Marissa Frerk - Associate General Counsel Paul Perrault - President and CEO Carl Carlson - Chief Financial and Treasurer.

Mark Fitzgibbon - Sandler O’Neill & Partners Collyn Gilbert - KBW Laurie Hunsicker - Compass Point.

Good afternoon and welcome to the Brookline Bancorp Inc. Second Quarter 2015 Conference Call and Webcast. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms.

Marissa Frerk, Associate General Counsel. Please go ahead..

Thank you, Denise. This call may contain forward-looking statements with respect to the financial condition, results of operations and business of Brookline Bancorp Inc. Actual results may differ from these forward-looking statements.

Factors that may cause actual results to differ include those identified in our annual report on Form 10-K and our earnings press release.

Brookline Bancorp cautions you against unduly relying upon any forward-looking statements and disclaims any intent to update publicly and 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 call over to Paul Perrault, President and CEO. Please go ahead sir..

Thanks, Marissa, and good afternoon all and welcome to Brookline Bancorp second quarter earnings call. I’m accompanied today by our Chief Financial and Treasurer, Carl Carlson, who will walk you through our quarterly financial results following my comments.

Yesterday, we reported $11.9 million of net income or $0.17 per share for the second quarter of 2015. That’s compared to $11.7 million or $0.17 per share in the first quarter. This represents an annualized 5.5% increase in net income.

I’m excited about this growth, considering the intense competition we face in the current market and the near-term revenue headwind we created with the sale of $255 million in indirect auto loans in March.

Our colleagues have worked hard to serve our customers and to make Brookline Bancorp one of the region’s leading commercial banks, driving our earnings and returns to shareholders.

At June 30, 2015, commercial real estate and commercial loans made up over 80% of our total loans, which represented a growth of $67.3 million or 7.2% on an annualized basis from the end of last quarter.

Deposits also continue to grow steadily, reaching over $4.1 billion at the end of June with growth in demand deposits of $53.4 million in the quarter. In the second quarter, we also continued to improve by streamlining many processes, while maintaining our outstanding customer service.

This is evidenced in the continued reduction in our efficiency ratio. I will now turn you over to Carl, who will review the Company’s second quarter results in more detail..

Thank you, Paul. We started the quarter positioned with the substantial amount of cash from the sale of the indirect auto portfolio and with consistently putting those funds to work. By the end of the quarter, loans and leases grew $95 million and the securities portfolio grew $25 million.

As Paul mentioned, growth continues to be particularly strong in the commercial real estate and commercial loan and lease portfolios, with all three of our banks contributing. Overall, deposit balances grew $14.6 million in the second quarter or 1.4% on an annualized basis.

Growth was particularly strong in demand checking and NOW accounts, which combined grew over $63 million. Our quarterly average interest running assets decreased $91.6 million from the previous quarter. This is a result of the sale of indirect auto loans at the end of the first quarter, partially offset by quarterly loan and securities growth.

The excess liquidity during the quarter and lower overall level of interest-earning assets resulted in a decline in net interest income of $1.4 million from the first quarter. This was more than offset by better performance in provision for credit losses, non-interest income, and non-interest expense.

Provision for credit losses for the quarter was $1.9 million, which is $350,000 less than the first quarter. The components of the $1.9 million quarterly provision consists of $501,000 for net charge-offs and $1.4 million to primarily cover loan origination.

The company's non-interest income totaled $4.9 million for the second quarter, which is $397,000 higher than the first quarter. The increase was driven by $941,000 of loan level derivative income due to the execution of several loan level interest rate swap agreements in the second quarter.

This increase was partially offset by a decrease of $590,000 in gain on sales of loans and leases. The company's non-interest expense decreased $874,000 during the second quarter to $30.5 million.

This decrease was driven by $439,000 decrease in compensation and employee benefits expense and a $340,000 decrease in equipment and data processing expense. Compensation and employee benefits decreased primarily due to lower payroll taxes and unemployment insurances and thresholds from that.

Equipment and data processing expense reductions were due primarily to lower core processing system costs resulting from the sale of the indirect automobile portfolio.

Our effective tax rate decreased from 36.6% in the first quarter to 36.2% in the second quarter due to the recent changes in New York tax laws and investments in municipal securities in the second quarter. We currently project our effective tax rate to be 36.4% for the full year.

As of June 30, we have not repurchased any stock under the board approved repurchase plan. Finally, as Paul mentioned, the board approved a quarterly common dividend of $0.09 per share. This will be paid on August 21 to shareholders of record on August 7.

The quarterly $0.09 per share dividend represents an annual yield of 312 basis points based on yesterday's closing price of $11.55. Before turning back over to Paul, I will provide a few comments on our expectations for the third quarter of 2015. Average earning assets will increase with the growth of loans in the third quarter.

We continue see coupons on new originations coming in slightly lower than the portfolio and we expect the yield on our loan portfolio to be down 3 or so basis points depending on our portfolio mix going forward. The provision for loan losses will be driven by our loan growth, net charge-offs and continued assessment of our portfolio of risk factors.

Non-interest income is projected to be in line with our second quarter and our non-interest expense is expected to be seasonally higher in the third quarter. We will continue our efforts to drive revenue growth while controlling expenses With that, I will turn it over to Paul for concluding remarks..

Thanks, Carl. Brookline Bancorp had a great first half of the year and I will tell you that we look forward to continuing the success in the second half of the year and into the future. And now we will open it up to for questions..

Our first question will come from Mark Fitzgibbon of Sandler O’Neill & Partners. Please go ahead. .

Good afternoon, gentlemen..

Hi, Mark..

First question I had is, as it relates to the margin, Carl, I heard your comments about average interest earning assets and the loan pressure – yield pressure on loans, but how are you thinking about the margin as a whole? Are we likely to see some additional compression in 3Q?.

I'm expecting it's coming relatively flat. .

Okay. The second question, I wondered if you could share with us the size of your commercial loan pipeline..

We don't really get into the actual size of the pipeline. I would say it continues to be very strong. .

It's quite robust, Mark, at all of our banks and as well as the equipment finance subsidiary..

Okay. And then I know that historically in the first and third quarters, those have been the strongest quarters for the gain on sale of loan line. I guess I am curious why that is and is it likely to continue in 3Q..

I would say, the gain on sale of loans, there is two components to that. One is residential mortgages that we originate and sell and we pretty much sell anything that's over 10 years, actually 10 years or above at fixed rate. That's typically what we are selling.

We are not being in that business, we are not big mortgage originators, so that's very modest, if anything.

The other thing that's been driving that line is, as we look at our portfolio and look at opportunities to participate out loans and manage our exposures, that's what really drives that gain on sale and that [ph] release is one of our equipment finance subsidiaries, we participated at about $10.5 million in Q1.

And I don't anticipate doing any more of that anytime soon, but that's something that comes and goes, as the opportunity arises and as we want to manage that portfolio..

What I would add to that, Mark, is that if there is any correlation that you're seeing quarter-to-quarter, it's truly accidental..

Okay.

And then the last question I have for you is sort of more of a macro question, we keep hearing about how frothy the lending environment has become, both from the standpoint of pricing and in terms on particularly commercial real estate and C&I credits, I guess I 'm curious, you guys are an ultra conservative bank, so I'm curious as to your thoughts on what kinds of things people are doing out there that really spook you and what kind of things you're avoiding?.

Unguaranteed, very high LTV, long fixed real estate at tiny cap rates. I mean it's exactly I think what you would expect. It's certainly frothy selectively, but it's not like that all over the place, it's not like that in every single deal. But you do see some..

And do you see a consistent group of folks that are out there doing those crazy loans, is it sort of real small banks or mid-sized banks or who are the culprits?.

Well, I think everybody is a little bit, none of us probably like to admit it, but depending on what the deal is and who it is, we're probably all contributors to that view, probably us less than some But unlike, I'm sure you've seen as I've seen in other cycles, there were some really crazy players that entered in to different markets and really were the market leader in stupid stuff.

And I don't sense that there is any of that right now..

Thank you..

Our next question will come from Collyn Gilbert of KBW. Please go ahead..

Thanks. Good afternoon, guys..

Hey, Collyn..

So Paul, just a sort of follow-up on that, I guess how does kind of the market, because it looks -- I think one of your sort of in-market competitors had made the comment that they are completely pulling out a multi-family in Boston, pulling out a multi-family construction.

Is there – I mean, given the landscape that you see, I mean, what do you think sort of a longer term meaning like ‘15, ‘16 loan growth rate could be for you guys?.

Well, I don't necessarily see any reason why the current patterns, which have been in place really for a couple -- three years, maybe even a little more, I don't know why those wouldn't continue, absent some macroeconomic impact of rising rates or some other calamity out there.

If someone says that they are pulling out of construction and multi-family, I mean, it's kind of understandable in a way and that there is a huge amount of apartment construction going on in Metro Boston, and construction is very risky and expensive and depending on what kinds of things you do or don't do, you would do that.

Now, we're a real estate lender, we don't usually have a very large construction portfolio, but we expect to be there to support our customers to the extent that they're involved in this and obviously we would feel that in the cases where we would support the customers that they're able to tolerate and buffer any of these macroeconomic events that might happen..

Okay. That's helpful.

And then Carol, just how are you thinking about the reserve and I know you indicated next quarter, but just more in kind of a broader trend, because I think the reserve levels, you’ve kind of been holding in there where you've got peers of yours that are bleeding and just trying to understand where you think overtime that -- what's the right reserve ratio I guess for you guys?.

Yeah.

I'm not going to get nailed down on a reserve ratio, I think it could potentially move lower over time, but that means everything else is steady as she goes, a lot of this reserve build is as we see loans, we also -- we have an acquired portfolio and as that acquired portfolio comes down and as we originate new loans, we establish reserves around that.

We're seeing very positive moves in our net charge-offs which is also providing benefits there. We periodically do a review and look back on loss rates and things of that nature. And so, all things are looking positive in that sense. So, I can imagine it, I would be leaning towards lower than higher from a reserve coverage standpoint..

From a non-practitioner of accounting or allowances Carl, and I would add that we are sort of a smack in the middle of a fundamental rethinking of allowance methodologies by the accounting practice people.

So we are sort of getting familiar with all of that and we'll be relooking at the whole thing but I'll ego what Carl says in the sense that we don't have much in the way of losses and we have a tremendous amount in the way of reserves..

Okay that's great. I will leave it for there now, thanks..

[Operator Instructions] The next question will come from Laurie Hunsicker of Compass Point, please go ahead..

Yeah, hi good afternoon. Carl if you could just help me with margin, when you were discussing margin, where you talking core margin accretion or where you including accretion in that number.

And then secondly along those same lines, do you have the accretion income for the June quarter?.

Sure. So when I say core -- when I say the margin, I'm talking about the entire margin..

The entire margin, okay, perfect..

We are right now thinking it's going to be about flat, maybe down a basis point but I'd say about flat and that's with the second quarter.

Remember that we had a lot of excess liquidity during the second quarter that wasn’t all put to use, so it took a little bit of time over the three months to get it into loans, into securities, pay down borrowings things of that nature. So it will experience a whole benefit in Q3.

But again, the loan portfolios -- there is still a little pressure particularly on the pricing side, where loans are coming in at compared to the portfolio. Now on an overall basis, we are putting on loans at a higher compartment in our portfolio or at least in the second quarter we did but that were more based on mix.

So we are still seeing certain pressures and it depends on the mix that we’re putting on at and when I say mix, I'm talking about not only the type, whether it's equipment finance or commercial real estate or C&I but also whether it's LIBOR based or five-year fixed and we've been doing a lot more on the floating rate and LIBOR base, so we're better positioned and continuing to improve our position in a rising rate scenario but it's also at a lower yield up front.

Now we're seeing some benefit to that with the derivative income as we execute a lot of these -- a lot of customers are looking for ten-year fixed rates loans and that way we do it is with a three month LIBOR rate on the loan and then executing an interest rate swap for them.

So, did that answer your question or you're looking for a little bit more color on -- you want to know the --.

That was a great color but I was also looking for a few --.

The accretion --.

The accretion income and then maybe and if and if you don’t I can follow-up with you offline, but if you do have it for this quarter, great.

And then if you can give us any kind of direction in terms of the remainder of the year, what we can expect in accretion income?.

Core accretion for Q1 was $1.5 million, that was all the accretion that includes deposits, borrowings and loans. Loans was 819,000 of that, that’s Q1. In Q2, total accretion was 1.4, 1.433, and of that the loans was 697, so we had a significant decline there in the accretion. Now, this number can move around.

Right now, our projections would be closer to 550,000 for Q3, but that’s all dependent on -- if we get prepayments during the month or something gets -- a loan gets refinanced that comes out of the acquired portfolio or goes into the originated, anything that’s out there would be recognized.

So it is very volatile, but I will give you the number that the models currently project of -- did I give the right number, $545,000. .

540 – great, that’s really helpful. And then Paul, just a question to you with your stock currency almost at new highs, can you address how you’re thinking about M&A? Just any general thoughts you can share with us in terms of – yeah, go ahead. .

I don’t conduct those two together the way that question might suggest. So we’ve got plenty to do, we are doing fine, we continue to improve on all fronts. We keep our ear to the ground to see what might be going on in the marketplace and depending on what comes up, we might be interested, we might not, but that’s about it. .

Okay. And then just one last question around that. Will you talk a little bit about how big you would potentially go on a deal or just maybe the sweet spot of what you’re looking for asset wise, if potentially the right deal fell..

Well, I didn’t say I was looking. .

Okay.

Are you not looking?.

Well, no, I didn’t say that either. I am paying attention. I make a real distinction between actually – actively looking to go do a deal and trying to pay attention of what’s going on in the marketplace and what kinds of opportunities might be appropriate for us. And it’s really in those terms that I think about it.

I don’t think about it in terms of specific geographies or size of institution or anything like that. So sorry. .

That’s okay. Very helpful. Thank you guys. .

And at this time, we will conclude the question-and-answer session. I would like to turn the conference back over to Mr. Perrault and Mr. Carlson for their closing comments. .

Thank you, Denise, and thank you everybody for joining us. Talk to you next quarter. .

Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect..