Marissa Frerk – Associate General Counsel Paul Perrault – President and Chief Executive Officer Carl Carlson – Chief Financial Officer.

Mark Fitzgibbon – Sandler O’Neill and Partners Collyn Gilbert – KBW Matthew Breese – Piper Jaffray Laurie Hunsicker – Compass Point Brian Horey – Aurelian Management.

Good day and welcome to the Brookline Bancorp Third Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [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 Marissa Frerk, Associate General Counsel. Please, go ahead..

Thank you, Allison. This call may contain forward-looking statements with respect to the financial condition, results of operations and business of Brookline Bancorp. 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 any forward-looking statement, whether in response to new information, future events or otherwise. I would now like to turn the conference over to Paul Perrault, President and CEO. Please go ahead, sir..

Thank you, Marissa. Good afternoon and welcome to Brookline’s third quarter earnings call. I’m accompanied today by our Chief Financial Officer, Carl Carlson, who will walk you through our quarterly financial results following my comments.

Yesterday, we reported $13.6 million in net income or $0.19 per share for the third quarter of 2016 and that represents a 6% increase from the third quarter of last year.

As we face continued uncertainly in interest rates, I remain cautiously optimistic that the relationships our bankers have developed will position us to finish the year with positive momentum. We continue to focus our capital and our resources on serving those customers that the services they need while delivering solid results to our shareholders.

Loans including those held for sale increased by $93 million with all categories contributing to the growth. At the end of September loans totaled $5.3 billion and was 10.4% higher than last year.

We also experienced solid growth in deposits of $80 million in the third quarter bringing total deposits to $4.6 billion, which was 10% higher than last year. Perhaps more important is the 14% year-over-year growth in transaction balances, which consist of non-interest-bearing demand deposits and NOW accounts.

Comparing our third quarter performance to the same period last year revenues are up 8%, while expenses increased 6.7% resulting in positive operating leverage with a resulting efficiency ratio of 57.9%. Return on average tangible stockholders equity was 9.94% on an annualized basis.

Our colleagues continue to work to invest in our customers and their communities and continue to provide great customer service. This approach has worked well for us and will facilitate our goal of becoming one of the region’s leading commercial banking enterprises.

I will now turn you over to Carl, who will review the Company’s third quarter results in more detail.

Carl?.

Thank you, Paul. As Paul mentioned we had another strong quarter of loan and deposit growth. Turning to third quarter loans excluding loans held for sale grew $73.3 million or 5.6% on an annualized basis, led by commercial real estate which grew $42.9 million or 6% annualized, and C&I loans, which grew $30.1 million or 8.4% on an annualized basis.

The weighted-average coupon, or WAC, on our originations in draws in the quarter was 432 basis points, while amortizations and paydowns were slightly higher resulting in 1 basis point decline on the overall WAC of the loan portfolio at the end of the third quarter.

Average interest-earning assets grew $120 million from the second quarter as our net interest margin increased 4 basis points to 348 basis points, resulting in growth in net interest income of nearly $2.1 million. While loan growth drove the increase in net interest income, it was also helped by higher purchase accounting and prepayment fees.

Loan purchase accounting was $869,000 for the quarter, up $647,000 from Q2 as a result of payoffs. Prepayment fees were $1.2 million in the quarter, up $249,000 from the second quarter.

Our provision for credit losses for the quarter was $2.2 million, decrease of $330,000 from the second quarter, due primarily to lower net charge-offs and slightly slower loan growth. At the end of the quarter, the allowance as a percentage of loans was 110 basis points.

Net charge-offs for the quarter were $520,000 or 4 basis points on average loans, down $3.5 million from Q2. Recall in the second quarter there was a $3.4 million charge-off of relationship for which we had a specifically reserved $3.3 million in the first quarter of 2015.

The Company’s non-interest expense increased $1.1 million from the second quarter to $33.4 million. The increase in expense was driven by compensation and benefits. Approximately $400,000 was due to period charges associated with benefits and management changes.

Our effective tax rate declined slightly to 35.4% resulting in net income of $13.6 million for the third quarter. Non-accrual loans increased $4.5 million to $37.6 million was 70 basis points of total loans, and non-performing assets to total assets increased 7 basis points to 61 basis points.

Continued weakness in the taxi medallion portfolio drove the increase in non-accrual loans. Taxi medallion portfolio was $36 million of which half or $18 million is classified as impaired. Currently we maintain a $6 million or 16.5% reserve against this portfolio.

Also, the Board approved a quarterly common dividend of $0.09 per share, which will be paid on November 18 to stockholders of record on November 4. The quarterly $0.09 per share dividend represents an annualized yield of 290 basis points based on yesterday’s closing price of $12.40.

Before turning it back over to Paul, I’ll provide a few comments on our expectations for the fourth quarter. Well, we had higher than anticipated benefits from loan purchase accounting and prepayment fees, which helped in the third quarter. We expect the net interest margin to remain under pressure, but would modestly benefit if and when rates rise.

Provision for loan losses would be driven by our loan growth, net charge-offs and the continued assessment of our portfolio risk factors. Our coverage ratio is likely remained fairly consistent. Non-interest income is project to be in line with our third quarter results in the $5 million to $5.5 million range.

However, this is largely dependent on customer preferences to use interest rate swaps to lock in longer-term rates. Non-interest expenses project to be relatively flat with Q3 and we expect our effective tax rate to be 35.4%. With that, I’ll turn it back over to Paul for concluding remarks..

Thanks, Carl. Brookline Bancorp continues to deliver exceptional service to our customers and strong results to our stockholders and we look forward to the remainder of 2016. We will now open it up for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Mark Fitzgibbon of Sandler O’Neill and Partners. Please go ahead..

Hey, guys. Good afternoon..

Hi, Mark..

Hi, Mark..

First I wanted to start with deposits, you guys had really good DDA and savings in money market growth recently. And I wanted if you could talk about what kinds of the strategies or campaigns you are using to drive that growth.

And secondly if you could update us on the timing of the opening of the Newport branch and if you have any other branches on the – in the cart..

Okay, I would say that the improvement in the transaction accounts is directly related to our gaining new and strong relationships.

Primarily in lending relationships were adversely every case we require Company’s operating accounts to come with that initial transaction, but not in a begrudgingly because we feel we have state-of-the-art treasury in cash management services at very attractive prices and customer feedback has supported that.

We are gaining in reputation and so are getting non-lending relationships to have us handle their cash management and the like. And so I think this is our style mark, as you know this is brick by brick, there is no big special program, there is no – we’re not given away toasters or anything like that.

So it is – we are gaining new relationships and in some cases that is coming with substantial deposits.

And what was the other part of the question?.

Newport..

Yes, Newport..

Yes..

Newport will open late this year and we are very optimistic about our positioning in that marketplace. I hope to see that branch is well underway. Hope to see it either later today or tomorrow. And beyond that we have some thoughts about another location or two but nothing front up at this point.

We do have in our schedule if you will as we go into next year to continue modernizing and improving some of the locations particularly the bank were island locations, which were a little bit in need of that kind of stuff.

We had done this at Brookline over the past number of years and so we are kind of put our best look forward but there is no major branch expansion plans..

Okay. And then on the expense front, and I know Carl, you gave some guidance on expenses for the fourth quarter which is great. I’m sort of thinking beyond that in 2017 and beyond. How do you think about what’s the reasonable expectation for expense growth overtime.

Given the investments that you all plan to make or maybe how you are thinking about it from a budgeting standpoint?.

Yes, I think in the 3% to 4% range is where we are right now..

Yes, great.

And then lastly, the outside of medallion lending, is there any types of lending that you or shine away from these days anything that gives you pause?.

Yes, it gives us pause almost by our culture and our manner and that would be construction lending generally it something that we buy policy always keep very constrained.

And so it’s not new, but we’re being even more thoughtful about any of that, that we do and it’s almost always done for longstanding very able customers who are undertaking reasonable projects within their warehouse. But I’m not sure I would say this is anything new about that, but it is an area we’re always trying to be careful about..

Thank you..

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

Thanks. Good afternoon, gentlemen..

Collyn..

Carl, you may – I apologize, but the better NIM performance this quarter what do you attribute that too?.

Really the increase is in the loan purchase accounting and the prepayment fees. They were all probably combined almost $900,000 from the previous quarter. So that was a big contributor – well, this contributor to the NIM expansion, otherwise we probably would have – NIM would have gone down by about 1 basis point..

Okay. Okay, okay, that’s helpful. And then what are you guys seeing in terms of C&I demand? I mean there is kind of mixed results from what we’ve seen from the bank group so far this quarter.

Are you seeing much change and what your commercial borrowers are looking to do as we move into the end of the year and then setting themselves up for next year?.

I’d say Collyn it all feels generally good. We see many of our enterprises are employing more of their cash in their plans doing some level of expansion of both fixed and current assets. And we have been successful and signing up a lot of new customers in the C&I world who seem to be doing quite well.

And so at least in our little corner of the world, we have the some of the situation is pretty pleasant..

Okay, okay, that’s helpful.

And then, Paul what the – and Carl too obviously, what are the regulators saying to you guys about your CRE levels and concentration levels?.

Well, as I’d point out to them Collyn, they think if it is a concentration, I think it is an expertise. One must keep in mind that this is a sort of a legendary business of the old core Brookline Bank and so – are having substantial commercial real estate is not a new element.

So we’ve got a tremendous amount of history, a tremendous amount of background and now more recently a tremendous amount of data to help support our comfort and those are the kinds of things that we continue to work with our regulators on improving and sharing with them and making sure that everybody is in the same boat that we are in the Safe Harbor even though we are perhaps a bit more leveraged along those lines than the average there, but it is certainly not at this area or anything like that..

Okay.

And as you look at whether its market – changes in market demand, competition, the regulatory environment, do you see the composition of your overall loan growth, I’m sorry the composition of your overall loan portfolio changing much as you move into next year?.

Probably some, and then obviously I think that regulatory concerns as well as market movements will restrain the growth of real estate as a result of the environment we have in recent years look to expand in our C&I business and we continue to work to improve the profile of our consumer business to some extent.

So I think you will continue to see some level of shift in our portfolio mix and that’s probably going to be reflected in lower commercial real estate growth, continued strong growth in C&I and the consumer business in between..

Okay, okay, that’s helpful. And then just on the medallion front, so you said $18 million of it was impaired.

Did you have sort of the LTV, the debt service coverage on that impaired portion?.

No, I don’t have those specific numbers but – so $18 million of the $36 million is currently non-accrual. We’ve got about – just about $6 million in reserves against the entire book. So the reserves have been improved to that 16.5%. As part of this process, we basically have looked at collateral values in our Boston.

In the Boston market, we are using $300,000 with the value as we look at this portfolio and $250,000 for the Cambridge medallions. And just to give you sense there we got about $22 million, $22.2 million in Boston medallions and $13.8 million in Cambridge medallion.

Just to give you a sense of what we’re using, now recent sales prices have been good 20% above that number. So we cut that for our own purposes of doing our reserve and analysis on this portfolio..

Okay, that’s helpful..

There are some – Good, Carl. There are qualitative things. I thinks it’s important to take away from the analysis of the taxi medallion situation at least just for us and I think it might be generally true as well. A, we have taken no charge-offs in this portfolio. B, every single one of our customers is continuing to pay.

Now half of them as you heard from Carl have come in and said, I can’t say what I contracted to pay you, but I want to keep driving. So let’s talk about what I can do. And so we custom design answers for that question for each one of these guys whether it’s a single medallion owner or someone who has a small fleet of medallions and vehicles.

And so half of them are paying the original note rate and half of them are paying something less than that.

We continue to believe that there is a certain kind of stabilization that is happening, but – so far not what – nobody is heading for the hills or throwing the medallions on the table, which suggest that they all still feel that they can make some kind of a living and are going about their business albeit that produce cash flows..

Okay. So the $5 million, and moved in this quarter was that a function of the customer coming to you guys and asking for a restructuring more or less..

That’s right. Yes, more or less..

Okay, okay, okay. All right, that’s helpful. And then just one final question Carl, do you have a range of profitability targets or goals or metrics that you guys are kind of laying out or would like to achieve either in the near-term, let’s go near-term, near-term meeting by the end of next year..

Well. I think that we still have the two big ones that are important to everybody one ROA and 10 return on tangible equity and we’re sort of knocking on the door of that pretty consistently a little bit better in Q3 and we’re hopeful and optimistic that we keep grinding on it..

Okay. Okay, thank you very much..

Our next question will come from Matthew Breese of Piper Jaffray. Please go ahead..

Good afternoon, everybody..

Matthew..

Just staying on the taxi medallion portfolio, could you provide us with an update on how fluid the market is and how many transactions taking place at that level, at that $250,000 to $300,000 level?.

Yes, it’s a handful, it’s like – it’s not a lot, so we can get this information from basically the police department that tracks all of the stuff and as the medallions change hands and what they change hands that. So it’s a handful of transactions, not a lot of transaction..

But it’s a little more than last year, Matt. And in those eight, that’s what Carl alluded to. They probably have traded between $300,000 and $400,000, almost all of them and they probably are connected with some kind of financing. Somebody moving around some medallions and those are the values that are described to them.

And there are just – a very, very small number amount of spot transactions for cash, which refer considerably less than that probably under $200,000, but there is very few of those. So it’s a little better data, but not a lot to go on and there is no wholesale trading yet going on..

Right. Go ahead..

So I guess the question is if things continue to deteriorate I mean a substantial portfolio – amount of your portfolio is impaired.

Would you consider moving on book sale? And do you think you could accomplish that in and around that $200,000 to $300,000 level?.

Well, I’m not ready to go there at all because I don’t think I need to and we are making a big assumption about the situation deteriorating more.

I don’t know that I see that because you have to remember that people from the outside when they sort of think about this and think about the analytics are probably assuming that the loan to values on the medallions were all pretty high when this difficulty started which is not case.

If you had a very season loan on your medallion, if you are a cab driver, you had a season loan on your medallion and you brought it some years ago, you might not own more than a couple $100,000 or maybe even less..

Yes..

And if you are in that camp, you don’t need relief. You are not looking for it, you don’t need it. And so we tend to be conservative in that portfolio just like we are in other portfolios. The people are paying us as I mentioned we are using that in a traditional way to reduce the outstanding principle.

And so we fortunately don’t have a very large portfolio and think we’re in okay place for a difficult situation..

Okay. Outside of that, I’m just curious how overall deposit competition has been in Boston and are you seeing things change or they heating up.

And then so what do you think about the trajectory of your own deposit cost over the next year or so?.

Yes, I would say Boston is always been very, very competitive. We’re going up against the biggest company share and it’s just a very completive market. I think competition in Rhode Island has gotten a little bit stronger particularly citizens has gotten very aggressive on the pricing side of things.

So I think in the Northeast, I think many people would pointed this out, loan growth has been a little bit better than deposit growth. And so banks are have been competing pretty robustly for deposits. I don’t see that diminishing at all. We don’t try to chase hot deposits. So we really focus on the operating accounts.

But if you bank with us and you have operating account, there is probably nobody has competitive business on everything else. So we do after the whole relationship and I would expect to see deposit rates go up, but we’re not chasing half money and just paying up for it..

Got it, okay. That’s all I had. Appreciate it. Thank you..

Our next question will come from Laurie Hunsicker of Compass Point. Please go ahead..

Yes, hi, good afternoon..

Hi, Laurie..

Just to circle back on medallions, how many medallions do you have in your $36 million book?.

It’s about a 100..

Okay. And so….

It’s a 100 loan. Let’s leave with that way, I shouldn’t say it’s 100..

I think it’s more..

But it is 100 loans, but we will have some loans that have multiple….

…multiple medallions in them, so that’s not an accurate number for – to use them number of medallions..

To uses it, so it’s not $360,000 per.

so what, okay, let me ask it a different way, if you thought about your whole $36 million portfolio, what is the average LTV back when you are growing this?.

It’s probably – the average is probably in the mid $200,000, I would say..

The $200,000..

Right. The average loan size..

The average loan size..

The average loan size, okay, okay..

Nobody knows what the loan to value is, that’s the problem with all….

Yes, I got you. I hear you. Okay, good.

And then just one last question here tax rate you gave guidance for fourth quarter of 35.5% first time appreciate that and 35.4%, can you help us think about the tax rate for 2017?.

I expect it would be a little bit higher than that, but I don’t have the number for you right now..

Okay, perfect. That’s all I have, thanks..

[Operator Instructions] Our next question will come from Brian Horey of Aurelian Management. Please go ahead..

Hi, all my questions have been answered, thanks..

Very good..

And ladies and gentleman, I’m not showing any further questions. So I’d like to turn the conference back over to Mr. Paul Perrault for any closing remarks..

Thank you, Allison. And thank you all for joining this afternoon. And we will look forward to talking with you next quarter. Have a good day..

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