BROOKLINE BANCORP INC - Quarter Report: 2020 June (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 June 30, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from N/A to .

Commission file number 0-23695

BROOKLINE BANCORP INC.

(Exact name of registrant as specified in its charter)



Delaware			04-3402944
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

131 Clarendon Street	Boston	MA	02116
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	BRKL	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12-b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller Reporting Company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At July 31, 2020, the number of shares of common stock, par value $0.01 per share, outstanding was 78,919,273.

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

Table of Contents



		Page
Part I	Financial Information

Item 1.	Unaudited Consolidated Financial Statements

	Unaudited Consolidated Balance Sheets at June 30, 2020 and December 31, 2019	1

	Unaudited Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and 2019	2

	Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019	3

	Unaudited Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2020 and 2019	4

	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019	6

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	90

Item 4.	Controls and Procedures	92

Part II	Other Information

Item 1.	Legal Proceedings	93

Item 1A.	Risk Factors	93

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	94

Item 3.	Defaults Upon Senior Securities	94

Item 4.	Mine Safety Disclosures	94

Item 5.	Other Information	94

Item 6.	Exhibits	94

	Signatures	95

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements



BROOKLINE BANCORP, INC. AND SUBSIDIARIES Unaudited Consolidated Balance Sheets
	At June 30, 2020			At December 31, 2019
	(In Thousands Except Share Data)
ASSETS
Cash and due from banks	$	38,522		$	33,589
Short-term investments	216,394			44,201
Total cash and cash equivalents	254,916			77,790
Investment securities available-for-sale	854,505			498,995
Investment securities held-to-maturity (fair value of $0 and $87,561, respectively)	—			86,780
Equity securities held-for-trading	1,992			3,581
Total investment securities	856,497			589,356
Loans and leases:
Commercial real estate loans	3,837,703			3,669,222
Commercial loans and leases	2,361,463			1,838,748
Consumer loans	1,208,531			1,229,846
Total loans and leases	7,407,697			6,737,816
Allowance for loan and lease losses	(119,553		)	(61,082		)
Net loans and leases	7,288,144			6,676,734
Restricted equity securities	71,638			53,818
Premises and equipment, net of accumulated depreciation of $79,788 and $76,763, respectively	73,127			74,350
Right-of-use asset operating leases	24,343			24,876
Deferred tax asset	42,683			25,017
Goodwill	160,427			160,427
Identified intangible assets, net of accumulated amortization of $38,128 and $37,481, respectively	3,776			4,423
Other real estate owned ("OREO") and repossessed assets, net	1,454			2,631
Other assets	292,662			167,431
Total assets	$	9,069,667		$	7,856,853
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand checking accounts	$	1,603,037		$	1,141,578
Interest-bearing deposits	4,837,196			4,688,494
Total deposits	6,440,233			5,830,072
Borrowed funds:
Advances from the Federal Home Loan Bank of Boston ("FHLBB")	1,267,570			758,469
Subordinated debentures and notes	83,668			83,591
Other borrowed funds	55,431			60,689
Total borrowed funds	1,406,669			902,749
Operating lease liabilities	24,343			24,876
Mortgagors' escrow accounts	6,467			7,232
Accrued expenses and other liabilities	265,542			146,318
Total liabilities	8,143,254			6,911,247

Commitments and contingencies (Note 12)
Stockholders' Equity:
Brookline Bancorp, Inc. stockholders' equity:
Common stock, $0.01 par value; 200,000,000 shares authorized; 85,177,172 shares issued and 85,177,172 shares issued, respectively	852			852
Additional paid-in capital	738,155			736,601
Retained earnings, partially restricted	237,808			265,376
Accumulated other comprehensive income	19,538			2,283
Treasury stock, at cost; 5,859,708 shares and 5,003,127 shares, respectively	(69,572		)	(59,073		)
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 65,334 shares and 79,548 shares, respectively	(368		)	(433		)
Total stockholders' equity	926,413			945,606
Total liabilities and stockholders' equity	$	9,069,667		$	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 June 30,				Six Months Ended June 30,
	2020		2019		2020			2019
	(In Thousands Except Share Data)
Interest and dividend income:
Loans and leases	$	77,416	$	82,798	$	156,975		$	163,470
Debt securities	3,701		3,158		6,677			6,394
Marketable and restricted equity securities	908		877		1,686			1,788
Short-term investments	99		351		308			618
Total interest and dividend income	82,124		87,184		165,646			172,270
Interest expense:
Deposits	12,778		17,712		29,018			33,660
Borrowed funds	5,058		6,338		10,628			12,477
Total interest expense	17,836		24,050		39,646			46,137
Net interest income	64,288		63,134		126,000			126,133
Provision for credit losses	5,347		3,757		59,461			5,110
Net interest income after provision for credit losses	58,941		59,377		66,539			121,023
Non-interest income:
Deposit fees	1,929		2,680		4,387			5,203
Loan fees	513		398		1,063			811
Loan level derivative income, net	1,440		1,772		3,596			3,517
Gain on investment securities, net	586		357		1,916			491
Gain on sales of loans and leases held-for-sale	299		561		419			850
Other	1,468		1,710		4,182			3,236
Total non-interest income	6,235		7,478		15,563			14,108
Non-interest expense:
Compensation and employee benefits	24,619		23,953		49,838			47,696
Occupancy	3,825		3,752		7,778			7,699
Equipment and data processing	4,155		4,641		8,858			9,302
Professional services	1,056		1,087		2,707			2,163
FDIC insurance	858		745		1,236			1,338
Advertising and marketing	1,017		1,112		2,092			2,181
Amortization of identified intangible assets	311		420		647			822
Other	3,268		3,894		6,701			7,274
Total non-interest expense	39,109		39,604		79,857			78,475
Income before provision for income taxes	26,067		27,251		2,245			56,656
Provision (benefit) for income taxes	6,496		6,780		(50		)	13,675
Net income before noncontrolling interest in subsidiary	19,571		20,471		2,295			42,981
Less: net income attributable to noncontrolling interest in subsidiary	—		—		—			43
Net income attributable to Brookline Bancorp, Inc.	$	19,571	$	20,471	$	2,295		$	42,938
Earnings per common share:
Basic	$	0.25	$	0.26	$	0.03		$	0.54
Diluted	0.25		0.26		0.03			0.54
Weighted average common shares outstanding during the year:
Basic	78,849,282		79,669,922		79,165,372			79,664,284
Diluted	79,015,274		79,886,292		79,340,524			79,859,572
Dividends paid per common share	$	0.115	$	0.110	$	0.230		$	0.215

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Comprehensive Income (Loss)



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(In Thousands)
Net (loss) income before noncontrolling interest in subsidiary	$	19,571		$	20,471		$	2,295		$	42,981

Investment securities available-for-sale:
Unrealized securities holding gains (losses)	3,952			7,099			25,115			13,598
Income tax (expense) benefit	(867		)	(1,565		)	(5,533		)	(2,997		)
Net unrealized securities holding gains (losses) before reclassification adjustments, net of taxes	3,085			5,534			19,582			10,601
Less reclassification adjustments for securities gains included in net income:
Gain on sales of securities, net	634			—			2,987			—
Income tax expense	(140		)	—			(660		)	—
Net reclassification adjustments for securities gains included in net income	494			—			2,327			—
Net unrealized securities holding gains (losses)	2,591			5,534			17,255			10,601

Comprehensive (loss) income	22,162			26,005			19,550			53,582
Less: Net income attributable to noncontrolling interest in subsidiary	—			—			—			43
Comprehensive (loss) income attributable to Brookline Bancorp, Inc.	$	22,162		$	26,005		$	19,550		$	53,539

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Changes in Stockholders' Equity

Six Months Ended June 30, 2020 and 2019



	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income		Treasury Stock			Unallocated Common Stock Held by ESOP			Total Brookline Bancorp, Inc. Stockholders' Equity			Noncontrolling Interest in Subsidiary		Total Stockholders' Equity
	(In Thousands)
Balance at December 31, 2019	$	852	$	736,601	$	265,376		$	2,283	$	(59,073	)	$	(433	)	$	945,606		$	—	$	945,606
Net income attributable to Brookline Bancorp, Inc.	—		—		2,295			—		—			—			2,295			—		2,295
Other comprehensive income	—		—		—			17,255		—			—			17,255			—		17,255
Common stock dividends of $0.230 per share	—		—		(18,249		)	—		—			—			(18,249		)	—		(18,249		)
Compensation under recognition and retention plans	—		1,459		(91		)	—		(90		)	—			1,278			—		1,278
Treasury stock, repurchase shares	—		—		—			—		(10,409		)	—			(10,409		)	—		(10,409		)
Common stock held by ESOP committed to be released (14,214 shares)	—		95		—			—		—			65			160			—		160
Adoption of ASU 2016-13 (CECL)	—		—		(11,523		)	—		—			—			(11,523		)	—		(11,523		)
Balance at June 30, 2020	$	852	$	738,155	$	237,808		$	19,538	$	(69,572	)	$	(368	)	$	926,413		$	—	$	926,413



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

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Changes in Stockholders' Equity

Three Months Ended June 30, 2020 and 2019



	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income		Treasury Stock			Unallocated Common Stock Held by ESOP			Total Brookline Bancorp, Inc. Stockholders' Equity			Noncontrolling Interest in Subsidiary		Total Stockholders' Equity
	(In Thousands)
Balance at March 31, 2020	$	852	$	737,422	$	227,359		$	16,947	$	(69,617	)	$	(395	)	$	912,568		$	—	$	912,568
Net income attributable to Brookline Bancorp, Inc.	—		—		19,571			—		—			—			19,571			—		19,571
Other comprehensive income	—		—		—			2,591		—			—			2,591			—		2,591
Common stock dividends of $0.115 per share	—		—		(9,076		)	—		—			—			(9,076		)	—		(9,076		)
Compensation Under recognition and retention plans	—		701		(46		)			45			—			700			—		700
Common stock held by ESOP committed to be released (7,107 shares)	—		32		—			—		—			27			59			—		59
Balance at June 30, 2020	$	852	$	738,155	$	237,808		$	19,538	$	(69,572	)	$	(368	)	$	926,413		$	—	$	926,413



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

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows

	Six Months Ended June 30,
	2020			2019
	(In Thousands)
Cash flows from operating activities:
Net income attributable to Brookline Bancorp, Inc.	$	2,295		$	42,938
Adjustments to reconcile net income to net cash provided from operating activities:
Net income attributable to noncontrolling interest in subsidiary	—			43
Provision for credit losses	59,461			5,110
Origination of loans and leases held-for-sale	—			(14,104		)
Proceeds from sales of loans and leases held-for-sale, net	—			16,364
Deferred income tax benefit	(22,539		)	(499		)
Depreciation of premises and equipment	3,025			3,514
Amortization of investment securities premiums and discounts, net	1,048			916
Amortization of deferred loan and lease origination costs, net	3,913			3,521
Amortization of identified intangible assets	647			822
Amortization of debt issuance costs	51			50
Accretion of acquisition fair value adjustments, net	(389		)	(693		)
Gain on investment securities, net	(1,916		)	(491		)
Gain on sales of loans and leases held-for-sale	(419		)	(850		)
Loss on sales of OREO and other repossessed assets, net	—			130
Write-down of OREO and other repossessed assets	830			219
Compensation under recognition and retention plans	1,370			1,520
ESOP shares committed to be released	160			176
Net change in:
Cash surrender value of bank-owned life insurance	(509		)	(512		)
Equity securities held-for-trading	518			—
Other assets	(120,680		)	(51,562		)
Accrued expenses and other liabilities	106,198			32,266
Net cash provided from operating activities	33,064			38,878

Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale	131,499			—
Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale	56,194			33,229
Purchases of investment securities available-for-sale	(438,658		)	—
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity	6,302			11,453
Purchases of investment securities held-to-maturity	—			(500		)
Proceeds from redemption/sales of restricted equity securities	3,662			12,759
Purchase of restricted equity securities	(21,482		)	(6,278		)
Proceeds from sales of loans and leases held-for-investment, net	5,901			7,682
Net increase in loans and leases	(685,516		)	(219,921		)
Purchase of premises and equipment, net	(1,906		)	(2,590		)
Proceeds from sales of OREO and other repossessed assets	3,148			3,926
Net cash used for investing activities	(940,856		)	(160,240		)
				(Continued)

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows (Continued)

	Six Months Ended June 30,
	2020			2019
	(In Thousands)

Cash flows from financing activities:
Increase (decrease) in demand checking, NOW, savings and money market accounts	679,855			(26,839		)
(Decrease) increase in certificates of deposit	(69,356		)	195,854
Proceeds from FHLBB advances	2,225,600			2,752,800
Repayment of FHLBB advances	(1,716,499		)	(2,745,616		)
(Decrease) increase in other borrowed funds, net	(5,258		)	2,959
(Decrease) in mortgagors' escrow accounts, net	(765		)	(603		)
Repurchases of common stock	(10,410		)	—
Payment of dividends on common stock	(18,249		)	(17,151		)
Payment of income taxes for shares withheld in share based activity	—			(49		)
Redemption of noncontrolling interest in subsidiary	—			(35,851		)
Payment of dividends to owners of noncontrolling interest in subsidiary	—			(930		)
Net cash provided from financing activities	1,084,918			124,574
Net increase in cash and cash equivalents	177,126			3,212
Cash and cash equivalents at beginning of period	77,790			89,584
Cash and cash equivalents at end of period	$	254,916		$	92,796

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits, borrowed funds and subordinated debt	$	40,577		$	46,125
Income taxes	13,160			15,386
Non-cash investing activities:
Transfer from loans to other real estate owned	$	2,801		$	2,222

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(1) Basis of Presentation

Overview

Brookline Bancorp, Inc. (the "Company") is a bank holding company (within the meaning of the Bank Holding Company Act of 1956, as amended) and the parent of Brookline Bank, a Massachusetts-chartered trust company and Bank Rhode Island ("BankRI"), a Rhode Island-chartered financial institution (collectively referred to as the "Banks"). The Banks are both members of the Federal Reserve System. The Company is also the parent of Brookline Securities Corp. ("BSC"). The Company's primary business is to provide commercial, business and retail banking services to its corporate, municipal and retail customers through the Banks and its non-bank subsidiaries. Until February 15, 2020 (the "Merger Closing Date"), the Company was also the parent of First Ipswich Bank ("First Ipswich"), a Massachusetts-chartered trust company. Effective upon the Merger Closing Date, First Ipswich was merged with and into Brookline Bank, with Brookline as the surviving institution.

Brookline Bank, which includes its wholly-owned subsidiaries BBS Investment Corp., Longwood Securities Corp. ("LSC"), Eastern Funding LLC ("Eastern Funding"), First Ipswich Insurance Agency and First Ipswich Securities II Corp., operates 30 full-service banking offices in the greater Boston metropolitan area with 2 additional lending offices. BankRI, which includes its wholly-owned subsidiaries, Acorn Insurance Agency, BRI Realty Corp., Macrolease Corporation ("Macrolease"), BRI Investment Corp. and its wholly-owned subsidiary, BRI MSC Corp., operates 20 full-service banking offices in the greater Providence, Rhode Island area.

The Banks' activities include acceptance of commercial, municipal and retail deposits, origination of mortgage loans on commercial and residential real estate located principally in New England, origination of commercial loans and leases to small- and mid-sized businesses, investment in debt and equity securities, and the offering of cash management and investment advisory services. Brookline Bank also provides specialty equipment financing through its subsidiaries Eastern Funding, which is based in New York City, New York, and Macrolease, which is based in Plainview, New York.

The Company and the Banks are supervised, examined and regulated by the Board of Governors of the Federal Reserve System ("the FRB"). As a Massachusetts-chartered trust company, Brookline Bank is also subject to regulation under the laws of the Commonwealth of Massachusetts and the jurisdiction of the Massachusetts Division of Banks (the "DOB"). As a Rhode Island-chartered financial institution, BankRI is subject to regulation under the laws of the State of Rhode Island and the jurisdiction of the Banking Division of the Rhode Island Department of Business Regulation.

The Federal Deposit Insurance Corporation ("FDIC") offers insurance coverage on all deposits up to $250,000 per depositor at each of the Banks. As FDIC-insured depository institutions, the Banks are also subject to supervision, examination and regulation by the FDIC. As previously disclosed on a Form 8-K filed with the SEC, on July 31, 2019, Brookline Bank ended its membership in the Depositors Insurance Fund (“DIF”), a private industry-sponsored fund which insures Massachusetts-chartered savings bank deposit balances in excess of federal deposit insurance coverage. Brookline Bank’s growth in deposit size necessitated its withdrawal from the DIF and the concurrent charter conversion of Brookline Bank from a Massachusetts-chartered savings bank to a Massachusetts-chartered trust company.

Basis of Financial Statement Presentation

The unaudited consolidated financial statements of the Company presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“GAAP”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying consolidated financial statements have been included. Interim results are not necessarily reflective of the results of the entire year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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

In preparing these consolidated financial statements, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates based upon changing conditions, including economic conditions and future events. Material estimates that are particularly susceptible to significant changes in the near-term include the

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

determination of the allowance for loan and lease losses, the determination of fair market values of assets and liabilities, the review of goodwill and intangible assets for impairment and the review of deferred tax assets for valuation allowances.

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

Reclassification

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

Recent Accounting Pronouncements

Accounting Standards Adopted in 2020

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaced the previous GAAP method of calculating credit losses. Previously, GAAP required the use of the incurred loss methodology, which used a higher threshold at which probable losses were calculated and recorded. ASU 2016-13 requires the use of an expected loss methodology, referred to as the current expected credit loss (“CECL”) methodology, which requires institutions to account for probable losses that previously would not have been part of the calculation. The CECL methodology incorporates future forecasting in addition to historical and current measures. The Company adopted all of the above mentioned ASU as of January 1, 2020. The standard had an impact on our consolidated balance sheet. On adoption, the Company recognized an increase in the allowance for loan and lease losses of $6.6 million, and an increase in the reserve for unfunded commitments of $8.9 million. The net, after-tax impact of the increase in the allowance for loan and lease losses and reserve for unfunded commitments was a decrease to retained earnings of $11.5 million shown in the Consolidated Statements of Changes in Stockholders’ Equity. Additional details can be found in Note 3, 4 and 5.

In August 2018, FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)" ("ASU 2018-13"), to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts set forth in the Concepts Statement, including the consideration of costs and benefits. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Certain provisions under ASU 2018-13 required prospective application, while other provisions required retrospective application to all periods presented in the consolidated financial statements upon adoption. The Company adopted the provisions of ASU 2018-13 effective January 1, 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements.

(2) Acquisitions and Mergers

First Ipswich Bank

On February 15, 2020, the merger of First Ipswich Bank with and into Brookline Bank was completed. First Ipswich was already a wholly-owned subsidiary of the Company, therefore the merger qualified as a tax-free reorganization for federal income tax purposes and there was minimal impact to customers. All of First Ipswich Bank's 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 June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
Investment securities available-for-sale:
GSE debentures	$	314,497	$	7,005	$	19	$	321,483
GSE CMOs	57,275		1,308		19		58,564
GSE MBSs	376,180		11,484		7		387,657
SBA commercial loan asset-backed securities	1		—		—		1
Corporate debt obligations	25,359		1,212		—		26,571
U.S. Treasury bonds	55,734		4,008		—		59,742
Foreign government obligations	500		—		13		487
Total investment securities available-for-sale	$	829,546	$	25,017	$	58	$	854,505
Equity securities held-for-trading							$	1,992



	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
Investment securities available-for-sale:
GSE debentures	$	182,922	$	2,939	$	58	$	185,803
GSE CMOs	87,001		22		1,091		85,932
GSE MBSs	153,049		797		503		153,343
SBA commercial loan asset-backed securities	34		—		—		34
Corporate debt obligations	28,484		502		—		28,986
U.S. Treasury bonds	44,675		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 MBSs	9,360		—		81		9,279
Municipal obligations	45,692		822		—		46,514
Foreign government obligations	500		—		22		478
Total investment securities held-to-maturity	$	86,780	$	935	$	154	$	87,561
Equity securities held-for-trading							$	3,581

As of June 30, 2020, the fair value of all investment securities available-for-sale was $854.5 million, with net unrealized gains of $25.0 million, compared to a fair value of $499.0 million and net unrealized gains of $2.8 million as of December 31, 2019. As of June 30, 2020, $14.7 million, or 1.7% of the portfolio, had gross unrealized losses of $0.1 million, compared to $205.6 million, or 41.2% of the portfolio, with gross unrealized losses of $1.8 million as of December 31, 2019.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Effective March 31, 2020, all investment securities classified as held-to-maturity were reclassified as available for sale to prudently reflect the ability and intent to not hold these assets to maturity due to the economic uncertainty created by the COVID-19 pandemic. As of December 31, 2019, the fair value of investment securities held-to-maturity had a fair value of $87.6 million with net unrealized gains of $0.8 million. As of December 31, 2019, $22.3 million, or 25.5% of the portfolio had gross unrealized losses of $0.2 million.

As of June 30, 2020, the Company recorded a fair value of $2.0 million of equity securities held-for-trading. As of December 31, 2019, the Company recorded a fair value of $3.6 million of equity securities held-for-trading.

Investment Securities as Collateral

As of June 30, 2020 and December 31, 2019, respectively, $624.5 million and $433.6 million of investment securities were pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and Federal Home Loan Bank of Boston ("FHLBB") borrowings. The Banks had no outstanding FRB borrowings as of June 30, 2020 and December 31, 2019.

Allowance for Credit Losses-Available-for-Sale Securities

For available-for-sale securities in an unrealized loss position, management first assesses whether (i) the Company intends to sell the security, or (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either criterion is met, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither criterion is met, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for credit loss is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income. Adjustments to the allowance are reported as a component of credit loss expense. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible or when either of the aforementioned criteria regarding intent or requirement to sell is met. The Company has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Accrued interest receivables associated with debt securities available-for-sale totaled $2.8 million and $2.0 million, respectively, as of June 30, 2020 and December 31, 2019.

A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a debt security placed on nonaccrual is reversed against interest income. There were no debt securities on nonaccrual status and therefore there was no accrued interest related to debt securities reversed against interest income for the three months ended June 30, 2020 and 2019.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Assessment for Available for Sale Securities for Impairment

Investment securities as of June 30, 2020 and December 31, 2019 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:



	At June 30, 2020
	Less than Twelve Months				Twelve Months or Longer				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(In Thousands)
Investment securities available-for-sale:
GSE debentures	$	8,045	$	19	$	—	$	—	$	8,045	$	19
GSE CMOs	1,609		11		1,298		8		2,907		19
GSE MBSs	3,130		7		101		—		3,231		7
SBA commercial loan asset-backed securities	1		—		—		—		1		—
Foreign government obligations	487		13		—		—		487		13
Temporarily impaired investment securities available-for-sale	13,272		50		1,399		8		14,671		58
Total temporarily impaired investment securities	$	13,272	$	50	$	1,399	$	8	$	14,671	$	58



	At December 31, 2019
	Less than Twelve Months				Twelve Months or Longer				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	(In Thousands)
Investment securities available-for-sale:
GSE debentures	$	10,965	$	58	$	—	$	—	$	10,965	$	58
GSE CMOs	28,659		217		55,885		874		84,544		1,091
GSE MBSs	42,046		115		42,257		388		84,303		503
SBA commercial loan asset-backed securities	—		—		33		—		33		—
U.S. Treasury bonds	25,754		116		—		—		25,754		116
Temporarily impaired investment securities available-for-sale	107,424		506		98,175		1,262		205,599		1,768
Investment securities held-to-maturity:
GSE debentures	8,714		30		2,977		21		11,691		51
GSEs MBSs	—		—		9,257		81		9,257		81
Municipal obligations	710		—		205		—		915		—
Foreign government obligations	478		22		—		—		478		22
Temporarily impaired investment securities held-to-maturity	9,902		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

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

considers, among other factors, projected future cash flows; credit subordination and the creditworthiness; capital adequacy and near-term prospects of the issuers.

Management also considers the Company's capital adequacy, interest-rate risk, liquidity and business plans in assessing whether it is more likely than not that the Company will sell or be required to sell the investment securities before recovery. If the Company determines that a decline in fair value is impairment and that it is more likely than not that the Company will not sell or be required to sell the investment security before recovery of its amortized cost, the credit portion of the impairment loss is recognized in the Company's unaudited consolidated statement of income and the noncredit portion is recognized in accumulated other comprehensive income. The credit portion of the impairment represents the difference between the amortized cost and the present value of the expected future cash flows of the investment security. If the Company determines that a decline in fair value is impairment and it is more likely than not that it will sell or be required to sell the investment security before recovery of its amortized cost, the entire difference between the amortized cost and the fair value of the security will be recognized in the Company's unaudited consolidated statement of income.

Investment Securities Available-For-Sale Impairment Analysis

The following discussion summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s available-for-sale portfolio were impaired as of June 30, 2020. Based on the analysis below, it was determined that is it more likely than not that the Company will not sell or be required to sell the investment securities before recovery of its amortized cost. The Company's ability and intent to hold these investment securities until recovery is supported by the Company's strong capital and liquidity positions as well as its historically low portfolio turnover. As such, management has determined that the investment securities are not impaired as of June 30, 2020. If market conditions for investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional impairment in future periods.

U.S. Government-Sponsored Enterprises

The Company invests in securities issued by U.S. Government-sponsored enterprises ("GSEs"), including GSE debentures, mortgage-backed securities ("MBSs"), and collateralized mortgage obligations ("CMOs"). GSE securities include obligations issued by the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA"), the FHLBB and the Federal Farm Credit Bank. As of June 30, 2020, GNMA MBSs and CMOs, and Small Business Administration ("SBA") commercial loan asset-backed securities in our available-for-sale portfolio with an estimated fair value of $12.2 million were backed explicitly by the full faith and credit of the U.S. Government, compared to $17.4 million as of December 31, 2019.

As of June 30, 2020, the Company owned 63 GSE debentures with a total fair value of $321.5 million, and a net unrealized gain of $7.0 million. As of December 31, 2019, the Company held 60 GSE debentures with a total fair value of $185.8 million, with a net unrealized gain of $2.9 million. As of June 30, 2020, 1 of the 63 securities in this portfolio was in an unrealized loss position. As of December 31, 2019, 5 of the 60 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA/SBA) guarantee of the U.S Government. During the six months ended June 30, 2020, the Company purchased $169.0 million GSE debentures. This compares to the same period in 2019 when the Company did not purchase any GSE debentures. During the six months ended June 30, 2020, the Company transferred 9 held-to-maturity GSE debentures with a total fair value of $25.5 million to the available-for-sale portfolio.

As of June 30, 2020, the Company owned 33 GSE CMOs with a total fair value of $58.6 million and a net unrealized gain of $1.3 million. As of December 31, 2019, the Company held 61 GSE CMOs with a total fair value of $85.9 million with a net unrealized loss of $1.1 million. As of June 30, 2020, 2 of the 33 securities in this portfolio were in an unrealized loss position. As of December 31, 2019, 45 of the 61 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the six months ended June 30, 2020 and 2019, the Company did not purchase any GSE CMOs.

As of June 30, 2020, the Company owned 138 GSE MBSs with a total fair value of $387.7 million and a net unrealized gain of $11.5 million. As of December 31, 2019, the Company held 150 GSE MBSs with a total fair value of $153.3 million with a net unrealized gain of $0.3 million. As of June 30, 2020, 15 of the 138 securities in this portfolio were in an unrealized loss position. As of December 31, 2019, 48 of the 150 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the six months ended June 30, 2020, the Company purchased $248.4 million GSE MBSs. This compares

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

to the same period in 2019 when the Company did not purchase any GSE MBSs. During the six months ended June 30, 2020, the Company transferred 8 held-to-maturity GSE MBSs with a total fair value of $9.0 million to the available-for-sale portfolio.

SBA Commercial Loan Asset-Backed

As of June 30, 2020, the Company owned 1 SBA security with a nominal fair value which approximated amortized cost. As of December 31, 2019, the Company owned 4 SBA securities with a total fair value of $34.0 thousand, which approximated amortized cost. As of June 30, 2020, none of the securities in this portfolio were in an unrealized loss position. As of December 31, 2019, 3 of the 4 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the explicit guarantee of the U.S Government. During the six months ended June 30, 2020 and 2019, the Company did not purchase any SBA securities.

Corporate Obligations

The Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. As of June 30, 2020, the Company held 7 corporate obligation securities with a total fair value of $26.6 million and a net unrealized gain of $1.2 million. As of December 31, 2019, the Company held 8 corporate obligation securities with a total fair value of $29.0 million and a net unrealized gain of $0.5 million. As of June 30, 2020 and December 31, 2019, 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 six months ended June 30, 2020 and 2019, the Company did not purchase any corporate obligations. During the six months ended June 30, 2020, the Company transferred 1 held-to-maturity corporate obligation security with a total fair value of $0.5 million to the available-for-sale portfolio.

U.S. Treasury Bonds

The Company invests in securities issued by the U.S. government. As of June 30, 2020, the Company owned 10 U.S. Treasury bonds with a total fair value of $59.7 million and an unrealized gain of $4.0 million. This compares to 9 U.S. Treasury bonds with a total fair value of $44.9 million and an unrealized gain of $0.2 million as of December 31, 2019. As of June 30, 2020, none of the securities in this portfolio were in an unrealized loss position. As of December 31, 2019, 5 of the 9 securities in this portfolio were in unrealized loss positions. During the six months ended June 30, 2020 the Company purchased $21.2 million U.S. Treasury bonds, compared to the same period in 2019 when the Company did not purchase any U.S. Treasury bonds.

Municipal Obligations

As of June 30, 2020, the Company held no municipal obligation securities. As of December 31, 2019, the Company owned 93 municipal obligation securities classified as held-to-maturity with a total fair value and total amortized cost of $46.5 million and $45.7 million, respectively. As of December 31, 2019, 6 of the 93 securities in this portfolio were in an unrealized loss position. During the six months ended June 30, 2019, the Company did not purchase any municipal obligations.

Foreign Government Obligations

As of June 30, 2020 and December 31, 2019, the Company owned 1 foreign government obligation security with a fair value of $0.5 million, which approximated cost. As of June 30, 2020 and December 31, 2019 respectively, the security was in an unrealized loss position. During the six months ended June 30, 2020, the Company did 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 June 30, 2020 and December 31, 2019, the Company owned equity securities held-for-trading with a fair value of $2.0 million and $3.6 million, respectively.

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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 June 30, 2020						At December 31, 2019
	Amortized Cost		Estimated Fair Value		Weighted Average Rate		Amortized Cost		Estimated Fair Value		Weighted Average Rate
	(Dollars in Thousands)
Investment securities available-for-sale:
Within 1 year	$	14,456	$	14,578	2.06	%	$	12,797	$	12,804	1.76	%
After 1 year through 5 years	180,991		189,423		2.17	%	217,569		220,757		2.19	%
After 5 years through 10 years	233,204		238,271		1.57	%	93,805		94,212		2.04	%
Over 10 years	400,895		412,233		1.95	%	171,994		171,222		2.12	%
	$	829,546	$	854,505	1.89	%	$	496,165	$	498,995	2.13	%
Investment securities held-to-maturity:
Within 1 year	$	—	$	—	—	%	$	6,366	$	6,381	1.33	%
After 1 year through 5 years	—		—		—	%	63,898		64,559		1.81	%
After 5 years through 10 years	—		—		—	%	7,177		7,364		1.79	%
Over 10 years	—		—		—	%	9,339		9,257		1.90	%
	$	—	$	—	—	%	$	86,780	$	87,561	1.82	%

Actual maturities of debt securities will differ from those presented above since certain obligations amortize and may also provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. MBSs and CMOs are included above based on their final stated maturities; the actual maturities, however, may occur earlier due to anticipated prepayments and stated amortization of cash flows.

As of June 30, 2020, issuers of debt securities with an estimated fair value of $130.2 million had the right to call or prepay the obligations. Of the $130.2 million, approximately $3.0 million matures within 1 year, $13.5 million matures in 1 - 5 years, $93.5 million matures in 6 - 10 years, and $20.1 million matures after ten years. As of December 31, 2019, issuers of debt securities with an estimated fair value of approximately $37.6 million had the right to call or prepay the obligations. Of the $37.6 million, approximately $3.0 million matures within 1 year, $34.6 million matures in 1-5 years, and none mature after 5 years.

Security Sales

There were $131.5 million securities sold during the six months ended June 30, 2020. There were no securities sold during the six months ended June 30, 2019.

Sales of investment and restricted equity securities are summarized as follows:



	Six Months Ended June 30, 2020			Six Months Ended June 30, 2019
	(In Thousands)
Proceeds from sale of trust preferred, marketable and restricted equity securities	$	518		$	—
Sales of trading securities	$	131,497		$	—

Gross gains from securities sales	3,153			—
Gross losses from securities sales	(166		)	—
Gain on sales of securities, net	$	2,987		$	—

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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 June 30, 2020				At December 31, 2019
	Balance		Weighted Average Coupon		Balance		Weighted Average Coupon
	(Dollars In Thousands)
Commercial real estate loans:
Commercial real estate	$	2,609,762	3.65	%	$	2,491,011	4.33	%
Multi-family mortgage	968,761		3.52	%	932,163		4.20	%
Construction	259,180		3.80	%	246,048		5.09	%
Total commercial real estate loans	3,837,703		3.63	%	3,669,222		4.34	%
Commercial loans and leases:
Commercial (1)	1,222,986		2.54	%	729,502		4.66	%
Equipment financing	1,085,869		7.53	%	1,052,408		7.71	%
Condominium association	52,608		4.69	%	56,838		4.84	%
Total commercial loans and leases	2,361,463		4.88	%	1,838,748		6.41	%
Consumer loans:
Residential mortgage	804,282		3.95	%	814,245		4.10	%
Home equity	370,322		3.27	%	376,819		4.46	%
Other consumer	33,927		3.05	%	38,782		4.48	%
Total consumer loans	1,208,531		3.72	%	1,229,846		4.22	%
Total loans and leases	$	7,407,697	4.04	%	$	6,737,816	4.88	%

______________________________________________________________________

(1) Including $565,769 of PPP loans as of June 30, 2020. These loans are fully guaranteed by the SBA and therefore, have not been reserved for in the allowance for credit losses as of June 30, 2020.

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

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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
	Originated				Acquired				Total
	Balance		Weighted Average Coupon		Balance		Weighted Average Coupon		Balance		Weighted Average Coupon
	(Dollars In Thousands)
Commercial real estate loans:
Commercial real estate	$	2,400,037	4.32	%	$	90,974	4.63	%	$	2,491,011	4.33	%
Multi-family mortgage	896,482		4.18	%	35,681		4.59	%	932,163		4.20	%
Construction	239,015		5.04	%	7,033		6.73	%	246,048		5.09	%
Total commercial real estate loans	3,535,534		4.33	%	133,688		4.73	%	3,669,222		4.34	%
Commercial loans and leases:
Commercial	713,875		4.65	%	15,627		5.14	%	729,502		4.66	%
Equipment financing	1,049,997		7.71	%	2,411		5.98	%	1,052,408		7.71	%
Condominium association	56,838		4.84	%	—		—	%	56,838		4.84	%
Total commercial loans and leases	1,820,710		6.42	%	18,038		5.25	%	1,838,748		6.41	%
Consumer loans:
Residential mortgage	711,522		4.06	%	102,723		4.40	%	814,245		4.10	%
Home equity	343,247		4.41	%	33,572		4.93	%	376,819		4.46	%
Other consumer	38,674		4.44	%	108		17.91	%	38,782		4.48	%
Total consumer loans	1,093,443		4.18	%	136,403		4.54	%	1,229,846		4.22	%
Total loans and leases	$	6,449,687	4.89	%	$	288,129	4.67	%	$	6,737,816	4.88	%

The net unamortized deferred loan origination (fees) costs included in total loans and leases were $(1.1) million and $15.7 million as of June 30, 2020 and December 31, 2019, respectively. The decrease in net unamortized deferred loan origination fees and costs was primarily due to the net deferred origination fees of $15.5 million for the SBA's Payment Protection Program ("PPP") loans which were originated during the quarter.

The Banks and their subsidiaries lend primarily in all New England states, with the exception of equipment financing, 27.5% of which is in the greater New York and New Jersey metropolitan area and 72.5% of which is in other areas in the United States of America as of June 30, 2020.

Accretable Yield for the Acquired Loan Portfolio

On a quarterly basis prior to the adoption of ASU 2016-13, management reforecasted the expected cash flows for acquired ASC 310-30 loans, and took into account prepayment speeds, probability of default and loss given defaults. Management compared cash flow projections per the reforecast to the original cash flow projections and determined whether any reduction in cash flow expectations were due to deterioration, or if the change in cash flow expectation was related to noncredit events. This cash flow analysis was used to evaluate the need for a provision for loan and lease losses and/or prospective yield adjustments for the acquired portfolio. Upon adoption of ASU 2016-13, the Company did not reassess whether previously recognized purchased credit impaired loans accounted for under prior accounting guidance met the criteria of a purchased credit deteriorated (PCD) loan as of the date of adoption. PCD loans are initially recorded at fair value along with an ACL determined using the same methodology as originated loans. The sum of the loan's purchase price and ACL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the ACL are recorded through provision for credit losses. As of June 30, 2020, there were no PCD loans in the Company's portfolios.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

The following table summarizes activity in the accretable yield for the acquired loan portfolio for the periods indicated:



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

During the three months ended June 30, 2019, accretable yield adjustments totaling $0.7 million was made for certain loan pools. During the six months ended June 30, 2019, accretable yield adjustments totaling $0.8 million were made for certain loan pools. These accretable yield adjustments, which were subject to continued re-assessment, will be recognized over the remaining lives of those pools. As of June 30, 2019, the accretable yield was fully accreted.

Loans and Leases Pledged as Collateral

As of June 30, 2020 and 2019, there were $3.5 billion and $2.9 billion respectively of loans and leases pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLBB borrowings. The Banks did not have any outstanding FRB borrowings as of June 30, 2020 and December 31, 2019.

(5) Allowance for Loan and Lease Losses

The following tables present the changes in the allowance for loan and lease losses in loans and leases by portfolio segment for the periods indicated:



	Three Months Ended June 30, 2020
	Commercial Real Estate		Commercial			Consumer			Total
	(In Thousands)
Balance at March 31, 2020	$	82,179	$	26,774		$	4,228		$	113,181
Charge-offs	—		(1,794		)	(9		)	(1,803		)
Recoveries	94		296			30			420
Provision (credit) for loan and lease losses excluding unfunded commitments	7,738		(338		)	355			7,755
Balance at June 30, 2020	$	90,011	$	24,938		$	4,604		$	119,553



	Three Months Ended June 30, 2019
	Commercial Real Estate		Commercial			Consumer			Total
	(In Thousands)
Balance at March 31, 2019	$	28,349	$	24,240		$	5,452		$	58,041
Charge-offs	—		(3,401		)	(11		)	(3,412		)
Recoveries	—		294			36			330
Provision for loan and lease losses	319		3,200			157			3,676
Balance at June 30, 2019	$	28,668	$	24,333		$	5,634		$	58,635

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	Six Months Ended June 30, 2020
	Commercial Real Estate		Commercial			Consumer			Total
	(In Thousands)
Balance at December 31, 2019	$	30,285	$	24,826		$	5,971		$	61,082
Adoption of ASU 2016-13 (CECL)	11,694		(2,672		)	(2,390		)	6,632
Charge-offs	—		(4,321		)	(21		)	(4,342		)
Recoveries	94		543			88			725
Provision for loan and lease losses excluding unfunded commitments	47,938		6,562			956			55,456
Balance at June 30, 2020	$	90,011	$	24,938		$	4,604		$	119,553



	Six Months Ended June 30, 2019
	Commercial Real Estate		Commercial			Consumer			Total
	(In Thousands)
Balance at December 31, 2018	$	28,187	$	25,283		$	5,222		$	58,692
Charge-offs	—		(5,913		)	(41		)	(5,954		)
Recoveries	—		682			89			771
Provision for loan and lease losses	481		4,281			364			5,126
Balance at June 30, 2019	$	28,668	$	24,333		$	5,634		$	58,635

The allowance for credit losses for unfunded credit commitments, which is included in other liabilities, was $14.8 million and $1.9 million at June 30, 2020 and December 31, 2019, respectively. The increase in allowance for unfunded commitments was primarily driven by the adoption of CECL and the effect of the latest available economic forecast which incorporates the impact of the COVID-19 pandemic. No credit commitments were charged off against the liability account in the six month periods ended June 30, 2020 and 2019.

Provision for Credit Losses

The provisions for credit losses are set forth below for the periods indicated:



	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020		2019
	(In Thousands)
Provision for loan and lease losses:
Commercial real estate	$	7,738		$	319	$	47,938	$	481
Commercial	(338		)	3,200		6,562		4,281
Consumer	355			157		956		364
Total provision for loan and lease losses	7,755			3,676		55,456		5,126
Unfunded credit commitments	(2,408		)	81		4,005		(16		)
Total provision for credit losses	$	5,347		$	3,757	$	59,461	$	5,110

Allowance for Loan and Lease Losses Methodology

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

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

To calculate the allowance, management uses models developed by a third party. The models include: Commercial real estate (CRE) lifetime, Commercial and industrial (C&I) lifetime, Retail lifetime, C&I historical, and Retail historical. Lifetime loss rate models calculate the expected losses over the life of the loan based on loan attributes and reasonable, supportable economic forecasts. Historical loss rate models apply a loss rate to the outstanding balance of the loan. Management uses historical loss rates for condominium association, auto, and government lease portfolio segments because these loans have distinct, historical, or expected loss patterns and a de minimus effect on the overall allowance and provision.

Management elected to use multiple economic forecasts in determining the reserve to account for economic uncertainty. The forecasts include various projections of Gross Domestic Product ("GDP"), interest rates, property price indices, and employment measures. The forecasts are probability-weighted in accordance with best practices and available information at the time of the calculation execution. Scenario weighting and model parameters are reviewed for each calculation and are subject to change. The models recognize that the life of a loan may exceed the economic forecast therefore the models employ mean reversion techniques to predict credit losses for loans that are expected to mature beyond the forecast period. The June 30, 2020 forecasts reflect the immediate and longer-term effects of the COVID-19 pandemic as well as the associated policies and provision provided by local and national authorities.

The CRE lifetime loss rate, C&I lifetime loss rate, and Retail lifetime loss rate models were developed using the historical loss experience of all banks in the model’s developmental dataset. Banks in the model’s developmental dataset may have different loss experiences as well as variances in operational and underwriting procedures from the Company, and therefore, the Company calibrates expected losses for each model using a scalar. Each scalar was calculated by examining the loss rates of peer banks that have similar operations and asset bases. Peer group loss rates were used in the scalar calculation because management believes the peer group’s historical losses provide a better reflection of the Company’s current portfolio and operating procedures than the Company’s historical losses. Qualitative adjustments are also applied to select segments of the loan portfolio where applicable.

For June 30, 2020, management applied qualitative adjustments to the CRE lifetime loss rate and C&I lifetime loss rate. These adjustments were made based on historical loss patterns, current loan and portfolio metrics, and expert judgment based on professional experience. The qualitative adjustments resulted in reductions in reserves for the CRE portfolio and additions to reserves for the C&I portfolio, as compared to the model output.

Specific reserves are established for loans individually evaluated for impairment when amortized cost basis is greater than the discounted present value of expected future cash flows or, in the case of collateral-dependent loans, when there is an excess of a loan's amortized cost basis over the fair value of its underlying collateral. When loans and leases do not share risk characteristics with other financial assets they are evaluated individually. Individually evaluated loans are reviewed quarterly with adjustments made to the calculated reserve as necessary.

Beginning January 1, 2020, the Company implemented the CECL methodology to calculate the allowance for credit losses. As of January 1, 2020, the allowance for loan and lease losses increased by $6.6 million as a result of the adoption of CECL. Prior to January 1, 2020, the Company calculated the allowance for loan and lease losses using the incurred losses methodology.

The allowance for loan and lease losses was $112.5 million as of June 30, 2020, compared to $59.3 million as of December 31, 2019. The increase in general allowance for loan and lease losses was driven by the effect of the latest available economic forecast, inclusive of the COVID-19 pandemic and legislative initiatives, on the Company's loan and lease portfolios. The specific allowance for loan and lease losses was $7.1 million as of June 30, 2020, compared to $1.8 million as of December 31, 2019. The specific allowance increased by $5.3 million during the six months ended June 30, 2020 primarily due to the specific reserves of $3.1 million for an individually evaluated commercial relationship and $2.3 million for an individually evaluated commercial real estate relationship during the six months ended June 30, 2020.

As of June 30, 2020, management believes that the methodology for calculating the allowance is sound and that the allowance provides a reasonable basis for determining and reporting on probable losses over the lifetime of the Company’s loan portfolios.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Credit Quality Assessment

At the time of loan origination, a rating is assigned based on the capacity to pay and general financial strength of the borrower, the value of assets pledged as collateral, and the evaluation of third party support such as a guarantor. The Company continually monitors the credit quality of the loan portfolio using all available information. The officer responsible for handling each loan is required to initiate changes to risk ratings when changes in facts and circumstances occur that warrant an upgrade or downgrade in a loan rating. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, adversely risk-rated, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower's ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR") loan.

The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For all loans, the Company utilizes an eight-grade loan rating system, which assigns a risk rating to each borrower based on a number of quantitative and qualitative factors associated with a loan transaction. Factors considered include industry and market conditions; position within the industry; earnings trends; operating cash flow; asset/liability values; debt capacity; guarantor strength; management and controls; financial reporting; collateral; and other considerations. In addition, the Company's independent loan review group evaluates the credit quality and related risk ratings in all loan portfolios. The results of these reviews are reported to the Risk Committee of the Board of Directors on a periodic basis and annually to the Board of Directors. For the consumer loans, the Company heavily relies on payment status for calibrating credit risk.

The ratings categories used for assessing credit risk in the commercial real estate, multi-family mortgage, construction, commercial, equipment financing, condominium association and other consumer loan and lease classes are defined as follows:

1 -4 Rating—Pass

Loan rating grades "1" through "4" are classified as "Pass," which indicates borrowers are performing in accordance with the terms of the loan and are less likely to result in loss due to the capacity of the borrower to pay and the adequacy of the value of assets pledged as collateral.

5 Rating—Other Assets Especially Mentioned ("OAEM")

Borrowers exhibit potential credit weaknesses or downward trends deserving management's attention. If not checked or corrected, these trends will weaken the Company's asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.

6 Rating—Substandard

Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligors or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy. Although no loss of principal is envisioned, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.

7 Rating—Doubtful

Borrowers exhibit well-defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.

8 Rating—Definite Loss

Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.

Assets rated as "OAEM," "substandard" or "doubtful" based on criteria established under banking regulations are collectively referred to as "criticized" assets.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Credit Quality Information

The following table presents the amortized cost basis of loans in each class by credit quality indicator and year of origination as of June 30, 2020.



	June 30, 2020
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(In Thousands)
Commercial Real Estate
Pass	$	214,318	$	424,343	$	292,473	$	280,329	$	285,244	$	1,018,739	$	54,076	$	11,491	$	2,581,013
OAEM	—		490		—		—		2,221		14,014		—		—		16,725
Substandard	—		—		—		221		237		11,500		—		66		12,024
Total	214,318		424,833		292,473		280,550		287,702		1,044,253		54,076		11,557		2,609,762
Multi-Family Mortgage
Pass	59,867		111,993		154,919		109,133		129,623		341,824		49,333		12,069		968,761
Total	59,867		111,993		154,919		109,133		129,623		341,824		49,333		12,069		968,761
Construction
Pass	17,489		68,116		147,643		9,132		3,126		718		9,038		—		255,262
OAEM	—		1,000		—		—		2,918		—		—		—		3,918
Total	17,489		69,116		147,643		9,132		6,044		718		9,038		—		259,180
Commercial
Pass	603,874		78,792		60,175		76,219		28,708		125,801		216,325		3,725		1,193,619
OAEM	—		5,668		23		—		54		27		7,497		—		13,269
Substandard	—		—		809		641		1,809		10,178		2,001		659		16,097
Doubtful	—		—		—		—		—		—		—		1		1
Total	603,874		84,460		61,007		76,860		30,571		136,006		225,823		4,385		1,222,986
Equipment Financing
Pass	159,673		359,464		255,091		155,486		76,578		59,310		715		1,023		1,067,340
OAEM	—		2,612		1,395		—		1,321		41		—		—		5,369
Substandard	—		1,953		3,734		2,609		1,550		1,953		—		—		11,799
Doubtful	—		534		58		418		300		51		—		—		1,361
Total	159,673		364,563		260,278		158,513		79,749		61,355		715		1,023		1,085,869
Condominium Association
Pass	2,211		10,515		5,459		8,204		5,865		17,365		2,288		512		52,419
Substandard	—		—		—		—		123		66		—		—		189
Total	2,211		10,515		5,459		8,204		5,988		17,431		2,288		512		52,608

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	June 30, 2020
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(In Thousands)
Other Consumer
Pass	584		612		8,512		40		576		429		23,155		13		33,921
Substandard	—		—		—		—		—		—		6		—		6
Total	584		612		8,512		40		576		429		23,161		13		33,927
Total
Pass	1,058,016		1,053,835		924,272		638,543		529,720		1,564,186		354,930		28,833		6,152,335
OAEM	—		9,770		1,418		—		6,514		14,082		7,497		—		39,281
Substandard	—		1,953		4,543		3,471		3,719		23,697		2,007		725		40,115
Doubtful	—		534		58		418		300		51		—		1		1,362
Total	$	1,058,016	$	1,066,092	$	930,291	$	642,432	$	540,253	$	1,602,016	$	364,434	$	29,559	$	6,233,093

For residential mortgage and home equity loans, the borrowers' credit scores contribute as a reserve metric in the retail loss rate model.



	At June 30, 2020
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(In Thousands)
Residential
Credit Scores
Over 700	$	66,521	$	107,427	$	74,852	$	63,569	$	54,715	$	144,997	$	3,820	$	—	$	515,901
661 - 700	10,682		22,314		13,139		18,302		10,582		27,181		—		—		102,200
600 and below	4,537		5,282		5,172		8,325		6,701		15,945		—		—		45,962
Data not available*	10,070		19,059		10,228		15,736		5,607		78,170		—		1,349		140,219
Total	91,810		154,082		103,391		105,932		77,605		266,293		3,820		1,349		804,282
Home Equity
Credit Scores
Over 700	1,046		4,307		3,448		3,536		1,250		14,780		266,269		3,419		298,055
661 - 700	172		506		575		677		333		3,495		43,734		1,713		51,205
600 and below	—		157		276		14		41		587		10,047		874		11,996
Data not available*	—		—		—		—		—		1,817		5,766		1,483		9,066
Total	$	1,218	$	4,970	$	4,299	$	4,227	$	1,624	$	20,679	$	325,816	$	7,489	$	370,322

_______________________________________________________________________________

* Represents loans and leases for which data are not available.

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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		Construction		Commercial		Equipment Financing		Condominium Association		Other Consumer		Total
	(In Thousands)
Originated:
Loan rating:
Pass	$	2,379,925	$	896,398	$	239,015	$	688,268	$	1,038,793	$	56,687	$	38,673	$	5,337,759
OAEM	17,006		—		—		10,803		1,389		—		—		29,198
Substandard	3,106		84		—		14,801		7,995		151		1		26,138
Doubtful	—		—		—		3		1,820		—		—		1,823
Total originated	2,400,037		896,482		239,015		713,875		1,049,997		56,838		38,674		5,394,918

Acquired:
Loan rating:
Pass	81,360		35,681		7,033		15,215		2,404		—		108		141,801
OAEM	597		—		—		210		—		—		—		807
Substandard	9,017		—		—		202		7		—		—		9,226
Total acquired	90,974		35,681		7,033		15,627		2,411		—		108		151,834

Total loans	$	2,491,011	$	932,163	$	246,048	$	729,502	$	1,052,408	$	56,838	$	38,782	$	5,546,752

As of December 31, 2019, there were no loans categorized as definite loss.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	At December 31, 2019
	Residential Mortgage				Home Equity
	(Dollars In Thousands)
Originated:
Loan-to-value ratio:
Less than 50%	$	184,628	22.7	%	$	132,736	35.2	%
50%—69%	293,976		36.1	%	91,681		24.3	%
70%—79%	204,600		25.1	%	81,459		21.6	%
80% and over	25,664		3.2	%	37,371		9.9	%
Data not available*	2,654		0.3	%	—		—	%
Total originated	711,522		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 over	4,608		0.6	%	4,726		1.3	%
Data not available	6,218		0.8	%	3,301		0.9	%
Total acquired	102,723		12.6	%	33,572		9.0	%

Total loans	$	814,245	100.0	%	$	376,819	100.0	%

_______________________________________________________________________________

* Represents in process general ledger accounts for which data are not available.

The following table presents information regarding foreclosed residential real estate property for the periods indicated:



	At June 30, 2020		At December 31, 2019
	(In Thousands)
Amortized cost basis in mortgage loans collateralized by residential real estate property that are in the process of foreclosure	$	—	$	110

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Age Analysis of Past Due Loans and Leases

The following table presents an age analysis of the amortized cost basis in loans and leases as of June 30, 2020.



	At June 30, 2020
	Past Due												Past Due Greater Than 90 Days and Accruing
	31-60 Days		61-90 Days		Greater Than 90 Days		Total		Current		Total Loans and Leases				Non-accrual		Non-accrual with No Related Allowance
	(In Thousands)
Commercial real estate loans:
Commercial real estate	$	4,351	$	6,460	$	10,134	$	20,945	$	2,588,817	$	2,609,762	$	145	$	10,139	$	1,783
Multi-family mortgage	7,940		242		—		8,182		960,579		968,761		—		—		—
Construction	—		—		—		—		259,180		259,180		—		—		—
Total commercial real estate loans	12,291		6,702		10,134		29,127		3,808,576		3,837,703		145		10,139		1,783
Commercial loans and leases:
Commercial	585		2,283		10,444		13,312		1,209,674		1,222,986		248		12,427		7,643
Equipment financing	3,348		6,946		9,272		19,566		1,066,303		1,085,869		418		13,100		4,160
Condominium association	137		—		48		185		52,423		52,608		48		190		123
Total commercial loans and leases	4,070		9,229		19,764		33,063		2,328,400		2,361,463		714		25,717		11,926
Consumer loans:
Residential mortgage	9,373		5,543		4,058		18,974		785,308		804,282		808		4,157		3,388
Home equity	1,743		2,385		740		4,868		365,454		370,322		307		1,278		767
Other consumer	12		3		7		22		33,905		33,927		—		9		—
Total consumer loans	11,128		7,931		4,805		23,864		1,184,667		1,208,531		1,115		5,444		4,155
Total loans and leases	$	27,489	$	23,862	$	34,703	$	86,054	$	7,321,643	$	7,407,697	$	1,974	$	41,300	$	17,864

There is no interest income recognized on non-accrual loans for the six months ended June 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		Total		Current		Total Loans and Leases		Loans and Leases Past Due Greater Than 90 Days and Accruing		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 mortgage	3,559		553		—		4,112		892,370		896,482		—		84
Construction	—		—		—		—		239,015		239,015		—		—
Total commercial real estate loans	6,889		2,585		1,606		11,080		3,524,454		3,535,534		51		2,835
Commercial loans and leases:
Commercial	5,010		199		3,875		9,084		704,791		713,875		—		4,707
Equipment financing	3,098		1,558		7,246		11,902		1,038,095		1,049,997		—		9,822
Condominium association	458		—		—		458		56,380		56,838		—		151
Total commercial loans and leases	8,566		1,757		11,121		21,444		1,799,266		1,820,710		—		14,680
Consumer loans:
Residential mortgage	1,014		—		3		1,017		710,505		711,522		—		753
Home equity	794		501		139		1,434		341,813		343,247		2		276
Other consumer	46		1		1		48		38,626		38,674		—		1
Total consumer loans	1,854		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		Total		Current		Total Loans and Leases		Loans and Leases Past Due Greater Than 90 Days and Accruing		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 loans	539		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 mortgage	35		75		1,090		1,200		101,523		102,723		1,090		—
Home equity	430		—		42		472		33,100		33,572		40		620
Other consumer	—		—		—		—		108		108		—		—
Total consumer loans	465		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 June 30, 2020
	Commercial Real Estate		Commercial		Consumer		Total
	(In Thousands)
Allowance for Loan and Lease Losses:
Individually evaluated	$	2,419	$	4,544	$	114	$	7,077
Collectively evaluated	91,155		16,831		4,490		112,476
Total	93,574		21,375		4,604		119,553

Loans and Leases:
Individually evaluated	$	11,801	$	27,867	$	6,438	$	46,106
Collectively evaluated	3,825,902		2,333,596		1,202,093		7,361,591
Total	3,837,703		2,361,463		1,208,531		7,407,697

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	At December 31, 2019
	Commercial Real Estate		Commercial		Consumer		Total
	(In Thousands)
Allowance for Loan and Lease Losses:
Originated:
Individually evaluated for impairment	$	7	$	1,672	$	70	$	1,749
Collectively evaluated for impairment	28,415		22,853		5,850		57,118
Total originated loans and leases	28,422		24,525		5,920		58,867

Acquired:
Individually evaluated for impairment	—		—		40		40
Collectively evaluated for impairment	65		197		11		273
Acquired with deteriorated credit quality	1,798		104		—		1,902
Total acquired loans and leases	1,863		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 impairment	3,531,578		1,800,691		1,090,117		6,422,386
Total originated loans and leases	3,535,534		1,820,710		1,093,443		6,449,687

Acquired:
Individually evaluated for impairment	2,942		397		1,841		5,180
Collectively evaluated for impairment	79,465		15,465		110,758		205,688
Acquired with deteriorated credit quality	51,281		2,176		23,804		77,261
Total acquired loans and leases	133,688		18,038		136,403		288,129

Total loans and leases	$	3,669,222	$	1,838,748	$	1,229,846	$	6,737,816

The following tables include the recorded investment and unpaid principal balances of impaired loans and leases with the related allowance amount, if applicable, for the originated and acquired loan and lease portfolios at the dates indicated. Also presented are the average recorded investments in the impaired loans and leases and the related amount of interest recognized during the period that the impaired loans were impaired.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	At December 31, 2019
	Recorded Investment ₍₁₎		Unpaid Principal Balance		Related Allowance
	(In Thousands)
Originated:
With no related allowance recorded:
Commercial real estate	$	3,899	$	3,892	$	—
Commercial	28,539		28,533		—
Consumer	2,237		2,223		—
Total originated with no related allowance recorded	34,675		34,648		—
With an allowance recorded:
Commercial real estate	68		68		7
Commercial	5,980		6,055		1,672
Consumer	1,224		1,220		70
Total originated with an allowance recorded	7,272		7,343		1,749
Total originated impaired loans and leases	41,947		41,991		1,749

Acquired:
With no related allowance recorded:
Commercial real estate	12,365		12,366		—
Commercial	437		437		—
Consumer	3,516		3,516		—
Total acquired with no related allowance recorded	16,318		16,319		—
With an allowance recorded:
Commercial real estate	—		—		—
Commercial	—		—		—
Consumer	447		447		40
Total acquired with an allowance recorded	447		447		40
Total acquired impaired loans and leases	16,765		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 Ended
		June 30, 2019
		Average Recorded Investment		Interest Income Recognized
	(In Thousands)
Originated:
With no related allowance recorded:
Commercial real estate		$	3,374	$	15
Commercial		38,211		338
Consumer		2,644		8
Total originated with no related allowance recorded		44,229		361
With an allowance recorded:
Commercial real estate		71		1
Commercial		5,903		33
Consumer		660		6
Total originated with an allowance recorded		6,634		40
Total originated impaired loans and leases		50,863		401

Acquired:
With no related allowance recorded:
Commercial real estate		9,497		9
Commercial		507		5
Consumer		4,531		15
Total acquired with no related allowance recorded		14,535		29
With an allowance recorded:
Consumer		155		1
Total acquired with an allowance recorded		155		1
Total acquired impaired loans and leases		14,690		30

Total impaired loans and leases		$	65,553	$	431

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



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

Acquired:
With no related allowance recorded:
Commercial real estate		9,325		12
Commercial		533		9
Consumer		4,737		30
Total acquired with no related allowance recorded		14,595		51
With an allowance recorded:
Consumer		154		2
Total acquired with an allowance recorded		154		2
Total acquired impaired loans and leases		14,749		53

Total impaired loans and leases		$	68,278	$	911

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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 June 30, 2020		At December 31, 2019
	(In Thousands)
Troubled debt restructurings:
On accrual	$	10,172	$	17,076
On nonaccrual	5,972		6,104
Total troubled debt restructurings	$	16,144	$	23,180

Total TDR loans and leases decreased by $7.1 million to $16.1 million at June 30, 2020 from $23.2 million at December 31, 2019, driven primarily by the payments and payoffs of the commercial and construction TDRs, partially offset by the new equipment financing TDRs during the six months ended June 30, 2020.

The amortized cost basis in TDR loans and the associated specific credit losses for the loan and lease portfolios, that were modified during the periods indicated, are as follows.



	At and for the Three Months Ended June 30, 2020
		Amortized Cost				Specific Allowance for Credit Losses				Defaulted ⁽¹⁾
	Number of Loans/ Leases	At Modification		At End of Period		Specific Allowance for Credit Losses		Nonaccrual Loans and Leases		Number of Loans/ Leases	Amortized Cost
	(Dollars in Thousands)
Commercial real estate	—	$	—	$	—	$	—	$	—	1	$	221
Equipment financing	11	1,174		1,160		—		1,160		—	—
Total	11	$	1,174	$	1,160	$	—	$	1,160	1	$	221

______________________________________________________________________

(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.



	At and for the Three Months Ended June 30, 2019
		Recorded Investment				Specific Allowance for Loan and Lease Losses				Defaulted ⁽¹⁾
	Number of Loans/ Leases	At Modification		At End of Period		Specific Allowance for Loan and Lease Losses		Nonaccrual Loans and Leases		Number of Loans/ Leases	Recorded Investment
	(Dollars in Thousands)
Originated:
Commercial	1	520		520		—		—		—	—
Equipment financing	2	554		554		192		497		—	—
Total originated	3	$	1,074	$	1,074	$	192	$	497	—	$	—

______________________________________________________________________

(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	At and for the Six Months Ended June 30, 2020
		Amortized Cost				Specific Allowance for Loan and Lease Losses						Defaulted ⁽¹⁾
	Number of Loans/ Leases	At Modification		At End of Period		Specific Allowance for Loan and Lease Losses		Nonaccrual Loans and Leases		Additional Commitment		Number of Loans/ Leases		Amortized Cost
	(Dollars in Thousands)
Commercial real estate	—	$	—	$	—	$	—	$	—	$	—	$	1	$	221
Commercial	2	297		302		—		—		—		—		—
Equipment financing	11	1,174		1,160		—		1,160		—		—		—
Home equity	1	200		200		—		—		—		—		—
Total	14	$	1,671	$	1,662	$	—	$	1,160	—		1		$	221



	At and for the Six Months Ended June 30, 2019
		Recorded Investment				Specific Allowance for Loan and Lease Losses					Defaulted ⁽¹⁾
	Number of Loans/ Leases	At Modification		At End of Period		Specific Allowance for Loan and Lease Losses		Nonaccrual Loans and Leases		Additional Commitment	Number of Loans/ Leases	Recorded Investment
	(Dollars in Thousands)
Originated:
Commercial real estate	1	$	73	$	71	$	8	$	—	—	—	$	—
Commercial	7	17,274		18,907		—		—		—	—	—
Equipment financing	5	1,369		1,113		380		1,056		—	—	—
Total originated	13	18,716		20,091		388		1,056		—	—	—

The following table sets forth the Company's end-of-period amortized cost basis for TDRs that were modified during the periods indicated, by type of modification.



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(In Thousands)
Extended maturity	$	334	$	520	$	636	$	6,503
Adjusted principal	44		—		44		—
Combination maturity, principal, interest rate	782		554		982		13,588
Total	1,160		1,074		1,662		20,091

The TDR loans and leases that were modified for the three months ended June 30, 2020 and 2019 were $1.2 million and $1.1 million, respectively.

The TDR loans and leases that were modified for the six months ended June 30, 2020 and 2019 were $1.7 million and $20.1 million, respectively. The decrease in TDR loans and leases that were modified for the six months ended June 30, 2020 was primarily due to the modification of four commercial relationships totaling $18.9 million during the six months ended June 30, 2019.

The net charge-offs for performing and nonperforming TDR loans and leases for the three and six months ended June 30, 2020 were $0.5 million and $0.6 million respectively. The net charge-offs for performing and nonperforming TDR loans and leases for the three and six months ended June 30, 2019 were $0.8 million and $1.7 million respectively.

The commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs as of June 30, 2020 was $1.8 million. As of June 30, 2019, there were $1.5 million commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs.

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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 recently issued by the Federal banking agencies provides that certain short-term loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by the COVID-19 pandemic are not required to be treated as TDRs under GAAP. As such, the Company suspended TDR accounting for COVID-19 pandemic related loan modifications meeting the loan modification criteria set forth under the CARES Act or as specified in the regulatory guidance. Further, loans granted payment deferrals related to COVID-19 pandemic are not required to be reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). As of June 30, 2020, the Company has granted 5,366 short-term deferments on loan and lease balances of $1.2 billion, which represented 16.0 percent of total loan and lease balances.

(6) Goodwill and Other Intangible Assets

The following table sets forth the carrying value of goodwill and other intangible assets at the dates indicated:



	At June 30, 2020		At December 31, 2019
	(In Thousands)
Goodwill (beginning)	$	160,427	$	160,427
Additions	—		—
Balance at end of period	160,427		160,427
Other intangible assets:
Core deposits	2,687		3,334
Trade name	1,089		1,089
Total other intangible assets	3,776		4,423
Total goodwill and other intangible assets	$	164,203	$	164,850

At December 31, 2013, the Company concluded that the BankRI name would continue to be utilized in its marketing strategies; therefore, the trade name with carrying value of $1.1 million, has an indefinite life and ceased to amortize.

The weighted-average amortization period for the core deposit intangible is 6.14.

The estimated aggregate future amortization expense (in thousands) for other intangible assets for each of the next five years and thereafter is as follows:



Remainder of 2020	$	624
Year ending:
2021	857
2022	500
2023	268
2024	158
2025	104
Thereafter	176
Total	$	2,687

(7) Accumulated Other Comprehensive Income (Loss)

For the six months ended June 30, 2020 and 2019, the Company’s accumulated other comprehensive (loss) income includes the following two components: (i) unrealized holding gains (losses) on investment securities available-for-sale; and (ii) adjustment of accumulated obligation for postretirement benefits.

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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 June 30, 2020
	Investment Securities Available-for-Sale		Postretirement Benefits		Accumulated Other Comprehensive Income
	(In Thousands)
Balance at March 31, 2020	$	16,863	$	84	$	16,947
Other comprehensive income	3,085		—		3,085
Less: amounts reclassified from accumulated other comprehensive income	494		—		494
Balance at June 30, 2020	$	19,454	$	84	$	19,538



	Three Months Ended June 30, 2019
	Investment Securities Available-for-Sale			Postretirement Benefits		Accumulated Other Comprehensive Loss
	(In Thousands)
Balance at March 31, 2019	$	(4,645	)	$	252	$	(4,393	)
Other comprehensive income	5,534			—		5,534
Balance at June 30, 2019	$	889		$	252	$	1,141



	Six Months Ended June 30, 2020
	Investment Securities Available-for-Sale		Postretirement Benefits		Accumulated Other Comprehensive Income
	(In Thousands)
Balance at December 31, 2019	$	2,199	$	84	$	2,283
Other comprehensive income	19,582		—		19,582
Less: amounts reclassified from accumulated other comprehensive income	2,327		—		2,327
Balance at June 30, 2020	$	19,454	$	84	$	19,538



	Six Months Ended June 30, 2019
	Investment Securities Available-for-Sale			Postretirement Benefits		Accumulated Other Comprehensive Loss
	(In Thousands)
Balance at December 31, 2018	$	(9,712	)	$	252	$	(9,460	)
Other comprehensive income	10,601			—		10,601
Balance at June 30, 2019	$	889		$	252	$	1,141

(8) Derivatives and Hedging Activities

The Company executes loan level derivative products such as interest rate swap agreements with commercial banking customers to aid them in managing their interest rate risk. The interest rate swap contracts allow the commercial banking customers to convert floating rate loan payments to fixed rate loan payments. The Company concurrently enters into offsetting swaps with a third party financial institution, effectively minimizing its net risk exposure resulting from such transactions. The third party financial institution exchanges the customer's fixed rate loan payments for floating rate loan payments. As the interest rate swap agreements associated with this program do not meet hedge accounting requirements, changes in the fair value are recognized directly in earnings. Based on the Company's intended use for the loan level derivatives at inception, the Company designates the derivative as either an economic hedge of an asset or liability, or a hedging instrument subject to the hedge accounting provisions of FASB ASC Topic 815, "Derivatives and Hedging".

The Company utilizes risk participation agreements with other banks participating in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. Risk participation agreements

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

are derivative financial instruments and are recorded at fair value. These derivatives are not designated as hedges and therefore, changes in fair value are recorded directly through earnings at each reporting period.

Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating bank.

The Company uses interest rate futures that are designated and qualify as cash flow hedging instruments. Positions are marked to market as an unrealized gain or loss with off-setting entries recognized in Accumulated Other Comprehensive Income. Gains and losses are recognized on the income statement in the account of the hedged item during the period in which the derivative settles. The fair value of these hedges on June 30, 2020 was a net liability position of $6 thousand compared to no position in December 31, 2019.

The Company offers foreign exchange contracts to commercial borrowers to accommodate their business needs. These foreign exchange contracts do not qualify as hedges for accounting purposes. To mitigate the market and liquidity risk associated with these foreign exchange contracts, the Company enters into similar offsetting positions.

Asset derivatives and liability derivatives are included in other assets and accrued expenses and other liabilities on the unaudited consolidated balance sheets.

The following tables present the Company's customer related derivative positions for the periods indicated below for those derivatives not designated as hedging.



	Notional Amount Maturing
	Number of Positions	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value
	June 30, 2020
	(Dollars In Thousands)
Loan level derivatives
Receive fixed, pay variable	135	$	23,939	$	8,686	$	24,584	$	18,942	$	1,191,796	$	1,267,947	$	163,744
Pay fixed, receive variable	135	23,939		8,686		24,584		18,942		1,191,796		1,267,947		163,744
Risk participation-out agreements	43	13,495		—		7,077		—		251,624		272,196		2,641
Risk participation-in agreements	7	—		—		—		19,000		40,119		59,119		467

Foreign exchange contracts
Buys foreign currency, sells U.S. currency	21	$	1,332	$	—	$	—	$	—	$	—	$	1,332	$	96
Sells foreign currency, buys U.S. currency	23	1,441		—		—		—		—		1,441		117

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	Notional Amount Maturing
	Number of Positions	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value
	December 31, 2019
	(Dollars In Thousands)
Loan level derivatives
Receive fixed, pay variable	119	$	24,777	$	—	$	31,131	$	16,794	$	1,028,491	$	1,101,193	$	58,102
Pay fixed, receive variable	119	24,777		—		31,131		16,794		1,028,491		1,101,193		58,102
Risk participation-out agreements	40	13,967		—		—		7,143		214,583		235,693		1,229
Risk participation-in agreements	7	—		—		—		19,000		36,281		55,281		283

Foreign exchange contracts
Buys foreign currency, sells U.S. currency	16	$	1,125	$	—	$	—	$	—	$	—	$	1,125	$	54
Sells foreign currency, buys U.S. currency	18	1,230		—		—		—		—		1,230		53

Certain derivative agreements contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. The Company posted collateral to dealer counterparties of $173.3 million and $86.5 million in the normal course of business as of June 30, 2020 and December 31, 2019, respectively. Dealer counterparties posted no collateral to the Company in the normal course of business as of June 30, 2020 and December 31, 2019.

The tables below present the offsetting of derivatives and amounts subject to master netting agreements not offset in the unaudited consolidated balance sheet at the dates indicated.



	At June 30, 2020
	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position		Net Amounts Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position				Net Amount
	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments Pledged		Cash Collateral Pledged		Net Amount
	(In Thousands)
Asset derivatives
Loan level derivatives	$	165,756	$	—	$	165,756	$	—	$	—	$	165,756
Risk participation-out agreements	2,641		—		2,641		—		—		2,641
Foreign exchange contracts	117		—		117		—		—		117
Total	$	168,514	$	—	$	168,514	$	—	$	—	$	168,514

Liability derivatives
Loan level derivatives	$	165,756	$	—	$	165,756	$	162,140	$	11,210	$	(7,594	)
Risk participation-in agreements	467		—		467		—		—		467
Foreign exchange contracts	96		—		96		—		—		96
Total	$	166,319	$	—	$	166,319	$	162,140	$	11,210	$	(7,031	)

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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 Position		Gross Amounts Not Offset in the Statement of Financial Position				Net Amount
	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments Pledged		Cash Collateral Pledged		Net Amount
	(In Thousands)
Asset derivatives
Loan level derivatives	$	59,365	$	—	$	59,365	$	—	$	11,900	$	47,465
Risk participation-out agreements	1,229		—		1,229		—		—		1,229
Foreign exchange contracts	54		—		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 agreements	283		—		283		—		—		283
Foreign exchange contracts	53		—		53		—		—		53
Total	$	59,701	$	—	$	59,701	$	86,521	$	—	$	(26,820	)

The Company has agreements with certain of its derivative counterparties that contain credit-risk-related contingent provisions. These provisions provide the counterparty with the right to terminate its derivative positions and require the Company to settle its obligations under the agreements if the Company defaults on certain of its indebtedness or if the Company fails to maintain its status as a well-capitalized institution.

(9) Stock Based Compensation

As of June 30, 2020, the Company had 2 active equity plans: the 2011 Restricted Stock Award Plan ("2011 RSA") with 500,000 authorized shares and the 2014 Equity Incentive Plan ("2014 Plan") with 1,750,000 authorized shares. The 2011 RSA and the 2014 Plan are collectively referred to as the "Plans". The purpose of the Plans is to promote the long-term financial success of the Company and its subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company's stockholders.

Of the awarded shares, generally 50% vest ratably over three years with one-third of such shares vesting at each of the first, second and third anniversary dates of the awards. These are referred to as "time-based shares". The remaining 50% of each award has a cliff vesting schedule and will vest three years after the award date based on the level of the Company's achievement of identified performance targets in comparison to the level of achievement of such identified performance targets by a defined peer group comprised of 15 financial institutions. These are referred to as "performance-based shares". If a participant leaves the Company prior to the third anniversary date of an award, any unvested shares are usually forfeited. Dividends declared with respect to shares awarded will be held by the Company and paid to the participant only when the shares vest.

Under the Plans, shares of the Company's common stock were reserved for issuance as restricted stock awards to officers, employees, and non-employee directors of the Company. Shares issued upon vesting may be either authorized but unissued shares or reacquired shares held by the Company as treasury shares. Any shares not issued because vesting requirements are not met will be retired back to treasury and be made available again for issuance under the Plans.

During the three and six months ended June 30, 2020 and 2019, no shares were issued upon satisfaction of required conditions of the Plans.

Total expense for the Plans was $0.7 million and $0.7 million for the three months ended June 30, 2020 and 2019, respectively. Total expense for the Plans was $1.4 million and $1.5 million for the six months ended June 30, 2020 and 2019, respectively.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

(10) Earnings per Share ("EPS")

The following table is a reconciliation of basic EPS and diluted EPS:



	Three Months Ended
	June 30, 2020				June 30, 2019
	Basic		Fully Diluted		Basic		Fully Diluted
	(Dollars in Thousands, Except Per Share Amounts)
Numerator:
Net income	$	19,571	$	19,571	$	20,471	$	20,471

Denominator:
Weighted average shares outstanding	78,849,282		78,849,282		79,669,922		79,669,922
Effect of dilutive securities	—		165,992		—		216,370
Adjusted weighted average shares outstanding	78,849,282		79,015,274		79,669,922		79,886,292

EPS	$	0.25	$	0.25	$	0.26	$	0.26



	Six Months Ended
	June 30, 2020				June 30, 2019
	Basic		Fully Diluted		Basic		Fully Diluted
	(Dollars in Thousands, Except Per Share Amounts)
Numerator:
Net income	$	2,295	$	2,295	$	42,938	$	42,938

Denominator:
Weighted average shares outstanding	79,165,372		79,165,372		79,664,284		79,664,284
Effect of dilutive securities	—		175,152		—		195,288
Adjusted weighted average shares outstanding	79,165,372		79,340,524		79,664,284		79,859,572

EPS	$	0.03	$	0.03	$	0.54	$	0.54

(11) Fair Value of Financial Instruments

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

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables set forth the carrying value of assets and liabilities measured at fair value on a recurring basis at the dates indicated:



	Carrying Value as of June 30, 2020
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Investment securities available-for-sale:
GSE debentures	$	—	$	321,483	$	—	$	321,483
GSE CMOs	—		58,564		—		58,564
GSE MBSs	—		387,657		—		387,657
SBA commercial loan asset-backed securities	—		1		—		1
Corporate debt obligations	—		26,571		—		26,571
U.S. Treasury bonds	—		59,742		—		59,742
Foreign government obligations	—		487		—		$	487
Total investment securities available-for-sale	$	—	$	854,505	$	—	$	854,505
Equity securities held-for-trading	$	1,469	$	523	$	—	$	1,992
Loan level derivatives	—		165,756		—		165,756
Risk participation-out agreements	—		2,641		—		2,641
Foreign exchange contracts	—		117		—		117
Liabilities:
Loan level derivatives	$	—	$	165,756	$	—	$	165,756
Risk participation-in agreements	—		467		—		467
Foreign exchange contracts	—		96		—		96

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	Carrying Value as of December 31, 2019
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Investment securities available-for-sale:
GSE debentures	$	—	$	185,803	$	—	$	185,803
GSE CMOs	—		85,932		—		85,932
GSE MBSs	—		153,343		—		153,343
SBA commercial loan asset-backed securities	—		34		—		34
Corporate debt obligations	—		28,986		—		28,986
U.S. Treasury bonds	—		44,897		—		44,897
Total investment securities available-for-sale	$	—	$	498,995	$	—	$	498,995
Equity securities held-for-trading	$	2,569	$	1,012	$	—	$	3,581
Loan level derivatives	—		59,365		—		59,365
Risk participation-out agreements	—		1,229		—		1,229
Foreign exchange contracts	—		54		—		54
Liabilities:
Loan level derivatives	$	—	$	59,365	$	—	$	59,365
Risk participation-in agreements	—		283		—		283
Foreign exchange contracts	—		53		—		53

Investment Securities Available-for-Sale

The fair value of investment securities is based principally on market prices and dealer quotes received from third-party and nationally-recognized pricing services for identical investment securities such as U.S. Treasury and agency securities. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds, where applicable. These investments include GSE debentures, GSE mortgage-related securities, SBA commercial loan asset backed securities, corporate debt securities, and trust preferred securities, all of which are included in Level 2. As of June 30, 2020 and December 31, 2019, no investment securities were valued using pricing models included in Level 3.

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

Equity Securities Held-for-Trading

The fair value of equity securities held-for-trading is based principally on market prices and dealer quotes received from third-party and nationally-recognized pricing services. The Company's equity securities are priced this way and are included in Level 1 and Level 2. These prices are validated by comparing the primary pricing source with an alternative pricing source when available.

Derivatives and Hedging Instruments

The fair values for the interest-rate swap assets and liabilities, risk participation agreements (RPA in/out), and foreign exchange derivatives represent a Level 2 valuation and are based on settlement values adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves and foreign exchange rates where applicable.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposures and remaining contractual life. To date, the Company has not realized any losses due to a counterparty's inability to pay any net uncollateralized position. Refer also to Note 8, "Derivatives and Hedging Activities."

There were no transfers between levels for assets and liabilities recorded at fair value on a recurring basis during the three and six months ended June 30, 2020 and 2019, respectively.

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below at the dated indicated:



	Carrying Value as of June 30, 2020
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets measured at fair value on a non-recurring basis:
Collateral-dependent impaired loans and leases	$	—	$	—	$	8,941	$	8,941
Repossessed assets	—		1,454		—		1,454
Total assets measured at fair value on a non-recurring basis	$	—	$	1,454	$	8,941	$	10,395



	Carrying Value as of December 31, 2019
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets measured at fair value on a non-recurring basis:
Collateral-dependent impaired loans and leases	$	—	$	—	$	2,243	$	2,243
Repossessed assets	—		2,631		—		2,631
Total assets measured at fair value on a non-recurring basis	$	—	$	2,631	$	2,243	$	4,874

Collateral-Dependent Impaired Loans and Leases

For nonperforming loans and leases where the credit quality of the borrower has deteriorated significantly, fair values of the underlying collateral were estimated using purchase and sales agreements (Level 2), or comparable sales or recent appraisals (Level 3), adjusted for selling costs and other expenses.

Other Real Estate Owned

The Company records OREO at the lower of cost or fair value. In estimating fair value, the Company utilizes purchase and sales agreements (Level 2) or comparable sales, recent appraisals or cash flows discounted at an interest rate commensurate with the risk associated with these cash flows (Level 3), adjusted for selling costs and other expenses.

Repossessed Assets

Repossessed assets are carried at estimated fair value less costs to sell based on auction pricing (Level 2).

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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 Value				Valuation Technique
	At June 30, 2020		At December 31, 2019
	(Dollars in Thousands)
Collateral-dependent impaired loans and leases	$	8,941	$	2,243	Appraisal of collateral ⁽¹⁾

_______________________________________________________________________________

⁽¹⁾ Fair value is generally determined through independent appraisals of the underlying collateral. The Company may also use another available source of collateral assessment to determine a reasonable estimate of the fair value of the collateral. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of the unobservable inputs used may vary but is generally 0% - 10% on the discount for costs to sell and 0% - 15% on appraisal adjustments.

Summary of Estimated Fair Values of Financial Instruments

The following table presents the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company's financial instruments at the dates indicated. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, restricted equity securities, and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include non-maturity deposits, short-term borrowings, and accrued interest payable.



			Fair Value Measurements at June 30, 2020
	Carrying Value	Estimated Fair Value	Level 1 Inputs	Level 2 Inputs	Level 3 Inputs
	(In Thousands)
Financial assets:
Loans and leases, net	7,288,144	7,256,940	—	—	7,256,940
Restricted equity securities	71,638	71,638	—	—	71,638
Financial liabilities:
Certificates of deposits	1,951,948	1,973,770	—	1,973,770	—
Borrowed funds	1,406,669	1,409,465	—	1,409,465	—



					Fair Value Measurements at December 31, 2019
	Carrying Value		Estimated Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(In Thousands)
Financial assets:
Investment securities held-to-maturity:
GSE debentures	$	31,228	$	31,290	$	—	$	31,290	$	—
GSE MBSs	9,360		9,279		—		9,279		—
Municipal obligations	45,692		46,514		—		46,514		—
Foreign government obligations	500		478		—		—		478
Loans and leases, net	6,676,734		6,697,583		—		—		6,697,583
Restricted equity securities	53,818		53,818		—		—		53,818
Financial liabilities:
Certificates of deposit	2,021,642		2,026,683		—		2,026,683		—
Borrowed funds	902,749		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 June 30, 2020		At December 31, 2019
	(In Thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to originate loans and leases:
Commercial real estate	$	45,299	$	50,034
Commercial	102,133		78,058
Residential mortgage	32,323		25,998
Unadvanced portion of loans and leases	823,324		808,681
Unused lines of credit:
Home equity	565,382		528,251
Other consumer	48,699		25,374
Other commercial	447		380
Unused letters of credit:
Financial standby letters of credit	10,802		10,166
Performance standby letters of credit	6,068		4,652
Commercial and similar letters of credit	2,447		3,823
Loan level derivatives (Notional principal amounts):
Receive fixed, pay variable	1,267,947		1,101,193
Pay fixed, receive variable	1,267,947		1,101,193
Risk participation-out agreements	272,196		235,693
Risk participation-in agreements	59,119		55,281
Foreign exchange contracts (Notional amounts):
Buys foreign currency, sells U.S. currency	1,332		1,125
Sells foreign currency, buys U.S. currency	1,441		1,230

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee by the customer. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if any, is based on management's credit evaluation of the borrower.

Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee performance of a customer to a third party. These standby and commercial letters of credit are primarily issued to support the financing needs of the Company's commercial customers. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

From time to time, the Company enters into loan level derivatives, risk participation agreements or foreign exchange contracts with commercial customers and third-party financial institutions. These derivatives allow the Company to offer long-term fixed-rate commercial loans while mitigating the interest-rate or foreign exchange risk of holding those loans. In a loan level derivative transaction, the Company lends to a commercial customer on a floating-rate basis and then enters into a loan level derivative with that customer. Concurrently, the Company enters into offsetting swaps with a third-party financial institution, effectively minimizing its net interest-rate risk exposure resulting from such transactions. The fair value of these derivatives are presented in Footnote 8.

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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 June 30, 2020 as the discount rate to determine the net present value of the remaining lease payments.



	At June 30, 2020		At June 30, 2019
	(In Thousands)
The components of lease expense were as follow:
Operating lease cost	$	3,233	$	3,033

Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	3,302	$	3,106
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	—	$	66



	At June 30, 2020			At December 31, 2019
	(In Thousands)
Supplemental balance sheet information related to leases was as follows:
Operating Leases
Operating lease right-of-use assets	$	24,343		$	24,876
Operating lease liabilities	24,343			24,876

Weighted Average Remaining Lease Term
Operating leases	7.06			7.47

Weighted Average Discount Rate
Operating leases	3.2		%	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
	June 30, 2020
	(In Thousands)

Remainder of 2020	$	3,135
Year ending:
2021	5,858
2022	5,156
2023	4,027
2024	2,626
2025	1,587
Thereafter	4,675
Total	$	27,064
Less imputed interest	(2,721		)
Present value of lease liability	$	24,343

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

Legal Proceedings

In the normal course of business, there are various outstanding legal proceedings. In the opinion of management, after consulting with legal counsel, the consolidated financial position and results of operations of the Company are not expected to be affected materially by the outcome of such proceedings.

(13) Revenue from Contracts with Customers

Overview

Revenue from contracts with customers in the scope of Accounting Standards Codification (“ASC”) ("Topic 606") is measured based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations.

The Company’s performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time. Unsatisfied performance obligations at the report date are not material to our consolidated financial statements.

In certain cases, other parties are involved with providing services to our customers. If the Company is a principal in the transaction (providing services itself or through a third party on its behalf), revenues are reported based on the gross consideration received from the customer and any related expenses are reported in gross noninterest expense. If the Company is an agent in the transaction (referring to another party to provide services), the Company reports its net fee or commission retained as revenue.

A substantial portion of the Company’s revenue is specifically excluded from the scope of Topic 606. This exclusion is associated with financial instruments, including interest income on loans and investment securities, in addition to loan derivative income and gains on loan and investment sales. For the revenue that is in-scope of Topic 606, the following is a description of principal activities from which the Company generates its revenue from contracts with customers, separated by the timing of revenue recognition.

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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 5,422 short-term deferrals on loan and lease balances of $1.2 billion, which represented 16.6% of total loan and lease balances.

On July 20, 2020, First Ipswich Securities II Corporation and BBS Investment Corporation merged into Longwood Securities Corporation. First Ipswich Securities II Corporation and BBS Investment Corporation were already a wholly-owned subsidiary of the Company, therefore there was no tax impact and minimal impact to customers.

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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 Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; the possibility that future credit losses may be higher than currently expected; due to changes in economic assumptions and adverse economic developments; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; and changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and other filings submitted to the Securities and Exchange Commission ("SEC"). Forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Introduction

Brookline Bancorp, Inc., a Delaware corporation, operates as a multi-bank holding company for Brookline Bank and its subsidiaries; Bank Rhode Island and its subsidiaries ("BankRI"); and Brookline Securities Corp. As previously disclosed, the merger of First Ipswich Bank into Brookline Bank was completed in the first quarter of 2020.

As a commercially-focused financial institution with 50 full-service banking offices throughout greater Boston, the north shore of Massachusetts and Rhode Island, the Company, through Brookline Bank and BankRI, offers a wide range of commercial, business and retail banking services, including a full complement of cash management products, foreign exchange services, on-line and mobile banking services, consumer and residential loans and investment advisory services, designed to meet the financial needs of small- to mid-sized businesses and individuals throughout central New England. Specialty lending activities include equipment financing, 27.5% of which is in the greater New York and New Jersey metropolitan area and 72.5% of which is in other areas in the United States of America as of June 30, 2020.

The Company focuses its business efforts on profitably growing its commercial lending businesses, both organically and through acquisitions. The Company’s customer focus, multi-bank structure, and risk management are integral to its organic growth strategy and serve to differentiate the Company from its competitors. As full-service financial institutions, the Banks and their subsidiaries focus their efforts on developing and deepening long-term banking relationships with qualified customers through a full complement of products, excellent customer service, and strong risk management.

The Company manages the Banks under a uniform strategic objective, with one set of uniform policies consistently applied by one executive management team. Within this environment, the Company believes that the ability to make customer

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decisions locally enhances management's motivation, service levels and, as a consequence, the Company's financial results. As such, while most back-office functions are consolidated at the holding company level, branding and decision-making, including credit decisions and pricing, remain largely local in order to better meet the needs of bank customers and further motivate the Banks’ commercial, business and retail bankers. These credit decisions, at the local level, are executed through corporate policies overseen by the Company's credit department.

The competition for loans and leases and deposits remains intense. The Company expects the operating environment to remain challenging. The volume of loan and lease originations and loan and lease losses will depend, to a large extent, on how the economy performs. Loan and lease growth and deposit growth are also greatly influenced by the rate-setting actions of the FRB. A sustained, low interest rate environment with a flat interest rate curve may negatively impact the Company's yields and net interest margin. While the Company is slightly asset sensitive and should benefit from rising rates, changes in interest rates could also precipitate a change in the mix and volume of the Company's deposits and loans. The future operating results of the Company will depend on its ability to maintain or increase the current net interest margin, while minimizing exposure to credit risk, along with increasing sources of non-interest income, while controlling the growth of non-interest expenses.

The Company and the Banks are supervised, examined and regulated by the FRB. As a Massachusetts-chartered trust company, Brookline Bank is also subject to regulation under the laws of the Commonwealth of Massachusetts and the jurisdiction of the Massachusetts Division of Banks. As a Rhode Island-chartered financial institution, BankRI is also subject to regulation under the laws of the State of Rhode Island and the jurisdiction of the Banking Division of the Rhode Island Department of Business Regulation. The FDIC continues to insure each of the Banks’ deposits up to $250,000 per depositor. As previously disclosed, on July 31, 2019, Brookline Bank converted its charter from a Massachusetts savings bank to a Massachusetts-chartered trust company and ended its membership in the Depositors Insurance Fund (“DIF”), a private industry-sponsored fund which insures Massachusetts-chartered savings bank deposit balances in excess of federal deposit insurance coverage. Brookline Bank’s growth in deposit size necessitated Brookline Bank’s withdrawal from the DIF and the concurrent charter conversion of Brookline Bank. Brookline Bank’s deposit accounts will continue to be insured by the deposit insurance fund of the FDIC up to applicable limits. Excess deposits that were insured by the DIF on July 31, 2019 will continue to be insured by the DIF until July 31, 2020. Term deposits in excess of the FDIC insurance coverage will continue to be insured by the DIF until they reach maturity.

On March 27, 2020, Congress passed, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted to address the economic effects of the COVID-19 pandemic.

•

Paycheck Protection Program The CARES Act appropriated $349 billion for “paycheck protection loans” through the SBA’s PPP. The amount appropriated was subsequently increased to $659 billion. Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by SBA. As of the filing date, Brookline Bank and Bank Rhode Island have obtained SBA approval for 2,926 PPP loans totaling $567 million. All PPP loans have been funded. PPP loans are fully guaranteed by the U.S. government, have an initial term of up to five years and earn interest at rate a of 1%. We currently expect a significant portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. In conjunction with the PPP, the FRB has created a lending facility for qualified financial institutions. The FRB's Paycheck Protection Program Liquidity Facility ("PPPLF") will extend credit to depository institutions with a term of up to five years at an interest rate of 0.35%. Only loans issued under the PPP can be pledged as collateral to access the facility. The Company is participating in the PPPLF program.

•

Troubled Debt Restructuring Relief. From March 1, 2020 through the earlier of December 31, 2020 or 60 days after the termination date of the national emergency, a financial institution may elect to suspend the requirements under accounting principles generally accepted in the U.S. for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a troubled debt restructured, including impairment accounting. This troubled debt restructuring relief applies for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. Financial institutions are required to maintain records of the volume of loans involved in modifications to which troubled debt restructuring relief is applicable. As of the filing date, the Banks have granted approximately 5,422 short-term deferments on loan balances of $1.2 billion, which represented 17% of total loan balances as of June 30, 2020. These short-term deferments are not classified as troubled debt restructured loans and will not be reported as past due provided that they are performing in accordance with the modified terms.

The Company’s common stock is traded on the Nasdaq Global Select Market^SM 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
	June 30,			March 31,			December 31,			September 30,			June 30,
	2020			2020			2019			2019			2019
	(Dollars in Thousands, Except Per Share Data)
PER COMMON SHARE DATA
Earnings per share - Basic	$	0.25		$	(0.22	)	$	0.28		$	0.28		$	0.26
Earnings per share - Diluted	0.25			(0.22		)	0.28			0.28			0.26
Book value per share (end of period)	11.75			11.57			11.87			11.70			11.53
Tangible book value per share (end of period) (1)	9.67			9.49			9.80			9.63			9.45
Dividends paid per common share	0.115			0.115			0.115			0.110			0.110
Stock price (end of period)	10.08			11.28			16.46			14.73			15.38

PERFORMANCE RATIOS (2)
Net interest margin (taxable equivalent basis)	3.09		%	3.31		%	3.43		%	3.45		%	3.55		%
Return on average assets	0.88		%	(0.87		)%	1.13		%	1.17		%	1.08		%
Return on average tangible assets (1)	0.90		%	(0.89		)%	1.15		%	1.19		%	1.11		%
Return on average stockholders' equity	8.45		%	(7.30		)%	9.42		%	9.74		%	8.98		%
Return on average tangible stockholders' equity (1)	10.28		%	(8.84		)%	11.42		%	11.85		%	10.98		%
Dividend payout ratio (1)	46.37		%	(53.10		)%	41.35		%	38.88		%	42.87		%
Efficiency ratio (3)	55.46		%	57.36		%	54.15		%	56.48		%	56.09		%

ASSET QUALITY RATIOS
Net loan and lease charge-offs as a percentage of average loans and leases (annualized)	0.08		%	0.13		%	0.10		%	0.02		%	0.19		%
Nonperforming loans and leases as a percentage of total loans and leases	0.56		%	0.57		%	0.29		%	0.33		%	0.33		%
Nonperforming assets as a percentage of total assets	0.47		%	0.49		%	0.28		%	0.30		%	0.30		%
Total allowance for loan and lease losses as a percentage of total loans and leases	1.61		%	1.66		%	0.91		%	0.89		%	0.90		%

CAPITAL RATIOS
Stockholders' equity to total assets	10.21		%	10.78		%	12.04		%	11.83		%	12.03		%
Tangible equity ratio (1)	8.56		%	9.02		%	10.15		%	9.94		%	10.08		%

FINANCIAL CONDITION DATA
Total assets	$	9,069,667		$	8,461,591		$	7,856,853		$	7,878,436		$	7,636,980
Total loans and leases	7,407,697			6,822,527			6,737,816			6,646,821			6,505,329
Allowance for loan and lease losses	119,553			113,181			61,082			59,135			58,635
Investment securities available-for-sale	854,505			761,539			498,995			467,339			482,497
Investment securities held-to-maturity	—			—			86,780			95,163			103,572
Equity securities held-for-trading	1,992			2,558			3,581			4,581			4,698
Goodwill and identified intangible assets	164,203			164,514			164,850			165,270			165,691
Total deposits	6,440,233			5,889,938			5,830,072			5,729,339			5,622,493
Total borrowed funds	1,406,669			1,291,804			902,749			986,405			930,764
Stockholders' equity	926,413			912,568			945,606			932,311			918,468


													(Continued)

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	At and for the Three Months Ended
	June 30,		March 31,			December 31,		September 30,		June 30,
	2020		2020			2019		2019		2019
	(Dollars in Thousands, Except Per Share Data)
EARNINGS DATA
Net interest income	$	64,288	$	61,712		$	63,931	$	63,236	$	63,134
Provision for credit losses	5,347		54,114			3,602		871		3,757
Non-interest income	6,235		9,328			7,756		7,929		7,478
Non-interest expense	39,109		40,748			38,815		40,191		39,604
Net income (loss)	19,571		(17,276		)	22,183		22,596		20,471

_______________________________________________________________________________

(1) Refer to "Non-GAAP Financial Measures and Reconciliations to GAAP".

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

(3) Efficiency ratio is calculated by dividing non-interest expense by the sum of non-interest income and net interest income.

Executive Overview

Growth

Total assets of $9.1 billion as of June 30, 2020 increased $1.2 billion, or 30.9% on an annualized basis, from December 31, 2019. The increase was primarily driven by growth in cash and cash equivalents, investment securities, and the loan portfolio.

Total loans and leases as of June 30, 2020 increased $669.9 million, or 19.9% on an annualized basis, to $7.4 billion from December 31, 2019. The Company's commercial loan portfolios, which are comprised of commercial real estate loans and commercial loans and leases, totaled $6.2 billion, or 83.7% of total loans and leases, as of June 30, 2020, an increase of $691.2 million, or 25.1% on an annualized basis, from $5.5 billion, or 81.7% of total loans and leases, as of December 31, 2019.

Cash and cash equivalents as of June 30, 2020 increased $177.1 million, or 455.4% on an annualized basis, to $254.9 million from December 31, 2019. Investment securities as June 30, 2020 increased $267.1 million, or 90.7% on annualized basis, to $856.5 million from December 31, 2019.

Total deposits of $6.4 billion as of June 30, 2020 increased $610.2 million, or 20.9% on an annualized basis, from December 31, 2019. Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $4.5 billion, or 69.7% of total deposits as of June 30, 2020, an increase of $679.9 million, or 35.7% on an annualized basis from $3.8 billion, or 65.3% of total deposits, as of December 31, 2019. Certificate of deposit balances totaled $2.0 billion, or 30.3% of total deposits as of June 30, 2020, a decrease of $69.7 million, or 6.9% on an annualized basis from $2.0 billion, or 34.7% of total deposits, as of December 31, 2019.

Total borrowed funds as of June 30, 2020 increased $503.9 million, or 111.6% on an annualized basis, to $1.4 billion from December 31, 2019.

Asset Quality

Nonperforming assets as of June 30, 2020 totaled $42.8 million, or 0.47% of total assets, compared to $22.1 million, or 0.28% of total assets, as of December 31, 2019. Net charge-offs for the three months ended June 30, 2020 were $1.4 million, or 0.08% of average loans and leases on an annualized basis, compared to $3.1 million, or 0.19% of average loans and leases on an annualized basis, for the three months ended June 30, 2019.

The ratio of the allowance for loan and lease losses to total loans and leases was 1.61% as of June 30, 2020, compared to 0.91% as of December 31, 2019. On January 1, 2020, the Company implemented the CECL methodology to calculate the allowance for credit losses. Refer also to Note 5, "Allowance for Loan and Lease Losses."

Capital Strength

The Company is a "well-capitalized" bank holding company as defined in the FRB's Regulation Y. The Company's common equity Tier 1 capital ratio was 10.42% as of June 30, 2020, compared to 11.44% as of December 31, 2019. The Company's Tier 1 leverage ratio was 8.71% as of June 30, 2020, compared to 10.28% as of December 31, 2019. As of June 30, 2020, the Company's Tier 1 risk-based capital ratio was 10.56%, compared to 11.58% as of December 31, 2019. The Company's Total risk-based capital ratio was 12.85% as of June 30, 2020, compared to 13.59% as of December 31, 2019.

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The Company's ratio of stockholders' equity to total assets was 10.21% and 12.04% as of June 30, 2020 and December 31, 2019, respectively. The Company's tangible equity ratio was 8.56% and 10.15% as of June 30, 2020 and December 31, 2019, respectively.

Net Income

For the three months ended June 30, 2020, the Company reported net income of $19.6 million, or $0.25 per basic and diluted share, a decrease of $0.9 million, or 17.6% on an annualized basis, from $20.5 million, or $0.26 per basic and diluted share for the three months ended June 30, 2019. This decrease in net income is primarily the result of an increase in the provision for credit losses of $1.6 million and a decrease in non-interest income of $1.2 million, partially offset by an increase in net interest income of $1.2 million, a decrease in non-interest expense of $0.5 million, and a decrease in the provision for income taxes of $0.3 million. Refer to “Results of Operations" below for further discussion.

For the six months ended June 30, 2020, the Company reported net income of $2.3 million, or $0.03 per basic and diluted share, a decrease of $40.6 million, or 94.7%, from $42.9 million or $0.54 per basic and diluted share for the six months ended June 30, 2019. This decrease in net income is primarily the result of an increase in the provision for credit losses of $54.4 million and an increase in non-interest expense of $1.4 million, partially offset by a decrease in the provision for income taxes of $13.7 million and an increase in non-interest income of $1.5 million. Refer to “Results of Operations" below for further discussion.

The annualized return on average assets was 0.88% for the three months ended June 30, 2020, compared to 1.08% for the three months ended June 30, 2019. The annualized return on average stockholders' equity was 8.45% for the three months ended June 30, 2020, compared to 8.98% for the three months ended June 30, 2019.

The net interest margin was 3.09% for the three months ended June 30, 2020, down from 3.55% for the three months ended June 30, 2019. The decrease in the net interest margin is a result of a decrease in the yield on interest-earning assets of 96 basis points to 3.92% for the three months ended June 30, 2020 from 4.88% for the three months ended June 30, 2019, partially offset by a decrease of 53 basis points in the Company's overall cost of funds to 0.94% for the three months ended June 30, 2020 from 1.47% for the three months ended June 30, 2019.

The net interest margin was 3.19% for the six months ended June 30, 2020, down from 3.59% for the six months ended

June 30, 2019. The decrease in the net interest margin is a result of a decrease of 33 basis points in the Company's overall cost of funds to 1.10% for the six months ended June 30, 2020 from 1.43% for the six months ended June 30, 2019, partially offset by a decrease in the yield on interest-earning assets of 69 basis points to 4.17% for the six months ended June 30, 2020 from 4.86% for the six months ended June 30, 2019.

The Company’s net interest margin and net interest income is sensitive to the structure and level of interest rates as well as competitive pricing in all loan and deposit categories.

Critical Accounting Policies

The SEC defines “critical accounting policies” as those involving significant judgments and difficult or complex assumptions by management, often as a result of the need to make estimates about matters that are inherently uncertain or variable, which have, or could have, a material impact on the carrying value of certain assets or net income. The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. As discussed in the Company’s 2019 Annual Report on Form 10-K, management has identified the valuation of available-for-sale securities, accounting for assets and liabilities acquired, the determination of the allowance for loan and lease losses, the review of goodwill and intangibles for impairment, income tax accounting, and valuation of deferred tax assets as the Company’s most critical accounting policies.

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

Recent Accounting Developments

In March 2020, the FASB issued ASU 2020-04, " Reference Rate Reform (Topic 848)-Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04") to provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to certain contracts, hedging relationships, and other transactions affected by

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reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients provided that those elections are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31,2022 and do not apply to contract modifications made after December 31, 2022. The Company has not yet adopted the amendments in this update and is currently in the process of reviewing its contracts and existing processes in order to assess the risks and potential impact to the Company.

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

(Subtopic 715-20)" ("ASU 2018-14"), to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This ASU is effective for fiscal years beginning after December 15, 2020, for public business entities and for fiscal years beginning after December 15, 2021, for all other entities. Early adoption is permitted. Management believes that this ASU does apply and has not determined the impact, if any, as of June 30, 2020.

Non-GAAP Financial Measures and Reconciliation to GAAP

In addition to evaluating the Company’s results of operations in accordance with GAAP, management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures, such as operating earnings metrics, the return on average tangible assets, return on average tangible equity, the tangible equity ratio, tangible book value per share, and dividend payout ratio. Management believes that these non-GAAP financial measures provide information useful to investors in understanding the Company’s underlying operating performance and trends, and facilitates comparisons with the performance assessment of financial performance, including non-interest expense control, while the tangible equity ratio and tangible book value per share are used to analyze the relative strength of the Company’s capital position.

The following table reconciles the Company’s operating earnings, operating return on average assets and operating return on average stockholders’ equity for the periods indicated:



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

Basic earnings per share, as reported	$	0.25	$	0.26	$	0.03	$	0.54
Less:
Security gains (after-tax)	0.01		0.01		0.03		0.01
Basic operating earnings per share	$	0.24	$	0.25	$	—	$	0.53

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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
	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019
	(Dollars in Thousands)
Operating earnings (loss)	$	19,131		$	(18,240	)	$	22,082		$	23,528		$	20,203

Average total assets	$	8,869,540		$	7,965,826		$	7,860,593		$	7,746,492		$	7,571,396
Less: Average goodwill and average identified intangible assets, net	164,385			164,701			165,071			165,493			165,914
Average tangible assets	$	8,705,155		$	7,801,125		$	7,695,522		$	7,580,999		$	7,405,482

Return on average assets (annualized)	0.88		%	(0.87		)%	1.13		%	1.17		%	1.08		%
Less:
Security gains	0.02		%	0.05		%	0.01		%	—		%	0.01		%
Add:
Merger and restructuring-related expenses	—		%	—		%	—		%	0.04		%	—		%
Operating return on average assets (annualized)	0.86		%	(0.92		)%	1.12		%	1.21		%	1.07		%

Return on average tangible assets (annualized)	0.90		%	(0.89		)%	1.15		%	1.19		%	1.11		%
Less:
Security gains	0.02		%	0.05		%	0.01		%	—		%	0.02		%
Add:
Merger and restructuring-related expenses	—		%	—		%	—		%	0.05		%	—		%
Operating return on average tangible assets (annualized)	0.88		%	(0.94		)%	1.15		%	1.24		%	1.09		%

Average total stockholders' equity	$	926,239		$	946,138		$	941,891		$	928,063		$	911,824
Less: Average goodwill and average identified intangible assets, net	164,385			164,701			165,071			165,493			165,914
Average tangible stockholders' equity	$	761,854		$	781,437		$	776,820		$	762,570		$	745,910

Return on average stockholders' equity (annualized)	8.45		%	(7.30		)%	9.42		%	9.74		%	8.98		%
Less:
Security gains (losses)	0.19		%	0.41		%	0.04		%	(0.04		)%	0.12		%
Add:
Merger and restructuring-related expenses	—		%	—		%	—		%	0.36		%	—		%
Operating return on average stockholders' equity (annualized)	8.26		%	(7.71		)%	9.38		%	10.14		%	8.86		%




													(Continued)

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



	Three Months Ended
	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019
	(Dollars in Thousands)
Net income (loss), as reported	$	19,571		$	(17,276	)	$	22,183		$	22,596		$	20,471

Average total assets	$	8,869,540		$	7,965,826		$	7,860,593		$	7,746,492		$	7,571,396
Less: Average goodwill and average identified intangible assets, net	164,385			164,701			165,071			165,493			165,914
Average tangible assets	$	8,705,155		$	7,801,125		$	7,695,522		$	7,580,999		$	7,405,482

Return on average tangible assets (annualized)	0.90		%	(0.89		)%	1.15		%	1.19		%	1.11		%

Average total stockholders' equity	$	926,239		$	946,138		$	941,891		$	928,063		$	911,824
Less: Average goodwill and average identified intangible assets, net	164,385			164,701			165,071			165,493			165,914
Average tangible stockholders' equity	$	761,854		$	781,437		$	776,820		$	762,570		$	745,910

Return on average tangible stockholders' equity (annualized)	10.28		%	(8.84		)%	11.42		%	11.85		%	10.98		%

The following table reconciles the Company's tangible equity ratio for the periods indicated:



	Three Months Ended
	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019
	(Dollars in Thousands)
Total stockholders' equity	$	926,413		$	912,568		$	945,606		$	932,311		$	918,468
Less: Goodwill and identified intangible assets, net	164,203			164,514			164,850			165,270			165,691
Tangible stockholders' equity	$	762,210		$	748,054		$	780,756		$	767,041		$	752,777

Total assets	$	9,069,667		$	8,461,591		$	7,856,853		$	7,878,436		$	7,636,980
Less: Goodwill and identified intangible assets, net	164,203			164,514			164,850			165,270			165,691
Tangible assets	$	8,905,464		$	8,297,077		$	7,692,003		$	7,713,166		$	7,471,289

Tangible equity ratio	8.56		%	9.02		%	10.15		%	9.94		%	10.08		%

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The following table reconciles the Company's tangible book value per share for the periods indicated:



	Three Months Ended
	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
	(Dollars in Thousands)
Tangible stockholders' equity	$	762,210	$	748,054	$	780,756	$	767,041	$	752,777

Common shares issued	85,177,172		85,177,172		85,177,172		85,177,172		85,177,172
Less:
Treasury shares	5,859,708		5,862,811		5,003,127		5,003,127		5,025,764
Unallocated ESOP	65,334		72,441		79,548		92,337		98,208
Unvested restricted stock	398,188		395,085		406,450		407,784		377,122
Common shares outstanding	78,853,942		78,846,835		79,688,047		79,673,924		79,676,078

Tangible book value per share	$	9.67	$	9.49	$	9.80	$	9.63	$	9.45

The following table reconciles the Company's dividend payout ratio for the periods indicated:



	Three Months Ended
	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019
	(Dollars in Thousands)
Dividends paid	$	9,076		$	9,173		$	9,173		$	8,786		$	8,775

Net (loss) income, as reported	$	19,571		$	(17,276	)	$	22,183		$	22,596		$	20,471

Dividend payout ratio	46.37		%	(53.10		)%	41.35		%	38.88		%	42.87		%



	Three Months Ended
	June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			June 30, 2019

Allowance for loan and lease losses	$	119,553		$	113,181		$	61,082		$	59,135		$	58,635

Total loans and leases	$	7,407,697		$	6,822,527		$	6,737,816		$	6,646,821		$	6,505,329
Less: Total PPP loans	565,768			—			—			—			—
Total loans and leases excluding PPP loans	$	6,841,929		$	6,822,527		$	6,737,816		$	6,646,821		$	6,505,329

Allowance for loan and lease losses as a percentage of total loans and leases less PPP loans	1.75		%	1.66		%	0.91		%	0.89		%	0.90		%

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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 June 30, 2020					At December 31, 2019
	Balance			Percent of Total		Balance			Percent of Total
	(Dollars in Thousands)
Commercial real estate loans:
Commercial real estate	$	2,609,762		35.1	%	$	2,491,011		37.0	%
Multi-family mortgage	968,761			13.1	%	932,163			13.8	%
Construction	259,180			3.5	%	246,048			3.7	%
Total commercial real estate loans	3,837,703			51.7	%	3,669,222			54.5	%
Commercial loans and leases:
Commercial	1,222,986			16.5	%	729,502			10.8	%
Equipment financing	1,085,869			14.7	%	1,052,408			15.6	%
Condominium association	52,608			0.7	%	56,838			0.8	%
Total commercial loans and leases	2,361,463			31.9	%	1,838,748			27.2	%
Consumer loans:
Residential mortgage	804,282			10.9	%	814,245			12.1	%
Home equity	370,322			5.0	%	376,819			5.6	%
Other consumer	33,927			0.5	%	38,782			0.6	%
Total consumer loans	1,208,531			16.4	%	1,229,846			18.3	%
Total loans and leases	7,407,697			100.0	%	6,737,816			100.0	%
Allowance for loan and lease losses	(119,553		)			(61,082		)
Net loans and leases	$	7,288,144				$	6,676,734

The following table sets forth the growth in the Company’s loan and lease portfolios during the six months ended June 30, 2020:



	At June 30, 2020		At December 31, 2019		Dollar Change			Percent Change (Annualized)
	(Dollars in Thousands)
Commercial real estate	$	3,837,703	$	3,669,222	$	168,481		9.2	%
Commercial	2,361,463		1,838,748		522,715			56.9	%
Consumer	1,208,531		1,229,846		(21,315		)	-3.5	%
Total loans and leases	$	7,407,697	$	6,737,816	$	669,881		19.9	%

The Company's loan portfolio consists primarily of first mortgage loans secured by commercial, multi-family and residential real estate properties located in the Company's primary lending area, loans to business entities, including commercial lines of credit, loans to condominium associations and loans and leases used to finance equipment used by small businesses. The Company also provides financing for construction and development projects, home equity and other consumer loans.

The Company employs seasoned commercial lenders and retail bankers who rely on community and business contacts as well as referrals from customers, attorneys and other professionals to generate loans and deposits. Existing borrowers are also an important source of business since many of them have more than one loan outstanding with the Company. The Company's ability to originate loans depends on the strength of the economy, trends in interest rates, and levels of customer demand and market competition.

The Company's current policy is that a total credit exposure to one obligor relationship may not exceed $50.0 million unless approved by the Company's Credit Committee. As of June 30, 2020, there were 3 borrowers with loans and

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commitments over $50.0 million. The total of those loans and commitments was $165.1 million, or 1.87% of total loans and commitments, as of June 30, 2020. As of December 31, 2019, there were 3 borrowers with loans and commitments over $50.0 million. The total of those loans and commitments was $194.3 million, or 2.40% of total loans and commitments, as of December 31, 2019.

The Company has written underwriting policies to control the inherent risks in loan origination. The policies address approval limits, loan-to-value ratios, appraisal requirements, debt service coverage ratios, loan concentration limits and other matters relevant to loan underwriting.

Commercial Real Estate Loans

The commercial real estate portfolio is comprised of commercial real estate loans, multi-family mortgage loans, and construction loans and is the largest component of the Company's overall loan portfolio, representing 51.7% of total loans and leases outstanding as of June 30, 2020.

Typically, commercial real estate loans are larger in size and involve a greater degree of risk than owner-occupied residential mortgage loans. Loan repayment is usually dependent on the successful operation and management of the properties and the value of the properties securing the loans. Economic conditions can greatly affect cash flows and property values.

A number of factors are considered in originating commercial real estate and multi-family mortgage loans. The qualifications and financial condition of the borrower (including credit history), as well as the potential income generation and the value and condition of the underlying property, are evaluated. When evaluating the qualifications of the borrower, the Company considers the financial resources of the borrower, the borrower's experience in owning or managing similar property and the borrower's payment history with the Company and other financial institutions. Factors considered in evaluating the underlying property include the net operating income of the mortgaged premises before debt service and depreciation, the debt service coverage ratio (the ratio of cash flow before debt service to debt service), the use of conservative capitalization rates, and the ratio of the loan amount to the appraised value. Generally, personal guarantees are obtained from commercial real estate loan borrowers.

Commercial real estate and multi-family mortgage loans are typically originated for terms of five to fifteen years with amortization periods of 20 to 30 years. Many of the loans are priced at inception on a fixed-rate basis generally for periods ranging from two to five years with repricing periods for longer-term loans. When possible, prepayment penalties are included in loan covenants on these loans. For commercial customers who are interested in loans with terms longer than five years, the Company offers loan level derivatives to accommodate customer need.

The Company's urban and suburban market area is characterized by a large number of apartment buildings, condominiums and office buildings. As a result, commercial real estate and multi-family mortgage lending has been a significant part of the Company's activities for many years. These types of loans typically generate higher yields, but also involve greater credit risk. Many of the Company's borrowers have more than one multi-family or commercial real estate loan outstanding with the Company.

The Company's commercial real estate portfolio is composed primarily of loans secured by apartment buildings ($928.5 million), office buildings ($724.1 million), retail stores ($613.9 million), industrial properties ($448.7 million), mixed-use properties ($334.3 million), lodging services ($148.6 million) and food services ($60.6 million) as of June 30, 2020. At that date, approximately 97.0% of the commercial real estate loans outstanding were secured by properties located in New England.

Construction and development financing is generally considered to involve a higher degree of risk than long-term financing on improved, occupied real estate and thus has lower concentration limits than do other commercial credit classes. Risk of loss on a construction loan is largely dependent upon the accuracy of the initial estimate of construction costs, the estimated time to sell or rent the completed property at an adequate price or rate of occupancy, and market conditions. If the estimates and projections prove to be inaccurate, the Company may be confronted with a project which, upon completion, has a value that is insufficient to assure full loan repayment.

Criteria applied in underwriting construction loans for which the primary source of repayment is the sale of the property are different from the criteria applied in underwriting construction loans for which the primary source of repayment is the stabilized cash flow from the completed project. For those loans where the primary source of repayment is from resale of the property, in addition to the normal credit analysis performed for other loans, the Company also analyzes project costs, the attractiveness of the property in relation to the market in which it is located and demand within the market area. For those construction loans where the source of repayment is the stabilized cash flow from the completed project, the Company analyzes not only project costs but also how long it might take to achieve satisfactory occupancy and the reasonableness of projected rental rates in relation to market rental rates.

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Commercial Loans

The Company's commercial loan and lease portfolio is comprised of commercial loans, equipment financing loans and leases and condominium association loans and represented 31.9% of total loans outstanding as of June 30, 2020.

The Company's commercial loan and lease portfolio is composed primarily of loans to small to medium sized businesses ($632.9 million), transportation services ($386.5 million), food services ($226.0 million), manufacturing ($162.7 million), recreation services ($155.7 million), rental and leasing services ($117.1 million), and retail ($109.9 million) as of June 30, 2020.

The Company provides commercial banking services to companies in its market area. Approximately 55.6% of the commercial loans outstanding as of June 30, 2020 were made to borrowers located in New England. The remaining 44.4% of the commercial loans outstanding were made to borrowers in other areas in the United States of America, primarily by the Company's equipment financing divisions. Product offerings include lines of credit, term loans, letters of credit, deposit services and cash management. These types of credit facilities have as their primary source of repayment cash flows from the operations of a business. Interest rates offered are available on a floating basis tied to the prime rate or a similar index or on a fixed-rate basis referenced on the Federal Home Loan Bank of Boston ("FHLBB") index.

Credit extensions are made to established businesses on the basis of loan purpose and assessment of capacity to repay as determined by an analysis of their financial statements, the nature of collateral to secure the credit extension and, in most instances, the personal guarantee of the owner of the business as well as industry and general economic conditions. The Company also participates in U.S. Government programs such as the SBA 7A program and as an SBA preferred lender. Included in the commercial loans balances are the PPP loans totaling $565.8 million as of June 30, 2020.

The Company’s equipment financing divisions focus on market niches in which its lenders have deep experience and industry contacts, and on making loans to customers with business experience. An important part of the Company’s equipment financing loan origination volume comes from equipment manufacturers and existing customers as they expand their operations. The equipment financing portfolio is composed primarily of loans to finance laundry, tow trucks, fitness, dry cleaning and convenience store equipment. Approximately 26.1% of the commercial loans outstanding in the equipment financing division were made to borrowers located primarily in the greater New York and New Jersey metropolitan area. Typically, the loans are priced at a fixed rate of interest and require monthly payments over their 3- to 7-year life. The yields earned on equipment financing loans are higher than those earned on the commercial loans made by the Banks because they involve a higher degree of credit risk. Equipment financing customers are typically small-business owners who operate with limited financial resources and who face greater risks when the economy weakens or unforeseen adverse events arise. Because of these characteristics, personal guarantees of borrowers are usually obtained along with liens on available assets. The size of loan is determined by an analysis of cash flow and other characteristics pertaining to the business and the equipment to be financed, based on detailed revenue and profitability data of similar operations.

Loans to condominium associations are for the purpose of funding capital improvements, are made for five- to ten-year terms and are secured by a general assignment of condominium association revenues. Among the factors considered in the underwriting of such loans are the level of owner occupancy, the financial condition and history of the condominium association, the attractiveness of the property in relation to the market in which it is located and the reasonableness of estimates of the cost of capital improvements to be made. Depending on loan size, funds are advanced as capital improvements are made and, in more complex situations, after completion of engineering inspections.

Consumer Loans

The consumer loan portfolio, which is comprised of residential mortgage loans, home equity loans and lines of credit, and other consumer loans, represented 16.4% of total loans outstanding as of June 30, 2020. The Company focuses its mortgage and home equity lending on existing and new customers within its branch networks in its urban and suburban marketplaces in the greater Boston and Providence metropolitan areas.

The Company originates adjustable- and fixed-rate residential mortgage loans secured by one- to four-family residences. Each residential mortgage loan granted is subject to a satisfactorily completed application, employment verification, credit history and a demonstrated ability to repay the debt. Generally, loans are not made when the loan-to-value ratio exceeds 80% unless private mortgage insurance is obtained and/or there is a financially strong guarantor. Appraisals are performed by outside independent fee appraisers.

Underwriting guidelines for home equity loans and lines of credit are similar to those for residential mortgage loans. Home equity loans and lines of credit are limited to no more than 80% of the appraised value of the property securing the loan including the amount of any existing first mortgage liens.

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Other consumer loans have historically been a modest part of the Company's loan originations. As of June 30, 2020, other consumer loans equaled $33.9 million, or 0.5% of total loans outstanding.

Asset Quality

Criticized and Classified Assets

The Company's management rates certain loans and leases as "other assets especially mentioned" ("OAEM"), "substandard" or "doubtful" based on criteria established under banking regulations.These loans and leases are collectively referred to as "criticized" assets. Loans and leases rated OAEM have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the loan or lease at some future date. Loans and leases rated as substandard are inadequately protected by the payment capacity of the obligor or of the collateral pledged, if any. Substandard loans and leases have a well-defined weakness or weaknesses that jeopardize the liquidation of debt and are characterized by the distinct possibility that the Company will sustain some loss if existing deficiencies are not corrected. Loans and leases rated as doubtful have well-defined weaknesses that jeopardize the orderly liquidation of debt and partial loss of principal is likely. As of June 30, 2020, the Company had $80.8 million of total assets that were designated as criticized. This compares to $67.2 million of assets designated as criticized as of December 31, 2019. The increase of $13.6 million in criticized assets was primarily due to two commercial relationships totaling $8.3 million and an equipment financing relationship of $4.0 million which became criticized during the first six months of 2020.

Nonperforming Assets

"Nonperforming assets" consist of nonaccrual loans and leases, other real estate owned ("OREO") and other repossessed assets. Under certain circumstances, the Company may restructure the terms of a loan or lease as a concession to a borrower, except for acquired loans and leases which are individually evaluated against expected performance on the date of acquisition. These restructured loans and leases are generally considered "nonperforming loans and leases" until a history of collection of at least six months on the restructured terms of the loan or lease has been established. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of a deed in lieu of foreclosure. Other repossessed assets consist of assets that have been acquired through foreclosure that are not real estate and are included in other assets on the Company's unaudited consolidated balance sheets.

Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. Prior to the adoption of ASC 326, loans categorized as ASC 310-30 accrued regardless of past due status. Exceptions may be made if the loan has matured and is in the process of renewal or is well-secured and in the process of collection. When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current interest income. Interest payments on nonaccrual loans are generally applied to principal. If collection of the principal is reasonably assured, interest payments are recognized as income on the cash basis. Loans are generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured and a consistent record of at least six months of performance has been achieved.

In cases where a borrower experiences financial difficulties and the Company makes or reasonably expects to make certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructured loan. In determining whether a debtor is experiencing financial difficulties, the Company considers, among other factors, if the debtor is in payment default or is likely to be in payment default in the foreseeable future without the modification, the debtor declared or is in the process of declaring bankruptcy, there is substantial doubt that the debtor will continue as a going concern, the debtor's entity-specific projected cash flows will not be sufficient to service its debt, or the debtor cannot obtain funds from sources other than the existing creditors at market terms for debt with similar risk characteristics.

As of June 30, 2020, the Company had nonperforming assets of $42.8 million, representing 0.47% of total assets, compared to nonperforming assets of $22.1 million, or 0.28% of total assets as of December 31, 2019. The increase in nonperforming assets was primarily driven by the inclusion of $9.7 million of ASC 310-30 loans previously categorized in performing assets, one commercial relationship of $8.5 million, and various equipment financing and residential relationships that were placed on nonaccrual status, partially offset by a decrease in other repossessed assets during first six months of 2020.

The Company evaluates the underlying collateral of each nonaccrual loan and lease and continues to pursue the collection of interest and principal. Management believes that the current level of nonperforming assets remains manageable relative to the size of the Company's loan and lease portfolio. If economic conditions were to worsen or if the marketplace were to experience prolonged economic stress, it is likely that the level of nonperforming assets would increase, as would the level of charged-off loans.

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Past Due and Accruing

Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. Exceptions may be made if the loan has matured and is in the process of renewal or is well-secured and in the process of collection. Prior to the adoption of ASC 326, loans categorized as ASC 310-30 accrued regardless of past due status. When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current interest income. Interest payments on nonaccrual loans are generally applied to principal. If collection of the principal is reasonably assured, interest payments are recognized as income on the cash basis. Loans are generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured and a consistent record of at least 6 consecutive months of performance has been achieved.

As of June 30, 2020, the Company had loans and leases greater than 90 days past due and accruing of $2.0 million, or 0.03% of total loans and leases, compared to $10.1 million, or 0.15% of total loans and leases, as of December 31, 2019, representing a decrease of $8.1 million. The decrease in past due and accruing loans was primarily due to $9.3 million of past due and accruing acquired loans previously accounted for under ASC 310-30, which are now disclosed as being on non-accrual status.

The following table sets forth information regarding nonperforming assets for the periods indicated:



	At June 30, 2020			At December 31, 2019
	(Dollars in Thousands)
Nonperforming loans and leases:
Nonaccrual loans and leases:
Commercial real estate	$	10,139		$	2,845
Multi-family mortgage	—			84
Total commercial real estate loans	10,139			2,929

Commercial	12,427			4,909
Equipment financing	13,100			9,822
Condominium association	190			151
Total commercial loans and leases	25,717			14,882

Residential mortgage	4,157			753
Home equity	1,278			896
Other consumer	9			1
Total consumer loans	5,444			1,650

Total nonaccrual loans and leases	41,300			19,461

Other repossessed assets	1,454			2,631
Total nonperforming assets	$	42,754		$	22,092

Loans and leases past due greater than 90 days and accruing	$	1,974		$	10,109
Total delinquent loans and leases 61-90 days past due	23,862			4,978
Restructured loans and leases not included in nonperforming assets	10,172			17,076

Total nonperforming loans and leases as a percentage of total loans and leases	0.56		%	0.29		%
Total nonperforming assets as a percentage of total assets	0.47		%	0.28		%
Total delinquent loans and leases 61-90 days past due as a percentage of total loans and leases	0.32		%	0.07		%

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Troubled Debt Restructuring Loans and Leases

Total TDR loans decreased by $7.1 million to $16.1 million at June 30, 2020 from $23.2 million at December 31, 2019. The decrease driven primarily by the payments and payoffs of the commercial and construction TDRs, partially offset by the new equipment financing TDRs during the six months ended June 30, 2020.

As of June 30, 2020, total TDR loans included $4.4 million of commercial loans, $6.1 million of equipment financing loans and leases, $2.2 million of residential mortgage loans, $1.9 million of home equity loans, and $1.6 million of commercial real estate loans. As of December 31, 2019, total TDR loans included $9.0 million of commercial loans, $5.6 million of equipment financing loans and leases, $2.1 million of residential mortgage loans, $1.9 million of home equity loans, $1.7 million of commercial real estate loans, $2.9 million of construction loans and $0.1 million of multi-family mortgage loans. A TDR loan is a loan for which the maturity date was extended, the principal was reduced, and/or the interest rate was modified to drop the required monthly payment to a more manageable amount for the borrower.

The following table sets forth information regarding TDR loans and leases at the dates indicated:



	At June 30, 2020		At December 31, 2019
	(Dollars in Thousands)
Troubled debt restructurings:
On accrual	$	10,172	$	17,076
On nonaccrual	5,972		6,104
Total troubled debt restructurings	$	16,144	$	23,180

Changes in TDR loans and leases were as follows for the periods indicated:



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(Dollars in Thousands)
Balance at beginning of period	$	22,299		$	36,140		$	23,180		$	20,941
Additions	1,174			1,074			1,671			20,773
Net charge-offs	(473		)	(845		)	(607		)	(1,723		)
Repayments	(6,856		)	(177		)	(8,100		)	(3,799		)
Balance at end of period	$	16,144		$	36,192		$	16,144		$	36,192

From March 1, 2020 through the earlier of December 31, 2020 or 60 days after the termination date of the national

emergency declared by the President on March 13, 2020 concerning the COVID-19 outbreak (the “national emergency”),

a financial institution may elect to suspend the requirements under accounting principles generally accepted in the

U.S. for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a troubled debt

restructured, including impairment accounting. This troubled debt restructuring relief applies for the term of the loan

modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December

31, 2019. Financial institutions are required to maintain records of the volume of loans involved in modifications to

which troubled debt restructuring relief is applicable. As of June 30, 2020, the Company has granted 5,366 short-term

deferrals on loan and lease balances of $1.2 billion, which represented 16.0% of total loan and lease balances.

Allowances for Credit Losses

The allowance for credit losses consists of general and specific allowances and reflects management's estimate of expected loan and lease losses over the life of loan or lease. Management uses a consistent and systematic process and methodology to evaluate the adequacy of the allowance for credit losses on a quarterly basis. Management continuously evaluates and challenges inputs and assumptions in the allowance for credit losses.

While management evaluates currently available information in establishing the allowance for credit losses, future adjustments to the allowance for loan and lease losses may be necessary if conditions differ substantially from the assumptions used in making the evaluations. Management performs a comprehensive review of the allowance for credit losses on a quarterly basis. In addition, various regulatory agencies, as an integral part of their examination process, periodically review a financial institution's allowance credit losses and carrying amounts of other real estate owned. Such agencies may require the financial

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institution to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The Company’s allowance methodology provides a quantification of probable losses in the portfolio. Under the current methodology, management estimates losses over the life of the loan using reasonable and supportable forecasts. Forecasts, loan data, and model documentation is extensively analyzed and reviewed throughout the quarter to ensure estimated losses are accurate at quarter end. Qualitative adjustments are applied when model output does not align with management expectations. These adjustments are thoroughly reviewed and documented to provide clarity and a reasonable basis for any deviations from the model. For June 30, 2020, qualitative adjustments were applied to the CRE and C&I portfolios resulting in a net reduction in total reserves compared to model calculations.

The following tables present the changes in the allowance for loan and lease losses by portfolio category for the three and six months ended June 30, 2020 and 2019.



	At and for the Three Months Ended June 30, 2020
	Commercial Real Estate			Commercial			Consumer			Total
	(In Thousands)
Balance at March 31, 2020	$	82,179		$	26,774		$	4,228		$	113,181
Charge-offs	—			(1,794		)	(9		)	(1,803		)
Recoveries	94			296			30			420
Provision (credit) for loan and lease losses	7,738			(338		)	355			7,755
Balance at June 30, 2020	$	90,011		$	24,938		$	4,604		$	119,553

Total loans and leases	$	3,837,703		$	2,361,463		$	1,208,531		$	7,407,697
Total allowance for loan and lease losses as a percentage of total loans and leases	2.35		%	1.06		%	0.38		%	1.61		%



	At and for the Three Months Ended June 30, 2019
	Commercial Real Estate			Commercial			Consumer			Total
	(In Thousands)
Balance at March 31, 2019	$	28,349		$	24,240		$	5,452		$	58,041
Charge-offs	—			(3,401		)	(11		)	(3,412		)
Recoveries	—			294			36			330
Provision for loan and lease losses	319			3,200			157			3,676
Balance at June 30, 2019	$	28,668		$	24,333		$	5,634		$	58,635

Total loans and leases	$	3,493,554		$	1,826,336		$	1,185,439		$	6,505,329
Total allowance for loan and lease losses as a percentage of total loans and leases	0.82		%	1.33		%	0.48		%	0.90		%

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	At and for the Six Months Ended June 30, 2020
	Commercial Real Estate			Commercial			Consumer			Total
	(In Thousands)
Balance at December 31, 2019	$	30,285		$	24,826		$	5,971		$	61,082
Adoption of ASU 2016-13 (CECL)	11,694			(2,672		)	(2,390		)	6,632
Charge-offs	—			(4,321		)	(21		)	(4,342		)
Recoveries	94			543			88			725
Provision for loan and lease losses	47,938			6,562			956			55,456
Balance at June 30, 2020	$	90,011		$	24,938		$	4,604		$	119,553

Total loans and leases	$	3,837,703		$	2,361,463		$	1,208,531		$	7,407,697
Total allowance for loan and lease losses as a percentage of total loans and leases	2.35		%	1.06		%	0.38		%	1.61		%



	At and for the Six Months Ended June 30, 2019
	Commercial Real Estate			Commercial			Consumer			Total
	(In Thousands)
Balance at December 31, 2018	$	28,187		$	25,283		$	5,222		$	58,692
Charge-offs	—			(5,913		)	(41		)	(5,954		)
Recoveries	—			682			89			771
Provision for loan and lease losses	481			4,281			364			5,126
Balance at June 30, 2019	$	28,668		$	24,333		$	5,634		$	58,635

Total loans and leases	$	3,493,554		$	1,826,336		$	1,185,439		$	6,505,329
Total allowance for loan and lease losses as a percentage of total loans and leases	0.82		%	1.33		%	0.48		%	0.90		%

Beginning January 1, 2020, the Company implemented the CECL methodology to calculate the allowance for credit losses. As of January 1, 2020, the Company increased the allowance for loan and lease losses by $6.6 million due to CECL which requires the inclusion of the credit losses over the expected life of the loans, as well as consideration of the risks based on the current conditions and reasonable and supportable forecasts about the future.

At June 30, 2020, the allowance for loan and lease losses increased to $119.6 million, or 1.61% of total loans and leases outstanding, as a result of the latest available forecast of economic effect of the COVID-19 pandemic on the Company's loan and lease portfolios. Excluding PPP loans for which no allowance was reserved due to 100% federal guarantee, the allowance for loan losses and lease losses represents 1.75% of total loans and leases outstanding at June 30, 2020. This compared to an allowance for loan and lease losses of $61.1 million, or 0.91% of total loans and leases outstanding, as of December 31, 2019. Prior to January 1, 2020, the Company calculated the allowance for loan and lease losses using the incurred losses methodology.

Net charge-offs in the loans and leases for the three months ended June 30, 2020 and 2019 were $1.4 million and $3.1 million, respectively. As a percentage of average loans and leases, annualized net charge-offs for the three months ended June 30, 2020 and 2019 were 0.26% and 0.68%, respectively. Net charge-offs in the loans and leases for the six months ended June 30, 2020 and 2019 were $3.6 million and $5.2 million, respectively. As a percentage of average loans and leases, annualized net charge-offs for the six months ended June 30, 2020 and 2019 were 0.37% and 0.58%, respectively.

Management believes that the allowance for loan and lease losses as of June 30, 2020 is appropriate.

The following table sets forth the Company's percent of allowance for loan and lease losses to the total allowance for loan and lease losses and the percent of loans to total loans for each of the categories listed at the dates indicated.

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	At June 30, 2020						At December 31, 2019
	Amount		Percent of Allowance in Each Category to Total Allowance		Percent of Loans in Each Category to Total Loans		Amount		Percent of Allowance in Each Category to Total Allowance		Percent of Loans in Each Category to Total Loans
	(Dollars in Thousands)
Commercial real estate	$	53,361	44.8	%	35.1	%	$	21,519	35.3	%	37.0	%
Multi-family mortgage	23,951		20.0	%	13.1	%	6,436		10.5	%	13.8	%
Construction	12,699		10.6	%	3.5	%	2,330		3.8	%	3.7	%
Total commercial real estate loans	90,011		75.4	%	51.7	%	30,285		49.6	%	54.5	%
Commercial	9,475		7.9	%	16.5	%	12,849		21.0	%	10.8	%
Equipment financing	15,358		12.8	%	14.7	%	11,595		19.0	%	15.6	%
Condominium association	105		0.1	%	0.7	%	382		0.6	%	0.8	%
Total commercial loans and leases	24,938		20.8	%	31.9	%	24,826		40.6	%	27.2	%
Residential mortgage	1,822		1.5	%	10.9	%	3,717		6.1	%	12.1	%
Home equity	2,502		2.1	%	5.0	%	2,132		3.5	%	5.6	%
Other consumer	280		0.2	%	0.5	%	122		0.2	%	0.6	%
Total consumer loans	4,604		3.8	%	16.4	%	5,971		9.8	%	18.3	%
Total	$	119,553	100.0	%	100.0	%	$	61,082	100.0	%	100.0	%

Investment Securities

The investment portfolio exists primarily for liquidity purposes, and secondarily as a source of interest and dividend income, interest-rate risk management and tax planning as a counterbalance to loan and deposit flows. Investment securities are utilized as part of the Company's asset/liability management and may be sold in response to, or in anticipation of, factors such as changes in market conditions and interest rates, security prepayment rates, deposit outflows, liquidity concentrations and regulatory capital requirements.

The investment policy of the Company, which is reviewed and approved by the Board of Directors on an annual basis, specifies the types of investments that are acceptable, required investment ratings by at least one nationally recognized rating agency, concentration limits and duration guidelines. Compliance with the investment policy is monitored on a regular basis. In general, the Company seeks to maintain a high degree of liquidity and targets cash, cash equivalents and investment securities available-for-sale balances between 10% and 30% of total assets.

Cash, cash equivalents, and investment securities increased $444.3 million, or 133.2% on an annualized basis, to $1.1 billion as of June 30, 2020 from $667.1 million as of December 31, 2019. The increase was driven by increases in total cash, cash equivalents and investment securities. Cash, cash equivalents, and investment securities were 12.3% of total assets as of June 30, 2020, compared to 8.5% of total assets at December 31, 2019.

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The following table sets forth certain information regarding the amortized cost and market value of the Company's investment securities at the dates indicated:



	At June 30, 2020				At December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Investment securities available-for-sale:
GSE debentures	$	314,497	$	321,483	$	182,922	$	185,803
GSE CMOs	57,275		58,564		87,001		85,932
GSE MBSs	376,180		387,657		153,049		153,343
SBA commercial loan asset- backed securities	1		1		34		34
Corporate debt obligations	25,359		26,571		28,484		28,986
U.S. Treasury bonds	55,734		59,742		44,675		44,897
Foreign government obligations	$	500	$	487
Total investment securities available-for-sale	$	829,546	$	854,505	$	496,165	$	498,995
Investment securities held-to-maturity:
GSE debentures	$	—	$	—	$	31,228	$	31,290
GSE MBSs	—		—		9,360		9,279
Municipal obligations	—		—		45,692		46,514
Foreign government obligations	—		—		500		478
Total investment securities held-to-maturity	$	—	$	—	$	86,780	$	87,561
Equity securities held-for-trading			$	1,992			$	3,581

The fair value of investment securities is based principally on market prices and dealer quotes received from third-party, nationally-recognized pricing services for identical investment securities such as U.S. Treasury and agency securities. The Company's marketable equity securities are priced this way and are included in Level 1 of the fair value hierarchy in accordance with ASC 820. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include certain U.S. and government agency debt securities, municipal and corporate debt securities, GSE residential MBSs and CMOs, all of which are included in Level 2 and equity securities held-for-trading, which are included in Level 1 and Level 2. Certain fair values are estimated using pricing models and are included in Level 3.

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

Maturities, calls and principal repayments for investment securities available-for-sale totaled $56.2 million for the six months ended June 30, 2020 compared to $33.2 million for the same period in 2019. For the six months ended June 30, 2020, the Company sold $131.5 million of investment securities available for sale, compared to none for the same period in 2019. For the six months ended June 30, 2020, the Company purchased $438.7 million of investment securities available-for-sale, compared to none for the same period in 2019.

Maturities, calls and principal repayments for investment securities held-to-maturity totaled $6.3 million for the six months ended June 30, 2020 compared to $11.5 million for the same period in 2019. There were no sales of investment securities held-to-maturity for the six months ended June 30, 2020 and 2019. For the six months ended June 30, 2020, the Company did not purchase any investment securities held-to-maturity, compared to $0.5 million in purchases of investment securities held-to-maturity for the same period in 2019. During the three months ended June 30, 2020, all held-to-maturity securities were transferred to the available-for-sale portfolio.

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As of June 30, 2020, the fair value of all investment securities available-for-sale was $854.5 million and carried a total of $25.0 million of net unrealized gains, compared to a fair value of $499.0 million and net unrealized gains of $2.8 million as of December 31, 2019. As of June 30, 2020, $14.7 million, or 1.7%, of the portfolio, had gross unrealized losses of $0.1 million. This compares to $205.6 million, or 41.2%, of the portfolio with gross unrealized losses of $1.8 million as of December 31, 2019. The Company's unrealized gain position has increased in 2020 driven by lower long-term interest rates.

As of December 31, 2019, the fair value of all investment securities held-to-maturity was $87.6 million and net unrealized gains of $0.8 million. As of December 31, 2019, $22.3 million, or 25.5%, of the portfolio had gross unrealized losses of $0.2 million.

Restricted Equity Securities

FHLBB Stock—The Company invests in the stock of the FHLBB as one of the requirements to borrow from the FHLBB. The Company maintains an excess balance of capital stock, which allows for additional borrowing capacity at each of the Banks. As of June 30, 2020, the excess balance of capital stock was $0.3 million, as compared to a $0.7 million excess balance as of December 31, 2019.

As of June 30, 2020, the Company owned stock in the FHLBB with a carrying value of $53.1 million, an increase of $17.7 million from $35.5 million as of December 31, 2019. As of June 30, 2020, the FHLBB had total assets of $46.2 billion and total capital of $2.8 billion, of which $1.5 billion was retained earnings. The FHLBB stated that it remained in compliance with all regulatory capital ratios as of June 30, 2020 and was classified as "adequately capitalized" by its regulator, based on the FHLBB's financial information as of December 31, 2019.

Federal Reserve Bank Stock—The Company invests in the stock of the Federal Reserve Bank of Boston, as a condition to the Banks' membership in the Federal Reserve System. As of June 30, 2020, the Company owned stock in the Federal Reserve Bank of Boston with a carrying value of $18.2 million, compared to $18.1 million as of December 31, 2019.

Other Stock—The Company invests in a small number of other restricted equity securities which includes Infinex and American Financial Exchange. As of June 30, 2020, the Company owned stock in other restricted equity securities with a carrying value of $0.3 million, unchanged from December 31, 2019.

Deposits

The following table presents the Company's deposit mix at the dates indicated.



	At June 30, 2020						At December 31, 2019
	Amount		Percent of Total		Weighted Average Rate		Amount		Percent of Total		Weighted Average Rate
	(Dollars in Thousands)
Non-interest-bearing deposits:
Demand checking accounts	$	1,603,037	24.9	%	—	%	$	1,141,578	19.6	%	—	%
Interest-bearing deposits:
NOW accounts	417,622		6.5	%	0.10	%	371,380		6.4	%	0.11	%
Savings accounts	657,758		10.2	%	0.16	%	613,467		10.5	%	0.46	%
Money market accounts	1,809,868		28.1	%	0.39	%	1,682,005		28.9	%	1.15	%
Certificate of deposit accounts	1,951,948		30.3	%	1.89	%	2,021,642		34.7	%	2.26	%
Total interest-bearing deposits	4,837,196		75.1	%	0.94	%	4,688,494		80.4	%	1.46	%
Total deposits	$	6,440,233	100.0	%	0.70	%	$	5,830,072	100.0	%	1.17	%

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

As of June 30, 2020, the Company had $350.2 million of brokered deposits compared to $349.9 million as of December 31, 2019. Brokered deposits allow the Company to seek additional funding by attracting deposits from outside the Company's core market. The Company's investment policy limits the amount of brokered deposits to 15% of total assets. Brokered deposits are included in the certificate of deposit balance, which decreased $69.7 million during the six months ended

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

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

The following table sets forth the distribution of the average balances of the Company's deposit accounts for the periods indicated and the weighted average interest rates on each category of deposits presented. Averages for the periods presented are based on daily balances.



	Three Months Ended June 30,
	2020						2019
	Average Balance		Percent of Total Average Deposits		Weighted Average Rate		Average Balance		Percent of Total Average Deposits		Weighted Average Rate
	(Dollars in Thousands)
Core deposits:
Non-interest-bearing demand checking accounts	$	1,512,089	23.7	%	—	%	$	1,015,524	18.1	%	—	%
NOW accounts	395,158		6.2	%	0.12	%	343,745		6.1	%	0.06	%
Savings accounts	663,782		10.4	%	0.22	%	602,333		10.8	%	0.49	%
Money market accounts	1,784,343		28.0	%	0.47	%	1,683,735		30.1	%	1.33	%
Total core deposits	4,355,372		68.3	%	0.36	%	3,645,337		65.1	%	0.70	%
Certificate of deposit accounts	2,019,195		31.7	%	2.04	%	1,950,704		34.9	%	2.33	%
Total deposits	$	6,374,567	100.0	%	0.80	%	$	5,596,041	100.0	%	1.27	%



	Six Months Ended June 30,
	2020						2019
	Average Balance		Percent of Total Average Deposits		Weighted Average Rate		Average Balance		Percent of Total Average Deposits		Weighted Average Rate
	(Dollars in Thousands)
Core deposits:
Non-interest-bearing demand checking accounts	$	1,323,202	21.7	%	—	%	$	1,021,215	18.4	%	—	%
NOW accounts	377,399		6.2	%	0.12	%	338,983		6.1	%	0.11	%
Savings accounts	645,363		10.6	%	0.31	%	614,307		11.1	%	0.44	%
Money market accounts	1,731,496		28.4	%	0.73	%	1,679,988		30.3	%	1.30	%
Total core deposits	4,077,460		66.8	%	0.55	%	3,654,493		65.8	%	0.68	%
Certificate of deposit accounts	2,030,049		33.2	%	2.13	%	1,897,901		34.2	%	2.26	%
Total deposits	$	6,107,509	100.0	%	0.95	%	$	5,552,394	100.0	%	1.22	%

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As of June 30, 2020 and December 31, 2019, the Company had outstanding certificates of deposit of $250,000 or more, maturing as follows:



	At June 30, 2020				At December 31, 2019
	Amount		Weighted Average Rate		Amount		Weighted Average Rate
	(Dollars in Thousands)
Maturity period:
Six months or less	$	223,165	2.26	%	$	198,279	2.23	%
Over six months through 12 months	182,544		1.86	%	174,154		2.43	%
Over 12 months	133,950		2.23	%	185,078		2.56	%
Total certificate of deposit of $250,000 or more	$	539,659	2.12	%	$	557,511	2.40	%

Borrowed Funds

The following table sets forth certain information regarding advances from the FHLBB, subordinated debentures and notes and other borrowed funds for the periods indicated:



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(Dollars in Thousands)
Borrowed funds:
Average balance outstanding	$	1,256,521		$	929,741		$	1,101,823		$	928,673
Maximum amount outstanding at any month-end during the period	1,406,669			981,860			1,406,669			987,835
Balance outstanding at end of period	1,406,669			930,764			1,406,669			930,764
Weighted average interest rate for the period	1.59		%	2.70		%	1.91		%	2.67		%
Weighted average interest rate at end of period	1.35		%	2.74		%	1.35		%	2.74		%

Advances from the FHLBB

On a long-term basis, the Company intends to continue to increase its core deposits. The Company also uses FHLBB borrowings and other wholesale borrowing as part of the Company's overall strategy to fund loan growth and manage interest-rate risk and liquidity. The advances are secured by a blanket security agreement which requires the Banks to maintain certain qualifying assets as collateral, principally mortgage loans and securities in an aggregate amount at least equal to outstanding advances. The maximum amount that the FHLBB will advance to member institutions, including the Company, fluctuates from time to time in accordance with the policies of the FHLBB.

FHLBB borrowings increased by $509.1 million to $1.3 billion as of June 30, 2020 from the December 31, 2019 balance of $758.5 million. The increase in FHLBB borrowings was primarily due to an increase in new advances from the FHLBB to support asset growth.

Subordinated Debentures and Notes

As part of the acquisition of BankRI, the Company acquired two $5.0 million subordinated debentures due on June 26, 2033 and March 17, 2034, respectively. The Company is obligated to pay 3-month LIBOR plus 3.10% and 3-month LIBOR plus 2.79%, respectively, on a quarterly basis until the debentures mature.

The Company sold $75.0 million of 6.0% fixed-to-floating rate subordinated notes due September 15, 2029. The Company is obligated to pay 6.0% interest semiannually between September 2014 and September 2024. Subsequently, the Company is obligated to pay 3-month LIBOR plus 3.315% quarterly until the notes mature in September 2029.

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The following table summarizes the Company's subordinated debentures and notes at the dates indicated.

Carrying Amount

Issue Date

Rate

Maturity Date

Next Call Date

June 30,
2020

December 31, 2019

(Dollars in Thousands)

June 26, 2003

Variable;

3-month LIBOR + 3.10%

June 26, 2033

September 25, 2020

4,837

4,826

March 17, 2004

Variable;

3-month LIBOR + 2.79%

March 17, 2034

September 16, 2020

4,755

4,739

September 15, 2014

6.0% Fixed-to-Variable;

3-month LIBOR + 3.315%

September 15, 2029

September 15, 2024

74,076

74,026

Total

83,668

83,591

The above carrying amounts of the subordinated debentures included $0.4 million of accretion adjustments and $0.9 million of capitalized debt issuance costs as of June 30, 2020. This compares to $0.4 million of accretion adjustments and $1.0 million of capitalized debt issuance costs as of December 31, 2019.

Other Borrowed Funds

In addition to advances from the FHLBB and subordinated debentures and notes, the Company utilizes other funding sources as part of the overall liquidity strategy. Those funding sources include repurchase agreements, and committed and uncommitted lines of credit with several financial institutions.

The Company periodically enters into repurchase agreements with its larger deposit and commercial customers as part of its cash management services which are typically overnight borrowings. Repurchase agreements with customers increased $12.7 million to $55.4 million as of June 30, 2020 from $42.7 million as of December 31, 2019.

The Company has access to a $12.0 million committed line of credit as of June 30, 2020. As of June 30, 2020 and December 31, 2019, the Company did not have any borrowings on this committed line of credit.

The Banks also have access to funding through several uncommitted lines of credit of $568.0 million. As of June 30, 2020, the Company had no borrowings on outstanding uncommitted lines of credit as compared to $18.0 million as of December 31, 2019.

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Derivative Financial Instruments

The Company has entered into loan level derivatives, risk participation agreements, and foreign exchange contracts with certain of its commercial customers and concurrently enters into offsetting swaps with third-party financial institutions. The Company may also, from time to time, enter into risk participation agreements. The Company uses interest rate futures that are designated and qualify as cash flow hedging instruments. The fair value of these hedges on June 30, 2020 was a net liability position of $6 thousand compared to no position in December 31, 2019.

The following table summarizes certain information concerning the Company's loan level derivatives, risk participation agreements, and foreign exchange contracts at June 30, 2020 and December 31, 2019:



	At June 30, 2020			At December 31, 2019
	(Dollars in Thousands)
Loan level derivatives (Notional principal amounts):
Receive fixed, pay variable	$	1,267,947		$	1,101,193
Pay fixed, receive variable	1,267,947			1,101,193
Risk participation-out agreements	272,196			235,693
Risk participation-in agreements	59,119			55,281
Foreign exchange contracts (Notional amounts):
Buys foreign currency, sells U.S. currency	$	1,332		$	1,125
Sells foreign currency, buys U.S. currency	1,441			1,230
Fixed weighted average interest rate from the Company to counterparty	3.22		%	3.54		%
Floating weighted average interest rate from counterparty to the Company	1.13		%	2.88		%
Weighted average remaining term to maturity (in months)	88			91
Fair value:
Recognized as an asset:
Loan level derivatives	$	165,756		$	59,365
Risk participation-out agreements	2,641			1,229
Foreign exchange contracts	117			54
Recognized as a liability:
Loan level derivatives	$	165,756		$	59,365
Risk participation-in agreements	467			283
Foreign exchange contracts	96			53

Stockholders' Equity and Dividends

The Company's total stockholders' equity was $926.4 million as of June 30, 2020, representing a $19.2 million decrease compared to $945.6 million at December 31, 2019. The decrease primarily reflects dividends paid by the Company of $18.2 million for the six months ended June 30, 2020, $10.4 million due to repurchase shares of treasury stock, and a reduction to retained earnings of $11.5 million due to the implementation of CECL, partially offset by net income attributable to the Company of $2.3 million, and unrealized gain on securities available-for-sale of $17.3 million.

Stockholders' equity represented 10.21% of total assets as of June 30, 2020 and 12.04% of total assets as of December 31, 2019. Tangible stockholders' equity (total stockholders' equity less goodwill and identified intangible assets, net) represented 8.56% of tangible assets (total assets less goodwill and identified intangible assets, net) as of June 30, 2020 and 10.15% as of December 31, 2019.

On December 4, 2019, the Board of Directors approved a stock repurchase program authorizing management to repurchase up to $10.0 million of the Company’s common stock over a period of twelve months commencing on January 1, 2020 and ending on December 31, 2020. On March 9, 2020, the Board of Directors approved an increase in the repurchase amount of $10 million bringing the total authorized amount to $20 million. Subsequently, as previously disclosed, the Company suspended the stock repurchase program effective as of March 24, 2020. As of June 30, 2020, the Company repurchased 848,319 shares at a weighted average price of $12.27. In 2019, 103,758 shares of the Company's common stock were repurchased by the Company.

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The dividend payout ratio was 46.37% for the three months ended June 30, 2020, compared to 42.87% for the same period in 2019.

Results of Operations

The primary drivers of the Company's net income are net interest income, which is strongly affected by the net yield on and growth of interest-earning assets and liabilities, the quality of the Company's assets, its levels of non-interest income and non-interest expense, and its tax provision.

The Company's net interest income represents the difference between interest income earned on its investments, loans and leases, and its cost of funds. Interest income is dependent on the amount of interest-earning assets outstanding during the period and the yield earned thereon. Cost of funds is a function of the average amount of deposits and borrowed money outstanding during the year and the interest rates paid thereon. The net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The increases or decreases, as applicable, in the components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are summarized under "Rate/Volume Analysis" below. Information as to the components of interest income, interest expense and average rates is provided under "Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin" below.

Because the Company's assets and liabilities are not identical in duration and in repricing dates, the differential between the two is vulnerable to changes in market interest rates as well as the overall shape of the yield curve. These vulnerabilities are inherent to the business of banking and are commonly referred to as "interest-rate risk." How interest-rate risk is measured and, once measured, how much interest-rate risk is taken on, are based on numerous assumptions and other subjective judgments. See the discussion in “Item 3. Quantitative and Qualitative Disclosures about Market Risk” below.

The quality of the Company's assets also influences its earnings. Loans and leases that are not paid on a timely basis and exhibit other weaknesses can result in the loss of principal and/or interest income. Additionally, the Company must make timely provisions to the allowance for loan and lease losses based on estimates of probable losses inherent in the loan and lease portfolio. These additions, which are charged against earnings, are necessarily greater when greater probable losses are expected. Further, the Company incurs expenses as a result of resolving troubled assets. These variables reflect the "credit risk" that the Company takes on in the ordinary course of business and are further discussed under "Financial Condition—Asset Quality" above.

Net Interest Income

Net interest income increased $1.2 million to $64.3 million for the three months ended June 30, 2020 from $63.1 million for the three months ended June 30, 2019. This increase reflects a $5.3 million decrease in interest income on loans and leases and a $0.3 million increase in interest income on investment securities, offset by a $6.2 million decrease in interest expense on deposit and borrowings, which is reflective of the various portfolios repricing and replacing balances into the current interest rate environment. Refer to “Results of Operations - Comparison of the Three-Month Period Ended June 30, 2020 and June 30, 2019 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended June 30, 2020 and June 30, 2019 — Interest Expense Deposit and Borrowed Funds” below for more details.

Net interest income decreased $0.1 million to $126.0 million for the six months ended June 30, 2020 from $126.1 million for the six months ended June 30, 2019. This overall decrease reflects a $6.5 million decrease in interest income on loans and leases, along with a $0.1 million decrease in interest income on investment securities, and a $6.5 million decrease in interest expense on deposit and borrowings, which is reflective of the various portfolios repricing and replacing balances into the current interest rate environment. Refer to “Results of Operations - Comparison of the Six-Month Period Ended June 30, 2020 and June 30, 2019 — Interest Income” and “Results of Operations - Comparison of the Six-Month Period Ended June 30, 2020 and June 30, 2019 — Interest Expense Deposit and Borrowed Funds” below for more details.

Net interest margin decreased by 46 basis points to 3.09% for the three months ended June 30, 2020 from 3.55% for the three months ended June 30, 2019. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) decreased to 4.25% for the three months ended June 30, 2020 from 5.14% for the three months ended June 30, 2019. The decrease in net interest margin over the period is a result of most asset categories being fully repriced into the current rate environment, while deposit costs decreased at a slower pace than in prior periods.

Net interest margin decreased by 40 basis points to 3.19% for the six months ended June 30, 2020 from 3.59% for the six months ended June 30, 2019. The Company's weighted average interest rate on loans (prior to purchase accounting

adjustments) decreased to 4.47% for the six months ended June 30, 2020 from 5.11% for the six months ended June 30, 2019. The decrease in net interest margin over the period is a result of most asset categories being fully repriced into the current rate

environment.

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The yield on interest-earning assets decreased to 3.92% for the three months ended June 30, 2020 from 4.88% for the three months ended June 30, 2019. This decrease is the result of lower yields on loans and leases and lower yields on investments. During the three months ended June 30, 2020, the Company recorded $1.2 million in prepayment penalties and late charges, which contributed 5 basis points to yields on interest-earning assets in the three months ended June 30, 2020, compared to $0.9 million, or 5 basis points, for the three months ended June 30, 2019.

The yield on interest-earning assets decreased to 4.17% for the six months ended June 30, 2020 from 4.86% for the six months ended June 30, 2019. This decrease is the result of lower yields on loans and leases and lower yields on investments. During the six months ended June 30, 2020, the Company recorded $1.9 million in prepayment penalties and late charges, which contributed 5 basis points to yields on interest-earning assets in the six months ended June 30, 2020, compared to $2.1 million, or 6 basis points, for the six months ended June 30, 2019.

The overall cost of funds (including non-interest-bearing demand checking accounts) decreased 53 basis points to 0.94% for the three months ended June 30, 2020 from 1.47% for the three months ended June 30, 2019. The overall cost of funds (including non-interest-bearing demand checking accounts) decreased 33 basis points to 1.10% for the six months ended June 30, 2020 from 1.43% for the six months ended June 30, 2020. Refer to "Financial Condition - Borrowed Funds" above for more details.

Management seeks to position the balance sheet to be neutral to asset sensitive to changes in interest rates. From 2017 through 2019, short term interest rates have risen while at the same time net interest income, net interest spread, and net interest margin have also increased. During the first and second quarters of 2020 interest rates declined sharply in response to the economic impact of the COVID-19 pandemic. In general, the Company's balance sheet position should respond positively in a rising interest rate environment and when the rate curves are steepening which should result in a positive impact to net interest income, net interest spread, and the net interest margin. A declining interest rate or flattening yield curve environment is expected to have a negative impact on the Company's yields and net interest margin. Due to, among other things, ongoing pricing pressures in the loan and deposit portfolios, net interest income may also be negatively affected by changes in the amount of accretion on acquired loans and leases, deposits and borrowed funds, which is included in interest income and interest expense, respectively.

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Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin

The following table sets forth information about the Company's average balances, interest income and interest rates earned on average interest-earning assets, interest expense and interest rates paid on average interest-bearing liabilities, interest-rate spread and net interest margin for the three and six months ended June 30, 2020 and June 30, 2019. Average balances are derived from daily average balances and yields include fees, costs and purchase-accounting-related premiums and discounts which are considered adjustments to coupon yields in accordance with GAAP. Certain amounts previously reported have been reclassified to conform to the current presentation.

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	Three Months Ended
	June 30, 2020							June 30, 2019
	Average Balance			Interest (1)		Average Yield/ Cost		Average Balance			Interest (1)		Average Yield/ Cost
	(Dollars in Thousands)
Assets:
Interest-earning assets:
Debt securities	$	773,523		$	3,719	1.92	%	$	593,404		$	3,210	2.16	%
Marketable and restricted equity securities	71,058			915		5.15	%	59,224			888		5.99	%
Short-term investments	245,577			99		0.16	%	44,634			351		3.14	%
Total investments	1,090,158			4,733		1.74	%	697,262			4,449		2.55	%
Commercial real estate loans ⁽²⁾	3,761,667			36,829		3.87	%	3,447,136			41,363		4.75	%
Commercial loans ⁽²⁾	1,234,537			10,450		3.35	%	811,890			9,879		4.82	%
Equipment financing ⁽²⁾	1,069,192			18,973		7.10	%	1,005,376			18,291		7.28	%
Residential mortgage loans ⁽²⁾	814,431			8,068		3.96	%	774,533			8,186		4.23	%
Other consumer loans ⁽²⁾	411,326			3,153		3.07	%	417,600			5,187		4.97	%
Total loans and leases	7,291,153			77,473		4.25	%	6,456,535			82,906		5.14	%
Total interest-earning assets	8,381,311			82,206		3.92	%	7,153,797			87,355		4.88	%
Allowance for loan and lease losses	(114,188		)					(58,137		)
Non-interest-earning assets	602,417							475,736
Total assets	$	8,869,540						$	7,571,396
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts	$	395,158		114		0.12	%	$	343,745		50		0.06	%
Savings accounts	663,782			357		0.22	%	602,333			737		0.49	%
Money market accounts	1,784,343			2,074		0.47	%	1,683,735			5,571		1.33	%
Certificate of deposit	2,019,195			10,233		2.04	%	1,950,704			11,354		2.33	%
Total interest-bearing deposits ⁽³⁾	4,862,478			12,778		1.06	%	4,580,517			17,712		1.55	%
Advances from the FHLBB	1,102,079			3,751		1.35	%	761,651			4,825		2.51	%
Subordinated debentures and notes	83,647			1,263		6.04	%	83,490			1,305		6.25	%
Other borrowed funds	70,795			44		0.25	%	84,600			208		0.99	%
Total borrowed funds	1,256,521			5,058		1.59	%	929,741			6,338		2.70	%
Total interest-bearing liabilities	6,118,999			17,836		1.17	%	5,510,258			24,050		1.75	%
Non-interest-bearing liabilities:
Non-interest-bearing demand checking accounts ⁽³⁾	1,512,089							1,015,524
Other non-interest-bearing liabilities	312,213							133,790
Total liabilities	7,943,301							6,659,572
Brookline Bancorp, Inc. stockholders' equity	926,239							911,824
Total liabilities and stockholders' equity	$	8,869,540						$	7,571,396
Net interest income (tax-equivalent basis) / Interest-rate spread ⁽⁴⁾				64,370		2.75	%				63,305		3.13	%
Less adjustment of tax-exempt income				82							171
Net interest income				$	64,288						$	63,134
Net interest margin ⁽⁵⁾						3.09	%						3.55	%

_________________________________________________________________________

(1) Tax-exempt income on debt securities, equity securities and industrial revenue bonds are included in commercial real estate loans on a tax-equivalent basis.

(2) Loans on nonaccrual status are included in the average balances.

(3) Including non-interest-bearing checking accounts, the average interest rate on total deposits was 0.81% and 1.27% in the three months ended June 30, 2020 and June 30, 2019, respectively.

(4) Interest-rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(5) Net interest margin represents net interest income (tax equivalent basis) divided by average interest-earning assets.

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	Six Months Ended
	June 30, 2020							June 30, 2019
	Average Balance			Interest (1)		Average Yield/ Cost		Average Balance			Interest (1)		Average Yield/ Cost
	(Dollars in Thousands)
Assets:
Interest-earning assets:
Debt securities	$	689,704		$	6,743	1.96	%	$	600,758		$	6,499	2.16	%
Marketable and restricted equity securities	64,968			1,701		5.24	%	59,803			1,808		6.05	%
Short-term investments	164,943			308		0.37	%	38,866			618		3.18	%
Total investments	919,615			8,752		1.90	%	699,427			8,925		2.55	%
Commercial real estate loans ⁽²⁾	3,729,339			77,297		4.10	%	3,412,051			81,382		4.74	%
Commercial loans ⁽²⁾	1,008,923			18,778		3.68	%	802,346			19,482		4.83	%
Equipment financing ⁽²⁾	1,061,019			37,919		7.15	%	996,832			36,276		7.28	%
Residential mortgage loans ⁽²⁾	812,507			16,002		3.94	%	776,419			16,309		4.20	%
Other consumer loans ⁽²⁾	414,570			7,108		3.43	%	412,914			10,238		4.99	%
Total loans and leases	7,026,358			157,104		4.47	%	6,400,562			163,687		5.11	%
Total interest-earning assets	7,945,973			165,856		4.17	%	7,099,989			172,612		4.86	%
Allowance for loan and lease losses	(91,384		)					(58,441		)
Non-interest-earning assets	563,094							461,548
Total assets	$	8,417,683						$	7,503,096
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts	$	377,399		230		0.12	%	$	338,983		192		0.11	%
Savings accounts	645,363			1,000		0.31	%	614,307			1,334		0.44	%
Money market accounts	1,731,496			6,315		0.73	%	1,679,988			10,846		1.30	%
Certificate of deposit	2,030,049			21,473		2.13	%	1,897,901			21,288		2.26	%
Total interest-bearing deposits ⁽³⁾	4,784,307			29,018		1.22	%	4,531,179			33,660		1.50	%
Advances from the FHLBB	937,271			7,848		1.66	%	758,613			9,435		2.47	%
Subordinated debentures and notes	83,628			2,547		6.09	%	83,471			2,613		6.26	%
Other borrowed funds	80,924			233		0.58	%	86,589			429		1.00	%
Total borrowed funds	1,101,823			10,628		1.91	%	928,673			12,477		2.67	%
Total interest-bearing liabilities	5,886,130			39,646		1.35	%	5,459,852			46,137		1.70	%
Non-interest-bearing liabilities:
Non-interest-bearing demand checking accounts	1,323,202							1,021,215
Other non-interest-bearing liabilities	272,162							122,544
Total liabilities	7,481,494							6,603,611
Brookline Bancorp, Inc. stockholders' equity	936,189							899,301
Noncontrolling interest in subsidiary	—							184
Total liabilities and stockholders' equity	$	8,417,683						$	7,503,096
Net interest income (tax-equivalent basis) / Interest-rate spread ⁽⁴⁾				126,210		2.82	%				126,475		3.16	%
Less adjustment of tax-exempt income				210							342
Net interest income				$	126,000						$	126,133
Net interest margin ⁽⁵⁾						3.19	%						3.59	%

_________________________________________________________________________

(1) Tax-exempt income on debt securities, equity securities and industrial revenue bonds are included in commercial real estate loans on a tax-equivalent basis.

(2) Loans on nonaccrual status are included in the average balances.

(3) Including non-interest-bearing checking accounts, the average interest rate on total deposits was 0.96% and 1.22% in the six months ended June 30, 2020 and June 30, 2019, respectively.

(4) Interest-rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(5) Net interest margin represents net interest income (tax equivalent basis) divided by average interest-earning assets.

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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 June 30, 2020 as Compared to the Three Months Ended June 30, 2019									Six Months Ended June 30, 2020 as Compared to the Six Months Ended June 30, 2019
	Increase (Decrease) Due To									Increase (Decrease) Due To
	Volume			Rate			Net Change			Volume			Rate			Net Change
	(In Thousands)
Interest and dividend income:
Investments:
Debt securities	$	891		$	(382	)	$	509		$	885		$	(641	)	$	244
Marketable and restricted equity securities	161			(134		)	27			147			(254		)	(107		)
Short-term investments	338			(590		)	(252		)	610			(920		)	(310		)
Total investments	1,390			(1,106		)	284			1,642			(1,815		)	(173		)
Loans and leases:
Commercial real estate loans	3,482			(8,016		)	(4,534		)	7,191			(11,276		)	(4,085		)
Commercial loans and leases	4,102			(3,531		)	571			4,402			(5,106		)	(704		)
Equipment financing	1,138			(456		)	682			2,295			(652		)	1,643
Residential mortgage loans	412			(530		)	(118		)	729			(1,036		)	(307		)
Other consumer loans	(77		)	(1,957		)	(2,034		)	41			(3,171		)	(3,130		)
Total loans	9,057			(14,490		)	(5,433		)	14,658			(21,241		)	(6,583		)
Total change in interest and dividend income	10,447			(15,596		)	(5,149		)	16,300			(23,056		)	(6,756		)
Interest expense:
Deposits:
NOW accounts	8			56			64			21			17			38
Savings accounts	67			(447		)	(380		)	67			(401		)	(334		)
Money market accounts	313			(3,810		)	(3,497		)	326			(4,857		)	(4,531		)
Certificate of deposit	372			(1,493		)	(1,121		)	1,445			(1,260		)	185
Total deposits	760			(5,694		)	(4,934		)	1,859			(6,501		)	(4,642		)
Borrowed funds:
Advances from the FHLBB	1,632			(2,706		)	(1,074		)	1,891			(3,478		)	(1,587		)
Subordinated debentures and notes	2			(44		)	(42		)	5			(71		)	(66		)
Other borrowed funds	(29		)	(135		)	(164		)	(26		)	(170		)	(196		)
Total borrowed funds	1,605			(2,885		)	(1,280		)	1,870			(3,719		)	(1,849		)
Total change in interest expense	2,365			(8,579		)	(6,214		)	3,729			(10,220		)	(6,491		)
Change in tax-exempt income	(89		)	—			(89		)	(132		)	—			(132		)
Change in net interest income	$	8,171		$	(7,017	)	$	1,154		$	12,703		$	(12,836	)	$	(133	)

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Interest Income

Loans and Leases



	Three Months Ended June 30,				Dollar Change			Percent Change		Six Months Ended June 30,				Dollar Change			Percent Change
	2020		2019		Dollar Change			Percent Change		2020		2019		Dollar Change			Percent Change
	(Dollars in Thousands)
Interest income—loans and leases:
Commercial real estate loans	$	36,830	$	41,363	$	(4,533	)	(11.0	)%	$	77,297	$	81,382	$	(4,085	)	(5.0	)%
Commercial loans	10,393		9,773		620			6.3	%	18,649		19,267		(618		)	(3.2	)%
Equipment financing	18,973		18,291		682			3.7	%	37,919		36,275		1,644			4.5	%
Residential mortgage loans	8,067		8,185		(118		)	(1.4	)%	16,002		16,309		(307		)	(1.9	)%
Other consumer loans	3,153		5,186		(2,033		)	(39.2	)%	7,108		10,237		(3,129		)	(30.6	)%
Total interest income—loans and leases	$	77,416	$	82,798	$	(5,382	)	(6.5	)%	$	156,975	$	163,470	$	(6,496	)	(4.0	)%

Interest income from loans and leases was $77.4 million for the three months ended June 30, 2020, and represented a yield on total loans of 4.25%. This compares to $82.8 million of interest on loans and a yield of 5.14% for the three months ended June 30, 2019. The $5.4 million decrease in interest income from loans and leases was primarily attributable to an increase of $9.1 million due to an increase in origination volume, offset by a decrease of $14.5 million due to changes in interest rates.

Interest income from loans and leases was $157.0 million for the six months ended June 30, 2020, and represented a yield on total loans of 4.47%. This compares to $163.5 million of interest on loans and a yield of 5.11% for the six months ended June 30, 2019. The $6.5 million decrease in interest income from loans and leases was primarily attributable to an increase of $14.7 million due to an increase in origination volume, offset by a decrease of $21.2 million due to the changes in interest rates.

Investments



	Three Months Ended June 30,				Dollar Change			Percent Change		Six Months Ended June 30,				Dollar Change			Percent Change
	2020		2019		Dollar Change			Percent Change		2020		2019		Dollar Change			Percent Change
	(Dollars in Thousands)
Interest income—investments:
Debt securities	$	3,701	$	3,158	$	543		17.2	%	$	6,677	$	6,394	$	283		4.4	%
Marketable and restricted equity securities	908		877		31			3.5	%	1,686		1,788		(102		)	(5.7	)%
Short-term investments	99		351		(252		)	(71.8	)%	308		618		(310		)	(50.2	)%
Total interest income—investments	$	4,708	$	4,386	$	322		7.3	%	$	8,671	$	8,800	$	(129	)	(1.5	)%

Total investment income was $4.7 million for the three months ended June 30, 2020 compared to $4.4 million for the three months ended June 30, 2019. For the three months ended June 30, 2020 and 2019, the yield on total investments was 1.7% and 2.6%, respectively. The year-over-year increase in interest income on investments of $0.3 million, or 7.3%, was primarily driven by a $1.4 million increase due to volume, partially offset by a $1.1 million decrease due to rates.

Total investment income was $8.7 million and $8.8 million for the six months ended June 30, 2020 and June 30, 2019, respectively. For the six months ended June 30, 2020 and 2019, the yield on total investments was 1.9% and 2.6%, respectively. The year-over-year decrease in interest income on investments of $0.1 million, or 1.5%, was primarily driven by a $1.8 million decrease due to rates, partially offset by a $1.7 million increase due to volume.

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Interest Expense—Deposits and Borrowed Funds



	Three Months Ended June 30,				Dollar Change			Percent Change		Six Months Ended June 30,				Dollar Change			Percent Change
	2020		2019		Dollar Change			Percent Change		2020		2019		Dollar Change			Percent Change
	(Dollars in Thousands)
Interest expense:
Deposits:
NOW accounts	$	114	$	50	$	64		128.0	%	$	230	$	192	$	38		19.8	%
Savings accounts	357		737		(380		)	(51.6	)%	1,000		1,334		(334		)	(25.0	)%
Money market accounts	2,074		5,571		(3,497		)	(62.8	)%	6,315		10,846		(4,531		)	(41.8	)%
Certificates of deposit	10,233		11,354		(1,121		)	(9.9	)%	21,473		21,288		185			0.9	%
Total interest expense - deposits	12,778		17,712		(4,934		)	(27.9	)%	29,018		33,660		(4,642		)	(13.8	)%
Borrowed funds:
Advances from the FHLBB	3,751		4,825		(1,074		)	(22.3	)%	7,848		9,435		(1,587		)	(16.8	)%
Subordinated debentures and notes	1,263		1,305		(42		)	(3.2	)%	2,547		2,613		(66		)	(2.5	)%
Other borrowed funds	44		208		(164		)	(78.8	)%	233		429		(196		)	(45.7	)%
Total interest expense - borrowed funds	5,058		6,338		(1,280		)	(20.2	)%	10,628		12,477		(1,849		)	(14.8	)%
Total interest expense	$	17,836	$	24,050	$	(6,214	)	(25.8	)%	$	39,646	$	46,137	$	(6,491	)	(14.1	)%

Deposits

For the three months ended June 30, 2020, interest expense on deposits decreased $4.9 million, or 27.9%, as compared to the same period in 2019. The decrease in interest expense on deposits was driven by a decrease of $5.7 million due to a decrease in interest rates, partially offset by an increase of $0.8 million due to the growth in deposits. Purchase accounting amortization on acquired deposits for the three months ended June 30, 2020 was $0 thousand and no basis points, compared to $66 thousand and no basis points for the three months ended June 30, 2019.

Interest expense on deposits decreased $4.6 million, or 13.8%, to $29.0 million for the six months ended June 30, 2020 from $33.7 million for the six months ended June 30, 2019. The decrease in interest expense on deposits was due to a $6.5 million decrease due to interest rates and a $1.9 million increase due to growth in deposits. Purchase accounting amortization on acquired deposits for the six months ended June 30, 2020 was $44.0 thousand and no basis points, compared to $251 thousand and 1 basis point for the six months ended June 30, 2019.

Borrowed Funds

During the three months ended June 30, 2020, interest paid on borrowed funds decreased $1.3 million, or 20.2% year over year, primarily driven by an increase in FHLBB borrowings. The cost of borrowed funds decreased to 1.59% for the three months ended June 30, 2020 from 2.70% for the three months ended June 30, 2019. The decrease in interest expense was driven by a decrease of $2.9 million due to borrowing rates and was partially offset by an increase of $1.6 million due to volume. For the three months ended June 30, 2020, there was purchase accounting accretion of $14.0 thousand and nobasis points on acquired borrowed funds compared to amortization of $14.0 thousand and no basis points for the three months ended June 30, 2019.

Interest expense on borrowed funds decreased $1.8 million, or 14.8%, to $10.6 million for the six months ended June 30, 2020 from $12.5 million for the six months ended June 30, 2019. The cost of borrowed funds decreased to 1.91% for the six months ended June 30, 2020 from 2.67% for the six months ended June 30, 2019. The decrease in interest expense was driven by a decrease of $3.7 million due to borrowing rates, partially offset by an increase of $1.9 million due to volume. For the six months ended June 30, 2020, there was purchase accounting accretion of $27 thousand and no basis points on acquired borrowed funds compared to accretion of $29 thousand and no basis points for the six months ended June 30, 2019.

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Provision for Credit Losses

The provisions for credit losses are set forth below:



	Three Months Ended June 30,					Dollar Change			Percent Change		Six Months Ended June 30,					Dollar Change		Percent Change
	2020			2019		Dollar Change			Percent Change		2020		2019			Dollar Change		Percent Change
	(Dollars in Thousands)
Provision for loan and lease losses:
Commercial real estate	$	7,738		$	319	$	7,419		2,325.7	%	$	47,938	$	481		$	47,457	(9,866.3	)%
Commercial	(338		)	3,200		(3,538		)	(110.6	)%	6,562		4,281			2,281		53.3	%
Consumer	355			157		198			(126.1	)%	956		364			592		162.6	%
Total provision for loan and lease losses	7,755			3,676		4,079			111.0	%	55,456		5,126			50,330		981.9	%
Unfunded credit commitments	(2,408		)	81		(2,489		)	(3,072.8	)%	4,005		(16		)	4,021		25,131.3	%
Total provision for credit losses	$	5,347		$	3,757	$	1,590		42.3	%	$	59,461	$	5,110		$	54,351	1,063.6	%

For the three months ended June 30, 2020, the provision for credit losses increased $1.6 million to $5.3 million from $3.8 million for the three months ended June 30, 2019. For the six months ended June 30, 2020, the provision for credit losses increased $54.4 million to $59.5 million from $5.1 million for the six months ended June 30, 2019. The increase in the provision for credit losses for the three and six months ended June 30, 2020 was primarily driven by changes in macroeconomic forecasts surrounding the COVID-19 pandemic during the first and second quarters of 2020. The latest available economic forecasts were used in the loss models which reflected the immediate and longer term effects of the COVID-19 pandemic onto the Company's allowance for credit losses.

See management’s discussion of “Financial Condition — Allowance for Loan and Lease Losses” and Note 5, “Allowance for Loan and Lease Losses,” to the unaudited consolidated financial statements for a description of how management determined the allowance for loan and lease losses for each portfolio and class of loans.

Non-Interest Income

The following table sets forth the components of non-interest income:



	Three Months Ended June 30,				Dollar Change			Percent Change		Six Months Ended June 30,				Dollar Change			Percent Change
	2020		2019		Dollar Change			Percent Change		2020		2019		Dollar Change			Percent Change
	(Dollars in Thousands)
Deposit fees	$	1,929	$	2,680	$	(751	)	(28.0	)%	$	4,387	$	5,203	$	(816	)	(15.7	)%
Loan fees	513		398		115			28.9	%	1,063		811		252			31.1	%
Loan level derivative income, net	1,440		1,772		(332		)	(18.7	)%	3,596		3,517		79			2.2	%
Gain on investment securities	586		357		229			64.1	%	1,916		491		1,425			290.2	%
Gain on sales of loans and leases held-for-sale	299		561		(262		)	(46.7	)%	419		850		(431		)	(50.7	)%
Other	1,468		1,710		(242		)	(14.2	)%	4,182		3,236		946			29.2	%
Total non-interest income	$	6,235	$	7,478	$	(1,243	)	(16.6	)%	$	15,563	$	14,108	$	1,455		10.3	%

For the three months ended June 30, 2020, non-interest income decreased $1.2 million, or 16.6%, to $6.2 million as compared to $7.5 million for the same period of 2019. This decrease is primarily due to a $0.8 million decrease in deposit fees and a $0.3 million decrease in loan level derivative income.

For the six months ended June 30, 2020, non-interest income increased $1.5 million, or 10.3%, to $15.6 million as compared to $14.1 million for the same period in 2019. This increase is primarily due to a $1.4 million increase in gain on sales of investment securities and a $0.9 million increase in other income, partially offset by a $0.8 million decrease in deposit fees.

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Deposit fees decreased $0.8 million, or 28.0%, to $1.9 million for the three months ended June 30, 2020 from $2.7 million for the same period in 2019, and decreased $0.8 million, or 15.7% to $4.4 million for the six months ended June 30, 2020 from $5.2 million for the same period in 2019, primarily driven by a decrease in insufficient funds fees and debit card income.

Loan level derivative income decreased $0.3 million, or 18.7%, to $1.4 million for the three months ended June 30, 2020 from $1.8 million for the same period in 2019, and increased $0.1 million, or 2.2%, to $3.6 million for the six months ended June 30, 2020 from $3.5 million for the same period in 2019, primarily driven by a decrease of two loan level derivative transactions completed for the three months ended June 30, 2020.

Gain on investment securities increased $0.2 million, or 64.1%, to $0.6 million for the three months ended June 30, 2020 from $0.4 million for the same period in 2019, and increased $1.4 million, or 290.2%, to $1.9 million for the six months ended June 30, 2020 from $0.5 million for the same period in 2019, primarily driven by investment securities sold in the first quarter of 2020, partially offset by a loss on equity securities held for trading.

Other income decreased $0.2 million, or 14.2%, to $1.5 million for the three months ended June 30, 2020 from $1.7 million for the same period in 2019 primarily driven by a decrease in gain on interest rate derivatives. Other income increased $0.9 million, or 29.2%, to $4.2 million for the six months ended June 30, 2020 from $3.2 million for the same period in 2019 primarily due to increases in gain on interest rate derivatives, gain on other assets and investment sales advisory fees.

Non-Interest Expense

The following table sets forth the components of non-interest expense:



	Three Months Ended June 30,				Dollar Change			Percent Change		Six Months Ended June 30,				Dollar Change			Percent Change
	2020		2019		Dollar Change			Percent Change		2020		2019		Dollar Change			Percent Change
	(Dollars in Thousands)
Compensation and employee benefits	$	24,619	$	23,953	$	666		2.8	%	$	49,838	$	47,696	$	2,142		4.5	%
Occupancy	3,825		3,752		73			1.9	%	7,778		7,699		79			1.0	%
Equipment and data processing	4,155		4,641		(486		)	(10.5	)%	8,858		9,302		(444		)	(4.8	)%
Professional services	1,056		1,087		(31		)	(2.9	)%	2,707		2,163		544			25.2	%
FDIC insurance	858		745		113			15.2	%	1,236		1,338		(102		)	(7.6	)%
Advertising and marketing	1,017		1,112		(95		)	(8.5	)%	2,092		2,181		(89		)	(4.1	)%
Amortization of identified intangible assets	311		420		(109		)	(26.0	)%	647		822		(175		)	(21.3	)%
Other	3,268		3,894		(626		)	(16.1	)%	6,701		7,274		(573		)	(7.9	)%
Total non-interest expense	$	39,109	$	39,604	$	(495	)	(1.2	)%	$	79,857	$	78,475	$	1,382		1.8	%

For the three months ended June 30, 2020, non-interest expense decreased $0.5 million, or 1.2%, to $39.1 million as compared to $39.6 million for the same period in 2019. The decrease is due to a $0.6 million decrease in other expense and a $0.5 million decrease in equipment and data processing, partially offset by a $0.7 million increase in compensation and employee benefits expense and a $0.1 million increase in FDIC insurance.

For the six months ended June 30, 2020, non-interest expense increased $1.4 million, or 1.8%, to $79.9 million as compared to $78.5 million for the same period in 2019. This increase is primarily due to a $2.1 million increase in compensation and employee benefits expense, and a $0.5 million increase in professional fees, partially offset by a $0.6 million decrease in other expense and a $0.4 million decrease in equipment and data processing expense.

Compensation and employee benefits expense increased $0.7 million, or 2.8%, to $24.6 million for the three months ended June 30, 2020 from $24.0 million for the same period in 2019, and increased $2.1 million, or 4.5%, to $49.8 million for the six months ended June 30, 2019 from $47.7 million for the same period in 2019, primarily driven by increases in employee headcount, salaries and incentives, and health care benefits.

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Equipment and data processing expense decreased $0.5 million, or 10.5%, to $4.2 million for the three months ended June 30, 2020 from $4.6 million for the same period in 2019, and decreased $0.4 million, or 4.8%, to $8.9 million for the six months ended June 30, 2020 from $9.3 million for the same period in 2019, primarily driven by lower purchased software depreciation and data communications expenses.

Professional services expense increased $0.5 million, or 25.2%, to $2.7 million for the six months ended June 30, 2020 from $2.2 million for the same period in 2019, primarily driven by higher professional services fees related to the implementation of CECL in the first quarter of 2020.

FDIC insurance expense increased $0.1 million, or 15.2%, to $0.9 million for the three months ended June 30, 2020 from $0.7 million for the same period in 2019, and decreased $0.1 million, or 7.6%, to $1.2 million for the six months ended June 30, 2020 from $1.3 million for the same period in 2019, primarily driven by bank assessment fees from the FDIC.

Other non-interest expense decreased $0.6 million, or 16.1%, to $3.3 million for the three months ended June 30, 2020 from $3.9 million for the same period in 2019, and decreased $0.6 million, or 7.9%, to $6.7 million for the six months ended June 30, 2020 from $7.3 million for the same period in 2019, primarily driven by decreases in OREO expense, deferred loan expense, and travel and accommodations expense.

Provision for Income Taxes



	Three Months Ended June 30,						Dollar Change			Percent Change		Six Months Ended June 30,						Dollar Change			Percent Change
	2020			2019			Dollar Change			Percent Change		2020			2019			Dollar Change			Percent Change
	(Dollars in Thousands)
Income before provision for income taxes	$	26,067		$	27,251		$	(1,184	)	(4.3	)%	$	2,245		$	56,656		$	(54,411	)	(96.0	)%
Provision (benefit) for income taxes	6,496			6,780			(284		)	(4.2	)%	(50		)	13,675			(13,725		)	(100.4	)%
Net (loss) income, before non-controlling interest in subsidiary	$	19,571		$	20,471		$	(900	)	(4.4	)%	$	2,295		$	42,981		$	(40,686	)	(94.7	)%
Effective tax rate	24.9		%	24.9		%	N/A			—	%	(2.2		)%	24.1		%	N/A			(109.1	)%

The Company recorded an income tax expense of $6.5 million for the three months ended June 30, 2020, compared to an income tax expense of $6.8 million for the three months ended June 30, 2019, representing effective tax rates of 24.9% and 24.9%, respectively.

The Company recorded an income tax benefit of $0.1 million for the six months ended June 30, 2020, compared to $13.7 million income tax expense for the six months ended June 30, 2019, representing effective tax rates of (2.2)% and 24.1%, respectively. The changes in the Company's effective tax rate for the six months ended June 30, 2020 and 2019 were primarily driven by the significant decrease in pre-tax income as a result of the COVID-19 pandemic and its impact on the Company's provision for loan losses. The Company is showing both pre-tax income and a benefit for income taxes primarily driven by Management's decision to amend the Brookline Bank and First Commons tax returns. The CARES Act instituted new net operating loss (NOL) carryback rules and the decision to amend these returns resulted in an income tax benefit to the Company.

Liquidity and Capital Resources

Liquidity

Liquidity is defined as the ability to meet current and future financial obligations of a short-term nature. The Company further defines liquidity as the ability to respond to the needs of depositors and borrowers, as well as to earnings enhancement opportunities, in a changing marketplace. Liquidity management is monitored by an Asset/Liability Committee ("ALCO"), consisting of members of management, which is responsible for establishing and monitoring liquidity targets as well as strategies and tactics to meet these targets. The primary source of funds for the payment of dividends and expenses by the Company is dividends paid to it by the Banks and Brookline Securities Corp. The primary sources of liquidity for the Banks consist of deposit inflows, loan repayments, borrowed funds, and maturing investment securities.

The worldwide pandemic caused by COVID-19 has caused management to reevaluate the liquidity positioning of the balance sheet. The Company continues to execute on a contingent liquidity plan for a severely adverse operating environment. The most visible result of this plan is an increase to balance sheet liquidity in the form of excess cash and highly liquid

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securities. This increase of cash and securities is to meet unexpected deposit outflows and provide a buffer to unexpected missed cash inflows due to deferred payments of principal and interest from the loan portfolio.

Management has decided to increase the amount of on balance sheet liquidity in the form of cash and available for sale securities since the start of the COVID-19 pandemic. Cash and equivalents at the end of the quarter were $254.9 million, or 2.8% of the balance sheet, compared to $77.8 million, or 1.0% of the balance sheet, as of December 31, 2019. In general, in a normal operating environment, the Company seeks to maintain liquidity and targets cash, cash equivalents and investment securities available-for-sale balances of between 5% and 10% of total assets. Due to the current challenging operating environment, management increased this target operating range to between 10% and 15% of total assets. As of June 30, 2020, cash, cash equivalents and investment securities available-for-sale totaled $1.1 billion, or 12.2% of total assets. This compares to $576.8 million, or 7.3% of total assets, as of December 31, 2019.

Deposits, which are considered the most stable source of liquidity, totaled $6.4 billion as of June 30, 2020 and represented 82.1% of total funding (the sum of total deposits and total borrowings), compared to deposits of $5.8 billion, or 86.6% of total funding, as of December 31, 2019. Core deposits, which consist of demand checking, NOW, savings and money market accounts, totaled $4.5 billion as of June 30, 2020 and represented 69.7% of total deposits, compared to core deposits of $3.8 billion, or 65.3% of total deposits, as of December 31, 2019. Additionally, the Company had $350.2 million of brokered deposits as of June 30, 2020, which represented 5.4% of total deposits, compared to $349.9 million or 6.0% of total deposits, as of December 31, 2019. The Company offers attractive interest rates based on market conditions to increase deposits balances, while managing cost of funds.

Borrowings are used to diversify the Company's funding mix and to support asset growth. When profitable lending and investment opportunities exist, access to borrowings provides a means to grow the balance sheet. Borrowings totaled $1.4 billion as of June 30, 2020, representing 17.9% of total funding, compared to $902.7 million, or 13.4% of total funding, as of December 31, 2019. The growth in the balance sheet is directly tied to the current operating environment and management will continue to monitor the situation and unwind the sudden growth when it is appropriate.

As members of the FHLBB, the Banks have access to both short- and long-term borrowings. As of June 30, 2020, the Company's total borrowing limit from the FHLBB for advances and repurchase agreements was $2.2 billion, compared to $2.1 billion as of December 31, 2019, based on the level of qualifying collateral available for these borrowings.

As of June 30, 2020, the Banks also have access to funding through certain uncommitted lines of credit of $568.0 million.

The Company had a $12.0 million committed line of credit for contingent liquidity as of June 30, 2020. As of June 30, 2020, the Company did not have any outstanding borrowings on this line.

The Company has access to the Federal Reserve Bank's "discount window" to supplement its liquidity. The Company has $516.8 million of borrowing capacity at the Federal Reserve Bank as of June 30, 2020. As of June 30, 2020, the Company did not have any outstanding borrowings with the Federal Reserve Bank.

Additionally, the Banks have access to liquidity through repurchase agreements and additional untapped brokered deposits.

While management believes that the Company has adequate liquidity to meet its commitments and to fund the Banks' lending and investment activities, the availabilities of these funding sources are subject to broad economic conditions and could be restricted in the future. Such restrictions would impact the Company's immediate liquidity and/or additional liquidity needs.

Off-Balance-Sheet Financial Instruments

The Company is party to off-balance-sheet financial instruments in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby and commercial letters of credit and interest-rate swaps. According to GAAP, these financial instruments are not recorded in the financial statements until they are funded or related fees are incurred or received.

The contract amounts reflect the extent of the involvement the Company has in particular classes of these instruments. Such commitments involve, to varying degrees, elements of credit risk and interest-rate risk in excess of the amount recognized in the consolidated balance sheet. The Company’s exposure to credit loss in the event of non-performance by the counterparty is represented by the contractual amount of the instruments. The Company uses the same policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

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Financial instruments with off-balance-sheet risk at the dates indicated follow:



	At June 30, 2020		At December 31, 2019
	(In Thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to originate loans and leases:
Commercial real estate	$	45,299	$	50,034
Commercial	102,133		78,058
Residential mortgage	32,323		25,998
Unadvanced portion of loans and leases	823,324		808,681
Unused lines of credit:
Home equity	565,382		528,251
Other consumer	48,699		25,374
Other commercial	447		380
Unused letters of credit:
Financial standby letters of credit	10,802		10,166
Performance standby letters of credit	6,068		4,652
Commercial and similar letters of credit	2,447		3,823
Loan level derivatives:
Receive fixed, pay variable	1,267,947		1,101,193
Pay fixed, receive variable	1,267,947		1,101,193
Risk participation-out agreements	272,196		235,693
Risk participation-in agreements	59,119		55,281
Foreign exchange contracts:
Buys foreign currency, sells U.S. currency	1,332		1,125
Sells foreign currency, buys U.S. currency	1,441		1,230

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Capital Resources

As of June 30, 2020, the Company and the Banks are each under the primary regulation of, and must comply with, the capital requirements of the FRB. Under these rules, the Company and the Banks are each required to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital leverage ratio of 6.0%, a minimum total risk based capital ratio of 8% and a minimum Tier 1 leverage ratio of 4%. Additionally, the Company and the Banks are required to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases. As of June 30, 2020, the Company and the Banks exceeded all regulatory capital requirements, and the Banks were each considered “well-capitalized” under prompt corrective action regulations.

The following table presents actual and required capital amounts and capital ratios as of June 30, 2020 for the Company and the Banks.



	Actual				Minimum Required for Capital Adequacy Purposes				Minimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer				Minimum Required to be Considered “Well-Capitalized” Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
At June 30, 2020:
Brookline Bancorp, Inc.
Common equity Tier 1 capital ratio ⁽¹⁾	$	745,239	10.42	%	$	321,840	4.50	%	$	500,640	7.00	%	N/A		N/A
Tier 1 leverage capital ratio ⁽²⁾	754,831		8.71	%	346,650		4.00	%	346,650		4.00	%	N/A		N/A
Tier 1 risk-based capital ratio ⁽³⁾	754,831		10.56	%	428,881		6.00	%	607,582		8.50	%	N/A		N/A
Total risk-based capital ratio ⁽⁴⁾	918,836		12.85	%	572,038		8.00	%	750,800		10.50	%	N/A		N/A
Brookline Bank
Common equity Tier 1 capital ratio ⁽¹⁾	$	537,813	10.77	%	$	224,713	4.50	%	$	349,553	7.00	%	$	324,585	6.50	%
Tier 1 leverage capital ratio ⁽²⁾	537,813		9.34	%	230,327		4.00	%	230,327		4.00	%	287,908		5.00	%
Tier 1 risk-based capital ratio ⁽³⁾	537,813		10.77	%	299,617		6.00	%	424,458		8.50	%	399,490		8.00	%
Total risk-based capital ratio ⁽⁴⁾	600,688		12.02	%	399,792		8.00	%	524,727		10.50	%	499,740		10.00	%
BankRI
Common equity Tier 1 capital ratio ⁽¹⁾	$	234,597	10.87	%	$	97,119	4.50	%	$	151,074	7.00	%	$	140,283	6.50	%
Tier 1 leverage capital ratio ⁽²⁾	234,597		7.98	%	117,592		4.00	%	117,592		4.00	%	146,991		5.00	%
Tier 1 risk-based capital ratio ⁽³⁾	234,597		10.87	%	129,492		6.00	%	183,448		8.50	%	172,656		8.00	%
Total risk-based capital ratio ⁽⁴⁾	261,712		12.12	%	172,747		8.00	%	226,731		10.50	%	215,934		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.



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

_______________________________________________________________________________

(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets.

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

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

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

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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 June 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 June 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 June 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
	June 30, 2020					December 31, 2019
Change in Interest Rate Levels	Dollar Change			Percent Change		Dollar Change			Percent Change
	(Dollars in Thousands)
Up 300 basis points shock	$	24,970		9.2	%	$	29,795		11.5	%
Up 200 basis points ramp	11,394			4.2	%	12,478			4.8	%
Up 100 basis points ramp	5,471			2.0	%	6,265			2.4	%
Down 100 basis points ramp	(4,943		)	(1.8	)%	(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 9.2% as of June 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 June 30, 2020, the Company’s one-year cumulative gap was a negative $480.3 million, or 5.66% 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 June 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 Levels	At June 30, 2020		At December 31, 2019
Up 300 basis points	9.9	%	6.0	%
Up 200 basis points	7.2	%	5.1	%
Up 100 basis points	4.5	%	3.3	%
Down 100 basis points	(13.8	)%	(7.2	)%

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The Company's EVE sensitivity increased from December 31, 2019 to June 30, 2020 due to the shortened duration of the loan and investment portfolios offset by a shorter short term liquidity position.

Item 4. Controls and Procedures

Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer considered that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Effective January 1, 2020, the Company adopted ASU 2016-13. The Company implemented changes to its policies, processes, and controls over the allowance for credit losses methodology to support the adoption of ASU 2016-13. Many controls over this new accounting methodology mirror controls under the prior GAAP methodology. New controls were established, such as model validation done by an independent third-party and input review of econometric and other factors utilized in estimating the allowance. Except as related to the adoption of ASU 2016-13, there were no changes in the Company’s internal controls over financial reporting during the quarter ended June 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”) and under 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”), based on information currently known to us and recent developments since the date of the May 11, 2020 Form 8-K 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 and under Item 8.01 “Other Matters” in the May 11, 2020 Form 8-K. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Annual Report and May 11, 2020 Form 8-K. 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. While certain of these restrictions have been eased and workplaces in the communities we serve are beginning to reopen, the pace of reopening is measured and these government policies and directives 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. 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 half 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.

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.

As of June 30, 2020, we originated 2,924 loans aggregating $566 million through the PPP. Lenders participating in the PPP have faced increased public scrutiny about their loan application process and procedures, and the nature and type of the

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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.

Item 6. Exhibits

Exhibits



Exhibit 31.1*		Certification of Chief Executive Officer

Exhibit 31.2*		Certification of Chief Financial Officer

Exhibit 32.1**		Section 1350 Certification of Chief Executive Officer

Exhibit 32.2**		Section 1350 Certification of Chief Financial Officer

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover 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: August 6, 2020	By:	/s/ Paul A. Perrault
		Paul A. Perrault
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: August 6, 2020	By:	/s/ Carl M. Carlson
		Carl M. Carlson
		Chief Financial Officer
		(Principal Financial Officer)