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BRKL Brookline Bancorp

Filed: 8 May 18, 2:28pm
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
 
Commission file number 0-23695

Brookline Bancorp, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware 04-3402944
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
131 Clarendon Street, Boston, MA 02116
(Address of principal executive offices) (Zip Code)
 
(617) 425-4600
(Registrant’s telephone number, including area code)
 
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 (§232.405 of this chapter) 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 12-b-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
                                                                                                                                                                                
At May 8, 2018, the number of shares of common stock, par value $0.01 per share, outstanding was 80,316,597.
 



BROOKLINE BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
Table of Contents



PART I — FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
 At March 31, 2018 At December 31, 2017
 (In Thousands Except Share Data)
ASSETS   
Cash and due from banks$34,713
 $25,622
Short-term investments49,743
 35,383
Total cash and cash equivalents84,456
 61,005
Investment securities available-for-sale558,357
 540,124
Investment securities held-to-maturity (fair value of $114,810 and $108,523, respectively)117,352
 109,730
Total investment securities675,709
 649,854
Loans held-for-sale756
 2,628
Loans and leases:   
Commercial real estate loans3,240,258
 3,075,777
Commercial loans and leases1,707,002
 1,624,111
Consumer loans1,167,201
 1,030,791
Total loans and leases6,114,461
 5,730,679
Allowance for loan and lease losses(58,714) (58,592)
Net loans and leases6,055,747
 5,672,087
Restricted equity securities66,164
 59,369
Premises and equipment, net of accumulated depreciation of $65,150 and $63,423, respectively80,268
 80,283
Deferred tax asset19,198
 15,061
Goodwill160,896
 137,890
Identified intangible assets, net of accumulated amortization of $34,205 and $33,738, respectively7,697
 6,044
Other real estate owned ("OREO") and repossessed assets, net3,963
 4,419
Other assets93,260
 91,609
Total assets$7,248,114
 $6,780,249
LIABILITIES AND STOCKHOLDERS' EQUITY   
Deposits:   
Demand checking accounts$987,153
 $942,583
Interest-bearing deposits:   
NOW accounts342,374
 350,568
Savings accounts637,920
 646,359
Money market accounts1,862,351
 1,724,363
Certificate of deposit accounts1,361,722
 1,207,470
Total interest-bearing deposits4,204,367
 3,928,760
Total deposits5,191,520
 4,871,343
Borrowed funds:   
Advances from the Federal Home Loan Bank of Boston ("FHLBB")982,533
 889,909
Subordinated debentures and notes
83,311
 83,271
Other borrowed funds33,585
 47,639
Total borrowed funds1,099,429
 1,020,819
Mortgagors' escrow accounts8,395
 7,686
Accrued expenses and other liabilities74,024
 67,818
Total liabilities6,373,368
 5,967,666
    
Commitments and contingencies (Note 12)
 
Stockholders' Equity:   
Brookline Bancorp, Inc. stockholders' equity:   
Common stock, $0.01 par value; 200,000,000 shares authorized; 85,177,172 shares issued and 81,695,695 shares issued, respectively852
 817
Additional paid-in capital755,843
 699,976
Retained earnings, partially restricted172,934
 161,217
Accumulated other comprehensive loss(11,666) (5,950)
Treasury stock, at cost; 4,401,333 shares and 4,440,665 shares, respectively(51,454) (51,454)
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 134,238 shares and 142,332 shares, respectively(732) (776)
Total Brookline Bancorp, Inc. stockholders' equity865,777
 803,830
Noncontrolling interest in subsidiary8,969
 8,753
Total stockholders' equity874,746
 812,583
Total liabilities and stockholders' equity$7,248,114
 $6,780,249
    

See accompanying notes to unaudited consolidated financial statements.
1


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
 Three Months Ended March 31,
 2018 2017
 (In Thousands Except Share Data)
Interest and dividend income:   
Loans and leases$67,272
 $58,558
Debt securities3,323
 3,000
Marketable and restricted equity securities924
 726
Short-term investments120
 67
Total interest and dividend income71,639
 62,351
Interest expense:   
Deposits7,099
 5,080
Borrowed funds5,049
 4,173
Total interest expense12,148
 9,253
Net interest income59,491
 53,098
Provision for credit losses641
 13,402
Net interest income after provision for credit losses58,850
 39,696
Non-interest income:   
Deposit fees2,463
 2,252
Loan fees290
 261
Loan level derivative income, net866
 402
Gain on sales of investment securities, net1,162
 11,393
Gain on sales of loans and leases held-for-sale299
 353
Other1,088
 1,247
Total non-interest income6,168
 15,908
Non-interest expense:   
Compensation and employee benefits22,314
 19,784
Occupancy3,959
 3,645
Equipment and data processing4,618
 4,063
Professional services1,144
 1,106
FDIC insurance635
 855
Advertising and marketing1,057
 817
Amortization of identified intangible assets467
 532
Merger and acquisition expense2,905
 
Other2,839
 2,954
Total non-interest expense39,938
 33,756
Income before provision for income taxes25,080
 21,848
Provision for income taxes5,652
 7,835
Net income before noncontrolling interest in subsidiary19,428
 14,013
Less net income attributable to noncontrolling interest in subsidiary795
 568
Net income attributable to Brookline Bancorp, Inc.$18,633
 $13,445
Earnings per common share:   
Basic$0.24
 $0.19
Diluted0.24
 0.19
Weighted average common shares outstanding during the year:   
Basic77,879,593
 70,386,766
Diluted78,167,800
 70,844,096
Dividends declared per common share$0.10
 $0.09


See accompanying notes to unaudited consolidated financial statements.
2


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income
 Three Months Ended March 31,
 2018 2017
 (In Thousands)
Net income before noncontrolling interest in subsidiary$19,428
 $14,013
    
Investment securities available-for-sale:   
Unrealized securities holding (losses) gains(7,401) 870
Income tax expense (benefit)1,632
 (313)
Net unrealized securities holding (losses) gains before reclassification adjustments, net of taxes(5,769) 557
Less reclassification adjustments for securities gains included in net income:   
Loss on sales of securities, net(68) 
Income tax expense15
 
Net reclassification adjustments for securities gains included in net income(53) 
Net unrealized securities holding (losses) gains(5,716) 557
    
Postretirement benefits:   
Adjustment of accumulated obligation for postretirement benefits
 
Income tax expense
 
Net adjustment of accumulated obligation for postretirement benefits
 
    
Other comprehensive (loss) income, net of taxes(5,716) 557
    
Comprehensive income13,712
 14,570
Net income attributable to noncontrolling interest in subsidiary795
 568
Comprehensive income attributable to Brookline Bancorp, Inc.$12,917
 $14,002



See accompanying notes to unaudited consolidated financial statements.
3


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 2018 and 2017
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Unallocated
Common Stock
Held by ESOP
 
Total Brookline
Bancorp, Inc.
Stockholders'
Equity
 
Noncontrolling
Interest in
Subsidiary
 
Total Stockholders'
Equity
 (In Thousands)
Balance at December 31, 2017$817
 $699,976
 $161,217
 $(5,950) $(51,454) $(776) $803,830
 $8,753
 $812,583
Net income attributable to Brookline Bancorp, Inc. 
 
 18,633
 
 
 
 18,633
 
 18,633
Net income attributable to noncontrolling interest in subsidiary
 
 
 
 
 
 
 795
 795
Common stock issued for acquisition35
 55,146
 
 
 
 
 55,181
 
 55,181
Issuance of noncontrolling units
 
 
 
 
 
 
 129
 129
Other comprehensive income
 
 

 (5,716) 
 
 (5,716) 
 (5,716)
Common stock dividends of $0.09 per share
 
 (6,916) 
 
 
 (6,916) 
 (6,916)
Dividend distribution to owners of noncontrolling interest in subsidiary
 
 
 
 
 
 
 (708) (708)
Compensation under recognition and retention plan
 633
 
 
 
 
 633
 
 633
Common stock held by ESOP committed to be released (8,094 shares)
 88
 
 
 
 44
 132
 
 132
Balance at March 31, 2018$852
 $755,843
 $172,934
 $(11,666) $(51,454) $(732) $865,777
 $8,969
 $874,746

 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury
Stock
 
Unallocated
Common Stock
Held by ESOP
 
Total Brookline
Bancorp, Inc.
Stockholders'
Equity
 
Noncontrolling
Interest in
Subsidiary
 
Total Stockholders'
Equity
 (In Thousands)
Balance at December 31, 2016$757
 $616,734
 $136,671
 $(3,818) $(53,837) $(963) $695,544
 $7,205
 $702,749
Net income attributable to Brookline Bancorp, Inc. 
 
 13,445
 
 
 
 13,445
 
 13,445
Net income attributable to noncontrolling interest in subsidiary
 
 
 
 
 
 
 568
 568
Issuance of noncontrolling interest
 
 
 
 
 
 
 118
 118
Other comprehensive income
 
 

 557
 
 
 557
 
 557
Common stock dividends of $0.09 per share
 
 
 
 
 
 
 
 
Dividend distribution to owners of noncontrolling interest in subsidiary
 
 (6,350) 
 
 
 (6,350) (515) (6,865)
Compensation under recognition and retention plans
 559
 
 
 
 
 559
 
 559
Common stock held by ESOP committed to be released (8,589 shares)
 71
 
 
 
 47
 118
 
 118
Balance at March 31, 2017$757
 $617,364
 $143,766
 $(3,261) $(53,837) $(916) $703,873
 $7,376
 $711,249




See accompanying notes to unaudited consolidated financial statements.
4


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
 Three Months Ended March 31,
 2018 2017
 (In Thousands)
Cash flows from operating activities:   
Net income attributable to Brookline Bancorp, Inc.$18,633
 $13,445
Adjustments to reconcile net income to net cash provided from operating activities:   
Net income attributable to noncontrolling interest in subsidiary795
 568
Provision for credit losses641
 13,402
Origination of loans and leases held-for-sale(7,198) (8,493)
Proceeds from sales of loans and leases held-for-sale, net9,362
 13,246
Deferred income tax benefit(2,520) (4,925)
Depreciation of premises and equipment1,801
 1,795
Amortization of investment securities premiums and discounts, net507
 416
Amortization of deferred loan and lease origination costs, net1,625
 1,626
Amortization of identified intangible assets467
 532
Amortization of debt issuance costs25
 25
Amortization (accretion) of acquisition fair value adjustments, net1,185
 (617)
Gain on sales of investment securities, net(1,162) (11,393)
Gain on sales of loans and leases held-for-sale(299) (353)
Gain on sales of OREO and other repossessed assets, net
 (10)
Write-down of OREO and other repossessed assets197
 56
Compensation under recognition and retention plans682
 579
ESOP shares committed to be released132
 118
Net change in:   
Cash surrender value of bank-owned life insurance(254) (256)
Other assets(1,397) 1,986
Accrued expenses and other liabilities6,143
 (2,781)
Net cash provided from operating activities29,365
 18,966
    
Cash flows from investing activities:   
Proceeds from sales of investment securities available-for-sale1,470
 11,515
Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale21,632
 19,592
Purchases of investment securities available-for-sale(49,108) (23,935)
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity1,158
 1,300
Purchases of investment securities held-to-maturity(8,915) (14,873)
Proceeds from redemption/sales of restricted equity securities1,230
 
Purchase of restricted equity securities(6,795) (3,676)
Proceeds from sales of loans and leases held-for-investment, net285
 698
Net increase in loans and leases(386,752) (59,893)
Acquisitions, net of cash and cash equivalents acquired(25,126) 
Purchase of premises and equipment, net(1,827) (2,659)
    
   (Continued)

See accompanying notes to unaudited consolidated financial statements.
5


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows (Continued)
 Three Months Ended March 31,
 2018 2017
 (In Thousands)
Proceeds from sales of OREO and other repossessed assets853
 413
Net cash used for investing activities(451,895) (71,518)
    
Cash flows from financing activities:   
Increase (decrease) in demand checking, NOW, savings and money market accounts165,925
 (8,798)
Increase in certificates of deposit153,091
 49,625
Proceeds from FHLBB advances3,250,390
 1,294,000
Repayment of FHLBB advances(3,157,766) (1,274,259)
Decrease in other borrowed funds, net(14,054) (6,570)
Increase in mortgagors' escrow accounts, net709
 387
Common stock issued for acquisition55,181
 
Payment of dividends on common stock(6,916) (6,350)
Proceeds from issuance of noncontrolling units129
 118
Payment of dividends to owners of noncontrolling interest in subsidiary(708) (515)
Net cash provided from financing activities445,981
 47,638
Net increase (decrease) in cash and cash equivalents23,451
 (4,914)
Cash and cash equivalents at beginning of period61,005
 67,657
Cash and cash equivalents at end of period$84,456
 $62,743
    
Supplemental disclosure of cash flow information:   
Cash paid during the period for:   
Interest on deposits, borrowed funds and subordinated debt$12,880
 $10,789
Income taxes928
 4,861
Non-cash investing activities:   
Transfer from loans and leases held-for-sale to loans and leases$
 $7,500
Transfer from loans to other real estate owned594
 1,346
Acquisition of First Commons Bank, N.A.:   
Fair value of assets acquired, net of cash and cash equivalents acquired$292,025
 $
Fair value of liabilities assumed278,988
 



See accompanying notes to unaudited consolidated financial statements.
6


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
At and for the Three Months Ended March 31, 2018 and 2017
(1) Basis of Presentation
Overview
Brookline Bancorp, Inc. (the "Company") is a bank holding company (within the meaning of the Bank Holding Company Act of 1956, as amended) and the parent of Brookline Bank, a Massachusetts-chartered savings bank; Bank Rhode Island ("BankRI"), a Rhode Island-chartered financial institution; and First Ipswich Bank ("First Ipswich"), a Massachusetts-chartered trust company (collectively referred to as the "Banks"). The Banks are all members of the Federal Reserve System. The Company is also the parent of Brookline Securities Corp. ("BSC"). The Company's primary business is to provide commercial, business and retail banking services to its corporate, municipal and retail customers through the Banks and its non-bank subsidiaries.
On March 1, 2018, the Company completed the acquisition of First Commons Bank, N.A. ("First Commons Bank"). First Commons Bank was merged with and into Brookline Bank. Brookline Bank, which includes its wholly-owned subsidiaries BBS Investment Corp., Longwood Securities Corp. ("LSC") and its 84.1%-owned subsidiary, Eastern Funding LLC ("Eastern Funding"), operates 27 full-service banking offices in the greater Boston metropolitan area, including two additional branches from the First Commons Bank acquisition. BankRI, which includes its wholly-owned subsidiaries, Acorn Insurance Agency, BRI Realty Corp., Macrolease Corporation ("Macrolease"), BRI Investment Corp. and its wholly-owned subsidiary, BRI MSC Corp., operates 20 full-service banking offices in the greater Providence, Rhode Island area. First Ipswich, which includes its wholly-owned subsidiaries First Ipswich Insurance Agency and First Ipswich Securities II Corp., operates six full-service banking offices on the north shore of eastern Massachusetts.
The Company's activities include acceptance of commercial, municipal and retail deposits, origination of mortgage loans on commercial and residential real estate located principally in all New England states, origination of commercial loans and leases to small- and mid-sized businesses, investment in debt and equity securities, and the offering of cash management and investment advisory services. The Company also provides specialty equipment financing through its subsidiaries Eastern Funding, which is based in New York City, New York, and Macrolease, which is based in Plainview, New York.
The Company and the Banks are supervised, examined and regulated by the Board of Governors of the Federal Reserve System ("FRB"). As a Massachusetts-chartered savings bank and trust company respectively, Brookline Bank and First Ipswich are also subject to regulation under the laws of the Commonwealth of Massachusetts and the jurisdiction of the Massachusetts Division of Banks. As a Rhode Island-chartered financial institution, BankRI is subject to regulation under the laws of the State of Rhode Island and the jurisdiction of the Banking Division of the Rhode Island Department of Business Regulation.
The Federal Deposit Insurance Corporation ("FDIC") offers insurance coverage on all deposits up to $250,000 per depositor at each of the Banks. As FDIC-insured depository institutions, the Banks are also secondarily subject to supervision, examination and regulation by the FDIC. Additionally, as a Massachusetts-chartered savings bank, the deposits of Brookline Bank are insured by the Depositors Insurance Fund ("DIF"), a private industry-sponsored insurance company. The DIF insures savings bank deposits in excess of the FDIC insurance limits. As such, Brookline Bank offers 100% insurance on all deposits as a result of a combination of insurance from the FDIC and the DIF. Brookline Bank is required to file reports with the DIF.
Basis of Financial Statement Presentation
The unaudited consolidated financial statements of the Company presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“GAAP”). In the opinion of Management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying consolidated financial statements have been included. Interim results are not necessarily reflective of the results of the entire year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017. 

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.


7

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

In preparing these consolidated financial statements, Management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates based upon changing conditions, including economic conditions and future events. Material estimates that are particularly susceptible to significant change in the near-term include the determination of the allowance for loan and lease losses, the determination of fair market values of assets and liabilities, including acquired loans and leases, the review of goodwill and intangibles for impairment and the review of deferred tax assets for valuation allowances.
 
The judgments used by Management in applying these critical accounting policies may be affected by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. For example, subsequent evaluations of the loan and lease portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for loan and lease losses in future periods, and the inability to collect outstanding principal may result in increased loan and lease losses.

Reclassification

Certain previously reported amounts have been reclassified to conform to the current year's presentation.

Recent Accounting Pronouncements
In February 2018, FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU was issued to add improvements to update ASU 2016-01 to increase stakeholders’ awareness of the amendments and to expedite the improvements. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017 and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. Management has determined that ASU 2018-03 does apply, but has not determined the impact, if any, as of March 31, 2018.
In February 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" 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 a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (the “Tax Reform Act”). The ASU No. 2018-02 requires a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate. The amount of the reclassification would be the difference between the historical corporate income tax rate of 35 percent and the newly enacted 21 percent corporate income tax rate. The ASU No. 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted, including adoption in any interim period, for (i) public business entities for reporting periods for which financial statements have not yet been issued and (ii) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The changes are required to be applied retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 is recognized. Management early adopted this ASU as of December 31, 2017, which resulted in the reclassification from accumulated other comprehensive loss to retained earnings totaling $1.1 million, reflected in the Consolidated Statements of Changes in Stockholders' Equity.
In November 2017, the FASB issued ASU 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606): Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403. This ASU was issued to amend certain SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No.116 and SEC Release No. 33-10403, which bring existing guidance into conformity with Topic 606, Revenue from Contract with Customers. The ASU was effective for annual periods beginning after December 15, 2017. Management has determined that this ASU does apply as of January 1, 2018 and has determined the impact to be immaterial as of March 31, 2018.

8

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. FASB issued this Update to address the diversity in practice as well as the cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2017. Management has determined that this ASU does apply as of January 1, 2018 and has determined the impact to be immaterial as of March 31, 2018.
In March 2017, the FASB issued Accounting Standards Update ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715). This ASU was issued primarily to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. This ASU is effective for annual reporting periods beginning after December 15, 2017. Management has determined that this ASU does apply as of January 1, 2018 and has determined the impact to be immaterial as of March 31, 2018.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This ASU was issued to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. For public entities, this ASU is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted and application should be on a prospective basis. Management has evaluated this ASU and as of December 31, 2017, the Company has adopted the ASU and determined the impact to be immaterial as of March 31, 2018.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This ASU was issued to provide clarification and uniformity on the presentation and classification of certain cash receipts and cash payments in the statement of cash flows under Topic 230. Early adoption is permitted as of the fiscal years beginning after December 15, 2017, for public entities that file with the SEC. The Company adopted ASU 2016-15 effective January 1, 2017 and the adoption did not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The intent of this ASU is to replace the current GAAP method of calculating credit losses. Current GAAP uses a higher threshold at which likely losses can be calculated and recorded. The new process will require institutions to account for likely losses that originally would not have been part of the calculation. The calculation will incorporate future forecasting in addition to historical and current measures. For public entities that file with the SEC, this ASU is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU must be applied prospectively to debt securities marked as other than temporarily impaired. A retrospective approach will be applied cumulatively to retained earnings. Early adoption is permitted as of the fiscal years beginning after December 15, 2018. Management has determined that ASU 2016-13 does apply, but has not determined the impact, if any, as of March 31, 2018. In preparation for the adoption in 2020 of this ASU, management formed a steering committee to oversee the adoption of ASU 2016-13. The steering committee along with a project team has developed an approach for implementation and has selected a third party software service provider. The project team is in the testing phase of the third party software.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU was issued as part of the FASB Simplification Initiative which intends to reduce the complexity of GAAP while improving usefulness to users. The ASU was effective for annual periods beginning after December 15, 2016, and interim periods within those annual reporting periods with early adoption available. The Company adopted ASU 2016-09 effective January 1, 2017 and the adoption did not have a material impact on the Company’s consolidated financial statements.
In February 2016, FASB issued ASU 2016-02, Leases. This ASU requires lessees to record most leases on their balance sheet but recognize expenses on their income statements in a manner similar to current accounting. This ASU also eliminates current real estate-specific provisions for all companies. For lessors, this ASU modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. Management believes that this ASU applies and has not determined the impact, if any, as of March 31, 2018. Management has met to discuss the impact and will assemble a project team to assess steps required for adoption. The steps will include a review of third party lease software service providers.

9

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

In January 2016, the FASB issued ASU 2016-01, Financial Instruments. This ASU significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods therein. Management has determined that ASU 2016-01 does apply as of January 1, 2018 and management has determined the impact to be immaterial as of March 31, 2018.
Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), was issued in May 2014 and provides a revenue recognition framework for any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other accounting standards. As issued, ASU 2014-09 was effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period with early adoption not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. In August 2015, Accounting Standards Update No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”) was issued and delayed the effective date of ASU 2014-09 to annual and interim periods in fiscal years beginning after December 15, 2017. In 2016, Accounting Standards Update No. 2016-08, “Principal versus Agent Considerations” (“ASU 2016-08”), Accounting Standards Update No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”) and Accounting Standards Update No. 2016-12, “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”) were issued. These ASUs did not change the core principle for revenue recognition in Topic 606; instead, the amendments provided more detailed guidance in a few areas and additional implementation guidance and examples to reduce the degree of judgment necessary to comply with Topic 606. The effective date and transition requirements for ASU 2016-08, ASU 2016-10 and ASU 2016-12 were the same as those provided by ASU 2015-14. Management assembled a project team to address the changes pursuant to Topic 606. The project team completed a scope assessment and contract review for in-scope revenue streams. Topic 606 did not apply to several income generating streams. Management excluded from their analysis, income associated with financial instruments, gains on sale of investment securities and loans, gains on Low Income Housing Tax Credits ("LIHTC") and loan level derivative income. Revenue streams that were included were service charges on deposit accounts, loan fees, and income received through a third party relationship. Management adopted the provisions of ASU 2014-09 effective January 1, 2018, using the modified retrospective transition method. The adoption did not have a material impact on the Company's consolidated financial statements. See Note 13, "Revenue from Contracts with Customers," for further details.
(2) Acquisitions
First Commons Bank, N.A.
On March 1, 2018, the Company completed the acquisition (the “Transaction”) of First Commons Bank. First Commons Bank was merged with and into the Company’s subsidiary bank, Brookline Bank. First Commons Bank has two branch locations in Newton Centre and Wellesley, Massachusetts. These branch locations are expected to be closed on June 1, 2018 and consolidated into Brookline Bank’s existing branch locations in Newton Centre and Wellesley, Massachusetts.
The Transaction qualified as a tax-free reorganization for federal income tax purposes. The total Transaction consideration was $56.0 million. First Commons Bank stockholders received, for each share of First Commons Bank common stock, the right to receive 1.089 shares of the Company’s common stock with cash in lieu of fractional shares, options, and warrants, resulting in a total cash consideration payment of $851 thousand and an increase to the Company’s outstanding shares of 3,481,477 shares.
The Company accounted for the Transaction using the estimated fair value of assets and liabilities assumed as of the acquisition date. The excess of consideration paid over the fair value of identifiable net assets was recorded as goodwill in the consolidated financial statements. Accordingly, the Company recorded merger and acquisition expenses of $2.9 million for the three months ended March 31, 2018.

10

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition:
 
Net Assets Acquired at
Fair Value
 (In Thousands)
ASSETS 
Cash$42,995
Restricted stock1,884
Loans262,095
Premises and equipment583
Goodwill23,005
Core deposit and other intangibles2,122
Other assets2,336
Total assets acquired335,020
LIABILITIES 
Deposits273,701
Borrowings5,000
Other liabilities287
Total liabilities assumed278,988
Purchase price$56,032
Fair values of the major categories of assets acquired and liabilities assumed were determined as follows:
Cash and Cash Equivalents
The fair values of cash and cash equivalents approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities.
Restricted Stock
The fair value of restricted stock approximate the respective carrying amount. The stock is comprised of $880 thousand of FHLBB stock and $1.0 million of FRB stock. These amounts were transferred to the Brookline Bank name at each respective institution.
Loans
The loans acquired were recorded at fair value without a carryover of the allowance for loan losses. There were no credit related issues with the acquired portfolio. For the loan purchase accounting, management used the following assumptions: no specific credit mark valuations as determined by the Company's Credit Risk Management; segregation of portfolio into certain loan categories; loan level valuations versus a pooled approach; prepayment rate assumptions and market discount rates.
The Company recorded a $1.6 million discount from the results of the loan accounting valuation. There was $27 thousand of accretion recorded as of March 31, 2018.
Deposits - Core Deposit Intangible ("CDI")
Accounts included in the CDI include demand deposits, NOW accounts, money market accounts and savings accounts. The fair value of the core deposit intangible was derived from using the following assumptions: account retention rates, alternative cost of funds, effective cost of funds, cost savings, present value of annual net cost savings and market discount rate.
The Company recorded a $2.1 million CDI from the results of the deposit valuation. There was $41 thousand of amortization recorded as of March 31, 2018.

11

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Certificate of Deposits
The certificates of deposits were recorded at fair value. The determination of the fair value was calculated using a discounted cash flow analysis, which involved present valuing the contractual payments over the remaining life of the certificate of deposit at market based-rates.
The Company recorded a $1.2 million discount from the results of the certificate of deposit valuation. There was $82 thousand of accretion recorded as of March 31, 2018.
Borrowings
The borrowings at acquisition typically require a fair market valuation performed as of the acquisition date. The difference between the current recorded balance and the fair market value will be reflected as a fair value mark. The Company’s Treasury team performed two valuations to review the fair value mark. After reviewing the results, the fair value mark was immaterial and management decided not to record any fair market value adjustment on the acquired borrowings.
  

12

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

(3) Investment Securities
The following tables set forth investment securities available-for-sale and held-to-maturity at the dates indicated:
 At March 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$184,760
 $71
 $3,863
 $180,968
GSE CMOs125,061
 18
 5,382
 119,697
GSE MBSs197,083
 231
 5,129
 192,185
SBA commercial loan asset-backed securities70
 
 1
 69
Corporate debt obligations56,784
 5
 917
 55,872
U.S. Treasury bonds8,794
 
 197
 8,597
Trust preferred securities
 
 
 
Marketable equity securities980
 6
 17
 969
Total investment securities available-for-sale$573,532
 $331
 $15,506
 $558,357
Investment securities held-to-maturity:       
GSE debentures$50,529
 $4
 $1,358
 $49,175
GSEs MBSs13,344
 
 340
 13,004
Municipal obligations52,979
 11
 856
 52,134
Foreign government obligations500
 
 3
 497
Total investment securities held-to-maturity$117,352

$15

$2,557

$114,810
 December 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$151,483
 $70
 $1,629
 $149,924
GSE CMOs131,082
 27
 4,087
 127,022
GSE MBSs191,281
 354
 2,322
 189,313
SBA commercial loan asset-backed securities73
 
 1
 72
Corporate debt obligations62,811
 110
 238
 62,683
U.S. Treasury bonds8,785
 7
 62
 8,730
Trust preferred securities1,471
 
 73
 1,398
Marketable equity securities978
 13
 9
 982
Total investment securities available-for-sale$547,964
 $581
 $8,421
 $540,124
Investment securities held-to-maturity:       
GSE debentures$41,612
 $
 $811
 $40,801
GSEs MBSs13,923
 
 218
 13,705
Municipal obligations53,695
 159
 337
 53,517
Foreign government obligations500
 
 
 500
Total investment securities held-to-maturity$109,730
 $159
 $1,366
 $108,523
As of March 31, 2018, the fair value of all investment securities available-for-sale was $558.4 million, with net unrealized losses of $15.2 million, compared to a fair value of $540.1 million and net unrealized losses of $7.8 million as of December 31, 2017. As of March 31, 2018, $512.1 million, or 91.7% of the portfolio, had gross unrealized losses of $15.5 million, compared to $469.2 million, or 86.9% of the portfolio, with gross unrealized losses of $8.4 million as of December 31, 2017.

13

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

As of March 31, 2018, the fair value of all investment securities held-to-maturity was $114.8 million, with net unrealized losses of $2.5 million, compared to a fair value of $108.5 million with net unrealized losses of $1.2 million as of December 31, 2017. As of March 31, 2018, $109.0 million, or 95.0% of the portfolio, had gross unrealized losses of $2.6 million. There were $92.9 million, or 85.6% of the portfolio, with gross unrealized losses of $1.4 million as of December 31, 2017.
Investment Securities as Collateral
As of March 31, 2018 and December 31, 2017, respectively, $463.1 million and $431.2 million of investment securities were pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLBB borrowings. The Banks did not have any outstanding FRB borrowings as of March 31, 2018 and December 31, 2017.
Other-Than-Temporary Impairment ("OTTI")
Investment securities as of March 31, 2018 and December 31, 2017 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:
 At March 31, 2018
 
Less than
Twelve Months
 
Twelve Months
or Longer
 Total
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 (In Thousands)
Investment securities available-for-sale:           
GSE debentures$143,716
 $3,284
 $12,256
 $579
 $155,972
 $3,863
GSE CMOs2,614
 64
 116,505
 5,318
 119,119
 5,382
GSE MBSs109,406
 2,250
 70,625
 2,879
 180,031
 5,129
SBA commercial loan asset-backed securities32
 
 31
 1
 63
 1
Corporate debt obligations45,522
 761
 2,350
 156
 47,872
 917
U.S. Treasury bonds8,597
 197
 
 
 8,597
 197
Trust preferred securities
 
 
 
 
 
Marketable equity securities
 
 495
 17
 495
 17
Temporarily impaired investment securities available-for-sale309,887
 6,556
 202,262
 8,950
 512,149
 15,506
Investment securities held-to-maturity:           
GSE debentures32,196
 628
 14,007
 730
 46,203
 1,358
GSEs MBSs1,872
 34
 11,081
 306
 12,953
 340
Municipal obligations42,717
 591
 6,644
 265
 49,361
 856
Foreign government obligations
 
 497
 3
 497
 3
Temporarily impaired investment securities held-to-maturity76,785

1,253

32,229

1,304

109,014

2,557
Total temporarily impaired investment securities$386,672

$7,809

$234,491

$10,254

$621,163

$18,063

14

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 December 31, 2017
 
Less than
Twelve Months
 
Twelve Months
or Longer
 Total
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 (In Thousands)
Investment securities available-for-sale:           
GSE debentures$120,409
 $1,263
 $12,481
 $366
 $132,890
 $1,629
GSE CMOs2,862
 34
 123,548
 4,053
 126,410
 4,087
GSE MBSs94,985
 753
 74,782
 1,569
 169,767
 2,322
SBA commercial loan asset-backed securities34
 
 33
 1
 67
 1
Corporate debt obligations30,978
 154
 2,423
 84
 33,401
 238
U.S. Treasury bonds4,767
 62
 
 
 4,767
 62
Trust preferred securities
 
 1,398
 73
 1,398
 73
Marketable equity securities
 
 503
 9
 503
 9
Temporarily impaired investment securities available-for-sale254,035
 2,266
 215,168
 6,155
 469,203
 8,421
Investment securities held-to-maturity:           
GSE debentures26,594
 281
 14,208
 530
 40,802
 811
GSEs MBSs1,996
 15
 11,674
 203
 13,670
 218
Municipal obligations30,542
 235
 7,408
 102
 37,950
 337
Foreign government obligations
 
 500
 
 500
 
Temporarily impaired investment securities held-to-maturity59,132
 531
 33,790
 835
 92,922
 1,366
Total temporarily impaired investment securities$313,167
 $2,797
 $248,958
 $6,990
 $562,125
 $9,787
The Company performs regular analysis of the investment securities available-for-sale portfolio to determine whether a decline in fair value indicates that an investment security is OTTI. In making these OTTI determinations, management considers, among other factors, the length of time and extent to which the fair value has been less than amortized cost; projected future cash flows; credit subordination and the creditworthiness; capital adequacy and near-term prospects of the issuers.
Management also considers the Company's capital adequacy, interest-rate risk, liquidity and business plans in assessing whether it is more likely than not that the Company will sell or be required to sell the investment securities before recovery. If the Company determines that a decline in fair value is OTTI and that it is more likely than not that the Company will not sell or be required to sell the investment security before recovery of its amortized cost, the credit portion of the impairment loss is recognized in the Company's unaudited consolidated statement of income and the noncredit portion is recognized in accumulated other comprehensive income. The credit portion of the OTTI impairment represents the difference between the amortized cost and the present value of the expected future cash flows of the investment security. If the Company determines that a decline in fair value is OTTI and it is more likely than not that it will sell or be required to sell the investment security before recovery of its amortized cost, the entire difference between the amortized cost and the fair value of the security will be recognized in the Company's unaudited consolidated statement of income.
Investment Securities Available-For-Sale Impairment Analysis
The following discussion summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s available-for-sale portfolio were OTTI as of March 31, 2018. Based on the analysis below and the determination that, it is more likely than not that the Company will not sell or be required to sell the investment securities before recovery of its amortized cost. The Company's ability and intent to hold these investment securities until recovery is supported by the Company's strong capital and liquidity positions as well as its historically low portfolio turnover. As such, management has determined that the investment securities are not OTTI as of March 31, 2018. If market conditions for

15

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional OTTI in future periods.
U.S. Government-Sponsored Enterprises
The Company invests in securities issued by U.S. Government-sponsored enterprises ("GSEs"), including GSE debentures, mortgage-backed securities ("MBSs"), and collateralized mortgage obligations ("CMOs"). GSE securities include obligations issued by the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA"), the FHLBB and the Federal Farm Credit Bank. As of March 31, 2018, only GNMA MBSs and CMOs, and Small Business Administration ("SBA") commercial loan asset-backed securities in our available-for-sale portfolio with an estimated fair value of $23.1 million were backed explicitly by the full faith and credit of the U.S. Government, compared to $23.7 million as of December 31, 2017.
As of March 31, 2018, the Company owned 60 GSE debentures with a total fair value of $181.0 million, and a net unrealized loss of $3.8 million. As of December 31, 2017, the Company held 48 GSE debentures with a total fair value of $149.9 million, with a net unrealized loss of $1.6 million. As of March 31, 2018, 51 of the 60 securities in this portfolio were in an unrealized loss position. As of December 31, 2017, 43 of the 48 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA/SBA) guarantee of the U.S Government. During the three months ended March 31, 2018, the Company purchased a total of $33.9 million GSE debentures. This compares to $23.9 million purchased during the same period in 2017.
As of March 31, 2018, the Company owned 62 GSE CMOs with a total fair value of $119.7 million and a net unrealized loss of $5.4 million. As of December 31, 2017, the Company held 62 GSE CMOs with a total fair value of $127.0 million with a net unrealized loss of $4.1 million. As of March 31, 2018, 47 of the 62 securities in this portfolio were in an unrealized loss position. As of December 31, 2017, 47 of the 62 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2018 and 2017, the Company did not purchase any GSE CMOs.
As of March 31, 2018, the Company owned 195 GSE MBSs with a total fair value of $192.2 million and a net unrealized loss of $4.9 million. As of December 31, 2017, the Company held 194 GSE MBSs with a total fair value of $189.3 million with a net unrealized loss of $2.0 million. As of March 31, 2018, 94 of the 195 securities in this portfolio were in an unrealized loss position. As of December 31, 2017, 82 of the 194 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2018, the Company purchased a total of $15.2 million GSE MBSs, as compared to the same period in 2017, when the Company did not purchased any GSE MBSs.
SBA Commercial Loan Asset-Backed
As of March 31, 2018, the Company owned five SBA securities with a total fair value of $0.1 million, which approximated amortized cost. As of December 31, 2017, the Company owned five SBA securities with a total fair value of $0.1 million, which approximated amortized cost. As of March 31, 2018, four of the five securities in this portfolio were in an unrealized loss position. As of December 31, 2017, four of the five securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the explicit guarantee of the U.S Government. During the three months ended March 31, 2018 and 2017, the Company did not purchase any SBA securities.
Corporate Obligations
The Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. As of March 31, 2018, the Company held 17 corporate obligation securities with a total fair value of $55.9 million and a net unrealized loss of $0.9 million. As of December 31, 2017, the Company held 19 corporate obligation securities with a total fair value of $62.7 million and a net unrealized loss of $0.1 million. As of March 31, 2018, 14 of the 17 securities in this portfolio were in an unrealized loss position. As of December 31, 2017, nine of the nineteen securities in this portfolio were in an unrealized loss position. Full collection of the obligations is expected because the financial condition of the issuers is sound, they have not defaulted on scheduled payments, the obligations are rated investment grade, and the Company has the ability and intent to hold the obligations for a period of time to recover the amortized cost. During the three months ended March 31, 2018 and 2017, the Company did not purchase any corporate obligations.

16

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

U.S. Treasury Bonds
The Company invests in securities issued by the U.S. government. As of March 31, 2018, the Company owned two U.S. Treasury bonds with a total fair value of $8.6 million and an unrealized loss of $0.2 million. This compares to two U.S. Treasury bonds with a total fair value of $8.7 million and an unrealized loss of $0.1 million as of December 31, 2017. During the three months ended March 31, 2018 and 2017, the Company did not purchase any U.S. Treasury bonds.
Trust Preferred Securities
Trust preferred securities represent subordinated debt issued by financial institutions. As of March 31, 2018, the Company sold the remaining two trust preferred securities with a total fair value of $1.4 million and a realized loss of $0.1 million. This compares to two trust preferred securities with a total fair value of $1.4 million and an unrealized loss of $0.1 million as of December 31, 2017.
Marketable Equity Securities
From time to time, the Company will invest in mutual funds for community reinvestment purposes. As of March 31, 2018 and December 31, 2017, the Company owned two marketable equity securities with a fair value of $1.0 million, which approximated amortized cost. As of March 31, 2018 and December 31, 2017, one of the two securities in this portfolio was in an unrealized loss position. During the three months ended March 31, 2018 and 2017, the Company did not purchase any marketable equity securities.
Investment Securities Held-to-Maturity Impairment Analysis
The following discussion summarizes by investment security type, the basis for evaluating if the applicable investment securities within the Company's held-to-maturity portfolio were OTTI at March 31, 2018. Management has the ability and the intent to hold the securities until maturity.
U.S. Government-Sponsored Enterprises
As of March 31, 2018, the Company owned 17 GSE debentures with a total fair value of $49.2 million and a net unrealized loss of $1.4 million. As of December 31, 2017, the Company owned 14 GSE debentures with a total fair value of $40.8 million and an unrealized loss of $0.8 million. As of March 31, 2018, 16 of the 17 securities in this portfolio were in an unrealized loss position. At December 31, 2017, all 14 of the securities in this portfolio were in unrealized loss positions. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2018 and 2017, the Company purchased a total of $8.9 million and $14.9 million in GSE debentures, respectively.
As of March 31, 2018, the Company owned 11 GSE MBSs with a total fair value of $13.0 million and an unrealized loss of $0.3 million. As of December 31, 2017, the Company owned 11 GSE MBSs with a total fair value of $13.7 million and an unrealized loss of $0.2 million. As of March 31, 2018 and December 31, 2017, eight of the eleven securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2018 and 2017, the Company did not purchase any GSE MBSs.
Municipal Obligations
The Company invests in certain state and municipal securities with high credit ratings for portfolio diversification and tax planning purposes. As of March 31, 2018, the Company owned 100 municipal obligation securities with a total fair value of $52.1 million and and a net unrealized loss of $0.8 million. As of December 31, 2017, the Company owned 100 municipal obligation securities with a total fair value of $53.5 million and an unrealized loss of $0.2 million. As of March 31, 2018, 93 of the 100 securities in this portfolio were in an unrealized loss position as compared to December 31, 2017, when 69 of the 100 securities were in an unrealized loss position. During the three months ended March 31, 2018 and 2017, the Company did not purchase any municipal obligations.




17

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Foreign Government Obligations
As of March 31, 2018 and December 31, 2017, the Company owned one foreign government obligation security with a fair value of $0.5 million, which approximated cost. As of March 31, 2018 and December 31, 2017 respectively, the security was in an unrealized loss position. During the three months ended March 31, 2018 and 2017, the Company did not purchase any foreign government obligations.
Portfolio Maturities
The final stated maturities of the debt securities are as follows for the periods indicated:
 At March 31, 2018 At December 31, 2017
 
Amortized
Cost
 
Estimated
Fair Value
 
Weighted
Average
Rate
 
Amortized
Cost
 
Estimated
Fair Value
 
Weighted
Average
Rate
 (Dollars in Thousands)
Investment securities available-for-sale:           
Within 1 year$25,290
 $25,250
 2.23% $23,612
 $23,652
 2.27%
After 1 year through 5 years162,284
 159,464
 2.13% 142,772
 142,029
 2.05%
After 5 years through 10 years146,756
 142,749
 2.15% 136,746
 134,978
 2.06%
Over 10 years238,222
 229,925
 2.15% 243,856
 238,483
 2.06%
 $572,552
 $557,388
 2.15% $546,986
 $539,142
 2.07%
Investment securities held-to-maturity:           
Within 1 year$1,470
 $1,463
 1.00% $918
 $916
 0.78%
After 1 year through 5 years60,727
 59,838
 1.80% 58,335
 57,939
 1.74%
After 5 years through 10 years41,863
 40,556
 1.98% 36,589
 35,998
 1.79%
Over 10 years13,292
 12,953
 2.23% 13,888
 13,670
 1.98%
 $117,352
 $114,810
 1.90% $109,730
 $108,523
 1.78%
Actual maturities of debt securities will differ from those presented above since certain obligations amortize and may also provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. MBSs and CMOs are included above based on their final stated maturities; the actual maturities, however, may occur earlier due to anticipated prepayments and stated amortization of cash flows.
As of March 31, 2018, issuers of debt securities with an estimated fair value of $30.8 million had the right to call or prepay the obligations. Of the $30.8 million, approximately $17.7 million matures in 1 - 5 years, $13.1 million matures in 6 - 10 years, and none mature after ten years. As of December 31, 2017, issuers of debt securities with an estimated fair value of approximately $58.8 million had the right to call or prepay the obligations. Of the $58.8 million, $32.7 million matures in 1-5 years, $25.2 million matures in 6-10 years, and $0.9 million matures after ten years.
Security Sales
On February 3, 2017, the Company, through BSC, received $319 in cash and 14.876 shares of Community Bank Systems, Inc. (“CBU”) common stock in exchange for each of the 9,721 shares of Northeast Retirement Services, Inc. (“NRS”) stock held by BSC. The exchange was completed in accordance with the merger agreement entered into between NRS and CBU. As part of the merger agreement, the Company was restricted to selling 5,071 shares of CBU per day in the open market. During the quarter ended March 31, 2017, the Company completed the sale of all the CBU shares required in the merger. When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The table below includes the activity with respect to the sale of the CBU shares.
On March 6, 2018, the Company, through its wholly owned subsidiary, BSC, received $0.6 million in cash and 11,303 shares of CBU common stock as settlement for the indemnification escrow on the 12 month anniversary date of the merger between NRS and CBU. The Company subsequently sold all 11,303 shares of the CBU stock and recognized a gain on the sale of $0.6 million.

18

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

During the month of March, 2018, the Company, through Brookline Bank’s wholly owned subsidiary, LSC, sold two trust preferred securities with a book value of $1.5 million for a loss of $0.1 million. The table below includes the activity with respect to the sale of the trust preferred securities.
Sales of investment and restricted equity securities are summarized as follows:
 Three Months Ended March 31, 2018
Three Months Ended March 31, 2017
 (In Thousands)
Sales of marketable and restricted equity securities$2,700
 $11,393
    
Gross gains from sales1,230
 11,612
Gross losses from sales(68) (219)
Gain on sales of securities, net$1,162
 $11,393
(4) Loans and Leases
The following tables present loan and lease balances and weighted average coupon rates for the originated and acquired loan and lease portfolios at the dates indicated:
 At March 31, 2018
 Originated Acquired Total
 Balance 
Weighted
Average
Coupon
 Balance 
Weighted
Average
Coupon
 Balance 
Weighted
Average
Coupon
 (Dollars In Thousands)
Commercial real estate loans:           
Commercial real estate$2,129,110
 4.28% $148,918
 4.44% $2,278,028
 4.29%
Multi-family mortgage740,603
 4.21% 52,987
 4.56% 793,590
 4.23%
Construction136,784
 4.80% 31,856
 % 168,640
 3.89%
Total commercial real estate loans3,006,497
 4.29% 233,761
 3.86% 3,240,258
 4.26%
Commercial loans and leases:           
Commercial726,852
 4.49% 35,070
 5.89% 761,922
 4.55%
Equipment financing888,494
 7.35% 3,847
 5.94% 892,341
 7.34%
Condominium association52,739
 4.52% 
 % 52,739
 4.52%
Total commercial loans and leases1,668,085
 6.01% 38,917
 5.89% 1,707,002
 6.01%
Consumer loans:           
Residential mortgage613,370
 3.90% 159,633
 4.38% 773,003
 4.00%
Home equity315,085
 4.42% 49,785
 4.75% 364,870
 4.47%
Other consumer29,187
 4.92% 141
 18.00% 29,328
 4.98%
Total consumer loans957,642
 4.10% 209,559
 4.48% 1,167,201
 4.17%
Total loans and leases$5,632,224
 4.77% $482,237
 4.29% $6,114,461
 4.73%

19

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 At December 31, 2017
 Originated Acquired Total
 Balance 
Weighted
Average
Coupon
 Balance 
Weighted
Average
Coupon
 Balance 
Weighted
Average
Coupon
 (Dollars In Thousands)
Commercial real estate loans:           
Commercial real estate$2,069,392
 4.17% $105,577
 4.37% $2,174,969
 4.18%
Multi-family mortgage735,921
 4.09% 24,749
 4.48% 760,670
 4.10%
Construction140,138
 4.58% 
 % 140,138
 4.58%
Total commercial real estate loans2,945,451
 4.17% 130,326
 4.39% 3,075,777
 4.18%
Commercial loans and leases:           
Commercial696,825
 4.35% 8,179
 5.77% 705,004
 4.37%
Equipment financing861,974
 7.28% 4,514
 5.92% 866,488
 7.27%
Condominium association52,619
 4.49% 
 % 52,619
 4.49%
Total commercial loans and leases1,611,418
 5.92% 12,693
 5.82% 1,624,111
 5.92%
Consumer loans:           
Residential mortgage604,897
 3.81% 55,168
 4.28% 660,065
 3.85%
Home equity314,189
 4.16% 41,765
 4.62% 355,954
 4.21%
Other consumer14,667
 5.51% 105
 18.00% 14,772
 5.60%
Total consumer loans933,753
 3.95% 97,038
 4.44% 1,030,791
 4.00%
Total loans and leases$5,490,622
 4.65% $240,057
 4.49% $5,730,679
 4.64%
The net unamortized deferred loan origination fees and costs included in total loans and leases were $15.8 million and $15.5 million as of March 31, 2018 and December 31, 2017, respectively.
The Banks and subsidiaries lend primarily in all New England states, with the exception of equipment financing, 15.3% of which is in the greater New York and New Jersey metropolitan area and 84.7% of which is in other areas in the United States of America as of March 31, 2018.
Accretable Yield for the Acquired Loan Portfolio
The following table summarizes activity in the accretable yield for the acquired loan portfolio for the periods indicated:
 Three Months Ended March 31,
 2018
2017
 (In Thousands)
Balance at beginning of period$10,522
 $14,353
Accretion(1,185) (1,407)
Reclassification from (to) nonaccretable difference as a result of changes in expected cash flows316
 126
Balance at end of period$9,653
 $13,072
On a quarterly basis, subsequent to acquisition, management reforecasts the expected cash flows for acquired ASC 310-30 loans, taking into account prepayment speeds, probability of default and loss given defaults. Management compares cash flow projections per the reforecast to the original cash flow projections and determines whether any reduction in cash flow expectations are due to deterioration, or if the change in cash flow expectation is related to noncredit events. This cash flow analysis is used to evaluate the need for a provision for loan and lease losses and/or prospective yield adjustments. During the three months ended March 31, 2018 and 2017, accretable yield adjustments totaling $0.3 million and $0.1 million, respectively, were made for certain loan pools. These accretable yield adjustments, which are subject to continued re-assessment, will be recognized over the remaining lives of those pools.

20

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Loans and Leases Pledged as Collateral
As of March 31, 2018 and December 31, 2017, there were $2.2 billion and $2.3 billion, respectively, of loans and leases pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLBB borrowings. The Banks did not have any outstanding FRB borrowings as of March 31, 2018 and December 31, 2017.
(5) Allowance for Loan and Lease Losses
The following tables present the changes in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment for the periods indicated:
 Three Months Ended March 31, 2018
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2017$27,112
 $26,333
 $5,147
 $58,592
Charge-offs(3) (733) (56) (792)
Recoveries
 201
 86
 287
Provision (credit) for loan and lease losses252
 451
 (76) 627
Balance at March 31, 2018$27,361
 $26,252
 $5,101
 $58,714
 Three Months Ended March 31, 2017
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2016$27,645
 $20,906
 $5,115
 $53,666
Charge-offs(24) (1,207) (151) (1,382)
Recoveries140
 142
 105
 387
Provision (credit) for loan and lease losses227
 13,442
 (207) 13,462
Balance at March 31, 2017$27,988
 $33,283
 $4,862
 $66,133
The liability for unfunded credit commitments, which is included in other liabilities, was $1.7 million at both March 31, 2018 and December 31, 2017. The changes in the liability for unfunded credit commitments reflect changes in the estimate of loss exposure associated with certain unfunded credit commitments. No credit commitments were charged off against the liability account in the three-month periods ended March 31, 2018 and 2017.
Provision for Credit Losses
The provisions for credit losses are set forth below for the periods indicated:
 Three Months Ended March 31,
 2018 2017
 (In Thousands)
Provision (credit) for loan and lease losses:   
Commercial real estate$252
 $227
Commercial451
 13,442
Consumer(76) (207)
Total provision for loan and lease losses627
 13,462
Unfunded credit commitments14
 (60)
Total provision for credit losses$641
 $13,402

21

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Allowance for Loan and Lease Losses Methodology
Management has established a methodology to determine the adequacy of the allowance for loan and lease losses that assesses the risks and losses inherent in the loan and lease portfolio. Additions to the allowance for loan and lease losses are made by charges to the provision for credit losses. Losses on loans and leases are charged off against the allowance when all or a portion of a loan or lease is considered uncollectible. Subsequent recoveries on loans previously charged off, if any, are credited to the allowance when realized.

Management uses a consistent and systematic process and methodology to evaluate the adequacy of the allowance for loan and lease losses on a quarterly basis. For purposes of determining the allowance for loan and lease losses, the Company has segmented certain loans and leases in the portfolio by product type into the following segments: (1) commercial real estate loans, (2) commercial loans and leases, and (3) consumer loans. Portfolio segments are further disaggregated into classes based on the associated risks within the segments. Commercial real estate loans are divided into three classes: commercial real estate loans, multi-family mortgage loans, and construction loans. Commercial loans and leases are divided into three classes: commercial loans which include taxi medallion loans, equipment financing, and loans to condominium associations. Consumer loans are divided into three classes: residential mortgage loans, home equity loans, and other consumer loans. A formula-based credit evaluation approach is applied to each group, coupled with an analysis of certain loans for impairment. For each class of loan, management makes significant judgments in selecting the estimation method that fits the credit characteristics of its class and portfolio segment as set forth below.

The general allowance related to loans collectively evaluated for impairment is determined using a formula-based approach utilizing the risk ratings of individual credits and loss factors derived from historic portfolio loss rates, which include estimates of incurred losses over an estimated loss emergence period (“LEP”). The LEP was generated utilizing a charge-off look-back analysis which studied the time from the first indication of elevated risk of repayment (or other early event indicating a problem) to eventual charge-off to support the LEP considered in the allowance calculation. This reserving methodology established the approximate number of months of LEP that represents incurred losses for each portfolio. In addition to quantitative measures, relevant qualitative factors include, but are not limited to: (1) levels and trends in past due and impaired loans, (2) levels and trends in charge-offs, (3) changes in underwriting standards, policy exceptions, and credit policy, (4) experience of lending management and staff, (5) economic trends, (6) industry conditions, (7) effects of changes in credit concentrations, (8) interest rate environment, and (9) regulatory and other changes. The general allowance related to the acquired loans collectively evaluated for impairment is determined based upon the degree, if any, of deterioration in the pooled loans subsequent to acquisition. The qualitative factors used in the determination are the same as those used for originated loans.

Specific valuation allowances are established for impaired originated loans with book values greater than the discounted present value of expected future cash flows or, in the case of collateral-dependent impaired loans, for any excess of a loan's book balance over the fair value of its underlying collateral. Specific valuation allowances are established for acquired loans with deterioration in the discounted present value of expected future cash flows since acquisitions or, in the case of collateral dependent impaired loans, for any increase in the excess of a loan's book balance greater than the fair value of its underlying collateral. A specific valuation allowance for losses on troubled debt restructured ("TDR") loans is determined by comparing the net carrying amount of the troubled debt restructured loan with the restructured loan's cash flows discounted at the original effective rate. Impaired loans are reviewed quarterly with adjustments made to the calculated reserve as necessary.

As of March 31, 2018, management believes that the methodology for calculating the allowance is sound and that the allowance provides a reasonable basis for determining and reporting on probable losses incurred in the Company’s loan portfolios.


22

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

As of March 31, 2018, the Company had a portfolio of approximately $18.5 million in loans secured by taxi medallions issued by the cities of Boston and Cambridge. As of December 31, 2017, this portfolio was approximately $19.7 million. Application-based mobile ride services, such as Uber and Lyft, have generated increased competition in the transportation sector, resulting in a reduction in taxi utilization and, as a result, a reduction in the collateral value and credit quality of taxi medallion loans. This has increased the likelihood that loans secured by taxi medallions may default, or that the borrowers may be unable to repay these loans at maturity, potentially resulting in an increase in past due loans, TDRs, and charge-offs. The Company’s allowance calculation included a further segmentation of the commercial loans and leases to reflect the increased risk in the Company’s taxi medallion portfolio. This allowance calculation segmentation represents management’s estimations of the current risks associated with the portfolio.

As of March 31, 2018, the Company had an allowance for loan and lease losses associated with taxi medallion loans of $2.9 million of which $2.1 million were specific reserves and $0.8 million was a general reserve. The general reserve includes coverage for one taxi medallion relationship of $0.2 million which is treated as a commercial loan for allowance purposes due to the strength of personal guarantees supported by commercial real estate and other assets. As of December 31, 2017, the Company had an allowance for loan and lease losses associated with taxi medallion loans of $3.8 million of which $2.7 million were specific reserves and $1.1 million was a general reserve. The decrease in the allowance for loan and leases associated with taxi medallion loans was primarily driven by the decrease in specific reserves due to changes in the underlying collateral value of taxi medallions. The total TDRs secured by taxi medallions increased by $0.2 million from $3.7 million at December 31, 2017 to $3.9 million at March 31, 2018 due to one taxi medallion relationship which was restructured during the first quarter of 2018. The total loans and leases secured by taxi medallions that were placed on nonaccrual decreased to $7.6 million at March 31, 2018 from $7.8 million at December 31, 2017 due to the charge-off of three taxi medallion relationships which were placed on nonaccrual status. In addition, further declines in demand for taxi services or further deterioration in the value of taxi medallions may result in higher delinquencies and losses beyond that provided for in the allowance for loan and lease losses.

The general allowance for loan and lease losses was $56.2 million as of March 31, 2018, compared to $55.5 million as of December 31, 2017. The general allowance for loan and lease losses increased by $0.7 million during the three months ended March 31, 2018, as a result of the continued growth in the Company's loan portfolios.

The specific allowance for loan and lease losses was $2.5 million as of March 31, 2018, compared to $3.1 million as of December 31, 2017. The specific allowance decreased by $0.7 million during the three months ended March 31, 2018, primarily due to changes in the underlying collateral value of taxi medallions and charge-offs taken during the three months ended March 31, 2018.

Credit Quality Assessment
At the time of loan origination, a rating is assigned based on the capacity to pay and general financial strength of the borrower, the value of assets pledged as collateral, and the evaluation of third party support such as a guarantor. The Company continually monitors the quality of the loan portfolio using all available information. The officer responsible for handling each loan is required to initiate changes to risk ratings when changes in facts and circumstances occur that warrant an upgrade or downgrade in a loan rating. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, impaired, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower's ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a TDR loan.
The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For all loans, the Company utilizes an eight-grade loan rating system, which assigns a risk rating to each borrower based on a number of quantitative and qualitative factors associated with a loan transaction. Factors considered include industry and market conditions; position within the industry; earnings trends; operating cash flow; asset/liability values; debt capacity; guarantor strength; management and controls; financial reporting; collateral; and other considerations. In addition, the Company's independent loan review group evaluates the credit quality and related risk ratings in all loan portfolios. The results of these reviews are reported to the Risk Committee of the Board of Directors on a periodic basis and annually to the Board of Directors. For the consumer loans, the Company heavily relies on payment status for calibrating credit risk.

23

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

The ratings categories used for assessing credit risk in the commercial real estate, multi-family mortgage, construction, commercial, equipment financing, condominium association and other consumer loan and lease classes are defined as follows:
1 -4 Rating—Pass
Loan rating grades "1" through "4" are classified as "Pass," which indicates borrowers are performing in accordance with the terms of the loan and are less likely to result in loss due to the capacity of the borrower to pay and the adequacy of the value of assets pledged as collateral.
5 Rating—Other Assets Especially Mentioned ("OAEM")
Borrowers exhibit potential credit weaknesses or downward trends deserving management's attention. If not checked or corrected, these trends will weaken the Company's asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.
6 Rating—Substandard
Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligors or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy. Although no loss of principal is envisioned, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.
7 Rating—Doubtful
Borrowers exhibit well-defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.
8 Rating—Definite Loss
Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.
Assets rated as "OAEM," "substandard" or "doubtful" based on criteria established under banking regulations are collectively referred to as "criticized" assets.

24

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Credit Quality Information
The following tables present the recorded investment in loans in each class as of March 31, 2018, by credit quality indicator.
 At March 31, 2018 
 
Commercial
Real Estate
 
Multi-
Family
Mortgage
 Construction Commercial 
Equipment
Financing
 
Condominium
Association
 
Other
Consumer
Total
 (In Thousands) 
Originated:              
Loan rating:              
Pass$2,118,831
 $740,015
 $135,924
 $692,888
 $878,539
 $52,739
 $29,134
$4,648,070
OAEM5,684
 
 
 13,762
 1,833
 
 
21,279
Substandard4,394
 588
 860
 19,271
 5,357
 
 53
30,523
Doubtful201
 
 
 931
 2,765
 
 
3,897
Total originated2,129,110
 740,603
 136,784
 726,852
 888,494
 52,739
 29,187
4,703,769
               
Acquired:              
Loan rating:              
Pass136,685
 52,706
 31,856
 33,452
 3,836
 
 140
258,675
OAEM1,930
 
 
 275
 
 
 1
2,206
Substandard10,303
 281
 
 1,343
 11
 
 
11,938
Doubtful
 
 
 
 
 
 

Total acquired148,918
 52,987
 31,856
 35,070
 3,847
 
 141
272,819
               
Total loans$2,278,028
 $793,590
 $168,640
 $761,922
 $892,341
 $52,739
 $29,328
$4,976,588
As of March 31, 2018, there were no loans categorized as definite loss.




25

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

  At March 31, 2018
  Residential Mortgage Home Equity
  (Dollars In Thousands)
Originated:        
Loan-to-value ratio:  
    
  
Less than 50% $155,121
 20.1% $144,513
 39.6%
50% - 69% 270,273
 35.0% 75,826
 20.8%
70% - 79% 166,304
 21.5% 66,491
 18.2%
80% and over 19,988
 2.6% 28,212
 7.7%
Data not available* 1,684
 0.2% 43
 %
Total originated 613,370
 79.4% 315,085
 86.3%
         
Acquired:  
    
  
Loan-to-value ratio:  
    
  
Less than 50% 32,140
 4.0% 29,519
 8.3%
50%—69% 45,905
 5.9% 13,150
 3.5%
70%—79% 40,067
 5.2% 985
 0.3%
80% and over 29,930
 3.9% 886
 0.2%
Data not available* 11,591
 1.6% 5,245
 1.4%
Total acquired 159,633
 20.6% 49,785
 13.7%
         
Total loans $773,003
 100.0% $364,870
 100.0%
         
_______________________________________________________________________________
* Represents in process general ledger accounts for which data are not available.


26

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

The following tables present the recorded investment in loans in each class as of December 31, 2017, by credit quality indicator.
 At December 31, 2017 
 
Commercial
Real Estate
 
Multi-
Family
Mortgage
 Construction Commercial 
Equipment
Financing
 
Condominium
Association
 
Other
Consumer
Total
 (In Thousands) 
Originated:              
Loan rating:              
Pass$2,054,376
 $735,313
 $139,278
 $670,265
 $850,006
 $52,619
 $14,628
$4,516,485
OAEM8,889
 
 
 7,691
 3,630
 
 
20,210
Substandard5,926
 608
 860
 17,681
 5,012
 
 39
30,126
Doubtful201
 
 
 1,188
 3,326
 
 
4,715
Total originated2,069,392
 735,921
 140,138
 696,825
 861,974
 52,619
 14,667
4,571,536
               
Acquired:              
Loan rating:              
Pass94,244
 24,459
 
 6,643
 4,501
 
 104
129,951
OAEM9,839
 
 
 265
 
 
 1
10,105
Substandard1,494
 290
 
 1,271
 13
 
 
3,068
Doubtful
 
 
 
 
 
 

Total acquired105,577
 24,749
 
 8,179
 4,514
 
 105
143,124
               
Total loans$2,174,969
 $760,670
 $140,138
 $705,004
 $866,488
 $52,619
 $14,772
$4,714,660
As of December 31, 2017, there were no loans categorized as definite loss.




27

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 At December 31, 2017
 Residential Mortgage Home Equity
 (Dollars In Thousands)
Originated:       
Loan-to-value ratio: 
    
  
Less than 50%$153,373
 23.2% $148,137
 41.6%
50%—69%265,328
 40.2% 75,099
 21.1%
70%—79%168,272
 25.5% 63,742
 17.9%
80% and over16,547
 2.5% 27,122
 7.6%
Data not available*1,377
 0.2% 89
 %
Total originated604,897
 91.6% 314,189
 88.2%
        
Acquired: 
    
  
Loan-to-value ratio: 
    
  
Less than 50%16,521
 2.5% 25,312
 7.1%
50%—69%19,182
 2.9% 13,883
 3.9%
70%—79%10,507
 1.6% 943
 0.3%
80% and over7,893
 1.2% 582
 0.2%
Data not available*1,065
 0.2% 1,045
 0.3%
Total acquired55,168
 8.4% 41,765
 11.8%
        
Total loans$660,065
 100.0% $355,954
 100.0%
        
_______________________________________________________________________________
* Represents in process general ledger accounts for which data are not available.


The following table presents information regarding foreclosed residential real estate property for the periods indicated:
 At March 31, 2018 At December 31, 2017
 (In Thousands)
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure
 633
There were no foreclosed residential real estate property held by the creditor at March 31, 2018 or December 31, 2017.







28

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Age Analysis of Past Due Loans and Leases
The following tables present an age analysis of the recorded investment in total loans and leases as of March 31, 2018 and December 31, 2017.
 At March 31, 2018
 Past Due     
Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing
  
 
31-60
Days
 
61-90
Days
 
Greater
Than
90 Days
 Total Current 
Total Loans
and Leases
  
Nonaccrual
Loans and
Leases
 (In Thousands)
Originated:               
Commercial real estate loans:               
Commercial real estate$8,466
 $633
 $2,645
 $11,744
 $2,117,366
 $2,129,110
 $
 $3,954
Multi-family mortgage1,032
 
 
 1,032
 739,571
 740,603
 
 588
Construction297
 
 860
 1,157
 135,627
 136,784
 
 860
Total commercial real estate loans9,795
 633
 3,505
 13,933
 2,992,564
 3,006,497
 
 5,402
Commercial loans and leases:               
Commercial1,453
 1,642
 6,133
 9,228
 717,624
 726,852
 
 9,927
Equipment financing4,207
 778
 4,241
 9,226
 879,268
 888,494
 
 6,661
Condominium association855
 161
 
 1,016
 51,723
 52,739
 
 
Total commercial loans and leases6,515
 2,581
 10,374
 19,470
 1,648,615
 1,668,085
 
 16,588
Consumer loans:               
Residential mortgage1,553
 
 580
 2,133
 611,237
 613,370
 
 1,962
Home equity285
 1
 51
 337
 314,748
 315,085
 1
 130
Other consumer113
 13
 34
 160
 29,027
 29,187
 
 53
Total consumer loans1,951
 14
 665
 2,630
 955,012
 957,642
 1

2,145
Total originated loans and leases$18,261
 $3,228
 $14,544
 $36,033
 $5,596,191
 $5,632,224
 $1
 $24,135
              

29

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 At March 31, 2018
 Past Due     
Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing
  
 
31-60
Days
 
61-90
Days
 
Greater
Than
90 Days
 Total Current 
Total Loans
and Leases
  
Nonaccrual
Loans and
Leases
 (In Thousands)
Acquired:               
Commercial real estate loans:               
Commercial real estate$8,680
 $55
 $1,604
 $10,339
 $138,579
 $148,918
 $1,534
 $126
Multi-family mortgage
 
 
 
 52,987
 52,987
 
 
Construction
 
 
 
 31,856
 31,856
 
 
Total commercial real estate loans8,680
 55
 1,604
 10,339
 223,422
 233,761
 1,534
 126
Commercial loans and leases:               
Commercial93
 38
 836
 967
 34,103
 35,070
 1
 1,223
Equipment financing
 
 11
 11
 3,836
 3,847
 5
 
Total commercial loans and leases93
 38
 847
 978
 37,939
 38,917
 6
 1,223
Consumer loans:               
Residential mortgage431
 767
 2,201
 3,399
 156,234
 159,633
 2,201
 
Home equity260
 88
 265
 613
 49,172
 49,785
 140
 795
Other consumer
 
 
 
 141
 141
 
 
Total consumer loans691
 855
 2,466
 4,012
 205,547
 209,559
 2,341
 795
Total acquired loans and leases$9,464
 $948
 $4,917
 $15,329
 $466,908
 $482,237
 $3,881
 $2,144
                
Total loans and leases$27,725
 $4,176
 $19,461
 $51,362
 $6,063,099
 $6,114,461
 $3,882
 $26,279


30

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 At December 31, 2017
 Past Due     
Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing
  
 
31-60
Days
 
61-90
Days
 
Greater
Than
90 Days
 Total Current 
Total Loans
and Leases
  
Nonaccrual
Loans and
Leases
 (In Thousands)
Originated:               
Commercial real estate loans:               
Commercial real estate$3,294
 $391
 $1,843
 $5,528
 $2,063,864
 $2,069,392
 $
 $3,182
Multi-family mortgage6,141
 2,590
 
 8,731
 727,190
 735,921
 
 608
Construction6,537
 330
 860
 7,727
 132,411
 140,138
 
 860
Total commercial real estate loans15,972
 3,311
 2,703
 21,986
 2,923,465
 2,945,451
 
 4,650
Commercial loans and leases:               
Commercial1,344
 597
 7,724
 9,665
 687,160
 696,825
 
 10,365
Equipment financing3,214
 2,494
 3,203
 8,911
 853,063
 861,974
 224
 8,106
Condominium association857
 262
 
 1,119
 51,500
 52,619
 
 
Total commercial loans and leases5,415
 3,353
 10,927
 19,695
 1,591,723
 1,611,418
 224
 18,471
Consumer loans:               
Residential mortgage1,256
 166
 728
 2,150
 602,747
 604,897
 
 1,979
Home equity643
 19
 32
 694
 313,495
 314,189
 1
 132
Other consumer238
 20
 28
 286
 14,381
 14,667
 
 43
Total consumer loans2,137
 205
 788
 3,130
 930,623
 933,753
 1
 2,154
Total originated loans and leases$23,524
 $6,869
 $14,418
 $44,811
 $5,445,811
 $5,490,622
 $225
 $25,275
              

31

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 At December 31, 2017
 Past Due     
Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing
  
 
31-60
Days
 
61-90
Days
 
Greater
Than
90 Days
 Total Current 
Total Loans
and Leases
  
Nonaccrual
Loans and
Leases
 (In Thousands)
Acquired:               
Commercial real estate loans:               
Commercial real estate$1,008
 $
 $656
 $1,664
 $103,913
 $105,577
 $586
 $131
Multi-family mortgage
 
 3
 3
 24,746
 24,749
 3
 
Construction
 
 
 
 
 
 
 
Total commercial real estate loans1,008
 
 659
 1,667
 128,659
 130,326
 589
 131
Commercial loans and leases:               
Commercial
 44
 1,022
 1,066
 7,113
 8,179
 17
 1,254
Equipment financing
 
 13
 13
 4,501
 4,514
 13
 
Total commercial loans and leases
 44
 1,035
 1,079
 11,614
 12,693
 30
 1,254
Consumer loans:               
Residential mortgage
 463
 1,990
 2,453
 52,715
 55,168
 1,990
 
Home equity508
 
 186
 694
 41,071
 41,765
 186
 612
Other consumer
 
 
 
 105
 105
 
 
Total consumer loans508
 463
 2,176
 3,147
 93,891
 97,038
 2,176
 612
Total acquired loans and leases$1,516
 $507
 $3,870
 $5,893
 $234,164
 $240,057
 $2,795
 $1,997
                
Total loans and leases$25,040
 $7,376
 $18,288
 $50,704
 $5,679,975
 $5,730,679
 $3,020
 $27,272

32

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Commercial Real Estate Loans—As of March 31, 2018, loans outstanding in the three classes within this segment expressed as a percentage of total loans and leases outstanding were as follows: commercial real estate loans -- 37.1%; multi-family mortgage loans -- 13.0%; and construction loans -- 2.8%.
Loans in this portfolio that are on nonaccrual status and/or risk-rated "substandard" or worse are evaluated on an individual loan basis for impairment. For non-impaired commercial real estate loans, loss factors are applied to outstanding loans by risk rating for each of the three classes in the portfolio. The factors applied are based primarily on historic loan loss experience and an assessment of internal and external factors and other relevant information.
Commercial Loans and Leases—As of March 31, 2018, loans and leases outstanding in the three classes within this segment expressed as a percent of total loans and leases outstanding were as follows: commercial loans and leases -- 12.5%; equipment financing loans -- 14.6%; and loans to condominium associations -- 0.9%.
Loans and leases in this portfolio that are on nonaccrual status and/or risk-rated "substandard" or worse are evaluated on an individual basis for impairment. For non-impaired commercial loans and leases, loss factors are applied to outstanding loans by risk rating for each of the three classes in the portfolio.
Consumer Loans—As of March 31, 2018, loans outstanding within the three classes within this segment expressed as a percent of total loans and leases outstanding were as follows: residential mortgage loans -- 12.6%, home equity loans -- 6.0%, and other consumer loans -- 0.5%.
Significant risk characteristics related to the residential mortgage and home equity loan portfolios are the geographic concentration of the properties financed within selected communities in the greater Boston and Providence metropolitan areas. The payment status and loan-to-value ratio are the primary credit quality indicators used for residential mortgage loans and home equity loans. Generally, loans are not made when the loan-to-value ratio exceeds 80% unless private mortgage insurance is obtained and/or there is a financially strong guarantor. Consumer loans that become 90 days or more past due, or are placed on nonaccrual.
Impaired Loans and Leases
A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. The Company has defined the population of impaired loans to include nonaccrual loans and troubled debt restructured ("TDR") loans.
When the ultimate collectability of the total principal of an impaired loan or lease is in doubt and the loan is on nonaccrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan or lease is not in doubt and the loan or lease is on nonaccrual status, contractual interest is credited to interest income when received, under the cash basis method.
The following tables include the recorded investment and unpaid principal balances of impaired loans and leases with the related allowance amount, if applicable, for the originated and acquired loan and lease portfolios at the dates indicated. Also presented are the average recorded investments in the impaired loans and leases and the related amount of interest recognized during the period that the impaired loans were impaired.

33

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 At March 31, 2018 At December 31, 2017
 
Recorded
Investment
(1)
 Unpaid
Principal
Balance
 Related
Allowance
 
Recorded
Investment (2)
 Unpaid
Principal
Balance
 Related
Allowance
 (In Thousands)
Originated:           
With no related allowance recorded:           
Commercial real estate$7,962
 $7,946
 $
 $9,978
 $9,962
 $
Commercial27,032
 27,027
 
 24,906
 25,040
 
Consumer3,338
 3,330
 
 3,508
 3,500
 
Total originated with no related allowance recorded38,332
 38,303
 
 38,392
 38,502
 
With an allowance recorded:           
Commercial real estate
 
 
 3,056
 3,056
 
Commercial7,953
 7,942
 2,509
 8,912
 8,862
 3,105
Consumer134
 134
 18
 
 
 
Total originated with an allowance recorded8,087
 8,076
 2,527
 11,968
 11,918
 3,105
Total originated impaired loans and leases46,419
 46,379
 2,527
 50,360
 50,420
 3,105
            
Acquired:           
With no related allowance recorded:           
Commercial real estate10,676
 10,676
 
 1,880
 1,880
 
Commercial1,607
 1,607
 
 1,594
 1,594
 
Consumer4,839
 4,839
 
 4,736
 4,736
 
Total acquired with no related allowance recorded17,122
 17,122
 
 8,210
 8,210
 
With an allowance recorded:           
Consumer114
 114
 22
 115
 115
 22
 Total acquired with an allowance recorded114
 114
 22
 115
 115
 22
Total acquired impaired loans and leases17,236
 17,236
 22
 8,325
 8,325
 22
            
Total impaired loans and leases$63,655
 $63,615
 $2,549
 $58,685
 $58,745
 $3,127
___________________________________________________________________________
(1) Includes originated and acquired nonaccrual loans of $23.8 million and $2.1 million, respectively as of March 31, 2018.

(2) Includes originated and acquired nonaccrual loans of $24.9 million and $2.0 million, respectively as of December 31, 2017.

34

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 Three Months Ended
 March 31, 2018 March 31, 2017
 Average
Recorded
Investment
 Interest
Income
Recognized
 Average
Recorded
Investment
 Interest
Income
Recognized
 (In Thousands)
Originated:       
With no related allowance recorded:       
Commercial real estate$7,985
 $30
 $9,363
 $32
Commercial27,761
 272
 21,058
 164
Consumer3,353
 13
 5,306
 16
Total originated with no related allowance recorded39,099
 315
 35,727
 212
With an allowance recorded:       
Commercial real estate
 
 4,000
 48
Commercial7,993
 16
 22,322
 1
Consumer134
 1
 
 
Total originated with an allowance recorded8,127
 17
 26,322
 49
Total originated impaired loans and leases47,226
 332
 62,049
 261
        
Acquired:       
With no related allowance recorded:       
Commercial real estate10,681
 1
 9,419
 19
Commercial1,624
 4
 2,934
 10
Consumer4,860
 15
 6,133
 16
Total acquired with no related allowance recorded17,165
 20
 18,486
 45
With an allowance recorded:       
Commercial real estate
 
 
 
Commercial
 
 
 
Consumer114
 1
 168
 1
  Total acquired with an allowance recorded114
 1
 168
 1
Total acquired impaired loans and leases17,279
 21
 18,654
 46
        
Total impaired loans and leases$64,505
 $353
 $80,703
 $307
        


35

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

The following tables present information regarding impaired and non-impaired loans and leases at the dates indicated:
 At March 31, 2018
 Commercial Real Estate Commercial Consumer Total
 (In Thousands)
Allowance for Loan and Lease Losses:       
Originated:       
Individually evaluated for impairment$
 $2,509
 $18
 $2,527
Collectively evaluated for impairment26,674
 23,613
 4,990
 55,277
Total originated loans and leases26,674
 26,122
 5,008
 57,804
        
Acquired:       
Individually evaluated for impairment
 
 22
 22
Collectively evaluated for impairment104
 12
 15
 131
Acquired with deteriorated credit quality583
 118
 56
 757
Total acquired loans and leases687
 130
 93
 910
        
Total allowance for loan and lease losses$27,361
 $26,252
 $5,101
 $58,714
        
Loans and Leases:       
Originated:       
Individually evaluated for impairment$7,959
 $30,561
 $3,406
 $41,926
Collectively evaluated for impairment2,998,538
 1,637,524
 954,236
 5,590,298
Total originated loans and leases3,006,497
 1,668,085
 957,642
 5,632,224
        
Acquired:       
Individually evaluated for impairment
 1,447
 1,964
 3,411
Collectively evaluated for impairment139,761
 33,145
 169,453
 342,359
Acquired with deteriorated credit quality94,000
 4,325
 38,142
 136,467
Total acquired loans and leases233,761
 38,917
 209,559
 482,237
        
Total loans and leases$3,240,258
 $1,707,002
 $1,167,201
 $6,114,461



36

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 At December 31, 2017
 Commercial Real Estate Commercial Consumer Total
 (In Thousands)
Allowance for Loan and Lease Losses:       
Originated:       
Individually evaluated for impairment$
 $3,105
 $
 $3,105
Collectively evaluated for impairment26,366
 23,078
 5,003
 54,447
Total originated loans and leases26,366
 26,183
 5,003
 57,552
        
Acquired:       
Individually evaluated for impairment
 
 22
 22
Collectively evaluated for impairment145
 13
 17
 175
Acquired with deteriorated credit quality601
 137
 105
 843
Total acquired loans and leases746
 150
 144
 1,040
        
Total allowance for loan and lease losses$27,112
 $26,333
 $5,147
 $58,592
        
Loans and Leases:       
Originated:       
Individually evaluated for impairment$13,031
 $29,386
 $3,070
 $45,487
Collectively evaluated for impairment2,932,420
 1,582,032
 930,683
 5,445,135
Total originated loans and leases2,945,451
 1,611,418
 933,753
 5,490,622
        
Acquired:       
Individually evaluated for impairment
 1,487
 1,867
 3,354
Collectively evaluated for impairment34,244
 6,399
 55,921
 96,564
Acquired with deteriorated credit quality96,082
 4,807
 39,250
 140,139
Total acquired loans and leases130,326
 12,693
 97,038
 240,057
        
Total loans and leases$3,075,777
 $1,624,111
 $1,030,791
 $5,730,679


37

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Troubled Debt Restructured Loans and Leases
A specific valuation allowance for losses on TDR loans is determined by comparing the net carrying amount of the TDR loan with the restructured loan's cash flows discounted at the original effective rate.
The following table sets forth information regarding TDR loans and leases at the dates indicated:
 At March 31, 2018
At December 31, 2017
 (In Thousands)
Troubled debt restructurings:   
On accrual$14,294
 $16,241
On nonaccrual8,610
 9,770
Total troubled debt restructurings$22,904
 $26,011

Total TDR loans and leases decreased by $3.1 million to $22.9 million at March 31, 2018 from
$26.0 million at December 31, 2017, primarily driven by the payoff of a commercial real estate relationship.
The recorded investment in TDR loans and the associated specific allowances for loan and lease losses, in the originated and acquired loan and lease portfolios, that were modified during the periods indicated, are as follows.
 At and for the Three Months Ended March 31, 2018
   Recorded Investment 
Specific
Allowance for
Loan and
Lease Losses
     
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
  
Nonaccrual
Loans and
Leases
 
Additional
Commitment
 
Number of
Loans/
Leases
 
Recorded
Investment
 (Dollars in Thousands)
Originated:               
Commercial6
 $635
 $635
 $41
 $635
 $
 1
 $929
Equipment financing6
 1,555
 1,555
 
 
 
 
 
Total originated12
 $2,190
 $2,190
 $41
 $635
 $
 1
 $929
______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.

There were no acquired loans and leases that met the definition of a TDR during the three months ended March 31, 2018.
 At and for the Three Months Ended March 31, 2017
   Recorded Investment 
Specific
Allowance for
Loan and
Lease Losses
     
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
  
Nonaccrual
Loans and
Leases
 
Additional
Commitment
 
Number of
Loans/
Leases
 
Recorded
Investment
 (Dollars in Thousands)
Originated:               
Commercial3
 $765
 $765
 $364
 $741
 $
 3
 $800
Total originated3
 $765
 $765
 $364
 $741
 
 3
 $800
______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.

There were no acquired loans and leases that met the definition of a TDR during the three months ended March 31, 2017.
                
                

38

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

The following table sets forth the Company's end-of-period balances for TDRs that were modified during the periods indicated, by type of modification.
 Three Months Ended March 31,
 2018 2017
 (In Thousands)
Loans with one modification:   
Adjusted principal$
 $375
Combination maturity, principal, interest rate2,190
 390
Total loans with one modification$2,190
 $765
The TDR loans and leases that were modified for the three months ended March 31, 2018 and 2017 were $2.2 million and $0.8 million, respectively. The increase in TDR loans and leases that were modified for the three months ended March 31, 2018 was primarily due to the modification of loans and leases secured by taxi medallions and one equipment financing relationship.
There were no TDR loans and leases with more than one modification during the three months ended March 31, 2018 and 2017.
The net charge-offs of the performing and nonperforming TDR loans and leases for the three months ended March 31, 2018 were $103 thousand driven by the charge-off of two commercial loans secured by taxi medallions. The net recoveries for performing and nonperforming TDR loans and leases for the three months ended March 31, 2017 were $7 thousand.
As of March 31, 2018 and 2017, there were no commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs.
(6) Goodwill and Other Intangible Assets
The following table sets forth the carrying value of goodwill and other intangible assets at the dates indicated:
 At March 31, 2018 At December 31, 2017
 (In Thousands)
Goodwill$137,890
 $137,890
Additions23,006
 
Balance at end of period160,896
 137,890
Other intangible assets:   
Core deposits6,608
 4,955
Trade name1,089
 1,089
Total other intangible assets7,697
 6,044
Total goodwill and other intangible assets$168,593
 $143,934
The addition of goodwill and the increase in core deposit intangibles, at March 31, 2018 are due to the excess of the purchase paid over the fair value of the net assets acquired from the First Commons Bank acquisition.
At December 31, 2013, the Company concluded that the BankRI name would continue to be utilized in its marketing strategies; therefore, the trade name with carrying value of $1.1 million, has an indefinite life and ceased to amortize.
The weighted-average amortization period for the CDI is 8.5 years.

39

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

The estimated aggregate future amortization expense (in thousands) for other intangible assets for each of the next five years and thereafter is as follows:
Remainder of 2018$1,691
Year ending: 
20191,682
20201,247
2021839
2022486
2023256
Thereafter407
Total$6,608
(7) Accumulated Other Comprehensive Income (Loss)
For the three months ended March 31, 2018 and 2017, the Company’s accumulated other comprehensive income (loss) includes the following two components: (i) unrealized holding gains (losses) on investment securities available-for-sale; and (ii) adjustment of accumulated obligation for postretirement benefits.
 
Changes in accumulated other comprehensive income (loss) by component, net of tax, were as follows for the periods indicated:
 Three Months Ended March 31, 2018
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at December 31, 2017$(6,113) $163
 $(5,950)
Other comprehensive income(5,716) 
 (5,716)
Balance at March 31, 2018$(11,829) $163
 $(11,666)
 Three Months Ended March 31, 2017
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at December 31, 2016$(4,213) $395
 $(3,818)
Other comprehensive income557
 
 557
Balance at March 31, 2017$(3,656) $395
 $(3,261)

The Company did not reclassify any amounts out of accumulated other comprehensive income (loss) for the three months ended March 31, 2018 and 2017.
(8) Derivatives and Hedging Activities
The Company utilizes loan level derivatives which consist of interest-rate contracts (swaps, caps and floors), and risk participation agreements as part of the Company's interest-rate risk management strategy for certain assets and liabilities and not for speculative purposes. Based on the Company's intended use for the loan level derivatives at inception, the Company designates the derivative as either an economic hedge of an asset or liability, or a hedging instrument subject to the hedge accounting provisions of FASB ASC Topic 815, "Derivatives and Hedging".
Interest-rate swap, cap and floor agreements are entered into as hedges against future interest-rate fluctuations on specifically identified assets or liabilities. The Company did not have derivative fair value hedges or derivative cash flow hedges as of March 31, 2018 or December 31, 2017.

40

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Derivatives not designated as hedges are not speculative but rather result from a service the Company provides to certain customers for a fee. The Company executes loan level derivative products such as interest-rate swap agreements with commercial banking customers to aid them in managing their interest-rate risk. The interest-rate swap contracts allow the commercial banking customers to convert floating-rate loan payments to fixed-rate loan payments. The Company concurrently enters into offsetting swaps with a third party financial institution, effectively minimizing its net risk exposure resulting from such transactions. The third-party financial institution exchanges the customer's fixed-rate loan payments for floating-rate loan payments. As the interest-rate swap agreements associated with this program do not meet hedge accounting requirements, changes in the fair value are recognized directly in earnings.
The Company utilizes risk participation agreements with other banks participating in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. Risk participation agreements are derivative financial instruments and are recorded at fair value. These derivatives are not designated as hedges and therefore, changes in fair value are recorded directly through earnings at each reporting period.
Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower, for a fee received from the other bank.
The Company offers foreign exchange contracts to commercial borrowers to accommodate their business needs. These foreign exchange contracts do not qualify as hedges for accounting purposes. To mitigate the market and liquidity risk associated with these foreign exchange contracts, the Company enters into similar offsetting positions.
Asset derivatives and liability derivatives are included in other assets and accrued expenses and other liabilities on the unaudited consolidated balance sheets.
The following tables presents the Company's customer related derivative positions for the periods indicated below for those derivatives not designated as hedging.
 Notional Amount Maturing
 Number of Positions Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value
 March 31, 2018
 (Dollars In Thousands)
Loan level derivatives               
Receive fixed, pay variable66
 $3,872
 $2,010
 $27,607
 $
 $504,205
 $537,694
 $13,594
Pay fixed, receive variable66
 3,872
 2,010
 27,607
 
 504,205
 537,694
 13,594
Risk participation-out agreements8
 
 
 8,495
 
 28,667
 37,162
 43
Risk participation-in agreements1
 
 
 
 
 3,825
 3,825
 7
                
Foreign exchange contracts               
Buys foreign currency, sells U.S. currency18
 $1,330
 $
 $
 $
 $
 $1,330
 $65
Sells foreign currency, buys U.S. currency36
 1,335
 
 
 
 
 1,335
 60


41

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 Notional Amount Maturing
 Number of Positions Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value
 December 31, 2017
 (Dollars In Thousands)
Loan level derivatives               
Receive fixed, pay variable66
 $3,903
 $2,036
 $27,992
 $
 $460,728
 $494,659
 $8,865
Pay fixed, receive variable66
 3,903
 2,036
 27,992
 
 460,728
 494,659
 8,865
Risk participation-out agreements8
 
 
 8,613
 
 28,014
 36,627
 65
Risk participation-in agreements1
 
 
 
 
 3,825
 3,825
 10
                
Foreign exchange contracts               
Buys foreign currency, sells U.S. currency22
 $1,495
 $
 $
 $
 $
 $1,495
 $65
Sells foreign currency, buys U.S. currency44
 1,502
 
 
 
 
 1,502
 72
Certain derivative agreements contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. The Company posted collateral to dealer counterparties of $25.5 million and $26.7 million in the normal course of business as of March 31, 2018 and December 31, 2017, respectively. Dealer counterparties posted $0.5 million to the Company in the normal course of business as of March 31, 2018 compared to no collateral as of December 31, 2017.
The tables below present the offsetting of derivatives and amounts subject to master netting agreements not offset in the unaudited consolidated balance sheet at the dates indicated.
 At March 31, 2018
 Gross
Amounts Recognized
 
Gross Amounts
Offset in the
Statement of Financial Position
 Net Amounts  Presented in the Statement of Financial Position 
Gross Amounts Not Offset in the
Statement of Financial Position
 Net Amount
    Financial Instruments Pledged Cash Collateral Pledged 
 (In Thousands)
Asset derivatives           
Loan level derivatives$13,594
 $
 $13,594
 $
 $530
 $13,064
Risk participation-out agreements43
 
 43
 
 
 43
Foreign exchange contracts65
 
 65
 
 
 65
Total$13,702
 $
 $13,702
 $
 $530
 $13,172
            
Liability derivatives           
Loan level derivatives$13,594
 $
 $13,594
 $24,017
 $1,510
 $
Risk participation-in agreements7
 
 7
 
 
 7
Foreign exchange contracts60
 
 60
 
 
 60
Total$13,661
 $
 $13,661
 $24,017
 $1,510
 $67

42

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 At December 31, 2017
 Gross
Amounts Recognized
 
Gross Amounts
Offset in the
Statement of Financial Position
 Net Amounts  Presented in the Statement of Financial Position 
Gross Amounts Not Offset in the
Statement of Financial Position
 Net Amount
    Financial Instruments Pledged Cash Collateral Pledged 
 (In Thousands)
Asset derivatives           
Loan level derivatives$8,865
 $
 $8,865
 $
 $
 $8,865
Risk participation-out agreements65
 
 65
 
 
 65
Foreign exchange contracts72
 
 72
 
 
 72
Total$9,002
 $
 $9,002
 $
 $
 $9,002
            
Liability derivatives           
Loan level derivatives$8,865
 $
 $8,865
 $25,159
 $1,510
 $
Risk participation-in agreements10
 
 10
 
 
 
Foreign exchange contracts65
 
 65
 
 
 
Total$8,940
 $
 $8,940
 $25,159
 $1,510
 $
The Company has agreements with certain of its derivative counterparties that contain credit-risk-related contingent provisions. These provisions provide the counterparty with the right to terminate its derivative positions and require the Company to settle its obligations under the agreements if the Company defaults on certain of its indebtedness or if the Company fails to maintain its status as a well-capitalized institution.
(9) Stock Based Compensation
As of March 31, 2018, the Company had three active recognition and retention plans: the 2003 Recognition and Retention Plan (the "2003 RRP") with 1,250,000 authorized shares, the 2011 Restricted Stock Award Plan ("2011 RSA") with 500,000 authorized shares and the 2014 Equity Incentive Plan ("2014 Plan") with 1,750,000 authorized shares. The 2003 RRP, the 2011 RSA and the 2014 Plan are collectively referred to as the "Plans". The purpose of the Plans is to promote the long-term financial success of the Company and its subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company's stockholders.
Of the awarded shares, generally 50% vest ratably over three years with one-third of such shares vesting at each of the first, second and third anniversary dates of the awards. These are referred to as "time-based shares". The remaining 50% of each award has a cliff vesting schedule and will vest three years after the award date based on the level of the Company's achievement of identified performance targets in comparison to the level of achievement of such identified performance targets by a defined peer group comprised of 17 financial institutions. These are referred to as "performance-based shares". If a participant leaves the Company prior to the third anniversary date of an award, any unvested shares are forfeited. Dividends declared with respect to shares awarded will be held by the Company and paid to the participant only when the shares vest.
Under all the Plans, shares of the Company's common stock were reserved for issuance as restricted stock awards to officers, employees, and non-employee directors of the Company. Shares issued upon vesting may be either authorized but unissued shares or reacquired shares held by the Company as treasury shares. Any shares not issued because vesting requirements are not met will be retired back to treasury and be made available again for issuance under the Plans.
During the three months ended March 31, 2018, and 2017, no shares were issued upon satisfaction of required conditions of the Plans.
Total expense for the Plans was $0.7 million and $0.6 million for the three months ended March 31, 2018 and 2017, respectively.

43

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

(10) Earnings per Share ("EPS")
The following table is a reconciliation of basic EPS and diluted EPS:
 Three Months Ended
 March 31, 2018 March 31, 2017
 Basic 
Fully
Diluted
 Basic 
Fully
Diluted
 (Dollars in Thousands, Except Per Share Amounts)
Numerator:       
Net income$18,633
 $18,633
 $13,445
 $13,445
        
Denominator:       
Weighted average shares outstanding77,879,593
 77,879,593
 70,386,766
 70,386,766
Effect of dilutive securities
 288,207
 
 457,330
Adjusted weighted average shares outstanding77,879,593
 78,167,800
 70,386,766
 70,844,096
        
EPS$0.24
 $0.24
 $0.19
 $0.19
        
(11) Fair Value of Financial Instruments
A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring and non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no changes in the valuation techniques used during the three months ended March 31, 2018 and 2017.

44

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables set forth the carrying value of assets and liabilities measured at fair value on a recurring basis at the dates indicated:
 Carrying Value as of March 31, 2018
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets: 
  
  
  
Investment securities available-for-sale:       
GSE debentures$
 $180,968
 $
 $180,968
GSE CMOs
 119,697
 
 119,697
GSE MBSs
 192,185
 
 192,185
SBA commercial loan asset-backed securities
 69
 
 69
Corporate debt obligations
 55,872
 
 55,872
U.S. Treasury bonds
 8,597
 
 8,597
Trust preferred securities
 
 
 
Marketable equity securities969
 
 
 969
Total investment securities available-for-sale$969
 $557,388
 $
 $558,357
Loan level derivatives$
 $13,594
 $
 $13,594
Risk participation-out agreements
 43
 
 43
Foreign exchange contracts
 65
 
 65
Liabilities:       
Loan level derivatives$
 $13,594
 $
 $13,594
Risk participation-in agreements
 7
 
 7
Foreign exchange contracts
 60
 
 60

45

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

 Carrying Value as of December 31, 2017
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets:       
Investment securities available-for-sale:       
GSE debentures$
 $149,924
 $
 $149,924
GSE CMOs
 127,022
 
 127,022
GSE MBSs
 189,313
 
 189,313
SBA commercial loan asset-backed securities
 72
 
 72
Corporate debt obligations
 62,683
 
 62,683
U.S. Treasury bonds
 8,730
 
 8,730
Trust preferred securities
 1,398
 
 1,398
Marketable equity securities982
 
 
 982
Total investment securities available-for-sale$982
 $539,142
 $

$540,124
Loan level derivatives$
 $8,865
 $
 $8,865
Risk participation-out agreements
 65
 
 65
Foreign exchange contracts
 72
 
 72
Liabilities:      

Loan level derivatives$
 $8,865
 $
 $8,865
Risk participation-in agreements
 10
 
 10
Foreign exchange contracts
 65
 
 65
        
Investment Securities Available-for-Sale
The fair value of investment securities is based principally on market prices and dealer quotes received from third-party and nationally-recognized pricing services for identical investment securities such as U.S. Treasury and agency securities. The Company's marketable equity securities are priced this way and are included in Level 1. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include GSE debentures, GSE mortgage-related securities, SBA commercial loan asset backed securities, corporate debt securities, and trust preferred securities, all of which are included in Level 2. As of March 31, 2018 and December 31, 2017, no investment securities were valued using pricing models included in Level 3.
Additionally, management reviews changes in fair value from period to period and performs testing to ensure that prices received from the third parties are consistent with management's expectation of the market. Changes in the prices obtained from the pricing service are analyzed from month to month, taking into consideration changes in market conditions including changes in mortgage spreads, changes in U.S. Treasury security yields and changes in generic pricing of 15-year and 30-year securities. Additional analysis may include a review of prices provided by other independent parties, a yield analysis, a review of average life changes using Bloomberg analytics and a review of historical pricing for a particular security.
Derivatives and Hedging Instruments
The fair values for the interest-rate swap assets and liabilities, risk participation agreements (RPA in/out), and foreign exchange derivatives represent a Level 2 valuation and are based on settlement values adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves and foreign exchange rates where applicable. Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposures and remaining contractual life. To date, the Company has not realized any losses due to a counterparty's inability to pay any net uncollateralized position. Refer also to Note 8, "Derivatives and Hedging Activities."

46

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

There were no transfers between levels for assets and liabilities recorded at fair value on a recurring basis during the three months ended March 31, 2018 and 2017, respectively.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below at the dated indicated:
 Carrying Value as of March 31, 2018
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets measured at fair value on a non-recurring basis:       
Collateral-dependent impaired loans and leases$
 $
 $17,284
 $17,284
OREO
 
 3,235
 3,235
Repossessed assets
 728
 
 728
Total assets measured at fair value on a non-recurring basis$
 $728
 $20,519
 $21,247
 Carrying Value as of December 31, 2017
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets measured at fair value on a non-recurring basis:       
Collateral-dependent impaired loans and leases$
 $
 $21,195
 $21,195
OREO
 
 3,235
 3,235
Repossessed assets
 1,184
 
 1,184
Total assets measured at fair value on a non-recurring basis$
 $1,184
 $24,430
 $25,614
Collateral-Dependent Impaired Loans and Leases
For nonperforming loans and leases where the credit quality of the borrower has deteriorated significantly, fair values of the underlying collateral were estimated using purchase and sales agreements (Level 2), or comparable sales or recent appraisals (Level 3), adjusted for selling costs and other expenses.
Other Real Estate Owned
The Company records OREO at the lower of cost or fair value. In estimating fair value, the Company utilizes purchase and sales agreements (Level 2) or comparable sales, recent appraisals or cash flows discounted at an interest rate commensurate with the risk associated with these cash flows (Level 3), adjusted for selling costs and other expenses.
Repossessed Assets
Repossessed assets are carried at estimated fair value less costs to sell based on auction pricing (Level 2).

47

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

The table below presents quantitative information about significant unobservable inputs (Level 3) for assets measured at fair value on a recurring basis at the dates indicated.
 Fair Value Valuation Technique
 At March 31,
2018
 At December 31, 2017  
 (Dollars in Thousands)  
Collateral-dependent impaired loans and leases$17,284
 $21,195
 
Appraisal of collateral (1)
Other real estate owned3,235
 3,235
 
Appraisal of collateral (1)
_______________________________________________________________________________
(1) Fair value is generally determined through independent appraisals of the underlying collateral. The Company may also use another available source of collateral assessment to determine a reasonable estimate of the fair value of the collateral. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of the unobservable inputs used may vary but is generally 0% - 10% on the discount for costs to sell and 0% - 15% on appraisal adjustments.
Summary of Estimated Fair Values of Financial Instruments
The following table presents the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company's financial instruments at the dates indicated. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, restricted equity securities, and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include non-maturity deposits, short-term borrowings, and accrued interest payable.
     Fair Value Measurements
 Carrying
Value
 Estimated
Fair Value
 Level 1
Inputs
 Level 2
Inputs
 Level 3
Inputs
 (In Thousands)
At March 31, 2018         
Financial assets:         
Investment securities held-to-maturity:  

      
GSE debentures$50,529
 $49,175
 $
 $49,175
 $
GSE MBSs13,344
 13,004
 
 13,004
 
Municipal obligations52,979
 52,134
 
 52,134
 
Foreign government obligations500
 497
 
 
 497
Loans held-for-sale756
 756
 
 756
 
Loans and leases, net6,055,747
 5,947,840
 
 
 5,947,840
Restricted equity securities66,164
 66,164
 
 
 66,164
Financial liabilities:         
Certificates of deposit1,361,722
 1,346,500
 
 1,346,500
 
Borrowed funds1,099,429
 1,075,857
 
 1,075,857
 

48

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

     Fair Value Measurements
 Carrying
Value
 Estimated
Fair Value
 Level 1
Inputs
 Level 2
Inputs
 Level 3
Inputs
 (In Thousands)
At December 31, 2017         
Financial assets:         
Investment securities held-to-maturity:         
GSE debentures$41,612
 $40,801
 $
 $40,801
 $
GSE MBSs13,923
 13,705
 
 13,705
 
Municipal obligations53,695
 53,517
 
 53,517
 
Foreign government obligations500
 500
 
 
 500
Loans held-for-sale2,628
 2,628
 
 2,628
 
Loans and leases, net5,672,087
 5,594,543
 
 
 5,594,543
Restricted equity securities59,369
 59,369
 
 
 59,369
Financial liabilities:         
Certificates of deposit1,207,470
 1,198,201
 
 1,198,201
 
Borrowed funds1,020,819
 995,335
 
 995,335
 
Investment Securities Held-to-Maturity
The fair values of certain investment securities held-to-maturity are estimated using market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include GSE debentures, GSE MBSs, and municipal obligations, all of which are included in Level 2. Additionally, fair values of foreign government obligations are estimated using pricing models and are considered to be Level 3.
Loans Held-for-Sale
Fair value is measured using quoted market prices when available. These assets are typically categorized as Level 1. If quoted market prices are not available, comparable market values may be utilized. These assets are typically categorized as Level 2.
Loans and Leases
The fair values of performing loans and leases was estimated by segregating the portfolio into its primary loan and lease categories—commercial real estate mortgage, multi-family mortgage, construction, commercial, equipment financing, condominium association, residential mortgage, home equity and other consumer. These categories were further disaggregated based upon significant financial characteristics such as type of interest rate (fixed / variable) and payment status (current / past-due). The Company discounts the contractual cash flows for each loan category using interest rates currently being offered for loans with similar terms to borrowers of similar quality and incorporates estimates of future loan prepayments.
Restricted Equity Securities
The fair values of certain restricted equity securities are estimated using observable inputs adjusted for other unobservable information, including but not limited to probability assumptions and similar discounts where applicable. These restricted equity securities are considered to be Level 3.
Deposits
The fair values of deposit liabilities with no stated maturity (demand, NOW, savings and money market savings accounts) are equal to the carrying amounts payable on demand. The fair value of certificates of deposit represents contractual cash flows discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the Company's core deposit relationships (deposit-based intangibles).

49

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Borrowed Funds
The fair value of federal funds purchased is equal to the amount borrowed. The fair value of FHLBB advances and repurchase agreements represents contractual repayments discounted using interest rates currently available for borrowings with similar characteristics and remaining maturities. The fair values reported for retail repurchase agreements are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on borrowings with similar characteristics and maturities. The fair values reported for subordinated deferrable interest debentures are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on instruments with similar terms and maturities.
(12) Commitments and Contingencies
Off-Balance Sheet Financial Instruments
The Company is party to off-balance sheet financial instruments in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby and commercial letters of credits, and loan level derivatives. According to GAAP, these financial instruments are not recorded in the financial statements until they are funded or related fees are incurred or received.
The contract amounts reflect the extent of the involvement the Company has in particular classes of these instruments. Such commitments involve, to varying degrees, elements of credit risk and interest-rate risk in excess of the amount recognized in the consolidated balance sheets. The Company's exposure to credit loss in the event of non-performance by the counterparty is represented by the fair value of the instruments. The Company uses the same policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Financial instruments with off-balance-sheet risk at the dates indicated follow:
 At March 31, 2018
At December 31, 2017
 (In Thousands)
Financial instruments whose contract amounts represent credit risk: 
 
Commitments to originate loans and leases: 
 
Commercial real estate$34,112

$76,653
Commercial106,956

83,032
Residential mortgage24,162

28,745
Unadvanced portion of loans and leases608,440

571,668
Unused lines of credit: 
 
Home equity435,594

407,552
Other consumer29,730

34,191
Other commercial336

323
Unused letters of credit:

 
Financial standby letters of credit9,972

12,422
Performance standby letters of credit736

736
Commercial and similar letters of credit184

184
Loan level derivatives (Notional principal amounts):




Receive fixed, pay variable537,694

494,659
Pay fixed, receive variable537,694

494,659
Risk participation-out agreements37,162

36,627
Risk participation-in agreements3,825
 3,825
Foreign exchange contracts (Notional amounts):




Buys foreign currency, sells U.S. currency1,330

1,495
Sells foreign currency, buys U.S. currency1,335

1,502

50

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee by the customer. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if any, is based on management's credit evaluation of the borrower.
Standby and commercial letters of credits are conditional commitments issued by the Company to guarantee performance of a customer to a third party. These standby and commercial letters of credit are primarily issued to support the financing needs of the Company's commercial customers. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
From time to time, the Company enters into loan level derivatives, risk participation agreements or foreign exchange contracts with commercial customers and third-party financial institutions. These derivatives allow the Company to offer long-term fixed-rate commercial loans while mitigating the interest-rate or foreign exchange risk of holding those loans. In a loan level derivative transaction, the Company lends to a commercial customer on a floating-rate basis and then enters into an loan level derivative with that customer. Concurrently, the Company enters into offsetting swaps with a third-party financial institution, effectively minimizing its net interest-rate risk exposure resulting from such transactions.
The fair value of derivative assets and liabilities was $13.7 million and $13.7 million, respectively, as of March 31, 2018. The fair value of derivative assets and liabilities was $9.1 million and $8.9 million, respectively, as of December 31, 2017.
The fair value of foreign exchange assets and liabilities was $65.0 thousand and $60.0 thousand, respectively, as of March 31, 2018. The fair value of foreign exchange assets and liabilities was $72.0 thousand and $65.0 thousand as of December 31, 2017.
Lease Commitments
The Company leases certain office space under various noncancellable operating leases. These leases have original terms ranging from 5 years to over 25 years. Certain leases contain renewal options and escalation clauses which can increase rental expenses based principally on the consumer price index and fair market rental value provisions.
Total lease commitments increased from $29,665 thousand as of December 31, 2017 to $31,004 thousand as of March 31, 2018. The increase is due to the addition of the leases of 2 former First Commons Bank branches and an ATM location, the opening of 2 new C&I lending offices in Braintree and Wakefield and the execution of a lease extension made for Eastern Funding. A summary of future minimum rental payments under such leases at the dates indicated follows:
 Minimum Rental Payments
 (In Thousands)
  
Remainder of 2018$4,323
Year ending: 
20195,366
20204,691
20213,635
20222,807
20232,225
Thereafter7,957
Total$31,004
Certain leases contain escalation clauses for real estate taxes and other expenditures, which are not included above. Total rental expense was $1.4 million and $1.4 million for the three months ended March 31, 2018 and 2017, respectively.

51

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Legal Proceedings
In the normal course of business, there are various outstanding legal proceedings. In the opinion of management, after consulting with legal counsel, the consolidated financial position and results of operations of the Company are not expected to be affected materially by the outcome of such proceedings.
(13) Revenue from Contracts with Customers
Overview
Revenue from contracts with customers in the scope of Accounting Standards Codification (“ASC”) Topic 606 is measured based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations.
The Company’s performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time. Unsatisfied performance obligations at the report date are not material to our consolidated financial statements.
In certain cases, other parties are involved with providing services to our customers. If the Company is a principal in the transaction (providing services itself or through a third party on its behalf), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Company is an agent in the transaction (referring to another party to provide services), the Company reports its net fee or commission retained as revenue.
Accounting Policy Updates
The Company adopted Topic 606 “Revenue from Contracts with Customers” effective January 1, 2018 and has applied the guidance to all contracts within the scope of Topic 606 as of that date. As a result, the Company has modified its accounting policy for revenue recognition as detailed in this footnote.
As discussed in Note 1, the Company applied Topic 606 using the modified retrospective method, therefore, the prior period comparative information has not been adjusted and continues to be reported under Topic 605. There was no cumulative effect adjustment as of January 1, 2018, and there were no material changes to our consolidated financial statements at or for the three months ended March 31, 2018, as a result of adopting Topic 606.
The Company applied the practical expedient pertaining to contracts with original expected duration of one year or less and does not disclose information about remaining performance obligations on such contracts.
The Company also applied the practical expedient pertaining to contracts for which, at contract inception, the period between when the entity transfers the services and when the customer pays for those services will be one year or less. As such, the Company does not adjust the consideration from customers for the effects of a significant financing component.
A substantial portion of the Company’s revenue is specifically excluded from the scope of Topic 606. This exclusion is associated with financial instruments, including interest income on loans and investment securities, in addition to loan derivative income and gains on loan and investment sales. For the revenue that is in-scope of Topic 606, the following is a description of principal activities from which the Company generates its revenue from contracts with customers, separated by the timing of revenue recognition.
Revenue Recognized at a Point in Time
The Company recognizes revenue that is transactional in nature and such revenue is earned at a point in time. Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees. Additionally, revenue is collected from loan fees, such as letters of credit, line renewal fees and application fees. Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.

52

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Three Months Ended March 31, 2018 and 2017

Revenue Recognized Over Time
The Company recognizes revenue over a period of time, generally monthly, as services are performed and performance obligations are satisfied. Such revenue includes commissions on investments, insurance sales and service charges on deposit accounts. Fee revenue from service charges on deposit accounts represent the service charges assessed to customers who hold deposit accounts at the Bank.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
 
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, 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 Brookline Bancorp, Inc.’s (the “Company’s”) 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 the Company’s intent, belief or expectations with respect to economic conditions, trends affecting the Company’s financial condition or results of operations, and the Company’s exposure to market, liquidity, interest-rate and credit risk.
 
Forward-looking statements are based on the current assumptions underlying the statements and other information with respect to the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and the financial condition, results of operations, future performance and business are only expectations of future results. Although the Company believes that the expectations reflected in the Company’s forward-looking statements are reasonable, the Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, the inability to achieve the synergies and value creation contemplated by the acquisition of First Commons Bank; the inability to successfully integrate operations of First Commons Bank into Brookline Bank; the inability to maintain relationships with First Commons Bank key partners, customers and employees, and on its operating results and business generally; adverse conditions in the capital and debt markets; 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, including changes which adversely affect borrowers’ ability to service and repay their loans and leases; changes in the value of securities and other assets in the Company’s investment portfolio; changes in loan and lease default and charge-off rates; the adequacy of allowances for loan and lease losses; decreases in deposit levels that necessitate increases in borrowing to fund loans and investments; operational risks including, but not limited to, cybersecurity and natural disaster; changes in government regulation; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; 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 for the fiscal year ended December 31, 2017 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.
Introduction
Brookline Bancorp, Inc., a Delaware corporation, operates as a multi-bank holding company for Brookline Bank and its subsidiaries; Bank Rhode Island and its subsidiaries ("BankRI"); First Ipswich Bank and its subsidiaries ("First Ipswich"); and Brookline Securities Corp.
As a commercially-focused financial institution with 53 full-service banking offices throughout greater Boston, the north shore of Massachusetts and Rhode Island, the Company, through Brookline Bank, BankRI and First Ipswich (the “Banks”), offers a wide range of commercial, business and retail banking services, including a full complement of cash management products, on-line and mobile banking services, consumer and residential loans and investment advisory services, designed to meet the financial needs of small- to mid-sized businesses and individuals throughout central New England. Specialty lending activities include equipment financing primarily in the New York and New Jersey metropolitan area.
The Company focuses its business efforts on profitably growing its commercial lending businesses, both organically and through acquisitions. The Company’s customer focus, multi-bank structure, and risk management are integral to its organic

53


growth strategy and serve to differentiate the Company from its competitors. As full-service financial institutions, the Banks and their subsidiaries focus their efforts on developing and deepening long-term banking relationships with qualified customers through a full complement of products and excellent customer service, and strong risk management.
The Company manages the Banks under uniform strategic objectives, with one set of uniform policies consistently applied by one executive management team. Within this environment, the Company believes that the ability to make customer decisions locally enhances management's motivation, service levels and, as a consequence, the Company's financial results. As such, while most back-office functions are consolidated at the holding company level, branding and decision-making, including credit decisions and pricing, remain largely local in order to better meet the needs of bank customers and further motivate the Banks’ commercial, business and retail bankers.
The competition for loans and leases and deposits remains intense. While the economy has improved in 2018, the Company expects the operating environment to remain challenging. The volume of loan and lease originations and loan and lease losses will depend, to a large extent, on how the economy performs. Loan and lease growth and deposit growth are also greatly influenced by the rate-setting actions of the Board of Governors of the Federal Reserve System (“FRB”). A sustained, low interest rate environment with a flat interest rate curve may negatively impact the Company's yields and net interest margin. While the Company is slightly asset sensitive and should benefit from rising rates, these rate increases could precipitate a change in the mix and volume of the Company's deposits and loans. The future operating results of the Company will depend on its ability to maintain the net interest margin, while minimizing exposure to credit risk, along with increasing sources of non-interest income, while controlling the growth of non-interest expenses.
The Company and the Banks are supervised, examined and regulated by the FRB. As a Massachusetts-chartered savings bank and trust company, respectively, Brookline Bank and First Ipswich are also subject to regulation under the laws of the Commonwealth of Massachusetts and the jurisdiction of the Massachusetts Division of Banks. As a Rhode Island-chartered financial institution, BankRI is also subject to regulation under the laws of the State of Rhode Island and the jurisdiction of the Banking Division of the Rhode Island Department of Business Regulation. The FDIC continues to insure each of the Banks’ deposits up to $250,000 per depositor. As a Massachusetts-chartered savings bank, Brookline Bank is also insured by the Depositors Insurance Fund (“DIF”), a private industry-sponsored company. The DIF insures savings bank deposits in excess of the FDIC insurance limits. As such, Brookline Bank offers 100% insurance on all deposits as a result of a combination of insurance from the FDIC and the DIF.
The Company’s common stock is traded on the Nasdaq Global Select MarketSM under the symbol “BRKL.”

54


Selected Financial Data
The following is based in part on, and should be read in conjunction with, the consolidated financial statements and accompanying notes, and other information appearing elsewhere in this Form 10-Q.
 At and for the Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2018 2017 2017 2017 2017
 (Dollars in Thousands, Except Per Share Data)
PER COMMON SHARE DATA         
Earnings per share - Basic$0.24
 $0.09
 $0.20
 $0.20
 $0.19
Earnings per share - Diluted0.24
 0.09
 0.20
 0.20
 0.19
Book value per share (end of period)10.80
 10.49
 10.52
 10.42
 10.00
Tangible book value per share (end of period) (1)8.69
 8.61
 8.63
 8.52
 7.93
Dividends paid per common share0.09
 0.09
 0.09
 0.09
 0.09
Stock price (end of period)16.20
 15.70
 15.50
 14.60
 15.65
          
PERFORMANCE RATIOS         
Net interest margin (taxable equivalent basis)3.66% 3.59% 3.57% 3.59% 3.53%
Return on average assets1.08% 0.41% 0.92% 0.91% 0.83%
Return on average tangible assets (1)1.10% 0.41% 0.94% 0.93% 0.85%
Return on average stockholders' equity8.98% 3.37% 7.64% 7.76% 7.58%
Return on average tangible stockholders' equity (1)11.01% 4.09% 9.31% 9.58% 9.55%
Dividend payout ratio (1)37.11% 101.05% 44.90% 46.28% 47.23%
Efficiency ratio (3)60.83% 55.38% 56.37% 57.93% 48.92%
          
ASSET QUALITY RATIOS         
Net loan and lease charge-offs as a percentage of average loans and leases (annualized)0.03% 0.60% 0.14% 0.17% 0.07%
Nonperforming loans and leases as a percentage of total loans and leases0.43% 0.48% 0.71% 0.76% 0.83%
Nonperforming assets as a percentage of total assets0.42% 0.47% 0.66% 0.71% 0.73%
Total allowance for loan and lease losses as a percentage of total loans and leases0.96% 1.02% 1.16% 1.17% 1.21%
Allowance for loan and lease losses related to originated loans and leases as a percentage of originated loans and leases (1)1.03% 1.05% 1.20%
1.20%
1.25%
          
CAPITAL RATIOS         
Stockholders' equity to total assets11.94% 11.86% 12.04% 11.95% 10.83%
Tangible equity ratio (1)9.85% 9.94% 10.09% 9.99% 8.79%
          
FINANCIAL CONDITION DATA         
Total assets$7,248,114
 $6,780,249
 $6,686,284
 $6,658,067
 $6,497,721
Total loans and leases6,114,461
 5,730,679
 5,639,440
 5,537,406
 5,461,779
Allowance for loan and lease losses58,714
 58,592
 65,413
 64,521
 66,133
Investment securities available-for-sale558,357
 540,124
 522,910
 540,976
 528,433
Investment securities held-to-maturity117,352
 109,730
 107,738
 108,963
 100,691
Goodwill and identified intangible assets168,593
 143,934
 144,453
 144,972
 145,491
Total deposits5,191,520
 4,871,343
 4,805,683
 4,709,419
 4,651,903
          
          
         (Continued)

55


 At and for the Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2018 2017 2017 2017 2017
 (Dollars in Thousands, Except Per Share Data)
Total borrowed funds1,099,429
 1,020,819
 985,895
 1,066,643
 1,056,785
Stockholders' equity865,777
 803,830
 804,762
 795,618
 703,873
          
EARNINGS DATA         
Net interest income$59,491
 $57,657
 $56,843
 $55,583
 $53,098
Provision for credit losses641
 1,802
 2,911
 873
 13,402
Non-interest income6,168
 5,815
 5,973
 4,477
 15,908
Non-interest expense39,938
 35,152
 35,408
 34,795
 33,756
Net income18,633
 6,827
 15,366
 14,880
 13,445
_______________________________________________________________________________
(1) Refer to "Non-GAAP Financial Measures and Reconciliations to GAAP".

(2) All performance ratios are annualized and are based on average balance sheet amounts, where applicable.

(3) Efficiency ratio is calculated by dividing non-interest expense by the sum of non-interest income and net interest income.
Executive Overview
On March 1, 2018, the Company completed the acquisition of First Commons Bank.  First Commons Bank was merged with and into Brookline Bank. Refer also to Note 2, "Acquisitions."
Growth
Total assets of $7.2 billion as of March 31, 2018 increased $467.9 million, from December 31, 2017. The increase was primarily driven by increases in loans and leases.
Total loans and leases of $6.1 billion as of March 31, 2018 increased $383.8 million, from December 31, 2017. Excluding the First Commons Bank acquired loans at fair value, loans increased $121.7 million during the quarter or 8.5% on an annualized basis. The Company's commercial loan portfolios, which are comprised of commercial real estate loans and commercial loans and leases, totaled $4.9 billion, or 80.9% of total loans and leases, as of March 31, 2018, an increase of $247.4 million, or 21.1% on an annualized basis, from $4.7 billion, or 82.0% of total loans and leases, as of December 31, 2017.
Total deposits of $5.2 billion as of March 31, 2018 increased $320.2 million, from $4.9 billion as of December 31, 2017. Excluding the First Commons Bank acquired deposits at fair value, deposits increased $46.5 million during the quarter or 3.8% on an annualized basis. Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $3.8 billion, or 73.8% of total deposits as of March 31, 2018, an increase of $165.9 million, from $3.7 billion, or 75.2% of total deposits, as of December 31, 2017.
Asset Quality
Nonperforming assets as of March 31, 2018 totaled $30.2 million, or 0.42% of total assets, compared to $31.7 million, or 0.47% of total assets, as of December 31, 2017. Net charge-offs for the three months ended March 31, 2018 were $0.5 million, or 0.03% of average loans and leases on an annualized basis, compared to $1.0 million, or 0.07% of average loans and leases on an annualized basis, for the three months ended March 31, 2017. The decrease in nonperforming assets was primarily driven by several equipment financing loans and leases which returned to accrual status during the first three months of 2018.
The ratio of the allowance for loan and lease losses to total loans and leases was 0.96% as of March 31, 2018, compared to 1.02% as of December 31, 2017. The decrease in the allowance for loan and lease losses as a percentage of total loans and leases is largely a result of the addition of First Commons Bank loans and leases to the total amount of the Company loans and leases, without a simultaneous addition of historical, pre-acquisition allowance for loan and lease losses. Excluding the loans acquired from BankRI and First Ipswich, the allowance for loan and lease losses related to originated loans and leases as a percentage of the total originated loan and lease portfolio was 1.03% as of March 31, 2018, compared to 1.05% as of December 31, 2017. The Company continued to employ its historical underwriting methodology throughout the three month period ended March 31, 2018. Refer also to Note 5, "Allowance for Loan and Lease Losses."

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Capital Strength
The Company is a "well-capitalized" bank holding company as defined in the FRB's Regulation Y. The Company's common equity Tier 1 Capital Ratio was 12.03% as of March 31, 2018, compared to 12.02% as of December 31, 2017. The Company's Tier 1 Leverage Ratio was 10.50% as of March 31, 2018, compared to 10.43% as of December 31, 2017. As of March 31, 2018, the Company's Tier 1 Risk-Based Capital Ratio was 12.34%, compared to 12.34% as of December 31, 2017. The Company's Total Risk-Based Capital Ratio was 14.62% as of March 31, 2018, compared to 14.75% as of December 31, 2017.
The Company's ratio of stockholders' equity to total assets was 11.94% and 11.86% as of March 31, 2018 and December 31, 2017, respectively. The Company's tangible equity ratio was 9.85% and 9.94% as of March 31, 2018 and December 31, 2017, respectively.
Net Income
For the three months ended March 31, 2018, the Company reported net income of $18.6 million, or $0.24 per basic and diluted share, an increase of $5.2 million, or 154.4% on an annualized basis, from $13.4 million, or $0.19 per basic and diluted share for the three months ended March 31, 2017. This increase in net income is primarily the result of an increase in net interest income of $6.4 million, a decrease in the provision for credit losses of $12.8 million and decrease in the provision for income taxes of $2.2 million, partially offset by the deccrease in non-interest income of $9.7 million and an increase in non-interest expense of $6.2 million. Refer to “Results of Operations" below for further discussion.
The annualized return on average assets was 1.08% for the three months ended March 31, 2018, compared to 0.83% for the three months ended March 31, 2017. The annualized return on average stockholders' equity was 8.98% for the three months ended March 31, 2018, compared to 7.58% for the three months ended March 31, 2017.
The net interest margin was 3.66% for the three months ended March 31, 2018, up from 3.53% for the three months ended March 31, 2017. The increase in the net interest margin is a result of an increase in the yield on interest-earning assets by 27 basis points to 4.35% for the three months ended March 31, 2018 from 4.08% for the three months ended March 31, 2017, partially offset by an increase of 15 basis points in the Company's overall cost of funds to 0.81% for the three months ended March 31, 2018 from 0.66% for the three months ended March 31, 2017.
The Company's net interest margin and net interest income have shown improvement from the most recent low interest rate environment. As interest rates continue to rise, the Company's net interest margin and net interest income may continue to be under pressure due to competitive pricing in all loan categories and the Company’s ability to contain its cost of funds.
Critical Accounting Policies
The SEC defines “critical accounting policies” as those involving significant judgments and difficult or complex assumptions by management, often as a result of the need to make estimates about matters that are inherently uncertain or variable, which have, or could have, a material impact on the carrying value of certain assets or net income. The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. As discussed in the Company’s 2017 Annual Report on Form 10-K, management has identified the valuation of available-for-sale securities, accounting for assets and liabilities acquired, the determination of the allowance for loan and lease losses, the review of goodwill and intangibles for impairment, income tax accounting, and valuation of deferred tax assets as the Company’s most critical accounting policies.
Non-GAAP Financial Measures and Reconciliation to GAAP
In addition to evaluating the Company’s results of operations in accordance with GAAP, management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures, such as operating earnings metrics, the return on average tangible assets, return on average tangible equity, the tangible equity ratio, tangible book value per share, dividend payout ratio, and the ratio of the allowance for loan and lease losses related to originated loans and leases as a percentage of originated loans and leases. Management believes that these non-GAAP financial measures provide information useful to investors in understanding the Company’s underlying operating performance and trends, and facilitates comparisons with the performance assessment of financial performance, including non-interest expense control, while the tangible equity ratio and tangible book value per share are used to analyze the relative strength of the Company’s capital position.

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The following table summarizes the Company’s operating earnings, operating return on average assets and operating return on average stockholders’ equity for the periods indicated:
 At and for the Three Months Ended  
March 31,
 2018 2017
  
Net income, as reported$18,633
 $13,445
Less:   
Security gains (after-tax of 24.0% for 2018 and 35.9% for 2017) (1)
883
 7,303
Add:   
Merger and acquisition-related expenses (after-tax of 24.0% for 2018 and 35.9% for 2017) (1) (2)
2,208
 
Operating earnings$19,958
 $6,142
    
Basic earnings per share, as reported$0.24
 $0.19
Less:   
Security gains0.01
 0.10
Add:   
Merger and acquisition-related expenses (2)
0.03
 
Basic operating earnings per share$0.26
 $0.09
___________________________________________________________________
(1) Based on current expected effective tax rate of 24% for the remainder of 2018.
(2) Merger and acquisition expense related to the acquisition of First Commons Bank in the first quarter of 2018.
The following table summarizes the Company’s return on average tangible assets and return on average tangible stockholders’ equity for the periods indicated:
 Three Months Ended
 March 31,
2018
 December 31,
2017
 September 30, 2017 June 30,
2017
 March 31,
2017
 (Dollars in Thousands)
Operating earnings$19,958
 $15,922
 $15,501
 $14,880
 $6,142
          
Average total assets$6,927,309
 $6,725,730
 $6,681,042
 $6,556,665
 $6,461,183
Less: Average goodwill and average identified intangible assets, net152,377
 144,226
 144,747
 145,269
 145,778
Average tangible assets$6,774,932
 $6,581,504
 $6,536,295
 $6,411,396
 $6,315,405
          
Return on average assets (annualized)1.08% 0.41% 0.92% 0.91% 0.83%
Less:         
Security gains0.05% % % % 0.45%
Add:         
Merger and acquisition-related expenses0.12% 0.01% 0.01% % %
Impact of Tax Reform Act% 0.53% % % %
Operating return on average assets (annualized)1.15% 0.95% 0.93% 0.91% 0.38%
          
          
          
          
          
         (Continued)

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 Three Months Ended
 March 31,
2018
 December 31,
2017
 September 30, 2017 June 30,
2017
 March 31,
2017
 (Dollars in Thousands)
Return on average tangible assets (annualized)1.10% 0.41% 0.94% 0.93% 0.85%
Less:         
Security gains0.05% % % % 0.46%
Add:         
Merger and acquisition-related expenses0.13% 0.01% 0.01% % %
Impact of Tax Reform Act% 0.55% % % %
Operating return on average tangible assets (annualized)1.18% 0.97% 0.95% 0.93% 0.39%
          
Average total stockholders' equity$829,598
 $811,219
 $804,666
 $766,529
 $709,095
Less: Average goodwill and average identified intangible assets, net152,377
 144,226
 144,747
 145,269
 145,778
Average tangible stockholders' equity$677,221
 $666,993
 $659,919
 $621,260
 $563,317
          
Return on average stockholders' equity (annualized)8.98% 3.37% 7.64% 7.76% 7.58%
Less:         
Security gains0.43% % % % 4.12%
Add:         
Merger and acquisition-related expenses1.07% 0.06% 0.07% % %
Impact of Tax Reform Act% 4.42% % % %
Operating return on average stockholders' equity (annualized)9.62% 7.85% 7.71% 7.76% 3.46%
          
Return on average tangible stockholders' equity (annualized)11.01% 4.09% 9.31% 9.58% 9.55%
Less:         
Security gains0.52% % % % 5.19%
Add:         
Merger and acquisition-related expenses1.30% 0.08% 0.09% % %
Impact of Tax Reform Act% 5.38% % % %
Operating return on average tangible stockholders' equity (annualized)11.79% 9.55% 9.40% 9.58% 4.36%


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 Three Months Ended
 March 31,
2018

December 31,
2017

September 30, 2017
June 30,
2017

March 31,
2017
 (Dollars in Thousands)
Net income, as reported$18,633
 $6,827
 $15,366
 $14,880
 $13,445
          
Average total assets$6,927,309
 $6,725,730
 $6,681,042
 $6,556,665
 $6,461,183
Less: Average goodwill and average identified intangible assets, net152,377

144,226

144,747

145,269

145,778
Average tangible assets$6,774,932
 $6,581,504
 $6,536,295
 $6,411,396
 $6,315,405
          
Return on average tangible assets (annualized)1.10% 0.41% 0.94% 0.93% 0.85%
          
Average total stockholders' equity$829,598
 $811,219
 $804,666
 $766,529
 $709,095
Less: Average goodwill and average identified intangible assets, net152,377
 144,226
 144,747
 145,269
 145,778
Average tangible stockholders' equity$677,221
 $666,993
 $659,919
 $621,260
 $563,317
          
Return on average tangible stockholders' equity (annualized)11.01% 4.09% 9.31% 9.58% 9.55%

The following tables summarize the Company's tangible equity ratio for the periods indicated:
 Three Months Ended
 March 31,
2018
 December 31,
2017
 September 30,
2017
 June 30,
2017
 March 31,
2017
 (Dollars in Thousands)
Total stockholders' equity$865,777
 $803,830
 $804,762
 $795,618
 $703,873
Less: Goodwill and identified intangible assets, net168,593
 143,934
 144,453
 144,972
 145,491
Tangible stockholders' equity$697,184
 $659,896
 $660,309
 $650,646
 $558,382
          
Total assets$7,248,114
 $6,780,249
 $6,686,284
 $6,658,067
 $6,497,721
Less: Goodwill and identified intangible assets, net168,593
 143,934
 144,453
 144,972
 145,491
Tangible assets$7,079,521
 $6,636,315
 $6,541,831
 $6,513,095
 $6,352,230
          
Tangible equity ratio9.85% 9.94% 10.09% 9.99% 8.79%


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The following tables summarize the Company's tangible book value per share for the periods indicated:
 Three Months Ended
 March 31,
2018
 December 31,
2017
 September 30, 2017 June 30,
2017
 March 31,
2017
 (Dollars in Thousands)
Tangible stockholders' equity$697,184
 $659,896
 $660,309
 $650,646
 $558,382
          
Common shares issued85,177,172
 81,695,695
 81,695,695
 81,695,695
 75,744,445
Less:         
Treasury shares4,401,333
 4,440,665
 4,572,954
 4,717,775
 4,707,096
Unallocated ESOP134,238
 142,332
 150,921
 159,510
 168,099
Unvested restricted stock455,283
 455,283
 471,702
 457,966
 476,854
Common shares outstanding80,186,318
 76,657,415
 76,500,118
 76,360,444
 70,392,396
          
Tangible book value per share$8.69
 $8.61
 $8.63
 $8.52
 $7.93

The following table summarizes the Company's dividend payout ratio for the periods indicated:
 Three Months Ended
 March 31,
2018
 December 31,
2017
 September 30, 2017 June 30,
2017
 March 31,
2017
 (Dollars in Thousands)
Dividends paid$6,914
 $6,899
 $6,899
 $6,887
 $6,350
          
Net income, as reported$18,633
 $6,827
 $15,366
 $14,880
 $13,445
          
Dividend payout ratio37.11% 101.05% 44.90% 46.28% 47.23%

The following table summarizes the Company’s allowance for loan and lease losses related to originated loans and leases as a percentage of total originated loans and leases for the periods indicated:
 Three Months Ended
 March 31,
2018
 December 31,
2017
 September 30, 2017 June 30,
2017
 March 31,
2017
          
Allowance for loan and lease losses$58,714
 $58,592
 $65,413
 $64,521
 $66,133
Less: Allowance for acquired loan and lease losses910
 1,040
 1,003
 1,188
 1,304
Allowance for originated loan and lease losses$57,804

$57,552

$64,410

$63,333

$64,829
          
Total loans and leases$6,114,461
 $5,730,679
 $5,639,440
 $5,537,406
 $5,461,779
Less: Total acquired loans and leases482,237
 240,057
 260,196
 271,157
 295,055
Total originated loan and leases$5,632,224

$5,490,622

$5,379,244

$5,266,249

$5,166,724
          
Allowance for loan and lease losses related to originated loans and leases as a percentage of originated loan and leases1.03%
1.05%
1.20%
1.20%
1.25%


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Financial Condition
Loans and Leases
The following table summarizes the Company's portfolio of loans and leases receivables as of the dates indicated:
 At March 31, 2018 At December 31, 2017
 Balance 
Percent
of Total
 Balance 
Percent
of Total
 (Dollars in Thousands)
Commercial real estate loans:       
Commercial real estate$2,278,028
 37.1% $2,174,969
 38.0%
Multi-family mortgage793,590
 13.0% 760,670
 13.3%
Construction168,640
 2.8% 140,138
 2.4%
Total commercial real estate loans3,240,258
 52.9% 3,075,777
 53.7%
Commercial loans and leases:       
Commercial761,922
 12.5% 705,004
 12.3%
Equipment financing892,341
 14.6% 866,488
 15.1%
Condominium association52,739
 0.9% 52,619
 0.9%
Total commercial loans and leases1,707,002
 28.0% 1,624,111
 28.3%
Consumer loans:       
Residential mortgage773,003
 12.6% 660,065
 11.5%
Home equity364,870
 6.0% 355,954
 6.2%
Other consumer29,328
 0.5% 14,772
 0.3%
Total consumer loans1,167,201
 19.1% 1,030,791
 18.0%
Total loans and leases6,114,461
 100.0% 5,730,679
 100.0%
Allowance for loan and lease losses(58,714)   (58,592)  
Net loans and leases$6,055,747
   $5,672,087
  

The following table sets forth the growth in the Company’s loan and lease portfolios during the three months ended March 31, 2018:
 At March 31,
2018
 At December 31,
2017
 Dollar Change 
Percent Change
(Annualized)
 (Dollars in Thousands)
Commercial real estate$3,240,258
 $3,075,777
 $164,481
 21.4%
Commercial1,707,002
 1,624,111
 82,891
 20.4%
Consumer1,167,201
 1,030,791
 136,410
 52.9%
Total loans and leases$6,114,461
 $5,730,679
 $383,782
 26.8%
The Company's loan portfolio consists primarily of first mortgage loans secured by commercial, multi-family and residential real estate properties located in the Company's primary lending area, loans to business entities, including commercial lines of credit, loans to condominium associations and loans and leases used to finance equipment used by small businesses. The Company also provides financing for construction and development projects, home equity and other consumer loans.
The Company employs seasoned commercial lenders and retail bankers who rely on community and business contacts as well as referrals from customers, attorneys and other professionals to generate loans and deposits. Existing borrowers are also an important source of business since many of them have more than one loan outstanding with the Company. The Company's ability to originate loans depends on the strength of the economy, trends in interest rates, and levels of customer demand and market competition.

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The Company's current policy is that the aggregate amount of loans outstanding to any one borrower or related entities may not exceed $35.0 million unless approved by the Board Credit Committee, a committee of the Company's Board of Directors.
As of March 31, 2018, there were twelve borrowers with loans and commitments over $35.0 million. The total of those loans and commitments were $540.7 million, or 7.8% of total loans and commitments, as of March 31, 2018.
The Company has written underwriting policies to control the inherent risks in loan origination. The policies address approval limits, loan-to-value ratios, appraisal requirements, debt service coverage ratios, loan concentration limits and other matters relevant to loan underwriting.
Commercial Real Estate Loans
The commercial real estate portfolio is comprised of commercial real estate loans, multi-family mortgage loans, and construction loans and is the largest component of the Company's overall loan portfolio, representing 52.9% of total loans and leases outstanding as of March 31, 2018.
Typically, commercial real estate loans are larger in size and involve a greater degree of risk than owner-occupied residential mortgage loans. Loan repayment is usually dependent on the successful operation and management of the properties and the value of the properties securing the loans. Economic conditions can greatly affect cash flows and property values.
A number of factors are considered in originating commercial real estate and multi-family mortgage loans. The qualifications and financial condition of the borrower (including credit history), as well as the potential income generation and the value and condition of the underlying property, are evaluated. When evaluating the qualifications of the borrower, the Company considers the financial resources of the borrower, the borrower's experience in owning or managing similar property and the borrower's payment history with the Company and other financial institutions. Factors considered in evaluating the underlying property include the net operating income of the mortgaged premises before debt service and depreciation, the debt service coverage ratio (the ratio of cash flow before debt service to debt service), the use of conservative capitalization rates, and the ratio of the loan amount to the appraised value. Generally, personal guarantees are obtained from commercial real estate loan borrowers.
Commercial real estate and multi-family mortgage loans are typically originated for terms of five to fifteen years with amortization periods of 20 to 30 years. Many of the loans are priced at inception on a fixed-rate basis generally for periods ranging from two to five years with repricing periods for longer-term loans. When possible, prepayment penalties are included in loan covenants on these loans. For commercial customers who are interested in loans with terms longer than five years, the Company offers loan level derivatives to accommodate customer need.
The Company's urban and suburban market area is characterized by a large number of apartment buildings, condominiums and office buildings. As a result, commercial real estate and multi-family mortgage lending has been a significant part of the Company's activities for many years. These types of loans typically generate higher yields, but also involve greater credit risk. Many of the Company's borrowers have more than one multi-family or commercial real estate loan outstanding with the Company.
The commercial real estate portfolio is composed primarily of loans secured by apartment buildings ($756.1 million), office buildings ($674.5 million), retail stores ($506.8 million), industrial properties ($366.3 million), mixed-use properties ($207.0 million), lodging services ($114.3 million) and to food services ($54.2 million) as of March 31, 2018. At that date, over 93.9% of the commercial real estate loans outstanding were secured by properties located in New England.
Construction and development financing is generally considered to involve a higher degree of risk than long-term financing on improved, occupied real estate and thus has lower concentration limits than do other commercial credit classes. Risk of loss on a construction loan is largely dependent upon the accuracy of the initial estimate of construction costs, the estimated time to sell or rent the completed property at an adequate price or rate of occupancy, and market conditions. If the estimates and projections prove to be inaccurate, the Company may be confronted with a project which, upon completion, has a value that is insufficient to assure full loan repayment.
Criteria applied in underwriting construction loans for which the primary source of repayment is the sale of the property are different from the criteria applied in underwriting construction loans for which the primary source of repayment is the stabilized cash flow from the completed project. For those loans where the primary source of repayment is from resale of the property, in addition to the normal credit analysis performed for other loans, the Company also analyzes project costs, the attractiveness of the property in relation to the market in which it is located and demand within the market area. For those construction loans where the source of repayment is the stabilized cash flow from the completed project, the Company analyzes

63


not only project costs but also how long it might take to achieve satisfactory occupancy and the reasonableness of projected rental rates in relation to market rental rates.
Commercial Loans
The commercial loan and lease portfolio is comprised of commercial loans, equipment financing loans and leases and condominium association loans and represented 28.0% of total loans outstanding as of March 31, 2018.
The commercial loan and lease portfolio is composed primarily of loans to small businesses ($527.9 million), transportation services ($350.5 million), recreation services ($154.8 million), food services ($122.5 million), manufacturing ($97.4 million), rental and leasing services ($85.9 million) and retail ($75.2 million) as of March 31, 2018.
The Company provides commercial banking services to companies in its market area. Approximately 46.3% of the commercial loans outstanding as of March 31, 2018 were made to borrowers located in New England. The remaining 53.7% of the commercial loans outstanding were made to borrowers in other areas in the United States of America, primarily by the Company's equipment financing divisions. Product offerings include lines of credit, term loans, letters of credit, deposit services and cash management. These types of credit facilities have as their primary source of repayment cash flows from the operations of a business. Interest rates offered are available on a floating basis tied to the prime rate or a similar index or on a fixed-rate basis referenced on the Federal Home Loan Bank of Boston ("FHLBB") index.
Credit extensions are made to established businesses on the basis of loan purpose and assessment of capacity to repay as determined by an analysis of their financial statements, the nature of collateral to secure the credit extension and, in most instances, the personal guarantee of the owner of the business as well as industry and general economic conditions. The Company also participates in U.S. Government programs such as the Small Business Administration (the "SBA") in both the 7A program and as an SBA preferred lender.
The Company’s equipment financing divisions focus on market niches in which its lenders have deep experience and industry contacts, and on making loans to customers with business experience. An important part of the Company’s equipment financing loan origination volume comes from equipment manufacturers and existing customers as they expand their operations. The equipment financing portfolio is composed primarily of loans to finance laundry, tow trucks, fitness, dry cleaning and convenience store equipment. Approximately 15.3% of the commercial loans outstanding were made to borrowers located primarily in the greater New York and New Jersey metropolitan area. Typically, the loans are priced at a fixed rate of interest and require monthly payments over their three- to seven-year life. The yields earned on equipment financing loans are higher than those earned on the commercial loans made by the Banks because they involve a higher degree of credit risk. Equipment financing customers are typically small-business owners who operate with limited financial resources and who face greater risks when the economy weakens or unforeseen adverse events arise. Because of these characteristics, personal guarantees of borrowers are usually obtained along with liens on available assets. The size of loan is determined by an analysis of cash flow and other characteristics pertaining to the business and the equipment to be financed, based on detailed revenue and profitability data of similar operations.
Loans to condominium associations are for the purpose of funding capital improvements, are made for five- to ten-year terms and are secured by a general assignment of condominium association revenues. Among the factors considered in the underwriting of such loans are the level of owner occupancy, the financial condition and history of the condominium association, the attractiveness of the property in relation to the market in which it is located and the reasonableness of estimates of the cost of capital improvements to be made. Depending on loan size, funds are advanced as capital improvements are made and, in more complex situations, after completion of engineering inspections.
Consumer Loans
The consumer loan portfolio is comprised of residential mortgage loans, home equity loans and lines of credit, and other consumer loans and represented 19.1% of total loans outstanding as of March 31, 2018. The Company focuses its mortgage and home equity lending on existing and new customers within its branch networks in its urban and suburban marketplaces in the greater Boston and Providence metropolitan areas.
The Company originates adjustable- and fixed-rate residential mortgage loans secured by one- to four-family residences. Each residential mortgage loan granted is subject to a satisfactorily completed application, employment verification, credit history and a demonstrated ability to repay the debt. Generally, loans are not made when the loan-to-value ratio exceeds 80% unless private mortgage insurance is obtained and/or there is a financially strong guarantor. Appraisals are performed by outside independent fee appraisers.

64


In general, the Company maintains three-, five- and seven-year adjustable-rate mortgage loans and ten-year fixed-rate fully amortizing mortgage loans in its portfolio. Fixed-rate mortgage loans with maturities beyond ten years, such as 15- and 30-year fixed-rate mortgages, are generally sold into the secondary market on a servicing-released basis. The Banks act as correspondent banks in these secondary-market transactions. Loan sales in the secondary market provide funds for additional lending and other banking activities.
Underwriting guidelines for home equity loans and lines of credit are similar to those for residential mortgage loans. Home equity loans and lines of credit are limited to no more than 80% of the appraised value of the property securing the loan including the amount of any existing first mortgage liens.
Other consumer loans have historically been a modest part of the Company's loan originations. As of March 31, 2018, other consumer loans equaled $29.3 million, or 0.5% of total loans outstanding.
Asset Quality
Criticized and Classified Assets
The Company's management rates certain loans and leases as "other assets especially mentioned" ("OAEM"),
"substandard" or "doubtful" based on criteria established under banking regulations.These loans and leases are collectively referred to as "criticized" assets. Loans and leases rated OAEM have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the loan or lease at some future date. Loans and leases rated as substandard are inadequately protected by the payment capacity of the obligor or of the collateral pledged, if any. Substandard loans and leases have a well-defined weakness or weaknesses that jeopardize the liquidation of debt and are characterized by the distinct possibility that the Company will sustain some loss if existing deficiencies are not corrected. Loans and leases rated as doubtful have well-defined weaknesses that jeopardize the orderly liquidation of debt and partial loss of principal is likely. As of March 31, 2018, the Company had $69.8 million of total assets, including acquired assets, that were designated as criticized. This compares to $68.2 million of assets designated as criticized as of December 31, 2017. The increase in criticized assets was primarily due to the downgrade of several commercial loans, offset by the payoffs of several criticized loans during the first three months of 2018.
Nonperforming Assets
"Nonperforming assets" consist of nonperforming loans and leases, other real estate owned ("OREO") and other repossessed assets. Under certain circumstances, the Company may restructure the terms of a loan or lease as a concession to a borrower, except for acquired loans and leases which are individually evaluated against expected performance on the date of acquisition. These restructured loans and leases are generally considered "nonperforming loans and leases" until a history of collection of at least six months on the restructured terms of the loan or lease has been established. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of a deed in lieu of foreclosure. Other repossessed assets consist of assets that have been acquired through foreclosure that are not real estate and are included in other assets on the Company's unaudited consolidated balance sheets.
Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. Exceptions may be made if the loan has matured and is in the process of renewal or is well-secured and in the process of collection. When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current interest income. Interest payments on nonaccrual loans are generally applied to principal. If collection of the principal is reasonably assured, interest payments are recognized as income on the cash basis. Loans are generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured and a consistent record of at least six months of performance has been achieved.
In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructured loan. In determining whether a debtor is experiencing financial difficulties, the Company considers, among other factors, if the debtor is in payment default or is likely to be in payment default in the foreseeable future without the modification, the debtor declared or is in the process of declaring bankruptcy, there is substantial doubt that the debtor will continue as a going concern, the debtor's entity-specific projected cash flows will not be sufficient to service its debt, or the debtor cannot obtain funds from sources other than the existing creditors at market terms for debt with similar risk characteristics.
Nonperforming assets are composed of nonaccrual loans and leases, OREO and other repossessed assets. As of March 31, 2018, the Company had nonperforming assets of $30.2 million, representing 0.42% of total assets, compared to nonperforming

65


assets of $31.7 million, or 0.47% of total assets, as of December 31, 2017. The decrease in nonperforming assets was primarily driven by several equipment financing loans and leases which returned to accrual status during the first three months of 2018.
The Company evaluates the underlying collateral of each nonperforming loan and lease and continues to pursue the collection of interest and principal. Management believes that the current level of nonperforming assets remains manageable relative to the size of the Company's loan and lease portfolio. If economic conditions were to worsen or if the marketplace were to experience prolonged economic stress, management believes it is likely that the level of nonperforming assets would increase, as would the level of charged-off loans.            
Past Due and Accruing
Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. Exceptions may be made if the loan has matured and is in the process of renewal or is well-secured and in the process of collection. When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current interest income. Interest payments on nonaccrual loans are generally applied to principal. If collection of the principal is reasonably assured, interest payments are recognized as income on the cash basis. Loans are generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured and a consistent record of at least six consecutive months of performance has been achieved.
As of March 31, 2018, the Company had loans and leases greater than 90 days past due and accruing of $3.9 million, or 0.06% of total loans and leases, compared to $3.0 million, or 0.05% of total loans and leases, as of December 31, 2017, representing an increase of $0.9 million. The increase in past due and accruing loans was primarily due to two commercial real estate loans and leases which became greater than 90 days past due during the first three months of 2018.

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The following table sets forth information regarding nonperforming assets for the periods indicated:
 At March 31, 2018 At December 31, 2017
 (Dollars in Thousands)
Nonperforming loans and leases:   
Nonaccrual loans and leases:   
Commercial real estate$4,080
 $3,313
Multi-family mortgage588
 608
Construction860
 860
Total commercial real estate loans5,528
 4,781
    
Commercial11,150
 11,619
Equipment financing6,661
 8,106
Total commercial loans and leases17,811
 19,725
    
Residential mortgage1,962
 1,979
Home equity925
 744
Other consumer53
 43
Total consumer loans2,940
 2,766
    
Total nonaccrual loans and leases26,279
 27,272
    
Other real estate owned3,235
 3,235
Other repossessed assets728
 1,184
Total nonperforming assets$30,242
 $31,691
    
Loans and leases past due greater than 90 days and accruing$3,882
 $3,020
    
Total nonperforming loans and leases as a percentage of total loans and leases0.43% 0.48%
Total nonperforming assets as a percentage of total assets0.42% 0.47%
Troubled Debt Restructured Loans and Leases
As of March 31, 2018, restructured loans included $1.5 million of commercial real estate loans, $0.6 million of multi-family mortgage loans, $12.9 million of commercial loans, $5.4 million of equipment financing loans and leases, $1.1 million of residential mortgage loans and $1.4 million of home equity loans. As of December 31, 2017, restructured loans included $5.0 million of commercial real estate loans, $0.6 million of multi-family mortgage loans, $13.9 million of commercial loans, $4.0 million of equipment financing loans and leases, $1.1 million of residential mortgage loans and $1.4 million of home equity loans. A restructured loan is a loan for which the maturity date was extended, the principal was reduced, and/or the interest rate was modified to drop the required monthly payment to a more manageable amount for the borrower.
The following table sets forth information regarding troubled debt restructured loans and leases at the dates indicated:
 At March 31, 2018 At December 31, 2017
 (Dollars in Thousands)
Troubled debt restructurings: 
  
On accrual$14,294
 $16,241
On nonaccrual8,610
 9,770
Total troubled debt restructurings$22,904
 $26,011


67


Changes in troubled debt restructured loans and leases were as follows for the periods indicated:
 Three Months Ended March 31,
 2018
2017
 (Dollars in Thousands)
Balance at beginning of period$26,011
 $25,802
Additions2,190
 765
Net charge-offs(103) 7
Repayments(1,949) (1,156)
Other reductions (1)
(3,245) 
Balance at end of period$22,904
 $25,418
__________________________________________________________________________________ 
(1) Includes loans and leases that were removed from TDR status. 
Allowances for Credit Losses
The allowance for loan and lease losses consists of general and specific allowances and reflects management's estimate of probable loan and lease losses inherent in the loan portfolio at the balance sheet date. Management uses a consistent and systematic process and methodology to evaluate the adequacy of the allowance for loan and lease losses on a quarterly basis. The allowance is calculated by loan type: commercial real estate loans, commercial loans and leases, and consumer loans, each category of which is further segregated. A formula-based credit evaluation approach is applied to each group that is evaluated collectively, primarily by loss factors, which includes estimates of incurred losses over an estimated Loss Emergence Period ("LEP"), assigned to each risk rating by type, coupled with an analysis of certain loans individually evaluated for impairment. Management continuously evaluates and challenges inputs and assumptions in the allowance for loan and lease loss.
The process to determine the allowance for loan and lease losses requires management to exercise considerable judgment regarding the risk characteristics of the loan portfolios and the effect of relevant internal and external factors. While management evaluates currently available information in establishing the allowance for loan and lease losses, future adjustments to the allowance for loan and lease losses may be necessary if conditions differ substantially from the assumptions used in making the evaluations. Management performs a comprehensive review of the allowance for loan and lease losses on a quarterly basis. In addition, various regulatory agencies, as an integral part of their examination process, periodically review a financial institution's allowance for loan and lease losses and carrying amounts of other real estate owned. Such agencies may require the financial institution to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
The Company’s general allowance methodology provides a quantification of probable losses in the portfolio. Under the current methodology, Management combines the historical loss information of the Banks to generate a single set of ratios. Management believes it is appropriate to aggregate the ratios as the Banks share common environmental factors, operate in similar markets, and utilize common underwriting standards in accordance with the Company's Credit Policy.
Management employs a similar analysis for the consolidation of the qualitative factors as it does for the quantitative factors. Again, Management believes the combination of the existing nine qualitative factors used at each of the Banks into a single group of factors for use across the Company is appropriate based on the commonality of environmental factors, markets, and underwriting standards among the Banks.
As of March 31, 2018, the Company had a portfolio of approximately $18.5 million in loans secured by taxi medallions issued by the cities of Boston and Cambridge. As of December 31, 2017, this portfolio was approximately $19.7 million. Application-based mobile ride services, such as Uber and Lyft, have generated increased competition in the transportation sector, resulting in a reduction in taxi utilization and, as a result, a reduction in the collateral value and credit quality of taxi medallion loans. This has increased the likelihood that loans secured by taxi medallions may default, or that the borrowers may be unable to repay these loans at maturity, potentially resulting in an increase in past due loans, troubled debt restructurings, and charge-offs. The Company’s allowance calculation included a further segmentation of the commercial loans and leases to reflect the increased risk in the Company’s taxi medallion portfolio. This allowance calculation segmentation represents management’s estimations of the risks associated with the portfolio.
The following tables present the changes in the allowance for loan and lease losses by portfolio category for the three months ended March 31, 2018 and 2017.

68


 At and for the Three Months Ended March 31, 2018
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2017$27,112
 $26,333
 $5,147
 $58,592
Charge-offs(3) (733) (56) (792)
Recoveries
 201
 86
 287
Provision (credit) for loan and lease losses252
 451
 (76) 627
Balance at March 31, 2018$27,361
 $26,252
 $5,101
 $58,714
        
Total loans and leases$3,240,258
 $1,707,002
 $1,167,201
 $6,114,461
Total allowance for loan and lease losses as a percentage of total loans and leases0.84% 1.54% 0.44% 0.96%
 At and for the Three Months Ended March 31, 2017
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2016$27,645
 $20,906
 $5,115
 $53,666
Charge-offs(24) (1,207) (151) (1,382)
Recoveries140
 142
 105
 387
Provision (credit) for loan and lease losses227
 13,442
 (207) 13,462
Balance at March 31, 2017$27,988
 $33,283
 $4,862
 $66,133
        
Total loans and leases$2,951,155
 $1,520,389
 $990,235
 $5,461,779
Total allowance for loan and lease losses as a percentage of total loans and leases0.95% 2.19% 0.49% 1.21%
The allowance for loan and lease losses was $58.7 million as of March 31, 2018, or 0.96% of total loans and leases outstanding. This compared to an allowance for loan and lease losses of $58.6 million, or 1.02% of total loans and leases outstanding, as of December 31, 2017. The decrease in the allowance for loan and lease losses as a percentage of total loans and leases is largely a result of the addition of First Commons Bank loans and leases to the total amount of the Company loans and leases, without a simultaneous addition of historical, pre-acquisition allowance for loan and lease losses. Excluding the First Commons Bank acquired loans at fair value, loans increased $121.7 million during the quarter or 8.5% on an annualized basis.
Management believes that the allowance for loan and lease losses as of March 31, 2018 is appropriate based on the facts and circumstances discussed further below.
Commercial Real Estate Loans
The allowance for commercial real estate loan losses was $27.4 million, or 0.84% of total commercial real estate loans outstanding, as of March 31, 2018. This compared to an allowance for commercial real estate loan losses of $27.1 million, or 0.88% of total commercial real estate loans outstanding, as of December 31, 2017. There were no specific reserves on commercial real estate loans as of March 31, 2018 and December 31, 2017, respectively. The $0.3 million increase in the allowance for commercial real estate loan losses during the first three months of 2018 was primarily driven by originated loan growth of $61.0 million, or 2.1%, from December 31, 2017.
The ratio of total criticized and classified commercial real estate loans to total commercial real estate loans decreased to 0.75% as of March 31, 2018 from 0.91% as of December 31, 2017. The ratio of originated commercial real estate loans on nonaccrual to total originated commercial real estate loans increased to 0.18% as of March 31, 2018 from 0.16% as of December 31, 2017.
Net charge-offs in the commercial real estate loan portfolio totaled $3.0 thousand for the three months ended March 31, 2018 compared to net recoveries of $116.0 thousand for the three month ended March 31, 2017. As a percentage of average commercial real estate loan portfolio, annualized net charge-offs for the three months ended March 31, 2018 was less than a basis point and annualized net recoveries for the three months ended March 31, 2017 was 0.02%.

69


Commercial Loans and Leases
The allowance for commercial loan and lease losses was $26.3 million, or 1.54% of total commercial loans and leases outstanding, as of March 31, 2018, compared to $26.3 million, or 1.62% of total commercial loans and leases outstanding, as of December 31, 2017. Specific reserves on commercial loans and leases decreased from $3.1 million as of December 31, 2017 to $2.5 million as of March 31, 2018. The $81.0 thousand decrease in the allowance for commercial loans and lease losses during 2018 was primarily due to a decrease in the specific reserves for a taxi medallion relationship as a result of a change in its underlying collateral value, and charge-offs taken during the quarter, offset by the originated loan growth of 56.7 million, or 3.5%, from December 31, 2017.  
The ratio of total criticized and classified commercial loans and leases to total commercial loans and leases was 2.67% as of March 31, 2018, compared to 2.47% as of December 31, 2017. The ratio of originated commercial loans and leases on nonaccrual to total originated commercial loans and leases decreased to 0.99% as of March 31, 2018 from 1.15% as of December 31, 2017.
Net charge-offs in the commercial loan and lease portfolio for the three months ended March 31, 2018 and March 31, 2017 were $0.5 million and $1.1 million, respectively. As a percentage of average commercial loans and leases, annualized net charge-offs for the three months ended March 31, 2018 and March 31, 2017 were 0.12% and 0.28%, respectively.
As a component of net charge-offs in the commercial loan and lease portfolio for the three months ended March 31, 2018 and March 31, 2017, there were net charge-offs related to taxi medallion loans of $0.2 million and zero, respectively.
Consumer Loans
The allowance for consumer loan losses, including residential loans and home equity loans and lines of credit, was $5.1 million, or 0.44% of total consumer loans outstanding, as of March 31, 2018, compared to $5.1 million, or 0.50% of consumer loans outstanding, as of December 31, 2017. Specific reserves on consumer loans were $40.0 thousand and $22.0 thousand as of March 31, 2018 and December 31, 2017, respectively. The allowance for consumer loans remained steady during the first three months of 2018 despite of the originated loan growth of $23.9 million, or 2.6%, from December 31, 2017.
The ratio of originated consumer loans on nonaccrual to total originated consumer loans increased to 0.22% as of March 31, 2018 from 0.21% as of December 31, 2017. The risk of loss on a home equity loan is higher since the property securing the loan has often been previously pledged as collateral for a first mortgage loan. The Company gathers and analyzes delinquency data, to the extent that data are available on these first liens, for purposes of assessing the collectability of the second liens held by the Company even if these home equity loans are not delinquent. This data is further analyzed for performance differences between amortizing and non-amortizing home equity loans, the percentage borrowed to total loan commitment and by the amount of payments made by the borrowers. The loss exposure is not considered to be high due to the combination of current property values, the historically low loan-to-value ratios, the low level of losses experienced in the past few years and the low level of loan delinquencies as of March 31, 2018. If the local economy weakens, however, a rise in losses in those loan classes could occur. Historically, losses in these classes have been low.
Net recoveries in the consumer loan portfolio totaled $30.0 thousand for the three months ended March 31, 2018 compared to net charge-offs of $46.0 thousand for the three months ended March 31, 2017. Provisions for consumer loans recorded in these periods more than adequately covered charge-offs during those periods.

70


The following table sets forth the Company's percent of allowance for loan and lease losses to the total allowance for loan and lease losses and the percent of loans to total loans for each of the categories listed at the dates indicated.
 At March 31, 2018 At December 31, 2017
 Amount 
Percent of
Allowance
to Total
Allowance
 
Percent of
Loans
in Each
Category to
Total
Loans
 Amount 
Percent of
Allowance
to Total
Allowance
 
Percent of
Loans
in Each
Category to
Total
Loans
 (Dollars in Thousands)
Commercial real estate$20,450
 34.7% 37.1% $20,089
 34.3% 38.0%
Multi-family mortgage5,571
 9.5% 13.0% 5,667
 9.7% 13.3%
Construction1,340
 2.3% 2.8% 1,356
 2.3% 2.4%
Total commercial real estate loans27,361
 46.5% 52.9% 27,112
 46.3% 53.7%
Commercial15,137
 25.8% 12.5% 15,366
 26.2% 12.3%
Equipment financing10,732
 18.3% 14.6% 10,586
 18.1% 15.1%
Condominium association383
 0.7% 0.9% 381
 0.7% 0.9%
Total commercial loans and leases26,252
 44.8% 28.0% 26,333
 45.0% 28.3%
Residential mortgage2,705
 4.6% 12.6% 2,743
 4.7% 11.5%
Home equity2,221
 3.8% 6.0% 2,219
 3.8% 6.2%
Other consumer175
 0.3% 0.5% 185
 0.2% 0.3%
Total consumer loans5,101
 8.7% 19.1% 5,147
 8.7% 18.0%
Total$58,714
 100.0% 100.0% $58,592
 100.0% 100.0%
Investment Securities
The investment portfolio exists primarily for liquidity purposes, and secondarily as sources of interest and dividend income, interest-rate risk management and tax planning as a counterbalance to loan and deposit flows. Investment securities are utilized as part of the Company's asset/liability management and may be sold in response to, or in anticipation of, factors such as changes in market conditions and interest rates, security prepayment rates, deposit outflows, liquidity concentrations and regulatory capital requirements.
The investment policy of the Company, which is reviewed and approved by the Board of Directors on an annual basis, specifies the types of investments that are acceptable, required investment ratings by at least one nationally recognized rating agency, concentration limits and duration guidelines. Compliance with the investment policy is monitored on a regular basis. In general, the Company seeks to maintain a high degree of liquidity and targets cash, cash equivalents and investment securities available-for-sale balances between 10% and 30% of total assets.
Cash, cash equivalents, and investment securities increased $49.3 million, or 27.7% on an annualized basis, to $760.2 million as of March 31, 2018 from $710.9 million as of December 31, 2017. The increase was primarily driven by increases in deposit balances, loans and leases, and investment securities. Cash, cash equivalents, and investment securities were 10.5% of total assets as of March 31, 2018, compared to 10.5% of total assets at December 31, 2017.

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The following table sets forth certain information regarding the amortized cost and market value of the Company's investment securities at the dates indicated:
 At March 31, 2018 At December 31, 2017
 
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$184,760
 $180,968
 $151,483
 $149,924
GSE CMOs125,061
 119,697
 131,082
 127,022
GSE MBSs197,083
 192,185
 191,281
 189,313
SBA commercial loan asset- backed securities70
 69
 73
 72
Corporate debt obligations56,784
 55,872
 62,811
 62,683
U.S. Treasury bonds8,794
 8,597
 8,785
 8,730
Trust preferred securities
 
 1,471
 1,398
Total debt securities572,552
 557,388
 546,986
 539,142
Marketable equity securities980
 969
 978
 982
Total investment securities available-for-sale$573,532
 $558,357
 $547,964
 $540,124
Investment securities held-to-maturity:       
GSE debentures$50,529
 $49,175
 $41,612
 $40,801
GSE MBSs13,344
 13,004
 13,923
 13,705
Municipal obligations52,979
 52,134
 53,695
 53,517
Foreign government obligations500
 497
 500
 500
Total investment securities held-to-maturity$117,352
 $114,810
 $109,730
 $108,523

The fair value of investment securities is based principally on market prices and dealer quotes received from third-party, nationally-recognized pricing services for identical investment securities such as U.S. Treasury and agency securities. The Company's marketable equity securities are priced this way and are included in Level 1. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include certain U.S. and government agency debt securities, municipal and corporate debt securities, GSE residential MBSs and CMOs, and trust preferred securities, all of which are included in Level 2. Certain fair values are estimated using pricing models and are included in Level 3.

Additionally, management reviews changes in fair value from period to period and performs testing to ensure that prices received from the third parties are consistent with their expectation of the market. Changes in the prices obtained from the pricing service are analyzed from month to month, taking into consideration changes in market conditions including changes in mortgage spreads, changes in U.S. Treasury security yields and changes in generic pricing of 15-year and 30-year securities. Additional analysis may include a review of prices provided by other independent parties, a yield analysis, a review of average life changes using Bloomberg analytics and a review of historical pricing for the particular security.

Maturities, calls and principal repayments for investment securities available-for-sale totaled $21.6 million for the three months ended March 31, 2018 compared to $19.6 million for the same period in 2017. For the three months ended March 31, 2018, the Company sold 1.5 million for investment securities, compared to none for the same period in 2017. For the three months ended March 31, 2018, the Company purchased $49.1 million of investment securities available-for-sale, compared to $23.9 million in purchases of investment securities available-for-sale for the same period in 2017.

Maturities, calls and principal repayments for investment securities held-to-maturity totaled $1.2 million for the three months ended March 31, 2018 compared to $1.3 million for the same period in 2017. There were no sales of investment securities held-to-maturity for the three months ended March 31, 2018 and 2017. For the three months ended March 31, 2018, the Company purchased $8.9 million of investment securities held-to-maturity, compared to $14.9 million in purchases of investment securities held-to-maturity for the same period in 2017.

72


As of March 31, 2018, the fair value of all investment securities available-for-sale was $558.4 million and carried a total of $15.2 million of net unrealized losses, compared to a fair value of $540.1 million and net unrealized losses of $7.8 million as of December 31, 2017. As of March 31, 2018, $512.1 million, or 91.7%, of the portfolio, had gross unrealized losses of $15.5 million. This compares to $469.2 million, or 86.9%, of the portfolio with gross unrealized losses of $8.4 million as of December 31, 2017. The Company's unrealized loss position has increased in 2018 driven by higher long-term interest rates.
As of March 31, 2018, the fair value of all investment securities held-to-maturity was $114.8 million and carried a total of $2.5 million of net unrealized losses, compared to a fair value of $108.5 million and net unrealized losses of $1.2 million as of December 31, 2017. As of March 31, 2018, $109.0 million, or 95.0%, of the portfolio, had gross unrealized losses of $2.6 million. This compares to $92.9 million, or 85.6%, of the portfolio with gross unrealized losses of $1.4 million as of December 31, 2017. The Company's unrealized loss position increased in 2018 driven by higher long-term interest rates.
Management believes that these negative differences between amortized cost and fair value do not include credit losses, but rather differences in interest rates between the time of purchase and the time of measurement. It is more likely than not that the Company will not sell or be required to sell the investment securities before recovery, and, as a result, it will recover the amortized cost basis of the investment securities. As such, management has determined that the securities are not other-than-temporarily impaired as of March 31, 2018. If market conditions for securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional other-than-temporary impairments in future periods. For additional discussion on how the Company validates fair values provided by the third-party pricing service, see Note 11, “Fair Value of Financial Instruments.”
Restricted Equity Securities
FHLBB Stock—The Company invests in the stock of the FHLBB as one of the requirements to borrow. The Company maintains an excess balance of capital stock, which allows for additional borrowing capacity at each of the Banks. As of March 31, 2018, the excess balance of capital stock is $2.4 million, as compared to an excess balance of $0.3 million at December 31, 2017.
As of March 31, 2018, the Company owned stock in the FHLBB with a carrying value of $48.2 million, an increase of $5.8 million from $42.4 million as of December 31, 2017. As of March 31, 2018, the FHLBB had total assets of $61.0 billion and total capital of $3.3 billion, of which $1.3 billion was retained earnings. The FHLBB stated that it remained in compliance with all regulatory capital ratios as of March 31, 2018 and was classified as "adequately capitalized" by its regulator, based on the FHLBB's financial information as of December 31, 2017.
Federal Reserve Bank Stock—The Company invests in the stock of the Federal Reserve Bank of Boston, as a condition of the membership for the Banks in the Federal Reserve System. As of March 31, 2018 the Company owned stock in the Federal Reserve Bank of Boston with a carrying value of $17.8 million, compare to a carrying value of $16.8 million at December 31,2017.
Other Stock—The Company invests in a small number of other restricted equity securities which includes Infinex and American Financial Exchange.

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Deposits
The following table presents the Company's deposit mix at the dates indicated.
 At March 31, 2018 At December 31, 2017
 Amount 
Percent
of Total
 
Weighted
Average
Rate
 Amount 
Percent
of Total
 
Weighted
Average
Rate
 (Dollars in Thousands)
Non-interest-bearing deposits:           
Demand checking accounts$987,153
 19.0% % $942,583
 19.3% %
Interest-bearing deposits:           
NOW accounts342,374
 6.6% 0.06% 350,568
 7.2% 0.07%
Savings accounts637,920
 12.3% 0.25% 646,359
 13.3% 0.25%
Money market accounts1,862,351
 35.9% 0.62% 1,724,363
 35.4% 0.56%
Certificate of deposit accounts1,361,722
 26.2% 1.38% 1,207,470
 24.8% 1.27%
Total interest-bearing deposits4,204,367
 81.0% 0.75% 3,928,760
 80.7% 0.68%
Total deposits$5,191,520
 100.0% 0.60% $4,871,343
 100.0% 0.55%
Total deposits increased $320.2 million, to $5.2 billion as of March 31, 2018, compared to $4.9 billion as of December 31, 2017. Deposits as a percentage of total assets decreased to 71.6% as of March 31, 2018, as compared to 71.8% as of December 31, 2017. Excluding the First Commons Bank acquired deposits at fair value, deposits increased $46.5 million during the quarter.
As of March 31, 2018, the Company had $278.8 million of brokered deposits compared to $274.7 million as of December 31, 2017. Brokered deposits allow the Company to seek additional funding by attracting deposits from outside the Company's core market. The Company's investment policy limits the amount of brokered deposits to 15% of total assets. Brokered deposits are included in the certificate of deposit balance, which increased $154.3 million during the three months ended March 31, 2018. Certificates of deposit have also increased as a percentage of total deposits to 26.2% as of March 31, 2018 from 24.8% as of December 31, 2017.
During the three months ended March 31, 2018, core deposits increased $165.9 million. The ratio of core deposits to total deposits decreased from 75.2% as of December 31, 2017 to 73.8% as of March 31, 2018, primarily due to the shift in deposit mix and increase in brokered deposits.
The following table sets forth the distribution of the average balances of the Company's deposit accounts for the periods indicated and the weighted average interest rates on each category of deposits presented. Averages for the periods presented are based on daily balances.
 Three Months Ended March 31,
 2018 2017
 
Average
Balance
 
Percent
of Total
Average
Deposits
 
Weighted
Average
Rate
 
Average
Balance
 
Percent
of Total
Average
Deposits
 
Weighted
Average
Rate
 (Dollars in Thousands)
Core deposits:           
Non-interest-bearing demand checking accounts$931,685
 18.9% % $898,481
 19.5% %
NOW accounts335,990
 6.8% 0.07% 320,671
 7.0% 0.07%
Savings accounts649,224
 13.2% 0.25% 614,085
 13.4% 0.20%
Money market accounts1,772,362
 35.8% 0.59% 1,744,534
 37.9% 0.47%
Total core deposits3,689,261
 74.7% 0.33% 3,577,771
 77.8% 0.27%
Certificate of deposit accounts1,247,049
 25.3% 1.33% 1,021,949
 22.2% 1.07%
Total deposits$4,936,310
 100.0% 0.72% $4,599,720
 100.0% 0.44%
            

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As of March 31, 2018 and December 31, 2017, the Company had outstanding certificates of deposit of $100,000 or more, maturing as follows:
 At March 31, 2018 At December 31, 2017
 Amount 
Weighted
Average Rate
 Amount 
Weighted
Average Rate
 (Dollars in Thousands)
Maturity period:       
Six months or less$176,105
 1.16% $157,263
 0.96%
Over six months through 12 months193,370
 1.49% 134,297
 1.08%
Over 12 months299,277
 1.79% 244,348
 1.73%
Total certificate of deposit of $100,000 or more$668,752
 1.54% $535,908
 1.34%
Borrowed Funds
The following table sets forth certain information regarding advances from the FHLBB, subordinated debentures and notes and other borrowed funds for the periods indicated:
 Three Months Ended 
 March 31,
 2018 2017
 (Dollars in Thousands)
Borrowed funds:   
Average balance outstanding$1,075,734
 $1,073,580
Maximum amount outstanding at any month-end during the period1,099,429
 1,077,459
Balance outstanding at end of period1,099,429
 1,056,785
Weighted average interest rate for the period1.88% 1.55%
Weighted average interest rate at end of period2.05% 1.65%
Advances from the FHLBB
On a long-term basis, the Company intends to continue to increase its core deposits. The Company also uses FHLBB borrowings and other wholesale borrowing as part of the Company's overall strategy to fund loan growth and manage interest-rate risk and liquidity. The advances are secured by a blanket security agreement which requires the Banks to maintain certain qualifying assets as collateral, principally mortgage loans and securities in an aggregate amount at least equal to outstanding advances. The maximum amount that the FHLBB will advance to member institutions, including the Company, fluctuates from time to time in accordance with the policies of the FHLBB. The Company may also borrow from the FRB's "discount window" as necessary.
FHLBB borrowings increased by $92.5 million to $982.5 million as of March 31, 2018 from the December 31, 2017 balance of $889.9 million. The increase in FHLBB borrowings was primarily due to an increase in new advances from the FHLBB to fund loan growth. The increase in FHLBB borrowings was partly due to $5.0 million of additional borrowings acquired with First Commons Bank.
Subordinated Debentures and Notes
The Company acquired two $5.0 million subordinated debentures due on June 26, 2033 and March 17, 2034, respectively. The Company is obligated to pay 3-month LIBOR plus 3.10% and 3-month LIBOR plus 2.79%, respectively, on a quarterly basis until the debentures mature.
The Company sold $75.0 million of 6.0% fixed-to-floating subordinated notes due September 15, 2029. The Company is obligated to pay 6.0% interest semiannually between September 2014 and September 2024. Subsequently, the Company is obligated to pay 3-month LIBOR plus 3.315% quarterly until the notes mature in September 2029.
The following table summarizes the Company's subordinated debentures and notes at the dates indicated.

75


        Carrying Amount
Issue Date Rate Maturity Date Next Call Date March 31, 2018 December 31, 2017
  (Dollars in Thousands)
June 26, 2003 
Variable;
3-month LIBOR + 3.10%
 June 26, 2033 June 26, 2018 $4,784
 $4,778
March 17, 2004 
Variable;
3-month LIBOR + 2.79%
 March 17, 2034 June 18, 2018 4,677
 4,668
September 15, 2014 
6.0% Fixed-to-Variable;
3-month LIBOR + 3.315%
 September 15, 2029 September 15, 2024 73,850
 73,825
      Total $83,311
 $83,271
The above carrying amounts of the subordinated debentures included $0.5 million of accretion adjustments and $1.1 million of capitalized debt issuance costs as of March 31, 2018. This compares to $0.6 million of accretion adjustments and $1.2 million of capitalized debt issuance costs as of December 31, 2017.
Other Borrowed Funds
In addition to advances from the FHLBB and subordinated debentures and notes, the Company utilizes other funding sources as part of the overall liquidity strategy. Those funding sources include repurchase agreements, and committed and uncommitted lines of credit with several financial institutions.
The Company periodically enters into repurchase agreements with its larger deposit and commercial customers as part of its cash management services which are typically overnight borrowings. Repurchase agreements with customers decreased $4.0 million to $33.6 million as of March 31, 2018 from $37.6 million as of December 31, 2017.
The Company has access to a $12.0 million committed line of credit as of March 31, 2018. As of March 31, 2018 and December 31, 2017, the Company did not have any borrowings on this committed line of credit outstanding.
The Banks also have access to funding through several uncommitted lines of credit of $198.0 million. As of March 31, 2018 , the Company did not have any borrowings on these uncommitted lines of credit as compared to December 31, 2017, when the Company had $10.0 million in borrowings on the uncommitted lines.
Derivative Financial Instruments
The Company has entered into loan level derivatives, risk participation agreements, and foreign exchange contracts with certain of its commercial customers and concurrently enters into offsetting swaps with third-party financial institutions. The Company may also, from time to time, enter into risk participation agreements. The Company did not have derivative fair value hedges or derivative cash flow hedges at March 31, 2018 or December 31, 2017.

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The following table summarizes certain information concerning the Company's loan level derivatives, risk participation agreements, and foreign exchange contracts at March 31, 2018 and December 31, 2017:
 At March 31, 2018At December 31, 2017
 (Dollars in Thousands)
Loan level derivatives (Notional principal amounts):  
Receive fixed, pay variable$537,694
$494,659
Pay fixed, receive variable537,694
494,659
Risk participation-out agreements37,162
36,627
Risk participation-in agreements3,825
3,825
Foreign exchange contracts (Notional amounts):  
Buys foreign currency, sells U.S. currency$1,330
$1,495
Sells foreign currency, buys U.S. currency1,335
1,502
Fixed weighted average interest rate from the Company to counterparty4.21%4.17%
Floating weighted average interest rate from counterparty to the Company3.83%3.19%
Weighted average remaining term to maturity (in months)87
81
Fair value:  
Recognized as an asset:  
Loan level derivatives$13,594
$8,865
Risk participation-out agreements43
65
Foreign exchange contracts65
72
Recognized as a liability:  
Loan level derivatives$13,594
$8,865
Risk participation-in agreements7
10
Foreign exchange contracts60
65
Stockholders' Equity and Dividends
The Company's total stockholders' equity was $865.8 million as of March 31, 2018, representing a $61.9 million increase compared to $803.8 million at December 31, 2017. The increase primarily reflects net income attributable to the Company of $18.6 million for the three months ended March 31, 2018, an increase of $55.2 million related to acquisition of First Commons Bank, which was partially offset by an unrealized loss on securities available-for-sale of $5.7 million, and dividends paid by the Company of $6.9 million in that same period.
Stockholders' equity represented 11.94% of total assets as of March 31, 2018 and 11.86% of total assets as of December 31, 2017. Tangible stockholders' equity (total stockholders' equity less goodwill and identified intangible assets, net) represented 9.85% of tangible assets (total assets less goodwill and identified intangible assets, net) as of March 31, 2018 and 9.94% as of December 31, 2017.
The dividend payout ratio was 37.11% for the three months ended March 31, 2018, compared to 47.23% for the same period of 2017.
Results of Operations
The primary drivers of the Company's net income are net interest income, which is strongly affected by the net yield on and growth of interest-earning assets and liabilities ("net interest margin"), the quality of the Company's assets, its levels of non-interest income and non-interest expense, and its tax provision.
The Company's net interest income represents the difference between interest income earned on its investments, loans and leases, and its cost of funds. Interest income is dependent on the amount of interest-earning assets outstanding during the period and the yield earned thereon. Cost of funds is a function of the average amount of deposits and borrowed money outstanding during the year and the interest rates paid thereon. The net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The increases or decreases, as applicable, in the

77


components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are summarized under "Rate/Volume Analysis" below. Information as to the components of interest income, interest expense and average rates is provided under "Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin" below.
Because the Company's assets and liabilities are not identical in duration and in repricing dates, the differential between the two is vulnerable to changes in market interest rates as well as the overall shape of the yield curve. These vulnerabilities are inherent to the business of banking and are commonly referred to as "interest-rate risk." How interest-rate risk is measured and, once measured, how much interest-rate risk is taken are based on numerous assumptions and other subjective judgments. See the discussion in “Item 3. Quantitative and Qualitative Disclosures about Market Risk” below.
The quality of the Company's assets also influences its earnings. Loans and leases that are not paid on a timely basis and exhibit other weaknesses can result in the loss of principal and/or interest income. Additionally, the Company must make timely provisions to the allowance for loan and lease losses based on estimates of probable losses inherent in the loan and lease portfolio. These additions, which are charged against earnings, are necessarily greater when greater probable losses are expected. Further, the Company incurs expenses as a result of resolving troubled assets. These variables reflect the "credit risk" that the Company takes on in the ordinary course of business and are further discussed under "Financial Condition—Asset Quality" above.
Net Interest Income
Net interest income increased $6.4 million to $59.5 million for the three months ended March 31, 2018 from $53.1 million for the three months ended March 31, 2017. This overall increase reflects an $8.7 million increase in interest income on loans and leases and a $0.3 million increase in interest income on investment securities, offset by a $2.9 million increase in interest expense on deposit and borrowings, which is reflective of the various portfolios repricing and replacing balances into the current interest rate environment. Refer to “Results of Operations - Comparison of the Three-Month Period Ended March 31, 2018 and March 31, 2017 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended March 31, 2018 and March 31, 2017 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest margin increased by 13 basis points to 3.66% for the three months ended March 31, 2018 from 3.53% for the three months ended March 31, 2017. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) increased to 4.60% for the three months ended March 31, 2018 from 4.33% for the three months ended March 31, 2017. Interest amortization and accretion on acquired loans was minimal and did not contribute any basis point to loan yields during the three months ended March 31, 2018 compared to $0.2 million, or 1 basis points, for the three months ended March 31, 2017. The increase in the net interest margin is the result of repricing interest-earning assets in a slightly higher rate environment offset by a comparable increase in funding costs.
The yield on interest-earning assets increased to 4.35% for the three months ended March 31, 2018 from 4.08% for the three months ended March 31, 2017. This increase is the result of higher yields on loans and leases, partially offset by a decrease in prepayment penalties and late charges. During the three months ended March 31, 2018, the Company recorded $0.6 million in prepayment penalties and late charges, which contributed 4 basis points to yields on interest-earning assets in the three months ended March 31, 2018, compared to $0.8 million, or 5 basis points, for the three months ended March 31, 2017.
The overall cost of funds (including non-interest-bearing demand checking accounts) increased 15 basis points to 0.81% for the three months ended March 31, 2018 from 0.66% for the three months ended March 31, 2017. Refer to "Financial Condition - Borrowed Funds" above for more details.
Management seeks to position the balance sheet to be neutral to asset sensitive to changes in interest rates. Since the end of 2016, short term interest rates have risen while at the same time net interest income, net interest spread, and net interest margin have also increased. In general, the Company's balance sheet position should respond positively in a rising interest rate environment and when the rate curves are steepening which should result in a positive impact to net interest income, net interest spread, and the net interest margin. A declining interest rate or flattening yield curve environment is expected to have a negative impact on the Company's yields and net interest margin. Additional risk factors include, but are not limited to: ongoing pricing pressures in both the loan and deposit portfolios, the ability to increase the Company's core deposits, decrease its loan-to-deposit ratio, and decrease its reliance on FHLBB advances. Net interest income may also be negatively affected by changes in the amount of accretion on acquired loans and leases, deposits and borrowed funds, which are included in interest income and interest expense, respectively.

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Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin
The following table sets forth information about the Company's average balances, interest income and interest rates earned on average interest-earning assets, interest expense and interest rates paid on average interest-bearing liabilities, interest-rate spread and net interest margin for the three months ended March 31, 2018 and March 31, 2017. Average balances are derived from daily average balances and yields include fees, costs and purchase-accounting-related premiums and discounts which are considered adjustments to coupon yields in accordance with GAAP. Certain amounts previously reported have been reclassified to conform to the current presentation.
 Three Months Ended
 March 31, 2018 March 31, 2017
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 (Dollars in Thousands)
Assets:           
Interest-earning assets:           
Debt securities$647,501
 $3,377
 2.09% $613,520
 $3,110
 2.03%
Marketable and restricted equity securities64,127
 923
 5.76% 69,508
 718
 4.13%
Short-term investments30,664
 120
 1.57% 32,127
 67
 0.84%
Total investments742,292
 4,420
 2.38% 715,155
 3,895
 2.18%
Commercial real estate loans (2)
3,116,690
 33,429
 4.29% 2,930,345
 29,467
 4.02%
Commercial loans (2)
785,936
 8,424
 4.29% 699,687
 7,113
 4.07%
Equipment financing (2)
875,304
 14,864
 6.79% 806,139
 13,114
 6.51%
Residential mortgage loans (2)
704,666
 6,733
 3.82% 634,885
 5,609
 3.53%
Other consumer loans (2)
382,194
 3,941
 4.18% 360,791
 3,495
 3.93%
Total loans and leases5,864,790
 67,391
 4.60% 5,431,847
 58,798
 4.33%
Total interest-earning assets6,607,082
 71,811
 4.35% 6,147,002
 62,693
 4.08%
Allowance for loan and lease losses(58,986)     (54,314)    
Non-interest-earning assets379,213
     368,495
    
Total assets$6,927,309
     $6,461,183
    
Liabilities and Stockholders' Equity:           
Interest-bearing liabilities:           
Interest-bearing deposits:           
NOW accounts$335,990
 58
 0.07% $320,671
 55
 0.07%
Savings accounts649,224
 401
 0.25% 614,085
 310
 0.20%
Money market accounts1,772,362
 2,558
 0.59% 1,744,534
 2,009
 0.47%
Certificate of deposit1,247,049
 4,082
 1.33% 1,021,949
 2,706
 1.07%
Total interest-bearing deposits (3)
4,004,625
 7,099
 0.72% 3,701,239
 5,080
 0.56%
Advances from the FHLBB956,298
 3,748
 1.57% 929,822
 2,857
 1.23%
Subordinated debentures and notes83,289
 1,282
 6.16% 83,124
 1,260
 6.07%
Other borrowed funds36,147
 19
 0.21% 60,634
 56
 0.38%
Total borrowed funds1,075,734
 5,049
 1.88% 1,073,580
 4,173
 1.55%
Total interest-bearing liabilities5,080,359
 12,148
 0.97% 4,774,819
 9,253
 0.79%
Non-interest-bearing liabilities:           
Non-interest-bearing demand checking accounts (3)
931,685
  
  
 898,481
  
  
Other non-interest-bearing liabilities77,169
  
  
 71,812
  
  
Total liabilities6,089,213
  
  
 5,745,112
  
  
Brookline Bancorp, Inc. stockholders' equity829,598
  
  
 709,095
  
  
Noncontrolling interest in subsidiary8,498
  
  
 6,976
  
  
Total liabilities and stockholders' equity$6,927,309
  
  
 $6,461,183
  
  
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
 
 59,663
 3.38%  
 53,440
 3.29%
Less adjustment of tax-exempt income 
 172
  
  
 342
  
Net interest income 
 $59,491
  
  
 $53,098
  
Net interest margin (5)
 
  
 3.66%  
  
 3.53%
_________________________________________________________________________
(1) Tax-exempt income on debt securities, equity securities and industrial revenue bonds are included in commercial real estate loans on a tax-equivalent basis.
(2) Loans on nonaccrual status are included in the average balances.
(3) Including non-interest-bearing checking accounts, the average interest rate on total deposits was 0.58% and 0.45% in the three months ended March 31, 2018 and March 31, 2017, respectively.
(4) Interest-rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income (tax equivalent basis) divided by average interest-earning assets.

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Rate/Volume Analysis
The following table presents, on a tax-equivalent basis, the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
 Three Months Ended March 31, 2018 as Compared to the Three Months Ended March 31, 2017
 
Increase
(Decrease) Due To
  
 Volume Rate Net Change
 (In Thousands)
Interest and dividend income:     
Investments:     
Debt securities$174
 $93
 $267
Marketable and restricted equity securities(58) 263
 205
Short-term investments(3) 56
 53
Total investments113
 412
 525
Loans and leases:     
Commercial real estate loans1,927
 2,035
 3,962
Commercial loans and leases911
 400
 1,311
Equipment financing1,166
 584
 1,750
Residential mortgage loans643
 481
 1,124
Other consumer loans215
 231
 446
Total loans4,862
 3,731
 8,593
Total change in interest and dividend income4,975
 4,143
 9,118
Interest expense:     
Deposits:     
NOW accounts3
 
 3
Savings accounts17
 74
 91
Money market accounts32
 517
 549
Certificate of deposit654
 722
 1,376
Total deposits706
 1,313
 2,019
Borrowed funds:     
Advances from the FHLBB83
 808
 891
Subordinated debentures and notes3
 19
 22
Other borrowed funds(18) (19) (37)
Total borrowed funds68
 808
 876
Total change in interest expense774
 2,121
 2,895
Change in tax-exempt income(170) 
 (170)
Change in net interest income$4,371
 $2,022
 $6,393


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Interest Income

Loans and Leases
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2018
2017  
 (Dollars in Thousands)
Interest income—loans and leases:       
Commercial real estate loans$33,430
 $29,466
 $3,964
 13.5%
Commercial loans8,305
 6,874
 1,431
 20.8%
Equipment financing14,864
 13,114
 1,750
 13.3%
Residential mortgage loans6,733
 5,609
 1,124
 20.0%
Other consumer loans3,940
 3,495
 445
 12.7%
Total interest income—loans and leases$67,272
 $58,558
 $8,714
 14.9%
Interest income from loans and leases was $67.3 million for the three months ended March 31, 2018, and represented a yield on total loans of 4.60%. This compares to $58.6 million of interest on loans and a yield of 4.33% for March 31, 2017. The $8.7 million increase in interest income from loans and leases was attributable to an increase of $4.9 million due to an increase in origination volume and an increase of $3.7 million due to the changes in interest rates.
Accretion on acquired loans and leases was minimal and did not contribute any basis points to the Company's net interest margin for the three months ended March 31, 2018, compared to $0.2 million and 1 basis point for the three months ended March 31, 2017.
Investments
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2018 2017  
 (Dollars in Thousands)
Interest income—investments:       
Debt securities$3,323
 $3,000
 $323
 10.8%
Marketable and restricted equity securities924
 726
 198
 27.3%
Short-term investments120
 67
 53
 79.1%
Total interest income—investments$4,367
 $3,793
 $574
 15.1%
Total investment income was $4.4 million for the three months ended March 31, 2018 compared to $3.8 million for the three months ended March 31, 2017. As of March 31, 2018 and 2017, the yield on total investments was 2.4% and 2.2%, respectively. The year over year increase in interest income on investments of $0.6 million, or 15.1%, was driven by a $412.0 thousand increase due to rates and a $113.0 thousand increase due to volume.

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Interest Expense—Deposits and Borrowed Funds
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2018 2017  
 (Dollars in Thousands)
Interest expense:       
Deposits:       
NOW accounts$58
 $55
 $3
 5.5 %
Savings accounts401
 310
 91
 29.4 %
Money market accounts2,558
 2,009
 549
 27.3 %
Certificates of deposit4,082
 2,706
 1,376
 50.8 %
Total interest expense - deposits7,099
 5,080
 2,019
 39.7 %
Borrowed funds:       
Advances from the FHLBB3,748
 2,857
 891
 31.2 %
Subordinated debentures and notes1,282
 1,260
 22
 1.7 %
Other borrowed funds19
 56
 (37) -66.1 %
Total interest expense - borrowed funds5,049
 4,173
 876
 21.0 %
Total interest expense$12,148
 $9,253
 $2,895
 31.3 %
Deposits
For the three months ended March 31, 2018, interest expense on deposits increased $2.0 million, or 39.7%, as compared to the same period in 2017. Interest expense increased $1.3 million due to an increase in interest rates and $0.7 million due to the growth in deposits. Purchase accounting accretion on acquired deposits for the three months ended March 31, 2018 was $82.0 thousand and one basis point, compared to no accretion for the three months ended March 31, 2017.
Borrowed Funds
During the three months ended March 31, 2018, interest paid on borrowed funds increased $0.9 million, or 21.0% year over year, primarily driven by an increase in FHLBB borrowings. The cost of borrowed funds increased to 1.88% for the three months ended March 31, 2018 from 1.55% for the three months ended March 31, 2017. The increase in interest expense was driven by an increase of $808.0 thousand due to borrowing rates and an increase of $68.0 thousand due to volume. For the three months ended March 31, 2018, there was purchase accounting amortization of $15.0 thousand and no basis points on acquired borrowed funds compared to $0.5 million and three basis points for the three months ended March 31, 2017.
Provision for Credit Losses
The provisions for credit losses are set forth below:
 Three Months Ended March 31, Dollar Percent
 2018
2017 Change Change
 (Dollars in Thousands)
Provision for loan and lease losses:       
Commercial real estate$252
 $227
 $25
 -11.0 %
Commercial451
 13,442
 (12,991) -96.6 %
Consumer(76) (207) 131
 63.3 %
Total provision for loan and lease losses627
 13,462
 (12,835) -95.3 %
Unfunded credit commitments14
 (60) 74
 123.3 %
Total provision for credit losses$641
 $13,402
 $(12,761) -95.2 %
For the three months ended March 31, 2018, the provision for credit losses decreased $12.8 million, or 95.2%, to $0.6 million from $13.4 million for the three months ended March 31, 2017. The decrease in the provision for credit losses for the three months ended March 31, 2018 was primarily driven by lower net charge-offs activity, no additional specific reserves requirement for taxi medallion loans, and less reserves required due to changes in historical loss factors applied to the commercial real estate portfolio during the first quarter of 2018.

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See management’s discussion of “Financial Condition — Allowance for Loan and Lease Losses” and Note 5, “Allowance for Loan and Lease Losses,” to the unaudited consolidated financial statements for a description of how management determined the allowance for loan and lease losses for each portfolio and class of loans.
Non-Interest Income
The following table sets forth the components of non-interest income:
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2018
2017  
 (Dollars in Thousands)
Deposit fees$2,463
 $2,252
 $211
 9.4 %
Loan fees290
 261
 29
 11.1 %
Loan level derivative income, net866
 402
 464
 115.4 %
Gain on sales of investment securities, net1,162
 11,393
 (10,231)
-89.8 %
Gain on sales of loans and leases held-for-sale299
 353
 (54) -15.3 %
Other1,088
 1,247
 (159) -12.8 %
Total non-interest income$6,168
 $15,908
 $(9,740) -61.2 %
For the three months ended March 31, 2018, non-interest income decreased $9.7 million, or 61.2%, to $6.2 million as compared to the same period of 2017. This decrease is primarily due to a $0.2 million increase in deposit fees and a $0.5 million increase in loan level derivative income, offset by a $10.2 million decrease in gain on sales of investment securities.
Deposit fees increased $0.2 million, or 9.4%, to $2.5 million for the three months ended March 31, 2018 from $2.3 million for the same period of 2017, primarily due to growth in deposits, and an increase in foreign exchange activity since the first quarter of 2017.
Loan level derivative income increased $0.5 million, or 115.4%, to $0.9 million for the three months ended March 31, 2018 from $0.4 million for the same period of 2017, primarily driven by an increase in loan level derivative transactions completed in the quarter.
Gain on sales of investment securities, net decreased $10.2 million, or 89.8%, to $1.2 million for the three months ended March 31, 2018 from $11.4 million for the same period of 2017, driven by the gain on the sale of Northeast Retirement Stock, Inc. in the first quarter 2017.
Non-Interest Expense
The following table sets forth the components of non-interest expense:
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2018 2017  
 (Dollars in Thousands)
Compensation and employee benefits$22,314
 $19,784
 $2,530
 12.8 %
Occupancy3,959
 3,645
 314
 8.6 %
Equipment and data processing4,618
 4,063
 555
 13.7 %
Professional services1,144
 1,106
 38
 3.4 %
FDIC insurance635
 855
 (220) -25.7 %
Advertising and marketing1,057
 817
 240
 29.4 %
Amortization of identified intangible assets467
 532
 (65) -12.2 %
Merger and acquisition expense2,905
 
 2,905
 100.0 %
Other2,839
 2,954
 (115) -3.9 %
Total non-interest expense$39,938
 $33,756
 $6,182
 18.3 %

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For the three months ended March 31, 2018, non-interest expense increased $6.2 million, or 18.3%, to $39.9 million as compared to the same period in 2017. This increase is primarily due to the closing of the First Commons Bank acquisition. The increase is due to a $2.5 million increase in compensation and employee benefits expense, a $0.6 million increase in equipment and data processing expense, and a $2.9 million increase in merger and acquisition expense.
The efficiency ratio increased to 60.83% for the three months ended March 31, 2018 from 48.92% for the same period in 2017, primarily driven by First Commons Bank acquisition expense.
Compensation and employee benefits expense increased $2.5 million, or 12.8%, to $22.3 million for the three months ended March 31, 2018, from $19.8 million for the same period in 2017, primarily driven by an increase in employee headcount and incentive plan expenses.
Equipment and data processing expense increased $0.6 million, or 13.7%, to $4.6 million for the three months ended March 31, 2018 from $4.1 million for the same period in 2017, primarily driven by an increase related to core processing, addition of First Commons Bank, along with an increase in cost of additional software licenses and IT professional services for implementation for network security.
Merger and acquisition expense was $2.9 million for the three months ended March 31, 2018, compared to zero for the same period in 2017, due to the closing of the First Commons Bank acquisition.
Provision for Income Taxes
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2018
2017  
 (Dollars in Thousands)
Income before provision for income taxes$25,080
 $21,848
 $3,232
 14.8 %
Provision for income taxes5,652
 7,835
 (2,183) (27.9)%
Net income, before non-controlling interest in subsidiary$19,428
 $14,013
 $5,415
 38.6 %
Effective tax rate22.5% 35.9% N/A
 -37.3 %
The Company recorded income tax expense of $5.7 million for the three months ended March 31, 2018, compared to $7.8 million for the three months ended March 31, 2017, representing effective tax rates of 22.5% and 35.9%, respectively. The decrease in the Company's effective tax rate for the three months ended March 31, 2018 was due to the enactment of the Tax Reform Act.
In the third quarter of 2017, the Company was notified by the Internal Revenue Service of its intent to examine the Company's 2015 consolidated federal income tax return. Management believes that this examination will conclude during the next 12 months.
Liquidity and Capital Resources
Liquidity
Liquidity is defined as the ability to meet current and future financial obligations of a short-term nature. The Company further defines liquidity as the ability to respond to the needs of depositors and borrowers, as well as to earnings enhancement opportunities, in a changing marketplace. Liquidity management is monitored by an Asset/Liability Committee ("ALCO"), consisting of members of management, which is responsible for establishing and monitoring liquidity targets as well as strategies and tactics to meet these targets.
The primary source of funds for the payment of dividends and expenses by the Company is dividends paid to it by the Banks and Brookline Securities Corp. The primary sources of liquidity for the Banks consist of deposit inflows, loan repayments, borrowed funds, and maturing investment securities.
Deposits, which are considered the most stable source of liquidity, totaled $5.2 billion as of March 31, 2018 and represented 82.5% of total funding (the sum of total deposits and total borrowings), compared to deposits of $4.9 billion, or 82.7% of total funding, as of December 31, 2017. Core deposits, which consist of demand checking, NOW, savings and money market accounts, totaled $3.8 billion as of March 31, 2018 and represented 73.8% of total deposits, compared to core deposits of $3.7 billion, or 75.2% of total deposits, as of December 31, 2017. Additionally, the Company had $278.8 million of brokered deposits as of March 31, 2018, which represented 5.4% of total deposits, compared to $274.7 million or 5.6% of total deposits, as of December 31, 2017. The Company offers attractive interest rates based on market conditions to increase deposits balances, while managing cost of funds.

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Borrowings are used to diversify the Company's funding mix and to support asset growth. When profitable lending and investment opportunities exist, access to borrowings provides a means to grow the balance sheet. Borrowings totaled $1.1 billion as of March 31, 2018, representing 17.5% of total funding, compared to $1.0 billion, or 17.3% of total funding, as of December 31, 2017.
As members of the FHLBB, the Banks have access to both short- and long-term borrowings. As of March 31, 2018 and December 31, 2017, the Company's total borrowing limit from the FHLBB for advances and repurchase agreements was $1.5 billion based on the level of qualifying collateral available for these borrowings.
As of March 31, 2018, the Banks also have access to funding through certain uncommitted lines of credit of $198.0 million.
The Company had a $12.0 million committed line of credit for contingent liquidity as of March 31, 2018. As of March 31, 2018, the Company did not have any borrowings on this committed line of credit outstanding.
The Company has access to the Federal Reserve Bank "discount window" to supplement its liquidity. The Company has $77.8 million of borrowing capacity at the Federal Reserve Bank as of March 31, 2018. As of March 31, 2018, the Company did not have any borrowings with the Federal Reserve Bank outstanding.
Additionally, the Banks have access to liquidity through repurchase agreements and brokered deposits.
In general, the Company seeks to maintain a high degree of liquidity and targets cash, cash equivalents and investment securities available-for-sale balances of between 10% and 30% of total assets. As of March 31, 2018, cash, cash equivalents and investment securities available-for-sale totaled $642.8 million, or 8.9% of total assets. This compares to $601.1 million, or 8.9% of total assets as of December 31, 2017.
While management believes that the Company has adequate liquidity to meet its commitments and to fund the Banks' lending and investment activities, the availabilities of these funding sources are subject to broad economic conditions and could be restricted in the future. Such restrictions would impact the Company's immediate liquidity and/or additional liquidity needs.
Off-Balance-Sheet Financial Instruments

The Company is party to off-balance-sheet financial instruments in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby and commercial letters of credit and interest-rate swaps. According to GAAP, these financial instruments are not recorded in the financial statements until they are funded or related fees are incurred or received.
 
The contract amounts reflect the extent of the involvement the Company has in particular classes of these instruments. Such commitments involve, to varying degrees, elements of credit risk and interest-rate risk in excess of the amount recognized in the consolidated balance sheet. The Company’s exposure to credit loss in the event of non-performance by the counterparty is represented by the contractual amount of the instruments. The Company uses the same policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

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Financial instruments with off-balance-sheet risk at the dates indicated follow:
 At March 31, 2018 At December 31, 2017
 (In Thousands)
Financial instruments whose contract amounts represent credit risk:   
Commitments to originate loans and leases:   
Commercial real estate$34,112
 $76,653
Commercial106,956
 83,032
Residential mortgage24,162
 28,745
Unadvanced portion of loans and leases608,440
 571,668
Unused lines of credit:   
Home equity435,594
 407,552
Other consumer29,730
 34,191
Other commercial336
 323
Unused letters of credit:   
Financial standby letters of credit9,972
 12,422
Performance standby letters of credit736
 736
Commercial and similar letters of credit184
 184
Loan level derivatives:   
Receive fixed, pay variable537,694
 494,659
Pay fixed, receive variable537,694
 494,659
Risk participation-out agreements37,162
 36,627
Risk participation-in agreements3,825
 3,825
Foreign exchange contracts:   
Buys foreign currency, sells U.S. currency1,330
 1,495
Sells foreign currency, buys U.S. currency1,335
 1,502
As of March 31, 2018, the Company held no risk participation-in agreements.


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Capital Resources
As of March 31, 2018, the Company and the Banks are each under the primary regulation of, and must comply with, the capital requirements of the FRB. Under these rules, the Company and the Banks are each required to maintain a minimum common equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a minimum total Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8% and a minimum leverage ratio of 4%. Additionally, subject to a transition schedule, the Company and the Bank are required 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. As of March 31, 2018, the Company and the Banks exceeded all regulatory capital requirements, and the Banks were each considered “well-capitalized” under prompt corrective action regulations. The following table presents actual and required capital ratios as of March 31, 2018 for the Company and the Banks.
The Company's and the Banks' actual and required capital amounts and ratios were as follows:
 Actual Minimum Required for Capital Adequacy Purposes Minimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer 
Minimum Required  to be Considered “Well-Capitalized” Under Prompt Corrective Action Provisions
 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
 (Dollars in Thousands)
At March 31, 2018:               
Brookline Bancorp, Inc.               
Common equity Tier 1 capital ratio (1)
$710,569
 12.03% $265,799
 4.50% $413,465
 7.00% N/A
 N/A
Tier 1 leverage capital ratio (2)
728,999
 10.50% 277,714
 4.00% 277,714
 4.00% N/A
 N/A
Tier 1 risk-based capital ratio (3)
728,999
 12.34% 354,457
 6.00% 502,147
 8.50% N/A
 N/A
Total risk-based capital ratio (4)
863,235
 14.62% 472,358
 8.00% 619,970
 10.50% N/A
 N/A
Brookline Bank               
Common equity Tier 1 capital ratio (1)
$457,306
 11.77% $174,841
 4.50% $271,975
 7.00% $252,548
 6.50%
Tier 1 leverage capital ratio (2)
466,275
 10.93% 170,640
 4.00% 170,640
 4.00% 213,301
 5.00%
Tier 1 risk-based capital ratio (3)
466,275
 12.00% 233,138
 6.00% 330,278
 8.50% 310,850
 8.00%
Total risk-based capital ratio (4)
507,381
 13.06% 310,800
 8.00% 407,925
 10.50% 388,500
 10.00%
BankRI               
Common equity Tier 1 capital ratio (1)
$198,275
 11.39% $78,335
 4.50% $121,855
 7.00% $113,151
 6.50%
Tier 1 leverage capital ratio (2)
198,275
 9.32% 85,097
 4.00% 85,097
 4.00% 106,371
 5.00%
Tier 1 risk-based capital ratio (3)
198,275
 11.39% 104,447
 6.00% 147,966
 8.50% 139,263
 8.00%
Total risk-based capital ratio (4)
214,647
 12.33% 139,268
 8.00% 182,789
 10.50% 174,085
 10.00%
First Ipswich               
Common equity Tier 1 capital ratio (1)
$38,111
 13.59% $12,620
 4.50% $19,630
 7.00% $18,228
 6.50%
Tier 1 leverage capital ratio (2)
38,111
 9.55% 15,963
 4.00% 15,963
 4.00% 19,953
 5.00%
Tier 1 risk-based capital ratio (3)
38,111
 13.59% 16,826
 6.00% 23,837
 8.50% 22,435
 8.00%
Total risk-based capital ratio (4)
41,019
 14.63% 22,430
 8.00% 29,439
 10.50% 28,038
 10.00%
_______________________________________________________________________________
(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets.

(2) Tier 1 leverage capital ratio is calculated by dividing Tier 1 capital by average assets.

(3) Tier 1 risk-based capital ratio is calculated by dividing Tier 1 capital by risk-weighted assets.

(4) Total risk-based capital ratio is calculated by dividing total capital by risk-weighted assets.




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The following table presents actual and required capital ratios as of December 31, 2017 for the Company and the Banks under the regulatory capital rules then in effect.
 Actual Minimum Required for Capital Adequacy Purposes Minimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer 
Minimum Required To
Be Considered
 “Well-Capitalized” Under Prompt Corrective Action Provisions
 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
 (Dollars in Thousands)
At December 31, 2017: 
  
  
      
  
  
Brookline Bancorp, Inc. 
  
  
      
  
  
Common equity Tier 1 capital ratio (1)
$669,238
 12.02% $250,547
 4.50% $389,739
 7.00% N/A
 N/A
Tier 1 leverage capital ratio (2)
687,299
 10.43% 263,585
 4.00% 263,585
 4.00% N/A
 N/A
Tier 1 risk-based capital ratio (3)
687,299
 12.34% 334,181
 6.00% 473,423
 8.50% N/A
 N/A
Total risk-based capital ratio (4)
821,373
 14.75% 445,490
 8.00% 584,706
 10.50% N/A
 N/A
Brookline Bank 
  
  
  
      
  
Common equity Tier 1 capital ratio (1)
$414,282
 11.56% $161,269
 4.50% $250,863
 7.00% $232,944
 6.50%
Tier 1 leverage capital ratio (2)
423,035
 10.35% 163,492
 4.00% 163,492
 4.00% 204,365
 5.00%
Tier 1 risk-based capital ratio (3)
423,035
 11.81% 214,920
 6.00% 304,471
 8.50% 286,561
 8.00%
Total risk-based capital ratio (4)
463,986
 12.95% 286,632
 8.00% 376,205
 10.50% 358,290
 10.00%
BankRI               
Common equity Tier 1 capital ratio (1)
$193,849
 11.38% $76,654
 4.50% $119,239
 7.00% $110,722
 6.50%
Tier 1 leverage capital ratio (2)
193,849
 9.16% 84,650
 4.00% 84,650
 4.00% 105,813
 5.00%
Tier 1 risk-based capital ratio (3)
193,849
 11.38% 102,205
 6.00% 144,791
 8.50% 136,273
 8.00%
Total risk-based capital ratio (4)
210,025
 12.33% 136,269
 8.00% 178,853
 10.50% 170,337
 10.00%
First Ipswich 
  
  
  
      
  
Common equity Tier 1 capital ratio (1)
$37,502
 13.38% $12,613
 4.50% $19,620
 7.00% $18,218
 6.50%
Tier 1 leverage capital ratio (2)
37,502
 9.44% 15,891
 4.00% 15,891
 4.00% 19,863
 5.00%
Tier 1 risk-based capital ratio (3)
37,502
 13.38% 16,817
 6.00% 23,824
 8.50% 22,423
 8.00%
Total risk-based capital ratio (4)
40,625
 14.50% 22,414
 8.00% 29,418
 10.50% 28,017
 10.00%
_______________________________________________________________________________
(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets.

(2) Tier 1 leverage capital ratio is calculated by dividing Tier 1 capital by average assets.

(3) Tier 1 risk-based capital ratio is calculated by dividing Tier 1 capital by risk-weighted assets.

(4) Total risk-based capital ratio is calculated by dividing total capital by risk-weighted assets.



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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Market risk is the risk that the market value or estimated fair value of the Company's assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that the Company's net income will be significantly reduced by interest-rate changes.
Interest-Rate Risk
The principal market risk facing the Company is interest-rate risk, which can occur in a variety of forms, including repricing risk, yield-curve risk, basis risk, and prepayment risk. Repricing risk occurs when the change in the average yield of either interest-earning assets or interest-bearing liabilities is more sensitive than the other to changes in market interest rates. Such a change in sensitivity could reflect a number of possible mismatches in the repricing opportunities of the Company's assets and liabilities. Yield-curve risk reflects the possibility that changes in the shape of the yield curve could have different effects on the Company's assets and liabilities. Basis risk occurs when different parts of the balance sheet are subject to varying base rates reflecting the possibility that the spread from those base rates will deviate. Prepayment risk is associated with financial instruments with an option to prepay before the stated maturity, often a disadvantage to person selling the option; this risk is most often associated with the prepayment of loans, callable investments, and callable borrowings.
Asset/Liability Management
Market risk and interest-rate risk management is governed by the Company's Asset/Liability Committee ("ALCO"). The ALCO establishes exposure limits that define the Company's tolerance for interest-rate risk. The ALCO and the Company's Treasury Group measure and manage the composition of the balance sheet over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. The ALCO monitors current exposures versus limits and reports those results to the Board of Directors. The policy limits and guidelines serve as benchmarks for measuring interest-rate risk and for providing a framework for evaluation and interest-rate risk-management decision-making. The Company measures its interest-rate risk by using an asset/liability simulation model. The model considers several factors to determine the Company's potential exposure to interest-rate risk, including measurement of repricing gaps, duration, convexity, value-at-risk, market value of portfolio equity under assumed changes in the level of interest rates, the shape of yield curves, and general market volatility.
Management controls the Company's interest-rate exposure using several strategies, which include adjusting the maturities of securities in the Company's investment portfolio, limiting or expanding the terms of loans originated, limiting fixed-rate deposits with terms of more than five years, and adjusting maturities of FHLBB advances. The Company limits this risk by restricting the types of MBSs it invests in to those with limited average life changes under certain interest-rate-shock scenarios, or securities with embedded prepayment penalties. The Company also places limits on holdings of fixed-rate mortgage loans with maturities greater than five years. The Company may also use derivative instruments, principally interest-rate swaps, to manage its interest-rate risk; however, the Company had no derivative fair value hedges or derivative cash flows hedges as of March 31, 2018 or December 31, 2017. See Note 8, “Derivatives and Hedging Activities,” to the unaudited consolidated financial statements.
Measuring Interest-Rate Risk
As noted above, interest-rate risk can be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest-rate sensitivity gap. An asset or liability is said to be interest-rate sensitive within a specific period if it will mature or reprice within that period. The interest-rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive liabilities. A gap is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets. During a period of falling interest rates, therefore, a positive gap would tend to adversely affect net interest income. Conversely, during a period of rising interest rates, a positive gap position would tend to result in an increase in net interest income.
The Company's interest-rate risk position is measured using both income simulation and interest-rate sensitivity "gap" analysis. Income simulation is the primary tool for measuring the interest-rate risk inherent in the Company's balance sheet at a given point in time by showing the effect on net interest income, over a twelve-month period, of a variety of interest-rate shocks. These simulations take into account repricing, maturity, and prepayment characteristics of individual products. The ALCO reviews simulation results to determine whether exposure resulting from changes in market interest rates remains within

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established tolerance levels over a twelve-month horizon, and develops appropriate strategies to manage this exposure. The Company's interest-rate risk analysis remains modestly asset-sensitive as of March 31, 2018.
The assumptions used in the Company’s interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates.
As of March 31, 2018, net interest income simulation indicated that the Company's exposure to changing interest rates was within tolerance. The ALCO reviews the methodology utilized for calculating interest-rate risk exposure and may periodically adopt modifications to this methodology. The following table presents the estimated impact of interest-rate changes on the Company's estimated net interest income over the twelve-month periods indicated:
 
Estimated Exposure to Net Interest Income
over Twelve-Month Horizon Beginning
 March 31, 2018 December 31, 2017
Gradual Change in Interest Rate Levels
Dollar
Change
 
Percent
Change
 Dollar
Change
 Percent
Change
 (Dollars in Thousands)
Up 300 basis points$11,460
 4.6 % $11,494
 4.9 %
Up 200 basis points8,142
 3.3 % 8,179
 3.5 %
Up 100 basis points4,389
 1.8 % 4,434
 1.9 %
Down 100 basis points(10,440) -4.2 % (10,512) -4.5 %

The estimated impact of a 300 basis point increase in market interest rates on the Company's estimated net interest income over a twelve-month horizon was a positive 4.6% as of March 31, 2018, compared to a positive 4.9% as of December 31, 2017, the slight decrease in asset sensitivity was due to a change in the funding mix, as core deposits were replaces with whole sale borrowings.

The Company also uses interest-rate sensitivity “gap” analysis to provide a more general overview of its interest-rate risk profile. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing
liabilities maturing or repricing within a given time period. At March 31, 2018, the Company’s one-year cumulative gap was a negative $172.8 million, or 2.4% of total interest-earning assets, compared with a positive $21.0 million, or 0.33% of total interest-earning assets, at December 31, 2017.
 
The assumptions used in the Company's interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates. For additional discussion on interest-rate risk see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of the Company’s 2017 Annual Report on Form 10-K.

Economic Value of Equity ("EVE") at Risk Simulation is conducted in tandem with net interest income simulations to ascertain a longer term view of the Company’s interest-rate risk position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of the economic value of equity to changes in interest rates. The EVE at Risk Simulation values only the current balance sheet and does not incorporate growth assumptions. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, and rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity, and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. The Company conducts non-maturity deposit behavior studies on a periodic basis to support deposit assumptions used in the valuation process. All key assumptions are subject to a periodic review.

EVE at Risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates as well as parallel shocks to the current interest-rate environment. The following table sets forth the estimated percentage change in the Company’s EVE at Risk, assuming various shifts in interest rates. Given the interest rate environment as of March 31, 2018, simulations for interest rate declines of more than 100 basis points were not deemed to be meaningful.

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  Estimated Percent Change in Economic Value of Equity
Parallel Shock in Interest Rate Levels At March 31, 2018
At December 31, 2017
Up 300 basis points -2.7 % -0.7 %
Up 200 basis points -1.6 %  %
Up 100 basis points  % 1.0 %
Down 100 basis points -5.6 % -7.1 %

The Company's EVE sensitivity for Up shock scenarios increased marginally from December 31, 2017 to March 31, 2018 due to a shortening of deposits, the increase in short wholesale funding, and extension of investment portfolio due to reinvestment of maturing cashflow.

Item 4. Controls and Procedures
 
Controls and Procedures
 
Under the supervision and with the participation of the Company’s Management, including the Company’s Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer considered that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s Management, including its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
As a result of the First Commons Bank transaction which closed on March 1, 2018, additional controls were added to the Company’s internal controls over financial reporting. There have been no other control changes in connection with the quarterly evaluation that occurred during the Company’s last fiscal quarter that has materially and detrimentally affected, or is reasonably likely to materially and detrimentally affect, the Company’s internal controls over financial reporting.
 
The Company’s Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a -15(f). The Company’s internal control system was designed to provide reasonable assurance to its Management and the Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company’s Management assessed the effectiveness of its internal control over financial reporting as of the end of the period covered by this report.
 
Management’s Report on Internal Control Over Financial Reporting as of December 31, 2017 and the related Report of Independent Registered Public Accounting Firm thereon appear on pages F-1 and F-2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
 
There are no material pending legal proceedings other than those that arise in the normal course of business. In the opinion of Management, after consulting with legal counsel, the consolidated financial position and results of operations of the Company are not expected to be affected materially by the outcome of such proceedings. 

Item 1A.    Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A of the Company’s Form 10-K for the year ended December 31, 2017.

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

a)        Not applicable.
 
b)        Not applicable.
 
c)         None.

Item 3. Defaults Upon Senior Securities

a)        None.
 
b)        None.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.

Item 6. Exhibits
 
Exhibits
Exhibit 31.1* 
   
Exhibit 31.2* 
   
Exhibit 32.1** 
   
Exhibit 32.2** 
   
Exhibit 101 The following materials from Brookline Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (1) Unaudited Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017; (2) Unaudited Consolidated Statements of Income for the three months March 31, 2018 and March 31, 2017; (3) Unaudited Consolidated Statements of Comprehensive Income for the three months March 31, 2018 and March 31, 2017; (4) Unaudited Consolidated Statements of Changes in Equity for the three months ended March 31, 2018 and March 31, 2017; (5) Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and March 31, 2017; and (6) Notes to Unaudited Consolidated Financial Statements at and for the three months ended March 31, 2018 and March 31, 2017.
_______________________________________________________________________________
* Filed herewith
** Furnished herewith

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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.

 BROOKLINE BANCORP, INC.
    
    
Date: May 8, 2018By:/s/ Paul A. Perrault
  Paul A. Perrault 
  President and Chief Executive Officer 
  (Principal Executive Officer) 
    
Date: May 8, 2018By:/s/ Carl M. Carlson
  Carl M. Carlson 
  Chief Financial Officer 
  (Principal Financial Officer) 




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