The Company established a corporate-wide 401(k) Profit Sharing Plan (the “401(k) Plan”) for the benefit of the employees of the Company and its affiliates, which became effective on July 1, 2002. The 401(k) Plan is a 401(k) savings and retirement plan that is designed to qualify as an ERISA section 404(c) plan. Generally, employees who are at least twenty-one (21) years of age are eligible to participate in the plan on their date of hire. Employee contributions may be matched based on a predetermined formula and additional discretionary contributions may be made. 401(k) Plan expense was $2.5 million, $2.3 million, and $3.1 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The Bank maintains a salary continuation plan for certain former officers in the Bank’s Northern California market. The officers became eligible for benefits under the salary continuation plan if they reached a defined retirement age while working for the Bank. The Bank also has a deferred compensation plan for certain former directors of the former private banking affiliate in Northern California that was merged into the Bank. The compensation expense relating to each contract is accounted for individually. The expense relating to these plans was $0.2 million, $0.1 million, and $0.1 million for the years ended December 31, 2020, 2019, and 2018, respectively. The amounts recognized in Other liabilities in the Consolidated Balance Sheets was $0.9 million at December 31, 2020 and 2019. The Bank has purchased life insurance contracts to help fund these plans. The Bank has single premium life insurance policies with cash surrender values totaling $6.6 million and $6.4 million as of December 31, 2020 and 2019, respectively, which are included in Other assets in the Consolidated Balance Sheets.

The Bank also maintains a salary continuation plan for certain former officers of the Bank’s Southern California market. The plan provides for payments to the participants at the age of retirement. The expense relating to this plan was $0.2 million, $0.1 million, and $0.1 million for the years ended December 31, 2020, 2019, and 2018, respectively. The net amount recognized in Other liabilities in the Consolidated Balance Sheets was $1.1 million and $1.3 million at December 31, 2020 and 2019, respectively. The Bank has purchased life insurance contracts to help fund these plans. These life insurance policies have cash surrender values totaling $5.0 million at December 31, 2020 and 2019, which are included in Other assets in the Consolidated Balance Sheets.

The Company offers a deferred compensation plan (the “Deferred Compensation Plan”) that enables certain executives to elect to defer a portion of their compensation. The amounts deferred are excluded from the employee’s taxable income and are not deductible for income tax purposes by the Company until paid. The net deferred amount related to the Deferred Compensation Plan in Other liabilities in the Consolidated Balance Sheets was $7.2 million and $6.1 million at December 31, 2020 and 2019, respectively. Increases and decreases in the value of the Deferred Compensation Plan are recognized as Salaries and benefits expense in the Consolidated Statements of Operations. The expense relating to the Deferred Compensation Plan was an expense of $0.9 million, an expense of $1.2 million, and an expense credit of $0.4 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The Company has adopted a special trust for the Deferred Compensation Plan called a rabbi trust. A 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. The net amount recognized in Other assets in the Consolidated Balance Sheets was $7.2 million and $6.1 million at December 31, 2020 and 2019, respectively. Increases and decreases in the value of the rabbi trust are recognized in Other income in the Consolidated Statements of Operations. The income relating to this plan was a gain of $0.9 million, a gain of $1.2 million, and a loss of $0.4 million for the years ended December 31, 2020, 2019, and 2018, respectively.

At December 31, 2020, the Company has three stock-based compensation plans. These plans encourage and enable the officers, employees, non-employee directors, and other key persons of the Company to acquire a proprietary interest in the Company.

The 2020 Omnibus Incentive Plan (the “2020 Plan”), replaced the Company’s Amended and Restated 2009 Stock Option and Incentive Plan (the “2009 Plan”) in the second quarter of 2020. Under the 2020 Plan, the Company may grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards, and dividend equivalent rights to its officers, employees, non-employee directors, and consultants of the Company. The 2020 Plan provides for the authorization and issuance of 3,700,000 shares. Forfeited shares from the 2020 Plan are added back to the amount of shares authorized. Under the 2020 Plan, the exercise price of each option shall not be less than 100% of the fair market value of the stock on the date the options are granted.

Under the Boston Private Financial Holdings, Inc. 2010 Inducement Stock Plan (the “Inducement Plan”), the Company may grant equity awards to new employees as an inducement to join the Company. The Inducement Plan provides for the authorization and issuance of 1,845,000 shares of the Company’s common stock. Forfeited shares are added back to the amount of shares authorized. The Company issued zero shares, zero shares, and 576,612 shares under this plan in conjunction with executive new hires in 2020, 2019, and 2018, respectively.

The Company maintains a qualified Employee Stock Purchase Plan (“ESPP”). Under the ESPP, eligible employees may purchase common stock of the Company at 85% of the lower of the closing price of the Company’s common stock on the first or last day of a six month purchase period on The NASDAQ® Global Select Market. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1% to 15% of after-tax earnings. Participants have a right to a full reimbursement of ESPP deferrals through the end of the offering period. Such a reimbursement would result in a reversal of the compensation expense previously recorded, attributed to that participant. The Company generally issues shares under the ESPP in January and July of each year. There were 214,637 shares issued to participants under the qualified ESPP in 2020. As of January 1, 2021, the ESPP was paused.


	Year Ended December 31,
	2020		2019		2018
	(In thousands)
Stock option and ESPP expense	$	1,281	$	1,676	$	616
Nonvested share expense	4,116		3,076		6,059
Subtotal	5,397		4,752		6,675
Tax benefit	1,441		1,223		1,784
Stock-based compensation expense, net of tax benefit	$	3,956	$	3,529	$	4,891


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2019	1,001,147	$	11.65
Granted	532,869	$	6.16
Exercised	16,969	$	6.55
Forfeited	6,494	$	11.08
Expired	—	$	—
Outstanding at December 31, 2020	1,510,553	$	9.77	8.4 years	$	1,275
Exercisable at December 31, 2020	212,304	$	10.76	6.7 years	$	55

The total intrinsic value of options exercised during the years ended December 31, 2020, 2019, and 2018 was zero, $0.4 million, and $1.5 million, respectively. As of December 31, 2020, there was $1.7 million unrecognized compensation cost related to stock option arrangements granted in 2018, 2019, and 2020 that is expected to be recognized over a weighted average period of 2.7 years.

The fair value of nonvested shares is determined based on the closing price of the Company’s stock on the grant date. The weighted average grant-date fair value of shares granted during the years ended December 31, 2020, 2019, and 2018 was $7.03, $11.05, and $16.11, respectively. At December 31, 2020, there was $12.5 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements under the 2020 Plan, 2009 Plan and the Inducement Plan, combined. That cost is expected to be recognized over a weighted average period of 2.68 years. The total fair value of shares that vested during the years ended December 31, 2020, 2019, and 2018 was $5.3 million, $6.6 million, and $8.1 million, respectively.

Included in the restricted stock balances above are performance-based stock units. The Company recognizes the expense for performance-based stock units based upon the most likely outcome of shares to be issued based on current forecasts. At December 31, 2020, there were 1,525,993 performance-based stock units outstanding, which could increase up to 2,618,758 shares. If the maximum number of performance-based stock units is issued, the Company would incur an additional $9.4 million of compensation costs related to these additional 1,092,765 shares.

The Company has a non-qualified supplemental executive retirement plan (“SERP”) with a former executive officer of the Company. The SERP, which is unfunded, provides a defined cash benefit based on a formula using average compensation, years of service, and age at retirement of the executive. The estimated actuarial present value of the projected benefit obligation was $7.5 million and $7.5 million at December 31, 2020 and 2019, respectively. The expense associated with the SERP was $0.6 million for the year ended December 31, 2020 due to a decrease in the discount rate, which correspondingly increased the pension benefit obligation in 2020. The SERP expense was $0.8 million and zero for the years ended December 31, 2019 and 2018, respectively. The discount rate used to calculate the SERP liability was 2.45%, 3.10%, and 4.15% for the years ended December 31, 2020, 2019, and 2018, respectively.

The Bank has a SERP with various former executives of the Pacific Northwest market. The SERP, which is unfunded, provides a defined cash benefit based on a formula using compensation, years of service, and age at retirement of the executives. The benefits for each executive under the plan are accrued until the full vesting age of 65. The actuarial present value of the projected benefit obligation was $3.2 million and $3.1 million at December 31, 2020 and 2019, respectively. The

expense associated with the SERP was $0.1 million for the year ended December 31, 2020 and $0.2 million for the years ended December 31, 2019 and 2018. The discount rate used to calculate the SERP liability was 2.45%, 3.10%, and 4.18%, for the years ended December 31, 2020, 2019, and 2018, respectively.

KLS had a long-term incentive plan (“LTIP”) with certain of its managing directors that was assumed by Boston Private Wealth. This LTIP, which is unfunded, was amended in 2018. The plan amendment in 2018 “froze” the benefits under the LTIP based on the cash payout that would be due to the managing directors as of December 31, 2017. The cash payment at separation of service, which was determined based on the profit share and a multiple based on years of service as of December 31, 2017, is payable in three equal annual installments following separation of service. The Company has accrued $6.1 million and $7.9 million at December 31, 2020 and 2019, respectively, for future separation of service payments. The LTIP was effective beginning January 1, 2010.

The expense associated with the LTIP was $0.4 million, $0.7 million, and $1.6 million for the years ended December 31, 2020, 2019, and 2018, respectively. Within the 2018 expense, there was also a $0.8 million charge recognized in Restructuring expense in the Consolidated Statements of Operations related to the plan amendment. The discount rate used to calculate the liability was 2.45%, 3.10%, and 4.10% for the years ended December 31, 2020, 2019, and 2018, respectively. There will not be any future service cost associated with the LTIP. There will be charges associated with interest costs and actuarial gains/losses until the final payouts are made.