Brookline Bancorp, Inc.

please refer to pages 2 and 3 of our earnings presentation for our forward-looking statement disclaimer. Also, please refer to our other filings with the Securities and Exchange Commission, which contain risk factors that could cause actual results to differ materially from these forward-looking statements. Any references made during this presentation to non-GAAP measures are only made to assist you in understanding Brookline Bancorp's results and performance trends and should not be relied on as financial measures of actual results or future predictions. For a comparison and reconciliation to GAAP earnings, please see our earnings release. I'm pleased to introduce Brooklyn Bancorp's Chairman and CEO, Paul Pearl.

Thanks, Dario, and good afternoon, everyone. Thank you for joining us for today's earnings call. Our results continue to improve in the second quarter with earnings of approximately $22 million, or $0.25 per share. As we have discussed over the last couple of quarters, we have been managing the balance sheet in advance of the merger of equals with Berkshire. The overall contraction of $61 million in our loan portfolio is intentional as we reduce exposures in commercial real estate and specialty vehicles and at the same time grow our commercial and consumer loan portfolios. We continued to see improvement in our funding as our customer deposits increased $59 million and our margin increased 10 basis points during the quarter. We sold two commercial real estate loans during the quarter and recognized the charge of $3.5 million. Additionally, our Boston office portfolio continues to be under stress, and we downgraded several credits during the quarter and added to the reserves for these credits. The office portfolio outside of Boston is continuing to perform very well. In May, the stockholders of both Berkshire Hills and Brookline approved the merger, and I continue to be pleased with the progress the teams are making. We have been working together over the last few months to ensure a smooth merger, and no significant issues have been identified to date. We are looking forward to being one bank in the coming months with a combination of our systems in early February, enhancing the products and services for our combined customers. I will now turn you over to Carl, who will review the company's second quarter.

Thank you, Paul. As Paul mentioned, loans declined by $61 million with commercial real estate and equipment finance declining $95 million and $46 million, respectively, while commercial loans grew $53 million and consumer loans grew $27 million. Owner-occupied commercial real estate increased by $15 million and investment commercial real estate decreased by $110 million. bringing the percentage of investment commercial real estate to total risk-based capital to 363% at quarter's end. The decline in equipment finance loans was driven by the continued runoff of the specialty vehicle portfolio, which decreased by 27 million during the quarter to 240 million. Our net interest margin improved 10 basis points to 332 basis points on higher asset yields, as well as lower funding costs. Net interest income increased $2.9 million for the quarter to $88.7 million. Fee income was slightly higher at $6 million, bringing total revenues for the quarter to $94.7 million, which is 3% higher than Q1 and 10% higher than 2024. Non-interest expense, excluding merger charges, was $57.7 million, a decrease of $1.3 million from Q1 due to lower expenses in nearly every category except marketing, which increased $503,000. Merger expenses for the quarter were $439,000 and were largely non-tax deductible, contributing to a higher effective tax rate. The provision for credit losses was $7 million, $1 million higher than Q1. We had total net charges of $5.1 million and provided additional credit reserves for selected properties in the Boston office market. The reserve coverage increased to 132 basis points of total loans. Yesterday, the Board approved maintaining our quarterly dividend at 13.5 cents per share to be paid on August 22nd to stockholders of record on August 8th. Looking forward, we continue to anticipate modest improvements to the net interest margin as liabilities continue to reprice lower. We are currently estimating an increase in the margin of four to eight basis points in Q3. This is dependent upon market conditions, deposit flows, and the direction, timing, and magnitude of future actions by the Federal Reserve. We anticipate growth in the loan portfolio to be in the low single digits for the balance of 2025, as growth in commercial and consumer loans will be tempered by the runoff of specialty vehicle and gradual pickup in commercial real estate activity. On the deposit side, we anticipate growth of 4 to 5% with growth generally favoring interest-bearing accounts. Non-interest income is projected to be in the range of $5.5 to $6.5 million per quarter. We are managing expenses, particularly staffing, in preparation for the merger with Berkshire Hills later this year. Our effective tax rate is expected to be in the range of 24.25%, excluding the impact of non-deductible merger charges. This concludes my formal comments. I will turn back to Paul.

Thanks, Carl. And now we will open it up for questions.

Thank you. Please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak. If you change your mind or your question's already been answered, you can withdraw your question by pressing star followed by the number two. Our first question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead, your line is open.

Hey guys, good afternoon. First question I had, Hi, Paul. First question I had for you, and I know you don't know this exactly because it's regulatory driven, but when are you sort of targeting to close the acquisition? When do you think is a reasonable guesstimate? And also, do you have a sense for when you're targeting the systems conversion?

Well, it's a merger. It's not an acquisition, a merger of equals. And the systems conversion is sometime mid-february i don't remember the exact date but it's a very nice night um and we wait every day for the fed approval which then has a little time frame to it so um if we want to be very optimistic and forward-looking we might say september okay and then i guess i'm curious when the two companies do come together um in a merger um

I assume there's some opportunity to do bigger loans with existing customers. I guess I was curious how big a credit or relationships you'd be willing to do when the companies come together.

The whole credit administration thing is getting done now, but I would expect that for certain kinds of well-sponsored relationships, it would be perhaps approaching $100 million Um, maybe a little bit less than that, sort of depending on what the categories are. Uh, but that, that would be about it. Yeah. It might be 90, you know, which is, which is double what each company does now.

Right.

And that's relationships. It's a, it's a small, it's a fraction of the legal limit.

Okay. TAB, Mark McIntyre, And then I wonder if you could give us any color on those two Eastern funding credits were you took some additional reserves this quarter any.

TAB, Mark McIntyre, that's basically the color we're continue to work with those those credits and we've added a little bit more to the reserves for both of those. TAB, Mark McIntyre, So the two credits are you referring to is the we have a commercial laundry as well as a grocery exposure there we've added. basically another million dollars to each one of those for specific reserves against that. We feel good where we are.

Okay. And then, Carl, your guidance of four to eight base points up in the third quarter, does that assume one rate cut or no? No. No rate cuts in that number. Okay. What do you guesstimate the impact of a 25-base point rate cut would be on NIMH?

Again, that's always, you know, as far as timing, because, you know, we have a lot of assets that do reprice down immediately with that. So the timing in the quarter when that happens. So I think in a quarter, it may be fairly flat for the initial 25.

It hits both deposits and loans.

It hits both deposits and loans. And we've seen a lot of benefits already. But we do have a lot of... CDs and broker deposits, as well as borrowings that continue to be priced down as we move forward. Just to give you a little sense on that, CDs, we have about $556 million rolling off at 410 basis points. Last quarter, our CDs that went on the books around 375. Brokered CDs, about $194 million maturing in the next quarter at 480 basis points. And federal home loan bank advances about $371 million at 477 basis points. So we're still seeing the benefits of those repricing down. The Fed moves 25, they'll reprice down even more.

And we've also reduced materially the entirety of wholesale funding, which is even better.

Thank you.

Thank you. Okay, Mark.

Thank you. Our next question comes from Laurie Hunsaker with Seaport Research Partners. Please go ahead.

Yeah. Hi. Good afternoon, Laurie and Carl. I just wanted to, just on margin, do you have a spot margin for June?

The spot margin for June was 339 basis points.

Okay. And then just going over to credit. Really appreciate all the details you provide. So just looking at your office book, that's $647 million. How much of that is in the Boston Central Business District?

$154 million.

Okay. And that includes those two credits.

That's not just the Central.

That's downtown.

All Boston.

Yeah, Boston. That's all of downtown. It's not just the financial district, so. We don't have that kind of concentration. Some of those are in the Back Bay, Newberry Street.

Gotcha. Okay. And then the $29 million, so great that you resolved the $10.8 million. The $28.9 million that basically experienced some deterioration this quarter, can you give us a little color on those loans in terms of you know, when you're thinking resolution, what the vacancy is looking like, um, do those have, I think they're all, they're all well-sponsored properties.

They're well-located properties. Uh, they have vacancies. There might be at 50 to 50 to 70% occupied. Uh, lease up has been very slow as you can imagine, but great sponsors, they pay, um, And so we are exercising some patience, but sort of being careful with our reserves, as we always are.

Gotcha. And do any of those come due in the next couple quarters?

No, I don't think so.

Okay. Okay. And then just going back over to the jump in the C&I non-performers, at equipment financing, just late quarter. Can you help us think about that a little bit, you know, going from 33 million to 46 million, the non-performers in that bucket?

Yeah, that was driven by one credit at Eastern Funding or at the Equipment Finance Unit related to fitness equipment. A little over $11 million. Gotcha.

Okay. Okay. Gotcha. And then can you help us? This is sort of, I guess, more broad here. Can you help us think about the FASB's ASU with respect to, you know, what it means for pro forma tangible book dilution versus accretion, right? So your tangible book dilution should be a little less. Your accretion should be more. Can you help us quantify that a little bit? Sure.

Lori, we've known each other a long time. You know, I've hated this for so long. I think the entire banking industry has always questioned why this rule was ever put in place. But they finally said they're going to fix it, the whole double counting on this. So the whole Cecil, you know, the day two Cecil booking. So I'll refer back. And I think the presentation that we did when we announced the transaction was very, you know, provided a lot of good insight there. So I would recommend if you want to go see that, and we lay it out pretty well, and I'll refer to that number. So we had estimated that to be $94.5 million when we announced the transaction, what the date to CECL would be. So that charge on an after-tax basis is roughly $71 million after-tax. That is not going to flow through the income statement once FASB finally issues the final rule. Now, they said they're issuing it. I've been waiting for it patiently. You know how patient I am. But we'll see when that comes out. KPMG told me the other day that they expect it likely in the fourth quarter. It wasn't going to be a third quarter event. It'll probably be a fourth quarter event. So that equates to about $0.84 per share, right? So that's some real money. So it's great for our capital ratios. It'll be great for the earnings. you know, 84 cents, that represents about 20% of dilution we were talking about. So it does improve how fast, as you know, we announced when we did the deal, a 2.9 year earn back. This will make it a lot faster than that. So we're looking forward to that happening. I want to be clear on this. If the FASB does not issue it by the time this deal closes and we release earnings for the third quarter, if if it does not happen in the third quarter, we would still have to recognize that's day two CECL impact, and then it get reversed basically in the fourth quarter when they do finally issue the final rule. I hope that helps clarify what that might look like.

Yeah. Okay. So, okay, a couple more questions related to that. So it's also looking like, assuming obviously this goes through, that early adoption will be permitted, but you don't necessarily have to do it. Would you all be early adopters? How do you think about that?

Absolutely. Absolutely.

Okay. Okay. And then the increase in income is obviously going to go down. So how do we think about that? In other words, the scale when you announced it was... Oh, go ahead.

Right. So... When we announced that, like I just said, $94.5 million would not get accreted back into income over time. But as you can understand, that $94 million would be getting accreted over the life of the loans, which is five, six, seven years, maybe even longer when you think about it over time. So it's not as meaningful impact when you think about it that way.

Okay. Okay. All right. So five to seven years. Okay. And then to your point on you'll have more capital, how do you think about, you know, assuming you close this deal September 30, how do you think about repurchasing shares? What's your thought there?

I think that will take a little bit of time. I think we would have to get through the initial couple of quarters and the board will The board will take that up if they feel that's the right thing to do. I think the first order of business will be addressing the dividend, and then we'll address the stock and where our capital levels are. We've been very clear that we want to get the commercial real estate down to 300% in a fairly short order. And we're well on our way. We've had a lot of progress in that. towards that end. And so I think that's going to be the first order of business there.

Okay. Okay. And then just, Carl, last question on the dividend, as you mentioned it. So if we look at Berkshire Hills right now, they're 72 cents annually, and you all said you would be adjusting it to make it on par with where you all currently are. So that's suggesting about $1.28 per share. Is that correct? Is that still the thinking?

That's correct.

Okay. Great. Thanks for taking my questions.

I'll leave it there.

Yeah, Laurie.

Thank you. And next question comes from Steve Moss with Raymond James. Please go ahead.

Hey, guys. This is Chase on for Steve. Good afternoon.

Good afternoon.

First one for me. How is new loan pricing holding up these days?

It's holding up better than it had been over the years, but I think it's still a very competitive marketplace. And because we are originating much less in real estate, I think we are less exposed to the viciousness that's coming from things like institutional lenders, insurance companies, and the like. But in the equipment finance business, those rates are strong.

and in the pure cni business and in the consumer business they're they're good but competitive yeah just to give you a sense um you know during the we can give you some numbers i'll give you just a quick overview there so total loans originated in the in the second quarter were 445 million uh at a at a weighted average coupon of 694 basis points so just shy of seven percent

All right, thank you for that color. One more from me. I saw in your deck mentioning of the mass housing takeout being delayed. Can you provide any more color on that? Which?

Yeah, so there's a loan that it's in our, it's basically a considered, it's a 90-day past due loan because of the maturity date. It's being taken out by Mass Housing. Everything's in order. It's an accruing loan. I wouldn't consider anything wrong with the loan at all. It's just that because it's 90 days past due from a maturity standpoint, it falls into that category. We're just waiting for the paperwork to go through and for it to be taken out by Mass Housing. But it's 100% leased up. The property's in good order. I expect that to be out this quarter, in the third.

Got it. Thank you so much. Appreciate it. Sure.

Thank you. Our next question comes from David Conrad with KBW. Please go ahead.

Yeah, good afternoon. A real quick one from me. I guess really regarding 3Q on a standalone basis. Expenses are really good this quarter. Just your near-term outlook. Is this a good run rate or how should we think about that for third quarter?

Yeah, I don't see anything. If anything, it would be down a little bit. Good run rate. Been running it pretty solid.

Okay, great. Thank you.

Thank you. We have no further questions, so I'll pass you back over to Paul Perrault for any closing comments.

Thank you, Lydia, and thank you all for joining us today, and we will look forward to talking with you again next quarter. Good day.

Thank you very much. This concludes our call today. Thank you for joining. You may now disconnect your line.