Brookline Bancorp Inc.

11/06/2024 | Press release | Distributed by Public on 11/06/2024 13:23

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

brkl-20240930
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to .
Commission file number 0-23695
BROOKLINE BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3402944
(State or other jurisdiction of
incorporation or organization) 		(I.R.S. Employer Identification No.)
131 Clarendon Street
Boston MA
02116
(Address of principal executive offices) (Zip Code)
(617) 425-4600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock BRKL Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12-b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer
☐
Smaller Reporting Company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At October 31, 2024, the number of shares of common stock, par value $0.01 per share, outstanding was 89,098,443.
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
Table of Contents
Page
Glossary of Acronyms and Terms
ii
Part I
Financial Information
Item 1.
Unaudited Consolidated Financial Statements
Unaudited Consolidated Balance Sheets at September 30, 2024 and December 31, 2023
1
Unaudited Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2024 and 2023
2
Unaudited Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2024 and 2023
3
Unaudited Consolidated Statements of Changes in Equity for the Three Months and Nine Months Ended September 30, 2024 and 2023
4
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023
6
Notes to Unaudited Consolidated Financial Statements
8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
50
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
86
Item 4.
Controls and Procedures
88
Part II
Other Information
Item 1.
Legal Proceedings
89
Item 1A.
Risk Factors
89
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
89
Item 3.
Defaults Upon Senior Securities
89
Item 4.
Mine Safety Disclosures
89
Item 5.
Other Information
89
Item 6.
Exhibits
90
Signatures
91
i
Glossary of Acronyms and Terms
2014 Plan Brookline Bancorp, Inc. 2014 Equity Incentive Plan
2021 Plan Brookline Bancorp, Inc. 2021 Stock Option and Incentive Plan
ACL Allowance for Credit Losses
AFX American Financial Exchange
ALCO Asset/Liability Committee
BankRI Bank Rhode Island
Banks Brookline Bank, Bank Rhode Island, and PCSB Bank
C&I Commercial and industrial
Clarendon Private Clarendon Private, LLC
CMOs Collateralized mortgage obligations
Company Brookline Bancorp, Inc. and its subsidiaries
CRE Commercial real estate
Eastern Funding Eastern Funding, LLC
EPS Earnings per Share
EVE Economic Value of Equity
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FHLB Federal Home Loan Bank of Boston and New York
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FRB Board of Governors of the Federal Reserve System
GAAP U.S generally accepted accounting principles
GNMA Government National Mortgage Association
GSEs U.S. Government-sponsored enterprises
IBORs Interbank Offered Rates
LEQ Loan equivalency
LIBOR London Interbank Offered Rate
MBSs Mortgage-backed securities
OAEM Other Assets Especially Mentioned
OCI Other comprehensive income
OREO Other Real Estate Owned
Plans The 2014 Plan and the 2021 Plan
SBA Small Business Administration
SEC U.S. Securities and Exchange Commission
ii
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
At September 30, 2024 At December 31, 2023
(In Thousands Except Share Data)
ASSETS
Cash and due from banks $ 82,168 $ 34,514
Short-term investments 325,721 98,513
Total cash and cash equivalents 407,889 133,027
Investment securities available-for-sale 855,391 916,601
Total investment securities 855,391 916,601
Allowance for investment security losses (186) (441)
Net investment securities 855,205 916,160
Loans and leases:
Commercial real estate loans 5,779,290 5,764,529
Commercial loans and leases 2,453,038 2,399,668
Consumer loans 1,522,908 1,477,392
Total loans and leases 9,755,236 9,641,589
Allowance for loan and lease losses (127,316) (117,522)
Net loans and leases 9,627,920 9,524,067
Restricted equity securities 82,675 77,595
Premises and equipment, net of accumulated depreciation of $106,222 and $100,408, respectively
86,925 89,853
Right-of-use asset operating leases 41,934 30,863
Deferred tax asset 50,827 56,952
Goodwill 241,222 241,222
Identified intangible assets, net of accumulated amortization of $14,825 and $47,963, respectively
19,162 24,207
OREO and repossessed assets, net 1,579 1,694
Other assets 261,383 286,616
Total assets $ 11,676,721 $ 11,382,256
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand checking accounts $ 1,681,858 $ 1,678,406
Interest-bearing deposits 7,050,413 6,869,719
Total deposits 8,732,271 8,548,125
Borrowed funds:
Advances from the FHLB 1,345,003 1,223,226
Subordinated debentures and notes 84,293 84,188
Other borrowed funds 68,251 69,256
Total borrowed funds 1,497,547 1,376,670
Operating lease liabilities 43,266 31,998
Mortgagors' escrow accounts 14,456 17,239
Reserve for unfunded credits 6,859 19,767
Accrued expenses and other liabilities 151,960 189,813
Total liabilities 10,446,359 10,183,612
Commitments and contingencies (Note 12)
Stockholders' Equity:
Brookline Bancorp, Inc. stockholders' equity:
Common stock, $0.01 par value; 200,000,000 shares authorized; 96,998,075 shares issued and 96,998,075 shares issued, respectively
970 970
Additional paid-in capital 901,562 902,659
Retained earnings 453,555 438,722
Accumulated other comprehensive (loss) income (38,081) (52,798)
Treasury stock, at cost; 7,015,843 shares and 7,354,399 shares, respectively
(87,644) (90,909)
Total stockholders' equity 1,230,362 1,198,644
Total liabilities and stockholders' equity $ 11,676,721 $ 11,382,256
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 September 30, Nine Months Ended September 30,
2024 2023 2024 2023
(In Thousands Except Share Data)
Interest and dividend income:
Loans and leases $ 149,643 $ 136,561 $ 440,493 $ 390,791
Debt securities 6,473 6,799 19,831 22,703
Restricted equity securities 1,458 1,310 4,326 4,238
Short-term investments 1,986 2,390 5,724 7,236
Total interest and dividend income 159,560 147,060 470,374 424,968
Interest expense:
Deposits 59,796 49,116 176,401 121,631
Borrowed funds 16,756 13,874 49,376 47,181
Total interest expense 76,552 62,990 225,777 168,812
Net interest income 83,008 84,070 244,597 256,156
Provision for credit losses on loans 4,832 2,947 17,862 34,017
Provision (credit) for credit losses on investments (172) 84 (255) 415
Net interest income after provision for credit losses 78,348 81,039 226,990 221,724
Non-interest income:
Deposit fees 2,353 3,024 8,251 8,547
Loan fees 464 639 1,955 1,521
Loan level derivative income, net - 376 543 3,112
Gain on investment securities, net - - - 1,704
Gain on sales of loans and leases held-for-sale 415 225 545 2,171
Other 3,116 1,244 7,734 6,852
Total non-interest income 6,348 5,508 19,028 23,907
Non-interest expense:
Compensation and employee benefits 35,130 33,491 106,521 103,494
Occupancy 5,343 4,983 16,663 15,076
Equipment and data processing 6,831 6,766 20,594 19,759
Professional services 2,143 2,368 5,788 5,784
FDIC insurance 2,118 2,152 6,027 6,005
Advertising and marketing 859 1,174 3,937 3,966
Amortization of identified intangible assets 1,668 1,955 5,045 5,875
Merger and restructuring expense - - 823 7,411
Other 3,856 4,790 12,748 12,910
Total non-interest expense 57,948 57,679 178,146 180,280
Income before provision for income taxes 26,748 28,868 67,872 65,351
Provision for income taxes 6,606 6,167 16,693 13,240
Net income $ 20,142 $ 22,701 $ 51,179 $ 52,111
Earnings per common share:
Basic $ 0.23 $ 0.26 $ 0.58 $ 0.59
Diluted 0.23 0.26 0.57 0.59
Weighted average common shares outstanding:
Basic 89,033,463 88,795,270 88,944,569 88,016,190
Diluted 89,319,611 88,971,210 89,241,470 88,253,361
Dividends paid per common share $ 0.135 $ 0.135 $ 0.405 $ 0.405
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 September 30, Nine Months Ended September 30,
2024 2023 2024 2023
(In Thousands)
Net income $ 20,142 $ 22,701 $ 51,179 $ 52,111
Investment securities available-for-sale:
Unrealized securities holding gains (losses) 26,518 (18,842) 17,065 (22,209)
Income tax (expense) benefit (6,089) 4,416 (3,823) 5,421
Net unrealized securities holding gains (losses) before reclassification adjustments, net of taxes 20,429 (14,426) 13,242 (16,788)
Cash flow hedges:
Change in fair value of cash flow hedges 3,186 (3,831) (1,215) (5,260)
Income tax (expense) benefit (814) 1,012 238 1,384
Net change in fair value of cash flow hedges, net of taxes 2,372 (2,819) (977) (3,876)
Less reclassification adjustment for change in fair value of cash flow hedges:
Gain (loss) on change in fair value of cash flow hedges (1,090) (2,513) (3,296) (1,446)
Income tax (expense) benefit 279 653 844 376
Net reclassification adjustment for change in fair value of cash flow hedges (811) (1,860) (2,452) (1,070)
Net change in fair value of cash flow hedges 3,183 $ (959) 1,475 $ (2,806)
Other comprehensive gain (loss), net of taxes 23,612 (15,385) 14,717 (19,594)
Comprehensive income $ 43,754 $ 7,316 $ 65,896 $ 32,517
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 September 30, 2024 and 2023
Common
Stock 		Additional
Paid-in
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss) 		Treasury
Stock 		Total Stockholders'
Equity
(In Thousands)
Balance at June 30, 2024 $ 970 $ 904,775 $ 445,560 $ (61,693) $ (91,132) $ 1,198,480
Net income - - 20,142 - - $ 20,142
Other comprehensive income (loss) - - - 23,612 - $ 23,612
Common stock dividends of $0.135 per share
- - (12,028) - - $ (12,028)
Restricted stock awards issued, net of awards surrendered - (4,147) - - 3,488 $ (659)
Compensation under recognition and retention plans - 934 (119) - - $ 815
Balance at September 30, 2024 $ 970 $ 901,562 $ 453,555 $ (38,081) $ (87,644) $ 1,230,362
Common
Stock 		Additional
Paid-in
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss) 		Treasury
Stock 		Total Stockholders'
Equity
(In Thousands)
Balance at June 30, 2023 $ 970 $ 905,084 $ 417,328 $ (66,156) $ (94,918) $ 1,162,308
Net income - - 22,701 - - 22,701
Other comprehensive income (loss) - - - (15,385) - (15,385)
Common stock dividends of $0.135 per share
- - (11,990) - - (11,990)
Restricted stock awards issued, net of awards surrendered - (4,725) - - 4,047 (678)
Compensation under recognition and retention plan - 1,017 (102) - - 915
Balance at September 30, 2023 $ 970 $ 901,376 $ 427,937 $ (81,541) $ (90,871) $ 1,157,871
See accompanying notes to unaudited consolidated financial statements.
4
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 2024 and 2023
Common
Stock 		Additional
Paid-in
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss) 		Treasury
Stock 		Total Stockholders'
Equity
(In Thousands)
Balance at December 31, 2023 $ 970 $ 902,659 $ 438,722 $ (52,798) $ (90,909) $ 1,198,644
Net income - - 51,179 - - 51,179
Other comprehensive income (loss) - - - 14,717 - 14,717
Common stock dividends of $0.405 per share
- - (36,030) - - (36,030)
Restricted stock awards issued, net of awards surrendered - (3,924) - - 3,265 (659)
Compensation under recognition and retention plans - 2,827 (316) - - 2,511
Balance at September 30, 2024 $ 970 $ 901,562 $ 453,555 $ (38,081) $ (87,644) $ 1,230,362
Common
Stock 		Additional
Paid-in
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss) 		Treasury
Stock 		Total Stockholders'
Equity
(In Thousands)
Balance at December 31, 2022 $ 852 $ 736,074 $ 412,019 $ (61,947) $ (94,873) $ 992,125
Net Income - - 52,111 - - 52,111
PCSB acquisition 118 167,212 - - - 167,330
Other comprehensive income (loss) - - - (19,594) - (19,594)
Common stock dividends of $0.405 per share
- - (35,929) - - (35,929)
Restricted stock awards issued, net of awards surrendered - (4,733) - - 4,002 (731)
Compensation under recognition and retention plans - 2,823 (264) - - 2,559
Balance at September 30, 2023 $ 970 $ 901,376 $ 427,937 $ (81,541) $ (90,871) $ 1,157,871
See accompanying notes to unaudited consolidated financial statements.
5
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30,
2024 2023
(In Thousands)
Cash flows from operating activities:
Net income $ 51,179 $ 52,111
Adjustments to reconcile net income to net cash provided from operating activities:
Provision for credit losses 17,607 34,432
Deferred income tax (benefit) expense 1,696 8,198
Depreciation of premises and equipment 6,012 6,030
Accretion of investment securities premiums and discounts, net (4,423) (6,750)
(Accretion) amortization of premiums and discounts and deferred loan and lease origination costs, net (5,008) 3,181
Amortization of identified intangible assets 5,045 5,875
Amortization of debt issuance costs 75 75
Amortization (accretion) of acquisition fair value adjustments, net 1,036 (7,850)
Gain on investment securities, net - (1,704)
Gain on sales of loans and leases held-for-sale (545) (2,171)
Write-down of other repossessed assets 297 166
Compensation under recognition and retention plans 2,511 2,558
Net change in:
Cash surrender value of bank-owned life insurance (1,501) (784)
Other assets 29,012 (53,745)
Accrued expenses and other liabilities (41,525) 37,842
Net cash provided from operating activities 61,468 77,464
Cash flows from investing activities:
Proceeds from sales of investment securities available-for-sale - 229,981
Proceeds from maturities, calls, and principal repayments of investment securities available-for-sale 152,554 242,814
Purchases of investment securities available-for-sale (69,856) (330,788)
Proceeds from redemption/sales of restricted equity securities 21,434 40,534
Purchase of restricted equity securities (26,514) (30,685)
Proceeds from sales of loans and leases held-for-investment, net 79,132 184,047
Net increase in loans and leases (205,845) (628,249)
Acquisitions, net of cash and cash equivalents acquired - (80,209)
Purchase of premises and equipment, net (3,173) (10,695)
Proceeds from sales of other repossessed assets 1,161 1,078
Net cash used for investing activities (51,107) (382,172)
(Continued)
See accompanying notes to unaudited consolidated financial statements.
6
Table of Contents
Nine Months Ended September 30,
2024 2023
(In Thousands)
Cash flows from financing activities:
Decrease in demand checking, NOW, savings and money market accounts (44,513) (315,009)
Increase in certificates of deposit and brokered deposits 227,858 790,535
Proceeds from FHLB advances 1,287,100 4,651,000
Repayment of FHLB advances (1,165,439) (5,042,625)
(Decrease) increase in other borrowed funds, net (1,005) 40,827
Decrease in mortgagors' escrow accounts, net (2,783) (5,339)
Payment of dividends on common stock (36,030) (35,929)
Payment of income taxes for shares withheld in share based activity (687) (710)
Net cash provided from financing activities 264,501 82,750
Net increase (decrease) in cash and cash equivalents 274,862 (221,958)
Cash and cash equivalents at beginning of period 133,027 382,959
Cash and cash equivalents at end of period $ 407,889 $ 161,001
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits, borrowed funds and subordinated debt $ 218,897 $ 166,039
Income taxes 10,180 8,437
Non-cash investing activities:
Transfer from loans to other repossessed assets $ 1,343 $ 1,135
Acquisition of PCSB Financial Corporation:
Fair value of assets acquired, net of cash and cash equivalents acquired $ - $ 1,931,528
Fair value of liabilities assumed - 1,676,110
Common stock issued - 118
See accompanying notes to unaudited consolidated financial statements.
7
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
Overview
The Company is a bank holding company (within the meaning of the Bank Holding Company Act of 1956, as amended) and the parent of Brookline Bank, a Massachusetts-chartered trust company; BankRI, a Rhode Island-chartered financial institution; and PCSB Bank, a New York-chartered commercial bank. The Banks are members of the Federal Reserve System. The Company is also the parent of Clarendon Private. The Company's primary business is to provide commercial, business and retail banking services to its corporate, municipal and retail customers through the Banks and its non-bank subsidiaries. Brookline Securities Corp., previously a subsidiary of the Company was dissolved in November 2023.
Brookline Bank, which includes its wholly-owned subsidiaries, Longwood Securities Corp., Eastern Funding and First Ipswich Insurance Agency, operates 28 full-service banking offices in the Greater Boston metropolitan area with three additional lending offices. BankRI, which includes its wholly-owned subsidiaries, Acorn Insurance Agency, BRI Realty Corp., BRI Investment Corp. and its wholly-owned subsidiary, BRI MSC Corp., operates 22 full-service banking offices in the greater Providence, Rhode Island area. PCSB Bank, which includes its wholly-owned subsidiary, UpCounty Realty Corp., operates 14 full-service banking offices in the Lower Hudson Valley of New York. Clarendon Private is a registered investment advisor with the SEC. Through Clarendon Private, the Company offers a wide range of wealth management services to individuals, families, endowments and foundations to help these clients meet their long-term financial goals.
The Banks' activities include acceptance of commercial, municipal and retail deposits, origination of mortgage loans on commercial and residential real estate located principally in Central New England and the Lower Hudson Valley of New York State, origination of commercial loans and leases to small- and mid-sized businesses, investment in debt and equity securities, and the offering of cash management and investment advisory services. The Company also provides specialty equipment financing through it subsidiary Eastern Funding, which is based in New York City, New York, and Plainview, New York.
The Company and the Banks are supervised, examined and regulated by the FRB. As a Massachusetts-chartered trust company, Brookline Bank is subject to supervision, examination and regulation by the Massachusetts Division of Banks. As a Rhode Island-chartered financial institution, BankRI is subject to supervision, examination and regulation by the Banking Division of the Rhode Island Department of Business Regulation. As a New York chartered commercial bank, PCSB Bank is subject to supervision, examination and regulation by the New York State Department of Financial Services. Clarendon Private is also subject to regulation by the SEC.
The FDIC offers insurance coverage on all deposits up to $250,000 per depositor at each of the Banks. As FDIC-insured depository institutions, the Banks are also subject to supervision, examination and regulation by the FDIC.
Basis of Financial Statement Presentation
The unaudited consolidated financial statements of the Company presented herein have been prepared pursuant to the rules of the SEC for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by 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, 2023.
The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.
In preparing these consolidated financial statements, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates based upon changing conditions, including economic conditions and future events. Material estimates that are particularly susceptible to significant changes in the near-term include the determination of the ACL, the determination of fair market values of acquired assets and liabilities, including acquired loans, the review of goodwill and intangible assets for impairment and the review of deferred tax assets for valuation allowances.
The judgments used by management in applying these critical accounting policies may be affected by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. For example, subsequent evaluations of the loan and lease portfolio, in light of the factors then prevailing, may result in significant changes in
8
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
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 March 2022, the FASB issued ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures" which addresses concerns regarding the complex accounting for loans modified as troubled debt restructurings and also the disclosure of gross writeoff information included in required vintage disclosures. The Company adopted ASU 2022-02 as of January 1, 2023. The enhanced disclosure requirements provided for by ASU 2022-02 were adopted on a prospective basis. Reporting periods prior to the adoption of ASU 2022-02 are presented in accordance with the applicable GAAP. The adoption did not have a material impact on the Company's consolidated financial statements.
(3) Investment Securities
The following tables set forth investment securities available-for-sale at the dates indicated:
At September 30, 2024
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Estimated
Fair Value
(In Thousands)
Investment securities available-for-sale:
GSE debentures
$ 198,129 $ 908 $ 15,821 $ 183,216
GSE CMOs 63,498 86 4,719 58,865
GSE MBSs 172,586 253 13,072 159,767
Municipal obligations 17,353 213 71 17,495
Corporate debt obligations 12,109 119 562 11,666
U.S. Treasury bonds 441,801 1,855 19,771 423,885
Foreign government obligations 500 - 3 497
Total investment securities available-for-sale $ 905,976 $ 3,434 $ 54,019 $ 855,391
December 31, 2023
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Estimated
Fair Value
(In Thousands)
Investment securities available-for-sale:
GSE debentures $ 220,604 $ 517 $ 19,994 $ 201,127
GSE CMOs 66,463 33 4,879 61,617
GSE MBSs 186,614 62 16,679 169,997
Municipal obligations 18,785 184 47 18,922
Corporate debt obligations 20,521 82 887 19,716
U.S. Treasury bonds 470,764 423 26,450 444,737
Foreign government obligations 500 - 15 485
Total investment securities available-for-sale $ 984,251 $ 1,301 $ 68,951 $ 916,601
As of September 30, 2024, the fair value of all investment securities available-for-sale was $855.4 million, with net unrealized losses of $50.6 million, compared to a fair value of $916.6 million and net unrealized losses of $67.7 million as of December 31, 2023. As of September 30, 2024, $565.1 million, or 66.1% of the portfolio, had gross unrealized losses of $54.0 million, compared to $717.2 million, or 77.8% of the portfolio, with gross unrealized losses of $69.0 million as of December 31, 2023.
9
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
As of September 30, 2024 and December 31, 2023, the Company held no securities as held to maturity; all securities were held as available-for-sale.
Investment Securities as Collateral
As of September 30, 2024 and December 31, 2023, respectively, $796.0 million and $791.2 million of investment securities were pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLB borrowings. The Banks had no outstanding FRB borrowings as of September 30, 2024 and December 31, 2023.
Allowance for Credit Losses-Available-for-Sale Securities
For available-for-sale securities in an unrealized loss position, management first assesses whether (i) the Company intends to sell the security, or (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either criterion is met, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither criterion is met, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors.
If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for credit loss is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through the ACL is recognized in OCI. Adjustments to the allowance are reported as a component of credit loss expense. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible or when either of the aforementioned criteria regarding intent or requirement to sell is met. The Company has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Accrued interest receivables associated with debt securities available-for-sale totaled $4.1 million, as of September 30, 2024 and December 31, 2023.
A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a debt security placed on nonaccrual is reversed against interest income. There were no debt securities on nonaccrual status and therefore there was no accrued interest related to debt securities reversed against interest income for the nine months ended September 30, 2024 and 2023.
Assessment for Available for Sale Securities for Impairment
Investment securities as of September 30, 2024 and December 31, 2023 that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer are as follows:
10
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At September 30, 2024
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 $ - $ - $ 111,159 $ 15,821 $ 111,159 $ 15,821
GSE CMOs - - 53,441 4,719 53,441 4,719
GSE MBSs 4,030 68 115,449 13,004 119,479 13,072
Municipal obligations - - 3,833 71 3,833 71
Corporate debt obligations - - 9,234 562 9,234 562
U.S. Treasury bonds - - 267,415 19,771 267,415 19,771
Foreign government obligations - - 497 3 497 3
Temporarily impaired investment securities available-for-sale 4,030 68 561,028 53,951 565,058 54,019
Total temporarily impaired investment securities $ 4,030 $ 68 $ 561,028 $ 53,951 $ 565,058 $ 54,019
At December 31, 2023
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 $ 10,964 $ 12 $ 121,993 $ 19,982 $ 132,957 $ 19,994
GSE CMOs 42,057 3,547 14,571 1,332 56,628 4,879
GSE MBSs 34,317 561 122,367 16,118 156,684 16,679
Municipal obligations 3,859 47 - - 3,859 47
Corporate debt obligations 10,911 810 6,427 77 17,338 887
U.S. Treasury bonds 117,132 676 232,074 25,774 349,206 26,450
Foreign government obligations - - 485 15 485 15
Temporarily impaired investment securities available-for-sale 219,240 5,653 497,917 63,298 717,157 68,951
Total temporarily impaired investment securities $ 219,240 $ 5,653 $ 497,917 $ 63,298 $ 717,157 $ 68,951
The Company performs regular analyses of the investment securities available-for-sale portfolio to determine whether a decline in fair value indicates that an investment security is impaired. In making these impairment determinations, management considers, among other factors, projected future cash flows; credit subordination and the creditworthiness; capital adequacy and near-term prospects of the issuers.
Management also considers the Company's capital adequacy, interest-rate risk, liquidity and business plans in assessing whether it is more likely than not that the Company will sell or be required to sell the investment securities before recovery. If the Company determines that a security investment is impaired and that it is more likely than not that the Company will not sell or be required to sell the investment security before recovery of its amortized cost, the credit portion of the impairment loss is recognized in the Company's consolidated statement of income and the noncredit portion is recognized in accumulated OCI. The credit portion of the impairment represents the difference between the amortized cost and the present value of the expected future cash flows of the investment security. If the Company determines that a security is impaired and it is more likely than not
11
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
that it will sell or be required to sell the investment security before recovery of its amortized cost, the entire difference between the amortized cost and the fair value of the security will be recognized in the Company's consolidated statement of income.
Investment Securities Available-For-Sale Impairment Analysis
The following discussion summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company's available-for-sale portfolio were impaired as of September 30, 2024. The Company has determined it is more likely than not that the Company will not sell or be required to sell the investment securities before recovery of its amortized cost. The Company's ability and intent to hold these investment securities until recovery is supported by the Company's strong capital and liquidity positions as well as its historically low portfolio turnover. As such, management has determined that the investment securities are not impaired as of September 30, 2024. If market conditions for investment securities worsen or the creditworthiness of the underlying issuers deteriorates, it is possible that the Company may recognize additional impairment in future periods.
U.S. Government-Sponsored Enterprises
The Company invests in securities issued by GSEs, including GSE debentures, MBSs, and CMOs. GSE securities include obligations issued by the FNMA, the FHLMC, the GNMA, the FHLB and the Federal Farm Credit Bank. As of September 30, 2024, the Company held GNMA MBSs and CMOs, and SBA commercial loan asset-backed securities in its available-for-sale portfolio with an estimated fair value of $33.8 million, all of which were backed explicitly by the full faith and credit of the U.S. Government, compared to $33.9 million as of December 31, 2023.
All securities are performing and backed by the implicit (FHLB/FNMA/FHLMC) or explicit (GNMA/SBA) guarantee of the U.S. Government. Therefore, despite unrealized losses in some of the securities within the portfolio, management has determined that the investment securities are not impaired. See discussion on the portfolio below.
As of September 30, 2024, the Company owned 38 GSE debentures with a total fair value of $183.2 million, and a net unrealized loss of $14.9 million. As of December 31, 2023, the Company held 43 GSE debentures with a total fair value of $201.1 million, with a net unrealized loss of $19.5 million. As of September 30, 2024, 19 of the 38 securities in this portfolio were in an unrealized loss position. As of December 31, 2023, 27 of the 43 securities in this portfolio were in an unrealized loss position. During the nine months ended September 30, 2024, the Company did not purchase any GSE debentures compared to the same period in 2023 when the Company purchase $9.7 million GSE debentures.
As of September 30, 2024, the Company owned 59 GSE CMOs with a total fair value of $58.9 million and a net unrealized loss of $4.6 million. As of December 31, 2023, the Company held 60 GSE CMOs with a total fair value of $61.6 million with a net unrealized loss of $4.8 million. As of September 30, 2024, 55 of the 59 securities in this portfolio were in an unrealized loss position. As of December 31, 2023, 57 of the 60 securities in this portfolio were in an unrealized loss position. During the nine months ended September 30, 2024 and 2023, the Company did not purchase any GSE CMOs.
As of September 30, 2024, the Company owned 143 GSE MBSs with a total fair value of $159.8 million and a net unrealized loss of $12.8 million. As of December 31, 2023, the Company held 146 GSE MBSs with a total fair value of $170.0 million with a net unrealized loss of $16.6 million. As of September 30, 2024, 84 of the 143 securities in this portfolio were in an unrealized loss position. As of December 31, 2023, 125 of the 146 securities in this portfolio were in an unrealized loss position. During the nine months ended September 30, 2024 the Company purchase $4.1 million GSE MBSs compared to the same period in 2023 when the Company purchased $39.4 million of GSE MBSs.
Municipal Obligations
The Company invests in certain state and municipal securities with high credit ratings for portfolio diversification and tax planning purposes. Full collection of the obligations is expected because the financial conditions of the issuing municipalities are 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. As of September 30, 2024, the Company owned 42 municipal obligation securities with a total fair value of $17.5 million and a net unrealized gain of $0.1 million. As of December 31, 2023, the Company owned 44 municipal obligation securities with a total fair value of $18.9 million and a net unrealized gain of $0.1 million. As of September 30, 2024, 6 of the 42 securities in this portfolio were in an unrealized loss position. As of December 31, 2023, 6 of the 44 securities in this portfolio were in an unrealized loss position. During the nine months ended September 30, 2024, the Company purchased $7.3 million of municipal securities compared to the same period in 2023 when the Company purchased $9.0 million of municipal securities.
12
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Corporate Obligations
The Company may invest in high-quality corporate obligations to provide portfolio diversification and improve the overall yield on the portfolio. 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. As of September 30, 2024, the Company held 5 corporate obligation securities with a total fair value of $11.7 million and a net unrealized loss of $0.4 million. As of December 31, 2023, the Company held 11 corporate obligation securities with a total fair value of $19.7 million and a net unrealized loss of $0.8 million. As of September 30, 2024, 3 of the 5 securities in this portfolio were in an unrealized loss position. As of December 31, 2023, 9 of the 11 securities in this portfolio were in an unrealized loss position. During the nine months ended September 30, 2024 and 2023, the Company did not purchase any corporate obligations.
U.S. Treasury Bonds
The Company invests in securities issued by the U.S. government. As of September 30, 2024, the Company owned 59 U.S. Treasury bonds with a total fair value of $423.9 million and a net unrealized loss of $17.9 million. As of December 31, 2023, the Company held 66 U.S. Treasury bonds with a total fair value of $444.7 million and a net unrealized loss of $26.0 million. As of September 30, 2024, 36 of the 59 securities in this portfolio were in an unrealized loss position. As of December 31, 2023, 53 of the 66 securities in this portfolio were in an unrealized loss position. During the nine months ended September 30, 2024, the Company purchased $58.4 million of U.S. Treasury bonds, compared to the same period in 2023 when the Company purchased $272.7 million U.S. Treasury bonds.
Foreign Government Obligations
As of September 30, 2024 and December 31, 2023, the Company owned 1 foreign government obligation security with a fair value of $0.5 million, which approximated cost. As of September 30, 2024 and December 31, 2023, respectively, the security was in an unrealized loss position. During the nine months ended September 30, 2024 and 2023, 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 September 30, 2024 At December 31, 2023
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 $ 54,675 $ 54,757 3.99 % $ 141,989 $ 141,340 4.27 %
After 1 year through 5 years 417,861 409,646 3.08 % 342,525 332,734 3.15 %
After 5 years through 10 years 213,764 189,940 1.68 % 268,182 233,059 1.69 %
Over 10 years 219,676 201,048 3.31 % 231,555 209,468 3.35 %
$ 905,976 $ 855,391 2.88 % $ 984,251 $ 916,601 3.00 %
Actual maturities of debt securities will differ from those presented above since certain obligations amortize and may also provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. MBSs and CMOs are included above based on their final stated maturities; the actual maturities, however, may occur earlier due to anticipated prepayments and stated amortization of cash flows.
As of September 30, 2024, issuers of debt securities with an estimated fair value of $123.7 million had the right to call or prepay the obligations. Of the $123.7 million, approximately $4.9 million matures in less then 1 year, $68.0 million matures in 1-5 years, $42.8 million matures in 6-10 years, and $8.0 million matures after ten years. As of December 31, 2023, issuers of debt securities with an estimated fair value of approximately $122.0 million had the right to call or prepay the obligations. Of the $122.0 million, approximately $6.4 million matures in less then 1 year, $59.7 million matures in 1-5 years, $48.0 million matures in 6-10 years, and $7.9 million matures after ten years.
13
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Security Sales
The Company did not sell any investment securities available-for-sale during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 where the proceeds from the sale of investment securities available-for-sale were $230.0 million. Securities sales executed during the nine months ended 2023 were related to the acquisition of PCSB and the restructuring of the acquired investment portfolio.
Nine Months Ended September 30,
2024 2023
(In Thousands)
Investment securities available-for-sale:
Proceeds from sales: $ - $ 229,981
Gross gains from sales - 2,705
Gross losses from sales - (1,001)
Gain on sales of securities, net $ - $ 1,704
(4) Loans and Leases
The following table presents the amortized cost of loans and leases and weighted average coupon rates for the loan and lease portfolios at the dates indicated:
At September 30, 2024 At December 31, 2023
Balance Weighted
Average
Coupon 		Balance Weighted
Average
Coupon
(Dollars In Thousands)
Commercial real estate loans:
Commercial real estate $ 4,056,018 5.54 % $ 4,047,288 5.47 %
Multi-family mortgage 1,398,348 5.22 % 1,415,191 5.14 %
Construction 324,924 7.13 % 302,050 6.86 %
Total commercial real estate loans 5,779,290 5.55 % 5,764,529 5.46 %
Commercial loans and leases:
Commercial
1,082,959 6.72 % 984,441 6.83 %
Equipment financing 1,324,660 8.16 % 1,370,648 7.76 %
Condominium association 45,419 5.36 % 44,579 5.05 %
Total commercial loans and leases 2,453,038 7.47 % 2,399,668 7.33 %
Consumer loans:
Residential mortgage 1,098,435 4.66 % 1,082,804 4.41 %
Home equity 366,880 7.67 % 344,182 8.03 %
Other consumer 57,593 7.19 % 50,406 7.68 %
Total consumer loans 1,522,908 5.48 % 1,477,392 5.36 %
Total loans and leases $ 9,755,236 6.01 % $ 9,641,589 5.91 %
Accrued interest on loans and leases, which were excluded from the amortized cost of loans and leases totaled $39.7 million and $39.1 million at September 30, 2024 and December 31, 2023, respectively, and were included in other assets in the accompanying consolidated balance sheets.
The net unamortized deferred loan origination costs and premiums and discounts on acquired loans included in total loans and leases were $(21.9) million and $(29.0) million as of September 30, 2024 and December 31, 2023, respectively.
14
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The Banks and their subsidiaries lend primarily in all New England states and New York, with the exception of the equipment financing portfolio, 29.6% of which is in the Greater New York and New Jersey metropolitan area and 70.4% of which is in other areas in the U.S. as of September 30, 2024.
Loans and Leases Pledged as Collateral
As of September 30, 2024 and December 31, 2023, there were $3.6 billion and $3.5 billion respectively of loans and leases pledged as collateral for repurchase agreements; municipal deposits; treasury, tax and loan deposits; swap agreements; FRB borrowings; and FHLB borrowings. The Banks did not have any outstanding FRB borrowings as of September 30, 2024 and December 31, 2023.
(5) Allowance for Credit Losses
The following tables present the changes in the allowance for loan and lease losses in loans and leases by portfolio segment for the periods indicated:
Three Months Ended September 30, 2024
Commercial
Real Estate 		Commercial Consumer Total
(In Thousands)
Balance at June 30, 2024 $ 82,152 $ 33,386 $ 6,212 $ 121,750
Charge-offs - (4,164) (19) (4,183)
Recoveries - 367 8 375
Provision (credit) for loan and lease losses excluding unfunded commitments (6,971) 16,632 (287) 9,374
Balance at September 30, 2024 $ 75,181 $ 46,221 $ 5,914 $ 127,316
Three Months Ended September 30, 2023
Commercial
Real Estate 		Commercial Consumer Total
(In Thousands)
Balance at June 30, 2023 $ 84,301 $ 35,634 $ 5,882 $ 125,817
Charge-offs - (11,047) (29) (11,076)
Recoveries 3 89 10 102
Provision (credit) for loan and lease losses excluding unfunded commitments (5,524) 8,829 933 4,238
Balance at September 30, 2023 $ 78,780 $ 33,505 $ 6,796 $ 119,081
Nine Months Ended September 30, 2024
Commercial
Real Estate 		Commercial Consumer Total
(In Thousands)
Balance at December 31, 2023 $ 81,410 $ 29,557 $ 6,555 $ 117,522
Charge-offs (4,425) (13,933) (38) (18,396)
Recoveries - 1,086 34 1,120
Provision (credit) for loan and lease losses excluding unfunded commitments (1,804) 29,511 (637) 27,070
Balance at September 30, 2024 $ 75,181 $ 46,221 $ 5,914 $ 127,316
15
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Nine Months Ended September 30, 2023
Commercial
Real Estate 		Commercial Consumer Total
(In Thousands)
Balance at December 31, 2022 $ 68,154 $ 26,604 $ 3,724 $ 98,482
Charge-offs - (13,475) (38) (13,513)
Recoveries 15 951 25 991
Provision (credit) for loan and lease losses excluding unfunded commitments 10,611 19,425 3,085 33,121
Balance at September 30, 2023 $ 78,780 $ 33,505 $ 6,796 $ 119,081
The ACL for unfunded credit commitments was $6.9 million, and $19.8 million at September 30, 2024 and December 31, 2023, respectively.
Provision for Credit Losses
The provision (credit) for credit losses are set forth below for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
(In Thousands)
Provision (credit) for loan and lease losses:
Commercial real estate $ (6,971) $ (5,524) $ (1,804) $ 10,611
Commercial 16,632 8,829 29,511 19,425
Consumer (287) 933 (637) 3,085
Total (credit) provision for loan and lease losses 9,374 4,238 27,070 33,121
Unfunded commitments (4,542) (1,291) (9,208) 896
Investment securities available-for-sale (172) 84 (255) 415
Total provision (credit) for credit losses $ 4,660 $ 3,031 $ 17,607 $ 34,432
Allowance for Loan and Lease Losses Methodology
Management has established a methodology to determine the adequacy of the ACL that assesses the risks and losses expected on the loan and lease portfolio and unfunded commitments. Additions to the ACL are made by charges to the provision for credit losses. Losses on loans and leases are charged off against the allowance when all or a portion of a loan or lease is considered uncollectible. Subsequent recoveries on loans previously charged off, if any, are credited to the allowance when realized.
To calculate the allowance for loans collectively evaluated, management uses models developed by a third party. CRE, C&I, and retail lifetime loss rate models calculate the expected losses over the life of the loan based on exposure at default loan attributes and reasonable, supportable economic forecasts. The exposure at default considers the current unpaid balance, prepayment assumptions and expected utilization assumptions. The expected loss estimates for two small commercial portfolios are based on historical loss rates.
Key assumptions used in the models include portfolio segmentation, prepayments, and the expected utilization of unfunded commitments, among others. The portfolios are segmented by loan level attributes such as loan type, loan size, date of origination, and delinquency status to create homogenous loan pools. Pool level metrics are calculated and loss rates are subsequently applied to the pools as the loans have like characteristics. Prepayment assumptions are embedded within the models and are based on the same data used for model development and incorporate adjustments for reasonable and supportable forecasts. Model development data and developmental time periods vary by model, but all use at least ten years of historical data and capture at least one recessionary period. Expected utilization is based on current utilization and a LEQ factor. LEQ
16
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
varies by current utilization and provides a reasonable estimate of expected draws and borrower behavior. Assumptions and model inputs are reviewed in accordance with model monitoring practices and as information becomes available.
The ACL estimate incorporates reasonable and supportable forecasts of various macro-economic variables over the remaining life of loans and leases. The development of the reasonable and supportable forecast assume each macro-economic variable will revert to long-term expectations, with reversion characteristics unique to specific economic indicators and forecasts. Reversion towards long-term expectations generally begins twoto three years from the forecast start date and largely completes within the first five years. Because the reasonable and supportable economic forecasts used in the models are mean reverting, the models are therefore considered to be implicitly mean reverting.
Management elected to use multiple economic forecasts in determining the reserve to account for economic uncertainty. The forecasts include various projections of gross domestic product, interest rates, property price indices, and employment measures. Scenario weighting and model parameters are reviewed for each calculation and updated to reflect facts and circumstances as of the financial statement date. The forecasts utilized at September 30, 2024 reflect the immediate and longer-term effects of a higher interest rate environment and inflationary conditions compared to recent history.
As of September 30, 2024, management applied qualitative adjustments to the CRE lifetime loss rate, C&I lifetime loss rate, and Retail lifetime loss rate models. These adjustments addressed model limitations, were based on historical loss patterns, and targeted specific risks within the certain portfolios. A general qualitative adjustment was applied to all models to account for general economic uncertainty by placing a greater probability on negative economic forecasts. Additional qualitative factors were applied to capture specific risks in several sub-segments of the portfolio determined to have potential incremental risk relative to the model's results (e.g., office and specialty vehicle) based on recent collateral valuations and performance trends. These adjustments included both positive and negative adjustments and were applied to five different sub-segments with a total impact of $23.2 million at September 30, 2024. Management reviews these factors on a quarterly basis as market conditions and segment performance evolve.
Specific reserves are established for loans individually evaluated for impairment when amortized cost basis is greater than the discounted present value of expected future cash flows or, in the case of collateral-dependent loans, when there is an excess of a loan's amortized cost basis over the fair value of its underlying collateral. When loans and leases do not share risk characteristics with other financial assets they are evaluated individually. Individually evaluated loans are reviewed quarterly with adjustments made to the calculated reserve as necessary.
The general allowance for loan and lease losses was $102.2 million as of September 30, 2024 and $108.4 million as of December 31, 2023.
The specific allowance for loan and lease losses was $25.1 million as of September 30, 2024, compared to $9.1 million as of December 31, 2023. The specific allowance increased $16.0 million during the nine months ended September 30, 2024, primarily due to specific reserve increases totaling $11.5 million for equipment financing loans, $3.0 million for commercial real estate loans, and $1.5 million for consumer and industrial loans.
As of September 30, 2024, management believes that the methodology for calculating the allowance is sound and that the allowance provides a reasonable basis for determining and reporting on expected losses over the lifetime of the Company's loan portfolios.
Credit Quality Assessment
At the time of loan origination, a rating is assigned based on the capacity to pay and general financial strength of the borrower, the value of assets pledged as collateral, and the evaluation of third party support such as a guarantor. The Company continually monitors the credit quality of the loan portfolio using all available information. The officer responsible for handling each loan is required to initiate changes to risk ratings when changes in facts and circumstances occur that warrant an upgrade or downgrade in a loan rating. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, adversely risk-rated, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower's ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a modified 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
17
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
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-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 immediate loss of principal is envisioned, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.
7 Rating-Doubtful
Borrowers exhibit well-defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.
8 Rating-Definite Loss
Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.
Assets rated as "OAEM," "substandard" or "doubtful" based on criteria established under banking regulations are collectively referred to as "criticized" assets.
Credit Quality Information
The following table presents the amortized cost basis of loans in each class by credit quality indicator and year of origination as of September 30, 2024.
September 30, 2024
2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Loans Total
(In Thousands)
Commercial Real Estate
Pass $ 130,224 $ 396,414 $ 663,758 $ 761,122 $ 373,649 $ 1,534,293 $ 61,039 $ 15,766 $ 3,936,265
OAEM - - 22,014 3,032 3,233 43,049 - 417 71,745
18
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
September 30, 2024
2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Loans Total
(In Thousands)
Substandard - - 4,239 5,416 - 38,353 - - 48,008
Total 130,224 396,414 690,011 769,570 376,882 1,615,695 61,039 16,183 4,056,018
Current-period gross writeoffs - - - - - 4,426 - - 4,426
Multi-Family Mortgage
Pass 29,684 69,644 237,228 246,536 153,940 586,689 6,456 36,511 1,366,688
OAEM - - 11,611 - - 3,951 - - 15,562
Substandard - - - - - 16,098 - - 16,098
Total 29,684 69,644 248,839 246,536 153,940 606,738 6,456 36,511 1,398,348
Construction
Pass 2,588 47,546 190,533 36,795 1,649 226 23,487 - 302,824
OAEM - - 7,760 - - - - - 7,760
Substandard - - 2,863 11,477 - - - - 14,340
Total 2,588 47,546 201,156 48,272 1,649 226 23,487 - 324,924
Commercial
Pass 90,113 240,093 130,084 111,369 31,422 82,956 365,926 6,553 1,058,516
OAEM - - - 657 1,350 284 4,961 84 7,336
Substandard - 4 - 399 96 12,450 2,994 312 16,255
Doubtful - - - - - 2 - 850 852
Total 90,113 240,097 130,084 112,425 32,868 95,692 373,881 7,799 1,082,959
Current-period gross writeoffs - - 5,610 13 - 582 - - 6,205
Equipment Financing
Pass 220,596 384,871 311,013 161,149 93,823 99,919 3,185 5,234 1,279,790
OAEM - - 1,666 986 - 1 - - 2,653
Substandard - 7,642 15,883 3,277 839 3,031 - 11,530 42,202
Doubtful - - - - - 15 - - 15
Total 220,596 392,513 328,562 165,412 94,662 102,966 3,185 16,764 1,324,660
Current-period gross writeoffs 282 1,891 4,937 1,669 1,090 1,614 - - 11,483
Condominium Association
Pass 2,339 9,837 6,840 7,919 5,875 9,685 2,801 123 45,419
19
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
September 30, 2024
2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Loans Total
(In Thousands)
Total 2,339 9,837 6,840 7,919 5,875 9,685 2,801 123 45,419
Other Consumer
Pass 389 205 112 704 - 2,057 54,119 6 57,592
Substandard - - - - - - - 1 1
Total 389 205 112 704 - 2,057 54,119 7 57,593
Current-period gross writeoffs 8 4 1 - - 8 - - 21
Total
Pass 475,933 1,148,610 1,539,568 1,325,594 660,358 2,315,825 517,013 64,193 8,047,094
OAEM - - 43,051 4,675 4,583 47,285 4,961 501 105,056
Substandard - 7,646 22,985 20,569 935 69,932 2,994 11,843 136,904
Doubtful - - - - - 17 - 850 867
Total $ 475,933 $ 1,156,256 $ 1,605,604 $ 1,350,838 $ 665,876 $ 2,433,059 $ 524,968 $ 77,387 $ 8,289,921
As of September 30, 2024, there were no loans categorized as definite loss.
20
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
For residential mortgage and home equity loans, the borrowers' credit scores contribute as a reserve metric in the retail loss rate model.
At September 30, 2024
2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Loans Total
(In Thousands)
Residential
Credit Scores
Over 700 $ 73,379 $ 71,833 $ 160,165 $ 203,421 $ 107,950 $ 319,214 $ 5,000 $ 94 $ 941,056
661 - 700 8,931 4,430 11,703 10,769 9,384 22,692 - - 67,909
600 and below 963 4,679 16,111 5,800 6,053 26,250 - - 59,856
Data not available*
31 1,539 1,675 5,813 - 20,556 - - 29,614
Total $ 83,304 $ 82,481 $ 189,654 $ 225,803 $ 123,387 $ 388,712 $ 5,000 $ 94 $ 1,098,435
Home Equity
Credit Scores
Over 700 $ 1,644 $ 5,043 $ 3,495 $ 1,431 $ 562 $ 7,225 $ 291,756 $ 4,295 $ 315,451
661 - 700 87 508 160 39 - 608 25,648 1,021 28,071
600 and below 97 312 76 - 19 363 16,854 2,787 20,508
Data not available*
- 19 - 1 - 40 2,765 25 2,850
Total $ 1,828 $ 5,882 $ 3,731 $ 1,471 $ 581 $ 8,236 $ 337,023 $ 8,128 $ 366,880
Current-period gross writeoffs - - 16 - - - - - 16
_______________________________________________________________________________
* Primarily represents loans made to trusts and purchased mortgages.
The following tables present the recorded investment in loans in each class as of December 31, 2023, by credit quality indicator.
December 31, 2023
2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Loans Total
(In Thousands)
Commercial Real Estate
Pass $ 386,962 $ 690,374 $ 776,834 $ 378,322 $ 422,028 $ 1,245,148 $ 75,746 $ 14,882 $ 3,990,296
OAEM - - 2,529 3,300 1,784 1,674 - - 9,287
Substandard - - - - 22,685 23,089 - - 45,774
Doubtful - - - - - 1,931 - - 1,931
Total 386,962 690,374 779,363 381,622 446,497 1,271,842 75,746 14,882 4,047,288
Current -period gross writeoffs - 4 942 - - 258 - - 1,204
21
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
December 31, 2023
2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Loans Total
(In Thousands)
Multi-Family Mortgage
Pass 68,963 217,727 256,198 165,770 193,162 468,623 5,947 36,585 1,412,975
Substandard - - - - - 2,216 - - 2,216
Total 68,963 217,727 256,198 165,770 193,162 470,839 5,947 36,585 1,415,191
Construction
Pass 25,691 212,904 36,192 6,292 1,176 239 5,984 - 288,478
Substandard - 2,417 11,155 - - - - - 13,572
Total 25,691 215,321 47,347 6,292 1,176 239 5,984 - 302,050
Commercial
Pass 220,563 137,332 125,385 37,601 23,046 69,104 337,316 3,570 953,917
OAEM - - 79 2,081 1,291 - 1,827 8,225 13,503
Substandard 4 - 9 - 12,362 273 981 3,388 17,017
Doubtful - - - - 1 1 - 2 4
Total 220,567 137,332 125,473 39,682 36,700 69,378 340,124 15,185 984,441
Current-period gross writeoffs 1,000 3,500 4,842 1,164 673 2,379 - - 13,558
Equipment Financing
Pass 443,878 389,083 205,208 125,888 88,465 74,727 12,919 5,740 1,345,908
OAEM - 2,144 1,232 1,033 159 - - - 4,568
Substandard 1,250 8,107 4,105 2,181 2,255 2,259 - - 20,157
Doubtful - - - - - 15 - - 15
Total 445,128 399,334 210,545 129,102 90,879 77,001 12,919 5,740 1,370,648
Current-period gross writeoffs 498 1,075 1,915 122 553 2,275 - - 6,438
Condominium Association
Pass 4,460 7,569 9,186 6,686 4,414 9,086 3,010 168 44,579
Total 4,460 7,569 9,186 6,686 4,414 9,086 3,010 168 44,579
Other Consumer
Pass 408 200 516 5 21 2,062 47,191 3 50,406
Total 408 200 516 5 21 2,062 47,191 3 50,406
Current-period gross writeoffs 6 - 2 - 11 9 - - 28
Total
Pass 1,150,925 1,655,189 1,409,519 720,564 732,312 1,868,989 488,113 60,948 8,086,559
OAEM - 2,144 3,840 6,414 3,234 1,674 1,827 8,225 27,358
Substandard 1,254 10,524 15,269 2,181 37,302 27,837 981 3,388 98,736
22
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
December 31, 2023
2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Loans Total
(In Thousands)
Doubtful - - - - 1 1,947 - 2 1,950
Total $ 1,152,179 $ 1,667,857 $ 1,428,628 $ 729,159 $ 772,849 $ 1,900,447 $ 490,921 $ 72,563 $ 8,214,603
As of December 31, 2023, there were no loans categorized as definite loss.
At December 31, 2023
2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Loans Total
(In Thousands)
Residential
Credit Scores
Over 700 $ 72,022 $ 161,491 $ 210,338 $ 118,752 $ 84,792 $ 261,474 $ 4,998 $ 439 $ 914,306
661 - 700 12,200 20,824 11,059 7,970 4,402 24,152 - - 80,607
600 and below 1,943 12,108 7,197 7,093 5,449 23,838 - - 57,628
Data not available*
1,353 2,246 3,025 - 448 23,163 28 - 30,263
Total $ 87,518 $ 196,669 $ 231,619 $ 133,815 $95,091 $ 332,627 $ 5,026 $ 439 $ 1,082,804
Current-period gross writeoffs - - - - - 25 - - 25
Home Equity
Credit Scores
Over 700 $ 5,505 $ 3,807 $ 1,667 $ 769 $ 1,218 $ 7,366 $ 272,169 $ 4,617 $ 297,118
661 - 700 1,005 310 - 36 - 671 21,936 830 24,788
600 and below 148 143 41 - 39 402 17,349 2,008 20,130
Data not available*
23 - 1 - - 45 2,062 15 2,146
Total $ 6,681 $ 4,260 $ 1,709 $ 805 $ 1,257 $ 8,484 $ 313,516 $ 7,470 $ 344,182
_______________________________________________________________________________
* Primarily represents loans made to trusts and purchased mortgages.
23
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 table presents an age analysis of the amortized cost basis in loans and leases as of September 30, 2024.
At September 30, 2024
Past Due Past
Due Greater
Than 90 Days
and Accruing
31-60
Days 		61-90
Days 		Greater
Than
90 Days 		Total Current Total Loans
and Leases 		Non-accrual
 		Non-accrual
with No Related Allowance
(In Thousands)
Commercial real estate loans:
Commercial real estate $ 6,379 $ 178 $ 12,730 $ 19,287 $ 4,036,731 $ 4,056,018 $ 1,315 $ 11,595 $ 568
Multi-family mortgage 343 - 5,119 5,462 1,392,886 1,398,348 3,359 1,751 1,507
Construction 1,755 800 11,477 14,032 310,892 324,924 11,416 - -
Total commercial real estate loans 8,477 978 29,326 38,781 5,740,509 5,779,290 16,090 13,346 2,075
Commercial loans and leases:
Commercial 1,895 237 1,468 3,600 1,079,359 1,082,959 - 15,734 2,662
Equipment financing 7,696 2,624 30,345 40,665 1,283,995 1,324,660 - 37,223 2,287
Condominium association - - - - 45,419 45,419 - - -
Total commercial loans and leases 9,591 2,861 31,813 44,265 2,408,773 2,453,038 - 52,957 4,949
Consumer loans:
Residential mortgage 787 1,695 1,887 4,369 1,094,066 1,098,435 - 3,862 1,998
Home equity 1,151 101 218 1,470 365,410 366,880 1 1,076 -
Other consumer - 1 1 2 57,591 57,593 - 1 -
Total consumer loans 1,938 1,797 2,106 5,841 1,517,067 1,522,908 1 4,939 1,998
Total loans and leases $ 20,006 $ 5,636 $ 63,245 $ 88,887 $ 9,666,349 $ 9,755,236 $ 16,091 $ 71,242 $ 9,022
The Company did not recognize any interest income on nonaccrual loans for the three months ended September 30, 2024.
24
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The following tables present an age analysis of the recorded investment in originated and acquired loans and leases as of December 31, 2023.
At December 31, 2023
Past Due Loans and
Leases Past
Due Greater
Than 90 Days
and Accruing 		Non-accrual
with No Related Allowance
31-60
Days 		61-90
Days 		Greater
Than
90 Days 		Total Current Total Loans
and Leases 		Non-accrual
(In Thousands)
Commercial real estate loans:
Commercial real estate $ 2,578 $ 214 $ 16,915 $ 19,707 $ 4,027,581 $ 4,047,288 $ 227 $ 19,608 $ 740
Multi-family mortgage 346 - - 346 1,414,845 1,415,191 - - -
Construction - - - - 302,050 302,050 - - -
Total commercial real estate loans 2,924 214 16,915 20,053 5,744,476 5,764,529 227 19,608 740
Commercial loans and leases:
Commercial 829 75 3,808 4,712 979,729 984,441 - 3,886 -
Equipment financing 3,202 4,367 8,984 16,553 1,354,095 1,370,648 - 14,984 2,474
Condominium association - - - - 44,579 44,579 - - -
Total commercial loans and leases 4,031 4,442 12,792 21,265 2,378,403 2,399,668 - 18,870 2,474
Consumer loans:
Residential mortgage 934 600 3,063 4,597 1,078,207 1,082,804 - 4,292 2,563
Home equity 1,290 44 387 1,721 342,461 344,182 1 860 -
Other consumer - - - - 50,406 50,406 - - -
Total consumer loans 2,224 644 3,450 6,318 1,471,074 1,477,392 1 5,152 2,563
Total loans and leases $ 9,179 $ 5,300 $ 33,157 $ 47,636 $ 9,593,953 $ 9,641,589 $ 228 $ 43,630 $ 5,777
Impaired Loans and Leases
A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. The loans and leases risk-rated "substandard" or worse are considered impaired. Impaired loans and leases which do not share similar risk characteristics with other loans are individually evaluated for credit losses. Specific reserves are established for loans and leases with deterioration in the present value of expected future cash flows or, in the case of collateral-dependent loans and leases, any increase in the loan or lease amortized cost basis over the fair value of the underlying collateral discounted for estimated selling costs. In contrast, the loans and leases which share similar risk characteristics and are not included in the individually evaluated population are collectively evaluated for credit losses.
25
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
The following tables present information regarding individually evaluated and collectively evaluated allowance for loan and lease losses for credit losses on loans and leases at the dates indicated.
At September 30, 2024
Commercial Real Estate Commercial Consumer Total
(In Thousands)
Allowance for Loan and Lease Losses:
Individually evaluated $ 8,147 $ 16,955 $ 13 $ 25,115
Collectively evaluated 67,034 29,266 5,901 102,201
Total $ 75,181 $ 46,221 $ 5,914 $ 127,316
Loans and Leases:
Individually evaluated $ 78,017 $ 52,107 $ 2,265 $ 132,389
Collectively evaluated 5,701,273 2,400,931 1,520,643 9,622,847
Total $ 5,779,290 $ 2,453,038 $ 1,522,908 $ 9,755,236
At December 31, 2023
Commercial Real Estate Commercial Consumer Total
(In Thousands)
Allowance for Loan and Lease Losses:
Individually evaluated $ 5,104 $ 3,947 $ 35 $ 9,086
Collectively evaluated 76,306 25,610 6,520 108,436
Total loans and leases $ 81,410 $ 29,557 $ 6,555 $ 117,522
Loans and Leases:
Individually evaluated $ 64,953 $ 27,083 $ 4,750 $ 96,786
Collectively evaluated 5,699,576 2,372,585 1,472,642 9,544,803
Total loans and leases $ 5,764,529 $ 2,399,668 $ 1,477,392 $ 9,641,589
26
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Loan Modifications
The following tables present the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during the periods indicated.
Three Months Ended September 30, 2024
Number of Loans Amortized Cost % of Total Class of Loans and Leases Financial Effect
(In thousands)
Significant Payment Delays
C&I 2 2,551 0.24 %
These loans were given principal payment deferrals for oneyear. The financial effect was deemed "de minimis."
Combination - Maturity Extension and Interest Rate Reduction
Commercial Real Estate 1 8,284 0.20 %
This loan was given a threeyear maturity extension with a 5.0% pay rate and 7.0% accrue rate. The financial effect was deemed "de minimis."
Home Equity 1 269 0.07 %
This loan was reamortized over 30 years and extended the prior maturity date 20 years, with a reduction in rate to 6.8% fixed The financial effect was deemed "de minimis."
Combination - Maturity Extension, Interest Rate Reduction, and Significant Payment Delay
C&I 1 $ 604 0.06 %
Line of credit renewed for oneyear, interest only, with a reduction in rate from 10.3% variable to 7.5% fixed. The financial effect was deemed "de minimis."
Total 5 $ 11,708
27
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Three Months Ended September 30, 2023
Number of Loans Amortized Cost % of Total Class of Loans and Leases Financial Effect
(In thousands)
Maturity Extension
C&I 1 $ 489 0.03 %
This loan was given a 6-month maturity extensions to assist the borrower. The financial effect was deemed "de minimis."
Significant Payment Delays
C&I 2 $ 24 - % Both loans were given restructured payment plans to assist borrowers. The financial effect was deemed "de minimis."
Combination
C&I 1 $ 268 0.02 %
This loan was given 6 month maturity extensions and restructured delayed payment plans to assist the borrower. The financial effect was deemed "de minimis."
Total 4 $ 781
Nine Months Ended September 30, 2024
Number of Loans Amortized Cost % of Total Class of Loans and Leases Financial Effect
(In thousands)
Maturity Extension
C&I 2 $ 123 0.01 %
One loan was given 6 months of interest only payments and 6 months added to the term of the loan and the other loan was given a 2 month deferment of payments along with 13 months added to the term of the loan. The financial effect was deemed "de minimis".
Significant Payment Delays
28
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
C&I 14 $ 15,490 1.43 %
Some of these loans and letters of credit were given a two quarter (6 month) payment forbearance, while one was given a 30 month term extension, and another was given oneyear of payment deferrals. The financial effect was deemed "de minimis."
Combination - Maturity Extension and Significant Payment Delays
C&I 2 1,586 0.15 %
These loans were given 6 month maturity extension and 6 months of interest-only payments. The financial effect was deemed "de minimis."
Combination - Maturity Extension and Interest Rate Reduction
Commercial Real Estate 1 $ 8,284 0.20 %
This loan was given a maturity extension of 3 years with a 5.0% pay rate and 7.0% accrue rate. The financial effect was deemed "de minimis."
C&I 2 $ 110 0.01 %
These loans were given 25 month extensions, and reductions in their stated interest rates of 7.5%. The financial effect was deemed "de minimis."
Home Equity 1 $ 269 0.07 %
This loan was reamortized over 30 years and extended the prior maturity date 20 years, with a reduction in rate to 6.8% fixed. The financial effect was deemed "de minimis."
Combination - Maturity Extension, Interest Rate Reduction, and Significant Payment Delay
29
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
C&I 1 $ 604 0.06 %
Line of credit renewed for oneyear, interest only, with a reduction in rate from 10.3% variable to 7.5% fixed. The financial effect was deemed "de minimis."
Total 23 $ 26,466
Nine Months Ended September 30, 2023
Number of Loans Amortized Cost % of Total Class of Loans and Leases Financial Effect
(In thousands)
Maturity Extension
C&I 11 $ 14,111 0.96 %
All 11 loans were given 6 month maturity extensions to assist borrowers. The financial effect was deemed "de minimis."
Significant Payment Delays
C&I 2 24 0 0 Both loans were given restructured payment plans to assist borrowers. The financial effect was deemed "de minimis."
Combination
C&I 4 979 0.07 %
All 4 loans were given 6 month maturity extensions and restructured delayed payment plans to assist borrowers. The financial effect was deemed "de minimis."
30
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Total 17 $ 15,114
The following tables present the aging analysis of loan modifications made to borrowers experiencing financial difficulty during the periods indicated.
Three Months Ended September 30, 2024
Current 30-60 Days Past Due 61-90 Days Past Due 90+ Days Past Due Modified Paid Off Charged Off
(In thousands)
Total Modifications $ 11,708 - - - - - -
Three Months Ended September 30, 2023
Current 30-60 Days Past Due 61-90 Days Past Due 90+ Days Past Due Modified Paid Off Charged Off
(In thousands)
Total Modifications $ 781 $ - $ - $ - $ - $ - $ 5,295
Nine Months Ended September 30, 2024
Current 30-60 Days Past Due 61-90 Days Past Due 90+ Days Past Due Modified Paid Off Charged Off
(In thousands)
Total Modifications $ 26,379 60,862 27,031 - - - -
Nine Months Ended September 30, 2023
Current 30-60 Days Past Due 61-90 Days Past Due 90+ Days Past Due Modified Paid Off Charged Off
(In thousands)
Total Modifications $ 15,114 $ - $ - $ - $ - $ - $ 5,295
(6) Goodwill and Other Intangible Assets
The following table sets forth the carrying value of goodwill and other intangible assets at the dates indicated:
At September 30, 2024 At December 31, 2023
(In Thousands)
Goodwill $ 241,222 $ 160,427
Additions - 80,795
Balance at end of period 241,222 241,222
Other intangible assets, net accumulated amortization:
Core deposits 18,073 23,118
Trade name 1,089 1,089
Total other intangible assets 19,162 24,207
Total goodwill and other intangible assets $ 260,384 $ 265,429
31
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At December 31, 2013, the Company concluded that the BankRI name would continue to be utilized in its marketing strategies; therefore, the trade name with carrying value of $1.1 million has an indefinite life and ceased to amortize.
The weighted-average amortization period for the core deposit intangible is 5.2 years.
The estimated aggregate future amortization expense (in thousands) for other intangible assets for each of the next five years and thereafter is as follows:
Remainder of 2024 $ 1,700
Year ending:
2025 5,563
2026 4,324
2027 3,243
2028 2,162
2029 1,081
Thereafter -
Total $ 18,073
(7) Accumulated Other Comprehensive Income (Loss)
For the nine months ended September 30, 2024 and 2023, the Company's accumulated OCI (loss) includes the following three components: (i) unrealized holding gains (losses) on investment securities available-for-sale; (ii) change in the fair value of cash flow hedges; and (iii) adjustment of accumulated obligation for postretirement benefits.
Changes in accumulated OCI (loss) by component, net of tax, were as follows for the periods indicated:
Three Months Ended September 30, 2024
Investment
Securities
Available-for-Sale
Net Change in Fair Value of Cash Flow Hedges Postretirement
Benefits 		Accumulated Other
Comprehensive
Income (Loss)
(In Thousands)
Balance at June 30, 2024 $ (59,733) $ (3,289) $ 1,329 $ (61,693)
Other comprehensive income (loss) 20,429 2,372 - 22,801
Reclassification adjustment for (income) expense recognized in earnings - 811 - 811
Balance at September 30, 2024 $ (39,304) $ (106) $ 1,329 $ (38,081)
Three Months Ended September 30, 2023
Investment
Securities
Available-for-Sale
Net Change in Fair Value of Cash Flow Hedges Postretirement
Benefits 		Accumulated Other
Comprehensive
Income (Loss)
(In Thousands)
Balance at June 30, 2023 $ (62,554) $ (4,090) $ 488 $ (66,156)
Other comprehensive income (loss) (14,426) (2,819) - (17,245)
Reclassification adjustment for (income) expense recognized in earnings - 1,860 - 1,860
Balance at September 30, 2023 $ (76,980) $ (5,049) $ 488 $ (81,541)
32
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Nine Months Ended September 30, 2024
Investment
Securities
Available-for-Sale
Net Change in Fair Value of Cash Flow Hedges Postretirement
Benefits 		Accumulated Other
Comprehensive
Income (Loss)
(In Thousands)
Balance at December 31, 2023 $ (52,546) $ (1,581) $ 1,329 $ (52,798)
Other comprehensive income (loss) 13,242 (977) - 12,265
Reclassification adjustment for (income) expense recognized in earnings - 2,452 - 2,452
Balance at September 30, 2024 $ (39,304) $ (106) $ 1,329 $ (38,081)
Nine Months Ended September 30, 2023
Investment
Securities
Available-for-Sale
Net Change in Fair Value of Cash Flow Hedges Postretirement
Benefits 		Accumulated Other
Comprehensive
Income (Loss)
(In Thousands)
Balance at December 31, 2022 $ (60,192) $ (2,243) $ 488 $ (61,947)
Other comprehensive income (loss) (16,788) (3,876) - (20,664)
Reclassification adjustment for (income) expense recognized in earnings - 1,070 - 1,070
Balance at September 30, 2023 $ (76,980) $ (5,049) $ 488 $ (81,541)
(8) Derivatives and Hedging Activities
The Company executes loan level derivative products such as interest rate swap agreements with commercial banking customers to aid them in managing their interest rate risk. The interest rate swap contracts allow the commercial banking customers to convert floating rate loan payments to fixed rate loan payments. The Company concurrently enters into offsetting swaps with a third party financial institution, effectively minimizing its net risk exposure resulting from such transactions. The third party financial institution exchanges the customer's fixed rate loan payments for floating rate loan payments. As the interest rate swap agreements associated with this program do not meet hedge accounting requirements, changes in the fair value are recognized directly in earnings. Based on the Company's intended use for the loan level derivatives at inception, the Company designates the derivative as either an economic hedge of an asset or liability, or a hedging instrument subject to the hedge accounting provisions of FASB ASC Topic 815, "Derivatives and Hedging".
The Company believes using interest rate derivatives adds stability to interest income and expense and allows the Company to manage its exposure to interest rate movements. The Company enters into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed payments. The Company enters into interest rate swaps as hedging instruments against the interest rate risk associated with the Company's FHLB borrowings and loan portfolio. For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of OCI, and is reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The following table reflects the Company's derivative positions as of the date indicated below for interest rate derivatives which qualify as cash flow hedges for accounting purposes.
At September 30, 2024
Notional Amount Average Maturity Weighted Average Rate Fair Value
Current Rate Paid Received Fixed Swap Rate
(in thousands) (in years) (in thousands)
Interest rate swaps on loans $ 225,000 2.2 5.15 % 3.39 % $ (477)
33
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At December 31, 2023
Notional Amount Average Maturity Weighted Average Rate Fair Value
Current Rate Paid Received Fixed Swap Rate
(in thousands) (in years) (in thousands)
Interest rate swaps on loans $ 225,000 2.90 5.35 % 3.39 % $ (2,608)
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 in other non-interest income at each reporting period. Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating bank.
The Company offers foreign exchange contracts to commercial borrowers to accommodate their business needs. These foreign exchange contracts do not qualify as hedges for accounting purposes. To mitigate the market and liquidity risk associated with these foreign exchange contracts, the Company enters into similar offsetting positions.
Asset derivatives and liability derivatives are included in other assets and accrued expenses and other liabilities on the unaudited consolidated balance sheets.
The following tables present the Company's customer related derivative positions for the periods indicated below for those derivatives not designated as hedging.
Notional Amount Maturing
Number of Positions Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value
September 30, 2024
(Dollars In Thousands)
Loan level derivatives
Receive fixed, pay variable 150 $ 141 $ 64 $ 182 $118 $ 1,182,197 $ 1,182,702 $ 48,297
Pay fixed, receive variable 150 141 64 182 118 1,182,197 1,182,702 48,297
Risk participation-out agreements 67 33,331 5,895 52,402 30,338 409,061 531,027 1,095
Risk participation-in agreements 10 - - 26,204 25,573 51,012 102,789 282
Foreign exchange contracts
Buys foreign currency, sells U.S. currency 21 $ 5,341 $ - $ - $ - $ - $ 5,341 $ 289
Sells foreign currency, buys U.S. currency 19 4,901 - - - - 4,901 335
34
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, 2023
(Dollars In Thousands)
Loan level derivatives
Receive fixed, pay variable 153 $ 69,135 $ 156,567 $ 66,330 $ 244,615 $ 1,196,551 $ 1,733,198 $ 80,118
Pay fixed, receive variable 153 69,135 156,567 66,330 244,615 1,196,551 1,733,198 80,118
Risk participation-out agreements 67 22,979 33,409 6,038 64,875 415,086 542,387 1,238
Risk participation-in agreements 9 - - 23,155 3,577 73,581 100,313 310
Foreign exchange contracts
Buys foreign currency, sells U.S. currency 23 $ 3,262 $ - $ - $ - $ - $ 3,262 $ 139
Sells foreign currency, buys U.S. currency 28 3,895 - - - - 3,895 132
35
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Certain derivative agreements contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. The Company posted collateral to dealer counterparties of $1.4 million and $1.2 million in the normal course of business as of September 30, 2024 and December 31, 2023, respectively.
The tables below present the offsetting of derivatives and amounts subject to master netting agreements not offset in the unaudited consolidated balance sheet at the dates indicated.
At September 30, 2024
Gross
Amounts Recognized 		Gross Amounts
Offset in the
Statement of Financial Position 		Net Amounts Presented in the Statement of Financial Position Gross Amounts Not Offset in the
Statement of Financial Position 		Net Amount
Financial Instruments Pledged Cash Collateral Pledged
(In Thousands)
Asset derivatives
Derivatives designated as hedging instruments:
Interest rate derivatives $ - $ - $ - $ - $ - $ -
Derivatives not designated as hedging instruments:
Loan level derivatives $ 77,986 $ - $ 77,986 $ - $ - $ 77,986
Risk participation-out agreements 1,095 - 1,095 - - 1,095
Foreign exchange contracts 335 - 335 - - 335
Total $ 79,416 $ - $ 79,416 $ - $ - $ 79,416
Liability derivatives
Derivatives designated as hedging instruments:
Interest rate derivatives $ 477 $ - $ 477 $ - $ - $ 477
Derivatives not designated as hedging instruments:
Loan level derivatives $ 77,986 $ - $ 77,986 $ - $ 1,440 $ 76,546
Risk participation-in agreements 282 - 282 - - 282
Foreign exchange contracts 289 - 289 - - 289
Total $ 79,034 $ - $ 79,034 $ - $ 1,440 $ 77,594
36
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
At December 31, 2023
Gross
Amounts Recognized 		Gross Amounts
Offset in the
Statement of Financial Position 		Net Amounts Presented in the Statement of Financial Position Gross Amounts Not Offset in the
Statement of Financial Position 		Net Amount
Financial Instruments Pledged Cash Collateral Pledged
(In Thousands)
Asset derivatives
Derivatives designated as hedging instruments:
Interest rate derivatives $ 234 $ - $ 234 $ - $ - $ 234
Derivatives not designated as hedging instruments:
Loan level derivatives $ 99,876 $ - $ 99,876 $ - $ - $ 99,876
Risk participation-out agreements 1,238 - 1,238 - - 1,238
Foreign exchange contracts 139 - 139 - - 139
Total $ 101,487 $ - $ 101,487 $ - $ - $ 101,487
Liability derivatives
Derivatives designated as hedging instruments:
Interest rate derivatives $ 2,842 $ - $ 2,842 $ - $ - $ 2,842
Derivatives not designated as hedging instruments:
Loan level derivatives $ 99,876 $ - $ 99,876 $ 20,353 $ 61,153 $ 18,370
Risk participation-in agreements 310 - 310 - - 310
Foreign exchange contracts 132 - 132 - - 132
Total $ 103,160 $ - $ 103,160 $ 20,353 $ 61,153 $ 21,654
The Company has agreements with certain of its derivative counterparties that contain credit-risk-related contingent provisions. These provisions provide the counterparty with the right to terminate its derivative positions and require the Company to settle its obligations under the agreements if the Company defaults on certain of its indebtedness or if the Company fails to maintain its status as a well-capitalized institution.
Fair Value
Nine Months Ended
September 30, 2024 		Nine Months Ended
September 30, 2023
(Dollars in Thousands)
Derivatives designated as hedges $ (477) $ (7,206)
(Loss) gain in OCI on derivatives (effective portion), net of tax $ (107) $ (5,049)
Gain (loss) reclassified from OCI into interest income or interest expense (effective portion) $ (3,296) $ (2,513)
The guidance in ASU 2017-12 requires that amounts in accumulated OCI that are included in the assessment of effectiveness should be reclassified into earnings in the same period in which the hedged forecasted transactions impact earnings. A portion of the balance reported in accumulated OCI related to derivatives will be reclassified to interest expense as interest payments are made or received on the Company's interest rate swaps. The Company monitors the risk of counterparty default on an ongoing basis.
37
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
(9) Stock Based Compensation
As of September 30, 2024, the Company had one active equity plan: the 2021 Plan. As a result of the 2021 Plan having been approved by the Company's stockholders at the 2021 annual meeting of stockholders, the Company discontinued granting awards under the 2014 Plan, and no further shares will be granted as awards under the 2014 Plan.
Of the awarded shares under the Plans, generally 50% vest ratably over three years with one-third of such shares vesting at each of the first, second and third anniversary dates of the awards. The remaining 50% of each award will vest three years after the award date based on the level of the Company's achievement of identified performance targets in comparison to the level of achievement of such identified performance targets by a defined peer group. If a participant leaves the Company prior to the third anniversary date of an award, any unvested shares are usually forfeited. Dividends declared with respect to shares awarded will be held by the Company and paid to the participant only when the shares vest.
Under the Plans, shares of the Company's common stock are reserved for issuance as restricted stock awards to officers, employees, and non-employee directors of the Company. Shares issued upon vesting may be either authorized but unissued shares or reacquired shares held by the Company as treasury shares. Any shares not issued because vesting requirements are not met will be retired back to treasury and be made available again for issuance under the Plans.
During the three and nine months ended September 30, 2024 and September 30, 2023, 432,279 and 449,265 shares were issued, respectively, upon satisfaction of required conditions of the Plans.
Total expense for the Plans was $0.9 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively. Total expense for the Plans was $2.8 million for both the nine months ended September 30, 2024 and 2023, respectively.
(10) EPS
The following table is a reconciliation of basic EPS and diluted EPS:
Three Months Ended
September 30, 2024 September 30, 2023
Basic Fully
Diluted 		Basic Fully
Diluted
(Dollars in Thousands, Except Per Share Amounts)
Numerator:
Net income $ 20,142 $ 20,142 $ 22,701 $ 22,701
Denominator:
Weighted average shares outstanding 89,033,463 89,033,463 88,795,270 88,795,270
Effect of dilutive securities - 286,148 - 175,940
Adjusted weighted average shares outstanding 89,033,463 89,319,611 88,795,270 88,971,210
EPS $ 0.23 $ 0.23 $ 0.26 $ 0.26
38
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Nine Months Ended
September 30, 2024 September 30, 2023
Basic Fully
Diluted 		Basic Fully
Diluted
(Dollars in Thousands, Except Per Share Amounts)
Numerator:
Net income $ 51,179 $ 51,179 $ 52,111 $ 52,111
Denominator:
Weighted average shares outstanding 88,944,569 88,944,569 88,016,190 88,016,190
Effect of dilutive securities - 296,901 - 237,171
Adjusted weighted average shares outstanding 88,944,569 89,241,470 88,016,190 88,253,361
EPS $ 0.58 $ 0.57 $ 0.59 $ 0.59
(11) Fair Value of Financial Instruments
A description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring and non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no changes in the valuation techniques used during the three and nine months ended September 30, 2024 and September 30, 2023.
39
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 September 30, 2024
Level 1 Level 2 Level 3 Total
(In Thousands)
Assets:
Investment securities available-for-sale:
GSE debentures $ - $ 183,216 $ - $ 183,216
GSE CMOs - 58,865 - 58,865
GSE MBSs - 159,767 - 159,767
Municipal obligations - 3,346 14,149 17,495
Corporate debt obligations - 9,233 2,433 11,666
U.S. Treasury bonds - 423,885 - 423,885
Foreign government obligations - 497 - 497
Total investment securities available-for-sale $ - $ 838,809 $ 16,582 $ 855,391
Assets:
Interest rate derivatives $ - $ - $ - $ -
Derivatives not designated as hedging instruments:
Loan level derivatives - 77,986 - 77,986
Risk participation-out agreements - 1,095 - 1,095
Foreign exchange contracts - 335 - 335
Liabilities:
Interest rate derivatives $ - $ 477 $ - $ 477
Derivatives not designated as hedging instruments:
Loan level derivatives - 77,986 - 77,986
Risk participation-in agreements - 282 - 282
Foreign exchange contracts - 289 - 289
40
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Carrying Value as of December 31, 2023
Level 1 Level 2 Level 3 Total
(In Thousands)
Assets:
Investment securities available-for-sale:
GSE debentures $ - $ 201,127 $ - $ 201,127
GSE CMOs - 61,617 - 61,617
GSE MBSs - 169,997 - 169,997
Municipal obligations - 3,398 15,524 18,922
Corporate debt obligations - 17,337 2,379 19,716
U.S. Treasury bonds - 444,737 - 444,737
Foreign government obligations - 485 - 485
Total investment securities available-for-sale $ - $ 898,698 $ 17,903 $ 916,601
Interest rate derivatives - 234 - 234
Loan level derivatives - 99,876 - 99,876
Risk participation-out agreements - 1,238 - 1,238
Foreign exchange contracts - 139 - 139
Liabilities:
Interest rate derivatives $ - $ 2,842 $ - $ 2,842
Loan level derivatives - 99,876 - 99,876
Risk participation-in agreements - 310 - 310
Foreign exchange contracts - 132 - 132
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 obligations, municipal obligations and trust preferred securities, all of which are included in Level 2. As of September 30, 2024, $16.6 million of investment securities available-for-sale are included in Level 3 within the investment portfolio. The composition of these assets are primarily composed of subordinated debt of local banks and private placement municipal securities. Of these securities, approximately $14.1 million are private placement municipal Bond Anticipation Notes. As of December 31, 2023, certain corporate debt securities and municipal obligations were valued using pricing models included in Level 3.
Additionally, management reviews changes in fair value from period to period and performs testing to ensure that prices received from the third parties are consistent with management's expectation of the market. Changes in the prices obtained from the pricing service are analyzed from month to month, taking into consideration changes in market conditions including changes in mortgage spreads, changes in U.S. Treasury security yields and changes in generic pricing of 15-year and 30-year securities. Additional analysis may include a review of prices provided by other independent parties, a yield analysis, a review of average life changes using Bloomberg analytics and a review of historical pricing for a particular security.
Derivatives and Hedging Instruments
The fair value of interest rate derivatives designated as hedging instruments, loan level derivatives, risk participation agreements (RPA in/out), and foreign exchange contracts represent a Level 2 valuation and are based on settlement values adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves and foreign exchange rates where applicable. Credit risk adjustments consider factors such as the likelihood of default by the
41
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
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 at September 30, 2024 and December 31, 2023, respectively.
The following tables summarize information about significant unobservable inputs related to the Company's categories of Level 3 financial assets and liabilities measured on a recurring basis.
Quantitative Information About Level 3 Fair Value Measurements - Recurring Basis
Financial Instrument Estimated Fair Value Valuation Technique(s) Significant Unobservable Inputs Range of Inputs Weighted Average
(In Thousands)
September 30, 2024
Assets
Municipal obligations $ 14,149 Discounted Cash Flow Discount Rate from Bloomberg BVAL
0.0%-3.07%
2.02 %
Corporate debt obligations 2,433 Observable Bids Bloomberg TRACE
The following table summarizes the changes in estimated fair value for all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3).
Changes in Estimated Fair Value of Level 3 Financial Assets and Liabilities - Recurring Basis
Nine Months Ended September 30, 2024
(In Thousands)
Municipal obligations Corporate debt obligations
Beginning balance $ 15,524 $ 2,379
Purchases 7,308 -
Unrealized gains (losses) included in comprehensive income 32 37
Transfers in - -
Transfers out - -
Sales - -
Maturities, calls, and paydowns (8,715) 17
Ending balance $ 14,149 $ 2,433
42
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below at the dated indicated:
Carrying Value as of September 30, 2024
Level 1 Level 2 Level 3 Total
(In Thousands)
Assets measured at fair value on a non-recurring basis:
Collateral-dependent impaired loans and leases $ - $ - $ 27,918 $ 27,918
OREO - - 780 780
Repossessed assets - 799 - 799
Total assets measured at fair value on a non-recurring basis $ - $ 799 $ 28,698 $ 29,497
Carrying Value as of December 31, 2023
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 $ - $ - $ 16,720 $ 16,720
OREO - - 780 780
Repossessed assets - 914 - 914
Total assets measured at fair value on a non-recurring basis $ - $ 914 $ 17,500 $ 18,414
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.
OREO
The Company records OREO at the lower of cost or fair value. In estimating fair value, the Company utilizes purchase and sales agreements (Level 2) or comparable sales, recent appraisals or cash flows discounted at an interest rate commensurate with the risk associated with these cash flows (Level 3), adjusted for selling costs and other expenses.
Repossessed Assets
Repossessed assets are carried at estimated fair value less costs to sell based on auction pricing (Level 2).
The table below presents quantitative information about significant unobservable inputs (Level 3) for assets measured at fair value on a non-recurring basis at the dates indicated.
Fair Value Valuation Technique
At September 30,
2024 		At December 31, 2023
(Dollars in Thousands)
Collateral-dependent impaired loans and leases $ 27,918 $ 16,720
Appraisal of collateral (1)
Other real estate owned 780 780
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.
43
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Summary of Estimated Fair Values of Financial Instruments
The following table presents the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company's financial instruments at the dates indicated. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, restricted equity securities, and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include non-maturity deposits, short-term borrowings, and accrued interest payable.
Fair Value Measurements at September 30, 2024
Carrying
Value 		Estimated
Fair Value 		Level 1
Inputs 		Level 2
Inputs 		Level 3
Inputs
(In Thousands)
Financial assets:
Loans and leases, net $ 9,627,920 $ 9,267,888 $ - $ - $ 9,267,888
Financial liabilities:
Certificates of deposits and brokered deposits 2,634,865 2,636,811 - 2,636,811 -
Borrowed funds 1,497,547 1,527,132 - 1,527,132 -
Fair Value Measurements at December 31, 2023
Carrying
Value 		Estimated
Fair Value 		Level 1
Inputs 		Level 2
Inputs 		Level 3
Inputs
(In Thousands)
Financial assets:
Loans and leases, net $ 9,524,067 $ 9,230,864 $ - $ - $ 9,230,864
Financial liabilities:
Certificates of deposits and brokered deposits 2,456,028 2,443,772 - 2,443,772 -
Borrowed funds 1,376,670 1,375,506 - 1,375,506 -
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.
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).
44
Table of Contents
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 FHLB advances and repurchase agreements represents contractual repayments discounted using interest rates currently available for borrowings with similar characteristics and remaining maturities. The fair values reported for retail repurchase agreements are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on borrowings with similar characteristics and maturities. The fair values reported for subordinated deferrable interest debentures are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on instruments with similar terms and maturities.
(12) Commitments and Contingencies
Off-Balance Sheet Financial Instruments
The Company is party to off-balance sheet financial instruments in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby and commercial letters of credit, and loan level derivatives. According to GAAP, these financial instruments are not recorded in the financial statements until they are funded or related fees are incurred or received.
The contract amounts reflect the extent of the involvement the Company has in particular classes of these instruments. Such commitments involve, to varying degrees, elements of credit risk and interest-rate risk in excess of the amount recognized in the consolidated balance sheets. The Company's exposure to credit loss in the event of non-performance by the counterparty is represented by the fair value of the instruments. The Company uses the same policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
45
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Financial instruments with off-balance-sheet risk at the dates indicated follow:
At September 30, 2024 At December 31, 2023
(In Thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to originate loans and leases:
Commercial real estate $ 48,405 $ 88,435
Commercial 174,119 279,001
Residential mortgage 26,879 26,170
Unadvanced portion of loans and leases 1,072,445 1,208,553
Unused lines of credit:
Home equity 782,762 762,235
Other consumer 119,232 114,816
Other commercial 455 475
Unused letters of credit:
Financial standby letters of credit 12,837 8,221
Performance standby letters of credit 24,709 29,187
Commercial and similar letters of credit 2,311 3,278
Interest rate derivatives 225,000 225,000
Loan level derivatives (Notional principal amounts):
Receive fixed, pay variable 1,182,702 1,733,198
Pay fixed, receive variable 1,182,702 1,733,198
Risk participation-out agreements 531,027 542,387
Risk participation-in agreements 102,789 100,313
Foreign exchange contracts (Notional amounts):
Buys foreign currency, sells U.S. currency 5,341 3,262
Sells foreign currency, buys U.S. currency 4,901 3,895
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee by the customer. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if any, is based on management's credit evaluation of the borrower.
Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee performance of a customer to a third party. These standby and commercial letters of credit are primarily issued to support the financing needs of the Company's commercial customers. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
From time to time, the Company enters into loan level derivatives, risk participation agreements or foreign exchange contracts with commercial customers and third-party financial institutions. These derivatives allow the Company to offer long-term fixed-rate commercial loans while mitigating the interest-rate or foreign exchange risk of holding those loans. In a loan level derivative transaction, the Company lends to a commercial customer on a floating-rate basis and then enters into a loan level derivative with that customer. Concurrently, the Company enters into offsetting swaps with a third-party financial institution, effectively minimizing its net interest-rate risk exposure resulting from such transactions. The fair value of these derivatives are presented in Note 8.
46
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Lease Commitments
The Company leases certain office space under various noncancellable operating leases as well as other assets. These leases have terms ranging from 1 year 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 uses the FHLB classic advance rates available as of the lease's start dates as the discount rate to determine the net present value of the remaining lease payments.
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
(In Thousands)
The components of lease expense was as follows:
Operating lease cost $ 6,779 $ 6,303
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 $ 6,862 $ 6,662
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases assets $ 16,089 $ 14,829
Operating leases liabilities 16,089 16,496
At September 30, 2024 At December 31, 2023
(In Thousands)
Supplemental balance sheet information related to leases was as follows:
Operating Leases
Operating lease right-of-use assets $ 41,934 $ 30,863
Operating lease liabilities 43,266 31,998
Weighted Average Remaining Lease Term
Operating leases 9.1 8.9
Weighted Average Discount Rate
Operating leases 4.2% 4.0%
47
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
A summary of future minimum rental payments under such leases at the dates indicated follows:
Minimum Rental Payments
September 30, 2024
(In Thousands)
Remainder of 2024 $ 2,282
Year ending:
2025 8,897
2026 8,315
2027 7,235
2028 5,670
2029 3,713
Thereafter 15,253
Total $ 51,365
Less imputed interest (8,099)
Present value of lease liability $ 43,266
Certain leases contain escalation clauses for real estate taxes and other expenditures, which are not included above. The total real estate taxes were $1.8 million and $1.9 million for the nine months ended September 30, 2024 and 2023, respectively. Total other expenditures were $0.4 million for both the nine months ended September 30, 2024 and 2023, respectively. Total rental expense was $6.8 million and $6.3 million for the nine months ended September 30, 2024 and 2023. Total rental expense was $2.2 million and $2.1 million for the three months ended September 30, 2024 and 2023, respectively.
Legal Proceedings
In the normal course of business, there are various outstanding legal proceedings. In the opinion of management, after consulting with legal counsel, the consolidated financial position and results of operations of the Company are not expected to be affected materially by the outcome of such proceedings.
(13) Revenue from Contracts with Customers
Overview
Revenue from contracts with customers in the scope of ASC 606 ("Topic 606") is measured based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations.
The Company's performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time. Unsatisfied performance obligations at the report date are not material to our consolidated financial statements.
In certain cases, other parties are involved with providing services to our customers. If the Company is a principal in the transaction (providing services itself or through a third party on its behalf), revenues are reported based on the gross consideration received from the customer and any related expenses are reported in gross noninterest expense. If the Company is an agent in the transaction (referring to another party to provide services), the Company reports its net fee or commission retained as revenue.
A substantial portion of the Company's revenue is specifically excluded from the scope of Topic 606. This exclusion is associated with financial instruments, including interest income on loans and investment securities, in addition to loan derivative income and gains on loan and investment sales. For the revenue that is in-scope of Topic 606, the following is a description of principal activities from which the Company generates its revenue from contracts with customers, separated by the timing of revenue recognition.
48
Table of Contents
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (Continued)
Revenue Recognized at a Point in Time
The Company recognizes revenue that is transactional in nature and such revenue is earned at a point in time. Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees. Additionally, revenue is collected from loan fees, such as letters of credit, line renewal fees and application fees. Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer's transaction.
Revenue Recognized Over Time
The Company recognizes revenue over a period of time, generally monthly, as services are performed and performance obligations are satisfied. Such revenue includes commissions on investments, insurance sales and service charges on deposit accounts. Fee revenue from service charges on deposit accounts represents the service charges assessed to customers who hold deposit accounts at the Banks.
49
Table of Contents
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 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 important factors, changes in interest rates; general economic conditions (including inflation and concerns about liquidity) on a national basis or in the local markets in which the Company operates; turbulence in the capital and debt markets; competitive pressures from other financial institutions; changes in consumer behavior due to changing political, business and economic conditions, or legislative or regulatory initiatives; changes in the value of securities and other assets in the Company's investment portfolio; increases in loan and lease default and charge-off rates; the adequacy of allowances for loan and lease losses; decreases in deposit levels that necessitate increases in borrowing to fund loans and investments; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters, and future pandemics; changes in regulation; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions and adverse economic developments; the risk that goodwill and intangibles recorded in the Company's financial statements will become impaired; and changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and other filings submitted to the SEC. 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; BankRI and its subsidiaries; PCSB Bank and its subsidiaries; and Clarendon Private. Brookline Securities Corp, previously a subsidiary of Brookline Bancorp, Inc., was dissolved in November 2023.
As a commercially-focused financial institution with 64 full-service banking offices throughout Greater Boston, the north shore of Massachusetts, Rhode Island and New York, the Company, through Brookline Bank, BankRI and PCSB Bank, 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 and the Lower Hudson Valley in New York. The Banks and their subsidiaries lend primarily in all New England states and New York, with the exception of the equipment financing portfolio, 29.6% of which is in the Greater New York and New Jersey metropolitan area and 70.4% of which is in other areas in the U.S. as of September 30, 2024. Clarendon Private is a registered investment advisor with the SEC. Through Clarendon Private, the Company offers a wide range of wealth management services to individuals, families, endowments and foundations to help these clients meet their long-term financial goals.
The Company focuses its business efforts on profitably growing its commercial lending businesses, both organically and through acquisitions. The Company's customer focus, multi-bank structure, and risk management are integral to its organic growth strategy and serve to differentiate the Company from its competitors. As full-service financial institutions, the Banks and their subsidiaries focus their efforts on developing and deepening long-term banking relationships with qualified customers through a full complement of products, excellent customer service, and strong risk management.
The Company manages the Banks under a uniform strategic objective, with one set of uniform policies consistently applied by one executive management team. Within this environment, the Company believes that the ability to make customer
50
Table of Contents
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 in accordance with corporate policies overseen by the Company's credit department.
The competition for loans and leases and deposits remains strong, with growth and pricing influenced by the Federal Reserve's interest rate-setting actions. Management's scenario analysis of deposit sensitivity to the current rate environment and customer demand for non-depository investment alternatives suggests further deposit mix migration and increased sensitivity to interest rates.
As the interest rate environment resets to a more normal, upward-sloping yield curve with shorter-term interest rates lower than longer-tem interest rates, management expects the net interest margin to increase. This is due to deposit and wholesale funding costs repricing, while legacy loans do not reprice down with the same magnitude.
However, if both short- and long-term interest rates both fall, net interest income models, using a projected flat balance sheet with stable deposit balances and an average sensitivity of deposit rates of approximately 40% to market rates, forecast that a parallel decrease in rates will negatively affect the Company's net interest income, net interest spread, and net interest margin. Note, while our long term historical sensitivity of deposit rates approximates 40%, more recently, deposit rate sensitivity has been much higher, which if continues in the future would have a more neutral or positive impact on the net interest income.
As discussed above, changes in interest rates could also precipitate a change in the mix and volume of the Company's deposits and loans. The future operating results of the Company will depend on its ability to maintain or increase the current net interest income, manage credit risk, increase sources of non-interest income, while managing non-interest expenses.
The Company and the Banks are supervised, examined and regulated by the FRB. As a Massachusetts-chartered trust company, Brookline Bank is subject to supervision, examination and regulation by the Massachusetts Division of Banks. As a Rhode Island-chartered financial institution, BankRI is subject to examination, supervision and regulation by the Banking Division of the Rhode Island Department of Business Regulation. As a New York-chartered commercial bank, PCSB Bank is subject to regulation, supervision and examination by the New York State Department of Financial Services. The FDIC insures each of the Banks' deposits up to $250,000 per depositor.
The Company's common stock is traded on the Nasdaq Global Select MarketSMunder the symbol "BRKL."
Executive Overview
Balance Sheet
Total assets increased $294.5 million, or 3.5% on an annualized basis, to $11.7 billion as of September 30, 2024 from $11.4 billion as of December 31, 2023. The increase was primarily driven by an increase in cash and cash equivalents and an increase in loans and leases, partially offset by a decrease in available-for-sale investment securities. Cash, cash equivalents and available for sale investment securities increased $213.7 million, or 27.1% on an annualized basis, to $1.3 billion as of September 30, 2024 from $1.0 billion as of December 31, 2023. This increased the Company's on balance sheet liquidity from 9.2% of total assets as of December 31, 2023 to 10.8% of total assets as of September 30, 2024.
Cash and cash equivalents increased $274.9 million, or 275.5% on an annualized basis, to $407.9 million as of September 30, 2024 from $133.0 million as of December 31, 2023.
Total investment securities decreased $61.2 million, or 8.9% on an annualized basis, to $855.4 million as of September 30, 2024 from $916.6 million as of December 31, 2023.
Total loans and leases increased $113.6 million, or 1.6% on an annualized basis, to $9.8 billion as of September 30, 2024 from $9.6 billion as of December 31, 2023. The Company's commercial loan portfolios, which are composed of commercial real estate loans and commercial loans and leases, totaled $8.2 billion, or 84.4% of total loans and leases as of September 30, 2024, an increase of $68.1 million, or 1.1% on an annualized basis, from $8.2 billion, or 84.7% of total loans and leases as of December 31, 2023.
Total deposits increased $184.1 million, or 2.9% on an annualized basis, to $8.7 billion as of September 30, 2024 from $8.5 billion as of December 31, 2023. Core deposits, which include demand checking, NOW, money market and savings accounts, totaled $6.1 billion, or 69.8% of total deposits, as of September 30, 2024, an increase of $5.3 million, or 0.1% on an annualized basis, from $6.1 billion, or 71.3% of total deposits, as of December 31, 2023. Certificate of deposit balances totaled $1.8 billion, or 20.8% of total deposits as of September 30, 2024, an increase of $244.5 million, or 20.7% on an annualized basis, from $1.6 billion, or 18.4% of total deposits as of December 31, 2023. Brokered deposits totaled $815.5 million, or 9.3%
51
Table of Contents
of total deposits as of September 30, 2024, a decrease of $65.7 million, or 9.9% on an annualized basis, from $881.2 million, or 10.3% of total deposits as of December 31, 2023.
Total borrowed funds increased $120.9 million, or 11.7% on an annualized basis, to $1.5 billion as of September 30, 2024 from $1.4 billion as of December 31, 2023.
Asset Quality
Nonperforming assets as of September 30, 2024 totaled $72.8 million, or 0.62% of total assets, compared to $45.3 million, or 0.40% of total assets, as of December 31, 2023. Net charge-offs for the three months ended September 30, 2024 were $3.8 million, or 0.16% of average loans and leases on an annualized basis, compared to $11.0 million, or 0.47% of average loans and leases on an annualized basis, for the three months ended September 30, 2023.
The ratio of the allowance for loan and lease losses to total loans and leases was 1.31% as of September 30, 2024, compared to 1.22% as of December 31, 2023.
The ratio of the allowance for loan and lease losses to nonaccrual loans and leases was 178.71% as of September 30, 2024, compared to 269.36% as of December 31, 2023.
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 10.42% as of September 30, 2024, compared to 10.25% as of December 31, 2023. The Company's Tier 1 leverage ratio was 9.09% as of September 30, 2024, compared to 9.02% as of December 31, 2023. As of September 30, 2024, the Company's Tier 1 risk-based capital ratio was 10.52%, compared to 10.35% as of December 31, 2023. The Company's Total risk-based capital ratio was 12.39% as of September 30, 2024, compared to 12.37% as of December 31, 2023.
The Company's ratio of stockholders' equity to total assets was 10.54% and 10.53% as of September 30, 2024 and December 31, 2023, respectively. The Company's ratio of tangible stockholders' equity to tangible assets was 8.50% and 8.39% as of September 30, 2024 and December 31, 2023, respectively.
Net Income
For the three months ended September 30, 2024, the Company reported net income of $20.1 million, or $0.23 per basic and diluted share, a decrease of $2.6 million, or 11.3%, from net income of $22.7 million, or $0.26 per basic and diluted share, for the three months ended September 30, 2023. This decrease in net income is primarily the result of an increase in provision for credit losses on loans of $1.9 million, a decrease in net interest income of $1.1 million, and an increase in the provision for income taxes of $0.4 million, partially offset by an increase in non-interest income of $0.8 million. Refer to "Results of Operations" below for further discussion.
For the nine months ended September 30, 2024, the Company reported net income of $51.2 million, or $0.58 and $0.57 per basic and diluted share, respectively, a decrease of $0.9 million, or 1.8%, from $52.1 million, or $0.59 per basic and diluted share for the nine months ended September 30, 2023. This decrease in net income is primarily the result of a decrease in net interest income of $11.6 million, a decrease in non-interest income of $4.9 million, and an increase in the provision for income taxes of $3.5 million, partially offset by a decrease in the provision for credit losses on loans of $16.2 million, a decrease in non-interest expense of $2.1 million, and a decrease in the provision for credit losses on investments of $0.7 million which were all elevated in 2023 due to the acquisition of PCSB. Refer to "Results of Operations" below for further discussion.
The annualized return on average assets was 0.70% for the three months ended September 30, 2024, compared to 0.81% for the three months ended September 30, 2023. The annualized return on average stockholders' equity was 6.63% for the three months ended September 30, 2024, compared to 7.78% for the three months ended September 30, 2023.
The net interest margin was 3.07% for the three months ended September 30, 2024, down from 3.18% for the three months ended September 30, 2023. The decrease in the net interest margin is a result of an increase of 51 basis points in the Company's cost of interest-bearing liabilities to 3.67% for the three months ended September 30, 2024 from 3.16% for the three months ended September 30, 2023, partially offset by an increase in the yield on interest-earning assets of 32 basis points to 5.93% for the three months ended September 30, 2024 from 5.61% for the three months ended September 30, 2023.
The net interest margin was 3.05% for the nine months ended September 30, 2024, down from 3.27% for the nine months ended September 30, 2023. The decrease in the net interest margin is a result of an increase of 76 basis points in the Company's cost of interest bearing liabilities to 3.63% for the nine months ended September 30, 2024 from 2.87% for the nine months
52
Table of Contents
ended September 30, 2023, partially offset by an increase in the yield on interest-earning assets of 44 basis points to 5.84% for the nine months ended September 30, 2024 from 5.40% for the nine months ended September 30, 2023.
The Company's net interest margin and net interest income are sensitive to the structure and level of interest rates as well as competitive pricing in all loan and deposit categories.
Critical Accounting Policies and Estimates
The SEC defines "critical accounting policies" as those involving significant judgments and difficult or complex assumptions by management, often as a result of the need to make estimates about matters that are inherently uncertain or variable, which have, or could have, a material impact on the carrying value of certain assets or net income. The preparation of financial statements in accordance with 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2023, management has identified the determination of the ACL, the review of goodwill for impairment and business combinations as the Company's most critical accounting policies.
Recent Accounting Developments
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which improves reportable segment disclosure requirements, particularly regarding a reportable segment's expenses. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Management has determined that ASU 2023-07 does apply to the Company and is currently determining the impact as of September 30, 2024.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" to enhance the annual income tax disclosure requirements. This update is effective for annual periods beginning after December 15, 2024. Management has determined that ASU 2023-09 does apply to the Company and is currently determining the impact as of September 30, 2024.
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 stockholders' equity to tangible assets ratio, tangible book value per share, and dividend payout ratio. Management believes that these non-GAAP financial measures provide information useful to investors in understanding the Company's underlying operating performance and trends, and facilitates comparisons with the performance assessment of financial performance, including non-interest expense control, while the tangible equity ratio and tangible book value per share are used to analyze the relative strength of the Company's capital position.
The following table reconciles the Company's operating earnings, operating return on average assets and operating return on average stockholders' equity for the periods indicated:
53
Table of Contents
At and for the Nine Months Ended September 30,
2024 2023
(Dollars in Thousands)
Reported Pretax Income $ 67,872 $ 65,351
Less:
Gains on the sale of investment securities (1)
- 1,704
Add:
Day 1 PCSB provision for credit losses - 16,744
Merger and restructuring expense (2)
823 7,411
Operating Pretax Income 68,695 87,802
Effective tax rate 24.6 % 20.3 %
Provision for income taxes 16,895 17,789
Operating earnings after tax $ 51,800 $ 70,013
Operating earnings per common share:
Basic $ 0.58 $ 0.80
Diluted 0.58 $ 0.79
_______________________________________________________________________________
(1) Realized gain related to the rebalancing of the PCSB investment portfolio after acquisition.
(2) For the nine months ended September 30, 2024, merger and restructuring expense was related to a non-recurring restructuring charge due to the exit of the specialty vehicle business at Eastern Funding. For the nine months ended September 30, 2023, merger and restructuring expense was related to the acquisition of PCSB.
The following tables reconcile the Company's return on average tangible assets and return on average tangible stockholders' equity for the periods indicated:
54
Table of Contents
Three Months Ended
September 30,
2024 		June 30,
2024 		March 31,
2024 		December 31,
2023 		September 30,
2023
(Dollars in Thousands)
Operating earnings $ 20,142 $ 16,995 $ 14,665 $ 22,888 $ 22,701
Average total assets $ 11,451,338 $ 11,453,394 $ 11,417,185 $ 11,271,941 $ 11,180,635
Less: Average goodwill and average identified intangible assets, net 261,188 262,859 264,536 266,225 268,199
Average tangible assets $ 11,190,150 $ 11,190,535 $ 11,152,649 $ 11,005,716 $ 10,912,436
Return on average assets (annualized) 0.70% 0.57% 0.51% 0.81% 0.81%
Add:
Merger and restructuring expense -% 0.02% -% -% -%
Operating return on average assets (annualized) 0.70% 0.59% 0.51% 0.81% 0.81%
Return on average tangible assets (annualized) 0.72% 0.59% 0.53% 0.83% 0.83%
Add:
Merger and restructuring expense -% 0.02% -% -% -%
Operating return on average tangible assets (annualized) 0.72% 0.61% 0.53% 0.83% 0.83%
Average total stockholders' equity $ 1,216,037 $ 1,193,385 $ 1,201,904 $ 1,170,776 $ 1,167,727
Less: Average goodwill and average identified intangible assets, net 261,188 262,859 264,536 266,225 268,199
Average tangible stockholders' equity $ 954,849 $ 930,526 $ 937,368 $ 904,551 $ 899,528
Return on average stockholders' equity (annualized) 6.63% 5.49% 4.88% 7.82% 7.78%
Add:
Merger and restructuring expense -% 0.21% -% -% -%
Operating return on average stockholders' equity (annualized) 6.63% 5.70% 4.88% 7.82% 7.78%
Return on average tangible stockholders' equity (annualized) 8.44% 7.04% 6.26% 10.12% 10.09%
Add:
Merger and restructuring expense -% 0.27% -% -% -%
Operating return on average tangible stockholders' equity (annualized) 8.44% 7.31% 6.26% 10.12% 10.09%
55
Table of Contents
Three Months Ended
September 30,
2024 		June 30,
2024 		March 31,
2024 		December 31,
2023 		September 30,
2023
(Dollars in Thousands)
Net income, as reported $ 20,142 $ 16,372 $ 14,665 $ 22,888 $ 22,701
Average total assets $ 11,451,338 $ 11,453,394 $ 11,417,185 $ 11,271,941 $ 11,180,635
Less: Average goodwill and average identified intangible assets, net 261,188 262,859 264,536 266,225 268,199
Average tangible assets $ 11,190,150 $ 11,190,535 $ 11,152,649 $ 11,005,716 $ 10,912,436
Return on average tangible assets (annualized) 0.72% 0.59% 0.53% 0.83% 0.83%
Average total stockholders' equity $ 1,216,037 $ 1,193,385 $ 1,201,904 $ 1,170,776 $ 1,167,727
Less: Average goodwill and average identified intangible assets, net 261,188 262,859 264,536 266,225 268,199
Average tangible stockholders' equity $ 954,849 $ 930,526 $ 937,368 $ 904,551 $ 899,528
Return on average tangible stockholders' equity (annualized) 8.44% 7.04% 6.26% 10.12% 10.09%
The following table reconciles the Company's tangible equity ratio for the periods indicated:
Three Months Ended
September 30,
2024 		June 30,
2024 		March 31,
2024 		December 31,
2023 		September 30,
2023
(Dollars in Thousands)
Total stockholders' equity $ 1,230,362 $ 1,198,480 $ 1,194,231 $ 1,198,644 $ 1,157,871
Less: Goodwill and identified intangible assets, net 260,384 262,052 263,721 265,429 267,394
Tangible stockholders' equity $ 969,978 $ 936,428 $ 930,510 $ 933,215 $ 890,477
Total assets $ 11,676,721 $ 11,635,292 $ 11,542,731 $ 11,382,256 $ 11,180,555
Less: Goodwill and identified intangible assets, net 260,384 262,052 263,721 265,429 267,394
Tangible assets $ 11,416,337 $ 11,373,240 $ 11,279,010 $ 11,116,827 $ 10,913,161
Tangible stockholders' equity to tangible assets 8.50% 8.23% 8.25% 8.39% 8.16%
56
Table of Contents
The following table reconciles the Company's tangible book value per share for the periods indicated:
Three Months Ended
September 30,
2024 		June 30,
2024 		March 31,
2024 		December 31,
2023 		September 30,
2023
(Dollars in Thousands)
Tangible stockholders' equity $ 969,978 $ 936,428 $ 930,510 $ 933,215 $ 890,477
Common shares issued 96,998,075 96,998,075 96,998,075 96,998,075 96,998,075
Less:
Treasury shares 7,015,843 7,373,009 7,354,399 7,354,399 7,350,981
Unvested restricted stock 883,789 713,443 749,099 749,099 780,859
Common shares outstanding 89,098,443 88,911,623 88,894,577 88,894,577 88,866,235
Tangible book value per share $ 10.89 $ 10.53 $ 10.47 $ 10.50 $ 10.02
The following table reconciles the Company's dividend payout ratio for the periods indicated:
Three Months Ended
September 30,
2024 		June 30,
2024 		March 31,
2024 		December 31,
2023 		September 30,
2023
(Dollars in Thousands)
Dividends paid $ 12,028 $ 12,001 $ 12,001 $ 11,997 $ 11,989
Net income, as reported $ 20,142 $ 16,372 $ 14,665 $ 22,888 $ 22,701
Dividend payout ratio 59.72% 73.30% 81.83% 52.42% 52.81%
57
Table of Contents
Financial Condition
Loans and Leases
The following table summarizes the Company's portfolio of loan and lease receivables as of the dates indicated:
At September 30, 2024 At December 31, 2023
Balance Percent
of Total 		Balance Percent
of Total
(Dollars in Thousands)
Commercial real estate loans:
Commercial real estate $ 4,056,018 41.6 % $ 4,047,288 42.0 %
Multi-family mortgage 1,398,348 14.3 % 1,415,191 14.7 %
Construction 324,924 3.3 % 302,050 3.1 %
Total commercial real estate loans 5,779,290 59.2 % 5,764,529 59.8 %
Commercial loans and leases:
Commercial 1,082,959 11.1 % 984,441 10.2 %
Equipment financing 1,324,660 13.6 % 1,370,648 14.2 %
Condominium association 45,419 0.5 % 44,579 0.5 %
Total commercial loans and leases 2,453,038 25.2 % 2,399,668 24.9 %
Consumer loans:
Residential mortgage 1,098,435 11.2 % 1,082,804 11.2 %
Home equity 366,880 3.8 % 344,182 3.6 %
Other consumer 57,593 0.6 % 50,406 0.5 %
Total consumer loans 1,522,908 15.6 % 1,477,392 15.3 %
Total loans and leases 9,755,236 100.0 % 9,641,589 100.0 %
Allowance for loan and lease losses (127,316) (117,522)
Net loans and leases $ 9,627,920 $ 9,524,067
The following table sets forth the growth in the Company's loan and lease portfolios during the nine months ended September 30, 2024:
At September 30,
2024 		At December 31,
2023 		Dollar Change Percent Change
(Annualized)
(Dollars in Thousands)
Commercial real estate $ 5,779,290 $ 5,764,529 $ 14,761 0.3 %
Commercial 2,453,038 2,399,668 53,370 3.0 %
Consumer 1,522,908 1,477,392 45,516 4.1 %
Total loans and leases $ 9,755,236 $ 9,641,589 $ 113,647 1.6 %
The Company's loan portfolio consists primarily of first mortgage loans secured by commercial, multi-family and residential real estate properties located in the Company's primary lending area, loans to business entities, including commercial lines of credit, loans to condominium associations and loans and leases used to finance equipment used by small businesses. The Company also provides financing for construction and development projects, home equity and other consumer loans.
The Company employs seasoned commercial lenders and retail bankers who rely on community and business contacts as well as referrals from customers, attorneys and other professionals to generate loans and deposits. Existing borrowers are also an important source of business since many of them have more than one loan outstanding with the Company. The Company's ability to originate loans depends on the strength of the economy, trends in interest rates, and levels of customer demand and market competition.
The Company's current policy is that a total credit exposure to one obligor relationship may not exceed $60.0 million unless approved by the Company's Credit Committee. As of September 30, 2024, there were five borrowers with loans and commitments over $60.0 million. The total of those loans and commitments was $335.7 million, or 2.86% of total loans and commitments, as of September 30, 2024. As of December 31, 2023, there were four borrowers with loans and commitments
58
Table of Contents
over $60.0 million. The total of those loans and commitments was $259.5 million, or 2.2% of total loans and commitments, as of December 31, 2023.
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 composed 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 59.2% of total loans and leases outstanding as of September 30, 2024.
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 ($1.4 billion), retail stores ($959.5 million), industrial properties ($855.2 million), office buildings ($776.8 million), mixed-use properties ($514.7 million), lodging services ($204.5 million), and food services ($79.4 million) as of September 30, 2024. At that date, approximately 77.8% of the commercial real estate loans outstanding were secured by properties located in New England; primarily in the Greater Boston and Greater Providence markets, with additional exposure of approximately 16.5% of the commercial real estate loans outstanding were also secured by properties in the State of New York, nearly all of which is in the Lower Hudson Valley region.
59
Table of Contents
The following table presents the percentage of the Company's commercial real estate loan portfolio by borrower type that is owner and non-owner occupied as of September 30, 2024.
At September 30, 2024
Owner Occupied Non-Owner Occupied Total
Borrower type:
Multi-family buildings - % 23.5 % 23.5 %
Retail stores 2.1 % 14.5 % 16.6 %
Industrial properties 2.6 % 12.2 % 14.8 %
Office buildings 1.2 % 12.3 % 13.5 %
Mixed-use properties 0.8 % 8.1 % 8.9 %
Lodging services 0.1 % 3.4 % 3.5 %
Food Services 0.8 % 0.6 % 1.4 %
Other 9.8 % 8.0 % 17.8 %
Total 17.4 % 82.6 % 100.0 %
The following table presents the percentage of the Company's commercial real estate loan portfolio by geographic concentration that is owner and non-owner occupied as of September 30, 2024.
At September 30, 2024
Owner Occupied Non-Owner Occupied Total
Geographic concentration:
New England 11.4 % 66.4 % 77.8 %
New York 3.0 % 13.5 % 16.5 %
Other 3.0 % 2.7 % 5.7 %
Total 17.4 % 82.6 % 100.0 %
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.
Commercial Loans
The Company's commercial loan and lease portfolio is composed of commercial loans, equipment financing loans and leases and condominium association loans, which represented 25.2% of total loans outstanding as of September 30, 2024.
The Company's commercial loan and lease portfolio is composed primarily of loans and leases to small to medium sized businesses ($893.0 million), transportation services ($331.2 million), food services ($272.3 million), recreation services ($123.4 million), manufacturing ($144.4 million), retail ($157.6 million), and rental and leasing services ($88.7 million) as of September 30, 2024.
The Company provides commercial banking services to companies in its market areas. Approximately 40.6% of the commercial loans outstanding as of September 30, 2024 were made to borrowers located in New England. The remaining 59.4% of the commercial loans outstanding were made to borrowers in other areas in the U.S., primarily by the Company's
60
Table of Contents
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 businesses. 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 FHLB indices.
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'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, distributors, and owner-operated start-ups as well as existing customers that are expanding their operations. The equipment financing portfolio is composed primarily of loans to finance vended-laundry, and to a lesser degree larger industrial laundries, tow trucks, fitness, and convenience/grocery stores. Approximately 18.5% of all loans outstanding in the equipment financing divisions were made to finance assets located in the state of New York. Typically, the loans are priced at a fixed rate of interest and require monthly payments over their 5- to 10-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 composed of residential mortgage loans, home equity loans and lines of credit, and other consumer loans, represented 15.6% of total loans outstanding as of September 30, 2024. 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 along with the Lower Hudson Valley area of New York.
The Company originates adjustable- and fixed-rate residential mortgage loans secured by one- to four-family residences. Each residential mortgage loan granted is subject to a satisfactorily completed application, employment verification, credit history and a demonstrated ability to repay the debt. Generally, loans are not made when the loan-to-value ratio exceeds 80% unless private mortgage insurance is obtained and/or there is a financially strong guarantor. Appraisals are performed by outside independent fee appraisers.
Underwriting guidelines for home equity loans and lines of credit are similar to those for residential mortgage loans. Home equity loans and lines of credit are limited to no more than 80% of the appraised value of the property securing the loan including the amount of any existing first mortgage liens.
Other consumer loans have historically been a modest part of the Company's loan originations. As of September 30, 2024, other consumer loans equaled $57.6 million, or 0.6% of total loans outstanding.
Asset Quality
Criticized and Classified Assets
The Company's management rates certain loans and leases as 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
61
Table of Contents
principal is likely. As of September 30, 2024, the Company had $242.8 million of total assets that were designated as criticized. This compares to $128.0 million of assets designated as criticized as of December 31, 2023. The increase of $114.8 million in criticized assets was primarily driven by increases in commercial real estate, equipment financing, construction, and multi-family relationships, and offset by a decrease in commercial relationships, for the nine months ended September 30, 2024.
Nonperforming Assets
"Nonperforming assets" consist of nonaccrual loans and leases, OREO and other repossessed assets. Under certain circumstances, the Company may restructure the terms of a loan or lease as a concession to a borrower, except for acquired loans and leases which are individually evaluated against expected performance on the date of acquisition. These restructured loans and leases are generally considered "nonperforming loans and leases" until a history of collection of at least six months on the restructured terms of the loan or lease has been established. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of a deed in lieu of foreclosure. Other repossessed assets consist of assets that have been acquired through foreclosure that are not real estate and are included in other assets on the Company's unaudited consolidated balance sheets.
Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. When a loan is placed on nonaccrual status, interest accruals cease and all previously accrued and uncollected interest is reversed and charged against current interest income. Interest payments on nonaccrual loans are generally applied to principal. If collection of the principal is reasonably assured, interest payments are recognized as income on the cash basis. Loans are generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured and a consistent record of at least six months of performance has been achieved.
In cases where a borrower experiences financial difficulties and the Company makes or reasonably expects to make certain concessionary modifications to contractual terms, the loan is classified as a modified loan. In determining whether a debtor is experiencing financial difficulties, the Company considers, among other factors, if the debtor is in payment default or is likely to be in payment default in the foreseeable future without the modification, the debtor declared or is in the process of declaring bankruptcy, there is substantial doubt that the debtor will continue as a going concern, the debtor's entity-specific projected cash flows will not be sufficient to service its debt, or the debtor cannot obtain funds from sources other than the existing creditors at market terms for debt with similar risk characteristics.
As of September 30, 2024, the Company had nonperforming assets of $72.8 million, representing 0.62% of total assets, compared to nonperforming assets of $45.3 million, or 0.40% of total assets as of December 31, 2023. The increase of $27.5 million in nonperforming assets was primarily driven by increases of $22.2 million and $11.8 million in equipment financing and commercial loans, respectively, offset by an $8.0 million decrease in commercial real estate loans during the nine months ended September 30, 2024.
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.
Past Due and Accruing
As of September 30, 2024, the Company had $16.1 million loans and leases greater than 90 days past due and accruing, compared to minimal loans as of December 31, 2023. The increase in 90 days past due and accruing loans was primarily due to one $11.5 million construction relationship, three multi-family relationships totaling $3.4 million, and three commercial real estate relationships totaling $1.3 million becoming 90 days past due.
62
Table of Contents
The following table sets forth information regarding nonperforming assets for the periods indicated:
At September 30, 2024 At December 31, 2023
(Dollars in Thousands)
Nonperforming loans and leases:
Nonaccrual loans and leases:
Commercial real estate $ 11,595 $ 19,608
Multi-family mortgage 1,751 -
Construction - -
Total commercial real estate loans 13,346 19,608
Commercial 15,734 3,886
Equipment financing 37,223 14,984
Condominium association - -
Total commercial loans and leases 52,957 18,870
Residential mortgage 3,862 4,292
Home equity 1,076 860
Other consumer 1 -
Total consumer loans 4,939 5,152
Total nonaccrual loans and leases 71,242 43,630
Other real estate owned 780 780
Other repossessed assets 799 914
Total nonperforming assets $ 72,821 $ 45,324
Loans and leases past due greater than 90 days and accruing $ 16,091 $ 228
Total delinquent loans and leases 61-90 days past due 5,636 5,300
Restructured loans and leases not included in nonperforming assets - -
Total nonperforming loans and leases as a percentage of total loans and leases 0.73 % 0.45 %
Total nonperforming assets as a percentage of total assets 0.62 % 0.40 %
Total delinquent loans and leases 61-90 days past due as a percentage of total loans and leases 0.06 % 0.05 %
Allowance for Credit Losses
The ACL consists of general and specific allowances and reflects management's estimate of expected loan and lease losses over the life of the loan or lease. Management uses a consistent and systematic process and methodology to evaluate the adequacy of the ACL on a quarterly basis. Management continuously evaluates and challenges inputs and assumptions in the ACL.
While management evaluates currently available information in establishing the ACL, 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 ACL on a quarterly basis. In addition, various regulatory agencies, as an integral part of their examination process, periodically review a financial institution's ACL and carrying amounts of OREO. Such agencies may require the financial institution to recognize additions or reductions to the allowance based on their judgments about information available to them at the time of their examination.
The Company's allowance methodology provides a quantification of estimated losses in the portfolio. Under the current methodology, management estimates losses over the life of the loan using reasonable and supportable forecasts. Forecasts, loan
63
Table of Contents
data, and model documentation are extensively analyzed and reviewed throughout the quarter to ensure estimated losses are appropriate at quarter end. Qualitative adjustments are applied when model output does not align with management expectations. These adjustments are thoroughly reviewed and documented to provide clarity and a reasonable basis for any deviations from the model. For September 30, 2024, qualitative adjustments were applied to the commercial real estate, commercial, and consumer portfolios resulting in a net addition in total reserves compared to modeled calculations.
The following tables present the changes in the allowance for loan and lease losses by portfolio category for the three and nine months ended September 30, 2024 and 2023.
At and for the Three Months Ended September 30, 2024
Commercial
Real Estate 		Commercial Consumer Total
(In Thousands)
Balance at June 30, 2024 $ 82,152 $ 33,386 $ 6,212 $ 121,750
Charge-offs - (4,164) (19) (4,183)
Recoveries - 367 8 375
Provision (credit) for loan and lease losses (6,971) 16,632 (287) 9,374
Balance at September 30, 2024 $ 75,181 $ 46,221 $ 5,914 $ 127,316
Total loans and leases $ 5,779,290 $ 2,453,038 $ 1,522,908 $ 9,755,236
Total allowance for loan and lease losses as a percentage of total loans and leases 1.30 % 1.88 % 0.39 % 1.31 %
At and for the Three Months Ended September 30, 2023
Commercial
Real Estate 		Commercial Consumer Total
(In Thousands)
Balance at June 30, 2023 $ 84,301 $ 35,634 $ 5,882 $ 125,817
Charge-offs - (11,047) (29) (11,076)
Recoveries 3 89 10 102
Provision (credit) for loan and lease losses (5,524) 8,829 933 4,238
Balance at September 30, 2023 $ 78,780 $ 33,505 $ 6,796 $ 119,081
Total loans and leases $ 5,669,768 $ 2,241,375 $ 1,469,639 $ 9,380,782
Total allowance for loan and lease losses as a percentage of total loans and leases 1.39 % 1.49 % 0.46 % 1.27 %
At and for the Nine Months Ended September 30, 2024
Commercial
Real Estate 		Commercial Consumer Total
(In Thousands)
Balance at December 31, 2023 $ 81,410 $ 29,557 $ 6,555 $ 117,522
Charge-offs (4,425) (13,933) (38) (18,396)
Recoveries - 1,086 34 1,120
Provision (credit) for loan and lease losses (1,804) 29,511 (637) 27,070
Balance at September 30, 2024 $ 75,181 $ 46,221 $ 5,914 $ 127,316
Total loans and leases $ 5,779,290 $ 2,453,038 $ 1,522,908 $ 9,755,236
Total allowance for loan and lease losses as a percentage of total loans and leases 1.30 % 1.88 % 0.39 % 1.31 %
64
Table of Contents
At and for the Nine Months Ended September 30, 2023
Commercial
Real Estate 		Commercial Consumer Total
(In Thousands)
Balance at December 31, 2022 $ 68,154 $ 26,604 $ 3,724 $ 98,482
Charge-offs - (13,475) (38) (13,513)
Recoveries 15 951 25 991
Provision (credit) for loan and lease losses 10,611 19,425 3,085 33,121
Balance at September 30, 2023 $ 78,780 $ 33,505 $ 6,796 $ 119,081
Total loans and leases $ 5,669,768 $ 2,241,375 $ 1,469,639 $ 9,380,782
Total allowance for loan and lease losses as a percentage of total loans and leases 1.39 % 1.49 % 0.46 % 1.27 %
At September 30, 2024, the allowance for loan and lease losses increased to $127.3 million, or 1.31% of total loans and leases outstanding. This compared to an allowance for loan and lease losses of $117.5 million, or 1.22% of total loans and leases outstanding, as of December 31, 2023.
Net charge-offs in the loans and leases for the three months ended September 30, 2024 and 2023 were $3.8 million and $11.0 million, respectively. As a percentage of average loans and leases, annualized net charge-offs for the three months ended September 30, 2024 and 2023 were 0.16% and 0.47%, respectively. The year over year decrease in the net charge-offs was primarily due to a decrease in net charge-offs of $8.6 million in commercial loans, offset by an increase in net charge-offs of $1.5 million in equipment financing loans.
The following table sets forth the Company's percent of allowance for loan and lease losses to the total allowance for loan and lease losses, and the percent of loans to total loans for each of the categories listed at the dates indicated.
At September 30, 2024 At December 31, 2023
Amount Percent of
Allowance in Each Category
to Total
Allowance 		Percent of
Loans
in Each
Category to
Total
Loans 		Amount Percent of
Allowance in Each Category
to Total Allowance 		Percent of
Loans
in Each
Category to
Total
Loans
(Dollars in Thousands)
Commercial real estate $ 51,080 40.2 % 41.6 % $ 53,633 45.7 % 42.0 %
Multi-family mortgage 14,957 11.7 % 14.3 % 16,626 14.1 % 14.7 %
Construction 9,144 7.2 % 3.3 % 11,151 9.5 % 3.1 %
Total commercial real estate loans 75,181 59.1 % 59.2 % 81,410 69.3 % 59.8 %
Commercial 13,472 10.6 % 11.1 % 15,527 13.2 % 10.2 %
Equipment financing 32,617 25.6 % 13.6 % 13,869 11.8 % 14.2 %
Condominium association 132 0.1 % 0.5 % 161 0.1 % 0.5 %
Total commercial loans 46,221 36.3 % 25.2 % 29,557 25.1 % 24.9 %
Residential mortgage 2,778 2.2 % 11.2 % 3,669 3.2 % 11.2 %
Home equity 2,580 2.0 % 3.8 % 2,255 1.9 % 3.6 %
Other consumer 556 0.4 % 0.6 % 631 0.5 % 0.5 %
Total consumer loans 5,914 4.6 % 15.6 % 6,555 5.6 % 15.3 %
Total $ 127,316 100.0 % 100.0 % $ 117,522 100.0 % 100.0 %
Management believes that the allowance for loan and lease losses as of September 30, 2024 is appropriate.
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.
65
Table of Contents
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 8% and 12% of total assets.
Cash, cash equivalents, and investment securities increased $213.7 million, or 27.1% on an annualized basis, to $1.3 billion as of September 30, 2024, from $1.05 billion December 31, 2023. The increase was driven by an increase in cash and due from banks and short-term investments. Cash, cash equivalents, and investment securities were 10.8% of total assets as of September 30, 2024, compared to 9.2% of total assets at December 31, 2023.
The following table sets forth certain information regarding the amortized cost and market value of the Company's investment securities at the dates indicated:
At September 30, 2024 At December 31, 2023
Amortized
Cost 		Fair Value Amortized
Cost 		Fair Value
(In Thousands)
Investment securities available-for-sale:
GSE debentures $ 198,129 $ 183,216 $ 220,604 $ 201,127
GSE CMOs 63,498 58,865 66,463 61,617
GSE MBSs 172,586 159,767 186,614 169,997
Municipal obligations 17,353 17,495 18,785 18,922
Corporate debt obligations 12,109 11,666 20,521 19,716
U.S. Treasury bonds 441,801 423,885 470,764 444,737
Foreign government obligations 500 497 500 485
Total investment securities available-for-sale $ 905,976 $ 855,391 $ 984,251 $ 916,601
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 the "Fair Value Measurements and Disclosures" Topic of the FASB, or ASC 820. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include certain U.S. and government agency debt securities, municipal and corporate debt securities, GSE residential MBSs and CMOs, all of which are included in Level 2. Certain fair values are estimated using pricing models and are included in Level 3.
Additionally, management reviews changes in fair value from period to period and performs testing to ensure that prices received from the third parties are consistent with their expectation of the market. Changes in the prices obtained from the pricing service are analyzed from month to month, taking into consideration changes in market conditions including changes in mortgage spreads, changes in U.S. Treasury security yields and changes in generic pricing of 15-year and 30-year securities. Additional analysis may include a review of prices provided by other independent parties, a yield analysis, a review of average life changes using Bloomberg analytics and a review of historical pricing for the particular security.
Maturities, calls and principal repayments for investment securities available-for-sale totaled $152.6 million for the nine months ended September 30, 2024 compared to $242.8 million for the same period in 2023. For the nine months ended September 30, 2024, the Company did not sell any investment securities available-for-sale, compared to $230.0 million for the same period in 2023. For the nine months ended September 30, 2024, the Company purchased $69.9 million of investment securities available-for-sale, compared to $330.8 million for the same period in 2023.
As of September 30, 2024, the fair value of all investment securities available-for-sale was $855.4 million with $50.6 million of net unrealized losses, compared to a fair value of $916.6 million and net unrealized losses of $67.7 million as of December 31, 2023. As of September 30, 2024, $565.1 million, or 66.1%, of the portfolio, had gross unrealized losses of $54.0 million. This compares to $717.2 million, or 77.8%, of the portfolio with gross unrealized losses of $69.0 million as of December 31, 2023. The Company's unrealized loss position increased in 2024 primarily driven by increase in current market rates.
66
Table of Contents
Restricted Equity Securities
FHLB of Boston and FHLB of New York Stock-The Company invests in the stock of the FHLB of Boston and FHLB of New York as a requirement to borrow funds from the FHLB. As of September 30, 2024, the Company owned stock in the FHLBs with a carrying value of $60.6 million, an increase of $5.1 million from $55.5 million as of December 31, 2023.
Federal Reserve Bank Stock-The Company invests in the stock of the Federal Reserve Bank of Boston and the Federal Reserve Bank of New York as a condition of the Banks' membership in the Federal Reserve System. As of September 30, 2024 and December 31, 2023, the Company owned stock in the Federal Reserve Banks with a carrying value of $21.9 million.
Other Stock-The Company invests in a small number of other restricted equity securities, primarily AFX. As of September 30, 2024, the Company owned stock in other restricted equity securities with a carrying value of $0.2 million, unchanged from December 31, 2023.
Deposits
The following table presents the Company's deposit mix at the dates indicated.
At September 30, 2024 At December 31, 2023
Amount Percent
of Total 		Weighted
Average
Rate 		Amount Percent
of Total 		Weighted
Average
Rate
(Dollars in Thousands)
Non-interest-bearing deposits:
Demand checking accounts $ 1,681,858 19.3 % - % $ 1,678,406 19.6 % - %
Interest-bearing deposits:
NOW accounts 637,374 7.3 % 0.78 % 661,863 7.8 % 0.60 %
Savings accounts 1,736,989 19.9 % 2.61 % 1,669,018 19.5 % 2.63 %
Money market accounts 2,041,185 23.4 % 4.55 % 2,082,810 24.4 % 3.07 %
Certificate of deposit accounts 1,819,353 20.8 % 4.42 % 1,574,855 18.4 % 3.88 %
Brokered deposit accounts 815,512 9.3 % 4.63 % 881,173 10.3 % 4.36 %
Total interest-bearing deposits 7,050,413 80.7 % 3.70 % 6,869,719 80.4 % 3.08 %
Total deposits $ 8,732,271 100.0 % 3.00 % $ 8,548,125 100.0 % 2.48 %
Total deposits increased $184.1 million to $8.7 billion as of September 30, 2024, compared to $8.5 billion as of December 31, 2023. Deposits as a percentage of total assets was 74.8% and 75.1% as of September 30, 2024 and December 31, 2023, respectively.
During the nine months ended September 30, 2024, core deposits increased $5.3 million. The ratio of core deposits to total deposits decreased to 69.8% as of September 30, 2024 from 71.3% as of December 31, 2023, primarily due to an increase in the percentage of certificate of deposit accounts.
Certificate of deposit accounts increased $244 million to $1.8 billion as of September 30, 2024, compared to $1.6 billion as of December 31, 2023. Certificate of deposit accounts increased as a percentage of total deposits to 20.8% as of September 30, 2024 from 18.4% as of December 31, 2023.
Brokered deposits decreased $65.7 million to $815.5 million as of September 30, 2024, compared to $881.2 million as of December 31, 2023. Brokered deposits decreased as a percentage of total deposits to 9.3% as of September 30, 2024 from 10.3% as of December 31, 2023. Brokered deposits allow the Company to seek additional funding by attracting deposits from outside the Company's core market. The Company's investment policy limits the total amount of brokered deposits the Company may hold to 15% of total assets.
The following table sets forth the distribution of the average balances of the Company's deposit accounts for the periods indicated and the weighted average interest rates on each category of deposits presented. Averages for the periods presented are based on daily balances.
67
Table of Contents
Three Months Ended September 30,
2024 2023
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 $ 1,669,092 19.2 % - % $ 1,794,225 21.0 % - %
NOW accounts 639,561 7.4 % 0.69 % 681,929 8.0 % 0.67 %
Savings accounts 1,738,756 20.0 % 2.77 % 1,557,911 18.3 % 2.26 %
Money market accounts 2,038,048 23.4 % 3.02 % 2,177,528 25.5 % 2.88 %
Total core deposits 6,085,457 70.0 % 1.89 % 1.89 % 6,211,593 72.8 % 1.66 %
Certificate of deposit accounts 1,768,026 20.3 % 4.51 % 1,444,269 16.9 % 3.33 %
Brokered deposit accounts 841,067 9.7 % 5.23 % 882,351 10.3 % 5.03 %
Total deposits $ 8,694,550 100.0 % 2.75 % $ 8,538,213 100.0 % 2.28 %
Nine Months Ended September 30,
2024 2023
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 $ 1,646,932 19.0 % - % $ 1,857,429 22.2 % - %
NOW accounts 656,879 7.6 % 0.71 % 741,951 8.8 % 0.56 %
Savings accounts 1,721,518 19.9 % 2.74 % 1,365,541 16.3 % 1.69 %
Money market accounts 2,047,011 23.5 % 3.06 % 2,227,404 26.6 % 2.52 %
Total core deposits 6,072,340 70.0 % 1.88 % 6,192,325 73.9 % 1.34 %
Certificate of deposit accounts 1,697,477 19.6 % 4.36 % 1,394,338 16.6 % 2.84 %
Brokered deposit accounts 898,455 10.4 % 5.23 % 798,800 9.5 % 4.97 %
Total deposits $ 8,668,272 100.0 % 2.71 % $ 8,385,463 100.0 % 1.94 %
68
Table of Contents
As of September 30, 2024 and December 31, 2023, the Company had outstanding certificates of deposit of $250,000 or more, maturing as follows:
At September 30, 2024 At December 31, 2023
Amount Weighted
Average Rate 		Amount Weighted
Average Rate
(Dollars in Thousands)
Maturity period:
Six months or less 296,174 4.63 % 291,049 4.02 %
Over six months through 12 months 254,273 4.66 % 163,277 4.59 %
Over 12 months 31,605 4.00 % 29,637 3.91 %
Total certificates of deposit of $250,000 or more $ 582,052 4.61 % $ 483,963 4.21 %
The following table presents the Company's insured and uninsured deposit mix at the date indicated.
At September 30, 2024
(Dollars in Millions)
Commercial Consumer Municipal Brokered Total %
Insured or Collateralized $ 2,158 $ 3,114 $ 193 $ 815 $ 6,280 72 %
Uninsured 1,375 989 88 - 2,452 28 %
Total $ 3,533 $ 4,103 $ 281 $ 815 $ 8,732 100 %
Composition 40 % 47 % 3 % 9 % 100 %
The collateralized balances in the table above represent municipal deposit accounts which are covered by specific collateral and FHLB letters of credit. The remaining deposits are insured with the FDIC or via reciprocal products.
Borrowed Funds
The following table sets forth certain information regarding advances from the FHLB, subordinated debentures and notes and other borrowed funds for the periods indicated:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
(Dollars in Thousands)
Borrowed funds:
Average balance outstanding $ 1,276,427 $ 1,156,654 $ 1,285,245 $ 1,340,768
Maximum amount outstanding at any month-end during the period 1,497,547 1,153,424 1,497,547 1,630,102
Balance outstanding at end of period 1,497,547 1,135,068 1,497,547 1,135,068
Weighted average interest rate for the period 5.14 % 4.69 % 5.05 % 4.64 %
Weighted average interest rate at end of period 5.03 % 4.55 % 5.03 % 4.55 %
Advances from the FHLB
On a long-term basis, the Company intends to continue to increase its core deposits. The Company also uses FHLB borrowings and other wholesale borrowings 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 FHLB will advance to member institutions, including the Company, fluctuates from time to time in accordance with the policies of the FHLB.
FHLB borrowings increased $121.8 million to $1.3 billion as of September 30, 2024 with a total capacity of $2.7 billion. As of December 31, 2023, FHLB borrowings stood at $1.2 billion with a total capacity of $2.6 billion.
69
Table of Contents
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 CME term SOFR plus spread adjustment of 0.26% plus 3.10% and 3-month CME term SOFR plus spread adjustment of 0.26% plus 2.79%, respectively, on a quarterly basis until the debentures mature.
The Company sold $75.0 million of 6.0% fixed-to-floating rate subordinated notes due September 15, 2029. The Company is obligated to pay 6.0% interest semiannually between September 2014 and September 2024. Subsequently, the Company is obligated to pay 3-month CME term SOFR plus spread adjustment of 0.26% plus 3.32% 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 September 30,
2024 		December 31, 2023
(Dollars in Thousands)
June 26, 2003 Variable;
3-month CME term SOFR + spread adjustment of 0.26% + 3.10% 		June 26, 2033 December 26, 2024 $ 4,916 $ 4,904
March 17, 2004 Variable;
3-month CME term SOFR + spread adjustment of 0.26% + 2.79% 		March 17, 2034 December 17, 2024 4,874 4,857
September 15, 2014 Variable;
3-month CME term SOFR + spread adjustment of 0.26% + 3.32% 		September 15, 2029 December 16, 2024 74,503 74,427
Total $ 84,293 $ 84,188
The above carrying amounts of the subordinated debentures included $0.2 million of accretion adjustments and $0.5 million of capitalized debt issuance costs as of September 30, 2024. This compares to $0.2 million of accretion adjustments and $0.6 million of capitalized debt issuance costs as of December 31, 2023.
Other Borrowed Funds
In addition to advances from the FHLB 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 has access to a $30.0 million committed line of credit as of September 30, 2024. As of September 30, 2024 and December 31, 2023, the Company did not have any borrowings on this committed line of credit.
As of September 30, 2024, the Banks also have access to funding through certain uncommitted lines via AFX as well as other large financial institution specific lines. As of September 30, 2024, the Company had $30.0 million borrowings on outstanding uncommitted lines of credit. This compares to no borrowings on outstanding uncommitted lines of credit as of December 31, 2023,
As of September 30, 2024, the Company had $38.3 million in interest-bearing cash on hold from dealer counterparties. This compares to $60.0 million outstanding as of December 31, 2023. This cash collateralizes the fair value of the dealer side of derivative transactions.
70
Table of Contents
Derivative Financial Instruments
The Company has entered into loan level derivatives, risk participation agreements, and foreign exchange contracts with certain of its commercial customers and concurrently enters into offsetting swaps with third-party financial institutions. The Company may also, from time to time, enter into risk participation agreements. The Company uses interest rate futures that are designated and qualify as cash flow hedging instruments.
The following table summarizes certain information concerning the Company's loan level derivatives, interest rate derivatives, risk participation agreements, and foreign exchange contracts at September 30, 2024 and December 31, 2023:
At September 30, 2024 At December 31, 2023
(Dollars in Thousands)
Interest rate derivatives (Notional amounts): $ 225,000 $ 225,000
Loan level derivatives (Notional principal amounts):
Receive fixed, pay variable $ 1,686,728 $ 1,733,198
Pay fixed, receive variable 1,686,728 1,733,198
Risk participation-out agreements 531,027 542,387
Risk participation-in agreements 102,789 100,313
Foreign exchange contracts (Notional amounts):
Buys foreign currency, sells U.S. currency $ 5,341 $ 3,262
Sells foreign currency, buys U.S. currency 4,901 3,895
Fixed weighted average interest rate from the Company to counterparty 3.04 % 2.96 %
Floating weighted average interest rate from counterparty to the Company 5.41 % 5.70 %
Weighted average remaining term to maturity (in months) 69 75
Fair value:
Recognized as an asset:
Interest rate derivatives $ - $ 234
Loan level derivatives 77,986 99,876
Risk participation-out agreements 1,095 1,238
Foreign exchange contracts 335 139
Recognized as a liability:
Interest rate derivatives $ 477 $ 2,842
Loan level derivatives 77,986 99,876
Risk participation-in agreements 282 310
Foreign exchange contracts 289 132
Stockholders' Equity and Dividends
The Company's total stockholders' equity was $1.2 billion as of September 30, 2024 representing a $31.7 million increase compared to $1.2 billion at December 31, 2023. The increase for the nine months ended September 30, 2024, primarily reflects net income of $51.2 million and unrealized gain on securities available-for-sale of $13.2 million included in comprehensive income, partially offset by dividends paid by the Company of $36.0 million.
Stockholders' equity represented 10.54% of total assets as of September 30, 2024 and 10.53% of total assets as of December 31, 2023. Tangible stockholders' equity (total stockholders' equity less goodwill and identified intangible assets, net) represented 8.50% of tangible assets (total assets less goodwill and identified intangible assets, net) as of September 30, 2024 and 8.39% as of December 31, 2023.
The dividend payout ratio was 59.72% for the three months ended September 30, 2024, compared to 52.81% for the same period in 2023.
71
Table of Contents
Results of Operations
The primary drivers of the Company's net income are net interest income, which is strongly affected by the net yield on and growth of interest-earning assets and liabilities, the quality of the Company's assets, its levels of non-interest income and non-interest expense, and its tax provision.
The Company's net interest income represents the difference between interest income earned on its investments, loans and leases, and its cost of funds. Interest income is dependent on the amount of interest-earning assets outstanding during the period and the yield earned thereon. Cost of funds is a function of the average amount of deposits and borrowed money outstanding during the year and the interest rates paid thereon. The net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The increases or decreases, as applicable, in the components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are summarized under "Rate/Volume Analysis"below. Information as to the components of interest income, interest expense and average rates is provided under "Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin"below.
Because the Company's assets and liabilities are not identical in duration and in repricing dates, the differential between the two is vulnerable to changes in market interest rates as well as the overall shape of the yield curve. These vulnerabilities are inherent to the business of banking and are commonly referred to as "interest-rate risk." How interest-rate risk is measured and, once measured, how much interest-rate risk is taken on, are based on numerous assumptions and other subjective judgments. See the discussion in "Item 3. Quantitative and Qualitative Disclosures about Market Risk"below.
The quality of the Company's assets also influences its earnings. Loans and leases that are not paid on a timely basis and exhibit other weaknesses can result in the loss of principal and/or interest income. Additionally, the Company must make timely provisions to the allowance for loan and lease losses based on estimates of probable losses inherent in the loan and lease portfolio. These additions, which are charged against earnings, are necessarily greater when greater probable losses are expected. Further, the Company incurs expenses as a result of resolving troubled assets. These variables reflect the "credit risk" that the Company takes on in the ordinary course of business and are further discussed under "Financial Condition-Asset Quality"above.
Net Interest Income
Net interest income decreased $1.1 million to $83.0 million for the three months ended September 30, 2024 from $84.1 million for the three months ended September 30, 2023. This decrease reflects a $13.6 million increase in interest expense on deposits and borrowings, which is reflective of the current interest rate environment, along with a $0.3 million decrease in short term investments and restricted equity securities, and a $0.3 million decrease in interest income on debt securities primarily driven by a lower volume during the period, offset by a $13.1 million increase in interest income on loans and leases. Refer to "Results of Operations - Comparison of the Three-Month Period Ended September 30, 2024 and September 30, 2023 - Interest Income" and"Results of Operations - Comparison of the Three-Month Period Ended September 30, 2024 and September 30, 2023 - Interest Expense -Deposit and Borrowed Funds"below for more details.
Net interest income decreased $11.6 million to $244.6 million for the nine months ended September 30, 2024 from $256.2 million for the nine months ended September 30, 2023. This overall decrease reflects a $57.0 million increase in interest expense on deposit and borrowings and a $4.3 million decrease in interest income on investment securities primarily driven by a lower volume of debt securities during the period, offset by an $49.7 million increase in interest income on loans and leases, which is reflective of the various portfolios repricing and replacing balances into the current interest rate environment. Refer to "Results of Operations - Comparison of the Nine-Month Period Ended September 30, 2024 and September 30, 2023 - Interest Income" and"Results of Operations - Comparison of the Nine-Month Period Ended September 30, 2024 and September 30, 2023 - Interest Expense Deposit and Borrowed Funds"below for more details.
Net interest margin decreased 11 basis points to 3.07% for the three months ended September 30, 2024 from 3.18% for the three months ended September 30, 2023. The Company's weighted average interest rate on loans increased to 6.17% for the three months ended September 30, 2024 from 5.84% for the three months ended September 30, 2023.
Net interest margin decreased 22 basis points to 3.05% for the nine months ended September 30, 2024 from 3.27% for the nine months ended September 30, 2023. The Company's weighted average interest rate on loans increased to 6.07% for the nine months ended September 30, 2024 from 5.62% for the nine months ended September 30, 2023.
The yield on interest-earning assets increased to 5.93% for the three months ended September 30, 2024 from 5.61% for the three months ended September 30, 2023. The increase is the result of higher yields on loans and leases. During the three months ended September 30, 2024, the Company recorded $1.3 million in prepayment penalties and late charges, which
72
Table of Contents
contributed 5 basis points to yields on interest-earning assets, compared to $0.8 million, or 3 basis points, for the three months ended September 30, 2023.
The yield on interest-earning assets increased to 5.84% for the nine months ended September 30, 2024 from 5.40% for the nine months ended September 30, 2023. The increase is primarily due to higher yields on loans and leases. During the nine months ended September 30, 2024, the Company recorded $2.6 million in prepayment penalties and late charges, which contributed 3 basis points to yields on interest-earning assets, compared to $2.2 million in prepayment penalties and late charges, which contributed 3 basis points to yields on interest-earning assets in the nine months ended September 30, 2023.
The cost of interest-bearing liabilities increased 51 basis points to 3.67% for the three months ended September 30, 2024 from 3.16% for the three months ended September 30, 2023. The cost of interest-bearing liabilities increased 76 basis points to 3.63% for the nine months ended September 30, 2024 from 2.87% for the nine months ended September 30, 2023. Refer to "Financial Condition - Borrowed Funds" above for more details.
Management aims to position the balance sheet to be neutral to changes in interest rates. As a result of the Federal Reserve's rate cut in September, the Treasury yield curve has become less inverted in recent months, with shorter-term interest rates decreasing.
This trend positively impacts the Company's net interest income, net interest spread, and net interest margin. Management anticipates that the net interest margin will increase as deposit and wholesale funding costs decrease more rapidly than loan yields. If the Federal Reserve cuts rates in the near term, the net interest income and the net interest margin will be highly dependent on the Company's ability and timing to reduce deposit pricing.
Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin
The following table sets forth information about the Company's average balances, interest income and interest rates earned on average interest-earning assets, interest expense and interest rates paid on average interest-bearing liabilities, interest-rate spread and net interest margin for the three and nine months ended September 30, 2024 and September 30, 2023. 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.
73
Table of Contents
Three Months Ended
September 30, 2024 September 30, 2023
Average
Balance 		Interest (1) Average
Yield/
Cost 		Average
Balance 		Interest (1) Average
Yield/
Cost
(Dollars in Thousands)
Assets:
Interest-earning assets:
Debt securities $ 853,924 $ 6,516 3.05 % $ 887,612 $ 6,840 3.08 %
Restricted equity securities 75,225 1,459 7.76 % 67,824 1,310 7.73 %
Short-term investments 145,838 1,986 5.44 % 172,483 2,390 5.54 %
Total investments 1,074,987 9,961 3.71 % 1,127,919 10,540 3.74 %
Commercial real estate loans (2)
5,772,456 83,412 5.65 % 5,667,373 78,750 5.44 %
Commercial loans (2)
1,079,084 18,440 6.69 % 939,492 15,295 6.38 %
Equipment financing (2)
1,353,649 26,884 7.94 % 1,280,033 23,331 7.29 %
Consumer loans (2)
1,505,095 21,123 5.60 % 1,471,985 19,237 5.21 %
Total loans and leases 9,710,284 149,859 6.17 % 9,358,883 136,613 5.84 %
Total interest-earning assets 10,785,271 159,820 5.93 % 10,486,802 147,153 5.61 %
Allowance for loan and lease losses (122,400) (127,077)
Non-interest-earning assets 788,467 820,910
Total assets $ 11,451,338 $ 11,180,635
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts $ 639,561 1,115 0.69 % $ 681,929 1,159 0.67 %
Savings accounts 1,738,756 12,098 2.77 % 1,557,911 8,859 2.26 %
Money market accounts 2,038,048 15,466 3.02 % 2,177,528 15,785 2.88 %
Certificate of deposit accounts 1,768,026 20,054 4.51 % 1,444,269 12,128 3.33 %
Brokered deposit accounts 841,067 11,063 5.23 % 882,351 11,185 5.03 %
Total interest-bearing deposits (3)
7,025,458 59,796 3.39 % 6,743,988 49,116 2.89 %
Advances from the FHLB 1,139,049 14,366 4.94 % 954,989 11,706 4.80 %
Subordinated debentures and notes 84,276 1,378 6.54 % 84,134 1,378 6.55 %
Other borrowed funds 53,102 1,012 7.58 % 117,531 790 2.67 %
Total borrowed funds 1,276,427 16,756 5.14 % 1,156,654 13,874 4.69 %
Total interest-bearing liabilities 8,301,885 76,552 3.67 % 7,900,642 62,990 3.16 %
Non-interest-bearing liabilities:
Non-interest-bearing demand checking accounts (3)
1,669,092 1,794,225
Other non-interest-bearing liabilities 264,324 318,041
Total liabilities 10,235,301 10,012,908
Total stockholders' equity 1,216,037 1,167,727
Total liabilities and stockholders' equity $ 11,451,338 $ 11,180,635
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
83,268 2.26 % 84,163 2.45 %
Less adjustment of tax-exempt income 260 93
Net interest income $ 83,008 $ 84,070
Net interest margin (5)
3.07 % 3.18 %
_________________________________________________________________________
(1) Tax-exempt income on debt securities, equity securities and industrial revenue bonds are included in commercial 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 2.74% and 2.28% in the three months ended September 30, 2024 and September 30, 2023, 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.
74
Table of Contents
Nine Months Ended
September 30, 2024 September 30, 2023
Average
Balance 		Interest (1) Average
Yield/
Cost 		Average
Balance 		Interest (1) Average
Yield/
Cost
(Dollars in Thousands)
Assets:
Interest-earning assets:
Debt securities $ 864,501 $ 19,953 3.08 % $ 971,855 $ 22,905 3.14 %
Marketable and restricted equity securities 74,422 4,327 7.75 % 74,000 4,238 7.64 %
Short-term investments 140,156 5,724 5.44 % 183,295 7,236 5.26 %
Total investments 1,079,079 30,004 3.71 % 1,229,150 34,379 3.73 %
Commercial real estate loans (2)
5,763,065 246,026 5.61 % 5,629,600 225,999 5.29 %
Commercial loans (2)
1,058,312 53,619 6.66 % 915,420 42,814 6.17 %
Equipment financing (2)
1,367,380 80,034 7.80 % 1,253,512 66,901 7.12 %
Consumer loans (2)
1,492,213 61,392 5.49 % 1,469,025 55,210 5.01 %
Total loans and leases 9,680,970 441,071 6.07 % 9,267,557 390,924 5.62 %
Total interest-earning assets 10,760,049 471,075 5.84 % 10,496,707 425,303 5.40 %
Allowance for loan and lease losses (119,745) (121,174)
Non-interest-earning assets 797,980 819,447
Total assets $ 11,438,284 $ 11,194,980
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts $ 656,879 3,487 0.71 % $ 741,951 3,129 0.56 %
Savings accounts 1,721,518 35,324 2.74 % 1,365,541 17,290 1.69 %
Money market accounts 2,047,011 46,940 3.06 % 2,227,404 41,914 2.52 %
Certificate of deposit accounts 1,697,477 55,443 4.36 % 1,394,338 29,605 2.84 %
Brokered deposit accounts 898,455 35,207 5.23 % 798,800 29,693 4.97 %
Total interest-bearing deposits (3)
7,021,340 176,401 3.36 % 6,528,034 121,631 2.49 %
Advances from the FHLBB 1,117,809 41,893 4.92 % 1,135,845 40,524 4.70 %
Subordinated debentures and notes 84,241 4,130 6.54 % 84,098 4,095 6.49 %
Other borrowed funds 83,195 3,353 5.38 % 120,825 2,562 2.83 %
Total borrowed funds 1,285,245 49,376 5.05 % 1,340,768 47,181 4.64 %
Total interest-bearing liabilities 8,306,585 225,777 3.63 % 7,868,802 168,812 2.87 %
Non-interest-bearing liabilities:
Non-interest-bearing demand checking accounts (3)
1,646,932 1,857,429
Other non-interest-bearing liabilities 280,947 301,543
Total liabilities 10,234,464 10,027,774
Total stockholders' equity 1,203,820 1,167,206
Total liabilities and stockholders' equity $ 11,438,284 $ 11,194,980
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
245,298 2.21 % 256,491 2.53 %
Less adjustment of tax-exempt income 701 335
Net interest income $ 244,597 $ 256,156
Net interest margin (5)
3.05 % 3.27 %
_________________________________________________________________________
(1) Tax-exempt income on debt securities, equity securities and industrial revenue bonds are included in commercial 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 2.72% and 1.94% in the nine months ended September 30, 2024 and September 30, 2023, 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.
75
Table of Contents
Rate/Volume Analysis
The following table presents, on a tax-equivalent basis, the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Three Months Ended September 30, 2024 as Compared to the Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 as Compared to the Nine Months Ended September 30, 2023
Increase
(Decrease) Due To 		Increase
(Decrease) Due To
Volume Rate Net Change Volume Rate Net Change
(In Thousands)
Interest and dividend income:
Investments:
Debt securities $ (258) $ (66) $ (324) $ (2,517) $ (435) $ (2,952)
Marketable and restricted equity securities 144 5 149 25 64 89
Short-term investments (362) (42) (404) (1,751) 239 (1,512)
Total investments (476) (103) (579) (4,243) (132) (4,375)
Loans and leases:
Commercial real estate loans 1,513 3,149 4,662 5,639 14,388 20,027
Commercial loans and leases 2,370 775 3,145 7,161 3,644 10,805
Equipment financing 1,393 2,160 3,553 6,402 6,731 13,133
Consumer loans 529 1,357 1,886 777 5,405 6,182
Total loans 5,805 7,441 13,246 19,979 30,168 50,147
Total change in interest and dividend income 5,329 7,338 12,667 15,736 30,036 45,772
Interest expense:
Deposits:
NOW accounts (76) 32 (44) (392) 750 358
Savings accounts 1,100 2,139 3,239 5,330 12,704 18,034
Money market accounts (1,053) 734 (319) (3,561) 8,587 5,026
Certificate of deposit accounts 3,071 4,855 7,926 7,464 18,374 25,838
Brokered deposit accounts (546) 424 (122) 3,885 1,629 5,514
Total deposits 2,496 8,184 10,680 12,726 42,044 54,770
Borrowed funds:
Advances from the FHLB 2,310 350 2,660 (601) 1,970 1,369
Subordinated debentures and notes 2 (2) - 6 29 35
Other borrowed funds (615) 837 222 (982) 1,773 791
Total borrowed funds 1,697 1,185 2,882 (1,577) 3,772 2,195
Total change in interest expense 4,193 9,369 13,562 11,149 45,816 56,965
Change in tax-exempt income 167 - 167 366 - 366
Change in net interest income $ 969 $ (2,031) $ (1,062) $ 4,221 $ (15,780) $ (11,559)
76
Table of Contents
Interest Income
Loans and Leases
Three Months Ended September 30, Dollar
Change 		Percent
Change 		Nine Months Ended September 30, Dollar
Change 		Percent
Change
2024 2023 2024 2023
(Dollars in Thousands)
Interest income-loans and leases:
Commercial real estate loans $ 83,412 $ 78,749 $ 4,663 5.9 % $ 246,026 $ 225,998 $ 20,028 8.9 %
Commercial loans 18,222 15,245 2,977 19.5 % 53,039 42,683 10,356 24.3 %
Equipment financing 26,884 23,331 3,553 15.2 % 80,034 66,901 13,133 19.6 %
Residential mortgage loans 13,100 11,691 1,409 12.1 % 38,018 34,194 3,824 11.2 %
Other consumer loans 8,023 7,545 478 6.3 % 23,374 21,015 2,359 11.2 %
Total interest income-loans and leases(1)
$ 149,641 $ 136,561 $ 13,080 9.6 % $ 440,491 $ 390,791 $ 49,700 12.7 %
_________________________________________________________________________
(1) Change in tax-exempt income of $166 thousand and $447 thousand is excluded from the three and nine months ended tables above, respectively.
Total interest from loans and leases was $149.6 million for the three months ended September 30, 2024, and represented a yield on total loans of 6.17%. This compares to $136.6 million of interest on loans and a yield of 5.84% for the three months ended September 30, 2023. The $13.1 million increase in interest income from loans and leases was primarily due to an increase of $7.4 million in changes to interest rates, and an increase of $5.7 million in origination volume.
Interest income from loans and leases was $440.5 million for the nine months ended September 30, 2024, and represented a yield on total loans of 6.07%. This compares to $390.8 million of interest on loans and a yield of 5.62% for the nine months ended September 30, 2023. The $49.7 million increase in interest income from loans and leases was primarily attributable to an increase of $30.2 million due to the changes in interest rates and an increase of $19.5 million due to an increase in origination volume.
Investments
Three Months Ended
September 30, 		Dollar
Change 		Percent
Change 		Nine Months Ended September 30, Dollar
Change 		Percent
Change
2024 2023 2024 2023
(Dollars in Thousands)
Interest income-investments:
Debt securities $ 6,473 $ 6,799 $ (326) (4.8) % $ 19,831 $ 22,703 $ (2,872) (12.7) %
Restricted equity securities 1,458 1,310 148 11.3 % 4,326 4,238 88 2.1 %
Short-term investments 1,986 2,390 (404) (16.9) % 5,724 7,236 (1,512) (20.9) %
Total interest income-investments (1)
$ 9,917 $ 10,499 $ (582) (5.5) % $ 29,881 $ 34,177 $ (4,296) (12.6) %
_________________________________________________________________________
(1) Change in tax-exempt income of $3 thousand and $(79) thousand is excluded from the three and nine months ended tables above, respectively.
Total interest income from investments was $9.9 million for the three months ended September 30, 2024, compared to $10.5 million for the three months ended September 30, 2023. For the three months ended September 30, 2024 and 2023, the yield on total investments was 3.7%. The year over year decrease in interest income on investments of $0.6 million, or 5.5%, was primarily driven by a $0.5 million decrease due to volume and a $0.1 million decrease due to rates.
Total investment income was $29.9 million and $34.2 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. For the nine months ended September 30, 2024 and 2023, the yield on total investments was 3.7%. The year over year decrease in interest income on investments of $4.3 million, or 12.6%, was primarily driven by a $4.2 million decrease due to volume and a $0.1 million decrease due to rates.
77
Table of Contents
Interest Expense-Deposits and Borrowed Funds
Three Months Ended
September 30, 		Dollar
Change 		Percent
Change 		Nine Months Ended
September 30, 		Dollar
Change 		Percent
Change
2024 2023 2024 2023
(Dollars in Thousands)
Interest expense:
Deposits:
NOW accounts $ 1,115 $ 1,159 $ (44) (3.8) % $ 3,487 $ 3,129 $ 358 11.4 %
Savings accounts 12,098 8,859 3,239 36.6 % 35,324 17,290 18,034 104.3 %
Money market accounts 15,466 15,785 (319) (2.0) % 46,940 41,914 5,026 12.0 %
Certificate of deposit accounts 20,054 12,128 7,926 65.4 % 55,443 29,605 25,838 87.3 %
Brokered deposit accounts 11,063 11,185 (122) (1.1) % 35,207 29,693 5,514 18.6 %
Total interest expense - deposits 59,796 49,116 10,680 21.7 % 176,401 121,631 54,770 45.0 %
Borrowed funds:
Advances from the FHLB 14,366 11,706 2,660 22.7 % 41,893 40,524 1,369 3.4 %
Subordinated debentures and notes 1,378 1,378 - - % 4,130 4,095 35 0.9 %
Other borrowed funds 1,012 790 222 28.1 % 3,353 2,562 791 30.9 %
Total interest expense - borrowed funds 16,756 13,874 2,882 20.8 % 49,376 47,181 2,195 4.7 %
Total interest expense $ 76,552 $ 62,990 $ 13,562 21.5 % $ 225,777 $ 168,812 $ 56,965 33.7 %
Deposits
For the three months ended September 30, 2024, interest expense on deposits increased $10.7 million, or 21.7%, compared to the same period in 2023. The increase in interest expense on deposits was driven by an increase of $8.2 million due to higher interest rates and an increase of $2.5 million primarily driven by the growth in volume of average certificate of deposit balances. For the three months ended September 30, 2024, the purchase accounting amortization on acquired deposits was $0.2 million and one basis point, compared to $0.3 million and one basis point for the same period in 2023.
Interest expense on deposits increased $54.8 million, or 45.0%, to $176.4 million for the nine months ended September 30, 2024 from $121.6 million for the nine months ended September 30, 2023. The increase in interest expense on deposits was driven by a $42.0 million increase due to higher interest rates and a $12.7 million increase primarily driven by the growth in volume of average certificate of deposit, savings accounts, and brokered deposit balances. Purchase accounting amortization on acquired deposits for the nine months ended September 30, 2024 was $0.8 million and one basis point, compared to $1.0 million and one basis point for the same period in 2023.
Borrowed Funds
For the three months ended September 30, 2024, interest expense on borrowed funds increased $2.9 million, or 20.8% year over year. The increase in interest expense on borrowed funds was driven by an increase of $1.7 million due to volume and an increase of $1.2 million due to borrowing rates as they increased to 5.14% for the three months ended September 30, 2024 from 4.69% for the three months ended September 30, 2023.
During the nine months ended September 30, 2024, interest paid on borrowed funds increased $2.2 million, or 4.7% year over year. The cost of borrowed funds increased to 5.05% for the nine months ended September 30, 2024 from 4.64% for the nine months ended September 30, 2023. The increase in interest expense was driven by an increase of $3.8 million due to borrowing rates offset by a decrease of $1.6 million due to volume. For the nine months ended September 30, 2024, purchase accounting amortization was $0.1 million on acquired borrowed funds compared to amortization of $0.2 million for the nine months ended September 30, 2023.
78
Table of Contents
Provision for Credit Losses
The provisions for credit losses are set forth below:
Three Months Ended September 30, Dollar
Change 		Percent
Change 		Nine Months Ended September 30, Dollar
Change 		Percent
Change
2024 2023 2024 2023
(Dollars in Thousands)
Provision (credit) for loan and lease losses:
Commercial real estate $ (6,971) $ (5,524) $ (1,447) 26.2 % $ (1,804) $ 10,611 $ (12,415) (117.0) %
Commercial 16,632 8,829 7,803 88.4 % 29,511 19,425 10,086 51.9 %
Consumer (287) 933 (1,220) (130.8) % (637) 3,085 (3,722) (120.6) %
Total provision (credit) for loan and lease losses 9,374 4,238 5,136 121.2 % 27,070 33,121 (6,051) (18.3) %
Unfunded credit commitments (4,542) (1,291) (3,251) 251.8 % (9,208) 896 (10,104) NM
Investment securities available-for-sale (172) 84 (256) N/A (255) 415 (670) N/A
Total provision (credit) for credit losses $ 4,660 $ 3,031 $ 1,629 53.7 % $ 17,607 $ - $ 34,432 $ (16,825) (48.9) %
For the three months ended September 30, 2024, the provision for credit losses increased by $1.6 million to $4.7 million compared to a provision for credit losses of $3.0 million for the three months ended September 30, 2023. The increase in the provision for credit losses for the three months ended September 30, 2024 is primarily driven by an increase in specific reserves on nonperforming credits, partially offset by improving economic forecasts.
For the nine months ended September 30, 2024, the provision for credit losses decreased $16.8 million resulting in a provision (credit) for credit and investment losses of $17.6 million. The decrease in the provision for credit losses for nine months ended September 30, 2024 is primarily driven by the lack of day one provision impact resulting from the Company's acquisition of PCSB Bank in 2023.
See management's discussion of "Financial Condition - Allowance for Loan and Lease Losses"and Note 5, "Allowance for Loan and Lease Losses," to the unaudited consolidated financial statements for a description of how management determined the allowance for loan and lease losses for each portfolio and class of loans.
Non-Interest Income
The following table sets forth the components of non-interest income:
Three Months Ended September 30, Dollar
Change 		Percent
Change 		Nine Months Ended September 30, Dollar
Change 		Percent
Change
2024 2023 2024 2023
(Dollars in Thousands)
Deposit fees $ 2,353 $ 3,024 $ (671) (22.2) % $ 8,251 $ 8,547 $ (296) (3.5) %
Loan fees 464 639 (175) (27.4) % 1,955 1,521 434 28.5 %
Loan level derivative income, net - 376 (376) (100.0) % 543 3,112 (2,569) (82.6) %
Gain (loss) on investment securities, net - - - N/A - 1,704 (1,704) (100.0) %
Gain on sales of loans and leases held-for-sale 415 225 190 84.4 % 545 2,171 (1,626) (74.9) %
Other 3,116 1,244 1,872 150.5 % 7,734 6,852 882 12.9 %
Total non-interest income $ 6,348 $ 5,508 $ 840 15.3 % $ 19,028 $ 23,907 $ (4,879) (20.4) %
There was no loan level derivative income for the three months ended September 30, 2024, compared to $0.4 million for the same period in 2023, as there were no loan level derivative transactions completed for the three months ended September 30, 2024. Loan level derivative income decreased $2.6 million, or 82.6%, to $0.5 million for the nine months ended
79
Table of Contents
September 30, 2024 from $3.1 million for the same period in 2023, driven by lower volume of loan level derivative transactions completed for the nine months ended September 30, 2024.
There was no gain (loss) on investment securities for the nine months ended September 30, 2024, compared to $1.7 million for the same period in 2023 as there were no sales of investment securities for the nine months ended September 30, 2024.
Gain on sales of loans and leases held-for-sale increased $0.2 million, or 84.4%, to $0.4 million for the three months ended September 30, 2024 from $0.2 million for the same period in 2023, driven by higher gain on sale to participants, and decreased $1.6 million, or 74.9% to $0.5 million for the nine months ended September 30, 2024 from $2.2 million for the same period in 2023, driven by lower gain on sale to participants.
Other income increased $1.9 million, or 150.5%, to $3.1 million for the three months ended September 30, 2024 from $1.2 million for the same period in 2023, primarily driven by the mark to market on interest rate swaps on loans, higher insurance commission, and an increase in foreign exchange activity. Other income increased $0.9 million, or 12.9%, to $7.7 million for the nine months ended September 30, 2024 from $6.9 million for the same period in 2023, primarily driven by higher insurance commission and wealth management fees.
Non-Interest Expense
The following table sets forth the components of non-interest expense:
Three Months Ended September 30, Dollar
Change 		Percent
Change 		Nine Months Ended September 30, Dollar
Change 		Percent
Change
2024 2023 2024 2023
(Dollars in Thousands)
Compensation and employee benefits $ 35,130 $ 33,491 $ 1,639 4.9 % $ 106,521 $ 103,494 $ 3,027 2.9 %
Occupancy 5,343 4,983 360 7.2 % 16,663 15,076 1,587 10.5 %
Equipment and data processing 6,831 6,766 65 1.0 % 20,594 19,759 835 4.2 %
Professional services 2,143 2,368 (225) (9.5) % 5,788 5,784 4 0.1 %
FDIC insurance 2,118 2,152 (34) (1.6) % 6,027 6,005 22 0.4 %
Advertising and marketing 859 1,174 (315) (26.8) % 3,937 3,966 (29) (0.7) %
Amortization of identified intangible assets 1,668 1,955 (287) (14.7) % 5,045 5,875 (830) (14.1) %
Merger and restructuring expense - - - N/A 823 7,411 (6,588) (88.9) %
Other 3,856 4,790 (934) (19.5) % 12,748 12,910 (162) (1.3) %
Total non-interest expense $ 57,948 $ 57,679 $ 269 0.5 % $ 178,146 $ 180,280 $ (2,134) (1.2) %
Merger and restructuring expense decreased $6.6 million, or 88.9%, to $0.8 million for the nine months ended September 30, 2024, compared to $7.4 million for the same period in 2023. Excluding merger and restructuring expense, non-interest expense increased $4.4 million to $177.3 million for the nine months ended September 30, 2024, compared to $172.9 million for the same period in 2023.
Compensation and employee benefits expense increased $1.6 million, or 4.9%, to $35.1 million for the three months ended September 30, 2024, compared to $33.5 million for the same period in 2023, and increased $3.0 million, or 2.9%, to $106.5 million for the nine months ended September 30, 2024 from $103.5 million for the same period in 2023, primarily driven by standard increases across all categories.
Occupancy expense increased $0.4 million, or 7.2%, to $5.3 million for the three months ended September 30, 2024 from $5.0 million for the same period in 2023, and increased $1.6 million, or 10.5%, to $16.7 million for the nine months ended September 30, 2024 from $15.1 million for the same period in 2023, primarily driven by higher building maintenance, rent, and leasehold improvement depreciation.
80
Table of Contents
Provision for Income Taxes
Three Months Ended September 30, Dollar
Change 		Percent
Change 		Nine Months Ended September 30, Dollar
Change 		Percent
Change
2024 2023 2024 2023
(Dollars in Thousands)
Income before provision for income taxes $ 26,748 $ 28,868 $ (2,120) (7.3) % $ 67,872 $ 65,351 $ 2,521 3.9 %
Provision (benefit) for income taxes 6,606 6,167 439 7.1 % 16,693 13,240 3,453 26.1 %
Net income $ 20,142 $ 22,701 $ (2,559) (11.3) % $ 51,179 $ 52,111 $ (932) (1.8) %
Effective tax rate 24.7 % 21.4 % N/A 15.4 % 24.6 % 20.3 % N/A 21.2 %
The Company recorded an income tax expense of $6.6 million for the three months ended September 30, 2024, compared to an income tax expense of $6.2 million for the three months ended September 30, 2023, representing effective tax rates of 24.7% and 21.4%, respectively. The increase in effective tax rate for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily driven by nonrecurring items in the 2023 effective rate. The 2023 effective tax rate included energy tax credit deals in 2023 that have not reoccurred in 2024, partially offset by merger expenses relating to the acquisition of PCSB Bank.
The Company recorded an income tax expense of $16.7 million for the nine months ended September 30, 2024, compared to an income tax expense of $13.2 million for the nine months ended September 30, 2023, representing effective tax rates of 24.6% and 20.3%, respectively. The overall increase in the effective tax rate for the nine months ended September 30, 2024 is primarily driven by nonrecurring items in the 2023 effective rate. The 2023 effective tax rate included energy tax credit deals in 2023 that have not reoccurred in 2024 partially offset by merger expenses relating to the acquisition of PCSB Bank in 2023.
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 the Company's ALCO, consisting of members of management, which is responsible for establishing and monitoring liquidity targets as well as strategies and tactics to meet these targets. The primary source of funds for the payment of dividends and expenses by the Company is dividends paid to it by the Banks. The primary sources of liquidity for the Banks consist of deposit inflows, loan repayments, borrowed funds, and maturing investment securities.
In the third quarter, the Company operated with increased liquidity. During the year, the Company shifted its balance sheet asset mix to include additional cash and available for sale securities. Management will continue to monitor the economic markets and evaluate changes to the Company's liquidity position.
The Company held higher levels of on balance sheet liquidity in the form of cash and available for sale securities in the third quarter. Cash and equivalents at the end of the quarter were $407.9 million, or 3.5% of the balance sheet, compared to $133.0 million, or 1.2% of the balance sheet, as of December 31, 2023. In general, in a normal operating environment, the Company seeks to maintain liquidity levels of cash, cash equivalents and investment securities available-for-sale of between 8% and 12% of total assets. As of September 30, 2024, cash, cash equivalents and investment securities available-for-sale totaled $1.3 billion, or 10.8% of total assets. This compares to $1.0 billion, or 9.2% of total assets, as of December 31, 2023.
Deposits, which are considered the most stable source of liquidity, totaled $8.7 billion as of September 30, 2024 and represented 85.4% of total funding (the sum of total deposits and total borrowings), compared to deposits of $8.5 billion, or 86.1% of total funding, as of December 31, 2023. Core deposits, which consist of demand checking, NOW, savings and money market accounts, totaled $6.1 billion as of September 30, 2024 and represented 69.8% of total deposits, compared to core deposits of $6.1 billion, or 71.3% of total deposits, as of December 31, 2023. Additionally, the Company had $815.5 million of brokered deposits as of September 30, 2024, which represented 9.3% of total deposits, compared to $881.2 million or 10.3% of total deposits, as of December 31, 2023. The Company offers attractive interest rates based on market conditions to increase deposits balances, while managing the cost of funds.
81
Table of Contents
Borrowings are used to diversify the Company's funding mix and to support asset growth. When profitable lending and investment opportunities exist, access to borrowings provides a means to grow the balance sheet. Borrowings totaled $1.5 billion as of September 30, 2024, representing 14.6% of total funding, compared to $1.4 billion, or 13.9% of total funding, as of December 31, 2023. The growth in the balance sheet is driven by the current operating environment, management will continue to monitor economic conditions and make adjustments to the balance sheet mix as appropriate.
As members of the FHLB, the Banks have access to both short- and long-term borrowings. As of September 30, 2024, the Company's total borrowing limit from the FHLB for advances and repurchase agreements was $2.7 billion, compared to $2.6 billion as of December 31, 2023.
As of September 30, 2024, the Banks also have access to funding through certain uncommitted lines via AFX as well as other large financial institution specific lines. As of September 30, 2024 and December 31, 2023, respectively, the Company had no borrowings on outstanding uncommitted lines of credit.
The Company had a $30.0 million committed line of credit for contingent liquidity as of September 30, 2024. As of September 30, 2024, the Company did not have any outstanding borrowings on this line.
The Company has access to the Federal Reserve Discount Window to supplement its liquidity. The Company had $350.4 million of borrowing capacity at the FRB as of September 30, 2024. As of September 30, 2024, the Company did not have any outstanding borrowings with the FRB.
Additionally, the Banks have access to liquidity through repurchase agreements and additional untapped brokered deposits.
While management believes 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. See Note 12, "Commitments and Contingencies", to the consolidated financial statements for a description of off-balance-sheet financial instruments.
82
Table of Contents
Financial instruments with off-balance-sheet risk at the dates indicated follow:
At September 30, 2024 At December 31, 2023
(In Thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to originate loans and leases:
Commercial real estate $ 48,405 $ 88,435
Commercial 174,119 279,001
Residential mortgage 26,879 26,170
Unadvanced portion of loans and leases 1,072,445 1,208,553
Unused lines of credit:
Home equity 782,762 762,235
Other consumer 119,232 114,816
Other commercial 455 475
Unused letters of credit:
Financial standby letters of credit 12,837 8,221
Performance standby letters of credit 24,709 29,187
Commercial and similar letters of credit 2,311 3,278
Interest rate derivatives $ 225,000 $ 225,000
Loan level derivatives:
Receive fixed, pay variable 1,182,702 1,733,198
Pay fixed, receive variable 1,182,702 1,733,198
Risk participation-out agreements 531,027 542,387
Risk participation-in agreements 102,789 100,313
Foreign exchange contracts:
Buys foreign currency, sells U.S. currency 5,341 3,262
Sells foreign currency, buys U.S. currency 4,901 3,895
83
Table of Contents
Capital Resources
As of September 30, 2024, the Company and the Banks are each under the primary regulation of, and must comply with, the capital requirements of the FRB. Under these rules, the Company and the Banks are each required to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital leverage ratio of 6.0%, a minimum total risk based capital ratio of 8% and a minimum Tier 1 leverage ratio of 4%. Additionally, the Company and the Banks are required to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for "adequately capitalized" institutions equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases. As of September 30, 2024, the Company and the Banks exceeded all regulatory capital requirements, and the Banks were each considered "well-capitalized" under prompt corrective action regulations.
The following table presents actual and required capital amounts and capital ratios as of September 30, 2024 for the Company and the Banks.
Actual Minimum Required for Capital Adequacy Purposes Minimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer
Minimum Required to be Considered "Well-Capitalized" Under Prompt Corrective Action Provisions
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
At September 30, 2024:
Brookline Bancorp, Inc.
Common equity Tier 1 capital ratio (1)
$ 1,014,756 10.42 % $ 438,234 4.50 % $ 681,698 7.00 % N/A N/A
Tier 1 leverage capital ratio (2)
1,024,547 9.09 % 450,846 4.00 % 450,846 4.00 % N/A N/A
Tier 1 risk-based capital ratio (3)
1,024,547 10.52 % 584,342 6.00 % 827,818 8.50 % N/A N/A
Total risk-based capital ratio (4)
1,206,062 12.39 % 778,733 8.00 % 1,022,086 10.50 % N/A N/A
Brookline Bank
Common equity Tier 1 capital ratio (1)
$ 580,428 10.44 % $ 250,184 4.50 % $ 389,176 7.00 % $ 361,378 6.50 %
Tier 1 leverage capital ratio (2)
580,428 9.31 % 249,378 4.00 % 249,378 4.00 % 311,723 5.00 %
Tier 1 risk-based capital ratio (3)
580,428 10.44 % 333,579 6.00 % 472,571 8.50 % 444,772 8.00 %
Total risk-based capital ratio (4)
650,134 11.70 % 444,536 8.00 % 583,454 10.50 % 555,670 10.00 %
BankRI
Common equity Tier 1 capital ratio (1)
$ 290,602 10.46 % $ 125,020 4.50 % $ 194,476 7.00 % $ 180,584 6.50 %
Tier 1 leverage capital ratio (2)
290,602 8.92 % 130,315 4.00 % 130,315 4.00 % 162,893 5.00 %
Tier 1 risk-based capital ratio (3)
290,602 10.46 % 166,693 6.00 % 236,149 8.50 % 222,258 8.00 %
Total risk-based capital ratio (4)
323,304 11.63 % 222,393 8.00 % 291,891 10.50 % 277,991 10.00 %
PCSB Bank
Common equity Tier 1 capital ratio (1)
$ 195,397 13.64 % $ 64,464 4.50 % $ 100,277 7.00 % $ 93,114 6.50 %
Tier 1 leverage capital ratio (2)
195,397 9.97 % 78,394 4.00 % 78,394 4.00 % 97,992 5.00 %
Tier 1 risk-based capital ratio (3)
195,397 13.64 % 85,952 6.00 % 121,765 8.50 % 114,602 8.00 %
Total risk-based capital ratio (4)
212,609 14.84 % 114,614 8.00 % 150,431 10.50 % 143,268 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.
84
Table of Contents
The following table presents actual and required capital amounts and capital ratios as of December 31, 2023 for the Company and the Banks.
Actual Minimum Required for Capital Adequacy Purposes Minimum Required for Fully Phased in Capital Adequacy Purposes plus Capital Conservation Buffer
Minimum Required To
Be Considered
"Well-Capitalized" Under Prompt Corrective Action Provisions
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
At December 31, 2023:
Brookline Bancorp, Inc.
Common equity Tier 1 capital ratio (1)
$ 994,023 10.25 % $ 436,400 4.50 % $ 678,845 7.00 % N/A N/A
Tier 1 leverage capital ratio (2)
1,003,784 9.02 % 445,137 4.00 % 445,137 4.00 % N/A N/A
Tier 1 risk-based capital ratio (3)
1,003,784 10.35 % 581,904 6.00 % 824,364 8.50 % N/A N/A
Total risk-based capital ratio (4)
1,199,686 12.37 % 775,868 8.00 % 1,018,327 10.50 % N/A N/A
Brookline Bank
Common equity Tier 1 capital ratio (1)
$ 580,148 10.39 % $ 251,267 4.50 % $ 390,860 7.00 % $ 362,941 6.50 %
Tier 1 leverage capital ratio (2)
580,148 9.46 % 245,306 4.00 % 245,306 4.00 % 306,632 5.00 %
Tier 1 risk-based capital ratio (3)
580,148 10.39 % 335,023 6.00 % 474,616 8.50 % 446,697 8.00 %
Total risk-based capital ratio (4)
650,135 11.64 % 446,828 8.00 % 586,462 10.50 % 558,535 10.00 %
BankRI
Common equity Tier 1 capital ratio (1)
$ 283,673 10.20 % $ 125,150 4.50 % $ 194,678 7.00 % $ 180,772 6.50 %
Tier 1 leverage capital ratio (2)
283,673 8.89 % 127,637 4.00 % 127,637 4.00 % 159,546 5.00 %
Tier 1 risk-based capital ratio (3)
283,673 10.20 % 166,866 6.00 % 236,394 8.50 % 222,489 8.00 %
Total risk-based capital ratio (4)
318,462 11.46 % 222,312 8.00 % 291,785 10.50 % 277,890 10.00 %
PCSB Bank
Common equity Tier 1 capital ratio (1)
$ 185,337 13.50 % $ 61,779 4.50 % $ 96,101 7.00 % $ 89,236 6.50 %
Tier 1 leverage capital ratio (2)
185,337 9.78 % 75,802 4.00 % 75,802 4.00 % 94,753 5.00 %
Tier 1 risk-based capital ratio (3)
185,337 13.50 % 82,372 6.00 % 116,694 8.50 % 109,829 8.00 %
Total risk-based capital ratio (4)
201,314 14.66 % 109,858 8.00 % 144,188 10.50 % 137,322 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.
85
Table of Contents
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Market risk is the risk that the market value or estimated fair value of the Company's assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that the Company's net income will be significantly reduced by interest-rate changes.
Interest-Rate Risk
The principal market risk facing the Company is interest-rate risk, which can occur in a variety of forms, including repricing risk, yield-curve risk, basis risk, and prepayment risk. Repricing risk occurs when the change in the average yield of either interest-earning assets or interest-bearing liabilities is more sensitive than the other to changes in market interest rates. Such a change in sensitivity could reflect a number of possible mismatches in the repricing opportunities of the Company's assets and liabilities. Yield-curve risk reflects the possibility that changes in the shape of the yield curve could have different effects on the Company's assets and liabilities. Basis risk occurs when different parts of the balance sheet are subject to varying base rates reflecting the possibility that the spread from those base rates will deviate. Prepayment risk is associated with financial instruments with an option to prepay before the stated maturity, often a disadvantage to person selling the option; this risk is most often associated with the prepayment of loans, callable investments, and callable borrowings.
Asset/Liability Management
Market risk and interest-rate risk management is governed by the Company's ALCO. The ALCO establishes exposure limits that define the Company's tolerance for interest-rate risk. The ALCO and the Company's Treasury Group measure and manage the composition of the balance sheet over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. The ALCO monitors current exposures versus limits and reports those results to the Board of Directors. The policy limits and guidelines serve as benchmarks for measuring interest-rate risk and for providing a framework for evaluation and interest-rate risk-management decision-making. The Company measures its interest-rate risk by using an asset/liability simulation model. The model considers several factors to determine the Company's potential exposure to interest-rate risk, including measurement of repricing gaps, duration, convexity, value-at-risk, market value of portfolio equity under assumed changes in the level of interest rates, the shape of yield curves, and general market volatility.
Management controls the Company's interest-rate exposure using several strategies, which include adjusting the maturities of securities in the Company's investment portfolio, limiting or expanding the terms of loans originated, limiting fixed-rate customer deposits with terms of more than five years, and adjusting maturities of wholesale funding. The Company limits this risk by restricting the types of MBSs it invests into those with limited average life changes under certain interest-rate-shock scenarios, or securities with embedded prepayment penalties. The Company also places limits on holdings of fixed-rate mortgage loans with maturities greater than five years. The Company enters into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed payments.
Measuring Interest-Rate Risk
As noted above, interest-rate risk can be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest-rate sensitivity gap. An asset or liability is said to be interest-rate sensitive within a specific period if it will mature or reprice within that period. The interest-rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive liabilities. A gap is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets. During a period of falling interest rates, a positive gap would tend to adversely affect net interest income. Conversely, during a period of rising interest rates, a positive gap position would tend to result in an increase in net interest income.
The Company's interest-rate risk position is measured using both income simulation and interest-rate sensitivity "gap" analysis. Income simulation is the primary tool for measuring the interest-rate risk inherent in the Company's balance sheet at a given point in time by showing the effect on net interest income, over a twelve-month period, of a variety of interest-rate shocks. These simulations take into account repricing, maturity, and prepayment characteristics of individual products. The ALCO reviews simulation results to determine whether exposure resulting from changes in market interest rates remains within established tolerance levels over a twelve-month horizon, and develops appropriate strategies to manage this exposure. The Company's interest-rate risk analysis remains modestly asset-sensitive as of September 30, 2024.
86
Table of Contents
The assumptions used in the Company's interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates.
As of September 30, 2024, 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 while maintaining a flat balance sheet:
Estimated Exposure to Net Interest Income
over Twelve-Month Horizon Beginning
September 30, 2024 December 31, 2023
Change in Interest Rate Levels Dollar
Change 		Percent
Change 		Dollar
Change 		Percent
Change
(Dollars in Thousands)
Up 300 basis points shock $ 16,867 4.7 % $ 13,318 3.9 %
Up 200 basis points ramp 9,155 2.6 % 7,068 2.1 %
Up 100 basis points ramp 5,123 1.4 % 3,389 1.0 %
Down 100 basis points ramp (3,691) (1.0) % (5,042) (1.5) %
The estimated impact of a 300 basis point increase in market interest rates on the Company's estimated net interest income over a twelve-month horizon was 4.7% as of September 30, 2024, compared to 3.9% as of December 31, 2023.
The Company also utilizes interest-rate sensitivity "gap" analysis to provide a broader 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. As of September 30, 2024, the Company's one-year cumulative gap was a negative $973.7 million, or 8.90% of total interest-earning assets, compared to a negative $521.4 million, or 4.89% of total interest-earning assets, as of December 31, 2023.
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 Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
The EVE at Risk Simulation is conducted in tandem with net interest income simulations to ascertain a longer term view of the Company's interest-rate risk position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of the economic value of equity to changes in interest rates. The EVE at Risk Simulation values only the current balance sheet and does not incorporate growth assumptions. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, and rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity, and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. The Company conducts non-maturity deposit behavior studies on a periodic basis to support deposit assumptions used in the valuation process. All key assumptions are subject to a periodic review.
EVE at Risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates as well as parallel shocks to the current interest-rate environment. The following table sets forth the estimated percentage change in the Company's EVE at Risk, assuming various shifts in interest rates.
Estimated Percent Change in Economic Value of Equity
Parallel Shock in Interest Rate Levels At September 30, 2024 At December 31, 2023
Up 300 basis points (3.6) % (6.3) %
Up 200 basis points (3.0) % (4.4) %
Up 100 basis points (0.6) % (2.2) %
Down 100 basis points (1.2) % 2.1 %
The Company's EVE-at-risk asset sensitivity decreased from December 31, 2023 to September 30, 2024 driven by deposit mix and loan growth.
87
Table of Contents
Item 4. Controls and Procedures
Controls and Procedures
Under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer considered that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to the Company's management, including its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a -15(f). The Company's internal control system was designed to provide reasonable assurance to its management and the Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company's management assessed the effectiveness of its internal control over financial reporting as of the end of the period covered by this report. There has been no change in the Company's internal controls over financial reporting during the quarter ended September 30, 2024 that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting as of December 31, 2023 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, 2023.
88
Table of Contents
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 in the risk factors described in Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 27, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a) Not applicable.
b) Not applicable.
c) Not applicable.
Item 3. Defaults Upon Senior Securities
a) None.
b) None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
c) During the three months ended September 30, 2024, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
89
Table of Contents
Item 6. Exhibits
Exhibits
Exhibit 31.1*
Certification of Chief Executive Officer
Exhibit 31.2*
Certification of Chief Financial Officer
Exhibit 32.1**
Section 1350 Certification of Chief Executive Officer
Exhibit 32.2**
Section 1350 Certification of Chief Financial Officer
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101)
_______________________________________________________________________________
* Filed herewith
** Furnished herewith
90
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BROOKLINE BANCORP, INC.
Date: November 6, 2024 By: /s/ Paul A. Perrault
Paul A. Perrault
Chief Executive Officer
(Principal Executive Officer)
Date: November 6, 2024 By: /s/ Carl M. Carlson
Carl M. Carlson
Co-President and Chief Financial Officer
(Principal Financial Officer)
91