Brookline Bancorp, Inc. (NASDAQ: BRKL) is a diversified financial services company that operates through its subsidiaries, Brookline Bank, Bank Rhode Island (BankRI), and PCSB Bank. With a focus on commercial, business, and retail banking, the company has established a strong presence in the Greater Boston, Providence, and Lower Hudson Valley markets.

Financials

In the fiscal year 2023, Brookline Bancorp reported annual net income of $74,999,000, annual revenue of $604,730,000, annual operating cash flow of $116,597,000, and annual free cash flow of $104,240,000. The company's performance has been marked by both growth and strategic adjustments as it navigates the evolving financial landscape.

For the second quarter of 2024, Brookline Bancorp reported net income of $16.4 million, or $0.18 per share. Excluding a restructuring charge of $823,000 related to the exit of the specialty vehicle finance business, the company's operating earnings were $17 million, or $0.19 per share. This quarter's results reflect the company's ability to adapt to changing market conditions while maintaining a focus on core operations.

Asset Growth and Loan Performance

The company's total assets grew by $92 million during the second quarter, driven by loan growth of $66 million across all loan categories. Brookline Bancorp originated $491 million in loans at a weighted average coupon of 802 basis points, reflecting the continued demand for credit in its markets. However, the weighted average coupon of the core loan portfolio rose by only 9 basis points during the quarter to 605 basis points, as the reversal of interest income on two large commercial loans going non-accrual had a 5 basis point impact on the net interest margin.

Deposit Performance

On the deposit side, customer deposits increased by $66 million, while broker deposits grew by $48 million. The company's focus on higher-rate savings and time deposits has helped offset the pressure on the net interest margin. Total funding costs increased by 7 basis points in the quarter to 365 basis points, leading to a 6 basis point decline in the net interest margin to 300 basis points.

Non-Interest Income and Expenses

Brookline Bancorp's non-interest income remained relatively flat at $6.4 million, as lower fees on derivative income were offset by higher participation fees. Operating expenses, excluding the restructuring charge, decreased by $2.6 million from the first quarter, primarily driven by lower compensation and benefits, as well as reduced weather-related occupancy costs.

Credit Quality

The provision for credit losses was $5.6 million for the quarter, a decrease of $1.8 million from the first quarter. Net charge-offs were $8.4 million, with a $3.8 million charge-off on an office building and $4.6 million in commercial and industrial (C&I) charge-offs, mostly related to the equipment financing portfolio. The increase in non-accrual loans of $20 million was primarily driven by two large C&I credits, offset by a decline in non-performing commercial real estate. As a result, the company's non-performing assets to total assets ratio increased to 54 basis points, and the reserve coverage ratio increased slightly to 125 basis points.

Outlook

Looking ahead, Brookline Bancorp expects loan growth of 2% to 5% across all segments, with deposit growth of 4% to 5%. The company's net interest margin is projected to range between 310 and 320 basis points in the third quarter, as the impact of deposit growth and the timing of actions by the Federal Reserve are factored in. Non-interest income is expected to be in the range of $6 million to $7 million per quarter, with both components potentially varying significantly.

The company's exit from the specialty vehicle finance business, which had been a drag on profitability, is expected to result in annual expense savings of approximately $3.2 million. Brookline Bancorp's effective tax rate is anticipated to be in the range of 24.5% for the remainder of the year.

Geographic Distribution

Geographically, Brookline Bancorp's loan and deposit portfolios are primarily concentrated in the Greater Boston, Providence, and Lower Hudson Valley markets. The company's asset quality metrics have been somewhat uneven across its three banking subsidiaries, with Putnam Bank being the cleanest, followed by BankRI and Brookline Bank.

Liquidity

In terms of the company's liquidity position, Brookline Bancorp maintains a stable cash and securities portfolio, representing 9% to 12% of total assets. The company's capital ratios remain strong, with a common equity Tier 1 capital ratio of 10.28% as of March 31, 2024.

Conclusion

Despite the challenges faced in the specialty vehicle finance business, Brookline Bancorp has demonstrated its ability to adapt and maintain a solid financial footing. The company's focus on commercial, business, and retail banking, coupled with its geographic diversification and prudent risk management, positions it well to navigate the evolving market conditions. As the company continues to optimize its operations and explore growth opportunities, investors will be closely watching Brookline Bancorp's ability to deliver consistent performance and create long-term value for its shareholders.