Docoh
Loading...

BRKL Brookline Bancorp

Filed: 29 May 20, 3:49pm
0001049782 brkl:CollateralizedMortgageObligationsIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31
 
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 March 31, 2020

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)
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

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     
                                                                                                                                              
At May 29, 2020, the number of shares of common stock, par value $0.01 per share, outstanding was 78,919,276.
 




EXPLANATORY NOTE
As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on May 11, 2020, in accordance with the U.S. Security and Exchange Commission’s “Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions From the Reporting and Proxy Delivery Requirements for Public Companies” dated March 25, 2020 (Release No. 34-88465) (the “Order”), the Company relied on the relief provided by the Order to extend the filing of this Quarterly Report on Form 10-Q for the three months ended March 31, 2020 (the “Quarterly Report”). In compliance with public health orders related to the COVID-19 pandemic, the Company has transitioned to a remote working environment. The Company’s management has devoted significant time and attention to assessing the potential impact of the COVID-19 pandemic on the Company’s operations and financial position and developing operational and financial plans to address those matters, which has diverted management resources from completing tasks necessary to file this Quarterly Report by the original May 11, 2020 deadline.



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



PART I — FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
 At March 31, 2020 At December 31, 2019
 (In Thousands Except Share Data)
ASSETS   
Cash and due from banks$86,996
 $33,589
Short-term investments253,772
 44,201
Total cash and cash equivalents340,768
 77,790
Investment securities available-for-sale761,539
 498,995
Investment securities held-to-maturity (fair value of $0 and $87,561, respectively)
 86,780
Equity securities held-for-trading2,558
 3,581
Total investment securities764,097
 589,356
Loans and leases:   
Commercial real estate loans3,762,158
 3,669,222
Commercial loans and leases1,826,866
 1,838,748
Consumer loans1,233,503
 1,229,846
Total loans and leases6,822,527
 6,737,816
Allowance for loan and lease losses(113,181) (61,082)
Net loans and leases6,709,346
 6,676,734
Restricted equity securities68,472
 53,818
Premises and equipment, net of accumulated depreciation of $78,343 and $76,763, respectively73,786
 74,350
Right-of-use asset operating leases24,789
 24,876
Deferred tax asset38,141
 25,017
Goodwill160,427
 160,427
Identified intangible assets, net of accumulated amortization of $37,817 and $37,481, respectively4,087
 4,423
Other real estate owned ("OREO") and repossessed assets, net2,038
 2,631
Other assets275,640
 167,431
Total assets$8,461,591
 $7,856,853
LIABILITIES AND STOCKHOLDERS' EQUITY   
Deposits:   
Demand checking accounts$1,175,329
 $1,141,578
 Interest-bearing deposits4,714,609
 4,688,494
Total deposits5,889,938
 5,830,072
Borrowed funds:   
Advances from the Federal Home Loan Bank of Boston ("FHLBB")1,137,431
 758,469
Subordinated debentures and notes83,630
 83,591
Other borrowed funds70,743
 60,689
Total borrowed funds1,291,804
 902,749
Operating lease liabilities24,789
 24,876
Mortgagors' escrow accounts7,441
 7,232
Reserve for unfunded credits17,222
 1,880
Accrued expenses and other liabilities317,829
 144,438
Total liabilities7,549,023
 6,911,247
    
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 capital737,422
 736,601
Retained earnings, partially restricted227,359
 265,376
Accumulated other comprehensive income16,947
 2,283
Treasury stock, at cost; 5,862,811 shares and 5,003,127 shares, respectively(69,617) (59,073)
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 72,441 shares and 79,548 shares, respectively(395) (433)
Total stockholders' equity912,568
 945,606
Total liabilities and stockholders' equity$8,461,591
 $7,856,853

See accompanying notes to unaudited consolidated financial statements.
1


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
 Three Months Ended March 31,
 2020 2019
 (In Thousands Except Share Data)
Interest and dividend income:   
Loans and leases$79,559
 $80,672
Debt securities2,976
 3,236
Marketable and restricted equity securities778
 911
Short-term investments209
 267
Total interest and dividend income83,522
 85,086
Interest expense:   
Deposits16,240
 15,948
Borrowed funds5,570
 6,139
Total interest expense21,810
 22,087
Net interest income61,712
 62,999
Provision for credit losses54,114
 1,353
Net interest income after provision for credit losses7,598
 61,646
Non-interest income:   
Deposit fees2,458
 2,523
Loan fees550
 413
Loan level derivative income, net2,156
 1,745
Gain on investment securities, net1,330
 134
Gain on sales of loans and leases held-for-sale120
 289
Other2,714
 1,526
Total non-interest income9,328
 6,630
Non-interest expense:   
Compensation and employee benefits25,219
 23,743
Occupancy3,953
 3,947
Equipment and data processing4,703
 4,661
Professional services1,651
 1,076
FDIC insurance378
 593
Advertising and marketing1,075
 1,069
Amortization of identified intangible assets336
 402
Other3,433
 3,380
Total non-interest expense40,748
 38,871
(Loss) income before provision for income taxes(23,822) 29,405
(Benefit) provision for income taxes(6,546) 6,895
Net (loss) income before noncontrolling interest in subsidiary(17,276) 22,510
Less: net income attributable to noncontrolling interest in subsidiary
 43
Net (loss) income attributable to Brookline Bancorp, Inc.$(17,276) $22,467
Earnings per common share:   
Basic$(0.22) $0.28
Diluted(0.22) 0.28
Weighted average common shares outstanding during the year:   
Basic79,481,462
 79,658,583
Diluted79,665,774
 79,843,578
Dividends paid per common share$0.115
 $0.105



See accompanying notes to unaudited consolidated financial statements.
2


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income (Loss)
 Three Months Ended March 31,
 2020 2019
 (In Thousands)
Net (loss) income before noncontrolling interest in subsidiary$(17,276) $22,510
    
Investment securities available-for-sale:   
Unrealized securities holding gains (losses)18,810
 6,500
Income tax (expense) benefit(4,146) (1,433)
Net unrealized securities holding gains (losses) before reclassification adjustments, net of taxes14,664
 5,067
Net unrealized securities holding gains (losses)14,664
 5,067
    
Other comprehensive (loss) income, net of taxes14,664
 5,067
    
Comprehensive (loss) income(2,612) 27,577
Less: Net income attributable to noncontrolling interest in subsidiary
 43
Comprehensive (loss) income attributable to Brookline Bancorp, Inc.$(2,612) $27,534



See accompanying notes to unaudited consolidated financial statements.
3


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 2020 and 2019
 
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, 2019$852
 $736,601
 $265,376
 $2,283
 $(59,073) $(433) $945,606
 $
 $945,606
Net loss attributable to Brookline Bancorp, Inc. 
 
 (17,276) 
 
 
 (17,276) 
 (17,276)
Other comprehensive income
 
 
 14,664
 
 
 14,664
 
 14,664
Common stock dividends of $0.115 per share
 
 (9,173) 
 
 
 (9,173) 
 (9,173)
Compensation under recognition and retention plans
 758
 (45) 
 (134) 
 579
 
 579
Treasury stock, repurchase shares
 
 
 
 (10,410) 
 (10,410) 
 (10,410)
Common stock held by ESOP committed to be released (7,107 shares)
 63
 
 
 
 38
 101
 
 101
Adoption of ASU 2016-13 (CECL)
 
 (11,523) 
 
 
 (11,523) 
 (11,523)
Balance at March 31, 2020$852
 $737,422
 $227,359
 $16,947
 $(69,617) $(395) $912,568
 $
 $912,568


 
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. 
 
 22,467
 
 
 
 22,467
 
 22,467
Net income attributable to noncontrolling interest in subsidiary
 
 
 
 
 
 
 43
 43
Other comprehensive income
 
 
 5,067
 
 
 5,067
 
 5,067
Common stock dividends of $0.105 per share
 
 (8,376) 
 
 
 (8,376) 
 (8,376)
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 plans
 814
 
 
 (1) 
 813
 
 813
Common stock held by ESOP committed to be released (5,871 shares)
 56
 
 
 
 32
 88
 
 88
Balance at March 31, 2019$852
 $736,872
 $226,929
 $(4,393) $(59,121) $(567) $900,572
 $
 $900,572


                  

                  



See accompanying notes to unaudited consolidated financial statements.
4


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
 Three Months Ended March 31,
 2020 2019
 (In Thousands)
Cash flows from operating activities:   
Net (loss) income attributable to Brookline Bancorp, Inc.$(17,276) $22,467
Adjustments to reconcile net income to net cash provided from operating activities:   
Net income attributable to noncontrolling interest in subsidiary
 43
Provision for credit losses54,114
 1,353
Origination of loans and leases held-for-sale
 (5,511)
Proceeds from sales of loans and leases held-for-sale, net
 8,109
Deferred income tax benefit(17,270) (390)
Depreciation of premises and equipment1,581
 1,782
Amortization of investment securities premiums and discounts, net384
 445
Amortization of deferred loan and lease origination costs, net2,154
 1,782
Amortization of identified intangible assets336
 402
Amortization of debt issuance costs26
 25
Accretion of acquisition fair value adjustments, net(372) (704)
Gain on investment securities, net(1,330) (134)
Gain on sales of loans and leases held-for-sale(120) (289)
Write-down of OREO and other repossessed assets354
 49
Compensation under recognition and retention plans624
 861
ESOP shares committed to be released101
 88
Net change in:   
Cash surrender value of bank-owned life insurance(254) (254)
Other assets(103,913) (12,219)
Accrued expenses and other liabilities173,346
 (1,926)
Net cash provided from operating activities92,485
 15,979
    
Cash flows from investing activities:   
Proceeds from sales of investment securities available-for-sale86,434
 
Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale25,530
 19,935
Purchases of investment securities available-for-sale(273,252) 
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity6,302
 1,475
Purchases of investment securities held-to-maturity
 (500)
Proceeds from redemption/sales of restricted equity securities2,944
 7,958
Purchase of restricted equity securities(17,598) (399)
Proceeds from sales of loans and leases held-for-investment, net5,800
 3,408
Net increase in loans and leases(96,414) (92,280)
Purchase of premises and equipment, net(1,071) (961)
Proceeds from sales of OREO and other repossessed assets1,972
 563
Net cash used for investing activities(259,353) (60,801)
    
    
   (Continued)

See accompanying notes to unaudited consolidated financial statements.
5


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows (Continued)
 Three Months Ended March 31,
 2020 2019
 (In Thousands)
Cash flows from financing activities:   
Increase in demand checking, NOW, savings and money market accounts57,871
 48,526
Increase in certificates of deposit2,333
 118,694
Proceeds from FHLBB advances1,736,600
 1,621,000
Repayment of FHLBB advances(1,357,638) (1,675,357)
Increase (decrease) in other borrowed funds, net10,054
 (219)
Increase in mortgagors' escrow accounts, net209
 91
Repurchases of common stock(10,410) 
Proceeds from issuance of common stock
 (1)
Payment of dividends on common stock(9,173) (8,376)
Redemption of noncontrolling interest in subsidiary
 (35,851)
Payment of dividends to owners of noncontrolling interest in subsidiary
 (930)
Net cash provided from financing activities429,846
 67,577
Net increase in cash and cash equivalents262,978
 22,755
Cash and cash equivalents at beginning of period77,790
 89,584
Cash and cash equivalents at end of period$340,768
 $112,339
    
Supplemental disclosure of cash flow information:   
Cash paid during the period for:   
Interest on deposits, borrowed funds and subordinated debt$23,227
 $23,230
Income taxes2,070
 8,774
Non-cash investing activities:   
Transfer from loans to other real estate owned$1,733
 $505



See accompanying notes to unaudited consolidated financial statements.
6


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 and Bank Rhode Island ("BankRI"), a Rhode Island-chartered financial institution (collectively referred to as the "Banks"). The Banks are both 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. Until February 15, 2020 (the "Merger Closing Date"), the Company was also the parent of First Ipswich Bank ("First Ipswich"), a Massachusetts-chartered trust company. Effective upon the Merger Closing Date, First Ipswich was merged with and into Brookline Bank, with Brookline as the surviving institution.
Brookline Bank, which includes its wholly-owned subsidiaries BBS Investment Corp., Longwood Securities Corp. ("LSC"), Eastern Funding LLC ("Eastern Funding"), First Ipswich Insurance Agency and First Ipswich Securities II Corp., operates 31 full-service banking offices in the greater Boston metropolitan area with 2 additional lending offices. 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.
The Banks' activities include acceptance of commercial, municipal and retail deposits, origination of mortgage loans on commercial and residential real estate located principally in New England, 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. Brookline Bank 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 ("the FRB"). As a Massachusetts-chartered trust company, Brookline Bank is also subject to regulation under the laws of the Commonwealth of Massachusetts and the jurisdiction of the Massachusetts Division of Banks (the "DOB"). 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 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 its 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, 2019. 

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.

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

7

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

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 intangible assets for impairment and the review of deferred tax assets for valuation allowances.
 
The judgments used by management in applying these critical accounting policies may be affected by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. For example, subsequent evaluations of the loan and lease portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for loan and lease losses in future periods, and the inability to collect outstanding principal may result in increased loan and lease losses.

Reclassification

Certain previously reported amounts have been reclassified to conform to the current year's presentation.
Recent Accounting Pronouncements
Accounting Standards Adopted in 2020
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaced the previous GAAP method of calculating credit losses. Previously, GAAP required the use of the incurred loss methodology, which used a higher threshold at which probable losses were calculated and recorded. ASU 2016-13 requires the use of an expected loss methodology, referred to as the current expected credit loss (“CECL”) methodology, which requires institutions to account for probable losses that previously would not have been part of the calculation. The CECL methodology incorporates future forecasting in addition to historical and current measures. The Company adopted all of the above mentioned ASU as of January 1, 2020. The standard had an impact on our consolidated balance sheet. On adoption, the Company recognized an increase in the allowance for loan and lease losses of $6.6 million, and an increase in the reserve for unfunded commitments of $8.9 million. The net, after-tax impact of the increase in the allowance for loan and lease losses and reserve for unfunded commitments was an decrease to retained earnings of $11.5 million shown in the Consolidated Statements of Changes in Stockholders’ Equity. Additional details can be found in Note 3, 4 and 5.
In August 2018, FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)" ("ASU 2018-13"), to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts set forth 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. Certain provisions under ASU 2018-13 required prospective application, while other provisions required retrospective application to all periods presented in the consolidated financial statements upon adoption. The Company adopted the provisions of ASU 2018-13 effective January 1, 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements.
(2) Acquisitions and Mergers
First Ipswich Bank
On February 15, 2020, the merger of First Ipswich Bank with and into Brookline Bank was completed. First Ipswich was already a wholly-owned subsidiary of the Company, therefore the merger qualified as a tax-free reorganization for federal income tax purposes and there was minimal impact to customers. All of First Ipswich Bank's 6 branch locations were retained and converted to Brookline Bank branches.

8

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

(3) Investment Securities
Adoption of Topic 326
Effective January 1, 2020, the Company adopted the provisions of ASU 2016-13 using the modified retrospective method. Therefore, prior period comparative information has not been adjusted and continues to be reported under GAAP in effect prior to the adoption of Topic 326. There was a de minimis allowance for credit loss ("ACL") on available-for-sale debt securities recognized upon adoption and as of March 31, 2020.
The following tables set forth investment securities available-for-sale, held-to-maturity and equity securities held-for-trading at the dates indicated:
 At March 31, 2020
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$231,779
 $6,176
 $138
 $237,817
GSE CMOs62,391
 1,151
 15
 63,527
GSE MBSs319,088
 9,551
 141
 328,498
SBA commercial loan asset-backed securities1
 
 
 1
Municipal obligations44,976
 645
 3
 45,618
Corporate debt obligations25,389
 570
 
 25,959
U.S. Treasury bonds55,776
 3,858
 
 59,634
Foreign government obligations500
 
 15
 485
Total investment securities available-for-sale$739,900
 $21,951
 $312
 $761,539
Equity securities held-for-trading      $2,558

 December 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$182,922
 $2,939
 $58
 $185,803
GSE CMOs87,001
 22
 1,091
 85,932
GSE MBSs153,049
 797
 503
 153,343
SBA commercial loan asset-backed securities34
 
 
 34
Corporate debt obligations28,484
 502
 
 28,986
U.S. Treasury bonds44,675
 338
 116
 44,897
Total investment securities available-for-sale$496,165
 $4,598
 $1,768
 $498,995
Investment securities held-to-maturity:       
GSE debentures$31,228
 $113
 $51
 $31,290
GSEs MBSs9,360
 
 81
 9,279
Municipal obligations45,692
 822
 
 46,514
Foreign government obligations500
 
 22
 478
Total investment securities held-to-maturity$86,780
 $935
 $154
 $87,561
Equity securities held-for-trading      $3,581

As of March 31, 2020, the fair value of all investment securities available-for-sale was $761.5 million, with net unrealized gains of $21.6 million, compared to a fair value of $499.0 million and net unrealized gains of $2.8 million as of December 31, 2019. As of March 31, 2020, $58.8 million, or 7.7% of the portfolio, had gross unrealized losses of $0.3 million, compared to $205.6 million, or 41.2% of the portfolio, with gross unrealized losses of $1.8 million as of December 31, 2019.

9

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

As of March 31, 2020, all investment securities classified as held-to-maturity were reclassified as available for sale to prudently reflect the ability and intent to not hold these assets to maturity due to the economic uncertainty created by the COVID-19 pandemic. As a result of tainting of the held-to-maturity portfolio, the Company is precluded from classifying securities as held-to-maturity for a period of time. As of December 31, 2019, the fair value of investment securities held-to-maturity had a fair value of $87.6 million with net unrealized gains of $0.8 million. As of December 31, 2019, $22.3 million, or 25.5% of the portfolio had gross unrealized losses of $0.2 million.
As of March 31, 2020, the Company recorded a fair value of $2.6 million of equity securities held-for-trading. As of December 31, 2019, the Company recorded a fair value of $3.6 million of equity securities held-for-trading.
Investment Securities as Collateral
As of March 31, 2020 and December 31, 2019, respectively, $489.3 million and $433.6 million of investment securities were pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and Federal Home Loan Bank of Boston ("FHLBB") borrowings. The Banks had 0 outstanding FRB borrowings as of March 31, 2020 and December 31, 2019.
Allowance for Credit Losses-Available-for-Sale Securities
For available-for-sale securities in an unrealized loss position, management first assesses whether (i) the Company intends to sell the security, or (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either criterion is met, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither criterion is met, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors.
If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for credit loss is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income. Adjustments to the allowance are reported as a component of credit loss expense. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible or when either of the aforementioned criteria regarding intent or requirement to sell is met. The Company has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Accrued interest receivables associated with debt securities available-for-sale totaled $2.4 million and $2.0 million, respectively, as of March 31, 2020 and December 31, 2019.
A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a debt security placed on nonaccrual is reversed against interest income. There were no debt securities on nonaccrual status and therefore there was no accrued interest related to debt securities reversed against interest income for the three months ended March 31, 2020 and 2019.


10

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

Assessment for Available for Sale Securities for Impairment
Investment securities as of March 31, 2020 and December 31, 2019 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:
 At March 31, 2020
 
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$43,783
 $138
 $
 $
 $43,783
 $138
GSE CMOs
 
 1,428
 15
 1,428
 15
GSE MBSs8,012
 50
 3,973
 91
 11,985
 141
Municipal obligations1,157
 3
 
 
 1,157
 3
Foreign government obligations485
 15
 
 
 485
 15
Temporarily impaired investment securities available-for-sale53,437
 206
 5,401
 106
 58,838
 312
Total temporarily impaired investment securities$53,437

$206

$5,401

$106

$58,838

$312
 December 31, 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$10,965
 $58
 $
 $
 $10,965
 $58
GSE CMOs28,659
 217
 55,885
 874
 84,544
 1,091
GSE MBSs42,046
 115
 42,257
 388
 84,303
 503
SBA commercial loan asset-backed securities
 
 33
 
 33
 
U.S. Treasury bonds25,754
 116
 
 
 25,754
 116
Temporarily impaired investment securities available-for-sale107,424
 506
 98,175
 1,262
 205,599
 1,768
Investment securities held-to-maturity:           
GSE debentures8,714
 30
 2,977
 21
 11,691
 51
GSEs MBSs
 
 9,257
 81
 9,257
 81
Municipal obligations710
 
 205
 
 915
 
Foreign government obligations478
 22
 
 
 478
 22
Temporarily impaired investment securities held-to-maturity9,902
 52
 12,439
 102
 22,341
 154
Total temporarily impaired investment securities$117,326
 $558
 $110,614
 $1,364
 $227,940
 $1,922

The Company performs regular analyses of the investment securities available-for-sale portfolio to determine whether a decline in fair value indicates that an investment security is impaired. In making these impairment determinations, management considers, among other factors, projected future cash flows; credit subordination and the creditworthiness; capital adequacy and near-term prospects of the issuers.

11

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

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 impairment 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 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 impairment 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 impaired as of March 31, 2020. Based on the analysis below, it was determined that is it 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 impaired as of March 31, 2020. If market conditions for investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional impairment in future periods.
U.S. Government-Sponsored Enterprises
The Company invests in securities issued by U.S. Government-sponsored enterprises ("GSEs"), including GSE debentures, mortgage-backed securities ("MBSs"), and collateralized mortgage obligations ("CMOs"). GSE securities include obligations issued by the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA"), the FHLBB and the Federal Farm Credit Bank. As of March 31, 2020, 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 $12.9 million were backed explicitly by the full faith and credit of the U.S. Government, compared to $17.4 million as of December 31, 2019.
As of March 31, 2020, the Company owned 73 GSE debentures with a total fair value of $237.8 million, and a net unrealized gain of $6.0 million. As of December 31, 2019, the Company held 60 GSE debentures with a total fair value of $185.8 million, with a net unrealized gain of $2.9 million. As of March 31, 2020, 4 of the 73 securities in this portfolio were in an unrealized loss position. As of December 31, 2019, 5 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 three months ended March 31, 2020, the Company purchased $75.2 million GSE debentures. This compares to the same period in 2019 when the Company did 0t purchase any GSE debentures. During the three months ended March 31, 2020, the Company transferred 9 held-to-maturity GSE debentures with a total fair value of $25.5 million to the available-for-sale portfolio.
As of March 31, 2020, the Company owned 33 GSE CMOs with a total fair value of $63.5 million and a net unrealized gain of $1.1 million. As of December 31, 2019, the Company held 61 GSE CMOs with a total fair value of $85.9 million with a net unrealized loss of $1.1 million. As of March 31, 2020, 1 of the 33 securities in this portfolio was in an unrealized loss position. As of December 31, 2019, 45 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 three months ended March 31, 2020 and 2019, the Company did 0t purchase any GSE CMOs.
As of March 31, 2020, the Company owned 135 GSE MBSs with a total fair value of $328.5 million and a net unrealized gain of $9.4 million. As of December 31, 2019, the Company held 150 GSE MBSs with a total fair value of $153.3 million with a net unrealized gain of $0.3 million. As of March 31, 2020, 22 of the 135 securities in this portfolio were in an unrealized loss position. As of December 31, 2019, 48 of the 150 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2020, the Company purchased $176.9 million GSE MBSs. This compares to the same period in 2019 when the Company did 0t purchase any GSE MBSs. During the three months ended March 31, 2020, the Company transferred 8 held-to-maturity GSE MBSs with a total fair value of $9.0 million to the available-for-sale portfolio.

12

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

SBA Commercial Loan Asset-Backed
As of March 31, 2020, the Company owned 1 SBA security with a nominal fair value which approximated amortized cost. As of December 31, 2019, the Company owned 4 SBA securities with a total fair value of $34.0 thousand, which approximated amortized cost. As of March 31, 2020, NaN of the securities in this portfolio were in an unrealized loss position. As of December 31, 2019, 3 of the 4 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the explicit guarantee of the U.S Government. During the three months ended March 31, 2020 and 2019, the Company did 0t purchase any SBA securities.
Corporate Obligations
The Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. As of March 31, 2020, the Company held 7 corporate obligation securities with a total fair value of $26.0 million and a net unrealized gain of $0.6 million. As of December 31, 2019, the Company held 8 corporate obligation securities with a total fair value of $29.0 million and a net unrealized gain of $0.5 million. As of March 31, 2020, NaN of the securities in this portfolio were in an unrealized loss position. As of December 31, 2019, NaN 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 three months ended March 31, 2020 and 2019, the Company did 0t purchase any corporate obligations. During the three months ended March 31, 2020, the Company transferred 1 held-to-maturity corporate obligation security with a total fair value of $0.5 million to the available-for-sale portfolio.
U.S. Treasury Bonds
The Company invests in securities issued by the U.S. government. As of March 31, 2020, the Company owned 12 U.S. Treasury bonds with a total fair value of $59.6 million and an unrealized gain of $3.9 million. This compares to 9 U.S. Treasury bonds with a total fair value of $44.9 million and an unrealized loss of $0.2 million as of December 31, 2019. As of March 31, 2020, none of the securities in this portfolio were in unrealized loss position. As of December 31, 2019, 5 of the 9 securities in this portfolio were in unrealized loss position. During the three months ended March 31, 2020 the Company purchased $21.2 million U.S. Treasury bonds, compared to the same period in 2019 when the Company did 0t purchase any U.S. Treasury bonds.
Municipal Obligations
The Company invests in certain state and municipal securities with high credit ratings for portfolio diversification and tax planning purposes. As of March 31, 2020, the Company owned 93 municipal obligation securities with a total fair value of $45.6 million and a net unrealized gain of $0.6 million. As of March 31, 2020, 9 of the 93 securities in this portfolio were in unrealized loss position. During the three months ended March 31, 2020, the Company did not purchase any municipal obligations. During the three months ended March 31, 2020, the Company transferred 93 held-to-maturity municipal obligations securities with a total fair value of $47.7 million to the available-for-sale portfolio.
Equity Securities Held-for-Trading
From time to time, the Company will invest in equity securities held-for-trading. As of March 31, 2020 and December 31, 2019, the Company owned equity securities held-for-trading with a fair value of $2.6 million and $3.6 million, respectively.

13

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 March 31, 2020 At December 31, 2019
 
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$19,148
 $19,198
 1.62% $12,797
 $12,804
 1.76%
After 1 year through 5 years226,455
 234,676
 2.09% 217,569
 220,757
 2.19%
After 5 years through 10 years140,491
 144,703
 1.85% 93,805
 94,212
 2.04%
Over 10 years353,806
 362,962
 2.10% 171,994
 171,222
 2.12%
 $739,900
 $761,539
 2.04% $496,165
 $498,995
 2.13%
Investment securities held-to-maturity:           
Within 1 year$
 $
 % $6,366
 $6,381
 1.33%
After 1 year through 5 years
 
 % 63,898
 64,559
 1.81%
After 5 years through 10 years
 
 % 7,177
 7,364
 1.79%
Over 10 years
 
 % 9,339
 9,257
 1.90%
 $
 $
 % $86,780
 $87,561
 1.82%

Actual maturities of debt securities will differ from those presented above since certain obligations amortize and may also provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. MBSs and CMOs are included above based on their final stated maturities; the actual maturities, however, may occur earlier due to anticipated prepayments and stated amortization of cash flows.
As of March 31, 2020, issuers of debt securities with an estimated fair value of $97.9 million had the right to call or prepay the obligations. Of the $97.9 million, approximately $3.0 million matures within 1 year, $19.8 million matures in 1 - 5 years, $46.4 million matures in 6 - 10 years, and $28.7 million matures after ten years. As of December 31, 2019, issuers of debt securities with an estimated fair value of approximately $37.6 million had the right to call or prepay the obligations. Of the $37.6 million, approximately $3.0 million matures within 1 year, $34.6 million matures in 1-5 years, and NaN mature after 5 years.
Security Sales
There were $86.4 million securities sold during the three months ended March 31, 2020. There were 0 securities sold during the three months ended March 31, 2019.
Sales of investment and restricted equity securities are summarized as follows:
 Three Months Ended March 31, 2020
Three Months Ended March 31, 2019
 (In Thousands)
Sales of trading securities$86,435
 $
    
Gross gains from securities sales2,446
 
Gross losses from securities sales(93) 
Gain on sales of securities, net$2,353
 $


14

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

(4) Loans and Leases
The following table presents the amortized cost of loans and leases and weighted average coupon rates for the loan and lease portfolios at the dates indicated:
 At March 31, 2020 At December 31, 2019
 Balance 
Weighted
Average
Coupon
 Balance 
Weighted
Average
Coupon
 (Dollars In Thousands)
Commercial real estate loans:       
Commercial real estate$2,526,923
 4.19% $2,491,011
 4.33%
Multi-family mortgage963,273
 4.06% 932,163
 4.20%
Construction271,962
 4.43% 246,048
 5.09%
Total commercial real estate loans3,762,158
 4.17% 3,669,222
 4.34%
Commercial loans and leases:     
  
Commercial719,208
 4.26% 729,502
 4.66%
Equipment financing1,055,053
 7.63% 1,052,408
 7.71%
Condominium association52,605
 4.78% 56,838
 4.84%
Total commercial loans and leases1,826,866
 6.22% 1,838,748
 6.41%
Consumer loans:     
  
Residential mortgage810,186
 4.03% 814,245
 4.10%
Home equity388,550
 3.52% 376,819
 4.46%
Other consumer34,767
 3.99% 38,782
 4.48%
Total consumer loans1,233,503
 3.87% 1,229,846
 4.22%
Total loans and leases$6,822,527
 4.66% $6,737,816
 4.88%

Accrued interests on loans and leases, which were excluded from the amortized cost of loans and leases totaled $18.4 million and $17.4 million at March 31, 2020 and December 31, 2019, respectively, and were included in other assets in the consolidated balance sheets.

15

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

The following table presents the recorded investments of loans and leases and weighted average coupon rates for the originated and acquired loan and lease portfolios at the date indicated:
 At December 31, 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$2,400,037
 4.32% $90,974
 4.63% $2,491,011
 4.33%
Multi-family mortgage896,482
 4.18% 35,681
 4.59% 932,163
 4.20%
Construction239,015
 5.04% 7,033
 6.73% 246,048
 5.09%
Total commercial real estate loans3,535,534
 4.33% 133,688
 4.73% 3,669,222
 4.34%
Commercial loans and leases:           
Commercial713,875
 4.65% 15,627
 5.14% 729,502
 4.66%
Equipment financing1,049,997
 7.71% 2,411
 5.98% 1,052,408
 7.71%
Condominium association56,838
 4.84% 
 % 56,838
 4.84%
Total commercial loans and leases1,820,710
 6.42% 18,038
 5.25% 1,838,748
 6.41%
Consumer loans:           
Residential mortgage711,522
 4.06% 102,723
 4.40% 814,245
 4.10%
Home equity343,247
 4.41% 33,572
 4.93% 376,819
 4.46%
Other consumer38,674
 4.44% 108
 17.91% 38,782
 4.48%
Total consumer loans1,093,443
 4.18% 136,403
 4.54% 1,229,846
 4.22%
Total loans and leases$6,449,687
 4.89% $288,129
 4.67% $6,737,816
 4.88%

The net unamortized deferred loan origination fees and costs included in total loans and leases were $14.9 million and $15.7 million as of March 31, 2020 and December 31, 2019, respectively.
The Banks and their subsidiaries lend primarily in all New England states, with the exception of equipment financing, 27.8% of which is in the greater New York and New Jersey metropolitan area and 72.2% of which is in other areas in the United States of America as of March 31, 2020.
Accretable Yield for the Acquired Loan Portfolio
On a quarterly basis prior to the adoption of ASU 2016-13, management reforecasted the expected cash flows for acquired ASC 310-30 loans, and took into account prepayment speeds, probability of default and loss given defaults. Management compared cash flow projections per the reforecast to the original cash flow projections and determined whether any reduction in cash flow expectations were due to deterioration, or if the change in cash flow expectation was related to noncredit events. This cash flow analysis was used to evaluate the need for a provision for loan and lease losses and/or prospective yield adjustments for the acquired portfolio. Upon adoption of ASU 2016-13, the Company did not reassess whether previously recognized purchased credit impaired loans accounted for under prior accounting guidance met the criteria of a purchased credit deteriorated (PCD) loan as of the date of adoption. PCD loans are initially recorded at fair value along with an ACL determined using the same methodology as originated loans. The sum of the loan's purchase price and ACL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the ACL are recorded through provision for credit losses. As of March 31, 2020, there were no PCD loans in the Company's portfolios.

16

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

The following table summarizes activity in the accretable yield for the acquired loan portfolio for the periods indicated:
 
Three Months Ended March 31, 2019
   
Balance at beginning of period $7,905
Accretion (800)
Reclassification from nonaccretable difference as a result of changes in expected cash flows 61
Balance at end of period $7,166

During the three months ended March 31, 2019, accretable yield adjustments totaling $61 thousand was made for certain loan pools. During the three months ended March 31, 2019, accretable yield adjustments totaling $0.1 million were made for certain loan pools. These accretable yield adjustments, which were subject to continued re-assessment, will be recognized over the remaining lives of those pools. As of March 31, 2019, the accretable yield was fully accreted.
Loans and Leases Pledged as Collateral
As of both March 31, 2020 and 2019, there were $3.0 billion of loans and leases pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLBB borrowings. The Banks did not have any outstanding FRB borrowings as of March 31, 2020 and December 31, 2019.
(5) Allowance for Loan and Lease Losses
The following tables present the changes in the allowance for loan and lease losses in loans and leases by portfolio segment for the periods indicated:
 Three Months Ended March 31, 2020
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2019$30,285
 $24,826
 $5,971
 $61,082
Adoption of ASU 2016-13 (CECL)11,694
 (2,672) (2,390) 6,632
Charge-offs
 (2,527) (12) (2,539)
Recoveries
 247
 58
 305
Provision for loan and lease losses excluding unfunded commitments40,200
 6,900
 601
 47,701
Balance at March 31, 2020$82,179
 $26,774
 $4,228
 $113,181

 Three Months Ended March 31, 2019
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2018$28,187
 $25,283
 $5,222
 $58,692
Charge-offs
 (2,512) (30) (2,542)
Recoveries
 388
 53
 441
Provision for loan and lease losses162
 1,081
 207
 1,450
Balance at March 31, 2019$28,349
 $24,240
 $5,452
 $58,041

        
        

The allowance for credit losses for unfunded credit commitments, which is included in other liabilities, was $17.2 million and $1.9 million at March 31, 2020 and December 31, 2019, respectively. The increase in allowance for unfunded commitments

17

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

was primarily driven by the effect of the latest available economic forecast of the COVID-19 pandemic which was embedded in the estimated loss models. NaN credit commitments were charged off against the liability account in the three month periods ended March 31, 2020 and 2019.
Provision for Credit Losses
The provisions for credit losses are set forth below for the periods indicated:
 Three Months Ended March 31,
 2020 2019
 (In Thousands)
Provision for loan and lease losses:   
Commercial real estate$40,200
 $162
Commercial6,900
 1,081
Consumer601
 207
Total provision for loan and lease losses47,701
 1,450
Unfunded credit commitments6,413
 (97)
Total provision for credit losses$54,114
 $1,353

Allowance for Loan and Lease Losses Methodology
Management has established a methodology to determine the adequacy of the allowance for credit losses that assesses the risks and losses expected on the loan and lease portfolio. Additions to the allowance for credit 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.
To calculate the allowance, management uses models developed by a third party. The models include: Commercial real estate (CRE) lifetime, Commercial and industrial (C&I) lifetime, Retail lifetime, C&I historical, and Retail historical. Lifetime loss rate models calculate the expected losses over the life of the loan based on loan attributes and reasonable, supportable economic forecasts. Historical loss rate models apply a loss rate to the outstanding balance of the loan. Management uses historical loss rates for condominium association, auto, and government lease portfolio segments because these loans have distinct, historical, or expected loss patterns and a de minimus effect on the overall allowance and provision.
Management elected to use multiple economic forecasts in determining the reserve to account for economic uncertainty. The forecasts include various projections of GDP, interest rates, property price indices, and employment measures. The forecasts are probability-weighted in accordance with best practices and available information at the time of the calculation execution. Scenario weighting and model parameters are reviewed for each calculation and are subject to change. The models recognize that the life of a loan may exceed the economic forecast therefore the models employ mean reversion techniques to predict credit losses for loans that are expected to mature beyond the forecast period. The March 31, 2020 forecasts reflect the immediate and longer-term effects of the COVID-19 pandemic as well as the associated policies and provision provided by local and national authorities.
The CRE lifetime loss rate, C&I lifetime loss rate, and Retail lifetime loss rate models were developed using the historical loss experience of all banks in the model’s developmental dataset. Banks in the model’s developmental dataset may have different loss experiences as well as variances in operational and underwriting procedures from the Company, and therefore, the Company calibrates expected losses for each model using a scalar. Each scalar was calculated by examining the loss rates of peer banks that have similar operations and asset bases. Peer group loss rates were used in the scalar calculation because management believes the peer group’s historical losses provide a better reflection of the Company’s current portfolio and operating procedures than the Company’s historical losses. Qualitative adjustments are also applied to select segments of the loan portfolio where applicable.
Specific reserves are established for loans individually evaluated for impairment when amortized cost basis is greater than the discounted present value of expected future cash flows or, in the case of collateral-dependent loans, when there is an excess of a loan's amortized cost basis over the fair value of its underlying collateral. When loans and leases do not share risk

18

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

characteristics with other financial assets they are evaluated individually. Individually evaluated loans are reviewed quarterly with adjustments made to the calculated reserve as necessary.
Beginning January 1, 2020, the Company implemented the CECL methodology to calculate the allowance for credit losses. As of January 1, 2020, the allowance for loan and lease losses increased by $6.6 million as a result of the adoption of CECL. Prior to January 1, 2020, the Company calculated the allowance for loan and lease losses using the incurred losses methodology.
The general allowance for loan and lease losses was $107.9 million as of March 31, 2020, compared to $59.3 million as of December 31, 2019. The increase in general allowance for loan and lease losses was driven by the effect of the latest available economic forecast of the COVID-19 pandemic on the Company's loan and lease portfolios. The specific allowance for loan and lease losses was $5.3 million as of March 31, 2020, compared to $1.8 million as of December 31, 2019. The specific allowance increased by $3.5 million during the three months ended March 31, 2020 primarily due to the reserves of $2.2 million for an individually evaluated commercial relationship and $1.7 million for another individually evaluated commercial reals estate relationship during the quarter.
As of March 31, 2020, 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 over the lifetime of the Company’s loan portfolios.
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, adversely risk-rated, 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 troubled debt restructuring ("TDR") loan.
The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For all loans, the Company utilizes an eight-grade loan rating system, which assigns a risk rating to each borrower based on a number of quantitative and qualitative factors associated with a loan transaction. Factors considered include industry and market conditions; position within the industry; earnings trends; operating cash flow; asset/liability values; debt capacity; guarantor strength; management and controls; financial reporting; collateral; and other considerations. In addition, the Company's independent loan review group evaluates the credit quality and related risk ratings in all loan portfolios. The results of these reviews are reported to the Risk Committee of the Board of Directors on a periodic basis and annually to the Board of Directors. For the consumer loans, the Company heavily relies on payment status for calibrating credit risk.
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.

19

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

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.
Credit Quality Information
         
The following table presents the amortized cost basis of loans in each class by credit quality indicator and year of origination as of March 31, 2020.

 March 31, 2020
 20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
 (In Thousands)
Commercial Real Estate         
Pass$79,035
$405,437
$304,254
$284,975
$289,293
$1,069,498
$52,470
$11,622
$2,496,584
OAEM
496


2,253
14,750


17,499
Substandard

466
228
46
12,033

67
12,840
Total79,035
405,933
304,720
285,203
291,592
1,096,281
52,470
11,689
2,526,923
Multi-Family Mortgage         
Pass35,322
112,126
142,968
109,573
130,328
368,436
52,284
12,152
963,189
Substandard



84





84
Total35,322
112,126
142,968
109,573
130,412
368,436
52,284
12,152
963,273
Construction         
Pass8,556
68,836
165,940
9,599
8,848
722
9,461

271,962
Total8,556
68,836
165,940
9,599
8,848
722
9,461

271,962
Commercial         
Pass19,210
85,409
62,169
80,508
31,373
129,970
286,535
3,589
698,763
OAEM

25

73
40
4,302
376
4,816
Substandard

785
642
1,809
10,799
981
612
15,628

20

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

Doubtful






1
1
Total19,210
85,409
62,979
81,150
33,255
140,809
291,818
4,578
719,208
Equipment Financing         
Pass81,915
372,988
270,215
165,961
83,859
66,392
1,261
736
1,043,327
OAEM



1,322
42


1,364
Substandard
969
2,429
2,168
1,457
2,127


9,150
Doubtful
342
366
310
94
100


1,212
Total81,915
374,299
273,010
168,439
86,732
68,661
1,261
736
1,055,053
Condominium Association         
Pass809
10,848
6,002
9,380
6,371
16,759
1,659
574
52,402
Substandard



130
73


203
Total809
10,848
6,002
9,380
6,501
16,832
1,659
574
52,605
Other Consumer         
Pass929
662
8,984
553
579
593
22,446
19
34,765
Substandard




2




2
Total929
662
8,984
553
579
595
22,446
19
34,767
Total         
Pass225,776
1,056,306
960,532
660,549
550,651
1,652,370
426,116
28,692
5,560,992
OAEM
496
25

3,648
14,832
4,302
376
23,679
Substandard
969
3,680
3,038
3,526
25,034
981
679
37,907
Doubtful
342
366
310
94
100

1
1,213
Total$225,776
$1,058,113
$964,603
$663,897
$557,919
$1,692,336
$431,399
$29,748
$5,623,791


21

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

For residential mortgage and home equity loans, the borrowers' credit scores contribute as a reserve metric in the retail loss rate model.
 At March 31, 2020
 20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
 (In Thousands)
Home Equity         
Credit Scores 
  
      
Over 700$819
$4,499
$4,370
$3,853
$1,330
$16,556
$275,436
$3,778
$310,641
661 - 70033
522
591
693
350
3,813
43,883
1,746
51,631
600 and below
219
281
14
42
610
10,478
917
12,561
Data not available*




2,018
10,129
1,570
13,717
Total852
5,240
5,242
4,560
1,722
22,997
339,926
8,011
388,550
Residential         
Credit Scores 
  
      
Over 70022,590
109,958
83,081
68,973
60,377
155,544
3,793

504,316
661 - 7005,083
22,555
14,052
19,070
11,256
29,870


101,886
600 and below3,058
6,541
5,193
9,142
6,736
16,974


47,644
Data not available*7,943
20,444
20,383
15,845
5,635
84,733

1,357
156,340
Total$38,674
$159,498
$122,709
$113,030
$84,004
$287,121
$3,793
$1,357
$810,186
_______________________________________________________________________________
* Represents loans and leases for which data are not available.


22

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, 2019, by credit quality indicator.
 At December 31, 2019 
 
Commercial
Real Estate
 
Multi-
Family
Mortgage
 Construction Commercial 
Equipment
Financing
 
Condominium
Association
 
Other
Consumer
Total
 (In Thousands) 
Originated:              
Loan rating:              
Pass$2,379,925
 $896,398
 $239,015
 $688,268
 $1,038,793
 $56,687
 $38,673
$5,337,759
OAEM17,006
 
 
 10,803
 1,389
 
 
29,198
Substandard3,106
 84
 
 14,801
 7,995
 151
 1
26,138
Doubtful
 
 
 3
 1,820
 
 
1,823
Total originated2,400,037
 896,482
 239,015
 713,875
 1,049,997
 56,838
 38,674
5,394,918
               
Acquired:              
Loan rating:              
Pass81,360
 35,681
 7,033
 15,215
 2,404
 
 108
141,801
OAEM597
 
 
 210
 
 
 
807
Substandard9,017
 
 
 202
 7
 
 
9,226
Doubtful
 
 
 
 
 
 

Total acquired90,974
 35,681
 7,033
 15,627
 2,411
 
 108
151,834
               
Total loans$2,491,011
 $932,163
 $246,048
 $729,502
 $1,052,408
 $56,838
 $38,782
$5,546,752
As of December 31, 2019, there were no loans categorized as definite loss.


23

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

 At December 31, 2019
 Residential Mortgage Home Equity
 (Dollars In Thousands)
Originated:       
Loan-to-value ratio: 
    
  
Less than 50%$184,628
 22.7% $132,736
 35.2%
50%—69%293,976
 36.1% 91,681
 24.3%
70%—79%204,600
 25.1% 81,459
 21.6%
80% and over25,664
 3.2% 37,371
 9.9%
Data not available*2,654
 0.3% 
 %
Total originated711,522
 87.4% 343,247
 91.0%
        
Acquired: 
    
  
Loan-to-value ratio: 
    
  
Less than 50%32,838
 4.0% 16,882
 4.5%
50%—69%44,754
 5.4% 7,958
 2.1%
70%—79%14,305
 1.8% 705
 0.2%
80% and over4,608
 0.6% 4,726
 1.3%
Data not available6,218
 0.8% 3,301
 0.9%
Total acquired102,723
 12.6% 33,572
 9.0%
        
Total loans$814,245
 100.0% $376,819
 100.0%
_______________________________________________________________________________
* Represents in process general ledger accounts for which data are not available.


The following table presents information regarding foreclosed residential real estate property for the periods indicated:
 At March 31, 2020 At December 31, 2019
 (In Thousands)
Amortized cost basis in mortgage loans collateralized by residential real estate property that are in the process of foreclosure$
 $110









24

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

Age Analysis of Past Due Loans and Leases
The following table presents an age analysis of the amortized cost basis in loans and leases as of March 31, 2020.
 At March 31, 2020 
 Past Due  
Past
Due Greater
Than 90 Days
and Accruing
  
 
31-60
Days
61-90
Days
Greater
Than
90 Days
TotalCurrent
Total Loans
and Leases
Non-accrual

Non-accrual
with No Related Allowance
 (In Thousands) 
Commercial real estate loans:         
Commercial real estate$8,331
$1,302
$10,224
$19,857
$2,507,066
$2,526,923
$268
$10,937
$2,933
Multi-family mortgage1,270
1,022
84
2,376
960,897
963,273

85
84
Construction1,617
4,182

5,799
266,163
271,962



Total commercial real estate loans11,218
6,506
10,308
28,032
3,734,126
3,762,158
268
11,022
3,017
Commercial loans and leases:         
Commercial3,173
8,559
3,169
14,901
704,307
719,208
18
12,991
8,922
Equipment financing5,885
2,155
6,726
14,766
1,040,287
1,055,053
305
10,356
2,299
Condominium association1,044


1,044
51,561
52,605

203
130
Total commercial loans and leases10,102
10,714
9,895
30,711
1,796,155
1,826,866
323
23,550
11,351
Consumer loans:         
Residential mortgage662

2,458
3,120
807,066
810,186
452
3,446
3,077
Home equity1,310
1
468
1,779
386,771
388,550
2
1,059
780
Other consumer26
4
5
35
34,732
34,767

7

Total consumer loans1,998
5
2,931
4,934
1,228,569
1,233,503
454
4,512
3,857
Total loans and leases$23,318
$17,225
$23,134
$63,677
$6,758,850
$6,822,527
$1,045
$39,084
$18,225
                
There is no interest income recognized on non-accrual loans for the three months ended March 31, 2020.














25

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

The following tables present an age analysis of the recorded investment in originated and acquired loans and leases as of December 31, 2019.
 At December 31, 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$3,330
 $2,032
 $1,606
 $6,968
 $2,393,069
 $2,400,037
 $51
 $2,751
Multi-family mortgage3,559
 553
 
 4,112
 892,370
 896,482
 
 84
Construction
 
 
 
 239,015
 239,015
 
 
Total commercial real estate loans6,889
 2,585
 1,606
 11,080
 3,524,454
 3,535,534
 51
 2,835
Commercial loans and leases:               
Commercial5,010
 199
 3,875
 9,084
 704,791
 713,875
 
 4,707
Equipment financing3,098
 1,558
 7,246
 11,902
 1,038,095
 1,049,997
 
 9,822
Condominium association458
 
 
 458
 56,380
 56,838
 
 151
Total commercial loans and leases8,566
 1,757
 11,121
 21,444
 1,799,266
 1,820,710
 
 14,680
Consumer loans:               
Residential mortgage1,014
 
 3
 1,017
 710,505
 711,522
 
 753
Home equity794
 501
 139
 1,434
 341,813
 343,247
 2
 276
Other consumer46
 1
 1
 48
 38,626
 38,674
 
 1
Total consumer loans1,854
 502
 143
 2,499
 1,090,944
 1,093,443
 2
 1,030
Total originated loans and leases$17,309
 $4,844
 $12,870
 $35,023
 $6,414,664
 $6,449,687
 $53
 $18,545


26

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

 At December 31, 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 (1)
 (In Thousands)
Acquired:               
Commercial real estate loans:               
Commercial real estate$539
 $59
 $8,989
 $9,587
 $81,387
 $90,974
 $8,919
 $94
Multi-family mortgage
 
 
 
 35,681
 35,681
 
 
Construction
 
 
 
 7,033
 7,033
 
 
Total commercial real estate loans539
 59
 8,989
 9,587
 124,101
 133,688
 8,919
 94
Commercial loans and leases:               
Commercial
 
 
 
 15,627
 15,627
 
 202
Equipment financing
 
 7
 7
 2,404
 2,411
 7
 
Total commercial loans and leases
 
 7
 7
 18,031
 18,038
 7
 202
Consumer loans:               
Residential mortgage35
 75
 1,090
 1,200
 101,523
 102,723
 1,090
 
Home equity430
 
 42
 472
 33,100
 33,572
 40
 620
Other consumer
 
 
 
 108
 108
 
 
Total consumer loans465
 75
 1,132
 1,672
 134,731
 136,403
 1,130
 620
Total acquired loans and leases$1,004
 $134
 $10,128
 $11,266
 $276,863
 $288,129
 $10,056
 $916
                
Total loans and leases$18,313
 $4,978
 $22,998
 $46,289
 $6,691,527
 $6,737,816
 $10,109
 $19,461

___________________________________________________________
(1) Loans and leases acquired with deteriorated credit quality are always accruing.
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 loans and leases risk-rated "substandard" or worse are considered impaired. The Company has also defined the population of impaired loans to include nonaccrual loans and TDR loans. Impaired loans and leases which do not share similar risk characteristics with other loans are individually evaluated for credit losses. Specific reserves are established for loans and leases with deterioration in the present value of expected future cash flows or, in the case of collateral-dependent loans and leases, any increase in the loan or lease amortized cost basis over the fair value of the underlying collateral discounted for estimated selling costs. In contrast, the loans and leases which share similar risk characteristics and are not included in the individually evaluated population are collectively evaluated for credit losses.

27

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

The following tables present information regarding individually evaluated and collectively evaluated allowance for loan and lease losses for credit losses on loans and leases at the dates indicated. Periods prior to January 1, 2020 are presented in accordance with accounting rules effective at that time.
 At March 31, 2020
 Commercial Real Estate Commercial Consumer Total
 (In Thousands)
Allowance for Loan and Lease Losses:       
Individually evaluated$1,672
 $3,488
 $117
 $5,277
Collectively evaluated80,507
 23,286
 4,111
 107,904
Total82,179
 26,774
 4,228
 113,181
        
Loans and Leases:       
Individually evaluated$15,134
 $29,726
 $8,187
 $53,047
Collectively evaluated3,747,024
 1,797,140
 1,225,316
 6,769,480
Total3,762,158
 1,826,866
 1,233,503
 6,822,527



28

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

 At December 31, 2019
 Commercial Real Estate Commercial Consumer Total
 (In Thousands)
Allowance for Loan and Lease Losses:       
Originated:       
Individually evaluated for impairment$7
 $1,672
 $70
 $1,749
Collectively evaluated for impairment28,415
 22,853
 5,850
 57,118
Total originated loans and leases28,422
 24,525
 5,920
 58,867
        
Acquired:       
Individually evaluated for impairment
 
 40
 40
Collectively evaluated for impairment65
 197
 11
 273
Acquired with deteriorated credit quality1,798
 104
 
 1,902
Total acquired loans and leases1,863
 301
 51
 2,215
        
Total allowance for loan and lease losses$30,285
 $24,826
 $5,971
 $61,082
        
Loans and Leases:       
Originated:       
Individually evaluated for impairment$3,956
 $20,019
 $3,326
 $27,301
Collectively evaluated for impairment3,531,578
 1,800,691
 1,090,117
 6,422,386
Total originated loans and leases3,535,534
 1,820,710
 1,093,443
 6,449,687
        
Acquired:       
Individually evaluated for impairment2,942
 397
 1,841
 5,180
Collectively evaluated for impairment79,465
 15,465
 110,758
 205,688
Acquired with deteriorated credit quality51,281
 2,176
 23,804
 77,261
Total acquired loans and leases133,688
 18,038
 136,403
 288,129
        
Total loans and leases$3,669,222
 $1,838,748
 $1,229,846
 $6,737,816

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.

29

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

 At December 31, 2019
 
Recorded
Investment (1)
 Unpaid
Principal
Balance
 Related
Allowance
 (In Thousands)
Originated:     
With no related allowance recorded:     
Commercial real estate$3,899
 $3,892
 $
Commercial28,539
 28,533
 
Consumer2,237
 2,223
 
Total originated with no related allowance recorded34,675
 34,648
 
With an allowance recorded:     
Commercial real estate68
 68
 7
Commercial5,980
 6,055
 1,672
Consumer1,224
 1,220
 70
Total originated with an allowance recorded7,272
 7,343
 1,749
Total originated impaired loans and leases41,947
 41,991
 1,749
      
Acquired:     
With no related allowance recorded:     
Commercial real estate12,365
 12,366
 
Commercial437
 437
 
Consumer3,516
 3,516
 
Total acquired with no related allowance recorded16,318
 16,319
 
With an allowance recorded:     
Commercial real estate
 
 
Commercial
 
 
Consumer447
 447
 40
 Total acquired with an allowance recorded447
 447
 40
Total acquired impaired loans and leases16,765
 16,766
 40
      
Total impaired loans and leases$58,712
 $58,757
 $1,789
___________________________________________________________________________
(1) Includes originated and acquired nonaccrual loans of $18.5 million and $0.9 million, respectively as of December 31, 2019.

30

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

 Three Months Ended
 March 31, 2019
 Average
Recorded
Investment
 Interest
Income
Recognized
 (In Thousands)
Originated:   
With no related allowance recorded:   
Commercial real estate$8,699
 $65
Commercial35,162
 349
Consumer2,732
 8
Total originated with no related allowance recorded46,593
 422
With an allowance recorded:   
Commercial real estate469
 1
Commercial8,467
 28
Consumer663
 6
Total originated with an allowance recorded9,599
 35
Total originated impaired loans and leases56,192
 457
    
Acquired:   
With no related allowance recorded:   
Commercial real estate9,153
 3
Commercial559
 4
Consumer4,943
 15
Total acquired with no related allowance recorded14,655
 22
With an allowance recorded:   
Commercial real estate
 
Commercial
 
Consumer153
 1
  Total acquired with an allowance recorded153
 1
Total acquired impaired loans and leases14,808
 23
    
Total impaired loans and leases$71,000
 $480

        



31

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

Troubled Debt Restructuring Loans and Lease
The following table sets forth information regarding TDR loans and leases at the dates indicated:
 At March 31, 2020
At December 31, 2019
 (In Thousands)
Troubled debt restructurings:   
On accrual$16,480
 $17,076
On nonaccrual5,819
 6,104
Total troubled debt restructurings$22,299
 $23,180


Total TDR loans and leases decreased by $0.9 million to $22.3 million at March 31, 2020 from $23.2 million at December 31, 2019, driven primarily by the payments on commercial TDRs, partially offset by the advance on a current TDR loan.
The amortized cost basis in TDR loans and the associated specific credit losses for the loan and lease portfolios, that were modified during the periods indicated, are as follows.
 At and for the Three Months Ended March 31, 2020
   Amortized Cost 
Specific
Allowance for
Credit Losses
   
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
  
Nonaccrual
Loans and
Leases
 
Number of
Loans/
Leases
 Amortized Cost
 (Dollars in Thousands)
Originated:             
Commercial real estate
 $
 


 $
 $
 1
 $228
Commercial1
 $297
 $295
 $
 $295
 
 $
Equipment financing2
 200
 200
 
 
 
 
Total3
 $497
 $495
 $
 $295
 1
 $228
______________________________________________________________________
(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 Three Months Ended March 31, 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:             
Commercial real estate1
 $73
 $72
 $9
 $
 1
 $635
Commercial6
 16,754
 16,730
 
 
 3
 1,074
Equipment financing3
 816
 815
 182
 425
 1
 52
Residential mortgage
 
 
 
 
 1
 341
Total originated10
 $17,643
 $17,617
 $191
 $425
 6
 $2,102
______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.
                
                


32

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

The following table sets forth the Company's end-of-period amortized cost basis for TDRs that were modified during the periods indicated, by type of modification.
 Three Months Ended March 31,
 2020 2019
 (In Thousands)
Loans with one modification:   
Extended maturity$295
 $6,319
Combination maturity, principal, interest rate200
 11,298
Total loans with one modification495
 17,617

The TDR loans and leases that were modified for the three months ended March 31, 2020 and 2019 were $0.5 million and $17.6 million, respectively. The decrease in TDR loans and leases that were modified for the three months ended March 31, 2020 was primarily due to the modification of three commercial relationships of $16.5 million.
There were 0 TDR loans and leases with more than one modification during the three months ended March 31, 2020 and 2019.
The net charge-offs for performing and nonperforming TDR loans and leases for the three months ended March 31, 2020 and March 31, 2019 were $134 thousand and $878 thousand, respectively.
The commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs as of March 31, 2020 was $2.3 million. As of March 31, 2019, there were $2.8 million commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs.
The Coronavirus Aid, Relief and Economic Relief ("CARES") Act and regulatory guidance recently issued by the Federal banking agencies provides that certain short-term loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by the COVID-19 pandemic are not required to be treated as TDRs under GAAP. As such, the Company suspended TDR accounting for COVID-19 pandemic related loan modifications meeting the loan modification criteria set forth under the CARES Act or as specified in the regulatory guidance. Further, loans granted payment deferrals related to COVID-19 pandemic are not required to be reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). Please refer to Note 14, Subsequent Events for further information regarding loans and leases modified under the CARES Act.
(6) Goodwill and Other Intangible Assets
The following table sets forth the carrying value of goodwill and other intangible assets at the dates indicated:
 At March 31, 2020 At December 31, 2019
 (In Thousands)
Goodwill (beginning)$160,427
 $160,427
Additions
 
Balance at end of period160,427
 160,427
Other intangible assets:   
Core deposits2,998
 3,334
Trade name1,089
 1,089
Total other intangible assets4,087
 4,423
Total goodwill and other intangible assets$164,514
 $164,850

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 6.1.

33

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

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 2020$935
Year ending: 
2021857
2022500
2023268
2024158
2025104
Thereafter176
Total$2,998

(7) Accumulated Other Comprehensive Income (Loss)
For the three months ended March 31, 2020 and 2019, the Company’s accumulated other comprehensive (loss) income includes the following two components: (i) unrealized holding gains (losses) on investment securities available-for-sale; and (ii) adjustment of accumulated obligation for postretirement benefits.
 
Changes in accumulated other comprehensive income by component, net of tax, were as follows for the periods indicated:
 Three Months Ended March 31, 2020
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at December 31, 2019$2,199
 $84
 $2,283
Other comprehensive income14,664
 
 14,664
Balance at March 31, 2020$16,863
 $84
 $16,947
 Three Months Ended March 31, 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 income5,067
 
 5,067
Balance at March 31, 2019$(4,645) $252
 $(4,393)

      
      

The Company did 0t reclassify any amounts out of accumulated other comprehensive income for the three months ended March 31, 2020 and March 31, 2019.
(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".

34

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

Interest-rate swap, cap and floor agreements are entered into as hedges against future interest-rate fluctuations on specifically identified assets or liabilities. The Company did not have derivative fair value hedges or derivative cash flow hedges as of March 31, 2020 or December 31, 2019.
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 present the Company's customer related derivative positions for the periods indicated below for those derivatives not designated as hedging.
 Notional Amount Maturing
 Number of Positions Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value
 March 31, 2020
 (Dollars In Thousands)
Loan level derivatives               
Receive fixed, pay variable129
 $24,358
 $
 $33,455
 $14,220
 $1,159,063
 $1,231,096
 $154,032
Pay fixed, receive variable129
 24,358
 
 33,455
 14,220
 1,159,063
 1,231,096
 154,032
Risk participation-out agreements40
 13,731
 
 7,110
 12,773
 200,232
 233,846
 2,473
Risk participation-in agreements6
 
 
 
 19,000
 30,279
 49,279
 432
                
Foreign exchange contracts               
Buys foreign currency, sells U.S. currency24
 $1,422
 $
 $
 $
 $
 $1,422
 $200
Sells foreign currency, buys U.S. currency25
 1,530
 
 
 
 
 1,530
 224


35

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, 2019
 (Dollars In Thousands)
Loan level derivatives               
Receive fixed, pay variable119
 $24,777
 $
 $31,131
 $16,794
 $1,028,491
 $1,101,193
 $58,102
Pay fixed, receive variable119
 24,777
 
 31,131
 16,794
 1,028,491
 1,101,193
 58,102
Risk participation-out agreements40
 13,967
 
 
 7,143
 214,583
 235,693
 1,229
Risk participation-in agreements7
 
 
 
 19,000
 36,281
 55,281
 283
                
Foreign exchange contracts               
Buys foreign currency, sells U.S. currency16
 $1,125
 $
 $
 $
 $
 $1,125
 $54
Sells foreign currency, buys U.S. currency18
 1,230
 
 
 
 
 1,230
 53

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 $155.2 million and $86.5 million in the normal course of business as of March 31, 2020 and December 31, 2019, respectively. Dealer counterparties posted 0 collateral to the Company in the normal course of business as of March 31, 2020 and December 31, 2019.
The tables below present the offsetting of derivatives and amounts subject to master netting agreements not offset in the unaudited consolidated balance sheet at the dates indicated.
 At March 31, 2020
 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$154,761
 $
 $154,761
 $
 $
 $154,761
Risk participation-out agreements2,473
 
 2,473
 
 
 2,473
Foreign exchange contracts224
 
 224
 
 
 224
Total$157,458
 $
 $157,458
 $
 $
 $157,458
            
Liability derivatives           
Loan level derivatives$154,761
 $
 $154,761
 $107,697
 $47,516
 $(452)
Risk participation-in agreements432
 
 432
 
 
 432
Foreign exchange contracts200
 
 200
 
 
 200
Total$155,393
 $
 $155,393
 $107,697
 $47,516
 $180

36

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

 At December 31, 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$59,365
 $
 $59,365
 $
 $11,900
 $47,465
Risk participation-out agreements1,229
 
 1,229
 
 
 1,229
Foreign exchange contracts54
 
 54
 
 
 54
Total$60,648
 $
 $60,648
 $
 $11,900
 $48,748
            
Liability derivatives           
Loan level derivatives$59,365
 $
 $59,365
 $86,521
 $
 $(27,156)
Risk participation-in agreements283
 
 283
 
 
 283
Foreign exchange contracts53
 
 53
 
 
 53
Total$59,701
 $
 $59,701
 $86,521
 $
 $(26,820)

The Company has agreements with certain of its derivative counterparties that contain credit-risk-related contingent provisions. These provisions provide the counterparty with the right to terminate its derivative positions and require the Company to settle its obligations under the agreements if the Company defaults on certain of its indebtedness or if the Company fails to maintain its status as a well-capitalized institution.
(9) Stock Based Compensation
As of March 31, 2020, the Company had 2 active equity 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 15 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 the Plans, shares of the Company's common stock were reserved for issuance as restricted stock awards to officers, employees, and non-employee directors of the Company. Shares issued upon vesting may be either authorized but unissued shares or reacquired shares held by the Company as treasury shares. Any shares not issued because vesting requirements are not met will be retired back to treasury and be made available again for issuance under the Plans.
During the three months ended March 31, 2020 and 2019, 0 shares were issued upon satisfaction of required conditions of the Plans.
Total expense for the Plans was $0.6 million and $0.9 million for the three months ended March 31, 2020 and 2019, respectively.

37

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
 March 31, 2020 March 31, 2019
 Basic 
Fully
Diluted
 Basic 
Fully
Diluted
 (Dollars in Thousands, Except Per Share Amounts)
Numerator:       
Net (loss) income$(17,276) $(17,276) $22,467
 $22,467
        
Denominator:       
Weighted average shares outstanding79,481,462
 79,481,462
 79,658,583
 79,658,583
Effect of dilutive securities
 184,312
 
 184,995
Adjusted weighted average shares outstanding79,481,462
 79,665,774
 79,658,583
 79,843,578
        
EPS$(0.22) $(0.22) $0.28
 $0.28


        

(11) Fair Value of Financial Instruments
A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring and non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no changes in the valuation techniques used during the three months ended March 31, 2020 and 2019.

38

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 March 31, 2020
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets: 
  
  
  
Investment securities available-for-sale:       
GSE debentures$
 $237,816
 $
 $237,816
GSE CMOs
 63,527
 
 63,527
GSE MBSs
 328,499
 
 328,499
SBA commercial loan asset-backed securities
 1
 
 1
Municipal obligations
 45,618
 
 45,618
Corporate debt obligations
 25,959
 
 25,959
U.S. Treasury bonds
 59,634
 
 59,634
Foreign government obligations
 485
 
 $485
Total investment securities available-for-sale$
 $761,539
 $
 $761,539
Equity securities held-for-trading$1,527
 $1,031
 $
 $2,558
Loan level derivatives
 154,761
 
 154,761
Risk participation-out agreements
 2,473
 
 2,473
Foreign exchange contracts
 224
 
 224
Liabilities:       
Loan level derivatives$
 $154,761
 $
 $154,761
Risk participation-in agreements
 432
 
 432
Foreign exchange contracts
 200
 
 200

39

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

 Carrying Value as of December 31, 2019
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets:       
Investment securities available-for-sale:       
GSE debentures$
 $185,803
 $
 $185,803
GSE CMOs
 85,932
 
 85,932
GSE MBSs
 153,343
 
 153,343
SBA commercial loan asset-backed securities
 34
 
 34
Corporate debt obligations
 28,986
 
 28,986
U.S. Treasury bonds
 44,897
 
 44,897
Total investment securities available-for-sale$
 $498,995
 $

$498,995
Equity securities held-for-trading$2,569
 $1,012
 $
 $3,581
Loan level derivatives
 59,365
 
 59,365
Risk participation-out agreements
 1,229
 
 1,229
Foreign exchange contracts
 54
 
 54
Liabilities:      

Loan level derivatives$
 $59,365
 $
 $59,365
Risk participation-in agreements
 283
 
 283
Foreign exchange contracts
 53
 
 53

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 March 31, 2020 and December 31, 2019, 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 and Level 2. 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.

40

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

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 months ended March 31, 2020 and 2019, respectively.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below at the dated indicated:
 Carrying Value as of March 31, 2020
 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$
 $
 $8,682
 $8,682
Repossessed assets
 2,038
 
 2,038
Total assets measured at fair value on a non-recurring basis$
 $2,038
 $8,682
 $10,720
 Carrying Value as of December 31, 2019
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets measured at fair value on a non-recurring basis:       
Collateral-dependent impaired loans and leases$
 $
 $2,243
 $2,243
Repossessed assets
 2,631
 
 2,631
Total assets measured at fair value on a non-recurring basis$
 $2,631
 $2,243
 $4,874

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).

41

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

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 March 31,
2020
 At December 31, 2019  
 (Dollars in Thousands)  
Collateral-dependent impaired loans and leases$8,682
 $2,243
 
Appraisal of collateral (1)
_______________________________________________________________________________
(1) Fair value is generally determined through independent appraisals of the underlying collateral. The Company may also use another available source of collateral assessment to determine a reasonable estimate of the fair value of the collateral. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of the unobservable inputs used may vary but is generally 0% - 10% on the discount for costs to sell and 0% - 15% on appraisal adjustments.
Summary of Estimated Fair Values of Financial Instruments
The following table presents the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company's financial instruments at the dates indicated. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, restricted equity securities, and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include non-maturity deposits, short-term borrowings, and accrued interest payable.
     Fair Value Measurements at March 31, 2020
 Carrying
Value
 Estimated
Fair Value
 Level 1
Inputs
 Level 2
Inputs
 Level 3
Inputs
 (In Thousands)
Financial assets:         
Loans and leases, net6,709,346
 6,718,600
 
 
 6,718,600
Restricted equity securities68,472
 68,472
 
 
 68,472
Financial liabilities:         
Certificates of deposits2,023,637
 2,049,775
 
 2,049,775
 
Borrowed funds1,291,804
 1,299,591
 
 1,299,591
 

     Fair Value Measurements at December 31, 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$31,228
 $31,290
 $
 $31,290
 $
GSE MBSs9,360
 9,279
 
 9,279
 
Municipal obligations45,692
 46,514
 
 46,514
 
Foreign government obligations500
 478
 
 
 478
Loans and leases, net6,676,734
 6,697,583
 
 
 6,697,583
Restricted equity securities53,818
 53,818
 
 
 53,818
Financial liabilities:         
Certificates of deposit2,021,642
 2,026,683
 
 2,026,683
 
Borrowed funds902,749
 902,670
 
 902,670
 


42

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

Investment Securities Held-to-Maturity
The fair values of certain investment securities held-to-maturity are estimated using market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include GSE debentures, GSE MBSs, and municipal obligations, all of which are included in Level 2. Additionally, fair values of foreign government obligations are estimated using pricing models and are considered to be Level 3.
Loans 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 credit, 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.

43

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 March 31, 2020
At December 31, 2019
 (In Thousands)
Financial instruments whose contract amounts represent credit risk: 
 
Commitments to originate loans and leases: 
 
Commercial real estate$40,933

$50,034
Commercial93,724

78,058
Residential mortgage52,930

25,998
Unadvanced portion of loans and leases713,352

808,681
Unused lines of credit: 
 
Home equity537,313

528,251
Other consumer25,362

25,374
Other commercial406

380
Unused letters of credit:

 
     Financial standby letters of credit11,094

10,166
Performance standby letters of credit6,107

4,652
Commercial and similar letters of credit3,823

3,823
Loan level derivatives (Notional principal amounts):




Receive fixed, pay variable1,231,096

1,101,193
Pay fixed, receive variable1,231,096

1,101,193
Risk participation-out agreements233,846

235,693
Risk participation-in agreements49,279
 55,281
Foreign exchange contracts (Notional amounts):




Buys foreign currency, sells U.S. currency1,422

1,125
Sells foreign currency, buys U.S. currency1,530

1,230

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 credit 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 a 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 $157.5 million and $155.4 million, respectively, as of March 31, 2020. The fair value of derivative assets and liabilities was $60.6 million and $59.7 million, respectively, as of December 31, 2019.

44

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

The fair value of foreign exchange assets and liabilities was $224 thousand and $200 thousand, respectively, as of March 31, 2020. The fair value of foreign exchange assets and liabilities was $54 thousand and $53 thousand as of December 31, 2019.
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 the date of the lease origination as the discount rate to determine the net present value of the remaining lease payments.
 At March 31, 2020 At March 31, 2019
 (In Thousands)
The components of lease expense were as follow:   
Operating lease cost$1,611
 $1,459
    
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$1,658
 $1,525
Right-of-use assets obtained in exchange for new lease obligations:   
Operating leases$
 $71


 At March 31, 2020 At December 31, 2019
 (In Thousands)
Supplemental balance sheet information related to leases was as follows:   
Operating Leases   
Operating lease right-of-use assets$24,789
 $24,876
Operating lease liabilities24,789
 24,876
    
Weighted Average Remaining Lease Term   
Operating leases7.32
 7.47
    
Weighted Average Discount Rate   
Operating leases3.2% 3.2%



45

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
 March 31, 2020
 (In Thousands)
  
Remainder of 2020$4,608
Year ending: 
20215,560
20224,833
20233,907
20242,547
20251,515
Thereafter4,675
Total$27,645
Less imputed interest(2,856)
Present value of lease liability$24,789

Certain leases contain escalation clauses for real estate taxes and other expenditures, which are not included above. The total real estate taxes were $0.5 million and other expenditures were $0.1 million for the three months ended March 31, 2020 and 2019. Total rental expense was $1.6 million and $1.4 million for the three months ended March 31, 2020 and 2019, respectively.
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 in gross 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.
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.

46

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

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
On March 27, 2020, Congress passed, and the President signed, the CARES Act to address the economic effects of the COVID-19 pandemic.
Paycheck Protection Program. The CARES Act appropriated $349 billion for “paycheck protection loans” through the U.S. Small Business Administration's (“SBA’s”) Paycheck Protection Program (“PPP”). The amount appropriated was subsequently increased to $659 billion. Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by SBA. As of the filing date, the Banks have obtained SBA approval for 2,923 PPP loans totaling $589 million. All PPP loans have been funded. PPP loans are fully guaranteed by the U.S. government, have a two-year term and earn interest at rate of 1%. We currently expect a significant portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. In conjunction with the PPP, the FRB has created a lending facility for qualified financial institutions. The Paycheck Protection Program Liquidity Facility (the “PPPLF”) will extend credit to depository institutions with a term of up to two years at an interest rate of 0.35%. Only loans issued under the PPP can be pledged as collateral to access the facility. The Company began participating in the PPPLF in April 2020.
Troubled Debt Restructuring Relief. From March 1, 2020 through the earlier of December 31, 2020 or 60 days after the termination date of the national emergency declared by the President on March 13, 2020 concerning the COVID-19 outbreak (the “national emergency”), a financial institution may elect to suspend the requirements under accounting principles generally accepted in the U.S. for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a troubled debt restructured, including impairment accounting. This troubled debt restructuring relief applies for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. Financial institutions are required to maintain records of the volume of loans involved in modifications to which troubled debt restructuring relief is applicable. As of the filing date, the banks have granted 5,293 short-term deferments on loan balances of $1.5 billion, which represented 21% of total loan balances as of March 31, 2020. These short-term deferments are not classified as troubled debt restructured loans and will not be reported as past due provided that they are performing in accordance with the modified terms.
CECL Delay. Banks, savings associations, credit unions, bank holding companies and their affiliates are not required to comply with ASU 2016-13, including CECL, from the date of the law’s enactment until the earlier of the end of the national emergency or December 31, 2020. On March 27, 2020, the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency issued an interim final rule that allows banking organizations that are required to adopt CECL this year to mitigate the estimated cumulative regulatory capital effects for up to two years. The relief afforded by the CARES Act and interim final rule is in addition to the three-year transition period already in place. The Company adopted CECL effective January 1, 2020.
Reduction of the Community Bank Leverage Ratio. The CARES Act reduced the community bank leverage ratio from 9% to 8% until the earlier of the end of the national emergency or December 31, 2020. In response to the CARES Act, federal banking regulators set the community bank leverage ratio at 8% for the remainder of 2020, 8.5% for 2021 and 9% thereafter.

47

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

Revival of Bank Debt Guarantee Program. The CARES Act amends the Dodd-Frank Act to provide the FDIC with the authority to guarantee bank-issued debt and noninterest-bearing transaction accounts that exceed the FDIC's $250,000 limit through December 31, 2020. The FDIC has discretion to determine whether and how to exercise this authority.
Forbearance. The CARES Act codifies in part guidance from state and federal regulators and government-sponsored enterprises, including the 60-day suspension of foreclosures on federally-backed mortgages and requirements that servicers grant forbearance to borrowers affected by COVID-19.
Moratorium on Negative Credit Reporting. Any furnisher of credit information that agrees to defer payments, forbear on any delinquent credit or account, or provide any other relief to consumers affected by the COVID-19 pandemic must report the credit obligation or account as current if the credit obligation or account was current before the accommodation.

48


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements, which are based on certain assumptions and describe Brookline Bancorp, Inc.’s (the “Company’s”) future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These statements include, among others, statements regarding the Company’s intent, belief or expectations with respect to economic conditions, trends affecting the Company’s financial condition or results of operations, and the Company’s exposure to market, liquidity, interest-rate and credit risk.
Forward-looking statements are based on the current assumptions underlying the statements and other information with respect to the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and the financial condition, results of operations, future performance and business are only expectations of future results. Although the Company believes that the expectations reflected in the Company’s forward-looking statements are reasonable, the Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; continued deterioration in general business and economic conditions on a national basis and in the local markets in which the Banks operate; continued turbulence 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; changes in the value of securities and other assets in the Company’s investment portfolio; increases 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 incidents, fraud, natural disasters and future pandemics; changes in regulation; reputational risks relating to the Company’s participation in the Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; 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; and the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and other filings submitted to the Securities and Exchange Commission ("SEC"). 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"); and Brookline Securities Corp. As previously disclosed, the merger of First Ipswich Bank into Brookline Bank was completed in the first quarter of 2020.
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 and BankRI, 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, 27.8% of which is in the greater New York and New Jersey metropolitan area and 72.2% of which is in other areas in the United States of America as of March 31, 2020.
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, excellent customer service, and strong risk management.
The Company manages the Banks under a uniform strategic objective, 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

49


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.
The competition for loans and leases and deposits remains intense. 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 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 a Massachusetts-chartered trust company, Brookline Bank is 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 July 31, 2019, Brookline Bank converted its charter from a Massachusetts savings bank to a Massachusetts-chartered trust company and 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. 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 were insured by the DIF on July 31, 2019 will continue to be insured by the DIF until July 31, 2020.  Term deposits in excess of the FDIC insurance coverage will continue to be insured by the DIF until they reach maturity.
The Company’s common stock is traded on the Nasdaq Global Select MarketSM under the symbol “BRKL.”
Regulatory Developments - The CARES Act
On March 27, 2020, Congress passed, and the President signed, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to address the economic effects of the COVID-19 pandemic.
Paycheck Protection Program. The CARES Act appropriated $349 billion for “paycheck protection loans” through the SBA’s PPP. The amount appropriated was subsequently increased to $659 billion. Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by SBA. As of the filing date, Brookline Bank and Bank Rhode Island have obtained SBA approval for 2,923 PPP loans totaling $589 million. All PPP loans have been funded. PPP loans are fully guaranteed by the U.S. government, have a two-year term and earn interest at rate of 1%. We currently expect a significant portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. In conjunction with the PPP, the FRB has created a lending facility for qualified financial institutions. The PPPLF will extend credit to depository institutions with a term of up to two years at an interest rate of 0.35%. Only loans issued under the PPP can be pledged as collateral to access the facility. The Company is participating in the PPPLF program.
Troubled Debt Restructuring Relief. From March 1, 2020 through the earlier of December 31, 2020 or 60 days after the termination date of the national emergency, a financial institution may elect to suspend the requirements under accounting principles generally accepted in the U.S. for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a troubled debt restructured, including impairment accounting. This troubled debt restructuring relief applies for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. Financial institutions are required to maintain records of the volume of loans involved in modifications to which troubled debt restructuring relief is applicable. As of the filing date, the Banks have granted approximately 5,293 short-term deferments on loan balances of $1.5 billion, which represented 21% of total loan balances as of March 31, 2020. These short-term deferments are not classified as troubled debt restructured loans and will not be reported as past due provided that they are performing in accordance with the modified terms.
CECL Delay. Banks, savings associations, credit unions, bank holding companies and their affiliates are not required to comply with ASU 2016-13, including CECL, from the date of the law’s enactment until the earlier of the end of the national emergency or December 31, 2020. On March 27, 2020, the FRB, the FDIC and the Office of the Comptroller of the Currency issued an interim final rule that allows banking organizations that are required to adopt CECL this year to mitigate the estimated cumulative regulatory capital effects for up to two years. The relief afforded by the

50


CARES Act and interim final rule is in addition to the three-year transition period already in place, however the Company adopted CECL effective January 1, 2020.
Reduction of the Community Bank Leverage Ratio. The CARES Act reduced the community bank leverage ratio from 9% to 8% until the earlier of the end of the national emergency or December 31, 2020. In response to the CARES Act, federal banking regulators set the community bank leverage ratio at 8% for the remainder of 2020, 8.5% for 2021 and 9% thereafter.
Revival of Bank Debt Guarantee Program. The CARES Act amends the Dodd-Frank Act to provide the FDIC with the authority to guarantee bank-issued debt and noninterest-bearing transaction accounts that exceed the FDIC's $250,000 limit through December 31, 2020. The FDIC has discretion to determine whether and how to exercise this authority.
Forbearance. The CARES Act codifies in part guidance from state and federal regulators and government-sponsored enterprises, including the 60-day suspension of foreclosures on federally-backed mortgages and requirements that servicers grant forbearance to borrowers affected by COVID-19.
Moratorium on Negative Credit Reporting. Any furnisher of credit information that agrees to defer payments, forbear on any delinquent credit or account, or provide any other relief to consumers affected by the COVID-19 pandemic must report the credit obligation or account as current if the credit obligation or account was current before the accommodation.
Massachusetts COVID-19 Emergency Legislation
On April 20, 2020, legislation enacted in Massachusetts in response to the COVID-19 emergency declared by Governor Baker was signed into law by the Governor. The legislation establishes a temporary moratorium on foreclosures on one- to four-family, owner occupied residential real estate in Massachusetts. The legislation also requires a creditor to grant to a borrower of a mortgage loan secured by one- to four-family, owner occupied residential real estate in Massachusetts a forbearance of up to 180 days, if requested by the borrower, who must affirm that the borrower has experienced a financial impact from the COVID-19 pandemic. A borrower is entitled to request a forbearance while the legislation is in effect even if the borrower is already in default. In connection with a forbearance, a creditor may not charge fees, penalties or interest beyond the amounts scheduled and calculated as if the borrower made all contractual payments on time and in full under the terms of the relevant loan agreement. The legislation specifies that a payment subject to forbearance shall be added to the end of the term of the loan unless otherwise agreed by the parties. The legislation also prohibits a creditor from furnishing negative information to a consumer reporting agency related to mortgage payments subject to forbearance. Because the legislation was enacted on an emergency basis, it went into effect immediately upon being signed into law. The legislation provides that the temporary moratorium on foreclosures expires 120 days after the effective date of the legislation, which is August 18, 2020, or 45 days after the COVID-19 emergency declaration has been lifted, whichever is sooner. The Governor may extend the moratorium in increments of up 90 days as long as the moratorium ends not later than 45 days after the COVID-19 emergency declaration has been lifted. A borrower may request a forbearance under the legislation at any time while the foreclosure moratorium is in effect.


51


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
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
 (Dollars in Thousands, Except Per Share Data)
PER COMMON SHARE DATA         
Earnings per share - Basic$(0.22) $0.28
 $0.28
 $0.26
 $0.28
Earnings per share - Diluted(0.22) 0.28
 0.28
 0.26
 0.28
Book value per share (end of period)11.57
 11.87
 11.70
 11.53
 11.30
Tangible book value per share (end of period) (1)9.49
 9.80
 9.63
 9.45
 9.22
Dividends paid per common share0.115
 0.115
 0.110
 0.110
 0.105
Stock price (end of period)11.28
 16.46
 14.73
 15.38
 14.40
          
PERFORMANCE RATIOS (2)         
Net interest margin (taxable equivalent basis)3.31 % 3.43% 3.45% 3.55% 3.64%
Return on average assets(0.87)% 1.13% 1.17% 1.08% 1.21%
Return on average tangible assets (1)(0.89)% 1.15% 1.19% 1.11% 1.24%
Return on average stockholders' equity(7.30)% 9.42% 9.74% 8.98% 10.14%
Return on average tangible stockholders' equity (1)(8.84)% 11.42% 11.85% 10.98% 12.48%
Dividend payout ratio (1)(53.10)% 41.35% 38.88% 42.87% 37.28%
Efficiency ratio (3)57.36 % 54.15% 56.48% 56.09% 55.83%
          
ASSET QUALITY RATIOS         
Net loan and lease charge-offs as a percentage of average loans and leases (annualized)0.13 % 0.10% 0.02% 0.19% 0.13%
Nonperforming loans and leases as a percentage of total loans and leases0.57 % 0.29% 0.33% 0.33% 0.36%
Nonperforming assets as a percentage of total assets0.49 % 0.28% 0.30% 0.30% 0.36%
Total allowance for loan and lease losses as a percentage of total loans and leases1.66 % 0.91% 0.89% 0.90% 0.91%
          
CAPITAL RATIOS         
Stockholders' equity to total assets10.78 % 12.04% 11.83% 12.03% 11.98%
Tangible equity ratio (1)9.02 % 10.15% 9.94% 10.08% 9.99%
          
FINANCIAL CONDITION DATA         
Total assets$8,461,591
 $7,856,853
 $7,878,436
 $7,636,980
 $7,519,130
Total loans and leases6,822,527
 6,737,816
 6,646,821
 6,505,329
 6,388,197
Allowance for loan and lease losses113,181
 61,082
 59,135
 58,635
 58,041
Investment securities available-for-sale761,539
 498,995
 467,339
 482,497
 489,020
Investment securities held-to-maturity
 86,780
 95,163
 103,572
 113,694
Equity securities held-for-trading2,558
 3,581
 4,581
 4,698
 4,341
Goodwill and identified intangible assets164,514
 164,850
 165,270
 165,691
 166,111
Total deposits5,889,938
 5,830,072
 5,729,339
 5,622,493
 5,620,633
Total borrowed funds1,291,804
 902,749
 986,405
 930,764
 866,005
Stockholders' equity912,568
 945,606
 932,311
 918,468
 900,572
          
          
         (Continued)

52


 At and for the Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
 (Dollars in Thousands, Except Per Share Data)
EARNINGS DATA         
Net interest income$61,712
 $63,931
 $63,236
 $63,134
 $62,999
Provision for credit losses54,114
 3,602
 871
 3,757
 1,353
Non-interest income9,328
 7,756
 7,929
 7,478
 6,630
Non-interest expense40,748
 38,815
 40,191
 39,604
 38,871
Net (loss) income(17,276) 22,183
 22,596
 20,471
 22,467
_______________________________________________________________________________
(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 $8.5 billion as of March 31, 2020 increased $604.7 million, or 30.8% on an annualized basis, from December 31, 2019. The increase was primarily driven by growth in cash and cash equivalents, investment securities, and the loan portfolio.
Total loans and leases as of March 31, 2020 increased $84.7 million, or 5.0% on an annualized basis, to $6.8 billion from December 31, 2019. The Company's commercial loan portfolios, which are comprised of commercial real estate loans and commercial loans and leases, totaled $5.6 billion, or 81.9% of total loans and leases, as of March 31, 2020, an increase of $81.1 million, or 5.9% on an annualized basis, from $5.5 billion, or 81.7% of total loans and leases, as of December 31, 2019.
Cash and cash equivalents as of March 31, 2020 increased $263.0 million, or 1,352.2% on an annualized basis, to $340.8 million from December 31, 2019. Investment securities as March 31, 2020 increased $174.7 million, or 118.6% on annualized basis, to $764.1 million from December 31, 2019.
Total deposits of $5.9 billion as of March 31, 2020 increased $59.9 million, or 4.1% on an annualized basis, from December 31, 2019. Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $3.9 billion, or 65.6% of total deposits as of March 31, 2020, an increase of $57.9 million, or 6.1% on an annualized basis from $3.8 billion, or 65.3% of total deposits, as of December 31, 2019. Certificate of deposit balances totaled $2.0 billion, or 34.4% of total deposits as of March 31, 2020, an increase of $2.0 million, or 0.4% on an annualized basis from $2.0 billion, or 34.7% of total deposits, as of December 31, 2019.
Total borrowed funds as of March 31, 2020 increased $389.1 million, or 172.4% on an annualized basis, to $1.3 billion from December 31, 2019.
Asset Quality
Nonperforming assets as of March 31, 2020 totaled $41.1 million, or 0.49% of total assets, compared to $22.1 million, or 0.28% of total assets, as of December 31, 2019. Net charge-offs for the three months ended March 31, 2020 were $2.2 million, or 0.13% of average loans and leases on an annualized basis, compared to $2.1 million, or 0.13% of average loans and leases on an annualized basis, for the three months ended March 31, 2019.
The ratio of the allowance for loan and lease losses to total loans and leases was 1.66% as of March 31, 2020, compared to 0.91% as of December 31, 2019. On January 1, 2020, the Company implemented the CECL methodology to calculate the allowance for credit losses. Refer also to Note 5, "Allowance for Loan and Lease Losses."
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 10.42% as of March 31, 2020, compared to 11.44% as of December 31, 2019. The Company's Tier 1 leverage ratio was 9.54% as of March 31, 2020, compared to 10.28% as of December 31, 2019. As of March 31, 2020, the Company's Tier 1 risk-based capital ratio was 10.55%, compared to 11.58% as of December 31, 2019. The Company's Total risk-based capital ratio was 12.86% as of March 31, 2020, compared to 13.59% as of December 31, 2019.

53


The Company's ratio of stockholders' equity to total assets was 10.78% and 12.04% as of March 31, 2020 and December 31, 2019, respectively. The Company's tangible equity ratio was 9.02% and 10.15% as of March 31, 2020 and December 31, 2019, respectively.
Net Income (Loss)
For the three months ended March 31, 2020, the Company reported a net loss of $(17.3) million, or $(0.22) per basic and diluted share, a decrease of $39.7 million, from net income of $22.5 million, or $0.28 per basic and diluted share for the three months ended March 31, 2019. This net loss is primarily the result of an increase in the provision for credit losses of $52.8 million, a decrease in net interest income of $1.3 million, and an increase in non-interest expense of $1.9 million, partially offset by an increase in non-interest income of $2.7 million and a decrease in the provision for income taxes of $13.4 million. Refer to “Results of Operations" below for further discussion.
The annualized return on average assets was (0.87)% for the three months ended March 31, 2020, compared to 1.21% for the three months ended March 31, 2019. The annualized return on average stockholders' equity was (7.30)% for the three months ended March 31, 2020, compared to 10.14% for the three months ended March 31, 2019.
The net interest margin was 3.31% for the three months ended March 31, 2020, down from 3.64% for the three months ended March 31, 2019. The decrease in the net interest margin is a result of a decrease in the yield on interest-earning assets of 38 basis points to 4.46% for the three months ended March 31, 2020 from 4.84% for the three months ended March 31, 2019, partially offset by a decrease of 10 basis points in the Company's overall cost of funds to 1.29% for the three months ended March 31, 2020 from 1.39% for the three months ended March 31, 2019.
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 and deposit categories.
Critical Accounting Policies
The SEC defines “critical accounting policies” as those involving significant judgments and difficult or complex assumptions by management, often as a result of the need to make estimates about matters that are inherently uncertain or variable, which have, or could have, a material impact on the carrying value of certain assets or net income. The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. As discussed in the Company’s 2019 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.

As a result of the adoption of ASU 2016-13 effective January 1, 2020, the Company updated its critical accounting policy for the allowance of credit losses on loans. The updates in this standard replace the incurred loss impairment methodology in current GAAP with the CECL methodology. The CECL methodology incorporates current condition, and "reasonable and supportable" forecasts, as well as prepayments, to estimate loan losses over the life of the loan. See Note 5: "Allowance for Loan and Lease Losses" for further discussion on the new policy and processes.

Recent Accounting Developments

In March 2020, the FASB issued ASU 2020-04, " Reference Rate Reform (Topic 848)-Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04") to provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients provided that those elections are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31,2022 and do not apply to contract modifications made after December 31, 2022. The Company has not yet adopted the amendments in this update and is currently in the process of reviewing its contracts and existing processes in order to assess the risks and potential impact to the Company.

In August 2018, FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General

54


(Subtopic 715-20)" ("ASU 2018-14"), to modify the disclosure requirements for employers that sponsor defined benefit pension or other
postretirement plans. This ASU is effective for fiscal years beginning after December 15, 2020, for public business entities and
for fiscal years beginning 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 March 31, 2020.
 




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, and dividend payout ratio. 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 
 March 31,
 2020 2019
 (Dollars in Thousands)
Net (loss) income, as reported$(17,276) $22,467
Less:   
Security gains (after-tax)964
 103
Operating earnings$(18,240) $22,364
    
Basic earnings per share, as reported$(0.22) $0.28
Less:   
Security gains (after-tax)0.01
 
Basic operating earnings per share$(0.23) $0.28


55



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
 March 31,
2020
 December 31,
2019
 September 30,
2019
 June 30,
2019
 March 31,
2019
 (Dollars in Thousands)
Operating (loss) earnings$(18,240) $22,082
 $23,528
 $20,203
 $22,364
          
Average total assets$7,965,826
 $7,860,593
 $7,746,492
 $7,571,396
 $7,434,038
Less: Average goodwill and average identified intangible assets, net164,701
 165,071
 165,493
 165,914
 166,327
Average tangible assets$7,801,125
 $7,695,522
 $7,580,999
 $7,405,482
 $7,267,711
          
Return on average assets (annualized)(0.87)% 1.13% 1.17 % 1.08% 1.21%
Less:         
Security gains (losses)0.05 % 0.01%  % 0.01% 0.01%
Add:         
Merger and restructuring-related expenses % % 0.04 % % %
Operating return on average assets (annualized)(0.92)% 1.12% 1.21 % 1.07% 1.20%
          
Return on average tangible assets (annualized)(0.89)% 1.15% 1.19 % 1.11% 1.24%
Less:         
Security gains (losses)0.05 % 0.01%  % 0.02% 0.01%
Add:         
Merger and restructuring-related expenses % % 0.05 % % %
Operating return on average tangible assets (annualized)(0.94)% 1.15% 1.24 % 1.09% 1.23%
          
Average total stockholders' equity$946,138
 $941,891
 $928,063
 $911,824
 $886,639
Less: Average goodwill and average identified intangible assets, net164,701
 165,071
 165,493
 165,914
 166,327
Average tangible stockholders' equity$781,437
 $776,820
 $762,570
 $745,910
 $720,312
          
Return on average stockholders' equity (annualized)(7.30)% 9.42% 9.74 % 8.98% 10.14%
Less:         
Security gains (losses)0.41 % 0.04% (0.04)% 0.12% 0.05%
Add:         
Merger and restructuring-related expenses % % 0.36 % % %
Operating return on average stockholders' equity (annualized)(7.71)% 9.38% 10.14 % 8.86% 10.09%
          
          
          
          
         (Continued)

56


 Three Months Ended
 March 31,
2020
 December 31,
2019
 September 30,
2019
 June 30,
2019
 March 31,
2019
 (Dollars in Thousands)
Return on average tangible stockholders' equity (annualized)(8.84)% 11.42% 11.85 % 10.98% 12.48%
Less:         
Security gains (losses)0.49 % 0.05% (0.05)% 0.15% 0.06%
Add:         
Merger and restructuring-related expenses % % 0.44 % % %
Operating return on average tangible stockholders' equity (annualized)(9.33)% 11.37% 12.34 % 10.83% 12.42%

 Three Months Ended
 March 31,
2020

December 31,
2019

September 30, 2019
June 30,
2019

March 31,
2019
 (Dollars in Thousands)
Net (loss) income, as reported$(17,276) $22,183
 $22,596
 $20,471
 $22,467
          
Average total assets$7,965,826
 $7,860,593
 $7,746,492
 $7,571,396
 $7,434,038
Less: Average goodwill and average identified intangible assets, net164,701

165,071

165,493

165,914

166,327
Average tangible assets$7,801,125
 $7,695,522
 $7,580,999
 $7,405,482
 $7,267,711
          
Return on average tangible assets (annualized)(0.89)% 1.15% 1.19% 1.11% 1.24%
          
Average total stockholders' equity$946,138
 $941,891
 $928,063
 $911,824
 $886,639
Less: Average goodwill and average identified intangible assets, net164,701
 165,071
 165,493
 165,914
 166,327
Average tangible stockholders' equity$781,437
 $776,820
 $762,570
 $745,910
 $720,312
          
Return on average tangible stockholders' equity (annualized)(8.84)% 11.42% 11.85% 10.98% 12.48%

The following table reconciles the Company's tangible equity ratio for the periods indicated:
 Three Months Ended
 March 31,
2020
 December 31,
2019
 September 30,
2019
 June 30,
2019
 March 31,
2019
 (Dollars in Thousands)
Total stockholders' equity$912,568
 $945,606
 $932,311
 $918,468
 $900,572
Less: Goodwill and identified intangible assets, net164,514
 164,850
 165,270
 165,691
 166,111
Tangible stockholders' equity$748,054
 $780,756
 $767,041
 $752,777
 $734,461
          
Total assets$8,461,591
 $7,856,853
 $7,878,436
 $7,636,980
 $7,519,130
Less: Goodwill and identified intangible assets, net164,514
 164,850
 165,270
 165,691
 166,111
Tangible assets$8,297,077
 $7,692,003
 $7,713,166
 $7,471,289
 $7,353,019
          
Tangible equity ratio9.02% 10.15% 9.94% 10.08% 9.99%


57


The following table reconciles the Company's tangible book value per share for the periods indicated:
 Three Months Ended
 March 31,
2020
 December 31,
2019
 September 30, 2019 June 30,
2019
 March 31,
2019
 (Dollars in Thousands)
Tangible stockholders' equity$748,054
 $780,756
 $767,041
 $752,777
 $734,461
          
Common shares issued85,177,172
 85,177,172
 85,177,172
 85,177,172
 85,177,172
Less:         
Treasury shares5,862,811
 5,003,127
 5,003,127
 5,025,764
 5,020,025
Unallocated ESOP72,441
 79,548
 92,337
 98,208
 104,079
Unvested restricted stock395,085
 406,450
 407,784
 377,122
 390,636
Common shares outstanding78,846,835
 79,688,047
 79,673,924
 79,676,078
 79,662,432
          
Tangible book value per share$9.49
 $9.80
 $9.63
 $9.45
 $9.22

The following table reconciles the Company's dividend payout ratio for the periods indicated:
 Three Months Ended
 March 31,
2020
 December 31,
2019
 September 30, 2019 June 30,
2019
 March 31,
2019
 (Dollars in Thousands)
Dividends paid$9,173
 $9,173
 $8,786
 $8,775
 $8,375
          
Net (loss) income, as reported$(17,276) $22,183
 $22,596
 $20,471
 $22,467
          
Dividend payout ratio(53.10)% 41.35% 38.88% 42.87% 37.28%

          


58


Financial Condition
Loans and Leases
The following table summarizes the Company's portfolio of loans and leases receivables as of the dates indicated:
 At March 31, 2020 At December 31, 2019
 Balance 
Percent
of Total
 Balance 
Percent
of Total
 (Dollars in Thousands)
Commercial real estate loans:       
Commercial real estate$2,526,923
 37.0% $2,491,011
 37.0%
Multi-family mortgage963,273
 14.1% 932,163
 13.8%
Construction271,962
 4.0% 246,048
 3.7%
Total commercial real estate loans3,762,158
 55.1% 3,669,222
 54.5%
Commercial loans and leases:       
Commercial719,208
 10.5% 729,502
 10.8%
Equipment financing1,055,053
 15.5% 1,052,408
 15.6%
Condominium association52,605
 0.8% 56,838
 0.8%
Total commercial loans and leases1,826,866
 26.8% 1,838,748
 27.2%
Consumer loans:       
Residential mortgage810,186
 11.9% 814,245
 12.1%
Home equity388,550
 5.7% 376,819
 5.6%
Other consumer34,767
 0.5% 38,782
 0.6%
Total consumer loans1,233,503
 18.1% 1,229,846
 18.3%
Total loans and leases6,822,527
 100.0% 6,737,816
 100.0%
Allowance for loan and lease losses(113,181)   (61,082)  
Net loans and leases$6,709,346
   $6,676,734
  

The following table sets forth the growth in the Company’s loan and lease portfolios during the three months ended March 31, 2020:
 At March 31,
2020
 At December 31,
2019
 Dollar Change 
Percent Change
(Annualized)
 (Dollars in Thousands)
Commercial real estate$3,762,158
 $3,669,222
 $92,936
 10.1 %
Commercial1,826,866
 1,838,748
 (11,882) -2.6 %
Consumer1,233,503
 1,229,846
 3,657
 1.2 %
Total loans and leases$6,822,527
 $6,737,816
 $84,711
 5.0 %
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 Company's Credit Committee. As of March 31, 2020, there were 2 borrowers with loans and

59


commitments over $50.0 million. The total of those loans and commitments was $107.3 million, or 1.32% of total loans and commitments, as of March 31, 2020. As of December 31, 2019, there were 3 borrowers with loans and commitments over $50.0 million. The total of those loans and commitments was $194.3 million, or 2.40% of total loans and commitments, as of December 31, 2019.
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 55.1% of total loans and leases outstanding as of March 31, 2020.
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 ($927.7 million), office buildings ($722.8 million), retail stores ($606.2 million), industrial properties ($451.2 million), mixed-use properties ($323.1 million), lodging services ($148.5 million) and food services ($61.7 million) as of March 31, 2020. 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.

60


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 26.8% of total loans outstanding as of March 31, 2020.
The Company's commercial loan and lease portfolio is composed primarily of loans to small to medium sized businesses ($638.0 million), transportation services ($376.8 million), food services ($152.2 million), recreation services ($116.0 million), manufacturing ($101.4 million), retail ($87.4 million), and rental and leasing services ($90.0 million) as of March 31, 2020.
The Company provides commercial banking services to companies in its market area. Approximately 45.3% of the commercial loans outstanding as of March 31, 2020 were made to borrowers located in New England. The remaining 54.7% of the commercial loans outstanding were made to borrowers in other areas in the United States of America, primarily by the Company's equipment financing divisions. Product offerings include lines of credit, term loans, letters of credit, deposit services and cash management. These types of credit facilities have as their primary source of repayment cash flows from the operations of a business. Interest rates offered are available on a floating basis tied to the prime rate or a similar index or on a fixed-rate basis referenced on the Federal Home Loan Bank of Boston ("FHLBB") index.
Credit extensions are made to established businesses on the basis of loan purpose and assessment of capacity to repay as determined by an analysis of their financial statements, the nature of collateral to secure the credit extension and, in most instances, the personal guarantee of the owner of the business as well as industry and general economic conditions. The Company also participates in U.S. Government programs such the SBA as the 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 24.3% of the commercial loans outstanding in the equipment financing division 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 18.1% of total loans outstanding as of March 31, 2020. 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.

61


Other consumer loans have historically been a modest part of the Company's loan originations. As of March 31, 2020, other consumer loans equaled $34.8 million, or 0.5% of total loans outstanding.
Asset Quality
Criticized and Classified Assets
The Company's management rates certain loans and leases as "other assets especially mentioned" ("OAEM"), "substandard" or "doubtful" based on criteria established under banking regulations.These loans and leases are collectively referred to as "criticized" assets. Loans and leases rated OAEM have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the loan or lease at some future date. Loans and leases rated as substandard are inadequately protected by the payment capacity of the obligor or of the collateral pledged, if any. Substandard loans and leases have a well-defined weakness or weaknesses that jeopardize the liquidation of debt and are characterized by the distinct possibility that the Company will sustain some loss if existing deficiencies are not corrected. Loans and leases rated as doubtful have well-defined weaknesses that jeopardize the orderly liquidation of debt and partial loss of principal is likely. As of March 31, 2020, the Company had $62.8 million of total assets that were designated as criticized. This compares to $67.2 million of assets designated as criticized as of December 31, 2019. The decrease of $4.4 million in criticized assets was primarily due to the pay-off of a criticized commercial loan and an upgrade to pass risk rating of another commercial loan, partially offset by loans becoming criticized during the first three months of 2020.
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. Prior to the adoption of ASC 326, loans categorized as ASC 310-30 accrued regardless of past due status. 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 or reasonably expects to make 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.
As of March 31, 2020, the Company had nonperforming assets of $41.1 million, representing 0.49% of total assets, compared to nonperforming assets of $22.1 million, or 0.28% of total assets as of December 31, 2019. The increase in nonperforming assets was primarily driven by the inclusion of $9.7 million of ASC 310-30 loans previously categorized in nonperforming assets and one commercial relationship of $8.5 million that was placed on nonaccrual status, partially offset by a decrease in other repossessed assets during first three months of 2020.
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.        

62


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. Prior to the adoption of ASC 326, loans categorized as ASC 310-30 accrued 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 March 31, 2020, the Company had loans and leases greater than 90 days past due and accruing of $1.0 million, or 0.02% of total loans and leases, compared to $10.1 million, or 0.15% of total loans and leases, as of December 31, 2019, representing a decrease of $9.1 million. The decrease in past due and accruing loans was primarily due to $9.1 million of past due and accruing acquired loans previously accounted for under ASC 310-30, which are now disclosed as being on non-accrual status.
The following table sets forth information regarding nonperforming assets for the periods indicated:
 At March 31, 2020 At December 31, 2019
 (Dollars in Thousands)
Nonperforming loans and leases:   
Nonaccrual loans and leases:   
Commercial real estate$10,937
 $2,845
Multi-family mortgage85
 84
Total commercial real estate loans11,022
 2,929
    
Commercial12,991
 4,909
Equipment financing10,356
 9,822
Condominium association203
 151
Total commercial loans and leases23,550
 14,882
    
Residential mortgage3,446
 753
Home equity1,059
 896
Other consumer7
 1
Total consumer loans4,512
 1,650
    
Total nonaccrual loans and leases39,084
 19,461
    
Other repossessed assets2,038
 2,631
Total nonperforming assets$41,122
 $22,092
    
Loans and leases past due greater than 90 days and accruing$1,045
 $10,109
Total delinquent loans and leases 61-90 days past due17,225
 4,978
Restructured loans and leases not included in nonperforming assets16,480
 17,076
    
Total nonperforming loans and leases as a percentage of total loans and leases0.57% 0.29%
Total nonperforming assets as a percentage of total assets0.49% 0.28%
Total delinquent loans and leases 61-90 days past due as a percentage of total loans and leases0.25% 0.07%

63



Troubled Debt Restructuring Loans and Leases
Total TDR loans decreased by $0.9 million to $22.3 million at March 31, 2020 from $23.2 million at December 31, 2019. The decrease primarily resulted from the payments of TDR loans during the first three months of 2020.
As of March 31, 2020, total TDR loans included $9.6 million of commercial loans, $5.1 million of equipment financing loans and leases, $2.2 million of residential mortgage loans, $2.0 million of home equity loans, $1.7 million of commercial real estate loans, $1.5 million of construction loans, and $0.1 million of multi-family mortgage loans. As of December 31, 2019, total TDR loans included $9.0 million of commercial loans, $5.6 million of equipment financing loans and leases, $2.1 million of residential mortgage loans, $1.9 million of home equity loans, $1.7 million of commercial real estate loans, $2.9 million of construction loans and $0.1 million of multi-family mortgage loans. A TDR loan is a loan for which the maturity date was extended, the principal was reduced, and/or the interest rate was modified to drop the required monthly payment to a more manageable amount for the borrower.
The following table sets forth information regarding TDR loans and leases at the dates indicated:
 At March 31, 2020 At December 31, 2019
 (Dollars in Thousands)
Troubled debt restructurings: 
  
On accrual$16,480
 $17,076
On nonaccrual5,819
 6,104
Total troubled debt restructurings$22,299
 $23,180

Changes in TDR loans and leases were as follows for the periods indicated:
 Three Months Ended March 31,
 2020
2019
 (Dollars in Thousands)
Balance at beginning of period$23,180
 $20,941
Additions497
 17,643
Net charge-offs(140) (878)
Repayments(1,238) (1,566)
Balance at end of period$22,299
 $36,140

Allowances for Credit Losses
The allowance for credit losses consists of general and specific allowances and reflects management's estimate of expected 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 credit losses on a quarterly basis. Management continuously evaluates and challenges inputs and assumptions in the allowance for credit losses.
While management evaluates currently available information in establishing the allowance for credit 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 credit 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 credit 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 allowance methodology provides a quantification of probable losses in the portfolio. Under the current methodology, management estimates losses over the life of the loan using reasonable and supportable forecasts. Forecasts, loan data, and model documentation is extensively analyzed and reviewed throughout the quarter to ensure estimated losses are accurate at quarter end.
The following tables present the changes in the allowance for loan and lease losses by portfolio category for the three months ended March 31, 2020 and 2019.

64


 At and for the Three Months Ended March 31, 2020
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2019$30,285
 $24,826
 $5,971
 $61,082
Adoption of ASU 2016-13 (CECL)11,694
 (2,672) (2,390) 6,632
Charge-offs
 (2,527) (12) (2,539)
Recoveries
 247
 58
 305
Provision for loan and lease losses40,200
 6,900
 601
 47,701
Balance at March 31, 2020$82,179
 $26,774
 $4,228
 $113,181
        
Total loans and leases$3,762,158
 $1,826,866
 $1,233,503
 $6,822,527
Total allowance for loan and lease losses as a percentage of total loans and leases2.18% 1.47% 0.34% 1.66%
 At and for the Three Months Ended March 31, 2019
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2018$28,187
 $25,283
 $5,222
 $58,692
Charge-offs
 (2,512) (30) (2,542)
Recoveries
 388
 53
 441
Provision for loan and lease losses162
 1,081
 207
 1,450
Balance at March 31, 2019$28,349
 $24,240
 $5,452
 $58,041
        
Total loans and leases$3,410,468
 $1,786,582
 $1,191,147
 $6,388,197
Total allowance for loan and lease losses as a percentage of total loans and leases0.83% 1.36% 0.46% 0.91%
        
        
Beginning January 1, 2020, the Company implemented the CECL methodology to calculate the allowance for credit losses. As of January 1, 2020, the Company increased the allowance for loan and lease losses by $6.6 million due to CECL which requires the inclusion of the credit losses over the expected life of the loans, as well as consideration of the risks based on the current conditions and reasonable and supportable forecasts about the future.
At March 31, 2020, the allowance for loan and lease losses increased to $113.2 million, or 1.66% of total loans and leases outstanding, as a result of the latest available forecast of economic effect of the COVID-19 pandemic on the Company's loan and lease portfolios. This compared to an allowance for loan and lease losses of $61.1 million, or 0.91% of total loans and leases outstanding, as of December 31, 2019. Prior to January 1, 2020, the Company calculated the allowance for loan and lease losses using the incurred losses methodology.
Net charge-offs in the loans and leases for the three months ended March 31, 2020 and March 31, 2019 were $2.2 million and $2.1 million, respectively. As a percentage of average loans and leases, annualized net charge-offs for the three months ended March 31, 2020 and March 31, 2019 were 0.13% and 0.13%, respectively.
Management believes that the allowance for loan and lease losses as of March 31, 2020 is appropriate.
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.

65


 At March 31, 2020 At December 31, 2019
 Amount 
Percent of
Allowance in Each Category
to Total
Allowance
 
Percent of
Loans
in Each
Category to
Total
Loans
 Amount 
Percent of
Allowance in Each Category
to Total Allowance
 
Percent of
Loans
in Each
Category to
Total
Loans
 (Dollars in Thousands)
Commercial real estate$47,090
 41.7% 37.0% $21,519
 35.3% 37.0%
Multi-family mortgage21,472
 19.0% 14.1% 6,436
 10.5% 13.8%
Construction13,617
 12.0% 4.0% 2,330
 3.8% 3.7%
Total commercial real estate loans82,179
 72.7% 55.1% 30,285
 49.6% 54.5%
Commercial11,140
 9.8% 10.5% 12,849
 21.0% 10.8%
Equipment financing15,524
 13.7% 15.5% 11,595
 19.0% 15.6%
Condominium association110
 0.1% 0.8% 382
 0.6% 0.8%
Total commercial loans and leases26,774
 23.6% 26.8% 24,826
 40.6% 27.2%
Residential mortgage1,638
 1.4% 11.9% 3,717
 6.1% 12.1%
Home equity2,394
 2.1% 5.7% 2,132
 3.5% 5.6%
Other consumer196
 0.2% 0.5% 122
 0.2% 0.6%
Total consumer loans4,228
 3.7% 18.1% 5,971
 9.8% 18.3%
Total$113,181
 100.0% 100.0% $61,082
 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 increased $437.8 million, or 262.4% on an annualized basis, to $1.1 billion as of March 31, 2020 from $667.1 million as of December 31, 2019. The increase was driven by increases in total cash, cash equivalents and investment securities. Cash, cash equivalents, and investment securities were 13.1% of total assets as of March 31, 2020, compared to 8.5% of total assets at December 31, 2019.

66


The following table sets forth certain information regarding the amortized cost and market value of the Company's investment securities at the dates indicated:
 At March 31, 2020 At December 31, 2019
 
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$231,779
 $237,817
 $182,922
 $185,803
GSE CMOs62,391
 63,527
 87,001
 85,932
GSE MBSs319,088
 328,498
 153,049
 153,343
SBA commercial loan asset- backed securities1
 1
 34
 34
Municipal obligations44,976
 45,618
 
 
Corporate debt obligations25,389
 25,959
 28,484
 28,986
U.S. Treasury bonds55,776
 59,634
 44,675
 44,897
Foreign government obligations$500
 $485
    
Total investment securities available-for-sale$739,900
 $761,539
 $496,165
 $498,995
Investment securities held-to-maturity:       
GSE debentures$
 $
 $31,228
 $31,290
GSE MBSs
 
 9,360
 9,279
Municipal obligations
 
 45,692
 46,514
Foreign government obligations
 
 500
 478
Total investment securities held-to-maturity$
 $
 $86,780
 $87,561
Equity securities held-for-trading  $2,558
   $3,581

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 and Level 2. Certain fair values are estimated using pricing models and are included in Level 3.

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

Maturities, calls and principal repayments for investment securities available-for-sale totaled $25.5 million for the three months ended March 31, 2020 compared to $19.9 million for the same period in 2019. For the three months ended March 31, 2020, the Company sold $86.4 million of investment securities available for sale , compared to none for the same period in 2019. For the three months ended March 31, 2020, the Company purchased $273.3 million of investment securities available-for-sale, compared to none for the same period in 2019.

Maturities, calls and principal repayments for investment securities held-to-maturity totaled $6.3 million for the three months ended March 31, 2020 compared to $1.5 million for the same period in 2019. There were no sales of investment securities held-to-maturity for the three months ended March 31, 2020 and 2019. For the three months ended March 31, 2020, the Company did not purchase any investment securities held-to-maturity, compared to $0.5 million in purchases of investment

67


securities held-to-maturity for the same period in 2019. During the three months ended March 31, 2020, all held-to-maturity securities were transferred to the available-for-sale portfolio.
As of March 31, 2020, the fair value of all investment securities available-for-sale was $761.5 million and carried a total of $21.6 million of net unrealized gains, compared to a fair value of $499.0 million and net unrealized gains of $2.8 million as of December 31, 2019. As of March 31, 2020, $58.8 million, or 7.7%, of the portfolio, had gross unrealized losses of $0.3 million. This compares to $205.6 million, or 41.2%, of the portfolio with gross unrealized losses of $1.8 million as of December 31, 2019. The Company's unrealized gain position has increased in 2020 driven by lower long-term interest rates.
As of December 31, 2019, the fair value of all investment securities held-to-maturity was $87.6 million and net unrealized gains of $0.8 million. As of December 31, 2019, $22.3 million, or 25.5%, of the portfolio had gross unrealized losses of $0.2 million.
Restricted Equity Securities
FHLBB Stock—The Company invests in the stock of the FHLBB as one of the requirements to borrow from the FHLBB. The Company maintains an excess balance of capital stock, which allows for additional borrowing capacity at each of the Banks. As of March 31, 2020, the excess balance of capital stock was $0.4 million, as compared to a $0.7 million excess balance as of December 31, 2019.
As of March 31, 2020, the Company owned stock in the FHLBB with a carrying value of $50.1 million, an increase of $14.6 million from $35.5 million as of December 31, 2019. As of March 31, 2020, the FHLBB had total assets of $68.9 billion and total capital of $3.5 billion, of which $1.5 billion was retained earnings. The FHLBB stated that it remained in compliance with all regulatory capital ratios as of March 31, 2020 and was classified as "adequately capitalized" by its regulator, based on the FHLBB's financial information as of December 31, 2019.
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 March 31, 2020, the Company owned stock in the Federal Reserve Bank of Boston with a carrying value of $18.1 million, unchanged from December 31, 2019.
Other Stock—The Company invests in a small number of other restricted equity securities which includes Infinex and American Financial Exchange. As of March 31, 2020, the Company owned stock in other restricted equity securities with a carrying value of $0.3 million, unchanged from December 31, 2019.
Deposits

The following table presents the Company's deposit mix at the dates indicated.
 At March 31, 2020 At December 31, 2019
 Amount 
Percent
of Total
 
Weighted
Average
Rate
 Amount 
Percent
of Total
 
Weighted
Average
Rate
 (Dollars in Thousands)
Non-interest-bearing deposits:           
Demand checking accounts$1,175,329
 20.0% % $1,141,578
 19.6% %
Interest-bearing deposits:           
NOW accounts361,854
 6.1% 0.11% 371,380
 6.4% 0.11%
Savings accounts653,026
 11.1% 0.31% 613,467
 10.5% 0.46%
Money market accounts1,676,092
 28.5% 0.59% 1,682,005
 28.9% 1.15%
Certificate of deposit accounts2,023,637
 34.4% 2.15% 2,021,642
 34.7% 2.26%
Total interest-bearing deposits4,714,609
 80.0% 1.19% 4,688,494
 80.4% 1.46%
Total deposits$5,889,938
 100.0% 0.95% $5,830,072
 100.0% 1.17%

Total deposits increased $59.9 million to $5.9 billion as of March 31, 2020, compared to $5.8 billion as of December 31, 2019. Deposits as a percentage of total assets decreased to 69.6% as of March 31, 2020, compared to 74.2% as of December 31, 2019.

As of March 31, 2020, the Company had $354.1 million of brokered deposits compared to $349.9 million as of December 31, 2019. 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.

68


Brokered deposits are included in the certificate of deposit balance, which increased $2.0 million during the three months ended March 31, 2020. Certificates of deposit have also decreased as a percentage of total deposits to 34.4% as of March 31, 2020 from 34.7% as of December 31, 2019.

During the three months ended March 31, 2020, core deposits increased $57.9 million. The ratio of core deposits to total deposits increased from 65.3% as of December 31, 2019 to 65.6% as of March 31, 2020, 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 March 31,
 2020 2019
 
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$1,134,314
 19.4% % $1,026,970
 18.6% %
NOW accounts359,641
 6.2% 0.13% 334,167
 6.1% 0.17%
Savings accounts626,945
 10.7% 0.41% 626,414
 11.4% 0.39%
Money market accounts1,678,649
 28.7% 1.02% 1,676,199
 30.4% 1.28%
Total core deposits3,799,549
 65.1% 0.53% 3,663,750
 66.5% 0.66%
Certificate of deposit accounts2,040,903
 34.9% 2.22% 1,844,511
 33.5% 2.18%
Total deposits$5,840,452
 100.0% 1.11% $5,508,261
 100.0% 1.16%
            

As of March 31, 2020 and December 31, 2019, the Company had outstanding certificates of deposit of $250,000 or more, maturing as follows:
 At March 31, 2020 At December 31, 2019
 Amount 
Weighted
Average Rate
 Amount 
Weighted
Average Rate
 (Dollars in Thousands)
Maturity period:       
Six months or less$209,959
 2.20% $198,279
 2.23%
Over six months through 12 months187,300
 2.37% 174,154
 2.43%
Over 12 months158,410
 2.37% 185,078
 2.56%
Total certificate of deposit of $250,000 or more$555,669
 2.30% $557,511
 2.40%

69


Borrowed Funds
The following table sets forth certain information regarding advances from the FHLBB, subordinated debentures and notes and other borrowed funds for the periods indicated:
 Three Months Ended 
 March 31,
 2020 2019
 (Dollars in Thousands)
Borrowed funds:   
Average balance outstanding$947,123
 $927,593
Maximum amount outstanding at any month-end during the period1,291,804
 987,835
Balance outstanding at end of period1,291,804
 866,005
Weighted average interest rate for the period2.33% 2.65%
Weighted average interest rate at end of period1.76% 2.72%
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.
FHLBB borrowings increased by $379.0 million to $1.1 billion as of March 31, 2020 from the December 31, 2019 balance of $758.5 million. The increase in FHLBB borrowings was primarily due to an increase in new advances from the FHLBB to support asset growth.
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 rate 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.
        Carrying Amount
Issue Date Rate Maturity Date Next Call Date March 31,
2020
 December 31, 2019
  (Dollars in Thousands)
June 26, 2003 
Variable;
3-month LIBOR + 3.10%
 June 26, 2033 June 25, 2020 $4,832
 $4,826
March 17, 2004 
Variable;
3-month LIBOR + 2.79%
 March 17, 2034 June 16, 2020 4,747
 4,739
September 15, 2014 
6.0% Fixed-to-Variable;
3-month LIBOR + 3.315%
 September 15, 2029 September 15, 2024 74,051
 74,026
      Total $83,630
 $83,591

70


The above carrying amounts of the subordinated debentures included $0.4 million of accretion adjustments and $0.9 million of capitalized debt issuance costs as of March 31, 2020. This compares to $0.4 million of accretion adjustments and $1.0 million of capitalized debt issuance costs as of December 31, 2019.
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 $13.1 million to $55.7 million as of March 31, 2020 from $42.7 million as of December 31, 2019.
The Company has access to a $12.0 million committed line of credit as of March 31, 2020. As of March 31, 2020, the Company had $5 million outstanding of borrowings on this committed line of credit outstanding as compared to December 31, 2019, when the company had no borrowings on this outstanding committed line of credit.
The Banks also have access to funding through several uncommitted lines of credit of $568.0 million. As of March 31, 2020, the Company had $10.0 million borrowings on outstanding uncommitted lines of credit as compared to $18.0 million as of December 31, 2019.
Derivative Financial Instruments
The Company has entered into loan level derivatives, risk participation agreements, and foreign exchange contracts with certain of its commercial customers and concurrently enters into offsetting swaps with third-party financial institutions. The Company may also, from time to time, enter into risk participation agreements. The Company did not have derivative fair value hedges or derivative cash flow hedges at March 31, 2020 or December 31, 2019.
The following table summarizes certain information concerning the Company's loan level derivatives, risk participation agreements, and foreign exchange contracts at March 31, 2020 and December 31, 2019:
 At March 31, 2020At December 31, 2019
 (Dollars in Thousands)
Loan level derivatives (Notional principal amounts):  
Receive fixed, pay variable$1,231,096
$1,101,193
Pay fixed, receive variable1,231,096
1,101,193
Risk participation-out agreements233,846
235,693
Risk participation-in agreements49,279
55,281
Foreign exchange contracts (Notional amounts):  
Buys foreign currency, sells U.S. currency$1,422
$1,125
Sells foreign currency, buys U.S. currency1,530
1,230
Fixed weighted average interest rate from the Company to counterparty3.32%3.54%
Floating weighted average interest rate from counterparty to the Company2.51%2.88%
Weighted average remaining term to maturity (in months)90
91
Fair value:  
Recognized as an asset:  
Loan level derivatives$154,761
$59,365
Risk participation-out agreements2,473
1,229
Foreign exchange contracts224
54
Recognized as a liability:  
Loan level derivatives$154,761
$59,365
Risk participation-in agreements432
283
Foreign exchange contracts200
53

71


Stockholders' Equity and Dividends
The Company's total stockholders' equity was $912.6 million as of March 31, 2020, representing a $33.0 million decrease compared to $945.6 million at December 31, 2019. The decrease primarily reflects net loss attributable to the Company of $(17.3) million for the three months ended March 31, 2020, a reduction to retained earnings of $11.5 million due to the CECL implementation, $10.4 million due to repurchase shares of treasury stock and dividends paid by the Company of $9.2 million, partially offset by unrealized gain on securities available-for-sale of $14.7 million.
Stockholders' equity represented 10.78% of total assets as of March 31, 2020 and 12.04% of total assets as of December 31, 2019. Tangible stockholders' equity (total stockholders' equity less goodwill and identified intangible assets, net) represented 9.02% of tangible assets (total assets less goodwill and identified intangible assets, net) as of March 31, 2020 and 10.15% as of December 31, 2019.
On December 4, 2019, the Board of Directors approved a stock repurchase program authorizing management to repurchase up to $10.0 million of the Company’s common stock over a period of twelve months commencing on January 1, 2020 and ending on December 31, 2020. On March 9, 2020, the Board of Directors approved an increase in the repurchase amount of $10 million bringing the total authorized amount to $20 million. Subsequently, as previously disclosed, the Company suspended the stock repurchase program effective as of March 24, 2020. As of March 31, 2020, the Company has repurchased 848,319 shares at a weighted average price of $12.27. In 2019, 103,758 shares of the Company's common stock were repurchased by the Company.
The dividend payout ratio was 53.10% for the three months ended March 31, 2020, compared to 37.28% for the same period in 2019.
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 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 on, 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 decreased $1.3 million to $61.7 million for the three months ended March 31, 2020 from $63.0 million for the three months ended March 31, 2019. This decrease reflects a $1.1 million decrease in interest income on loans and leases and a $0.5 million decrease in interest income on investment securities, partially offset by a $0.3 million decrease 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

72


March 31, 2020 and March 31, 2019 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended March 31, 2020 and March 31, 2019 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest margin decreased by 33 basis points to 3.31% for the three months ended March 31, 2020 from 3.64% for the three months ended March 31, 2019. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) decreased to 4.71% for the three months ended March 31, 2020 from 5.09% for the three months ended March 31, 2019. Interest amortization and accretion on acquired loans totaled $0.1 million and contributed 1 basis point to loan yields during both the three months ended March 31, 2020 and 2019. 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 decreased at a slower pace due to market competition and shifting demand for non- maturity versus time deposits.
The yield on interest-earning assets decreased to 4.46% for the three months ended March 31, 2020 from 4.84% for the three months ended March 31, 2019. This decrease is the result of lower yields on loans and leases and lower yields on investments. During the three months ended March 31, 2020, the Company recorded $0.8 million in prepayment penalties and late charges, which contributed 4 basis points to yields on interest-earning assets in the three months ended March 31, 2020, compared to $1.1 million, or 6 basis points, for the three months ended March 31, 2019.
The overall cost of funds (including non-interest-bearing demand checking accounts) decreased 10 basis points to 1.29% for the three months ended March 31, 2020 from 1.39% for the three months ended March 31, 2019. 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. During the first quarter of 2020 interest rates declined sharply in response to the economic impact of the COVID-19 pandemic. 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. Due to, among other things, ongoing pricing pressures in the loan and deposit portfolios, 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 is included in interest income and interest expense, respectively.

73


Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin
The following table sets forth information about the Company's average balances, interest income and interest rates earned on average interest-earning assets, interest expense and interest rates paid on average interest-bearing liabilities, interest-rate spread and net interest margin for the three months ended March 31, 2020 and March 31, 2019. 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.

74


 Three Months Ended
 March 31, 2020 March 31, 2019
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 (Dollars in Thousands)
Assets:           
Interest-earning assets:           
Debt securities$605,885
 $3,024
 2.00% $608,194
 $3,289
 2.16%
Marketable and restricted equity securities58,881
 786
 5.33% 60,389
 920
 6.10%
Short-term investments84,309
 209
 0.99% 33,034
 267
 3.23%
Total investments749,075
 4,019
 2.15% 701,617
 4,476
 2.55%
Commercial real estate loans (2)
3,697,011
 40,468
 4.33% 3,376,576
 40,019
 4.74%
Commercial loans (2)
783,309
 8,328
 4.21% 792,695
 9,603
 4.85%
Equipment financing (2)
1,052,846
 18,946
 7.20% 988,193
 17,985
 7.28%
Residential mortgage loans (2)
810,583
 7,934
 3.92% 778,325
 8,123
 4.17%
Other consumer loans (2)
417,815
 3,955
 3.79% 408,177
 5,051
 5.01%
Total loans and leases6,761,564
 79,631
 4.71% 6,343,966
 80,781
 5.09%
Total interest-earning assets7,510,639
 83,650
 4.46% 7,045,583
 85,257
 4.84%
Allowance for loan and lease losses(68,581)     (58,749)    
Non-interest-earning assets523,768
     447,204
    
Total assets$7,965,826
     $7,434,038
    
Liabilities and Stockholders' Equity:           
Interest-bearing liabilities:           
Interest-bearing deposits:           
NOW accounts$359,641
 116
 0.13% $334,167
 142
 0.17%
Savings accounts626,945
 643
 0.41% 626,414
 597
 0.39%
Money market accounts1,678,649
 4,241
 1.02% 1,676,199
 5,275
 1.28%
Certificate of deposit2,040,903
 11,240
 2.22% 1,844,511
 9,934
 2.18%
Total interest-bearing deposits (3)
4,706,138
 16,240
 1.39% 4,481,291
 15,948
 1.44%
Advances from the FHLBB772,462
 4,097
 2.10% 755,542
 4,610
 2.44%
Subordinated debentures and notes83,609
 1,284
 6.14% 83,451
 1,308
 6.27%
Other borrowed funds91,052
 189
 0.84% 88,600
 221
 1.01%
Total borrowed funds947,123
 5,570
 2.33% 927,593
 6,139
 2.65%
Total interest-bearing liabilities5,653,261
 21,810
 1.55% 5,408,884
 22,087
 1.66%
Non-interest-bearing liabilities:           
Non-interest-bearing demand checking accounts (3)
1,134,314
  
  
 1,026,970
  
  
Other non-interest-bearing liabilities232,113
  
  
 111,174
  
  
Total liabilities7,019,688
  
  
 6,547,028
  
  
Brookline Bancorp, Inc. stockholders' equity946,138
  
  
 886,639
  
  
Noncontrolling interest in subsidiary
  
  
 371
  
  
Total liabilities and stockholders' equity$7,965,826
  
  
 $7,434,038
  
  
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
 
 61,840
 2.91%  
 63,170
 3.18%
Less adjustment of tax-exempt income 
 128
  
  
 171
  
Net interest income 
 $61,712
  
  
 $62,999
  
Net interest margin (5)
 
  
 3.31%  
  
 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 1.12% and 1.17% in the three months ended March 31, 2020 and March 31, 2019, 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.
            


75


Rate/Volume Analysis
The following table presents, on a tax-equivalent basis, the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
 Three Months Ended March 31, 2020 as Compared to the Three Months Ended March 31, 2019
 
Increase
(Decrease) Due To
  
 Volume Rate Net Change
 (In Thousands)
Interest and dividend income:     
Investments:     
Debt securities$(13) $(252) $(265)
Marketable and restricted equity securities(22) (112) (134)
Short-term investments214
 (272) (58)
Total investments179
 (636) (457)
Loans and leases:     
Commercial real estate loans3,836
 (3,387) 449
Commercial loans and leases(105) (1,170) (1,275)
Equipment financing1,159
 (198) 961
Residential mortgage loans318
 (507) (189)
Other consumer loans122
 (1,218) (1,096)
Total loans5,330
 (6,480) (1,150)
Total change in interest and dividend income5,509
 (7,116) (1,607)
Interest expense:     
Deposits:     
NOW accounts10
 (36) (26)
Savings accounts1
 45
 46
Money market accounts8
 (1,042) (1,034)
Certificate of deposit1,114
 192
 1,306
Total deposits1,133
 (841) 292
Borrowed funds:     
Advances from the FHLBB106
 (619) (513)
Subordinated debentures and notes3
 (27) (24)
Other borrowed funds6
 (38) (32)
Total borrowed funds115
 (684) (569)
Total change in interest expense1,248
 (1,525) (277)
Change in tax-exempt income(43) 
 (43)
Change in net interest income$4,304
 $(5,591) $(1,287)


76


Interest Income

Loans and Leases
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2020
2019  
 (Dollars in Thousands)
Interest income—loans and leases:       
Commercial real estate loans$40,468
 $40,019
 $449
 1.1 %
Commercial loans8,256
 9,494
 (1,238) (13.0)%
Equipment financing18,946
 17,985
 961
 5.3 %
Residential mortgage loans7,934
 8,123
 (189) (2.3)%
Other consumer loans3,955
 5,051
 (1,096) (21.7)%
Total interest income—loans and leases$79,559
 $80,672
 $(1,113) (1.4)%
Interest income from loans and leases was $79.6 million for the three months ended March 31, 2020, and represented a yield on total loans of 4.71%. This compares to $80.7 million of interest on loans and a yield of 5.09% for March 31, 2019. The $1.1 million decrease in interest income from loans and leases was primarily attributable to an increase of $5.3 million due to an increase in origination volume, more than offset by a decrease of $6.5 million due to changes in interest rates.
Interest amortization and accretion on acquired loans and leases totaled $0.1 million, or 1 basis point to the Company's net interest margin during both the three months ended March 31, 2020 and 2019.
Investments
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2020 2019  
 (Dollars in Thousands)
Interest income—investments:       
Debt securities$2,976
 $3,236
 $(260) (8.0)%
Marketable and restricted equity securities778
 911
 (133) (14.6)%
Short-term investments209
 267
 (58) (21.7)%
Total interest income—investments$3,963
 $4,414
 $(451) (10.2)%
Total investment income was $4.0 million for the three months ended March 31, 2020 compared to $4.4 million for the three months ended March 31, 2019. For the quarter ended March 31, 2020 and 2019, the yield on total investments was 2.2%. The year over year decrease in interest income on investments of $451 thousand, or 10.2%, was primarily driven by a $636 thousand decrease due to rates, partially offset by a $179 thousand increase due to volume.

77


Interest Expense—Deposits and Borrowed Funds
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2020 2019  
 (Dollars in Thousands)
Interest expense:       
Deposits:       
NOW accounts$116
 $142
 $(26) (18.3)%
Savings accounts643
 597
 46
 7.7 %
Money market accounts4,241
 5,275
 (1,034) (19.6)%
Certificates of deposit11,240
 9,934
 1,306
 13.1 %
Total interest expense - deposits16,240
 15,948
 292
 1.8 %
Borrowed funds:       
Advances from the FHLBB4,097
 4,610
 (513) (11.1)%
Subordinated debentures and notes1,284
 1,308
 (24) (1.8)%
Other borrowed funds189
 221
 (32) (14.5)%
Total interest expense - borrowed funds5,570
 6,139
 (569) (9.3)%
Total interest expense$21,810
 $22,087
 $(277) (1.3)%
Deposits
For the three months ended March 31, 2020, interest expense on deposits increased $0.3 million, or 1.8%, as compared to the same period in 2019. The increase in interest expense on deposits was driven by an increase of $1.1 million due to the growth in deposits, partially offset by a decrease of $0.8 million due to a decrease in interest rates. Purchase accounting amortization on acquired deposits for the three months ended March 31, 2020 was $44 thousand and no basis points, compared to $185 thousand and 1 basis point for the three months ended March 31, 2019.
Borrowed Funds

During the three months ended March 31, 2020, interest paid on borrowed funds decreased by $0.6 million, or 9.3% year over year, primarily driven by a decrease in the rate paid on FHLBB borrowings. The cost of borrowed funds decreased to 2.33% for the three months ended March 31, 2020 from 2.65% for the three months ended March 31, 2019. The decrease in interest expense was driven by a decrease of $0.7 million due to borrowing rates, partially offset by an increase of $0.1 million due to volume. For both the three months ended March 31, 2020 and 2019, there was purchase accounting accretion of $14 thousand and no basis points on acquired borrowed funds compared to accretion of $14 thousand.
Provision for Credit Losses
The provisions for credit losses are set forth below:
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2020
2019  
 (Dollars in Thousands)
Provision for loan and lease losses:       
Commercial real estate$40,200
 $162
 $40,038
 24,714.8 %
Commercial6,900
 1,081
 5,819
 538.3 %
Consumer601
 207
 394
 (190.3)%
Total provision for loan and 
lease losses
47,701
 1,450
 46,251
 3,189.7 %
Unfunded credit commitments6,413
 (97) 6,510
 6,711.3 %
Total provision for credit losses$54,114
 $1,353
 $52,761
 3,899.6 %
For the three months ended March 31, 2020, the provision for credit losses increased $52.8 million to $54.1 million from $1.3 million for the three months ended March 31, 2019. The increase in the provision for credit losses for the three months

78


ended March 31, 2020 was primarily driven by the significant increase in allowance for credit losses due to macroeconomic forecasts surrounding the COVID-19 pandemic during the first quarter of 2020. The latest available economic forecasts were used in the loss models which reflected the immediate and longer term effects of the COVID-19 pandemic.
See management’s discussion of “Financial Condition — Allowance for Loan and Lease Losses” and Note 5, “Allowance for Loan and Lease Losses,” to the unaudited consolidated financial statements for a description of how management determined the allowance for loan and lease losses for each portfolio and class of loans.
Non-Interest Income
The following table sets forth the components of non-interest income:
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2020
2019  
 (Dollars in Thousands)
Deposit fees$2,458
 $2,523
 $(65) (2.6)%
Loan fees550
 413
 137
 33.2 %
Loan level derivative income, net2,156
 1,745
 411
 23.6 %
Gain on investment securities1,330
 134
 1,196

892.5 %
Gain on sales of loans and leases held-for-sale120
 289
 (169) (58.5)%
Other2,714
 1,526
 1,188
 77.9 %
Total non-interest income$9,328
 $6,630
 $2,698
 40.7 %
For the three months ended March 31, 2020, non-interest income increased $2.7 million, or 40.7%, to $9.3 million as compared to $6.6 million for the same period in 2019. This increase is primarily due to a $1.2 million increase in gain on sales of investment securities, a $1.2 million increase in other income and a $0.4 million increase in loan level derivative income.
Loan level derivative income increased $0.4 million, or 23.6%, to $2.2 million for the three months ended March 31, 2020 from $1.7 million for the same period in 2019, primarily driven by an increase in loan level derivative transactions completed for the three months ended March 31, 2020.
Gain on investment securities increased $1.2 million, or 892.5%, to $1.3 million for the three months ended March 31, 2020 from $0.1 million for the same period in 2019, primarily driven by a $2.3 million gain on sales of securities, partially offset by a $1.0 million loss on equity securities held for trading in the first quarter 2020.
Other income increased $1.2 million, or 77.9%, to $2.7 million for the three months ended March 31, 2020 from $1.5 million for the same period in 2019, primarily driven by an increase in gain on interest rate derivatives, investment sales commissions, investment sales advisory fees, and bank-owned life insurance (BOLI) income.
Non-Interest Expense
The following table sets forth the components of non-interest expense:
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2020 2019  
 (Dollars in Thousands)
Compensation and employee benefits$25,219
 $23,743
 $1,476
 6.2 %
Occupancy3,953
 3,947
 6
 0.2 %
Equipment and data processing4,703
 4,661
 42
 0.9 %
Professional services1,651
 1,076
 575
 53.4 %
FDIC insurance378
 593
 (215) (36.3)%
Advertising and marketing1,075
 1,069
 6
 0.6 %
Amortization of identified intangible assets336
 402
 (66) (16.4)%
Other3,433
 3,380
 53
 1.6 %
Total non-interest expense$40,748
 $38,871
 $1,877
 4.8 %

79


For the three months ended March 31, 2020, non-interest expense increased $1.9 million, or 4.8%, to $40.7 million as compared to $38.9 million for the same period in 2019. The increase is due to a $1.5 million increase in compensation and employee benefits expense, and a $0.6 million increase in professional services, partially offset by a decrease of $0.2 million in FDIC insurance.
Compensation and employee benefits expense increased $1.5 million, or 6.2%, to $25.2 million for the three months ended March 31, 2020 from $23.7 million for the same period in 2019, primarily driven by increases in employee headcount. annual salary increases, and health care benefits.
Professional services expense increased $0.6 million, or 53.4%, to $1.7 million for the three months ended March 31, 2020 from $1.1 million for the same period in 2019, primarily driven by higher professional services fees related to the CECL implementation.
FDIC insurance expense decreased $0.2 million, or 36.3%, to $0.4 million for the three months ended March 31, 2020 from $0.6 million for the same period in 2019, primarily driven by bank assessment credits from the FDIC.

Provision for Income Taxes
 Three Months Ended March 31, 
Dollar
Change
 
Percent
Change
 2020
2019  
 (Dollars in Thousands)
Income before provision for income taxes$(23,822) $29,405
 $(53,227) (181.0)%
Provision for income taxes(6,546) 6,895
 (13,441) (194.9)%
Net (loss) income, before non-controlling interest in subsidiary$(17,276) $22,510
 $(39,786) (176.7)%
Effective tax rate27.5% 23.4% N/A
 17.5 %
The Company recorded an income tax benefit of $6.5 million for the three months ended March 31, 2020, compared to an income tax expense of $6.9 million for the three months ended March 31, 2019, representing effective tax rates of 27.5% and 23.4%, respectively.
The changes in the Company's effective tax rate for the three months ended March 31, 2020 and 2019 was primarily driven by the tax benefit recognized by the Company's decision to amend its Brookline Bank and First Commons Bank tax returns. The CARES Act, allows net operating losses generated in tax years 2018-2020 to be carried back five years with an immediate refund of taxes paid. The tax benefit for the Company is the difference between the 21% current tax rate and the 34% tax rate seen in the carryback year. The Company is amending the 2018 tax returns to take advantage of this change.

Liquidity and Capital Resources
Liquidity
Liquidity is defined as the ability to meet current and future financial obligations of a short-term nature. The Company further defines liquidity as the ability to respond to the needs of depositors and borrowers, as well as to earnings enhancement opportunities, in a changing marketplace. Liquidity management is monitored by an Asset/Liability Committee ("ALCO"), consisting of members of management, which is responsible for establishing and monitoring liquidity targets as well as strategies and tactics to meet these targets. The primary source of funds for the payment of dividends and expenses by the Company is dividends paid to it by the Banks and Brookline Securities Corp. The primary sources of liquidity for the Banks consist of deposit inflows, loan repayments, borrowed funds, and maturing investment securities.
Management has reacted strategically to the COVID-19 pandemic and enhanced the liquidity positioning of the Company's balance sheet. The Company continues to execute on a contingent liquidity plan for a severely adverse operating environment. The most visible result of this plan is an increase to balance sheet liquidity in the form of excess cash and highly liquid securities. This increase of cash and securities is to meet customer borrowing needs, serve for unexpected deposit outflows and provide a buffer against a disruption in cash flows due to deferred payments of principal and interest from the loan portfolio.

80


Management has strategically enhanced the amount of balance sheet liquidity in the form of cash and investment securities available for sale since the start of the COVID-19 pandemic crisis. Cash and equivalents at the end of the quarter were $340.8 million, or 4.0% of the balance sheet, this compares to $77.8 million, or 1.0% of the balance sheet, as of December 31, 2019. Management also restructured the composition of the investment portfolio which resulted in an increase in highly liquid securities of $175.0 million quarter over quarter. In general, during a normal operating environment, the Company seeks to maintain liquidity and targets cash, cash equivalents and investment securities available-for-sale balances of between 5% and 10% of total assets. Due to the nature of the current challenging operating environment, that target operating range is between 10% and 15%. As of March 31, 2020, cash, cash equivalents and investment securities available-for-sale totaled $1.1 billion, or 13.0% of total assets. This compares to $576.8 million, or 7.3% of total assets, as of December 31, 2019.
Deposits, which are considered the most stable source of liquidity, totaled $5.9 billion as of March 31, 2020 and represented 82.0% of total funding (the sum of total deposits and total borrowings), compared to deposits of $5.8 billion, or 86.6% of total funding, as of December 31, 2019. Core deposits, which consist of demand checking, NOW, savings and money market accounts, totaled $3.9 billion as of March 31, 2020 and represented 65.6% of total deposits, compared to core deposits of $3.8 billion, or 65.3% of total deposits, as of December 31, 2019. Additionally, the Company had $354.1 million of brokered deposits as of March 31, 2020, which represented 6.0% of total deposits, compared to $349.9 million or 6.0% of total deposits, as of December 31, 2019. The Company offers attractive interest rates based on market conditions to increase deposits balances, while managing cost of funds.
Borrowings are used to diversify the Company's funding mix and to support asset growth. When profitable lending and investment opportunities exist, access to borrowings provides a means to grow the balance sheet. Borrowings totaled $1.3 billion as of March 31, 2020, representing 18.0% of total funding, compared to $902.7 million, or 13.4% of total funding, as of December 31, 2019.
As members of the FHLBB, the Banks have access to both short- and long-term borrowings. As of March 31, 2020, the Company's total borrowing limit from the FHLBB for advances and repurchase agreements was $2.1 billion, compared to $2.1 billion as of December 31, 2019, based on the level of qualifying collateral available for these borrowings.
As of March 31, 2020, the Banks also have access to funding through certain uncommitted lines of credit of $568.0 million.
The Company had a $12.0 million committed line of credit for contingent liquidity as of March 31, 2020. As of March 31, 2020, the Company had $5 million outstanding of borrowings on this committed line of credit outstanding.
The Company has access to the Federal Reserve Bank of Boston's "discount window" to supplement its liquidity. The Company has $109.0 million of borrowing capacity at the Federal Reserve Bank as of March 31, 2020. As of March 31, 2020, the Company did not have any outstanding borrowings with the Federal Reserve Bank.
Additionally, the Banks have access to liquidity through repurchase agreements and additional untapped brokered deposits.
While management believes that the Company has adequate liquidity to meet its commitments and to fund the Banks' lending and investment activities, the availabilities of these funding sources are subject to broad economic conditions and could be restricted in the future. Such restrictions would impact the Company's immediate liquidity and/or additional liquidity needs.
Off-Balance-Sheet Financial Instruments

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

81


 
Financial instruments with off-balance-sheet risk at the dates indicated follow:
 At March 31, 2020 At December 31, 2019
 (In Thousands)
Financial instruments whose contract amounts represent credit risk:   
Commitments to originate loans and leases:   
Commercial real estate$40,933
 $50,034
Commercial93,724
 78,058
Residential mortgage52,930
 25,998
Unadvanced portion of loans and leases713,352
 808,681
Unused lines of credit:   
Home equity537,313
 528,251
Other consumer25,362
 25,374
Other commercial406
 380
Unused letters of credit:   
Financial standby letters of credit11,094
 10,166
Performance standby letters of credit6,107
 4,652
Commercial and similar letters of credit3,823
 3,823
Loan level derivatives:   
Receive fixed, pay variable1,231,096
 1,101,193
Pay fixed, receive variable1,231,096
 1,101,193
Risk participation-out agreements233,846
 235,693
Risk participation-in agreements49,279
 55,281
Foreign exchange contracts:   
Buys foreign currency, sells U.S. currency1,422
 1,125
Sells foreign currency, buys U.S. currency1,530
 1,230


82


Capital Resources
As of March 31, 2020, the Company and the Banks are each under the primary regulation of, and must comply with, the capital requirements of the FRB. Under these rules, the Company and the Banks are each required to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital leverage ratio of 6.0%, a minimum total risk based capital ratio of 8% and a minimum Tier 1 leverage ratio of 4%. Additionally, the Company and the Banks are required to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases. As of March 31, 2020, the Company and the Banks exceeded all regulatory capital requirements, and the Banks were each considered “well-capitalized” under prompt corrective action regulations.

The following table presents actual and required capital amounts and capital ratios as of March 31, 2020 for the Company and the Banks.

 Actual Minimum Required for Capital Adequacy Purposes Minimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer 
Minimum Required  to be Considered “Well-Capitalized” Under Prompt Corrective Action Provisions
 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
 (Dollars in Thousands)
At March 31, 2020:               
Brookline Bancorp, Inc.               
Common equity Tier 1 capital ratio (1)
$733,661
 10.42% $316,840
 4.50% $492,862
 7.00% N/A
 N/A
Tier 1 leverage capital ratio (2)
743,240
 9.54% 311,631
 4.00% 311,631
 4.00% N/A
 N/A
Tier 1 risk-based capital ratio (3)
743,240
 10.55% 422,696
 6.00% 598,819
 8.50% N/A
 N/A
Total risk-based capital ratio (4)
905,842
 12.86% 563,510
 8.00% 739,607
 10.50% N/A
 N/A
Brookline Bank               
Common equity Tier 1 capital ratio (1)
$539,269
 11.01% $220,410
 4.50% $342,859
 7.00% $318,370
 6.50%
Tier 1 leverage capital ratio (2)
539,269
 9.98% 216,140
 4.00% 216,140
 4.00% 270,175
 5.00%
Tier 1 risk-based capital ratio (3)
539,269
 11.01% 293,880
 6.00% 416,329
 8.50% 391,839
 8.00%
Total risk-based capital ratio (4)
600,829
 12.27% 391,739
 8.00% 514,157
 10.50% 489,673
 10.00%
BankRI               
Common equity Tier 1 capital ratio (1)
$229,379
 10.69% $96,558
 4.50% $150,201
 7.00% $139,473
 6.50%
Tier 1 leverage capital ratio (2)
229,379
 9.35% 98,130
 4.00% 98,130
 4.00% 122,663
 5.00%
Tier 1 risk-based capital ratio (3)
229,379
 10.69% 128,744
 6.00% 182,387
 8.50% 171,659
 8.00%
Total risk-based capital ratio (4)
256,360
 11.95% 171,622
 8.00% 225,254
 10.50% 214,527
 10.00%
_______________________________________________________________________________
(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets.
(2) Tier 1 leverage capital ratio is calculated by dividing Tier 1 capital by average assets.
(3) Tier 1 risk-based capital ratio is calculated by dividing Tier 1 capital by risk-weighted assets.
(4) Total risk-based capital ratio is calculated by dividing total capital by risk-weighted assets.




83



The following table presents actual and required capital amounts and capital ratios as of December 31, 2019 for the Company and the Banks.
 Actual Minimum Required for Capital Adequacy Purposes Minimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer 
Minimum Required To
Be Considered
 “Well-Capitalized” Under Prompt Corrective Action Provisions
 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
 (Dollars in Thousands)
At December 31, 2019: 
  
  
      
  
  
Brookline Bancorp, Inc. 
  
  
      
  
  
Common equity Tier 1 capital ratio (1)
$780,962
 11.44% $307,197
 4.50% $477,861
 7.00% N/A
 N/A
Tier 1 leverage capital ratio (2)
790,527
 10.28% 307,598
 4.00% 307,598
 4.00% N/A
 N/A
Tier 1 risk-based capital ratio (3)
790,527
 11.58% 409,599
 6.00% 580,266
 8.50% N/A
 N/A
Total risk-based capital ratio (4)
927,515
 13.59% 545,999
 8.00% 716,623
 10.50% N/A
 N/A
Brookline Bank 
  
  
  
      
  
Common equity Tier 1 capital ratio (1)
$513,311
 11.44% $201,914
 4.50% $314,089
 7.00% $291,654
 6.50%
Tier 1 leverage capital ratio (2)
513,311
 10.42% 197,048
 4.00% 197,048
 4.00% 246,310
 5.00%
Tier 1 risk-based capital ratio (3)
513,311
 11.44% 269,219
 6.00% 381,394
 8.50% 358,959
 8.00%
Total risk-based capital ratio (4)
555,474
 12.38% 358,949
 8.00% 471,121
 10.50% 448,687
 10.00%
BankRI               
Common equity Tier 1 capital ratio (1)
$240,362
 11.75% $92,054
 4.50% $143,194
 7.00% $132,966
 6.50%
Tier 1 leverage capital ratio (2)
240,362
 9.97% 96,434
 4.00% 96,434
 4.00% 120,543
 5.00%
Tier 1 risk-based capital ratio (3)
240,362
 11.75% 122,738
 6.00% 173,879
 8.50% 163,651
 8.00%
Total risk-based capital ratio (4)
258,719
 12.65% 163,617
 8.00% 214,747
 10.50% 204,521
 10.00%
First Ipswich 
  
  
  
      
  
Common equity Tier 1 capital ratio (1)
$41,320
 13.45% $13,825
 4.50% $21,505
 7.00% $19,969
 6.50%
Tier 1 leverage capital ratio (2)
41,320
 8.80% 18,782
 4.00% 18,782
 4.00% 23,477
 5.00%
Tier 1 risk-based capital ratio (3)
41,320
 13.45% 18,433
 6.00% 26,113
 8.50% 24,577
 8.00%
Total risk-based capital ratio (4)
43,762
 14.24% 24,585
 8.00% 32,268
 10.50% 30,732
 10.00%
_______________________________________________________________________________
(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets.
(2) Tier 1 leverage capital ratio is calculated by dividing Tier 1 capital by average assets.
(3) Tier 1 risk-based capital ratio is calculated by dividing Tier 1 capital by risk-weighted assets.
(4) Total risk-based capital ratio is calculated by dividing total capital by risk-weighted assets.


84


Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Market risk is the risk that the market value or estimated fair value of the Company's assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that the Company's net income will be significantly reduced by interest-rate changes.
Interest-Rate Risk
The principal market risk facing the Company is interest-rate risk, which can occur in a variety of forms, including repricing risk, yield-curve risk, basis risk, and prepayment risk. Repricing risk occurs when the change in the average yield of either interest-earning assets or interest-bearing liabilities is more sensitive than the other to changes in market interest rates. Such a change in sensitivity could reflect a number of possible mismatches in the repricing opportunities of the Company's assets and liabilities. Yield-curve risk reflects the possibility that changes in the shape of the yield curve could have different effects on the Company's assets and liabilities. Basis risk occurs when different parts of the balance sheet are subject to varying base rates reflecting the possibility that the spread from those base rates will deviate. Prepayment risk is associated with financial instruments with an option to prepay before the stated maturity, often a disadvantage to person selling the option; this risk is most often associated with the prepayment of loans, callable investments, and callable borrowings.
Asset/Liability Management
Market risk and interest-rate risk management is governed by the Company's ALCO. The ALCO establishes exposure limits that define the Company's tolerance for interest-rate risk. The ALCO and the Company's Treasury Group measure and manage the composition of the balance sheet over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. The ALCO monitors current exposures versus limits and reports those results to the Board of Directors. The policy limits and guidelines serve as benchmarks for measuring interest-rate risk and for providing a framework for evaluation and interest-rate risk-management decision-making. The Company measures its interest-rate risk by using an asset/liability simulation model. The model considers several factors to determine the Company's potential exposure to interest-rate risk, including measurement of repricing gaps, duration, convexity, value-at-risk, market value of portfolio equity under assumed changes in the level of interest rates, the shape of yield curves, and general market volatility.
Management controls the Company's interest-rate exposure using several strategies, which include adjusting the maturities of securities in the Company's investment portfolio, limiting or expanding the terms of loans originated, limiting fixed-rate deposits with terms of more than five years, and adjusting maturities of FHLBB advances. The Company limits this risk by restricting the types of MBSs it invests into those with limited average life changes under certain interest-rate-shock scenarios, or securities with embedded prepayment penalties. The Company also places limits on holdings of fixed-rate mortgage loans with maturities greater than five years. The Company may also use derivative instruments, principally interest-rate swaps, to manage its interest-rate risk; however, the Company had no derivative fair value hedges or derivative cash flows hedges as of March 31, 2020 or December 31, 2019. See Note 8, “Derivatives and Hedging Activities,” to the unaudited consolidated financial statements.
Measuring Interest-Rate Risk
As noted above, interest-rate risk can be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest-rate sensitivity gap. An asset or liability is said to be interest-rate sensitive within a specific period if it will mature or reprice within that period. The interest-rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive liabilities. A gap is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets. During a period of falling interest rates, therefore, a positive gap would tend to adversely affect net interest income. Conversely, during a period of rising interest rates, a positive gap position would tend to result in an increase in net interest income.
The Company's interest-rate risk position is measured using both income simulation and interest-rate sensitivity "gap" analysis. Income simulation is the primary tool for measuring the interest-rate risk inherent in the Company's balance sheet at a given point in time by showing the effect on net interest income, over a twelve-month period, of a variety of interest-rate shocks. These simulations take into account repricing, maturity, and prepayment characteristics of individual products. The ALCO reviews simulation results to determine whether exposure resulting from changes in market interest rates remains within established tolerance levels over a twelve-month horizon, and develops appropriate strategies to manage this exposure. The Company's interest-rate risk analysis remains modestly asset-sensitive as of March 31, 2020.

85


The assumptions used in the Company’s interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates.
As of March 31, 2020, net interest income simulation indicated that the Company's exposure to changing interest rates was within tolerance. The ALCO reviews the methodology utilized for calculating interest-rate risk exposure and may periodically adopt modifications to this methodology. The following table presents the estimated impact of interest-rate changes on the Company's estimated net interest income over the twelve-month periods indicated:
 
Estimated Exposure to Net Interest Income
over Twelve-Month Horizon Beginning
 March 31, 2020 December 31, 2019
Change in Interest Rate Levels
Dollar
Change
 
Percent
Change
 Dollar
Change
 Percent
Change
 (Dollars in Thousands)
Up 300 basis points shock$37,621
 14.3 % $29,795
 11.5 %
Up 200 basis points ramp14,499
 5.5 % 12,478
 4.8 %
Up 100 basis points ramp6,995
 2.7 % 6,265
 2.4 %
Down 100 basis points ramp(11,259) (4.3)% (11,100) (4.3)%

The estimated impact of a 300 basis point increase in market interest rates on the Company's estimated net interest income over a twelve-month horizon was a positive 14.3% as of March 31, 2020, compared to a positive 11.5% as of December 31, 2019. The increase in asset sensitivity was due to an increase in short term liquidity positions.
The Company also uses interest-rate sensitivity “gap” analysis to provide a more general overview of its interest-rate risk profile. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. At March 31, 2020, the Company’s one-year cumulative gap was a negative $73.2 million, or 0.93% of total interest-earning assets, compared with a positive $4.7 million, or 0.06% of total interest-earning assets, at December 31, 2019.
The assumptions used in the Company's interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates. For additional discussion on interest-rate risk see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of the Company’s 2019 Annual Report on Form 10-K.
Economic Value of Equity ("EVE") at Risk Simulation is conducted in tandem with net interest income simulations to ascertain a longer term view of the Company’s interest-rate risk position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of the economic value of equity to changes in interest rates. The EVE at Risk Simulation values only the current balance sheet and does not incorporate growth assumptions. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, and rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity, and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. The Company conducts non-maturity deposit behavior studies on a periodic basis to support deposit assumptions used in the valuation process. All key assumptions are subject to a periodic review.
EVE at Risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates as well as parallel shocks to the current interest-rate environment. The following table sets forth the estimated percentage change in the Company’s EVE at Risk, assuming various shifts in interest rates. Given the interest rate environment as of March 31, 2020, simulations for interest rate declines of more than 100 basis points were not deemed to be meaningful.
  Estimated Percent Change in Economic Value of Equity
Parallel Shock in Interest Rate Levels At March 31, 2020
At December 31, 2019
Up 300 basis points 1.2 % 6.0 %
Up 200 basis points (0.4)% 5.1 %
Up 100 basis points (1.5)% 3.3 %
Down 100 basis points (11.4)% (7.2)%

86



The Company's EVE sensitivity decreased from December 31, 2019 to March 31, 2020 due to the lengthened duration of the loan and investment portfolios offset by a larger short term liquidity position.

Item 4. Controls and Procedures
 
Controls and Procedures
 
Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer considered that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
Effective January 1, 2020, the Company adopted ASU 2016-13. The Company implemented changes to its policies, processes, and controls over the allowance for credit losses methodology to support the adoption of ASU 2016-13. Many controls over this new accounting methodology mirror controls under the prior GAAP methodology. New controls were established, such as model validation done by an independent third-party and input review of econometric and other factors utilized in estimating the allowance. Except as related to the adoption of ASU 2016-13, there were no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a -15(f). The Company’s internal control system was designed to provide reasonable assurance to its management and the Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company’s management assessed the effectiveness of its internal control over financial reporting as of the end of the period covered by this report.
 
Management’s Report on Internal Control Over Financial Reporting as of December 31, 2019 and the related Report of Independent Registered Public Accounting Firm thereon appear on pages F-1 and F-2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

87


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

Item 1A.    Risk Factors

In addition to the "Risk Factors" in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2019, please refer to the risk factors under Item 8.01. "Other Matters", in the Current Report on Form 8-K filed with the SEC on May 11, 2020.

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

a)        Not applicable.
 
b)        Not applicable.
 
c)         On December 4, 2019, the Board approved a stock repurchase program authorizing management to repurchase up to $10.0 million of the Company’s common stock. On March 9, 2020, the Board approved an increase to the stock repurchase program from $10.0 million to $20.0 million of its total outstanding shares of common stock. The stock repurchase program expires on December 31, 2020. On March 23, 2020, the Company suspended its stock repurchase program, effective as of March 24, 2020. During the quarter ended March 31, 2020, the Company repurchased $10.4 million, with a remaining $9.6 million to be repurchased.
  Issuer Purchases of Equity Securities
Period 
(a) Total number
of shares
purchased
 
(b) Average
price paid
per share
 
(c) Total number
of shares
purchased as
part of publicly
announced plans
 
(d) Maximum
approximate dollar
value of shares that
may yet be purchased
under the plans
January 1- March 31, 2020 848,319
  12.27   848,319
    

    


Item 3. Defaults Upon Senior Securities

a)        None.
 
b)        None.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.


88


Item 6. Exhibits
 
Exhibits
Exhibit 31.1* 
   
Exhibit 31.2* 
   
Exhibit 32.1** 
   
Exhibit 32.2** 
   
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
_______________________________________________________________________________
* Filed herewith
** Furnished herewith

89


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

 BROOKLINE BANCORP, INC.
    
    
Date: May 29, 2020By:/s/ Paul A. Perrault
  Paul A. Perrault 
  President and Chief Executive Officer 
  (Principal Executive Officer) 
    
Date: May 29, 2020By:/s/ Carl M. Carlson
  Carl M. Carlson 
  Chief Financial Officer 
  (Principal Financial Officer) 




90