UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March 31,~~June 30, 2020

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

For the transition period from to .

Commission File Number: 001-35070

BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Massachusetts

04-2976299

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

Ten Post Office Square

02109

Boston,

Massachusetts

(Address of Principal Executive Offices)

(Zip Code)

Registrant's telephone number, including area code: (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.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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 ~~April 30,~~July 31, 2020:


Common Stock, Par Value $1.00 Per Share			~~81,800,550~~82,196,822
(class)			(outstanding)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1

Financial Statements (Unaudited)

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Unaudited Consolidated Financial Statements

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

4346

Executive Summary

4447

Critical Accounting Policies

4749

Results of Operations

4749

Financial Condition

5257

Condensed Consolidated Balance Sheets and Discussion

5257

Loan Portfolio and Credit Quality

Recent Accounting Pronouncements

6368

Item 3

Quantitative and Qualitative Disclosures about Market Risk

6469

Item 4

Controls and Procedures

6469

PART II—OTHER INFORMATION

Item 1

Item 1A

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

6772

Item 3

Defaults Upon Senior Securities

6772

Item 4

Mine Safety Disclosures

Item 5

Item 6

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)
		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
		(In thousands, except share and per share data)							(In thousands, except share and per share data)
Assets:	Assets:					Assets:
Cash and cash equivalents	Cash and cash equivalents	$	61,714	$	292,479	Cash and cash equivalents	$	179,027	$	292,479
Investment securities available-for-sale (amortized cost of $961,351 and $966,900 at March 31, 2020 and December 31, 2019, respectively)		993,166		978,284
Investment securities held-to-maturity (fair value of $46,096 and $47,949 at March 31, 2020 and December 31, 2019, respectively)		45,395		48,212
Investment securities available-for-sale (amortized cost of $959,850 and $966,900 at June 30, 2020 and December 31, 2019, respectively)						Investment securities available-for-sale (amortized cost of $959,850 and $966,900 at June 30, 2020 and December 31, 2019, respectively)	1,002,970		978,284
Investment securities held-to-maturity (fair value of $43,351 and $47,949 at June 30, 2020 and December 31, 2019, respectively)						Investment securities held-to-maturity (fair value of $43,351 and $47,949 at June 30, 2020 and December 31, 2019, respectively)	42,495		48,212
Equity securities at fair value	Equity securities at fair value	23,080		18,810		Equity securities at fair value	24,492		18,810
Stock in Federal Home Loan Bank and Federal Reserve Bank	Stock in Federal Home Loan Bank and Federal Reserve Bank	45,273		39,078		Stock in Federal Home Loan Bank and Federal Reserve Bank	42,407		39,078
Loans held for sale	Loans held for sale	7,671		7,386		Loans held for sale	9,786		7,386
Total loans	Total loans	7,043,338		6,976,704		Total loans	7,332,954		6,976,704
Less: Allowance for loan losses	Less: Allowance for loan losses	68,211		71,982		Less: Allowance for loan losses	89,324		71,982
Net loans	Net loans	6,975,127		6,904,722		Net loans	7,243,630		6,904,722

Premises and equipment, net	Premises and equipment, net	43,544		44,527		Premises and equipment, net	43,805		44,527
Goodwill	Goodwill	57,607		57,607		Goodwill	57,607		57,607
Intangible assets, net	Intangible assets, net	9,637		10,352		Intangible assets, net	8,935		10,352
Fees receivable	Fees receivable	4,249		4,095		Fees receivable	3,921		4,095
Accrued interest receivable	Accrued interest receivable	24,054		24,175		Accrued interest receivable	24,918		24,175
Deferred income taxes, net	Deferred income taxes, net	5,630		11,383		Deferred income taxes, net	9,116		11,383
Right-of-use assets	Right-of-use assets	98,896		102,075		Right-of-use assets	94,143		102,075
Other assets	Other assets	351,283		287,316		Other assets	371,654		287,316
Total assets	Total assets	$	8,746,326	$	8,830,501	Total assets	$	9,158,906	$	8,830,501
Liabilities:	Liabilities:					Liabilities:
Deposits	Deposits	$	6,835,572	$	7,241,476	Deposits	$	7,427,397	$	7,241,476
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	45,319		53,398		Securities sold under agreements to repurchase	46,623		53,398
Federal funds purchased		145,000		—

Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	491,254		350,829		Federal Home Loan Bank borrowings	426,313		350,829
Junior subordinated debentures	Junior subordinated debentures	106,363		106,363		Junior subordinated debentures	106,363		106,363
Lease liabilities	Lease liabilities	113,574		117,214		Lease liabilities	108,234		117,214
Other liabilities	Other liabilities	180,452		140,820		Other liabilities	218,771		140,820
Total liabilities	Total liabilities	7,917,534		8,010,100		Total liabilities	8,333,701		8,010,100
Redeemable Noncontrolling Interests	Redeemable Noncontrolling Interests	—		1,383		Redeemable Noncontrolling Interests	—		1,383
Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:

Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 81,800,486 shares at March 31, 2020 and 83,265,674 shares at December 31, 2019		81,800		83,266
Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 82,058,483 shares at June 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: 82,058,483 shares at June 30, 2020 and 83,265,674 shares at December 31, 2019	82,058		83,266
Additional paid-in capital	Additional paid-in capital	593,167		600,708		Additional paid-in capital	594,463		600,708
Retained earnings	Retained earnings	131,761		127,469		Retained earnings	118,647		127,469
Accumulated other comprehensive income/(loss)		22,064		7,575
Accumulated other comprehensive income						Accumulated other comprehensive income	30,037		7,575

Total shareholders’ equity	Total shareholders’ equity	828,792		819,018		Total shareholders’ equity	825,205		819,018
Total liabilities, redeemable noncontrolling interests and shareholders’ equity	Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	8,746,326	$	8,830,501	Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	9,158,906	$	8,830,501

See accompanying notes to Consolidated Financial Statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)									BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
		Three months ended March 31,							Three months ended June 30,						Six months ended June 30,
		2020		2019			2020		2019		2020		2019
		(In thousands, except share and per share data)							(In thousands, except share and per share data)
Interest and dividend income:	Interest and dividend income:					Interest and dividend income:
Loans	Loans	$	66,358	$	69,933	Loans	$	62,807	$	71,943	$	129,165	$	141,876
Taxable investment securities	Taxable investment securities	868		1,185		Taxable investment securities	859		1,121		1,727		2,306
Non-taxable investment securities	Non-taxable investment securities	1,998		1,901		Non-taxable investment securities	2,005		1,901		4,003		3,802
Mortgage-backed securities	Mortgage-backed securities	2,787		2,897		Mortgage-backed securities	2,566		2,706		5,353		5,603
Short-term investments and other	Short-term investments and other	1,071		908		Short-term investments and other	582		1,057		1,653		1,965
Total interest and dividend income	Total interest and dividend income	73,082		76,824		Total interest and dividend income	68,819		78,728		141,901		155,552
Interest expense:	Interest expense:					Interest expense:
Deposits	Deposits	12,796		14,058		Deposits	7,335		14,515		20,131		28,573
Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	2,034		2,780		Federal Home Loan Bank borrowings	1,755		5,027		3,789		7,807
Junior subordinated debentures	Junior subordinated debentures	917		1,121		Junior subordinated debentures	764		1,080		1,681		2,201
Repurchase agreements and other short-term borrowings	Repurchase agreements and other short-term borrowings	78		527		Repurchase agreements and other short-term borrowings	27		646		105		1,173
Total interest expense	Total interest expense	15,825		18,486		Total interest expense	9,881		21,268		25,706		39,754
Net interest income	Net interest income	57,257		58,338		Net interest income	58,938		57,460		116,195		115,798
Provision/(credit) for loan losses	Provision/(credit) for loan losses	16,962		(1,426)		Provision/(credit) for loan losses	22,604		1,363		39,566		(63)
Net interest income after provision/(credit) for loan losses	Net interest income after provision/(credit) for loan losses	40,295		59,764		Net interest income after provision/(credit) for loan losses	36,334		56,097		76,629		115,861
Fees and other income:	Fees and other income:					Fees and other income:
Wealth management and trust fees	Wealth management and trust fees	18,371		19,058		Wealth management and trust fees	17,261		18,912		35,632		37,970
Investment management fees	Investment management fees	1,925		2,650		Investment management fees	1,770		2,455		3,695		5,105

Other banking fee income	Other banking fee income	2,490		2,499		Other banking fee income	2,395		2,867		4,885		5,366
Gain on sale of loans, net	Gain on sale of loans, net	100		73		Gain on sale of loans, net	204		58		304		131

Gain on OREO, net	Gain on OREO, net	—		91		Gain on OREO, net	—		—		—		91

Other	Other	(1,365)		877		Other	1,032		88		(333)		965
Total fees and other income	Total fees and other income	21,521		25,248		Total fees and other income	22,662		24,380		44,183		49,628
Operating expense:	Operating expense:					Operating expense:
Salaries and employee benefits	Salaries and employee benefits	35,096		35,726		Salaries and employee benefits	33,937		32,706		69,033		68,432
Occupancy and equipment	Occupancy and equipment	7,646		8,348		Occupancy and equipment	7,560		7,852		15,206		16,200
Information systems	Information systems	6,725		5,860		Information systems	7,113		5,137		13,838		10,997
Professional services	Professional services	3,601		3,560		Professional services	3,446		3,313		7,047		6,873
Marketing and business development	Marketing and business development	1,890		1,085		Marketing and business development	2,313		1,934		4,203		3,019
Amortization of intangibles	Amortization of intangibles	715		672		Amortization of intangibles	702		672		1,417		1,344

FDIC insurance	FDIC insurance	—		660		FDIC insurance	767		585		767		1,245
Restructuring	Restructuring	—		1,646		Restructuring	—		—		—		1,646
Other	Other	5,235		2,996		Other	5,615		3,460		10,850		6,456
Total operating expense	Total operating expense	60,908		60,553		Total operating expense	61,453		55,659		122,361		116,212
Income before income taxes		908		24,459
Income/(loss) before income taxes						Income/(loss) before income taxes	(2,457)		24,818		(1,549)		49,277
Income tax expense	Income tax expense	102		4,917		Income tax expense	841		5,369		943		10,286

Net income before attribution to noncontrolling interests		806		19,542
Net income/(loss) before attribution to noncontrolling interests						Net income/(loss) before attribution to noncontrolling interests	(3,298)		19,449		(2,492)		38,991
(Continued)	(Continued)					(Continued)


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)									BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
		Three months ended March 31,							Three months ended June 30,						Six months ended June 30,
		2020		2019			2020		2019		2020		2019
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	6		100		Less: Net income attributable to noncontrolling interests	—		69		6		169
Net income attributable to the Company		$	800	$	19,442
Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders		414		1,557
Net income attributable to common shareholders for earnings per share calculation		$	1,214	$	20,999
Basic earnings per share attributable to common shareholders:
Net income/(loss) attributable to the Company						Net income/(loss) attributable to the Company	$	(3,298)	$	19,380	$	(2,498)	$	38,822
Adjustments to net income/(loss) attributable to the Company to arrive at net income/(loss) attributable to common shareholders						Adjustments to net income/(loss) attributable to the Company to arrive at net income/(loss) attributable to common shareholders	—		(816)		414		741
Net income/(loss) attributable to common shareholders for earnings/(loss) per share calculation						Net income/(loss) attributable to common shareholders for earnings/(loss) per share calculation	$	(3,298)	$	18,564	$	(2,084)	$	39,563
Basic earnings/(loss) per share attributable to common shareholders:						Basic earnings/(loss) per share attributable to common shareholders:

Total attributable to common shareholders:	Total attributable to common shareholders:	$	0.01	$	0.25	Total attributable to common shareholders:	$	(0.04)	$	0.22	$	(0.03)	$	0.47
Weighted average basic common shares outstanding	Weighted average basic common shares outstanding	83,005,064		83,285,095		Weighted average basic common shares outstanding	81,929,752		83,565,780		82,464,438		83,426,213
Diluted earnings per share attributable to common shareholders:
Diluted earnings/(loss) per share attributable to common shareholders:						Diluted earnings/(loss) per share attributable to common shareholders:

Total attributable to common shareholders:	Total attributable to common shareholders:	$	0.01	$	0.25	Total attributable to common shareholders:	$	(0.04)	$	0.22	$	(0.03)	$	0.47
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	83,318,041		84,010,450		Weighted average diluted common shares outstanding	81,929,752		84,048,972		82,464,438		84,036,050

See accompanying notes to Consolidated Financial Statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)									BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
		Three months ended March 31,							Three months ended June 30,						Six months ended June 30,
		2020		2019			2020		2019		2020		2019
		(In thousands)							(In thousands)
Net income attributable to the Company		$	800	$	19,442
Other comprehensive income, net of tax:
Net income/(loss) attributable to the Company						Net income/(loss) attributable to the Company	$	(3,298)	$	19,380	$	(2,498)	$	38,822
Other comprehensive income/(loss), net of tax:						Other comprehensive income/(loss), net of tax:
Net unrealized gain/(loss) on securities available-for-sale						Net unrealized gain/(loss) on securities available-for-sale	8,198		10,665		22,687		22,233

Net unrealized gain/(loss) on securities available-for-sale		14,489		11,568
Unrealized gain/(loss) on cash flow hedges	Unrealized gain/(loss) on cash flow hedges	—		(27)		Unrealized gain/(loss) on cash flow hedges	(302)		(6)		(302)		(33)
Reclassification adjustment for net realized (gain)/loss included in net income	Reclassification adjustment for net realized (gain)/loss included in net income	—		(220)		Reclassification adjustment for net realized (gain)/loss included in net income	107		(136)		107		(356)
Net unrealized gain/(loss) on cash flow hedges	Net unrealized gain/(loss) on cash flow hedges	—		(247)		Net unrealized gain/(loss) on cash flow hedges	(195)		(142)		(195)		(389)

Other comprehensive income, net of tax		14,489		11,321
Total comprehensive income attributable to the Company, net		$	15,289	$	30,763
Net unrealized gain/(loss) on other						Net unrealized gain/(loss) on other	(30)		—		(30)		—
Other comprehensive income/(loss), net of tax						Other comprehensive income/(loss), net of tax	7,973		10,523		22,462		21,844
Total comprehensive income/(loss) attributable to the Company, net of tax						Total comprehensive income/(loss) attributable to the Company, net of tax	$	4,675	$	29,903	$	19,964	$	60,666

See accompanying notes to Consolidated Financial Statements.


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

Net income attributable to the Company			—		—		19,442		—		19,442
Net income/(loss) attributable to the Company													Net income/(loss) attributable to the Company	—		—		38,822		—			38,822
Other comprehensive income/(loss), net	Other comprehensive income/(loss), net		—		—		—		11,321		11,321		Other comprehensive income/(loss), net	—		—		—		21,844			21,844
Dividends paid to common shareholders: $0.12 per share			—		—		(10,108)		—		(10,108)
Dividends paid to common shareholders: $0.24 per share													Dividends paid to common shareholders: $0.24 per share	—		—		(20,200)		—			(20,200)

Net proceeds from issuance of:	Net proceeds from issuance of:												Net proceeds from issuance of:
103,991 shares of common stock			104		876		—		—		980
20,595 shares of incentive stock grants, net of 2,976 shares canceled or forfeited and 13,911 shares withheld for employee taxes			4		166		—		—		170
143,147 shares of common stock													143,147 shares of common stock	143		990		—		—			1,133
37,511 shares of incentive stock grants, net of 9,377 shares canceled or forfeited and 115,173 shares withheld for employee taxes													37,511 shares of incentive stock grants, net of 9,377 shares canceled or forfeited and 115,173 shares withheld for employee taxes	(88)		(587)		—		—			(675)

Amortization of stock compensation and employee stock purchase plan	Amortization of stock compensation and employee stock purchase plan		—		1,352		—		—		1,352		Amortization of stock compensation and employee stock purchase plan	—		2,340		—		—			2,340
Stock options exercised	Stock options exercised		10		40		—		—		50		Stock options exercised	63		372		—		—			435
Other equity adjustments	Other equity adjustments		—		1,658		—		—		1,658		Other equity adjustments	—		558		—		—			558
Balance at March 31, 2019			$	83,774	$	604,288	$	97,155	$	(6,398)	$	778,819
Balance at June 30, 2019													Balance at June 30, 2019	$	83,774	$	603,869	$	106,443	$	4,125		$	798,211

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

Impact due to change in accounting principle (1)	Impact due to change in accounting principle (1)		—		—		13,492		—		13,492		Impact due to change in accounting principle (1)	—		—		13,492		—			13,492
Net income attributable to the Company			—		—		800		—		800
Net income/(loss) attributable to the Company													Net income/(loss) attributable to the Company	—		—		(2,498)		—			(2,498)
Other comprehensive income/(loss), net	Other comprehensive income/(loss), net		—		—		—		14,489		14,489		Other comprehensive income/(loss), net	—		—		—		22,462			22,462
Dividends paid to common shareholders: $0.12 per share			—		—		(10,000)		—		(10,000)
Dividends paid to common shareholders: $0.24 per share													Dividends paid to common shareholders: $0.24 per share	—		—		(19,816)		—			(19,816)

Repurchase of 1,565,060 shares of common stock	Repurchase of 1,565,060 shares of common stock		(1,565)		(11,242)		—		—		(12,807)		Repurchase of 1,565,060 shares of common stock	(1,565)		(11,242)		—		—			(12,807)
Net proceeds from issuance of:	Net proceeds from issuance of:												Net proceeds from issuance of:
88,328 shares of common stock			88		832		—		—		920
5,539 shares of incentive stock grants, net of 964 shares withheld for employee taxes			5		57		—		—		62
111,055 shares of common stock													111,055 shares of common stock	111		949		—		—			1,060
271,004 shares of incentive stock grants, net of 31,159 shares withheld for employee taxes													271,004 shares of incentive stock grants, net of 31,159 shares withheld for employee taxes	240		3,436		—		—			3,676

Amortization of stock compensation and employee stock purchase plan	Amortization of stock compensation and employee stock purchase plan		—		1,348		—		—		1,348		Amortization of stock compensation and employee stock purchase plan	—		(879)		—		—			(879)
Stock options exercised	Stock options exercised		7		48		—		—		55		Stock options exercised	7		48		—		—			55
Other equity adjustments	Other equity adjustments		(1)		1,416		—		—		1,415		Other equity adjustments	(1)		1,443		—		—			1,442
Balance at March 31, 2020			$	81,800	$	593,167	$	131,761	$	22,064	$	828,792
Balance at June 30, 2020													Balance at June 30, 2020	$	82,058	$	594,463	$	118,647	$	30,037		$	825,205

_____________________

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

See accompanying notes to Consolidated Financial Statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) Three months ended June 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 March 31, 2019		$	83,774	$	604,288	$	97,155	$	(6,398)	$	778,819

Net income/(loss) attributable to the Company		—		—		19,380		—		19,380
Other comprehensive income/(loss), net		—		—		—		10,523		10,523
Dividends paid to common shareholders: $0.12 per share		—		—		(10,092)		—		(10,092)




Net proceeds from issuance of:
39,156 shares of common stock		39		114		—		—		153
16,916 shares of incentive stock grants, net of 6,401 shares canceled or forfeited and 101,262 shares withheld for employee taxes		(92)		(753)		—		—		(845)

Amortization of stock compensation and employee stock purchase plan		—		988		—		—		988
Stock options exercised		53		332		—		—		385
Other equity adjustments		—		(1,100)		—		—		(1,100)
Balance at June 30, 2019		$	83,774	$	603,869	$	106,443	$	4,125	$	798,211

Balance at March 31, 2020		$	81,800	$	593,167	$	131,761	$	22,064	$	828,792

Net income/(loss) attributable to the Company		—		—		(3,298)		—		(3,298)
Other comprehensive income/(loss), net		—		—		—		7,973		7,973
Dividends paid to common shareholders: $0.12 per share		—		—		(9,816)		—		(9,816)




Net proceeds from issuance of:
22,727 shares of common stock		23		117		—		—		140
265,465 shares of incentive stock grants, net of 30,195 shares withheld for employee taxes		235		3,379		—		—		3,614

Amortization of stock compensation and employee stock purchase plan		—		(2,227)		—		—		(2,227)


Other equity adjustments		—		27		—		—		27
Balance at June 30, 2020		$	82,058	$	594,463	$	118,647	$	30,037	$	825,205

See accompanying notes to Consolidated Financial Statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)									BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
		Three months ended March 31,							Six months ended June 30,
		2020		2019			2020		2019
		(In thousands)							(In thousands)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income attributable to the Company		$	800	$	19,442
Adjustments to arrive at net income:
Net income/(loss) attributable to the Company						Net income/(loss) attributable to the Company	$	(2,498)	$	38,822
Adjustments to arrive at net income/(loss):						Adjustments to arrive at net income/(loss):
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	6		100		Net income attributable to noncontrolling interests	6		169

Net income before attribution to noncontrolling interests		806		19,542
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Net income/(loss) before attribution to noncontrolling interests						Net income/(loss) before attribution to noncontrolling interests	(2,492)		38,991
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:						Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization	Depreciation and amortization	6,345		5,933		Depreciation and amortization	11,630		11,712
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(6)		(100)		Net income attributable to noncontrolling interests	(6)		(169)
Stock compensation, net of cancellations	Stock compensation, net of cancellations	1,421		1,677		Stock compensation, net of cancellations	2,997		2,933
Provision/(credit) for loan losses	Provision/(credit) for loan losses	16,962		(1,426)		Provision/(credit) for loan losses	39,566		(63)
Loans originated for sale	Loans originated for sale	(15,324)		(6,796)		Loans originated for sale	(42,611)		(17,103)
Proceeds from sale of loans held for sale	Proceeds from sale of loans held for sale	15,127		9,401		Proceeds from sale of loans held for sale	40,451		16,406

Deferred income tax expense/(benefit)	Deferred income tax expense/(benefit)	(5,731)		(523)		Deferred income tax expense/(benefit)	(12,233)		959
Decrease/(increase) in right-of-use assets	Decrease/(increase) in right-of-use assets	3,179		3,817		Decrease/(increase) in right-of-use assets	7,932		(2,419)
Increase/(decrease) in operating lease liabilities	Increase/(decrease) in operating lease liabilities	(3,640)		(4,102)		Increase/(decrease) in operating lease liabilities	(8,980)		2,476
Net decrease/(increase) in other operating activities	Net decrease/(increase) in other operating activities	(27,617)		(19,247)		Net decrease/(increase) in other operating activities	(11,973)		(26,560)

Net cash provided by/(used in) operating activities	Net cash provided by/(used in) operating activities	(8,478)		8,176		Net cash provided by/(used in) operating activities	24,281		27,163
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Investment securities available-for-sale:	Investment securities available-for-sale:					Investment securities available-for-sale:
Purchases	Purchases	(8,874)		—		Purchases	(29,481)		(9,845)

Maturities, calls, redemptions, and principal payments	Maturities, calls, redemptions, and principal payments	12,472		26,265		Maturities, calls, redemptions, and principal payments	32,481		64,230
Investment securities held-to-maturity:	Investment securities held-to-maturity:					Investment securities held-to-maturity:

Principal payments	Principal payments	2,730		2,860		Principal payments	5,541		15,872
Equity securities at fair value:	Equity securities at fair value:					Equity securities at fair value:
Transfers out	Transfers out	(19,713)		(15,149)		Transfers out	(28,137)		(35,349)
Transfers in	Transfers in	15,443		21,886		Transfers in	22,455		30,485
(Investments)/distributions in trusts, net	(Investments)/distributions in trusts, net	569		853		(Investments)/distributions in trusts, net	(209)		504

Contingent considerations from divestitures	Contingent considerations from divestitures	1,277		836		Contingent considerations from divestitures	2,497		2,019
(Purchase)/redemption of Federal Home Loan Bank and Federal Reserve Bank stock	(Purchase)/redemption of Federal Home Loan Bank and Federal Reserve Bank stock	(6,195)		2,210		(Purchase)/redemption of Federal Home Loan Bank and Federal Reserve Bank stock	(3,329)		(15,190)
Net increase in portfolio loans	Net increase in portfolio loans	(67,890)		(34,670)		Net increase in portfolio loans	(358,604)		(188,548)
Proceeds from recoveries of loans previously charged off	Proceeds from recoveries of loans previously charged off	180		492		Proceeds from recoveries of loans previously charged off	235		577
Proceeds from sale of OREO	Proceeds from sale of OREO	—		492		Proceeds from sale of OREO	—		492

Capital expenditures	Capital expenditures	(1,975)		(750)		Capital expenditures	(4,221)		(811)

Net cash provided by/(used in) investing activities	Net cash provided by/(used in) investing activities	(71,976)		5,325		Net cash provided by/(used in) investing activities	(360,772)		(135,564)
(Continued)	(Continued)					(Continued)


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)									BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
		Three months ended March 31,							Six months ended June 30,
		2020		2019			2020		2019
		(In thousands)							(In thousands)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase/(decrease) in deposits	Net increase/(decrease) in deposits	(405,904)		(1,325)		Net increase/(decrease) in deposits	185,921		(343,207)
Net increase/(decrease) in securities sold under agreements to repurchase	Net increase/(decrease) in securities sold under agreements to repurchase	(8,079)		21,401		Net increase/(decrease) in securities sold under agreements to repurchase	(6,775)		25,444
Net increase/(decrease) in federal funds purchased	Net increase/(decrease) in federal funds purchased	145,000		(250,000)		Net increase/(decrease) in federal funds purchased	—		(115,000)
Net increase/(decrease) in short-term Federal Home Loan Bank borrowings	Net increase/(decrease) in short-term Federal Home Loan Bank borrowings	115,000		10,000		Net increase/(decrease) in short-term Federal Home Loan Bank borrowings	(75,000)		340,000
Advances of long-term Federal Home Loan Bank borrowings	Advances of long-term Federal Home Loan Bank borrowings	175,000		190,000		Advances of long-term Federal Home Loan Bank borrowings	425,000		290,000
Repayments of long-term Federal Home Loan Bank borrowings	Repayments of long-term Federal Home Loan Bank borrowings	(149,575)		(5,074)		Repayments of long-term Federal Home Loan Bank borrowings	(274,516)		(130,076)

Dividends paid to common shareholders	Dividends paid to common shareholders	(10,000)		(10,108)		Dividends paid to common shareholders	(19,816)		(20,200)

Repurchase of common stock	Repurchase of common stock	(12,807)		—		Repurchase of common stock	(12,807)		—
Proceeds from stock option exercises	Proceeds from stock option exercises	55		50		Proceeds from stock option exercises	55		435
Proceeds from issuance of common stock	Proceeds from issuance of common stock	920		980		Proceeds from issuance of common stock	1,060		1,133
Tax withholding for share based compensation awards	Tax withholding for share based compensation awards	(11)		(155)		Tax withholding for share based compensation awards	(200)		(1,268)
Distributions paid to noncontrolling interests	Distributions paid to noncontrolling interests	(6)		(100)		Distributions paid to noncontrolling interests	(6)		(169)
Other equity adjustments	Other equity adjustments	96		(218)		Other equity adjustments	123		(194)

Net cash provided by/(used in) financing activities	Net cash provided by/(used in) financing activities	(150,311)		(44,549)		Net cash provided by/(used in) financing activities	223,039		46,898
Net increase/(decrease) in cash and cash equivalents	Net increase/(decrease) in cash and cash equivalents	(230,765)		(31,048)		Net increase/(decrease) in cash and cash equivalents	(113,452)		(61,503)
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	292,479		127,259		Cash and cash equivalents at beginning of year	292,479		127,259
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	61,714	$	96,211	Cash and cash equivalents at end of period	$	179,027	$	65,756

Supplemental disclosure of cash flow items:	Supplemental disclosure of cash flow items:					Supplemental disclosure of cash flow items:
Cash paid for interest	Cash paid for interest	$	15,628	$	16,775	Cash paid for interest	$	25,106	$	37,382
Cash paid for income taxes, (net of refunds received)	Cash paid for income taxes, (net of refunds received)	$	872	$	1,029	Cash paid for income taxes, (net of refunds received)	$	1,969	$	14,277

Change in unrealized gain/(loss) on available-for-sale securities, net of tax	Change in unrealized gain/(loss) on available-for-sale securities, net of tax	$	14,489	$	11,568	Change in unrealized gain/(loss) on available-for-sale securities, net of tax	$	22,687	$	22,233
Change in unrealized gain/(loss) on cash flow hedges, net of tax	Change in unrealized gain/(loss) on cash flow hedges, net of tax	$	—	$	(247)	Change in unrealized gain/(loss) on cash flow hedges, net of tax	$	(195)	$	(389)

Change in unrealized gain/(loss) on other, net of tax						Change in unrealized gain/(loss) on other, net of tax	$	(30)	$	—
Non-cash transactions:	Non-cash transactions:					Non-cash transactions:

Loans charged off	Loans charged off	$	(528)	$	(564)	Loans charged off	$	(2,074)	$	(759)

See accompanying notes to Consolidated Financial Statements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1. Basis of Presentation and Summary of Significant Accounting Policies

Boston Private Financial Holdings, Inc. (the “Company” 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, 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”) merged with and into Boston Private Wealth. ~~The~~Prior to the merger, the results of KLS were ~~previously~~ reported in a third reportable segment, “Affiliate Partners”, as ~~further~~ discussed below. The Wealth Management and Trust segment operates in New England, New York, Southeast Florida, 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. ~~Prior to the third quarter 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. With the integration of KLS into Boston Private Wealth in ~~the third quarter~~September of 2019, the Company reorganized its segment reporting structure to align with how its financial performance and strategy are reviewed and managed. The results of KLS are included in the results of Boston Private Wealth within the Wealth Management and Trust segment, and the results of DGHM are included within the Holding Company and Eliminations for all periods presented. 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, 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 other than the Company is included in “Net income attributable to noncontrolling interests” in the Consolidated 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 the owners of DGHM.

The unaudited interim Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include all necessary adjustments of a normal recurring nature, which, in the opinion of management, are required for a fair presentation of the results of operations and financial condition of the Company. The interim results of consolidated operations are not necessarily indicative of the results for the entire year.

The information in this report should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 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 Statements of Operations, which was presented as Wealth advisory fees in prior periods.

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, 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, 2020:

•In June 2016, the FASB issued ASU 2016-13. Throughout 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 ~~in current GAAP~~ 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~~Earnings/(Loss) Per Share

The treasury stock method of calculating ~~earnings~~earnings/(loss) per share (“EPS”) is presented below for the three and six months ended ~~March 31,~~June 30, 2020 and 2019. The following tables present the computations of basic and diluted EPS:

Three months ended March 31,
2020 2019
(In thousands, except share and per share data)
Basic earnings per share - Numerator:
Net income before attribution to noncontrolling interests $ 806 $ 19,542
Less: Net income attributable to noncontrolling interests 6 100
Net income attributable to the Company 800 19,442
Decrease in noncontrolling interests’ redemption values (1) 414 1,557
Total adjustments to income attributable to common shareholders 414 1,557
Net income attributable to common shareholders, treasury stock method $ 1,214 $ 20,999
Basic earnings per share - Denominator:
Weighted average basic common shares outstanding 83,005,064 83,285,095
Per share data - Basic earnings per share:
Total attributable to common shareholders $ 0.01 $ 0.25


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
	(In thousands, except share and per share data)
Basic earnings/(loss) per share - Numerator:
Net income/(loss) before attribution to noncontrolling interests	$	(3,298)	$	19,449	$	(2,492)	$	38,991
Less: Net income attributable to noncontrolling interests	—		69		6		169
Net income/(loss) attributable to the Company	(3,298)		19,380		(2,498)		38,822
Decrease/(increase) in noncontrolling interests’ redemption values (1)	—		(816)		414		741




Net income/(loss) attributable to common shareholders, treasury stock method	$	(3,298)	$	18,564	$	(2,084)	$	39,563

Basic earnings/(loss) per share - Denominator:
Weighted average basic common shares outstanding	81,929,752		83,565,780		82,464,438		83,426,213
Per share data - Basic earnings/(loss) per share:


Total attributable to common shareholders	$	(0.04)	$	0.22	$	(0.03)	$	0.47

Three months ended March 31,
2020 2019
(In thousands, except share and per share data)
Diluted earnings per share - Numerator:
Net income attributable to common shareholders, after assumed dilution $ 1,214 $ 20,999
Diluted earnings per share - Denominator:
Weighted average basic common shares outstanding 83,005,064 83,285,095
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) 312,977 725,355
Dilutive common shares 312,977 725,355
Weighted average diluted common shares outstanding (2) 83,318,041 84,010,450
Per share data - Diluted earnings per share:
Total attributable to common shareholders $ 0.01 $ 0.25
Dividends per share declared and paid on common stock $ 0.12 $ 0.12


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
	(In thousands, except share and per share data)
Diluted earnings/(loss) per share - Numerator:


Net income/(loss) attributable to common shareholders, after assumed dilution	$	(3,298)	$	18,564	$	(2,084)	$	39,563
Diluted earnings/(loss) per share - Denominator:
Weighted average basic common shares outstanding	81,929,752		83,565,780		82,464,438		83,426,213

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)	—		483,192		—		609,837



Weighted average diluted common shares outstanding (2)	81,929,752		84,048,972		82,464,438		84,036,050
Per share data - Diluted earnings/(loss) per share:


Total attributable to common shareholders	$	(0.04)	$	0.22	$	(0.03)	$	0.47
Dividends per share declared and paid on common stock	$	0.12	$	0.12	$	0.24	$	0.24

_____________________

(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. ~~Decreases~~A decrease in redemption value from period to period ~~increase~~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.

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

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

(2)The diluted EPS computations for the three and six months ended ~~March 31,~~June 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~~anti-

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

dilutive for the periods indicated. This includes shares excluded from the computation of diluted earnings/(loss) per share because the effect would have been anti-dilutive given the net loss during the period, 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:

Three months ended March 31,
2020 2019
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 1,254 796
Total shares excluded due to exercise price exceeding the average market price of common shares during the period 1,254 796


	Three months ended June 30,			Six months ended June 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	2,328	750	1,813	820
Total anti-dilutive shares excluded from computation of average dilutive EPS	2,328	750	1,813	820

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

Private Banking

The Private Banking segment operates primarily in 3 geographic markets: New England, Northern California and Southern California. The Bank conducts business under the name of Boston Private Bank & Trust Company in all markets. The Bank is chartered by the Commonwealth of Massachusetts and is insured by the FDIC. The Bank is principally engaged in providing private banking services to high net worth individuals, privately-owned businesses and partnerships, and nonprofit organizations. In addition, the Bank is an active provider of financing for affordable housing, first-time homebuyers, economic development, social services, community revitalization and small businesses.

Wealth Management and Trust

The Wealth Management and Trust segment is comprised of the trust operations of the Bank and the operations of Boston Private Wealth. 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, 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, Northern California and Southern California.

Changes to ~~Segment Reporting~~segment reporting

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 included in the results of Boston Private Wealth within the Wealth Management and Trust segment, and the results of DGHM are included in Holding Company and Eliminations for all periods presented.

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

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

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

The accounting policies of the segments are the same as those described in Part I. Item 1. "Notes to Unaudited Consolidated Financial Statements - 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 months ended March 31, 2020 and 2019.~~

Three months ended March 31,
2020 2019
Private Banking (1) (In thousands)
Net interest income $ 58,090 $ 59,337
Fees and other income 1,108 3,258
Total revenue 59,198 62,595
Provision/(credit) for loan losses 16,962 (1,426)
Operating expense (2) 42,588 41,317
Income/(loss) before income taxes (352) 22,704
Income tax expense/(benefit) (931) 4,430
Net income before attribution to noncontrolling interests 579 18,274
Net income attributable to the Company $ 579 $ 18,274
Assets $ 8,692,069 $ 8,481,160
Amortization of intangibles $ 77 $ —
Depreciation $ 2,626 $ 2,670

Three months ended March 31,
2020 2019
Wealth Management and Trust (1) (In thousands)
Net interest income $ 72 $ 106
Fees and other income 18,485 19,126
Total revenue 18,557 19,232
Operating expense (2) 15,449 15,567
Income before income taxes 3,108 3,665
Income tax expense 1,074 1,194
Net income before attribution to noncontrolling interests 2,034 2,471
Net income attributable to the Company $ 2,034 $ 2,471
Assets $ 143,998 $ 147,771
Amortization of intangibles $ 638 $ 672
Depreciation $ 294 $ 367

Three months ended March 31,
2020 2019
Holding Company and Eliminations (1) (In thousands)
Net interest income (3) $ (905) $ (1,105)
Fees and other income 1,928 2,864
Total revenue 1,023 1,759
Operating expense 2,871 3,669
Income/(loss) before income taxes (1,848) (1,910)
Income tax expense/(benefit) (41) (707)
Net income/(loss) before attribution to noncontrolling interests (1,807) $ (1,203)
Noncontrolling interests 6 100
Net income/(loss) attributable to the Company $ (1,813) $ (1,303)
Assets (including eliminations) $ (89,741) $ (56,788)
Depreciation $ 39 $ 47

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Three months ended March 31,
2020 2019
Total Company (1) (In thousands)
Net interest income $ 57,257 $ 58,338
Fees and other income 21,521 25,248
Total revenue 78,778 83,586
Provision/(credit) for loan losses 16,962 (1,426)
Operating expense 60,908 60,553
Income before income taxes 908 24,459
Income tax expense 102 4,917
Net income before attribution to noncontrolling interests 806 19,542
Noncontrolling interests 6 100
Net income attributable to the Company $ 800 $ 19,442
Assets $ 8,746,326 $ 8,572,143
Amortization of intangibles $ 715 $ 672
Depreciation $ 2,959 $ 3,084

Reconciliation of reportable segment items

The following tables present a reconciliation of the revenues, expenses, assets, and other significant items of reportable segments as of and for the three and six months ended June 30, 2020 and 2019.


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Private Banking (1)	(In thousands)
Net interest income	$	59,690	$	58,419	$	117,780	$	117,756
Fees and other income	3,597		2,804		4,705		6,062
Total revenue	63,287		61,223		122,485		123,818
Provision/(credit) for loan losses	22,604		1,363		39,566		(63)
Operating expense (2)	42,914		37,805		85,502		79,122
Income/(loss) before income taxes	(2,231)		22,055		(2,583)		44,759
Income tax expense/(benefit)	(1,255)		4,878		(2,186)		9,308
Net income/(loss) before attribution to noncontrolling interests	(976)		17,177		(397)		35,451


Net income/(loss) attributable to the Company	$	(976)	$	17,177	$	(397)	$	35,451

Assets	$	9,104,761	$	8,619,399	$	9,104,761	$	8,619,399
Amortization of intangibles	$	64	$	—	$	141	$	—
Depreciation	$	2,611	$	2,373	$	5,237	$	5,043


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Wealth Management and Trust (1)	(In thousands)
Net interest income	$	7	$	104	$	79	$	210
Fees and other income	17,292		18,956		35,777		38,082
Total revenue	17,299		19,060		35,856		38,292

Operating expense (2)	14,651		14,409		30,100		29,976
Income before income taxes	2,648		4,651		5,756		8,316
Income tax expense	898		1,520		1,972		2,714
Net income before attribution to noncontrolling interests	1,750		3,131		3,784		5,602


Net income attributable to the Company	$	1,750	$	3,131	$	3,784	$	5,602



Assets	$	146,254	$	151,128	$	146,254	$	151,128
Amortization of intangibles	$	638	$	672	$	1,276	$	1,344
Depreciation	$	286	$	333	$	580	$	700


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Holding Company and Eliminations (1)	(In thousands)
Net interest income (3)	$	(759)	$	(1,063)	$	(1,664)	$	(2,168)
Fees and other income	1,773		2,620		3,701		5,484
Total revenue	1,014		1,557		2,037		3,316

Operating expense	3,888		3,445		6,759		7,114
Income/(loss) before income taxes	(2,874)		(1,888)		(4,722)		(3,798)
Income tax expense/(benefit)	1,198		(1,029)		1,157		(1,736)
Net income/(loss) before attribution to noncontrolling interests	(4,072)		(859)		(5,879)		$	(2,062)
Noncontrolling interests	—		69		6		169

Net income/(loss) attributable to the Company	$	(4,072)	$	(928)	$	(5,885)	$	(2,231)




Assets (including eliminations)	$	(92,109)	$	(57,654)	$	(92,109)	$	(57,654)

Depreciation	$	38	$	49	$	77	$	96

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Total Company (1)	(In thousands)
Net interest income	$	58,938	$	57,460	$	116,195	$	115,798
Fees and other income	22,662		24,380		44,183		49,628
Total revenue	81,600		81,840		160,378		165,426
Provision/(credit) for loan losses	22,604		1,363		39,566		(63)
Operating expense	61,453		55,659		122,361		116,212
Income/(loss) before income taxes	(2,457)		24,818		(1,549)		49,277
Income tax expense	841		5,369		943		10,286
Net income/(loss) before attribution to noncontrolling interests	(3,298)		19,449		(2,492)		38,991
Noncontrolling interests	—		69		6		169

Net income/(loss) attributable to the Company	$	(3,298)	$	19,380	$	(2,498)	$	38,822

Assets	$	9,158,906	$	8,712,873	$	9,158,906	$	8,712,873
Amortization of intangibles	$	702	$	672	$	1,417	$	1,344
Depreciation	$	2,935	$	2,755	$	5,894	$	5,839

_____________________

(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 ~~for the three months ended March 31, 2019~~ of $1.3 million and $0.4 million, ~~respectively.~~respectively, for the six months ended June 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.

1213

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 ~~March 31,~~June 30, 2020 and December 31, 2019:


		Amortized Cost			Unrealized									Fair Value	Amortized Cost		Unrealized								Fair Value
									Gains			Losses					Amortized Cost							Gains		Losses	Fair Value
				(In thousands)																			(In thousands)
At March 31, 2020
At June 30, 2020												At June 30, 2020
Available-for-sale securities at fair value:	Available-for-sale securities at fair value:											Available-for-sale securities at fair value:
U.S. government and agencies	U.S. government and agencies	$	19,957		$	1,130	$	—		$	21,087	U.S. government and agencies	$	19,959	$	1,162		$	—		$	21,121
Government-sponsored entities	Government-sponsored entities	154,844			5,598		—			160,442		Government-sponsored entities	153,225		5,718			—			158,943
Municipal bonds	Municipal bonds	319,844			12,784		(128)			332,500		Municipal bonds	315,056		18,899		—			333,955
Mortgage-backed securities (1)	Mortgage-backed securities (1)	466,706			12,670		(239)			479,137		Mortgage-backed securities (1)	471,610		17,515		(174)			488,951
Total	Total	$	961,351		$	32,182	$	(367)		$	993,166	Total	$	959,850	$	43,294	$	(174)		$	1,002,970

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

Mortgage-backed securities (1)	Mortgage-backed securities (1)	$	45,395		$	731	$	(30)		$	46,096	Mortgage-backed securities (1)	$	42,495	$	888	$	(32)		$	43,351
Total	Total	$	45,395		$	731	$	(30)		$	46,096	Total	$	42,495	$	888	$	(32)		$	43,351

Equity securities at fair value:	Equity securities at fair value:											Equity securities at fair value:
Money market mutual funds (2)	Money market mutual funds (2)	$	23,080		$	—	$	—		$	23,080	Money market mutual funds (2)	$	24,492	$	—	$	—		$	24,492
Total	Total	$	23,080		$	—	$	—		$	23,080	Total	$	24,492	$	—	$	—		$	24,492

At December 31, 2019	At December 31, 2019											At December 31, 2019
Available-for-sale securities at fair value:	Available-for-sale securities at fair value:											Available-for-sale securities at fair value:
U.S. government and agencies	U.S. government and agencies	$	19,955		$	42	$	(57)		$	19,940	U.S. government and agencies	$	19,955	$	42	$	(57)		$	19,940
Government-sponsored entities	Government-sponsored entities	154,963			1,292		—			156,255		Government-sponsored entities	154,963		1,292		—			156,255
Municipal bonds	Municipal bonds	312,977			12,551		(73)			325,455		Municipal bonds	312,977		12,551		(73)			325,455
Mortgage-backed securities (1)	Mortgage-backed securities (1)	479,005			1,117		(3,488)			476,634		Mortgage-backed securities (1)	479,005		1,117		(3,488)			476,634
Total	Total	$	966,900		$	15,002	$	(3,618)		$	978,284	Total	$	966,900	$	15,002	$	(3,618)		$	978,284

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

Mortgage-backed securities (1)	Mortgage-backed securities (1)	48,212			53		(316)			47,949		Mortgage-backed securities (1)	$	48,212	$	53	$	(316)		$	47,949
Total	Total	$	48,212		$	53	$	(316)		$	47,949	Total	$	48,212	$	53	$	(316)		$	47,949

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

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 U.S. government, U.S. government agencies or ~~government sponsored~~government-sponsored entities. The Company has experienced zero losses for these securities. In addition, as of ~~March 31,~~June 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 - Note 15: Recent Accounting Pronouncements” for additional information on ASU 2016-13.

The following table presents the maturities of available-for-sale investment securities, based on contractual maturity, as of ~~March 31,~~June 30, 2020. Certain securities are callable before their final maturity. Additionally, certain securities (such as mortgage-backed securities) are shown within the table below based on their final (contractual) maturity, but due to prepayments and amortization are expected to have shorter lives.

1314

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


		Available-for-sale Securities								Available-for-sale Securities
				Amortized Cost			Fair Value			Amortized Cost				Fair Value
				(In thousands)									(In thousands)
Within one year	Within one year	$	33,686		$	33,916	Within one year	$				$
After one, but within five years	After one, but within five years	312,665			322,256		After one, but within five years	301,995				314,345
After five, but within ten years	After five, but within ten years	230,955			239,899		After five, but within ten years	231,164		244,374
Greater than ten years	Greater than ten years	384,045			397,095		Greater than ten years	380,734		397,974
Total	Total	$	961,351		$	993,166	Total	$	959,850	$	1,002,970

The following table presents the maturities of held-to-maturity investment securities, based on contractual maturity, as of ~~March 31,~~June 30, 2020.


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

After five, but within ten years	After five, but within ten years	$	37,086		$	37,569	After five, but within ten years	$		34,732				$	35,377
Greater than ten years	Greater than ten years	8,309			8,527		Greater than ten years	7,763					7,974
Total	Total	$	45,395		$	46,096	Total	$	42,495		$	43,351

The following table presents the maturities of equity securities, based on contractual maturity, as of ~~March 31,~~June 30, 2020.


		Equity Securities								Equity Securities
				Amortized Cost			Fair Value			Amortized Cost				Fair Value
				(In thousands)									(In thousands)
Within one year	Within one year	$	23,080		$	23,080	Within one year	$				$

Total	Total	$	23,080		$	23,080	Total	$	24,492		$	24,492

During the three and six months ended ~~March 31,~~June 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 ~~March 31,~~June 30, 2020 and December 31, 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.


		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)
March 31, 2020
June 30, 2020															June 30, 2020
Available-for-sale securities	Available-for-sale securities														Available-for-sale securities

Municipal bonds		$	14,009	$	(128)	$	—	$	—	$	14,009	$	(128)	3

Mortgage-backed securities (1)	Mortgage-backed securities (1)	3,568		(25)		18,972		(214)		22,540		(239)		36	Mortgage-backed securities (1)	$	20,871	$	(45)	$	10,622	$	(129)	$	31,493	$	(174)	28

Total	Total	$	17,577	$	(153)	$	18,972	$	(214)	$	36,549	$	(367)	39	Total	$	20,871	$	(45)	$	10,622	$	(129)	$	31,493	$	(174)	28

Held-to-maturity securities	Held-to-maturity securities														Held-to-maturity securities

Mortgage-backed securities (1)	Mortgage-backed securities (1)	$	—	$	—	$	4,442	$	(30)	$	4,442	$	(30)	2	Mortgage-backed securities (1)	$	2,135	$	(9)	$	2,024	$	(23)	$	4,159	$	(32)	2
Total	Total	$	—	$	—	$	4,442	$	(30)	$	4,442	$	(30)	2	Total	$	2,135	$	(9)	$	2,024	$	(23)	$	4,159	$	(32)	2

1415

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	Less than 12 months						12 months or longer						Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		# of Securities
	(In thousands, except number of securities)
December 31, 2019
Available-for-sale securities
U.S. government and agencies	$	9,899	$	(57)	$	—	$	—	$	9,899	$	(57)	1
Government-sponsored entities	1,725		—		—		—		1,725		—		1
Municipal bonds	9,149		(73)		—		—		9,149		(73)		4
Mortgage-backed securities (1)	140,723		(1,016)		187,043		(2,472)		327,766		(3,488)		85

Total	$	161,496	$	(1,146)	$	187,043	$	(2,472)	$	348,539	$	(3,618)	91

Held-to-maturity securities
Mortgage-backed securities (1)	$	10,328	$	(11)	$	30,451	$	(305)	$	40,779	$	(316)	14
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.

As of ~~March 31,~~June 30, 2020, the mortgage-backed securities in the first table above had current Standard and Poor’s credit rating of at least AAA. As of ~~March 31, 2020, the municipal bonds in the first table above had a current Standard and Poor’s credit rating of at least AAA. As of March 31,~~June 30, 2020, the Company determined that the unrealized losses 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 ~~March 31,~~June 30, 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 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 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 assets, can be temporarily impaired when the fair values decline below the amortized costs of the individual investments. There were 0 other investments with unrealized losses as of ~~March 31,~~June 30, 2020 or December 31, 2019. The Company’s other investments primarily include 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 ~~$66.1~~$74.8 million and $65.5 million in other investments included in ~~other~~Other assets as of ~~March 31,~~June 30, 2020 and December 31, 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.

1516

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 ~~March 31,~~June 30, 2020 and December 31, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall:


		As of March 31, 2020			Fair value measurements at reporting date using:														As of June 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)			As of June 30, 2020							Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)
				(In thousands)																			(In thousands)
Assets:	Assets:											Assets:
Available-for-sale securities:	Available-for-sale securities:											Available-for-sale securities:
U.S. government and agencies	U.S. government and agencies	$	21,087		$	—	$	21,087		$	—	U.S. government and agencies	$	21,121		$			—				$	21,121		$	—
Government-sponsored entities	Government-sponsored entities	160,442			—		160,442			—		Government-sponsored entities	158,943			—				158,943				—
Municipal bonds	Municipal bonds	332,500			—		332,500			—		Municipal bonds	333,955			—			333,955				—
Mortgage-backed securities	Mortgage-backed securities	479,137			—		479,137			—		Mortgage-backed securities	488,951			—			488,951			—

Total available-for-sale securities	Total available-for-sale securities	993,166			—		993,166			—		Total available-for-sale securities	1,002,970			—			1,002,970			—
Equity securities	Equity securities	23,080			23,080		—			—		Equity securities	24,492			24,492			—			—
Derivatives - interest rate customer swaps	Derivatives - interest rate customer swaps	93,391			—		93,391			—		Derivatives - interest rate customer swaps	96,968			—			96,968			—

Derivatives - risk participation agreement	Derivatives - risk participation agreement	46			—		46			—		Derivatives - risk participation agreement	21			—			21			—

Trading securities held in the “rabbi trust” (1)	Trading securities held in the “rabbi trust” (1)	5,550			5,550		—			—		Trading securities held in the “rabbi trust” (1)	6,328			6,328			—			—

Liabilities:	Liabilities:											Liabilities:
Derivatives - interest rate customer swaps	Derivatives - interest rate customer swaps	$	94,437		$	—	$	94,437		$	—	Derivatives - interest rate customer swaps	$	97,760		$	—			$	97,760		$	—

Derivatives - interest rate swaps												Derivatives - interest rate swaps	274			—			274			—
Derivatives - risk participation agreement	Derivatives - risk participation agreement	480			—		480			—		Derivatives - risk participation agreement	478			—			478			—

Deferred compensation “rabbi trust” (1)	Deferred compensation “rabbi trust” (1)	5,550			5,550		—			—		Deferred compensation “rabbi trust” (1)	6,320			6,320			—			—


				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		$	—		$	19,940		$	—
Government-sponsored entities	156,255			—			156,255			—
Municipal bonds	325,455			—			325,455			—
Mortgage-backed securities	476,634			—			476,634			—

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

Derivatives - risk participation agreements	10			—			10			—

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

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

Derivatives - risk participation agreements	242			—			242			—

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

_____________________

(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 ~~March 31,~~June 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-sale Level 2 securities generally have quoted prices but are traded less frequently than exchange-traded securities and can be priced using

1617

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

~~priced using~~ market data from similar assets and include government-sponsored entities securities, municipal bonds, mortgage-backed securities, “off-the-run” U.S. Treasury securities, and certain investments in ~~SBA~~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.” NaN investments held as of ~~March 31,~~June 30, 2020 or December 31, 2019 were categorized as Level 3.

As of ~~March 31,~~June 30, 2020 and December 31, 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 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 ~~March 31,~~June 30, 2020 and December 31, 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. 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 ~~March 31,~~June 30, 2020 and December 31, 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 ~~March 31,~~June 30, 2020 and December 31, 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 assets on the Consolidated Balance Sheets. Changes in the fair value of the securities are recorded as an increase or decrease in other income each quarter. The deferred compensation liability reflects the market value of the securities selected by the participants and is included within other liabilities on the Consolidated Balance Sheets. Changes in the fair value of the liability are recorded as an increase or decrease in 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 ~~March 31,~~June 30, 2020 and December 31, 2019. There were 0 Level 3 assets valued on a recurring basis at ~~March 31,~~June 30, 2020 or December 31, 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 ~~March 31,~~June 30, 2020 and June 30, 2019, respectively, aggregated by the level in the fair value hierarchy within which those measurements fall.


		As of March 31, 2020			Fair value measurements at reporting date using:													Gain (losses) from fair value changes			As of June 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 March 31, 2020				As of June 30, 2020					Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Three months ended June 30, 2020	Six months ended June 30, 2020
				(In thousands)																						(In thousands)
Assets:	Assets:															Assets:
Impaired loans (1)	Impaired loans (1)	$	97		$	—	$	—		$	97		$	21		Impaired loans (1)	$	98	$		—		$	—			$	98		$	(1,219)		$	(1,198)

_____________________

(1)Collateral-dependent impaired loans held as of ~~March 31,~~June 30, 2020 that had write-downs or recoveries in fair value or whose specific reserve changed during the ~~three~~six months ended ~~March 31,~~June 30, 2020.

1718

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


		As of March 31, 2019			Fair value measurements at reporting date using:													Gain (losses) from fair value changes			As of June 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 March 31, 2019				As of June 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 June 30, 2019	Six months ended June 30, 2019
				(In thousands)																						(In thousands)
Assets:	Assets:															Assets:
Impaired loans (1)	Impaired loans (1)	$	957		$	—	$	—		$	957		$	372		Impaired loans (1)	$	1,144	$		—		$	—			$	1,144		$	220		$	592

_____________________

(1)Collateral-dependent impaired loans held as of ~~March 31,~~June 30, 2019 that had write-downs or recoveries in fair value or whose specific reserve changed during the ~~three~~six months ended ~~March 31,~~June 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 March 31, 2020
Fair Value Valuation
Technique Unobservable
Input Range of
Inputs
Utilized Weighted
Average of
Inputs
Utilized
(In thousands)
Impaired Loans $ 97 Appraisals of Collateral Discount for costs to sell 10% - 10% 10%
Appraisal adjustments —% —%

As of June 30, 2020

Fair Value

Valuation
Technique

Unobservable
Input

Range of
Inputs
Utilized

Weighted
Average of
Inputs
Utilized

(In thousands)

Impaired Loans

Appraisals of Collateral

Discount for costs to sell

10% - 10%

10%

Appraisal adjustments

—%

As of March 31, 2019
Fair Value Valuation
Technique Unobservable
Input Range of
Inputs
Utilized Weighted
Average of
Inputs
Utilized
(In thousands)
Impaired Loans $ 957 Appraisals of Collateral Discount for costs to sell —% - 6% 1%
Appraisal adjustments —% —%

As of June 30, 2019

Fair Value

Valuation
Technique

Unobservable
Input

Range of
Inputs
Utilized

Weighted
Average of
Inputs
Utilized

(In thousands)

Impaired Loans

1,144

Appraisals of Collateral

Discount for costs to sell

—% - 5%

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.

1819

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 March 31, 2020																										As of June 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)			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)																									(In thousands)
FINANCIAL ASSETS:	FINANCIAL ASSETS:															FINANCIAL ASSETS:
Cash and cash equivalents	Cash and cash equivalents	$	61,714		$	61,714		$	61,714		$	—		$	—	Cash and cash equivalents	$	179,027		$	179,027		$	179,027		$	—		$
Investment securities held-to-maturity	Investment securities held-to-maturity	45,395			46,096			—			46,096			—		Investment securities held-to-maturity	42,495		43,351			—			43,351			—
Loans held for sale	Loans held for sale	7,671			7,724			—			7,724			—		Loans held for sale	9,786		9,958			—			9,958			—
Loans, net	Loans, net	6,975,127			6,752,894			—			—			6,752,894		Loans, net	7,243,630		7,082,051			—			—			7,082,051
Other financial assets	Other financial assets	73,576			73,576			—			73,576			—		Other financial assets	71,246		71,246			—			71,246			—
FINANCIAL LIABILITIES:	FINANCIAL LIABILITIES:															FINANCIAL LIABILITIES:
Deposits	Deposits	6,835,572			6,838,860			—			6,838,860			—		Deposits	7,427,397		7,429,520			—			7,429,520			—

Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	45,319			45,319			—			45,319			—		Securities sold under agreements to repurchase	46,623		46,623			—			46,623			—
Federal funds purchased		145,000			145,000			—			145,000			—

Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	491,254			493,532			—			493,532			—		Federal Home Loan Bank borrowings	426,313		428,014			—			428,014			—
Junior subordinated debentures	Junior subordinated debentures	106,363			96,363			—			—			96,363		Junior subordinated debentures	106,363		69,863			—			—			69,863
Other financial liabilities	Other financial liabilities	2,154			2,154			—			2,154			—		Other financial liabilities	2,557		2,557			—			2,557			—


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

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

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.

1920

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 for 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 consist of mortgage-backed securities as of ~~March 31,~~June 30, 2020 and December 31, 2019. The mortgage-backed securities are fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair value of these securities is based on quoted market prices obtained from external pricing services. The principal market for our securities portfolio is the secondary institutional market, with an exit price that is predominantly reflective of bid level pricing in that market. Accordingly, 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 ~~March 31,~~June 30, 2020 and December 31, 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. The Company 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.

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 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 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.

2021

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Other financial liabilities

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

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, 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, 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 first 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:


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
		(In thousands)							(In thousands)
Commercial and industrial	Commercial and industrial	$	670,744	$	694,034	Commercial and industrial	$	565,748	$	694,034
Paycheck Protection Program						Paycheck Protection Program	370,034		—
Commercial tax-exempt	Commercial tax-exempt	445,319		447,927		Commercial tax-exempt	419,264		447,927

Commercial real estate	Commercial real estate	2,626,299		2,551,274		Commercial real estate	2,676,708		2,551,274
Construction and land	Construction and land	238,293		225,983		Construction and land	240,211		225,983
Residential	Residential	2,841,926		2,839,155		Residential	2,859,627		2,839,155
Home equity	Home equity	89,350		83,657		Home equity	84,588		83,657
Consumer and other	Consumer and other	131,407		134,674		Consumer and other	116,774		134,674
Total	Total	$	7,043,338	$	6,976,704	Total	$	7,332,954	$	6,976,704

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


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
		(In thousands)							(In thousands)
Commercial and industrial	Commercial and industrial	$	1,371	$	582	Commercial and industrial	$	3,649	$	582
Commercial tax-exempt		—		—

Commercial real estate	Commercial real estate	5,392		—		Commercial real estate	5,285		—

Residential	Residential	16,074		13,993		Residential	16,394		13,993
Home equity	Home equity	1,476		1,525		Home equity	195		1,525
Consumer and other	Consumer and other	1		3		Consumer and other	81		3
Total	Total	$	24,314	$	16,103	Total	$	25,604	$	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 0~~was one commercial real estate loan with a balance less than $0.1 million 90 days or more past due, but still accruing, as of June 30, 2020 and no loans 90 days or more past due, but still accruing, as of ~~both March 31, 2020 and~~ December 31, 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.

2122

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:


		March 31, 2020																																	June 30, 2020
		Accruing Past Due										Nonaccrual Loans																	Accruing Past Due										Nonaccrual Loans
		30-59 Days Past Due		60-89 Days Past Due		Total Accruing Past Due		Current		30-89 Days Past Due		90 Days or Greater Past Due		Total Non-Accrual Loans		Current Accruing Loans		Total Loans Receivable			30-59 Days Past Due		60-89 Days Past Due		Total Accruing Past Due		Current		30-89 Days Past Due		90 Days or Greater Past Due		Total Non-Accrual Loans		Current Accruing Loans		Total Loans Receivable
		(In thousands)																																	(In thousands)
Commercial and industrial	Commercial and industrial	$	1,401	$	92	$	1,493	$	381	$	—	$	990	$	1,371	$	667,880	$	670,744	Commercial and industrial	$	3,058	$	43	$	3,101	$	636	$	—	$	3,013	$	3,649	$	558,998	$	565,748
Paycheck Protection Program																				Paycheck Protection Program	—		—		—		—		—		—		—		370,034		370,034
Commercial tax-exempt	Commercial tax-exempt	—		—		—		—		—		—		—		445,319		445,319		Commercial tax-exempt	—		—		—		—		—		—		—		419,264		419,264
Commercial real estate		—		—		—		5,392		—		—		5,392		2,620,907		2,626,299
Commercial real estate (1)																				Commercial real estate (1)	—		925		975		5,285		—		—		5,285		2,670,448		2,676,708
Construction and land	Construction and land	—		—		—		—		—		—		—		238,293		238,293		Construction and land	—		—		—		—		—		—		—		240,211		240,211
Residential	Residential	12,967		—		12,967		9,024		2,056		4,994		16,074		2,812,885		2,841,926		Residential	—		747		747		7,473		1,586		7,335		16,394		2,842,486		2,859,627
Home equity	Home equity	—		319		319		180		—		1,296		1,476		87,555		89,350		Home equity	489		251		740		8		139		48		195		83,653		84,588
Consumer and other	Consumer and other	73		—		73		1		—		—		1		131,333		131,407		Consumer and other	7		15		22		1		—		80		81		116,671		116,774
Total	Total	$	14,441	$	411	$	14,852	$	14,978	$	2,056	$	7,280	$	24,314	$	7,004,172	$	7,043,338	Total	$	3,554	$	1,981	$	5,585	$	13,403	$	1,725	$	10,476	$	25,604	$	7,301,765	$	7,332,954

______________________

(1) There was one commercial real estate loan with a balance less than $0.1 million that was 90+ days past due and accruing at June 30, 2020. Total accruing past due amount will not sum across for this reason.


	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	$	—	$	828	$	—	$	241	$	341	$	582	$	692,624	$	694,034
Commercial tax-exempt	—		—		—		—		—		—		—		447,927		447,927
Commercial real estate	1,420		—		1,420		—		—		—		—		2,549,854		2,551,274
Construction and land	—		—		—		—		—		—		—		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		—		369		220		148		1,157		1,525		81,763		83,657
Consumer and other	1,008		2,149		3,157		1		—		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 second 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.

2223

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, 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.

2324

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:


		March 31, 2020																			June 30, 2020
		By Loan Grade or Nonaccrual Status																	By Loan Grade or Nonaccrual Status
		Pass		Special Mention		Accruing Classified (1)		Nonaccrual Loans		Total			Pass		Special Mention		Accruing Classified (1)		Nonaccrual Loans		Total
		(In thousands)																			(In thousands)
Commercial and industrial	Commercial and industrial	$	609,537	$	9,428	$	50,408	$	1,371	$	670,744	Commercial and industrial	$	513,576	$	8,628	$	39,895	$	3,649	$	565,748
Paycheck Protection Program												Paycheck Protection Program	370,034		—		—		—		370,034
Commercial tax-exempt	Commercial tax-exempt	434,259		2,516		8,544		—		445,319		Commercial tax-exempt	408,326		2,460		8,478		—		419,264
Commercial real estate	Commercial real estate	2,517,306		79,909		23,692		5,392		2,626,299		Commercial real estate	2,460,827		175,661		34,935		5,285		2,676,708
Construction and land	Construction and land	237,823		470		—		—		238,293		Construction and land	235,378		4,833		—		—		240,211
Residential	Residential	2,821,611		—		4,241		16,074		2,841,926		Residential	2,839,005		—		4,228		16,394		2,859,627
Home equity	Home equity	86,811		—		1,063		1,476		89,350		Home equity	83,343		—		1,050		195		84,588
Consumer and other	Consumer and other	131,106		300		—		1		131,407		Consumer and other	116,393		300		—		81		116,774
Total	Total	$	6,838,453	$	92,623	$	87,948	$	24,314	$	7,043,338	Total	$	7,026,882	$	191,882	$	88,586	$	25,604	$	7,332,954


	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		—		447,927
Commercial real estate	2,495,702		32,014		23,558		—		2,551,274
Construction and land	225,526		457		—		—		225,983
Residential	2,820,909		—		4,253		13,993		2,839,155
Home equity	81,060		—		1,072		1,525		83,657
Consumer and other	134,371		300		—		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:

2425

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


		March 31, 2020																											June 30, 2020
		Loan Origination Year By Loan Grade or Nonaccrual Status																											Loan Origination Year By Loan Grade or Nonaccrual Status
		2020		2019		2018		2017		2016		2015 & Prior		Total			2020		2019		2018		2017		2016		Prior		Revolving		Total
		(In thousands)																											(In thousands)
Commercial and industrial	Commercial and industrial															Commercial and industrial
Pass	Pass	$	26,987	$	149,993	$	147,350	$	51,752	$	39,825	$	193,630	$	609,537	Pass	$	24,040	$	92,841	$	72,857	$	16,771	$	25,701	$	57,514	$	223,852	$	513,576
Special Mention	Special Mention	—		488		1,765		3,836		232		3,107		9,428		Special Mention	—		676		963		1,439		—		2,837		2,713		8,628
Accruing Classified (1)	Accruing Classified (1)	50		25,225		3,602		14,969		2,520		4,042		50,408		Accruing Classified (1)	200		4,423		7,455		14,726		1,358		442		11,291		39,895
Nonaccrual	Nonaccrual	—		171		—		210		735		255		1,371		Nonaccrual	49		161		—		197		—		14		3,228		3,649
Total																Total	$	24,289	$	98,101	$	81,275	$	33,133	$	27,059	$	60,807	$	241,084	$	565,748
Paycheck Protection Program																Paycheck Protection Program
Pass																Pass	$	370,034	$	—	$	—	$	—	$	—	$	—	$	—	$	370,034

Total	Total	$	27,037	$	175,877	$	152,717	$	70,767	$	43,312	$	201,034	$	670,744	Total	$	370,034	$	—	$	—	$	—	$	—	$	—	$	—	$	370,034
Commercial tax-exempt	Commercial tax-exempt															Commercial tax-exempt
Pass	Pass	$	—	$	13,741	$	41,012	$	24,823	$	108,057	$	246,626	$	434,259	Pass	$	12,665	$	15,912	$	40,819	$	24,606	$	107,595	$	206,729	$	—	$	408,326
Special Mention	Special Mention	—		—		—		—		—		2,516		2,516		Special Mention	—		—		—		—		—		2,460		—		2,460
Accruing Classified (1)	Accruing Classified (1)	—		—		—		4,021		—		4,523		8,544		Accruing Classified (1)	—		—		—		3,975		—		4,503		—		8,478

Total	Total	$	—	$	13,741	$	41,012	$	28,844	$	108,057	$	253,665	$	445,319	Total	$	12,665	$	15,912	$	40,819	$	28,581	$	107,595	$	213,692	$	—	$	419,264
Commercial real estate	Commercial real estate															Commercial real estate
Pass	Pass	$	71,236	$	491,954	$	310,679	$	349,161	$	432,649	$	861,627	$	2,517,306	Pass	$	187,358	$	481,495	$	260,482	$	338,837	$	393,779	$	725,465	$	73,411	$	2,460,827
Special Mention	Special Mention	—		22,855		13,322		15,324		19,325		9,083		79,909		Special Mention	20,640		34,666		27,114		790		37,704		54,747		—		175,661
Accruing Classified (1)	Accruing Classified (1)	—		1,424		—		1,184		8,919		12,165		23,692		Accruing Classified (1)	1,252		11,536		—		1,179		8,878		12,090		—		34,935
Nonaccrual	Nonaccrual	—		5,392		—		—		—		—		5,392		Nonaccrual	—		5,285		—		—		—		—		—		5,285
Total	Total	$	71,236	$	521,625	$	324,001	$	365,669	$	460,893	$	882,875	$	2,626,299	Total	$	209,250	$	532,982	$	287,596	$	340,806	$	440,361	$	792,302	$	73,411	$	2,676,708
Construction and land	Construction and land															Construction and land
Pass	Pass	$	3,731	$	52,620	$	84,692	$	53,428	$	16,820	$	26,532	$	237,823	Pass	$	5,937	$	61,095	$	77,695	$	47,276	$	16,928	$	26,447	$	—	$	235,378
Special Mention	Special Mention	—		—		470		—		—		—		470		Special Mention	—		—		4,833		—		—		—		—		4,833

Total	Total	$	3,731	$	52,620	$	85,162	$	53,428	$	16,820	$	26,532	$	238,293	Total	$	5,937	$	61,095	$	82,528	$	47,276	$	16,928	$	26,447	$	—	$	240,211
Residential	Residential															Residential
Pass	Pass	$	131,395	$	612,100	$	480,529	$	504,672	$	471,195	$	621,720	$	2,821,611	Pass	$	332,172	$	583,429	$	448,630	$	459,227	$	438,329	$	577,218	$	—	$	2,839,005

Accruing Classified (1)	Accruing Classified (1)	—		—		—		—		—		4,241		4,241		Accruing Classified (1)	—		—		—		—		—		4,228		—		4,228
Nonaccrual	Nonaccrual	—		263		1,089		2,532		—		12,190		16,074		Nonaccrual	—		262		1,084		2,529		—		12,519		—		16,394
Total	Total	$	131,395	$	612,363	$	481,618	$	507,204	$	471,195	$	638,151	$	2,841,926	Total	$	332,172	$	583,691	$	449,714	$	461,756	$	438,329	$	593,965	$	—	$	2,859,627
Home equity	Home equity															Home equity
Pass	Pass	$	1,325	$	13,322	$	15,847	$	7,781	$	6,833	$	41,703	$	86,811	Pass	$	—	$	—	$	454	$	248	$	686	$	12,998	$	68,957	$	83,343

Accruing Classified (1)	Accruing Classified (1)	—		—		—		—		—		1,063		1,063		Accruing Classified (1)	—		—		—		—		—		1,050		—		1,050
Nonaccrual	Nonaccrual	—		—		—		—		139		1,337		1,476		Nonaccrual	—		—		—		—		—		56		139		195
Total	Total	$	1,325	$	13,322	$	15,847	$	7,781	$	6,972	$	44,103	$	89,350	Total	$	—	$	—	$	454	$	248	$	686	$	14,104	$	69,096	$	84,588
Consumer and other	Consumer and other															Consumer and other
Pass	Pass	$	6,326	$	15,684	$	23,993	$	31,032	$	5,227	$	48,844	$	131,106	Pass	$	1,388	$	318	$	38	$	—	$	88	$	806	$	113,755	$	116,393
Special Mention	Special Mention	—		—		—		300		—		—		300		Special Mention	—		—		—		—		—		—		300		300

Nonaccrual	Nonaccrual	—		—		—		—		—		1		1		Nonaccrual	—		—		73		—		—		—		8		81
Total	Total	$	6,326	$	15,684	$	23,993	$	31,332	$	5,227	$	48,845	$	131,407	Total	$	1,388	$	318	$	111	$	—	$	88	$	806	$	114,063	$	116,774
Total	Total															Total
Pass	Pass	$	241,000	$	1,349,414	$	1,104,102	$	1,022,649	$	1,080,606	$	2,040,682	$	6,838,453	Pass	$	933,594	$	1,235,090	$	900,975	$	886,965	$	983,106	$	1,607,177	$	479,975	$	7,026,882
Special Mention	Special Mention	—		23,343		15,557		19,460		19,557		14,706		92,623		Special Mention	20,640		35,342		32,910		2,229		37,704		60,044		3,013		191,882
Accruing Classified (1)	Accruing Classified (1)	50		26,649		3,602		20,174		11,439		26,034		87,948		Accruing Classified (1)	1,452		15,959		7,455		19,880		10,236		22,313		11,291		88,586
Nonaccrual	Nonaccrual	—		5,826		1,089		2,742		874		13,783		24,314		Nonaccrual	49		5,708		1,157		2,726		—		12,589		3,375		25,604
Total	Total	$	241,050	$	1,405,232	$	1,124,350	$	1,065,025	$	1,112,476	$	2,095,205	$	7,043,338	Total	$	955,735	$	1,292,099	$	942,497	$	911,800	$	1,031,046	$	1,702,123	$	497,654	$	7,332,954

______________________

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

2526

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 months ended March 31, 2020																					As of and for the three and six months ended June 30, 2020
		Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		YTD Average Recorded Investment		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:											With no related allowance recorded:
Commercial and industrial	Commercial and industrial	$	555	$	632	n/a		$	667	$	6	Commercial and industrial	$	3,434	$	3,456	n/a		$	1,323	$	1,058	$	—	$	6
Paycheck Protection Program												Paycheck Protection Program	—		—		n/a		—		—		—		—
Commercial tax-exempt	Commercial tax-exempt	—		—		n/a		—		—		Commercial tax-exempt	—		—		n/a		—		—		—		—
Commercial real estate	Commercial real estate	6,119		6,151		n/a		2,403		9		Commercial real estate	6,007		6,122		n/a		6,064		3,964		8		17
Construction and land	Construction and land	—		—		n/a		—		—		Construction and land	—		—		n/a		—		—		—		—
Residential	Residential	16,352		16,612		n/a		15,587		117		Residential	16,309		16,569		n/a		16,331		15,903		143		260
Home equity	Home equity	1,548		2,109		n/a		1,550		3		Home equity	391		391		n/a		1,258		1,383		7		10
Consumer and other	Consumer and other	—		—		n/a		—		—		Consumer and other	—		—		n/a		—		—		—		—
Subtotal	Subtotal	$	24,574	$	25,504	n/a		$	20,207	$	135	Subtotal	$	26,141	$	26,538	n/a		24,976		$	22,308	158		$	293
With an allowance recorded:	With an allowance recorded:											With an allowance recorded:
Commercial and industrial	Commercial and industrial	$	273	$	280	$	175	$	281	$	—	Commercial and industrial	$	259	$	268	$	(161)	265		$	273	1		$	1
Paycheck Protection Program												Paycheck Protection Program	—		—		—		—		—		—		—
Commercial tax-exempt	Commercial tax-exempt	—		—		—		—		—		Commercial tax-exempt	—		—		—		—		—		—		—
Commercial real estate	Commercial real estate	—		—		—		—		—		Commercial real estate	—		—		—		—		—		—		—
Construction and land	Construction and land	—		—		—		—		—		Construction and land	—		—		—		—		—		—		—
Residential	Residential	532		532		64		535		4		Residential	528		528		(60)		530		532		2		6
Home equity	Home equity	270		270		20		271		2		Home equity	263		263		(18)		267		269		2		4
Consumer and other	Consumer and other	—		—		—		—		—		Consumer and other	—		—		—		—		—		—		—
Subtotal	Subtotal	$	1,075	$	1,082	$	259	$	1,087	$	6	Subtotal	$	1,050	$	1,059	$	(239)	$	1,062	$	1,074	$	5	$	11
Total:	Total:											Total:
Commercial and industrial	Commercial and industrial	$	828	$	912	$	175	$	948	$	6	Commercial and industrial	$	3,693	$	3,724	$	(161)	$	1,588	$	1,331	$	1	$	7
Paycheck Protection Program												Paycheck Protection Program	—		—		—		—		—		—		—
Commercial tax-exempt	Commercial tax-exempt	—		—		—		—		—		Commercial tax-exempt	—		—		—		—		—		—		—
Commercial real estate	Commercial real estate	6,119		6,151		—		2,403		9		Commercial real estate	6,007		6,122		—		6,064		3,964		8		17
Construction and land	Construction and land	—		—		—		—		—		Construction and land	—		—		—		—		—		—		—
Residential	Residential	16,884		17,144		64		16,122		121		Residential	16,837		17,097		(60)		16,861		16,435		145		266
Home equity	Home equity	1,818		2,379		20		1,821		5		Home equity	654		654		(18)		1,525		1,652		9		14
Consumer and other	Consumer and other	—		—		—		—		—		Consumer and other	—		—		—		—		—		—		—
Total	Total	$	25,649	$	26,586	$	259	$	21,294	$	141	Total	$	27,191	$	27,597	$	(239)	$	26,038	$	23,382	$	163	$	304

_____________________

(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.

2627

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


		As of and for the three months ended March 31, 2019																					As of and for the three and six months ended June 30, 2019
		Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		YTD Average Recorded Investment		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:											With no related allowance recorded:
Commercial and industrial	Commercial and industrial	$	862	$	1,730	n/a		$	1,021	$	15	Commercial and industrial	$	1,669	$	2,616	n/a		$	1,520	$	1,328	$	10	$	25
Commercial tax-exempt	Commercial tax-exempt	—		—		n/a		—		—		Commercial tax-exempt	—		—		n/a		—		—		—		—
Commercial real estate	Commercial real estate	—		—		n/a		136		256		Commercial real estate	—		—		n/a		—		78		—		256
Construction and land	Construction and land	—		—		n/a		—		—		Construction and land	—		—		n/a		—		—		—		—
Residential	Residential	12,306		12,566		n/a		11,056		137		Residential	15,127		15,387		n/a		14,079		12,605		103		240
Home equity	Home equity	2,147		2,709		n/a		1,709		—		Home equity	2,497		3,059		n/a		2,359		2,018		1		1
Consumer and other	Consumer and other	—		—		n/a		—		—		Consumer and other	—		—		n/a		—		—		—		—
Subtotal	Subtotal	$	15,315	$	17,005	n/a		$	13,922	$	408	Subtotal	$	19,293	$	21,062	n/a		$	17,958	$	16,029	$	114	$	522
With an allowance recorded:	With an allowance recorded:											With an allowance recorded:
Commercial and industrial	Commercial and industrial	$	1,302	$	1,353	$	231	$	1,542	$	16	Commercial and industrial	$	441	$	441	$	93	$	596	$	1,036	$	4	$	20
Commercial tax-exempt	Commercial tax-exempt	—		—		—		—		—		Commercial tax-exempt	—		—		—		—		—		—		—
Commercial real estate	Commercial real estate	—		—		—		—		—		Commercial real estate	—		—		—		—		—		—		—
Construction and land	Construction and land	—		—		—		—		—		Construction and land	—		—		—		—		—		—		—
Residential	Residential	597		597		68		732		7		Residential	778		778		74		733		752		6		13
Home equity	Home equity	—		—		—		1,290		—		Home equity	274		274		24		69		776		1		1
Consumer and other	Consumer and other	—		—		—		—		—		Consumer and other	—		—		—		—		—		—		—
Subtotal	Subtotal	$	1,899	$	1,950	$	299	$	3,564	$	23	Subtotal	$	1,493	$	1,493	$	191	$	1,398	$	2,564	$	11	$	34
Total:	Total:											Total:
Commercial and industrial	Commercial and industrial	$	2,164	$	3,083	$	231	$	2,563	$	31	Commercial and industrial	$	2,110	$	3,057	$	93	$	2,116	$	2,364	$	14	$	45
Commercial tax-exempt	Commercial tax-exempt	—		—		—		—		—		Commercial tax-exempt	—		—		—		—		—		—		—
Commercial real estate	Commercial real estate	—		—		—		136		256		Commercial real estate	—		—		—		—		78		—		256
Construction and land	Construction and land	—		—		—		—		—		Construction and land	—		—		—		—		—		—		—
Residential	Residential	12,903		13,163		68		11,788		144		Residential	15,905		16,165		74		14,812		13,357		109		253
Home equity	Home equity	2,147		2,709		—		2,999		—		Home equity	2,771		3,333		24		2,428		2,794		2		2
Consumer and other	Consumer and other	—		—		—		—		—		Consumer and other	—		—		—		—		—		—		—
Total	Total	$	17,214	$	18,955	$	299	$	17,486	$	431	Total	$	20,786	$	22,555	$	191	$	19,356	$	18,593	$	125	$	556

_____________________

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

2728

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	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
	(In thousands)
With no related allowance recorded:
Commercial and industrial	$	470	$	553	n/a		$	1,062	$	268
Commercial tax-exempt	—		—		n/a		—		—
Commercial real estate	733		733		n/a		155		262
Construction and land	—		—		n/a		—		—
Residential	15,362		15,622		n/a		13,700		636
Home equity	1,557		2,119		n/a		2,095		35
Consumer and other	—		—		n/a		—		—
Subtotal	$	18,122	$	19,027	n/a		$	17,012	$	1,201
With an allowance recorded:
Commercial and industrial	$	254	$	254	$	146	$	736	$	33
Commercial tax-exempt	—		—		—		—		—
Commercial real estate	—		—		—		—		—
Construction and land	—		—		—		—		—
Residential	538		538		67		1,130		23
Home equity	273		273		22		545		4
Consumer and other	—		—		—		—		—
Subtotal	$	1,065	$	1,065	$	235	$	2,411	$	60
Total:
Commercial and industrial	$	724	$	807	$	146	$	1,798	$	301
Commercial tax-exempt	—		—		—		—		—
Commercial real estate	733		733		—		155		262
Construction and land	—		—		—		—		—
Residential	15,900		16,160		67		14,830		659
Home equity	1,830		2,392		22		2,640		39
Consumer and other	—		—		—		—		—
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.

As of ~~March 31,~~June 30, 2020, 10336 residential and home equity loans with a current outstanding principal balance of ~~approximately $5.0~~$214.5 million were processed under this ~~mortgage~~ deferment program. ~~As of the date of this filing, the Bank has approved approximately 170 additional deferments for mortgage loans with a current outstanding principal balance of approximately $90.0 million.~~

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 for loan losses. Shortfalls on cash flow

2829

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

dependent loans may be carried as specific allocations to the general reserve unless a known loss is determined to have occurred, in which case, such known loss is charged-off.

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

As of ~~March 31,~~June 30, 2020, the Bank has pledged $2.3 billion of loans in a blanket lien agreement with the FHLB. The Bank also has ~~$386.2~~$358.2 million of loans pledged as collateral at the FRB for access to their discount window. As of December 31, 2019, the Bank had pledged $2.5 billion of loans to the FHLB and $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 ~~March 31,~~June 30, 2020 and December 31, 2019, TDRs totaled ~~$14.9~~$14.8 million and $12.6 million, respectively. As of ~~March 31,~~June 30, 2020, ~~$7.1~~$8.9 million of the ~~$14.9~~$14.8 million in TDRs were on accrual status. As of December 31, 2019, $7.1 million of the $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 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 reserve on the particular loan. Prior to the adoption of ASU 2016-13 on January 1, 2020, a general or 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 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 March 31, 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 — $ —
Commercial tax exempt — — — — —
Commercial real estate — — — — —
Construction and land — — — — —
Residential (2) 1 2,373 2,373 — —
Home equity — — — — —
Consumer and other — — — — —
Total 2 $ 2,423 $ 2,423 — $ —

~~_____________________~~

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

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


	As of and for the three months ended June 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	—	$	—	$	—	—	$	—
Paycheck Protection Program	—	—		—		—	—
Commercial tax exempt	—	—		—		—	—
Commercial real estate	—	—		—		—	—
Construction and land	—	—		—		—	—
Residential	—	—		—		1	1,562
Home equity	—	—		—		—	—
Consumer and other	—	—		—		—	—
Total	—	$	—	$	—	1	$	1,562

2930

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


		As of and for the three months ended March 31, 2019																As of and for the six months ended June 30, 2020
		Restructured Current Quarter										TDRs that defaulted in the Current Quarter that were restructured in prior twelve months					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			# of Loans		Pre- modification recorded investment		Post- modification recorded investment		# of Loans	Post- modification recorded investment
		(In thousands, except number of loans)																(In thousands, except number of loans)
Commercial and industrial (1)	Commercial and industrial (1)	1	$	179	$	179	—	$	—	Commercial and industrial (1)	1		$	50	$	50	—	$	—
Paycheck Protection Program										Paycheck Protection Program	—		—		—		—	—
Commercial tax exempt	Commercial tax exempt	—	—		—		—	—		Commercial tax exempt	—		—		—		—	—
Commercial real estate	Commercial real estate	—	—		—		—	—		Commercial real estate	—		—		—		—	—
Construction and land	Construction and land	—	—		—		—	—		Construction and land	—		—		—		—	—
Residential (2)	Residential (2)	1	3,000		3,000		—	—		Residential (2)	1		2,373		2,373		1	1,562
Home equity	Home equity	—	—		—		—	—		Home equity	—		—		—		—	—
Consumer and other	Consumer and other	—	—		—		—	—		Consumer and other	—		—		—		—	—
Total	Total	2	$	3,179	$	3,179	—	$	—	Total	2		$	2,423	$	2,423	1	$	1,562

_____________________

(1)Represents the following type of concession: extension of ~~term.~~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 three months ended June 30, 2019
	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	—	$	—	$	—	—	$	—
Commercial tax exempt	—	—		—		—	—
Commercial real estate	—	—		—		—	—
Construction and land	—	—		—		—	—
Residential (1)	1	222		222		—	—
Home equity (1)	1	274		274		—	—
Consumer and other	—	—		—		—	—
Total	2	$	496	$	496	—	$	—

_____________________

(1)Represents the following type of concession: temporary reduction of interest rate.


	As of and for the six months ended June 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	—	$	—
Commercial tax exempt	—	—		—		—	—
Commercial real estate	—	—		—		—	—
Construction and land	—	—		—		—	—
Residential	2	3,222		3,222		—	—
Home equity	1	274		274		—	—
Consumer and other	—	—		—		—	—
Total	4	$	3,675	$	3,675	—	$	—


	As of and for the six months ended June 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	—	$	—	—	$	—	—	$	—	1	$	179
Commercial tax exempt	—	—		—	—		—	—		—	—		—	—
Commercial real estate	—	—		—	—		—	—		—	—		—	—
Construction and land	—	—		—	—		—	—		—	—		—	—
Residential	—	—		2	3,222		—	—		—	—		2	3,222
Home equity	—	—		1	274		—	—		—	—		1	274
Consumer and other	—	—		—	—		—	—		—	—		—	—
	1	$	179	3	$	3,496	—	$	—	—	$	—	4	$	3,675

In ~~the first quarter of 2020, 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 can be deferred for an additional three months. Loans that are deferred under the program are not considered TDRs or past due based on current regulatory guidance. As of ~~March 31,~~June 30, 2020, 10336 residential and home equity loans totaling ~~approximately $5.0~~$214.5 million were ~~approved~~processed under ~~the~~this deferment program. ~~As this program was started late in the first quarter of 2020, the Bank has been experiencing increased volume in the second quarter of 2020 due to the COVID-19 pandemic. See Part I. Item 1. “Notes~~

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - ~~Note 16: Subsequent Events” for additional information on the mortgage deferment program.~~(Continued)

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:


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
		(In thousands)							(In thousands)
Commercial and industrial	Commercial and industrial	$	14,706	$	14,533	Commercial and industrial	$	15,122	$	14,533

Commercial tax-exempt	Commercial tax-exempt	17,959		18,101		Commercial tax-exempt	17,829		18,101
Commercial real estate	Commercial real estate	117,782		121,929		Commercial real estate	124,312		121,929
Construction and land	Construction and land	79,517		75,451		Construction and land	72,474		75,451
Total loan participations serviced for others	Total loan participations serviced for others	$	229,964	$	230,014	Total loan participations serviced for others	$	229,737	$	230,014

Residential	Residential	$	145,299	$	204,696	Residential	$	130,114	$	204,696
Total loans serviced for others	Total loans serviced for others	$	145,299	$	204,696	Total loans serviced for others	$	130,114	$	204,696

Total loans include deferred loan origination (fees)/costs, net, of ~~$7.7~~$(1.6) million and $8.1 million as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. The change in the balance of loan origination (fees)/costs, net, between December 31, 2019 and June 30, 2020 was primarily driven by PPP loan origination fees in the second quarter of 2020.

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 for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent 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. Reasonable and supportable economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the Company's historical long-run average. Management has

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

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

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, non-accrual, and adversely-graded loans

• Trends in volume and terms of loans

• Concentration ~~Risk~~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 ~~("DCF")~~ 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 sheet. 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.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The allowance for loan losses, which is reported as a reduction of outstanding loan balances, totaled ~~$68.2~~$89.3 million and $72.0 million as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

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 ~~the~~their different underlying risk characteristics. For the ~~period~~periods ended ~~March 31,~~June 30, 2019, the ~~provision/~~ 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~~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 ended June 30, 2019, there were no loans in this segment as the SBA initiated the program in the first quarter of 2020 in response to the COVID-19 pandemic. The following tables present a summary of the changes in the allowance for loan losses for the periods indicated:


	As of and for the three months ended June 30,						As of and for the six months ended June 30,
	2020		2019		2020		2019
	(In thousands)
Allowance for loan losses, beginning of period:
Commercial and industrial	$	10,255	$	15,687	$	10,048	$	15,912
Paycheck Protection Program	—		n/a		—		n/a
Commercial tax-exempt	1,927		n/a		6,016		n/a
Commercial real estate	36,580		41,813		40,765		41,934
Construction and land	5,709		5,353		5,119		6,022
Residential	11,779		10,057		8,857		10,026
Home equity	303		796		778		1,284
Consumer and other	1,658		108		399		134
Total allowance for loan losses, beginning of period	$	68,211	$	73,814	$	71,982	$	75,312


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

Provision/(credit) for loan losses:
Commercial and industrial	$	(359)	$	550	$	886	$	137
Paycheck Protection Program	190		n/a		190		n/a
Commercial tax-exempt	559		n/a		879		n/a
Commercial real estate	11,095		1,898		21,365		1,588
Construction and land	3,815		(573)		6,563		(1,242)
Residential	5,986		(502)		8,223		(571)
Home equity	1,293		9		1,221		83
Consumer and other	25		(19)		239		(58)
Total provision/(credit) for loan losses	$	22,604	$	1,363	$	39,566	$	(63)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


			As of and for the three months ended March 31,							As of and for the three months ended June 30,							As of and for the six months ended June 30,
			2020		2019			2020		2019			2020		2019
		(In thousands)										(In thousands)
Allowance for loan losses, beginning of period:
Commercial and industrial			$	10,048	$	15,912
Commercial tax-exempt			6,016		n/a
Commercial real estate			40,765		41,934
Construction and land			5,119		6,022
Residential			8,857		10,026
Home equity			778		1,284
Consumer and other			399		134
Total allowance for loan losses, beginning of period			$	71,982	$	75,312

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

Provision/(credit) for loan losses:
Commercial and industrial			$	1,245	$	(413)
Commercial tax-exempt			320		n/a
Commercial real estate			10,270		(310)
Construction and land			2,748		(669)
Residential			2,237		(69)
Home equity			(72)		74
Consumer and other			214		(39)
Total provision/(credit) for loan losses			$	16,962	$	(1,426)

Loans charged off:	Loans charged off:						Loans charged off:
Commercial and industrial	Commercial and industrial		$	(518)	$	—	Commercial and industrial	$	(389)	$	(195)		$	(907)	$	(195)
Paycheck Protection Program							Paycheck Protection Program	—		n/a			—		n/a
Commercial tax-exempt	Commercial tax-exempt		—		—		Commercial tax-exempt	—		n/a			—		n/a
Commercial real estate	Commercial real estate		—		—		Commercial real estate	—		—			—		—
Construction and land	Construction and land		—		—		Construction and land	—		—			—		—
Residential	Residential		—		—		Residential	—		—			—		—
Home equity	Home equity		—		(562)		Home equity	(1,157)		—			(1,157)		(562)
Consumer and other	Consumer and other		(10)		(2)		Consumer and other	—		—			(10)		(2)
Total charge offs	Total charge offs		$	(528)	$	(564)	Total charge offs	$	(1,546)	$	(195)		$	(2,074)	$	(759)

Recoveries on loans previously charged off:	Recoveries on loans previously charged off:						Recoveries on loans previously charged off:
Commercial and industrial	Commercial and industrial		$	45	$	188	Commercial and industrial	$	52	$	40		$	97	$	228
Paycheck Protection Program							Paycheck Protection Program	—		n/a			—		n/a
Commercial tax-exempt	Commercial tax-exempt		—		—		Commercial tax-exempt	—		n/a			—		n/a
Commercial real estate	Commercial real estate		—		189		Commercial real estate	—		30			—		219
Construction and land	Construction and land		—		—		Construction and land	—		—			—		—
Residential	Residential		—		100		Residential	—		—			—		100
Home equity	Home equity		132		—		Home equity	—		—			132		—
Consumer and other	Consumer and other		3		15		Consumer and other	3		15			6		30
Total recoveries	Total recoveries		$	180	$	492	Total recoveries	$	55	$	85		$	235	$	577

Allowance for loan losses, end of period:	Allowance for loan losses, end of period:						Allowance for loan losses, end of period:
Commercial and industrial	Commercial and industrial		$	10,255	$	15,687	Commercial and industrial	$	9,559	$	16,082		$	9,559	$	16,082
Paycheck Protection Program							Paycheck Protection Program	190		n/a			190		n/a
Commercial tax-exempt	Commercial tax-exempt		1,927		n/a		Commercial tax-exempt	2,486		n/a			2,486		n/a
Commercial real estate	Commercial real estate		36,580		41,813		Commercial real estate	47,675		43,741			47,675		43,741
Construction and land	Construction and land		5,709		5,353		Construction and land	9,524		4,780			9,524		4,780
Residential	Residential		11,779		10,057		Residential	17,765		9,555			17,765		9,555
Home equity	Home equity		303		796		Home equity	439		805			439		805
Consumer and other	Consumer and other		1,658		108		Consumer and other	1,686		104			1,686		104
Total allowance for loan losses, end of period	Total allowance for loan losses, end of period		$	68,211	$	73,814	Total allowance for loan losses, end of period	$	89,324	$	75,067		$	89,324	$	75,067

The balance of the allowance for loan losses of ~~$68.2~~$89.3 million as of ~~March 31,~~June 30, 2020 represents ~~a decrease~~an increase of ~~$3.8~~$17.3 million from December 31, 2019. During the three and six months ended June 30, 2020, the Company recognized a Provision for loan loss expense of $22.6 million and $39.6 million, respectively. The increase in the allowance for loan losses in the first two quarters of 2020 was primarily driven by changes in economic forecasts in both the first quarter and second quarter of 2020 to reflect deteriorating economic conditions related to the COVID-19 pandemic and a change in the weight of forecast scenarios used to be weighted more heavily to the downside scenario, combined with an increase in qualitative factors to account for incremental risk not included in the quantitative model.

The balance of reserve for unfunded loan commitments of $7.1 million as of June 30, 2020 represents an increase of $6.0 million from December 31, 2019. The increase was driven by deteriorating economic conditions related to the COVID-19 pandemic increasing the reserve factor as well as an increase in commitments. This amount is recognized as Other expense within Noninterest expense.

Upon the adoption of ASU 2016-13 on January 1, 2020, the Company recognized a decrease

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

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

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 ~~the~~ reasonable and supportable economic forecasts at the time of adoption. During the first quarter of 2020, the Company recognized a provision for loan losses of $17.0 million. The increase in the allowance for loan losses of $17.0 million in the first quarter of 2020 was primarily driven by the changes in economic forecasts late in the first quarter of 2020 to reflect deteriorating economic conditions related to the COVID-19 pandemic.

~~The balance of reserve for unfunded loan commitments of $4.3 million as of March 31, 2020 represents an increase of $3.2 million from December 31, 2019.~~ 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 expense. The net, after-tax impact of the $20.4 million 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. During the first quarter of 2020, the Company recognized a $1.8 million expense for the increase in the reserve for unfunded loan commitments, which is recognized as Other expense within Noninterest expense, driven by the change in economic forecasts.

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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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 following tables present the Company’s allowance for loan losses and loan portfolio as of ~~March 31,~~June 30, 2020 and December 31, 2019 by portfolio segment, disaggregated by method of impairment analysis. The Company had 0 loans acquired with deteriorated credit quality as of ~~March 31,~~June 30, 2020 or December 31, 2019.

March 31, 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 $ 828 $ 175 $ 669,916 $ 10,080 $ 670,744 $ 10,255
Commercial tax-exempt — — 445,319 1,927 445,319 1,927
Commercial real estate 6,119 — 2,620,180 36,580 2,626,299 36,580
Construction and land — — 238,293 5,709 238,293 5,709
Residential 16,884 64 2,825,042 11,715 2,841,926 11,779
Home equity 1,818 20 87,532 283 89,350 303
Consumer and other — — 131,407 1,658 131,407 1,658
Total $ 25,649 $ 259 $ 7,017,689 $ 67,952 $ 7,043,338 $ 68,211


	June 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	$	3,693	$	161	$	562,055	$	9,398	$	565,748	$	9,559
Paycheck Protection Program	—		—		370,034		190		370,034		190
Commercial tax-exempt	—		—		419,264		2,486		419,264		2,486
Commercial real estate	6,007		—		2,670,701		47,675		2,676,708		47,675
Construction and land	—		—		240,211		9,524		240,211		9,524
Residential	16,837		60		2,842,790		17,705		2,859,627		17,765
Home equity	654		18		83,934		421		84,588		439
Consumer and other	—		—		116,774		1,686		116,774		1,686
Total	$	27,191	$	239	$	7,305,763	$	89,085	$	7,332,954	$	89,324


	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		—		2,550,541		40,765		2,551,274		40,765
Construction and land	—		—		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	—		—		134,674		399		134,674		399
Total	$	19,187	$	235	$	6,957,517	$	71,747	$	6,976,704	$	71,982

3336

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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 as of ~~March 31,~~June 30, 2020 and December 31, 2019:

March 31, 2020

December 31, 2019

June 30, 2020

December 31, 2019

Asset derivatives

Liability derivatives

Asset derivatives

Liability derivatives

Asset derivatives

Liability derivatives

Asset derivatives

Liability derivatives

Balance
sheet
location

Fair
value (1)

Balance
sheet
location

Fair
value (1)

Balance
sheet
location

Fair
value (1)

Balance
sheet
location

Fair
value (1)

Balance
sheet
location

Fair
value (1)

Balance
sheet
location

Fair
value (1)

Balance
sheet
location

Fair
value (1)

Balance
sheet
location

Fair
value (1)

(In thousands)

Derivatives designated as hedging instruments:

Interest rate swaps

Other assets

—

Other liabilities

274

Other assets

—

Other liabilities

—

Derivatives not designated as hedging instruments:

Interest rate customer swaps

Other assets

93,391

Other liabilities

94,437

Other assets

36,089

Other liabilities

36,580

Interest rate customer swaps

Other assets

96,968

Other liabilities

97,760

Other assets

36,089

Other liabilities

36,580

Risk participation agreements

Other assets

Other liabilities

480

Other assets

Other liabilities

242

Risk participation agreements

Other assets

Other liabilities

478

Other assets

Other liabilities

242

Total

93,437

94,917

36,099

36,822

Total

96,989

98,512

36,099

36,822

_____________________

(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 six months ended ~~March 31,~~June 30, 2020 and 2019:


Derivatives in cash flow hedging relationships	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							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 March 31,										Three months ended March 31,							Derivatives in cash flow hedging relationships				Three months ended June 30,						Location of gain or (loss) reclassified from accumulated OCI into income	Three months ended June 30,
				2020			2019				2020			2019		Derivatives in cash flow hedging relationships			2020			2019				Location of gain or (loss) reclassified from accumulated OCI into income
		(In thousands)									(In thousands)									(In thousands)										(In thousands)
Interest rate swaps	Interest rate swaps	$	—		$	(38)		Interest expense	$	—	$	(311)	Interest rate swaps		$		$	(9)		Interest income/(expense)			$	(152)
Total	Total	$	—		$	(38)			$	—	$	(311)	Total		$	(426)	$	(9)					$	(152)			$	191


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
			Six months ended June 30,									Six months ended June 30,
			2020			2019				2020		2019
	(In thousands)									(In thousands)
Interest rate swaps	$	(426)		$	(47)		Interest income/(expense)	$	(152)	$	502
Total	$	(426)		$	(47)			$	(152)	$	502

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table presents the effect of the Company’s derivative financial instruments in the Consolidated Statements of Operations for the three and six months ended ~~March 31,~~June 30, 2020 and 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									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 March 31,										Location of gain or (loss) reclassified from accumulated OCI into income				Three months ended June 30,					Six months ended June 30,
					2020				2019							2020			2019			2020	2019
			(In thousands)										(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	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	$	—	$	(311)	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 income/(expense)		$	(152)		$			191		$	(152)		$	502
The effects of cash flow hedging:	The effects of cash flow hedging:						The effects of cash flow hedging:
Gain or (loss) on cash flow hedging relationships in ASC 815	Gain or (loss) on cash flow hedging relationships in ASC 815						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 contracts - amount of gain or (loss) reclassified from accumulated other comprehensive income into income	Interest expense	$	—	$	(311)	Interest contracts - amount of gain or (loss) reclassified from accumulated other comprehensive income into income	Interest income/(expense)		$	(152)		$	191		$	(152)		$	502

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

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

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

Bank could also be declared in default on its derivative obligations. The Bank was in compliance with these provisions as of ~~March 31,~~June 30, 2020 and December 31, 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 ~~March 31,~~June 30, 2020 and December 31, 2019.

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 ~~March 31,~~June 30, 2020 and December 31, 2019.

As of ~~March 31,~~June 30, 2020 and December 31, 2019, the termination amounts related to collateral determinations of derivatives in a liability position were ~~$94.7~~$98.9 million and $35.7 million, respectively. The Company has minimum collateral posting thresholds with its derivative counterparties. As of ~~March 31,~~June 30, 2020 and December 31, 2019, the Company had pledged securities with a market value of ~~$96.8~~$100.9 million and $40.0 million, respectively, against its obligations under these agreements. 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 March 31, 2020, there were no active~~a cash flow ~~hedges.~~hedge and involves the receipt of variable rate amounts from a counterparty in exchange for the Company 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 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 other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made or received on the Company’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 Statements of Operations in other income. The Bank has interest rate swaps and caps related to this program with an aggregate notional amount of ~~$1.7~~$1.6 billion as of ~~March 31,~~June 30, 2020 and ~~$1.6 billion as of~~ December 31, 2019. As of ~~March 31,~~June 30, 2020 and December 31, 2019, there were 0 foreign currency exchange contracts 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 ~~March 31,~~June 30, 2020 and December 31, 2019, there were 7 of these risk participation transactions with an aggregate notional amount of ~~$58.4~~$58.1 million and $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 ~~March 31,~~June 30, 2020, there were 5 of these risk participation transactions with an aggregate notional amount of $30.4 million. As of December 31, 2019, there were 4 of these risk participation transactions with an aggregate notional amount of $20.5 million.

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

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

The following table presents the effect of the Bank’s derivative financial instruments not designated as hedging instruments in the Consolidated Statements of Operations for the three and six months ended ~~March 31,~~June 30, 2020 and 2019.


			Amount of gain or (loss), net, recognized in income on derivatives										Amount of gain or (loss), net, recognized in income on derivatives
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments	Location of gain or (loss) recognized in income on derivatives	Three months ended March 31,						Derivatives not designated as hedging instruments	Location of gain or (loss) recognized in income on derivatives			Three months ended June 30,						Six months ended June 30,
							2020					Location of gain or (loss) recognized in income on derivatives					2020		2019	2020	2019
			(In thousands)										(In thousands)
Interest rate swaps	Interest rate swaps	Other income/ (expense)	$	(555)	$	(191)	Interest rate swaps	Other income/(expense)		$	254		$	(64)	$	(301)	$	(255)
Risk participation agreements	Risk participation agreements	Other income/ (expense)	(202)		104		Risk participation agreements	Other income/(expense)		(24)			(213)		(226)		(109)

Total	Total		$	(757)	$	(87)	Total			$	230		$	(277)	$	(527)	$	(364)

9. Income Taxes

The following table presents the components of income tax expense and effective tax rates for the periods indicated:


		Three months ended March 31,										Six months ended June 30,
		2020			2019				2020			2019
		(In thousands)										(In thousands)

Income before income taxes		$	908		$	24,459
Income/(loss) before income taxes								Income/(loss) before income taxes	$	(1,549)		$	49,277
Income tax expense	Income tax expense	102			4,917			Income tax expense	943			10,286
Net income before attribution to noncontrolling interests		$	806		$	19,542
Net income/(loss) before attribution to noncontrolling interests								Net income/(loss) before attribution to noncontrolling interests	$	(2,492)		$	38,991
Effective tax rate	Effective tax rate	11.2		%	20.1		%	Effective tax rate	(60.9)		%	20.9		%

The effective tax rate for the ~~three~~six months ended ~~March 31,~~June 30, 2020 of ~~11.2%~~(60.9)%, with related tax expense of ~~$0.1~~$0.9 million, was calculated based on a forecasted 2020 annual effective tax rate. The effective tax rate for the ~~three~~six months ended ~~March 31,~~June 30, 2019 of ~~20.1%~~20.9%, with related tax expense of ~~$4.9~~$10.3 million, was calculated based on a forecasted 2019 annual effective tax rate.

The effective tax ~~rates~~rate for the ~~three~~six months ended ~~March 31,~~June 30, 2020 was negative due primarily to the impact of earnings from tax-exempt investments and ~~March 31, 2019~~income tax credits in relation to near break-even income. The tax rate is less meaningful in periods where the Company is near break-even as a result of ~~11.2% and 20.1%, respectively, were calculated based on forecasted annual effective~~the larger proportionate impact of tax ~~rates.~~benefit items compared to pre-tax income. The effective tax rate for ~~both periods was~~the six months ended June 30, 2019 is less than the statutory rate of 21% due primarily to earnings from tax-exempt investments and income tax credits, which were partially offset by state and local income taxes and the accounting for investments in affordable housing projects. The effective tax rate for the ~~three~~six months ended ~~March 31,~~June 30, 2020 is less than the effective tax rate for the same period in 2019 due primarily to the lower level of income in 2020 as compared to

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

2019. In addition, the effective tax rate for the six months ended June 30, 2020 includes income tax expense of $0.5 million related to employee share-based payments.

10. Noncontrolling Interests

Noncontrolling interests consist of equity owned by management of the Company’s majority-owned affiliate, DGHM. Net income attributable to noncontrolling interests in the Consolidated Statements of Operations represents the net income allocated to the noncontrolling interest owners of DGHM. Net income allocated to the noncontrolling interest owners was ~~$6 thousand~~0 and ~~$100~~$69 thousand for the three-month periods ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $6 thousand and $169 thousand for the six-month periods ended June 30, 2020 and 2019, respectively.

On the Consolidated Balance Sheets, noncontrolling interests are included as the sum of the capital and undistributed profits allocated to the noncontrolling interest owners. Typically, this balance is included in a company’s permanent shareholders’ equity in the Consolidated Balance Sheets. When the noncontrolling interest owners’ rights include certain redemption features, as described in ASC 480, Distinguishing Liabilities from Equity, such redeemable noncontrolling interests are classified as mezzanine equity and are not included in permanent shareholders’ equity. Due to the redemption features of the noncontrolling interests of DGHM, the Company had redeemable noncontrolling interests held in mezzanine equity in the accompanying Consolidated Balance Sheets of 0 and $1.4 million as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. The aggregate amount of such 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 ~~March 31,~~June 30, 2020 and December 31, 2019.

The DGHM operating agreement provides the Company and/or the noncontrolling interest holders with contingent call and put options and mandatory repurchase obligations used for the orderly transfer of noncontrolling equity interests between the noncontrolling interest holders and the Company at contractually predetermined values. 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, 2019.

The interests in DGHM take the form of limited liability company units. There are various events that could trigger a put, call or mandatory repurchase, such as a change in control, death, disability, retirement, resignation or termination. The terms of these rights and obligations are governed by the operating agreement of DGHM.

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


	Three months ended						Six months ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019

	(In thousands)
Redeemable noncontrolling interests at beginning of period	$	—	$	662	$	1,383	$	2,526
Net income attributable to noncontrolling interests	—		69		6		169
Distributions	—		(69)		(6)		(169)
Purchases/(sales) of ownership interests	—		—		(64)		12

Amortization of equity compensation	8		9		16		26
Adjustments to fair value	(8)		1,115		(1,335)		(778)
Redeemable noncontrolling interests at end of period	$	—	$	1,786	$	—	$	1,786

11. Accumulated Other Comprehensive Income

The following table presents a summary of the amounts reclassified from the Company's Accumulated other comprehensive income/(loss) for the three and six months ended June 30, 2020 and 2019:


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




Net realized gain/(loss) on cash flow hedges:
Hedges related to deposits:
Pre-tax gain/(loss)	$	(152)		$	191		$	(152)		$	502		Interest income/(expense)

Tax (expense)/ benefit	45			(55)			45			(146)			Income tax (expense)/benefit
Net	$	(107)		$	136		$	(107)		$	356		Net income/(loss) attributable to the Company
Total reclassifications for the period, net of tax	$	(107)		$	136		$	(107)		$	356

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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

Three months ended
March 31, 2020 March 31, 2019
(In thousands)
Redeemable noncontrolling interests at beginning of period $ 1,383 $ 2,526
Net income attributable to noncontrolling interests 6 100
Distributions (6) (100)
Purchases/(sales) of ownership interests (64) 12
Amortization of equity compensation 8 17
Adjustments to fair value (1,327) (1,893)
Redeemable noncontrolling interests at end of period $ — $ 662

~~11. Accumulated Other Comprehensive Income~~

~~The following table presents a summary of the amounts reclassified from Accumulated other comprehensive income/ (loss) for the three months ended March 31, 2020 and 2019:~~

Description of component of Accumulated other comprehensive income/(loss) Three months ended March 31, Affected line item in
Statement of Operations
2020 2019
(In thousands)
Net realized gain/(loss) on cash flow hedges:
Hedges related to deposits:
Pre-tax gain/(loss) $ — $ (311) Interest (expense)
Tax (expense)/ benefit — (91) Income tax (expense)/benefit
Net $ — $ (220) Net income/(loss) attributable to the Company
Total reclassifications for the period, net of tax $ — $ (220)

~~The following table presents~~ the after-tax changes in the components of the Company’s Accumulated other comprehensive income/(loss) for the three and six months ended ~~March 31,~~June 30, 2020 and 2019:


		Components of Accumulated other comprehensive income/(loss)													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)			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)															(In thousands)
Balance at December 31, 2018	Balance at December 31, 2018	$	(17,556)	$	391	$	(554)	$	(17,719)	Balance at December 31, 2018	$	(17,556)	$	391	$	(554)	$	(17,719)
Other comprehensive income/(loss) before reclassifications	Other comprehensive income/(loss) before reclassifications	11,568		(27)		—		11,541		Other comprehensive income/(loss) before reclassifications	22,233		(33)		—		22,200
Reclassified from other comprehensive income/(loss)	Reclassified from other comprehensive income/(loss)	—		(220)		—		(220)		Reclassified from other comprehensive income/(loss)	—		(356)		—		(356)
Other comprehensive income/(loss), net	Other comprehensive income/(loss), net	11,568		(247)		—		11,321		Other comprehensive income/(loss), net	22,233		(389)		—		21,844

Balance at March 31, 2019		$	(5,988)	$	144	$	(554)	$	(6,398)
Balance at June 30, 2019										Balance at June 30, 2019	$	4,677	$	2	$	(554)	$	4,125

Balance at December 31, 2019	Balance at December 31, 2019	$	8,435	$	—	$	(860)	$	7,575	Balance at December 31, 2019	$	8,435	$	—	$	(860)	$	7,575
Other comprehensive income/(loss) before reclassifications	Other comprehensive income/(loss) before reclassifications	14,489		—		—		14,489		Other comprehensive income/(loss) before reclassifications	22,687		(302)		(30)		22,355

Reclassified from other comprehensive income/(loss)										Reclassified from other comprehensive income/(loss)	—		107		—		107
Other comprehensive income/(loss), net	Other comprehensive income/(loss), net	14,489		—		—		14,489		Other comprehensive income/(loss), net	22,687		(195)		(30)		22,462

Balance at March 31, 2020		$	22,924	$	—	$	(860)	$	22,064
Balance at June 30, 2020										Balance at June 30, 2020	$	31,122	$	(195)	$	(890)	$	30,037


	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 March 31, 2019	$	(5,988)	$	144	$	(554)	$	(6,398)
Other comprehensive income/(loss) before reclassifications	10,665		(6)		—		10,659
Reclassified from other comprehensive income/(loss)	—		(136)		—		(136)
Other comprehensive income/(loss), net	10,665		(142)		—		10,523

Balance at June 30, 2019	$	4,677	$	2	$	(554)	$	4,125

Balance at March 31, 2020	$	22,924	$	—	$	(860)	$	22,064
Other comprehensive income/(loss) before reclassifications	8,198		(302)		(30)		7,866
Reclassified from other comprehensive income/(loss)	—		107		—		107
Other comprehensive income/(loss), net	8,198		(195)		(30)		7,973

Balance at June 30, 2020	$	31,122	$	(195)	$	(890)	$	30,037

12. Restructuring

There were 0 restructuring charges infor the ~~first quarter of~~three and six months ended June 30, 2020. In the first quarter of 2019, the Company incurred restructuring charges of $1.6 million. The charges were in connection with a previously announced reduction to the Company’s workforce, which included executive transition changes as well as other employee benefit and technology related initiatives. The restructuring iswas intended to improve the Company’s operating efficiency and enhance earnings.

3741

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table presents a summary of the restructuring activity for the three and six months ended ~~March 31,~~June 30, 2020 and 2019:


		Severance Charges		Other Associated Costs		Total			Severance Charges		Other Associated Costs			Total
		(In thousands)											(In thousands)
Accrued charges at December 31, 2019	Accrued charges at December 31, 2019	$	526	$	789	$	1,315	Accrued charges at December 31, 2019	$	526	$	789		$	1,315

Costs paid	Costs paid	(434)		—		(434)		Costs paid	(434)		—			(434)
Accrued charges at March 31, 2020	Accrued charges at March 31, 2020	$	92	$	789	$	881	Accrued charges at March 31, 2020	92		789			881

Costs paid								Costs paid	(92)		—			(92)
Accrued charges at June 30, 2020								Accrued charges at June 30, 2020	$	—	$	789		$	789

Accrued charges at December 31, 2018	Accrued charges at December 31, 2018	$	3,896	$	789	$	4,685	Accrued charges at December 31, 2018	$	3,896	$	789		$	4,685
Cost incurred	Cost incurred	1,646		—		1,646		Cost incurred	1,646		—			1,646
Costs paid	Costs paid	(1,986)		—		(1,986)		Costs paid	(1,986)		—			(1,986)
Accrued charges at March 31, 2019	Accrued charges at March 31, 2019	$	3,556	$	789	$	4,345	Accrued charges at March 31, 2019	3,556		789			4,345

Costs paid								Costs paid	(1,364)		—			(1,364)
Accrued charges at June 30, 2019								Accrued charges at June 30, 2019	$	2,192	$	789		$	2,981

13. Revenue Recognition

In accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. ASC 606 does not apply to revenue associated with financial instruments such as loans and securities. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest income considered in-scope of ASC 606 is discussed below.

Wealth ~~Management~~management and ~~Trust Fees~~trust fees

Wealth management and trust fees are earned for providing wealth management, retirement plan advisory, family office, financial planning, trust services, and other financial advisory services to clients. The Company’s performance obligation under these contracts is satisfied over time as the services are provided. Fees are recognized monthly based on the average monthly, beginning-of-quarter, or, for a small number of clients, end-of-quarter market value of the AUM and the applicable fee rate, depending on the terms of the contracts. Fees are also recognized monthly based either on a fixed fee amount or are based on the quarter-end (in arrears) market value of the AUM and the applicable fee rate, ~~(“asset based fees”),~~ depending on the terms of the contracts. No performance based incentives are earned onunder wealth management contracts. Receivables are recorded on the Consolidated Balance Sheets in the Fees receivable line item. Deferred revenues of ~~$6.4~~$6.0 million and ~~$6.7~~$6.5 million as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively, are recorded on the Consolidated Balance Sheets within ~~the~~ Other ~~liabilities line item.~~liabilities.

Trust fees are earned when the Company is appointed as trustee for clients. As trustee, the Company administers the client’s trust and manages the assets of the trust including investments and property. The Company’s performance obligation under these agreements is satisfied over time as the administration and management services are provided. Fees are recognized monthly or, in certain circumstances, quarterly based on a percentage of the market value of the account as outlined in the agreement. Payment frequency is defined in the individual contracts which primarily stipulate monthly in arrears. No performance based incentives are earned on trust fee contracts. Receivables are recorded on the Consolidated Balance Sheets ~~in the~~within Fees ~~receivable line item.~~receivable.

Investment ~~Management Fees~~management fees

Investment management fees are earned for the management of a series of accounts and funds in which clients invest directly, acting as a sub-advisor to larger investment management companies, or private client account management. The Company’s performance obligation is satisfied over time and the resulting fees are recognized monthly, based upon either the beginning-of-quarter (in advance) or quarter-end (in arrears) market value of the AUM and the applicable fee rate, depending on the terms of the contracts. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company may earn performance-based incentives on certain contracts. Receivables are recorded on the Consolidated Balance Sheets ~~in the~~within Fees ~~receivable line item.~~receivable.

Other ~~Banking Fee Income~~banking fee income

The Bank charges a variety of fees to its clients for services provided on the deposit and deposit management related accounts. Each fee is either transaction based or assessed monthly. The types of fees include service charges on accounts, overdraft fees, maintenance fees, ATM fee charges, ~~credit card charges,~~ and other miscellaneous charges related to the accounts. These fees are not governed by individual contracts with clients. They are charges to clients based on disclosures presented to clients upon opening

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

these accounts along with updated disclosures when changes are made to the fee structures. The transaction-based fees are recognized in revenue when charged to the client based on specific activity on the client’s account. Monthly service/maintenance charges are recognized in the month they are earned and are charged directly to the client’s account.

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

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

The Bank also charges fees for treasury activities such as swap fees and foreign exchange fees for clients with a banking relationship. These fees are recorded when earned via completion of the transaction for the client. The completion of the transaction is deemed to be the performance obligation of the transaction. The related revenue is recorded through a direct charge to the client’s account. There are no individual agreements or contracts with clients relating to foreign exchange fees as they are governed by client disclosure statements and the Bank’s internal policies and procedures.

The following table presents the fee income considered in-scope of ASC 606 by contracts with customers:


			Three months ended March 31,							Three months ended June 30,							Six months ended June 30,
			2020		2019			2020		2019			2020		2019
		(In thousands)										(In thousands)
Fees and other income:	Fees and other income:						Fees and other income:
Wealth management and trust fees	Wealth management and trust fees		$	18,371	$	19,058	Wealth management and trust fees	$	17,261	$	18,912		$	35,632	$	37,970
Investment management fees	Investment management fees		1,925		2,650		Investment management fees	1,770		2,455			3,695		5,105

Other income	Other income		752		684		Other income	602		638			1,354		1,322

Revenue from contracts with customers	Revenue from contracts with customers		21,048		22,392		Revenue from contracts with customers	19,633		22,005			40,681		44,397
Non-interest income within the scope of other GAAP topics	Non-interest income within the scope of other GAAP topics		473		2,856		Non-interest income within the scope of other GAAP topics	3,029		2,375			3,502		5,231

Total non-interest income	Total non-interest income		$	21,521	$	25,248	Total non-interest income	$	22,662	$	24,380		$	44,183	$	49,628

14. Lease Accounting

On adoption of ASU 2016-02 on January 1, 2019, the Company recognized $124.1 million of lease liabilities and $108.5 million of right-of-use ("ROU") assets on the ~~face of the balance sheet.~~Consolidated Balance Sheet. ROU assets obtained in exchange for lease liabilities are net of tenant improvement allowances and deferred rent. There was no impact to the Company’s Consolidated Statements of Cash Flows upon adoption, since the net impact of all adjustments recorded upon transition represents non-cash activity. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 15: Recent Accounting Pronouncements” for additional information on the Company's adoption of this standard.

The Company, as lessee, has 4237 real estate leases for office and ATM locations classified as operating leases. The Company determines if an arrangement is a lease or contains a lease at inception. The terms of the real estate leases generally have annual increases in payments based off of a fixed or variable rate, such as the Consumer Price Index rate, that is outlined within the respective contracts. Generally, the initial terms of the leases for our leased properties range from five to fifteen years. Most of the leases also include options to renew for periods of five to ten years at contractually agreed upon rates or at market rates at the time of the extension. On a quarterly basis, the Company evaluates whether the renewal of each lease is reasonably certain. If the lease doesn’t provide the implicit interest rate, the Bank uses its incremental borrowing rate at the commencement date of the lease in determining the present value of lease payments. No other significant judgments or assumptions were made in applying the requirements of ASU 2016-02.

The following table presents information about the Company's leases as of the dates indicated.


		Three months ended March 31,							Three months ended June 30,						Six months ended June 30,
		2020		2019			2020		2019		2020		2019
		(In thousands)							(In thousands)
Lease cost	Lease cost					Lease cost
Operating lease cost	Operating lease cost	$	4,601	$	4,685	Operating lease cost	$	4,493	$	4,841	$	9,094	$	9,526
Short-term lease cost	Short-term lease cost	48		32		Short-term lease cost	58		(3)		106		29
Variable lease cost	Variable lease cost	(9)		2		Variable lease cost	—		2		(9)		4
Less: Sublease income	Less: Sublease income	(28)		(18)		Less: Sublease income	—		(28)		(28)		(46)
Total operating lease cost	Total operating lease cost	$	4,612	$	4,701	Total operating lease cost	$	4,551	$	4,812	$	9,163	$	9,513

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	~~Three~~Six months ended ~~March 31,~~June 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	$	~~5,100~~10,180


ROU assets obtained in exchange for new operating lease liabilities	$	443

Weighted-average remaining lease term for operating leases	~~7.9~~7.8 years

Weighted-average discount rate for operating leases	3.2		%

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

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

The Company is obligated for minimum payments under non-cancelable operating leases. In accordance with the terms of these leases, the Company is currently committed to minimum annual payments as follows as of ~~March 31,~~June 30, 2020:


		March 31, 2020			June 30, 2020
		(In thousands)			(In thousands)
Remainder of 2020	Remainder of 2020	$	14,962	Remainder of 2020	$	9,883
2021	2021	19,974		2021	19,727
2022	2022	19,934		2022	19,680
2023	2023	18,984		2023	18,722
2024	2024	12,961		2024	12,692
Thereafter	Thereafter	44,194		Thereafter	43,964
Total future minimum lease payments	Total future minimum lease payments	131,009		Total future minimum lease payments	124,668
Less: Amounts representing interest	Less: Amounts representing interest	(17,435)		Less: Amounts representing interest	(16,434)
Present value of net future minimum lease payments	Present value of net future minimum lease payments	$	113,574	Present value of net future minimum lease payments	$	108,234

15. Recent Accounting Pronouncements

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 standard establishes an ROU model that requires a lessee to recognize aan ROU asset and lease liability on the Consolidated Balance Sheets for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and ~~classification~~method of expense recognition in the Consolidated Statements of Operations. 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 and providing significant disclosures about leasing activities. Additionally, the Company elected the package of practical expedients, as prescribed by ASU 2016-02. On adoption, the Company recognized $124.1 million of lease liabilities and $108.5 million of ROU assets. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 14: Lease Accounting” for further details.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326) (“ASU 2016-13”). Throughout 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 ~~in current GAAP~~ with a CECL model methodology that reflects expected credit losses and requires consideration of a reasonable and supportable economic 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. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 4: ~~Investments, Note~~Investments”, “Note 6 - Loan Portfolio and Credit ~~Quality,~~Quality”, and ~~Note~~“Note 7 - Allowance for Loan Losses” for further details.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

2018-14”). The amendments in ASU 2018-14 remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. This update is effective on a retrospective basis for interim and annual reporting periods beginning January 1, 2021. The Company is assessing the potential impact for this update and how it applies to the Company’s disclosures surrounding its two non-qualified supplemental executive retirement plans and a long-term incentive plan.

4045

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

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

~~16. Subsequent Events~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As of and for the three and six months ended June 30, 2020

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” and similar expressions. These statements include, among others, statements regarding our strategy; evaluations of interest rate trends and future liquidity; expectations as to changes in assets, deposits and results of operations; the impact of the COVID-19 pandemic; future operations, market position and financial position; and prospects, plans and objectives of management. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond the Company’s control.

Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. The Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among others, factors referenced herein under the section captioned “Risk Factors”; the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; the length and extent of the economic contraction as a result of the COVID-19 pandemic; continued deterioration in employment levels, general business and economic conditions on a national basis and in the local markets in which the Company operates; changes in customer behavior; the possibility that future credits losses are higher than currently expected due to changes in economic assumptions, customer behavior or adverse economic developments; turbulence in the capital and debt markets; changes in interest rates; increases in loan defaults and charge-off rates; decreases in the value of securities and other assets; changes in loan loss reserves; decreases in deposit levels necessitating increased borrowing to fund loans and investments; competitive pressures from other financial institutions; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; changes in regulation; reputational risk relating to the Company’s participation in the Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; risks that goodwill and intangibles recorded in the Company’s financial statements will become impaired; the risk that the Company’s deferred tax asset may not be realized; risks related to the identification and implementation of acquisitions, dispositions and restructurings; changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K and updated in the Company’s Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Executive Summary

The Company offers a wide range of private banking, wealth management, and trust services to high net worth individuals, families, businesses and select institutions through its two reportable segments: (i) Private Banking and (ii) Wealth Management and Trust. This Executive Summary provides an overview of the most significant aspects of the Company's operating segments and operations in the second quarter of 2020. Details of the matters addressed in this summary are provided elsewhere in this document and, in particular, in the sections immediately following.


	As of and for the three months ended June 30,
	2020		2019		$ Change		% Change
	(In thousands, except per share data and percentages)
Total revenue	$	81,600	$	81,840	$	(240)	—	%
Provision/(credit) for loan losses	22,604		1,363		21,241		nm
Total operating expense	61,453		55,659		5,794		10	%
Net income/(loss) before attribution to noncontrolling interests	(3,298)		19,449		(22,747)		nm
Net income attributable to noncontrolling interests	—		69		(69)		(100)	%
Net income/(loss) attributable to the Company	(3,298)		19,380		(22,678)		nm
Diluted earnings/(loss) per share attributable to common shareholders	$	(0.04)	$	0.22	$	(0.26)	nm



ASSETS UNDER MANAGEMENT AND ADVISORY (“AUM”):
Wealth Management and Trust	$	14,889,000	$	14,649,000	$	240,000	2	%


Other (1)	1,067,000		1,550,000		(483,000)		(31)	%
Total AUM	$	15,956,000	$	16,199,000	$	(243,000)	(2)	%

_____________________

(1) Includes results from Dalton, Greiner, Hartman, Maher & Co., LLC (“DGHM”) nm = not meaningful

Net income/(loss) attributable to the Company was $(3.3) million and $19.4 million for the three months ended June 30, 2020 and June 30, 2019, respectively. The Company recognized Diluted earnings/(loss) per share attributable to common shareholders of $(0.04) and $0.22 for the three months ended June 30, 2020 and June 30, 2019, respectively. Key items that affected the Company’s results in the second quarter of 2020 compared to the same period of 2019 include:

▪Provision expense for loan losses increased $21.2 million to $22.6 million for the three months ended June 30, 2020, compared to the same period of 2019. During the second quarter of 2020, the Company recognized a total provision for loan losses of $25.4 million, which includes a provision for loan loss expense of $22.6 million, and separately, an expense of $2.8 million for unfunded loan commitments, recognized as Other expense within Noninterest expense. The provision for loan losses in the second quarter of 2020 was primarily driven by the change in economic forecasts in the second quarter of 2020 to reflect deteriorating economic conditions related to the COVID-19 pandemic and a change in the weight of forecast scenarios used to be weighted more heavily to the downside scenario, combined with an increase in qualitative factors to account for incremental risk not included in the quantitative model.

▪Total revenue decreased $0.2 million to $81.6 million for the three months ended June 30, 2020, compared to the same period of 2019 as described below.

•Total fees and other income decreased $1.7 million, or 7%, to $22.7 million for the three months ended June 30, 2020, compared to the same period of 2019. The decrease was primarily driven by lower Wealth management and trust fees and Investment management fees due to the impact of lower equity market values on AUM at the end of the first quarter of 2020, as many accounts are billed in arrears. Total fees and other income represents 28% of Total revenue for the three months ended June 30, 2020, compared to 30% of Total revenue for the same period of 2019.

•Net interest income increased $1.5 million, or 3%, to $58.9 million for the three months ended June 30, 2020, compared to the same period of 2019. The increase in Net interest income was primarily driven by PPP-related income and lower funding costs, partially offset by lower interest on interest-earning assets. Net interest margin (“NIM”) was 2.75% for the three months ended June 30, 2020, a decrease of 3 basis points compared to the same period in 2019. Although Net interest income increased, the decrease in NIM was driven by the addition of lower-yielding PPP loans in the second quarter of 2020.

▪Total operating expense increased $5.8 million, or 10%, to $61.5 million for the three months ended June 30, 2020, compared to the same period of 2019. The increase was primarily driven by increases in the reserve for unfunded loan commitments within Other expense, Information systems expense as a result of IT initiatives being placed in service in

the fourth quarter of 2019, and Salaries and employee benefits expense, partially offset by a decrease in Occupancy and equipment expense.

▪For the three months ended June 30, 2020, total loans increased $289.6 million, or 4%, while total deposits increased $591.8 million, or 9%, from the first quarter of 2020. The increase in loans was primarily driven by the addition of $370.0 million of PPP loans in the second quarter of 2020, while the increase in deposits was primarily driven by clients maintaining adequate cash reserves during an economic downturn and the increase in funding of PPP loans into deposit accounts in the second quarter of 2020. The Company’s loan-to-deposit ratio decreased from 103% as of March 31, 2020 to 99% as of June 30, 2020 driven by strong deposit inflows. Deposits are the Company’s primary source of funds to originate loans. When the Company’s loan-to-deposit ratio exceeds 100%, the Company relies on other funding sources, such as FHLB borrowings or federal funds, to fund loan growth. If the Company is unable to grow deposits in line with loan growth, it may evaluate other options such as slowing loan growth, selling a portion of portfolio loans, or originating mortgage loans as held-for-sale.

The Company’s Private Banking segment reported Net income/(loss) attributable to the Company of $(1.0) million in the second quarter of 2020, compared to $17.2 million for the same period of 2019. Net income/(loss) attributable to the Company decreased $18.2 million from the same period in 2019 primarily driven by an increase of $21.2 million to the provision for loan losses, an increase of $5.1 million in Operating expense primarily due to higher Other expense related to the reserve for unfunded loan commitments, and an increase in Information systems expense. These items were partially offset by an increase of $2.1 million in Total revenue primarily due to an increase in Net interest income and by the impact of favorable mark-to-market adjustments related to derivatives and deferred compensation within Fees and other income.

The Company’s Wealth Management and Trust segment reported Net income attributable to the Company of $1.8 million in the second quarter of 2020, compared to $3.1 million for the same period of 2019. The decrease of $1.4 million, or 44%, was primarily driven by a decrease of $1.8 million in Total revenue due to the impact of lower AUM on fee revenues and an increase of $0.2 million in Total operating expense. The increase in Total operating expense was primarily driven by increases in Salaries and employee benefits expense and Information systems expense, partially offset by decreases in Other expense, Professional services expense, and Occupancy and equipment expense. Wealth Management and Trust AUM increased $0.2 billion, or 2%, to $14.9 billion at June 30, 2020 from $14.6 billion at June 30, 2019. The increase in AUM was primarily driven by favorable market returns of $0.2 billion for the twelve months ended June 30, 2020.

Impact of the COVID-19 ~~pandemic~~Pandemic

The COVID-19 pandemic has caused, and continues to cause, substantial disruptions to the global economy and to the customers and communities that we serve. In response to the pandemic, the Company ~~has~~ implemented business continuity contingency plans, including company-wide remote working arrangements. We are also focused on supporting our clients who may be experiencing a financial hardship due to the COVID-19 pandemic, including by participating in the Small Business Administration’s (the “SBA”) Paycheck Protection Program (the “PPP”) and offering loan deferrals and forbearance ~~and second mortgages~~ as ~~appropriate,~~needed, including ~~through~~ our mortgage deferment ~~program.~~

~~As of March 31, 2020,~~program, and creating the ~~COVID-19 pandemic did not have a significant impact on the Company’s financial condition, results of operations, or capital position other than the provision for~~Commercial real estate second loan ~~loss expense described in Part I. Item 1. “Notes~~program. We will continue to ~~Unaudited Consolidated Financial Statements - Note 7: Allowance for Loan Losses.” Below is a summary of the impact to the Company subsequent to March 31, 2020 until the filing date of~~evaluate this ~~Form 10-Q.~~fluid situation and take additional actions as necessary.

~~Participation in the PPP~~Executive Summary

The ~~CARES Act appropriated $349 billion for “paycheck protection loans”~~Company offers a wide range of private banking, wealth management, and trust services to high net worth individuals, families, businesses and select institutions through ~~the PPP. The amount appropriated was subsequently increased to $659 billion. The CARES Act provided funding to the SBA for use for the PPP. Under the terms~~its two reportable segments: (i) Private Banking and (ii) Wealth Management and Trust. This Executive Summary provides an overview of the PPP, certain businesses can apply for loans through qualified financial institutions, such as the Bank, based on eligibility criteria. The PPP provides loans to eligible businesses with an initial term of two years at an interest rate of 1.0%. Payments can be deferred for a period of six months. Loans issued under the PPP will be forgiven if the borrower uses at least 75%most significant aspects of the ~~proceeds on payroll, rent, utilities~~Company's operating segments and other qualified benefits for a period of eight weeks, following the loan funding date, and are 100% guaranteed by the SBA. The SBA has issued an interim final rule in which it has provided that a lender may rely on certifications made by a borrower to determine the borrower’s eligibility for a PPP loan and use of loan proceeds, subject to a good faith review, and to determine the qualifying loan amount and eligibility for loan forgiveness.

Loans issued by participating financial institutions are 100% guaranteed by the SBA. Banks will receive a processing fee from the SBA from 1.0% to 5.0% based on the size of the loan. Loans up to $350 thousand will have a 5.0% fee, loans between $350 thousand and $2.0 million will have a 3.0% fee, and loans greater than $2.0 million will have a 1.0% fee.

In conjunction with the PPP, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) has created a lending facility for qualified financial institutions. The Paycheck Protection Program Liquidity Facility (the “PPPLF”) will extend credit to depository institutions with a term of up to two years at an interest rate of 0.35%. Only loans issued under the PPP can be pledged as collateral to access the facility.

~~The Bank is participating in the PPP and PPPLF programs. As of March 31, 2020, an immaterial amount of loans were processed under the PPP program, though the Company expects increased volume~~operations in the second quarter of 2020. AsDetails of the ~~date of~~matters addressed in this ~~filing,~~summary are provided elsewhere in this document and, in particular, in the ~~Bank has approved approximately 1,100 PPP loans totaling approximately $425.0~~sections immediately following.


	As of and for the three months ended June 30,
	2020		2019		$ Change		% Change
	(In thousands, except per share data and percentages)
Total revenue	$	81,600	$	81,840	$	(240)	—	%
Provision/(credit) for loan losses	22,604		1,363		21,241		nm
Total operating expense	61,453		55,659		5,794		10	%
Net income/(loss) before attribution to noncontrolling interests	(3,298)		19,449		(22,747)		nm
Net income attributable to noncontrolling interests	—		69		(69)		(100)	%
Net income/(loss) attributable to the Company	(3,298)		19,380		(22,678)		nm
Diluted earnings/(loss) per share attributable to common shareholders	$	(0.04)	$	0.22	$	(0.26)	nm



ASSETS UNDER MANAGEMENT AND ADVISORY (“AUM”):
Wealth Management and Trust	$	14,889,000	$	14,649,000	$	240,000	2	%


Other (1)	1,067,000		1,550,000		(483,000)		(31)	%
Total AUM	$	15,956,000	$	16,199,000	$	(243,000)	(2)	%

_____________________

(1) Includes results from Dalton, Greiner, Hartman, Maher & Co., LLC (“DGHM”) nm = not meaningful

Net income/(loss) attributable to the Company was $(3.3) million and ~~does~~$19.4 million for the three months ended June 30, 2020 and June 30, 2019, respectively. The Company recognized Diluted earnings/(loss) per share attributable to common shareholders of $(0.04) and $0.22 for the three months ended June 30, 2020 and June 30, 2019, respectively. Key items that affected the Company’s results in the second quarter of 2020 compared to the same period of 2019 include:

▪Total revenue decreased $0.2 million to ~~approve any additional loans under~~$81.6 million for the ~~current conditions.~~three months ended June 30, 2020, compared to the same period of 2019 as described below.

~~Mortgage Deferment Program~~

In•Total fees and other income decreased $1.7 million, or 7%, to $22.7 million for the three months ended June 30, 2020, compared to the same period of 2019. The decrease was primarily driven by lower Wealth management and trust fees and Investment management fees due to the impact of lower equity market values on AUM at the end of the first quarter of 2020, as many accounts are billed in ~~response~~arrears. Total fees and other income represents 28% of Total revenue for the three months ended June 30, 2020, compared to 30% of Total revenue for the same period of 2019.

•Net interest income increased $1.5 million, or 3%, to $58.9 million for the three months ended June 30, 2020, compared to the ~~COVID-19 pandemic,~~same period of 2019. The increase in Net interest income was primarily driven by PPP-related income and lower funding costs, partially offset by lower interest on interest-earning assets. Net interest margin (“NIM”) was 2.75% for the ~~Bank initiated a mortgage deferment program under which principal and interest payments on qualifying mortgage loans are generally deferred for~~ three months ended June 30, 2020, a decrease of 3 basis points compared to the same period in 2019. Although Net interest income increased, the decrease in NIM was driven by the addition of lower-yielding PPP loans in the second quarter of 2020.

the fourth quarter of 2019, and Salaries and employee benefits expense, partially offset by a decrease in Occupancy and equipment expense.

▪For the three months ended June 30, 2020, total loans increased $289.6 million, or 4%, while total deposits increased $591.8 million, or 9%, from the first quarter of 2020. The increase in loans was primarily driven by the addition of $370.0 million of PPP loans in the second quarter of 2020, while the increase in deposits was primarily driven by clients maintaining adequate cash reserves during an economic downturn and the ~~loan term is extended three months. Loans that meet the requirements for deferral under the program are not considered TDRs or past due based on current regulatory guidance. As~~increase in funding of ~~March 31, 2020, 10~~PPP loans ~~totaling approximately $5.0 million were processed under this program, though the Company expects increased volume~~into deposit accounts in the second quarter of 2020. AsThe Company’s loan-to-deposit ratio decreased from 103% as of March 31, 2020 to 99% as of June 30, 2020 driven by strong deposit inflows. Deposits are the Company’s primary source of funds to originate loans. When the Company’s loan-to-deposit ratio exceeds 100%, the Company relies on other funding sources, such as FHLB borrowings or federal funds, to fund loan growth. If the Company is unable to grow deposits in line with loan growth, it may evaluate other options such as slowing loan growth, selling a portion of portfolio loans, or originating mortgage loans as held-for-sale.

Impact of the ~~date of this filing,~~COVID-19 Pandemic

The COVID-19 pandemic has caused, and continues to cause, substantial disruptions to the ~~Bank has initially approved approximately 170 deferments for loans totaling approximately $90.0 million.~~

~~Massachusetts COVID-19 Emergency Legislation~~

~~On April 20, 2020, legislation enacted in Massachusetts in~~global economy and to the customers and communities that we serve. In response to the ~~COVID-19 emergency declared by Governor Baker was signed into law by~~pandemic, the ~~Governor. The legislation establishes a temporary moratorium~~Company implemented business continuity contingency plans, including company-wide remote working arrangements. We are also focused on foreclosures on one- to four-family, owner occupied residential real estate in Massachusetts. The legislation also requires a creditor to grant to a borrower of a mortgage loan secured by one- to four-family, owner occupied residential real estate in Massachusetts a forbearance of up to 180 days, if requested by the borrower,supporting our clients who ~~must affirm that the borrower has experienced~~may be experiencing a financial impact from the COVID-19 pandemic. A borrower is entitled to request a forbearance while the legislation is in effect even if the borrower is already in default. In connection with a forbearance, a creditor may not charge fees, penalties or interest beyond the amounts scheduled and calculated as if the borrower made all contractual payments on time and in full under the terms of the relevant loan agreement. The legislation specifies that a payment subject to forbearance shall be added to the end of the term of the loan unless otherwise agreed by the parties. The legislation also prohibits a creditor from furnishing negative information to a consumer reporting agency related to mortgage payments subject to forbearance. Because the legislation was enacted on an emergency basis, it went into effect immediately upon being signed into law. The legislation provides that the temporary moratorium on foreclosures expires 120 days after the effective date of the legislation, which is August 18, 2020, or 45 days after the COVID-19 emergency declaration has been lifted, whichever is sooner, but the Governor may extend the moratorium in increments of up 90 days as long as the moratorium ends not later than 45 days after the COVID-19 emergency declaration

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

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

has been lifted. A borrower may request a forbearance under the legislation at any time while the foreclosure moratorium is in effect. Forbearances, if any, granted under the Massachusetts legislation to borrowers who are currently in default may not qualify for the reporting exclusion as a TDR or delinquency status as was provided under the national guidance from regulators.

~~Commercial Real Estate Second Loan Program~~

~~In the first quarter of 2020, in response~~hardship due to the COVID-19 pandemic, including by participating in the ~~Bank also initiated a~~Small Business Administration’s (the “SBA”) Paycheck Protection Program (the “PPP”) and offering loan deferrals and forbearance as needed, including our mortgage deferment program, ~~to offer qualifying Commercial real estate borrowers a second mortgage to cover up to one year of principal~~ and interest payments. In order to qualify for the loan, the total exposure for each borrower could not exceed a 75% loan-to-value ratio and the loans were current at the time of application, amongst other conditions. As of March 31, 2020, approximately 70% of our total Commercial real estate portfolio balance qualified for the plan. As of the date of this filing, borrowers for approximately 260 existing loans totaling $1.4 billion have requested and been approved for these second mortgages, representing approximately 50% ofcreating the Commercial real estate second loan ~~balance. Approximately $90.0 million in new loans are expected to be funded under this~~ program. ~~The entire Commercial real estate portfolio~~We will continue to ~~be monitored regardless of their participation in the plan.~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~As of~~evaluate this fluid situation and ~~for the three months ended March 31, 2020~~

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,take additional actions as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” and similar expressions. These statements include, among others, statements regarding our strategy; evaluations of interest rate trends and future liquidity; expectations as to changes in assets, deposits and results of operations; the impact of the COVID-19 pandemic; future operations, market position and financial position; and prospects, plans and objectives of management. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond the Company’s control.necessary.

Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. The Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among others, factors referenced herein under the section captioned “Risk Factors”; the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; the length and extent of the economic contraction as a result of the COVID-19 pandemic; continued deterioration in general business and economic conditions on a national basis and in the local markets in which the Company operates; changes in customer behavior due to changing business and economic conditions or legislative or regulatory initiatives; continued turbulence in the capital and debt markets; changes in interest rates; increases in loan defaults and charge-off rates; decreases in the value of securities and other assets; changes in loan loss reserves; decreases in deposit levels necessitating increased borrowing to fund loans and investments; competitive pressures from other financial institutions; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; changes in regulation; reputational risk relating to the Company’s participation in the Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; risks that goodwill and intangibles recorded in the Company’s financial statements will become impaired; the risk that the Company’s deferred tax asset may not be realized; risks related to the identification and implementation of acquisitions, dispositions and restructurings; changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K and updated in the Company’s Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made

Executive Summary

The Company offers a wide range of private banking, wealth management, and trust services to high net worth individuals, families, businesses and select institutions through its two reportable segments: (i) Private Banking and (ii) Wealth Management and Trust. This Executive Summary provides an overview of the most significant aspects of the Company's operating segments and operations in the ~~first~~second quarter of 2020. Details of the matters addressed in this summary are provided elsewhere in this document and, in particular, in the sections immediately following.


		As of and for the three months ended March 31,											As of and for the three months ended June 30,
		2020		2019		$ Change		% Change			2020		2019		$ Change		% Change
		(In thousands, except per share data)													(In thousands, except per share data and percentages)
Total revenue	Total revenue	$	78,778	$	83,586	$	(4,808)	(6)	%	Total revenue	$	81,600	$	81,840	$	(240)	—	%
Provision/(credit) for loan losses	Provision/(credit) for loan losses	16,962		(1,426)		18,388		nm		Provision/(credit) for loan losses	22,604		1,363		21,241		nm
Total operating expense	Total operating expense	60,908		60,553		355		1	%	Total operating expense	61,453		55,659		5,794		10	%
Net income before attribution to noncontrolling interests		806		19,542		(18,736)		(96)	%
Net income/(loss) before attribution to noncontrolling interests										Net income/(loss) before attribution to noncontrolling interests	(3,298)		19,449		(22,747)		nm
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	6		100		(94)		(94)	%	Net income attributable to noncontrolling interests	—		69		(69)		(100)	%
Net income attributable to the Company		800		19,442		(18,642)		(96)	%
Diluted earnings per share attributable to common shareholders		$	0.01	$	0.25	$	(0.24)	(96)	%
Net income/(loss) attributable to the Company										Net income/(loss) attributable to the Company	(3,298)		19,380		(22,678)		nm
Diluted earnings/(loss) per share attributable to common shareholders										Diluted earnings/(loss) per share attributable to common shareholders	$	(0.04)	$	0.22	$	(0.26)	nm

ASSETS UNDER MANAGEMENT AND ADVISORY (“AUM”):	ASSETS UNDER MANAGEMENT AND ADVISORY (“AUM”):											ASSETS UNDER MANAGEMENT AND ADVISORY (“AUM”):
Wealth Management and Trust	Wealth Management and Trust	$	13,497,000	$	14,564,000	(1,067,000)		(7)	%	Wealth Management and Trust	$	14,889,000	$	14,649,000	$	240,000	2	%

Other(1)	Other(1)	1,016,000		1,558,000		(542,000)		(35)	%	Other(1)	1,067,000		1,550,000		(483,000)		(31)	%
Total AUM	Total AUM	$	14,513,000	$	16,122,000	$	(1,609,000)	(10)	%	Total AUM	$	15,956,000	$	16,199,000	$	(243,000)	(2)	%

_____________________

(1) Includes results from Dalton, Greiner, Hartman, Maher & Co., LLC (“DGHM”) nm = not meaningful

Net ~~income~~income/(loss) attributable to the Company was ~~$0.8~~$(3.3) million and $19.4 million for the three months ended ~~March 31,~~June 30, 2020 and ~~$19.4 million for the same period of 2019.~~June 30, 2019, respectively. The Company recognized ~~diluted earnings~~Diluted earnings/(loss) per share attributable to common shareholders of ~~$0.01~~$(0.04) and ~~$0.25~~$0.22 for the three months ended ~~March 31,~~June 30, 2020 and June 30, 2019, respectively.

Key items that affected the Company’s results in the ~~first~~second quarter of 2020 compared to the same period of 2019 include:

▪Provision expense for loan losses increased ~~$18.4~~$21.2 million to ~~$17.0~~$22.6 million for the three months ended ~~March 31,~~June 30, 2020, compared to the same period of 2019. During the ~~first~~second quarter of 2020, the Company recognized a total provision for loan losses ~~and unfunded loan commitments expense~~ of ~~$18.8~~$25.4 million, which includes a provision for loan loss expense of ~~$17.0~~$22.6 million, and ~~$1.8~~separately, an expense of $2.8 million for unfunded loan commitments, ~~which is~~ recognized as Other expense within Noninterest expense. The provision for loan losses in the ~~first~~second quarter of 2020 was primarily driven by ~~changes~~the change in economic forecasts ~~late~~ in the ~~first~~second quarter of 2020 to reflect deteriorating economic conditions related to the COVID-19 ~~pandemic.~~

•~~Upon adoption of ASU 2016-13 on January 1, 2020, the Company recognized~~pandemic and a ~~decrease~~change in the ~~allowance for loan losses~~weight of ~~$20.4 million, and~~forecast scenarios used to be weighted more heavily to the downside scenario, combined with an increase in ~~the reserve~~qualitative factors to account for ~~unfunded loan commitments of $1.4 million. The net, after-tax impact of the decrease~~incremental risk not included 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.~~quantitative model.

▪Total revenue decreased ~~$4.8~~$0.2 million ~~or 6%,~~ to ~~$78.8~~$81.6 million for the three months ended ~~March 31,~~June 30, 2020, compared to the same period of 2019 as described below.

•Total fees and other income decreased ~~$3.7~~$1.7 million, or ~~15%~~7%, to ~~$21.5~~$22.7 million for the three months ended ~~March 31,~~June 30, 2020, compared to the same period of 2019. The decrease was primarily driven by lower ~~Other income, Investment management fees, and~~ Wealth management and trust ~~fees.~~fees and Investment management fees due to the impact of lower equity market values on AUM at the end of the first quarter of 2020, as many accounts are billed in arrears. Total fees and other income represents ~~27%~~28% of Total revenue for the three months ended ~~March 31,~~June 30, 2020, compared to 30% of Total revenue for the same period of 2019.

•Net interest income ~~decreased $1.1~~increased $1.5 million, or 2%3%, to ~~$57.3~~$58.9 million for the three months ended ~~March 31,~~June 30, 2020, compared to the same period of 2019. The increase in Net interest income was primarily driven by PPP-related income and lower funding costs, partially offset by lower interest on interest-earning assets. Net interest margin (“NIM”) was ~~2.76%~~2.75% for the three months ended ~~March 31,~~June 30, 2020, a decrease of 143 basis points compared to the same period in 2019. ~~The decreases in net~~Although Net interest income ~~and~~increased, the decrease in NIM ~~were primarily~~was driven by the ~~impact~~addition of ~~recent rate cuts as lower interest on interest-earning assets was partially offset by lower funding costs.~~lower-yielding PPP loans in the second quarter of 2020.

▪Total operating ~~expenses~~expense increased ~~$0.4~~$5.8 million, or 1%10%, to ~~$60.9~~$61.5 million for the three months ended ~~March 31,~~June 30, 2020, compared to the same period of 2019. The increase was primarily driven by ~~an increase~~increases in the reserve for unfunded loan commitments within Other expense, Information systems ~~and Marketing and business development, partially offset by~~expense as a ~~restructuring charge~~result of ~~$1.6 million~~IT initiatives being placed in ~~the first~~service in

4447

the fourth quarter of 2019, ~~as well as~~and Salaries and employee benefits expense, partially offset by a decrease in Occupancy and equipment ~~FDIC insurance, and Salaries and employee benefits due to accrual adjustments.~~expense.

▪For the three months ended ~~March 31,~~June 30, 2020, total loans increased ~~by $66.6~~$289.6 million, or 1%4%, while total deposits ~~decreased $405.9~~increased $591.8 million, or 6%9%, from ~~prior quarter.~~the first quarter of 2020. The increase in loans was primarily driven by the addition of $370.0 million of PPP loans in the second quarter of 2020, while the increase in deposits was primarily driven by clients maintaining adequate cash reserves during an economic downturn and the increase in funding of PPP loans into deposit accounts in the second quarter of 2020. The Company’s loan-to-deposit ratio ~~was~~decreased from 103% as of March 31, ~~2020.~~2020 to 99% as of June 30, 2020 driven by strong deposit inflows. Deposits are the Company’s primary source of funds to originate loans. When the Company’s loan-to-deposit ratio exceeds 100%, the Company relies on other funding sources, such as FHLB borrowings or federal funds, to fund loan growth. If the Company is unable to grow deposits in line with loan growth, ~~we will~~it may evaluate other options such as slowing loan growth, selling a portion of portfolio loans, or originating mortgage loans as held-for-sale.

The Company’s Private Banking segment reported Net ~~income~~income/(loss) attributable to the Company of ~~$0.6~~$(1.0) million in the ~~first~~second quarter of 2020, compared to ~~$18.3~~$17.2 million for the same period of 2019. Net ~~income~~income/(loss) attributable to the Company decreased ~~$17.7~~$18.2 million ~~or 97%,~~ from the same period in 2019 primarily driven by an increase of ~~$18.4~~$21.2 million to the ~~Provision~~provision for loan losses, ~~a decrease of $3.4 million in Total revenue primarily due to lower Fees and other income, and~~ an increase of ~~$1.3~~$5.1 million in Operating expense primarily due to higher Other expense related to the reserve for unfunded loan commitments, and an increase in Information systems expense. These items were partially offset by an increase of $2.1 million in Total revenue primarily due to an increase in Net interest income and by the impact of favorable mark-to-market adjustments related to derivatives and deferred compensation within Fees and other income.

The Company’s Wealth Management and Trust segment reported Net income attributable to the Company of ~~$2.0~~$1.8 million in the ~~first~~second quarter of 2020, compared to ~~$2.5~~$3.1 million for the same period of 2019. The decrease of ~~$0.4~~$1.4 million, or ~~18%~~44%, was primarily driven by a decrease of ~~$0.7~~$1.8 million in Total revenue due to the impact of lower AUM on ~~accounts that are billed based on AUM levels, partially offset by a decrease~~fee revenues and an increase of ~~$0.1~~$0.2 million in Total operating expense. The ~~decrease~~increase in Total operating expense was primarily ~~due to a $0.4 million restructuring charge~~driven by increases in ~~the first quarter of 2019, a decrease in Occupancy~~Salaries and ~~equipment~~employee benefits expense and ~~a decrease in Professional services~~Information systems expense, partially offset by ~~an increase~~decreases in ~~Information systems~~Other expense, Professional services expense, and ~~Salaries~~Occupancy and ~~employee benefits~~equipment expense. Wealth Management and Trust AUM ~~decreased $1.1~~increased $0.2 billion, or 7%2%, to ~~$13.5~~$14.9 billion at ~~March 31,~~June 30, 2020 from $14.6 billion at ~~March 31,~~June 30, 2019. The ~~decrease~~increase in AUM was primarily driven by ~~lost business of $1.2 billion and unfavorable~~favorable market returns of ~~$0.8 billion, partially offset by new business of $1.0~~$0.2 billion for the twelve months ended ~~March 31,~~June 30, 2020.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has caused, and continues to cause, substantial disruptions to the global economy and to the customers and communities that we serve. In response to the pandemic, ~~we have~~the Company implemented business continuity contingency plans, including company-wide remote working arrangements. We are also focused on supporting our clients who may be experiencing a financial hardship due to the COVID-19 pandemic, including by participating in the ~~SBA's PPP,~~Small Business Administration’s (the “SBA”) Paycheck Protection Program (the “PPP”) and offering loan deferrals and forbearance as needed, including our mortgage deferment program, and creating the Commercial real estate second loan program. We will continue to evaluate this fluid situation and take additional actions as necessary. ~~See Part I. Item 1. “Notes~~

Participation in the PPP

The CARES Act initially appropriated $349 billion for “paycheck protection loans” through the PPP. The amount appropriated was subsequently increased to ~~Unaudited Consolidated Financial Statements - Note 16: Subsequent events”~~$659 billion. The CARES Act provided funding to the SBA for ~~further details~~use for the PPP. Under the terms of the PPP, certain businesses can apply for loans through qualified financial institutions, such as the Bank, based on eligibility criteria. The PPP provides loans to eligible businesses with an initial term of up to five years at an interest rate of 1.0%. Loans issued under the PPP will be forgiven if the borrower uses at least 60% of the proceeds on payroll costs for a period of up to 24 weeks, following the loan funding date. This was changed from 75% and 8 weeks by the Paycheck Protection Program Flexibility Act signed into law on June 5. The SBA has issued an interim final rule in which it has provided that a lender may rely on certifications made by a borrower to determine the borrower’s eligibility for a PPP loan and use of loan proceeds, subject to a good faith review, and to determine the qualifying loan amount and eligibility for loan forgiveness.

Loans issued by participating financial institutions are 100% guaranteed by the SBA. Banks will receive a processing fee from the SBA from 1.0% to 5.0% based on the ~~Company's participation in these programs.~~size of the loan. Loans up to $350 thousand will have a 5.0% fee, loans between $350 thousand and $2.0 million will have a 3.0% fee, and loans greater than $2.0 million will have a 1.0% fee.

In conjunction with the PPP, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) has created a lending facility for qualified financial institutions. The Paycheck Protection Program Liquidity Facility (the “PPPLF”) will extend credit to depository institutions with a term of up to five years at an interest rate of 0.35%. Only loans issued under the PPP can be pledged as collateral to access the facility. As of ~~March 31,~~June 30, 2020, the Bank has not participated in the PPPLF, but may do so in the future.

As of June 30, 2020, the Bank processed 1,045 loans totaling $380.3 million under the PPP program. The Bank will receive $11.1 million of processing fees from the SBA, which will be accreted through net interest income on a straight-line

basis over the life of the loan. If a loan is forgiven or otherwise paid off, the remainder of the processing fee will be accreted through net interest income. As of June 30, 2020, $0.8 million was accreted through net interest income.

Mortgage deferment program

In response to the COVID-19 pandemic, ~~did~~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 ~~have a material impact~~considered TDRs or past due based on current regulatory guidance. As of June 30, 2020, approximately 336 residential and home equity loans totaling approximately $214.5 million were processed under the ~~Company’s financial condition, results of operations, or capital position other than the provision for~~program.

Commercial real estate second loan ~~loss expense discussed below. As described in Part II. Item 1A. "Risk Factors",~~program

In response to the COVID-19 pandemic, the Bank also initiated a program to offer qualifying Commercial real estate borrowers a second mortgage to cover up to one year of principal and interest payments. In order to qualify for the loan, the total exposure after receiving the second mortgage for each borrower could ~~have~~not exceed a 75% loan-to-value ratio, and the loans were required to be current at the time of application, amongst other conditions. As of June 30, 2020, borrowers with approximately 240 existing loans totaling $1.3 billion requested and were approved for these second mortgages, representing approximately 50% of the Commercial real estate loan balance. As of June 30, 2020, the borrowers associated with the $1.3 billion of existing loans received approximately $80.0 million in additional funding under this program. The Company does not anticipate a material ~~impact on the Company’s financial condition, results of operations or capital position~~increase in the $80.0 million balance of new loans in the future. The entire Commercial real estate portfolio will continue to be monitored for credit deterioration regardless of their participation in the plan.

During the ~~first~~second quarter of 2020, the Company recognized a total provision for loan losses expense of ~~$18.8~~$25.4 million for loans and off-balance sheet commitments primarily driven by the changes in economic forecasts ~~late in the first quarter of 2020~~ to reflect deteriorating economic conditions related to the COVID-19 ~~pandemic.~~pandemic and a change in the weight of forecast scenarios used, combined with an increase in qualitative factors to account for incremental risk not included in the quantitative model. There have been no significant changes to judgments in determining the fair value of assets or liabilities, and there have been no material impairments of financial assets. The Company will continue to monitor the fair value of assets to determine if trigger events exist to warrant further impairment testing.

~~Company-wide remote working arrangements have not adversely affected our ability to maintain operations, including financial reporting systems and internal controls over financial reporting.~~

~~Regulatory Developments~~

~~The CARES Act~~

~~On March 27, 2020, Congress passed, and the President signed, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to address the economic effects of the COVID-19 pandemic.~~

•~~Paycheck Protection Program~~. The CARES Act appropriated $349 billion for “paycheck protection loans” through the PPP. The amount appropriated was subsequently increased to $659 billion. Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by the SBA. As of the date of this filing, the Bank has initially approved approximately 1,100 PPP loans totaling approximately $425.0 million. In conjunction with the PPP, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) has created a lending facility for qualified financial institutions. The Paycheck Protection Program Liquidity Facility (the “PPPLF”)

~~will extend credit to depository institutions with a term of up to two years at an interest rate of 0.35%. Only loans issued under the PPP can be pledged as collateral to access the facility.~~

•~~Troubled Debt Restructuring Relief~~. From March 1, 2020 through the earlier of December 31, 2020 or 60 days after the termination date of the national emergency declared by the President on March 13, 2020 concerning the COVID–19 outbreak (the “national emergency”), a financial institution may elect to suspend the requirements under accounting principles generally accepted in the U.S. for loan modifications related to the COVID–19 pandemic that would otherwise be categorized as a troubled debt restructured (“TDR”), including impairment accounting. The Company elected this accounting policy. This TDR relief is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. Financial institutions are required to maintain records of the volume of loans involved in modifications to which TDR relief is applicable. In the first quarter of 2020, the Company initiated a mortgage loan deferment program in line with the preceding guidance. As of March 31, 2020, 10 loans totaling approximately $5.0 million were processed under this program. As of the date of this filing, the Bank has initially approved approximately 170 deferments for loans totaling approximately $90.0 million.

•~~CECL Delay~~. Banks, savings associations, credit unions, bank holding companies and their affiliates are not required to comply with the Financial Accounting Standards Board Accounting Standards Update No. 2016–13 (“~~Measurement of Credit Losses on Financial Instruments~~”), including the current expected credit losses methodology for estimating allowances for credit losses (“CECL”), from the date of the law’s enactment until the earlier of the end of the national emergency or December 31, 2020. On March 27, 2020, the Federal Reserve, the Federal Deposit Insurance Corporation (the “FDIC”), and the Office of the Comptroller of the Currency issued an interim final rule that allows banking organizations that are required to adopt CECL this year to mitigate the estimated cumulative regulatory capital effects for up to two years. The relief afforded by the CARES Act and interim final rule is in addition to the three-year transition period already in place. The Company adopted CECL effective January 1, 2020.

•~~Reduction of the Community Bank Leverage Ratio~~. The CARES Act reduced the community bank leverage ratio from 9% to 8% until the earlier of the end of the national emergency or December 31, 2020. In response to the CARES Act, federal banking regulators set the community bank leverage ratio at 8% for the remainder of 2020, 8.5% for 2021 and 9% thereafter.

•~~Revival of Bank Debt Guarantee Program~~. The CARES Act amends the Dodd-Frank Act to provide the FDIC with the authority to guarantee bank-issued debt and noninterest-bearing transaction accounts that exceed the FDIC's $250,000 limit through December 31, 2020. The FDIC has discretion to determine whether and how to exercise this authority.

•~~Forbearance.~~ The CARES Act codifies in part recent guidance from state and federal regulators and government-sponsored enterprises, including the 60-day suspension of foreclosures on federally-backed mortgages and requirements that servicers grant forbearance to borrowers affected by COVID-19.

•~~Moratorium on Negative Credit Reporting~~. Any furnisher of credit information that agrees to defer payments, forbear on any delinquent credit or account, or provide any other relief to consumers affected by the COVID-19 pandemic must report the credit obligation or account as current if the credit obligation or account was current before the accommodation.

~~Massachusetts COVID-19 Emergency Legislation~~

On April 20, 2020, legislation enacted in Massachusetts in response to the COVID-19 emergency declared by Governor Baker was signed into law by the Governor. The legislation establishes a temporary moratorium on foreclosures on one- to four-family, owner occupied residential real estate in Massachusetts. The legislation also requires a creditor to grant to a borrower of a mortgage loan secured by one- to four-family, owner occupied residential real estate in Massachusetts a forbearance of up to 180 days, if requested by the borrower, who must affirm that the borrower has experienced a financial impact from the COVID-19 pandemic. A borrower is entitled to request a forbearance while the legislation is in effect even if the borrower is already in default. In connection with a forbearance, a creditor may not charge fees, penalties or interest beyond the amounts scheduled and calculated as if the borrower made all contractual payments on time and in full under the terms of the relevant loan agreement. The legislation specifies that a payment subject to forbearance shall be added to the end of the term of the loan unless otherwise agreed by the parties. The legislation also prohibits a creditor from furnishing negative information to a consumer reporting agency related to mortgage payments subject to forbearance. Because the legislation was enacted on an emergency basis, it went into effect immediately upon being signed into law. The legislation provides that the temporary moratorium on foreclosures expires 120 days after the effective date of the legislation, which is August 18, 2020, or 45 days after the COVID-19 emergency declaration has been lifted, whichever is sooner, but the Governor may extend the moratorium in increments of up 90 days as long as the moratorium ends not later than 45 days after the COVID-19 emergency declaration has been lifted. A borrower may request a forbearance under the legislation at any time while the foreclosure moratorium is in effect. Forbearances, if any, granted under the Massachusetts legislation to borrowers who are currently in default may not qualify for the reporting exclusion as a TDR or delinquency status as was provided under the national guidance from regulators.

Critical Accounting Policies

Critical accounting policies reflect significant judgments and uncertainties, which could potentially result in materially different results under different assumptions and conditions. The Company believes that its most critical accounting policies upon which its financial condition depends, which involve the most complex or subjective decisions or assessments, are the allowance for loan losses, the valuation of goodwill and intangible assets and the analysis for impairment, and income tax estimates. These policies are discussed in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

~~There~~Subsequent to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, there was one change to ~~these policies through~~ the ~~filing of this Quarterly Report on Form 10-Q.~~critical accounting policies. Upon the adoption of ASU 2016-13, Financial Instruments (Topic 326) ("(“ASU ~~2016-13"~~2016-13”) on January 1, 2020, management's policy and processes for the allowance for loan losses has changed. The updates in this standard replace the incurred loss impairment methodology ~~in current GAAP~~ with a CECL model methodology. The CECL model methodology incorporates current conditions, reasonable and ~~“reasonable~~supportable forecasts, and ~~supportable” forecasts, as well as~~ prepayments to estimate loan losses over the life of the loan. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 7: Allowance for Loan ~~Losses"~~Losses” for further discussion on the new policy and processes. There have been no other changes to the Company's policies through the filing of this Quarterly Report on Form 10-Q.

Results of operations for the three and six months ended ~~March 31,~~June 30, 2020 versus ~~March 31,~~June 30, 2019

Net ~~Income.~~income/(loss). The Company recorded Net ~~income before attribution to noncontrolling interestsfor the three months ended March 31, 2020 of $0.8 million, compared to $19.5 million for the same respective period in 2019. Net income~~loss attributable to the Company for the three and six months ended ~~March 31,~~June 30, 2020 ~~was $0.8~~of $(3.3) million and $(2.5) million, respectively, compared to Net income attributable to the Company of $19.4 million and $38.8 million for the same ~~period~~respective periods in 2019.

The Company recognized Diluted ~~EPS~~loss per share attributable to common shareholders for the three and six months ended ~~March 31,~~June 30, 2020 of ~~$0.01~~$(0.04) per share and $(0.03) per share, respectively, compared to ~~$0.25~~Diluted earnings per share attributable to common shareholders of $0.22 per share and $0.47 per share for the same ~~period~~respective periods in 2019. Net income attributable to the Company for 2020 and 2019 was positively impacted by decreases in the redemption value of certain redeemable noncontrolling interests, which increases Net income available to common shareholders. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 2: ~~Earnings~~Earnings/(Loss) Per Share” for further detail on ~~these charges~~adjustments made to ~~income~~arrive at income/(loss) available to common shareholders.

The following table presents selected financial highlights:

Three months ended March 31,
$
Change
%
Change
2020 2019
(In thousands)
Net interest income $ 57,257 $ 58,338 $ (1,081) (2) %
Fees and other income 21,521 25,248 (3,727) (15) %
Total revenue 78,778 83,586 (4,808) (6) %
Provision/(credit) for loan losses 16,962 (1,426) 18,388 nm
Operating expense 60,908 60,553 355 1 %
Income tax expense 102 4,917 (4,815) (98) %
Net income before attribution to noncontrolling interests 806 19,542 (18,736) (96) %
Less: Net income attributable to noncontrolling interests 6 100 (94) (94) %
Net income attributable to the Company $ 800 $ 19,442 $ (18,642) (96) %


	Three months ended June 30,						$ Change		% Change		Six months ended June 30,						$ Change	% Change
	2020		2019								2020		2019
	(In thousands, except percentages)
Net interest income	$	58,938	$	57,460	1,478		3	%	$	116,195	$	115,798	$	397	—	%
Fees and other income	22,662		24,380		(1,718)		(7)	%	44,183		49,628		(5,445)		(11)	%
Total revenue	81,600		81,840		(240)		—	%	160,378		165,426		(5,048)		(3)	%
Provision/(credit) for loan losses	22,604		1,363		21,241		nm		39,566		(63)		39,629		nm
Operating expense	61,453		55,659		5,794		10	%	122,361		116,212		6,149		5	%
Income tax expense	841		5,369		(4,528)		(84)	%	943		10,286		(9,343)		(91)	%
Net income/(loss) before attribution to noncontrolling interests	(3,298)		19,449		(22,747)		nm		(2,492)		38,991		(41,483)		nm

Less: Net income attributable to noncontrolling interests	—		69		(69)		(100)	%	6		169		(163)		(96)	%
Net income/(loss) attributable to the Company	$	(3,298)	$	19,380	$	(22,678)	nm		$	(2,498)	$	38,822	$	(41,320)	nm

_____________________

nm = not meaningful

Net interest income. Net interest income represents the difference between interest earned, primarily on loans and investments, and interest paid on funding sources, primarily deposits and borrowings. Interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate paid on total interest-bearing liabilities. NIM is the amount of net interest income expressed as a percentage of average interest-earning assets. The average rate earned on interest-earning assets is the amount of annualized interest income expressed as a percentage of average interest-earning assets. The average rate paid on interest-bearing liabilities is equal to annualized interest expense as a percentage of average interest-bearing liabilities. When credit quality declines and loans are placed on nonaccrual status, NIM can decrease because the same assets are earning less income. Loans graded as substandard but still accruing interest income totaled ~~$87.9~~$88.6 million at ~~March 31,~~June 30, 2020 and could be placed on nonaccrual status if their credit quality declines further.

Net interest income for the three months ended ~~March 31,~~June 30, 2020 was ~~$57.3~~$58.9 million, ~~a decrease~~an increase of ~~$1.1~~$1.5 million, or 2%3%, compared to the same period in 2019. The ~~decrease~~increase was primarily driven by ~~the impact of recent rate cuts as~~PPP-related income and lower funding costs, partially offset by lower interest on interest-earning ~~assets~~assets. NIM was ~~partially~~2.75% for the three months ended June 30, 2020, a decrease of 3 basis points compared to the same period in 2019. Although Net interest income increased, the decrease in NIM was driven by the addition of lower-yielding PPP loans in the second quarter of 2020.

Net interest income for the six months ended June 30, 2020 was $116.2 million, an increase of $0.4 million compared to the same period in 2019. Net interest income remained relatively flat as lower funding costs were offset by lower ~~funding costs.~~interest on interest-earning assets. NIM was 2.76% for the ~~three~~six months ended ~~March 31,~~June 30, 2020, a decrease of 148 basis points compared to the same period in 2019. The decrease in NIM was ~~also primarily~~ driven by ~~the impact~~a higher volume of ~~recent rate cuts as lower interest on~~ interest-earning assets, ~~was partially offset by lower funding costs.~~primarily the addition of lower-yielding PPP loans.

4750

The following tables present the composition of the Company’s NIM for the three and six months ended ~~March 31,~~June 30, 2020 and 2019.


		Average Balance						Interest Income/Expense								Average Yield/Rate (1)						Average Balance							Interest Income/Expense	Average Yield/Rate (1)
		As of and for the three months ended March 31,																								As of and for the three months ended June 30,
AVERAGE BALANCE SHEET:	AVERAGE BALANCE SHEET:	2020		2019		2020		2019		2020		2019		AVERAGE BALANCE SHEET:	2020		2019		2020			2019		2020		2019
AVERAGE ASSETS	AVERAGE ASSETS	(In thousands)																			AVERAGE ASSETS	(In thousands)
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Cash and investments: (2)	Cash and investments: (2)													Cash and investments: (2)
Taxable investment securities	Taxable investment securities	$	201,174	$	244,230	$	868	$	1,185	1.73	%	1.94	%	Taxable investment securities	$	198,337	$	227,029	$	859		$	1,121	1.73	%	1.98		%
Non-taxable investment securities	Non-taxable investment securities	315,681		306,868		1,998		1,901		2.53	%	2.48	%	Non-taxable investment securities	316,513		304,309		2,005			1,901		2.53	%	2.50		%
Mortgage-backed securities	Mortgage-backed securities	520,629		521,788		2,787		2,897		2.14	%	2.22	%	Mortgage-backed securities	505,669		508,033		2,566			2,706		2.03	%	2.13		%
Short-term investments and other	Short-term investments and other	147,482		79,603		1,071		908		2.89	%	4.58	%	Short-term investments and other	186,895		130,363		582			1,057		1.23	%	3.23		%
Total cash and investments	Total cash and investments	1,184,966		1,152,489		6,724		6,891		2.27	%	2.39	%	Total cash and investments	1,207,414		1,169,734		6,012			6,785		1.99	%	2.32		%
Loans: (3)	Loans: (3)													Loans: (3)
Commercial and industrial	Commercial and industrial	1,148,986		1,070,161		10,724		10,979		3.69	%	4.10	%	Commercial and industrial	1,037,285		1,091,903		9,708			11,170		3.70	%	4.05		%
Paycheck Protection Program														Paycheck Protection Program	283,619		—		1,573			—		2.19	%	—		%
Commercial real estate	Commercial real estate	2,582,305		2,398,413		27,482		28,151		4.21	%	4.69	%	Commercial real estate	2,659,074		2,506,637		24,602			29,953		3.66	%	4.73		%
Construction and land	Construction and land	233,324		211,351		2,572		2,641		4.36	%	5.00	%	Construction and land	233,305		202,609		2,251			2,559		3.82	%	5.00		%
Residential	Residential	2,850,833		2,972,945		23,468		25,545		3.29	%	3.44	%	Residential	2,862,708		3,008,753		23,079			25,735		3.22	%	3.42		%
Home equity	Home equity	86,048		90,646		952		1,121		4.45	%	5.02	%	Home equity	88,307		91,384		650			1,146		2.96	%	5.03		%
Other consumer	Other consumer	132,237		133,937		1,160		1,496		3.53	%	4.53	%	Other consumer	124,346		124,778		944			1,380		3.05	%	4.43		%
Total loans	Total loans	7,033,733		6,877,453		66,358		69,933		3.75	%	4.07	%	Total loans	7,288,644		7,026,064		62,807			71,943		3.42	%	4.07		%
Total earning assets	Total earning assets	8,218,699		8,029,942		73,082		76,824		3.54	%	3.83	%	Total earning assets	8,496,058		8,195,798		68,819			78,728		3.22	%	3.82		%
LESS: Allowance for loan losses	LESS: Allowance for loan losses	51,730		75,537										LESS: Allowance for loan losses	68,473		73,856
Cash and due from banks (non-interest bearing)	Cash and due from banks (non-interest bearing)	49,571		46,172										Cash and due from banks (non-interest bearing)	39,959		45,705
Other assets	Other assets	562,851		493,148										Other assets	641,657		511,859
TOTAL AVERAGE ASSETS	TOTAL AVERAGE ASSETS	$	8,779,391	$	8,493,725									TOTAL AVERAGE ASSETS	$	9,109,201	$	8,679,506
AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY	AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY																										AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Interest-bearing deposits:	Interest-bearing deposits:													Interest-bearing deposits:

Savings and NOW	Savings and NOW	$	638,926	$	674,872	$	232	$	296	0.15	%	0.18	%	Savings and NOW	$	680,758	$	684,507	$	187		$	276	0.11	%	0.16		%
Money market	Money market	3,753,045		3,341,397		9,657		10,072		1.03	%	1.22	%	Money market	3,684,147		3,226,569		4,848			10,476		0.53	%	1.30		%
Certificates of deposit	Certificates of deposit	668,818		775,817		2,907		3,690		1.75	%	1.93	%	Certificates of deposit	671,470		752,500		2,300			3,763		1.38	%	2.01		%
Total interest-bearing deposits	Total interest-bearing deposits	5,060,789		4,792,086		12,796		14,058		1.02	%	1.19	%	Total interest-bearing deposits	5,036,375		4,663,576		7,335			14,515		0.59	%	1.25		%
Junior subordinated debentures	Junior subordinated debentures	106,363		106,363		917		1,121		3.41	%	4.22	%	Junior subordinated debentures	106,363		106,363		764			1,080		2.84	%	4.02		%
FHLB borrowings and other	FHLB borrowings and other	455,813		615,985		2,112		3,307		1.83	%	2.15	%	FHLB borrowings and other	610,856		952,645		1,782			5,673		1.15	%	2.36		%
Total interest-bearing liabilities	Total interest-bearing liabilities	5,622,965		5,514,434		15,825		18,486		1.13	%	1.36	%	Total interest-bearing liabilities	5,753,594		5,722,584		9,881			21,268		0.69	%	1.48		%
Non-interest bearing demand deposits	Non-interest bearing demand deposits	2,046,102		1,974,526										Non-interest bearing demand deposits	2,213,829		1,926,591
Payables and other liabilities	Payables and other liabilities	270,371		236,426										Payables and other liabilities	306,896		238,544
Total average liabilities	Total average liabilities	7,939,438		7,725,386										Total average liabilities	8,274,319		7,887,719
Redeemable noncontrolling interests	Redeemable noncontrolling interests	1,018		2,056										Redeemable noncontrolling interests	—		943
Average shareholders’ equity	Average shareholders’ equity	838,935		766,283										Average shareholders’ equity	834,882		790,844
TOTAL AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY	TOTAL AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY	$	8,779,391	$	8,493,725									TOTAL AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY	$	9,109,201	$	8,679,506
Net interest income	Net interest income					$	57,257	$	58,338					Net interest income					$	58,938		$	57,460

Interest rate spread	Interest rate spread									2.41	%	2.47	%	Interest rate spread										2.53	%	2.34		%
NIM	NIM									2.76	%	2.90	%	NIM										2.75	%	2.78		%


	Average Balance						Interest Income/Expense						Average Yield/Rate (1)
	As of and for the six months ended June 30,
AVERAGE BALANCE SHEET:	2020		2019		2020		2019		2020		2019
AVERAGE ASSETS	(In thousands)
Interest-earning assets:
Cash and investments: (2)
Taxable investment securities	$	199,755	$	235,218	$	1,727	$	2,306	1.73	%	1.92	%
Non-taxable investment securities	316,097		305,581		4,003		3,802		2.53	%	2.49	%
Mortgage-backed securities	513,149		514,872		5,353		5,603		2.09	%	2.18	%
Short-term investments and other	167,188		105,610		1,653		1,965		1.96	%	3.61	%
Total cash and investments	1,196,189		1,161,281		12,736		13,676		2.13	%	2.34	%
Loans: (3)
Commercial and industrial	1,091,648		1,081,092		20,432		22,150		3.69	%	4.08	%
Paycheck Protection Program	143,297		—		1,573		—		2.23	%	—	%
Commercial real estate	2,620,689		2,452,824		52,084		58,104		3.93	%	4.71	%
Construction and land	233,315		206,956		4,823		5,200		4.09	%	5.00	%
Residential	2,856,771		2,990,948		46,547		51,280		3.26	%	3.43	%
Home equity	87,178		91,017		1,602		2,267		3.69	%	5.02	%
Other consumer	128,292		129,332		2,104		2,875		3.29	%	4.48	%
Total loans	7,161,190		6,952,169		129,165		141,876		3.58	%	4.07	%
Total earning assets	8,357,379		8,113,450		141,901		155,552		3.38	%	3.82	%
LESS: Allowance for loan losses	60,102		74,692
Cash and due from banks (non-interest bearing)	44,831		46,010
Other assets	602,319		502,068
TOTAL AVERAGE ASSETS	$	8,944,427	$	8,586,836
AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:


Savings and NOW	$	659,842	$	679,716	$	419	$	572	0.13	%	0.17	%
Money market	3,717,664		3,283,891		14,505		20,549		0.78	%	1.26	%
Certificates of deposit	670,144		764,094		5,207		7,452		1.56	%	1.97	%
Total interest-bearing deposits	5,047,650		4,727,701		20,131		28,573		0.80	%	1.22	%
Junior subordinated debentures	106,363		106,363		1,681		2,201		3.17	%	4.17	%
FHLB borrowings and other	533,334		785,245		3,894		8,980		1.44	%	2.27	%
Total interest-bearing liabilities	5,687,347		5,619,309		25,706		39,754		0.90	%	1.42	%
Non-interest bearing demand deposits	2,129,758		1,950,088
Payables and other liabilities	288,846		236,894
Total average liabilities	8,105,951		7,806,291
Redeemable noncontrolling interests	573		1,619
Average shareholders’ equity	837,903		778,926
TOTAL AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY	$	8,944,427	$	8,586,836
Net interest income					$	116,195	$	115,798


Interest rate spread									2.48	%	2.40	%
NIM									2.76	%	2.84	%

__________________

(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.

Interest and dividend income. Total interest and dividend income for the three months ended ~~March 31,~~June 30, 2020 was ~~$73.1~~$68.8 million, a decrease of ~~$3.7~~$9.9 million, or 5%13%, compared to the same period in 2019. Total interest and dividend income for the six months ended June 30, 2020was $141.9 million, a decrease of $13.7 million, or 9%, compared to the same period in 2019. The ~~decrease was~~decreases were primarily driven by lower yields on loans and investments, partially offset by a higher ~~volume~~volumes of loans and investments.

The Bank generally has interest related to nonaccrual loans that is either collected or reversed each quarter. When a loan is placed on nonaccrual, the interest income previously accrued but uncollected, is reversed which will have a negative

effect on the related yield. Interest collected on loans while on nonaccrual status is generally applied to the principal balance. If

a nonaccruing loan pays off, previously collected interest income that was applied to principal may be recorded as interest income if the principal balance was paid in full. Based on the net amount collected or reversed, the impact on interest income and related yields can be either positive or negative. In addition, the Bank collects prepayment penalties on certain commercial loans that pay off prior to maturity which could also impact interest income and related yields positively. The amount and timing of prepayment penalties varies from quarter to quarter.

Interest income on commercial and industrial loans (including commercial loans and commercial tax-exempt loans) for the three months ended ~~March 31,~~June 30, 2020 was ~~$10.7~~$9.7 million, a decrease of ~~$0.3~~$1.5 million, or 2%13%, compared to the same period in 2019, as a result of a 4135 basis point decrease in the average yield and a 5% decrease in the average balance. For the six months ended June 30, 2020, commercial and industrial interest income was $20.4 million, a decrease of $1.7 million, or 8%, compared to the same period in 2019, as a result of a 39 basis point decrease in the average yield, partially offset by a 1% increase in the average balance. The decreases in the average yield for the three and six month periods were primarily the result of decreases to the interest rate benchmarks to which the variable rate loans are tied and lower yields on recent loan originations. The decrease in the average balance for the three month period was related primarily to slowing originations in all regions in which the Bank operates as the impact of the COVID-19 pandemic is uncertain. The increase in the average balance for the six month period was related primarily to growth in the first quarter of 2020 across all regions in which the Bank operates before the COVID-19 pandemic.

Interest income on PPP loans for the three and six months ended June 30, 2020 was $1.6 million. The Company began earning interest income on PPP loans in the second quarter of 2020. Interest income on PPP loans includes interest earned on the loans and the accretion of origination fees over the life of the loans.

Interest income on commercial real estate loans for the three months ended June 30, 2020 was $24.6 million, a decrease of $5.4 million, or 18%, compared to the same period in 2019, as a result of a 107 basis point decrease in the average yield, partially offset by a 6% increase in the average balance. For the six months ended June 30, 2020, commercial real estate interest income was $52.1 million, a decrease of $6.0 million, or 10%, compared to the same period in 2019, as a result of a 78 basis point decrease in the average yield, partially offset by a 7% increase in the average balance. The ~~decrease~~decreases in the average yield ~~was~~for the three and six month periods were primarily the result of ~~lower yields on recent loan originations and~~ decreases to the interest rate benchmarks to which the variable rate loans are ~~tied.~~tied and lower yields on recent loan originations. The ~~increase~~increases in the average balance ~~was~~for the three and six month periods were related primarily to ~~growth in~~the addition of approximately $80.0 million of additional loans under the commercial real estate second loan program across all regions ~~in which~~as part of relief measures provided to clients as a result of the ~~Bank operates.~~COVID-19 pandemic.

Interest income on ~~commercial real estate~~construction and land loans for the three months ended ~~March 31,~~June 30, 2020 was ~~$27.5~~$2.3 million, a decrease of ~~$0.7~~$0.3 million, or 2%12%, compared to the same period in 2019, as a result of a 48118 basis point decrease in the average yield, partially offset by ~~an 8%~~a 15% increase in the average balance. ~~The decrease in~~For the average yield was the result of lower yields on recent loan originations and decreases to the interest rate benchmarks to which the variable rate loans are tied. The increase in the average balance was primarily driven by organic growth in the Southern California and Northern California regions.

~~Interest income on~~six months ended June 30, 2020, construction and land ~~loans for the three months ended March 31, 2020~~interest income was ~~$2.6~~$4.8 million, a decrease of ~~$0.1~~$0.4 million, or 3%7%, compared to the same period in 2019, as a result of a 6491 basis point decrease in the average yield, partially offset by a ~~10%~~13% increase in the average balance. The overall yields on construction and land loans fluctuate due to the short-term nature of the loans and the related impact of draws and payoffs. Due to the relatively low balances in construction and land loans, a large ~~draw-~~drawdown or ~~pay-down~~paydown can result in a significant change in the overall yield depending on the interest rate of the particular loans that caused the balance changes. The ~~decrease~~decreases in the average yield ~~was~~for the three and six month periods were primarily ~~driven by~~the result of decreases to the interest rate benchmarks to which the variable rate loans are tied. The ~~increase~~increases in the average balance ~~was driven~~for the three and six month periods were related primarily ~~by increased utilization of existing loans~~to line drawdowns across all regions in which the ~~Southern California and New England regions.~~Bank operates.

Interest income on residential mortgage loans for the three months ended ~~March 31,~~June 30, 2020 was ~~$23.5~~$23.1 million, a decrease of ~~$2.1~~$2.7 million, or 8%10%, from the same period in 2019, as a result of a 1520 basis point decrease in the average yield and a 5% decrease in the average balance. For the six months ended June 30, 2020, residential mortgage interest income was $46.5 million, a decrease of $4.7 million, or 9%, compared to the same period in 2019, as a result of a 17 basis point decrease in the average yield and a 4% decrease in the average balance. The ~~decrease~~decreases in the average yield ~~was~~for the three and six month periods were primarily the result of ~~lower yields on recent loan originations and~~ decreases to the interest rate benchmarks to which the variable rate loans are ~~tied.~~tied and lower yields on recent loan originations. The ~~decrease~~decreases in the average balance ~~was~~for the three and six month periods were primary driven by the sale of $190.7 million of residential loans in the third and fourth quarters of ~~2019.~~2019 and slowing originations in the first two quarters of 2020.

Interest income on home equity loans for the three months ended ~~March 31,~~June 30, 2020 was ~~$1.0~~$0.7 million, a decrease of 15% compared to the same period in 2019, as a result of a 57 basis point decrease in the average yield and a 5% decrease in the average balance. The decrease in the average yield was the result of the timing of changes to benchmark interest rates, while the decrease in the average balance was primarily driven by reduced demand.

~~Interest income on other consumer loans for the three months ended March 31, 2020 was $1.2 million, a decrease of $0.3~~$0.5 million, or ~~22%~~43%, compared to the same period in 2019, as a result of a ~~100~~207 basis point decrease in the average yield and a 3% decrease in the average balance. For the six months ended June 30, 2020, home equity interest income was $1.6 million, a decrease of $0.7 million, or 29%, compared to the same period in 2019, as a result of a 133 basis point decrease in the average yield and a 4% decrease in the average balance. The decreases in the average yield for the three and six month periods were primarily the result of decreases to the interest rate benchmarks to which the variable rate loans are tied. The decreases in the

average balance for the three and six month periods were primarily driven by reduced demand as a result of economic uncertainty related to the COVID-19 pandemic.

Interest income on other consumer loans for the three months ended June 30, 2020 was $0.9 million, a decrease of $0.4 million, or 32%, compared to the same period in 2019, as a result of a 138 basis point decrease in the average yield while the average balance remained flat. For the six months ended June 30, 2020, other consumer interest income was $2.1 million, a decrease of $0.8 million, or 27%, compared to the same period in 2019, as a result of a 119 basis point decrease in the average yield and a 1% decrease in the average balance. The ~~decrease~~decreases in the average yield ~~was~~for the three and six month periods were primarily the result of decreases to the ~~timing of changes in~~ interest rate benchmarks to which the variable rate loans are tied, while the ~~decrease in the~~ average ~~balance was primarily~~balances have remained relatively flat driven by strategic decisions to ~~run off non-core balances.~~slow new consumer loan growth.

Investment income for the three months ended ~~March 31,~~June 30, 2020 was ~~$6.7~~$6.0 million, a decrease of ~~$0.2~~$0.8 million, or 2%11%, ~~from~~compared to the same period in 2019, as a result of a 1233 basis point decrease in the average yield, partially offset by a 3% increase in the average balance. For the six months ended June 30, 2020, investment income was $12.7 million, a decrease of $0.9 million, or 7%, compared to the same period in 2019, as a result of a 21 basis point decrease in the average yield, partially offset by a 3% increase in the average balance. The ~~decrease~~decreases in the average yield isfor the three and six month periods were primarily due to ~~recent purchases made at~~the lower interest ~~rates.~~rate environment. The ~~increase~~increases in the average balance ~~was~~for the three and six month periods were primarily due to ~~short-term fluctuations in~~additional liquidity generated from deposits.

Interest expense. Total interest expense for the three months ended ~~March 31,~~June 30, 2020 was ~~$15.8~~$9.9 million, a decrease of ~~$2.7~~$11.4 million, or ~~14%~~54%, compared to the same period in 2019. For the six months ended June 30, 2020, total interest expense was $25.7 million, a decrease of $14.0 million, or 35%, compared to the same period in 2019. The ~~decrease was~~decreases in interest expense for the three and six months periods were primarily driven by the impact of lower rates on interest-bearing deposits and borrowings and a decrease in the average volume of borrowings, partially offset by an increase in the volume of interest-bearing deposits.

Interest expense on interest-bearing deposits for the three months ended ~~March 31,~~June 30, 2020 was ~~$12.8~~$7.3 million, a decrease of ~~$1.3~~$7.2 million, or 9%49%, compared to the same period in 2019, as a result of a 1766 basis point decrease in the average rate, partially offset by an 8% increase in the average balance. For the six months ended June 30, 2020, interest expense on interest-bearing deposits was $20.1 million, a decrease of $8.4 million, or 30%, compared to the same period in 2019, as a result of a 42 basis point decrease in the average rate, partially offset by a 6%7% increase in the average balance. The ~~decrease~~decreases in the average rate paid on deposits ~~was~~for the three and six month periods were driven primarily by wholesale reductions in rates paid for deposit accounts given the recent decreases in interest rates. The ~~increase~~increases in the average balance for interest-bearing deposits was primarily driven by ~~an increase~~increases in ~~money market~~deposit products in all regions in which the Bank operates as clients hold additional cash deposit balances ingiven the ~~New England region.~~

economic uncertainty surrounding the COVID-19 pandemic.

Interest paid on non-deposit interest-bearing liabilities for the three months ended ~~March 31,~~June 30, 2020 was ~~$3.0~~$2.5 million, a decrease of ~~$1.4~~$4.2 million, or ~~32%~~62%, compared to the same period in 2019, as a result of a 32121 basis point decrease in the average rate paid on FHLB borrowings and other borrowings, a ~~26%~~36% decrease in the average balance of FHLB borrowings and other borrowings, and a 118 basis point decrease in the average rate on junior subordinated debentures. For the six months ended June 30, 2020, interest paid on non-deposit interest-bearing liabilities was $5.6 million, a decrease of $5.6 million, or 50%, compared to the same period in 2019, as a result of an 8183 basis point decrease in the average rate paid on FHLB borrowings and other borrowings, a 32% decrease in the average balance of FHLB borrowings and other borrowings, and a 100 basis point decrease in the average rate on junior subordinated debentures. The decreases in the average rates paid were primarily driven by the decreases in benchmark interest rates to which the instruments are tied. The ~~decrease~~decreases in the average balance for non-deposit interest-bearing liabilities ~~was~~were primarily driven by ~~an increase~~increases in deposits, reducing the need for higher-cost borrowings.

Provision/(credit) for loan losses. The Company recorded a ~~Provision~~provision for loan losses of ~~$17.0~~$22.6 million for the three months ended ~~March 31,~~June 30, 2020, compared to a ~~credit to the Provision~~provision for loan losses of $1.4 million for the same period in 2019. For the six months ended June 30, 2020, the Company recorded a provision for loan losses of $39.6 million, compared to a credit to the provision for loan losses of $0.1 million for the same period in 2019. The provision for loan losses ~~in the first quarter of 2020~~ was primarily driven by changes in economic forecasts ~~late~~ in both the first ~~quarter~~and second quarters of 2020 to reflect deteriorating economic conditions ~~due~~related to the COVID-19 ~~pandemic. Under~~pandemic and a change in the ~~CECL methodology,~~weight of forecast scenarios used to be weighted more heavily to the ~~provision~~downside scenario, combined with an increase in qualitative factors to account for ~~loan loss required may be significantly affected by reasonable and supportable economic forecasts.~~incremental risk not included in the quantitative model. Under the CECL methodology, the provision for loan loss required may be significantly affected by reasonable and supportable economic forecasts.

The provision/(credit) for loan losses is determined as a result of the required level of the allowance for loan losses, estimated by management, which reflects the inherent risk of loss in the loan portfolio as of the balance sheet dates. The Company estimates credit losses on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent 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 prepayments and curtailments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the Company's historical long-run average. Qualitative factors are estimated by management and include trends in problem loans, strength of management, concentration risk and underwriting standards. For further details, see “Loan Portfolio and Credit Quality” below. 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.

Fees and other income


		Three months ended March 31,						$ Change				% Change	Three months ended June 30,						$ Change		% Change		Six months ended June 30,				$ Change	% Change
		2020		2019									2020		2019								2020		2019
		(In thousands)															(In thousands, except percentages)
Wealth management and trust fees	Wealth management and trust fees	$	18,371	$	19,058	$	(687)	(4)	%	Wealth management and trust fees	$	17,261	$	18,912	$	(1,651)	(9)	%	$	35,632	$	37,970	$	(2,338)	(6)	%
Investment management fees	Investment management fees	1,925		2,650		(725)		(27)	%	Investment management fees	1,770		2,455		(685)		(28)	%	3,695		5,105		(1,410)		(28)	%

Other banking fee income	Other banking fee income	2,490		2,499		(9)		—	%	Other banking fee income	2,395		2,867		(472)		(16)	%	4,885		5,366		(481)		(9)	%
Gain on sale of loans, net	Gain on sale of loans, net	100		73		27		37	%	Gain on sale of loans, net	204		58		146		nm		304		131		173		nm
Total core fees and income	Total core fees and income	22,886		24,280		(1,394)		(6)	%	Total core fees and income	21,630		24,292		(2,662)		(11)	%	44,516		48,572		(4,056)		(8)	%

Total other income	Total other income	(1,365)		968		(2,333)		nm		Total other income	1,032		88		944		nm		(333)		1,056		(1,389)		nm
Total fees and other income	Total fees and other income	$	21,521	$	25,248	$	(3,727)	(15)	%	Total fees and other income	$	22,662	$	24,380	$	(1,718)	(7)	%	$	44,183	$	49,628	$	(5,445)	(11)	%

_____________________

nm = not meaningful

Total fees and other income for the three months ended ~~March 31,~~June 30, 2020 decreased ~~$3.7~~$1.7 million, or ~~15%~~7%, compared to the same period in 2019 driven by lower ~~Total other income, lower~~ Wealth management and trust fees and ~~lower~~ Investment management ~~fees.~~fees, partially offset by higher Total other income. The ~~decrease~~decreases in Wealth management and trust fees and Investment management fees ~~was~~were driven by the impact of lower ~~AUM.~~equity market values on AUM at the end of the first quarter of 2020, as many accounts are billed in arrears. The increase in Total other income was driven primarily by a favorable mark-to-market adjustment on deferred compensation in the second quarter of 2020.

•~~Wealth management~~Total fees and ~~trust fees~~other income for the ~~three~~six months ended ~~March 31,~~June 30, 2020 decreased ~~$0.7~~$5.4 million, or 4%11%, compared to the same period in 2019 ~~while~~driven by lower Wealth management and trust fees, Investment management fees, ~~decreased $0.7 million, or 27%, compared to the same period in 2019.~~and Total other income. The decreases in Wealth management and trust fees and Investment management fees were ~~primarily~~ driven by the impact of lower ~~AUM.~~

•equity market values on AUM and net outflows. Total AUM managed or advised by the Company was ~~$14.5~~$16.0 billion at ~~March 31,~~June 30, 2020, a decrease of ~~$1.6~~$0.2 billion, or ~~10%~~2%, compared to ~~March 31,~~June 30, 2019. The decrease was primarily driven by the impact of ~~negative market returns of $1.1 billion and~~ net outflows of ~~$0.5~~$0.2 billion for the twelve months ended ~~March 31,~~June 30, 2020.

• The decrease in Total other income for the ~~three~~six months ended ~~March 31,~~June 30, 2020 ~~decreased $2.3 million compared to the same period in 2019~~was driven primarily by the impact of ~~unfavorable~~ mark-to-market adjustments ~~of $0.8 million for~~on derivatives and ~~$0.8 million for~~ deferred ~~compensation securities in the first quarter of 2020.~~

compensation.

Operating Expense


		Three months ended March 31,						$ Change				% Change	Three months ended June 30,						$ Change		% Change		Six months ended June 30,				$ Change	% Change
		2020		2019									2020		2019								2020		2019
		(In thousands)															(In thousands, except percentages)
Salaries and employee benefits	Salaries and employee benefits	$	35,096	$	35,726	$	(630)	(2)	%	Salaries and employee benefits	$	33,937	$	32,706	$	1,231	4	%	$	69,033	$	68,432	$	601	1	%
Occupancy and equipment	Occupancy and equipment	7,646		8,348		(702)		(8)	%	Occupancy and equipment	7,560		7,852		(292)		(4)	%	15,206		16,200		(994)		(6)	%
Information systems	Information systems	6,725		5,860		865		15	%	Information systems	7,113		5,137		1,976		38	%	13,838		10,997		2,841		26	%
Professional services	Professional services	3,601		3,560		41		1	%	Professional services	3,446		3,313		133		4	%	7,047		6,873		174		3	%
Marketing and business development	Marketing and business development	1,890		1,085		805		74	%	Marketing and business development	2,313		1,934		379		20	%	4,203		3,019		1,184		39	%
Amortization of intangibles	Amortization of intangibles	715		672		43		6	%	Amortization of intangibles	702		672		30		4	%	1,417		1,344		73		5	%

FDIC insurance	FDIC insurance	—		660		(660)		(100)	%	FDIC insurance	767		585		182		31	%	767		1,245		(478)		(38)	%
Restructuring	Restructuring	—		1,646		(1,646)		(100)	%	Restructuring	—		—		—		nm		—		1,646		(1,646)		(100)	%
Other	Other	5,235		2,996		2,239		75	%	Other	5,615		3,460		2,155		62	%	10,850		6,456		4,394		68	%
Total operating expense	Total operating expense	$	60,908	$	60,553	$	355	1	%	Total operating expense	$	61,453	$	55,659	$	5,794	10	%	$	122,361	$	116,212	$	6,149	5	%

_____________________

nm = not meaningful

Total operating expense for the three months ended ~~March 31,~~June 30, 2020 increased ~~$0.4~~$5.8 million, or 1%10%, to ~~$60.9~~$61.5 million, compared to the same period in ~~2019. The increase was~~2019, primarily due to ~~an increase~~increases in Other expense, Information systems expense, and Salaries and employee benefits expense. Total operating expense for the six months ended June 30, 2020 increased $6.1 million, or 5%, compared to the same period in 2019, primarily due to increases in Other expense, Information systems expense, Marketing and business development expense, and Salaries and employee benefits expense, partially offset by ~~a decrease~~decreases in Restructuring expense, Occupancy and equipment expense, and FDIC insurance ~~expense, and Salaries and employee benefits~~ expense.

•Other expense increased $2.2 million, or ~~75%~~62%, and $4.4 million, or 68%, for the three and six months ended ~~March 31,~~June 30, 2020, respectively, compared to the same ~~period~~periods in 2019. The ~~increase was~~increases were primarily driven by increases to the reserve for unfunded loan commitments ~~expense~~ of ~~$1.8~~$2.8 million and $4.7 million for the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019. The increases to the ~~first quarter of 2020, and an increase in non-service pension costs.~~reserve were driven by deteriorating economic conditions related to the COVID-19 pandemic.

•Information systems expense increased ~~$0.9~~$2.0 million, or ~~15%~~38%, and $2.8 million, or 26%, for the three and six months ended ~~March 31,~~June 30, 2020, respectively, compared to the same ~~period~~periods in 2019. The ~~increase was~~increases were primarily driven by new information technology initiatives placed into service during the fourth quarter of ~~2019.~~2019 and an increase in costs related to building out remote working capabilities in the second quarter of 2020.

•Marketing and business development expense increased ~~$0.8~~$0.4 million, or ~~74%~~20%, and $1.2 million, or 39%, for the three and six months ended ~~March 31,~~June 30, 2020, respectively, compared to the same ~~period~~periods in 2019. The ~~increase was~~increases were primarily driven by new advertising campaigns and timing of spend.

•Salaries and employee benefits expense increased $1.2 million, or 4%, and $0.6 million, or 1%, for the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019. The increases were primarily driven by severance expense and an unfavorable mark-to-market adjustment on deferred compensation in the second quarter of 2020, partially offset by decreased variable compensation throughout 2020.

•Restructuring expense decreased for the ~~three~~six months ended ~~March 31,~~June 30, 2020, compared to the same period of 2019. In the first quarter of 2019, there was a restructuring expense of $1.6 million related to executive departures.

•Occupancy and equipment expense decreased ~~$0.7~~$0.3 million, or 8%4%, and $1.0 million, or 6%, for the three and six months ended ~~March 31,~~June 30, 2020, respectively, compared to the same ~~period~~periods in 2019. The ~~decrease was~~decreases were primarily driven by ~~a decrease~~decreases in depreciation expense on leasehold improvements and ~~a decrease in~~ rent expense due to lease ~~expirations.~~expirations that were not renewed.

•FDIC insurance decreased $0.5 million, or 38%, for the ~~three~~six months ended ~~March 31,~~June 30, 2020, compared to the same period in 2019. The decrease was driven by an FDIC insurance assessment credit received in the first quarter of 2020. In January 2019, the Bank received notification from the FDIC that it was eligible for small bank assessment credits of $2.0 million because the FDIC's Deposit Insurance Fund reserve ratio exceeded the target level. The full $2.0 million of credits ~~have~~has been ~~utilized as of March 31, 2020.~~

•Salaries and employee benefits expense decreased $0.6 million, or 2%, for the three months ended March 31, 2020, compared to the same period in 2019. The decrease was primarily driven by an unfavorable adjustment on deferred compensation securities held in the rabbi trust, the effect of accrual adjustments, and lower medical insurance premiums, partially offset by higher salary expense in the first quarter of 2020.utilized.

Income ~~Tax Expense.~~tax expense. Income tax expense for the ~~three~~six months ended ~~March 31,~~June 30, 2020 was ~~$0.1~~$0.9 million, compared to ~~$4.9~~$10.3 million for the same period in 2019. The effective tax rate for the ~~three~~six months ended ~~March 31,~~June 30, 2020 was ~~11.2%~~(60.9)%, compared to an effective tax rate of ~~20.1%~~20.9% for the same period of 2019. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 9: Income Taxes” for further detail.

5156

Financial Condition

Condensed Consolidated Balance Sheets and Discussion


		March 31, 2020		December 31, 2019		Increase/ (decrease)		% Change			June 30, 2020		December 31, 2019		Increase/ (decrease)		% Change
		(In thousands)															(In thousands, except percentages)
Assets:	Assets:									Assets:
Total cash and investments	Total cash and investments	$	1,168,628	$	1,376,863	$	(208,235)	(15)	%	Total cash and investments	$	1,291,391	$	1,376,863	$	(85,472)	(6)	%
Loans held for sale	Loans held for sale	7,671		7,386		285		4	%	Loans held for sale	9,786		7,386		2,400		32	%
Total loans	Total loans	7,043,338		6,976,704		66,634		1	%	Total loans	7,332,954		6,976,704		356,250		5	%
Less: Allowance for loan losses	Less: Allowance for loan losses	68,211		71,982		(3,771)		(5)	%	Less: Allowance for loan losses	89,324		71,982		17,342		24	%
Net loans	Net loans	6,975,127		6,904,722		70,405		1	%	Net loans	7,243,630		6,904,722		338,908		5	%
Goodwill and intangible assets, net	Goodwill and intangible assets, net	67,244		67,959		(715)		(1)	%	Goodwill and intangible assets, net	66,542		67,959		(1,417)		(2)	%
Right-of-use assets	Right-of-use assets	98,896		102,075		(3,179)		(3)	%	Right-of-use assets	94,143		102,075		(7,932)		(8)	%
Total other assets	Total other assets	428,760		371,496		57,264		15	%	Total other assets	453,414		371,496		81,918		22	%
Total assets	Total assets	$	8,746,326	$	8,830,501	$	(84,175)	(1)	%	Total assets	$	9,158,906	$	8,830,501	$	328,405	4	%
Liabilities and Equity:	Liabilities and Equity:									Liabilities and Equity:
Deposits	Deposits	$	6,835,572	$	7,241,476	$	(405,904)	(6)	%	Deposits	$	7,427,397	$	7,241,476	$	185,921	3	%
Total borrowings	Total borrowings	787,936		510,590		277,346		54	%	Total borrowings	579,299		510,590		68,709		13	%
Lease liabilities	Lease liabilities	113,574		117,214		(3,640)		(3)	%	Lease liabilities	108,234		117,214		(8,980)		(8)	%
Total other liabilities	Total other liabilities	180,452		140,820		39,632		28	%	Total other liabilities	218,771		140,820		77,951		55	%
Total liabilities	Total liabilities	7,917,534		8,010,100		(92,566)		(1)	%	Total liabilities	8,333,701		8,010,100		323,601		4	%
Redeemable noncontrolling interests (“RNCI”)	Redeemable noncontrolling interests (“RNCI”)	—		1,383		(1,383)		(100)	%	Redeemable noncontrolling interests (“RNCI”)	—		1,383		(1,383)		(100)	%
Total shareholders’ equity	Total shareholders’ equity	828,792		819,018		9,774		1	%	Total shareholders’ equity	825,205		819,018		6,187		1	%
Total liabilities, RNCI and shareholders’ equity	Total liabilities, RNCI and shareholders’ equity	$	8,746,326	$	8,830,501	$	(84,175)	(1)	%	Total liabilities, RNCI and shareholders’ equity	$	9,158,906	$	8,830,501	$	328,405	4	%

Total assets. Total assets ~~decreased $84.2~~increased $328.4 million, or 1%4%, to ~~$8.7~~$9.2 billion at ~~March 31,~~June 30, 2020 from $8.8 billion at December 31, 2019, primarily driven by an increase in Net loans and Total other assets, partially offset by a decrease in Total cash and ~~investments, partially offset by an increase in Total loans and Total other assets.~~investments.

Total cash and investments. Total cash and investments (consisting of Cash and cash equivalents, Investment securities available-for-sale, Investment securities held-to-maturity, Equity securities at fair value, and Stock in the Federal Home Loan Bank and Federal Reserve Bank) decreased ~~$208.2~~$85.5 million, or ~~15%~~6%, from December 31, 2019. The decrease was primarily driven by a decrease of ~~$230.8~~$113.5 million in Cash and cash equivalents, partially offset by an increase of ~~$19.2~~$30.4 million in Investment securities available-for-sale and Equity securities at fair value. The Company utilized cash ~~and proceeds from maturing investment securities~~ to partially fund loan ~~growth as deposits declined over the same period.~~growth. Total cash and investments represent ~~13%~~14% of total assets at ~~March 31,~~June 30, 2020 and 16% of total assets at December 31, 2019.

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

Investment maturities, redemptions, principal payments, and sales of securities, if any, net of purchases (includes Investment securities available-for-sale, Investment securities held-to-maturity and Equity securities at fair value), provided ~~$2.1~~$2.9 million of cash proceeds during the ~~three~~six months ended ~~March 31,~~June 30, 2020, compared to ~~$35.9~~$65.4 million in the same period in 2019. The timing of sales and reinvestments is based on various factors, including management’s evaluation of interest rate trends, credit risk, and the Company’s liquidity. The Company’s available-for-sale investment portfolio carried a total of ~~$32.2~~$43.3 million of unrealized gains and ~~$0.4~~$0.2 million of unrealized losses at ~~March 31,~~June 30, 2020, compared to $15.0 million of unrealized gains and $3.6 million of unrealized losses at December 31, 2019. The increase in the total net unrealized gains is primarily driven by the current interest rate environment.

No impairment losses were recognized through earnings related to investment securities during the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019. The Company does not consider these investments to be credit impaired as the decline in fair value on investments is primarily attributed to changes in interest rates and not due to credit quality or other risk factors.

Additionally, at ~~March 31,~~June 30, 2020 and December 31, 2019, the Company held ~~$45.4~~$42.5 million and $48.2 million, respectively, of Investment securities held-to-maturity at amortized cost. All of the held-to-maturity securities held at ~~March 31,~~June 30, 2020 were mortgage-backed securities guaranteed by the U.S. government, U.S. government agencies, or government-sponsored entities.

5257

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

Loans held for sale. Loans held for sale at ~~March 31,~~June 30, 2020 increased ~~$0.3~~$2.4 million, or 4%32%, to ~~$7.7~~$9.8 million from the balance at December 31, 2019. The balance of Loans held for sale usually relates to the timing and volume of residential loans originated for sale and the ultimate sale transaction, which is typically executed within a short time following the loan origination. From time to time, the Company may also sell loans that have been held in the loan portfolio. The sale of such loans may improve the Bank’s liquidity and capital position or may provide the Bank additional flexibility for more profitable and strategic future lending opportunities.

Goodwill and intangible assets, net. Goodwill and intangible assets, net at ~~March 31,~~June 30, 2020 decreased ~~$0.7~~$1.4 million, or 1%2%, to ~~$67.2~~$66.5 million from the balance at December 31, 2019, due to Amortization of intangible assets. There was no change to Goodwill during the ~~three~~six months ended ~~March 31,~~June 30, 2020.

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

Management performed its annual goodwill and indefinite-lived intangible asset impairment testing during the fourth quarter of 2019. The estimated fair value of Boston Private Wealth exceeded its carrying value. Management will perform the annual goodwill and indefinite-lived intangible asset impairment testing for this year in the fourth quarter of 2020. Management determined that there was not a trigger event in the ~~first~~second quarter of 2020 from the economic conditions related to the COVID-19 pandemic, and will continually monitor for triggering events that would warrant testing prior to the fourth quarter of 2020.

Right-of-use assets. ~~Total right-of-use~~Right-of-use ("ROU") assets at ~~March 31,~~June 30, 2020 decreased ~~$3.2~~$7.9 million, or 3%8%, to ~~$98.9~~$94.1 million compared to the balance at December 31, ~~2019.~~2019 due to amortization of ROU assets and lease expirations that were not renewed in the second quarter of 2020. Upon adoption of the ~~new~~ lease accounting standard, ASU 2016-02, the Company recognized $108.5 million of ROU assets on the face of the Consolidated Balance Sheets as of January 1, 2019. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 14: Lease Accounting” for further details.

Total other assets. Total other assets, as presented in the table above, consists of the following line items from the Consolidated Balance Sheets: Premises and equipment, net; Fees receivable; Accrued interest receivable; Deferred income taxes, net; and Other assets. Total other assets at ~~March 31,~~June 30, 2020 increased ~~$57.3~~$81.9 million, or ~~15%~~22%, to ~~$428.8~~$453.4 million from the balance at December 31, 2019. These changes resulted from the following factors:

•Other assets, which consist primarily of bank-owned life insurance, investment in partnerships, prepaid expenses, interest rate derivatives, and other receivables increased ~~$64.0~~$84.3 million, or ~~22%~~29%, to ~~$351.3~~$371.7 million at ~~March 31,~~June 30, 2020 from $287.3 million at December 31, 2019. The increase was primarily driven by an increase in the market value of derivative assets, ~~which was~~partially offset by an increase in the market value of derivative liabilities in Other liabilities.

•Deferred income taxes, net, decreased ~~$5.8~~$2.3 million, or ~~51%~~20%, to ~~$5.6~~$9.1 million at ~~March 31,~~June 30, 2020 from $11.4 million at December 31, 2019. The decrease was primarily due to the current year tax effect of other comprehensive income asof $9.0 million and the tax effect of the adoption of ASU 2016-13 of $5.5 million, ~~was~~partially offset by the deferred tax ~~effect~~benefit of $12.2 million related to the ~~provision expense in the first quarter of 2020.~~additional allowance for loan losses.

Deposits. Deposits at ~~March 31,~~June 30, 2020 ~~decreased $405.9~~increased $185.9 million, or 6%3%, compared to the balance at December 31, 2019. The increase in deposits in the second quarter of 2020 was primarily due to an increase in demand deposits driven by clients maintaining adequate cash reserves during an economic downturn and the funding of PPP loans into deposit accounts in the second quarter of 2020. Average total deposits for the three months ended ~~March 31,~~June 30, 2020 increased 5%10% from the same period in 2019 as shown in the average balance sheet. For further details, see “Results of Operations” above.

Deposits are the principal source of the Bank’s funds for use in lending, investments, and liquidity. Deposit levels can fluctuate from quarter to quarter as a result of large short-term transactions by commercial clients. Seasonality can also affect the deposit balances. The Company has historically seen seasonal outflows of deposits in the second quarter of each year related to tax payments. Given the delay of the federal tax payment date in 2020, the Company anticipates to see this impact of seasonality in the third quarter of 2020.

As a general matter, deposits are a cheaper source of funds than borrowings, because interest rates paid for deposits are typically less than interest rates charged for borrowings. If, as a result of general economic conditions, market interest rates, competitive pressures, or otherwise, the amount of deposits at the Bank decreases, the Bank may be limited in its ability to grow its loan portfolio or may have to rely more heavily on higher cost borrowings as a source of funds in the future.

5358

The following table presents the composition of the Company’s deposits at ~~March 31,~~June 30, 2020 and December 31, 2019:


		March 31, 2020						December 31, 2019							June 30, 2020				December 31, 2019
		Balance		as a % of total		Balance		as a % of total			Balance		as a % of total		Balance		as a % of total
		(In thousands)															(In thousands, except percentages)
Demand deposits (non-interest bearing)	Demand deposits (non-interest bearing)	$	2,020,440	29	%	$	1,971,013	27	%	Demand deposits (non-interest bearing)	$	2,293,864	32	%	$	1,971,013	27	%
NOW (1)	NOW (1)	586,718		9	%	578,527		8	%	NOW (1)	686,395		9	%	578,527		8	%
Savings	Savings	66,288		1	%	67,673		1	%	Savings	72,261		1	%	67,673		1	%
Money market (1)	Money market (1)	3,468,701		51	%	3,969,330		55	%	Money market (1)	3,753,228		51	%	3,969,330		55	%
Certificates of deposit less than $100,000 (1)	Certificates of deposit less than $100,000 (1)	161,845		2	%	145,226		2	%	Certificates of deposit less than $100,000 (1)	109,507		1	%	145,226		2	%
Certificates of deposit $100,000 to $250,000	Certificates of deposit $100,000 to $250,000	105,866		2	%	94,095		1	%	Certificates of deposit $100,000 to $250,000	105,584		1	%	94,095		1	%
Certificates of deposit more than $250,000	Certificates of deposit more than $250,000	425,714		6	%	415,612		6	%	Certificates of deposit more than $250,000	406,558		5	%	415,612		6	%
Total deposits	Total deposits	$	6,835,572	100	%	$	7,241,476	100	%	Total deposits	$	7,427,397	100	%	$	7,241,476	100	%

_____________________

(1) Includes brokered deposits of ~~$580.5~~$510.2 million and $422.4 million at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

Total borrowings. Total borrowings (consisting of Securities sold under agreements to repurchase, ~~Federal funds purchased,~~ FHLB borrowings, and Junior subordinated debentures) at ~~March 31,~~June 30, 2020 increased ~~$277.3~~$68.7 million, or ~~54%~~13%, compared to the balance at December 31, 2019, primarily driven by an increase in FHLB borrowings, ~~and federal funds purchased,~~ partially offset by a decrease in repurchase agreements. ~~The increase in total borrowings was primarily driven by the decrease in total deposits over the same period, as higher cost borrowings were needed to fund the balance sheet.~~

•FHLB borrowings increased ~~$140.4~~$75.5 million, or ~~40%~~22%, to ~~$491.3~~$426.3 million at ~~March 31,~~June 30, 2020 from $350.8 million at December 31, 2019. The increase was primarily due to asset liability management considerations to fund the balance sheet, specifically funding for loan growth, as well as to manage interest rate risk. At December 31, 2019, the Company had a higher amount of short-term deposits ~~decreased over~~that reduced the ~~same period.~~need for FHLB borrowings. FHLB borrowings are generally used to provide additional funding for loan growth when it is in excess of deposit growth and to manage interest rate risk, but can also be used as an additional source of liquidity for the Bank.

•From time to time, the Bank purchases federal funds from the FHLB and other banking institutions to supplement its liquidity position. At March 31, 2020, the Company had $145.0 million of federal funds purchased outstanding, compared to no federal funds purchased outstanding at December 31, 2019.

•Repurchase agreements decreased ~~$8.1~~$6.8 million, or ~~15%~~13%, to ~~$45.3~~$46.6 million at ~~March 31,~~June 30, 2020 from $53.4 million at December 31, 2019. Repurchase agreements are generally linked to commercial demand deposit accounts with an overnight sweep feature.

Lease liabilities. Lease liabilities decreased ~~$3.6~~$9.0 million, or 3%8%, to ~~$113.6~~$108.2 million at ~~March 31,~~June 30, 2020 compared to the balance at December 31, ~~2019.~~2019 due to lease expirations that were not renewed in the second quarter of 2020. Upon adoption of the ~~new~~ lease accounting standard discussed above, the Company recognized $124.1 million of lease liabilities on the face of the Consolidated Balance Sheets as of January 1, 2019. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 14: Lease Accounting” for further details of the Company’s leases.

Total other liabilities. Total other liabilities, which consist primarily of accrued interest, accrued employee benefits, interest rate derivatives, the unfunded portion of partnership investment commitments, and other accrued expenses, increased ~~$39.6~~$78.0 million, or ~~28%~~ 55%, to ~~$180.5~~$218.8 million at ~~March 31,~~June 30, 2020, compared to the balance at December 31, 2019. The increase was primarily driven by ~~an increase~~increases in the market value adjustment on derivative liabilities ~~partially offset by~~and the ~~payment of accrued variable compensation, bonuses, and employee benefits~~reserve for unfunded loan commitments in ~~the first quarter of 2020 that had been accrued for at December 31, 2019.~~2020.

Loan Portfolio and Credit Quality

~~Loans.~~Total loans. Total loans increased ~~$66.6~~$356.3 million, or 1%5%, to ~~$7.0~~$7.3 billion, or ~~81%~~80% of total assets, as of ~~March 31,~~June 30, 2020, from $7.0 billion, or 79% of total assets, as of December 31, 2019. The following table presents a summary of the loan portfolio based on the portfolio segment and changes in balances as of the dates indicated:


		March 31, 2020		December 31, 2019		$ Change		% Change			June 30, 2020		December 31, 2019		$ Change		% Change
		(In thousands)													(In thousands)
Commercial and industrial	Commercial and industrial	$	670,744	$	694,034	$	(23,290)	(3)	%	Commercial and industrial	$	565,748	$	694,034	$	(128,286)	(18)	%
Paycheck Protection Program										Paycheck Protection Program	370,034		—		370,034		n/a
Commercial tax-exempt	Commercial tax-exempt	445,319		447,927		(2,608)		(1)	%	Commercial tax-exempt	419,264		447,927		(28,663)		(6)	%
Total commercial and industrial		1,116,063		1,141,961		(25,898)		(2)	%

Commercial real estate	Commercial real estate	2,626,299		2,551,274		75,025		3	%	Commercial real estate	2,676,708		2,551,274		125,434		5	%
Construction and land	Construction and land	238,293		225,983		12,310		5	%	Construction and land	240,211		225,983		14,228		6	%
Residential	Residential	2,841,926		2,839,155		2,771		—	%	Residential	2,859,627		2,839,155		20,472		1	%
Home equity	Home equity	89,350		83,657		5,693		7	%	Home equity	84,588		83,657		931		1	%
Consumer and other	Consumer and other	131,407		134,674		(3,267)		(2)	%	Consumer and other	116,774		134,674		(17,900)		(13)	%
Total loans	Total loans	$	7,043,338	$	6,976,704	$	66,634	1	%	Total loans	$	7,332,954	$	6,976,704	$	356,250	5	%

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

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 PPP loans originated. For the period ended December 31, 2019, there were no such loans as the SBA initiated the program in the first quarter of 2020 in response to the COVID-19 pandemic.

The Bank’s loans are affected by the economic and real estate markets in which they are located. Generally, commercial real estate, construction, and land loans are affected more than residential loans in an economic downturn. The ability to grow the loan portfolio is traditionally partially related to the Bank's ability to increase deposit levels. If, as a result of general economic conditions, market interest rates, competitive pressures, or otherwise, deposit levels at the Bank decrease relative to its overall banking operations, the Bank may be limited in its ability to grow its loan portfolio or may need to increase higher cost borrowings to fund growth in the loan portfolio.

The Bank’s commercial real estate loan portfolio, the largest portfolio segment after residential, includes loans secured by the following types of collateral as of the dates indicated:


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
		(In thousands)							(In thousands)
Multifamily and residential investment	Multifamily and residential investment	$	903,330	$	899,583	Multifamily and residential investment	$	917,642	$	899,583
Retail	Retail	632,239		631,796		Retail	621,499		631,796
Office and medical	Office and medical	506,086		487,133		Office and medical	547,555		487,133
Manufacturing, industrial, and warehouse	Manufacturing, industrial, and warehouse	253,106		223,913		Manufacturing, industrial, and warehouse	250,069		223,913
Hospitality	Hospitality	144,384		145,195		Hospitality	160,097		145,195
Other	Other	187,154		163,654		Other	179,846		163,654
Total commercial real estate loans	Total commercial real estate loans	$	2,626,299	$	2,551,274	Total commercial real estate loans	$	2,676,708	$	2,551,274

5560

Geographic concentration. The following tables present the Company’s outstanding loan balance concentrations as of the dates indicated based on the location of the regional offices to which they are attributed.


		As of March 31, 2020																																As of June 30, 2020
		New England						Northern California						Southern California								Total						New England						Northern California		Southern California	Total
		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent			Amount		Percent			Amount		Percent		Amount		Percent		Amount		Percent
		(In thousands)																																(In thousands, except percentages)
Commercial and industrial	Commercial and industrial	$	504,592	7	%	$	61,243	1	%	$	104,909	2	%	$	670,744	10	%	Commercial and industrial	$	416,578	6		%	$	56,475	1	%	$	92,695	1	%	$	565,748	8	%
Paycheck Protection Program																		Paycheck Protection Program	193,910		3		%	119,073		1	%	57,051		1	%	370,034		5	%
Commercial tax-exempt	Commercial tax-exempt	335,166		5	%	99,305		1	%	10,848		—	%	445,319		6	%	Commercial tax-exempt	296,862		4		%	111,629		2	%	10,773		—	%	419,264		6	%
Commercial real estate	Commercial real estate	1,046,453		15	%	838,735		12	%	741,111		10	%	2,626,299		37	%	Commercial real estate	1,105,423		15		%	833,984		11	%	737,301		10	%	2,676,708		36	%
Construction and land	Construction and land	156,696		2	%	34,647		—	%	46,950		1	%	238,293		3	%	Construction and land	152,673		2		%	38,926		—	%	48,612		1	%	240,211		3	%
Residential	Residential	1,521,187		22	%	561,093		8	%	759,646		11	%	2,841,926		40	%	Residential	1,502,486		20		%	558,940		8	%	798,201		11	%	2,859,627		39	%
Home equity	Home equity	57,747		1	%	19,103		—	%	12,500		—	%	89,350		1	%	Home equity	55,685		1		%	17,627		—	%	11,276		—	%	84,588		1	%
Consumer and other	Consumer and other	103,118		2	%	4,542		—	%	23,747		—	%	131,407		2	%	Consumer and other	57,986		1		%	4,601		—	%	54,187		1	%	116,774		2	%
Total loans (1)	Total loans (1)	$	3,724,959	54	%	$	1,618,668	22	%	$	1,699,711	24	%	$	7,043,338	100	%	Total loans (1)	$	3,781,603	52		%	$	1,741,255	23	%	$	1,810,096	25	%	$	7,332,954	100	%


		As of December 31, 2019																																As of December 31, 2019
		New England						Northern California						Southern California								Total						New England						Northern California		Southern California	Total
		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent			Amount		Percent			Amount		Percent		Amount		Percent		Amount		Percent
		(In thousands)																																(In thousands, except percentages)
Commercial and industrial	Commercial and industrial	$	558,701	8	%	$	46,330	1	%	$	89,003	1	%	$	694,034	10	%	Commercial and industrial	$	558,701	8		%	$	46,330	1	%	$	89,003	1	%	$	694,034	10	%
Commercial tax-exempt	Commercial tax-exempt	338,737		5	%	98,266		1	%	10,924		—	%	447,927		6	%	Commercial tax-exempt	338,737		5		%	98,266		1	%	10,924		—	%	447,927		6	%
Commercial real estate	Commercial real estate	1,027,133		15	%	769,777		11	%	754,364		11	%	2,551,274		37	%	Commercial real estate	1,027,133		15		%	769,777		11	%	754,364		11	%	2,551,274		37	%
Construction and land	Construction and land	152,100		2	%	31,484		—	%	42,399		1	%	225,983		3	%	Construction and land	152,100		2		%	31,484		—	%	42,399		1	%	225,983		3	%
Residential	Residential	1,540,592		22	%	558,307		8	%	740,256		11	%	2,839,155		41	%	Residential	1,540,592		22		%	558,307		8	%	740,256		11	%	2,839,155		41	%
Home equity	Home equity	55,226		1	%	17,357		—	%	11,074		—	%	83,657		1	%	Home equity	55,226		1		%	17,357		—	%	11,074		—	%	83,657		1	%
Consumer and other	Consumer and other	104,258		2	%	11,265		—	%	19,151		—	%	134,674		2	%	Consumer and other	104,258		2		%	11,265		—	%	19,151		—	%	134,674		2	%
Total loans (1)	Total loans (1)	$	3,776,747	55	%	$	1,532,786	21	%	$	1,667,171	24	%	$	6,976,704	100	%	Total loans (1)	$	3,776,747	55		%	$	1,532,786	21	%	$	1,667,171	24	%	$	6,976,704	100	%

________________________

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

Allowance for loan losses. The allowance for loan losses is reported as a reduction of outstanding loan balances and totaled ~~$68.2~~$89.3 million and $72.0 million as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

The allowance for loan losses ~~decreased $3.8~~increased $17.3 million to ~~$68.2~~$89.3 million, or ~~0.97%~~1.22% of total loans, as of ~~March 31,~~June 30, 2020 from $72.0 million, or 1.03% of total loans, as of December 31, 2019. The ~~decrease was a result of the adoption of ASU 2016-13 on January 1, 2020, when the Company recognized a decrease~~increase in the allowance for loan losses ~~of $20.4 million, partially offset by a provision for loan loss expense of $17.0 million~~ in the first two quarters of 2020 was primarily driven by changes in economic forecasts in both the first quarter and second quarter of ~~2020.~~2020 to reflect deteriorating economic conditions related to the COVID-19 pandemic and a change in the weight of forecast scenarios used to be weighted more heavily to the downside scenario, combined with an increase in qualitative factors to account for incremental risk not included in the quantitative model.

The decrease in the allowance for loan losses of $20.4 million on adoption of ASU 2016-13 was driven primarily by the portfolio composition including the short-term nature of Commercial real estate loans, estimated prepayments, 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 the reasonable and supportable economic forecasts at the time of adoption. The increase in the allowance for loan losses of $17.0 million in the first quarter of 2020 was driven primarily by the changes in economic forecasts late in the first quarter of 2020 to reflect deteriorating economic conditions related to the COVID-19 pandemic. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 7: Allowance for Loan Losses” for an analysis of the Company’s allowance for loan losses.

Prior to the adoption of ASU 2016-13, the Company’s allowance for loan losses was comprised of three primary components (general reserves, allocated reserves on non-impaired special mention and substandard loans, and allocated reserves on impaired loans). 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 details on that methodology.

5661

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


		Three months ended March 31,							Three months ended June 30,						Six months ended June 30,
		2020		2019			2020		2019		2020		2019
		(In thousands)							(In thousands)
Net loans (charged off)/ recovered:
Net loans (charged off)/recovered:						Net loans (charged off)/recovered:
New England	New England	$	15	$	222	New England	$	7	$	31	$	22	$	253
Northern California	Northern California	122		18		Northern California	3		20		125		38
Southern California	Southern California	(485)		(312)		Southern California	(1,501)		(161)		(1,986)		(473)
Total net loans (charged off)/ recovered	Total net loans (charged off)/ recovered	$	(348)	$	(72)	Total net loans (charged off)/ recovered	$	(1,491)	$	(110)	$	(1,839)	$	(182)

There were ~~$0.3~~$1.5 million in net charge offs recorded in the ~~first~~second quarter of 2020 compared to $0.1 million of net charge-offs for the same period of 2019.

Nonperforming assets. The Company’s nonperforming assets include nonaccrual loans and OREO, if any. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of deeds in lieu of foreclosure. As of ~~March 31,~~June 30, 2020, nonperforming assets totaled ~~$24.3~~$25.6 million, or 0.28% of total assets, an increase of ~~$8.2~~$9.5 million, or ~~51%~~59%, compared to $16.1 million, or 0.18% of total assets, as of December 31, 2019.

The Bank’s policy is to discontinue the accrual of interest on a loan when the collectability of principal or interest in accordance with the contractual terms of the loan agreement is in doubt. Despite a loan having a current payment status, if the Bank has reason to believe it may not collect all principal and interest on the loan in accordance with the related contractual terms, the Bank will generally discontinue the accrual of interest income and will apply any future interest payments received to principal. Of the ~~$24.3~~$25.6 million of loans on nonaccrual status as of ~~March 31,~~June 30, 2020, ~~$15.0~~$13.4 million, or ~~62%~~52%, had a current payment status, ~~$2.0~~$1.7 million, or 8%7%, were 30-89 days past due, and ~~$7.3~~$10.5 million, or ~~30%~~41%, were 90 days or more past due. Of the $16.1 million of loans on nonaccrual status as of December 31, 2019, $9.8 million, or 61%, had a current payment status, $1.2 million, or 7%, were 30-89 days past due, and $5.1 million, or 32%, were 90 days or more past due.

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

Delinquencies. The past due status of a loan is determined in accordance with its contractual repayment terms. All loan types are reported past due when one scheduled payment is due and unpaid for 30 days or more. Loans 30-89 days past due decreased ~~$11.0~~$20.4 million, or ~~43%~~79%, to ~~$14.9~~$5.5 million as of ~~March 31,~~June 30, 2020 from $25.9 million as of December 31, 2019. Loan delinquencies can be attributed to many factors, such as continuing weakness in, or deteriorating, economic conditions in the region in which the collateral is located, the loss of a tenant or lower lease rates for commercial borrowers, or the loss of income for consumers and the resulting liquidity impacts on the borrowers. The economic conditions created by the COVID-19 pandemic represent an example of an event that could cause an increase in delinquencies in future quarters. The Bank has instituted programs such as deferments, forbearances, and the commercial real estate second ~~mortgages~~mortgage program to help borrowers who have been impacted by the COVID-19 pandemic. Further deterioration in the credit condition of these delinquent loans could lead to the loans going to nonaccrual status and/or being downgraded. Downgrades would generally result in additional charge offs or provision for loan losses. Past due loans may be included with accruing substandard loans.

In certain instances, although very infrequently, loans that have become 90 days or more past due may remain on accrual status if the value of the collateral securing the loan is sufficient to cover principal and interest and the loan is in the process of collection. There ~~were~~was one commercial real estate loan with an immaterial balance 90 days or more past due, but still accruing, as of June 30, 2020 and no loans 90 days or more past due, but still accruing, as of ~~March 31, 2020 and~~ December 31, 2019.

Impaired ~~Loans.~~loans. Impaired loans individually evaluated for impairment in the allowance for loan losses totaled ~~$25.6~~$27.2 million as of ~~March 31,~~June 30, 2020, an increase of ~~$6.4~~$8.0 million, or ~~34%~~42%, compared to $19.2 million as of December 31, 2019. As of ~~March 31,~~June 30, 2020, $1.1 million of the individually evaluated impaired loans had ~~$0.3~~$0.2 million in specific reserve allocations. The remaining ~~$24.5~~$26.1 million of individually evaluated impaired loans did not have specific reserve allocations due to the adequacy of collateral, prior charge-offs taken, interest collected and applied to principal, or a combination of these items. As of December 31, 2019, $1.1 million of individually evaluated impaired loans had $0.2 million in specific reserve allocations, and the remaining $18.1 million of individually evaluated impaired loans did not have specific reserve allocations.

The Bank may, under certain circumstances, restructure loans as a concession to borrowers who are experiencing financial difficulty. Such loans are classified as TDRs and are included in impaired loans. TDRs typically result from the Bank’s loss mitigation activities which, among other things, could include rate reductions, payment extensions, and/or principal

forgiveness. As of ~~March 31,~~June 30, 2020 and December 31, 2019, TDRs totaled ~~$14.9~~$14.8 million and $12.6 million, respectively. As of ~~March 31,~~

June 30, 2020, ~~$7.1~~$8.9 million of the ~~$14.9~~$14.8 million in TDRs were on accrual status. As of December 31, 2019, $7.1 million of the $12.6 million in TDRs were on accrual status.

In the first quarter of 2020, in response to the COVID-19 pandemic, the Company 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.~~months and if requested, can be deferred for an additional three month period. As of ~~March 31,~~June 30, 2020, 10336 residential and home equity loans ~~totaling~~with a current outstanding principal balance of approximately ~~$5.0~~$214.5 million were processed under this ~~program, though the Company expects increased volume in the second quarter of 2020.~~deferment program.

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

As of ~~March 31,~~June 30, 2020, the Bank has identified ~~$87.9~~$88.6 million in potential problem loans, an increase of ~~$30.0~~$30.7 million, or ~~52%~~53% compared to $57.9 million as of December 31, 2019. ~~One~~The increase in potential problem loans during the first six months of 2020 was driven by three borrowing relationships in the New England region: a commercial and industrial ~~loan for $25.0~~relationship in the amount of $13.2 million, ~~accounted for most~~a Commercial tax-exempt relationship totaling $4.5 million, and a Commercial real estate relationship in the amount of ~~this increase.~~$10.5 million. Numerous factors impact the level of potential problem loans, including economic conditions and real estate values. These factors affect the borrower’s liquidity and, in some cases, the borrower’s ability to comply with loan covenants such as debt service coverage. For instance, when there is a loss of a major tenant in a commercial real estate building, the appraised value of the building generally declines. Loans may be downgraded when this occurs as a result of the additional risk to the borrower in obtaining a new tenant in a timely manner and negotiating a lease with similar or better terms than the previous tenant. In many cases, these loans are still current and paying as agreed, although future performance may be impacted.

The following table presents a roll-forward of nonaccrual loans for the three and six months ended ~~March 31,~~June 30, 2020 and 2019:


		As of and for the three months ended March 31,								As of and for the three months ended June 30,								As of and for the six months ended June 30,
				2020			2019			2020				2019		2020		2019
				(In thousands)									(In thousands)
Nonaccrual loans, beginning of period	Nonaccrual loans, beginning of period	$	16,103		$	14,057	Nonaccrual loans, beginning of period	$				$		$	16,103	$	14,057
Transfers in to nonaccrual status	Transfers in to nonaccrual status	11,336			347		Transfers in to nonaccrual status	6,037				5,911		17,373		6,258

Transfers out to accrual status	Transfers out to accrual status	(2,230)			(33)		Transfers out to accrual status	(3,005)		(171)				(5,235)		(204)
Charge-offs(1)	Charge-offs(1)	(528)			(564)		Charge-offs(1)	(1,546)		(195)				(2,074)		(759)
Paid off/ paid down		(367)			(1,788)
Paid off/paid down							Paid off/paid down	(196)		(409)				(563)		(2,197)
Nonaccrual loans, end of period	Nonaccrual loans, end of period	$	24,314		$	12,019	Nonaccrual loans, end of period	$	25,604	$	17,155			$	25,604	$	17,155

___________________

(1) During the second quarter of 2020, one nonaccrual loan was charged-off and transferred to OREO with a value of zero. As of June 30, 2020 it represents the only asset in OREO.

5863

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


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
		(In thousands)							(In thousands)
Nonaccrual loans:	Nonaccrual loans:					Nonaccrual loans:
New England	New England	$	11,965	$	9,764	New England	$	11,630	$	9,764
Northern California	Northern California	6,575		319		Northern California	9,459		319
Southern California	Southern California	5,774		6,020		Southern California	4,515		6,020
Total nonaccrual loans	Total nonaccrual loans	$	24,314	$	16,103	Total nonaccrual loans	$	25,604	$	16,103
Loans 30-89 days past due and accruing:(1)	Loans 30-89 days past due and accruing:(1)					Loans 30-89 days past due and accruing:(1)
New England	New England	$	8,955	$	20,507	New England	$	4,214	$	20,507
Northern California	Northern California	2,347		2,593		Northern California	111		2,593
Southern California	Southern California	3,550		2,845		Southern California	1,210		2,845
Total loans 30-89 days past due	Total loans 30-89 days past due	$	14,852	$	25,945	Total loans 30-89 days past due	$	5,535	$	25,945
Accruing classified loans: ~~(1)~~(2)	Accruing classified loans: ~~(1)~~(2)					Accruing classified loans: ~~(1)~~(2)
New England	New England	$	50,483	$	20,428	New England	$	53,124	$	20,428
Northern California	Northern California	24,843		24,946		Northern California	21,712		24,946
Southern California	Southern California	12,622		12,548		Southern California	13,750		12,548
Total accruing classified loans	Total accruing classified loans	$	87,948	$	57,922	Total accruing classified loans	$	88,586	$	57,922

___________________

(1) There was one commercial real estate loan with a balance less than $0.1 million that was 90+ days past due and accruing at June 30, 2020.

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

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


		March 31, 2020		December 31, 2019			June 30, 2020		December 31, 2019
		(In thousands)							(In thousands)
Nonaccrual loans:	Nonaccrual loans:					Nonaccrual loans:
Commercial and industrial	Commercial and industrial	$	1,371	$	582	Commercial and industrial	$	3,649	$	582
Paycheck Protection Program						Paycheck Protection Program	—		—
Commercial tax-exempt	Commercial tax-exempt	—		—		Commercial tax-exempt	—		—
Commercial real estate	Commercial real estate	5,392		—		Commercial real estate	5,285		—
Construction and land	Construction and land	—		—		Construction and land	—		—
Residential	Residential	16,074		13,993		Residential	16,394		13,993
Home equity	Home equity	1,476		1,525		Home equity	195		1,525
Consumer and other	Consumer and other	1		3		Consumer and other	81		3
Total nonaccrual loans	Total nonaccrual loans	$	24,314	$	16,103	Total nonaccrual loans	$	25,604	$	16,103
Loans 30-89 days past due and accruing:
Loans 30-89 days past due and accruing: (1)						Loans 30-89 days past due and accruing: (1)
Commercial and industrial	Commercial and industrial	$	1,493	$	828	Commercial and industrial	$	3,101	$	828
Paycheck Protection Program						Paycheck Protection Program	—		—
Commercial tax-exempt	Commercial tax-exempt	—		—		Commercial tax-exempt	—		—
Commercial real estate	Commercial real estate	—		1,420		Commercial real estate	925		1,420
Construction and land	Construction and land	—		—		Construction and land	—		—
Residential	Residential	12,967		20,171		Residential	747		20,171
Home equity	Home equity	319		369		Home equity	740		369
Consumer and other	Consumer and other	73		3,157		Consumer and other	22		3,157
Total loans 30-89 days past due	Total loans 30-89 days past due	$	14,852	$	25,945	Total loans 30-89 days past due	$	5,535	$	25,945
Accruing classified loans: (1)
Accruing classified loans: (2)						Accruing classified loans: (2)
Commercial and industrial	Commercial and industrial	$	50,408	$	24,987	Commercial and industrial	$	39,895	$	24,987
Paycheck Protection Program						Paycheck Protection Program	—		—
Commercial tax-exempt	Commercial tax-exempt	8,544		4,052		Commercial tax-exempt	8,478		4,052
Commercial real estate	Commercial real estate	23,692		23,558		Commercial real estate	34,935		23,558
Construction and land	Construction and land	—		—		Construction and land	—		—
Residential	Residential	4,241		4,253		Residential	4,228		4,253
Home equity	Home equity	1,063		1,072		Home equity	1,050		1,072
Consumer and other	Consumer and other	—		—		Consumer and other	—		—
Total accruing classified loans		$	87,948	$	57,922


Total accruing classified loans			$	88,586					$	57,922

___________________

(1) There was one commercial real estate loan with a balance less than $0.1 million that was 90+ days past due and accruing at June 30, 2020.

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

Liquidity

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

The following table presents certain liquidity measurements as of the dates indicated:


		March 31, 2020			December 31, 2019			$ Change		% Change			June 30, 2020			December 31, 2019			$ Change		% Change
		(In thousands)																			(In thousands, except percentages)
Cash and cash equivalents	Cash and cash equivalents	$	61,714		$	292,479		$	(230,765)	(79)	%	Cash and cash equivalents	$	179,027		$	292,479		$	(113,452)	(39)	%
Investment securities available-for-sale	Investment securities available-for-sale	993,166			978,284			14,882		2	%	Investment securities available-for-sale	1,002,970			978,284			24,686		3	%
Equity securities at fair value	Equity securities at fair value	23,080			18,810			4,270		23	%	Equity securities at fair value	24,492			18,810			5,682		30	%
Less: Securities pledged against current borrowings and derivatives	Less: Securities pledged against current borrowings and derivatives	(119,528)			(88,444)			(31,084)		35	%	Less: Securities pledged against current borrowings and derivatives	(118,611)			(88,444)			(30,167)		(34)	%
Cash and investments	Cash and investments	$	958,432		$	1,201,129		$	(242,697)	(20)	%	Cash and investments	$	1,087,878		$	1,201,129		$	(113,251)	(9)	%
As a percent of assets	As a percent of assets	11		%	14		%					As a percent of assets	12		%	14		%

Access to additional FHLB borrowings	Access to additional FHLB borrowings	1,100,533			1,432,603			(332,070)		(23)	%	Access to additional FHLB borrowings	1,184,166			1,432,603			(248,437)		(17)	%
Total liquidity	Total liquidity	$	2,058,965		$	2,633,732		$	(574,767)	(22)	%	Total liquidity	$	2,272,044		$	2,633,732		$	(361,688)	(14)	%
As a percent of assets	As a percent of assets	24		%	30		%					As a percent of assets	25		%	30		%
As a percent of deposits	As a percent of deposits	30		%	36		%					As a percent of deposits	31		%	36		%

At ~~March 31,~~June 30, 2020, the Company’s Cash and cash equivalents amounted to ~~$61.7~~$179.0 million. The Holding Company’s Cash and cash equivalents amounted to ~~$41.8~~$45.0 million at ~~March 31,~~June 30, 2020. Management believes that the Holding Company and its affiliates, including the Bank, have adequate liquidity to meet their commitments for the foreseeable future.

Management is responsible for establishing and monitoring liquidity targets as well as strategies to meet these targets. At ~~March 31,~~June 30, 2020, consolidated Cash and cash equivalents, Investment securities available-for-sale and Equity securities at fair value less securities pledged against current borrowings and derivatives amounted to ~~$1.0~~$1.1 billion, or ~~11%~~12% of total assets, compared to $1.2 billion, or 14% of total assets, at December 31, 2019. Future loan growth may depend upon the Company’s ability to grow its core deposit levels. The Bank ~~anticipates funding~~also has the ~~PPP loan originations with~~ability to access additional borrowing ~~facilities~~ under the ~~PPPLF.~~PPPLF by pledging funded PPP loans if needed. In addition, the Company has access to available borrowings through the FHLB totaling ~~$1.1~~$1.2 billion at ~~March 31,~~June 30, 2020 and $1.4 billion at December 31, 2019. Combined, this liquidity totals ~~$2.1~~$2.3 billion, or ~~24%~~25% of assets and ~~30%~~31% of deposits, as of ~~March 31,~~June 30, 2020, compared to $2.6 billion, or 30% of assets and 36% of deposits, at December 31, 2019.

The Bank has various internal policies and guidelines regarding liquidity, both on- and off-balance sheet, loans to deposits ratio, and limits on the use of wholesale funds. These policies and/or guidelines require certain minimum or maximum balances or ratios be maintained at all times. In light of the provisions in the Bank’s internal liquidity policies and guidelines, the Bank will carefully manage the amount and timing of future loan growth along with its relevant liquidity policies and balance sheet guidelines. As a general matter, deposits are a cheaper source of funds than borrowings, because interest rates paid for deposits are typically less than interest rates charged for borrowings. If, as a result of general economic conditions, market interest rates, competitive pressures, or otherwise, the balance of deposits at the Bank approaches or exceeds internal policies and/or guidelines, the Bank may be limited in its ability to grow its loan portfolio, may rely more heavily on higher cost borrowings as a source of funds, or consider loan sales in the future.

Holding Company Liquidity. The Company and noncontrolling interest holders of the Company’s majority-owned affiliate, DGHM, have contingent put options, call options, and mandatory repurchase obligations that would require the Company to purchase (and the noncontrolling interest owners of ~~the majority-owned affiliate~~DGHM to sell) the remaining noncontrolling interest in DGHM at contractually predetermined values as determined by the operating agreement of DGHM. At ~~March 31,~~June 30, 2020, the estimated maximum redemption value for DGHM related to outstanding put options was zero based on the contractually predetermined calculation in the DGHM operating agreement. These put and call options are discussed in detail in Part II. Item 8. “Financial Statements and Supplementary Data - Note 14: Noncontrolling Interests” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Although not a primary source of funds, the Holding Company has generated liquidity from the sale of affiliates in the past. Additional funds were generated at the time of the sale of Anchor Capital Advisors LLC (“Anchor”) which occurred in April 2018 and the sale of Bingham, Osborn & Scarborough, LLC (“BOS”) which occurred in December 2018. As part of the

sale agreements for both Anchor and BOS, the Company expects to receive future contingent payments for the remaining ~~nine~~six months of 2020 of approximately ~~$1.7~~$1.0 million and ~~$1.6~~$1.1 million at ~~March 31,~~June 30, 2020, respectively.

Dividends from the Bank are limited by various regulatory requirements relating to capital adequacy and retained earnings. See Part II. Item 5. “Market for Registrant’s Common Equity, Related Stockholders Matters, and Issuers Purchases of Equity Securities” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for further details.

The Bank pays dividends to the Holding Company, subject to the approval of the Bank’s Board of Directors, depending on its profitability and asset growth. Dividends from the Bank to the Holding Company are limited to the sum of the Bank’s Net ~~Income~~income during the current calendar year and the retained net income of the prior two calendar years unless approved by regulators. If regulatory agencies were to require banks to increase their capital ratios, or impose other restrictions, it may limit the ability of the Bank to pay dividends to the Holding Company and/or limit the amount that the Bank could grow.

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

The Company is required to pay interest quarterly on its junior subordinated debentures. The estimated cash outlay for the remaining ~~nine~~six months of 2020 for the interest payments is approximately ~~$2.1~~$1.1 million based on the debt outstanding at ~~March 31,~~June 30, 2020. LIBOR is expected to be phased out as an index by the end of 2021, and $103.1 million of the Company's junior subordinated debentures are tied to LIBOR. The Company will need to negotiate an alternative benchmark rate to be used at the time.

The Company presently pays cash dividends on its common stock on a quarterly basis dependent upon a number of factors such as profitability, Holding Company liquidity, and the Company’s capital levels. However, the ultimate declaration of dividends by the Board of Directors of the Company will depend on consideration of, among other things, recent financial trends and internal forecasts, regulatory limitations, alternative uses of capital deployment, general economic conditions, and regulatory changes to capital requirements. Additionally, the Company is required to inform and consult with the Federal Reserve in advance of declaring a dividend that exceeds earnings for the period for which the dividend is being paid.

The Company's ~~$0.12~~$0.06 per share dividend announced on ~~April 29,~~July 28, 2020 for the ~~first~~second quarter of 2020 exceeded the Company's earnings for the quarter. As required, the Company requested and received a non-objection letter from the Federal Reserve Bank of Boston to pay the proposed dividend. Given the current economic conditions and future forecasts, the Company’s Board of Directors will evaluate the amount of future dividends, if any, to be declared on a quarter by quarter basis. The Board of Directors could reduce or eliminate quarterly cash dividends based on the current or forecasted conditions if deemed prudent.

In the third quarter of 2019, the Company's Board of Directors approved, and the Company received regulatory non-objection for, a share repurchase program of up to $20.0 million of the Company's outstanding common shares. As of March 31, 2020, the Company completed its share repurchase program. See Part II. Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” for further details.

Bank Liquidity. The Bank has established various borrowing arrangements to provide additional sources of liquidity and funding. Management believes that the Bank currently has adequate liquidity available to respond to current demands. The Bank is a member of the FHLB of Boston, and as such, has access to short- and long-term borrowings from that institution. The FHLB can change the advance amounts that banks can utilize based on a bank’s current financial condition as obtained from publicly available data such as FDIC Call Reports. Decreases in the amount of FHLB borrowings available to the Bank would lower its liquidity and possibly limit the Bank’s ability to grow in the short-term. In addition, ~~starting~~due to the elevated level of deposits in the second quarter of 2020, the Bank ~~anticipates borrowing~~did not utilize any borrowings from the PPPLF, ~~set up by~~as originally anticipated. However, the ~~Federal Reserve~~Bank will continue to monitor its level of deposits and may utilize borrowings from the PPPLF in ~~order to fund loans made through the PPP.~~future quarters, if needed. Management believes that the Bank has adequate liquidity to meet its commitments for the foreseeable future.

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

From time to time, the Bank purchases federal funds from the FHLB and other banking institutions to supplement its liquidity position. At ~~March 31,~~June 30, 2020, the Bank had unused federal fund lines of credit totaling ~~$365.0~~$500.0 million, compared to $500.0 million at December 31, 2019, with correspondent institutions to provide it with immediate access to overnight borrowings. At ~~March 31,~~June 30, 2020 the Bank had $135.0 million of outstanding borrowings under the federal funds lines with these correspondent institutions along with an additional $10.0 million of outstanding borrowings under federal funds lines with the FHLB. Atand December 31, 2019, the Bank did not have any outstanding borrowings under the federal funds lines with these correspondent institutions nor outstanding borrowings under federal funds lines with the FHLB. Certain liquidity sources, such as federal funds lines, may be withdrawn by the correspondent bank at any time especially in the event of financial deterioration of the institution.

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The Bank has negotiated brokered deposit agreements with several institutions that have nationwide distribution capabilities. The Bank participates in deposit placement services that can be used to provide customers to expanded deposit insurance coverage. At ~~March 31,~~June 30, 2020, the Bank had ~~$580.5~~$510.2 million of brokered deposits outstanding under these agreements, compared to $422.4 million at December 31, 2019.

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

Capital Resources

Total shareholders’ equity at ~~March 31,~~June 30, 2020 was ~~$828.8~~$825.2 million compared to $819.0 million at December 31, 2019, an increase of ~~$9.8~~$6.2 million. The increase in shareholders’ equity was primarily the result of the impact of the ~~adoption of ASU 2016-13 and the~~ change in accumulated other comprehensive income and the adoption of ASU 2016-13, partially offset by dividends paid to common shareholders and the repurchase of common shares.

Under the Federal Reserve’s capital rules applicable to the Company and the Bank, the Company and the Bank are each required to maintain a minimum common equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a minimum total Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8.0%, and a minimum Tier 1 leverage ratio of 4.0%. Additionally, Federal Reserve rules require the Company and the Bank to each establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk-weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases.

A Federal Reserve-supervised institution, such as the Bank, is considered “well capitalized” if it (i) has a total capital to risk-weighted assets ratio of 10.0% or greater; (ii) a Tier 1 capital to risk-weighted assets ratio of 8.0% or greater; (iii) a common equity Tier 1 capital ratio to risk-weighted assets of 6.5% or greater; (iv) a Tier 1 leverage ratio of 5.0% or greater; and (iv) is not subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. The Bank is currently considered “well capitalized” under all regulatory definitions.

The following table presents the Company’s and the Bank’s regulatory capital and related ratios as of ~~March 31,~~June 30, 2020 and December 31, 2019. Also presented are the minimum requirements established by the Federal Reserve as of those dates for the Company and the Bank, respectively, to meet applicable capital requirements for the Bank to be considered “well capitalized” under the prompt corrective action provisions of the Federal Deposit Insurance Act. The Federal Reserve and the Massachusetts Division of Banks may impose higher capital ratios than those listed below based upon the results of regulatory exams.

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		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)																							(In thousands, except percentages)
As of March 31, 2020
As of June 30, 2020														As of June 30, 2020
Common equity tier 1 risk-based capital	Common equity tier 1 risk-based capital															Common equity tier 1 risk-based capital
Company	Company	$	742,044	11.20	%	$	298,230	4.5	%	n/a		n/a	7.0%	Company	$	731,316	11.09	%	$	296,728	4.5	%	n/a		n/a	7.0%
Boston Private Bank	Boston Private Bank	784,981		11.88		297,357		4.5		$	429,515	6.5%	7.0	Boston Private Bank	774,360		11.78	%	295,832		4.5	%	$	427,314	6.5%	7.0%
Tier 1 risk-based capital	Tier 1 risk-based capital													Tier 1 risk-based capital
Company	Company	842,066		12.71		397,640		6.0		n/a		n/a	8.5	Company	831,338		12.61	%	395,637		6.0	%	n/a		n/a	8.5%
Boston Private Bank	Boston Private Bank	784,981		11.88		396,475		6.0		528,634		8.0	8.5	Boston Private Bank	774,360		11.78	%	394,443		6.0	%	525,924		8.0%	8.5%
Total risk-based capital	Total risk-based capital													Total risk-based capital
Company	Company	914,572		13.80		530,187		8.0		n/a		n/a	10.5	Company	913,936		13.86	%	527,517		8.0	%	n/a		n/a	10.5%
Boston Private Bank	Boston Private Bank	857,487		12.98		528,634		8.0		660,792		10.0	10.5	Boston Private Bank	856,712		13.03	%	525,924		8.0	%	657,405		10.0%	10.5%
Tier 1 leverage capital	Tier 1 leverage capital													Tier 1 leverage capital
Company	Company	842,066		9.69		347,650		4.0		n/a		n/a	4.0	Company	831,338		9.23	%	360,383		4.0	%	n/a		n/a	4.0%
Boston Private Bank	Boston Private Bank	784,981		9.07		346,277		4.0		432,846		5.0	4.0	Boston Private Bank	774,360		8.63	%	359,057		4.0	%	448,821		5.0%	4.0%

As of December 31, 2019	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	Company	$	745,926	11.42	%	$	293,886	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	Boston Private Bank	778,635		11.97		292,717		4.5		$	422,813	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													Tier 1 risk-based capital
Company	Company	846,337		12.96		391,848		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	Boston Private Bank	778,635		11.97		390,289		6.0		520,386		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													Total risk-based capital
Company	Company	919,573		14.08		522,464		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	Boston Private Bank	851,733		13.09		520,386		8.0		650,482		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													Tier 1 leverage capital
Company	Company	846,337		9.77		346,398		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	Boston Private Bank	778,635		9.03		344,958		4.0		431,198		5.0	4.0	Boston Private Bank	778,635		9.03	%	344,958		4.0	%	431,198		5.0%	4.0%

____________________

(1) Required capital ratios with the capital conservation buffer added to the minimum risk-based capital ratios.

The Company has sponsored the creation of two statutory trusts for the sole purpose of issuing trust preferred securities and investing the proceeds in junior subordinated debentures of the Company. In accordance with ASC 810-10-55, Consolidation - Overall - Implementation Guidance and Illustrations - Variable Interest Entities, these statutory trusts are not consolidated into the Company’s financial statements; however, the Company reflects the amounts of junior subordinated debentures payable to the preferred stockholders of statutory trusts as debt in its financial statements. As of both ~~March 31,~~June 30, 2020 and December 31, 2019, all $100.0 million of the net balance of these trust preferred securities qualified as Tier 1 capital.

Recent Accounting Pronouncements

See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 15: Recent Accounting Pronouncements” for a description of upcoming changes to accounting principles generally accepted in the United States that may materially impact the Company.

6368

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the Interest Rate Sensitivity and Market Risk as described in Part II. Item 7A. “Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Sensitivity and Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Exchange Act, the Company has evaluated, with the participation of management, including the Company's Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives.

Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2020 in ensuring that material information required to be disclosed by the Company, including its consolidated subsidiaries, was made known to the certifying officers by others within the Company and its consolidated subsidiaries in the reports that it files or submits under the Exchange Act and is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. On a quarterly basis, the Company evaluates the disclosure controls and procedures, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

(b) Change in internal controls over financial reporting.

~~Effective January 1, 2020, the Company adopted the CECL accounting standard ASU 2016-13,~~ ~~Financial Instruments (Topic 326)~~. The Company designed new controls and modified existing controls as part of the adoption. These additional controls over financial reporting included controls over model creation and design, model governance, and assumptions. There ~~were~~have been no ~~other~~ changes in the Company’s internal controls over financial reporting that occurred during the quarter ended ~~March 31,~~June 30, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial ~~reporting~~reporting.

6469

PART II. Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

This section supplements and updates certain of the information found under Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020 (“Annual Report”) and Part II. Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as filed with the SEC on May 8, 2020 (the “First Quarter 10-Q”), based on information currently known to us and recent developments since the date of the ~~Annual Report~~First Quarter 10-Q filing. The matters discussed below should be read in conjunction with the risks described in Part I. Item 1A. “Risk Factors” of our Annual ~~Report.~~Report and Part II. Item 1A. “Risk Factors” of our First Quarter 10-Q. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Annual ~~Report.~~Report and First Quarter 10-Q. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities, particularly in light of the fast-changing nature of the COVID-19 pandemic, responsive containment measures taken and the related impacts to economic and operating conditions.

The COVID-19 pandemic, and the measures taken to control its spread, will continue to adversely impact our employees, customers, business operations and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.

The COVID-19 pandemic has, and will likely continue to, severely impact the national economy and the regional and local markets in which we operate, lower equity market valuations, create significant volatility and disruption in capital and debt markets, and increase unemployment levels. Our business operations may be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. We are subject to heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements that we have put in place for our employees. Federal Reserve actions to combat the economic contraction caused by the COVID-19 pandemic, including the reduction of the target federal funds rate and quantitative easing programs, could, if prolonged, adversely affect our net interest income and margins, and our profitability. The continued closures of many businesses and the institution of social distancing, shelter in place and stay home orders in the states and communities we serve, have reduced business activity and financial transactions, and may impact the execution of our strategic plan, such as by delaying strategic hiring. While certain of these restrictions have been eased and workplaces in the communities we serve are beginning to reopen, the pace of reopening is measured and these government policies and directives are subject to change as the effects and spread of the COVID-19 pandemic continue to evolve. It is unclear whether any COVID-19 pandemic-related businesses losses that we or our customers may suffer will be covered by existing insurance policies. Additionally, ~~these shelter in place~~certain government directives and ~~stay home orders~~social distancing protocols may hinder our ability to conduct timely property appraisals, which could delay or impact the accuracy of the recognition of credit losses in our loan portfolios. Changes in customer behavior due to worsening business and economic conditions or legislative or regulatory initiatives may impact the demand for our products and services, which could adversely affect our ~~revenue,~~revenue. The measures we have taken to aid our customers, including ~~due~~the introduction of a mortgage deferment program, may be insufficient to ~~an increase~~help our customers who have been negatively impacted by the economic fallout from the COVID-19 pandemic. Loans that are currently in ~~the Bank’s provision for loan loss expense.~~deferral status may become nonperforming loans. Because of adverse economic and market conditions, ~~affecting issuers,~~ we may be required to increase the Bank’s provision for loan loss expense, or recognize impairments on the securities we hold, goodwill, intangible assets, and right-of-use ~~assets, as well as reductions in other comprehensive income.~~assets. The increase in market volatility and a corresponding increase in trading frequency means that our Wealth Management and Trust business is subject to an increased risk of trading errors, and the risk that any trading errors are of an increased magnitude. While the COVID-19 pandemic negatively impacted our results of operations for the first ~~quarter~~half of 2020, the extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic, as well as further actions we may take as may be required by government authorities or that we determine is in the best interests of our employees and customers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the pandemic.

Our participation in the SBA’s PPP may expose us to reputational harm, increased litigation risk, as well as the risk that the SBA may not fund some or all of the guarantees associated with PPP loans, which could result in these loans being charged off.

We have approved approximately ~~1,100~~1,045 loans aggregating approximately ~~$425.0~~$380.3 million through the PPP. Lenders participating in the PPP have faced increased public scrutiny about their loan application process and procedures, and the nature

and type of the borrowers receiving PPP loans. We depend on our reputation as a trusted and responsible financial services company to compete effectively in the communities that we serve, and any negative public or customer response to, or any litigation or claims that might arise out of, our participation in the PPP and any other legislative or regulatory initiatives and programs that may be enacted in response to the COVID-19 pandemic, could adversely impact our business. Other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP,

and we may be subject to the same or similar ~~litigation.~~litigation, in addition to litigation in connection with our processing of PPP loan forgiveness applications. In addition, if the SBA determines that there is a deficiency in the manner in which a PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

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

~~The following table summarizes repurchases~~There were no unregistered sales of equity securities of the ~~Company’s outstanding common shares~~Company in the ~~first~~second quarter of ~~2020.~~

Issuer Purchases of Equity Securities
Period (a) Total number
of shares
purchased (b) Average
price paid
per share (c) Total number
of shares
purchased as
part of publicly
announced plans (d) Maximum
approximate dollar
value of shares that
may yet be purchased
under the plans
January 1 - 31, 2020 — $ — — $ 12,807,043
February 1 - 29, 2020 221,249 10.38 899,414 10,511,555
March 1 - 31, 2020 1,343,811 7.82 2,243,225 —
Total 1,565,060 $ 8.18 2,243,225 $ —

On August 13, 2019, the Company received a notice of non-objection from the Federal Reserve Bank of Boston for a share repurchase program of up to $20.0 million of the Company’s outstanding common shares and the Company’s Board of Directors approved the program, subject to regulatory non-objection, on August 7, 2019. The program was completed in March 2020.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

Exhibit No. Description Incorporated by Reference
Filed or
Furnished
with this
10-Q
Form
SEC Filing
Date
Exhibit
Number
3.1
Boston Private Financial Holdings, Inc. 2020 Omnibus Incentive Plan
S-8 4/28/2020 99.1
3.2
Form of Non-Qualified Stock Option Agreement for Employees under the Boston Private Financial Holdings, Inc. 2020 Omnibus Incentive Plan
S-8 4/28/2020 99.2
3.3
Form of Performance Restricted Stock Unit Award Agreement for Employees under the Boston Private Financial Holdings, Inc. 2020 Omnibus Incentive Plan
S-8 4/28/2020 99.3
3.4
Form of Restricted Stock Unit Award Agreement for Employees under the Boston Private Financial Holdings, Inc. 2020 Omnibus Incentive Plan
S-8 4/28/2020 99.4
3.5
Form of Non-Qualified Stock Option Agreement for the Chief Executive Officer under the Boston Private Financial Holdings, Inc. 2020 Omnibus Incentive Plan
S-8 4/28/2020 99.5
3.6
Form of Performance Restricted Stock Unit Award Agreement for the Chief Executive Officer under the Boston Private Financial Holdings, Inc. 2020 Omnibus Incentive Plan
S-8 4/28/2020 99.6
3.7
Form of Restricted Stock Unit Award Agreement for the Chief Executive Officer under the Boston Private Financial Holdings, Inc. 2020 Omnibus Incentive Plan
S-8 4/28/2020 99.7
31.1
Certification of Chief Executive Officer pursuant to Rule 13a - 14(a)/15d - 14(a) under the Securities Exchange Act of 1934
Filed
31.2
Certification of Chief Financial Officer pursuant to Rule 13a - 14(a)/15d - 14(a) under the Securities Exchange Act of 1934
Filed
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Furnished
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Furnished
101.INS The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document Filed
101.SCH Inline XBRL Taxonomy Extension Schema Document Filed
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed
104 Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101) Filed

Exhibit No.

Description

Incorporated by Reference

Filed or

Furnished

with this

10-Q

Form

SEC Filing

Date

Exhibit

Number

31.1

Certification of Chief Executive Officer pursuant to Rule 13a - 14(a)/15d - 14(a) under the Securities Exchange Act of 1934

Filed

31.2

Certification of Chief Financial Officer pursuant to Rule 13a - 14(a)/15d - 14(a) under the Securities Exchange Act of 1934

Filed

32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Furnished

32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Furnished

101.INS

The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document

Filed

101.SCH

Inline XBRL Taxonomy Extension Schema Document

Filed

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Filed

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed

104

Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101)

Filed

6872

SIGNATURES

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



			BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

			/s/ ANTHONY DECHELLIS
~~May 8,~~August 6, 2020			Anthony DeChellis
			Chief Executive Officer, President and Director (Principal Executive Officer)

			/s/ STEVEN M. GAVEN
~~May 8,~~August 6, 2020			Steven M. Gaven
			Executive Vice President, Chief Financial Officer

6973


	Three months ended
	March 31, 2020		March 31, 2019

	(In thousands)
Redeemable noncontrolling interests at beginning of period	$	1,383	$	2,526
Net income attributable to noncontrolling interests	6		100
Distributions	(6)		(100)
Purchases/(sales) of ownership interests	(64)		12

Amortization of equity compensation	8		17
Adjustments to fair value	(1,327)		(1,893)
Redeemable noncontrolling interests at end of period	$	—	$	662


	Issuer Purchases of Equity Securities
Period	(a) Total number of shares purchased	(b) Average price paid per share		(c) Total number of shares purchased as part of publicly announced plans	(d) Maximum approximate dollar value of shares that may yet be purchased under the plans
January 1 - 31, 2020	—	$	—	—	$	12,807,043
February 1 - 29, 2020	221,249	10.38		899,414	10,511,555
March 1 - 31, 2020	1,343,811	7.82		2,243,225	—
Total	1,565,060	$	8.18	2,243,225	$	—