Quarterly Report (10-q)

 
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 March 31, 2019
 
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  YES   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    
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
BRKL
Nasdaq Global Select Market
                                                                                                                                                         
At May 8, 2019 , the number of shares of common stock, par value $0.01 per share, outstanding was 79,774,286 .
 

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 March 31, 2019
 
At December 31, 2018
 
(In Thousands Except Share Data)
ASSETS
 
 
 
Cash and due from banks
$
51,276

 
$
47,542

Short-term investments
61,063

 
42,042

Total cash and cash equivalents
112,339

 
89,584

Investment securities available-for-sale
489,020

 
502,793

Investment securities held-to-maturity (fair value of $113,089 and $112,830, respectively)
113,694

 
114,776

Equity securities held-for-trading
4,341

 
4,207

Total investment securities
607,055

 
621,776

Loans held-for-sale
869

 
3,247

Loans and leases:
 
 
 
Commercial real estate loans
3,410,468

 
3,351,736

Commercial loans and leases
1,786,582

 
1,768,958

Consumer loans
1,191,147

 
1,182,822

Total loans and leases
6,388,197

 
6,303,516

Allowance for loan and lease losses
(58,041
)
 
(58,692
)
Net loans and leases
6,330,156

 
6,244,824

Restricted equity securities
54,192

 
61,751

Premises and equipment, net of accumulated depreciation of $71,831 and $70,140, respectively
75,520

 
76,382

Right-of-use asset operating leases
26,205

 
—

Deferred tax asset
27,084

 
21,495

Goodwill
160,427

 
160,427

Identified intangible assets, net of accumulated amortization of $36,220 and $35,818, respectively
5,684

 
6,086

Other real estate owned ("OREO") and repossessed assets, net
3,912

 
4,019

Other assets
115,687

 
103,214

Total assets
$
7,519,130

 
$
7,392,805

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Deposits:
 
 
 
Demand checking accounts
$
1,011,031

 
$
1,033,551

Interest-bearing deposits:
 
 
 
NOW accounts
369,896

 
336,317

Savings accounts
625,770

 
619,961

Money market accounts
1,706,708

 
1,675,050

Certificate of deposit accounts
1,907,228

 
1,789,165

Total interest-bearing deposits
4,609,602

 
4,420,493

Total deposits
5,620,633

 
5,454,044

Borrowed funds:
 
 
 
Advances from the Federal Home Loan Bank of Boston ("FHLBB")
730,018

 
784,375

Subordinated debentures and notes
83,472

 
83,433

Other borrowed funds
52,515

 
52,734

Total borrowed funds
866,005

 
920,542

Operating lease liabilities
26,205

 
—

Mortgagors' escrow accounts
7,517

 
7,426

Accrued expenses and other liabilities
98,198

 
100,174

Total liabilities
6,618,558

 
6,482,186

 
 
 
 
Commitments and contingencies (Note 12)

 

Stockholders' Equity:
 
 
 
Brookline Bancorp, Inc. stockholders' equity:
 
 
 
Common stock, $0.01 par value; 200,000,000 shares authorized; 85,177,172 shares issued and 85,177,172 shares issued, respectively
852

 
852

Additional paid-in capital
736,872

 
755,629

Retained earnings, partially restricted
226,929

 
212,838

Accumulated other comprehensive loss
(4,393
)
 
(9,460
)
Treasury stock, at cost; 5,020,025 shares and 5,020,025 shares, respectively
(59,121
)
 
(59,120
)
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 104,079 shares and 109,950 shares, respectively
(567
)
 
(599
)
Total Brookline Bancorp, Inc. stockholders' equity
900,572

 
900,140

Noncontrolling interest in subsidiary
—

 
10,479

Total stockholders' equity
900,572

 
910,619

Total liabilities and stockholders' equity
$
7,519,130

 
$
7,392,805


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 March 31,
 
2019
 
2018
 
(In Thousands Except Share Data)
Interest and dividend income:
 
 
 
Loans and leases
$
80,672

 
$
67,272

Debt securities
3,236

 
3,323

Marketable and restricted equity securities
911

 
924

Short-term investments
267

 
120

Total interest and dividend income
85,086

 
71,639

Interest expense:
 
 
 
Deposits
15,948

 
7,099

Borrowed funds
6,139

 
5,049

Total interest expense
22,087

 
12,148

Net interest income
62,999

 
59,491

Provision for credit losses
1,353

 
641

Net interest income after provision for credit losses
61,646

 
58,850

Non-interest income:
 
 
 
Deposit fees
2,523

 
2,463

Loan fees
413

 
290

Loan level derivative income, net
1,745

 
866

Gain on investment securities, net
134

 
1,162

Gain on sales of loans and leases held-for-sale
289

 
299

Other
1,526

 
1,088

Total non-interest income
6,630

 
6,168

Non-interest expense:
 
 
 
Compensation and employee benefits
23,743

 
22,314

Occupancy
3,947

 
3,959

Equipment and data processing
4,661

 
4,618

Professional services
1,076

 
1,144

FDIC insurance
593

 
635

Advertising and marketing
1,069

 
1,057

Amortization of identified intangible assets
402

 
467

Merger and acquisition expense
—

 
2,905

Other
3,380

 
2,839

Total non-interest expense
38,871

 
39,938

Income before provision for income taxes
29,405

 
25,080

Provision for income taxes
6,895

 
5,652

Net income before noncontrolling interest in subsidiary
22,510

 
19,428

Less: net income attributable to noncontrolling interest in subsidiary
43

 
795

Net income attributable to Brookline Bancorp, Inc.
$
22,467

 
$
18,633

Earnings per common share:
 
 
 
Basic
$
0.28

 
$
0.24

Diluted
0.28

 
0.24

Weighted average common shares outstanding during the year:
 
 
 
Basic
79,658,583

 
77,879,593

Diluted
79,843,578

 
78,167,800

Dividends paid per common share
$
0.105

 
$
0.090



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 March 31,
 
2019
 
2018
 
(In Thousands)
Net income before noncontrolling interest in subsidiary
$
22,510

 
$
19,428

 
 
 
 
Investment securities available-for-sale:
 
 
 
Unrealized securities holding gains (losses)
6,500

 
(7,401
)
Income tax (benefit) expense
(1,433
)
 
1,632

Net unrealized securities holding gains (losses) before reclassification adjustments, net of taxes
5,067

 
(5,769
)
Less reclassification adjustments for securities gains included in net income:
 
 
 
Loss on sales of securities, net
—

 
(68
)
Income tax benefit
—

 
15

Net reclassification adjustments for securities gains included in net income
—

 
(53
)
Net unrealized securities holding (losses) gains
5,067

 
(5,716
)
 
 
 
 
Comprehensive income
27,577

 
13,712

Less: Net income attributable to noncontrolling interest in subsidiary
43

 
795

Comprehensive income attributable to Brookline Bancorp, Inc.
$
27,534

 
$
12,917




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
Three Months Ended March 31, 2019 and 2018
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury
Stock
 
Unallocated
Common Stock
Held by ESOP
 
Total Brookline
Bancorp, Inc.
Stockholders'
Equity
 
Noncontrolling
Interest in
Subsidiary
 
Total Stockholders'
Equity
 
(In Thousands)
Balance at December 31, 2018
$
852

 
$
755,629

 
$
212,838

 
$
(9,460
)
 
$
(59,120
)
 
$
(599
)
 
$
900,140

 
$
10,479

 
$
910,619

Net income attributable to Brookline Bancorp, Inc. 
—

 
—

 
22,467

 
—

 
—

 
—

 
22,467

 
—

 
22,467

Net income attributable to noncontrolling interest in subsidiary
—

 
—

 
—

 
—

 
—

 
—

 
—

 
43

 
43

Common stock issued for acquisition
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Issuance of noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other comprehensive income
—

 
—

 


 
5,067

 
—

 
—

 
5,067

 
—

 
5,067

Common stock dividends of $0.105 per share
—

 
—

 
(8,376
)
 
—

 
—

 
—

 
(8,376
)
 
—

 
(8,376
)
Dividend distribution to owners of noncontrolling interest in subsidiary
—

 
(930
)
 
—

 
—

 
—

 
—

 
(930
)
 
—

 
(930
)
Redemption of noncontrolling interest in subsidiary
—

 
(18,697
)
 
—

 
—

 
—

 
—

 
(18,697
)
 
(10,522
)
 
(29,219
)
Compensation under recognition and retention plan
—

 
814

 
—

 
—

 
(1
)
 
—

 
813

 
—

 
813

Common stock held by ESOP committed to be released (5,871 shares)
—

 
56

 
—

 
—

 
—

 
32

 
88

 
—

 
88

Balance at March 31, 2019
$
852

 
$
736,872

 
$
226,929

 
$
(4,393
)
 
$
(59,121
)
 
$
(567
)
 
$
900,572

 
$
—

 
$
900,572


 
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, 2017
$
817

 
$
699,976

 
$
161,217

 
$
(5,950
)
 
$
(51,454
)
 
$
(776
)
 
$
803,830

 
$
8,753

 
$
812,583

Net income attributable to Brookline Bancorp, Inc. 
—

 
—

 
18,633

 
—

 
—

 
—

 
18,633

 
—

 
18,633

Net income attributable to noncontrolling interest in subsidiary
—

 
—

 
—

 
—

 
—

 
—

 
—

 
795

 
795

Common stock issued for acquisition
35

 
55,146

 
—

 
—

 
—

 
—

 
55,181

 
—

 
55,181

Issuance of noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
129

 
129

Other comprehensive income
—

 
—

 


 
(5,716
)
 
—

 
—

 
(5,716
)
 
—

 
(5,716
)
Common stock dividends of $0.09 per share
—

 
—

 
(6,916
)
 
—

 
—

 
—

 
(6,916
)
 
—

 
(6,916
)
Dividend distribution to owners of noncontrolling interest in subsidiary
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(708
)
 
(708
)
Compensation under recognition and retention plans
—

 
633

 
—

 
—

 
—

 
—

 
633

 
—

 
633

Common stock held by ESOP committed to be released (8,094 shares)
—

 
88

 
—

 
—

 
—

 
44

 
132

 
—

 
132

Balance at March 31, 2018
$
852

 
$
755,843

 
$
172,934

 
$
(11,666
)
 
$
(51,454
)
 
$
(732
)
 
$
865,777

 
$
8,969

 
$
874,746





See accompanying notes to unaudited consolidated financial statements.
4
Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
 
Three Months Ended March 31,
 
2019
 
2018
 
(In Thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Brookline Bancorp, Inc.
$
22,467

 
$
18,633

Adjustments to reconcile net income to net cash provided from operating activities:
 
 
 
Net income attributable to noncontrolling interest in subsidiary
43

 
795

Provision for credit losses
1,353

 
641

Origination of loans and leases held-for-sale
(5,511
)
 
(7,198
)
Proceeds from sales of loans and leases held-for-sale, net
8,109

 
9,362

Deferred income tax benefit
(390
)
 
(2,520
)
Depreciation of premises and equipment
1,782

 
1,801

Amortization of investment securities premiums and discounts, net
445

 
507

Amortization of deferred loan and lease origination costs, net
1,782

 
1,625

Amortization of identified intangible assets
402

 
467

Amortization of debt issuance costs
25

 
25

(Accretion) amortization of acquisition fair value adjustments, net
(704
)
 
1,185

Gain on sales of investment securities, net
(134
)
 
(1,162
)
Gain on sales of loans and leases held-for-sale
(289
)
 
(299
)
Write-down of OREO and other repossessed assets
49

 
197

Compensation under recognition and retention plans
861

 
682

ESOP shares committed to be released
88

 
132

Cash surrender value of bank-owned life insurance
(254
)
 
(254
)
Other assets
(12,219
)
 
(1,397
)
Accrued expenses and other liabilities
(1,926
)
 
6,143

Net cash provided from operating activities
15,979

 
29,365

 
 
 
 
Cash flows from investing activities:
 
 
 
Proceeds from sales of investment securities available-for-sale
—

 
1,470

Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale
19,935

 
21,632

Purchases of investment securities available-for-sale
—

 
(49,108
)
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity
1,475

 
1,158

Purchases of investment securities held-to-maturity
(500
)
 
(8,915
)
Proceeds from redemption/sales of restricted equity securities
7,958

 
1,230

Purchase of restricted equity securities
(399
)
 
(6,795
)
Proceeds from sales of loans and leases held-for-investment, net
3,408

 
285

Net increase in loans and leases
(92,280
)
 
(386,752
)
Acquisitions, net of cash and cash equivalents acquired
—

 
(25,126
)
Purchase of premises and equipment, net
(961
)
 
(1,827
)
Proceeds from sales of OREO and other repossessed assets
563

 
853

Net cash used for investing activities
(60,801
)
 
(451,895
)
 
 
 
(Continued)

 
 
 
 

See accompanying notes to unaudited consolidated financial statements.
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Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows (Continued)
 
Three Months Ended March 31,
 
2019
 
2018
 
(In Thousands)
Cash flows from financing activities:
 
 
 
Increase in demand checking, NOW, savings and money market accounts
48,526

 
165,925

Increase in certificates of deposit
118,694

 
153,091

Proceeds from FHLBB advances
1,621,000

 
3,250,390

Repayment of FHLBB advances
(1,675,357
)
 
(3,157,766
)
(Decrease) in other borrowed funds, net
(219
)
 
(14,054
)
Increase in mortgagors' escrow accounts, net
91

 
709

Proceeds from issuance of common stock
(1
)
 
—

Common stock issued for acquisition
—

 
55,181

Payment of dividends on common stock
(8,376
)
 
(6,916
)
Redemption of noncontrolling interest in subsidiary
(35,851
)
 
—

Proceeds from issuance of noncontrolling units
—

 
129

Payment of dividends to owners of noncontrolling interest in subsidiary
(930
)
 
(708
)
Net cash provided from financing activities
67,577

 
445,981

Net increase in cash and cash equivalents
22,755

 
23,451

Cash and cash equivalents at beginning of period
89,584

 
61,005

Cash and cash equivalents at end of period
$
112,339

 
$
84,456

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest on deposits, borrowed funds and subordinated debt
$
23,230

 
$
12,880

Income taxes
8,774

 
928

Non-cash investing activities:
 
 
 
Transfer from loans to other real estate owned
505

 
594

Acquisition of First Commons Bank, N.A.:
 
 
 
Fair value of assets acquired, net of cash and cash equivalents acquired
$
—

 
$
292,025

Fair value of liabilities assumed
—

 
278,988




See accompanying notes to unaudited consolidated financial statements.
6
Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
Overview
Brookline Bancorp, Inc. (the "Company") is a bank holding company (within the meaning of the Bank Holding Company Act of 1956, as amended) and the parent of Brookline Bank, a Massachusetts-chartered 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. ("LSC") and Eastern Funding LLC ("Eastern Funding"), operates 25 full-service banking offices in the greater Boston metropolitan area with 2 additional lending offices. As of December 31, 2018, Brookline Bank, a wholly-owned subsidiary of the Company, held an 84.07 percent ownership interest its subsidiary, Eastern Funding. As previously announced, on January 4, 2019, Brookline Bank completed the purchase of the remaining 15.93 percent interest in Eastern Funding for a total cash consideration of $35.9 million . 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 6 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 all New England states, 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 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 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, the deposits of Brookline Bank are 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, 2018 . 

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

In preparing these consolidated financial statements, Management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosure of contingent assets and

7
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

liabilities. Actual results could differ from those estimates based upon changing conditions, including economic conditions and future events. Material estimates that are particularly susceptible to significant changes in the near-term include the determination of the allowance for 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 April 2019, FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments to improve the Codifications or correct any unintended application.  Codification improvements to Update 2016-13 (Topic 326) will be effective on the same date as requirements in 2016-13.  Codification improvements to Update 2017-12 (Topic 815) will be effective as of the beginning of the first annual period beginning after the issuance date and Update 2016-01 (Topic 825) will be effective for fiscal years beginning after December 15, 2019.  Management believes that this ASU does apply and has not determined the impact, if any, as of March 31, 2019 .
In February 2016, FASB issued ASU 2016-02, Leases (“ASU 2016-02”). This ASU requires lessees to record most leases on their balance sheet but recognize expenses on their income statements in a manner similar to current accounting.  Subsequently, the FASB has issued ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 to update provisions to ASU 2016-02.  The company has adopted all of the above mentioned ASU's regarding leases as of January 1, 2019.  The standard had a material impact on our consolidated balance sheet by recognizing right-of-use asset operating leases and operating lease liabilities on the balance sheet.  However, there was no impact on our consolidated income statement as the timing of the expense recognition has not changed.  Additional details can be found in Note 12.
In August 2018, FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), to add additional guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption of the amendments in this update is permitted, including adoption in any interim period, for all entities. Management is still determining the impact of this ASU, if any, as of March 31, 2019 .
In August 2018, FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20), to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This ASU is effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted. Management believes that this ASU does apply and has not determined the impact, if any, as of March 31, 2019 .
In August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management believes that this ASU does apply and has not determined the impact, if any, as of March 31, 2019 .
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.

8
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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. In November 2018, FASB issued ASU 2018-19 to clarify that operating lease receivables are not in scope of the credit losses standard. Management has determined that ASU 2016-13 does apply, but has not determined the impact, if any, as of March 31, 2019 . In preparation for the adoption in 2020 of this ASU, management formed a steering committee to oversee the adoption of ASU 2016-13. The steering committee, along with a project team, has developed an approach for implementation and has selected a third party software service provider. The project team is in the testing phase of the third party software.

9
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

(3) Investment Securities
The following tables set forth investment securities available-for-sale, held-to-maturity and equity securities held-for-trading at the dates indicated:
 
At March 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In Thousands)
Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$
183,607

 
$
640

 
$
1,402

 
$
182,845

GSE CMOs
103,113

 
20

 
3,015

 
100,118

GSE MBSs
161,809

 
300

 
2,337

 
159,772

SBA commercial loan asset-backed securities
43

 
—

 
—

 
43

Corporate debt obligations
32,584

 
48

 
277

 
32,355

U.S. Treasury bonds
13,822

 
111

 
46

 
13,887

Total investment securities available-for-sale
$
494,978

 
$
1,119

 
$
7,077

 
$
489,020

Investment securities held-to-maturity:
 
 
 
 
 
 
 
GSE debentures
$
50,551

 
$
70

 
$
481

 
$
50,140

GSEs MBSs
11,080

 
—

 
238

 
10,842

Municipal obligations
51,563

 
201

 
157

 
51,607

Foreign government obligations
500

 
—

 
—

 
500

Total investment securities held-to-maturity
$
113,694

 
$
271

 
$
876

 
$
113,089

Equity securities held-for-trading
 
 
 
 
 
 
$
4,341

 
December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In Thousands)
Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$
184,072

 
$
99

 
$
3,092

 
$
181,079

GSE CMOs
107,363

 
17

 
4,250

 
103,130

GSE MBSs
169,334

 
124

 
4,369

 
165,089

SBA commercial loan asset-backed securities
51

 
—

 
—

 
51

Corporate debt obligations
40,618

 
—

 
910

 
39,708

U.S. Treasury bonds
13,812

 
65

 
141

 
13,736

Total investment securities available-for-sale
$
515,250

 
$
305

 
$
12,762

 
$
502,793

Investment securities held-to-maturity:
 
 
 
 
 
 
 
GSE debentures
$
50,546

 
$
22

 
$
967

 
$
49,601

GSEs MBSs
11,426

 
—

 
295

 
11,131

Municipal obligations
52,304

 
10

 
716

 
51,598

Foreign government obligations
500

 
—

 
—

 
500

Total investment securities held-to-maturity
$
114,776

 
$
32

 
$
1,978

 
$
112,830

Equity securities held-for-trading
 
 
 
 
 
 
$
4,207

As of March 31, 2019 , the fair value of all investment securities available-for-sale was $489.0 million , with net unrealized losses of $6.0 million , compared to a fair value of $502.8 million and net unrealized losses of $12.5 million as of December 31, 2018 . As of March 31, 2019 , $406.9 million , or 83.2% of the portfolio, had gross unrealized losses of $7.1 million , compared to $466.7 million , or 92.8% of the portfolio, with gross unrealized losses of $12.8 million as of December 31, 2018 .

10
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

As of March 31, 2019 , the fair value of all investment securities held-to-maturity was $113.1 million , with net unrealized losses of $0.6 million , compared to a fair value of $112.8 million with net unrealized losses of $1.9 million as of December 31, 2018 . As of March 31, 2019 , $80.8 million , or 71.5% of the portfolio, had gross unrealized losses of $0.9 million . As of December 31, 2018 , $102.1 million , or 90.5% of the portfolio had gross unrealized losses of $2.0 million .
As of March 31, 2019 , the Company reported a fair value of $4.3 million of equity securities held-for-trading. As of December 31, 2018 , the Company reported a fair value of $4.2 million of equity securities held-for-trading.
Investment Securities as Collateral
As of March 31, 2019 and December 31, 2018 , respectively, $420.8 million and $442.5 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 March 31, 2019 and December 31, 2018 .
Other-Than-Temporary Impairment ("OTTI")
Investment securities as of March 31, 2019 and December 31, 2018 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:
 
At March 31, 2019
 
Less than
Twelve Months
 
Twelve Months
or Longer
 
Total
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
(In Thousands)
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
$
—

 
$
—

 
$
140,316

 
$
1,402

 
$
140,316

 
$
1,402

GSE CMOs
—

 
—

 
99,635

 
3,015

 
99,635

 
3,015

GSE MBSs
—

 
—

 
135,892

 
2,337

 
135,892

 
2,337

SBA commercial loan asset-backed securities
—

 
—

 
43

 
—

 
43

 
—

Corporate debt obligations
—

 
—

 
26,189

 
277

 
26,189

 
277

U.S. Treasury bonds
—

 
—

 
4,819

 
46

 
4,819

 
46

Temporarily impaired investment securities available-for-sale
—

 
—

 
406,894

 
7,077

 
406,894

 
7,077

Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
—

 
—

 
41,141

 
481

 
41,141

 
481

GSEs MBSs
—

 
—

 
10,756

 
238

 
10,756

 
238

Municipal obligations
1,444

 
2

 
27,507

 
155

 
28,951

 
157

Temporarily impaired investment securities held-to-maturity
1,444

 
2

 
79,404

 
874

 
80,848

 
876

Total temporarily impaired investment securities
$
1,444


$
2


$
486,298


$
7,951


$
487,742


$
7,953


11
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
December 31, 2018
 
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
$
25,780

 
$
191

 
$
130,284

 
$
2,901

 
$
156,064

 
$
3,092

GSE CMOs
—

 
—

 
102,630

 
4,250

 
102,630

 
4,250

GSE MBSs
21,487

 
113

 
138,051

 
4,256

 
159,538

 
4,369

SBA commercial loan asset-backed securities
—

 
—

 
51

 
—

 
51

 
—

Corporate debt obligations
10,019

 
93

 
29,689

 
817

 
39,708

 
910

U.S. Treasury bonds
3,927

 
37

 
4,753

 
104

 
8,680

 
141

Temporarily impaired investment securities available-for-sale
61,213

 
434

 
405,458

 
12,328

 
466,671

 
12,762

Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
—

 
—

 
40,653

 
967

 
40,653

 
967

GSEs MBSs
—

 
—

 
11,080

 
295

 
11,080

 
295

Municipal obligations
14,813

 
107

 
35,058

 
609

 
49,871

 
716

Foreign government obligations
—

 
—

 
500

 
—

 
500

 
—

Temporarily impaired investment securities held-to-maturity
14,813

 
107

 
87,291

 
1,871

 
102,104

 
1,978

Total temporarily impaired investment securities
$
76,026

 
$
541

 
$
492,749

 
$
14,199

 
$
568,775

 
$
14,740

The Company performs regular analysis of 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 March 31, 2019 . 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 March 31, 2019 . If market conditions for investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional OTTI in future periods.

12
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

U.S. Government-Sponsored Enterprises
The Company invests in securities issued by U.S. Government-sponsored enterprises ("GSEs"), including GSE debentures, mortgage-backed securities ("MBSs"), and collateralized mortgage obligations ("CMOs"). GSE securities include obligations issued by the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA"), the FHLBB and the Federal Farm Credit Bank. As of March 31, 2019 , 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 $19.7 million were backed explicitly by the full faith and credit of the U.S. Government, compared to $20.6 million as of December 31, 2018 .
As of March 31, 2019 , the Company owned 60 GSE debentures with a total fair value of $182.8 million , and a net unrealized loss of $0.8 million . As of December 31, 2018 , the Company held 60 GSE debentures with a total fair value of $181.1 million , with a net unrealized loss of $3.0 million . As of March 31, 2019 , 46 of the 60 securities in this portfolio were in an unrealized loss position. As of December 31, 2018 , 51 of the 60 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA/SBA) guarantee of the U.S Government. During the three months ended March 31, 2019 , the Company did no t purchase any GSE debentures. This compares to $33.9 million purchased during the same period in 2018 .
As of March 31, 2019 , the Company owned 61 GSE CMOs with a total fair value of $100.1 million and a net unrealized loss of $3.0 million . As of December 31, 2018 , the Company held 61 GSE CMOs with a total fair value of $103.1 million with a net unrealized loss of $4.2 million . As of March 31, 2019 , 46 of the 61 securities in this portfolio were in an unrealized loss position. As of December 31, 2018 , 46 of the 61 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2019 and 2018 , the Company did no t purchase any GSE CMOs.
As of March 31, 2019 , the Company owned 160 GSE MBSs with a total fair value of $159.8 million and a net unrealized loss of $2.0 million . As of December 31, 2018 , the Company held 165 GSE MBSs with a total fair value of $165.1 million with a net unrealized loss of $4.2 million . As of March 31, 2019 , 83 of the 160 securities in this portfolio were in an unrealized loss position. As of December 31, 2018 , 93 of the 165 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2019 , the Company did no t purchase any GSE MBSs. This compares to $15.2 million purchased during the same period in 2018 .
SBA Commercial Loan Asset-Backed
As of March 31, 2019 , the Company owned 4 SBA securities with a total fair value of $43.0 thousand , which approximated amortized cost. As of December 31, 2018 , the Company owned 4 SBA securities with a total fair value of $51.0 thousand , which approximated amortized cost. As of March 31, 2019 and December 31, 2018 , all 4 of the 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 three months ended March 31, 2019 and 2018 , the Company did no t purchase any SBA securities.
Corporate Obligations
The Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. As of March 31, 2019 , the Company held 10 corporate obligation securities with a total fair value of $32.4 million and a net unrealized loss of $0.2 million . As of December 31, 2018 , the Company held 11 corporate obligation securities with a total fair value of $39.7 million and a net unrealized loss of $0.9 million . As of March 31, 2019 , 7 of the 10 securities in this portfolio were in an unrealized loss position. As of December 31, 2018 , all 11 of the securities in this portfolio were in an unrealized loss position. Full collection of the obligations is expected because the financial condition of the issuers is sound, they have not defaulted on scheduled payments, the obligations are rated investment grade, and the Company has the ability and intent to hold the obligations for a period of time to recover the amortized cost. During the three months ended March 31, 2019 and 2018 , the Company did no t purchase any corporate obligations.

13
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

U.S. Treasury Bonds
The Company invests in securities issued by the U.S. government. As of March 31, 2019 , the Company owned 3 U.S. Treasury bonds with a total fair value of $13.9 million and an unrealized loss of $0.1 million . This compares to 3 U.S. Treasury bonds with a total fair value of $13.7 million and an unrealized loss of $0.1 million as of December 31, 2018 . During the three months ended March 31, 2019 and 2018 , the Company did no t purchase any U.S. Treasury bonds.
Equity Securities Held-for-Trading
From time to time, the Company will invest in equity securities held-for-trading. As of March 31, 2019 and December 31, 2018 , the Company owned 3 equity securities held-for-trading with a fair value of $4.3 million and $4.2 million , respectively.
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 March 31, 2019 . Management has the ability and the intent to hold the securities until maturity.
U.S. Government-Sponsored Enterprises
As of March 31, 2019 , the Company owned 17 GSE debentures with a total fair value of $50.1 million and a net unrealized loss of $0.4 million . As of December 31, 2018 , the Company owned 17 GSE debentures with a total fair value of $49.6 million and an unrealized loss of $0.9 million . As of March 31, 2019 and December 31, 2018 , 14 of the 17 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2019 , the Company did no t purchase any GSE debentures as compared to the same period in 2018 , when the Company purchased a total of $8.9 million in GSE debentures.
As of March 31, 2019 , the Company owned 11 GSE MBSs with a total fair value of $10.8 million and an unrealized loss of $0.2 million . As of December 31, 2018 , the Company owned 11 GSE MBSs with a total fair value of $11.1 million and an unrealized loss of $0.3 million . As of March 31, 2019 and December 31, 2018 , 8 of the 11 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the three months ended March 31, 2019 and 2018 , the Company did no t purchase any 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 March 31, 2019 , the Company owned 97 municipal obligation securities with a total fair value of $51.6 million and a net unrealized loss of $44 thousand . As of December 31, 2018 , the Company owned 98 municipal obligation securities with a total fair value of $51.6 million and an unrealized loss of $0.7 million . As of March 31, 2019 , 53 of the 97 securities in this portfolio were in an unrealized loss position as compared to December 31, 2018 , when 94 of the 98 securities were in an unrealized loss position. During the three months ended March 31, 2019 and 2018 , the Company did no t purchase any municipal obligations.
Foreign Government Obligations
As of March 31, 2019 and December 31, 2018 , the Company owned 1 foreign government obligation security with a fair value of $0.5 million , which approximated cost. As of March 31, 2019 and December 31, 2018 respectively, the security was in an unrealized loss position. During the three months ended March 31, 2019 the Company repurchased the foreign government obligation that had matured as compared to the same period in 2018 , when the Company did no t purchase any foreign government obligations.

14
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Portfolio Maturities
The final stated maturities of the debt securities are as follows for the periods indicated:
 
At March 31, 2019
 
At December 31, 2018
 
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
$
4,033

 
$
4,021

 
2.14
%
 
$
12,041

 
$
12,007

 
2.03
%
After 1 year through 5 years
199,200

 
198,209

 
2.13
%
 
195,701

 
192,692

 
2.14
%
After 5 years through 10 years
106,738

 
105,701

 
2.20
%
 
115,665

 
112,819

 
2.18
%
Over 10 years
185,007

 
181,089

 
2.16
%
 
191,843

 
185,275

 
2.17
%
 
$
494,978

 
$
489,020

 
2.16
%
 
$
515,250

 
$
502,793

 
2.16
%
Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Within 1 year
$
7,123

 
$
7,117

 
1.00
%
 
$
7,640

 
$
7,618

 
1.17
%
After 1 year through 5 years
75,544

 
75,185

 
1.90
%
 
72,735

 
71,492

 
1.84
%
After 5 years through 10 years
20,032

 
20,031

 
2.08
%
 
23,025

 
22,640

 
2.20
%
Over 10 years
10,995

 
10,756

 
2.03
%
 
11,376

 
11,080

 
2.13
%
 
$
113,694

 
$
113,089

 
1.89
%
 
$
114,776

 
$
112,830

 
1.89
%
Actual maturities of debt securities will differ from those presented above since certain obligations amortize and may also provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. MBSs and CMOs are included above based on their final stated maturities; the actual maturities, however, may occur earlier due to anticipated prepayments and stated amortization of cash flows.
As of March 31, 2019 , issuers of debt securities with an estimated fair value of $19.5 million had the right to call or prepay the obligations. Of the $19.5 million , approximately $8.5 million matures in 1 - 5 years, $11.0 million matures in 6 - 10 years, and none mature after ten years. As of December 31, 2018 , issuers of debt securities with an estimated fair value of approximately $19.1 million had the right to call or prepay the obligations. Of the $19.1 million , $8.4 million matures in 1-5 years, $10.7 million matures in 6-10 years, and none mature after ten years.
Security Sales
On February 3, 2017, the Company, through BSC, received $319 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 BSC. 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 acquired in the merger. When securities were sold, the adjusted cost of the specific security sold was used to compute the gain or loss on the sale.
On March 6, 2018, the Company, through its wholly owned subsidiary, BSC, received $0.6 million in cash and 11,303 shares of CBU common stock as settlement for the indemnification escrow on the 12 month anniversary date of the merger between NRS and CBU. The Company subsequently sold all 11,303 shares of the CBU stock and recognized a gain on the sale of $0.6 million .
During the month of March 2018, the Company, through Brookline Bank’s wholly owned subsidiary, LSC, sold three trust preferred securities with a book value of $1.5 million for a loss of $0.1 million . The table below includes the activity with respect to the sale of the trust preferred securities and restricted equity securities.
There were no securities sold during the three months ended March 31, 2019 .

15
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Sales of investment and restricted equity securities are summarized as follows:
 
Three Months Ended March 31, 2019

Three Months Ended March 31, 2018
 
(In Thousands)
Proceeds from sale of trust preferred, marketable and restricted equity securities
$
—

 
$
2,700

 
 
 
 
Gross gains from securities sales
—

 
1,230

Gross losses from securities sales
—

 
(68
)
Gain on sales of securities, net
$
—

 
$
1,162

(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 March 31, 2019
 
Originated
 
Acquired
 
Total
 
Balance
 
Weighted
Average
Coupon
 
Balance
 
Weighted
Average
Coupon
 
Balance
 
Weighted
Average
Coupon
 
(Dollars In Thousands)
Commercial real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
2,244,088

 
4.66
%
 
$
111,419

 
4.65
%
 
$
2,355,507

 
4.66
%
Multi-family mortgage
808,583

 
4.56
%
 
47,120

 
4.57
%
 
855,703

 
4.56
%
Construction
180,775

 
5.61
%
 
18,483

 
6.74
%
 
199,258

 
5.72
%
Total commercial real estate loans
3,233,446

 
4.69
%
 
177,022

 
4.85
%
 
3,410,468

 
4.70
%
Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 

Commercial
719,992

 
5.01
%
 
21,585

 
5.30
%
 
741,577

 
5.02
%
Equipment financing
993,138

 
7.69
%
 
2,725

 
5.98
%
 
995,863

 
7.68
%
Condominium association
49,142

 
4.78
%
 
—

 
—
%
 
49,142

 
4.78
%
Total commercial loans and leases
1,762,272

 
6.51
%
 
24,310

 
5.38
%
 
1,786,582

 
6.50
%
Consumer loans:
 
 
 
 
 
 
 
 
 
 
 

Residential mortgage
649,491

 
4.14
%
 
126,087

 
4.50
%
 
775,578

 
4.20
%
Home equity
333,474

 
5.13
%
 
42,652

 
5.44
%
 
376,126

 
5.16
%
Other consumer
39,337

 
5.20
%
 
106

 
17.80
%
 
39,443

 
5.23
%
Total consumer loans
1,022,302

 
4.50
%
 
168,845

 
4.75
%
 
1,191,147

 
4.54
%
Total loans and leases
$
6,018,020

 
5.19
%
 
$
370,177

 
4.84
%
 
$
6,388,197

 
5.17
%

16
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
At December 31, 2018
 
Originated
 
Acquired
 
Total
 
Balance
 
Weighted
Average
Coupon
 
Balance
 
Weighted
Average
Coupon
 
Balance
 
Weighted
Average
Coupon
 
(Dollars In Thousands)
Commercial real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
2,208,904

 
4.61
%
 
$
121,821

 
4.62
%
 
$
2,330,725

 
4.61
%
Multi-family mortgage
799,813

 
4.51
%
 
47,898

 
4.58
%
 
847,711

 
4.51
%
Construction
151,138

 
5.62
%
 
22,162

 
6.74
%
 
173,300

 
5.76
%
Total commercial real estate loans
3,159,855

 
4.63
%
 
191,881

 
4.85
%
 
3,351,736

 
4.64
%
Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 

Commercial
712,630

 
4.96
%
 
23,788

 
5.39
%
 
736,418

 
4.97
%
Equipment financing
978,840

 
7.61
%
 
3,249

 
5.97
%
 
982,089

 
7.60
%
Condominium association
50,451

 
4.70
%
 
—

 
—
%
 
50,451

 
4.70
%
Total commercial loans and leases
1,741,921

 
6.44
%
 
27,037

 
5.46
%
 
1,768,958

 
6.43
%
Consumer loans:
 
 
 
 
 
 
 
 
 
 
 

Residential mortgage
653,059

 
4.09
%
 
129,909

 
4.45
%
 
782,968

 
4.15
%
Home equity
331,014

 
5.05
%
 
45,470

 
5.39
%
 
376,484

 
5.09
%
Other consumer
23,260

 
5.55
%
 
110

 
17.81
%
 
23,370

 
5.61
%
Total consumer loans
1,007,333

 
4.44
%
 
175,489

 
4.70
%
 
1,182,822

 
4.48
%
Total loans and leases
$
5,909,109

 
5.13
%
 
$
394,407

 
4.83
%
 
$
6,303,516

 
5.11
%
The net unamortized deferred loan origination fees and costs included in total loans and leases were $15.7 million and $15.6 million as of March 31, 2019 and December 31, 2018 , respectively.
The Banks and subsidiaries lend primarily in all New England states, with the exception of equipment financing, 26.6% of which is in the greater New York and New Jersey metropolitan area and 73.4% of which is in other areas in the United States of America as of March 31, 2019 .
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 March 31,
 
2019

2018
 
(In Thousands)
Balance at beginning of period
$
7,905

 
$
10,522

Accretion
(800
)
 
(1,185
)
Reclassification from nonaccretable difference as a result of changes in expected cash flows
61

 
316

Balance at end of period
$
7,166

 
$
9,653

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 March 31, 2019 and 2018 , accretable yield adjustments totaling $61 thousand and $316 thousand , 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.

17
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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Loans and Leases Pledged as Collateral
As of March 31, 2019 and December 31, 2018 , there were $3.0 billion of loans and leases pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLBB borrowings. The Banks did not have any outstanding FRB borrowings as of March 31, 2019 and December 31, 2018 .
(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 March 31, 2019
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at December 31, 2018
$
28,187

 
$
25,283

 
$
5,222

 
$
58,692

Charge-offs
—

 
(2,512
)
 
(30
)
 
(2,542
)
Recoveries
—

 
388

 
53

 
441

Provision for loan and lease losses
162

 
1,081

 
207

 
1,450

Balance at March 31, 2019
$
28,349

 
$
24,240

 
$
5,452

 
$
58,041

 
Three Months Ended March 31, 2018
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at December 31, 2017
$
27,112

 
$
26,333

 
$
5,147

 
$
58,592

Charge-offs
(3
)
 
(733
)
 
(56
)
 
(792
)
Recoveries
—

 
201

 
86

 
287

Provision for loan and lease losses
252

 
451

 
(76
)
 
627

Balance at March 31, 2018
$
27,361

 
$
26,252

 
$
5,101

 
$
58,714

The liability for unfunded credit commitments, which is included in other liabilities, was $1.8 million and $1.9 million at March 31, 2019 and December 31, 2018 , respectively. No credit commitments were charged off against the liability account in the three -month periods ended March 31, 2019 and 2018 .
Provision for Credit Losses
The provisions for credit losses are set forth below for the periods indicated:
 
Three Months Ended March 31,
 
2019
 
2018
 
(In Thousands)
Provision for loan and lease losses:
 
 
 
Commercial real estate
$
162

 
$
252

Commercial
1,081

 
451

Consumer
207

 
(76
)
Total provision for loan and lease losses
1,450

 
627

Unfunded credit commitments
(97
)
 
14

Total provision for credit losses
$
1,353

 
$
641


18
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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 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 over 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 TDR 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 March 31, 2019 , 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 incurred in the Company’s loan portfolios.
As of March 31, 2019 , the Company had a portfolio of approximately $12.0 million in loans secured by taxi medallions issued by the cities of Boston and Cambridge, Massachusetts. As of December 31, 2018 , this portfolio was approximately $13.7 million . For collateral valuation purposes, taxi medallions are currently estimated at $35 thousand for Boston and $20 thousand for Cambridge. The Company has no taxi medallion exposure outside Massachusetts.
As of March 31, 2019 , the Company had an allowance for loan and lease losses associated with taxi medallion loans of $1.5 million of which $1.0 million were specific reserves and $0.5 million was a general reserve. As of December 31, 2018 , the Company had an allowance for loan and lease losses associated with taxi medallion loans of $2.5 million of which $1.9 million were specific reserves and $0.6 million was a general reserve. The decrease in the allowance for loan and leases associated with taxi medallion loans was primarily driven by the decrease in specific reserves due to charge-offs in the taxi medallion portfolio.

19
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

The total TDRs secured by taxi medallions decreased by $1.3 million from $3.7 million at December 31, 2018 to $2.4 million at March 31, 2019 . The total loans and leases secured by taxi medallions that were placed on nonaccrual decreased by $1.3 million to $2.4 million at March 31, 2019 from $3.7 million at December 31, 2018 due to the charge-offs of non-accruing taxi medallion relationships. 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 $55.6 million as of both March 31, 2019 and December 31, 2018 . The specific allowance for loan and lease losses was $2.4 million as of March 31, 2019 , compared to $3.1 million as of December 31, 2018 . The specific allowance decreased by $0.7 million during the three months ended March 31, 2019 primarily due to charge-offs on loans collateralized by taxi medallions.
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 TDR loan.
The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For all loans, the Company utilizes an eight-grade loan rating system, which assigns a risk rating to each borrower based on a number of quantitative and qualitative factors associated with a loan transaction. Factors considered include industry and market conditions; position within the industry; earnings trends; operating cash flow; asset/liability values; debt capacity; guarantor strength; management and controls; financial reporting; collateral; and other considerations. In addition, the Company's independent loan review group evaluates the credit quality and related risk ratings in all loan portfolios. The results of these reviews are reported to the Risk Committee of the Board of Directors on a periodic basis and annually to the Board of Directors. For the consumer loans, the Company heavily relies on payment status for calibrating credit risk.
The ratings categories used for assessing credit risk in the commercial real estate, multi-family mortgage, construction, commercial, equipment financing, condominium association and other consumer loan and lease classes are defined as follows:
1 -4 Rating—Pass
Loan rating grades "1" through "4" are classified as "Pass," which indicates borrowers are performing in accordance with the terms of the loan and are less likely to result in loss due to the capacity of the borrower to pay and the adequacy of the value of assets pledged as collateral.
5 Rating—Other Assets Especially Mentioned ("OAEM")
Borrowers exhibit potential credit weaknesses or downward trends deserving management's attention. If not checked or corrected, these trends will weaken the Company's asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.
6 Rating—Substandard
Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligors or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy. Although no loss of principal is envisioned, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.

20
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

7 Rating—Doubtful
Borrowers exhibit well-defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.
8 Rating—Definite Loss
Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.
Assets rated as "OAEM," "substandard" or "doubtful" based on criteria established under banking regulations are collectively referred to as "criticized" assets.
Credit Quality Information
The following tables present the recorded investment in loans in each class as of March 31, 2019 , by credit quality indicator.
 
At March 31, 2019
 
 
Commercial
Real Estate
 
Multi-
Family
Mortgage
 
Construction
 
Commercial
 
Equipment
Financing
 
Condominium
Association
 
Other
Consumer
Total
 
(In Thousands)
 
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan rating:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
2,236,474

 
$
808,482

 
$
175,793

 
$
687,253

 
$
982,468

 
$
48,918

 
$
39,334

$
4,978,722

OAEM
4,140

 
—

 
—

 
10,139

 
39

 
—

 
—

14,318

Substandard
3,474

 
101

 
4,982

 
22,483

 
8,287

 
224

 
3

39,554

Doubtful
—

 
—

 
—

 
117

 
2,344

 
—

 
—

2,461

Total originated
2,244,088

 
808,583

 
180,775

 
719,992

 
993,138

 
49,142

 
39,337

5,035,055

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan rating:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
100,218

 
47,084

 
18,483

 
20,855

 
2,717

 
—

 
106

189,463

OAEM
2,163

 
—

 
—

 
405

 
—

 
—

 
—

2,568

Substandard
9,038

 
36

 
—

 
325

 
8

 
—

 
—

9,407

Total acquired
111,419

 
47,120

 
18,483

 
21,585

 
2,725

 
—

 
106

201,438

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans
$
2,355,507

 
$
855,703

 
$
199,258

 
$
741,577

 
$
995,863

 
$
49,142

 
$
39,443

$
5,236,493

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




21
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
 
At March 31, 2019
 
 
Residential Mortgage
 
Home Equity
 
 
(Dollars In Thousands)
Originated:
 
 
 
 
 
 
 
 
Loan-to-value ratio:
 
 

 
 
 
 

 
 
Less than 50%
 
$
176,376

 
22.7
%
 
$
138,732

 
36.9
%
50% - 69%
 
281,204

 
36.3
%
 
84,592

 
22.5
%
70% - 79%
 
175,560

 
22.6
%
 
77,971

 
20.7
%
80% and over
 
16,239

 
2.1
%
 
32,154

 
8.5
%
Data not available*
 
112

 
—
%
 
25

 
—
%
Total originated
 
649,491

 
83.7
%
 
333,474

 
88.6
%
 
 
 
 
 
 
 
 
 
Acquired:
 
 

 
 
 
 

 
 
Loan-to-value ratio:
 
 

 
 
 
 

 
 
Less than 50%
 
37,617

 
4.9
%
 
21,914

 
5.8
%
50%—69%
 
52,628

 
6.7
%
 
10,046

 
2.7
%
70%—79%
 
23,360

 
3.0
%
 
984

 
0.3
%
80% and over
 
6,612

 
0.9
%
 
4,749

 
1.3
%
Data not available*
 
5,870

 
0.8
%
 
4,959

 
1.3
%
Total acquired
 
126,087

 
16.3
%
 
42,652

 
11.4
%
 
 
 
 
 
 
 
 
 
Total loans
 
$
775,578

 
100.0
%
 
$
376,126

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


22
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

The following tables present the recorded investment in loans in each class as of December 31, 2018 , by credit quality indicator.
 
At December 31, 2018
 
 
Commercial
Real Estate
 
Multi-
Family
Mortgage
 
Construction
 
Commercial
 
Equipment
Financing
 
Condominium
Association
 
Other
Consumer
Total
 
(In Thousands)
 
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan rating:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
2,198,377

 
$
799,483

 
$
150,742

 
$
685,773

 
$
969,275

 
$
50,186

 
$
23,249

$
4,877,085

OAEM
6,096

 
—

 
—

 
3,726

 
52

 
—

 
—

9,874

Substandard
4,431

 
330

 
396

 
22,870

 
6,895

 
265

 
11

35,198

Doubtful
—

 
—

 
—

 
261

 
2,618

 
—

 
—

2,879

Total originated
2,208,904

 
799,813

 
151,138

 
712,630

 
978,840

 
50,451

 
23,260

4,925,036

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan rating:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
111,919

 
47,715

 
22,162

 
23,250

 
3,240

 
—

 
110

208,396

OAEM
626

 
—

 
—

 
236

 
—

 
—

 
—

862

Substandard
9,276

 
183

 
—

 
302

 
9

 
—

 
—

9,770

Total acquired
121,821

 
47,898

 
22,162

 
23,788

 
3,249

 
—

 
110

219,028

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans
$
2,330,725

 
$
847,711

 
$
173,300

 
$
736,418

 
$
982,089

 
$
50,451

 
$
23,370

$
5,144,064

As of December 31, 2018 , there were no loans categorized as definite loss.




23
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
At December 31, 2018
 
Residential Mortgage
 
Home Equity
 
(Dollars In Thousands)
Originated:
 
 
 
 
 
 
 
Loan-to-value ratio:
 

 
 
 
 

 
 
Less than 50%
$
171,523

 
21.9
%
 
$
142,534

 
37.9
%
50%—69%
287,337

 
36.7
%
 
84,423

 
22.4
%
70%—79%
173,870

 
22.2
%
 
73,898

 
19.6
%
80% and over
19,030

 
2.4
%
 
30,129

 
8.0
%
Data not available*
1,299

 
0.2
%
 
30

 
—
%
Total originated
653,059

 
83.4
%
 
331,014

 
87.9
%
 
 
 
 
 
 
 
 
Acquired:
 

 
 
 
 

 
 
Loan-to-value ratio:
 

 
 
 
 

 
 
Less than 50%
36,752

 
4.6
%
 
24,705

 
6.6
%
50%—69%
53,788

 
6.9
%
 
10,353

 
2.7
%
70%—79%
26,510

 
3.4
%
 
1,000

 
0.3
%
80% and over
6,701

 
0.9
%
 
4,348

 
1.2
%
Data not available*
6,158

 
0.8
%
 
5,064

 
1.3
%
Total acquired
129,909

 
16.6
%
 
45,470

 
12.1
%
 
 
 
 
 
 
 
 
Total loans
$
782,968

 
100.0
%
 
$
376,484

 
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 March 31, 2019
 
At December 31,
2018
 
(In Thousands)
Foreclosed residential real estate property held by the creditor
$
629

 
$
629

Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure
$
1,063

 
$
121









24
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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 March 31, 2019 and December 31, 2018 .
 
At March 31, 2019
 
Past Due
 
 
 
 
 
Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing
 
 
 
31-60
Days
 
61-90
Days
 
Greater
Than
90 Days
 
Total
 
Current
 
Total Loans
and Leases
 
 
Nonaccrual
Loans and
Leases
 
(In Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
1,898

 
$
839

 
$
2,584

 
$
5,321

 
$
2,238,767

 
$
2,244,088

 
$
600

 
$
2,781

Multi-family mortgage
887

 
7,568

 
—

 
8,455

 
800,128

 
808,583

 
—

 
101

Construction
—

 
—

 
396

 
396

 
180,379

 
180,775

 
—

 
396

Total commercial real estate loans
2,785

 
8,407

 
2,980

 
14,172

 
3,219,274

 
3,233,446

 
600

 
3,278

Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
2,086

 
6,515

 
4,353

 
12,954

 
707,038

 
719,992

 
296

 
5,525

Equipment financing
3,026

 
1,919

 
6,350

 
11,295

 
981,843

 
993,138

 
53

 
10,253

Condominium association
139

 
—

 
—

 
139

 
49,003

 
49,142

 
—

 
224

Total commercial loans and leases
5,251

 
8,434

 
10,703

 
24,388

 
1,737,884

 
1,762,272

 
349

 
16,002

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
11,359

 
784

 
779

 
12,922

 
636,569

 
649,491

 
—

 
1,902

Home equity
219

 
26

 
82

 
327

 
333,147

 
333,474

 
2

 
198

Other consumer
30

 
3

 
7

 
40

 
39,297

 
39,337

 
—

 
8

Total consumer loans
11,608

 
813

 
868

 
13,289

 
1,009,013

 
1,022,302

 
2


2,108

Total originated loans and leases
$
19,644

 
$
17,654

 
$
14,551

 
$
51,849

 
$
5,966,171

 
$
6,018,020

 
$
951

 
$
21,388

 
 
 
 
 
 
 
 
 
 
 
 
 
 

25
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
At March 31, 2019
 
Past Due
 
 
 
 
 
Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing
 
 
 
31-60
Days
 
61-90
Days
 
Greater
Than
90 Days
 
Total
 
Current
 
Total Loans
and Leases
 
 
Nonaccrual
Loans and
Leases
 
(In Thousands)
Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
—

 
$
74

 
$
8,864

 
$
8,938

 
$
102,481

 
$
111,419

 
$
8,794

 
$
108

Multi-family mortgage
—

 
—

 
—

 
—

 
47,120

 
47,120

 
—

 
—

Construction
—

 
2,587

 
4,811

 
7,398

 
11,085

 
18,483

 
4,811

 
—

Total commercial real estate loans
—

 
2,661

 
13,675

 
16,336

 
160,686

 
177,022

 
13,605

 
108

Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
44

 
—

 
314

 
358

 
21,227

 
21,585

 
111

 
203

Equipment financing
—

 
—

 
8

 
8

 
2,717

 
2,725

 
8

 
—

Total commercial loans and leases
44

 
—

 
322

 
366

 
23,944

 
24,310

 
119

 
203

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
341

 
845

 
2,085

 
3,271

 
122,816

 
126,087

 
2,085

 
286

Home equity
148

 
86

 
267

 
501

 
42,151

 
42,652

 
40

 
824

Other consumer
3

 
—

 
—

 
3

 
103

 
106

 
—

 
—

Total consumer loans
492

 
931

 
2,352

 
3,775

 
165,070

 
168,845

 
2,125

 
1,110

Total acquired loans and leases
$
536

 
$
3,592

 
$
16,349

 
$
20,477

 
$
349,700

 
$
370,177

 
$
15,849

 
$
1,421

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans and leases
$
20,180

 
$
21,246

 
$
30,900

 
$
72,326

 
$
6,315,871

 
$
6,388,197

 
$
16,800

 
$
22,809



26
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
At December 31, 2018
 
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
$
5,139

 
$
896

 
$
2,962

 
$
8,997

 
$
2,199,907

 
$
2,208,904

 
$
277

 
$
3,806

Multi-family mortgage
893

 
—

 
145

 
1,038

 
798,775

 
799,813

 
—

 
330

Construction
297

 
—

 
396

 
693

 
150,445

 
151,138

 
—

 
396

Total commercial real estate loans
6,329

 
896

 
3,503

 
10,728

 
3,149,127

 
3,159,855

 
277

 
4,532

Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
2,021

 
582

 
6,244

 
8,847

 
703,783

 
712,630

 
1,962

 
6,421

Equipment financing
2,509

 
650

 
5,685

 
8,844

 
969,996

 
978,840

 
12

 
9,500

Condominium association
320

 
—

 
—

 
320

 
50,131

 
50,451

 
—

 
265

Total commercial loans and leases
4,850

 
1,232

 
11,929

 
18,011

 
1,723,910

 
1,741,921

 
1,974

 
16,186

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
400

 
—

 
1,597

 
1,997

 
651,062

 
653,059

 
—

 
1,842

Home equity
761

 
25

 
183

 
969

 
330,045

 
331,014

 
1

 
191

Other consumer
51

 
18

 
15

 
84

 
23,176

 
23,260

 
—

 
17

Total consumer loans
1,212

 
43

 
1,795

 
3,050

 
1,004,283

 
1,007,333

 
1

 
2,050

Total originated loans and leases
$
12,391

 
$
2,171

 
$
17,227

 
$
31,789

 
$
5,877,320

 
$
5,909,109

 
$
2,252

 
$
22,768


27
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
At December 31, 2018
 
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
$
—

 
$
215

 
$
9,087

 
$
9,302

 
$
112,519

 
$
121,821

 
$
9,018

 
$
122

Multi-family mortgage
348

 
—

 
—

 
348

 
47,550

 
47,898

 
—

 
—

Construction
360

 
242

 
—

 
602

 
21,560

 
22,162

 
—

 
—

Total commercial real estate loans
708

 
457

 
9,087

 
10,252

 
181,629

 
191,881

 
9,018

 
122

Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
124

 
44

 
290

 
458

 
23,330

 
23,788

 
90

 
200

Equipment financing
—

 
—

 
9

 
9

 
3,240

 
3,249

 
9

 
—

Total commercial loans and leases
124

 
44

 
299

 
467

 
26,570

 
27,037

 
99

 
200

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
—

 
371

 
2,113

 
2,484

 
127,425

 
129,909

 
2,113

 
290

Home equity
191

 
265

 
2

 
458

 
45,012

 
45,470

 
—

 
717

Other consumer
—

 
—

 
—

 
—

 
110

 
110

 
—

 
—

Total consumer loans
191

 
636

 
2,115

 
2,942

 
172,547

 
175,489

 
2,113

 
1,007

Total acquired loans and leases
$
1,023

 
$
1,137

 
$
11,501

 
$
13,661

 
$
380,746

 
$
394,407

 
$
11,230

 
$
1,329

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans and leases
$
13,414

 
$
3,308

 
$
28,728

 
$
45,450

 
$
6,258,066

 
$
6,303,516

 
$
13,482

 
$
24,097


28
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Commercial Real Estate Loans —As of March 31, 2019 , 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 -- 36.8% ; multi-family mortgage loans -- 13.4% ; and construction loans -- 3.2% .
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 March 31, 2019 , 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 -- 11.6% ; equipment financing loans -- 15.6% ; and loans to condominium associations -- 0.8% .
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 March 31, 2019 , loans outstanding within the three classes within this segment expressed as a percent of total loans and leases outstanding were as follows: residential mortgage loans -- 12.1% , home equity loans -- 5.9% , and other consumer loans -- 0.6% .
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 indicators 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 or more days past due, or are placed on nonaccrual.
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 TDR 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.

29
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
At March 31, 2019
 
At December 31, 2018
 
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
$
8,893

 
$
8,912

 
$
—

 
$
5,569

 
$
5,545

 
$
—

Commercial
35,666

 
35,764

 
—

 
30,927

 
31,053

 
—

Consumer
2,721

 
2,710

 
—

 
2,989

 
2,978

 
—

Total originated with no related allowance recorded
47,280

 
47,386

 
—

 
39,485

 
39,576

 
—

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
468

 
468

 
14

 
396

 
396

 
5

Commercial
8,171

 
8,144

 
2,268

 
8,224

 
8,208

 
2,961

Consumer
663

 
662

 
88

 
665

 
664

 
89

Total originated with an allowance recorded
9,302

 
9,274

 
2,370

 
9,285

 
9,268

 
3,055

Total originated impaired loans and leases
56,582

 
56,660

 
2,370

 
48,770

 
48,844

 
3,055

 
 
 
 
 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
9,148

 
9,148

 
—

 
9,538

 
9,538

 
—

Commercial
560

 
560

 
—

 
531

 
531

 
—

Consumer
4,923

 
4,923

 
—

 
4,772

 
4,772

 
—

Total acquired with no related allowance recorded
14,631

 
14,631

 
—

 
14,841

 
14,841

 
—

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Consumer
152

 
152

 
26

 
154

 
154

 
26

 Total acquired with an allowance recorded
152

 
152

 
26

 
154

 
154

 
26

Total acquired impaired loans and leases
14,783

 
14,783

 
26

 
14,995

 
14,995

 
26

 
 
 
 
 
 
 
 
 
 
 
 
Total impaired loans and leases
$
71,365

 
$
71,443

 
$
2,396

 
$
63,765

 
$
63,839

 
$
3,081

___________________________________________________________________________
(1) Includes originated and acquired nonaccrual loans of $21.3 million and $1.4 million , respectively as of March 31, 2019 .

(2) Includes originated and acquired nonaccrual loans of $22.7 million and $1.3 million , respectively as of December 31, 2018 .

30
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In Thousands)
Originated:
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
$
8,699

 
$
65

 
$
7,985

 
$
30

Commercial
35,162

 
349

 
27,761

 
272

Consumer
2,732

 
8

 
3,353

 
13

Total originated with no related allowance recorded
46,593

 
422

 
39,099

 
315

With an allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
469

 
1

 
—

 
—

Commercial
8,467

 
28

 
7,993

 
16

Consumer
663

 
6

 
134

 
1

Total originated with an allowance recorded
9,599

 
35

 
8,127

 
17

Total originated impaired loans and leases
56,192

 
457

 
47,226

 
332

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
9,153

 
3

 
10,681

 
1

Commercial
559

 
4

 
1,624

 
4

Consumer
4,943

 
15

 
4,860

 
15

Total acquired with no related allowance recorded
14,655

 
22

 
17,165

 
20

With an allowance recorded:
 
 
 
 
 
 
 
Consumer
153

 
1

 
114

 
1

  Total acquired with an allowance recorded
153

 
1

 
114

 
1

Total acquired impaired loans and leases
14,808

 
23

 
17,279

 
21

 
 
 
 
 
 
 
 
Total impaired loans and leases
$
71,000

 
$
480

 
$
64,505

 
$
353




31
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

The following tables present information regarding impaired and non-impaired loans and leases at the dates indicated:
 
At March 31, 2019
 
Commercial Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Allowance for Loan and Lease Losses:
 
 
 
 
 
 
 
Originated:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
14

 
$
2,268

 
$
88

 
$
2,370

Collectively evaluated for impairment
26,779

 
21,785

 
5,312

 
53,876

Total originated loans and leases
26,793

 
24,053

 
5,400

 
56,246

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
Individually evaluated for impairment
—

 
—

 
26

 
26

Collectively evaluated for impairment
30

 
80

 
18

 
128

Acquired with deteriorated credit quality
1,526

 
107

 
8

 
1,641

Total acquired loans and leases
1,556

 
187

 
52

 
1,795

 
 
 
 
 
 
 
 
Total allowance for loan and lease losses
$
28,349

 
$
24,240

 
$
5,452

 
$
58,041

 
 
 
 
 
 
 
 
Loans and Leases:
 
 
 
 
 
 
 
Originated:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
9,107

 
$
37,413

 
$
3,224

 
$
49,744

Collectively evaluated for impairment
3,224,339

 
1,724,859

 
1,019,078

 
5,968,276

Total originated loans and leases
3,233,446

 
1,762,272

 
1,022,302

 
6,018,020

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
Individually evaluated for impairment
—

 
407

 
2,174

 
2,581

Collectively evaluated for impairment
109,113

 
21,229

 
136,377

 
266,719

Acquired with deteriorated credit quality
67,909

 
2,674

 
30,294

 
100,877

Total acquired loans and leases
177,022

 
24,310

 
168,845

 
370,177

 
 
 
 
 
 
 
 
Total loans and leases
$
3,410,468

 
$
1,786,582

 
$
1,191,147

 
$
6,388,197




32
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
At December 31, 2018
 
Commercial Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Allowance for Loan and Lease Losses:
 
 
 
 
 
 
 
Originated:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
5

 
$
2,961

 
$
89

 
$
3,055

Collectively evaluated for impairment
26,617

 
22,131

 
5,075

 
53,823

Total originated loans and leases
26,622

 
25,092

 
5,164

 
56,878

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
Individually evaluated for impairment
—

 
—

 
26

 
26

Collectively evaluated for impairment
32

 
83

 
20

 
135

Acquired with deteriorated credit quality
1,533

 
108

 
12

 
1,653

Total acquired loans and leases
1,565

 
191

 
58

 
1,814

 
 
 
 
 
 
 
 
Total allowance for loan and lease losses
$
28,187

 
$
25,283

 
$
5,222

 
$
58,692

 
 
 
 
 
 
 
 
Loans and Leases:
 
 
 
 
 
 
 
Originated:
 
 
 
 
 
 
 
Individually evaluated for impairment
$
5,610

 
$
32,127

 
$
3,502

 
$
41,239

Collectively evaluated for impairment
3,154,245

 
1,709,794

 
1,003,831

 
5,867,870

Total originated loans and leases
3,159,855

 
1,741,921

 
1,007,333

 
5,909,109

 
 
 
 
 
 
 
 
Acquired:
 
 
 
 
 
 
 
Individually evaluated for impairment
—

 
404

 
2,072

 
2,476

Collectively evaluated for impairment
121,119

 
24,094

 
142,194

 
287,407

Acquired with deteriorated credit quality
70,762

 
2,539

 
31,223

 
104,524

Total acquired loans and leases
191,881

 
27,037

 
175,489

 
394,407

 
 
 
 
 
 
 
 
Total loans and leases
$
3,351,736

 
$
1,768,958

 
$
1,182,822

 
$
6,303,516



33
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Troubled Debt Restructured Loans and Leases
A specific valuation allowance for losses on TDR loans is determined by comparing the net carrying amount of the TDR loan with the restructured loan's cash flows discounted at the original effective rate.
The following table sets forth information regarding TDR loans and leases at the dates indicated:
 
At March 31, 2019

At December 31, 2018
 
(In Thousands)
Troubled debt restructurings:
 
 
 
On accrual
$
28,543

 
$
12,257

On nonaccrual
7,597

 
8,684

Total troubled debt restructurings
$
36,140

 
$
20,941


Total TDR loans and leases increased by $15.2 million to $36.1 million at March 31, 2019 from $20.9 million at December 31, 2018 , driven primarily by new troubled debt restructurings on three commercial relationships.
The recorded investment in TDR loans 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 March 31, 2019
 
 
 
Recorded Investment
 
Specific
Allowance for
Loan and
Lease Losses
 
 
 
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
 
 
Nonaccrual
Loans and
Leases
 
Number of
Loans/
Leases
 
Recorded
Investment
 
(Dollars in Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
1

 
$
73

 
$
72

 
$
9

 
$
—

 
1

 
$
635

Commercial
6

 
16,754

 
16,730

 
—

 
—

 
3

 
1,074

Equipment financing
3

 
816

 
815

 
182

 
425

 
1

 
52

Residential mortgage
—

 
—

 
—

 
—

 
—

 
1

 
341

Total originated
10

 
$
17,643

 
$
17,617

 
$
191

 
$
425

 
6

 
$
2,102

______________________________________________________________________
(1) Includes loans and leases that have been modified within the past twelve months and subsequently had payment defaults during the period indicated.
 
At and for the Three Months Ended March 31, 2018
 
 
 
Recorded Investment
 
Specific
Allowance for
Loan and
Lease Losses
 
 
 
Defaulted (1)
 
Number of
Loans/
Leases
 
At
Modification
 
At End of
Period
 
 
Nonaccrual
Loans and
Leases
 
Number of
Loans/
Leases
 
Recorded
Investment
 
(Dollars in Thousands)
Originated:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
6

 
$
635

 
$
635

 
$
41

 
$
635

 
1

 
$
929

Equipment financing
6

 
1,555

 
1,555

 
—

 
—

 
—

 
—

Total originated
12

 
$
2,190

 
$
2,190

 
$
41

 
$
635

 
1

 
$
929

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




34
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

The following table sets forth the Company's end-of-period balances for TDRs that were modified during the periods indicated, by type of modification.
 
Three Months Ended March 31,
 
2019
 
2018
 
(In Thousands)
Loans with one modification:
 
 
 
Extended maturity
$
6,319

 
$
—

Combination maturity, principal, interest rate
11,298

 
2,190

Total loans with one modification
$
17,617

 
$
2,190

The TDR loans and leases that were modified for the three months ended March 31, 2019 and 2018 were $17.6 million and $2.2 million , respectively. The increase in TDR loans and leases that were modified for the three months ended March 31, 2019 was primarily due to an increase in the number and magnitude of extended maturity and a combination of maturity, principal, and interest rate modifications.
There were no TDR loans and leases with more than one modification during the three months ended March 31, 2019 and 2018 .
The net charge-offs for performing and nonperforming TDR loans and leases for the three months ended March 31, 2019 and 2018 were $878 thousand and $103 thousand , respectively.
The commitments to lend funds to debtors owing receivables whose terms had been modified in TDRs as of March 31, 2019 and 2018 were $2.8 million and $0.2 million , respectively.
(6) Goodwill and Other Intangible Assets
The following table sets forth the carrying value of goodwill and other intangible assets at the dates indicated:
 
At March 31, 2019
 
At December 31, 2018
 
(In Thousands)
Goodwill
$
160,427

 
$
137,890

Additions
—

 
22,537

Balance at end of period
160,427

 
160,427

Other intangible assets:
 
 
 
Core deposits
4,595

 
4,997

Trade name
1,089

 
1,089

Total other intangible assets
5,684

 
6,086

Total goodwill and other intangible assets
$
166,111

 
$
166,513

At December 31, 2013, the Company concluded that the BankRI name would continue to be utilized in its marketing strategies; therefore, the trade name with carrying value of $1.1 million , has an indefinite life and ceased to amortize.
The weighted-average amortization period for the core deposit intangible is 6.9 years.

35
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

The estimated aggregate future amortization expense (in thousands) for other intangible assets for each of the next five years and thereafter is as follows:
Remainder of 2019
$
1,297

Year ending:
 
2020
1,261

2021
850

2022
494

2023
263

2024
153

Thereafter
277

Total
$
4,595

(7) Accumulated Other Comprehensive Income (Loss)
For the three months ended March 31, 2019 and 2018 , 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.
 
Changes in accumulated other comprehensive income (loss) by component, net of tax, were as follows for the periods indicated:
 
Three Months Ended March 31, 2019
 
Investment
Securities
  Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 
(In Thousands)
Balance at December 31, 2018
$
(9,712
)
 
$
252

 
$
(9,460
)
Other comprehensive income (loss)
5,067

 
—

 
5,067

Balance at March 31, 2019
$
(4,645
)
 
$
252

 
$
(4,393
)
 
Three Months Ended March 31, 2018
 
Investment
Securities
  Available-for-Sale
 
Postretirement
Benefits
 
Accumulated Other
Comprehensive
Loss
 
(In Thousands)
Balance at December 31, 2017
$
(6,113
)
 
$
163

 
$
(5,950
)
Other comprehensive income (loss)
(5,716
)
 
—

 
(5,716
)
Balance at March 31, 2018
$
(11,829
)
 
$
163

 
$
(11,666
)

The Company did not reclassify any amounts out of accumulated other comprehensive income (loss) for the three months ended March 31, 2019 and 2018 .
(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 March 31, 2019 or December 31, 2018 .

36
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

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
 
March 31, 2019
 
(Dollars In Thousands)
Loan level derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive fixed, pay variable
91

 
$
—

 
$
26,017

 
$
—

 
$
43,656

 
$
720,242

 
$
789,915

 
$
24,018

Pay fixed, receive variable
91

 
—

 
26,017

 
—

 
43,656

 
720,242

 
789,915

 
24,018

Risk participation-out agreements
31

 
—

 
14,666

 
—

 
—

 
135,958

 
150,624

 
742

Risk participation-in agreements
7

 
—

 
—

 
—

 
—

 
55,679

 
55,679

 
230

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Buys foreign currency, sells U.S. currency
21

 
$
1,646

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,646

 
$
41

Sells foreign currency, buys U.S. currency
30

 
1,652

 
—

 
—

 
—

 
—

 
1,652

 
36



37
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
Notional Amount Maturing
 
Number of Positions
 
Less than 1 year
 
Less than 2 years
 
Less than 3 years
 
Less than 4 years
 
Thereafter
 
Total
 
Fair Value
 
December 31, 2018
 
(Dollars In Thousands)
Loan level derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive fixed, pay variable
86

 
$
1,931

 
$
26,419

 
$
—

 
$
31,762

 
$
654,388

 
$
714,500

 
$
6,081

Pay fixed, receive variable
86

 
1,931

 
26,419

 
—

 
31,762

 
654,388

 
714,500

 
6,081

Risk participation-out agreements
26

 
—

 
14,892

 
—

 
—

 
85,639

 
100,531

 
344

Risk participation-in agreements
5

 
—

 
—

 
—

 
—

 
35,838

 
35,838

 
84

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Buys foreign currency, sells U.S. currency
22

 
$
6,573

 
$
—

 
$
—

 
$
—

 
$
—

 
$
6,573

 
$
123

Sells foreign currency, buys U.S. currency
37

 
6,582

 
—

 
—

 
—

 
—

 
6,582

 
131

Certain derivative agreements contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. The Company posted collateral to dealer counterparties of $32.1 million and $5.9 million in the normal course of business as of March 31, 2019 and December 31, 2018 , respectively. Dealer counterparties posted $0.3 million to the Company in the normal course of business as of March 31, 2019 compared to no collateral as of December 31, 2018 .
The tables below present the offsetting of derivatives and amounts subject to master netting agreements not offset in the unaudited consolidated balance sheet at the dates indicated.
 
At March 31, 2019
 
Gross
Amounts Recognized
 
Gross Amounts
Offset in the
Statement of Financial Position
 
Net Amounts  Presented in the Statement of Financial Position
 
Gross Amounts Not Offset in the
Statement of Financial Position
 
Net Amount
 
 
 
 
Financial Instruments Pledged
 
Cash Collateral Pledged
 
 
(In Thousands)
Asset derivatives
 
 
 
 
 
 
 
 
 
 
 
Loan level derivatives
$
30,695

 
$
—

 
$
30,695

 
$
—

 
$
—

 
$
30,695

Risk participation-out agreements
742

 
—

 
742

 
—

 
—

 
742

Foreign exchange contracts
41

 
—

 
41

 
—

 
—

 
41

Total
$
31,478

 
$
—

 
$
31,478

 
$
—

 
$
—

 
$
31,478

 
 
 
 
 
 
 
 
 
 
 
 
Liability derivatives
 
 
 
 
 
 
 
 
 
 
 
Loan level derivatives
$
30,695

 
$
—

 
$
30,695

 
$
5,848

 
$
26,250

 
$
—

Risk participation-in agreements
230

 
—

 
230

 
—

 
—

 
230

Foreign exchange contracts
36

 
—

 
36

 
—

 
—

 
36

Total
$
30,961

 
$
—

 
$
30,961

 
$
5,848

 
$
26,250

 
$
266


38
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
At December 31, 2018
 
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
$
22,013

 
$
—

 
$
22,013

 
$
—

 
$
50

 
$
21,963

Risk participation-out agreements
344

 
—

 
344

 
—

 
—

 
344

Foreign exchange contracts
131

 
—

 
131

 
—

 
—

 
131

Total
$
22,488

 
$
—

 
$
22,488

 
$
—

 
$
50

 
$
22,438

 
 
 
 
 
 
 
 
 
 
 
 
Liability derivatives
 
 
 
 
 
 
 
 
 
 
 
Loan level derivatives
$
22,013

 
$
—

 
$
22,013

 
$
5,877

 
$
—

 
$
16,136

Risk participation-in agreements
84

 
—

 
84

 
—

 
—

 
84

Foreign exchange contracts
123

 
—

 
123

 
—

 
—

 
123

Total
$
22,220

 
$
—

 
$
22,220

 
$
5,877

 
$
—

 
$
16,343

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 March 31, 2019 , the Company had 2 active recognition and retention plans: the 2011 Restricted Stock Award Plan ("2011 RSA") with 500,000 authorized shares and the 2014 Equity Incentive Plan ("2014 Plan") with 1,750,000 authorized shares. The 2011 RSA and the 2014 Plan are collectively referred to as the "Plans". The purpose of the Plans is to promote the long-term financial success of the Company and its subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company's stockholders.
Of the awarded shares, generally 50% vest ratably over three years with one-third of such shares vesting at each of the first, second and third anniversary dates of the awards. These are referred to as "time-based shares". The remaining 50% of each award has a cliff vesting schedule and will vest three years after the award date based on the level of the Company's achievement of identified performance targets in comparison to the level of achievement of such identified performance targets by a defined peer group comprised of 45 financial institutions. These are referred to as "performance-based shares". If a participant leaves the Company prior to the third anniversary date of an award, any unvested shares are usually forfeited. Dividends declared with respect to shares awarded will be held by the Company and paid to the participant only when the shares vest.
Under 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 months ended March 31, 2019 and 2018 , no shares were issued upon satisfaction of required conditions of the Plans.
Total expense for the Plans was $0.9 million and $0.7 million for the three months ended March 31, 2019 and 2018 , respectively.

39
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

(10) Earnings per Share ("EPS")
The following table is a reconciliation of basic EPS and diluted EPS:
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
Basic
 
Fully
Diluted
 
Basic
 
Fully
Diluted
 
(Dollars in Thousands, Except Per Share Amounts)
Numerator:
 
 
 
 
 
 
 
Net income
$
22,467

 
$
22,467

 
$
18,633

 
$
18,633

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding
79,658,583

 
79,658,583

 
77,879,593

 
77,879,593

Effect of dilutive securities
—

 
184,995

 
—

 
288,207

Adjusted weighted average shares outstanding
79,658,583

 
79,843,578

 
77,879,593

 
78,167,800

 
 
 
 
 
 
 
 
EPS
$
0.28

 
$
0.28

 
$
0.24

 
$
0.24


(11) Fair Value of Financial Instruments
A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring and non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no changes in the valuation techniques used during the three months ended March 31, 2019 and 2018 .

40
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables set forth the carrying value of assets and liabilities measured at fair value on a recurring basis at the dates indicated:
 
Carrying Value as of March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In Thousands)
Assets:
 

 
 

 
 

 
 

Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$
—

 
$
182,845

 
$
—

 
$
182,845

GSE CMOs
—

 
100,118

 
—

 
100,118

GSE MBSs
—

 
159,772

 
—

 
159,772

SBA commercial loan asset-backed securities
—

 
43

 
—

 
43

Corporate debt obligations
—

 
32,355

 
—

 
32,355

U.S. Treasury bonds
—

 
13,887

 
—

 
13,887

Total investment securities available-for-sale
$
—

 
$
489,020

 
$
—

 
$
489,020

Equity securities held-for-trading
$
3,355

 
$
986

 
$
—

 
$
4,341

Loan level derivatives
—

 
30,695

 
—

 
30,695

Risk participation-out agreements
—

 
742

 
—

 
742

Foreign exchange contracts
—

 
41

 
—

 
41

Liabilities:
 
 
 
 
 
 
 
Loan level derivatives
$
—

 
$
30,695

 
$
—

 
$
30,695

Risk participation-in agreements
—

 
230

 
—

 
230

Foreign exchange contracts
—

 
36

 
—

 
36


41
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
Carrying Value as of December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In Thousands)
Assets:
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$
—

 
$
181,079

 
$
—

 
$
181,079

GSE CMOs
—

 
103,130

 
—

 
103,130

GSE MBSs
—

 
165,089

 
—

 
165,089

SBA commercial loan asset-backed securities
—

 
51

 
—

 
51

Corporate debt obligations
—

 
39,708

 
—

 
39,708

U.S. Treasury bonds
—

 
13,736

 
—

 
13,736

Total investment securities available-for-sale
$
—

 
$
502,793

 
$
—


$
502,793

Equity securities held-for-trading
$
3,235

 
$
972

 
$
—

 
$
4,207

Loan level derivatives
—

 
22,013

 
—

 
22,013

Risk participation-out agreements
—

 
344

 
—

 
344

Foreign exchange contracts
—

 
131

 
—

 
131

Liabilities:
 
 
 
 
 
 


Loan level derivatives
$
—

 
$
22,013

 
$
—

 
$
22,013

Risk participation-in agreements
—

 
84

 
—

 
84

Foreign exchange contracts
—

 
123

 
—

 
123

 
 
 
 
 
 
 
 
Investment Securities Available-for-Sale
The fair value of investment securities is based principally on market prices and dealer quotes received from third-party and nationally-recognized pricing services for identical investment securities such as U.S. Treasury and agency securities. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include GSE debentures, GSE mortgage-related securities, SBA commercial loan asset backed securities, corporate debt securities, and trust preferred securities, all of which are included in Level 2. As of March 31, 2019 and December 31, 2018 , no investment securities were valued using pricing models included in Level 3.
Additionally, management reviews changes in fair value from period to period and performs testing to ensure that prices received from the third parties are consistent with management's expectation of the market. Changes in the prices obtained from the pricing service are analyzed from month to month, taking into consideration changes in market conditions including changes in mortgage spreads, changes in U.S. Treasury security yields and changes in generic pricing of 15 -year and 30 -year securities. Additional analysis may include a review of prices provided by other independent parties, a yield analysis, a review of average life changes using Bloomberg analytics and a review of historical pricing for a particular security.
Equity Securities Held-for-Trading
The fair value of equity securities held-for-trading is based principally on market prices and dealer quotes received from third-party and nationally-recognized pricing services. The Company's equity securities are priced this way and are included in Level 1. These prices are validated by comparing the primary pricing source with an alternative pricing source when available.
Derivatives and Hedging Instruments
The fair values for the interest-rate swap assets and liabilities, risk participation agreements (RPA in/out), and foreign exchange derivatives represent a Level 2 valuation and are based on settlement values adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves and foreign exchange rates where applicable.

42
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposures and remaining contractual life. To date, the Company has not realized any losses due to a counterparty's inability to pay any net uncollateralized position. Refer also to Note 8, "Derivatives and Hedging Activities."
There were no transfers between levels for assets and liabilities recorded at fair value on a recurring basis during the three months ended March 31, 2019 and 2018 , respectively.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below at the dated indicated:
 
Carrying Value as of March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In Thousands)
Assets measured at fair value on a non-recurring basis:
 
 
 
 
 
 
 
Collateral-dependent impaired loans and leases
$
—

 
$
—

 
$
4,574

 
$
4,574

OREO
—

 
—

 
3,054

 
3,054

Repossessed assets
—

 
858

 
—

 
858

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

 
$
858

 
$
7,628

 
$
8,486

 
Carrying Value as of December 31, 2018
 
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
$
—

 
$
—

 
$
4,203

 
$
4,203

OREO
—

 
—

 
3,054

 
3,054

Repossessed assets
—

 
965

 
—

 
965

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

 
$
965

 
$
7,257

 
$
8,222

Collateral-Dependent Impaired Loans and Leases
For nonperforming loans and leases where the credit quality of the borrower has deteriorated significantly, fair values of the underlying collateral were estimated using purchase and sales agreements (Level 2), or comparable sales or recent appraisals (Level 3), adjusted for selling costs and other expenses.
Other Real Estate Owned
The Company records OREO at the lower of cost or fair value. In estimating fair value, the Company utilizes purchase and sales agreements (Level 2) or comparable sales, recent appraisals or cash flows discounted at an interest rate commensurate with the risk associated with these cash flows (Level 3), adjusted for selling costs and other expenses.
Repossessed Assets
Repossessed assets are carried at estimated fair value less costs to sell based on auction pricing (Level 2).

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

The table below presents quantitative information about significant unobservable inputs (Level 3) for assets measured at fair value on a non-recurring basis at the dates indicated.
 
Fair Value
 
Valuation Technique
 
At March 31,
2019
 
At December 31, 2018
 
 
 
(Dollars in Thousands)
 
 
Collateral-dependent impaired loans and leases
$
4,574

 
$
4,203

 
Appraisal of collateral (1)
Other real estate owned
3,054

 
3,054

 
Appraisal of collateral (1)
_______________________________________________________________________________
(1) Fair value is generally determined through independent appraisals of the underlying collateral. The Company may also use another available source of collateral assessment to determine a reasonable estimate of the fair value of the collateral. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of the unobservable inputs used may vary but is generally 0% - 10% on the discount for costs to sell and 0% - 15% on appraisal adjustments.
Summary of Estimated Fair Values of Financial Instruments
The following table presents the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company's financial instruments at the dates indicated. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, restricted equity securities, and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include non-maturity deposits, short-term borrowings, and accrued interest payable.
 
 
 
 
 
Fair Value Measurements at March 31, 2019
 
Carrying
Value
 
Estimated
Fair Value
 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
(In Thousands)
Financial assets:
 
 
 
 
 
 
 
 
 
Investment securities held-to-maturity:
 
 


 
 
 
 
 
 
GSE debentures
$
50,551

 
$
50,140

 
$
—

 
$
50,140

 
$
—

GSE MBSs
11,080

 
10,842

 
—

 
10,842

 
—

Municipal obligations
51,563

 
51,607

 
—

 
51,607

 
—

Foreign government obligations
500

 
500

 
—

 
—

 
500

Loans held-for-sale
869

 
869

 
—

 
869

 
—

Loans and leases, net
6,330,156

 
6,258,682

 
—

 
—

 
6,258,682

Restricted equity securities
54,192

 
54,192

 
—

 
—

 
54,192

Financial liabilities:
 
 
 
 
 
 
 
 
 
Certificates of deposit
1,907,228

 
1,903,253

 
—

 
1,903,253

 
—

Borrowed funds
866,005

 
857,772

 
—

 
857,772

 
—


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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
 
 
 
 
Fair Value Measurements at December 31, 2018
 
Carrying
Value
 
Estimated
Fair Value
 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
(In Thousands)
Financial assets:
 
 
 
 
 
 
 
 
 
Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
GSE debentures
$
50,546

 
$
49,601

 
$
—

 
$
49,601

 
$
—

GSE MBSs
11,426

 
11,131

 
—

 
11,131

 
—

Municipal obligations
52,304

 
51,598

 
—

 
51,598

 
—

Foreign government obligations
500

 
500

 
—

 
—

 
500

Loans held-for-sale
3,247

 
3,247

 
—

 
3,247

 
—

Loans and leases, net
6,244,824

 
6,154,704

 
—

 
—

 
6,154,704

Restricted equity securities
61,751

 
61,751

 
—

 
—

 
61,751

Financial liabilities:
 
 
 
 
 
 
 
 
 
Certificates of deposit
1,789,165

 
1,778,860

 
—

 
1,778,860

 
—

Borrowed funds
920,542

 
886,545

 
—

 
886,545

 
—

Investment Securities Held-to-Maturity
The fair values of certain investment securities held-to-maturity are estimated using market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include GSE debentures, GSE MBSs, and municipal obligations, all of which are included in Level 2. Additionally, fair values of foreign government obligations are estimated using pricing models and are considered to be Level 3.
Loans 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). Using the exit price valuation method, the Company discounts the contractual cash flows for each loan category using interest rates currently being offered for loans with similar terms to borrowers of similar quality and incorporates estimates of future loan prepayments.
Restricted Equity Securities
The fair values of certain restricted equity securities are estimated using observable inputs adjusted for other unobservable information, including but not limited to probability assumptions and similar discounts where applicable. These restricted equity securities are considered to be Level 3.
Deposits
The fair values of deposit liabilities with no stated maturity (demand, NOW, savings and money market savings accounts) are equal to the carrying amounts payable on demand. The fair value of certificates of deposit represents contractual cash flows discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the Company's core deposit relationships (deposit-based intangibles).

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Borrowed Funds
The fair value of federal funds purchased is equal to the amount borrowed. The fair value of FHLBB advances and repurchase agreements represents contractual repayments discounted using interest rates currently available for borrowings with similar characteristics and remaining maturities. The fair values reported for retail repurchase agreements are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on borrowings with similar characteristics and maturities. The fair values reported for subordinated deferrable interest debentures are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on instruments with similar terms and maturities.
(12) Commitments and Contingencies
Off-Balance Sheet Financial Instruments
The Company is party to off-balance sheet financial instruments in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby and commercial letters of 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.
Financial instruments with off-balance-sheet risk at the dates indicated follow:
 
At March 31, 2019

At December 31, 2018
 
(In Thousands)
Financial instruments whose contract amounts represent credit risk:
 

 
Commitments to originate loans and leases:
 

 
Commercial real estate
$
108,311


$
76,642

Commercial
75,321


75,713

Residential mortgage
18,752


16,363

Unadvanced portion of loans and leases
720,852


707,997

Unused lines of credit:
 

 
Home equity
503,283


487,476

Other consumer
36,293


50,404

Other commercial
455


347

Unused letters of credit:


 
Financial standby letters of credit
10,026


11,491

Performance standby letters of credit
3,332


3,075

Commercial and similar letters of credit
4,573


4,573

Loan level derivatives (Notional principal amounts):





Receive fixed, pay variable
789,915


714,500

Pay fixed, receive variable
789,915


714,500

Risk participation-out agreements
150,624


100,531

Risk participation-in agreements
55,679

 
35,838

Foreign exchange contracts (Notional amounts):





Buys foreign currency, sells U.S. currency
1,646


6,573

Sells foreign currency, buys U.S. currency
1,652


6,582


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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee by the customer. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if any, is based on management's credit evaluation of the borrower.
Standby and commercial letters of 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.
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.
The fair value of derivative assets and liabilities was $31.5 million and $31.0 million , respectively, as of March 31, 2019 . The fair value of derivative assets and liabilities was $22.5 million and $22.2 million , respectively, as of December 31, 2018 .
The fair value of foreign exchange assets and liabilities was $41 thousand and $36 thousand , respectively, as of March 31, 2019 . The fair value of foreign exchange assets and liabilities was $131 thousand and $123 thousand as of December 31, 2018 .
Lease Commitments
The Company leases certain office space under various noncancellable operating leases as well as certain other assets. These leases have original terms ranging from 2 years to over 20 years. Certain leases contain renewal options and escalation clauses which can increase rental expenses based principally on the consumer price index and fair market rental value provisions. All of the Company's current outstanding leases are classified as operating leases.
The Company considered the following criteria when determining whether a contract contains a lease, the existence of an identifiable asset and the right to obtain substantially all of the economic benefits from use of the asset through the period. The Company used the FHLB classic advance rates available as of March 31, 2019 as the discount rate to determined the net present value of the remaining lease payments.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

 
At March 31, 2019
 
(In Thousands)
The components of lease expense were as follow:
 
Operating lease cost
$
1,459

 
 
Supplemental cash flow information related to leases was as follows:
 
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
1,525

Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$
71

 
 
Supplemental balance sheet information related to leases was as follows:
 
Operating Leases
 
Operating lease right-of-use assets
$
26,205

Operating lease liabilities
26,205

 
 
Weighted Average Remaining Lease Term
 
Operating leases
7.9 years

 
 
Weighted Average Discount Rate
 
Operating leases
3.0
%
A summary of future minimum rental payments under such leases at the dates indicated follows:
 
Minimum Rental Payments
 
March 31, 2019
 
December 31, 2018
 
(In Thousands)
 
 
 
 
Remainder of 2019
$
4,539

 
$
4,224

Year ending:
 
 
 
2020
5,409

 
4,932

2021
4,640

 
4,418

2022
3,962

 
3,602

2023
3,182

 
2,734

2024
1,951

 
1,866

Thereafter
5,583

 
6,637

Total
$
29,266

 
$
28,413

Less imputed interest
(3,061
)
 
 
Present value of lease liability
$
26,205

 
 
Certain leases contain escalation clauses for real estate taxes and other expenditures, which are not included above. The total real estate taxes were $0.5 million and other expenditures were $0.1 million for both the three months ended March 31, 2019 and 2018 . Total rental expense was $1.4 million for both the three months ended March 31, 2019 and 2018 .

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Legal Proceedings
In the normal course of business, there are various outstanding legal proceedings. In the opinion of management, after consulting with legal counsel, the consolidated financial position and results of operations of the Company are not expected to be affected materially by the outcome of such proceedings.
(13) Revenue from Contracts with Customers
Overview
Revenue from contracts with customers in the scope of Accounting Standards Codification (“ASC”) ("Topic 606") is measured based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations.
The Company’s performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time. Unsatisfied performance obligations at the report date are not material to our consolidated financial statements.
In certain cases, other parties are involved with providing services to our customers. If the Company is a principal in the transaction (providing services itself or through a third party on its behalf), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Company is an agent in the transaction (referring to another party to provide services), the Company reports its net fee or commission retained as revenue.
Accounting Policy Updates
The Company adopted Topic 606, “Revenue from Contracts with Customers” effective January 1, 2018 and has applied the guidance to all contracts within the scope of Topic 606 as of that date. As a result, the Company has modified its accounting policy for revenue recognition as detailed in this Note.
The Company applied Topic 606 using the modified retrospective method, therefore, the prior period comparative information has not been adjusted and continues to be reported under Topic 605. There was no cumulative effect adjustment as of January 1, 2018, and there were no material changes to our consolidated financial statements at or for the three months ended March 31, 2019 , as a result of adopting Topic 606.
The Company applied the practical expedient pertaining to contracts with original expected duration of one year or less and does not disclose information about remaining performance obligations on such contracts.
The Company also applied the practical expedient pertaining to contracts for which, at contract inception, the period between when the entity transfers the services and when the customer pays for those services will be one year or less. As such, the Company does not adjust the consideration from customers for the effects of a significant financing component.
A substantial portion of the Company’s revenue is specifically excluded from the scope of Topic 606. This exclusion is associated with financial instruments, including interest income on loans and investment securities, in addition to loan derivative income and gains on loan and investment sales. For the revenue that is in-scope of Topic 606, the following is a description of principal activities from which the Company generates its revenue from contracts with customers, separated by the timing of revenue recognition.
Revenue Recognized at a Point in Time
The Company recognizes revenue that is transactional in nature and such revenue is earned at a point in time. Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees. Additionally, revenue is collected from loan fees, such as letters of credit, line renewal fees and application fees. Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.

49
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)

Revenue Recognized Over Time
The Company recognizes revenue over a period of time, generally monthly, as services are performed and performance obligations are satisfied. Such revenue includes commissions on investments, insurance sales and service charges on deposit accounts. Fee revenue from service charges on deposit accounts represents the service charges assessed to customers who hold deposit accounts at the Bank.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements, which are based on certain assumptions and describe Brookline Bancorp, Inc.’s (the “Company’s”) future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These statements include, among others, statements regarding the Company’s intent, belief or expectations with respect to economic conditions, trends affecting the Company’s financial condition or results of operations, and the Company’s exposure to market, liquidity, interest-rate and credit risk.
Forward-looking statements are based on the current assumptions underlying the statements and other information with respect to the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and the financial condition, results of operations, future performance and business are only expectations of future results. Although the Company believes that the expectations reflected in the Company’s forward-looking statements are reasonable, the Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, 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; decreases in deposit levels that necessitate increases in borrowing to fund loans and investments; operational risks including, but not limited to, cybersecurity breaches and natural disaster; 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, 2018 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, foreign exchange services, on-line and mobile banking services, consumer and residential loans and investment advisory services, designed to meet the financial needs of small- to mid-sized businesses and individuals throughout central New England. Specialty lending activities include equipment financing 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.

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Table of Contents

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. These credit decisions, at the local level, are executed through corporate policies overseen by the Company's credit department.
The competition for loans and leases and deposits remains intense. While the economy has improved in 2019 , 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 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 or increase the current net interest margin, while minimizing exposure to credit risk, along with increasing sources of non-interest income, while controlling the growth of non-interest expenses.
The Company and the Banks are supervised, examined and regulated by the FRB. As a Massachusetts-chartered 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. 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 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 Market SM under the symbol “BRKL.”

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Table of Contents

Selected Financial Data
The following is based in part on, and should be read in conjunction with, the consolidated financial statements and accompanying notes, and other information appearing elsewhere in this Quarterly Report on Form 10-Q.
 
At and for the Three Months Ended
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
2019
 
2018
 
2018
 
2018
 
2018
 
(Dollars in Thousands, Except Per Share Data)
PER COMMON SHARE DATA
 
 
 
 
 
 
 
 
 
Earnings per share - Basic
$
0.28

 
$
0.26

 
$
0.28

 
$
0.26

 
$
0.24

Earnings per share - Diluted
0.28

 
0.26

 
0.28

 
0.26

 
0.24

Book value per share (end of period)
11.30

 
11.30

 
11.08

 
10.94

 
10.80

Tangible book value per share (end of period) (1)
9.22

 
9.21

 
9.00

 
8.85

 
8.69

Dividends paid per common share
0.105

 
0.105

 
0.100

 
0.100

 
0.090

Stock price (end of period)
14.40

 
13.82

 
16.70

 
18.60

 
16.20

 
 
 
 
 
 
 
 
 
 
PERFORMANCE RATIOS (2)
 
 
 
 
 
 
 
 
 
Net interest margin (taxable equivalent basis)
3.64
%
 
3.58
%
 
3.57
%
 
3.64
%
 
3.66
%
Return on average assets
1.21
%
 
1.15
%
 
1.23
%
 
1.15
%
 
1.08
%
Return on average tangible assets (1)
1.24
%
 
1.17
%
 
1.26
%
 
1.17
%
 
1.10
%
Return on average stockholders' equity
10.14
%
 
9.40
%
 
10.10
%
 
9.53
%
 
8.98
%
Return on average tangible stockholders' equity (1)
12.48
%
 
11.54
%
 
12.44
%
 
11.80
%
 
11.01
%
Dividend payout ratio (1)
37.28
%
 
39.98
%
 
35.81
%
 
38.56
%
 
37.11
%
Efficiency ratio (3)
55.83
%
 
57.86
%
 
53.76
%
 
55.25
%
 
60.83
%
 
 
 
 
 
 
 
 
 
 
ASSET QUALITY RATIOS
 
 
 
 
 
 
 
 
 
Net loan and lease charge-offs as a percentage of average loans and leases (annualized)
0.13
%
 
0.08
%
 
0.04
%
 
0.15
%
 
0.03
%
Nonperforming loans and leases as a percentage of total loans and leases
0.36
%
 
0.38
%
 
0.41
%
 
0.42
%
 
0.43
%
Nonperforming assets as a percentage of total assets
0.36
%
 
0.38
%
 
0.41
%
 
0.41
%
 
0.42
%
Total allowance for loan and lease losses as a percentage of total loans and leases
0.91
%
 
0.93
%
 
0.96
%
 
0.94
%
 
0.96
%
Allowance for loan and lease losses related to originated loans and leases as a percentage of originated loans and leases (1)
0.93
%
 
0.96
%
 
1.00
%

0.98
%

1.03
%
 
 
 
 
 
 
 
 
 
 
CAPITAL RATIOS
 
 
 
 
 
 
 
 
 
Stockholders' equity to total assets
11.98
%
 
12.18
%
 
12.16
%
 
12.04
%
 
11.94
%
Tangible equity ratio (1)
9.99
%
 
10.15
%
 
10.11
%
 
9.97
%
 
9.85
%
 
 
 
 
 
 
 
 
 
 
FINANCIAL CONDITION DATA
 
 
 
 
 
 
 
 
 
Total assets
$
7,519,130

 
$
7,392,805

 
$
7,320,596

 
$
7,285,710

 
$
7,248,114

Total loans and leases
6,388,197

 
6,303,516

 
6,227,707

 
6,171,274

 
6,114,461

Allowance for loan and lease losses
58,041

 
58,692

 
59,997

 
57,981

 
58,714

Investment securities available-for-sale
489,020

 
502,793

 
534,788

 
558,602

 
558,357

Investment securities held-to-maturity
113,694

 
114,776

 
115,684

 
116,670

 
117,352

Equity securities held-for-trading
4,341

 
4,207

 
4,169

 
—

 
—

Goodwill and identified intangible assets
166,111

 
166,513

 
167,050

 
167,587

 
168,593

Total deposits
5,620,633

 
5,454,044

 
5,233,611

 
5,198,280

 
5,191,520

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Continued)


52
Table of Contents

 
At and for the Three Months Ended
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
2019
 
2018
 
2018
 
2018
 
2018
 
(Dollars in Thousands, Except Per Share Data)
 
 
 
 
 
 
 
 
 
 
Total borrowed funds
866,005

 
920,542

 
1,082,886

 
1,110,923

 
1,099,429

Stockholders' equity
900,572

 
900,140

 
890,368

 
877,283

 
865,777

 
 
 
 
 
 
 
 
 
 
EARNINGS DATA
 
 
 
 
 
 
 
 
 
Net interest income
$
62,999

 
$
63,159

 
$
62,332

 
$
62,717

 
$
59,491

Provision for credit losses
1,353

 
123

 
2,717

 
1,470

 
641

Non-interest income
6,630

 
6,461

 
7,069

 
5,526

 
6,168

Non-interest expense
38,871

 
40,282

 
37,310

 
37,702

 
39,938

Net income
22,467

 
21,138

 
22,460

 
20,831

 
18,633

_______________________________________________________________________________
(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 $7.5 billion as of March 31, 2019 increased $126.3 million , or 6.8% on an annualized basis, from December 31, 2018 . The increase was primarily driven by growth in the loan portfolio.
Total loans and leases as of March 31, 2019 increased $84.7 million , or 5.4% on an annualized basis, to $6.4 billion from December 31, 2018 . The Company's commercial loan portfolios, which are comprised of commercial real estate loans and commercial loans and leases, totaled $5.2 billion , or 81.4% of total loans and leases, as of March 31, 2019 , an increase of $76.4 million , or 6.0% on an annualized basis, from $5.1 billion , or 81.2% of total loans and leases, as of December 31, 2018 .
Total deposits of $5.6 billion as of March 31, 2019 increased $166.6 million , or 12.2% on an annualized basis, from $5.5 billion as of December 31, 2018 . Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $3.7 billion , or 66.1% of total deposits as of March 31, 2019 , an increase of $48.5 million , or 5.3% on an annualized basis from $3.7 billion , or 67.2% of total deposits, as of December 31, 2018 . Certificate of deposit balances totaled $1.9 billion , or 33.9% of total deposits as of March 31, 2019 , an increase of $118.1 million , or 26.4% on an annualized basis from $1.8 billion , or 32.7% of total deposits, as of December 31, 2018 .
Asset Quality
Nonperforming assets as of March 31, 2019 totaled $26.7 million , or 0.36% of total assets, compared to $28.1 million , or 0.38% of total assets, as of December 31, 2018 . Net charge-offs for the three months ended March 31, 2019 were $2.1 million , or 0.13% of average loans and leases on an annualized basis, compared to $0.5 million , or 0.03% of average loans and leases on an annualized basis, for the three months ended March 31, 2018 . Charge-offs were largely related to taxi medallion loans against previously established specific reserves.
The ratio of the allowance for loan and lease losses to total loans and leases was 0.91% as of March 31, 2019 , compared to 0.93% as of December 31, 2018 . Excluding acquired loans, 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 0.93% as of March 31, 2019 , compared to 0.96% as of December 31, 2018 . The Company continued to employ its historical underwriting methodology throughout the three month period ended March 31, 2019 . Refer also to Note 5, "Allowance for Loan and Lease Losses."

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Table of Contents

Capital Strength
The Company is a "well-capitalized" bank holding company as defined in the FRB's Regulation Y. The Company's common equity Tier 1 Capital Ratio was 11.64% as of March 31, 2019 , compared to 11.94% as of December 31, 2018 . The Company's Tier 1 Leverage Ratio was 10.31% as of March 31, 2019 , compared to 10.58% as of December 31, 2018 . As of March 31, 2019 , the Company's Tier 1 Risk-Based Capital Ratio was 11.79% , compared to 12.26% as of December 31, 2018 . The Company's Total Risk-Based Capital Ratio was 13.89% as of March 31, 2019 , compared to 14.42% as of December 31, 2018 .
The Company's ratio of stockholders' equity to total assets was 11.98% and 12.18% as of March 31, 2019 and December 31, 2018 , respectively. The Company's tangible equity ratio was 9.99% and 10.15% as of March 31, 2019 and December 31, 2018 , respectively.
Net Income
For the three months ended March 31, 2019 , the Company reported net income of $22.5 million , or $0.28 per basic and diluted share, an increase of $3.8 million , or 20.6% , from $18.6 million , or $0.24 per basic and diluted share for the three months ended March 31, 2018 . This increase in net income is primarily the result of an increase in net interest income of $3.5 million , an increase in non-interest income of $0.5 million , a decrease in non-interest expense of $1.1 million and a decrease in net income attributed to controlling interest of $0.8 million , partially offset by an increase in the provision for credit losses of $0.7 million and an increase in the provision for income taxes of $1.2 million . Refer to “Results of Operations" below for further discussion.
The annualized return on average assets was 1.21% for the three months ended March 31, 2019 , compared to 1.08% for the three months ended March 31, 2018 . The annualized return on average stockholders' equity was 10.14% for the three months ended March 31, 2019 , compared to 8.98% for the three months ended March 31, 2018 .
The net interest margin was 3.64% for the three months ended March 31, 2019 , down from 3.66% for the three months ended March 31, 2018 . The decrease in the net interest margin is a result of an increase of 69 basis points in the Company's overall cost of funds to 1.66% for the three months ended March 31, 2019 from 0.97% for the three months ended March 31, 2018 , partially offset by an increase in the yield on interest-earning assets of 49 basis points to 4.84% for the three months ended March 31, 2019 from 4.35% for the three months ended March 31, 2018 .
The Company’s net interest margin and net interest income have demonstrated improvement as interest rates continue to rise, however the Company’s net interest margin and net interest income may come under pressure due to competitive pricing in all loan categories and the Company’s ability to contain cost of funds.
Critical Accounting Policies
The Securities and Exchange Commission ("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 2018 Annual Report on Form 10-K, management has identified the valuation of available-for-sale securities, accounting for assets and liabilities acquired, the determination of the allowance for loan and lease losses, the review of goodwill and intangibles for impairment, income tax accounting, and valuation of deferred tax assets as the Company’s most critical accounting policies.
Non-GAAP Financial Measures and Reconciliation to GAAP
In addition to evaluating the Company’s results of operations in accordance with GAAP, management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures, such as operating earnings metrics, the return on average tangible assets, return on average tangible equity, the tangible equity ratio, tangible book value per share, dividend payout ratio, and the 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.

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Table of Contents

The following table reconciles the Company’s operating earnings, operating return on average assets and operating return on average stockholders’ equity for the periods indicated:
 
At and for the Three Months Ended  
March 31,
 
2019
 
2018
 
(Dollars in Thousands)
Net income, as reported
$
22,467

 
$
18,633

Less:
 
 
 
Security gains (after-tax)
103

 
883

Add:
 
 
 
Merger and acquisition-related expenses (after-tax)  (1)
—

 
2,208

Operating earnings
$
22,364

 
$
19,958

 
 
 
 
Basic earnings per share, as reported
$
0.28

 
$
0.24

Less:
 
 
 
Security gains (after-tax)
—

 
0.01

Add:
 
 
 
Merger and acquisition-related expenses (after-tax)  (1)
—

 
0.03

Basic operating earnings per share
$
0.28

 
$
0.26

___________________________________________________________________
(1) Merger and acquisition expense related to the acquisition of First Commons Bank in the first quarter of 2018.


55
Table of Contents


The following tables reconcile the Company’s return on average tangible assets and return on average tangible stockholders’ equity for the periods indicated:
 
Three Months Ended
 
March 31,
2019
 
December 31,
2018
 
September 30, 2018
 
June 30,
2018
 
March 31,
2018
 
(Dollars in Thousands)
Operating earnings
$
22,364

 
$
22,062

 
$
22,477

 
$
21,085

 
$
19,958

 
 
 
 
 
 
 
 
 
 
Average total assets
$
7,434,038

 
$
7,382,931

 
$
7,302,413

 
$
7,273,793

 
$
6,927,309

Less: Average goodwill and average identified intangible assets, net
166,327

 
166,777

 
167,313

 
168,185

 
152,377

Average tangible assets
$
7,267,711

 
$
7,216,154

 
$
7,135,100

 
$
7,105,608

 
$
6,774,932

 
 
 
 
 
 
 
 
 
 
Return on average assets (annualized)
1.21
%
 
1.15
 %
 
1.23
%
 
1.15
%
 
1.08
%
Less:
 
 
 
 
 
 
 
 
 
Security gains
0.01
%
 
(0.03
)%
 
—
%
 
—
%
 
0.05
%
Add:
 
 
 
 
 
 
 
 
 
Merger and acquisition-related expenses
—
%
 
0.02
 %
 
—
%
 
0.01
%
 
0.12
%
Operating return on average assets (annualized)
1.20
%
 
1.20
 %
 
1.23
%
 
1.16
%
 
1.15
%
 
 
 
 
 
 
 
 
 
 
Return on average tangible assets (annualized)
1.24
%
 
1.17
 %
 
1.26
%
 
1.17
%
 
1.10
%
Less:
 
 
 
 
 
 
 
 
 
Security gains
0.01
%
 
(0.03
)%
 
—
%
 
—
%
 
0.05
%
Add:
 
 
 
 
 
 
 
 
 
Merger and acquisition-related expenses
—
%
 
0.02
 %
 
—
%
 
0.02
%
 
0.13
%
Operating return on average tangible assets (annualized)
1.23
%
 
1.22
 %
 
1.26
%
 
1.19
%
 
1.18
%
 
 
 
 
 
 
 
 
 
 
Average total stockholders' equity
$
886,639

 
$
899,244

 
$
889,259

 
$
874,513

 
$
829,598

Less: Average goodwill and average identified intangible assets, net
166,327

 
166,777

 
167,313

 
168,185

 
152,377

Average tangible stockholders' equity
$
720,312

 
$
732,467

 
$
721,946

 
$
706,328

 
$
677,221

 
 
 
 
 
 
 
 
 
 
Return on average stockholders' equity (annualized)
10.14
%
 
9.40
 %
 
10.10
%
 
9.53
%
 
8.98
%
Less:
 
 
 
 
 
 
 
 
 
Security gains
0.05
%
 
(0.23
)%
 
—
%
 
—
%
 
0.43
%
Add:
 
 
 
 
 
 
 
 
 
Merger and acquisition-related expenses
—
%
 
0.18
 %
 
0.01
%
 
0.11
%
 
1.07
%
Operating return on average stockholders' equity (annualized)
10.09
%
 
9.81
 %
 
10.11
%
 
9.64
%
 
9.62
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Continued)


56
Table of Contents

 
Three Months Ended
 
March 31,
2019
 
December 31,
2018
 
September 30, 2018
 
June 30,
2018
 
March 31,
2018
 
(Dollars in Thousands)
Return on average tangible stockholders' equity (annualized)
12.48
%
 
11.54
 %
 
12.44
%
 
11.80
%
 
11.01
%
Less:
 
 
 
 
 
 
 
 
 
Security gains
0.06
%
 
(0.29
)%
 
—
%
 
—
%
 
0.52
%
Add:
 
 
 
 
 
 
 
 
 
Merger and acquisition-related expenses
—
%
 
0.22
 %
 
0.01
%
 
0.14
%
 
1.30
%
Operating return on average tangible stockholders' equity (annualized)
12.42
%
 
12.05
 %
 
12.45
%
 
11.94
%
 
11.79
%

 
Three Months Ended
 
March 31,
2019

December 31,
2018

September 30, 2018

June 30,
2018

March 31,
2018
 
(Dollars in Thousands)
Net income, as reported
$
22,467

 
$
21,138

 
$
22,460

 
$
20,831

 
$
18,633

 
 
 
 
 
 
 
 
 
 
Average total assets
$
7,434,038

 
$
7,382,931

 
$
7,302,413

 
$
7,273,793

 
$
6,927,309

Less: Average goodwill and average identified intangible assets, net
166,327


166,777


167,313


168,185


152,377

Average tangible assets
$
7,267,711

 
$
7,216,154

 
$
7,135,100

 
$
7,105,608

 
$
6,774,932

 
 
 
 
 
 
 
 
 
 
Return on average tangible assets (annualized)
1.24
%
 
1.17
%
 
1.26
%
 
1.17
%
 
1.10
%
 
 
 
 
 
 
 
 
 
 
Average total stockholders' equity
$
886,639

 
$
899,244

 
$
889,259

 
$
874,513

 
$
829,598

Less: Average goodwill and average identified intangible assets, net
166,327

 
166,777

 
167,313

 
168,185

 
152,377

Average tangible stockholders' equity
$
720,312

 
$
732,467

 
$
721,946

 
$
706,328

 
$
677,221

 
 
 
 
 
 
 
 
 
 
Return on average tangible stockholders' equity (annualized)
12.48
%
 
11.54
%
 
12.44
%
 
11.80
%
 
11.01
%

The following table reconciles the Company's tangible equity ratio for the periods indicated:
 
Three Months Ended
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
(Dollars in Thousands)
Total stockholders' equity
$
900,572

 
$
900,140

 
$
890,368

 
$
877,283

 
$
865,777

Less: Goodwill and identified intangible assets, net
166,111

 
166,513

 
167,050

 
167,587

 
168,593

Tangible stockholders' equity
$
734,461

 
$
733,627

 
$
723,318

 
$
709,696

 
$
697,184

 
 
 
 
 
 
 
 
 
 
Total assets
$
7,519,130

 
$
7,392,805

 
$
7,320,596

 
$
7,285,710

 
$
7,248,114

Less: Goodwill and identified intangible assets, net
166,111

 
166,513

 
167,050

 
167,587

 
168,593

Tangible assets
$
7,353,019

 
$
7,226,292

 
$
7,153,546

 
$
7,118,123

 
$
7,079,521

 
 
 
 
 
 
 
 
 
 
Tangible equity ratio
9.99
%
 
10.15
%
 
10.11
%
 
9.97
%
 
9.85
%


57
Table of Contents

The following table reconciles the Company's tangible book value per share for the periods indicated:
 
Three Months Ended
 
March 31,
2019
 
December 31,
2018
 
September 30, 2018
 
June 30,
2018
 
March 31,
2018
 
(Dollars in Thousands)
Tangible stockholders' equity
$
734,461

 
$
733,627

 
$
723,318

 
$
709,696

 
$
697,184

 
 
 
 
 
 
 
 
 
 
Common shares issued
85,177,172

 
85,177,172

 
85,177,172

 
85,177,172

 
85,177,172

Less:
 
 
 
 
 
 
 
 
 
Treasury shares
5,020,025

 
5,020,025

 
4,291,317

 
4,409,501

 
4,401,333

Unallocated ESOP
104,079

 
109,950

 
118,050

 
126,144

 
134,238

Unvested restricted stock
390,636

 
393,636

 
398,094

 
455,283

 
455,283

Common shares outstanding
79,662,432

 
79,653,561

 
80,369,711

 
80,186,244

 
80,186,318

 
 
 
 
 
 
 
 
 
 
Tangible book value per share
$
9.22

 
$
9.21

 
$
9.00

 
$
8.85

 
$
8.69


The following table reconciles the Company's dividend payout ratio for the periods indicated:
 
Three Months Ended
 
March 31,
2019
 
December 31,
2018
 
September 30, 2018
 
June 30,
2018
 
March 31,
2018
 
(Dollars in Thousands)
Dividends paid
$
8,375

 
$
8,451

 
$
8,043

 
$
8,032

 
$
6,914

 
 
 
 
 
 
 
 
 
 
Net income, as reported
$
22,467

 
$
21,138

 
$
22,460

 
$
20,831

 
$
18,633

 
 
 
 
 
 
 
 
 
 
Dividend payout ratio
37.28
%
 
39.98
%
 
35.81
%
 
38.56
%
 
37.11
%

The following table reconciles 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
 
March 31,
2019
 
December 31,
2018
 
September 30, 2018
 
June 30,
2018
 
March 31,
2018
 
 
 
 
 
 
 
 
 
 
Allowance for loan and lease losses
$
58,041

 
$
58,692

 
$
59,997

 
$
57,981

 
$
58,714

Less: Allowance for acquired loan and lease losses
1,795

 
1,814

 
1,817

 
1,961

 
910

Allowance for originated loan and lease losses
$
56,246


$
56,878


$
58,180


$
56,020


$
57,804

 
 
 
 
 
 
 
 
 
 
Total loans and leases
$
6,388,197

 
$
6,303,516

 
$
6,227,707

 
$
6,171,274

 
$
6,114,461

Less: Total acquired loans and leases
370,177

 
394,407

 
426,865

 
460,142

 
482,237

Total originated loan and leases
$
6,018,020


$
5,909,109


$
5,800,842


$
5,711,132


$
5,632,224

 
 
 
 
 
 
 
 
 
 
Allowance for loan and lease losses related to originated loans and leases as a percentage of originated loan and leases
0.93
%

0.96
%

1.00
%

0.98
%

1.03
%


58
Table of Contents

Financial Condition
Loans and Leases
The following table summarizes the Company's portfolio of loans and leases receivables as of the dates indicated:
 
At March 31, 2019
 
At December 31, 2018
 
Balance
 
Percent
of Total
 
Balance
 
Percent
of Total
 
(Dollars in Thousands)
Commercial real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
2,355,507

 
36.8
%
 
$
2,330,725

 
37.0
%
Multi-family mortgage
855,703

 
13.4
%
 
847,711

 
13.4
%
Construction
199,258

 
3.2
%
 
173,300

 
2.7
%
Total commercial real estate loans
3,410,468

 
53.4
%
 
3,351,736

 
53.1
%
Commercial loans and leases:
 
 
 
 
 
 
 
Commercial
741,577

 
11.6
%
 
736,418

 
11.7
%
Equipment financing
995,863

 
15.6
%
 
982,089

 
15.6
%
Condominium association
49,142

 
0.8
%
 
50,451

 
0.8
%
Total commercial loans and leases
1,786,582

 
28.0
%
 
1,768,958

 
28.1
%
Consumer loans:
 
 
 
 
 
 
 
Residential mortgage
775,578

 
12.1
%
 
782,968

 
12.4
%
Home equity
376,126

 
5.9
%
 
376,484

 
6.0
%
Other consumer
39,443

 
0.6
%
 
23,370

 
0.4
%
Total consumer loans
1,191,147

 
18.6
%
 
1,182,822

 
18.8
%
Total loans and leases
6,388,197

 
100.0
%
 
6,303,516

 
100.0
%
Allowance for loan and lease losses
(58,041
)
 
 
 
(58,692
)
 
 
Net loans and leases
$
6,330,156

 
 
 
$
6,244,824

 
 

The following table sets forth the growth in the Company’s loan and lease portfolios during the three months ended March 31, 2019 :
 
At March 31,
2019
 
At December 31,
2018
 
Dollar Change
 
Percent Change
(Annualized)
 
(Dollars in Thousands)
Commercial real estate
$
3,410,468

 
$
3,351,736

 
$
58,732

 
7.0
%
Commercial
1,786,582

 
1,768,958

 
17,624

 
4.0
%
Consumer
1,191,147

 
1,182,822

 
8,325

 
2.8
%
Total loans and leases
$
6,388,197

 
$
6,303,516

 
$
84,681

 
5.4
%
The Company's loan portfolio consists primarily of first mortgage loans secured by commercial, multi-family and residential real estate properties located in the Company's primary lending area, loans to business entities, including commercial lines of credit, loans to condominium associations and loans and leases used to finance equipment used by small businesses. The Company also provides financing for construction and development projects, home equity and other consumer loans.
The Company employs seasoned commercial lenders and retail bankers who rely on community and business contacts as well as referrals from customers, attorneys and other professionals to generate loans and deposits. Existing borrowers are also an important source of business since many of them have more than one loan outstanding with the Company. The Company's ability to originate loans depends on the strength of the economy, trends in interest rates, and levels of customer demand and market competition.
The Company's current policy is that the aggregate amount of loans outstanding to any one borrower or related entities may not exceed $35.0 million unless approved by the Credit Committee, a committee of the Company's Board of Directors.

59
Table of Contents

As of March 31, 2019 , there were 14 borrowers with loans and commitments over $35.0 million . The total of those loans and commitments was $581.9 million , or 7.61% of total loans and commitments, as of March 31, 2019 . As of December 31, 2018 there were 12 borrowers with loans and commitments over $35.0 million . The total of those loans and commitments was $520.8 million or 6.88% of total loans and commitments, as of December 31, 2018 .
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 53.4% of total loans and leases outstanding as of March 31, 2019 .
Typically, commercial real estate loans are larger in size and involve a greater degree of risk than owner-occupied residential mortgage loans. Loan repayment is usually dependent on the successful operation and management of the properties and the value of the properties securing the loans. Economic conditions can greatly affect cash flows and property values.
A number of factors are considered in originating commercial real estate and multi-family mortgage loans. The qualifications and financial condition of the borrower (including credit history), as well as the potential income generation and the value and condition of the underlying property, are evaluated. When evaluating the qualifications of the borrower, the Company considers the financial resources of the borrower, the borrower's experience in owning or managing similar property and the borrower's payment history with the Company and other financial institutions. Factors considered in evaluating the underlying property include the net operating income of the mortgaged premises before debt service and depreciation, the debt service coverage ratio (the ratio of cash flow before debt service to debt service), the use of conservative capitalization rates, and the ratio of the loan amount to the appraised value. Generally, personal guarantees are obtained from commercial real estate loan borrowers.
Commercial real estate and multi-family mortgage loans are typically originated for terms of five to fifteen years with amortization periods of 20 to 30 years. Many of the loans are priced at inception on a fixed-rate basis generally for periods ranging from two to five years with repricing periods for longer-term loans. When possible, prepayment penalties are included in loan covenants on these loans. For commercial customers who are interested in loans with terms longer than five years, the Company offers loan level derivatives to accommodate customer need.
The Company's urban and suburban market area is characterized by a large number of apartment buildings, condominiums and office buildings. As a result, commercial real estate and multi-family mortgage lending has been a significant part of the Company's activities for many years. These types of loans typically generate higher yields, but also involve greater credit risk. Many of the Company's borrowers have more than one multi-family or commercial real estate loan outstanding with the Company.
The Company's commercial real estate portfolio is composed primarily of loans secured by apartment buildings ( $795.2 million ), office buildings ( $680.9 million ), retail stores ( $600.2 million ), industrial properties ( $245.7 million ), mixed-use properties ( $164.0 million ), lodging services ( $143.2 million ) and food services ( $58.6 million ) as of March 31, 2019 . At that date, approximately 97.2% of the commercial real estate loans outstanding were secured by properties located in New England.
Construction and development financing is generally considered to involve a higher degree of risk than long-term financing on improved, occupied real estate and thus has lower concentration limits than do other commercial credit classes. Risk of loss on a construction loan is largely dependent upon the accuracy of the initial estimate of construction costs, the estimated time to sell or rent the completed property at an adequate price or rate of occupancy, and market conditions. If the estimates and projections prove to be inaccurate, the Company may be confronted with a project which, upon completion, has a value that is insufficient to assure full loan repayment.
Criteria applied in underwriting construction loans for which the primary source of repayment is the sale of the property are different from the criteria applied in underwriting construction loans for which the primary source of repayment is the stabilized cash flow from the completed project. For those loans where the primary source of repayment is from resale of the property, in addition to the normal credit analysis performed for other loans, the Company also analyzes project costs, the attractiveness of the property in relation to the market in which it is located and demand within the market area. For those construction loans where the source of repayment is the stabilized cash flow from the completed project, the Company analyzes not only project costs but also how long it might take to achieve satisfactory occupancy and the reasonableness of projected rental rates in relation to market rental rates.

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Commercial Loans
The Company's commercial loan and lease portfolio is comprised of commercial loans, equipment financing loans and leases and condominium association loans and represented 28.0% of total loans outstanding as of March 31, 2019 .
The Company's commercial loan and lease portfolio is composed primarily of loans to small to medium sized businesses ( $575.5 million ), transportation services ( $451.7 million ), food services ( $95.0 million ), manufacturing ( $75.9 million ), rental and leasing services ( $53.3 million ), retail ( $74.4 million ), and recreation services ( $60.9 million ) as of March 31, 2019 .
The Company provides commercial banking services to companies in its market area. Approximately 45.8% of the commercial loans outstanding as of March 31, 2019 were made to borrowers located in New England. The remaining 54.2% 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 15.3% 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 3- to 7-year life. The yields earned on equipment financing loans are higher than those earned on the commercial loans made by the Banks because they involve a higher degree of credit risk. Equipment financing customers are typically small-business owners who operate with limited financial resources and who face greater risks when the economy weakens or unforeseen adverse events arise. Because of these characteristics, personal guarantees of borrowers are usually obtained along with liens on available assets. The size of loan is determined by an analysis of cash flow and other characteristics pertaining to the business and the equipment to be financed, based on detailed revenue and profitability data of similar operations.
Loans to condominium associations are for the purpose of funding capital improvements, are made for five- to ten-year terms and are secured by a general assignment of condominium association revenues. Among the factors considered in the underwriting of such loans are the level of owner occupancy, the financial condition and history of the condominium association, the attractiveness of the property in relation to the market in which it is located and the reasonableness of estimates of the cost of capital improvements to be made. Depending on loan size, funds are advanced as capital improvements are made and, in more complex situations, after completion of engineering inspections.
Consumer Loans
The consumer loan portfolio, which is comprised of residential mortgage loans, home equity loans and lines of credit, and other consumer loans, represented 18.6% of total loans outstanding as of March 31, 2019 . 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 3-, 5- and 7-year adjustable-rate mortgage loans and 10-year fixed-rate fully amortizing mortgage loans in its portfolio. Fixed-rate mortgage loans with maturities beyond ten years, such as 15- and 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.

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Underwriting guidelines for home equity loans and lines of credit are similar to those for residential mortgage loans. Home equity loans and lines of credit are limited to no more than 80% of the appraised value of the property securing the loan including the amount of any existing first mortgage liens.
Other consumer loans have historically been a modest part of the Company's loan originations. As of March 31, 2019 , other consumer loans equaled $39.4 million , or 0.6% of total loans outstanding.
Asset Quality
Criticized and Classified Assets
The Company's management rates certain loans and leases as "other assets especially mentioned" ("OAEM"), "substandard" or "doubtful" based on criteria established under banking regulations.These loans and leases are collectively referred to as "criticized" assets. Loans and leases rated OAEM have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the loan or lease at some future date. Loans and leases rated as substandard are inadequately protected by the payment capacity of the obligor or of the collateral pledged, if any. Substandard loans and leases have a well-defined weakness or weaknesses that jeopardize the liquidation of debt and are characterized by the distinct possibility that the Company will sustain some loss if existing deficiencies are not corrected. Loans and leases rated as doubtful have well-defined weaknesses that jeopardize the orderly liquidation of debt and partial loss of principal is likely. As of March 31, 2019 , the Company had $68.3 million of total assets, including acquired assets, that were designated as criticized. This compares to $58.6 million of assets designated as criticized as of December 31, 2018 . The increase of $9.7 million in criticized assets was primarily due to the impairment of one commercial and one construction relationship during the first three months of 2019 .
Nonperforming Assets
"Nonperforming assets" consist of nonaccrual loans and leases, other real estate owned ("OREO") and other repossessed assets. Under certain circumstances, the Company may restructure the terms of a loan or lease as a concession to a borrower, except for acquired loans and leases which are individually evaluated against expected performance on the date of acquisition. These restructured loans and leases are generally considered "nonperforming loans and leases" until a history of collection of at least six months on the restructured terms of the loan or lease has been established. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of a deed in lieu of foreclosure. Other repossessed assets consist of assets that have been acquired through foreclosure that are not real estate and are included in other assets on the Company's unaudited consolidated balance sheets.
Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. 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 March 31, 2019 , the Company had nonperforming assets of $26.7 million , representing 0.36% of total assets, compared to nonperforming assets of $28.1 million , or 0.38% of total assets as of December 31, 2018 . The decrease in nonperforming assets was primarily driven by the payoff of one commercial loan previously on nonaccrual status during first three months of 2019 .
The Company evaluates the underlying collateral of each nonaccrual loan and lease and continues to pursue the collection of interest and principal. Management believes that the current level of nonperforming assets remains manageable relative to the size of the Company's loan and lease portfolio. If economic conditions were to worsen or if the marketplace were to experience prolonged economic stress, it is likely that the level of nonperforming assets would increase, as would the level of charged-off loans.            

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Past Due and Accruing
Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. Exceptions may be made if the loan has matured and is in the process of renewal or is well-secured and in the process of collection. In addition, loans categorized as ASC 310-30 accrue regardless of past due status. When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current interest income. Interest payments on nonaccrual loans are generally applied to principal. If collection of the principal is reasonably assured, interest payments are recognized as income on the cash basis. Loans are generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured and a consistent record of at least 6 consecutive months of performance has been achieved.
As of March 31, 2019 , the Company had loans and leases greater than 90 days past due and accruing of $16.8 million , or 0.26% of total loans and leases, compared to $13.5 million , or 0.21% of total loans and leases, as of December 31, 2018 , representing an increase of $3.3 million . The increase in past due and accruing loans was primarily due to two construction loans which became greater than 90 days past due and accruing during the first three months of 2019 .

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The following table sets forth information regarding nonperforming assets for the periods indicated:
 
At March 31, 2019
 
At December 31, 2018
 
(Dollars in Thousands)
Nonperforming loans and leases:
 
 
 
Nonaccrual loans and leases:
 
 
 
Commercial real estate
$
2,889

 
$
3,928

Multi-family mortgage
101

 
330

Construction
396

 
396

Total commercial real estate loans
3,386

 
4,654

 
 
 
 
Commercial
5,728

 
6,621

Equipment financing
10,253

 
9,500

Condominium association
224

 
265

Total commercial loans and leases
16,205

 
16,386

 
 
 
 
Residential mortgage
2,188

 
2,132

Home equity
1,022

 
908

Other consumer
8

 
17

Total consumer loans
3,218

 
3,057

 
 
 
 
Total nonaccrual loans and leases
22,809

 
24,097

 
 
 
 
Other real estate owned
3,054

 
3,054

Other repossessed assets
858

 
965

Total nonperforming assets
$
26,721

 
$
28,116

 
 
 
 
Loans and leases past due greater than 90 days and accruing
$
16,800

 
$
13,482

Total delinquent loans and leases 61-90 days past due
21,246

 
3,308

Restructured loans and leases not included in nonperforming assets
28,543

 
12,257

 
 
 
 
Total nonperforming loans and leases as a percentage of total loans and leases
0.36
%
 
0.38
%
Total nonperforming assets as a percentage of total assets
0.36
%
 
0.38
%
Total delinquent loans and leases 61-90 days past due as a percentage of total loans and leases
0.33
%
 
0.05
%

Troubled Debt Restructured Loans and Leases
Total troubled debt restructured loans increased by $15.2 million to $36.1 million at March 31, 2019 from $20.9 million at December 31, 2018 , primarily driven by three commercial relationships which became troubled debt restructured loans during the quarter as a deliberate part of the relationship strategy and which management believes are either well collateralized, have adequate cash flow, or both, resulting in minimal impact to the allowance for loan and lease losses.
As of March 31, 2019 , total restructured loans included $2.1 million of commercial real estate loans, $0.1 million of multi-family mortgage loans, $24.6 million of commercial loans, $6.4 million of equipment financing loans and leases, $1.3 million of residential mortgage loans and $1.6 million of home equity loans. As of December 31, 2018 , total restructured loans included $2.0 million of commercial real estate loans, $0.3 million of multi-family mortgage loans, $9.4 million of commercial loans, $5.9 million of equipment financing loans and leases, $1.6 million of residential mortgage loans and $1.7 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.

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The following table sets forth information regarding troubled debt restructured loans and leases at the dates indicated:
 
At March 31, 2019
 
At December 31, 2018
 
(Dollars in Thousands)
Troubled debt restructurings:
 

 
 

On accrual
$
28,543

 
$
12,257

On nonaccrual
7,597

 
8,684

Total troubled debt restructurings
$
36,140

 
$
20,941


Changes in troubled debt restructured loans and leases were as follows for the periods indicated:
 
Three Months Ended March 31,
 
2019

2018
 
(Dollars in Thousands)
Balance at beginning of period
$
20,941

 
$
26,011

Additions
17,643

 
2,190

Net charge-offs
(878
)
 
(103
)
Repayments
(1,566
)
 
(1,949
)
Other reductions (1)
—

 
(3,245
)
Balance at end of period
$
36,140

 
$
22,904

__________________________________________________________________________________  
(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 Loss Emergence Period ("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. 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 March 31, 2019 , the Company had a portfolio of approximately $12.0 million in loans secured by taxi medallions issued by the cities of Boston and Cambridge, Massachusetts. As of December 31, 2018 , this portfolio was approximately $13.7 million . For collateral valuation purposes, taxi medallions are currently estimated at $35 thousand for Boston and $20 thousand for Cambridge. The Company has no taxi medallion exposure outside Massachusetts.

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The following tables present the changes in the allowance for loan and lease losses by portfolio category for the three months ended March 31, 2019 and 2018 .
 
At and for the Three Months Ended March 31, 2019
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at December 31, 2018
$
28,187

 
$
25,283

 
$
5,222

 
$
58,692

Charge-offs
—

 
(2,512
)
 
(30
)
 
(2,542
)
Recoveries
—

 
388

 
53

 
441

Provision for loan and lease losses
162

 
1,081

 
207

 
1,450

Balance at March 31, 2019
$
28,349

 
$
24,240

 
$
5,452

 
$
58,041

 
 
 
 
 
 
 
 
Total loans and leases
$
3,410,468

 
$
1,786,582

 
$
1,191,147

 
$
6,388,197

Total allowance for loan and lease losses as a percentage of total loans and leases
0.83
%
 
1.36
%
 
0.46
%
 
0.91
%
 
At and for the Three Months Ended March 31, 2018
 
Commercial
Real Estate
 
Commercial
 
Consumer
 
Total
 
(In Thousands)
Balance at December 31, 2017
$
27,112

 
$
26,333

 
$
5,147

 
$
58,592

Charge-offs
(3
)
 
(733
)
 
(56
)
 
(792
)
Recoveries
—

 
201

 
86

 
287

Provision for loan and lease losses
252

 
451

 
(76
)
 
627

Balance at March 31, 2018
$
27,361

 
$
26,252

 
$
5,101

 
$
58,714

 
 
 
 
 
 
 
 
Total loans and leases
$
3,240,258

 
$
1,707,002

 
$
1,167,201

 
$
6,114,461

Total allowance for loan and lease losses as a percentage of total loans and leases
0.84
%
 
1.54
%
 
0.44
%
 
0.96
%
The allowance for loan and lease losses was $58.0 million as of March 31, 2019 , or 0.91% of total loans and leases outstanding. This compared to an allowance for loan and lease losses of $58.7 million , or 0.93% of total loans and leases outstanding, as of December 31, 2018 . The decrease in the allowance for loan and lease losses as a percentage of loans and leases is largely a result of changes in historical loss factors, partially offset by the reserves for loan growth of $84.7 million during the first three months of 2019 or 5.4% on an annualized basis.
Management believes that the allowance for loan and lease losses as of March 31, 2019 is appropriate based on the facts and circumstances discussed further below.
Commercial Real Estate Loans
The allowance for commercial real estate loan losses was $28.3 million , or 0.83% of total commercial real estate loans outstanding, as of March 31, 2019 . This compared to an allowance for commercial real estate loan losses of $28.2 million , or 0.84% of total commercial real estate loans outstanding, as of December 31, 2018 . There were $14.0 thousand in specific reserves on commercial real estate loans as of March 31, 2019 as compared to five thousand as of December 31, 2018 . The $0.1 million increase in the allowance for commercial real estate loans and leases during the first three months of 2019 was primarily driven by originated loan growth of 73.6 million , or 2.3% , from December 31, 2018 , partially offset by changes in historical loss factors applied to commercial real estate loans.
The ratio of total criticized and classified commercial real estate loans to total commercial real estate loans increased to 0.70% as of March 31, 2019 from 0.64% as of December 31, 2018 . The ratio of originated commercial real estate loans on nonaccrual to total originated commercial real estate loans decreased to 0.10% as of March 31, 2019 from 0.14% as of December 31, 2018 .
There were no charge-offs in the commercial real estate loan portfolio for the three months ended March 31, 2019 compared to net charge-offs of three thousand for the three month ended March 31, 2018 . As a percentage of average

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commercial real estate loan portfolio, annualized net charge-offs for the three months ended March 31, 2019 and March 31, 2018 were minimal.
Commercial Loans and Leases
The allowance for commercial loan and lease losses was $24.2 million , or 1.36% of total commercial loans and leases outstanding, as of March 31, 2019 , compared to $25.3 million , or 1.43% of total commercial loans and leases outstanding, as of December 31, 2018 . Specific reserves on commercial loans and leases decreased from $3.0 million as of December 31, 2018 to $2.3 million as of March 31, 2019 , primarily driven by the charge-offs in taxi medallion loans which previously had specific reserves. The $1.1 million decrease in the allowance for commercial loans and leases during the first three months of 2019 was primarily driven by changes in historical loss factors, partially offset by originated loan growth of $20.4 million , or 1.2% , from December 31, 2018 .
The ratio of total criticized and classified commercial loans and leases to total commercial loans and leases was 2.48% as of March 31, 2019 , compared to 2.10% as of December 31, 2018 . The ratio of originated commercial loans and leases on nonaccrual to total originated commercial loans and leases decreased to 0.91% as of March 31, 2019 from 0.93% as of December 31, 2018 .
Net charge-offs in the commercial loan and lease portfolio for the three months ended March 31, 2019 and March 31, 2018 were $2.1 million and $0.5 million , respectively. The decrease in net charge-offs in commercial loan and lease portfolio was largely related to the charge-offs on taxi medallion loans. As a percentage of average commercial loans and leases, annualized net charge-offs for the three months ended March 31, 2019 and March 31, 2018 were 0.48% and 0.12% , 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 0.46% of total consumer loans outstanding, as of March 31, 2019 , compared to $5.2 million , or 0.44% of consumer loans outstanding, as of December 31, 2018 . Specific reserves on consumer loans were $114 thousand and $115 thousand as of March 31, 2019 and December 31, 2018 , respectively. The $0.3 million increase in the allowance for consumer loans and leases during the first three months of 2019 was primarily driven by originated loan growth of $15.0 million , or 1.5% , from December 31, 2018 .
The ratio of originated consumer loans on nonaccrual to total originated consumer loans increased to 0.21% as of March 31, 2019 from 0.20% as of December 31, 2018 . 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 March 31, 2019 . 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 $23 thousand for the three months ended March 31, 2019 compared to net recoveries of $30 thousand for the three months ended March 31, 2018 . 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 March 31, 2019
 
At December 31, 2018
 
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
$
20,789

 
36.0
%
 
36.8
%
 
$
20,779

 
35.4
%
 
37.0
%
Multi-family mortgage
5,874

 
10.1
%
 
13.4
%
 
5,915

 
10.1
%
 
13.4
%
Construction
1,686

 
2.9
%
 
3.2
%
 
1,494

 
2.5
%
 
2.7
%
Total commercial real estate loans
28,349

 
49.0
%
 
53.4
%
 
28,188

 
48.0
%
 
53.1
%
Commercial
12,842

 
22.1
%
 
11.6
%
 
14,047

 
23.9
%
 
11.7
%
Equipment financing
11,056

 
19.0
%
 
15.6
%
 
10,888

 
18.6
%
 
15.6
%
Condominium association
342

 
0.6
%
 
0.8
%
 
347

 
0.6
%
 
0.8
%
Total commercial loans and leases
24,240

 
41.7
%
 
28.0
%
 
25,282

 
43.1
%
 
28.1
%
Residential mortgage
3,337

 
5.7
%
 
12.1
%
 
3,076

 
5.2
%
 
12.4
%
Home equity
1,983

 
3.4
%
 
5.9
%
 
2,047

 
3.5
%
 
6.0
%
Other consumer
132

 
0.2
%
 
0.6
%
 
99

 
0.2
%
 
0.4
%
Total consumer loans
5,452

 
9.3
%
 
18.6
%
 
5,222

 
8.9
%
 
18.8
%
Total
$
58,041

 
100.0
%
 
100.0
%
 
$
58,692

 
100.0
%
 
100.0
%
Investment Securities
The investment portfolio exists primarily for liquidity purposes, and secondarily as a source of interest and dividend income, interest-rate risk management and tax planning as a counterbalance to loan and deposit flows. Investment securities are utilized as part of the Company's asset/liability management and may be sold in response to, or in anticipation of, factors such as changes in market conditions and interest rates, security prepayment rates, deposit outflows, liquidity concentrations and regulatory capital requirements.
The investment policy of the Company, which is reviewed and approved by the Board of Directors on an annual basis, specifies the types of investments that are acceptable, required investment ratings by at least one nationally recognized rating agency, concentration limits and duration guidelines. Compliance with the investment policy is monitored on a regular basis. In general, the Company seeks to maintain a high degree of liquidity and targets cash, cash equivalents and investment securities available-for-sale balances between 10% and 30% of total assets.
Cash, cash equivalents, and investment securities increased $8.0 million , or 4.5% on an annualized basis, to $719.4 million as of March 31, 2019 from $711.4 million as of December 31, 2018 . The increase was primarily driven by increases in cash and short-term investments. Cash, cash equivalents, and investment securities were 9.6% of total assets as of March 31, 2019 , and December 31, 2018 , respectively.

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The following table sets forth certain information regarding the amortized cost and market value of the Company's investment securities at the dates indicated:
 
At March 31, 2019
 
At December 31, 2018
 
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
 
(In Thousands)
Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$
183,607

 
$
182,845

 
$
184,072

 
$
181,079

GSE CMOs
103,113

 
100,118

 
107,363

 
103,130

GSE MBSs
161,809

 
159,772

 
169,334

 
165,089

SBA commercial loan asset- backed securities
43

 
43

 
51

 
51

Corporate debt obligations
32,584

 
32,355

 
40,618

 
39,708

U.S. Treasury bonds
13,822

 
13,887

 
13,812

 
13,736

Total investment securities available-for-sale
$
494,978

 
$
489,020

 
$
515,250

 
$
502,793

Investment securities held-to-maturity:
 
 
 
 
 
 
 
GSE debentures
$
50,551

 
$
50,140

 
$
50,546

 
$
49,601

GSE MBSs
11,080

 
10,842

 
11,426

 
11,131

Municipal obligations
51,563

 
51,607

 
52,304

 
51,598

Foreign government obligations
500

 
500

 
500

 
500

Total investment securities held-to-maturity
$
113,694

 
$
113,089

 
$
114,776

 
$
112,830

Equity securities held-for-trading
 
 
$
4,341

 
 
 
$
4,207


The fair value of investment securities is based principally on market prices and dealer quotes received from third-party, nationally-recognized pricing services for identical investment securities such as U.S. Treasury and agency securities. The Company's marketable equity securities are priced this way and are included in Level 1 of the fair value hierarchy in accordance with ASC 820. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include certain U.S. and government agency debt securities, municipal and corporate debt securities, GSE residential MBSs and CMOs, trust preferred securities, and equity securities held-for-trading, 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 $19.9 million for the three months ended March 31, 2019 compared to $21.6 million for the same period in 2018 . For the three months ended March 31, 2019 , the Company did no t sell any investment securities, compared to $1.5 million in sales for the same period in 2018 . For the three months ended March 31, 2019 , the Company did no t purchase any investment securities available-for-sale, compared to $49.1 million in purchases of investment securities available-for-sale for the same period in 2018 .

Maturities, calls and principal repayments for investment securities held-to-maturity totaled $1.5 million for the three months ended March 31, 2019 compared to $1.2 million for the same period in 2018 . There were no sales of investment securities held-to-maturity for the three months ended March 31, 2019 and 2018 . For the three months ended March 31, 2019 , the Company purchased $0.5 million of investment securities held-to-maturity, compared to $8.9 million in purchases of investment securities held-to-maturity for the same period in 2018 .
As of March 31, 2019 , the fair value of all investment securities available-for-sale was $489.0 million and carried a total of $6.0 million of net unrealized losses, compared to a fair value of $502.8 million and net unrealized losses of $12.5 million as

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of December 31, 2018 . As of March 31, 2019 , $406.9 million , or 83.2% , of the portfolio, had gross unrealized losses of $7.1 million . This compares to $466.7 million , or 92.8% , of the portfolio with gross unrealized losses of $12.8 million as of December 31, 2018 . The Company's unrealized loss position has decreased in 2019 driven by lower long-term interest rates.
As of March 31, 2019 , the fair value of all investment securities held-to-maturity was $113.1 million and carried a total of $0.6 million of net unrealized losses, compared to a fair value of $112.8 million and net unrealized losses of $1.9 million as of December 31, 2018 . As of March 31, 2019 , $80.8 million , or 71.5% , of the portfolio, had gross unrealized losses of $0.9 million . This compares to $102.1 million , or 90.5% , of the portfolio with gross unrealized losses of $2.0 million as of December 31, 2018 . The Company's unrealized loss position decreased in 2019 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 March 31, 2019 . 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 March 31, 2019 , the excess balance of capital stock was $2.3 million , as compared to $5.0 million excess balance as of December 31, 2018 .
As of March 31, 2019 , the Company owned stock in the FHLBB with a carrying value of $36.1 million , a decrease of $7.6 million from $43.7 million as of December 31, 2018 . As of March 31, 2019 , the FHLBB had total assets of $52.3 billion and total capital of $3.0 billion , of which $1.4 billion was retained earnings. The FHLBB stated that it remained in compliance with all regulatory capital ratios as of March 31, 2019 and was classified as "adequately capitalized" by its regulator, based on the FHLBB's financial information as of December 31, 2018 .
Federal Reserve Bank Stock —The Company invests in the stock of the Federal Reserve Bank of Boston, as a condition to the Banks' membership in the Federal Reserve System. As of March 31, 2019 , the Company owned stock in the Federal Reserve Bank of Boston with a carrying value of $18.0 million , compared to a carrying value of $18.0 million as of December 31, 2018 .
Other Stock —The Company invests in a small number of other restricted equity securities which includes Infinex and American Financial Exchange.
Deposits
The following table presents the Company's deposit mix at the dates indicated.
 
At March 31, 2019
 
At December 31, 2018
 
Amount
 
Percent
of Total
 
Weighted
Average
Rate
 
Amount
 
Percent
of Total
 
Weighted
Average
Rate
 
(Dollars in Thousands)
Non-interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Demand checking accounts
$
1,011,031

 
18.0
%
 
—
%
 
$
1,033,551

 
19.0
%
 
—
%
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
NOW accounts
369,896

 
6.6
%
 
0.13
%
 
336,317

 
6.2
%
 
0.10
%
Savings accounts
625,770

 
11.1
%
 
0.42
%
 
619,961

 
11.4
%
 
0.32
%
Money market accounts
1,706,708

 
30.4
%
 
1.31
%
 
1,675,050

 
30.7
%
 
1.18
%
Certificate of deposit accounts
1,907,228

 
33.9
%
 
2.29
%
 
1,789,165

 
32.7
%
 
1.58
%
Total interest-bearing deposits
4,609,602

 
82.0
%
 
1.50
%
 
4,420,493

 
81.0
%
 
1.14
%
Total deposits
$
5,620,633

 
100.0
%
 
1.23
%
 
$
5,454,044

 
100.0
%
 
0.92
%

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Total deposits increased $166.6 million to $5.6 billion as of March 31, 2019 , compared to $5.5 billion as of December 31, 2018 . Deposits as a percentage of total assets increased to 74.8% as of March 31, 2019 , compared to 73.8% as of December 31, 2018 .
As of March 31, 2019 , the Company had $350.4 million of brokered deposits compared to $350.7 million as of December 31, 2018 . 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 $118.1 million during the three months ended March 31, 2019 . Certificates of deposit have also increased as a percentage of total deposits to 33.9% as of March 31, 2019 from 32.7% as of December 31, 2018 .
During the three months ended March 31, 2019 , core deposits increased $48.5 million . The ratio of core deposits to total deposits decreased from 67.2% as of December 31, 2018 to 66.1% as of March 31, 2019 , primarily due to the shift in deposit mix and increase in certificate of deposit accounts.
The following table sets forth the distribution of the average balances of the Company's deposit accounts for the periods indicated and the weighted average interest rates on each category of deposits presented. Averages for the periods presented are based on daily balances.
 
Three Months Ended March 31,
 
2019
 
2018
 
Average
Balance
 
Percent
of Total
Average
Deposits
 
Weighted
Average
Rate
 
Average
Balance
 
Percent
of Total
Average
Deposits
 
Weighted
Average
Rate
 
(Dollars in Thousands)
Core deposits:
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing demand checking accounts
$
1,026,970

 
18.6
%
 
—
%
 
$
931,685

 
18.9
%
 
—
%
NOW accounts
334,167

 
6.1
%
 
0.17
%
 
335,990

 
6.8
%
 
0.07
%
Savings accounts
626,414

 
11.4
%
 
0.39
%
 
649,224

 
13.2
%
 
0.25
%
Money market accounts
1,676,199

 
30.4
%
 
1.28
%
 
1,772,362

 
35.8
%
 
0.59
%
Total core deposits
3,663,750

 
66.5
%
 
0.66
%
 
3,689,261

 
74.7
%
 
0.33
%
Certificate of deposit accounts
1,844,511

 
33.5
%
 
2.18
%
 
1,247,049

 
25.3
%
 
1.33
%
Total deposits
$
5,508,261

 
100.0
%
 
1.16
%
 
$
4,936,310

 
100.0
%
 
0.72
%
 
 
 
 
 
 
 
 
 
 
 
As of March 31, 2019 and December 31, 2018 , the Company had outstanding certificates of deposit of $100,000 or more, maturing as follows:
 
At March 31, 2019
 
At December 31, 2018
 
Amount
 
Weighted
Average Rate
 
Amount
 
Weighted
Average Rate
 
(Dollars in Thousands)
Maturity period:
 
 
 
 
 
 
 
Six months or less
$
259,517

 
1.90
%
 
$
261,170

 
1.63
%
Over six months through 12 months
294,722

 
2.33
%
 
270,897

 
1.97
%
Over 12 months
486,248

 
2.65
%
 
418,167

 
2.38
%
Total certificate of deposit of $100,000 or more
$
1,040,487

 
2.37
%
 
$
950,234

 
2.06
%

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Borrowed Funds
The following table sets forth certain information regarding advances from the FHLBB, subordinated debentures and notes and other borrowed funds for the periods indicated:
 
Three Months Ended 
 March 31,
 
2019
 
2018
 
(Dollars in Thousands)
Borrowed funds:
 
 
 
Average balance outstanding
$
927,593

 
$
1,075,734

Maximum amount outstanding at any month-end during the period
987,835

 
1,099,429

Balance outstanding at end of period
866,005

 
1,099,429

Weighted average interest rate for the period
2.65
%
 
1.88
%
Weighted average interest rate at end of period
2.72
%
 
2.05
%
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.
FHLBB borrowings decreased by $54.4 million to $730.0 million as of March 31, 2019 from the December 31, 2018 balance of $784.4 million . The decrease in FHLBB borrowings was primarily due to an increase in deposits balances.
Subordinated Debentures and Notes
As part of the acquisition of BankRI, the Company acquired two $5.0 million subordinated debentures due on June 26, 2033 and March 17, 2034, respectively. The Company is obligated to pay 3-month LIBOR plus 3.10% and 3-month LIBOR plus 2.79%, respectively, on a quarterly basis until the debentures mature.
The Company sold $75.0 million of 6.0% fixed-to-floating subordinated notes due September 15, 2029. The Company is obligated to pay 6.0% interest semiannually between September 2014 and September 2024. Subsequently, the Company is obligated to pay 3-month LIBOR plus 3.315% quarterly until the notes mature in September 2029.
The following table summarizes the Company's subordinated debentures and notes at the dates indicated.
 
 
 
 
 
 
 
 
Carrying Amount
Issue Date
 
Rate
 
Maturity Date
 
Next Call Date
 
March 31,
2019
 
December 31, 2018
 
 
(Dollars in Thousands)
June 26, 2003
 
Variable;
3-month LIBOR + 3.10%
 
June 26, 2033
 
June 26, 2019
 
$
4,809

 
$
4,803

March 17, 2004
 
Variable;
3-month LIBOR + 2.79%
 
March 17, 2034
 
June 19, 2019
 
4,713

 
4,704

September 15, 2014
 
6.0% Fixed-to-Variable;
3-month LIBOR + 3.315%
 
September 15, 2029
 
September 15, 2024
 
73,950

 
73,926

 
 
 
 
 
 
Total
 
$
83,472

 
$
83,433


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The above carrying amounts of the subordinated debentures included $0.5 million of accretion adjustments and $1.0 million of capitalized debt issuance costs as of March 31, 2019 . This compares to $0.5 million of accretion adjustments and $1.1 million of capitalized debt issuance costs as of December 31, 2018 .
Other Borrowed Funds
In addition to advances from the FHLBB and subordinated debentures and notes, the Company utilizes other funding sources as part of the overall liquidity strategy. Those funding sources include repurchase agreements, and committed and uncommitted lines of credit with several financial institutions.
The Company periodically enters into repurchase agreements with its larger deposit and commercial customers as part of its cash management services which are typically overnight borrowings. Repurchase agreements with customers decreased $0.2 million to $52.5 million as of March 31, 2019 from $52.7 million as of December 31, 2018 .
The Company has access to a $12.0 million committed line of credit as of March 31, 2019 . As of March 31, 2019 and December 31, 2018 , 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 $361.0 million . As of March 31, 2019 and December 31, 2018 , the Company did not have any borrowings on these uncommitted lines of credit.
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 March 31, 2019 or December 31, 2018 .
The following table summarizes certain information concerning the Company's loan level derivatives, risk participation agreements, and foreign exchange contracts at March 31, 2019 and December 31, 2018 :
 
At March 31, 2019
At December 31, 2018
 
(Dollars in Thousands)
Loan level derivatives (Notional principal amounts):
 
 
Receive fixed, pay variable
$
789,915

$
719,625

Pay fixed, receive variable
789,915

719,625

Risk participation-out agreements
150,624

100,531

Risk participation-in agreements
55,679

35,838

Foreign exchange contracts (Notional amounts):
 
 
Buys foreign currency, sells U.S. currency
$
1,646

$
6,573

Sells foreign currency, buys U.S. currency
1,652

6,582

Fixed weighted average interest rate from the Company to counterparty
4.12
%
4.25
%
Floating weighted average interest rate from counterparty to the Company
4.38
%
4.00
%
Weighted average remaining term to maturity (in months)
93

90

Fair value:
 
 
Recognized as an asset:
 
 
Loan level derivatives
$
30,695

$
22,013

Risk participation-out agreements
742

344

Foreign exchange contracts
41

131

Recognized as a liability:
 
 
Loan level derivatives
$
30,695

$
22,013

Risk participation-in agreements
230

84

Foreign exchange contracts
36

123


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Table of Contents

Stockholders' Equity and Dividends
The Company's total stockholders' equity was $900.6 million as of March 31, 2019 , representing a $0.5 million increase compared to $900.1 million at December 31, 2018 . The increase primarily reflects net income attributable to the Company of $22.5 million for the three months ended March 31, 2019 and unrealized gain on securities available-for-sale of $5.1 million , offset by $18.7 million related to the acquisition of the noncontrolling interest in Eastern Funding, LLC and dividends paid by the Company of $8.4 million in that same period.
Stockholders' equity represented 11.98% of total assets as of March 31, 2019 and 12.18% of total assets as of December 31, 2018 . 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 March 31, 2019 and 10.15% as of December 31, 2018 .
The dividend payout ratio was 37.28% for the three months ended March 31, 2019 , compared to 37.11% for the same period in 2018 .
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 $3.5 million to $63.0 million for the three months ended March 31, 2019 from $59.5 million for the three months ended March 31, 2018 . This increase reflects a $13.4 million increase in interest income on loans and leases, partially offset by an $9.9 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 March 31, 2019 and March 31, 2018 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended March 31, 2019 and March 31, 2018 — Interest Expense Deposit and Borrowed Funds” below for more details.
Net interest margin decreased by 2 basis points to 3.64% for the three months ended March 31, 2019 from 3.66% for the three months ended March 31, 2018 . The Company's weighted average interest rate on loans (prior to purchase accounting adjustments) increased to 5.09% for the three months ended March 31, 2019 from 4.60% for the three months ended March 31, 2018 . Interest amortization and accretion on acquired loans totaled $0.1 million and contributed 1 basis point to loan yields during the three months ended March 31, 2019 compared to $0.7 million , or 1 basis point, for the three months ended

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March 31, 2018 , which is reflective of the various portfolios repricing and replacing balances into the current interest rate environment.
The yield on interest-earning assets increased to 4.84% for the three months ended March 31, 2019 from 4.35% for the three months ended March 31, 2018 . This increase is the result of higher yields on loans and leases and investments. During the three months ended March 31, 2019 , the Company recorded $1.1 million in prepayment penalties and late charges, which contributed 6 basis points to yields on interest-earning assets in the three months ended March 31, 2019 . The company recorded $0.6 million in prepayment penalties and late charges, which contributed 4 basis points to yields on interest-earning assets in the three months ended March 31, 2018 .
The overall cost of funds (including non-interest-bearing demand checking accounts) increased 69 basis points to 1.66% for the three months ended March 31, 2019 from 0.97% for the three months ended March 31, 2018 . 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 months ended March 31, 2019 and March 31, 2018 . Average balances are derived from daily average balances and yields include fees, costs and purchase-accounting-related premiums and discounts which are considered adjustments to coupon yields in accordance with GAAP. Certain amounts previously reported have been reclassified to conform to the current presentation.

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Table of Contents

 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
Average
Balance
 
Interest (1)
 
Average
Yield/
Cost
 
Average
Balance
 
Interest (1)
 
Average
Yield/
Cost
 
(Dollars in Thousands)
Assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Debt securities
$
608,194

 
$
3,289

 
2.16
%
 
$
647,501

 
$
3,377

 
2.09
%
Marketable and restricted equity securities
60,389

 
920

 
6.10
%
 
64,127

 
923

 
5.76
%
Short-term investments
33,034

 
267

 
3.23
%
 
30,664

 
120

 
1.57
%
Total investments
701,617

 
4,476

 
2.55
%
 
742,292

 
4,420

 
2.38
%
Commercial real estate loans (2)
3,376,576

 
40,019

 
4.74
%
 
3,116,690

 
33,429

 
4.29
%
Commercial loans (2)
792,695

 
9,603

 
4.85
%
 
785,936

 
8,424

 
4.29
%
Equipment financing (2)
988,193

 
17,985

 
7.28
%
 
875,304

 
14,864

 
6.79
%
Residential mortgage loans (2)
778,325

 
8,123

 
4.17
%
 
704,666

 
6,733

 
3.82
%
Other consumer loans (2)
408,177

 
5,051

 
5.01
%
 
382,194

 
3,941

 
4.18
%
Total loans and leases
6,343,966

 
80,781

 
5.09
%
 
5,864,790

 
67,391

 
4.60
%
Total interest-earning assets
7,045,583

 
85,257

 
4.84
%
 
6,607,082

 
71,811

 
4.35
%
Allowance for loan and lease losses
(58,749
)
 
 
 
 
 
(58,986
)
 
 
 
 
Non-interest-earning assets
447,204

 
 
 
 
 
379,213

 
 
 
 
Total assets
$
7,434,038

 
 
 
 
 
$
6,927,309

 
 
 
 
Liabilities and Stockholders' Equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
NOW accounts
$
334,167

 
142

 
0.17
%
 
$
335,990

 
58

 
0.07
%
Savings accounts
626,414

 
597

 
0.39
%
 
649,224

 
401

 
0.25
%
Money market accounts
1,676,199

 
5,275

 
1.28
%
 
1,772,362

 
2,558

 
0.59
%
Certificate of deposit
1,844,511

 
9,934

 
2.18
%
 
1,247,049

 
4,082

 
1.33
%
Total interest-bearing deposits (3)
4,481,291

 
15,948

 
1.44
%
 
4,004,625

 
7,099

 
0.72
%
Advances from the FHLBB
755,542

 
4,610

 
2.44
%
 
956,298

 
3,748

 
1.57
%
Subordinated debentures and notes
83,451

 
1,308

 
6.27
%
 
83,289

 
1,282

 
6.16
%
Other borrowed funds
88,600

 
221

 
1.01
%
 
36,147

 
19

 
0.21
%
Total borrowed funds
927,593

 
6,139

 
2.65
%
 
1,075,734

 
5,049

 
1.88
%
Total interest-bearing liabilities
5,408,884

 
22,087

 
1.66
%
 
5,080,359

 
12,148

 
0.97
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing demand checking accounts (3)
1,026,970

 
 

 
 

 
931,685

 
 

 
 

Other non-interest-bearing liabilities
111,174

 
 

 
 

 
77,169

 
 

 
 

Total liabilities
6,547,028

 
 

 
 

 
6,089,213

 
 

 
 

Brookline Bancorp, Inc. stockholders' equity
886,639

 
 

 
 

 
829,598

 
 

 
 

Noncontrolling interest in subsidiary
371

 
 

 
 

 
8,498

 
 

 
 

Total liabilities and stockholders' equity
$
7,434,038

 
 

 
 

 
$
6,927,309

 
 

 
 

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

 
63,170

 
3.18
%
 
 

 
59,663

 
3.38
%
Less adjustment of tax-exempt income
 

 
171

 
 

 
 

 
172

 
 

Net interest income
 

 
$
62,999

 
 

 
 

 
$
59,491

 
 

Net interest margin (5)
 

 
 

 
3.64
%
 
 

 
 

 
3.66
%
_________________________________________________________________________
(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 1.17% and 0.58% in the three months ended March 31, 2019 and March 31, 2018 , respectively.
(4) Interest-rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income (tax equivalent basis) divided by average interest-earning assets.
 
 
 
 
 
 
 
 
 
 
 
 


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Rate/Volume Analysis
The following table presents, on a tax-equivalent basis, the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
 
Three Months Ended March 31, 2019 as Compared to the Three Months Ended March 31, 2018
 
Increase
(Decrease) Due To
 
 
 
Volume
 
Rate
 
Net Change
 
(In Thousands)
Interest and dividend income:
 
 
 
 
 
Investments:
 
 
 
 
 
Debt securities
$
(201
)
 
$
113

 
$
(88
)
Marketable and restricted equity securities
(55
)
 
52

 
(3
)
Short-term investments
10

 
137

 
147

Total investments
(246
)
 
302

 
56

Loans and leases:
 
 
 
 
 
Commercial real estate loans
2,919

 
3,671

 
6,590

Commercial loans and leases
73

 
1,106

 
1,179

Equipment financing
2,001

 
1,120

 
3,121

Residential mortgage loans
741

 
649

 
1,390

Other consumer loans
283

 
827

 
1,110

Total loans
6,017

 
7,373

 
13,390

Total change in interest and dividend income
5,771

 
7,675

 
13,446

Interest expense:
 
 
 
 
 
Deposits:
 
 
 
 
 
NOW accounts
—

 
84

 
84

Savings accounts
(15
)
 
211

 
196

Money market accounts
(147
)
 
2,864

 
2,717

Certificate of deposit
2,507

 
3,345

 
5,852

Total deposits
2,345

 
6,504

 
8,849

Borrowed funds:
 
 
 
 
 
Advances from the FHLBB
(890
)
 
1,752

 
862

Subordinated debentures and notes
3

 
23

 
26

Other borrowed funds
56

 
146

 
202

Total borrowed funds
(831
)
 
1,921

 
1,090

Total change in interest expense
1,514

 
8,425

 
9,939

Change in tax-exempt income
(1
)
 
—

 
(1
)
Change in net interest income
$
4,258

 
$
(750
)
 
$
3,508



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Table of Contents

Interest Income

Loans and Leases
 
Three Months Ended March 31,
 
Dollar
Change
 
Percent
Change
 
2019

2018
 
 
 
(Dollars in Thousands)
Interest income—loans and leases:
 
 
 
 
 
 
 
Commercial real estate loans
$
40,019

 
$
33,430

 
$
6,589

 
19.7
%
Commercial loans
9,494

 
8,305

 
1,189

 
14.3
%
Equipment financing
17,985

 
14,864

 
3,121

 
21.0
%
Residential mortgage loans
8,123

 
6,733

 
1,390

 
20.6
%
Other consumer loans
5,051

 
3,940

 
1,111

 
28.2
%
Total interest income—loans and leases
$
80,672

 
$
67,272

 
$
13,400

 
19.9
%
Interest income from loans and leases was $80.7 million for the three months ended March 31, 2019 , and represented a yield on total loans of 5.09% . This compares to $67.3 million of interest on loans and a yield of 4.60% for March 31, 2018 . The $13.4 million increase in interest income from loans and leases was primarily attributable to $6.0 million in origination volume and $7.4 million in a change in interest rates.
Accretion on acquired loans and leases totaled $0.1 million , or 1 basis point to the Company's net interest margin for the three months ended March 31, 2019 . Accretion on acquired loans and leases was minimal and did not contribute any basis points to the company's net interest margin for the three months ended March 31, 2018 .
Investments
 
Three Months Ended March 31,
 
Dollar
Change
 
Percent
Change
 
2019
 
2018
 
 
 
(Dollars in Thousands)
Interest income—investments:
 
 
 
 
 
 
 
Debt securities
$
3,236

 
$
3,323

 
$
(87
)
 
(2.6
)%
Marketable and restricted equity securities
911

 
924

 
(13
)
 
(1.4
)%
Short-term investments
267

 
120

 
147

 
122.5
 %
Total interest income—investments
$
4,414

 
$
4,367

 
$
47

 
1.1
 %
Total investment income was $4.4 million for the three months ended March 31, 2019 and March 31, 2018 , respectively. For the three months ended March 31, 2019 and 2018 , the yield on total investments was 2.6% and 2.4% , respectively. The year-over-year increase in interest income on investments of $47 thousand , or 1.1% , was driven by a $302 thousand increase due to rates and a $246 thousand decrease due to volume.

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Table of Contents

Interest Expense—Deposits and Borrowed Funds
 
Three Months Ended March 31,
 
Dollar
Change
 
Percent
Change
 
2019
 
2018
 
 
 
(Dollars in Thousands)
Interest expense:
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
NOW accounts
$
142

 
$
58

 
$
84

 
144.8
%
Savings accounts
597

 
401

 
196

 
48.9
%
Money market accounts
5,275

 
2,558

 
2,717

 
106.2
%
Certificates of deposit
9,934

 
4,082

 
5,852

 
143.4
%
Total interest expense - deposits
15,948

 
7,099

 
8,849

 
124.7
%
Borrowed funds:
 
 
 
 
 
 
 
Advances from the FHLBB
4,610

 
3,748

 
862

 
23.0
%
Subordinated debentures and notes
1,308

 
1,282

 
26

 
2.0
%
Other borrowed funds
221

 
19

 
202

 
1,063.2
%
Total interest expense - borrowed funds
6,139

 
5,049

 
1,090

 
21.6
%
Total interest expense
$
22,087

 
$
12,148

 
$
9,939

 
81.8
%
Deposits
Interest expense on deposits increased $8.8 million , or 124.7% , to $ 15.9 million for the three months ended March 31, 2019 from $7.1 million for the three months ended March 31, 2018 . The increase in interest expense on deposits was due to a $6.5 million increase due to rate increases and a $2.3 million increase due to growth in deposits. Purchase accounting amortization on acquired deposits for the three months ended March 31, 2019 was $185.0 thousand and 1 basis point, compared to $82.0 thousand and 1 basis point for the three months ended March 31, 2018 .
Borrowed Funds
Interest expense on borrowed funds increased by $1.1 million , or 21.6% , to $6.1 million for the three months ended March 31, 2019 from $5.0 million for the three months ended March 31, 2018 . The cost of borrowed funds increased to 2.65% for the three months ended March 31, 2019 from 1.88% for the three months ended March 31, 2018 . The increase in interest expense was driven by an increase of $1.9 million due to borrowing rates and an decrease of $0.8 million due to volume. For the three months ended March 31, 2019 , there was purchase accounting accretion of $14.0 thousand and no basis points on acquired borrowed funds compared to accretion of $15.0 thousand and no basis points for the three months ended March 31, 2018 .
Provision for Credit Losses
The provisions for credit losses are set forth below:
 
Three Months Ended March 31,
 
Dollar
Change
 
Percent
Change
 
2019

2018
 
 
 
(Dollars in Thousands)
Provision for loan and lease losses:
 
 
 
 
 
 
 
Commercial real estate
$
162

 
$
252

 
$
(90
)
 
(35.7
)%
Commercial
1,081

 
451

 
630

 
139.7
 %
Consumer
207

 
(76
)
 
283

 
372.4
 %
Total provision for loan and lease losses
1,450

 
627

 
823

 
131.3
 %
Unfunded credit commitments
(97
)
 
14

 
(111
)
 
(792.9
)%
Total provision for credit losses
$
1,353

 
$
641

 
$
712

 
111.1
 %
For the three months ended March 31, 2019 , the provision for credit losses increased $0.7 million , or 111.1% , to $1.4 million from $0.6 million for the three months ended March 31, 2018 . The increase in the provision for credit losses for the

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three months ended March 31, 2019 was primarily driven by an increase in net charge-offs, partially offset by a decrease in reserves for loan growth and the changes in historical loss factors applied to the commercial real estate and commercial portfolios during the quarter.
See management’s discussion of “Financial Condition — Allowance for Loan and Lease Losses” and Note 5, “Allowance for Loan and Lease Losses,” to the unaudited consolidated financial statements for a description of how management determined the allowance for loan and lease losses for each portfolio and class of loans.
Non-Interest Income
The following table sets forth the components of non-interest income:
 
Three Months Ended March 31,
 
Dollar
Change
 
Percent
Change
 
2019

2018
 
 
 
(Dollars in Thousands)
Deposit fees
$
2,523

 
$
2,463

 
$
60

 
2.4
 %
Loan fees
413

 
290

 
123

 
42.4
 %
Loan level derivative income, net
1,745

 
866

 
879

 
101.5
 %
Gain on sales of investment securities
134

 
1,162

 
(1,028
)

(88.5
)%
Gain on sales of loans and leases held-for-sale
289

 
299

 
(10
)
 
(3.3
)%
Other
1,526

 
1,088

 
438

 
40.3
 %
Total non-interest income
$
6,630

 
$
6,168

 
$
462

 
7.5
 %
For the three months ended March 31, 2019 , non-interest income increased $0.5 million , or 7.5% , to $6.6 million as compared to $6.2 million for the same period in 2018 . This increase is primarily due to a $0.9 million increase in loan level derivative income and a $0.4 million increase in other income partially offset by a $1.0 million decrease in gain on sales of investment securities.
Loan level derivative income increased $0.9 million , or 101.5% , to $1.7 million for the three months ended March 31, 2019 from $0.9 million for the same period in 2018 , primarily driven by an increase of 12 loan level derivative transactions completed for the three months ended March 31, 2019 .
Gain on sales of investment securities decreased $1.0 million , or 88.5% , to $0.1 million for the three months ended March 31, 2019 from $1.2 million for the same period in 2018 , primarily driven by a high volume of restricted equity securities sold in the first quarter of 2018 as compared to no sales for the same period in 2019 .
Other income increased $0.4 million , or 40.3% , to $1.5 million for the three months ended March 31, 2019 from $1.1 million for the same period in 2018 , primarily driven by an increase in gain on interest rate derivatives, agency commissions insurance and foreign exchange outgoing wire income.

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Table of Contents

Non-Interest Expense
The following table sets forth the components of non-interest expense:
 
Three Months Ended March 31,
 
Dollar
Change
 
Percent
Change
 
2019
 
2018
 
 
 
(Dollars in Thousands)
Compensation and employee benefits
$
23,743

 
$
22,314

 
$
1,429

 
6.4
 %
Occupancy
3,947

 
3,959

 
(12
)
 
(0.3
)%
Equipment and data processing
4,661

 
4,618

 
43

 
0.9
 %
Professional services
1,076

 
1,144

 
(68
)
 
(5.9
)%
FDIC insurance
593

 
635

 
(42
)
 
(6.6
)%
Advertising and marketing
1,069

 
1,057

 
12

 
1.1
 %
Amortization of identified intangible assets
402

 
467

 
(65
)
 
(13.9
)%
Merger and acquisition expense
—

 
2,905

 
(2,905
)
 
(100.0
)%
Other
3,380

 
2,839

 
541

 
19.1
 %
Total non-interest expense
$
38,871

 
$
39,938

 
$
(1,067
)
 
(2.7
)%
For the three months ended March 31, 2019 , non-interest expense decreased $1.1 million , or 2.7% , to $38.9 million as compared to $39.9 million for the same period in 2018 . The decrease is due to a $2.9 million decrease in merger and acquisition expense, offset by a $1.4 million increase in compensation and employee benefits expense, and a $0.5 million increase in other expense.
Compensation and employee benefits expense increased $1.4 million , or 6.4% , to $23.7 million for the three months ended March 31, 2019 from $22.3 million for the same period in 2018 , primarily driven by an increase in employee headcount and incentive plan expenses.
Merger and acquisition expense decreased $2.9 million , or 100.0% , to zero for the three months ended March 31, 2019 from $2.9 million for the same period in 2018 , due to the First Commons Bank acquisition in 2018 .
Other income expense increased $0.5 million , or 19.1% , to $3.4 million for the three months ended March 31, 2019 from $2.8 million for the same period in 2018 , due to expenses related to troubled loans including workout, OREO and legal expenses.
Provision for Income Taxes
 
Three Months Ended March 31,
 
Dollar
Change
 
Percent
Change
 
2019

2018
 
 
 
(Dollars in Thousands)
Income before provision for income taxes
$
29,405

 
$
25,080

 
$
4,325

 
17.2
%
Provision for income taxes
6,895

 
5,652

 
1,243

 
22.0
%
Net income, before non-controlling interest in subsidiary
$
22,510

 
$
19,428

 
$
3,082

 
15.9
%
Effective tax rate
23.4
%
 
22.5
%
 
N/A

 
4.0
%
The Company recorded income tax expense of $6.9 million for the three months ended March 31, 2019 , compared to $5.7 million for the three months ended March 31, 2018 , representing effective tax rates of 23.4% and 22.5% , respectively. The increase in the Company's effective tax rate for the three months ended March 31, 2019 was primarily driven by the changes in discrete items that were recognized during each period.

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"),

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Table of Contents

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 $5.6 billion as of March 31, 2019 and represented 86.6% of total funding (the sum of total deposits and total borrowings), compared to deposits of $5.5 billion , or 85.6% of total funding, as of December 31, 2018 . Core deposits, which consist of demand checking, NOW, savings and money market accounts, totaled $3.7 billion as of March 31, 2019 and represented 66.1% of total deposits, compared to core deposits of $3.7 billion , or 67.2% of total deposits, as of December 31, 2018 . Additionally, the Company had $350.4 million of brokered deposits as of March 31, 2019 , which represented 6.2% of total deposits, compared to $350.7 million or 6.4% of total deposits, as of December 31, 2018 . 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 $866.0 million as of March 31, 2019 , representing 13.4% of total funding, compared to $920.5 million , or 14.4% of total funding, as of December 31, 2018 .
As members of the FHLBB, the Banks have access to both short- and long-term borrowings. As of March 31, 2019 and December 31, 2018 , the Company's total borrowing limit from the FHLBB for advances and repurchase agreements was $2.1 billion based on the level of qualifying collateral available for these borrowings.
As of March 31, 2019 , the Banks also have access to funding through certain uncommitted lines of credit of $361.0 million .
The Company had a $12.0 million committed line of credit for contingent liquidity as of March 31, 2019 . As of March 31, 2019 , the Company did not have any borrowings on this committed line of credit outstanding.
The Company has access to the Federal Reserve Bank's "discount window" to supplement its liquidity. The Company has $138.9 million of borrowing capacity at the Federal Reserve Bank as of March 31, 2019 . As of March 31, 2019 , 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 0% and 10% of total assets. As of March 31, 2019 , cash, cash equivalents and investment securities available-for-sale totaled $601.4 million , or 8.0% of total assets. This compares to $592.4 million , or 8.0% of total assets as of December 31, 2018 .
While management believes that the Company has adequate liquidity to meet its commitments and to fund the Banks' lending and investment activities, the availabilities of these funding sources are subject to broad economic conditions and could be restricted in the future. Such restrictions would impact the Company's immediate liquidity and/or additional liquidity needs.
Off-Balance-Sheet Financial Instruments

The Company is party to off-balance-sheet financial instruments in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby and commercial letters of credit and interest-rate swaps. According to GAAP, these financial instruments are not recorded in the financial statements until they are funded or related fees are incurred or received.
 
The contract amounts reflect the extent of the involvement the Company has in particular classes of these instruments. Such commitments involve, to varying degrees, elements of credit risk and interest-rate risk in excess of the amount recognized in the consolidated balance sheet. The Company’s exposure to credit loss in the event of non-performance by the counterparty is represented by the contractual amount of the instruments. The Company uses the same policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

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Table of Contents

 
Financial instruments with off-balance-sheet risk at the dates indicated follow:
 
At March 31, 2019
 
At December 31, 2018
 
(In Thousands)
Financial instruments whose contract amounts represent credit risk:
 
 
 
Commitments to originate loans and leases:
 
 
 
Commercial real estate
$
108,311

 
$
76,642

Commercial
75,321

 
75,713

Residential mortgage
18,752

 
16,363

Unadvanced portion of loans and leases
720,852

 
707,997

Unused lines of credit:
 
 
 
Home equity
503,283

 
487,476

Other consumer
36,293

 
50,404

Other commercial
455

 
347

Unused letters of credit:
 
 
 
Financial standby letters of credit
10,026

 
11,491

Performance standby letters of credit
3,332

 
3,075

Commercial and similar letters of credit
4,573

 
4,573

Loan level derivatives:
 
 
 
Receive fixed, pay variable
789,915

 
714,500

Pay fixed, receive variable
789,915

 
714,500

Risk participation-out agreements
150,624

 
100,531

Risk participation-in agreements
55,679

 
35,838

Foreign exchange contracts:
 
 
 
Buys foreign currency, sells U.S. currency
1,646

 
6,573

Sells foreign currency, buys U.S. currency
1,652

 
6,582



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Table of Contents

Capital Resources
As of March 31, 2019 , the Company and the Banks are each under the primary regulation of, and must comply with, the capital requirements of the FRB. Under these rules, the Company and the Banks are each required to maintain a minimum common equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a minimum total Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8% and a minimum leverage ratio of 4%. Additionally, the Company and the Bank are required to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases. As of March 31, 2019 , the Company and the Banks exceeded all regulatory capital requirements, and the Banks were each considered “well-capitalized” under prompt corrective action regulations.

The following table presents actual and required capital amounts and capital ratios as of March 31, 2019 for the Company and the Banks.

 
Actual
 
Minimum Required for Capital Adequacy Purposes
 
Minimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer
 
Minimum Required  to be Considered   “Well-Capitalized” Under Prompt Corrective Action Provisions
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
(Dollars in Thousands)
At March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brookline Bancorp, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio (1)
$
740,994

 
11.64
%
 
$
286,467

 
4.50
%
 
$
445,615

 
7.00
%
 
N/A

 
N/A

Tier 1 leverage capital ratio (2)
750,516

 
10.31
%
 
291,180

 
4.00
%
 
291,180

 
4.00
%
 
N/A

 
N/A

Tier 1 risk-based capital ratio (3)
750,516

 
11.79
%
 
381,942

 
6.00
%
 
541,084

 
8.50
%
 
N/A

 
N/A

Total risk-based capital ratio (4)
884,268

 
13.89
%
 
509,298

 
8.00
%
 
668,453

 
10.50
%
 
N/A

 
N/A

Brookline Bank
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio (1)
$
493,523

 
11.70
%
 
$
189,817

 
4.50
%
 
$
295,270

 
7.00
%
 
$
274,179

 
6.50
%
Tier 1 leverage capital ratio (2)
493,523

 
10.64
%
 
185,535

 
4.00
%
 
185,535

 
4.00
%
 
231,919

 
5.00
%
Tier 1 risk-based capital ratio (3)
493,523

 
11.70
%
 
253,089

 
6.00
%
 
358,542

 
8.50
%
 
337,452

 
8.00
%
Total risk-based capital ratio (4)
532,850

 
12.63
%
 
337,514

 
8.00
%
 
442,987

 
10.50
%
 
421,892

 
10.00
%
BankRI
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio (1)
$
215,639

 
11.57
%
 
$
83,870

 
4.50
%
 
$
130,464

 
7.00
%
 
$
121,146

 
6.50
%
Tier 1 leverage capital ratio (2)
215,639

 
9.49
%
 
90,891

 
4.00
%
 
90,891

 
4.00
%
 
113,614

 
5.00
%
Tier 1 risk-based capital ratio (3)
215,639

 
11.57
%
 
111,827

 
6.00
%
 
158,421

 
8.50
%
 
149,102

 
8.00
%
Total risk-based capital ratio (4)
233,628

 
12.53
%
 
149,164

 
8.00
%
 
195,778

 
10.50
%
 
186,455

 
10.00
%
First Ipswich
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio (1)
$
40,056

 
14.11
%
 
$
12,775

 
4.50
%
 
$
19,872

 
7.00
%
 
$
18,452

 
6.50
%
Tier 1 leverage capital ratio (2)
40,056

 
9.63
%
 
16,638

 
4.00
%
 
16,638

 
4.00
%
 
20,798

 
5.00
%
Tier 1 risk-based capital ratio (3)
40,056

 
14.11
%
 
17,033

 
6.00
%
 
24,130

 
8.50
%
 
22,711

 
8.00
%
Total risk-based capital ratio (4)
42,541

 
14.99
%
 
22,704

 
8.00
%
 
29,799

 
10.50
%
 
28,380

 
10.00
%
_______________________________________________________________________________
(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets.

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

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

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




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The following table presents actual and required capital amounts and capital ratios as of December 31, 2018 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, 2018:
 

 
 

 
 

 
 
 
 
 
 

 
 

 
 

Brookline Bancorp, Inc.
 

 
 

 
 

 
 
 
 
 
 

 
 

 
 

Common equity Tier 1 capital ratio (1)
$
745,103

 
11.94
%
 
$
280,818

 
4.50
%
 
$
436,828

 
7.00
%
 
N/A

 
N/A

Tier 1 leverage capital ratio (2)
765,089

 
10.58
%
 
289,259

 
4.00
%
 
289,259

 
4.00
%
 
N/A

 
N/A

Tier 1 risk-based capital ratio (3)
765,089

 
12.26
%
 
374,432

 
6.00
%
 
530,445

 
8.50
%
 
N/A

 
N/A

Total risk-based capital ratio (4)
899,563

 
14.42
%
 
499,064

 
8.00
%
 
655,022

 
10.50
%
 
N/A

 
N/A

Brookline Bank
 

 
 

 
 

 
 

 
 
 
 
 
 

 
 

Common equity Tier 1 capital ratio (1)
$
495,798

 
12.06
%
 
$
184,999

 
4.50
%
 
$
287,777

 
7.00
%
 
$
267,221

 
6.50
%
Tier 1 leverage capital ratio (2)
506,277

 
11.02
%
 
183,767

 
4.00
%
 
183,767

 
4.00
%
 
229,708

 
5.00
%
Tier 1 risk-based capital ratio (3)
506,277

 
12.32
%
 
246,563

 
6.00
%
 
349,298

 
8.50
%
 
328,751

 
8.00
%
Total risk-based capital ratio (4)
545,533

 
13.27
%
 
328,882

 
8.00
%
 
431,658

 
10.50
%
 
411,102

 
10.00
%
BankRI
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity Tier 1 capital ratio (1)
$
209,670

 
11.37
%
 
$
82,983

 
4.50
%
 
$
129,084

 
7.00
%
 
$
119,864

 
6.50
%
Tier 1 leverage capital ratio (2)
209,670

 
9.35
%
 
89,698

 
4.00
%
 
89,698

 
4.00
%
 
112,123

 
5.00
%
Tier 1 risk-based capital ratio (3)
209,670

 
11.37
%
 
110,644

 
6.00
%
 
156,745

 
8.50
%
 
147,525

 
8.00
%
Total risk-based capital ratio (4)
227,674

 
12.35
%
 
147,481

 
8.00
%
 
193,569

 
10.50
%
 
184,351

 
10.00
%
First Ipswich
 

 
 

 
 

 
 

 
 
 
 
 
 

 
 

Common equity Tier 1 capital ratio (1)
$
39,655

 
13.91
%
 
$
12,829

 
4.50
%
 
$
19,956

 
7.00
%
 
$
18,530

 
6.50
%
Tier 1 leverage capital ratio (2)
39,655

 
9.59
%
 
16,540

 
4.00
%
 
16,540

 
4.00
%
 
20,675

 
5.00
%
Tier 1 risk-based capital ratio (3)
39,655

 
13.91
%
 
17,105

 
6.00
%
 
24,232

 
8.50
%
 
22,807

 
8.00
%
Total risk-based capital ratio (4)
42,944

 
15.06
%
 
22,812

 
8.00
%
 
29,941

 
10.50
%
 
28,515

 
10.00
%
_______________________________________________________________________________
(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets.

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

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

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



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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Market risk is the risk that the market value or estimated fair value of the Company's assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that the Company's net income will be significantly reduced by interest-rate changes.
Interest-Rate Risk
The principal market risk facing the Company is interest-rate risk, which can occur in a variety of forms, including repricing risk, yield-curve risk, basis risk, and prepayment risk. Repricing risk occurs when the change in the average yield of either interest-earning assets or interest-bearing liabilities is more sensitive than the other to changes in market interest rates. Such a change in sensitivity could reflect a number of possible mismatches in the repricing opportunities of the Company's assets and liabilities. Yield-curve risk reflects the possibility that changes in the shape of the yield curve could have different effects on the Company's assets and liabilities. Basis risk occurs when different parts of the balance sheet are subject to varying base rates reflecting the possibility that the spread from those base rates will deviate. Prepayment risk is associated with financial instruments with an option to prepay before the stated maturity, often a disadvantage to person selling the option; this risk is most often associated with the prepayment of loans, callable investments, and callable borrowings.
Asset/Liability Management
Market risk and interest-rate risk management is governed by the Company's 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 March 31, 2019 or December 31, 2018 . 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 March 31, 2019 .
The assumptions used in the Company’s interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates.
As of March 31, 2019 , net interest income simulation indicated that the Company's exposure to changing interest rates was within tolerance. The ALCO reviews the methodology utilized for calculating interest-rate risk exposure and may periodically adopt modifications to this methodology. The following table presents the estimated impact of interest-rate changes on the Company's estimated net interest income over the twelve-month periods indicated:
 
Estimated Exposure to Net Interest Income
over Twelve-Month Horizon Beginning
 
March 31, 2019
 
December 31, 2018
Change in Interest Rate Levels
Dollar
Change
 
Percent
Change
 
Dollar
Change
 
Percent
Change
 
(Dollars in Thousands)
Up 300 basis points shock
$
24,103

 
9.5
 %
 
$
20,134

 
8.0
 %
Up 200 basis points ramp
10,380

 
4.1
 %
 
9,353

 
3.7
 %
Up 100 basis points ramp
5,449

 
2.1
 %
 
4,982

 
2.0
 %
Down 100 basis points ramp
(10,727
)
 
(4.2
)%
 
(9,894
)
 
(3.9
)%

The estimated impact of a 300 basis point increase in market interest rates on the Company's estimated net interest income over a twelve-month horizon was a positive 9.5% as of March 31, 2019 , compared to a positive 8.0% as of December 31, 2018 . The slight increase in asset sensitivity was due to a change in the funding mix, as core deposits replaced wholesale borrowings.

The Company also uses interest-rate sensitivity “gap” analysis to provide a more general overview of its interest-rate risk profile. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing
liabilities maturing or repricing within a given time period. At March 31, 2019 , the Company’s one-year cumulative gap was a positive $90.9 million , or 1.29% of total interest-earning assets, compared with a positive $12.4 million , or 0.18% of total interest-earning assets, at December 31, 2018 .
 
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 2018 Annual Report on Form 10-K.

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

EVE at Risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates as well as parallel shocks to the current interest-rate environment. The following table sets forth the estimated percentage change in the Company’s EVE at Risk, assuming various shifts in interest rates. Given the interest rate environment as of March 31, 2019 , 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 March 31, 2019

At December 31, 2018
Up 300 basis points
 
6.6
 %
 
2.5
 %
Up 200 basis points
 
5.4
 %
 
2.5
 %
Up 100 basis points
 
3.7
 %
 
2.1
 %
Down 100 basis points
 
(9.4
)%
 
(7.0
)%

The Company's EVE sensitivity increased from December 31, 2018 to March 31, 2019 due to the shortened duration of the loan and investment portfolios as well as the lengthening of the deposit base.

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, 2018 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, 2018 .

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

Item 1A.    Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 .

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*
 
 
 
 
Exhibit 31.2*
 
 
 
 
Exhibit 32.1**
 
 
 
 
Exhibit 32.2**
 
 
 
 
Exhibit 101
 
The following materials from Brookline Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (1) Unaudited Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018; (2) Unaudited Consolidated Statements of Income for the three months March 31, 2019 and March 31, 2018; (3) Unaudited Consolidated Statements of Comprehensive Income for the three months March 31, 2019 and March 31, 2018; (4) Unaudited Consolidated Statements of Changes in Equity for the three months ended March 31, 2019 and March 31, 2018; (5) Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and March 31, 2018; and (6) Notes to Unaudited Consolidated Financial Statements at and for the three months ended March 31, 2019 and March 31, 2018.
_______________________________________________________________________________
* Filed herewith
** Furnished herewith

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

 
BROOKLINE BANCORP, INC.
 
 
 
 
 
 
 
 
Date: May 8, 2019
By:
/s/ Paul A. Perrault
 
 
Paul A. Perrault
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
 
Date: May 8, 2019
By:
/s/ Carl M. Carlson
 
 
Carl M. Carlson
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial Officer)
 




91