BROOKLINE BANCORP INC [BRKL] Filings

10-Q 1 brkl-20230630.htm 10-Q brkl-20230630

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 June 30, 2023


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

For the transition period from N/A to .

Commission file number 0-23695

BROOKLINE BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3402944

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

131 Clarendon Street

Boston MA

02116

(Address of principal executive offices)

(Zip Code)

(617) 425-4600

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	BRKL	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12-b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

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 July 31, 2023, the number of shares of common stock, par value $0.01 per share, outstanding was 88,665,135.

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

Table of Contents


		Page
Part I	Financial Information

Item 1.	Unaudited Consolidated Financial Statements

	Unaudited Consolidated Balance Sheets at June 30, 2023 and December 31, 2022	1

	Unaudited Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2023 and 2022	2

	Unaudited Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2023 and 2022	3

	Unaudited Consolidated Statements of Changes in Equity for the Three Months and Six Months Ended June 30, 2023 and 2022	4

	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	90

Item 4.	Controls and Procedures	92

Part II	Other Information

Item 1.	Legal Proceedings	93

Item 1A.	Risk Factors	93

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93

Item 3.	Defaults Upon Senior Securities	93

Item 4.	Mine Safety Disclosures	93

Item 5.	Other Information	93

Item 6.	Exhibits	94

	Signatures	95

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements


BROOKLINE BANCORP, INC. AND SUBSIDIARIES Unaudited Consolidated Balance Sheets
	At June 30, 2023		At December 31, 2022
	(In Thousands Except Share Data)
ASSETS
Cash and due from banks	$	44,323	$	191,767
Short-term investments	180,109		191,192
Total cash and cash equivalents	224,432		382,959
Investment securities available-for-sale, net	910,210		656,766


Total investment securities	910,210		656,766
Allowance for investment security losses	(433)		(102)
Net investment securities	909,777		656,664

Loans and leases:
Commercial real estate loans	5,670,771		4,404,148
Commercial loans and leases	2,193,027		2,016,499
Consumer loans	1,477,001		1,223,741
Total loans and leases	9,340,799		7,644,388
Allowance for loan and lease losses	(125,817)		(98,482)
Net loans and leases	9,214,982		7,545,906
Restricted equity securities	71,421		71,307
Premises and equipment, net of accumulated depreciation of $102,158 and $92,219, respectively	90,685		71,391
Right-of-use asset operating leases	31,774		19,484
Deferred tax asset	77,704		52,237
Goodwill	241,222		160,427
Identified intangible assets, net of accumulated amortization of $44,043 and $40,123, respectively	28,126		1,781
Other real estate owned ("OREO") and repossessed assets, net	602		408
Other assets	315,353		223,272
Total assets	$	11,206,078	$	9,185,836
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand checking accounts	$	1,843,516	$	1,802,518





Interest-bearing deposits	6,673,497		4,719,628
Total deposits	8,517,013		6,522,146
Borrowed funds:
Advances from the Federal Home Loan Bank of Boston and New York ("FHLB")	1,043,381		1,237,823
Subordinated debentures and notes	84,116		84,044
Other borrowed funds	98,773		110,785
Total borrowed funds	1,226,270		1,432,652
Operating lease liabilities	33,021		19,484
Mortgagors' escrow accounts	17,207		5,607
Reserve for unfunded credits	22,789		20,602

Accrued expenses and other liabilities	227,470		193,220
Total liabilities	10,043,770		8,193,711

Commitments and contingencies (Note 12)
Stockholders' Equity:

Common stock, $0.01 par value; 200,000,000 shares authorized; 96,998,075 shares issued and 85,177,172 shares issued, respectively	970		852
Additional paid-in capital	905,084		736,074
Retained earnings	417,328		412,019
Accumulated other comprehensive (loss) income	(66,156)		(61,947)
Treasury stock, at cost; 7,734,891 shares and 7,731,445 shares, respectively	(94,918)		(94,873)



Total stockholders' equity	1,162,308		992,125
Total liabilities and stockholders' equity	$	11,206,078	$	9,185,836

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Income


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In Thousands Except Share Data)
Interest and dividend income:
Loans and leases	$	132,299	$	74,287	$	254,230	$	146,008
Debt securities	8,034		3,249		15,904		6,245
Restricted equity securities	1,673		337		2,928		665
Short-term investments	3,351		156		4,846		222
Total interest and dividend income	145,357		78,029		277,908		153,140
Interest expense:
Deposits	43,147		4,282		72,515		8,053
Borrowed funds	16,173		1,880		33,307		3,372
Total interest expense	59,320		6,162		105,822		11,425
Net interest income	86,037		71,867		172,086		141,715
Provision for credit losses	5,726		173		31,070		9
Provision for investment losses	133		54		331		58
Net interest income after provision for credit losses	80,178		71,640		140,685		141,648
Non-interest income:
Deposit fees	2,866		2,744		5,523		5,244
Loan fees	491		666		882		1,413
Loan level derivative income, net	363		1,615		2,736		2,301
Gain on investment securities, net	3		—		1,704		—
Gain on sales of loans and leases held-for-sale	308		291		1,946		635

Other	1,431		1,612		5,608		2,864
Total non-interest income	5,462		6,928		18,399		12,457
Non-interest expense:
Compensation and employee benefits	33,438		28,772		70,003		55,656
Occupancy	4,870		3,807		10,093		8,091
Equipment and data processing	6,531		4,931		12,993		10,009
Professional services	1,986		1,219		3,416		2,445
FDIC insurance	2,609		739		3,853		1,467
Advertising and marketing	1,382		1,319		2,792		2,591
Amortization of identified intangible assets	1,954		120		3,920		254
Merger and acquisition expense	1,002		535		7,411		535
Other	4,053		3,429		8,120		6,310
Total non-interest expense	57,825		44,871		122,601		87,358
Income before provision for income taxes	27,815		33,697		36,483		66,747
Provision for income taxes	5,965		8,502		7,073		16,847


Net income	$	21,850	$	25,195	$	29,410	$	49,900
Earnings per common share:
Basic	$	0.25	$	0.33	$	0.34	$	0.65
Diluted	0.25		0.33		0.34		0.65
Weighted average common shares outstanding during the year:
Basic	88,665,135		77,091,013		87,620,194		77,352,666
Diluted	88,926,543		77,419,288		87,887,980		77,671,601
Dividends paid per common share	$	0.135	$	0.130	$	0.270	$	0.255

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Comprehensive Income


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In Thousands)
Net income	$	21,850	$	25,195	$	29,410	$	49,900

Investment securities available-for-sale:
Unrealized securities holding gains (losses)	(13,506)		(20,092)		(3,366)		(57,633)

Income tax (expense) benefit	3,233		4,428		1,004		12,702
Net unrealized securities holding gains (losses) before reclassification adjustments, net of taxes	(10,273)		(15,664)		(2,362)		(44,931)







Cash flow hedges:
Change in fair value of cash flow hedges	(5,765)		38		(3,040)		94
Income tax (expense) benefit	1,500		(29)		791		(30)

Net change in fair value of cash flow hedges, net of taxes	(4,265)		9		(2,249)		64

Less reclassification adjustment for change in fair value of cash flow hedges:
Gain (loss) on change in fair value of cash flow hedges	(1,446)		—		(543)		—
Income tax (expense) benefit	376		—		141		—
Net reclassification adjustment for change in fair value of cash flow hedges	(1,070)		—		(402)		—

Net change in fair value of cash flow hedges	(3,195)		9		(1,847)		64







Other comprehensive income (loss), net of taxes	(13,468)		(15,655)		(4,209)		(44,867)



Comprehensive income	$	8,382	$	9,540	$	25,201	$	5,033

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Changes in Stockholders' Equity

Three Months Ended June 30, 2023 and 2022


	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Unallocated Common Stock Held by ESOP		Total Stockholders' Equity
	(In Thousands)
Balance at March 31, 2023	$	970	$	904,174	$	407,528	$	(52,688)	$	(94,918)	—		$	1,165,066
Net income	—		—		21,850		—		—		—		21,850
PCSB acquisition	—		—		—		—		—				—
Other comprehensive income (loss)	—		—		—		(13,468)		—		—		(13,468)
Common stock dividends of $0.135 per share	—		—		(11,969)		—		—		—		(11,969)


Compensation under recognition and retention plans	—		910		(81)		—		—		—		829


Balance at June 30, 2023	$	970	$	905,084	$	417,328	$	(66,156)	$	(94,918)	$	—	$	1,162,308


	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Unallocated Common Stock Held by ESOP		Total Stockholders' Equity
	(In Thousands)
Balance at March 31, 2022	$	852	$	737,658	$	357,576	$	(29,322)	$	(84,718)	$	(111)	$	981,935
Net income	—		—		25,195		—		—		—		25,195



Other comprehensive income (loss)	—		—		—		(15,655)		—		—		(15,655)
Common stock dividends of $0.130 per share	—		—		(10,030)		—		—		—		(10,030)


Restricted stock awards issued, net of awards surrendered	—		23		—		—		(27)		—		(4)
Compensation under recognition and retention plan	—		804		(64)		—		—		—		740
Treasury stock, repurchase shares	—		—		—		—		(13,780)		—		(13,780)
Common stock held by ESOP committed to be released (6,609 shares)	—		59		—		—		—		36		95

Balance at June 30, 2022	$	852	$	738,544	$	372,677	$	(44,977)	$	(98,525)	$	(75)	$	968,496

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Changes in Stockholders' Equity

Six Months Ended June 30, 2023 and 2022


	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Unallocated Common Stock Held by ESOP		Total Stockholders' Equity
	(In Thousands)
Balance at December 31, 2022	$	852	$	736,074	$	412,019	$	(61,947)	$	(94,873)	$	—	$	992,125
Net income	—		—		29,410		—		—		—		29,410

PCSB acquisition	$	118	$	167,212									167,330
Other comprehensive income (loss)	—		—		—		(4,209)		—		—		(4,209)
Common stock dividends of $0.270 per share	—		—		(23,939)		—		—		—		(23,939)


Restricted stock awards issued, net of awards surrendered	—		(8)		—		—		(45)		—		(53)
Compensation under recognition and retention plans	—		1,806		(162)		—		—		—		1,644



Balance at June 30, 2023	$	970	$	905,084	$	417,328	$	(66,156)	$	(94,918)	$	—	$	1,162,308



	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Unallocated Common Stock Held by ESOP		Total Stockholders' Equity
	(In Thousands)
Balance at December 31, 2021	$	852	$	736,826	$	342,639	$	(110)	$	(84,718)	$	(147)	$	995,342
Net Income	—		—		49,900		—		—		—		49,900



Other comprehensive income (loss)	—		—		—		(44,867)		—		—		(44,867)
Common stock dividends of $0.255 per share	—		—		(19,735)		—		—		—		(19,735)


Restricted stock awards issued, net of awards surrendered	—		23		—		—		(27)		—		(4)
Compensation under recognition and retention plans	—		1,561		(127)		—		—		—		1,434
Treasury stock, repurchase shares	—		—		—		—		(13,780)		—		(13,780)
Common stock held by ESOP committed to be released (13,218 shares)	—		134		—		—		—		72		206
Balance at June 30, 2022	$	852	$	738,544	$	372,677	$	(44,977)	$	(98,525)	$	(75)	$	968,496

See accompanying notes to unaudited consolidated financial statements.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows


	Six Months Ended June 30,
	2023		2022
	(In Thousands)
Cash flows from operating activities:
Net income	$	29,410	$	49,900
Adjustments to reconcile net income to net cash provided from operating activities:

Provision for credit losses	31,070		9


Deferred income tax expense	210		953
Depreciation of premises and equipment	3,926		2,933
(Accretion) amortization of investment securities premiums and discounts, net	(4,910)		1,175
Amortization of deferred loan and lease origination costs, net	2,162		2,797
Amortization of identified intangible assets	3,920		254
Amortization of debt issuance costs	50		50
(Accretion) amortization of acquisition fair value adjustments, net	(5,706)		11
Gain on investment securities, net	(1,704)		—
Gain on sales of loans and leases held-for-sale	(1,946)		(635)



Write-down of other repossessed assets	60		92
Compensation under recognition and retention plans	1,643		1,434
ESOP shares committed to be released	—		206
Net change in:
Cash surrender value of bank-owned life insurance	(316)		(507)

Other assets	(19,700)		6,483
Accrued expenses and other liabilities	10,618		(26,889)
Net cash provided from operating activities	48,787		38,266

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	178,240		67,361
Purchases of investment securities available-for-sale	(279,009)		(123,121)


Proceeds from redemption/sales of restricted equity securities	33,550		9,161
Purchase of restricted equity securities	(29,662)		(15,586)
Proceeds from sales of loans and leases held-for-investment, net	163,442		72,277
Net increase in loans and leases	(558,492)		(215,936)
Acquisitions, net of cash and cash equivalents acquired	(80,209)		—


Purchase of premises and equipment, net	(8,648)		(2,190)
Proceeds from sales of other repossessed assets	820		1,043

Net cash used for investing activities	(349,987)		(206,991)






			(Continued)

See accompanying notes to unaudited consolidated financial statements.

Table of Contents


	Six Months Ended June 30,
	2023		2022
	(In Thousands)
Cash flows from financing activities:
Decrease in demand checking, NOW, savings and money market accounts	(321,664)		(44,540)
Increase (decrease) in certificates of deposit and brokered deposits	748,514		(110,909)
Proceeds from FHLB advances	4,486,000		1,135,000
Repayment of FHLB advances	(4,733,516)		(974,940)



Decrease in other borrowed funds, net	(12,012)		(39,254)
Decrease in mortgagors' escrow accounts, net	(710)		(525)

Repurchases of common stock	—		(13,780)


Payment of dividends on common stock	(23,939)		(19,735)





Net cash provided from (used for) financing activities	142,673		(68,683)
Net decrease in cash and cash equivalents	(158,527)		(237,408)
Cash and cash equivalents at beginning of period	382,959		327,737
Cash and cash equivalents at end of period	$	224,432	$	90,329

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits, borrowed funds and subordinated debt	$	102,211	$	11,230
Income taxes	8,391		13,126
Non-cash investing activities:

Transfer from loans to other repossessed assets	$	1,074	$	924
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.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(1) Basis of Presentation

Overview

Brookline Bancorp, Inc. (the "Company") is a bank holding company (within the meaning of the Bank Holding Company Act of 1956, as amended) and the parent of Brookline Bank, a Massachusetts-chartered trust company; Bank Rhode Island ("BankRI"), a Rhode Island-chartered financial institution; and PCSB Bank, a New York-chartered commercial bank (collectively referred to as the "Banks"). The Banks are members of the Federal Reserve System. The Company is also the parent of Brookline Securities Corp. ("BSC") and Clarendon Private, LLC ("Clarendon Private"). The Company's primary business is to provide commercial, business and retail banking services to its corporate, municipal and retail customers through the Banks and its non-bank subsidiaries.

Brookline Bank, which includes its wholly-owned subsidiaries, Longwood Securities Corp. ("LSC"), Eastern Funding LLC ("Eastern Funding") and First Ipswich Insurance Agency, operates 29 full-service banking offices in the greater Boston metropolitan area with two additional lending offices. BankRI, which includes its wholly-owned subsidiaries, Acorn Insurance Agency, BRI Realty Corp., BRI Investment Corp. and its wholly-owned subsidiary, BRI MSC Corp., operates 20 full-service banking offices in the greater Providence, Rhode Island area. Macrolease Corporation, previously a subsidiary of BankRI, was merged into Eastern Funding LLC in the second quarter of 2022. 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 Securities and Exchange Commission ("SEC"). Through Clarendon Private, the Company offers a wide range of wealth management services to individuals, families, endowments and foundations to help these clients meet their long-term financial goals.

The Banks' activities include acceptance of commercial, municipal and retail deposits, origination of mortgage loans on commercial and residential real estate located principally in 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 operates in New York City, New York, and Plainview, New York.

The Company and the Banks are supervised, examined and regulated by the Board of Governors of the Federal Reserve System (the "FRB"). As a Massachusetts-chartered trust company, Brookline Bank is subject to supervision, examination and regulation by the Massachusetts Division of Banks (the "MDOB"). 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 (the "RIBD"). 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 Federal Deposit Insurance Corporation ("FDIC") offers insurance coverage on all deposits up to $250,000 per depositor at each of the Banks. As FDIC-insured depository institutions, the Banks are also subject to supervision, examination and regulation by the FDIC. As previously disclosed, on July 31, 2019, Brookline Bank converted to a Massachusetts-chartered trust company and ended its membership in the Depositors Insurance Fund (the “DIF”), a private industry-sponsored fund which insures Massachusetts-chartered bank deposit balances in excess of federal deposit insurance coverage. Brookline Bank’s growth in deposit size necessitated its withdrawal from the DIF and the concurrent charter conversion. Term deposits in excess of the FDIC insurance coverage as of July 31, 2019 will continue to be insured by the DIF until they reach maturity.

Basis of Financial Statement Presentation

The unaudited consolidated financial statements of the Company presented herein have been prepared pursuant to the rules of the SEC for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“GAAP”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying consolidated financial statements have been included. Interim results are not necessarily reflective of the results of the entire year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

In preparing these consolidated financial statements, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates based upon changing conditions, including economic conditions and future events. Material estimates that are particularly susceptible to significant changes in the near-term include the determination of the allowance for credit losses, the determination of fair market values of 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 the allowance for loan and lease losses in future periods, and the inability to collect outstanding principal may result in increased loan and lease losses.

Reclassification

Certain previously reported amounts have been reclassified to conform to the current year's presentation.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)-Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04") to provide optional expedients and exceptions for applying GAAP to certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients provided that those elections are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022 and do not apply to contract modifications made after December 31, 2022.

In January 2021, FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)" an update to address concerns around structural risk of interbank offered rates ("IBORs"), particularly, the risk of cessation of the LIBOR. The amendments in this update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. In December 2022, FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848)" which deferred the sunset date of Topic 848 to December 31, 2024, to allow for a transition period after the sunset of LIBOR. The Company has adopted the amendments in these updates and established a LIBOR transition committee to guide the Company’s transition from LIBOR. The Company has completed much of the work to transition off the LIBOR index consistent with industry timelines. The working group has identified its products that utilize LIBOR and has implemented fallback language to facilitate the transition to alternative rates. The Company has also evaluated its infrastructure and identified fallback rates as well as started offering alternative indices and new products tied to these alternative indices. The Company does not anticipate the adoption of these standards to have a material impact to the consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The Company adopted ASU 2021-08 as of January 1, 2023 on a prospective basis. The adoption did not have a material impact on the Company's consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures" which addresses concerns regarding the complex accounting for loans modified as troubled debt restructurings (“TDRs”) and also the disclosure of gross writeoff information included in required vintage disclosures. 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. Additional details can be found in Note 5, "Allowance for Credit Losses".

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

(2) Acquisitions

PCSB Financial Corporation

On January 1, 2023, the Company completed its previously announced acquisition (the “merger”) of PCSB Financial Corporation (“PCSB”). Pursuant to the merger agreement, each share of PCSB common stock outstanding at the effective time of the merger was converted into the right to receive, at the holder’s election, either $22.00 in cash consideration or 1.3284 shares of Company common stock for each share of PCSB common stock, subject to allocation procedures to ensure that 60% of the outstanding shares of PCSB common stock was converted to Company common stock. PCSB’s bank subsidiary, PCSB Bank, operates as a separate subsidiary of the Company and has 15 banking offices throughout the Lower Hudson Valley of New York State.

The transaction was accounted for as a business combination. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values as of the merger effective date. The determination of fair value required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to change. Fair value estimates of the assets acquired and liabilities assumed may be adjusted for a period up to one year (the measurement period) from the closing date of the merger if new information is obtained about facts and circumstances that existed as of the merger effective date that, if known, would have affected the measurement of the amounts recognized as of that date.

During the three and six months ended June 30, 2023, the Company incurred merger-related expenses totaling $1.0 million and $7.4 million, respectively.

The following table summarizes the preliminary purchase price allocation to the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition:


	Net Assets Acquired at Fair Value
	(In Thousands)
Purchase price consideration	$	297,791
ASSETS
Cash	42,373
Investments	366,790
Loans	1,336,737
Allowance for credit losses on PCD loans	(2,344)
Premises and equipment	14,631
Core deposit and other intangibles	30,265
Other assets	104,654
Total assets acquired	$	1,893,106
LIABILITIES
Deposits	$	1,570,563
Borrowings	52,923
Other liabilities	52,624
Total liabilities assumed	$	1,676,110
Net assets acquired	216,996
Goodwill	$	80,795

In connection with the merger, the Company recorded $80.8 million of goodwill, which represents the excess of the purchase price over the fair value of the net assets acquired.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Fair values of the major categories of assets acquired and liabilities assumed were determined as follows:

Cash and Cash Equivalents

The fair values of cash and cash equivalents approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities.

Investments

The fair values for investment securities available-for-sale were based on quoted market prices, where available. If quoted market prices were not available, fair value estimates are based on observable inputs, including quoted market prices for similar instruments. Investment securities held-to-maturity were reclassified to investment securities available-for-sale based on the Company's intent at closing.

During the six months ended June 30, 2023, the Company restructured the investment portfolio acquired from PCSB. The Company sold approximately 75% of the portfolio which equates to $228.3 million of book value of predominantly longer dated Agency MBS, Agency CMOs, Corporate and Municipal securities. The weighted average duration of these securities was 6.1 years with an average risk weighting of assets of 33%. The Company recognized a $1.7 million gain from selling these securities.

Proceeds from the sale and additional cash on hand was used to purchase $295.6 million of short duration securities, the majority of which are US Treasuries, Agency MBS, and a small position of short term Municipal Bond Anticipation Notes. Additional details can be found in Note 3, "Investment Securities".

The weighted average duration of these securities was 2.1 years with an average risk weighting of assets of 4%.

Loans

The fair value of the loan portfolio was calculated on an individual loan basis using discounted cash flow analysis, with results presented and assumptions applied on a summary basis. This analysis took into consideration the contractual terms of the loans and assumptions related to the cost of debt, cost of equity, servicing cost and other liquidity/risk premium considerations to estimate the projected cash flows. The loss rates for the loans were estimated using Probability of Default (cumulative) and Loss Given Default assumptions. The assumptions used in determining the fair value of the loan portfolio were considered reasonable from a market-participant viewpoint.

The Company recorded a $49.8 million discount from the results of the loan accounting valuation.

Deposits - Core Deposits Intangible ("CDI")

Accounts included in the CDI include demand deposits, NOW accounts, money market accounts and savings accounts. The fair value of the CDI was derived from using a financial institution-specific income approach. Factors examined in the valuation of the CDI include customer attrition, deposit interest rates, service charge income, overhead expense, and costs of alternative funding.

The Company recorded a $30.3 million CDI from the results of the deposit valuation. The CDI is being amortized at an accelerated rate over 7 years using the sum-of-the-years method.

Certificates of Deposits

The certificates of deposits were recorded at fair value. The determination of the fair value was calculated using discounted cash flow analysis, which involved present valuing the contractual payments over the remaining life of the certificate of deposit at market based-rates.

The Company recorded a $3.2 million discount from the results of the certificate of deposit valuation.

Borrowings

The fair value of the FHLB advances were ascertained by using discounted cash flow analysis of the contractual payments over the remaining life of the advances at market-based interest rates. The FHLB advances were disaggregated on an individual advance basis and management used FHLB of New York rates as of December 30, 2022 as the market rate in the present value calculation.

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BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

The Company recorded a $0.3 million discount on the assumed FHLB advances.

PCD Loans and Leases

Purchased loans and leases that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchase credit deteriorated ("PCD"). For PCD loans and leases, the initial estimate of expected credit losses was established through an adjustment to the unpaid principal balance and non-credit discount at acquisition.

The following table reconciles the unpaid principal balance to the fair value of PCD loans and leases:


(In Thousands)
Total unpaid principal balance	$	16,824
Allowance for credit losses at acquisition	(2,344)
Non-credit discount	(974)
Fair value	$	13,506

Supplemental Pro Forma Financial Information

The following table summarizes supplemental pro forma financial information giving effect to the merger as if it had been completed on January 1, 2022:


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
	(In Thousands)
Net interest income	86,037	88,366	172,086	170,606
Non-interest income	5,459	8,016	16,695	14,468
Net income	23,445	28,460	47,942	37,648

The supplemental pro forma financial information does not necessarily reflect the results of operations that would have occurred had Brookline Bancorp, Inc. merged with PCSB on January 1, 2022. The supplemental pro forma financial information includes the impact of (i) accreting and amortizing the discounts and premiums associated with the estimated fair value adjustments to acquired loans and leases, investment securities, deposits, and borrowings, (ii) the amortization of recognized intangible assets, (iii) accreting and amortizing the discounts and premiums associated with acquired premises and leases, and (iv) the related estimated income tax effects. Costs savings and other business synergies related to the merger are not included in the supplemental pro forma financial information.