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Section 1: 10-Q (10-Q)

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

OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2018
 
Commission file number 0-23695

Brookline Bancorp, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
04-3402944
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
131 Clarendon Street, Boston, MA
 
02116
(Address of principal executive offices)
 
(Zip Code)
 
(617) 425-4600
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  YES  x  NO  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  x  NO  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12-b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
 
Smaller Reporting Company
 
o
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES  o  NO  x
                                                                                                                                                                                
At August 7, 2018, the number of shares of common stock, par value $0.01 per share, outstanding was 80,416,221.
 


Table of Contents

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


Table of Contents

PART I — FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
 
At June 30, 2018
 
At December 31, 2017
 
(In Thousands Except Share Data)
ASSETS
 
 
 
Cash and due from banks
$
32,724

 
$
25,622

Short-term investments
22,754

 
35,383

Total cash and cash equivalents
55,478

 
61,005

Investment securities available-for-sale
558,602

 
540,124

Investment securities held-to-maturity (fair value of $113,903 and $108,523, respectively)
116,670

 
109,730

Total investment securities
675,272

 
649,854

Loans held-for-sale
1,034

 
2,628

Loans and leases:
 
 
 
Commercial real estate loans
3,264,166

 
3,075,777

Commercial loans and leases
1,736,144

 
1,624,111

Consumer loans
1,170,964

 
1,030,791

Total loans and leases
6,171,274

 
5,730,679

Allowance for loan and lease losses
(57,981
)
 
(58,592
)
Net loans and leases
6,113,293

 
5,672,087

Restricted equity securities
68,343

 
59,369

Premises and equipment, net of accumulated depreciation of $66,991 and $63,423, respectively
79,194

 
80,283

Deferred tax asset
20,826

 
15,061

Goodwill
160,427

 
137,890

Identified intangible assets, net of accumulated amortization of $34,744 and $33,738, respectively
7,160

 
6,044

Other real estate owned ("OREO") and repossessed assets, net
4,352

 
4,419

Other assets
100,331

 
91,609

Total assets
$
7,285,710

 
$
6,780,249

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Deposits:
 
 
 
Demand checking accounts
$
1,002,954

 
$
942,583

Interest-bearing deposits:
 
 
 
NOW accounts
346,936

 
350,568

Savings accounts
603,079

 
646,359

Money market accounts
1,704,652

 
1,724,363

Certificate of deposit accounts
1,540,659

 
1,207,470

Total interest-bearing deposits
4,195,326

 
3,928,760

Total deposits
5,198,280

 
4,871,343

Borrowed funds:
 
 
 
Advances from the Federal Home Loan Bank of Boston ("FHLBB")
991,091

 
889,909

Subordinated debentures and notes
83,352

 
83,271

Other borrowed funds
36,480

 
47,639

Total borrowed funds
1,110,923

 
1,020,819

Mortgagors' escrow accounts
8,122

 
7,686

Accrued expenses and other liabilities
82,017

 
67,818

Total liabilities
6,399,342

 
5,967,666

 
 
 
 
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 81,695,695 shares issued, respectively
852

 
817

Additional paid-in capital
756,254

 
699,976

Retained earnings, partially restricted
185,734

 
161,217

Accumulated other comprehensive loss
(13,415
)
 
(5,950
)
Treasury stock, at cost; 4,409,501 shares and 4,440,665 shares, respectively
(51,454
)
 
(51,454
)
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP"); 126,144 shares and 142,332 shares, respectively
(688
)
 
(776
)
Total Brookline Bancorp, Inc. stockholders' equity
877,283

 
803,830

Noncontrolling interest in subsidiary
9,085

 
8,753

Total stockholders' equity
886,368

 
812,583

Total liabilities and stockholders' equity
$
7,285,710

 
$
6,780,249

 
 
 
 

See accompanying notes to unaudited consolidated financial statements.
1

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In Thousands Except Share Data)
Interest and dividend income:
 
 
 
 
 
 
 
Loans and leases
$
73,329

 
$
61,138

 
$
140,601

 
$
119,696

Debt securities
3,563

 
3,156

 
6,886

 
6,156

Marketable and restricted equity securities
1,003

 
797

 
1,927

 
1,523

Short-term investments
179

 
95

 
299

 
162

Total interest and dividend income
78,074

 
65,186

 
149,713

 
127,537

Interest expense:
 
 
 
 
 
 
 
Deposits
9,219

 
5,543

 
16,318

 
10,623

Borrowed funds
6,138

 
4,060

 
11,187

 
8,233

Total interest expense
15,357

 
9,603

 
27,505

 
18,856

Net interest income
62,717

 
55,583

 
122,208

 
108,681

Provision for credit losses
1,470

 
873

 
2,111

 
14,275

Net interest income after provision for credit losses
61,247

 
54,710

 
120,097

 
94,406

Non-interest income:
 
 
 
 
 
 
 
Deposit fees
2,620

 
2,552

 
5,083

 
4,961

Loan fees
330

 
229

 
620

 
490

Loan level derivative income, net
571

 
186

 
1,437

 
588

Gain on sales of investment securities, net

 

 
1,162

 
11,393

Gain on sales of loans and leases held-for-sale
722

 
307

 
1,021

 
660

Other
1,283

 
1,203

 
2,371

 
2,293

Total non-interest income
5,526

 
4,477

 
11,694

 
20,385

Non-interest expense:
 
 
 
 
 
 
 
Compensation and employee benefits
22,565

 
20,910

 
44,879

 
40,694

Occupancy
3,879

 
3,657

 
7,838

 
7,302

Equipment and data processing
4,368

 
4,164

 
8,986

 
8,227

Professional services
1,055

 
1,036

 
2,199

 
2,142

FDIC insurance
514

 
951

 
1,149

 
1,806

Advertising and marketing
1,118

 
857

 
2,175

 
1,674

Amortization of identified intangible assets
539

 
519

 
1,006

 
1,051

Merger and acquisition expense
334

 

 
3,239

 

Other
3,330

 
2,701

 
6,169

 
5,655

Total non-interest expense
37,702

 
34,795

 
77,640

 
68,551

Income before provision for income taxes
29,071

 
24,392

 
54,151

 
46,240

Provision for income taxes
7,342

 
8,759

 
12,994

 
16,594

Net income before noncontrolling interest in subsidiary
21,729

 
15,633

 
41,157

 
29,646

Less net income attributable to noncontrolling interest in subsidiary
898

 
753

 
1,693

 
1,321

Net income attributable to Brookline Bancorp, Inc.
$
20,831

 
$
14,880

 
$
39,464

 
$
28,325

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.26

 
$
0.20

 
$
0.50

 
$
0.39

Diluted
0.26

 
0.20

 
0.50

 
0.39

Weighted average common shares outstanding during the year:
 
 
 
 
 
 
 
Basic
80,184,977

 
74,325,013

 
79,038,041

 
72,366,769

Diluted
80,505,614

 
74,810,088

 
79,342,463

 
72,837,971

Dividends declared per common share
$
0.10

 
$
0.09

 
$
0.19

 
$
0.18



See accompanying notes to unaudited consolidated financial statements.
2

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In Thousands)
Net income before noncontrolling interest in subsidiary
$
21,729

 
$
15,633

 
$
41,157

 
$
29,646

 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
Unrealized securities holding (losses) gains
(2,244
)
 
1,693

 
(9,645
)
 
2,563

Income tax expense (benefit)
495

 
(607
)
 
2,127

 
(920
)
Net unrealized securities holding (losses) gains before reclassification adjustments, net of taxes
(1,749
)
 
1,086

 
(7,518
)
 
1,643

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
(1,749
)
 
1,086

 
(7,465
)
 
1,643

 
 
 
 
 
 
 
 
Comprehensive income
19,980

 
16,719

 
33,692

 
31,289

Net income attributable to noncontrolling interest in subsidiary
898

 
753

 
1,693

 
1,321

Comprehensive income attributable to Brookline Bancorp, Inc.
$
19,082

 
$
15,966

 
$
31,999

 
$
29,968




See accompanying notes to unaudited consolidated financial statements.
3

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2018 and 2017
 
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. 

 

 
39,464

 

 

 

 
39,464

 

 
39,464

Net income attributable to noncontrolling interest in subsidiary

 

 

 

 

 

 

 
1,693

 
1,693

Common stock issued for acquisition
35

 
55,146

 

 

 

 

 
55,181

 

 
55,181

Issuance of noncontrolling units

 

 

 

 

 

 

 
129

 
129

Other comprehensive income

 

 


 
(7,465
)
 

 

 
(7,465
)
 

 
(7,465
)
Common stock dividends of $0.19 per share

 

 
(14,947
)
 

 

 

 
(14,947
)
 

 
(14,947
)
Dividend distribution to owners of noncontrolling interest in subsidiary

 

 

 

 

 

 

 
(1,490
)
 
(1,490
)
Restricted stock awards, net of awards surrendered

 
946

 

 

 

 

 
946

 

 
946

Common stock held by ESOP committed to be released (16,188 shares)

 
186

 

 

 

 
88

 
274

 

 
274

Balance at June 30, 2018
$
852

 
$
756,254

 
$
185,734

 
$
(13,415
)
 
$
(51,454
)
 
$
(688
)
 
$
877,283

 
$
9,085

 
$
886,368


 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury
Stock
 
Unallocated
Common Stock
Held by ESOP
 
Total Brookline
Bancorp, Inc.
Stockholders'
Equity
 
Noncontrolling
Interest in
Subsidiary
 
Total Stockholders'
Equity
 
(In Thousands)
Balance at December 31, 2016
$
757

 
$
616,734

 
$
136,671

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

 
$
7,205

 
$
702,749

Net income attributable to Brookline Bancorp, Inc. 

 

 
28,325

 

 

 

 
28,325

 

 
28,325

Net income attributable to noncontrolling interest in subsidiary

 

 

 

 

 

 

 
1,321

 
1,321

Issuance of common stock
60

 
81,949

 

 

 

 

 
82,009

 

 
82,009

Issuance of noncontrolling interest

 

 

 

 

 

 

 
118

 
118

Other comprehensive income

 

 


 
1,643

 

 

 
1,643

 

 
1,643

Common stock dividends of $0.18 per share

 

 
(13,237
)
 

 

 

 
(13,237
)
 

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

 

 

 

 

 

 

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

 
1,091

 

 

 

 

 
1,091

 

 
1,091

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

 
149

 

 

 

 
94

 
243

 

 
243

Balance at June 30, 2017
$
817

 
$
699,923

 
$
151,759

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

 
$
7,441

 
$
803,059





See accompanying notes to unaudited consolidated financial statements.
4

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
 
Six Months Ended June 30,
 
2018
 
2017
 
(In Thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Brookline Bancorp, Inc.
$
39,464

 
$
28,325

Adjustments to reconcile net income to net cash provided from operating activities:
 
 
 
Net income attributable to noncontrolling interest in subsidiary
1,693

 
1,321

Provision for credit losses
2,111

 
14,275

Origination of loans and leases held-for-sale
(12,648
)
 
(12,860
)
Proceeds from sales of loans and leases held-for-sale, net
15,185

 
18,427

Deferred income tax benefit
(3,653
)
 
(2,655
)
Depreciation of premises and equipment
3,628

 
3,615

Amortization of investment securities premiums and discounts, net
875

 
746

Amortization of deferred loan and lease origination costs, net
3,417

 
3,265

Amortization of identified intangible assets
1,006

 
1,051

Amortization of debt issuance costs
50

 
50

Amortization (accretion) of acquisition fair value adjustments, net
212

 
(1,353
)
Gain on sales of investment securities, net
(1,162
)
 
(11,393
)
Gain on sales of loans and leases held-for-sale
(1,021
)
 
(660
)
Loss on sales of OREO and other repossessed assets, net

 
25

Write-down of OREO and other repossessed assets
252

 
193

Compensation under recognition and retention plans
1,032

 
1,147

ESOP shares committed to be released
274

 
243

Net change in:
 
 
 
Cash surrender value of bank-owned life insurance
(512
)
 
(517
)
Other assets
(8,210
)
 
(7,541
)
Accrued expenses and other liabilities
14,226

 
(1,420
)
Net cash provided from operating activities
56,219

 
34,284

 
 
 
 
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
43,569

 
36,881

Purchases of investment securities available-for-sale
(73,852
)
 
(52,448
)
Proceeds from maturities, calls, and principal repayments of investment securities held to maturity
1,790

 
2,083

Purchases of investment securities held-to-maturity
(8,915
)
 
(23,884
)
Proceeds from redemption/sales of restricted equity securities
2,820

 
13,258

Purchase of restricted equity securities
(10,564
)
 
(4,342
)
Proceeds from sales of loans and leases held-for-investment, net
3,178

 
4,643

Net increase in loans and leases
(451,145
)
 
(146,895
)
Acquisitions, net of cash and cash equivalents acquired
(24,659
)
 

Purchase of premises and equipment, net
(2,621
)
 
(8,617
)
 
 
 
 
 
 
 
(Continued)


See accompanying notes to unaudited consolidated financial statements.
5

Table of Contents

BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows (Continued)
 
Six Months Ended June 30,
 
2018
 
2017
 
(In Thousands)
Proceeds from sales of OREO and other repossessed assets
1,241

 
1,374

Net cash used for investing activities
(517,688
)
 
(177,947
)
 
 
 
 
Cash flows from financing activities:
 
 
 
(Decrease) increase in demand checking, NOW, savings and money market accounts
(6,252
)
 
19,814

Increase in certificates of deposit
332,862

 
78,529

Proceeds from FHLBB advances
4,598,000

 
2,419,299

Repayment of FHLBB advances
(4,496,818
)
 
(2,399,017
)
(Decrease) increase in other borrowed funds, net
(11,159
)
 
3,220

Increase in mortgagors' escrow accounts, net
436

 
69

Proceeds from issuance of common stock

 
82,009

Common stock issued for acquisition
55,181

 

Payment of dividends on common stock
(14,947
)
 
(13,237
)
Proceeds from issuance of noncontrolling units
129

 
118

Payment of dividends to owners of noncontrolling interest in subsidiary
(1,490
)
 
(1,203
)
Net cash provided from financing activities
455,942

 
189,601

Net (decrease) increase in cash and cash equivalents
(5,527
)
 
45,938

Cash and cash equivalents at beginning of period
61,005

 
67,657

Cash and cash equivalents at end of period
$
55,478

 
$
113,595

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest on deposits, borrowed funds and subordinated debt
$
26,746

 
$
20,049

Income taxes
10,719

 
21,878

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

 
$
7,500

Transfer from loans to other real estate owned
1,426

 
5,066

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
At and for the Six Months Ended June 30, 2018 and 2017
(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 its 84.1%-owned subsidiary, Eastern Funding LLC ("Eastern Funding"), operates 25 full-service banking offices in the greater Boston metropolitan area with two additional lending offices. BankRI, which includes its wholly-owned subsidiaries, Acorn Insurance Agency, BRI Realty Corp., Macrolease Corporation ("Macrolease"), BRI Investment Corp. and its wholly-owned subsidiary, BRI MSC Corp., operates 20 full-service banking offices in the greater Providence, Rhode Island area. First Ipswich, which includes its wholly-owned subsidiaries First Ipswich Insurance Agency and First Ipswich Securities II Corp., operates six full-service banking offices on the north shore of eastern Massachusetts.
The Company's activities include acceptance of commercial, municipal and retail deposits, origination of mortgage loans on commercial and residential real estate located principally in 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, 2017

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

In preparing these consolidated financial statements, Management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates based upon changing conditions, including economic conditions and

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

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.

Recent Accounting Pronouncements
In July 2018, FASB issued Accounting Standards Update No. 2018-11, “Targeted Improvements” (“ASU 2018-11”) which allows for an optional transition method in which the provisions of Topic 842 would be applied upon the adoption date and would not have to be retroactively applied to the earliest reporting period presented in the consolidated financial statements. The Company intends to use the optional transition method for the adoption of Topic 842. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. Management believes that this ASU does apply and has not determined the impact, if any, as of June 30, 2018. Management has assembled a project team to assess steps required for adoption. These steps will include a review of third party lease software service providers. This ASU 2018-11 will be implemented during Q1 of 2019 along with ASU 2016-02 Leases (Topic 842).
In July 2018, FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. This ASU was issued to clarify the Codification or to correct unintended application of guidance within ASU 2016-02 Leases (Topic 842). This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. Management believes that this ASU does apply and has not determined the impact, if any, as of June 30, 2018. Management has assembled a project team to assess steps required for adoption. The steps include a review of third party lease software service providers.
In February 2018, FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU was issued to add improvements to update ASU 2016-01 to increase stakeholders’ awareness of the amendments and to expedite the improvements. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017 and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. Management has determined that ASU 2018-03 does apply and has determined the impact to be immaterial as of June 30, 2018.
In February 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" was issued to address a narrow-scope financial reporting issue that arose as a consequence of the change in the tax law. On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (the “Tax Reform Act”). The ASU No. 2018-02 requires a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate. The amount of the reclassification would be the difference between the historical corporate income tax rate of 35 percent and the newly enacted 21 percent corporate income tax rate. The ASU No. 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted, including adoption in any interim period, for (i) public business entities for reporting periods for which financial statements have not yet been issued and (ii) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The changes are required to be applied retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

Act of 2017 is recognized. Management early adopted this ASU as of December 31, 2017, which resulted in the reclassification from accumulated other comprehensive loss to retained earnings totaling $1.1 million, reflected in the Consolidated Statements of Changes in Stockholders' Equity.
In November 2017, the FASB issued ASU 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606): Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403. This ASU was issued to amend certain SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No.116 and SEC Release No. 33-10403, which bring existing guidance into conformity with Topic 606, Revenue from Contract with Customers. The ASU was effective for annual periods beginning after December 15, 2017. Management has adopted this ASU as of January 1, 2018 and has determined the impact to be immaterial.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. FASB issued this Update to address the diversity in practice as well as the cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2017. Management adopted this ASU as of January 1, 2018 and has determined the impact to be immaterial.
In March 2017, the FASB issued Accounting Standards Update ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715). This ASU was issued primarily to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. This ASU is effective for annual reporting periods beginning after December 15, 2017. Management adopted this ASU as of January 1, 2018 and has determined the impact to be immaterial.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This ASU was issued to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. For public entities, this ASU is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted and application should be on a prospective basis. Management has evaluated this ASU and as of December 31, 2017, the Company has adopted the ASU and determined the impact to be immaterial.
In June 2016, the FASB issued ASU 2016-13, Financial instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The intent of this ASU is to replace the current GAAP method of calculating credit losses. Current GAAP uses a higher threshold at which likely losses can be calculated and recorded. The new process will require institutions to account for likely losses that originally would not have been part of the calculation. The calculation will incorporate future forecasting in addition to historical and current measures. For public entities that file with the SEC, this ASU is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU must be applied prospectively to debt securities marked as other than temporarily impaired. A retrospective approach will be applied cumulatively to retained earnings. Early adoption is permitted as of the fiscal years beginning after December 15, 2018. Management has determined that ASU 2016-13 does apply, but has not determined the impact, if any, as of June 30, 2018. 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.
In February 2016, FASB issued ASU 2016-02, Leases. 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. This ASU also eliminates current real estate-specific provisions for all companies. For lessors, this ASU modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. Management believes that this ASU applies and has not determined the impact, if any, as of June 30, 2018. Management has assembled a project team to assess steps required for adoption. Management has compiled a complete listing of leases to be reviewed and assessed. As disclosed in Note 12, the Company was committed to $29.0 million of future minimum lease payments under these non-cancelable operating leases. Upon adoption of ASU 2016-02 on January 1, 2019, the Company expects to report increased assets and liabilities as a result of recognizing right of-use assets and lease liabilities in the Consolidated Balance Sheets. The Company does not expect a material change to the timing of expense recognition in the Consolidated Statements of Income.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

In January 2016, the FASB issued ASU 2016-01, Financial Instruments. This ASU significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods therein. Management adopted ASU 2016-01 as of January 1, 2018 and management has determined the impact to be immaterial.
Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), was issued in May 2014 and provides a revenue recognition framework for any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other accounting standards. As issued, ASU 2014-09 was effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period with early adoption not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. In August 2015, Accounting Standards Update No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”) was issued and delayed the effective date of ASU 2014-09 to annual and interim periods in fiscal years beginning after December 15, 2017. In 2016, Accounting Standards Update No. 2016-08, “Principal versus Agent Considerations” (“ASU 2016-08”), Accounting Standards Update No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”) and Accounting Standards Update No. 2016-12, “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”) were issued. These ASUs did not change the core principle for revenue recognition in Topic 606; instead, the amendments provided more detailed guidance in a few areas and additional implementation guidance and examples to reduce the degree of judgment necessary to comply with Topic 606. The effective date and transition requirements for ASU 2016-08, ASU 2016-10 and ASU 2016-12 were the same as those provided by ASU 2015-14. Management assembled a project team to address the changes pursuant to Topic 606. The project team completed a scope assessment and contract review for in-scope revenue streams. Topic 606 did not apply to several income generating streams. Management excluded from their analysis, income associated with financial instruments, gains on sale of investment securities and loans, gains on Low Income Housing Tax Credits ("LIHTC") and loan level derivative income. Revenue streams that were included were service charges on deposit accounts, loan fees, and income received through a third party relationship. Management adopted the provisions of ASU 2014-09 effective January 1, 2018, using the modified retrospective transition method. The adoption did not have a material impact on the Company's consolidated financial statements. See Note 13, "Revenue from Contracts with Customers," for further details.
(2) Acquisitions
First Commons Bank, N.A.
On March 1, 2018, the Company completed the acquisition (the “Transaction”) of First Commons Bank. First Commons Bank was merged with and into the Company’s subsidiary bank, Brookline Bank. First Commons Bank had two branch locations in Newton Centre and Wellesley, Massachusetts. These branch locations were closed on June 1, 2018 and consolidated into Brookline Bank’s existing branch locations in Newton Centre and Wellesley, Massachusetts.
The Transaction qualified as a tax-free reorganization for federal income tax purposes. The total Transaction consideration was $56.0 million. First Commons Bank stockholders received, for each share of First Commons Bank common stock, the right to receive 1.089 shares of the Company’s common stock with cash in lieu of fractional shares, options, and warrants, resulting in a total cash consideration payment of $851.0 thousand and an increase to the Company’s outstanding shares of 3,481,477 shares.
The Company accounted for the Transaction using the estimated fair value of assets and liabilities assumed as of the acquisition date. The excess of consideration paid over the fair value of identifiable net assets was recorded as goodwill in the consolidated financial statements. Accordingly, the Company recorded merger and acquisition expenses of $0.3 million and $3.2 million during the three and six months ended June 30, 2018, respectively.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition:
 
Net Assets Acquired at
Fair Value
 
(In Thousands)
ASSETS
 
Cash
$
42,995

Restricted stock
1,884

Loans
262,095

Premises and equipment
583

Goodwill
23,005

Core deposit and other intangibles
2,122

Other assets
2,336

Total assets acquired
335,020

LIABILITIES
 
Deposits
273,701

Borrowings
5,000

Other liabilities
287

Total liabilities assumed
278,988

Purchase price
$
56,032

Fair values of the major categories of assets acquired and liabilities assumed were determined as follows:
Cash and Cash Equivalents
The fair values of cash and cash equivalents approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities.
Restricted Stock
The fair value of restricted stock approximate the respective carrying amount. The stock is comprised of $880 thousand of FHLBB stock and $1.0 million of FRB stock.
Loans
The loans acquired were recorded at fair value without a carryover of the allowance for loan losses. There were no credit related issues with the acquired portfolio. For the loan purchase accounting, management used the following assumptions: no specific credit mark valuations as determined by the Company's Credit Risk Management, segregation of portfolio into certain loan categories, loan level valuations versus a pooled approach, prepayment rate assumptions and market discount rates.
The Company recorded a $1.6 million discount from the results of the loan accounting valuation. There was $151.0 thousand and $178.0 thousand of accretion recorded during the three and six months ended June 30, 2018.
Deposits - Core Deposit Intangible ("CDI")
Accounts included in the CDI include demand deposits, NOW accounts, money market accounts and savings accounts. The fair value of the CDI was derived from using the following assumptions: account retention rates, alternative cost of funds, effective cost of funds, cost savings, present value of annual net cost savings and market discount rate.
The Company recorded a $2.1 million CDI from the results of the deposit valuation. There was $123.0 thousand and $164.0 thousand of amortization recorded during the three and six months ended June 30, 2018.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

Certificates of Deposits
The certificates of deposits were recorded at fair value. The determination of the fair value was calculated using a discounted cash flow analysis, which involved present valuing the contractual payments over the remaining life of the certificate of deposit at market based-rates.
The Company recorded a $1.2 million premium from the results of the certificate of deposit valuation. There was $245.0 thousand and $327.0 thousand of accretion recorded during the three and six months ended June 30, 2018.
Borrowings
The borrowings at acquisition typically require a fair market valuation performed as of the acquisition date. The difference between the current recorded balance and the fair market value will be reflected as a fair value mark. The Company’s Treasury team performed two valuations to review the fair value mark. After reviewing the results, the fair value mark was immaterial and management decided not to record any fair market value adjustment on the acquired borrowings.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

(3) Investment Securities
The following tables set forth investment securities available-for-sale and held-to-maturity at the dates indicated:
 
At June 30, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In Thousands)
Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$
184,716

 
$

 
$
4,762

 
$
179,954

GSE CMOs
118,782

 
14

 
5,918

 
112,878

GSE MBSs
187,181

 
175

 
5,718

 
181,638

SBA commercial loan asset-backed securities
57

 

 

 
57

Corporate debt obligations
50,752

 
1

 
1,058

 
49,695

U.S. Treasury bonds
33,550

 
117

 
251

 
33,416

Marketable equity securities
983

 
2

 
21

 
964

Total investment securities available-for-sale
$
576,021

 
$
309

 
$
17,728

 
$
558,602

Investment securities held-to-maturity:
 
 
 
 
 
 
 
GSE debentures
$
50,535

 
$

 
$
1,614

 
$
48,921

GSEs MBSs
12,785

 

 
376

 
12,409

Municipal obligations
52,850

 
12

 
787

 
52,075

Foreign government obligations
500

 

 
2

 
498

Total investment securities held-to-maturity
$
116,670


$
12


$
2,779


$
113,903

 
December 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In Thousands)
Investment securities available-for-sale:
 
 
 
 
 
 
 
GSE debentures
$
151,483

 
$
70

 
$
1,629

 
$
149,924

GSE CMOs
131,082

 
27

 
4,087

 
127,022

GSE MBSs
191,281

 
354

 
2,322

 
189,313

SBA commercial loan asset-backed securities
73

 

 
1

 
72

Corporate debt obligations
62,811

 
110

 
238

 
62,683

U.S. Treasury bonds
8,785

 
7

 
62

 
8,730

Trust preferred securities
1,471

 

 
73

 
1,398

Marketable equity securities
978

 
13

 
9

 
982

Total investment securities available-for-sale
$
547,964

 
$
581

 
$
8,421

 
$
540,124

Investment securities held-to-maturity:
 
 
 
 
 
 
 
GSE debentures
$
41,612

 
$

 
$
811

 
$
40,801

GSEs MBSs
13,923

 

 
218

 
13,705

Municipal obligations
53,695

 
159

 
337

 
53,517

Foreign government obligations
500

 

 

 
500

Total investment securities held-to-maturity
$
109,730

 
$
159

 
$
1,366

 
$
108,523

As of June 30, 2018, the fair value of all investment securities available-for-sale was $558.6 million, with net unrealized losses of $17.4 million, compared to a fair value of $540.1 million and net unrealized losses of $7.8 million as of December 31, 2017. As of June 30, 2018, $524.2 million, or 93.8% of the portfolio, had gross unrealized losses of $17.7 million, compared to $469.2 million, or 86.9% of the portfolio, with gross unrealized losses of $8.4 million as of December 31, 2017.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

As of June 30, 2018, the fair value of all investment securities held-to-maturity was $113.9 million, with net unrealized losses of $2.8 million, compared to a fair value of $108.5 million with net unrealized losses of $1.2 million as of December 31, 2017. As of June 30, 2018, $110.2 million, or 96.8% of the portfolio, had gross unrealized losses of $2.8 million. As of December 31, 2017, $92.9 million, or 85.6% of the portfolio had gross unrealized losses of $1.4 million.
Investment Securities as Collateral
As of June 30, 2018 and December 31, 2017, respectively, $470.5 million and $431.2 million of investment securities were pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLBB borrowings. The Banks did not have any outstanding FRB borrowings as of June 30, 2018 and December 31, 2017.
Other-Than-Temporary Impairment ("OTTI")
Investment securities as of June 30, 2018 and December 31, 2017 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:
 
At June 30, 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
$
165,043

 
$
3,985

 
$
14,912

 
$
777

 
$
179,955

 
$
4,762

GSE CMOs
2,394

 
76

 
109,971

 
5,842

 
112,365

 
5,918

GSE MBSs
106,235

 
2,582

 
68,885

 
3,136

 
175,120

 
5,718

SBA commercial loan asset-backed securities

 

 
57

 

 
57

 

Corporate debt obligations
45,348

 
898

 
2,347

 
160

 
47,695

 
1,058

U.S. Treasury bonds
8,552

 
251

 

 

 
8,552

 
251

Marketable equity securities

 

 
491

 
21

 
491

 
21

Temporarily impaired investment securities available-for-sale
327,572

 
7,792

 
196,663

 
9,936

 
524,235

 
17,728

Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
34,980

 
818

 
13,942

 
796

 
48,922

 
1,614

GSEs MBSs
1,841

 
41

 
10,420

 
335

 
12,261

 
376

Municipal obligations
41,909

 
520

 
6,630

 
267

 
48,539

 
787

Foreign government obligations

 

 
498

 
2

 
498

 
2

Temporarily impaired investment securities held-to-maturity
78,730


1,379


31,490


1,400


110,220


2,779

Total temporarily impaired investment securities
$
406,302


$
9,171


$
228,153


$
11,336


$
634,455


$
20,507


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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

 
December 31, 2017
 
Less than
Twelve Months
 
Twelve Months
or Longer
 
Total
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
 
(In Thousands)
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
$
120,409

 
$
1,263

 
$
12,481

 
$
366

 
$
132,890

 
$
1,629

GSE CMOs
2,862

 
34

 
123,548

 
4,053

 
126,410

 
4,087

GSE MBSs
94,985

 
753

 
74,782

 
1,569

 
169,767

 
2,322

SBA commercial loan asset-backed securities
34

 

 
33

 
1

 
67

 
1

Corporate debt obligations
30,978

 
154

 
2,423

 
84

 
33,401

 
238

U.S. Treasury bonds
4,767

 
62

 

 

 
4,767

 
62

Trust preferred securities

 

 
1,398

 
73

 
1,398

 
73

Marketable equity securities

 

 
503

 
9

 
503

 
9

Temporarily impaired investment securities available-for-sale
254,035

 
2,266

 
215,168

 
6,155

 
469,203

 
8,421

Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
26,594

 
281

 
14,208

 
530

 
40,802

 
811

GSEs MBSs
1,996

 
15

 
11,674

 
203

 
13,670

 
218

Municipal obligations
30,542

 
235

 
7,408

 
102

 
37,950

 
337

Foreign government obligations

 

 
500

 

 
500

 

Temporarily impaired investment securities held-to-maturity
59,132

 
531

 
33,790

 
835

 
92,922

 
1,366

Total temporarily impaired investment securities
$
313,167

 
$
2,797

 
$
248,958

 
$
6,990

 
$
562,125

 
$
9,787

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 June 30, 2018. Based on the analysis below and the determination that, it is more likely than not that the Company will not sell or be required to sell the investment securities before recovery of its amortized cost. The Company's ability and intent to hold these investment securities until recovery is supported by the Company's strong capital and liquidity positions as well as its historically low portfolio turnover. As such, management has determined that the investment securities are not OTTI as of June 30, 2018. If market conditions for

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional OTTI in future periods.
U.S. Government-Sponsored Enterprises
The Company invests in securities issued by U.S. Government-sponsored enterprises ("GSEs"), including GSE debentures, mortgage-backed securities ("MBSs"), and collateralized mortgage obligations ("CMOs"). GSE securities include obligations issued by the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA"), the FHLBB and the Federal Farm Credit Bank. As of June 30, 2018, 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 $22.2 million were backed explicitly by the full faith and credit of the U.S. Government, compared to $23.7 million as of December 31, 2017.
As of June 30, 2018, the Company owned 60 GSE debentures with a total fair value of $180.0 million, and a net unrealized loss of $4.8 million. As of December 31, 2017, the Company held 48 GSE debentures with a total fair value of $149.9 million, with a net unrealized loss of $1.6 million. As of June 30, 2018, 60 of the 60 securities in this portfolio were in an unrealized loss position. As of December 31, 2017, 43 of the 48 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA/SBA) guarantee of the U.S Government. During the six months ended June 30, 2018, the Company purchased a total of $33.9 million GSE debentures. This compares to $42.1 million purchased during the same period in 2017.
As of June 30, 2018, the Company owned 62 GSE CMOs with a total fair value of $112.9 million and a net unrealized loss of $5.9 million. As of December 31, 2017, the Company held 62 GSE CMOs with a total fair value of $127.0 million with a net unrealized loss of $4.1 million. As of June 30, 2018, 50 of the 62 securities in this portfolio were in an unrealized loss position. As of December 31, 2017, 47 of the 62 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the six months ended June 30, 2018 and 2017, the Company did not purchase any GSE CMOs.
As of June 30, 2018, the Company owned 184 GSE MBSs with a total fair value of $181.6 million and a net unrealized loss of $5.5 million. As of December 31, 2017, the Company held 194 GSE MBSs with a total fair value of $189.3 million with a net unrealized loss of $2.0 million. As of June 30, 2018, 94 of the 184 securities in this portfolio were in an unrealized loss position. As of December 31, 2017, 82 of the 194 securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the six months ended June 30, 2018, the Company purchased a total of $15.2 million GSE MBSs, as compared to the same period in 2017, when the Company did not purchase any GSE MBSs.
SBA Commercial Loan Asset-Backed
As of June 30, 2018, the Company owned five SBA securities with a total fair value of $0.1 million, which approximated amortized cost. As of December 31, 2017, the Company owned five SBA securities with a total fair value of $0.1 million, which approximated amortized cost. As of June 30, 2018, four of the five securities in this portfolio were in an unrealized loss position. As of December 31, 2017, four of the five securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the explicit guarantee of the U.S Government. During the six months ended June 30, 2018 and 2017, the Company did not purchase any SBA securities.
Corporate Obligations
The Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. As of June 30, 2018, the Company held 15 corporate obligation securities with a total fair value of $49.7 million and a net unrealized loss of $1.1 million. As of December 31, 2017, the Company held 19 corporate obligation securities with a total fair value of $62.7 million and a net unrealized loss of $0.1 million. As of June 30, 2018, 14 of the 15 securities in this portfolio were in an unrealized loss position. As of December 31, 2017, nine of the nineteen securities in this portfolio were in an unrealized loss position. Full collection of the obligations is expected because the financial condition of the issuers is sound, they have not defaulted on scheduled payments, the obligations are rated investment grade, and the Company has the ability and intent to hold the obligations for a period of time to recover the amortized cost. During the six months ended June 30, 2018 the Company did not purchase any corporate obligations, as compared to the same period in 2017, when the Company purchased a total of $10.3 million corporate obligations.

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Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

U.S. Treasury Bonds
The Company invests in securities issued by the U.S. government. As of June 30, 2018, the Company owned seven U.S. Treasury bonds with a total fair value of $33.4 million and an unrealized loss of $0.1 million. This compares to two U.S. Treasury bonds with a total fair value of $8.7 million and an unrealized loss of $0.1 million as of December 31, 2017. During the six months ended June 30, 2018, the Company purchased a total of $24.7 million U.S. Treasury bonds, as compared to the same period in 2017, when the Company did not purchase any U.S. Treasury bonds.
Trust Preferred Securities
Trust preferred securities represent subordinated debt issued by financial institutions. As of June 30, 2018, the Company did not own any trust preferred securities. This compares to three trust preferred securities with a total fair value of $1.4 million and an unrealized loss of $0.1 million as of December 31, 2017.
Marketable Equity Securities
From time to time, the Company will invest in mutual funds for community reinvestment purposes. As of June 30, 2018 and December 31, 2017, the Company owned two marketable equity securities with a fair value of $1.0 million, which approximated amortized cost. As of June 30, 2018 and December 31, 2017, one of the two securities in this portfolio was in an unrealized loss position. During the six months ended June 30, 2018 and 2017, the Company did not purchase any marketable equity securities.
Investment Securities Held-to-Maturity Impairment Analysis
The following discussion summarizes by investment security type, the basis for evaluating if the applicable investment securities within the Company's held-to-maturity portfolio were OTTI at June 30, 2018. Management has the ability and the intent to hold the securities until maturity.
U.S. Government-Sponsored Enterprises
As of June 30, 2018, the Company owned 17 GSE debentures with a total fair value of $48.9 million and a net unrealized loss of $1.6 million. As of December 31, 2017, the Company owned 14 GSE debentures with a total fair value of $40.8 million and an unrealized loss of $0.8 million. As of June 30, 2018, all 17 securities in this portfolio were in an unrealized loss position. At December 31, 2017, all 14 of the securities in this portfolio were in unrealized loss positions. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the six months ended June 30, 2018 and 2017, the Company purchased a total of $8.9 million and $23.9 million in GSE debentures, respectively.
As of June 30, 2018, the Company owned 11 GSE MBSs with a total fair value of $12.4 million and an unrealized loss of $0.4 million. As of December 31, 2017, the Company owned 11 GSE MBSs with a total fair value of $13.7 million and an unrealized loss of $0.2 million. As of June 30, 2018 and December 31, 2017, eight of the eleven securities in this portfolio were in an unrealized loss position. All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA) guarantee of the U.S Government. During the six months ended June 30, 2018 and 2017, the Company did not 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 June 30, 2018, the Company owned 99 municipal obligation securities with a total fair value of $52.1 million and and a net unrealized loss of $0.8 million. As of December 31, 2017, the Company owned 100 municipal obligation securities with a total fair value of $53.5 million and an unrealized loss of $0.2 million. As of June 30, 2018, 91 of the 99 securities in this portfolio were in an unrealized loss position as compared to December 31, 2017, when 69 of the 100 securities were in an unrealized loss position. During the six months ended June 30, 2018 and 2017, the Company did not purchase any municipal obligations.




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Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

Foreign Government Obligations
As of June 30, 2018 and December 31, 2017, the Company owned one foreign government obligation security with a fair value of $0.5 million, which approximated cost. As of June 30, 2018 and December 31, 2017 respectively, the security was in an unrealized loss position. During the six months ended June 30, 2018 and 2017, the Company did not purchase any foreign government obligations.
Portfolio Maturities
The final stated maturities of the debt securities are as follows for the periods indicated:
 
At June 30, 2018
 
At December 31, 2017
 
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
$
19,041

 
$
19,010

 
2.15
%
 
$
23,612

 
$
23,652

 
2.27
%
After 1 year through 5 years
183,154

 
179,310

 
2.14
%
 
142,772

 
142,029

 
2.05
%
After 5 years through 10 years
158,023

 
153,351

 
2.25
%
 
136,746

 
134,978

 
2.06
%
Over 10 years
214,820

 
205,967

 
2.17
%
 
243,856

 
238,483

 
2.06
%
 
$
575,038

 
$
557,638

 
2.18
%
 
$
546,986

 
$
539,142

 
2.07
%
Investment securities held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Within 1 year
$
5,174

 
$
5,157

 
1.00
%
 
$
918

 
$
916

 
0.78
%
After 1 year through 5 years
59,564

 
58,545

 
1.83
%
 
58,335

 
57,939

 
1.74
%
After 5 years through 10 years
39,294

 
37,940

 
2.01
%
 
36,589

 
35,998

 
1.79
%
Over 10 years
12,638

 
12,261

 
2.29
%
 
13,888

 
13,670

 
1.98
%
 
$
116,670

 
$
113,903

 
1.90
%
 
$
109,730

 
$
108,523

 
1.78
%
Actual maturities of debt securities will differ from those presented above since certain obligations amortize and may also provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. MBSs and CMOs are included above based on their final stated maturities; the actual maturities, however, may occur earlier due to anticipated prepayments and stated amortization of cash flows.
As of June 30, 2018, issuers of debt securities with an estimated fair value of $21.9 million had the right to call or prepay the obligations. Of the $21.9 million, approximately $8.9 million matures in 1 - 5 years, $13.0 million matures in 6 - 10 years, and none mature after ten years. As of December 31, 2017, issuers of debt securities with an estimated fair value of approximately $58.8 million had the right to call or prepay the obligations. Of the $58.8 million, $32.7 million matures in 1-5 years, $25.2 million matures in 6-10 years, and $0.9 million matures 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 are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The table below includes the activity with respect to the sale of the CBU shares.
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.

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Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At and for the Six Months Ended June 30, 2018 and 2017

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.
Sales of investment and restricted equity securities are summarized as follows:
 
Six Months Ended June 30, 2018

Six Months Ended June 30, 2017
 
(In Thousands)
Sales of marketable and restricted equity securities
$
2,700

 
$
11,393

 
 
 
 
Gross gains from sales
1,230

 
11,612

Gross losses from sales
(68
)
 
(219
)
Gain on sales of securities, net
$
1,162

 
$
11,393

(4) Loans and Leases
The following tables present loan and lease balances and weighted average coupon rates for the originated and acquired loan and lease portfolios at the dates indicated:
 
At June 30, 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
$
2,129,815

 
4.41
%
 
$
139,705

 
4.55
%
 
$
2,269,520

 
4.42
%
Multi-family mortgage
766,614

 
4.34
%
 
49,697

 
4.49
%
 
816,311

 
4.35
%
Construction
143,888

 
5.06
%
 
34,447

 
6.69
%
 
178,335

 
5.37
%
Total commercial real estate loans
3,040,317

 
4.42
%
 
223,849

 
4.87
%
 
3,264,166

 
4.45
%
Commercial loans and leases:
 
 
 
 
 
 
 
 
 
 
 

Commercial
727,962

 
4.66
%
 
34,002

 
5.45
%
 
761,964

 
4.70
%
Equipment financing
917,070

 
7.46
%
 
3,573

 
5.96
%
 
920,643

 
7.45
%
Condominium association
53,537

 
4.56
%
 

 
%
 
53,537

 
4.56
%
Total commercial loans and leases
1,698,569

 
6.17
%
 
37,575

 
5.50
%
 
1,736,144

 
6.16
%
Consumer loans:
 
 
 
 
 
 
 
 
 
 
 

Residential mortgage
608,610

 
3.90
%
 
146,208

 
4.32