Marissa Frerk - Associate General Counsel Paul Perrault - President and CEO Carl Carlson - CFO.

Mark Fitzgibbon - Sandler O'Neill and Partners Laurie Hunsicker - Compass Point Collyn Gilbert - KBW.

Good day and welcome to the Brookline Bancorp Incorporated's First Quarter 2017 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. 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, Ryan. Good afternoon and welcome to Brookline Bancorp Inc.'s first quarter 2017 earnings conference call. This afternoon's call will be hosted by Brookline Bancorp's Executive team, Paul Perrault, Chairman and Chief Executive Officer; and Carl Carlson, Chief Financial Officer.

Before we begin, please note that this call may contain forward looking statements with respect to the financial conditions, results of operation 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. And now I'm please to introduce Brookline Bancorp Inc.'s Chairman and CEO, Paul Perrault..

Thank you, Marissa. Good afternoon and welcome to Brookline Bancorp's first 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 $13.4 million in net income or $0.19 per share for the first quarter of 2017 compared to $12.8 million or $0.18 per share for the first quarter of 2016. Loan balances grew $63 million or 4.7% annualized and our deposits grew $41 million from the end of the year.

We've opened a new branch in Danvers, Massachusetts and we are very happy with the reception by the community. We are confident that we have the right team in place to grow our brand in that particular market.

Although we are still operating in a challenging interest rate environment, the recent rate hikes in December and March suggest that the headwinds of margin contraction may have finally ended. Our net interest margin for the first quarter was 3.53%, an increase of 13 basis points from the fourth quarter.

Non-interest income grew by $10.5 million from the fourth quarter due to an $11.4 million gain on sale of securities related to the acquisition of Northeast Retirement Services by Community Bank Systems. We received stock in cash in the transaction and the CBU stock received had been sold by the end of the first quarter.

Excluding this gain, our efficiency ratio increased slightly to 58.6% due to seasonal compensation related expenses and increased occupancy expenses associated with the opening of the branches in Danvers and Middletown, Rhode Island.

We have a great team of employees that come to work every day to serve our customers and our communities making Brooklyn Bancorp one of the region's leading commercial banks. I will now turn you over to Carl, who will review the company's first quarter results in some more detail..

Thank you, Paul. In the first quarter, average loans from $71.5 million total interest-earnings assets grew $35.4 million from fourth quarter. Net interest income increased $1.2 million from the fourth quarter as loan growth and higher short-term interest rates drove interest income with only modest increases in interest expense.

Changes in loan purchase accounting and prepayment fees offset each other. Loan purchase accounting was $160,000 for the first quarter, down $81,000 from the fourth quarter and prepayment fees were $820,000, up $86,000 from the fourth quarter.

Non-interest income was $15.9 million for the quarter, due to the $11.4 million gain on sale of securities mentioned by Paul. Excluding this gain, non-interest income was $4.5 million. This is down from Q4 due to lower gain on sales loans and leases.

Our provision for credit losses for the quarter was $13.4 million, an increase of $10.2 million from the fourth quarter, due primarily to $6.3 million in additional reserves on taxi medallion loans and a specific reserve of $4.2 million related to two commercial credits.

The additional provision for taxi medallion loans was driven by a reassessment of collateral values for our Boston and Cambridge medallions. We lowered our collateral estimates $100,000 to $200,000 for Boston medallion and $150,000 for Cambridge medallion.

We also increased our general reserve on our accruing medallion loans, bringing the total reserve on this portfolio to $7.6 million or 24.7% of the $30.6 million in book balances.

Regarding the two commercial credits, we established approximately $3.5 million on of specific reserves against the $5 million loan collateralized primarily by medical receivables. This is a long-term customer of the bank and this situation is particularly volatile where we may lose very little or all of the specific reserve.

The other commercial credit is a manufacturer of industrial and residential houses and we established a specific reserve of approximately $600,000 against this exposure. At the end of the quarter, the allowance as a percentage of loans was 121 basis points, up from 99 basis points at the end of the year.

Net charge-offs for the quarter were $1 million compared to $8.5 million in the prior quarter. Remember $6.1 million was related to loans previously established specific reserves of which $4.5 million were taxi medallions in Q4. Non-accrual loans increased $5 million to $45.1 million or 83 basis points of total loans.

The company's non-interest expense increased $1.1 million from the fourth quarter to $33.8 million.

The increase in expense was driven by several factors including higher seasonal compensation expense and higher occupancy costs due to the full quarter impact of the Middletown, Rhode Island branch that opened in December and the new branch in Danvers, Massachusetts. Our effective tax rate increased 35.9%, driven by the securities gains.

As Paul mentioned, during the first quarter, loans grew $62.9 million or 4.7% on an annualized basis, led by commercial real estate, which grew $32.6 million in C&I loans which grew $24.9 million. The weighted average coupon on the loan portfolio increased 8 basis points to 445 basis points driven by originations and repricing during the quarter.

During the first quarter, deposits grew $40.8 million or 4% on an annualized basis. During this period, the cost of deposits increased approximately 1 basis point, while the cost of total funding increased 2 basis points.

Also the Board approved the quarterly common dividend of $0.09 per share, which will be paid on May 26th to shareholders of record on May 12th. Before turning back over to Paul, I'll provide a few comments on our expectations for 2017.

We expect continued growth in average earnings assets driven by loan growth of approximately $80 million to 100 million per quarter. The weighted average coupon of new originations are projected to come in consistent with or higher than the overall portfolio, resulting in a slightly better net interest spread going forward.

Provision for loan loss would be driven by our loan growth, net charge-offs and the continued assessment of our portfolio risk factors and trends with our coverage ratio likely to remain fairly consistent. Quarterly non-interest income is projected to improve and be in the $5 million.

Non-interest expense is projected to remain consistent with year-over-year increases of 4% to 5%. Finally, we're currently projecting the effective tax rate in the range of 36% for 2017. With that, I'll turn it back over to Paul for a recap of our common stock issuance earlier this morning..

Thanks Carl. Earlier today, we entered into an underwriting agreement working with Piper Jaffray and Sandler O'Neill to offer and sell 5,175 million shares at a public offering price of $14.50 cents. After all related costs, the net proceeds are expected to be approximately $72 million.

In conjunction with the public offering, we granted the underwriters a 30-day option to purchase up to 776,250 shares which has the potential of increasing the net proceeds to approximately $82 million.

The use of proceeds will be for general corporate purposes, including supporting our continued organic growth as well as potentially supporting acquisitions. We continue to be very optimistic about our growth opportunities in the markets we serve and expect to put this opportunistic raise of new capital to work over the next couple of years.

Brookline Bancorp has the resources and the potential to continue a sustained growth as we consistently deliver the exceptional service that our customers deserve. We are looking forward to the rest of 2017. And we will now open it up for questions..

Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Mark Fitzgibbon with Sandler O'Neill. Please go ahead..

Good afternoon guys..

Hi Mark..

In terms of the capital raise, I wondered if you could help us think about your priorities for utilizing the excess capital whether that's organic or acquisitions and maybe start there..

Okay. Well, it's really parallel Mark. I mean I don't -- I can't prioritize them in the sense of what I know will happen, but I don't prioritize them in terms of importance if you will. Commercial real estate, obviously, our legacy expertise is one that has done well, continue to do well.

Our markets are very, very strong and it feels to me like we're going to have increasing opportunities as others are less able to participate for regulatory reasons. Secondly, the C&I business, we will double down our effort there. Although, we've done very well, we are preparing an expansion, if you will, of that business.

And I can say similar things about our three equipment finance units which have a history of really growing rather well and their markets continue to be strong. Again, a parallel answer would be yes, we would certainly be looking hard at the right potential acquisitions and all of this capital puts us in a position to do all of those things..

And just to sort of follow-up on that.

Two parts, are you -- have you hired a bunch of new lenders? And in terms of acquisitions, what kind of characteristics would you be looking for in a potential target, is it liabilities? Is it fees? Certain type of lending or something else?.

Okay, hired bankers, yes, and more to come. In terms of acquisitions, it's probably two kinds, if you will, at least, from an academic point of view. Something in-market to our existing banks could be small, could be medium.

There are not -- it's not a long list of possibilities, but there are some there those would be cost cutting driven deals that would be melded in with one of our three banks and the other kind of which the list is somewhat longer would be some new market for us. Obviously, it would be contained at most of the Northeast..

Great. Thank you..

Okay Mark..

Our next question comes from Laurie Hunsicker with Compass Point. Please go ahead..

Yes, hi good afternoon..

Hi Laurie..

Just to follow-up on Mark's question and Paul to your comments on small or medium, how are you defining that in terms of asset size, small and medium? What's too small and what defines medium for you?.

Well, small to medium under a billion..

Okay.

And then when we think about your markets, I mean we're thinking Massachusetts, Connecticut, Rhode Island, potentially pushing into New York?.

Yes, I think you've got it..

Okay.

But still not New York City, is that correct?.

Probably right. You know me I never say never, but I probably agree with you..

Okay. Okay. And then just one last question on the taxi, which I realize is somewhat of a non-event now, but relative to size.

Can you just provide us an update on what non-performers were within that category?.

$30 million and change is the whole deal. Half of it is non-performing. Virtually all of them are paying something..

Great. Thanks. I'll leave it there..

Okay..

[Operator Instructions] And our next question comes from Collyn Gilbert with KBW. Please go ahead..

Thanks. Good afternoon gentlemen..

Hi Collyn..

So, just to go back on the capital raise, so Carl what do you -- how should we think about kind of the near-term proceeds because I guess given your loan growth guidance of $80 million to $100 million, I think that's kind of where we were running anyway. So, the acceleration doesn't seem like it will be coming in the near-term.

So, how should we be thinking about it just to maybe offset some of the dilution out of the gates in terms of deployment here?.

Yes, just to be a little specific and of course, this is something subject to change as the market changes and the environment changes. But initially the capital will be maintained at the holding company. The capital levels at our banks are -- continue to be strong and we'll be able to support any near-term growth.

But as we see -- we would see doing dividends from the banks to the holding company. I'm not sure how your models are built, but we're able to fund any liquidity at the holding company. And we keep this available as we see the growth in the different markets and be able to push it down to the banks as its needed.

Having to tap out the holding company, it will certainly get pushed as a deposit to the banks and the banks will be able to put that liquidity use in the industry's portfolio..

So, Carl is using sort of our traditional run rate and he's obviously -- he's going to be on my back to get things moving from there..

All right. So, I guess just in simple terms, Carl, like -- the intention would be -- I would imagine as these proceeds come in that you're just going to put it into securities.

I mean is that kind of keeping short duration? Just keeping the cash liquidity on hand with the expectation that there is a use of proceeds down the pike? So, we'll see a compression of the NIM? I'm just trying to think this all through a little bit here..

Yes, very modest..

Okay..

We don't focus so much on the NIM in and of itself. We care about net interest income at the end of the day. But yes, so, we put the -- we'll put the money to use without taking much risk at all..

Okay. And I guess just in a broader -- kind of broader sense and question for both of you maybe, Paul, but just understanding I guess the raise came as a bit of a surprise to myself certainly and to the market.

What -- just seems like on the outside, you guys have plenty of capital, you're generating capital, moderate growth, historically -- and that was a pretty big discount I guess at 14.50, I'm just trying to understand. And it seemed -- I mean the messaging has been, you guys are good with the regulators, the CRE concentration is fine.

You took care of it -- part of it, the taxi portfolio. Just -- that it seems like a pretty significant discount for -- to on the outside, maybe not necessarily needing it or needing it today.

So, can you maybe try to connect the dots for me on that?.

I think the discount is -- if you just point that what was our closing price yesterday. Yes, it is a steeper discount than anybody would have expected out of the institution. But the stock had run up quite a bit as well as the entire industry has run up quite a bit based on short-term news.

And so things like that are -- you really got to take that into consideration as you're looking at this -- as people are putting a significant sums of money to work. We're very happy with the capital raise. We feel it's going to get put to use in the intermediate term. And that's kind of where I'll leave it at that.

We're very sensitive to return on equity and having a return to our shareholders. So, we thought it was a very opportunistic time to issue the capital, particularly at the levels we've seen..

Okay. And then just follow -- so intermediate term, sorry to hound [ph] on this.

Intermediate term is at -- within six months type of timeframe?.

Well, it probably takes that long to increase the momentum. This will be mostly involving commercial banking categories. So, we'll do it as promptly as is prudent but when we think about these capital uses and that support for our operations.

As I mentioned in my remarks, I mean I'm thinking out two, three years and I want to be very comfortable trying to accomplish what we had in mind in that timeframe and this really helps that out.

And also, as I said to Mark, in the event that the right kind of acquisition comes along, we've got a lot of flexibility now to deal with how that gets done..

Okay. Okay. And then just one final question.

If the path here is more organic and you start to accelerate your loan growth, how do you see yourselves funding that? I mean 117 loan [Indiscernible] ratio, I know you've got longer funding and it's well-matched and stuff, but just in general, on the incremental funding, how do you see that if you're going to start to ramp-up some of the organic growth channels down the road?.

The couple answers. One is that one area of great appeal that I see is the C&I world where we have done very well in positioning the company from having barely any presence in that business to having a material presence. That business comes with a fair amount of deposits typically. So, focusing on that will be helpful along those lines.

And we work on cash management, foreign exchange services, and we think there's an opportunity to even do a little bit better than we've done. Remember our view on this a little bit, Collyn and that our current wholesale borrowings essentially support equipment finance business, which is a non-deposit business.

And Carl maintains a tremendous amount of unused wholesale borrowing capability. So, for the foreseeable future, we're in great shape to be able to deal with the funding of this.

Longer term, if I have a lot of success with this, yes, we get on the next few times that we talk on this [ph] call, maybe it will be a bigger issue, but for now, I don't think it is..

Okay..

And I will just add. When we talk to C&I folks, their loan book is not the only concern of ours. Their deposit book is equally, if not more important, just understand..

Yes. Okay. Okay, great. Thank you, guys..

[Operator Instructions] And it appears that no further questions have been submitted. This now concludes our question-and-answer session. I would now like to turn the conference back over to Paul Perrault for any closing remarks..

Thank you, Ryan. And thank you all for joining us. We look forward to talking with you next quarter..

Ladies and gentlemen the conference has now concluded. Thank you for attending today's presentation. You may now disconnect..