SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Registrant's telephone number, including area code: (~~617~~)(617) 912-1900

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange which registered
Common Stock	BPFH	NASDAQ Stock Market LLC

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ 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 October ~~31, 2019~~:30, 2020:



Common Stock, Par Value $1.00 Per Share			~~83,242,001~~82,254,594
(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	4
	Consolidated Statements of Changes in Shareholders’ Equity	5
	Consolidated Statements of Cash Flows	67
	Notes to Unaudited Consolidated Financial Statements	89
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4945
	Executive Summary	5046
	Impact of the COVID-19 Pandemic	47
	Critical Accounting Policies	5149
	Results of Operations	5149
	Financial Condition	5957
	Condensed Consolidated Balance Sheets and Discussion	5957
	Loan Portfolio and Credit Quality	6260
	Liquidity	6765
	Capital Resources	7067
	Recent Accounting Pronouncements	7168
Item 3	Quantitative and Qualitative Disclosures about Market Risk	7269
Item 4	Controls and Procedures	7269
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	7370
Item 1A	Risk Factors	7370
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	7372
Item 3	Defaults Upon Senior Securities	7372
Item 4	Mine Safety Disclosures	7372
Item 5	Other Information	7372
Item 6	Exhibits	7472
	Signature Page	7573
	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)
	September 30, 2019		December 31, 2018				September 30, 2020		December 31, 2019
	(In thousands, except share and per share data)						(In thousands, except share and per share data)
Assets:						Assets:
Cash and cash equivalents	$	78,010	$	127,259		Cash and cash equivalents	$	546,263	$	292,479
Investment securities available-for-sale (amortized cost of $922,112 and $1,018,774 at September 30, 2019 and December 31, 2018, respectively)	935,538		994,065
Investment securities held-to-maturity (fair value of $51,015 and $68,595 at September 30, 2019 and December 31, 2018, respectively)	51,379		70,438
Investment securities available-for-sale (amortized cost of $967,730 and $966,900 at September 30, 2020 and December 31, 2019, respectively)						Investment securities available-for-sale (amortized cost of $967,730 and $966,900 at September 30, 2020 and December 31, 2019, respectively)	1,011,327		978,284
Investment securities held-to-maturity (fair value of $39,348 and $47,949 at September 30, 2020 and December 31, 2019, respectively)						Investment securities held-to-maturity (fair value of $39,348 and $47,949 at September 30, 2020 and December 31, 2019, respectively)	38,600		48,212
Equity securities at fair value	21,780		14,228			Equity securities at fair value	32,818		18,810
Stock in Federal Home Loan Bank and Federal Reserve Bank	47,756		49,263			Stock in Federal Home Loan Bank and Federal Reserve Bank	36,618		39,078
Loans held for sale	6,658		2,812			Loans held for sale	15,074		7,386
Total loans	7,067,151		6,893,158			Total loans	7,222,569		6,976,704
Less: Allowance for loan losses	75,359		75,312			Less: Allowance for loan losses	84,551		71,982
Net loans	6,991,792		6,817,846			Net loans	7,138,018		6,904,722
Other real estate owned (“OREO”)	—		401

Premises and equipment, net	42,658		45,412			Premises and equipment, net	42,907		44,527
Goodwill	57,607		57,607			Goodwill	57,607		57,607
Intangible assets, net	10,622		12,227			Intangible assets, net	8,898		10,352
Fees receivable	5,007		5,101			Fees receivable	3,259		4,095
Accrued interest receivable	24,851		24,366			Accrued interest receivable	25,935		24,175
Deferred income taxes, net	15,704		26,638			Deferred income taxes, net	8,250		11,383
Right-of-use assets	107,045		—			Right-of-use assets	94,879		102,075
Other assets	294,537		246,962			Other assets	370,852		287,316
Total assets	$	8,690,944	$	8,494,625		Total assets	$	9,431,305	$	8,830,501
Liabilities:						Liabilities:
Deposits	$	6,658,242	$	6,781,170		Deposits	$	7,827,719	$	7,241,476
Securities sold under agreements to repurchase	48,860		36,928			Securities sold under agreements to repurchase	42,544		53,398
Federal funds purchased	230,000		250,000

Federal Home Loan Bank borrowings	570,904		420,144			Federal Home Loan Bank borrowings	296,236		350,829
Junior subordinated debentures	106,363		106,363			Junior subordinated debentures	106,363		106,363
Lease liabilities	122,799		—			Lease liabilities	108,932		117,214
Other liabilities	143,607		143,540			Other liabilities	203,342		140,820
Total liabilities	7,880,775		7,738,145			Total liabilities	8,585,136		8,010,100
Redeemable Noncontrolling Interests	1,481		2,526			Redeemable Noncontrolling Interests	0		1,383
Shareholders’ Equity:						Shareholders’ Equity:
Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 83,241,952 shares at September 30, 2019 and 83,655,651 shares at December 31, 2018	83,242		83,656

Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 82,254,594 shares at September 30, 2020 and 83,265,674 shares at December 31, 2019						Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 82,254,594 shares at September 30, 2020 and 83,265,674 shares at December 31, 2019	82,255		83,266
Additional paid-in capital	599,877		600,196			Additional paid-in capital	597,113		600,708
Retained earnings	116,210		87,821			Retained earnings	136,394		127,469
Accumulated other comprehensive income/ (loss)	9,359		(17,719		)
Accumulated other comprehensive income						Accumulated other comprehensive income	30,407		7,575

Total shareholders’ equity	808,688		753,954			Total shareholders’ equity	846,169		819,018
Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	8,690,944	$	8,494,625		Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	9,431,305	$	8,830,501

See accompanying notes to ~~consolidated financial statements.~~

Unaudited Consolidated Financial Statements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands, except share and per share data)
Interest and dividend income:
Loans $ 71,036
$ 68,254
$ 212,912
$ 193,231
Taxable investment securities 938
1,510
3,244
4,521
Non-taxable investment securities 1,924
1,779
5,726
5,261
Mortgage-backed securities 2,622
2,941
8,225
9,168
Short-term investments and other 1,084
1,617
3,049
3,831
Total interest and dividend income 77,604
76,101
233,156
216,012
Interest expense:
Deposits 15,487
11,487
44,060
26,376
Federal Home Loan Bank borrowings 4,337
3,877
12,144
11,668
Junior subordinated debentures 1,022
1,028
3,223
2,882
Repurchase agreements and other short-term borrowings 605
68
1,778
517
Total interest expense 21,451
16,460
61,205
41,443
Net interest income 56,153
59,641
171,951
174,569
Provision/ (credit) for loan losses 167
(949 ) 104
(2,291 )
Net interest income after provision/ (credit) for loan losses 55,986
60,590
171,847
176,860
Fees and other income:
Wealth management and trust fees 19,067
25,505
57,037
76,030
Investment management fees 2,496
3,245
7,601
18,897
Other banking fee income 2,658
2,775
8,024
7,793
Gain on sale of loans, net 934
67
1,065
204
Gain/ (loss) on sale of investments, net —
—
—
(17 )
Gain/ (loss) on OREO, net —
—
91
—
Other (29 ) 722
936
1,245
Total fees and other income 25,126
32,314
74,754
104,152
Operating expense:
Salaries and employee benefits 31,684
38,944
100,116
125,461
Occupancy and equipment 8,260
8,164
24,460
24,141
Information systems 5,169
6,233
16,166
18,889
Professional services 4,435
2,877
11,308
8,926
Marketing and business development 1,403
1,710
4,422
5,373
Amortization of intangibles 671
750
2,015
2,249
FDIC insurance 59
674
1,304
2,126
Restructuring —
5,763
1,646
5,763
Other 3,856
3,442
10,312
10,870
Total operating expense 55,537
68,557
171,749
203,798
Income before income taxes 25,575
24,347
74,852
77,214
Income tax expense 5,517
5,461
15,803
28,886
Net income from continuing operations 20,058
18,886
59,049
48,328
Net income from discontinued operations —
—
—
1,696
Net income before attribution to noncontrolling interests 20,058
18,886
59,049
50,024
(Continued)


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(In thousands, except share and per share data)
Interest and dividend income:
Loans	$	59,618	$	71,036	$	188,783	$	212,912
Taxable investment securities	853		938		2,580		3,244
Non-taxable investment securities	1,974		1,924		5,977		5,726
Mortgage-backed securities	2,354		2,622		7,707		8,225
Short-term investments and other	654		1,084		2,307		3,049
Total interest and dividend income	65,453		77,604		207,354		233,156
Interest expense:
Deposits	6,434		15,487		26,565		44,060
Federal Home Loan Bank borrowings	664		4,337		4,453		12,144
Junior subordinated debentures	508		1,022		2,189		3,223
Repurchase agreements and other short-term borrowings	23		605		128		1,778
Total interest expense	7,629		21,451		33,335		61,205
Net interest income	57,824		56,153		174,019		171,951
Provision/(credit) for loan losses	(4,569)		167		34,997		104
Net interest income after provision/(credit) for loan losses	62,393		55,986		139,022		171,847
Fees and other income:
Wealth management and trust fees	18,240		19,067		53,872		57,037
Investment management fees	1,393		2,496		5,088		7,601


Other banking fee income	1,320		2,658		6,205		8,024
Gain on sale of loans, net	1,006		934		1,310		1,065


Gain on OREO, net	0		0		0		91

Other	1,086		(29)		753		936
Total fees and other income	23,045		25,126		67,228		74,754
Operating expense:
Salaries and employee benefits	34,671		31,684		103,704		100,116
Occupancy and equipment	8,150		8,260		23,356		24,460
Information systems	7,096		5,169		20,934		16,166
Professional services	4,025		4,435		11,072		11,308
Marketing and business development	935		1,403		5,138		4,422
Amortization of intangibles	714		671		2,131		2,015

FDIC insurance	960		59		1,727		1,304
Restructuring	0		0		0		1,646
Other	4,386		3,856		15,236		10,312
Total operating expense	60,937		55,537		183,298		171,749
Income before income taxes	24,501		25,575		22,952		74,852
Income tax expense	1,821		5,517		2,764		15,803


Net income before attribution to noncontrolling interests	22,680		20,058		20,188		59,049
(Continued)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Less: Net income attributable to noncontrolling interests 96
924
265
2,942
Net income attributable to the Company $ 19,962
$ 17,962
$ 58,784
$ 47,082
Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders 304
(829 ) 1,045
(4,376 )
Net income attributable to common shareholders for earnings per share calculation $ 20,266
$ 17,133
$ 59,829
$ 42,706
Basic earnings per share attributable to common shareholders:
From continuing operations: $ 0.24
$ 0.20
$ 0.72
$ 0.49
From discontinued operations: $ —
$ —
$ —
$ 0.02
Total attributable to common shareholders: $ 0.24
$ 0.20
$ 0.72
$ 0.51
Weighted average basic common shares outstanding 83,631,403
84,017,284
83,495,361
83,544,754
Diluted earnings per share attributable to common shareholders:
From continuing operations: $ 0.24
$ 0.20
$ 0.71
$ 0.48
From discontinued operations: $ —
$ —
$ —
$ 0.02
Total attributable to common shareholders: $ 0.24
$ 0.20
$ 0.71
$ 0.50
Weighted average diluted common shares outstanding 83,956,708
85,498,568
84,003,281
85,254,295


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Less: Net income attributable to noncontrolling interests	0		96		6		265
Net income attributable to the Company	$	22,680	$	19,962	$	20,182	$	58,784
Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders	0		304		414		1,045
Net income attributable to common shareholders	$	22,680	$	20,266	$	20,596	$	59,829
Basic earnings per share attributable to common shareholders:


Total attributable to common shareholders:	$	0.28	$	0.24	$	0.25	$	0.72
Weighted average basic common shares outstanding	82,221,705		83,631,403		82,382,050		83,495,361
Diluted earnings per share attributable to common shareholders:


Total attributable to common shareholders:	$	0.28	$	0.24	$	0.25	$	0.71
Weighted average diluted common shares outstanding	82,362,338		83,956,708		82,746,866		84,003,281

See accompanying notes to ~~consolidated financial statements.~~Unaudited Consolidated Financial Statements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands)
Net income attributable to the Company $ 19,962
$ 17,962
$ 58,784
$ 47,082
Other comprehensive income/ (loss), net of tax:
Net unrealized gain/ (loss) on securities available-for-sale 5,236
(4,040 ) 27,469
(18,888 )
Unrealized gain/ (loss) on cash flow hedges 2
(138 ) (31 ) 574
Reclassification adjustment for net realized (gain)/ loss included in net income (4 ) (72 ) (360 ) (273 )
Net unrealized gain/ (loss) on cash flow hedges (2 ) (210 ) (391 ) 301
Net unrealized gain/ (loss) on other —
—
—
1
Other comprehensive income/ (loss), net of tax 5,234
(4,250 ) 27,078
(18,586 )
Total comprehensive income attributable to the Company, net $ 25,196
$ 13,712
$ 85,862
$ 28,496


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(In thousands)
Net income attributable to the Company	$	22,680	$	19,962	$	20,182	$	58,784
Other comprehensive income/(loss), net of tax:
Net unrealized gain on securities available-for-sale	368		5,236		23,055		27,469


Unrealized gain/(loss) on cash flow hedges	202		2		(100)		(31)
Reclassification adjustment for net realized (gain)/loss included in net income	(200)		(4)		(93)		(360)
Net unrealized gain/(loss) on cash flow hedges	2		(2)		(193)		(391)
Net unrealized gain/(loss) on other	0		0		(30)		0
Other comprehensive income, net of tax	370		5,234		22,832		27,078
Total comprehensive income attributable to the Company, net of tax	$	23,050	$	25,196	$	43,014	$	85,862

See accompanying notes to ~~consolidated financial statements.~~Unaudited Consolidated Financial Statements.

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
Other
Comprehensive
Income/
(Loss)

Non-
controlling
Interests
Total
(In thousands, except share data)
Balance, December 31, 2017 $ 47,753
$ 84,208
$ 607,929
$ 49,526
$ (8,658 ) $ 5,186
$ 785,944
Reclassification due to change in accounting principles (1) —
—
—
334
(334 ) —
—
Net income attributable to the Company —
—
—
47,082
—
—
47,082
Other comprehensive income/ (loss), net —
—
—
—
(18,586 ) —
(18,586 )
Dividends paid to common shareholders:
$0.36 per share —
—
—
(30,586 ) —
—
(30,586 )
Dividends paid to preferred shareholders —
—
—
(1,738 ) —
—
(1,738 )
Net change in noncontrolling interests —
—
—
—
—
(2,977 ) (2,977 )
Redemption of Series D preferred stock (47,753 ) —
(2,247 ) —
—
—
(50,000 )
Repurchase of 137,114 shares of common stock —
(137 ) (1,768 ) —
—
—
(1,905 )
Net proceeds from issuance of:
142,738 shares of common stock —
143
1,722
—
—
—
1,865
7,355 shares of incentive stock grants, net of 132,964 incentive stock grant shares canceled or forfeited and 127,894 shares withheld for employee taxes —
(253 ) (1,699 ) —
—
—
(1,952 )
Exercise of warrants —
438
(277 ) —
—
—
161
Amortization of stock compensation and employee stock purchase plan —
—
5,131
—
—
—
5,131
Stock options exercised —
204
1,457
—
—
—
1,661
Other equity adjustments —
—
3,909
—
—
—
3,909
Balance at September 30, 2018 $ —
$ 84,603
$ 614,157
$ 64,618
$ (27,578 ) $ 2,209
$ 738,009

Balance, December 31, 2018 $ —
$ 83,656
$ 600,196
$ 87,821
$ (17,719 ) $ —
$ 753,954
Net income attributable to the Company —
—
—
58,784
—
—
58,784
Other comprehensive income/ (loss), net —
—
—
—
27,078
—
27,078
Dividends paid to common shareholders:
$0.36 per share —
—
—
(30,395 ) —
—
(30,395 )
Repurchase of 678,165 shares of common stock —
(678 ) (6,515 ) —
—
—
(7,193 )
Net proceeds from issuance of:
265,937 shares of common stock —
266
2,008
—
—
—
2,274
42,004 shares of incentive stock grants, net of 9,377 shares canceled or forfeited and 115,173 shares withheld for employee taxes —
(83 ) (522 ) —
—
—
(605 )
Amortization of stock compensation and employee stock purchase plan —
—
3,359
—
—
—
3,359
Stock options exercised —
81
464
—
—
—
545
Other equity adjustments —
—
887
—
—
—
887
Balance at September 30, 2019 $ —
$ 83,242
$ 599,877
$ 116,210
$ 9,359
$ —
$ 808,688


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) Nine months ended September 30, 2020 and 2019
		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)		Total
	(In thousands, except share data)
Balance at December 31, 2018		$	83,656	$	600,196	$	87,821	$	(17,719)	$	753,954

Net income attributable to the Company		—		—		58,784		—		58,784
Other comprehensive income/(loss), net		—		—		—		27,078		27,078
Dividends paid to common shareholders: $0.36 per share		—		—		(30,395)		—		(30,395)



Repurchase of 678,165 shares of common stock		(678)		(6,515)		—		—		(7,193)
Net proceeds from issuance of:
265,937 shares of common stock		266		2,008		—		—		2,274
42,004 shares of incentive stock grants, net of 9,377 shares canceled or forfeited and 115,173 shares withheld for employee taxes		(83)		(522)		—		—		(605)

Amortization of stock compensation and employee stock purchase plan		—		3,359		—		—		3,359
Stock options exercised		81		464		—		—		545
Other equity adjustments		—		887		—		—		887
Balance at September 30, 2019		$	83,242	$	599,877	$	116,210	$	9,359	$	808,688

Balance at December 31, 2019		$	83,266	$	600,708	$	127,469	$	7,575	$	819,018

Impact due to change in accounting principle (1)		—		—		13,492		—		13,492
Net income attributable to the Company		—		—		20,182		—		20,182
Other comprehensive income/(loss), net		—		—		—		22,832		22,832
Dividends paid to common shareholders: $0.30 per share		—		—		(24,748)		—		(24,748)



Repurchase of 1,565,060 shares of common stock		(1,565)		(11,242)		—		—		(12,807)
Net proceeds from issuance of:
278,961 shares of common stock		279		1,777		—		—		2,056
309,416 shares of incentive stock grants, net of 41,366 shares withheld for employee taxes		268		3,747		—		—		4,015

Amortization of stock compensation and employee stock purchase plan		—		607		—		—		607
Stock options exercised		7		48		—		—		55
Other equity adjustments		0		1,468		(1)		—		1,467
Balance at September 30, 2020		$	82,255	$	597,113	$	136,394	$	30,407	$	846,169

(1) ~~Reclassification~~Impact due to the adoption of ASU ~~2016-01 and~~ 2016-13, Financial Instruments (Topic 326) (“ASU ~~2017-12.~~2016-13”). See Part I. Item 1. ~~“Financial~~“Notes to Unaudited Consolidated Financial Statements ~~and Supplementary Data~~ - Note 15: Recent Accounting Pronouncements.”

See accompanying notes to ~~consolidated financial statements.~~

Unaudited Consolidated Financial Statements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Nine months ended September 30,
2019 2018
(In thousands)
Cash flows from operating activities:
Net income attributable to the Company $ 58,784
$ 47,082
Adjustments to arrive at net income from continuing operations
Net income attributable to noncontrolling interests 265
2,942
Less: Net income from discontinued operations —
(1,696 )
Net income from continuing operations 59,049
48,328
Adjustments to reconcile net income from continuing operations to net cash provided by/ (used in) operating activities:
Depreciation and amortization 17,726
17,192
Net income attributable to noncontrolling interests (265 ) (2,942 )
Stock compensation, net of cancellations 4,022
5,232
Provision/ (credit) for loan losses 104
(2,291 )
Loans originated for sale (32,796 ) (32,364 )
Proceeds from sale of loans held for sale 29,176
33,935
Deferred income tax expense/ (benefit) 432
8,548
Increase in right-of-use assets 1,416
—
Increase in operating lease liabilities (1,465 ) —
Net decrease/ (increase) in other operating activities (36,916 ) (14,348 )
Net cash provided by/ (used in) operating activities of continuing operations 40,483
61,290
Net cash provided by/ (used in) operating activities of discontinued operations —
1,696
Net cash provided by/ (used in) operating activities 40,483
62,986
Cash flows from investing activities:
Investment securities available-for-sale:
Purchases (24,977 ) (25,204 )
Sales —
24
Maturities, calls, redemptions, and principal payments 115,857
86,085
Investment securities held-to-maturity:
Purchases —
(11,876 )
Maturities, calls, and principal payments 18,880
10,726
Equity securities at fair value:
Purchases (44,537 ) (38,042 )
Sales 36,985
51,757
(Investments)/ distributions in trusts, net 357
1,252
Contingent considerations from divestitures 3,254
—
(Purchase)/ redemption of Federal Home Loan Bank and Federal Reserve Bank stock 1,507
11,246
Net increase in portfolio loans (268,238 ) (217,317 )
Proceeds from recoveries of loans previously charged-off 887
1,578
Proceeds from sale of OREO 492
—
Proceeds from sale of portfolio loans 92,304
—
Capital expenditures (5,795 ) (18,349 )
Proceeds from sale of affiliate —
34,120
Net cash provided by/ (used in) investing activities (73,024 ) (114,000 )
(Continued)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Three months ended September 30, 2020 and 2019

See accompanying notes to ~~consolidated financial statements.~~Unaudited Consolidated Financial Statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Nine months ended September 30,
	2020		2019
	(In thousands)
Cash flows from operating activities:
Net income attributable to the Company	$	20,182	$	58,784
Adjustments to arrive at net income:
Net income attributable to noncontrolling interests	6		265

Net income before attribution to noncontrolling interests	20,188		59,049
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization	17,202		17,726
Net income attributable to noncontrolling interests	(6)		(265)
Stock compensation, net of cancellations	4,886		4,022
Provision/(credit) for loan losses	34,997		104
Loans originated for sale	(89,510)		(32,796)
Proceeds from sale of loans held for sale	82,582		29,176

Deferred income tax expense/(benefit)	(11,476)		432
Decrease/(increase) in right-of-use assets	7,196		1,416
Increase/(decrease) in operating lease liabilities	(8,282)		(1,465)
Net decrease/(increase) in other operating activities	(28,948)		(36,916)


Net cash provided by/(used in) operating activities	28,829		40,483
Cash flows from investing activities:
Investment securities available-for-sale:
Purchases	(71,634)		(24,977)

Maturities, calls, redemptions, and principal payments	64,457		115,857
Investment securities held-to-maturity:

Principal payments	9,316		18,880
Equity securities at fair value:
Transfers out	(36,463)		(44,537)
Transfers in	22,455		36,985
(Investments)/distributions in trusts, net	(625)		357

Contingent considerations from divestitures	3,648		3,254
(Purchase)/redemption of Federal Home Loan Bank and Federal Reserve Bank stock	2,460		1,507
Net increase in portfolio loans	(319,627)		(268,238)
Proceeds from recoveries of loans previously charged-off	276		887
Proceeds from sale of OREO	0		492
Proceeds from sale of portfolio loans	71,992		92,304
Capital expenditures	(6,531)		(5,795)



Net cash provided by/(used in) investing activities	(260,276)		(73,024)
(Continued)


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Nine months ended September 30,
	2020		2019
	(In thousands)
Cash flows from financing activities:
Net increase/(decrease) in deposits	586,243		(122,928)
Net increase/(decrease) in securities sold under agreements to repurchase	(10,854)		11,932
Net increase/(decrease) in federal funds purchased	0		(20,000)
Net increase/(decrease) in short-term Federal Home Loan Bank borrowings	(75,000)		110,000
Advances of long-term Federal Home Loan Bank borrowings	525,000		340,000
Repayments of long-term Federal Home Loan Bank borrowings	(504,593)		(299,240)


Dividends paid to common shareholders	(24,748)		(30,395)


Repurchase of common stock	(12,807)		(7,193)
Proceeds from stock option exercises	55		545
Proceeds from issuance of common stock	2,056		2,274
Tax withholding for share based compensation awards	(264)		(1,268)
Distributions paid to noncontrolling interests	(6)		(265)
Other equity adjustments	149		(170)

Net cash provided by/(used in) financing activities	485,231		(16,708)
Net increase/(decrease) in cash and cash equivalents	253,784		(49,249)
Cash and cash equivalents at beginning of year	292,479		127,259
Cash and cash equivalents at end of period	$	546,263	$	78,010

Supplemental disclosure of cash flow items:
Cash paid for interest	$	33,104	$	60,489
Cash paid for income taxes, (net of refunds received)	$	5,948	$	18,122

Change in unrealized gain/(loss) on available-for-sale securities, net of tax	$	23,055	$	27,469
Change in unrealized gain/(loss) on cash flow hedges, net of tax	$	(193)	$	(391)
Change in unrealized gain/(loss) on other, net of tax	$	(30)	$	0
Non-cash transactions:


Loans charged-off	$	(2,319)	$	(944)

See accompanying notes to Unaudited 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” or “BPFH”), is a bank holding company (the “Holding Company”) with 2 reportable segments: (i) Private Banking and (ii) Wealth Management and Trust.

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, whose deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”), and a wholly-owned subsidiary of the Company. Boston Private Bank is a member of the Federal Reserve Bank of ~~Boston.~~ Boston ~~Private Bank~~and primarily operates in 3 geographic markets: New England, ~~the San Francisco Bay Area,~~Northern California, and Southern California. The Private Banking segment is principally engaged in providing private banking services to high net worth individuals, privately-owned businesses and partnerships, and nonprofit organizations. In addition, the Private Banking segment is an active provider of financing for affordable housing, first-time homebuyers, economic development, social services, community revitalization and small businesses.

The Wealth Management and Trust segment is comprised of Boston Private Wealth LLC (“Boston Private Wealth”), a registered investment adviser (“RIA”) and wholly-owned subsidiary of the Bank, ~~and~~as well as the trust operations of Boston Private Bank. The Wealth Management and Trust segment offers planning-based financial strategies, wealth management, family office, financial planning, tax planning, and trust services to individuals, families, institutions, and nonprofit institutions. On September 1, 2019, KLS Professional Advisors Group, LLC ~~("KLS"~~(“KLS”) merged with and into Boston Private Wealth. ~~The~~Prior to the merger, the results of KLS were reported in a third reportable segment, ~~"Affiliate Partners"~~“Affiliate Partners”, as ~~further~~ discussed below. The Wealth Management and Trust segment operates in New England, New York, Southeast Florida, ~~the San Francisco Bay Area,~~Northern California, and Southern California.

Prior to the third quarter of 2019, the Company had 3 reportable segments: Affiliate Partners, Private Banking, and Wealth Management and Trust. ~~For the first two quarters of 2019, the~~The Affiliate Partners segment was comprised of 2 affiliates: KLS and Dalton, Greiner, Hartman, Maher & Co., LLC (“DGHM”), each of which are RIAs. Prior to the first quarter of 2019, the Affiliate Partners segment also included Anchor Capital Advisors, LLC (“Anchor”) and Bingham, Osborn & Scarborough, LLC (“BOS”). On April 13, 2018, the Company completed the sale of its ownership interest in Anchor. On December 3, 2018, the Company completed the sale of its ownership interest in BOS.

With the integration of KLS into Boston Private Wealth in September of 2019, the Company reorganized ~~the~~its segment reporting structure to align with how ~~the Company's~~its financial performance and strategy isare reviewed and managed. The results of KLS are ~~now~~ included in the results of Boston Private Wealth within the Wealth Management and Trust segment, and the results of DGHM are ~~now~~ included within the Holding Company and Eliminations for all periods presented. ~~The results of Anchor and BOS for the periods owned are included in the Holding Company and Eliminations.~~ See Part II. Item 8. “Financial Statements and Supplementary Data - Note 3: Asset Sales and Divestitures” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for additional information.

The Company conducts substantially all of its business through its 2 reportable segments. All significant intercompany accounts and transactions have been eliminated in consolidation, and the portion of income allocated to the owners ~~of DGHM, Anchor, and BOS~~ other than the Company is included in “Net income attributable to noncontrolling interests”, if any, in the Consolidated ~~Statement~~Statements of Operations for the periods owned. Redeemable noncontrolling interests, if any, in the Consolidated Balance Sheets reflect the maximum redemption value of agreements with ~~other owners.~~the owners of DGHM.

The unaudited interim ~~consolidated financial statements~~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~~Consolidated Financial Statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as filed with the Securities and Exchange Commission (“SEC”). Prior period amounts are reclassified whenever necessary to conform to the current period presentation. With the integration of KLS into Boston Private Wealth and the related change to reportable segments, fee revenue from KLS is reported in Wealth management and trust fees for all periods on the Consolidated ~~Statement~~Statements of Operations, which was ~~previously~~ presented as Wealth advisory fees in prior periods. ~~The Company identified an immaterial change relating to the presentation of equity securities at fair value in the Consolidated Statement of Cash Flows. The impact~~

was a change in the presentation of cash flows relating to $38.0 million of purchases and $51.8 million of sales for the nine months ended September 30, 2018, which were previously presented as investment securities available-for-sale but should have been presented as equity securities at fair value, within investing activities in the Consolidated Statement of Cash Flows.

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, ~~2018,~~2019, as filed with the SEC. For interim reporting purposes, the Company follows the same significant accounting policies, except for the following new accounting pronouncements from the Financial Accounting Standards Board (the “FASB”) that were adopted effective January 1, ~~2019:~~

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). This update and the related amendments to Topic 842 require lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-10, ~~Codification Improvements to Topic 842, Leases~~ ~~(“ASU 2018-10”); ASU No. 2018-11,~~ ~~Leases (Topic 842), Targeted Improvements~~ ~~(“ASU 2018-11”); and ASU No. 2019-01,~~ ~~Leases (Topic 842), Codification Improvements~~ (“ASU 2019-01”). The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard was effective on January 1, 2019 and the Company adopted these provisions on January 1, 2019. The most significant effects relate to the recognition of new ROU assets and lease liabilities on the balance sheet for real estate operating leases, providing significant new disclosures about leasing activities, and the impact of additional assets on certain financial measures such as capital ratios and return on average asset ratios. Additionally, the Company elected the package of practical expedients, as prescribed by ASU 2016-02. The Company elected not to reassess whether any expired or existing contracts are or contain leases nor the lease classification of those leases. The Company also elected not to reassess any initial direct costs for any existing leases. On adoption, the Company recognized $124.1 million of lease liabilities and $108.5 million of ROU assets.

~~In August 2018, the FASB issued ASU 2018-15,~~ Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) (“ASU 2018-15”). The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in ASU 2018-15. This update is effective on a retrospective basis for the Company beginning January 1, 2021. The Company early adopted this update on January 1, 2019. The adoption of this update did not have a material impact on the consolidated financial statements.

~~In October 2018, the FASB issued ASU 2018-16,~~ ~~Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting~~ (“ASU 2018-16”). ASU 2018-16 introduces OIS Rate based on the SOFR as an acceptable US benchmark interest rate for purposes of applying hedge accounting under Topic 815. This update is effective for interim and annual reporting periods beginning after December 15, 2018 because the Company has already adopted ASU 2017-12. The Company adopted this update on January 1, 2019. The adoption of this update did not have a material impact on the consolidated financial statements.

•In June 2016, the FASB issued ASU 2016-13. In 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”); ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”); ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 942)—Effective Dates (“ASU 2019-10”); and ASU 2019-11, Codification Improvements

to Topic 326, Financial Instruments—Credit Losses (“ASU 2019-11”). This update and related amendments to Topic 326 are 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 with a current expected credit losses (“CECL”) model methodology that reflects expected credit losses and requires consideration of a reasonable and supportable forecast to inform credit loss estimates. This ASU is effective for fiscal years beginning after December 15, 2019. The Company adopted this update on January 1, 2020 utilizing a modified retrospective approach. On adoption of ASU 2016-13 on January 1, 2020, the Company recognized a decrease in the Allowance for loan losses of $20.4 million and an increase in the reserve for unfunded loan commitments of $1.4 million. The net, after-tax impact of the decrease in the Allowance for loan losses and the increase in the reserve for unfunded loan commitments was an increase to Retained earnings of $13.5 million as shown in the Consolidated Statements of Changes in Shareholders’ Equity.

2. Earnings Per Share

The treasury stock method of calculating earnings per share (“EPS”) is presented below for the three and nine months ended September 30, 2020 and 2019. The following tables present the computations of basic and diluted EPS:


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(In thousands, except share and per share data)
Basic earnings per share - Numerator:
Net income before attribution to noncontrolling interests	$	22,680	$	20,058	$	20,188	$	59,049
Less: Net income attributable to noncontrolling interests	0		96		6		265
Net income attributable to the Company	22,680		19,962		20,182		58,784
Decrease in noncontrolling interests’ redemption values (1)	0		304		414		1,045




Net income attributable to common shareholders, treasury stock method	$	22,680	$	20,266	$	20,596	$	59,829

Basic earnings per share - Denominator:
Weighted average basic common shares outstanding	82,221,705		83,631,403		82,382,050		83,495,361
Per share data - Basic earnings per share:


Total attributable to common shareholders	$	0.28	$	0.24	$	0.25	$	0.72


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(In thousands, except share and per share data)
Diluted earnings per share - Numerator:


Net income attributable to common shareholders, after assumed dilution	$	22,680	$	20,266	$	20,596	$	59,829
Diluted earnings per share - Denominator:
Weighted average basic common shares outstanding	82,221,705		83,631,403		82,382,050		83,495,361

Dilutive effect of: Time-based and market-based stock options, performance-based and time-based restricted stock, and performance-based and time-based restricted stock units, and other dilutive securities (2)	140,633		325,305		364,816		507,920



Weighted average diluted common shares outstanding (2)	82,362,338		83,956,708		82,746,866		84,003,281
Per share data - Diluted earnings per share:


Total attributable to common shareholders	$	0.28	$	0.24	$	0.25	$	0.71
Dividends per share declared and paid on common stock	$	0.06	$	0.12	$	0.30	$	0.36

(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, 2019 for a description of the redemption values related to the redeemable noncontrolling interests. In accordance with the FASB Accounting Standards Codification Distinguishing Liabilities from Equity (“ASC 480”), an increase in redemption value from period to period reduces income attributable to common shareholders. A decrease in redemption value from period to period increases 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 diluted EPS computations for the three and nine months ended September 30, 2020 and 2019 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. This includes shares excluded from the computation of diluted EPS because the

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

effect would have been anti-dilutive and out-of-the money options, where the exercise prices were greater than the average market price of common shares for the period, because their inclusion would have been anti-dilutive As a result of the anti-dilution, the potential common shares excluded from the diluted EPS computation are as follows:

~~2. Earnings Per Share~~


	Three months ended September 30,		Nine months ended September 30,
	2020	2019	2020	2019
Anti-dilutive shares excluded from computation of average dilutive EPS	(In thousands)

Potential common shares from: options, restricted stock, or other dilutive securities	2,655	808	1,901	760
Total anti-dilutive shares excluded from computation of average dilutive EPS	2,655	808	1,901	760

~~The treasury stock method of calculating earnings per share (“EPS”) is presented below for~~ ~~the three and nine months ended September 30, 2019 and 2018. 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)~~

~~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, 2018~~ ~~for a description of the redemption values related to the redeemable noncontrolling interests. In accordance with the FASB Accounting Standards Codification~~ ~~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 cumulative change in redemption value remains a cumulative increase since adoption of this standard in the first quarter of 2009.

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Shares excluded due to exercise price exceeding the average market price of common shares during the period (total outstanding): (In thousands)
Potential common shares from:
Options, restricted stock, or other dilutive securities 808
408
760
226
Total shares excluded due to exercise price exceeding the average market price of common shares during the period 808
408
760
226

3. Reportable Segments

Management ~~Reporting~~reporting

The Company has 2 reportable segments: (i) Private Banking and (ii) Wealth Management and Trust, as well as ~~the Parent Company (Boston~~Boston Private Financial Holdings, Inc.~~, the~~ (the “Holding Company”) within Holding Company and Eliminations. The financial performance of the Company is managed and evaluated according to these 2 segments. Each segment is managed by a segment leader (“Segment Leader”) who has full authority and responsibility for the performance and the allocation of resources within their segment. The Company’s Chief Executive Officer (“CEO”) is the Company’s Chief Operating Decision Maker (“CODM”).

The Segment Leader for Private Banking is the CEO of Boston Private Bank, who is also the Company’s CEO. The Bank’s banking operations are reported in the Private Banking segment. The Segment Leader for Wealth Management and Trust is the President of Private Banking, Wealth and Trust. The Segment Leader of Wealth Management and Trust reports to the CEO of the Company. The Segment Leaders have authority with respect to the allocation of capital within their respective segments, management oversight responsibility, performance assessments, and overall authority and accountability within their respective segment. The Company’s CODM communicates with the President of Private Banking, Wealth and Trust regarding profit and loss responsibility, strategic planning, priority setting and other matters. The Company’s Chief Financial Officer reviews all financial detail with the CODM on a monthly basis.

Description of ~~Reportable Segments~~reportable segments

The Private Banking segment operates primarily in 3three geographic markets: New England, ~~the San Francisco Bay Area,~~Northern California and Southern California.

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

Wealth Management and Trust

The Wealth Management and Trust segment is comprised of the trust operations of the Bank and the operations of Boston Private Wealth. On September 1, 2019, KLS merged into Boston Private Wealth. As a result, the results of KLS are included in the results of Boston Private Wealth within the Wealth Management and Trust segment for all periods presented. The Wealth Management and Trust segment offers planning-based financial strategies, wealth management, family office,

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

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

financial planning, tax planning, and trust services to individuals, families, institutions, and nonprofit institutions. The Wealth Management and Trust segment operates in New England, New York, Southeast Florida, ~~the San Francisco Bay Area,~~Northern California and Southern California.

Changes to ~~Segment Reporting~~

~~The 2018~~ segment results have been adjusted for comparability to the 2019 segment results for the following changes. Prior to the third quarter of 2019, the Company had 3 reportable segments: Affiliate Partners, Private Banking, and Wealth Management and Trust. For the first two quarters of 2019, the Affiliate Partners segment was comprised of 2 affiliates: KLS and DGHM, each of which are RIAs. Prior to the first quarter of 2019, the Affiliate Partners segment also included Anchor and BOS for the periods owned. On April 13, 2018, the Company completed the sale of its ownership interest in Anchor. On December 3, 2018, the Company completed the sale of its ownership interest in BOS.

With the integration of KLS into Boston Private Wealth in the third quarter of 2019, the Company reorganized the segment reporting structure to align with how the Company's financial performance and strategy is reviewed and managed. The results of KLS are ~~now~~ included in the results of Boston Private Wealth within the Wealth Management and Trust segment, and the results of DGHM are ~~now~~ included in Holding Company and Eliminations for all periods presented. The results of Anchor and BOS for the periods owned are included in Holding Company and Eliminations. See Part II. Item 8. “Financial Statements and Supplementary Data - Note 3: Asset Sales and Divestitures” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for additional information.

Measurement of ~~Segment Profit~~segment profit and ~~Assets~~assets

The accounting policies of the segments are the same as those described in Part ~~II.~~I. Item ~~8. “Financial~~1. "Notes to Unaudited Consolidated Financial Statements ~~and Supplementary Data~~ - Note 1: Basis of Presentation and Summary of Significant Accounting Policies.”"

~~Reconciliation of Reportable Segment Items~~

The following tables present a reconciliation of the revenues, profits, assets, and other significant items of reportable segments as of and for the three and nine months ended September 30, 2019 and 2018.

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Private Banking (In thousands)
Net interest income $ 57,058
$ 60,551
$ 174,814
$ 177,129
Fees and other income 3,403
3,337
9,465
8,637
Total revenue 60,461
63,888
184,279
185,766
Provision/ (credit) for loan losses 167
(949 ) 104
(2,291 )
Operating expense (1) 38,134
44,706
117,256
124,003
Income before income taxes 22,160
20,131
66,919
64,054
Income tax expense 4,212
4,469
13,520
13,063
Net income from continuing operations 17,948
15,662
53,399
50,991
Net income attributable to the Company $ 17,948
$ 15,662
$ 53,399
$ 50,991

Assets $ 8,617,207
$ 8,292,901
$ 8,617,207
$ 8,292,901
Depreciation $ 2,229
$ 2,398
$ 7,271
$ 6,013

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, expenses, assets, and other significant items of the reportable segments as of and for the three and nine months ended September 30, 2020 and 2019.


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Private Banking (1)	(In thousands)
Net interest income	$	58,325	$	57,058	$	176,105	$	174,814
Fees and other income	2,487		3,403		7,192		9,465
Total revenue	60,812		60,461		183,297		184,279
Provision/(credit) for loan losses	(4,569)		167		34,997		104
Operating expense (2)	43,128		38,134		128,630		117,256
Income before income taxes	22,253		22,160		19,670		66,919
Income tax expense	2,946		4,212		760		13,520
Net income before attribution to noncontrolling interests	19,307		17,948		18,910		53,399


Net income attributable to the Company	$	19,307	$	17,948	$	18,910	$	53,399

Assets	$	9,366,642	$	8,617,207	$	9,366,642	$	8,617,207
Amortization of intangibles	$	76	$	0	$	217	$	0
Depreciation	$	2,684	$	2,229	$	7,921	$	7,271


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Wealth Management and Trust (1)	(In thousands)
Net interest income	$	1	$	99	$	80	$	309
Fees and other income	18,272		19,106		54,049		57,188
Total revenue	18,273		19,205		54,129		57,497

Operating expense (2)	15,540		13,888		45,640		43,864
Income before income taxes	2,733		5,317		8,489		13,633
Income tax expense	808		1,751		2,780		4,465
Net income before attribution to noncontrolling interests	1,925		3,566		5,709		9,168


Net income attributable to the Company	$	1,925	$	3,566	$	5,709	$	9,168



Assets	$	149,105	$	143,326	$	149,105	$	143,326
Amortization of intangibles	$	638	$	671	$	1,914	$	2,015
Depreciation	$	282	$	290	$	862	$	991


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Holding Company and Eliminations (1)	(In thousands)
Net interest income (3)	$	(502)	$	(1,004)	$	(2,166)	$	(3,172)
Fees and other income	2,286		2,617		5,987		8,101
Total revenue	1,784		1,613		3,821		4,929

Operating expense	2,269		3,515		9,028		10,629
Income/(loss) before income taxes	(485)		(1,902)		(5,207)		(5,700)
Income tax expense/(benefit)	(1,933)		(446)		(776)		(2,182)
Net income/(loss) before attribution to noncontrolling interests	1,448		(1,456)		(4,431)		$	(3,518)
Noncontrolling interests	0		96		6		265

Net income/(loss) attributable to the Company	$	1,448	$	(1,552)	$	(4,437)	$	(3,783)




Assets (including eliminations)	$	(84,442)	$	(69,589)	$	(84,442)	$	(69,589)

Depreciation	$	36	$	51	$	113	$	147

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Wealth Management and Trust (In thousands)
Net interest income $ 99
$ 98
$ 309
$ 222
Fees and other income 19,106
19,769
57,188
59,108
Total revenue 19,205
19,867
57,497
59,330
Operating expense (1) 13,888
16,434
43,864
49,981
Income before income taxes 5,317
3,433
13,633
9,349
Income tax expense 1,751
1,130
4,465
3,019
Net income from continuing operations 3,566
2,303
9,168
6,330
Net income attributable to the Company $ 3,566
$ 2,303
$ 9,168
$ 6,330

Assets $ 143,326
$ 127,229
$ 143,326
$ 127,229
Amortization of intangibles $ 671
$ 701
$ 2,015
$ 2,103
Depreciation $ 290
$ 409
$ 991
$ 1,230

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Holding Company and Eliminations (2) (In thousands)
Net interest income (3) $ (1,004 ) $ (1,008 ) $ (3,172 ) $ (2,782 )
Fees and other income 2,617
9,208
8,101
36,407
Total revenue 1,613
8,200
4,929
33,625
Operating expense 3,515
7,417
10,629
29,814
Income/ (loss) before income taxes (1,902 ) 783
(5,700 ) 3,811
Income tax expense/ (benefit) (446 ) (138 ) (2,182 ) 12,804
Net income/ (loss) from continuing operations (1,456 ) 921
(3,518 ) (8,993 )
Noncontrolling interests 96
924
265
2,942
Discontinued operations (4) —
—
—
1,696
Net income/ (loss) attributable to the Company $ (1,552 ) $ (3 ) $ (3,783 ) $ (10,239 )

Assets (including eliminations) $ (69,589 ) $ (44,290 ) $ (69,589 ) $ (44,290 )
Amortization of intangibles $ —
$ 49
$ —
$ 146
Depreciation $ 51
$ 109
$ 147
$ 336

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Total Company (2) (In thousands)
Net interest income $ 56,153
$ 59,641
$ 171,951
$ 174,569
Fees and other income 25,126
32,314
74,754
104,152
Total revenue 81,279
91,955
246,705
278,721
Provision/ (credit) for loan losses 167
(949 ) 104
(2,291 )
Operating expense 55,537
68,557
171,749
203,798
Income before income taxes 25,575
24,347
74,852
77,214
Income tax expense 5,517
5,461
15,803
28,886
Net income from continuing operations 20,058
18,886
59,049
48,328
Noncontrolling interests 96
924
265
2,942
Discontinued operations (4) —
—
—
1,696
Net income attributable to the Company $ 19,962
$ 17,962
$ 58,784
$ 47,082

Assets $ 8,690,944
$ 8,375,840
$ 8,690,944
$ 8,375,840
Amortization of intangibles $ 671
$ 750
$ 2,015
$ 2,249
Depreciation $ 2,570
$ 2,916
$ 8,409
$ 7,579


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Total Company (1)	(In thousands)
Net interest income	$	57,824	$	56,153	$	174,019	$	171,951
Fees and other income	23,045		25,126		67,228		74,754
Total revenue	80,869		81,279		241,247		246,705
Provision/(credit) for loan losses	(4,569)		167		34,997		104
Operating expense	60,937		55,537		183,298		171,749
Income before income taxes	24,501		25,575		22,952		74,852
Income tax expense	1,821		5,517		2,764		15,803
Net income before attribution to noncontrolling interests	22,680		20,058		20,188		59,049
Noncontrolling interests	0		96		6		265

Net income attributable to the Company	$	22,680	$	19,962	$	20,182	$	58,784

Assets	$	9,431,305	$	8,690,944	$	9,431,305	$	8,690,944
Amortization of intangibles	$	714	$	671	$	2,131	$	2,015
Depreciation	$	3,002	$	2,570	$	8,896	$	8,409

_____________________

~~(1)~~

Operating expense includes restructuring expense of $1.3 million and $0.4 million for the nine months ended September 30, 2019 related to the Private Banking and Wealth Management and Trust segments, respectively. Operating expense includes restructuring expense of $5.2 million and $0.6 million for the nine months ended September 30, 2018 related to the Private Banking and Wealth Management & Trust segments, respectively.


~~(2)~~	~~The results of Anchor and BOS for the periods owned in 2018 are included in Holding Company and Eliminations and the Total Company.~~


~~(3)~~	~~Interest expense on junior subordinated debentures is included in Holding Company and Eliminations.~~

~~(4)~~

The Holding Company and Eliminations calculation of net income attributable to the Company includes net income from discontinued operations of 0 and $1.7 million for the nine months ended September 30, 2019 and 2018, respectively. The Company received the final payment related to a revenue sharing agreement with Westfield Capital Management Company, LLC (“Westfield”) in the first quarter of 2018. The Company will not receive additional income from Westfield now that the final payment has been received.

(1)Due to rounding, the sum of individual segment results may not add up to the Total Company results.

(2)Operating expense related to the Private Banking and Wealth Management and Trust segments includes restructuring expense of $1.3 million and $0.4 million, respectively, for the nine months ended September 30, 2019. There were no other restructuring expenses in other periods presented.

(3)Interest expense on junior subordinated debentures is included in Holding Company and Eliminations.

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 at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


											Amortized Cost		Unrealized				Fair Value
	Amortized Cost		Unrealized					Fair Value					Gains		Losses
			Gains		Losses						(In thousands)
	(In thousands)
At September 30, 2019
At September 30, 2020										At September 30, 2020
Available-for-sale securities at fair value:										Available-for-sale securities at fair value:
U.S. government and agencies	$	19,953	$	104	$	—		$	20,057	U.S. government and agencies	$	19,960	$	1,130	$	0	$	21,090
Government-sponsored entities	155,081		1,483		(8		)	156,556		Government-sponsored entities	153,105		5,432		0		158,537
Municipal bonds	314,970		13,055		(10		)	328,015		Municipal bonds	319,749		20,026		(119)		339,656
Mortgage-backed securities (1)	432,108		1,847		(3,045		)	430,910		Mortgage-backed securities (1)	474,916		17,344		(216)		492,044
Total	$	922,112	$	16,489	$	(3,063	)	$	935,538	Total	$	967,730	$	43,932	$	(335)	$	1,011,327

Held-to-maturity securities at amortized cost:										Held-to-maturity securities at amortized cost:

Mortgage-backed securities (1)	$	51,379	$	33	$	(397	)	$	51,015	Mortgage-backed securities (1)	$	38,600	$	748	$	0	$	39,348
Total	$	51,379	$	33	$	(397	)	$	51,015	Total	$	38,600	$	748	$	0	$	39,348

Equity securities at fair value:										Equity securities at fair value:
Money market mutual funds (2)	$	21,780	$	—	$	—		$	21,780	Money market mutual funds (2)	$	32,818	$	—	$	—	$	32,818
Total	$	21,780	$	—	$	—		$	21,780	Total	$	32,818	$	—	$	—	$	32,818

At December 31, 2018
At December 31, 2019										At December 31, 2019
Available-for-sale securities at fair value:										Available-for-sale securities at fair value:
U.S. government and agencies	$	30,043	$	—	$	(929	)	$	29,114	U.S. government and agencies	$	19,955	$	42	$	(57)	$	19,940
Government-sponsored entities	211,655		—		(3,952		)	207,703		Government-sponsored entities	154,963		1,292		0		156,255
Municipal bonds	309,837		2,223		(3,101		)	308,959		Municipal bonds	312,977		12,551		(73)		325,455
Mortgage-backed securities (1)	467,239		214		(19,164		)	448,289		Mortgage-backed securities (1)	479,005		1,117		(3,488)		476,634
Total	$	1,018,774	$	2,437	$	(27,146	)	$	994,065	Total	$	966,900	$	15,002	$	(3,618)	$	978,284

Held-to-maturity securities at amortized cost:										Held-to-maturity securities at amortized cost:
U.S. government and agencies	$	9,898	$	2	$	—		$	9,900

Mortgage-backed securities (1)	60,540		—		(1,845		)	58,695		Mortgage-backed securities (1)	$	48,212	$	53	$	(316)	$	47,949
Total	$	70,438	$	2	$	(1,845	)	$	68,595	Total	$	48,212	$	53	$	(316)	$	47,949

Equity securities at fair value:										Equity securities at fair value:
Money market mutual funds (2)	$	14,228	$	—	$	—		$	14,228	Money market mutual funds (2)	$	18,810	$	—	$	—	$	18,810
Total	$	14,228	$	—	$	—		$	14,228	Total	$	18,810	$	—	$	—	$	18,810

_____________________


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


~~(2)~~	~~Money market mutual funds maintain a constant net asset value of $1.00 and therefore have no unrealized gain or loss.~~

~~BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES~~(1)All Mortgage-backed securities are guaranteed by the U.S. government, U.S. government agencies, or government-sponsored entities.

~~Notes~~(2)Money market mutual funds maintain a constant net asset value of $1.00 and therefore have no unrealized gain or loss.

The Company adopted ASU 2016-13 as of January 1, 2020. Under ASU 2016-13, the Company is required to assess the investment portfolio for credit impairment. The Company considers the Held-to-maturity portfolio to meet the "zero loss" expectation requirements. All Held-to-maturity securities owned by the Company are AAA rated mortgage-backed securities that are backed by the guarantees of the U.S. government, U.S. government agencies or government-sponsored entities. The Company has experienced 0 losses for these securities. In addition, as of September 30, 2020, 0 Held-to-maturity securities were past due. Therefore, 0 credit allowance was recorded on the Held-to-maturity investment portfolio. The Company evaluated the Available-for-sale investment securities on a security by security basis and identified 0 security with impairment. Therefore, 0 credit allowance was booked on the Available-for-sale investment portfolio. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - ~~(Continued)~~

Note 15: Recent Accounting Pronouncements” for additional information on ASU 2016-13.

The following table presents the maturities of ~~available-for-sale~~Available-for-sale investment securities, based on contractual maturity, as of September 30, ~~2019~~.2020. Certain securities are callable before their final maturity. Additionally, certain securities (such as ~~mortgage-backed~~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
Amortized
Cost

Fair
Value
(In thousands)
Within one year $ 12,614
$ 12,647
After one, but within five years 290,921
292,357
After five, but within ten years 250,045
253,765
Greater than ten years 368,532
376,769
Total $ 922,112
$ 935,538

~~The following table presents the maturities of held-to-maturity investment securities, based on contractual maturity,~~ ~~as of September 30, 2019~~.

Held-to-maturity Securities
Amortized
Cost

Fair
Value
(In thousands)
After five, but within ten years $ 41,912
$ 41,593
Greater than ten years 9,467
9,422
Total $ 51,379
$ 51,015

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 as well as changes in the fair value of equity securities as prescribed by ASC 321, ~~Investment - Equity Securities. ASU 2016-01,~~ ~~Recognition and Measurements of Financial Assets and Financial Liabilities~~ was adopted on January 1, 2018, at which time a cumulative effect adjustment of $339 thousand was recorded to reclassify the amount of accumulated unrealized gains related to equity securities from accumulated other comprehensive income to retained earnings.

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands)
Proceeds from sales $ —
$ 16,231
$ —
$ 51,781
Realized gains —
—
—
7
Realized losses —
—
—
(1 )
Change in unrealized gain/ (loss) on equity securities reflected in the Consolidated Statement of Operations —
—
—
(23 )

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	Available-for-sale Securities
	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	52,777	$	53,205
After one, but within five years	305,620		318,668
After five, but within ten years	222,230		235,564
Greater than ten years	387,103		403,890
Total	$	967,730	$	1,011,327

The following table presents the maturities of Held-to-maturity investment securities, based on contractual maturity, as of September 30, 2020.


	Held-to-maturity Securities
	Amortized Cost		Fair Value
	(In thousands)


After five, but within ten years	$	31,527	$	32,123
Greater than ten years	7,073		7,225
Total	$	38,600	$	39,348

The following table presents the maturities of Equity securities, based on contractual maturity, as of September 30, 2020.


	Equity Securities
	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	32,818	$	32,818



Total	$	32,818	$	32,818

During the three and nine months ended September 30, 2020 and 2019, there were 0 sales of Available-for-sale, held-to- maturity, or Equity securities.

The following tables present information regarding securities at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 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. As of September 30, 2020, there were no Held-to-maturity securities having temporary impairment.


	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)
September 30, 2020
Available-for-sale securities


Municipal bonds	$	10,740	$	(119)	$	0	$	0	$	10,740	$	(119)	4
Mortgage-backed securities (1)	25,864		(103)		6,376		(113)		32,240		(216)		29

Total	$	36,604	$	(222)	$	6,376	$	(113)	$	42,980	$	(335)	33

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)
September 30, 2019
Available-for-sale securities
U.S. government and agencies $ —
$ —
$ —
$ —
$ —
$ —
—
Government-sponsored entities 6,735
(8 ) —
—
6,735
(8 ) 4
Municipal bonds 8,506
(10 ) —
—
8,506
(10 ) 3
Mortgage-backed securities (1) 63,489
(226 ) 206,795
(2,819 ) 270,284
(3,045 ) 79
Total $ 78,730
$ (244 ) $ 206,795
$ (2,819 ) $ 285,525
$ (3,063 ) 86

Held-to-maturity securities
Mortgage-backed securities (1) $ 5,608
$ (21 ) $ 32,425
$ (376 ) $ 38,033
$ (397 ) 13
Total $ 5,608
$ (21 ) $ 32,425
$ (376 ) $ 38,033
$ (397 ) 13

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


																		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		(In thousands, except number of securities)
	(In thousands, except number of securities)
December 31, 2018
December 31, 2019																	December 31, 2019
Available-for-sale securities																	Available-for-sale securities
U.S. government and agencies	$	—	$	—		$	29,114	$	(929	)	$	29,114	$	(929	)	5	U.S. government and agencies	$	9,899	$	(57)	$	0	$	0	$	9,899	$	(57)	1
Government-sponsored entities	—		—			207,703		(3,952		)	207,703		(3,952		)	32	Government-sponsored entities	1,725		0		0		0		1,725		0		1
Municipal bonds	25,394		(128		)	130,209		(2,973		)	155,603		(3,101		)	85	Municipal bonds	9,149		(73)		0		0		9,149		(73)		4
Mortgage-backed securities (1)	2,469		(11		)	433,888		(19,153		)	436,357		(19,164		)	110	Mortgage-backed securities (1)	140,723		(1,016)		187,043		(2,472)		327,766		(3,488)		85

Total	$	27,863	$	(139	)	$	800,914	$	(27,007	)	$	828,777	$	(27,146	)	232	Total	$	161,496	$	(1,146)	$	187,043	$	(2,472)	$	348,539	$	(3,618)	91

Held-to-maturity securities																	Held-to-maturity securities
Mortgage-backed securities (1)	$	—	$	—		$	58,695	$	(1,845	)	$	58,695	$	(1,845	)	16	Mortgage-backed securities (1)	$	10,328	$	(11)	$	30,451	$	(305)	$	40,779	$	(316)	14
Total	$	—	$	—		$	58,695	$	(1,845	)	$	58,695	$	(1,845	)	16	Total	$	10,328	$	(11)	$	30,451	$	(305)	$	40,779	$	(316)	14

_____________________


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

(1)All Mortgage-backed securities are guaranteed by the U.S. government, U.S. government agencies, or government-sponsored entities.

As of September 30, ~~2019,~~2020, the ~~government-sponsored entities securities and mortgage-backed~~Mortgage-backed securities in the first table above had current Standard and Poor’s credit rating of at least AAA. ~~The~~One municipal ~~bonds~~security in the first table above had a current Standard and ~~Poor’s~~Poor's credit rating of at least ~~AA.~~AA+; the remaining had a rating of AAA. As of September 30, ~~2019,~~2020, the Company ~~does not consider these~~determined that the unrealized losses on investments, ~~other-than-temporarily impaired as the decline in fair value on investments~~since their purchase, is primarily attributed to changes in interest rates and not as a result of the deterioration of credit quality. As of September 30, ~~2019,~~2020, the Company had no intent to sell any securities in an unrealized loss position, and it is not more likely than not that the Company would be forced to sell any of these securities prior to the full recovery of all unrealized loss amounts.

Other investments

The Company invests in low-income housing tax credits, which are included in ~~other~~Other assets, to encourage private capital investment in the construction and rehabilitation of low-income housing. The Company makes these investments as an indirect subsidy that allows investors, such as the Company, in a flow-through limited liability entity, such as limited partnerships or limited liability companies that manage or invest in qualified affordable housing projects, to receive the benefits

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

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

of the tax credits allocated to the entity that owns the qualified affordable housing project. The Company also holds partnership interests in venture capital funds formed to provide financing to small businesses and to promote community development.

Other investments, which are included in ~~other~~Other assets, can be temporarily impaired when the fair values decline below the amortized costs of the individual investments. There were no0 other investments with unrealized losses as of September 30, ~~2019~~2020 or December 31, ~~2018.~~2019. The Company’s other investments primarily include ~~low income~~low-income housing partnerships which generate tax credits. The Company also holds partnership interests in ~~venture capital funds~~small business investment companies formed to provide financing to small businesses and to promote community development. The ~~Company~~Company had ~~$65.4~~$79.9 million and ~~$54.4~~$65.5 million in other investments included in ~~other~~Other assets as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, aggregated by the level in the fair value hierarchy within which those measurements fall:


	As of September 30, 2020		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)
	(In thousands)
Assets:
Available-for-sale securities:
U.S. government and agencies	$	21,090	$	0	$	21,090	$	0
Government-sponsored entities	158,537		0		158,537		0
Municipal bonds	339,656		0		339,656		0
Mortgage-backed securities	492,044		0		492,044		0

Total available-for-sale securities	1,011,327		0		1,011,327		0
Equity securities	32,818		32,818		0		0
Derivatives - interest rate customer swaps	91,399		0		91,399		0

Derivatives - risk participation agreement	64		0		64		0

Trading securities held in the “rabbi trust” (1)	6,744		6,744		0		0

Liabilities:
Derivatives - interest rate customer swaps	$	92,758	$	0	$	92,758	$	0
Derivatives - interest rate swaps	272		0		272		0
Derivatives - risk participation agreement	444		0		444		0

Deferred compensation “rabbi trust” (1)	6,744		6,744		0		0


			Fair value measurements at reporting date using:
	As of December 31, 2019		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	$	19,940	$	0	$	19,940	$	0
Government-sponsored entities	156,255		0		156,255		0
Municipal bonds	325,455		0		325,455		0
Mortgage-backed securities	476,634		0		476,634		0

Total available-for-sale securities	978,284		0		978,284		0
Equity securities	18,810		18,810		0		0
Derivatives - interest rate customer swaps	36,089		0		36,089		0

Derivatives - risk participation agreements	10		0		10		0

Trading securities held in the “rabbi trust” (1)	6,119		6,119		0		0

Liabilities:
Derivatives - interest rate customer swaps	$	36,580	$	0	$	36,580	$	0

Derivatives - risk participation agreements	242		0		242		0

Deferred compensation “rabbi trust” (1)	6,112		6,112		0		0

_____________________

(1) The Company has adopted a special trust for the Deferred Compensation Plan called a “rabbi trust.” The rabbi trust is an arrangement that is used to accumulate assets that may be used to fund the Company’s obligation to pay benefits under the Deferred Compensation Plan. To prevent immediate taxation to the executives who participate in the Deferred Compensation Plan, the amounts placed in the rabbi trust must remain subject to the claims of the Company’s creditors. The investments chosen by the participants in the Deferred Compensation Plan are mirrored by the rabbi trust as a way to minimize the earnings volatility of the Deferred Compensation Plan.

As of September 30, 2020 and December 31, 2019, Available-for-sale securities consisted of U.S. government and agencies securities, government-sponsored entities securities, municipal bonds, and mortgage-backed securities. Available-for-

As of September 30, 2019 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)
(In thousands)
Assets:
Available-for-sale securities:
U.S. government and agencies $ 20,057
$ —
$ 20,057
$ —
Government-sponsored entities 156,556
—
156,556
—
Municipal bonds 328,015
—
328,015
—
Mortgage-backed securities 430,910
—
430,910
—
Total available-for-sale securities 935,538
—
935,538
—
Equity securities 21,780
21,780
—
—
Derivatives - interest rate customer swaps 47,851
—
47,851
—
Derivatives - risk participation agreement 74
—
74
—
Trading securities held in the “rabbi trust” (1) 6,482
6,482
—
—

Liabilities:
Derivatives - interest rate customer swaps $ 48,891
$ —
$ 48,891
$ —
Derivatives - risk participation agreement 344
—
344
—
Deferred compensation “rabbi trust” (1) 6,482
6,482
—
—

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Fair value measurements at reporting date using:
As of December 31, 2018
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 $ 29,114
$ —
$ 29,114
$ —
Government-sponsored entities 207,703
—
207,703
—
Municipal bonds 308,959
—
308,959
—
Mortgage-backed securities 448,289
—
448,289
—
Total available-for-sale securities 994,065
—
994,065
—
Equity securities 14,228
14,228
—
—
Derivatives - interest rate customer swaps 21,889
—
21,889
—
Derivatives - interest rate swaps 553
—
553
—
Derivatives - risk participation agreements 2
—
2
—
Trading securities held in the “rabbi trust” (1) 6,839
6,839
—
—

Liabilities:
Derivatives - interest rate customer swaps $ 22,385
$ —
$ 22,385
$ —
Derivatives - risk participation agreements 152
—
152
—
Deferred compensation “rabbi trust” (1) 6,839
6,839
—
—

~~_____________________~~

~~(1)~~

The Company has adopted a special trust for the Deferred Compensation Plan called a “rabbi trust”. The rabbi trust is an arrangement that is used to accumulate assets that may be used to fund the Company’s obligation to pay benefits under the Deferred Compensation Plan. To prevent immediate taxation to the executives who participate in the Deferred Compensation Plan, the amounts placed in the rabbi trust must remain subject to the claims of the Company’s creditors. The investments chosen by the participants in the Deferred Compensation Plan are mirrored by the rabbi trust as a way to minimize the earnings volatility of the Deferred Compensation Plan.

As of September 30, 2019 and December 31, 2018, available-for-sale securities consisted of U.S. government and agencies securities, government-sponsored entities securities, municipal bonds, and mortgage-backed securities. Available-for-salesale Level 2 securities generally have quoted prices but are traded less frequently than exchange-traded securities and can be priced using market data from similar assets and include ~~government-sponsored~~Government-sponsored entities securities, ~~municipal~~Municipal bonds, ~~mortgage-backed~~Mortgage-backed securities, “off-the-run” U.S. Treasury securities, and certain investments in ~~SBA~~the Small Business Administration's (the "SBA") loans (which are categorized as U.S. government and agencies securities). “Off-the-run” U.S. Treasury securities are Treasury bonds and notes issued before the most recently issued bond or note of a particular maturity. When Treasuries move to the secondary over-the-counter market, they become less frequently traded, therefore, they are considered ~~“off-the-run”.~~“off-the-run.” NaN investments held as of September 30, ~~2019~~2020 or December 31, ~~2018~~2019 were categorized as Level 3.

As of September 30, ~~2019~~2020 and December 31, ~~2018, equity~~2019, Equity securities consisted of Level 1 money market mutual funds that are valued with prices quoted in active markets.

In managing its interest rate and credit risk, the Company ~~utilizes~~may utilize derivative instruments including interest rate customer swaps, interest rate swaps, and risk participation agreements. As a service to its customers, the Company may utilize derivative instruments including customer foreign exchange forward contracts to manage its foreign exchange risk, if any. 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, and therefore, they have been categorized as a Level 2 measurement as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. 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.

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

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

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 inputs used to value its derivatives are within Level 2. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Trading securities held in the rabbi trust consist of publicly traded mutual fund investments that are valued at prices quoted in active markets. Therefore, they have been categorized as Level 1 as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

The Company accounts for its investments held in the rabbi trust in accordance with ASC 320, Investments - Debt and Equity Securities. The investments held in the rabbi trust are classified as trading securities. The assets of the rabbi trust are carried at their fair value within ~~other~~Other assets on the ~~consolidated balance sheet.~~Consolidated Balance Sheets. Changes in the fair value of the securities are recorded as an increase or decrease in ~~other~~Other income each quarter. The deferred compensation liability reflects the market value of the securities selected by the participants and is included within ~~other~~Other liabilities on the ~~consolidated balance sheet.~~Consolidated Balance Sheets. Changes in the fair value of the liability are recorded as an increase or decrease in ~~salaries~~Salaries and employee benefits expense each quarter.

There were no transfers for assets or liabilities recorded at fair value on a recurring basis as of September 30, ~~2019. During the year ended~~2020 and December 31, 2018, 5 U.S. Treasury securities totaling $33.4 million transferred from Level 1 to Level 2 as the securities were determined to be “off-the-run”. There were no other transfers for assets or liabilities recorded at fair value on a recurring basis for the year ended December 31, 2018.

2019. There were 0 Level 3 assets valued on a recurring basis at September 30, ~~2019~~2020 or December 31, ~~2018.~~

2019. There were no changes in the valuation techniques used for measuring the fair value.

The following tables present the Company’s assets ~~and liabilities~~ measured at fair value on a non-recurring basis during the periods ended September 30, ~~2019~~2020 and ~~2018, respectively,~~September 30, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall.


	As of September 30, 2019		Fair value measurements at reporting date using:						Gain (losses) from fair value changes						As of September 30, 2020		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 September 30, 2019			Nine months ended September 30, 2019					Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Three months ended September 30, 2020		Nine months ended September 30, 2020
	(In thousands)														(In thousands)
Assets:														Assets:
Impaired loans (1)	$	729	$	—	$	—	$	729	$	(388	)	$	204	Impaired loans (1)	$	102	$	0	$	0	$	102	$	30	$	(1,168)

_____________________


~~(1)~~	~~Collateral-dependent impaired loans held as of September 30, 2019 that had write-downs or recoveries in fair value or whose specific reserve changed during the nine months ended September 30, 2019.~~

(1)Collateral-dependent impaired loans held as of September 30, 2020 that had write-downs or recoveries in fair value or whose specific reserve changed during the nine months ended September 30, 2020.

As of September 30, 2018 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 September 30, 2018 Nine months ended September 30, 2018
(In thousands)
Assets:
Impaired loans (1) $ 2,005
$ —
$ —
$ 2,005
$ (440 ) $ (1,367 )

~~_____________________~~


~~(1)~~	~~Collateral-dependent impaired loans held as of September 30, 2018 that had write-downs or recoveries in fair value or whose specific reserve changed during the nine months ended September 30, 2018.~~

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	As of September 30, 2019		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 September 30, 2019		Nine months ended September 30, 2019
	(In thousands)
Assets:
Impaired loans (1)	$	729	$	0	$	0	$	729	$	(388)	$	204

_____________________

(1)Collateral-dependent impaired loans held as of September 30, 2019 that had write-downs or recoveries in fair value or whose specific reserve changed during the nine months ended September 30, 2019.

The following tables present 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 September 30, 2020

Fair Value

Valuation
Technique

Unobservable
Input

Range of
Inputs
Utilized

Weighted
Average of
Inputs
Utilized

(In thousands)

Impaired Loans

102

Appraisals of Collateral

Discount for costs to sell

10% - 10%

10%

Appraisal adjustments

As of September 30, 2019
Fair Value
Valuation
Technique

Unobservable
Input

Range of
Inputs
Utilized

Weighted
Average of
Inputs
Utilized
(In thousands)
Impaired Loans $ 729
Appraisals of Collateral Discount for costs to sell 0% - 6% 6%
Appraisal adjustments —% —%

As of September 30, 2018
Fair Value
Valuation
Technique

Unobservable
Input

Range of
Inputs
Utilized

Weighted
Average of
Inputs
Utilized
(In thousands)
Impaired Loans $ 2,005
Appraisals of Collateral Discount for costs to sell 0% - 23% 6%
Appraisal adjustments —% —%

As of September 30, 2019

Fair Value

Valuation
Technique

Unobservable
Input

Range of
Inputs
Utilized

Weighted
Average of
Inputs
Utilized

(In thousands)

Impaired Loans

729

Appraisals of Collateral

Discount for costs to sell

0% - 6%

Appraisal adjustments

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 may 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:


	As of September 30, 2020
	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	$	546,263	$	546,263	$	546,263	$	0	$	0
Investment securities held-to-maturity	38,600		39,348		0		39,348		0
Loans held for sale	15,074		15,404		0		15,404		0
Loans, net	7,138,018		6,985,399		0		0		6,985,399
Other financial assets	65,812		65,812		0		65,812		0
FINANCIAL LIABILITIES:
Deposits	7,827,719		7,829,292		0		7,829,292		0

Securities sold under agreements to repurchase	42,544		42,544		0		42,544		0

Federal Home Loan Bank borrowings	296,236		297,641		0		297,641		0
Junior subordinated debentures	106,363		69,863		0		0		69,863
Other financial liabilities	2,189		2,189		0		2,189		0

As of September 30, 2019
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 $ 78,010
$ 78,010
$ 78,010
$ —
$ —
Investment securities held-to-maturity 51,379
51,015
—
51,015
—
Loans held for sale 6,658
6,708
—
6,708
—
Loans, net 6,991,792
7,006,120
—
—
7,006,120
Other financial assets 77,614
77,614
—
77,614
—
FINANCIAL LIABILITIES:
Deposits 6,658,242
6,658,538
—
6,658,538
—
Securities sold under agreements to repurchase 48,860
48,860
—
48,860
—
Federal funds purchased 230,000
230,000
—
230,000
—
Federal Home Loan Bank borrowings 570,904
571,606
—
571,606
—
Junior subordinated debentures 106,363
96,363
—
—
96,363
Other financial liabilities 2,730
2,730
—
2,730
—

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

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

As of December 31, 2018
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 $ 127,259
$ 127,259
$ 127,259
$ —
$ —
Investment securities held-to-maturity 70,438
68,595
—
68,595
—
Loans held for sale 2,812
2,837
—
2,837
—
Loans, net 6,817,846
6,734,216
—
—
6,734,216
Other financial assets 78,730
78,730
—
78,730
—
FINANCIAL LIABILITIES:
Deposits 6,781,170
6,777,928
—
6,777,928
—
Securities sold under agreements to repurchase 36,928
36,928
—
36,928
—
Federal funds purchased 250,000
250,000
—
250,000
—
Federal Home Loan Bank borrowings 420,144
417,092
—
417,092
—
Junior subordinated debentures 106,363
96,363
—
—
96,363
Other financial liabilities 2,001
2,001
—
2,001
—


	As of December 31, 2019
	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	$	292,479	$	292,479	$	292,479	$	0	$	0
Investment securities held-to-maturity	48,212		47,949		0		47,949		0
Loans held for sale	7,386		7,475		0		7,475		0
Loans, net	6,904,722		6,883,360		0		0		6,883,360
Other financial assets	67,348		67,348		0		67,348		0
FINANCIAL LIABILITIES:
Deposits	7,241,476		7,241,739		0		7,241,739		0
Securities sold under agreements to repurchase	53,398		53,398		0		53,398		0

Federal Home Loan Bank borrowings	350,829		351,233		0		351,233		0
Junior subordinated debentures	106,363		96,363		0		0		96,363
Other financial liabilities	1,957		1,957		0		1,957		0

The estimated fair values have been determined by using available quoted market information or other appropriate valuation methodologies. The aggregate fair value amounts presented above do not represent the underlying value of the financial assets and liabilities of the Company taken as a whole as they do not reflect any premium or discount the Company might recognize if the assets were sold or the liabilities sold, settled, or redeemed. An excess of fair value over book value on financial assets represents a premium, or gain, the Company might recognize if the assets 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 liabilities were sold, settled, or redeemed prior to maturity. Conversely, losses would be recognized if assets were sold where the book value exceeded the fair value or liabilities were sold where the fair value exceeded the book value.

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 are considered best estimates. Changes made to any of the underlying assumptions could significantly affect the estimates.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Cash and cash equivalents

The carrying value reported in the ~~balance sheet~~Consolidated Balance Sheets for ~~cash~~Cash and cash equivalents approximates fair value due to the short-term nature of their maturities, and these assets are classified as Level 1 measurements.

Investment securities held-to-maturity

Investment securities ~~held-to-maturity currently~~Held-to-maturity consist of ~~mortgage-backed securities. As~~Mortgage-backed securities as of September 30, 2020 and December 31, ~~2018, investment securities held-to-maturity consisted of mortgage-backed securities and a U.S. Treasury security.~~2019. The ~~U.S. Treasury security held as of December 31, 2018 is an “off-the-run” U.S. Treasury security and, therefore, it has been categorized as Level 2. The mortgage-backed~~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, ~~held-to-maturity mortgage-backed~~Held-to-maturity Mortgage-backed securities are classified as Level 2.

There were no transfers of the Company's financial instruments that are not measured at fair value on a recurring basis as of September 30, ~~2019~~2020 and December 31, ~~2018.~~

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

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

2019.

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.

Loans, net

Fair value estimates are based on loans with similar financial characteristics. ~~Following the adoption of ASU 2016-01 in 2018, the~~The Company ~~updated its process for estimating the fair value of loans, net of allowance for loan losses. The updated process~~ estimates the fair value of loans using the exit price notion under ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which includes identifying an exit price using current market information for origination rates and making certain adjustments to incorporate credit risk, transaction costs and other adjustments utilizing publicly available rates and indexes. Loans, net are included in the Level 3 fair value category based upon the inputs and valuation techniques used. ~~See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 15: Recent Accounting Pronouncements” for additional information on ASU 2016-01.~~

Other financial assets

Other financial assets consist of accrued interest and fees receivable, and stock in the Federal Home Loan Bank of Boston (“FHLB”) and the Federal Reserve Bank (“FRB”), for which the carrying amount approximates fair value, and these assets are classified as Level 2 measurements.

Deposits

The fair values reported for transaction accounts (demand, NOW, savings, and money market) equal their respective book values reported on the ~~balance sheet~~Consolidated Balance Sheets, and these liabilities are classified as Level 2 measurements. 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 these liabilities are classified as Level 2 measurements.

Securities sold under agreements to repurchase

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

Federal funds purchased, if any

The carrying amounts of federal funds purchased, if any, approximate fair value due to their short-term nature, and therefore, these funds have been classified as Level 2 measurements.

Federal Home Loan Bank borrowings

The fair values reported for FHLB borrowings are 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 measurements.

Junior subordinated debentures

The fair values of the ~~junior~~Junior subordinated debentures issued by Boston Private Capital Trust I and Boston Private Capital Trust II are 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.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Other financial liabilities

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

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

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

Financial instruments with off-balance sheet risk, if any

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,~~Northern California, 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, ~~San Francisco Bay Area,~~Northern California, and Southern California economies and real estate markets.

Beginning in the first quarter of 2020, the Company made a change to the loan portfolio segmentation in which Commercial and industrial and Commercial tax-exempt loans were bifurcated given their different underlying risk characteristics. Beginning in the second quarter of 2020, the Company also added a segment for loans originated under the SBA's Paycheck Protection Program (the "PPP"). For the period ended December 31, 2019, there were no PPP loans as the SBA initiated the program in the second quarter of 2020 in response to the COVID-19 pandemic.

The following table presents a summary of the loan portfolio based on the portfolio segment as of the dates indicated:

September 30, 2019 December 31, 2018
(In thousands)
Commercial and industrial $ 695,029
$ 623,037
Commercial tax-exempt 448,488
451,671
Total commercial and industrial 1,143,517
1,074,708
Commercial real estate 2,533,346
2,395,692
Construction and land 209,741
240,306
Residential 2,964,042
2,948,973
Home equity 84,432
90,421
Consumer and other 132,073
143,058
Total $ 7,067,151
$ 6,893,158

~~In the third quarter of 2019, the Bank sold $92.4 million of the residential loan portfolio for a $0.8 million net gain.~~


	September 30, 2020		December 31, 2019
	(In thousands)
Commercial and industrial	$	583,145	$	694,034
Paycheck Protection Program	371,496		0
Commercial tax-exempt	472,342		447,927

Commercial real estate	2,659,890		2,551,274
Construction and land	211,697		225,983
Residential	2,729,164		2,839,155
Home equity	81,797		83,657
Consumer and other	113,038		134,674
Total	$	7,222,569	$	6,976,704

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

September 30, 2019 December 31, 2018
(In thousands)
Commercial and industrial $ 800
$ 2,554
Commercial tax-exempt —
—
Total commercial and industrial 800
2,554
Commercial real estate —
546
Residential 14,219
7,914
Home equity 2,545
3,031
Consumer and other 1
12
Total $ 17,565
$ 14,057


	September 30, 2020		December 31, 2019
	(In thousands)
Commercial and industrial	$	15,418	$	582

Commercial tax-exempt	3,929		0

Commercial real estate	5,261		0

Residential	16,216		13,993
Home equity	438		1,525
Consumer and other	1		3
Total	$	41,263	$	16,103

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 0no loans 90 days or more past due, but still accruing, as of both September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. 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 (“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.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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

September 30, 2019
Accruing Past Due Nonaccrual Loans
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)
Commercial and industrial $ 554
$ 2,494
$ 3,048
$ 83
$ 186
$ 531
$ 800
$ 691,181
$ 695,029
Commercial tax-exempt —
—
—
—
—
—
—
448,488
448,488
Commercial real estate 497
—
497
—
—
—
—
2,532,849
2,533,346
Construction and land —
—
—
—
—
—
—
209,741
209,741
Residential —
266
266
9,084
301
4,834
14,219
2,949,557
2,964,042
Home equity 74
279
353
991
—
1,554
2,545
81,534
84,432
Consumer and other 15
—
15
1
—
—
1
132,057
132,073
Total $ 1,140
$ 3,039
$ 4,179
$ 10,159
$ 487
$ 6,919
$ 17,565
$ 7,045,407
$ 7,067,151


	September 30, 2020
	Accruing Past Due				Nonaccrual Loans
	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)
Commercial and industrial	$	1,881	$	175	$	2,056	$	12,203	$	226	$	2,989	$	15,418	$	565,671	$	583,145
Paycheck Protection Program	0		0		0		0		0		0		0		371,496		371,496
Commercial tax-exempt	0		0		0		3,929		0		0		3,929		468,413		472,342
Commercial real estate	688		1,535		2,223		5,212		0		49		5,261		2,652,406		2,659,890
Construction and land	0		0		0		0		0		0		0		211,697		211,697
Residential	0		320		320		5,191		3,847		7,178		16,216		2,712,628		2,729,164
Home equity	1,036		0		1,036		0		0		438		438		80,323		81,797
Consumer and other	0		0		0		1		0		0		1		113,037		113,038
Total	$	3,605	$	2,030	$	5,635	$	26,536	$	4,073	$	10,654	$	41,263	$	7,175,671	$	7,222,569

December 31, 2018
Accruing Past Due Nonaccrual Loans
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)
Commercial and industrial $ 9,794
$ —
$ 9,794
$ 979
$ —
$ 1,575
$ 2,554
$ 610,689
$ 623,037
Commercial tax-exempt —
—
—
—
—
—
—
451,671
451,671
Commercial real estate —
—
—
—
—
546
546
2,395,146
2,395,692
Construction and land —
—
—
—
—
—
—
240,306
240,306
Residential 6,477
366
6,843
2,639
716
4,559
7,914
2,934,216
2,948,973
Home equity 252
350
602
—
48
2,983
3,031
86,788
90,421
Consumer and other 17
5,043
5,060
8
4
—
12
137,986
143,058
Total $ 16,540
$ 5,759
$ 22,299
$ 3,626
$ 768
$ 9,663
$ 14,057
$ 6,856,802
$ 6,893,158


	December 31, 2019
	Accruing Past Due				Nonaccrual Loans
	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)
Commercial and industrial	$	828	$	0	$	828	$	0	$	241	$	341	$	582	$	692,624	$	694,034
Commercial tax-exempt	0		0		0		0		0		0		0		447,927		447,927
Commercial real estate	1,420		0		1,420		0		0		0		0		2,549,854		2,551,274
Construction and land	0		0		0		0		0		0		0		225,983		225,983
Residential	19,133		1,038		20,171		9,593		759		3,641		13,993		2,804,991		2,839,155
Home equity	369		0		369		220		148		1,157		1,525		81,763		83,657
Consumer and other	1,008		2,149		3,157		1		0		2		3		131,514		134,674
Total	$	22,758	$	3,187	$	25,945	$	9,814	$	1,148	$	5,141	$	16,103	$	6,934,656	$	6,976,704

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. There could be an increase in these situations as the economic conditions brought on by the COVID-19 pandemic could lead to a decline in collateral values.

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 COVID-19 pandemic has limited the Bank’s ability to obtain updated appraisals. In lieu of appraisals, the Bank may use other valuation techniques in the short-term. The Bank did not use any alternative valuation techniques in the third quarter of 2020.

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 with modified terms under the CARES Act are not considered past due if they are complying with the modified terms.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Credit ~~Quality Indicators~~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 employment levels, general business and 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 is included 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, ~~2018,~~2019, 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. 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~~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 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.

These above credit quality indicators are assigned upon origination with commercial loans reassessed on an annual basis while noncommercial loans are reassessed when the loan becomes past due greater than 90 days or when ad-hoc information becomes available to the loan officer. Further the commercial loan portfolio is subject for selection of an independent review, also on an annual basis. In addition, those loans not considered to be "Pass" rated, are subject to a Loan Committee review on a quarterly basis. Lastly, on an ad-hoc basis as new information becomes available to the loan officer on the credit quality of the borrower, the credit quality indicators are reassessed.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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


	September 30, 2020
	By Loan Grade or Nonaccrual Status
	Pass		Special Mention		Accruing Classified (1)		Nonaccrual Loans		Total
	(In thousands)
Commercial and industrial	$	531,922	$	9,054	$	26,751	$	15,418	$	583,145
Paycheck Protection Program	371,496		0		0		0		371,496
Commercial tax-exempt	458,681		5,229		4,503		3,929		472,342
Commercial real estate	2,426,786		182,526		45,317		5,261		2,659,890
Construction and land	209,297		2,400		0		0		211,697
Residential	2,708,733		0		4,215		16,216		2,729,164
Home equity	80,318		0		1,041		438		81,797
Consumer and other	112,737		300		0		1		113,038
Total	$	6,899,970	$	199,509	$	81,827	$	41,263	$	7,222,569


	December 31, 2019
	By Loan Grade or Nonaccrual Status
	Pass		Special Mention		Accruing Classified (1)		Nonaccrual Loans		Total
	(In thousands)
Commercial and industrial	$	656,364	$	12,101	$	24,987	$	582	$	694,034
Commercial tax-exempt	436,721		7,154		4,052		0		447,927
Commercial real estate	2,495,702		32,014		23,558		0		2,551,274
Construction and land	225,526		457		0		0		225,983
Residential	2,820,909		0		4,253		13,993		2,839,155
Home equity	81,060		0		1,072		1,525		83,657
Consumer and other	134,371		300		0		3		134,674
Total	$	6,850,653	$	52,026	$	57,922	$	16,103	$	6,976,704

______________________

(1) Accruing Classified may include both Substandard and Doubtful classifications.

The following table presents the loan portfolio’s credit risk profile by loan origination year and class of receivable as of the dates indicated:

September 30, 2019
By Loan Grade or Nonaccrual Status
Pass
Special
Mention

Accruing
Classified (1)

Nonaccrual
Loans
Total
(In thousands)
Commercial and industrial $ 656,012
$ 13,084
$ 25,133
$ 800
$ 695,029
Commercial tax-exempt 441,811
2,625
4,052
—
448,488
Commercial real estate 2,460,408
42,124
30,814
—
2,533,346
Construction and land 209,741
—
—
—
209,741
Residential 2,946,823
—
3,000
14,219
2,964,042
Home equity 81,308
300
279
2,545
84,432
Consumer and other 132,072
—
—
1
132,073
Total $ 6,928,175
$ 58,133
$ 63,278
$ 17,565
$ 7,067,151

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	September 30, 2020
	Loan Origination Year By Loan Grade or Nonaccrual Status
	2020		2019		2018		2017		2016		Prior		Revolving		Total
	(In thousands)
Commercial and industrial
Pass	$	73,081	$	89,413	$	79,047	$	16,435	$	24,449	$	54,673	$	194,824	$	531,922
Special Mention	0		1,031		937		698		149		2,792		3,447		9,054
Accruing Classified (1)	1,042		6,313		7,172		2,500		771		269		8,684		26,751
Nonaccrual	0		151		0		12,053		0		12		3,202		15,418
Total	$	74,123	$	96,908	$	87,156	$	31,686	$	25,369	$	57,746	$	210,157	$	583,145
Paycheck Protection Program
Pass	$	371,496	$	0	$	0	$	0	$	0	$	0	$	0	$	371,496



Total	$	371,496	$	0	$	0	$	0	$	0	$	0	$	0	$	371,496
Commercial tax-exempt
Pass	$	53,184	$	18,508	$	40,630	$	24,417	$	119,832	$	202,110	$	0	$	458,681
Special Mention	0		0		0		0		0		5,229		0		5,229
Accruing Classified (1)	0		0		0		0		0		4,503		0		4,503
Nonaccrual	0		0		0		3,929		0		0		0		3,929
Total	$	53,184	$	18,508	$	40,630	$	28,346	$	119,832	$	211,842	$	0	$	472,342
Commercial real estate
Pass	$	207,359	$	459,709	$	261,796	$	320,435	$	380,271	$	709,912	$	87,304	$	2,426,786
Special Mention	22,824		30,630		26,982		21,149		37,414		43,527		0		182,526
Accruing Classified (1)	1,598		31,694		0		0		0		12,025		0		45,317
Nonaccrual	0		5,212		0		0		0		0		49		5,261
Total	$	231,781	$	527,245	$	288,778	$	341,584	$	417,685	$	765,464	$	87,353	$	2,659,890
Construction and land
Pass	$	28,297	$	59,020	$	48,402	$	44,916	$	2,232	$	26,430	$	0	$	209,297
Special Mention	0		0		2,400		0		0		0		0		2,400


Total	$	28,297	$	59,020	$	50,802	$	44,916	$	2,232	$	26,430	$	0	$	211,697
Residential
Pass	$	446,397	$	519,995	$	412,968	$	421,348	$	397,183	$	510,842	$	0	$	2,708,733

Accruing Classified (1)	0		0		0		0		0		4,215		0		4,215
Nonaccrual	0		261		272		2,373		0		13,310		0		16,216
Total	$	446,397	$	520,256	$	413,240	$	423,721	$	397,183	$	528,367	$	0	$	2,729,164
Home equity
Pass	$	0	$	0	$	252	$	0	$	686	$	10,721	$	68,659	$	80,318

Accruing Classified (1)	0		0		0		0		0		1,041		0		1,041
Nonaccrual	0		0		0		0		0		299		139		438
Total	$	0	$	0	$	252	$	0	$	686	$	12,061	$	68,798	$	81,797
Consumer and other
Pass	$	539	$	168	$	31	$	0	$	84	$	731	$	111,184	$	112,737
Special Mention	0		0		0		0		0		0		300		300

Nonaccrual	0		0		0		0		0		0		1		1
Total	$	539	$	168	$	31	$	0	$	84	$	731	$	111,485	$	113,038
Total
Pass	$	1,180,353	$	1,146,813	$	843,126	$	827,551	$	924,737	$	1,515,419	$	461,971	$	6,899,970
Special Mention	22,824		31,661		30,319		21,847		37,563		51,548		3,747		199,509
Accruing Classified (1)	2,640		38,007		7,172		2,500		771		22,053		8,684		81,827
Nonaccrual	0		5,624		272		18,355		0		13,621		3,391		41,263
Total	$	1,205,817	$	1,222,105	$	880,889	$	870,253	$	963,071	$	1,602,641	$	477,793	$	7,222,569

______________________

(1) Accruing Classified may include both Substandard and Doubtful classifications.

December 31, 2018
By Loan Grade or Nonaccrual Status
Pass Special
Mention Accruing
Classified (1) Nonaccrual
Loans Total
(In thousands)
Commercial and industrial $ 581,278
$ 16,213
$ 22,992
$ 2,554
$ 623,037
Commercial tax-exempt 444,835
2,785
4,051
—
451,671
Commercial real estate 2,314,223
53,871
27,052
546
2,395,692
Construction and land 234,647
5,659
—
—
240,306
Residential 2,941,059
—
—
7,914
2,948,973
Home equity 87,390
—
—
3,031
90,421
Consumer and other 143,046
—
—
12
143,058
Total $ 6,746,478
$ 78,528
$ 54,095
$ 14,057
$ 6,893,158

~~______________________~~


~~(1)~~	~~Accruing Classified includes both Substandard and Doubtful classifications.~~

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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 nine months ended September 30, 2019															As of and for the three and nine months ended September 30, 2020
	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		QTD Average Recorded Investment		YTD Average Recorded Investment		QTD Interest Income Recognized while Impaired		YTD Interest Income Recognized while Impaired
	(In thousands)															(In thousands)
With no related allowance recorded:															With no related allowance recorded:
Commercial and industrial	$	479	$	788	n/a		$	1,233	$	1,256	$	192	$	217	Commercial and industrial	$	15,234	$	15,287	n/a		$	6,420	$	2,965	$	1	$	7
Paycheck Protection Program															Paycheck Protection Program	0		0		n/a		0		0		0		0
Commercial tax-exempt	—		—		n/a		—		—		—		—		Commercial tax-exempt	3,929		3,929		n/a		982		393		0		0
Commercial real estate	—		—		n/a		—		55		—		256		Commercial real estate	5,928		6,100		n/a		5,958		4,557		8		25
Construction and land	—		—		n/a		—		—		—		—		Construction and land	0		0		n/a		0		0		0		0
Residential	14,879		15,140		n/a		15,026		13,321		236		476		Residential	16,229		16,489		n/a		16,208		15,984		86		346
Home equity	2,313		2,995		n/a		2,359		2,106		12		13
Home equity (2)															Home equity (2)	390		390		n/a		390		1,086		(3)		7
Consumer and other	—		—		n/a		—		—		—		—		Consumer and other	0		0		n/a		0		0		0		0
Subtotal	$	17,671	$	18,923	n/a		18,618		$	16,738	440		$	962	Subtotal	$	41,710	$	42,195	n/a		29,958		$	24,985	92		$	385
With an allowance recorded:															With an allowance recorded:
Commercial and industrial	$	538	$	539	$	341	491		$	877	3		$	23	Commercial and industrial	$	185	$	199	$	83	208		$	248	$	0	$	1
Paycheck Protection Program															Paycheck Protection Program	0		0		0		0		0		0		0
Commercial tax-exempt	—		—		—		—		—		—		—		Commercial tax-exempt	0		0		0		0		0		0		0
Commercial real estate	—		—		—		—		—		—		—		Commercial real estate	49		50		49		37		15		0		0
Construction and land	—		—		—		—		—		—		—		Construction and land	0		0		0		0		0		0		0
Residential	2,059		2,059		712		1,419		1,017		5		18		Residential	427		427		56		502		521		3		9
Home equity	279		279		23		276		626		1		2		Home equity	260		260		17		261		266		2		6
Consumer and other	—		—		—		—		—		—		—		Consumer and other	0		0		0		0		0		0		0
Subtotal	$	2,876	$	2,877	$	1,076	$	2,186	$	2,520	$	9	$	43	Subtotal	$	921	$	936	$	205	$	1,008	$	1,050	$	5	$	16
Total:															Total:
Commercial and industrial	$	1,017	$	1,327	$	341	$	1,724	$	2,133	$	195	$	240	Commercial and industrial	$	15,419	$	15,486	$	83	$	6,628	$	3,213	$	1	$	8
Paycheck Protection Program															Paycheck Protection Program	0		0		0		0		0		0		0
Commercial tax-exempt	—		—		—		—		—		—		—		Commercial tax-exempt	3,929		3,929		0		982		393		0		0
Commercial real estate	—		—		—		—		55		—		256		Commercial real estate	5,977		6,150		49		5,995		4,572		8		25
Construction and land	—		—		—		—		—		—		—		Construction and land	0		0		0		0		0		0		0
Residential	16,938		17,199		712		16,445		14,338		241		494		Residential	16,656		16,916		56		16,710		16,505		89		355
Home equity	2,592		3,274		23		2,635		2,732		13		15
Home equity (2)															Home equity (2)	650		650		17		651		1,352		(1)		13
Consumer and other	—		—		—		—		—		—		—		Consumer and other	0		0		0		0		0		0		0
Total	$	20,547	$	21,800	$	1,076	$	20,804	$	19,258	$	449	$	1,005	Total	$	42,631	$	43,131	$	205	$	30,966	$	26,035	$	97	$	401

_____________________


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

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

(2)Negative quarterly income is due to reversal of income recognized in prior quarter.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	As of and for the three and nine months ended September 30, 2018															As of and for the three and nine months ended September 30, 2019
	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		QTD Average Recorded Investment		YTD Average Recorded Investment		QTD Interest Income Recognized while Impaired		YTD Interest Income Recognized while Impaired
	(In thousands)															(In thousands)
With no related allowance recorded:															With no related allowance recorded:
Commercial and industrial	$	1,150	$	2,083	n/a		$	1,617	$	1,730	$	33	$	55	Commercial and industrial	$	479	$	788	n/a		$	1,233	$	1,256	$	192	$	217
Commercial tax-exempt	—		—		n/a		—		—		—		—		Commercial tax-exempt	0		0		n/a		0		0		0		0
Commercial real estate	1,625		2,966		n/a		2,526		2,439		583		633		Commercial real estate	0		0		n/a		0		55		0		256
Construction and land	—		—		n/a		—		66		—		16		Construction and land	0		0		n/a		0		0		0		0
Residential	7,097		7,457		n/a		10,102		10,002		146		335		Residential	14,879		15,140		n/a		15,026		13,321		236		476
Home equity	—		—		n/a		—		1,056		—		24		Home equity	2,313		2,995		n/a		2,359		2,106		12		13
Consumer and other	—		—		n/a		—		—		—		—		Consumer and other	0		0		n/a		0		0		0		0
Subtotal	$	9,872	$	12,506	n/a		$	14,245	$	15,293	$	762	$	1,063	Subtotal	$	17,671	$	18,923	n/a		$	18,618	$	16,738	$	440	$	962
With an allowance recorded:															With an allowance recorded:
Commercial and industrial	$	1,635	$	1,638	$	577	$	625	$	322	$	4	$	6	Commercial and industrial	$	538	$	539	$	341	$	491	$	877	$	3	$	23
Commercial tax-exempt	—		—		—		—		—		—		—		Commercial tax-exempt	0		0		0		0		0		0		0
Commercial real estate	—		—		—		4,045		5,314		476		704		Commercial real estate	0		0		0		0		0		0		0
Construction and land	—		—		—		—		—		—		—		Construction and land	0		0		0		0		0		0		0
Residential	682		681		74		734		787		5		17		Residential	2,059		2,059		712		1,419		1,017		5		18
Home equity	1,769		1,769		596		1,769		729		1		1		Home equity	279		279		23		276		626		1		2
Consumer and other	—		—		—		—		13		—		3		Consumer and other	0		0		0		0		0		0		0
Subtotal	$	4,086	$	4,088	$	1,247	$	7,173	$	7,165	$	486	$	731	Subtotal	$	2,876	$	2,877	$	1,076	$	2,186	$	2,520	$	9	$	43
Total:															Total:
Commercial and industrial	$	2,785	$	3,721	$	577	$	2,242	$	2,052	$	37	$	61	Commercial and industrial	$	1,017	$	1,327	$	341	$	1,724	$	2,133	$	195	$	240
Commercial tax-exempt	—		—		—		—		—		—		—		Commercial tax-exempt	0		0		0		0		0		0		0
Commercial real estate	1,625		2,966		—		6,571		7,753		1,059		1,337		Commercial real estate	0		0		0		0		55		0		256
Construction and land	—		—		—		—		66		—		16		Construction and land	0		0		0		0		0		0		0
Residential	7,779		8,138		74		10,836		10,789		151		352		Residential	16,938		17,199		712		16,445		14,338		241		494
Home equity	1,769		1,769		596		1,769		1,785		1		25		Home equity	2,592		3,274		23		2,635		2,732		13		15
Consumer and other	—		—		—		—		13		—		3		Consumer and other	0		0		0		0		0		0		0
Total	$	13,958	$	16,594	$	1,247	$	21,418	$	22,458	$	1,248	$	1,794	Total	$	20,547	$	21,800	$	1,076	$	20,804	$	19,258	$	449	$	1,005

_____________________


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

(1)Recorded investment represents the client loan balance net of historical charge-offs and historical nonaccrual interest paid, if applicable, 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, 2018											As of and for the year ended December 31, 2019
	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:											With no related allowance recorded:
Commercial and industrial	$	1,435	$	2,397	n/a		$	1,614	$	69	Commercial and industrial	$	470	$	553	n/a		$	1,062	$	268
Commercial tax-exempt	—		—		n/a		—		—		Commercial tax-exempt	0		0		n/a		0		0
Commercial real estate	546		900		n/a		2,002		1,544		Commercial real estate	733		733		n/a		155		262
Construction and land	—		—		n/a		50		16		Construction and land	0		0		n/a		0		0
Residential	8,403		8,764		n/a		9,638		408		Residential	15,362		15,622		n/a		13,700		636
Home equity	990		990		n/a		1,041		24		Home equity	1,557		2,119		n/a		2,095		35
Consumer and other	—		—		n/a		—		—		Consumer and other	0		0		n/a		0		0
Subtotal	$	11,374	$	13,051	n/a		$	14,345	$	2,061	Subtotal	$	18,122	$	19,027	n/a		$	17,012	$	1,201
With an allowance recorded:											With an allowance recorded:
Commercial and industrial	$	1,770	$	1,972	$	598	$	631	$	15	Commercial and industrial	$	254	$	254	$	146	$	736	$	33
Commercial tax-exempt	—		—		—		—		—		Commercial tax-exempt	0		0		0		0		0
Commercial real estate	—		—		—		4,087		705		Commercial real estate	0		0		0		0		0
Construction and land	—		—		—		—		—		Construction and land	0		0		0		0		0
Residential	780		780		75		785		22		Residential	538		538		67		1,130		23
Home equity	1,719		1,719		562		959		11		Home equity	273		273		22		545		4
Consumer and other	—		—		—		10		3		Consumer and other	0		0		0		0		0
Subtotal	$	4,269	$	4,471	$	1,235	$	6,472	$	756	Subtotal	$	1,065	$	1,065	$	235	$	2,411	$	60
Total:											Total:
Commercial and industrial	$	3,205	$	4,369	$	598	$	2,245	$	84	Commercial and industrial	$	724	$	807	$	146	$	1,798	$	301
Commercial tax-exempt	—		—		—		—		—		Commercial tax-exempt	0		0		0		0		0
Commercial real estate	546		900		—		6,089		2,249		Commercial real estate	733		733		0		155		262
Construction and land	—		—		—		50		16		Construction and land	0		0		0		0		0
Residential	9,183		9,544		75		10,423		430		Residential	15,900		16,160		67		14,830		659
Home equity	2,709		2,709		562		2,000		35		Home equity	1,830		2,392		22		2,640		39
Consumer and other	—		—		—		10		3		Consumer and other	0		0		0		0		0
Total	$	15,643	$	17,522	$	1,235	$	20,817	$	2,817	Total	$	19,187	$	20,092	$	235	$	19,423	$	1,261

(1)Recorded investment represents the client loan balance net of historical charge-offs and historical nonaccrual interest paid, if applicable, 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.

On March 22, 2020, regulators issued an interagency statement encouraging financial institutions to work with borrowers affected by the COVID-19 pandemic. The interagency statement also provided additional information regarding loan modifications. The regulators indicated they will not criticize institutions for working with borrowers in a safe and sound manner and have indicated that related modifications will not automatically result in a TDR. The regulators also provided supervisory views that loans modified under this program would not be considered past due or nonaccrual.

The regulators view prudent loan modification programs offered to financial institution customers affected by the COVID-19 pandemic as positive and proactive actions that can manage adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk. The statement indicated that short-term modifications made on a good faith basis in response to the COVID-19 pandemic to borrowers who were current prior to any relief are not TDRs.

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 either 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~~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.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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~~Allowance for loan losses analysis.

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

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

As of September 30, ~~2019,~~2020, the Bank has pledged ~~$2.6~~$2.3 billion of loans in a blanket lien agreement with the FHLB. The Bank also has ~~$437.2~~$360.5 million of loans pledged as collateral at the FRB for access to their discount window. As of December 31, ~~2018,~~2019, the Bank had pledged ~~$2.6~~$2.5 billion of loans to the FHLB and ~~$540.0~~$395.3 million of loans at the FRB.

The Bank may, under certain circumstances, restructure loans as a concession to borrowers who are experiencing financial difficulty. These loans are outside of the guidelines to not be considered a TDR by recent regulatory guidance. 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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, TDRs totaled ~~$9.5~~$14.5 million and ~~$8.0~~$12.6 million, respectively. As of September 30, ~~2019, $6.9~~2020, $7.8 million of the ~~$9.5~~$14.5 million in TDRs were on accrual status. As of December 31, ~~2018, $3.8~~2019, $7.1 million of the ~~$8.0~~$12.6 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~~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~~Prior to the ~~result~~adoption of ~~the impairment analysis, there could be an increase~~ASU 2016-13 on January 1, 2020, a general or ~~decrease in the related allowance for loan losses.~~allocated reserve would have been applied. 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~~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:


	As of and for the three months ended September 30, 2020
	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
	(In thousands, except number of loans)
Commercial and industrial	0	$	0	$	0	1	$	49





Home equity	0	0		0		1	251

Total	0	$	0	$	0	2	$	300


	As of and for the nine months ended September 30, 2020
	Restructured Year to Date					TDRs that defaulted in the 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
	(In thousands, except number of loans)
Commercial and industrial (1)	1	$	50	$	50	1	$	49




Residential (2)	1	2,373		2,373		1	1,562
Home equity	0	0		0		1	251

Total	2	$	2,423	$	2,423	3	$	1,862

(1)Represents the following type of concession: extension of maturity and reduction in interest rate.

(2)Represents the following type of concession: payment deferral.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	As of and for the nine months ended September 30, 2019
	Restructured Year to Date					TDRs that defaulted in the 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
	(In thousands, except number of loans)
Commercial and industrial	1	$	179	$	179	0	$	0



Residential	2	3,222		3,227		0	0
Home equity	1	274		283		0	0

Total	4	$	3,675	$	3,689	0	$	0

TDRs that defaulted in the Year to Date that were restructured

in prior twelve months

As of and for the three and nine months ended September 30, 2019
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
(In thousands, except number of loans)
Commercial and industrial 1
$ 179
—
$ —
—
$ —
—
$ —
1
$ 179
Commercial real estate —
—
—
—
—
—
—
—
—
—
Construction and land —
—
—
—
—
—
—
—
—
—
Residential —
—
2
3,227
—
—
—
—
2
3,227
Home equity —
—
1
283
—
—
—
—
1
283
Consumer and other —
—
—
—
—
—
—
—
—
—


	As of and for the nine months ended September 30, 2019
	Extension of term			Temporary rate reduction			Payment deferral			Combination of concessions			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
	(In thousands, except number of loans)
Commercial and industrial	1	$	179	0	$	0	0	$	0	0	$	0	1	$	179



Residential	0	0		2	3,227		0	0		0	0		2	3,227
Home equity	0	0		1	283		0	0		0	0		1	283

	1	$	179	3	$	3,510	0	$	0	0	$	0	4	$	3,689

There were no loans that were restructured or defaulted during the three months ended September 30, 2019.

In response to the COVID-19 pandemic, the Bank initiated a mortgage deferment program under which principal and interest payments on qualifying loans are generally deferred for initially three months and the loan term is extended three months; if requested, the loan may be deferred for a subsequent three months. Loans that are deferred under the program are not considered TDRs or past due based on current regulatory guidance. In total, approximately 350 Residential and Home equity loans totaling approximately $220.0 million have been processed under the program. As of September 30, 2020, approximately 140 loans totaling approximately $100.0 million remain in deferral under the program.

Additionally, in response to the COVID-19 pandemic, the Bank initiated a program where it offered qualified Commercial and industrial borrowers principal payment deferrals for six months, with the deferred principal added to the last payment. In total, approximately 90 Commercial and industrial loans totaling approximately $125.0 million have been processed under the program. As of September 30, 2020, approximately 30 loans totaling approximately $50.0 million remain in deferral under the program.

Loan participations serviced for others and loans serviced for others are not included in the Company’s total loans.

The following table presents a summary of the loan participations serviced for others and loans serviced for others based on class of receivable as of the dates indicated:

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

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

September 30, 2019 December 31, 2018
(In thousands)
Commercial and industrial $ 14,358
$ 8,024
Commercial tax-exempt 18,711
19,105
Commercial real estate 34,816
60,688
Construction and land 23,133
39,966
Total loan participations serviced for others $ 91,018
$ 127,783

Residential $ 119,389
$ 33,168
Total loans serviced for others $ 119,389
$ 33,168


	September 30, 2020		December 31, 2019
	(In thousands)
Commercial and industrial	$	42,759	$	14,533

Commercial tax-exempt	17,724		18,101
Commercial real estate	130,164		121,929
Construction and land	83,059		75,451
Total loan participations serviced for others	$	273,706	$	230,014

Residential	$	185,638	$	204,696
Total loans serviced for others	$	185,638	$	204,696

Total loans include deferred loan origination (fees)/costs, net, of ~~$8.4~~$(1.1) million and ~~$8.5~~$8.1 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The change in the balance of loan origination (fees)/costs, net, from December 31, 2019 to September 30, 2020 was primarily driven by the addition of $10.9 million of PPP loan origination fees in the second quarter of 2020.

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 established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. Loan losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. Subsequent recoveries, if any, are credited to the allowance when collected.

Under the CECL methodology, which the Company adopted on January 1, 2020, the Company estimates credit losses on a collective basis per segment for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address risks not incorporated in the quantitative model output. The quantitative model utilizes a factor-based approach to estimate expected credit losses using probability of default and loss given default, which are derived from a selected peer group's historical default and loss experience. The model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of estimated prepayments and curtailments on the remaining portfolio segment balance over the life of the portfolio. Reasonable and supportable economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the historical long-run average of the macroeconomic variables. Management has determined a reasonable and supportable period of two years and a straight line reversion period of twelve months to be appropriate for purposes of estimating expected credit losses. Management also applies a weight to the various forecasts chosen to determine the reasonable and supportable economic forecasts. The Company's qualitative assessment is based on factors outlined in regulatory guidance and include the following:

• Volume and trend of past-due, nonaccrual, and adversely-graded loans

• Trends in volume and terms of loans

• Concentration risk

• Experience and depth of management

• Risk surrounding lending policy and underwriting standards

• Risk surrounding loan review

• Banking industry conditions, other external factors, and inherent model risk

Loans that no longer share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company will use either a discounted cash flow approach or a fair value of collateral approach. The latter approach will be used for loans deemed to be collateral dependent or when foreclosure is probable.

Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within Accrued interest receivable on the Consolidated Balance Sheets. Management has elected not to measure an allowance for credit losses on these amounts as the Company employs a timely write-off policy as generally any loan over 89 days past-due is put on non-accrual status and any associated accrued interest is reversed.

For periods disclosed prior to the adoption of ASU 2016-13 as of January 1, 2020, the Allowance for loan losses was determined under the incurred loss model. Refer to "Note 1: Basis of Presentation and Summary of Significant Account Policies" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for a description of the methodology.

The Allowance for loan losses, which is reported as a reduction of outstanding loan balances, totaled ~~$75.4~~$84.6 million and ~~$75.3~~$72.0 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~The following tables present a summary of the changes~~Beginning in the first quarter of 2020, the Company made a change to the loan portfolio segmentation as it relates to the Allowance for loan losses in which Commercial and industrial and Commercial tax-exempt loans were bifurcated given their different underlying risk characteristics. For the periods ended September 30, 2019, the Provision/(credit) for loan losses and related allowance balance in the Allowance for loan losses for tax-exempt Commercial and industrial loans is included with Commercial and industrial loans. Beginning in the second quarter of 2020, the Company made a change to the loan portfolio segmentation as it relates to the Allowance for loan losses, adding the segment Paycheck Protection Program. For the periods ~~indicated:~~ended September 30, 2019, there were no loans in this segment as the SBA initiated the program in the second quarter of 2020 in response to the COVID-19 pandemic.

As of and for the three months ended September 30, As of and for the nine months ended September 30,
2019 2018 2019 2018
(In thousands)
Allowance for loan losses, beginning of period:
Commercial and industrial $ 16,082
$ 12,381
$ 15,912
$ 11,735
Commercial real estate 43,741
45,183
41,934
46,820
Construction and land 4,780
4,613
6,022
4,949
Residential 9,555
9,804
10,026
9,773
Home equity 805
1,336
1,284
835
Consumer and other 104
147
134
630
Total allowance for loan losses, beginning of period 75,067
73,464
75,312
74,742
Loans charged-off:
Commercial and industrial (180 ) —
(375 ) (339 )
Commercial real estate —
—
—
(135 )
Construction and land —
—
—
—
Residential —
—
—
(16 )
Home equity —
—
(562 ) —
Consumer and other (5 ) —
(7 ) (39 )
Total charge-offs (185 ) —
(944 ) (529 )

Recoveries on loans previously charged-off:
Commercial and industrial 275
153
503
387
Commercial real estate 27
820
246
995
Construction and land —
—
—
—
Residential —
—
100
27
Home equity 6
—
6
1
Consumer and other 2
12
32
168
Total recoveries 310
985
887
1,578
Provision/ (credit) for loan losses:
Commercial and industrial 361
1,921
498
2,672
Commercial real estate (762 ) (3,179 ) 826
(4,856 )
Construction and land 6
172
(1,236 ) (164 )
Residential 617
144
46
164
Home equity (57 ) 6
26
506
Consumer and other 2
(13 ) (56 ) (613 )
Total provision/(credit) for loan losses 167
(949 ) 104
(2,291 )

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table presents a summary of the changes in the Allowance for loan losses for the periods indicated:


	As of and for the three months ended September 30,				As of and for the nine months ended September 30,
	2020		2019		2020		2019
	(In thousands)
Allowance for loan losses, beginning of period:
Commercial and industrial	$	9,559	$	16,082	$	10,048	$	15,912
Paycheck Protection Program	190		n/a		0		n/a
Commercial tax-exempt	2,486		n/a		6,016		n/a
Commercial real estate	47,675		43,741		40,765		41,934
Construction and land	9,524		4,780		5,119		6,022
Residential	17,765		9,555		8,857		10,026
Home equity	439		805		778		1,284
Consumer and other	1,686		104		399		134
Total allowance for loan losses, beginning of period	$	89,324	$	75,067	$	71,982	$	75,312


Impact of adopting ASU 2016-13:
Commercial and industrial	n/a		n/a		$	(565)	n/a
Paycheck Protection Program	n/a		n/a		0		n/a
Commercial tax-exempt	n/a		n/a		(4,409)		n/a
Commercial real estate	n/a		n/a		(14,455)		n/a
Construction and land	n/a		n/a		(2,158)		n/a
Residential	n/a		n/a		685		n/a
Home equity	n/a		n/a		(535)		n/a
Consumer and other	n/a		n/a		1,052		n/a
Total impact of adopting ASU 2016-13	n/a		n/a		$	(20,385)	n/a

Allowance for loan losses, beginning of period, net	$	89,324	$	75,067	$	51,597	$	75,312
Provision/(credit) for loan losses:
Commercial and industrial	$	(10)	$	361	$	876	$	498
Paycheck Protection Program	0		n/a		190		n/a
Commercial tax-exempt	398		n/a		1,277		n/a
Commercial real estate	(374)		(762)		20,991		826
Construction and land	(1,166)		6		5,397		(1,236)
Residential	(3,026)		617		5,197		46
Home equity	11		(57)		1,232		26
Consumer and other	(402)		2		(163)		(56)
Total provision/(credit) for loan losses	$	(4,569)	$	167	$	34,997	$	104

As of and for the three months ended September 30, As of and for the nine months ended September 30,
2019 2018 2019 2018
(In thousands)
Allowance for loan losses, end of period:
Commercial and industrial 16,538
14,455
16,538
14,455
Commercial real estate 43,006
42,824
43,006
42,824
Construction and land 4,786
4,785
4,786
4,785
Residential 10,172
9,948
10,172
9,948
Home equity 754
1,342
754
1,342
Consumer and other 103
146
103
146
Total allowance for loan losses, end of period $ 75,359
$ 73,500
$ 75,359
$ 73,500

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	As of and for the three months ended September 30,				As of and for the nine months ended September 30,
	2020		2019		2020		2019
	(In thousands)
Loans charged -off:
Commercial and industrial	$	(172)	$	(180)	$	(1,079)	$	(375)
Paycheck Protection Program	0		n/a		0		n/a
Commercial tax-exempt	0		n/a		0		n/a
Commercial real estate	0		0		0		0
Construction and land	0		0		0		0
Residential	0		0		0		0
Home equity	0		0		(1,157)		(562)
Consumer and other	(73)		(5)		(83)		(7)
Total charge-offs	$	(245)	$	(185)	$	(2,319)	$	(944)

Recoveries on loans previously charged-off:
Commercial and industrial	$	36	$	275	$	133	$	503
Paycheck Protection Program	0		n/a		0		n/a
Commercial tax-exempt	0		n/a		0		n/a
Commercial real estate	0		27		0		246
Construction and land	0		0		0		0
Residential	0		0		0		100
Home equity	0		6		132		6
Consumer and other	5		2		11		32
Total recoveries	$	41	$	310	$	276	$	887

Allowance for loan losses, end of period:
Commercial and industrial	$	9,413	$	16,538	$	9,413	$	16,538
Paycheck Protection Program	190		n/a		190		n/a
Commercial tax-exempt	2,884		n/a		2,884		n/a
Commercial real estate	47,301		43,006		47,301		43,006
Construction and land	8,358		4,786		8,358		4,786
Residential	14,739		10,172		14,739		10,172
Home equity	450		754		450		754
Consumer and other	1,216		103		1,216		103
Total allowance for loan losses, end of period	$	84,551	$	75,359	$	84,551	$	75,359

The balance of the Allowance for loan losses of $84.6 million as of September 30, 2020 represents an increase of $12.6 million from December 31, 2019. During the three and nine months ended September 30, 2020, the Company recognized a Provision credit of $4.6 million and a Provision expense of $35.0 million, respectively. The decrease in the Allowance for loan losses for the three months ended September 30, 2020 was primarily driven by the latest current reasonable and supportable economic forecasts, which indicated a modest improvement from the prior quarter, as well as the net impact of the change in the composition and volume of the loan portfolio. These improvements were partially offset by the net impact in the changes of the qualitative factors, and a change in the weighting of the forecast scenarios used to account for risks and assumptions not incorporated in the forecasts, including consideration for the significant uncertainty related to the duration and severity of economic impacts from the COVID-19 pandemic. The increase in Allowance for loan losses for the nine months ended September 30, 2020 was primarily driven by the change in allowance methodology from the incurred loss model to the current expected credit loss model, as well as the current reasonable and supportable economic forecast deterioration as a result of the COVID-19 pandemic, and the net change in qualitative factors to account for risks and assumptions related to our loan portfolio not incorporated in the forecasts.

The balance of reserve for unfunded loan commitments of $8.9 million as of September 30, 2020 represents an increase of $7.8 million from December 31, 2019. The change was driven by an increase in the reserve ratios as a result of the current reasonable and supportable economic forecasts due to the COVID-19 pandemic as well as an increase in the balance of loan commitments. Changes in the balance of reserve for unfunded loan commitments are recognized as Other expense within Total operating expense.

Upon the adoption of ASU 2016-13 on January 1, 2020, the Company recognized a decrease in the Allowance for loan losses of $20.4 million. The adoption amount was driven primarily by the portfolio composition, the short-term nature of many commercial loans, estimated prepayments and curtailments, a change to the loan portfolio segmentation in which Commercial and industrial and Commercial tax-exempt loans were bifurcated given the different underlying risk characteristics, and reasonable and supportable economic forecasts at the time of adoption.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Upon the adoption of ASU 2016-13 on January 1, 2020, the Company recognized an increase in the reserve of $1.4 million in the unfunded loan commitments. The net, after-tax impact of the $20.4 million decrease in the Allowance for loan losses and the $1.4 million increase in the reserve for unfunded loan commitments was an increase to Retained earnings of $13.5 million.

The Allowance for loan losses is an estimate of the inherent risk of loss in the loan portfolio as of the consolidated balance sheet dates. Management estimates the level of the allowance based on all relevant information available. Changes to the required level in the allowance result in either a provision for loan loss expense, if an increase is required, or a credit to the provision, if a decrease is required. Loan losses are charged to the allowance when available information confirms that specific loans, or portions thereof, are uncollectible. Recoveries on loans previously charged-off are credited to the allowance when received in cash or when the Bank takes possession of other assets.

The provision/ (credit) for loan losses and related allowance balance in the allowance for loan losses for tax-exempt commercial and industrial loans is included with commercial and industrial loans. The provision/ (credit) for loan losses and related allowance balance in the allowance for loan losses for tax-exempt commercial real estate loans is included with commercial real estate loans. 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~~Allowance for loan losses and loan portfolio as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 by portfolio segment, disaggregated by method of impairment analysis. The Company had 0 loans acquired with deteriorated credit quality as of September 30, ~~2019~~2020 or December 31, ~~2018.~~2019.


	September 30, 2020
	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
	(In thousands)
Commercial and industrial	$	15,419	$	83	$	567,726	$	9,330	$	583,145	$	9,413
Paycheck Protection Program	0		0		371,496		190		371,496		190
Commercial tax-exempt	3,929		0		468,413		2,884		472,342		2,884
Commercial real estate	5,977		49		2,653,913		47,252		2,659,890		47,301
Construction and land	0		0		211,697		8,358		211,697		8,358
Residential	16,656		56		2,712,508		14,683		2,729,164		14,739
Home equity	650		17		81,147		433		81,797		450
Consumer and other	0		0		113,038		1,216		113,038		1,216
Total	$	42,631	$	205	$	7,179,938	$	84,346	$	7,222,569	$	84,551


	December 31, 2019
	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
	(In thousands)
Commercial and industrial	$	724	$	146	$	1,141,237	$	15,918	$	1,141,961	$	16,064

Commercial real estate	733		0		2,550,541		40,765		2,551,274		40,765
Construction and land	0		0		225,983		5,119		225,983		5,119
Residential	15,900		67		2,823,255		8,790		2,839,155		8,857
Home equity	1,830		22		81,827		756		83,657		778
Consumer and other	0		0		134,674		399		134,674		399
Total	$	19,187	$	235	$	6,957,517	$	71,747	$	6,976,704	$	71,982

September 30, 2019

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
(In thousands)
Commercial and industrial $ 1,017
$ 341
$ 1,142,500
$ 16,197
$ 1,143,517
$ 16,538
Commercial real estate —
—
2,533,346
43,006
2,533,346
43,006
Construction and land —
—
209,741
4,786
209,741
4,786
Residential 16,938
712
2,947,104
9,460
2,964,042
10,172
Home equity 2,592
23
81,840
731
84,432
754
Consumer and other —
—
132,073
103
132,073
103
Total $ 20,547
$ 1,076
$ 7,046,604
$ 74,283
$ 7,067,151
$ 75,359

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

December 31, 2018

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
(In thousands)
Commercial and industrial $ 3,205
$ 598
$ 1,071,503
$ 15,314
$ 1,074,708
$ 15,912
Commercial real estate 546
—
2,395,146
41,934
2,395,692
41,934
Construction and land —
—
240,306
6,022
240,306
6,022
Residential 9,183
75
2,939,790
9,951
2,948,973
10,026
Home equity 2,709
562
87,712
722
90,421
1,284
Consumer and other —
—
143,058
134
143,058
134
Total $ 15,643
$ 1,235
$ 6,877,515
$ 74,077
$ 6,893,158
$ 75,312

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. 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. As a service to its customers, the Company may utilize derivative instruments including customer foreign exchange forward contracts to manage its foreign exchange risk, if any.

The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the ~~consolidated balance sheets~~Consolidated Balance Sheets as of September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

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

The following table presents the effect of the Company’s derivative financial instruments on Accumulated other comprehensive income for the three and nine months ended September 30, 2020 and 2019:


Derivatives in cash flow hedging relationships	Amount of gain or (loss) recognized in OCI on derivatives				Location of gain or (loss) reclassified from accumulated OCI into income	Amount of gain or (loss) reclassified from accumulated OCI into income
	Three months ended September 30,					Three months ended September 30,
	2020		2019			2020		2019
	(In thousands)					(In thousands)
Interest rate swaps	$	285	$	1	Interest income/(expense)	$	284	$	6
Total	$	285	$	1		$	284	$	6


Derivatives in cash flow hedging relationships	Amount of gain or (loss) recognized in OCI on derivatives				Location of gain or (loss) reclassified from accumulated OCI into income	Amount of gain or (loss) reclassified from accumulated OCI into income
	Nine months ended September 30,					Nine months ended September 30,
	2020		2019			2020		2019
	(In thousands)					(In thousands)
Interest rate swaps	$	(141)	$	(46)	Interest income/(expense)	$	132	$	508
Total	$	(141)	$	(46)		$	132	$	508

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 on accumulated other comprehensive income for the three and nine months ended September 30, 2019 and 2018:~~

Derivatives in cash
flow hedging
relationships
Amount of gain or (loss) recognized in OCI on derivatives
Location of gain
or (loss) reclassified
from accumulated
OCI into income
Amount of gain or (loss) reclassified from accumulated OCI into income
Three months ended September 30, Three months ended September 30,
2019 2018 2019 2018
(In thousands) (In thousands)
Interest rate swaps $ 1
$ (193 ) Interest expense $ 6
$ 101
Total $ 1
$ (193 ) $ 6
$ 101

~~____________________~~

The following table presents the effect of the Company’s derivative financial instruments in the Consolidated ~~Statement~~Statements of Operations for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

Location of gain or (loss) reclassified from accumulated
OCI into income
Amount of gain or
(loss) recognized in
income on cash flow
hedging relationships
Amount of gain or
(loss) recognized in
income on cash flow
hedging relationships
Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands)
Total amounts of income and (expense) line items presented in the statement of operations in which the effects of fair value or cash flow hedges are recorded Interest expense $ 6
$ 101
$ 508
$ 385
The effects of cash flow hedging:
Gain or (loss) on cash flow hedging relationships
in ASC 815

Interest contracts - amount of gain or (loss) reclassified from accumulated other comprehensive income into income Interest expense $ 6
$ 101
$ 508
$ 385


	Location of gain or (loss) reclassified from accumulated OCI into income	Amount of gain or (loss) recognized in income on cash flow hedging relationships				Amount of gain or (loss) recognized in income on cash flow hedging relationships
		Three months ended September 30,				Nine months ended September 30,
		2020		2019		2020		2019
		(In thousands)
Total amounts of income and (expense) line items presented in the Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded	Interest income/(expense)	$	284	$	6	$	132	$	508
The effects of cash flow hedging:
Gain or (loss) on cash flow hedging relationships in ASC 815
Interest contracts - amount of gain or (loss) reclassified from Accumulated other comprehensive income into income	Interest income/(expense)	$	284	$	6	$	132	$	508

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 September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

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 September 30, ~~2019~~2020 and December 31, ~~2018.~~

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

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

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 September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the termination amounts related to collateral determinations of derivatives in a liability position were ~~$48.7~~$94.1 million and ~~$2.2~~$35.7 million, respectively. The ~~Company~~Bank has minimum collateral posting thresholds with its derivative counterparties. As of September 30, 2020 and December 31, 2019,, the ~~Company~~Bank had pledged securities with a market value of ~~$51.8~~$90.5 million and $40.0 million, respectively, against its obligations under these agreements. ~~As of~~ ~~December 31, 2018, the Company had 0 pledged securities.~~ The collateral posted is typically greater than the current liability 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~~flow hedges of ~~Interest Rate Risk~~interest rate risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. ~~The Company~~

To accomplish this objective and strategy, the Bank has ~~utilized~~entered into one interest rate ~~derivatives in the past, but~~swap during 2020 with an effective date of April 14, 2020. The interest rate swap is designated as ~~of September 30, 2019, there were no active~~a cash flow ~~hedges.~~hedge and involves the receipt of variable rate amounts from a counterparty in exchange for the Bank making fixed payments.

The one interest rate swap entered into during 2020 has a notional amount of $100 million and a term of eighteen months from its respective effective date. The interest rate swap will effectively fix the Bank's interest payments on $100 million of rolling three month FHLB advances at a rate of 0.48%.

Per ASU 2017-12, for derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in ~~accumulated~~Accumulated other comprehensive income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. For active cash flow hedges, a portion of the balance reported in ~~accumulated~~Accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made or received on the ~~Company’s~~Bank’s interest rate swaps.

Non-designated ~~Hedges~~hedges

Derivatives not designated as hedges are not speculative and result from 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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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 nonperformance 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~~Statements of Operations in ~~other~~Other income. The Bank has interest rate swaps and caps related to this program with an aggregate notional amount of ~~$1.5~~$1.7 billion as of September 30, ~~2019~~2020 and ~~$1.3~~$1.6 billion as of December 31, ~~2018.~~2019. As of September 30, 2020 and December 31, 2019, there were 0 foreign currency exchange contracts ~~and as of December 31, 2018, there were foreign currency exchange contracts with an aggregate notional amount of $0.1 million~~ related to this program.

In addition, as a participant lender, the Bank has guaranteed performance on the pro-rated portion of swaps executed by other financial institutions. As the participant lender, the Bank is providing a partial guarantee, but is not a direct party to the related swap transactions. The Bank has no obligations under the risk participation 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 transactions entered into as part of these agreements are not designated, as per ASC 815, as qualifying hedging relationships and are, therefore, marked-to-market through earnings each period. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were 7 of these risk participation transactions with an aggregate notional amount of ~~$59.1~~$57.7 million and ~~$59.8~~$58.8 million, respectively.

The Bank has also participated out to other financial institutions a pro-rated portion of swaps executed by the Bank. The other financial institution has no obligations under the risk participation agreements unless the borrowers default on their swap transactions with the Bank and the swaps are in liability positions to the borrower. In 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 transactions entered into as part of these agreements are not designated, as per ASC 815, as qualifying hedging relationships and are, therefore, marked-to-market through earnings each period. As of September 30, ~~2019 and~~2020, there were 5 of these risk participation transactions with an aggregate notional amount of $30.3 million. As of December 31, ~~2018,~~2019, there were 4 of these risk participation transactions with an aggregate notional amount of ~~$20.6 million and $20.7 million, respectively.~~$20.5 million.

The following table presents the effect of the Bank’s derivative financial instruments not designated as hedging instruments in the Consolidated ~~Statement~~Statements of Operations for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

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


		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 September 30,				Nine months ended September 30,
		2020		2019		2020		2019
		(In thousands)
Interest rate swaps	Other income/(expense)	$	(568)	$	(289)	$	(869)	$	(544)
Risk participation agreements	Other income/(expense)	78		(11)		(148)		(120)

Total		$	(490)	$	(300)	$	(1,017)	$	(664)

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

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 September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands)
Interest rate swaps Other income/ (expense) $ (289 ) $ 8
$ (544 ) $ (39 )
Risk participation agreements Other income/ (expense) (11 ) 18
(120 ) 238
Total $ (300 ) $ 26
$ (664 ) $ 199

The following table presents the components of ~~income~~Income tax expense and effective tax rates for ~~continuing operations, discontinued operations, noncontrolling interests and~~ the ~~Company:~~periods indicated:

Nine months ended September 30,
2019 2018
(In thousands)
Income from continuing operations:
Income before income taxes $ 74,852
$ 77,214
Income tax expense 15,803
28,886
Net income from continuing operations $ 59,049
$ 48,328
Effective tax rate, continuing operations 21.1 % 37.4 %

Income from discontinued operations:
Income before income taxes $ —
$ 2,388
Income tax expense —
692
Net income from discontinued operations $ —
$ 1,696
Effective tax rate, discontinued operations — % 29.0 %

Less: Income attributable to noncontrolling interests:
Income before income taxes $ 265
$ 2,942
Income tax expense —
—
Net income attributable to noncontrolling interests $ 265
$ 2,942
Effective tax rate, noncontrolling interests — % — %

Income attributable to the Company
Income before income taxes $ 74,587
$ 76,660
Income tax expense 15,803
29,578
Net income attributable to the Company $ 58,784
$ 47,082
Effective tax rate attributable to the Company 21.2 % 38.6 %


	Nine months ended September 30,
	2020			2019
	(In thousands)

Income before income taxes	$	22,952		$	74,852
Income tax expense	2,764			15,803
Net income before attribution to noncontrolling interests	$	20,188		$	59,049
Effective tax rate	12.0		%	21.1		%

The effective tax rate for ~~continuing operations~~the nine months ended September 30, 2020 of 12.0%, with related tax expense of $2.8 million, was calculated based on a forecasted 2020 annual effective tax rate. The effective tax rate was less than the statutory rate of 21% due primarily to earnings from tax-exempt investments and income tax credits. These savings were partially offset by state and local income taxes, the accounting for investments in affordable housing projects, and tax expense from employee shared-based payments.

The effective tax rate for the nine months ended September 30, 2019 of 21.1%, with related tax expense of $15.8 million, was calculated based on a ~~projected~~forecasted 2019 annual effective tax rate. The effective tax rate was more than the statutory rate of 21% due primarily to state and local income taxes and the accounting for investments in affordable housing projects. These ~~savings~~expenses were partially offset by earnings from tax-exempt investments and income tax credits.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The effective tax rate ~~for continuing operations~~ for the nine months ended September 30, 2018 of 37.4%, with related tax expense of $28.9 million, was calculated based on a projected 2018 annual effective tax rate. The effective tax rate was more than the statutory rate of 21% due primarily to the sale of Anchor and state and local income taxes. These items were partially offset by earnings from tax-exempt investments and income tax credits. The Company recorded tax expense of $12.7 million on the sale of Anchor in April 2018, which was primarily due to a book-to-tax basis difference associated with nondeductible goodwill.

~~The effective tax rate for continuing operations for the nine months ended September 30, 2019~~2020 is less than the effective tax rate for the same period in ~~2018~~2019 due primarily to the lower level of income in 2020 as compared to 2019. Earnings from tax-exempt investments have a ~~result of the $12.7 million tax expense that was recorded~~larger proportionate impact on the ~~sale~~lower level of ~~Anchor~~income in ~~April 2018.~~2020 as compared to 2019.

10. Noncontrolling Interests

Noncontrolling interests consist of equity owned by management of the Company’s ~~respective~~ majority-owned ~~affiliates, DGHM, BOS, and Anchor for the periods in which the Company had an ownership interest in them.~~affiliate, DGHM. Net income attributable to noncontrolling interests in the Consolidated ~~Statement~~Statements of Operations, if any, represents the net income allocated to the noncontrolling interest owners of ~~the affiliates.~~DGHM. Net income allocated to the noncontrolling interest owners was ~~$0.1 million~~0 and ~~$0.9 million~~$96 thousand for the three-month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$0.3 million~~$6 thousand and ~~$2.9 million~~$265 thousand for the nine-month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

On the ~~consolidated balance sheets,~~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.~~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 of DGHM, the Company had ~~redeemable~~Redeemable noncontrolling interests held in mezzanine equity in the accompanying ~~consolidated balance sheets~~Consolidated Balance Sheets of ~~$1.5 million~~0 and ~~$2.5~~$1.4 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The aggregate amount of such ~~redeemable~~Redeemable noncontrolling equity interests are recorded at the estimated maximum redemption values. The Company had 0 noncontrolling interests included in permanent shareholder’s equity at September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

~~Each non-wholly owned affiliate~~The DGHM operating agreement provides the Company and/or the noncontrolling ~~interests~~interest holders with contingent call orand put ~~redemption features~~options and mandatory repurchase obligations used for the orderly transfer of noncontrolling equity interests between the ~~affiliate~~ noncontrolling interest ~~owners~~holders 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 arevalues. This agreement is 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, ~~2018.~~2019.

~~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~~in DGHM take the form of limited liability company 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.units. There are various events that could ~~cause the puts~~trigger a put, call or ~~calls to be exercised,~~mandatory repurchase, 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 obligations are governed by the ~~respective individual~~ operating ~~and legal documents.~~agreement of DGHM.

Redeemable noncontrolling interests recorded as of September 30, 2019 and December 31, 2018 were exclusively related to the rights of DGHM owners. The divestitures of BOS and Anchor in 2018 resulted in the Company no longer carrying noncontrolling interests within permanent shareholders' equity. The following ~~tables present~~table presents a rollforward of the Company’s redeemable noncontrolling interests ~~and noncontrolling interests~~ for the periods indicated:


☐	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~



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 Other Comprehensive Income/ (Loss)			Non- controlling Interests			Total
	(In thousands, except share data)
Balance, December 31, 2017	$	47,753		$	84,208		$	607,929		$	49,526		$	(8,658	)	$	5,186		$	785,944
Reclassification due to change in accounting principles (1)	—			—			—			334			(334		)	—			—
Net income attributable to the Company	—			—			—			47,082			—			—			47,082
Other comprehensive income/ (loss), net	—			—			—			—			(18,586		)	—			(18,586		)
Dividends paid to common shareholders: $0.36 per share	—			—			—			(30,586		)	—			—			(30,586		)
Dividends paid to preferred shareholders	—			—			—			(1,738		)	—			—			(1,738		)
Net change in noncontrolling interests	—			—			—			—			—			(2,977		)	(2,977		)
Redemption of Series D preferred stock	(47,753		)	—			(2,247		)	—			—			—			(50,000		)
Repurchase of 137,114 shares of common stock	—			(137		)	(1,768		)	—			—			—			(1,905		)
Net proceeds from issuance of:
142,738 shares of common stock	—			143			1,722			—			—			—			1,865
7,355 shares of incentive stock grants, net of 132,964 incentive stock grant shares canceled or forfeited and 127,894 shares withheld for employee taxes	—			(253		)	(1,699		)	—			—			—			(1,952		)
Exercise of warrants	—			438			(277		)	—			—			—			161
Amortization of stock compensation and employee stock purchase plan	—			—			5,131			—			—			—			5,131
Stock options exercised	—			204			1,457			—			—			—			1,661
Other equity adjustments	—			—			3,909			—			—			—			3,909
Balance at September 30, 2018	$	—		$	84,603		$	614,157		$	64,618		$	(27,578	)	$	2,209		$	738,009

Balance, December 31, 2018	$	—		$	83,656		$	600,196		$	87,821		$	(17,719	)	$	—		$	753,954
Net income attributable to the Company	—			—			—			58,784			—			—			58,784
Other comprehensive income/ (loss), net	—			—			—			—			27,078			—			27,078
Dividends paid to common shareholders: $0.36 per share	—			—			—			(30,395		)	—			—			(30,395		)
Repurchase of 678,165 shares of common stock	—			(678		)	(6,515		)	—			—			—			(7,193		)
Net proceeds from issuance of:
265,937 shares of common stock	—			266			2,008			—			—			—			2,274
42,004 shares of incentive stock grants, net of 9,377 shares canceled or forfeited and 115,173 shares withheld for employee taxes	—			(83		)	(522		)	—			—			—			(605		)
Amortization of stock compensation and employee stock purchase plan	—			—			3,359			—			—			—			3,359
Stock options exercised	—			81			464			—			—			—			545
Other equity adjustments	—			—			887			—			—			—			887
Balance at September 30, 2019	$	—		$	83,242		$	599,877		$	116,210		$	9,359		$	—		$	808,688



			Fair value measurements at reporting date using:
	As of December 31, 2018		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	$	29,114	$	—	$	29,114	$	—
Government-sponsored entities	207,703		—		207,703		—
Municipal bonds	308,959		—		308,959		—
Mortgage-backed securities	448,289		—		448,289		—
Total available-for-sale securities	994,065		—		994,065		—
Equity securities	14,228		14,228		—		—
Derivatives - interest rate customer swaps	21,889		—		21,889		—
Derivatives - interest rate swaps	553		—		553		—
Derivatives - risk participation agreements	2		—		2		—
Trading securities held in the “rabbi trust” (1)	6,839		6,839		—		—

Liabilities:
Derivatives - interest rate customer swaps	$	22,385	$	—	$	22,385	$	—
Derivatives - risk participation agreements	152		—		152		—
Deferred compensation “rabbi trust” (1)	6,839		6,839		—		—



	As of September 30, 2018		Fair value measurements at reporting date using:						Gain (losses) from fair value changes
	As of September 30, 2018		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Three months ended September 30, 2018			Nine months ended September 30, 2018
	(In thousands)
Assets:
Impaired loans (1)	$	2,005	$	—	$	—	$	2,005	$	(440	)	$	(1,367	)


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


	Three months ended				Nine months ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019

	(In thousands)
Redeemable noncontrolling interests at beginning of period	$	0	$	1,786	$	1,383	$	2,526
Net income attributable to noncontrolling interests	0		96		6		265
Distributions	0		(96)		(6)		(265)
Purchases/(sales) of ownership interests	0		0		(64)		12

Amortization of equity compensation	8		10		24		36
Adjustments to fair value	(8)		(315)		(1,343)		(1,093)
Redeemable noncontrolling interests at end of period	$	0	$	1,481	$	0	$	1,481


Description of component of Accumulated other comprehensive income/(loss)	Three months ended September 30,				Nine months ended September 30,				Affected line item in Statement of Operations
	2020		2019		2020		2019
	(In thousands)




Net realized gain/(loss) on cash flow hedges:
Hedges related to deposits:
Pre-tax gain/(loss)	$	284	$	6	$	132	$	508	Interest income/(expense)

Tax (expense)/ benefit	(84)		(2)		(39)		(148)		Income tax (expense)/benefit

Total reclassifications for the period, net of tax	$	200	$	4	$	93	$	360	Net income/(loss) attributable to the Company



	Three months ended						Nine months ended
	September 30, 2018						September 30, 2018
	Redeemable noncontrolling interests			Noncontrolling interests			Redeemable noncontrolling interests			Noncontrolling interests
	(In thousands)
Noncontrolling interests at beginning of period	$	10,747		$	1,996		$	17,461		$	5,186
Net income attributable to noncontrolling interests	711			213			2,202			740
Distributions	(687		)	(203		)	(2,136		)	(712		)
Purchases/ (sales) of ownership interests	—			—			(6,353		)	(3,051		)
Amortization of equity compensation	125			—			373			161
Adjustments to fair value	790			203			139			(115		)
Noncontrolling interests at end of period	$	11,686		$	2,209		$	11,686		$	2,209


	Components of Accumulated other comprehensive income/(loss)
	Unrealized gain/(loss) on securities available-for-sale		Unrealized gain/(loss) on cash flow hedges		Unrealized gain/(loss) on other		Accumulated other comprehensive income/(loss)
	(In thousands)
Balance at December 31, 2018	$	(17,556)	$	391	$	(554)	$	(17,719)
Other comprehensive income/(loss) before reclassifications	27,469		(31)		0		27,438
Reclassified from other comprehensive income/(loss)	0		(360)		0		(360)
Other comprehensive income/(loss), net	27,469		(391)		0		27,078

Balance at September 30, 2019	$	9,913	$	0	$	(554)	$	9,359

Balance at December 31, 2019	$	8,435	$	0	$	(860)	$	7,575
Other comprehensive income/(loss) before reclassifications	23,055		(100)		(30)		22,925
Reclassified from other comprehensive income/(loss)	0		(93)		0		(93)
Other comprehensive income/(loss), net	23,055		(193)		(30)		22,832

Balance at September 30, 2020	$	31,490	$	(193)	$	(890)	$	30,407



	Components of accumulated other comprehensive income/ (loss)
	Unrealized gain/ (loss) on securities available-for-sale			Unrealized gain/ (loss) on cash flow hedges			Unrealized gain/ (loss) on other			Accumulated other comprehensive income/ (loss)
	(In thousands)
Balance at December 31, 2017	$	(8,140	)	$	332		$	(850	)	$	(8,658	)
Other comprehensive income/ (loss) before reclassifications	(18,888		)	574			1			(18,313		)
Reclassified from other comprehensive income/ (loss)	—			(273		)	—			(273		)
Other comprehensive income/ (loss), net	(18,888		)	301			1			(18,586		)
Reclassification from the adoption of ASUs 2017-12 and 2016-01	$	(339	)	$	5		$	—		$	(334	)
Balance at September 30, 2018	$	(27,367	)	$	638		$	(849	)	$	(27,578	)

Balance at December 31, 2018	$	(17,556	)	$	391		$	(554	)	$	(17,719	)
Other comprehensive income/ (loss) before reclassifications	27,469			(31		)	—			27,438
Reclassified from other comprehensive income/ (loss)	—			(360		)	—			(360		)
Other comprehensive income/ (loss), net	27,469			(391		)	—			27,078
Balance at September 30, 2019	$	9,913		$	—		$	(554	)	$	9,359



	Severance Charges			Other Associated Costs		Total
	(In thousands)
Accrued charges at December 31, 2018	$	3,896		$	790	$	4,686
Cost incurred	1,646			—		1,646
Costs paid	(1,986		)	—		(1,986		)
Accrued charges at March 31, 2019	3,556			790		4,346
Costs paid	(1,364		)	—		(1,364		)
Accrued charges at June 30, 2019	2,192			790		2,982
Costs paid	(1,156		)	—		(1,156		)
Accrued charges at September 30, 2019	$	1,036		$	790	$	1,826



Accrued charges at December 31, 2017	$	337		$	—	$	337
Costs paid	(254		)	—		(254		)
Accrued charges at March 31, 2018	83			—		83
Costs paid	(83		)	—		(83		)
Accrued charges at June 30, 2018	—			$	—	$	—
Costs incurred	5,763			—		5,763
Accrued charges at September 30, 2018	$	5,763		$	—	$	5,763


	Nine months ended September 30, 2020
	(In thousands, except years and percentages)
Other information

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases	$	15,107


ROU assets obtained in exchange for new operating lease liabilities (1)	$	4,056

Weighted-average remaining lease term for operating leases	7.6 years

Weighted-average discount rate for operating leases	3.2		%



	September 30, 2019
	(In thousands)
Remainder of 2019	$	5,084
2020	20,224
2021	20,406
2022	20,360
2023	19,575
Thereafter	57,005
Total future minimum lease payments	142,654
Less: Amounts representing interest	(19,855		)
Present value of net future minimum lease payments	$	122,799


	September 30, 2020
	(In thousands)
Remainder of 2020	$	5,136
2021	20,662
2022	20,575
2023	19,275
2024	13,113
Thereafter	46,003
Total future minimum lease payments	124,764
Less: Amounts representing interest	(15,832)
Present value of net future minimum lease payments	$	108,932


~~(1)~~	~~Includes the AUM at DGHM of $1.5 billion at September 30, 2019 and $2.1 billion at September 30, 2018, and the AUM at BOS of $4.7 billion at September 30, 2018.~~


▪	~~Total revenue decreased 12%, or $10.7 million, to $81.3 million for the three months ended September 30, 2019, compared to $92.0 million for the same period of 2018 as described below.~~


▪	Total operating expenses decreased 19%, or $13.0 million, to $55.5 million for the three months ended September 30, 2019, compared to $68.6 million for the same period of 2018. The decrease was primarily


	Three months ended September 30,					$ Change				% Change			Nine months ended September 30,							$ Change				% Change			Three months ended September 30,										$ Change				% Change				Nine months ended September 30,								$ Change				% Change
	2019		2018						2019				2018						2020							2019										2020								2019
	(In thousands)																										(In thousands, except percentages)
Net interest income	$	56,153	$	59,641				(3,488				)		(6	)%	$	171,951					$	174,569				$	(2,618	)	(1	)%	Net interest income		$	57,824				$	56,153			1,671				3	%			$	174,019			$	171,951			$	2,068	1	%
Fees and other income	25,126		32,314			(7,188		)		(22	)%		74,754			104,152				(29,398		)		(28	)%	Fees and other income	23,045					25,126						(2,081)				(8)		%		67,228				74,754				(7,526)				(10)		%
Total revenue	81,279		91,955			(10,676		)		(12	)%		246,705			278,721				(32,016		)		(11	)%	Total revenue	80,869					81,279					(410)				(1)		%		241,247				246,705				(5,458)				(2)		%
Provision/ (credit) for loan losses	167		(949		)	1,116				nm			104			(2,291		)		2,395				nm
Provision/(credit) for loan losses																										Provision/(credit) for loan losses	(4,569)					167					(4,736)				nm				34,997				104				34,893				nm
Operating expense	55,537		68,557			(13,020		)		(19	)%		171,749			203,798				(32,049		)		(16	)%	Operating expense	60,937					55,537					5,400				10		%		183,298				171,749				11,549				7		%
Income tax expense	5,517		5,461			56				1	%		15,803			28,886				(13,083		)		(45	)%	Income tax expense	1,821					5,517					(3,696)				(67)		%		2,764				15,803				(13,039)				(83)		%
Net income from continuing operations	20,058		18,886			1,172				6	%		59,049			48,328				10,721				22	%
Net income from discontinued operations	—		—			—				nm			—			1,696				(1,696		)		nm
Net income before attribution to noncontrolling interests																										Net income before attribution to noncontrolling interests	22,680					20,058					2,622				13		%		20,188				59,049				(38,861)				(66)		%

Less: Net income attributable to noncontrolling interests	96		924			(828		)		(90	)%		265			2,942				(2,677		)		(91	)%	Less: Net income attributable to noncontrolling interests	—					96					(96)				(100)		%		6				265				(259)				(98)		%
Net income attributable to the Company	$	19,962	$	17,962		$	2,000			11	%		$	58,784		$	47,082			$	11,702			25	%	Net income attributable to the Company	$	22,680				$	19,962				$	2,718			14		%		$	20,182			$	58,784			$	(38,602)			(66)		%


	Average Balance				Interest Income/Expense				Average Yield/Rate (1)
	As of and for the three months ended September 30,
AVERAGE BALANCE SHEET:	2020		2019		2020		2019		2020		2019
AVERAGE ASSETS	(In thousands)
Interest-earning assets:
Cash and investments: (2)
Taxable investment securities	$	201,515	$	198,655	$	853	$	938	1.69	%	1.95	%
Non-taxable investment securities	313,130		305,108		1,974		1,924		2.52	%	2.52	%
Mortgage-backed securities	515,813		492,514		2,354		2,622		1.83	%	2.13	%
Short-term investments and other	432,117		101,958		654		1,084		0.59	%	4.06	%
Total cash and investments	1,462,575		1,098,235		5,835		6,568		1.59	%	2.39	%
Loans: (3)
Commercial and industrial	1,032,816		1,101,672		8,314		11,523		3.15	%	4.09	%
Paycheck Protection Program	373,047		—		2,390		—		2.51	%	—	%
Commercial real estate	2,652,770		2,518,048		23,546		29,118		3.47	%	4.52	%
Construction and land	218,211		195,843		2,109		2,410		3.78	%	4.82	%
Residential	2,809,871		3,016,265		22,089		25,567		3.14	%	3.39	%
Home equity	84,226		89,068		623		1,121		2.94	%	4.99	%
Other consumer	111,657		127,987		547		1,297		1.95	%	4.02	%
Total loans	7,282,598		7,048,883		59,618		71,036		3.23	%	3.98	%
Total earning assets	8,745,173		8,147,118		65,453		77,604		2.96	%	3.76	%
LESS: Allowance for loan losses	89,370		75,199
Cash and due from banks (non-interest bearing)	34,761		49,065
Other assets	655,999		544,368
TOTAL AVERAGE ASSETS	$	9,346,563	$	8,665,352
AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:


Savings and NOW	$	722,742	$	615,730	$	197	$	275	0.11	%	0.18	%
Money market	4,070,026		3,378,006		4,790		11,523		0.47	%	1.35	%
Certificates of deposit	585,729		711,299		1,447		3,689		0.98	%	2.06	%
Total interest-bearing deposits	5,378,497		4,705,035		6,434		15,487		0.48	%	1.31	%
Junior subordinated debentures	106,363		106,363		508		1,022		1.87	%	3.76	%
FHLB borrowings and other	388,412		833,535		687		4,942		0.69	%	2.32	%
Total interest-bearing liabilities	5,873,272		5,644,933		7,629		21,451		0.52	%	1.50	%
Non-interest bearing demand deposits	2,321,223		1,953,214
Payables and other liabilities	309,462		258,371
Total average liabilities	8,503,957		7,856,518
Redeemable noncontrolling interests	—		944
Average shareholders’ equity	842,606		807,890
TOTAL AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY	$	9,346,563	$	8,665,352
Net interest income					$	57,824	$	56,153


Interest rate spread									2.44	%	2.26	%
NIM									2.61	%	2.72	%


~~(2)~~	~~Investments classified as available-for-sale and held-to-maturity are shown in the average balance sheet at amortized cost.~~


~~(3)~~	(1) Annualized. (2) Investments classified as Available-for-sale and Held-to-maturity are shown in the average balance sheet at amortized cost. (3) Includes loans held for sale and nonaccrual loans.


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


	September 30, 2019		December 31, 2018		Increase/ (decrease)			% Change			September 30, 2020		December 31, 2019		Increase/ (decrease)		% Change
	(In thousands)										(In thousands, except percentages)
Assets:										Assets:
Total cash and investments	$	1,134,463	$	1,255,253	$	(120,790	)	(10	)%	Total cash and investments	$	1,665,626	$	1,376,863	$	288,763	21	%
Loans held for sale	6,658		2,812		3,846			nm		Loans held for sale	15,074		7,386		7,688		nm
Total loans	7,067,151		6,893,158		173,993			3	%	Total loans	7,222,569		6,976,704		245,865		4	%
Less: Allowance for loan losses	75,359		75,312		47			—	%	Less: Allowance for loan losses	84,551		71,982		12,569		17	%
Net loans	6,991,792		6,817,846		173,946			3	%	Net loans	7,138,018		6,904,722		233,296		3	%
Goodwill and intangible assets, net	68,229		69,834		(1,605		)	(2	)%	Goodwill and intangible assets, net	66,505		67,959		(1,454)		(2)	%
Right-of-use assets	107,045		—		107,045			nm		Right-of-use assets	94,879		102,075		(7,196)		(7)	%
Total other assets	382,757		348,880		33,877			10	%	Total other assets	451,203		371,496		79,707		21	%
Total assets	$	8,690,944	$	8,494,625	$	196,319		2	%	Total assets	$	9,431,305	$	8,830,501	$	600,804	7	%
Liabilities and Equity:										Liabilities and Equity:
Deposits	$	6,658,242	$	6,781,170	$	(122,928	)	(2	)%	Deposits	$	7,827,719	$	7,241,476	$	586,243	8	%
Total borrowings	956,127		813,435		142,692			18	%	Total borrowings	445,143		510,590		(65,447)		(13)	%
Lease liabilities	122,799		—		122,799			nm		Lease liabilities	108,932		117,214		(8,282)		(7)	%
Total other liabilities	143,607		143,540		67			—	%	Total other liabilities	203,342		140,820		62,522		44	%
Total liabilities	7,880,775		7,738,145		142,630			2	%	Total liabilities	8,585,136		8,010,100		575,036		7	%
Redeemable noncontrolling interests (“RNCI”)	1,481		2,526		(1,045		)	(41	)%	Redeemable noncontrolling interests (“RNCI”)	—		1,383		(1,383)		(100)	%
Total shareholders’ equity	808,688		753,954		54,734			7	%	Total shareholders’ equity	846,169		819,018		27,151		3	%
Total liabilities, RNCI and shareholders’ equity	$	8,690,944	$	8,494,625	$	196,319		2	%	Total liabilities, RNCI and shareholders’ equity	$	9,431,305	$	8,830,501	$	600,804	7	%


~~(1)~~	~~Includes brokered deposits of $355.4 million and $541.1 million at September 30, 2019 and December 31, 2018, respectively.~~



	September 30, 2019		December 31, 2018		$ Change			% Change
	(In thousands)
Commercial and industrial	$	695,029	$	623,037	$	71,992		12	%
Commercial tax-exempt	448,488		451,671		(3,183		)	(1	)%
Total commercial and industrial	1,143,517		1,074,708		68,809			6	%
Commercial real estate	2,533,346		2,395,692		137,654			6	%
Construction and land	209,741		240,306		(30,565		)	(13	)%
Residential	2,964,042		2,948,973		15,069			1	%
Home equity	84,432		90,421		(5,989		)	(7	)%
Consumer and other	132,073		143,058		(10,985		)	(8	)%
Total loans	$	7,067,151	$	6,893,158	$	173,993		3	%


	As of September 30, 2020
	New England				Northern California				Southern California				Total
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(In thousands, except percentages)
Commercial and industrial	$	437,268	6	%	$	56,929	1	%	$	88,948	1	%	$	583,145	8	%
Paycheck Protection Program	194,652		3	%	119,590		1	%	57,254		1	%	371,496		5	%
Commercial tax-exempt	312,948		4	%	148,723		2	%	10,671		—	%	472,342		6	%
Commercial real estate	1,085,875		15	%	844,123		12	%	729,892		10	%	2,659,890		37	%
Construction and land	124,539		2	%	26,533		—	%	60,625		1	%	211,697		3	%
Residential	1,390,309		19	%	543,875		8	%	794,980		11	%	2,729,164		38	%
Home equity	53,926		1	%	18,748		—	%	9,123		—	%	81,797		1	%
Consumer and other	70,229		1	%	5,035		—	%	37,774		1	%	113,038		2	%
Total loans (1)	$	3,669,746	51	%	$	1,763,556	24	%	$	1,789,267	25	%	$	7,222,569	100	%



	As of September 30, 2019
	New England				San Francisco Bay Area				Southern California				Total
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(In thousands)
Commercial and industrial	$	558,686	8	%	$	49,075	1	%	$	87,268	1	%	$	695,029	10	%
Commercial tax-exempt	340,610		5	%	96,846		1	%	11,032		—	%	448,488		6	%
Commercial real estate	1,030,865		14	%	785,156		12	%	717,325		10	%	2,533,346		36	%
Construction and land	146,799		2	%	27,958		—	%	34,984		1	%	209,741		3	%
Residential	1,628,082		23	%	569,920		8	%	766,040		11	%	2,964,042		42	%
Home equity	56,732		1	%	18,068		—	%	9,632		—	%	84,432		1	%
Consumer and other	106,916		2	%	12,546		—	%	12,611		—	%	132,073		2	%
Total loans (1)	$	3,868,690	55	%	$	1,559,569	22	%	$	1,638,892	23	%	$	7,067,151	100	%


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


~~(1)~~	~~Accruing Classified includes~~ (1) Accruing Classified may include both Substandard and Doubtful classifications.


														Actual				For capital adequacy purposes (at least)				To be well capitalized under prompt corrective action provisions (at least)			Minimum capital ratio with capital conservation buffer (1)
	Actual				For capital adequacy purposes (at least)				To be well capitalized under prompt corrective action provisions (at least)			Minimum capital ratio with capital conservation buffer (1)		Amount		Ratio		Amount		Ratio		Amount		Ratio	Ratio
	Amount		Ratio		Amount		Ratio		Amount		Ratio	Ratio		(In thousands, except percentages)
	(In thousands)
As of September 30, 2019
As of September 30, 2020													As of September 30, 2020
Common equity tier 1 risk-based capital	Common equity tier 1 risk-based capital												Common equity tier 1 risk-based capital
Company	$	732,980	11.22	%	$	294,025	4.5	%	n/a		n/a	7.0%	Company	$	752,492	11.30	%	$	299,689	4.5	%	n/a		n/a	7.0%
Boston Private Bank	775,161		11.91		292,785		4.5		$	422,912	6.5%	7.0	Boston Private Bank	782,660		11.79	%	298,847		4.5	%	$	431,668	6.5%	7.0%
Tier 1 risk-based capital													Tier 1 risk-based capital
Company	833,431		12.76		392,033		6.0		n/a		n/a	8.5	Company	852,514		12.80	%	399,585		6.0	%	n/a		n/a	8.5%
Boston Private Bank	775,161		11.91		390,380		6.0		520,507		8.0	8.5	Boston Private Bank	782,660		11.79	%	398,463		6.0	%	531,284		8.0%	8.5%
Total risk-based capital													Total risk-based capital
Company	910,076		13.93		522,711		8.0		n/a		n/a	10.5	Company	935,887		14.05	%	532,780		8.0	%	n/a		n/a	10.5%
Boston Private Bank	851,660		13.09		520,507		8.0		650,634		10.0	10.5	Boston Private Bank	865,802		13.04	%	531,284		8.0	%	664,105		10.0%	10.5%
Tier 1 leverage capital													Tier 1 leverage capital
Company	833,431		9.70		343,534		4.0		n/a		n/a	4.0	Company	852,514		9.23	%	369,518		4.0	%	n/a		n/a	4.0%
Boston Private Bank	775,161		9.10		340,674		4.0		425,843		5.0	4.0	Boston Private Bank	782,660		8.50	%	368,236		4.0	%	460,295		5.0%	4.0%

As of December 31, 2018
As of December 31, 2019													As of December 31, 2019
Common equity tier 1 risk-based capital	Common equity tier 1 risk-based capital												Common equity tier 1 risk-based capital
Company	$	702,728	11.40	%	$	277,275	4.5	%	n/a		n/a	7.0%	Company	$	745,926	11.42	%	$	293,886	4.5	%	n/a		n/a	7.0%
Boston Private Bank	745,051		12.13		276,352		4.5		$	399,175	6.5%	7.0	Boston Private Bank	778,635		11.97	%	292,717		4.5	%	$	422,813	6.5%	7.0%
Tier 1 risk-based capital													Tier 1 risk-based capital
Company	803,311		13.04		369,701		6.0		n/a		n/a	8.5	Company	846,337		12.96	%	391,848		6.0	%	n/a		n/a	8.5%
Boston Private Bank	745,051		12.13		368,469		6.0		491,292		8.0	8.5	Boston Private Bank	778,635		11.97	%	390,289		6.0	%	520,386		8.0%	8.5%
Total risk-based capital													Total risk-based capital
Company	879,927		14.28		492,934		8.0		n/a		n/a	10.5	Company	919,573		14.08	%	522,464		8.0	%	n/a		n/a	10.5%
Boston Private Bank	821,584		13.38		491,292		8.0		614,115		10.0	10.5	Boston Private Bank	851,733		13.09��	%	520,386		8.0	%	650,482		10.0%	10.5%
Tier 1 leverage capital													Tier 1 leverage capital
Company	803,311		9.54		336,648		4.0		n/a		n/a	4.0	Company	846,337		9.77	%	346,398		4.0	%	n/a		n/a	4.0%
Boston Private Bank	745,051		8.92		334,029		4.0		417,537		5.0	4.0	Boston Private Bank	778,635		9.03	%	344,958		4.0	%	431,198		5.0%	4.0%