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BRKL Brookline Bancorp

Filed: 6 Aug 20, 12:14pm
0001049782 us-gaap:CoreDepositsMember 2020-01-01 2020-06-30
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 31, 2020, the number of shares of common stock, par value $0.01 per share, outstanding was 78,919,273.
 



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



PART I — FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
 At June 30, 2020 At December 31, 2019
 (In Thousands Except Share Data)
ASSETS   
Cash and due from banks$38,522
 $33,589
Short-term investments216,394
 44,201
Total cash and cash equivalents254,916
 77,790
Investment securities available-for-sale854,505
 498,995
Investment securities held-to-maturity (fair value of $0 and $87,561, respectively)
 86,780
Equity securities held-for-trading1,992
 3,581
Total investment securities856,497
 589,356
Loans and leases:   
Commercial real estate loans3,837,703
 3,669,222
Commercial loans and leases2,361,463
 1,838,748
Consumer loans1,208,531
 1,229,846
Total loans and leases7,407,697
 6,737,816
Allowance for loan and lease losses(119,553) (61,082)
Net loans and leases7,288,144
 6,676,734
Restricted equity securities71,638
 53,818
Premises and equipment, net of accumulated depreciation of $79,788 and $76,763, respectively73,127
 74,350
Right-of-use asset operating leases24,343
 24,876
Deferred tax asset42,683
 25,017
Goodwill160,427
 160,427
Identified intangible assets, net of accumulated amortization of $38,128 and $37,481, respectively3,776
 4,423
Other real estate owned ("OREO") and repossessed assets, net1,454
 2,631
Other assets292,662
 167,431
Total assets$9,069,667
 $7,856,853
LIABILITIES AND STOCKHOLDERS' EQUITY   
Deposits:   
Demand checking accounts$1,603,037
 $1,141,578
 Interest-bearing deposits4,837,196
 4,688,494
Total deposits6,440,233
 5,830,072
Borrowed funds:   
Advances from the Federal Home Loan Bank of Boston ("FHLBB")1,267,570
 758,469
Subordinated debentures and notes83,668
 83,591
Other borrowed funds55,431
 60,689
Total borrowed funds1,406,669
 902,749
Operating lease liabilities24,343
 24,876
Mortgagors' escrow accounts6,467
 7,232
Accrued expenses and other liabilities265,542
 146,318
Total liabilities8,143,254
 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 capital738,155
 736,601
Retained earnings, partially restricted237,808
 265,376
Accumulated other comprehensive income19,538
 2,283
Treasury stock, at cost; 5,859,708 shares and 5,003,127 shares, respectively(69,572) (59,073)
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 65,334 shares and 79,548 shares, respectively(368) (433)
Total stockholders' equity926,413
 945,606
Total liabilities and stockholders' equity$9,069,667
 $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 June 30, Six Months Ended June 30,
 2020 2019 2020 2019
 (In Thousands Except Share Data)
Interest and dividend income:       
Loans and leases$77,416
 $82,798
 $156,975
 $163,470
Debt securities3,701
 3,158
 6,677
 6,394
Marketable and restricted equity securities908
 877
 1,686
 1,788
Short-term investments99
 351
 308
 618
Total interest and dividend income82,124
 87,184
 165,646
 172,270
Interest expense:       
Deposits12,778
 17,712
 29,018
 33,660
Borrowed funds5,058
 6,338
 10,628
 12,477
Total interest expense17,836
 24,050
 39,646
 46,137
Net interest income64,288
 63,134
 126,000
 126,133
Provision for credit losses5,347
 3,757
 59,461
 5,110
Net interest income after provision for credit losses58,941
 59,377
 66,539
 121,023
Non-interest income:       
Deposit fees1,929
 2,680
 4,387
 5,203
Loan fees513
 398
 1,063
 811
Loan level derivative income, net1,440
 1,772
 3,596
 3,517
Gain on investment securities, net586
 357
 1,916
 491
Gain on sales of loans and leases held-for-sale299
 561
 419
 850
Other1,468
 1,710
 4,182
 3,236
Total non-interest income6,235
 7,478
 15,563
 14,108
Non-interest expense:       
Compensation and employee benefits24,619
 23,953
 49,838
 47,696
Occupancy3,825
 3,752
 7,778
 7,699
Equipment and data processing4,155
 4,641
 8,858
 9,302
Professional services1,056
 1,087
 2,707
 2,163
FDIC insurance858
 745
 1,236
 1,338
Advertising and marketing1,017
 1,112
 2,092
 2,181
Amortization of identified intangible assets311
 420
 647
 822
Other3,268
 3,894
 6,701
 7,274
Total non-interest expense39,109
 39,604
 79,857
 78,475
Income before provision for income taxes26,067
 27,251
 2,245
 56,656
Provision (benefit) for income taxes6,496
 6,780
 (50) 13,675
Net income before noncontrolling interest in subsidiary19,571
 20,471
 2,295
 42,981
Less: net income attributable to noncontrolling interest in subsidiary
 
 
 43
Net income attributable to Brookline Bancorp, Inc.$19,571
 $20,471
 $2,295
 $42,938
Earnings per common share:       
Basic$0.25
 $0.26
 $0.03
 $0.54
Diluted0.25
 0.26
 0.03
 0.54
Weighted average common shares outstanding during the year:       
Basic78,849,282
 79,669,922
 79,165,372
 79,664,284
Diluted79,015,274
 79,886,292
 79,340,524
 79,859,572
Dividends paid per common share$0.115
 $0.110
 $0.230
 $0.215



See accompanying notes to unaudited consolidated financial statements.
2


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income (Loss)
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
 (In Thousands)
Net (loss) income before noncontrolling interest in subsidiary$19,571
 $20,471
 $2,295
 $42,981
        
Investment securities available-for-sale:       
Unrealized securities holding gains (losses)3,952
 7,099
 25,115
 13,598
Income tax (expense) benefit(867) (1,565) (5,533) (2,997)
Net unrealized securities holding gains (losses) before reclassification adjustments, net of taxes3,085
 5,534
 19,582
 10,601
Less reclassification adjustments for securities gains included in net income:       
Gain on sales of securities, net634
 
 2,987
 
Income tax expense(140) 
 (660) 
Net reclassification adjustments for securities gains included in net income494
 
 2,327
 
Net unrealized securities holding gains (losses)2,591
 5,534
 17,255
 10,601
        
Comprehensive (loss) income22,162
 26,005
 19,550
 53,582
Less: Net income attributable to noncontrolling interest in subsidiary
 
 
 43
Comprehensive (loss) income attributable to Brookline Bancorp, Inc.$22,162
 $26,005
 $19,550
 $53,539



See accompanying notes to unaudited consolidated financial statements.
3


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 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 income attributable to Brookline Bancorp, Inc. 
 
 2,295
 
 
 
 2,295
 
 2,295
Other comprehensive income
 
 
 17,255
 
 
 17,255
 
 17,255
Common stock dividends of $0.230 per share
 
 (18,249) 
 
 
 (18,249) 
 (18,249)
Compensation under recognition and retention plans
 1,459
 (91) 
 (90) 
 1,278
 
 1,278
Treasury stock, repurchase shares
 
 
 
 (10,409) 
 (10,409) 
 (10,409)
Common stock held by ESOP committed to be released (14,214 shares)
 95
 
 
 
 65
 160
 
 160
Adoption of ASU 2016-13 (CECL)
 
 (11,523) 
 
 
 (11,523) 
 (11,523)
Balance at June 30, 2020$852
 $738,155
 $237,808
 $19,538
 $(69,572) $(368) $926,413
 $
 $926,413


 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury
Stock
 
Unallocated
Common Stock
Held by ESOP
 
Total Brookline
Bancorp, Inc.
Stockholders'
Equity
 
Noncontrolling
Interest in
Subsidiary
 
Total Stockholders'
Equity
 (In Thousands)
Balance at December 31, 2018$852
 $755,629
 $212,838
 $(9,460) $(59,120) $(599) $900,140
 $10,479
 $910,619
Net income attributable to Brookline Bancorp, Inc. 
 
 42,938
 
 
 
 42,938
 
 42,938
Net income attributable to noncontrolling interest in subsidiary
 
 
 
 
 
 
 43
 43
Other comprehensive income
 
 
 10,601
 
 
 10,601
 
 10,601
Common stock dividends of $0.215 per share
 
 (17,151) 
 
 
 (17,151) 
 (17,151)
Dividend distribution to owners of noncontrolling interest in subsidiary
 (930) 
 
 
 
 (930) 
 (930)
Redemption of noncontrolling interest in subsidiary
 (18,697) 
 
 
 
 (18,697) (10,522) (29,219)
Compensation under recognition and retention plans
 1,470
 
 
 (79) 
 1,391
 
 1,391
Common stock held by ESOP committed to be released (11,742 shares)
 112
 
 
 
 64
 176
 
 176
Balance at June 30, 2019$852
 $737,584
 $238,625
 $1,141
 $(59,199) $(535) $918,468
 $
 $918,468



See accompanying notes to unaudited consolidated financial statements.
4


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended June 30, 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 March 31, 2020$852
 $737,422
 $227,359
 $16,947
 $(69,617) $(395) $912,568
 $
 $912,568
Net income attributable to Brookline Bancorp, Inc. 
 
 19,571
 
 
 
 19,571
 
 19,571
Other comprehensive income
 
 
 2,591
 
 
 2,591
 
 2,591
Common stock dividends of $0.115 per share
 
 (9,076) 
 
 
 (9,076) 
 (9,076)
Compensation Under recognition and retention plans
 701
 (46)   45
 
 700
 
 700
Common stock held by ESOP committed to be released (7,107 shares)
 32
 
 
 
 27
 59
 
 59
Balance at June 30, 2020$852
 $738,155
 $237,808
 $19,538
 $(69,572) $(368) $926,413
 $
 $926,413

 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury
Stock
 
Unallocated
Common Stock
Held by ESOP
 
Total Brookline
Bancorp, Inc.
Stockholders'
Equity
 
Noncontrolling
Interest in
Subsidiary
 
Total Stockholders'
Equity
 (In Thousands)
Balance at March 31, 2019$852
 $736,872
 $226,929
 $(4,393) $(59,121) $(567) $900,572
 $
 $900,572
Net income attributable to Brookline Bancorp, Inc. 
 
 20,471
 
 
 
 20,471
 
 20,471
Other comprehensive income
 
 
 5,534
 
 
 5,534
 
 5,534
Common stock dividends of $0.11 per share
 
 (8,775) 
 
 
 (8,775) 
 (8,775)
Compensation under recognition and retention plan
 656
 
 
 (78) 
 578
 
 578
Common stock held by ESOP committed to be released (5,871 shares)
 56
 
 
 
 32
 88
 
 88
Balance at June 30, 2019$852
 $737,584
 $238,625
 $1,141
 $(59,199) $(535) $918,468
 $
 $918,468



See accompanying notes to unaudited consolidated financial statements.
5


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
 Six Months Ended June 30,
 2020 2019
 (In Thousands)
Cash flows from operating activities:   
Net income attributable to Brookline Bancorp, Inc.$2,295
 $42,938
Adjustments to reconcile net income to net cash provided from operating activities:   
Net income attributable to noncontrolling interest in subsidiary
 43
Provision for credit losses59,461
 5,110
Origination of loans and leases held-for-sale
 (14,104)
Proceeds from sales of loans and leases held-for-sale, net
 16,364
Deferred income tax benefit(22,539) (499)
Depreciation of premises and equipment3,025
 3,514
Amortization of investment securities premiums and discounts, net1,048
 916
Amortization of deferred loan and lease origination costs, net3,913
 3,521
Amortization of identified intangible assets647
 822
Amortization of debt issuance costs51
 50
Accretion of acquisition fair value adjustments, net(389) (693)
Gain on investment securities, net(1,916) (491)
Gain on sales of loans and leases held-for-sale(419) (850)
Loss on sales of OREO and other repossessed assets, net
 130
Write-down of OREO and other repossessed assets830
 219
Compensation under recognition and retention plans1,370
 1,520
ESOP shares committed to be released160
 176
Net change in:   
Cash surrender value of bank-owned life insurance(509) (512)
Equity securities held-for-trading518
 
Other assets(120,680) (51,562)
Accrued expenses and other liabilities106,198
 32,266
Net cash provided from operating activities33,064
 38,878
    
Cash flows from investing activities:   
Proceeds from sales of investment securities available-for-sale131,499
 
Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale56,194
 33,229
Purchases of investment securities available-for-sale(438,658) 
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity6,302
 11,453
Purchases of investment securities held-to-maturity
 (500)
Proceeds from redemption/sales of restricted equity securities3,662
 12,759
Purchase of restricted equity securities(21,482) (6,278)
Proceeds from sales of loans and leases held-for-investment, net5,901
 7,682
Net increase in loans and leases(685,516) (219,921)
Purchase of premises and equipment, net(1,906) (2,590)
Proceeds from sales of OREO and other repossessed assets3,148
 3,926
Net cash used for investing activities(940,856) (160,240)
   (Continued)

See accompanying notes to unaudited consolidated financial statements.
6


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows (Continued)
 Six Months Ended June 30,
 2020 2019
 (In Thousands)
    
Cash flows from financing activities:   
Increase (decrease) in demand checking, NOW, savings and money market accounts679,855
 (26,839)
(Decrease) increase in certificates of deposit(69,356) 195,854
Proceeds from FHLBB advances2,225,600
 2,752,800
Repayment of FHLBB advances(1,716,499) (2,745,616)
(Decrease) increase in other borrowed funds, net(5,258) 2,959
(Decrease) in mortgagors' escrow accounts, net(765) (603)
Repurchases of common stock(10,410) 
Payment of dividends on common stock(18,249) (17,151)
Payment of income taxes for shares withheld in share based activity
 (49)
Redemption of noncontrolling interest in subsidiary
 (35,851)
Payment of dividends to owners of noncontrolling interest in subsidiary
 (930)
Net cash provided from financing activities1,084,918
 124,574
Net increase in cash and cash equivalents177,126
 3,212
Cash and cash equivalents at beginning of period77,790
 89,584
Cash and cash equivalents at end of period$254,916
 $92,796
    
Supplemental disclosure of cash flow information:   
Cash paid during the period for:   
Interest on deposits, borrowed funds and subordinated debt$40,577
 $46,125
Income taxes13,160
 15,386
Non-cash investing activities:   
Transfer from loans to other real estate owned$2,801
 $2,222



See accompanying notes to unaudited consolidated financial statements.
7


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
Overview
Brookline Bancorp, Inc. (the "Company") is a bank holding company (within the meaning of the Bank Holding Company Act of 1956, as amended) and the parent of Brookline Bank, a Massachusetts-chartered trust company 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 30 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

8

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, 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 a 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.

9

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 June 30, 2020
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$314,497
 $7,005
 $19
 $321,483
GSE CMOs57,275
 1,308
 19
 58,564
GSE MBSs376,180
 11,484
 7
 387,657
SBA commercial loan asset-backed securities1
 
 
 1
Corporate debt obligations25,359
 1,212
 
 26,571
U.S. Treasury bonds55,734
 4,008
 
 59,742
Foreign government obligations500
 
 13
 487
Total investment securities available-for-sale$829,546
 $25,017
 $58
 $854,505
Equity securities held-for-trading      $1,992

 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 June 30, 2020, the fair value of all investment securities available-for-sale was $854.5 million, with net unrealized gains of $25.0 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 June 30, 2020, $14.7 million, or 1.7% of the portfolio, had gross unrealized losses of $0.1 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.

10

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

Effective 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 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 June 30, 2020, the Company recorded a fair value of $2.0 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 June 30, 2020 and December 31, 2019, respectively, $624.5 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 June 30, 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 $2.8 million and $2.0 million, respectively, as of June 30, 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 June 30, 2020 and 2019.


11

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

Assessment for Available for Sale Securities for Impairment
Investment securities as of June 30, 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 June 30, 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$8,045
 $19
 $
 $
 $8,045
 $19
GSE CMOs1,609
 11
 1,298
 8
 2,907
 19
GSE MBSs3,130
 7
 101
 
 3,231
 7
SBA commercial loan asset-backed securities1
 
 
 
 1
 
Foreign government obligations487
 13
 
 
 487
 13
Temporarily impaired investment securities available-for-sale13,272
 50
 1,399
 8
 14,671
 58
Total temporarily impaired investment securities$13,272

$50

$1,399

$8

$14,671

$58
 At 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

12

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

considers, among other factors, projected future cash flows; credit subordination and the creditworthiness; capital adequacy and near-term prospects of the issuers.
Management also considers the Company's capital adequacy, interest-rate risk, liquidity and business plans in assessing whether it is more likely than not that the Company will sell or be required to sell the investment securities before recovery. If the Company determines that a decline in fair value is 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 June 30, 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 June 30, 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 June 30, 2020, 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 $12.2 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 June 30, 2020, the Company owned 63 GSE debentures with a total fair value of $321.5 million, and a net unrealized gain of $7.0 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 June 30, 2020, 1 of the 63 securities in this portfolio was 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 six months ended June 30, 2020, the Company purchased $169.0 million GSE debentures. This compares to the same period in 2019 when the Company did 0t purchase any GSE debentures. During the six months ended June 30, 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 June 30, 2020, the Company owned 33 GSE CMOs with a total fair value of $58.6 million and a net unrealized gain of $1.3 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 June 30, 2020, 2 of the 33 securities in this portfolio were 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 six months ended June 30, 2020 and 2019, the Company did 0t purchase any GSE CMOs.
As of June 30, 2020, the Company owned 138 GSE MBSs with a total fair value of $387.7 million and a net unrealized gain of $11.5 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 June 30, 2020, 15 of the 138 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 six months ended June 30, 2020, the Company purchased $248.4 million GSE MBSs. This compares

13

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

to the same period in 2019 when the Company did 0t purchase any GSE MBSs. During the six months ended June 30, 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.
SBA Commercial Loan Asset-Backed
As of June 30, 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 June 30, 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 six months ended June 30, 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 June 30, 2020, the Company held 7 corporate obligation securities with a total fair value of $26.6 million and a net unrealized gain of $1.2 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 June 30, 2020 and 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 six months ended June 30, 2020 and 2019, the Company did 0t purchase any corporate obligations. During the six months ended June 30, 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 June 30, 2020, the Company owned 10 U.S. Treasury bonds with a total fair value of $59.7 million and an unrealized gain of $4.0 million. This compares to 9 U.S. Treasury bonds with a total fair value of $44.9 million and an unrealized gain of $0.2 million as of December 31, 2019. As of June 30, 2020, none of the securities in this portfolio were in an unrealized loss position. As of December 31, 2019, 5 of the 9 securities in this portfolio were in unrealized loss positions. During the six months ended June 30, 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
As of June 30, 2020, the Company held 0 municipal obligation securities. As of December 31, 2019, the Company owned 93 municipal obligation securities classified as held-to-maturity with a total fair value and total amortized cost of $46.5 million and $45.7 million, respectively. As of December 31, 2019, 6 of the 93 securities in this portfolio were in an unrealized loss position. During the six months ended June 30, 2019, the Company did 0t purchase any municipal obligations.
Foreign Government Obligations
As of June 30, 2020 and December 31, 2019, the Company owned 1 foreign government obligation security with a fair value of $0.5 million, which approximated cost. As of June 30, 2020 and December 31, 2019 respectively, the security was in an unrealized loss position. During the six months ended June 30, 2020, the Company did 0t purchase any foreign government obligations, compared to the same period in 2019 when the Company repurchased an existing foreign government obligation that had matured.
Equity Securities Held-for-Trading
From time to time, the Company will invest in equity securities held-for-trading. As of June 30, 2020 and December 31, 2019, the Company owned equity securities held-for-trading with a fair value of $2.0 million and $3.6 million, respectively.

14

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

Portfolio Maturities
The final stated maturities of the debt securities are as follows for the periods indicated:
 At June 30, 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$14,456
 $14,578
 2.06% $12,797
 $12,804
 1.76%
After 1 year through 5 years180,991
 189,423
 2.17% 217,569
 220,757
 2.19%
After 5 years through 10 years233,204
 238,271
 1.57% 93,805
 94,212
 2.04%
Over 10 years400,895
 412,233
 1.95% 171,994
 171,222
 2.12%
 $829,546
 $854,505
 1.89% $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 June 30, 2020, issuers of debt securities with an estimated fair value of $130.2 million had the right to call or prepay the obligations. Of the $130.2 million, approximately $3.0 million matures within 1 year, $13.5 million matures in 1 - 5 years, $93.5 million matures in 6 - 10 years, and $20.1 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 $131.5 million securities sold during the six months ended June 30, 2020. There were 0 securities sold during the six months ended June 30, 2019.
Sales of investment and restricted equity securities are summarized as follows:
 Six Months Ended June 30, 2020
Six Months Ended June 30, 2019
 (In Thousands)
Proceeds from sale of trust preferred, marketable and restricted equity securities$518
 $
Sales of trading securities$131,497
 $
    
Gross gains from securities sales3,153
 
Gross losses from securities sales(166) 
Gain on sales of securities, net$2,987
 $


15

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 June 30, 2020 At December 31, 2019
 Balance 
Weighted
Average
Coupon
 Balance 
Weighted
Average
Coupon
 (Dollars In Thousands)
Commercial real estate loans:       
Commercial real estate$2,609,762
 3.65% $2,491,011
 4.33%
Multi-family mortgage968,761
 3.52% 932,163
 4.20%
Construction259,180
 3.80% 246,048
 5.09%
Total commercial real estate loans3,837,703
 3.63% 3,669,222
 4.34%
Commercial loans and leases:     
  
Commercial (1)1,222,986
 2.54% 729,502
 4.66%
Equipment financing1,085,869
 7.53% 1,052,408
 7.71%
Condominium association52,608
 4.69% 56,838
 4.84%
Total commercial loans and leases2,361,463
 4.88% 1,838,748
 6.41%
Consumer loans:     
  
Residential mortgage804,282
 3.95% 814,245
 4.10%
Home equity370,322
 3.27% 376,819
 4.46%
Other consumer33,927
 3.05% 38,782
 4.48%
Total consumer loans1,208,531
 3.72% 1,229,846
 4.22%
Total loans and leases$7,407,697
 4.04% $6,737,816
 4.88%
______________________________________________________________________
(1) Including $565,769 of PPP loans as of June 30, 2020. These loans are fully guaranteed by the SBA and therefore, have not been reserved for in the allowance for credit losses as of June 30, 2020.

Accrued interest on loans and leases, which were excluded from the amortized cost of loans and leases totaled $26.7 million and $17.4 million at June 30, 2020 and December 31, 2019, respectively, and were included in other assets in the consolidated balance sheets.

16

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) costs included in total loans and leases were $(1.1) million and $15.7 million as of June 30, 2020 and December 31, 2019, respectively. The decrease in net unamortized deferred loan origination fees and costs was primarily due to the net deferred origination fees of $15.5 million for the SBA's Payment Protection Program ("PPP") loans which were originated during the quarter.
The Banks and their subsidiaries lend primarily in all New England states, with the exception of equipment financing, 27.5% of which is in the greater New York and New Jersey metropolitan area and 72.5% of which is in other areas in the United States of America as of June 30, 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 June 30, 2020, there were no PCD loans in the Company's portfolios.

17

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 June 30, Six Months Ended June 30,
  2019  2019
 (In Thousands)
Balance at beginning of period $7,166
  $7,905
Acquisitions 
  
Accretion (1,041)  (1,841)
Reclassification from nonaccretable difference as a result of changes in expected cash flows 727
  788
Balance at end of period $6,852
  $6,852

During the three months ended June 30, 2019, accretable yield adjustments totaling $0.7 million was made for certain loan pools. During the six months ended June 30, 2019, accretable yield adjustments totaling $0.8 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 June 30, 2019, the accretable yield was fully accreted.
Loans and Leases Pledged as Collateral
As of June 30, 2020 and 2019, there were $3.5 billion and $2.9 billion respectively of loans and leases pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLBB borrowings. The Banks did 0t have any outstanding FRB borrowings as of June 30, 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 June 30, 2020
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at March 31, 2020$82,179
 $26,774
 $4,228
 $113,181
Charge-offs
 (1,794) (9) (1,803)
Recoveries94
 296
 30
 420
Provision (credit) for loan and lease losses excluding unfunded commitments7,738
 (338) 355
 7,755
Balance at June 30, 2020$90,011
 $24,938
 $4,604
 $119,553

 Three Months Ended June 30, 2019
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at March 31, 2019$28,349
 $24,240
 $5,452
 $58,041
Charge-offs
 (3,401) (11) (3,412)
Recoveries
 294
 36
 330
Provision for loan and lease losses319
 3,200
 157
 3,676
Balance at June 30, 2019$28,668
 $24,333
 $5,634
 $58,635


18

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

 Six Months Ended June 30, 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
 (4,321) (21) (4,342)
Recoveries94
 543
 88
 725
Provision for loan and lease losses excluding unfunded commitments47,938
 6,562
 956
 55,456
Balance at June 30, 2020$90,011
 $24,938
 $4,604
 $119,553
 Six Months Ended June 30, 2019
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2018$28,187
 $25,283
 $5,222
 $58,692
Charge-offs
 (5,913) (41) (5,954)
Recoveries
 682
 89
 771
Provision for loan and lease losses481
 4,281
 364
 5,126
Balance at June 30, 2019$28,668
 $24,333
 $5,634
 $58,635

The allowance for credit losses for unfunded credit commitments, which is included in other liabilities, was $14.8 million and $1.9 million at June 30, 2020 and December 31, 2019, respectively. The increase in allowance for unfunded commitments was primarily driven by the adoption of CECL and the effect of the latest available economic forecast which incorporates the impact of the COVID-19 pandemic. NaN credit commitments were charged off against the liability account in the six month periods ended June 30, 2020 and 2019.
Provision for Credit Losses
The provisions for credit losses are set forth below for the periods indicated:
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
 (In Thousands)
Provision for loan and lease losses:       
Commercial real estate$7,738
 $319
 $47,938
 $481
Commercial(338) 3,200
 6,562
 4,281
Consumer355
 157
 956
 364
Total provision for loan and lease losses7,755
 3,676
 55,456
 5,126
Unfunded credit commitments(2,408) 81
 4,005
 (16)
Total provision for credit losses$5,347
 $3,757
 $59,461
 $5,110

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.

19

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

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 Gross Domestic Product ("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 June 30, 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.
For June 30, 2020, management applied qualitative adjustments to the CRE lifetime loss rate and C&I lifetime loss rate. These adjustments were made based on historical loss patterns, current loan and portfolio metrics, and expert judgment based on professional experience. The qualitative adjustments resulted in reductions in reserves for the CRE portfolio and additions to reserves for the C&I portfolio, as compared to the model output.
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 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 allowance for loan and lease losses was $112.5 million as of June 30, 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, inclusive of the COVID-19 pandemic and legislative initiatives, on the Company's loan and lease portfolios. The specific allowance for loan and lease losses was $7.1 million as of June 30, 2020, compared to $1.8 million as of December 31, 2019. The specific allowance increased by $5.3 million during the six months ended June 30, 2020 primarily due to the specific reserves of $3.1 million for an individually evaluated commercial relationship and $2.3 million for an individually evaluated commercial real estate relationship during the six months ended June 30, 2020.
As of June 30, 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.

20

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

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.
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.

21

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

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 June 30, 2020.

 June 30, 2020
 20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
 (In Thousands)
Commercial Real Estate         
Pass$214,318
$424,343
$292,473
$280,329
$285,244
$1,018,739
$54,076
$11,491
$2,581,013
OAEM
490


2,221
14,014


16,725
Substandard


221
237
11,500

66
12,024
Total214,318
424,833
292,473
280,550
287,702
1,044,253
54,076
11,557
2,609,762
Multi-Family Mortgage         
Pass59,867
111,993
154,919
109,133
129,623
341,824
49,333
12,069
968,761
Total59,867
111,993
154,919
109,133
129,623
341,824
49,333
12,069
968,761
Construction         
Pass17,489
68,116
147,643
9,132
3,126
718
9,038

255,262
OAEM
1,000


2,918



3,918
Total17,489
69,116
147,643
9,132
6,044
718
9,038

259,180
Commercial         
Pass603,874
78,792
60,175
76,219
28,708
125,801
216,325
3,725
1,193,619
OAEM
5,668
23

54
27
7,497

13,269
Substandard

809
641
1,809
10,178
2,001
659
16,097
Doubtful






1
1
Total603,874
84,460
61,007
76,860
30,571
136,006
225,823
4,385
1,222,986
Equipment Financing         
Pass159,673
359,464
255,091
155,486
76,578
59,310
715
1,023
1,067,340
OAEM
2,612
1,395

1,321
41


5,369
Substandard
1,953
3,734
2,609
1,550
1,953


11,799
Doubtful
534
58
418
300
51


1,361
Total159,673
364,563
260,278
158,513
79,749
61,355
715
1,023
1,085,869
Condominium Association         
Pass2,211
10,515
5,459
8,204
5,865
17,365
2,288
512
52,419
Substandard



123
66


189
Total2,211
10,515
5,459
8,204
5,988
17,431
2,288
512
52,608

22

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

 June 30, 2020
 20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
 (In Thousands)
Other Consumer         
Pass584
612
8,512
40
576
429
23,155
13
33,921
Substandard





6

6
Total584
612
8,512
40
576
429
23,161
13
33,927
Total         
Pass1,058,016
1,053,835
924,272
638,543
529,720
1,564,186
354,930
28,833
6,152,335
OAEM
9,770
1,418

6,514
14,082
7,497

39,281
Substandard
1,953
4,543
3,471
3,719
23,697
2,007
725
40,115
Doubtful
534
58
418
300
51

1
1,362
Total$1,058,016
$1,066,092
$930,291
$642,432
$540,253
$1,602,016
$364,434
$29,559
$6,233,093

For residential mortgage and home equity loans, the borrowers' credit scores contribute as a reserve metric in the retail loss rate model.
 At June 30, 2020
 20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
 (In Thousands)
Residential         
Credit Scores 
  
      
Over 700$66,521
$107,427
$74,852
$63,569
$54,715
$144,997
$3,820
$
$515,901
661 - 70010,682
22,314
13,139
18,302
10,582
27,181


102,200
600 and below4,537
5,282
5,172
8,325
6,701
15,945


45,962
Data not available*10,070
19,059
10,228
15,736
5,607
78,170

1,349
140,219
Total91,810
154,082
103,391
105,932
77,605
266,293
3,820
1,349
804,282
Home Equity         
Credit Scores 
  
      
Over 7001,046
4,307
3,448
3,536
1,250
14,780
266,269
3,419
298,055
661 - 700172
506
575
677
333
3,495
43,734
1,713
51,205
600 and below
157
276
14
41
587
10,047
874
11,996
Data not available*




1,817
5,766
1,483
9,066
Total$1,218
$4,970
$4,299
$4,227
$1,624
$20,679
$325,816
$7,489
$370,322
_______________________________________________________________________________
* Represents loans and leases for which data are not available.


23

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
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 0 loans categorized as definite loss.


24

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 June 30, 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









25

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 June 30, 2020.
 At June 30, 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$4,351
$6,460
$10,134
$20,945
$2,588,817
$2,609,762
$145
$10,139
$1,783
Multi-family mortgage7,940
242

8,182
960,579
968,761



Construction



259,180
259,180



Total commercial real estate loans12,291
6,702
10,134
29,127
3,808,576
3,837,703
145
10,139
1,783
Commercial loans and leases:         
Commercial585
2,283
10,444
13,312
1,209,674
1,222,986
248
12,427
7,643
Equipment financing3,348
6,946
9,272
19,566
1,066,303
1,085,869
418
13,100
4,160
Condominium association137

48
185
52,423
52,608
48
190
123
Total commercial loans and leases4,070
9,229
19,764
33,063
2,328,400
2,361,463
714
25,717
11,926
Consumer loans:         
Residential mortgage9,373
5,543
4,058
18,974
785,308
804,282
808
4,157
3,388
Home equity1,743
2,385
740
4,868
365,454
370,322
307
1,278
767
Other consumer12
3
7
22
33,905
33,927

9

Total consumer loans11,128
7,931
4,805
23,864
1,184,667
1,208,531
1,115
5,444
4,155
Total loans and leases$27,489
$23,862
$34,703
$86,054
$7,321,643
$7,407,697
$1,974
$41,300
$17,864
                
There is 0 interest income recognized on non-accrual loans for the six months ended June 30, 2020.














26

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


27

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.

28

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 June 30, 2020
 Commercial Real Estate Commercial Consumer Total
 (In Thousands)
Allowance for Loan and Lease Losses:       
Individually evaluated$2,419
 $4,544
 $114
 $7,077
Collectively evaluated91,155
 16,831
 4,490
 112,476
Total93,574
 21,375
 4,604
 119,553
        
Loans and Leases:       
Individually evaluated$11,801
 $27,867
 $6,438
 $46,106
Collectively evaluated3,825,902
 2,333,596
 1,202,093
 7,361,591
Total3,837,703
 2,361,463
 1,208,531
 7,407,697



29

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.

30

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.

31

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

 Three Months Ended
  June 30, 2019
  Average
Recorded
Investment
 Interest
Income
Recognized
 (In Thousands)
Originated:    
With no related allowance recorded:    
Commercial real estate $3,374
 $15
Commercial 38,211
 338
Consumer 2,644
 8
Total originated with no related allowance recorded 44,229
 361
With an allowance recorded:    
Commercial real estate 71
 1
Commercial 5,903
 33
Consumer 660
 6
Total originated with an allowance recorded 6,634
 40
Total originated impaired loans and leases 50,863
 401
     
Acquired:    
With no related allowance recorded:    
Commercial real estate 9,497
 9
Commercial 507
 5
Consumer 4,531
 15
Total acquired with no related allowance recorded 14,535
 29
With an allowance recorded:    
Consumer 155
 1
  Total acquired with an allowance recorded 155
 1
Total acquired impaired loans and leases 14,690
 30
     
Total impaired loans and leases $65,553
 $431


32

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

 Six Months Ended
  June 30, 2019
  Average
Recorded
Investment
 Interest
Income
Recognized
 (In Thousands)
Originated:    
With no related allowance recorded:    
Commercial real estate $6,037
 $80
Commercial 36,687
 687
Consumer 2,688
 16
Total originated with no related allowance recorded 45,412
 783
With an allowance recorded:    
Commercial real estate 270
 2
Commercial 7,185
 61
Consumer 662
 12
Total originated with an allowance recorded 8,117
 75
Total originated impaired loans and leases 53,529
 858
     
Acquired:    
With no related allowance recorded:    
Commercial real estate 9,325
 12
Commercial 533
 9
Consumer 4,737
 30
Total acquired with no related allowance recorded 14,595
 51
With an allowance recorded:    
Consumer 154
 2
  Total acquired with an allowance recorded 154
 2
Total acquired impaired loans and leases 14,749
 53
     
Total impaired loans and leases $68,278
 $911



33

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 June 30, 2020
At December 31, 2019
 (In Thousands)
Troubled debt restructurings:   
On accrual$10,172
 $17,076
On nonaccrual5,972
 6,104
Total troubled debt restructurings$16,144
 $23,180


Total TDR loans and leases decreased by $7.1 million to $16.1 million at June 30, 2020 from $23.2 million at December 31, 2019, driven primarily by the payments and payoffs of the commercial and construction TDRs, partially offset by the new equipment financing TDRs during the six months ended June 30, 2020.
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 June 30, 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)
Commercial real estate
 $
 $
 $
 $
 1
 $221
Equipment financing11
 1,174
 1,160
 
 1,160
 
 
Total11
 $1,174
 $1,160
 $
 $1,160
 1
 $221
______________________________________________________________________
(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 June 30, 2019
   Recorded Investment 
Specific
Allowance for
Loan and
Lease Losses
   
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
  
Nonaccrual
Loans and
Leases
 
Number of
Loans/
Leases
 
Recorded
Investment
 (Dollars in Thousands)
Originated:             
Commercial1
 520
 520
 
 
 
 
Equipment financing2
 554
 554
 192
 497
 
 
Total originated3
 $1,074
 $1,074
 $192
 $497
 
 $
______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.

34

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

 At and for the Six Months Ended June 30, 2020
   Amortized Cost 
Specific
Allowance for
Loan and
Lease Losses
     
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
  
Nonaccrual
Loans and
Leases
 
Additional
Commitment
 
Number of
Loans/
Leases
 Amortized Cost
 (Dollars in Thousands)
Commercial real estate
 $
 $
 $
 $
 $
 $1
 $221
Commercial2
 297
 302
 
 
 
 
 
Equipment financing11
 1,174
 1,160
 
 1,160
 
 
 
Home equity1
 200
 200
 
 
 
 
 
Total14
 $1,671
 $1,662
 $
 $1,160
 
 1
 $221
 At and for the Six Months Ended June 30, 2019
   Recorded Investment 
Specific
Allowance for
Loan and
Lease Losses
     
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
  
Nonaccrual
Loans and
Leases
 
Additional
Commitment
 
Number of
Loans/
Leases
 
Recorded
Investment
 (Dollars in Thousands)
Originated:               
Commercial real estate1
 $73
 $71
 $8
 $
 
 
 $
Commercial7
 17,274
 18,907
 
 
 
 
 
Equipment financing5
 1,369
 1,113
 380
 1,056
 
 
 
Total originated13
 18,716
 20,091
 388
 1,056
 
 
 

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 June 30, Six Months Ended June 30,
 2020 2019 2020 2019
 (In Thousands)
Extended maturity$334
 $520
 $636
 $6,503
Adjusted principal44
 
 44
 
Combination maturity, principal, interest rate782
 554
 982
 13,588
Total1,160
 1,074
 1,662
 20,091

The TDR loans and leases that were modified for the three months ended June 30, 2020 and 2019 were $1.2 million and $1.1 million, respectively.
The TDR loans and leases that were modified for the six months ended June 30, 2020 and 2019 were $1.7 million and $20.1 million, respectively. The decrease in TDR loans and leases that were modified for the six months ended June 30, 2020 was primarily due to the modification of four commercial relationships totaling $18.9 million during the six months ended June 30, 2019.
The net charge-offs for performing and nonperforming TDR loans and leases for the three and six months ended June 30, 2020 were $0.5 million and $0.6 million respectively. The net charge-offs for performing and nonperforming TDR loans and leases for the three and six months ended June 30, 2019 were $0.8 million and $1.7 million respectively.
The commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs as of June 30, 2020 was $1.8 million. As of June 30, 2019, there were $1.5 million commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs.

35

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

The Coronavirus Aid, Relief and Economic Security ("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). As of June 30, 2020, the Company has granted 5,366 short-term deferments on loan and lease balances of $1.2 billion, which represented 16.0 percent of total loan and lease balances.
(6) Goodwill and Other Intangible Assets
The following table sets forth the carrying value of goodwill and other intangible assets at the dates indicated:
 At June 30, 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 deposits2,687
 3,334
Trade name1,089
 1,089
Total other intangible assets3,776
 4,423
Total goodwill and other intangible assets$164,203
 $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 6.14.
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$624
Year ending: 
2021857
2022500
2023268
2024158
2025104
Thereafter176
Total$2,687

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

36

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

Changes in accumulated other comprehensive income by component, net of tax, were as follows for the periods indicated:
 Three Months Ended June 30, 2020
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Income
 (In Thousands)
Balance at March 31, 2020$16,863
 $84
 $16,947
Other comprehensive income3,085
 
 3,085
Less: amounts reclassified from accumulated other comprehensive income494
 
 494
Balance at June 30, 2020$19,454
 $84
 $19,538
 Three Months Ended June 30, 2019
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at March 31, 2019$(4,645) $252
 $(4,393)
Other comprehensive income5,534
 
 5,534
Balance at June 30, 2019$889
 $252
 $1,141

 Six Months Ended June 30, 2020
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Income
 (In Thousands)
Balance at December 31, 2019$2,199
 $84
 $2,283
Other comprehensive income19,582
 
 19,582
Less: amounts reclassified from accumulated other comprehensive income2,327
 
 2,327
Balance at June 30, 2020$19,454
 $84
 $19,538
 Six Months Ended June 30, 2019
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at December 31, 2018$(9,712) $252
 $(9,460)
Other comprehensive income10,601
 
 10,601
Balance at June 30, 2019$889
 $252
 $1,141

(8) Derivatives and Hedging Activities
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. 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".

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

37

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

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.
The Company uses interest rate futures that are designated and qualify as cash flow hedging instruments. Positions are marked to market as an unrealized gain or loss with off-setting entries recognized in Accumulated Other Comprehensive Income. Gains and losses are recognized on the income statement in the account of the hedged item during the period in which the derivative settles. The fair value of these hedges on June 30, 2020 was a net liability position of $6 thousand compared to 0 position in December 31, 2019.
 
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
 June 30, 2020
 (Dollars In Thousands)
Loan level derivatives               
Receive fixed, pay variable135
 $23,939
 $8,686
 $24,584
 $18,942
 $1,191,796
 $1,267,947
 $163,744
Pay fixed, receive variable135
 23,939
 8,686
 24,584
 18,942
 1,191,796
 1,267,947
 163,744
Risk participation-out agreements43
 13,495
 
 7,077
 
 251,624
 272,196
 2,641
Risk participation-in agreements7
 
 
 
 19,000
 40,119
 59,119
 467
                
Foreign exchange contracts               
Buys foreign currency, sells U.S. currency21
 $1,332
 $
 $
 $
 $
 $1,332
 $96
Sells foreign currency, buys U.S. currency23
 1,441
 
 
 
 
 1,441
 117


38

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 $173.3 million and $86.5 million in the normal course of business as of June 30, 2020 and December 31, 2019, respectively. Dealer counterparties posted 0 collateral to the Company in the normal course of business as of June 30, 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 June 30, 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$165,756
 $
 $165,756
 $
 $
 $165,756
Risk participation-out agreements2,641
 
 2,641
 
 
 2,641
Foreign exchange contracts117
 
 117
 
 
 117
Total$168,514
 $
 $168,514
 $
 $
 $168,514
            
Liability derivatives           
Loan level derivatives$165,756
 $
 $165,756
 $162,140
 $11,210
 $(7,594)
Risk participation-in agreements467
 
 467
 
 
 467
Foreign exchange contracts96
 
 96
 
 
 96
Total$166,319
 $
 $166,319
 $162,140
 $11,210
 $(7,031)

39

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 June 30, 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 and six months ended June 30, 2020 and 2019, 0 shares were issued upon satisfaction of required conditions of the Plans.
Total expense for the Plans was $0.7 million and $0.7 million for the three months ended June 30, 2020 and 2019, respectively. Total expense for the Plans was $1.4 million and $1.5 million for the six months ended June 30, 2020 and 2019, respectively.

40

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

(10) Earnings per Share ("EPS")
The following table is a reconciliation of basic EPS and diluted EPS:
 Three Months Ended
 June 30, 2020 June 30, 2019
 Basic 
Fully
Diluted
 Basic 
Fully
Diluted
 (Dollars in Thousands, Except Per Share Amounts)
Numerator:       
Net income$19,571
 $19,571
 $20,471
 $20,471
        
Denominator:       
Weighted average shares outstanding78,849,282
 78,849,282
 79,669,922
 79,669,922
Effect of dilutive securities
 165,992
 
 216,370
Adjusted weighted average shares outstanding78,849,282
 79,015,274
 79,669,922
 79,886,292
        
EPS$0.25
 $0.25
 $0.26
 $0.26


 Six Months Ended
 June 30, 2020 June 30, 2019
 Basic 
Fully
Diluted
 Basic 
Fully
Diluted
 (Dollars in Thousands, Except Per Share Amounts)
Numerator:       
Net income$2,295
 $2,295
 $42,938
 $42,938
        
Denominator:       
Weighted average shares outstanding79,165,372
 79,165,372
 79,664,284
 79,664,284
Effect of dilutive securities
 175,152
 
 195,288
Adjusted weighted average shares outstanding79,165,372
 79,340,524
 79,664,284
 79,859,572
        
EPS$0.03
 $0.03
 $0.54
 $0.54

(11) Fair Value of Financial Instruments
A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring and non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no changes in the valuation techniques used during the three and six months ended June 30, 2020 and 2019.

41

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

Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables set forth the carrying value of assets and liabilities measured at fair value on a recurring basis at the dates indicated:
 Carrying Value as of June 30, 2020
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets: 
  
  
  
Investment securities available-for-sale:       
GSE debentures$
 $321,483
 $
 $321,483
GSE CMOs
 58,564
 
 58,564
GSE MBSs
 387,657
 
 387,657
SBA commercial loan asset-backed securities
 1
 
 1
Corporate debt obligations
 26,571
 
 26,571
U.S. Treasury bonds
 59,742
 
 59,742
Foreign government obligations
 487
 
 $487
Total investment securities available-for-sale$
 $854,505
 $
 $854,505
Equity securities held-for-trading$1,469
 $523
 $
 $1,992
Loan level derivatives
 165,756
 
 165,756
Risk participation-out agreements
 2,641
 
 2,641
Foreign exchange contracts
 117
 
 117
Liabilities:       
Loan level derivatives$
 $165,756
 $
 $165,756
Risk participation-in agreements
 467
 
 467
Foreign exchange contracts
 96
 
 96

42

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 June 30, 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.

43

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 and six months ended June 30, 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 June 30, 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$
 $
 $8,941
 $8,941
Repossessed assets
 1,454
 
 1,454
Total assets measured at fair value on a non-recurring basis$
 $1,454
 $8,941
 $10,395
 Carrying Value as of December 31, 2019
 Level 1 Level 2 Level 3 Total
 (In Thousands)
Assets measured at fair value on a non-recurring basis:       
Collateral-dependent impaired loans and leases$
 $
 $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).

44

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 June 30,
2020
 At December 31, 2019  
 (Dollars in Thousands)  
Collateral-dependent impaired loans and leases$8,941
 $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 June 30, 2020
 Carrying
Value
 Estimated
Fair Value
 Level 1
Inputs
 Level 2
Inputs
 Level 3
Inputs
 (In Thousands)
Financial assets:         
Loans and leases, net7,288,144
 7,256,940
 
 
 7,256,940
Restricted equity securities71,638
 71,638
 
 
 71,638
Financial liabilities:         
Certificates of deposits1,951,948
 1,973,770
 
 1,973,770
 
Borrowed funds1,406,669
 1,409,465
 
 1,409,465
 

     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
 


45

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.

46

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

Financial instruments with off-balance-sheet risk at the dates indicated follow:
 At June 30, 2020
At December 31, 2019
 (In Thousands)
Financial instruments whose contract amounts represent credit risk: 
 
Commitments to originate loans and leases: 
 
Commercial real estate$45,299

$50,034
Commercial102,133

78,058
Residential mortgage32,323

25,998
Unadvanced portion of loans and leases823,324

808,681
Unused lines of credit: 
 
Home equity565,382

528,251
Other consumer48,699

25,374
Other commercial447

380
Unused letters of credit:

 
     Financial standby letters of credit10,802

10,166
Performance standby letters of credit6,068

4,652
Commercial and similar letters of credit2,447

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




Receive fixed, pay variable1,267,947

1,101,193
Pay fixed, receive variable1,267,947

1,101,193
Risk participation-out agreements272,196

235,693
Risk participation-in agreements59,119
 55,281
Foreign exchange contracts (Notional amounts):




Buys foreign currency, sells U.S. currency1,332

1,125
Sells foreign currency, buys U.S. currency1,441

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 these derivatives are presented in Footnote 8.

47

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

Lease Commitments
The Company leases certain office space under various noncancellable operating leases as well as certain other assets. These leases have original terms ranging from 3 years to over 25 years. Certain leases contain renewal options and escalation clauses which can increase rental expenses based principally on the consumer price index and fair market rental value provisions. All of the Company's current outstanding leases are classified as operating leases.
The Company considered the following criteria when determining whether a contract contains a lease, the existence of an identifiable asset and the right to obtain substantially all of the economic benefits from use of the asset through the period. The Company used the FHLB classic advance rates available as of June 30, 2020 as the discount rate to determine the net present value of the remaining lease payments.
 At June 30, 2020 At June 30, 2019
 (In Thousands)
The components of lease expense were as follow:   
Operating lease cost$3,233
 $3,033
    
Supplemental cash flow information related to leases was as follows:   
Cash paid for amounts included in the measurement of lease liabilities:   
Operating cash flows for operating leases$3,302
 $3,106
Right-of-use assets obtained in exchange for new lease obligations:   
Operating leases$
 $66


 At June 30, 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$24,343
 $24,876
Operating lease liabilities24,343
 24,876
    
Weighted Average Remaining Lease Term   
Operating leases7.06
 7.47
    
Weighted Average Discount Rate   
Operating leases3.2% 3.2%



48

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

A summary of future minimum rental payments under such leases at the dates indicated follows:
 Minimum Rental Payments
 June 30, 2020
 (In Thousands)
  
Remainder of 2020$3,135
Year ending: 
20215,858
20225,156
20234,027
20242,626
20251,587
Thereafter4,675
Total$27,064
Less imputed interest(2,721)
Present value of lease liability$24,343

Certain leases contain escalation clauses for real estate taxes and other expenditures, which are not included above. The total real estate taxes were $0.9 million and other expenditures were $0.2 million for both the six months ended June 30, 2020, and 2019. Total rental expense was $1.6 million for both the three months ended June 30, 2020, and 2019, respectively. Total rental expense was $3.1 million and $3.0 million for the six months ended June 30, 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.

49

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
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 Company has granted 5,422 short-term deferrals on loan and lease balances of $1.2 billion, which represented 16.6% of total loan and lease balances.
On July 20, 2020, First Ipswich Securities II Corporation and BBS Investment Corporation merged into Longwood Securities Corporation. First Ipswich Securities II Corporation and BBS Investment Corporation were already a wholly-owned subsidiary of the Company, therefore there was no tax impact and minimal impact to customers.

50


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 employment levels, general business and economic conditions on a national basis and in the local markets in which the Banks operate; 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 consumer behavior due to changing political, business and economic conditions, including increased unemployment, or legislative or regulatory initiatives; 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 possibility that future credit losses may be higher than currently expected; due to changes in economic assumptions and adverse economic developments; 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 50 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, 27.5% of which is in the greater New York and New Jersey metropolitan area and 72.5% of which is in other areas in the United States of America as of June 30, 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

51


decisions locally enhances management's motivation, service levels and, as a consequence, the Company's financial results. As such, while most back-office functions are consolidated at the holding company level, branding and decision-making, including credit decisions and pricing, remain largely local in order to better meet the needs of bank customers and further motivate the Banks’ commercial, business and retail bankers. These credit decisions, at the local level, are executed through corporate policies overseen by the Company's credit department.
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.
On March 27, 2020, Congress passed, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted 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 2,926 PPP loans totaling $567 million. All PPP loans have been funded. PPP loans are fully guaranteed by the U.S. government, have an initial term of up to five years and earn interest at rate a 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 FRB's Paycheck Protection Program Liquidity Facility ("PPPLF") will extend credit to depository institutions with a term of up to five 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 5,422 short-term deferments on loan balances of $1.2 billion, which represented 17% of total loan balances as of June 30, 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.
The Company’s common stock is traded on the Nasdaq Global Select MarketSM under the symbol “BRKL.”

52


Selected Financial Data
The following is based in part on, and should be read in conjunction with, the consolidated financial statements and accompanying notes, and other information appearing elsewhere in this Quarterly Report on Form 10-Q.
 At and for the Three Months Ended
 June 30, March 31, December 31, September 30, June 30,
 2020 2020 2019 2019 2019
 (Dollars in Thousands, Except Per Share Data)
PER COMMON SHARE DATA         
Earnings per share - Basic$0.25
 $(0.22) $0.28
 $0.28
 $0.26
Earnings per share - Diluted0.25
 (0.22) 0.28
 0.28
 0.26
Book value per share (end of period)11.75
 11.57
 11.87
 11.70
 11.53
Tangible book value per share (end of period) (1)9.67
 9.49
 9.80
 9.63
 9.45
Dividends paid per common share0.115
 0.115
 0.115
 0.110
 0.110
Stock price (end of period)10.08
 11.28
 16.46
 14.73
 15.38
          
PERFORMANCE RATIOS (2)         
Net interest margin (taxable equivalent basis)3.09% 3.31 % 3.43% 3.45% 3.55%
Return on average assets0.88% (0.87)% 1.13% 1.17% 1.08%
Return on average tangible assets (1)0.90% (0.89)% 1.15% 1.19% 1.11%
Return on average stockholders' equity8.45% (7.30)% 9.42% 9.74% 8.98%
Return on average tangible stockholders' equity (1)10.28% (8.84)% 11.42% 11.85% 10.98%
Dividend payout ratio (1)46.37% (53.10)% 41.35% 38.88% 42.87%
Efficiency ratio (3)55.46% 57.36 % 54.15% 56.48% 56.09%
          
ASSET QUALITY RATIOS         
Net loan and lease charge-offs as a percentage of average loans and leases (annualized)0.08% 0.13 % 0.10% 0.02% 0.19%
Nonperforming loans and leases as a percentage of total loans and leases0.56% 0.57 % 0.29% 0.33% 0.33%
Nonperforming assets as a percentage of total assets0.47% 0.49 % 0.28% 0.30% 0.30%
Total allowance for loan and lease losses as a percentage of total loans and leases1.61% 1.66 % 0.91% 0.89% 0.90%
          
CAPITAL RATIOS         
Stockholders' equity to total assets10.21% 10.78 % 12.04% 11.83% 12.03%
Tangible equity ratio (1)8.56% 9.02 % 10.15% 9.94% 10.08%
          
FINANCIAL CONDITION DATA         
Total assets$9,069,667
 $8,461,591
 $7,856,853
 $7,878,436
 $7,636,980
Total loans and leases7,407,697
 6,822,527
 6,737,816
 6,646,821
 6,505,329
Allowance for loan and lease losses119,553
 113,181
 61,082
 59,135
 58,635
Investment securities available-for-sale854,505
 761,539
 498,995
 467,339
 482,497
Investment securities held-to-maturity
 
 86,780
 95,163
 103,572
Equity securities held-for-trading1,992
 2,558
 3,581
 4,581
 4,698
Goodwill and identified intangible assets164,203
 164,514
 164,850
 165,270
 165,691
Total deposits6,440,233
 5,889,938
 5,830,072
 5,729,339
 5,622,493
Total borrowed funds1,406,669
 1,291,804
 902,749
 986,405
 930,764
Stockholders' equity926,413
 912,568
 945,606
 932,311
 918,468
          
          
         (Continued)

53


 At and for the Three Months Ended
 June 30, March 31, December 31, September 30, June 30,
 2020 2020 2019 2019 2019
 (Dollars in Thousands, Except Per Share Data)
EARNINGS DATA         
Net interest income$64,288
 $61,712
 $63,931
 $63,236
 $63,134
Provision for credit losses5,347
 54,114
 3,602
 871
 3,757
Non-interest income6,235
 9,328
 7,756
 7,929
 7,478
Non-interest expense39,109
 40,748
 38,815
 40,191
 39,604
Net income (loss)19,571
 (17,276) 22,183
 22,596
 20,471
_______________________________________________________________________________
(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 $9.1 billion as of June 30, 2020 increased $1.2 billion, or 30.9% 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 June 30, 2020 increased $669.9 million, or 19.9% on an annualized basis, to $7.4 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 $6.2 billion, or 83.7% of total loans and leases, as of June 30, 2020, an increase of $691.2 million, or 25.1% 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 June 30, 2020 increased $177.1 million, or 455.4% on an annualized basis, to $254.9 million from December 31, 2019. Investment securities as June 30, 2020 increased $267.1 million, or 90.7% on annualized basis, to $856.5 million from December 31, 2019.
Total deposits of $6.4 billion as of June 30, 2020 increased $610.2 million, or 20.9% on an annualized basis, from December 31, 2019. Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $4.5 billion, or 69.7% of total deposits as of June 30, 2020, an increase of $679.9 million, or 35.7% 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 30.3% of total deposits as of June 30, 2020, a decrease of $69.7 million, or 6.9% on an annualized basis from $2.0 billion, or 34.7% of total deposits, as of December 31, 2019.
Total borrowed funds as of June 30, 2020 increased $503.9 million, or 111.6% on an annualized basis, to $1.4 billion from December 31, 2019.
Asset Quality
Nonperforming assets as of June 30, 2020 totaled $42.8 million, or 0.47% 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 June 30, 2020 were $1.4 million, or 0.08% of average loans and leases on an annualized basis, compared to $3.1 million, or 0.19% of average loans and leases on an annualized basis, for the three months ended June 30, 2019.
The ratio of the allowance for loan and lease losses to total loans and leases was 1.61% as of June 30, 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 June 30, 2020, compared to 11.44% as of December 31, 2019. The Company's Tier 1 leverage ratio was 8.71% as of June 30, 2020, compared to 10.28% as of December 31, 2019. As of June 30, 2020, the Company's Tier 1 risk-based capital ratio was 10.56%, compared to 11.58% as of December 31, 2019. The Company's Total risk-based capital ratio was 12.85% as of June 30, 2020, compared to 13.59% as of December 31, 2019.

54


The Company's ratio of stockholders' equity to total assets was 10.21% and 12.04% as of June 30, 2020 and December 31, 2019, respectively. The Company's tangible equity ratio was 8.56% and 10.15% as of June 30, 2020 and December 31, 2019, respectively.
Net Income
For the three months ended June 30, 2020, the Company reported net income of $19.6 million, or $0.25 per basic and diluted share, a decrease of $0.9 million, or 17.6% on an annualized basis, from $20.5 million, or $0.26 per basic and diluted share for the three months ended June 30, 2019. This decrease in net income is primarily the result of an increase in the provision for credit losses of $1.6 million and a decrease in non-interest income of $1.2 million, partially offset by an increase in net interest income of $1.2 million, a decrease in non-interest expense of $0.5 million, and a decrease in the provision for income taxes of $0.3 million. Refer to “Results of Operations" below for further discussion.
For the six months ended June 30, 2020, the Company reported net income of $2.3 million, or $0.03 per basic and diluted share, a decrease of $40.6 million, or 94.7%, from $42.9 million or $0.54 per basic and diluted share for the six months ended June 30, 2019. This decrease in net income is primarily the result of an increase in the provision for credit losses of $54.4 million and an increase in non-interest expense of $1.4 million, partially offset by a decrease in the provision for income taxes of $13.7 million and an increase in non-interest income of $1.5 million. Refer to “Results of Operations" below for further discussion.
The annualized return on average assets was 0.88% for the three months ended June 30, 2020, compared to 1.08% for the three months ended June 30, 2019. The annualized return on average stockholders' equity was 8.45% for the three months ended June 30, 2020, compared to 8.98% for the three months ended June 30, 2019.
The net interest margin was 3.09% for the three months ended June 30, 2020, down from 3.55% for the three months ended June 30, 2019. The decrease in the net interest margin is a result of a decrease in the yield on interest-earning assets of 96 basis points to 3.92% for the three months ended June 30, 2020 from 4.88% for the three months ended June 30, 2019, partially offset by a decrease of 53 basis points in the Company's overall cost of funds to 0.94% for the three months ended June 30, 2020 from 1.47% for the three months ended June 30, 2019.
The net interest margin was 3.19% for the six months ended June 30, 2020, down from 3.59% for the six months ended
June 30, 2019. The decrease in the net interest margin is a result of a decrease of 33 basis points in the Company's overall cost of funds to 1.10% for the six months ended June 30, 2020 from 1.43% for the six months ended June 30, 2019, partially offset by a decrease in the yield on interest-earning assets of 69 basis points to 4.17% for the six months ended June 30, 2020 from 4.86% for the six months ended June 30, 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

55


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
(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 June 30, 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 
 June 30,
 At and for the Six Months Ended 
 June 30,
 2020 2019 2020 2019
 (Dollars in Thousands)
Net income, as reported$19,571
 $20,471
 $2,295
 $42,938
Less:       
Security gains (after-tax)440
 268
 1,958
 373
Operating earnings$19,131
 $20,203
 $337
 $42,565
        
Basic earnings per share, as reported$0.25
 $0.26
 $0.03
 $0.54
Less:       
Security gains (after-tax)0.01
 0.01
 0.03
 0.01
Basic operating earnings per share$0.24
 $0.25
 $
 $0.53


56



The following tables reconcile the Company’s return on average tangible assets and return on average tangible stockholders’ equity for the periods indicated:
 Three Months Ended
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
 June 30,
2019
 (Dollars in Thousands)
Operating earnings (loss)$19,131
 $(18,240) $22,082
 $23,528
 $20,203
          
Average total assets$8,869,540
 $7,965,826
 $7,860,593
 $7,746,492
 $7,571,396
Less: Average goodwill and average identified intangible assets, net164,385
 164,701
 165,071
 165,493
 165,914
Average tangible assets$8,705,155
 $7,801,125
 $7,695,522
 $7,580,999
 $7,405,482
          
Return on average assets (annualized)0.88% (0.87)% 1.13% 1.17 % 1.08%
Less:         
Security gains0.02% 0.05 % 0.01%  % 0.01%
Add:         
Merger and restructuring-related expenses%  % % 0.04 % %
Operating return on average assets (annualized)0.86% (0.92)% 1.12% 1.21 % 1.07%
          
Return on average tangible assets (annualized)0.90% (0.89)% 1.15% 1.19 % 1.11%
Less:         
Security gains0.02% 0.05 % 0.01%  % 0.02%
Add:         
Merger and restructuring-related expenses%  % % 0.05 % %
Operating return on average tangible assets (annualized)0.88% (0.94)% 1.15% 1.24 % 1.09%
          
Average total stockholders' equity$926,239
 $946,138
 $941,891
 $928,063
 $911,824
Less: Average goodwill and average identified intangible assets, net164,385
 164,701
 165,071
 165,493
 165,914
Average tangible stockholders' equity$761,854
 $781,437
 $776,820
 $762,570
 $745,910
          
Return on average stockholders' equity (annualized)8.45% (7.30)% 9.42% 9.74 % 8.98%
Less:         
Security gains (losses)0.19% 0.41 % 0.04% (0.04)% 0.12%
Add:         
Merger and restructuring-related expenses%  % % 0.36 % %
Operating return on average stockholders' equity (annualized)8.26% (7.71)% 9.38% 10.14 % 8.86%
          
          
          
          
         (Continued)

57


 Three Months Ended
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
 June 30,
2019
 (Dollars in Thousands)
Return on average tangible stockholders' equity (annualized)10.28% (8.84)% 11.42% 11.85 % 10.98%
Less:         
Security gains (losses)0.24% 0.49 % 0.05% (0.05)% 0.15%
Add:         
Merger and restructuring-related expenses%  % % 0.44 % %
Operating return on average tangible stockholders' equity (annualized)10.04% (9.33)% 11.37% 12.34 % 10.83%

 Three Months Ended
 June 30,
2020

March 31,
2020

December 31, 2019
September 30,
2019

June 30,
2019
 (Dollars in Thousands)
Net income (loss), as reported$19,571
 $(17,276) $22,183
 $22,596
 $20,471
          
Average total assets$8,869,540
 $7,965,826
 $7,860,593
 $7,746,492
 $7,571,396
Less: Average goodwill and average identified intangible assets, net164,385

164,701

165,071

165,493

165,914
Average tangible assets$8,705,155
 $7,801,125
 $7,695,522
 $7,580,999
 $7,405,482
          
Return on average tangible assets (annualized)0.90% (0.89)% 1.15% 1.19% 1.11%
          
Average total stockholders' equity$926,239
 $946,138
 $941,891
 $928,063
 $911,824
Less: Average goodwill and average identified intangible assets, net164,385
 164,701
 165,071
 165,493
 165,914
Average tangible stockholders' equity$761,854
 $781,437
 $776,820
 $762,570
 $745,910
          
Return on average tangible stockholders' equity (annualized)10.28% (8.84)% 11.42% 11.85% 10.98%

The following table reconciles the Company's tangible equity ratio for the periods indicated:
 Three Months Ended
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
 June 30,
2019
 (Dollars in Thousands)
Total stockholders' equity$926,413
 $912,568
 $945,606
 $932,311
 $918,468
Less: Goodwill and identified intangible assets, net164,203
 164,514
 164,850
 165,270
 165,691
Tangible stockholders' equity$762,210
 $748,054
 $780,756
 $767,041
 $752,777
          
Total assets$9,069,667
 $8,461,591
 $7,856,853
 $7,878,436
 $7,636,980
Less: Goodwill and identified intangible assets, net164,203
 164,514
 164,850
 165,270
 165,691
Tangible assets$8,905,464
 $8,297,077
 $7,692,003
 $7,713,166
 $7,471,289
          
Tangible equity ratio8.56% 9.02% 10.15% 9.94% 10.08%


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The following table reconciles the Company's tangible book value per share for the periods indicated:
 Three Months Ended
 June 30,
2020
 March 31,
2020
 December 31, 2019 September 30,
2019
 June 30,
2019
 (Dollars in Thousands)
Tangible stockholders' equity$762,210
 $748,054
 $780,756
 $767,041
 $752,777
          
Common shares issued85,177,172
 85,177,172
 85,177,172
 85,177,172
 85,177,172
Less:         
Treasury shares5,859,708
 5,862,811
 5,003,127
 5,003,127
 5,025,764
Unallocated ESOP65,334
 72,441
 79,548
 92,337
 98,208
Unvested restricted stock398,188
 395,085
 406,450
 407,784
 377,122
Common shares outstanding78,853,942
 78,846,835
 79,688,047
 79,673,924
 79,676,078
          
Tangible book value per share$9.67
 $9.49
 $9.80
 $9.63
 $9.45

The following table reconciles the Company's dividend payout ratio for the periods indicated:
 Three Months Ended
 June 30,
2020
 March 31,
2020
 December 31, 2019 September 30,
2019
 June 30,
2019
 (Dollars in Thousands)
Dividends paid$9,076
 $9,173
 $9,173
 $8,786
 $8,775
          
Net (loss) income, as reported$19,571
 $(17,276) $22,183
 $22,596
 $20,471
          
Dividend payout ratio46.37% (53.10)% 41.35% 38.88% 42.87%

 Three Months Ended
 June 30,
2020
 March 31,
2020
 December 31, 2019 September 30,
2019
 June 30,
2019
          
Allowance for loan and lease losses$119,553
 $113,181
 $61,082
 $59,135
 $58,635
          
Total loans and leases$7,407,697
 $6,822,527
 $6,737,816
 $6,646,821
 $6,505,329
Less: Total PPP loans565,768
 
 
 
 
Total loans and leases excluding PPP loans$6,841,929
 $6,822,527
 $6,737,816
 $6,646,821
 $6,505,329
          
Allowance for loan and lease losses as a percentage of total loans and leases less PPP loans1.75% 1.66% 0.91% 0.89% 0.90%


59


Financial Condition
Loans and Leases
The following table summarizes the Company's portfolio of loans and leases receivables as of the dates indicated:
 At June 30, 2020 At December 31, 2019
 Balance 
Percent
of Total
 Balance 
Percent
of Total
 (Dollars in Thousands)
Commercial real estate loans:       
Commercial real estate$2,609,762
 35.1% $2,491,011
 37.0%
Multi-family mortgage968,761
 13.1% 932,163
 13.8%
Construction259,180
 3.5% 246,048
 3.7%
Total commercial real estate loans3,837,703
 51.7% 3,669,222
 54.5%
Commercial loans and leases:       
Commercial1,222,986
 16.5% 729,502
 10.8%
Equipment financing1,085,869
 14.7% 1,052,408
 15.6%
Condominium association52,608
 0.7% 56,838
 0.8%
Total commercial loans and leases2,361,463
 31.9% 1,838,748
 27.2%
Consumer loans:       
Residential mortgage804,282
 10.9% 814,245
 12.1%
Home equity370,322
 5.0% 376,819
 5.6%
Other consumer33,927
 0.5% 38,782
 0.6%
Total consumer loans1,208,531
 16.4% 1,229,846
 18.3%
Total loans and leases7,407,697
 100.0% 6,737,816
 100.0%
Allowance for loan and lease losses(119,553)   (61,082)  
Net loans and leases$7,288,144
   $6,676,734
  

The following table sets forth the growth in the Company’s loan and lease portfolios during the six months ended June 30, 2020:
 At June 30,
2020
 At December 31,
2019
 Dollar Change 
Percent Change
(Annualized)
 (Dollars in Thousands)
Commercial real estate$3,837,703
 $3,669,222
 $168,481
 9.2 %
Commercial2,361,463
 1,838,748
 522,715
 56.9 %
Consumer1,208,531
 1,229,846
 (21,315) -3.5 %
Total loans and leases$7,407,697
 $6,737,816
 $669,881
 19.9 %
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 June 30, 2020, there were 3 borrowers with loans and

60


commitments over $50.0 million. The total of those loans and commitments was $165.1 million, or 1.87% of total loans and commitments, as of June 30, 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 51.7% of total loans and leases outstanding as of June 30, 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 ($928.5 million), office buildings ($724.1 million), retail stores ($613.9 million), industrial properties ($448.7 million), mixed-use properties ($334.3 million), lodging services ($148.6 million) and food services ($60.6 million) as of June 30, 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.

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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 31.9% of total loans outstanding as of June 30, 2020.
The Company's commercial loan and lease portfolio is composed primarily of loans to small to medium sized businesses ($632.9 million), transportation services ($386.5 million), food services ($226.0 million), manufacturing ($162.7 million), recreation services ($155.7 million), rental and leasing services ($117.1 million), and retail ($109.9 million) as of June 30, 2020.
The Company provides commercial banking services to companies in its market area. Approximately 55.6% of the commercial loans outstanding as of June 30, 2020 were made to borrowers located in New England. The remaining 44.4% of the commercial loans outstanding were made to borrowers in other areas in the United States of America, primarily by the Company's equipment financing divisions. Product offerings include lines of credit, term loans, letters of credit, deposit services and cash management. These types of credit facilities have as their primary source of repayment cash flows from the operations of a business. Interest rates offered are available on a floating basis tied to the prime rate or a similar index or on a fixed-rate basis referenced on the Federal Home Loan Bank of Boston ("FHLBB") index.
Credit extensions are made to established businesses on the basis of loan purpose and assessment of capacity to repay as determined by an analysis of their financial statements, the nature of collateral to secure the credit extension and, in most instances, the personal guarantee of the owner of the business as well as industry and general economic conditions. The Company also participates in U.S. Government programs such as the SBA 7A program and as an SBA preferred lender. Included in the commercial loans balances are the PPP loans totaling $565.8 million as of June 30, 2020.
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 26.1% 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 16.4% of total loans outstanding as of June 30, 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.

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Other consumer loans have historically been a modest part of the Company's loan originations. As of June 30, 2020, other consumer loans equaled $33.9 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 June 30, 2020, the Company had $80.8 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 increase of $13.6 million in criticized assets was primarily due to two commercial relationships totaling $8.3 million and an equipment financing relationship of $4.0 million which became criticized during the first six 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 June 30, 2020, the Company had nonperforming assets of $42.8 million, representing 0.47% 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 performing assets, one commercial relationship of $8.5 million, and various equipment financing and residential relationships that were placed on nonaccrual status, partially offset by a decrease in other repossessed assets during first six 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.        

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Past Due and Accruing
Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. Exceptions may be made if the loan has matured and is in the process of renewal or is well-secured and in the process of collection. 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 June 30, 2020, the Company had loans and leases greater than 90 days past due and accruing of $2.0 million, or 0.03% 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 $8.1 million. The decrease in past due and accruing loans was primarily due to $9.3 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 June 30, 2020 At December 31, 2019
 (Dollars in Thousands)
Nonperforming loans and leases:   
Nonaccrual loans and leases:   
Commercial real estate$10,139
 $2,845
Multi-family mortgage
 84
Total commercial real estate loans10,139
 2,929
    
Commercial12,427
 4,909
Equipment financing13,100
 9,822
Condominium association190
 151
Total commercial loans and leases25,717
 14,882
    
Residential mortgage4,157
 753
Home equity1,278
 896
Other consumer9
 1
Total consumer loans5,444
 1,650
    
Total nonaccrual loans and leases41,300
 19,461
    
Other repossessed assets1,454
 2,631
Total nonperforming assets$42,754
 $22,092
    
Loans and leases past due greater than 90 days and accruing$1,974
 $10,109
Total delinquent loans and leases 61-90 days past due23,862
 4,978
Restructured loans and leases not included in nonperforming assets10,172
 17,076
    
Total nonperforming loans and leases as a percentage of total loans and leases0.56% 0.29%
Total nonperforming assets as a percentage of total assets0.47% 0.28%
Total delinquent loans and leases 61-90 days past due as a percentage of total loans and leases0.32% 0.07%

64



Troubled Debt Restructuring Loans and Leases
Total TDR loans decreased by $7.1 million to $16.1 million at June 30, 2020 from $23.2 million at December 31, 2019. The decrease driven primarily by the payments and payoffs of the commercial and construction TDRs, partially offset by the new equipment financing TDRs during the six months ended June 30, 2020.
As of June 30, 2020, total TDR loans included $4.4 million of commercial loans, $6.1 million of equipment financing loans and leases, $2.2 million of residential mortgage loans, $1.9 million of home equity loans, and $1.6 million of commercial real estate 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 June 30, 2020 At December 31, 2019
 (Dollars in Thousands)
Troubled debt restructurings: 
  
On accrual$10,172
 $17,076
On nonaccrual5,972
 6,104
Total troubled debt restructurings$16,144
 $23,180

Changes in TDR loans and leases were as follows for the periods indicated:
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020
2019
 (Dollars in Thousands)
Balance at beginning of period$22,299
 $36,140
 $23,180
 $20,941
Additions1,174
 1,074
 1,671
 20,773
Net charge-offs(473) (845) (607) (1,723)
Repayments(6,856) (177) (8,100) (3,799)
Balance at end of period$16,144
 $36,192
 $16,144
 $36,192

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 June 30, 2020, the Company has granted 5,366 short-term
deferrals on loan and lease balances of $1.2 billion, which represented 16.0% of total loan and lease balances.

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 over the life of loan or lease. 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

65


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. Qualitative adjustments are applied when model output does not align with management expectations. These adjustments are thoroughly reviewed and documented to provide clarity and a reasonable basis for any deviations from the model. For June 30, 2020, qualitative adjustments were applied to the CRE and C&I portfolios resulting in a net reduction in total reserves compared to model calculations.
The following tables present the changes in the allowance for loan and lease losses by portfolio category for the three and six months ended June 30, 2020 and 2019.
 At and for the Three Months Ended June 30, 2020
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at March 31, 2020$82,179
 $26,774
 $4,228
 $113,181
Charge-offs
 (1,794) (9) (1,803)
Recoveries94
 296
 30
 420
Provision (credit) for loan and lease losses7,738
 (338) 355
 7,755
Balance at June 30, 2020$90,011
 $24,938
 $4,604
 $119,553
        
Total loans and leases$3,837,703
 $2,361,463
 $1,208,531
 $7,407,697
Total allowance for loan and lease losses as a percentage of total loans and leases2.35% 1.06% 0.38% 1.61%
 At and for the Three Months Ended June 30, 2019
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at March 31, 2019$28,349
 $24,240
 $5,452
 $58,041
Charge-offs
 (3,401) (11) (3,412)
Recoveries
 294
 36
 330
Provision for loan and lease losses319
 3,200
 157
 3,676
Balance at June 30, 2019$28,668
 $24,333
 $5,634
 $58,635
        
Total loans and leases$3,493,554
 $1,826,336
 $1,185,439
 $6,505,329
Total allowance for loan and lease losses as a percentage of total loans and leases0.82% 1.33% 0.48% 0.90%

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 At and for the Six Months Ended June 30, 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
 (4,321) (21) (4,342)
Recoveries94
 543
 88
 725
Provision for loan and lease losses47,938
 6,562
 956
 55,456
Balance at June 30, 2020$90,011
 $24,938
 $4,604
 $119,553
        
Total loans and leases$3,837,703
 $2,361,463
 $1,208,531
 $7,407,697
Total allowance for loan and lease losses as a percentage of total loans and leases2.35% 1.06% 0.38% 1.61%
 At and for the Six Months Ended June 30, 2019
 
Commercial
Real Estate
 Commercial Consumer Total
 (In Thousands)
Balance at December 31, 2018$28,187
 $25,283
 $5,222
 $58,692
Charge-offs
 (5,913) (41) (5,954)
Recoveries
 682
 89
 771
Provision for loan and lease losses481
 4,281
 364
 5,126
Balance at June 30, 2019$28,668
 $24,333
 $5,634
 $58,635
        
Total loans and leases$3,493,554
 $1,826,336
 $1,185,439
 $6,505,329
Total allowance for loan and lease losses as a percentage of total loans and leases0.82% 1.33% 0.48% 0.90%
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 June 30, 2020, the allowance for loan and lease losses increased to $119.6 million, or 1.61% 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. Excluding PPP loans for which no allowance was reserved due to 100% federal guarantee, the allowance for loan losses and lease losses represents 1.75% of total loans and leases outstanding at June 30, 2020. 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 June 30, 2020 and 2019 were $1.4 million and $3.1 million, respectively. As a percentage of average loans and leases, annualized net charge-offs for the three months ended June 30, 2020 and 2019 were 0.26% and 0.68%, respectively. Net charge-offs in the loans and leases for the six months ended June 30, 2020 and 2019 were $3.6 million and $5.2 million, respectively. As a percentage of average loans and leases, annualized net charge-offs for the six months ended June 30, 2020 and 2019 were 0.37% and 0.58%, respectively.
Management believes that the allowance for loan and lease losses as of June 30, 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.

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 At June 30, 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$53,361
 44.8% 35.1% $21,519
 35.3% 37.0%
Multi-family mortgage23,951
 20.0% 13.1% 6,436
 10.5% 13.8%
Construction12,699
 10.6% 3.5% 2,330
 3.8% 3.7%
Total commercial real estate loans90,011
 75.4% 51.7% 30,285
 49.6% 54.5%
Commercial9,475
 7.9% 16.5% 12,849
 21.0% 10.8%
Equipment financing15,358
 12.8% 14.7% 11,595
 19.0% 15.6%
Condominium association105
 0.1% 0.7% 382
 0.6% 0.8%
Total commercial loans and leases24,938
 20.8% 31.9% 24,826
 40.6% 27.2%
Residential mortgage1,822
 1.5% 10.9% 3,717
 6.1% 12.1%
Home equity2,502
 2.1% 5.0% 2,132
 3.5% 5.6%
Other consumer280
 0.2% 0.5% 122
 0.2% 0.6%
Total consumer loans4,604
 3.8% 16.4% 5,971
 9.8% 18.3%
Total$119,553
 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 $444.3 million, or 133.2% on an annualized basis, to $1.1 billion as of June 30, 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 12.3% of total assets as of June 30, 2020, compared to 8.5% of total assets at December 31, 2019.

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The following table sets forth certain information regarding the amortized cost and market value of the Company's investment securities at the dates indicated:
 At June 30, 2020 At December 31, 2019
 
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value
 (In Thousands)
Investment securities available-for-sale:       
GSE debentures$314,497
 $321,483
 $182,922
 $185,803
GSE CMOs57,275
 58,564
 87,001
 85,932
GSE MBSs376,180
 387,657
 153,049
 153,343
SBA commercial loan asset- backed securities1
 1
 34
 34
Corporate debt obligations25,359
 26,571
 28,484
 28,986
U.S. Treasury bonds55,734
 59,742
 44,675
 44,897
Foreign government obligations$500
 $487
    
Total investment securities available-for-sale$829,546
 $854,505
 $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  $1,992
   $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 $56.2 million for the six months ended June 30, 2020 compared to $33.2 million for the same period in 2019. For the six months ended June 30, 2020, the Company sold $131.5 million of investment securities available for sale, compared to none for the same period in 2019. For the six months ended June 30, 2020, the Company purchased $438.7 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 six months ended June 30, 2020 compared to $11.5 million for the same period in 2019. There were no sales of investment securities held-to-maturity for the six months ended June 30, 2020 and 2019. For the six months ended June 30, 2020, the Company did not purchase any investment securities held-to-maturity, compared to $0.5 million in purchases of investment securities held-to-maturity for the same period in 2019. During the three months ended June 30, 2020, all held-to-maturity securities were transferred to the available-for-sale portfolio.

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As of June 30, 2020, the fair value of all investment securities available-for-sale was $854.5 million and carried a total of $25.0 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 June 30, 2020, $14.7 million, or 1.7%, of the portfolio, had gross unrealized losses of $0.1 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 June 30, 2020, the excess balance of capital stock was $0.3 million, as compared to a $0.7 million excess balance as of December 31, 2019.
As of June 30, 2020, the Company owned stock in the FHLBB with a carrying value of $53.1 million, an increase of $17.7 million from $35.5 million as of December 31, 2019. As of June 30, 2020, the FHLBB had total assets of $46.2 billion and total capital of $2.8 billion, of which $1.5 billion was retained earnings. The FHLBB stated that it remained in compliance with all regulatory capital ratios as of June 30, 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 June 30, 2020, the Company owned stock in the Federal Reserve Bank of Boston with a carrying value of $18.2 million, compared to $18.1 million as of 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 June 30, 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 June 30, 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$1,603,037
 24.9% % $1,141,578
 19.6% %
Interest-bearing deposits:           
NOW accounts417,622
 6.5% 0.10% 371,380
 6.4% 0.11%
Savings accounts657,758
 10.2% 0.16% 613,467
 10.5% 0.46%
Money market accounts1,809,868
 28.1% 0.39% 1,682,005
 28.9% 1.15%
Certificate of deposit accounts1,951,948
 30.3% 1.89% 2,021,642
 34.7% 2.26%
Total interest-bearing deposits4,837,196
 75.1% 0.94% 4,688,494
 80.4% 1.46%
Total deposits$6,440,233
 100.0% 0.70% $5,830,072
 100.0% 1.17%

Total deposits increased $610.2 million to $6.4 billion as of June 30, 2020, compared to $5.8 billion as of December 31, 2019. Deposits as a percentage of total assets decreased to 71.0% as of June 30, 2020, compared to 74.2% as of December 31, 2019.

As of June 30, 2020, the Company had $350.2 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. Brokered deposits are included in the certificate of deposit balance, which decreased $69.7 million during the six months ended

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June 30, 2020. Certificates of deposit have also decreased as a percentage of total deposits to 30.3% as of June 30, 2020 from 34.7% as of December 31, 2019.

During the six months ended June 30, 2020, core deposits increased $679.9 million. The ratio of core deposits to total deposits increased from 65.3% as of December 31, 2019 to 69.7% as of June 30, 2020, primarily due to an increase in core deposit accounts and a decrease in certificate of deposit accounts.

The following table sets forth the distribution of the average balances of the Company's deposit accounts for the periods indicated and the weighted average interest rates on each category of deposits presented. Averages for the periods presented are based on daily balances.
 Three Months Ended June 30,
 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$1,512,089
 23.7% % $1,015,524
 18.1% %
NOW accounts395,158
 6.2% 0.12% 343,745
 6.1% 0.06%
Savings accounts663,782
 10.4% 0.22% 602,333
 10.8% 0.49%
Money market accounts1,784,343
 28.0% 0.47% 1,683,735
 30.1% 1.33%
Total core deposits4,355,372
 68.3% 0.36% 3,645,337
 65.1% 0.70%
Certificate of deposit accounts2,019,195
 31.7% 2.04% 1,950,704
 34.9% 2.33%
Total deposits$6,374,567
 100.0% 0.80% $5,596,041
 100.0% 1.27%
 Six Months Ended June 30,
 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$1,323,202
 21.7% % $1,021,215
 18.4% %
NOW accounts377,399
 6.2% 0.12% 338,983
 6.1% 0.11%
Savings accounts645,363
 10.6% 0.31% 614,307
 11.1% 0.44%
Money market accounts1,731,496
 28.4% 0.73% 1,679,988
 30.3% 1.30%
Total core deposits4,077,460
 66.8% 0.55% 3,654,493
 65.8% 0.68%
Certificate of deposit accounts2,030,049
 33.2% 2.13% 1,897,901
 34.2% 2.26%
Total deposits$6,107,509
 100.0% 0.95% $5,552,394
 100.0% 1.22%


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As of June 30, 2020 and December 31, 2019, the Company had outstanding certificates of deposit of $250,000 or more, maturing as follows:
 At June 30, 2020 At December 31, 2019
 Amount 
Weighted
Average Rate
 Amount 
Weighted
Average Rate
 (Dollars in Thousands)
Maturity period:       
Six months or less$223,165
 2.26% $198,279
 2.23%
Over six months through 12 months182,544
 1.86% 174,154
 2.43%
Over 12 months133,950
 2.23% 185,078
 2.56%
Total certificate of deposit of $250,000 or more$539,659
 2.12% $557,511
 2.40%
Borrowed Funds
The following table sets forth certain information regarding advances from the FHLBB, subordinated debentures and notes and other borrowed funds for the periods indicated:
 Three Months Ended 
 June 30,
 Six Months Ended 
 June 30,
 2020 2019 2020 2019
 (Dollars in Thousands)
Borrowed funds:       
Average balance outstanding$1,256,521
 $929,741
 $1,101,823
 $928,673
Maximum amount outstanding at any month-end during the period1,406,669
 981,860
 1,406,669
 987,835
Balance outstanding at end of period1,406,669
 930,764
 1,406,669
 930,764
Weighted average interest rate for the period1.59% 2.70% 1.91% 2.67%
Weighted average interest rate at end of period1.35% 2.74% 1.35% 2.74%
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 $509.1 million to $1.3 billion as of June 30, 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.

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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 June 30,
2020
 December 31, 2019
  (Dollars in Thousands)
June 26, 2003 
Variable;
3-month LIBOR + 3.10%
 June 26, 2033 September 25, 2020 $4,837
 $4,826
March 17, 2004 
Variable;
3-month LIBOR + 2.79%
 March 17, 2034 September 16, 2020 4,755
 4,739
September 15, 2014 
6.0% Fixed-to-Variable;
3-month LIBOR + 3.315%
 September 15, 2029 September 15, 2024 74,076
 74,026
      Total $83,668
 $83,591
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 June 30, 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 $12.7 million to $55.4 million as of June 30, 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 June 30, 2020. As of June 30, 2020 and December 31, 2019, the Company did not have any borrowings on this committed line of credit.
The Banks also have access to funding through several uncommitted lines of credit of $568.0 million. As of June 30, 2020, the Company had no borrowings on outstanding uncommitted lines of credit as compared to $18.0 million as of December 31, 2019.

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Derivative Financial Instruments
The Company has entered into loan level derivatives, risk participation agreements, and foreign exchange contracts with certain of its commercial customers and concurrently enters into offsetting swaps with third-party financial institutions. The Company may also, from time to time, enter into risk participation agreements. The Company uses interest rate futures that are designated and qualify as cash flow hedging instruments. The fair value of these hedges on June 30, 2020 was a net liability position of $6 thousand compared to no position in December 31, 2019.
The following table summarizes certain information concerning the Company's loan level derivatives, risk participation agreements, and foreign exchange contracts at June 30, 2020 and December 31, 2019:
 At June 30, 2020At December 31, 2019
 (Dollars in Thousands)
Loan level derivatives (Notional principal amounts):  
Receive fixed, pay variable$1,267,947
$1,101,193
Pay fixed, receive variable1,267,947
1,101,193
Risk participation-out agreements272,196
235,693
Risk participation-in agreements59,119
55,281
Foreign exchange contracts (Notional amounts):  
Buys foreign currency, sells U.S. currency$1,332
$1,125
Sells foreign currency, buys U.S. currency1,441
1,230
Fixed weighted average interest rate from the Company to counterparty3.22%3.54%
Floating weighted average interest rate from counterparty to the Company1.13%2.88%
Weighted average remaining term to maturity (in months)88
91
Fair value:  
Recognized as an asset:  
Loan level derivatives$165,756
$59,365
Risk participation-out agreements2,641
1,229
Foreign exchange contracts117
54
Recognized as a liability:  
Loan level derivatives$165,756
$59,365
Risk participation-in agreements467
283
Foreign exchange contracts96
53
Stockholders' Equity and Dividends
The Company's total stockholders' equity was $926.4 million as of June 30, 2020, representing a $19.2 million decrease compared to $945.6 million at December 31, 2019. The decrease primarily reflects dividends paid by the Company of $18.2 million for the six months ended June 30, 2020, $10.4 million due to repurchase shares of treasury stock, and a reduction to retained earnings of $11.5 million due to the implementation of CECL, partially offset by net income attributable to the Company of $2.3 million, and unrealized gain on securities available-for-sale of $17.3 million.
Stockholders' equity represented 10.21% of total assets as of June 30, 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 8.56% of tangible assets (total assets less goodwill and identified intangible assets, net) as of June 30, 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 June 30, 2020, the Company 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.

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The dividend payout ratio was 46.37% for the three months ended June 30, 2020, compared to 42.87% 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 increased $1.2 million to $64.3 million for the three months ended June 30, 2020 from $63.1 million for the three months ended June 30, 2019. This increase reflects a $5.3 million decrease in interest income on loans and leases and a $0.3 million increase in interest income on investment securities, offset by a $6.2 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 June 30, 2020 and June 30, 2019 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended June 30, 2020 and June 30, 2019 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest income decreased $0.1 million to $126.0 million for the six months ended June 30, 2020 from $126.1 million for the six months ended June 30, 2019. This overall decrease reflects a $6.5 million decrease in interest income on loans and leases, along with a $0.1 million decrease in interest income on investment securities, and a $6.5 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 Six-Month Period Ended June 30, 2020 and June 30, 2019 — Interest Income” and “Results of Operations - Comparison of the Six-Month Period Ended June 30, 2020 and June 30, 2019 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest margin decreased by 46 basis points to 3.09% for the three months ended June 30, 2020 from 3.55% for the three months ended June 30, 2019. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) decreased to 4.25% for the three months ended June 30, 2020 from 5.14% for the three months ended June 30, 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 than in prior periods.
Net interest margin decreased by 40 basis points to 3.19% for the six months ended June 30, 2020 from 3.59% for the six months ended June 30, 2019. The Company's weighted average interest rate on loans (prior to purchase accounting
adjustments) decreased to 4.47% for the six months ended June 30, 2020 from 5.11% for the six months ended June 30, 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.

75


The yield on interest-earning assets decreased to 3.92% for the three months ended June 30, 2020 from 4.88% for the three months ended June 30, 2019. This decrease is the result of lower yields on loans and leases and lower yields on investments. During the three months ended June 30, 2020, the Company recorded $1.2 million in prepayment penalties and late charges, which contributed 5 basis points to yields on interest-earning assets in the three months ended June 30, 2020, compared to $0.9 million, or 5 basis points, for the three months ended June 30, 2019.
The yield on interest-earning assets decreased to 4.17% for the six months ended June 30, 2020 from 4.86% for the six months ended June 30, 2019. This decrease is the result of lower yields on loans and leases and lower yields on investments. During the six months ended June 30, 2020, the Company recorded $1.9 million in prepayment penalties and late charges, which contributed 5 basis points to yields on interest-earning assets in the six months ended June 30, 2020, compared to $2.1 million, or 6 basis points, for the six months ended June 30, 2019.
The overall cost of funds (including non-interest-bearing demand checking accounts) decreased 53 basis points to 0.94% for the three months ended June 30, 2020 from 1.47% for the three months ended June 30, 2019. The overall cost of funds (including non-interest-bearing demand checking accounts) decreased 33 basis points to 1.10% for the six months ended June 30, 2020 from 1.43% for the six months ended June 30, 2020. 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. From 2017 through 2019, 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 and second quarters 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.

76


Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin
The following table sets forth information about the Company's average balances, interest income and interest rates earned on average interest-earning assets, interest expense and interest rates paid on average interest-bearing liabilities, interest-rate spread and net interest margin for the three and six months ended June 30, 2020 and June 30, 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.

77


 Three Months Ended
 June 30, 2020 June 30, 2019
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 (Dollars in Thousands)
Assets:           
Interest-earning assets:           
Debt securities$773,523
 $3,719
 1.92% $593,404
 $3,210
 2.16%
Marketable and restricted equity securities71,058
 915
 5.15% 59,224
 888
 5.99%
Short-term investments245,577
 99
 0.16% 44,634
 351
 3.14%
Total investments1,090,158
 4,733
 1.74% 697,262
 4,449
 2.55%
Commercial real estate loans (2)
3,761,667
 36,829
 3.87% 3,447,136
 41,363
 4.75%
Commercial loans (2)
1,234,537
 10,450
 3.35% 811,890
 9,879
 4.82%
Equipment financing (2)
1,069,192
 18,973
 7.10% 1,005,376
 18,291
 7.28%
Residential mortgage loans (2)
814,431
 8,068
 3.96% 774,533
 8,186
 4.23%
Other consumer loans (2)
411,326
 3,153
 3.07% 417,600
 5,187
 4.97%
Total loans and leases7,291,153
 77,473
 4.25% 6,456,535
 82,906
 5.14%
Total interest-earning assets8,381,311
 82,206
 3.92% 7,153,797
 87,355
 4.88%
Allowance for loan and lease losses(114,188)     (58,137)    
Non-interest-earning assets602,417
     475,736
    
Total assets$8,869,540
     $7,571,396
    
Liabilities and Stockholders' Equity:           
Interest-bearing liabilities:           
Interest-bearing deposits:           
NOW accounts$395,158
 114
 0.12% $343,745
 50
 0.06%
Savings accounts663,782
 357
 0.22% 602,333
 737
 0.49%
Money market accounts1,784,343
 2,074
 0.47% 1,683,735
 5,571
 1.33%
Certificate of deposit2,019,195
 10,233
 2.04% 1,950,704
 11,354
 2.33%
Total interest-bearing deposits (3)
4,862,478
 12,778
 1.06% 4,580,517
 17,712
 1.55%
Advances from the FHLBB1,102,079
 3,751
 1.35% 761,651
 4,825
 2.51%
Subordinated debentures and notes83,647
 1,263
 6.04% 83,490
 1,305
 6.25%
Other borrowed funds70,795
 44
 0.25% 84,600
 208
 0.99%
Total borrowed funds1,256,521
 5,058
 1.59% 929,741
 6,338
 2.70%
Total interest-bearing liabilities6,118,999
 17,836
 1.17% 5,510,258
 24,050
 1.75%
Non-interest-bearing liabilities:           
Non-interest-bearing demand checking accounts (3)
1,512,089
  
  
 1,015,524
  
  
Other non-interest-bearing liabilities312,213
  
  
 133,790
  
  
Total liabilities7,943,301
  
  
 6,659,572
  
  
Brookline Bancorp, Inc. stockholders' equity926,239
  
  
 911,824
  
  
Total liabilities and stockholders' equity$8,869,540
  
  
 $7,571,396
  
  
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
 
 64,370
 2.75%  
 63,305
 3.13%
Less adjustment of tax-exempt income 
 82
  
  
 171
  
Net interest income 
 $64,288
  
  
 $63,134
  
Net interest margin (5)
 
  
 3.09%  
  
 3.55%
_________________________________________________________________________
(1) Tax-exempt income on debt securities, equity securities and industrial revenue bonds are included in commercial real estate loans on a tax-equivalent basis.
(2) Loans on nonaccrual status are included in the average balances.
(3) Including non-interest-bearing checking accounts, the average interest rate on total deposits was 0.81% and 1.27% in the three months ended June 30, 2020 and June 30, 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.

78


 Six Months Ended
 June 30, 2020 June 30, 2019
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 
Average
Balance
 Interest (1) 
Average
Yield/
Cost
 (Dollars in Thousands)
Assets:           
Interest-earning assets:           
Debt securities$689,704
 $6,743
 1.96% $600,758
 $6,499
 2.16%
Marketable and restricted equity securities64,968
 1,701
 5.24% 59,803
 1,808
 6.05%
Short-term investments164,943
 308
 0.37% 38,866
 618
 3.18%
Total investments919,615
 8,752
 1.90% 699,427
 8,925
 2.55%
Commercial real estate loans (2)
3,729,339
 77,297
 4.10% 3,412,051
 81,382
 4.74%
Commercial loans (2)
1,008,923
 18,778
 3.68% 802,346
 19,482
 4.83%
Equipment financing (2)
1,061,019
 37,919
 7.15% 996,832
 36,276
 7.28%
Residential mortgage loans (2)
812,507
 16,002
 3.94% 776,419
 16,309
 4.20%
Other consumer loans (2)
414,570
 7,108
 3.43% 412,914
 10,238
 4.99%
Total loans and leases7,026,358
 157,104
 4.47% 6,400,562
 163,687
 5.11%
Total interest-earning assets7,945,973
 165,856
 4.17% 7,099,989
 172,612
 4.86%
Allowance for loan and lease losses(91,384)     (58,441)    
Non-interest-earning assets563,094
     461,548
    
Total assets$8,417,683
     $7,503,096
    
Liabilities and Stockholders' Equity:           
Interest-bearing liabilities:           
Interest-bearing deposits:           
NOW accounts$377,399
 230
 0.12% $338,983
 192
 0.11%
Savings accounts645,363
 1,000
 0.31% 614,307
 1,334
 0.44%
Money market accounts1,731,496
 6,315
 0.73% 1,679,988
 10,846
 1.30%
Certificate of deposit2,030,049
 21,473
 2.13% 1,897,901
 21,288
 2.26%
Total interest-bearing deposits (3)
4,784,307
 29,018
 1.22% 4,531,179
 33,660
 1.50%
Advances from the FHLBB937,271
 7,848
 1.66% 758,613
 9,435
 2.47%
Subordinated debentures and notes83,628
 2,547
 6.09% 83,471
 2,613
 6.26%
Other borrowed funds80,924
 233
 0.58% 86,589
 429
 1.00%
Total borrowed funds1,101,823
 10,628
 1.91% 928,673
 12,477
 2.67%
Total interest-bearing liabilities5,886,130
 39,646
 1.35% 5,459,852
 46,137
 1.70%
Non-interest-bearing liabilities:           
Non-interest-bearing demand checking accounts1,323,202
  
  
 1,021,215
  
  
Other non-interest-bearing liabilities272,162
  
  
 122,544
  
  
Total liabilities7,481,494
  
  
 6,603,611
  
  
Brookline Bancorp, Inc. stockholders' equity936,189
  
  
 899,301
  
  
Noncontrolling interest in subsidiary
  
  
 184
  
  
Total liabilities and stockholders' equity$8,417,683
  
  
 $7,503,096
  
  
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
 
 126,210
 2.82%  
 126,475
 3.16%
Less adjustment of tax-exempt income 
 210
  
  
 342
  
Net interest income 
 $126,000
  
  
 $126,133
  
Net interest margin (5)
 
  
 3.19%  
  
 3.59%
_________________________________________________________________________
(1) Tax-exempt income on debt securities, equity securities and industrial revenue bonds are included in commercial real estate loans on a tax-equivalent basis.
(2) Loans on nonaccrual status are included in the average balances.
(3) Including non-interest-bearing checking accounts, the average interest rate on total deposits was 0.96% and 1.22% in the six months ended June 30, 2020 and June 30, 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.


79


Rate/Volume Analysis
The following table presents, on a tax-equivalent basis, the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
 Three Months Ended June 30, 2020 as Compared to the Three Months Ended June 30, 2019 Six Months Ended June 30, 2020 as Compared to the Six Months Ended June 30, 2019
 
Increase
(Decrease) Due To
   
Increase
(Decrease) Due To
  
 Volume Rate Net Change Volume Rate Net Change
 (In Thousands)
Interest and dividend income:           
Investments:           
Debt securities$891
 $(382) $509
 $885
 $(641) $244
Marketable and restricted equity securities161
 (134) 27
 147
 (254) (107)
Short-term investments338
 (590) (252) 610
 (920) (310)
Total investments1,390
 (1,106) 284
 1,642
 (1,815) (173)
Loans and leases:           
Commercial real estate loans3,482
 (8,016) (4,534) 7,191
 (11,276) (4,085)
Commercial loans and leases4,102
 (3,531) 571
 4,402
 (5,106) (704)
Equipment financing1,138
 (456) 682
 2,295
 (652) 1,643
Residential mortgage loans412
 (530) (118) 729
 (1,036) (307)
Other consumer loans(77) (1,957) (2,034) 41
 (3,171) (3,130)
Total loans9,057
 (14,490) (5,433) 14,658
 (21,241) (6,583)
Total change in interest and dividend income10,447
 (15,596) (5,149) 16,300
 (23,056) (6,756)
Interest expense:           
Deposits:           
NOW accounts8
 56
 64
 21
 17
 38
Savings accounts67
 (447) (380) 67
 (401) (334)
Money market accounts313
 (3,810) (3,497) 326
 (4,857) (4,531)
Certificate of deposit372
 (1,493) (1,121) 1,445
 (1,260) 185
Total deposits760
 (5,694) (4,934) 1,859
 (6,501) (4,642)
Borrowed funds:           
Advances from the FHLBB1,632
 (2,706) (1,074) 1,891
 (3,478) (1,587)
Subordinated debentures and notes2
 (44) (42) 5
 (71) (66)
Other borrowed funds(29) (135) (164) (26) (170) (196)
Total borrowed funds1,605
 (2,885) (1,280) 1,870
 (3,719) (1,849)
Total change in interest expense2,365
 (8,579) (6,214) 3,729
 (10,220) (6,491)
Change in tax-exempt income(89) 
 (89) (132) 
 (132)
Change in net interest income$8,171
 $(7,017) $1,154
 $12,703
 $(12,836) $(133)


80


Interest Income

Loans and Leases
 Three Months Ended June 30, 
Dollar
Change
 
Percent
Change
 Six Months Ended 
 June 30,
 
Dollar
Change
 
Percent
Change
 2020
2019   2020 2019  
 (Dollars in Thousands)
Interest income—loans and leases:               
Commercial real estate loans$36,830
 $41,363
 $(4,533) (11.0)% $77,297
 $81,382
 $(4,085) (5.0)%
Commercial loans10,393
 9,773
 620
 6.3 % 18,649
 19,267
 (618) (3.2)%
Equipment financing18,973
 18,291
 682
 3.7 % 37,919
 36,275
 1,644
 4.5 %
Residential mortgage loans8,067
 8,185
 (118) (1.4)% 16,002
 16,309
 (307) (1.9)%
Other consumer loans3,153
 5,186
 (2,033) (39.2)% 7,108
 10,237
 (3,129) (30.6)%
Total interest income—loans and leases$77,416
 $82,798
 $(5,382) (6.5)% $156,975
 $163,470
 $(6,496) (4.0)%
Interest income from loans and leases was $77.4 million for the three months ended June 30, 2020, and represented a yield on total loans of 4.25%. This compares to $82.8 million of interest on loans and a yield of 5.14% for the three months ended June 30, 2019. The $5.4 million decrease in interest income from loans and leases was primarily attributable to an increase of $9.1 million due to an increase in origination volume, offset by a decrease of $14.5 million due to changes in interest rates.
Interest income from loans and leases was $157.0 million for the six months ended June 30, 2020, and represented a yield on total loans of 4.47%. This compares to $163.5 million of interest on loans and a yield of 5.11% for the six months ended June 30, 2019. The $6.5 million decrease in interest income from loans and leases was primarily attributable to an increase of $14.7 million due to an increase in origination volume, offset by a decrease of $21.2 million due to the changes in interest rates.

Investments
 Three Months Ended June 30, 
Dollar
Change
 
Percent
Change
 Six Months Ended June 30, 
Dollar
Change
 
Percent
Change
 2020 2019   2020 2019  
 (Dollars in Thousands)
Interest income—investments:               
Debt securities$3,701
 $3,158
 $543
 17.2 % $6,677
 $6,394
 $283
 4.4 %
Marketable and restricted equity securities908
 877
 31
 3.5 % 1,686
 1,788
 (102) (5.7)%
Short-term investments99
 351
 (252) (71.8)% 308
 618
 (310) (50.2)%
Total interest income—investments$4,708
 $4,386
 $322
 7.3 % $8,671
 $8,800
 $(129) (1.5)%
Total investment income was $4.7 million for the three months ended June 30, 2020 compared to $4.4 million for the three months ended June 30, 2019. For the three months ended June 30, 2020 and 2019, the yield on total investments was 1.7% and 2.6%, respectively. The year-over-year increase in interest income on investments of $0.3 million, or 7.3%, was primarily driven by a $1.4 million increase due to volume, partially offset by a $1.1 million decrease due to rates.
Total investment income was $8.7 million and $8.8 million for the six months ended June 30, 2020 and June 30, 2019, respectively. For the six months ended June 30, 2020 and 2019, the yield on total investments was 1.9% and 2.6%, respectively. The year-over-year decrease in interest income on investments of $0.1 million, or 1.5%, was primarily driven by a $1.8 million decrease due to rates, partially offset by a $1.7 million increase due to volume.

81


Interest Expense—Deposits and Borrowed Funds
 Three Months Ended June 30, 
Dollar
Change
 
Percent
Change
 Six Months Ended June 30, 
Dollar
Change
 
Percent
Change
 2020 2019   2020 2019  
 (Dollars in Thousands)
Interest expense:               
Deposits:               
NOW accounts$114
 $50
 $64
 128.0 % $230
 $192
 $38
 19.8 %
Savings accounts357
 737
 (380) (51.6)% 1,000
 1,334
 (334) (25.0)%
Money market accounts2,074
 5,571
 (3,497) (62.8)% 6,315
 10,846
 (4,531) (41.8)%
Certificates of deposit10,233
 11,354
 (1,121) (9.9)% 21,473
 21,288
 185
 0.9 %
Total interest expense - deposits12,778
 17,712
 (4,934) (27.9)% 29,018
 33,660
 (4,642) (13.8)%
Borrowed funds:               
Advances from the FHLBB3,751
 4,825
 (1,074) (22.3)% 7,848
 9,435
 (1,587) (16.8)%
Subordinated debentures and notes1,263
 1,305
 (42) (3.2)% 2,547
 2,613
 (66) (2.5)%
Other borrowed funds44
 208
 (164) (78.8)% 233
 429
 (196) (45.7)%
Total interest expense - borrowed funds5,058
 6,338
 (1,280) (20.2)% 10,628
 12,477
 (1,849) (14.8)%
Total interest expense$17,836
 $24,050
 $(6,214) (25.8)% $39,646
 $46,137
 $(6,491) (14.1)%
Deposits
For the three months ended June 30, 2020, interest expense on deposits decreased $4.9 million, or 27.9%, as compared to the same period in 2019. The decrease in interest expense on deposits was driven by a decrease of $5.7 million due to a decrease in interest rates, partially offset by an increase of $0.8 million due to the growth in deposits. Purchase accounting amortization on acquired deposits for the three months ended June 30, 2020 was $0 thousand and no basis points, compared to $66 thousand and no basis points for the three months ended June 30, 2019.
Interest expense on deposits decreased $4.6 million, or 13.8%, to $29.0 million for the six months ended June 30, 2020 from $33.7 million for the six months ended June 30, 2019. The decrease in interest expense on deposits was due to a $6.5 million decrease due to interest rates and a $1.9 million increase due to growth in deposits. Purchase accounting amortization on acquired deposits for the six months ended June 30, 2020 was $44.0 thousand and no basis points, compared to $251 thousand and 1 basis point for the six months ended June 30, 2019.
Borrowed Funds
During the three months ended June 30, 2020, interest paid on borrowed funds decreased $1.3 million, or 20.2% year over year, primarily driven by an increase in FHLBB borrowings. The cost of borrowed funds decreased to 1.59% for the three months ended June 30, 2020 from 2.70% for the three months ended June 30, 2019. The decrease in interest expense was driven by a decrease of $2.9 million due to borrowing rates and was partially offset by an increase of $1.6 million due to volume. For the three months ended June 30, 2020, there was purchase accounting accretion of $14.0 thousand and nobasis points on acquired borrowed funds compared to amortization of $14.0 thousand and no basis points for the three months ended June 30, 2019.
Interest expense on borrowed funds decreased $1.8 million, or 14.8%, to $10.6 million for the six months ended June 30, 2020 from $12.5 million for the six months ended June 30, 2019. The cost of borrowed funds decreased to 1.91% for the six months ended June 30, 2020 from 2.67% for the six months ended June 30, 2019. The decrease in interest expense was driven by a decrease of $3.7 million due to borrowing rates, partially offset by an increase of $1.9 million due to volume. For the six months ended June 30, 2020, there was purchase accounting accretion of $27 thousand and no basis points on acquired borrowed funds compared to accretion of $29 thousand and no basis points for the six months ended June 30, 2019.

82


Provision for Credit Losses
The provisions for credit losses are set forth below:
 Three Months Ended June 30, 
Dollar
Change
 
Percent
Change
 Six Months Ended June 30, 
Dollar
Change
 
Percent
Change
 2020
2019   2020 2019  
 (Dollars in Thousands)
Provision for loan and lease losses:               
Commercial real estate$7,738
 $319
 $7,419
 2,325.7 % $47,938
 $481
 $47,457
 (9,866.3)%
Commercial(338) 3,200
 (3,538) (110.6)% 6,562
 4,281
 2,281
 53.3 %
Consumer355
 157
 198
 (126.1)% 956
 364
 592
 162.6 %
Total provision for loan and 
lease losses
7,755
 3,676
 4,079
 111.0 % 55,456
 5,126
 50,330
 981.9 %
Unfunded credit commitments(2,408) 81
 (2,489) (3,072.8)% 4,005
 (16) 4,021
 25,131.3 %
Total provision for credit losses$5,347
 $3,757
 $1,590
 42.3 % $59,461
 $5,110
 $54,351
 1,063.6 %
For the three months ended June 30, 2020, the provision for credit losses increased $1.6 million to $5.3 million from $3.8 million for the three months ended June 30, 2019. For the six months ended June 30, 2020, the provision for credit losses increased $54.4 million to $59.5 million from $5.1 million for the six months ended June 30, 2019. The increase in the provision for credit losses for the three and six months ended June 30, 2020 was primarily driven by changes in macroeconomic forecasts surrounding the COVID-19 pandemic during the first and second quarters 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 onto the Company's allowance for credit losses.
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 June 30, 
Dollar
Change
 
Percent
Change
 Six Months Ended June 30, 
Dollar
Change
 
Percent
Change
 2020
2019   2020 2019  
 (Dollars in Thousands)
Deposit fees$1,929
 $2,680
 $(751) (28.0)% $4,387
 $5,203
 $(816) (15.7)%
Loan fees513
 398
 115
 28.9 % 1,063
 811
 252
 31.1 %
Loan level derivative income, net1,440
 1,772
 (332) (18.7)% 3,596
 3,517
 79
 2.2 %
Gain on investment securities586
 357
 229

64.1 % 1,916
 491
 1,425
 290.2 %
Gain on sales of loans and leases held-for-sale299
 561
 (262) (46.7)% 419
 850
 (431) (50.7)%
Other1,468
 1,710
 (242) (14.2)% 4,182
 3,236
 946
 29.2 %
Total non-interest income$6,235
 $7,478
 $(1,243) (16.6)% $15,563
 $14,108
 $1,455
 10.3 %
For the three months ended June 30, 2020, non-interest income decreased $1.2 million, or 16.6%, to $6.2 million as compared to $7.5 million for the same period of 2019. This decrease is primarily due to a $0.8 million decrease in deposit fees and a $0.3 million decrease in loan level derivative income.
For the six months ended June 30, 2020, non-interest income increased $1.5 million, or 10.3%, to $15.6 million as compared to $14.1 million for the same period in 2019. This increase is primarily due to a $1.4 million increase in gain on sales of investment securities and a $0.9 million increase in other income, partially offset by a $0.8 million decrease in deposit fees.

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Deposit fees decreased $0.8 million, or 28.0%, to $1.9 million for the three months ended June 30, 2020 from $2.7 million for the same period in 2019, and decreased $0.8 million, or 15.7% to $4.4 million for the six months ended June 30, 2020 from $5.2 million for the same period in 2019, primarily driven by a decrease in insufficient funds fees and debit card income.
Loan level derivative income decreased $0.3 million, or 18.7%, to $1.4 million for the three months ended June 30, 2020 from $1.8 million for the same period in 2019, and increased $0.1 million, or 2.2%, to $3.6 million for the six months ended June 30, 2020 from $3.5 million for the same period in 2019, primarily driven by a decrease of two loan level derivative transactions completed for the three months ended June 30, 2020.
Gain on investment securities increased $0.2 million, or 64.1%, to $0.6 million for the three months ended June 30, 2020 from $0.4 million for the same period in 2019, and increased $1.4 million, or 290.2%, to $1.9 million for the six months ended June 30, 2020 from $0.5 million for the same period in 2019, primarily driven by investment securities sold in the first quarter of 2020, partially offset by a loss on equity securities held for trading.
Other income decreased $0.2 million, or 14.2%, to $1.5 million for the three months ended June 30, 2020 from $1.7 million for the same period in 2019 primarily driven by a decrease in gain on interest rate derivatives. Other income increased $0.9 million, or 29.2%, to $4.2 million for the six months ended June 30, 2020 from $3.2 million for the same period in 2019 primarily due to increases in gain on interest rate derivatives, gain on other assets and investment sales advisory fees.
Non-Interest Expense
The following table sets forth the components of non-interest expense:
 Three Months Ended June 30, 
Dollar
Change
 
Percent
Change
 Six Months Ended June 30, 
Dollar
Change
 
Percent
Change
 2020 2019   2020 2019  
 (Dollars in Thousands)
Compensation and employee benefits$24,619
 $23,953
 $666
 2.8 % $49,838
 $47,696
 $2,142
 4.5 %
Occupancy3,825
 3,752
 73
 1.9 % 7,778
 7,699
 79
 1.0 %
Equipment and data processing4,155
 4,641
 (486) (10.5)% 8,858
 9,302
 (444) (4.8)%
Professional services1,056
 1,087
 (31) (2.9)% 2,707
 2,163
 544
 25.2 %
FDIC insurance858
 745
 113
 15.2 % 1,236
 1,338
 (102) (7.6)%
Advertising and marketing1,017
 1,112
 (95) (8.5)% 2,092
 2,181
 (89) (4.1)%
Amortization of identified intangible assets311
 420
 (109) (26.0)% 647
 822
 (175) (21.3)%
Other3,268
 3,894
 (626) (16.1)% 6,701
 7,274
 (573) (7.9)%
Total non-interest expense$39,109
 $39,604
 $(495) (1.2)% $79,857
 $78,475
 $1,382
 1.8 %
For the three months ended June 30, 2020, non-interest expense decreased $0.5 million, or 1.2%, to $39.1 million as compared to $39.6 million for the same period in 2019. The decrease is due to a $0.6 million decrease in other expense and a $0.5 million decrease in equipment and data processing, partially offset by a $0.7 million increase in compensation and employee benefits expense and a $0.1 million increase in FDIC insurance.
For the six months ended June 30, 2020, non-interest expense increased $1.4 million, or 1.8%, to $79.9 million as compared to $78.5 million for the same period in 2019. This increase is primarily due to a $2.1 million increase in compensation and employee benefits expense, and a $0.5 million increase in professional fees, partially offset by a $0.6 million decrease in other expense and a $0.4 million decrease in equipment and data processing expense.
Compensation and employee benefits expense increased $0.7 million, or 2.8%, to $24.6 million for the three months ended June 30, 2020 from $24.0 million for the same period in 2019, and increased $2.1 million, or 4.5%, to $49.8 million for the six months ended June 30, 2019 from $47.7 million for the same period in 2019, primarily driven by increases in employee headcount, salaries and incentives, and health care benefits.

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Equipment and data processing expense decreased $0.5 million, or 10.5%, to $4.2 million for the three months ended June 30, 2020 from $4.6 million for the same period in 2019, and decreased $0.4 million, or 4.8%, to $8.9 million for the six months ended June 30, 2020 from $9.3 million for the same period in 2019, primarily driven by lower purchased software depreciation and data communications expenses.
Professional services expense increased $0.5 million, or 25.2%, to $2.7 million for the six months ended June 30, 2020 from $2.2 million for the same period in 2019, primarily driven by higher professional services fees related to the implementation of CECL in the first quarter of 2020.
FDIC insurance expense increased $0.1 million, or 15.2%, to $0.9 million for the three months ended June 30, 2020 from $0.7 million for the same period in 2019, and decreased $0.1 million, or 7.6%, to $1.2 million for the six months ended June 30, 2020 from $1.3 million for the same period in 2019, primarily driven by bank assessment fees from the FDIC.
Other non-interest expense decreased $0.6 million, or 16.1%, to $3.3 million for the three months ended June 30, 2020 from $3.9 million for the same period in 2019, and decreased $0.6 million, or 7.9%, to $6.7 million for the six months ended June 30, 2020 from $7.3 million for the same period in 2019, primarily driven by decreases in OREO expense, deferred loan expense, and travel and accommodations expense.
Provision for Income Taxes
 Three Months Ended June 30, 
Dollar
Change
 
Percent
Change
 Six Months Ended June 30, 
Dollar
Change
 
Percent
Change
 2020
2019   2020 2019  
 (Dollars in Thousands)
Income before provision for income taxes$26,067
 $27,251
 $(1,184) (4.3)% $2,245
 $56,656
 $(54,411) (96.0)%
Provision (benefit) for income taxes6,496
 6,780
 (284) (4.2)% (50) 13,675
 (13,725) (100.4)%
Net (loss) income, before non-controlling interest in subsidiary$19,571
 $20,471
 $(900) (4.4)% $2,295
 $42,981
 $(40,686) (94.7)%
Effective tax rate24.9% 24.9% N/A
  % (2.2)% 24.1% N/A
 (109.1)%
The Company recorded an income tax expense of $6.5 million for the three months ended June 30, 2020, compared to an income tax expense of $6.8 million for the three months ended June 30, 2019, representing effective tax rates of 24.9% and 24.9%, respectively.
The Company recorded an income tax benefit of $0.1 million for the six months ended June 30, 2020, compared to $13.7 million income tax expense for the six months ended June 30, 2019, representing effective tax rates of (2.2)% and 24.1%, respectively. The changes in the Company's effective tax rate for the six months ended June 30, 2020 and 2019 were primarily driven by the significant decrease in pre-tax income as a result of the COVID-19 pandemic and its impact on the Company's provision for loan losses. The Company is showing both pre-tax income and a benefit for income taxes primarily driven by Management's decision to amend the Brookline Bank and First Commons tax returns. The CARES Act instituted new net operating loss (NOL) carryback rules and the decision to amend these returns resulted in an income tax benefit to the Company.
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.
The worldwide pandemic caused by COVID-19 has caused management to reevaluate the liquidity positioning of the 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

85


securities. This increase of cash and securities is to meet unexpected deposit outflows and provide a buffer to unexpected missed cash inflows due to deferred payments of principal and interest from the loan portfolio.
Management has decided to increase the amount of on balance sheet liquidity in the form of cash and available for sale securities since the start of the COVID-19 pandemic. Cash and equivalents at the end of the quarter were $254.9 million, or 2.8% of the balance sheet, compared to $77.8 million, or 1.0% of the balance sheet, as of December 31, 2019. In general, in 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 current challenging operating environment, management increased this target operating range to between 10% and 15% of total assets. As of June 30, 2020, cash, cash equivalents and investment securities available-for-sale totaled $1.1 billion, or 12.2% 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 $6.4 billion as of June 30, 2020 and represented 82.1% 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 $4.5 billion as of June 30, 2020 and represented 69.7% 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 $350.2 million of brokered deposits as of June 30, 2020, which represented 5.4% 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 $1.4 billion as of June 30, 2020, representing 17.9% of total funding, compared to $902.7 million, or 13.4% of total funding, as of December 31, 2019. The growth in the balance sheet is directly tied to the current operating environment and management will continue to monitor the situation and unwind the sudden growth when it is appropriate.
As members of the FHLBB, the Banks have access to both short- and long-term borrowings. As of June 30, 2020, the Company's total borrowing limit from the FHLBB for advances and repurchase agreements was $2.2 billion, compared to $2.1 billion as of December 31, 2019, based on the level of qualifying collateral available for these borrowings.
As of June 30, 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 June 30, 2020. As of June 30, 2020, the Company did not have any outstanding borrowings on this line.
The Company has access to the Federal Reserve Bank's "discount window" to supplement its liquidity. The Company has $516.8 million of borrowing capacity at the Federal Reserve Bank as of June 30, 2020. As of June 30, 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.

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Financial instruments with off-balance-sheet risk at the dates indicated follow:
 At June 30, 2020 At December 31, 2019
 (In Thousands)
Financial instruments whose contract amounts represent credit risk:   
Commitments to originate loans and leases:   
Commercial real estate$45,299
 $50,034
Commercial102,133
 78,058
Residential mortgage32,323
 25,998
Unadvanced portion of loans and leases823,324
 808,681
Unused lines of credit:   
Home equity565,382
 528,251
Other consumer48,699
 25,374
Other commercial447
 380
Unused letters of credit:   
Financial standby letters of credit10,802
 10,166
Performance standby letters of credit6,068
 4,652
Commercial and similar letters of credit2,447
 3,823
Loan level derivatives:   
Receive fixed, pay variable1,267,947
 1,101,193
Pay fixed, receive variable1,267,947
 1,101,193
Risk participation-out agreements272,196
 235,693
Risk participation-in agreements59,119
 55,281
Foreign exchange contracts:   
Buys foreign currency, sells U.S. currency1,332
 1,125
Sells foreign currency, buys U.S. currency1,441
 1,230


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Capital Resources
As of June 30, 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 June 30, 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 June 30, 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-Ca