Trust segment is determined based on beginning-of-quarter, end-of-month, or, for a small number of ~~2015 related to~~clients, end-of-quarter AUM data, depending on the ~~reversal of a portion of the contingent earnout for Banyan that was not repeated in 2016.~~custodian. Wealth Management and Trust AUM ~~decreased $1.7~~increased $0.1 billion, or ~~19%~~2%, to $7.3 billion at ~~June 30, 2016~~March 31, 2017 from ~~$9.0~~$7.1 billion at ~~June 30, 2015.~~March 31, 2016. The ~~decrease~~increase in AUM is due to ~~net outflows~~positive market action of $0.3 billion for the twelve months ending ~~June 30, 2016~~March 31, 2017, partially offset by net outflows of ~~$1.2~~$0.2 billion ~~flat market performance, and disposed AUM of $0.5 billion.~~over the same period.

The Company’s Investment Management segment reported net income attributable to the Company of ~~$1.4~~$1.2 million in the ~~second~~first quarter of ~~2016,~~2017, compared to net income attributable to the Company of ~~$1.5~~$1.3 million for the same period of ~~2015.~~2016. The ~~10%~~6% decrease was due primarily to a ~~9% decrease~~4% increase in ~~revenue,~~operating expenses, primarily in salaries and employee benefits, partially offset by ~~an 8% decrease~~a 2% increase in ~~operating expenses. The decrease in operating expenses was primarily due to decreased variable and incentive compensation, and decreased business development expense.~~investment management fee revenue. Most fee-based revenue in the investment management segment is determined based on beginning-of-period AUM data. Investment Management AUM ~~decreased $0.7~~increased $1.1 billion, or 6%11%, to ~~$10.0~~$10.9 billion at ~~June 30, 2016~~March 31, 2017 from ~~$10.7~~$9.8 billion at ~~June 30, 2015,~~March 31, 2016, primarily due to ~~net outflows~~positive market action of $1.4 billion for the twelve months ending ~~June 30, 2016 of $1.1 billion,~~March 31, 2017, partially offset by ~~positive market action~~net outflows of ~~$0.4~~$0.3 billion.

The Company’s Wealth Advisory segment reported net income attributable to the Company of $1.6 million in the ~~second~~first quarter of ~~2016,~~2017, compared to net income attributable to the Company of ~~$1.9~~$1.5 million for the same period of ~~2015.~~2016. The ~~13% decrease~~11% increase was due to ~~increased~~a 3% decrease in operating expenses, primarily due to ~~increased salaries~~decreased professional fees and ~~employee benefits expenses,~~intangible amortization expense, and a 1% ~~decrease~~increase in wealth advisory fee revenue. Wealth Advisory AUM ~~grew slightly~~increased $0.7 billion, or 7%, to ~~$10.0~~$10.6 billion at ~~June 30, 2016~~March 31, 2017 from $9.9 billion at ~~June 30, 2015,~~March 31, 2016, primarily due to positive market action of $0.6 billion and net ~~flows~~inflows of ~~$33 million and flat market performance~~$0.1 billion for the twelve months ending ~~June 30, 2016.~~March 31, 2017.

Critical Accounting Policies

Critical accounting policies reflect significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that its most critical accounting policies upon which its financial condition depends, and which involve the most complex or subjective decisions or assessments are the allowance for loan and lease losses, the valuation of goodwill and intangible assets and analysis for impairment, and tax estimates. These policies are discussed in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016. There have been no changes to these policies through the filing of this Quarterly Report on Form 10-Q.

Results of operations for the three months ended March 31, 2017 versus March 31, 2016

Net Income. The Company recorded net income from continuing operations for the three months ended March 31, 2017 of $15.0 million, compared to $16.9 million for the same period in 2016. Net income attributable to the Company, which includes income from both continuing and discontinued operations, for the three months ended March 31, 2017 was $15.7 million, compared to $18.0 million for the same period in 2016.

The Company recognized diluted EPS attributable to common shareholders, which includes both continuing and discontinued operations, for the three months ended March 31, 2017 of $0.17 per share, compared to $0.21 per share for the same period in 2016.

Net income from continuing operations in both 2017 and 2016 was offset by charges that reduce income available to common shareholders. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 2: Earnings Per Share” for further detail on these charges to income available to common shareholders.

The following discussions are based on the Company’s continuing operations, unless otherwise stated.

The following table presents selected financial highlights:



	Three months ended March 31,						% Change
	2017			2016			% Change
	(In thousands)
Net interest income	$	53,642		$	49,879		8	%
Fees and other income	36,506			38,022			(4	)%
Total revenue	90,148			87,901			3	%
Provision/ (credit) for loan losses	(181		)	(3,133		)	nm
Operating expense	68,780			66,709			3	%
Income tax expense	6,553			7,438			(12	)%
Net income from continuing operations	14,996			16,887			(11	)%
Net income from discontinued operations	1,632			2,065			(21	)%
Less: Net income attributable to noncontrolling interests	966			911			6	%
Net income attributable to the Company	$	15,662		$	18,041		(13	)%

Net interest income. Net interest income represents the difference between interest earned, primarily on loans and investments, and interest paid on funding sources, primarily deposits and borrowings. Interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate paid on total interest-bearing liabilities. Net Interest Margin (“NIM”) is calculated by taking annualized net interest income for the period, on a fully taxable-equivalent (“FTE”) basis, as a percentage of average interest-earning assets. The average rate earned on earning assets is the amount of annualized taxable equivalent interest income expressed as a percentage of average earning assets. The average rate paid on interest-bearing liabilities is equal to annualized interest expense as a percentage of average interest-bearing liabilities. When credit quality declines and loans are placed on nonaccrual status, NIM can decrease because the same assets are earning less income. Loans graded as substandard but still accruing interest income totaled $64.4 million at March 31, 2017 and could be placed on nonaccrual status if their credit quality declines further.

Net interest income for the three months ended March 31, 2017 was $53.6 million, an increase of $3.8 million, or 8%, compared to the same period in 2016. The increase for the three months is due to higher loan volume, and higher volume and yields on cash and investments, partially offset by lower yields on loans and higher volume of deposits and borrowings. The NIM was 2.94% for the three months ended March 31, 2017, a decrease of two basis points compared to the same period in 2016.

The following tables present the composition of the Company’s NIM on a FTE basis for the three months ended March 31, 2017 and 2016; however, the discussion following these tables reflects non-FTE data.



	Average Balance				Interest Income/Expense				Average Yield/Rate
	As of and for the three months ended March 31,
AVERAGE BALANCE SHEET:	2017		2016		2017		2016		2017		2016
AVERAGE ASSETS	(In thousands)
Interest-Earning Assets:
Cash and Investments: (1)
Taxable investment securities	$	395,728	$	392,579	$	1,670	$	1,594	1.69	%	1.63	%
Non-taxable investment securities (2)	295,015		262,227		2,471		2,138		3.35	%	3.26	%
Mortgage-backed securities	672,683		564,826		3,504		3,065		2.08	%	2.17	%
Federal funds sold and other	160,001		185,253		600		507		1.51	%	1.08	%
Total Cash and Investments	1,523,427		1,404,885		8,245		7,304		2.17	%	2.08	%
Loans (3):
Commercial and Industrial (2)	983,697		1,065,614		9,303		10,920		3.78	%	4.05	%
Commercial Real Estate (2)	2,324,367		1,859,557		23,544		19,797		4.05	%	4.21	%
Construction and Land	113,963		174,867		1,244		1,648		4.36	%	3.73	%
Residential	2,424,772		2,229,680		18,991		17,302		3.13	%	3.10	%
Home Equity	117,702		119,349		1,089		1,082		3.75	%	3.65	%
Other Consumer	192,136		157,508		1,420		965		3.00	%	2.47	%
Total Loans	6,156,637		5,606,575		55,591		51,714		3.61	%	3.66	%
Total Earning Assets	7,680,064		7,011,460		63,836		59,018		3.33	%	3.35	%
Less: Allowance for Loan Losses	78,122		80,273
Cash and due From Banks (Non-interest Bearing)	41,469		39,943
Other Assets	398,751		420,909
TOTAL AVERAGE ASSETS	$	8,042,162	$	7,392,039
AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Interest-Bearing Deposits (4):
NOW	$	576,915	$	542,617	$	110	$	87	0.08	%	0.06	%
Savings	75,123		75,433		18		23		0.10	%	0.12	%
Money Market	3,213,092		3,055,242		3,122		2,902		0.39	%	0.38	%
Certificates of Deposit	589,900		578,310		1,281		1,170		0.88	%	0.81	%
Total Interest Bearing Deposits	4,455,030		4,251,602		4,531		4,182		0.41	%	0.40	%
Junior Subordinated Debentures	106,363		106,363		671		578		2.52	%	2.15	%
FHLB Borrowings and Other Borrowings	726,978		524,892		2,172		1,963		1.19	%	1.48	%
Total Interest Bearing Liabilities	5,288,371		4,882,857		7,374		6,723		0.56	%	0.55	%
Non-interest Bearing Demand Deposits (4)	1,843,830		1,621,666
Payables and Other Liabilities	117,132		110,959
Total Average Liabilities	7,249,333		6,615,482
Redeemable Noncontrolling Interests	18,578		21,157
Average Shareholders’ Equity	774,251		755,400
TOTAL AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY	$	8,042,162	$	7,392,039
Net Interest Income - on a FTE Basis					$	56,462	$	52,295
FTE Adjustment (2)					2,820		2,416
Net Interest Income (GAAP Basis)					$	53,642	$	49,879
Interest Rate Spread									2.77	%	2.80	%
Net Interest Margin									2.94	%	2.96	%

_____________________


(1)	Investments classified as available-for-sale are shown in the average balance sheet at amortized cost.


(2)	Interest income on non-taxable investments and loans is presented on a FTE basis using statutory rates. The discussion following these tables reflects non-FTE data.


(3)	Includes loans held for sale and nonaccrual loans.


(4)	Includes deposits held for sale, if any.

Interest and Dividend Income. Interest and dividend income for the three months ended March 31, 2017was $61.0 million, an increase of $4.4 million, or 8%, compared to the same period in 2016. The increase for the three months was primarily due to higher loan volume, and higher volume and yields on cash and investments, partially offset by lower yields on loans.

The Bank generally has interest income that is either recovered or reversed related to nonaccrual loans each quarter. Based on the net amount recovered or reversed, the impact on interest income and related yields can be either positive or negative. In addition, the Bank collects prepayment penalties on certain commercial loans that pay off prior to maturity which could also impact interest income and related yields positively. The amount and timing of prepayment penalties varies from quarter to quarter.

Interest income on commercial and industrial loans, on a non-FTE basis, for the three months ended March 31, 2017was $8.0 million, a decrease of $1.2 million, or 13%, compared to the same period in 2016, as a result of an 8% decrease in the average balance and a 20 basis point decrease in the average yield. The decrease in the average balance for the three month period is related to the reclassification in the fourth quarter of 2016 of tax-exempt multifamily loans into commercial real estate loans. The decrease in average balance is also related to seasonal fluctuations of the commercial loan portfolio at the Bank. The decrease in the average yield for the three month period is the result of market conditions, fluctuations in the indicies to which the variable rate loans are tied, as well as lower interest income recoveries on previous nonaccrual loans in the first quarter of 2017 of $0.3 million, as compared to $1.1 million in interest income recoveries on previous nonaccrual loans in the first quarter of 2016.

Interest income on commercial real estate loans for the three months ended March 31, 2017 was $22.9 million, an increase of $3.1 million, or 15%, compared to the same period in 2016, as a result of a 25% increase in the average balance, partially offset by a 33 basis point decrease in the average yield. The increase in the average balance for the three month period is related to the reclassification in the fourth quarter of 2016 of certain tax-exempt multifamily loans into commercial real estate loans. The increase in average balance is also related to the organic growth of the commercial real estate loan portfolio at the Bank. The decrease in the average yield for the three month period is the result of competitive market conditions leading to lower rates on new loans, as well as fluctuations in the indicies to which the variable rate loans are tied.

Interest income on construction and land loans for the three months ended March 31, 2017 was $1.2 million, a decrease of $0.4 million, or 25%, compared to the same period in 2016, as a result of a 35% decrease in the average balance, partially offset by a 63 basis point increase in the average yield. The decrease in the average balance for the three month period is related to customer demand. The increase in the average yield for the three month period is the result of market conditions as well as fluctuations in the indicies to which the variable rate loans are tied.

Interest income on residential mortgage loans for the three months ended March 31, 2017 was $19.0 million, an increase of $1.7 million, or 10%, compared to the same period in 2016, as a result of a nine percent increase in the average balance and a three basis point increase in the average yield. The increase in the average balance for the three month period is related to the organic growth of the residential loan portfolio at the Bank.

Interest income on home equity loans for the three months ended March 31, 2017 was $1.1 million, consistent with the same period in 2016, as a result of a 10 basis point increase in the average yield offset by a one percent decrease in the average balance. The increase in the average yield for the three month period is the result of increases in the Prime rate.

Interest income on other consumer loans for the three months ended March 31, 2017 was $1.4 million, an increase of $0.5 million, or 47%, compared to the same period in 2016, as a result of a 22% increase in the average balance and a 53 basis point increase in the average yield. The increase in the average yield for the three month period is primarily the result of increases in the Prime rate. The increase in the average balance for the three month period is primarily due to client demand.

Investment income, on a non-FTE basis, for the three months ended March 31, 2017 was $7.4 million, an increase of $0.8 million, or 13%, compared to the same period in 2016, as a result of an 8% increase in the average balance and a 7 basis point increase in the average yield. The increase in the average yield for the three month period is partially due to increases in short-term interest rates. The increase in the average balance for the three month period is primarily due to timing and volume of deposit balances as compared to the level of loans outstanding. Investment decisions are made based on anticipated liquidity, loan demand, and asset-liability management considerations.

Total interest expense. Total interest expense for the three months ended March 31, 2017 was $7.4 million, an increase of $0.7 million, or 10%, compared to the same period in 2016.

Interest expense on interest-bearing deposits for the three months ended March 31, 2017 was $4.5 million, an increase of $0.3 million, or 8%, compared to the same period in 2016, as a result of a five percent increase in average balance and a one basis point increase in the average rate paid.

Interest paid on borrowings for the three months ended March 31, 2017 was $2.8 million, an increase of $0.3 million, or 12%, compared to the same period in 2016, as a result of a 39% increase in the average balance of FHLB borrowings and other borrowings and a 37 basis point increase in the average rate paid on junior subordinated debentures, partially offset by a 29 basis point decrease in the average rate paid on FHLB borrowings and other borrowings, with no change in the average balance of junior subordinated debentures. The increase for the three month period in the average rate paid on borrowings is due to the increases in benchmark interest rates as well as the mix and terms of borrowings.

Provision/ (credit) for loan losses. The Company recorded a credit to the provision for loan losses of $0.2 million for the three months ended March 31, 2017, compared to a credit to the provision for loan losses of $3.1 million for the same period in 2016. The credit to the provision for loan losses for the three months ended March 31, 2017 was the result of a decrease in loss factors and net recoveries, partially offset by an increase in criticized loans and loan growth.

The provision/ (credit) for loan losses is determined as a result of the required level of the allowance for loan losses, estimated by management, which reflects the inherent risk of loss in the loan portfolio as of the balance sheet dates. The Company incorporates both quantitative and qualitative loss factors to determine the appropriate level of the allowance for loan losses. Quantitative loss factors are based on historical net charge-offs by loan portfolio. Qualitative factors are estimated by management and include trends in problem loans, economic and business conditions, strength of management, real estate collateral values, and underwriting standards. For further details, see “Loan Portfolio and Credit Quality” above.

Fees and other income. Fees and other income for the three months ended March 31, 2017 was $36.5 million, a decrease of $1.5 million, or 4%, compared to the same period in 2016. The decrease in the three month period is primarily related to a decrease in loan swap fee revenue, which declined in the first quarter of 2017 due to low customer demand and was elevated in the first quarter of 2016 as compared to historical periods. This decrease was partially offset by increases in fee revenues in the Investment Management and Wealth Advisory segments.

Investment management fee income for the three months ended March 31, 2017 was $10.8 million, an increase of $0.2 million, or 2%, compared to the same period in 2016. AUM as of March 31, 2017 managed or advised by the Investment Managers was $10.9 billion, an increase of $1.1 billion, or 11%, compared to 2016. The increase in AUM is primarily due to positive market action of $1.4 billion for the twelve months ending March 31, 2017, partially offset by net outflows of $0.3 billion.

Wealth advisory fee income for the three months ended March 31, 2017 was $12.8 million, an increase of $0.1 million, or 1%, compared to the same period in 2016. AUM managed or advised by the Wealth Advisors was $10.6 billion at March 31, 2017, an increase of $0.7 billion compared to March 31, 2016. The increase in AUM is primarily due to positive market action of $0.6 billion and net inflows of $0.1 billion for the twelve months ending March 31, 2017.

Wealth management and trust fee income for the three months ended March 31, 2017 was $10.8 million, a decrease of $0.1 million, or 1%, compared to the same period in 2016. AUM as of March 31, 2017 managed or advised by Boston Private Wealth was $7.3 billion, an increase of $0.1 billion, or 2%, compared to March 31, 2016. The increase in AUM is due to positive market action of $0.3 billion for the twelve months ending March 31, 2017, partially offset by net outflows of $0.2 billion over the same period.

Other banking fee income for the three months ended March 31, 2017 was $1.7 million, a decrease of $1.5 million, or 48%, compared to the same period in 2016. The decrease for the three month period is related to 2016 loan swap fee income due to increased client demand for loan swap agreements in the first quarter of 2016.

Operating Expense. Operating expense for the three months ended March 31, 2017 was $68.8 million, an increase of $2.1 million, or 3% as compared to the same period in 2016. The changes for the three months ended March 31, 2017 are primarily due to increases in salaries and employee benefits and occupancy and equipment expenses, partially offset by decreases in marketing and business development, professional services, and FDIC insurance expense. Additionally, the Company incurred no restructuring charges in the three months ended March 31, 2017, compared to restructuring charges of $1.1 million for the same period in 2016.

Salaries and employee benefits expense, the largest component of operating expense, for the three months ended March 31, 2017 was $45.8 million, an increase of $3.3 million, or 8%, compared to the same period in 2016. The increase for the three month period is primarily due to additional compensation and related benefits due to growth at the Company and new initiatives, such as information technology upgrades, which include additional hires.

Occupancy and equipment expense for the three months ended March 31, 2017 was $10.6 million, an increase of $1.1 million, or 11%, compared to the same period in 2016. The increase for the three month period is primarily due to an increase in rent expense due to additional leased space, telecommunications and technology expenses, and software depreciation due to the implementation of a new client relationship product.

Professional services expense for the three months ended March 31, 2017 was $3.3 million, a decrease of $0.2 million, or 6%, compared to the same period in 2016. The decrease for the three month period is primarily due to a decrease in legal expense and recruitment expense, partially offset by an increase in consulting fees. Recruiting fees can vary from period to period based on the timing, volume, and level of the employees hired through recruiters.

Marketing and business development expense for the three months ended March 31, 2017 was $1.7 million, a decrease of $0.5 million, or 24%, compared to the same period in 2016. The three month decrease is primarily related to the timing of marketing programs in the Private Banking segment.

FDIC insurance expense for the three months ended March 31, 2017 was $0.8 million, a decrease of $0.3 million, or 25%, compared to the same period in 2016. The decrease for the three month period is primarily due to changes in the pricing for deposit insurance for small institutions, such as the Bank, which were adopted by the FDIC in 2016 and were effective as of the third quarter of 2016.

Income Tax Expense. Income tax expense for continuing operations for the three months ended March 31, 2017 was $6.6 million. The effective tax rate for continuing operations for the three months ended March 31, 2017 was 30.4%, compared to an effective tax rate of 30.6% for the same period in 2016. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 9: Income Taxes” for further detail.

Financial Condition

Condensed Consolidated Balance Sheets and Discussion


	June 30, 2016		December 31, 2015		Increase/ (decrease)			% Change		March 31, 2017		December 31, 2016		Increase/ (decrease)			% Change
	(In thousands)									(In thousands)
Assets:
Total cash and investments	$	1,467,361	$	1,474,737	$	(7,376	)	(1	)%	$	1,569,951	$	1,507,845	$	62,106		4	%
Loans held for sale	4,677		8,072		(3,395		)	(42	)%	350		3,464		(3,114		)	(90	)%
Total loans	5,751,497		5,719,212		32,285			1	%	6,250,217		6,114,354		135,863			2	%
Less: Allowance for loan losses	75,753		78,500		(2,747		)	(3	)%	78,031		78,077		(46		)	—	%
Net loans	5,675,744		5,640,712		35,032			1	%	6,172,186		6,036,277		135,909			2	%
Goodwill and intangible assets	181,918		185,089		(3,171		)	(2	)%
Other assets	249,901		233,898		16,003			7	%
Goodwill and intangible assets, net										167,853		169,279		(1,426		)	(1	)%
Total other assets										304,780		253,609		51,171			20	%
Total assets	$	7,579,601	$	7,542,508	$	37,093		—	%	$	8,215,120	$	7,970,474	$	244,646		3	%
Liabilities and Equity:
Deposits	$	5,536,092	$	6,040,437	$	(504,345	)	(8	)%	$	6,246,620	$	6,085,146	$	161,474		3	%
Deposits held for sale	110,558		—		110,558			nm
Total borrowings	1,007,679		625,902		381,777			61	%	1,059,057		980,192		78,865			8	%
Other liabilities	135,289		111,468		23,821			21	%
Total other liabilities										110,310		119,683		(9,373		)	(8	)%
Total liabilities	6,789,618		6,777,807		11,811			—	%	7,415,987		7,185,021		230,966			3	%
Redeemable Noncontrolling Interests (“RNCI”)	15,843		18,088		(2,245		)	(12	)%	17,232		16,972		260			2	%
Total shareholders’ equity	774,140		746,613		27,527			4	%	781,901		768,481		13,420			2	%
Total liabilities, RNCI and shareholders’ equity	$	7,579,601	$	7,542,508	$	37,093		—	%	$	8,215,120	$	7,970,474	$	244,646		3	%

~~__________~~_____________________

nm not meaningful

Total Assets. Total assets increased ~~slightly~~$0.2 billion to ~~$7.6~~$8.2 billion at ~~June 30, 2016~~March 31, 2017 from ~~$7.5~~$8.0 billion at December 31, ~~2015.~~2016. This increase was due ~~primarily~~ to ~~increases~~the increase in ~~total~~ loans and investments.

Cash and Investments. Total cash and investments (consisting of cash and cash equivalents, investment securities, and stock in the ~~FHLBs) decreased $7.4~~FHLB) increased $62.1 million, or 1%4%, to $1.6 billion, or 19% of total assets at March 31, 2017 from $1.5 billion, or 19% of total assets at ~~June 30, 2016 from $1.5 billion, or 20% of total assets, at~~ December 31, ~~2015.~~2016. The ~~decrease~~increase was due to the ~~$112.5~~$58.6 million, or ~~47%~~55%, ~~decrease~~increase in cash and cash equivalents, the $6.1 million, or 14%, increase in stock in the FHLB, and the ~~$11.1~~$5.3 million, or ~~10%, decrease~~6% increase in held-to-maturity ~~investments,~~securities, partially offset by the ~~$107.0~~$7.9 million, or ~~10%~~1%, ~~increase~~decrease in available-for-sale ~~investment~~ securities. The ~~change~~changes in cash and ~~cash equivalents is~~investments were the net result of short-term fluctuations in liquidity due to changes in levels of deposits, borrowings and loans outstanding.

The majority of the investments held by the Company are held by the Bank. The Bank’s investment policy requires management to maintain a portfolio of securities which will provide liquidity necessary to facilitate funding of loans, to cover deposit fluctuations, and to mitigate the Bank’s overall balance sheet exposure to interest rate risk, while at the same time earning a satisfactory return on the funds invested. The securities in which the Bank may invest are subject to regulation and are generally limited to securities that are considered “investment grade.”

Investment maturities, ~~redemptions,~~calls, principal payments, and sales of securities, ~~from the Company’s available-for-sale investment portfolio~~net of purchases, provided ~~$122.3~~$85.2 million of cash proceeds during the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2017. The timing of sales and reinvestments is based on various factors, including management’s evaluation of interest rate trends, the credit risk of municipal securities and the Company’s liquidity. The Company’s available-for-sale investment portfolio carried a total of ~~$26.8~~$5.3 million of unrealized gains and ~~$1.2~~$20.8 million of unrealized losses at ~~June 30, 2016,~~March 31, 2017, compared to ~~$7.6~~$4.6 million of unrealized gains and ~~$7.2~~$23.7 million of unrealized losses at December 31, ~~2015.~~2016.

No impairment losses were recognized through earnings related to investment securities during the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 and ~~2015.~~2016. The total amount of unrealized losses was primarily due to changes in interest rates since the securities were purchased. ~~At June 30,~~

Additionally, at March 31, 2017 and December 31, 2016, the Company ~~had no intent to sell any~~held $98.4 million and $93.1 million, respectively, of held-to-maturity securities ~~in an unrealized loss position~~ at

~~that date and it is not more likely than not that~~ amortized cost. All of the ~~Company would be forced to sell any of these~~held-to-maturity securities ~~prior to the full recovery of all unrealized losses.~~were mortgage-backed securities which were guaranteed by U.S. government agencies or government-sponsored entities, or U.S. Treasury securities.

See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 4: Investments” for further details of the Company’s investment securities.

Loans held for sale. Loans held for sale decreased ~~$3.4~~$3.1 million, or 90%, to ~~$4.7~~$0.4 million at ~~June 30, 2016~~March 31, 2017 from ~~$8.1~~$3.5 million at December 31, ~~2015.~~2016. The balance of loans held for sale is usually ~~related~~relates to the timing and volume of residential loans originated for sale and the ultimate sale transaction which is typically executed within a short time following the loan origination. From time to time, the Company may also sell loans that have been held in the loan portfolio. The sale of such loans may improve the Bank’s liquidity and capital position or may provide the Bank additional flexibility for more profitable and strategic future lending opportunities.

Goodwill and intangible assets, net. Goodwill and intangible assets decreased ~~$3.2~~$1.4 million, or 2%1%, to ~~$181.9~~$167.9 million at ~~June 30, 2016~~March 31, 2017 from ~~$185.1~~$169.3 million at December 31, ~~2015.~~2016. The decrease was due to amortization of intangible assets.

Goodwill and indefinite-lived intangible assets such as trade names are subject to annual impairment tests, or more frequently, if there is indication of impairment, based on guidance in ASC 350, Intangibles-Goodwill and Other. Long-lived intangible assets such as advisory contracts are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable in accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”).

Management performed its annual goodwill and indefinite-lived intangible asset impairment testing during the fourth quarter of ~~2015~~2016 for applicable reporting units. The 2016 goodwill impairment testing indicated that Boston Private Wealth failed Step 1 and the resulting Step 2 test indicated goodwill impairment of $9.5 million. The estimated fair value for all other applicable reporting units exceeded the carrying value in 2016, and as a result no other impairment was evident. There was no additional testing required for long-lived intangible assets in ~~2015.~~2016.

The goodwill impairment testing as of October 31, 2015 indicated that the reporting units with the closest fair values as compared to carrying value were Anchor and Boston Private Wealth. The estimated fair value of Anchor was $92.0 million as compared to a carrying value of $82.8 million, an excess of $9.2 million, or 11.2%. The estimated fair value of Boston Private Wealth was ~~$85.0~~$68.0 million as compared to a carrying value of ~~$71.5~~$76.9 million, resulting in a deficit of $8.9 million, or 11.6%. The estimated fair value of Anchor was $87.0 million as compared to a carrying value of $81.6 million, an excess of ~~$13.5~~$5.4 million, or ~~18.9%~~6.6%.

Due to the narrow margin between the fair value and the carrying value of Anchor, Anchor will continue to be at risk for potential goodwill impairment. The ~~fair values~~Company will monitor Anchor’s actual results versus the projections used in the 2016 valuation, changes in AUM, as well as changes to the various inputs used in the 2016 valuation for ~~Anchor and~~a triggering event prior to the 2017 annual impairment testing.

Even though the Company recorded a goodwill impairment charge for Boston Private Wealth ~~were determined based on actual and forecasted earnings as well as market comparisons for these types of firms. Material negative changes~~in 2016, there could be additional goodwill impairment in the ~~assumptions or inputs in the valuation models, such as AUM, discount rates, and expectation of~~ future ~~results will increase the risk of impairment and may trigger the immediate testing for goodwill impairment.~~

Through June 30, 2016, Anchor’s operating results have generally performed consistently with the estimates used in the prior year impairment testing. Therefore the Company has concluded that no interim goodwill impairment triggering event occurred and no interim goodwill impairment testing was necessary at June 30, 2016.

~~Certain of~~should Boston Private Wealth’s ~~operating~~actual results ~~through June 30, 2016 are below the estimates used in the prior year testing. However, due~~not meet projections. In addition to financial results, other inputs to the ~~recent stabilization of AUM outflows, Boston Private Wealth’s improved second quarter 2016 financial performance,~~valuation, such as the ~~recent increase in~~discount rate and market assumptions, could negatively affect the ~~equity markets, and the prior year testing results which~~ estimated ~~the~~ fair value of Boston Private Wealth in the future. The Company will continue to monitor Boston Private Wealth’s actual results versus the projections used in the 2016 valuation, changes in AUM, as ~~18.9%~~well as changes to the various inputs used in ~~excess of carrying value,~~ the ~~Company has concluded that no interim goodwill impairment~~2016 valuation for a triggering event ~~has occurred and no interim goodwill~~prior to the 2017 annual impairment ~~testing was necessary at June 30, 2016.~~

~~Absent any triggering events that could occur in the third quarter of 2016, the Company will again be performing its annual goodwill impairment testing in the fourth quarter.~~testing.

~~Other.~~Total other assets. ~~Other~~Total other assets, as presented in the table above, consists of the following line items from the consolidated balance sheet: other real estate owned (“OREO”) (if any), premises and equipment, fees receivable, accrued interest receivable, deferred income taxes, net, and ~~other. Other~~other assets. Total other assets increased ~~$16.0~~$51.2 million, or 7%20%, to ~~$249.9~~$304.8 million at ~~June 30, 2016 from $233.9~~March 31, 2017 as compared to $253.6 million at December 31, ~~2015.~~2016. The increase was the result of increases in other assets partially offset by a decrease in deferred income taxes, ~~net.~~net, OREO, and fees receivable.

OREO decreased $1.7 million to zero at March 31, 2017 from $1.7 million at December 31, 2016. In 2017, the one property held in OREO at December 31, 2016 was sold for a small loss.

Deferred income taxes, net, decreased ~~$14.8~~$1.8 million, or ~~29%~~3%, to ~~$36.9~~$53.7 million at ~~June 30, 2016~~March 31, 2017 from ~~$51.7~~$55.5 million at December 31, ~~2015.~~2016. The decrease was primarily due to ~~current year deferred tax expense and~~ the current year tax effect of other comprehensive income. At ~~June 30, 2016,~~March 31, 2017, no valuation allowance on the net deferred tax asset was required ~~other than for capital losses, based upon~~due primarily to the ~~ability to generate~~expectation of future taxable income as well as the availability of current and historical taxable income.

Other assets, which consist primarily of ~~Bank-Owned Life Insurance (“BOLI”)~~Bank-owned life insurance (BOLI), prepaid expenses, ~~investments~~investment in partnerships, the fair value of interest rate derivatives, and other receivables, increased ~~$28.8~~$54.3 million, or ~~24%~~42%, to ~~$150.0~~$185.1 million at ~~June 30, 2016~~March 31, 2017 from ~~$121.2~~$130.8 million at December 31, ~~2015.~~2016. The increase was primarily due to an ~~increase~~additional $50.0 million investment in ~~the fair value of non-hedging derivative instruments and an increase in partnership investments, and partially offset by a decrease in accounts receivable.~~BOLI policies.

Deposits. Total deposits ~~decreased $504.3~~increased $161.5 million, or 8%3%, to ~~$5.5~~$6.2 billion, at ~~June 30, 2016~~March 31, 2017 from ~~$6.0~~$6.1 billion at December 31, ~~2015. At June 30, 2016,~~2016. Deposits are the ~~Company classified $110.6 million~~principal source of the Bank’s funds for use in lending, investments, and liquidity. Certificates of deposits ~~as held for sale related to the announced sale~~represented approximately 10% of ~~two offices in Southern California. Deposit balances also decreased during the first six months of 2016 due to lower money markets, demand~~total deposits ~~certificates of deposit,~~at both March 31, 2017 and ~~NOW deposits.~~December 31, 2016. Deposit levels can fluctuate from quarter to quarter as a result of large short-term transactions by commercial clients. Seasonality can also affect the deposit balances.

The following table presents the composition of the Company’s deposits at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015:~~2016:


	June 30, 2016				December 31, 2015				March 31, 2017				December 31, 2016
	Balance		as a % of total		Balance		as a % of total		Balance		as a % of total		Balance		as a % of total
	(In thousands)								(In thousands)
Demand deposits (noninterest-bearing)	$	1,636,273	30	%	$	1,689,604	28	%	$	1,772,854	28	%	$	1,753,648	29	%
NOW (1)	547,777		10	%	588,337		10	%	620,280		10	%	578,657		9	%
Savings	70,553		1	%	72,336		1	%	74,293		1	%	74,162		1	%
Money market (1)	2,771,080		50	%	3,105,172		51	%	3,176,472		51	%	3,102,048		51	%
Certificates of deposit under $100,000 (1)	154,141		3	%	173,011		3	%	240,065		4	%	236,001		4	%
Certificates of deposit of $100,000 or greater	356,268		6	%	411,977		7	%	362,656		6	%	340,630		6	%
Total deposits ~~(2)~~	$	5,536,092	100	%	$	6,040,437	100	%	$	6,246,620	100	%	$	6,085,146	100	%

~~____________~~_____________________


(1)	Includes brokered deposits.


~~(2)~~	~~Excludes deposits held for sale at June 30, 2016.~~

Borrowings. Total borrowings (consisting of securities sold under agreements to repurchase, federal funds purchased ~~if any,~~(if any), FHLB borrowings, and junior subordinated debentures) increased ~~$381.8~~$78.9 million, or ~~61%~~8%, to $1.1 billion at March 31, 2017 from $1.0 billion at ~~June 30, 2016~~December 31, 2016.

Repurchase agreements increased $7.6 million, or 13%, to $67.2 million at March 31, 2017 from ~~$625.9~~$59.6 million at December 31, ~~2015. Repurchase agreements decreased $14.9 million, or 26%, to $43.3 million at June 30, 2016 from $58.2 million at December 31, 2015.~~2016. Repurchase agreements are generally linked to commercial demand deposit accounts with an overnight sweep feature. ~~Federal funds purchased increased to $180.0 million at June 30, 2016 compared to none outstanding at December 31, 2015.~~

From time to time, the ~~Bank~~Company purchases federal funds from the FHLB and other banking institutions to supplement its liquidity position. At March 31, 2017, the Company had no federal funds purchased outstanding. The Company had $80.0 million in federal funds purchased outstanding at December 31, 2016.

FHLB borrowings increased ~~$216.7~~$151.2 million, or ~~47%~~21%, to ~~$678.0~~$885.4 million at ~~June 30, 2016~~March 31, 2017 from ~~$461.3~~$734.2 million at December 31, ~~2015.~~2016. FHLB borrowings are generally used to provide additional funding for loan growth when it is in excess of deposit growth and to manage interest rate risk, but can also be used as an additional source of liquidity for the Bank. ~~Junior subordinated debentures remained flat at $106.4 million.~~

~~Other.~~Total other liabilities. ~~Other~~Total other liabilities, which consist primarily of accrued interest, accrued bonus, the fair value of interest rate derivatives, and other accrued expenses ~~increased $23.8~~decreased $9.4 million, or ~~21%~~8%, to ~~$135.3~~$110.3 million at ~~June 30, 2016~~March 31, 2017 from ~~$111.5~~$119.7 million at December 31, ~~2015.~~2016. The ~~increase~~decrease was primarily due to ~~increases~~the payment in the ~~fair value~~first quarter of ~~derivative liability instruments. These increases were partially offset by decreases in~~2017 of accrued ~~expenses, particularly accrued~~variable compensation, bonuses and employee benefits ~~as well as decreases~~ in ~~federal income tax payable.~~2017 that had been accrued for at December 31, 2016.

Loan Portfolio and Credit Quality

~~Loans~~Loans.. Total portfolio loans increased ~~$32.3~~$135.9 million, or 1%2%, to ~~$5.8~~$6.3 billion, or 76%, of total assets, ~~as of June 30, 2016, compared to $5.7~~at March 31, 2017, from $6.1 billion, or ~~76%,~~77% of total assets, ~~as of~~at December 31, ~~2015.~~2016. Increases were recorded in residential loans of $83.8 million, or 4%, commercial real estate loans of ~~$63.2~~$66.4 million, or 3%, ~~residential~~construction and land loans of ~~$50.6~~$12.2 million, or 2%12%, ~~and home equity and other consumer~~commercial tax exempt loans of ~~$28.0~~$10.8 million, or ~~10%~~3%, partially offset by decreases in commercial and industrial loans of ~~$68.6~~$31.0 million, or 6%5%, home equity loans of $4.3 million or 4%, and ~~construction~~consumer and ~~land~~other loans of ~~$40.9~~$2.0 million, or ~~22%~~1%.

The Bank specializes in lending to individuals, real estate investors, and middle market businesses, including corporations, partnerships, associations and nonprofit organizations. Loans made by the Bank to individuals may include residential mortgage loans and mortgage loans on investment or vacation properties, unsecured and secured personal lines of credit, home equity loans, and overdraft protection. Loans made by the Bank to businesses include commercial and mortgage loans, revolving lines of credit, working capital loans, equipment financing, community lending programs, and construction and land loans. The types and sizes of loans the Bank originates are limited by regulatory requirements.

The Bank’s loans are affected by the economic and real estate markets in which they are located. Generally, commercial real estate, construction, and land loans are affected more than residential loans in an economic downturn.

Geographic concentration. The following table presents the Company’s outstanding loan balance concentrations at ~~June 30, 2016~~March 31, 2017 based on the location of the regional offices to which they are attributed.

Commercial and Industrial Commercial Real Estate
Construction and
Land
Residential
Home Equity and
Other Consumer
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(In thousands)
New England $ 814,839
78 % $ 797,450
40 % $ 90,408
63 % $ 1,385,102
61 % $ 258,726
84 %
San Francisco Bay Area 116,224
11 % 633,735
32 % 36,808
26 % 470,694
21 % 35,013
11 %
Southern California 111,854
11 % 546,127
28 % 15,333
11 % 424,320
18 % 14,864
5 %
Total $ 1,042,917
100 % $ 1,977,312
100 % $ 142,549
100 % $ 2,280,116
100 % $ 308,603
100 %



	New England				San Francisco Bay Area				Southern California				Total
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(In thousands)
Commercial and industrial	$	458,687	7	%	$	55,289	1	%	$	66,378	1	%	$	580,354	9	%
Commercial tax exempt	318,137		5	%	79,517		2	%	11,778		—	%	409,432		7	%
Commercial real estate	1,017,565		16	%	686,019		11	%	665,043		11	%	2,368,627		38	%
Construction and land	58,737		1	%	28,148		—	%	30,122		1	%	117,007		2	%
Residential	1,508,138		24	%	474,294		8	%	481,184		7	%	2,463,616		39	%
Home equity	80,904		2	%	26,006		—	%	7,626		—	%	114,536		2	%
Consumer and other	175,096		3	%	17,163		—	%	4,386		—	%	196,645		3	%
Total loans (1)	$	3,617,264	58	%	$	1,366,436	22	%	$	1,266,517	20	%	$	6,250,217	100	%

________________________


(1)	Regional percentage totals may not reconcile due to rounding.

Allowance for loan losses. The allowance for loan losses is reported as a reduction of outstanding loan balances and totaled ~~$75.8~~$78.0 million and ~~$78.5~~$78.1 million as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~,2016, respectively.

The allowance for loan losses as of ~~June 30, 2016~~March 31, 2017 decreased ~~$2.7~~$0.1 million ~~or 3%,~~ from December 31, ~~2015~~2016 due to a decline in the loss factors, ~~changes~~partially offset by an increase in criticized loans, the mix in the loan portfolio, and ~~a decrease in criticized loans.~~loan growth. The allowance for loan losses as a percentage of total loans decreased 53 basis ~~point~~points to ~~1.32%~~1.25% as of ~~June 30, 2016~~March 31, 2017 from ~~1.37%~~1.28% as of December 31, ~~2015.~~2016. The decrease in the ratio of allowance for loan losses to total loans is due ~~primarily~~ to ~~decreases~~a decline in the loss factors, a combination of the mix in the loan portfolio, and ~~a decline~~the change in the volume and type of criticized loans. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 7: Allowance for Loan Losses” for an analysis of the Company’s allowance for loan losses.

An analysis of the risk in the loan portfolio as well as management judgment is used to determine the estimated appropriate amount of the allowance for loan losses. The Company’s allowance for loan losses is comprised of three primary components (general reserves, allocated reserves on non-impaired special mention and substandard loans, and allocated reserves on impaired loans). See Part II. Item 8. “Notes to Unaudited Consolidated Financial Statements - Note 6: Allowance for Loan Losses” and the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 for further information.

The following table presents a summary of loans charged-off, net of recoveries, by geography for the periods indicated. The geography assigned to the data is based on the location of the regional offices to which the loans are attributed.


	Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
	2016		2015		2016			2015		2017		2016
	(In thousands)									(In thousands)
Net loans (charged-off)/ recovered:
New England	$	1,276	$	106	$	(870	)	$	996	$	79	$	(2,146	)
San Francisco Bay Area	537		833		3,991			3,571		35		3,454
Southern California	48		49		(200		)	346		21		(248		)
Total net loans (charged-off)/ recovered	$	1,861	$	988	$	2,921		$	4,913	$	135	$	1,060

Net recoveries of ~~$1.9~~$0.1 million were recorded in the ~~second~~first quarter of ~~2016,~~2017, compared to ~~$1.0~~$1.1 million of net recoveries for the same period of ~~2015.~~ 2016. The $0.1 million in net recoveries recorded in the first three months of 2017 related primarily to commercial and industrial loans and commercial real estate loans.

Despite the current year net recoveries on previously charged-off commercial loans (which include construction and land loans, commercial real estate, and commercial and industrial loans), the Company believes that commercial loans represent the greatest risk of loss due to the size and nature of these loans and the related collateral. Local economic and business conditions in the markets where our offices are located have a significant impact on our commercial loan customers and their ability to service their loans. ~~Of the $2.9 million in net recoveries recorded in the first~~

~~six months~~ of 2016, $3.9 million related to commercial real estate loans and $0.2 million related to construction and land loans, partially offset by net charge-offs of $0.7 million related to commercial and industrial loans and $0.5 million related to residential loans.

Nonperforming assets. The Company’s nonperforming assets include nonaccrual loans and OREO. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of deeds in lieu of foreclosure. As of ~~June 30, 2016,~~March 31, 2017, nonperforming assets totaled ~~$21.2~~$20.9 million, or ~~0.28%~~0.25% of total assets, ~~a decrease~~an increase of ~~$6.1~~$1.9 million, or ~~22%~~10%, compared to ~~$27.3~~$19.0 million, or ~~0.36%~~0.24% of total assets, as of December 31, ~~2015.~~2016.

The Bank’s policy is to discontinue the accrual of interest on a loan when the collectability of principal or interest in accordance with the contractual terms of the loan agreement is in doubt. Despite a loan having a current payment status, if the Bank has reason to believe it may not collect all principal and interest on the loan in accordance with the related contractual terms, the Bank will generally discontinue the accrual of interest income and will apply any future interest payments received to principal. Of the ~~$19.2~~$20.9 million of loans on nonaccrual status as of ~~June 30, 2016, $8.0~~March 31, 2017, $9.9 million, or ~~42%~~47%, had a current payment status, ~~$0.8~~$5.8 million, or 4%28%, were 30-89 days past due, and ~~$10.4~~$5.2 million, or ~~54%~~25%, were 90 days or more past due. Of the ~~$26.6~~$17.3 million of loans on nonaccrual status as of December 31, ~~2015, $8.0~~2016, $5.1 million, or ~~30%~~29%, had a current payment status, ~~$0.9~~$2.2 million, or 3%13%, were 30-89 days past due, and ~~$17.7~~$10.0 million, or ~~67%~~58%, were 90 days or more past due.

The Bank continues to evaluate the underlying collateral of each nonperforming loan and pursue the collection of interest and principal. Where appropriate, the Bank obtains updated appraisals on collateral. Reductions in fair values of the collateral for nonaccrual loans, if they are collateral dependent, could result in additional future provision for loan losses depending on the timing and severity of the decline. See Part I. Item 1. “Financial Statements and Supplementary Data - Note 6: Loans Receivable” for further information on nonperforming loans.

The Bank’s policy for returning a loan to accrual status requires the loan to be brought current and for the client to show a history of making timely payments (generally six consecutive months). For nonaccruing troubled debt restructured loans (“TDRs”), a return to accrual status generally requires timely payments for a period of six months in accordance with restructured terms, along with meeting other criteria.

Delinquencies. The past due status of a loan is determined in accordance with its contractual repayment terms. All loan types are reported past due when one scheduled payment is due and unpaid for 30 days or more. Loans 30-89 days past due ~~decreased $5.5~~increased $13.6 million, or ~~42%~~90%, to ~~$7.6~~$28.7 million as of ~~June 30, 2016~~March 31, 2017 from ~~$13.1~~$15.1 million as of December 31, ~~2015.~~2016. The increase was primarily due to one CRE loan for $9.2 million which subsequently paid off in April 2017. Loan delinquencies can be attributed to many factors, such as continuing weakness in, or deteriorating, economic conditions in the region the collateral is located, the loss of a tenant or lower lease rates for commercial borrowers, renewal and administrative issues, or the loss of income for consumers and the resulting liquidity impacts on the borrowers. Further deterioration in the credit condition of these delinquent loans could lead to the loans going to nonaccrual status and/or being downgraded. Downgrades would generally result in additional provision for loan losses. Past due loans may be included with accruing substandard loans.

In certain instances, although very infrequently, loans that have become 90 days or more past due may remain on accrual status if the value of the collateral securing the loan is sufficient to cover principal and interest and the loan is in the process of collection. There were ~~$0.1 million and~~ no loans 90 days or more past due, but still accruing, respectively, as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Impaired Loans. When management determines that it is probable that the Bank will not collect all principal and interest on a loan in accordance with the original loan terms, the loan is considered impaired. Certain impaired loans may continue to accrue interest based on factors such as the restructuring terms, if any, the historical payment performance, the value of collateral, and the financial condition of the borrower. Impaired commercial loans and impaired construction loans are typically, in accordance with ASC 310, individually evaluated for impairment. Large groups of smaller-balance homogeneous loans may be collectively evaluated for impairment. Such groups of loans may include, but are not limited to, residential loans, home equity loans, and consumer loans. However, if the terms of any of such loans are modified in a troubled debt restructuring, then such loans would be individually evaluated for impairment in the allowance for loan and lease losses.

Loans that are individually evaluated for impairment require an analysis to determine the amount of impairment, if any. For collateral dependent loans, impairment would be indicated as a result of the carrying value of the loan exceeding the estimated collateral value, less costs to sell, or, for loans not considered to be collateral dependent, the net present value of the projected cash flow, discounted at the loan’s contractual effective interest rate. Generally, when a collateral dependent loan becomes impaired, an updated appraisal of the collateral, if appropriate, is obtained. If the impaired loan has not been upgraded to a performing status within a reasonable amount of time, the Bank will continue to obtain updated appraisals, as deemed necessary, especially during periods of declining property values. Normally, shortfalls in the analysis of collateral dependent loans would result in the impairment amount being charged-off to the allowance for loan losses. Shortfalls on cash flow

dependent loans may be carried as specific allocations to the general reserve unless a known loss is determined to have occurred, in which case such known loss is charged-off. Based on the impairment analysis, the provision could be higher or lower than the amount of provision associated with a loan prior to its classification as impaired. See Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 for detail on the Company’s treatment of impaired loans in the allowance for loan losses.

Impaired loans individually evaluated for impairment in the allowance for loan losses totaled ~~$37.8~~$29.3 million as of ~~June 30, 2016, a decrease~~March 31, 2017, an increase of ~~$1.4~~$3.3 million, or 3%13%, compared to ~~$39.2~~$26.0 million as of December 31, ~~2015.~~2016. As of ~~June 30, 2016, $12.9~~March 31, 2017, $10.0 million of the individually evaluated impaired loans had ~~$1.1~~$1.0 million in specific reserve allocations. The remaining ~~$24.9~~$19.3 million of individually evaluated impaired loans did not have specific reserve allocations due to the adequacy of collateral, prior charge-offs taken, interest collected and applied to principal, or a combination of these items. As of December 31, ~~2015, $15.9~~2016, $11.4 million of individually evaluated impaired loans had ~~$1.6~~$1.1 million in specific reserve allocations, and the remaining ~~$23.3~~$14.6 million of individually evaluated impaired loans did not have specific reserve allocations.

The Bank may, under certain circumstances, restructure loans as a concession to borrowers who are experiencing financial difficulty. Such loans are classified as TDRs and are included in impaired loans. TDRs typically result from the Bank’s loss mitigation activities which, among other things, could include rate reductions, payment extensions, and/or principal forgiveness. As of ~~June 30,~~March 31, 2017 and December 31, 2016, TDRs totaled ~~$30.4~~$17.2 million ~~a decrease of $0.2~~and $18.1 million, ~~or 1%, compared to $30.6 million as of December 31, 2015.~~respectively. As of ~~June 30, 2016, $23.9~~March 31, 2017, $12.1 million of the ~~$30.4~~$17.2 million ofin TDRs were on accrual status. As of December 31, ~~2015, $18.6~~2016, $12.4 million of the ~~$30.6~~$18.1 million ofin TDRs were on accrual status.

Potential Problem Loans. Loans that evidence weakness or potential weakness related to repayment history, the borrower’s financial condition, or other factors are reviewed by the Bank’s management to determine if the loan should be adversely classified. Delinquent loans may or may not be adversely classified depending upon management’s judgment with respect to each individual loan. The Bank classifies certain loans as “substandard,” “doubtful,” or “loss” based on criteria consistent with guidelines provided by banking regulators. Potential problem loans consist of accruing substandard loans where known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in classification of such loans as nonperforming at some time in the future. Management cannot predict the extent to which economic conditions may worsen or other factors which may impact borrowers and the potential problem loans. Triggering events for loan downgrades include updated appraisal information, inability of borrowers to cover debt service payments, loss of tenants or notification by the tenant of non-renewal of lease, inability of borrowers to sell completed construction projects, and the inability of borrowers to sell properties. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, be restructured, or require increased allowance coverage and provision for loan losses.

As of ~~June 30, 2016,~~March 31, 2017, the Bank has identified ~~$64.2~~$64.4 million in potential problem loans, an increase of ~~$5.8~~$0.7 million, or ~~10%~~1%, compared to ~~$58.4~~$63.7 million as of December 31, ~~2015.~~2016. This increase was primarily due to ~~increases in potential problem commercial real estate loans and potential problem~~the downgrade of two commercial and industrial loans ~~partially offset by decreases~~made to a single borrower in ~~potential problem consumer and other loans, potential problem construction and land loans, and potential problem residential loans.~~the New England region. Numerous factors impact the level of potential problem loans including economic conditions and real estate values. These factors affect the borrower’s liquidity and, in some cases, the borrower’s ability to comply with loan covenants such as debt service coverage. When there is a loss of a major tenant in a commercial real estate building, the appraised value of the building generally declines. Loans may be downgraded when this occurs as a result of the additional risk to the borrower in obtaining a new tenant in a timely manner and negotiating a lease with similar or better terms than the previous tenant. In many cases, these loans are still current and paying as agreed, although future performance may be impacted.

The following table presents a rollforward of nonaccrual loans for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 and ~~2015:~~2016:


	As of and for the three months ended June 30,						As of and for the six months ended June 30,						As of and for the three months ended March 31,
	2016			2015			2016			2015			2017			2016
	(In thousands)												(In thousands)
Nonaccrual loans, beginning of period	$	24,356		$	32,133		$	26,571		$	44,182		$	17,315		$	26,571
Transfers in to nonaccrual status	1,814			2,738			5,136			3,928			5,180			3,322
Transfers out to OREO	(1,944		)	—			(1,944		)	—
Transfers out to accrual status	(300		)	(2,189		)	(1,274		)	(2,804		)	(570		)	(974		)
Charge-offs	(19		)	(58		)	(2,765		)	(112		)	—			(2,746		)
Paid off/ paid down	(4,719		)	(2,733		)	(6,536		)	(15,303		)	(980		)	(1,817		)
Nonaccrual loans, end of period	$	19,188		$	29,891		$	19,188		$	29,891		$	20,945		$	24,356

The following table presents a summary of credit quality by geography, based on the location of the regional offices:


	June 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
	(In thousands)				(In thousands)
Nonaccrual loans:
New England	$	13,028	$	19,572	$	14,407	$	10,081
San Francisco Bay Area	4,196		4,977		2,312		2,989
Southern California	1,964		2,022		4,226		4,245
Total nonaccrual loans	$	19,188	$	26,571	$	20,945	$	17,315
Loans 30-89 days past due and accruing: ~~(1)~~
New England	$	5,213	$	7,118	$	9,843	$	10,311
San Francisco Bay Area	70		2,806		10,111		591
Southern California	2,343		3,170		8,771		4,235
Total loans 30-89 days past due	$	7,626	$	13,094	$	28,725	$	15,137
Accruing substandard loans:
New England	$	17,447	$	22,026	$	12,157	$	10,972
San Francisco Bay Area	19,750		19,990		15,824		15,890
Southern California	27,027		16,398		36,398		36,809
Total accruing substandard loans	$	64,224	$	58,414	$	64,379	$	63,671

~~______________________~~


~~(1)~~	~~As of June 30, 2016, there were also $0.1 million in loans 90+ days past due and accruing in the San Francisco Bay Area region.~~

The following table presents a summary of credit quality by loan type. The loan type assigned to the credit quality data is based on the purpose of the loan.


	June 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
	(In thousands)				(In thousands)
Nonaccrual loans:
Commercial and industrial	$	1,106	$	1,019	$	572	$	572
Commercial tax exempt					4,337		—
Commercial real estate	6,934		11,232		3,856		4,583
Construction and land	861		3,297		147		179
Residential	8,967		9,661		10,962		10,908
Home equity and other consumer	1,320		1,362
Home equity					1,070		1,072
Consumer and other					1		1
Total nonaccrual loans	$	19,188	$	26,571	$	20,945	$	17,315
Loans 30-89 days past due and accruing: (1)
Loans 30-89 days past due and accruing:
Commercial and industrial	$	3,151	$	2,667	$	2,338	$	1,619
Commercial tax exempt					—		—
Commercial real estate	1,490		2,620		17,769		3,096
Construction and land	—		—		109		—
Residential	2,481		7,140		6,078		4,182
Home equity and other consumer	504		667
Home equity					780		245
Consumer and other					1,651		5,995
Total loans 30-89 days past due	$	7,626	$	13,094	$	28,725	$	15,137
Accruing substandard loans:
Commercial and industrial	$	15,199	$	11,455	$	10,418	$	9,277
Commercial tax exempt					—		—
Commercial real estate	38,644		33,705		49,425		49,696
Construction and land	3,823		4,600		3,147		3,297
Residential	6,556		6,675		1,387		1,399
Home equity and other consumer	2		1,979
Home equity					—		—
Consumer and other					2		2
Total accruing substandard loans	$	64,224	$	58,414	$	64,379	$	63,671

~~______________________~~


~~(1)~~	~~As of June 30, 2016, there were also $0.1 million in loans 90+ days past due and accruing in the construction and land category.~~

Liquidity

Liquidity is defined as the Company’s ability to generate adequate cash to meet its needs for day-to-day operations and material long and short-term commitments. Liquidity risk is the risk of potential loss if the Company were unable to meet its funding requirements at a reasonable cost. The Company manages its liquidity based on demand, commitments, specific events and uncertainties to meet current and future financial obligations of a short-term nature. The Company’s objective in managing liquidity is to respond to the needs of depositors and borrowers as well as to earnings enhancement opportunities in a changing marketplace.

At ~~June 30, 2016,~~March 31, 2017, the Company’s cash and cash equivalents amounted to ~~$126.2~~$165.2 million. The Holding Company’s cash and cash equivalents amounted to ~~$55.2~~$61.6 million at ~~June 30, 2016.~~March 31, 2017. Management believes that the Holding Company and its affiliates, including the ~~Holding Company~~Bank, have adequate liquidity to meet their commitments for the foreseeable future.

Management is responsible for establishing and monitoring liquidity targets as well as strategies to meet these targets. At ~~June 30,~~both March 31, 2017 and December 31, 2016, consolidated cash and cash equivalents and available-for-sale securities, less securities pledged against current borrowings and derivatives, amounted to ~~$1.2~~$1.3 billion, or 16% of total ~~assets, compared to $1.2 billion, or 16% of total assets, at December 31, 2015.~~assets. Future loan growth may depend upon the Company’s ability to continue to grow its core deposit levels. In addition, the Company has access to available borrowings through the FHLB totaling ~~$0.9~~$0.8 billion as of ~~June 30, 2016~~March 31, 2017 compared to ~~$1.2~~$0.9 billion at December 31, ~~2015.~~2016. Combined, this liquidity totals $2.1 billion, or 26% of assets and 34% of total deposits, as of March 31, 2017, compared to $2.2 billion, or 28% of assets and ~~39% of total deposits, as of June 30, 2016, compared to $2.4 billion, or 31% of assets and 39%~~37% of total deposits, at December 31, ~~2015.~~

2016.

The Bank has various internal policies and guidelines regarding liquidity, both on- and off-balance sheet, loans to assets ratio, and limits on the use of wholesale funds. These policies and/or guidelines require certain minimum or maximum balances or ratios be maintained at all times. In light of the provisions in the Bank’s internal liquidity policies and guidelines, the Bank will carefully manage the amount and timing of future loan growth along with its relevant liquidity policies and balance sheet guidelines.

Holding Company Liquidity. The Company and some of the Company’s majority-owned affiliates hold put and call options that would require the Company to purchase (and the noncontrolling interest owners of the majority-owned affiliates to sell) the remaining noncontrolling interests in these companies at either a contractually predetermined fair value, a multiple of EBITDA, or fair value, as determined by the respective agreements. At ~~June 30, 2016,~~March 31, 2017, the estimated maximum redemption value for these affiliates related to outstanding put options was ~~$15.8~~$17.2 million, all of which could be redeemed within the next 12 months, under certain circumstances, and is classified on the consolidated balance sheets as ~~RNCI.~~redeemable noncontrolling interests. These put and call options are discussed in detail in Part II. Item 8. “Financial Statements and Supplementary Data - Note 14: Noncontrolling Interests” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

The Holding Company’s primary sources of funds are dividends from its affiliates and access to the capital and debt markets. The Holding Company recognized ~~$3.3~~$1.6 million in net income from discontinued operations during the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 related to a revenue sharing agreement with Westfield Capital Management Company, LLC (“Westfield”). ~~The terms of this~~This revenue sharing agreement is in effect through December 2017, and the terms are discussed in detail in Part II. Item 8. “Financial Statements and Supplementary Data - Note 3: Acquisitions, Asset Sales, and Divestitures” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016. Other than the revenue sharing agreement with Westfield, divestitures are not ongoing sources of funds for the Holding Company. After the December 2017 payments under the revenue sharing agreement are received in 2018, the Company will not receive additional net income from Westfield. Dividends from the Bank are limited by various regulatory requirements relating to capital adequacy and retained earnings. See Part II. Item 5. “Market for Registrant’s Common Equity, Related Stockholders Matters, and Issuers Purchases of Equity Securities” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 for further details.

The Bank pays dividends to the Holding Company, subject to the approval of the Bank’s board of directors, depending on its profitability and asset growth. If regulatory agencies were to require banks to increase their capital ratios, or impose other restrictions, it may limit the ability of the Bank to pay dividends to the Holding Company and/or limit the amount that the Bank could grow.

Although the Bank’s capital currently exceeds regulatory requirements for capital, the Holding Company could downstream additional capital to increase the rate that the Bank could grow. Depending upon the amount of capital downstreamed by the Holding Company, the approval of the Holding Company’s board of directors may be required prior to the payment, if any.

The Company is required to pay interest quarterly on its junior subordinated debentures. The estimated cash outlay for the remaining ~~six~~nine months of ~~2016~~2017 for the interest payments is approximately ~~$1.2~~$2.2 million based on the debt outstanding ~~as of the date of this filing~~at March 31, 2017 and estimated LIBOR.

The Company is required to pay cash dividends quarterly on its Series D preferred stock, issued in April 2013, at 6.95% per annum. The estimated cash outlay for the remaining six months of 2016 for the Series D preferred stock dividend payments is approximately $1.7 million. Although the rate of interest is set in the terms of the preferred stock, the quarterly preferred stock dividend payments are subject to approval by the Company’s board of directors.

The Company presently plans to pay cash dividends on its common stock on a quarterly basis dependent upon a number of factors such as profitability, Holding Company liquidity, and the Company’s capital levels. However, the ultimate declaration of dividends by the board of directors of the Company will depend on consideration of, among other things, recent financial trends and internal forecasts, regulatory limitations, alternative uses of capital deployment, general economic conditions, and regulatory changes to capital requirements. ~~In January 2016, the Company increased its quarterly dividend from $0.09 per share to $0.10 per share.~~ Based on the current quarterly dividend rate of $0.11 per share, as announced by the Company on January 18, 2017, and estimated shares outstanding, the Company estimates that the amount to be paid out ~~in the remaining six months of 2016~~ for dividends to common shareholders in the remaining nine months of 2017 will be approximately ~~$16.4~~$27.8 million. The estimated dividend payments in ~~2016~~2017 could increase or decrease if the Company’s board of directors ~~voted~~votes to increase or decrease, respectively, the current dividend rate, and/or the number of shares outstanding changes significantly.

Based on the shares of stock outstanding of 6.95% Non-Cumulative Perpetual Preferred Stock, Series D, and the dividend rate, the Company expects to pay $2.6 million in cash dividends on preferred stock for the remaining nine months of 2017. Although the rate of interest is set in the terms of the preferred stock, the quarterly preferred stock dividend payments are subject to approval by the Company’s board of directors.

In the first quarter of 2016, the Company’s board of directors approved, and received regulatory non-objection for, a share repurchase program of up to $20 million of the Company’s outstanding common shares. Under the program, shares may be repurchased from time to time in the open market for a two-year period. ~~The Company estimates the dollar amount~~As of ~~common stock~~March 31, 2017, there remains $10.7 million available to be ~~repurchased in the remaining six months~~repurchased. The amount and timing of ~~2016~~additional repurchases, if any, will be ~~approximately $15.5 million, although this estimate could be lower depending~~based on the ~~price~~Company’s continuous evaluation of the ~~Company’s common stock.~~

program.

Bank Liquidity. The Bank has established various borrowing arrangements to provide additional sources of liquidity and funding. Management believes that the Bank currently has adequate liquidity available to respond to current demands. The Bank is a member of the FHLB of Boston, and as such, has access to short- and long-term borrowings from that institution. The FHLB can change the advance amounts that banks can utilize based on a bank’s current financial condition as obtained from publicly available data such as FDIC Call Reports. Decreases in the amount of FHLB borrowings available to the Bank would lower its liquidity and possibly limit the Bank’s ability to grow in the short-term. Management believes that the Bank has adequate liquidity to meet its commitments for the foreseeable future.

In addition to the above liquidity, the Bank has access to the Federal Reserve discount window facility, which can provide short-term liquidity as “lender of last resort,” brokered deposits, and federal funds lines. The use of non-core funding sources, including brokered deposits and borrowings, by the Bank may be limited by regulatory agencies. Generally, the regulatory agencies prefer that banks rely on core-funding sources for liquidity.

From time to time, the Bank purchases federal funds from the FHLB and other banking institutions to supplement its liquidity position. At ~~June 30, 2016,~~March 31, 2017, the Bank had unused federal fund lines of credit totaling ~~$395.0~~$565.0 million with correspondent institutions to provide it with immediate access to overnight borrowings, compared to ~~$565.0~~$485.0 million at December 31, ~~2015.~~2016. At ~~June 30, 2016,~~March 31, 2017, the Bank had ~~$170.0 million of~~no outstanding borrowings under the federal fund lines with these correspondent institutions ~~along with an additional $10.0~~and had $80.0 million of outstanding borrowings under the federal fund lines ~~with the FHLB. At~~at December 31, ~~2015,~~2016. Certain liquidity sources, such as federal funds lines, may be withdrawn by the ~~Bank had no outstanding borrowings under these federal fund lines.~~correspondent bank at any time especially in the event of financial deterioration of the institution.

The Bank has also negotiated brokered deposit agreements with several institutions that have nationwide distribution capabilities. At ~~June 30, 2016,~~March 31, 2017, the Bank had ~~$478.9~~$643.7 million of brokered deposits (net of premiums paid) outstanding under these agreements, compared to ~~$577.4~~$738.3 million at December 31, ~~2015.~~2016.

If the Bank is no longer able to utilize the FHLB for borrowing, collateral currently used for FHLB borrowings could be transferred to other facilities such as the Federal Reserve’s discount window. In addition, the Bank could increase its usage of brokered deposits. Other borrowing arrangements may have higher rates than the FHLB would typically charge.

Capital Resources

Total shareholders’ equity at ~~June 30, 2016~~March 31, 2017 was ~~$774.1~~$781.9 million, compared to ~~$746.6~~$768.5 million at December 31, ~~2015,~~2016, an increase of ~~$27.5~~$13.4 million, or 4%2%. The increase in shareholders’ equity was primarily the result of net income, ~~and~~ the change in other comprehensive ~~income,~~income/ (loss), amortization of stock compensation, and the conversion of stock warrants, partially offset by dividends ~~paid and the repurchase of common stock.~~paid.

As a bank holding company, the Company is subject to various regulatory capital requirements administered by federal agencies. Failure to meet minimum capital requirements can result in certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements. For example, under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank, which is a wholly-owned subsidiary of the Company, must meet specific capital guidelines that involve quantitative measures of the Bank’s assets and certain off-balance sheet items as calculated under regulatory guidelines. The Bank’s capital and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Similarly, the Company is also subject to capital requirements administered by the Federal Reserve with respect to certain non-banking activities, including adjustments in connection with off-balance sheet items.

Effective January 1, 2015, the Company and the Bank adopted the BASEL III regulatory capital framework. Under BASEL III, the Company and the Bank were required to implement a new risk-weighted capital measure, common equity tier 1 (“CETI”), as well as a phased in capital conservation buffer. In addition, capital requirements for all banking organizations

were increased. In order to avoid limitations on distributions, including dividend payments and certain discretionary bonus payments to executive officers, a capital conservation buffer must be held above the minimum risk-based capital requirements. The new rules are phased-in through 2019. The Bank and Company were in compliance with all of the requirements of the capital conservation buffer as of March 31, 2017.

To be categorized as “well capitalized,” the Company and the Bank must maintain specified minimum capital ratios. In addition, the Company and the Bank cannot be subject to any written agreement, order or capital directive or prompt corrective action to be considered “well capitalized.” Both the Company and the Bank maintained capital at levels that would be considered “well capitalized” as of ~~June 30, 2016~~March 31, 2017 under the applicable regulations.

As of ~~June 30, 2016,~~March 31, 2017, quantitative measures established by regulation to ensure capital adequacy required us to maintain minimum ratios of ~~common equity Tier 1,~~CETI, Tier 1, and total capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations) and of Tier 1 capital (as defined in the regulations) to average assets (as defined in the regulations).

As of March 31, 2016, financial institutions and their holding companies were required to transition to a provision in the regulatory capital rules for a capital conservation buffer. In order to avoid limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers, a capital conservation buffer must be held above the minimum risk-based capital requirements. The new rules are phased-in through 2019. The Bank and Company were in compliance with all of the requirements of the capital conservation buffer as of June 30, 2016.

The following table presents the Company’s and the Bank’s amounts of regulatory capital and related ratios as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. Also presented are the minimum requirements established by the Federal Reserve and the FDIC as of those dates for the Company and the Bank, respectively, to meet applicable capital requirements and the requirements of the FDIC as of those dates for the Bank to be considered “well capitalized” under the FDIC’s prompt corrective action provisions.

The Federal Reserve, the FDIC, and the Massachusetts Division of Banks may impose higher capital ratios than those listed below based upon the results of regulatory exams. The Bank was categorized as “well capitalized” under the FDIC’s prompt corrective action provisions as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.


	Actual				For capital adequacy purposes (at least)				To be well capitalized under prompt corrective action provisions (at least)				Actual				For capital adequacy purposes (at least)				To be well capitalized under prompt corrective action provisions (at least)				Basel III minimum capital ratio with capital conservation buffer (1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Ratio
	(In thousands)												(In thousands)
As of June 30, 2016
As of March 31, 2017
Common equity tier 1 risk-based capital
Company	$	543,801	9.95	%	$	245,904	4.5	%	n/a		n/a		$	578,941	9.97	%	$	261,308	4.5	%	n/a		n/a		7.0	%
Boston Private Bank	633,136		11.65		244,554		4.5		$	353,245	6.5	%	667,983		11.55		260,195		4.5		$	375,837	6.5	%	7.0
Tier 1 risk-based capital
Company	694,526		12.71		327,872		6.0		n/a		n/a		728,614		12.55		348,411		6.0		n/a		n/a		8.5
Boston Private Bank	633,136		11.65		326,072		6.0		434,763		8.0		667,983		11.55		346,927		6.0		462,569		8.0		8.5
Total risk-based capital
Company	763,231		13.97		437,162		8.0		n/a		n/a		801,548		13.80		464,548		8.0		n/a		n/a		10.5
Boston Private Bank	701,185		12.90		434,763		8.0		543,454		10.0		740,347		12.80		462,569		8.0		578,211		10.0		10.5
Tier 1 leverage capital
Company	694,526		9.57		290,401		4.0		n/a		n/a		728,614		9.23		315,916		4.0		n/a		n/a		4.0
Boston Private Bank	633,136		8.79		288,132		4.0		360,165		5.0		667,983		8.51		314,000		4.0		392,500		5.0		4.0

As of December 31, 2015
Common equity tier 1 risk-based capital
Company	$	534,241	9.80	%	$	245,216	4.5	%	n/a		n/a
Boston Private Bank	621,668		11.49		243,407		4.5		$	351,588	6.5	%
Tier 1 risk-based capital
Company	686,160		12.59		326,954		6.0		n/a		n/a
Boston Private Bank	621,668		11.49		324,543		6.0		432,723		8.0
Total risk-based capital
Company	754,758		13.85		435,939		8.0		n/a		n/a
Boston Private Bank	689,437		12.75		432,723		8.0		540,904		10.0
Tier 1 leverage capital
Company	686,160		9.50		289,059		4.0		n/a		n/a
Boston Private Bank	621,668		8.68		286,461		4.0		358,077		5.0

~~___________________~~



	Actual				For capital adequacy purposes (at least)				To be well capitalized under prompt corrective action provisions (at least)				Basel III minimum capital ratio with capital conservation buffer (1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Ratio
	(In thousands)
As of December 31, 2016
Common equity tier 1 risk-based capital
Company	$	571,663	10.00	%	$	257,222	4.5	%	n/a		n/a		7.0%
Boston Private Bank	661,991		11.64		256,030		4.5		$	369,822	6.5	%	7.0
Tier 1 risk-based capital
Company	722,674		12.64		342,962		6.0		n/a		n/a		8.5
Boston Private Bank	661,991		11.64		341,374		6.0		455,165		8.0		8.5
Total risk-based capital
Company	794,584		13.90		457,283		8.0		n/a		n/a		10.5
Boston Private Bank	733,214		12.89		455,165		8.0		568,956		10.0		10.5
Tier 1 leverage capital
Company	722,674		9.42		306,848		4.0		n/a		n/a		4.0
Boston Private Bank	661,991		8.70		304,510		4.0		380,637		5.0		4.0

_____________________

n/a not applicable


(1)	Required capital ratios under the Basel III capital rules with the fully phased-in capital conservation buffer added to the minimum risk-based capital ratios. The fully phased-in ratios are effective for 2019, with lower requirements during the transition years 2016 through 2018.

Bank regulatory authorities restrict the Bank from lending or advancing funds to, or investing in the securities of, the Company. Further, these authorities restrict the amounts available for the payment of dividends by the Bank to the Company.

~~As of June 30, 2016, the~~The Company has sponsored the creation of two statutory trusts for the sole purpose of issuing trust preferred securities and investing the proceeds in junior subordinated debentures of the Company. In accordance with ASC 810-10-55, Consolidation - Overall - Implementation Guidance and Illustrations - Variable Interest Entities, these statutory trusts created by the Company are not consolidated into the Company’s financial statements; however, the Company reflects

the amounts of junior subordinated debentures payable to the preferred stockholders of statutory trusts as debt in its financial statements. As of both ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, all $100.0 million of the net balance of these trust preferred securities qualified as Tier 1 capital.

~~Results of operations for the three and six months ended June 30, 2016 versus June 30, 2015~~

~~Net Income.~~ The Company recorded net income from continuing operations for the three and six months ended June 30, 2016 of $16.1 million and $33.0 million, respectively, compared to $17.3 million and $35.2 million for the same respective periods in 2015. Net income attributable to the Company, which includes income from both continuing and discontinued operations, for the three and six months ended June 30, 2016 was $16.4 million and $34.4 million, respectively, compared to $17.6 million and $36.4 million for the same respective periods in 2015.

The Company recognized diluted EPS attributable to common shareholders, which includes both continuing and discontinued operations, for the three and six months ended June 30, 2016 of $0.18 per share and $0.40 per share, respectively, compared to $0.20 per share and $0.41 per share, respectively, for the same periods in 2015.

Net income from continuing operations in both 2016 and 2015 was offset by charges that reduce income available to common shareholders. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 2: Earnings Per Share” for further detail on these charges to income available to common shareholders.

~~The following discussions are based on the Company’s continuing operations, unless otherwise stated.~~

~~The following table presents selected financial highlights:~~

Three months ended June 30, % Change Six months ended June 30, % Change
2016 2015 2016 2015
(In thousands)
Net interest income $ 49,169
$ 45,085
9 % $ 99,048
$ 91,157
9 %
Fees and other income 36,795
42,660
(14 )% 74,817
84,005
(11 )%
Total revenue 85,964
87,745
(2 )% 173,865
175,162
(1 )%
Provision/ (credit) for loan losses (2,535 ) —
nm
(5,668 ) (2,500 ) 127 %
Operating expense 64,731
62,418
4 % 131,440
125,845
4 %
Income tax expense 7,626
8,000
(5 )% 15,064
16,572
(9 )%
Net income from continuing operations 16,142
17,327
(7 )% 33,029
35,245
(6 )%
Net income from discontinued operations 1,245
1,546
(19 )% 3,310
3,640
(9 )%
Less: Net income attributable to noncontrolling interests 989
1,263
(22 )% 1,900
2,492
(24 )%
Net income attributable to the Company $ 16,398
$ 17,610
(7 )% $ 34,439
$ 36,393
(5 )%

~~Net interest income~~. Net interest income represents the difference between interest earned, primarily on loans and investments, and interest paid on funding sources, primarily deposits and borrowings. Interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate paid on total interest-bearing liabilities. Net Interest Margin (“NIM”) is calculated by taking annualized net interest income for the period, on a fully taxable-equivalent (“FTE”) basis, as a percentage of average interest-earning assets. The average rate earned on earning assets is the amount of annualized taxable equivalent interest income expressed as a percentage of average earning assets. The average rate paid on interest-bearing liabilities is equal to annualized interest expense as a percentage of average interest-bearing liabilities. When credit quality declines and loans are placed on nonaccrual status, NIM can decrease because the same assets are earning less income. Loans graded as substandard but still accruing interest income totaled $64.2 million at June 30, 2016 and could be placed on nonaccrual status if their credit quality declines further.

Net interest income for the three months ended June 30, 2016 was $49.2 million, an increase of $4.1 million, or 9%, compared to the same period in 2015. For the six months ended June 30, 2016, net interest income was $99.0 million, an increase of $7.9 million, or 9%, compared to the same period in 2015. The increase for the three and six months is due to higher volume of loans, higher volume and yields on cash and investments, and lower average rates paid on the Company’s borrowings, partially offset by lower yields on loans and higher volume of borrowings and interest-bearing deposits. The NIM was 2.91% for the three months ended June 30, 2016, an increase of one basis point compared to the same period in 2015. For the six months ended June 30, 2016, the NIM was 2.94%, a decrease of two basis points compared to the same period in 2015.

The following tables present the composition of the Company’s NIM on a FTE basis for the three and six months ended June 30, 2016 and 2015; however, the discussion following these tables reflects non-FTE data.

Average Balance Interest Income/Expense Average Yield/Rate
As of and for the three months ended June 30,
AVERAGE BALANCE SHEET: 2016 2015 2016 2015 2016 2015
AVERAGE ASSETS (In thousands)
Interest-Earning Assets:
Cash and Investments: (1)
Taxable investment securities $ 372,413
$ 342,259
$ 1,507
$ 1,075
1.62 % 1.26 %
Non-taxable investment securities (2) 261,678
242,387
2,153
1,731
3.29 % 2.86 %
Mortgage-backed securities 588,419
538,688
2,982
2,775
2.03 % 2.06 %
Federal funds sold and other 124,790
90,616
405
282
1.29 % 1.23 %
Total Cash and Investments 1,347,300
1,213,950
7,047
5,863
2.09 % 1.93 %
Loans (3):
Commercial and Industrial (2) 1,084,821
988,536
10,813
10,438
3.94 % 4.18 %
Commercial Real Estate 1,910,968
1,740,606
19,559
18,323
4.05 % 4.16 %
Construction and Land 150,927
145,405
1,456
1,252
3.82 % 3.41 %
Residential 2,256,296
2,160,987
17,441
16,637
3.09 % 3.08 %
Home Equity 123,687
120,303
1,073
1,058
3.49 % 3.53 %
Other Consumer 177,805
169,726
1,073
980
2.43 % 2.32 %
Total Loans 5,704,504
5,325,563
51,415
48,688
3.58 % 3.63 %
Total Earning Assets 7,051,804
6,539,513
58,462
54,551
3.30 % 3.32 %
Less: Allowance for Loan Losses 77,345
77,938

Cash and due From Banks (Non-interest Bearing) 40,253
41,596

Other Assets 427,013
410,296

TOTAL AVERAGE ASSETS $ 7,441,725
$ 6,913,467

AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Interest-Bearing Deposits (4):
NOW $ 554,565
$ 517,281
$ 104
$ 77
0.08 % 0.06 %
Savings 75,431
71,842
23
10
0.12 % 0.06 %
Money Market 2,897,151
2,754,817
2,836
2,551
0.39 % 0.37 %
Certificates of Deposit 559,271
597,617
1,112
1,184
0.80 % 0.79 %
Total Interest-Bearing Deposits 4,086,418
3,941,557
4,075
3,822
0.40 % 0.39 %
Junior Subordinated Debentures 106,363
106,363
584
967
2.17 % 3.60 %
FHLB Borrowings and Other Borrowings 719,655
576,403
2,197
2,046
1.21 % 1.40 %
Total Interest-Bearing Liabilities 4,912,436
4,624,323
6,856
6,835
0.56 % 0.59 %
Noninterest Bearing Demand Deposits (4) 1,628,057
1,443,228

Payables and Other Liabilities 116,444
97,641

Total Average Liabilities 6,656,937
6,165,192

Redeemable Noncontrolling Interests 19,725
22,760

Average Shareholders’ Equity 765,063
725,515

TOTAL AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY $ 7,441,725
$ 6,913,467

Net Interest Income - on a FTE Basis $ 51,606
$ 47,716

FTE Adjustment (2) 2,437
2,631

Net Interest Income (GAAP Basis) $ 49,169
$ 45,085

Interest Rate Spread 2.74 % 2.73 %
Net Interest Margin 2.91 % 2.90 %

Average Balance Interest Income/Expense Average Yield/Rate
As of and for the six months ended June 30,
AVERAGE BALANCE SHEET: 2016 2015 2016 2015 2016 2015
AVERAGE ASSETS (In thousands)
Interest-Earning Assets:
Cash and Investments: (1)
Taxable investment securities $ 373,486
$ 331,565
$ 3,101
$ 2,070
1.66 % 1.25 %
Non-taxable investment securities (2) 261,952
236,352
4,291
3,301
3.28 % 2.79 %
Mortgage-backed securities 576,623
527,423
6,047
5,389
2.10 % 2.04 %
Federal funds sold and other 163,965
118,749
912
516
1.11 % 0.87 %
Total Cash and Investments 1,376,026
1,214,089
14,351
11,276
2.09 % 1.86 %
Loans (3):
Commercial and Industrial (2) 1,075,217
961,139
21,732
21,590
4.00 % 4.47 %
Commercial Real Estate 1,885,263
1,763,216
39,356
37,461
4.13 % 4.23 %
Construction and Land 162,897
138,882
3,104
2,328
3.77 % 3.33 %
Residential 2,242,988
2,150,813
34,743
33,292
3.10 % 3.10 %
Home Equity 121,518
118,001
2,155
2,071
3.57 % 3.54 %
Other Consumer 167,657
166,030
2,039
1,921
2.45 % 2.33 %
Total Loans 5,655,540
5,298,081
103,129
98,663
3.62 % 3.71 %
Total Earning Assets 7,031,566
6,512,170
117,480
109,939
3.32 % 3.37 %
Less: Allowance for Loan Losses 78,809
77,491

Cash and due From Banks (Non-interest Bearing) 40,136
39,894

Other Assets 424,402
411,724

TOTAL AVERAGE ASSETS $ 7,417,295
$ 6,886,297

AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Interest-Bearing Deposits (4):
NOW $ 548,591
$ 522,414
$ 191
$ 154
0.07 % 0.06 %
Savings 75,432
71,966
47
37
0.12 % 0.10 %
Money Market 2,976,057
2,783,569
5,737
5,146
0.39 % 0.37 %
Certificates of Deposit 568,791
600,992
2,282
2,377
0.81 % 0.80 %
Total Interest-Bearing Deposits 4,168,871
3,978,941
8,257
7,714
0.40 % 0.39 %
Junior Subordinated Debentures 106,363
106,363
1,162
1,923
2.16 % 3.60 %
FHLB Borrowings and Other Borrowings 622,273
523,691
4,160
3,990
1.32 % 1.52 %
Total Interest-Bearing Liabilities 4,897,507
4,608,995
13,579
13,627
0.55 % 0.59 %
Noninterest Bearing Demand Deposits (4) 1,624,928
1,434,460

Payables and Other Liabilities 113,747
100,529

Total Average Liabilities 6,636,182
6,143,984

Redeemable Noncontrolling Interests 20,497
22,205

Average Shareholders’ Equity 760,616
720,108

TOTAL AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY $ 7,417,295
$ 6,886,297

Net Interest Income - on a FTE Basis $ 103,901
$ 96,312

FTE Adjustment (2) 4,853
5,155

Net Interest Income (GAAP Basis) $ 99,048
$ 91,157

Interest Rate Spread 2.77 % 2.78 %
Net Interest Margin 2.94 % 2.95 %

~~________________________~~


~~(1)~~	~~Investments classified as available-for-sale are shown in the average balance sheet at amortized cost.~~


~~(2)~~	~~Interest income on non-taxable investments and loans is presented on a FTE basis using statutory rates. The discussion following these tables reflects non-FTE data.~~


~~(3)~~	~~Includes loans held for sale and nonaccrual loans.~~


~~(4)~~	~~Includes deposits held for sale.~~

~~Interest and Dividend Income. Interest and dividend income for the three months ended June 30, 2016~~was $56.0 million, an increase of $4.1 million, or 8%, compared to the same period in 2015. Interest and dividend income for the six months ended June 30, 2016 was $112.6 million, an increase of $7.8 million, or 7%, compared to the same period in 2015. The increase for the three and six months was primarily due to higher loan volume, and higher volume and yields on cash and investments, partially offset by lower yields on loans.

~~Interest income on commercial and industrial loans, on a non-FTE basis, for the three months ended June 30, 2016~~was $9.1 million, an increase of $0.7 million, or 9%, compared to the same period in 2015, as a result of a 10% increase in the average balance, partially offset by a four basis point decrease in the average yield. For the six months ended June 30, 2016, commercial interest income was $18.4 million, an increase of $0.8 million, or 4%, compared to the same period in 2015, as a result of a 12% increase in the average balance, partially offset by a 24 basis point decrease in the average yield. The increase in the average balance for the three and six month periods is related to the organic growth of the commercial loan portfolio at the Bank, as discussed above in “Loan Portfolio and Credit Quality.” The decrease in the average yield for the three and six month periods is the result of market conditions leading to lower rates due to competition for higher quality loans.

Interest income on commercial real estate loans for the three months ended June 30, 2016 was $19.6 million, an increase of $1.2 million, or 7%, compared to the same period in 2015, as a result of a 10% increase in the average balance, partially offset by an 11 basis point decrease in the average yield. For the six months ended June 30, 2016, commercial real estate interest income was $39.4 million, an increase of $1.9 million, or 5%, compared to the same period in 2015, as a result of a 7% increase in the average balance, partially offset by a 10 basis point decrease in the average yield. The increase in the average balance for the three and six month periods is related to the organic growth of the commercial real estate loan portfolio at the Bank. The decrease in the average yield for the three and six month periods is the result of competitive market conditions leading to lower rates on new loans.

Interest income on construction and land loans for the three months ended June 30, 2016 was $1.5 million, an increase of $0.2 million, or 16%, compared to the same period in 2015, as a result of a 4% increase in the average balance and a 41 basis point increase in the average yield. For the six months ended June 30, 2016, construction and land interest income was $3.1 million, an increase of $0.8 million, or 33%, compared to the same period in 2015, as a result of a 17% increase in the average balance and a 44 basis point increase in the average yield. The increase in the average balance for the three and six month periods is related to the organic growth of the construction and land loan portfolio at the Bank. The increase in the average yield for the three and six month periods is the result of market conditions.

Interest income on residential mortgage loans for the three months ended June 30, 2016 was $17.4 million, an increase of $0.8 million, or 5%, compared to the same period in 2015, as a result of a 4% increase in the average balance and a one basis point increase in the average yield. For the six months ended June 30, 2016, residential mortgage interest income was $34.7 million, an increase of $1.5 million, or 4%, compared to the same period in 2015, as a result of a 4% increase in the average balance, with no change in the average yield. The increase in the average balances for the three and six month periods is related to the organic growth of the residential loan portfolio at the Bank.

Interest income on home equity loans for the three months ended June 30, 2016 was $1.1 million, an increase of 1% compared to the same period in 2015, as a result of a 3% increase in the average balance, partially offset by a four basis point decrease in the average yield. For the six months ended June 30, 2016, home equity interest income was $2.2 million, an increase of $0.1 million, or 4%, compared to the same period in 2015, as a result of a 3% increase in the average balance and a three basis point increase in the average yield. The increase in the average balance for the three and six month periods is related to the organic growth of the home equity loan portfolio at the Bank. The increase in the average yield for the six month period is the result of the increase in the Prime rate in December 2015.

Interest income on other consumer loans for the three months ended June 30, 2016 was $1.1 million, an increase of $93 thousand, or 9%, compared to the same period in 2015, as a result of a 5% increase in the average balance and an 11 basis

point increase in the average yield. For the six months ended June 30, 2016, other consumer interest income was $2.0 million, an increase of $0.1 million, or 6%, compared to the same period in 2015, as a result of a 1% increase in the average balance and a 12 basis point increase in the average yield. The increase in the average yield for the three and six month periods is primarily the result of the increase in the Prime rate in December 2015. The increase in the average balance for the three and six month periods is primarily due to client demand.

Investment income, on a non-FTE basis, for the three months ended June 30, 2016 was $6.3 million, an increase of $1.0 million, or 20%, compared to the same period in 2015, as a result of a 14 basis point increase in the average yield and an 11% increase in the average balance. For the six months ended June 30, 2016, investment income was $12.9 million, an increase of $2.7 million, or 27%, compared to the same period in 2015, as a result of a 13% increase in the average balance and a 23 basis point increase in the average yield. The increase in the average yield for the three month and six month periods is partially due to the increase in short-term interest rates in December 2015. The increase in the average balance for the three month and six month periods is primarily due to timing and volume of deposit balances as compared to the level of loans outstanding. Investment decisions are made based on anticipated liquidity, loan demand, and asset-liability management considerations.

~~Interest expense.~~ Interest expense on deposits and borrowings for the three months ended June 30, 2016 was $6.9 million, which is flat compared to the same period in 2015. For the six months ended June 30, 2016, interest expense on deposits and borrowings was $13.6 million, which is also flat compared to the same period in 2015.

Interest expense on interest-bearing deposits for the three months ended June 30, 2016 was $4.1 million, an increase of $0.3 million, or 7%, compared to the same period in 2015, as a result of a 4% increase in the average balance and a one basis point increase in the average rate paid. For the six months ended June 30, 2016, interest expense on deposits was $8.3 million, an increase of $0.5 million, or 7%, compared to the same period in 2015, as a result of a 5% increase in the average balance, and a one basis point increase in the average rate paid.

Interest paid on borrowings for the three months ended June 30, 2016 was $2.8 million, a decrease of $0.2 million, or 8%, compared to the same period in 2015, as a result of a 143 basis point decrease in the average rate paid on junior subordinated debentures, and a 19 basis point decrease in the average rate paid on FHLB borrowings and other borrowings, partially offset by a 25% increase in the average balance of FHLB borrowings and other borrowings, with no change in the average balance of junior subordinated debentures. For the six months ended June 30, 2016, interest paid on borrowings was $5.3 million, a decrease of $0.6 million, or 10%, compared to the same period in 2015, as a result of a 144 basis point decrease in the average rate paid on junior subordinated debentures and a 20 basis point decrease in the average rate paid on FHLB borrowings and other borrowings, partially offset by a 19% increase in the average balance of FHLB borrowings and other borrowings, with no change in the average balance of junior subordinated debentures. The decrease for the three and six month periods in the average rate paid on junior subordinated debentures is due to the December 30, 2015 expiration of the interest rate hedge on $75 million of the Company’s floating rate junior subordinated debentures, after which the interest rate on that portion of the junior subordinated debentures was indexed to the three-month LIBOR plus 1.68%. The decrease for the three and six month periods in the average rate paid on FHLB borrowings and other borrowings is due to the prepayment of higher rate FHLB debt in the fourth quarter of 2015 and the first quarter of 2016. Also, the new borrowing in the second quarter at the Bank was primarily overnight Federal Funds which have a much lower rate than the longer term borrowings.

~~Provision/ (credit) for loan losses.~~ The Company recorded a credit to the provision for loan losses of $2.5 million for the three months ended June 30, 2016, compared to no credit or provision for loan losses for the same period in 2015. For the six months ended June 30, 2016, the provision/ (credit) for loan losses was a credit of $5.7 million, compared to a credit of $2.5 million for the same period in 2015. The credit to the provision for loan losses for the three and six months ended June 30, 2016 was the result of net recoveries, a decrease in loss factors, and the reduction in criticized loans, partially offset by loan growth.

The provision/ (credit) for loan losses is determined as a result of the required level of the allowance for loan losses, estimated by management, which reflects the inherent risk of loss in the loan portfolio as of the balance sheet dates. The factors used by management to determine the level of the allowance for loan losses include the trends in problem loans, economic and business conditions, strength of management, real estate collateral values, and underwriting standards. For further details, see “Loan Portfolio and Credit Quality” above.

~~Fees and other income.~~ Fees and other income for the three months ended June 30, 2016 was $36.8 million, a decrease of $5.9 million, or 14%, compared to the same period in 2015. For the six months ended June 30, 2016, fees and other income was $74.8 million, a decrease of $9.2 million, or 11%, compared to the same period in 2015. Factors affecting the decrease in the three and six month periods include lower fee revenues in the Wealth Management and Trust and Investment Management segments due to decreases in AUM, and decreases in other income, offset by increases in banking fee income.

Wealth management and trust fee income for the three months ended June 30, 2016 was $11.2 million, a decrease of $2.3 million, or 17%, compared to the same period in 2015. For the six months ended June 30, 2016, wealth management and trust fee income was $22.1 million, a decrease of $5.0 million, or 18%, compared to the same period in 2015. AUM as of June 30, 2016 managed or advised by Boston Private Wealth was $7.3 billion, a decrease of $1.7 billion, or 19%, compared to June 30, 2015. The decrease is due to net outflows for the twelve months ending June 30, 2016 of $1.2 billion, flat market performance, and disposed AUM of $0.5 billion.

Investment management fee income for the three months ended June 30, 2016 was $10.6 million, a decrease of $1.1 million, or 9%, compared to the same period in 2015. For the six months ended June 30, 2016, investment management fee income was $21.3 million, a decrease of $2.2 million, or 9%, compared to the same period in 2015. AUM as of June 30, 2016 managed or advised by the Investment Managers was $10.0 billion, a decrease of $0.7 billion, or 6%, compared to 2015. The decrease is primarily due to net outflows for the twelve months ending June 30, 2016 of $1.1 billion, partially offset by positive market action of $0.4 billion.

Wealth advisory fee income for the three months ended June 30, 2016 was $12.6 million, a decrease of $0.1 million, or 1%, compared to the same period in 2015. For the six months ended June 30, 2016, wealth advisory fee income was $25.3 million, a decrease of $0.1 million, or 0.35%, compared to the same period in 2015. AUM managed or advised by the Wealth Advisors was $10.0 billion at June 30, 2016, an increase of $33 million compared to June 30, 2015. The increase is due to net flows of $33 million and flat market performance for the twelve months ending June 30, 2016.

Other banking fee income for the three months ended June 30, 2016 was $3.0 million, an increase of $1.0 million, or 47%, compared to the same period in 2015. For the six months ended June 30, 2016, other banking fee income was $6.2 million, an increase of $2.3 million, or 58%, compared to the same period in 2015. The increase for both the three and six month periods is related to increases in swap fee income due to increased client demand for loan swap agreements.

Other income for the three months ended June 30, 2016 was a loss of $1.0 million, a decrease of $3.3 million compared to the same period in 2015. For the six months ended June 30, 2016, other income was a loss of $1.0 million, a decrease of $4.4 million compared to the same period in 2015. The three and six months ended June 30, 2016 included a loss on the fair value of derivative instruments of $1.5 million and $2.1 million, respectively, offset by miscellaneous income of $0.4 million and $0.7 million, respectively, and gains on rabbi trust investments of $0.1 million and $0.4 million, respectively. The three and six months ended June 30, 2015 included market value adjustments for the Banyan Partners, LLC earnout of $1.1 million and $1.5 million, respectively, and gains on partnership investments of $0.6 million and $0.8 million, respectively.

~~Operating Expense.~~ Operating expense for the three months ended June 30, 2016 was $64.7 million, an increase of $2.3 million, or 4%, compared to the same period in 2015. For the six months ended June 30, 2016, operating expense was $131.4 million, an increase of $5.6 million, or 4%, compared to the same period in 2015. The increases for the three and six months periods ended June 30, 2016 are primarily due to increases in salaries and employee benefits, occupancy and equipment, marketing and business development, and contract services expenses. Additionally, the Company incurred restructuring charges related to Boston Private Wealth in the three and six months ended June 30, 2016 of $0.9 million and $2.0 million, compared to $0.2 million for both comparative periods of 2015.

Salaries and employee benefits expense, the largest component of operating expense, for the three months ended June 30, 2016 was $40.6 million, an increase of $0.8 million, or 2%, compared to the same period in 2015. For the six months ended June 30, 2016, salaries and employee benefits was $83.2 million, an increase of $1.2 million, or 2%, compared to the same period in 2015. The increase for the three and six month periods is primarily due to higher fixed compensation, partially offset by lower variable compensation costs and stock compensation.

Occupancy and equipment expense for the three months ended June 30, 2016 was $9.9 million, an increase of $0.8 million, or 9%, compared to the same period in 2015. For the six months ended June 30, 2016, occupancy and equipment was $19.5 million, an increase of $1.4 million, or 8%, compared to the same period in 2015. The increase for the three and six month periods is primarily due to an increase in rent expense due to new office locations and an increase in telecommunications and technology expenses.

Marketing and business development expense for the three months ended June 30, 2016 was $1.8 million, an increase of $0.1 million, or 6%, compared to the same period in 2015. For the six months ended June 30, 2016, marketing and business development was $4.0 million, an increase of $0.9 million, or 30%, compared to the same period in 2015. The three month increase is primarily related to an increase in business development expense in the Private Banking segment. The six month increase is primarily related to the timing of marketing programs in the Private Banking segment.

Contract services and data processing expense for the three months ended June 30, 2016 was $1.7 million, an increase of $0.2 million, or 16%, compared to the same period in 2015. For the six months ended June 30, 2016, contract services and data processing expense was $3.4 million, an increase of $0.5 million, or 17%, compared to the same period in 2015. The increase for the three and six month periods is primarily due to an increase in data processing, custody, and recordkeeping expenses.

~~Income Tax Expense.~~ Income tax expense for continuing operations for the six months ended June 30, 2016 was $15.1 million. The effective tax rate for continuing operations for the six months ended June 30, 2016 was 31.3%, compared to an effective tax rate of 32.0% for the same period in 2015. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 9: Income Taxes” for further detail.

Recent Accounting Pronouncements

Inn May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”)~~, amending~~. ASU 2014-09 replaces existing revenue recognition standards and expands the ~~ASC~~disclosure requirements for revenue agreements with customers. Under the new standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. ASU 2014-09 does not apply to revenue associated with financial instruments such as loans and ~~creating a~~securities. Therefore, the Company’s net interest income will not be impacted by this new ~~Topic 606,~~ ~~Revenue from Contracts with Customers.~~ This issuance was part of the joint project between the FASB and the International Accounting Standards Board to clarify the principles of recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards.standard. ASU 2014-09 is effective in the first quarter of 2018. Although the Company does not anticipate any material impact of ASU 2014-09, the Company is still assessing the full impact of implementation on its consolidated financial statements and does expect additional financial statement disclosures and associated internal controls to be implemented along with the adoption of this ASU.

period presented in the financial statements. The Company expects that ~~reporting period. Early adoption is not permitted. The impact of~~this ASU ~~2014-09~~will gross up the assets and liabilities on the ~~Company’s consolidated financial statements is not yet known. Additionally, ASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ~~(“ASU 2014-09”) was issued in August 2015 which defers adoption~~balance sheet related to ~~annual reporting periods beginning after December 15, 2017.~~the lease assets and liabilities.

~~In February 2016,~~being out of the ~~FASB issued ASU 2016-02,~~ ~~Leases~~ ~~(Topic 842). This ASU update is intended to increase transparency~~money, and ~~comparability among companies by recognizing right of use lease assets and lease liabilities on~~ the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is toprevious tax benefits will be ~~implemented utilizing a modified retrospective approach. The Company expects that this ASU will gross up the assets and liabilities on the balance sheet related to the lease assets and liabilities.~~reversed.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the Interest Rate Sensitivity and Market Risk as described in Part II. Item 7A. “Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Sensitivity and Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Exchange Act, the Company has evaluated, with the participation of management, including the Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report, the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives,

and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures.

Based on such evaluation, except for the exclusion noted in the preceding paragraph, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were effective as of ~~June 30, 2016~~March 31, 2017 in ensuring that material information required to be disclosed by the Company, including its consolidated subsidiaries, was made known to the certifying officers by others within the Company and its consolidated subsidiaries in the reports that it files or submits under the Exchange Act and is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. On a quarterly basis, the Company evaluates the disclosure controls and procedures, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

(b) Change in internal controls over financial reporting.

There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended ~~June 30, 2016,~~March 31, 2017, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

The Company is involved in various legal proceedings. In the opinion of management, final disposition of these proceedings will not have a material adverse effect on the financial condition or results of operations of the Company.

Item 1A. Risk Factors

Before deciding to invest in us or deciding to maintain or increase your investment, you should carefully consider the risks described in Part I. Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 as filed with the SEC. There have been no material changes to these risk factors since the filing of that report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities of the Company in the ~~second~~first quarter of ~~2016.~~2017.

The following table presents information relating to shares purchased pursuant to the repurchase plan announced in the Company’s 2015 Annual Report on Form 10-K, filed with the SEC on February 26, 2016. The Company received a notice of non-objection from the Federal Reserve for a share repurchase program of up to $20 million of the Company’s outstanding common shares. Under the program, shares may be repurchased from time to time in the open market for a two-year period. The Company’s board of directors approved the program ~~subject to regulatory non-objection,~~ on January 27, 2016.

There were no repurchases of equity securities of the Company in the first quarter of 2017. The Company has authorization to repurchase $10,661,737 of shares based on the remaining amount in the current repurchase program.

Issuer Purchases of Equity Securities
Period (a) Total number of shares purchased (b) Average price paid per share (c) Total number of shares purchased as part of publicly announced plans (d) Maximum approximate dollar value of shares that may yet be purchased under the plans
April 1 - 30, 2016 81,150
$ 11.40
326,150
$ 16,318,714
May 1 - 31, 2016 —
—
326,150
16,318,714
June 1 - 30, 2016 73,292
11.19
399,442
15,497,026
Total 154,442
$ 11.22
399,442
$ 15,497,026

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits



Exhibit No.	Description	Incorporated by Reference			Filed or Furnished with this 10-Q
Exhibit No.	Description	Form	SEC Filing Date	Exhibit Number	Filed or Furnished with this 10-Q
10.1	Form of Performance Restricted Stock Unit Award Agreement for the Chief Executive Officer under the Boston Private Financial Holdings, Inc. Amended and Restated 2009 Stock Option and Incentive Plan				Filed
10.2	Form of Restricted Stock Unit Award Agreement for the Chief Executive Officer under the Boston Private Financial Holdings, Inc. Amended and Restated 2009 Stock Option and Incentive Plan				Filed
10.3	Form of Performance Restricted Stock Unit Award Agreement for Employees under the Boston Private Financial Holdings, Inc. Amended and Restated 2009 Stock Option and Incentive Plan				Filed
10.4	Form of Restricted Stock Unit Award Agreement for Employees under the Boston Private Financial Holdings, Inc. Amended and Restated 2009 Stock Option and Incentive Plan				Filed
10.5	Form of Restricted Stock Unit Award Agreement for Employees under the Boston Private Financial Holdings, Inc. 2010 Inducement Stock Plan, as Amended				Filed
31.1	Certification of Chief Executive Officer pursuant to Rule 13a - 14(a)/15d - 14(a) under the Securities Exchange Act of 1934				Filed
31.2	Certification of Chief Financial Officer pursuant to Rule 13a - 14(a)/15d - 14(a) under the Securities Exchange Act of 1934				Filed
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				Furnished
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				Furnished
101.INS	XBRL Instance Document				Filed
101.SCH	XBRL Taxonomy Extension Schema Document				Filed
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				Filed
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				Filed
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				Filed
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				Filed

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

	/s/ CLAYTON G. DEUTSCH
~~August 3, 2016~~May 4, 2017	Clayton G. Deutsch
	Chief Executive Officer

	/s/ DAVID J. KAYE
~~August 3, 2016~~May 4, 2017	David J. Kaye
	Executive Vice President, Chief Financial and Administrative Officer

6763



	As of June 30, 2016
	Fair Value		Valuation technique	Unobservable Input	Range of Inputs Utilized	Weighted Average of Inputs Utilized
	(In thousands)
Impaired Loans	$	7,806	Appraisals of Collateral	Discount for costs to sell	6% - 13%	7%
Impaired Loans	$	7,806	Appraisals of Collateral	Appraisal adjustments	20% - 40%	37%



	As of and for the six months ended June 30, 2016
	Restructured year to date					TDRs that defaulted year to date that were restructured in prior twelve months
	# of Loans	Pre- modification recorded investment		Post- modification recorded investment		# of Loans	Post- modification recorded investment
	(Dollars in thousands)
Commercial and industrial	3	$	7,384	$	7,209	—	$	—
Commercial real estate	1	1,276		1,276		—	—
Construction and land	—	—		—		—	—
Residential	2	260		261		—	—
Home equity	—	—		—		—	—
Consumer and other	—	—		—		—	—
Total	6	$	8,920	$	8,746	—	$	—



	Commercial and Industrial				Commercial Real Estate				Construction and Land				Residential				Home Equity and Other Consumer
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(In thousands)
New England	$	814,839	78	%	$	797,450	40	%	$	90,408	63	%	$	1,385,102	61	%	$	258,726	84	%
San Francisco Bay Area	116,224		11	%	633,735		32	%	36,808		26	%	470,694		21	%	35,013		11	%
Southern California	111,854		11	%	546,127		28	%	15,333		11	%	424,320		18	%	14,864		5	%
Total	$	1,042,917	100	%	$	1,977,312	100	%	$	142,549	100	%	$	2,280,116	100	%	$	308,603	100	%



	Issuer Purchases of Equity Securities
Period	(a) Total number of shares purchased	(b) Average price paid per share		(c) Total number of shares purchased as part of publicly announced plans	(d) Maximum approximate dollar value of shares that may yet be purchased under the plans
April 1 - 30, 2016	81,150	$	11.40	326,150	$	16,318,714
May 1 - 31, 2016	—	—		326,150	16,318,714
June 1 - 30, 2016	73,292	11.19		399,442	15,497,026
Total	154,442	$	11.22	399,442	$	15,497,026

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company o

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o