Paul Perrault - President and Chief Executive Officer Carl Carlson - Chief Financial Operator.

Matt Forgotson - Sandler O'Neill & Partners Matthew Kelley - Sterne, Agee Collyn Gilbert - KBW.

Good afternoon, and welcome you to the Brookline Bancorp Incorporated second quarter 2014 earnings conference call. (Operator Instructions) This call may contain forward-looking statements with respect to the financial condition, results of operations and business of Brookline Bancorp Incorporated. Actual results may differ.

Factors that may cause actual results to differ include those identified in the Annual Report on Form 10-K and the earnings press release.

Brookline Bancorp cautions you against unduly relying upon any forward-looking statements and disclaims any intent to update publicly any forward-looking statements, whether in response to new information, future events or otherwise. Please note this event is being recorded.

I would now like to turn the conference over to Paul Perrault, President and CEO. Please go ahead, sir..

Thank you, Betty. Good afternoon, and welcome to Brookline Bancorp second quarter earnings call. I'm accompanied today by our Chief Financial Office and Treasurer, Carl Carlson, who will walk you through our financial results following my comments. Brookline delivered another quarter of strong results to our shareholders.

The company experienced excellent loan growth, continued pristine asset quality and growth in core deposits. Yesterday, the company reported $10 million of net income or $0.14 per diluted share for the second quarter of 2014.

This compares to $10.4 million or $0.15 per diluted share for the first quarter and $9.5 million or $0.14 per diluted share for the second quarter of 2013. Our core fundamentals let the way in the quarter by delivering on exceptionally strong loan growth and increasing credit quality. Signs of recovery are clear in our markets.

And we expect to see continuing favorable trends. These trends are also evident in our healthy pipelines and outstanding credit performance. I remain confident in our business model in this competitive environment, as we enter the second half of 2014.

I will now turn you over to Carl, who will review the company's second quarter results in more detail..

We had a strong second quarter, particularly when you compare it to the first quarter, which included accretion related to a reforecast of certain acquired loans, several significant facilities transactions including the $1.5 million gain on the sale of our former administrate office in Brookline as well as recruitment expense.

As I mentioned in our call for the first quarter, earnings per share, excluding these item, would have been $0.13. Our second quarter results were driven by strong loan growth, excellent credit quality and lower expenses. These more than offset the continued pressure on our net interest margin and lower non-interest income in the quarter.

Total loans grew $141.9 million during the second quarter or 12.7% on an annualized basis. Growth was particularly strong in the commercial loan and lease portfolio, which increased 25.9% on an annualize basis.

All three of our banks contributed with Brookline Bank, Bank Rhode Island and First Ipswich Bank achieving loan growth of $113 million, $22.8 million and $6.1 million, respectively. The portfolio had net charge-offs of $720,000 for the second quarter, representing only 6 basis points of loss on average loans on an annualize basis.

Our non-performing loans and non-performing asset ratios both declined slightly from the first quarter to 37 basis points and 33 basis points respectively. The statistics and our excellent track record are representation of our strong asset quality, continuing economic growth in the communities we serve, and the outstanding team of bankers we have.

Due to the low level of net charge-offs and continued credit quality trends, the company required a provision for credit losses of $2.2 million, which was a $167,000 less than the first quarter. The allowance for loan losses represents 112 basis points of total loans at June 30 versus 113 basis points from the linked quarter.

Perhaps more meaningful is the allowance for loan losses on originated loans, which is 131 basis points at June 30, representing a 2 basis points decrease from the prior quarter. Overall, deposit balances grew on a linked-quarter basis to $13.5 million or 1.4% on an annualize basis.

More importantly, demand deposits grew $34.5 million during the quarter or 20% on an annualize basis. We are very pleased with the continued progress we have made with the mix and growth of our core deposits. Net interest income decreased $1.3 million during the second quarter to $46.4 million.

During the first quarter, the company recorded $5 million in accretion of loans, deposits and borrowed funds as compared to $2.2 million in the second quarter. Excluding the impact of accretion in both quarters, net interest income increased $1.5 million in the second quarter as compared to the first quarter, primarily driven by loan volume.

Non-interest income decreased $1.8 million during the second quarter to $3.3 million. The decrease is primarily due to the $1.5 million net gain on the sales of facility and $302,000 gain on sales of loans in the first quarter. Excluding these items, non-interest income in the first quarter would have been approximately $3 million.

Comparing to the $3.3 million of non-interest income in the second quarter, the increase was driven by $245,000 rise in deposit fees and additional revenue from the sale of interest rate swaps as customers seek to lock-in longer-term rates. Company's non-interest expense decreased $2.4 million during the second quarter to $31.2 million.

As you may recall from our first quarter earnings call, the company recorded additional compensation employee benefits, due to recruiting and seasonal items, such as incentives, pension and payroll factors as well a charge of $808,000 in occupancy expense related to the abandonment of two branch locations and an operation center.

Second quarter non-interest expense came in slightly better than expected and we are pleased with the continue progress being made, as we explore and execute on efficiency opportunities, while continue to grow and invest in the future. During the quarter, Bank Rhode Island opened a new brand in Wakefield, Rhode Island.

We continue to see to selectively expand our branch network in the coveted communities we serve. I am also happy to announce that yesterday the board approved the payment of a dividend of $0.0850 per common share to our shareholders for the quarter. This represents the company's 61st consecutive quarter of dividend payments.

Before turning it back over to Paul, I'll provide a few comments on our expectations for the third quarter. We expect the quarter net interest margin to continue to compress 4 basis points in the quarter.

The impact of compressing margin on the net interest income is expected to be more than offset by the growth in loans led by our commercial real estate and C&I portfolios. Purchase accounting accretion is projected to be in the $1.6 million to $2 million range for third quarter.

However, this can vary significantly, depending on the performance of our acquired loans. The credit environment continues to be positive and suggest a third quarter provision for loan losses in line with the second quarter.

Non-interest income is expected to improve in the third quarter with additional swap-related income as well as a lift from the gain on sale of loans and leases. Non-interest expense is expected to tick up 1% or so in Q3, as we will continue our efforts to drive revenue growth while controlling expenses.

With that, I'll turn it back over to Paul for concluding remarks..

Thanks Carl. Our results demonstrate the sustained success in growing our market share, as a result of the perseverance of our dedicated Brookline colleagues. Progress that has been made to date fuels the drive to be successful in this top and competitive marketplace.

The company's success is attributable to our dedicated team as well as continued support from our exceptional customer base. And now, we will open it up for questions..

(Operator Instructions) The first question comes from Mark Fitzgibbon of Sandler O'Neill & Partners..

This is actually Matt filling in for Mark.

So just wanted to clarify, did you say operating non-interest expense up 1% quarter-to-quarter or so in Q3?.

Yes. I did..

Just continuing up on that now, so when do you think we could see operating expenses crest or should we expect to see kind of that slow, muted growth over the back half of the year..

I think you'd see the muted growth as we move forward. We're continuing to expand in the business. And you just have normal run rate set that sneak in. We're continuing to find ways to find additional efficiencies, but I would expect it to increase slightly in the third quarter..

And as far as the margins concerned, you were guiding rather few basis points of compression in 3Q.

When do you think that the core margin could ultimately bottom out?.

I really don't have any visibility on when that would bottom out. We're still putting our loans at yields that are weighted average coupons that are less than what the portfolio is. So I continue to see that to decline very modestly..

I mean as far as the accretion income is concerned, I know it's tough to pin down when that might roll off in full, but when you think about the margin outlook, when are you expecting that accretion to kind of come to an end?.

Again, that's pretty far out in the future..

And the next question comes from Matthew Kelley of Sterne, Agee..

First question, on your C&I lines of credit, any change in utilization rate versus the first quarter and year ago period?.

Yes. I would say that there has been somewhat of an uptick, but it's not a remarkable uptick. There is more usage in some areas throughout the company. You can see the effect of companies being more active in utilizing their deposit balances..

And then the indirect auto, it finally bottomed out here.

Is that going to stay around the same level? Are you ready to grow that? What's your view on that business? Has it changed at all?.

Well, it kind of changes over time, Matt. I mean the business has changed and I think continues to change somewhat. It's become a far or less important part of our balance sheet and portfolio, than it was a few years ago, as you might recall.

So we're watching it very carefully looking at it closely, and playing around with our involvement with moving rates around and stuff. But I think in the last quarter or maybe two quarters, sales have been quite strong. And so our participation sort of improved, if you will, just by nature of what's going on..

And then your tax rate, what should we view in there, Carl?.

That again is consistent at 35.6, going forward..

Our next question comes from Collyn Gilbert of KBW..

Carl, could you just update us on your thoughts on your interest rate risk position.

And I guess, specifically, how the duration of your loan portfolio has changed? And then also, what deposit assumptions you're making in a higher-rate environment?.

We are fairly well-matched when you look at our balance sheet. Duration of loan portfolio is about 2.6. Duration of our securities is at 3.8. So overall, when we look at our interest earning assets, about $5.1 billion, we're talking about duration around 2.7. We'll gain our interest bearing liabilities of $4.1 billion. They're about a duration of 3.

We continue to grow very strongly in our DDA and core deposit accounts. And as anybody will tell you its very difficult to try to take those and what's going to happen with those as interest rates rise.

DDA accounts up, proved our best bets, since they're not going to react too much to interest rates, particularly when we're talking about commercial accounts, where they need this to operate their businesses. But we are sensitive to that.

We do run some sensitivities around that to see what are risks all around that, but overall I think we're very well-matched, a good funding base that's not sensitive to interest rates as they rise. So we're feeling pretty good about where we are right now..

And how did the loan pipeline look at the end of this quarter? And how did that compare to the end of the first quarter?.

It actually has improved, which kind of shocked me a bit. Typically going into third quarter, it's the summer months, and things would typically slow down, but we're actually ending the second quarter, our loan pipeline is actually a little bit up from the first quarter..

And then just, how has the competitive landscape changed in, say the last six months or so within the Boston market?.

In the Boston market, Collyn, I'd say it's probably settled down. That's probably the way I'd put it. So if we go back to quarter and then look at the previous year, we saw an ever increasing competitiveness in the Greater Boston market.

I think it has reached the point where it is incredibly competitive, but is sort of staying at that level, not getting better or worse..

And is there anything you would point to as to why that would be? I mean, is it less irrational folks coming in? I'm just curious as to what might be driving that change?.

I would probably need to take a guess, but if we're at all representative, I mean we are doing quite well in the markets and I think everybody is very busy. And I think you're seeing that as banks are reporting their results for the quarter, particularly in the commercial disciplines. Everybody seems to be doing a lot of stuff.

So that might explain it, but that's a guess..

Our next question comes from Matthew Kelley of Sterne, Agee..

Just two follow-ups. Number one, what was the pre-payment penalty income during the quarter? And then maybe you could talk a little bit about your commercial real estate origination yields during the quarter as well..

Pre-payment penalties were very light in the quarter, so they're basically meaningless on the NIM. As far as commercial real estate, which in, this number would include a multifamily construction as well as commercial real estate. We originated about $84 million, little over $84 million, at a weighted average coupon of 3.85%..

And what about on the C&I side? What were the origination yields there?.

5.58; and that includes our equipment financing units as well..

And this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Perrault and Mr. Carlson for any closing remarks..

Thank you, Betty. I want to thank everyone for joining us for our second quarter call. We are optimistic for the remainder of the year and look forward to discussing in next quarter results with you. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines..