BROOKLINE BANCORP INC - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2022


☐			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 October 31, 2022, the number of shares of common stock, par value $0.01 per share, outstanding was 76,844,232.

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

Table of Contents


		Page
Part I	Financial Information

Item 1.	Unaudited Consolidated Financial Statements

	Unaudited Consolidated Balance Sheets at September 30, 2022 and December 31, 2021	1

	Unaudited Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2022 and 2021	2

	Unaudited Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2022 and 2021	3

	Unaudited Consolidated Statements of Changes in Equity for the Three Months and Nine Months Ended September 30, 2022 and 2021	4

	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	82

Item 4.	Controls and Procedures	84

Part II	Other Information

Item 1.	Legal Proceedings	85

Item 1A.	Risk Factors	85

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85

Item 3.	Defaults Upon Senior Securities	85

Item 4.	Mine Safety Disclosures	85

Item 5.	Other Information	85

Item 6.	Exhibits	86

	Signatures	87

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements


BROOKLINE BANCORP, INC. AND SUBSIDIARIES Unaudited Consolidated Balance Sheets
	At September 30, 2022		At December 31, 2021
	(In Thousands Except Share Data)
ASSETS
Cash and due from banks	$	65,638	$	66,265
Short-term investments	46,873		261,472
Total cash and cash equivalents	112,511		327,737
Investment securities available-for-sale, net	675,692		720,866






Loans and leases:
Commercial real estate loans	4,269,512		4,103,040
Commercial loans and leases	1,933,645		1,887,136
Consumer loans	1,218,147		1,164,281
Total loans and leases	7,421,304		7,154,457
Allowance for loan and lease losses	(94,169)		(99,084)
Net loans and leases	7,327,135		7,055,373
Restricted equity securities	44,760		28,981
Premises and equipment, net of accumulated depreciation of $91,216 and $87,176, respectively	69,912		70,359
Right-of-use asset operating leases	18,614		20,508
Deferred tax asset	56,894		38,987
Goodwill	160,427		160,427
Identified intangible assets, net of accumulated amortization of $40,002 and $39,628, respectively	1,902		2,276
Other real estate owned ("OREO") and repossessed assets, net	591		718
Other assets	227,270		176,390
Total assets	$	8,695,708	$	8,602,622
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand checking accounts	$	1,848,562	$	1,888,462





Interest-bearing deposits	4,887,043		5,161,444
Total deposits	6,735,605		7,049,906
Borrowed funds:
Advances from the Federal Home Loan Bank of Boston ("FHLBB")	557,895		147,907
Subordinated debentures and notes	84,008		83,897
Other borrowed funds	116,865		125,517
Total borrowed funds	758,768		357,321
Operating lease liabilities	18,614		20,508
Mortgagors' escrow accounts	5,785		6,296
Reserve for unfunded credits	19,555		14,794

Accrued expenses and other liabilities	193,763		158,455
Total liabilities	7,732,090		7,607,280

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	735,119		736,826
Retained earnings, partially restricted	392,779		342,639
Accumulated other comprehensive income (loss)	(70,227)		(110)
Treasury stock, at cost; 7,730,945 shares and 7,037,464 shares, respectively	(94,866)		(84,718)
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 4,833 shares and 24,660 shares, respectively	(39)		(147)


Total stockholders' equity	963,618		995,342
Total liabilities and stockholders' equity	$	8,695,708	$	8,602,622

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Income


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In Thousands Except Share Data)
Interest and dividend income:
Loans and leases	$	84,375	$	74,332	$	230,383	$	224,367
Debt securities	3,337		2,967		9,582		9,206
Marketable and restricted equity securities	467		313		1,132		847
Short-term investments	464		83		686		164
Total interest and dividend income	88,643		77,695		241,783		234,584
Interest expense:
Deposits	7,354		4,571		15,407		16,658
Borrowed funds	3,263		2,427		6,635		7,014
Total interest expense	10,617		6,998		22,042		23,672
Net interest income	78,026		70,697		219,741		210,912
Provision (credit) for credit losses	2,835		(3,110)		2,902		(8,588)

Net interest income after provision for credit losses	75,191		73,807		216,839		219,500
Non-interest income:
Deposit fees	2,759		2,629		8,003		7,925
Loan fees	349		487		1,762		1,647
Loan level derivative income, net	1,275		218		3,576		699
Loss on investment securities, net	—		—		—		(6)
Gain on sales of loans and leases held-for-sale	889		557		1,524		1,804

Other	1,562		1,695		4,426		4,221
Total non-interest income	6,834		5,586		19,291		16,290
Non-interest expense:
Compensation and employee benefits	28,306		27,206		83,962		78,188
Occupancy	3,906		3,567		11,997		11,403
Equipment and data processing	5,066		4,556		15,075		13,746
Professional services	1,069		1,072		3,514		3,543
FDIC insurance	709		662		2,176		2,363
Advertising and marketing	1,337		1,077		3,928		3,287
Amortization of identified intangible assets	120		208		374		668
Merger and acquisition expense	1,073		—		1,608		—
Other	3,373		2,574		9,683		6,501
Total non-interest expense	44,959		40,922		132,317		119,699
Income before provision for income taxes	37,066		38,471		103,813		116,091
Provision for income taxes	6,917		9,632		23,764		29,196


Net income	$	30,149	$	28,839	$	80,049	$	86,895
Earnings per common share:
Basic	$	0.39	$	0.37	$	1.04	$	1.11
Diluted	0.39		0.37		1.04		1.11
Weighted average common shares outstanding during the year:
Basic	76,779,038		78,000,261		77,159,356		78,097,600
Diluted	77,007,971		78,240,633		77,448,290		78,371,190
Dividends paid per common share	$	0.130	$	0.120	$	0.385	$	0.355

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Comprehensive Income


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In Thousands)
Net income	$	30,149	$	28,839	$	80,049	$	86,895

Investment securities available-for-sale:
Unrealized securities holding gains (losses)	(29,548)		(4,450)		(87,182)		(17,797)

Income tax (expense) benefit	6,513		981		19,216		3,923
Net unrealized securities holding gains (losses) before reclassification adjustments, net of taxes	(23,035)		(3,469)		(67,966)		(13,874)







Cash flow hedges:
Change in fair value of cash flow hedges	(2,083)		(3)		(1,989)		6
Reclassification adjustment for (income) expense recognized in earnings	(132)		(2)		(162)		(7)
Net change in fair value of cash flow hedges, net of taxes	(2,215)		(5)		(2,151)		(1)






Other comprehensive income (loss), net of taxes	(25,250)		(3,474)		(70,117)		(13,875)



Comprehensive income	$	4,899	$	25,365	$	9,932	$	73,020

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Changes in Stockholders' Equity

Three Months Ended September 30, 2022 and 2021


	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 June 30, 2022	$	852	$	738,544	$	372,677	$	(44,977)	$	(98,525)	$	(75)	$	968,496
Net income	—		—		30,149		—		—		—		30,149



Other comprehensive income (loss)	—		—		—		(25,250)		—		—		(25,250)
Common stock dividends of $0.130 per share	—		—		(9,968)		—		—		—		(9,968)


Restricted stock awards issued, net of awards surrendered	—		(4,340)		—		—		3,659		—		(681)
Compensation under recognition and retention plans	—		863		(79)		—		—		—		784

Common stock held by ESOP committed to be released (6,609 shares)	—		52		—		—		—		36		88


Balance at September 30, 2022	$	852	$	735,119	$	392,779	$	(70,227)	$	(94,866)	$	(39)	$	963,618


	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 June 30, 2021	$	852	$	738,557	$	304,466	$	6,089	$	(77,493)	$	(219)	$	972,252
Net income	—		—		28,839		—		—		—		28,839



Other comprehensive income (loss)	—		—		—		(3,474)		—		—		(3,474)
Common stock dividends of $0.120 per share	—		—		(9,383)		—		—		—		(9,383)


Restricted stock awards issued, net of awards surrendered	—		(3,376)		—		—		2,788		—		(588)
Compensation under recognition and retention plan	—		750		(60)		—		—		—		690
Treasury stock, repurchase shares	—		—		—		—		(9,979)		—		(9,979)
Common stock held by ESOP committed to be released (6,612 shares)	—		59		—		—		—		36		95

Balance at September 30, 2021	$	852	$	735,990	$	323,862	$	2,615	$	(84,684)	$	(183)	$	978,452

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Changes in Stockholders' Equity

Nine Months Ended September 30, 2022 and 2021



	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, 2021	$	852	$	736,826	$	342,639	$	(110)	$	(84,718)	$	(147)	$	995,342
Net income	—		—		80,049		—		—		—		80,049



Other comprehensive income (loss)	—		—		—		(70,117)		—		—		(70,117)
Common stock dividends of $0.385 per share	—		—		(29,703)		—		—		—		(29,703)


Restricted stock awards issued, net of awards surrendered	—		(4,317)		—		—		3,632		—		(685)
Compensation under recognition and retention plans	—		2,424		(206)		—		—		—		2,218
Treasury stock, repurchase shares	—		—		—		—		(13,780)		—		(13,780)
Common stock held by ESOP committed to be released (19,827 shares)	—		186		—		—		—		108		294

Balance at September 30, 2022	$	852	$	735,119	$	392,779	$	(70,227)	$	(94,866)	$	(39)	$	963,618



	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	—		—		86,895		—		—		—		86,895



Other comprehensive income (loss)	—		—		—		(13,875)		—		—		(13,875)
Common stock dividends of $0.355 per share	—		—		(27,758)		—		—		—		(27,758)


Restricted stock awards issued, net of awards surrendered	—		(3,226)		—		—		2,638		—		(588)
Compensation under recognition and retention plans	—		1,871		(167)		—		—		—		1,704
Treasury stock, repurchase shares	—		—		—		—		(9,979)		—		(9,979)
Common stock held by ESOP committed to be released (19,836 shares)	—		167		—		—		—		108		275
Balance at September 30, 2021	$	852	$	735,990	$	323,862	$	2,615	$	(84,684)	$	(183)	$	978,452

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows


	Nine Months Ended September 30,
	2022		2021
	(In Thousands)
Cash flows from operating activities:
Net income	$	80,049	$	86,895
Adjustments to reconcile net income to net cash provided from operating activities:

Provision (credit) for credit losses	2,902		(8,588)


Deferred income tax expense	1,309		4,409
Depreciation of premises and equipment	4,434		4,292
Amortization of investment securities premiums and discounts, net	1,612		2,337
Amortization of deferred loan and lease origination costs, net	3,926		4,499
Amortization of identified intangible assets	374		668
Amortization of debt issuance costs	76		75
Amortization (accretion) of acquisition fair value adjustments, net	26		(64)
Loss on investment securities, net	—		6
Gain on sales of loans and leases held-for-sale	(1,524)		(1,804)

Gain on sales of OREO and other repossessed assets, net	—		(2,108)

Write-down of OREO and other repossessed assets	180		174
Compensation under recognition and retention plans	2,218		1,704
ESOP shares committed to be released	294		275
Net change in:
Cash surrender value of bank-owned life insurance	(766)		(436)
Equity securities held-for-trading	—		520
Other assets	(52,104)		62,403
Accrued expenses and other liabilities	35,349		(73,963)
Net cash provided from operating activities	78,355		81,294

Cash flows from investing activities:

Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale	79,501		146,821
Purchases of investment securities available-for-sale	(123,121)		(153,153)


Proceeds from redemption/sales of restricted equity securities	15,368		24,586
Purchase of restricted equity securities	(31,147)		(2,898)
Proceeds from sales of loans and leases held-for-investment, net	157,330		172,807
Net (increase) decrease in loans and leases	(430,904)		157,596



Purchase of premises and equipment, net	(4,285)		(3,720)
Proceeds from sales of OREO and other repossessed assets	1,360		9,176

Net cash (used for) provided from investing activities	(335,898)		351,215






			(Continued)

See accompanying notes to unaudited consolidated financial statements.

Table of Contents


	Nine Months Ended September 30,
	2022		2021
	(In Thousands)
Cash flows from financing activities:
(Decrease) increase in demand checking, NOW, savings and money market accounts	(139,602)		404,059
Decrease in certificates of deposit	(174,699)		(441,701)
Proceeds from FHLBB advances	2,898,609		188,340
Repayment of FHLBB advances	(2,488,621)		(723,212)



Decrease in other borrowed funds, net	(8,652)		(17,949)
(Decrease) increase in mortgagors' escrow accounts, net	(511)		554

Repurchases of common stock	(13,780)		(9,979)


Payment of dividends on common stock	(29,703)		(27,758)
Payment of income taxes for shares withheld in share based activity	(724)		(636)




Net cash provided from (used for) financing activities	42,317		(628,282)
Net decrease in cash and cash equivalents	(215,226)		(195,773)
Cash and cash equivalents at beginning of period	327,737		434,917
Cash and cash equivalents at end of period	$	112,511	$	239,144

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits, borrowed funds and subordinated debt	$	22,274	$	25,926
Income taxes	19,754		22,170
Non-cash investing activities:

Transfer from loans to other repossessed assets	$	1,413	$	1,328

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(1) Basis of Presentation

Overview

Brookline Bancorp, Inc. (the "Company") is a bank holding company (within the meaning of the Bank Holding Company Act of 1956, as amended) and the parent of Brookline Bank, a Massachusetts-chartered trust company and Bank Rhode Island ("BankRI"), a Rhode Island-chartered financial institution (collectively referred to as the "Banks"). The Banks are both members of the Federal Reserve System. The Company is also the parent of Brookline Securities Corp. ("BSC") and Clarendon Private, LLC ("Clarendon Private"). 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 29 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., BRI Investment Corp. and its wholly-owned subsidiary, BRI MSC Corp., operates 20 full-service banking offices in the greater Providence, Rhode Island area. Macrolease Corporation ("Macrolease") was merged into Eastern Funding LLC in the second quarter of 2022. Clarendon Private is a registered investment advisor with the Securities and Exchange Commission ("SEC"). Through Clarendon Private, the Company offers a wide range of wealth management services to individuals, families, endowments and foundations to help these clients meet their long-term financial goals.

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 it subsidiary Eastern Funding, which is based in New York City, New York, and Plainview, New York.

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 bank deposit balances in excess of federal deposit insurance coverage. Brookline Bank’s growth in deposit size necessitated its withdrawal from the DIF and the concurrent charter conversion. 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 as of July 31, 2019 will continue to be insured by the DIF until they reach maturity. Clarendon Private is also subject to regulation by the SEC.

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, 2021.

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.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

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 determination of the allowance for credit losses, the determination of fair market values of assets and liabilities, including acquired loans, 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

In August 2021, the FASB issued ASU 2021-06, "Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending (Topic 942), and Financial Services – Investment Companies (Topic 946)" ("ASU 2021-06"), which updated guidance to align with new SEC regulations with regards to statistical disclosures for banking and savings and loan institutions. This ASU is effective for fiscal years ending on or after December 15, 2021. The Company has adopted ASU 2021-06 as of December 31, 2021. The adoption did not have a material impact on the Company’s consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

(3) Investment Securities

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 as of September 30, 2022.

The following tables set forth investment securities available-for-sale at the dates indicated:


	At September 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
Investment securities available-for-sale:
GSE debentures	$	185,091	$	—	$	24,970	$	160,121
GSE CMOs	21,194		—		1,754		19,440
GSE MBSs	165,779		2		21,292		144,489




Corporate debt obligations	14,099		—		337		13,762
U.S. Treasury bonds	376,446		—		39,047		337,399
Foreign government obligations	500		—		19		481


Total investment securities available-for-sale	$	763,109	$	2	$	87,419	$	675,692


	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
Investment securities available-for-sale:
GSE debentures	$	219,723	$	2,017	$	4,235	$	217,505
GSE CMOs	27,892		274		27		28,139
GSE MBSs	196,930		3,749		907		199,772




Corporate debt obligations	22,178		505		—		22,683
U.S. Treasury bonds	253,878		1,136		2,746		252,268

Foreign government obligations	500		—		1		499

Total investment securities available-for-sale	$	721,101	$	7,681	$	7,916	$	720,866

As of September 30, 2022, the fair value of all investment securities available-for-sale was $675.7 million, with net unrealized losses of $87.4 million, compared to a fair value of $720.9 million and net unrealized losses of $0.2 million as of December 31, 2021. As of September 30, 2022, $673.5 million, or 99.7% of the portfolio, had gross unrealized losses of $87.4 million, compared to $353.8 million, or 49.1% of the portfolio, with gross unrealized losses of $7.9 million as of December 31, 2021.

Investment Securities as Collateral

As of September 30, 2022 and December 31, 2021, respectively, $487.8 million and $491.8 million of investment securities were pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and Federal Home Loan Bank of Boston ("FHLBB") borrowings. The Banks had no outstanding FRB borrowings as of September 30, 2022 and December 31, 2021.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Allowance for Credit Losses-Available-for-Sale Securities

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

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for credit loss is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income. Adjustments to the allowance are reported as a component of credit loss expense. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible or when either of the aforementioned criteria regarding intent or requirement to sell is met. The Company has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Accrued interest receivables associated with debt securities available-for-sale totaled $2.8 million as of September 30, 2022 and December 31, 2021.

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 nine months ended September 30, 2022 and 2021.

Assessment for Available for Sale Securities for Impairment

Investment securities as of September 30, 2022 and December 31, 2021 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:


	At September 30, 2022
	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	$	62,641	$	1,360	$	95,480	$	23,610	$	158,121	$	24,970
GSE CMOs	19,058		1,717		382		37		19,440		1,754
GSE MBSs	111,519		13,018		32,814		8,274		144,333		21,292




Corporate debt obligations	13,762		337		—		—		13,762		337
U.S. Treasury bonds	222,229		15,755		115,170		23,292		337,399		39,047
Foreign government obligations	481		19		—		—		481		19









Total temporarily impaired investment securities	$	429,690	$	32,206	$	243,846	$	55,213	$	673,536	$	87,419

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	At December 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	$	45,695	$	1,487	$	70,075	$	2,748	$	115,770	$	4,235
GSE CMOs	2,712		27		—		—		2,712		27
GSE MBSs	57,656		907		—		—		57,656		907




U.S. Treasury bonds	177,162		2,746		—		—		177,162		2,746
Foreign government obligations	499		1		—		—		499		1


Temporarily impaired investment securities available-for-sale	283,724		5,168		70,075		2,748		353,799		7,916






Total temporarily impaired investment securities	$	283,724	$	5,168	$	70,075	$	2,748	$	353,799	$	7,916

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 September 30, 2022. 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 September 30, 2022. If market conditions for investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional impairment in future periods.

U.S. Government-Sponsored Enterprises

The Company invests in securities issued by U.S. Government-sponsored enterprises ("GSEs"), including GSE debentures, mortgage-backed securities ("MBSs"), and collateralized mortgage obligations ("CMOs"). GSE securities include obligations issued by the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA"), the FHLBB and the Federal Farm Credit Bank. As of September 30, 2022, 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 $2.8 million, all of which were backed explicitly by the full faith and credit of the U.S. Government, compared to $4.2 million as of December 31, 2021.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

As of September 30, 2022, the Company owned 35 GSE debentures with a total fair value of $160.1 million, and a net unrealized loss of $25.0 million. As of December 31, 2021, the Company held 45 GSE debentures with a total fair value of $217.5 million, with a net unrealized loss of $2.2 million. As of September 30, 2022, 33 of the 35 securities in this portfolio were in an unrealized loss position. As of December 31, 2021, 12 of the 45 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA/SBA) guarantee of the U.S Government. During the nine months ended September 30, 2022 and 2021, the Company did not purchase GSE debentures.

As of September 30, 2022, the Company owned 33 GSE CMOs with a total fair value of $19.4 million and a net unrealized loss of $1.8 million. As of December 31, 2021, the Company held 33 GSE CMOs with a total fair value of $28.1 million with a net unrealized gain of $0.2 million. As of September 30, 2022, all of the securities in this portfolio were in an unrealized loss position. As of December 31, 2021, 5 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 nine months ended September 30, 2022 and 2021, the Company did not purchase any GSE CMOs.

As of September 30, 2022, the Company owned 136 GSE MBSs with a total fair value of $144.5 million and a net unrealized loss of $21.3 million. As of December 31, 2021, the Company held 139 GSE MBSs with a total fair value of $199.8 million with a net unrealized gain of $2.8 million. As of September 30, 2022, 132 of the 136 securities in this portfolio were in an unrealized loss position. As of December 31, 2021, 16 of the 139 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the nine months ended September 30, 2022 and 2021, the Company did not purchase any GSE MBSs.

Corporate Obligations

The Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. As of September 30, 2022, the Company held 4 corporate obligation securities with a total fair value of $13.8 million and a net unrealized loss of $0.3 million. As of December 31, 2021, the Company held 6 corporate obligation securities with a total fair value of $22.7 million and a net unrealized gain of $0.5 million. As of September 30, 2022, all of the securities in this portfolio were in an unrealized loss position. As of December 31, 2021, none of the securities in this portfolio were in an unrealized loss position. Full collection of the obligations is expected because the financial condition of the issuers is sound, they have not defaulted on scheduled payments, the obligations are rated investment grade, and the Company has the ability and intent to hold the obligations for a period of time to recover the amortized cost. During the nine months ended September 30, 2022 and 2021, the Company did not purchase any corporate obligations.

U.S. Treasury Bonds

The Company invests in securities issued by the U.S. government. As of September 30, 2022, the Company owned 44 U.S. Treasury bonds with a total fair value of $337.4 million and an unrealized loss of $39.0 million. This compares to 34 U.S. Treasury bonds with a total fair value of $252.3 million and an unrealized loss of $1.6 million as of December 31, 2021. As of September 30, 2022, all of the securities in this portfolio were in an unrealized loss position. As of December 31, 2021, 18 of the 34 securities in this portfolio were in an unrealized loss position. During the nine months ended September 30, 2022 the Company purchased $122.6 million U.S. Treasury bonds, compared to the same period in 2021 when the Company purchased $153.2 million U.S. Treasury bonds.

Foreign Government Obligations

As of September 30, 2022 and December 31, 2021, the Company owned 1 foreign government obligation security with a fair value of $0.5 million, which approximated cost. As of September 30, 2022 and December 31, 2021, respectively, the security was in an unrealized loss position. During the nine months ended September 30, 2022, the Company repurchased the foreign government obligations that had matured.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Portfolio Maturities

The final stated maturities of the debt securities are as follows for the periods indicated:


	At September 30, 2022						At December 31, 2021
	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	$	79,704	$	78,813	2.19	%	$	53,791	$	54,183	2.09	%
After 1 year through 5 years	208,381		196,336		1.95	%	139,068		141,928		1.95	%
After 5 years through 10 years	306,939		256,544		1.31	%	322,873		317,324		1.29	%
Over 10 years	168,085		143,999		2.10	%	205,369		207,431		1.96	%
	$	763,109	$	675,692	1.77	%	$	721,101	$	720,866	1.67	%

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

As of September 30, 2022, issuers of debt securities with an estimated fair value of $52.8 million had the right to call or prepay the obligations. Of the $52.8 million, approximately $2.4 million matures in less then 1 year, $6.4 million matures in 1-5 years, $37.0 million matures in 6-10 years, and $7.0 million matures after ten years. As of December 31, 2021, issuers of debt securities with an estimated fair value of approximately $67.0 million had the right to call or prepay the obligations. Of the $67.0 million, approximately $3.1 million matures in less then 1 year, $9.4 million matures in 1-5 years, $44.9 million matures in 6-10 years, and $9.6 million matures after ten years.

Security Sales

The Company did not sell any investment securities available-for-sale or equity securities held-for-trading during the nine months ended September 30, 2022. This compares to $0.5 million of equity securities held-for-trading sold during the nine months ended September 30, 2021.


	Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
	(In Thousands)

Proceeds from sales of investment securities available-for-sale and equity securities held-for-trading	$	—	$	520

Gross gains from securities sales	—		1
Gross losses from securities sales	—		—
Gain on sales of securities, net	$	—	$	1

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

(4) Loans and Leases

The following table presents the amortized cost of loans and leases and weighted average coupon rates for the loan and lease portfolios at the dates indicated:


	At September 30, 2022				At December 31, 2021
	Balance		Weighted Average Coupon		Balance		Weighted Average Coupon
	(Dollars In Thousands)
Commercial real estate loans:
Commercial real estate	$	3,032,202	4.33	%	$	2,842,791	3.41	%
Multi-family mortgage	1,053,014		4.15	%	1,099,818		3.26	%
Construction	184,296		5.24	%	160,431		3.60	%
Total commercial real estate loans	4,269,512		4.32	%	4,103,040		3.38	%
Commercial loans and leases:
Commercial (1)	713,189		5.10	%	734,388		3.31	%
Equipment financing	1,176,248		6.84	%	1,105,611		6.86	%
Condominium association	44,208		4.58	%	47,137		4.34	%
Total commercial loans and leases	1,933,645		6.15	%	1,887,136		5.42	%
Consumer loans:
Residential mortgage	836,574		3.78	%	799,737		3.49	%
Home equity	330,606		5.86	%	324,156		3.27	%
Other consumer	50,967		5.32	%	40,388		2.90	%
Total consumer loans	1,218,147		4.41	%	1,164,281		3.41	%
Total loans and leases	$	7,421,304	4.80	%	$	7,154,457	3.92	%

______________________________________________________________________

(1) Including $878 and $67,711 of PPP loans as of September 30, 2022 and December 31, 2021, respectively. These loans are fully guaranteed by the SBA and therefore, have not been reserved for in the allowance for credit losses as of September 30, 2022 and December 31, 2021.

Accrued interest on loans and leases, which were excluded from the amortized cost of loans and leases totaled $21.1 million and $16.7 million at September 30, 2022 and December 31, 2021, 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 $12.0 million and $10.9 million as of September 30, 2022 and December 31, 2021, respectively.

The Banks and their subsidiaries lend primarily in all New England states, with the exception of equipment financing, 26.9% of which is in the greater New York and New Jersey metropolitan area and 73.1% of which is in other areas in the United States of America as of September 30, 2022.

Loans and Leases Pledged as Collateral

As of September 30, 2022 and December 31, 2021, there were $2.1 billion and $2.7 billion respectively of loans and leases pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLBB borrowings. The Banks did not have any outstanding FRB borrowings as of September 30, 2022 and December 31, 2021.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

(5) Allowance for Credit Losses

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


	Three Months Ended September 30, 2022
	Commercial Real Estate		Commercial		Consumer		Total
	(In Thousands)
Balance at June 30, 2022	$	70,027	$	20,105	$	3,056	$	93,188

Charge-offs	—		(584)		(14)		(598)
Recoveries	6		763		8		777
(Credit) provision for loan and lease losses	(2,573)		2,984		391		802
Balance at September 30, 2022	$	67,460	$	23,268	$	3,441	$	94,169


	Three Months Ended September 30, 2021
	Commercial Real Estate		Commercial		Consumer		Total
	(In Thousands)
Balance at June 30, 2021	$	74,009	$	28,364	$	4,101	$	106,474

Charge-offs	—		(1,583)		(17)		(1,600)
Recoveries	1		308		36		345
(Credit) provision for loan and lease losses	(1,630)		101		(1,175)		(2,704)
Balance at September 30, 2021	$	72,380	$	27,190	$	2,945	$	102,515



	Nine Months Ended September 30, 2022
	Commercial Real Estate		Commercial		Consumer		Total
	(In Thousands)
Balance at December 31, 2021	$	69,213	$	27,055	$	2,816	$	99,084


Charge-offs	(37)		(4,417)		(20)		(4,474)
Recoveries	18		1,395		52		1,465
(Credit) provision for loan and lease losses	(1,734)		(765)		593		(1,906)
Balance at September 30, 2022	$	67,460	$	23,268	$	3,441	$	94,169



	Nine Months Ended September 30, 2021
	Commercial Real Estate		Commercial		Consumer		Total
	(In Thousands)
Balance at December 31, 2020	$	80,132	$	29,498	$	4,749	$	114,379

Charge-offs	(28)		(4,907)		(29)		(4,964)
Recoveries	12		1,127		215		1,354
(Credit) provision for loan and lease losses	(7,736)		1,472		(1,990)		(8,254)
Balance at September 30, 2021	$	72,380	$	27,190	$	2,945	$	102,515

The allowance for credit losses for unfunded credit commitments, which is included in other liabilities, was $19.6 million and $14.8 million at September 30, 2022 and December 31, 2021, respectively.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Provision for Credit Losses

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In Thousands)
Provision (credit) for loan and lease losses:
Commercial real estate	$	(2,573)	$	(1,630)	$	(1,734)	$	(7,736)
Commercial	2,984		101		(765)		1,472
Consumer	391		(1,175)		593		(1,990)

Total (credit) provision for loan and lease losses	802		(2,704)		(1,906)		(8,254)
Unfunded commitments	2,043		(406)		4,760		(334)
Investment securities available-for-sale	(10)		—		48		—
Total provision (credit) for credit losses	$	2,835	$	(3,110)	$	2,902	$	(8,588)

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.

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 expected utilization assumptions. The expected loss estimates for two small commercial portfolios 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 forecasts utilized at September 30, 2022 reflect the immediate and longer-term effects of the COVID-19 pandemic as well as the effects from a rising interest rate environment and inflation.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

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.

As of September 30, 2022, 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. 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 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.

The general allowance for loan and lease losses was $93.1 million as of September 30, 2022, compared to $95.8 million as of December 31, 2021. The reduction in the ACL is attributable to continued low level of net charge-offs and a reduction in qualitative adjustments that consider longer-term risks.

The specific allowance for loan and lease losses was $1.1 million as of September 30, 2022, compared to $3.3 million as of December 31, 2021. The specific allowance decreased by $2.3 million during the nine months ended September 30, 2022 primarily due to the charge-off of a specific reserve for a specialty finance relationship.

As of September 30, 2022, 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.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

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

1 -4 Rating—Pass

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

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

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

6 Rating—Substandard

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

7 Rating—Doubtful

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

8 Rating—Definite Loss

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

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

Credit Quality Information

The following table presents the amortized cost basis of loans in each class by credit quality indicator and year of origination as of September 30, 2022.


	September 30, 2022
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
			(In Thousands)
Commercial Real Estate
Pass	$	363,706	$	648,462	$	296,885	$	376,868	$	227,324	$	995,456	$	54,683	$	11,032	$	2,974,416
OAEM	—		2,618		90		14,860		2,853		31,833		—		—		52,254
Substandard	—		656		—		—		—		3,608		—		1,268		5,532

Total	363,706		651,736		296,975		391,728		230,177		1,030,897		54,683		12,300		3,032,202
Multi-Family Mortgage

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	September 30, 2022
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
			(In Thousands)
Pass	82,302		229,072		120,039		143,295		96,250		329,930		5,118		36,824		1,042,830

Substandard	—		—		—		3,764		—		6,420		—		—		10,184

Total	82,302		229,072		120,039		147,059		96,250		336,350		5,118		36,824		1,053,014
Construction
Pass	41,304		59,938		26,836		(9,675)		49,844		—		7,351		—		175,598
OAEM	491		7,501		—		—		—		—		—		—		7,992
Substandard	—		—		—		—		—		706		—		—		706

Total	41,795		67,439		26,836		(9,675)		49,844		706		7,351		—		184,296
Commercial
Pass	63,697		126,899		51,305		38,098		31,087		67,008		324,243		1,117		703,454
OAEM	—		4,143		1,215		2,017		—		—		1,155		—		8,530
Substandard	—		14		—		—		—		30		323		835		1,202
Doubtful	—		—		—		—		—		2		—		1		3
Total	63,697		131,056		52,520		40,115		31,087		67,040		325,721		1,953		713,189
Equipment Financing
Pass	330,299		301,241		201,044		157,921		89,486		70,240		13,159		1,900		1,165,290
OAEM	—		—		188		155		18		—		—		—		361
Substandard	174		676		1,487		2,872		2,458		2,914		—		—		10,581
Doubtful	—		—		—		—		2		14		—		—		16
Total	330,473		301,917		202,719		160,948		91,964		73,168		13,159		1,900		1,176,248
Condominium Association
Pass	3,906		6,275		8,582		6,175		1,855		13,499		3,824		27		44,143

Substandard	—		—		—		—		—		65		—		—		65

Total	3,906		6,275		8,582		6,175		1,855		13,564		3,824		27		44,208
Other Consumer
Pass	395		446		25		17		1,504		750		47,829		1		50,967



Total	395		446		25		17		1,504		750		47,829		1		50,967
Total
Pass	885,609		1,372,333		704,716		712,699		497,350		1,476,883		456,207		50,901		6,156,698
OAEM	491		14,262		1,493		17,032		2,871		31,833		1,155		—		69,137
Substandard	174		1,346		1,487		6,636		2,458		13,743		323		2,103		28,270
Doubtful	—		—		—		—		2		16		—		1		19
Total	$	886,274	$	1,387,941	$	707,696	$	736,367	$	502,681	$	1,522,475	$	457,685	$	53,005	$	6,254,124

As of September 30, 2022, there were no loans categorized as definite loss.

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

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	At September 30, 2022
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
			(In Thousands)
Residential
Credit Scores
Over 700	$	85,227	$	180,645	$	97,788	$	62,277	$	39,372	$	140,303	$	4,685	$	350	$	610,647
661 - 700	14,722		21,575		18,381		11,841		8,847		30,349		—		—		105,715
600 and below	6,154		3,772		5,324		3,161		2,272		14,830		—		—		35,513
Data not available*	21,832		7,593		716		3,328		—		51,230		—		—		84,699
Total	$	127,935	$	213,585	$	122,209	$	80,607	$	50,491	$	236,712	$	4,685	$	350	$	836,574
Home Equity
Credit Scores
Over 700	$	2,747	$	1,434	$	1,073	$	1,347	$	1,035	$	7,235	$	252,222	$	2,057	$	269,150
661 - 700	278		93		36		261		282		1,387		41,815		382		44,534
600 and below	91		89		50		95		—		398		8,733		599		10,055
Data not available*	3		3		—		—		—		1,044		5,569		248		6,867
Total	$	3,119	$	1,619	$	1,159	$	1,703	$	1,317	$	10,064	$	308,339	$	3,286	$	330,606

_______________________________________________________________________________

* 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, 2021, by credit quality indicator.


	December 31, 2021
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(In Thousands)
Commercial Real Estate
Pass	$	660,657	$	309,397	$	398,269	$	242,931	$	188,952	$	923,232	$	47,315	$	12,230	$	2,782,983
OAEM	—		—		16,891		2,888		3,877		22,929		—		—		46,585
Substandard	675		180		—		—		569		7,985		—		3,814		13,223

Total	661,332		309,577		415,160		245,819		193,398		954,146		47,315		16,044		2,842,791
Multi-Family Mortgage
Pass	230,219		124,897		149,580		120,683		84,124		347,991		4,095		37,040		1,098,629
OAEM	—		—		—		—		—		1,189		—		—		1,189


Total	230,219		124,897		149,580		120,683		84,124		349,180		4,095		37,040		1,099,818

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	December 31, 2021
	2021	2020	2019	2018	2017	Prior	Revolving Loans	Revolving Loans Converted to Term Loans	Total
	(In Thousands)
Construction
Pass	48,988	32,448	17,552	49,801	—	—	7,847	—	156,636

Substandard	—	—	3,795	—	—	—	—	—	3,795

Total	48,988	32,448	21,347	49,801	—	—	7,847	—	160,431
Commercial
Pass	231,829	76,535	44,454	36,498	9,009	99,724	221,861	1,335	721,245
OAEM	—	1,494	3,106	2,880	—	—	844	—	8,324
Substandard	17	13	—	90	189	1,826	773	1,909	4,817
Doubtful	—	—	—	—	—	—	—	2	2
Total	231,846	78,042	47,560	39,468	9,198	101,550	223,478	3,246	734,388
Equipment Financing
Pass	350,564	266,845	216,369	131,802	65,132	53,177	3,959	349	1,088,197
OAEM	—	196	1,622	277	65	16	—	—	2,176
Substandard	286	1,115	3,811	4,905	2,332	2,775	—	—	15,224
Doubtful	—	—	—	1	6	7	—	—	14
Total	350,850	268,156	221,802	136,985	67,535	55,975	3,959	349	1,105,611
Condominium Association
Pass	4,380	9,423	7,814	4,121	4,050	14,074	3,086	105	47,053

Substandard	—	—	—	—	—	84	—	—	84

Total	4,380	9,423	7,814	4,121	4,050	14,158	3,086	105	47,137
Other Consumer
Pass	562	133	46	1,508	28	730	37,378	2	40,387

Substandard	—	—	—	—	—	—	1	—	1

Total	562	133	46	1,508	28	730	37,379	2	40,388
Total
Pass	1,527,199	819,678	834,084	587,344	351,295	1,438,928	325,541	51,061	5,935,130
OAEM	—	1,690	21,619	6,045	3,942	24,134	844	—	58,274
Substandard	978	1,308	7,606	4,995	3,090	12,670	774	5,723	37,144

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	December 31, 2021
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(In Thousands)
Doubtful	—		—		—		1		6		7		—		2		16
Total	$	1,528,177	$	822,676	$	863,309	$	598,385	$	358,333	$	1,475,739	$	327,159	$	56,786	$	6,030,564

As of December 31, 2021, there were no loans categorized as definite loss.


	At December 31, 2021
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(In Thousands)
Residential
Credit Scores
Over 700	$	182,759	$	111,380	$	69,901	$	51,454	$	40,467	$	127,303	$	2,990	$	355	$	586,609
661 - 700	24,370		19,078		14,011		9,018		12,846		25,294		—		—		104,617
600 and below	4,145		6,368		3,408		2,996		3,492		13,801		—		—		34,210
Data not available*	10,936		—		1,958		—		6,847		54,560		—		—		74,301
Total	$	222,210	$	136,826	$	89,278	$	63,468	$	63,652	$	220,958	$	2,990	$	355	$	799,737
Home Equity
Credit Scores
Over 700	$	1,530	$	1,469	$	1,790	$	1,520	$	1,561	$	8,254	$	242,980	$	1,844	$	260,948
661 - 700	98		51		297		392		210		1,658		42,542		541		45,789
600 and below	92		54		101		—		12		436		8,484		713		9,892
Data not available*	—		—		—		—		—		1,216		5,937		374		7,527
Total	$	1,720	$	1,574	$	2,188	$	1,912	$	1,783	$	11,564	$	299,943	$	3,472	$	324,156

Age Analysis of Past Due Loans and Leases

The following table presents an age analysis of the amortized cost basis in loans and leases as of September 30, 2022.

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	At September 30, 2022
	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	$	3,942	$	875	$	11,016	$	15,833	$	3,016,369		$	3,032,202		$	8,085	$	3,136	$	2,930
Multi-family mortgage	7,039		80		353		7,472		1,045,542			1,053,014			353		—		—
Construction	1,502		—		—		1,502		182,794			184,296			—		—		—
Total commercial real estate loans	12,483		955		11,369		24,807		4,244,705			4,269,512			8,438		3,136		2,930
Commercial loans and leases:
Commercial	2,690		—		952		3,642		709,547			713,189			494		618		—
Equipment financing	4,266		2,464		6,075		12,805		1,163,443			1,176,248			160		10,544		999
Condominium association	76		—		—		76		44,132			44,208			—		64		—
Total commercial loans and leases	7,032		2,464		7,027		16,523		1,917,122			1,933,645			654		11,226		999
Consumer loans:
Residential mortgage	1,145		2,000		2,489		5,634		830,940			836,574			487		2,741		1,091
Home equity	698		142		19		859		329,747			330,606			4		616		—
Other consumer	15		1		2		18		50,949			50,967			—		2		—
Total consumer loans	1,858		2,143		2,510		6,511		1,211,636			1,218,147			491		3,359		1,091
Total loans and leases	$	21,373	$	5,562	$	20,906	$	47,841	$	7,373,463		$	7,421,304		$	9,583	$	17,721	$	5,020

The Company did not recognize any interest income on nonaccrual loans for the three and nine months ended September 30, 2022.

Table of Contents

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, 2021.


	At December 31, 2021
	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	$	2,424	$	1,488	$	10,443	$	14,355	$	2,828,436		$	2,842,791		$	—	$	10,848	$	10,244
Multi-family mortgage	371		89		—		460		1,099,358			1,099,818			—		—		—
Construction	396		—		—		396		160,035			160,431			—		—		—
Total commercial real estate loans	3,191		1,577		10,443		15,211		4,087,829			4,103,040			—		10,848		10,244
Commercial loans and leases:
Commercial	287		88		748		1,123		733,265			734,388			—		2,318		1,383
Equipment financing	5,265		1,044		8,774		15,083		1,090,528			1,105,611			—		15,014		1,602
Condominium association	57		—		—		57		47,080			47,137			—		84		—
Total commercial loans and leases	5,609		1,132		9,522		16,263		1,870,873			1,887,136			—		17,416		2,985
Consumer loans:
Residential mortgage	454		3,169		2,315		5,938		793,799			799,737			—		3,909		2,165
Home equity	424		201		114		739		323,417			324,156			1		285		—
Other consumer	5		2		1		8		40,380			40,388			—		1		—
Total consumer loans	883		3,372		2,430		6,685		1,157,596			1,164,281			1		4,195		2,165
Total loans and leases	$	9,683	$	6,081	$	22,395	$	38,159	$	7,116,298		$	7,154,457		$	1	$	32,459	$	15,394

Impaired Loans and Leases

A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. The loans and leases risk-rated "substandard" or worse are considered impaired. The Company has also defined the population of impaired loans to include nonaccrual loans and TDR loans. Impaired loans and leases which do not share similar risk characteristics with other loans are individually evaluated for credit losses. Specific reserves are established for loans and leases with deterioration in the present value of expected future cash flows or, in the case of collateral-dependent loans and leases, any increase in the loan or lease amortized cost basis over the fair value of the underlying collateral discounted for estimated selling costs. In contrast, the loans and leases which share similar risk characteristics and are not included in the individually evaluated population are collectively evaluated for credit losses.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

The following tables present information regarding individually evaluated and collectively evaluated allowance for loan and lease losses for credit losses on loans and leases at the dates indicated.


	At September 30, 2022
	Commercial Real Estate		Commercial		Consumer		Total
	(In Thousands)
Allowance for Loan and Lease Losses:

Individually evaluated	$	62	$	946	$	59	$	1,067
Collectively evaluated	67,398		22,322		3,382		93,102
Total	$	67,460	$	23,268	$	3,441	$	94,169









Loans and Leases:

Individually evaluated	$	17,046	$	3,471	$	3,875	$	24,392
Collectively evaluated	4,252,466		1,930,174		1,214,272		7,396,912
Total	$	4,269,512	$	1,933,645	$	1,218,147	$	7,421,304


	At December 31, 2021
	Commercial Real Estate		Commercial		Consumer		Total
	(In Thousands)
Allowance for Loan and Lease Losses:

Individually evaluated	$	—	$	3,236	$	38	$	3,274
Collectively evaluated	69,213		23,819		2,778		95,810
Total loans and leases	$	69,213	$	27,055	$	2,816	$	99,084










Loans and Leases:
Individually evaluated	$	16,906	$	10,944	$	4,853	$	32,703
Collectively evaluated	4,086,134		1,876,192		1,159,428		7,121,754








Total loans and leases	$	4,103,040	$	1,887,136	$	1,164,281	$	7,154,457

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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 September 30, 2022		At December 31, 2021
	(In Thousands)
Troubled debt restructurings:
On accrual	$	9,728	$	12,580
On nonaccrual	4,449		6,709
Total troubled debt restructurings	$	14,177	$	19,289

Total TDR loans and leases decreased by $5.2 million to $14.2 million at September 30, 2022 from $19.3 million at December 31, 2021, primarily driven by loan payoffs, as well as the payments on TDR loans, partially offset by new TDR loans during the nine months ended September 30, 2022.

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


	At and for the Three Months Ended September 30, 2022
		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)





Equipment financing	3	$	411	$	411	$	—	$	441	—	$	—


Total loans and leases	3	$	411	$	411	$	—	$	441	—	$	—

______________________________________________________________________

(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 September 30, 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	1	19		19		—		—		—	—

Equipment financing	6	$	827	$	816	$	—	$	147	5	$	211


Total loans and leases	7	$	846	$	835	$	—	$	147	5	$	211

______________________________________________________________________

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



	At and for the Nine Months Ended September 30, 2022
		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)




Equipment financing	18	$	1,203	$	1,099	$	—	$	760	5	$	323













Total loans and leases	18	$	1,203	$	1,099	$	—	$	760	5	$	323

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	At and for the Nine Months Ended September 30, 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)
Originated:
Commercial real estate	1	$	497	$	494	$	—	$	—	—	$	—

Commercial	1	19		19		—		—		—	—
Equipment financing	43	3,627		3,382		91		2,165		6	257
Residential mortgage	1	864		859		—		—		—	—
Home equity	1	312		312		—		—		—	—











Total loans and leases	47	$	5,319	$	5,066	$	91	$	2,165	6	$	257

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In Thousands)
Loans with one modification:
Extended maturity	$	—	$	—	$	—	$	2,333



Combination maturity, principal, interest rate	411		835		1,203		2,733










Total loans with modifications	$	411	$	835	$	1,203	$	5,066

The TDR loans and leases that were modified for the three months ended September 30, 2022 and 2021 were $0.4 million and $0.8 million, respectively. The decrease in TDR loans and leases that were modified for the three months ended September 30, 2022 were primarily due to loan payoffs.

The net charge-offs for performing and nonperforming TDR loans and leases for the nine months ended September 30, 2022 and 2021 were $0.1 million and $0.7 million respectively.

The commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs as of September 30, 2022 was $0.3 million. As of September 30, 2021, there were $0.6 million commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs.

(6) Goodwill and Other Intangible Assets

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


	At September 30, 2022		At December 31, 2021
	(In Thousands)
Goodwill	$	160,427	$	160,427



Other intangible assets:
Core deposits	813		1,187
Trade name	1,089		1,089

Total other intangible assets	1,902		2,276
Total goodwill and other intangible assets	$	162,329	$	162,703

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

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 5.18 years.

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


Remainder of 2022	$	120
Year ending:
2023	263
2024	151
2025	103
2026	74
2027	87
Thereafter	15
Total	$	813

(7) Accumulated Other Comprehensive Income (Loss)

For the nine months ended September 30, 2022 and 2021, 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 September 30, 2022
	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 June 30, 2022	$	(45,114)	$	101	$	36	$	(44,977)
Other comprehensive income (loss)	(23,035)		(2,083)		—		(25,118)
Reclassification adjustment for (income) expense recognized in earnings	—		(132)		—		(132)
Balance at September 30, 2022	$	(68,149)	$	(2,114)	$	36	$	(70,227)


	Three Months Ended September 30, 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 June 30, 2021	$	6,177	$	11	$	(99)	$	6,089
Other comprehensive income (loss)	(3,469)		(3)		—		(3,472)
Reclassification adjustment for (income) expense recognized in earnings	—		(2)		—		(2)
Balance at September 30, 2021	$	2,708	$	6	$	(99)	$	2,615

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	Nine Months Ended September 30, 2022
	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, 2021	$	(183)	$	37	$	36	$	(110)
Other comprehensive income (loss)	(67,966)		(1,989)		—		(69,955)
Reclassification adjustment for (income) expense recognized in earnings	—		(162)		—		(162)
Balance at September 30, 2022	$	(68,149)	$	(2,114)	$	36	$	(70,227)



	Nine Months Ended September 30, 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)	(13,874)		6		—		(13,868)
Reclassification adjustment for (income) expense recognized in earnings	—		(7)		—		(7)
Balance at September 30, 2021	$	2,708	$	6	$	(99)	$	2,615

(8) Derivatives and Hedging Activities

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

The Company 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 and loan portfolio. 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.

The following table reflects the Company's derivative positions as of the date indicated below for interest rate derivatives which qualify as cash flow hedges for accounts purposes. As of September 30, 2022, the Company had no interest rate swaps on borrowings.


	At September 30, 2022
	Notional Amount		Average Maturity	Weighted Average Rate				Fair Value
				Current Rate Paid		Received Fixed Swap Rate
	(in thousands)		(in years)					(in thousands)
Interest rate swaps on loans	$	75,000	3.88	2.42	%	2.73	%	$	(2,879)

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

As of December 31, 2021, the Company paid its counterparties a fixed weighted average interest rate of 0.11% over a maximum period of 8 months for derivative instruments that are designated as and qualify as cash flow hedging instruments on borrowings.

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
	September 30, 2022
	(Dollars In Thousands)
Loan level derivatives
Receive fixed, pay variable	135	$	71,925	$	77,517	$	142,783	$72,088		$	1,121,000	$	1,485,313	$	112,754
Pay fixed, receive variable	135	71,925		77,517		142,783		72,088		1,121,000		1,485,313		112,754
Risk participation-out agreements	50	32,459		29,737		30,155		6,267		271,819		370,437		292
Risk participation-in agreements	8	—		18,495		—		—		57,183		75,678		31

Foreign exchange contracts
Buys foreign currency, sells U.S. currency	16	$	4,270	$	—	$	—	$	—	$	—	$	4,270	$	19
Sells foreign currency, buys U.S. currency	16	4,282		—		—		—		—		4,282		2

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	Notional Amount Maturing
	Number of Positions	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value
	December 31, 2021
	(Dollars In Thousands)
Loan level derivatives
Receive fixed, pay variable	135	$	8,244	$	2,346	$	83,461	$	137,856	$	1,092,702	$	1,324,609	$	63,798
Pay fixed, receive variable	135	8,244		2,346		83,461		137,856		1,092,702		1,324,609		63,798
Risk participation-out agreements	41	—		6,869		22,673		6,573		252,259		288,374		1,236
Risk participation-in agreements	8	—		18,718		—		—		58,298		77,016		207

Foreign exchange contracts
Buys foreign currency, sells U.S. currency	10	$	2,004	$	—	$	—	$	—	$	—	$	2,004	$	9
Sells foreign currency, buys U.S. currency	11	2,006		—		—		—		—		2,006		7

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Certain derivative agreements contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. The Company posted collateral to dealer counterparties of $14.8 million and $126.9 million in the normal course of business as of September 30, 2022 and December 31, 2021, 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 September 30, 2022
	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	$	15	$	—	$	15	$	—	$	—	$	15
Derivatives not designated as hedging instruments:
Loan level derivatives	$	114,159	$	—	$	114,159	$	—	$	—	$	114,159
Risk participation-out agreements	292		—		292		—		—		292
Foreign exchange contracts	145		—		145		—		—		145
Total	$	114,611	$	—	$	114,611	$	—	$	—	$	114,611

Liability derivatives
Derivatives designated as hedging instruments:
Interest rate derivatives	$	2,879	$	—	$	2,879	$	—	$	—	$	2,879
Derivatives not designated as hedging instruments:
Loan level derivatives	$	114,159	$	—	$	114,159	$	9,633	$	5,200	$	99,326
Risk participation-in agreements	31		—		31		—		—		31
Foreign exchange contracts	128		—		128		—		—		128
Total	$	117,197	$	—	$	117,197	$	9,633	$	5,200	$	102,364

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	At December 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	$	43	$	—	$	43	$	—	$	—	$	43
Derivatives not designated as hedging instruments:
Loan level derivatives	$	73,462	$	—	$	73,462	$	—	$	—	$	73,462
Risk participation-out agreements	1,236		—		1,236		—		—		1,236
Foreign exchange contracts	9		—		9		—		—		9
Total	$	74,750	$	—	$	74,750	$	—	$	—	$	74,750

Liability derivatives
Derivatives designated as hedging instruments:
Interest rate derivatives	$	1	$	—	$	1	$	—	$	—	$	1
Derivatives not designated as hedging instruments:
Loan level derivatives	$	73,462	$	—	$	73,462	$	118,461	$	8,410	$	(53,409)
Risk participation-in agreements	207		—		207		—		—		207
Foreign exchange contracts	7		—		7		—		—		7
Total	$	73,677	$	—	$	73,677	$	118,461	$	8,410	$	(53,194)

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


	Fair Value
	Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
	(Dollars in Thousands)

Derivatives designated as hedges	$	(2,879)	$	1
(Loss) gain in OCI on derivatives (effective portion), net of tax	$	(2,114)	$	6
Gain (loss) reclassified from OCI into interest income or interest expense (effective portion)	$	212	$	7

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

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

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.

(9) Stock Based Compensation

As of September 30, 2022, the Company had one active equity plan: the Brookline Bancorp, Inc. 2021 Stock Option and Incentive Plan ("2021 Plan"). As a result of the Plan having been approved by the Company's stockholders at the 2021 annual meeting of stockholders, the Company discontinued granting awards under the Brookline Bancorp, Inc. 2014 Equity Incentive Plan (the "2014 Plan"), and no further shares will be granted as awards under the 2014 Plan. The Brookline Bancorp, Inc. 2011 Restricted Stock Plan (the "2011 Plan") expired in July 2021, and the Company has not issued shares from the 2011 Plan since the adoption of the 2014 Plan. The 2021 Plan and the 2014 Plan are together referred to as the "Plans."

Of the awarded shares under the Plans, 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 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. These are referred to as "performance-based shares". If a participant leaves the Company prior to the third anniversary date of an award, any unvested shares are usually forfeited. Dividends declared with respect to shares awarded will be held by the Company and paid to the participant only when the shares vest.

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

During the three and nine months ended September 30, 2022 and September 30, 2021, 310,349 and 228,756 shares were issued, respectively, upon satisfaction of required conditions of the Plans.

Total expense for the Plans was $0.9 million and $0.7 million for the three months ended September 30, 2022 and 2021, respectively. Total expense for the Plans was $2.4 million and $1.9 million for the nine months ended September 30, 2022 and 2021, respectively.

(10) Earnings per Share ("EPS")

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


	Three Months Ended
	September 30, 2022				September 30, 2021
	Basic		Fully Diluted		Basic		Fully Diluted
	(Dollars in Thousands, Except Per Share Amounts)
Numerator:
Net income	$	30,149	$	30,149	$	28,839	$	28,839

Denominator:
Weighted average shares outstanding	76,779,038		76,779,038		78,000,261		78,000,261
Effect of dilutive securities	—		228,933		—		240,372
Adjusted weighted average shares outstanding	76,779,038		77,007,971		78,000,261		78,240,633

EPS	$	0.39	$	0.39	$	0.37	$	0.37

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)



	Nine Months Ended
	September 30, 2022				September 30, 2021
	Basic		Fully Diluted		Basic		Fully Diluted
	(Dollars in Thousands, Except Per Share Amounts)
Numerator:
Net income	$	80,049	$	80,049	$	86,895	$	86,895

Denominator:
Weighted average shares outstanding	77,159,356		77,159,356		78,097,600		78,097,600
Effect of dilutive securities	—		288,934		—		273,590
Adjusted weighted average shares outstanding	77,159,356		77,448,290		78,097,600		78,371,190

EPS	$	1.04	$	1.04	$	1.11	$	1.11

(11) Fair Value of Financial Instruments

A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring and non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no changes in the valuation techniques used during the three and nine months ended September 30, 2022 and September 30, 2021.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

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

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	Carrying Value as of September 30, 2022
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Investment securities available-for-sale:
GSE debentures	$	—	$	160,121	$	—	$	160,121
GSE CMOs	—		19,440		—		19,440
GSE MBSs	—		144,489		—		144,489




Corporate debt obligations	—		13,762		—		13,762
U.S. Treasury bonds	—		337,399		—		337,399


Foreign government obligations	—		481		—		481
Total investment securities available-for-sale	$	—	$	675,692	$	—	$	675,692

Assets:
Interest rate derivatives	—		15		—		15
Derivatives not designated as hedging instruments:
Loan level derivatives	—		114,159		—		114,159
Risk participation-out agreements	—		292		—		292
Foreign exchange contracts	—		145		—		145
Liabilities:
Interest rate derivatives	$	—	$	2,879	$	—	$	2,879
Derivatives not designated as hedging instruments:
Loan level derivatives	—		114,159		—		114,159
Risk participation-in agreements	—		31		—		31
Foreign exchange contracts	—		128		—		128

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	Carrying Value as of December 31, 2021
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Investment securities available-for-sale:
GSE debentures	$	—	$	217,505	$	—	$	217,505
GSE CMOs	—		28,139		—		28,139
GSE MBSs	—		199,772		—		199,772




Corporate debt obligations	—		22,683		—		22,683
U.S. Treasury bonds	—		252,268		—		252,268
Foreign government obligations	—		499		—		499


Total investment securities available-for-sale	$	—	$	720,866	$	—	$	720,866

Interest rate derivatives	—		43		—		43
Loan level derivatives	—		73,462		—		73,462
Risk participation-out agreements	—		1,236		—		1,236
Foreign exchange contracts	—		9		—		9
Liabilities:
Interest rate derivatives	$	—	$	1	$	—	$	1
Loan level derivatives	—		73,462		—		73,462
Risk participation-in agreements	—		207		—		207
Foreign exchange contracts	—		7		—		7

Investment Securities Available-for-Sale

The fair value of investment securities is based principally on market prices and dealer quotes received from third-party and nationally-recognized pricing services for identical investment securities such as U.S. Treasury and agency securities. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds, where applicable. These investments include GSE debentures, GSE mortgage-related securities, SBA commercial loan asset backed securities, corporate debt securities, and trust preferred securities, all of which are included in Level 2. As of September 30, 2022 and December 31, 2021, 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.

Derivatives and Hedging Instruments

The fair value of interest rate derivatives designated as hedging instruments, loan level derivatives, risk participation agreements (RPA in/out), and foreign exchange contracts represent a Level 2 valuation and are based on settlement values adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves and foreign exchange rates where applicable. Credit risk adjustments consider factors such as the likelihood of default by the 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."

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

There were no transfers between levels for assets and liabilities recorded at fair value on a recurring basis at September 30, 2022 and December 31, 2021, respectively.

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

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


	Carrying Value as of September 30, 2022
	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	$	—	$	—	$	350	$	350

Repossessed assets	—		591		—		591
Total assets measured at fair value on a non-recurring basis	$	—	$	591	$	350	$	941


	Carrying Value as of December 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	$	—	$	—	$	802	$	802

Repossessed assets	—		718		—		718
Total assets measured at fair value on a non-recurring basis	$	—	$	718	$	802	$	1,520

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 ("OREO")

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. As of September 30, 2022 and December 31, 2021, the Company did not record any OREO.

Repossessed Assets

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

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 September 30,
2022

At December 31, 2021

(Dollars in Thousands)

Collateral-dependent impaired loans and leases

350

802

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.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Summary of Estimated Fair Values of Financial Instruments

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


					Fair Value Measurements at September 30, 2022
	Carrying Value		Estimated Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(In Thousands)
Financial assets:






Loans and leases, net	$	7,327,135	$	7,112,555	$	—	$	—	$	7,112,555
Restricted equity securities	44,760		44,760		—		—		44,760



Financial liabilities:

Certificates of deposits	1,058,704		1,037,869		—		1,037,869		—
Borrowed funds	758,768		749,216		—		749,216		—


			Fair Value Measurements at December 31, 2021
	Carrying Value	Estimated Fair Value	Level 1 Inputs	Level 2 Inputs	Level 3 Inputs
	(In Thousands)
Financial assets:






Loans and leases, net	7,055,373	6,983,524	—	—	6,983,524
Restricted equity securities	28,981	28,981	—	—	28,981

Financial liabilities:

Certificates of deposit	1,283,237	1,283,012	—	1,283,012	—
Borrowed funds	357,321	350,471	—	350,471	—

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).

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

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.

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


	At September 30, 2022		At December 31, 2021
	(In Thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to originate loans and leases:
Commercial real estate	$	173,198	$	110,798
Commercial	196,197		162,931
Residential mortgage	28,942		28,685
Unadvanced portion of loans and leases	1,050,168		987,482
Unused lines of credit:
Home equity	671,112		611,212
Other consumer	97,295		64,589
Other commercial	467		414
Unused letters of credit:
Financial standby letters of credit	13,604		16,143
Performance standby letters of credit	31,583		17,145
Commercial and similar letters of credit	4,854		5,219
Loan level derivatives (Notional principal amounts):
Receive fixed, pay variable	1,485,313		1,324,609
Pay fixed, receive variable	1,485,313		1,324,609
Risk participation-out agreements	370,437		288,374
Risk participation-in agreements	75,678		77,016
Foreign exchange contracts (Notional amounts):
Buys foreign currency, sells U.S. currency	4,270		2,004
Sells foreign currency, buys U.S. currency	4,282		2,006

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

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 Note 8.

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 uses the FHLB classic advance rates available as of September 30, 2022 as the discount rate to determine the net present value of the remaining lease payments.


	Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
	(In Thousands)
The components of lease expense was as follows:
Operating lease cost	$	4,708	$	4,628





Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	4,849	$	4,733


Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	14	$	—

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	At September 30, 2022			At December 31, 2021
	(In Thousands)
Supplemental balance sheet information related to leases was as follows:
Operating Leases
Operating lease right-of-use assets	$	18,614		$	20,508


Operating lease liabilities	18,614			20,508











Weighted Average Remaining Lease Term
Operating leases	6.27			6.36


Weighted Average Discount Rate
Operating leases	3.1		%	3.1		%

A summary of future minimum rental payments under such leases at the dates indicated follows:


	Minimum Rental Payments
	September 30, 2022
	(In Thousands)

Remainder of 2022	$	1,532
Year ending:
2023	5,519
2024	4,099
2025	2,837
2026	2,075
2027	1,294
Thereafter	3,042
Total	$	20,398
Less imputed interest	(1,784)
Present value of lease liability	$	18,614

Certain leases contain escalation clauses for real estate taxes and other expenditures, which are not included above. The total real estate taxes were $1.5 million and $1.4 million for the nine months ended September 30, 2022 and 2021, respectively. Total other expenditures were $0.3 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. Total rental expense was $1.5 million and $1.4 million for the three months ended September 30, 2022 and 2021, respectively. Total rental expense was $4.5 million and $4.4 million for the nine months ended September 30, 2022 and 2021, 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.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

(13) Revenue from Contracts with Customers

Overview

Revenue from contracts with customers in the scope of ASC 606 ("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.

Revenue Recognized at a Point in Time

The Company recognizes revenue that is transactional in nature and such revenue is earned at a point in time. Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees. Additionally, revenue is collected from loan fees, such as letters of credit, line renewal fees and application fees. Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.

Revenue Recognized Over Time

The Company recognizes revenue over a period of time, generally monthly, as services are performed and performance obligations are satisfied. Such revenue includes commissions on investments, insurance sales and service charges on deposit accounts. Fee revenue from service charges on deposit accounts represents the service charges assessed to customers who hold deposit accounts at the Banks.

(14) Business Combination

On May 23, 2022, the Company and PCSB Financial Corporation ("PCSB"), the holding company of PCSB Bank, entered into an Agreement and Plan of Merger (the “merger agreement”). Pursuant to the merger agreement, PCSB will merge with and into the Company, with the Company as the surviving corporation (the “merger”). Following the merger, PCSB Bank will operate as a separate bank subsidiary of the Company. Pursuant to the terms of the merger agreement, at the effective time of the merger, each stockholder of PCSB will receive, for each share of PCSB common stock, at the holder’s election, either $22.00 in cash consideration or 1.3284 shares of Company common stock for each share of PCSB common stock, subject to allocation procedures to ensure that 60% of the outstanding shares of PCSB common stock will be converted into Company common stock. The consummation of the merger is subject to customary closing conditions, including the receipt of regulatory approvals and approval by PCSB’s stockholders. The merger is currently expected to be completed in the fourth quarter of 2022.

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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 Company and PCSB’s ability to achieve the synergies and value creation contemplated by the proposed acquisition; the Company and PCSB’s ability to successfully integrate operations in the proposed acquisition; the effect of the announcement of the proposed acquisition on the ability of PCSB to maintain relationships with its key partners, customers and employees, and on its operating business generally; ongoing turbulence in the capital and debt markets; changes in interest rates; competitive pressures from other financial institutions; general economic conditions (including inflation) 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 concerns about inflation; 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; changes in information technology, cybersecurity incidents, fraud, natural disasters, war, terrorism, civil unrest, the ongoing COVID-19 pandemic, and future pandemics; 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, 2021 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"); Brookline Securities Corp; and Clarendon Private, LLC.

As a commercially-focused financial institution with 49 full-service banking offices throughout greater Boston, the north shore of Massachusetts and Rhode Island, the Company, through Brookline Bank and BankRI (collectively referred to as the "Banks"), 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. The Banks and their subsidiaries lend primarily in all New England states, with the exception of equipment financing, 26.9% of which is in the greater New York and New Jersey metropolitan area and 73.1% of which is in other areas in the United States of America as of September 30, 2022. Clarendon Private is a registered investment advisor with the SEC. Through Clarendon Private, the Company offers a wide range of wealth management services to individuals, families, endowments and foundations to help these clients meet their long-term financial goals.

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.

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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 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 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. 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 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 as of July 31, 2019 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 was enacted to address the economic effects of the COVID-19 pandemic.

•Paycheck Protection Program. Through September 30, 2022, the Banks funded a total of 4,700 U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans in the aggregate amount of $872.1 million. As of September 30, 2022, $877.7 thousand in PPP loans remain outstanding, net of deferred fees and costs of $3.7 thousand. In conjunction with the PPP, the FRB created a lending facility for qualified financial institutions. The FRB's Paycheck Protection Program Liquidity Facility ("PPPLF") extends 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. While the Company established a lending facility under the PPPLF program, it has not been used.

•Troubled Debt Restructuring Relief. From March 1, 2020 through January 1, 2022, a financial institution could 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.

On May 23, 2022, the Company and PCSB Financial Corporation (“PCSB”), the holding company of PCSB Bank, entered into an Agreement and Plan of Merger (the “merger agreement”). Pursuant to the merger agreement, PCSB will merge with and into the Company, with the Company as the surviving corporation (the “merger”). Following the merger, PCSB Bank will operate as a separate bank subsidiary of the Company. Pursuant to the terms of the merger agreement, at the effective time of the merger, each stockholder of PCSB will receive, for each share of PCSB common stock, at the holder’s election, either $22.00 in cash consideration or 1.3284 shares of Company common stock for each share of PCSB common stock, subject to allocation procedures to ensure that 60% of the outstanding shares of PCSB common stock will be converted into Company common stock.The consummation of the merger is subject to customary closing conditions, including the receipt of regulatory approvals. The merger is currently expected to be completed in the fourth quarter of 2022.

The Company’s common stock is traded on the Nasdaq Global Select MarketSM under the symbol “BRKL.”

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Selected Financial Data

The following is based in part on, and should be read in conjunction with, the consolidated financial statements and accompanying notes, and other information appearing elsewhere in this Quarterly Report on Form 10-Q.


	At and for the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2022			2022			2022			2021			2021
	(Dollars in Thousands, Except Per Share Data)
PER COMMON SHARE DATA
Earnings per share - Basic	$	0.39		$	0.33		$	0.32		$	0.37		$	0.37
Earnings per share - Diluted	0.39			0.33			0.32			0.37			0.37
Book value per share (end of period)	12.54			12.63			12.65			12.82			12.61
Tangible book value per share (end of period) (1)	10.43			10.51			10.56			10.73			10.51
Dividends paid per common share	0.130			0.130			0.125			0.125			0.120
Stock price (end of period)	11.65			13.31			15.82			16.19			15.26

PERFORMANCE RATIOS (2)
Net interest margin (taxable equivalent basis)	3.80		%	3.56		%	3.49		%	3.52		%	3.53		%
Return on average assets	1.40		%	1.18		%	1.16		%	1.35		%	1.38		%
Return on average tangible assets (1)	1.43		%	1.21		%	1.18		%	1.38		%	1.41		%
Return on average stockholders' equity	12.29		%	10.32		%	9.91		%	11.56		%	11.79		%
Return on average tangible stockholders' equity (1)	14.72		%	12.39		%	11.84		%	13.84		%	14.15		%
Dividend payout ratio (1)	33.07		%	39.81		%	39.28		%	34.00		%	32.54		%
Efficiency ratio (3)	52.98		%	56.95		%	56.37		%	52.23		%	53.64		%

ASSET QUALITY RATIOS
Net loan and lease charge-offs as a percentage of average loans and leases (annualized)	(0.01)		%	0.07		%	0.11		%	0.12		%	0.07		%
Nonperforming loans and leases as a percentage of total loans and leases	0.24		%	0.28		%	0.35		%	0.45		%	0.52		%
Nonperforming assets as a percentage of total assets	0.21		%	0.25		%	0.31		%	0.39		%	0.44		%
Total allowance for loan and lease losses as a percentage of total loans and leases	1.27		%	1.28		%	1.32		%	1.38		%	1.48		%

CAPITAL RATIOS
Stockholders' equity to total assets	11.08		%	11.38		%	11.37		%	11.57		%	11.77		%
Tangible equity ratio (1)	9.39		%	9.65		%	9.67		%	9.87		%	10.01		%

FINANCIAL CONDITION DATA
Total assets	$	8,695,708		$	8,514,230		$	8,633,736		$	8,602,622		$	8,312,649
Total loans and leases	7,421,304			7,291,912			7,223,130			7,154,457			6,931,694
Allowance for loan and lease losses	94,169			93,188			95,463			99,084			102,515
Investment securities available-for-sale	675,692			717,818			730,562			720,866			732,020


Goodwill and identified intangible assets	162,329			162,449			162,569			162,703			162,911
Total deposits	6,735,605			6,894,457			7,094,378			7,049,906			6,873,010
Total borrowed funds	758,768			478,200			392,897			357,321			267,539
Stockholders' equity	963,618			968,496			981,935			995,342			978,452



													(Continued)

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	At and for the Three Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,
	2022		2022		2022		2021		2021
	(Dollars in Thousands, Except Per Share Data)
EARNINGS DATA
Net interest income	$	78,026	$	71,867	$	69,848	$	71,461	$	70,697
Provision (credit) for credit losses	2,835		173		(164)		751		(3,110)
Non-interest income	6,834		6,928		5,529		10,699		5,586
Non-interest expense	44,959		44,871		42,487		42,909		40,922
Net income	30,149		25,195		24,705		28,545		28,839

_______________________________________________________________________________

(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 increased $93.1 million, or 1.4% on an annualized basis, to $8.7 billion as of September 30, 2022 from $8.6 billion as of December 31, 2021. The increase was primarily driven by an increase in loans and leases and an increase in other assets, partially offset by a decrease in cash and cash equivalents.

Cash and cash equivalents decreased $215.2 million, or 87.6% on an annualized basis, to $112.5 million as of September 30, 2022 from $327.7 million as of December 31, 2021.

Total loans and leases increased $266.8 million, or 5.0% on an annualized basis, to $7.42 billion as of September 30, 2022 from $7.15 billion December 31, 2021. The Company's commercial loan portfolios, which are comprised of commercial real estate loans and commercial loans and leases, totaled $6.2 billion, or 83.6% of total loans and leases as of September 30, 2022, an increase of $213.0 million, or 4.7% on an annualized basis, from $6.0 billion, or 83.7% of total loans and leases, as of December 31, 2021.

PPP loans decreased $66.8 million to $0.9 million as of September 30, 2022 from $67.7 million as of December 31, 2021.

Total deposits decreased $314.3 million, or 5.9% on an annualized basis, to $6.74 billion as of September 30, 2022 from $7.05 billion as of December 31, 2021. Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $5.7 billion, or 84.3% of total deposits as of September 30, 2022, a decrease of $89.8 million, or 2.1% on an annualized basis, from $5.8 billion, or 81.8% of total deposits, as of December 31, 2021. Certificate of deposit balances totaled $0.9 billion, or 13.7% of total deposits as of September 30, 2022, a decrease of $192.9 million, or 23.0% on an annualized basis, from $1.1 billion, or 15.9% of total deposits, as of December 31, 2021. Brokered deposits totaled $133.9 million, or 2.0% of total deposits as of September 30, 2022, a decrease of $31.6 million, or 25.5% on an annualized basis, from $165.5 million, or 2.3% of total deposits, as of December 31, 2021.

Total borrowed funds increased $401.4 million, or 149.8% on an annualized basis, to $758.8 million as of September 30, 2022 from $357.3 million as of December 31, 2021.

Asset Quality

Nonperforming assets as of September 30, 2022 totaled $18.3 million, or 0.21% of total assets, compared to $33.2 million, or 0.39% of total assets, as of December 31, 2021. Net recoveries for the three months ended September 30, 2022 were $0.2 million, or (0.01)% of average loans and leases on an annualized basis, compared to net charge offs of $1.3 million, or 0.07% of average loans and leases on an annualized basis, for the three months ended September 30, 2021.

The ratio of the allowance for loan and lease losses to total loans and leases was 1.27% as of September 30, 2022, compared to 1.38% as of December 31, 2021.

The ratio of the allowance for loan and lease losses to nonaccrual loans and leases was 531.40% as of September 30, 2022, compared to 305.26% as of December 31, 2021.

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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 12.05% as of September 30, 2022, compared to 11.86% as of December 31, 2021. The Company's Tier 1 leverage ratio was 10.37% as of September 30, 2022, compared to 10.15% as of December 31, 2021. As of September 30, 2022, the Company's Tier 1 risk-based capital ratio was 12.18%, compared to 11.99% as of December 31, 2021. The Company's Total risk-based capital ratio was 14.46% as of September 30, 2022, compared to 14.30% as of December 31, 2021.

The Company's ratio of stockholders' equity to total assets was 11.08% and 11.57% as of September 30, 2022 and December 31, 2021, respectively. The Company's tangible equity ratio was 9.39% and 9.87% as of September 30, 2022 and December 31, 2021, respectively.

Net Income

For the three months ended September 30, 2022, the Company reported net income of $30.1 million, or $0.39 per basic and diluted share, an increase of $1.3 million, or 4.5%, from net income of $28.8 million, or $0.37 per basic and diluted share, for the three months ended September 30, 2021. This increase in net income is primarily the result of an increase in net interest income of $7.3 million, a decrease in the provision for income taxes of $2.7 million, and an increase in non-interest income of $1.2 million, partially offset by an increase in the provision for credit losses of $2.8 million and an increase in non-interest expense of $4.0 million. Refer to “Results of Operations" below for further discussion.

For the nine months ended September 30, 2022, the Company reported net income of $80.0 million, or $1.04 per basic and diluted share, a decrease of $6.9 million, or 7.9%, from $86.9 million, or $1.11 per basic and diluted share, for the nine months ended September 30, 2021. This decrease in net income is primarily the result of an increase in non-interest expense of $12.6 million and an increase in the provision for credit losses of $11.5 million, partially offset by an increase in net interest income of $8.8 million, a decrease in the provision for income taxes of $5.4 million, and an increase in non-interest income of $3.0 million. Refer to “Results of Operations" below for further discussion.

The annualized return on average assets was 1.40% for the three months ended September 30, 2022, compared to 1.38% for the three months ended September 30, 2021. The annualized return on average stockholders' equity was 12.29% for the three months ended September 30, 2022, compared to 11.79% for the three months ended September 30, 2021.

The net interest margin was 3.80% for the three months ended September 30, 2022, up from 3.53% for the three months ended September 30, 2021. The increase in the net interest margin is a result of an increase in the yield on interest-earning assets of 44 basis points to 4.35% for the three months ended September 30, 2022 from 3.91% for the three months ended September 30, 2021, partially offset by an increase of 18 basis points in the Company's overall cost of funds (including non-interest-bearing demand checking accounts) to 0.57% for the three months ended September 30, 2022 from 0.39% for the three months ended September 30, 2021.

The net interest margin was 3.62% for the nine months ended September 30, 2022, up from 3.48% for the nine months ended September 30, 2021. The increase in the net interest margin is a result of an increase in the yield on interest-earning assets of 11 basis points to 3.97% for the nine months ended September 30, 2022 from 3.86% for the nine months ended September 30, 2021, and a decrease of 3 basis points in the Company's overall cost of funds (including non-interest-bearing demand checking accounts) to 0.40% for the nine months ended September 30, 2022 from 0.43% for the nine months ended September 30, 2021.

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 and Estimates

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 2021 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.

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Recent Accounting Developments

In March 2022, the FASB issued ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures" which addresses concerns regarding the complex accounting for loans modified as troubled debt restructurings (“TDRs”) and also the disclosure of gross writeoff information included in required vintage disclosures. This ASU is effective for fiscal years beginning after December 15, 2022 for entities that have previously adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)". Management has determined that ASU 2022-02 does apply to the Company. The adoption is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2021, FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)" an update to address concerns around structural risk of interbank offered rates, particularly, the risk of cessation of the London Interbank Offered Rate ("LIBOR"). The amendments in this update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Management has determined that ASU 2021-01 does apply to the Company and management is determining the impact as of September 30, 2022.

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 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.

Non-GAAP Financial Measures and Reconciliation to GAAP

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

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



	At and for the Three Months Ended September 30,				At and for the Nine Months Ended September 30,
	2022		2021		2022		2021
	(Dollars in Thousands)
Net income, as reported	$	30,149	$	28,839	$	80,049	$	86,895

Less:
Security gains (losses) (after-tax)	—		—		—		(4)
Add:
Merger and acquisition expenses (after-tax) (1)	872		—		1,240		—

Operating earnings	$	31,021	$	28,839	$	81,289	$	86,899

Basic earnings per share, as reported	$	0.39	$	0.37	$	1.04	$	1.11


Add:

Merger and acquisition expenses (after-tax) (1)	0.01		—		0.01		—

Basic operating earnings per share	$	0.40	$	0.37	$	1.05	$	1.11

(1) Merger and acquisition expense related to the pending acquisition of PCSB.

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The following tables reconcile the Company’s return on average tangible assets and return on average tangible stockholders’ equity for the periods indicated:



	Three Months Ended
	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
	(Dollars in Thousands)
Operating earnings	$	31,021	$	25,595	$	24,705	$	28,569	$	28,839

Average total assets	$	8,586,420	$	8,515,330	$	8,531,043	$	8,462,231	$	8,360,635
Less: Average goodwill and average identified intangible assets, net	162,387		162,507		162,632		162,804		163,011
Average tangible assets	$	8,424,033	$	8,352,823	$	8,368,411	$	8,299,427	$	8,197,624

Return on average assets (annualized)	1.40%		1.18%		1.16%		1.35%		1.38%


Add:
Merger and acquisition expenses	0.04%		0.02%		—%		—%		—%

Operating return on average assets (annualized)	1.44%		1.20%		1.16%		1.35%		1.38%

Return on average tangible assets (annualized)	1.43%		1.21%		1.18%		1.38%		1.41%


Add:
Merger and acquisition expenses	0.04%		0.02%		—%		—%		—%

Operating return on average tangible assets (annualized)	1.47%		1.23%		1.18%		1.38%		1.41%

Average total stockholders' equity	$	981,379	$	976,167	$	997,293	$	987,522	$	978,371
Less: Average goodwill and average identified intangible assets, net	162,387		162,507		162,632		162,804		163,011
Average tangible stockholders' equity	$	818,992	$	813,660	$	834,661	$	824,718	$	815,360

Return on average stockholders' equity (annualized)	12.29%		10.32%		9.91%		11.56%		11.79%
Less:
Security gains	—%		—%		—%		(0.01)%		—%
Add:
Merger and acquisition expenses	0.36%		0.16%		—%		—%		—%

Operating return on average stockholders' equity (annualized)	12.65%		10.48%		9.91%		11.57%		11.79%




Return on average tangible stockholders' equity (annualized)	14.72%		12.39%		11.84%		13.84%		14.15%
Less:
Security gains	—%		—%		—%		(0.01)%		—%
Add:
Merger and acquisition expenses	0.43%		0.20%		—%		—%		—%

Operating return on average tangible stockholders' equity (annualized)	15.15%		12.59%		11.84%		13.85%		14.15%

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	Three Months Ended
	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
	(Dollars in Thousands)
Net income, as reported	$	30,149	$	25,195	$	24,705	$	28,545	$	28,839

Average total assets	$	8,586,420	$	8,515,330	$	8,531,043	$	8,462,231	$	8,360,635
Less: Average goodwill and average identified intangible assets, net	162,387		162,507		162,632		162,804		163,011
Average tangible assets	$	8,424,033	$	8,352,823	$	8,368,411	$	8,299,427	$	8,197,624

Return on average tangible assets (annualized)	1.43%		1.21%		1.18%		1.38%		1.41%

Average total stockholders' equity	$	981,379	$	976,167	$	997,293	$	987,522	$	978,371
Less: Average goodwill and average identified intangible assets, net	162,387		162,507		162,632		162,804		163,011
Average tangible stockholders' equity	$	818,992	$	813,660	$	834,661	$	824,718	$	815,360

Return on average tangible stockholders' equity (annualized)	14.72%		12.39%		11.84%		13.84%		14.15%

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


	Three Months Ended
	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
	(Dollars in Thousands)
Total stockholders' equity	$	963,618	$	968,496	$	981,935	$	995,342	$	978,452
Less: Goodwill and identified intangible assets, net	162,329		162,449		162,569		162,703		162,911
Tangible stockholders' equity	$	801,289	$	806,047	$	819,366	$	832,639	$	815,541

Total assets	$	8,695,708	$	8,514,230	$	8,633,736	$	8,602,622	$	8,312,649
Less: Goodwill and identified intangible assets, net	162,329		162,449		162,569		162,703		162,911
Tangible assets	$	8,533,379	$	8,351,781	$	8,471,167	$	8,439,919	$	8,149,738

Tangible equity ratio	9.39%		9.65%		9.67%		9.87%		10.01%

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


	Three Months Ended
	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
	(Dollars in Thousands)
Tangible stockholders' equity	$	801,289	$	806,047	$	819,366	$	832,639	$	815,541

Common shares issued	85,177,172		85,177,172		85,177,172		85,177,172		85,177,172
Less:
Treasury shares	7,730,945		7,995,888		7,037,464		7,037,464		7,034,754
Unallocated ESOP	4,833		11,442		18,051		24,660		31,278
Unvested restricted stock	601,995		497,297		500,098		500,098		502,808
Common shares outstanding	76,839,399		76,672,545		77,621,559		77,614,950		77,608,332

Tangible book value per share	$	10.43	$	10.51	$	10.56	$	10.73	$	10.51

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


	Three Months Ended
	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
	(Dollars in Thousands)
Dividends paid	$	9,969	$	10,030	$	9,705	$	9,705	$	9,383

Net income, as reported	$	30,149	$	25,195	$	24,705	$	28,545	$	28,839

Dividend payout ratio	33.07%		39.81%		39.28%		34.00%		32.54%


	Three Months Ended
	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
	(Dollars in Thousands)
Allowance for loan and lease losses	$	94,169	$	93,188	$	95,463	$	99,084	$	102,515

Total loans and leases	$	7,421,304	$	7,291,912	$	7,223,130	$	7,154,457	$	6,931,694
Less: Total PPP loans	878		1,138		14,013		67,711		160,586
Total loans and leases excluding PPP loans	$	7,420,426	$	7,290,774	$	7,209,117	$	7,086,746	$	6,771,108

Allowance for loan and lease losses as a percentage of total loans and leases less PPP loans	1.27%		1.28%		1.32%		1.40%		1.51%

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Financial Condition

Loans and Leases

The following table summarizes the Company's portfolio of loan and lease receivables as of the dates indicated:


	At September 30, 2022				At December 31, 2021
	Balance		Percent of Total		Balance		Percent of Total
	(Dollars in Thousands)
Commercial real estate loans:
Commercial real estate	$	3,032,202	40.9	%	$	2,842,791	39.6	%
Multi-family mortgage	1,053,014		14.2	%	1,099,818		15.4	%
Construction	184,296		2.5	%	160,431		2.2	%
Total commercial real estate loans	4,269,512		57.6	%	4,103,040		57.2	%
Commercial loans and leases:
Commercial	712,311		9.6	%	666,677		9.4	%
Equipment financing	1,176,248		15.8	%	1,105,611		15.5	%
Condominium association	44,208		0.6	%	47,137		0.7	%
PPP	878		—	%	67,711		0.9	%
Total commercial loans and leases	1,933,645		26.0	%	1,887,136		26.5	%
Consumer loans:
Residential mortgage	836,574		11.2	%	799,737		11.2	%
Home equity	330,606		4.5	%	324,156		4.5	%
Other consumer	50,967		0.7	%	40,388		0.6	%
Total consumer loans	1,218,147		16.4	%	1,164,281		16.3	%
Total loans and leases	7,421,304		100.0	%	7,154,457		100.0	%
Allowance for loan and lease losses	(94,169)				(99,084)
Net loans and leases	$	7,327,135			$	7,055,373

The following table sets forth the growth in the Company’s loan and lease portfolios during the nine months ended September 30, 2022:


	At September 30, 2022		At December 31, 2021		Dollar Change		Percent Change (Annualized)
	(Dollars in Thousands)
Commercial real estate	$	4,269,512	$	4,103,040	$	166,472	5.4	%
Commercial	1,933,645		1,887,136		46,509		3.3	%
Consumer	1,218,147		1,164,281		53,866		6.2	%
Total loans and leases	$	7,421,304	$	7,154,457	$	266,847	5.0	%
Less: PPP	878		67,711		(66,833)		(131.6)	%
Total core loans and leases	$	7,420,426	$	7,086,746	$	333,680	6.3	%

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.

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The Company's current policy is that a total credit exposure to one obligor relationship may not exceed $60.0 million unless approved by the Company's Credit Committee. As of September 30, 2022, there was one borrower with loans and commitments over $60.0 million. The total of those loans and commitments was $63.9 million, or 0.69% of total loans and commitments, as of September 30, 2022. As of December 31, 2021, there were six borrowers with loans and commitments over the previous limit of $50.0 million. The total of those loans and commitments was $322.5 million, or 3.0% of total loans and commitments, as of December 31, 2021.

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 57.6% of total loans and leases outstanding as of September 30, 2022.

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 ($949.7 million), office buildings ($680.7 million), retail stores ($641.7 million), industrial properties ($640.4 million), mixed-use properties ($395.0 million), lodging services ($152.2 million), and food services ($59.7 million) as of September 30, 2022. At that date, approximately 95.5% 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

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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.

Commercial Loans

The Company's commercial loan and lease portfolio is comprised of commercial loans, equipment financing loans and leases and condominium association loans which represented 26.0% of total loans outstanding as of September 30, 2022.

The Company's commercial loan and lease portfolio is composed primarily of loans and leases to small to medium sized businesses ($704.4 million), transportation services ($352.5 million), food services ($188.0 million), recreation services ($127.8 million), manufacturing ($107.7 million), retail ($107.6 million), and rental and leasing services ($88.8 million) as of September 30, 2022.

The Company provides commercial banking services to companies in its market area. Approximately 40.1% of the commercial loans outstanding as of September 30, 2022 were made to borrowers located in New England. The remaining 59.9% 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 $0.9 million as of September 30, 2022.

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 16.4% of the commercial loans outstanding in the equipment financing divisions were made to borrowers located primarily in the greater New York and New Jersey metropolitan area. Typically, the loans are priced at a fixed rate of interest and require monthly payments over their 3- to 7-year life. The yields earned on equipment financing loans are higher than those earned on the commercial loans made by the Banks because they involve a higher degree of credit risk. Equipment financing customers are typically small-business owners who operate with limited financial resources and who face greater risks when the economy weakens or unforeseen adverse events arise. Because of these characteristics, personal guarantees of borrowers are usually obtained along with liens on available assets. The size of loan is determined by an analysis of cash flow and other characteristics pertaining to the business and the equipment to be financed, based on detailed revenue and profitability data of similar operations.

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

Consumer Loans

The consumer loan portfolio, which is comprised of residential mortgage loans, home equity loans and lines of credit, and other consumer loans, represented 16.4% of total loans outstanding as of September 30, 2022. 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.

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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.

Other consumer loans have historically been a modest part of the Company's loan originations. As of September 30, 2022, other consumer loans equaled $51.0 million, or 0.7% of total loans outstanding.

Asset Quality

Criticized and Classified Assets

The Company's management rates certain loans and leases as "other assets especially mentioned" ("OAEM"), "substandard" or "doubtful" based on criteria established under banking regulations. These loans and leases are collectively referred to as "criticized" assets. Loans and leases rated OAEM have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the loan or lease at some future date. Loans and leases rated as substandard are inadequately protected by the payment capacity of the obligor or of the collateral pledged, if any. Substandard loans and leases have a well-defined weakness or weaknesses that jeopardize the liquidation of debt and are characterized by the distinct possibility that the Company will sustain some loss if existing deficiencies are not corrected. Loans and leases rated as doubtful have well-defined weaknesses that jeopardize the orderly liquidation of debt and partial loss of principal is likely. As of September 30, 2022, the Company had $97.4 million of total assets that were designated as criticized. This compares to $95.4 million of assets designated as criticized as of December 31, 2021. The increase of $2.0 million in criticized assets was mostly driven by increases in commercial real estate relationships for the nine months ended September 30, 2022.

Nonperforming Assets

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

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

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

As of September 30, 2022, the Company had nonperforming assets of $18.3 million, representing 0.21% of total assets, compared to nonperforming assets of $33.2 million, or 0.39% of total assets as of December 31, 2021. The decrease of $14.9 million in nonperforming assets was primarily driven by loan payoffs on commercial real estate and commercial and industrial ("C&I") loans totaling $7.0 million during the nine months ended September 30, 2022.

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

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Past Due and Accruing

As of September 30, 2022, the Company had $9.6 million loans and leases greater than 90 days past due and accruing, compared to minimal to no loans as of December 31, 2021. The $9.6 million increase in loans and leases greater than 90 days past due and accruing is primarily due to a single commercial real estate relationship totaling $7.8 million.

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


	At September 30, 2022			At December 31, 2021
	(Dollars in Thousands)
Nonperforming loans and leases:
Nonaccrual loans and leases:
Commercial real estate	$	3,136		$	10,848


Total commercial real estate loans	3,136			10,848

Commercial	618			2,318
Equipment financing	10,544			15,014
Condominium association	64			84
Total commercial loans and leases	11,226			17,416

Residential mortgage	2,741			3,909
Home equity	616			285
Other consumer	2			1
Total consumer loans	3,359			4,195

Total nonaccrual loans and leases	17,721			32,459


Other repossessed assets	591			718
Total nonperforming assets	$	18,312		$	33,177

Loans and leases past due greater than 90 days and accruing	$	9,583		$	1
Total delinquent loans and leases 61-90 days past due	5,562			6,081
Restructured loans and leases not included in nonperforming assets	9,728			12,580

Total nonperforming loans and leases as a percentage of total loans and leases	0.24		%	0.45		%
Total nonperforming assets as a percentage of total assets	0.21		%	0.39		%
Total delinquent loans and leases 61-90 days past due as a percentage of total loans and leases	0.07		%	0.08		%

Troubled Debt Restructuring Loans and Leases

Total TDR loans and leases decreased $5.2 million to $14.2 million at September 30, 2022 from $19.3 million at December 31, 2021. The decrease was primarily driven by loan payoffs on commercial loans totaling $3.7 million during the nine months ended September 30, 2022.

As of September 30, 2022, total TDR loans included $2.2 million of commercial loans, $6.3 million of equipment financing loans and leases, $2.8 million of residential mortgage loans, $1.7 million of home equity loans, and $1.2 million of commercial real estate loans. As of December 31, 2021, total TDR loans included $5.4 million of commercial loans, $7.5 million of equipment financing loans and leases, $2.9 million of residential mortgage loans, $2.0 million of home equity loans, and $1.5 million of commercial real estate loans.

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


	At September 30, 2022		At December 31, 2021
	(Dollars in Thousands)
Troubled debt restructurings:
On accrual	$	9,728	$	12,580
On nonaccrual	4,449		6,709
Total troubled debt restructurings	$	14,177	$	19,289

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(Dollars in Thousands)
Balance at beginning of period	$	16,621	$	20,797	$	19,289	$	18,959
Additions	411		846		1,204		5,318
Net recoveries (charge-offs)	12		(223)		96		(713)
Repayments	(2,867)		(1,239)		(6,412)		(3,383)

Balance at end of period	$	14,177	$	20,181	$	14,177	$	20,181

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 estimated losses in the portfolio. Under the current methodology, management estimates losses over the life of the loan using reasonable and supportable forecasts. Forecasts, loan data, and model documentation are extensively analyzed and reviewed throughout the quarter to ensure estimated losses are accurate at quarter end. Qualitative adjustments are applied when model output does not align with management expectations. These adjustments are thoroughly reviewed and documented to provide clarity and a reasonable basis for any deviations from the model. For September 30, 2022, 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 and nine months ended September 30, 2022 and 2021.

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	At and for the Three Months Ended September 30, 2022
	Commercial Real Estate			Commercial			Consumer			Total
	(In Thousands)
Balance at June 30, 2022	$	70,027		$	20,105		$	3,056		$	93,188

Charge-offs	—			(584)			(14)			(598)
Recoveries	6			763			8			777
Provision (credit) for loan and lease losses	(2,573)			2,984			391			802
Balance at September 30, 2022	$	67,460		$	23,268		$	3,441		$	94,169

Total loans and leases	$	4,269,512		$	1,933,645		$	1,218,147		$	7,421,304
Total allowance for loan and lease losses as a percentage of total loans and leases	1.58		%	1.20		%	0.28		%	1.27		%


	At and for the Three Months Ended September 30, 2021
	Commercial Real Estate			Commercial			Consumer			Total
	(In Thousands)
Balance at June 30, 2021	$	74,009		$	28,364		$	4,101		$	106,474

Charge-offs	—			(1,583)			(17)			(1,600)
Recoveries	1			308			36			345
Provision (credit) for loan and lease losses	(1,630)			101			(1,175)			(2,704)
Balance at September 30, 2021	$	72,380		$	27,190		$	2,945		$	102,515

Total loans and leases	$	3,909,011		$	1,869,686		$	1,152,997		$	6,931,694
Total allowance for loan and lease losses as a percentage of total loans and leases	1.85		%	1.45		%	0.26		%	1.48		%



	At and for the Nine Months Ended September 30, 2022
	Commercial Real Estate			Commercial			Consumer			Total
	(In Thousands)
Balance at December 31, 2021	$	69,213		$	27,055		$	2,816		$	99,084


Charge-offs	(37)			(4,417)			(20)			(4,474)
Recoveries	18			1,395			52			1,465
Provision (credit) for loan and lease losses	(1,734)			(765)			593			(1,906)
Balance at September 30, 2022	$	67,460		$	23,268		$	3,441		$	94,169

Total loans and leases	$	4,269,512		$	1,933,645		$	1,218,147		$	7,421,304
Total allowance for loan and lease losses as a percentage of total loans and leases	1.58		%	1.20		%	0.28		%	1.27		%

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	At and for the Nine Months Ended September 30, 2021
	Commercial Real Estate			Commercial			Consumer			Total
	(In Thousands)
Balance at December 31, 2020	$	80,132		$	29,498		$	4,749		$	114,379


Charge-offs	(28)			(4,907)			(29)			(4,964)
Recoveries	12			1,127			215			1,354
Provision (credit) for loan and lease losses	(7,736)			1,472			(1,990)			(8,254)
Balance at September 30, 2021	$	72,380		$	27,190		$	2,945		$	102,515

Total loans and leases	$	3,909,011		$	1,869,686		$	1,152,997		$	6,931,694
Total allowance for loan and lease losses as a percentage of total loans and leases	1.85		%	1.45		%	0.26		%	1.48		%

At September 30, 2022, the allowance for loan and lease losses decreased to $94.2 million, or 1.27% of total loans and leases outstanding. This compared to an allowance for loan and lease losses of $99.1 million, or 1.38% of total loans and leases outstanding, as of December 31, 2021. Both figures exclude PPP loans which are not subject to an allowance reserve since they are guaranteed by the SBA.

Net recoveries in the loans and leases for the three months ended September 30, 2022 and 2021 were $0.2 million and $1.3 million, respectively. As a percentage of average loans and leases, annualized net recoveries for the three months ended September 30, 2022 and 2021 were 0.01% and 0.07%, respectively. The decrease in the net charge-offs for the three months ended September 30, 2022 was primarily due to a decrease in net charge-offs of $1.2 million in equipment financing loans, as well as a decrease in net charge-offs of $0.3 million in commercial loans.

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 September 30, 2022						At December 31, 2021
	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	$	45,268	48.1	%	40.9	%	$	44,843	45.3	%	39.6	%
Multi-family mortgage	15,104		16.0	%	14.2	%	17,474		17.6	%	15.4	%
Construction	7,088		7.5	%	2.5	%	6,896		7.0	%	2.2	%
Total commercial real estate loans	67,460		71.6	%	57.6	%	69,213		69.9	%	57.2	%
Commercial	17,475		18.6	%	9.6	%	9,068		9.2	%	10.3	%
Equipment financing	5,713		6.1	%	15.8	%	17,907		18.0	%	15.5	%
Condominium association	80		0.1	%	0.6	%	80		0.1	%	0.7	%
Total commercial loans	23,268		24.8	%	26.0	%	27,055		27.3	%	26.5	%
Residential mortgage	1,763		1.9	%	11.2	%	1,297		1.3	%	11.2	%
Home equity	1,407		1.5	%	4.5	%	1,335		1.3	%	4.5	%
Other consumer	271		0.2	%	0.7	%	184		0.2	%	0.6	%
Total consumer loans	3,441		3.6	%	16.4	%	2,816		2.8	%	16.3	%

Total	$	94,169	100.0	%	100.0	%	$	99,084	100.0	%	100.0	%

Management believes that the allowance for loan and lease losses as of September 30, 2022 is appropriate.

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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 $260.4 million, or 33.1% on an annualized basis, to $0.8 billion as of September 30, 2022, from $1.0 billion as of December 31, 2021. The decrease was driven by a decrease in short-term investments. Cash, cash equivalents, and investment securities were 9.1% of total assets as of September 30, 2022, compared to 12.2% of total assets at December 31, 2021.

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


	At September 30, 2022				At December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Investment securities available-for-sale:
GSE debentures	$	185,091	$	160,121	$	219,723	$	217,505
GSE CMOs	21,194		19,440		27,892		28,139
GSE MBSs	165,779		144,489		196,930		199,772




Corporate debt obligations	14,099		13,762		22,178		22,683
U.S. Treasury bonds	376,446		337,399		253,878		252,268


Foreign government obligations	$	500	$	481	500		499
Total investment securities available-for-sale	$	763,109	$	675,692	$	721,101	$	720,866

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. 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 $79.5 million for the nine months ended September 30, 2022 compared to $146.8 million for the same period in 2021. For the nine months ended September 30, 2022 and 2021, the Company did not sell any investment securities available for sale. For the nine months ended September 30, 2022, the Company purchased $123.1 million of investment securities available-for-sale, compared to $153.2 million for the same period in 2021.

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As of September 30, 2022, the fair value of all investment securities available-for-sale was $675.7 million with $87.4 million of net unrealized losses, compared to a fair value of $720.9 million and net unrealized losses of $0.2 million as of December 31, 2021. As of September 30, 2022, $673.5 million, or 99.7%, of the portfolio, had gross unrealized losses of $87.4 million. This compares to $353.8 million, or 49.1%, of the portfolio with gross unrealized losses of $7.9 million as of December 31, 2021. The Company's unrealized loss position has increased in 2022 primarily driven by higher long-term interest rates.

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 generally maintains an excess balance of capital stock, which allows for additional borrowing capacity at each of the Banks. As of September 30, 2022, the Company did not have an excess balance of capital stock, compared to a $0.1 million excess balance as of December 31, 2021.

As of September 30, 2022, the Company owned stock in the FHLBB with a carrying value of $26.3 million, an increase of $15.8 million from $10.5 million as of December 31, 2021. As of September 30, 2022, the FHLBB had total assets of $58.9 billion and total capital of $3.1 billion, of which $1.7 billion was retained earnings. The FHLBB stated that it remained in compliance with all regulatory capital ratios as of September 30, 2022 and was classified as "adequately capitalized" by its regulator, based on the FHLBB's financial information as of June 30, 2022.

Federal Reserve Bank Stock—The Company invests in the stock of the Federal Reserve Bank of Boston, as a condition to the Banks' membership in the Federal Reserve System. As of September 30, 2022 and December 31, 2021, 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 September 30, 2022, the Company owned stock in other restricted equity securities with a carrying value of $0.3 million, unchanged from December 31, 2021.

Deposits

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


	At September 30, 2022						At December 31, 2021
	Amount		Percent of Total		Weighted Average Rate		Amount		Percent of Total		Weighted Average Rate
	(Dollars in Thousands)
Non-interest-bearing deposits:
Demand checking accounts	$	1,848,562	27.4	%	—	%	$	1,888,462	26.8	%	—	%
Interest-bearing deposits:
NOW accounts	597,870		8.9	%	0.16	%	604,097		8.6	%	0.08	%
Savings accounts	824,789		12.3	%	0.47	%	915,804		13.0	%	0.09	%
Money market accounts	2,405,680		35.7	%	0.98	%	2,358,306		33.4	%	0.26	%
Certificate of deposit accounts	924,771		13.7	%	0.91	%	1,117,695		15.9	%	0.71	%
Brokered deposit accounts	133,933		2.0	%	0.77	%	165,542		2.3	%	0.04	%
Total interest-bearing deposits	4,887,043		72.6	%	0.78	%	5,161,444		73.2	%	0.30	%
Total deposits	$	6,735,605	100.0	%	0.56	%	$	7,049,906	100.0	%	0.22	%

Total deposits decreased $314.3 million to $6.7 billion as of September 30, 2022, compared to $7.0 billion as of December 31, 2021. Deposits as a percentage of total assets decreased to 77.5% as of September 30, 2022, compared to 82.0% as of December 31, 2021.

During the nine months ended September 30, 2022, core deposits decreased $89.8 million. The ratio of core deposits to total deposits increased from 81.8% as of December 31, 2021 to 84.3% as of September 30, 2022, primarily due to an increase in money market accounts and a decrease in all other deposit account types.

Certificate of deposit accounts decreased $0.2 billion to $0.9 billion as of September 30, 2022, compared to $1.1 billion as of December 31, 2021. Certificate of deposit accounts decreased as a percentage of total deposits to 13.7% as of September 30, 2022 from 15.9% as of December 31, 2021.

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Brokered deposits decreased $31.6 million to $133.9 million as of September 30, 2022, compared to $165.5 million as of December 31, 2021. Brokered deposits decreased as a percentage of total deposits to 2.0% as of September 30, 2022 from 2.3% as of December 31, 2021. The decrease in brokered deposits was driven by the balance of brokered NOW accounts. 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 total amount of brokered deposits the Company may hold to 15% of total assets.

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


	Three Months Ended September 30,
	2022						2021
	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	$	1,908,459	27.6	%	—	%	$	1,827,501	26.6	%	—	%
NOW accounts	607,210		8.8	%	0.38	%	502,093		7.3	%	0.09	%
Savings accounts	881,988		12.8	%	0.30	%	785,657		11.4	%	0.12	%
Money market accounts	2,423,920		35.1	%	0.66	%	2,387,080		34.7	%	0.27	%
Total core deposits	5,821,577		84.3	%	0.36	%	5,502,331		80.0	%	0.14	%
Certificate of deposit accounts	964,112		14.0	%	0.74	%	1,160,113		16.9	%	0.83	%
Brokered deposit accounts	117,058		1.7	%	0.92	%	216,112		3.1	%	0.30	%
Total deposits	$	6,902,747	100.0	%	0.43	%	$	6,878,556	100.0	%	0.27	%



	Nine Months Ended September 30,
	2022						2021
	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	$	1,891,698	27.1	%	—	%	$	1,752,640	25.4	%	—	%
NOW accounts	603,243		8.6	%	0.20	%	493,378		7.2	%	0.11	%
Savings accounts	915,185		13.1	%	0.16	%	757,864		11.0	%	0.13	%
Money market accounts	2,423,207		34.8	%	0.42	%	2,240,968		32.5	%	0.27	%
Total core deposits	5,833,333		83.6	%	0.22	%	5,244,850		76.1	%	0.15	%
Certificate of deposit accounts	1,024,303		14.7	%	0.70	%	1,237,682		17.9	%	1.05	%
Brokered deposit accounts	121,724		1.7	%	0.45	%	413,588		6.0	%	0.40	%
Total deposits	$	6,979,360	100.0	%	0.29	%	$	6,896,120	100.0	%	0.32	%

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As of September 30, 2022 and December 31, 2021, the Company had outstanding certificates of deposit of $250,000 or more, maturing as follows:


	At September 30, 2022				At December 31, 2021
	Amount		Weighted Average Rate		Amount		Weighted Average Rate
	(Dollars in Thousands)
Maturity period:
Six months or less	$	159,084	0.73	%	$	182,082	0.58	%
Over six months through 12 months	55,105		1.19	%	125,888		0.66	%
Over 12 months	51,197		1.88	%	51,377		1.86	%
Total certificate of deposit of $250,000 or more	$	265,386	1.05	%	$	359,347	0.79	%

Borrowed Funds

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
	(Dollars in Thousands)
Borrowed funds:
Average balance outstanding	$	504,848		$	279,263		$	399,379		$	449,302
Maximum amount outstanding at any month-end during the period	758,768			308,120			758,768			686,346
Balance outstanding at end of period	758,768			267,539			758,768			267,539
Weighted average interest rate for the period	2.53		%	3.40		%	2.19		%	2.06		%
Weighted average interest rate at end of period	3.17		%	2.22		%	3.17		%	2.22		%

Advances from the FHLBB

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

FHLBB borrowings increased $410.0 million to $557.9 million as of September 30, 2022 from the December 31, 2021 balance of $147.9 million.

Subordinated Debentures and Notes

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

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

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

Carrying Amount

Issue Date

Rate

Maturity Date

Next Call Date

September 30,
2022

December 31, 2021

(Dollars in Thousands)

June 26, 2003

Variable;
3-month LIBOR + 3.10%

June 26, 2033

December 25, 2022

4,882

4,868

March 17, 2004

Variable;
3-month LIBOR + 2.79%

March 17, 2034

December 18, 2022

4,824

4,802

September 15, 2014

6.0% Fixed-to-Variable;
3-month LIBOR + 3.315%

September 15, 2029

September 15, 2024

74,302

74,227

Total

84,008

83,897

The above carrying amounts of the subordinated debentures included $0.3 million of accretion adjustments and $0.7 million of capitalized debt issuance costs as of September 30, 2022. This compares to $0.3 million of accretion adjustments and $0.8 million of capitalized debt issuance costs as of December 31, 2021.

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 $48.6 million to $46.9 million as of September 30, 2022 from $95.5 million as of December 31, 2021.

The Company has access to a $30.0 million committed line of credit as of September 30, 2022. As of September 30, 2022 and December 31, 2021, 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 $691.0 million. As of September 30, 2022, the Company had $70.0 million borrowings on outstanding uncommitted lines of credit compared to $30.0 million as of December 31, 2021.

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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, interest rate derivatives, risk participation agreements, and foreign exchange contracts at September 30, 2022 and December 31, 2021:


	At September 30, 2022			At December 31, 2021
	(Dollars in Thousands)
Loan level derivatives (Notional principal amounts):
Receive fixed, pay variable	$	1,485,313		$	1,324,608
Pay fixed, receive variable	1,485,313			1,324,608
Risk participation-out agreements	370,437			288,374
Risk participation-in agreements	75,678			77,016
Foreign exchange contracts (Notional amounts):
Buys foreign currency, sells U.S. currency	$	4,270		$	2,004
Sells foreign currency, buys U.S. currency	4,282			2,006
Fixed weighted average interest rate from the Company to counterparty	2.62		%	2.85		%
Floating weighted average interest rate from counterparty to the Company	3.45		%	0.78		%
Weighted average remaining term to maturity (in months)	71			82
Fair value:
Recognized as an asset:

Interest rate derivatives	$	15		$	43

Loan level derivatives	114,159			73,462
Risk participation-out agreements	292			1,236
Foreign exchange contracts	145			9
Recognized as a liability:

Interest rate derivatives	$	2,879		$	1
Loan level derivatives	114,159			73,462
Risk participation-in agreements	31			207
Foreign exchange contracts	128			7

Stockholders' Equity and Dividends

The Company's total stockholders' equity was $963.6 million as of September 30, 2022, representing a $31.7 million decrease compared to $995.3 million at December 31, 2021. The decrease for the nine months ended September 30, 2022, primarily reflects the unrealized loss on securities available-for-sale of $68.0 million, dividends paid by the Company of $29.7 million, partially offset by net income attributable to the Company of $80.0 million.

Stockholders' equity represented 11.08% of total assets as of September 30, 2022 and 11.57% of total assets as of December 31, 2021. Tangible stockholders' equity (total stockholders' equity less goodwill and identified intangible assets, net) represented 9.39% of tangible assets (total assets less goodwill and identified intangible assets, net) as of September 30, 2022 and 9.87% as of December 31, 2021.

On November 10, 2021, the Company's Board of Directors (the "Board") approved a stock repurchase program authorizing management to repurchase up to $20.0 million of the Company's common stock, commencing on November 15, 2021 and ending on December 31, 2022. As of June 24, 2022, 956,341 shares of the Company's common stock were repurchased by the Company at a weighted average price of $14.41. On June 24, 2022, the Company suspended the program.

The dividend payout ratio was 33.07% for the three months ended September 30, 2022, compared to 32.54% for the same period in 2021.

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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 $7.3 million to $78.0 million for the three months ended September 30, 2022 from $70.7 million for the three months ended September 30, 2021. This increase reflects a $10.0 million increase in interest income on loans and leases, along with a $0.9 million increase in interest income on investment securities and short term investments, offset by a $3.6 million increase in interest expense on deposits and borrowings, which is reflective of the rising interest rate environment. Refer to “Results of Operations - Comparison of the Three-Month Period Ended September 30, 2022 and September 30, 2021 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended September 30, 2022 and September 30, 2021 — Interest Expense -Deposit and Borrowed Funds” below for more details.

Net interest income increased $8.8 million to $219.7 million for the nine months ended September 30, 2022 from $210.9 million for the nine months ended September 30, 2021. This overall increase reflects a $6.0 million increase in interest income on loans and leases, a $1.2 million increase in interest income on investment securities and short term investments, and a $1.6 million decrease in interest expense on deposit and borrowings, which is reflective of the various portfolios repricing and replacing balances into the current interest rate environment. Refer to “Results of Operations - Comparison of the Nine-Month Period Ended September 30, 2022 and September 30, 2021 — Interest Income” and “Results of Operations - Comparison of the Nine-Month Period Ended September 30, 2022 and September 30, 2021 — Interest Expense Deposit and Borrowed Funds” below for more details.

Net interest margin increased by 27 basis points to 3.80% for the three months ended September 30, 2022 from 3.53% for the three months ended September 30, 2021. Excluding PPP loans, net interest margin increased by 45 basis points to 3.80% for the three months ended September 30, 2022 from 3.35% for three months ended September 30, 2021. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) increased to 4.60% for the three months ended September 30, 2022 from 4.26% for the three months ended September 30, 2021.

Net interest margin increased by 14 basis points to 3.62% for the nine months ended September 30, 2022 from 3.48% for the nine months ended September 30, 2021. Excluding PPP loans, net interest margin increased by 27 basis points to 3.60% for the nine months ended September 30, 2022 from 3.33% for nine months ended September 30, 2021. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) increased to 4.24% for the nine months ended September 30, 2022 from 4.20% for the nine months ended September 30, 2021.

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The yield on interest-earning assets increased to 4.35% for the three months ended September 30, 2022 from 3.91% for the three months ended September 30, 2021. The increase is primarily due to higher yields on loans and leases and investments, partially offset by lower fee income from PPP loans. During the three months ended September 30, 2022, the Company recorded $1.0 million in prepayment penalties and late charges, which contributed 5 basis points to yields on interest-earning assets, compared to $1.6 million, or 8 basis points, for the three months ended September 30, 2021.

The yield on interest-earning assets increased to 3.97% for the nine months ended September 30, 2022 from 3.86% for the nine months ended September 30, 2021. The increase is primarily due to higher yields on loans and leases and investments, partially offset by lower fee income from PPP loans. During the nine months ended September 30, 2022, the Company recorded $3.5 million in prepayment penalties and late charges, which contributed 6 basis points to yields on interest-earning assets, compared to $4.2 million in prepayment penalties and late charges, which contributed 7 basis points to yields on interest-earning assets in the nine months ended September 30, 2021.

The overall cost of funds (including non-interest-bearing demand checking accounts) increased 18 basis points to 0.57% for the three months ended September 30, 2022 from 0.39% for the three months ended September 30, 2021. The overall cost of funds (including non-interest-bearing demand checking accounts) decreased 3 basis points to 0.40% for the nine months ended September 30, 2022 from 0.43% for the nine months ended September 30, 2021. Refer to "Financial Condition - Borrowed Funds" above for more details.

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 2020, interest rates declined sharply in response to the economic impact of the COVID-19 pandemic, and started to rise in the first quarter of 2022. 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 factors, ongoing pricing pressures in the loan and deposit portfolios, net interest income may also be negatively affected by changes in the amount of accretion on acquired loans and leases, deposits and borrowed funds, which is included in interest income and interest expense, respectively.

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

The following table sets forth information about the Company's average balances, interest income and interest rates earned on average interest-earning assets, interest expense and interest rates paid on average interest-bearing liabilities, interest-rate spread and net interest margin for the three and nine months ended September 30, 2022 and September 30, 2021. Average balances are derived from daily average balances and yields include fees, costs and purchase-accounting-related premiums and discounts which are considered adjustments to coupon yields in accordance with GAAP. Certain amounts previously reported have been reclassified to conform to the current presentation.

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	Three Months Ended
	September 30, 2022						September 30, 2021
	Average Balance		Interest (1)		Average Yield/ Cost		Average Balance		Interest (1)		Average Yield/ Cost
	(Dollars in Thousands)
Assets:
Interest-earning assets:
Debt securities	$	714,226	$	3,337	1.87	%	$	713,593	$	2,967	1.66	%
Marketable and restricted equity securities	36,525		467		5.12	%	28,877		313		4.33	%
Short-term investments	66,257		464		2.80	%	220,110		83		0.15	%
Total investments	817,008		4,268		2.09	%	962,580		3,363		1.40	%
Commercial real estate loans (2)	4,239,155		44,729		4.13	%	3,851,677		35,124		3.57	%
Commercial loans (2)	731,095		8,492		4.55	%	901,862		11,715		5.09	%
Equipment financing (2)	1,157,829		19,042		6.58	%	1,079,059		17,725		6.57	%
Residential mortgage loans (2)	826,969		7,560		3.66	%	788,874		6,989		3.54	%
Other consumer loans (2)	379,999		4,605		4.80	%	364,914		2,830		3.07	%
Total loans and leases	7,335,047		84,428		4.60	%	6,986,386		74,383		4.26	%
Total interest-earning assets	8,152,055		88,696		4.35	%	7,948,966		77,746		3.91	%
Allowance for loan and lease losses	(93,520)						(108,719)
Non-interest-earning assets	527,885						520,388
Total assets	$	8,586,420					$	8,360,635
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts	$	607,210	579		0.38	%	$	502,093	116		0.09	%
Savings accounts	881,988		664		0.30	%	785,657		248		0.12	%
Money market accounts	2,423,920		4,038		0.66	%	2,387,080		1,616		0.27	%
Certificate of deposit accounts	964,112		1,803		0.74	%	1,160,113		2,430		0.83	%
Brokered deposit accounts	117,058		270		0.92	%	216,112		161		0.30	%
Total interest-bearing deposits (3)	4,994,288		7,354		0.58	%	5,051,055		4,571		0.36	%
Advances from the FHLBB	331,840		1,700		2.00	%	119,043		1,152		3.79	%
Subordinated debentures and notes	83,989		1,295		6.17	%	83,840		1,242		5.92	%
Other borrowed funds	89,019		268		1.20	%	76,380		33		0.17	%
Total borrowed funds	504,848		3,263		2.53	%	279,263		2,427		3.40	%
Total interest-bearing liabilities	5,499,136		10,617		0.77	%	5,330,318		6,998		0.52	%
Non-interest-bearing liabilities:
Non-interest-bearing demand checking accounts (3)	1,908,459						1,827,501
Other non-interest-bearing liabilities	197,446						224,445
Total liabilities	7,605,041						7,382,264
Total stockholders' equity	981,379						978,371

Total liabilities and stockholders' equity	$	8,586,420					$	8,360,635
Net interest income (tax-equivalent basis) / Interest-rate spread (4)			78,079		3.58	%			70,748		3.39	%
Less adjustment of tax-exempt income			53						51
Net interest income			$	78,026					$	70,697
Net interest margin (5)					3.80	%					3.53	%

_________________________________________________________________________

(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 0.42% and 0.26% in the three months ended September 30, 2022 and September 30, 2021, respectively.

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

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

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	Nine Months Ended
	September 30, 2022						September 30, 2021
	Average Balance		Interest (1)		Average Yield/ Cost		Average Balance		Interest (1)		Average Yield/ Cost
	(Dollars in Thousands)
Assets:
Interest-earning assets:
Debt securities	$	720,266	$	9,582	1.77	%	$	729,623	$	9,206	1.68	%
Marketable and restricted equity securities	31,663		1,132		4.77	%	36,451		847		3.10	%
Short-term investments	119,083		686		0.77	%	215,496		164		0.10	%
Total investments	871,012		11,400		1.75	%	981,570		10,217		1.39	%
Commercial real estate loans (2)	4,204,260		119,723		3.76	%	3,806,405		103,689		3.59	%
Commercial loans (2)	727,333		23,564		4.28	%	1,087,924		37,501		4.55	%
Equipment financing (2)	1,131,069		54,951		6.48	%	1,077,522		53,731		6.65	%
Residential mortgage loans (2)	816,992		21,675		3.54	%	786,015		21,148		3.59	%
Other consumer loans (2)	374,302		10,629		3.79	%	369,744		8,458		3.05	%
Total loans and leases	7,253,956		230,542		4.24	%	7,127,610		224,527		4.20	%
Total interest-earning assets	8,124,968		241,942		3.97	%	8,109,180		234,744		3.86	%
Allowance for loan and lease losses	(95,733)						(111,936)
Non-interest-earning assets	515,234						539,816
Total assets	$	8,544,469					$	8,537,060
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts	$	603,243	898		0.20	%	$	493,378	392		0.11	%
Savings accounts	915,185		1,073		0.16	%	757,864		731		0.13	%
Money market accounts	2,423,207		7,681		0.42	%	2,240,968		4,599		0.27	%
Certificate of deposit accounts	1,024,303		5,345		0.70	%	1,237,682		9,686		1.05	%
Brokered deposit accounts	121,724		410		0.45	%	413,588		1,250		0.40	%
Total interest-bearing deposits (3)	5,087,662		15,407		0.40	%	5,143,480		16,658		0.43	%
Advances from the FHLBB	207,090		2,376		1.51	%	284,540		3,185		1.48	%
Subordinated debentures and notes	83,952		3,801		6.04	%	83,802		3,726		5.93	%
Other borrowed funds	108,337		458		0.57	%	80,960		103		0.17	%
Total borrowed funds	399,379		6,635		2.19	%	449,302		7,014		2.06	%
Total interest-bearing liabilities	5,487,041		22,042		0.54	%	5,592,782		23,672		0.57	%
Non-interest-bearing liabilities:
Non-interest-bearing demand checking accounts (3)	1,891,698						1,752,640
Other non-interest-bearing liabilities	180,842						230,834
Total liabilities	7,559,581						7,576,256
Total stockholders' equity	984,888						960,804

Total liabilities and stockholders' equity	$	8,544,469					$	8,537,060
Net interest income (tax-equivalent basis) / Interest-rate spread (4)			219,900		3.43	%			211,072		3.29	%
Less adjustment of tax-exempt income			159						160
Net interest income			$	219,741					$	210,912
Net interest margin (5)					3.62	%					3.48	%

_________________________________________________________________________

(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 0.30% and 0.32% in the nine months ended September 30, 2022 and September 30, 2021, respectively.

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

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

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Rate/Volume Analysis

The following table presents, on a tax-equivalent basis, the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.


	Three Months Ended September 30, 2022 as Compared to the Three Months Ended September 30, 2021						Nine Months Ended September 30, 2022 as Compared to the Nine Months Ended September 30, 2021
	Increase (Decrease) Due To						Increase (Decrease) Due To
	Volume		Rate		Net Change		Volume		Rate		Net Change
	(In Thousands)
Interest and dividend income:
Investments:
Debt securities	$	3	$	367	$	370	$	(117)	$	493	$	376
Marketable and restricted equity securities	91		63		154		(123)		408		285
Short-term investments	(97)		478		381		(103)		625		522
Total investments	(3)		908		905		(343)		1,526		1,183
Loans and leases:
Commercial real estate loans	3,753		5,852		9,605		11,035		4,999		16,034
Commercial loans and leases	(2,066)		(1,157)		(3,223)		(11,821)		(2,116)		(13,937)
Equipment financing	1,290		27		1,317		2,615		(1,395)		1,220
Residential mortgage loans	335		236		571		824		(297)		527
Other consumer loans	121		1,654		1,775		105		2,066		2,171
Total loans	3,433		6,612		10,045		2,758		3,257		6,015
Total change in interest and dividend income	3,430		7,520		10,950		2,415		4,783		7,198
Interest expense:
Deposits:
NOW accounts	28		435		463		108		398		506
Savings accounts	31		385		416		162		180		342
Money market accounts	26		2,396		2,422		394		2,688		3,082
Certificate of deposit accounts	(382)		(245)		(627)		(1,480)		(2,861)		(4,341)
Brokered deposit accounts	(103)		212		109		(976)		136		(840)
Total deposits	(400)		3,183		2,783		(1,792)		541		(1,251)
Borrowed funds:
Advances from the FHLBB	1,283		(735)		548		(872)		63		(809)
Subordinated debentures and notes	2		51		53		7		68		75
Other borrowed funds	6		229		235		45		310		355
Total borrowed funds	1,291		(455)		836		(820)		441		(379)
Total change in interest expense	891		2,728		3,619		(2,612)		982		(1,630)
Change in tax-exempt income	2		—		2		(1)		—		(1)
Change in net interest income	$	2,537	$	4,792	$	7,329	$	5,028	$	3,801	$	8,829

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Interest Income

Loans and Leases


	Three Months Ended September 30,				Dollar Change		Percent Change		Nine Months Ended September 30,				Dollar Change		Percent Change
	2022		2021						2022		2021
	(Dollars in Thousands)
Interest income—loans and leases:
Commercial real estate loans	$	44,727	$	35,124	$	9,603	27.3	%	$	119,723	$	103,690	$	16,033	15.5	%
Commercial loans	8,441		11,663		(3,222)		(27.6)	%	23,405		37,340		(13,935)		(37.3)	%
Equipment financing	19,042		17,725		1,317		7.4	%	54,951		53,731		1,220		2.3	%
Residential mortgage loans	7,560		6,990		570		8.2	%	21,675		21,148		527		2.5	%
Other consumer loans	4,605		2,830		1,775		62.7	%	10,629		8,458		2,171		25.7	%
Total interest income—loans and leases	$	84,375	$	74,332	$	10,043	13.5	%	$	230,383	$	224,367	$	6,016	2.7	%

Total interest from loans and leases was $84.4 million for the three months ended September 30, 2022, and represented a yield on total loans of 4.60%. This compares to $74.3 million of interest on loans and a yield of 4.26% for the three months ended September 30, 2021. The $10.0 million increase in interest income from loans and leases was primarily due to an increase of $6.6 million in changes to interest rates, and an increase of $3.4 million in origination volume.

Interest income from loans and leases was $230.4 million for the nine months ended September 30, 2022, and represented a yield on total loans of 4.24%. This compares to $224.4 million of interest on loans and a yield of 4.20% for the nine months ended September 30, 2021. The $6.1 million increase in interest income from loans and leases was primarily due to an increase of $2.8 million in origination volume and an increase of $3.3 million due to changes in interest rates.

Investments


	Three Months Ended September 30,				Dollar Change		Percent Change		Nine Months Ended September 30,				Dollar Change		Percent Change
	2022		2021						2022		2021
	(Dollars in Thousands)
Interest income—investments:
Debt securities	$	3,337	$	2,967	$	370	12.5	%	$	9,582	$	9,206	$	376	4.1	%
Marketable and restricted equity securities	467		313		154		49.2	%	1,132		847		285		33.6	%
Short-term investments	464		83		381		459.0	%	686		164		522		318.3	%
Total interest income—investments	$	4,268	$	3,363	$	905	26.9	%	$	11,400	$	10,217	$	1,183	11.6	%

Total interest income from investments was $4.3 million for the three months ended September 30, 2022, compared to $3.4 million for the three months ended September 30, 2021. For the three months ended September 30, 2022 and 2021, the yield on total investments was 2.1% and 1.4%. respectively. The year-over-year increase in interest income on investments of $0.9 million, or 26.9%, was primarily driven by a $0.9 million increase due to rates and a de minimis impact due to volume.

Total investment income was $11.4 million and $10.2 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. For the nine months ended September 30, 2022 and 2021, the yield on total investments was 1.8% and 1.4%, respectively. The year-over-year increase in interest income on investments of $1.2 million, or 11.6%, was primarily driven by a $1.5 million increase due to rates and a $0.3 million decrease due to volume.

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Interest Expense—Deposits and Borrowed Funds


	Three Months Ended September 30,				Dollar Change		Percent Change		Nine Months Ended September 30,				Dollar Change		Percent Change
	2022		2021						2022		2021
	(Dollars in Thousands)
Interest expense:
Deposits:
NOW accounts	$	579	$	116	$	463	399.1	%	$	898	$	392	$	506	129.1	%
Savings accounts	664		248		416		167.7	%	1,073		731		342		46.8	%
Money market accounts	4,038		1,616		2,422		149.9	%	7,681		4,599		3,082		67.0	%
Certificate of deposit accounts	1,803		2,430		(627)		(25.8)	%	5,345		9,686		(4,341)		(44.8)	%
Brokered deposit accounts	270		161		109		67.7	%	410		1,250		(840)		(67.2)	%
Total interest expense - deposits	7,354		4,571		2,783		60.9	%	15,407		16,658		(1,251)		(7.5)	%
Borrowed funds:
Advances from the FHLBB	1,700		1,152		548		47.6	%	2,376		3,185		(809)		(25.4)	%
Subordinated debentures and notes	1,295		1,242		53		4.3	%	3,801		3,726		75		2.0	%
Other borrowed funds	268		33		235		712.1	%	458		103		355		344.7	%
Total interest expense - borrowed funds	3,263		2,427		836		34.4	%	6,635		7,014		(379)		(5.4)	%
Total interest expense	$	10,617	$	6,998	$	3,619	51.7	%	$	22,042	$	23,672	$	(1,630)	(6.9)	%

Deposits

For the three months ended September 30, 2022, interest expense on deposits increased $2.8 million, or 60.9%, compared to the same period in 2021. The increase in interest expense on deposits was driven by an increase of $3.2 million due to higher interest rates, partially offset by a decrease of $0.4 million primarily driven by the decline in certificate of deposit and brokered deposit balances.

Interest expense on deposits decreased $1.3 million, or 7.5%, to $15.4 million for the nine months ended September 30, 2022 from $16.7 million for the nine months ended September 30, 2021. The decrease in interest expense on deposits was due to a $1.8 million decrease primarily driven by the decline in certificate of deposit and brokered deposit balances, partially offset by a $0.5 million increase due to interest rates.

Borrowed Funds

During the three months ended September 30, 2022, interest paid on borrowed funds increased $0.8 million, or 34.4% year over year. The cost of borrowed funds decreased to 2.53% for the three months ended September 30, 2022 from 3.40% for the three months ended September 30, 2021. The increase in interest expense was driven by an increase of $1.3 million due to volume partially offset by a decrease of $0.5 million due to borrowing rates. For the three months ended September 30, 2022, the purchase accounting accretion on acquired borrowed funds was $12 thousand compared to $13 thousand for the three months ended September 30, 2021. Purchase accounting accretion had no impact on the Company's net interest margin.

During the nine months ended September 30, 2022, interest paid on borrowed funds decreased $0.4 million, or 5.4% year over year. The cost of borrowed funds increased to 2.19% for the nine months ended September 30, 2022 from 2.06% for the nine months ended September 30, 2021. The decrease in interest expense was driven by a decrease of $0.8 million due to volume partially offset by an increase of $0.4 million due to borrowing rates. For the nine months ended September 30, 2022, purchase accounting accretion was $35 thousand on acquired borrowed funds compared to accretion of $38 thousand for the nine months ended September 30, 2021. Purchase accounting accretion did not have an impact on the Company's net interest margin.

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Provision for Credit Losses

The provisions for credit losses are set forth below:


	Three Months Ended September 30,				Dollar Change		Percent Change		Nine Months Ended September 30,						Dollar Change		Percent Change
	2022		2021						2022				2021
	(Dollars in Thousands)
Provision (credit) for loan and lease losses:
Commercial real estate	$	(2,573)	$	(1,630)	$	(943)	57.9	%	$	(1,734)			$(7,736)		$	6,002	77.6	%
Commercial	2,984		101		2,883		2,854.5	%	(765)				1,472		(2,237)		(152.0)	%
Consumer	391		(1,175)		1,566		(133.3)	%	593				(1,990)		2,583		(129.8)	%

Total provision (credit) for loan and lease losses	802		(2,704)		3,506		(129.7)	%	(1,906)				(8,254)		6,348		(76.9)	%
Unfunded credit commitments	2,043		(406)		2,449		603.2	%	4,760				(334)		5,094		1,525.1	%
Investment securities available-for-sale	(10)		—		(10)		(100.0)	%	48				—		48		100.0	%
Total provision (credit) for credit losses	$	2,835	$	(3,110)	$	5,945	(191.2)	%	$	2,902	$	—	$	(8,588)	$	11,490	(133.8)	%

For the three months ended September 30, 2022, the Allowance for Credit Losses ("ACL") increased $5.9 million resulting in a provision for credit losses of $2.8 million. The increase in the ACL for the three months ended September 30, 2022 is attributable to the continued low level of net charge-offs, offset by portfolio growth.

For the nine months ended September 30, 2022, the ACL increased $11.5 million resulting in a provision for credit losses of $2.9 million. The increase in the ACL for the nine months ended September 30, 2022 is attributable to the continued low level of net charge-offs, offset by portfolio growth.

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

Non-Interest Income

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


	Three Months Ended September 30,				Dollar Change		Percent Change		Nine Months Ended September 30,				Dollar Change		Percent Change
	2022		2021						2022		2021
	(Dollars in Thousands)
Deposit fees	$	2,759	$	2,629	$	130	4.9	%	$	8,003	$	7,925	$	78	1.0	%
Loan fees	349		487		(138)		(28.3)	%	1,762		1,647		115		7.0	%
Loan level derivative income, net	1,275		218		1,057		484.9	%	3,576		699		2,877		411.6	%
Gain (loss) on investment securities, net	—		—		—		N/A		—		(6)		6		(100.0)	%
Gain on sales of loans and leases held-for-sale	889		557		332		59.6	%	1,524		1,804		(280)		(15.5)	%

Other	1,562		1,695		(133)		(7.8)	%	4,426		4,221		205		4.9	%
Total non-interest income	$	6,834	$	5,586	$	1,248	22.3	%	$	19,291	$	16,290	$	3,001	18.4	%

For the three months ended September 30, 2022, non-interest income increased $1.2 million, or 22.3%, to $6.8 million compared to $5.6 million for the same period of 2021. The increase was primarily driven by increases of $1.1 million in loan level derivative income, net and $0.3 million in gain on sales of loans and leases held-for-sale, partially offset by decreases of $0.1 million in loan fees and $0.1 million in other non-interest income.

For the nine months ended September 30, 2022, non-interest income increased $3.0 million, or 18.4%, to $19.3 million compared to $16.3 million for the same period in 2021. The increase was primarily driven by increases of $2.9 million in loan

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level derivative income, net, $0.2 million in other non-interest income, and $0.1 million in loan fees, partially offset by a decrease of $0.3 million in gain on sales of loans and leases held-for-sale.

Loan level derivative income increased $1.1 million, or 484.9%, to $1.3 million for the three months ended September 30, 2022 from $0.2 million for the same period in 2021, primarily driven by higher volume in loan level derivative transactions completed for the three months ended September 30, 2022, and increased $2.9 million, or 411.6%, to $3.6 million for the nine months ended September 30, 2022 from $0.7 million for the same period in 2021, primarily driven by higher volume in loan level derivative transactions completed for the nine months ended September 30, 2022.

Gain on sales of loans and leases held-for-sale increased $0.3 million, or 59.6%, to $0.9 million for the three months ended September 30, 2022 from $0.6 million for the same period in 2021, primarily driven by higher gain on sale to participants, and decreased $0.3 million, or 15.5% to $1.5 million for the nine months ended September 30, 2022 from $1.8 million for the same period in 2021, primarily driven by lower gain on sale to participants, partially offset by higher loan sale volume with servicing retained.

Other income decreased $0.1 million, or 7.8%, to $1.6 million for the three months ended September 30, 2022 from $1.7 million for the same period in 2021, primarily driven by lower BOLI income, higher loss on sale of fixed assets, and higher loss on interest rate derivatives due to volatility in rates, partially offset by higher foreign exchange outgoing wire income, wealth management fees, commissions-investment sales, commissions-insurance agency, 1031 exchange income, rental income, and management fee-Longwood SC. Other income increased $0.2 million, or 4.9%, to $4.4 million for the nine months ended September 30, 2022 from $4.2 million for the same period in 2021, primarily driven by higher wealth management fees, foreign exchange outgoing wire income, 1031 exchange income, rental income, and advisory fees-investment sales, partially offset by lower BOLI income, higher loss on interest rate derivatives due to volatility in rates, higher loss on sale of fixed assets, and lower commissions-investment sales.

Non-Interest Expense

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


	Three Months Ended September 30,				Dollar Change		Percent Change		Nine Months Ended September 30,				Dollar Change		Percent Change
	2022		2021						2022		2021
	(Dollars in Thousands)
Compensation and employee benefits	$	28,306	$	27,206	$	1,100	4.0	%	$	83,962	$	78,188	$	5,774	7.4	%
Occupancy	3,906		3,567		339		9.5	%	11,997		11,403		594		5.2	%
Equipment and data processing	5,066		4,556		510		11.2	%	15,075		13,746		1,329		9.7	%
Professional services	1,069		1,072		(3)		(0.3)	%	3,514		3,543		(29)		(0.8)	%
FDIC insurance	709		662		47		7.1	%	2,176		2,363		(187)		(7.9)	%
Advertising and marketing	1,337		1,077		260		24.1	%	3,928		3,287		641		19.5	%
Amortization of identified intangible assets	120		208		(88)		(42.3)	%	374		668		(294)		(44.0)	%
Merger and acquisition expense	1,073		—		1,073		100.0	%	1,608		—		1,608		100.0	%
Other	3,373		2,574		799		31.0	%	9,683		6,501		3,182		48.9	%
Total non-interest expense	$	44,959	$	40,922	$	4,037	9.9	%	$	132,317	$	119,699	$	12,618	10.5	%

For the three months ended September 30, 2022, non-interest expense increased $4.0 million, or 9.9%, compared to the same period in 2021. The increase was primarily driven by increases of $1.1 million in compensation and employee benefits expense, $1.1 million in merger and acquisition expense, and $0.8 million in other non-interest expense.

For the nine months ended September 30, 2022, non-interest expense increased $12.6 million, or 10.5%, to $132.3 million compared to the same period in 2021. This increase is primarily driven by increases of $5.8 million in compensation and employee benefits expense, $3.2 million in other non-interest expense, $1.6 million in merger and acquisition expense, and $1.3 million in equipment and data processing expense.

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Compensation and employee benefits expense increased $1.1 million, or 4.0%, to $28.3 million for the three months ended September 30, 2022 from $27.2 million for the same period in 2021, and increased $5.8 million, or 7.4%, to $84.0 million for the nine months ended September 30, 2022 from $78.2 million for the same period in 2021, primarily driven by increases in employee headcount, salaries, share-based compensations, salaries-commissions, and retail bonus, partially offset by decreases in employee benefits-retirement plan.

Equipment and data processing expense increased $0.5 million, or 11.2%, to $5.1 million for the three months ended September 30, 2022 from $4.6 million for the same period in 2021, and increased $1.3 million, or 9.7%, to $15.1 million for the nine months ended September 30, 2022 from $13.7 million for the same period in 2021, primarily driven by higher software licenses and subscriptions expense, computer equipment depreciation expense, ATM maintenance expense, and loan processing expense, partially offset by lower commercial loan processing expense.

Merger and acquisition expense increased $1.1 million, or 100.0%, to $1.1 million, for the three months ended September 30, 2022 and increased $1.6 million, or 100.0%, to $1.6 million for the nine months ended September 30, 2022. For the same period in 2021, the Company did not incur any merger-related expenses. The increase in 2022 was primarily driven by merger-related expenses for PCSB.

Other non-interest expense increased $0.8 million, or 31.0%, to $3.4 million for the three months ended September 30, 2022 from $2.6 million for the same period in 2021, and increased $3.2 million, or 48.9%, to $9.7 million for the nine months ended September 30, 2022 from $6.5 million for the same period in 2021, primarily driven by higher gain on sale of OREO in 2021, higher travel & accommodations, entertainment, dues & memberships, meals-employee, and charitable contributions, partially offset by lower loan workout expense and lease commissions paid to others.

Provision for Income Taxes


	Three Months Ended September 30,						Dollar Change		Percent Change		Nine Months Ended September 30,						Dollar Change		Percent Change
	2022			2021							2022			2021
	(Dollars in Thousands)
Income before provision for income taxes	$	37,066		$	38,471		$	(1,405)	(3.7)	%	$	103,813		$	116,091		$	(12,278)	(10.6)	%
Provision (benefit) for income taxes	6,917			9,632			(2,715)		(28.2)	%	23,764			29,196			(5,432)		(18.6)	%
Net income	$	30,149		$	28,839		$	1,310	4.5	%	$	80,049		$	86,895		$	(6,846)	(7.9)	%
Effective tax rate	18.7		%	25.0		%	N/A		(25.2)	%	22.9		%	25.1		%	N/A		(8.8)	%

The Company recorded an income tax expense of $6.9 million for the three months ended September 30, 2022, compared to an income tax expense of $9.6 million for the three months ended September 30, 2021, representing effective tax rates of 18.7% and 25.0%, respectively.

The Company recorded an income tax expense of $23.8 million for the nine months ended September 30, 2022, compared to an income tax expense of $29.2 million for the nine months ended September 30, 2021, representing effective tax rates of 22.9% and 25.1%, respectively. The decrease in the effective tax rate for both the three and nine months ended is reflective of the Company's participation in an energy tax credit deal during the third quarter.

Liquidity and Capital Resources

Liquidity

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

In the third quarter, the Company continued to operate with increased liquidity. 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 position.

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Management continued holding higher levels of on balance sheet liquidity in the form of cash and available for sale securities in the third quarter. Cash and equivalents at the end of the quarter were $112.5 million, or 1.3% of the balance sheet, compared to $327.7 million, or 3.8% of the balance sheet, as of December 31, 2021. 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 15% of total assets. As of September 30, 2022, cash, cash equivalents and investment securities available-for-sale totaled $0.8 billion, or 9.1% of total assets. This compares to $1.0 billion, or 12.2% of total assets, as of December 31, 2021.

Deposits, which are considered the most stable source of liquidity, totaled $6.7 billion as of September 30, 2022 and represented 89.9% of total funding (the sum of total deposits and total borrowings), compared to deposits of $7.0 billion, or 95.2% of total funding, as of December 31, 2021. Core deposits, which consist of demand checking, NOW, savings and money market accounts, totaled $5.7 billion as of September 30, 2022 and represented 84.3% of total deposits, compared to core deposits of $5.8 billion, or 81.8% of total deposits, as of December 31, 2021. Additionally, the Company had $133.9 million of brokered deposits as of September 30, 2022, which represented 2.0% of total deposits, compared to $165.5 million or 2.3% of total deposits, as of December 31, 2021. 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 $758.8 million as of September 30, 2022, representing 10.1% of total funding, compared to $357.3 million, or 4.8% of total funding, as of December 31, 2021. The growth in the balance sheet is directly tied to the current operating environment, management will continue to monitor economic conditions and make adjustments to the balance sheet mix as appropriate.

As members of the FHLBB, the Banks have access to both short- and long-term borrowings. As of September 30, 2022, the Company's total borrowing limit from the FHLBB for advances and repurchase agreements was $1.4 billion, compared to $1.7 billion as of December 31, 2021, based on the level of qualifying collateral available for these borrowings.

As of September 30, 2022, the Banks also have access to funding through certain uncommitted lines of credit of $691.0 million.

The Company had a $30.0 million committed line of credit for contingent liquidity as of September 30, 2022. As of September 30, 2022, 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 $130.7 million of borrowing capacity at the Federal Reserve Bank as of September 30, 2022. As of September 30, 2022, the Company did not have any outstanding borrowings with the Federal Reserve Bank.

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

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

Off-Balance-Sheet Financial Instruments

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

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

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


	At September 30, 2022		At December 31, 2021
	(In Thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to originate loans and leases:
Commercial real estate	$	173,198	$	110,798
Commercial	196,197		162,931
Residential mortgage	28,942		28,685
Unadvanced portion of loans and leases	1,050,168		987,482
Unused lines of credit:
Home equity	671,112		611,212
Other consumer	97,295		64,589
Other commercial	467		414
Unused letters of credit:
Financial standby letters of credit	13,604		16,143
Performance standby letters of credit	31,583		17,145
Commercial and similar letters of credit	4,854		5,219
Loan level derivatives:
Receive fixed, pay variable	1,485,313		1,324,609
Pay fixed, receive variable	1,485,313		1,324,609
Risk participation-out agreements	370,437		288,374
Risk participation-in agreements	75,678		77,016
Foreign exchange contracts:
Buys foreign currency, sells U.S. currency	4,270		2,004
Sells foreign currency, buys U.S. currency	4,282		2,006

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Capital Resources

As of September 30, 2022, the Company and the Banks are each under the primary regulation of, and must comply with, the capital requirements of the FRB. Under these rules, the Company and the Banks are each required to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital leverage ratio of 6.0%, a minimum total risk based capital ratio of 8% and a minimum Tier 1 leverage ratio of 4%. Additionally, the Company and the Banks are required to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases. As of September 30, 2022, the Company and the Banks exceeded all regulatory capital requirements, and the Banks were each considered “well-capitalized” under prompt corrective action regulations.

The following table presents actual and required capital amounts and capital ratios as of September 30, 2022 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 September 30, 2022:
Brookline Bancorp, Inc.
Common equity Tier 1 capital ratio (1)	$	873,784	12.05	%	$	326,309	4.50	%	$	507,592	7.00	%	N/A		N/A
Tier 1 leverage capital ratio (2)	883,491		10.37	%	340,787		4.00	%	340,787		4.00	%	N/A		N/A
Tier 1 risk-based capital ratio (3)	883,491		12.18	%	435,217		6.00	%	616,558		8.50	%	N/A		N/A
Total risk-based capital ratio (4)	1,048,723		14.46	%	580,206		8.00	%	761,521		10.50	%	N/A		N/A
Brookline Bank
Common equity Tier 1 capital ratio (1)	$	571,149	11.55	%	$	222,526	4.50	%	$	346,151	7.00	%	$	321,426	6.50	%
Tier 1 leverage capital ratio (2)	571,149		10.19	%	224,200		4.00	%	224,200		4.00	%	280,250		5.00	%
Tier 1 risk-based capital ratio (3)	571,149		11.55	%	296,701		6.00	%	420,326		8.50	%	395,601		8.00	%
Total risk-based capital ratio (4)	633,187		12.80	%	395,742		8.00	%	519,411		10.50	%	494,677		10.00	%
BankRI
Common equity Tier 1 capital ratio (1)	$	247,849	10.83	%	$	102,984	4.50	%	$	160,198	7.00	%	$	148,755	6.50	%
Tier 1 leverage capital ratio (2)	247,849		8.50	%	116,635		4.00	%	116,635		4.00	%	145,794		5.00	%
Tier 1 risk-based capital ratio (3)	247,849		10.83	%	137,312		6.00	%	194,526		8.50	%	183,083		8.00	%
Total risk-based capital ratio (4)	276,534		12.08	%	183,135		8.00	%	240,365		10.50	%	228,919		10.00	%

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(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, 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 December 31, 2021:
Brookline Bancorp, Inc.
Common equity Tier 1 capital ratio (1)	$	834,988	11.86	%	$	316,817	4.50	%	$	492,826	7.00	%	N/A		N/A
Tier 1 leverage capital ratio (2)	844,658		10.15	%	332,870		4.00	%	332,870		4.00	%	N/A		N/A
Tier 1 risk-based capital ratio (3)	844,658		11.99	%	422,681		6.00	%	598,798		8.50	%	N/A		N/A
Total risk-based capital ratio (4)	1,007,237		14.30	%	563,489		8.00	%	739,580		10.50	%	N/A		N/A
Brookline Bank
Common equity Tier 1 capital ratio (1)	$	570,278	11.94	%	$	214,929	4.50	%	$	334,334	7.00	%	$	310,453	6.50	%
Tier 1 leverage capital ratio (2)	570,278		10.51	%	217,042		4.00	%	217,042		4.00	%	271,303		5.00	%
Tier 1 risk-based capital ratio (3)	570,278		11.94	%	286,572		6.00	%	405,977		8.50	%	382,096		8.00	%
Total risk-based capital ratio (4)	630,194		13.20	%	381,936		8.00	%	501,291		10.50	%	477,420		10.00	%
BankRI
Common equity Tier 1 capital ratio (1)	$	260,679	11.36	%	$	103,262	4.50	%	$	160,630	7.00	%	$	149,156	6.50	%
Tier 1 leverage capital ratio (2)	260,679		8.58	%	121,529		4.00	%	121,529		4.00	%	151,911		5.00	%
Tier 1 risk-based capital ratio (3)	260,679		11.36	%	137,683		6.00	%	195,050		8.50	%	183,577		8.00	%
Total risk-based capital ratio (4)	289,454		12.61	%	183,635		8.00	%	241,020		10.50	%	229,543		10.00	%

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

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

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

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

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

Market risk is the risk that the market value or estimated fair value of the Company's assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that the Company's net income will be significantly reduced by interest-rate changes.

Interest-Rate Risk

The principal market risk facing the Company is interest-rate risk, which can occur in a variety of forms, including repricing risk, yield-curve risk, basis risk, and prepayment risk. Repricing risk occurs when the change in the average yield of either interest-earning assets or interest-bearing liabilities is more sensitive than the other to changes in market interest rates. Such a change in sensitivity could reflect a number of possible mismatches in the repricing opportunities of the Company's assets and liabilities. Yield-curve risk reflects the possibility that changes in the shape of the yield curve could have different effects on the Company's assets and liabilities. Basis risk occurs when different parts of the balance sheet are subject to varying base rates reflecting the possibility that the spread from those base rates will deviate. Prepayment risk is associated with financial instruments with an option to prepay before the stated maturity, often a disadvantage to person selling the option; this risk is most often associated with the prepayment of loans, callable investments, and callable borrowings.

Asset/Liability Management

Market risk and interest-rate risk management is governed by the Company's Asset/Liability Committee ("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 September 30, 2022.

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The assumptions used in the Company’s interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates.

As of September 30, 2022, net interest income simulation indicated that the Company's exposure to changing interest rates was within tolerance. The ALCO reviews the methodology utilized for calculating interest-rate risk exposure and may periodically adopt modifications to this methodology. The following table presents the estimated impact of interest-rate changes on the Company's estimated net interest income over the twelve-month periods indicated:


	Estimated Exposure to Net Interest Income over Twelve-Month Horizon Beginning
	September 30, 2022				December 31, 2021
Change in Interest Rate Levels	Dollar Change		Percent Change		Dollar Change		Percent Change
	(Dollars in Thousands)
Up 300 basis points shock	$	23,837	7.5	%	$	27,487	10.2	%
Up 200 basis points ramp	9,244		2.9	%	16,549		6.1	%
Up 100 basis points ramp	4,706		1.5	%	10,875		4.0	%
Down 100 basis points ramp	(6,739)		(2.1)	%	(4,340)		(1.6)	%

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 7.5% as of September 30, 2022, compared to 10.2% as of December 31, 2021. The balance sheet became less asset sensitive as deposit outflows reduced excess cash holdings and short-term borrowings funded loan growth.

The Company also uses interest-rate sensitivity “gap” analysis to provide a more general overview of its interest-rate risk profile. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. At September 30, 2022, the Company’s one-year cumulative gap was a positive $198.3 million, or 2.44% of total interest-earning assets, compared with a positive $445.5 million, or 5.48% of total interest-earning assets, at December 31, 2021.

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 2021 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.


	Estimated Percent Change in Economic Value of Equity
Parallel Shock in Interest Rate Levels	At September 30, 2022		At December 31, 2021
Up 300 basis points	0.6	%	8.2	%
Up 200 basis points	0.3	%	5.8	%
Up 100 basis points	0.8	%	3.7	%
Down 100 basis points	(3.2)	%	(9.4)	%

The Company's EVE-at-risk asset sensitivity decreased from December 31, 2021 to September 30, 2022 due to lower cash balances and higher short-term borrowings balances, as well as a flatter yield curve.

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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, 2021 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, 2021.

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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

Please read “Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2021 (the “10-K”) and the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the "10-Q"). Except as noted below, there have been no material changes since the 10-Q was filed. These risks are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and operating results.

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

a) Not applicable.

b) Not applicable.

c) Not applicable.

Item 3. Defaults Upon Senior Securities

a) None.

b) None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibits


Exhibit 31.1*						Certification of Chief Executive Officer

Exhibit 31.2*						Certification of Chief Financial Officer

Exhibit 32.1**						Section 1350 Certification of Chief Executive Officer

Exhibit 32.2**						Section 1350 Certification of Chief Financial Officer


101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101)

_______________________________________________________________________________

* Filed herewith

** Furnished herewith

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SIGNATURES

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


	BROOKLINE BANCORP, INC.


Date: November 4, 2022	By:	/s/ Paul A. Perrault
		Paul A. Perrault
		Chief Executive Officer
		(Principal Executive Officer)

Date: November 4, 2022	By:	/s/ Carl M. Carlson
		Carl M. Carlson
		Co-President and Chief Financial Officer
		(Principal Financial Officer)