Document
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2017
 
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)
 
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  x  NO  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  YES  x  NO  o
 
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
 
x
 
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
 
Smaller Reporting Company
 
o
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
o
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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES  o  NO  x
                                                                                                                                                                                
At August 4, 2017, the number of shares of common stock, par value $0.01 per share, outstanding was 76,607,315.
 


Table of Contents

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


Table of Contents

PART I — FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
 
At June 30, 2017
 
At December 31, 2016
 
(In Thousands Except Share Data)
ASSETS
 
 
 
Cash and due from banks
$
40,599

 
$
36,055

Short-term investments
72,996

 
31,602

Total cash and cash equivalents
113,595

 
67,657

Investment securities available-for-sale
540,976

 
523,634

Investment securities held-to-maturity (fair value of $108,470 and $85,271, respectively)
108,963

 
87,120

Total investment securities
649,939

 
610,754

Loans held-for-sale
593

 
13,078

Loans and leases:
 
 
 
Commercial real estate loans
2,936,187

 
2,918,567

Commercial loans and leases
1,589,132

 
1,495,408

Consumer loans
1,012,087

 
984,889

Total loans and leases
5,537,406

 
5,398,864

Allowance for loan and lease losses
(64,521
)
 
(53,666
)
Net loans and leases
5,472,885

 
5,345,198

Restricted equity securities
66,988

 
64,511

Premises and equipment, net of accumulated depreciation of $61,831 and $58,790, respectively
81,052

 
76,176

Deferred tax asset
26,982

 
25,247

Goodwill
137,890

 
137,890

Identified intangible assets, net of accumulated amortization of $32,700 and $31,649, respectively
7,082

 
8,133

Other real estate owned ("OREO") and repossessed assets, net
4,873

 
1,399

Other assets
96,188

 
88,086

Total assets
$
6,658,067

 
$
6,438,129

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Deposits:
 
 
 
Non-interest-bearing deposits:
 
 
 
Demand checking accounts
$
920,035

 
$
900,474

Interest-bearing deposits:
 
 
 
NOW accounts
321,982

 
323,160

Savings accounts
584,408

 
613,061

Money market accounts
1,763,443

 
1,733,359

Certificate of deposit accounts
1,119,551

 
1,041,022

Total interest-bearing deposits
3,789,384

 
3,710,602

Total deposits
4,709,419

 
4,611,076

Borrowed funds:
 
 
 
Advances from the Federal Home Loan Bank of Boston ("FHLBB")
930,028

 
910,774

Subordinated debentures and notes
83,188

 
83,105

Other borrowed funds
53,427

 
50,207

Total borrowed funds
1,066,643

 
1,044,086

Mortgagors' escrow accounts
7,714

 
7,645

Accrued expenses and other liabilities
71,232

 
72,573

Total liabilities
5,855,008

 
5,735,380

 
 
 
 
Commitments and contingencies (Note 12)

 

Stockholders' Equity:
 
 
 
Brookline Bancorp, Inc. stockholders' equity:
 
 
 
Common stock, $0.01 par value; 200,000,000 shares authorized; 81,695,695 shares issued and 75,744,445 shares issued, respectively
817

 
757

Additional paid-in capital
699,923

 
616,734

Retained earnings, partially restricted
151,759

 
136,671

Accumulated other comprehensive loss
(2,175
)
 
(3,818
)
Treasury stock, at cost; 4,717,775 shares and 4,707,096 shares, respectively
(53,837
)
 
(53,837
)
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 159,510 shares and 176,688 shares, respectively
(869
)
 
(963
)
Total Brookline Bancorp, Inc. stockholders' equity
795,618

 
695,544

Noncontrolling interest in subsidiary
7,441

 
7,205

Total stockholders' equity
803,059

 
702,749

Total liabilities and stockholders' equity
$
6,658,067

 
$
6,438,129

 
 
 
 

See accompanying notes to unaudited consolidated financial statements.
1

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In Thousands Except Share Data)
Interest and dividend income:
 
 
 
 
 
 
 
Loans and leases
$
61,138

 
$
55,369

 
$
119,696

 
$
109,616

Debt securities
3,156

 
3,075

 
6,156

 
6,007

Marketable and restricted equity securities
797

 
729

 
1,523

 
1,409

Short-term investments
95

 
63

 
162

 
102

Total interest and dividend income
65,186

 
59,236

 
127,537

 
117,134

Interest expense:
 
 
 
 
 
 
 
Deposits
5,543

 
5,018

 
10,623

 
9,763

Borrowed funds
4,060

 
3,961

 
8,233

 
7,911

Total interest expense
9,603

 
8,979

 
18,856

 
17,674

Net interest income
55,583

 
50,257

 
108,681

 
99,460

Provision for credit losses
873

 
2,545

 
14,275

 
4,923

Net interest income after provision for credit losses
54,710

 
47,712

 
94,406

 
94,537

Non-interest income:
 
 
 
 
 
 
 
Deposit fees
2,552

 
2,216

 
4,961

 
4,361

Loan fees
229

 
287

 
490

 
593

Loan level derivative income, net
186

 
1,210

 
588

 
2,839

Gain on sales of investment securities, net

 

 
11,393

 

Gain on sales of loans and leases held-for-sale
307

 
345

 
660

 
1,250

Other
1,203

 
1,317

 
2,293

 
2,777

Total non-interest income
4,477

 
5,375

 
20,385

 
11,820

Non-interest expense:
 
 
 
 
 
 
 
Compensation and employee benefits
20,910

 
19,083

 
40,694

 
37,810

Occupancy
3,657

 
3,391

 
7,302

 
6,917

Equipment and data processing
4,164

 
3,898

 
8,227

 
7,588

Professional services
1,036

 
962

 
2,142

 
1,928

FDIC insurance
951

 
843

 
1,806

 
1,721

Advertising and marketing
857

 
853

 
1,674

 
1,714

Amortization of identified intangible assets
519

 
621

 
1,051

 
1,256

Other
2,701

 
2,599

 
5,655

 
5,345

Total non-interest expense
34,795

 
32,250

 
68,551

 
64,279

Income before provision for income taxes
24,392

 
20,837

 
46,240

 
42,078

Provision for income taxes
8,759

 
7,465

 
16,594

 
15,064

Net income before noncontrolling interest in subsidiary
15,633

 
13,372

 
29,646

 
27,014

Less net income attributable to noncontrolling interest in subsidiary
753

 
718

 
1,321

 
1,548

Net income attributable to Brookline Bancorp, Inc.
$
14,880

 
$
12,654

 
$
28,325

 
$
25,466

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.18

 
$
0.39

 
$
0.36

Diluted
0.20

 
0.18

 
0.39

 
0.36

Weighted average common shares outstanding during the year:
 
 
 
 
 
 
 
Basic
74,325,013

 
70,196,950

 
72,366,769

 
70,191,935

Diluted
74,810,088

 
70,388,438

 
72,837,971

 
70,365,923

Dividends declared per common share
$
0.090

 
$
0.090

 
$
0.18

 
$
0.18

 
 
 
 
 
 
 
 


See accompanying notes to unaudited consolidated financial statements.
2

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In Thousands)
Net income before noncontrolling interest in subsidiary
$
15,633

 
$
13,372

 
$
29,646

 
$
27,014

 
 
 
 
 
 
 
 
Other comprehensive income, net of taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
Unrealized securities holding gains
1,693

 
4,084

 
2,563

 
13,160

Income tax expense
(607
)
 
(1,467
)
 
(920
)
 
(4,715
)
Net unrealized securities holding gains before reclassification adjustments
1,086

 
2,617

 
1,643

 
8,445

 
 
 
 
 
 
 
 
Postretirement benefits:
 
 
 
 
 
 
 
Adjustment of accumulated obligation for postretirement benefits

 

 

 

Income tax expense

 

 

 

Net adjustment of accumulated obligation for postretirement benefits

 

 

 

 
 
 
 
 
 
 
 
Other comprehensive income, net of taxes
1,086

 
2,617

 
1,643

 
8,445

 
 
 
 
 
 
 
 
Comprehensive income
16,719

 
15,989

 
31,289

 
35,459

Net income attributable to noncontrolling interest in subsidiary
753

 
718

 
1,321

 
1,548

Comprehensive income attributable to Brookline Bancorp, Inc.
$
15,966

 
$
15,271

 
$
29,968

 
$
33,911

 
 
 



See accompanying notes to unaudited consolidated financial statements.
3

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2017 and 2016
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury
Stock
 
Unallocated
Common Stock
Held by ESOP
 
Total Brookline
Bancorp, Inc.
Stockholders'
Equity
 
Noncontrolling
Interest in
Subsidiary
 
Total Stockholders'
Equity
 
(In Thousands)
Balance at December 31, 2016
$
757

 
$
616,734

 
$
136,671

 
$
(3,818
)
 
$
(53,837
)
 
$
(963
)
 
$
695,544

 
$
7,205

 
$
702,749

Net income attributable to Brookline Bancorp, Inc. 

 

 
28,325

 

 

 

 
28,325

 

 
28,325

Net income attributable to noncontrolling interest in subsidiary

 

 

 

 

 

 

 
1,321

 
1,321

Issuance of common stock
60

 
81,949

 

 

 

 

 
82,009

 

 
82,009

Issuance of noncontrolling units

 

 

 

 

 

 

 
118

 
118

Other comprehensive income

 

 


 
1,643

 

 

 
1,643

 

 
1,643

Common stock dividends of $0.18 per share

 

 
(13,237
)
 

 

 

 
(13,237
)
 

 
(13,237
)
Dividend distribution to owners of noncontrolling interest in subsidiary

 

 

 

 

 

 

 
(1,203
)
 
(1,203
)
Compensation under recognition and retention plan

 
1,091

 

 

 

 

 
1,091

 

 
1,091

Common stock held by ESOP committed to be released (17,178 shares)

 
149

 

 

 

 
94

 
243

 

 
243

Balance at June 30, 2017
$
817

 
$
699,923

 
$
151,759

 
$
(2,175
)
 
$
(53,837
)
 
$
(869
)
 
$
795,618

 
$
7,441

 
$
803,059



See accompanying notes to unaudited consolidated financial statements.
4

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity (Continued)
Six Months Ended June 30, 2017 and 2016
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (loss)
 
Treasury
Stock
 
Unallocated
Common Stock
Held by ESOP
 
Total Brookline
Bancorp, Inc.
Stockholders'
Equity
 
Noncontrolling
Interest in
Subsidiary
 
Total Stockholders'
Equity
 
(In Thousands)
Balance at December 31, 2015
$
757

 
$
616,899

 
$
109,675

 
$
(2,476
)
 
$
(56,208
)
 
$
(1,162
)
 
$
667,485

 
$
6,001

 
$
673,486

Net income attributable to Brookline Bancorp, Inc. 

 

 
25,466

 

 

 

 
25,466

 

 
25,466

Net income attributable to noncontrolling interest in subsidiary

 

 

 

 

 

 

 
1,548

 
1,548

Issuance of noncontrolling interest

 

 

 

 

 

 

 
76

 
76

Other comprehensive income

 

 


 
8,445

 

 

 
8,445

 

 
8,445

Common stock dividends of $0.18 per share

 

 
(12,672
)
 

 

 

 
(12,672
)
 

 
(12,672
)
Dividend distribution to owners of noncontrolling interest in subsidiary

 

 

 

 

 

 

 
(1,332
)
 
(1,332
)
Compensation under recognition and retention plans

 
739

 

 

 
(7
)
 

 
732

 

 
732

Common stock held by ESOP committed to be released (18,186 shares)

 
100

 

 

 

 
100

 
200

 

 
200

Balance at June 30, 2016
$
757

 
$
617,738

 
$
122,469

 
$
5,969

 
$
(56,215
)
 
$
(1,062
)
 
$
689,656

 
$
6,293

 
$
695,949

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




See accompanying notes to unaudited consolidated financial statements.
5

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
 
Six Months Ended June 30,
 
2017
 
2016
 
(In Thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Brookline Bancorp, Inc.
$
28,325

 
$
25,466

Adjustments to reconcile net income to net cash provided from operating activities:
 
 
 
Net income attributable to noncontrolling interest in subsidiary
1,321

 
1,548

Provision for credit losses
14,275

 
4,923

Origination of loans and leases held-for-sale
(12,860
)
 
(19,803
)
Proceeds from sales of loans and leases held-for-sale, net
18,427

 
22,127

Deferred income tax benefit
(2,655
)
 
(199
)
Depreciation of premises and equipment
3,615

 
3,565

Amortization of investment securities premiums and discounts, net
746

 
1,222

Amortization of deferred loan and lease origination costs, net
3,265

 
2,929

Amortization of identified intangible assets
1,051

 
1,256

Amortization of debt issuance costs
50

 
51

Accretion of acquisition fair value adjustments, net
(1,353
)
 
(1,624
)
Gain on sales of investment securities, net
(11,393
)
 

Gain on sales of loans and leases held-for-sale
(660
)
 
(1,250
)
Gain on sales of OREO and other repossessed assets, net
25

 
(7
)
Write-down of OREO and other repossessed assets
193

 
50

Compensation under recognition and retention plans
1,147

 
776

ESOP shares committed to be released
243

 
200

Net change in:
 
 
 
Cash surrender value of bank-owned life insurance
(517
)
 
(532
)
Other assets
(7,541
)
 
(22,228
)
Accrued expenses and other liabilities
(1,420
)
 
6,765

Net cash provided from operating activities
34,284

 
25,235

 
 
 
 
Cash flows from investing activities:
 
 
 
Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale
36,881

 
51,747

Purchases of investment securities available-for-sale
(52,448
)
 
(59,306
)
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity
2,083

 
37,210

Purchases of investment securities held-to-maturity
(23,884
)
 
(13,312
)
Proceeds from redemption/sales of restricted equity securities
13,258

 
1,440

Purchase of restricted equity securities
(4,342
)
 

Proceeds from sales of loans and leases held-for-investment, net
4,643

 
23,116

Net increase in loans and leases
(146,895
)
 
(283,904
)
Purchase of premises and equipment, net
(8,617
)
 
(1,622
)
Proceeds from sales of OREO and other repossessed assets
1,374

 
2,072

Net cash used for investing activities
(177,947
)
 
(242,559
)
 
 
 
(Continued)

 
 
 
 

See accompanying notes to unaudited consolidated financial statements.
6

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows (Continued)
 
Six Months Ended June 30,
 
2017
 
2016
 
(In Thousands)
Cash flows from financing activities:
 
 
 
Increase in demand checking, NOW, savings and money market accounts
19,814

 
116,006

Increase in certificates of deposit
78,529

 
63,179

Proceeds from FHLBB advances
2,419,299

 
3,604,238

Repayment of FHLBB advances
(2,399,017
)
 
(3,560,127
)
Increase in other borrowed funds, net
3,220

 
2,506

Increase (decrease) in mortgagors' escrow accounts, net
69

 
(97
)
Proceeds from issuance of common stock
82,009

 

Payment of dividends on common stock
(13,237
)
 
(12,672
)
Proceeds from issuance of noncontrolling units
118

 
76

Payment of dividends to owners of noncontrolling interest in subsidiary
(1,203
)
 
(1,332
)
Net cash provided from financing activities
189,601

 
211,777

Net decrease in cash and cash equivalents
45,938

 
(5,547
)
Cash and cash equivalents at beginning of period
67,657

 
75,489

Cash and cash equivalents at end of period
$
113,595

 
$
69,942

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest on deposits, borrowed funds and subordinated debt
$
20,049

 
$
18,999

Income taxes
21,878

 
17,342

Non-cash investing activities:
 
 
 
Transfer from loans and leases to loan and leases held-for-sale
$
7,500

 
$
10,000

Transfer from loans to other real estate owned
5,066

 
1,523




See accompanying notes to unaudited consolidated financial statements.
7

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
At and for the Six Months Ended June 30, 2017 and 2016
(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 savings bank; Bank Rhode Island ("BankRI"), a Rhode Island-chartered financial institution; and First Ipswich Bank ("First Ipswich"), a Massachusetts-chartered trust company (collectively referred to as the "Banks"). The Banks are all members of the Federal Reserve System. The Company is also the parent of Brookline Securities Corp. ("BSC"). The Company's primary business is to provide commercial, business and retail banking services to its corporate, municipal and retail customers through the Banks and its non-bank subsidiaries.
Brookline Bank, which includes its wholly-owned subsidiaries BBS Investment Corp., Longwood Securities Corp. and its 84.2%-owned subsidiary, Eastern Funding LLC ("Eastern Funding"), operates 25 full-service banking offices in the greater Boston metropolitan area. BankRI, which includes its wholly-owned subsidiaries, Acorn Insurance Agency, BRI Realty Corp., Macrolease Corporation ("Macrolease"), BRI Investment Corp. and its wholly-owned subsidiary, BRI MSC Corp., operates 20 full-service banking offices in the greater Providence, Rhode Island area. First Ipswich, which includes its wholly-owned subsidiaries, First Ipswich Insurance Agency and First Ipswich Securities II Corp., operates six full-service banking offices on the north shore of eastern Massachusetts.
The Company's activities include acceptance of commercial, municipal and retail deposits, origination of mortgage loans on commercial and residential real estate located principally in Massachusetts and Rhode Island, origination of commercial loans and leases to small- and mid-sized businesses, investment in debt and equity securities, and the offering of cash management and investment advisory services. The Company also provides specialty equipment financing through its subsidiaries Eastern Funding, which is based in New York City, New York, and Macrolease, which is based in Plainview, New York.
The Company and the Banks are supervised, examined and regulated by the Board of Governors of the Federal Reserve System ("FRB"). As Massachusetts-chartered savings bank and trust companies, Brookline Bank and First Ipswich, respectively, are 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 subject to regulation under the laws of the State of Rhode Island and the jurisdiction of the Banking Division of the Rhode Island Department of Business Regulation.
The Federal Deposit Insurance Corporation ("FDIC") offers insurance coverage on all deposits up to $250,000 per depositor at each of the Banks. As FDIC-insured depository institutions, the Banks are also secondarily subject to supervision, examination and regulation by the FDIC. Additionally, as a Massachusetts-chartered savings bank, Brookline Bank is also insured by the Depositors Insurance Fund ("DIF"), a private industry-sponsored insurance company. The DIF insures savings bank deposits in excess of the FDIC insurance limits. As such, Brookline Bank offers 100% insurance on all deposits as a result of a combination of insurance from the FDIC and the DIF. Brookline Bank is required to file reports with the DIF.
Basis of Financial Statement Presentation
The unaudited consolidated financial statements of the Company presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“GAAP”). In the opinion of Management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying consolidated financial statements have been included. Interim results are not necessarily reflective of the results of the entire year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2016

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.


8

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

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 change in the near-term include the determination of the allowance for loan and lease losses, the determination of fair market values of assets and liabilities, including acquired loans and leases, the review of goodwill and intangibles 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 July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2018. Management is currently assessing the applicability of ASU 2017-11 and has not determined the impact of the adoption, if any, as of June 30, 2017.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. FASB issued this Update to address the diversity in practice as well as the cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2017. Management is currently assessing the applicability of ASU 2017-09 and has not determined the impact of the adoption, if any, as of June 30, 2017.
In March 2017, the FASB issued Accounting Standards Update ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715). This ASU was issued primarily to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. This ASU is effective for annual reporting periods beginning after December 15, 2017. Management has determined that ASU 2017-07 does apply, but has not determined the impact, if any, as of June 30, 2017. Management will meet to discuss and will put together a project team to assess steps to adoption prior to implementation of the standard in 2018.
In February 2017, the FASB issued ASU 2017-05, Other Income Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). This ASU was issued to clarify the scope of Subtopic 610-20, and to add guidance for partial sales of nonfinancial assets. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2017. Management believes that this ASU applies and is assessing the impact, if any, as of June 30, 2017. Management will form a project team to determine the impact and if the Company will early adopt the ASU.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This ASU was issued to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. For public entities, this ASU is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted and application should be on a prospective basis. Management has evaluated this ASU and believes that ASU 2017-04 does apply. Management will form a project team to determine the impact and if the Company will early adopt the ASU.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This ASU was issued to provide clarification and uniformity on the presentation and classification of certain cash receipts and cash payments in the statement of

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

cash flows under Topic 230. This amendments presented in this ASU are effective for fiscal years beginning after December 15, 2017. As of June 30, 2017, management believes that ASU 2016-15 does apply, and after completing an internal analysis has determined the impact of adoption of this ASU in 2018 will be related to financial statement presentation.
In June 2016, the FASB issued ASU 2016-13, Financial instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The intent of this ASU is to replace the current GAAP method of calculating credit losses. Current GAAP uses a higher threshold at which likely losses can be calculated and recorded. The new process will require institutions to account for likely losses that originally would not have been part of the calculation. The calculation will incorporate future forecasting in addition to historical and current measures. For public entities that file with the SEC, this ASU is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU must be applied prospectively to debt securities marked as other than temporarily impaired. A retrospective approach will be applied cumulatively to retained earnings. Early adoption is permitted as of the fiscal years beginning after December 15, 2018. Management has determined that ASU 2016-13 does apply, but has not determined the impact, if any, as of June 30, 2017. In preparation for the adoption in 2019 of this ASU, management formed a steering committee which has developed an approach for implementation which includes the selection of a third party software service provider.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The intention of this ASU is to provide additional clarification on specific issues brought forth by the FASB and the International Accounting Standards Board Joint Transition Resource Group for Revenue Recognition in relation to Topic 606 and revenue recognition. This ASU is to have the same effective date as ASU 2015-14 which deferred the effective date of ASU 2014-09 to December 15, 2017. Management has determined that ASU 2016-12 does apply, but has not determined the impact, if any, as of June 30, 2017. Management assembled a project team to address the changes pursuant to Topic 606. The project team has made an initial scope assessment and additional progress over the topic is expected to be made in the third quarter of 2017.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU was issued to clarify how to recognize revenue depending on an entities position, in relation to another entity involved, on contracts with customers. The entity can either be a principal party or an agent, and must record revenue accordingly. This ASU is not yet effective. Since this ASU affects ASU 2014-09, and that effective date was deferred, this ASU remains suspended too. Management believes that this ASU applies and is assessing the impact, if any, as of June 30, 2017. Management assembled a project team to address the changes pursuant to Topic 606. The project team has made an initial scope assessment and additional progress over the topic is expected to be made in the third quarter of 2017.
In February 2016, FASB issued ASU 2016-02, Leases. This ASU requires lessees to put most leases on their balance sheet but recognize expenses on their income statements in a manner similar to current accounting. This ASU also eliminates current real estate-specific provisions for all companies. For lessors, this ASU modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. Management believes that this ASU applies and is assessing the impact, if any, as of June 30, 2017. Management has met to discuss the impact and will assemble a project team to assess steps required for adoption prior to implementation of the standard in 2019.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments. This ASU significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods therein. Management believes that this ASU applies and is assessing the impact, if any, as of June 30, 2017. Management has put together a steering committee which has made progress identifying the additional data requirements necessary to implement the ASU and has determined an approach for implementation which includes the selection of a third party software service provider.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This ASU was issued to defer the effective date of ASU 2014-09 for all entities by one year. In effect, public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods (including interim reporting periods within those period) beginning after December 15, 2017. Management believes that this ASU applies and is assessing the impact, if any, as of June 30, 2017. Management assembled a

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

project team to address the changes pursuant to Topic 606. The project team has made an initial scope assessment and additional progress over the topic is expected to be made in the third quarter of 2017.
(3) Investment Securities
The following tables set forth investment securities available-for-sale and held-to-maturity at the dates indicated:
 
At June 30, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In Thousands)
Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$
139,928

 
$
496

 
$
641

 
$
139,783

GSE CMOs
145,673

 
42

 
2,976

 
142,739

GSE MBSs
193,391

 
601

 
1,669

 
192,323

SBA commercial loan asset-backed securities
81

 

 

 
81

Corporate debt obligations
58,651

 
371

 
145

 
58,877

U.S. Treasury bonds
4,815

 

 
11

 
4,804

Trust preferred securities
1,470

 

 
83

 
1,387

Marketable equity securities
971

 
16

 
5

 
982

Total investment securities available-for-sale
$
544,980

 
$
1,526

 
$
5,530

 
$
540,976

Investment securities held-to-maturity:
 
 
 
 
 
 
 
GSE debentures
$
38,620

 
$
15

 
$
547

 
$
38,088

GSEs MBSs
15,883

 

 
130

 
15,753

Municipal obligations
53,960

 
379

 
200

 
54,139

Foreign government obligations
500

 

 
10

 
490

Total investment securities held-to-maturity
$
108,963


$
394


$
887


$
108,470


 
December 31, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In Thousands)
Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$
98,122

 
$
188

 
$
1,290

 
$
97,020

GSE CMOs
161,483

 
37

 
3,480

 
158,040

GSE MBSs
214,946

 
794

 
2,825

 
212,915

SBA commercial loan asset-backed securities
107

 

 

 
107

Corporate debt obligations
48,308

 
360

 
183

 
48,485

U.S. Treasury bonds
4,801

 

 
64

 
4,737

Trust preferred securities
1,469

 

 
111

 
1,358

Marketable equity securities
966

 
15

 
9

 
972

Total investment securities available-for-sale
$
530,202

 
$
1,394

 
$
7,962

 
$
523,634

Investment securities held-to-maturity:
 
 
 
 
 
 
 
GSE debentures
$
14,735

 
$

 
$
634

 
$
14,101

GSEs MBSs
17,666

 

 
187

 
17,479

Municipal obligations
54,219

 
5

 
1,020

 
53,204

Foreign government obligations
500

 

 
13

 
487

Total investment securities held-to-maturity
$
87,120

 
$
5

 
$
1,854

 
$
85,271


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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

As of June 30, 2017, the fair value of all investment securities available-for-sale was $541.0 million, with net unrealized losses of $4.0 million, compared to a fair value of $523.6 million and net unrealized losses of $6.6 million as of December 31, 2016. As of June 30, 2017, $381.8 million, or 70.6% of the portfolio, had gross unrealized losses of $5.5 million, compared to $389.0 million, or 74.3% of the portfolio, with gross unrealized losses of $8.0 million as of December 31, 2016.
As of June 30, 2017, the fair value of all investment securities held-to-maturity was $108.5 million, with net unrealized losses of $0.5 million, compared to a fair value of $85.3 million with net unrealized losses of $1.8 million as of December 31, 2016. As of June 30, 2017, $63.9 million, or 58.9% of the portfolio, had gross unrealized losses of $0.9 million. There were $82.0 million, or 96.1% of the portfolio, with net unrealized losses $1.9 million as of December 31, 2016.
Investment Securities as Collateral
As of June 30, 2017 and December 31, 2016, respectively, $458.6 million and $429.1 million of investment securities were pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLBB borrowings. The Banks did not have any outstanding FRB borrowings as of June 30, 2017 and December 31, 2016.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Other-Than-Temporary Impairment ("OTTI")
Investment securities as of June 30, 2017 and December 31, 2016 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:
 
At June 30, 2017
 
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
$
75,801

 
$
641

 
$

 
$

 
$
75,801

 
$
641

GSE CMOs
103,380

 
1,811

 
35,257

 
1,165

 
138,637

 
2,976

GSE MBSs
145,136

 
1,666

 
190

 
3

 
145,326

 
1,669

SBA commercial loan asset-backed securities
38

 

 
36

 

 
74

 

Corporate debt obligations
15,306

 
145

 

 

 
15,306

 
145

U.S. Treasury bonds
4,804

 
11

 

 

 
4,804

 
11

Trust preferred securities

 

 
1,387

 
83

 
1,387

 
83

Marketable equity securities
506

 
5

 

 

 
506

 
5

Temporarily impaired investment securities available-for-sale
344,971

 
4,279

 
36,870

 
1,251

 
381,841

 
5,530

Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
26,180

 
547

 

 

 
26,180


547

GSEs MBSs
15,555

 
130

 

 

 
15,555

 
130

Municipal obligations
21,695

 
200

 

 

 
21,695

 
200

Foreign government obligations
490

 
10

 

 

 
490

 
10

Temporarily impaired investment securities held-to-maturity
63,920


887






63,920


887

Total temporarily impaired investment securities
$
408,891


$
5,166


$
36,870


$
1,251


$
445,761


$
6,417


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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
December 31, 2016
 
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
$
67,216

 
$
1,291

 
$

 
$

 
$
67,216

 
$
1,291

GSE CMOs
118,450

 
2,162

 
38,852

 
1,318

 
157,302

 
3,480

GSE MBSs
149,687

 
2,821

 
198

 
3

 
149,885

 
2,824

SBA commercial loan asset-backed securities

 

 
72

 

 
72

 

Corporate debt obligations
7,953

 
183

 

 

 
7,953

 
183

U.S. Treasury bonds
4,737

 
64

 

 

 
4,737

 
64

Trust preferred securities

 

 
1,358

 
111

 
1,358

 
111

Marketable equity securities
503

 
9

 

 

 
503

 
9

Temporarily impaired investment securities available-for-sale
348,546

 
6,530

 
40,480

 
1,432

 
389,026

 
7,962

Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
14,101

 
634

 

 

 
14,101

 
634

GSEs MBSs
17,289

 
187

 

 

 
17,289

 
187

Municipal obligations
50,098

 
1,020

 

 

 
50,098

 
1,020

Foreign government obligations
487

 
13

 

 

 
487

 
13

Temporarily impaired investment securities held-to-maturity
81,975

 
1,854

 

 

 
81,975

 
1,854

Total temporarily impaired investment securities
$
430,521

 
$
8,384

 
$
40,480

 
$
1,432

 
$
471,001

 
$
9,816

The Company performs regular analysis on the investment securities available-for-sale portfolio to determine whether a decline in fair value indicates that an investment security is OTTI. In making these OTTI determinations, management considers, among other factors, the length of time and extent to which the fair value has been less than amortized cost; projected future cash flows; credit subordination and the creditworthiness; capital adequacy and near-term prospects of the issuers.
Management also considers the Company's capital adequacy, interest-rate risk, liquidity and business plans in assessing whether it is more likely than not that the Company will sell or be required to sell the investment securities before recovery. If the Company determines that a decline in fair value is OTTI and that it is more likely than not that the Company will not sell or be required to sell the investment security before recovery of its amortized cost, the credit portion of the impairment loss is recognized in the Company's unaudited consolidated statement of income and the noncredit portion is recognized in accumulated other comprehensive income. The credit portion of the OTTI impairment represents the difference between the amortized cost and the present value of the expected future cash flows of the investment security. If the Company determines that a decline in fair value is OTTI and it is more likely than not that it will sell or be required to sell the investment security before recovery of its amortized cost, the entire difference between the amortized cost and the fair value of the security will be recognized in the Company's unaudited consolidated statement of income.
Investment Securities Available-For-Sale Impairment Analysis
The following discussion summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s available-for-sale portfolio were OTTI as of June 30, 2017. Based on the analysis below and the determination that, 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 OTTI as of June 30, 2017. If market conditions for

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional OTTI 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 Federal Home Loan Banks ("FHLB") and the Federal Farm Credit Bank. As of June 30, 2017, only GNMA MBSs and CMOs, and Small Business Administration ("SBA") commercial loan asset-backed securities in our available-for-sale portfolio with an estimated fair value of $26.3 million were backed explicitly by the full faith and credit of the U.S. Government, compared to $26.2 million as of December 31, 2016.
As of June 30, 2017, the Company owned 44 GSE debentures with a total fair value of $139.8 million, and a net unrealized loss of $0.1 million. As of December 31, 2016, the Company held 29 GSE debentures with a total fair value of $97.0 million, and a net unrealized loss of $1.1 million. As of June 30, 2017, 25 of the 44 securities in this portfolio were in an unrealized loss position. As of December 31, 2016, 21 of the 29 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA/SBA) guarantee of the U.S Government. During the six months ended June 30, 2017, the Company purchased a total of $42.1 million GSE debentures. This compares to $26.1 million purchased during the same period in 2016.
As of June 30, 2017, the Company owned 62 GSE CMOs with a total fair value of $142.7 million and a net unrealized loss of $2.9 million. As of December 31, 2016, the Company held 62 GSE CMOs with a total fair value of $158.0 million with a net unrealized loss of $3.4 million. As of June 30, 2017, 46 of the 62 securities in this portfolio were in an unrealized loss position. As of December 31, 2016, 47 of the 62 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the six months ended June 30, 2017 and 2016, the Company did not purchase any GSE CMOs.
As of June 30, 2017, the Company owned 192 GSE MBSs with a total fair value of $192.3 million and a net unrealized loss of $1.1 million. As of December 31, 2016, the Company held 195 GSE MBSs with a total fair value of $212.9 million with a net unrealized loss of $2.0 million. As of June 30, 2017, 66 of the 192 securities in this portfolio were in an unrealized loss position. As of December 31, 2016, 60 of the 195 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the six months ended June 30, 2017, the Company did not purchase any GSE MBSs, as compared to the same period in 2016, when the Company purchased a total of $30.6 million of GSE MBSs.
SBA Commercial Loan Asset-Backed
As of June 30, 2017 and December 31, 2016, the Company owned six SBA securities with a total fair value of $0.1 million, which approximated amortized cost. As of June 30, 2017, four of the six securities in this portfolio were in an unrealized loss position. As of December 31, 2016, four of the six securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the explicit guarantee of the U.S Government. During the six months ended June 30, 2017 and 2016, the Company did not purchase any SBA securities.
Corporate Obligations
From time to time, the Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. As of June 30, 2017, the Company held 18 corporate obligation securities with a total fair value of $58.9 million and a net unrealized gain of $0.2 million. As of December 31, 2016, the Company held 16 corporate obligation securities with a total fair value of $48.5 million and a net unrealized gain of $0.2 million. As of June 30, 2017, four of the eighteen securities in this portfolio were in an unrealized loss position. As of December 31, 2016, three of the sixteen securities in this portfolio were in an unrealized loss position. Full collection of the obligations is expected because the financial condition of the issuers is sound, they have not defaulted on scheduled payments, the obligations are rated investment grade, and the Company has the ability and intent to hold the obligations for a period of time to recover the amortized cost. During the six months ended June 30, 2017 and 2016, the Company purchased a total of $10.3 million and $2.6 million of corporate obligations, respectively.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

U.S. Treasury Bonds
The Company invests in securities issued by the U.S. government. As of June 30, 2017, the Company owned one U.S. Treasury bond with a total fair value of $4.8 million and an unrealized loss of $11.0 thousand. This compares to one U.S. Treasury bond with a total fair value of $4.7 million and an unrealized loss of $0.1 million as of December 31, 2016. During the six months ended June 30, 2017 and 2016, the Company did not purchase any U.S. Treasury bonds.
Trust Preferred Securities
Trust preferred securities represent subordinated debt issued by financial institutions. As of June 30, 2017, the Company owned two trust preferred securities with a total fair value of $1.4 million and an unrealized loss of $0.1 million. This compares to two trust preferred securities with a total fair value of $1.4 million and an unrealized loss of $0.1 million as of December 31, 2016. As of June 30, 2017 and December 31, 2016, both of the securities in this portfolio were in unrealized loss positions. Full collection of the obligations is expected because the financial condition of the issuers is sound, neither of the issuers has 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.
Marketable Equity Securities
From time to time, the Company will invest in mutual funds for community reinvestment purposes. As of June 30, 2017 and December 31, 2016, the Company owned marketable equity securities with a fair value of $1.0 million, which approximated amortized cost. As of June 30, 2017 and December 31, 2016, one of the two securities in this portfolio was in an unrealized loss position. During the six months ended June 30, 2017 and 2016, the Company did not purchase any marketable equity securities.
Investment Securities Held-to-Maturity Impairment Analysis
The following discussion summarizes by investment security type, the basis for evaluating if the applicable investment securities within the Company's held-to-maturity portfolio were OTTI at June 30, 2017. Management has the ability and the intent to hold the securities until maturity.
U.S. Government-Sponsored Enterprises
As of June 30, 2017, the Company owned 13 GSE debentures with a total fair value of $38.1 million and a net unrealized loss of $0.5 million. As of December 31, 2016, the Company owned five GSE debentures with a total fair value of $14.1 million and an unrealized loss of $0.6 million. As of June 30, 2017, nine of the thirteen securities in this portfolio were in an unrealized loss position. At December 31, 2016, all five of the securities in this portfolio were in unrealized loss positions. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the six months ended June 30, 2017 and 2016, the Company purchased a total of $23.9 million and $6.0 million in GSE debentures, respectively.
As of June 30, 2017, the Company owned 11 GSE MBSs with a total fair value of $15.8 million and an unrealized loss of $0.1 million. As of December 31, 2016, the Company owned 11 GSE MBSs with a total fair value of $17.5 million and an unrealized loss of $0.2 million. As of June 30, 2017 and December 31, 2016, eight of the eleven securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the six months ended June 30, 2017, the Company did not purchase any GSE MBSs, as compared to the same period in 2016, when the Company purchased a total of $2.4 million of GSE MBSs.
Municipal Obligations
The Company invests in certain state and municipal securities with high credit ratings for portfolio diversification and tax planning purposes. As of June 30, 2017, the Company owned 100 municipal obligation securities with a total fair value of $54.1 million and and a net unrealized gain of $0.1 million. As of December 31, 2016, the Company owned 100 municipal obligation securities with a total fair value of $53.2 million and an unrealized loss of $1.0 million. As of June 30, 2017, 40 of the 100 securities in this portfolio were in an unrealized loss position as compared to December 31, 2016, when 93 of the 100 securities were in an unrealized loss position. During the six months ended June 30, 2017, the Company did not purchase any municipal obligations, as compared to the same period in 2016, when the Company purchased a total of $4.4 million of municipal obligations.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Foreign Government Obligations
The Company holds an investment in foreign government bonds. As of June 30, 2017 and December 31, 2016, the Company owned one foreign government obligation security with a fair value of $0.5 million, which approximated cost. As of June 30, 2017 and December 31, 2016 respectively, the security was in an unrealized loss position. During the six months ended June 30, 2017, the Company did not purchase any foreign government obligations, as compared to the same period in 2016, when the Company repurchased the foreign government obligation security that matured.
Portfolio Maturities
The final stated maturities of the debt securities are as follows for the periods indicated:
 
At June 30, 2017
 
At December 31, 2016
 
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
$
9,406

 
$
9,472

 
2.44%
 
$
13

 
$
13

 
0.17%
After 1 year through 5 years
132,556

 
133,162

 
2.04%
 
81,524

 
81,833

 
2.14%
After 5 years through 10 years
120,257

 
119,760

 
2.07%
 
128,956

 
127,952

 
2.03%
Over 10 years
281,790

 
277,600

 
1.99%
 
318,743

 
312,864

 
2.03%
 
$
544,009

 
$
539,994

 
2.03%
 
$
529,236

 
$
522,662

 
2.04%
Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Within 1 year
$
791

 
$
791

 
1.00%
 
$
190

 
$
190

 
1.00%
After 1 year through 5 years
47,513

 
47,575

 
1.69%
 
23,012

 
22,750

 
1.30%
After 5 years through 10 years
44,974

 
44,549

 
1.81%
 
46,442

 
45,042

 
1.75%
Over 10 years
15,685

 
15,555

 
1.89%
 
17,476

 
17,289

 
2.11%
 
$
108,963

 
$
108,470

 
1.76%
 
$
87,120

 
$
85,271

 
1.70%
Actual maturities of debt securities will differ from those presented above since certain obligations amortize and may also provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. MBSs and CMOs are included above based on their final stated maturities; the actual maturities, however, may occur earlier due to anticipated prepayments and stated amortization of cash flows.
As of June 30, 2017, issuers of debt securities with an estimated fair value of $30.0 million had the right to call or prepay the obligations. Of the $30.0 million, approximately $14.9 million matures in 1 - 5 years, $15.1 million matures in 6 - 10 years, and none mature after ten years. As of December 31, 2016, issuers of debt securities with an estimated fair value of approximately $27.9 million had the right to call or prepay the obligations. Of the $27.9 million, $3.0 million matures in 1-5 years, $23.5 million matures in 6-10 years, and $1.4 million matures after ten years.

17

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016


Security Sales
On February 3, 2017, the Company, through its wholly owned subsidiary, Brookline Securities Corp., received $319.04 in cash and 14.876 shares of Community Bank Systems, Inc. (“CBU”) common stock in exchange for each of the 9,721 shares of Northeast Retirement Services, Inc. (“NRS”) stock held by Brookline Securities Corp.  The exchange was completed in accordance with the merger agreement entered into between NRS and CBU.  As part of the merger agreement, the Company was restricted to selling 5,071 shares of CBU per day in the open market. During the quarter ended March 31, 2017, the Company completed the sale of all the CBU shares. When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The table below summarizes the activity with respect to the sale of the CBU shares.
 
Six Months Ended June 30, 2017
 
(In Thousands)
Sales of marketable and restricted equity securities
11,393

 
 
Gross gains from sales
11,612

Gross losses from sales
(219
)
Gain on sales of securities, net
$
11,393

There were no security sales during the three month periods ended June 30, 2017 and 2016 and the six month period ended June 30, 2016.

18

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

(4) Loans and Leases
The following tables present loan and lease balances and weighted average coupon rates for the originated and acquired loan and lease portfolios at the dates indicated:
 
At June 30, 2017
 
Originated
 
Acquired
 
Total
 
Balance
 
Weighted
Average
Coupon
 
Balance
 
Weighted
Average
Coupon
 
Balance
 
Weighted
Average
Coupon
 
(Dollars In Thousands)
Commercial real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
1,941,619

 
4.10%
 
$
121,027

 
4.31%
 
$
2,062,646

 
4.11%
Multi-family mortgage
694,544

 
3.96%
 
25,940

 
4.50%
 
720,484

 
3.98%
Construction
153,057

 
4.28%
 

 
—%
 
153,057

 
4.28%
Total commercial real estate loans
2,789,220

 
4.08%
 
146,967

 
4.34%
 
2,936,187

 
4.09%
Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
Commercial
681,677

 
4.24%
 
9,393

 
5.69%
 
691,070

 
4.26%
Equipment financing
834,771

 
7.18%
 
5,161

 
5.89%
 
839,932

 
7.17%
Condominium association
58,130

 
4.37%
 

 
—%
 
58,130

 
4.37%
Total commercial loans and leases
1,574,578

 
5.80%
 
14,554

 
5.76%
 
1,589,132

 
5.80%
Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
585,092

 
3.74%
 
61,587

 
4.06%
 
646,679

 
3.77%
Home equity
303,186

 
3.94%
 
47,938

 
4.49%
 
351,124

 
4.02%
Other consumer
14,173

 
5.35%
 
111

 
17.99%
 
14,284

 
5.45%
Total consumer loans
902,451

 
3.83%
 
109,636

 
4.26%
 
1,012,087

 
3.88%
Total loans and leases
$
5,266,249

 
4.55%
 
$
271,157

 
4.38%
 
$
5,537,406

 
4.54%

19

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
At December 31, 2016
 
Originated
 
Acquired
 
Total
 
Balance
 
Weighted
Average
Coupon
 
Balance
 
Weighted
Average
Coupon
 
Balance
 
Weighted
Average
Coupon
 
(Dollars In Thousands)
Commercial real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
1,907,254

 
3.95%
 
$
143,128

 
4.24
%
 
$
2,050,382

 
3.97%
Multi-family mortgage
701,450

 
3.79%
 
29,736

 
4.53
%
 
731,186

 
3.82%
Construction
136,785

 
3.79%
 
214

 
3.67
%
 
136,999

 
3.79%
Total commercial real estate loans
2,745,489

 
3.90%
 
173,078

 
4.29
%
 
2,918,567

 
3.92%
Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
Commercial
621,285

 
4.11%
 
14,141

 
5.44
%
 
635,426

 
4.14%
Equipment financing
793,702

 
7.06%
 
6,158

 
5.86
%
 
799,860

 
7.05%
Condominium association
60,122

 
4.39%
 

 
%
 
60,122

 
4.39%
Total commercial loans and leases
1,475,109

 
5.71%
 
20,299

 
5.57
%
 
1,495,408

 
5.71%
Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
555,430

 
3.67%
 
68,919

 
3.98
%
 
624,349

 
3.70%
Home equity
289,361

 
3.50%
 
52,880

 
4.26
%
 
342,241

 
3.62%
Other consumer
18,171

 
5.48%
 
128

 
17.92
%
 
18,299

 
5.57%
Total consumer loans
862,962

 
3.65%
 
121,927

 
4.12
%
 
984,889

 
3.71%
Total loans and leases
$
5,083,560

 
4.38%
 
$
315,304

 
4.31
%
 
$
5,398,864

 
4.38%
The net unamortized deferred loan origination fees and costs included in total loans and leases were $15 million and $14.2 million as of June 30, 2017 and December 31, 2016, respectively.
The Company's Banks and subsidiaries lend primarily in eastern Massachusetts, southern New Hampshire and Rhode Island, with the exception of equipment financing, 28.2% of which is in the greater New York and New Jersey metropolitan area and 71.8% of which is in other areas in the United States of America as of June 30, 2017.
Accretable Yield for the Acquired Loan Portfolio
The following table summarizes activity in the accretable yield for the acquired loan portfolio for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017

2016
 
2017
 
2016
 
(In Thousands)
Balance at beginning of period
$
13,072

 
$
19,800

 
$
14,353

 
$
20,796

Accretion
(2,325
)
 
(1,251
)
 
(3,732
)
 
(2,435
)
Reclassification from (to) nonaccretable difference as a result of changes in expected cash flows
2,955

 
(511
)
 
3,081

 
(323
)
Balance at end of period
$
13,702

 
$
18,038

 
$
13,702

 
$
18,038

On a quarterly basis, subsequent to acquisition, management reforecasts the expected cash flows for acquired ASC 310-30 loans, taking into account prepayment speeds, probability of default and loss given defaults. Management compares cash flow projections per the reforecast to the original cash flow projections and determines whether any reduction in cash flow expectations are due to deterioration, or if the change in cash flow expectation is related to noncredit events. This cash flow analysis is used to evaluate the need for a provision for loan and lease losses and/or prospective yield adjustments. During the three months ended June 30, 2017 and 2016, accretable yield adjustments totaling $3.0 million and $0.5 million, respectively, were made for certain loan pools. During the six months ended June 30, 2017 and 2016, accretable yield adjustments totaling

20

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

$3.1 million and $0.3 million, respectively, were made for certain loan pools. These accretable yield adjustments, which are subject to continued re-assessment, will be recognized over the remaining lives of those pools.
Loans and Leases Pledged as Collateral
As of June 30, 2017 and December 31, 2016, there were $1.9 billion and $2.1 billion, respectively, of loans and leases pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLBB borrowings. The Banks did not have any outstanding FRB borrowings as of June 30, 2017 and December 31, 2016.
(5) Allowance for Loan and Lease Losses
The following tables present the changes in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment for the periods indicated:
 
Three Months Ended June 30, 2017
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at March 31, 2017
$
27,988

 
$
33,283

 
$
4,862

 
$
66,133

Charge-offs
(205
)
 
(3,095
)
 
(65
)
 
(3,365
)
Recoveries
336

 
549

 
78

 
963

(Credit) provision for loan and lease losses
(165
)
 
362

 
593

 
790

Balance at June 30, 2017
$
27,954

 
$
31,099

 
$
5,468

 
$
64,521

 
Three Months Ended June 30, 2016
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at March 31, 2016
$
30,984

 
$
22,978

 
$
4,644

 
$
58,606

Charge-offs
(1,153
)
 
(2,417
)
 
(754
)
 
(4,324
)
Recoveries

 
101

 
205

 
306

Provision for loan and lease losses
30

 
2,254

 
386

 
2,670

Balance at June 30, 2016
$
29,861

 
$
22,916

 
$
4,481

 
$
57,258

 
Six Months Ended June 30, 2017
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at December 31, 2016
$
27,645

 
$
20,906

 
$
5,115

 
$
53,666

Charge-offs
(229
)
 
(4,302
)
 
(216
)
 
(4,747
)
Recoveries
476

 
691

 
183

 
1,350

Provision for loan and lease losses
62

 
13,804

 
386

 
14,252

Balance at June 30, 2017
$
27,954

 
$
31,099

 
$
5,468

 
$
64,521


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Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
Six Months Ended June 30, 2016
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at December 31, 2015
$
30,151

 
$
22,018

 
$
4,570

 
$
56,739

Charge-offs
(1,484
)
 
(2,705
)
 
(1,010
)
 
(5,199
)
Recoveries

 
325

 
456

 
781

Provision for loan and lease losses
1,194

 
3,278

 
465

 
4,937

Balance at June 30, 2016
$
29,861

 
$
22,916

 
$
4,481

 
$
57,258

The liability for unfunded credit commitments, which is included in other liabilities, was $1.5 million, $1.5 million, and $1.3 million at June 30, 2017, December 31, 2016, and June 30, 2016, respectively. The changes in the liability for unfunded credit commitments reflect changes in the estimate of loss exposure associated with certain unfunded credit commitments. No credit commitments were charged off against the liability account in the six-month periods ended June 30, 2017 and 2016.
Provision for Credit Losses
The provisions for credit losses are set forth below for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In Thousands)
(Credit) provision for loan and lease losses:
 
 
 
 
 
 
 
Commercial real estate
$
(165
)
 
$
30

 
$
62

 
$
1,194

Commercial
362

 
2,254

 
13,804

 
3,278

Consumer
593

 
386

 
386

 
465

Total provision for loan and lease losses
790

 
2,670

 
14,252

 
4,937

Unfunded credit commitments
83

 
(125
)
 
23

 
(14
)
Total provision for credit losses
$
873

 
$
2,545

 
$
14,275

 
$
4,923

Allowance for Loan and Lease Losses Methodology
Management has established a methodology to determine the adequacy of the allowance for loan and lease losses that assesses the risks and losses inherent in the loan and lease portfolio. Additions to the allowance for loan and lease 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.

Management uses a consistent and systematic process and methodology to evaluate the adequacy of the allowance for loan and lease losses on a quarterly basis. For purposes of determining the allowance for loan and lease losses, the Company has segmented certain loans and leases in the portfolio by product type into the following segments: (1) commercial real estate loans, (2) commercial loans and leases, and (3) consumer loans. Portfolio segments are further disaggregated into classes based on the associated risks within the segments. Commercial real estate loans are divided into three classes: commercial real estate loans, multi-family mortgage loans, and construction loans. Commercial loans and leases are divided into three classes: commercial loans which include taxi medallion loans, equipment financing, and loans to condominium associations. Consumer loans are divided into three classes: residential mortgage loans, home equity loans, and other consumer loans. A formula-based credit evaluation approach is applied to each group, coupled with an analysis of certain loans for impairment. For each class of loan, management makes significant judgments in selecting the estimation method that fits the credit characteristics of its class and portfolio segment as set forth below.

The general allowance related to loans collectively evaluated for impairment is determined using a formula-based approach utilizing the risk ratings of individual credits and loss factors derived from historic portfolio loss rates, which include estimates of incurred losses over an estimated loss emergence period (“LEP”). The LEP was generated utilizing a charge-off look-back

22

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

analysis which studied the time from the first indication of elevated risk of repayment (or other early event indicating a problem) to eventual charge-off to support the LEP considered in the allowance calculation. This reserving methodology established the approximate number of months of LEP that represents incurred losses for each portfolio. In addition to quantitative measures, relevant qualitative factors include, but are not limited to: (1) levels and trends in past due and impaired loans, (2) levels and trends in charge-offs, (3) changes in underwriting standards, policy exceptions, and credit policy, (4) experience of lending management and staff, (5) economic trends, (6) industry conditions, (7) effects of changes in credit concentrations, (8) interest rate environment, and (9) regulatory and other changes. The general allowance related to the acquired loans collectively evaluated for impairment is determined based upon the degree, if any, of deterioration in the pooled loans subsequent to acquisition. The qualitative factors used in the determination are the same as those used for originated loans.

Specific valuation allowances are established for impaired originated loans with book values greater than the discounted present value of expected future cash flows or, in the case of collateral-dependent impaired loans, for any excess of a loan's book balance and the fair value of its underlying collateral. Specific valuation allowances are established for acquired loans with deterioration in the discounted present value of expected future cash flows since acquisitions or, in the case of collateral dependent impaired loans, for any increase in the excess of a loan's book balance greater than the fair value of its underlying collateral. A specific valuation allowance for losses on troubled debt restructured ("TDR") loans is determined by comparing the net carrying amount of the troubled debt restructured loan with the restructured loan's cash flows discounted at the original effective rate. Impaired loans are reviewed quarterly with adjustments made to the calculated reserve as necessary.

As of June 30, 2017, management believes that the methodology for calculating the allowance is sound and that the allowance provides a reasonable basis for determining and reporting on probable losses in the Company’s loan portfolios.

As of June 30, 2017, the Company had a portfolio of approximately $30.4 million in loans secured by taxi medallions issued by the cities of Boston and Cambridge. As of December 31, 2016, this portfolio was approximately $31.1 million. Application-based mobile ride services, such as Uber and Lyft, have generated increased competition in the transportation sector, resulting in a reduction in taxi utilization and, as a result, a reduction in the collateral value and credit quality of taxi medallion loans. This has increased the likelihood that loans secured by taxi medallions may default, or that the borrowers may be unable to repay these loans at maturity, potentially resulting in an increase in past due loans, troubled debt restructurings, and charge-offs. The Company’s allowance calculation included a further segmentation of the commercial loans and leases to reflect the increased risk in the Company’s taxi medallion portfolio. This allowance calculation segmentation represents management’s estimations of the current risks associated with the portfolio.

As of June 30, 2017, the Company had an allowance for loan and lease losses associated with taxi medallion loans of
$7.9 million of which $6.1 million were specific reserves and $1.8 million was a general reserve. As of December 31, 2016, the Company had an allowance for loan and lease losses associated with taxi medallion loans of $1.3 million of which $0.1 million were specific reserves and $1.2 million was a general reserve. The increase in the allowance for loan and leases associated with taxi medallion loans was primarily driven by the increase in specific reserves due to changes in the underlying collateral value of taxi medallions and the increase in general reserve due to the increase in the historical loss factor applied to the taxi medallion loans. The total troubled debt restructured loans and leases secured by taxi medallions increased by $1.6 million from $6.1 million at December 31, 2016 to $7.7 million at June 30, 2017 due to five taxi medallion relationships which were restructured during the period. The total loans and leases secured by taxi medallions that were placed on nonaccrual increased to $15.7 million at June 30, 2017 from $13.4 million at December 31, 2016 due to the five restructured taxi medallion relationships mentioned above which were placed on nonaccrual status in. In addition, further declines in demand for taxi services or further deterioration in the value of taxi medallions may result in higher delinquencies and losses beyond that provided for in the allowance for loan and lease losses.

The general allowance for loan and lease losses was $56.0 million as of June 30, 2017, compared to $53.5 million as of December 31, 2016. The general portion of the allowance for loan and lease losses increased by $2.5 million during the six months ended June 30, 2017, as a result of the continued growth in the Company's loan portfolios and the increase in historical loss factors applied to taxi medallion and commercial real estate loan portfolios.

The specific allowance for loan and lease losses was $8.5 million as of June 30, 2017, compared to $0.2 million as of December 31, 2016. The specific allowance increased by $8.4 million during the six months ended June 30, 2017, primarily due to the reduction in collateral values for taxi medallion loans and the increase in specific reserves for two commercial loans.

23

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016


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 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, impaired, 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.
The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For all loans, the Company utilizes an eight-grade loan rating system, which assigns a risk rating to each borrower based on a number of quantitative and qualitative factors associated with a loan transaction. Factors considered include industry and market conditions; position within the industry; earnings trends; operating cash flow; asset/liability values; debt capacity; guarantor strength; management and controls; financial reporting; collateral; and other considerations. In addition, the Company's independent loan review group evaluates the credit quality and related risk ratings in all loan portfolios. The results of these reviews are reported to the Risk Committee of the Board of Directors on a periodic basis and annually to the Board of Directors. For the consumer loans, the Company heavily relies on payment status for calibrating credit risk.
The ratings categories used for assessing credit risk in the commercial real estate, multi-family mortgage, construction, commercial, equipment financing, condominium association and other consumer loan and lease classes are defined as follows:
1 -4 Rating—Pass
Loan rating grades "1" through "4" are classified as "Pass," which indicates borrowers are performing in accordance with the terms of the loan and are less likely to result in loss due to the capacity of the borrower to pay and the adequacy of the value of assets pledged as collateral.
5 Rating—Other Assets Especially Mentioned ("OAEM")
Borrowers exhibit potential credit weaknesses or downward trends deserving management's attention. If not checked or corrected, these trends will weaken the Company's asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.
6 Rating—Substandard
Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligors or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy. Although no loss of principal is envisioned, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.
7 Rating—Doubtful
Borrowers exhibit well-defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.
8 Rating—Definite Loss
Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.
Assets rated as "OAEM," "substandard" or "doubtful" based on criteria established under banking regulations are collectively referred to as "criticized" assets.

24

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Credit Quality Information
The following tables present the recorded investment in loans in each class as of June 30, 2017, by credit quality indicator.
 
At June 30, 2017
 
Commercial
Real Estate
 
Multi-
Family
Mortgage
 
Construction
 
Commercial
 
Equipment
Financing
 
Condominium
Association
 
Other
Consumer
 
(In Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan rating:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
1,929,364

 
$
693,469

 
$
153,057

 
$
643,636

 
$
823,994

 
$
58,130

 
$
14,130

OAEM
5,201

 

 

 
12,489

 
782

 

 

Substandard
6,788

 
1,075

 

 
22,139

 
7,237

 

 
43

Doubtful
266

 

 

 
3,413

 
2,758

 

 

Total originated
1,941,619

 
694,544

 
153,057

 
681,677

 
834,771

 
58,130

 
14,173

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan rating:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
117,770

 
25,371

 

 
7,163

 
5,146

 

 
109

OAEM
1,262

 
267

 

 
278

 

 

 

Substandard
1,893

 
302

 

 
1,952

 
15

 

 
2

Doubtful
102

 

 

 

 

 

 

Total acquired
121,027

 
25,940

 

 
9,393

 
5,161

 

 
111

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans
$
2,062,646

 
$
720,484

 
$
153,057

 
$
691,070

 
$
839,932

 
$
58,130

 
$
14,284

As of June 30, 2017, there were no loans categorized as definite loss.




25

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
 
At June 30, 2017
 
 
Residential Mortgage
 
Home Equity
 
 
($ In Thousands)
Originated:
 
 
 
 
 
 
 
 
Loan-to-value ratio:
 
 

 
 
 
 

 
 
Less than 50%
 
$
143,443

 
22.2
%
 
$
147,860

 
42.1
%
50% - 69%
 
246,057

 
38.0
%
 
72,015

 
20.5
%
70% - 79%
 
169,578

 
26.2
%
 
59,328

 
16.9
%
80% and over
 
24,770

 
3.8
%
 
23,939

 
6.8
%
Data not available*
 
1,244

 
0.2
%
 
44

 
%
Total originated
 
585,092

 
90.4
%
 
303,186

 
86.3
%
 
 
 
 
 
 
 
 
 
Acquired:
 
 

 
 
 
 

 
 
Loan-to-value ratio:
 
 

 
 
 
 

 
 
Less than 50%
 
17,483

 
2.7
%
 
29,466

 
8.6
%
50%—69%
 
21,252

 
3.3
%
 
14,835

 
4.2
%
70%—79%
 
13,100

 
2.0
%
 
2,242

 
0.6
%
80% and over
 
8,775

 
1.4
%
 
873

 
0.2
%
Data not available*
 
977

 
0.2
%
 
522

 
0.1
%
Total acquired
 
61,587

 
9.6
%
 
47,938

 
13.7
%
 
 
 
 
 
 
 
 
 
Total loans
 
$
646,679

 
100.0
%
 
$
351,124

 
100.0
%
 
 
 
 
 
 
 
 
 
_______________________________________________________________________________
* Represents in process general ledger accounts for which data are not available.


26

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

The following tables present the recorded investment in loans in each class as of December 31, 2016, by credit quality indicator.
 
At December 31, 2016
 
Commercial
Real Estate
 
Multi-
Family
Mortgage
 
Construction
 
Commercial
 
Equipment
Financing
 
Condominium
Association
 
Other
Consumer
 
(In Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan rating:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
1,899,162

 
$
700,046

 
$
136,607

 
$
583,940

 
$
786,050

 
$
60,122

 
$
12,018

OAEM
1,538

 

 
178

 
8,675

 
824

 

 

Substandard
6,288

 
1,404

 

 
28,595

 
4,848

 

 
12

Doubtful
266

 

 

 
75

 
1,980

 

 

Total originated
1,907,254

 
701,450

 
136,785

 
621,285

 
793,702

 
60,122

 
12,030

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan rating:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
131,850

 
29,153

 
214

 
10,312

 
6,158

 

 
128

OAEM
1,408

 
270

 

 
249

 

 

 

Substandard
9,768

 
313

 

 
3,017

 

 

 

Doubtful
102

 

 

 
563

 

 

 

Total acquired
143,128

 
29,736

 
214

 
14,141

 
6,158

 

 
128

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans
$
2,050,382

 
$
731,186

 
$
136,999

 
$
635,426

 
$
799,860

 
$
60,122

 
$
12,158

As of December 31, 2016, there were no loans categorized as definite loss.




27

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
At December 31, 2016
 
Residential Mortgage
 
Home Equity
 
($ In Thousands)
Originated:
 
 
 
 
 
 
 
Loan-to-value ratio:
 

 
 
 
 

 
 
Less than 50%
$
138,030

 
22.1
%
 
$
153,679

 
44.9
%
50%—69%
229,799

 
36.9
%
 
61,553

 
18.1
%
70%—79%
162,614

 
26.0
%
 
49,987

 
14.6
%
80% and over
21,859

 
3.5
%
 
23,317

 
6.8
%
Data not available*
3,128

 
0.5
%
 
825

 
0.2
%
Total originated
555,430

 
89.0
%
 
289,361

 
84.6
%
 
 
 
 
 
 
 
 
Acquired:
 

 
 
 
 

 
 
Loan-to-value ratio:
 

 
 
 
 

 
 
Less than 50%
17,809

 
2.9
%
 
32,334

 
9.4
%
50%—69%
24,027

 
3.8
%
 
15,059

 
4.4
%
70%—79%
14,030

 
2.2
%
 
3,069

 
0.9
%
80% and over
10,069

 
1.6
%
 
1,016

 
0.3
%
Data not available*
2,984

 
0.5
%
 
1,402

 
0.4
%
Total acquired
68,919

 
11.0
%
 
52,880

 
15.4
%
 
 
 
 
 
 
 
 
Total loans
$
624,349

 
100.0
%
 
$
342,241

 
100.0
%
 
 
 
 
 
 
 
 
_______________________________________________________________________________
* Represents in process general ledger accounts for which data are not available.


The following table presents information regarding foreclosed residential real estate property for the periods indicated:
 
At June 30, 2017
 
At December 31, 2016
 
(In Thousands)
Foreclosed residential real estate property held by the creditor
$
149

 
$
251

Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure
1,536

 
1,213









28

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Age Analysis of Past Due Loans and Leases
The following tables present an age analysis of the recorded investment in total loans and leases as of June 30, 2017 and December 31, 2016.
 
At June 30, 2017
 
Past Due
 
 
 
 
 
Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing
 
 
 
31-60
Days
 
61-90
Days
 
Greater
Than
90 Days
 
Total
 
Current
 
Total Loans
and Leases
 
 
Nonaccrual
Loans and
Leases
 
(In Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
1,326

 
$
874

 
$
1,081

 
$
3,281

 
$
1,938,338

 
$
1,941,619

 
$

 
$
2,626

Multi-family mortgage

 
682

 

 
682

 
693,862

 
694,544

 

 
1,075

Construction
1,202

 

 

 
1,202

 
151,855

 
153,057

 

 

Total commercial real estate loans
2,528

 
1,556

 
1,081

 
5,165

 
2,784,055

 
2,789,220

 

 
3,701

Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
2,884

 
3,631

 
15,036

 
21,551

 
660,126

 
681,677

 
50

 
22,608

Equipment financing
2,013

 
3,576

 
4,825

 
10,414

 
824,357

 
834,771

 
206

 
9,702

Condominium association
1,289

 

 

 
1,289

 
56,841

 
58,130

 

 

Total commercial loans and leases
6,186

 
7,207

 
19,861

 
33,254

 
1,541,324

 
1,574,578

 
256

 
32,310

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage

 

 
3,189

 
3,189

 
581,903

 
585,092

 

 
3,189

Home equity
994

 
104

 
486

 
1,584

 
301,602

 
303,186

 
1

 
606

Other consumer
357

 
32

 
25

 
414

 
13,759

 
14,173

 

 
43

Total consumer loans
1,351

 
136

 
3,700

 
5,187

 
897,264

 
902,451

 
1


3,838

Total originated loans and leases
$
10,065

 
$
8,899

 
$
24,642

 
$
43,606

 
$
5,222,643

 
$
5,266,249

 
$
257

 
$
39,849

 
 
 
 
 
 
 
 
 
 
 
 
 
(Continued)
 

29

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
At June 30, 2017
 
Past Due
 
 
 
 
 
Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing
 
 
 
31-60
Days
 
61-90
Days
 
Greater
Than
90 Days
 
Total
 
Current
 
Total Loans
and Leases
 
 
Nonaccrual
Loans and
Leases
 
(In Thousands)
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
149

 
$
499

 
$
295

 
$
943

 
$
120,084

 
$
121,027

 
$
225

 
$
140

Multi-family mortgage

 

 
3

 
3

 
25,937

 
25,940

 
3

 

Total commercial real estate loans
149

 
499

 
298

 
946

 
146,021

 
146,967

 
228

 
140

Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
113

 
256

 
1,446

 
1,815

 
7,578

 
9,393

 
167

 
1,279

Equipment financing

 

 
15

 
15

 
5,146

 
5,161

 
15

 

Total commercial loans and leases
113

 
256

 
1,461

 
1,830

 
12,724

 
14,554

 
182

 
1,279

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
161

 
74

 
2,134

 
2,369

 
59,218

 
61,587

 
1,895

 
239

Home equity
268

 
382

 
247

 
897

 
47,041

 
47,938

 
142

 
760

Other consumer


 

 
2

 
2

 
109

 
111

 
2

 

Total consumer loans
429

 
456

 
2,383

 
3,268

 
106,368

 
109,636

 
2,039

 
999

Total acquired loans and leases
$
691

 
$
1,211

 
$
4,142

 
$
6,044

 
$
265,113

 
$
271,157

 
$
2,449

 
$
2,418

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans and leases
$
10,756

 
$
10,110

 
$
28,784

 
$
49,650

 
$
5,487,756

 
$
5,537,406

 
$
2,706

 
$
42,267



30

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
At December 31, 2016
 
Past Due
 
 
 
 
 
Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing
 
 
 
31-60
Days
 
61-90
Days
 
Greater
Than
90 Days
 
Total
 
Current
 
Total Loans
and Leases
 
 
Nonaccrual
Loans and
Leases
 
(In Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
1,525

 
$
2,075

 
$
429

 
$
4,029

 
$
1,903,225

 
$
1,907,254

 
$
2

 
$
5,035

Multi-family mortgage
2,296

 

 
291

 
2,587

 
698,863

 
701,450

 

 
1,404

Construction
547

 

 

 
547

 
136,238

 
136,785

 

 

Total commercial real estate loans
4,368

 
2,075

 
720

 
7,163

 
2,738,326

 
2,745,489

 
2

 
6,439

Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
5,396

 
815

 
10,014

 
16,225

 
605,060

 
621,285

 

 
20,587

Equipment financing
2,983

 
1,444

 
5,341

 
9,768

 
783,934

 
793,702

 

 
6,758

Condominium association
266

 

 

 
266

 
59,856

 
60,122

 

 

Total commercial loans and leases
8,645

 
2,259

 
15,355

 
26,259

 
1,448,850

 
1,475,109

 

 
27,345

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
3,745

 
2,294

 
163

 
6,202

 
549,228

 
555,430

 

 
2,455

Home equity
25

 
219

 
5

 
249

 
289,112

 
289,361

 
3

 
128

Other consumer
549

 
87

 
16

 
652

 
17,519

 
18,171

 

 
149

Total consumer loans
4,319

 
2,600

 
184

 
7,103

 
855,859

 
862,962

 
3

 
2,732

Total originated loans and leases
$
17,332

 
$
6,934

 
$
16,259

 
$
40,525

 
$
5,043,035

 
$
5,083,560

 
$
5

 
$
36,516

 
 
 
 
 
 
 
 
 
 
 
 
 
(Continued)
 

31

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
At December 31, 2016
 
Past Due
 
 
 
 
 
Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing
 
 
 
31-60
Days
 
61-90
Days
 
Greater
Than
90 Days
 
Total
 
Current
 
Total Loans
and Leases
 
 
Nonaccrual
Loans and
Leases
 
(In Thousands)
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
925

 
$

 
$
4,011

 
$
4,936

 
$
138,192

 
$
143,128

 
$
3,786

 
$
305

Multi-family mortgage

 

 

 

 
29,736

 
29,736

 

 

Construction

 

 

 

 
214

 
214

 

 

Total commercial real estate loans
925

 

 
4,011

 
4,936

 
168,142

 
173,078

 
3,786

 
305

Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
306

 

 
2,651

 
2,957

 
11,184

 
14,141

 
264

 
2,387

Equipment financing

 

 

 

 
6,158

 
6,158

 

 

Total commercial loans and leases
306

 

 
2,651

 
2,957

 
17,342

 
20,299

 
264

 
2,387

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage

 
318

 
2,865

 
3,183

 
65,736

 
68,919

 
2,820

 
46

Home equity
288

 
97

 
339

 
724

 
52,156

 
52,880

 
202

 
823

Other consumer

 
1

 

 
1

 
127

 
128

 

 

Total consumer loans
288

 
416

 
3,204

 
3,908

 
118,019

 
121,927

 
3,022

 
869

Total acquired loans and leases
$
1,519

 
$
416

 
$
9,866

 
$
11,801

 
$
303,503

 
$
315,304

 
$
7,072

 
$
3,561

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans and leases
$
18,851

 
$
7,350

 
$
26,125

 
$
52,326

 
$
5,346,538

 
$
5,398,864

 
$
7,077

 
$
40,077


32

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Commercial Real Estate Loans—As of June 30, 2017, loans outstanding in the three classes within this segment expressed as a percentage of total loans and leases outstanding were as follows: commercial real estate loans -- 37.2%; multi-family mortgage loans -- 13.0%; and construction loans -- 2.8%.
Loans in this portfolio that are on nonaccrual status and/or risk-rated "substandard" or worse are evaluated on an individual loan basis for impairment. For non-impaired commercial real estate loans, loss factors are applied to outstanding loans by risk rating for each of the three classes in the portfolio. The factors applied are based primarily on historic loan loss experience and an assessment of internal and external factors and other relevant information.
Commercial Loans and Leases—As of June 30, 2017, loans and leases outstanding in the three classes within this segment expressed as a percent of total loans and leases outstanding were as follows: commercial loans and leases -- 12.5%; equipment financing loans -- 15.2%; and loans to condominium associations -- 1.0%.
Loans and leases in this portfolio that are on nonaccrual status and/or risk-rated "substandard" or worse are evaluated on an individual basis for impairment. For non-impaired commercial loans and leases, loss factors are applied to outstanding loans by risk rating for each of the three classes in the portfolio.
Consumer Loans—As of June 30, 2017, loans outstanding within the four classes within this segment expressed as a percent of total loans and leases outstanding were as follows: residential mortgage loans -- 11.7%, home equity loans -- 6.3%, and other consumer loans -- 0.3%.
Significant risk characteristics related to the residential mortgage and home equity loan portfolios are the geographic concentration of the properties financed within selected communities in the greater Boston and Providence metropolitan areas. The payment status and loan-to-value ratio are the primary credit quality indicator used for residential mortgage loans and home equity loans. 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. Consumer loans that become 90 days or more past due, or are placed on nonaccrual regardless of past due status, are reviewed on an individual basis for impairment by assessing the net realizable value of underlying collateral and the economic condition of the borrower.
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 Company has defined the population of impaired loans to include nonaccrual loans and troubled debt restructured loans.
When the ultimate collectability of the total principal of an impaired loan or lease is in doubt and the loan is on nonaccrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan or lease is not in doubt and the loan or lease is on nonaccrual status, contractual interest is credited to interest income when received, under the cash basis method.
The following tables include the recorded investment and unpaid principal balances of impaired loans and leases with the related allowance amount, if applicable, for the originated and acquired loan and lease portfolios at the dates indicated. Also presented are the average recorded investments in the impaired loans and leases and the related amount of interest recognized during the period that the impaired loans were impaired.

33

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
At June 30, 2017
 
At December 31, 2016
 
Recorded
Investment
(1)
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment (2)
 
Unpaid
Principal
Balance
 
Related
Allowance
 
(In Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
9,449

 
$
9,441

 
$

 
$
9,113

 
$
9,104

 
$

Commercial
23,469

 
23,463

 

 
39,269

 
39,210

 

Consumer
5,217

 
5,207

 

 
4,823

 
4,815

 

Total originated with no related allowance recorded
38,135

 
38,111

 

 
53,205

 
53,129

 

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
3,065

 
3,065

 
1

 
3,984

 
3,984

 
28

Commercial
20,731

 
20,680

 
8,482

 
605

 
605

 
97

Total originated with an allowance recorded
23,796

 
23,745

 
8,483

 
4,589

 
4,589

 
125

Total originated impaired loans and leases
61,931

 
61,856

 
8,483

 
57,794

 
57,718

 
125

 
 
 
 
 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
2,515

 
2,515

 

 
10,400

 
10,400

 

Commercial
2,292

 
2,292

 

 
3,948

 
3,948

 

Consumer
5,668

 
5,668

 

 
6,384

 
6,399

 

Total acquired with no related allowance recorded
10,475

 
10,475

 

 
20,732

 
20,747

 

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Consumer
171

 
171

 
20

 
253

 
253

 
27

 Total acquired with an allowance recorded
171

 
171

 
20

 
253

 
253

 
27

Total acquired impaired loans and leases
10,646

 
10,646

 
20

 
20,985

 
21,000

 
27

 
 
 
 
 
 
 
 
 
 
 
 
Total impaired loans and leases
$
72,577

 
$
72,502

 
$
8,503

 
$
78,779

 
$
78,718

 
$
152

___________________________________________________________________________
(1) Includes originated and acquired nonaccrual loans of $38.8 million and $2.5 million, respectively as of June 30, 2017.

(2) Includes originated and acquired nonaccrual loans of $34.1 million and $3.6 million, respectively as of December 31, 2016.

34

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
Three Months Ended
 
June 30, 2017
 
June 30, 2016
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In Thousands)
Originated:
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
$
11,395

 
$
90

 
$
7,203

 
$
49

Commercial
25,230

 
185

 
14,557

 
115

Consumer
5,272

 
14

 
3,625

 
17

Total originated with no related allowance recorded
41,897

 
289

 
25,385

 
181

With an allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
3,071

 
38

 
4,200

 
49

Commercial
21,782

 

 
13,376

 
1

Total originated with an allowance recorded
24,853

 
38

 
17,824

 
50

Total originated impaired loans and leases
66,750

 
327

 
43,209

 
231

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
3,494

 
27

 
9,035

 
49

Commercial
2,691

 
8

 
4,357

 
19

Consumer
5,683

 
18

 
7,743

 
18

Total acquired with no related allowance recorded
11,868

 
53

 
21,135

 
86

With an allowance recorded:
 
 
 
 
 
 
 
Commercial real estate

 

 
1,767

 

Commercial

 

 
486

 

Consumer
169

 
1

 
523

 
2

  Total acquired with an allowance recorded
169

 
1

 
2,776

 
2

Total acquired impaired loans and leases
12,037

 
54

 
23,911

 
88

 
 
 
 
 
 
 
 
Total impaired loans and leases
$
78,787

 
$
381

 
$
67,120

 
$
319


35

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In Thousands)
Originated:
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
$
10,379

 
$
122

 
$
5,164

 
$
56

Commercial
23,144

 
349

 
14,166

 
265

Consumer
5,289

 
30

 
4,057

 
37

Total originated with no related allowance recorded
38,812

 
501

 
23,387

 
358

With an allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
3,535

 
86

 
5,161

 
98

Commercial
22,052

 
1

 
12,330

 
2

Consumer

 

 
124

 

Total originated with an allowance recorded
25,587

 
87

 
17,615

 
100

Total originated impaired loans and leases
64,399

 
588

 
41,002

 
458

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
6,456

 
46

 
7,535

 
59

Commercial
2,813

 
18

 
4,317

 
37

Consumer
5,908

 
34

 
7,455

 
35

Total acquired with no related allowance recorded
15,177

 
98

 
19,307

 
131

With an allowance recorded:
 
 
 
 
 
 
 
Commercial real estate

 

 
2,187

 

Commercial

 

 
486

 

Consumer
168

 
2

 
524

 
4

  Total acquired with an allowance recorded
168

 
2

 
3,197

 
4

Total acquired impaired loans and leases
15,345

 
100

 
22,504

 
135

 
 
 
 
 
 
 
 
Total impaired loans and leases
$
79,744

 
$
688

 
$
63,506

 
$
593



36

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

The following tables present information regarding impaired and non-impaired loans and leases at the dates indicated:
 
At June 30, 2017
 
Commercial Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Allowance for Loan and Lease Losses:
 
 
 
 
 
 
 
Originated:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
1

 
$
8,482

 
$

 
$
8,483

Collectively evaluated for impairment
27,063

 
22,528

 
5,259

 
54,850

Total originated loans and leases
27,064

 
31,010

 
5,259

 
63,333

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
Individually evaluated for impairment

 

 
20

 
20

Collectively evaluated for impairment
170

 
15

 
30

 
215

Acquired with deteriorated credit quality
720

 
74

 
159

 
953

Total acquired loans and leases
890

 
89

 
209

 
1,188

 
 
 
 
 
 
 
 
Total allowance for loan and lease losses
$
27,954

 
$
31,099

 
$
5,468

 
$
64,521

 
 
 
 
 
 
 
 
Loans and Leases:
 
 
 
 
 
 
 
Originated:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
12,511

 
$
38,902

 
$
5,098

 
$
56,511

Collectively evaluated for impairment
2,776,709

 
1,535,676

 
897,353

 
5,209,738

Total originated loans and leases
2,789,220

 
1,574,578

 
902,451

 
5,266,249

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
Individually evaluated for impairment

 
1,778

 
1,934

 
3,712

Collectively evaluated for impairment
38,008

 
6,794

 
63,603

 
108,405

Acquired with deteriorated credit quality
108,959

 
5,982

 
44,099

 
159,040

Total acquired loans and leases
146,967

 
14,554

 
109,636

 
271,157

 
 
 
 
 
 
 
 
Total loans and leases
$
2,936,187

 
$
1,589,132

 
$
1,012,087

 
$
5,537,406




37

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
At December 31, 2016
 
Commercial Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Allowance for Loan and Lease Losses:
 
 
 
 
 
 
 
Originated:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
28

 
$
97

 
$

 
$
125

Collectively evaluated for impairment
26,830

 
20,682

 
4,776

 
52,288

Total originated loans and leases
26,858

 
20,779

 
4,776

 
52,413

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
Individually evaluated for impairment

 

 
27

 
27

Collectively evaluated for impairment
221

 
13

 
34

 
268

Acquired with deteriorated credit quality
566

 
114

 
278

 
958

Total acquired loans and leases
787

 
127

 
339

 
1,253

 
 
 
 
 
 
 
 
Total allowance for loan and lease losses
$
27,645

 
$
20,906

 
$
5,115

 
$
53,666

 
 
 
 
 
 
 
 
Loans and Leases:
 
 
 
 
 
 
 
Originated:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
13,097

 
$
37,637

 
$
4,711

 
$
55,445

Collectively evaluated for impairment
2,732,392

 
1,437,472

 
858,251

 
5,028,115

Total originated loans and leases
2,745,489

 
1,475,109

 
862,962

 
5,083,560

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
Individually evaluated for impairment
690

 
3,047

 
2,028

 
5,765

Collectively evaluated for impairment
47,599

 
10,863

 
70,115

 
128,577

Acquired with deteriorated credit quality
124,789

 
6,389

 
49,784

 
180,962

Total acquired loans and leases
173,078

 
20,299

 
121,927

 
315,304

 
 
 
 
 
 
 
 
Total loans and leases
$
2,918,567

 
$
1,495,408

 
$
984,889

 
$
5,398,864











38

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016


Troubled Debt Restructured Loans and Leases
A specific valuation allowance for losses on troubled debt restructured loans is determined by comparing the net carrying amount of the troubled debt restructured loan with the restructured loan's cash flows discounted at the original effective rate.
The following table sets forth information regarding troubled debt restructured loans and leases at the dates indicated:
 
At June 30, 2017

At December 31, 2016
 
(In Thousands)
Troubled debt restructurings:
 
 
 
On accrual
$
14,732

 
$
13,883

On nonaccrual
16,146

 
11,919

Total troubled debt restructurings
$
30,878

 
$
25,802


Total troubled debt restructuring loans and leases increased by $5.1 million to $30.9 million at June 30, 2017 from
$25.8 million at December 31, 2016, primarily driven by the restructuring of five commercial loans, offset by the repayment of other troubled debt restructured loans.
The recorded investment in troubled debt restructurings and the associated specific allowances for loan and lease losses, in the originated and acquired loan and lease portfolios, that were modified during the periods indicated, are as follows.
 
At and for the Three Months Ended June 30, 2017
 
 
 
Recorded Investment
 
Specific
Allowance for
Loan and
Lease Losses
 
 
 
 
 
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
 
 
Nonaccrual
Loans and
Leases
 
Additional
Commitment
 
Number of
Loans/
Leases
 
Recorded
Investment
 
(Dollars in Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
1

 
$
190

 
$
190

 
$

 
$

 
$

 

 
$

Commercial
6

 
6,746

 
6,746

 
2,382

 
4,354

 

 
3

 
4,013

Equipment financing
8

 
1,184

 
1,184

 
10

 
994

 

 
1

 
149

Total originated
15

 
$
8,120

 
$
8,120

 
$
2,392

 
$
5,348

 
$

 
4

 
$
4,162

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity

 

 

 

 

 

 
1

 
92

Total acquired

 

 

 

 

 

 
1

 
92

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans and leases
15

 
$
8,120

 
$
8,120

 
$
2,392

 
$
5,348

 
$

 
5

 
$
4,254

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

39

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
At and for the Three Months Ended June 30, 2016
 
 
 
Recorded Investment
 
Specific
Allowance for
Loan and
Lease Losses
 
 
 
 
 
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
 
 
Nonaccrual
Loans and
Leases
 
Additional
Commitment
 
Number of
Loans/
Leases
 
Recorded
Investment
 
(Dollars in Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
6

 
$
1,625

 
$
1,603

 
$
307

 
$
1,575

 
$

 
1

 
$
28

Equipment financing

 

 

 

 

 

 
2

 
364

Residential mortgage

 

 

 

 

 

 
1

 
149

Home equity

 

 

 

 

 

 
1

 
99

Total originated
6

 
$
1,625

 
$
1,603

 
$
307

 
$
1,575

 
$

 
5

 
$
640

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial

 

 

 

 

 

 
2

 
694

Home equity
1

 
50

 
49

 

 

 

 

 

Total acquired
1

 
50

 
49

 

 

 

 
2

 
694

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans and leases
7

 
$
1,675

 
$
1,652

 
$
307

 
$
1,575

 
$

 
7

 
$
1,334

______________________________________________________________________
(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 Six Months Ended June 30, 2017
 
 
 
Recorded Investment
 
Specific
Allowance for
Loan and
Lease Losses
 
 
 
 
 
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
 
 
Nonaccrual
Loans and
Leases
 
Additional
Commitment
 
Number of
Loans/
Leases
 
Recorded
Investment
 
(Dollars in Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
1

 
$
190

 
$
190

 
$

 
$

 
$

 

 
$

Commercial
9

 
7,511

 
7,503

 
2,741

 

 

 
3

 
4,013

Equipment financing
9

 
1,196

 
1,196

 
10

 

 

 
1

 
149

Total originated
19

 
8,897

 
8,889

 
2,751

 

 

 
4

 
4,162

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity


 

 

 

 

 

 
1

 
92

Total acquired

 

 

 

 

 

 
1

 
92

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans and leases
19

 
$
8,897

 
$
8,889

 
$
2,751

 
$

 
$

 
5

 
$
4,254


40

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
At and for the Six Months Ended June 30, 2016
 
 
 
Recorded Investment
 
Specific
Allowance for
Loan and
Lease Losses
 
 
 
 
 
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
 
 
Nonaccrual
Loans and
Leases
 
Additional
Commitment
 
Number of
Loans/
Leases
 
Recorded
Investment
 
(Dollars in Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
2

 
$
1,156

 
$
1,155

 
$

 
$
1,155

 
$

 

 
$

Commercial
20

 
8,889

 
8,777

 
2,388

 
8,749

 

 
1

 
28

Equipment financing
2

 
364

 
364

 

 
364

 

 
2

 
364

Residential mortgage

 

 

 

 

 

 
1

 
149

Home equity

 

 

 

 

 

 
1

 
99

Total originated
24

 
10,409

 
10,296

 
2,388

 
10,268

 

 
5

 
640

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial

 

 

 

 

 

 
2

 
694

Residential mortgage
1

 
50

 
49

 

 

 

 

 

Total acquired
1

 
50

 
49

 

 

 

 
2

 
694

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans and leases
25

 
$
10,459

 
$
10,345

 
$
2,388

 
$
10,268

 
$

 
7

 
$
1,334

The following table sets forth the Company's end-of-period balances for troubled debt restructurings that were modified during the periods indicated, by type of modification.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In Thousands)
Loans with one modification:
 
 
 
 
 
 
 
Extended maturity
$
7,027

 
$
77

 
$
7,039

 
$
77

Adjusted principal

 

 
372

 
413

Interest only

 

 

 
2,374

Combination maturity, principal, interest rate
1,093

 
1,344

 
1,478

 
7,250

Total loans with one modification
8,120

 
1,421

 
8,889

 
10,114

 
 
 
 
 
 
 
 
Loans with more than one modification:
 
 
 
 
 
 
 
Extended maturity

 
231

 

 
231

Total loans with more than one modification

 
231

 

 
231

 
 
 
 
 
 
 
 
Total loans with modifications
$
8,120

 
$
1,652

 
$
8,889

 
$
10,345

The troubled debt restructuring loans and leases that were modified for the six months ended June 30, 2017 and 2016 were $8.9 million and $10.3 million, respectively. The decrease in troubled debt restructuring loans and leases that were modified for the six months ended June 30, 2017 was primarily due to the decrease in the modification of loans and leases secured by taxi medallions.
There were no troubled debt restructuring loans and leases with more than one modification during the three and six months ended June 30, 2017.
The net charge-offs of the performing and nonperforming troubled debt restructuring loans and leases for the three and six months ended June 30, 2017 were $98.7 thousand and $91.9 thousand, respectively. The net charge-offs for performing and

41

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

nonperforming troubled debt restructuring loans and leases for the three and six months ended June 30, 2016 were $97.5 thousand and $81.6 thousand, respectively.
As of June 30, 2017 and 2016, there were no commitments to lend funds to debtors owing receivables whose terms had been modified in troubled debt restructurings.
(6) Goodwill and Other Intangible Assets
The following table sets forth the carrying value of goodwill and other intangible assets at the dates indicated:
 
At June 30, 2017
 
At December 31, 2016
 
(In Thousands)
Goodwill
$
137,890

 
$
137,890

Other intangible assets:
 
 
 
Core deposits
5,993

 
7,044

Trade name
1,089

 
1,089

Total other intangible assets
7,082

 
8,133

Total goodwill and other intangible assets
$
144,972

 
$
146,023

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 8.3 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 2017
$
1,038

Year ending:
 
2018
1,669

2019
1,295

2020
944

2021
601

2022
299

Thereafter
147

Total
$
5,993

(7) Accumulated Other Comprehensive Income (Loss)
For the three and six months ended June 30, 2017 and 2016, the Company’s accumulated other comprehensive income (loss) includes the following two components: (i) unrealized holding gains (losses) on investment securities available-for-sale; and (ii) adjustment of accumulated obligation for postretirement benefits.
 

42

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Changes in accumulated other comprehensive income (loss) by component, net of tax, were as follows for the periods indicated:
 
Three Months Ended June 30, 2017
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 
(In Thousands)
Balance at March 31, 2017
$
(3,656
)
 
$
395

 
$
(3,261
)
Other comprehensive income
1,086

 

 
1,086

Balance at June 30, 2017
$
(2,570
)
 
$
395

 
$
(2,175
)
 
 
Three Months Ended June 30, 2016
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 
(In Thousands)
Balance at March 31, 2016
$
3,001

 
$
351

 
$
3,352

Other comprehensive income
2,617

 

 
2,617

Balance at June 30, 2016
$
5,618

 
$
351

 
$
5,969


 
Six Months Ended June 30, 2017
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 
(In Thousands)
Balance at December 31, 2016
$
(4,213
)
 
$
395

 
$
(3,818
)
Other comprehensive income
1,643

 

 
1,643

Balance at June 30, 2017
$
(2,570
)
 
$
395

 
$
(2,175
)
 
Six Months Ended June 30, 2016
 
Investment
Securities
 Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 
(In Thousands)
Balance at December 31, 2015
$
(2,827
)
 
$
351

 
$
(2,476
)
Other comprehensive income

8,445

 

 
8,445

Balance at June 30, 2016
$
5,618

 
$
351

 
$
5,969


The Company did not reclassify any amounts out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2017 and 2016.
(8) Derivatives and Hedging Activities
The Company utilizes loan level derivatives which consist of interest-rate contracts (swaps, caps and floors), and risk participation agreements as part of the Company's interest-rate risk management strategy for certain assets and liabilities and not for speculative purposes. 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".
Interest-rate swap, cap and floor agreements are entered into as hedges against future interest-rate fluctuations on specifically identified assets or liabilities. The Company did not have derivative fair value hedges or derivative cash flow hedges as of June 30, 2017 or December 31, 2016.

43

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Derivatives not designated as hedges are not speculative but rather result from a service the Company provides to certain customers for a fee. 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.
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. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower, for a fee received from the other 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 presents the Company's customer related derivative positions for the periods indicated below for those derivatives not designated as hedging.
 
Notional Amount Maturing
 
Number of Positions
 
Less than 1 year
 
Less than 2 years
 
Less than 3 years
 
Less than 4 years
 
Thereafter
 
Total
 
Fair Value
 
June 30, 2017
 
(Dollars In Thousands)
Loan level derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive fixed, pay variable
59

 
$

 
$
6,053

 
$

 
$
28,763

 
$
375,021

 
$
409,837

 
$
9,874

Pay fixed, receive variable
59

 

 
6,053

 

 
28,763

 
375,021

 
409,837

 
9,874

Risk participation-out agreements
5

 

 

 

 
8,850

 
7,844

 
16,694

 
16

Risk participation-in agreements
1

 

 

 

 

 
3,825

 
3,825

 
14

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Buys foreign currency, sells U.S. currency
17

 
$
14,786

 
$

 
$

 
$

 
$

 
$
14,786

 
$
43

Sells foreign currency, buys U.S. currency
34

 
14,786

 

 

 

 

 
14,786

 
35



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Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
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, 2016
 
(Dollars In Thousands)
Loan level derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive fixed, pay variable
54

 
$

 
$
4,025

 
$
2,141

 
$
29,501

 
$
348,113

 
$
383,780

 
$
9,738

Pay fixed, receive variable
54

 

 
4,025

 
2,141

 
29,501

 
348,113

 
383,780

 
9,738

Risk participation-out agreements
5

 

 

 

 
9,078

 
7,883

 
16,961

 
20

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Buys foreign currency, sells U.S. currency
3

 
$
4,050

 
$

 
$

 
$

 
$

 
$
4,050

 
$

Sells foreign currency, buys U.S. currency
3

 
4,050

 

 

 

 

 
4,050

 

As of December 31, 2016, the Company held no risk participation-in agreements. As of December 31, 2016, the fair value of the foreign exchange contracts was nominal. Refer also to Note 11, "Fair Value of Financial Instruments."
Certain derivative agreements contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. The Company posted collateral of $28.8 million and $34.5 million in the normal course of business as of June 30, 2017 and December 31, 2016, 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 June 30, 2017
 
Gross
Amounts Recognized
 
Gross Amounts
Offset in the
Statement of Financial Position
 
Net Amounts  Presented in the Statement of Financial Position
 
Gross Amounts Not Offset in the
Statement of Financial Position
 
Net Amount
 
 
 
 
Financial Instruments Pledged
 
Cash Collateral Pledged
 
 
(In Thousands)
Asset derivatives
 
 
 
 
 
 
 
 
 
 
 
Loan level derivatives
$
9,874

 
$

 
$
9,874

 
$

 
$
590

 
$
9,284

Risk participation-out agreements
16

 

 
16

 

 

 
16

Foreign exchange contracts
43

 

 
43

 

 

 
43

Total
$
9,933

 
$

 
$
9,933

 
$

 
$
590

 
$
9,343

 
 
 
 
 
 
 
 
 
 
 
 
Liability derivatives
 
 
 
 
 
 
 
 
 
 
 
Loan level derivatives
$
9,874

 
$

 
$
9,874

 
$
28,031

 
$
720

 
$

Risk participation-in agreements
14

 

 
14

 

 

 

Foreign exchange contracts
35

 

 
35

 

 

 

Total
$
9,923

 
$

 
$
9,923

 
$
28,031

 
$
720

 
$


45

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

 
At December 31, 2016
 
Gross
Amounts Recognized
 
Gross Amounts
Offset in the
Statement of Financial Position
 
Net Amounts  Presented in the Statement of Financial Position
 
Gross Amounts Not Offset in the
Statement of Financial Position
 
Net Amount
 
 
 
 
Financial Instruments Pledged
 
Cash Collateral Pledged
 
 
(In Thousands)
Asset derivatives
 
 
 
 
 
 
 
 
 
 
 
Loan level derivatives
$
9,738

 
$

 
$
9,738

 
$

 
$

 
$
9,738

Risk participation-out agreements
20

 

 
20

 

 

 
20

Total
$
9,758

 
$

 
$
9,758

 
$

 
$

 
$
9,758

 
 
 
 
 
 
 
 
 
 
 
 
Liability derivatives
 
 
 
 
 
 
 
 
 
 
 
Loan level derivatives
$
9,738

 
$

 
$
9,738

 
$
33,744

 
$
720

 
$

Total
$
9,738

 
$

 
$
9,738

 
$
33,744

 
$
720

 
$

As of December 31, 2016, the Company held no risk participation-in agreements. As of December 31, 2016, the fair value of the foreign exchange contracts was nominal.
The Company has agreements with certain of its derivative counterparties that contain credit-risk-related contingent provisions. These provisions provide the counterparty with the right to terminate its derivative positions and require the Company to settle its obligations under the agreements if the Company defaults on certain of its indebtedness or if the Company fails to maintain its status as a well-capitalized institution.
(9) Stock Based Compensation
As of June 30, 2017, the Company had three active recognition and retention plans: the 2003 Recognition and Retention Plan (the "2003 RRP") with 1,250,000 authorized shares, the 2011 Restricted Stock Award Plan ("2011 RSA") with 500,000 authorized shares and the 2014 Equity Incentive Plan ("2014 Plan") with 1,750,000 authorized shares. The 2003 RRP, the 2011 RSA and the 2014 Plan are collectively referred to as the "Plans". The purpose of the Plans is to promote the long-term financial success of the Company and its subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company's stockholders.
Of the awarded shares, generally 50% vest ratably over three years with one-third of such shares vesting at each of the first, second and third anniversary dates of the awards. These are referred to as "time-based shares". The remaining 50% of each award has a cliff vesting schedule and will vest three years after the award date based on the level of the Company's achievement of identified performance targets in comparison to the level of achievement of such identified performance targets by a defined peer group comprised of 17 financial institutions. These are referred to as "performance-based shares". The specific performance measure targets relate to return on assets, return on tangible equity, asset quality and total stockholder return (share price appreciation from date of award plus dividends paid as a percent of the Company's common stock share price on the date of award). If a participant leaves the Company prior to the third anniversary date of an award, any unvested shares are 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 all the Plans, shares of the Company's common stock were reserved for issuance as restricted stock awards to officers, employees, and non-employee directors of the Company. Shares issued upon vesting may be either authorized but unissued shares or reacquired shares held by the Company as treasury shares. Any shares not issued because vesting requirements are not met will be retired back to treasury and be made available again for issuance under the Plans.
During the three and six months ended June 30, 2017, 12,121 shares were issued upon satisfaction of required conditions of the Plans. During the three and six months ended June 30, 2016, 1,330 shares were issued upon satisfaction of required conditions of the Plans.
Total expense for the Plans was $0.6 million and $0.2 million for the three months ended June 30, 2017 and 2016, respectively. Total expense for the Plans was $1.1 million and $0.8 million for the six months ended June 30, 2017 and 2016,

46

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

respectively. The increase in the total expense for the Plans for the three and six months ended June 30, 2017 is due to the increase in the grant price of the shares which is driven by the Company’s stock price.
(10) Earnings per Share ("EPS")
The following table is a reconciliation of basic EPS and diluted EPS:
 
Three Months Ended
 
June 30, 2017
 
June 30, 2016
 
Basic
 
Fully
Diluted
 
Basic
 
Fully
Diluted
 
(Dollars in Thousands, Except Per Share Amounts)
Numerator:
 
 
 
 
 
 
 
Net income
$
14,880

 
$
14,880

 
$
12,654

 
$
12,654

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding
74,325,013

 
74,325,013

 
70,196,950

 
70,196,950

Effect of dilutive securities

 
485,075

 

 
191,488

Adjusted weighted average shares outstanding
74,325,013

 
74,810,088

 
70,196,950

 
70,388,438

 
 
 
 
 
 
 
 
EPS
$
0.20

 
$
0.20

 
$
0.18

 
$
0.18

 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
Basic
 
Fully
Diluted
 
Basic
 
Fully
Diluted
 
(Dollars in Thousands, Except Per Share Amounts)
Numerator:
 
 
 
 
 
 
 
Net income
$
28,325


$
28,325

 
$
25,466


$
25,466

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding
72,366,769

 
72,366,769

 
70,191,935

 
70,191,935

Effect of dilutive securities

 
471,202

 

 
173,988

Adjusted weighted average shares outstanding
72,366,769

 
72,837,971

 
70,191,935

 
70,365,923

 
 
 
 
 
 
 
 
EPS
$
0.39

 
$
0.39

 
$
0.36

 
$
0.36

(11) Fair Value of Financial Instruments
A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring and non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no changes in the valuation techniques used during the three and six months ended June 30, 2017 and 2016.

47

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables set forth the carrying value of assets and liabilities measured at fair value on a recurring basis at the dates indicated:
 
Carrying Value as of June 30, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In Thousands)
Assets:
 

 
 

 
 

 
 

Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$

 
$
139,783

 
$

 
$
139,783

GSE CMOs

 
142,739

 

 
142,739

GSE MBSs

 
192,323

 

 
192,323

SBA commercial loan asset-backed securities

 
81

 

 
81

Corporate debt obligations

 
58,877

 

 
58,877

U.S. Treasury bonds

 
4,804

 

 
4,804

Trust preferred securities

 
1,387

 

 
1,387

Marketable equity securities
982

 

 

 
982

Total investment securities available-for-sale
$
982

 
$
539,994

 
$

 
$
540,976

Loan level derivatives
$

 
$
9,874

 
$

 
$
9,874

Risk participation-out agreements

 
16

 

 
16

Foreign exchange contracts

 
43

 

 
43

Liabilities:
 
 
 
 
 
 
 
Loan level derivatives
$

 
$
9,874

 
$

 
$
9,874

Risk participation-in agreements

 
14

 

 
14

Foreign exchange contracts

 
35

 

 
35

 
Carrying Value as of December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In Thousands)
Assets:
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$

 
$
97,020

 
$

 
$
97,020

GSE CMOs

 
158,040

 

 
158,040

GSE MBSs

 
212,915

 

 
212,915

SBA commercial loan asset-backed securities

 
107

 

 
107

Corporate debt obligations

 
48,485

 

 
48,485

U.S. Treasury bonds

 
4,737

 

 
4,737

Trust preferred securities

 
1,358

 

 
1,358

Marketable equity securities
972

 

 

 
972

Total investment securities available-for-sale
$
972

 
$
522,662

 
$


$
523,634

Loan level derivatives
$

 
$
9,738

 
$

 
$
9,738

Risk participation-out agreements

 
20

 

 
20

Foreign exchange contracts

 

 

 

Liabilities:
 
 
 
 
 
 


Loan level derivatives
$

 
$
9,738

 
$

 
$
9,738


48

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

As of December 31, 2016, the fair value of the foreign exchange contracts was nominal. As of December 31, 2016, the Company held no risk participation-in agreements.
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. The Company's marketable equity securities are priced this way and are included in Level 1. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include GSE debentures, GSE mortgage-related securities, SBA commercial loan asset backed securities, corporate debt securities, and trust preferred securities, all of which are included in Level 2. As of June 30, 2017 and December 31, 2016, no investment securities were valued using pricing models included in Level 3.
Additionally, management reviews changes in fair value from period to period and performs testing to ensure that prices received from the third parties are consistent with management's expectation of the market. Changes in the prices obtained from the pricing service are analyzed from month to month, taking into consideration changes in market conditions including changes in mortgage spreads, changes in U.S. Treasury security yields and changes in generic pricing of 15-year and 30-year securities. Additional analysis may include a review of prices provided by other independent parties, a yield analysis, a review of average life changes using Bloomberg analytics and a review of historical pricing for a particular security.
Loan Level Derivatives
The fair values for the interest-rate swap assets and liabilities 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. Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposures and remaining contractual life. To date, the Company has not realized any losses due to a counterparty's inability to pay any net uncollateralized position. Refer also to Note 8, "Derivatives and Hedging Activities."
There were no transfers between levels for assets and liabilities recorded at fair value on a recurring basis during the three and six months ended June 30, 2017 and 2016, respectively.

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Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below at the dated indicated:
 
Carrying Value as of June 30, 2017
 
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
$

 
$

 
$
32,194

 
$
32,194

OREO

 

 
3,384

 
3,384

Repossessed assets

 
1,489

 

 
1,489

Total assets measured at fair value on a non-recurring basis
$

 
$
1,489

 
$
35,578

 
$
37,067

 
Carrying Value as of December 31, 2016
 
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
$

 
$

 
$
27,282

 
$
27,282

OREO

 

 
618

 
618

Repossessed assets

 
781

 

 
781

Total assets measured at fair value on a non-recurring basis
$

 
$
781

 
$
27,900

 
$
28,681

Collateral-Dependent Impaired Loans and Leases
For nonperforming loans and leases where the credit quality of the borrower has deteriorated significantly, fair values of the underlying collateral were estimated using purchase and sales agreements (Level 2), or comparable sales or recent appraisals (Level 3), adjusted for selling costs and other expenses.
Other Real Estate Owned
The Company records OREO at the lower of cost or fair value. In estimating fair value, the Company utilizes purchase and sales agreements (Level 2) or comparable sales, recent appraisals or cash flows discounted at an interest rate commensurate with the risk associated with these cash flows (Level 3), adjusted for selling costs and other expenses.
Repossessed Assets
Repossessed assets are carried at estimated fair value less costs to sell based on auction pricing (Level 2).
The table below presents quantitative information about significant unobservable inputs (Level 3) for assets measured at fair value on a recurring basis at the dates indicated.
 
Fair Value
 
Valuation Technique
 
At June 30, 2017
 
At December 31, 2016
 
 
 
(Dollars in Thousands)
 
 
Collateral-dependent impaired loans and leases
$
32,194

 
$
27,282

 
Appraisal of collateral (1)
Other real estate owned
3,384

 
618

 
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.


50

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

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
 
Carrying
Value
 
Estimated
Fair Value
 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
(In Thousands)
At June 30, 2017
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Investment securities held-to-maturity:
 
 


 
 
 
 
 
 
GSE debentures
$
38,620

 
$
38,088

 
$

 
$
38,088

 
$

GSE MBSs
15,883

 
15,753

 

 
15,753

 

Municipal obligations
53,960

 
54,139

 

 
54,139

 

Foreign government obligations
500

 
490

 

 

 
490

Loans held-for-sale
593

 
593

 

 
593

 

Loans and leases, net
5,472,885

 
5,383,183

 

 

 
5,383,183

Restricted equity securities
66,988

 
66,988

 

 

 
66,988

Financial liabilities:
 
 
 
 
 
 
 
 
 
Certificates of deposit
1,119,551

 
1,116,813

 

 
1,116,813

 

Borrowed funds
1,066,643

 
1,061,016

 

 
1,061,016

 

At December 31, 2016
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Investment securities held-to-maturity:
 
 
 
 
 

 

 
GSE debentures
$
14,735

 
$
14,101

 
$

 
$
14,101

 
$

GSE MBSs
17,666

 
17,479

 

 
17,479

 

Municipal obligations
54,219

 
53,204

 

 
53,204

 

Foreign government obligations
500

 
487

 

 

 
487

Loans held-for-sale
13,078

 
13,078

 

 
13,078

 

Loans and leases, net
5,345,198

 
5,195,312

 

 

 
5,195,312

Restricted equity securities
64,511

 
75,589

 

 

 
75,589

Financial liabilities:
 
 
 
 
 
 
 
 
 
Certificates of deposit
1,041,022

 
1,042,653

 

 
1,042,653

 

Borrowed funds
1,044,086

 
1,030,753

 

 
1,030,753

 

Investment Securities Held-to-Maturity
The fair values of certain investment securities held-to-maturity are estimated using market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include GSE debentures, GSE MBSs, and municipal obligations, all of which are included in Level 2. Additionally, fair values of foreign government obligations are estimated using pricing models and are considered to be Level 3.



51

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Loans Held-for-Sale
Fair value is measured using quoted market prices when available. These assets are typically categorized as Level 1. If quoted market prices are not available, comparable market values may be utilized. These assets are typically categorized as Level 2.
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). 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. This method of estimating fair value does not incorporate the exit price concept of fair value.
Restricted Equity Securities
The fair values of certain restricted equity securities are estimated using observable inputs adjusted for other unobservable information, including but not limited to probability assumptions and similar discounts where applicable. These restricted equity securities are considered to be Level 3.
Deposits
The fair values of deposit liabilities with no stated maturity (demand, NOW, savings and money market savings accounts) are equal to the carrying amounts payable on demand. The fair value of certificates of deposit represents contractual cash flows discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the Company's core deposit relationships (deposit-based intangibles).
Borrowed Funds
The fair value of federal funds purchased is equal to the amount borrowed. The fair value of FHLBB advances and repurchase agreements represents contractual repayments discounted using interest rates currently available for borrowings with similar characteristics and remaining maturities. The fair values reported for retail repurchase agreements are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on borrowings with similar characteristics and maturities. The fair values reported for subordinated deferrable interest debentures are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on instruments with similar terms and maturities.
(12) Commitments and Contingencies
Off-Balance Sheet Financial Instruments
The Company is party to off-balance sheet financial instruments in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby and commercial letters of credits, 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.

52

Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

Financial instruments with off-balance-sheet risk at the dates indicated follow:
 
At June 30, 2017

At December 31, 2016
 
(In Thousands)
Financial instruments whose contract amounts represent credit risk:
 

 
Commitments to originate loans and leases:
 

 
Commercial real estate
$
56,880


$
27,750

Commercial
97,398


71,716

Residential mortgage
14,192


28,179

Unadvanced portion of loans and leases
536,527


580,416

Unused lines of credit:
 

 
Home equity
372,314


340,682

Other consumer
11,888


13,157

Other commercial
279


208

Unused letters of credit:


 
Financial standby letters of credit
10,846


11,720

Performance standby letters of credit
484


516

Commercial and similar letters of credit
840


785

Loan level derivatives (Notional principal amounts):





Receive fixed, pay variable
409,837


383,780

Pay fixed, receive variable
409,837


383,780

Risk participation-out agreements
16,694


16,961

Risk participation-in agreements
3,825

 

Foreign exchange contracts (Notional amounts):





Buys foreign currency, sells U.S. currency
14,786


4,050

Sells foreign currency, buys U.S. currency
14,786


4,050

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 credits 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.
The liability for unfunded credit commitments, which is included in other liabilities, was $1.5 million as of June 30, 2017 and December 31, 2016.
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 an 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.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2017 and 2016

The fair value of derivative assets and liabilities was $9.9 million and $9.9 million, respectively, as of June 30, 2017. The fair value of derivative assets and liabilities was $9.8 million and $9.7 million, respectively, as of December 31, 2016.
The fair value of foreign exchange assets and liabilities was $43.0 thousand and $35.0 thousand, respectively, as of June 30, 2017. The fair value of foreign exchange assets and liabilities was nominal as of December 31, 2016.
Lease Commitments
The Company leases certain office space under various noncancellable operating leases. These leases have original terms ranging from 5 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.
A summary of future minimum rental payments under such leases at the dates indicated follows:
 
Minimum Rental Payments
 
(In Thousands)
 
 
Remainder of 2017
$
2,627

Year ending:
 
2018
4,866

2019
3,998

2020
3,442

2021
2,933

2022
2,711

Thereafter
10,138

Total
$
30,715

Certain leases contain escalation clauses for real estate taxes and other expenditures, which are not included above. Total rental expense was $1.4 million and $1.3 million for the three months ended June 30, 2017 and 2016, respectively. Total rental expense was $2.8 million and $2.6 million for the six months ended June 30, 2017 and 2016, respectively. The increase was due to the opening of a new branch in Danvers, Massachusetts for First Ipswich Bank, and the relocation of a branch in Brookline, Massachusetts for Brookline Bank.
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.
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.
 

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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, adverse conditions in the capital and debt markets; changes in interest rates; competitive pressures from other financial institutions; the effects of weakness in general economic conditions on a national basis or in the local markets in which the Company operates, including changes which adversely affect borrowers’ ability to service and repay their loans and leases; changes in the value of securities and other assets in the Company’s investment portfolio; changes in loan and lease default and charge-off rates; the adequacy of allowances for loan and lease losses; deposit levels necessitating increased borrowing to fund loans and investments; changes in government regulation; 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, as well as the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 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"); First Ipswich Bank and its subsidiaries ("First Ipswich"); and Brookline Securities Corp.
As a commercially-focused financial institution with 51 full-service banking offices throughout greater Boston, the north shore of Massachusetts and Rhode Island, the Company, through Brookline Bank, BankRI and First Ipswich (the “Banks”), offers a wide range of commercial, business and retail banking services, including a full complement of cash management products, on-line and mobile banking services, consumer and residential loans and investment services, designed to meet the financial needs of small- to mid-sized businesses and individuals throughout central New England. Specialty lending activities include equipment financing primarily in the New York and New Jersey metropolitan area.
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 and excellent customer service, and strong risk management.
The Company manages the Banks under uniform strategic objectives, 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.
The competition for loans and leases and deposits remains intense. While the economy has improved in 2017, 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 Board of Governors of the Federal Reserve System (“FRB”). A sustained, low interest rate environment with a flat interest rate curve may negatively impact on the Company's yields and net interest margin. While the company is slightly asset sensitive and should benefit from rising rates, these rate increases could 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 the net interest margin, while minimizing exposure to credit risk, along with increasing sources of non-interest income, while controlling the growth of non-interest expenses.
The Company and the Banks are supervised, examined and regulated by the FRB. As a Massachusetts-chartered savings bank and trust company, respectively, Brookline Bank and First Ipswich are 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. Additionally, as a Massachusetts-chartered savings bank, Brookline Bank is also insured by the Depositors Insurance Fund (“DIF”), a private industry-sponsored company. The DIF insures savings bank deposits in

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excess of the FDIC insurance limits. As such, Brookline Bank offers 100% insurance on all deposits as a result of a combination of insurance from the FDIC and the DIF.
The Company’s common stock is traded on the Nasdaq Global Select MarketSM under the symbol “BRKL.”
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 Form 10-Q.
 
At and for the Three Months Ended
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
2017
 
2017
 
2016
 
2016
 
2016
 
(Dollars in Thousands, Except Per Share Data)
PER COMMON SHARE DATA
 
 
 
 
 
 
 
 
 
Earnings per share - Basic
$
0.20

 
$
0.19

 
$
0.19

 
$
0.19

 
$
0.18

Earnings per share - Diluted
0.20

 
0.19

 
0.19

 
0.19

 
0.18

Book value per share (end of period)
10.42

 
10.00

 
9.88

 
9.90

 
9.82

Tangible book value per share (end of period) (1)
8.52

 
7.93

 
7.81

 
7.81

 
7.73

Dividends paid per common share
0.09

 
0.09

 
0.09

 
0.09

 
0.09

Stock price (end of period)
14.60

 
15.65

 
16.40

 
12.19

 
11.03

 
 
 
 
 
 
 
 
 
 
PERFORMANCE RATIOS (2)
 
 
 
 
 
 
 
 
 
Net interest margin (taxable equivalent basis)
3.59
%
 
3.53
%
 
3.40
%
 
3.48
%
 
3.44
%
Return on average assets
0.91
%
 
0.83
%
 
0.83
%
 
0.86
%
 
0.81
%
Return on average tangible assets (1)
0.93
%
 
0.85
%
 
0.85
%
 
0.88
%
 
0.83
%
Return on average stockholders' equity
7.76
%
 
7.58
%
 
7.59
%
 
7.83
%
 
7.38
%
Return on average tangible stockholders' equity (1)
9.58
%
 
9.55
%
 
9.60
%
 
9.94
%
 
9.40
%
Dividend payout ratio (1)
46.28
%
 
47.23
%
 
47.80
%
 
46.60
%
 
50.07
%
Efficiency ratio (3)
57.93
%
 
48.92
%
 
56.92
%
 
57.89
%
 
57.97
%
 
 
 
 
 
 
 
 
 
 
ASSET QUALITY RATIOS
 
 
 
 
 
 
 
 
 
Net loan and lease charge-offs as a percentage of average loans and leases (annualized)
0.17
%
 
0.07
%
 
0.62
%
 
0.04
%
 
0.31
%
Nonperforming loans and leases as a percentage of total loans and leases
0.76
%
 
0.83
%
 
0.74
%
 
0.70
%
 
0.63
%
Nonperforming assets as a percentage of total assets
0.71
%
 
0.73
%
 
0.64
%
 
0.61
%
 
0.54
%
Total allowance for loan and lease losses as a percentage of total loans and leases
1.17
%
 
1.21
%
 
0.99
%
 
1.10
%
 
1.09
%
Allowance for loan and lease losses related to originated loans and leases as a percentage of originated loans and leases (1)
1.20
%
 
1.25
%
 
1.03
%

1.15
%

1.13
%
 
 
 
 
 
 
 
 
 
 
CAPITAL RATIOS
 
 
 
 
 
 
 
 
 
Stockholders' equity to total assets
11.95
%
 
10.83
%
 
10.80
%
 
10.91
%
 
10.95
%
Tangible equity ratio (1)
9.99
%
 
8.79
%
 
8.73
%
 
8.82
%
 
8.82
%
 
 
 
 
 
 
 
 
 
 
FINANCIAL CONDITION DATA
 
 
 
 
 
 
 
 
 
Total assets
$
6,658,067

 
$
6,497,721

 
$
6,438,129

 
$
6,380,312

 
$
6,296,502

Total loans and leases
5,537,406

 
5,461,779

 
5,398,864

 
5,332,300

 
5,259,038

Allowance for loan and lease losses
64,521

 
66,133

 
53,666

 
58,892

 
57,258

Investment securities available-for-sale
540,976

 
528,433

 
523,634

 
524,295

 
532,967

Investment securities held-to-maturity
108,963

 
100,691

 
87,120

 
77,094

 
69,590

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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At and for the Three Months Ended
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
2017
 
2017
 
2016
 
2016
 
2016
 
(Dollars in Thousands, Except Per Share Data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Continued)

Goodwill and identified intangible assets
144,972

 
145,491

 
146,023

 
146,644

 
147,267

Total deposits
4,709,419

 
4,651,903

 
4,611,076

 
4,564,906

 
4,485,154

Total borrowed funds
1,066,643

 
1,056,785

 
1,044,086

 
1,022,653

 
1,028,439

Stockholders' equity
795,618

 
703,873

 
695,544

 
696,371

 
689,656

 
 
 
 
 
 
 
 
 
 
EARNINGS DATA
 
 
 
 
 
 
 
 
 
Net interest income
$
55,583

 
$
53,098

 
$
51,854

 
$
52,350

 
$
50,257

Provision for credit losses
873

 
13,402

 
3,215

 
2,215

 
2,545

Non-interest income
4,477

 
15,908

 
5,430

 
5,329

 
5,375

Non-interest expense
34,795

 
33,756

 
32,607

 
33,388

 
32,250

Net income
14,880

 
13,445

 
13,279

 
13,617

 
12,654

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

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

(3) Efficiency ratio is calculated by dividing non-interest expense by the sum of non-interest income and net interest income.
Executive Overview
Growth
Total assets of $6.7 billion as of June 30, 2017 increased $219.9 million, or 6.8% on an annualized basis, from December 31, 2016. The increase was primarily driven by increases in loans and leases.
Total loans and leases of $5.5 billion as of June 30, 2017 increased $138.5 million, or 5.1% on an annualized basis, from December 31, 2016. The Company's commercial loan portfolios, which are comprised of commercial real estate loans and commercial loans and leases, totaled $4.5 billion, or 81.7% of total loans and leases, as of June 30, 2017, an increase of $111.3 million, or 5.0% on an annualized basis, from $4.4 billion, or 81.8% of total loans and leases, as of December 31, 2016.
Total deposits of $4.7 billion as of June 30, 2017 increased $98.3 million, or 4.3% on an annualized basis, from $4.6 billion as of December 31, 2016. Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $3.6 billion, or 76.2% of total deposits as of June 30, 2017, an increase of $19.8 million, or 1.1% on an annualized basis, from $3.6 billion, or 77.4% of total deposits, as of December 31, 2016.
Asset Quality
Nonperforming assets as of June 30, 2017 totaled $47.1 million, or 0.71% of total assets, compared to $41.5 million, or 0.64% of total assets, as of December 31, 2016. Net charge-offs for the three months ended June 30, 2017 were $2.4 million, or 0.17% of average loans and leases on an annualized basis, compared to $4.0 million, or 0.31% of average loans and leases on an annualized basis, for the three months ended June 30, 2016. The increase in nonperforming loans and leases and nonperforming assets was primarily driven by two taxi medallion loans and two commercial loans that were placed on nonaccrual.
The ratio of the allowance for loan and lease losses to total loans and leases was 1.17% as of June 30, 2017, compared to 0.99% as of December 31, 2016. Excluding the loans acquired from BankRI and First Ipswich, the allowance for loan and lease losses related to originated loans and leases as a percentage of the total originated loan and lease portfolio was 1.20% as of June 30, 2017, compared to 1.03% as of December 31, 2016. The Company continued to employ its historical underwriting methodology throughout the three month period ended June 30, 2017.
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 12.07% as of June 30, 2017, compared to 10.48% as of December 31, 2016. The

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Company's Tier 1 Leverage Ratio was 10.50% as of June 30, 2017, compared to 9.16% as of December 31, 2016. As of June 30, 2017, the Company's Tier 1 Risk-Based Ratio was 12.38%, compared to 10.79% as of December 31, 2016. The Company's Total Risk-Based Ratio was 14.95% as of June 30, 2017, compared to 13.20% as of December 31, 2016.
The Company's ratio of stockholders' equity to total assets was 11.95% and 10.80% as of June 30, 2017 and December 31, 2016, respectively. The Company's tangible equity ratio was 9.99% and 8.73% as of June 30, 2017 and December 31, 2016, respectively. The increase in the ratio of stockholders' equity to total assets and the tangible equity ratio is due to the Company's new issuance in the amount of 5,951,250 shares of the Company’s common stock at a price to the public of $14.50 per share on May 2, 2017. Refer to “Stockholder's Equity and Dividends" below for further discussion.
Net Income
For the three months ended June 30, 2017, the Company reported net income of $14.9 million, or $0.20 per basic and diluted share, an increase of $2.2 million, or 35.2% on an annualized basis, from $12.7 million, or $0.18 per basic and diluted share for the three months ended June 30, 2016. This increase in net income is primarily the result of an increase in net interest income of $5.3 million and a decrease in the provision for credit losses of $1.7 million, offset by a decrease in non-interest income of $0.9 million, an increase in non-interest expense of $2.5 million, and an increase in provision for income taxes of $1.3 million. Refer to “Results of Operations" below for further discussion.
For the six months ended June 30, 2017, the Company reported net income of $28.3 million, or $0.39 per basic and diluted share, up $2.9 million, or 22.5% on an annualized basis, from $25.5 million, or $0.36 per basic share, for the six months ended June 30, 2016. This increase is the result of an increase in net interest income of $9.2 million and an increase in non-interest income of $8.6 million, offset by an increase in the provision for credit losses of $9.4 million, an increase in non-interest expense of $4.3 million, an increase in provision for income taxes of $1.5 million, and a decrease in net income attributed to noncontrolling interest of $0.2 million. Refer to “Results of Operations" below for further discussion.
The annualized return on average assets was 0.91% for the three months ended June 30, 2017, compared to 0.81% for the three months ended June 30, 2016. The annualized return on average stockholders' equity was 7.76% for the three months ended June 30, 2017, compared to 7.38% for the three months ended June 30, 2016.
The net interest margin was 3.59% for the three months ended June 30, 2017, up from 3.44% for the three months ended June 30, 2016. The increase in the net interest margin is a result of an increase in the yield on interest-earning assets by 16 basis points to 4.19% for the three months ended June 30, 2017 from 4.03% for the three months ended June 30, 2016, and an increase of 2 basis points in the Company's overall cost of funds to 0.80% for the three months ended June 30, 2017 from 0.78% for the three months ended June 30, 2016.
The net interest margin was 3.56% for the six months ended June 30, 2017, compared to 3.44% for the six months ended June 30, 2016. The increase in the net interest margin in a highly competitive interest rate environment is, in part, the result of a increased in the yield on interest-earning assets by 11 basis points to 4.14% for the six months ended June 30, 2017 from 4.03% for the six months ended June 30, 2016 and an increase of 2 basis points in interest-bearing liabilities to 0.79% for the six months ended June 30, 2017 from 0.77% for the six months ended June 30, 2016.
The Company's net interest margin and net interest income has shown improvement from the most recent low interest rate environment. As interest rates rise, the Company's net interest margin and net interest income may continue to be under pressure due to competitive pricing in all loan categories and the Company’s ability to contain its cost of funds.
Critical Accounting Policies
The SEC defines “critical accounting policies” as those involving significant judgments and difficult or complex assumptions by management, often as a result of the need to make estimates about matters that are inherently uncertain or variable, which have, or could have, a material impact on the carrying value of certain assets or net income. The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. As discussed in the Company’s 2016 Annual Report on Form 10-K, management has identified the valuation of available-for-sale securities, accounting for assets and liabilities acquired, the determination of the allowance for loan and lease losses, the review of goodwill and intangibles for impairment, and income tax accounting as the Company’s most critical accounting policies.
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 the return on average tangible assets, return on average tangible equity, the tangible equity ratio, tangible book value per share, dividend payout ratio, and the

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ratio of the allowance for loan and lease losses related to originated loans and leases as a percentage of originated loans and leases. 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 summarizes the Company’s return on average tangible assets and return on average tangible stockholders’ equity for the periods indicated:
 
Three Months Ended
 
June 30,
2017
 
March 31,
2017
 
December 31, 2016
 
September 30, 2016
 
June 30,
2016
 
(Dollars in Thousands)
Net income, as reported
$
14,880

 
$
13,445

 
$
13,279

 
$
13,617

 
$
12,654

 
 
 
 
 
 
 
 
 
 
Average total assets
$
6,556,665

 
$
6,461,183

 
$
6,425,983

 
$
6,360,097

 
$
6,237,463

Less: Average goodwill and average identified intangible assets, net
145,269


145,778


146,382


146,997


147,619

Average tangible assets
$
6,411,396

 
$
6,315,405

 
$
6,279,601

 
$
6,213,100

 
$
6,089,844

 
 
 
 
 
 
 
 
 
 
Return on average tangible assets (annualized)
0.93
%
 
0.85
%
 
0.85
%
 
0.88
%
 
0.83
%
 
 
 
 
 
 
 
 
 
 
Average total stockholders' equity
$
766,529

 
$
709,095

 
$
699,749

 
$
695,205

 
$
685,996

Less: Average goodwill and average identified intangible assets, net
145,269

 
145,778

 
146,382

 
146,997

 
147,619

Average tangible stockholders' equity
$
621,260

 
$
563,317

 
$
553,367

 
$
548,208

 
$
538,377

 
 
 
 
 
 
 
 
 
 
Return on average tangible stockholders' equity (annualized)
9.58
%
 
9.55
%
 
9.60
%
 
9.94
%
 
9.40
%

The following tables summarize the Company's tangible equity ratio for the periods indicated:
 
Three Months Ended
 
June 30,
2017
 
March 31,
2017
 
December 31, 2016
 
September 30, 2016
 
June 30,
2016
 
(Dollars in Thousands)
Total stockholders' equity
$
795,618

 
$
703,873

 
$
695,544

 
$
696,371

 
$
689,656

Less: Goodwill and identified intangible assets, net
144,972

 
145,491

 
146,023

 
146,644

 
147,267

Tangible stockholders' equity
$
650,646

 
$
558,382

 
$
549,521

 
$
549,727

 
$
542,389

 
 
 
 
 
 
 
 
 
 
Total assets
$
6,658,067

 
$
6,497,721

 
$
6,438,129

 
$
6,380,312

 
$
6,296,502

Less: Goodwill and identified intangible assets, net
144,972

 
145,491

 
146,023

 
146,644

 
147,267

Tangible assets
$
6,513,095

 
$
6,352,230

 
$
6,292,106

 
$
6,233,668

 
$
6,149,235

 
 
 
 
 
 
 
 
 
 
Tangible equity ratio
9.99
%
 
8.79
%
 
8.73
%
 
8.82
%
 
8.82
%


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The following tables summarize the Company's tangible book value per share for the periods indicated:
 
Three Months Ended
 
June 30,
2017
 
March 31,
2017
 
December 31, 2016
 
September 30, 2016
 
June 30,
2016
 
(Dollars in Thousands)
Tangible stockholders' equity
$
650,646

 
$
558,382

 
$
549,521

 
$
549,727

 
$
542,389

 
 
 
 
 
 
 
 
 
 
Common shares issued
81,695,695

 
75,744,445

 
75,744,445

 
75,744,445

 
75,744,445

Less:
 
 
 
 
 
 
 
 
 
Treasury shares
4,717,775

 
4,707,096

 
4,707,096

 
4,734,512

 
4,862,193

Unallocated ESOP
159,510

 
168,099

 
176,688

 
185,787

 
194,880

Unvested restricted stocks
457,966

 
476,854

 
476,854

 
476,938

 
484,066

Common shares outstanding
76,360,444

 
70,392,396

 
70,383,807

 
70,347,208

 
70,203,306

 
 
 
 
 
 
 
 
 
 
Tangible book value per share
$
8.52

 
$
7.93

 
$
7.81

 
$
7.81

 
$
7.73


The following table summarizes the Company's dividend payout ratio for the periods indicated:
 
Three Months Ended
 
June 30,
2017
 
March 31,
2017
 
December 31, 2016
 
September 30, 2016
 
June 30,
2016
 
(Dollars in Thousands)
Dividends paid
$
6,887

 
$
6,350

 
$
6,348

 
$
6,346

 
$
6,336

 
 
 
 
 
 
 
 
 
 
Net income, as reported
$
14,880

 
$
13,445

 
$
13,279

 
$
13,617

 
$
12,654

 
 
 
 
 
 
 
 
 
 
Dividend payout ratio
46.28
%
 
47.23
%
 
47.80
%
 
46.60
%
 
50.07
%

The following table summarizes the Company’s allowance for loan and lease losses related to originated loans and leases as a percentage of total originated loans and leases for the periods indicated:
 
Three Months Ended
 
June 30,
2017
 
March 31,
2017
 
December 31, 2016
 
September 30, 2016
 
June 30,
2016
 
 
 
 
 
 
 
 
 
 
Allowance for loan and lease losses
$
64,521

 
$
66,133

 
$
53,666

 
$
58,892

 
$
57,258

Less: Allowance for acquired loan and lease losses
1,188

 
1,304

 
1,253

 
1,640

 
2,178

Allowance for originated loan and lease losses
$
63,333


$
64,829


$
52,413


$
57,252


$
55,080

 
 
 
 
 
 
 
 
 
 
Total loans and leases
$
5,537,406

 
$
5,461,779

 
$
5,398,864

 
$
5,332,300

 
$
5,259,038

Less: Total acquired loans and leases
271,157

 
295,055

 
315,304

 
346,377

 
371,986

Total originated loan and leases
$
5,266,249


$
5,166,724


$
5,083,560


$
4,985,923


$
4,887,052

 
 
 
 
 
 
 
 
 
 
Allowance for loan and lease losses related to originated loans and leases as a percentage of originated loan and leases
1.20
%

1.25
%

1.03
%

1.15
%

1.13
%


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Financial Condition
Loans and Leases
The following table summarizes the Company's portfolio of loans and leases receivables as of the dates indicated:
 
At June 30, 2017
 
At December 31, 2016
 
Balance
 
Percent
of Total
 
Balance
 
Percent
of Total
 
(Dollars in Thousands)
Commercial real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
2,062,646

 
37.2
%
 
$
2,050,382

 
38.1
%
Multi-family mortgage
720,484

 
13.0
%
 
731,186

 
13.5
%
Construction
153,057

 
2.8
%
 
136,999

 
2.5
%
Total commercial real estate loans
2,936,187

 
53.0
%
 
2,918,567

 
54.1
%
Commercial loans and leases:
 
 
 
 
 
 
 
Commercial
691,070

 
12.5
%
 
635,426

 
11.8
%
Equipment financing
839,932

 
15.2
%
 
799,860

 
14.8
%
Condominium association
58,130

 
1.0
%
 
60,122

 
1.1
%
Total commercial loans and leases
1,589,132

 
28.7
%
 
1,495,408

 
27.7
%
Consumer loans:
 
 
 
 
 
 
 
Residential mortgage
646,679

 
11.7
%
 
624,349

 
11.6
%
Home equity
351,124

 
6.3
%
 
342,241

 
6.3
%
Other consumer
14,284

 
0.3
%
 
18,299

 
0.3
%
Total consumer loans
1,012,087

 
18.3
%
 
984,889

 
18.2
%
Total loans and leases
5,537,406

 
100.0
%
 
5,398,864

 
100.0
%
Allowance for loan and lease losses
(64,521
)
 
 
 
(53,666
)
 
 
Net loans and leases
$
5,472,885

 
 
 
$
5,345,198

 
 

The following table sets forth the growth in the Company’s loan and lease portfolios during the six months ended June 30, 2017:
 
At June 30,
2017
 
At December 31,
2016
 
Dollar Change
 
Percent Change
(Annualized)
 
(Dollars in Thousands)
Commercial real estate
$
2,936,187

 
$
2,918,567

 
$
17,620

 
1.2
%
Commercial
1,589,132

 
1,495,408

 
93,724

 
12.5
%
Consumer
1,012,087

 
984,889

 
27,198

 
5.5
%
Total loans and leases
$
5,537,406

 
$
5,398,864

 
$
138,542

 
5.1
%
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 the aggregate amount of loans outstanding to any one borrower or related entities may not exceed $35.0 million unless approved by the Board Credit Committee, a committee of the Company's Board of Directors.
As of June 30, 2017, there were eight borrowers with loans and commitments over $35.0 million. The total of those loans and commitments were $343.1 million, or 5.31% of total loans and commitments, as of June 30, 2017.
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 53.0% of total loans and leases outstanding as of June 30, 2017.
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 commercial real estate portfolio is composed primarily of loans secured by apartment buildings ($724.5 million), office buildings ($588.9 million), retail stores ($505.3 million), industrial properties ($353.5 million), mixed-use properties ($203.5 million), lodging services ($108.7 million) and to food services ($42.9 million) as of June 30, 2017. At that date, over 97% 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 commercial loan and lease portfolio is comprised of commercial loans, equipment financing loans and leases and condominium association loans and represented 28.7% of total loans outstanding as of June 30, 2017.
The commercial loan and lease portfolio is composed primarily of loans to small businesses ($490.7 million), transportation services ($342.7 million), recreation services ($148.5 million), food services ($122.9 million), manufacturing ($96.4 million), rental and leasing services ($75.6 million) and retail ($70.2 million) as of June 30, 2017.
The Company provides commercial banking services to companies in its market area. Approximately 48% of the commercial loans outstanding as of June 30, 2017 were made to borrowers located in New England. The remaining 52% 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 Small Business Administration (the "SBA") in both the 7A program and as an SBA preferred lender.
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% of the commercial loans outstanding 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 three- to seven-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 is comprised of residential mortgage loans, home equity loans and lines of credit, and other consumer loans and represented 18.3% of total loans outstanding as of June 30, 2017. 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.
In general, the Company maintains three-, five- and seven-year adjustable-rate mortgage loans and ten-year fixed-rate fully amortizing mortgage loans in its portfolio. Fixed-rate mortgage loans with maturities beyond ten years, such as 15- and

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30-year fixed-rate mortgages, are generally sold into the secondary market on a servicing-released basis. The Banks act as correspondent banks in these secondary-market transactions. Loan sales in the secondary market provide funds for additional lending and other banking activities.
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 June 30, 2017, other consumer loans equaled $14.3 million, or 0.3% of total loans outstanding. Loans outstanding in other consumer included indirect automobile loans of $3.7 million and loans secured by cash, equity, and debt securities.
Asset Quality
Criticized and Classified Assets
The Company's management rates certain loans and leases as "other assets especially mentioned ("OAEM")", "substandard" or "doubtful" based on criteria established under banking regulations.These loans and leases are collectively referred to as "criticized" assets. Loans and leases rated OAEM have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the loan or lease at some future date. Loans and leases rated as substandard are inadequately protected by the payment capacity of the obligor or of the collateral pledged, if any. Substandard loans and leases have a well-defined weakness or weaknesses that jeopardize the liquidation of debt and are characterized by the distinct possibility that the Company will sustain some loss if existing deficiencies are not corrected. Loans and leases rated as doubtful have well-defined weaknesses that jeopardize the orderly liquidation of debt and partial loss of principal is likely. As of June 30, 2017, the Company had $68.3 million of total assets, including acquired assets, that were designated as criticized. This compares to $70.4 million of assets designated as criticized as of December 31, 2016. The decrease in criticized assets was primarily due to the payoffs of several criticized loans, offset by the commercial and commercial real estate loans downgraded during the first six months of 2017.
Nonperforming Assets
"Nonperforming assets" consist of nonperforming 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. Exceptions may be made if the loan has matured and is in the process of renewal or is well-secured and in the process of collection. When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current interest income. Interest payments on nonaccrual loans are generally applied to principal. If collection of the principal is reasonably assured, interest payments are recognized as income on the cash basis. Loans are generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured and a consistent record of at least six months of performance has been achieved.
In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructured loan. In determining whether a debtor is experiencing financial difficulties, the Company considers, among other factors, if the debtor is in payment default or is likely to be in payment default in the foreseeable future without the modification, the debtor declared or is in the process of declaring bankruptcy, there is substantial doubt that the debtor will continue as a going concern, the debtor's entity-specific projected cash flows will not be sufficient to service its debt, or the debtor cannot obtain funds from sources other than the existing creditors at market terms for debt with similar risk characteristics.
Nonperforming assets are composed of nonaccrual loans and leases, OREO and other repossessed assets. As of June 30, 2017, the Company had nonperforming assets of $47.1 million, representing 0.71% of total assets, compared to nonperforming assets of $41.5 million, or 0.64% of total assets, as of December 31, 2016. The increase in nonperforming assets was primarily due to an increase of $2.2 million in nonaccrual loans, an increase of $2.8 million in OREO due to a commercial property which was transferred to OREO, offset by the decrease of $0.6 million in repossessed assets during the first six months of 2017.

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The Company evaluates the underlying collateral of each nonperforming 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, management believes it is likely that the level of nonperforming assets would increase, as would the level of charged-off loans.            
Past Due and Accruing
Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. Exceptions may be made if the loan has matured and is in the process of renewal or is well-secured and in the process of collection. 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 consecutive months of performance has been achieved.
As of June 30, 2017, the Company had loans and leases greater than 90 days past due and accruing of $2.7 million, or 0.05% of total loans and leases, compared to $7.1 million, or 0.13% of total loans and leases, as of December 31, 2016, representing an decrease of $4.4 million. The decrease in past due and accruing loans was due to the payoffs of several past due acquired loans during the first six months of 2017.
The following table sets forth information regarding nonperforming assets for the periods indicated:
 
At June 30, 2017
 
At December 31, 2016
 
(Dollars in Thousands)
Nonperforming loans and leases:
 
 
 
Nonaccrual loans and leases:
 
 
 
Commercial real estate
$
2,766

 
$
5,340

Multi-family mortgage
1,075

 
1,404

Total commercial real estate loans
3,841

 
6,744

 
 
 
 
Commercial
23,887

 
22,974

Equipment financing
9,702

 
6,758

Total commercial loans and leases
33,589

 
29,732

 
 
 
 
Residential mortgage
3,428

 
2,501

Home equity
1,366

 
951

Other consumer
43

 
149

Total consumer loans
4,837

 
3,601

 
 
 
 
Total nonaccrual loans and leases
42,267

 
40,077

 
 
 
 
Other real estate owned
3,384

 
618

Other repossessed assets
1,489

 
781

Total nonperforming assets
$
47,140

 
$
41,476

 
 
 
 
Loans and leases past due greater than 90 days and accruing
$
2,706

 
$
7,077

 
 
 
 
Total nonperforming loans and leases as a percentage of total loans and leases
0.76
%
 
0.74
%
Total nonperforming assets as a percentage of total assets
0.71
%
 
0.64
%

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Table of Contents

Troubled Debt Restructured Loans and Leases
As of June 30, 2017, restructured loans included $5.1 million of commercial real estate loans, $1.1 million of multi-family mortgage loans, $19.6 million of commercial loans, $2.8 million of equipment financing loans and leases, $1.1 million of residential mortgage loans and $1.2 million of home equity loans. As of December 31, 2016, restructured loans included $4.9 million of commercial real estate loans, $2.0 million of multi-family mortgage loans, $13.7 million of commercial loans, $2.1 million of equipment financing loans and leases, $1.3 million of residential mortgage loans and $1.8 million of home equity loans. A restructured loan is a loan for which the maturity date was extended, the principal was reduced, and/or the interest rate was modified to drop the required monthly payment to a more manageable amount for the borrower.
The following table sets forth information regarding troubled debt restructured loans and leases at the dates indicated:
 
At June 30, 2017
 
At December 31, 2016
 
(Dollars in Thousands)
Troubled debt restructurings:
 

 
 

On accrual
$
14,732

 
$
13,883

On nonaccrual
16,146

 
11,919

Total troubled debt restructurings
$
30,878

 
$
25,802


Changes in troubled debt restructured loans and leases were as follows for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017

2016
 
(Dollars in Thousands)
Balance at beginning of period
$
25,418

 
$
31,311

 
$
25,802

 
$
22,918

Additions
8,119

 
1,652

 
8,888

 
10,345

Net recoveries
(99
)
 
98

 
(92
)
 
82

Repayments
(1,638
)
 
(1,747
)
 
(2,798
)
 
(2,031
)
Other reductions (1)
(922
)
 

 
(922
)
 

Balance at end of period
$
30,878

 
$
31,314

 
$
30,878

 
$
31,314

__________________________________________________________________________________ 
(1) Includes loans and leases that were removed from TDR status 
Allowances for Credit Losses
The allowance for loan and lease losses consists of general and specific allowances and reflects management's estimate of probable loan and lease losses inherent in the loan portfolio at the balance sheet date. Management uses a consistent and systematic process and methodology to evaluate the adequacy of the allowance for loan and lease losses on a quarterly basis. The allowance is calculated by loan type: commercial real estate loans, commercial loans and leases, and consumer loans, each category of which is further segregated. A formula-based credit evaluation approach is applied to each group that is evaluated collectively, primarily by loss factors, which includes estimates of incurred losses over an estimated LEP, assigned to each risk rating by type, coupled with an analysis of certain loans individually evaluated for impairment. Management continuously evaluates and challenges inputs and assumptions in the allowance for loan and lease loss.
The process to determine the allowance for loan and lease losses requires management to exercise considerable judgment regarding the risk characteristics of the loan portfolios and the effect of relevant internal and external factors. While management evaluates currently available information in establishing the allowance for loan and lease 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 loan and lease 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 loan and lease losses and carrying amounts of other real estate owned. Such agencies may require the financial institution to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
The Company’s general allowance methodology provides a quantification of probable losses in the portfolio. Under the current methodology, Management combines the historical loss information of the Banks to generate a single set of ratios.

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Management believes it is appropriate to aggregate the ratios as the Banks share common environmental factors, operate in similar markets, and utilize common underwriting standards in accordance with the Company's Credit Policy.
Management employs a similar analysis for the consolidation of the qualitative factors as it does for the quantitative factors. Again, Management believes the combination of the existing nine qualitative factors used at each of the Banks into a single group of factors for use across the Company is appropriate based on the commonality of environmental factors, markets, and underwriting standards among the Banks.
As of June 30, 2017, the Company had a portfolio of approximately $30.4 million in loans secured by taxi medallions issued by the cities of Boston and Cambridge. As of December 31, 2016, this portfolio was approximately $31.1 million. Application-based mobile ride services, such as Uber and Lyft, have generated increased competition in the transportation sector, resulting in a reduction in taxi utilization and, as a result, a reduction in the collateral value and credit quality of taxi medallion loans. This has increased the likelihood that loans secured by taxi medallions may default, or that the borrowers may be unable to repay these loans at maturity, potentially resulting in an increase in past due loans, troubled debt restructurings, and charge-offs. The Company’s allowance calculation included a further segmentation of the commercial loans and leases to reflect the increased risk in the Company’s taxi medallion portfolio. This allowance calculation segmentation represents management’s estimations of the risks associated with the portfolio.
The following tables present the changes in the allowance for loan and lease losses by portfolio category for the three and six months ended June 30, 2017 and 2016.
 
At and for the Three Months Ended June 30, 2017
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at March 31, 2017
$
27,988

 
$
33,283

 
$
4,862

 
$
66,133

Charge-offs
(205
)
 
(3,095
)
 
(65
)
 
(3,365
)
Recoveries
336

 
549

 
78

 
963

(Credit) provision for loan and lease losses
(165
)
 
362

 
593

 
790

Balance at June 30, 2017
$
27,954

 
$
31,099

 
$
5,468

 
$
64,521

 
 
 
 
 
 
 
 
Total loans and leases
$
2,936,187

 
$
1,589,132

 
$
1,012,087

 
$
5,537,406

Total allowance for loan and lease losses as a percentage of total loans and leases
0.95
%
 
1.96
%
 
0.54
%
 
1.17
%
 
At and for the Three Months Ended June 30, 2016
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at March 31, 2016
$
30,984

 
$
22,978

 
$
4,644

 
$
58,606

Charge-offs
(1,153
)
 
(2,417
)
 
(754
)
 
(4,324
)
Recoveries

 
101

 
205

 
306

Provision for loan and lease losses
30

 
2,254

 
386

 
2,670

Balance at June 30, 2016
$
29,861

 
$
22,916

 
$
4,481

 
$
57,258

 
 
 
 
 
 
 
 
Total loans and leases
$
2,840,523

 
$
1,440,746

 
$
977,769

 
$
5,259,038

Total allowance for loan and lease losses as a percentage of total loans and leases
1.05
%
 
1.59
%
 
0.46
%
 
1.09
%

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At and for the Six Months Ended June 30, 2017
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at December 31, 2016
$
27,645

 
$
20,906

 
$
5,115

 
$
53,666

Charge-offs
(229
)
 
(4,302
)
 
(216
)
 
(4,747
)
Recoveries
476

 
691

 
183

 
1,350

Provision for loan and lease losses
62

 
13,804

 
386

 
14,252

Balance at June 30, 2017
$
27,954

 
$
31,099

 
$
5,468

 
$
64,521

 
 
 
 
 
 
 
 
Total loans and leases
$
2,936,187

 
$
1,589,132

 
$
1,012,087

 
$
5,537,406

Allowance for loan and lease losses as a percentage of total loans and leases
0.95
%
 
1.96
%
 
0.54
%
 
1.17
%
 
At and for the Six Months Ended June 30, 2016
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at December 31, 2015
$
30,151

 
$
22,018

 
$
4,570

 
$
56,739

Charge-offs
(1,484
)
 
(2,705
)
 
(1,010
)
 
(5,199
)
Recoveries

 
325

 
456

 
781

Provision for loan and lease losses
1,194

 
3,278

 
465

 
4,937

Balance at June 30, 2016
$
29,861

 
$
22,916

 
$
4,481

 
$
57,258

 
 
 
 
 
 
 
 
Total loans and leases
$
2,840,523

 
$
1,440,746

 
$
977,769

 
$
5,259,038

Allowance for loan and lease losses as a percentage of total loans and leases
1.05
%
 
1.59
%
 
0.46
%
 
1.09
%
The allowance for loan and lease losses was $64.5 million as of June 30, 2017, or 1.17% of total loans and leases outstanding. This compared to an allowance for loan and lease losses of $53.7 million, or 0.99% of total loans and leases outstanding, as of December 31, 2016. The increase in the allowance for loan and lease losses and in the allowance for loan and lease losses as a percentage of total loans and leases from December 31, 2016 to June 30, 2017 was primarily due to the increase in specific reserves for taxi medallion loans as a result of a change in the underlying collateral value, the increase in the specific reserve of a number of commercial loans, the increase in historical loss factors applied to commercial loan portfolios including taxi medallion loans, and loan growth of $138.5 million for the six months ended June 30, 2016.
Management believes that the allowance for loan and lease losses as of June 30, 2017 is appropriate based on the facts and circumstances discussed further below.
Commercial Real Estate Loans
The allowance for commercial real estate loan losses was $28.0 million, or 0.95% of total commercial real estate loans outstanding, as of June 30, 2017. This compared to an allowance for commercial real estate loan losses of $27.6 million, or 0.95% of total commercial real estate loans outstanding, as of December 31, 2016. Specific reserves on commercial real estate loans were $1.0 thousand and $28.0 thousand as of June 30, 2017 and December 31, 2016, respectively. The $0.3 million increase in the allowance for commercial real estate loan losses during the first six months of 2017 was primarily driven by originated loan growth of $43.7 million, or 1.6% from December 31, 2016.
The ratio of total criticized and classified commercial real estate loans to total commercial real estate loans decreased to 0.58% as of June 30, 2017 from 0.74% as of December 31, 2016. The ratio of originated commercial real estate loans on nonaccrual to total originated commercial real estate loans decreased to 0.13% as of June 30, 2017 from 0.23% as of December 31, 2016.
Net recoveries in the commercial real estate loan portfolio totaled $0.1 million for the three months ended June 30, 2017, compared to net charge-offs of $1.2 million for the three months ended June 30, 2016. As a percentage of average commercial real estate loan portfolio, annualized net recoveries for the three months ended June 30, 2017 was 0.02% and annualized charge-offs for the three month ended June 30, 2016 was 0.17%.

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Net recoveries in the commercial real estate loan portfolio totaled $0.2 million for the six months ended June 30, 2017, compared to net charge-offs of $1.5 million for the six months ended June 30, 2016. As a percentage of average commercial real estate loan portfolio, annualized net recoveries for the six months ended June 30, 2017 was 0.02% and annualized charge-offs for the six month ended June 30, 2016 was 0.11%.
Commercial Loans and Leases
The allowance for commercial loan and lease losses was $31.1 million, or 1.96% of total commercial loans and leases outstanding, as of June 30, 2017, compared to $20.9 million, or 1.40% of total commercial loans and leases outstanding, as of December 31, 2016. Specific reserves on commercial loans and leases increased from $0.1 million as of December 31, 2016 to $8.5 million as of June 30, 2017. The $10.2 million increase in the allowance for commercial loans and lease losses during 2017 was primarily due to the increase in specific reserves for taxi medallion loans as a result of a change in the underlying collateral value, the increase in the specific reserve of a number of commercial loans, the increase in historical loss factors applied to commercial loan portfolios including taxi medallion portfolio in the first quarter of 2017, and the originated loan growth of 99.5 million, or 6.7% from December 31, 2016.  
The ratio of total criticized and classified commercial loans and leases to total commercial loans and leases was 3.21% as of June 30, 2017, compared to 3.27% as of December 31, 2016. The ratio of originated commercial loans and leases on nonaccrual to total originated commercial loans and leases increased to 2.05% as of June 30, 2017 from 1.85% as of December 31, 2016 primarily due to a number of equipment financing loans which were on non-accrual in the second quarter of 2017.
Net charge-offs in the commercial loan and lease portfolio for the three months ended June 30, 2017 and June 30, 2016 were $2.5 million and $2.3 million, respectively. As a percentage of average commercial loans and leases, annualized net charge-offs for the three months ended June 30, 2017 and June 30, 2016 were 0.64% and 0.65%, respectively.
Net charge-offs in the commercial loan and lease portfolio for the six months ended June 30, 2017 and June 30, 2016 were $3.6 million and $2.4 million, respectively. As a percentage of average commercial loans and leases, annualized net charge-offs for the six months ended June 30, 2017 and June 30, 2016 were 0.47% and 0.34%, respectively.
Consumer Loans
The allowance for consumer loan losses, including residential loans and home equity loans and lines of credit, was $5.5 million, or 0.54% of total consumer loans outstanding, as of June 30, 2017, compared to $5.1 million, or 0.52% of consumer loans outstanding, as of December 31, 2016. Specific reserves on consumer loans were $20.0 thousand and $27.0 thousand as of June 30, 2017 and December 31, 2016, respectively. The $0.4 million increase in the allowance for consumer loans during the second quarter of 2017 was primarily driven by the increase in the historical loss factors applied to the consumer portfolios and the originated loan growth of $39.5 million, or 4.6%, from December 31, 2016. The ratio of originated consumer loans on nonaccrual to total originated consumer loans increased to 0.43% as of June 30, 2017 from 0.32% as of December 31, 2016. The risk of loss on a home equity loan is higher since the property securing the loan has often been previously pledged as collateral for a first mortgage loan. The Company gathers and analyzes delinquency data, to the extent that data are available on these first liens, for purposes of assessing the collectability of the second liens held by the Company even if these home equity loans are not delinquent. This data are further analyzed for performance differences between amortizing and non-amortizing home equity loans, the percentage borrowed to total loan commitment and by the amount of payments made by the borrowers. The loss exposure is not considered to be high due to the combination of current property values, the historically low loan-to-value ratios, the low level of losses experienced in the past few years and the low level of loan delinquencies as of June 30, 2017. If the local economy weakens, however, a rise in losses in those loan classes could occur. Historically, losses in these classes have been low.
Net recoveries in the consumer loan portfolio totaled $13.0 thousand for the three months ended June 30, 2017, compared to net charge-offs of $549.0 thousand for the three months ended June 30, 2016. Provisions for consumer loans recorded in these periods more than adequately covered charge-offs during those periods.
Net charge-offs in the consumer loan portfolio totaled $33.0 thousand for the six months ended June 30, 2017, compared to net charge-offs of $554.0 thousand for the six months ended June 30, 2016. Provisions for consumer loans recorded in these periods more than adequately covered charge-offs during those periods.

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The following table sets forth the Company's percent of allowance for loan and lease losses to the total allowance for loan and lease losses and the percent of loans to total loans for each of the categories listed at the dates indicated.
 
At June 30, 2017
 
At December 31, 2016
 
Amount
 
Percent of
Allowance
to Total
Allowance
 
Percent of
Loans
in Each
Category to
Total
Loans
 
Amount
 
Percent of
Allowance
to Total
Allowance
 
Percent of
Loans
in Each
Category to
Total
Loans
 
(Dollars in Thousands)
Commercial real estate
$
19,519

 
30.3
%
 
37.2
%
 
$
19,354

 
36.1
%
 
38.1
%
Multi-family mortgage
5,468

 
8.5
%
 
13.0
%
 
5,528

 
10.3
%
 
13.5
%
Construction
2,967

 
4.6
%
 
2.8
%
 
2,763

 
5.1
%
 
2.5
%
Total commercial real estate loans
27,954

 
43.4
%
 
53.0
%
 
27,645

 
51.5
%
 
54.1
%
Commercial
19,915

 
30.8
%
 
12.5
%
 
10,096

 
18.8
%
 
11.8
%
Equipment financing
10,734

 
16.6
%
 
15.2
%
 
10,345

 
19.3
%
 
14.8
%
Condominium association
450

 
0.7
%
 
1.0
%
 
465

 
0.9
%
 
1.1
%
Total commercial loans and leases
31,099

 
48.1
%
 
28.7
%
 
20,906

 
39.0
%
 
27.7
%
Residential mortgage
3,069

 
4.8
%
 
11.7
%
 
2,587

 
4.8
%
 
11.6
%
Home equity
2,272

 
3.5
%
 
6.3
%
 
2,356

 
4.4
%
 
6.3
%
Other consumer
127

 
0.2
%
 
0.3
%
 
172

 
0.3
%
 
0.3
%
Total consumer loans
5,468

 
8.5
%
 
18.3
%
 
5,115

 
9.5
%
 
18.2
%
Total
$
64,521

 
100.0
%
 
100.0
%
 
$
53,666

 
100.0
%
 
100.0
%
Investment Securities
The investment portfolio exists primarily for liquidity purposes, and secondarily as sources of interest and dividend income, interest-rate risk management and tax planning as a counterbalance to loan and deposit flows. Investment securities are utilized as part of the Company's asset/liability management and may be sold in response to, or in anticipation of, factors such as changes in market conditions and interest rates, security prepayment rates, deposit outflows, liquidity concentrations and regulatory capital requirements.
The investment policy of the Company, which is reviewed and approved by the Board of Directors on an annual basis, specifies the types of investments that are acceptable, required investment ratings by at least one nationally recognized rating agency, concentration limits and duration guidelines. Compliance with the investment policy is monitored on a regular basis. In general, the Company seeks to maintain a high degree of liquidity and targets cash, cash equivalents and investment securities available-for-sale balances between 10% and 30% of total assets.
Cash, cash equivalents, and investment securities increased $85.1 million, or 25.1% on an annualized basis, to $763.5 million as of June 30, 2017 from $678.4 million as of December 31, 2016. The increase was primarily driven by an increase in deposit balances, offset by growth in loans and leases and investment securities. Cash, cash equivalents, and investment securities were 11.5% of total assets as of June 30, 2017, compared to 10.5% of total assets at December 31, 2016.

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The following table sets forth certain information regarding the amortized cost and market value of the Company's investment securities at the dates indicated:
 
At June 30, 2017
 
At December 31, 2016
 
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
 
(In Thousands)
Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$
139,928

 
$
139,783

 
$
98,122

 
$
97,020

GSE CMOs
145,673

 
142,739

 
161,483

 
158,040

GSE MBSs
193,391

 
192,323

 
214,946

 
212,915

SBA commercial loan asset- backed securities
81

 
81

 
107

 
107

Corporate debt obligations
58,651

 
58,877

 
48,308

 
48,485

U.S. Treasury bonds
4,815

 
4,804

 
4,801

 
4,737

Trust preferred securities
1,470

 
1,387

 
1,469

 
1,358

Total debt securities
544,009

 
539,994

 
529,236

 
522,662

Marketable equity securities
971

 
982

 
966

 
972

Total investment securities available-for-sale
$
544,980

 
$
540,976

 
$
530,202

 
$
523,634

Investment securities held-to-maturity:
 
 
 
 
 
 
 
GSE debentures
$
38,620

 
$
38,088

 
$
14,735

 
$
14,101

GSE MBSs
15,883

 
15,753

 
17,666

 
17,479

Municipal obligations
53,960

 
54,139

 
54,219

 
53,204

Foreign government obligations
500

 
490

 
500

 
487

Total investment securities held-to-maturity
$
108,963

 
$
108,470

 
$
87,120

 
$
85,271


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. 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, and trust preferred securities, 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 $36.9 million for the six months ended June 30, 2017 compared to $51.7 million for the same period in 2016. There were no sales of investment securities available-for-sale for the six months ended June 30, 2017 and 2016. For the six months ended June 30, 2017, the Company purchased $52.4 million of investment securities available-for-sale, compared to $59.3 million in purchases of investment securities available-for-sale for the same period in 2016.

Maturities, calls and principal repayments for investment securities held-to-maturity totaled $2.1 million for the six months ended June 30, 2017 compared to $37.2 million for the same period in 2016. There were no sales of investment securities held-to-maturity for the six months ended June 30, 2017 and 2016. For the six months ended June 30, 2017, the Company purchased $23.9 million of investment securities held-to-maturity, compared to $13.3 million in purchases of investment securities held-to-maturity for the same period in 2016.

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As of June 30, 2017, the fair value of all investment securities available-for-sale was $541.0 million and carried a total of $4.0 million of net unrealized losses, compared to a fair value of $523.6 million and net unrealized losses of $6.6 million as of December 31, 2016. As of June 30, 2017, $381.8 million, or 70.6%, of the portfolio, had gross unrealized losses of $5.5 million. This compares to $389.0 million, or 74.3%, of the portfolio with gross unrealized losses of $8.0 million as of December 31, 2016. The Company's unrealized loss position has decreased in 2017 driven by lower long-term interest rates.
As of June 30, 2017, the fair value of all investment securities held-to-maturity was $108.5 million and carried a total of $0.5 million of net unrealized losses, compared to a fair value of $85.3 million and net unrealized losses of $1.8 million as of December 31, 2016. As of June 30, 2017, $63.9 million, or 58.9%, of the portfolio, had gross unrealized losses of $0.9 million. This compares to $82.0 million, or 96.1%, of the portfolio with gross unrealized losses of $1.9 million as of December 31, 2016. The Company's unrealized loss position decreased in 2017 driven by lower long-term interest rates.
Management believes that these negative differences between amortized cost and fair value do not include credit losses, but rather differences in interest rates between the time of purchase and the time of measurement. It is more likely than not that the Company will not sell or be required to sell the investment securities before recovery, and, as a result, it will recover the amortized cost basis of the investment securities. As such, management has determined that the securities are not other-than-temporarily impaired as of June 30, 2017. If market conditions for securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional other-than-temporary impairments in future periods. For additional discussion on how the Company validates fair values provided by the third-party pricing service, see Note 11, “Fair Value of Financial Instruments.”
Restricted Equity Securities
FHLBB Stock—The Company invests in the stock of the FHLBB as one of the requirements to borrow. The Company maintains an excess balance of capital stock, which allows for additional borrowing capacity at each of the Banks. As of June 30, 2017, the excess balance of capital stock is $5.9 million, as compared to no excess balance at December 31, 2016. On December 30th, 2016, the FHLBB initiated a stock buyback which reduced the Company's excess balance to zero.
As of June 30, 2017, the Company owned stock in the FHLBB with a carrying value of $49.8 million, an increase of $2.5 million from $47.3 million as of December 31, 2016. As of June 30, 2017, the FHLBB had total assets of $60.8 billion and total capital of $3.3 billion, of which $1.2 billion was retained earnings. The FHLBB stated that it remained in compliance with all regulatory capital ratios as of June 30, 2017 and was classified as "adequately capitalized" by its regulator, based on the FHLBB's financial information as of March 31, 2017.
Federal Reserve Bank Stock—The Company invests in the stock of the Federal Reserve Bank of Boston, as a condition of the membership for the Banks in the Federal Reserve System. As of June 30, 2017 and December 31, 2016, the Company owned stock in the Federal Reserve Bank of Boston with a carrying value of $16.8 million.
Other Stock—The Company invests in a small number of other restricted securities which included Northeast Retirement Services, Inc. ("NRS"). The Company, through its wholly owned subsidiary, Brookline Securities Corp., held 9,721 shares of restricted equity securities of NRS. This investment was recorded at cost of $122 thousand as no readily determinable fair value was available. On December 5, 2016, Community Bank Systems, Inc. ("CBU") announced entry into a merger agreement to acquire NRS. After receiving stockholder and regulatory approvals, CBU completed the acquisition of NRS on February 3, 2017. The Company exchanged the 9,721 shares of NRS and received $319.04 in cash and 14.876 shares of CBU common stock for each share of NRS held. As part of the merger agreement, the Company was restricted to selling 5,071 shares per day in the open market. The Company completed the sale of all CBU shares during the first quarter of 2017. The Company recognized a gain on the sale of securities of $11.4 million for the quarter ending March 31, 2017.

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Deposits
The following table presents the Company's deposit mix at the dates indicated.
 
At June 30, 2017
 
At December 31, 2016
 
Amount
 
Percent
of Total
 
Weighted
Average
Rate
 
Amount
 
Percent
of Total
 
Weighted
Average
Rate
 
(Dollars in Thousands)
Non-interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Demand checking accounts
$
920,035

 
19.5
%
 
%
 
$
900,474

 
19.5
%
 
%
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
NOW accounts
321,982

 
6.8
%
 
0.07
%
 
323,160

 
7.0
%
 
0.07
%
Savings accounts
584,408

 
12.4
%
 
0.20
%
 
613,061

 
13.3
%
 
0.20
%
Money market accounts
1,763,443

 
37.5
%
 
0.50
%
 
1,733,359

 
37.6
%
 
0.47
%
Certificate of deposit accounts
1,119,551

 
23.8
%
 
1.12
%
 
1,041,022

 
22.6
%
 
1.04
%
Total interest-bearing deposits
3,789,384

 
80.5
%
 
0.60
%
 
3,710,602

 
80.5
%
 
0.55
%
Total deposits
$
4,709,419

 
100.0
%
 
0.48
%
 
$
4,611,076

 
100.0
%
 
0.44
%
Total deposits increased $98.3 million, or 4.3% on an annualized basis, to $4.7 billion as of June 30, 2017, compared to $4.6 billion as of December 31, 2016. Deposits as a percentage of total assets decreased to 70.7% as of June 30, 2017, as compared to 71.6% as of December 31, 2016. The increase in deposits is primarily due to the growth in certificate of deposit accounts and Money Market accounts.
As of June 30, 2017, the Company had $256.8 million of brokered deposits compared to $203.4 million as of December 31, 2016. Brokered deposits allow the Company to seek additional funding by attracting deposits from outside the Company's core market. The Company's investment policy limits the amount of brokered deposits to 15% of total assets. Brokered deposits are included in the certificate of deposit balance, which increased $78.5 million, or 15.1% on an annualized basis, during the six months ended June 30, 2017. Certificates of deposit have also increased as a percentage of total deposits to 23.8% as of June 30, 2017 from 22.6% as of December 31, 2016.
During the six months ended June 30, 2017, core deposits increased $19.8 million, or 1.1% on an annualized basis. The ratio of core deposits to total deposits decreased from 77.4% as of December 31, 2016 to 76.2% as of June 30, 2017, primarily due to the shift in deposit mix and increase in brokered deposits.
The following table sets forth the distribution of the average balances of the Company's deposit accounts for the periods indicated and the weighted average interest rates on each category of deposits presented. Averages for the periods presented are based on daily balances.
 
Three Months Ended June 30,
 
2017
 
2016
 
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
$
900,302

 
19.2
%
 
%
 
$
825,880

 
18.5
%
 
%
NOW accounts
316,486

 
6.8
%
 
0.07
%
 
294,484

 
6.6
%
 
0.07
%
Savings accounts
592,150

 
12.7
%
 
0.20
%
 
554,474

 
12.4
%
 
0.24
%
Money market accounts
1,767,973

 
37.8
%
 
0.48
%
 
1,655,843

 
37.1
%
 
0.45
%
Total core deposits
3,576,911

 
76.5
%
 
0.28
%
 
3,330,681

 
74.6
%
 
0.27
%
Certificate of deposit accounts
1,101,094

 
23.5
%
 
1.11
%
 
1,132,272

 
25.4
%
 
0.98
%
Total deposits
$
4,678,005

 
100.0
%
 
0.47
%
 
$
4,462,953

 
100.0
%
 
0.45
%

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Table of Contents

 
Six Months Ended June 30,
 
2017
 
2016
 
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
$
899,396

 
19.4
%
 
%
 
$
812,374

 
18.4
%
 
%
NOW accounts
318,567

 
6.9
%
 
0.07
%
 
286,949

 
6.5
%
 
0.07
%
Savings accounts
603,057

 
13.0
%
 
0.20
%
 
559,577

 
12.7
%
 
0.24
%
Money market accounts
1,756,318

 
37.9
%
 
0.48
%
 
1,642,448

 
37.3
%
 
0.45
%
Total core deposits
3,577,338

 
77.1
%
 
0.27
%
 
3,301,348

 
74.9
%
 
0.27
%
Certificate of deposit accounts
1,061,740

 
22.9
%
 
1.09
%
 
1,104,956

 
25.1
%
 
0.97
%
Total deposits
$
4,639,078

 
100.0
%
 
0.46
%
 
$
4,406,304

 
100.0
%
 
0.45
%
As of June 30, 2017 and December 31, 2016, the Company had outstanding certificates of deposit of $100,000 or more, maturing as follows:
 
At June 30, 2017
 
At December 31, 2016
 
Amount
 
Weighted
Average Rate
 
Amount
 
Weighted
Average Rate
 
(Dollars in Thousands)
Maturity period:
 
 
 
 
 
 
 
Six months or less
$
116,683

 
0.80
%
 
$
134,783

 
0.82
%
Over six months through 12 months
137,694

 
1.01
%
 
79,543

 
0.92
%
Over 12 months
218,450

 
1.58
%
 
222,342

 
1.44
%
Total certificate of deposit of $100,000 or more
$
472,827

 
1.22
%
 
$
436,668

 
1.15
%
Borrowed Funds
The following table sets forth certain information regarding advances from the FHLBB, subordinated debentures and notes and other borrowed funds for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(Dollars in Thousands)
Borrowed funds:
 
 
 
 
 
 
 
Average balance outstanding
$
1,027,196

 
$
1,003,801

 
$
1,050,261

 
$
995,169

Maximum amount outstanding at any month-end during the period
1,093,693

 
1,028,439

 
1,093,693

 
1,028,439

Balance outstanding at end of period
1,066,643

 
1,028,439

 
1,066,643

 
1,028,439

Weighted average interest rate for the period
1.56
%
 
1.56
%
 
1.56
%
 
1.57
%
Weighted average interest rate at end of period
1.68
%
 
1.54
%
 
1.68
%
 
1.54
%
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. The Company may also borrow from the FRB's "discount window" as necessary.

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FHLBB borrowings increased by $19.2 million to $930.0 million as of June 30, 2017 from the December 31, 2016 balance of $910.8 million. The increase in FHLBB borrowings was primarily due to new advances from the FHLBB in order to fund new loan growth.
Subordinated Debentures and Notes
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 subordinated notes due September 15, 2029. The Company is obligated to pay 6.0% interest semiannually between September 2014 and September 2024. Subsequently, the Company is obligated to pay 3-month LIBOR plus 3.315% quarterly until the notes mature in September 2029.
The following table summarizes the Company's subordinated debentures and notes at the dates indicated.
 
 
 
 
 
 
 
 
Carrying Amount
Issue Date
 
Rate
 
Maturity Date
 
Next Call Date
 
June 30, 2017
 
December 31, 2016
 
 
(Dollars in Thousands)
June 26, 2003
 
Variable;
3-month LIBOR + 3.10%
 
June 26, 2033
 
September 26, 2017
 
$
4,765

 
$
4,752

March 17, 2004
 
Variable;
3-month LIBOR + 2.79%
 
March 17, 2034
 
September 18, 2017
 
4,648

 
4,628

September 15, 2014
 
6.0% Fixed-to-Variable;
3-month LIBOR + 3.315%
 
September 15, 2029
 
September 15, 2024
 
73,775

 
73,725

 
 
 
 
 
 
Total
 
$
83,188

 
$
83,105

The above carrying amounts of the subordinated debentures included $0.6 million of accretion adjustments and $1.2 million of capitalized debt issuance costs as of June 30, 2017. This compares to $0.6 million of accretion adjustments and $1.3 million of capitalized debt issuance costs as of December 31, 2016.
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, 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 $13.8 million to $36.4 million as of June 30, 2017 from $50.2 million as of December 31, 2016.
The Company has access to a $12.0 million committed line of credit as of June 30, 2017. As of June 30, 2017 and December 31, 2016, the Company did not have any borrowings on this committed line of credit outstanding.
The Banks also have access to funding through several uncommitted lines of credit of $199.0 million. As of June 30, 2017, the Company had $17.0 million of borrowings on one uncommitted line of credit outstanding, as compared to none as of December 31, 2016.
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 did not have derivative fair value hedges or derivative cash flow hedges at June 30, 2017 or December 31, 2016. The following table summarizes certain information concerning the Company's loan level derivatives, risk participation agreements, and foreign exchange contracts at June 30, 2017 and December 31, 2016:

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At June 30, 2017
At December 31, 2016
 
(Dollars in Thousands)
Loan level derivatives (Notional principal amounts):
 
 
Receive fixed, pay variable
$
409,837

$
383,780

Pay fixed, receive variable
409,837

383,780

Risk participation-out agreements
16,694

16,961

Risk participation-in agreements
3,825


Foreign exchange contracts (Notional amounts):
 
 
Buys foreign currency, sells U.S. currency
$
14,786

$
4,050

Sells foreign currency, buys U.S. currency
14,786

4,050

Fixed weighted average interest rate from the Company to counterparty
4.16
%
4.13
%
Floating weighted average interest rate from counterparty to the Company
3.09
%
2.77
%
Weighted average remaining term to maturity (in months)
86

91

Fair value:
 
 
Recognized as an asset:
 
 
Loan level derivatives
$
9,874

$
9,738

Risk participation-out agreements
16

20

Foreign exchange contracts
43


Recognized as a liability:
 
 
Loan level derivatives
$
9,874

$
9,738

Risk participation-in agreements
14


Foreign exchange contracts
35


As of December 31, 2016, the Company held no risk participation-in agreements. As of December 31, 2016, the fair value of the foreign exchange contracts was nominal.
Stockholders' Equity and Dividends
The Company's total stockholders' equity was $795.6 million as of June 30, 2017, representing a $100.1 million increase compared to $695.5 million at December 31, 2016. The increase primarily reflects net income attributable to the Company of $28.3 million for the six months ended June 30, 2017, issuance of common stock of $81.9 million, an unrealized gain on securities available-for-sale of $1.6 million, an increase of $1.1 million related to stock-based compensation, which was partially offset by dividends paid by the Company of $13.2 million in that same period.
On, April 27, 2017, the Company entered into an underwriting agreement with Piper Jaffray & Co., as representative of the underwriters named therein (collectively, the “Underwriters”), to offer and sell 5,175,000 shares of the Company’s common stock, $0.01 par value per share at a public offering price of $14.50 per share in an underwritten public offering (the “Offering”).  In conjunction with the Offering, the Company granted the Underwriters a 30-day option to purchase up to an additional 776,250 shares of its common stock.  On May 2, 2017, the Company and the Underwriters closed the Offering.  The Underwriters exercised their option resulting in a new issuance in the aggregate of 5,951,250 shares of the Company’s common stock at a price to the public of $14.50 per share. The Company received net proceeds of $82.0 million after deductions for underwriting discounts, commissions, and expenses.
Stockholders' equity represented 11.95% of total assets as of June 30, 2017 and 10.80% of total assets as of December 31, 2016. Tangible stockholders' equity (total stockholders' equity less goodwill and identified intangible assets, net) represented 9.99% of tangible assets (total assets less goodwill and identified intangible assets, net) as of June 30, 2017 and 8.73% as of December 31, 2016.
The dividend payout ratio was 46.28% for the three months ended June 30, 2017, compared to 50.07% for the same period of 2016 and 46.73% for the six months ended June 30, 2017, compared to 49.76% for the same period of 2016.

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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 ("net interest margin"), 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 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 $5.3 million to $55.6 million for the three months ended June 30, 2017 from $50.3 million for the three months ended June 30, 2016. This overall increase reflects a $5.8 million increase in interest income on loans and leases and a $0.1 million increase in interest income on investment securities, offset by a $0.6 million increase in interest expense on deposit and borrowings, which is reflective of the various portfolios repricing and replacing balances into the current interest rate environment. Refer to “Results of Operations - Comparison of the Three-Month Period Ended June 30, 2017 and June 30, 2016 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended June 30, 2017 and June 30, 2016 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest income increased $9.2 million to $108.7 million for the six months ended June 30, 2017 from $99.5 million for the six months ended June 30, 2016. This overall increase reflects a $10.1 million increase in interest income on loans and leases and a $0.3 million increase in interest income on investment securities, offset by a $1.2 million increase in interest expense on deposit and borrowings, which is reflective of the various portfolios repricing and replacing balances into the current interest rate environment. Refer to “Results of Operations - Comparison of the Six-Month Period Ended June 30, 2017 and June 30, 2016 — Interest Income” and “Results of Operations - Comparison of the Six-Month Period Ended June 30, 2017 and June 30, 2016 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest margin increased by 15 basis points to 3.59% for the three months ended June 30, 2017 from 3.44% for the three months ended June 30, 2016. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) increased to 4.46% for the three months ended June 30, 2017 from 4.29% for the three months ended June 30, 2016. Interest amortization and accretion on acquired loans totaled $0.3 million and contributed 2 basis point to loan yields during the three months ended June 30, 2017, and 2016. The increase in the net interest margin is the result of repricing interest-earning assets in a slightly higher rate environment offset by a comparable increase in funding costs.
Net interest margin increased by 12 basis points to 3.56% for the six months ended June 30, 2017 from 3.44% for the six months ended June 30, 2016. The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) increased to 4.40% for the six months ended June 30, 2017 from 4.30% for the six months ended June 30, 2016. Interest amortization and accretion on acquired loans totaled $0.4 million and contributed 1 basis point to loan yields during the six months ended June 30, 2017, and 2016. The increase in the net interest margin is the result of repricing and originating interest-earning assets in a higher rate environment offset by an increase in funding costs.

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The yield on interest-earning assets increased to 4.19% for the three months ended June 30, 2017 from 4.03% for the three months ended June 30, 2016. This increase is the result of higher yields on loans and leases, an increase in dividends from marketable and restricted equity securities and short term investments, as well as an increase in prepayment penalties and late charges. During the three months ended June 30, 2017, the Company recorded $1.0 million in prepayment penalties and late charges, which contributed 7 basis points to yields on interest-earning assets in the three months ended June 30, 2017 compared to $0.9 million, or 6 basis points, for the three months ended June 30, 2016.

The yield on interest-earning assets increased to 4.14% for the six months ended June 30, 2017 from 4.03% for the six months ended June 30, 2016. This increase is the result of higher yields on loans and leases, an increase in dividends from marketable and restricted equity securities and short term investments, as well as an increase in prepayment penalties and late charges. During the six months ended June 30, 2017, the Company recorded $1.8 million in prepayment penalties and late charges, which contributed 6 basis points to yields on interest-earning assets, compared to $1.7 million, or 6 basis points, in the six months ended June 30, 2016.

The overall cost of funds (including non-interest-bearing demand checking accounts) increased 2 basis points to 0.80% for the three months ended June 30, 2017 from 0.78% for the three months ended June 30, 2016. The overall cost of funds increased 2 basis points to 0.79% for the six months ended June 30, 2017 from 0.77% for the six months ended June 30, 2016. Refer to "Financial Condition - Borrowed Funds" above for more details.

Management seeks to position the balance sheet to be neutral to asset sensitive to changes in interest rates. Since the end of 2016, short term interest rates have risen while at the same time net interest income, net interest spread, and net interest margin have also increased. 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. Additional risk factors include, but are not limited to: ongoing pricing pressures in both the loan and deposit portfolios, the ability to increase the Company's core deposits, decrease its loan-to-deposit ratio, and decrease its reliance on FHLBB advances. 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 are included in interest income and interest expense, respectively.

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Table of Contents

Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin
The following table sets forth information about the Company's average balances, interest income and interest rates earned on average interest-earning assets, interest expense and interest rates paid on average interest-bearing liabilities, interest-rate spread and net interest margin for the three and six months ended June 30, 2017 and June 30, 2016. 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.
 
Three Months Ended
 
June 30, 2017
 
June 30, 2016
 
Average
Balance
 
Interest (1)
 
Average
Yield/
Cost
 
Average
Balance
 
Interest (1)
 
Average
Yield/
Cost
 
(Dollars in Thousands)
Assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Debt securities
$
638,798

 
$
3,267

 
2.05
%
 
$
605,383

 
$
3,157

 
2.09
%
Marketable and restricted equity securities
68,629

 
799

 
4.66
%
 
66,422

 
732

 
4.41
%
Short-term investments
43,739

 
95

 
0.87
%
 
60,570

 
63

 
0.42
%
Total investments
751,166

 
4,161

 
2.22
%
 
732,375

 
3,952

 
2.16
%
Commercial real estate loans (2)
2,942,927

 
30,368

 
4.08
%
 
2,784,627

 
28,278

 
4.06
%
Commercial loans (2)
728,014

 
7,665

 
4.17
%
 
689,696

 
6,649

 
3.82
%
Equipment financing (2)
826,877

 
13,810

 
6.68
%
 
730,193

 
11,751

 
6.44
%
Residential mortgage loans (2)
639,449

 
5,859

 
3.67
%
 
626,249

 
5,633

 
3.60
%
Other consumer loans (2)
362,404

 
3,677

 
4.07
%
 
351,051

 
3,309

 
3.78
%
Total loans and leases
5,499,671

 
61,379

 
4.46
%
 
5,181,816

 
55,620

 
4.29
%
Total interest-earning assets
6,250,837

 
65,540

 
4.19
%
 
5,914,191

 
59,572

 
4.03
%
Allowance for loan and lease losses
(66,853
)
 
 
 
 
 
(58,789
)
 
 
 
 
Non-interest-earning assets
372,681

 
 
 
 
 
382,061

 
 
 
 
Total assets
$
6,556,665

 
 
 
 
 
$
6,237,463

 
 
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
NOW accounts
$
316,486

 
54

 
0.07
%
 
$
294,484

 
53

 
0.07
%
Savings accounts
592,150

 
300

 
0.20
%
 
554,474

 
336

 
0.24
%
Money market accounts
1,767,973

 
2,131

 
0.48
%
 
1,655,843

 
1,867

 
0.45
%
Certificate of deposit
1,101,094

 
3,058

 
1.11
%
 
1,132,272

 
2,762

 
0.98
%
Total interest-bearing deposits (3)
3,777,703

 
5,543

 
0.59
%
 
3,637,073

 
5,018

 
0.55
%
Advances from the FHLBB
896,565

 
2,755

 
1.22
%
 
879,499

 
2,678

 
1.20
%
Subordinated debentures and notes
83,165

 
1,271

 
6.11
%
 
82,997

 
1,258

 
6.06
%
Other borrowed funds
47,466

 
34

 
0.29
%
 
41,305

 
25

 
0.24
%
Total borrowed funds
1,027,196

 
4,060

 
1.56
%
 
1,003,801

 
3,961

 
1.56
%
Total interest-bearing liabilities
4,804,899

 
9,603

 
0.80
%
 
4,640,874

 
8,979

 
0.78
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing demand checking accounts (3)
900,302

 
 

 
 

 
825,880

 
 

 
 

Other non-interest-bearing liabilities
77,682

 
 

 
 

 
78,497

 
 

 
 

Total liabilities
5,782,883

 
 

 
 

 
5,545,251

 
 

 
 

Brookline Bancorp, Inc. stockholders' equity
766,529

 
 

 
 

 
685,996

 
 

 
 

Noncontrolling interest in subsidiary
7,253

 
 

 
 

 
6,216

 
 

 
 

Total liabilities and stockholders' equity
$
6,556,665

 
 

 
 

 
$
6,237,463

 
 

 
 

Net interest income (tax-equivalent basis) / Interest-rate spread (4)
 

 
55,937

 
3.39
%
 
 

 
50,593

 
3.25
%
Less adjustment of tax-exempt income
 

 
354

 
 

 
 

 
336

 
 

Net interest income
 

 
$
55,583

 
 

 
 

 
$
50,257

 
 

Net interest margin (5)
 

 
 

 
3.59
%
 
 

 
 

 
3.44
%
_________________________________________________________________________
(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 0.48% and 0.45% in the three months ended June 30, 2017 and June 30, 2016, 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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Table of Contents

 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
Average
Balance
 
Interest (1)
 
Average
Yield/
Cost
 
Average
Balance
 
Interest (1)
 
Average
Yield/
Cost
 
(Dollars in Thousands)
Assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Investments :
 
 
 
 
 
 
 
 
 
 
 
Debt securities
$
626,229

 
$
6,377

 
2.04
%
 
$
604,709

 
$
6,168

 
2.04
%
Marketable and restricted equity securities
69,066

 
1,517

 
4.39
%
 
66,654

 
1,411

 
4.24
%
Short-term investments
37,965

 
162

 
0.86
%
 
51,214

 
102

 
0.40
%
Total investments
733,260

 
8,056

 
2.20
%
 
722,577

 
7,681

 
2.13
%
Loans and leases:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans (2)
2,936,671

 
59,835

 
4.05
%
 
2,741,363

 
55,544

 
4.05
%
Commercial loans (2)
715,377

 
14,778

 
4.11
%
 
680,183

 
13,300

 
3.87
%
Equipment financing (2)
816,565

 
26,924

 
6.59
%
 
728,560

 
23,501

 
6.45
%
Residential mortgage loans (2)
637,179

 
11,468

 
3.60
%
 
625,800

 
11,192

 
3.58
%
Other consumer loans (2)
361,602

 
7,172

 
4.00
%
 
346,810

 
6,579

 
3.80
%
Total loans and leases
5,467,394

 
120,177

 
4.40
%
 
5,122,716

 
110,116

 
4.30
%
Total interest-earning assets
6,200,654

 
128,233

 
4.14
%
 
5,845,293

 
117,797

 
4.03
%
Allowance for loan and lease losses
(60,618
)
 
 
 
 
 
(57,957
)
 
 
 
 
Non-interest-earning assets
369,152

 
 
 
 
 
377,822

 
 
 
 
Total assets
$
6,509,188

 
 
 
 
 
$
6,165,158

 
 
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
NOW accounts
$
318,567

 
109

 
0.07
%
 
$
286,949

 
104

 
0.07
%
Savings accounts
603,057

 
610

 
0.20
%
 
559,577

 
680

 
0.24
%
Money market accounts
1,756,318

 
4,140

 
0.48
%
 
1,642,448

 
3,642

 
0.45
%
Certificate of deposit
1,061,740

 
5,764

 
1.09
%
 
1,104,956

 
5,337

 
0.97
%
Total interest-bearing deposits (3)
3,739,682

 
10,623

 
0.57
%
 
3,593,930

 
9,763

 
0.55
%
Advances from the FHLBB
913,102

 
5,612

 
1.22
%
 
871,729

 
5,347

 
1.21
%
Subordinated debentures and notes
83,145

 
2,531

 
6.09
%
 
82,976

 
2,514

 
6.06
%
Other borrowed funds
54,014

 
90

 
0.34
%
 
40,464

 
50

 
0.25
%
Total borrowed funds
1,050,261

 
8,233

 
1.56
%
 
995,169

 
7,911

 
1.57
%
Total interest-bearing liabilities
4,789,943

 
18,856

 
0.79
%
 
4,589,099

 
17,674

 
0.77
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing demand checking accounts (3)
899,396

 
 

 
 

 
812,374

 
 

 
 

Other non-interest-bearing liabilities
74,763

 
 

 
 

 
76,099

 
 

 
 

Total liabilities
5,764,102

 
 

 
 

 
5,477,572

 
 

 
 

Brookline Bancorp, Inc. stockholders' equity
737,971

 
 

 
 

 
681,548

 
 

 
 

Noncontrolling interest in subsidiary
7,115

 
 

 
 

 
6,038

 
 

 
 

Total liabilities and stockholders' equity
$
6,509,188

 
 

 
 

 
$
6,165,158

 
 

 
 

Net interest income (tax-equivalent basis) / Interest-rate spread (4)
 

 
109,377

 
3.35
%
 
 

 
100,123

 
3.26
%
Less adjustment of tax-exempt income
 

 
696

 
 

 
 

 
663

 
 

Net interest income
 

 
$
108,681

 
 

 
 

 
$
99,460

 
 

Net interest margin (5)
 

 
 

 
3.56
%
 
 

 
 

 
3.44
%
_________________________________________________________________________
(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 0.46% and 0.45% in the six months ended June 30, 2017 and June 30, 2016, 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.

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

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changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
 
Three Months Ended June 30, 2017 as Compared to the Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2017 as Compared to the Six Months Ended June 30, 2016
 
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
$
171

 
$
(61
)
 
$
110

 
$
209

 
$

 
$
209

Marketable and restricted equity securities
25

 
42

 
67

 
54

 
52

 
106

Short-term investments
(21
)
 
53

 
32

 
(32
)
 
92

 
60

Total investments
175

 
34

 
209

 
231

 
144

 
375

Loans and leases:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
1,923

 
167

 
2,090

 
4,291

 

 
4,291

Commercial loans and leases
384

 
632

 
1,016

 
672

 
806

 
1,478

Equipment financing
1,607

 
452

 
2,059

 
2,902

 
521

 
3,423

Residential mortgage loans
118

 
108

 
226

 
211

 
65

 
276

Other consumer loans
109

 
259

 
368

 
265

 
328

 
593

Total loans
4,141

 
1,618

 
5,759

 
8,341

 
1,720

 
10,061

Total change in interest and dividend income
4,316

 
1,652

 
5,968

 
8,572

 
1,864

 
10,436

Interest expense:
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
NOW accounts
1

 

 
1

 
5

 

 
5

Savings accounts
22

 
(58
)
 
(36
)
 
48

 
(118
)
 
(70
)
Money market accounts
133

 
131

 
264

 
254

 
244

 
498

Certificate of deposit
(75
)
 
371

 
296

 
(213
)
 
640

 
427

Total deposits
81

 
444

 
525

 
94

 
766

 
860

Borrowed funds:
 
 
 
 
 
 
 
 
 
 
 
Advances from the FHLBB
41

 
36

 
77

 
226

 
39

 
265

Subordinated debentures and notes
3

 
10

 
13

 
5

 
12

 
17

Other borrowed funds
4

 
5

 
9

 
19

 
21

 
40

Total borrowed funds
48

 
51

 
99

 
250

 
72

 
322

Total change in interest expense
129

 
495

 
624

 
344

 
838

 
1,182

Change in tax-exempt income
18

 

 
18

 
33

 

 
33

Change in net interest income
$
4,169

 
$
1,157

 
$
5,326

 
$
8,195

 
$
1,026

 
$
9,221



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Table of Contents

Interest Income

Loans and Leases
 
Three Months Ended June 30,
 
Dollar
Change
 
Percent
Change
 
Six Months Ended 
 June 30,
 
Dollar
Change
 
Percent
Change
 
2017

2016
 
 
 
2017
 
2016
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Interest income—loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
$
30,369

 
$
28,279

 
$
2,090

 
7.4
%
 
$
59,835

 
$
55,545

 
$
4,290

 
7.7
%
Commercial loans
7,423

 
6,397

 
1,026

 
16.0
%
 
14,297

 
12,799

 
1,498

 
11.7
%
Equipment financing
13,810

 
11,751

 
2,059

 
17.5
%
 
26,924

 
23,501

 
3,423

 
14.6
%
Residential mortgage loans
5,859

 
5,633

 
226

 
4.0
%
 
11,468

 
11,192

 
276

 
2.5
%
Other consumer loans
3,677

 
3,309

 
368

 
11.1
%
 
7,172

 
6,579

 
593

 
9.0
%
Total interest income—loans and leases
$
61,138

 
$
55,369

 
$
5,769

 
10.4
%
 
$
119,696

 
$
109,616

 
$
10,080

 
9.2
%
Interest income from loans and leases was $61.1 million for the three months ended June 30, 2017, and represented a yield on total loans of 4.46%. This compares to $55.4 million of interest on loans and a yield of 4.29% for June 30, 2016. The $5.8 million increase in interest income from loans and leases was attributable to $4.1 million of increased origination volume and an increase of $1.6 million due to the changes in interest rates.
Accretion on acquired loans and leases of $0.3 million contributed 2 basis point to the Company's net interest margin for the three months ended June 30, 2017, compared to $0.2 million and 2 basis points for the three months ended June 30, 2016.
Interest income from loans and leases was $119.7 million for the six months ended June 30, 2017, resulting in a yield on total loans of 4.40%. This compares to $109.6 million of interest on loans and a yield of 4.30% for the six months ended June 30, 2016. The year over year increase of $10.1 million in interest income from loans and leases was due to an increase of $8.3 million due to increase in origination volume and an increase of of $1.7 million due to changes in interest rates.
Accretion on acquired loans and leases of $0.4 million contributed 1 basis point to net interest margin for the six months ended June 30, 2017, compared to $0.4 million and 1 basis point for the six months ended June 30, 2016

Investments
 
Three Months Ended June 30,
 
Dollar
Change
 
Percent
Change
 
Six Months Ended June 30,
 
Dollar
Change
 
Percent
Change
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Interest income—investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
$
3,156

 
$
3,075

 
$
81

 
2.6
%
 
$
6,156

 
$
6,007

 
$
149

 
2.5
%
Marketable and restricted equity securities
797

 
729

 
68

 
9.3
%
 
1,523

 
1,409

 
114

 
8.1
%
Short-term investments
95

 
63

 
32

 
50.8
%
 
162

 
102

 
60

 
58.8
%
Total interest income—investments
$
4,048

 
$
3,867

 
$
181

 
4.7
%
 
$
7,841

 
$
7,518

 
$
323

 
4.3
%
Total investment income was $4.0 million for the three months ended June 30, 2017 compared to $3.9 million for the three months ended June 30, 2016. As of June 30, 2017 and 2016, the yield on total investments was 2.2% and 2.1%, respectively. The year over year increase in interest income on investments of $0.2 million, or 4.7%, was driven by a $175.0 thousand increase due to volume and a $34.0 thousand increase due to rates.

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Interest Expense—Deposits and Borrowed Funds
 
Three Months Ended June 30,
 
Dollar
Change
 
Percent
Change
 
Six Months Ended June 30,
 
Dollar
 
Percent
 
2017
 
2016
 
 
 
2017
 
2016
 
Change
 
Change
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOW accounts
$
54

 
$
53

 
$
1

 
1.9
 %
 
$
109

 
$
104

 
$
5

 
4.8
 %
Savings accounts
300

 
336

 
(36
)
 
-10.7
 %
 
610

 
680

 
(70
)
 
(10.3
)%
Money market accounts
2,131

 
1,867

 
264

 
14.1
 %
 
4,140

 
3,642

 
498

 
13.7
 %
Certificates of deposit
3,058

 
2,762

 
296

 
10.7
 %
 
5,764

 
5,337

 
427

 
8.0
 %
Total interest expense - deposits
5,543

 
5,018

 
525

 
10.5
 %
 
10,623

 
9,763

 
860

 
8.8
 %
Borrowed funds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Advances from the FHLBB
2,755

 
2,678

 
77

 
2.9
 %
 
5,612

 
5,347

 
265

 
5.0
 %
Subordinated debentures and notes
1,271

 
1,258

 
13

 
1.0
 %
 
2,531

 
2,514

 
17

 
0.7
 %
Other borrowed funds
34

 
25

 
9

 
36.0
 %
 
90

 
50

 
40

 
80.0
 %
Total interest expense - borrowed funds
4,060

 
3,961

 
99

 
2.5
 %
 
8,233

 
7,911

 
322

 
4.1
 %
Total interest expense
$
9,603

 
$
8,979

 
$
624

 
6.9
 %
 
$
18,856

 
$
17,674

 
$
1,182

 
6.7
 %
Deposits
For the three months ended June 30, 2017, interest expense on deposits increased $0.5 million, or 10.5%, as compared to the same period in 2016. Interest expense increased $0.4 million due to an increase in interest rates and $81.0 thousand due to the growth in deposits. There was no purchase accounting accretion on acquired deposits for the three months ended June 30, 2017, compared to $24.0 thousand for the three months ended June 30, 2016. Purchase accounting accretion did not impact the Company's net interest margin for the three months ended June 30, 2017 and 2016.
Interest expense on deposits increased $0.9 million, or 8.8%, to $10.6 million for the six months ended June 30, 2017 from $9.8 million for the six months ended June 30, 2016. The increase in interest expense on deposits was due to a $0.8 million increase due to rates offered and a $0.1 million increase due to volume. There was no accretion on acquired deposits for the six months ended June 30, 2017 compared to $49.0 thousand for the six months ended June 30, 2016. Accretion did not have an impact on the Company's net interest margin for the six months ended June 30, 2017 and 2016.
Borrowed Funds
During the three months ended June 30, 2017, interest paid on borrowed funds increased $0.1 million, or 2.5% year over year, primarily driven by an increase in FHLBB borrowings. The cost of borrowed funds was 1.56% for the three months ended June 30, 2017 and 2016. The increase in interest expense was driven by an increase of $51.0 thousand due to borrowing rates and an increase of $48.0 thousand due to volume. For the three months ended June 30, 2017, the purchase accounting accretion on acquired borrowed funds was $0.5 million which contributed 3 basis points to the Company's net interest margin. This compared to $0.6 million and 4 basis points for the three months ended June 30, 2016.
Interest expense on borrowed funds increased by $0.3 million, or 4.1%, to $8.2 million for the six months ended June 30, 2017 from $7.9 million for the six months ended June 30, 2016. The cost of borrowed funds decreased to 1.56% for the six months ended June 30, 2017 from 1.57% for the six months ended June 30, 2016. The increase in interest expense was due to an $250.0 thousand increase due to higher volume and a $72.0 thousand increase due to higher borrowing rates. Accretion on acquired borrowed funds of $1.0 million improved the Company’s net interest margin by 3 basis points for the six months ended June 30, 2017. This compared to $1.3 million and 4 basis points for the six months ended June 30, 2016.


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Provision for Credit Losses
The provisions for credit losses are set forth below:
 
Three Months Ended June 30,
 
Dollar
 
Percent
 
Six Months Ended June 30,
 
Dollar
 
Percent
 
2017

2016
 
Change
 
Change
 
2017
 
2016
 
Change
 
Change
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Provision for loan and lease losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
(165
)
 
$
30

 
$
(195
)
 
-650.0
 %
 
$
62

 
$
1,194

 
$
(1,132
)
 
(94.8
)%
Commercial
362

 
2,254

 
(1,892
)
 
-83.9
 %
 
13,804

 
3,278

 
10,526

 
321.1
 %
Consumer
593

 
386

 
207

 
53.6
 %
 
386

 
465

 
(79
)
 
(17.0
)%
Total provision for loan and lease losses
790

 
2,670

 
(1,880
)
 
-70.4
 %
 
14,252

 
4,937

 
9,315

 
188.7
 %
Unfunded credit commitments
83

 
(125
)
 
208

 
166.4
 %
 
23

 
(14
)
 
37

 
264.3
 %
Total provision for credit losses
$
873

 
$
2,545

 
$
(1,672
)
 
-65.7
 %
 
$
14,275

 
$
4,923

 
$
9,352

 
190.0
 %

For the three months ended June 30, 2017, the provision for credit losses decreased $1.7 million, or 65.7%, to $0.9 million from $2.5 million for the three months ended June 30, 2016. The decrease in the provision for credit losses for the three months ended June 30, 2017 was primarily driven by the decreases in specific reserves for a two commercial relationships and the decreases in net charge-offs.

For the six months ended June 30, 2017, the provision for credit losses increased $9.4 million, or 190.0%, to $14.3 million from $4.9 million for the six months ended June 30, 2016. The increase in the provision for credit losses for the six months ended June 30, 2017 was primarily driven by the continued loan growth in the commercial real estate and commercial portfolios and the increase in specific reserves for taxi medallion loans.

See management’s discussion of “Financial Condition — Allowance for Loan and Lease Losses” and Note 5, “Allowance for Loan and Lease Losses,” to the unaudited consolidated financial statements for a description of how management determined the allowance for loan and lease losses for each portfolio and class of loans.
Non-Interest Income
The following table sets forth the components of non-interest income:
 
Three Months Ended June 30,
 
Dollar
Change
 
Percent
Change
 
Six Months Ended June 30,
 
Dollar
Change
 
Percent
Change
 
2017

2016
 
 
 
2017
 
2016
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Deposit fees
$
2,552

 
$
2,216

 
$
336

 
15.2
 %
 
$
4,961

 
$
4,361

 
$
600

 
13.8
 %
Loan fees
229

 
287

 
(58
)
 
(20.2
)%
 
490

 
593

 
(103
)
 
(17.4
)%
Loan level derivative income, net
186

 
1,210

 
(1,024
)
 
(84.6
)%
 
588

 
2,839

 
(2,251
)
 
(79.3
)%
Gain on sales of loans and leases held-for-sale
307

 
345

 
(38
)
 
(11.0
)%
 
660

 
1,250

 
(590
)
 
(47.2
)%
Gain on sales of investment securities, net

 

 

 
 %
 
11,393

 

 
11,393

 
100.0
 %
Other
1,203

 
1,317

 
(114
)
 
(8.7
)%
 
2,293

 
2,777

 
(484
)
 
(17.4
)%
Total non-interest income
$
4,477

 
$
5,375

 
$
(898
)
 
(16.7
)%
 
$
20,385

 
$
11,820

 
$
8,565

 
72.5
 %
For the three months ended June 30, 2017, non-interest income decreased $0.9 million, or 16.7%, to $4.5 million as compared to the same period in 2016. This decrease is primarily due to a $0.3 million increase in deposit fees, offset by a $1.0 million decrease in loan level derivative income and other income.
For the six months ended June 30, 2017, non-interest income increased $8.6 million, or 72.5%, to $20.4 million as compared to the same period of 2016. This increase is primarily due to a $0.6 million increase in deposit fees, offset by a $2.3 million decrease in loan level derivative income, and a $11.4 million increase in gain on sales of investment securities.

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Deposit fees increased $0.3 million, or 15.2% to $2.6 million for the three months ended June 30, 2017 from $2.2 million for the same period of 2016 and increased $0.6 million, or 13.8% to $5.0 million for the six months ended June 30, 2017 from $4.4 million for the same period of 2016. This increase is primarily due to growth in deposits.
Loan level derivative income decreased $1.0 million, or 84.6%, to $0.2 million for the three months ended June 30, 2017 from $1.2 million for the same period of 2016 and decreased $2.3 million, or 79.3%, to $0.6 million for the six months ended June 30, 2017 from $2.8 million for the same period of 2016, primarily driven by fewer loan level derivative transactions completed for the three and six months ended June 30, 2017.
No gain on sales of investment securities were recorded for the three months ended June 30, 2017 and 2016 and increased to $11.4 million, or 100.0%, for the six months ended June 30, 2017 from zero for the same period of 2016, primarily driven by the gain on sales of investment securities in the first quarter of 2017.
Non-Interest Expense
The following table sets forth the components of non-interest expense:
 
Three Months Ended June 30,
 
Dollar
Change
 
Percent
Change
 
Six Months Ended June 30,
 
Dollar
Change
 
Percent
Change
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Compensation and employee benefits
$
20,910

 
$
19,083

 
$
1,827

 
9.6
 %
 
$
40,694

 
$
37,810

 
$
2,884

 
7.6
 %
Occupancy
3,657

 
3,391

 
266

 
7.8
 %
 
7,302

 
6,917

 
385

 
5.6
 %
Equipment and data processing
4,164

 
3,898

 
266

 
6.8
 %
 
8,227

 
7,588

 
639

 
8.4
 %
Professional services
1,036

 
962

 
74

 
7.7
 %
 
2,142

 
1,928

 
214

 
11.1
 %
FDIC insurance
951

 
843

 
108

 
12.8
 %
 
1,806

 
1,721

 
85

 
4.9
 %
Advertising and marketing
857

 
853

 
4

 
0.5
 %
 
1,674

 
1,714

 
(40
)
 
(2.3
)%
Amortization of identified intangible assets
519

 
621

 
(102
)
 
(16.4
)%
 
1,051

 
1,256

 
(205
)
 
(16.3
)%
Other
2,701

 
2,599

 
102

 
3.9
 %
 
5,655

 
5,345

 
310

 
5.8
 %
Total non-interest expense
$
34,795

 
$
32,250

 
$
2,545

 
7.9
 %
 
$
68,551

 
$
64,279

 
$
4,272

 
6.6
 %
For the three months ended June 30, 2017, non-interest expense increased $2.5 million, or 7.9%, to $34.8 million as compared to the same period in 2016. This increase is primarily due to a $1.8 million increase in compensation and employee benefits expense, a $0.3 million increase in occupancy, and a $0.3 million increase in equipment and data processing expense.
For the six months ended June 30, 2017, non-interest expense increased $4.3 million, or 6.6%, to $68.6 million as compared to the same period in 2016. This increase is primarily due to a $2.9 million increase in compensation and employee benefits expense, and a $0.4 million increase in occupancy, and a $0.6 million increase in equipment and data processing expense.
The efficiency ratio decreased to 57.93% for the three months ended June 30, 2017 from 57.97% for the same period in 2016 and decreased to 53.11% for the six months ended June 30, 2017 from 57.76% for the same period in 2016. Efforts to drive revenue growth contributed to the overall improvement in the efficiency ratio, along with an $11.4 million gain on sales of investment securities in the first quarter of 2017.
Compensation and employee benefits expense increased $1.8 million, or 9.6%, to $20.9 million for the three months ended June 30, 2017, from $19.1 million for the same period in 2016 and increased $2.9 million, or 7.6% to $40.7 million for the six months ended June 30, 2017 from $37.8 million for the same period in 2016. This increase was primarily driven by an increase in employee headcount and incentive plan expenses.
Occupancy expense increased $0.3 million, or 7.8%, to $3.7 million for the three months ended June 30, 2017, from $3.4 million for the same period in 2016 and increased $0.4 million, or 5.6%, to $7.3 million for the six months ended June 30, 2017 from $6.9 million for the same period in 2016. This increase was primarily driven by an increase in rent due to the opening of a new branch in Danvers, Massachusetts for First Ipswich Bank, and the relocation of a branch in Brookline, Massachusetts for Brookline Bank.

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Equipment and data processing expense increased $0.3 million, or 6.8%, to $4.2 million for the three months ended June 30, 2017 from $3.9 million for the same period in 2016 and increased $0.6 million, or 8.4%, to $8.2 million for the six months ended June 30, 2017 from $7.6 million for the same period in 2016. This increase was primarily driven by an increase related to core processing, software licenses, and loan processing expense.
Provision for Income Taxes
 
Three Months Ended June 30,
 
Dollar
Change
 
Percent
Change
 
Six Months Ended June 30,
 
Dollar
Change
 
Percent
Change
 
2017

2016
 
 
 
2017
 
2016
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Income before provision for income taxes
$
24,392

 
$
20,837

 
$
3,555

 
17.1
%
 
$
46,240

 
$
42,078

 
$
4,162

 
9.9
%
Provision for income taxes
8,759

 
7,465

 
1,294

 
17.3
%
 
16,594

 
15,064

 
1,530

 
10.2
%
Net income, before non-controlling interest in subsidiary
$
15,633

 
$
13,372

 
$
2,261

 
16.9
%
 
$
29,646

 
$
27,014

 
$
2,632

 
9.7
%
Effective tax rate
35.9
%
 
35.8
%
 
N/A

 
0.3
%
 
35.9
%
 
35.8
%
 
N/A

 
0.3
%
The Company recorded income tax expense of $8.8 million for the three months ended June 30, 2017, compared to $7.5 million for the three months ended June 30, 2016, representing effective tax rates of 35.9% and 35.8%, respectively.
The Company recorded income tax expense of $16.6 million for the first six months of 2017, compared to $15.1 million for the same period of 2016, representing effective tax rates of 35.9% and 35.8%, respectively.
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.
Deposits, which are considered the most stable source of liquidity, totaled $4.7 billion as of June 30, 2017 and represented 81.5% of total funding (the sum of total deposits and total borrowings), compared to deposits of $4.6 billion, or 81.5% of total funding, as of December 31, 2016. Core deposits, which consist of demand checking, NOW, savings and money market accounts, totaled $3.6 billion as of June 30, 2017 and represented 76.2% of total deposits, compared to core deposits of $3.6 billion, or 77.4% of total deposits, as of December 31, 2016. Additionally, the Company had $256.8 million of brokered deposits as of June 30, 2017, which represented 5.5% of total deposits, compared to $203.4 million or 4.4% of total deposits, as of December 31, 2016. The Company offers attractive interest rates based on market conditions to increase deposits balances, while managing cost of funds.
Borrowings are used to diversify the Company's funding mix and to support asset growth. When profitable lending and investment opportunities exist, access to borrowings provides a means to grow the balance sheet. Borrowings totaled $1.1 billion as of June 30, 2017, representing 18.5% of total funding, compared to $1.0 billion, or 18.5% of total funding, as of December 31, 2016.
As members of the FHLBB, the Banks have access to both short- and long-term borrowings. As of June 30, 2017 and December 31, 2016, the Company's total borrowing limit from the FHLBB for advances and repurchase agreements was $1.5 billion based on the level of qualifying collateral available for these borrowings.
As of June 30, 2017, the Banks also have access to funding through certain uncommitted lines of credit of $199.0 million. As of June 30, 2017, the Company had $17.0 million of borrowings on one uncommitted line of credit outstanding.
The Company had a $12.0 million committed line of credit for contingent liquidity as of June 30, 2017. As of June 30, 2017, the Company did not have any borrowings on this committed line of credit outstanding.

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The Company has access to the Federal Reserve Bank "discount window" to supplement its liquidity. The Company has $76.6 million of borrowing capacity at the Federal Reserve Bank as of June 30, 2017. As of June 30, 2017, the Company did not have any borrowings with the Federal Reserve Bank outstanding.
Additionally, the Banks have access to liquidity through repurchase agreements and brokered deposits.
In general, the Company seeks to maintain a high degree of liquidity and targets cash, cash equivalents and investment securities available-for-sale balances of between 10% and 30% of total assets. As of June 30, 2017, cash, cash equivalents and investment securities available-for-sale totaled $654.6 million, or 9.8% of total assets. This compares to $591.3 million, or 9.2% of total assets as of December 31, 2016.
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.
 
Financial instruments with off-balance-sheet risk at the dates indicated follow:
 
At June 30, 2017
 
At December 31, 2016
 
(In Thousands)
Financial instruments whose contract amounts represent credit risk:
 
 
 
Commitments to originate loans and leases:
 
 
 
Commercial real estate
$
56,880

 
$
27,750

Commercial
97,398

 
71,716

Residential mortgage
14,192

 
28,179

Unadvanced portion of loans and leases
536,527

 
580,416

Unused lines of credit:
 
 
 
Home equity
372,314

 
340,682

Other consumer
11,888

 
13,157

Other commercial
279

 
208

Unused letters of credit:
 
 
 
Financial standby letters of credit
10,846

 
11,720

Performance standby letters of credit
484

 
516

Commercial and similar letters of credit
840

 
785

Loan level derivatives:
 
 
 
Receive fixed, pay variable
409,837

 
383,780

Pay fixed, receive variable
409,837

 
383,780

Risk participation-out agreements
16,694

 
16,961

Risk participation-in agreements
3,825

 

Foreign exchange contracts:
 
 
 
Buys foreign currency, sells U.S. currency
14,786

 
4,050

Sells foreign currency, buys U.S. currency
14,786

 
4,050


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Capital Resources
As of June 30, 2017, the Company and the Banks are each under the primary regulation of, and must comply with, the capital requirements of the FRB. As of June 30, 2017, the Company and the Banks exceeded all regulatory capital requirements and were considered “well-capitalized” under prompt corrective action regulations, as amended to reflect the changes under Basel III Capital Rules. The following table presents actual and required capital ratios as of June 30, 2017 for the Company and the Banks under the Basel III Capital Rules based on the phase-in provision of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased in.
The Company's and the Banks' actual and required capital amounts and ratios were as follows:
 
Actual
 
Minimum Required for Capital Adequacy Purposes
 
Minimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer
 
Minimum Required  to be Considered “Well-Capitalized” Under Prompt Corrective Action Provisions
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
(Dollars in Thousands)
At June 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brookline Bancorp, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio (1)
$
657,593

 
12.07
%
 
$
245,167

 
4.50
%
 
$
381,371

 
7.00
%
 
N/A

 
N/A

Tier 1 leverage capital ratio (2)
674,278

 
10.50
%
 
256,868

 
4.00
%
 
256,868

 
4.00
%
 
N/A

 
N/A

Tier 1 risk-based capital ratio (3)
674,278

 
12.38
%
 
326,791

 
6.00
%
 
462,953

 
8.50
%
 
N/A

 
N/A

Total risk-based capital ratio (4)
814,051

 
14.95
%
 
435,613

 
8.00
%
 
571,742

 
10.50
%
 
N/A

 
N/A

Brookline Bank
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio (1)
$
394,935

 
11.38
%
 
$
156,169

 
4.50
%
 
$
242,930

 
7.00
%
 
$
225,578

 
6.50
%
Tier 1 leverage capital ratio (2)
402,376

 
10.08
%
 
159,673

 
4.00
%
 
159,673

 
4.00
%
 
199,591

 
5.00
%
Tier 1 risk-based capital ratio (3)
402,376

 
11.59
%
 
208,305

 
6.00
%
 
295,099

 
8.50
%
 
277,740

 
8.00
%
Total risk-based capital ratio (4)
445,768

 
12.84
%
 
277,737

 
8.00
%
 
364,530

 
10.50
%
 
347,171

 
10.00
%
BankRI
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio (1)
$
187,617

 
11.17
%
 
$
75,584

 
4.50
%
 
$
117,576

 
7.00
%
 
$
109,177

 
6.50
%
Tier 1 leverage capital ratio (2)
187,617

 
9.06
%
 
82,833

 
4.00
%
 
82,833

 
4.00
%
 
103,541

 
5.00
%
Tier 1 risk-based capital ratio (3)
187,617

 
11.17
%
 
100,779

 
6.00
%
 
142,770

 
8.50
%
 
134,372

 
8.00
%
Total risk-based capital ratio (4)
205,590

 
12.24
%
 
134,373

 
8.00
%
 
176,364

 
10.50
%
 
167,966

 
10.00
%
First Ipswich
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio (1)
$
32,713

 
11.77
%
 
$
12,507

 
4.50
%
 
$
19,455

 
7.00
%
 
$
18,066

 
6.50
%
Tier 1 leverage capital ratio (2)
32,713

 
8.70
%
 
15,040

 
4.00
%
 
15,040

 
4.00
%
 
18,801

 
5.00
%
Tier 1 risk-based capital ratio (3)
32,713

 
11.77
%
 
16,676

 
6.00
%
 
23,625

 
8.50
%
 
22,235

 
8.00
%
Total risk-based capital ratio (4)
36,200

 
13.03
%
 
22,226

 
8.00
%
 
29,171

 
10.50
%
 
27,782

 
10.00
%
_______________________________________________________________________________
(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets. The ratio was established as part of the implementation of Basel III, effective January 1, 2015.

(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 ratios as of December 31, 2016 for the Company and the Banks under the regulatory capital rules then in effect.
 
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, 2016:
 

 
 

 
 

 
 
 
 
 
 

 
 

 
 

Brookline Bancorp, Inc.
 

 
 

 
 

 
 
 
 
 
 

 
 

 
 

Common equity Tier 1 capital ratio (1)
$
559,644

 
10.48
%
 
$
240,305

 
4.50
%
 
$
373,808

 
7.00
%
 
N/A

 
N/A

Tier 1 leverage capital ratio (2)
575,830

 
9.16
%
 
251,454

 
4.00
%
 
251,454

 
4.00
%
 
N/A

 
N/A

Tier 1 risk-based capital ratio (3)
575,830

 
10.79
%
 
320,202

 
6.00
%
 
453,620

 
8.50
%
 
N/A

 
N/A

Total risk-based capital ratio (4)
704,675

 
13.20
%
 
427,076

 
8.00
%
 
560,537

 
10.50
%
 
N/A

 
N/A

Brookline Bank
 

 
 

 
 

 
 

 
 
 
 
 
 

 
 

Common equity Tier 1 capital ratio (1)
$
384,759

 
11.31
%
 
$
153,087

 
4.50
%
 
$
238,136

 
7.00
%
 
$
221,126

 
6.50
%
Tier 1 leverage capital ratio (2)
391,964

 
10.07
%
 
155,696

 
4.00
%
 
155,696

 
4.00
%
 
194,620

 
5.00
%
Tier 1 risk-based capital ratio (3)
391,964

 
11.53
%
 
203,971

 
6.00
%
 
288,959

 
8.50
%
 
271,961

 
8.00
%
Total risk-based capital ratio (4)
428,966

 
12.61
%
 
272,143

 
8.00
%
 
357,188

 
10.50
%
 
340,179

 
10.00
%
BankRI
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio (1)
$
182,202

 
10.94
%
 
$
74,946

 
4.50
%
 
$
116,583

 
7.00
%
 
$
108,255

 
6.50
%
Tier 1 leverage capital ratio (2)
182,202

 
8.97
%
 
81,249

 
4.00
%
 
81,249

 
4.00
%
 
101,562

 
5.00
%
Tier 1 risk-based capital ratio (3)
182,202

 
10.94
%
 
99,928

 
6.00
%
 
141,565

 
8.50
%
 
133,237

 
8.00
%
Total risk-based capital ratio (4)
197,702

 
11.87
%
 
133,245

 
8.00
%
 
174,884

 
10.50
%
 
166,556

 
10.00
%
First Ipswich
 

 
 

 
 

 
 

 
 
 
 
 
 

 
 

Common equity Tier 1 capital ratio (1)
$
33,433

 
12.61
%
 
$
11,931

 
4.50
%
 
$
18,559

 
7.00
%
 
$
17,234

 
6.50
%
Tier 1 leverage capital ratio (2)
33,433

 
9.23
%
 
14,489

 
4.00
%
 
14,489

 
4.00
%
 
18,111

 
5.00
%
Tier 1 risk-based capital ratio (3)
33,433

 
12.61
%
 
15,908

 
6.00
%
 
22,536

 
8.50
%
 
21,210

 
8.00
%
Total risk-based capital ratio (4)
36,053

 
13.60
%
 
21,208

 
8.00
%
 
27,835

 
10.50
%
 
26,510

 
10.00
%
_______________________________________________________________________________
(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets. The ratio was established as part of the implementation of Basel III, effective January 1, 2015.

(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 in to those with limited average life changes under certain interest-rate-shock scenarios, or securities with embedded prepayment penalties. The Company also places limits on holdings of fixed-rate mortgage loans with maturities greater than five years. The Company may also use derivative instruments, principally interest-rate swaps, to manage its interest-rate risk; however, the Company had no derivative fair value hedges or derivative cash flows hedges as of June 30, 2017 or December 31, 2016. See Note 8, “Derivatives and Hedging Activities,” to the unaudited consolidated financial statements.
Measuring Interest-Rate Risk
As noted above, interest-rate risk can be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest-rate sensitivity gap. An asset or liability is said to be interest-rate sensitive within a specific period if it will mature or reprice within that period. The interest-rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive liabilities. A gap is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets. During a period of falling interest rates, therefore, a positive gap would tend to adversely affect net interest income. Conversely, during a period of rising interest rates, a positive gap position would tend to result in an increase in net interest income.
The Company's interest-rate risk position is measured using both income simulation and interest-rate sensitivity "gap" analysis. Income simulation is the primary tool for measuring the interest-rate risk inherent in the Company's balance sheet at a given point in time by showing the effect on net interest income, over a twelve-month period, of a variety of interest-rate shocks. These simulations take into account repricing, maturity, and prepayment characteristics of individual products. The ALCO reviews simulation results to determine whether exposure resulting from changes in market interest rates remains within

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established tolerance levels over a twelve-month horizon, and develops appropriate strategies to manage this exposure. The Company's interest-rate risk analysis remains modestly asset-sensitive as of June 30, 2017.
The assumptions used in the Company’s interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates.
As of June 30, 2017, net interest income simulation indicated that the Company's exposure to changing interest rates was within tolerance. The ALCO reviews the methodology utilized for calculating interest-rate risk exposure and may periodically adopt modifications to this methodology. The following table presents the estimated impact of interest-rate changes on the Company's estimated net interest income over the twelve-month periods indicated:
 
Estimated Exposure to Net Interest Income
over Twelve-Month Horizon Beginning
 
June 30, 2017
 
December 31, 2016
Gradual Change in Interest Rate Levels
Dollar
Change
 
Percent
Change
 
Dollar
Change
 
Percent
Change
 
(Dollars in Thousands)
Up 300 basis points
$
8,191

 
3.6
 %
 
$
6,403

 
3.0
 %
Up 200 basis points
5,627

 
2.5
 %
 
4,420

 
2.1
 %
Up 100 basis points
2,875

 
1.3
 %
 
2,288

 
1.1
 %
Down 100 basis points
(6,715
)
 
-3.0
 %
 
(5,196
)
 
-2.5
 %

The estimated impact of a 300 basis point increase in market interest rates on the Company's estimated net interest income over a twelve-month horizon was a positive 3.6% as of June 30, 2017, compared to a positive 3.0% as of December 31, 2016, the increase in asset sensitivity was due to a change in the funding mix, as core deposits and issued common stock funded balance sheet 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 June 30, 2017, the Company’s one-year cumulative gap was a negative $136.8 million, or 2.19% of total interest-earning assets, compared with a negative $275.3 million, or 4.56% of total interest-earning assets, at December 31, 2016.
 
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 2016 Annual Report on Form 10-K.

Economic Value of Equity ("EVE") at Risk Simulation is conducted in tandem with net interest income simulations to ascertain a longer term view of the Company’s interest-rate risk position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of the economic value of equity to changes in interest rates. The EVE at Risk Simulation values only the current balance sheet and does not incorporate growth assumptions. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, and rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity, and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. The Company conducts non-maturity deposit behavior studies on a periodic basis to support deposit assumptions used in the valuation process. All key assumptions are subject to a periodic review.

EVE at Risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates as well as parallel shocks to the current interest-rate environment. The following table sets forth the estimated percentage change in the Company’s EVE at Risk, assuming various shifts in interest rates. Given the interest rate environment as of June 30, 2017, simulations for interest rate declines of more than 100 basis points were not deemed to be meaningful.

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Estimated Percent Change in Economic Value of Equity
Parallel Shock in Interest Rate Levels
 
At June 30, 2017
 
At December 31, 2016
Up 300 basis points
 
2.3
 %
 
-4.6
 %
Up 200 basis points
 
1.4
 %
 
-4.4
 %
Up 100 basis points
 
1.3
 %
 
-1.6
 %
Down 100 basis points
 
-8.8
 %
 
-6.4
 %

The Company's EVE sensitivity for Up shock scenarios moved from a negative outcome at December 31, 2016 to a positive outcome at June 30, 2017 due to the issuance of common stock which replaced short wholesale funding as well as the duration of assets shortened due to increased prepayments driven by lower, long term rates.

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.
 
There has been no change in the Company’s internal control over financial reporting identified in connection with the quarterly evaluation that occurred during the Company’s last fiscal quarter that has materially and detrimentally affected, or is reasonably likely to materially and detrimentally affect, the Company’s internal controls over financial reporting.
 
The Company’s Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a -15(f). The Company’s internal control system was designed to provide reasonable assurance to its Management and the Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company’s Management assessed the effectiveness of its internal control over financial reporting as of the end of the period covered by this report.
 
Management’s Report on Internal Control Over Financial Reporting as of December 31, 2016 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, 2016.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
 
There are no material pending legal proceedings other than those that arise in the normal course of business. In the opinion of Management, after consulting with legal counsel, the consolidated financial position and results of operations of the Company are not expected to be affected materially by the outcome of such proceedings. 

Item 1A.    Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A of the Company’s Form 10-K for the year ended December 31, 2016.

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

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

Item 3. Defaults Upon Senior Securities

a)        None.
 
b)        None.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.

Item 6. Exhibits
 
Exhibits
Exhibit 31.1*
 
Certification of Chief Executive Officer
 
 
 
Exhibit 31.2*
 
Certification of Chief Financial Officer
 
 
 
Exhibit 32.1**
 
Section 1350 Certification of Chief Executive Officer
 
 
 
Exhibit 32.2**
 
Section 1350 Certification of Chief Financial Officer
 
 
 
Exhibit 101
 
The following materials from Brookline Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (1) Unaudited Consolidated Balance Sheets as of June 30, 2017 and June 30, 2016; (2) Unaudited Consolidated Statements of Income for the three and six months June 30, 2017 and June 30, 2016; (3) Unaudited Consolidated Statements of Comprehensive Income for the three and six months June 30, 2017 and June 30, 2016; (4) Unaudited Consolidated Statements of Changes in Equity for the six months ended June 30, 2017 and June 30, 2016; (5) Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and June 30, 2016; and (6) Notes to Unaudited Consolidated Financial Statements at and for the six months ended June 30, 2017 and June 30, 2016.
_______________________________________________________________________________
* Filed herewith
** Furnished herewith

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

 
BROOKLINE BANCORP, INC.
 
 
 
 
 
 
 
 
Date: August 4, 2017
By:
/s/ Paul A. Perrault
 
 
Paul A. Perrault
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
 
Date: August 4, 2017
By:
/s/ Carl M. Carlson
 
 
Carl M. Carlson
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial Officer)
 




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