BROOKLINE BANCORP INC - Quarter Report: 2021 March (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 March 31, 2021
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from N/A to .
Commission file number 0-23695
BROOKLINE BANCORP INC.
(Exact name of registrant as specified in its charter)
| Delaware | 04-3402944 | |||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| 131 Clarendon 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 April 30, 2021, the number of shares of common stock, par value $0.01 per share, outstanding was 78,192,589.
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
Table of Contents
| Page | ||||||||
Item 1. | ||||||||
PART I — FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
| BROOKLINE BANCORP, INC. AND SUBSIDIARIES Unaudited Consolidated Balance Sheets | |||||||||||
| At March 31, 2021 | At December 31, 2020 | ||||||||||
| (In Thousands Except Share Data) | |||||||||||
| ASSETS | |||||||||||
| Cash and due from banks | $ | 41,284 | $ | 36,069 | |||||||
| Short-term investments | 89,643 | 398,848 | |||||||||
| Total cash and cash equivalents | 130,927 | 434,917 | |||||||||
| Investment securities available-for-sale | 729,901 | 745,822 | |||||||||
| Equity securities held-for-trading | 518 | 526 | |||||||||
| Total investment securities | 730,419 | 746,348 | |||||||||
| Loans and leases: | |||||||||||
| Commercial real estate loans | 3,790,341 | 3,823,826 | |||||||||
| Commercial loans and leases | 2,324,202 | 2,274,899 | |||||||||
| Consumer loans | 1,153,009 | 1,170,828 | |||||||||
| Total loans and leases | 7,267,552 | 7,269,553 | |||||||||
| Allowance for loan and lease losses | (109,837) | (114,379) | |||||||||
| Net loans and leases | 7,157,715 | 7,155,174 | |||||||||
| Restricted equity securities | 40,400 | 49,786 | |||||||||
Premises and equipment, net of accumulated depreciation of $83,290 and $82,233, respectively | 72,524 | 71,568 | |||||||||
| Right-of-use asset operating leases | 23,180 | 24,143 | |||||||||
| Deferred tax asset | 42,857 | 40,129 | |||||||||
| Goodwill | 160,427 | 160,427 | |||||||||
Identified intangible assets, net of accumulated amortization of $38,984 and $38,752, respectively | 2,920 | 3,152 | |||||||||
| Other real estate owned ("OREO") and repossessed assets, net | 6,383 | 6,515 | |||||||||
| Other assets | 192,058 | 250,265 | |||||||||
| Total assets | $ | 8,559,810 | $ | 8,942,424 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Deposits: | |||||||||||
| Demand checking accounts | $ | 1,724,170 | $ | 1,592,205 | |||||||
| Interest-bearing deposits | 5,142,616 | 5,318,491 | |||||||||
| Total deposits | 6,866,786 | 6,910,696 | |||||||||
| Borrowed funds: | |||||||||||
| Advances from the Federal Home Loan Bank of Boston ("FHLBB") | 378,646 | 648,849 | |||||||||
| Subordinated debentures and notes | 83,783 | 83,746 | |||||||||
| Other borrowed funds | 83,574 | 87,652 | |||||||||
| Total borrowed funds | 546,003 | 820,247 | |||||||||
| Operating lease liabilities | 23,180 | 24,143 | |||||||||
| Mortgagors' escrow accounts | 6,483 | 5,901 | |||||||||
| Reserve for unfunded credits | 13,705 | 13,071 | |||||||||
| Accrued expenses and other liabilities | 158,254 | 226,588 | |||||||||
| Total liabilities | 7,614,411 | 8,000,646 | |||||||||
| Commitments and contingencies (Note 12) | |||||||||||
| 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 | 737,882 | 737,178 | |||||||||
| Retained earnings, partially restricted | 282,301 | 264,892 | |||||||||
| Accumulated other comprehensive income | 2,082 | 16,490 | |||||||||
Treasury stock, at cost; 6,534,602 shares and 6,525,783 shares, respectively | (77,463) | (77,343) | |||||||||
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 44,502 shares and 51,114 shares, respectively | (255) | (291) | |||||||||
| Total stockholders' equity | 945,399 | 941,778 | |||||||||
| Total liabilities and stockholders' equity | $ | 8,559,810 | $ | 8,942,424 | |||||||
See accompanying notes to unaudited consolidated financial statements.
1
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In Thousands Except Share Data) | |||||||||||
| Interest and dividend income: | |||||||||||
| Loans and leases | $ | 75,009 | $ | 79,559 | |||||||
| Debt securities | 3,118 | 2,976 | |||||||||
| Marketable and restricted equity securities | 301 | 778 | |||||||||
| Short-term investments | 39 | 209 | |||||||||
| Total interest and dividend income | 78,467 | 83,522 | |||||||||
| Interest expense: | |||||||||||
| Deposits | 6,707 | 16,240 | |||||||||
| Borrowed funds | 2,651 | 5,570 | |||||||||
| Total interest expense | 9,358 | 21,810 | |||||||||
| Net interest income | 69,109 | 61,712 | |||||||||
| (Credit) provision for credit losses | (2,147) | 54,114 | |||||||||
| Net interest income after provision for credit losses | 71,256 | 7,598 | |||||||||
| Non-interest income: | |||||||||||
| Deposit fees | 2,281 | 2,458 | |||||||||
| Loan fees | 599 | 550 | |||||||||
| Loan level derivative income, net | 474 | 2,156 | |||||||||
| (Loss) gain on investment securities, net | (7) | 1,330 | |||||||||
| Gain on sales of loans and leases held-for-sale | 709 | 120 | |||||||||
| Other | 738 | 2,714 | |||||||||
| Total non-interest income | 4,794 | 9,328 | |||||||||
| Non-interest expense: | |||||||||||
| Compensation and employee benefits | 25,821 | 25,219 | |||||||||
| Occupancy | 4,004 | 3,953 | |||||||||
| Equipment and data processing | 4,493 | 4,703 | |||||||||
| Professional services | 1,226 | 1,651 | |||||||||
| FDIC insurance | 1,044 | 378 | |||||||||
| Advertising and marketing | 1,100 | 1,075 | |||||||||
| Amortization of identified intangible assets | 232 | 336 | |||||||||
| Other | 2,891 | 3,433 | |||||||||
| Total non-interest expense | 40,811 | 40,748 | |||||||||
| Income (loss) before provision for income taxes | 35,239 | (23,822) | |||||||||
| Provision (benefit) for income taxes | 8,785 | (6,546) | |||||||||
| Net income (loss) | $ | 26,454 | $ | (17,276) | |||||||
| Earnings per common share: | |||||||||||
| Basic | $ | 0.34 | $ | (0.22) | |||||||
| Diluted | 0.34 | (0.22) | |||||||||
| Weighted average common shares outstanding during the year: | |||||||||||
| Basic | 78,143,752 | 79,481,462 | |||||||||
| Diluted | 78,404,063 | 79,665,774 | |||||||||
| Dividends paid per common share | $ | 0.115 | $ | 0.115 | |||||||
See accompanying notes to unaudited consolidated financial statements.
2
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income (Loss)
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Net income (loss) | $ | 26,454 | $ | (17,276) | |||||||
| Investment securities available-for-sale: | |||||||||||
| Unrealized securities holding gains (losses) | (18,481) | 18,810 | |||||||||
| Income tax (expense) benefit | 4,073 | (4,146) | |||||||||
| Net unrealized securities holding gains (losses) before reclassification adjustments, net of taxes | (14,408) | 14,664 | |||||||||
| Cash flow hedges: | |||||||||||
| Change in fair value of cash flow hedges | 2 | — | |||||||||
| Reclassification adjustment for (income) expense recognized in earnings | (2) | — | |||||||||
| Net change in fair value of cash flow hedges | — | — | |||||||||
| Other comprehensive income (loss), net of taxes | (14,408) | 14,664 | |||||||||
| Comprehensive income (loss) | $ | 12,046 | $ | (2,612) | |||||||
See accompanying notes to unaudited consolidated financial statements.
3
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 2021 and 2020
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Unallocated Common Stock Held by ESOP | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 852 | $ | 737,178 | $ | 264,892 | $ | 16,490 | $ | (77,343) | $ | (291) | $ | 941,778 | |||||||||||||||||||||||||||
| Net income | — | — | 26,454 | — | — | — | 26,454 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | (14,408) | — | — | (14,408) | ||||||||||||||||||||||||||||||||||
Common stock dividends of $0.115 per share | — | — | (8,992) | — | — | — | (8,992) | ||||||||||||||||||||||||||||||||||
| Restricted stock awards issued, net of awards surrendered | — | 120 | — | — | (120) | — | — | ||||||||||||||||||||||||||||||||||
| Compensation under recognition and retention plans | — | 537 | (53) | — | — | — | 484 | ||||||||||||||||||||||||||||||||||
Common stock held by ESOP committed to be released (6,612 shares) | — | 47 | — | — | — | 36 | 83 | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | 852 | $ | 737,882 | $ | 282,301 | $ | 2,082 | $ | (77,463) | $ | (255) | $ | 945,399 | |||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Unallocated Common Stock Held by ESOP | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | 852 | $ | 736,601 | $ | 265,376 | $ | 2,283 | $ | (59,073) | $ | (433) | $ | 945,606 | |||||||||||||||||||||||||||
| Net loss | — | — | (17,276) | — | — | — | (17,276) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | 14,664 | — | — | 14,664 | ||||||||||||||||||||||||||||||||||
Common stock dividends of $0.115 per share | — | — | (9,173) | — | — | — | (9,173) | ||||||||||||||||||||||||||||||||||
| Compensation under recognition and retention plans | — | 758 | (45) | — | (134) | — | 579 | ||||||||||||||||||||||||||||||||||
| Treasury stock, repurchase shares | — | — | — | — | (10,410) | — | (10,410) | ||||||||||||||||||||||||||||||||||
Common stock held by ESOP committed to be released (7,107 shares) | — | 63 | — | — | — | 38 | 101 | ||||||||||||||||||||||||||||||||||
| — | — | (11,523) | — | — | — | (11,523) | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | 852 | $ | 737,422 | $ | 227,359 | $ | 16,947 | $ | (69,617) | $ | (395) | $ | 912,568 | |||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
4
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 26,454 | $ | (17,276) | |||||||
| Adjustments to reconcile net income to net cash provided from operating activities: | |||||||||||
| (Credit) provision for credit losses | (2,147) | 54,114 | |||||||||
| Deferred income tax expense (benefit) | 1,345 | (17,270) | |||||||||
| Depreciation of premises and equipment | 1,318 | 1,581 | |||||||||
| Amortization of investment securities premiums and discounts, net | 770 | 384 | |||||||||
| Amortization of deferred loan and lease origination costs, net | 1,584 | 2,154 | |||||||||
| Amortization of identified intangible assets | 232 | 336 | |||||||||
| Amortization of debt issuance costs | 25 | 26 | |||||||||
| Accretion of acquisition fair value adjustments, net | (51) | (372) | |||||||||
| Loss (gain) on investment securities, net | 7 | (1,330) | |||||||||
| Gain on sales of loans and leases held-for-sale | (709) | (120) | |||||||||
| Write-down of OREO and other repossessed assets | 129 | 354 | |||||||||
| Compensation under recognition and retention plans | 536 | 624 | |||||||||
| ESOP shares committed to be released | 83 | 101 | |||||||||
| Net change in: | |||||||||||
| Cash surrender value of bank-owned life insurance | (251) | (254) | |||||||||
| Other assets | 58,480 | (103,913) | |||||||||
| Accrued expenses and other liabilities | (68,387) | 173,346 | |||||||||
| Net cash provided from operating activities | 19,418 | 92,485 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from sales of investment securities available-for-sale | — | 86,434 | |||||||||
| Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale | 46,184 | 25,530 | |||||||||
| Purchases of investment securities available-for-sale | (49,514) | (273,252) | |||||||||
| Proceeds from maturities, calls, and principal repayments of investment securities held to maturity | — | 6,302 | |||||||||
| Proceeds from redemption/sales of restricted equity securities | 9,386 | 2,944 | |||||||||
| Purchase of restricted equity securities | — | (17,598) | |||||||||
| Proceeds from sales of loans and leases held-for-investment, net | 50 | 5,800 | |||||||||
| Net increase in loans and leases | (995) | (96,414) | |||||||||
| Purchase of premises and equipment, net | (2,347) | (1,071) | |||||||||
| Proceeds from sales of OREO and other repossessed assets | 385 | 1,972 | |||||||||
| Net cash provided from (used for) investing activities | 3,149 | (259,353) | |||||||||
| (Continued) | |||||||||||
See accompanying notes to unaudited consolidated financial statements.
5
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Cash flows from financing activities: | |||||||||||
| Increase in demand checking, NOW, savings and money market accounts | 296,341 | 57,871 | |||||||||
| (Decrease) increase in certificates of deposit | (340,207) | 2,333 | |||||||||
| Proceeds from FHLBB advances | 63,300 | 1,736,600 | |||||||||
| Repayment of FHLBB advances | (333,503) | (1,357,638) | |||||||||
| (Decrease) increase in other borrowed funds, net | (4,078) | 10,054 | |||||||||
| Increase in mortgagors' escrow accounts, net | 582 | 209 | |||||||||
| Repurchases of common stock | — | (10,410) | |||||||||
| Payment of dividends on common stock | (8,992) | (9,173) | |||||||||
| Net cash (used for) provided from financing activities | (326,557) | 429,846 | |||||||||
| Net (decrease) increase in cash and cash equivalents | (303,990) | 262,978 | |||||||||
| Cash and cash equivalents at beginning of period | 434,917 | 77,790 | |||||||||
| Cash and cash equivalents at end of period | $ | 130,927 | $ | 340,768 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest on deposits, borrowed funds and subordinated debt | $ | 11,007 | $ | 23,227 | |||||||
| Income taxes | 2,212 | 2,070 | |||||||||
| Non-cash investing activities: | |||||||||||
| Transfer from loans to other real estate owned | $ | 382 | $ | 1,733 | |||||||
See accompanying notes to unaudited consolidated financial statements.
6
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
Overview
Brookline Bancorp, Inc. (the "Company") is a bank holding company (within the meaning of the Bank Holding Company Act of 1956, as amended) and the parent of Brookline Bank, a Massachusetts-chartered trust company and Bank Rhode Island ("BankRI"), a Rhode Island-chartered financial institution (collectively referred to as the "Banks"). The Banks are both members of the Federal Reserve System. The Company is also the parent of Brookline Securities Corp. ("BSC"). The Company's primary business is to provide commercial, business and retail banking services to its corporate, municipal and retail customers through the Banks and its non-bank subsidiaries.
Brookline Bank, which includes its wholly-owned subsidiaries Longwood Securities Corp. ("LSC"), Eastern Funding LLC ("Eastern Funding") and First Ipswich Insurance Agency, operates 30 full-service banking offices in the greater Boston metropolitan area with two 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. The Company also provides specialty equipment financing through its subsidiaries Eastern Funding, which is based in New York City, New York, and Macrolease, which is based in Plainview, New York, respectively.
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 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 (the “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 it's withdrawal from the DIF and the concurrent charter conversion of Brookline Bank. Brookline Bank’s deposit accounts are and will continue to be insured by the deposit insurance fund of the FDIC up to applicable limits. Term deposits in excess of the FDIC insurance coverage will continue to be insured by the DIF until they reach maturity.
Basis of Financial Statement Presentation
The unaudited consolidated financial statements of the Company presented herein have been prepared pursuant to the rules of the SEC for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“GAAP”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying consolidated financial statements have been included. Interim results are not necessarily reflective of the results of the entire year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.
In preparing these consolidated financial statements, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates based upon changing conditions, including economic conditions and future events. Material estimates that are particularly susceptible to significant changes in the near-term include the
7
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
determination of the allowance for credit losses, the determination of fair market values of assets and liabilities, the review of goodwill and intangible assets for impairment and the review of deferred tax assets for valuation allowances.
The judgments used by management in applying these critical accounting policies may be affected by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. For example, subsequent evaluations of the loan and lease portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for loan and lease losses in future periods, and the inability to collect outstanding principal may result in increased loan and lease losses.
Reclassification
Certain previously reported amounts have been reclassified to conform to the current year's presentation.
(2) Recent Accounting Pronouncements
Accounting Standards Adopted in 2021 and 2020
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaced the previous GAAP method of calculating credit losses. Previously, GAAP required the use of the incurred loss methodology, which used a higher threshold at which probable losses were calculated and recorded. ASU 2016-13 requires the use of an expected loss methodology, referred to as the current expected credit loss (“CECL”) methodology, which requires institutions to account for lifetime expected losses that previously would not have been part of the calculation. The CECL methodology incorporates future forecasting in addition to historical and current measures. The Company adopted all of the above mentioned ASU as of January 1, 2020. The standard had an impact on our consolidated balance sheet. On adoption, the Company recognized an increase in the allowance for loan and lease losses of $6.6 million, and an increase in the reserve for unfunded commitments of $8.9 million. The net, after-tax impact of the increase in the allowance for loan and lease losses and reserve for unfunded commitments was a decrease to retained earnings of $11.5 million shown in the Consolidated Statements of Changes in Stockholders’ Equity. Additional details can be found in Notes 3, 4 and 5.
8
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
(3) Investment Securities
Adoption of Topic 326
Effective January 1, 2020, the Company adopted the provisions of ASU 2016-13 using the modified retrospective method. There was a de minimis allowance for credit loss ("ACL") on available-for-sale debt securities recognized upon adoption and as of December 31, 2020.
The following tables set forth investment securities available-for-sale, held-to-maturity and equity securities held-for-trading at the dates indicated:
| At March 31, 2021 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| GSE debentures | $ | 273,315 | $ | 4,130 | $ | 5,919 | $ | 271,526 | |||||||||||||||
| GSE CMOs | 39,980 | 957 | 12 | 40,925 | |||||||||||||||||||
| GSE MBSs | 271,231 | 5,981 | 1,146 | 276,066 | |||||||||||||||||||
| Corporate debt obligations | 22,269 | 978 | — | 23,247 | |||||||||||||||||||
| U.S. Treasury bonds | 119,817 | 1,586 | 3,762 | 117,641 | |||||||||||||||||||
| Foreign government obligations | 500 | — | 4 | 496 | |||||||||||||||||||
| Total investment securities available-for-sale | $ | 727,112 | $ | 13,632 | $ | 10,843 | $ | 729,901 | |||||||||||||||
| Equity securities held-for-trading | $ | 518 | |||||||||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| GSE debentures | $ | 273,820 | $ | 5,455 | $ | 630 | $ | 278,645 | |||||||||||||||
| GSE CMOs | 44,937 | 1,103 | 12 | 46,028 | |||||||||||||||||||
| GSE MBSs | 312,658 | 10,956 | 5 | 323,609 | |||||||||||||||||||
| Corporate debt obligations | 22,299 | 1,168 | — | 23,467 | |||||||||||||||||||
| U.S. Treasury bonds | 70,339 | 3,318 | 80 | 73,577 | |||||||||||||||||||
| Foreign government obligations | 500 | — | 4 | 496 | |||||||||||||||||||
| Total investment securities available-for-sale | $ | 724,553 | $ | 22,000 | $ | 731 | $ | 745,822 | |||||||||||||||
| Equity securities held-for-trading | $ | 526 | |||||||||||||||||||||
As of March 31, 2021, the fair value of all investment securities available-for-sale was $729.9 million, with net unrealized gains of $2.8 million, compared to a fair value of $745.8 million and net unrealized gains of $21.3 million as of December 31, 2020. As of March 31, 2021, $261.6 million, or 35.8% of the portfolio, had gross unrealized losses of $10.8 million, compared to $86.9 million, or 11.7% of the portfolio, with gross unrealized losses of $0.7 million as of December 31, 2020.
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 March 31, 2021 and December 31, 2020, the Company recorded a fair value of $0.5 million of equity securities held-for-trading.
9
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Investment Securities as Collateral
As of March 31, 2021 and December 31, 2020, respectively, $413.5 million and $448.7 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 March 31, 2021 and December 31, 2020.
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 $2.5 million and $2.6 million, respectively, as of March 31, 2021 and December 31, 2020.
A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a debt security placed on nonaccrual is reversed against interest income. There were no debt securities on nonaccrual status and therefore there was no accrued interest related to debt securities reversed against interest income for the three months ended March 31, 2021 and 2020.
Assessment for Available for Sale Securities for Impairment
Investment securities as of March 31, 2021 and December 31, 2020 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:
| At March 31, 2021 | |||||||||||||||||||||||||||||||||||
| 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 | $ | 118,064 | $ | 5,919 | $ | — | $ | — | $ | 118,064 | $ | 5,919 | |||||||||||||||||||||||
| GSE CMOs | 513 | 10 | 707 | 2 | 1,220 | 12 | |||||||||||||||||||||||||||||
| GSE MBSs | 70,289 | 1,145 | 95 | 1 | 70,384 | 1,146 | |||||||||||||||||||||||||||||
| U.S. Treasury bonds | 71,450 | 3,762 | — | — | 71,450 | 3,762 | |||||||||||||||||||||||||||||
| Foreign government obligations | — | — | 496 | 4 | 496 | 4 | |||||||||||||||||||||||||||||
| Temporarily impaired investment securities available-for-sale | 260,316 | 10,836 | 1,298 | 7 | 261,614 | 10,843 | |||||||||||||||||||||||||||||
| Total temporarily impaired investment securities | $ | 260,316 | $ | 10,836 | $ | 1,298 | $ | 7 | $ | 261,614 | $ | 10,843 | |||||||||||||||||||||||
10
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
| At December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||||||||||||||
| Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||||||||||||||
| GSE debentures | $ | 72,745 | $ | 630 | $ | — | $ | — | $ | 72,745 | $ | 630 | |||||||||||||||||||||||
| GSE CMOs | 832 | 7 | 872 | 5 | 1,704 | 12 | |||||||||||||||||||||||||||||
| GSE MBSs | 2,102 | 5 | 97 | — | 2,199 | 5 | |||||||||||||||||||||||||||||
| U.S. Treasury bonds | 9,750 | 80 | — | — | 9,750 | 80 | |||||||||||||||||||||||||||||
| Foreign government obligations | — | — | 496 | 4 | 496 | 4 | |||||||||||||||||||||||||||||
| Temporarily impaired investment securities available-for-sale | 85,429 | 722 | 1,465 | 9 | 86,894 | 731 | |||||||||||||||||||||||||||||
| Total temporarily impaired investment securities | $ | 85,429 | $ | 722 | $ | 1,465 | $ | 9 | $ | 86,894 | $ | 731 | |||||||||||||||||||||||
The Company performs regular analyses of the investment securities available-for-sale portfolio to determine whether a decline in fair value indicates that an investment security is impaired. In making these impairment determinations, management considers, among other factors, projected future cash flows; credit subordination and the creditworthiness; capital adequacy and near-term prospects of the issuers.
Management also considers the Company's capital adequacy, interest-rate risk, liquidity and business plans in assessing whether it is more likely than not that the Company will sell or be required to sell the investment securities before recovery. If the Company determines that a security investment is impaired 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 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 security is impaired 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 consolidated statement of income.
Investment Securities Available-For-Sale Impairment Analysis
The following discussion summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s available-for-sale portfolio were impaired as of March 31, 2021.The Company has determined it is more likely than not that the Company will not sell or be required to sell the investment securities before recovery of its amortized cost. The Company's ability and intent to hold these investment securities until recovery is supported by the Company's strong capital and liquidity positions as well as its historically low portfolio turnover. As such, management has determined that the investment securities are not impaired as of March 31, 2021. If market conditions for investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional impairment in future periods.
U.S. Government-Sponsored Enterprises
The Company invests in securities issued by U.S. Government-sponsored enterprises ("GSEs"), including GSE debentures, mortgage-backed securities ("MBSs"), and collateralized mortgage obligations ("CMOs"). GSE securities include obligations issued by the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA"), the FHLBB and the Federal Farm Credit Bank. As of March 31, 2021, the Company held GNMA MBSs and CMOs, and Small Business Administration ("SBA") commercial loan asset-backed securities in its available-for-sale portfolio with an estimated fair value of $6.3 million, all of which were backed explicitly by the full faith and credit of the U.S. Government, compared to $7.3 million as of December 31, 2020.
As of March 31, 2021, the Company owned 54 GSE debentures with a total fair value of $271.5 million, and a net unrealized loss of $1.8 million. As of December 31, 2020, the Company held 54 GSE debentures with a total fair value of
11
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
$278.6 million, with a net unrealized gain of $4.8 million. As of March 31, 2021, 12 of the 54 securities in this portfolio were in an unrealized loss position. As of December 31, 2020, 7 of the 54 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA/SBA) guarantee of the U.S Government. During the three months ended March 31, 2021, the Company did not purchase GSE debentures. This compares to the same period in 2020 when the Company purchased $75.2 million GSE debentures. During the three months ended March 31, 2020, the Company transferred 9 held-to-maturity GSE debentures with a total fair value of $25.5 million to the available-for-sale portfolio.
As of March 31, 2021, the Company owned 33 GSE CMOs with a total fair value of $40.9 million and a net unrealized gain of $0.9 million. As of December 31, 2020, the Company held 33 GSE CMOs with a total fair value of $46.0 million with a net unrealized gain of $1.1 million. As of March 31, 2021, 2 of the 33 securities in this portfolio were in an unrealized loss position. As of December 31, 2020, 2 of the 33 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2021 and 2020, the Company did not purchase any GSE CMOs.
As of March 31, 2021, the Company owned 139 GSE MBSs with a total fair value of $276.1 million and a net unrealized gain of $4.8 million. As of December 31, 2020, the Company held 140 GSE MBSs with a total fair value of $323.6 million with a net unrealized gain of $11.0 million. As of March 31, 2021, 23 of the 139 securities in this portfolio were in an unrealized loss position. As of December 31, 2020, 17 of the 140 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2021, the Company did not purchase any GSE MBSs. This compares to the same period in 2020 when the Company purchased $176.9 million GSE MBSs. During the three months ended March 31, 2020, the Company transferred 8 held-to-maturity GSE MBSs with a total fair value of $9.0 million to the available-for-sale portfolio.
Corporate Obligations
The Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. As of March 31, 2021, the Company held 6 corporate obligation securities with a total fair value of $23.2 million and a net unrealized gain of $1.0 million. As of December 31, 2020, the Company held 6 corporate obligation securities with a total fair value of $23.5 million and a net unrealized gain of $1.2 million. As of March 31, 2021 and December 31, 2020, 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 three months ended March 31, 2021 and 2020, the Company did not purchase any corporate obligations. During the three months ended March 31, 2020, the Company transferred 1 held-to-maturity corporate obligation security with a total fair value of $0.5 million to the available-for-sale portfolio.
U.S. Treasury Bonds
The Company invests in securities issued by the U.S. government. As of March 31, 2021, the Company owned 17 U.S. Treasury bonds with a total fair value of $117.6 million and an unrealized loss of $2.2 million. This compares to 12 U.S. Treasury bonds with a total fair value of $73.6 million and an unrealized gain of $3.2 million as of December 31, 2020. As of March 31, 2021, 8 of the 17 securities in this portfolio were in an unrealized loss position. As of December 31, 2020, 1 of the 12 securities in this portfolio was an unrealized loss position. During the three months ended March 31, 2021 the Company purchased $49.5 million U.S. Treasury bonds, compared to the same period in 2020 when the Company purchased $21.2 million U.S. Treasury bonds.
Municipal Obligations
As of March 31, 2021 and December 31, 2020, the Company did not own any municipal obligation securities. During the three months March 31, 2021 and 2020, the Company did not purchase any municipal obligations. During the three months ended March 31, 2020, the Company transferred 93 held-to-maturity municipal obligations securities with a total fair value of $47.7 million to our available-for-sale portfolio.
Foreign Government Obligations
As of March 31, 2021 and December 31, 2020, the Company owned 1 foreign government obligation security with a fair value of $0.5 million, which approximated cost. As of March 31, 2021 and December 31, 2020 respectively, the security was
12
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
in an unrealized loss position. During the three months ended March 31, 2021 and 2020, the Company did not purchase any foreign government obligations.
Equity Securities Held-for-Trading
From time to time, the Company will invest in equity securities held-for-trading. As of March 31, 2021 and December 31, 2020, the Company owned equity securities held-for-trading with a fair value of $0.5 million.
Portfolio Maturities
The final stated maturities of the debt securities are as follows for the periods indicated:
| At March 31, 2021 | At December 31, 2020 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 49,597 | $ | 50,149 | 1.99 | % | $ | 31,633 | $ | 32,013 | 2.02 | % | |||||||||||||||||||||||
| After 1 year through 5 years | 132,676 | 138,463 | 2.23 | % | 146,274 | 153,262 | 2.22 | % | |||||||||||||||||||||||||||
| After 5 years through 10 years | 261,816 | 254,174 | 1.38 | % | 222,271 | 225,568 | 1.43 | % | |||||||||||||||||||||||||||
| Over 10 years | 283,023 | 287,115 | 2.01 | % | 324,375 | 334,979 | 1.86 | % | |||||||||||||||||||||||||||
| $ | 727,112 | $ | 729,901 | 1.84 | % | $ | 724,553 | $ | 745,822 | 1.81 | % | ||||||||||||||||||||||||
Actual maturities of debt securities will differ from those presented above since certain obligations amortize and may also provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. MBSs and CMOs are included above based on their final stated maturities; the actual maturities, however, may occur earlier due to anticipated prepayments and stated amortization of cash flows.
As of March 31, 2021, issuers of debt securities with an estimated fair value of $88.3 million had the right to call or prepay the obligations. Of the $88.3 million, approximately $12.7 million matures in 1 - 5 years, $66.2 million matures in 6 - 10 years, and $9.4 million matures after ten years. As of December 31, 2020, issuers of debt securities with an estimated fair value of approximately $90.8 million had the right to call or prepay the obligations. Of the $90.8 million, $12.9 million matures in 1-5 years, and $68.1 million matures in 6 - 10 years, and $9.8 million matures after ten years.
Security Sales
No sale of investment securities available-for-sale or equity securities held-for-trading occurred during the three months ended March 31, 2021. This compares to $86.4 million securities sold during the three months ended March 31, 2020.
Sales of investment and restricted equity securities are summarized as follows:
| Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Proceeds from sales of investment securities available-for-sale and equity securities held-for-trading | $ | — | $ | 86,435 | |||||||
| Gross gains from securities sales | — | 2,446 | |||||||||
| Gross losses from securities sales | — | (93) | |||||||||
| Gain on sales of securities, net | $ | — | $ | 2,353 | |||||||
13
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
(4) Loans and Leases
The following table presents the amortized cost of loans and leases and weighted average coupon rates for the loan and lease portfolios at the dates indicated:
| At March 31, 2021 | At December 31, 2020 | ||||||||||||||||||||||
| Balance | Weighted Average Coupon | Balance | Weighted Average Coupon | ||||||||||||||||||||
| (Dollars In Thousands) | |||||||||||||||||||||||
| Commercial real estate loans: | |||||||||||||||||||||||
| Commercial real estate | $ | 2,595,240 | 3.48 | % | $ | 2,578,773 | 3.58 | % | |||||||||||||||
| Multi-family mortgage | 1,000,474 | 3.48 | % | 1,013,432 | 3.53 | % | |||||||||||||||||
| Construction | 194,627 | 3.60 | % | 231,621 | 3.49 | % | |||||||||||||||||
| Total commercial real estate loans | 3,790,341 | 3.49 | % | 3,823,826 | 3.56 | % | |||||||||||||||||
| Commercial loans and leases: | |||||||||||||||||||||||
Commercial1 | 1,206,977 | 2.35 | % | 1,131,668 | 2.55 | % | |||||||||||||||||
| Equipment financing | 1,069,621 | 7.17 | % | 1,092,461 | 7.26 | % | |||||||||||||||||
| Condominium association | 47,604 | 4.54 | % | 50,770 | 4.55 | % | |||||||||||||||||
| Total commercial loans and leases | 2,324,202 | 4.61 | % | 2,274,899 | 4.86 | % | |||||||||||||||||
| Consumer loans: | |||||||||||||||||||||||
| Residential mortgage | 781,854 | 3.68 | % | 791,317 | 3.74 | % | |||||||||||||||||
| Home equity | 334,706 | 3.25 | % | 346,652 | 3.26 | % | |||||||||||||||||
| Other consumer | 36,449 | 2.92 | % | 32,859 | 3.04 | % | |||||||||||||||||
| Total consumer loans | 1,153,009 | 3.53 | % | 1,170,828 | 3.58 | % | |||||||||||||||||
| Total loans and leases | $ | 7,267,552 | 3.84 | % | $ | 7,269,553 | 3.97 | % | |||||||||||||||
______________________________________________________________________
(1) Including $604,790 of PPP loans as of March 31, 2021. These loans are fully guaranteed by the SBA and therefore, have not been reserved for in the allowance for credit losses as of March 31, 2021.
Accrued interest on loans and leases, which were excluded from the amortized cost of loans and leases totaled $21.0 million and $20.5 million at March 31, 2021 and December 31, 2020, respectively, and were included in other assets in the accompanying consolidated balance sheets.
The net unamortized deferred loan origination costs included in total loans and leases were $5.6 million and $4.1 million as of March 31, 2021 and December 31, 2020, respectively.
The Banks and their subsidiaries lend primarily in all New England states, with the exception of equipment financing, 12.7% of which is in the greater New York and New Jersey metropolitan area and 87.3% of which is in other areas in the United States of America as of March 31, 2021.
Loans and Leases Pledged as Collateral
As of March 31, 2021 and 2020, there were $3.3 billion and $3.5 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 March 31, 2021 and December 31, 2020.
14
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
(5) Allowance for Loan and Lease Losses
The following tables present the changes in the allowance for loan and lease losses in loans and leases by portfolio segment for the periods indicated:
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| Commercial Real Estate | Commercial | Consumer | Total | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 80,132 | $ | 29,498 | $ | 4,749 | $ | 114,379 | |||||||||||||||
| Charge-offs | — | (2,140) | (3) | (2,143) | |||||||||||||||||||
| Recoveries | — | 331 | 52 | 383 | |||||||||||||||||||
| (Credit) provision for loan and lease losses excluding unfunded commitments | (203) | (1,864) | (715) | (2,782) | |||||||||||||||||||
| Balance at March 31, 2021 | $ | 79,929 | $ | 25,825 | $ | 4,083 | $ | 109,837 | |||||||||||||||
| Three Months Ended March 31, 2020 | |||||||||||||||||||||||
| Commercial Real Estate | Commercial | Consumer | Total | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Balance at December 31, 2019 | $ | 30,285 | $ | 24,826 | $ | 5,971 | $ | 61,082 | |||||||||||||||
| Adoption of ASU 2016-13 (CECL) | 11,694 | (2,672) | (2,390) | 6,632 | |||||||||||||||||||
| Charge-offs | — | (2,527) | (12) | (2,539) | |||||||||||||||||||
| Recoveries | — | 247 | 58 | 305 | |||||||||||||||||||
| Provision for loan and lease losses | 40,200 | 6,900 | 601 | 47,701 | |||||||||||||||||||
| Balance at March 31, 2020 | $ | 82,179 | $ | 26,774 | $ | 4,228 | $ | 113,181 | |||||||||||||||
The allowance for credit losses for unfunded credit commitments, which is included in other liabilities, was $13.7 million and $13.1 million at March 31, 2021 and December 31, 2020, respectively.
Provision for Credit Losses
The provisions for credit losses are set forth below for the periods indicated:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Provision for loan and lease losses: | |||||||||||
| Commercial real estate | $ | (203) | $ | 40,200 | |||||||
| Commercial | (1,864) | 6,900 | |||||||||
| Consumer | (715) | 601 | |||||||||
| Total (credit) provision for loan and lease losses | (2,782) | 47,701 | |||||||||
| Unfunded commitments | 635 | 6,413 | |||||||||
| Total (credit) provision for credit losses | $ | (2,147) | $ | 54,114 | |||||||
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 and unfunded commitments. 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.
15
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
To calculate the allowance for loans collectively evaluated, management uses models developed by a third party. The models include: Commercial real estate ("CRE"), Commercial and industrial ("C&I"), and Retail lifetime loss rate models calculate the expected losses over the life of the loan based on exposure at default loan attributes and reasonable, supportable economic forecasts. The exposure at default considers the current unpaid balance, prepayment assumptions and utilization of expected utilization assumptions. The expected loss estimates for two small commercial portfolios and a runoff auto portfolio are based on historical loss rates.
Key assumptions used in the models include portfolio segmentation, prepayments, and the expected utilization of unfunded commitments, among others. The portfolios are segmented by loan level attributes such as loan type, loan size, date of origination, and delinquency status to create homogenous loan pools. Pool level metrics are calculated and loss rates are subsequently applied to the pools as the loans have like characteristics. Prepayment assumptions are embedded within the models and are based on the same data used for model development and incorporate adjustments for reasonable and supportable forecasts. Model development data and developmental time periods vary by model, but all use at least ten years of historical data and capture at least one recessionary period. Expected utilization is based on current utilization and a loan equivalency ("LEQ") factor. LEQ varies by current utilization and provides a reasonable estimate of expected draws and borrower behavior. Assumptions and model inputs are reviewed in accordance with model monitoring practices and as information becomes available.
The ACL estimate incorporates reasonable and supportable forecasts of various macro-economic variables over the remaining life of loans and leases. The development of the reasonable and supportable forecast assume each macro-economic variable will revert to long-term expectations, with reversion characteristics unique to specific economic indicators and forecasts. Reversion towards long-term expectations generally begins two to three years from the forecast start date and largely completes within the first five years. Because the reasonable and supportable economic forecasts used in the models are mean reverting, the models are therefore considered to be implicitly mean reverting.
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. Scenario weighting and model parameters are reviewed for each calculation and updated to reflect facts and circumstances as of the financial statement date. The March 31, 2021 forecasts reflect the immediate and longer-term effects of the COVID-19 pandemic as well as the associated policies and fiscal support provided by local and national authorities.
The CRE lifetime loss rate, C&I lifetime loss rate, and Retail lifetime loss rate models were developed using the historical loss experience of all banks in the model’s developmental dataset. Banks in the model’s developmental dataset may have different loss experiences due to geography and portfolio as well as variances in operational and underwriting procedures from the Company, and therefore, the Company calibrates expected losses using a scalar for each model. Each scalar was calculated by examining the loss rates of peer banks that have similar operations and asset bases to the Company and comparing these peer group loss rates to the model results. Peer group loss rates were used in the scalar calculation because management believes the peer group’s historical losses provide a better reflection of the Company’s current portfolio and operating procedures than the Company’s historical losses. Qualitative adjustments are also applied to the results of the three loss rate models.
For March 31, 2021, management applied qualitative adjustments to the CRE lifetime loss rate, C&I lifetime loss rate, and Retail lifetime loss rate models. These adjustments addressed model limitations, were based on historical loss patterns, and targeted specific risks within the certain portfolios. A general qualitative adjustment was applied to all models to account for general economic uncertainty by placing a greater probability on negative economic forecasts as compared to previous quarters. Additional qualitative adjustments were applied to the Commercial, Multifamily, and commercial real estate (includes owner occupied, non-owner occupied, and construction) portfolios based on the Company’s historical loss experience and the loss experience of the Company’s peer group. High risk segments of the Eastern Funding and Macrolease portfolios also received additional qualitative adjustments based on recent loss history and expected liquidation values. These qualitative adjustments resulted in additions to reserves for all portfolios, 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.
16
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Beginning January 1, 2020, the Company implemented the CECL methodology to calculate the allowance for credit losses. Prior to January 1, 2020, the Company calculated the allowance for loan and lease losses using the incurred losses methodology.
The general allowance for loan and lease losses was $108.7 million as of March 31, 2021, compared to $112.1 million as of December 31, 2020. The reduction in the ACL is attributable to portfolio contraction, continued low level of net charge-offs, an improving macro-economic forecast, and qualitative adjustments that consider longer-term risks.
The specific allowance for loan and lease losses was $1.1 million as of March 31, 2021, compared to $2.3 million as of December 31, 2020. The specific allowance decreased by $1.2 million during the three months ended March 31, 2021 primarily due to the payoff of two commercial relationship which had a specific reserve of $0.3 million, one equipment financing relationship which had a specific reserve of $0.1 million, a partial charge off on one equipment financing relationship of $0.7 million and the and the decrease in specific reserves for the remaining individually evaluated loans due to improving collection prospects.
As of March 31, 2021, management believes that the methodology for calculating the allowance is sound and that the allowance provides a reasonable basis for determining and reporting on expected losses over the lifetime of the Company’s loan portfolios.
Credit Quality Assessment
At the time of loan origination, a rating is assigned based on the capacity to pay and general financial strength of the borrower, the value of assets pledged as collateral, and the evaluation of third party support such as a guarantor. The Company continually monitors the credit quality of the loan portfolio using all available information. The officer responsible for handling each loan is required to initiate changes to risk ratings when changes in facts and circumstances occur that warrant an upgrade or downgrade in a loan rating. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, adversely risk-rated, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower's ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR") loan.
The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For all loans, the Company utilizes an eight-grade loan rating system, which assigns a risk rating to each borrower based on a number of quantitative and qualitative factors associated with a loan transaction. Factors considered include industry and market conditions; position within the industry; earnings trends; operating cash flow; asset/liability values; debt capacity; guarantor strength; management and controls; financial reporting; collateral; and other considerations. In addition, the Company's independent loan review group evaluates the credit quality and related risk ratings in all loan portfolios. The results of these reviews are reported to the Risk Committee of the Board of Directors on a periodic basis and annually to the Board of Directors. For the consumer loans, the Company heavily relies on payment status for calibrating credit risk.
The ratings categories used for assessing credit risk in the commercial real estate, multi-family mortgage, construction, commercial, equipment financing, condominium association and other consumer loan and lease classes are defined as follows:
1 -4 Rating—Pass
Loan rating grades "1" through "4" are classified as "Pass," which indicates borrowers are performing in accordance with the terms of the loan and are less likely to result in loss due to the capacity of the borrower to pay and the adequacy of the value of assets pledged as collateral.
5 Rating—Other Assets Especially Mentioned ("OAEM")
Borrowers exhibit potential credit weaknesses or downward trends deserving management's attention. If not checked or corrected, these trends will weaken the Company's asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.
17
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
6 Rating—Substandard
Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligors or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy. Although no loss of principal is envisioned, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.
7 Rating—Doubtful
Borrowers exhibit well-defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.
8 Rating—Definite Loss
Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.
Assets rated as "OAEM," "substandard" or "doubtful" based on criteria established under banking regulations are collectively referred to as "criticized" assets.
Credit Quality Information
The following table presents the amortized cost basis of loans in each class by credit quality indicator and year of origination as of March 31, 2021.
| March 31, 2021 | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total | |||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||
| Commercial Real Estate | |||||||||||||||||||||||||||||
| Pass | $ | 80,520 | $ | 357,115 | $ | 366,961 | $ | 283,214 | $ | 252,971 | $ | 1,115,585 | $ | 55,390 | $ | 12,645 | $ | 2,524,401 | |||||||||||
| OAEM | 693 | 736 | 27,369 | — | — | 35,014 | — | — | 63,812 | ||||||||||||||||||||
| Substandard | — | 210 | — | — | 1,617 | 5,139 | — | 61 | 7,027 | ||||||||||||||||||||
| Total | 81,213 | 358,061 | 394,330 | 283,214 | 254,588 | 1,155,738 | 55,390 | 12,706 | 2,595,240 | ||||||||||||||||||||
| Multi-Family Mortgage | |||||||||||||||||||||||||||||
| Pass | 14,673 | 124,227 | 145,143 | 165,079 | 99,440 | 416,861 | 5,218 | 27,457 | 998,098 | ||||||||||||||||||||
| OAEM | — | — | — | — | — | 2,376 | — | — | 2,376 | ||||||||||||||||||||
| Total | 14,673 | 124,227 | 145,143 | 165,079 | 99,440 | 419,237 | 5,218 | 27,457 | 1,000,474 | ||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||
| Pass | 2,272 | 46,896 | 46,555 | 85,292 | 665 | 632 | 4,697 | — | 187,009 | ||||||||||||||||||||
| Substandard | — | — | 4,853 | — | — | 2,765 | 7,618 | ||||||||||||||||||||||
| Total | 2,272 | 46,896 | 51,408 | 85,292 | 665 | 3,397 | 4,697 | — | 194,627 | ||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
18
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
| March 31, 2021 | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total | |||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||
| Pass | 237,440 | 451,623 | 55,419 | 37,516 | 35,407 | 129,638 | 226,438 | 1,716 | 1,175,197 | ||||||||||||||||||||
| OAEM | — | 1,589 | 4,436 | — | 16,242 | 12 | 1,840 | — | 24,119 | ||||||||||||||||||||
| Substandard | — | — | — | 118 | 345 | 2,902 | 3,716 | 578 | 7,659 | ||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | 2 | 2 | ||||||||||||||||||||
| Total | 237,440 | 453,212 | 59,855 | 37,634 | 51,994 | 132,552 | 231,994 | 2,296 | 1,206,977 | ||||||||||||||||||||
| Equipment Financing | |||||||||||||||||||||||||||||
| Pass | 65,631 | 318,891 | 286,098 | 186,109 | 105,056 | 86,647 | 1,868 | 556 | 1,050,856 | ||||||||||||||||||||
| OAEM | — | 196 | 1,058 | 293 | 96 | 709 | — | — | 2,352 | ||||||||||||||||||||
| Substandard | — | 1,000 | 2,787 | 5,224 | 3,678 | 2,529 | — | — | 15,218 | ||||||||||||||||||||
| Doubtful | — | 1 | 450 | 65 | 27 | 652 | — | — | 1,195 | ||||||||||||||||||||
| Total | 65,631 | 320,088 | 290,393 | 191,691 | 108,857 | 90,537 | 1,868 | 556 | 1,069,621 | ||||||||||||||||||||
| Condominium Association | |||||||||||||||||||||||||||||
| Pass | 187 | 7,409 | 9,206 | 5,194 | 7,385 | 16,769 | 1,172 | 176 | 47,498 | ||||||||||||||||||||
| Substandard | — | — | — | — | — | 106 | — | — | 106 | ||||||||||||||||||||
| Total | 187 | 7,409 | 9,206 | 5,194 | 7,385 | 16,875 | 1,172 | 176 | 47,604 | ||||||||||||||||||||
| Other Consumer | |||||||||||||||||||||||||||||
| Pass | 35 | 852 | 523 | 1,827 | 31 | 869 | 32,295 | 15 | 36,447 | ||||||||||||||||||||
| Substandard | — | — | — | — | — | 1 | — | 1 | 2 | ||||||||||||||||||||
| Total | 35 | 852 | 523 | 1,827 | 31 | 870 | 32,295 | 16 | 36,449 | ||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||
| Pass | 400,758 | 1,307,013 | 909,905 | 764,231 | 500,955 | 1,767,001 | 327,078 | 42,565 | 6,019,506 | ||||||||||||||||||||
| OAEM | 693 | 2,521 | 32,863 | 293 | 16,338 | 38,111 | 1,840 | — | 92,659 | ||||||||||||||||||||
| Substandard | — | 1,210 | 7,640 | 5,342 | 5,640 | 13,442 | 3,716 | 640 | 37,630 | ||||||||||||||||||||
| Doubtful | — | 1 | 450 | 65 | 28 | 652 | — | 2 | 1,198 | ||||||||||||||||||||
| Total | $ | 401,451 | $ | 1,310,745 | $ | 950,858 | $ | 769,931 | $ | 522,961 | $ | 1,819,206 | $ | 332,634 | $ | 43,207 | $ | 6,150,993 | |||||||||||
As of March 31, 2021, there were no loans categorized as definite loss.
For residential mortgage and home equity loans, the borrowers' credit scores contribute as a reserve metric in the retail loss rate model.
19
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
| At March 31, 2021 | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total | |||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||
| Credit Scores | |||||||||||||||||||||||||||||
| Over 700 | $ | 22,650 | $ | 119,549 | $ | 89,528 | $ | 57,286 | $ | 49,514 | $ | 162,830 | $ | 4,002 | $ | — | $ | 505,359 | |||||||||||
| 661 - 700 | 3,036 | 24,134 | 18,328 | 10,110 | 13,852 | 30,005 | — | — | 99,465 | ||||||||||||||||||||
| 600 and below | 682 | 6,914 | 4,700 | 5,053 | 4,234 | 16,956 | — | — | 38,539 | ||||||||||||||||||||
| Data not available* | 2,177 | 17,969 | 17,003 | 15,591 | 13,248 | 71,181 | — | 1,322 | 138,491 | ||||||||||||||||||||
| Total | $ | 28,545 | $ | 168,566 | $ | 129,559 | $ | 88,040 | $ | 80,848 | $ | 280,972 | $ | 4,002 | $ | 1,322 | $ | 781,854 | |||||||||||
| Home Equity | |||||||||||||||||||||||||||||
| Credit Scores | |||||||||||||||||||||||||||||
| Over 700 | $ | 553 | $ | 1,534 | $ | 2,421 | $ | 2,249 | $ | 2,507 | $ | 12,331 | $ | 239,483 | $ | 2,303 | $ | 263,381 | |||||||||||
| 661 - 700 | 51 | 118 | 440 | 476 | 260 | 2,354 | 44,625 | 616 | 48,940 | ||||||||||||||||||||
| 600 and below | — | 58 | 106 | 260 | 13 | 550 | 10,267 | 1,058 | 12,312 | ||||||||||||||||||||
| Data not available* | — | 68 | — | — | — | 1,318 | 7,719 | 968 | 10,073 | ||||||||||||||||||||
| Total | $ | 604 | $ | 1,778 | $ | 2,967 | $ | 2,985 | $ | 2,780 | $ | 16,553 | $ | 302,094 | $ | 4,945 | $ | 334,706 | |||||||||||
_______________________________________________________________________________
* Represents loans and leases for which data are not available.
The following tables present the recorded investment in loans in each class as of December 31, 2020, by credit quality indicator.
| December 31, 2020 | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total | |||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||
| Commercial Real Estate | |||||||||||||||||||||||||||||
| Pass | $ | 352,832 | $ | 412,071 | $ | 282,629 | $ | 255,786 | $ | 243,477 | $ | 944,676 | $ | 55,392 | $ | 12,585 | $ | 2,559,448 | |||||||||||
| OAEM | — | 477 | — | — | 3,312 | 8,991 | — | — | 12,780 | ||||||||||||||||||||
| Substandard | — | — | — | 1,261 | 2 | 5,220 | — | 62 | 6,545 | ||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Total | 352,832 | 412,548 | 282,629 | 257,047 | 246,791 | 958,887 | 55,392 | 12,647 | 2,578,773 | ||||||||||||||||||||
| Multi-Family Mortgage | |||||||||||||||||||||||||||||
| Pass | 125,434 | 136,620 | 162,180 | 103,997 | 127,873 | 304,224 | 15,845 | 34,871 | 1,011,044 | ||||||||||||||||||||
| OAEM | — | — | — | — | — | 2,388 | — | — | 2,388 | ||||||||||||||||||||
| Total | 125,434 | 136,620 | 162,180 | 103,997 | 127,873 | 306,612 | 15,845 | 34,871 | 1,013,432 | ||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||
20
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
| December 31, 2020 | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans | Total | |||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||
| Pass | 46,249 | 56,074 | 112,856 | 1,799 | 2,788 | 404 | 3,834 | — | 224,004 | ||||||||||||||||||||
| Substandard | — | 4,853 | — | — | 2,764 | — | — | — | 7,617 | ||||||||||||||||||||
| Total | 46,249 | 60,927 | 112,856 | 1,799 | 5,552 | 404 | 3,834 | — | 231,621 | ||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
| Pass | 574,542 | 66,278 | 41,325 | 62,112 | 22,085 | 113,715 | 226,495 | 1,687 | 1,108,239 | ||||||||||||||||||||
| OAEM | 310 | 4,850 | — | — | 35 | 17 | 5,382 | — | 10,594 | ||||||||||||||||||||
| Substandard | 80 | — | 129 | 389 | 29 | 7,612 | 3,930 | 664 | 12,833 | ||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | 2 | 2 | ||||||||||||||||||||
| Total | 574,932 | 71,128 | 41,454 | 62,501 | 22,149 | 121,344 | 235,807 | 2,353 | 1,131,668 | ||||||||||||||||||||
| Equipment Financing | |||||||||||||||||||||||||||||
| Pass | 332,375 | 306,231 | 209,219 | 121,845 | 56,241 | 45,451 | 636 | 576 | 1,072,574 | ||||||||||||||||||||
| OAEM | 196 | 1,066 | 290 | 93 | 609 | 85 | — | 2,339 | |||||||||||||||||||||
| Substandard | 402 | 4,385 | 5,280 | 3,545 | 1,891 | 631 | — | — | 16,134 | ||||||||||||||||||||
| Doubtful | 1 | 64 | 24 | 27 | 1,292 | 6 | — | — | 1,414 | ||||||||||||||||||||
| Total | 332,974 | 311,746 | 214,813 | 125,510 | 60,033 | 46,173 | 636 | 576 | 1,092,461 | ||||||||||||||||||||
| Condominium Association | |||||||||||||||||||||||||||||
| Pass | 6,455 | 9,918 | 5,399 | 7,928 | 5,213 | 12,682 | 2,684 | 379 | 50,658 | ||||||||||||||||||||
| Substandard | — | — | — | — | 112 | — | — | — | 112 | ||||||||||||||||||||
| Total | 6,455 | 9,918 | 5,399 | 7,928 | 5,325 | 12,682 | 2,684 | 379 | 50,770 | ||||||||||||||||||||
| Other Consumer | |||||||||||||||||||||||||||||
| Pass | 694 | 549 | 1,938 | 32 | 570 | 301 | 28,755 | 18 | 32,857 | ||||||||||||||||||||
| Substandard | — | — | — | — | — | — | — | 2 | 2 | ||||||||||||||||||||
| Total | 694 | 549 | 1,938 | 32 | 570 | 301 | 28,755 | 20 | 32,859 | ||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||
| Pass | 1,438,581 | 987,741 | 815,546 | 553,499 | 458,247 | 1,421,453 | 333,641 | 50,116 | 6,058,824 | ||||||||||||||||||||
| OAEM | 506 | 6,393 | 290 | 93 | 3,956 | 11,481 | 5,382 | — | 28,101 | ||||||||||||||||||||
| Substandard | 482 | 9,238 | 5,409 | 5,195 | 4,798 | 13,463 | 3,930 | 728 | 43,243 | ||||||||||||||||||||
| Doubtful | 1 | 64 | 24 | 27 | 1,292 | 6 | — | 2 | 1,416 | ||||||||||||||||||||
| Total | $ | 1,439,570 | $ | 1,003,436 | $ | 821,269 | $ | 558,814 | $ | 468,293 | $ | 1,446,403 | $ | 342,953 | $ | 50,846 | $ | 6,131,584 | |||||||||||
As of December 31, 2020, there were no loans categorized as definite loss. | |||||||||||||||||||||||||||||
21
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
| At December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Converted | Total | |||||||||||||||||||||||||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit Scores | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Over 700 | $ | 119,566 | $ | 94,300 | $ | 62,452 | $ | 53,662 | $ | 47,327 | $ | 124,999 | $ | 4,442 | $ | — | $ | 506,748 | |||||||||||||||||||||||||||||||||||
| 661 - 700 | 21,820 | 19,426 | 10,943 | 15,616 | 8,132 | 23,282 | — | — | 99,219 | ||||||||||||||||||||||||||||||||||||||||||||
| 600 and below | 6,901 | 5,659 | 4,763 | 4,318 | 4,553 | 13,997 | — | — | 40,191 | ||||||||||||||||||||||||||||||||||||||||||||
| Data not available* | 19,209 | 17,082 | 16,199 | 14,153 | 5,729 | 71,456 | — | 1,331 | 145,159 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 167,496 | $ | 136,467 | $ | 94,357 | $ | 87,749 | $ | 65,741 | $ | 233,734 | $ | 4,442 | $ | 1,331 | $ | 791,317 | |||||||||||||||||||||||||||||||||||
| Home Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit Scores | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Over 700 | $ | 1,546 | $ | 2,832 | $ | 2,440 | $ | 2,770 | $ | 910 | $ | 12,804 | $ | 247,538 | $ | 2,397 | $ | 273,237 | |||||||||||||||||||||||||||||||||||
| 661 - 700 | 122 | 459 | 499 | 566 | 305 | 2,793 | 45,356 | 1,334 | 51,434 | ||||||||||||||||||||||||||||||||||||||||||||
| 600 and below | 59 | 108 | 266 | 13 | 39 | 541 | 10,139 | 878 | 12,043 | ||||||||||||||||||||||||||||||||||||||||||||
| Data not available* | 61 | — | — | — | — | 1,387 | 7,330 | 1,160 | 9,938 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,788 | $ | 3,399 | $ | 3,205 | $ | 3,349 | $ | 1,254 | $ | 17,525 | $ | 310,363 | $ | 5,769 | $ | 346,652 | |||||||||||||||||||||||||||||||||||
Age Analysis of Past Due Loans and Leases
The following table presents an age analysis of the amortized cost basis in loans and leases as of March 31, 2021.
22
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
| At March 31, 2021 | |||||||||||||||||||||||||||||
| 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 | $ | 5,489 | $ | 3,946 | $ | 3,366 | $ | 12,801 | $ | 2,582,439 | $ | 2,595,240 | $ | — | $ | 3,611 | $ | 2,902 | |||||||||||
| Multi-family mortgage | 1,141 | — | — | 1,141 | 999,333 | 1,000,474 | — | — | — | ||||||||||||||||||||
| Construction | 3,764 | — | 3,853 | 7,617 | 187,010 | 194,627 | — | 3,853 | 3,853 | ||||||||||||||||||||
| Total commercial real estate loans | 10,394 | 3,946 | 7,219 | 21,559 | 3,768,782 | 3,790,341 | — | 7,464 | 6,755 | ||||||||||||||||||||
| Commercial loans and leases: | |||||||||||||||||||||||||||||
| Commercial | 229 | — | 1,213 | 1,442 | 1,205,535 | 1,206,977 | 62 | 3,161 | 1,882 | ||||||||||||||||||||
| Equipment financing | 4,010 | 2,115 | 9,501 | 15,626 | 1,053,995 | 1,069,621 | 1,113 | 15,772 | 4,260 | ||||||||||||||||||||
| Condominium association | — | — | — | — | 47,604 | 47,604 | — | 106 | 106 | ||||||||||||||||||||
| Total commercial loans and leases | 4,239 | 2,115 | 10,714 | 17,068 | 2,307,134 | 2,324,202 | 1,175 | 19,039 | 6,248 | ||||||||||||||||||||
| Consumer loans: | |||||||||||||||||||||||||||||
| Residential mortgage | 1,979 | 459 | 3,254 | 5,692 | 776,162 | 781,854 | — | 3,722 | 3,260 | ||||||||||||||||||||
| Home equity | 1,056 | 1 | 531 | 1,588 | 333,118 | 334,706 | 4 | 792 | 557 | ||||||||||||||||||||
| Other consumer | 12 | 1 | 1 | 14 | 36,435 | 36,449 | — | 2 | — | ||||||||||||||||||||
| Total consumer loans | 3,047 | 461 | 3,786 | 7,294 | 1,145,715 | 1,153,009 | 4 | 4,516 | 3,817 | ||||||||||||||||||||
| Total loans and leases | $ | 17,680 | $ | 6,522 | $ | 21,719 | $ | 45,921 | $ | 7,221,631 | $ | 7,267,552 | $ | 1,179 | $ | 31,019 | $ | 16,820 | |||||||||||
There is no interest income recognized on non-accrual loans for the three months ended March 31, 2021.
23
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, 2020.
| At December 31, 2020 | |||||||||||||||||||||||||||||
| Past Due | Loans and Leases Past Due Greater Than 90 Days and Accruing | Non-accrual with No Related Allowance | |||||||||||||||||||||||||||
| 31-60 Days | 61-90 Days | Greater Than 90 Days | Total | Current | Total Loans and Leases | Non-accrual | |||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||
| Commercial real estate loans: | |||||||||||||||||||||||||||||
| Commercial real estate | $ | 18,294 | $ | 12,402 | $ | 7,272 | $ | 37,968 | $ | 2,540,805 | $ | 2,578,773 | $ | 4,722 | $ | 3,300 | $ | 2,580 | |||||||||||
| Multi-family mortgage | 813 | — | — | 813 | 1,012,619 | 1,013,432 | — | — | — | ||||||||||||||||||||
| Construction | — | — | 7,617 | 7,617 | 224,004 | 231,621 | 3,764 | 3,853 | 3,853 | ||||||||||||||||||||
| Total commercial real estate loans | 19,107 | 12,402 | 14,889 | 46,398 | 3,777,428 | 3,823,826 | 8,486 | 7,153 | 6,433 | ||||||||||||||||||||
| Commercial loans and leases: | |||||||||||||||||||||||||||||
| Commercial | 451 | 304 | 9,171 | 9,926 | 1,121,742 | 1,131,668 | 3,486 | 7,702 | 6,263 | ||||||||||||||||||||
| Equipment financing | 5,970 | 2,263 | 9,391 | 17,624 | 1,074,837 | 1,092,461 | — | 16,757 | 4,062 | ||||||||||||||||||||
| Condominium association | 282 | 297 | — | 579 | 50,191 | 50,770 | — | 112 | 112 | ||||||||||||||||||||
| Total commercial loans and leases | 6,703 | 2,864 | 18,562 | 28,129 | 2,246,770 | 2,274,899 | 3,486 | 24,571 | 10,437 | ||||||||||||||||||||
| Consumer loans: | |||||||||||||||||||||||||||||
| Residential mortgage | 2,161 | 648 | 3,841 | 6,650 | 784,667 | 791,317 | — | 5,587 | 5,117 | ||||||||||||||||||||
| Home equity | 580 | 215 | 588 | 1,383 | 345,269 | 346,652 | 3 | 1,136 | 824 | ||||||||||||||||||||
| Other consumer | 13 | — | 1 | 14 | 32,845 | 32,859 | — | 1 | — | ||||||||||||||||||||
| Total consumer loans | 2,754 | 863 | 4,430 | 8,047 | 1,162,781 | 1,170,828 | 3 | 6,724 | 5,941 | ||||||||||||||||||||
| Total loans and leases | $ | 28,564 | $ | 16,129 | $ | 37,881 | $ | 82,574 | $ | 7,186,979 | $ | 7,269,553 | $ | 11,975 | $ | 38,448 | $ | 22,811 | |||||||||||
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.
24
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The following tables present information regarding individually evaluated and collectively evaluated allowance for loan and lease losses for credit losses on loans and leases at the dates indicated. Periods prior to January 1, 2020 are presented in accordance with accounting rules effective at that time.
| At March 31, 2021 | |||||||||||||||||||||||
| Commercial Real Estate | Commercial | Consumer | Total | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Allowance for Loan and Lease Losses: | |||||||||||||||||||||||
| Individually evaluated | $ | 132 | $ | 907 | $ | 94 | $ | 1,133 | |||||||||||||||
| Collectively evaluated | 79,797 | 24,918 | 3,989 | 108,704 | |||||||||||||||||||
| Total | $ | 79,929 | $ | 25,825 | $ | 4,083 | $ | 109,837 | |||||||||||||||
| Loans and Leases: | |||||||||||||||||||||||
| Individually evaluated | $ | 14,927 | $ | 20,198 | $ | 6,414 | $ | 41,539 | |||||||||||||||
| Collectively evaluated | 3,775,414 | 2,304,004 | 1,146,595 | 7,226,013 | |||||||||||||||||||
| Total | $ | 3,790,341 | $ | 2,324,202 | $ | 1,153,009 | $ | 7,267,552 | |||||||||||||||
| At December 31, 2020 | |||||||||||||||||||||||
| Commercial Real Estate | Commercial | Consumer | Total | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Allowance for Loan and Lease Losses: | |||||||||||||||||||||||
| Individually evaluated | $ | 183 | $ | 2,020 | $ | 108 | $ | 2,311 | |||||||||||||||
| Collectively evaluated | 79,949 | 27,478 | 4,641 | 112,068 | |||||||||||||||||||
| Total loans and leases | $ | 80,132 | $ | 29,498 | $ | 4,749 | $ | 114,379 | |||||||||||||||
| Loans and Leases: | |||||||||||||||||||||||
| Individually evaluated | $ | 14,159 | $ | 24,727 | $ | 8,760 | $ | 47,646 | |||||||||||||||
| Collectively evaluated | 3,809,667 | 2,250,172 | 1,162,068 | 7,221,907 | |||||||||||||||||||
| Total loans and leases | $ | 3,823,826 | $ | 2,274,899 | $ | 1,170,828 | $ | 7,269,553 | |||||||||||||||
25
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Troubled Debt Restructuring Loans and Leases
The following table sets forth information regarding TDR loans and leases at the dates indicated:
| At March 31, 2021 | At December 31, 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Troubled debt restructurings: | |||||||||||
| On accrual | $ | 16,770 | $ | 11,483 | |||||||
| On nonaccrual | 6,293 | 7,476 | |||||||||
| Total troubled debt restructurings | $ | 23,063 | $ | 18,959 | |||||||
Total TDR loans and leases increased by $4.1 million to $23.1 million at March 31, 2021 from $19.0 million at December 31, 2020, primarily driven by two new TDR relationships, consisting of one $3.7 million construction relationship and one $1.3 million equipment financing relationship, partially offset by the payoff of one TDR relationship during the three months ended March 31, 2021.
The amortized cost basis in TDR loans and the associated specific credit losses for the loan and lease portfolios, that were modified during the periods indicated, are as follows.
| At and for the Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Specific Allowance for Credit Losses | Defaulted (1) | |||||||||||||||||||||||||||||||||||||||
| Number of Loans/ Leases | At Modification | At End of Period | Nonaccrual Loans and Leases | Number of Loans/ Leases | Amortized Cost | ||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | 1 | $ | 497 | $ | 497 | — | — | — | — | ||||||||||||||||||||||||||||||||
| Construction | 4 | 2,764 | 2,764 | ||||||||||||||||||||||||||||||||||||||
| Equipment financing | 12 | 1,718 | 1,731 | — | 234 | — | — | ||||||||||||||||||||||||||||||||||
| Total loans and leases | 17 | $ | 4,979 | $ | 4,992 | $ | — | $ | 234 | $ | — | $ | — | ||||||||||||||||||||||||||||
______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.
| At and for the Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| Recorded Investment | Specific Allowance for Loan and Lease Losses | Defaulted (1) | |||||||||||||||||||||||||||||||||||||||
| Number of Loans/ Leases | At Modification | At End of Period | Nonaccrual Loans and Leases | Number of Loans/ Leases | Recorded Investment | ||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | — | — | — | — | 1 | 228 | |||||||||||||||||||||||||||||||||||
| Commercial | 1 | 297 | 295 | — | 295 | — | — | ||||||||||||||||||||||||||||||||||
| Equipment financing | 2 | 200 | 200 | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Total loans and leases | 3 | $ | 497 | $ | 495 | $ | — | $ | 295 | 1 | $ | 228 | |||||||||||||||||||||||||||||
______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.
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.
26
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Extended maturity | $ | 4,300 | $ | 295 | |||||||
| Combination maturity, principal, interest rate | 693 | 200 | |||||||||
| Total | $ | 4,993 | $ | 495 | |||||||
The TDR loans and leases that were modified for the three months ended March 31, 2021 and 2020 were $5.0 million and $0.5 million, respectively. The increases in TDR loans and leases that were modified for the three months ended March 31, 2021 were primarily due to the modification of two construction relationships totaling $2.7 million and five equipment finance relationships totaling $1.7 million during the three months ended March 31, 2020.
The net charge-offs for performing and nonperforming TDR loans and leases for the three months ended March 31, 2021 and 2020 were $0.6 million and $0.1 million, respectively.
The commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs as of March 31, 2021 was $2.1 million. As of March 31, 2020, there were $2.3 million commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs.
The Coronavirus Aid, Relief and Economic Security ("CARES") Act and regulatory guidance issued by the Federal banking agencies provides that certain short-term loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by the COVID-19 pandemic are not required to be treated as TDRs under GAAP. As such, the Company suspended TDR accounting for COVID-19 pandemic related loan modifications meeting the loan modification criteria set forth under the CARES Act or as specified in the regulatory guidance. Further, loans granted payment deferrals related to the COVID-19 pandemic are not required to be reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). As of March 31, 2021, the Company granted 4,603 short-term deferments on loan and lease balances of $1.1 billion of which 4,262 loans and leases representing balances $955.6 million returned to payment and 341 loans and leases representing balances of $125.7 million remain in deferment. The outstanding deferred loans and leases represent 1.7% of the Company's total loan and lease balances.
(6) Goodwill and Other Intangible Assets
The following table sets forth the carrying value of goodwill and other intangible assets at the dates indicated:
| At March 31, 2021 | At December 31, 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Goodwill | $ | 160,427 | $ | 160,427 | |||||||
| Other intangible assets: | |||||||||||
| Core deposits | 1,831 | 2,063 | |||||||||
| Trade name | 1,089 | 1,089 | |||||||||
| Total other intangible assets | 2,920 | 3,152 | |||||||||
| Total goodwill and other intangible assets | $ | 163,347 | $ | 163,579 | |||||||
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 5.5 years.
27
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The estimated aggregate future amortization expense (in thousands) for other intangible assets for each of the next five years and thereafter is as follows:
| Remainder of 2021 | $ | 644 | |||
| Year ending: | |||||
| 2022 | 494 | ||||
| 2023 | 263 | ||||
| 2024 | 151 | ||||
| 2025 | 103 | ||||
| 2026 | 74 | ||||
| Thereafter | 102 | ||||
| Total | $ | 1,831 | |||
(7) Accumulated Other Comprehensive Income (Loss)
For the three months ended March 31, 2021 and 2020, the Company’s accumulated other comprehensive income (loss) includes the following three components: (i) unrealized holding gains (losses) on investment securities available-for-sale; (ii) change in the fair value of cash flow hedges and (iii) adjustment of accumulated obligation for postretirement benefits.
Changes in accumulated other comprehensive income (loss) by component, net of tax, were as follows for the periods indicated:
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||
Investment Securities Available-for-Sale | Net Change in Fair Value of Cash Flow Hedges | Postretirement Benefits | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 16,582 | $ | 7 | $ | (99) | $ | 16,490 | |||||||||||||||
| Other comprehensive income (loss) | (14,408) | 2 | — | (14,406) | |||||||||||||||||||
| Reclassification adjustment for (income) expense recognized in earnings | — | (2) | — | (2) | |||||||||||||||||||
| Balance at March 31, 2021 | $ | 2,174 | $ | 7 | $ | (99) | $ | 2,082 | |||||||||||||||
| Three Months Ended March 31, 2020 | |||||||||||||||||||||||
Investment Securities Available-for-Sale | Net Change in Fair Value of Cash Flow Hedges | Postretirement Benefits | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Balance at December 31, 2019 | $ | 2,199 | $ | — | $ | 84 | $ | 2,283 | |||||||||||||||
| Other comprehensive income (loss) | 14,664 | — | — | 14,664 | |||||||||||||||||||
| Balance at March 31, 2020 | $ | 16,863 | $ | — | $ | 84 | $ | 16,947 | |||||||||||||||
(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
28
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
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 believes using interest rate derivatives adds stability to interest income and expense and allows the Company to manage its exposure to interest rate movements. The Company enters into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed payments. The Company enters into interest rate swaps as hedging instruments against the interest rate risk associated with the Company's FHLB borrowings. For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income ("OCI"), and is reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
As of March 31, 2021, the Company paid its counterparties a fixed weighted average interest rate of 0.08% over a maximum period of 2 years for derivative instruments that are designated as and qualify as cash flow hedging instruments.
The Company utilizes risk participation agreements with other banks participating in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. Risk participation agreements are derivative financial instruments and are recorded at fair value. These derivatives are not designated as hedges and therefore, changes in fair value are recorded directly through earnings at each reporting period. Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating bank.
The Company offers foreign exchange contracts to commercial borrowers to accommodate their business needs. These foreign exchange contracts do not qualify as hedges for accounting purposes. To mitigate the market and liquidity risk associated with these foreign exchange contracts, the Company enters into similar offsetting positions.
Asset derivatives and liability derivatives are included in other assets and accrued expenses and other liabilities on the unaudited consolidated balance sheets.
The following tables present the Company's customer related derivative positions for the periods indicated below for those derivatives not designated as hedging.
| Notional Amount Maturing | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of Positions | Less than 1 year | Less than 2 years | Less than 3 years | Less than 4 years | Thereafter | Total | Fair Value | ||||||||||||||||||||||||||||||||||||||||
| March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars In Thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Loan level derivatives | |||||||||||||||||||||||||||||||||||||||||||||||
| Receive fixed, pay variable | 134 | $ | — | $ | 10,876 | $ | 13,949 | $118,504 | $ | 1,089,153 | $ | 1,232,482 | $ | 71,310 | |||||||||||||||||||||||||||||||||
| Pay fixed, receive variable | 134 | — | 10,876 | 13,949 | 118,504 | 1,089,153 | 1,232,482 | 71,310 | |||||||||||||||||||||||||||||||||||||||
| Risk participation-out agreements | 37 | — | — | 6,975 | 22,718 | 233,737 | 263,430 | 1,019 | |||||||||||||||||||||||||||||||||||||||
| Risk participation-in agreements | 8 | — | — | 18,929 | — | 41,360 | 60,289 | 205 | |||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||||
| Buys foreign currency, sells U.S. currency | 16 | $ | 1,416 | $ | — | $ | — | $ | — | $ | — | $ | 1,416 | $ | 99 | ||||||||||||||||||||||||||||||||
| Sells foreign currency, buys U.S. currency | 21 | 1,422 | — | — | — | — | 1,422 | 93 | |||||||||||||||||||||||||||||||||||||||
29
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, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars In Thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Loan level derivatives | |||||||||||||||||||||||||||||||||||||||||||||||
| Receive fixed, pay variable | 136 | $ | — | $ | 8,541 | $ | 16,447 | $ | 99,014 | $ | 1,090,144 | $ | 1,214,146 | $ | 129,284 | ||||||||||||||||||||||||||||||||
| Pay fixed, receive variable | 136 | — | 8,541 | 16,447 | 99,014 | 1,090,144 | 1,214,146 | 129,284 | |||||||||||||||||||||||||||||||||||||||
| Risk participation-out agreements | 37 | — | — | 7,009 | 22,733 | 222,913 | 252,655 | 1,843 | |||||||||||||||||||||||||||||||||||||||
| Risk participation-in agreements | 8 | — | — | 19,000 | — | 41,619 | 60,619 | 361 | |||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||||
| Buys foreign currency, sells U.S. currency | 18 | $ | 1,266 | $ | — | $ | — | $ | — | $ | — | $ | 1,266 | $ | 156 | ||||||||||||||||||||||||||||||||
| Sells foreign currency, buys U.S. currency | 20 | 1,273 | — | — | — | — | 1,273 | 148 | |||||||||||||||||||||||||||||||||||||||
30
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Certain derivative agreements contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. The Company posted collateral to dealer counterparties of $149.4 million and $166.5 million in the normal course of business as of March 31, 2021 and December 31, 2020, respectively.
The tables below present the offsetting of derivatives and amounts subject to master netting agreements not offset in the unaudited consolidated balance sheet at the dates indicated.
| At March 31, 2021 | |||||||||||||||||||||||||||||||||||
| Gross Amounts Recognized | Gross Amounts Offset in the Statement of Financial Position | Net Amounts Presented in the Statement of Financial Position | Gross Amounts Not Offset in the Statement of Financial Position | Net Amount | |||||||||||||||||||||||||||||||
| Financial Instruments Pledged | Cash Collateral Pledged | ||||||||||||||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||||||||
| Asset derivatives | |||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
| Interest rate derivatives | $ | 10 | $ | — | $ | 10 | $ | — | $ | — | $ | 10 | |||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
| Loan level derivatives | $ | 84,128 | $ | — | $ | 84,128 | $ | — | $ | — | $ | 84,128 | |||||||||||||||||||||||
| Risk participation-out agreements | 1,019 | — | 1,019 | — | — | 1,019 | |||||||||||||||||||||||||||||
| Foreign exchange contracts | 99 | — | 99 | — | — | 99 | |||||||||||||||||||||||||||||
| Total | $ | 85,256 | $ | — | $ | 85,256 | $ | — | $ | — | $ | 85,256 | |||||||||||||||||||||||
| Liability derivatives | |||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
| Interest rate derivatives | $ | 2 | $ | — | $ | 2 | $ | — | $ | — | $ | 2 | |||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
| Loan level derivatives | $ | 84,128 | $ | — | $ | 84,128 | $ | 138,110 | $ | 11,280 | $ | (65,262) | |||||||||||||||||||||||
| Risk participation-in agreements | 205 | — | 205 | — | — | 205 | |||||||||||||||||||||||||||||
| Foreign exchange contracts | 93 | — | 93 | — | — | 93 | |||||||||||||||||||||||||||||
| Total | $ | 84,428 | $ | — | $ | 84,428 | $ | 138,110 | $ | 11,280 | $ | (64,962) | |||||||||||||||||||||||
31
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
| At December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Gross Amounts Recognized | Gross Amounts Offset in the Statement of Financial Position | Net Amounts Presented in the Statement of Financial Position | Gross Amounts Not Offset in the Statement of Financial Position | Net Amount | |||||||||||||||||||||||||||||||
| Financial Instruments Pledged | Cash Collateral Pledged | ||||||||||||||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||||||||
| Asset derivatives | |||||||||||||||||||||||||||||||||||
| Interest rate derivatives | $ | 8 | $ | — | $ | 8 | $ | — | $ | — | $ | 8 | |||||||||||||||||||||||
| Loan level derivatives | 131,328 | — | 131,328 | — | — | 131,328 | |||||||||||||||||||||||||||||
| Risk participation-out agreements | 1,843 | — | 1,843 | — | — | 1,843 | |||||||||||||||||||||||||||||
| Foreign exchange contracts | 156 | — | 156 | — | — | 156 | |||||||||||||||||||||||||||||
| Total | $ | 133,335 | $ | — | $ | 133,335 | $ | — | $ | — | $ | 133,335 | |||||||||||||||||||||||
| Liability derivatives | |||||||||||||||||||||||||||||||||||
| Loan level derivatives | $ | 131,328 | $ | — | $ | 131,328 | $ | 155,220 | $ | 11,280 | $ | (35,172) | |||||||||||||||||||||||
| Risk participation-in agreements | 361 | — | 361 | — | — | 361 | |||||||||||||||||||||||||||||
| Foreign exchange contracts | 148 | — | 148 | — | — | 148 | |||||||||||||||||||||||||||||
| Total | $ | 131,837 | $ | — | $ | 131,837 | $ | 155,220 | $ | 11,280 | $ | (34,663) | |||||||||||||||||||||||
The Company has agreements with certain of its derivative counterparties that contain credit-risk-related contingent provisions. These provisions provide the counterparty with the right to terminate its derivative positions and require the Company to settle its obligations under the agreements if the Company defaults on certain of its indebtedness or if the Company fails to maintain its status as a well-capitalized institution.
| Fair Value | |||||||||||
| Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | ||||||||||
| (Dollars in Thousands) | |||||||||||
| Derivatives designated as hedges | $ | 8 | $ | — | |||||||
| Gain in OCI on derivatives (effective portion), net of tax | $ | 7 | $ | — | |||||||
| Gain (loss) reclassified from OCI into interest income or interest expense (effective portion) | $ | 2 | $ | — | |||||||
The guidance in ASU 2017-12 requires that amounts in accumulated other comprehensive income that are included in the assessment of effectiveness should be reclassified into earnings in the same period in which the hedged forecasted transactions impact earnings. A portion of the balance reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made or received on the Company’s interest rate swaps. The Company monitors the risk of counterparty default on an ongoing basis.
32
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
(9) Stock Based Compensation
As of March 31, 2021, 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 14 financial institutions. These are referred to as "performance-based shares". If a participant leaves the Company prior to the third anniversary date of an award, any unvested shares are usually forfeited. Dividends declared with respect to shares awarded will be held by the Company and paid to the participant only when the shares vest.
Under the Plans, shares of the Company's common stock are reserved for issuance as restricted stock awards to officers, employees, and non-employee directors of the Company. Shares issued upon vesting may be either authorized but unissued shares or reacquired shares held by the Company as treasury shares. Any shares not issued because vesting requirements are not met will be retired back to treasury and be made available again for issuance under the Plans.
During the three months ended March 31, 2021 and March 31, 2020, no shares were issued upon satisfaction of required conditions of the Plans.
Total expense for the Plans was $0.5 million and $0.6 million for the three months ended March 31, 2021 and 2020, respectively.
(10) Earnings per Share ("EPS")
The following table is a reconciliation of basic EPS and diluted EPS:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2021 | March 31, 2020 | ||||||||||||||||||||||
| Basic | Fully Diluted | Basic | Fully Diluted | ||||||||||||||||||||
| (Dollars in Thousands, Except Per Share Amounts) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 26,454 | $ | 26,454 | $ | (17,276) | $ | (17,276) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding | 78,143,752 | 78,143,752 | 79,481,462 | 79,481,462 | |||||||||||||||||||
| Effect of dilutive securities | — | 260,311 | — | 184,312 | |||||||||||||||||||
| Adjusted weighted average shares outstanding | 78,143,752 | 78,404,063 | 79,481,462 | 79,665,774 | |||||||||||||||||||
| EPS | $ | 0.34 | $ | 0.34 | $ | (0.22) | $ | (0.22) | |||||||||||||||
(11) Fair Value of Financial Instruments
A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring and non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no changes in the valuation techniques used during the three months ended March 31, 2021 and December 31, 2020.
33
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables set forth the carrying value of assets and liabilities measured at fair value on a recurring basis at the dates indicated:
| Carrying Value as of March 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| GSE debentures | $ | — | $ | 271,526 | $ | — | $ | 271,526 | |||||||||||||||
| GSE CMOs | — | 40,925 | — | 40,925 | |||||||||||||||||||
| GSE MBSs | — | 276,066 | — | 276,066 | |||||||||||||||||||
| Corporate debt obligations | — | 23,247 | — | 23,247 | |||||||||||||||||||
| U.S. Treasury bonds | — | 117,641 | — | 117,641 | |||||||||||||||||||
| Foreign government obligations | — | 496 | — | 496 | |||||||||||||||||||
| Total investment securities available-for-sale | $ | — | $ | 729,901 | $ | — | $ | 729,901 | |||||||||||||||
| Equity securities held-for-trading | $ | — | $ | 518 | $ | — | $ | 518 | |||||||||||||||
| Interest rate derivatives | — | 10 | — | 10 | |||||||||||||||||||
| Loan level derivatives | — | 84,128 | — | 84,128 | |||||||||||||||||||
| Risk participation-out agreements | — | 1,019 | — | 1,019 | |||||||||||||||||||
| Foreign exchange contracts | — | 99 | — | 99 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Interest rate derivatives | $ | — | $ | 2 | $ | — | $ | 2 | |||||||||||||||
| Loan level derivatives | — | 84,128 | — | 84,128 | |||||||||||||||||||
| Risk participation-in agreements | — | 205 | — | 205 | |||||||||||||||||||
| Foreign exchange contracts | — | 93 | — | 93 | |||||||||||||||||||
34
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
| Carrying Value as of December 31, 2020 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| GSE debentures | $ | — | $ | 278,645 | $ | — | $ | 278,645 | |||||||||||||||
| GSE CMOs | — | 46,028 | — | 46,028 | |||||||||||||||||||
| GSE MBSs | — | 323,609 | — | 323,609 | |||||||||||||||||||
| Corporate debt obligations | — | 23,467 | — | 23,467 | |||||||||||||||||||
| U.S. Treasury bonds | — | 73,577 | — | 73,577 | |||||||||||||||||||
| Foreign government obligations | — | 496 | — | 496 | |||||||||||||||||||
| Total investment securities available-for-sale | $ | — | $ | 745,822 | $ | — | $ | 745,822 | |||||||||||||||
| Equity securities held-for-trading | $ | — | $ | 526 | $ | — | $ | 526 | |||||||||||||||
| Interest rate derivatives | — | 8 | — | 8 | |||||||||||||||||||
| Loan level derivatives | — | 131,328 | — | 131,328 | |||||||||||||||||||
| Risk participation-out agreements | — | 1,843 | — | 1,843 | |||||||||||||||||||
| Foreign exchange contracts | — | 156 | — | 156 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Loan level derivatives | — | 131,328 | — | 131,328 | |||||||||||||||||||
| Risk participation-in agreements | — | 361 | — | 361 | |||||||||||||||||||
| Foreign exchange contracts | — | 148 | — | 148 | |||||||||||||||||||
Investment Securities Available-for-Sale
The fair value of investment securities is based principally on market prices and dealer quotes received from third-party and nationally-recognized pricing services for identical investment securities such as U.S. Treasury and agency securities. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds, where applicable. These investments include GSE debentures, GSE mortgage-related securities, SBA commercial loan asset backed securities, corporate debt securities, and trust preferred securities, all of which are included in Level 2. As of March 31, 2021 and December 31, 2020, none of the investment securities were valued using pricing models included in Level 3.
Additionally, management reviews changes in fair value from period to period and performs testing to ensure that prices received from the third parties are consistent with management's expectation of the market. Changes in the prices obtained from the pricing service are analyzed from month to month, taking into consideration changes in market conditions including changes in mortgage spreads, changes in U.S. Treasury security yields and changes in generic pricing of 15-year and 30-year securities. Additional analysis may include a review of prices provided by other independent parties, a yield analysis, a review of average life changes using Bloomberg analytics and a review of historical pricing for a particular security.
Equity Securities Held-for-Trading
The fair value of equity securities held-for-trading is based principally on market prices and dealer quotes received from third-party and nationally-recognized pricing services. The Company's equity securities are priced this way and are included in Level 1 and Level 2. These prices are validated by comparing the primary pricing source with an alternative pricing source when available.
Derivatives and Hedging Instruments
The fair value of interest rate derivatives designated as hedging instruments, loan level derivatives, risk participation agreements (RPA in/out), and foreign exchange contracts represent a Level 2 valuation and are based on settlement values
35
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves and foreign exchange rates where applicable. Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposures and remaining contractual life. To date, the Company has not realized any losses due to a counterparty's inability to pay any net uncollateralized position. Refer also to Note 8, "Derivatives and Hedging Activities."
There were no transfers between levels for assets and liabilities recorded at fair value on a recurring basis during the three months ended March 31, 2021 and December 31, 2020, respectively.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below at the dated indicated:
| Carrying Value as of March 31, 2021 | |||||||||||||||||||||||
| 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 | $ | — | $ | — | $ | 844 | $ | 844 | |||||||||||||||
| OREO | — | — | 5,328 | 5,328 | |||||||||||||||||||
| Repossessed assets | — | 1,055 | — | 1,055 | |||||||||||||||||||
| Total assets measured at fair value on a non-recurring basis | $ | — | $ | 1,055 | $ | 6,172 | $ | 7,227 | |||||||||||||||
| Carrying Value as of December 31, 2020 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Assets measured at fair value on a non-recurring basis: | |||||||||||||||||||||||
| Collateral-dependent impaired loans and leases | $ | — | $ | — | $ | 3,445 | $ | 3,445 | |||||||||||||||
| OREO | — | — | 5,415 | 5,415 | |||||||||||||||||||
| Repossessed assets | — | 1,100 | — | 1,100 | |||||||||||||||||||
| Total assets measured at fair value on a non-recurring basis | $ | — | $ | 1,100 | $ | 8,860 | $ | 9,960 | |||||||||||||||
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).
36
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The table below presents quantitative information about significant unobservable inputs (Level 3) for assets measured at fair value on a non-recurring basis at the dates indicated.
| Fair Value | Valuation Technique | ||||||||||||||||
| At March 31, 2021 | At December 31, 2020 | ||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||
| Collateral-dependent impaired loans and leases | $ | 844 | $ | 3,445 | Appraisal of collateral (1) | ||||||||||||
| Other real estate owned | 5,328 | 5,415 | Appraisal of collateral (1) | ||||||||||||||
________________________________________________________________________
(1) Fair value is generally determined through independent appraisals of the underlying collateral. The Company may also use another available source of collateral assessment to determine a reasonable estimate of the fair value of the collateral. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of the unobservable inputs used may vary but is generally 0% - 10% on the discount for costs to sell and 0% - 15% on appraisal adjustments.
Summary of Estimated Fair Values of Financial Instruments
The following table presents the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company's financial instruments at the dates indicated. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, restricted equity securities, and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include non-maturity deposits, short-term borrowings, and accrued interest payable.
| Fair Value Measurements at March 31, 2021 | |||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | |||||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Loans and leases, net | $ | 7,157,715 | $ | 7,122,319 | $ | — | $ | — | $ | 7,122,319 | |||||||||||||||||||
| Restricted equity securities | 40,400 | 40,400 | — | — | 40,400 | ||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Certificates of deposits | 1,743,656 | 1,751,374 | — | 1,751,374 | — | ||||||||||||||||||||||||
| Borrowed funds | 546,003 | 539,957 | — | 539,957 | — | ||||||||||||||||||||||||
| Fair Value Measurements at December 31, 2020 | |||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | |||||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Loans and leases, net | 7,155,174 | 7,116,854 | — | — | 7,116,854 | ||||||||||||||||||||||||
| Restricted equity securities | 49,786 | 49,786 | — | — | 49,786 | ||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Certificates of deposit | 2,083,907 | 2,092,867 | — | 2,092,867 | — | ||||||||||||||||||||||||
| Borrowed funds | 820,247 | 818,681 | — | 818,681 | — | ||||||||||||||||||||||||
37
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
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.
38
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Financial instruments with off-balance-sheet risk at the dates indicated follow:
| At March 31, 2021 | At December 31, 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Financial instruments whose contract amounts represent credit risk: | |||||||||||
| Commitments to originate loans and leases: | |||||||||||
| Commercial real estate | $ | 107,597 | $ | 174,240 | |||||||
| Commercial | 105,426 | 80,291 | |||||||||
| Residential mortgage | 82,366 | 30,418 | |||||||||
| Unadvanced portion of loans and leases | 826,545 | 759,053 | |||||||||
| Unused lines of credit: | |||||||||||
| Home equity | 591,377 | 584,881 | |||||||||
| Other consumer | 41,583 | 38,954 | |||||||||
| Other commercial | 431 | 408 | |||||||||
| Unused letters of credit: | |||||||||||
| Financial standby letters of credit | 15,953 | 14,746 | |||||||||
| Performance standby letters of credit | 6,607 | 5,903 | |||||||||
| Commercial and similar letters of credit | 5,369 | 5,105 | |||||||||
| Loan level derivatives (Notional principal amounts): | |||||||||||
| Receive fixed, pay variable | 1,232,482 | 1,214,146 | |||||||||
| Pay fixed, receive variable | 1,232,482 | 1,214,146 | |||||||||
| Risk participation-out agreements | 263,430 | 252,655 | |||||||||
| Risk participation-in agreements | 60,289 | 60,619 | |||||||||
| Foreign exchange contracts (Notional amounts): | |||||||||||
| Buys foreign currency, sells U.S. currency | 1,416 | 1,266 | |||||||||
| Sells foreign currency, buys U.S. currency | 1,422 | 1,273 | |||||||||
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.
39
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 March 31, 2021 as the discount rate to determine the net present value of the remaining lease payments.
| Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | ||||||||||
| (In Thousands) | |||||||||||
| The components of lease expense were as follow: | |||||||||||
| Operating lease cost | $ | 1,563 | $ | 1,611 | |||||||
| Supplemental cash flow information related to leases was as follows: | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows for operating leases | $ | 1,579 | $ | 1,658 | |||||||
| At March 31, 2021 | At December 31, 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Supplemental balance sheet information related to leases was as follows: | |||||||||||
| Operating Leases | |||||||||||
| Operating lease right-of-use assets | $ | 23,180 | $ | 24,143 | |||||||
| Operating lease liabilities | 23,180 | 24,143 | |||||||||
| Weighted Average Remaining Lease Term | |||||||||||
| Operating leases | 6.80 | 6.95 | |||||||||
| Weighted Average Discount Rate | |||||||||||
| Operating leases | 3.2 | % | 3.2 | % | |||||||
40
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
A summary of future minimum rental payments under such leases at the dates indicated follows:
| Minimum Rental Payments | |||||
| March 31, 2021 | |||||
| (In Thousands) | |||||
| Remainder of 2021 | $ | 4,596 | |||
| Year ending: | |||||
| 2022 | 5,569 | ||||
| 2023 | 4,643 | ||||
| 2024 | 3,366 | ||||
| 2025 | 2,343 | ||||
| 2026 | 1,559 | ||||
| Thereafter | 3,571 | ||||
| Total | $ | 25,647 | |||
| Less imputed interest | (2,467) | ||||
| Present value of lease liability | $ | 23,180 | |||
Certain leases contain escalation clauses for real estate taxes and other expenditures, which are not included above. The total real estate taxes were $0.5 million and other expenditures were $0.1 million for both the three months ended March 31, 2021, and 2020. Total rental expense was $1.5 million and $1.6 million for the three months ended March 31, 2021 and 2020, 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.
41
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.
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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; 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, 2020 and other filings submitted to the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.
Introduction
Brookline Bancorp, Inc., a Delaware corporation, operates as a multi-bank holding company for Brookline Bank and its subsidiaries; Bank Rhode Island and its subsidiaries ("BankRI"); and Brookline Securities Corp.
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, 12.7% of which is in the greater New York and New Jersey metropolitan area and 87.3% of which is in other areas in the United States of America as of March 31, 2021.
The Company focuses its business efforts on profitably growing its commercial lending businesses, both organically and through acquisitions. The Company’s customer focus, multi-bank structure, and risk management are integral to its organic growth strategy and serve to differentiate the Company from its competitors. As full-service financial institutions, the Banks and their subsidiaries focus their efforts on developing and deepening long-term banking relationships with qualified customers through a full complement of products, excellent customer service, and strong risk management.
The Company manages the Banks under a uniform strategic objective, with one set of uniform policies consistently applied by one executive management team. Within this environment, the Company believes that the ability to make customer decisions locally enhances management's motivation, service levels and, as a consequence, the Company's financial results. As such, while most back-office functions are consolidated at the holding company level, branding and decision-making, including credit decisions and pricing, remain largely local in order to better meet the needs of bank customers and further motivate the
43
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 (the “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. 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 U.S. Small Business Administration's ("SBA's") Paycheck Protection Program ("PPP"). The amount appropriated was subsequently increased to $659 billion. Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by SBA. Additionally, on December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) was signed into law and provides for a second round of PPP loans (the "PPP-2"). The Banks are participating in the PPP-2 as of March 31, 2021. PPP loans are fully guaranteed by the U.S. government, have an initial term of up to five years and earn interest at a rate of 1%. We currently expect a significant portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. Through March 31, 2021, the Banks funded 1,342 PPP-2 loans representing $249.5 million. In the first round of PPP funding, the Banks funded 2,922 PPP loans totaling $581.7 million. 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. As of the filing date, the Banks have obtained SBA approval for 1,613 PPP-2 loans totaling $260 million. All PPP-2 loans have been funded.
•Troubled Debt Restructuring Relief. From March 1, 2020 through the earlier of January 1, 2022 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 March 31, 2021, the Company granted 4,603 short-term deferments on loan and lease balances of $1.1 billion. Of these modifications, 4,262 loans and leases with total balances of $955.6 million have returned to the payment status and 341 loans and leases with total balances of $125.7 million remain on the deferral status, which represents 1.7% of the Company's total loan and lease balances. These short-term deferments are not classified as troubled debt restructured loans and will not be reported as past due provided that they are performing in accordance with the modified terms.
The Company’s common stock is traded on the Nasdaq Global Select MarketSM under the symbol “BRKL.”
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Selected Financial Data
The following is based in part on, and should be read in conjunction with, the consolidated financial statements and accompanying notes, and other information appearing elsewhere in this Quarterly Report on Form 10-Q.
| At and for the Three Months Ended | |||||||||||||||||||||||||||||
| March 31, | December 31, | September 30, | June 30, | March 31, | |||||||||||||||||||||||||
| 2021 | 2020 | 2020 | 2020 | 2020 | |||||||||||||||||||||||||
| (Dollars in Thousands, Except Per Share Data) | |||||||||||||||||||||||||||||
| PER COMMON SHARE DATA | |||||||||||||||||||||||||||||
| Earnings per share - Basic | $ | 0.34 | $ | 0.34 | $ | 0.24 | $ | 0.25 | $ | (0.22) | |||||||||||||||||||
| Earnings per share - Diluted | 0.34 | 0.34 | 0.24 | 0.25 | (0.22) | ||||||||||||||||||||||||
| Book value per share (end of period) | 12.10 | 12.05 | 11.84 | 11.75 | 11.57 | ||||||||||||||||||||||||
| Tangible book value per share (end of period) (1) | 10.01 | 9.96 | 9.77 | 9.67 | 9.49 | ||||||||||||||||||||||||
| Dividends paid per common share | 0.115 | 0.115 | 0.115 | 0.115 | 0.115 | ||||||||||||||||||||||||
| Stock price (end of period) | 15.00 | 12.04 | 8.65 | 10.08 | 11.28 | ||||||||||||||||||||||||
| PERFORMANCE RATIOS (2) | |||||||||||||||||||||||||||||
| Net interest margin (taxable equivalent basis) | 3.39 | % | 3.23 | % | 3.08 | % | 3.09 | % | 3.31 | % | |||||||||||||||||||
| Return on average assets | 1.21 | % | 1.20 | % | 0.83 | % | 0.88 | % | (0.87) | % | |||||||||||||||||||
| Return on average tangible assets (1) | 1.24 | % | 1.22 | % | 0.84 | % | 0.90 | % | (0.89) | % | |||||||||||||||||||
| Return on average stockholders' equity | 11.18 | % | 11.38 | % | 7.99 | % | 8.45 | % | (7.30) | % | |||||||||||||||||||
| Return on average tangible stockholders' equity (1) | 13.51 | % | 13.79 | % | 9.70 | % | 10.28 | % | (8.84) | % | |||||||||||||||||||
| Dividend payout ratio (1) | 33.99 | % | 33.96 | % | 48.67 | % | 46.37 | % | (53.10) | % | |||||||||||||||||||
| Efficiency ratio (3) | 55.22 | % | 55.27 | % | 57.83 | % | 55.46 | % | 57.36 | % | |||||||||||||||||||
| ASSET QUALITY RATIOS | |||||||||||||||||||||||||||||
| Net loan and lease charge-offs as a percentage of average loans and leases (annualized) | 0.10 | % | 0.24 | % | 0.27 | % | 0.08 | % | 0.13 | % | |||||||||||||||||||
| Nonperforming loans and leases as a percentage of total loans and leases | 0.43 | % | 0.53 | % | 0.51 | % | 0.56 | % | 0.57 | % | |||||||||||||||||||
| Nonperforming assets as a percentage of total assets | 0.44 | % | 0.50 | % | 0.44 | % | 0.47 | % | 0.49 | % | |||||||||||||||||||
| Total allowance for loan and lease losses as a percentage of total loans and leases | 1.51 | % | 1.57 | % | 1.62 | % | 1.61 | % | 1.66 | % | |||||||||||||||||||
| CAPITAL RATIOS | |||||||||||||||||||||||||||||
| Stockholders' equity to total assets | 11.04 | % | 10.53 | % | 10.39 | % | 10.21 | % | 10.78 | % | |||||||||||||||||||
| Tangible equity ratio (1) | 9.31 | % | 8.86 | % | 8.73 | % | 8.56 | % | 9.02 | % | |||||||||||||||||||
| FINANCIAL CONDITION DATA | |||||||||||||||||||||||||||||
| Total assets | $ | 8,559,810 | $ | 8,942,424 | $ | 9,000,192 | $ | 9,069,667 | $ | 8,461,591 | |||||||||||||||||||
| Total loans and leases | 7,267,552 | 7,269,553 | 7,396,358 | 7,407,697 | 6,822,527 | ||||||||||||||||||||||||
| Allowance for loan and lease losses | 109,837 | 114,379 | 119,971 | 119,553 | 113,181 | ||||||||||||||||||||||||
| Investment securities available-for-sale | 729,901 | 745,822 | 783,867 | 854,505 | 761,539 | ||||||||||||||||||||||||
| Investment securities held-to-maturity | — | — | — | — | — | ||||||||||||||||||||||||
| Equity securities held-for-trading | 518 | 526 | 525 | 1,992 | 2,558 | ||||||||||||||||||||||||
| Goodwill and identified intangible assets | 163,347 | 163,579 | 163,891 | 164,203 | 164,514 | ||||||||||||||||||||||||
| Total deposits | 6,866,786 | 6,910,696 | 6,792,523 | 6,440,233 | 5,889,938 | ||||||||||||||||||||||||
| Total borrowed funds | 546,003 | 820,247 | 1,005,045 | 1,406,669 | 1,291,804 | ||||||||||||||||||||||||
| Stockholders' equity | 945,399 | 941,778 | 935,558 | 926,413 | 912,568 | ||||||||||||||||||||||||
| (Continued) | |||||||||||||||||||||||||||||
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| At and for the Three Months Ended | |||||||||||||||||||||||||||||
| March 31, | December 31, | September 30, | June 30, | March 31, | |||||||||||||||||||||||||
| 2021 | 2020 | 2020 | 2020 | 2020 | |||||||||||||||||||||||||
| (Dollars in Thousands, Except Per Share Data) | |||||||||||||||||||||||||||||
| EARNINGS DATA | |||||||||||||||||||||||||||||
| Net interest income | $ | 69,109 | $ | 68,225 | $ | 65,938 | $ | 64,288 | $ | 61,712 | |||||||||||||||||||
| Provision for credit losses | (2,147) | (2,103) | 4,528 | 5,347 | 54,114 | ||||||||||||||||||||||||
| Non-interest income | 4,794 | 4,219 | 4,862 | 6,235 | 9,328 | ||||||||||||||||||||||||
| Non-interest expense | 40,811 | 40,038 | 40,947 | 39,109 | 40,748 | ||||||||||||||||||||||||
| Net income (loss) | 26,454 | 26,663 | 18,679 | 19,571 | (17,276) | ||||||||||||||||||||||||
_______________________________________________________________________________
(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
Balance Sheet
Total assets of $8.6 billion as of March 31, 2021 decreased $382.6 million, or 17.1% on an annualized basis, from December 31, 2020. The decrease was primarily driven by decreases in cash and cash equivalents and other assets.
Cash and cash equivalents as of March 31, 2021 decreased $304.0 million, or 279.6% on an annualized basis, to $130.9 million from December 31, 2020.
Total loans and leases as of March 31, 2021 decreased $2.0 million, or 0.1% on an annualized basis, to $7.3 billion from December 31, 2020. The Company's commercial loan portfolios, which are comprised of commercial real estate loans and commercial loans and leases, totaled $6.1 billion, or 84.1% of total loans and leases as of March 31, 2021, an increase of $15.8 million, or 1.0% on an annualized basis, from $6.1 billion, or 83.9% of total loans and leases, as of December 31, 2020.
Total deposits of $6.9 billion as of March 31, 2021 decreased $43.9 million, or 2.5% on an annualized basis, from December 31, 2020. Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $5.1 billion, or 74.6% of total deposits as of March 31, 2021, an increase of $296.3 million, or 24.6% on an annualized basis from $4.8 billion, or 69.8% of total deposits, as of December 31, 2020. Certificate of deposit balances totaled $1.3 billion, or 18.5% of total deposits as of March 31, 2021, a decrease of $116.9 million, or 33.6% on an annualized basis from $1.4 billion, or 20.1% of total deposits, as of December 31, 2020. Brokered deposits totaled $470.6 million, or 6.9% of total deposits as of March 31, 2021, a decrease of $223.4 million, or 128.8% on an annualized basis from $693.9 million, or 10.0% of total deposits, as of December 31, 2020.
Total borrowed funds as of March 31, 2021 decreased $274.2 million, or 133.7% on an annualized basis, to $0.5 billion from December 31, 2020.
Asset Quality
Nonperforming assets as of March 31, 2021 totaled $37.4 million, or 0.44% of total assets, compared to $45.0 million, or 0.50% of total assets, as of December 31, 2020. Net charge-offs for the three months ended March 31, 2021 were $1.8 million, or 0.10% of average loans and leases on an annualized basis, compared to $2.2 million, or 0.13% of average loans and leases on an annualized basis, for the three months ended March 31, 2020.
The ratio of the allowance for loan and lease losses to total loans and leases was 1.51% as of March 31, 2021, compared to 1.57% as of December 31, 2020. On January 1, 2020, the Company implemented the CECL methodology to calculate the allowance for credit losses. Refer also to Note 5, "Allowance for Loan and Lease Losses."
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Capital Strength
The Company is a "well-capitalized" bank holding company as defined in the FRB's Regulation Y. The Company's common equity Tier 1 capital ratio was 11.65% as of March 31, 2021, compared to 11.04% as of December 31, 2020. The Company's Tier 1 leverage ratio was 9.26% as of March 31, 2021, compared to 8.92% as of December 31, 2020. As of March 31, 2021, the Company's Tier 1 risk-based capital ratio was 11.79%, compared to 11.18% as of December 31, 2020. The Company's Total risk-based capital ratio was 14.15% as of March 31, 2021, compared to 13.51% as of December 31, 2020.
The Company's ratio of stockholders' equity to total assets was 11.04% and 10.53% as of March 31, 2021 and December 31, 2020, respectively. The Company's tangible equity ratio was 9.31% and 8.86% as of March 31, 2021 and December 31, 2020, respectively.
Net Income (Loss)
For the three months ended March 31, 2021, the Company reported net income of $26.5 million, or $0.34 per basic and diluted share, an increase of $43.7 million, or 253.1%, from net loss of $(17.3) million, or $(0.22) per basic and diluted share for the three months ended March 31, 2020. This increase in net income is primarily the result of a decrease in the provision for credit losses of $56.3 million and an increase in net interest income of $7.4 million, partially offset by an increase in the provision for income taxes of $15.3 million and a decrease in non-interest income of $4.5 million. Refer to “Results of Operations" below for further discussion.
The annualized return on average assets was 1.21% for the three months ended March 31, 2021, compared to (0.87)% for the three months ended March 31, 2020. The annualized return on average stockholders' equity was 11.18% for the three months ended March 31, 2021, compared to (7.30)% for the three months ended March 31, 2020.
The net interest margin was 3.39% for the three months ended March 31, 2021, up from 3.31% for the three months ended March 31, 2020. The increase in the net interest margin is a result of a decrease of 79 basis points in the Company's overall cost of funds to 0.50% for the three months ended March 31, 2021 from 1.29% for the three months ended March 31, 2020, partially offset by a decrease in the yield on interest-earning assets of 66 basis points to 3.80% for the three months ended March 31, 2021 from 4.46% for the three months ended March 31, 2020.
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 2020 Annual Report on Form 10-K, management has identified the determination of the allowance for credit losses and the review of goodwill for impairment as the Company’s most critical accounting policies.
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 GAAP to certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients provided that those elections are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022 and do not apply to contract modifications made after December 31, 2022. The Company has not yet adopted the amendments in this update and is currently in the process of reviewing its contracts and existing processes in order to assess the risks and potential impact to the Company.
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Non-GAAP Financial Measures and Reconciliation to GAAP
In addition to evaluating the Company’s results of operations in accordance with GAAP, management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures, such as operating earnings metrics, the return on average tangible assets, return on average tangible equity, the tangible equity ratio, tangible book value per share, and dividend payout ratio. Management believes that these non-GAAP financial measures provide information useful to investors in understanding the Company’s underlying operating performance and trends, and facilitates comparisons with the performance assessment of financial performance, including non-interest expense control, while the tangible equity ratio and tangible book value per share are used to analyze the relative strength of the Company’s capital position.
The following table reconciles the Company’s operating earnings, operating return on average assets and operating return on average stockholders’ equity for the periods indicated:
| At and for the Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (Dollars in Thousands) | |||||||||||
| Net income (loss), as reported | $ | 26,454 | $ | (17,276) | |||||||
| Less: | |||||||||||
| Security (losses) gains (after-tax) | (5) | 964 | |||||||||
| Operating earnings (loss) | $ | 26,459 | $ | (18,240) | |||||||
| Basic earnings (loss) per share, as reported | $ | 0.34 | $ | (0.22) | |||||||
| Less: | |||||||||||
| Security (losses) gains (after-tax) | — | 0.01 | |||||||||
| Basic operating earnings (loss) per share | $ | 0.34 | $ | (0.23) | |||||||
The following tables reconcile the Company’s return on average tangible assets and return on average tangible stockholders’ equity for the periods indicated:
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| Three Months Ended | |||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||
| Operating earnings (loss) | $ | 26,459 | $ | 26,663 | $ | 18,639 | $ | 19,131 | $ | (18,240) | |||||||||||||||||||
| Average total assets | $ | 8,714,158 | $ | 8,874,467 | $ | 9,018,672 | $ | 8,869,540 | $ | 7,965,826 | |||||||||||||||||||
| Less: Average goodwill and average identified intangible assets, net | 163,457 | 163,758 | 164,072 | 164,385 | 164,701 | ||||||||||||||||||||||||
| Average tangible assets | $ | 8,550,701 | $ | 8,710,709 | $ | 8,854,600 | $ | 8,705,155 | $ | 7,801,125 | |||||||||||||||||||
| Return on average assets (annualized) | 1.21 | % | 1.20 | % | 0.83 | % | 0.88 | % | (0.87) | % | |||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Security gains | — | % | — | % | — | % | 0.02 | % | 0.05 | % | |||||||||||||||||||
| Operating return on average assets (annualized) | 1.21 | % | 1.20 | % | 0.83 | % | 0.86 | % | (0.92) | % | |||||||||||||||||||
| Return on average tangible assets (annualized) | 1.24 | % | 1.22 | % | 0.84 | % | 0.90 | % | (0.89) | % | |||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Security gains | — | % | — | % | — | % | 0.02 | % | 0.05 | % | |||||||||||||||||||
| Operating return on average tangible assets (annualized) | 1.24 | % | 1.22 | % | 0.84 | % | 0.88 | % | (0.94) | % | |||||||||||||||||||
| Average total stockholders' equity | $ | 946,482 | $ | 937,294 | $ | 934,632 | $ | 926,239 | $ | 946,138 | |||||||||||||||||||
| Less: Average goodwill and average identified intangible assets, net | 163,457 | 163,758 | 164,072 | 164,385 | 164,701 | ||||||||||||||||||||||||
| Average tangible stockholders' equity | $ | 783,025 | $ | 773,536 | $ | 770,560 | $ | 761,854 | $ | 781,437 | |||||||||||||||||||
| Return on average stockholders' equity (annualized) | 11.18 | % | 11.38 | % | 7.99 | % | 8.45 | % | (7.30) | % | |||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Security gains (losses) | — | % | — | % | 0.01 | % | 0.19 | % | 0.41 | % | |||||||||||||||||||
| Operating return on average stockholders' equity (annualized) | 11.18 | % | 11.38 | % | 7.98 | % | 8.26 | % | (7.71) | % | |||||||||||||||||||
| Return on average tangible stockholders' equity (annualized) | 13.51 | % | 13.79 | % | 9.70 | % | 10.28 | % | (8.84) | % | |||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Security gains (losses) | — | % | — | % | 0.02 | % | 0.24 | % | 0.49 | % | |||||||||||||||||||
| Operating return on average tangible stockholders' equity (annualized) | 13.51 | % | 13.79 | % | 9.68 | % | 10.04 | % | (9.33) | % | |||||||||||||||||||
49
| Three Months Ended | |||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||
| Net income (loss), as reported | $ | 26,454 | $ | 26,663 | $ | 18,679 | $ | 19,571 | $ | (17,276) | |||||||||||||||||||
| Average total assets | $ | 8,714,158 | $ | 8,874,467 | $ | 9,018,672 | $ | 8,869,540 | $ | 7,965,826 | |||||||||||||||||||
| Less: Average goodwill and average identified intangible assets, net | 163,457 | 163,758 | 164,072 | 164,385 | 164,701 | ||||||||||||||||||||||||
| Average tangible assets | $ | 8,550,701 | $ | 8,710,709 | $ | 8,854,600 | $ | 8,705,155 | $ | 7,801,125 | |||||||||||||||||||
| Return on average tangible assets (annualized) | 1.24 | % | 1.22 | % | 0.84 | % | 0.90 | % | (0.89) | % | |||||||||||||||||||
| Average total stockholders' equity | $ | 946,482 | $ | 937,294 | $ | 934,632 | $ | 926,239 | $ | 946,138 | |||||||||||||||||||
| Less: Average goodwill and average identified intangible assets, net | 163,457 | 163,758 | 164,072 | 164,385 | 164,701 | ||||||||||||||||||||||||
| Average tangible stockholders' equity | $ | 783,025 | $ | 773,536 | $ | 770,560 | $ | 761,854 | $ | 781,437 | |||||||||||||||||||
| Return on average tangible stockholders' equity (annualized) | 13.51 | % | 13.79 | % | 9.70 | % | 10.28 | % | (8.84) | % | |||||||||||||||||||
The following table reconciles the Company's tangible equity ratio for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||
| Total stockholders' equity | $ | 945,399 | $ | 941,778 | $ | 935,558 | $ | 926,413 | $ | 912,568 | |||||||||||||||||||
| Less: Goodwill and identified intangible assets, net | 163,347 | 163,579 | 163,891 | 164,203 | 164,514 | ||||||||||||||||||||||||
| Tangible stockholders' equity | $ | 782,052 | $ | 778,199 | $ | 771,667 | $ | 762,210 | $ | 748,054 | |||||||||||||||||||
| Total assets | $ | 8,559,810 | $ | 8,942,424 | $ | 9,000,192 | $ | 9,069,667 | $ | 8,461,591 | |||||||||||||||||||
| Less: Goodwill and identified intangible assets, net | 163,347 | 163,579 | 163,891 | 164,203 | 164,514 | ||||||||||||||||||||||||
| Tangible assets | $ | 8,396,463 | $ | 8,778,845 | $ | 8,836,301 | $ | 8,905,464 | $ | 8,297,077 | |||||||||||||||||||
| Tangible equity ratio | 9.31 | % | 8.86 | % | 8.73 | % | 8.56 | % | 9.02 | % | |||||||||||||||||||
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The following table reconciles the Company's tangible book value per share for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||
| Tangible stockholders' equity | $ | 782,052 | $ | 778,199 | $ | 771,667 | $ | 762,210 | $ | 748,054 | |||||||||||||||||||
| Common shares issued | 85,177,172 | 85,177,172 | 85,177,172 | 85,177,172 | 85,177,172 | ||||||||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Treasury shares | 6,534,602 | 6,525,783 | 5,629,854 | 5,859,708 | 5,862,811 | ||||||||||||||||||||||||
| Unallocated ESOP | 44,502 | 51,114 | 58,227 | 65,334 | 72,441 | ||||||||||||||||||||||||
| Unvested restricted stock | 449,981 | 458,800 | 487,318 | 398,188 | 395,085 | ||||||||||||||||||||||||
| Common shares outstanding | 78,148,087 | 78,141,475 | 79,001,773 | 78,853,942 | 78,846,835 | ||||||||||||||||||||||||
| Tangible book value per share | $ | 10.01 | $ | 9.96 | $ | 9.77 | $ | 9.67 | $ | 9.49 | |||||||||||||||||||
The following table reconciles the Company's dividend payout ratio for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||
| Dividends paid | $ | 8,992 | $ | 9,055 | $ | 9,092 | $ | 9,076 | $ | 9,173 | |||||||||||||||||||
| Net income (loss), as reported | $ | 26,454 | $ | 26,663 | $ | 18,679 | $ | 19,571 | $ | (17,276) | |||||||||||||||||||
| Dividend payout ratio | 33.99 | % | 33.96 | % | 48.67 | % | 46.37 | % | (53.10) | % | |||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||
| Allowance for loan and lease losses | $ | 109,837 | $ | 114,379 | $ | 119,971 | $ | 119,553 | $ | 113,181 | |||||||||||||||||||
| Total loans and leases | $ | 7,267,552 | $ | 7,269,553 | $ | 7,396,358 | $ | 7,407,697 | $ | 6,822,527 | |||||||||||||||||||
| Less: Total PPP loans | 604,790 | 489,216 | 568,383 | 565,768 | — | ||||||||||||||||||||||||
| Total loans and leases excluding PPP loans | $ | 6,662,762 | $ | 6,780,337 | $ | 6,827,975 | $ | 6,841,929 | $ | 6,822,527 | |||||||||||||||||||
| Allowance for loan and lease losses as a percentage of total loans and leases less PPP loans | 1.65 | % | 1.69 | % | 1.76 | % | 1.75 | % | 1.66 | % | |||||||||||||||||||
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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 March 31, 2021 | At December 31, 2020 | ||||||||||||||||||||||
| Balance | Percent of Total | Balance | Percent of Total | ||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Commercial real estate loans: | |||||||||||||||||||||||
| Commercial real estate | $ | 2,595,240 | 35.6 | % | $ | 2,578,773 | 35.4 | % | |||||||||||||||
| Multi-family mortgage | 1,000,474 | 13.8 | % | 1,013,432 | 13.9 | % | |||||||||||||||||
| Construction | 194,627 | 2.7 | % | 231,621 | 3.2 | % | |||||||||||||||||
| Total commercial real estate loans | 3,790,341 | 52.1 | % | 3,823,826 | 52.5 | % | |||||||||||||||||
| Commercial loans and leases: | |||||||||||||||||||||||
| Commercial | 1,206,977 | 16.6 | % | 1,131,668 | 15.6 | % | |||||||||||||||||
| Equipment financing | 1,069,621 | 14.7 | % | 1,092,461 | 15.0 | % | |||||||||||||||||
| Condominium association | 47,604 | 0.7 | % | 50,770 | 0.7 | % | |||||||||||||||||
| Total commercial loans and leases | 2,324,202 | 32.0 | % | 2,274,899 | 31.3 | % | |||||||||||||||||
| Consumer loans: | |||||||||||||||||||||||
| Residential mortgage | 781,854 | 10.8 | % | 791,317 | 10.9 | % | |||||||||||||||||
| Home equity | 334,706 | 4.6 | % | 346,652 | 4.8 | % | |||||||||||||||||
| Other consumer | 36,449 | 0.5 | % | 32,859 | 0.5 | % | |||||||||||||||||
| Total consumer loans | 1,153,009 | 15.9 | % | 1,170,828 | 16.2 | % | |||||||||||||||||
| Total loans and leases | 7,267,552 | 100.0 | % | 7,269,553 | 100.0 | % | |||||||||||||||||
| Allowance for loan and lease losses | (109,837) | (114,379) | |||||||||||||||||||||
| Net loans and leases | $ | 7,157,715 | $ | 7,155,174 | |||||||||||||||||||
The following table sets forth the growth in the Company’s loan and lease portfolios during the three months ended March 31, 2021:
| At March 31, 2021 | At December 31, 2020 | Dollar Change | Percent Change (Annualized) | ||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Commercial real estate | $ | 3,790,341 | $ | 3,823,826 | $ | (33,485) | -3.5 | % | |||||||||||||||
| Commercial | 2,324,202 | 2,274,899 | 49,303 | 8.7 | % | ||||||||||||||||||
| Consumer | 1,153,009 | 1,170,828 | (17,819) | -6.1 | % | ||||||||||||||||||
| Total loans and leases | $ | 7,267,552 | $ | 7,269,553 | $ | (2,001) | (0.11) | % | |||||||||||||||
The Company's loan portfolio consists primarily of first mortgage loans secured by commercial, multi-family and residential real estate properties located in the Company's primary lending area, loans to business entities, including commercial lines of credit, loans to condominium associations and loans and leases used to finance equipment used by small businesses. The Company also provides financing for construction and development projects, home equity and other consumer loans.
The Company employs seasoned commercial lenders and retail bankers who rely on community and business contacts as well as referrals from customers, attorneys and other professionals to generate loans and deposits. Existing borrowers are also an important source of business since many of them have more than one loan outstanding with the Company. The Company's ability to originate loans depends on the strength of the economy, trends in interest rates, and levels of customer demand and market competition.
The Company's current policy is that a total credit exposure to one obligor relationship may not exceed $50.0 million unless approved by the Company's Credit Committee. As of March 31, 2021, there were 2 borrowers with loans and commitments over $50.0 million. The total of those loans and commitments was $118.2 million, or 1.4% of total loans and commitments, as of March 31, 2021. As of December 31, 2020, there were 2 borrowers with loans and commitments over
52
$50.0 million. The total of those loans and commitments was $114.4 million, or 1.3% of total loans and commitments, as of December 31, 2020.
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 52.1% of total loans and leases outstanding as of March 31, 2021.
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 ($939.1 million), office buildings ($677.5 million), retail stores ($593.9 million), industrial properties ($443.3 million), mixed-use properties ($303.3 million), lodging services ($150.5 million) and food services ($55.5 million) as of March 31, 2021. At that date, approximately 96.3% 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.
53
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 32.0% of total loans outstanding as of March 31, 2021.
The Company's commercial loan and lease portfolio is composed primarily of loans and leases to small to medium sized businesses ($663.2 million), transportation services ($374.3 million), food services ($251.1 million), manufacturing ($147.8 million), recreation services ($137.3 million), rental and leasing services ($117.0 million), and retail ($99.5 million) as of March 31, 2021.
The Company provides commercial banking services to companies in its market area. Approximately 55.7% of the commercial loans outstanding as of March 31, 2021 were made to borrowers located in New England. The remaining 44.3% of the commercial loans outstanding were made to borrowers in other areas in the United States of America, primarily by the Company's equipment financing divisions. Product offerings include lines of credit, term loans, letters of credit, deposit services and cash management. These types of credit facilities have as their primary source of repayment cash flows from the operations of a business. Interest rates offered are available on a floating basis tied to the prime rate or a similar index or on a fixed-rate basis referenced on the Federal Home Loan Bank of Boston ("FHLBB") index.
Credit extensions are made to established businesses on the basis of loan purpose and assessment of capacity to repay as determined by an analysis of their financial statements, the nature of collateral to secure the credit extension and, in most instances, the personal guarantee of the owner of the business as well as industry and general economic conditions. The Company also participates in U.S. Government programs such as the SBA 7A program and as an SBA preferred lender. Included in the commercial loans balances are the PPP loans totaling $604.8 million as of March 31, 2021.
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 12.7% of the commercial loans outstanding in the equipment financing divisions were made to borrowers located primarily in the greater New York and New Jersey metropolitan area. Typically, the loans are priced at a fixed rate of interest and require monthly payments over their 3- to 7-year life. The yields earned on equipment financing loans are higher than those earned on the commercial loans made by the Banks because they involve a higher degree of credit risk. Equipment financing customers are typically small-business owners who operate with limited financial resources and who face greater risks when the economy weakens or unforeseen adverse events arise. Because of these characteristics, personal guarantees of borrowers are usually obtained along with liens on available assets. The size of loan is determined by an analysis of cash flow and other characteristics pertaining to the business and the equipment to be financed, based on detailed revenue and profitability data of similar operations.
Loans to condominium associations are for the purpose of funding capital improvements, are made for five- to ten-year terms and are secured by a general assignment of condominium association revenues. Among the factors considered in the underwriting of such loans are the level of owner occupancy, the financial condition and history of the condominium association, the attractiveness of the property in relation to the market in which it is located and the reasonableness of estimates of the cost of capital improvements to be made. Depending on loan size, funds are advanced as capital improvements are made and, in more complex situations, after completion of engineering inspections.
Consumer Loans
The consumer loan portfolio, which is comprised of residential mortgage loans, home equity loans and lines of credit, and other consumer loans, represented 15.9% of total loans outstanding as of March 31, 2021. 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.
54
Other consumer loans have historically been a modest part of the Company's loan originations. As of March 31, 2021, other consumer loans equaled $36.4 million, or 0.5% of total loans outstanding.
Asset Quality
Criticized and Classified Assets
The Company's management rates certain loans and leases as "other assets especially mentioned" ("OAEM"), "substandard" or "doubtful" based on criteria established under banking regulations. These loans and leases are collectively referred to as "criticized" assets. Loans and leases rated OAEM have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the loan or lease at some future date. Loans and leases rated as substandard are inadequately protected by the payment capacity of the obligor or of the collateral pledged, if any. Substandard loans and leases have a well-defined weakness or weaknesses that jeopardize the liquidation of debt and are characterized by the distinct possibility that the Company will sustain some loss if existing deficiencies are not corrected. Loans and leases rated as doubtful have well-defined weaknesses that jeopardize the orderly liquidation of debt and partial loss of principal is likely. As of March 31, 2021, the Company had $131.5 million of total assets that were designated as criticized. This compares to $72.8 million of assets designated as criticized as of December 31, 2020. The increase of $58.7 million in criticized assets was primarily driven by seven commercial real estate relationships totaling $54.7 million, two commercial loan relationships totaling $4.3 million which became criticized, partially offset by the relationships which were upgraded to pass risk rating during the first quarter of 2021.
Nonperforming Assets
"Nonperforming assets" consist of non-accrual loans and leases, other real estate owned ("OREO") and other repossessed assets. Under certain circumstances, the Company may restructure the terms of a loan or lease as a concession to a borrower, except for acquired loans and leases which are individually evaluated against expected performance on the date of acquisition. These restructured loans and leases are generally considered "nonperforming loans and leases" until a history of collection of at least six months on the restructured terms of the loan or lease has been established. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of a deed in lieu of foreclosure. Other repossessed assets consist of assets that have been acquired through foreclosure that are not real estate and are included in other assets on the Company's unaudited consolidated balance sheets.
Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. Prior to the adoption of ASC 326, loans categorized as ASC 310-30 (purchased loans with deteriorating credit quality) accrued regardless of past due status. Exceptions may be made if the loan has matured and is in the process of renewal or is well-secured and in the process of collection. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current interest income. Interest payments on non-accrual loans are generally applied to principal. If collection of the principal is reasonably assured, interest payments are recognized as income on the cash basis. Loans are generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured and a consistent record of at least six months of performance has been achieved.
In cases where a borrower experiences financial difficulties and the Company makes or reasonably expects to make certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructured loan. In determining whether a debtor is experiencing financial difficulties, the Company considers, among other factors, if the debtor is in payment default or is likely to be in payment default in the foreseeable future without the modification, the debtor declared or is in the process of declaring bankruptcy, there is substantial doubt that the debtor will continue as a going concern, the debtor's entity-specific projected cash flows will not be sufficient to service its debt, or the debtor cannot obtain funds from sources other than the existing creditors at market terms for debt with similar risk characteristics.
As of March 31, 2021, the Company had nonperforming assets of $37.4 million, representing 0.44% of total assets, compared to nonperforming assets of $45.0 million, or 0.50% of total assets as of December 31, 2020. The decrease in nonperforming assets was primarily driven by the payoff of one commercial relationship of $4.3 million, and the payoff of several equipment finance relationships totaling $2.4 million as well as several residential relationships that were removed from non-accrual status totaling $2.0 million, partially offset by the relationships that were placed on non-accrual status during the first quarter of 2021.
The Company evaluates the underlying collateral of each non-accrual loan and lease and continues to pursue the collection of interest and principal. Management believes that the current level of nonperforming assets remains manageable relative to the size of the Company's loan and lease portfolio. If economic conditions were to worsen or if the marketplace were to experience prolonged economic stress, it is likely that the level of nonperforming assets would increase, as would the level of charged-off loans.
55
Past Due and Accruing
As of March 31, 2021, the Company had loans and leases greater than 90 days past due and accruing of $1.2 million, or 0.02% of total loans and leases, compared to $12.0 million, or 0.16% of total loans and leases, as of December 31, 2020, representing a decrease of $10.8 million. The decrease in past due and accruing loans was primarily due to two commercial real estate relationships becoming current for $4.7 million, and one construction relationship becoming past due less than 90 days for $3.7 million, and the payoff of one commercial relationship of $3.4 million. Partially offset by several equipment financing relationships becoming past due greater than 90 days and accruing for $1.1 million during the first quarter of 2021.
The following table sets forth information regarding nonperforming assets for the periods indicated:
| At March 31, 2021 | At December 31, 2020 | ||||||||||
| (Dollars in Thousands) | |||||||||||
| Nonperforming loans and leases: | |||||||||||
| Nonaccrual loans and leases: | |||||||||||
| Commercial real estate | $ | 3,611 | $ | 3,300 | |||||||
| Multi-family mortgage | — | — | |||||||||
| Construction | 3,853 | 3,853 | |||||||||
| Total commercial real estate loans | 7,464 | 7,153 | |||||||||
| Commercial | 3,161 | 7,702 | |||||||||
| Equipment financing | 15,772 | 16,757 | |||||||||
| Condominium association | 106 | 112 | |||||||||
| Total commercial loans and leases | 19,039 | 24,571 | |||||||||
| Residential mortgage | 3,722 | 5,587 | |||||||||
| Home equity | 792 | 1,136 | |||||||||
| Other consumer | 2 | 1 | |||||||||
| Total consumer loans | 4,516 | 6,724 | |||||||||
| Total nonaccrual loans and leases | 31,019 | 38,448 | |||||||||
| Other real estate owned | 5,328 | 5,415 | |||||||||
| Other repossessed assets | 1,055 | 1,100 | |||||||||
| Total nonperforming assets | $ | 37,402 | $ | 44,963 | |||||||
| Loans and leases past due greater than 90 days and accruing | $ | 1,179 | $ | 11,975 | |||||||
| Total delinquent loans and leases 61-90 days past due | 6,522 | 16,129 | |||||||||
| Restructured loans and leases not included in nonperforming assets | 16,770 | 11,483 | |||||||||
| Total nonperforming loans and leases as a percentage of total loans and leases | 0.43 | % | 0.53 | % | |||||||
| Total nonperforming assets as a percentage of total assets | 0.44 | % | 0.50 | % | |||||||
| Total delinquent loans and leases 61-90 days past due as a percentage of total loans and leases | 0.09 | % | 0.22 | % | |||||||
Troubled Debt Restructuring Loans and Leases
Total TDR loans increased by $4.1 million to $23.1 million at March 31, 2021 from $19.0 million at December 31, 2020. The increase was driven primarily by one construction relationship for $3.8 million and one commercial real estate relationship for $0.4 million becoming TDR during the three months ended March 31, 2021.
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As of March 31, 2021, total TDR loans included $6.4 million of commercial loans, $7.2 million of equipment financing loans and leases, $1.8 million of residential mortgage loans, $1.8 million of home equity loans, and $2.1 million of commercial real estate loans. As of December 31, 2020, total TDR loans included $6.5 million of commercial loans, $6.7 million of equipment financing loans and leases, $2.1 million of residential mortgage loans, $2.1 million of home equity loans, and $1.6 million of commercial real estate loans. A TDR loan is a loan for which the maturity date was extended, the principal was reduced, and/or the interest rate was modified to drop the required monthly payment to a more manageable amount for the borrower.
The following table sets forth information regarding TDR loans and leases at the dates indicated:
| At March 31, 2021 | At December 31, 2020 | ||||||||||
| (Dollars in Thousands) | |||||||||||
| Troubled debt restructurings: | |||||||||||
| On accrual | $ | 16,770 | $ | 11,483 | |||||||
| On nonaccrual | 6,293 | 7,476 | |||||||||
| Total troubled debt restructurings | $ | 23,063 | $ | 18,959 | |||||||
Changes in TDR loans and leases were as follows for the periods indicated:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (Dollars in Thousands) | |||||||||||
| Balance at beginning of period | $ | 18,959 | $ | 23,180 | |||||||
| Additions | 4,980 | 497 | |||||||||
| Net charge-offs | (598) | (140) | |||||||||
| Repayments | (278) | (1,238) | |||||||||
| Balance at end of period | $ | 23,063 | $ | 22,299 | |||||||
From March 1, 2020 through the earlier of January 1, 2022 or 60 days after the termination date of the national emergency declared by the President on March 13, 2020 concerning the COVID-19 pandemic (the “national emergency”), a financial institution may elect to suspend the requirements under accounting principles generally accepted in the U.S. for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a troubled debt restructured, including impairment accounting. This troubled debt restructuring relief applies for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. Financial institutions are required to maintain records of the volume of loans involved in modifications to which troubled debt restructuring relief is applicable. Through March 31, 2021, the Company granted 4,603 short-term deferments on loan and leases balances of $1.1 billion of which 4,262 loans and leases representing balances of $955.6 million returned to the payment status and 341 loans and leases representing balances of $125.7 million remain in deferment.The outstanding deferred loans and leases represent 1.7% of the Company's total loan and lease balances.
Allowance 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 the loan or lease. Management uses a consistent and systematic process and methodology to evaluate the adequacy of the allowance for credit losses on a quarterly basis. Management continuously evaluates and challenges inputs and assumptions in the allowance for credit losses.
While management evaluates currently available information in establishing the allowance for credit losses, future adjustments to the allowance for loan and lease losses may be necessary if conditions differ substantially from the assumptions used in making the evaluations. Management performs a comprehensive review of the allowance for credit losses on a quarterly basis. In addition, various regulatory agencies, as an integral part of their examination process, periodically review a financial institution's allowance for credit losses and carrying amounts of other real estate owned. Such agencies may require the financial institution to recognize additions or reductions to the allowance based on their judgments about information available to them at the time of their examination.
The Company’s allowance methodology provides a quantification of probable losses in the portfolio. Under the current methodology, management estimates losses over the life of the loan using reasonable and supportable forecasts. Forecasts, loan
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data, and model documentation are extensively analyzed and reviewed throughout the quarter to ensure estimated losses are accurate at quarter end. Qualitative adjustments are applied when model output does not align with management expectations. These adjustments are thoroughly reviewed and documented to provide clarity and a reasonable basis for any deviations from the model. For March 31, 2021, qualitative adjustments were applied to the CRE, C&I, and Retail portfolios resulting in a net addition in total reserves compared to modeled calculations.
The following tables present the changes in the allowance for loan and lease losses by portfolio category for the three months ended March 31, 2021 and 2020.
| At and for the Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| Commercial Real Estate | Commercial | Consumer | Total | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 80,132 | $ | 29,498 | $ | 4,749 | $ | 114,379 | |||||||||||||||
| Charge-offs | — | (2,140) | (3) | (2,143) | |||||||||||||||||||
| Recoveries | — | 331 | 52 | 383 | |||||||||||||||||||
| Provision (credit) for loan and lease losses | (203) | (1,864) | (715) | (2,782) | |||||||||||||||||||
| Balance at March 31, 2021 | $ | 79,929 | $ | 25,825 | $ | 4,083 | $ | 109,837 | |||||||||||||||
| Total loans and leases | $ | 3,790,341 | $ | 2,324,202 | $ | 1,153,009 | $ | 7,267,552 | |||||||||||||||
| Total allowance for loan and lease losses as a percentage of total loans and leases | 2.11 | % | 1.11 | % | 0.35 | % | 1.51 | % | |||||||||||||||
| At and for the Three Months Ended March 31, 2020 | |||||||||||||||||||||||
| Commercial Real Estate | Commercial | Consumer | Total | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Balance at December 31, 2019 | $ | 30,285 | $ | 24,826 | $ | 5,971 | $ | 61,082 | |||||||||||||||
| Adoption of ASU 2016-13 (CECL) | 11,694 | (2,672) | (2,390) | 6,632 | |||||||||||||||||||
| Charge-offs | — | (2,527) | (12) | (2,539) | |||||||||||||||||||
| Recoveries | — | 247 | 58 | 305 | |||||||||||||||||||
| Provision for loan and lease losses | 40,200 | 6,900 | 601 | 47,701 | |||||||||||||||||||
| Balance at March 31, 2020 | $ | 82,179 | $ | 26,774 | $ | 4,228 | $ | 113,181 | |||||||||||||||
| Total loans and leases | $ | 3,762,158 | $ | 1,826,866 | $ | 1,233,503 | $ | 6,822,527 | |||||||||||||||
| Total allowance for loan and lease losses as a percentage of total loans and leases | 2.18 | % | 1.47 | % | 0.34 | % | 1.66 | % | |||||||||||||||
Beginning January 1, 2020, the Company implemented the CECL methodology to calculate the allowance for credit losses. As of January 1, 2020, the Company increased the allowance for loan and lease losses by $6.6 million due to CECL which requires the inclusion of the credit losses over the expected life of the loans, as well as consideration of the risks based on the current conditions and reasonable and supportable forecasts about the future.
At March 31, 2021, the allowance for loan and lease losses decreased to $109.8 million, or 1.51% of total loans and leases outstanding. This compared to an allowance for loan and lease losses of $114.4 million, or 1.57% of total loans and leases outstanding, as of December 31, 2020. Excluding PPP loans which are not subject to an allowance reserve since they are guaranteed by the SBA.
Net charge-offs in the loans and leases for the three months ended March 31, 2021 and 2020 were $1.8 million and $2.2 million, respectively. As a percentage of average loans and leases, annualized net charge-offs for the three months ended March 31, 2021 and 2020 were 0.10% and 0.13%, respectively. The decrease in the net charge-off for the three months ended March 31, 2021 was primarily due to the decrease in the net charge-off by $0.5 million on equipment financing loans, partially offset by the increase in the net charge off in commercial loans by $0.1 million.
Management believes that the allowance for loan and lease losses as of March 31, 2021 is appropriate.
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The following table sets forth the Company's percent of allowance for loan and lease losses to the total allowance for loan and lease losses and the percent of loans to total loans for each of the categories listed at the dates indicated.
| At March 31, 2021 | At December 31, 2020 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 46,945 | 42.7 | % | 35.6 | % | $ | 46,357 | 40.6 | % | 35.4 | % | |||||||||||||||||||||||
| Multi-family mortgage | 22,361 | 20.4 | % | 13.8 | % | 22,559 | 19.7 | % | 13.9 | % | |||||||||||||||||||||||||
| Construction | 10,623 | 9.7 | % | 2.7 | % | 11,216 | 9.8 | % | 3.2 | % | |||||||||||||||||||||||||
| Total commercial real estate loans | 79,929 | 72.8 | % | 52.1 | % | 80,132 | 70.1 | % | 52.5 | % | |||||||||||||||||||||||||
| Commercial | 8,584 | 7.8 | % | 16.6 | % | 8,089 | 7.1 | % | 15.6 | % | |||||||||||||||||||||||||
| Equipment financing | 17,122 | 15.6 | % | 14.7 | % | 21,292 | 18.6 | % | 15.0 | % | |||||||||||||||||||||||||
| Condominium association | 119 | 0.1 | % | 0.7 | % | 117 | 0.1 | % | 0.7 | % | |||||||||||||||||||||||||
| Total commercial loans and leases | 25,825 | 23.5 | % | 32.0 | % | 29,498 | 25.8 | % | 31.3 | % | |||||||||||||||||||||||||
| Residential mortgage | 1,797 | 1.6 | % | 10.8 | % | 1,967 | 1.7 | % | 10.9 | % | |||||||||||||||||||||||||
| Home equity | 2,020 | 1.8 | % | 4.6 | % | 2,504 | 2.2 | % | 4.8 | % | |||||||||||||||||||||||||
| Other consumer | 266 | 0.2 | % | 0.5 | % | 278 | 0.2 | % | 0.5 | % | |||||||||||||||||||||||||
| Total consumer loans | 4,083 | 3.6 | % | 15.9 | % | 4,749 | 4.1 | % | 16.2 | % | |||||||||||||||||||||||||
| Total | $ | 109,837 | 99.9 | % | 100.0 | % | $ | 114,379 | 100.0 | % | 100.0 | % | |||||||||||||||||||||||
Investment Securities
The investment portfolio exists primarily for liquidity purposes, and secondarily as a source of interest and dividend income, interest-rate risk management and tax planning as a counterbalance to loan and deposit flows. Investment securities are utilized as part of the Company's asset/liability management and may be sold in response to, or in anticipation of, factors such as changes in market conditions and interest rates, security prepayment rates, deposit outflows, liquidity concentrations and regulatory capital requirements.
The investment policy of the Company, which is reviewed and approved by the Board of Directors on an annual basis, specifies the types of investments that are acceptable, required investment ratings by at least one nationally recognized rating agency, concentration limits and duration guidelines. Compliance with the investment policy is monitored on a regular basis. In general, the Company seeks to maintain a high degree of liquidity and targets cash, cash equivalents and investment securities available-for-sale balances between 10% and 30% of total assets.
Cash, cash equivalents, and investment securities decreased $319.9 million, or 108.3% on an annualized basis, to $861.3 million as of March 31, 2021 from $1.2 billion as of December 31, 2020. The decrease was driven by decreases in total cash, cash equivalents. Cash, cash equivalents, and investment securities were 10.1% of total assets as of March 31, 2021, compared to 13.2% of total assets at December 31, 2020.
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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 March 31, 2021 | At December 31, 2020 | ||||||||||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| GSE debentures | $ | 273,315 | $ | 271,526 | $ | 273,820 | $ | 278,645 | |||||||||||||||
| GSE CMOs | 39,980 | 40,925 | 44,937 | 46,028 | |||||||||||||||||||
| GSE MBSs | 271,231 | 276,066 | 312,658 | 323,609 | |||||||||||||||||||
| Corporate debt obligations | 22,269 | 23,247 | 22,299 | 23,467 | |||||||||||||||||||
| U.S. Treasury bonds | 119,817 | 117,641 | 70,339 | 73,577 | |||||||||||||||||||
| Foreign government obligations | $ | 500 | $ | 496 | 500 | 496 | |||||||||||||||||
| Total investment securities available-for-sale | $ | 727,112 | $ | 729,901 | $ | 724,553 | $ | 745,822 | |||||||||||||||
| Equity securities held-for-trading | $ | 518 | $ | 526 | |||||||||||||||||||
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 $46.2 million for the three months ended March 31, 2021 compared to $25.5 million for the same period in 2020. For the three months ended March 31, 2021, the Company did not sell any investment securities available for sale, compared to $86.4 million for the same period in 2020. For the three months ended March 31, 2021, the Company purchased $49.5 million of investment securities available-for-sale, compared to $273.3 million for the same period in 2020.
For the three months ended March 31, 2021 the Company did not own held-to-maturity securities. Compared to the three months ended March 31, 2020 the Company had maturities, calls and principal repayments of $6.3 million. The Company made no sales or purchases of held-to-maturity securities for the three months ended March 31, 2020. During the three months ended March 31, 2020, all held-to-maturity securities were transferred to the available-for-sale portfolio.
As of March 31, 2021, the fair value of all investment securities available-for-sale was $729.9 million and carried a total of $2.8 million of net unrealized gains, compared to a fair value of $745.8 million and net unrealized gains of $21.3 million as of December 31, 2020. As of March 31, 2021, $261.6 million, or 35.8%, of the portfolio, had gross unrealized losses of $10.8 million. This compares to $86.9 million, or 11.7%, of the portfolio with gross unrealized losses of $0.7 million as of December 31, 2020. The Company's unrealized gain position has decreased in 2021 driven by higher long-term interest rates.
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Restricted Equity Securities
FHLBB Stock—The Company invests in the stock of the FHLBB as one of the requirements to borrow from the FHLBB. The Company maintains an excess balance of capital stock, which allows for additional borrowing capacity at each of the Banks. As of March 31, 2021, the excess balance of capital stock was $1.1 million, as compared to a $1.0 million excess balance as of December 31, 2020.
As of March 31, 2021, the Company owned stock in the FHLBB with a carrying value of $21.9 million, a decrease of $9.4 million from $31.3 million as of December 31, 2020. As of March 31, 2021, the FHLBB had total assets of $36.7 billion and total capital of $2.7 billion, of which $1.5 billion was retained earnings. The FHLBB stated that it remained in compliance with all regulatory capital ratios as of March 31, 2021 and was classified as "adequately capitalized" by its regulator, based on the FHLBB's financial information as of December 31, 2020 .
Federal Reserve Bank Stock—The Company invests in the stock of the Federal Reserve Bank of Boston, as a condition to the Banks' membership in the Federal Reserve System. As of March 31, 2021 and December 31, 2020, the Company owned stock in the Federal Reserve Bank of Boston with a carrying value of $18.2 million.
Other Stock—The Company invests in a small number of other restricted equity securities which includes Infinex Financial Group and American Financial Exchange. As of March 31, 2021, the Company owned stock in other restricted equity securities with a carrying value of $0.3 million, unchanged from December 31, 2020.
Deposits
The following table presents the Company's deposit mix at the dates indicated.
| At March 31, 2021 | At December 31, 2020 | ||||||||||||||||||||||||||||||||||
| Amount | Percent of Total | Weighted Average Rate | Amount | Percent of Total | Weighted Average Rate | ||||||||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||||||||
| Non-interest-bearing deposits: | |||||||||||||||||||||||||||||||||||
| Demand checking accounts | $ | 1,724,170 | 25.1 | % | — | % | $ | 1,592,205 | 23.0 | % | — | % | |||||||||||||||||||||||
| Interest-bearing deposits: | |||||||||||||||||||||||||||||||||||
| NOW accounts | 481,988 | 7.0 | % | 0.09 | % | 513,948 | 7.4 | % | 0.09 | % | |||||||||||||||||||||||||
| Savings accounts | 724,504 | 10.6 | % | 0.14 | % | 701,659 | 10.2 | % | 0.13 | % | |||||||||||||||||||||||||
| Money market accounts | 2,192,468 | 31.9 | % | 0.28 | % | 2,018,977 | 29.2 | % | 0.31 | % | |||||||||||||||||||||||||
| Certificate of deposit accounts | 1,273,105 | 18.5 | % | 1.13 | % | 1,389,998 | 20.2 | % | 1.44 | % | |||||||||||||||||||||||||
| Brokered deposit accounts | 470,551 | 6.9 | % | 0.30 | % | 693,909 | 10.0 | % | 0.39 | % | |||||||||||||||||||||||||
| Total interest-bearing deposits | 5,142,616 | 74.9 | % | 0.45 | % | 5,318,491 | 77.0 | % | 0.57 | % | |||||||||||||||||||||||||
| Total deposits | $ | 6,866,786 | 100.0 | % | 0.34 | % | $ | 6,910,696 | 100.0 | % | 0.44 | % | |||||||||||||||||||||||
Total deposits decreased $43.9 million to $6.87 billion as of March 31, 2021, compared to $6.91 billion as of December 31, 2020. Deposits as a percentage of total assets increased to 80.2% as of March 31, 2021, compared to 77.3% as of December 31, 2020.
During the three months ended March 31, 2021, core deposits increased $296.3 million. The ratio of core deposits to total deposits increased from 69.8% as of December 31, 2020 to 74.6% as of March 31, 2021, primarily due to an increase in demand checking and money market accounts.
Certificate of deposit accounts decreased $116.9 million to $1.3 billion as of March 31, 2021, compared to $1.4 billion as of December 31, 2020. Certificate of deposit accounts decreased as a percentage of total deposits to 18.5% as of March 31, 2021 from 20.2% as of December 31, 2020.
Brokered deposits decreased $223.4 million to $470.6 million as of March 31, 2021, compared to $693.9 million as of December 31, 2020. Brokered deposits decreased as a percentage of total deposits to 6.9% as of March 31, 2021 from 10.0% as of December 31, 2020. The decrease in brokered deposits was driven by market rates. 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.
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The following table sets forth the distribution of the average balances of the Company's deposit accounts for the periods indicated and the weighted average interest rates on each category of deposits presented. Averages for the periods presented are based on daily balances.
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 1,643,373 | 23.9 | % | — | % | $ | 1,134,314 | 19.4 | % | — | % | |||||||||||||||||||||||
| NOW accounts | 477,893 | 7.0 | % | 0.11 | % | 359,641 | 6.2 | % | 0.13 | % | |||||||||||||||||||||||||
| Savings accounts | 712,728 | 10.4 | % | 0.13 | % | 626,945 | 10.7 | % | 0.41 | % | |||||||||||||||||||||||||
| Money market accounts | 2,084,503 | 30.4 | % | 0.29 | % | 1,678,649 | 28.8 | % | 1.02 | % | |||||||||||||||||||||||||
| Total core deposits | 4,918,497 | 71.7 | % | 0.15 | % | 3,799,549 | 65.1 | % | 0.53 | % | |||||||||||||||||||||||||
| Certificate of deposit accounts | 1,328,112 | 19.4 | % | 1.27 | % | 1,682,900 | 28.8 | % | 2.21 | % | |||||||||||||||||||||||||
| Brokered deposit accounts | 610,824 | 8.9 | % | 0.47 | % | 358,003 | 6.1 | % | 2.23 | % | |||||||||||||||||||||||||
| Total deposits | $ | 6,857,433 | 100.0 | % | 0.39 | % | $ | 5,840,452 | 100.0 | % | 1.11 | % | |||||||||||||||||||||||
As of March 31, 2021 and December 31, 2020, the Company had outstanding certificates of deposit of $100,000 or more, maturing as follows:
| At March 31, 2021 | At December 31, 2020 | ||||||||||||||||||||||
| Amount | Weighted Average Rate | Amount | Weighted Average Rate | ||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Maturity period: | |||||||||||||||||||||||
| Six months or less | $ | 442,310 | 1.27 | % | $ | 459,828 | 1.63 | % | |||||||||||||||
| Over six months through 12 months | 226,963 | 0.68 | % | 302,576 | 1.15 | % | |||||||||||||||||
| Over 12 months | 159,610 | 1.71 | % | 154,343 | 1.83 | % | |||||||||||||||||
| Total certificate of deposit of $100,000 or more | $ | 828,883 | 1.29 | % | $ | 916,747 | 1.51 | % | |||||||||||||||
Borrowed Funds
The following table sets forth certain information regarding advances from the FHLBB, subordinated debentures and notes and other borrowed funds for the periods indicated:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (Dollars in Thousands) | |||||||||||
| Borrowed funds: | |||||||||||
| Average balance outstanding | $ | 664,692 | $ | 947,123 | |||||||
| Maximum amount outstanding at any month-end during the period | 686,346 | 1,291,804 | |||||||||
| Balance outstanding at end of period | 546,003 | 1,291,804 | |||||||||
| Weighted average interest rate for the period | 1.60 | % | 2.33 | % | |||||||
| Weighted average interest rate at end of period | 2.33 | % | 1.76 | % | |||||||
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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 decreased by $270.2 million to $378.6 million as of March 31, 2021 from the December 31, 2020 balance of $648.8 million. The decrease in FHLBB borrowings was primarily due to borrowing maturities.
Subordinated Debentures and Notes
As part of the acquisition of BankRI, the Company acquired two $5.0 million subordinated debentures due on June 26, 2033 and March 17, 2034, respectively. The Company is obligated to pay 3-month LIBOR plus 3.10% and 3-month LIBOR plus 2.79%, respectively, on a quarterly basis until the debentures mature.
The Company sold $75.0 million of 6.0% fixed-to-floating rate subordinated notes due September 15, 2029. The Company is obligated to pay 6.0% interest semiannually between September 2014 and September 2024. Subsequently, the Company is obligated to pay 3-month LIBOR plus 3.315% quarterly until the notes mature in September 2029.
The following table summarizes the Company's subordinated debentures and notes at the dates indicated.
| Carrying Amount | ||||||||||||||||||||||||||||||||
| Issue Date | Rate | Maturity Date | Next Call Date | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||||||||
| June 26, 2003 | Variable; 3-month LIBOR + 3.10% | June 26, 2033 | June 25, 2021 | $ | 4,853 | $ | 4,848 | |||||||||||||||||||||||||
| March 17, 2004 | Variable; 3-month LIBOR + 2.79% | March 17, 2034 | June 16, 2021 | 4,779 | 4,772 | |||||||||||||||||||||||||||
| September 15, 2014 | 6.0% Fixed-to-Variable; 3-month LIBOR + 3.315% | September 15, 2029 | September 15, 2024 | 74,151 | 74,126 | |||||||||||||||||||||||||||
| Total | $ | 83,783 | $ | 83,746 | ||||||||||||||||||||||||||||
The above carrying amounts of the subordinated debentures included $0.4 million of accretion adjustments and $0.8 million of capitalized debt issuance costs as of March 31, 2021. This compares to $0.4 million of accretion adjustments and $0.9 million of capitalized debt issuance costs as of December 31, 2020.
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 decreased $4.1 million to $53.6 million as of March 31, 2021 from $57.7 million as of December 31, 2020.
The Company has access to a $12.0 million committed line of credit as of March 31, 2021. As of March 31, 2021 and December 31, 2020, 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 $746.0 million. As of March 31, 2021, the Company had $30.0 million borrowings on outstanding uncommitted lines of credit as compared to $30.0 million as of December 31, 2020.
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Derivative Financial Instruments
The Company has entered into loan level derivatives, risk participation agreements, and foreign exchange contracts with certain of its commercial customers and concurrently enters into offsetting swaps with third-party financial institutions. The Company may also, from time to time, enter into risk participation agreements. The Company uses interest rate futures that are designated and qualify as cash flow hedging instruments.
The following table summarizes certain information concerning the Company's loan level derivatives, risk participation agreements, and foreign exchange contracts at March 31, 2021 and December 31, 2020:
| At March 31, 2021 | At December 31, 2020 | |||||||
| (Dollars in Thousands) | ||||||||
| Loan level derivatives (Notional principal amounts): | ||||||||
| Receive fixed, pay variable | $ | 1,232,482 | $ | 1,214,146 | ||||
| Pay fixed, receive variable | 1,232,482 | 1,214,146 | ||||||
| Risk participation-out agreements | 263,430 | 252,655 | ||||||
| Risk participation-in agreements | 60,289 | 60,619 | ||||||
| Foreign exchange contracts (Notional amounts): | ||||||||
| Buys foreign currency, sells U.S. currency | $ | 1,416 | $ | 1,266 | ||||
| Sells foreign currency, buys U.S. currency | 1,422 | 1,273 | ||||||
| Fixed weighted average interest rate from the Company to counterparty | 3.06 | % | 3.07 | % | ||||
| Floating weighted average interest rate from counterparty to the Company | 0.93 | % | 0.99 | % | ||||
| Weighted average remaining term to maturity (in months) | 83 | 85 | ||||||
| Fair value: | ||||||||
| Recognized as an asset: | ||||||||
| Interest rate derivatives | $ | 10 | $ | 8 | ||||
| Loan level derivatives | 84,128 | 131,328 | ||||||
| Risk participation-out agreements | 1,019 | 1,843 | ||||||
| Foreign exchange contracts | 99 | 156 | ||||||
| Recognized as a liability: | ||||||||
| Interest rate derivatives | $ | 2 | $ | — | ||||
| Loan level derivatives | 84,128 | 131,328 | ||||||
| Risk participation-in agreements | 205 | 361 | ||||||
| Foreign exchange contracts | 93 | 148 | ||||||
Stockholders' Equity and Dividends
The Company's total stockholders' equity was $945.4 million as of March 31, 2021, representing a $3.6 million increase compared to $941.8 million at December 31, 2020. The increase primarily reflects net income attributable to the Company of $26.5 million for the three months ended March 31, 2021, offset by the unrealized loss on securities available-for-sale of $14.4 million and dividends paid by the Company of $9.0 million for the three months ended March 31, 2021.
Stockholders' equity represented 11.04% of total assets as of March 31, 2021 and 10.53% of total assets as of December 31, 2020. Tangible stockholders' equity (total stockholders' equity less goodwill and identified intangible assets, net) represented 9.31% of tangible assets (total assets less goodwill and identified intangible assets, net) as of March 31, 2021 and 8.86% as of December 31, 2020.
On December 4, 2019, the Board of Directors (the "Board") approved a stock repurchase program (the "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. On March 9, 2020, the Board approved an increase in the repurchase amount of $10.0 million bringing the total authorized amount to $20.0 million. Effective March 24, 2020, the Company suspended the Program. On October 28, 2020, the Board authorized the resumption of the Program. As of December 31, 2020, the Company has repurchased 1,715,730 shares at a weighted average price of $11.66. As of December 31, 2020, the Company had completed the program.
64
On January 27, 2021, the Board approved a stock repurchase program authorizing management to repurchase up to $10.0 million of the Company's common stock commencing on February 1, 2021 and ending on December 31, 2021.
The dividend payout ratio was 33.99% for the three months ended March 31, 2021, compared to 53.10% for the same period in 2020.
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 $7.4 million to $69.1 million for the three months ended March 31, 2021 from $61.7 million for the three months ended March 31, 2020. This increase reflects a $4.6 million decrease in interest income on loans and leases and a $0.5 million decrease in interest income on investment securities, offset by a $12.5 million decrease in interest expense on deposit and borrowings, which is reflective of the sustained, low interest rate environment. Refer to “Results of Operations - Comparison of the Three-Month Period Ended March 31, 2021 and March 31, 2020 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended March 31, 2021 and March 31, 2020 — Interest Expense -Deposit and Borrowed Funds” below for more details.
Net interest margin increased by 8 basis points to 3.39% for the three months ended March 31, 2021 from 3.31% for the three months ended March 31, 2020. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) decreased to 4.13% for the three months ended March 31, 2021 from 4.71% for the three months ended March 31, 2020. The increase in net interest margin over the period is a result of additional fee income from participation in the PPP.
The yield on interest-earning assets decreased to 3.80% for the three months ended March 31, 2021 from 4.46% for the three months ended March 31, 2020. This decrease is the result of lower yields on loans and leases and lower yields on investments. During the three months ended March 31, 2021, the Company recorded $1.2 million in prepayment penalties and late charges, which contributed 6 basis points to yields on interest-earning assets in the three months ended March 31, 2021, compared to $0.8 million, or 4 basis points, for the three months ended March 31, 2020.
The overall cost of funds (including non-interest-bearing demand checking accounts) decreased 79 basis points to 0.50% for the three months ended March 31, 2021 from 1.29% for the three months ended March 31, 2020. Refer to "Financial Condition - Borrowed Funds" above for more details.
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Management seeks to position the balance sheet to be neutral to asset sensitive changes in interest rates. From 2017 through 2019, short term interest rates rose while at the same time net interest income, net interest spread, and net interest margin also increased. During the first three quarters of 2020 interest rates declined sharply in response to the economic impact of the COVID-19 pandemic. In general, the Company's balance sheet position should respond positively in a rising interest rate environment and when the rate curves are steepening which should result in a positive impact to net interest income, net interest spread, and the net interest margin. A declining interest rate or flattening yield curve environment is expected to have a negative impact on the Company's yields and net interest margin. Due to, among other things, ongoing pricing pressures in the loan and deposit portfolios, net interest income may also be negatively affected by changes in the amount of accretion on acquired loans and leases, deposits and borrowed funds, which is included in interest income and interest expense, respectively.
Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin
The following table sets forth information about the Company's average balances, interest income and interest rates earned on average interest-earning assets, interest expense and interest rates paid on average interest-bearing liabilities, interest-rate spread and net interest margin for the three months ended March 31, 2021 and March 31, 2020. 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 | |||||||||||||||||||||||||||||||||||
| March 31, 2021 | March 31, 2020 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest (1) | Average Yield/ Cost | Average Balance | Interest (1) | Average Yield/ Cost | ||||||||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Debt securities | $ | 754,699 | $ | 3,118 | 1.65 | % | $ | 605,885 | $ | 3,024 | 2.00 | % | |||||||||||||||||||||||
| Marketable and restricted equity securities | 45,673 | 301 | 2.64 | % | 58,881 | 786 | 5.33 | % | |||||||||||||||||||||||||||
| Short-term investments | 191,751 | 39 | 0.08 | % | 84,309 | 209 | 0.99 | % | |||||||||||||||||||||||||||
| Total investments | 992,123 | 3,458 | 1.39 | % | 749,075 | 4,019 | 2.15 | % | |||||||||||||||||||||||||||
Commercial real estate loans (2) | 3,785,897 | 34,245 | 3.62 | % | 3,697,011 | 40,468 | 4.33 | % | |||||||||||||||||||||||||||
Commercial loans (2) | 1,249,824 | 12,746 | 4.08 | % | 783,309 | 8,328 | 4.21 | % | |||||||||||||||||||||||||||
Equipment financing (2) | 1,079,039 | 18,043 | 6.69 | % | 1,052,846 | 18,946 | 7.20 | % | |||||||||||||||||||||||||||
Residential mortgage loans (2) | 780,785 | 7,232 | 3.71 | % | 810,583 | 7,934 | 3.92 | % | |||||||||||||||||||||||||||
Other consumer loans (2) | 375,590 | 2,795 | 3.02 | % | 417,815 | 3,955 | 3.79 | % | |||||||||||||||||||||||||||
| Total loans and leases | 7,271,135 | 75,061 | 4.13 | % | 6,761,564 | 79,631 | 4.71 | % | |||||||||||||||||||||||||||
| Total interest-earning assets | 8,263,258 | 78,519 | 3.80 | % | 7,510,639 | 83,650 | 4.46 | % | |||||||||||||||||||||||||||
| Allowance for loan and lease losses | (115,458) | (68,581) | |||||||||||||||||||||||||||||||||
| Non-interest-earning assets | 566,358 | 523,768 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 8,714,158 | $ | 7,965,826 | |||||||||||||||||||||||||||||||
| Liabilities and Stockholders' Equity: | |||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits: | |||||||||||||||||||||||||||||||||||
| NOW accounts | $ | 477,893 | 130 | 0.11 | % | $ | 359,641 | 116 | 0.13 | % | |||||||||||||||||||||||||
| Savings accounts | 712,728 | 235 | 0.13 | % | 626,945 | 643 | 0.41 | % | |||||||||||||||||||||||||||
| Money market accounts | 2,084,503 | 1,486 | 0.29 | % | 1,678,649 | 4,241 | 1.02 | % | |||||||||||||||||||||||||||
| Certificate of deposit accounts | 1,328,112 | 4,154 | 1.27 | % | 1,682,900 | 9,251 | 2.21 | % | |||||||||||||||||||||||||||
| Brokered deposit accounts | 610,824 | 702 | 0.47 | % | 358,003 | 1,989 | 2.23 | % | |||||||||||||||||||||||||||
Total interest-bearing deposits (3) | 5,214,060 | 6,707 | 0.52 | % | 4,706,138 | 16,240 | 1.39 | % | |||||||||||||||||||||||||||
| Advances from the FHLBB | 488,537 | 1,370 | 1.12 | % | 772,462 | 4,097 | 2.10 | % | |||||||||||||||||||||||||||
| Subordinated debentures and notes | 83,764 | 1,242 | 5.93 | % | 83,609 | 1,284 | 6.14 | % | |||||||||||||||||||||||||||
| Other borrowed funds | 92,391 | 39 | 0.17 | % | 91,052 | 189 | 0.84 | % | |||||||||||||||||||||||||||
| Total borrowed funds | 664,692 | 2,651 | 1.60 | % | 947,123 | 5,570 | 2.33 | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 5,878,752 | 9,358 | 0.65 | % | 5,653,261 | 21,810 | 1.55 | % | |||||||||||||||||||||||||||
| Non-interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
Non-interest-bearing demand checking accounts (3) | 1,643,373 | 1,134,314 | |||||||||||||||||||||||||||||||||
| Other non-interest-bearing liabilities | 245,551 | 232,113 | |||||||||||||||||||||||||||||||||
| Total liabilities | 7,767,676 | 7,019,688 | |||||||||||||||||||||||||||||||||
| Total stockholders' equity | 946,482 | 946,138 | |||||||||||||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 8,714,158 | $ | 7,965,826 | |||||||||||||||||||||||||||||||
Net interest income (tax-equivalent basis) / Interest-rate spread (4) | 69,161 | 3.15 | % | 61,840 | 2.91 | % | |||||||||||||||||||||||||||||
| Less adjustment of tax-exempt income | 52 | 128 | |||||||||||||||||||||||||||||||||
| Net interest income | $ | 69,109 | $ | 61,712 | |||||||||||||||||||||||||||||||
Net interest margin (5) | 3.39 | % | 3.31 | % | |||||||||||||||||||||||||||||||
_________________________________________________________________________
(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 0.40% and 1.12% in the three months ended March 31, 2021 and March 31, 2020, 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 March 31, 2021 as Compared to the Three Months Ended March 31, 2020 | |||||||||||||||||
| Increase (Decrease) Due To | |||||||||||||||||
| Volume | Rate | Net Change | |||||||||||||||
| (In Thousands) | |||||||||||||||||
| Interest and dividend income: | |||||||||||||||||
| Investments: | |||||||||||||||||
| Debt securities | $ | 666 | $ | (572) | $ | 94 | |||||||||||
| Marketable and restricted equity securities | (149) | (336) | (485) | ||||||||||||||
| Short-term investments | 121 | (291) | (170) | ||||||||||||||
| Total investments | 638 | (1,199) | (561) | ||||||||||||||
| Loans and leases: | |||||||||||||||||
| Commercial real estate loans | 860 | (7,083) | (6,223) | ||||||||||||||
| Commercial loans and leases | 4,678 | (260) | 4,418 | ||||||||||||||
| Equipment financing | 454 | (1,357) | (903) | ||||||||||||||
| Residential mortgage loans | (286) | (416) | (702) | ||||||||||||||
| Other consumer loans | (385) | (775) | (1,160) | ||||||||||||||
| Total loans | 5,321 | (9,891) | (4,570) | ||||||||||||||
| Total change in interest and dividend income | 5,959 | (11,090) | (5,131) | ||||||||||||||
| Interest expense: | |||||||||||||||||
| Deposits: | |||||||||||||||||
| NOW accounts | 34 | (20) | 14 | ||||||||||||||
| Savings accounts | 76 | (484) | (408) | ||||||||||||||
| Money market accounts | 830 | (3,585) | (2,755) | ||||||||||||||
| Certificate of deposit accounts | (1,689) | (3,408) | (5,097) | ||||||||||||||
| Brokered deposit accounts | 860 | (2,147) | (1,287) | ||||||||||||||
| Total deposits | 111 | (9,644) | (9,533) | ||||||||||||||
| Borrowed funds: | |||||||||||||||||
| Advances from the FHLBB | (1,202) | (1,525) | (2,727) | ||||||||||||||
| Subordinated debentures and notes | 2 | (44) | (42) | ||||||||||||||
| Other borrowed funds | 3 | (153) | (150) | ||||||||||||||
| Total borrowed funds | (1,197) | (1,722) | (2,919) | ||||||||||||||
| Total change in interest expense | (1,086) | (11,366) | (12,452) | ||||||||||||||
| Change in tax-exempt income | (76) | — | (76) | ||||||||||||||
| Change in net interest income | $ | 7,121 | $ | 276 | $ | 7,397 | |||||||||||
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Interest Income
Loans and Leases
| Three Months Ended March 31, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Interest income—loans and leases: | |||||||||||||||||||||||
| Commercial real estate loans | $ | 34,245 | $ | 40,468 | $ | (6,223) | (15.4) | % | |||||||||||||||
| Commercial loans | 12,692 | 8,256 | 4,436 | 53.7 | % | ||||||||||||||||||
| Equipment financing | 18,043 | 18,946 | (903) | (4.8) | % | ||||||||||||||||||
| Residential mortgage loans | 7,232 | 7,934 | (702) | (8.8) | % | ||||||||||||||||||
| Other consumer loans | 2,797 | 3,955 | (1,158) | (29.3) | % | ||||||||||||||||||
| Total interest income—loans and leases | $ | 75,009 | $ | 79,559 | $ | (4,550) | (5.7) | % | |||||||||||||||
Total interest from loans and leases was $75.0 million for the three months ended March 31, 2021, and represented a yield on total loans of 4.13%. This compares to $79.6 million of interest on loans and a yield of 4.71% for the three months ended March 31, 2020. The $4.6 million decrease in interest income from loans and leases was primarily attributable to a decrease of $9.9 million due to changes in interest rates, offset by an increase of $5.3 million due to an increase in origination volume.
Investments
| Three Months Ended March 31, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Interest income—investments: | |||||||||||||||||||||||
| Debt securities | $ | 3,118 | $ | 2,976 | $ | 142 | 4.8 | % | |||||||||||||||
| Marketable and restricted equity securities | 301 | 778 | (477) | (61.3) | % | ||||||||||||||||||
| Short-term investments | 39 | 209 | (170) | (81.3) | % | ||||||||||||||||||
| Total interest income—investments | $ | 3,458 | $ | 3,963 | $ | (505) | (12.7) | % | |||||||||||||||
Total interest income from investments was $3.5 million for the three months ended March 31, 2021 compared to $4.0 million for the three months ended March 31, 2020. For the three months ended March 31, 2021 and 2020, the yield on total investments was 1.4% and 2.2%, respectively. The year-over-year decrease in interest income on investments of $0.5 million, or 12.7%, was primarily driven by a $0.7 million increase due to volume, partially offset by a $1.2 million decrease due to rates.
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Interest Expense—Deposits and Borrowed Funds
| Three Months Ended March 31, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Interest expense: | |||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||
| NOW accounts | $ | 130 | $ | 116 | $ | 14 | 12.1 | % | |||||||||||||||
| Savings accounts | 235 | 643 | (408) | (63.5) | % | ||||||||||||||||||
| Money market accounts | 1,486 | 4,241 | (2,755) | (65.0) | % | ||||||||||||||||||
| Certificate of deposit accounts | 4,154 | 9,251 | (5,097) | (55.1) | % | ||||||||||||||||||
| Brokered deposit accounts | 702 | 1,989 | (1,287) | (64.7) | % | ||||||||||||||||||
| Total interest expense - deposits | 6,707 | 16,240 | (9,533) | (58.7) | % | ||||||||||||||||||
| Borrowed funds: | |||||||||||||||||||||||
| Advances from the FHLBB | 1,370 | 4,097 | (2,727) | (66.6) | % | ||||||||||||||||||
| Subordinated debentures and notes | 1,242 | 1,284 | (42) | (3.3) | % | ||||||||||||||||||
| Other borrowed funds | 39 | 189 | (150) | (79.4) | % | ||||||||||||||||||
| Total interest expense - borrowed funds | 2,651 | 5,570 | (2,919) | (52.4) | % | ||||||||||||||||||
| Total interest expense | $ | 9,358 | $ | 21,810 | $ | (12,452) | (57.1) | % | |||||||||||||||
Deposits
For the three months ended March 31, 2021, interest expense on deposits decreased $9.5 million, or 58.7%, as compared to the same period in 2020. The decrease in interest expense on deposits was driven by a decrease of $9.6 million due to lower interest rates, partially offset by an increase of $0.1 million due to the growth in deposits. There was no purchase accounting amortization on acquired deposits for the three months ended March 31, 2021, compared to $44 thousand for the three months ended March 31, 2020. Purchase accounting amortization had no impact on the Company's net interest margin.
Borrowed Funds
During the three months ended March 31, 2021, interest paid on borrowed funds decreased $2.9 million, or 52.4% year over year. The cost of borrowed funds decreased to 1.60% for the three months ended March 31, 2021 from 2.33% for the three months ended March 31, 2020. The decrease in interest expense was driven by a decrease of $1.7 million due to borrowing rates and a decrease of $1.2 million due to volume. For the three months ended March 31, 2021, the purchase accounting accretion on acquired borrowed funds was $13.0 thousand compared to accretion of $14.0 thousand for the three months ended March 31, 2020. Purchase accounting accretion had no impact on the Company's net interest margin.
Provision for Credit Losses
The provisions for credit losses are set forth below:
| Three Months Ended March 31, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Provision (credit) for loan and lease losses: | |||||||||||||||||||||||
| Commercial real estate | $ | (203) | $ | 40,200 | $ | (40,403) | (100.5) | % | |||||||||||||||
| Commercial | (1,864) | 6,900 | (8,764) | (127.0) | % | ||||||||||||||||||
| Consumer | (715) | 601 | (1,316) | (219.0) | % | ||||||||||||||||||
| Total provision (credit) for loan and lease losses | (2,782) | 47,701 | (50,483) | (105.8) | % | ||||||||||||||||||
| Unfunded credit commitments | 635 | 6,413 | (5,778) | (90.1) | % | ||||||||||||||||||
| Total provision (credit) for credit losses | $ | (2,147) | $ | 54,114 | $ | (56,261) | (104.0) | % | |||||||||||||||
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For the three months ended March 31, 2021, the Allowance for Credit Losses ("ACL") decreased $3.9 million resulting in a Provision for Credit Losses of ($2.1 million). The reduction in the ACL is attributable to portfolio contraction, continued low level of net charge-offs, an improving macro-economic forecast, and qualitative adjustments that consider longer-term risks.
See management’s discussion of “Financial Condition — Allowance for Loan and Lease Losses” and Note 5, “Allowance for Loan and Lease Losses,” to the unaudited consolidated financial statements for a description of how management determined the allowance for loan and lease losses for each portfolio and class of loans.
Non-Interest Income
The following table sets forth the components of non-interest income:
| Three Months Ended March 31, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Deposit fees | $ | 2,281 | $ | 2,458 | $ | (177) | (7.2) | % | |||||||||||||||
| Loan fees | 599 | 550 | 49 | 8.9 | % | ||||||||||||||||||
| Loan level derivative income, net | 474 | 2,156 | (1,682) | (78.0) | % | ||||||||||||||||||
| (Loss) gain on investment securities | (7) | 1,330 | (1,337) | (100.5) | % | ||||||||||||||||||
| Gain on sales of loans and leases held-for-sale | 709 | 120 | 589 | 490.8 | % | ||||||||||||||||||
| Other | 738 | 2,714 | (1,976) | (72.8) | % | ||||||||||||||||||
| Total non-interest income | $ | 4,794 | $ | 9,328 | $ | (4,534) | (48.6) | % | |||||||||||||||
For the three months ended March 31, 2021, non-interest income decreased $4.5 million, or 48.6%, to $4.8 million as compared to $9.3 million for the same period of 2020. This decrease was primarily driven by decreases of $2.0 million in other non-interest income, $1.7 million in loan level derivative income, net, and $1.3 million in gain on investment securities, partially offset by an increase of $0.6 million in gain on sales of loans and leases held-for-sale.
Loan level derivative income decreased $1.7 million, or 78.0%, to $0.5 million for the three months ended March 31, 2021 from $2.2 million for the same period in 2020, primarily driven by lower volume in loan level derivatives transactions completed for the three months ended March 31, 2021.
Gain on investment securities decreased $1.3 million, or 100.5%, to a loss of $7.0 thousand for the three months ended March 31, 2021 from a gain of $1.3 million for the same period in 2020, primarily driven by a $2.3 million gain on sales of investment securities, partially offset by a $1.0 million loss on equity securities held-for-trading in the first quarter of 2020 as compared to no sales of investment securities and a small change in market value on equity securities held-for-trading due to the majority of equity securities sold in December 2020 for the same period in 2021.
Gain on sales of loans and leases held-for-sales increased $0.6 million or 490.8%, to 0.7 million for the three months ended March 31, 2021 from $0.1 million for the same period in 2020, primarily driven by higher gain on sale to participant, partially offset by lower loan sale volume with servicing retained.
Other income decreased $2.0 million, or 72.8%, to $0.7 million for the three months ended March 31, 2021 from $2.7 million for the same period in 2020, primarily driven by interest rate derivatives market value adjustment due to volatility in rates and lower commission income generated by investment sales transactions.
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Non-Interest Expense
The following table sets forth the components of non-interest expense:
| Three Months Ended March 31, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Compensation and employee benefits | $ | 25,821 | $ | 25,219 | $ | 602 | 2.4 | % | |||||||||||||||
| Occupancy | 4,004 | 3,953 | 51 | 1.3 | % | ||||||||||||||||||
| Equipment and data processing | 4,493 | 4,703 | (210) | (4.5) | % | ||||||||||||||||||
| Professional services | 1,226 | 1,651 | (425) | (25.7) | % | ||||||||||||||||||
| FDIC insurance | 1,044 | 378 | 666 | 176.2 | % | ||||||||||||||||||
| Advertising and marketing | 1,100 | 1,075 | 25 | 2.3 | % | ||||||||||||||||||
| Amortization of identified intangible assets | 232 | 336 | (104) | (31.0) | % | ||||||||||||||||||
| Other | 2,891 | 3,433 | (542) | (15.8) | % | ||||||||||||||||||
| Total non-interest expense | $ | 40,811 | $ | 40,748 | $ | 63 | 0.2 | % | |||||||||||||||
For the three months ended March 31, 2021, non-interest expense increased $0.1 million, or 0.2%, to $40.8 million as compared to $40.7 million for the same period in 2020. The increase was primarily driven by increases of $0.7 million in FDIC insurance expense and $0.6 million in compensation and employee benefits expense, partially offset by decreases of $0.5 million in other non-interest expenses, $0.4 million in professional services and $0.2 million in equipment and data processing expense.
Compensation and employee benefits expense increased $0.6 million, or 2.4%, to $25.8 million for the three months ended March 31, 2021 from $25.2 million for the same period in 2020, primarily driven by increases in employee headcount, annual merit increases and bonuses, partially offset by decreases in commissions, retirement plan and health care benefits.
Equipment and data processing expense decreased $0.2 million, or 4.5%, to $4.5 million for the three months ended March 31, 2021 from $4.7 million for the same period in 2020, primarily driven by lower core processing expenses, purchased software depreciation, other furniture and equipment depreciation, and data communications expenses, partially offset by higher software licenses and subscriptions.
Professional services expense decreased $0.4 million, or 25.7%, to $1.2 million for the three months ended March 31, 2021 from $1.7 million for the same period in 2020, primarily driven by lower legal fees, audit fees and accounting fees, and outsourced internal audit fees.
FDIC insurance expense increased $0.7 million, or 176.2%, to $1.0 million for the three months ended March 31, 2021 from $0.4 million for the same period in 2020, primarily driven by higher bank assessment fees from the FDIC.
Provision for Income Taxes
| Three Months Ended March 31, | Dollar Change | Percent Change | |||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Income before provision for income taxes | $ | 35,239 | $ | (23,822) | $ | 59,061 | (247.9) | % | |||||||||||||||
| Provision (benefit) for income taxes | 8,785 | (6,546) | 15,331 | (234.2) | % | ||||||||||||||||||
| Net income (loss) | $ | 26,454 | $ | (17,276) | $ | 43,730 | (253.1) | % | |||||||||||||||
| Effective tax rate | 24.9 | % | 27.5 | % | N/A | (9.5) | % | ||||||||||||||||
The Company recorded an income tax expense of $8.8 million for the three months ended March 31, 2021, compared to an income tax benefit of $6.5 million for the three months ended March 31, 2020, representing effective tax rates of 24.9% and 27.5%, respectively.
72
Liquidity and Capital Resources
Liquidity
Liquidity is defined as the ability to meet current and future financial obligations of a short-term nature. The Company further defines liquidity as the ability to respond to the needs of depositors and borrowers, as well as to earnings enhancement opportunities, in a changing marketplace. Liquidity management is monitored by an Asset/Liability Committee ("ALCO"), consisting of members of management, which is responsible for establishing and monitoring liquidity targets as well as strategies and tactics to meet these targets. The primary source of funds for the payment of dividends and expenses by the Company is dividends paid to it by the Banks and Brookline Securities Corp. The primary sources of liquidity for the Banks consist of deposit inflows, loan repayments, borrowed funds, and maturing investment securities.
In the first quarter, the Company continued to operate with increased liquidity as a precautionary measure due to economic uncertainty associated with the COVID-19 pandemic. In particular, the Company has shifted its balance sheet asset mix to include additional cash and available for sale securities. Management will continue to monitor the economic markets and evaluate changes to the Company’s liquidity as economic conditions improve.
Management continued holding higher levels of on balance sheet liquidity in the form of cash and available for sale securities in the first quarter. Cash and equivalents at the end of the quarter were $130.9 million, or 1.5% of the balance sheet, compared to $434.9 million, or 4.9% of the balance sheet, as of December 31, 2020. In general, in a normal operating environment, the Company seeks to maintain liquidity levels of cash, cash equivalents and investment securities available-for-sale of between 5% and 10% of total assets. Due to the current environment, management increased this target operating range to between 5% and 15% of total assets. As of March 31, 2021, cash, cash equivalents and investment securities available-for-sale totaled $860.8 million, or 10.1% of total assets. This compares to $1.2 billion, or 13.2% of total assets, as of December 31, 2020.
Deposits, which are considered the most stable source of liquidity, totaled $6.9 billion as of March 31, 2021 and represented 92.6% of total funding (the sum of total deposits and total borrowings), compared to deposits of $6.9 billion, or 89.4% of total funding, as of December 31, 2020. Core deposits, which consist of demand checking, NOW, savings and money market accounts, totaled $5.1 billion as of March 31, 2021 and represented 74.6% of total deposits, compared to core deposits of $4.8 billion, or 69.8% of total deposits, as of December 31, 2020. Additionally, the Company had $470.6 million of brokered deposits as of March 31, 2021, which represented 6.9% of total deposits, compared to $693.9 million or 10.0% of total deposits, as of December 31, 2020. 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 $546.0 million as of March 31, 2021, representing 7.4% of total funding, compared to $820.2 million, or 10.6% of total funding, as of December 31, 2020. The growth in the balance sheet is directly tied to the current operating environment, management will continue to monitor economic conditions and make adjustments to the balance sheet mix as appropriate.
As members of the FHLBB, the Banks have access to both short- and long-term borrowings. As of March 31, 2021, the Company's total borrowing limit from the FHLBB for advances and repurchase agreements was $1.8 billion, compared to $1.9 billion as of December 31, 2020, based on the level of qualifying collateral available for these borrowings.
As of March 31, 2021, the Banks also have access to funding through certain uncommitted lines of credit of $746.0 million.
The Company had a $12.0 million committed line of credit for contingent liquidity as of March 31, 2021. As of March 31, 2021, 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 $590.9 million of borrowing capacity at the Federal Reserve Bank as of March 31, 2021. As of March 31, 2021, 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.
73
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.
Financial instruments with off-balance-sheet risk at the dates indicated follow:
| At March 31, 2021 | At December 31, 2020 | ||||||||||
| (In Thousands) | |||||||||||
| Financial instruments whose contract amounts represent credit risk: | |||||||||||
| Commitments to originate loans and leases: | |||||||||||
| Commercial real estate | $ | 107,597 | $ | 174,240 | |||||||
| Commercial | 105,426 | 80,291 | |||||||||
| Residential mortgage | 82,366 | 30,418 | |||||||||
| Unadvanced portion of loans and leases | 826,545 | 759,053 | |||||||||
| Unused lines of credit: | |||||||||||
| Home equity | 591,377 | 584,881 | |||||||||
| Other consumer | 41,583 | 38,954 | |||||||||
| Other commercial | 431 | 408 | |||||||||
| Unused letters of credit: | |||||||||||
| Financial standby letters of credit | 15,953 | 14,746 | |||||||||
| Performance standby letters of credit | 6,607 | 5,903 | |||||||||
| Commercial and similar letters of credit | 5,369 | 5,105 | |||||||||
| Loan level derivatives: | |||||||||||
| Receive fixed, pay variable | 1,232,482 | 1,214,146 | |||||||||
| Pay fixed, receive variable | 1,232,482 | 1,214,146 | |||||||||
| Risk participation-out agreements | 263,430 | 252,655 | |||||||||
| Risk participation-in agreements | 60,289 | 60,619 | |||||||||
| Foreign exchange contracts: | |||||||||||
| Buys foreign currency, sells U.S. currency | 1,416 | 1,266 | |||||||||
| Sells foreign currency, buys U.S. currency | 1,422 | 1,273 | |||||||||
74
Capital Resources
As of March 31, 2021, the Company and the Banks are each under the primary regulation of, and must comply with, the capital requirements of the FRB. Under these rules, the Company and the Banks are each required to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital leverage ratio of 6.0%, a minimum total risk based capital ratio of 8% and a minimum Tier 1 leverage ratio of 4%. Additionally, the Company and the Banks are required to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases. As of March 31, 2021, the Company and the Banks exceeded all regulatory capital requirements, and the Banks were each considered “well-capitalized” under prompt corrective action regulations.
The following table presents actual and required capital amounts and capital ratios as of March 31, 2021 for the Company and the Banks.
| Actual | Minimum Required for Capital Adequacy Purposes | Minimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer | Minimum Required to be Considered “Well-Capitalized” Under Prompt Corrective Action Provisions | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| At March 31, 2021: | |||||||||||||||||||||||||||||||||||||||||||||||
| Brookline Bancorp, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||
Common equity Tier 1 capital ratio (1) | $ | 782,378 | 11.65 | % | $ | 302,206 | 4.50 | % | $ | 470,098 | 7.00 | % | N/A | N/A | |||||||||||||||||||||||||||||||||
Tier 1 leverage capital ratio (2) | 792,010 | 9.26 | % | 342,121 | 4.00 | % | 342,121 | 4.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||
Tier 1 risk-based capital ratio (3) | 792,010 | 11.79 | % | 403,059 | 6.00 | % | 571,000 | 8.50 | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||
Total risk-based capital ratio (4) | 950,627 | 14.15 | % | 537,457 | 8.00 | % | 705,412 | 10.50 | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||
| Brookline Bank | |||||||||||||||||||||||||||||||||||||||||||||||
Common equity Tier 1 capital ratio (1) | $ | 562,089 | 12.21 | % | $ | 207,158 | 4.50 | % | $ | 322,246 | 7.00 | % | $ | 299,228 | 6.50 | % | |||||||||||||||||||||||||||||||
Tier 1 leverage capital ratio (2) | 562,089 | 10.15 | % | 221,513 | 4.00 | % | 221,513 | 4.00 | % | 276,891 | 5.00 | % | |||||||||||||||||||||||||||||||||||
Tier 1 risk-based capital ratio (3) | 562,089 | 12.21 | % | 276,211 | 6.00 | % | 391,299 | 8.50 | % | 368,281 | 8.00 | % | |||||||||||||||||||||||||||||||||||
Total risk-based capital ratio (4) | 619,931 | 13.47 | % | 368,185 | 8.00 | % | 483,242 | 10.50 | % | 460,231 | 10.00 | % | |||||||||||||||||||||||||||||||||||
| BankRI | |||||||||||||||||||||||||||||||||||||||||||||||
Common equity Tier 1 capital ratio (1) | $ | 243,118 | 11.42 | % | $ | 95,800 | 4.50 | % | $ | 149,022 | 7.00 | % | $ | 138,377 | 6.50 | % | |||||||||||||||||||||||||||||||
Tier 1 leverage capital ratio (2) | 243,118 | 7.84 | % | 124,040 | 4.00 | % | 124,040 | 4.00 | % | 155,050 | 5.00 | % | |||||||||||||||||||||||||||||||||||
Tier 1 risk-based capital ratio (3) | 243,118 | 11.42 | % | 127,733 | 6.00 | % | 180,955 | 8.50 | % | 170,310 | 8.00 | % | |||||||||||||||||||||||||||||||||||
Total risk-based capital ratio (4) | 269,903 | 12.68 | % | 170,286 | 8.00 | % | 223,500 | 10.50 | % | 212,857 | 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, 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 December 31, 2020: | |||||||||||||||||||||||||||||||||||||||||||||||
| Brookline Bancorp, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||
Common equity Tier 1 capital ratio (1) | $ | 764,157 | 11.04 | % | $ | 311,477 | 4.50 | % | $ | 484,520 | 7.00 | % | N/A | N/A | |||||||||||||||||||||||||||||||||
Tier 1 leverage capital ratio (2) | 773,777 | 8.92 | % | 346,985 | 4.00 | % | 346,985 | 4.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||
Tier 1 risk-based capital ratio (3) | 773,777 | 11.18 | % | 415,265 | 6.00 | % | 588,292 | 8.50 | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||
Total risk-based capital ratio (4) | 934,933 | 13.51 | % | 553,624 | 8.00 | % | 726,632 | 10.50 | % | N/A | N/A | ||||||||||||||||||||||||||||||||||||
| Brookline Bank | |||||||||||||||||||||||||||||||||||||||||||||||
Common equity Tier 1 capital ratio (1) | $ | 557,310 | 11.72 | % | $ | 213,984 | 4.50 | % | $ | 332,864 | 7.00 | % | $ | 309,088 | 6.50 | % | |||||||||||||||||||||||||||||||
Tier 1 leverage capital ratio (2) | 557,310 | 9.82 | % | 227,010 | 4.00 | % | 227,010 | 4.00 | % | 283,763 | 5.00 | % | |||||||||||||||||||||||||||||||||||
Tier 1 risk-based capital ratio (3) | 557,310 | 11.72 | % | 285,312 | 6.00 | % | 404,192 | 8.50 | % | 380,416 | 8.00 | % | |||||||||||||||||||||||||||||||||||
Total risk-based capital ratio (4) | 617,101 | 12.97 | % | 380,633 | 8.00 | % | 499,581 | 10.50 | % | 475,791 | 10.00 | % | |||||||||||||||||||||||||||||||||||
| BankRI | |||||||||||||||||||||||||||||||||||||||||||||||
Common equity Tier 1 capital ratio (1) | $ | 239,337 | 11.03 | % | $ | 97,644 | 4.50 | % | $ | 151,891 | 7.00 | % | $ | 141,042 | 6.50 | % | |||||||||||||||||||||||||||||||
Tier 1 leverage capital ratio (2) | 239,337 | 7.78 | % | 123,052 | 4.00 | % | 123,052 | 4.00 | % | 153,816 | 5.00 | % | |||||||||||||||||||||||||||||||||||
Tier 1 risk-based capital ratio (3) | 239,337 | 11.03 | % | 130,192 | 6.00 | % | 184,439 | 8.50 | % | 173,590 | 8.00 | % | |||||||||||||||||||||||||||||||||||
Total risk-based capital ratio (4) | 266,633 | 12.29 | % | 173,561 | 8.00 | % | 227,799 | 10.50 | % | 216,951 | 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.
76
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 enters into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed payments.
Measuring Interest-Rate Risk
As noted above, interest-rate risk can be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest-rate sensitivity gap. An asset or liability is said to be interest-rate sensitive within a specific period if it will mature or reprice within that period. The interest-rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive liabilities. A gap is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets. During a period of falling interest rates, therefore, a positive gap would tend to adversely affect net interest income. Conversely, during a period of rising interest rates, a positive gap position would tend to result in an increase in net interest income.
The Company's interest-rate risk position is measured using both income simulation and interest-rate sensitivity "gap" analysis. Income simulation is the primary tool for measuring the interest-rate risk inherent in the Company's balance sheet at a given point in time by showing the effect on net interest income, over a twelve-month period, of a variety of interest-rate shocks. These simulations take into account repricing, maturity, and prepayment characteristics of individual products. The ALCO reviews simulation results to determine whether exposure resulting from changes in market interest rates remains within established tolerance levels over a twelve-month horizon, and develops appropriate strategies to manage this exposure. The Company's interest-rate risk analysis remains modestly asset-sensitive as of March 31, 2021.
77
The assumptions used in the Company’s interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates.
As of March 31, 2021, net interest income simulation indicated that the Company's exposure to changing interest rates was within tolerance. The ALCO reviews the methodology utilized for calculating interest-rate risk exposure and may periodically adopt modifications to this methodology. The following table presents the estimated impact of interest-rate changes on the Company's estimated net interest income over the twelve-month periods indicated:
| Estimated Exposure to Net Interest Income over Twelve-Month Horizon Beginning | |||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Change in Interest Rate Levels | Dollar Change | Percent Change | Dollar Change | Percent Change | |||||||||||||||||||
| (Dollars in Thousands) | |||||||||||||||||||||||
| Up 300 basis points shock | $ | 17,032 | 6.4 | % | $ | 19,249 | 7.1 | % | |||||||||||||||
| Up 200 basis points ramp | 9,128 | 3.4 | % | 10,698 | 3.9 | % | |||||||||||||||||
| Up 100 basis points ramp | 4,521 | 1.7 | % | 5,193 | 1.9 | % | |||||||||||||||||
| Down 100 basis points ramp | (5,702) | (2.1) | % | (5,999) | (2.2) | % | |||||||||||||||||
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 6.4% as of March 31, 2021, compared to a positive 7.1% as of December 31, 2020. The decrease in asset sensitivity was due to an extension in the investment portfolio.
The Company also uses interest-rate sensitivity “gap” analysis to provide a more general overview of its interest-rate risk profile. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. At March 31, 2021, the Company’s one-year cumulative gap was a negative $135.9 million, or 1.68% of total interest-earning assets, compared with a negative $330.0 million, or 3.92% of total interest-earning assets, at December 31, 2020.
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 2020 Annual Report on Form 10-K.
Economic Value of Equity ("EVE") at Risk Simulation is conducted in tandem with net interest income simulations to ascertain a longer term view of the Company’s interest-rate risk position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of the economic value of equity to changes in interest rates. The EVE at Risk Simulation values only the current balance sheet and does not incorporate growth assumptions. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, and rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity, and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. The Company conducts non-maturity deposit behavior studies on a periodic basis to support deposit assumptions used in the valuation process. All key assumptions are subject to a periodic review.
EVE at Risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates as well as parallel shocks to the current interest-rate environment. The following table sets forth the estimated percentage change in the Company’s EVE at Risk, assuming various shifts in interest rates. Given the interest rate environment as of March 31, 2021, simulations for interest rate declines of more than 100 basis points were not deemed to be meaningful.
| Estimated Percent Change in Economic Value of Equity | ||||||||||||||
| Parallel Shock in Interest Rate Levels | At March 31, 2021 | At December 31, 2020 | ||||||||||||
| Up 300 basis points | 10.9 | % | 11.2 | % | ||||||||||
| Up 200 basis points | 7.7 | % | 8.3 | % | ||||||||||
| Up 100 basis points | 4.7 | % | 5.4 | % | ||||||||||
| Down 100 basis points | (11.3) | % | (13.6) | % | ||||||||||
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The Company's EVE sensitivity increased from December 31, 2020 to March 31, 2021 due to the lengthened duration of the investment portfolio.
Item 4. Controls and Procedures
Controls and Procedures
Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer considered that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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, 2020 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, 2020.
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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
There have been no material changes to the risk factors disclosed in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a) Not applicable.
b) Not applicable.
c) None.
Item 3. Defaults Upon Senior Securities
a) None.
b) None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibits
| Exhibit 10.1 | ||||||||
| Exhibit 31.1* | ||||||||
| Exhibit 31.2* | ||||||||
| Exhibit 32.1** | ||||||||
| Exhibit 32.2** | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 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: May 5, 2021 | By: | /s/ Paul A. Perrault | |||||||||
| Paul A. Perrault | |||||||||||
| President and Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
| Date: May 5, 2021 | By: | /s/ Carl M. Carlson | |||||||||
| Carl M. Carlson | |||||||||||
| Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
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