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Brookline Bancorp (BRKL)

Filed: 7 Aug 19, 3:58pm
P15YP30Y31000012000000false--12-31Q220190001049782701400007341700000.110.010.0120000000020000000085177172851771721099509820880941618858711174235818000379990005000008160000030000000000030000000009000000000000.33330.33330.333350200255025764 0001049782 brkl:AcquiredFinancingReceivableMember 2018-04-01 2018-06-30
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from           N/A           to                                 .
 
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 StreetBostonMA02116
(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    No  
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No  
 
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  Accelerated filer 
       
Non-accelerated filer 
 (Do not check if a smaller reporting company)
 Smaller Reporting Company 
       
    Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No     
 



Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockBRKLNasdaq Global Select Market
                                                                                                                                                         
At July 31, 2019, the number of shares of common stock, par value $0.01 per share, outstanding was 79,834,205.
 



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 June 30, 2019 At December 31, 2018
 (In Thousands Except Share Data)
ASSETS   
Cash and due from banks$46,532
 $47,542
Short-term investments46,264
 42,042
Total cash and cash equivalents92,796
 89,584
Investment securities available-for-sale482,497
 502,793
Investment securities held-to-maturity (fair value of $104,085 and $112,830, respectively)103,572
 114,776
Equity securities held-for-trading4,698
 4,207
Total investment securities590,767
 621,776
Loans held-for-sale1,575
 3,247
Loans and leases:   
Commercial real estate loans3,493,554
 3,351,736
Commercial loans and leases1,826,336
 1,768,958
Consumer loans1,185,439
 1,182,822
Total loans and leases6,505,329
 6,303,516
Allowance for loan and lease losses(58,635) (58,692)
Net loans and leases6,446,694
 6,244,824
Restricted equity securities55,270
 61,751
Premises and equipment, net of accumulated depreciation of $73,417 and $70,140, respectively75,373
 76,382
Right-of-use asset operating leases25,928
 
Deferred tax asset25,629
 21,495
Goodwill160,427
 160,427
Identified intangible assets, net of accumulated amortization of $37,999 and $35,818, respectively5,264
 6,086
Other real estate owned ("OREO") and repossessed assets, net1,966
 4,019
Other assets155,291
 103,214
Total assets$7,636,980
 $7,392,805
LIABILITIES AND STOCKHOLDERS' EQUITY   
Deposits:   
Demand checking accounts$1,042,854
 $1,033,551
Interest-bearing deposits:   
NOW accounts340,082
 336,317
Savings accounts585,322
 619,961
Money market accounts1,669,782
 1,675,050
Certificate of deposit accounts1,984,453
 1,789,165
Total interest-bearing deposits4,579,639
 4,420,493
Total deposits5,622,493
 5,454,044
Borrowed funds:   
Advances from the Federal Home Loan Bank of Boston ("FHLBB")791,559
 784,375
Subordinated debentures and notes83,512
 83,433
Other borrowed funds55,693
 52,734
Total borrowed funds930,764
 920,542
Operating lease liabilities25,928
 
Mortgagors' escrow accounts6,823
 7,426
Accrued expenses and other liabilities132,504
 100,174
Total liabilities6,718,512
 6,482,186
    
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 85,177,172 shares issued, respectively852
 852
Additional paid-in capital737,584
 755,629
Retained earnings, partially restricted238,625
 212,838
Accumulated other comprehensive loss1,141
 (9,460)
Treasury stock, at cost; 5,025,764 shares and 5,020,025 shares, respectively(59,199) (59,120)
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 98,208 shares and 109,950 shares, respectively(535) (599)
Total Brookline Bancorp, Inc. stockholders' equity918,468
 900,140
Noncontrolling interest in subsidiary
 10,479
Total stockholders' equity918,468
 910,619
Total liabilities and stockholders' equity$7,636,980
 $7,392,805

See accompanying notes to unaudited consolidated financial statements.
1


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
 (In Thousands Except Share Data)
Interest and dividend income:       
Loans and leases$82,798
 $73,329
 $163,470
 $140,601
Debt securities3,158
 3,563
 6,394
 6,886
Marketable and restricted equity securities877
 1,003
 1,788
 1,927
Short-term investments351
 179
 618
 299
Total interest and dividend income87,184
 78,074
 172,270
 149,713
Interest expense:       
Deposits17,712
 9,219
 33,660
 16,318
Borrowed funds6,338
 6,138
 12,477
 11,187
Total interest expense24,050
 15,357
 46,137
 27,505
Net interest income63,134
 62,717
 126,133
 122,208
Provision for credit losses3,757
 1,470
 5,110
 2,111
Net interest income after provision for credit losses59,377
 61,247
 121,023
 120,097
Non-interest income:       
Deposit fees2,680
 2,620
 5,203
 5,083
Loan fees398
 330
 811
 620
Loan level derivative income, net1,772
 571
 3,517
 1,437
Gain on investment securities, net357
 
 491
 1,162
Gain on sales of loans and leases held-for-sale561
 722
 850
 1,021
Other1,710
 1,283
 3,236
 2,371
Total non-interest income7,478
 5,526
 14,108
 11,694
Non-interest expense:       
Compensation and employee benefits23,953
 22,565
 47,696
 44,879
Occupancy3,752
 3,879
 7,699
 7,838
Equipment and data processing4,641
 4,368
 9,302
 8,986
Professional services1,087
 1,055
 2,163
 2,199
FDIC insurance745
 514
 1,338
 1,149
Advertising and marketing1,112
 1,118
 2,181
 2,175
Amortization of identified intangible assets420
 539
 822
 1,006
Merger and acquisition expense
 334
 
 3,239
Other3,894
 3,330
 7,274
 6,169
Total non-interest expense39,604
 37,702
 78,475
 77,640
Income before provision for income taxes27,251
 29,071
 56,656
 54,151
Provision for income taxes6,780
 7,342
 13,675
 12,994
Net income before noncontrolling interest in subsidiary20,471
 21,729
 42,981
 41,157
Less: net income attributable to noncontrolling interest in subsidiary
 898
 43
 1,693
Net income attributable to Brookline Bancorp, Inc.$20,471
 $20,831
 $42,938
 $39,464
Earnings per common share:       
Basic$0.26
 $0.26
 $0.54
 $0.50
Diluted0.26
 0.26
 0.54
 0.50
Weighted average common shares outstanding during the year:       
Basic79,669,922
 80,184,977
 79,664,284
 79,038,041
Diluted79,886,292
 80,505,614
 79,859,572
 79,342,463
Dividends paid per common share$0.110
 $0.100
 $0.215
 $0.190



See accompanying notes to unaudited consolidated financial statements.
2


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
 (In Thousands)
Net income before noncontrolling interest in subsidiary$20,471
 $21,729
 $42,981
 $41,157
        
Investment securities available-for-sale:       
Unrealized securities holding gains (losses)7,099
 (2,244) 13,598
 (9,645)
Income tax benefit (expense)(1,565) 495
 (2,997) 2,127
Net unrealized securities holding gains (losses) before reclassification adjustments, net of taxes5,534
 (1,749) 10,601
 (7,518)
Less reclassification adjustments for securities gains included in net income:       
Loss on sales of securities, net
 
 
 (68)
Income tax benefit
 
 
 15
Net reclassification adjustments for securities gains included in net income
 
 
 (53)
Net unrealized securities holding (losses) gains5,534
 (1,749) 10,601
 (7,465)
        
Comprehensive income26,005
 19,980
 53,582
 33,692
Less: Net income attributable to noncontrolling interest in subsidiary
 898
 43
 1,693
Comprehensive income attributable to Brookline Bancorp, Inc.$26,005
 $19,082
 $53,539
 $31,999



See accompanying notes to unaudited consolidated financial statements.
3


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2019 and 2018
 
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, 2018$852
 $755,629
 $212,838
 $(9,460) $(59,120) $(599) $900,140
 $10,479
 $910,619
Net income attributable to Brookline Bancorp, Inc. 
 
 42,938
 
 
 
 42,938
 
 42,938
Net income attributable to noncontrolling interest in subsidiary
 
 
 
 
 
 
 43
 43
Other comprehensive income
 
 
 10,601
 
 
 10,601
 
 10,601
Common stock dividends of $0.215 per share
 
 (17,151) 
 
 
 (17,151) 
 (17,151)
Dividend distribution to owners of noncontrolling interest in subsidiary
 (930) 
 
 
 
 (930) 
 (930)
Redemption of noncontrolling interest in subsidiary
 (18,697) 
 
 
 
 (18,697) (10,522) (29,219)
Compensation under recognition and retention plan
 1,470
 
 
 (79) 
 1,391
 
 1,391
Common stock held by ESOP committed to be released (11,742 shares)
 112
 
 
 
 64
 176
 
 176
Balance at June 30, 2019$852
 $737,584
 $238,625
 $1,141
 $(59,199) $(535) $918,468
 $
 $918,468


 
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, 2017$817
 $699,976
 $161,217
 $(5,950) $(51,454) $(776) $803,830
 $8,753
 $812,583
Net income attributable to Brookline Bancorp, Inc. 
 
 39,464
 
 
 
 39,464
 
 39,464
Net income attributable to noncontrolling interest in subsidiary
 
 
 
 
 
 
 1,693
 1,693
Common stock issued for acquisition35
 55,146
 
 
 
 
 55,181
 
 55,181
Issuance of noncontrolling interest
 
 
 
 
 
 
 129
 129
Other comprehensive income
 
 
 (7,465) 
 
 (7,465) 
 (7,465)
Common stock dividends of $0.19 per share
 
 (14,947) 
 
 
 (14,947) 
 (14,947)
Dividend distribution to owners of noncontrolling interest in subsidiary
 
 
 
 
 
 
 (1,490) (1,490)
Restricted stock awards issued, net of awards surrendered
 946
 
 
 
 
 946
 
 946
Common stock held by ESOP committed to be released (16,188 shares)
 186
 
 
 
 88
 274
 
 274
Balance at June 30, 2018$852
 $756,254
 $185,734
 $(13,415) $(51,454) $(688) $877,283
 $9,085
 $886,368


See accompanying notes to unaudited consolidated financial statements.
4


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended June 30, 2019 and 2018
 
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 March 31, 2019$852
 $736,872
 $226,929
 $(4,393) $(59,121) $(567) $900,572
 $
 $900,572
Net income attributable to Brookline Bancorp, Inc. 
 
 20,471
 
 
 
 20,471
 
 20,471
Other comprehensive income
 
 
 5,534
 
 
 5,534
 
 5,534
Common stock dividends of $0.11 per share
 
 (8,775) 
 
 
 (8,775) 
 (8,775)
Compensation under recognition and retention plan
 656
 
 
 (78) 
 578
 
 578
Common stock held by ESOP committed to be released (5,871 shares)
 56
 
 
 
 32
 88
 
 88
Balance at June 30, 2019$852
 $737,584
 $238,625
 $1,141
 $(59,199) $(535) $918,468
 $
 $918,468

 
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 March 31, 2018$852
 $755,843
 $172,934
 $(11,666) $(51,454) $(732) $865,777
 $8,969
 $874,746
Net income attributable to Brookline Bancorp, Inc. 
 
 20,831
 
 
 
 20,831
 
 20,831
Net income attributable to noncontrolling interest in subsidiary
 
 
 
 
 
 
 898
 898
Other comprehensive income
 
 
 (1,749) 
 
 (1,749) 
 (1,749)
Common stock dividends of $0.10 per share
 
 (8,031) 
 
 
 (8,031) 
 (8,031)
Dividend distribution to owners of noncontrolling interest in subsidiary
 
 
 
 
 
 
 (1,490) (1,490)
Redemption of noncontrolling interest in subsidiary
 
 
 
 
 
 
 708
 708
Compensation under recognition and retention plan
 313
 
 
 
 
 313
 
 313
Common stock held by ESOP committed to be released (8,094 shares)
 98
 
 
 
 44
 142
 
 142
Balance at June 30, 2018$852
 $756,254
 $185,734
 $(13,415) $(51,454) $(688) $877,283
 $9,085
 $886,368



See accompanying notes to unaudited consolidated financial statements.
5


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
 Six Months Ended June 30,
 2019 2018
 (In Thousands)
Cash flows from operating activities:   
Net income attributable to Brookline Bancorp, Inc.$42,938
 $39,464
Adjustments to reconcile net income to net cash provided from operating activities:   
Net income attributable to noncontrolling interest in subsidiary43
 1,693
Provision for credit losses5,110
 2,111
Origination of loans and leases held-for-sale(14,104) (12,648)
Proceeds from sales of loans and leases held-for-sale, net16,364
 15,185
Deferred income tax benefit(499) (3,653)
Depreciation of premises and equipment3,514
 3,628
Amortization of investment securities premiums and discounts, net916
 875
Amortization of deferred loan and lease origination costs, net3,521
 3,417
Amortization of identified intangible assets822
 1,006
Amortization of debt issuance costs50
 50
(Accretion) amortization of acquisition fair value adjustments, net(693) 212
Gain on investment securities, net(491) (1,162)
Gain on sales of loans and leases held-for-sale(850) (1,021)
Loss on sales of OREO and other repossessed assets, net130
 
Write-down of OREO and other repossessed assets219
 252
Compensation under recognition and retention plans1,520
 1,032
ESOP shares committed to be released176
 274
Net change in:   
Cash surrender value of bank-owned life insurance(512) (512)
Other assets(51,562) (8,210)
Accrued expenses and other liabilities32,266
 14,226
Net cash provided from operating activities38,878
 56,219
    
Cash flows from investing activities:   
Proceeds from sales of investment securities available-for-sale
 1,470
Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale33,229
 43,569
Purchases of investment securities available-for-sale
 (73,852)
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity11,453
 1,790
Purchases of investment securities held-to-maturity(500) (8,915)
Proceeds from redemption/sales of restricted equity securities12,759
 2,820
Purchase of restricted equity securities(6,278) (10,564)
Proceeds from sales of loans and leases held-for-investment, net7,682
 3,178
Net increase in loans and leases(219,921) (451,145)
Acquisitions, net of cash and cash equivalents acquired
 (24,659)
Purchase of premises and equipment, net(2,590) (2,621)
Proceeds from sales of OREO and other repossessed assets3,926
 1,241
Net cash used for investing activities(160,240) (517,688)
   (Continued)

See accompanying notes to unaudited consolidated financial statements.
6


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows (Continued)
 Six Months Ended June 30,
 2019 2018
 (In Thousands)
    
Cash flows from financing activities:   
Decrease in demand checking, NOW, savings and money market accounts(26,839) (6,252)
Increase in certificates of deposit195,854
 332,862
Proceeds from FHLBB advances2,752,800
 4,598,000
Repayment of FHLBB advances(2,745,616) (4,496,818)
Increase (decrease) in other borrowed funds, net2,959
 (11,159)
(Decrease) increase in mortgagors' escrow accounts, net(603) 436
Common stock issued for acquisition
 55,181
Payment of dividends on common stock(17,151) (14,947)
Payment of income taxes for shares withheld in share based activity(49) 
Redemption of noncontrolling interest in subsidiary(35,851) 
Proceeds from issuance of noncontrolling units
 129
Payment of dividends to owners of noncontrolling interest in subsidiary(930) (1,490)
Net cash provided from financing activities124,574
 455,942
Net increase (decrease) in cash and cash equivalents3,212
 (5,527)
Cash and cash equivalents at beginning of period89,584
 61,005
Cash and cash equivalents at end of period$92,796
 $55,478
    
Supplemental disclosure of cash flow information:   
Cash paid during the period for:   
Interest on deposits, borrowed funds and subordinated debt$46,125
 $26,746
Income taxes15,386
 10,719
Non-cash investing activities:   
Transfer from loans to other real estate owned2,222
 1,426
Acquisition of First Commons Bank, N.A.:   
Fair value of assets acquired, net of cash and cash equivalents acquired$
 $292,025
Fair value of liabilities assumed
 278,988



See accompanying notes to unaudited consolidated financial statements.
7


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(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 trust company; 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.
Brookline Bank, which includes its wholly-owned subsidiaries BBS Investment Corp., Longwood Securities Corp. ("LSC") and Eastern Funding LLC ("Eastern Funding"), operates 25 full-service banking offices in the greater Boston metropolitan area with 2 additional lending offices. As of December 31, 2018, Brookline Bank, a wholly-owned subsidiary of the Company, held an 84.07 percent ownership interest its subsidiary, Eastern Funding. As previously announced, on January 4, 2019, Brookline Bank completed the purchase of the remaining 15.93 percent interest in Eastern Funding for a total cash consideration of $35.9 million. 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 6 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 Massachusetts-chartered trust companies, 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. As previously disclosed on a Form 8-K filed with the SEC, on July 31, 2019, Brookline Bank ended its membership in the Depositors Insurance Fund (“DIF”), a private industry-sponsored fund which insures Massachusetts-chartered savings bank deposit balances in excess of federal deposit insurance coverage. Brookline Bank’s growth in deposit size necessitated Brookline Bank’s withdrawal from the DIF and the concurrent charter conversion of Brookline Bank from a Massachusetts-chartered savings bank to a Massachusetts-chartered trust company.
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, 2018. 

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.


8

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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 changes 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.
(2) Recent Accounting Pronouncements
In April 2019, FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments to improve the Codifications or correct any unintended application.  Codification improvements to Update 2016-13 (Topic 326) will be effective on the same date as requirements in 2016-13.  Codification improvements to Update 2017-12 (Topic 815) will be effective as of the beginning of the first annual period beginning after the issuance date and Update 2016-01 (Topic 825) will be effective for fiscal years beginning after December 15, 2019.  Management believes that this ASU does apply and has not determined the impact, if any, as of June 30, 2019.
In February 2016, FASB issued ASU 2016-02, Leases (“ASU 2016-02”). 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.  Subsequently, the FASB has issued ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 to update provisions to ASU 2016-02.  The company has adopted all of the above mentioned ASU's regarding leases as of January 1, 2019.  The standard had a material impact on our consolidated balance sheet by recognizing right-of-use asset operating leases and operating lease liabilities on the balance sheet.  However, there was no impact on our consolidated income statement as the timing of the expense recognition has not changed.  Additional details can be found in Note 12.
In August 2018, FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), to add additional guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption of the amendments in this update is permitted, including adoption in any interim period, for all entities. Management is still determining the impact of this ASU, if any, as of June 30, 2019.
In August 2018, FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20), to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This ASU is effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted. Management believes that this ASU does apply and has not determined the impact, if any, as of June 30, 2019.
In August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management believes that this ASU does apply and has not determined the impact, if any, as of June 30, 2019.

9

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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. In November 2018, FASB issued ASU 2018-19 to clarify that operating lease receivables are not in scope of the credit losses standard. Management has determined that ASU 2016-13 does apply, but has not determined the impact, if any, as of June 30, 2019. 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 new software model will include additional assumptions used to calculate credit losses over the estimated life of the financial assets and will include the impact of forecasted economic conditions. The project team is in the testing phase of the third party software by validating model results and assessing material data inputs and potential model assumptions. The Company has also begun developing accounting policies and establishing internal controls relevant to the updated methodologies and models.

10

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

(3) Investment Securities
The following tables set forth investment securities available-for-sale, held-to-maturity and equity securities held-for-trading at the dates indicated:
 At June 30, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$183,562
 $2,359
 $93
 $185,828
GSE CMOs98,078
 85
 1,303
 96,860
GSE MBSs153,292
 503
 999
 152,796
SBA commercial loan asset-backed securities40
 
 
 40
Corporate debt obligations32,552
 291
 25
 32,818
U.S. Treasury bonds13,832
 323
 
 14,155
Total investment securities available-for-sale$481,356
 $3,561
 $2,420
 $482,497
Investment securities held-to-maturity:       
GSE debentures$44,592
 $116
 $51
 $44,657
GSEs MBSs10,608
 
 114
 10,494
Municipal obligations47,872
 567
 5
 48,434
Foreign government obligations500
 
 
 500
Total investment securities held-to-maturity$103,572
 $683
 $170
 $104,085
Equity securities held-for-trading      $4,698

 December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$184,072
 $99
 $3,092
 $181,079
GSE CMOs107,363
 17
 4,250
 103,130
GSE MBSs169,334
 124
 4,369
 165,089
SBA commercial loan asset-backed securities51
 
 
 51
Corporate debt obligations40,618
 
 910
 39,708
U.S. Treasury bonds13,812
 65
 141
 13,736
Total investment securities available-for-sale$515,250
 $305
 $12,762
 $502,793
Investment securities held-to-maturity:       
GSE debentures$50,546
 $22
 $967
 $49,601
GSEs MBSs11,426
 
 295
 11,131
Municipal obligations52,304
 10
 716
 51,598
Foreign government obligations500
 
 
 500
Total investment securities held-to-maturity$114,776
 $32
 $1,978
 $112,830
Equity securities held-for-trading      $4,207

As of June 30, 2019, the fair value of all investment securities available-for-sale was $482.5 million, with net unrealized gains of $1.1 million, compared to a fair value of $502.8 million and net unrealized losses of $12.5 million as of December 31, 2018. As of June 30, 2019, $231.4 million, or 48.0% of the portfolio, had gross unrealized losses of $2.4 million, compared to $466.7 million, or 92.8% of the portfolio, with gross unrealized losses of $12.8 million as of December 31, 2018.

11

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

As of June 30, 2019, the fair value of all investment securities held-to-maturity was $104.1 million, with net unrealized gains of $0.5 million, compared to a fair value of $112.8 million with net unrealized losses of $1.9 million as of December 31, 2018. As of June 30, 2019, $27.9 million, or 26.8% of the portfolio, had gross unrealized losses of $0.2 million. As of December 31, 2018, $102.1 million, or 90.5% of the portfolio had gross unrealized losses of $2.0 million.
As of June 30, 2019, the Company reported a fair value of $4.7 million of equity securities held-for-trading. As of December 31, 2018, the Company reported a fair value of $4.2 million of equity securities held-for-trading.
Investment Securities as Collateral
As of June 30, 2019 and December 31, 2018, respectively, $431.5 million and $442.5 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 June 30, 2019 and December 31, 2018.
Other-Than-Temporary Impairment ("OTTI")
Investment securities as of June 30, 2019 and December 31, 2018 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:
 At June 30, 2019
 
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$
 $
 $33,915
 $93
 $33,915
 $93
GSE CMOs
 
 76,278
 1,303
 76,278
 1,303
GSE MBSs3,887
 7
 107,772
 992
 111,659
 999
SBA commercial loan asset-backed securities
 
 40
 
 40
 
Corporate debt obligations
 
 9,478
 25
 9,478
 25
U.S. Treasury bonds
 
 
 
 
 
Temporarily impaired investment securities available-for-sale3,887
 7
 227,483
 2,413
 231,370
 2,420
Investment securities held-to-maturity:           
GSE debentures
 
 11,689
 51
 11,689
 51
GSEs MBSs
 
 10,413
 114
 10,413
 114
Municipal obligations
 
 5,828
 5
 5,828
 5
Foreign government obligations
 
 
 
 
 
Temporarily impaired investment securities held-to-maturity
 
 27,930
 170
 27,930
 170
Total temporarily impaired investment securities$3,887

$7

$255,413

$2,583

$259,300

$2,590

12

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 December 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$25,780
 $191
 $130,284
 $2,901
 $156,064
 $3,092
GSE CMOs
 
 102,630
 4,250
 102,630
 4,250
GSE MBSs21,487
 113
 138,051
 4,256
 159,538
 4,369
SBA commercial loan asset-backed securities
 
 51
 
 51
 
Corporate debt obligations10,019
 93
 29,689
 817
 39,708
 910
U.S. Treasury bonds3,927
 37
 4,753
 104
 8,680
 141
Temporarily impaired investment securities available-for-sale61,213
 434
 405,458
 12,328
 466,671
 12,762
Investment securities held-to-maturity:           
GSE debentures
 
 40,653
 967
 40,653
 967
GSEs MBSs
 
 11,080
 295
 11,080
 295
Municipal obligations14,813
 107
 35,058
 609
 49,871
 716
Foreign government obligations
 
 500
 
 500
 
Temporarily impaired investment securities held-to-maturity14,813
 107
 87,291
 1,871
 102,104
 1,978
Total temporarily impaired investment securities$76,026
 $541
 $492,749
 $14,199
 $568,775
 $14,740

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 June 30, 2019. 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 June 30, 2019. If market conditions for investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional OTTI in future periods.

13

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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 June 30, 2019, 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 $19.4 million were backed explicitly by the full faith and credit of the U.S. Government, compared to $20.6 million as of December 31, 2018.
As of June 30, 2019, the Company owned 60 GSE debentures with a total fair value of $185.8 million, and a net unrealized gain of $2.3 million. As of December 31, 2018, the Company held 60 GSE debentures with a total fair value of $181.1 million, with a net unrealized loss of $3.0 million. As of June 30, 2019, 10 of the 60 securities in this portfolio were in an unrealized loss position. As of December 31, 2018, 51 of the 60 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 six months ended June 30, 2019, the Company did not purchase any GSE debentures. This compares to $33.9 million purchased during the same period in 2018.
As of June 30, 2019, the Company owned 61 GSE CMOs with a total fair value of $96.9 million and a net unrealized loss of $1.2 million. As of December 31, 2018, the Company held 61 GSE CMOs with a total fair value of $103.1 million with a net unrealized loss of $4.2 million. As of June 30, 2019, 37 of the 61 securities in this portfolio were in an unrealized loss position. As of December 31, 2018, 46 of the 61 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 six months ended June 30, 2019 and 2018, the Company did not purchase any GSE CMOs.
As of June 30, 2019, the Company owned 155 GSE MBSs with a total fair value of $152.8 million and a net unrealized loss of $0.5 million. As of December 31, 2018, the Company held 165 GSE MBSs with a total fair value of $165.1 million with a net unrealized loss of $4.2 million. As of June 30, 2019, 68 of the 155 securities in this portfolio were in an unrealized loss position. As of December 31, 2018, 93 of the 165 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 six months ended June 30, 2019, the Company did not purchase any GSE MBSs. This compares to $15.2 million purchased during the same period in 2018.
SBA Commercial Loan Asset-Backed
As of June 30, 2019, the Company owned 4 SBA securities with a total fair value of $40.0 thousand, which approximated amortized cost. As of December 31, 2018, the Company owned 4 SBA securities with a total fair value of $51.0 thousand, which approximated amortized cost. As of June 30, 2019, 3 of the 4 securities in this portfolio were in an unrealized loss position. As of December 31, 2018, all 4 of the 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 six months ended June 30, 2019 and 2018, 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 June 30, 2019, the Company held 9 corporate obligation securities with a total fair value of $32.8 million and a net unrealized gain of $0.3 million. As of December 31, 2018, the Company held 11 corporate obligation securities with a total fair value of $39.7 million and a net unrealized loss of $0.9 million. As of June 30, 2019, 3 of the 9 securities in this portfolio were in an unrealized loss position. As of December 31, 2018, all 11 of the 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 six months ended June 30, 2019 and 2018, the Company did not purchase any corporate obligations.

14

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

U.S. Treasury Bonds
The Company invests in securities issued by the U.S. government. As of June 30, 2019, the Company owned 3 U.S. Treasury bonds with a total fair value of $14.2 million and an unrealized gain of $0.3 million. This compares to 3 U.S. Treasury bonds with a total fair value of $13.7 million and an unrealized loss of $0.1 million as of December 31, 2018. During the six months ended June 30, 2019 the Company did not purchase any U.S. Treasury bonds. This compares to $24.7 million purchased during the same period in 2018.
Equity Securities Held-for-Trading
From time to time, the Company will invest in equity securities held-for-trading. As of June 30, 2019 and December 31, 2018, the Company owned 3 equity securities held-for-trading with a fair value of $4.7 million and $4.2 million, respectively.
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 June 30, 2019. Management has the ability and the intent to hold the securities until maturity.
U.S. Government-Sponsored Enterprises
As of June 30, 2019, the Company owned 16 GSE debentures with a total fair value of $44.7 million and a net unrealized gain of $0.1 million. As of December 31, 2018, the Company owned 17 GSE debentures with a total fair value of $49.6 million and an unrealized loss of $0.9 million. As of June 30, 2019, 4 of the 16 securities in this portfolio were in an unrealized loss position. As of December 31, 2018, 14 of the 17 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 six months ended June 30, 2019, the Company did not purchase any GSE debentures as compared to the same period in 2018, when the Company purchased a total of $8.9 million in GSE debentures.
As of June 30, 2019, the Company owned 11 GSE MBSs with a total fair value of $10.5 million and an unrealized loss of $0.1 million. As of December 31, 2018, the Company owned 11 GSE MBSs with a total fair value of $11.1 million and an unrealized loss of $0.3 million. As of June 30, 2019 and December 31, 2018, 8 of the 11 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 six months ended June 30, 2019 and 2018, 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 June 30, 2019, the Company owned 95 municipal obligation securities with a total fair value of $48.4 million and a net unrealized gain of $0.6 million. As of December 31, 2018, the Company owned 98 municipal obligation securities with a total fair value of $51.6 million and an unrealized loss of $0.7 million. As of June 30, 2019, 14 of the 95 securities in this portfolio were in an unrealized loss position as compared to December 31, 2018, when 94 of the 98 securities were in an unrealized loss position. During the six months ended June 30, 2019 and 2018, the Company did not purchase any municipal obligations.
Foreign Government Obligations
As of June 30, 2019 and December 31, 2018, the Company owned 1 foreign government obligation security with a fair value of $0.5 million, which approximated cost. As of June 30, 2019 and December 31, 2018 respectively, the security was not in an unrealized loss position. During the six months ended June 30, 2019 the Company repurchased the foreign government obligation that had matured, during the same period in 2018, the Company did not purchase any foreign government obligations.

15

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Portfolio Maturities
The final stated maturities of the debt securities are as follows for the periods indicated:
 At June 30, 2019 At December 31, 2018
 
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$9,012
 $8,989
 1.86% $12,041
 $12,007
 2.03%
After 1 year through 5 years195,309
 197,035
 2.15% 195,701
 192,692
 2.14%
After 5 years through 10 years101,895
 102,739
 2.21% 115,665
 112,819
 2.18%
Over 10 years175,140
 173,734
 2.12% 191,843
 185,275
 2.17%
 $481,356
 $482,497
 2.15% $515,250
 $502,793
 2.16%
Investment securities held-to-maturity:           
Within 1 year$6,518
 $6,522
 1.89% $7,640
 $7,618
 1.17%
After 1 year through 5 years75,042
 75,417
 1.89% 72,735
 71,492
 1.84%
After 5 years through 10 years11,484
 11,733
 1.80% 23,025
 22,640
 2.20%
Over 10 years10,528
 10,413
 1.85% 11,376
 11,080
 2.13%
 $103,572
 $104,085
 1.88% $114,776
 $112,830
 1.89%

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 June 30, 2019, issuers of debt securities with an estimated fair value of $19.8 million had the right to call or prepay the obligations. Of the $19.8 million, approximately $12.0 million matures in 1 - 5 years, $7.8 million matures in 6 - 10 years, and none mature after ten years. As of December 31, 2018, issuers of debt securities with an estimated fair value of approximately $19.1 million had the right to call or prepay the obligations. Of the $19.1 million, $8.4 million matures in 1-5 years, $10.7 million matures in 6-10 years, and none mature 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 acquired in the merger. When securities were sold, the adjusted cost of the specific security sold was used to compute the gain or loss on the sale.
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.
During the month of March 2018, the Company, through Brookline Bank’s wholly owned subsidiary, LSC, sold 3 trust preferred securities with a book value of $1.5 million for a loss of $0.1 million. The table on the following page includes the activity with respect to the sale of the trust preferred securities and restricted equity securities.
There were no securities sold during the six months ended June 30, 2019.

16

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Sales of investment and restricted equity securities are summarized as follows:
 Six Months Ended June 30, 2019
Six Months Ended June 30, 2018
 (In Thousands)
Proceeds from sale of trust preferred, marketable and restricted equity securities$
 $2,700
    
Gross gains from securities sales
 1,230
Gross losses from securities sales
 (68)
Gain on sales of securities, net$
 $1,162

(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 June 30, 2019
 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$2,317,991
 4.64% $103,113
 4.70% $2,421,104
 4.64%
Multi-family mortgage830,533
 4.54% 46,797
 4.56% 877,330
 4.54%
Construction187,161
 5.63% 7,959
 6.73% 195,120
 5.68%
Total commercial real estate loans3,335,685
 4.67% 157,869
 4.76% 3,493,554
 4.67%
Commercial loans and leases:           
Commercial743,689
 5.05% 19,456
 5.17% 763,145
 5.05%
Equipment financing1,012,582
 7.75% 2,623
 5.98% 1,015,205
 7.74%
Condominium association47,986
 4.86% 
 % 47,986
 4.86%
Total commercial loans and leases1,804,257
 6.56% 22,079
 5.27% 1,826,336
 6.54%
Consumer loans:           
Residential mortgage651,267
 4.16% 118,716
 4.51% 769,983
 4.21%
Home equity336,098
 5.13% 38,648
 5.42% 374,746
 5.15%
Other consumer40,602
 5.15% 108
 17.75% 40,710
 5.18%
Total consumer loans1,027,967
 4.52% 157,472
 4.74% 1,185,439
 4.55%
Total loans and leases$6,167,909
 5.20% $337,420
 4.78% $6,505,329
 5.18%

17

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 At December 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$2,208,904
 4.61% $121,821
 4.62% $2,330,725
 4.61%
Multi-family mortgage799,813
 4.51% 47,898
 4.58% 847,711
 4.51%
Construction151,138
 5.62% 22,162
 6.74% 173,300
 5.76%
Total commercial real estate loans3,159,855
 4.63% 191,881
 4.85% 3,351,736
 4.64%
Commercial loans and leases:           
Commercial712,630
 4.96% 23,788
 5.39% 736,418
 4.97%
Equipment financing978,840
 7.61% 3,249
 5.97% 982,089
 7.60%
Condominium association50,451
 4.70% 
 % 50,451
 4.70%
Total commercial loans and leases1,741,921
 6.44% 27,037
 5.46% 1,768,958
 6.43%
Consumer loans:           
Residential mortgage653,059
 4.09% 129,909
 4.45% 782,968
 4.15%
Home equity331,014
 5.05% 45,470
 5.39% 376,484
 5.09%
Other consumer23,260
 5.55% 110
 17.81% 23,370
 5.61%
Total consumer loans1,007,333
 4.44% 175,489
 4.70% 1,182,822
 4.48%
Total loans and leases$5,909,109
 5.13% $394,407
 4.83% $6,303,516
 5.11%

The net unamortized deferred loan origination fees and costs included in total loans and leases were $15.5 million and $15.6 million as of June 30, 2019 and December 31, 2018, respectively.
The Banks and subsidiaries lend primarily in all New England states, with the exception of equipment financing, 26.5% of which is in the greater New York and New Jersey metropolitan area and 73.5% of which is in other areas in the United States of America as of June 30, 2019.
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 June 30, Six Months Ended June 30,
 2019
2018 2019 2018
 (In Thousands)
Balance at beginning of period$7,166
 $9,653
 $7,905
 $10,522
Accretion(1,041) (1,148) (1,841) (2,333)
Reclassification from nonaccretable difference as a result of changes in expected cash flows727
 308
 788
 624
Balance at end of period$6,852
 $8,813
 $6,852
 $8,813

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 June 30, 2019 and 2018, accretable yield adjustments totaling $727 thousand and $308 thousand, respectively, were made for certain loan pools. During the six months ended June 30, 2019 and 2018, accretable yield

18

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

adjustments totaling $788 thousand and $624 thousand, 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.
Loans and Leases Pledged as Collateral
As of June 30, 2019 and December 31, 2018, there were $2.9 billion and $3.0 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 June 30, 2019 and December 31, 2018.
(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 June 30, 2019
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at March 31, 2019$28,349
 $24,240
 $5,452
 $58,041
Charge-offs
 (3,401) (11) (3,412)
Recoveries
 294
 36
 330
Provision for loan and lease losses319
 3,200
 157
 3,676
Balance at June 30, 2019$28,668
 $24,333
 $5,634
 $58,635

 Three Months Ended June 30, 2018
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at March 31, 2018$27,361
 $26,252
 $5,101
 $58,714
Charge-offs(100) (3,456) (49) (3,605)
Recoveries
 1,152
 123
 1,275
Provision (credit) for loan and lease losses(216) 2,172
 (359) 1,597
Balance at June 30, 2018$27,045
 $26,120
 $4,816
 $57,981

 Six Months Ended June 30, 2019
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2018$28,187
 $25,283
 $5,222
 $58,692
Charge-offs
 (5,913) (41) (5,954)
Recoveries
 682
 89
 771
Provision for loan and lease losses481
 4,281
 364
 5,126
Balance at June 30, 2019$28,668
 $24,333
 $5,634
 $58,635

19

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 Six Months Ended June 30, 2018
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2017$27,112
 $26,333
 $5,147
 $58,592
Charge-offs(103) (4,189) (105) (4,397)
Recoveries
 1,353
 209
 1,562
Provision (credit) for loan and lease losses36
 2,623
 (435) 2,224
Balance at June 30, 2018$27,045
 $26,120
 $4,816
 $57,981

The liability for unfunded credit commitments, which is included in other liabilities, was $1.8 million and $1.9 million at June 30, 2019 and December 31, 2018, respectively. No credit commitments were charged off against the liability account in the six-month periods ended June 30, 2019 and 2018.
Provision for Credit Losses
The provisions for credit losses are set forth below for the periods indicated:
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
 (In Thousands)
Provision for loan and lease losses:       
Commercial real estate$319
 $(216) $481
 $36
Commercial3,200
 2,172
 4,281
 2,623
Consumer157
 (359) 364
 (435)
Total provision for loan and lease losses3,676
 1,597
 5,126
 2,224
Unfunded credit commitments81
 (127) (16) (113)
Total provision for credit losses$3,757
 $1,470
 $5,110
 $2,111

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

20

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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 TDR 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 June 30, 2019, 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.
As of June 30, 2019, the Company had a portfolio of approximately $11.3 million in loans secured by taxi medallions issued by the cities of Boston and Cambridge, Massachusetts. As of December 31, 2018, this portfolio was approximately $13.7 million. For collateral valuation purposes, taxi medallions are currently estimated at $35 thousand for Boston and $10 thousand for Cambridge. The Company has no taxi medallion exposure outside Massachusetts.
As of June 30, 2019, the Company had an allowance for loan and lease losses associated with taxi medallion loans of $1.4 million of which $0.9 million were specific reserves and $0.5 million was a general reserve. As of December 31, 2018, the Company had an allowance for loan and lease losses associated with taxi medallion loans of $2.5 million of which $1.9 million were specific reserves and $0.6 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 charge-offs in the taxi medallion portfolio. The total TDRs secured by taxi medallions decreased by $2.0 million from $3.7 million at December 31, 2018 to $1.7 million at June 30, 2019. The total loans secured by taxi medallions that were placed on nonaccrual decreased by $1.8 million to $1.9 million at June 30, 2019 from $3.7 million at December 31, 2018. The decreases in TDRs and non-accruing loans secured by taxi medallions were due to the charge-offs in taxi medallion relationships during the first six months of 2019. 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 $56.8 million as of June 30, 2019, compared to $55.6 million as of December 31, 2018. The specific allowance for loan and lease losses was $1.9 million as of June 30, 2019, compared to $3.1 million as of December 31, 2018. The specific allowance decreased by $1.2 million during the six months ended June 30, 2019 primarily due to the charge-offs of $1.7 million on loans collateralized by taxi medallions.
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 credit 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.

21

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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.
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.

22

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Credit Quality Information
The following tables present the recorded investment in loans in each class as of June 30, 2019, by credit quality indicator.
 At June 30, 2019 
 
Commercial
Real Estate
 
Multi-
Family
Mortgage
 Construction Commercial 
Equipment
Financing
 
Condominium
Association
 
Other
Consumer
Total
 (In Thousands) 
Originated:              
Loan rating:              
Pass$2,310,846
 $830,439
 $187,161
 $711,393
 $1,002,521
 $47,816
 $40,600
$5,130,776
OAEM4,610
 
 
 9,985
 78
 
 
14,673
Substandard2,535
 94
 
 22,308
 9,509
 170
 2
34,618
Doubtful
 
 
 3
 474
 
 
477
Total originated2,317,991
 830,533
 187,161
 743,689
 1,012,582
 47,986
 40,602
5,180,544
               
Acquired:              
Loan rating:              
Pass91,960
 46,762
 7,959
 18,793
 2,615
 
 108
168,197
OAEM2,122
 
 
 433
 
 
 
2,555
Substandard9,031
 35
 
 230
 8
 
 
9,304
Total acquired103,113
 46,797
 7,959
 19,456
 2,623
 
 108
180,056
               
Total loans$2,421,104
 $877,330
 $195,120
 $763,145
 $1,015,205
 $47,986
 $40,710
$5,360,600
As of June 30, 2019, there were no loans categorized as definite loss.




23

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

  At June 30, 2019
  Residential Mortgage Home Equity
  (Dollars In Thousands)
Originated:        
Loan-to-value ratio:  
    
  
Less than 50% $174,429
 22.7% $136,756
 36.6%
50% - 69% 278,937
 36.1% 88,505
 23.6%
70% - 79% 175,670
 22.8% 77,694
 20.7%
80% and over 20,157
 2.6% 33,107
 8.8%
Data not available* 2,074
 0.3% 36
 %
Total originated 651,267
 84.5% 336,098
 89.7%
         
Acquired:  
    
  
Loan-to-value ratio:  
    
  
Less than 50% 36,688
 4.8% 19,650
 5.2%
50%—69% 50,589
 6.6% 8,637
 2.3%
70%—79% 19,345
 2.5% 990
 0.3%
80% and over 6,309
 0.8% 4,492
 1.2%
Data not available 5,785
 0.8% 4,879
 1.3%
Total acquired 118,716
 15.5% 38,648
 10.3%
         
Total loans $769,983
 100.0% $374,746
 100.0%
_______________________________________________________________________________
* Represents in process general ledger accounts for which data are not available.


24

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

The following tables present the recorded investment in loans in each class as of December 31, 2018, by credit quality indicator.
 At December 31, 2018 
 
Commercial
Real Estate
 
Multi-
Family
Mortgage
 Construction Commercial 
Equipment
Financing
 
Condominium
Association
 
Other
Consumer
Total
 (In Thousands) 
Originated:              
Loan rating:              
Pass$2,198,377
 $799,483
 $150,742
 $685,773
 $969,275
 $50,186
 $23,249
$4,877,085
OAEM6,096
 
 
 3,726
 52
 
 
9,874
Substandard4,431
 330
 396
 22,870
 6,895
 265
 11
35,198
Doubtful
 
 
 261
 2,618
 
 
2,879
Total originated2,208,904
 799,813
 151,138
 712,630
 978,840
 50,451
 23,260
4,925,036
               
Acquired:              
Loan rating:              
Pass111,919
 47,715
 22,162
 23,250
 3,240
 
 110
208,396
OAEM626
 
 
 236
 
 
 
862
Substandard9,276
 183
 
 302
 9
 
 
9,770
Total acquired121,821
 47,898
 22,162
 23,788
 3,249
 
 110
219,028
               
Total loans$2,330,725
 $847,711
 $173,300
 $736,418
 $982,089
 $50,451
 $23,370
$5,144,064
As of December 31, 2018, there were no loans categorized as definite loss.




25

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 At December 31, 2018
 Residential Mortgage Home Equity
 (Dollars In Thousands)
Originated:       
Loan-to-value ratio: 
    
  
Less than 50%$171,523
 21.9% $142,534
 37.9%
50%—69%287,337
 36.7% 84,423
 22.4%
70%—79%173,870
 22.2% 73,898
 19.6%
80% and over19,030
 2.4% 30,129
 8.0%
Data not available*1,299
 0.2% 30
 %
Total originated653,059
 83.4% 331,014
 87.9%
        
Acquired: 
    
  
Loan-to-value ratio: 
    
  
Less than 50%36,752
 4.6% 24,705
 6.6%
50%—69%53,788
 6.9% 10,353
 2.7%
70%—79%26,510
 3.4% 1,000
 0.3%
80% and over6,701
 0.9% 4,348
 1.2%
Data not available6,158
 0.8% 5,064
 1.3%
Total acquired129,909
 16.6% 45,470
 12.1%
        
Total loans$782,968
 100.0% $376,484
 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 June 30, 2019 At December 31, 2018
 (In Thousands)
Foreclosed residential real estate property held by the creditor$
 $629
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure$188
 $121









26

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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 June 30, 2019 and December 31, 2018.
 At June 30, 2019
 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$1,717
 $3,943
 $1,690
 $7,350
 $2,310,641
 $2,317,991
 $
 $2,170
Multi-family mortgage74
 
 523
 597
 829,936
 830,533
 523
 94
Construction
 
 
 
 187,161
 187,161
 
 
Total commercial real estate loans1,791
 3,943
 2,213
 7,947
 3,327,738
 3,335,685
 523
 2,264
Commercial loans and leases:               
Commercial3,878
 505
 2,724
 7,107
 736,582
 743,689
 
 6,146
Equipment financing3,057
 2,034
 5,779
 10,870
 1,001,712
 1,012,582
 
 9,931
Condominium association641
 
 
 641
 47,345
 47,986
 
 170
Total commercial loans and leases7,576
 2,539
 8,503
 18,618
 1,785,639
 1,804,257
 
 16,247
Consumer loans:               
Residential mortgage3,755
 
 784
 4,539
 646,728
 651,267
 
 1,642
Home equity498
 159
 21
 678
 335,420
 336,098
 2
 151
Other consumer28
 4
 6
 38
 40,564
 40,602
 
 7
Total consumer loans4,281
 163
 811
 5,255
 1,022,712
 1,027,967
 2

1,800
Total originated loans and leases$13,648
 $6,645
 $11,527
 $31,820
 $6,136,089
 $6,167,909
 $525
 $20,311

27

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 At June 30, 2019
 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$133
 $69
 $8,864
 $9,066
 $94,047
 $103,113
 $8,794
 $103
Multi-family mortgage
 
 
 
 46,797
 46,797
 
 
Construction
 
 
 
 7,959
 7,959
 
 
Total commercial real estate loans133
 69
 8,864
 9,066
 148,803
 157,869
 8,794
 103
Commercial loans and leases:               
Commercial
 
 237
 237
 19,219
 19,456
 33
 203
Equipment financing
 
 8
 8
 2,615
 2,623
 2
 
Total commercial loans and leases
 
 245
 245
 21,834
 22,079
 35
 203
Consumer loans:               
Residential mortgage
 62
 2,218
 2,280
 116,436
 118,716
 2,218
 
Home equity230
 474
 269
 973
 37,675
 38,648
 40
 684
Other consumer
 
 
 
 108
 108
 
 
Total consumer loans230
 536
 2,487
 3,253
 154,219
 157,472
 2,258
 684
Total acquired loans and leases$363
 $605
 $11,596
 $12,564
 $324,856
 $337,420
 $11,087
 $990
                
Total loans and leases$14,011
 $7,250
 $23,123
 $44,384
 $6,460,945
 $6,505,329
 $11,612
 $21,301


28

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 At December 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$5,139
 $896
 $2,962
 $8,997
 $2,199,907
 $2,208,904
 $277
 $3,806
Multi-family mortgage893
 
 145
 1,038
 798,775
 799,813
 
 330
Construction297
 
 396
 693
 150,445
 151,138
 
 396
Total commercial real estate loans6,329
 896
 3,503
 10,728
 3,149,127
 3,159,855
 277
 4,532
Commercial loans and leases:               
Commercial2,021
 582
 6,244
 8,847
 703,783
 712,630
 1,962
 6,421
Equipment financing2,509
 650
 5,685
 8,844
 969,996
 978,840
 12
 9,500
Condominium association320
 
 
 320
 50,131
 50,451
 
 265
Total commercial loans and leases4,850
 1,232
 11,929
 18,011
 1,723,910
 1,741,921
 1,974
 16,186
Consumer loans:               
Residential mortgage400
 
 1,597
 1,997
 651,062
 653,059
 
 1,842
Home equity761
 25
 183
 969
 330,045
 331,014
 1
 191
Other consumer51
 18
 15
 84
 23,176
 23,260
 
 17
Total consumer loans1,212
 43
 1,795
 3,050
 1,004,283
 1,007,333
 1
 2,050
Total originated loans and leases$12,391
 $2,171
 $17,227
 $31,789
 $5,877,320
 $5,909,109
 $2,252
 $22,768

29

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 At December 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$
 $215
 $9,087
 $9,302
 $112,519
 $121,821
 $9,018
 $122
Multi-family mortgage348
 
 
 348
 47,550
 47,898
 
 
Construction360
 242
 
 602
 21,560
 22,162
 
 
Total commercial real estate loans708
 457
 9,087
 10,252
 181,629
 191,881
 9,018
 122
Commercial loans and leases:               
Commercial124
 44
 290
 458
 23,330
 23,788
 90
 200
Equipment financing
 
 9
 9
 3,240
 3,249
 9
 
Total commercial loans and leases124
 44
 299
 467
 26,570
 27,037
 99
 200
Consumer loans:               
Residential mortgage
 371
 2,113
 2,484
 127,425
 129,909
 2,113
 290
Home equity191
 265
 2
 458
 45,012
 45,470
 
 717
Other consumer
 
 
 
 110
 110
 
 
Total consumer loans191
 636
 2,115
 2,942
 172,547
 175,489
 2,113
 1,007
Total acquired loans and leases$1,023
 $1,137
 $11,501
 $13,661
 $380,746
 $394,407
 $11,230
 $1,329
                
Total loans and leases$13,414
 $3,308
 $28,728
 $45,450
 $6,258,066
 $6,303,516
 $13,482
 $24,097


30

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Commercial Real Estate Loans—As of June 30, 2019, 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 -- 37.2%; multi-family mortgage loans -- 13.5%; and construction loans -- 3.1%.
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 June 30, 2019, 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 -- 11.7%; equipment financing loans -- 15.6%; and loans to condominium associations -- 0.7%.
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 June 30, 2019, 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 -- 11.8%, home equity loans -- 5.8%, and other consumer loans -- 0.6%.
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 or more days 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 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.

31

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 At June 30, 2019 At December 31, 2018
 
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$3,348
 $3,337
 $
 $5,569
 $5,545
 $
Commercial36,990
 37,035
 
 30,927
 31,053
 
Consumer2,402
 2,390
 
 2,989
 2,978
 
Total originated with no related allowance recorded42,740
 42,762
 
 39,485
 39,576
 
With an allowance recorded:           
Commercial real estate71
 71
 8
 396
 396
 5
Commercial5,793
 5,810
 1,747
 8,224
 8,208
 2,961
Consumer659
 658
 87
 665
 664
 89
Total originated with an allowance recorded6,523
 6,539
 1,842
 9,285
 9,268
 3,055
Total originated impaired loans and leases49,263
 49,301
 1,842
 48,770
 48,844
 3,055
            
Acquired:           
With no related allowance recorded:           
Commercial real estate9,491
 9,492
 
 9,538
 9,538
 
Commercial535
 535
 
 531
 531
 
Consumer4,521
 4,521
 
 4,772
 4,772
 
Total acquired with no related allowance recorded14,547
 14,548
 
 14,841
 14,841
 
With an allowance recorded:           
Consumer156
 156
 29
 154
 154
 26
 Total acquired with an allowance recorded156
 156
 29
 154
 154
 26
Total acquired impaired loans and leases14,703
 14,704
 29
 14,995
 14,995
 26
            
Total impaired loans and leases$63,966
 $64,005
 $1,871
 $63,765
 $63,839
 $3,081
___________________________________________________________________________
(1) Includes originated and acquired nonaccrual loans of $20.3 million and $1.0 million, respectively as of June 30, 2019.

(2) Includes originated and acquired nonaccrual loans of $22.7 million and $1.3 million, respectively as of December 31, 2018.

32

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 Three Months Ended
 June 30, 2019 June 30, 2018
 Average
Recorded
Investment
 Interest
Income
Recognized
 Average
Recorded
Investment
 Interest
Income
Recognized
 (In Thousands)
Originated:       
With no related allowance recorded:       
Commercial real estate$3,374
 $15
 $6,565
 $19
Commercial38,211
 338
 23,223
 215
Consumer2,644
 8
 2,012
 14
Total originated with no related allowance recorded44,229
 361
 31,800
 248
With an allowance recorded:       
Commercial real estate71
 1
 
 
Commercial5,903
 33
 10,738
 28
Consumer660
 6
 1,166
 1
Total originated with an allowance recorded6,634
 40
 11,904
 29
Total originated impaired loans and leases50,863
 401
 43,704
 277
        
Acquired:       
With no related allowance recorded:       
Commercial real estate9,497
 9
 10,021
 1
Commercial507
 5
 1,572
 4
Consumer4,531
 15
 5,107
 15
Total acquired with no related allowance recorded14,535
 29
 16,700
 20
With an allowance recorded:       
Consumer155
 1
 112
 1
  Total acquired with an allowance recorded155
 1
 112
 1
Total acquired impaired loans and leases14,690
 30
 16,812
 21
        
Total impaired loans and leases$65,553
 $431
 $60,516
 $298



33

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 Six Months Ended
 June 30, 2019 June 30, 2018
 Average
Recorded
Investment
 Interest
Income
Recognized
 Average
Recorded
Investment
 Interest
Income
Recognized
 (In Thousands)
Originated:       
With no related allowance recorded:       
Commercial real estate$6,037
 $80
 $7,275
 $49
Commercial36,687
 687
 25,492
 487
Consumer2,688
 16
 2,683
 27
Total originated with no related allowance recorded45,412
 783
 35,450
 563
With an allowance recorded:       
Commercial real estate270
 2
 
 
Commercial7,185
 61
 9,366
 44
Consumer662
 12
 650
 2
Total originated with an allowance recorded8,117
 75
 10,016
 46
Total originated impaired loans and leases53,529
 858
 45,466
 609
        
Acquired:       
With no related allowance recorded:       
Commercial real estate9,325
 12
 10,351
 2
Commercial533
 9
 1,598
 8
Consumer4,737
 30
 4,984
 30
Total acquired with no related allowance recorded14,595
 51
 16,933
 40
With an allowance recorded:       
Consumer154
 2
 113
 2
  Total acquired with an allowance recorded154
 2
 113
 2
Total acquired impaired loans and leases14,749
 53
 17,046
 42
        
Total impaired loans and leases$68,278
 $911
 $62,512
 $651



34

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

The following tables present information regarding impaired and non-impaired loans and leases at the dates indicated:
 At June 30, 2019
 Commercial Real Estate Commercial Consumer Total
 (In Thousands)
Allowance for Loan and Lease Losses:       
Originated:       
Individually evaluated for impairment$8
 $1,747
 $87
 $1,842
Collectively evaluated for impairment27,165
 22,288
 5,483
 54,936
Total originated loans and leases27,173
 24,035
 5,570
 56,778
        
Acquired:       
Individually evaluated for impairment
 
 29
 29
Collectively evaluated for impairment25
 192
 17
 234
Acquired with deteriorated credit quality1,470
 106
 18
 1,594
Total acquired loans and leases1,495
 298
 64
 1,857
        
Total allowance for loan and lease losses$28,668
 $24,333
 $5,634
 $58,635
        
Loans and Leases:       
Originated:       
Individually evaluated for impairment$2,930
 $37,296
 $2,845
 $43,071
Collectively evaluated for impairment3,332,755
 1,766,961
 1,025,122
 6,124,838
Total originated loans and leases3,335,685
 1,804,257
 1,027,967
 6,167,909
        
Acquired:       
Individually evaluated for impairment
 452
 1,809
 2,261
Collectively evaluated for impairment91,263
 19,202
 127,642
 238,107
Acquired with deteriorated credit quality66,606
 2,425
 28,021
 97,052
Total acquired loans and leases157,869
 22,079
 157,472
 337,420
        
Total loans and leases$3,493,554
 $1,826,336
 $1,185,439
 $6,505,329



35

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 At December 31, 2018
 Commercial Real Estate Commercial Consumer Total
 (In Thousands)
Allowance for Loan and Lease Losses:       
Originated:       
Individually evaluated for impairment$5
 $2,961
 $89
 $3,055
Collectively evaluated for impairment26,617
 22,131
 5,075
 53,823
Total originated loans and leases26,622
 25,092
 5,164
 56,878
        
Acquired:       
Individually evaluated for impairment
 
 26
 26
Collectively evaluated for impairment32
 83
 20
 135
Acquired with deteriorated credit quality1,533
 108
 12
 1,653
Total acquired loans and leases1,565
 191
 58
 1,814
        
Total allowance for loan and lease losses$28,187
 $25,283
 $5,222
 $58,692
        
Loans and Leases:       
Originated:       
Individually evaluated for impairment$5,610
 $32,127
 $3,502
 $41,239
Collectively evaluated for impairment3,154,245
 1,709,794
 1,003,831
 5,867,870
Total originated loans and leases3,159,855
 1,741,921
 1,007,333
 5,909,109
        
Acquired:       
Individually evaluated for impairment
 404
 2,072
 2,476
Collectively evaluated for impairment121,119
 24,094
 142,194
 287,407
Acquired with deteriorated credit quality70,762
 2,539
 31,223
 104,524
Total acquired loans and leases191,881
 27,037
 175,489
 394,407
        
Total loans and leases$3,351,736
 $1,768,958
 $1,182,822
 $6,303,516


36

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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 June 30, 2019
At December 31, 2018
 (In Thousands)
Troubled debt restructurings:   
On accrual$27,761
 $12,257
On nonaccrual8,431
 8,684
Total troubled debt restructurings$36,192
 $20,941


Total TDR loans and leases increased by $15.3 million to $36.2 million at June 30, 2019 from $20.9 million at December 31, 2018, driven primarily by new troubled debt restructurings on three commercial relationships.
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 June 30, 2019
   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
 
Number of
Loans/
Leases
 
Recorded
Investment
 (Dollars in Thousands)
Originated:             
Commercial1
 $520
 $520
 $
 $
 
 $
Equipment financing2
 554
 554
 192
 497
 
 
Total originated3
 $1,074
 $1,074
 $192
 $497
 
 $
______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.

37

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 At and for the Three Months Ended June 30, 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
 
Number of
Loans/
Leases
 
Recorded
Investment
 (Dollars in Thousands)
Originated:             
Commercial real estate1
 $673
 $653
 $
 $653
 
 $
Commercial3
 1,139
 1,134
 86
 1,134
 1
 $379
Equipment financing5
 716
 705
 2
 209
 
 
Home equity1
 86
 86
 
 
 
 
Total originated10
 $2,614
 $2,578
 $88
 $1,996
 1
 $379
              
Acquired:             
Home equity1
 125
 125
 
 125
 
 
Total acquired1
 125
 125
 
 125
 
 
              
Total loans and leases11
 $2,739
 $2,703
 $88
 $2,121
 1
 $379
______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.

 At and for the Six Months Ended June 30, 2019
   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:               
Commercial real estate1
 $73
 $71
 $8
 $
 
 
 $
Commercial7
 17,274
 18,907
 
 
 
 
 
Equipment financing5
 1,369
 1,113
 380
 1,056
 
 
 
Total originated13
 $18,716
 $20,091
 $388
 $1,056
 
 
 $
______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.


38

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 At and for the Six Months Ended June 30, 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:               
Commercial real estate1
 $673
 $653
 $
 $653
 
 
 $
Commercial9
 1,774
 1,757
 86
 1,756
 
 
 
Equipment financing11
 2,270
 2,198
 32
 209
 
 
 
Home equity1
 86
 86
 
 
 
 
 
Total originated22
 4,803
 4,694
 118
 2,618
 
 
 
                
Acquired:               
Home equity1
 125
 125
 
 125
 
 
 
Total acquired1
 125
 125
 
 125
 
 
 
                
Total loans and leases23
 $4,928
 $4,819
 $118
 $2,743
 
 
 $
______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.
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 June 30, Six Months Ended June 30,
 2019 2018 2019 2018
 (In Thousands)
Loans with one modification:       
Extended maturity$520
 $1,444
 $6,503
 $1,443
Combination maturity, principal, interest rate554
 1,173
 13,588
 3,290
Total loans with one modification1,074
 2,617
 20,091
 4,733
        
Loans with more than one modification:       
Combination maturity, principal, interest rate
 86
 
 86
Total loans with more than one modification
 86
 
 86
        
Total loans with modifications$1,074
 $2,703
 $20,091
 $4,819

The TDR loans and leases that were modified for the three months ended June 30, 2019 and 2018 were $1.1 million and $2.7 million, respectively.
The TDR loans and leases that were modified for the six months ended June 30, 2019 and 2018 were $20.1 million and $4.8 million, respectively. The increase in TDR loans and leases that were modified for the six months ended June 30, 2019 was primarily due to an increase in modifications on commercial loans.
There were no TDR loans and leases with more than one modification during the three and six months ended June 30, 2019. There was 1 TDR loan and lease with more than one modification during the three and six months ended June 30, 2018.

39

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

The net charge-offs for performing and nonperforming TDR loans and leases for the three and six months ended June 30, 2019 were $0.8 million and $1.7 million, respectively. The net charge-offs for performing and nonperforming TDR loans and leases for the three and six months ended June 30, 2018 were $0.6 million and $0.7 million, respectively.
The commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs as of June 30, 2019 and 2018 were $1.5 million and $0.1 million, respectively.
(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 June 30, 2019 At December 31, 2018
 (In Thousands)
Goodwill$160,427
 $137,890
Additions
 22,537
Balance at end of period160,427
 160,427
Other intangible assets:   
Core deposits4,175
 4,997
Trade name1,089
 1,089
Total other intangible assets5,264
 6,086
Total goodwill and other intangible assets$165,691
 $166,513

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 core deposit intangible is 6.9 years.
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 2019$877
Year ending: 
20201,261
2021850
2022494
2023263
2024153
Thereafter277
Total$4,175

(7) Accumulated Other Comprehensive Income (Loss)
For the three and six months ended June 30, 2019 and 2018, 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.
 

40

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Changes in accumulated other comprehensive income (loss) by component, net of tax, were as follows for the periods indicated:
 Three Months Ended June 30, 2019
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at March 31, 2019$(4,645) $252
 $(4,393)
Other comprehensive income (loss)5,534
 
 5,534
Balance at June 30, 2019$889
 $252
 $1,141
 Three Months Ended June 30, 2018
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at March 31, 2018$(11,829) $163
 $(11,666)
Other comprehensive income (loss)(1,749) 
 (1,749)
Balance at June 30, 2018$(13,578) $163
 $(13,415)

 Six Months Ended June 30, 2019
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at December 31, 2018$(9,712) $252
 $(9,460)
Other comprehensive (loss) income10,601
 
 10,601
Balance at June 30, 2019$889
 $252
 $1,141
 Six Months Ended June 30, 2018
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at December 31, 2017$(6,113) $163
 $(5,950)
Other comprehensive loss before reclassifications(7,518) 
 (7,518)
Less: amounts reclassified from accumulated other comprehensive loss(53) 
 (53)
Balance at June 30, 2018$(13,578) $163
 $(13,415)

The Company did not reclassify any amounts out of accumulated other comprehensive income (loss) for the three months ended June 30, 2019 and June 30, 2018. The Company did not reclassify any amounts out of accumulated other comprehensive income (loss) for the six months ended June 30, 2019 as compared to $53 thousand during the six months ended June 30, 2018.
(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 June 30, 2019 or December 31, 2018.

41

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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
 June 30, 2019
 (Dollars In Thousands)
Loan level derivatives               
Receive fixed, pay variable99
 $
 $25,615
 $8,966
 $34,472
 $792,490
 $861,543
 $54,822
Pay fixed, receive variable99
 
 25,615
 8,966
 34,472
 792,490
 861,543
 54,822
Risk participation-out agreements34
 
 17,046
 
 
 155,952
 172,998
 1,190
Risk participation-in agreements7
 
 
 
 
 56,096
 56,096
 314
                
Foreign exchange contracts               
Buys foreign currency, sells U.S. currency22
 $1,510
 $
 $
 $
 $
 $1,510
 $44
Sells foreign currency, buys U.S. currency26
 1,517
 
 
 
 
 1,517
 38


42

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 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, 2018
 (Dollars In Thousands)
Loan level derivatives               
Receive fixed, pay variable86
 $1,931
 $26,419
 $
 $31,762
 $654,388
 $714,500
 $6,081
Pay fixed, receive variable86
 1,931
 26,419
 
 31,762
 654,388
 714,500
 6,081
Risk participation-out agreements26
 
 14,892
 
 
 85,639
 100,531
 344
Risk participation-in agreements5
 
 
 
 
 35,838
 35,838
 84
                
Foreign exchange contracts               
Buys foreign currency, sells U.S. currency22
 $6,573
 $
 $
 $
 $
 $6,573
 $123
Sells foreign currency, buys U.S. currency37
 6,582
 
 
 
 
 6,582
 131

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 $65.5 million and $5.9 million in the normal course of business as of June 30, 2019 and December 31, 2018, respectively. Dealer counterparties posted no collateral to the Company in the normal course of business as of June 30, 2019 and December 31, 2018.
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 June 30, 2019
 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$55,721
 $
 $55,721
 $
 $
 $55,721
Risk participation-out agreements1,190
 
 1,190
 
 
 1,190
Foreign exchange contracts44
 
 44
 
 
 44
Total$56,955
 $
 $56,955
 $
 $
 $56,955
            
Liability derivatives           
Loan level derivatives$55,721
 $
 $55,721
 $52,706
 $12,810
 $(9,795)
Risk participation-in agreements314
 
 314
 
 
 314
Foreign exchange contracts38
 
 38
 
 
 38
Total$56,073
 $
 $56,073
 $52,706
 $12,810
 $(9,443)

43

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 At December 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$22,013
 $
 $22,013
 $
 $50
 $21,963
Risk participation-out agreements344
 
 344
 
 
 344
Foreign exchange contracts131
 
 131
 
 
 131
Total$22,488
 $
 $22,488
 $
 $50
 $22,438
            
Liability derivatives           
Loan level derivatives$22,013
 $
 $22,013
 $5,877
 $
 $16,136
Risk participation-in agreements84
 
 84
 
 
 84
Foreign exchange contracts123
 
 123
 
 
 123
Total$22,220
 $
 $22,220
 $5,877
 $
 $16,343

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 June 30, 2019, the Company had 2 active recognition and retention plans: 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 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 45 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 usually 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 and six months ended June 30, 2019 and 2018, no shares were issued upon satisfaction of required conditions of the Plans.
Total expense for the Plans was $0.7 million and $0.4 million for the three months ended June 30, 2019 and 2018, respectively. Total expense for the Plans was $1.5 million and $1.0 million for the six months ended June 30, 2019 and 2018, respectively.

44

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

(10) Earnings per Share ("EPS")
The following table is a reconciliation of basic EPS and diluted EPS:
 Three Months Ended
 June 30, 2019 June 30, 2018
 Basic 
Fully
Diluted
 Basic 
Fully
Diluted
 (Dollars in Thousands, Except Per Share Amounts)
Numerator:       
Net income$20,471
 $20,471
 $20,831
 $20,831
        
Denominator:       
Weighted average shares outstanding79,669,922
 79,669,922
 80,184,977
 80,184,977
Effect of dilutive securities
 216,370
 
 320,637
Adjusted weighted average shares outstanding79,669,922
 79,886,292
 80,184,977
 80,505,614
        
EPS$0.26
 $0.26
 $0.26
 $0.26


 Six Months Ended
 June 30, 2019 June 30, 2018
 Basic 
Fully
Diluted
 Basic 
Fully
Diluted
 (Dollars in Thousands, Except Per Share Amounts)
Numerator:       
Net income$42,938
 $42,938
 $39,464
 $39,464
        
Denominator:       
Weighted average shares outstanding79,664,284
 79,664,284
 79,038,041
 79,038,041
Effect of dilutive securities
 195,288
 
 304,422
Adjusted weighted average shares outstanding79,664,284
 79,859,572
 79,038,041
 79,342,463
        
EPS$0.54
 $0.54
 $0.50
 $0.50

(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 and six months ended June 30, 2019 and 2018.

45

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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 June 30, 2019
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets: 
  
  
  
Investment securities available-for-sale:       
GSE debentures$
 $185,828
 $
 $185,828
GSE CMOs
 96,860
 
 96,860
GSE MBSs
 152,796
 
 152,796
SBA commercial loan asset-backed securities
 40
 
 40
Corporate debt obligations
 32,818
 
 32,818
U.S. Treasury bonds
 14,155
 
 14,155
Total investment securities available-for-sale$
 $482,497
 $
 $482,497
Equity securities held-for-trading$3,694
 $1,004
 $
 $4,698
Loan level derivatives
 55,721
 
 55,721
Risk participation-out agreements
 1,190
 
 1,190
Foreign exchange contracts
 44
 
 44
Liabilities:       
Loan level derivatives$
 $55,721
 $
 $55,721
Risk participation-in agreements
 314
 
 314
Foreign exchange contracts
 38
 
 38
 Carrying Value as of December 31, 2018
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets:       
Investment securities available-for-sale:       
GSE debentures$
 $181,079
 $
 $181,079
GSE CMOs
 103,130
 
 103,130
GSE MBSs
 165,089
 
 165,089
SBA commercial loan asset-backed securities
 51
 
 51
Corporate debt obligations
 39,708
 
 39,708
U.S. Treasury bonds
 13,736
 
 13,736
Total investment securities available-for-sale$
 $502,793
 $

$502,793
Equity securities held-for-trading$3,235
 $972
 $
 $4,207
Loan level derivatives
 22,013
 
 22,013
Risk participation-out agreements
 344
 
 344
Foreign exchange contracts
 131
 
 131
Liabilities:      

Loan level derivatives$
 $22,013
 $
 $22,013
Risk participation-in agreements
 84
 
 84
Foreign exchange contracts
 123
 
 123


46

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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. 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 June 30, 2019 and December 31, 2018, 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.
Equity Securities Held-for-Trading
The fair value of equity securities held-for-trading is based principally on market prices and dealer quotes received from third-party and nationally-recognized pricing services. The Company's 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.
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."
There were no transfers between levels for assets and liabilities recorded at fair value on a recurring basis during the three and six months ended June 30, 2019 and 2018, respectively.

47

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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 June 30, 2019
 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$
 $
 $2,318
 $2,318
OREO
 
 957
 957
Repossessed assets
 1,009
 
 1,009
Total assets measured at fair value on a non-recurring basis$
 $1,009
 $3,275
 $4,284
 Carrying Value as of December 31, 2018
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets measured at fair value on a non-recurring basis:       
Collateral-dependent impaired loans and leases$
 $
 $4,203
 $4,203
OREO
 
 3,054
 3,054
Repossessed assets
 965
 
 965
Total assets measured at fair value on a non-recurring basis$
 $965
 $7,257
 $8,222

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).
The table below presents quantitative information about significant unobservable inputs (Level 3) for assets measured at fair value on a non-recurring basis at the dates indicated.
 Fair Value Valuation Technique
 At June 30,
2019
 At December 31, 2018  
 (Dollars in Thousands)  
Collateral-dependent impaired loans and leases$2,318
 $4,203
 
Appraisal of collateral (1)
Other real estate owned957
 3,054
 
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.

48

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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 at June 30, 2019
 Carrying
Value
 Estimated
Fair Value
 Level 1
Inputs
 Level 2
Inputs
 Level 3
Inputs
 (In Thousands)
Financial assets:         
Investment securities held-to-maturity:  

      
GSE debentures$44,592
 $44,657
 $
 $44,657
 $
GSE MBSs10,608
 10,494
 
 10,494
 
Municipal obligations47,872
 48,434
 
 48,434
 
Foreign government obligations500
 500
 
 
 500
Loans held-for-sale1,575
 1,575
 
 1,575
 
Loans and leases, net6,446,694
 6,483,090
 
 
 6,483,090
Restricted equity securities55,270
 55,270
 
 
 55,270
Financial liabilities:         
Deposit liabilities, other than certificates of deposits3,638,040
 3,638,040
   3,638,040
  
Certificates of deposits1,984,453
 1,986,566
 
 1,986,566
 
Borrowed funds930,764
 934,223
 
 934,223
 

     Fair Value Measurements at December 31, 2018
 Carrying
Value
 Estimated
Fair Value
 Level 1
Inputs
 Level 2
Inputs
 Level 3
Inputs
 (In Thousands)
Financial assets:         
Investment securities held-to-maturity:         
GSE debentures$50,546
 $49,601
 $
 $49,601
 $
GSE MBSs11,426
 11,131
 
 11,131
 
Municipal obligations52,304
 51,598
 
 51,598
 
Foreign government obligations500
 500
 
 
 500
Loans held-for-sale3,247
 3,247
 
 3,247
 
Loans and leases, net6,244,824
 6,154,704
 
 
 6,154,704
Restricted equity securities61,751
 61,751
 
 
 61,751
Financial liabilities:         
Certificates of deposit1,789,165
 1,778,860
 
 1,778,860
 
Borrowed funds920,542
 886,545
 
 886,545
 

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

49

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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). Using the exit price valuation method, 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).
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.

50

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Financial instruments with off-balance-sheet risk at the dates indicated follow:
 At June 30, 2019
At December 31, 2018
 (In Thousands)
Financial instruments whose contract amounts represent credit risk: 
 
Commitments to originate loans and leases: 
 
Commercial real estate$155,325

$76,642
Commercial95,938

75,713
Residential mortgage21,418

16,363
Unadvanced portion of loans and leases797,936

707,997
Unused lines of credit: 
 
Home equity512,450

487,476
Other consumer37,334

50,404
Other commercial423

347
Unused letters of credit:

 
Financial standby letters of credit9,671

11,491
Performance standby letters of credit3,428

3,075
Commercial and similar letters of credit4,573

4,573
Loan level derivatives (Notional principal amounts):




Receive fixed, pay variable861,543

714,500
Pay fixed, receive variable861,543

714,500
Risk participation-out agreements172,998

100,531
Risk participation-in agreements56,096
 35,838
Foreign exchange contracts (Notional amounts):




Buys foreign currency, sells U.S. currency1,510

6,573
Sells foreign currency, buys U.S. currency1,517

6,582

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 $57.0 million and $56.1 million, respectively, as of June 30, 2019. The fair value of derivative assets and liabilities was $22.5 million and $22.2 million, respectively, as of December 31, 2018.

51

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

The fair value of foreign exchange assets and liabilities was $44 thousand and $38 thousand, respectively, as of June 30, 2019. The fair value of foreign exchange assets and liabilities was $131 thousand and $123 thousand as of December 31, 2018.
Lease Commitments
The Company leases certain office space under various noncancellable operating leases as well as certain other assets. These leases have original terms ranging from 3 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. All of the Company's current outstanding leases are classified as operating leases.
The Company considered the following criteria when determining whether a contract contains a lease, the existence of an identifiable asset and the right to obtain substantially all of the economic benefits from use of the asset through the period. The Company used the FHLB classic advance rates available as of June 30, 2019 as the discount rate to determined the net present value of the remaining lease payments.
 At June 30, 2019
 (In Thousands)
The components of lease expense were as follow: 
Operating lease cost$3,033
  
Supplemental cash flow information related to leases was as follows: 
Cash paid for amounts included in the measurement of lease liabilities: 
Operating cash flows for operating leases$3,106
Right-of-use assets obtained in exchange for new lease obligations: 
Operating leases$66
  
Supplemental balance sheet information related to leases was as follows: 
Operating Leases 
Operating lease right-of-use assets$25,928
Operating lease liabilities25,928
  
Weighted Average Remaining Lease Term 
Operating leases7.9 years
  
Weighted Average Discount Rate 
Operating leases2.5%


52

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

A summary of future minimum rental payments under such leases at the dates indicated follows:
 Minimum Rental Payments
 June 30, 2019 December 31, 2018
 (In Thousands)
    
Remainder of 2019$3,076
 $4,224
Year ending:   
20205,590
 4,932
20214,828
 4,418
20224,153
 3,602
20233,325
 2,734
20241,951
 1,866
Thereafter5,583
 6,637
Total$28,506
 $28,413
Less imputed interest(2,578)  
Present value of lease liability$25,928
  

Certain leases contain escalation clauses for real estate taxes and other expenditures, which are not included above. The total real estate taxes were $0.9 million and other expenditures were $0.2 million for both the six months ended June 30, 2019 and 2018. Total rental expense was $1.6 million for the three months ended June 30, 2019 and 2018. Total rental expense was $3.0 million for the six months ended June 30, 2019 and 2018.
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 Note.
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

53

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

of January 1, 2018, and there were no material changes to our consolidated financial statements at or for the six months ended June 30, 2019, 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.
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 represents the service charges assessed to customers who hold deposit accounts at the Banks.
(14) Subsequent Events
As previously disclosed on a Form 8-K filing, on July 31, 2019, Brookline Bank converted its charter from a Massachusetts-chartered savings bank to a Massachusetts-chartered trust company.
Brookline Bank will continue to be supervised by the Massachusetts Division of Banks and the Board of Governors of the Federal Reserve System (the “FED”) as well as participate in the Federal Deposit Insurance Corporation (“FDIC”). The Company is a Delaware corporation and continues to be supervised by the FED.
On July 31, 2019, Brookline Bank ended its membership in the Depositors Insurance Fund (the “DIF”), which insures deposit balances held by Massachusetts-chartered savings banks in excess of the federal deposit insurance coverage amounts. Brookline Bank’s growth in deposit size required Brookline Bank to withdraw from the DIF and the concurrent charter conversion of Brookline Bank. Brookline Bank’s deposit accounts will continue to be insured by the deposit insurance fund of the FDIC up to applicable limits. Excess deposits that are insured by the DIF on July 31, 2019 will continue to be insured by the DIF until July 31, 2019. Term deposits in excess of the FDIC insurance coverage will continue to be insured by the DIF until they reach maturity.

54


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, 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 breaches 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, 2018 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 51 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, foreign exchange services, 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 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. These credit decisions, at the local level, are executed through corporate policies overseen by the Company's credit department.

55


The competition for loans and leases and deposits remains intense. While the economy has improved in 2019, 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, changes in interest rates could also 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 or increase the current 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 Massachusetts-chartered trust companies, 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 previously disclosed on a Form 8-K filed with the SEC, on July 31, 2019, Brookline Bank ended its membership in the Depositors Insurance Fund (“DIF”), a private industry-sponsored fund which insures Massachusetts-chartered savings bank deposit balances in excess of federal deposit insurance coverage. Brookline Bank’s growth in deposit size necessitated Brookline Bank’s withdrawal from the DIF and the concurrent charter conversion of Brookline Bank from a Massachusetts-chartered savings bank to a Massachusetts-chartered trust company.
The Company’s common stock is traded on the Nasdaq Global Select MarketSM under the symbol “BRKL.”

56


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 Quarterly Report on Form 10-Q.
 At and for the Three Months Ended
 June 30, March 31, December 31, September 30, June 30,
 2019 2019 2018 2018 2018
 (Dollars in Thousands, Except Per Share Data)
PER COMMON SHARE DATA         
Earnings per share - Basic$0.26
 $0.28
 $0.26
 $0.28
 $0.26
Earnings per share - Diluted0.26
 0.28
 0.26
 0.28
 0.26
Book value per share (end of period)11.53
 11.30
 11.30
 11.08
 10.94
Tangible book value per share (end of period) (1)9.45
 9.22
 9.21
 9.00
 8.85
Dividends paid per common share0.110
 0.105
 0.105
 0.100
 0.100
Stock price (end of period)15.38
 14.40
 13.82
 16.70
 18.60
          
PERFORMANCE RATIOS (2)         
Net interest margin (taxable equivalent basis)3.55% 3.64% 3.58% 3.57% 3.64%
Return on average assets1.08% 1.21% 1.15% 1.23% 1.15%
Return on average tangible assets (1)1.11% 1.24% 1.17% 1.26% 1.17%
Return on average stockholders' equity8.98% 10.14% 9.40% 10.10% 9.53%
Return on average tangible stockholders' equity (1)10.98% 12.48% 11.54% 12.44% 11.80%
Dividend payout ratio (1)42.87% 37.28% 39.98% 35.81% 38.56%
Efficiency ratio (3)56.09% 55.83% 57.86% 53.76% 55.25%
          
ASSET QUALITY RATIOS         
Net loan and lease charge-offs as a percentage of average loans and leases (annualized)0.19% 0.13% 0.08% 0.04% 0.15%
Nonperforming loans and leases as a percentage of total loans and leases0.33% 0.36% 0.38% 0.41% 0.42%
Nonperforming assets as a percentage of total assets0.30% 0.36% 0.38% 0.41% 0.41%
Total allowance for loan and lease losses as a percentage of total loans and leases0.90% 0.91% 0.93% 0.96% 0.94%
Allowance for loan and lease losses related to originated loans and leases as a percentage of originated loans and leases (1)0.92% 0.93% 0.96%
1.00%
0.98%
          
CAPITAL RATIOS         
Stockholders' equity to total assets12.03% 11.98% 12.18% 12.16% 12.04%
Tangible equity ratio (1)10.08% 9.99% 10.15% 10.11% 9.97%
          
FINANCIAL CONDITION DATA         
Total assets$7,636,980
 $7,519,130
 $7,392,805
 $7,320,596
 $7,285,710
Total loans and leases6,505,329
 6,388,197
 6,303,516
 6,227,707
 6,171,274
Allowance for loan and lease losses58,635
 58,041
 58,692
 59,997
 57,981
Investment securities available-for-sale482,497
 489,020
 502,793
 534,788
 558,602
Investment securities held-to-maturity103,572
 113,694
 114,776
 115,684
 116,670
Equity securities held-for-trading4,698
 4,341
 4,207
 4,169
 
Goodwill and identified intangible assets165,691
 166,111
 166,513
 167,050
 167,587
Total deposits5,622,493
 5,620,633
 5,454,044
 5,233,611
 5,198,280
          
         (Continued)

57


 At and for the Three Months Ended
 June 30, March 31, December 31, September 30, June 30,
 2019 2019 2018 2018 2018
 (Dollars in Thousands, Except Per Share Data)
          
Total borrowed funds930,764
 866,005
 920,542
 1,082,886
 1,110,923
Stockholders' equity918,468
 900,572
 900,140
 890,368
 877,283
          
EARNINGS DATA         
Net interest income$63,134
 $62,999
 $63,159
 $62,332
 $62,717
Provision for credit losses3,757
 1,353
 123
 2,717
 1,470
Non-interest income7,478
 6,630
 6,461
 7,069
 5,526
Non-interest expense39,604
 38,871
 40,282
 37,310
 37,702
Net income20,471
 22,467
 21,138
 22,460
 20,831
_______________________________________________________________________________
(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
Growth
Total assets of $7.6 billion as of June 30, 2019 increased $244.2 million, or 6.6% on an annualized basis, from December 31, 2018. The increase was primarily driven by growth in the loan portfolio.
Total loans and leases as of June 30, 2019 increased $201.8 million, or 6.4% on an annualized basis, to $6.5 billion from December 31, 2018. The Company's commercial loan portfolios, which are comprised of commercial real estate loans and commercial loans and leases, totaled $5.3 billion, or 81.8% of total loans and leases, as of June 30, 2019, an increase of $199.2 million, or 7.8% on an annualized basis, from $5.1 billion, or 81.2% of total loans and leases, as of December 31, 2018.
Total deposits of $5.6 billion as of June 30, 2019 increased $168.4 million, or 6.2% on an annualized basis, from December 31, 2018. Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $3.6 billion, or 64.7% of total deposits as of June 30, 2019, a decrease of $26.8 million, or 1.5% on an annualized basis from $3.7 billion, or 67.2% of total deposits, as of December 31, 2018. Certificate of deposit balances totaled $2.0 billion, or 35.3% of total deposits as of June 30, 2019, an increase of $195.3 million, or 21.8% on an annualized basis from $1.8 billion, or 32.7% of total deposits, as of December 31, 2018.
Asset Quality
Nonperforming assets as of June 30, 2019 totaled $23.3 million, or 0.30% of total assets, compared to $28.1 million, or 0.38% of total assets, as of December 31, 2018. Net charge-offs for the three months ended June 30, 2019 were $3.1 million, or 0.19% of average loans and leases on an annualized basis, compared to $2.3 million, or 0.15% of average loans and leases on an annualized basis, for the three months ended June 30, 2018. The $3.1 million in net charge-offs had previously established specific reserves of $1.0 million.
The ratio of the allowance for loan and lease losses to total loans and leases was 0.90% as of June 30, 2019, compared to 0.93% as of December 31, 2018. Excluding acquired loans, 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 0.92% as of June 30, 2019, compared to 0.96% as of December 31, 2018. The Company continued to employ its historical underwriting methodology throughout the three month period ended June 30, 2019. Refer also to Note 5, "Allowance for Loan and Lease Losses."

58


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 11.45% as of June 30, 2019, compared to 11.94% as of December 31, 2018. The Company's Tier 1 Leverage Ratio was 10.31% as of June 30, 2019, compared to 10.58% as of December 31, 2018. As of June 30, 2019, the Company's Tier 1 Risk-Based Capital Ratio was 11.59%, compared to 12.26% as of December 31, 2018. The Company's Total Risk-Based Capital Ratio was 13.64% as of June 30, 2019, compared to 14.42% as of December 31, 2018.
The Company's ratio of stockholders' equity to total assets was 12.03% and 12.18% as of June 30, 2019 and December 31, 2018, respectively. The Company's tangible equity ratio was 10.08% and 10.15% as of June 30, 2019 and December 31, 2018, respectively.
Net Income
For the three months ended June 30, 2019, the Company reported net income of $20.5 million, or $0.26 per basic and diluted share, a decrease of $0.3 million, or 6.9% on an annualized basis, from $20.8 million, or $0.26 per basic and diluted share for the three months ended June 30, 2018. This decrease in net income is primarily the result of an increase in the provision for credit losses of $2.3 million and an increase in non-interest expense of $1.9 million, partially offset by an increase in net interest income of $0.4 million, an increase in non-interest income of $2.0 million, a decrease in the provision for income taxes of $0.6 million, and a decrease in income attributable to noncontrolling interest of $0.9 million. Refer to “Results of Operations" below for further discussion.
For the six months ended June 30, 2019, the Company reported net income of $42.9 million, or $0.54 per basic and diluted share, an increase of $3.4 million, or 8.6%, from $39.5 million, or $0.50 per basic and diluted share for the six months ended June 30, 2018. This increase in net income is primarily the result of an increase in net interest income of $3.9 million, an increase in non-interest income of $2.4 million, and a decrease in net income attributed to controlling interest of $1.7 million, partially offset by an increase in the provision for credit losses of $3.0 million, an increase in non-interest expense of $0.8 million, and an increase in the provision for income taxes of $0.7 million. Refer to “Results of Operations" below for further discussion.
The annualized return on average assets was 1.08% for the three months ended June 30, 2019, compared to 1.15% for the three months ended June 30, 2018. The annualized return on average stockholders' equity was 8.98% for the three months ended June 30, 2019, compared to 9.53% for the three months ended June 30, 2018.
The net interest margin was 3.55% for the three months ended June 30, 2019, down from 3.64% for the three months ended June 30, 2018. The decrease in the net interest margin is a result of an increase of 59 basis points in the Company's overall cost of funds to 1.75% for the three months ended June 30, 2019 from 1.16% for the three months ended June 30, 2018, partially offset by an increase in the yield on interest-earning assets of 36 basis points to 4.88% for the three months ended June 30, 2019 from 4.52% for the three months ended June 30, 2018.
The net interest margin was 3.59% for the six months ended June 30, 2019, down from 3.65% for the six months ended June 30, 2018. The decrease in the net interest margin is a result of an increase of 63 basis points in the Company's overall cost of funds to 1.70% for the six months ended June 30, 2019 from 1.07% for the six months ended June 30, 2018, partially offset by an increase in the yield on interest-earning assets of 42 basis points to 4.86% for the six months ended June 30, 2019 from 4.44% for the six months ended June 30, 2018.
The Company’s net interest margin and net interest income is sensitive to the structure and level of interest rates as well as competitive pricing in all loan categories and the Company’s ability to contain cost of funds.
Critical Accounting Policies
The Securities and Exchange Commission ("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 2018 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.

59


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.
The following table reconciles 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  
June 30,
 At and for the Six Months Ended  
June 30,
 2019 2018 2019 2018
 (Dollars in Thousands)
Net income, as reported$20,471
 $20,831
 $42,938
 $39,464
Less:       
Security gains (after-tax)268
 
 373
 883
Add:       
Merger and acquisition-related expenses (after-tax) (1)

 254
 
 2,462
Operating earnings$20,203
 $21,085
 $42,565
 $41,043
        
Basic earnings per share, as reported$0.26
 $0.26
 $0.54
 $0.50
Less:       
Security gains (after-tax)0.01
 
 0.01
 0.01
Add:       
Merger and acquisition-related expenses (after-tax) (1)

 
 
 0.03
Basic operating earnings per share$0.25
 $0.26
 $0.53
 $0.52
___________________________________________________________________
(1) Merger and acquisition expense related to the acquisition of First Commons Bank in the first quarter of 2018.


60



The following tables reconcile the Company’s return on average tangible assets and return on average tangible stockholders’ equity for the periods indicated:
 Three Months Ended
 June 30,
2019
 March 31,
2019
 December 31, 2018 September 30,
2018
 June 30,
2018
 (Dollars in Thousands)
Operating earnings$20,203
 $22,364
 $22,062
 $22,477
 $21,085
          
Average total assets$7,571,396
 $7,434,038
 $7,382,931
 $7,302,413
 $7,273,793
Less: Average goodwill and average identified intangible assets, net165,914
 166,327
 166,777
 167,313
 168,185
Average tangible assets$7,405,482
 $7,267,711
 $7,216,154
 $7,135,100
 $7,105,608
          
Return on average assets (annualized)1.08% 1.21% 1.15 % 1.23% 1.15%
Less:         
Security gains0.01% 0.01% (0.03)% % %
Add:         
Merger and acquisition-related expenses% % 0.02 % % 0.01%
Operating return on average assets (annualized)1.07% 1.20% 1.20 % 1.23% 1.16%
          
Return on average tangible assets (annualized)1.11% 1.24% 1.17 % 1.26% 1.17%
Less:         
Security gains0.02% 0.01% (0.03)% % %
Add:         
Merger and acquisition-related expenses% % 0.02 % % 0.02%
Operating return on average tangible assets (annualized)1.09% 1.23% 1.22 % 1.26% 1.19%
          
Average total stockholders' equity$911,824
 $886,639
 $899,244
 $889,259
 $874,513
Less: Average goodwill and average identified intangible assets, net165,914
 166,327
 166,777
 167,313
 168,185
Average tangible stockholders' equity$745,910
 $720,312
 $732,467
 $721,946
 $706,328
          
Return on average stockholders' equity (annualized)8.98% 10.14% 9.40 % 10.10% 9.53%
Less:         
Security gains0.12% 0.05% (0.23)% % %
Add:         
Merger and acquisition-related expenses% % 0.18 % 0.01% 0.11%
Operating return on average stockholders' equity (annualized)8.86% 10.09% 9.81 % 10.11% 9.64%
          
          
          
          
         (Continued)

61


 Three Months Ended
 June 30,
2019
 March 31,
2019
 December 31, 2018 September 30,
2018
 June 30,
2018
 (Dollars in Thousands)
Return on average tangible stockholders' equity (annualized)10.98% 12.48% 11.54 % 12.44% 11.80%
Less:         
Security gains0.15% 0.06% (0.29)% % %
Add:         
Merger and acquisition-related expenses% % 0.22 % 0.01% 0.14%
Operating return on average tangible stockholders' equity (annualized)10.83% 12.42% 12.05 % 12.45% 11.94%

 Three Months Ended
 June 30,
2019

March 31,
2019

December 31, 2018
September 30,
2018

June 30,
2018
 (Dollars in Thousands)
Net income, as reported$20,471
 $22,467
 $21,138
 $22,460
 $20,831
          
Average total assets$7,571,396
 $7,434,038
 $7,382,931
 $7,302,413
 $7,273,793
Less: Average goodwill and average identified intangible assets, net165,914

166,327

166,777

167,313

168,185
Average tangible assets$7,405,482
 $7,267,711
 $7,216,154
 $7,135,100
 $7,105,608
          
Return on average tangible assets (annualized)1.11% 1.24% 1.17% 1.26% 1.17%
          
Average total stockholders' equity$911,824
 $886,639
 $899,244
 $889,259
 $874,513
Less: Average goodwill and average identified intangible assets, net165,914
 166,327
 166,777
 167,313
 168,185
Average tangible stockholders' equity$745,910
 $720,312
 $732,467
 $721,946
 $706,328
          
Return on average tangible stockholders' equity (annualized)10.98% 12.48% 11.54% 12.44% 11.80%

The following table reconciles the Company's tangible equity ratio for the periods indicated:
 Three Months Ended
 June 30,
2019
 March 31,
2019
 December 31,
2018
 September 30,
2018
 June 30,
2018
 (Dollars in Thousands)
Total stockholders' equity$918,468
 $900,572
 $900,140
 $890,368
 $877,283
Less: Goodwill and identified intangible assets, net165,691
 166,111
 166,513
 167,050
 167,587
Tangible stockholders' equity$752,777
 $734,461
 $733,627
 $723,318
 $709,696
          
Total assets$7,636,980
 $7,519,130
 $7,392,805
 $7,320,596
 $7,285,710
Less: Goodwill and identified intangible assets, net165,691
 166,111
 166,513
 167,050
 167,587
Tangible assets$7,471,289
 $7,353,019
 $7,226,292
 $7,153,546
 $7,118,123
          
Tangible equity ratio10.08% 9.99% 10.15% 10.11% 9.97%


62


The following table reconciles the Company's tangible book value per share for the periods indicated:
 Three Months Ended
 June 30,
2019
 March 31,
2019
 December 31, 2018 September 30,
2018
 June 30,
2018
 (Dollars in Thousands)
Tangible stockholders' equity$752,777
 $734,461
 $733,627
 $723,318
 $709,696
          
Common shares issued85,177,172
 85,177,172
 85,177,172
 85,177,172
 85,177,172
Less:         
Treasury shares5,025,764
 5,020,025
 5,020,025
 4,291,317
 4,409,501
Unallocated ESOP98,208
 104,079
 109,950
 118,050
 126,144
Unvested restricted stock377,122
 390,636
 393,636
 398,094
 455,283
Common shares outstanding79,676,078
 79,662,432
 79,653,561
 80,369,711
 80,186,244
          
Tangible book value per share$9.45
 $9.22
 $9.21
 $9.00
 $8.85

The following table reconciles the Company's dividend payout ratio for the periods indicated:
 Three Months Ended
 June 30,
2019
 March 31,
2019
 December 31, 2018 September 30,
2018
 June 30,
2018
 (Dollars in Thousands)
Dividends paid$8,775
 $8,375
 $8,451
 $8,043
 $8,032
          
Net income, as reported$20,471
 $22,467
 $21,138
 $22,460
 $20,831
          
Dividend payout ratio42.87% 37.28% 39.98% 35.81% 38.56%

The following table reconciles 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
 June 30,
2019
 March 31,
2019
 December 31, 2018 September 30,
2018
 June 30,
2018
          
Allowance for loan and lease losses$58,635
 $58,041
 $58,692
 $59,997
 $57,981
Less: Allowance for acquired loan and lease losses1,857
 1,795
 1,814
 1,817
 1,961
Allowance for originated loan and lease losses$56,778

$56,246

$56,878

$58,180

$56,020
          
Total loans and leases$6,505,329
 $6,388,197
 $6,303,516
 $6,227,707
 $6,171,274
Less: Total acquired loans and leases337,420
 370,177
 394,407
 426,865
 460,142
Total originated loan and leases$6,167,909

$6,018,020

$5,909,109

$5,800,842

$5,711,132
          
Allowance for loan and lease losses related to originated loans and leases as a percentage of originated loan and leases0.92%
0.93%
0.96%
1.00%
0.98%


63


Financial Condition
Loans and Leases
The following table summarizes the Company's portfolio of loans and leases receivables as of the dates indicated:
 At June 30, 2019 At December 31, 2018
 Balance 
Percent
of Total
 Balance 
Percent
of Total
 (Dollars in Thousands)
Commercial real estate loans:       
Commercial real estate$2,421,104
 37.2% $2,330,725
 37.0%
Multi-family mortgage877,330
 13.5% 847,711
 13.4%
Construction195,120
 3.1% 173,300
 2.7%
Total commercial real estate loans3,493,554
 53.8% 3,351,736
 53.1%
Commercial loans and leases:       
Commercial763,145
 11.7% 736,418
 11.7%
Equipment financing1,015,205
 15.6% 982,089
 15.6%
Condominium association47,986
 0.7% 50,451
 0.8%
Total commercial loans and leases1,826,336
 28.0% 1,768,958
 28.1%
Consumer loans:       
Residential mortgage769,983
 11.8% 782,968
 12.4%
Home equity374,746
 5.8% 376,484
 6.0%
Other consumer40,710
 0.6% 23,370
 0.4%
Total consumer loans1,185,439
 18.2% 1,182,822
 18.8%
Total loans and leases6,505,329
 100.0% 6,303,516
 100.0%
Allowance for loan and lease losses(58,635)   (58,692)  
Net loans and leases$6,446,694
   $6,244,824
  

The following table sets forth the growth in the Company’s loan and lease portfolios during the six months ended June 30, 2019:
 At June 30,
2019
 At December 31,
2018
 Dollar Change 
Percent Change
(Annualized)
 (Dollars in Thousands)
Commercial real estate$3,493,554
 $3,351,736
 $141,818
 8.5%
Commercial1,826,336
 1,768,958
 57,378
 6.5%
Consumer1,185,439
 1,182,822
 2,617
 0.4%
Total loans and leases$6,505,329
 $6,303,516
 $201,813
 6.4%
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.
The Company's current policy is that a total credit exposure to one obligor relationship may not exceed $50.0 million unless approved by the Credit Committee. As of June 30, 2019, there was no borrower with loans and commitments over $50.0

64


million. As of December 31, 2018, there were 2 borrowers with loans and commitments over $50.0 million. The total of those loans and commitments was $106.4 million or 1.41% of total loans and commitments, as of December 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 53.8% of total loans and leases outstanding as of June 30, 2019.
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 Company's commercial real estate portfolio is composed primarily of loans secured by apartment buildings ($827.8 million), office buildings ($718.8 million), retail stores ($598.8 million), industrial properties ($401.8 million), mixed-use properties ($279.9 million), lodging services ($139.4 million) and food services ($59.1 million) as of June 30, 2019. At that date, approximately 97.0% 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 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.

65


Commercial Loans
The Company's 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 June 30, 2019.
The Company's commercial loan and lease portfolio is composed primarily of loans to small to medium sized businesses ($571.5 million), transportation services ($405.9 million), food services ($125.4 million), recreation services ($100.7 million), manufacturing ($79.2 million), retail ($71.9 million), and rental and leasing services ($63.6 million) as of June 30, 2019.
The Company provides commercial banking services to companies in its market area. Approximately 46.8% of the commercial loans outstanding as of June 30, 2019 were made to borrowers located in New England. The remaining 53.2% 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 15.1% 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 3- to 7-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, which is comprised of residential mortgage loans, home equity loans and lines of credit, and other consumer loans, represented 18.2% of total loans outstanding as of June 30, 2019. 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.
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.

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Other consumer loans have historically been a modest part of the Company's loan originations. As of June 30, 2019, other consumer loans equaled $40.7 million, or 0.6% 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 June 30, 2019, the Company had $61.6 million of total assets, including acquired assets, that were designated as criticized. This compares to $58.6 million of assets designated as criticized as of December 31, 2018. The increase of $3.0 million in criticized assets was primarily due to the impairment of three commercial relationships, partially offset by the charge-offs and pay-down of other criticized relationships during the first six months of 2019.
Nonperforming Assets
"Nonperforming assets" consist of nonaccrual 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 June 30, 2019, the Company had nonperforming assets of $23.3 million, representing 0.30% of total assets, compared to nonperforming assets of $28.1 million, or 0.38% of total assets as of December 31, 2018. The decrease in nonperforming assets was primarily driven by the payoff of one commercial loan previously on nonaccrual status, the charge-offs of taxi medallion loans, and the sale of three OREOs during first six months of 2019.
The Company evaluates the underlying collateral of each nonaccrual 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, it is likely that the level of nonperforming assets would increase, as would the level of charged-off loans.            


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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. In addition, loans categorized as ASC 310-30 accrue regardless of past due status. 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 6 consecutive months of performance has been achieved.
As of June 30, 2019, the Company had loans and leases greater than 90 days past due and accruing of $11.6 million, or 0.18% of total loans and leases, compared to $13.5 million, or 0.21% of total loans and leases, as of December 31, 2018, representing a decrease of $1.9 million. The decrease in past due and accruing loans was primarily due to one commercial loan which became current during the first six months of 2019.

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The following table sets forth information regarding nonperforming assets for the periods indicated:
 At June 30, 2019 At December 31, 2018
 (Dollars in Thousands)
Nonperforming loans and leases:   
Nonaccrual loans and leases:   
Commercial real estate$2,273
 $3,928
Multi-family mortgage94
 330
Construction
 396
Total commercial real estate loans2,367
 4,654
    
Commercial6,349
 6,621
Equipment financing9,931
 9,500
Condominium association170
 265
Total commercial loans and leases16,450
 16,386
    
Residential mortgage1,642
 2,132
Home equity835
 908
Other consumer7
 17
Total consumer loans2,484
 3,057
    
Total nonaccrual loans and leases21,301
 24,097
    
Other real estate owned957
 3,054
Other repossessed assets1,009
 965
Total nonperforming assets$23,267
 $28,116
    
Loans and leases past due greater than 90 days and accruing$11,612
 $13,482
Total delinquent loans and leases 61-90 days past due7,250
 3,308
Restructured loans and leases not included in nonperforming assets27,761
 12,257
    
Total nonperforming loans and leases as a percentage of total loans and leases0.33% 0.38%
Total nonperforming assets as a percentage of total assets0.30% 0.38%
Total delinquent loans and leases 61-90 days past due as a percentage of total loans and leases0.11% 0.05%

Troubled Debt Restructured Loans and Leases
Total troubled debt restructured loans increased by $15.3 million to $36.2 million at June 30, 2019 from $20.9 million at December 31, 2018, primarily driven by three commercial relationships which became troubled debt restructured loans during the first six months of 2019 as a part of the relationship strategy and which management believes are either well collateralized, have adequate cash flow, or both, resulting in minimal impact to the allowance for loan and lease losses.
As of June 30, 2019, total restructured loans included $1.5 million of commercial real estate loans, $0.1 million of multi-family mortgage loans, $25.8 million of commercial loans, $6.3 million of equipment financing loans and leases, $1.0 million of residential mortgage loans and $1.5 million of home equity loans. As of December 31, 2018, total restructured loans included $2.0 million of commercial real estate loans, $0.3 million of multi-family mortgage loans, $9.4 million of commercial loans, $5.9 million of equipment financing loans and leases, $1.6 million of residential mortgage loans and $1.7 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.

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The following table sets forth information regarding troubled debt restructured loans and leases at the dates indicated:
 At June 30, 2019 At December 31, 2018
 (Dollars in Thousands)
Troubled debt restructurings: 
  
On accrual$27,761
 $12,257
On nonaccrual8,431
 8,684
Total troubled debt restructurings$36,192
 $20,941

Changes in troubled debt restructured loans and leases were as follows for the periods indicated:
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019
2018
 (Dollars in Thousands)
Balance at beginning of period$36,140
 $22,904
 $20,941
 $26,011
Additions1,074
 2,703
 20,773
 4,819
Net charge-offs(845) (584) (1,723) (688)
Repayments(177) (2,721) (3,799) (7,840)
Balance at end of period$36,192
 $22,302
 $36,192
 $22,302

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 June 30, 2019, the Company had a portfolio of approximately $11.3 million in loans secured by taxi medallions issued by the cities of Boston and Cambridge, Massachusetts. As of December 31, 2018, this portfolio was approximately $13.7 million. For collateral valuation purposes, taxi medallions are currently estimated at $35 thousand for Boston and $10 thousand for Cambridge. The Company has no taxi medallion exposure outside Massachusetts.

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The following tables present the changes in the allowance for loan and lease losses by portfolio category for the three and six months ended June 30, 2019 and 2018.
 At and for the Three Months Ended June 30, 2019
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at March 31, 2019$28,349
 $24,240
 $5,452
 $58,041
Charge-offs
 (3,401) (11) (3,412)
Recoveries
 294
 36
 330
Provision for loan and lease losses319
 3,200
 157
 3,676
Balance at June 30, 2019$28,668
 $24,333
 $5,634
 $58,635
        
Total loans and leases$3,493,554
 $1,826,336
 $1,185,439
 $6,505,329
Total allowance for loan and lease losses as a percentage of total loans and leases0.82% 1.33% 0.48% 0.90%
 At and for the Three Months Ended June 30, 2018
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at March 31, 2018$27,361
 $26,252
 $5,101
 $58,714
Charge-offs(100) (3,456) (49) (3,605)
Recoveries
 1,152
 123
 1,275
Provision (credit) for loan and lease losses(216) 2,172
 (359) 1,597
Balance at June 30, 2018$27,045
 $26,120
 $4,816
 $57,981
        
Total loans and leases$3,264,166
 $1,736,144
 $1,170,964
 $6,171,274
Total allowance for loan and lease losses as a percentage of total loans and leases0.83% 1.50% 0.41% 0.94%
 At and for the Six Months Ended June 30, 2019
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2018$28,187
 $25,283
 $5,222
 $58,692
Charge-offs
 (5,913) (41) (5,954)
Recoveries
 682
 89
 771
Provision for loan and lease losses481
 4,281
 364
 5,126
Balance at June 30, 2019$28,668
 $24,333
 $5,634
 $58,635
        
Total loans and leases$3,493,554
 $1,826,336
 $1,185,439
 $6,505,329
Total allowance for loan and lease losses as a percentage of total loans and leases0.82% 1.33% 0.48% 0.90%

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 At and for the Six Months Ended June 30, 2018
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2017$27,112
 $26,333
 $5,147
 $58,592
Charge-offs(103) (4,189) (105) (4,397)
Recoveries
 1,353
 209
 1,562
Provision (credit) for loan and lease losses36
 2,623
 (435) 2,224
Balance at June 30, 2018$27,045
 $26,120
 $4,816
 $57,981
        
Total loans and leases$3,264,166
 $1,736,144
 $1,170,964
 $6,171,274
Total allowance for loan and lease losses as a percentage of total loans and leases0.83% 1.50% 0.41% 0.94%
The allowance for loan and lease losses was $58.6 million as of June 30, 2019, or 0.90% of total loans and leases outstanding. This compared to an allowance for loan and lease losses of $58.7 million, or 0.93% of total loans and leases outstanding, as of December 31, 2018. The decrease in the allowance for loan and lease losses as a percentage of loans and leases is largely a result of changes in historical loss factors and the decrease in specific reserves due to charge-offs in taxi medallion loans, partially offset by the reserves for loan growth of $201.8 million during the first six months of 2019 or 6.4% on an annualized basis.
Management believes that the allowance for loan and lease losses as of June 30, 2019 is appropriate based on the facts and circumstances discussed further below.
Commercial Real Estate Loans
The allowance for commercial real estate loan losses was $28.7 million, or 0.82% of total commercial real estate loans outstanding, as of June 30, 2019. This compared to an allowance for commercial real estate loan losses of $28.2 million, or 0.84% of total commercial real estate loans outstanding, as of December 31, 2018. There were $8 thousand in specific reserves on commercial real estate loans as of June 30, 2019 as compared to $5 thousand as of December 31, 2018. The $0.5 million increase in the allowance for commercial real estate loans and leases during the first six months of 2019 was primarily driven by originated loan growth of $175.8 million, or 11.1%, from December 31, 2018, partially offset by changes in historical loss factors applied to commercial real estate loans.
The ratio of total criticized and classified commercial real estate loans to total commercial real estate loans decreased to 0.53% as of June 30, 2019 from 0.64% as of December 31, 2018. The ratio of originated commercial real estate loans on nonaccrual to total originated commercial real estate loans decreased to 0.07% as of June 30, 2019 from 0.14% as of December 31, 2018.
There were no charge-offs or recoveries in the commercial real estate loan portfolio for the three months ended June 30, 2019 compared to net charge-offs of $100.0 thousand for the three month ended June 30, 2018. As a percentage of average commercial real estate loan portfolio, annualized net charge-offs for the three months ended June 30, 2018 were 0.01%.
There were no net charge-offs in the commercial real estate loan portfolio for the six months ended June 30, 2019 compared to net charge-offs of $103 thousand for the six months ended June 30, 2018. As a percentage of average commercial real estate loan portfolio, annualized net charge-offs for the six months ended June 30, 2018 were 0.01%.
Commercial Loans and Leases
The allowance for commercial loan and lease losses was $24.3 million, or 1.33% of total commercial loans and leases outstanding, as of June 30, 2019, compared to $25.3 million, or 1.43% of total commercial loans and leases outstanding, as of December 31, 2018. Specific reserves on commercial loans and leases decreased from $3.0 million as of December 31, 2018 to $1.7 million as of June 30, 2019, primarily driven by the charge-offs in taxi medallion loans against previously established specific reserves. The $1.3 million decrease in the allowance for commercial loans and leases during the first six months of 2019 was primarily driven by changes in historical loss factors and the decrease in specific reserves, partially offset by originated loan growth of $62.3 million, or 7.2%, from December 31, 2018.
The ratio of total criticized and classified commercial loans and leases to total commercial loans and leases was 2.37% as of June 30, 2019, compared to 2.10% as of December 31, 2018. The ratio of originated commercial loans and leases on

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nonaccrual to total originated commercial loans and leases decreased to 0.90% as of June 30, 2019 from 0.93% as of December 31, 2018.
Net charge-offs in the commercial loan and lease portfolio for the three months ended June 30, 2019 and June 30, 2018 were $3.1 million and $2.3 million, respectively. The increase in net charge-offs in commercial loan and lease portfolio was driven by charge-offs on taxi medallion loans and a commercial relationship. As a percentage of average commercial loans and leases, annualized net charge-offs for the three months ended June 30, 2019 and June 30, 2018 were 0.68% and 0.53%, respectively.
Net charge-offs in the commercial loan and lease portfolio for the six months ended June 30, 2019 and June 30, 2018 were $5.2 million and $2.8 million, respectively. The increase in net charge-offs in commercial loan and lease portfolio was driven by charge-offs on taxi medallion loans and a commercial relationship. As a percentage of average commercial loans and leases, annualized net charge-offs for the six months ended June 30, 2019 and June 30, 2018 were 0.29% and 0.17%, respectively.
Consumer Loans
The allowance for consumer loan losses, including residential loans and home equity loans and lines of credit, was $5.6 million, or 0.48% of total consumer loans outstanding, as of June 30, 2019, compared to $5.2 million, or 0.44% of consumer loans outstanding, as of December 31, 2018. Specific reserves on consumer loans were $116 thousand and $115 thousand as of June 30, 2019 and December 31, 2018, respectively. The $0.5 million increase in the allowance for consumer loans and leases during the first six months of 2019 was primarily driven by originated loan growth of $20.6 million, or 4.1%, from December 31, 2018.
The ratio of originated consumer loans on nonaccrual to total originated consumer loans decreased to 0.18% as of June 30, 2019 from 0.20% as of December 31, 2018. 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 are 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 June 30, 2019. 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 $25 thousand for the three months ended June 30, 2019 compared to net recoveries of $74 thousand for the three months ended June 30, 2018. Provisions (credit) for consumer loans recorded in these periods more than adequately covered charge-offs during those periods.
Net recoveries in the consumer loan portfolio totaled $48 thousand for the six months ended June 30, 2019 compared to net recoveries of $104 thousand for the six months ended June 30, 2018. Provisions (credit) for consumer loans recorded in these periods more than adequately covered charge-offs during those periods.

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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 June 30, 2019 At December 31, 2018
 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$20,877
 35.7% 37.2% $20,779
 35.4% 37.0%
Multi-family mortgage6,009
 10.2% 13.5% 5,915
 10.1% 13.4%
Construction1,782
 3.0% 3.1% 1,494
 2.5% 2.7%
Total commercial real estate loans28,668
 48.9% 53.8% 28,188
 48.0% 53.1%
Commercial13,102
 22.3% 11.7% 14,047
 23.9% 11.7%
Equipment financing10,909
 18.7% 15.6% 10,888
 18.6% 15.6%
Condominium association322
 0.5% 0.7% 347
 0.6% 0.8%
Total commercial loans and leases24,333
 41.5% 28.0% 25,282
 43.1% 28.1%
Residential mortgage3,431
 5.9% 11.8% 3,076
 5.2% 12.4%
Home equity2,062
 3.5% 5.8% 2,047
 3.5% 6.0%
Other consumer141
 0.2% 0.6% 99
 0.2% 0.4%
Total consumer loans5,634
 9.6% 18.2% 5,222
 8.9% 18.8%
Total$58,635
 100.0% 100.0% $58,692
 100.0% 100.0%
Investment Securities
The investment portfolio exists primarily for liquidity purposes, and secondarily as a source 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 decreased $27.8 million, or 7.8% on an annualized basis, to $683.6 million as of June 30, 2019 from $711.4 million as of December 31, 2018. The decrease was primarily driven by decreases in cash and the investment portfolio. Cash, cash equivalents, and investment securities were 9.0% of total assets as of June 30, 2019, compared to 9.6% of total assets at December 31, 2018.

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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 June 30, 2019 At December 31, 2018
 
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$183,562
 $185,828
 $184,072
 $181,079
GSE CMOs98,078
 96,860
 107,363
 103,130
GSE MBSs153,292
 152,796
 169,334
 165,089
SBA commercial loan asset- backed securities40
 40
 51
 51
Corporate debt obligations32,552
 32,818
 40,618
 39,708
U.S. Treasury bonds13,832
 14,155
 13,812
 13,736
Total investment securities available-for-sale$481,356
 $482,497
 $515,250
 $502,793
Investment securities held-to-maturity:       
GSE debentures$44,592
 $44,657
 $50,546
 $49,601
GSE MBSs10,608
 10,494
 11,426
 11,131
Municipal obligations47,872
 48,434
 52,304
 51,598
Foreign government obligations500
 500
 500
 500
Total investment securities held-to-maturity$103,572
 $104,085
 $114,776
 $112,830
Equity securities held-for-trading  $4,698
   $4,207

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 of the fair value hierarchy in accordance with ASC 820. 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, all of which are included in Level 2 and equity securities held-for-trading, which are included in Level 1. 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 $33.2 million for the six months ended June 30, 2019 compared to $43.6 million for the same period in 2018. For the six months ended June 30, 2019, the Company did not sell any investment securities, compared to $1.5 million in sales for the same period in 2018. For the six months ended June 30, 2019, the Company did not purchase any investment securities available-for-sale, compared to $73.9 million in purchases of investment securities available-for-sale for the same period in 2018.

Maturities, calls and principal repayments for investment securities held-to-maturity totaled $11.5 million for the six months ended June 30, 2019 compared to $1.8 million for the same period in 2018. There were no sales of investment securities held-to-maturity for the six months ended June 30, 2019 and 2018. For the six months ended June 30, 2019, the Company purchased $0.5 million of investment securities held-to-maturity, compared to $8.9 million in purchases of investment securities held-to-maturity for the same period in 2018.
As of June 30, 2019, the fair value of all investment securities available-for-sale was $482.5 million and carried a total of $1.1 million of net unrealized gains, compared to a fair value of $502.8 million and net unrealized losses of $12.5 million as of

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December 31, 2018. As of June 30, 2019, $231.4 million, or 48.0%, of the portfolio, had gross unrealized losses of $2.4 million. This compares to $466.7 million, or 92.8%, of the portfolio with gross unrealized losses of $12.8 million as of December 31, 2018. The Company's unrealized loss position has decreased in 2019 driven by lower long-term interest rates.
As of June 30, 2019, the fair value of all investment securities held-to-maturity was $104.1 million and carried a total of $0.5 million of net unrealized gains, compared to a fair value of $112.8 million and net unrealized losses of $1.9 million as of December 31, 2018. As of June 30, 2019, $27.9 million, or 26.8%, of the portfolio, had gross unrealized losses of $0.2 million. This compares to $102.1 million, or 90.5%, of the portfolio with gross unrealized losses of $2.0 million as of December 31, 2018. The Company's unrealized loss position decreased in 2019 driven by lower 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 June 30, 2019. 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 June 30, 2019, the excess balance of capital stock was $0.8 million, as compared to $5.0 million excess balance as of December 31, 2018.
As of June 30, 2019, the Company owned stock in the FHLBB with a carrying value of $37.1 million, a decrease of $6.6 million from $43.7 million as of December 31, 2018. As of June 30, 2019, the FHLBB had total assets of $55.8 billion and total capital of $3.2 billion, of which $1.4 billion was retained earnings. The FHLBB stated that it remained in compliance with all regulatory capital ratios as of June 30, 2019 and was classified as "adequately capitalized" by its regulator, based on the FHLBB's financial information as of December 31, 2018.
Federal Reserve Bank Stock—The Company invests in the stock of the Federal Reserve Bank of Boston, as a condition to the Banks' membership in the Federal Reserve System. As of June 30, 2019, the Company owned stock in the Federal Reserve Bank of Boston with a carrying value of $18.1 million, compared to a carrying value of $18.0 million as of December 31, 2018.
Other Stock—The Company invests in a small number of other restricted equity securities which includes Infinex and American Financial Exchange.
Deposits

The following table presents the Company's deposit mix at the dates indicated.
 At June 30, 2019 At December 31, 2018
 Amount 
Percent
of Total
 
Weighted
Average
Rate
 Amount 
Percent
of Total
 
Weighted
Average
Rate
 (Dollars in Thousands)
Non-interest-bearing deposits:           
Demand checking accounts$1,042,854
 18.5% % $1,033,551
 19.0% %
Interest-bearing deposits:           
NOW accounts340,082
 6.1% 0.14% 336,317
 6.2% 0.10%
Savings accounts585,322
 10.4% 0.54% 619,961
 11.4% 0.32%
Money market accounts1,669,782
 29.7% 1.34% 1,675,050
 30.7% 1.18%
Certificate of deposit accounts1,984,453
 35.3% 2.36% 1,789,165
 32.7% 1.58%
Total interest-bearing deposits4,579,639
 81.5% 1.59% 4,420,493
 81.0% 1.14%
Total deposits$5,622,493
 100.0% 1.30% $5,454,044
 100.0% 0.92%


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Total deposits increased $168.4 million to $5.6 billion as of June 30, 2019, compared to $5.5 billion as of December 31, 2018. Deposits as a percentage of total assets decreased to 73.6% as of June 30, 2019, compared to 73.8% as of December 31, 2018.

As of June 30, 2019, the Company had $349.0 million of brokered deposits compared to $350.7 million as of December 31, 2018. 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 $195.3 million during the six months ended June 30, 2019. Certificates of deposit have also increased as a percentage of total deposits to 35.3% as of June 30, 2019 from 32.7% as of December 31, 2018.

During the six months ended June 30, 2019, core deposits decreased $26.8 million. The ratio of core deposits to total deposits decreased from 67.2% as of December 31, 2018 to 64.7% as of June 30, 2019, primarily due to the shift in deposit mix and increase in certificate of deposit accounts.

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 June 30,
 2019 2018
 
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$1,015,524
 18.1% % $1,003,985
 19.5% %
NOW accounts343,745
 6.1% 0.06% 346,410
 6.7% 0.07%
Savings accounts602,333
 10.8% 0.49% 609,758
 11.9% 0.27%
Money market accounts1,683,735
 30.1% 1.33% 1,767,509
 34.3% 0.80%
Total core deposits3,645,337
 65.1% 0.70% 3,727,662
 72.4% 0.43%
Certificate of deposit accounts1,950,704
 34.9% 2.33% 1,422,782
 27.6% 1.47%
Total deposits$5,596,041
 100.0% 1.27% $5,150,444
 100.0% 0.72%
 Six Months Ended June 30,
 2019 2018
 
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$1,021,215
 18.4% % $968,035
 19.2% %
NOW accounts338,983
 6.1% 0.11% 341,228
 6.8% 0.07%
Savings accounts614,307
 11.1% 0.44% 629,382
 12.4% 0.26%
Money market accounts1,679,988
 30.3% 1.30% 1,769,923
 35.1% 0.69%
Total core deposits3,654,493
 65.8% 0.68% 3,708,568
 73.5% 0.38%
Certificate of deposit accounts1,897,901
 34.2% 2.26% 1,335,401
 26.5% 1.40%
Total deposits$5,552,394
 100.0% 1.22% $5,043,969
 100.0% 0.65%


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As of June 30, 2019 and December 31, 2018, the Company had outstanding certificates of deposit of $100,000 or more, maturing as follows:
 At June 30, 2019 At December 31, 2018
 Amount 
Weighted
Average Rate
 Amount 
Weighted
Average Rate
 (Dollars in Thousands)
Maturity period:       
Six months or less$307,904
 2.14% $261,170
 1.63%
Over six months through 12 months295,761
 2.42% 270,897
 1.97%
Over 12 months495,249
 2.63% 418,167
 2.38%
Total certificate of deposit of $100,000 or more$1,098,914
 2.44% $950,234
 2.06%
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 
 June 30,
 Six Months Ended 
 June 30,
 2019 2018 2019 2018
 (Dollars in Thousands)
Borrowed funds:       
Average balance outstanding$929,741
 $1,148,095
 $928,673
 $1,112,115
Maximum amount outstanding at any month-end during the period981,860
 1,209,310
 987,835
 1,209,310
Balance outstanding at end of period930,764
 1,110,923
 930,764
 1,110,923
Weighted average interest rate for the period2.70% 2.11% 2.67% 2.00%
Weighted average interest rate at end of period2.74% 2.16% 2.74% 2.16%
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 $7.2 million to $791.6 million as of June 30, 2019 from the December 31, 2018 balance of $784.4 million. The increase in FHLBB borrowings was primarily due to an increase in loan balances.
Subordinated Debentures and Notes
As part of the acquisition of BankRI, 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.

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        Carrying Amount
Issue Date Rate Maturity Date Next Call Date June 30,
2019
 December 31, 2018
  (Dollars in Thousands)
June 26, 2003 
Variable;
3-month LIBOR + 3.10%
 June 26, 2033 September 25, 2019 $4,814
 $4,803
March 17, 2004 
Variable;
3-month LIBOR + 2.79%
 March 17, 2034 September 16, 2019 4,722
 4,704
September 15, 2014 
6.0% Fixed-to-Variable;
3-month LIBOR + 3.315%
 September 15, 2029 September 15, 2024 73,976
 73,926
      Total $83,512
 $83,433
The above carrying amounts of the subordinated debentures included $0.5 million of accretion adjustments and $1.0 million of capitalized debt issuance costs as of June 30, 2019. This compares to $0.5 million of accretion adjustments and $1.1 million of capitalized debt issuance costs as of December 31, 2018.
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 increased $3.0 million to $55.7 million as of June 30, 2019 from $52.7 million as of December 31, 2018.
The Company has access to a $12.0 million committed line of credit as of June 30, 2019. As of June 30, 2019 and December 31, 2018, 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 $475.0 million. As of June 30, 2019 and December 31, 2018, the Company did not have any borrowings on these uncommitted lines of credit.

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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 June 30, 2019 or December 31, 2018.
The following table summarizes certain information concerning the Company's loan level derivatives, risk participation agreements, and foreign exchange contracts at June 30, 2019 and December 31, 2018:
 At June 30, 2019At December 31, 2018
 (Dollars in Thousands)
Loan level derivatives (Notional principal amounts):  
Receive fixed, pay variable$861,543
$719,625
Pay fixed, receive variable861,543
719,625
Risk participation-out agreements172,998
100,531
Risk participation-in agreements56,096
35,838
Foreign exchange contracts (Notional amounts):  
Buys foreign currency, sells U.S. currency$1,510
$6,573
Sells foreign currency, buys U.S. currency1,517
6,582
Fixed weighted average interest rate from the Company to counterparty3.96%4.25%
Floating weighted average interest rate from counterparty to the Company4.26%4.00%
Weighted average remaining term to maturity (in months)93
90
Fair value:  
Recognized as an asset:  
Loan level derivatives$55,721
$22,013
Risk participation-out agreements1,190
344
Foreign exchange contracts44
131
Recognized as a liability:  
Loan level derivatives$55,721
$22,013
Risk participation-in agreements314
84
Foreign exchange contracts38
123
Stockholders' Equity and Dividends
The Company's total stockholders' equity was $918.5 million as of June 30, 2019, representing a $18.4 million increase compared to $900.1 million at December 31, 2018. The increase primarily reflects net income attributable to the Company of $42.9 million for the six months ended June 30, 2019 and unrealized gain on securities available-for-sale of $10.6 million, offset by $18.7 million related to the acquisition of the noncontrolling interest in Eastern Funding, LLC and dividends paid by the Company of $17.2 million in that same period.
Stockholders' equity represented 12.03% of total assets as of June 30, 2019 and 12.18% of total assets as of December 31, 2018. Tangible stockholders' equity (total stockholders' equity less goodwill and identified intangible assets, net) represented 10.08% of tangible assets (total assets less goodwill and identified intangible assets, net) as of June 30, 2019 and 10.15% as of December 31, 2018.
The dividend payout ratio was 42.87% for the three months ended June 30, 2019, compared to 38.56% for the same period in 2018 and 39.94% for the six months ended June 30, 2019, compared to 37.87% for the same period of 2018.
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, 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

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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 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 $0.4 million to $63.1 million for the three months ended June 30, 2019 from $62.7 million for the three months ended June 30, 2018. This increase reflects a $9.5 million increase in interest income on loans and leases partially offset by a $0.4 million decrease in interest income on investment securities, and an $8.7 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 June 30, 2019 and June 30, 2018 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended June 30, 2019 and June 30, 2018 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest income increased $3.9 million to $126.1 million for the six months ended June 30, 2019 from $122.2 million for the six months ended June 30, 2018. This overall increase reflects a $22.9 million increase in interest income on loans and leases, partially offset by a $0.3 million decrease in interest income on investment securities, and a $18.6 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 Six-Month Period Ended June 30, 2019 and June 30, 2018 — Interest Income” and “Results of Operations - Comparison of the Six-Month Period Ended June 30, 2019 and June 30, 2018 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest margin decreased by 9 basis points to 3.55% for the three months ended June 30, 2019 from 3.64% for the three months ended June 30, 2018. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) increased to 5.14% for the three months ended June 30, 2019 from 4.78% for the three months ended June 30, 2018. Interest amortization and accretion on acquired loans totaled $0.1 million and contributed 1 basis point to loan yields during the three months ended June 30, 2019 compared to $0.2 million, or 1 basis point, for the three months ended June 30, 2018. The decrease in net interest margin over the period is a result of most asset categories being fully repriced into the current rate environment, while deposit costs continue to rise due to market competition and shifting demand for non maturity versus time deposits.
Net interest margin decreased by 6 basis points to 3.59% for the six months ended June 30, 2019 from 3.65% for the six months ended June 30, 2018. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) increased to 5.11% for the six months ended June 30, 2019 from 4.69% for the six months ended June 30, 2018. Interest amortization and accretion on acquired loans totaled $0.2 million and contributed 1 basis point to loan yields during the six months ended June 30, 2019 compared to $0.2 million, or 1 basis point, for the six months ended June 30, 2018. The decrease in net interest margin over the period is a result of most asset categories being fully repriced into the current rate environment, while deposit costs continue to rise due to market competition and shifting demand for non maturity versus time deposits.
The yield on interest-earning assets increased to 4.88% for the three months ended June 30, 2019 from 4.52% for the three months ended June 30, 2018. This increase is the result of higher yields on loans and leases and investments. During the three months ended June 30, 2019, the Company recorded $0.9 million in prepayment penalties and late charges, which

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contributed 5 basis points to yields on interest-earning assets in the three months ended June 30, 2019, compared to $0.9 million, or 5 basis points, for the three months ended June 30, 2018.
The yield on interest-earning assets increased to 4.86% for the six months ended June 30, 2019 from 4.44% for the six months ended June 30, 2018. This increase is the result of higher yields on loans and leases and investments. During the six months ended June 30, 2019, the Company recorded $2.1 million in prepayment penalties and late charges, which contributed 6 basis points to yields on interest-earning assets in the six months ended June 30, 2019, compared to $1.6 million, or 5 basis points, for the six months ended June 30, 2018.
The overall cost of funds (including non-interest-bearing demand checking accounts) increased 59 basis points to 1.75% for the three months ended June 30, 2019 from 1.16% for the three months ended June 30, 2018. The overall cost of funds (including non-interest-bearing demand checking accounts) increased 63 basis points to 1.70% for the six months ended June 30, 2019 from 1.07% for the six months ended June 30, 2018. 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 and six months ended June 30, 2019 and June 30, 2018. 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.

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 Three Months Ended
 June 30, 2019 June 30, 2018
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 (Dollars in Thousands)
Assets:           
Interest-earning assets:           
Debt securities$593,404
 $3,210
 2.16% $666,182
 $3,617
 2.17%
Marketable and restricted equity securities59,224
 888
 5.99% 69,395
 1,004
 5.78%
Short-term investments44,634
 351
 3.14% 41,155
 179
 1.74%
Total investments697,262
 4,449
 2.55% 776,732
 4,800
 2.47%
Commercial real estate loans (2)
3,447,136
 41,363
 4.75% 3,250,488
 36,372
 4.43%
Commercial loans (2)
811,890
 9,879
 4.82% 823,860
 9,323
 4.48%
Equipment financing (2)
1,005,376
 18,291
 7.28% 907,089
 15,739
 6.94%
Residential mortgage loans (2)
774,533
 8,186
 4.23% 759,866
 7,552
 3.98%
Other consumer loans (2)
417,600
 5,187
 4.97% 406,144
 4,464
 4.40%
Total loans and leases6,456,535
 82,906
 5.14% 6,147,447
 73,450
 4.78%
Total interest-earning assets7,153,797
 87,355
 4.88% 6,924,179
 78,250
 4.52%
Allowance for loan and lease losses(58,137)     (59,247)    
Non-interest-earning assets475,736
     408,861
    
Total assets$7,571,396
     $7,273,793
    
Liabilities and Stockholders' Equity:           
Interest-bearing liabilities:           
Interest-bearing deposits:           
NOW accounts$343,745
 50
 0.06% $346,410
 65
 0.07%
Savings accounts602,333
 737
 0.49% 609,758
 405
 0.27%
Money market accounts1,683,735
 5,571
 1.33% 1,767,509
 3,530
 0.80%
Certificate of deposit1,950,704
 11,354
 2.33% 1,422,782
 5,219
 1.47%
Total interest-bearing deposits (3)
4,580,517
 17,712
 1.55% 4,146,459
 9,219
 0.89%
Advances from the FHLBB761,651
 4,825
 2.51% 1,018,130
 4,696
 1.82%
Subordinated debentures and notes83,490
 1,305
 6.25% 83,330
 1,296
 6.22%
Other borrowed funds84,600
 208
 0.99% 46,635
 146
 1.26%
Total borrowed funds929,741
 6,338
 2.70% 1,148,095
 6,138
 2.11%
Total interest-bearing liabilities5,510,258
 24,050
 1.75% 5,294,554
 15,357
 1.16%
Non-interest-bearing liabilities:           
Non-interest-bearing demand checking accounts (3)
1,015,524
  
  
 1,003,985
  
  
Other non-interest-bearing liabilities133,790
  
  
 91,889
  
  
Total liabilities6,659,572
  
  
 6,390,428
  
  
Brookline Bancorp, Inc. stockholders' equity911,824
  
  
 874,513
  
  
Noncontrolling interest in subsidiary
  
  
 8,852
  
  
Total liabilities and stockholders' equity$7,571,396
  
  
 $7,273,793
  
  
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
 
 63,305
 3.13%  
 62,893
 3.36%
Less adjustment of tax-exempt income 
 171
  
  
 176
  
Net interest income 
 $63,134
  
  
 $62,717
  
Net interest margin (5)
 
  
 3.55%  
  
 3.64%
_________________________________________________________________________
(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 1.27% and 0.72% in the three months ended June 30, 2019 and June 30, 2018, 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.

84


 Six Months Ended
 June 30, 2019 June 30, 2018
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 (Dollars in Thousands)
Assets:           
Interest-earning assets:           
Debt securities$600,758
 $6,499
 2.16% $656,893
 $6,994
 2.13%
Marketable and restricted equity securities59,803
 1,808
 6.05% 66,774
 1,927
 5.77%
Short-term investments38,866
 618
 3.18% 35,938
 299
 1.67%
Total investments699,427
 8,925
 2.55% 759,605
 9,220
 2.43%
Commercial real estate loans (2)
3,412,051
 81,382
 4.74% 3,183,959
 69,801
 4.36%
Commercial loans (2)
802,346
 19,482
 4.83% 805,002
 17,747
 4.39%
Equipment financing (2)
996,832
 36,276
 7.28% 891,284
 30,603
 6.87%
Residential mortgage loans (2)
776,419
 16,309
 4.20% 732,418
 14,285
 3.90%
Other consumer loans (2)
412,914
 10,238
 4.99% 394,235
 8,405
 4.29%
Total loans and leases6,400,562
 163,687
 5.11% 6,006,898
 140,841
 4.69%
Total interest-earning assets7,099,989
 172,612
 4.86% 6,766,503
 150,061
 4.44%
Allowance for loan and lease losses(58,441)     (59,117)    
Non-interest-earning assets461,548
     394,124
    
Total assets$7,503,096
     $7,101,510
    
Liabilities and Stockholders' Equity:           
Interest-bearing liabilities:           
Interest-bearing deposits:           
NOW accounts$338,983
 192
 0.11% $341,228
 123
 0.07%
Savings accounts614,307
 1,334
 0.44% 629,382
 806
 0.26%
Money market accounts1,679,988
 10,846
 1.30% 1,769,923
 6,088
 0.69%
Certificate of deposit1,897,901
 21,288
 2.26% 1,335,401
 9,301
 1.40%
Total interest-bearing deposits (3)
4,531,179
 33,660
 1.50% 4,075,934
 16,318
 0.81%
Advances from the FHLBB758,613
 9,435
 2.47% 987,385
 8,444
 1.70%
Subordinated debentures and notes83,471
 2,613
 6.26% 83,310
 2,578
 6.19%
Other borrowed funds86,589
 429
 1.00% 41,420
 165
 0.80%
Total borrowed funds928,673
 12,477
 2.67% 1,112,115
 11,187
 2.00%
Total interest-bearing liabilities5,459,852
 46,137
 1.70% 5,188,049
 27,505
 1.07%
Non-interest-bearing liabilities:           
Non-interest-bearing demand checking accounts (3)
1,021,215
  
  
 968,035
  
  
Other non-interest-bearing liabilities122,544
  
  
 84,570
  
  
Total liabilities6,603,611
  
  
 6,240,654
  
  
Brookline Bancorp, Inc. stockholders' equity899,301
  
  
 852,180
  
  
Noncontrolling interest in subsidiary184
  
  
 8,676
  
  
Total liabilities and stockholders' equity$7,503,096
  
  
 $7,101,510
  
  
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
 
 126,475
 3.16%  
 122,556
 3.37%
Less adjustment of tax-exempt income 
 342
  
  
 348
  
Net interest income 
 $126,133
  
  
 $122,208
  
Net interest margin (5)
 
  
 3.59%  
  
 3.65%
_________________________________________________________________________
(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 1.22% and 0.65% in the six months ended June 30, 2019 and June 30, 2018, 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.

85


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 June 30, 2019 as Compared to the Three Months Ended June 30, 2018 Six Months Ended June 30, 2019 as Compared to the Six Months Ended June 30, 2018
 
Increase
(Decrease) Due To
   
Increase
(Decrease) Due To
  
 Volume Rate Net Change Volume Rate Net Change
 (In Thousands)
Interest and dividend income:           
Investments:           
Debt securities$(391) $(16) $(407) $(593) $98
 $(495)
Marketable and restricted equity securities(151) 35
 (116) (208) 89
 (119)
Short-term investments16
 156
 172
 26
 293
 319
Total investments(526) 175
 (351) (775) 480
 (295)
Loans and leases:           
Commercial real estate loans2,275
 2,716
 4,991
 5,225
 6,356
 11,581
Commercial loans and leases(135) 691
 556
 (57) 1,792
 1,735
Equipment financing1,757
 795
 2,552
 3,772
 1,901
 5,673
Residential mortgage loans149
 485
 634
 888
 1,136
 2,024
Other consumer loans129
 594
 723
 412
 1,421
 1,833
Total loans4,175
 5,281
 9,456
 10,240
 12,606
 22,846
Total change in interest and dividend income3,649
 5,456
 9,105
 9,465
 13,086
 22,551
Interest expense:           
Deposits:           
NOW accounts(1) (14) (15) (1) 70
 69
Savings accounts(5) 337
 332
 (20) 548
 528
Money market accounts(176) 2,217
 2,041
 (323) 5,081
 4,758
Certificate of deposit2,381
 3,754
 6,135
 4,876
 7,111
 11,987
Total deposits2,199
 6,294
 8,493
 4,532
 12,810
 17,342
Borrowed funds:           
Advances from the FHLBB(1,347) 1,476
 129
 (2,216) 3,207
 991
Subordinated debentures and notes3
 6
 9
 5
 30
 35
Other borrowed funds99
 (37) 62
 215
 49
 264
Total borrowed funds(1,245) 1,445
 200
 (1,996) 3,286
 1,290
Total change in interest expense954
 7,739
 8,693
 2,536
 16,096
 18,632
Change in tax-exempt income(5) 
 (5) (6) 
 (6)
Change in net interest income$2,700
 $(2,283) $417
 $6,935
 $(3,010) $3,925


86


Interest Income

Loans and Leases
 Three Months Ended June 30, 
Dollar
Change
 
Percent
Change
 Six Months Ended 
 June 30,
 
Dollar
Change
 
Percent
Change
 2019
2018   2019 2018  
 (Dollars in Thousands)
Interest income—loans and leases:               
Commercial real estate loans$41,363
 $36,372
 $4,991
 13.7% $81,382
 $69,801
 $11,581
 16.6%
Commercial loans9,773
 9,202
 571
 6.2% 19,267
 17,506
 1,761
 10.1%
Equipment financing18,291
 15,738
 2,553
 16.2% 36,275
 30,603
 5,672
 18.5%
Residential mortgage loans8,185
 7,552
 633
 8.4% 16,309
 14,285
 2,024
 14.2%
Other consumer loans5,186
 4,465
 721
 16.1% 10,237
 8,406
 1,831
 21.8%
Total interest income—loans and leases$82,798
 $73,329
 $9,469
 12.9% $163,470
 $140,601
 $22,869
 16.3%
Interest income from loans and leases was $82.8 million for the three months ended June 30, 2019, and represented a yield on total loans of 5.14%. This compares to $73.3 million of interest on loans and a yield of 4.78% for June 30, 2018. The $9.5 million increase in interest income from loans and leases was primarily attributable to $4.2 million in origination volume and $5.3 million in a change in interest rates.
Accretion on acquired loans and leases totaled $0.1 million, or 1 basis point to the Company's net interest margin for the three months ended June 30, 2019, compared to $0.2 million and 1 basis point for the three months ended June 30, 2018.
Interest income from loans and leases was $163.5 million for the six months ended June 30, 2019, and represented a yield on total loans of 5.11%. This compares to $140.6 million of interest on loans and a yield of 4.69% for June 30, 2018. The $22.9 million increase in interest income from loans and leases was primarily attributable to an increase of $10.2 million due to an increase in origination volume and an increase of $12.6 million due to the changes in interest rates.
Accretion on acquired loans and leases totaled $0.2 million, or 1 basis point to the Company's net interest margin for the six months ended June 30, 2019, compared to $0.2 million and 1 basis point for the six months ended June 30, 2018.
Investments
 Three Months Ended June 30, 
Dollar
Change
 
Percent
Change
 Six Months Ended June 30, 
Dollar
Change
 
Percent
Change
 2019 2018   2019 2018  
 (Dollars in Thousands)
Interest income—investments:               
Debt securities$3,158
 $3,563
 $(405) (11.4)% $6,394
 $6,886
 $(492) (7.1)%
Marketable and restricted equity securities877
 1,003
 (126) (12.6)% 1,788
 1,927
 (139) (7.2)%
Short-term investments351
 179
 172
 96.1 % 618
 299
 319
 106.7 %
Total interest income—investments$4,386
 $4,745
 $(359) (7.6)% $8,800
 $9,112
 $(312) (3.4)%
Total investment income was $4.4 million for the three months ended June 30, 2019 compared to $4.7 million for the three months ended June 30, 2018. As of June 30, 2019 and 2018, the yield on total investments was 2.6% and 2.5%, respectively. The year over year decrease in interest income on investments of $0.4 million, or (7.6)%, was driven by a $175 thousand increase due to rates and a $526 thousand decrease due to volume.
Total investment income was $8.8 million and $9.1 million for the six months ended June 30, 2019 and June 30, 2018, respectively. For the six months ended June 30, 2019 and 2018, the yield on total investments was 2.6% and 2.5%, respectively. The year-over-year decrease in interest income on investments of $312 thousand, or 3.4%, was primarily driven by a $480 thousand increase due to rates and a $775 thousand decrease due to volume.

87


Interest Expense—Deposits and Borrowed Funds
 Three Months Ended June 30, 
Dollar
Change
 
Percent
Change
 Six Months Ended June 30, 
Dollar
Change
 
Percent
Change
 2019 2018   2019 2018  
 (Dollars in Thousands)
Interest expense:               
Deposits:               
NOW accounts$50
 $65
 $(15) (23.1)% $192
 $123
 $69
 56.1%
Savings accounts737
 405
 332
 82.0 % 1,334
 806
 528
 65.5%
Money market accounts5,571
 3,530
 2,041
 57.8 % 10,846
 6,088
 4,758
 78.2%
Certificates of deposit11,354
 5,219
 6,135
 117.6 % 21,288