Brookline Bancorp Announces 2005 First Quarter Operating Results and D

    Business Editors/Banking Writers/Financial Editors

    BROOKLINE, Mass.--(BUSINESS WIRE)--April 21, 2005--Brookline Bancorp, Inc. (the "Company") (NASDAQ:BRKL) announced today its earnings for the 2005 first quarter and the approval by its Board of Directors of a regular quarterly dividend of $0.085 per share payable May 13, 2005 to stockholders of record on April 29, 2005.
    The Company earned $5,532,000, or $0.09 per share (on a basic and diluted basis), for the quarter ended March 31, 2005 compared to $4,652,000, or $0.08 per share (on a basic and diluted basis), for the quarter ended March 31, 2004. Included in the 2005 and 2004 quarterly periods are after-tax securities gains of $381,000 and $373,000, respectively. The 18.9% increase in quarterly earnings was attributable primarily to the inclusion of the operating results of Mystic Financial, Inc. and its subsidiaries ("Mystic") and improvement in the Company's net interest margin.
    As previously reported, the Company acquired Mystic on January 7, 2005 for approximately $65.5 million. That amount consisted of the issuance of 2,516,525 shares of the Company's common stock, payment of cash of approximately $27.7 million and related income tax benefits of approximately $1.3 million. Mystic was the parent of Medford Co-operative Bank ("Medford"), a bank with seven retail offices. Total assets acquired were approximately $440 million, including loans of $343 million, and deposits assumed were approximately $331 million. Of the total premium paid, approximately $11.8 million was classified as a core deposit intangible asset to be amortized to expense on an accelerated basis over nine years and approximately $36.6 million was classified as goodwill. Amortization of the core deposit intangible, which is deductible for income tax purposes, amounted to $593,000 in the 2005 quarter. Goodwill, which is not tax deductible, will be subject to at least an annual test for impairment. If impairment is deemed to have occurred, the amount of impairment will be charged to expense when identified.
    As part of the acquisition, Mystic was merged into the Company and, on April 11, 2005, the operating systems of Medford were converted to the Company's operating systems. Merger/conversion related expenses of $382,000 were incurred in the quarter ended March 31, 2005. Annualized cost savings will substantially exceed the 30% savings rate projected at the time the acquisition was announced.
    Net interest income was $4,879,000, or 40.1%, higher in the 2005 quarter compared to the 2004 quarter as a result of a $535 million (34.9%) increase in average earning assets and improvement in interest rate spread from 2.29% to 2.59% and interest rate margin from 3.19% to 3.31% in the respective quarters. The asset growth was attributable to the Mystic acquisition and the indirect automobile loan portfolio which increased $143 million in average balances outstanding between the 2005 and 2004 quarters.
    We have previously reported that the Company's net interest margin is greatly influenced by interest rates established by the Federal Reserve for overnight borrowings between banks. Since a high percent of the Company's assets (28.9% in the 2005 quarter and 38.8% in the 2004 quarter) are funded by stockholders' equity for which there is no charge for interest expense, declining rates cause a greater reduction in interest income from lower asset yields than the reduction in interest expense from lower rates paid on deposits and borrowed funds. Rising interest rates cause the opposite effect. In the second half of 2004, the Federal Reserve increased the overnight borrowing rate from 1.00% to 2.25% and, in the 2005 first quarter, to 2.75%. These rate increases had a positive impact on the Company's net interest income in the 2005 first quarter. In anticipation of a rising interest rate environment, the Company has restricted its purchase of investments over the past year to securities with maturities of two years or less and has funded part of its loan growth with fixed rate borrowings that mature in periods in the two to three year range. Trends in interest rates depend on many factors and, accordingly, actual rates in the future could vary significantly with the Company's rate predictions.
    To reduce the risk related to rising interest rates resulting from the Mystic acquisition, in the 2005 quarter, the Company sold $29.9 million of fixed rate residential mortgage loans with 15 to 30 year maturities and $8.6 million of callable bonds with maturities extendable to over 10 years.
    The provision for loan losses increased from $330,000 in the 2004 quarter to $654,000 in the 2005 quarter. The increase was attributable to the indirect automobile loan portfolio which grew from $274 million at March 31, 2004 to $369 million at December 31, 2004 and $392 million at March 31, 2005. Net charge-offs in the 2005 quarter were $319,000, resulting in an annualized net charge-off rate of 0.33%. The rate of net charge-offs in the year 2004 was 0.40% of average loans outstanding. At March 31, 2005, indirect automobile loans delinquent more than 30 days were $3,127,000, or 0.80% of the portfolio, compared to $3,192,000, or 0.87% of the portfolio, at December 31, 2004. At March 31, 2005, non-accrual loans were $489,000 ($371,000 from the Medford portfolio), repossessed vehicles were $343,000, other real estate owned (from the Medford portfolio) was $1,400,000 and the allowance for loan losses was $21,383,000, or 1.35% of total loans outstanding.
    The decline in non-interest income in the 2005 quarter compared to the 2004 quarter resulted from a $474,000 reduction in fees from mortgage loan prepayments. The increase in non-interest expense between the two periods was attributable primarily to the Mystic acquisition, the opening of a new branch in the fall of 2004, higher premiums for employee medical benefits and higher professional fees resulting primarily from compliance with the requirements of the Sarbanes Oxley Act. In the opinion of management, the added expense to comply with such requirements greatly exceeded the minimal benefit derived.
    Excluding the increases resulting from the Mystic acquisition and indirect automobile loan originations, the loan portfolio remained relatively unchanged during the 2005 quarter. Increased competition for loans resulted in irrational pricing by some other banks which the Company was not inclined to match. Excluding the increase resulting from the Mystic acquisition, deposits grew approximately $37.2 million, or 4.8%, in the 2005 quarter. Of that growth, approximately $22.6 million took place at the Medford branches due in part to promotional programs offered.

    The above text contains statements about future events that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Projections about future events are subject to risks and uncertainties that could cause actual results to differ materially. Factors that could cause such differences include, but are not limited to, general economic conditions, changes in interest rates, regulatory considerations and competition.

BROOKLINE BANCORP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands except share data)

March 31, December 31, March 31, 2005 2004 2004 ----------- ----------- ------------ ASSETS -------- Cash and due from banks $ 10,491 $ 8,937 $ 14,886 Short-term investments 133,549 127,928 140,402 Securities available for sale 366,374 260,852 285,768 Securities held to maturity (market value of $895, $914 and $1,308, respectively) 875 889 1,272 Restricted equity securities 22,557 17,444 14,239 Loans 1,586,884 1,269,637 1,129,540 Allowance for loan losses (21,383) (17,540) (16,388) ----------- ----------- ----------- Net loans 1,565,501 1,252,097 1,113,152 ----------- ----------- ----------- Other investment 4,438 4,456 4,256 Accrued interest receivable 8,189 5,801 5,306 Bank premises and equipment, net 11,647 3,900 2,683 Other real estate owned 1,400 - - Deferred tax asset 8,434 9,980 8,109 Prepaid income taxes 1,513 270 - Core deposit intangible 11,249 - - Goodwill 36,605 - - Other assets 2,172 1,945 1,135 ----------- ----------- ----------- Total assets $2,184,994 $1,694,499 $1,591,208 =========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------

Deposits $1,143,461 $ 773,958 $ 709,641 Borrowed funds 397,552 320,171 267,281 Subordinated debt 12,310 - - Mortgagors' escrow accounts 5,961 4,464 5,253 Income taxes payable - - 1,734 Accrued expenses and other liabilities 13,402 10,893 11,146 ----------- ----------- ----------- Total liabilities 1,572,686 1,109,486 995,055 ----------- ----------- -----------

Stockholders' equity: Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued - - - Common stock, $0.01 par value; 200,000,000 shares authorized; 62,996,235 shares, 60,477,939 shares and 60,275,256 shares issued, respectively 630 605 603 Additional paid-in capital 511,768 471,799 470,248 Retained earnings, partially restricted 132,196 144,081 157,439 Accumulated other comprehensive income (loss) (1,028) 560 2,411 Treasury stock, at cost - 1,336,799 shares, 1,335,299 shares and 1,335,299 shares, respectively (17,040) (17,017) (17,017) Unearned compensation - recognition and retention plans (10,241) (10,963) (13,233) Unallocated common stock held by ESOP - 729,355 shares, 743,221 shares and 788,323 shares, respectively (3,977) (4,052) (4,298) ----------- ----------- ----------- Total stockholders' equity 612,308 585,013 596,153 ----------- ----------- ----------- Total liabilities and stockholders' equity $2,184,994 $1,694,499 $1,591,208 =========== =========== ===========

BROOKLINE BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands except share data)

Three months ended March 31, ----------------------- 2005 2004 ----------- ----------- Interest income: Loans $ 21,724 $ 15,059 Debt securities 2,267 1,506 Marketable equity securities 74 78 Restricted equity securities 219 70 Short-term investments 846 298 ----------- ----------- Total interest income 25,130 17,011 ----------- -----------

Interest expense: Deposits 4,559 2,697 Borrowed funds 3,382 2,139 Subordinated debt 135 - ----------- ----------- Total interest expense 8,076 4,836 ----------- ----------- Net interest income 17,054 12,175 Provision for loan losses 654 330 ----------- ----------- Net interest income after provision for loan losses 16,400 11,845 ----------- -----------

Non-interest income: Fees and charges 851 1,121 Gains on sales of securities, net 594 581 Other income 174 179 ----------- ----------- Total non-interest income 1,619 1,881 ----------- -----------

Non-interest expense: Compensation and employee benefits 3,950 3,262 Occupancy 704 417 Equipment and data processing 1,591 993 Advertising and marketing 204 187 Professional services 349 153 Dividend equivalent rights 363 375 Merger/conversion 382 - Amortization of core deposit intangible 593 - Other 590 454 ----------- ----------- Total non-interest expense 8,726 5,841 ----------- -----------

Income before income taxes 9,293 7,885 Provision for income taxes 3,761 3,233 ----------- ----------- Net income $ 5,532 $ 4,652 =========== ===========

Earnings per common share: Basic $ 0.09 $ 0.08 Diluted 0.09 0.08

Weighted average common shares outstanding during the period: Basic 59,944,866 57,076,261 Diluted 60,737,986 58,055,753

BROOKLINE BANCORP, INC. AND SUBSIDIARIES Average Yields / Costs

Three months ended March 31, ------------------------------- 2005 ------------------------------- Average Average Interest yield/ balance (1) cost ------------ -------- -------- (Dollars in thousands) Assets ------- Interest-earning assets: Short-term investments $ 139,702 $ 846 2.46 % Debt securities (2) 317,408 2,295 2.89 Equity securities (2) 31,740 320 4.08 Mortgage loans (3) 1,109,888 16,670 6.01 Money market loan participations 172 1 2.44 Other commercial loans (3) 77,580 1,106 5.70 Indirect automobile loans (3) 389,468 3,897 4.06 Other consumer loans (3) 2,959 50 6.76 ----------- ------- Total interest-earning assets 2,068,917 25,185 4.87 % ------- -------- Allowance for loan losses (20,156) Non-interest earning assets 90,180 ----------- Total assets $2,138,941 ===========

Liabilities and Stockholders' Equity ------------------------------------ Interest-bearing liabilities: Deposits: NOW accounts $ 96,909 35 0.15 % Savings accounts 159,470 548 1.39 Money market savings accounts 294,652 947 1.30 Certificate of deposit accounts 472,052 3,028 2.60 ----------- ------- Total deposits 1,023,083 4,558 1.81 Borrowed funds 403,962 3,381 3.35 Subordinated debt 11,032 136 4.93 ----------- ------- Total interest bearing liabilities 1,438,077 8,075 2.28 % ------- -------- Non-interest-bearing demand checking accounts 66,140 Other liabilities 17,058 ----------- Total liabilities 1,521,275 Stockholders' equity 617,666 ----------- Total liabilities and stockholders' equity $2,138,941 =========== Net interest income (tax equivalent basis)/interest rate spread (4) 17,110 2.59 % ======== Less adjustment of tax exempt income 55 ------- Net interest income $17,055 ======= Net interest margin (5) 3.31 % ========

Three months ended March 31, ------------------------------ 2004 ------------------------------ Average Average Interest yield/ balance (1) cost ----------- -------- -------- (Dollars in thousands) Assets ------- Interest-earning assets: Short-term investments $ 121,359 $ 298 0.98 % Debt securities (2) 276,666 1,515 2.19 Equity securities (2) 24,111 177 2.94 Mortgage loans (3) 830,366 12,251 5.90 Money market loan participations 1,726 5 1.16 Other commercial loans (3) 30,441 426 5.60 Indirect automobile loans (3) 246,542 2,335 3.80 Other consumer loans (3) 2,240 42 7.50 ----------- ------- Total interest-earning assets 1,533,451 17,049 4.44 % ------- -------- Allowance for loan losses (16,347) Non-interest earning assets 34,389 ----------- Total assets $1,551,493 ===========

Liabilities and Stockholders' Equity ------------------------------------ Interest-bearing liabilities: Deposits: NOW accounts $ 61,245 20 0.13 % Savings accounts 38,330 94 0.98 Money market savings accounts 293,923 938 1.28 Certificate of deposit accounts 255,015 1,645 2.59 ----------- ------- Total deposits 648,513 2,697 1.67 Borrowed funds 253,160 2,139 3.34 Subordinated debt - - - ----------- ------- Total interest bearing liabilities 901,673 4,836 2.15 % ------- -------- Non-interest-bearing demand checking accounts 32,833 Other liabilities 15,747 ----------- Total liabilities 950,253 Stockholders' equity 601,240 ----------- Total liabilities and stockholders' equity $1,551,493 =========== Net interest income (tax equivalent basis)/interest rate spread (4) 12,213 2.29 % ======== Less adjustment of tax exempt income 38 ------- Net interest income $12,175 ======= Net interest margin (5) 3.19 % ========

(1) Tax exempt income on equity securities and municipal bonds is included on a tax equivalent basis.

(2) Average balances include unrealized gains on securities available for sale. Equity securities include marketable equity securities (preferred and common stocks) and restricted equity securities.

(3) Loans on non-accrual status are included in average balances.

(4) Net interest spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(5) Net interest margin represents net interest income (tax equivalent basis) divided by average interest-earning assets

BROOKLINE BANCORP, INC. AND SUBSIDIARIES Selected Financial Ratios and Other Data

Three months ended March 31, ----------------------- 2005 2004 -----------------------

Performance Ratios (annualized): Return on average assets 1.03 % 1.20 % Return on average stockholders' equity 3.58 % 3.09 % Interest rate spread 2.59 % 2.29 % Net interest margin 3.31 % 3.19 %

Dividends paid per share during period $ 0.285 $ 0.285

At At At March 31, Dec. 31, March 31, 2005 2004 2004 --------- --------- --------- (dollars in thousands except per share data) Capital Ratio: Stockholders' equity to total assets 28.02 % 34.52 % 37.47 %

Asset Quality: Non-performing loans $ 489 $ 111 $ 18 Non-performing assets 2,232 439 84 Allowance for loan losses 21,383 17,540 16,388 Allowance for loan losses as a percent of total loans 1.35 % 1.38 % 1.45 % Non-performing assets as a percent of total assets 0.10 % 0.03 % 0.01 %

Per Share Data: Book value per share $ 9.93 $ 9.89 $ 10.11 Tangible book value per share 9.15 9.89 10.11 Market value per share 14.90 16.32 15.95

--30--MP/bo*

CONTACT: Brookline Bancorp, Inc. Paul R. Bechet, 617-730-3500 Chief Financial Officer

KEYWORD: MASSACHUSETTS INDUSTRY KEYWORD: BANKING EARNINGS DIVIDEND SOURCE: Brookline Bancorp, Inc.

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