Quarterly Report (10-q)

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. ☐

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xbrli:shares bpfh:segment iso4217:USD iso4217:USD xbrli:shares bpfh:affiliate bpfh:market xbrli:pure bpfh:security bpfh:loan bpfh:swap bpfh:lease bpfh:derivative_contract

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, 2019


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

For the transition period from to .

Commission File Number: 001-35070

BOSTON PRIVATE FINANCIAL HOLDINGS, INC .

(Exact name of registrant as specified in its charter)



Massachusetts		04-2976299
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

Ten Post Office Square		02109
Boston,	Massachusetts
(Address of Principal Executive Offices)		(Zip Code)

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

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



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

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

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

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

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 August 1, 2019 :



Common Stock, Par Value $1.00 Per Share	83,902,110
(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	49
	Executive Summary	50
	Critical Accounting Policies	51
	Results of Operations	51
	Financial Condition	60
	Condensed Consolidated Balance Sheets and Discussion	60
	Loan Portfolio and Credit Quality	63
	Liquidity	68
	Capital Resources	71
	Recent Accounting Pronouncements	72
Item 3	Quantitative and Qualitative Disclosures about Market Risk	73
Item 4	Controls and Procedures	73
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	74
Item 1A	Risk Factors	74
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 3	Defaults Upon Senior Securities	74
Item 4	Mine Safety Disclosure s	74
Item 5	Other Information	74
Item 6	Exhibits	75
	Signature Page	76
	Certifications

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



BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
	June 30, 2019		December 31, 2018
	(In thousands, except share and per share data)
Assets:
Cash and cash equivalents	$	65,756	$	127,259
Investment securities available-for-sale (amortized cost of $960,550 and $1,018,774 at June 30, 2019 and December 31, 2018, respectively)	966,731		994,065
Investment securities held-to-maturity (fair value of $53,929 and $68,595 at June 30, 2019 and December 31, 2018, respectively)	54,482		70,438
Equity securities at fair value	19,092		14,228
Stock in Federal Home Loan Bank and Federal Reserve Bank	64,453		49,263
Loans held for sale	3,640		2,812
Total loans	7,080,260		6,893,158
Less: Allowance for loan losses	75,067		75,312
Net loans	7,005,193		6,817,846
Other real estate owned (“OREO”)	—		401
Premises and equipment, net	40,244		45,412
Goodwill	57,607		57,607
Intangible assets, net	10,884		12,227
Fees receivable	3,611		5,101
Accrued interest receivable	26,411		24,366
Deferred income taxes, net	17,183		26,638
Right-of-use assets	110,880		—
Other assets	266,706		246,962
Total assets	$	8,712,873	$	8,494,625
Liabilities:
Deposits	$	6,437,963	$	6,781,170
Securities sold under agreements to repurchase	62,372		36,928
Federal funds purchased	135,000		250,000
Federal Home Loan Bank borrowings	920,068		420,144
Junior subordinated debentures	106,363		106,363
Lease liabilities	126,740		—
Other liabilities	124,370		143,540
Total liabilities	7,912,876		7,738,145
Redeemable Noncontrolling Interests	1,786		2,526
Shareholders’ Equity:
Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 83,774,335 shares at June 30, 2019 and 83,655,651 shares at December 31, 2018	83,774		83,656
Additional paid-in capital	603,869		600,196
Retained earnings	106,443		87,821
Accumulated other comprehensive income/ (loss)	4,125		(17,719		)
Total shareholders’ equity	798,211		753,954
Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	8,712,873	$	8,494,625

See accompanying notes to consolidated financial statements.



BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three months ended June 30,					Six months ended June 30,
	2019		2018			2019			2018
	(In thousands, except share and per share data)
Interest and dividend income:
Loans	$	71,943	$	64,048		$	141,876		$	124,977
Taxable investment securities	1,121		1,501			2,306			3,011
Non-taxable investment securities	1,901		1,752			3,802			3,482
Mortgage-backed securities	2,706		3,049			5,603			6,227
Short-term investments and other	1,057		1,205			1,965			2,214
Total interest and dividend income	78,728		71,555			155,552			139,911
Interest expense:
Deposits	14,515		8,365			28,573			14,889
Federal Home Loan Bank borrowings	5,027		4,447			7,807			7,791
Junior subordinated debentures	1,080		1,008			2,201			1,854
Repurchase agreements and other short-term borrowings	646		190			1,173			449
Total interest expense	21,268		14,010			39,754			24,983
Net interest income	57,460		57,545			115,798			114,928
Provision/ (credit) for loan losses	1,363		453			(63		)	(1,342		)
Net interest income after provision/ (credit) for loan losses	56,097		57,092			115,861			116,270
Fees and other income:
Investment management fees	2,455		4,227			5,105			15,652
Wealth advisory fees	8,141		13,693			16,306			27,205
Wealth management and trust fees	10,771		11,169			21,664			23,320
Other banking fee income	2,867		2,745			5,366			5,018
Gain on sale of loans, net	58		63			131			137
Gain/ (loss) on sale of investments, net	—		7			—			(17		)
Gain/ (loss) on OREO, net	—		—			91			—
Other	88		191			965			523
Total fees and other income	24,380		32,095			49,628			71,838
Operating expense:
Salaries and employee benefits	32,706		39,433			68,432			86,517
Occupancy and equipment	7,852		8,229			16,200			15,977
Professional services	3,313		2,872			6,873			6,049
Marketing and business development	1,934		2,070			3,019			3,663
Information systems	5,137		6,770			10,997			12,656
Amortization of intangibles	672		749			1,344			1,499
FDIC insurance	585		708			1,245			1,452
Restructuring	—		—			1,646			—
Other	3,460		3,553			6,456			7,428
Total operating expense	55,659		64,384			116,212			135,241
Income before income taxes	24,818		24,803			49,277			52,867
Income tax expense	5,369		17,399			10,286			23,425
Net income from continuing operations	19,449		7,404			38,991			29,442
Net income/ (loss) from discontinued operations	—		(2		)	—			1,696
Net income before attribution to noncontrolling interests	19,449		7,402			38,991			31,138
(Continued)



BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019		2018
Less: Net income attributable to noncontrolling interests	69			968			169		2,018
Net income attributable to the Company	$	19,380		$	6,434		$	38,822	$	29,120
Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders	(816		)	(3,524		)	741		(3,547		)
Net income attributable to common shareholders for earnings per share calculation	$	18,564		$	2,910		$	39,563	$	25,573
Basic earnings per share attributable to common shareholders:
From continuing operations:	$	0.22		$	0.03		$	0.47	$	0.29
From discontinued operations:	$	—		$	—		$	—	$	0.02
Total attributable to common shareholders:	$	0.22		$	0.03		$	0.47	$	0.31
Weighted average basic common shares outstanding	83,565,780			83,509,115			83,426,213		83,304,573
Diluted earnings per share attributable to common shareholders:
From continuing operations:	$	0.22		$	0.03		$	0.47	$	0.28
From discontinued operations:	$	—		$	—		$	—	$	0.02
Total attributable to common shareholders:	$	0.22		$	0.03		$	0.47	$	0.30
Weighted average diluted common shares outstanding	84,048,972			85,413,575			84,036,050		85,221,974

See accompanying notes to consolidated financial statements.



BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(In thousands)
Net income attributable to the Company	$	19,380		$	6,434		$	38,822		$	29,120
Other comprehensive income/ (loss), net of tax:
Net unrealized gain/ (loss) on securities available-for-sale	10,665			(1,953		)	22,233			(14,848		)
Unrealized gain/ (loss) on cash flow hedges	(6		)	124			(33		)	712
Reclassification adjustment for net realized (gain)/ loss included in net income	(136		)	(187		)	(356		)	(201		)
Net unrealized gain/ (loss) on cash flow hedges	(142		)	(63		)	(389		)	511
Net unrealized gain/ (loss) on other	—			1			—			1
Other comprehensive income/ (loss), net of tax	10,523			(2,015		)	21,844			(14,336		)
Total comprehensive income attributable to the Company, net	$	29,903		$	4,419		$	60,666		$	14,784

See accompanying notes to consolidated financial statements.



BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
	Preferred Stock			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/ (Loss)			Non- controlling Interests			Total
	(In thousands, except share data)
Balance, December 31, 2017	$	47,753		$	84,208		$	607,929		$	49,526		$	(8,658	)	$	5,186		$	785,944
Reclassification due to change in accounting principles (1)	—			—			—			334			(334		)	—			—
Net income attributable to the Company	—			—			—			29,120			—			—			29,120
Other comprehensive income/ (loss), net	—			—			—			—			(14,336		)	—			(14,336		)
Dividends paid to common shareholders: $0.24 per share	—			—			—			(20,330		)	—			—			(20,330		)
Dividends paid to preferred shareholders	—			—			—			(1,738		)	—			—			(1,738		)
Net change in noncontrolling interests	—			—			—			—			—			(3,190		)	(3,190		)
Redemption of Series D preferred stock	(47,753		)	—			(2,247		)	—			—			—			(50,000		)
Net proceeds from issuance of:
63,434 shares of common stock	—			63			770			—			—			—			833
2,547 shares of incentive stock grants, net of 126,752 shares canceled or forfeited and 112,565 shares withheld for employee taxes	—			(236		)	(1,656		)	—			—			—			(1,892		)
Exercise of warrants	—			294			(273		)	—			—			—			21
Amortization of stock compensation and employee stock purchase plan	—			—			3,399			—			—			—			3,399
Stock options exercised	—			150			1,107			—			—			—			1,257
Other equity adjustments	—			—			4,889			—			—			—			4,889
Balance at June 30, 2018	$	—		$	84,479		$	613,918		$	56,912		$	(23,328	)	$	1,996		$	733,977

Balance, December 31, 2018	$	—		$	83,656		$	600,196		$	87,821		$	(17,719	)	$	—		$	753,954
Net income 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 stock	—			143			990			—			—			—			1,133
37,511 shares of incentive stock grants, net of 9,377 shares canceled or forfeited and 115,173 shares withheld for employee taxes	—			(88		)	(587		)	—			—			—			(675		)
Amortization of stock compensation and employee stock purchase plan	—			—			2,340			—			—			—			2,340
Stock options exercised	—			63			372			—			—			—			435
Other equity adjustments	—			—			558			—			—			—			558
Balance at June 30, 2019	$	—		$	83,774		$	603,869		$	106,443		$	4,125		$	—		$	798,211

_____________________

(1) Reclassification due to the adoption of ASU 2016-01 and ASU 2017-12. See Part I. Item 1. “Financial Statements and Supplementary Data - Note 15: Recent Accounting Pronouncements.”

See accompanying notes to consolidated financial statements.



BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Six months ended June 30,
	2019			2018
	(In thousands)
Cash flows from operating activities:
Net income attributable to the Company	$	38,822		$	29,120
Adjustments to arrive at net income from continuing operations
Net income attributable to noncontrolling interests	169			2,018
Less: Net income from discontinued operations	—			(1,696		)
Net income from continuing operations	38,991			29,442
Adjustments to reconcile net income from continuing operations to net cash provided by/ (used in) operating activities:
Depreciation and amortization	11,712			11,200
Net income attributable to noncontrolling interests	(169		)	(2,018		)
Stock compensation, net of cancellations	2,933			3,421
Provision/ (credit) for loan losses	(63		)	(1,342		)
Loans originated for sale	(17,103		)	(24,260		)
Proceeds from sale of loans held for sale	16,406			24,486
Deferred income tax expense/ (benefit)	959			8,374
Increase in right-of-use assets	(2,419		)	—
Increase in operating lease liabilities	2,476			—
Net decrease/ (increase) in other operating activities	(26,560		)	(17,613		)
Net cash provided by/ (used in) operating activities of continuing operations	27,163			31,690
Net cash provided by/ (used in) operating activities of discontinued operations	—			1,696
Net cash provided by/ (used in) operating activities	27,163			33,386
Cash flows from investing activities:
Investment securities available-for-sale:
Purchases	(9,845		)	(9,985		)
Sales	—			24
Maturities, calls, redemptions, and principal payments	64,230			65,712
Investment securities held-to-maturity:
Purchases	—			(11,876		)
Maturities, calls, and principal payments	15,872			7,288
Equity securities at fair value:
Purchases	(35,349		)	(22,674		)
Sales	30,485			35,526
(Investments)/ distributions in trusts, net	504			(329		)
Contingent considerations from divestitures	2,019			—
(Purchase)/ redemption of Federal Home Loan Bank and Federal Reserve Bank stock	(15,190		)	(10,154		)
Net increase in portfolio loans	(188,548		)	(263,692		)
Proceeds from recoveries of loans previously charged-off	577			593
Proceeds from sale of OREO	492			—
Capital expenditures	(811		)	(14,453		)
Proceeds from sale of affiliate	—			34,120
Net cash provided by/ (used in) investing activities	(135,564		)	(189,900		)
(Continued)



BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Six months ended June 30,
	2019			2018
	(In thousands)
Cash flows from financing activities:
Net increase/ (decrease) in deposits	(343,207		)	109,933
Net increase/ (decrease) in securities sold under agreements to repurchase	25,444			26,655
Net increase/ (decrease) in federal funds purchased	(115,000		)	(30,000		)
Net increase/ (decrease) in short-term Federal Home Loan Bank borrowings	340,000			350,000
Advances of long-term Federal Home Loan Bank borrowings	290,000			91,444
Repayments of long-term Federal Home Loan Bank borrowings	(130,076		)	(78,187		)
Redemption of Series D preferred stock	—			(50,000		)
Dividends paid to common shareholders	(20,200		)	(20,330		)
Dividends paid to preferred shareholders	—			(1,738		)
Proceeds from warrant exercises	—			21
Proceeds from stock option exercises	435			1,257
Proceeds from issuance of common stock	1,133			833
Tax withholding for share based compensation awards	(1,268		)	(1,914		)
Distributions paid to noncontrolling interests	(169		)	(1,958		)
Other equity adjustments	(194		)	4,496
Net cash provided by/ (used in) financing activities	46,898			400,512
Net increase/ (decrease) in cash and cash equivalents	(61,503		)	243,998
Cash and cash equivalents at beginning of year	127,259			120,541
Cash and cash equivalents at end of period	$	65,756		$	364,539
Supplemental disclosure of cash flow items:
Cash paid for interest	$	37,382		$	23,742
Cash paid for income taxes, (net of refunds received)	14,277			9,827
Change in unrealized gain/ (loss) on available-for-sale securities, net of tax	22,233			(14,848		)
Change in unrealized gain/ (loss) on cash flow hedges, net of tax	(389		)	511
Change in unrealized gain/ (loss) on other, net of tax	—			1
Non-cash transactions:
Loans transferred into other real estate owned from loan portfolio	—			108
Loans charged-off	(759		)	(529		)
Assets transferred into/ (out of) other assets held for sale	—			21

See accompanying notes to consolidated financial statements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1. Basis of Presentation and Summary of Significant Accounting Policies

Boston Private Financial Holdings, Inc. (the “Company” or “BPFH”), is a bank holding company (the “Holding Company”) with three reportable segments: Private Banking, Wealth Management and Trust, and Affiliate Partners.

The Private Banking segment is comprised of the banking operations of Boston Private Bank & Trust Company (the “Bank” or “Boston Private Bank”), a trust company chartered by The Commonwealth of Massachusetts, whose deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”), and a wholly-owned subsidiary of the Company. Boston Private Bank is a member of the Federal Reserve Bank of Boston. Boston Private Bank primarily operates in three geographic markets: New England, the San Francisco Bay Area, 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”), an independent registered investment adviser (“RIA”), which is a wholly-owned subsidiary of the Bank, and the trust operations of Boston Private Bank. The segment provides comprehensive wealth management solutions for high net worth individuals and families, including customized investment solutions, wealth planning, trust, and family office services. The Wealth Management and Trust segment operates in New England, Southeast Florida, the San Francisco Bay Area, and Southern California.

In 2019, the Affiliate Partners segment is comprised solely of Dalton, Greiner, Hartman, Maher & Co., LLC (“DGHM”) and KLS Professional Advisors Group, LLC (“KLS”), each of which are RIAs. DGHM serves the needs of pension funds, endowments, trusts, foundations and select institutions, mutual funds and high net worth individuals and their families throughout the United States and abroad. DGHM specializes in value-driven equity portfolios with products across the capitalization spectrum. DGHM is located in New York, with one affiliate administrative office in South Florida. KLS provides comprehensive, planning-based financial strategies to high net worth individuals and their families, and nonprofit institutions. The firm offers services such as fee-only financial planning, tax planning, tax preparation, estate and insurance planning, retirement planning, charitable planning and intergenerational gifting and succession planning. KLS manages investments covering a wide range of asset classes for both taxable and tax-exempt portfolios. KLS has offices in New York and Southern California. Together, the Wealth Management and Trust and Affiliate Partners segments are referred to as the “Wealth and Investment” businesses.

Prior to 2019, the Affiliate Partners segment had four consolidated affiliates included in its results: DGHM; KLS; Anchor Capital Advisors, LLC (“Anchor”); and Bingham, Osborn & Scarborough, LLC (“BOS”). In December 2017, the Company entered into an agreement to sell its entire ownership interest in Anchor in a transaction that closed in April 2018. In October 2018, the Company entered into an agreement to sell its entire ownership interest in BOS to the management team of BOS, which closed in December 2018. The results of Anchor and BOS for the periods held through the respective closing dates are included in the results of the Affiliate Partners segment and the Company.

The Company conducts substantially all of its business through its three reportable segments. All significant intercompany accounts and transactions have been eliminated in consolidation, and the portion of income allocated to the owners of DGHM, Anchor, and BOS other than the Company is included in “Net income attributable to noncontrolling interests” in the consolidated statements of operations for the periods owned. Redeemable noncontrolling interests in the consolidated balance sheets reflect the maximum redemption value of agreements with other owners.

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, 2018 , as filed with the Securities and Exchange Commission (“SEC”). Prior period amounts are reclassified whenever necessary to conform to the current period presentation. The Company identified an immaterial change relating to the presentation of equity securities at fair value in the Consolidated Statement of Cash Flows. The impact was a change in the presentation of cash flows relating to

$22.7 million of purchases and $35.5 million of sales for the six months ended June 30, 2018, which were previously presented as investment securities available-for-sale but should have been presented as equity securities at fair value, within investing activities in the Consolidated Statement of Cash Flows.

The Company’s significant accounting policies are described in Part II. Item 8. “Financial Statements and Supplementary Data - Note 1: Basis of Presentation and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 , as filed with the SEC. For interim reporting purposes, the Company follows the same significant accounting policies, except for the following new accounting pronouncements from the Financial Accounting Standards Board (the “FASB”) that were adopted effective January 1, 2019:

•

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). This update and the related amendments to Topic 842 require lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”); ASU No. 2018-11, Leases (Topic 842), Targeted Improvements (“ASU 2018-11”); and ASU No. 2019-01, Leases (Topic 842), Codification Improvements (“ASU 2019-01”). The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard was effective on January 1, 2019 and the Company adopted these provisions on January 1, 2019. The most significant effects relate to the recognition of new ROU assets and lease liabilities on the balance sheet for real estate operating leases, providing significant new disclosures about leasing activities, and the impact of additional assets on certain financial measures such as capital ratios and return on average asset ratios. Additionally, the Company elected the package of practical expedients, as prescribed by ASU 2016-02. The Company elected not to reassess whether any expired or existing contracts are or contain leases nor the lease classification of those leases. The Company also elected not to reassess any initial direct costs for any existing leases. On adoption, the Company recognized approximately $124 million of lease liabilities and $108 million of ROU assets.

•

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

•

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

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 and six months ended June 30, 2019 and 2018 . The following tables present the computations of basic and diluted EPS:



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019		2018
	(In thousands, except share and per share data)
Basic earnings per share - Numerator:
Net income from continuing operations	$	19,449		$	7,404		$	38,991	$	29,442
Less: Net income attributable to noncontrolling interests	69			968			169		2,018
Net income from continuing operations attributable to the Company	19,380			6,436			38,822		27,424
Decrease/ (increase) in noncontrolling interests’ redemption values (1)	(816		)	(408		)	741		438
Dividends on preferred stock	—			(3,116		)	—		(3,985		)
Total adjustments to income attributable to common shareholders	(816		)	(3,524		)	741		(3,547		)
Net income from continuing operations attributable to common shareholders, treasury stock method	18,564			2,912			39,563		23,877
Net income from discontinued operations	—			(2		)	—		1,696
Net income attributable to common shareholders, treasury stock method	$	18,564		$	2,910		$	39,563	$	25,573

Basic earnings per share - Denominator:
Weighted average basic common shares outstanding	83,565,780			83,509,115			83,426,213		83,304,573
Per share data - Basic earnings per share from:
Continuing operations	$	0.22		$	0.03		$	0.47	$	0.29
Discontinued operations	$	—		$	—		$	—	$	0.02
Total attributable to common shareholders	$	0.22		$	0.03		$	0.47	$	0.31



	Three months ended June 30,					Six months ended June 30,
	2019		2018			2019		2018
	(In thousands, except share and per share data)
Diluted earnings per share - Numerator:
Net income from continuing operations attributable to common shareholders, after assumed dilution	$	18,564	$	2,912		$	39,563	$	23,877
Net income from discontinued operations	—		(2		)	—		1,696
Net income attributable to common shareholders, after assumed dilution	$	18,564	$	2,910		$	39,563	$	25,573
Diluted earnings per share - Denominator:
Weighted average basic common shares outstanding	83,565,780		83,509,115			83,426,213		83,304,573
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		1,076,049			609,837		1,112,938
Warrants to purchase common stock	—		828,411			—		804,463
Dilutive common shares	483,192		1,904,460			609,837		1,917,401
Weighted average diluted common shares outstanding (2)	84,048,972		85,413,575			84,036,050		85,221,974
Per share data - Diluted earnings per share from:
Continuing operations	$	0.22	$	0.03		$	0.47	$	0.28
Discontinued operations	$	—	$	—		$	—	$	0.02
Total attributable to common shareholders	$	0.22	$	0.03		$	0.47	$	0.30
Dividends per share declared and paid on common stock	$	0.12	$	0.12		$	0.24	$	0.24

_____________________

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

(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, 2018 for a description of the redemption values related to the redeemable noncontrolling interests. In accordance with the FASB Accounting Standards Codification Distinguishing Liabilities from Equity (“ASC 480”), an increase in redemption value from period to period reduces income attributable to common shareholders. Decreases in redemption value from period to period increase income attributable to common shareholders, but only to the extent that the cumulative change in redemption value remains a cumulative increase since adoption of this standard in the first quarter of 2009.


(2)	The diluted EPS computations for the three and six months ended June 30, 2019 and 2018 do not assume the conversion, exercise, or contingent issuance of the following shares for the following periods because the result would have been anti-dilutive for the periods indicated. As a result of the anti-dilution, the potential common shares excluded from the diluted EPS computation are as follows:



	Three months ended June 30,		Six months ended June 30,
	2019	2018	2019	2018
Shares excluded due to exercise price exceeding the average market price of common shares during the period (total outstanding):	(In thousands)
Potential common shares from:
Options, restricted stock, or other dilutive securities	750	16	820	136
Total shares excluded due to exercise price exceeding the average market price of common shares during the period	750	16	820	136

3. Reportable Segments

Management Reporting

The Company has three reportable segments: Private Banking, Wealth Management and Trust, and Affiliate Partners, as well as the Parent Company (Boston Private Financial Holdings, Inc.) (the “Holding Company”). The financial performance of the Company is managed and evaluated by these three segments. The segments are managed separately as a result of the concentrations in each function.

The Company’s CEO is the Company’s Chief Operating Decision Maker (“CODM”). The Company’s CEO is also the CEO of the Bank which comprises the Private Banking segment. The President of Private Banking, Wealth Management and Trust oversees the Wealth Management and Trust segment and reports to the CEO of the Company. The day-to-day activities of the Company’s affiliates (within the Affiliate Partners segment) are managed by the affiliate CEOs. Executive management has authority with respect to the allocation of capital within their segments, management oversight responsibility, performance assessments, and overall authority and accountability for all of the affiliates within their segment. The Company’s CEO communicates with the affiliate CEOs and the President of Private Banking, Wealth Management and Trust regarding profit and loss responsibility, strategic planning, priority setting and other matters. The Company’s Chief Financial Officer reviews all affiliate 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, the San Francisco Bay Area, and Southern California.

The Bank currently conducts business under the name of Boston Private Bank & Trust Company in all markets. The Bank is chartered by The Commonwealth of Massachusetts and is insured by the FDIC. The Bank is principally engaged in providing private banking services to high net worth individuals, privately owned 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 segment offers investment management, wealth management, family office, and trust services to individuals, families, and institutions. The Wealth Management and Trust segment operates in New England, Southeast Florida, the San Francisco Bay Area, and Southern California.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Affiliate Partners

The Affiliate Partners segment is comprised of DGHM and KLS, each of which are RIAs.

DGHM serves the needs of pension funds, endowments, trusts, foundations and select institutions, mutual funds and high net worth individuals and their families throughout the United States and abroad. DGHM specializes in value-driven equity portfolios with products across the capitalization spectrum. DGHM is located in New York, with one affiliate administrative office in South Florida.

KLS provides comprehensive, planning-based financial strategies to high net worth individuals and their families, and nonprofit institutions. The services the firm offers include fee-only financial planning, tax planning, tax preparation, estate and insurance planning, retirement planning, charitable planning and intergenerational gifting and succession planning. KLS manages investments covering a wide range of asset classes for both taxable and tax-exempt portfolios. KLS is located in New York and Southern California.

The Company previously had four reportable segments whereby the Affiliate Partners segment was bifurcated into two segments: Investment Management and Wealth Advisors. At the start of 2018, both the Investment Management and Wealth Advisors segments each had two consolidated affiliates. On April 13, 2018, the Company completed the sale of its ownership interest in Anchor. Anchor was previously in the Investment Management segment. On December 3, 2018, the Company completed the sale of its ownership interest in BOS. BOS was previously in the Wealth Advisory segment. The results of Anchor and BOS for the periods owned are included in the results of the Affiliate Partners segment and the Company. See Part II. Item 8. “Financial Statements and Supplementary Data - Note 3: Asset Sales and Divestitures” in the Company’s

Annual Report on Form 10-K for the year ended December 31, 2018 for additional information.

Measurement of Segment Profit and Assets

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

Reconciliation of Reportable Segment Items

The following tables present a reconciliation of the revenues, profits, assets, and other significant items of reportable segments as of and for the three and six months ended June 30, 2019 and 2018 . Interest expense on junior subordinated debentures is reported at the Holding Company.



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019			2018
Private Banking	(In thousands)
Net interest income	$	58,419	$	58,447	$	117,756		$	116,578
Fees and other income	2,804		2,825		6,062			5,300
Total revenues	61,223		61,272		123,818			121,878
Provision/ (credit) for loan losses	1,363		453		(63		)	(1,342		)
Operating expense (1)	37,805		39,670		79,122			79,297
Income before income taxes	22,055		21,149		44,759			43,923
Income tax expense	4,878		3,981		9,308			8,594
Net income from continuing operations	17,177		17,168		35,451			35,329
Net income attributable to the Company	$	17,177	$	17,168	$	35,451		$	35,329

Assets	$	8,619,399	$	8,637,774	$	8,619,399		$	8,637,774
Depreciation	$	2,373	$	2,031	$	5,043		$	3,615

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Wealth Management and Trust	(In thousands)
Fees and other income	$	10,815	$	11,293	$	21,776	$	23,567
Operating expense (1)	9,438		11,058		19,681		21,752
Income before income taxes	1,377		235		2,095		1,815
Income tax expense	417		34		620		509
Net income from continuing operations	960		201		1,475		1,306
Net income attributable to the Company	$	960	$	201	$	1,475	$	1,306

Assets	$	89,659	$	73,202	$	89,659	$	73,202
Amortization of intangibles	$	672	$	701	$	1,344	$	1,402
Depreciation	$	252	$	334	$	539	$	655



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Affiliate Partners (2)	(In thousands)
Net interest income	$	104	$	79	$	210	$	131
Fees and other income	10,596		17,951		21,411		42,898
Total revenues	10,700		18,030		21,621		43,029
Operating expense	7,070		12,347		14,543		31,408
Income before income taxes	3,630		5,683		7,078		11,621
Income tax expense	1,199		1,463		2,299		2,920
Net income from continuing operations	2,431		4,220		4,779		8,701
Noncontrolling interests	69		968		169		2,018
Net income attributable to the Company	$	2,362	$	3,252	$	4,610	$	6,683

Assets	$	71,466	$	83,364	$	71,466	$	83,364
Amortization of intangibles	$	—	$	48	$	—	$	97
Depreciation	$	130	$	196	$	257	$	393



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Holding Company and Eliminations	(In thousands)
Net interest income	$	(1,063	)	$	(981	)	$	(2,168	)	$	(1,781	)
Fees and other income	165			26			379			73
Total revenues	(898		)	(955		)	(1,789		)	(1,708		)
Operating expense	1,346			1,309			2,866			2,784
Income/ (loss) before income taxes	(2,244		)	(2,264		)	(4,655		)	(4,492		)
Income tax expense/ (benefit)	(1,125		)	11,921			(1,941		)	11,402
Net income/ (loss) from continuing operations	(1,119		)	(14,185		)	(2,714		)	(15,894		)
Discontinued operations (3)	—			(2		)	—			1,696
Net income/ (loss) attributable to the Company	$	(1,119	)	$	(14,187	)	$	(2,714	)	$	(14,198	)

Assets (including eliminations)	$	(67,651	)	$	(78,137	)	$	(67,651	)	$	(78,137	)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Three months ended June 30,					Six months ended June 30,
	2019		2018			2019			2018
Total Company (2)	(In thousands)
Net interest income	$	57,460	$	57,545		$	115,798		$	114,928
Fees and other income	24,380		32,095			49,628			71,838
Total revenues	81,840		89,640			165,426			186,766
Provision/ (credit) for loan losses	1,363		453			(63		)	(1,342		)
Operating expense	55,659		64,384			116,212			135,241
Income before income taxes	24,818		24,803			49,277			52,867
Income tax expense	5,369		17,399			10,286			23,425
Net income from continuing operations	19,449		7,404			38,991			29,442
Noncontrolling interests	69		968			169			2,018
Discontinued operations (3)	—		(2		)	—			1,696
Net income attributable to the Company	$	19,380	$	6,434		$	38,822		$	29,120

Assets	$	8,712,873	$	8,716,203		$	8,712,873		$	8,716,203
Amortization of intangibles	$	672	$	749		$	1,344		$	1,499
Depreciation	$	2,755	$	2,561		$	5,839		$	4,663

_____________________


(1)	Operating expense related to the Private Banking and Wealth Management & Trust segments includes restructuring expense for the six months ended June 30, 2019 of $1.3 million and $0.4 million , respectively.


(2)	The results of Anchor and BOS for the periods owned in 2018 are included in the results of the Affiliate Partners segment and the Company.

(3)

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

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, 2019 and December 31, 2018 :



	Amortized Cost		Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
	(In thousands)
At June 30, 2019
Available-for-sale securities at fair value:
U.S. government and agencies	$	20,047	$	8	$	(114	)	$	19,941
Government-sponsored entities	181,442		601		(65		)	181,978
Municipal bonds	314,235		10,002		(92		)	324,145
Mortgage-backed securities (1)	444,826		969		(5,128		)	440,667
Total	$	960,550	$	11,580	$	(5,399	)	$	966,731

Held-to-maturity securities at amortized cost:
Mortgage-backed securities (1)	$	54,482	$	24	$	(577	)	$	53,929
Total	$	54,482	$	24	$	(577	)	$	53,929

Equity securities at fair value:
Money market mutual funds (2)	$	19,092	$	—	$	—		$	19,092
Total	$	19,092	$	—	$	—		$	19,092

At December 31, 2018
Available-for-sale securities at fair value:
U.S. government and agencies	$	30,043	$	—	$	(929	)	$	29,114
Government-sponsored entities	211,655		—		(3,952		)	207,703
Municipal bonds	309,837		2,223		(3,101		)	308,959
Mortgage-backed securities (1)	467,239		214		(19,164		)	448,289
Total	$	1,018,774	$	2,437	$	(27,146	)	$	994,065

Held-to-maturity securities at amortized cost:
U.S. government and agencies	$	9,898	$	2	$	—		$	9,900
Mortgage-backed securities (1)	60,540		—		(1,845		)	58,695
Total	$	70,438	$	2	$	(1,845	)	$	68,595

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

_____________________


(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 following table presents the maturities of available-for-sale investment securities, based on contractual maturity, as of June 30, 2019 . 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.

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	$	43,131	$	43,118
After one, but within five years	266,198		266,819
After five, but within ten years	284,020		285,133
Greater than ten years	367,201		371,661
Total	$	960,550	$	966,731

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



	Held-to-maturity Securities
	Amortized Cost		Fair Value
	(In thousands)
After five, but within ten years	$	44,565	$	44,132
Greater than ten years	9,917		9,797
Total	$	54,482	$	53,929

The following table presents the proceeds from sales, gross realized gains and gross realized losses for available-for-sale securities that were sold or called during the following periods as well as changes in the fair value of equity securities as prescribed by ASC 321, Investment - Equity Securities . ASU 2016-01, Recognition and Measurements of Financial Assets and Financial Liabilities was adopted on January 1, 2018, at which time a cumulative effect adjustment of $339 thousand was recorded to reclassify the amount of accumulated unrealized gains related to equity securities from accumulated other comprehensive income to retained earnings.



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
	(In thousands)
Proceeds from sales	$	—	$	19,673	$	—	$	35,550
Realized gains	—		—		—		7
Realized losses	—		—		—		(1		)
Change in unrealized gain/ (loss) on equity securities reflected in the consolidated statement of operations	—		7		—		(23		)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following tables present information regarding securities at June 30, 2019 and December 31, 2018 having temporary impairment, due to the fair values having declined below the amortized cost of the individual securities, and the time period that the investments have been temporarily impaired.



	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			# of Securities
	(In thousands, except number of securities)
June 30, 2019
Available-for-sale securities
U.S. government and agencies	$	—	$	—		$	9,934	$	(114	)	$	9,934	$	(114	)	2
Government-sponsored entities	—		—			70,069		(65		)	70,069		(65		)	13
Municipal bonds	7,794		(12		)	14,930		(80		)	22,724		(92		)	16
Mortgage-backed securities (1) (3)	54		—			353,127		(5,128		)	353,181		(5,128		)	89
Total	$	7,848	$	(12	)	$	448,060	$	(5,387	)	$	455,908	$	(5,399	)	120

Held-to-maturity securities
Mortgage-backed securities (1)	$	—	$	—		$	45,951	$	(577	)	$	45,951	$	(577	)	14
Total	$	—	$	—		$	45,951	$	(577	)	$	45,951	$	(577	)	14



	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, 2018
Available-for-sale securities
U.S. government and agencies	$	—	$	—		$	29,114	$	(929	)	$	29,114	$	(929	)	5
Government-sponsored entities	—		—			207,703		(3,952		)	207,703		(3,952		)	32
Municipal bonds	25,394		(128		)	130,209		(2,973		)	155,603		(3,101		)	85
Mortgage-backed securities (1)	2,469		(11		)	433,888		(19,153		)	436,357		(19,164		)	110
Total	$	27,863	$	(139	)	$	800,914	$	(27,007	)	$	828,777	$	(27,146	)	232

Held-to-maturity securities
Mortgage-backed securities (1)	$	—	$	—		$	58,695	$	(1,845	)	$	58,695	$	(1,845	)	16
Total	$	—	$	—		$	58,695	$	(1,845	)	$	58,695	$	(1,845	)	16

_____________________


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

(3) The amount of unrealized losses less than 12 months rounds to zero.

As of June 30, 2019 , the U.S. government and agencies securities, government-sponsored entities securities and mortgage-backed securities in the first table above had current Standard and Poor’s credit ratings of AA. The municipal bonds in the first table above had a current Standard and Poor’s credit rating of at least AA-. As of June 30, 2019 , the Company does not consider these investments other-than-temporarily impaired as the decline in fair value on investments is primarily attributed to changes in interest rates and not as a result of the deterioration of credit quality. As of June 30, 2019 , 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.

Cost method 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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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

Cost method investments, which are included in other assets, can be temporarily impaired when the fair values decline below the amortized costs of the individual investments. There were no cost method investments with unrealized losses as of June 30, 2019 or December 31, 2018 . The Company’s cost method investments primarily include low income housing partnerships which generate tax credits. The Company also holds partnership interests in venture capital funds formed to provide financing to small businesses and to promote community development. The Company had $56.6 million and $54.4 million in cost method investments included in other assets as of June 30, 2019 and December 31, 2018 , 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.

The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 , aggregated by the level in the fair value hierarchy within which those measurements fall:



	As of June 30, 2019		Fair value measurements at reporting date using:
			Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Available-for-sale securities:
U.S. government and agencies	$	19,941	$	—	$	19,941	$	—
Government-sponsored entities	181,978		—		181,978		—
Municipal bonds	324,145		—		324,145		—
Mortgage-backed securities	440,667		—		440,667		—
Total available-for-sale securities	966,731		—		966,731		—
Equity securities	19,092		19,092		—		—
Derivatives - interest rate customer swaps	33,835		—		33,835		—
Derivatives - interest rate swaps	5		—		5		—
Derivatives - risk participation agreement	12		—		12		—
Trading securities held in the “rabbi trust” (1)	6,335		6,335		—		—

Liabilities:
Derivatives - interest rate customer swaps	$	34,586	$	—	$	34,586	$	—
Derivatives - risk participation agreement	272		—		272		—
Deferred compensation “rabbi trust” (1)	6,335		6,335		—		—

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



			Fair value measurements at reporting date using:
	As of December 31, 2018		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Available-for-sale securities:
U.S. government and agencies	$	29,114	$	—	$	29,114	$	—
Government-sponsored entities	207,703		—		207,703		—
Municipal bonds	308,959		—		308,959		—
Mortgage-backed securities	448,289		—		448,289		—
Total available-for-sale securities	994,065		—		994,065		—
Equity securities	14,228		14,228		—		—
Derivatives - interest rate customer swaps	21,889		—		21,889		—
Derivatives - interest rate swaps	553		—		553		—
Derivatives - risk participation agreements	2		—		2		—
Trading securities held in the “rabbi trust” (1)	6,839		6,839		—		—

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

_____________________

(1)

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

As of June 30, 2019 and December 31, 2018 , available-for-sale securities consisted of U.S. government and agencies securities, government-sponsored entities securities, municipal bonds, and mortgage-backed securities. Available-for-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 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 June 30, 2019 or December 31, 2018 were categorized as Level 3.

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

In managing its interest rate and credit risk, the Company utilizes 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, 2019 and December 31, 2018 . 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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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, 2019 and December 31, 2018 .

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, 2019 and December 31, 2018 .

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

There were no Level 3 assets valued on a recurring basis at June 30, 2019 or December 31, 2018 .

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

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



	As of June 30, 2019		Fair value measurements at reporting date using:						Gain (losses) from fair value changes
	As of June 30, 2019		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Three months ended June 30, 2019		Six months ended June 30, 2019
	(In thousands)
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 in fair value or whose specific reserve changed during the six months ended June 30, 2019 .



	As of June 30, 2018		Fair value measurements at reporting date using:						Gain (losses) from fair value changes
	As of June 30, 2018		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Three months ended June 30, 2018			Six months ended June 30, 2018
	(In thousands)
Assets:
Impaired loans (1)	$	3,051	$	—	$	—	$	3,051	$	(711	)	$	(927	)

_____________________


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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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, 2019
	Fair Value		Valuation Technique	Unobservable Input	Range of Inputs Utilized	Weighted Average of Inputs Utilized
	(In thousands)
Impaired Loans	$	1,144	Appraisals of Collateral	Discount for costs to sell	0% - 5%	4%
Impaired Loans	$	1,144	Appraisals of Collateral	Appraisal adjustments	—%	—%



	As of June 30, 2018
	Fair Value		Valuation Technique	Unobservable Input	Range of Inputs Utilized	Weighted Average of Inputs Utilized
	(In thousands)
Impaired Loans	$	3,051	Appraisals of Collateral	Discount for costs to sell	0% - 24%	9%
Impaired Loans	$	3,051	Appraisals of Collateral	Appraisal adjustments	0% - 20%	7%

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.

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, 2019
	Book Value		Fair Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
FINANCIAL ASSETS:
Cash and cash equivalents	$	65,756	$	65,756	$	65,756	$	—	$	—
Investment securities held-to-maturity	54,482		53,929		—		53,929		—
Loans held for sale	3,640		3,713		—		3,713		—
Loans, net	7,005,193		6,988,207		—		—		6,988,207
Other financial assets	94,475		94,475		—		94,475		—
FINANCIAL LIABILITIES:
Deposits	6,437,963		6,437,827		—		6,437,827		—
Securities sold under agreements to repurchase	62,372		62,372		—		62,372		—
Federal funds purchased	135,000		135,000		—		135,000		—
Federal Home Loan Bank borrowings	920,068		920,615		—		920,615		—
Junior subordinated debentures	106,363		96,363		—		—		96,363
Other financial liabilities	4,386		4,386		—		4,386		—

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



	As of December 31, 2018
	Book Value		Fair Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
FINANCIAL ASSETS:
Cash and cash equivalents	$	127,259	$	127,259	$	127,259	$	—	$	—
Investment securities held-to-maturity	70,438		68,595		—		68,595		—
Loans held for sale	2,812		2,837		—		2,837		—
Loans, net	6,817,846		6,734,216		—		—		6,734,216
Other financial assets	78,730		78,730		—		78,730		—
FINANCIAL LIABILITIES:
Deposits	6,781,170		6,777,928		—		6,777,928		—
Securities sold under agreements to repurchase	36,928		36,928		—		36,928		—
Federal funds purchased	250,000		250,000		—		250,000		—
Federal Home Loan Bank borrowings	420,144		417,092		—		417,092		—
Junior subordinated debentures	106,363		96,363		—		—		96,363
Other financial liabilities	2,001		2,001		—		2,001		—

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.

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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Loans held for sale

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

Loans, net

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

Other financial assets

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

Deposits

The fair values reported for transaction accounts (demand, NOW, savings, and money market) equal their respective book values reported on the balance sheet 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

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

Federal Home Loan Bank borrowings

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

Junior subordinated debentures

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

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.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Financial instruments with off-balance sheet risk

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

6. Loan Portfolio and Credit Quality

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



	June 30, 2019		December 31, 2018
	(In thousands)
Commercial and industrial	$	656,186	$	623,037
Commercial tax-exempt	450,307		451,671
Total commercial and industrial	1,106,493		1,074,708
Commercial real estate	2,530,556		2,395,692
Construction and land	200,378		240,306
Residential	3,025,758		2,948,973
Home equity	89,930		90,421
Consumer and other	127,145		143,058
Total	$	7,080,260	$	6,893,158

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



	June 30, 2019		December 31, 2018
	(In thousands)
Commercial and industrial	$	1,567	$	2,554
Commercial tax-exempt	—		—
Total commercial and industrial	1,567		2,554
Commercial real estate	—		546
Residential	12,572		7,914
Home equity	3,004		3,031
Consumer and other	12		12
Total	$	17,155	$	14,057

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 residential loan 90 days or more past due, but still accruing, as of June 30, 2019 and no loans 90 days or more past due, but still accruing, as of December 31, 2018 . The residential loan 90 days or more past due as of June 30, 2019 was paid off in July 2019. The Bank’s policy for returning a loan to accrual status requires the loan to be brought current and for the client to show a history of making timely payments (generally six consecutive months). For troubled debt restructured loans (“TDRs”), a return to accrual status generally requires timely payments for a period of six months in accordance with the restructured loan terms, along with meeting other criteria.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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



	June 30, 2019
	Accruing Past Due						Nonaccrual Loans
	30-59 Days Past Due		60-89 Days Past Due		Total Accruing Past Due		Current		30-89 Days Past Due		90 Days or Greater Past Due		Total Non-Accrual Loans		Current Accruing Loans		Total Loans Receivable
	(In thousands)
Commercial and industrial	$	251	$	—	$	251	$	1,194	$	155	$	218	$	1,567	$	654,368	$	656,186
Commercial tax-exempt	—		—		—		—		—		—		—		450,307		450,307
Commercial real estate	982		—		982		—		—		—		—		2,529,574		2,530,556
Construction and land	—		—		—		—		—		—		—		200,378		200,378
Residential (1)	—		334		1,266		4,238		2,961		5,373		12,572		3,011,920		3,025,758
Home equity	—		—		—		385		274		2,345		3,004		86,926		89,930
Consumer and other	867		—		867		7		—		5		12		126,266		127,145
Total	$	2,100	$	334	$	3,366	$	5,824	$	3,390	$	7,941	$	17,155	$	7,059,739	$	7,080,260

___________________


(1)	There was one residential loan that was 90+ days past due and accruing for $0.9 million . For this reason, the total accruing past due amount will not equal the sum of 30-59 days past due and 60-89 days past due. This loan was paid off in July 2019.



	December 31, 2018
	Accruing Past Due						Nonaccrual Loans
	30-59 Days Past Due		60-89 Days Past Due		Total Accruing Past Due		Current		30-89 Days Past Due		90 Days or Greater Past Due		Total Non-Accrual Loans		Current Accruing Loans		Total Loans Receivable
	(In thousands)
Commercial and industrial	$	9,794	$	—	$	9,794	$	979	$	—	$	1,575	$	2,554	$	610,689	$	623,037
Commercial tax-exempt	—		—		—		—		—		—		—		451,671		451,671
Commercial real estate	—		—		—		—		—		546		546		2,395,146		2,395,692
Construction and land	—		—		—		—		—		—		—		240,306		240,306
Residential	6,477		366		6,843		2,639		716		4,559		7,914		2,934,216		2,948,973
Home equity	252		350		602		—		48		2,983		3,031		86,788		90,421
Consumer and other	17		5,043		5,060		8		4		—		12		137,986		143,058
Total	$	16,540	$	5,759	$	22,299	$	3,626	$	768	$	9,663	$	14,057	$	6,856,802	$	6,893,158

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

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

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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Credit Quality Indicators

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

A summary of the rating system used by the Bank is included here from Part II. Item 8. “Financial Statements and Supplementary Data - Note 1: Basis of Presentation and Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 , 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.

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, 2019
	By Loan Grade or Nonaccrual Status
	Pass		Special Mention		Accruing Classified (1)		Nonaccrual Loans		Total
	(In thousands)
Commercial and industrial	$	617,524	$	14,058	$	23,037	$	1,567	$	656,186
Commercial tax-exempt	443,577		2,679		4,051		—		450,307
Commercial real estate	2,452,821		53,940		23,795		—		2,530,556
Construction and land	200,378		—		—		—		200,378
Residential	3,010,186		—		3,000		12,572		3,025,758
Home equity	86,926		—		—		3,004		89,930
Consumer and other	127,133		—		—		12		127,145
Total	$	6,938,545	$	70,677	$	53,883	$	17,155	$	7,080,260

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



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

______________________


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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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



	As of and for the three and six months ended June 30, 2019
	Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		QTD Average Recorded Investment		YTD Average Recorded Investment		QTD Interest Income Recognized while Impaired		YTD Interest Income Recognized while Impaired
	(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		—		—		—		—
Residential	15,127		15,387		n/a		14,079		12,605		103		240
Home equity	2,497		3,059		n/a		2,359		2,018		1		1
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	4		$	20
Commercial tax-exempt	—		—		—		—		—		—		—
Commercial real estate	—		—		—		—		—		—		—
Construction and land	—		—		—		—		—		—		—
Residential	778		778		74		733		752		6		13
Home equity	274		274		24		69		776		1		1
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	—		—		—		—		—		—		—
Residential	15,905		16,165		74		14,812		13,357		109		253
Home equity	2,771		3,333		24		2,428		2,794		2		2
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.

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, 2018
	Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		QTD Average Recorded Investment		YTD Average Recorded Investment		QTD Interest Income Recognized while Impaired		YTD Interest Income Recognized while Impaired
	(In thousands)
With no related allowance recorded:
Commercial and industrial	$	2,015	$	2,954	n/a		$	2,048	$	1,835	$	14	$	22
Commercial tax-exempt	—		—		n/a		—		—		—		—
Commercial real estate	2,932		4,695		n/a		2,939		2,460		25		50
Construction and land	—		—		n/a		82		94		16		16
Residential	10,455		10,815		n/a		10,587		10,009		87		189
Home equity	—		—		n/a		1,311		1,509		15		24
Consumer and other	—		—		n/a		—		—		—		—
Subtotal	$	15,402	$	18,464	n/a		$	16,967	$	15,907	$	157	$	301
With an allowance recorded:
Commercial and industrial	$	303	$	403	$	134	$	76	$	147	$	—	$	2
Commercial tax-exempt	—		—		—		—		—		—		—
Commercial real estate	5,426		5,855		187		5,467		6,055		72		228
Construction and land	—		—		—		—		—		—		—
Residential	816		816		82		818		821		6		12
Home equity	1,769		1,769		597		469		284		—		—
Consumer and other	—		—		—		—		18		—		3
Subtotal	$	8,314	$	8,843	$	1,000	$	6,830	$	7,325	$	78	$	245
Total:
Commercial and industrial	$	2,318	$	3,357	$	134	$	2,124	$	1,982	$	14	$	24
Commercial tax-exempt	—		—		—		—		—		—		—
Commercial real estate	8,358		10,550		187		8,406		8,515		97		278
Construction and land	—		—		—		82		94		16		16
Residential	11,271		11,631		82		11,405		10,830		93		201
Home equity	1,769		1,769		597		1,780		1,793		15		24
Consumer and other	—		—		—		—		18		—		3
Total	$	23,716	$	27,307	$	1,000	$	23,797	$	23,232	$	235	$	546

_____________________


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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



	As of and for the year ended December 31, 2018
	Recorded Investment (1)		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized while Impaired
	(In thousands)
With no related allowance recorded:
Commercial and industrial	$	1,435	$	2,397	n/a		$	1,614	$	69
Commercial tax-exempt	—		—		n/a		—		—
Commercial real estate	546		900		n/a		2,002		1,544
Construction and land	—		—		n/a		50		16
Residential	8,403		8,764		n/a		9,638		408
Home equity	990		990		n/a		1,041		24
Consumer and other	—		—		n/a		—		—
Subtotal	$	11,374	$	13,051	n/a		$	14,345	$	2,061
With an allowance recorded:
Commercial and industrial	$	1,770	$	1,972	$	598	$	631	$	15
Commercial tax-exempt	—		—		—		—		—
Commercial real estate	—		—		—		4,087		705
Construction and land	—		—		—		—		—
Residential	780		780		75		785		22
Home equity	1,719		1,719		562		959		11
Consumer and other	—		—		—		10		3
Subtotal	$	4,269	$	4,471	$	1,235	$	6,472	$	756
Total:
Commercial and industrial	$	3,205	$	4,369	$	598	$	2,245	$	84
Commercial tax-exempt	—		—		—		—		—
Commercial real estate	546		900		—		6,089		2,249
Construction and land	—		—		—		50		16
Residential	9,183		9,544		75		10,423		430
Home equity	2,709		2,709		562		2,000		35
Consumer and other	—		—		—		10		3
Total	$	15,643	$	17,522	$	1,235	$	20,817	$	2,817

_____________________


(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.

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 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.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

As of June 30, 2019 , the Bank has pledged $2.6 billion of loans in a blanket lien agreement with the FHLB. The Bank also has $459.6 million of loans pledged as collateral at the FRB for access to their discount window. As of December 31, 2018 , the Bank had pledged $2.6 billion of loans to the FHLB and $540.0 million of loans at the FRB.

The Bank may, under certain circumstances, restructure loans as a concession to borrowers who are experiencing financial difficulty. Such loans are classified as TDRs and are included in impaired loans. TDRs typically result from the Bank’s loss mitigation activities which, among other things, could include rate reductions, payment extensions, and/or principal forgiveness. As of June 30, 2019 and December 31, 2018 , TDRs totaled $10.6 million and $8.0 million , respectively. As of June 30, 2019 , $6.9 million of the $10.6 million in TDRs were on accrual status. As of December 31, 2018 , $3.8 million of the $8.0 million in TDRs were on accrual status.

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

The following tables present the balance of TDRs that were restructured or defaulted during the periods indicated:



	As of and for the three months ended June 30, 2019
	Restructured Current Quarter					TDRs that defaulted in the Current Quarter that were restructured in prior twelve months
	# of Loans	Pre- modification recorded investment		Post- modification recorded investment		# of Loans	Post- modification recorded investment
	(In thousands, except number of loans)
Commercial and industrial	—	$	—	$	—	—	$	—
Commercial tax exempt	—	—		—		—	—
Commercial real estate	—	—		—		—	—
Construction and land	—	—		—		—	—
Residential (1)	1	222		222		—	—
Home equity (1)	1	274		274		—	—
Consumer and other	—	—		—		—	—
Total	2	$	496	$	496	—	$	—

_____________________


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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



	As of and for the six months ended June 30, 2019
	Restructured Year to Date					TDRs that defaulted in the Year to Date that were restructured in prior twelve months
	# of Loans	Pre- modification recorded investment		Post- modification recorded investment		# of Loans	Post- modification recorded investment
	(In thousands, except number of loans)
Commercial and industrial	1	$	179	$	179	—	$	—
Commercial tax exempt	—	—		—		—	—
Commercial real estate	—	—		—		—	—
Construction and land	—	—		—		—	—
Residential	2	3,222		3,222		—	—
Home equity	1	274		274		—	—
Consumer and other	—	—		—		—	—
Total	4	$	3,675	$	3,675	—	$	—



	As of and for the three and six months ended June 30, 2019
	Extension of term			Temporary rate reduction			Payment deferral			Combination of concessions (1)			Total concessions
	# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment		# of Loans	Post- modifi- cation recorded invest- ment
	(Dollars in thousands)
Commercial and industrial	1	$	179	—	$	—	—	$	—	—	$	—	1	$	179
Commercial real estate	—	—		—	—		—	—		—	—		—	—
Construction and land	—	—		—	—		—	—		—	—		—	—
Residential	—	—		2	3,222		—	—		—	—		2	3,222
Home equity	—	—		1	274		—	—		—	—		1	274
Consumer and other	—	—		—	—		—	—		—	—		—	—

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, 2018
	Restructured Current Quarter					TDRs that defaulted in the Current Quarter that were restructured in prior twelve months
	# of Loans	Pre- modification recorded investment		Post- modification recorded investment		# of Loans	Post- modification recorded investment
	(Dollars in thousands)
Commercial and industrial (1)	1	$	100	$	100	—	$	—
Commercial real estate	—	—		—		—	—
Construction and land	—	—		—		—	—
Residential	—	—		—		—	—
Home equity	—	—		—		—	—
Consumer and other	—	—		—		—	—
Total	1	$	100	$	100	—	$	—

______________________

(1) Represents the following type of concession: extension of term.

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, 2019		December 31, 2018
	(In thousands)
Commercial and industrial	$	9,269	$	8,024
Commercial tax-exempt	18,824		19,105
Commercial real estate	44,613		60,688
Construction and land	20,135		39,966
Total loan participations serviced for others	$	92,841	$	127,783

Residential	$	30,394	$	33,168
Total loans serviced for others	$	30,394	$	33,168

Total loans include deferred loan origination (fees)/ costs, net, of $8.4 million and $8.5 million as of June 30, 2019 and December 31, 2018 , respectively.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

7. Allowance for Loan Losses

The allowance for loan losses, which is reported as a reduction of outstanding loan balances, totaled $75.1 million and $75.3 million as of June 30, 2019 and December 31, 2018 , respectively.

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



	As of and for the three months ended June 30,						As of and for the six months ended June 30,
	2019			2018			2019			2018
	(In thousands)
Allowance for loan losses, beginning of period:
Commercial and industrial	$	15,687		$	11,443		$	15,912		$	11,735
Commercial real estate	41,813			46,116			41,934			46,820
Construction and land	5,353			4,533			6,022			4,949
Residential	10,057			9,896			10,026			9,773
Home equity	796			784			1,284			835
Consumer and other	108			126			134			630
Total allowance for loan losses, beginning of period	73,814			72,898			75,312			74,742
Loans charged-off:
Commercial and industrial	(195		)	(125		)	(195		)	(339		)
Commercial real estate	—			—			—			(135		)
Construction and land	—			—			—			—
Residential	—			—			—			(16		)
Home equity	—			—			(562		)	—
Consumer and other	—			(15		)	(2		)	(39		)
Total charge-offs	(195		)	(140		)	(759		)	(529		)

Recoveries on loans previously charged-off:
Commercial and industrial	40			152			228			234
Commercial real estate	30			50			219			175
Construction and land	—			—			—			—
Residential	—			27			100			27
Home equity	—			—			—			1
Consumer and other	15			24			30			156
Total recoveries	85			253			577			593
Provision/ (credit) for loan losses:
Commercial and industrial	550			911			137			751
Commercial real estate	1,898			(983		)	1,588			(1,677		)
Construction and land	(573		)	80			(1,242		)	(336		)
Residential	(502		)	(119		)	(571		)	20
Home equity	9			552			83			500
Consumer and other	(19		)	12			(58		)	(600		)
Total provision/(credit) for loan losses	1,363			453			(63		)	(1,342		)

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,
	2019		2018		2019		2018
	(In thousands)
Allowance for loan losses, end of period:
Commercial and industrial	16,082		12,381		16,082		12,381
Commercial real estate	43,741		45,183		43,741		45,183
Construction and land	4,780		4,613		4,780		4,613
Residential	9,555		9,804		9,555		9,804
Home equity	805		1,336		805		1,336
Consumer and other	104		147		104		147
Total allowance for loan losses, end of period	$	75,067	$	73,464	$	75,067	$	73,464

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

The provision/ (credit) for loan losses and related allowance balance in the allowance for loan losses for tax-exempt commercial and industrial loans is included with commercial and industrial loans. The provision/ (credit) for loan losses and related allowance balance in the allowance for loan losses for tax-exempt commercial real estate loans is included with commercial real estate loans. There were no charge-offs or recoveries, for any period presented, for both commercial and industrial and commercial real estate tax-exempt loans.

The following tables present the Company’s allowance for loan losses and loan portfolio as of June 30, 2019 and December 31, 2018 by portfolio segment, disaggregated by method of impairment analysis. The Company had no loans acquired with deteriorated credit quality as of June 30, 2019 or December 31, 2018 .



	June 30, 2019
	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
	Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses
	(In thousands)
Commercial and industrial	$	2,110	$	93	$	1,104,383	$	15,989	$	1,106,493	$	16,082
Commercial real estate	—		—		2,530,556		43,741		2,530,556		43,741
Construction and land	—		—		200,378		4,780		200,378		4,780
Residential	15,905		74		3,009,853		9,481		3,025,758		9,555
Home equity	2,771		24		87,159		781		89,930		805
Consumer and other	—		—		127,145		104		127,145		104
Total	$	20,786	$	191	$	7,059,474	$	74,876	$	7,080,260	$	75,067

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



	December 31, 2018
	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
	Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses		Recorded investment (loan balance)		Allowance for loan losses
	(In thousands)
Commercial and industrial	$	3,205	$	598	$	1,071,503	$	15,314	$	1,074,708	$	15,912
Commercial real estate	546		—		2,395,146		41,934		2,395,692		41,934
Construction and land	—		—		240,306		6,022		240,306		6,022
Residential	9,183		75		2,939,790		9,951		2,948,973		10,026
Home equity	2,709		562		87,712		722		90,421		1,284
Consumer and other	—		—		143,058		134		143,058		134
Total	$	15,643	$	1,235	$	6,877,515	$	74,077	$	6,893,158	$	75,312

8. Derivatives and Hedging Activities

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

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



	June 30, 2019						December 31, 2018
	Asset derivatives			Liability derivatives			Asset derivatives			Liability derivatives
	Balance sheet location	Fair value (1)		Balance sheet location	Fair value (1)		Balance sheet location	Fair value (1)		Balance sheet location	Fair value (1)
	(In thousands)
Derivatives designated as hedging instruments:
Interest rate swaps	Other assets	$	5	Other liabilities	$	—	Other assets	$	553	Other liabilities	$	—
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	33,835		Other liabilities	34,586		Other assets	21,889		Other liabilities	22,385
Risk participation agreements	Other assets	12		Other liabilities	272		Other assets	2		Other liabilities	152
Total		$	33,852		$	34,858		$	22,444		$	22,537

_____________________


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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table presents the effect of the Company’s derivative financial instruments on accumulated other comprehensive income for the three and six months ended June 30, 2019 and 2018 :



Derivatives in cash flow hedging relationships	Amount of gain or (loss) recognized in OCI on derivatives					Location of gain or (loss) reclassified from accumulated OCI into income	Amount of gain or (loss) reclassified from accumulated OCI into income
	Three months ended June 30,						Three months ended June 30,
	2019			2018			2019		2018
	(In thousands)						(In thousands)
Interest rate swaps	$	(9	)	$	175	Interest expense	$	191	$	263
Total	$	(9	)	$	175		$	191	$	263



Derivatives in cash flow hedging relationships	Amount of gain or (loss) recognized in OCI on derivatives (1)					Location of gain or (loss) reclassified from accumulated OCI into income	Amount of gain or (loss) reclassified from accumulated OCI into income
	Six months ended June 30,						Six months ended June 30,
	2019			2018			2019		2018
	(In thousands)						(In thousands)
Interest rate swaps	$	(47	)	$	1,011	Interest expense	$	502	$	284
Total	$	(47	)	$	1,011		$	502	$	284

____________________

(1)

The guidance in ASU 2017-12 requires that amounts in accumulated other comprehensive income that are included in the assessment of effectiveness should be reclassified into earnings in the same period in which the hedged forecasted transactions impact earnings. Transition guidance for this ASU further states that upon adoption, previously recorded cumulative ineffectiveness for cash flow hedges existing at the adoption date be eliminated by means of a cumulative-effect adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the initial application date. There was a $5 thousand reclassification related to the adoption of ASU 2017-12 effective January 1, 2018.

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, 2019 and 2018 :



	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,
		2019		2018		2019		2018
		(In thousands)
Total amounts of income and (expense) line items presented in the statement of operations in which the effects of fair value or cash flow hedges are recorded	Interest expense	$	191	$	263	$	502	$	284
The effects of cash flow hedging:
Gain or (loss) on cash flow hedging relationships in ASC 815
Interest contracts - amount of gain or (loss) reclassified from accumulated other comprehensive income into income	Interest expense	$	191	$	263	$	502	$	284

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, 2019 and December 31, 2018 .

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, 2019 and December 31, 2018 .

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

Certain of the Bank’s agreements with its derivative counterparties contain provisions where, if specified, events or conditions occur that materially change the Bank’s creditworthiness in an adverse manner, the Bank may be required to fully collateralize its obligations under the derivative instruments. The Bank was in compliance with these provisions as of June 30, 2019 and December 31, 2018 .

As of June 30, 2019 and December 31, 2018 , the termination amounts related to collateral determinations of derivatives in a liability position were $33.1 million and $2.2 million , respectively. The Company has minimum collateral posting thresholds with its derivative counterparties. As of June 30, 2019 , the Company had pledged securities with a market value of $35.2 million against its obligations under these agreements. As of December 31, 2018 , the Company had no pledged securities. The collateral posted is typically greater than the current liability position; however, due to timing of liability position changes at period end, the funding of a collateral shortfall may take place shortly following period end.

Cash Flow Hedges 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 entered into one interest rate swap during 2013 with an effective date of August 1, 2013. This 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 swap has a notional amount of $25 million and a term of six years from its respective effective date. The interest rate swap will effectively fix the Bank’s interest payments on $25 million of its LIBOR-indexed deposit liabilities at a rate of 2.03% .

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. 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. During the next twelve months, the Company estimates that an immaterial amount will be reclassified as a decrease in interest expense. The Company monitors the risk of counterparty default on an ongoing basis.

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 relationships and are, therefore, marked-to-market through earnings each period. Because the derivatives have mirror-image contractual terms, the changes in fair value substantially offset through earnings. The net effect on earnings is primarily driven by changes in the credit valuation adjustment (“CVA”). The CVA represents the dollar amount of fair value adjustment related to nonperformance risk of both the Bank and its counterparties. Fees earned in connection with the execution of derivatives related to this program are recognized in the consolidated statement of operations in other income. The Bank has interest rate swaps and caps related to this program with an aggregate notional amount of $1.4 billion as of June 30, 2019 and $1.3 billion as of December 31, 2018. As of June 30, 2019 , there were no foreign currency exchange contracts and as of December 31, 2018 , there were foreign currency exchange contracts with an aggregate notional amount of $0.1 million related to this program.

In addition, as a participant lender, the Bank has guaranteed performance on the pro-rated portion of swaps executed by other financial institutions. As the participant lender, the Bank is providing a partial guarantee, but is not a direct party to the related swap transactions. The Bank has no obligations under the risk participation agreements unless the borrower defaults on their swap transaction with the lead bank and the swap is in a liability position to the borrower. In that instance, the Bank has agreed to pay the lead bank a portion of the swap’s termination value at the time of the default. The derivative transactions entered into as part of these agreements are not designated, as per ASC 815, as qualifying hedging relationships and are, therefore, marked-to-market through earnings each period. As of June 30, 2019 , there were seven of these risk participation transactions with an aggregate notional amount of $59.4 million and, as of December 31, 2018 , there were seven of these risk participation transactions with an aggregate notional amount of $59.8 million .

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

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, 2019 , there were four of these risk participation transactions with a pro-rated notional amount of $20.6 million and, as of December 31, 2018 , there were four of these risk participation transactions with a pro-rated notional amount of $20.7 million .

The following table presents the effect of the Bank’s derivative financial instruments not designated as hedging instruments in the consolidated statement of operations for the three and six months ended June 30, 2019 and 2018 .



		Amount of gain or (loss), net, recognized in income on derivatives
Derivatives not designated as hedging instruments	Location of gain or (loss) recognized in income on derivatives	Three months ended June 30,						Six months ended June 30,
Derivatives not designated as hedging instruments		2019			2018			2019			2018
		(In thousands)
Interest rate swaps	Other income/ (expense)	$	(64	)	$	(139	)	$	(255	)	$	(47	)
Risk participation agreements	Other income/ (expense)	(213		)	47			(109		)	213
Total		$	(277	)	$	(92	)	$	(364	)	$	166

9. Income Taxes

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



	Six months ended June 30,
	2019			2018
	(In thousands)
Income from continuing operations:
Income before income taxes	$	49,277		$	52,867
Income tax expense	10,286			23,425
Net income from continuing operations	$	38,991		$	29,442
Effective tax rate, continuing operations	20.9		%	44.3		%

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

Less: Income attributable to noncontrolling interests:
Income before income taxes	$	169		$	2,018
Income tax expense	—			—
Net income attributable to noncontrolling interests	$	169		$	2,018
Effective tax rate, noncontrolling interests	—		%	—		%

Income attributable to the Company
Income before income taxes	$	49,108		$	53,237
Income tax expense	10,286			24,117
Net income attributable to the Company	$	38,822		$	29,120
Effective tax rate attributable to the Company	20.9		%	45.3		%

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

The effective tax rate for continuing operations for the six months ended June 30, 2019 of 20.9% , with related tax expense of $10.3 million , was calculated based on a projected 2019 annual effective tax rate. The effective tax rate was less than the statutory rate of 21% due primarily to earnings from tax-exempt investments and income tax credits. These savings were partially offset by state and local income taxes and the accounting for investments in affordable housing projects.

The effective tax rate for continuing operations for the six months ended June 30, 2018 of 44.3% , with related tax expense of $23.4 million , was calculated based on a projected 2018 annual effective tax rate. The effective tax rate was more than the statutory rate of 21% due primarily to the sale of Anchor and state and local income taxes. These items were partially offset by earnings from tax-exempt investments and income tax credits. The Company recorded tax expense of $12.7 million on the sale of Anchor in April 2018, which was primarily due to a book-to-tax basis difference associated with nondeductible goodwill.

The effective tax rate for continuing operations for the six months ended June 30, 2019 is less than the effective tax rate for the same period in 2018 primarily as a result of the $12.7 million tax expense that was recorded on the sale of Anchor in April 2018.

10. Noncontrolling Interests

Noncontrolling interests consist of equity owned by management of the Company’s respective majority-owned affiliates, DGHM, BOS, and Anchor for the periods in which the Company had an ownership interest in them. Net income attributable to noncontrolling interests in the consolidated statements of operations represents the net income allocated to the noncontrolling interest owners of the affiliates. Net income allocated to the noncontrolling interest owners was $0.1 million and $1.0 million for the three-month periods ended June 30, 2019 and 2018 , respectively, and $0.2 million and $2.0 million for the six-month periods ended June 30, 2019 and 2018 , respectively.

On the consolidated balance sheets, noncontrolling interests are included as the sum of the capital and undistributed profits allocated to the noncontrolling interest owners. Typically, this balance is included in a company’s permanent shareholders’ equity in the consolidated balance sheets. When the noncontrolling interest owners’ rights include certain redemption features, as described in ASC 480, Distinguishing Liabilities from Equity , such redeemable noncontrolling interests are classified as mezzanine equity and are not included in permanent shareholders’ equity. Due to the redemption features of the noncontrolling interests, the Company had redeemable noncontrolling interests held in mezzanine equity in the accompanying consolidated balance sheets of $1.8 million and $2.5 million as of June 30, 2019 and December 31, 2018 , respectively. The aggregate amount of such redeemable noncontrolling equity interests are recorded at the estimated maximum redemption values. The Company had no noncontrolling interests included in permanent shareholder’s equity at June 30, 2019 and December 31, 2018 .

Each non-wholly owned affiliate operating agreement provides the Company and/or the noncontrolling interests with contingent call or put redemption features used for the orderly transfer of noncontrolling equity interests between the affiliate noncontrolling interest owners and the Company at either a contractually predetermined fair value; multiple of earnings before interest, taxes, depreciation, and amortization (“EBITDA”); or fair value. The Company may liquidate these noncontrolling interests in cash, shares of the Company’s common stock, or other forms of consideration dependent on the operating agreement. These agreements are discussed in Part II. Item 8. “Financial Statements and Supplementary Data - Note 14: Noncontrolling Interests” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 .

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

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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Three months ended			Six months ended
	June 30, 2019			June 30, 2019
	Redeemable noncontrolling interests			Redeemable noncontrolling interests
	(In thousands)
Noncontrolling interests at beginning of period	$	662		$	2,526
Net income attributable to noncontrolling interests	69			169
Distributions	(69		)	(169		)
Purchases/ (sales) of ownership interests	—			12
Amortization of equity compensation	9			26
Adjustments to fair value	1,115			(778		)
Noncontrolling interests at end of period	$	1,786		$	1,786



	Three months ended						Six months ended
	June 30, 2018						June 30, 2018
	Redeemable noncontrolling interests			Noncontrolling interests			Redeemable noncontrolling interests			Noncontrolling interests
	(In thousands)
Noncontrolling interests at beginning of period	$	16,322		$	4,825		$	17,461		$	5,186
Net income attributable to noncontrolling interests	732			236			1,491			527
Distributions	(712		)	(227		)	(1,449		)	(509		)
Purchases/ (sales) of ownership interests	(6,520		)	(3,051		)	(6,353		)	(3,051		)
Amortization of equity compensation	126			—			248			161
Adjustments to fair value	799			213			(651		)	(318		)
Noncontrolling interests at end of period	$	10,747		$	1,996		$	10,747		$	1,996

11. Accumulated Other Comprehensive Income

The following table presents a summary of the amounts reclassified from accumulated other comprehensive income/ (loss) for the three and six months ended June 30, 2019 and 2018 :



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
	2019			2018			2019			2018			Affected line item in Statement of Operations
	(In thousands)						(In thousands)
Net realized gain/ (loss) on cash flow hedges:
Hedges related to deposits and borrowings:
Pre-tax gain/ (loss)	$	191		$	263		$	502		$	284		Interest (expense)
Tax (expense)/ benefit	(55		)	(76		)	(146		)	(83		)	Income tax (expense)/ benefit
Net	$	136		$	187		$	356		$	201		Net income/ (loss) attributable to the Company
Total reclassifications for the period, net of tax	$	136		$	187		$	356		$	201

On January 1, 2018, the Company elected to early adopt ASU No. 2017-12. As a result, the Company reclassified unrealized losses on cash flow hedges of $5 thousand from accumulated other comprehensive income/ (loss) to beginning retained earnings.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

On January 1, 2018, the Company adopted ASU No. 2016-01. As a result, the Company reclassified unrealized gains on equity securities available-for-sale, net of tax, of $339 thousand from accumulated other comprehensive income/ (loss) to beginning retained earnings.



	Components of accumulated other comprehensive income/ (loss)
	Unrealized gain/ (loss) on securities available-for-sale			Unrealized gain/ (loss) on cash flow hedges			Unrealized gain/ (loss) on other			Accumulated other comprehensive income/ (loss)
	(In thousands)
Balance at December 31, 2017	$	(8,140	)	$	332		$	(850	)	$	(8,658	)
Other comprehensive income/ (loss) before reclassifications	(14,848		)	712			1			(14,135		)
Reclassified from other comprehensive income/ (loss)	—			(201		)	—			(201		)
Other comprehensive income/ (loss), net	(14,848		)	511			1			(14,336		)
Reclassification from the adoption of ASUs 2017-12 and 2016-01	$	(339	)	$	5		$	—		$	(334	)
Balance at June 30, 2018	$	(23,327	)	$	848		$	(849	)	$	(23,328	)

Balance at December 31, 2018	$	(17,556	)	$	391		$	(554	)	$	(17,719	)
Other comprehensive income/ (loss) before reclassifications	22,233			(33		)	—			22,200
Reclassified from other comprehensive income/ (loss)	—			(356		)	—			(356		)
Other comprehensive income/ (loss), net	22,233			(389		)	—			21,844
Balance at June 30, 2019	$	4,677		$	2		$	(554	)	$	4,125

12. Restructuring

In the third and fourth quarters of 2018 and the first quarter of 2019, the Company incurred restructuring charges of $5.8 million , $2.1 million , and $1.6 million , respectively. The charges were in connection with a previously announced reduction to the Company’s workforce of approximately 7% of total staffing, which included executive transition changes as well as other employee benefit and technology related initiatives. The restructuring is intended to improve the Company’s operating efficiency and enhance earnings.

The following table presents a summary of the restructuring activity for the three and six months ended June 30, 2019 and 2018 :



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

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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

13. Revenue Recognition

On January 1, 2018, the Company adopted ASU 2014-09 et al . As stated in Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 15: Recent Accounting,” the implementation of the new standard did not have an impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, Revenue from Contracts with Customers (“ASC 606”), while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under ASC 605, Revenue Recognition .

ASC 606 does not apply to revenue associated with financial instruments, including interest income on loans and investment securities. In addition, certain noninterest income such as fees associated with mortgage servicing rights, late fees, BOLI income, and derivatives are also not in scope of the new guidance. ASC 606 is applicable to noninterest income such as investment management fees, wealth advisory fees, wealth management and trust fees, and certain banking fees. However, the recognition of this revenue did not change upon adoption of ASC 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest income considered in-scope of ASC 606 is discussed below.

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 assets under management and advisory (“AUM”) and the applicable fee rate, depending on the terms of the contract. 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 sheet in the fees receivable line item.

All of the investment management fee income on the consolidated statement of operations for the three and six months ended June 30, 2019 and 2018 is considered in-scope of ASC 606.

Wealth advisory fees

Wealth advisory fees are earned for providing financial advisory services to clients. The Company’s performance obligation under these contracts is satisfied over time as the financial advisory services are provided. Fees are recognized monthly based either on a fixed fee amount or are based on the quarter-end (in arrears) market value of the AUM and the applicable fee rate (“asset based fees”), depending on the terms of the contract. Payment on fixed fee contracts is received based on a schedule outlined in the contract, while payment on asset based fees are generally received a few days after quarter end through a direct charge to customers’ accounts. No performance based incentives are earned on wealth advisory contracts. Receivables are recorded on the consolidated balance sheet in the fees receivable line item. Deferred revenues related to the fixed fee contracts of $6.5 million and $6.7 million as of June 30, 2019 and 2018 , respectively, are recorded on the consolidated balance sheet within the other liabilities line item.

All of the wealth advisory fee income on the consolidated statement of operations for the three and six months ended June 30, 2019 and 2018 is considered in-scope of ASC 606.

Wealth management and trust fees

Wealth management and trust fees are earned for providing investment management, wealth management, retirement plan advisory, family office, financial planning, and trust services to clients. The Company’s performance obligation under these contracts is satisfied over time as the wealth management 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 contract. No performance based incentives are earned on wealth management contracts. Receivables are recorded on the consolidated balance sheet in the fees receivable line item.

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 sheet in the fees receivable line item.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

All of the wealth management and trust fee income on the consolidated statement of operations for the three and six months ended June 30, 2019 and 2018 is considered in-scope of ASC 606.

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 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 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 as it relates to foreign exchange fees as they are governed by client disclosure statements and the Bank’s internal policies and procedures.

For the three months ended June 30, 2019 and 2018 , $0.6 million and $1.1 million , respectively, of other banking fee income as described above is considered in-scope for ASC 606. For the six months ended June 30, 2019 and 2018, $1.3 million and $2.0 million , respectively, of other banking fee income as described above is considered in-scope for ASC 606.

14. Lease Accounting

On January 1, 2019, the Company adopted ASU 2016-02. As stated in Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 1: Basis of Presentation and Summary of Significant Accounting Policies”, the implementation of the new standard had a material effect on the financial statements. The most significant effects relate to the recognition of new operating ROU assets and operating lease liabilities on the balance sheet for real estate operating leases, providing significant new disclosures about leasing activities, and the impact of additional assets on certain financial measures, such as capital ratios and return on average asset ratios. On adoption, the Company recognized approximately $124 million of lease liabilities and $108 million of ROU assets on the face of the 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 statement of cash flows upon adoption, since the net impact of all adjustments recorded upon transition represents non-cash activity.

The Company, as lessee, has 42 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,
	2019			2019
	(In thousands)
Lease cost
Operating lease cost	$	4,841		$	9,526
Short-term lease cost/ (refunds)	(3		)	29
Variable lease cost	2			4
Less: Sublease income	(28		)	(46		)
Total operating lease cost	$	4,812		$	9,513

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Six months ended June 30,
	(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	$	10,002
ROU assets obtained in exchange for new operating lease liabilities	$	10,510
Weighted-average remaining lease term for operating leases	8.3 years
Weighted-average discount rate for operating leases	3.4		%

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, 2019 :



	June 30, 2019
	(In thousands)
Remainder of 2019	$	10,095
2020	20,224
2021	20,406
2022	20,360
2023	19,575
Thereafter	57,005
Total future minimum lease payments	147,665
Less: Amounts representing interest	(20,925		)
Present value of net future minimum lease payments	$	126,740

Prior to the adoption of ASC 842, the Company’s operating leases were not recognized on the balance sheet. The following table presents the undiscounted future minimum lease payments under the Company’s operating leases as of December 31, 2018 :



	December 31, 2018
	(In thousands)
2019	$	20,053
2020	19,344
2021	19,064
2022	18,802
2023	16,552
Thereafter	41,412
Total	$	135,227

Rent expense for the three and six months ended June 30, 2018 , prior to the adoption of ASU 2016-02, was $5.4 million and $10.8 million , respectively.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

15. Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 replaces existing revenue recognition standards and expands the disclosure requirements for revenue agreements with customers. ASU 2014-09 has been subsequently amended by additional ASUs, including ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, collectively , “ASU 2014-09 et al. ” Under the new standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. ASU 2014-09 et al . does not apply to revenue associated with financial instruments such as loans and securities. ASU 2014-09 et al . was adopted using the modified retrospective transition method as of January 1, 2018, however no cumulative effect adjustment was required. This new guidance was applied to all revenue contracts in place at the date of adoption. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 13: Revenue Recognition” for further details.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This ASU requires equity investments to be measured at fair value with changes in fair value, net of tax, recognized in net income. As a result of implementing this standard, the Company reclassified $339 thousand in unrealized gains on available-for-sale equity investments, net of tax, from accumulated other comprehensive income to retained earnings as of January 1, 2018. Additionally, this amendment requires that entities use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. As a result of implementing this standard, the Company’s updated process includes identifying a fair value for loans using the exit price notion. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 5: Fair Value Measurements” for further details.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). This update and the related amendments to Topic 842 require lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”); ASU No. 2018-11, Leases (Topic 842), Targeted Improvements (“ASU 2018-11”); and ASU No. 2019-01, Leases (Topic 842), Codification Improvements (“ASU 2019-01”). The new standard establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard was effective on January 1, 2019, with early adoption permitted. The Company adopted these provisions on January 1, 2019. The most significant effects relate to the recognition of new ROU assets and lease liabilities on the balance sheet for real estate operating leases and providing significant new disclosures about leasing activities. Additionally, the Company elected the package of practical expedients, as prescribed by ASU 2016-02. The Company elected not to reassess whether any expired or existing contracts are or contain leases nor the lease classification of those leases. The Company also elected not to reassess any initial direct costs for any existing leases. On adoption, the Company recognized approximately $124 million of lease liabilities and $108 million of ROU assets. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 14: Lease Accounting” for further details.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326) (“ASU 2016-13”). This update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a current expected credit losses (“CECL”) model methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU will be effective for fiscal years beginning after December 15, 2019. Early adoption is available as of the fiscal year beginning after December 15, 2018, but the Company does not plan on adopting early. The Company plans to adopt on January 1, 2020 utilizing a modified retrospective approach and is currently assessing the impact on the Company's consolidated financial statements and disclosures. Management assembled a project team that has developed an approach for implementation including selecting a third-party software service provider, assessing the key differences and gaps between its current allowance methodologies and models with those it is considering to use upon adoption, identifying the necessary data requirements, testing the material data inputs, and assessing and validating potential model options. The Company has also begun developing accounting policies and establishing internal controls relevant to the updated methodologies and models.

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). This amendment requires an employer to report the service cost component in the same line item or items as other compensation costs arising

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. This ASU was effective for fiscal years beginning after December 15, 2017, and interim periods within those years. For the three and six months ended June 30, 2019, $339 thousand and $540 thousand , respectively, are presented within other expense that would have been presented within salaries and employee benefits prior to adoption of ASU 2017-07. For the three and six months ended June 30, 2018, $145 thousand and $280 thousand , respectively, are presented within other expense that would have been presented within salaries and employee benefits prior to adoption of ASU 2017-07.

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). The standard is intended to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting by preparers. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The Company early adopted this ASU as of January 1, 2018 with a modified retrospective transition. As a result of implementing this standard, the Company reclassified $5 thousand in unrealized losses on derivatives from accumulated other comprehensive income to retained earnings as of January 1, 2018. This ASU will provide more flexibility in the Company’s risk management activities and we believe it will enhance the Company’s ability to employ risk management strategies, while improving the transparency and understanding of those strategies for financial statement users.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”) . This update was issued to address a narrow-scope financial reporting issue that arose as a consequence of the change in the tax law. On December 22, 2017, the U.S. federal government enacted the Tax Cuts and Jobs Act (the “Tax Act”), which, among other significant changes, lowers the federal corporate tax rate from 35% to 21% effective January 1, 2018. This update requires a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the enactment of the Tax Act. ASC 740 requires that the tax effects of changes in tax rates be recognized in income tax expense/ (benefit) attributable to continuing operations in the period in which the law is enacted. As a result, the tax effect of accumulated other comprehensive income does not reflect the appropriate tax rate. The amendments in this ASU would eliminate the stranded tax effects associated with the change in the federal corporate income tax rate related to the Tax Act and would improve the usefulness of information reported to financial statement users. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted for public business entities for reporting periods for which financial statements have not yet been issued. The Company adopted this ASU on December 31, 2017 and made a one-time reclassification of $1.5 million from accumulated other comprehensive income to retained earnings, which is reflected in the consolidated statement of changes in shareholders’ equity.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”), and ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). These updates clarify the guidance in ASU 2016-02 which introduced Topic 842 and add an additional transition method for leases. ASU 2018-11 allows entities to initially apply the new lease standard at the adoption date (January 1, 2019 for the Company) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This transition method is in addition to the initial modified retrospective transition method, which would require an entity to initially apply the new leases standard (subject to specific transition requirements and optional practical expedients) at the beginning of the earliest period presented in the financial statements. Lessees also must provide the new and enhanced disclosures in the period of adoption; ASU 2018-11 would not require the amended disclosures of Topic 842 for comparative periods. The Company adopted these provisions along with those of ASU 2016-02 as of January 1, 2019. The Company has elected to use the prospective transition method and has deemed a cumulative effect adjustment not necessary at adoption. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 14: Lease Accounting” for further details.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. Among other changes, this update removes the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. This update adds to required disclosures for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements - (Continued)

entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption is permitted. The Company is still assessing the potential disclosure impact for these amendments and whether to adopt the provisions prior to January 1, 2020.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). The amendments in ASU 2018-14 remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. This update is effective on a retrospective basis for interim and annual reporting periods beginning January 1, 2021. The Company is still assessing the potential impact for this update and how it applies to the Company’s disclosures surrounding its two non-qualified supplemental executive retirement plans (“SERP”) and a long-term incentive plan (“LTIP”) at one of its affiliate companies.

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

In April and May 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”) and ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”), respectively. These updates clarify the guidance in ASU 2016-13 which introduced Topic 326. ASU 2019-04 clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement. ASU 2019-05 provides entities that have certain instruments within the scope of subtopic 326-20 with an option to irrevocably elect the fair value option. These ASUs will be effective for fiscal years beginning after December 15, 2019. Early adoption is available as of the fiscal year beginning after December 15, 2018, but the Company does not plan on adopting early. The Company is still assessing the potential disclosure impact for these amendments and will adopt on January 1, 2020 in conjunction with ASU 2016-13.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As of and for the three and six months ended June 30, 2019

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

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

Executive Summary

The Company offers a wide range of private banking, wealth management, and trust services to high net worth individuals, families, businesses and select institutions through its three reportable segments: Private Banking, Wealth Management and Trust, and Affiliate Partners. This Executive Summary provides an overview of the most significant aspects of our operating segments and the Company’s operations in the second quarter of 2019 . Details of the matters addressed in this summary are provided elsewhere in this document and, in particular, in the sections immediately following.



	As of and for the three months ended June 30,
	2019		2018		$ Change			% Change
	(In thousands, except per share data)
Total revenue	$	81,840	$	89,640	$	(7,800	)	(9	)%
Provision/ (credit) for loan losses	1,363		453		910			nm
Total operating expense	55,659		64,384		(8,725		)	(14	)%
Net income from continuing operations	19,449		7,404		12,045			nm
Net income attributable to noncontrolling interests	69		968		(899		)	(93	)%
Net income attributable to the Company	19,380		6,434		12,946			nm
Diluted earnings per share:
From continuing operations	$	0.22	$	0.03	$	0.19		nm

ASSETS UNDER MANAGEMENT AND ADVISORY (“AUM”):
Wealth Management and Trust	$	7,595,000	$	7,789,000	$	(194,000	)	(2	)%
Affiliate Partners (1)	8,604,000		13,590,000		(4,986,000		)	(37	)%
Total AUM (1)	$	16,199,000	$	21,379,000	$	(5,180,000	)	(24	)%

_____________________

nm = not meaningful


(1)	Includes the AUM at BOS of $4.5 billion at June 30, 2018 .

Net income attributable to the Company was $19.4 million for the three months ended June 30, 2019 and $6.4 million for the same period of 2018 . The Company recognized total diluted earnings per share of $0.22 and $0.03 for the three months ended June 30, 2019 and 2018 , respectively.

Key items that affected the Company’s results in the second quarter of 2019 compared to the same period of 2018 include:


▪	Total revenue decreased 9% , or $7.8 million , to $81.8 million for the three months ended June 30, 2019 , compared to $89.6 million for the same period of 2018 as described below.

▪

Total fees and other income decreased 24% , or $7.7 million , to $24.4 million for the three months ended June 30, 2019 , compared to $32.1 million for the same period of 2018 . This decrease was primarily driven by the divestitures of Anchor and BOS in 2018, as well as lower AUM balances at June 30, 2019 . Total fees and other income represents 30% of total revenue for the three months ended June 30, 2019 , compared to 36% of total revenue for the same period of 2018 .

▪

Net interest income of $57.5 million for the three months ended June 30, 2019 was flat from the same period of 2018 . The Company's funding costs were higher as a result of increased reliance on borrowings, offset by higher asset yields. Net interest margin (“NIM”) was 2.78% for the three months ended June 30, 2019 , representing a decrease of 7 basis points compared to the same period in 2018 , also driven by higher funding costs, partially offset by higher asset yields. Due to the lower federal tax rate beginning in 2018, the adjustment to report NIM on a fully taxable equivalent basis (“FTE”) has become immaterial, and therefore the Company will only present NIM on a GAAP basis for all periods.


▪	Total operating expenses decreased 14% , or $8.7 million , to $55.7 million for the three months ended June 30, 2019 , compared to $64.4 million for the same period of 2018 . The decrease was primarily driven by the divestitures of Anchor and BOS, as well as realized savings from efficiency initiatives.


▪	Income tax expense decreased 69% , or $12.0 million , to $5.4 million for the three months ended June 30, 2019 , compared to $17.4 million for the same period of 2018. The decrease was primarily driven by $12.7 million of discrete income tax expense related to the sale of Anchor in the second quarter of 2018.

▪

For the three months ended June 30, 2019 total loans increased $153.3 million , or 2% , while total deposits decreased $341.9 million , or 5% . The Company’s loan-to-deposit ratio was 110% as of June 30, 2019 . Deposits are the Company’s primary source of funds to originate loans. When the Company’s loan-to-deposit ratio exceeds 100%, we rely on other funding sources such as FHLB borrowings or federal funds to fund loan growth. If the Company is unable to grow deposits in line with loan growth we will evaluate other options such as slowing loan growth, selling of a portion of portfolio loans, or originating mortgage loans as held for sale.

The Company’s Private Banking segment reported net income attributable to the Company of $17.2 million in the second quarter s of both 2019 and 2018. Net income attributable to the Company remained flat from the same period in 2018 largely driven by a decrease of $1.9 million in operating expenses, offset by an increase of $0.9 million to the provision for loan loss and an increase of $0.9 million in income tax expense.

The Company’s Wealth Management and Trust segment reported net income attributable to the Company of $1.0 million in the second quarter of 2019 , compared to $0.2 million for the same period of 2018 . The increase of $0.8 million was primarily driven by a decrease of $1.6 million in total operating expenses due to realized savings from efficiency initiatives, partially offset by a decrease of $0.5 million in total revenues due to lower AUM and an increase of $0.4 million in income tax expense. Wealth Management and Trust AUM decreased $0.2 billion , or 2% , to $7.6 billion at June 30, 2019 from $7.8 billion at June 30, 2018 . The decrease in AUM is due to net outflows of $0.4 billion, partially offset by positive market action of $0.2 billion for the twelve months ended June 30, 2019 .

The Company completed the sales of its ownership interests in Anchor and BOS on April 13, 2018 and December 3, 2018, respectively. The results of Anchor and BOS through their respective closing dates remain consolidated in the results of the Company and its Affiliate Partners segment through their respective closing dates and in prior periods. Results after the close of the transactions do not include Anchor and BOS operations.

The Company’s Affiliate Partners segment reported net income attributable to the Company of $2.4 million in the second quarter of 2019 , compared to $3.3 million for the same period of 2018 . Total revenues, total operating expenses, income tax expense, and noncontrolling interests decreased in the second quarter of 2019 due to the divestitures of Anchor and BOS. AUM, excluding BOS, decreased by $0.5 billion, or 5%, to $8.6 billion at June 30, 2019 from $9.1 billion at June 30, 2018 . The decrease in AUM was primarily driven by $0.7 billion in net outflows, partially offset by favorable market returns of $0.2 billion for the twelve months ended June 30, 2019 .

Critical Accounting Policies

Critical accounting policies reflect significant judgments and uncertainties, which could potentially result in materially different results under different assumptions and conditions. The Company believes that its most critical accounting policies upon which its financial condition depends, which involve the most complex or subjective decisions or assessments, are the allowance for loan losses, the valuation of goodwill and intangible assets and the analysis for impairment, and income tax estimates. These policies are discussed in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 . There have been no changes to these policies through the filing of this Quarterly Report on Form 10-Q.

Results of operations for the three and six months ended June 30, 2019 versus June 30, 2018

Net Income. The Company recorded net income from continuing operations for the three and six months ended June 30, 2019 of $19.4 million and $39.0 million , respectively, compared to $7.4 million and $29.4 million for the same respective periods in 2018 . Net income attributable to the Company, which includes income from both continuing and discontinued operations, if any, as well as net income attributable to noncontrolling interests, for the three and six months ended June 30, 2019 was $19.4 million and $38.8 million , respectively, compared to $6.4 million and $29.1 million for the same respective periods in 2018 .

The Company recorded no net income from discontinued operations for the six months ended June 30, 2019, compared to $1.7 million for the same period in 2018 , the majority of which was recorded in the first quarter of 2018. The Company received the final payment related to a revenue sharing agreement with Westfield Capital Management Company, LLC (“Westfield”) in the first quarter of 2018. The Company recognized a tax credit in the fourth quarter of 2018, recorded in discontinued operations, relating to an adjustment to deferred taxes in connection with the Westfield revenue share. The Company will not receive additional income from Westfield now that the final payment has been received.

The Company recognized diluted EPS attributable to common shareholders, which includes both continuing and discontinued operations, if any, for the three and six months ended June 30, 2019 of $0.22 per share and $0.47 per share, respectively, compared to $0.03 per share and $0.30 per share for the same respective periods in 2018 . Net income from continuing operations for the three months ended June 30, 2019 and for the three and six months ended June 30, 2018 were partially offset by charges that reduce income available to common shareholders. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 2: Earnings Per Share” for further detail on these charges to income available to common shareholders.

The following discussions are based on the Company’s continuing operations, unless otherwise stated. The following table presents selected financial highlights:



	Three months ended June 30,					$ Change			% Change		Six months ended June 30,						$ Change			% Change
	2019		2018			$ Change			% Change		2019			2018			$ Change			% Change
	(In thousands)
Net interest income	$	57,460	$	57,545		(85		)	—	%	$	115,798		$	114,928		$	870		1	%
Fees and other income	24,380		32,095			(7,715		)	(24	)%	49,628			71,838			(22,210		)	(31	)%
Total revenue	81,840		89,640			(7,800		)	(9	)%	165,426			186,766			(21,340		)	(11	)%
Provision/ (credit) for loan losses	1,363		453			910			nm		(63		)	(1,342		)	1,279			(95	)%
Operating expense	55,659		64,384			(8,725		)	(14	)%	116,212			135,241			(19,029		)	(14	)%
Income tax expense	5,369		17,399			(12,030		)	(69	)%	10,286			23,425			(13,139		)	(56	)%
Net income from continuing operations	19,449		7,404			12,045			nm		38,991			29,442			9,549			32	%
Net income/ (loss) from discontinued operations	—		(2		)	2			nm		—			1,696			(1,696		)	nm
Less: Net income attributable to noncontrolling interests	69		968			(899		)	(93	)%	169			2,018			(1,849		)	(92	)%
Net income attributable to the Company	$	19,380	$	6,434		$	12,946		nm		$	38,822		$	29,120		$	9,702		33	%

____________________

nm = not meaningful

Net interest income . Net interest income represents the difference between interest earned, primarily on loans and investments, and interest paid on funding sources, primarily deposits and borrowings. Interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate paid on total interest-bearing liabilities. NIM is the amount of net interest income expressed as a percentage of average interest-earning assets. The average rate earned on interest-earning assets is the amount of annualized interest income expressed as a percentage of average interest-earning assets. The average rate paid on interest-bearing liabilities is equal to annualized interest expense as a percentage of average interest-bearing liabilities. When credit quality declines and loans are placed on nonaccrual status, NIM can decrease because the same assets are earning less income. Loans graded as substandard but still accruing interest income totaled $53.9 million at June 30, 2019 and could be placed on nonaccrual status if their credit quality declines further.

Net interest income for the three months ended June 30, 2019 was $57.5 million , remaining flat compared to the same period in 2018 . For the six months ended June 30, 2019, net interest income was $115.8 million , an increase of $0.9 million , or 1% , compared to the same period in 2018. The increase for the six months is primarily driven by higher yields and volumes on loans, partially offset by higher funding costs as a result of increased reliance on borrowings and higher deposit rates. The NIM was 2.78% for the three months ended June 30, 2019 , a decrease of seven basis points compared to the same period in 2018 . For the six months ended June 30, 2019 , the NIM was 2.84% , a decrease of three basis points compared to the same period in 2018. The decrease in NIM for the three and six month periods ended June 30, 2019 is also primarily driven by higher funding costs, partially offset by higher asset yields.

Previously, the Company reported NIM on both a GAAP basis and on a fully taxable equivalent ("FTE") basis to enhance comparability. Currently, the FTE adjustment for interest income on non-taxable investments and loans is immaterial due to the decline in the federal tax rate in 2018 and the recent increases in interest expense. Therefore, FTE has not been applied, and for comparison purposes GAAP amounts are shown for all periods presented.

The following table presents the composition of the Company’s NIM for the three and six months ended June 30, 2019 and 2018 .



	Average Balance				Interest Income/Expense				Average Yield/Rate
	As of and for the three months ended June 30,
AVERAGE BALANCE SHEET:	2019		2018		2019		2018		2019		2018
AVERAGE ASSETS	(In thousands)
Interest-earning assets:
Cash and investments: (1)
Taxable investment securities	$	227,029	$	326,482	$	1,121	$	1,501	1.98	%	1.84	%
Non-taxable investment securities	304,309		297,852		1,901		1,752		2.50	%	2.35	%
Mortgage-backed securities	508,033		570,845		2,706		3,049		2.13	%	2.14	%
Short-term investments and other	130,363		157,878		1,057		1,205		3.23	%	3.03	%
Total cash and investments	1,169,734		1,353,057		6,785		7,507		2.32	%	2.22	%
Loans: (2)
Commercial and industrial	1,091,903		974,443		11,170		9,201		4.05	%	3.74	%
Commercial real estate	2,506,637		2,477,634		29,953		27,387		4.73	%	4.37	%
Construction and land	202,609		166,736		2,559		2,011		5.00	%	4.77	%
Residential	3,008,753		2,775,239		25,735		22,590		3.42	%	3.26	%
Home equity	91,384		94,445		1,146		1,041		5.03	%	4.42	%
Other consumer	124,778		179,684		1,380		1,818		4.43	%	4.06	%
Total loans	7,026,064		6,668,181		71,943		64,048		4.07	%	3.82	%
Total earning assets	8,195,798		8,021,238		78,728		71,555		3.82	%	3.55	%
LESS: Allowance for loan losses	73,856		72,998
Cash and due from banks (non-interest bearing)	45,705		45,337
Other assets	511,859		396,744
TOTAL AVERAGE ASSETS	$	8,679,506	$	8,390,321
AVERAGE LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW	$	684,507	$	719,159	$	276	$	304	0.16	%	0.17	%
Money market	3,226,569		3,033,306		10,476		5,543		1.30	%	0.73	%
Certificates of deposit	752,500		688,567		3,763		2,518		2.01	%	1.47	%
Total interest-bearing deposits	4,663,576		4,441,032		14,515		8,365		1.25	%	0.76	%
Junior subordinated debentures	106,363		106,363		1,080		1,008		4.02	%	3.75	%
FHLB borrowings and other	952,645		1,022,636		5,673		4,637		2.36	%	1.79	%
Total interest-bearing liabilities	5,722,584		5,570,031		21,268		14,010		1.48	%	1.00	%
Non-interest bearing demand deposits	1,926,591		1,908,037
Payables and other liabilities	238,544		122,175
Total average liabilities	7,887,719		7,600,243
Redeemable noncontrolling interests	943		14,129
Average shareholders’ equity	790,844		775,949
TOTAL AVERAGE LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ EQUITY	$	8,679,506	$	8,390,321
Net interest income					$	57,460	$	57,545
Interest rate spread									2.34	%	2.55	%
Net interest margin									2.78	%	2.85	%

__________________


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


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



	Average Balance				Interest Income/Expense				Average Yield/Rate
	As of and for the six months ended June 30,
AVERAGE BALANCE SHEET:	2019		2018		2019		2018		2019		2018
AVERAGE ASSETS	(In thousands)
Interest-earning assets:
Cash and investments: (1)
Taxable investment securities	$	235,218	$	330,220	$	2,306	$	3,011	1.92	%	1.83	%
Non-taxable investment securities	305,581		297,407		3,802		3,482		2.49	%	2.34	%
Mortgage-backed securities	514,872		579,604		5,603		6,227		2.18	%	2.15	%
Short-term investments and other	105,610		158,853		1,965		2,214		3.61	%	2.78	%
Total cash and investments	1,161,281		1,366,084		13,676		14,934		2.34	%	2.19	%
Loans: (2)
Commercial and industrial	1,081,092		953,940		22,150		17,661		4.08	%	3.68	%
Commercial real estate	2,452,824		2,459,525		58,104		53,538		4.71	%	4.33	%
Construction and land	206,956		168,052		5,200		3,948		5.00	%	4.67	%
Residential	2,990,948		2,738,980		51,280		44,356		3.43	%	3.24	%
Home equity	91,017		95,810		2,267		2,083		5.02	%	4.39	%
Other consumer	129,332		182,623		2,875		3,391		4.48	%	3.74	%
Total loans	6,952,169		6,598,930		141,876		124,977		4.07	%	3.78	%
Total earning assets	8,113,450		7,965,014		155,552		139,911		3.82	%	3.50	%
LESS: Allowance for loan losses	74,692		73,911
Cash and due from banks (non-interest bearing)	46,010		48,725
Other assets	502,068		408,810
TOTAL AVERAGE ASSETS	$	8,586,836	$	8,348,638
AVERAGE LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Savings and NOW	$	679,716	$	718,051	$	572	$	519	0.17	%	0.15	%
Money market	3,283,891		3,086,710		20,549		9,857		1.26	%	0.64	%
Certificates of deposit	764,094		672,736		7,452		4,513		1.97	%	1.35	%
Total interest-bearing deposits	4,727,701		4,477,497		28,573		14,889		1.22	%	0.67	%
Junior subordinated debentures	106,363		106,363		2,201		1,854		4.17	%	3.52	%
FHLB borrowings and other	785,245		950,763		8,980		8,240		2.27	%	1.72	%
Total interest-bearing liabilities	5,619,309		5,534,623		39,754		24,983		1.42	%	0.91	%
Non-interest bearing demand deposits	1,950,088		1,890,184
Payables and other liabilities	236,894		126,601
Total average liabilities	7,806,291		7,551,408
Redeemable noncontrolling interests	1,619		17,644
Average shareholders’ equity	778,926		779,586
TOTAL AVERAGE LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ EQUITY	$	8,586,836	$	8,348,638
Net interest income					$	115,798	$	114,928
Interest rate spread									2.40	%	2.59	%
Net interest margin									2.84	%	2.87	%

__________________


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


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

Interest and dividend income . Total interest and dividend income for the three months ended June 30, 2019 was $78.7 million , an increase of $7.2 million , or 10% , compared to the same period in 2018 . Interest and dividend income for the six months ended June 30, 2019 was $155.6 million , an increase of $15.6 million , or 11% , compared to the same period in 2018 . The increase for the three and six months is primarily driven by higher yields and volumes on loans, partially offset by lower investment security volumes.

The Bank generally has interest related to nonaccrual loans that is either collected or reversed each quarter. When a loan is placed on nonaccrual, the interest income previously accrued but uncollected, is reversed which will have a negative effect on the related yield. Interest collected on loans while on nonaccrual status is generally applied to the principal balance. If a nonaccruing loan pays off, previously collected interest income that was applied to principal may be recorded as interest income if the principal balance was paid in full. Based on the net amount collected or reversed, the impact on interest income and related yields can be either positive or negative. In addition, the Bank collects prepayment penalties on certain commercial loans that pay off prior to maturity which could also impact interest income and related yields positively. The amount and timing of prepayment penalties varies from quarter to quarter.

Interest income on commercial and industrial loans for the three months ended June 30, 2019 was $11.2 million , an increase of $2.0 million , or 21% , compared to the same period in 2018 . as a result of a 12% increase in the average balance and a 31 basis point increase in the average yield. For the six months ended June 30, 2019, commercial and industrial interest income was $22.2 million , an increase of $4.5 million , or 25% , compared to the same period in 2018 , as a result of a 13% increase in the average balance and a 39 basis point increase in the average yield. The increases in the average balance for the three and six month periods are related to growth across all regions in which the Bank operates. The increases in the average yield for the three and six month periods are the result of increases in interest rates, specifically increases to the interest rate benchmarks to which the variable rate loans are tied.

Interest income on commercial real estate loans for the three months ended June 30, 2019 was $30.0 million , an increase of $2.6 million , or 9% , compared to the same period in 2018 , as a result of a 36 basis point increase in the average yield and a 1% increase in the average balance. For the six months ended June 30, 2019, commercial real estate interest income was $58.1 million , an increase of $4.6 million , or 9% , compared to the same period in 2018 , as a result of a 38 basis point increase in the average yield and the average balance remaining flat. The increases in the average yield for the three and six month periods are primarily driven by increases in interest rates, specifically increases to the interest rate benchmarks to which the variable rate loans are tied. The 1% increase in the average balance for the three month period is primarily driven by the San Francisco Bay Area market. The Company has intentionally allowed certain loans to run-off in the commercial real estate loan portfolio in Southern California to decrease exposure to retail loans.

Interest income on construction and land loans for the three months ended June 30, 2019 was $2.6 million , an increase of $0.5 million , or 27% , compared to the same period in 2018 , as a result of a 22% increase in the average balance and a 23 basis point increase in the average yield. For the six months ended June 30, 2019 , construction and land interest income was $5.2 million , an increase of $1.3 million , or 32% , compared to the same period in 2018 , as a result of a 23% increase in the average balance and a 33 basis point increase in the average yield. The overall yields on construction and land loans fluctuate due to the short-term nature of the loans and the related impact of draws and payoffs. Due to the relatively low balances in construction and land loans, a large draw- or pay-down can result in a significant change in the overall yield depending on the interest rate of the particular loans that caused the balance changes. The increases in the average balance for the three and six month periods are driven primarily by increased utilization of existing loans in New England, partially offset by decreases in Southern California and the San Francisco Bay Area. The increase in the average yield for the three and six months is primarily driven by increases to the interest rate benchmarks to which the variable rate loans are tied.

Interest income on residential mortgage loans for the three months ended June 30, 2019 was $25.7 million , an increase of $3.1 million , or 14% , from the same period in 2018 , as a result of an 8% increase in the average balance and a 16 basis point increase in the average yield. For the six months ended June 30, 2019 , residential mortgage interest income was $51.3 million , an increase of $6.9 million , or 16% , compared to the same period in 2018 , as a result of a 9% increase in the average balance and a 19 basis point increase in the average yield. The increases in the average balance for the three and six month periods are related to the organic growth of the residential loan portfolio across all regions in which the Bank operates. The increases in the average yield for the three and six month periods are related to higher yields on residential mortgage originations and adjustable rate mortgage (“ARM”) loans repricing at higher rates due to increases to the interest rate benchmarks to which the loans are tied.

Interest income on home equity loans for the three months ended June 30, 2019 was $1.1 million , an increase of 10% compared to the same period in 2018 , as a result of a 61 basis point increase in the average yield, partially offset by a 3% decrease in the average balance. For the six months ended June 30, 2019 , home equity interest income was $2.3 million , an increase of 9% compared to the same period in 2018 , as a result of a 63 basis point increase in the average yield, partially offset

by a 5% decrease in the average balance. The increases in the average yield for the three and six month periods are the result of increases in benchmark interest rates, while the decreases in the average balance for the three and six month periods are primarily driven by reduced demand.

Interest income on other consumer loans for the three months ended June 30, 2019 was $1.4 million , a decrease of $0.4 million , or 24% , compared to the same period in 2018 , as a result of a 31% decrease in the average balance, partially offset by a 37 basis point increase in the average yield. For the six months ended June 30, 2019 , other consumer interest income was $2.9 million , a decrease of $0.5 million , or 15% , compared to the same period in 2018 , as a result of a 29% decrease in the average balance, partially offset by a 74 basis point increase in the average yield. The decreases in the average balance for the three and six month periods are primarily driven by reduced demand, while the increases in the average yield for the three and six month periods are the result of increases in interest rate benchmarks to which loans are tied.

Investment income for the three months ended June 30, 2019 was $6.8 million , a decrease of $0.7 million , or 10% , from the same period in 2018 , as a result of a 14% decrease in the average balance, partially offset by a 10 basis point increase in the average yield. For the six months ended June 30, 2019 , investment income was $13.7 million , a decrease of $1.3 million , or 8% , compared to the same period in 2018 , as a result of a 15% decrease in the average balance, partially offset by a 15 basis point increase in the average yield. The decreases in the average balance for the three and six month periods are primarily due to the proceeds from maturing investment securities being utilized to pay down higher cost borrowings and to fund loan generation. The increases in the average yield for the three and six month periods are primarily due to recent purchases made at higher interest rates.

Interest expense . Total interest expense for the three months ended June 30, 2019 was $21.3 million , an increase of $7.3 million , or 52% , compared to the same period in 2018 . For the six months ended June 30, 2019, total interest expense was $39.8 million, an increase of $14.8 million, or 59%, compared to the same period in 2018. The increases for the three and six month periods are primarily driven by the impact of higher interest rates on interest-bearing deposits and borrowings, and increases in the volume of interest-bearing deposits.

Interest expense on interest-bearing deposits for the three months ended June 30, 2019 was $14.5 million , an increase of $6.2 million , or 74% , compared to the same period in 2018 , as a result of a 49 basis point increase in the average rate paid and a 5% increase in the average balance. For the six months ended June 30, 2019 , interest expense on interest-bearing deposits was $28.6 million , an increase of $13.7 million , or 92% , compared to the same period in 2018 , as a result of a 55 basis point increase in the average rate paid and a 6% increase in the average balance. The increases for the three and six month periods in the average rate paid on deposits are driven primarily by increases in the rates paid for certificates of deposit and money market demand accounts as benchmark interest rates have increased. The increases for the three and six month periods in the average balance for interest-bearing deposits are primarily driven by corporate client balances across all regions.

Interest paid on non-deposit interest-bearing liabilities for the three months ended June 30, 2019 was $6.8 million , an increase of $1.1 million , or 20% , compared to the same period in 2018 , as a result of a 57 basis point increase in the average rate paid on FHLB borrowings and other borrowings and a 27 basis point increase in the average rate paid on junior subordinated debentures, partially offset by a 7% decrease in the average balance of FHLB borrowings and other borrowings. For the six months ended June 30, 2019 , interest paid on non-deposit interest-bearing liabilities was $11.2 million , an increase of $1.1 million , or 11% , compared to the same period in 2018 , as a result of a 55 basis point increase in the average rate paid on FHLB borrowings and other borrowings, partially offset by a 17% decrease in the average balance of FHLB borrowings and other borrowings, and a 65 basis point increase in the average rate paid on junior subordinated debentures. The increases for the three and six month periods in the average rate paid on non-deposit interest-bearing liabilities are primarily driven by the increases in benchmark interest rates to which the instruments are tied. The decreases for the three and six month periods in the average balance for non-deposit interest-bearing deposits are primarily driven by decreased FHLB borrowings.

Provision/ (credit) for loan losses. The Company recorded a provision for loan losses of $1.4 million for the three months ended June 30, 2019 , compared to a provision for loan losses of $0.5 million for the same period in 2018 . For the six months ended June 30, 2019 , the Company recorded a credit to the provision for loan losses of $0.1 million , compared to a credit to the provision for loan losses of $1.3 million for the same period in 2018. The provision for loan losses in the second quarter of 2019 was primarily driven by an increase in loan balances and an increase in criticized & classified loans, partially offset by improved loss rates.

The provision/ (credit) for loan losses is determined as a result of the required level of the allowance for loan losses, estimated by management, which reflects the inherent risk of loss in the loan portfolio as of the balance sheet dates. The Bank incorporates both quantitative and qualitative loss factors to determine the appropriate level of the allowance for loan losses. Quantitative loss factors are based on historical net charge-offs by loan portfolio. Qualitative factors are estimated by

management and include trends in problem loans, economic and business conditions, strength of management, real estate collateral values, and underwriting standards. For further details, see “Loan Portfolio and Credit Quality” below.

Fees and other income



	Three months ended June 30,				$ Change			% Change		Six months ended June 30,				$ Change			% Change
	2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
	(In thousands)
Investment management fees	$	2,455	$	4,227	$	(1,772	)	(42	)%	$	5,105	$	15,652	$	(10,547	)	(67	)%
Wealth advisory fees	8,141		13,693		(5,552		)	(41	)%	16,306		27,205		(10,899		)	(40	)%
Wealth management and trust fees	10,771		11,169		(398		)	(4	)%	21,664		23,320		(1,656		)	(7	)%
Other banking fee income	2,867		2,745		122			4	%	5,366		5,018		348			7	%
Gain on sale of loans, net	58		63		(5		)	(8	)%	131		137		(6		)	(4	)%
Total core fees and income	24,292		31,897		(7,605		)	(24	)%	48,572		71,332		(22,760		)	(32	)%
Total other income	88		198		(110		)	(56	)%	1,056		506		550			nm
Total fees and other income	$	24,380	$	32,095	$	(7,715	)	(24	)%	$	49,628	$	71,838	$	(22,210	)	(31	)%

_____________________

nm = not meaningful

Total fees and other income for the three months ended June 30, 2019 decreased $7.7 million , or 24% , compared to the same period in 2018 . Total fees and other income for the six months ended June 30, 2019 decreased $22.2 million , or 31% , compared to the same period in 2018 . The decreases for the three and six month periods in total fees and other income are primarily driven by the decreases in wealth advisory fees and investment management fees as a result of the divestiture of BOS in the fourth quarter of 2018, and the divestiture of Anchor in the second quarter of 2018.


•	AUM managed or advised by the Affiliate Partners was $8.6 billion at June 30, 2019 , a decrease of $5.0 billion, compared to June 30, 2018 . The decrease is primarily driven by the impact of the divestiture of BOS in 2018, and net outflows of $0.7 billion, partially offset by favorable market returns of $0.2 billion for the twelve months ended June 30, 2019.


•	AUM managed or advised by Boston Private Wealth was $7.6 billion at June 30, 2019 , a decrease of $0.2 billion , or 2% , compared to June 30, 2018 . The decrease is primarily driven by net outflows of $0.4 billion, partially offset by favorable market returns of $0.2 billion for the twelve months ended June 30, 2019.

•

Other banking fee income for the three months ended June 30, 2019 increased $0.1 million , or 4% , compared to the same period in 2018 . Other banking fee income for the six months ended June 30, 2019 increased $0.3 million , or 7% , compared to the same period in 2018 . The increases for the three and six month periods are primarily driven by increases in swap fee income reflecting higher client demand for loan swap agreements.

Operating Expense



	Three months ended June 30,				$ Change			% Change		Six months ended June 30,				$ Change			% Change
	2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
	(In thousands)
Salaries and employee benefits	$	32,706	$	39,433	$	(6,727	)	(17	)%	$	68,432	$	86,517	$	(18,085	)	(21	)%
Occupancy and equipment	7,852		8,229		(377		)	(5	)%	16,200		15,977		223			1	%
Professional services	3,313		2,872		441			15	%	6,873		6,049		824			14	%
Marketing and business development	1,934		2,070		(136		)	(7	)%	3,019		3,663		(644		)	(18	)%
Information systems	5,137		6,770		(1,633		)	(24	)%	10,997		12,656		(1,659		)	(13	)%
Amortization of intangibles	672		749		(77		)	(10	)%	1,344		1,499		(155		)	(10	)%
FDIC insurance	585		708		(123		)	(17	)%	1,245		1,452		(207		)	(14	)%
Restructuring	—		—		—			nm		1,646		—		1,646			nm
Other	3,460		3,553		(93		)	(3	)%	6,456		7,428		(972		)	(13	)%
Total operating expense	$	55,659	$	64,384	$	(8,725	)	(14	)%	$	116,212	$	135,241	$	(19,029	)	(14	)%

_____________________

nm = not meaningful

Total operating expense for the three months ended June 30, 2019 decreased $8.7 million , or 14% , compared to the same period in 2018 and total operating expense for the six months ended June 30, 2019 decreased $19.0 million , or 14% , compared to the same period in 2018 , primarily due to the divestitures of Anchor and BOS, and the impact of efficiency initiatives, partially offset by a restructuring expense.


•	Salaries and employee benefits expense decreased for the three and six months ended June 30, 2019 compared to the same periods of 2018 , primarily due to the divestitures of Anchor and BOS in the second and fourth quarters of 2018, respectively. The Company also realized further cost savings as a result of a previously announced efficiency program.


•	Professional services expense for the three and six months ended June 30, 2019 increased compared to the same periods in 2018, primarily due to information technology consulting costs, partially offset by the divestitures of Anchor and BOS.


•	Marketing and business development expense for the three and six months ended June 30, 2019 decreased compared to the same periods in 2018, primarily driven by the divestitures of Anchor and BOS as well as the timing of general Company strategy and marketing campaigns.


•	Information systems expense for the three and six months ended June 30, 2019 decreased compared to the same periods in 2018 , primarily due to the divestitures of Anchor and BOS as well as realized savings from telecommunication services and data processing contract renegotiations.


•	Restructuring expense increased for the three and six months ended June 30, 2019 , compared to the same periods in 2018, as the Company incurred a restructuring charge of $1.6 million due to severance of executives in the first quarter of 2019.


•	Other expense for the six months ended June 30, 2019 decreased compared to the same period in 2018 , primarily due to the divestitures of Anchor and BOS.

Income Tax Expense. Income tax expense for continuing operations for the six months ended June 30, 2019 was $10.3 million . The effective tax rate for continuing operations for the six months ended June 30, 2019 was 20.9% , compared to an effective tax rate of 44.3% for the same period of 2018 . See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 9: Income Taxes” for further detail.

Financial Condition

Condensed Consolidated Balance Sheets and Discussion



	June 30, 2019		December 31, 2018		Increase/ (decrease)			% Change
	(In thousands)
Assets:
Total cash and investments	$	1,170,514	$	1,255,253	$	(84,739	)	(7	)%
Loans held for sale	3,640		2,812		828			29	%
Total loans	7,080,260		6,893,158		187,102			3	%
Less: Allowance for loan losses	75,067		75,312		(245		)	—	%
Net loans	7,005,193		6,817,846		187,347			3	%
Goodwill and intangible assets, net	68,491		69,834		(1,343		)	(2	)%
Right-of-use assets	110,880		—		110,880			nm
Total other assets	354,155		348,880		5,275			2	%
Total assets	$	8,712,873	$	8,494,625	$	218,248		3	%
Liabilities and Equity:
Deposits	$	6,437,963	$	6,781,170	$	(343,207	)	(5	)%
Total borrowings	1,223,803		813,435		410,368			50	%
Lease liabilities	126,740		—		126,740			nm
Total other liabilities	124,370		143,540		(19,170		)	(13	)%
Total liabilities	7,912,876		7,738,145		174,731			2	%
Redeemable noncontrolling interests (“RNCI”)	1,786		2,526		(740		)	(29	)%
Total shareholders’ equity	798,211		753,954		44,257			6	%
Total liabilities, RNCI and shareholders’ equity	$	8,712,873	$	8,494,625	$	218,248		3	%

_____________________

nm = not meaningful

Total assets. Total assets increased $218.2 million , or 3% , to $8.7 billion at June 30, 2019 from $8.5 billion at December 31, 2018 , primarily driven by an increase in total loans and right-of-use assets, partially offset by a decrease in total cash and investments.

Total cash and investments. Total cash and investments (consisting of cash and cash equivalents, investment securities available-for-sale, investment securities held-to-maturity, equity securities at fair value, and stock in the FHLB and Federal Reserve Bank) decreased $84.7 million , or 7% , from December 31, 2018 . The decrease on a point-in-time basis was primarily driven by a decrease of $61.5 million in cash and a decrease of $38.4 million in investment securities and equity securities, partially offset by an increase in stock at the FHLB and Federal Reserve Bank. The Company utilized cash and proceeds from maturing investment securities to fund loan growth. Total cash and investments represent 13% of total assets at June 30, 2019 and 15% of total assets at December 31, 2018 .

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

Investment maturities, redemptions, principal payments, and sales of securities, if any, net of purchases, provided $65.4 million of cash proceeds during the six months ended June 30, 2019 , compared to $64.0 million in the same period in 2018 . The Company used these cash proceeds primarily to fund loan growth. The timing of sales and reinvestments is based on various factors, including management’s evaluation of interest rate trends, credit risk, and the Company’s liquidity. The Company’s available-for-sale investment portfolio carried a total of $11.6 million of unrealized gains and $5.4 million of unrealized losses at June 30, 2019 , compared to $2.4 million of unrealized gains and $27.1 million of unrealized losses at December 31, 2018 .

No impairment losses were recognized through earnings related to investment securities during the six months ended June 30, 2019 and 2018 . The Company does not consider these investments other-than-temporarily impaired as the decline in fair value on investments is primarily attributed to changes in interest rates and not due to credit quality or other risk factors.

Additionally, at June 30, 2019 and December 31, 2018 , the Company held $54.5 million and $70.4 million , respectively, of held-to-maturity securities at amortized cost. All of the held-to-maturity securities held at June 30, 2019 were mortgage-backed securities guaranteed by the U.S. government, U.S. government agencies, or government-sponsored entities.

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

Loans held for sale. Loans held for sale at June 30, 2019 increased $0.8 million , or 29% , compared to the balance at December 31, 2018 . The balance of loans held for sale usually relates to the timing and volume of residential loans originated for sale and the ultimate sale transaction which is typically executed within a short time following the loan origination. From time to time, the Company may also sell loans that have been held in the loan portfolio. The sale of such loans may improve the Bank’s liquidity and capital position or may provide the Bank additional flexibility for more profitable and strategic future lending opportunities.

Goodwill and intangible assets, net. Goodwill and intangible assets, net at June 30, 2019 decreased $1.3 million , or 2% , compared to the balance at December 31, 2018 due to amortization of intangible assets. There was no change to goodwill during the six months ended June 30, 2019 .

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

Management performed its annual goodwill and indefinite-lived intangible asset impairment testing during the fourth quarter of 2018 for applicable reporting units. The estimated fair value of KLS and Boston Private Wealth each exceeded their carrying value. Management will perform the annual goodwill and indefinite-lived intangible asset impairment testing for this year during the fourth quarter of 2019.

Right-of-use assets. Total ROU assets at June 30, 2019 increased $110.9 million compared to the balance at December 31, 2018 . Upon adoption of the new lease accounting standard, ASU 2016-02, the Company recognized approximately $108 million of ROU assets on the face of the consolidated balance sheet as of January 1, 2019. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 14: Lease Accounting” for further details of the Company’s leases.

Total other assets. Total other assets, as presented in the table above, consists of the following line items from the consolidated balance sheet: OREO, if any; premises and equipment, net; fees receivable; accrued interest receivable; deferred income taxes, net; and other assets. Total other assets at June 30, 2019 increased $5.3 million , or 2%, compared to the balance at December 31, 2018 . These changes resulted from the following factors:


•	Other assets, which consist primarily of BOLI, investment in partnerships, prepaid expenses, the fair value of interest rate derivatives, and other receivables increased $19.7 million , or 8% , to $266.7 million at June 30, 2019 from $247.0 million at December 31, 2018 . The increase was primarily driven by an increase in the market value adjustment on derivative assets.


•	Deferred income taxes, net, decreased $9.5 million , or 35% , to $17.2 million at June 30, 2019 from $26.6 million at December 31, 2018 . The decrease was primarily due to the tax effect of unrealized gains on securities available-for-sale at June 30, 2019 compared to the tax effect of unrealized losses on securities available-for-sale at December 31, 2018.


•	Premises and equipment, net, decreased $5.2 million , or 11% , to $40.2 million at June 30, 2019 from $45.4 million at December 31, 2018 . The decrease is related to the timing of new purchases, primarily related to the Company's information technology initiatives as well as leasehold improvements.

Deposits. Deposits at June 30, 2019 decreased $343.2 million , or 5% , compared to the balance at December 31, 2018 . Average total deposits for the three months ended June 30, 2019 increased 4% from the same period in 2018 as shown in the average balance sheet. For further details, see “Results of Operations” above.

Deposits are the principal source of the Bank’s funds for use in lending, investments, and liquidity. Deposit levels can fluctuate from quarter to quarter as a result of large short-term transactions by commercial clients. Seasonality can also affect the deposit balances.

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

The following table presents the composition of the Company’s deposits at June 30, 2019 and December 31, 2018 :



	June 30, 2019				December 31, 2018
	Balance		as a % of total		Balance		as a % of total
	(In thousands)
Demand deposits (non-interest bearing)	$	1,854,091	29	%	$	1,951,274	29	%
NOW (1)	563,130		9	%	626,686		9	%
Savings	68,036		1	%	73,834		1	%
Money market (1)	3,228,608		50	%	3,338,891		49	%
Certificates of deposit less than $100,000 (1)	195,266		3	%	265,883		4	%
Certificates of deposit $100,000 to $250,000	105,292		2	%	98,120		2	%
Certificates of deposit more than $250,000	423,540		6	%	426,482		6	%
Total deposits	$	6,437,963	100	%	$	6,781,170	100	%

_____________________


(1)	Includes brokered deposits of $404.9 million and $541.1 million at June 30, 2019 and December 31, 2018 , respectively.

Total borrowings. Total borrowings (consisting of securities sold under agreements to repurchase; federal funds purchased; FHLB borrowings; and junior subordinated debentures) at June 30, 2019 increased $410.4 million , or 50% , compared to the balance at December 31, 2018 , primarily driven by an increase in FHLB borrowings, partially offset by a decrease in federal funds purchased. As described below, total borrowings increased primarily to fund loans as deposit balances decreased during the same period.

•

FHLB borrowings increased $499.9 million to $920.1 million at June 30, 2019 from $420.1 million at December 31, 2018 . The increase was primarily due to seasonal deposit outflows and asset liability management considerations to reduce the outstanding balance of overnight federal funds purchased with term FHLB borrowings. FHLB borrowings are generally used to provide additional funding for loan growth when it is in excess of deposit growth and to manage interest rate risk, but can also be used as an additional source of liquidity for the Bank.


•	From time to time, the Bank purchases federal funds from the FHLB and other banking institutions to supplement its liquidity position. At June 30, 2019 , the Company had $135.0 million federal funds purchased outstanding compared to $250.0 million at December 31, 2018 .


•	Repurchase agreements increased $25.4 million , or 69% , to $62.4 million at June 30, 2019 from $36.9 million at December 31, 2018 . Repurchase agreements are generally linked to commercial demand deposit accounts with an overnight sweep feature.

Lease liabilities. L ease liabilities at June 30, 2019 increased $126.7 million compared to the balance at December 31, 2018 . Upon adoption of the new lease accounting standard discussed above, the Company recognized approximately $124 million of lease liabilities on the face of the consolidated balance sheet as of January 1, 2019. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 14: Lease Accounting” for further details of the Company’s leases.

Total other liabilities. Total other liabilities, which consist primarily of accrued interest, accrued employee benefits, interest rate derivatives, the unfunded portion of partnership investment commitments, and other accrued expenses, at June 30, 2019 decreased $19.2 million , or 13% , compared to the balance at December 31, 2018 . The decrease was primarily driven by the payment of accrued variable compensation, bonuses, and employee benefits in the first quarter of 2019 that had been accrued for at December 31, 2018 .

Loan Portfolio and Credit Quality

Loans. Total loans increased $187.1 million , or 3% , to $7.1 billion , or 81% of total assets, at June 30, 2019 , from $6.9 billion , or 81% of total assets, at December 31, 2018 . The following table presents a summary of the loan portfolio based on the portfolio segment and changes in balances as of the dates indicated:



	June 30, 2019		December 31, 2018		$ Change			% Change
	(In thousands)
Commercial and industrial	$	656,186	$	623,037	$	33,149		5	%
Commercial tax-exempt	450,307		451,671		(1,364		)	—	%
Total commercial and industrial	1,106,493		1,074,708		31,785			3	%
Commercial real estate	2,530,556		2,395,692		134,864			6	%
Construction and land	200,378		240,306		(39,928		)	(17	)%
Residential	3,025,758		2,948,973		76,785			3	%
Home equity	89,930		90,421		(491		)	(1	)%
Consumer and other	127,145		143,058		(15,913		)	(11	)%
Total loans	$	7,080,260	$	6,893,158	$	187,102		3	%

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

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

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



	June 30, 2019		December 31, 2018
	(In thousands)
Multifamily and residential investment	$	872,505	$	687,395
Retail	643,606		635,222
Office and medical	516,822		543,697
Manufacturing, industrial, and warehouse	185,108		193,472
Hospitality	148,604		187,132
Other	163,911		148,774
Total commercial real estate loans	$	2,530,556	$	2,395,692

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



	As of June 30, 2019
	New England				San Francisco Bay Area				Southern California				Total
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(In thousands)
Commercial and industrial	$	524,319	7	%	$	41,131	1	%	$	90,736	1	%	$	656,186	9	%
Commercial tax-exempt	343,359		5	%	95,825		1	%	11,123		—	%	450,307		6	%
Commercial real estate	1,071,073		15	%	770,312		11	%	689,171		10	%	2,530,556		36	%
Construction and land	144,986		2	%	24,725		1	%	30,667		—	%	200,378		3	%
Residential	1,708,501		24	%	574,937		8	%	742,320		11	%	3,025,758		43	%
Home equity	58,806		1	%	19,232		—	%	11,892		—	%	89,930		1	%
Consumer and other	106,177		2	%	12,279		—	%	8,689		—	%	127,145		2	%
Total loans (1)	$	3,957,221	56	%	$	1,538,441	22	%	$	1,584,598	22	%	$	7,080,260	100	%



	As of December 31, 2018
	New England				San Francisco Bay Area				Southern California				Total
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(In thousands)
Commercial and industrial	$	503,201	7	%	$	43,702	1	%	$	76,134	1	%	$	623,037	9	%
Commercial tax-exempt	344,079		5	%	96,387		2	%	11,205		—	%	451,671		7	%
Commercial real estate	1,022,061		15	%	714,449		10	%	659,182		10	%	2,395,692		35	%
Construction and land	153,929		2	%	41,516		—	%	44,861		1	%	240,306		3	%
Residential	1,689,318		25	%	559,578		8	%	700,077		10	%	2,948,973		43	%
Home equity	57,617		1	%	19,722		—	%	13,082		—	%	90,421		1	%
Consumer and other	120,402		2	%	12,663		—	%	9,993		—	%	143,058		2	%
Total loans (1)	$	3,890,607	57	%	$	1,488,017	21	%	$	1,514,534	22	%	$	6,893,158	100	%

________________________


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

Allowance for loan losses . The allowance for loan losses is reported as a reduction of outstanding loan balances and totaled $75.1 million and $75.3 million as of June 30, 2019 and December 31, 2018 , respectively.

The allowance for loan losses decreased $0.2 million to $75.1 million , or 1.06% of total loans, as of June 30, 2019 from $75.3 million , or 1.09% of total loans, as of December 31, 2018 . The decrease in the overall allowance for loan losses was primarily due to a decline in criticized loans, and net changes to loss factors, partially offset by the mix in the loan portfolio. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 7: Allowance for Loan Losses” for an analysis of the Company’s allowance for loan losses.

An analysis of the risk in the loan portfolio as well as management judgment is used to determine the estimated appropriate amount of the allowance for loan losses. The Company’s allowance for loan losses is comprised of three primary components (general reserves, allocated reserves on non-impaired special mention and substandard loans, and allocated reserves on impaired loans). See Part II. Item 8. “Notes to Unaudited Consolidated Financial Statements - Note 6: Allowance for Loan Losses” and the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for further information.

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



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(In thousands)
Net loans (charged-off)/ recovered:
New England	$	31		$	(73	)	$	253		$	(358	)
San Francisco Bay Area	20			91			38			158
Southern California	(161		)	95			(473		)	264
Total net loans (charged-off)/ recovered	$	(110	)	$	113		$	(182	)	$	64

There were $0.1 million in net charge-offs recorded in the second quarter of 2019 compared to $0.1 million of net recoveries for the same period of 2018.

Nonperforming assets. The Company’s nonperforming assets include nonaccrual loans and OREO, if any. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of deeds in lieu of foreclosure. As of June 30, 2019 , nonperforming assets totaled $17.2 million , or 0.20% of total assets, an increase of $2.7 million, or 19% , compared to $14.5 million , or 0.17% of total assets, as of December 31, 2018 .

The Bank’s policy is to discontinue the accrual of interest on a loan when the collectability of principal or interest in accordance with the contractual terms of the loan agreement is in doubt. Despite a loan having a current payment status, if the Bank has reason to believe it may not collect all principal and interest on the loan in accordance with the related contractual terms, the Bank will generally discontinue the accrual of interest income and will apply any future interest payments received to principal. Of the $17.2 million of loans on nonaccrual status as of June 30, 2019 , $5.8 million, or 34%, had a current payment status, $3.4 million, or 20%, were 30-89 days past due, and $8.0 million, or 46% , were 90 days or more past due. Of the $14.1 million of loans on nonaccrual status as of December 31, 2018 , $3.6 million, or 26%, had a current payment status, $0.8 million, or 5%, were 30-89 days past due, and $9.7 million, or 69%, were 90 days or more past due.

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

Delinquencies. The past due status of a loan is determined in accordance with its contractual repayment terms. All loan types are reported past due when one scheduled payment is due and unpaid for 30 days or more. Loans 30-89 days past due decreased $19.9 million , or 89% , to $2.4 million as of June 30, 2019 from $22.3 million as of December 31, 2018 . Loan delinquencies can be attributed to many factors, such as continuing weakness in, or deteriorating, economic conditions in the region in which the collateral is located, the loss of a tenant or lower lease rates for commercial borrowers, or the loss of income for consumers and the resulting liquidity impacts on the borrowers. Further deterioration in the credit condition of these delinquent loans could lead to the loans going to nonaccrual status and/or being downgraded. Downgrades would generally result in additional provision for loan losses. Past due loans may be included with accruing substandard loans.

In certain instances, although very infrequently, loans that have become 90 days or more past due may remain on accrual status if the value of the collateral securing the loan is sufficient to cover principal and interest and the loan is in the process of collection. There was one loan 90 days or more past due, but still accruing, for $0.9 million, as of June 30, 2019 and no loans 90 days or more past due, but still accruing, as of December 31, 2018 .

Impaired Loans. Impaired loans individually evaluated for impairment in the allowance for loan losses totaled $20.8 million as of June 30, 2019 , an increase of $5.2 million, or 33% , compared to $15.6 million as of December 31, 2018 . As of June 30, 2019 , $1.5 million of the individually evaluated impaired loans had $0.2 million in specific reserve allocations. The remaining $19.3 million of individually evaluated impaired loans did not have specific reserve allocations due to the adequacy of collateral, prior charge-offs taken, interest collected and applied to principal, or a combination of these items. As of December 31, 2018 , $4.2 million of individually evaluated impaired loans had $1.2 million in specific reserve allocations, and the remaining $11.4 million of individually evaluated impaired loans did not have specific reserve allocations.

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

As of June 30, 2019 , the Bank has identified $53.9 million in potential problem loans, a decrease of $0.2 million , or less than 1% compared to $54.1 million as of December 31, 2018 . Numerous factors impact the level of potential problem loans, including economic conditions and real estate values. These factors affect the borrower’s liquidity and, in some cases, the borrower’s ability to comply with loan covenants such as debt service coverage. For instance, when there is a loss of a major tenant in a commercial real estate building, the appraised value of the building generally declines. Loans may be downgraded when this occurs as a result of the additional risk to the borrower in obtaining a new tenant in a timely manner and negotiating a lease with similar or better terms than the previous tenant. In many cases, these loans are still current and paying as agreed, although future performance may be impacted.

The following table presents a rollforward of nonaccrual loans for the three and six months ended June 30, 2019 and 2018 :



	As of and for the three months ended June 30,						As of and for the six months ended June 30,
	2019			2018			2019			2018
	(In thousands)
Nonaccrual loans, beginning of period	$	12,019		$	16,380		$	14,057		$	14,295
Transfers in to nonaccrual status	5,911			680			6,258			4,918
Transfers out to OREO	—			(108		)	—			(108		)
Transfers out to accrual status	(171		)	(905		)	(204		)	(1,792		)
Charge-offs	(195		)	(140		)	(759		)	(514		)
Paid off/ paid down	(409		)	(256		)	(2,197		)	(1,148		)
Nonaccrual loans, end of period	$	17,155		$	15,651		$	17,155		$	15,651

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



	June 30, 2019		December 31, 2018
	(In thousands)
Nonaccrual loans:
New England	$	8,837	$	6,728
San Francisco Bay Area	2,644		2,488
Southern California	5,674		4,841
Total nonaccrual loans	$	17,155	$	14,057
Loans 30-89 days past due and accruing:
New England	$	1,747	$	15,961
San Francisco Bay Area	6		2,246
Southern California	681		4,092
Total loans 30-89 days past due (1)	$	2,434	$	22,299
Accruing classified loans: (2)
New England	$	13,012	$	10,392
San Francisco Bay Area	25,957		24,584
Southern California	14,914		19,119
Total accruing classified loans	$	53,883	$	54,095

___________________


(1)	In addition, there was one loan that was 90+ days past due and accruing, a New England loan for $0.9 million. This loan paid off in July 2019.

(2) Accruing Classified includes both Substandard and Doubtful classifications.

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



	June 30, 2019		December 31, 2018
	(In thousands)
Nonaccrual loans:
Commercial and industrial	$	1,567	$	2,554
Commercial tax-exempt	—		—
Commercial real estate	—		546
Construction and land	—		—
Residential	12,572		7,914
Home equity	3,004		3,031
Consumer and other	12		12
Total nonaccrual loans	$	17,155	$	14,057
Loans 30-89 days past due and accruing:
Commercial and industrial	$	251	$	9,794
Commercial tax-exempt	—		—
Commercial real estate	982		—
Construction and land	—		—
Residential	334		6,843
Home equity	—		602
Consumer and other	867		5,060
Total loans 30-89 days past due (1)	$	2,434	$	22,299
Accruing classified loans: (2)
Commercial and industrial	$	23,037	$	22,992
Commercial tax-exempt	4,051		4,051
Commercial real estate	23,795		27,052
Construction and land	—		—
Residential	3,000		—
Home equity	—		—
Consumer and other	—		—
Total accruing classified loans	$	53,883	$	54,095

___________________


(1)	In addition, there was one loan that was 90+ days past due and accruing, a residential loan for $0.9 million. This loan paid off in July 2019.

(2) Accruing Classified includes both Substandard and Doubtful classifications.

Liquidity

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

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



	June 30, 2019			December 31, 2018			$ Change			% Change
	(In thousands)
Cash and cash equivalents	$	65,756		$	127,259		$	(61,503	)	(48	)%
Investment securities available-for-sale	966,731			994,065			(27,334		)	(3	)%
Equity securities at fair value	19,092			14,228			4,864			34	%
LESS: Securities pledged against current borrowings and derivatives	(104,443		)	(44,022		)	(60,421		)	nm
Cash and investments	$	947,136		$	1,091,530		$	(144,394	)	(13	)%
As a percent of assets	11		%	13		%

Access to additional FHLB borrowings	918,184			1,405,083			(486,899		)	(35	)%
Total liquidity	$	1,865,320		$	2,496,613		$	(631,293	)	(25	)%
As a percent of assets	21		%	29		%
As a percent of deposits	29		%	37		%

_____________________

nm = not meaningful

At June 30, 2019 , the Company’s cash and cash equivalents amounted to $65.8 million . The Holding Company’s cash and cash equivalents amounted to $46.3 million at June 30, 2019 . Management believes that the Holding Company and its affiliates, including the Bank, have adequate liquidity to meet their commitments for the foreseeable future.

Management is responsible for establishing and monitoring liquidity targets as well as strategies to meet these targets. At June 30, 2019 , consolidated cash and cash equivalents, investment securities available-for-sale and equity securities at fair value, less securities pledged against current borrowings and derivatives, amounted to $0.9 billion, or 11% of total assets, compared to $1.1 billion, or 13% of total assets, at December 31, 2018 . Future loan growth may depend upon the Company’s ability to grow its core deposit levels. In addition, the Company has access to available borrowings through the FHLB totaling $0.9 billion at June 30, 2019 and $1.4 billion at December 31, 2018 . Combined, this liquidity totals $1.9 billion, or 21% of assets and 29% of deposits, as of June 30, 2019 , compared to $2.5 billion, or 29% of assets and 37% of deposits, at December 31, 2018 .

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

Holding Company Liquidity. The Company and the Company’s majority-owned affiliate, DGHM, hold put and call options that would require the Company to purchase (and the noncontrolling interest owner of the majority-owned affiliate to sell) the remaining noncontrolling interest in DGHM at either a contractually predetermined fair value, a multiple of EBITDA, or fair value, as determined by the agreement. At June 30, 2019 , the estimated maximum redemption value for DGHM related to outstanding put options was $1.8 million , all of which could be redeemed within the next 12 months, under certain circumstances, and is classified on the consolidated balance sheets as redeemable noncontrolling interests. These put and call options are discussed in detail in Part II. Item 8. “Financial Statements and Supplementary Data - Note 14: Noncontrolling Interests” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 .

Although not a primary source of funds, the Holding Company has generated liquidity from the sale of affiliates in the past. Additional funds were generated at the time of the Anchor sale which closed in April 2018 and the BOS sale which closed in December 2018. As part of the sale agreements for both Anchor and BOS, the Company expects to receive future contingent payments that have estimated present values of $13.0 million and $13.2 million at June 30, 2019 , respectively.

Dividends from the Bank are limited by various regulatory requirements relating to capital adequacy and retained earnings. See Part II. Item 5. “Market for Registrant’s Common Equity, Related Stockholders Matters, and Issuers Purchases of Equity Securities” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for further details.

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

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

The Company is required to pay interest quarterly on its junior subordinated debentures. The estimated cash outlay for the remaining six months of 2019 for the interest payments is approximately $2.0 million based on the debt outstanding at June 30, 2019 and estimated LIBOR. LIBOR is expected to be phased out as an index by the end of 2021. The Company will need to negotiate an alternative benchmark rate to be used at the time.

The Company presently plans to pay cash dividends on its common stock on a quarterly basis dependent upon a number of factors such as profitability, Holding Company liquidity, and the Company’s capital levels. However, the ultimate declaration of dividends by the Board of Directors of the Company will depend on consideration of, among other things, recent financial trends and internal forecasts, regulatory limitations, alternative uses of capital deployment, general economic conditions, and regulatory changes to capital requirements. Additionally, the Company is required to inform and consult with the Federal Reserve in advance of declaring a dividend that exceeds earnings for the period for which the dividend is being paid. Based on the current quarterly dividend rate of $0.12 per share, as announced by the Company on July 24, 2019, and estimated shares outstanding, the Company estimates that the amount to be paid out for dividends to common shareholders in the remaining six months of 2019 will be approximately $19.9 million. The estimated dividend payments in 2019 could increase or decrease if the Company’s Board of Directors votes to increase or decrease, respectively, the current dividend rate, and/or the number of shares outstanding changes significantly.

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

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

From time to time, the Bank purchases federal funds from the FHLB and other banking institutions to supplement its liquidity position. At June 30, 2019 , the Bank had unused federal fund lines of credit totaling $405.0 million, compared to $465.0 million at December 31, 2018, with correspondent institutions to provide it with immediate access to overnight borrowings. At June 30, 2019 , the Bank had $125.0 million outstanding borrowings under the federal funds lines with these correspondent institutions along with an additional $10.0 million of outstanding borrowings under federal funds lines with the FHLB. At December 31, 2018 , the Bank had $100.0 million outstanding borrowings under the federal funds lines with these correspondent institutions along with an additional $150.0 million of outstanding borrowings under federal funds lines with the FHLB. Certain liquidity sources, such as federal funds lines, may be withdrawn by the correspondent bank at any time especially in the event of financial deterioration of the institution.

The Bank has negotiated brokered deposit agreements with several institutions that have nationwide distribution capabilities. The Bank participates in deposit placement services that can be used to provide customers to expanded deposit insurance coverage. At June 30, 2019 , the Bank had $404.9 million of brokered deposits outstanding under these agreements, compared to $541.1 million at December 31, 2018 .

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

Capital Resources

Total shareholders’ equity at June 30, 2019 was $798.2 million , compared to $754.0 million at December 31, 2018 , an increase of $44.3 million . The increase in shareholders’ equity was primarily the result of net income attributable to the Company and the change in accumulated other comprehensive income, partially offset by dividends paid to common shareholders.

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

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

The following table presents the Company’s and the Bank’s regulatory capital and related ratios as of June 30, 2019 and December 31, 2018 . Also presented are the minimum requirements established by the Federal Reserve and the FDIC as of those dates for the Company and the Bank, respectively, to meet applicable capital requirements and the requirements of the FDIC as of those dates for the Bank to be considered “well capitalized” under all regulatory definitions. The Federal Reserve and the Massachusetts Division of Banks may impose higher capital ratios than those listed below based upon the results of regulatory exams.



	Actual				For capital adequacy purposes (at least)				To be well capitalized under prompt corrective action provisions (at least)			Minimum capital ratio with capital conservation buffer (1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio	Ratio
	(In thousands)
As of June 30, 2019
Common equity tier 1 risk-based capital
Company	$	726,872	11.20	%	$	292,103	4.5	%	n/a		n/a	7.0%
Boston Private Bank	768,435		11.92		290,126		4.5		$	419,072	6.5%	7.0
Tier 1 risk-based capital
Company	827,299		12.74		389,471		6.0		n/a		n/a	8.5
Boston Private Bank	768,435		11.92		386,835		6.0		515,780		8.0	8.5
Total risk-based capital
Company	903,675		13.92		519,295		8.0		n/a		n/a	10.5
Boston Private Bank	844,665		13.10		515,780		8.0		644,725		10.0	10.5
Tier 1 leverage capital
Company	827,299		9.60		344,712		4.0		n/a		n/a	4.0
Boston Private Bank	768,435		8.99		341,973		4.0		427,467		5.0	4.0

As of December 31, 2018
Common equity tier 1 risk-based capital
Company	$	702,728	11.40	%	$	277,275	4.5	%	n/a		n/a	7.0%
Boston Private Bank	745,051		12.13		276,352		4.5		$	399,175	6.5%	7.0
Tier 1 risk-based capital
Company	803,311		13.04		369,701		6.0		n/a		n/a	8.5
Boston Private Bank	745,051		12.13		368,469		6.0		491,292		8.0	8.5
Total risk-based capital
Company	879,927		14.28		492,934		8.0		n/a		n/a	10.5
Boston Private Bank	821,584		13.38		491,292		8.0		614,115		10.0	10.5
Tier 1 leverage capital
Company	803,311		9.54		336,648		4.0		n/a		n/a	4.0
Boston Private Bank	745,051		8.92		334,029		4.0		417,537		5.0	4.0

____________________


(1)	Required capital ratios with the fully phased-in capital conservation buffer added to the minimum risk-based capital ratios. The fully phased-in ratios are effective for 2019.

The Company has sponsored the creation of two statutory trusts for the sole purpose of issuing trust preferred securities and investing the proceeds in junior subordinated debentures of the Company. In accordance with ASC 810-10-55, Consolidation - Overall - Implementation Guidance and Illustrations - Variable Interest Entities , these statutory trusts created by the Company are not consolidated into the Company’s financial statements; however, the Company reflects the amounts of junior subordinated debentures payable to the preferred stockholders of statutory trusts as debt in its financial statements. As of both June 30, 2019 and December 31, 2018 , all $100.0 million of the net balance of these trust preferred securities qualified as Tier 1 capital.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the Interest Rate Sensitivity and Market Risk as described in Part II. Item 7A. “Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Sensitivity and Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 .

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

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

Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were effective as of June 30, 2019 in ensuring that material information required to be disclosed by the Company, including its consolidated subsidiaries, was made known to the certifying officers by others within the Company and its consolidated subsidiaries in the reports that it files or submits under the Exchange Act and is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. On a quarterly basis, the Company evaluates the disclosure controls and procedures, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

(b) Change in internal controls over financial reporting.

There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended June 30, 2019 , that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Before deciding to invest in us or deciding to maintain or increase your investment, you should carefully consider the risks described in Part I. Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC. There have been no material changes to these risk factors since the filing of that report.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits



Exhibit No.	Description	Incorporated by Reference			Filed or Furnished with this 10-Q
Exhibit No.	Description	Form	SEC Filing Date	Exhibit Number	Filed or Furnished with this 10-Q
10.1	Form of Restricted Stock Unit Award Agreement for the Chief Executive Officer under the Boston Private Financial Holdings, Inc. Amended and Restated 2009 Stock Option and Incentive Plan				Filed
10.2	Form of Non-Qualified Stock Option Agreement for the Chief Executive Officer under the Boston Private Financial Holdings, Inc. Amended and Restated 2009 Stock Option and Incentive Plan				Filed
10.3	Form of Performance Restricted Stock Unit Award Agreement for the Chief Executive Officer under the Boston Private Financial Holdings, Inc. Amended and Restated 2009 Stock Option and Incentive Plan				Filed
10.4	Form of Non-Qualified Stock Option Agreement for employees under the Boston Private Financial Holdings, Inc. Amended and Restated 2009 Stock Option and Incentive Plan	8-K	5/13/2019	10.1
31.1	Certification of Chief Executive Officer pursuant to Rule 13a - 14(a)/15d - 14(a) under the Securities Exchange Act of 1934				Filed
31.2	Certification of Chief Financial Officer pursuant to Rule 13a - 14(a)/15d - 14(a) under the Securities Exchange Act of 1934				Filed
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				Furnished
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				Furnished
101.INS	XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document				Filed
101.SCH	XBRL Taxonomy Extension Schema Document				Filed
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				Filed
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				Filed
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				Filed
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				Filed

SIGNATURES

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




	BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

	/s/ A NTHONY D E C HELLIS
August 5, 2019	Anthony DeChellis
	Chief Executive Officer, President and Director (Principal Executive Officer)

	/s/ S TEVEN M. G AVEN
August 5, 2019	Steven M. Gaven
	Executive Vice President, Chief Financial Officer