Toggle SGML Header (+)


Section 1: 10-Q (BPFH Q1 2018 10-Q)

Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
Or
o
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: 0-17089
BOSTON PRIVATE FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)  
 
 
Commonwealth of Massachusetts
04-2976299
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
Ten Post Office Square
Boston, Massachusetts
02109
(Address of principal executive offices)
(Zip Code)
 
 
Registrant’s telephone number, including area code: (617) 912-1900
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x
 
 
 
Accelerated filer o    
 
 
Non-accelerated filer o   
 
(Do not check if a smaller reporting company)
 
Smaller reporting company o    
 
 
 
 
 
 
Emerging growth company o    
 
 
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. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of April 27, 2018:
Common Stock, Par Value $1.00 Per Share
84,219,494
(class)
(outstanding)
 



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

PART I—FINANCIAL INFORMATION
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
 
 
 
 
Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
Item 3
 
Item 4
 
PART II—OTHER INFORMATION
Item 1
 
Item 1A
 
Item 2
 
Item 3
 
Item 4
 
Item 5
 
Item 6
 
 
 
 
 
Certifications
 



i



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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)

 
March 31, 2018
 
December 31, 2017
 
(In thousands, except share and per share data)
Assets:
 
 
 
Cash and cash equivalents
$
77,085

 
$
120,541

Investment securities available-for-sale (amortized cost of $1,148,526 and $1,182,427 at March 31, 2018 and December 31, 2017, respectively)
1,118,497

 
1,170,328

Investment securities held-to-maturity (fair value of $68,887 and $73,781 at March 31, 2018 and December 31, 2017, respectively)
70,809

 
74,576

Stock in Federal Home Loan Bank and Federal Reserve Bank
54,455

 
59,973

Loans held for sale
3,918

 
4,697

Total loans
6,602,327

 
6,505,028

Less: Allowance for loan losses
72,898

 
74,742

Net loans
6,529,429

 
6,430,286

Premises and equipment, net
43,627

 
37,640

Goodwill
75,598

 
75,598

Intangible assets, net
15,334

 
16,083

Fees receivable
10,640

 
11,154

Accrued interest receivable
22,614

 
22,322

Deferred income taxes, net
32,058

 
29,031

Other assets
264,295

 
259,515

Total assets
$
8,318,359

 
$
8,311,744

Liabilities:
 
 
 
Deposits
$
6,584,322

 
$
6,510,246

Securities sold under agreements to repurchase
85,257

 
32,169

Federal funds purchased

 
30,000

Federal Home Loan Bank borrowings
611,588

 
693,681

Junior subordinated debentures
106,363

 
106,363

Other liabilities
125,004

 
135,880

Total liabilities
7,512,534

 
7,508,339

Redeemable Noncontrolling Interests
16,322

 
17,461

Shareholders’ Equity:
 
 
 
Preferred stock, $1.00 par value; authorized: 2,000,000 shares;
Series D, 6.95% Non-Cumulative Perpetual, issued and outstanding: 50,000 shares at March 31, 2018 and December 31, 2017; liquidation preference: $1,000 per share
47,753

 
47,753

Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 84,194,267 shares at March 31, 2018 and 84,208,538 shares at December 31, 2017
84,194

 
84,208

Additional paid-in capital
612,526

 
607,929

Retained earnings
61,518

 
49,526

Accumulated other comprehensive income/ (loss)
(21,313
)
 
(8,658
)
Total Company’s shareholders’ equity
784,678

 
780,758

Noncontrolling interests
4,825

 
5,186

Total shareholders’ equity
789,503

 
785,944

Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
8,318,359

 
$
8,311,744

See accompanying notes to consolidated financial statements.

1


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

 
Three months ended March 31,
 
2018
 
2017
 
(In thousands, except share and per share data)
Interest and dividend income:
 
 
 
Loans
$
60,929

 
$
53,636

Taxable investment securities
1,510

 
1,670

Non-taxable investment securities
1,730

 
1,606

Mortgage-backed securities
3,178

 
3,504

Federal funds sold and other
1,009

 
600

Total interest and dividend income
68,356

 
61,016

Interest expense:
 
 
 
Deposits
6,524

 
4,531

Federal Home Loan Bank borrowings
3,344

 
2,111

Junior subordinated debentures
846

 
671

Repurchase agreements and other short-term borrowings
259

 
61

Total interest expense
10,973

 
7,374

Net interest income
57,383

 
53,642

Provision/ (credit) for loan losses
(1,795
)
 
(181
)
Net interest income after provision/ (credit) for loan losses
59,178

 
53,823

Fees and other income:
 
 
 
Investment management fees
11,425

 
10,839

Wealth advisory fees
13,512

 
12,823

Wealth management and trust fees
12,151

 
10,826

Other banking fee income
2,273

 
1,694

Gain on sale of loans, net
74

 
138

Gain/ (loss) on sale of investments, net
(24
)
 
19

Gain/ (loss) on OREO, net

 
(46
)
Other
332

 
213

Total fees and other income
39,743

 
36,506

Operating expense:
 
 
 
Salaries and employee benefits
47,084

 
45,665

Occupancy and equipment
7,748

 
7,185

Professional services
3,177

 
3,314

Marketing and business development
1,593

 
1,660

Information systems
5,886

 
5,379

Amortization of intangibles
750

 
1,426

FDIC insurance
744

 
766

Other
3,875

 
3,385

Total operating expense
70,857

 
68,780

Income before income taxes
28,064

 
21,549

Income tax expense
6,026

 
6,553

Net income from continuing operations
22,038

 
14,996

Net income from discontinued operations
1,698

 
1,632

Net income before attribution to noncontrolling interests
23,736

 
16,628

(Continued)
 
 
 

2


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

 
Three months ended March 31,
 
2018
 
2017
Less: Net income attributable to noncontrolling interests
1,050

 
966

Net income attributable to the Company
$
22,686

 
$
15,662

Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders
$
(23
)
 
$
(1,166
)
Net income attributable to common shareholders for earnings per share calculation
$
22,663

 
$
14,496

Basic earnings per share attributable to common shareholders:
 
 
 
From continuing operations:
$
0.25

 
$
0.16

From discontinued operations:
$
0.02

 
$
0.02

Total attributable to common shareholders:
$
0.27

 
$
0.18

Weighted average basic common shares outstanding
83,097,758

 
81,951,179

Diluted earnings per share attributable to common shareholders:
 
 
 
From continuing operations:
$
0.25

 
$
0.15

From discontinued operations:
$
0.02

 
$
0.02

Total attributable to common shareholders:
$
0.27

 
$
0.17

Weighted average diluted common shares outstanding
85,271,650

 
84,560,918


 See accompanying notes to consolidated financial statements.

3


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

 
Three months ended March 31,
 
2018
 
2017
 
(In thousands)
Net income attributable to the Company
$
22,686

 
$
15,662

Other comprehensive income/ (loss), net of tax:
 
 
 
Unrealized gain/ (loss) on securities available-for-sale
(12,895
)
 
2,094

Reclassification adjustment for net realized (gain)/ loss included in net income

 
(11
)
Net unrealized gain/ (loss) on securities available-for-sale
(12,895
)
 
2,083

Unrealized gain/ (loss) on cash flow hedges
588

 
36

Reclassification adjustment for net realized (gain)/ loss included in net income
(14
)
 
180

Net unrealized gain/ (loss) on cash flow hedges
574

 
216

Net unrealized gain/ (loss) on other

 
12

Other comprehensive income/ (loss), net of tax
(12,321
)
 
2,311

Total comprehensive income attributable to the Company, net
$
10,365

 
$
17,973

 See accompanying notes to consolidated financial statements.


4


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, 2016
$
47,753

 
$
83,732

 
$
597,454

 
$
47,929

 
$
(12,548
)
 
$
4,161

 
$
768,481

Net income attributable to the Company

 

 

 
15,662

 

 

 
15,662

Other comprehensive income/ (loss), net

 

 

 

 
2,311

 

 
2,311

Dividends paid to common shareholders:
$0.11 per share

 

 

 
(9,212
)
 

 

 
(9,212
)
Dividends paid to preferred shareholders

 

 

 
(869
)
 

 

 
(869
)
Net change in noncontrolling interests

 

 

 

 

 
(168
)
 
(168
)
Net proceeds from issuance of:
 
 
 
 
 
 
 
 
 
 
 
 
 
72,811 shares of common stock

 
73

 
648

 

 

 

 
721

15,596 incentive stock grant shares canceled or forfeited

 
(16
)
 
16

 

 

 

 

Exercise of warrants

 
260

 
1,616

 

 

 

 
1,876

Amortization of stock compensation and employee stock purchase plan

 

 
2,000

 

 

 

 
2,000

Stock options exercised

 
85

 
595

 

 

 

 
680

Other equity adjustments

 

 
419

 

 

 

 
419

Balance at March 31, 2017
$
47,753

 
$
84,134

 
$
602,748

 
$
53,510

 
$
(10,237
)
 
$
3,993

 
$
781,901

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 

 

 
334

 
(334
)
 

 

Net income attributable to the Company

 

 

 
22,686

 

 

 
22,686

Other comprehensive income/ (loss), net

 

 

 

 
(12,321
)
 

 
(12,321
)
Dividends paid to common shareholders:
$0.12 per share

 

 

 
(10,159
)
 

 

 
(10,159
)
Dividends paid to preferred shareholders

 

 

 
(869
)
 

 

 
(869
)
Net change in noncontrolling interests

 

 

 

 

 
(361
)
 
(361
)
Net proceeds from issuance of:
 
 
 
 
 
 
 
 
 
 
 
 
 
63,434 shares of common stock

 
63

 
770

 

 

 

 
833

110,846 incentive stock grant shares canceled or forfeited and 40,825 shares withheld for employee taxes

 
(151
)
 
(487
)
 

 

 

 
(638
)
Amortization of stock compensation and employee stock purchase plan

 

 
1,730

 

 

 

 
1,730

Stock options exercised

 
74

 
595

 

 

 

 
669

Other equity adjustments

 

 
1,989

 

 

 

 
1,989

Balance at March 31, 2018
$
47,753

 
$
84,194

 
$
612,526

 
$
61,518

 
$
(21,313
)
 
$
4,825

 
$
789,503


See accompanying notes to consolidated financial statements.

5


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

 
Three months ended March 31,
 
2018
 
2017
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to the Company
$
22,686

 
$
15,662

Adjustments to arrive at net income from continuing operations
 
 
 
Net income attributable to noncontrolling interests
1,050

 
966

Less: Net income from discontinued operations
(1,698
)
 
(1,632
)
Net income from continuing operations
22,038

 
14,996

Adjustments to reconcile net income from continuing operations to net cash provided by/ (used in) operating activities:
 
 
 
Depreciation and amortization
4,638

 
5,325

Net income attributable to noncontrolling interests
(1,050
)
 
(966
)
Stock compensation, net of cancellations
1,730

 
2,000

Provision/ (credit) for loan losses
(1,795
)
 
(181
)
Loans originated for sale
(11,875
)
 
(9,078
)
Proceeds from sale of loans held for sale
12,732

 
12,330

Deferred income tax expense/ (benefit)
1,769

 
217

Net decrease/ (increase) in other operating activities
(13,079
)
 
(11,272
)
Net cash provided by/ (used in) operating activities of continuing operations
15,108

 
13,371

Net cash provided by/ (used in) operating activities of discontinued operations
1,698

 
1,632

Net cash provided by/ (used in) operating activities
16,806

 
15,003

Cash flows from investing activities:
 
 
 
Investment securities available-for-sale:
 
 
 
Purchases
(21,953
)
 
(71,498
)
Sales
15,877

 
32,717

Maturities, redemptions, and principal payments
37,912

 
47,994

Investment securities held-to-maturity:
 
 
 
Purchases

 
(9,970
)
Principal payments
3,650

 
4,485

(Investments)/ distributions in trusts, net
(125
)
 
(296
)
Purchase of additional Bank Owned Life Insurance (“BOLI”)

 
(50,000
)
(Purchase)/ redemption of Federal Home Loan Bank and Federal Reserve Bank stock
5,518

 
(6,056
)
Net increase in portfolio loans
(97,432
)
 
(135,514
)
Proceeds from recoveries of loans previously charged-off
340

 
193

Proceeds from sale of OREO

 
1,644

Capital expenditures, net of sale proceeds
(8,396
)
 
(3,153
)
Net cash provided by/ (used in) investing activities
(64,609
)
 
(189,454
)
(Continued)
 
 
 

6


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

 
Three months ended March 31,
 
2018
 
2017
Cash flows from financing activities:
 
 
 
Net increase/ (decrease) in deposits
74,076

 
161,474

Net increase/ (decrease) in securities sold under agreements to repurchase
53,088

 
7,625

Net increase/ (decrease) in federal funds purchased
(30,000
)
 
(80,000
)
Net increase/ (decrease) in short-term Federal Home Loan Bank borrowings
(120,000
)
 
140,000

Advances of long-term Federal Home Loan Bank borrowings
90,000

 
34,435

Repayments of long-term Federal Home Loan Bank borrowings
(52,093
)
 
(23,195
)
Dividends paid to common shareholders
(10,159
)
 
(9,212
)
Dividends paid to preferred shareholders
(869
)
 
(869
)
Proceeds from warrant exercises

 
1,876

Proceeds from stock option exercises
669

 
680

Proceeds from issuance of common stock, net
195

 
721

Distributions paid to noncontrolling interests
(1,018
)
 
(938
)
Other equity adjustments
458

 
483

Net cash provided by/ (used in) financing activities
4,347

 
233,080

Net increase/ (decrease) in cash and cash equivalents
(43,456
)
 
58,629

Cash and cash equivalents at beginning of year
120,541

 
106,557

Cash and cash equivalents at end of period
$
77,085

 
$
165,186

Supplementary schedule of non-cash investing and financing activities:
 
 
 
Cash paid for interest
$
11,204

 
$
7,431

Cash paid for income taxes, (net of refunds received)
(783
)
 
2,362

Change in unrealized gain/ (loss) on available-for-sale securities, net of tax
(12,895
)
 
2,083

Change in unrealized gain/ (loss) on cash flow hedges, net of tax
574

 
216

Change in unrealized gain/ (loss) on other, net of tax

 
12

Non-cash transactions:
 
 
 
Loans charged-off
(389
)
 
(58
)

See accompanying notes to consolidated financial statements.


7

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 four reportable segments: Private Banking, Wealth Management and Trust, Investment Management, and Wealth Advisory.
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, 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 Wealth Management and Trust segment is comprised of the operations of Boston Private Wealth LLC (“Boston Private Wealth”), a wholly-owned subsidiary of Boston Private Bank, and the trust operations of Boston Private Bank. 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; South Florida; California; and Madison, Wisconsin.
The Investment Management segment had two consolidated affiliates, Dalton, Greiner, Hartman, Maher & Co., LLC (“DGHM”) and Anchor Capital Advisors, LLC (“Anchor”) (together, the “Investment Managers”) included in its results for the first quarter of 2018, while the assets and liabilities of Anchor were classified as held for sale. Assets held for sale were$60.2 million and $58.8 million at March 31, 2018 and December 31, 2017, respectively, and liabilities held for sale were $4.7 million and $3.2 million at March 31, 2018 and December 31, 2017, respectively. In December 2017, the Company entered into an agreement to sell its entire ownership interest in Anchor in a transaction that would result in Anchor being majority-owned by members of its management team. The transaction closed in April 2018.
The Wealth Advisory segment has two consolidated affiliates, consisting of KLS Professional Advisors Group, LLC (“KLS”) and Bingham, Osborn & Scarborough, LLC (“BOS”) (together, the “Wealth Advisors” and, together with the Wealth Management and Trust and Investment Management segments, the “Wealth and Investment businesses”).
The Company conducts substantially all of its business through its four reportable segments. All significant intercompany accounts and transactions have been eliminated in consolidation.
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, 2017, 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’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, 2017, 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, 2018:
Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). As a result of implementing this standard, the Company reclassified $5 thousand in unrealized losses on derivatives related to hedge ineffectiveness 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.

8



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 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. As a result of the retrospective adoption of this ASU, $160 thousand for the three months ended March 31, 2017 has been reclassified from salaries and employee benefits expense to other expense within the Company’s consolidated statement of operations. For the three months ended March 31, 2018, $135 thousand is presented within other expense that would have been presented within salaries and employee benefits prior to adoption of ASU 2017-07.
ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”).  This update is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This ASU is effective for the Company beginning on January 1, 2018. The guidance requires application using a retrospective transition method. This ASU did not have an impact on the Company’s consolidated financial statements.
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This amendment 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.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which was 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.” 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.



9

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

2.    Earnings Per Share
The treasury stock method of calculating earnings per share (“EPS”) is presented below for the three months ended March 31, 2018 and 2017. The following tables present the computations of basic and diluted EPS:
 
Three months ended March 31,
 
2018
 
2017
 
(In thousands, except share and per share data)
Basic earnings per share - Numerator:
 
 
 
Net income from continuing operations
$
22,038

 
$
14,996

Less: Net income attributable to noncontrolling interests
1,050

 
966

Net income from continuing operations attributable to the Company
20,988

 
14,030

Decrease/ (increase) in noncontrolling interests’ redemption values (1)
846

 
(297
)
Dividends on preferred stock
(869
)
 
(869
)
Total adjustments to income attributable to common shareholders
(23
)
 
(1,166
)
Net income from continuing operations attributable to common shareholders, treasury stock method
20,965

 
12,864

Net income from discontinued operations
1,698

 
1,632

Net income attributable to common shareholders, treasury stock method
$
22,663

 
$
14,496

 
 
 
 
Basic earnings per share - Denominator:
 
 
 
Weighted average basic common shares outstanding
83,097,758

 
81,951,179

Per share data - Basic earnings per share from:
 
 
 
Continuing operations
$
0.25

 
$
0.16

Discontinued operations
$
0.02

 
$
0.02

Total attributable to common shareholders
$
0.27

 
$
0.18




10

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

 
Three months ended March 31,
 
2018
 
2017
 
(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
$
20,965

 
$
12,864

Net income from discontinued operations
1,698

 
1,632

Net income attributable to common shareholders, after assumed dilution
$
22,663

 
$
14,496

Diluted earnings per share - Denominator:
 
 
 
Weighted average basic common shares outstanding
83,097,758

 
81,951,179

Dilutive effect of:
 
 
 
Stock options, performance-based and time-based restricted stock, and performance-based and time-based restricted stock units, and other dilutive securities (2)
1,136,145

 
1,455,333

Warrants to purchase common stock (2)
1,037,747

 
1,154,406

Dilutive common shares
2,173,892

 
2,609,739

Weighted average diluted common shares outstanding (2)
85,271,650

 
84,560,918

Per share data - Diluted earnings per share from:
 
 
 
Continuing operations
$
0.25

 
$
0.15

Discontinued operations
$
0.02

 
$
0.02

Total attributable to common shareholders
$
0.27

 
$
0.17

Dividends per share declared and paid on common stock
$
0.12

 
$
0.11

_____________________
(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, 2017 for a description of the redemption values related to the redeemable noncontrolling interests. In accordance with the FASB Accounting Standards Codification (“ASC”) 480, 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 months ended March 31, 2018 and 2017 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 March 31,
 
2018
 
2017
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:
 
 
 
Stock options
39

 
121

Total shares excluded due to exercise price exceeding the average market price of common shares during the period
39

 
121


3.    Reportable segments
Management Reporting
The Company has four reportable segments (Private Banking, Wealth Management and Trust, Investment Management, and Wealth Advisory), and the Holding Company (Boston Private Financial Holdings, Inc.). The financial performance of the Company is managed and evaluated by these four areas. The segments are managed separately as a result of the concentrations in each function.

11

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

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” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Revenues, expenses, and assets are recorded by each segment, and separate financial statements are reviewed by their management and the Company’s segment chief executive officers.
Reconciliation of Reportable Segment Items
The following tables present a reconciliation of the revenues, profits, assets, and other significant items of reportable segments as of and for the three months ended March 31, 2018 and 2017. Interest expense on junior subordinated debentures is reported at the Holding Company.
 
Three months ended March 31,
 
2018
 
2017
Private Banking
(In thousands)
Net interest income
$
58,131

 
$
54,256

Fees and other income
2,475

 
1,828

Total revenues
60,606

 
56,084

Provision/ (credit) for loan losses
(1,795
)
 
(181
)
Operating expense
39,627

 
35,058

Income before income taxes
22,774

 
21,207

Income tax expense
4,613

 
6,269

Net income from continuing operations
18,161

 
14,938

Net income attributable to the Company
$
18,161

 
$
14,938

 
 
 
 
Assets
$
8,185,803

 
$
8,058,121

Depreciation
$
1,584

 
$
1,371

 
Three months ended March 31,
 
2018
 
2017
Wealth Management and Trust
(In thousands)
Fees and other income
$
12,274

 
$
10,921

Operating expense
10,694

 
13,873

Income/ (loss) before income taxes
1,580

 
(2,952
)
Income tax expense/ (benefit)
475

 
(1,166
)
Net income/ (loss) from continuing operations
1,105

 
(1,786
)
Net income/ (loss) attributable to the Company
$
1,105

 
$
(1,786
)
 
 
 
 
Assets
$
71,560

 
$
74,408

Amortization of intangibles
$
701

 
$
727

Depreciation
$
321

 
$
337


12

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

 
Three months ended March 31,
 
2018
 
2017
Investment Management (1)
(In thousands)
Net interest income
$
4

 
$
4

Fees and other income
11,408

 
10,859

Total revenues
11,412

 
10,863

Operating expense
8,525

 
8,354

Income before income taxes
2,887

 
2,509

Income tax expense
671

 
844

Net income from continuing operations
2,216

 
1,665

Noncontrolling interests
488

 
462

Net income attributable to the Company
$
1,728

 
$
1,203

 
 
 
 
Assets
$
66,996

 
$
92,255

Amortization of intangibles
$

 
$
650

Depreciation
$
34

 
$
66

 
Three months ended March 31,
 
2018
 
2017
Wealth Advisory
(In thousands)
Net interest income
$
48

 
$
17

Fees and other income
13,539

 
12,843

Total revenues
13,587

 
12,860

Operating expense
10,536

 
9,443

Income before income taxes
3,051

 
3,417

Income tax expense
786

 
1,287

Net income from continuing operations
2,265

 
2,130

Noncontrolling interests
562

 
504

Net income attributable to the Company
$
1,703

 
$
1,626

 
 
 
 
Assets
$
73,054

 
$
73,182

Amortization of intangibles
$
49

 
$
49

Depreciation
$
163

 
$
226


13

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

 
Three months ended March 31,
 
2018
 
2017
Holding Company and Eliminations
(In thousands)
Net interest income
$
(800
)
 
$
(635
)
Fees and other income
47

 
55

Total revenues
(753
)
 
(580
)
Operating expense
1,475

 
2,052

Income/ (loss) before income taxes
(2,228
)
 
(2,632
)
Income tax expense/ (benefit)
(519
)
 
(681
)
Net income/ (loss) from continuing operations
(1,709
)
 
(1,951
)
Discontinued operations
1,698

 
1,632

Net income/ (loss) attributable to the Company
$
(11
)
 
$
(319
)
 
 
 
 
Assets (including eliminations)
$
(79,054
)
 
$
(82,846
)
 
Three months ended March 31,
 
2018
 
2017
Total Company
(In thousands)
Net interest income
$
57,383

 
$
53,642

Fees and other income
39,743

 
36,506

Total revenues
97,126

 
90,148

Provision/ (credit) for loan losses
(1,795
)
 
(181
)
Operating expense
70,857

 
68,780

Income before income taxes
28,064

 
21,549

Income tax expense
6,026

 
6,553

Net income from continuing operations
22,038

 
14,996

Noncontrolling interests
1,050

 
966

Discontinued operations
1,698

 
1,632

Net income attributable to the Company
$
22,686

 
$
15,662

 
 
 
 
Assets
$
8,318,359

 
$
8,215,120

Amortization of intangibles
$
750

 
$
1,426

Depreciation
$
2,102

 
$
2,000

_____________________
(1)
Results for the Investment Management Segment for the three months ended March 31, 2018 and 2017 include results for DGHM and Anchor. Assets for the Investment Management Segment at March 31, 2018 and 2017 include assets of DGHM and Anchor; however, Anchor’s assets and liabilities are classified as held for sale at March 31, 2018.


14

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

4.    Investments
The following tables present a summary of investment securities:
 
Amortized
Cost
 
Unrealized
 
Fair
Value
Gains
 
Losses
 
(In thousands)
At March 31, 2018
 
 
 
 
 
 
 
Available-for-sale securities at fair value:
 
 
 
 
 
 
 
U.S. government and agencies
$
35,060

 
$

 
$
(1,253
)
 
$
33,807

Government-sponsored entities
285,992

 

 
(5,429
)
 
280,563

Municipal bonds
302,556

 
1,800

 
(4,073
)
 
300,283

Mortgage-backed securities (1)
508,009

 
341

 
(21,415
)
 
486,935

Other
16,909

 

 

 
16,909

Total
$
1,148,526

 
$
2,141

 
$
(32,170
)
 
$
1,118,497

 
 
 
 
 
 
 
 
Held-to-maturity securities at amortized cost:
 
 
 
 
 
 
 
Mortgage-backed securities (1)
$
70,809

 
$

 
$
(1,922
)
 
$
68,887

Total
$
70,809

 
$

 
$
(1,922
)
 
$
68,887

 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
Available-for-sale securities at fair value:
 
 
 
 
 
 
 
U.S. government and agencies
$
35,132

 
$

 
$
(833
)
 
$
34,299

Government-sponsored entities
305,101

 
22

 
(2,622
)
 
302,501

Municipal bonds
299,647

 
4,559

 
(1,148
)
 
303,058

Mortgage-backed securities (1)
521,753

 
491

 
(12,568
)
 
509,676

Other
20,794

 

 

 
20,794

Total
$
1,182,427

 
$
5,072

 
$
(17,171
)
 
$
1,170,328

 
 
 
 
 
 
 
 
Held-to-maturity securities at amortized cost:
 
 
 
 
 
 
 
Mortgage-backed securities (1)
$
74,576

 
$

 
$
(795
)
 
$
73,781

Total
$
74,576

 
$

 
$
(795
)
 
$
73,781

_____________________
(1)
 All mortgage-backed securities are guaranteed by U.S. government agencies or government-sponsored entities.
The following table presents the maturities of available-for-sale investment securities, based on contractual maturity, as of March 31, 2018. 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.
 
Available-for-sale Securities
Amortized
cost
 
Fair
value
(In thousands)
Within one year
$
73,320

 
$
73,128

After one, but within five years
334,864

 
329,235

After five, but within ten years
304,561

 
291,757

Greater than ten years
435,781

 
424,377

Total
$
1,148,526

 
$
1,118,497


15

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

The following table presents the maturities of held-to-maturity investment securities, based on contractual maturity, as of March 31, 2018.
 
Held-to-maturity Securities
Amortized
cost
 
Fair
value
(In thousands)
After five, but within ten years
$
20,817

 
$
20,198

Greater than ten years
49,992

 
48,689

Total
$
70,809

 
$
68,887

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 March 31,
2018
 
2017
(In thousands)
Proceeds from sales and calls
$
15,877

 
$
32,717

Realized gains
7

 
19

Realized losses
(1
)
 

Change in unrealized gain/ (loss) on equity securities reflected in the consolidated statement of operations
(30
)
 
n/a

The following tables present information regarding securities at March 31, 2018 and December 31, 2017 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)
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
14,844

 
$
(138
)
 
$
18,963

 
$
(1,115
)
 
$
33,807

 
$
(1,253
)
 
6

Government-sponsored entities
223,047

 
(3,391
)
 
57,516

 
(2,038
)
 
280,563

 
(5,429
)
 
41

Municipal bonds
141,784

 
(1,811
)
 
49,429

 
(2,262
)
 
191,213

 
(4,073
)
 
102

Mortgage-backed securities (1)
100,689

 
(2,908
)
 
370,008

 
(18,507
)
 
470,697

 
(21,415
)
 
109

Total
$
480,364

 
$
(8,248
)
 
$
495,916

 
$
(23,922
)
 
$
976,280

 
$
(32,170
)
 
258

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities (1)
$
55,189

 
$
(1,505
)
 
$
13,698

 
$
(417
)
 
$
68,887

 
$
(1,922
)
 
16

Total
$
55,189

 
$
(1,505
)
 
$
13,698

 
$
(417
)
 
$
68,887

 
$
(1,922
)
 
16


16

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

 
Less than 12 months
 
12 months or longer
 
Total
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
# of
securities
 
(In thousands, except number of securities)
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
14,902

 
$
(79
)
 
$
19,397

 
$
(754
)
 
$
34,299

 
$
(833
)
 
6

Government-sponsored entities
220,275

 
(1,350
)
 
38,273

 
(1,272
)
 
258,548

 
(2,622
)
 
36

Municipal bonds
46,112

 
(131
)
 
50,842

 
(1,017
)
 
96,954

 
(1,148
)
 
63

Mortgage-backed securities (1)
97,117

 
(903
)
 
386,785

 
(11,665
)
 
483,902

 
(12,568
)
 
103

Total
$
378,406

 
$
(2,463
)
 
$
495,297

 
$
(14,708
)
 
$
873,703

 
$
(17,171
)
 
208

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities (1)
$
59,218

 
$
(534
)
 
$
14,563

 
$
(261
)
 
$
73,781

 
$
(795
)
 
16

Total
$
59,218

 
$
(534
)
 
$
14,563

 
$
(261
)
 
$
73,781

 
$
(795
)
 
16

_____________________
(1)
 All mortgage-backed securities are guaranteed by U.S. government agencies or government-sponsored entities.
As of March 31, 2018, 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 AAA. The municipal bonds in the first table above had a current Standard and Poor’s credit rating of at least AA-. At March 31, 2018, the Company does not consider these investments other-than-temporarily impaired because the decline in fair value on investments is primarily attributed to changes in interest rates and not credit quality.
At March 31, 2018 and December 31, 2017, the amount of investment securities in an unrealized loss position greater than 12 months, as well as in total, was primarily due to changes in interest rates. As of March 31, 2018, 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, 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 March 31, 2018 or December 31, 2017. 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 $41.8 million and $39.4 million in cost method investments included in other assets as of March 31, 2018 and December 31, 2017, 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.

17

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

The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, aggregated by the level in the fair value hierarchy within which those measurements fall:
 
As of March 31, 2018
 
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
$
33,807

 
$
33,676

 
$
131

 
$

Government-sponsored entities
280,563

 

 
280,563

 

Municipal bonds
300,283

 

 
300,283

 

Mortgage-backed securities
486,935

 

 
486,935

 

Other
16,909

 
16,909

 

 

Total available-for-sale securities
1,118,497

 
50,585

 
1,067,912

 

Derivatives - interest rate customer swaps
22,810

 

 
22,810

 

Derivatives - customer foreign exchange forwards
1

 

 
1

 

Derivatives - interest rate swaps
1,286

 

 
1,286

 

Other investments
7,187

 
7,187

 

 

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivatives - interest rate customer swaps
$
23,097

 
$

 
$
23,097

 
$

Derivatives - customer foreign exchange forwards
1

 

 
1

 

Derivatives - risk participation agreement
142

 

 
142

 

Other liabilities
7,187

 
7,187

 

 




18

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, 2017
 
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
$
34,299

 
$
34,096

 
$
203

 
$

Government-sponsored entities
302,501

 

 
302,501

 

Municipal bonds
303,058

 

 
303,058

 

Mortgage-backed securities
509,676

 

 
509,676

 

Other
20,794

 
20,794

 

 

Total available-for-sale securities
1,170,328

 
54,890

 
1,115,438

 

Derivatives - interest rate customer swaps
18,575

 

 
18,575

 

Derivatives - interest rate swaps
555

 

 
555

 

Derivatives - risk participation agreements
1

 

 
1

 

Derivatives - customer foreign exchange forwards
2

 

 
2

 

Other investments
7,062

 
7,062

 

 

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivatives - interest rate customer swaps
$
18,953

 
$

 
$
18,953

 
$

Derivatives - interest rate swaps
80

 

 
80

 

Derivatives - risk participation agreements
108

 

 
108

 

Derivatives - customer foreign exchange forwards
2

 

 
2

 

Other liabilities
7,062

 
7,062

 

 

As of March 31, 2018 and December 31, 2017, available-for-sale securities consisted of U.S. government and agency securities, government-sponsored entities securities, municipal bonds, mortgage-backed securities, and other available-for-sale securities. Available-for-sale Level 1 securities are valued with prices quoted in active markets and include U.S. Treasury securities (which are categorized as U.S. government and agencies securities) and equities (which are categorized as other available-for-sale 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, and certain investments in SBA loans (which are categorized as U.S. government and agencies securities). No investments held as of March 31, 2018 or December 31, 2017 were categorized as Level 3. There were no changes in the valuation techniques used for measuring the fair value of available-for-sale securities in the three months ended March 31, 2018.
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 March 31, 2018 and December 31, 2017. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements - Note 8: Derivatives and Hedging Activities” for further details.
To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of collateral securing the position.

19

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

The Company has determined that the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, although the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy as of March 31, 2018 and December 31, 2017.
Other investments, which are not considered available-for-sale investments, consist of publicly traded mutual fund investments held in deferred compensation trusts that are valued at prices quoted in active markets. Therefore, they have been categorized as a Level 1 measurement as of March 31, 2018 and December 31, 2017.
There were no transfers between levels for assets or liabilities recorded at fair value on a recurring basis during the three months ended March 31, 2018 and 2017.
There were no Level 3 assets valued on a recurring basis at March 31, 2018 or December 31, 2017.
The following table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis during the period ended March 31, 2018, aggregated by the level in the fair value hierarchy within which those measurements fall. There were no collateral-dependent impaired loans held at March 31, 2017 that had write-downs in fair value or whose specific reserve changed during the first three months of 2017.
 
As of March 31, 2018
 
Fair value measurements at reporting date using:
 
Gain (losses) from fair value changes
Quoted prices in
active markets
for identical
assets (Level 1)
 
Significant 
other
observable
inputs (Level 2)
 
Significant
unobservable
inputs (Level 3)
 
Three months ended March 31, 2018
(In thousands)
Assets:
 
 
 
 
 
 
 
 
 
Impaired loans (1)
$
1,835

 
$

 
$

 
$
1,835

 
$
(216
)
_____________________
(1)
Collateral-dependent impaired loans held at March 31, 2018 that had write-downs in fair value or whose specific reserve changed during the first three months of 2018.
The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value:
 
As of March 31, 2018
 
Fair Value
 
Valuation
Technique
 
Unobservable
Input
 
Range of
Inputs
Utilized
 
Weighted
Average of
Inputs
Utilized
 
(In thousands)
 
 
Impaired Loans
$
1,835

 
Appraisals of Collateral
 
Discount for costs to sell
 
0% - 24%
 
14%
Appraisal adjustments