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BPFH Boston Private Financial

Filed: 6 Aug 20, 4:02pm

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 June 30, 2020
Or
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)
Massachusetts04-2976299
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
Ten Post Office Square02109
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 classTrading Symbol(s)Name of each exchange which registered
Common StockBPFHNASDAQ 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 filerAccelerated 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 July 31, 2020:
Common Stock, Par Value $1.00 Per Share82,196,822
(class)(outstanding)



BOSTON PRIVATE FINANCIAL HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS

i



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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
 June 30, 2020December 31, 2019
 
(In thousands, except share 
and per share data)
Assets:
Cash and cash equivalents$179,027  $292,479  
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)42,495  48,212  
Equity securities at fair value24,492  18,810  
Stock in Federal Home Loan Bank and Federal Reserve Bank42,407  39,078  
Loans held for sale9,786  7,386  
Total loans7,332,954  6,976,704  
Less: Allowance for loan losses89,324  71,982  
Net loans7,243,630  6,904,722  
Premises and equipment, net43,805  44,527  
Goodwill57,607  57,607  
Intangible assets, net8,935  10,352  
Fees receivable3,921  4,095  
Accrued interest receivable24,918  24,175  
Deferred income taxes, net9,116  11,383  
Right-of-use assets94,143  102,075  
Other assets371,654  287,316  
Total assets$9,158,906  $8,830,501  
Liabilities:
Deposits$7,427,397  $7,241,476  
Securities sold under agreements to repurchase46,623  53,398  
Federal Home Loan Bank borrowings426,313  350,829  
Junior subordinated debentures106,363  106,363  
Lease liabilities108,234  117,214  
Other liabilities218,771  140,820  
Total liabilities8,333,701  8,010,100  
Redeemable Noncontrolling Interests—  1,383  
Shareholders’ Equity:
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, 201982,058  83,266  
Additional paid-in capital594,463  600,708  
Retained earnings118,647  127,469  
Accumulated other comprehensive income30,037  7,575  
Total shareholders’ equity825,205  819,018  
Total liabilities, redeemable noncontrolling interests and shareholders’ equity$9,158,906  $8,830,501  
See accompanying notes to Consolidated Financial Statements.
1


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

 Three months ended June 30,Six months ended June 30,
 2020201920202019
 (In thousands, except share and per share data)
Interest and dividend income:
Loans$62,807  $71,943  $129,165  $141,876  
Taxable investment securities859  1,121  1,727  2,306  
Non-taxable investment securities2,005  1,901  4,003  3,802  
Mortgage-backed securities2,566  2,706  5,353  5,603  
Short-term investments and other582  1,057  1,653  1,965  
Total interest and dividend income68,819  78,728  141,901  155,552  
Interest expense:
Deposits7,335  14,515  20,131  28,573  
Federal Home Loan Bank borrowings1,755  5,027  3,789  7,807  
Junior subordinated debentures764  1,080  1,681  2,201  
Repurchase agreements and other short-term borrowings27  646  105  1,173  
Total interest expense9,881  21,268  25,706  39,754  
Net interest income58,938  57,460  116,195  115,798  
Provision/(credit) for loan losses22,604  1,363  39,566  (63) 
Net interest income after provision/(credit) for loan losses36,334  56,097  76,629  115,861  
Fees and other income:
Wealth management and trust fees17,261  18,912  35,632  37,970  
Investment management fees1,770  2,455  3,695  5,105  
Other banking fee income2,395  2,867  4,885  5,366  
Gain on sale of loans, net204  58  304  131  
Gain on OREO, net—  —  —  91  
Other1,032  88  (333) 965  
Total fees and other income22,662  24,380  44,183  49,628  
Operating expense:
Salaries and employee benefits33,937  32,706  69,033  68,432  
Occupancy and equipment7,560  7,852  15,206  16,200  
Information systems7,113  5,137  13,838  10,997  
Professional services3,446  3,313  7,047  6,873  
Marketing and business development2,313  1,934  4,203  3,019  
Amortization of intangibles702  672  1,417  1,344  
FDIC insurance767  585  767  1,245  
Restructuring—  —  —  1,646  
Other5,615  3,460  10,850  6,456  
Total operating expense61,453  55,659  122,361  116,212  
Income/(loss) before income taxes(2,457) 24,818  (1,549) 49,277  
Income tax expense841  5,369  943  10,286  
Net income/(loss) before attribution to noncontrolling interests(3,298) 19,449  (2,492) 38,991  
(Continued)
2


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

 Three months ended June 30,Six months ended June 30,
 2020201920202019
Less: Net income attributable to noncontrolling interests—  69   169  
Net income/(loss) attributable to the Company$(3,298) $19,380  $(2,498) $38,822  
Adjustments to net income/(loss) attributable to the Company to arrive at net income/(loss) attributable to common shareholders—  (816) 414  741  
Net income/(loss) attributable to common shareholders for earnings/(loss) per share calculation$(3,298) $18,564  $(2,084) $39,563  
Basic earnings/(loss) per share attributable to common shareholders:
Total attributable to common shareholders:$(0.04) $0.22  $(0.03) $0.47  
Weighted average basic common shares outstanding81,929,752  83,565,780  82,464,438  83,426,213  
Diluted earnings/(loss) per share attributable to common shareholders:
Total attributable to common shareholders:$(0.04) $0.22  $(0.03) $0.47  
Weighted average diluted common shares outstanding81,929,752  84,048,972  82,464,438  84,036,050  
 See accompanying notes to Consolidated Financial Statements.
3


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

 Three months ended June 30,Six months ended June 30,
 2020201920202019
(In thousands)
Net income/(loss) attributable to the Company$(3,298) $19,380  $(2,498) $38,822  
Other comprehensive income/(loss), net of tax:
Net unrealized gain/(loss) on securities available-for-sale8,198  10,665  22,687  22,233  
Unrealized gain/(loss) on cash flow hedges(302) (6) (302) (33) 
Reclassification adjustment for net realized (gain)/loss included in net income107  (136) 107  (356) 
Net unrealized gain/(loss) on cash flow hedges(195) (142) (195) (389) 
Net unrealized gain/(loss) on other(30) —  (30) —  
Other comprehensive income/(loss), net of tax7,973  10,523  22,462  21,844  
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.

4


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
 (In thousands, except share data)
Balance at December 31, 2018$83,656  $600,196  $87,821  $(17,719) $753,954  
Net income/(loss) attributable to the Company—  —  38,822  —  38,822  
Other comprehensive income/(loss), net—  —  —  21,844  21,844  
Dividends paid to common shareholders: $0.24 per share—  —  (20,200) —  (20,200) 
Net proceeds from issuance of:
143,147 shares of common stock143  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(88) (587) —  —  (675) 
Amortization of stock compensation and employee stock purchase plan—  2,340  —  —  2,340  
Stock options exercised63  372  —  —  435  
Other equity adjustments—  558  —  —  558  
Balance at June 30, 2019$83,774  $603,869  $106,443  $4,125  $798,211  
Balance at December 31, 2019$83,266  $600,708  $127,469  $7,575  $819,018  
Impact due to change in accounting principle (1)—  —  13,492  —  13,492  
Net income/(loss) attributable to the Company—  —  (2,498) —  (2,498) 
Other comprehensive income/(loss), net—  —  —  22,462  22,462  
Dividends paid to common shareholders: $0.24 per share—  —  (19,816) —  (19,816) 
Repurchase of 1,565,060 shares of common stock(1,565) (11,242) —  —  (12,807) 
Net proceeds from issuance of:
111,055 shares of common stock111  949  —  —  1,060  
271,004 shares of incentive stock grants, net of 31,159 shares withheld for employee taxes240  3,436  —  —  3,676  
Amortization of stock compensation and employee stock purchase plan—  (879) —  —  (879) 
Stock options exercised 48  —  —  55  
Other equity adjustments(1) 1,443  —  —  1,442  
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.
5


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 stock39  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 exercised53  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 stock23  117  —  —  140  
265,465 shares of incentive stock grants, net of 30,195 shares withheld for employee taxes235  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.
6


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

 Six months ended June 30,
 20202019
 (In thousands)
Cash flows from operating activities:
Net income/(loss) attributable to the Company$(2,498) $38,822  
Adjustments to arrive at net income/(loss):
Net income attributable to noncontrolling interests 169  
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:
Depreciation and amortization11,630  11,712  
Net income attributable to noncontrolling interests(6) (169) 
Stock compensation, net of cancellations2,997  2,933  
Provision/(credit) for loan losses39,566  (63) 
Loans originated for sale(42,611) (17,103) 
Proceeds from sale of loans held for sale40,451  16,406  
Deferred income tax expense/(benefit)(12,233) 959  
Decrease/(increase) in right-of-use assets7,932  (2,419) 
Increase/(decrease) in operating lease liabilities(8,980) 2,476  
Net decrease/(increase) in other operating activities(11,973) (26,560) 
Net cash provided by/(used in) operating activities24,281  27,163  
Cash flows from investing activities:
Investment securities available-for-sale:
Purchases(29,481) (9,845) 
Maturities, calls, redemptions, and principal payments32,481  64,230  
Investment securities held-to-maturity:
Principal payments5,541  15,872  
Equity securities at fair value:
Transfers out(28,137) (35,349) 
Transfers in22,455  30,485  
(Investments)/distributions in trusts, net(209) 504  
Contingent considerations from divestitures2,497  2,019  
(Purchase)/redemption of Federal Home Loan Bank and Federal Reserve Bank stock(3,329) (15,190) 
Net increase in portfolio loans(358,604) (188,548) 
Proceeds from recoveries of loans previously charged off235  577  
Proceeds from sale of OREO—  492  
Capital expenditures(4,221) (811) 
Net cash provided by/(used in) investing activities(360,772) (135,564) 
(Continued)
7


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

 Six months ended June 30,
 20202019
(In thousands)
Cash flows from financing activities:
Net increase/(decrease) in deposits185,921  (343,207) 
Net increase/(decrease) in securities sold under agreements to repurchase(6,775) 25,444  
Net increase/(decrease) in federal funds purchased—  (115,000) 
Net increase/(decrease) in short-term Federal Home Loan Bank borrowings(75,000) 340,000  
Advances of long-term Federal Home Loan Bank borrowings425,000  290,000  
Repayments of long-term Federal Home Loan Bank borrowings(274,516) (130,076) 
Dividends paid to common shareholders(19,816) (20,200) 
Repurchase of common stock(12,807) —  
Proceeds from stock option exercises55  435  
Proceeds from issuance of common stock1,060  1,133  
Tax withholding for share based compensation awards(200) (1,268) 
Distributions paid to noncontrolling interests(6) (169) 
Other equity adjustments123  (194) 
Net cash provided by/(used in) financing activities223,039  46,898  
Net increase/(decrease) in cash and cash equivalents(113,452) (61,503) 
Cash and cash equivalents at beginning of year292,479  127,259  
Cash and cash equivalents at end of period$179,027  $65,756  
Supplemental disclosure of cash flow items:
Cash paid for interest$25,106  $37,382  
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$22,687  $22,233  
Change in unrealized gain/(loss) on cash flow hedges, net of tax$(195) $(389) 
Change in unrealized gain/(loss) on other, net of tax$(30) $—  
Non-cash transactions:
Loans charged off$(2,074) $(759) 
See accompanying notes to Consolidated Financial Statements.

8

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 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, 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. Prior to the merger, the results of KLS were reported in a third reportable segment, “Affiliate Partners”, as 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. 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 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
9


Improvements to Topic 326, Financial Instruments—Credit Losses (“ASU 2019-11”). This update and related amendments to Topic 326 are intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology with a current expected credit losses (“CECL”) model methodology that reflects expected credit losses and requires consideration of a reasonable and supportable forecast to inform credit loss estimates. This ASU is effective for fiscal years beginning after December 15, 2019. The Company adopted this update on January 1, 2020 utilizing a modified retrospective approach. On adoption of ASU 2016-13 on January 1, 2020, the Company recognized a decrease in the allowance for loan losses of $20.4 million and an increase in the reserve for unfunded loan commitments of $1.4 million. The net, after-tax impact of the decrease in the allowance for loan losses and the increase in the reserve for unfunded loan commitments was an increase to Retained earnings of $13.5 million as shown in the Consolidated Statements of Changes in Shareholders’ Equity.
2. Earnings/(Loss) Per Share
The treasury stock method of calculating earnings/(loss) per share (“EPS”) is presented below for the three and six months ended June 30, 2020 and 2019. The following tables present the computations of basic and diluted EPS:
Three months ended June 30,Six months ended June 30,
2020201920202019
(In thousands, except share and per share data)
Basic earnings/(loss) per share - Numerator:
Net income/(loss) before attribution to noncontrolling interests$(3,298) $19,449  $(2,492) $38,991  
Less: Net income attributable to noncontrolling interests—  69   169  
Net income/(loss) attributable to the Company(3,298) 19,380  (2,498) 38,822  
Decrease/(increase) in noncontrolling interests’ redemption values (1)—  (816) 414  741  
Net income/(loss) attributable to common shareholders, treasury stock method$(3,298) $18,564  $(2,084) $39,563  
Basic earnings/(loss) per share - Denominator:
Weighted average basic common shares outstanding81,929,752  83,565,780  82,464,438  83,426,213  
Per share data - Basic earnings/(loss) per share:
Total attributable to common shareholders$(0.04) $0.22  $(0.03) $0.47  
Three months ended June 30,Six months ended June 30,
2020201920202019
(In thousands, except share and per share data)
Diluted earnings/(loss) per share - Numerator:
Net income/(loss) attributable to common shareholders, after assumed dilution$(3,298) $18,564  $(2,084) $39,563  
Diluted earnings/(loss) per share - Denominator:
Weighted average basic common shares outstanding81,929,752  83,565,780  82,464,438  83,426,213  
Dilutive effect of: Time-based and market-based stock options, performance-based and time-based restricted stock, and performance-based and time-based restricted stock units, and other dilutive securities (2)—  483,192  —  609,837  
Weighted average diluted common shares outstanding (2)81,929,752  84,048,972  82,464,438  84,036,050  
Per share data - Diluted earnings/(loss) per share:
Total attributable to common shareholders$(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. A decrease in redemption value from period to period increases income attributable to common shareholders, but only to the extent that the cumulative change in redemption value remains a cumulative increase since adoption of this standard in the first quarter of 2009.
(2)The diluted EPS computations for the three and six months ended 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-
10

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 June 30,Six months ended June 30,
2020201920202019
Anti-dilutive shares excluded from computation of average dilutive EPS(In thousands)
Potential common shares from: options, restricted stock, or other dilutive securities2,328  750  1,813  820  
Total anti-dilutive shares excluded from computation of average dilutive EPS2,328  750  1,813  820  

3. Reportable Segments
Management reporting
The Company has 2 reportable segments: (i) Private Banking and (ii) Wealth Management and Trust, as well as Boston Private Financial Holdings, Inc. (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
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
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.
Measurement of segment profit and 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."
11

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

Reconciliation of reportable segment items
The following tables present a reconciliation of the revenues, expenses, assets, and other significant items of 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,
2020201920202019
Private Banking (1)(In thousands)
Net interest income$59,690  $58,419  $117,780  $117,756  
Fees and other income3,597  2,804  4,705  6,062  
Total revenue63,287  61,223  122,485  123,818  
Provision/(credit) for loan losses22,604  1,363  39,566  (63) 
Operating expense (2)42,914  37,805  85,502  79,122  
Income/(loss) before income taxes(2,231) 22,055  (2,583) 44,759  
Income tax expense/(benefit)(1,255) 4,878  (2,186) 9,308  
Net income/(loss) before attribution to noncontrolling interests(976) 17,177  (397) 35,451  
Net income/(loss) attributable to the Company$(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  $5,043  
Three months ended June 30,Six months ended June 30,
2020201920202019
Wealth Management and Trust (1)(In thousands)
Net interest income$ $104  $79  $210  
Fees and other income17,292  18,956  35,777  38,082  
Total revenue17,299  19,060  35,856  38,292  
Operating expense (2)14,651  14,409  30,100  29,976  
Income before income taxes2,648  4,651  5,756  8,316  
Income tax expense898  1,520  1,972  2,714  
Net income before attribution to noncontrolling interests1,750  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  $700  
Three months ended June 30,Six months ended June 30,
2020201920202019
Holding Company and Eliminations (1)(In thousands)
Net interest income (3)$(759) $(1,063) $(1,664) $(2,168) 
Fees and other income1,773  2,620  3,701  5,484  
Total revenue1,014  1,557  2,037  3,316  
Operating expense3,888  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) $(2,062) 
Noncontrolling interests—  69   169  
Net income/(loss) attributable to the Company$(4,072) $(928) $(5,885) $(2,231) 
Assets (including eliminations)$(92,109) $(57,654) $(92,109) $(57,654) 
Depreciation$38  $49  $77  $96  
12

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
Three months ended June 30,Six months ended June 30,
2020201920202019
Total Company (1)(In thousands)
Net interest income$58,938  $57,460  $116,195  $115,798  
Fees and other income22,662  24,380  44,183  49,628  
Total revenue81,600  81,840  160,378  165,426  
Provision/(credit) for loan losses22,604  1,363  39,566  (63) 
Operating expense61,453  55,659  122,361  116,212  
Income/(loss) before income taxes(2,457) 24,818  (1,549) 49,277  
Income tax expense841  5,369  943  10,286  
Net income/(loss) before attribution to noncontrolling interests(3,298) 19,449  (2,492) 38,991  
Noncontrolling interests—  69   169  
Net income/(loss) attributable to the Company$(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 of $1.3 million and $0.4 million, 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.
13

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 June 30, 2020 and December 31, 2019:
 Amortized
Cost
UnrealizedFair
Value
GainsLosses
(In thousands)
At June 30, 2020
Available-for-sale securities at fair value:
U.S. government and agencies$19,959  $1,162  $—  $21,121  
Government-sponsored entities153,225  5,718  —  158,943  
Municipal bonds315,056  18,899  —  333,955  
Mortgage-backed securities (1)471,610  17,515  (174) 488,951  
Total$959,850  $43,294  $(174) $1,002,970  
Held-to-maturity securities at amortized cost:
Mortgage-backed securities (1)$42,495  $888  $(32) $43,351  
Total$42,495  $888  $(32) $43,351  
Equity securities at fair value:
Money market mutual funds (2)$24,492  $—  $—  $24,492  
Total$24,492  $—  $—  $24,492  
At December 31, 2019
Available-for-sale securities at fair value:
U.S. government and agencies$19,955  $42  $(57) $19,940  
Government-sponsored entities154,963  1,292  —  156,255  
Municipal bonds312,977  12,551  (73) 325,455  
Mortgage-backed securities (1)479,005  1,117  (3,488) 476,634  
Total$966,900  $15,002  $(3,618) $978,284  
Held-to-maturity securities at amortized cost:
Mortgage-backed securities (1)$48,212  $53  $(316) $47,949  
Total$48,212  $53  $(316) $47,949  
Equity securities at fair value:
Money market mutual funds (2)$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 entities. The Company has experienced zero losses for these securities. In addition, as of 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 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.
14

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
 Available-for-sale Securities
Amortized
Cost
Fair
Value
(In thousands)
Within one year$45,957  $46,277  
After one, but within five years301,995  314,345  
After five, but within ten years231,164  244,374  
Greater than ten years380,734  397,974  
Total$959,850  $1,002,970  
The following table presents the maturities of held-to-maturity investment securities, based on contractual maturity, as of June 30, 2020.
 Held-to-maturity Securities
Amortized
Cost
Fair
Value
(In thousands)
After five, but within ten years$34,732  $35,377  
Greater than ten years7,763  7,974  
Total$42,495  $43,351  
The following table presents the maturities of equity securities, based on contractual maturity, as of June 30, 2020.
 Equity Securities
Amortized
Cost
Fair
Value
(In thousands)
Within one year$24,492  $24,492  
Total$24,492  $24,492  
During the three and six months ended 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 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 months12 months or longerTotal
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
# of
Securities
(In thousands, except number of securities)
June 30, 2020
Available-for-sale securities
Mortgage-backed securities (1)$20,871  $(45) $10,622  $(129) $31,493  $(174) 28  
Total$20,871  $(45) $10,622  $(129) $31,493  $(174) 28  
Held-to-maturity securities
Mortgage-backed securities (1)$2,135  $(9) $2,024  $(23) $4,159  $(32)  
Total$2,135  $(9) $2,024  $(23) $4,159  $(32)  
15

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
Less than 12 months12 months or longerTotal
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)  
Government-sponsored entities1,725  —  —  —  1,725  —   
Municipal bonds9,149  (73) —  —  9,149  (73)  
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 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 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 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 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 small business investment companies formed to provide financing to small businesses and to promote community development. The Company had $74.8 million and $65.5 million in other investments included in Other assets as of 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.
16

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall:
 As of June 30, 2020Fair value measurements at reporting date using:
Quoted prices in
active markets
for identical
assets (Level 1)
Significant 
other
observable
inputs (Level 2)
Significant
unobservable
inputs (Level 3)
(In thousands)
Assets:
Available-for-sale securities:
U.S. government and agencies$21,121  $—  $21,121  $—  
Government-sponsored entities158,943  —  158,943  —  
Municipal bonds333,955  —  333,955  —  
Mortgage-backed securities488,951  —  488,951  —  
Total available-for-sale securities1,002,970  —  1,002,970  —  
Equity securities24,492  24,492  —  —  
Derivatives - interest rate customer swaps96,968  —  96,968  —  
Derivatives - risk participation agreement21  —  21  —  
Trading securities held in the “rabbi trust” (1)6,328  6,328  —  —  
Liabilities:
Derivatives - interest rate customer swaps$97,760  $—  $97,760  $—  
Derivatives - interest rate swaps274  —  274  —  
Derivatives - risk participation agreement478  —  478  —  
Deferred compensation “rabbi trust” (1)6,320  6,320  —  —  
  Fair value measurements at reporting date using:
As of December 31, 2019Quoted 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 entities156,255  —  156,255  —  
Municipal bonds325,455  —  325,455  —  
Mortgage-backed securities476,634  —  476,634  —  
Total available-for-sale securities978,284  —  978,284  —  
Equity securities18,810  18,810  —  —  
Derivatives - interest rate customer swaps36,089  —  36,089  —  
Derivatives - risk participation agreements10  —  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 agreements242  —  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 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
17

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
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 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 June 30, 2020 or December 31, 2019 were categorized as Level 3.
As of 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 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 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 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 June 30, 2020 and December 31, 2019. There were 0 Level 3 assets valued on a recurring basis at 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 measured at fair value on a non-recurring basis during the periods ended June 30, 2020 and June 30, 2019, respectively, aggregated by the level in the fair value hierarchy within which those measurements fall.
 As of June 30, 2020Fair value measurements at reporting date using:Gain (losses) from fair value changes
Quoted prices in
active markets
for identical
assets (Level 1)
Significant other
observable
inputs (Level 2)
Significant
unobservable
inputs (Level 3)
Three months ended June 30, 2020Six months ended June 30, 2020
(In thousands)
Assets:
Impaired loans (1)$98  $—  $—  $98  $(1,219) $(1,198) 
_____________________
(1)Collateral-dependent impaired loans held as of June 30, 2020 that had write-downs or recoveries in fair value or whose specific reserve changed during the six months ended June 30, 2020.
18

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
 As of June 30, 2019Fair value measurements at reporting date using:Gain (losses) from fair value changes
Quoted prices in
active markets
for identical
assets (Level 1)
Significant other
observable
inputs (Level 2)
Significant
unobservable
inputs (Level 3)
Three months ended June 30, 2019Six months ended June 30, 2019
(In thousands)
Assets:
Impaired loans (1)$1,144  $—  $—  $1,144  $220  $592  
_____________________
(1)Collateral-dependent impaired loans held as of June 30, 2019 that had write-downs or recoveries in fair value or whose specific reserve changed during the six months ended 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 June 30, 2020
Fair ValueValuation
Technique
Unobservable
Input
Range of
Inputs
Utilized
Weighted
Average of
Inputs
Utilized
(In thousands)
Impaired Loans$98  Appraisals of CollateralDiscount for costs to sell10% - 10%10%
Appraisal adjustments—%—%
 As of June 30, 2019
Fair ValueValuation
Technique
Unobservable
Input
Range of
Inputs
Utilized
Weighted
Average of
Inputs
Utilized
(In thousands)
Impaired Loans$1,144  Appraisals of CollateralDiscount for costs to sell—% - 5%4%
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.
19

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 June 30, 2020
Book ValueFair ValueQuoted 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$179,027  $179,027  $179,027  $—  $—  
Investment securities held-to-maturity42,495  43,351  —  43,351  —  
Loans held for sale9,786  9,958  —  9,958  —  
Loans, net7,243,630  7,082,051  —  —  7,082,051  
Other financial assets71,246  71,246  —  71,246  —  
FINANCIAL LIABILITIES:
Deposits7,427,397  7,429,520  —  7,429,520  —  
Securities sold under agreements to repurchase46,623  46,623  —  46,623  —  
Federal Home Loan Bank borrowings426,313  428,014  —  428,014  —  
Junior subordinated debentures106,363  69,863  —  —  69,863  
Other financial liabilities2,557  2,557  —  2,557  —  
 As of December 31, 2019
Book ValueFair ValueQuoted 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-maturity48,212  47,949  —  47,949  —  
Loans held for sale7,386  7,475  —  7,475  —  
Loans, net6,904,722  6,883,360  —  —  6,883,360  
Other financial assets67,348  67,348  —  67,348  —  
FINANCIAL LIABILITIES:
Deposits7,241,476  7,241,739  —  7,241,739  —  
Securities sold under agreements to repurchase53,398  53,398  —  53,398  —  
Federal Home Loan Bank borrowings350,829  351,233  —  351,233  —  
Junior subordinated debentures106,363  96,363  —  —  96,363  
Other financial liabilities1,957  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.
20

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 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 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, and regulatory changes that would result in an unfavorable change in the regulatory capital treatment of this type of debt.
21

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 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:
 June 30, 2020December 31, 2019
 (In thousands)
Commercial and industrial$565,748  $694,034  
Paycheck Protection Program370,034  —  
Commercial tax-exempt419,264  447,927  
Commercial real estate2,676,708  2,551,274  
Construction and land240,211  225,983  
Residential2,859,627  2,839,155  
Home equity84,588  83,657  
Consumer and other116,774  134,674  
Total$7,332,954  $6,976,704  
The following table presents nonaccrual loans receivable by class of receivable as of the dates indicated:
June 30, 2020December 31, 2019
(In thousands)
Commercial and industrial$3,649  $582  
Commercial real estate5,285  —  
Residential16,394  13,993  
Home equity195  1,525  
Consumer and other81   
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 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 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.
22

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:
June 30, 2020
Accruing Past DueNonaccrual Loans
30-59 Days Past Due60-89 Days Past DueTotal Accruing Past DueCurrent30-89 Days Past Due90 Days or
Greater
Past Due
Total Non-Accrual LoansCurrent Accruing LoansTotal
Loans
Receivable
(In thousands)
Commercial and industrial$3,058  $43  $3,101  $636  $—  $3,013  $3,649  $558,998  $565,748  
Paycheck Protection Program—  —  —  —  —  —  —  370,034  370,034  
Commercial tax-exempt—  —  —  —  —  —  —  419,264  419,264  
Commercial real estate (1)—  925  975  5,285  —  —  5,285  2,670,448  2,676,708  
Construction and land—  —  —  —  —  —  —  240,211  240,211  
Residential—  747  747  7,473  1,586  7,335  16,394  2,842,486  2,859,627  
Home equity489  251  740   139  48  195  83,653  84,588  
Consumer and other 15  22   —  80  81  116,671  116,774  
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 DueNonaccrual Loans
30-59 Days Past Due60-89 Days Past DueTotal Accruing Past DueCurrent30-89 Days Past Due90 Days or Greater Past DueTotal Non-Accrual LoansCurrent Accruing LoansTotal 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 estate1,420  —  1,420  —  —  —  —  2,549,854  2,551,274  
Construction and land—  —  —  —  —  —  —  225,983  225,983  
Residential19,133  1,038  20,171  9,593  759  3,641  13,993  2,804,991  2,839,155  
Home equity369  —  369  220  148  1,157  1,525  81,763  83,657  
Consumer and other1,008  2,149  3,157   —    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.
23

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
Credit quality indicators
The Bank uses a risk rating system to monitor the credit quality of its loan portfolio. Loan classifications are assessments made by the Bank of the status of the loans based on the facts and circumstances known to the Bank, including management’s judgment, at the time of assessment. Some or all of these classifications may change in the future if there are unexpected changes in the financial condition of the borrower, including but not limited to, changes resulting from continuing deterioration in 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 - 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.
24

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:
June 30, 2020
By Loan Grade or Nonaccrual Status
PassSpecial
Mention
Accruing
Classified (1)
Nonaccrual
Loans
Total
(In thousands)
Commercial and industrial$513,576  $8,628  $39,895  $3,649  $565,748  
Paycheck Protection Program370,034  —  —  —  370,034  
Commercial tax-exempt408,326  2,460  8,478  —  419,264  
Commercial real estate2,460,827  175,661  34,935  5,285  2,676,708  
Construction and land235,378  4,833  —  —  240,211  
Residential2,839,005  —  4,228  16,394  2,859,627  
Home equity83,343  —  1,050  195  84,588  
Consumer and other116,393  300  —  81  116,774  
Total$7,026,882  $191,882  $88,586  $25,604  $7,332,954  
December 31, 2019
By Loan Grade or Nonaccrual Status
PassSpecial
Mention
Accruing
Classified (1)
Nonaccrual
Loans
Total
(In thousands)
Commercial and industrial$656,364  $12,101  $24,987  $582  $694,034  
Commercial tax-exempt436,721  7,154  4,052  —  447,927  
Commercial real estate2,495,702  32,014  23,558  —  2,551,274  
Construction and land225,526  457  —  —  225,983  
Residential2,820,909  —  4,253  13,993  2,839,155  
Home equity81,060  —  1,072  1,525  83,657  
Consumer and other134,371  300  —   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:
25

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
June 30, 2020
Loan Origination Year By Loan Grade or Nonaccrual Status
20202019201820172016PriorRevolvingTotal
(In thousands)
Commercial and industrial
Pass$24,040  $92,841  $72,857  $16,771  $25,701  $57,514  $223,852  $513,576  
Special Mention—  676  963  1,439  —  2,837  2,713  8,628  
Accruing Classified (1)200  4,423  7,455  14,726  1,358  442  11,291  39,895  
Nonaccrual49  161  —  197  —  14  3,228  3,649  
Total$24,289  $98,101  $81,275  $33,133  $27,059  $60,807  $241,084  $565,748  
Paycheck Protection Program
Pass$370,034  $—  $—  $—  $—  $—  $—  $370,034  
Total$370,034  $—  $—  $—  $—  $—  $—  $370,034  
Commercial tax-exempt
Pass$12,665  $15,912  $40,819  $24,606  $107,595  $206,729  $—  $408,326  
Special Mention—  —  —  —  —  2,460  —  2,460  
Accruing Classified (1)—  —  —  3,975  —  4,503  —  8,478  
Total$12,665  $15,912  $40,819  $28,581  $107,595  $213,692  $—  $419,264  
Commercial real estate
Pass$187,358  $481,495  $260,482  $338,837  $393,779  $725,465  $73,411  $2,460,827  
Special Mention20,640  34,666  27,114  790  37,704  54,747  —  175,661  
Accruing Classified (1)1,252  11,536  —  1,179  8,878  12,090  —  34,935  
Nonaccrual—  5,285  —  —  —  —  —  5,285  
Total$209,250  $532,982  $287,596  $340,806  $440,361  $792,302  $73,411  $2,676,708  
Construction and land
Pass$5,937  $61,095  $77,695  $47,276  $16,928  $26,447  $—  $235,378  
Special Mention—  —  4,833  —  —  —  —  4,833  
Total$5,937  $61,095  $82,528  $47,276  $16,928  $26,447  $—  $240,211  
Residential
Pass$332,172  $583,429  $448,630  $459,227  $438,329  $577,218  $—  $2,839,005  
Accruing Classified (1)—  —  —  —  —  4,228  —  4,228  
Nonaccrual—  262  1,084  2,529  —  12,519  —  16,394  
Total$332,172  $583,691  $449,714  $461,756  $438,329  $593,965  $—  $2,859,627  
Home equity
Pass$—  $—  $454  $248  $686  $12,998  $68,957  $83,343  
Accruing Classified (1)—  —  —  —  —  1,050  —  1,050  
Nonaccrual—  —  —  —  —  56  139  195  
Total$—  $—  $454  $248  $686  $14,104  $69,096  $84,588  
Consumer and other
Pass$1,388  $318  $38  $—  $88  $806  $113,755  $116,393  
Special Mention—  —  —  —  —  —  300  300  
Nonaccrual—  —  73  —  —  —   81  
Total$1,388  $318  $111  $—  $88  $806  $114,063  $116,774  
Total
Pass$933,594  $1,235,090  $900,975  $886,965  $983,106  $1,607,177  $479,975  $7,026,882  
Special Mention20,640  35,342  32,910  2,229  37,704  60,044  3,013  191,882  
Accruing Classified (1)1,452  15,959  7,455  19,880  10,236  22,313  11,291  88,586  
Nonaccrual49  5,708  1,157  2,726  —  12,589  3,375  25,604  
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.
26

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
The following tables present, by class of receivable, the balance of impaired loans with and without a related allowance, the associated allowance for those impaired loans with a related allowance, and the total unpaid principal on impaired loans:
As of and for the three and six months ended June 30, 2020
Recorded Investment (1)Unpaid Principal BalanceRelated AllowanceQTD Average Recorded InvestmentYTD Average Recorded InvestmentQTD Interest Income Recognized while ImpairedYTD Interest Income Recognized while Impaired
(In thousands)
With no related allowance recorded:
Commercial and industrial$3,434  $3,456  n/a$1,323  $1,058  $—  $ 
Paycheck Protection Program—  —  n/a—  —  —  —  
Commercial tax-exempt—  —  n/a—  —  —  —  
Commercial real estate6,007  6,122  n/a6,064  3,964   17  
Construction and land—  —  n/a—  —  —  —  
Residential16,309  16,569  n/a16,331  15,903  143  260  
Home equity391  391  n/a1,258  1,383   10  
Consumer and other—  —  n/a—  —  —  —  
Subtotal$26,141  $26,538  n/a24,976  $22,308  158  $293  
With an allowance recorded:
Commercial and industrial$259  $268  $(161) 265  $273   $ 
Paycheck Protection Program—  —  —  —  —  —  —  
Commercial tax-exempt—  —  —  —  —  —  —  
Commercial real estate—  —  —  —  —  —  —  
Construction and land—  —  —  —  —  —  —  
Residential528  528  (60) 530  532    
Home equity263  263  (18) 267  269    
Consumer and other—  —  —  —  —  —  —  
Subtotal$1,050  $1,059  $(239) $1,062  $1,074  $ $11  
Total:
Commercial and industrial$3,693  $3,724  $(161) $1,588  $1,331  $ $ 
Paycheck Protection Program—  —  —  —  —  —  —  
Commercial tax-exempt—  —  —  —  —  —  —  
Commercial real estate6,007  6,122  —  6,064  3,964   17  
Construction and land—  —  —  —  —  —  —  
Residential16,837  17,097  (60) 16,861  16,435  145  266  
Home equity654  654  (18) 1,525  1,652   14  
Consumer and other—  —  —  —  —  —  —  
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.
27

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
As of and for the three and six months ended June 30, 2019
Recorded Investment (1)Unpaid Principal BalanceRelated AllowanceQTD Average Recorded InvestmentYTD Average Recorded InvestmentQTD Interest Income Recognized while ImpairedYTD Interest Income Recognized while Impaired
(In thousands)
With no related allowance recorded:
Commercial and industrial$1,669  $2,616  n/a$1,520  $1,328  $10  $25  
Commercial tax-exempt—  —  n/a—  —  —  —  
Commercial real estate—  —  n/a—  78  —  256  
Construction and land—  —  n/a—  —  —  —  
Residential15,127  15,387  n/a14,079  12,605  103  240  
Home equity2,497  3,059  n/a2,359  2,018    
Consumer and other—  —  n/a—  —  —  —  
Subtotal$19,293  $21,062  n/a$17,958  $16,029  $114  $522  
With an allowance recorded:
Commercial and industrial$441  $441  $93  $596  $1,036  $ $20  
Commercial tax-exempt—  —  —  —  —  —  —  
Commercial real estate—  —  —  —  —  —  —  
Construction and land—  —  —  —  —  —  —  
Residential778  778  74  733  752   13  
Home equity274  274  24  69  776    
Consumer and other—  —  —  —  —  —  —  
Subtotal$1,493  $1,493  $191  $1,398  $2,564  $11  $34  
Total:
Commercial and industrial$2,110  $3,057  $93  $2,116  $2,364  $14  $45  
Commercial tax-exempt—  —  —  —  —  —  —  
Commercial real estate—  —  —  —  78  —  256  
Construction and land—  —  —  —  —  —  —  
Residential15,905  16,165  74  14,812  13,357  109  253  
Home equity2,771  3,333  24  2,428  2,794    
Consumer and other—  —  —  —  —  —  —  
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 and historical nonaccrual interest paid, if applicable, which was applied to principal.

28

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 BalanceRelated AllowanceAverage Recorded InvestmentInterest 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 estate733  733  n/a155  262  
Construction and land—  —  n/a—  —  
Residential15,362  15,622  n/a13,700  636  
Home equity1,557  2,119  n/a2,095  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—  —  —  —  —  
Residential538  538  67  1,130  23  
Home equity273  273  22  545   
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 estate733  733  —  155  262  
Construction and land—  —  —  —  —  
Residential15,900  16,160  67  14,830  659  
Home equity1,830  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 June 30, 2020, 336 residential and home equity loans with a current outstanding principal balance of $214.5 million were processed under this deferment program.
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
29

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 June 30, 2020, the Bank has pledged $2.3 billion of loans in a blanket lien agreement with the FHLB. The Bank also has $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 June 30, 2020 and December 31, 2019, TDRs totaled $14.8 million and $12.6 million, respectively. As of June 30, 2020, $8.9 million of the $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 June 30, 2020
Restructured Current QuarterTDRs that defaulted in the Current Quarter that were restructured in prior twelve months
# of LoansPre- modification recorded investmentPost- modification recorded investment# of LoansPost- 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—  —  —   1,562  
Home equity—  —  —  —  —  
Consumer and other—  —  —  —  —  
Total—  $—  $—   $1,562  
30

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
As of and for the six months ended June 30, 2020
Restructured Year to DateTDRs 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) $50  $50  —  $—  
Paycheck Protection Program—  —  —  —  —  
Commercial tax exempt—  —  —  —  —  
Commercial real estate—  —  —  —  —  
Construction and land—  —  —  —  —  
Residential (2) 2,373  2,373   1,562  
Home equity—  —  —  —  —  
Consumer and other—  —  —  —  —  
Total $2,423  $2,423   $1,562  
_____________________
(1)Represents the following type of concession: extension of maturity and reduction in interest rate.
(2)Represents the following type of concession: payment deferral.     
31

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 QuarterTDRs that defaulted in the Current Quarter that were restructured in prior twelve months
# of LoansPre- modification recorded investmentPost- modification recorded investment# of LoansPost- modification recorded investment
(In thousands, except number of loans)
Commercial and industrial—  $—  $—  —  $—  
Commercial tax exempt—  —  —  —  —  
Commercial real estate—  —  —  —  —  
Construction and land—  —  —  —  —  
Residential (1) 222  222  —  —  
Home equity (1) 274  274  —  —  
Consumer and other—  —  —  —  —  
Total $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 DateTDRs 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 $179  $179  —  $—  
Commercial tax exempt—  —  —  —  —  
Commercial real estate—  —  —  —  —  
Construction and land—  —  —  —  —  
Residential 3,222  3,222  —  —  
Home equity 274  274  —  —  
Consumer and other—  —  —  —  —  
Total $3,675  $3,675  —  $—  
As of and for the six months ended June 30, 2019
Extension of termTemporary rate reductionPayment deferralCombination of concessionsTotal 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 $179  —  $—  —  $—  —  $—   $179  
Commercial tax exempt—  —  —  —  —  —  —  —  —  —  
Commercial real estate—  —  —  —  —  —  —  —  —  —  
Construction and land—  —  —  —  —  —  —  —  —  —  
Residential—  —   3,222  —  —  —  —   3,222  
Home equity—  —   274  —  —  —  —   274  
Consumer and other—  —  —  —  —  —  —  —  —  —  
 $179   $3,496  —  $—  —  $—   $3,675  
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 June 30, 2020, 336 residential and home equity loans totaling $214.5 million were processed under this deferment program.
32

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (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:
 June 30, 2020December 31, 2019
 (In thousands)
Commercial and industrial$15,122  $14,533  
Commercial tax-exempt17,829  18,101  
Commercial real estate124,312  121,929  
Construction and land72,474  75,451  
Total loan participations serviced for others$229,737  $230,014  
Residential$130,114  $204,696  
Total loans serviced for others$130,114  $204,696  
Total loans include deferred loan origination (fees)/costs, net, of $(1.6) million and $8.1 million as of 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 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
• Experience and depth of management
• Risk surrounding lending policy and underwriting standards
• Risk surrounding loan review
• Banking industry conditions, other external factors, and inherent model risk
Loans that no longer share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company will use either a discounted cash flow approach or a fair value of collateral approach. The latter approach will be used for loans deemed to be collateral dependent or when foreclosure is probable.
Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within Accrued interest receivable on the consolidated balance 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.
33

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 $89.3 million and $72.0 million as of 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 their different underlying risk characteristics. For the periods ended June 30, 2019, the Provision/(credit) for loan losses and related allowance balance in the allowance for loan losses for tax-exempt commercial and industrial loans is included with Commercial and industrial loans. Beginning in the second quarter of 2020, the Company made a change to the loan portfolio segmentation as it relates to the allowance for loan losses, adding the segment Paycheck Protection Program. For the periods 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,
2020201920202019
(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-exempt1,927  n/a6,016  n/a
Commercial real estate36,580  41,813  40,765  41,934  
Construction and land5,709  5,353  5,119  6,022  
Residential11,779  10,057  8,857  10,026  
Home equity303  796  778  1,284  
Consumer and other1,658  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$(565) n/a
Paycheck Protection Program—  n/a—  n/a
Commercial tax-exempt—  n/a(4,409) n/a
Commercial real estate—  n/a(14,455) n/a
Construction and land—  n/a(2,158) n/a
Residential—  n/a685  n/a
Home equity—  n/a(535) n/a
Consumer and other—  n/a1,052  n/a
Total impact of adopting ASU 2016-13$—  n/a$(20,385) n/a
Provision/(credit) for loan losses:
Commercial and industrial$(359) $550  $886  $137  
Paycheck Protection Program190  n/a190  n/a
Commercial tax-exempt559  n/a879  n/a
Commercial real estate11,095  1,898  21,365  1,588  
Construction and land3,815  (573) 6,563  (1,242) 
Residential5,986  (502) 8,223  (571) 
Home equity1,293   1,221  83  
Consumer and other25  (19) 239  (58) 
Total provision/(credit) for loan losses$22,604  $1,363  $39,566  $(63) 
34

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
As of and for the three months ended June 30,As of and for the six months ended June 30,
2020201920202019
(In thousands)
Loans charged off:
Commercial and industrial$(389) $(195) $(907) $(195) 
Paycheck Protection Program—  n/a—  n/a
Commercial tax-exempt—  n/a—  n/a
Commercial real estate—  —  —  —  
Construction and land—  —  —  —  
Residential—  —  —  —  
Home equity(1,157) —  (1,157) (562) 
Consumer and other—  —  (10) (2) 
Total charge offs$(1,546) $(195) $(2,074) $(759) 
Recoveries on loans previously charged off:
Commercial and industrial$52  $40  $97  $228  
Paycheck Protection Program—  n/a—  n/a
Commercial tax-exempt—  n/a—  n/a
Commercial real estate—  30  —  219  
Construction and land—  —  —  —  
Residential—  —  —  100  
Home equity—  —  132  —  
Consumer and other 15   30  
Total recoveries$55  $85  $235  $577  
Allowance for loan losses, end of period:
Commercial and industrial$9,559  $16,082  $9,559  $16,082  
Paycheck Protection Program190  n/a190  n/a
Commercial tax-exempt2,486  n/a2,486  n/a
Commercial real estate47,675  43,741  47,675  43,741  
Construction and land9,524  4,780  9,524  4,780  
Residential17,765  9,555  17,765  9,555  
Home equity439  805  439  805  
Consumer and other1,686  104  1,686  104  
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 $89.3 million as of June 30, 2020 represents an increase of $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 in the allowance for loan losses of $20.4 million. The adoption amount was driven primarily by the portfolio composition, the short-term nature of many commercial loans, estimated prepayments and curtailments, a change to the loan portfolio segmentation in which Commercial and industrial and Commercial tax-exempt loans were bifurcated given the different underlying risk characteristics, and reasonable and supportable economic forecasts at the time of adoption.
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.
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
35

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 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 June 30, 2020 or December 31, 2019.
June 30, 2020
Individually Evaluated
for Impairment
Collectively Evaluated
for Impairment
Total
Recorded investment
(loan balance)
Allowance for loan lossesRecorded investment
(loan balance)
Allowance for loan lossesRecorded 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 estate6,007  —  2,670,701  47,675  2,676,708  47,675  
Construction and land—  —  240,211  9,524  240,211  9,524  
Residential16,837  60  2,842,790  17,705  2,859,627  17,765  
Home equity654  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 lossesRecorded investment
(loan balance)
Allowance for loan lossesRecorded 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 estate733  —  2,550,541  40,765  2,551,274  40,765  
Construction and land—  —  225,983  5,119  225,983  5,119  
Residential15,900  67  2,823,255  8,790  2,839,155  8,857  
Home equity1,830  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  
36

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 June 30, 2020 and December 31, 2019:
 June 30, 2020December 31, 2019
 Asset derivativesLiability derivativesAsset derivativesLiability 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)
 (In thousands)
Derivatives designated as hedging instruments:
Interest rate swapsOther assets$—  Other liabilities$274  Other assets$—  Other liabilities$—  
Derivatives not designated as hedging instruments:
Interest rate customer swapsOther assets96,968  Other liabilities97,760  Other assets36,089  Other liabilities36,580  
Risk participation agreementsOther assets21  Other liabilities478  Other assets10  Other liabilities242  
Total$96,989  $98,512  $36,099  $36,822  
_____________________
(1)For additional details, see Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 5: Fair Value Measurements.”
The following table presents the effect of the Company’s derivative financial instruments on accumulated other comprehensive income for the three and six months ended June 30, 2020 and 2019:
Derivatives in cash
flow hedging
relationships
Amount of gain or (loss) recognized in OCI on derivatives
Location of gain
or (loss) reclassified
from accumulated
OCI into income
Amount of gain or (loss) reclassified from accumulated OCI into income
Three months ended June 30,Three months ended June 30,
2020201920202019
(In thousands)(In thousands)
Interest rate swaps$(426) $(9) Interest income/(expense)$(152) $191  
Total$(426) $(9) $(152) $191  
Derivatives in cash
flow hedging
relationships
Amount of gain or (loss) recognized in OCI on derivativesLocation of gain
or (loss) reclassified
from accumulated
OCI into income
Amount of gain or (loss) reclassified from accumulated OCI into income
Six months ended June 30,Six months ended June 30,
2020201920202019
(In thousands)(In thousands)
Interest rate swaps$(426) $(47) Interest income/(expense)$(152) $502  
Total$(426) $(47) $(152) $502  
37

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
The following table presents the effect of the Company’s derivative financial instruments in the Consolidated Statements of Operations for the three and six months ended June 30, 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
Amount of gain or
(loss) recognized in
income on cash flow
hedging relationships
Three months ended June 30,Six months ended June 30,
2020201920202019
(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 recordedInterest income/(expense)$(152) $191  $(152) $502  
The effects of cash flow hedging:
Gain or (loss) on cash flow hedging relationships in ASC 815
Interest contracts - amount of gain or (loss) reclassified from accumulated other comprehensive income into incomeInterest income/(expense)$(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 Bank could also be declared in default on its derivative obligations. The Bank was in compliance with these provisions as of 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 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 June 30, 2020 and December 31, 2019.
As of June 30, 2020 and December 31, 2019, the termination amounts related to collateral determinations of derivatives in a liability position were $98.9 million and $35.7 million, respectively. The Company has minimum collateral posting thresholds with its derivative counterparties. As of June 30, 2020 and December 31, 2019, the Company had pledged securities with a market value of $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 of 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.
To accomplish this objective and strategy, the Bank has entered into one interest rate swap during 2020 with an effective date of April 14, 2020. The interest rate swap is designated as a cash flow 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
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
38

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 $1.6 billion as of June 30, 2020 and December 31, 2019. As of 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 June 30, 2020 and December 31, 2019, there were 7 of these risk participation transactions with an aggregate notional amount of $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 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.
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 June 30, 2020 and 2019.
Amount of gain or (loss), net,
recognized in income on derivatives
Derivatives not designated as
hedging instruments
Location of gain or (loss) recognized in income on derivativesThree months ended June 30,Six months ended June 30,
2020201920202019
 (In thousands)
Interest rate swapsOther income/(expense)$254  $(64) $(301) $(255) 
Risk participation agreementsOther income/(expense)(24) (213) (226) (109) 
Total$230  $(277) $(527) $(364) 
9. Income Taxes
The following table presents the components of income tax expense and effective tax rates for the periods indicated:
Six months ended June 30,
20202019
(In thousands)
Income/(loss) before income taxes$(1,549) $49,277  
Income tax expense943  10,286  
Net income/(loss) before attribution to noncontrolling interests$(2,492) $38,991  
Effective tax rate(60.9)%20.9 %
The effective tax rate for the six months ended June 30, 2020 of (60.9)%, with related tax expense of $0.9 million, was calculated based on a forecasted 2020 annual effective tax rate. The effective tax rate for the six months ended June 30, 2019 of 20.9%, with related tax expense of $10.3 million, was calculated based on a forecasted 2019 annual effective tax rate.
The effective tax rate for the six months ended June 30, 2020 was negative due primarily to the impact of earnings from tax-exempt investments and 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 the larger proportionate impact of tax benefit items compared to pre-tax income. The effective tax rate for 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 six months ended 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
39

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 0 and $69 thousand for the three-month periods ended 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 $1.4 million as of June 30, 2020 and December 31, 2019, respectively. The aggregate amount of such redeemable noncontrolling equity interests are recorded at the estimated maximum redemption values. The Company had 0 noncontrolling interests included in permanent shareholder’s equity at June 30, 2020 and December 31, 2019.
The DGHM operating agreement provides the Company and/or the noncontrolling interest holders with contingent call and put options and mandatory repurchase obligations used for the orderly transfer of noncontrolling equity interests between the noncontrolling interest holders and the Company at contractually predetermined values. This agreement is discussed in Part II. Item 8. “Financial Statements and Supplementary Data - Note 14: Noncontrolling Interests” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
The interests in DGHM take the form of limited liability company units. There are various events that could trigger a put, call or mandatory repurchase, such as a change in control, death, disability, retirement, resignation or termination. The terms of these rights and obligations are governed by the operating agreement of DGHM.
The following table presents a rollforward of the Company’s redeemable noncontrolling interests for the periods indicated:
Three months endedSix months ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
(In thousands)
Redeemable noncontrolling interests at beginning of period$—  $662  $1,383  $2,526  
Net income attributable to noncontrolling interests—  69   169  
Distributions—  (69) (6) (169) 
Purchases/(sales) of ownership interests—  —  (64) 12  
Amortization of equity compensation  16  26  
Adjustments to fair value(8) 1,115  (1,335) (778) 
Redeemable noncontrolling interests at end of period$—  $1,786  $—  $1,786  
11. Accumulated Other Comprehensive Income
The following table presents a summary of the amounts reclassified from the Company's Accumulated other comprehensive income/(loss) for the three and six months ended June 30, 2020 and 2019:
Description of component of Accumulated other comprehensive income/(loss)Three months ended June 30,Six months ended June 30,Affected line item in
Statement of Operations
2020201920202019
(In thousands)
Net realized gain/(loss) on cash flow hedges:
Hedges related to deposits:
Pre-tax gain/(loss)$(152) $191  $(152) $502  Interest income/(expense)
Tax (expense)/ benefit45  (55) 45  (146) Income tax (expense)/benefit
Net$(107) $136  $(107) $356  Net income/(loss) attributable to the Company
Total reclassifications for the period, net of tax$(107) $136  $(107) $356  
40

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
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 June 30, 2020 and 2019:
Components of Accumulated other comprehensive income/(loss)
Unrealized
gain/(loss)
on securities
available-for-sale
Unrealized
gain/(loss)
on cash flow
hedges
Unrealized
gain/(loss)
on other
Accumulated
other
comprehensive
income/(loss)
(In thousands)
Balance at December 31, 2018$(17,556) $391  $(554) $(17,719) 
Other comprehensive income/(loss) before reclassifications22,233  (33) —  22,200  
Reclassified from other comprehensive income/(loss)—  (356) —  (356) 
Other comprehensive income/(loss), net22,233  (389) —  21,844  
Balance at June 30, 2019$4,677  $ $(554) $4,125  
Balance at December 31, 2019$8,435  $—  $(860) $7,575  
Other comprehensive income/(loss) before reclassifications22,687  (302) (30) 22,355  
Reclassified from other comprehensive income/(loss)—  107  —  107  
Other comprehensive income/(loss), net22,687  (195) (30) 22,462  
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 reclassifications10,665  (6) —  10,659  
Reclassified from other comprehensive income/(loss)—  (136) —  (136) 
Other comprehensive income/(loss), net10,665  (142) —  10,523  
Balance at June 30, 2019$4,677  $ $(554) $4,125  
Balance at March 31, 2020$22,924  $—  $(860) $22,064  
Other comprehensive income/(loss) before reclassifications8,198  (302) (30) 7,866  
Reclassified from other comprehensive income/(loss)—  107  —  107  
Other comprehensive income/(loss), net8,198  (195) (30) 7,973  
Balance at June 30, 2020$31,122  $(195) $(890) $30,037  
12. Restructuring
There were 0 restructuring charges for the 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 was intended to improve the Company’s operating efficiency and enhance earnings.
41

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
The following table presents a summary of the restructuring activity for the three and six months ended June 30, 2020 and 2019:
Severance ChargesOther Associated CostsTotal
(In thousands)
Accrued charges at December 31, 2019$526  $789  $1,315  
Costs paid(434) —  (434) 
Accrued charges at March 31, 202092  789  881  
Costs paid(92) —  (92) 
Accrued charges at June 30, 2020$—  $789  $789  
Accrued charges at December 31, 2018$3,896  $789  $4,685  
Cost incurred1,646  —  1,646  
Costs paid(1,986) —  (1,986) 
Accrued charges at March 31, 20193,556  789  4,345  
Costs paid(1,364) —  (1,364) 
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 and 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, depending on the terms of the contracts. No performance based incentives are earned under wealth management contracts. Receivables are recorded on the Consolidated Balance Sheets in the Fees receivable line item. Deferred revenues of $6.0 million and $6.5 million as of June 30, 2020 and December 31, 2019, respectively, are recorded on the Consolidated Balance Sheets within Other 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 within Fees receivable.
Investment 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 within Fees receivable.
Other 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, 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
42

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.
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 June 30,Six months ended June 30,
 2020201920202019
 (In thousands)
Fees and other income:
Wealth management and trust fees$17,261  $18,912  $35,632  $37,970  
Investment management fees1,770  2,455  3,695  5,105  
Other income602  638  1,354  1,322  
Revenue from contracts with customers19,633  22,005  40,681  44,397  
Non-interest income within the scope of other GAAP topics3,029  2,375  3,502  5,231  
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 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 37 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 June 30,Six months ended June 30,
2020201920202019
(In thousands)
Lease cost
Operating lease cost$4,493  $4,841  $9,094  $9,526  
Short-term lease cost58  (3) 106  29  
Variable lease cost—   (9)  
Less: Sublease income—  (28) (28) (46) 
Total operating lease cost$4,551  $4,812  $9,163  $9,513  
43

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)
Six months ended 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$10,180  
ROU assets obtained in exchange for new operating lease liabilities$443  
Weighted-average remaining lease term for operating leases7.8 years
Weighted-average discount rate for operating leases3.2 %
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 June 30, 2020:
June 30, 2020
(In thousands)
Remainder of 2020$9,883  
202119,727  
202219,680  
202318,722  
202412,692  
Thereafter43,964  
Total future minimum lease payments124,668  
Less: Amounts representing interest(16,434) 
Present value of net future minimum lease payments$108,234  
15. Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02Leases (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 an 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 method of expense recognition in the Consolidated Statements of Operations. The Company adopted these provisions on January 1, 2019. The