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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

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

For the transition period from to .

Commission File Number: 001-35070

BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Massachusetts

04-2976299

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

Ten Post Office Square

Boston, Massachusetts

02109

(Address of Principal Executive Offices)

(Zip Code)

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

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


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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 30, 2021:


Common Stock, Par Value $1.00 Per Share			82,464,321
(class)			(outstanding)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

FORM 10-Q

TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Changes in Shareholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
	Executive Summary	42
	Announced Merger	43
	Impact of the COVID-19 Pandemic	43
	Critical Accounting Policies	45
	Results of Operations	45
	Financial Condition	51
	Condensed Consolidated Balance Sheets and Discussion	51
	Loan Portfolio and Credit Quality	53
	Liquidity	58
	Capital Resources	60
	Recent Accounting Pronouncements	61
Item 3	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4	Controls and Procedures	62
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	63
Item 1A	Risk Factors	63
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3	Defaults Upon Senior Securities	63
Item 4	Mine Safety Disclosures	63
Item 5	Other Information	63
Item 6	Exhibits	63
	Signature Page	64
	Certifications

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


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
	March 31, 2021		December 31, 2020
	(In thousands, except share and per share data)
Assets:
Cash and cash equivalents	$	1,389,943	$	1,055,588
Investment securities available-for-sale (amortized cost of $1,319,395 and $1,198,513 at March 31, 2021 and December 31, 2020, respectively)	1,339,408		1,243,693
Investment securities held-to-maturity (fair value of $32,631 and $35,942 at March 31, 2021 and December 31, 2020, respectively)	31,943		35,223
Equity securities at fair value	39,708		41,452
Stock in Federal Home Loan Bank and Federal Reserve Bank	28,651		28,663
Loans held for sale	8,434		17,421
Total loans	7,216,325		7,104,309
Less: Allowance for loan losses	74,010		81,238
Net loans	7,142,315		7,023,071

Premises and equipment, net	41,637		44,087
Goodwill	57,607		57,607
Intangible assets, net	8,389		9,056
Fees receivable	2,237		2,800
Accrued interest receivable	26,029		26,191
Deferred income taxes, net	11,353		6,774
Right-of-use assets	93,224		97,859
Other assets	317,614		359,248
Total assets	$	10,538,492	$	10,048,733
Liabilities:
Deposits	$	9,147,618	$	8,595,366
Securities sold under agreements to repurchase	46,262		53,472

Federal Home Loan Bank borrowings	115,019		114,659
Junior subordinated debentures	106,363		106,363
Lease liabilities	107,143		112,339
Other liabilities	157,664		198,526
Total liabilities	9,680,069		9,180,725

Shareholders’ Equity:

Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 82,455,432 shares at March 31, 2021 and 82,334,257 shares at December 31, 2020	82,455		82,334
Additional paid-in capital	600,089		597,558
Retained earnings	162,137		156,431
Accumulated other comprehensive income	13,742		31,685


Total shareholders’ equity	858,423		868,008
Total liabilities and shareholders’ equity	$	10,538,492	$	10,048,733

See accompanying notes to Unaudited Consolidated Financial Statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three months ended March 31,
		2021		2020
		(In thousands, except share and per share data)
Interest and dividend income:
Loans		$	58,036	$	66,358
Taxable investment securities		782		868
Non-taxable investment securities		2,045		1,998
Mortgage-backed securities		3,437		2,787
Short-term investments and other		593		1,071
Total interest and dividend income		64,893		73,082
Interest expense:
Deposits		4,691		12,796
Federal Home Loan Bank borrowings		236		2,034
Junior subordinated debentures		481		917
Repurchase agreements and other short-term borrowings		8		78
Total interest expense		5,416		15,825
Net interest income		59,477		57,257
Provision/(credit) for loan losses		(7,004)		16,962
Net interest income after provision/(credit) for loan losses		66,481		40,295
Fees and other income:
Wealth management and trust fees		19,136		18,371
Investment management fees		489		1,925


Other banking fee income		2,411		2,490
Gain on sale of loans, net		747		100




Other		3,387		(1,365)
Total fees and other income		26,170		21,521
Operating expense:
Salaries and employee benefits		40,904		35,096
Occupancy and equipment		8,205		7,646
Information systems		9,719		6,725
Professional services		3,302		3,601
Merger costs		10,665		—
Marketing and business development		624		1,890
Amortization of intangibles		667		715

FDIC insurance		967		—

Other		870		5,235
Total operating expense		75,923		60,908
Income before income taxes		16,728		908
Income tax expense		6,076		102


Net income before attribution to noncontrolling interests		10,652		806
(Continued)


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three months ended March 31,
		2021		2020
Less: Net income attributable to noncontrolling interests		—		6
Net income attributable to the Company		$	10,652	$	800
Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders		—		414
Net income attributable to common shareholders		$	10,652	$	1,214
Basic earnings per share attributable to common shareholders:


Total attributable to common shareholders:		$	0.13	$	0.01
Weighted average basic common shares outstanding		82,429,162		83,005,064
Diluted earnings per share attributable to common shareholders:


Total attributable to common shareholders:		$	0.13	$	0.01
Weighted average diluted common shares outstanding		83,934,107		83,318,041

See accompanying notes to Unaudited Consolidated Financial Statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
	Three months ended March 31,
		2021		2020
		(In thousands)
Net income attributable to the Company		$	10,652	$	800
Other comprehensive income/(loss), net of tax:
Net unrealized gain/(loss) on Investment securities available-for-sale		(17,993)		14,489


Unrealized gain/(loss) on cash flow hedges		6		—
Reclassification adjustment for net realized (gain)/loss included in net income		44		—
Net unrealized gain/(loss) on cash flow hedges		50		—

Other comprehensive income/(loss), net of tax		(17,943)		14,489
Total comprehensive income/(loss) attributable to the Company, net of tax		$	(7,291)	$	15,289

See accompanying notes to Unaudited Consolidated Financial Statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)		Total
	(In thousands, except share and per share data)
Balance at December 31, 2019	$	83,266	$	600,708	$	127,469	$	7,575	$	819,018
Impact due to change in accounting principle (1)	—		—		13,492		—		13,492

Net income attributable to the Company	—		—		800		—		800
Other comprehensive income/(loss), net of tax	—		—		—		14,489		14,489
Dividends paid to common shareholders: $0.12 per share	—		—		(10,000)		—		(10,000)



Repurchase of 1,565,060 shares of common stock	(1,565)		(11,242)		—		—		(12,807)
Net proceeds from issuance of:
88,328 shares of common stock	88		832		—		—		920
5,539 shares of incentive stock grants, net of 964 shares withheld for employee taxes	5		57		—		—		62

Amortization of stock compensation and employee stock purchase plan	—		1,348		—		—		1,348
Stock options exercised	7		48		—		—		55
Other equity adjustments	(1)		1,416		—		—		1,415
Balance at March 31, 2020	$	81,800	$	593,167	$	131,761	$	22,064	$	828,792

Balance at December 31, 2020	$	82,334	$	597,558	$	156,431	$	31,685	$	868,008


Net income attributable to the Company	—		—		10,652		—		10,652
Other comprehensive income/(loss), net of tax	—		—		—		(17,943)		(17,943)
Dividends paid to common shareholders: $0.06 per share	—		—		(4,946)		—		(4,946)




Net proceeds from issuance of:
99,008 shares of common stock	99		596		—		—		695
2,782 shares of incentive stock grants, net of 964 shares withheld for employee taxes	2		24		—		—		26

Amortization of stock compensation	—		1,520		—		—		1,520
Stock options exercised	20		241		—		—		261
Other equity adjustments	—		150		—		—		150
Balance at March 31, 2021	$	82,455	$	600,089	$	162,137	$	13,742	$	858,423

_____________________

(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 Unaudited Consolidated Financial Statements.


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Three months ended March 31,
	2021		2020
	(In thousands)
Cash flows from operating activities:
Net income attributable to the Company	$	10,652	$	800
Adjustments to arrive at net income:
Net income attributable to noncontrolling interests	—		6

Net income before attribution to noncontrolling interests	10,652		806
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization	4,692		6,345
Net income attributable to noncontrolling interests	—		(6)
Stock compensation, net of cancellations	1,559		1,421
Provision/(credit) for loan losses	(7,004)		16,962
Loans originated for sale	(38,308)		(15,324)
Proceeds from sale of Loans held for sale	48,060		15,127

Deferred Income tax expense/(benefit)	2,575		(5,731)
Decrease in Right-of-use assets	4,635		3,179
Decrease in operating Lease liabilities	(5,196)		(3,640)
Increase in Merger cost liabilities	8,665		—
Net (increase) in other operating activities	(8,612)		(27,617)


Net cash provided by/(used in) operating activities	21,718		(8,478)
Cash flows from investing activities:
Investment securities available-for-sale:
Purchases	(160,756)		(8,874)

Maturities, calls, redemptions, and principal payments	37,278		12,472
Investment securities held-to-maturity:

Principal payments	3,182		2,730
Equity securities at fair value:
Purchases	(8,256)		(19,713)
Sales	10,000		15,443
(Investments)/distributions in trusts, net	(429)		569

Contingent considerations from divestitures	1,258		1,277
(Purchase)/redemption of Federal Home Loan Bank and Federal Reserve Bank stock	12		(6,195)
Net increase in portfolio loans	(110,006)		(67,890)
Proceeds from recoveries of loans previously charged-off	73		180


Capital expenditures	(1,268)		(1,975)



Net cash provided (used in) investing activities	(228,912)		(71,976)
(Continued)


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Three months ended March 31,
	2021		2020
	(In thousands)
Cash flows from financing activities:
Net increase/(decrease) in deposits	552,252		(405,904)
Net (decrease) in securities sold under agreements to repurchase	(7,210)		(8,079)
Net increase in federal funds purchased	—		145,000
Net increase in short-term Federal Home Loan Bank borrowings	—		115,000
Advances of long-term Federal Home Loan Bank borrowings	100,424		175,000
Repayments of long-term Federal Home Loan Bank borrowings	(100,064)		(149,575)


Dividends paid to common shareholders	(4,946)		(10,000)


Repurchase of common stock	—		(12,807)
Proceeds from stock option exercises	261		55
Proceeds from issuance of common stock	695		920
Tax withholding for share based compensation awards	(13)		(11)
Distributions paid to noncontrolling interests	—		(6)
Other equity adjustments	150		96

Net cash provided by/(used in) financing activities	541,549		(150,311)
Net increase/(decrease) in cash and cash equivalents	334,355		(230,765)
Cash and cash equivalents at beginning of year	1,055,588		292,479
Cash and cash equivalents at end of period	$	1,389,943	$	61,714

Supplemental disclosure of cash flow items:
Cash paid for interest	$	5,399	$	15,628
Cash paid for income taxes, (net of refunds received)	$	1,600	$	872

Change in unrealized gain/(loss) on Investment securities available-for-sale, net of tax	$	(17,993)	$	14,489
Change in unrealized gain/(loss) on cash flow hedges, net of tax	$	50	$	—

Non-cash transactions:


Loans charged-off	$	(297)	$	(528)

See accompanying notes to Unaudited Consolidated Financial Statements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1. Basis of Presentation and Summary of Significant Accounting Policies

Boston Private Financial Holdings, Inc. (the “Company” or “BPFH”), is a bank holding company (the “Holding Company”) with two 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 wholly-owned subsidiary of the Company. Boston Private Bank is a trust company chartered by the Commonwealth of Massachusetts, whose deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”). Boston Private Bank is a member of the Board of Governors of the Federal Reserve System (the "Federal Reserve") and primarily operates in three 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 the 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. The results of Dalton, Greiner, Hartman, Maher & Co., LLC (“DGHM”), a wholly-owned subsidiary of the Company, are included within the Holding Company and Eliminations for all periods presented. See Part II. Item 8. “Financial Statements and Supplementary Data - Note 3: Divestitures” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

The Company conducts substantially all of its business through its two 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”, if any, 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, 2020, as filed with the Securities and Exchange Commission (“SEC”).

On January 4, 2021, the Company announced that it entered into an Agreement and Plan of Merger (the "Merger Agreement") with SVB Financial Group ("SVB") pursuant to which SVB will acquire the Company. On May 4, 2021, the shareholders of the Company approved the Merger Agreement. The transaction is expected to close mid-2021, subject to the satisfaction of customary closing conditions, including the receipt of regulatory approvals.

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, 2020, as filed with the SEC. For interim reporting purposes, the Company follows the same significant accounting policies. There were no new accounting pronouncements from the Financial Accounting Standards Board (the “FASB”) that were adopted effective January 1, 2021 with a material impact to the Company.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

2. Earnings Per Share

The treasury stock method of calculating earnings per share (“EPS”) is presented below for the three months ended March 31, 2021 and 2020. The following tables present the computations of basic and diluted EPS:


	Three months ended March 31,
		2021		2020
		(In thousands, except share and per share data)
Basic earnings per share - Numerator:
Net income before attribution to noncontrolling interests		$	10,652	$	806
Less: Net income attributable to noncontrolling interests		—		6
Net income attributable to the Company		10,652		800
Decrease in noncontrolling interests’ redemption values (1)		—		414




Net income attributable to common shareholders, treasury stock method		$	10,652	$	1,214

Basic earnings per share - Denominator:
Weighted average basic common shares outstanding		82,429,162		83,005,064
Per share data - Basic earnings per share:


Total attributable to common shareholders		$	0.13	$	0.01


	Three months ended March 31,
		2021		2020
		(In thousands, except share and per share data)
Diluted earnings per share - Numerator:


Net income attributable to common shareholders, after assumed dilution		$	10,652	$	1,214
Diluted earnings per share - Denominator:
Weighted average basic common shares outstanding		82,429,162		83,005,064

Dilutive effect of: Time-based and market-based stock options, performance-based and time-based restricted stock units, and other dilutive securities (2)		1,504,945		312,977



Weighted average diluted common shares outstanding (2)		83,934,107		83,318,041
Per share data - Diluted earnings per share:


Total attributable to common shareholders		$	0.13	$	0.01
Dividends per share declared and paid on common stock		$	0.06	$	0.12

_____________________

(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, 2020 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 months ended March 31, 2021 and 2020 do not assume the conversion, exercise, or contingent issuance of the following shares for the following periods because the result would have been anti-dilutive for the periods indicated. This includes shares excluded from the computation of diluted EPS because the effect would have been anti-dilutive and out-of-the money options, where the exercise prices were greater than the average market price of common shares for the period, because their inclusion would have been anti-dilutive. As a result of the anti-dilution, the potential common shares excluded from the diluted EPS computation are as follows:


	Three months ended March 31,
			2021	2020
Anti-dilutive shares excluded from computation of average dilutive EPS		(In thousands)
Potential common shares from: options, restricted stock units, or other dilutive securities			333	1,254
Total anti-dilutive shares excluded from computation of average dilutive EPS			333	1,254

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

3. Reportable Segments

Management reporting

The Company has two reportable segments: (i) Private Banking and (ii) Wealth Management and Trust, as well as Boston Private Financial Holdings, Inc. within Holding Company and Eliminations. The financial performance of the Company is managed and evaluated according to these two 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 three 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 principally engaged in providing private banking services to high net worth individuals, privately-owned businesses and partnerships, and nonprofit organizations. In addition, the Bank is an active provider of financing for affordable housing, first-time homebuyers, economic development, social services, community revitalization, and small businesses.

Wealth Management and Trust

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

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."

Reconciliation of reportable segment items

The following tables present a reconciliation of the revenues, expenses, assets, and other significant items of the reportable segments as of and for the three months ended March 31, 2021 and 2020.


	Three months ended March 31,
		2021		2020
Private Banking (1)		(In thousands)
Net interest income		$	59,948	$	58,090
Fees and other income		4,075		1,108
Total revenue		64,023		59,198
Provision/(credit) for loan losses		(7,004)		16,962
Operating expense		44,460		42,588
Income/(loss) before income taxes		26,567		(352)
Income tax expense/(benefit)		4,720		(931)
Net income before attribution to noncontrolling interests		21,847		579


Net income attributable to the Company		$	21,847	$	579

Assets		$	10,485,377	$	8,692,069
Amortization of intangibles		$	189	$	77
Depreciation		$	2,971	$	2,626

Three months ended March 31,

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	2021		2020
Wealth Management and Trust (1)	(In thousands)
Net interest income	$	1	$	72
Fees and other income	19,165		18,485
Total revenue	19,166		18,557

Operating expense	17,455		15,449
Income before income taxes	1,711		3,108
Income tax expense	499		1,074
Net income before attribution to noncontrolling interests	1,212		2,034


Net income attributable to the Company	$	1,212	$	2,034



Assets	$	155,994	$	143,998
Amortization of intangibles	$	478	$	638
Depreciation	$	347	$	294


	Three months ended March 31,
		2021		2020
Holding Company and Eliminations (1)(2)		(In thousands)
Net interest income (3)		$	(472)	$	(905)
Fees and other income		2,930		1,928
Total revenue		2,458		1,023

Operating expense		14,008		2,871
Income/(loss) before income taxes		(11,550)		(1,848)
Income tax expense/(benefit)		857		(41)
Net income/(loss) before attribution to noncontrolling interests		(12,407)		$	(1,807)
Noncontrolling interests		—		6

Net income/(loss) attributable to the Company		$	(12,407)	$	(1,813)




Assets (including eliminations)		$	(102,879)	$	(89,741)

Depreciation		$	430	$	39


	Three months ended March 31,
		2021		2020
Total Company (1)		(In thousands)
Net interest income		$	59,477	$	57,257
Fees and other income		26,170		21,521
Total revenue		85,647		78,778
Provision/(credit) for loan losses		(7,004)		16,962
Operating expense		75,923		60,908
Income before income taxes		16,728		908
Income tax expense		6,076		102
Net income before attribution to noncontrolling interests		10,652		806
Noncontrolling interests		—		6

Net income attributable to the Company		$	10,652	$	800

Assets		$	10,538,492	$	8,746,326
Amortization of intangibles		$	667	$	715
Depreciation		$	3,748	$	2,959

_____________________

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

(2)The Holding Company and Eliminations segment includes the results of DGHM.

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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

4. Investments

The following table presents a summary of investment securities at March 31, 2021 and December 31, 2020:


	Amortized Cost		Unrealized				Fair Value
			Gains		Losses
	(In thousands)
At March 31, 2021
Investment securities available-for-sale at fair value:
U.S. government and agencies	$	19,964	$	650	$	—	$	20,614
Government-sponsored entities	137,866		3,619		—		141,485
Municipal bonds	325,312		17,668		(585)		342,395
Mortgage-backed securities (1)	836,253		12,198		(13,537)		834,914
Total	$	1,319,395	$	34,135	$	(14,122)	$	1,339,408

Investment securities held-to-maturity at amortized cost:

Mortgage-backed securities (1)	$	31,943	$	688	$	—	$	32,631
Total	$	31,943	$	688	$	—	$	32,631

Equity securities at fair value:
Money market mutual funds (2)	$	39,708	$	—	$	—	$	39,708
Total	$	39,708	$	—	$	—	$	39,708

At December 31, 2020
Investment securities available-for-sale at fair value:
U.S. government and agencies	$	19,962	$	1,022	$	—	$	20,984
Government-sponsored entities	142,985		4,801		—		147,786
Municipal bonds	324,422		22,177		(11)		346,588
Mortgage-backed securities (1)	711,144		17,805		(614)		728,335
Total	$	1,198,513	$	45,805	$	(625)	$	1,243,693

Investment securities held-to-maturity at amortized cost:

Mortgage-backed securities (1)	$	35,223	$	719	$	—	$	35,942
Total	$	35,223	$	719	$	—	$	35,942

Equity securities at fair value:
Money market mutual funds (2)	$	41,452	$	—	$	—	$	41,452
Total	$	41,452	$	—	$	—	$	41,452

_____________________

(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 Investment securities held-to-maturity portfolio to meet the "zero loss" expectation requirements. All Investment securities held-to-maturity owned by the Company are AAA- rated mortgage-backed securities that are backed by the guarantees of the U.S. government, U.S. government agencies or government-sponsored entities. The Company has experienced zero losses for these securities. In addition, as of March 31, 2021 and December 31, 2020, no Investment securities held-to-maturity were past due. Therefore, no credit allowance was recorded on the Investment securities held-to-maturity portfolio.

The Company evaluated the Investment securities available-for-sale on a security by security basis by assessing the extent and duration of unrealized loss positions, significant deterioration in the financial performance of the issuer, significant adverse changes in the market, or other factors that could raise significant concerns about the issuer's ability to continue as a going concern. The Company identified no security with impairment as of March 31, 2021 and December 31, 2020. Therefore, no credit allowance was booked on the Investment securities available-for-sale 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 Investment securities available-for-sale, based on contractual maturity, as of March 31, 2021. Certain securities are callable before their final maturity. Additionally, certain securities (such

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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.


	Investment Securities Available-for-sale
	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	78,206	$	79,090
After one, but within five years	258,270		267,989
After five, but within ten years	227,730		237,588
Greater than ten years	755,189		754,741
Total	$	1,319,395	$	1,339,408

The following table presents the maturities of Investment securities held-to-maturity, based on contractual maturity, as of March 31, 2021.


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


After five, but within ten years	$	26,376	$	26,970
Greater than ten years	5,567		5,661
Total	$	31,943	$	32,631

The following table presents the maturities of Equity securities, based on contractual maturity, as of March 31, 2021.


	Equity Securities
	Amortized Cost		Fair Value
	(In thousands)
Within one year	$	39,708	$	39,708



Total	$	39,708	$	39,708

During the three months ended March 31, 2021 and 2020, there were no sales of Investment securities available-for-sale, Investment securities held-to-maturity, or Equity securities.

The following tables present information regarding securities at March 31, 2021 and December 31, 2020 having temporary impairment, due to the fair values having declined below the amortized cost of the individual securities, and the time period that the investments have been temporarily impaired. As of March 31, 2021, there were no Investment securities held-to-maturity having temporary impairment.


	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		# of Securities
	(In thousands, except number of securities)
March 31, 2021
Investment securities available-for-sale


Municipal bonds	$	26,139	$	(585)	$	—	$	—	$	26,139	$	(585)	9
Mortgage-backed securities (1)	436,241		(13,456)		4,989		(81)		441,230		(13,537)		59

Total	$	462,380	$	(14,041)	$	4,989	$	(81)	$	467,369	$	(14,122)	68

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		# of Securities
	(In thousands, except number of securities)
December 31, 2020
Investment securities available-for-sale


Municipal bonds	$	2,344	$	(11)	$	—	$	—	$	2,344	$	(11)	2
Mortgage-backed securities (1)	126,545		(519)		5,411		(95)		131,956		(614)		41

Total	$	128,889	$	(530)	$	5,411	$	(95)	$	134,300	$	(625)	43

_____________________

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

As of March 31, 2021, the Mortgage-backed securities in the first table above had Standard and Poor’s credit ratings of at least AAA. As of March 31, 2021, the Municipal securities in the first table above had Standard and Poor's credit ratings of AAA and AA+. As of March 31, 2021, the Company determined that the unrealized losses on investments, since their purchase, is primarily attributed to changes in interest rates and not as a result of the deterioration of credit quality. As of March 31, 2021, 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 Bank 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 Bank makes these investments as an indirect subsidy that allows investors, such as the Bank, 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 Bank 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 no other investments with unrealized losses as of March 31, 2021 or December 31, 2020. The Bank’s other investments primarily include low-income housing partnerships which generate tax credits. The Bank also holds partnership interests in small business investment companies formed to provide financing to small businesses and to promote community development. The Bank had $74.0 million and $75.7 million in other investments included in Other assets as of March 31, 2021 and December 31, 2020, respectively.

5. Fair Value Measurements

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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall:


	As of March 31, 2021		Fair value measurements at reporting date using:
			Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Investment securities available-for-sale:
U.S. government and agencies	$	20,614	$	—	$	20,614	$	—
Government-sponsored entities	141,485		—		141,485		—
Municipal bonds	342,395		—		342,395		—
Mortgage-backed securities	834,914		—		834,914		—

Total	1,339,408		—		1,339,408		—
Equity securities	39,708		39,708		—		—
Derivatives - interest rate customer swaps	53,682		—		53,682		—

Derivatives - risk participation agreement	28		—		28		—

Trading securities held in the “rabbi trust” (1)	7,633		7,633		—		—

Liabilities:
Derivatives - interest rate customer swaps	$	54,529	$	—	$	54,529	$	—
Derivatives - interest rate swaps	157		—		157		—
Derivatives - risk participation agreement	211		—		211		—

Deferred compensation “rabbi trust” (1)	7,633		7,633		—		—


			Fair value measurements at reporting date using:
	As of December 31, 2020		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Investment securities available-for-sale:
U.S. government and agencies	$	20,984	$	—	$	20,984	$	—
Government-sponsored entities	147,786		—		147,786		—
Municipal bonds	346,588		—		346,588		—
Mortgage-backed securities	728,335		—		728,335		—

Total	1,243,693		—		1,243,693		—
Equity securities	41,452		41,452		—		—
Derivatives - interest rate customer swaps	83,255		—		83,255		—

Derivatives - risk participation agreements	49		—		49		—

Trading securities held in the “rabbi trust” (1)	7,204		7,204		—		—

Liabilities:
Derivatives - interest rate customer swaps	$	84,590	$	—	$	84,590	$	—
Derivatives - interest rate swaps	228		—		228		—
Derivatives - risk participation agreements	375		—		375		—

Deferred compensation “rabbi trust” (1)	7,204		7,204		—		—

_____________________

(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.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

As of March 31, 2021 and December 31, 2020, Investment securities available-for-sale consisted of U.S. government and agencies securities, Government-sponsored entities securities, Municipal bonds, and Mortgage-backed securities. Investment 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 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 the Small Business Administration's (the "SBA") loans (which are categorized as U.S. government and agencies securities). “Off-the-run” U.S. Treasury securities are Treasury bonds and notes issued before the most recently issued bond or note of a particular maturity. When Treasuries move to the secondary over-the-counter market, they become less frequently traded, therefore, they are considered “off-the-run.” No investments held as of March 31, 2021 or December 31, 2020 were categorized as Level 3.

As of March 31, 2021 and December 31, 2020, Equity securities consisted of Level 1 money market mutual funds that are valued with prices quoted in active markets.

In managing its interest rate and credit risk, the Company may utilize derivative instruments including interest rate customer swaps, interest rate swaps, and risk participation agreements. As a service to its customers, the Company may utilize derivative instruments including customer foreign exchange forward contracts to manage its foreign exchange risk, if any. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities, and therefore, they have been categorized as a Level 2 measurement as of March 31, 2021 and December 31, 2020. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 8: Derivatives and Hedging Activities” for further details.

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

The Company has determined that the majority of inputs used to value its derivatives are within Level 2. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy as of March 31, 2021 and December 31, 2020.

Trading securities held in the "rabbi trust" consist of publicly traded mutual fund investments that are valued at prices quoted in active markets. Therefore, they have been categorized as Level 1 as of March 31, 2021 and December 31, 2020.

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

There were no transfers for assets or liabilities recorded at fair value on a recurring basis as of March 31, 2021 and December 31, 2020. There were no Level 3 assets valued on a recurring basis at March 31, 2021 or December 31, 2020. 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 March 31, 2021 and March 31, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall.


	As of March 31, 2021		Fair value measurements at reporting date using:						Gain (losses) from fair value changes
			Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Three months ended March 31, 2021
	(In thousands)
Assets:
Impaired loans (1)	$	5,205	$	—	$	—	$	5,205	$	(435)

_____________________

(1)Collateral-dependent impaired loans held as of March 31, 2021 that had write-downs or recoveries in fair value or whose specific reserve changed during the three months ended March 31, 2021.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


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

_____________________

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

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

As of March 31, 2021

Fair Value

Valuation
Technique

Unobservable
Input

Range of
Inputs
Utilized

Weighted
Average of
Inputs
Utilized

(In thousands)

Impaired Loans

5,205

Appraisals of Collateral

Discount for costs to sell

5% - 10%

Appraisal adjustments

—%

As of March 31, 2020

Fair Value

Valuation
Technique

Unobservable
Input

Range of
Inputs
Utilized

Weighted
Average of
Inputs
Utilized

(In thousands)

Impaired Loans

Appraisals of Collateral

Discount for costs to sell

10% - 10%

10%

Appraisal adjustments

—%

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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following tables present the carrying values and fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis:


	As of March 31, 2021
	Book Value		Fair Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
FINANCIAL ASSETS:
Cash and cash equivalents	$	1,389,943	$	1,389,943	$	1,389,943	$	—	$	—
Investment securities held-to-maturity	31,943		32,631		—		32,631		—
Loans held for sale	8,434		8,431		—		8,431		—
Loans, net	7,142,315		7,035,003		—		—		7,035,003
Other financial assets	56,917		56,917		—		56,917		—
FINANCIAL LIABILITIES:
Deposits	9,147,618		9,148,568		—		9,148,568		—

Securities sold under agreements to repurchase	46,262		46,262		—		46,262		—

Federal Home Loan Bank borrowings	115,019		115,410		—		115,410		—
Junior subordinated debentures	106,363		69,863		—		—		69,863
Other financial liabilities	1,751		1,751		—		1,751		—


	As of December 31, 2020
	Book Value		Fair Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
FINANCIAL ASSETS:
Cash and cash equivalents	$	1,055,588	$	1,055,588	$	1,055,588	$	—	$	—
Investment securities held-to-maturity	35,223		35,942		—		35,942		—
Loans held for sale	17,421		17,782		—		17,782		—
Loans, net	7,023,071		6,980,202		—		—		6,980,202
Other financial assets	57,654		57,654		—		57,654		—
FINANCIAL LIABILITIES:
Deposits	8,595,366		8,596,193		—		8,596,193		—
Securities sold under agreements to repurchase	53,472		53,472		—		53,472		—

Federal Home Loan Bank borrowings	114,659		115,284		—		115,284		—
Junior subordinated debentures	106,363		69,863		—		—		69,863
Other financial liabilities	1,734		1,734		—		1,734		—

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

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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Cash and cash equivalents

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

Investment securities held-to-maturity

Investment securities held-to-maturity consist of Mortgage-backed securities as of March 31, 2021 and December 31, 2020. 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, Investment securities held-to-maturity Mortgage-backed securities are classified as Level 2 measurement.

There were no transfers of the Company's financial instruments that are not measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020.

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 of Boston (“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 Consolidated Balance Sheets, and these liabilities are classified as Level 2 measurements. The fair values disclosed are, by definition, equal to the amount payable on demand at the reporting date. The fair values for certificates of deposit are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on certificates of deposit with similar remaining maturities, and these liabilities are classified as Level 2 measurements.

Securities sold under agreements to repurchase

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

Federal funds purchased, if any

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

Federal Home Loan Bank borrowings

The fair values reported for FHLB borrowings are estimated based on the discounted value of contractual cash flows. The discount rate used is based on the Bank’s estimated current incremental borrowing rate for FHLB borrowings with 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.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Other financial liabilities

Other financial liabilities consist 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.

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


	March 31, 2021		December 31, 2020
	(In thousands)
Commercial and industrial	$	668,217	$	558,343
Paycheck Protection Program	351,170		312,356
Commercial tax-exempt	488,507		442,159

Commercial real estate	2,697,677		2,757,375
Construction and land	181,482		159,204
Residential	2,632,554		2,677,464
Home equity	71,752		77,364
Consumer and other	124,966		120,044
Total	$	7,216,325	$	7,104,309

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


	March 31, 2021		December 31, 2020
	(In thousands)
Commercial and industrial	$	4,766	$	4,394



Commercial real estate	5,859		5,261

Residential	14,475		13,780
Home equity	651		415
Consumer and other	13		1
Total	$	25,764	$	23,851

The Bank’s policy is to discontinue the accrual of interest on a loan when the collectability of principal or interest is in doubt. In certain instances, although infrequent, loans that have become 90 days or more past due may remain on accrual status if the value of the collateral securing the loan is sufficient to cover principal and interest and the loan is in the process of collection. There were no loans 90 days or more past due, but still accruing, as of both March 31, 2021 and December 31, 2020. The Bank’s policy for returning a loan to accrual status requires the loan to be brought current and for the client to show a history of making timely payments (generally six consecutive months). For troubled debt restructured loans (“TDRs”), a return to accrual status generally requires timely payments for a period of six months in accordance with the restructured loan terms, along with meeting other criteria.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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


	March 31, 2021
	Accruing Past Due				Nonaccrual Loans
	30-59 Days Past Due		60-89 Days Past Due		Total Accruing Past Due		Current		30-89 Days Past Due		90 Days or Greater Past Due		Total Non-Accrual Loans		Current Accruing Loans		Total Loans Receivable
	(In thousands)
Commercial and industrial	$	2,914	$	—	$	2,914	$	1,832	$	1,914	$	1,020	$	4,766	$	660,537	$	668,217
Paycheck Protection Program	—		—		—		—		—		—		—		351,170		351,170
Commercial tax-exempt	—		—		—		—		—		—		—		488,507		488,507
Commercial real estate	—		—		—		601		—		5,258		5,859		2,691,818		2,697,677
Construction and land	—		—		—		—		—		—		—		181,482		181,482
Residential	4,044		—		4,044		8,838		1,655		3,982		14,475		2,614,035		2,632,554
Home equity	104		—		104		611		—		40		651		70,997		71,752
Consumer and other	173		14		187		13		—		—		13		124,766		124,966
Total	$	7,235	$	14	$	7,249	$	11,895	$	3,569	$	10,300	$	25,764	$	7,183,312	$	7,216,325


	December 31, 2020
	Accruing Past Due				Nonaccrual Loans
	30-59 Days Past Due		60-89 Days Past Due		Total Accruing Past Due		Current		30-89 Days Past Due		90 Days or Greater Past Due		Total Non-Accrual Loans		Current Accruing Loans		Total Loans Receivable
	(In thousands)
Commercial and industrial	$	1,837	$	522	$	2,359	$	3,934	$	87	$	373	$	4,394	$	551,590	$	558,343
Paycheck Protection Program	—		—		—		—		—		—		—		312,356		312,356
Commercial tax-exempt	—		—		—		—		—		—		—		442,159		442,159
Commercial real estate	136		491		627		—		—		5,261		5,261		2,751,487		2,757,375
Construction and land	—		—		—		—		—		—		—		159,204		159,204
Residential	10,960		4,538		15,498		8,183		1,521		4,076		13,780		2,648,186		2,677,464
Home equity	1,107		256		1,363		228		—		187		415		75,586		77,364
Consumer and other	15		—		15		—		1		—		1		120,028		120,044
Total	$	14,055	$	5,807	$	19,862	$	12,345	$	1,609	$	9,897	$	23,851	$	7,060,596	$	7,104,309

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 past due status of a loan is determined in accordance with its contractual repayment terms. All loan types are reported past due when one scheduled payment is due and unpaid for 30 days or more. Loans with modified terms under the CARES Act are not considered past due if they are complying with the modified terms.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Credit quality indicators

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 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, 2020, 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 on an annual basis. In addition, those loans not considered to be "Pass" rated, are subject to a Loan Committee review on a quarterly basis. Lastly, on an ad-hoc basis as new information becomes available to the loan officer on the credit quality of the borrower, the credit quality indicators are reassessed.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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


	March 31, 2021
	By Loan Grade or Nonaccrual Status
	Pass		Special Mention		Accruing Classified (1)		Nonaccrual Loans		Total
	(In thousands)
Commercial and industrial	$	623,253	$	12,795	$	27,403	$	4,766	$	668,217
Paycheck Protection Program	351,170		—		—		—		351,170
Commercial tax-exempt	485,720		2,787		—		—		488,507
Commercial real estate	2,452,482		133,609		105,727		5,859		2,697,677
Construction and land	178,501		2,981		—		—		181,482
Residential	2,615,079		—		3,000		14,475		2,632,554
Home equity	71,101		—		—		651		71,752
Consumer and other	124,653		300		—		13		124,966
Total	$	6,901,959	$	152,472	$	136,130	$	25,764	$	7,216,325


	December 31, 2020
	By Loan Grade or Nonaccrual Status
	Pass		Special Mention		Accruing Classified (1)		Nonaccrual Loans		Total
	(In thousands)
Commercial and industrial	$	519,680	$	11,314	$	22,955	$	4,394	$	558,343
Paycheck Protection Program	312,356		—		—		—		312,356
Commercial tax-exempt	434,850		2,806		4,503		—		442,159
Commercial real estate	2,505,424		170,521		76,169		5,261		2,757,375
Construction and land	156,908		2,296		—		—		159,204
Residential	2,660,684		—		3,000		13,780		2,677,464
Home equity	76,693		—		256		415		77,364
Consumer and other	119,743		300		—		1		120,044
Total	$	6,786,338	$	187,237	$	106,883	$	23,851	$	7,104,309

______________________

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

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 loan origination year and class of receivable as of the dates indicated:


	March 31, 2021
	Loan Origination Year By Loan Grade or Nonaccrual Status
	2021		2020		2019		2018		2017		Prior		Revolving		Revolving Converted to Term (2)		Total
	(In thousands)
Commercial and industrial
Pass	$	22,837	$	92,124	$	71,592	$	57,958	$	12,334	$	56,994	$	301,010	$	8,404	$	623,253
Special Mention	—		321		4,919		952		—		2,588		3,764		251		12,795
Accruing Classified (1)	4,600		1,992		195		6,241		659		63		7,709		5,944		27,403
Nonaccrual	—		—		375		346		16		903		884		2,242		4,766
Total	$	27,437	$	94,437	$	77,081	$	65,497	$	13,009	$	60,548	$	313,367	$	16,841	$	668,217
Paycheck Protection Program
Pass	$	113,041	$	238,129	$	—	$	—	$	—	$	—	$	—	$	—	$	351,170



Total	$	113,041	$	238,129	$	—	$	—	$	—	$	—	$	—	$	—	$	351,170
Commercial tax-exempt
Pass	$	—	$	89,135	$	38,215	$	40,285	$	24,410	$	290,684	$	—	$	2,991	$	485,720
Special Mention	—		—		—		—		—		2,787		—		—		2,787


Total	$	—	$	89,135	$	38,215	$	40,285	$	24,410	$	293,471	$	—	$	2,991	$	488,507
Commercial real estate
Pass	$	65,639	$	264,428	$	444,717	$	248,987	$	301,316	$	1,022,447	$	90,477	$	14,471	$	2,452,482
Special Mention	—		18,253		15,913		2,317		17,744		79,382		—		—		133,609
Accruing Classified (1)	—		5,586		49,581		23,964		12,787		13,809		—		—		105,727
Nonaccrual	—		—		5,212		—		598		—		49		—		5,859
Total	$	65,639	$	288,267	$	515,423	$	275,268	$	332,445	$	1,115,638	$	90,526	$	14,471	$	2,697,677
Construction and land
Pass	$	6,774	$	57,925	$	73,762	$	21,550	$	16,262	$	2,228	$	—	$	—	$	178,501
Special Mention	—		—		—		2,981		—		—		—		—		2,981


Total	$	6,774	$	57,925	$	73,762	$	24,531	$	16,262	$	2,228	$	—	$	—	$	181,482
Residential
Pass	$	138,273	$	599,553	$	436,633	$	338,505	$	348,499	$	753,601	$	—	$	15	$	2,615,079

Accruing Classified (1)	—		—		—		—		—		3,000		—		—		3,000
Nonaccrual	—		—		603		473		2,373		11,026		—		—		14,475
Total	$	138,273	$	599,553	$	437,236	$	338,978	$	350,872	$	767,627	$	—	$	15	$	2,632,554
Home equity
Pass	$	—	$	—	$	—	$	—	$	—	$	1,367	$	59,919	$	9,815	$	71,101


Nonaccrual	—		—		—		—		—		256		139		256		651
Total	$	—	$	—	$	—	$	—	$	—	$	1,623	$	60,058	$	10,071	$	71,752
Consumer and other
Pass	$	964	$	653	$	147	$	19	$	—	$	593	$	122,277	$	—	$	124,653
Special Mention	—		—		—		—		—		—		300		—		300

Nonaccrual	—		—		—		—		—		—		13		—		13
Total	$	964	$	653	$	147	$	19	$	—	$	593	$	122,590	$	—	$	124,966
Total
Pass	$	347,528	$	1,341,947	$	1,065,066	$	707,304	$	702,821	$	2,127,914	$	573,683	$	35,696	$	6,901,959
Special Mention	—		18,574		20,832		6,250		17,744		84,757		4,064		251		152,472
Accruing Classified (1)	4,600		7,578		49,776		30,205		13,446		16,872		7,709		5,944		136,130
Nonaccrual	—		—		6,190		819		2,987		12,185		1,085		2,498		25,764
Total	$	352,128	$	1,368,099	$	1,141,864	$	744,578	$	736,998	$	2,241,728	$	586,541	$	44,389	$	7,216,325

______________________

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

(2) Amounts for revolving loans converted to term loans represent only those loans that have been converted to term loans after December 31, 2016. Due to data limitations, information prior to December 31, 2016 is unavailable.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)


	December 31, 2020
	Loan Origination Year By Loan Grade or Nonaccrual Status
	2020		2019		2018		2017		2016		Prior		Revolving		Revolving Converted to Term (2)		Total
	(In thousands)
Commercial and industrial
Pass	$	96,230	$	80,949	$	65,506	$	13,378	$	17,972	$	43,592	$	191,252	$	10,801	$	519,680
Special Mention	358		2,413		1,008		674		—		2,688		3,911		262		11,314
Accruing Classified (1)	1,184		223		6,247		—		—		110		8,683		6,508		22,955
Nonaccrual	—		141		350		—		813		14		1,012		2,064		4,394
Total	$	97,772	$	83,726	$	73,111	$	14,052	$	18,785	$	46,404	$	204,858	$	19,635	$	558,343
Paycheck Protection Program
Pass	$	312,356	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	312,356



Total	$	312,356	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	312,356
Commercial tax-exempt
Pass	$	53,225	$

BOSTON PRIVATE FINANCIAL HOLDINGS INC 10-Q