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BROOKLINE BANCORP INC - Quarter Report: 2020 September (Form 10-Q)


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 September 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)
Delaware04-3402944
(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 October 31, 2020, the number of shares of common stock, par value $0.01 per share, outstanding was 79,060,000.


BROOKLINE BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
Table of Contents
Page
Item 1.
  
  
  
  
  
  
  
 

Table of Contents
PART I — FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
At September 30, 2020At December 31, 2019
(In Thousands Except Share Data)
ASSETS
Cash and due from banks$33,818 $33,589 
Short-term investments283,515 44,201 
Total cash and cash equivalents317,333 77,790 
Investment securities available-for-sale 783,867 498,995 
Investment securities held-to-maturity (fair value of $0 and $87,561, respectively)
— 86,780 
Equity securities held-for-trading525 3,581 
Total investment securities784,392 589,356 
Loans and leases:
Commercial real estate loans3,835,372 3,669,222 
Commercial loans and leases2,354,613 1,838,748 
Consumer loans1,206,373 1,229,846 
Total loans and leases7,396,358 6,737,816 
Allowance for loan and lease losses(119,971)(61,082)
Net loans and leases7,276,387 6,676,734 
Restricted equity securities61,715 53,818 
Premises and equipment, net of accumulated depreciation of $81,041 and $76,763, respectively
72,441 74,350 
Right-of-use asset operating leases23,492 24,876 
Deferred tax asset42,269 25,017 
Goodwill160,427 160,427 
Identified intangible assets, net of accumulated amortization of $38,440 and $37,481, respectively
3,464 4,423 
Other real estate owned ("OREO") and repossessed assets, net1,413 2,631 
Other assets256,859 167,431 
Total assets$9,000,192 $7,856,853 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Deposits:  
Demand checking accounts$1,550,267 $1,141,578 
 Interest-bearing deposits5,242,256 4,688,494 
Total deposits6,792,523 5,830,072 
Borrowed funds:  
Advances from the Federal Home Loan Bank of Boston ("FHLBB")841,169 758,469 
Subordinated debentures and notes83,707 83,591 
Other borrowed funds80,169 60,689 
Total borrowed funds1,005,045 902,749 
Operating lease liabilities23,492 24,876 
Mortgagors' escrow accounts6,429 7,232 
Accrued expenses and other liabilities237,145 146,318 
Total liabilities8,064,634 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, respectively
852 852 
Additional paid-in capital736,294 736,601 
Retained earnings, partially restricted247,336 265,376 
Accumulated other comprehensive income18,782 2,283 
Treasury stock, at cost; 5,629,854 shares and 5,003,127 shares, respectively
(67,376)(59,073)
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 58,227 shares and 79,548 shares, respectively
(330)(433)
Total stockholders' equity935,558 945,606 
Total liabilities and stockholders' equity$9,000,192 $7,856,853 
See accompanying notes to unaudited consolidated financial statements.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(In Thousands Except Share Data)
Interest and dividend income:
Loans and leases$76,240 $83,566 $233,215 $247,036 
Debt securities3,746 2,977 10,423 9,371 
Marketable and restricted equity securities672 876 2,358 2,664 
Short-term investments46 487 354 1,105 
Total interest and dividend income80,704 87,906 246,350 260,176 
Interest expense:
Deposits10,583 18,300 39,601 51,960 
Borrowed funds 4,183 6,370 14,811 18,847 
Total interest expense14,766 24,670 54,412 70,807 
Net interest income65,938 63,236 191,938 189,369 
Provision for credit losses4,528 871 63,989 5,981 
Net interest income after provision for credit losses61,410 62,365 127,949 183,388 
Non-interest income:
Deposit fees2,305 2,710 6,692 7,913 
Loan fees397 719 1,460 1,530 
Loan level derivative income, net527 2,251 4,123 5,768 
Gain (loss) on investment securities, net54 (116)1,970 375 
Gain on sales of loans and leases held-for-sale632 550 1,051 1,400 
Other947 1,815 5,129 5,051 
Total non-interest income4,862 7,929 20,425 22,037 
Non-interest expense:
Compensation and employee benefits26,092 24,871 75,931 72,567 
Occupancy3,802 3,895 11,580 11,594 
Equipment and data processing4,293 4,749 13,152 14,051 
Professional services1,112 1,083 3,819 3,246 
FDIC insurance1,363 54 2,599 1,392 
Advertising and marketing1,024 1,035 3,116 3,216 
Amortization of identified intangible assets312 421 959 1,243 
Merger and restructuring expense— 1,125 — 1,125 
Other2,949 2,958 9,650 10,232 
Total non-interest expense40,947 40,191 120,806 118,666 
Income before provision for income taxes25,325 30,103 27,568 86,759 
Provision for income taxes6,646 7,507 6,596 21,182 
Net income before noncontrolling interest in subsidiary18,679 22,596 20,972 65,577 
Less: net income attributable to noncontrolling interest in subsidiary— — — 43 
Net income attributable to Brookline Bancorp, Inc.$18,679 $22,596 $20,972 $65,534 
Earnings per common share:
Basic$0.24 $0.28 $0.27 $0.82 
Diluted0.24 0.28 0.27 0.82 
Weighted average common shares outstanding during the year:
Basic78,948,139 79,700,403 79,092,424 79,676,456 
Diluted79,055,901 79,883,510 79,245,113 79,867,683 
Dividends paid per common share$0.115 $0.110 $0.345 $0.325 

See accompanying notes to unaudited consolidated financial statements.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(In Thousands)
Net (loss) income before noncontrolling interest in subsidiary$18,679 $22,596 $20,972 $65,577 
Investment securities available-for-sale:
Unrealized securities holding gains (losses)(735)2,098 24,380 15,696 
Income tax (expense) benefit167 (464)(5,366)(3,461)
Net unrealized securities holding gains (losses) before reclassification adjustments, net of taxes(568)1,634 19,014 12,235 
Less reclassification adjustments for securities gains included in net income:
Gain on sales of securities, net250 — 3,237 — 
Income tax expense (55)— (715)— 
Net reclassification adjustments for securities gains included in net income195 — 2,522 — 
Net unrealized securities holding gains (losses) (763)1,634 16,492 12,235 
Net change in fair value of cash flow hedges7 — 7 — 
Other comprehensive (loss) income, net of taxes(756)1,634 16,499 12,235 
Comprehensive (loss) income17,923 24,230 37,471 77,812 
Less: Net income attributable to noncontrolling interest in subsidiary— — — 43 
Comprehensive (loss) income attributable to Brookline Bancorp, Inc.$17,923 $24,230 $37,471 $77,769 


See accompanying notes to unaudited consolidated financial statements.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 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. — — 20,972 — — — 20,972 — 20,972 
Other comprehensive income— — — 16,499 — — 16,499 — 16,499 
Common stock dividends of $0.345 per share
— — (27,342)— — — (27,342)— (27,342)
Restricted stock awards issued, net of awards surrendered— (2,482)— — 2,107 — (375)— (375)
Compensation under recognition and retention plans— 2,051 (147)— — — 1,904 — 1,904 
Treasury stock, repurchase shares— — — — (10,410)— (10,410)— (10,410)
Common stock held by ESOP committed to be released (21,231 shares)
— 124 — — — 103 227 — 227 
Adoption of ASU 2016-13 (CECL)— — (11,523)— — — (11,523)— (11,523)
Balance at September 30, 2020$852 $736,294 $247,336 $18,782 $(67,376)$(330)$935,558 $— $935,558 
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. — — 65,534 — — — 65,534 — 65,534 
Net income attributable to noncontrolling interest in subsidiary— — — — — — — 43 43 
Other comprehensive income— — — 12,235 — — 12,235 — 12,235 
Common stock dividends of $0.325 per share
— — (25,937)— — — (25,937)— (25,937)
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)
Restricted stock awards issued, net of awards surrendered— (239)— — 1,814 — 1,575 — 1,575 
Treasury stock, repurchase shares— — — — (1,870)— (1,870)— (1,870)
Common stock held by ESOP committed to be released (17,613 shares)
— 165 — — — 96 261 — 261 
Balance at September 30, 2019$852 $735,928 $252,435 $2,775 $(59,176)$(503)$932,311 $— $932,311 


See accompanying notes to unaudited consolidated financial statements.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended September 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 June 30, 2020$852 $738,155 $237,808 $19,538 $(69,572)$(368)$926,413 $— $926,413 
Net income attributable to Brookline Bancorp, Inc. — — 18,679 — — — 18,679 — 18,679 
Other comprehensive income— — — (756)— — (756)— (756)
Common stock dividends of $0.115 per share
— — (9,093)— — — (9,093)— (9,093)
Restricted stock awards issued, net of awards surrendered— (2,571)— — 2,196 — (375)— (375)
Compensation Under recognition and retention plans— 681 (56)— — — 625 — 625 
Treasury stock, repurchase shares— — — — — — — — — 
Common stock held by ESOP committed to be released (7,107 shares)
— 29 — — — 38 67 — 67 
Balance at Adoption of ASU 2016-13 (CECL)— — (2)— — — (2)— (2)
Balance at September 30, 2020$852 $736,294 $247,336 $18,782 $(67,376)$(330)$935,558 $— $935,558 
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 June 30, 2019$852 $737,584 $238,625 $1,141 $(59,199)$(535)$918,468 $— $918,468 
Net income attributable to Brookline Bancorp, Inc. — — 22,596 — — — 22,596 — 22,596 
Other comprehensive income— — — 1,634 — — 1,634 — 1,634 
Common stock dividends of $0.11 per share
— — (8,786)— — — (8,786)— (8,786)
Dividend distribution to owners of noncontrolling interest in subsidiary— (1)— — — — (1)— (1)
Restricted stock awards issued, net of awards surrendered— (1,708)— — 1,893 — 185 — 185 
Treasury stock, repurchase shares— — — — (1,870)— (1,870)— (1,870)
Common stock held by ESOP committed to be released (5,871 shares)
— 53 — — — 32 85 — 85 
Balance at September 30, 2019$852 $735,928 $252,435 $2,775 $(59,176)$(503)$932,311 $— $932,311 

See accompanying notes to unaudited consolidated financial statements.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30,
20202019
(In Thousands)
Cash flows from operating activities:
Net income attributable to Brookline Bancorp, Inc.$20,972 $65,534 
Adjustments to reconcile net income to net cash provided from operating activities:
Net income attributable to noncontrolling interest in subsidiary— 43 
Provision for credit losses63,989 5,981 
Origination of loans and leases held-for-sale— (15,352)
Proceeds from sales of loans and leases held-for-sale, net— 19,741 
Deferred income tax benefit(21,889)(538)
Depreciation of premises and equipment4,278 5,252 
Amortization of investment securities premiums and discounts, net1,980 1,406 
Amortization of deferred loan and lease origination costs, net5,667 5,227 
Amortization of identified intangible assets959 1,243 
Amortization of debt issuance costs75 75 
Accretion of acquisition fair value adjustments, net(403)(682)
Gain on investment securities, net(1,970)(375)
Gain on sales of loans and leases held-for-sale(1,051)(1,400)
Loss on sales of OREO and other repossessed assets, net— 99 
Write-down of OREO and other repossessed assets864 466 
Compensation under recognition and retention plans1,910 2,182 
ESOP shares committed to be released227 261 
Net change in:
Cash surrender value of bank-owned life insurance(767)(772)
Equity securities held-for-trading1,782 — 
Other assets (84,626)(89,204)
Accrued expenses and other liabilities78,774 96,368 
Net cash provided from operating activities70,771 95,555 
Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale131,750 — 
Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale175,069 50,147 
Purchases of investment securities available-for-sale(488,806)— 
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity6,302 19,711 
Purchases of investment securities held-to-maturity— (500)
Proceeds from redemption/sales of restricted equity securities21,393 15,469 
Purchase of restricted equity securities(29,290)(11,614)
Proceeds from sales of loans and leases held-for-investment, net6,803 8,679 
Net increase in loans and leases(681,752)(364,936)
Purchase of premises and equipment, net(2,524)(4,222)
Proceeds from sales of OREO and other repossessed assets3,823 4,105 
Net cash used for investing activities(857,232)(283,161)
(Continued)
See accompanying notes to unaudited consolidated financial statements.
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Nine Months Ended September 30,
20202019
(In Thousands)
Cash flows from financing activities:
Increase in demand checking, NOW, savings and money market accounts796,627 52,838 
Increase in certificates of deposit166,162 222,957 
Proceeds from FHLBB advances2,917,521 3,647,800 
Repayment of FHLBB advances(2,834,821)(3,577,694)
Increase (decrease) increase in other borrowed funds, net19,480 (4,361)
(Decrease) in mortgagors' escrow accounts, net(803)(354)
Repurchases of common stock(10,410)(1,870)
Payment of dividends on common stock(27,342)(25,937)
Payment of income taxes for shares withheld in share based activity(410)(46)
Redemption of noncontrolling interest in subsidiary— (35,851)
Payment of dividends to owners of noncontrolling interest in subsidiary— (930)
Net cash provided from financing activities1,026,004 276,552 
Net increase in cash and cash equivalents239,543 88,946 
Cash and cash equivalents at beginning of period77,790 89,584 
Cash and cash equivalents at end of period$317,333 $178,530 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits, borrowed funds and subordinated debt$57,020 $72,047 
Income taxes26,255 21,270 
Non-cash investing activities:
Transfer from loans to other real estate owned$3,469 $2,783 


See accompanying notes to unaudited consolidated financial statements.
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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 Longwood Securities Corp. ("LSC"), Eastern Funding LLC ("Eastern Funding") and First Ipswich Insurance Agency, operates 30 full-service banking offices in the greater Boston metropolitan area with 2 additional lending offices. As of July 21, 2020, BBS Investment Corp. and First Ipswich Securities II Corp were merged with and into LSC. 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 Securities and Exchange Commission ("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 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
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
determination of the allowance for credit 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 lifetime expected 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 Notes 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 six branch locations were retained and converted to Brookline Bank branches.
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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 September 30, 2020
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair Value
 (In Thousands)
Investment securities available-for-sale:
GSE debentures$274,165 $6,221 $201 $280,185 
GSE CMOs50,928 1,266 12 52,182 
GSE MBSs356,282 11,619 19 367,882 
Corporate debt obligations22,328 1,197 — 23,525 
U.S. Treasury bonds55,690 3,912 — 59,602 
Foreign government obligations500 — 9 491 
Total investment securities available-for-sale$759,893 $24,215 $241 $783,867 
Equity securities held-for-trading$525 
 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 September 30, 2020, the fair value of all investment securities available-for-sale was $783.9 million, with net unrealized gains of $24.0 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 September 30, 2020, $72.9 million, or 9.3% of the portfolio, had gross unrealized losses of $0.2 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.
Effective June 30, 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
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
COVID-19 pandemic. As of December 31, 2019, the fair value of investment securities held-to-maturity was $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 September 30, 2020, the Company recorded a fair value of $0.5 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 September 30, 2020 and December 31, 2019, respectively, $458.5 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 no outstanding FRB borrowings as of September 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 $2.7 million and $2.0 million, respectively, as of September 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 September 30, 2020 and 2019.
Assessment for Available for Sale Securities for Impairment
Investment securities as of September 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:
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
 At September 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$56,716 $201 $— $— $56,716 $201 
GSE CMOs1,207 7 1,053 5 2,260 12 
GSE MBSs10,670 17 2,768 2 13,438 19 
Foreign government obligations— — 491 9 491 9 
Temporarily impaired investment securities available-for-sale68,593 225 4,312 16 72,905 241 
Total temporarily impaired investment securities$68,593 $225 $4,312 $16 $72,905 $241 
 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 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
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
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 September 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 September 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 September 30, 2020, the Company held GNMA MBSs and CMOs, and Small Business Administration ("SBA") commercial loan asset-backed securities in its available-for-sale portfolio with an estimated fair value of $8.4 million, all of which 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 September 30, 2020, the Company owned 63 GSE debentures with a total fair value of $280.2 million, and a net unrealized gain of $6.0 million. As of December 31, 2019, the Company held 60 GSE debentures with a total fair value of $185.8 million, with a net unrealized gain of $2.9 million. As of September 30, 2020, 6 of the 63 securities in this portfolio were in an unrealized loss position. As of December 31, 2019, 5 of the 60 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA/SBA) guarantee of the U.S Government. During the nine months ended September 30, 2020, the Company purchased $208.9 million GSE debentures. This compares to the same period in 2019 when the Company did not purchase any GSE debentures. During the nine months ended September 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 September 30, 2020, the Company owned 33 GSE CMOs with a total fair value of $52.2 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 September 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 nine months ended September 30, 2020 and 2019, the Company did not purchase any GSE CMOs.
As of September 30, 2020, the Company owned 141 GSE MBSs with a total fair value of $367.9 million and a net unrealized gain of $11.6 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 September 30, 2020, 18 of the 141 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 nine months ended September 30, 2020, the Company purchased $258.7 million GSE MBSs. This compares to the same period in 2019 when the Company did not purchase any GSE MBSs. During the nine months ended September 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 September 30, 2020, the Company did not own any SBA securities. 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 December 31, 2019, 3 of the 4 securities in this portfolio were in an unrealized loss position. As of December 31, 2019, all securities are
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
performing and backed by the explicit guarantee of the U.S Government. During the nine months ended September 30, 2020 and 2019, the Company did not purchase any SBA securities.
Corporate Obligations
The Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. As of September 30, 2020, the Company held 6 corporate obligation securities with a total fair value of $23.5 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 September 30, 2020 and December 31, 2019, none 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 nine months ended September 30, 2020 and 2019, the Company did not purchase any corporate obligations. During the nine months ended September 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 September 30, 2020, the Company owned 10 U.S. Treasury bonds with a total fair value of $59.6 million and an unrealized gain of $3.9 million. This compares to 9 U.S. Treasury bonds with a total fair value of $44.9 million and an unrealized gain of $0.2 million as of December 31, 2019. As of September 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 nine months ended September 30, 2020 the Company purchased $21.2 million U.S. Treasury bonds, compared to the same period in 2019 when the Company did not purchase any U.S. Treasury bonds.
Municipal Obligations
As of September 30, 2020, the Company did not hold any 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 nine months ended September 30, 2019, the Company did not purchase any municipal obligations.
Foreign Government Obligations
As of September 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 September 30, 2020 and December 31, 2019 respectively, the security was in an unrealized loss position. During the nine months ended September 30, 2020, the Company did not 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 September 30, 2020 and December 31, 2019, the Company owned equity securities held-for-trading with a fair value of $0.5 million and $3.6 million, respectively.
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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 September 30, 2020At 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$17,665 $17,908 2.07 %$12,797 $12,804 1.76 %
After 1 year through 5 years161,136 168,672 2.20 %217,569 220,757 2.19 %
After 5 years through 10 years213,037 217,792 1.48 %93,805 94,212 2.04 %
Over 10 years368,055 379,495 1.88 %171,994 171,222 2.12 %
$759,893 $783,867 1.84 %$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 September 30, 2020, issuers of debt securities with an estimated fair value of $91.7 million had the right to call or prepay the obligations. Of the $91.7 million, approximately $13.5 million matures in 1 - 5 years, $68.3 million matures in 6 - 10 years, and $9.9 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 none mature after 5 years.
Security Sales
The proceeds from the sale of trust preferred, marketable and restricted equity securities were $0.5 million and there were $142.7 million securities sold during the nine months ended September 30, 2020. There were no securities sold during the nine months ended September 30, 2019.
Sales of investment and restricted equity securities are summarized as follows:
 Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
 (In Thousands)
Proceeds from sale of trust preferred, marketable and restricted equity securities$518 $— 
Sales of AFS and trading securities$142,711 $— 
Gross gains from securities sales3,412 — 
Gross losses from securities sales(175)— 
Gain on sales of securities, net $3,237 $— 
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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 September 30, 2020At December 31, 2019
 BalanceWeighted
Average
Coupon		BalanceWeighted
Average
Coupon
 (Dollars In Thousands)
Commercial real estate loans:    
Commercial real estate$2,606,601 3.65 %$2,491,011 4.33 %
Multi-family mortgage987,966 3.49 %932,163 4.20 %
Construction240,805 3.56 %246,048 5.09 %
Total commercial real estate loans3,835,372 3.60 %3,669,222 4.34 %
Commercial loans and leases:    
Commercial (1)1,219,294 2.52 %729,502 4.66 %
Equipment financing1,083,707 7.43 %1,052,408 7.71 %
Condominium association51,612 4.60 %56,838 4.84 %
Total commercial loans and leases2,354,613 4.83 %1,838,748 6.41 %
Consumer loans:    
Residential mortgage815,731 3.83 %814,245 4.10 %
Home equity360,485 3.27 %376,819 4.46 %
Other consumer30,157 3.11 %38,782 4.48 %
Total consumer loans1,206,373 3.64 %1,229,846 4.22 %
Total loans and leases$7,396,358 3.99 %$6,737,816 4.88 %
______________________________________________________________________
(1) Including $568,383 of PPP loans as of September 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 September 30, 2020.

Accrued interest on loans and leases, which were excluded from the amortized cost of loans and leases totaled $20.9 million and $17.4 million at September 30, 2020 and December 31, 2019, respectively, and were included in other assets in the accompanying consolidated balance sheets.
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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
 OriginatedAcquiredTotal
 BalanceWeighted
Average
Coupon		BalanceWeighted
Average
Coupon		BalanceWeighted
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 costs included in total loans and leases were $0.4 million and $15.7 million as of September 30, 2020 and December 31, 2019, respectively. The decrease in net unamortized deferred loan origination costs and (fees) was primarily due to the net unamortized deferred origination fees of $(13.3) million for the SBA's Payment Protection Program ("PPP") loans which were originated during the second quarter of 2020.
The Banks and their subsidiaries lend primarily in all New England states, with the exception of equipment financing, 28.0% of which is in the greater New York and New Jersey metropolitan area and 72.0% of which is in other areas in the United States of America as of September 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 September 30, 2020, there were no PCD loans in the Company's portfolios.
The following table summarizes activity in the accretable yield for the acquired loan portfolio for the periods indicated:
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
 Three Months Ended September 30,Nine Months Ended September 30,
 20192019
 (In Thousands)
Balance at beginning of period$6,852 $7,905 
Accretion(1,302)(3,143)
Reclassification from nonaccretable difference as a result of changes in expected cash flows806 1,594 
Balance at end of period$6,356 $6,356 
During the three months ended September 30, 2019, accretable yield adjustments totaling $0.8 million were made for certain loan pools. During the nine months ended September 30, 2019, accretable yield adjustments totaling $1.6 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 September 30, 2019, the accretable yield was fully accreted.
Loans and Leases Pledged as Collateral
As of September 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 not have any outstanding FRB borrowings as of September 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 September 30, 2020
 Commercial
Real Estate		CommercialConsumerTotal
 (In Thousands)
Balance at June 30, 2020$90,011 $24,938 $4,604 $119,553 
Charge-offs(70)(5,429)(12)(5,511)
Recoveries— 512 36 548 
(Credit) provision for loan and lease losses excluding unfunded commitments(2,721)8,557 (455)5,381 
Balance at September 30, 2020$87,220 $28,578 $4,173 $119,971 
 Three Months Ended September 30, 2019
 Commercial
Real Estate		CommercialConsumerTotal
 (In Thousands)
Balance at June 30, 2019$28,668 $24,333 $5,634 $58,635 
Charge-offs— (1,175)(15)(1,190)
Recoveries— 772 52 824 
Provision for loan and lease losses361 463 42 866 
Balance at September 30, 2019$29,029 $24,393 $5,713 $59,135 
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
 Nine Months Ended September 30, 2020
 Commercial
Real Estate		CommercialConsumerTotal
 (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 
Balance at beginning of period, adjusted41,979 22,154 3,581 67,714 
Charge-offs(70)(9,750)(33)(9,853)
Recoveries94 1,055 124 1,273 
Provision for loan and lease losses excluding unfunded commitments45,217 15,119 501 60,837 
Balance at September 30, 2020$87,220 $28,578 $4,173 $119,971 
 Nine Months Ended September 30, 2019
 Commercial
Real Estate		CommercialConsumerTotal
 (In Thousands)
Balance at December 31, 2018$28,187 $25,283 $5,222 $58,692 
Charge-offs— (7,088)(56)(7,144)
Recoveries— 1,454 141 1,595 
Provision for loan and lease losses842 4,744 406 5,992 
Balance at September 30, 2019$29,029 $24,393 $5,713 $59,135 
The allowance for credit losses for unfunded credit commitments, which is included in other liabilities, was $14.0 million and $1.9 million at September 30, 2020 and December 31, 2019, respectively. The increase in allowance for unfunded commitments was primarily driven by the adoption of CECL and the effect of the latest available economic forecast which incorporates the impact of the COVID-19 pandemic. No credit commitments were charged off against the liability account in the nine month periods ended September 30, 2020 and 2019.
Provision for Credit Losses
The provisions for credit losses are set forth below for the periods indicated:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (In Thousands)
Provision for loan and lease losses:  
Commercial real estate$(2,721)$361 $45,217 $842 
Commercial8,557 463 15,119 4,744 
Consumer(455)42 501 406 
Total provision for loan and lease losses5,381 866 60,837 5,992 
Unfunded credit commitments(853)5 3,152 (11)
Total provision for credit losses$4,528 $871 $63,989 $5,981 
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.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
To calculate the allowance for loans collectively evaluated, 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.
Key assumptions used in the models include portfolio segmentation, prepayments, and the expected utilization of unfunded commitments, among others. The portfolios are segmented by loan level attributes such as loan size, date of origination, and delinquency status to create homogenous loan pools. Pool level metrics are calculated and loss rates are subsequently applied to the pools as the loans have like characteristics. Prepayment assumptions are embedded within the models and are based on the same data used for model development. Model development data and developmental time periods vary by model, but all use at least ten years of historical data and capture at least one recessionary period. Expected utilization is based on current utilization and a loan equivalency (LEQ) factor. LEQ varies by current utilization and provides a reasonable estimate of expected draws and borrower behavior. Assumptions and model inputs are reviewed in accordance with model monitoring practices and as information becomes available.
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 based on 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 at the input level to predict credit losses for loans that are expected to mature beyond the forecast period. The September 30, 2020 forecasts reflect the immediate and longer-term effects of the COVID-19 pandemic as well as the associated policies and fiscal support 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 due to geography and portfolio as well as variances in operational and underwriting procedures from the Company, and therefore, the Company calibrates expected losses using a scalar for each model. Each scalar was calculated by examining the loss rates of peer banks that have similar operations and asset bases to the Company and comparing these peer group loss rates to the model results. 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 September 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. These qualitative adjustments resulted in additions to reserves for the CRE and 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 general allowance for loan and lease losses was $116.4 million as of September 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 $3.6 million as of September 30, 2020, compared to $1.8
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
million as of December 31, 2019. The specific allowance increased by $1.8 million during the nine months ended September 30, 2020 primarily due to the $2.3 million for an individually evaluated commercial real estate relationship, partially off set by the decrease in specific reserves for individually evaluated loans during the nine months ended September 30, 2020.
As of September 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 expected losses over the lifetime of the Company’s loan portfolios.
Credit Quality Assessment
At the time of loan origination, a rating is assigned based on the capacity to pay and general financial strength of the borrower, the value of assets pledged as collateral, and the evaluation of third party support such as a guarantor. The Company continually monitors the credit quality of the loan portfolio using all available information. The officer responsible for handling each loan is required to initiate changes to risk ratings when changes in facts and circumstances occur that warrant an upgrade or downgrade in a loan rating. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, adversely risk-rated, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower's ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR") loan.
The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For all loans, the Company utilizes an eight-grade loan rating system, which assigns a risk rating to each borrower based on a number of quantitative and qualitative factors associated with a loan transaction. Factors considered include industry and market conditions; position within the industry; earnings trends; operating cash flow; asset/liability values; debt capacity; guarantor strength; management and controls; financial reporting; collateral; and other considerations. In addition, the Company's independent loan review group evaluates the credit quality and related risk ratings in all loan portfolios. The results of these reviews are reported to the Risk Committee of the Board of Directors on a periodic basis and annually to the Board of Directors. For the consumer loans, the Company heavily relies on payment status for calibrating credit risk.
The ratings categories used for assessing credit risk in the commercial real estate, multi-family mortgage, construction, commercial, equipment financing, condominium association and other consumer loan and lease classes are defined as follows:
1 -4 Rating—Pass
Loan rating grades "1" through "4" are classified as "Pass," which indicates borrowers are performing in accordance with the terms of the loan and are less likely to result in loss due to the capacity of the borrower to pay and the adequacy of the value of assets pledged as collateral.
5 Rating—Other Assets Especially Mentioned ("OAEM")
Borrowers exhibit potential credit weaknesses or downward trends deserving management's attention. If not checked or corrected, these trends will weaken the Company's asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.
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.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
8 Rating—Definite Loss
Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.
Assets rated as "OAEM," "substandard" or "doubtful" based on criteria established under banking regulations are collectively referred to as "criticized" assets.
Credit Quality Information
The following table presents the amortized cost basis of loans in each class by credit quality indicator and year of origination as of September 30, 2020.
September 30, 2020
20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
 (In Thousands)
Commercial Real Estate      
Pass$277,853 $425,762 $275,169 $269,095 $288,674 $967,039 $56,771 $12,775 $2,573,138 
OAEM— 483 — — 3,362 17,696 — — 21,541 
Substandard— — — 221 237 11,401 — 63 11,922 
Total277,853 426,245 275,169 269,316 292,273 996,136 56,771 12,838 2,606,601 
Multi-Family Mortgage
Pass90,820 133,380 142,958 108,015 129,207 334,947 36,520 12,119 987,966 
Total90,820 133,380 142,958 108,015 129,207 334,947 36,520 12,119 987,966 
Construction
Pass27,337 52,036 144,802 2,184 3,567 411 6,704 — 237,041 
OAEM— 1,000 — — 2,764 — — — 3,764 
Total27,337 53,036 144,802 2,184 6,331 411 6,704 — 240,805 
Commercial
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
September 30, 2020
20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
 (In Thousands)
Pass635,687 73,423 49,956 72,071 26,620 120,332 210,430 4,519 1,193,038 
OAEM306 5,188 21 — 65 22 7,831 — 13,433 
Substandard— — 137 433 29 7,731 3,971 520 12,821 
Doubtful— — — — — — — 2 2 
Total635,993 78,611 50,114 72,504 26,714 128,085 222,232 5,041 1,219,294 
Equipment Financing
Pass232,419 337,593 234,645 137,756 67,155 52,209 1,155 940 1,063,872 
OAEM189 — — — 1,322 38 — — 1,549 
Substandard142 5,186 5,978 3,229 1,717 847 — — 17,099 
Doubtful— 431 1 418 295 42 — — 1,187 
Total232,750 343,210 240,624 141,403 70,489 53,136 1,155 940 1,083,707 
Condominium Association
Pass3,866 10,881 5,523 8,291 5,501 14,283 2,701 449 51,495 
Substandard— — — — 117 — — — 117 
Total3,866 10,881 5,523 8,291 5,618 14,283 2,701 449 51,612 
Other Consumer
Pass378 583 1,953 33 571 307 26,323 8 30,156 
Substandard— — — — — — — 1 1 
Total378 583 1,953 33 571 307 26,323 9 30,157 
Total
Pass1,268,360 1,033,658 855,006 597,445 521,295 1,489,528 340,604 30,810 6,136,706 
OAEM495 6,671 21 — 7,513 17,756 7,831 — 40,287 
Substandard142 5,186 6,115 3,883 2,100 19,979 3,971 584 41,960 
Doubtful— 431 1 418 295 42 — 2 1,189 
Total$1,268,997 $1,045,946 $861,143 $601,746 $531,203 $1,527,305 $352,406 $31,396 $6,220,142 
As of December 31, 2019, there were no loans categorized as definite loss.

For residential mortgage and home equity loans, the borrowers' credit scores contribute as a reserve metric in the retail loss rate model.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At September 30, 2020
20202019201820172016PriorRevolving LoansRevolving Loans Converted to Term LoansTotal
 (In Thousands)
Residential  
Credit Scores  
Over 700$101,481 $102,094 $69,726 $59,347 $50,455 $135,797 $3,674 $— $522,574 
661 - 70017,891 20,098 11,981 15,857 10,396 24,385 — — 100,608 
600 and below5,264 5,262 4,788 8,194 5,511 14,450 — — 43,469 
Data not available*12,485 17,561 17,413 16,103 5,078 79,074 26 1,340 149,080 
Total137,121 145,015 103,908 99,501 71,440 253,706 3,700 1,340 815,731 
Home Equity
Credit Scores  
Over 7001,268 3,226 2,727 3,087 1,163 13,742 257,814 2,761 285,788 
661 - 700199 490 511 663 323 3,191 43,607 1,372 50,356 
600 and below60 155 271 14 40 568 10,184 914 12,206 
Data not available*53 — — — — 1,574 9,132 1,376 12,135 
Total$1,580 $3,871 $3,509 $3,764 $1,526 $19,075 $320,737 $6,423 $360,485 
_______________________________________________________________________________
* Represents loans and leases for which data are not available.

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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		ConstructionCommercialEquipment
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 September 30, 2020, there were no loans categorized as definite loss.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At December 31, 2019
Residential MortgageHome 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 September 30, 2020At December 31, 2019
(In Thousands)
Amortized cost basis in mortgage loans collateralized by residential real estate property that are in the process of foreclosure$53 $110 

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 September 30, 2020.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
 At September 30, 2020
 Past Due  Past
Due Greater
Than 90 Days
and Accruing		 
 31-60
Days		61-90
Days		Greater
Than
90 Days		TotalCurrentTotal Loans
and Leases		Non-accrual
Non-accrual
with No Related Allowance
 (In Thousands)
Commercial real estate loans:
Commercial real estate$8,879 $586 $10,722 $20,187 $2,586,414 $2,606,601 $145 $10,841 $2,460 
Multi-family mortgage— — — — 987,966 987,966 — — — 
Construction— 3,853 — 3,853 236,952 240,805 — — — 
Total commercial real estate loans8,879 4,439 10,722 24,040 3,811,332 3,835,372 145 10,841 2,460 
Commercial loans and leases:
Commercial4,082 19 5,596 9,697 1,209,597 1,219,294 1 7,751 6,444 
Equipment financing7,854 2,724 7,744 18,322 1,065,385 1,083,707 210 13,372 3,410 
Condominium association303 — — 303 51,309 51,612 — 117 117 
Total commercial loans and leases12,239 2,743 13,340 28,322 2,326,291 2,354,613 211 21,240 9,971 
Consumer loans:
Residential mortgage2,150 286 3,475 5,911 809,820 815,731 633 4,634 3,639 
Home equity705 400 900 2,005 358,480 360,485 191 1,235 839 
Other consumer11 3 1 15 30,142 30,157 — 2 — 
Total consumer loans2,866 689 4,376 7,931 1,198,442 1,206,373 824 5,871 4,478 
Total loans and leases$23,984 $7,871 $28,438 $60,293 $7,336,065 $7,396,358 $1,180 $37,952 $16,909 
There is no interest income recognized on non-accrual loans for the nine months ended September 30, 2020.













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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		TotalCurrentTotal 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 
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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		TotalCurrentTotal 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.
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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 September 30, 2020
Commercial Real EstateCommercialConsumerTotal
(In Thousands)
Allowance for Loan and Lease Losses:
Individually evaluated$2,412 $1,028 $111 $3,551 
Collectively evaluated84,808 27,550 4,062 116,420 
Total87,220 28,578 4,173 119,971 
Loans and Leases:
Individually evaluated$11,764 $27,419 $8,401 $47,584 
Collectively evaluated3,823,608 2,327,194 1,197,972 7,348,774 
Total3,835,372 2,354,613 1,206,373 7,396,358 

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At December 31, 2019
Commercial Real EstateCommercialConsumerTotal
(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 quality 51,281 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 

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
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.
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.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Three Months EndedNine Months Ended
September 30, 2019September 30, 2019
Average
Recorded
Investment		Interest
Income
Recognized		Average
Recorded
Investment		Interest
Income
Recognized
(In Thousands)
Originated:
With no related allowance recorded:
Commercial real estate$3,964 $15 $5,543 $95 
Commercial26,826 206 29,605 759 
Consumer2,638 10 2,669 28 
Total originated with no related allowance recorded33,428 231 37,817 882 
With an allowance recorded:
Commercial real estate70 1 336 2 
Commercial5,511 27 7,482 55 
Consumer1,231 13 852 19 
Total originated with an allowance recorded6,812 41 8,670 76 
Total originated impaired loans and leases40,240 272 46,487 958 
Acquired:
With no related allowance recorded:
Commercial real estate14,316 91 10,874 94 
Commercial486 4 535 8 
Consumer3,759 12 4,548 27 
Total acquired with no related allowance recorded18,561 107 15,957 129 
With an allowance recorded:
Consumer452 5 253 6 
  Total acquired with an allowance recorded452 5 253 6 
Total acquired impaired loans and leases19,013 112 16,210 135 
Total impaired loans and leases$59,253 $384 $62,697 $1,093 

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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 September 30, 2020At December 31, 2019
 (In Thousands)
Troubled debt restructurings:
On accrual$11,309 $17,076 
On nonaccrual5,742 6,104 
Total troubled debt restructurings$17,051 $23,180 

Total TDR loans and leases decreased by $6.2 million to $17.1 million at September 30, 2020 from $23.2 million at December 31, 2019, driven primarily by the payoffs of one commercial TDR of $3.0 million, one construction TDR of $2.9 million, and payments of current TDR relationships, partially offset by the new TDRs during the nine months ended September 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 September 30, 2020
  Amortized CostSpecific
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 
Commercial1 $1,098 $1,098 $— $— — $— 
Equipment financing4 212 212 11 212 — — 
Home equity1 276 276 — 276 — — 
Total6 $1,586 $1,586 $11 $488 1 $221 
Total loans and leases6 $1,586 $1,586 $11 $488 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.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
 At and for the Three Months Ended September 30, 2019
  Recorded InvestmentSpecific
Allowance for
Loan and
Lease Losses		 
Defaulted (1)
 Number of
Loans/
Leases		At
Modification		At End of
Period		Nonaccrual
Loans and
Leases		Number of
Loans/
Leases		Recorded
Investment
 (Dollars in Thousands)
Originated:       
Commercial— — — — — 1 367 
Equipment financing2 1,405 1,399 30 49 1 155 
Residential mortgage3 869 866 29 343 — — 
Home equity2 251 252 2 — — — 
Total originated7 $2,525 $2,517 $61 $392 2 $522 
Acquired:
Construction1 4,870 4,870 — — — — 
Residential mortgage1 297 297 12 — — — 
Total acquired2 5,167 5,167 12 — — — 
Total loans and leases9 $7,692 $7,684 $73 $392 2 $522 
______________________________________________________________________
(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 Nine Months Ended September 30, 2020
  Amortized CostSpecific
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 
Commercial3 1,401 1,401 — — — — — 
Equipment financing15 1,406 1,340 11 1,297 — — — 
Home equity2 476 476 — 276 — — — 
Total20 $3,283 $3,217 $11 $1,573 — 1 $221 
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
 At and for the Nine Months Ended September 30, 2019
  Recorded InvestmentSpecific
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 $70 $8 $— — — $— 
Commercial3 6,793 7,146 — — 766 1 367 
Equipment financing7 2,775 2,458 376 1,056 — — — 
Residential mortgage3 869 866 29 343 — — — 
Home equity2 251 252 2 — — — — 
Total originated16 $10,761 $10,792 $415 $1,399 $766 1 $367 
Acquired:
Construction1 4,870 4,870 — — — — — 
Residential mortgage1 297 297 12 — — — — 
Total acquired2 5,167 5,167 12 — — — — 
Total loans and leases18 $15,928 $15,959 $427 $1,399 $766 1 $367 
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 September 30,Nine Months Ended September 30,
 2020201920202019
 (In Thousands)
Extended maturity$1,114 $4,919 $1,743 $12,098 
Adjusted principal— — 44 — 
Adjusted interest rate— 252 — 252 
Combination maturity, principal, interest rate472 2,513 1,430 3,609 
Total1,586 7,684 3,217 15,959 
The TDR loans and leases that were modified for the three months ended September 30, 2020 and 2019 were $1.6 million and $7.7 million, respectively. The decreases in TDR loans and leases that were modified for the three months ended September 30, 2020 were primarily due to the modification of one equipment financing relationship of $1.4 million and one construction relationship of $4.9 million during the three months ended September 30, 2019.
The TDR loans and leases that were modified for the nine months ended September 30, 2020 and 2019 were $3.2 million and $16.0 million, respectively. The decrease in TDR loans and leases that were modified for the nine months ended September 30, 2020 was primarily due to the modification of three commercial relationships totaling $7.1 million and one construction relationship of $4.9 million during the nine months ended September 30, 2019.
The net charge-offs for performing and nonperforming TDR loans and leases for the three and nine months ended September 30, 2020 were $0.2 million and $0.8 million respectively. The net charge-offs for performing and nonperforming TDR loans and leases for the three and nine months ended September 30, 2019 were $0.1 million and $1.9 million respectively.
The commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs as of September 30, 2020 was $1.7 million. As of September 30, 2019, there were $1.4 million commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs.
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The Coronavirus Aid, Relief and Economic Security ("CARES") Act and regulatory guidance 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 the 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 September 30, 2020, the Company granted 5,254 short-term deferments on loan and lease balances of $1.2 billion. Of these modifications, 4,344 loans and leases with total balances of $956.7 million have returned to the payment status and 910 loans and leases with total balances of $279.6 million remain on the deferral status, which represented 3.8% of the Company's 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 September 30, 2020At December 31, 2019
 (In Thousands)
Goodwill (beginning) $160,427 $160,427 
Additions— — 
Balance at end of period160,427 160,427 
Other intangible assets:
Core deposits2,375 3,334 
Trade name1,089 1,089 
Total other intangible assets3,464 4,423 
Total goodwill and other intangible assets$163,891 $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 6.21 years.
The estimated aggregate future amortization expense (in thousands) for other intangible assets for each of the next five years and thereafter is as follows:
Remainder of 2020$312 
Year ending:
2021857 
2022500 
2023268 
2024158 
2025104 
Thereafter176 
Total$2,375 
(7) Accumulated Other Comprehensive Income (Loss)
For the nine months ended September 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.
 
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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 September 30, 2020
 
Investment
Securities
 Available-for-Sale
Net Change in Fair Value of Cash Flow HedgesPostretirement
Benefits		Accumulated Other
Comprehensive
Income
 (In Thousands)
Balance at June 30, 2020$19,454 $— $84 $19,538 
Other comprehensive income (568)7 — (561)
Less: amounts reclassified from accumulated other comprehensive income195 — — 195 
Balance at September 30, 2020$18,691 $7 $84 $18,782 
 Three Months Ended September 30, 2019
 
Investment
Securities
 Available-for-Sale
Net Change in Fair Value of Cash Flow HedgesPostretirement
Benefits		Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at June 30, 2019$889 $— $252 $1,141 
Other comprehensive income 1,634 — — 1,634 
Balance at September 30, 2019$2,523 $— $252 $2,775 
 Nine Months Ended September 30, 2020
 
Investment
Securities
 Available-for-Sale
Net Change in Fair Value of Cash Flow HedgesPostretirement
Benefits		Accumulated Other
Comprehensive
Income
 (In Thousands)
Balance at December 31, 2019$2,199 $— $84 $2,283 
Other comprehensive income 19,014 7 — 19,021 
Less: amounts reclassified from accumulated other comprehensive income2,522 — 2,522 
Balance at September 30, 2020$18,691 $7 $84 $18,782 
 Nine Months Ended September 30, 2019
 
Investment
Securities
 Available-for-Sale
Net Change in Fair Value of Cash Flow HedgesPostretirement
Benefits		Accumulated Other
Comprehensive
Loss
 (In Thousands)
Balance at December 31, 2018$(9,712)$— $252 $(9,460)
Other comprehensive income12,235 — — 12,235 
Balance at September 30, 2019$2,523 $— $252 $2,775 
(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".

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The Company believes using interest rate derivatives adds stability to interest income and expense and allows the Company to manage its exposure to interest rate movements. The Company enters into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed payments. The Company enters into interest rate swaps as hedging instruments against the interest rate risk associated with the Company's FHLB borrowings. For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income ("OCI"), and is reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
As of September 30, 2020, the Company pays its counterparties a fixed weighted average interest rate of 0.06% over a maximum period of 2 years for derivative instruments that are designated as and qualify as cash flow hedging instruments.
The Company utilizes risk participation agreements with other banks participating in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. Risk participation agreements are derivative financial instruments and are recorded at fair value. These derivatives are not designated as hedges and therefore, changes in fair value are recorded directly through earnings at each reporting period. Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating bank.
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 PositionsLess than 1 yearLess than 2 yearsLess than 3 yearsLess than 4 yearsThereafterTotalFair Value
September 30, 2020
 (Dollars In Thousands)
Loan level derivatives
Receive fixed, pay variable137 $23,508 $8,614 $24,471 $45,359 $1,141,842 $1,243,794 $147,790 
Pay fixed, receive variable137 23,508 8,614 24,471 45,359 1,141,842 1,243,794 147,790 
Risk participation-out agreements42 13,251 — — 7,043 234,283 254,577 2,191 
Risk participation-in agreements8 — — — 19,000 41,874 60,874 434 
Foreign exchange contracts
Buys foreign currency, sells U.S. currency24 $1,511 $— $— $— $— $1,511 $20 
Sells foreign currency, buys U.S. currency24 1,521 — — — — 1,521 30 
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
 Notional Amount Maturing
 Number of PositionsLess than 1 yearLess than 2 yearsLess than 3 yearsLess than 4 yearsThereafterTotalFair 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 
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
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 $164.0 million and $86.5 million in the normal course of business as of September 30, 2020 and December 31, 2019, respectively. Dealer counterparties posted no collateral to the Company in the normal course of business as of September 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 September 30, 2020
Gross
Amounts Recognized		Gross Amounts
Offset in the
Statement of Financial Position		Net Amounts  Presented in the Statement of Financial PositionGross Amounts Not Offset in the
Statement of Financial Position		Net Amount
 Financial Instruments PledgedCash Collateral Pledged
 (In Thousands)
Asset derivatives
Derivatives designated as hedging instruments:
Interest rate derivatives$10 $— $10 $— $— $10 
Derivatives not designated as hedging instruments:
Loan level derivatives$149,737 $— $149,737 $— $— $149,737 
Risk participation-out agreements2,191 — 2,191 — — 2,191 
Foreign exchange contracts30 — 30 — — 30 
Total$151,968 $— $151,968 $— $— $151,968 
Liability derivatives
Derivatives designated as hedging instruments:
Interest rate derivatives$— $— $— $— $— $— 
Derivatives not designated as hedging instruments:
Loan level derivatives$149,737 $— $149,737 $152,723 $11,280 $(14,266)
Risk participation-in agreements434 — 434 — — 434 
Foreign exchange contracts20 — 20 — — 20 
Total$150,191 $— $150,191 $152,723 $11,280 $(13,812)
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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 PositionGross Amounts Not Offset in the
Statement of Financial Position		Net Amount
 Financial Instruments PledgedCash 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.

Fair Value
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
 (Dollars in Thousands)
Derivatives designated as hedges$10 $— 
Gain in OCI on derivatives (effective portion), net of tax$7 $— 
Gain (loss) reclassified from OCI into interest income or interest expense (effective portion)$0.5 $— 

(1) The guidance in ASU 2017-12 requires that amounts in Accumulated other comprehensive income that are included in the assessment of effectiveness should be reclassified into earnings in the same period in which the hedged forecasted transactions impact earnings. A portion of the balance reported in Accumulated other comprehensive income related to derivatives will be reclassified to Interest expense as interest payments are made or received on the Company’s interest rate swaps. The Company monitors the risk of counterparty default on an ongoing basis.






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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
(9) Stock Based Compensation
As of September 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 are 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 nine months ended September 30, 2020, 268,936 shares were issued upon satisfaction of required conditions of the Plans. During the three and nine months ended September 30, 2019, 212,460 shares were issued upon satisfaction of required conditions of the Plans.
Total expense for the Plans was $0.7 million and $0.8 million for the three months ended September 30, 2020 and 2019, respectively. Total expense for the Plans was $2.1 million and $2.5 million for the nine months ended September 30, 2020 and 2019, respectively.
(10) Earnings per Share ("EPS")
The following table is a reconciliation of basic EPS and diluted EPS:
Three Months Ended
 September 30, 2020September 30, 2019
 BasicFully
Diluted		BasicFully
Diluted
(Dollars in Thousands, Except Per Share Amounts)
Numerator:
Net income$18,679 $18,679 $22,596 $22,596 
Denominator:
Weighted average shares outstanding78,948,139 78,948,139 79,700,403 79,700,403 
Effect of dilutive securities— 107,762 — 183,107 
Adjusted weighted average shares outstanding78,948,139 79,055,901 79,700,403 79,883,510 
EPS$0.24 $0.24 $0.28 $0.28 
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Nine Months Ended
 September 30, 2020September 30, 2019
 BasicFully
Diluted		BasicFully
Diluted
(Dollars in Thousands, Except Per Share Amounts)
Numerator:
Net income$20,972 $20,972 $65,534 $65,534 
Denominator:
Weighted average shares outstanding79,092,424 79,092,424 79,676,456 79,676,456 
Effect of dilutive securities— 152,689 — 191,227 
Adjusted weighted average shares outstanding79,092,424 79,245,113 79,676,456 79,867,683 
EPS$0.27 $0.27 $0.82 $0.82 
(11) Fair Value of Financial Instruments
A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring and non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no changes in the valuation techniques used during the three and nine months ended September 30, 2020 and 2019.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables set forth the carrying value of assets and liabilities measured at fair value on a recurring basis at the dates indicated:
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
 Carrying Value as of September 30, 2020
 Level 1Level 2Level 3Total
 (In Thousands)
Assets:    
Investment securities available-for-sale:    
GSE debentures$— $280,185 $— $280,185 
GSE CMOs— 52,182 — 52,182 
GSE MBSs— 367,882 — 367,882 
Corporate debt obligations— 23,525 — 23,525 
U.S. Treasury bonds— 59,602 — 59,602 
Foreign government obligations— 491 — $491 
Total investment securities available-for-sale$— $783,867 $— $783,867 
Equity securities held-for-trading$— $525 $— $525 
Derivatives designated as hedging instruments:
Interest rate derivatives10 10 
Derivatives not designated as hedging instruments:
Loan level derivatives— 149,737 — 149,737 
Risk participation-out agreements— 2,191 — 2,191 
Foreign exchange contracts— 30 — 30 
Liabilities:    
Derivatives not designated as hedging instruments:
Loan level derivatives$— $149,737 $— $149,737 
Risk participation-in agreements— 434 — 434 
Foreign exchange contracts— 20 — 20 
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
 Carrying Value as of December 31, 2019
 Level 1Level 2Level 3Total
 (In Thousands)
Assets:    
Investment securities available-for-sale:    
GSE debentures$— $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 September 30, 2020 and December 31, 2019, none of the 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 value of interest rate derivatives designated as hedging instruments, loan level derivatives, risk participation agreements (RPA in/out), and foreign exchange contracts represent a Level 2 valuation and are based on settlement values adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves and foreign exchange rates where applicable. Credit risk adjustments consider factors such as the likelihood of default by the
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
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 nine months ended September 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 September 30, 2020
 Level 1Level 2Level 3Total
 (In Thousands)
Assets measured at fair value on a non-recurring basis:    
Collateral-dependent impaired loans and leases$— $— $8,838 $8,838 
Repossessed assets— 1,413 — 1,413 
Total assets measured at fair value on a non-recurring basis$— $1,413 $8,838 $10,251 
 Carrying Value as of December 31, 2019
 Level 1Level 2Level 3Total
 (In Thousands)
Assets measured at fair value on a non-recurring basis:    
Collateral-dependent impaired loans and leases$— $— $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).
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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 ValueValuation Technique
At September 30,
2020		At December 31, 2019
 (Dollars in Thousands)
Collateral-dependent impaired loans and leases$8,838 $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 September 30, 2020
 Carrying
Value		Estimated
Fair Value		Level 1
Inputs		Level 2
Inputs		Level 3
Inputs
 (In Thousands)
Financial assets:     
Loans and leases, net$7,276,387 $7,252,063 $— $— $7,252,063 
Restricted equity securities61,715 61,715 — — 61,715 
Financial liabilities:    
Certificates of deposits2,187,466 2,203,487 — 2,203,487 — 
Borrowed funds1,005,045 1,006,033 — 1,006,033 — 
   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 — 
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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.
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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 September 30, 2020At December 31, 2019
 (In Thousands)
Financial instruments whose contract amounts represent credit risk:  
Commitments to originate loans and leases:  
Commercial real estate$115,630 $50,034 
Commercial85,543 78,058 
Residential mortgage29,119 25,998 
Unadvanced portion of loans and leases812,748 808,681 
Unused lines of credit:  
Home equity564,956 528,251 
Other consumer29,711 25,374 
Other commercial440 380 
Unused letters of credit: 
     Financial standby letters of credit13,411 10,166 
Performance standby letters of credit6,135 4,652 
Commercial and similar letters of credit6,211 3,823 
Loan level derivatives (Notional principal amounts):
Receive fixed, pay variable1,243,794 1,101,193 
Pay fixed, receive variable1,243,794 1,101,193 
Risk participation-out agreements254,577 235,693 
Risk participation-in agreements60,874 55,281 
Foreign exchange contracts (Notional amounts):
Buys foreign currency, sells U.S. currency1,511 1,125 
Sells foreign currency, buys U.S. currency1,521 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.
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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 September 30, 2020 as the discount rate to determine the net present value of the remaining lease payments.
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
(In Thousands)
The components of lease expense were as follow:
Operating lease cost$4,828 $4,644 
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$4,909 $4,658 
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases$— $72 
At September 30, 2020At December 31, 2019
(In Thousands)
Supplemental balance sheet information related to leases was as follows:
Operating Leases
Operating lease right-of-use assets$23,492 $24,876 
Operating lease liabilities23,492 24,876 
Weighted Average Remaining Lease Term
Operating leases7.047.47
Weighted Average Discount Rate
Operating leases3.2 %3.2 %

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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
September 30, 2020
 (In Thousands)
Remainder of 2020$1,545 
Year ending:
20215,868 
20225,166 
20234,147 
20242,747 
20251,708 
Thereafter4,924 
Total$26,105 
Less imputed interest(2,613)
Present value of lease liability$23,492 
Certain leases contain escalation clauses for real estate taxes and other expenditures, which are not included above. The total real estate taxes were $1.4 million and other expenditures were $0.3 million for both the nine months ended September 30, 2020, and 2019. Total rental expense was $1.5 million for both the three months ended September 30, 2020, and 2019, respectively. Total rental expense was $4.6 million and $4.4 million for the nine months ended September 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.
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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 5,246 short-term deferrals on loan and lease balances of $1.2 billion, which represented 16.5% of total loan and lease balances.
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 $10.0 million bringing the total authorized amount to $20.0 million. Subsequently, as previously disclosed, the Company suspended the stock repurchase program effective as of March 24, 2020. As of September 30, 2020, the Company repurchased 848,319 shares at a weighted average price of $12.27. In 2019, 136,065 shares of the Company's common stock were repurchased by the Company. On October 28, 2020, the Company’s Board of Directors approved resumption of the stock repurchase program to be completed by December 31, 2020.
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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 PPP 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, 28.0% of which is in the greater New York and New Jersey metropolitan area and 72% of which is in other areas in the United States of America as of September 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 decisions locally enhances management's motivation, service levels and, as a consequence, the Company's financial results. As
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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 were 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. The Company has funded 2,922 PPP loans totaling $581.7 million as of August 8, 2020 when the program closed, of which $568.4 million remains outstanding, net of deferred fees and costs at September 30, 2020. 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 a rate of 1%. We currently expect a significant portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. In conjunction with the PPP, the FRB has created a lending facility for qualified financial institutions. The 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 September 30, 2020, the Company granted 5,254 short-term deferments on loan and lease balances of $1.2 billion. Of these modifications, 4,344 loans and leases with total balances of $956.7 million have returned to the payment status and 910 loans and leases with total balances of $279.6 million remain on the deferral status, which represents 3.8% of the Company's total loan and lease balances. 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.”
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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
September 30,June 30,March 31,December 31,September 30,
20202020202020192019
(Dollars in Thousands, Except Per Share Data)
PER COMMON SHARE DATA
Earnings per share - Basic $0.24 $0.25 $(0.22)$0.28 $0.28 
Earnings per share - Diluted0.24 0.25 (0.22)0.28 0.28 
Book value per share (end of period) 11.84 11.75 11.57 11.87 11.70 
Tangible book value per share (end of period) (1)9.77 9.67 9.49 9.80 9.63 
Dividends paid per common share0.115 0.115 0.115 0.115 0.110 
Stock price (end of period)8.65 10.08 11.28 16.46 14.73 
PERFORMANCE RATIOS (2)
Net interest margin (taxable equivalent basis)3.08 %3.09 %3.31 %3.43 %3.45 %
Return on average assets 0.83 %0.88 %(0.87)%1.13 %1.17 %
Return on average tangible assets (1)0.84 %0.90 %(0.89)%1.15 %1.19 %
Return on average stockholders' equity 7.99 %8.45 %(7.30)%9.42 %9.74 %
Return on average tangible stockholders' equity (1)9.70 %10.28 %(8.84)%11.42 %11.85 %
Dividend payout ratio (1)48.67 %46.37 %(53.10)%41.35 %38.88 %
Efficiency ratio (3)57.83 %55.46 %57.36 %54.15 %56.48 %
ASSET QUALITY RATIOS
Net loan and lease charge-offs as a percentage of average loans and leases (annualized)0.27 %0.08 %0.13 %0.10 %0.02 %
Nonperforming loans and leases as a percentage of total loans and leases0.51 %0.56 %0.57 %0.29 %0.33 %
Nonperforming assets as a percentage of total assets 0.44 %0.47 %0.49 %0.28 %0.30 %
Total allowance for loan and lease losses as a percentage of total loans and leases1.62 %1.61 %1.66 %0.91 %0.89 %
CAPITAL RATIOS
Stockholders' equity to total assets 10.39 %10.21 %10.78 %12.04 %11.83 %
Tangible equity ratio (1)8.73 %8.56 %9.02 %10.15 %9.94 %
FINANCIAL CONDITION DATA
Total assets $9,000,192 $9,069,667 $8,461,591 $7,856,853 $7,878,436 
Total loans and leases7,396,358 7,407,697 6,822,527 6,737,816 6,646,821 
Allowance for loan and lease losses119,971 119,553 113,181 61,082 59,135 
Investment securities available-for-sale783,867 854,505 761,539 498,995 467,339 
Investment securities held-to-maturity— — — 86,780 95,163 
Equity securities held-for-trading525 1,992 2,558 3,581 4,581 
Goodwill and identified intangible assets163,891 164,203 164,514 164,850 165,270 
Total deposits6,792,523 6,440,233 5,889,938 5,830,072 5,729,339 
Total borrowed funds1,005,045 1,406,669 1,291,804 902,749 986,405 
Stockholders' equity 935,558 926,413 912,568 945,606 932,311 
(Continued)
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At and for the Three Months Ended
September 30,June 30,March 31,December 31,September 30,
20202020202020192019
(Dollars in Thousands, Except Per Share Data)
EARNINGS DATA
Net interest income$65,938 $64,288 $61,712 $63,931 $63,236 
Provision for credit losses4,528 5,347 54,114 3,602 871 
Non-interest income 4,862 6,235 9,328 7,756 7,929 
Non-interest expense 40,947 39,109 40,748 38,815 40,191 
Net income (loss)18,679 19,571 (17,276)22,183 22,596 
_______________________________________________________________________________
(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 $9.0 billion as of September 30, 2020 increased $1.1 billion, or 19.4% on an annualized basis, from December 31, 2019. The increase was primarily driven by loans originated under the PPP, growth in cash and cash equivalents and available-for-sale securities.
Total loans and leases as of September 30, 2020 increased $658.5 million, or 13.0% 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 September 30, 2020, an increase of $682.0 million, or 16.5% 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 September 30, 2020 increased $239.5 million, or 410.6% on an annualized basis, to $317.3 million from December 31, 2019. Investment securities as of September 30, 2020 increased $195.0 million, or 44.1% on an annualized basis, to $784.4 million from December 31, 2019.
Total deposits of $6.8 billion as of September 30, 2020 increased $962.5 million, or 22.0% on an annualized basis, from December 31, 2019. Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $4.6 billion, or 67.8% of total deposits as of September 30, 2020, an increase of $796.6 million, or 27.9% on an annualized basis from $3.8 billion, or 65.3% of total deposits, as of December 31, 2019. Certificate of deposit balances totaled $1.5 billion, or 22.0% of total deposits as of September 30, 2020, a decrease of $178.8 million, or 14.3% on an annualized basis from $1.7 billion, or 28.7% of total deposits, as of December 31, 2019. Brokered deposits totaled $694.6 million, or 10.2% of total deposits as of September 30, 2020, an increase of $344.6 million, or 131.3% on an annualized basis from $349.9 million, or 6.0% of total deposits, as of December 31, 2019.
Total borrowed funds as of September 30, 2020 increased $102.3 million, or 15.1% on an annualized basis, to $1.0 billion from December 31, 2019.
Asset Quality
Nonperforming assets as of September 30, 2020 totaled $39.4 million, or 0.44% 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 September 30, 2020 were $5.0 million, or 0.27% of average loans and leases on an annualized basis, compared to $0.4 million, or 0.02% of average loans and leases on an annualized basis, for the three months ended September 30, 2019.
The ratio of the allowance for loan and lease losses to total loans and leases was 1.62% as of September 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."
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Capital Strength
The Company is a "well-capitalized" bank holding company as defined in the FRB's Regulation Y. The Company's common equity Tier 1 capital ratio was 10.77% as of September 30, 2020, compared to 11.44% as of December 31, 2019. The Company's Tier 1 leverage ratio was 8.67% as of September 30, 2020, compared to 10.28% as of December 31, 2019. As of September 30, 2020, the Company's Tier 1 risk-based capital ratio was 10.91%, compared to 11.58% as of December 31, 2019. The Company's Total risk-based capital ratio was 13.22% as of September 30, 2020, compared to 13.59% as of December 31, 2019.
The Company's ratio of stockholders' equity to total assets was 10.39% and 12.04% as of September 30, 2020 and December 31, 2019, respectively. The Company's tangible equity ratio was 8.73% and 10.15% as of September 30, 2020 and December 31, 2019, respectively.
Net Income
For the three months ended September 30, 2020, the Company reported net income of $18.7 million, or $0.24 per basic and diluted share, a decrease of $3.9 million, or 69.2% on an annualized basis, from $22.6 million, or $0.28 per basic and diluted share for the three months ended September 30, 2019. This decrease in net income is primarily the result of an increase in the provision for credit losses of $3.7 million, a decrease in non-interest income of $3.1 million and an increase in non-interest expense of $0.8 million, partially offset by an increase in net interest income of $2.7 million and a decrease in the provision for income taxes of $0.9 million. Refer to “Results of Operations" below for further discussion.
For the nine months ended September 30, 2020, the Company reported net income of $21.0 million, or $0.27 per basic and diluted share, a decrease of $44.6 million, or 68.0%, from $65.5 million or $0.82 per basic and diluted share for the nine months ended September 30, 2019. This decrease in net income is primarily the result of an increase in the provision for credit losses of $58.0 million, an increase in non-interest expense of $2.1 million and a decrease in non-interest income of $1.6 million, partially offset by a decrease in the provision for income taxes of $14.6 million and an increase in net interest income of $2.6 million. Refer to “Results of Operations" below for further discussion.
The annualized return on average assets was 0.83% for the three months ended September 30, 2020, compared to 1.17% for the three months ended September 30, 2019. The annualized return on average stockholders' equity was 7.99% for the three months ended September 30, 2020, compared to 9.74% for the three months ended September 30, 2019.
The net interest margin was 3.08% for the three months ended September 30, 2020, down from 3.45% for the three months ended September 30, 2019. The decrease in the net interest margin is a result of a decrease in the yield on interest-earning assets of 104 basis points to 3.79% for the three months ended September 30, 2020 from 4.83% for the three months ended September 30, 2019, partially offset by a decrease of 72 basis points in the Company's overall cost of funds to 0.75% for the three months ended September 30, 2020 from 1.47% for the three months ended September 30, 2019.
The net interest margin was 3.15% for the nine months ended September 30, 2020, down from 3.54% for the nine months ended September 30, 2019. The decrease in the net interest margin is a result of a decrease in the yield on interest-earning assets of 81 basis points to 4.04% for the nine months ended September 30, 2020 from 4.85% for the nine months ended September 30, 2019, partially offset by a decrease of 46 basis points in the Company's overall cost of funds to 0.98% for the nine months ended September 30, 2020 from 1.44% for the nine months ended September 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.

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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. The updates in this standard replace the incurred loss impairment methodology GAAP with the CECL methodology. The CECL methodology incorporates current condition, and "reasonable and supportable" forecasts, as well as prepayments, to estimate loan losses over the life of the loan. See Note 5, "Allowance for Loan and Lease Losses" for further discussion on the new policy and processes.
Recent Accounting Developments
In March 2020, the FASB issued ASU 2020-04, " Reference Rate Reform (Topic 848)-Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04") to provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients provided that those elections are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022 and do not apply to contract modifications made after December 31, 2022. The Company has not yet adopted the amendments in this update and is currently in the process of reviewing its contracts and existing processes in order to assess the risks and potential impact to the Company.
In August 2018, FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (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 will adopt this ASU for the fiscal year beginning January 1, 2021.
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 
September 30,		At and for the Nine Months Ended 
September 30,
2020201920202019
(Dollars in Thousands)
Net income, as reported$18,679 $22,596 $20,972 $65,534 
Less:
Security gains (after-tax) 40 (87)1,499 284 
Add:
Merger and restructuring-related expenses (after-tax) (1)
— 845 — 851 
Operating earnings $18,639 $23,528 $19,473 $66,101 
Basic earnings per share, as reported$0.24 $0.28 $0.27 $0.82 
Less:
Security gains (after-tax) — — 0.02 — 
Basic operating earnings per share$0.24 $0.30 $0.25 $0.83 
_________________________________________________________________________
(1) 2019 Merger and restructuring expense related to the First Ipswich Bank charter consolidation in the third quarter of 2019.

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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
September 30,
2020		June 30,
2020		March 31,
2020		December 31,
2019		September 30,
2019
(Dollars in Thousands)
Operating earnings (loss)$18,639 $19,131 $(18,240)$22,082 $23,528 
Average total assets $9,018,672 $8,869,540 $7,965,826 $7,860,593 $7,746,492 
Less: Average goodwill and average identified intangible assets, net164,072 164,385 164,701 165,071 165,493 
Average tangible assets $8,854,600 $8,705,155 $7,801,125 $7,695,522 $7,580,999 
Return on average assets (annualized)0.83 %0.88 %(0.87)%1.13 %1.17 %
Less:
Security gains — %0.02 %0.05 %0.01 %— %
Add:
Merger and restructuring-related expenses — %— %— %— %0.04 %
Operating return on average assets (annualized)0.83 %0.86 %(0.92)%1.12 %1.21 %
Return on average tangible assets (annualized)0.84 %0.90 %(0.89)%1.15 %1.19 %
Less:
Security gains — %0.02 %0.05 %0.01 %— %
Add:
Merger and restructuring-related expenses — %— %— %— %0.05 %
Operating return on average tangible assets (annualized)0.84 %0.88 %(0.94)%1.15 %1.24 %
Average total stockholders' equity $934,632 $926,239 $946,138 $941,891 $928,063 
Less: Average goodwill and average identified intangible assets, net164,072 164,385 164,701 165,071 165,493 
Average tangible stockholders' equity $770,560 $761,854 $781,437 $776,820 $762,570 
Return on average stockholders' equity (annualized)7.99 %8.45 %(7.30)%9.42 %9.74 %
Less:
Security gains (losses)0.01 %0.19 %0.41 %0.04 %(0.04)%
Add:
Merger and restructuring-related expenses — %— %— %— %0.36 %
Operating return on average stockholders' equity (annualized)7.98 %8.26 %(7.71)%9.38 %10.14 %
(Continued)
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Three Months Ended
September 30,
2020		June 30,
2020		March 31,
2020		December 31,
2019		September 30,
2019
(Dollars in Thousands)
Return on average tangible stockholders' equity (annualized)9.70 %10.28 %(8.84)%11.42 %11.85 %
Less:
Security gains (losses)0.02 %0.24 %0.49 %0.05 %(0.05)%
Add:
Merger and restructuring-related expenses — %— %— %— %0.44 %
Operating return on average tangible stockholders' equity (annualized)9.68 %10.04 %(9.34)%11.37 %12.34 %
Three Months Ended
September 30,
2020		June 30,
2020		March 31,
2020		December 31,
2019		September 30,
2019
(Dollars in Thousands)
Net income (loss), as reported $18,679 $19,571 $(17,276)$22,183 $22,596 
Average total assets $9,018,672 $8,869,540 $7,965,826 $7,860,593 $7,746,492 
Less: Average goodwill and average identified intangible assets, net164,072 164,385 164,701 165,071 165,493 
Average tangible assets $8,854,600 $8,705,155 $7,801,125 $7,695,522 $7,580,999 
Return on average tangible assets (annualized)0.84 %0.90 %(0.89)%1.15 %1.19 %
Average total stockholders' equity $934,632 $926,239 $946,138 $941,891 $928,063 
Less: Average goodwill and average identified intangible assets, net164,072 164,385 164,701 165,071 165,493 
Average tangible stockholders' equity $770,560 $761,854 $781,437 $776,820 $762,570 
Return on average tangible stockholders' equity (annualized)9.70 %10.28 %(8.84)%11.42 %11.85 %

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The following table reconciles the Company's tangible equity ratio for the periods indicated:
Three Months Ended
September 30,
2020		June 30,
2020		March 31,
2020		December 31,
2019		September 30,
2019
(Dollars in Thousands)
Total stockholders' equity $935,558 $926,413 $912,568 $945,606 $932,311 
Less: Goodwill and identified intangible assets, net163,891 164,203 164,514 164,850 165,270 
Tangible stockholders' equity $771,667 $762,210 $748,054 $780,756 $767,041 
Total assets $9,000,192 $9,069,667 $8,461,591 $7,856,853 $7,878,436 
Less: Goodwill and identified intangible assets, net163,891 164,203 164,514 164,850 165,270 
Tangible assets $8,836,301 $8,905,464 $8,297,077 $7,692,003 $7,713,166 
Tangible equity ratio 8.73 %8.56 %9.02 %10.15 %9.94 %

The following table reconciles the Company's tangible book value per share for the periods indicated:
Three Months Ended
September 30,
2020		June 30,
2020		March 31,
2020		December 31,
2019		September 30,
2019
(Dollars in Thousands)
Tangible stockholders' equity $771,667 $762,210 $748,054 $780,756 $767,041 
Common shares issued85,177,172 85,177,172 85,177,172 85,177,172 85,177,172 
Less:
Treasury shares5,629,854 5,859,708 5,862,811 5,003,127 5,003,127 
Unallocated ESOP58,227 65,334 72,441 79,548 92,337 
Unvested restricted stock487,318 398,188 395,085 406,450 407,784 
Common shares outstanding79,001,773 78,853,942 78,846,835 79,688,047 79,673,924 
Tangible book value per share $9.77 $9.67 $9.49 $9.80 $9.63 

The following table reconciles the Company's dividend payout ratio for the periods indicated:
Three Months Ended
September 30,
2020		June 30,
2020		March 31,
2020		December 31,
2019		September 30,
2019
(Dollars in Thousands)
Dividends paid$9,092 $9,076 $9,173 $9,173 $8,786 
Net (loss) income, as reported $18,679 $19,571 $(17,276)$22,183 $22,596 
Dividend payout ratio 48.67 %46.37 %(53.10)%41.35 %38.88 %
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Three Months Ended
September 30,
2020		June 30,
2020		March 31,
2020		December 31,
2019		September 30,
2019
Allowance for loan and lease losses$119,971 $119,553 $113,181 $61,082 $59,135 
Total loans and leases$7,396,358 $7,407,697 $6,822,527 $6,737,816 $6,646,821 
Less: Total PPP loans568,383 565,768 — — — 
Total loans and leases excluding PPP loans$6,827,975 $6,841,929 $6,822,527 $6,737,816 $6,646,821 
Allowance for loan and lease losses as a percentage of total loans and leases less PPP loans1.76 %1.75 %1.66 %0.91 %0.89 %

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Financial Condition
Loans and Leases
The following table summarizes the Company's portfolio of loans and leases receivables as of the dates indicated:
At September 30, 2020At December 31, 2019
BalancePercent
of Total		BalancePercent
of Total
(Dollars in Thousands)
Commercial real estate loans:
Commercial real estate$2,606,601 35.1 %$2,491,011 37.0 %
Multi-family mortgage987,966 13.4 %932,163 13.8 %
Construction240,805 3.3 %246,048 3.7 %
Total commercial real estate loans3,835,372 51.8 %3,669,222 54.5 %
Commercial loans and leases:  
Commercial1,219,294 16.5 %729,502 10.8 %
Equipment financing1,083,707 14.7 %1,052,408 15.6 %
Condominium association51,612 0.7 %56,838 0.8 %
Total commercial loans and leases2,354,613 31.9 %1,838,748 27.2 %
Consumer loans:   
Residential mortgage815,731 11.0 %814,245 12.1 %
Home equity360,485 4.9 %376,819 5.6 %
Other consumer30,157 0.4 %38,782 0.6 %
Total consumer loans1,206,373 16.3 %1,229,846 18.3 %
Total loans and leases7,396,358 100.0 %6,737,816 100.0 %
Allowance for loan and lease losses(119,971)(61,082)
Net loans and leases$7,276,387 $6,676,734 

The following table sets forth the growth in the Company’s loan and lease portfolios during the nine months ended September 30, 2020:
 At September 30,
2020		At December 31,
2019		Dollar ChangePercent Change
(Annualized)
 (Dollars in Thousands)
Commercial real estate$3,835,372 $3,669,222 $166,150 6.0 %
Commercial2,354,613 1,838,748 515,865 37.4 %
Consumer1,206,373 1,229,846 (23,473)-2.5 %
Total loans and leases$7,396,358 $6,737,816 $658,542 13.0 %
The Company's loan portfolio consists primarily of first mortgage loans secured by commercial, multi-family and residential real estate properties located in the Company's primary lending area, loans to business entities, including commercial lines of credit, loans to condominium associations and loans and leases used to finance equipment used by small businesses. The Company also provides financing for construction and development projects, home equity and other consumer loans.
The Company employs seasoned commercial lenders and retail bankers who rely on community and business contacts as well as referrals from customers, attorneys and other professionals to generate loans and deposits. Existing borrowers are also an important source of business since many of them have more than one loan outstanding with the Company. The Company's ability to originate loans depends on the strength of the economy, trends in interest rates, and levels of customer demand and market competition.
The Company's current policy is that a total credit exposure to one obligor relationship may not exceed $50.0 million unless approved by the Company's Credit Committee. As of September 30, 2020, there were 3 borrowers with loans and commitments over $50.0 million. The total of those loans and commitments was $164.0 million, or 1.86% of total loans and commitments, as of September 30, 2020. As of December 31, 2019, there were 3 borrowers with loans and commitments over
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$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 51.8% of total loans and leases outstanding as of September 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 ($923.8 million), office buildings ($695.1 million), retail stores ($626.5 million), industrial properties ($453.7 million), mixed-use properties ($323.8 million), lodging services ($151.0 million) and food services ($59.8 million) as of September 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 September 30, 2020.
The Company's commercial loan and lease portfolio is composed primarily of loans to small to medium sized businesses ($636.0 million), transportation services ($382.4 million), food services ($228.9 million), manufacturing ($155.3 million), recreation services ($201.0 million), rental and leasing services ($109.5 million), and retail ($107.2 million) as of September 30, 2020.
The Company provides commercial banking services to companies in its market area. Approximately 55.7% of the commercial loans outstanding as of September 30, 2020 were made to borrowers located in New England. The remaining 44.3% 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 $568.4 million as of September 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 26.4% of the commercial loans outstanding in the equipment financing divisions 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 16.3% of total loans outstanding as of September 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 September 30, 2020, other consumer loans equaled $30.2 million, or 0.4% 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 September 30, 2020, the Company had $83.4 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 $16.2 million in criticized assets was primarily due to three commercial real estate relationships totaling $4.9 million, two commercial loan relationships totaling $8.4 million, and a construction relationship of $3.8 million which became criticized, partially offset by the relationships which were upgraded to pass risk rating during the first nine months of 2020.
Nonperforming Assets
"Nonperforming assets" consist of non-accrual 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 (purchased loans with deteriorating credit quality) 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 non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current interest income. Interest payments on non-accrual 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 September 30, 2020, the Company had nonperforming assets of $39.4 million, representing 0.44% 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 $9.0 million of ASC 310-30 loans previously categorized in performing assets, one commercial relationship of $4.3 million, and various equipment financing and residential relationships that were placed on non-accrual status, partially offset by the decrease in other repossessed assets during first nine months of 2020.
The Company evaluates the underlying collateral of each non-accrual 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
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to experience prolonged economic stress, it is likely that the level of nonperforming assets would increase, as would the level of charged-off loans.        
Past Due and Accruing
As of September 30, 2020, the Company had loans and leases greater than 90 days past due and accruing of $1.2 million, or 0.02% of total loans and leases, compared to $10.1 million, or 0.15% of total loans and leases, as of December 31, 2019, representing a decrease of $8.9 million. The decrease in past due and accruing loans was primarily due to $9.0 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 September 30, 2020At December 31, 2019
(Dollars in Thousands)
Nonperforming loans and leases:
Nonaccrual loans and leases:
Commercial real estate$10,841 $2,845 
Multi-family mortgage— 84 
Total commercial real estate loans10,841 2,929 
Commercial7,751 4,909 
Equipment financing13,372 9,822 
Condominium association117 151 
Total commercial loans and leases21,240 14,882 
Residential mortgage4,634 753 
Home equity1,235 896 
Other consumer2 1 
Total consumer loans5,871 1,650 
Total nonaccrual loans and leases37,952 19,461 
Other repossessed assets1,413 2,631 
Total nonperforming assets$39,365 $22,092 
Loans and leases past due greater than 90 days and accruing$1,180 $10,109 
Total delinquent loans and leases 61-90 days past due7,871 4,978 
Restructured loans and leases not included in nonperforming assets11,309 17,076 
Total nonperforming loans and leases as a percentage of total loans and leases0.51 %0.29 %
Total nonperforming assets as a percentage of total assets0.44 %0.28 %
Total delinquent loans and leases 61-90 days past due as a percentage of total loans and leases0.11 %0.07 %

Troubled Debt Restructuring Loans and Leases
Total TDR loans decreased by $6.2 million to $17.1 million at September 30, 2020 from $23.2 million at December 31, 2019. The decrease was driven primarily by the payments and payoffs of the commercial and construction TDRs during the nine months ended September 30, 2020.
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As of September 30, 2020, total TDR loans included $5.3 million of commercial loans, $5.8 million of equipment financing loans and leases, $2.2 million of residential mortgage loans, $2.2 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 September 30, 2020At December 31, 2019
 (Dollars in Thousands)
Troubled debt restructurings:  
On accrual$11,309 $17,076 
On nonaccrual5,742 6,104 
Total troubled debt restructurings$17,051 $23,180 

Changes in TDR loans and leases were as follows for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(Dollars in Thousands)
Balance at beginning of period$23,180 $36,192 $23,180 $20,941 
Additions1,586 7,692 3,283 15,928 
Net charge-offs (232)(144)(839)(1,867)
Repayments(7,483)(15,744)(8,573)(7,006)
Balance at end of period$17,051 $27,996 $17,051 $27,996 

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 pandemic (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. Through September 30, 2020, the Company has granted 5,254 short-term deferments on loan and leases balances of $1.2 billion. Of these modifications, 4,344 loans and leases with total balance of $956.7 million have returned to the payment status and 910 loans and leases with total balance of $279.6 million remain on the deferral status, which represented 3.8% of the Company's 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 for credit losses and carrying amounts of other real estate owned. Such agencies may require the financial institution to recognize additions or reductions 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
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data, and model documentation are 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 September 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 nine months ended September 30, 2020 and 2019.
At and for the Three Months Ended September 30, 2020
Commercial
Real Estate		CommercialConsumerTotal
(In Thousands)
Balance at June 30, 2020$90,011 $24,938 $4,604 $119,553 
Charge-offs(70)(5,429)(12)(5,511)
Recoveries— 512 36 548 
Provision (credit) for loan and lease losses(2,721)8,557 (455)5,381 
Balance at September 30, 2020$87,220 $28,578 $4,173 $119,971 
Total loans and leases$3,835,372 $2,354,613 $1,206,373 $7,396,358 
Total allowance for loan and lease losses as a percentage of total loans and leases2.27 %1.21 %0.35 %1.62 %
At and for the Three Months Ended September 30, 2019
Commercial
Real Estate		CommercialConsumerTotal
(In Thousands)
Balance at June 30, 2019$28,668 $24,333 $5,634 $58,635 
Charge-offs— (1,175)(15)(1,190)
Recoveries— 772 52 824 
Provision for loan and lease losses361 463 42 866 
Balance at September 30, 2019$29,029 $24,393 $5,713 $59,135 
Total loans and leases$3,589,451 $1,850,388 $1,206,982 $6,646,821 
Total allowance for loan and lease losses as a percentage of total loans and leases0.81 %1.32 %0.47 %0.89 %
 At and for the Nine Months Ended September 30, 2020
 Commercial
Real Estate		CommercialConsumerTotal
 (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 
Balance at beginning of period, adjusted41,979 22,154 3,581 67,714 
Charge-offs(70)(9,750)(33)(9,853)
Recoveries94 1,055 124 1,273 
Provision for loan and lease losses45,217 15,119 501 60,837 
Balance at September 30, 2020$87,220 $28,578 $4,173 $119,971 
Total loans and leases$3,835,372 $2,354,613 $1,206,373 $7,396,358 
Total allowance for loan and lease losses as a percentage of total loans and leases2.27 %1.21 %0.35 %1.62 %
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 At and for the Nine Months Ended September 30, 2019
 Commercial
Real Estate		CommercialConsumerTotal
 (In Thousands)
Balance at December 31, 2018$28,187 $25,283 $5,222 $58,692 
Charge-offs— (7,088)(56)(7,144)
Recoveries— 1,454 141 1,595 
Provision for loan and lease losses842 4,744 406 5,992 
Balance at September 30, 2019$29,029 $24,393 $5,713 $59,135 
Total loans and leases$3,589,451 $1,850,388 $1,206,982 $6,646,821 
Total allowance for loan and lease losses as a percentage of total loans and leases0.81 %1.32 %0.47 %0.89 %
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 September 30, 2020, the allowance for loan and lease losses increased to $120.0 million, or 1.62% 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 which are not subject to an allowance reserve since they are guaranteed by the SBA, the allowance for loan and lease losses represents 1.76% of total loans and leases outstanding at September 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 September 30, 2020 and 2019 were $5.0 million and $0.4 million, respectively. As a percentage of average loans and leases, annualized net charge-offs for the three months ended September 30, 2020 and 2019 were 0.83% and 0.09%, respectively. Net charge-offs in the loans and leases for the nine months ended September 30, 2020 and 2019 were $8.6 million and $5.5 million, respectively. As a percentage of average loans and leases, annualized net charge-offs for the nine months ended September 30, 2020 and 2019 were 0.53% and 0.41%, respectively. The increase in the net charge-off for the three and nine months ended September 30, 2020 was primarily due to the charge-off of $4.3 million on a commercial taxi medallion relationship.
Management believes that the allowance for loan and lease losses as of September 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 September 30, 2020At December 31, 2019
AmountPercent of
Allowance in Each Category
to Total
Allowance		Percent of
Loans
in Each
Category to
Total
Loans		AmountPercent of
Allowance in Each Category
to Total Allowance		Percent of
Loans
in Each
Category to
Total
Loans
(Dollars in Thousands)
Commercial real estate$51,412 42.9 %35.1 %$21,519 35.3 %37.0 %
Multi-family mortgage23,685 19.7 %13.4 %6,436 10.5 %13.8 %
Construction12,123 10.1 %3.3 %2,330 3.8 %3.7 %
Total commercial real estate loans87,220 72.7 %51.8 %30,285 49.6 %54.5 %
Commercial8,164 6.8 %16.5 %12,849 21.0 %10.8 %
Equipment financing20,295 16.9 %14.7 %11,595 19.0 %15.6 %
Condominium association119 0.1 %0.7 %382 0.6 %0.8 %
Total commercial loans and leases28,578 23.8 %31.9 %24,826 40.6 %27.2 %
Residential mortgage1,831 1.5 %11.0 %3,717 6.1 %12.1 %
Home equity2,119 1.8 %4.9 %2,132 3.5 %5.6 %
Other consumer223 0.2 %0.4 %122 0.2 %0.6 %
Total consumer loans4,173 3.5 %16.3 %5,971 9.8 %18.3 %
Total$119,971 100.0 %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 $434.6 million, or 86.9% on an annualized basis, to $1.1 billion as of September 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 12.2% of total assets as of September 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 September 30, 2020At December 31, 2019
 Amortized
Cost		Fair ValueAmortized
Cost		Fair Value
 (In Thousands)
Investment securities available-for-sale:    
GSE debentures$274,165 $280,185 $182,922 $185,803 
GSE CMOs50,928 52,182 87,001 85,932 
GSE MBSs356,282 367,882 153,049 153,343 
SBA commercial loan asset- backed securities— — 34 34 
Corporate debt obligations22,328 23,525 28,484 28,986 
U.S. Treasury bonds55,690 59,602 44,675 44,897 
Foreign government obligations$500 $491 
Total investment securities available-for-sale$759,893 $783,867 $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$525 $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 $175.1 million for the nine months ended September 30, 2020 compared to $50.1 million for the same period in 2019. For the nine months ended September 30, 2020, the Company sold $131.8 million of investment securities available for sale, compared to none for the same period in 2019. For the nine months ended September 30, 2020, the Company purchased $488.8 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 nine months ended September 30, 2020 compared to $19.7 million for the same period in 2019. There were no sales of investment securities held-to-maturity for the nine months ended September 30, 2020 and 2019. For the nine months ended September 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 September 30, 2020, all held-to-maturity securities were transferred to the available-for-sale portfolio.
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As of September 30, 2020, the fair value of all investment securities available-for-sale was $783.9 million and carried a total of $24.0 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 September 30, 2020, $72.9 million, or 9.3%, of the portfolio, had gross unrealized losses of $0.2 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 September 30, 2020, the excess balance of capital stock was $4.9 million, as compared to a $0.7 million excess balance as of December 31, 2019.
As of September 30, 2020, the Company owned stock in the FHLBB with a carrying value of $43.2 million, an increase of $7.7 million from $35.5 million as of December 31, 2019. As of September 30, 2020, the FHLBB had total assets of $45.0 billion and total capital of $3.1 billion, of which $1.5 billion was retained earnings. The FHLBB stated that it remained in compliance with all regulatory capital ratios as of September 30, 2020 and was classified as "adequately capitalized" by its regulator, based on the FHLBB's financial information as of June 30, 2020.
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 September 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 Financial Group and American Financial Exchange. As of September 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 September 30, 2020At December 31, 2019
 AmountPercent
of Total		Weighted
Average
Rate		AmountPercent
of Total		Weighted
Average
Rate
 (Dollars in Thousands)
Non-interest-bearing deposits:
Demand checking accounts$1,550,267 22.8 %— %$1,141,578 19.6 %— %
Interest-bearing deposits:   
NOW accounts459,902 6.8 %0.10 %371,380 6.4 %0.11 %
Savings accounts716,630 10.5 %0.14 %613,467 10.5 %0.46 %
Money market accounts1,878,258 27.7 %0.33 %1,682,005 28.9 %1.15 %
Certificate of deposit accounts1,492,913 22.0 %1.72 %1,671,738 28.6 %2.28 %
Brokered deposit accounts694,553 10.2 %0.63 %349,904 6.0 %2.18 %
Total interest-bearing deposits5,242,256 77.2 %0.72 %4,688,494 80.4 %1.46 %
Total deposits$6,792,523 100.0 %0.55 %$5,830,072 100.0 %1.17 %

Total deposits increased $962.5 million to $6.8 billion as of September 30, 2020, compared to $5.8 billion as of December 31, 2019. Deposits as a percentage of total assets increased to 75.5% as of September 30, 2020, compared to 74.2% as of December 31, 2019.

During the nine months ended September 30, 2020, core deposits increased $796.6 million. The ratio of core deposits to total deposits increased from 65.3% as of December 31, 2019 to 67.8% as of September 30, 2020, primarily due to an increase in core deposit accounts.
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Certificate of deposit accounts decreased $178.8 million to $1.5 billion as of September 30, 2020, compared to $1.7 billion as of December 31, 2019. Certificate of deposit accounts have decreased as a percentage of total deposits to 22.0% as of September 30, 2020 from 28.6% as of December 31, 2019.

Brokered deposits increased $344.6 million to $694.6 million as of September 30, 2020, compared to $349.9 million as of December 31, 2019. Brokered deposits have increased as a percentage of total deposits to 10.2% as of September 30, 2020 from 6.0% as of December 31, 2019. The increase in Brokered deposits was driven by two new product offerings. 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.

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 September 30,
20202019
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$1,569,411 23.6 %— %$1,096,788 19.2 %— %
NOW accounts427,009 6.4 %0.12 %335,091 5.9 %0.15 %
Savings accounts688,223 10.4 %0.15 %600,609 10.5 %0.54 %
Money market accounts1,855,803 28.0 %0.36 %1,683,548 29.4 %1.28 %
Total core deposits4,540,446 68.4 %0.28 %3,716,036 65.0 %0.68 %
Certificate of deposit accounts1,536,969 23.2 %1.82 %1,658,650 29.0 %2.32 %
Brokered deposit accounts562,112 8.4 %1.07 %342,291 6.0 %2.60 %
Total deposits$6,639,527 100.0 %0.64 %$5,716,977 100.0 %1.28 %
Nine Months Ended September 30,
20202019
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$1,405,871 22.4 %— %$1,046,683 18.7 %— %
NOW accounts394,057 6.3 %0.12 %337,671 6.0 %0.13 %
Savings accounts659,754 10.5 %0.25 %609,284 10.8 %0.47 %
Money market accounts1,773,234 28.2 %0.60 %1,681,594 30.0 %1.29 %
Total core deposits4,232,916 67.4 %0.45 %3,675,232 65.5 %0.68 %
Certificate of deposit accounts1,618,818 25.7 %2.03 %1,587,646 28.3 %2.24 %
Brokered deposit accounts434,409 6.9 %1.65 %344,979 6.2 %2.57 %
Total deposits$6,286,143 100.0 %0.84 %$5,607,857 100.0 %0.93 %

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As of September 30, 2020 and December 31, 2019, the Company had outstanding certificates of deposit of $250,000 or more, maturing as follows:
At September 30, 2020At December 31, 2019
AmountWeighted
Average Rate		AmountWeighted
Average Rate
(Dollars in Thousands)
Maturity period:
Six months or less$225,485 2.09 %$198,279 2.23 %
Over six months through 12 months187,578 1.54 %174,154 2.43 %
Over 12 months76,515 2.23 %185,078 2.56 %
Total certificate of deposit of $250,000 or more$489,578 1.90 %$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 
 
September 30,		Nine Months Ended 
 
September 30,
2020201920202019
(Dollars in Thousands)
Borrowed funds:
Average balance outstanding$1,147,521 $922,888 $1,117,167 $926,960 
Maximum amount outstanding at any month-end during the period1,192,020 986,405 1,406,669 987,835 
Balance outstanding at end of period1,005,045 986,405 1,005,045 986,405 
Weighted average interest rate for the period1.43 %2.70 %1.74 %2.68 %
Weighted average interest rate at end of period1.81 %2.62 %1.81 %2.62 %
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 $82.7 million to $841.2 million as of September 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 DateRateMaturity DateNext Call DateSeptember 30,
2020		December 31, 2019
 (Dollars in Thousands)
June 26, 2003Variable;
3-month LIBOR + 3.10%		June 26, 2033December 25, 2020$4,842 $4,826 
March 17, 2004Variable;
3-month LIBOR + 2.79%		March 17, 2034December 16, 20204,764 4,739 
September 15, 20146.0% Fixed-to-Variable;
3-month LIBOR + 3.315%		September 15, 2029September 15, 202474,101 74,026 
Total$83,707 $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 September 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 $7.5 million to $50.2 million as of September 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 September 30, 2020. As of September 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 $605.0 million. As of September 30, 2020, the Company had $30.0 million 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 following table summarizes certain information concerning the Company's loan level derivatives, risk participation agreements, and foreign exchange contracts at September 30, 2020 and December 31, 2019:
At September 30, 2020At December 31, 2019
(Dollars in Thousands)
Loan level derivatives (Notional principal amounts):
Receive fixed, pay variable$1,243,794 $1,101,193 
Pay fixed, receive variable1,243,794 1,101,193 
Risk participation-out agreements254,577 235,693 
Risk participation-in agreements60,874 55,281 
Foreign exchange contracts (Notional amounts):
Buys foreign currency, sells U.S. currency$1,511 $1,125 
Sells foreign currency, buys U.S. currency1,521 1,230 
Fixed weighted average interest rate from the Company to counterparty3.12 %3.54 %
Floating weighted average interest rate from counterparty to the Company1.05 %2.88 %
Weighted average remaining term to maturity (in months)85 91 
Fair value: 
Recognized as an asset:
Derivatives designated as hedging instruments:
Interest rate derivatives$10 
Derivatives not designated as hedging instruments:
Loan level derivatives149,737 $59,365 
Risk participation-out agreements2,191 1,229 
Foreign exchange contracts30 54 
Recognized as a liability:
Derivatives not designated as hedging instruments:
Loan level derivatives$149,737 $59,365 
Risk participation-in agreements434 283 
Foreign exchange contracts20 53 
Stockholders' Equity and Dividends
The Company's total stockholders' equity was $935.6 million as of September 30, 2020, representing a $10.0 million decrease compared to $945.6 million at December 31, 2019. The decrease primarily reflects dividends paid by the Company of $27.3 million for the nine months ended September 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 $21.0 million, and unrealized gain on securities available-for-sale of $16.5 million.
Stockholders' equity represented 10.39% of total assets as of September 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 8.73% of tangible assets (total assets less goodwill and identified intangible assets, net) as of September 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 an additional $10 million for a total authorized repurchase amount of $20 million. Subsequently, as previously
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disclosed, the Company suspended the stock repurchase program effective as of March 24, 2020. As of September 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. On October 28, 2020, the Company’s Board of Directors approved the resumption of the stock repurchase program to be completed by December 31, 2020.
The dividend payout ratio was 48.67% for the three months ended September 30, 2020, compared to 38.88% 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 $2.7 million to $65.9 million for the three months ended September 30, 2020 from $63.2 million for the three months ended September 30, 2019. This increase reflects a $7.3 million decrease in interest income on loans and leases and a $0.1 million increase in interest income on investment securities, offset by a $9.9 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 September 30, 2020 and September 30, 2019 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended September 30, 2020 and September 30, 2019 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest income increased $2.6 million to $191.9 million for the nine months ended September 30, 2020 from $189.4 million for the nine months ended September 30, 2019. This overall increase reflects a $13.8 million decrease in interest income on loans and leases, offset by a $16.4 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 Nine-Month Period Ended September 30, 2020 and September 30, 2019 — Interest Income” and “Results of Operations - Comparison of the Nine-Month Period Ended September 30, 2020 and September 30, 2019 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest margin decreased by 37 basis points to 3.08% for the three months ended September 30, 2020 from 3.45% for the three months ended September 30, 2019. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) decreased to 4.12% for the three months ended September 30, 2020 from 5.08% for the three months ended September 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.
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Net interest margin decreased by 39 basis points to 3.15% for the nine months ended September 30, 2020 from 3.54% for the nine months ended September 30, 2019. The Company's weighted average interest rate on loans (prior to purchase accounting
adjustments) decreased to 4.35% for the nine months ended September 30, 2020 from 5.10% for the nine months ended September 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.
The yield on interest-earning assets decreased to 3.79% for the three months ended September 30, 2020 from 4.83% for the three months ended September 30, 2019. This decrease is the result of lower yields on loans and leases and lower yields on investments. During the three months ended September 30, 2020, the Company recorded $1.0 million in prepayment penalties and late charges, which contributed 5 basis points to yields on interest-earning assets in the three months ended September 30, 2020, compared to $0.9 million, or 5 basis points, for the three months ended September 30, 2019.
The yield on interest-earning assets decreased to 4.04% for the nine months ended September 30, 2020 from 4.85% for the nine months ended September 30, 2019. This decrease is the result of lower yields on loans and leases and lower yields on investments. During the nine months ended September 30, 2020, the Company recorded $2.9 million in prepayment penalties and late charges, which contributed 5 basis points to yields on interest-earning assets in the nine months ended September 30, 2020, compared to $2.9 million, or 5 basis points, for the nine months ended September 30, 2019.
The overall cost of funds (including non-interest-bearing demand checking accounts) decreased 72 basis points to 0.75% for the three months ended September 30, 2020 from 1.47% for the three months ended September 30, 2019. The overall cost of funds (including non-interest-bearing demand checking accounts) decreased 46 basis points to 0.98% for the nine months ended September 30, 2020 from 1.44% for the nine months ended September 30, 2019. Refer to "Financial Condition - Borrowed Funds" above for more details.
Management seeks to position the balance sheet to be neutral to asset sensitive to changes in interest rates. 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 three 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.
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 nine months ended September 30, 2020 and September 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.
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Three Months Ended
September 30, 2020September 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$851,608 $3,746 1.76 %$573,389 $3,027 2.11 %
Marketable and restricted equity securities66,154 670 4.06 %59,638 885 5.94 %
Short-term investments192,446 46 0.10 %70,707 487 2.76 %
Total investments1,110,208 4,462 1.61 %703,734 4,399 2.50 %
Commercial real estate loans (2)
3,831,826 35,615 3.64 %3,539,485 41,724 4.61 %
Commercial loans (2)
1,281,202 10,677 3.27 %838,092 10,291 4.81 %
Equipment financing (2)
1,089,058 19,018 6.99 %1,019,179 18,519 7.27 %
Residential mortgage loans (2)
814,559 7,860 3.86 %776,482 8,215 4.23 %
Other consumer loans (2)
395,990 3,127 3.13 %415,082 4,917 4.69 %
Total loans and leases7,412,635 76,297 4.12 %6,588,320 83,666 5.08 %
Total interest-earning assets8,522,843 80,759 3.79 %7,292,054 88,065 4.83 %
Allowance for loan and lease losses(120,214)(59,386)
Non-interest-earning assets616,043 513,824 
Total assets$9,018,672 $7,746,492 
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts$427,009 128 0.12 %$335,091 129 0.15 %
Savings accounts688,223 258 0.15 %600,609 820 0.54 %
Money market accounts1,855,803 1,658 0.36 %1,683,548 5,413 1.28 %
Certificate of deposit1,536,969 7,022 1.82 %1,658,650 9,691 2.32 %
Brokered deposit accounts562,112 1,517 1.07 %342,291 2,247 2.60 %
Total interest-bearing deposits (3)
5,070,116 10,583 0.83 %4,620,189 18,300 1.57 %
Advances from the FHLBB944,865 2,876 1.19 %759,738 4,859 2.50 %
Subordinated debentures and notes83,687 1,246 5.96 %83,530 1,300 6.22 %
Other borrowed funds118,969 61 0.21 %79,620 211 1.05 %
Total borrowed funds1,147,521 4,183 1.43 %922,888 6,370 2.70 %
Total interest-bearing liabilities6,217,637 14,766 0.94 %5,543,077 24,670 1.77 %
Non-interest-bearing liabilities:      
Non-interest-bearing demand checking accounts (3)
1,569,411   1,096,788   
Other non-interest-bearing liabilities296,992   178,564   
Total liabilities8,084,040   6,818,429   
Brookline Bancorp, Inc. stockholders' equity934,632   928,063   
Total liabilities and stockholders' equity$9,018,672   $7,746,492   
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
 65,993 2.85 % 63,395 3.06 %
Less adjustment of tax-exempt income 55   159  
Net interest income $65,938   $63,236  
Net interest margin (5)
  3.08 %  3.45 %
_________________________________________________________________________
(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 0.63% and 1.27% in the three months ended September 30, 2020 and September 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.
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Nine Months Ended
September 30, 2020September 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$744,065 $10,489 1.88 %$591,535 $9,526 2.15 %
Marketable and restricted equity securities65,367 2,371 4.84 %59,747 2,693 6.01 %
Short-term investments174,177 354 0.27 %49,833 1,105 2.96 %
Total investments983,609 13,214 1.79 %701,115 13,324 2.53 %
Commercial real estate loans (2)
3,763,750 112,912 3.94 %3,454,996 123,106 4.70 %
Commercial loans (2)
1,100,346 29,455 3.52 %814,392 29,773 4.82 %
Equipment financing (2)
1,070,433 56,937 7.09 %1,004,363 54,795 7.27 %
Residential mortgage loans (2)
813,196 23,862 3.91 %776,440 24,524 4.21 %
Other consumer loans (2)
408,332 10,235 3.33 %413,645 15,155 4.89 %
Total loans and leases7,156,057 233,401 4.35 %6,463,836 247,353 5.10 %
Total interest-earning assets8,139,666 246,615 4.04 %7,164,951 260,677 4.85 %
Allowance for loan and lease losses(101,064)(58,759)
Non-interest-earning assets580,873 479,046 
Total assets$8,619,475 $7,585,238 
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts$394,057 358 0.12 %$337,671 321 0.13 %
Savings accounts659,754 1,258 0.25 %609,284 2,154 0.47 %
Money market accounts1,773,234 7,973 0.60 %1,681,594 16,259 1.29 %
Certificate of deposit1,618,818 24,637 2.03 %1,587,646 26,601 2.24 %
Brokered deposit accounts434,409 5,375 1.65 %344,979 6,625 2.57 %
Total interest-bearing deposits (3)
4,880,272 39,601 1.08 %4,561,174 51,960 1.52 %
Advances from the FHLBB939,821 10,724 1.50 %758,992 14,294 2.48 %
Subordinated debentures and notes83,648 3,793 6.05 %83,491 3,913 6.25 %
Other borrowed funds93,698 294 0.42 %84,477 640 1.01 %
Total borrowed funds1,117,167 14,811 1.74 %926,960 18,847 2.68 %
Total interest-bearing liabilities5,997,439 54,412 1.21 %5,488,134 70,807 1.72 %
Non-interest-bearing liabilities:      
Non-interest-bearing demand checking accounts 1,405,871   1,046,683   
Other non-interest-bearing liabilities280,499   141,305   
Total liabilities7,683,809   6,676,122   
Brookline Bancorp, Inc. stockholders' equity935,666   908,994   
Noncontrolling interest in subsidiary—   122   
Total liabilities and stockholders' equity$8,619,475   $7,585,238   
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
 192,203 2.83 % 189,870 3.13 %
Less adjustment of tax-exempt income 265   501  
Net interest income $191,938   $189,369  
Net interest margin (5)
  3.15 %  3.54 %
_________________________________________________________________________
(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 0.84% and 1.24% in the nine months ended September 30, 2020 and September 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.
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Rate/Volume Analysis
The following table presents, on a tax-equivalent basis, the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Three Months Ended September 30, 2020 as Compared to the Three Months Ended September 30, 2019Nine Months Ended September 30, 2020 as Compared to the Nine Months Ended September 30, 2019
Increase
(Decrease) Due To		Increase
(Decrease) Due To
VolumeRateNet ChangeVolumeRateNet Change
(In Thousands)
Interest and dividend income:
Investments:
Debt securities$1,288 $(569)$719 $2,256 $(1,293)$963 
Marketable and restricted equity securities89 (304)(215)236 (558)(322)
Short-term investments323 (764)(441)921 (1,672)(751)
Total investments1,700 (1,637)63 3,413 (3,523)(110)
Loans and leases:
Commercial real estate loans3,143 (9,252)(6,109)10,365 (20,559)(10,194)
Commercial loans and leases4,282 (3,896)386 8,785 (9,103)(318)
Equipment financing1,238 (739)499 3,523 (1,381)2,142 
Residential mortgage loans391 (746)(355)1,128 (1,790)(662)
Other consumer loans(217)(1,573)(1,790)(190)(4,730)(4,920)
Total loans8,837 (16,206)(7,369)23,611 (37,563)(13,952)
Total change in interest and dividend income10,537 (17,843)(7,306)27,024 (41,086)(14,062)
Interest expense:
Deposits:
NOW accounts29 (30)(1)60 (23)37 
Savings accounts103 (665)(562)167 (1,063)(896)
Money market accounts502 (4,257)(3,755)840 (9,126)(8,286)
Certificate of deposit(678)(1,991)(2,669)524 (2,488)(1,964)
Brokered deposit accounts993 (1,723)(730)1,471 (2,721)(1,250)
Total deposits949 (8,666)(7,717)3,062 (15,421)(12,359)
Borrowed funds:
Advances from the FHLBB959 (2,942)(1,983)2,846 (6,416)(3,570)
Subordinated debentures and notes2 (56)(54)7 (127)(120)
Other borrowed funds71 (221)(150)63 (409)(346)
Total borrowed funds1,032 (3,219)(2,187)2,916 (6,952)(4,036)
Total change in interest expense1,981 (11,885)(9,904)5,978 (22,373)(16,395)
Change in tax-exempt income(104)— (104)(236)— (236)
Change in net interest income$8,660 $(5,958)$2,702 $21,282 $(18,713)$2,569 

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Interest Income

Loans and Leases
Three Months Ended September 30,Dollar
Change		Percent
Change		Nine Months Ended September 30,Dollar
Change		Percent
Change
2020201920202019
(Dollars in Thousands)
Interest income—loans and leases:
Commercial real estate loans$35,614 $41,723 $(6,109)(14.6)%$112,911 $123,106 $(10,195)(8.3)%
Commercial loans10,621 10,190 431 4.2 %29,270 29,456 (186)(0.6)%
Equipment financing19,018 18,520 498 2.7 %56,937 54,795 2,142 3.9 %
Residential mortgage loans7,861 8,215 (354)(4.3)%23,862 24,524 (662)(2.7)%
Other consumer loans3,126 4,918 (1,792)(36.4)%10,235 15,155 (4,920)(32.5)%
Total interest income—loans and leases$76,240 $83,566 $(7,326)(8.8)%$233,215 $247,036 $(13,822)(5.6)%
Interest income from loans and leases was $76.2 million for the three months ended September 30, 2020, and represented a yield on total loans of 4.12%. This compares to $83.6 million of interest on loans and a yield of 5.08% for the three months ended September 30, 2019. The $7.3 million decrease in interest income from loans and leases was primarily attributable to an increase of $8.8 million due to an increase in origination volume, offset by a decrease of $16.2 million due to changes in interest rates.
Interest income from loans and leases was $233.2 million for the nine months ended September 30, 2020, and represented a yield on total loans of 4.35%. This compares to $247.0 million of interest on loans and a yield of 5.10% for the nine months ended September 30, 2019. The $13.8 million decrease in interest income from loans and leases was primarily attributable to an increase of $23.6 million due to an increase in origination volume, offset by a decrease of $37.6 million due to the changes in interest rates.

Investments
Three Months Ended September 30,Dollar
Change		Percent
Change		Nine Months Ended September 30,Dollar
Change		Percent
Change
2020201920202019
(Dollars in Thousands)
Interest income—investments:
Debt securities$3,746 $2,977 $769 25.8 %$10,423 $9,371 $1,052 11.2 %
Marketable and restricted equity securities672 876 (204)(23.3)%2,358 2,664 (306)(11.5)%
Short-term investments46 487 (441)(90.6)%354 1,105 (751)(68.0)%
Total interest income—investments$4,464 $4,340 $124 2.9 %$13,135 $13,140 $(5)— %
Total investment income was $4.5 million for the three months ended September 30, 2020 compared to $4.3 million for the three months ended September 30, 2019. For the three months ended September 30, 2020 and 2019, the yield on total investments was 1.6% and 2.5%, respectively. The year-over-year increase in interest income on investments of $0.1 million, or 2.9%, was primarily driven by a $1.7 million increase due to volume, partially offset by a $1.6 million decrease due to rates.
Total investment income was $13.1 million for the nine months ended September 30, 2020 and September 30, 2019. For the nine months ended September 30, 2020 and 2019, the yield on total investments was 1.8% and 2.5%, respectively. The year-over-year interest income on investments remained unchanged, primarily due to a $3.5 million increase due to volume, offset by a $3.5 million decrease due to rates.
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Interest Expense—Deposits and Borrowed Funds
Three Months Ended September 30,Dollar
Change		Percent
Change		Nine Months Ended September 30,Dollar
Change		Percent
Change
2020201920202019
(Dollars in Thousands)
Interest expense:
Deposits:
NOW accounts$128 $129 $(1)(0.8)%$358 $321 $37 11.5 %
Savings accounts258 820 (562)(68.5)%1,258 2,154 (896)(41.6)%
Money market accounts1,658 5,413 (3,755)(69.4)%7,973 16,259 (8,286)(51.0)%
Certificate of deposit accounts7,022 9,691 (2,669)(27.5)%24,637 26,601 (1,964)(7.4)%
Brokered deposit accounts1,517 2,247 (730)(32.5)%5,375 6,625 (1,250)(18.9)%
Total interest expense - deposits10,583 18,300 (7,717)(42.2)%39,601 51,960 (12,359)(23.8)%
Borrowed funds:
Advances from the FHLBB2,876 4,859 (1,983)(40.8)%10,724 14,294 (3,570)(25.0)%
Subordinated debentures and notes1,246 1,300 (54)(4.2)%3,793 3,913 (120)(3.1)%
Other borrowed funds61 211 (150)(71.1)%294 640 (346)(54.1)%
Total interest expense - borrowed funds4,183 6,370 (2,187)(34.3)%14,811 18,847 (4,036)(21.4)%
Total interest expense$14,766 $24,670 $(9,904)(40.1)%$54,412 $70,807 $(16,395)(23.2)%
Deposits
For the three months ended September 30, 2020, interest expense on deposits decreased $7.7 million, or 42.2%, as compared to the same period in 2019. The decrease in interest expense on deposits was driven by a decrease of $8.7 million due to lower interest rates, partially offset by an increase of $0.9 million due to the growth in deposits. There was no purchase accounting amortization on acquired deposits for the three months ended September 30, 2020, compared to $66 thousand and no basis points for the three months ended September 30, 2019.
Interest expense on deposits decreased $12.4 million, or 23.8%, to $39.6 million for the nine months ended September 30, 2020 from $52.0 million for the nine months ended September 30, 2019. The decrease in interest expense on deposits was driven by a decrease of $15.4 million due to lower interest rates, partially offset by a $3.1 million increase due to growth in deposits. Purchase accounting amortization on acquired deposits for the nine months ended September 30, 2020 was $44.0 thousand and no basis points, compared to $316 thousand and 1 basis point for the nine months ended September 30, 2019.
Borrowed Funds
During the three months ended September 30, 2020, interest paid on borrowed funds decreased $2.2 million, or 34.3% year over year. The cost of borrowed funds decreased to 1.43% for the three months ended September 30, 2020 from 2.70% for the three months ended September 30, 2019. The decrease in interest expense was driven by a decrease of $3.2 million due to borrowing rates, partially offset by an increase of $1.0 million due to volume. For the three months ended September 30, 2020, there was purchase accounting accretion of $14.0 thousand and no basis points on acquired borrowed funds compared to purchase accounting accretion of $14.0 thousand and no basis points for the three months ended September 30, 2019.
Interest expense on borrowed funds decreased $4.0 million, or 21.4%, to $14.8 million for the nine months ended September 30, 2020 from $18.8 million for the nine months ended September 30, 2019. The cost of borrowed funds decreased to 1.74% for the nine months ended September 30, 2020 from 2.68% for the nine months ended September 30, 2019. The decrease in interest expense was driven by a decrease of $7.0 million due to borrowing rates, partially offset by an increase of $2.9 million due to volume. For the nine months ended September 30, 2020, there was purchase accounting accretion of $41 thousand and no basis points on acquired borrowed funds compared to accretion of $43 thousand and no basis points for the nine months ended September 30, 2019.
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Provision for Credit Losses
The provisions for credit losses are set forth below:
Three Months Ended September 30,Dollar
Change		Percent
Change		Nine Months Ended September 30,Dollar
Change		Percent
Change
2020201920202019
(Dollars in Thousands)
Provision for loan and lease losses:
Commercial real estate$(2,721)$361 $(3,082)(853.7)%$45,217 $842 $44,375 (5,270.2)%
Commercial8,557 463 8,094 1,748.2 %15,119 4,744 10,375 218.7 %
Consumer(455)42 (497)(1,183.3)%501 406 95 23.4 %
Total provision for loan and 
lease losses		5,381 866 4,515 521.4 %60,837 5,992 54,845 915.3 %
Unfunded credit commitments(853)5 (858)(17,160.0)%3,152 (11)3,163 28,754.5 %
Total provision for credit losses$4,528 $871 $3,657 419.9 %$63,989 $5,981 $58,008 969.9 %
For the three months ended September 30, 2020, the provision for credit losses increased $3.7 million to $4.5 million from $0.9 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, the provision for credit losses increased $58.0 million to $64.0 million from $6.0 million for the nine months ended September 30, 2019. The increase in the provision for credit losses for the three and nine months ended September 30, 2020 was primarily driven by changes in macroeconomic forecasts surrounding the COVID-19 pandemic during the first, second, and third 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 September 30,Dollar
Change		Percent
Change		Nine Months Ended September 30,Dollar
Change		Percent
Change
2020201920202019
(Dollars in Thousands)
Deposit fees$2,305 $2,710 $(405)(14.9)%$6,692 $7,913 $(1,221)(15.4)%
Loan fees397 719 (322)(44.8)%1,460 1,530 (70)(4.6)%
Loan level derivative income, net527 2,251 (1,724)(76.6)%4,123 5,768 (1,645)(28.5)%
Gain on investment securities54 (116)170 146.6 %1,970 375 1,595 425.3 %
Gain on sales of loans and leases held-for-sale632 550 82 14.9 %1,051 1,400 (349)(24.9)%
Other 947 1,815 (868)(47.8)%5,129 5,051 78 1.5 %
Total non-interest income$4,862 $7,929 $(3,067)(38.7)%$20,425 $22,037 $(1,612)(7.3)%
For the three months ended September 30, 2020, non-interest income decreased $3.1 million, or 38.7%, to $4.9 million as compared to $7.9 million for the same period of 2019. This decrease was primarily driven by decreases of $1.7 million in loan level derivative income, net, $0.9 million in other non-interest income and $0.4 million in deposit fees.
For the nine months ended September 30, 2020, non-interest income decreased $1.6 million, or 7.3%, to $20.4 million as compared to $22.0 million for the same period in 2019. This decrease was primarily driven by decreases of $1.6 million in loan level derivative income, net, $1.2 million in deposit fees and $0.3 million in gain on sales of loans and leases, partially offset by an increase of $1.6 million in gain on investment securities.
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Deposit fees decreased $0.4 million, or 14.9%, to $2.3 million for the three months ended September 30, 2020 from $2.7 million for the same period in 2019, and decreased $1.2 million, or 15.4% to $6.7 million for the nine months ended September 30, 2020 from $7.9 million for the same period in 2019, primarily driven by lower insufficient funds fees (NSF), account service fees, debit card fees, as well as non-customer ATM income.
Loan level derivative income decreased $1.7 million, or 76.6%, to $0.5 million for the three months ended September 30, 2020 from $2.3 million for the same period in 2019, and decreased $1.6 million, or 28.5%, to $4.1 million for the nine months ended September 30, 2020 from $5.8 million for the same period in 2019, primarily driven by a decrease of eight loan level derivative transactions completed for the three and nine months ended September 30, 2020.
Gain on investment securities increased $0.2 million, or 146.6%, to a gain of $54.0 thousand for the three months ended September 30, 2020 from a loss of $116.0 thousand for the same period in 2019, and increased $1.6 million, or 425.3%, to $2.0 million for the nine months ended September 30, 2020 from $0.4 million for the same period in 2019, primarily driven by investment securities sold during the first nine months of 2020, partially offset by a change in market value on equity securities held for trading.
Other income decreased $0.9 million, or 47.8%, to $0.9 million for the three months ended September 30, 2020 from $1.8 million for the same period in 2019, primarily driven by interest rate derivatives market value adjustment due to volatility in rates and lower rental income. Other income increased $78 thousand, or 1.5%, to $5.1 million for the nine months ended September 30, 2020 from $5.1 million for the same period in 2019.
Non-Interest Expense
The following table sets forth the components of non-interest expense:
Three Months Ended September 30,Dollar
Change		Percent
Change		Nine Months Ended September 30,Dollar
Change		Percent
Change
2020201920202019
(Dollars in Thousands)
Compensation and employee benefits$26,092 $24,871 $1,221 4.9 %$75,931 $72,567 $3,364 4.6 %
Occupancy3,802 3,895 (93)(2.4)%11,580 11,594 (14)(0.1)%
Equipment and data processing4,293 4,749 (456)(9.6)%13,152 14,051 (899)(6.4)%
Professional services1,112 1,083 29 2.7 %3,819 3,246 573 17.7 %
FDIC insurance1,363 54 1,309 2,424.1 %2,599 1,392 1,207 86.7 %
Advertising and marketing1,024 1,035 (11)(1.1)%3,116 3,216 (100)(3.1)%
Amortization of identified intangible assets312 421 (109)(25.9)%959 1,243 (284)(22.8)%
Merger and restructuring expense— 1,125 (1,125)(100.0)%— 1,125 (1,125)(100.0)%
Other2,949 2,958 (9)(0.3)%9,650 10,232 (582)(5.7)%
Total non-interest expense$40,947 $40,191 $756 1.9 %$120,806 $118,666 $2,140 1.8 %
For the three months ended September 30, 2020, non-interest expense increased $0.8 million, or 1.9%, to $40.9 million as compared to $40.2 million for the same period in 2019. The increase was primarily driven by increases of $1.3 million in FDIC insurance and $1.2 million in compensation and employee benefits expense, partially offset by decreases of $1.1 million in merger and restructuring expense and $0.5 million in equipment and data processing expense.
For the nine months ended September 30, 2020, non-interest expense increased $2.1 million, or 1.8%, to $120.8 million as compared to $118.7 million for the same period in 2019. This increase was primarily driven by increases of $3.4 million in compensation and employee benefits expense, $1.2 million in FDIC insurance and $0.6 million in professional fees, partially offset by decreases of $1.1 million in merger and restructuring expense, $0.9 million in equipment and data processing and $0.6 million in other non-interest expense.
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Compensation and employee benefits expense increased $1.2 million, or 4.9%, to $26.1 million for the three months ended September 30, 2020 from $24.9 million for the same period in 2019, and increased $3.4 million, or 4.6%, to $75.9 million for the nine months ended September 30, 2020 from $72.6 million for the same period in 2019, primarily driven by increases in employee headcount, annual merit increases and bonuses, and health care benefits.
Equipment and data processing expense decreased $0.5 million, or 9.6%, to $4.3 million for the three months ended September 30, 2020 from $4.7 million for the same period in 2019, and decreased $0.9 million, or 6.4%, to $13.2 million for the nine months ended September 30, 2020 from $14.1 million for the same period in 2019, primarily driven by lower purchased software depreciation and data communications expenses, partially offset by higher software licenses and subscriptions.
Professional services expense increased $0.6 million, or 17.7%, to $3.8 million for the nine months ended September 30, 2020 from $3.2 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 $1.3 million, or 2,424.1%, to $1.4 million for the three months ended September 30, 2020 from $0.1 million for the same period in 2019, and increased $1.2 million, or 86.7%, to $2.6 million for the nine months ended September 30, 2020 from $1.4 million for the same period in 2019, primarily driven by bank assessment fees from the FDIC.
Merger and restructuring expense decreased $1.1 million, or 100.0%, to zero for the three months ended September 30, 2020 and the nine months ended September 30, 2020, compared to $1.1 million for the three months ended September 30, 2019 and the nine months ended September 30, 2019, due to the First Ipswich Bank merger in 2019.
Provision for Income Taxes
Three Months Ended September 30,Dollar
Change		Percent
Change		Nine Months Ended September 30,Dollar
Change		Percent
Change
2020201920202019
(Dollars in Thousands)
Income before provision for income taxes$25,325 $30,103 $(4,778)(15.9)%$27,568 $86,759 $(59,191)(68.2)%
Provision (benefit) for income taxes6,646 7,507 (861)(11.5)%6,596 21,182 (14,586)(68.9)%
Net (loss) income, before non-controlling interest in subsidiary$18,679 $22,596 $(3,917)(17.3)%$20,972 $65,577 $(44,605)(68.0)%
Effective tax rate26.2 %24.9 %N/A5.2 %23.9 %24.4 %N/A(2.0)%
The Company recorded an income tax expense of $6.6 million for the three months ended September 30, 2020, compared to an income tax expense of $7.5 million for the three months ended September 30, 2019, representing effective tax rates of 26.2% and 24.9%, respectively.
The Company recorded an income tax expense of $6.6 million for the nine months ended September 30, 2020, compared to $21.2 million income tax expense for the nine months ended September 30, 2019, representing effective tax rates of 23.9% and 24.4%, respectively. The changes in the Company's pre-tax income for the nine months ended September 30, 2020 and 2019 were primarily due to the COVID-19 pandemic and its impact on the Company's provision for loan losses.
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.
In the third quarter, the Company continued to operate with increased liquidity as a precautionary measure due to economic uncertainty associated with the COVID-19 pandemic. In particular, the Company has shifted its balance sheet asset
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mix to include additional cash and available for sale securities. Management will continue to monitor the economic markets and evaluate changes to the Company’s liquidity as economic conditions improve.
Management continued holding higher levels of on balance sheet liquidity in the form of cash and available for sale securities in the third quarter. Cash and equivalents at the end of the quarter were $317.3 million, or 3.5% 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 levels of cash, cash equivalents and investment securities available-for-sale of between 5% and 10% of total assets. Due to the current environment, management increased this target operating range to between 10% and 15% of total assets. As of September 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 $6.8 billion as of September 30, 2020 and represented 87.1% 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 $4.6 billion as of September 30, 2020 and represented 67.8% 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 $694.6 million of brokered deposits as of September 30, 2020, which represented 10.2% 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 $1.0 billion as of September 30, 2020, representing 12.9% 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, management will continue to monitor economic conditions and make adjustments to the balance sheet mix as appropriate.
As members of the FHLBB, the Banks have access to both short- and long-term borrowings. As of September 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 September 30, 2020, the Banks also have access to funding through certain uncommitted lines of credit of $605.0 million.
The Company had a $12.0 million committed line of credit for contingent liquidity as of September 30, 2020. As of September 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 $683.5 million of borrowing capacity at the Federal Reserve Bank as of September 30, 2020. As of September 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 September 30, 2020At December 31, 2019
 (In Thousands)
Financial instruments whose contract amounts represent credit risk:  
Commitments to originate loans and leases:  
Commercial real estate$115,630 $50,034 
Commercial85,543 78,058 
Residential mortgage29,119 25,998 
Unadvanced portion of loans and leases812,748 808,681 
Unused lines of credit:  
Home equity564,956 528,251 
Other consumer29,711 25,374 
Other commercial440 380 
Unused letters of credit:  
Financial standby letters of credit13,411 10,166 
Performance standby letters of credit6,135 4,652 
Commercial and similar letters of credit6,211 3,823 
Loan level derivatives:
Receive fixed, pay variable1,243,794 1,101,193 
Pay fixed, receive variable1,243,794 1,101,193 
Risk participation-out agreements254,577 235,693 
Risk participation-in agreements60,874 55,281 
Foreign exchange contracts:
Buys foreign currency, sells U.S. currency1,511 1,125 
Sells foreign currency, buys U.S. currency1,521 1,230 

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Capital Resources
As of September 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 September 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 September 30, 2020 for the Company and the Banks.
ActualMinimum Required for Capital Adequacy PurposesMinimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer
Minimum Required  to be Considered “Well-Capitalized” Under Prompt Corrective Action Provisions
AmountRatioAmountRatioAmountRatioAmountRatio
(Dollars in Thousands)
At September 30, 2020:
Brookline Bancorp, Inc.
Common equity Tier 1 capital ratio (1)
$755,400 10.77 %$315,627 4.50 %$490,975 7.00 %N/AN/A
Tier 1 leverage capital ratio (2)
765,006 8.67 %352,944 4.00 %352,944 4.00 %N/AN/A
Tier 1 risk-based capital ratio (3)
765,006 10.91 %420,718 6.00 %596,018 8.50 %N/AN/A
Total risk-based capital ratio (4)
927,330 13.22 %561,168 8.00 %736,533 10.50 %N/AN/A
Brookline Bank      
Common equity Tier 1 capital ratio (1)
$547,302 11.31 %$217,759 4.50 %$338,737 7.00 %$314,541 6.50 %
Tier 1 leverage capital ratio (2)
547,302 9.39 %233,142 4.00 %233,142 4.00 %291,428 5.00 %
Tier 1 risk-based capital ratio (3)
547,302 11.31 %290,346 6.00 %411,323 8.50 %387,128 8.00 %
Total risk-based capital ratio (4)
608,153 12.57 %387,050 8.00 %508,004 10.50 %483,813 10.00 %
BankRI      
Common equity Tier 1 capital ratio (1)
$230,926 10.61 %$97,942 4.50 %$152,355 7.00 %$141,472 6.50 %
Tier 1 leverage capital ratio (2)
230,926 7.59 %121,700 4.00 %121,700 4.00 %152,125 5.00 %
Tier 1 risk-based capital ratio (3)
230,926 10.61 %130,590 6.00 %185,002 8.50 %174,120 8.00 %
Total risk-based capital ratio (4)
258,353 11.87 %174,122 8.00 %228,535 10.50 %217,652 10.00 %
_______________________________________________________________________________
(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets.
(2) Tier 1 leverage capital ratio is calculated by dividing Tier 1 capital by average assets.
(3) Tier 1 risk-based capital ratio is calculated by dividing Tier 1 capital by risk-weighted assets.
(4) Total risk-based capital ratio is calculated by dividing total capital by risk-weighted assets.



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

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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Market risk is the risk that the market value or estimated fair value of the Company's assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that the Company's net income will be significantly reduced by interest-rate changes.
Interest-Rate Risk
The principal market risk facing the Company is interest-rate risk, which can occur in a variety of forms, including repricing risk, yield-curve risk, basis risk, and prepayment risk. Repricing risk occurs when the change in the average yield of either interest-earning assets or interest-bearing liabilities is more sensitive than the other to changes in market interest rates. Such a change in sensitivity could reflect a number of possible mismatches in the repricing opportunities of the Company's assets and liabilities. Yield-curve risk reflects the possibility that changes in the shape of the yield curve could have different effects on the Company's assets and liabilities. Basis risk occurs when different parts of the balance sheet are subject to varying base rates reflecting the possibility that the spread from those base rates will deviate. Prepayment risk is associated with financial instruments with an option to prepay before the stated maturity, often a disadvantage to person selling the option; this risk is most often associated with the prepayment of loans, callable investments, and callable borrowings.
Asset/Liability Management
Market risk and interest-rate risk management is governed by the Company's ALCO. The ALCO establishes exposure limits that define the Company's tolerance for interest-rate risk. The ALCO and the Company's Treasury Group measure and manage the composition of the balance sheet over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. The ALCO monitors current exposures versus limits and reports those results to the Board of Directors. The policy limits and guidelines serve as benchmarks for measuring interest-rate risk and for providing a framework for evaluation and interest-rate risk-management decision-making. The Company measures its interest-rate risk by using an asset/liability simulation model. The model considers several factors to determine the Company's potential exposure to interest-rate risk, including measurement of repricing gaps, duration, convexity, value-at-risk, market value of portfolio equity under assumed changes in the level of interest rates, the shape of yield curves, and general market volatility.
Management controls the Company's interest-rate exposure using several strategies, which include adjusting the maturities of securities in the Company's investment portfolio, limiting or expanding the terms of loans originated, limiting fixed-rate deposits with terms of more than five years, and adjusting maturities of FHLBB advances. The Company limits this risk by restricting the types of MBSs it invests into those with limited average life changes under certain interest-rate-shock scenarios, or securities with embedded prepayment penalties. The Company also places limits on holdings of fixed-rate mortgage loans with maturities greater than five years. The Company may also use derivative instruments, principally interest-rate swaps, to manage its interest-rate risk; however, the Company had no derivative fair value hedges or derivative cash flows hedges as of September 30, 2020 or December 31, 2019. See Note 8, “Derivatives and Hedging Activities,” to the unaudited consolidated financial statements.
Measuring Interest-Rate Risk
As noted above, interest-rate risk can be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest-rate sensitivity gap. An asset or liability is said to be interest-rate sensitive within a specific period if it will mature or reprice within that period. The interest-rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive liabilities. A gap is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets. During a period of falling interest rates, therefore, a positive gap would tend to adversely affect net interest income. Conversely, during a period of rising interest rates, a positive gap position would tend to result in an increase in net interest income.
The Company's interest-rate risk position is measured using both income simulation and interest-rate sensitivity "gap" analysis. Income simulation is the primary tool for measuring the interest-rate risk inherent in the Company's balance sheet at a given point in time by showing the effect on net interest income, over a twelve-month period, of a variety of interest-rate shocks. These simulations take into account repricing, maturity, and prepayment characteristics of individual products. The ALCO reviews simulation results to determine whether exposure resulting from changes in market interest rates remains within established tolerance levels over a twelve-month horizon, and develops appropriate strategies to manage this exposure. The Company's interest-rate risk analysis remains modestly asset-sensitive as of September 30, 2020.
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The assumptions used in the Company’s interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates.
As of September 30, 2020, net interest income simulation indicated that the Company's exposure to changing interest rates was within tolerance. The ALCO reviews the methodology utilized for calculating interest-rate risk exposure and may periodically adopt modifications to this methodology. The following table presents the estimated impact of interest-rate changes on the Company's estimated net interest income over the twelve-month periods indicated:
Estimated Exposure to Net Interest Income
over Twelve-Month Horizon Beginning
September 30, 2020December 31, 2019
Change in Interest Rate LevelsDollar
Change		Percent
Change		Dollar
Change		Percent
Change
 (Dollars in Thousands)
Up 300 basis points shock$27,233 9.6 %$29,795 11.5 %
Up 200 basis points ramp11,784 4.1 %12,478 4.8 %
Up 100 basis points ramp5,889 2.1 %6,265 2.4 %
Down 100 basis points ramp(5,635)(2.0)%(11,100)(4.3)%

The estimated impact of a 300 basis point increase in market interest rates on the Company's estimated net interest income over a twelve-month horizon was a positive 9.6% as of September 30, 2020, compared to a positive 11.5% as of December 31, 2019. The decrease in asset sensitivity was due to a decrease in short term liquidity positions.
The Company also uses interest-rate sensitivity “gap” analysis to provide a more general overview of its interest-rate risk profile. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. At September 30, 2020, the Company’s one-year cumulative gap was a negative $538.1 million, or 6.36% of total interest-earning assets, compared with a positive $4.7 million, or 0.06% of total interest-earning assets, at December 31, 2019.
The assumptions used in the Company's interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates. For additional discussion on interest-rate risk see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of the Company’s 2019 Annual Report on Form 10-K.
Economic Value of Equity ("EVE") at Risk Simulation is conducted in tandem with net interest income simulations to ascertain a longer term view of the Company’s interest-rate risk position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of the economic value of equity to changes in interest rates. The EVE at Risk Simulation values only the current balance sheet and does not incorporate growth assumptions. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, and rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity, and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. The Company conducts non-maturity deposit behavior studies on a periodic basis to support deposit assumptions used in the valuation process. All key assumptions are subject to a periodic review.
EVE at Risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates as well as parallel shocks to the current interest-rate environment. The following table sets forth the estimated percentage change in the Company’s EVE at Risk, assuming various shifts in interest rates. Given the interest rate environment as of September 30, 2020, simulations for interest rate declines of more than 100 basis points were not deemed to be meaningful.
Estimated Percent Change in Economic Value of Equity
Parallel Shock in Interest Rate LevelsAt September 30, 2020At December 31, 2019
Up 300 basis points11.8 %6.0 %
Up 200 basis points8.9 %5.1 %
Up 100 basis points5.9 %3.3 %
Down 100 basis points(14.1)%(7.2)%

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The Company's EVE sensitivity increased from December 31, 2019 to September 30, 2020 due to the shortened duration of the loan and investment portfolios and a slight extension in the borrowings portfolio.

Item 4. Controls and Procedures
 
Controls and Procedures
 
Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer considered that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
Effective January 1, 2020, the Company adopted ASU 2016-13. The Company implemented changes to its policies, processes, and controls over the allowance for credit losses methodology to support the adoption of ASU 2016-13. Many controls over this new accounting methodology mirror controls under the prior GAAP methodology. New controls were established, such as model validation done by an independent third-party and input review of econometric and other factors utilized in estimating the allowance. Except as related to the adoption of ASU 2016-13, there were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a -15(f). The Company’s internal control system was designed to provide reasonable assurance to its management and the Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company’s management assessed the effectiveness of its internal control over financial reporting as of the end of the period covered by this report.
 
Management’s Report on Internal Control Over Financial Reporting as of December 31, 2019 and the related Report of Independent Registered Public Accounting Firm thereon appear on pages F-1 and F-2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
 
There are no material pending legal proceedings other than those that arise in the normal course of business. In the opinion of Management, after consulting with legal counsel, the consolidated financial position and results of operations of the Company are not expected to be affected materially by the outcome of such proceedings. 

Item 1A.    Risk Factors

This section supplements and updates certain of the information found under Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020 (“Annual Report”), Item 8.01 “Other Matters” in the Current Report on Form 8-K filed with the SEC on May 11, 2020 (the “May 11, 2020 Form 8-K”), and Part II Item 1.A "Risk Factors" in the Quarterly Report on Form 10-Q filed with the SEC on August 2, 2020 (the "Second Quarter 10-Q"), based on information currently known to us and recent developments since the date of the Second Quarter 10-Q filing. The matters discussed below should be read in conjunction with the risks described in Part I. Item 1A. “Risk Factors” of our Annual Report, Item 8.01 “Other Matters” in the May 11, 2020 Form 8-K, and Part II Item 1A "Risk Factors" of our Second Quarter 10-Q. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Annual Report, May 11, 2020 Form 8-K and the Second Quarter 10-Q. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities, particularly in light of the fast-changing nature of the COVID-19 pandemic, responsive containment measures taken and the related impacts to economic and operating conditions.

The COVID-19 pandemic, and the measures taken to control its spread, will continue to adversely impact our employees, customers, business operations and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.
 
The COVID-19 pandemic has, and will likely continue to, severely impact the national economy and the regional and local markets in which we operate, lower equity market valuations, create significant volatility and disruption in capital and debt markets, and increase unemployment levels. Our business operations may be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. We are subject to heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements that we have put in place for our employees. Actions taken by the FRB to combat the economic contraction caused by the COVID-19 pandemic, including the reduction of the target federal funds rate and quantitative easing programs, could, if prolonged, adversely affect our net interest income and margins, and our profitability. The continued closures of many businesses and the institution of social distancing, shelter in place and stay home orders in the states and communities we serve, have reduced business activity and financial transactions. Government policies and directives relating to the pandemic response are subject to change as the effects and spread of the COVID-19 pandemic continue to evolve. It is unclear whether any COVID-19 pandemic-related businesses losses that we or our customers may suffer will be covered by existing insurance policies. Additionally, certain government directives and social distancing protocols may hinder our ability to conduct timely property appraisals, which could delay or impact the accuracy of the recognition of credit losses in our loan portfolios. Increases in deposit balances due, among other things, to government stimulus and relief programs could adversely affect our financial performance if we are unable to successfully lend or invest those funds. The measures we have taken to aid our customers, including short-term loan payment deferments, may be insufficient to help our customers who have been negatively impacted by the economic fallout from the COVID-19 pandemic. Loans that are currently in deferral status may become nonperforming loans. Changes in customer behavior due to worsening business and economic conditions or legislative or regulatory initiatives may impact the demand for our products and services, which could adversely affect our revenue, increase the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses. Similarly, because of adverse economic and market conditions affecting issuers, we may be required to recognize further impairments on the securities we hold, goodwill, intangible assets, and deferred tax assets, as well as reductions in other comprehensive income. While the COVID-19 pandemic negatively impacted our results of operations for the first nine months of 2020, the extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic, as well as further actions we may take as may be required by government authorities or that we determine is in the best interests of our employees and customers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the pandemic.
  
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Our participation in the SBA’s PPP may expose us to reputational harm, increased litigation risk, as well as the risk that the SBA may not fund some or all of the guarantees associated with PPP loans.
The Company has funded 2,922 PPP loans totaling $581.7 million as of August 8, 2020 when the program closed, of which $568.4 million remains outstanding, net of deferred fees and costs at September 30, 2020. Lenders participating in the PPP have faced increased public scrutiny about their loan application process and procedures, and the nature and type of the borrowers receiving PPP loans. We depend on our reputation as a trusted and responsible financial services company to compete effectively in the communities that we serve, and any negative public or customer response to, or any litigation or claims that might arise out of, our participation in the PPP and any other legislative or regulatory initiatives and programs that may be enacted in response to the COVID-19 pandemic, could adversely impact our business. Other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP, and we may be subject to the same or similar litigation, in addition to litigation in connection with our processing of PPP loan forgiveness applications. In addition, if the SBA determines that there is a deficiency in the manner in which a PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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

Item 3. Defaults Upon Senior Securities

a)        None.
 
b)        None.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.

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Item 6. Exhibits
 
Exhibits
Exhibit 31.1*
  
Exhibit 31.2*
  
Exhibit 32.1**
  
Exhibit 32.2**
  
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101)
_______________________________________________________________________________
* Filed herewith
** Furnished herewith
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 BROOKLINE BANCORP, INC.
    
    
Date: November 4, 2020By:/s/ Paul A. Perrault
  Paul A. Perrault 
  President and Chief Executive Officer 
  (Principal Executive Officer) 
    
Date: November 4, 2020By:/s/ Carl M. Carlson
  Carl M. Carlson 
  Chief Financial Officer 
  (Principal Financial Officer) 



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