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| BRKL > SEC Filings for BRKL > Form 10-Q on 2-Nov-2009 | All Recent SEC Filings |
2-Nov-2009
Quarterly Report
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements made by or on behalf of the Company.
The following discussion contains forward-looking statements based on management's current expectations regarding economic, legislative and regulatory issues that may impact the Company's earnings and financial condition in the future. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Any statements included herein preceded by, followed by or which include the words "may", "could", "should", "will", "would", "believe", "expect", "anticipate", "estimate", "intend", "plan", "assume" or similar expressions constitute forward-looking statements.
Forward-looking statements, implicitly and explicitly, include assumptions underlying the statements. While the Company believes the expectations reflected in its forward-looking statements are reasonable, the statements involve risks and uncertainties that are subject to change based on various factors, some of which are outside the control of the Company. The following factors, among others, could cause the Company's actual performance to differ materially from the expectations, forecasts and projections expressed in the forward-looking statements: general and local economic conditions, changes in interest rates, demand for loans, real estate values, deposit flows, regulatory considerations, competition, technological developments, retention and recruitment of qualified personnel, and market acceptance of the Company's pricing, products and services.
Executive Level Overview
The following is a summary of operating and financial condition highlights as of and for the three months and nine months ended September 30, 2009 and 2008.
Operating Highlights
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
(In thousands except per share amounts)
Net interest income $ 21,775 $ 19,342 $ 62,698 $ 54,547
Provision for credit losses 2,473 3,162 7,150 7,855
Fees, charges and other income 934 958 2,838 3,075
Gain (loss) on sales of
securities 594 (214 ) 940 (214 )
Impairment loss on securities - (1,386 ) (726 ) (2,635 )
Penalty from prepayment of
borrowed funds (533 ) - (1,115 ) -
FDIC insurance expense 435 166 2,438 241
Other non-interest expenses 10,709 10,991 31,969 31,654
Income before income taxes and
minority interest 9,153 4,381 23,078 15,023
Provision for income taxes 3,723 2,515 9,362 6,587
Net income attributable to
noncontrolling interest in
subsidiary 188 115 352 316
Net income attributable to
Brookline Bancorp, Inc. 5,242 1,751 13,364 8,120
Basic earnings per common share $ 0.09 $ 0.03 $ 0.23 $ 0.14
Diluted earnings per common share 0.09 0.03 0.23 0.14
Interest rate spread 2.90 % 2.46 % 2.72 %(A) 2.24 %
Net interest margin 3.39 % 3.18 % 3.27 %(A) 3.06 %
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Financial Condition Highlights
At At At
September 30, June 30, December 31,
2009 2009 2008
(In thousands)
Total assets $ 2,638,914 $ 2,641,113 $ 2,613,005
Loans 2,169,427 2,146,311 2,105,551
Deposits (excluding brokered deposits) 1,528,630 1,500,959 1,327,844
Brokered deposits - - 26,381
Borrowed funds 595,020 628,768 737,418
Brookline Bancorp, Inc. stockholders' equity 487,511 485,641 493,869
Stockholders' equity to total assets 18.47 % 18.39 % 18.90 %
Allowance for loan losses $ 30,126 $ 29,373 $ 28,296
Non-performing assets 9,332 8,799 8,195
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Operating and financial condition highlights included the following:
† Improvement in net interest margin in both the 2009 third quarter and nine month periods
† $200.8 million (15.1%) of deposit growth in 2009 (excluding brokered certificates of deposit), $27.7 million of which occurred in the 2009 third quarter
† Reduced provisions for credit losses in both the 2009 third quarter and nine month periods due primarily to a decline in indirect automobile loan net charge-offs
† Receipt of $1,614,000 of income in the 2009 second quarter resulting from full payment of a loan on which there was unaccreted discount
† No dividend income on Federal Home Loan Bank of Boston ("FHLB") stock in 2009 compared to $992,000 in the 2008 nine month period
† An increase in FDIC insurance expense in both the 2009 third quarter and nine month periods of $269,000 and $2,197,000, respectively. A special assessment of $1,102,000 was charged to expense in the 2009 second quarter.
† Gains on sales of mortgage-backed securities of $594,000 in the 2009 third quarter and $940,000 in the 2009 nine month period. On an after-tax basis, the gains offset penalties from prepayment of borrowed funds which amounted to $533,000 in the 2009 third quarter and $1,115,000 in the 2009 nine month period. The transactions were done to improve net interest margin and reduce the Company's interest rate risk exposure.
† Recognition of impairment losses on securities, net of non-credit losses, in the 2009 and 2008 nine month periods of $726,000 and $2,635,000, respectively. Of the 2008 impairment loss, $1,386,000 was recognized in the third quarter.
† Foregone interest income of $472,000 in the 2009 nine month period due to a $22.6 million reduction in the average balance of stockholders' equity resulting from the payment of semi-annual extra dividends.
Average Balances, Net Interest Income, Interest Rate Spread and Net Interest Margin
The following tables set forth information about the Company's average balances, interest income and rates earned on average interest-earning assets, interest expense and rates paid on interest-bearing liabilities, interest rate spread and net interest margin for the three months and nine months ended September 30, 2009 and 2008. Average balances are derived from daily average balances and yields include fees and costs which are considered adjustments to yields.
Three months ended September 30,
2009 2008
Average Average
Average yield/ Average yield/
balance Interest (1) cost balance Interest (1) cost
(Dollars in thousands)
Assets
Interest-earning
assets:
Short-term
investments $ 93,820 $ 48 0.20 % $ 94,610 $ 559 2.35 %
Debt securities (2) 283,478 2,534 3.58 294,760 3,421 4.64
Equity securities (2) 37,877 33 0.34 36,490 333 3.63
Mortgage loans (3) 1,238,069 16,846 5.44 1,105,895 16,336 5.91
Home equity loans (3) 49,292 464 3.73 36,906 439 4.72
Commercial loans -
Eastern (3) 154,096 3,458 8.98 143,568 3,426 9.55
Other commercial
loans (3) 125,094 1,499 4.77 109,176 1,491 5.46
Indirect automobile
loans (3) 583,377 9,408 6.40 617,235 9,985 6.42
Other consumer loans
(3) 3,987 47 4.72 4,062 58 5.71
Total
interest-earning
assets 2,569,090 34,337 5.33 % 2,442,702 36,048 5.89 %
Allowance for loan
losses (29,402 ) (25,730 )
Non-interest earning
assets 102,554 101,694
Total assets $ 2,642,242 $ 2,518,666
Liabilities and
Equity
Interest-bearing
liabilities:
Deposits:
NOW accounts $ 92,880 44 0.19 % $ 85,104 52 0.24 %
Savings accounts 93,456 214 0.91 90,290 301 1.32
Money market savings
accounts 400,077 1,282 1.27 259,633 1,483 2.27
Certificates of
deposit 852,046 5,760 2.68 774,146 7,161 3.67
Total deposits
excluding brokered
deposits 1,438,459 7,300 2.01 1,209,173 8,997 2.95
Brokered certificates
of deposit - - - 27,047 366 5.37
Total deposits 1,438,459 7,300 2.01 1,236,220 9,363 3.00
Borrowed funds 614,223 5,247 3.34 691,465 7,286 4.12
Total
interest-bearing
liabilities 2,052,682 12,547 2.43 % 1,927,685 16,649 3.43 %
Non-interest-bearing
demand checking
accounts 79,067 68,123
Other liabilities 21,889 25,632
Total liabilities 2,153,638 2,021,440
Brookline Bancorp,
Inc. stockholders'
equity 486,771 495,559
Noncontrolling
interest in
subsidiary 1,833 1,667
Total liabilities and
equity $ 2,642,242 $ 2,518,666
Net interest income
(tax equivalent
basis)/interest rate
spread (4) 21,790 2.90 % 19,399 2.46 %
Less adjustment of
tax exempt income 15 57
Net interest income $ 21,775 $ 19,342
Net interest margin
(5) 3.39 % 3.18 %
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(2) Average balances include unrealized gains (losses) 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) Interest rate 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.
Nine months ended September 30,
2009 2008
Average Average
Average yield/ Average yield/
balance Interest (1) cost balance Interest (1) cost
(Dollars in thousands)
Assets
Interest-earning
assets:
Short-term
investments $ 92,218 $ 296 0.43 % $ 92,993 $ 1,971 2.83 %
Debt securities (2) 291,562 8,474 3.88 303,685 10,721 4.71
Equity securities (2) 37,527 97 0.34 34,253 1,235 4.81
Mortgage loans (3)
(4) 1,219,234 52,156 5.70 1,056,700 47,504 5.99
Home equity loans (3) 46,206 1,278 3.69 36,022 1,398 5.17
Commercial loans -
Eastern (3) 151,753 10,286 9.04 143,395 10,468 9.73
Other commercial
loans (3) 120,080 4,181 4.64 108,217 4,603 5.67
Indirect automobile
loans (3) 593,475 28,525 6.41 610,863 29,382 6.41
Other consumer loans
(3) 3,878 157 5.40 3,886 186 6.38
Total
interest-earning
assets (4) 2,555,933 105,450 5.50 % 2,390,014 107,468 6.00 %
Allowance for loan
losses (28,867 ) (24,974 )
Non-interest earning
assets 104,166 100,342
Total assets $ 2,631,232 $ 2,465,382
Liabilities and
Equity
Interest-bearing
liabilities:
Deposits:
NOW accounts $ 89,228 127 0.19 % $ 84,385 189 0.30 %
Savings accounts 90,109 714 1.06 89,437 929 1.38
Money market savings
accounts 354,927 4,328 1.63 236,399 4,211 2.38
Certificates of
deposit 844,795 18,891 2.98 801,836 25,344 4.21
Total deposits
excluding brokered
deposits 1,379,059 24,060 2.33 1,212,057 30,673 3.37
Brokered certificates
of deposit 10,573 424 5.35 45,674 1,846 5.39
Total deposits 1,389,632 24,484 2.35 1,257,731 32,519 3.45
Borrowed funds 655,421 18,217 3.71 608,825 20,089 4.40
Subordinated debt - - - 1,150 65 7.54
Total interest
bearing liabilities 2,045,053 42,701 2.78 % 1,867,706 52,673 3.76 %
Non-interest-bearing
demand checking
accounts 73,288 62,521
Other liabilities 23,741 23,496
Total liabilities 2,142,082 1,953,723
Brookline Bancorp,
Inc. stockholders'
equity 487,358 509,979
Noncontrolling
interest in
subsidiary 1,792 1,680
Total liabilities and
equity $ 2,631,232 $ 2,465,382
Net interest income
(tax equivalent
basis)/interest rate
spread (4) (5) 62,749 2.72 % 54,795 2.24 %
Less adjustment of
tax exempt income 51 248
Net interest income $ 62,698 $ 54,547
Net interest margin
(4) (6) 3.27 % 3.06 %
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(2) Average balances include unrealized gains (losses) 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) In the 2009 period, interest income includes $1,614 due to the payoff of a loan on which there was unaccreted discount. Excluding this income, the yield on mortgage loans and interest-earning assets would have been 5.53% and 5.42%, respectively. Interest rate spread and net interest margin would have been 2.64% and 3.19%, respectively.
(5) Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income (tax equivalent basis) divided by average interest-earning assets.
Highlights from the preceding tables follow.
† Interest income in the 2009 nine month period included $1,614,000 that resulted from full payment of a mortgage loan in the second quarter on which there was unaccreted discount. Excluding that income, net interest income was higher in the 2009 third quarter and nine month periods than in the comparable 2008 periods by 12.6% and 12.0%, respectively. The increases were due to loan and deposit growth and improvement in net interest margin.
† The average balance of interest-earning assets grew $126 million (5.2%) between the 2009 and 2008 third quarters and $166 million (6.9%) between the 2009 and 2008 nine month periods. All of the asset growth in those periods was in loans.
† The average balance of deposits, excluding brokered deposits, increased $57.6 million (3.9%, or 15.8% on an annualized basis) in the 2009 third quarter compared to the 2009 second quarter and $240.2 million (18.8%) in the 2009 third quarter compared to the 2008 third quarter.
† The average balance of certificates of deposit (excluding brokered deposits) expressed as a percent of the average balance of total deposits (excluding brokered deposits) declined from 60.7% in the 2008 third quarter to 56.1% in the 2009 third quarter while the average balance comprised of money market savings accounts increased from 20.4% to 26.4% in those respective periods. Since money market savings accounts can be withdrawn at any time, interest rates paid on those deposits are generally lower than interest rates paid on certificates of deposit. We believe the shift in the mix of deposits was attributable in part to the desire of depositors to have their funds placed in more liquid accounts during this time of weakened economic conditions.
† Interest rate spread increased to 2.90% in the 2009 third quarter from 2.85% in the 2009 second quarter (2.60% excluding the $1,614,000 of income referred to above) and 2.46% in the 2008 third quarter and to 2.72% in the 2009 nine month period (2.64% excluding the $1,614,000 of income) from 2.24% in the 2008 nine month period. The improvement in spread resulted primarily from reductions in rates paid on deposits and borrowed funds exceeding reductions in rates earned on assets. The improvement occurred despite the elimination of dividend income on FHLB stock owned by the Company.
† Net interest margin increased to 3.39% in the 2009 third quarter from 3.16% in the 2009 second quarter (excluding the $1,614,000 of income) and 3.18% in the 2008 third quarter. The improvement in margin was attributable to the matters mentioned above and occurred despite the negative effect of foregone interest income of $472,000 in the 2009 nine month period due to a $22.6 million reduction in the average balance of stockholders' equity resulting from the payment of semi-annual extra dividends.
† In the 2009 second quarter, the remaining $26.4 million of brokered deposits matured and were not replaced with new brokered deposits. The average rate paid on the matured deposits was 5.37%.
† Part of the proceeds from deposit growth was used to reduce the amount of borrowings from the FHLB. The total of such borrowings declined from $737.4 million at December 31, 2008 to $595.0 million at September 30, 2009. Part of the decline resulted from prepayment of FHLB borrowings with higher than average interest rates. See Other Highlights -Penalty from Prepayment of Borrowed Funds appearing elsewhere herein.
While net interest margin and interest rate spread are expected to continue to improve in the near term, an unexpected rapid rise in interest rates and changes in economic conditions could have a negative effect on those ratios in the future.
Provision for Credit Losses
The provision for credit losses was $2,473,000 in the 2009 third quarter compared to $3,162,000 in the 2008 third quarter and $7,150,000 in the 2009 nine month period compared to $7,855,000 in the 2008 nine month period. The provision is comprised of amounts relating to the indirect automobile ("auto") portfolio, equipment finance and small business loans originated by a subsidiary ("Eastern"), the remainder of the Company's loan portfolio and unfunded credit commitments.
The auto loan portfolio amounted to $566.9 million at September 30, 2009 compared to $573.3 million at June 30, 2009 and $597.2 million at December 31, 2008. The decline resulted from lower loan originations as the auto industry experienced reduced levels of sales. Underwriting continued to be conservative as only 2.6% (2.0% in the 2009 third quarter) of the $166.3 million of loans originated in the first nine months of 2009 were to borrowers with credit scores below 660. The average credit score of the borrowers to whom those loan originations were made was 760. Auto loans delinquent over 30 days amounted to $10.5 million, or 1.84% of loans outstanding at September 30, 2009, compared to $13.1 million (2.20%) at December 31, 2008.
Auto loan net charge-offs declined to $1,348,000 (0.95% of average loans outstanding on an annualized basis) in the 2009 third quarter from $1,749,000 (1.16%) in the 2008 third quarter. Net charge-offs in the 2009 and 2008 nine month periods were $4,438,000 (1.02%) and $4,808,000 (1.08%), respectively.
The provision for auto loan losses was $1,500,000 in the 2009 third quarter compared to $2,600,000 in the 2008 third quarter and $4,950,000 in the 2009 nine month period compared to $6,346,000 in the 2008 nine month period. The allowance for auto loan losses increased from $7,937,000, or 1.33% of loans outstanding at December 31, 2008, to $8,449,000 (1.49%) at September 30, 2009.
The provision for Eastern loan losses was $173,000 in the 2009 third quarter compared to $242,000 in the 2008 third quarter and $820,000 in the 2009 nine month period compared to $639,000 in the 2008 nine month period. Additionally, write-downs of assets acquired through repossession amounted to $72,000, $9,000, $429,000 and $142,000 in those respective periods. The annualized rate of net charge-offs, combined with the write-downs of assets acquired, equaled 0.96% in the first nine months of 2009 compared to 0.67% in the first nine months of 2008.
Eastern loans amounted to $154.1 million at September 30, 2009 and $147.4 million at December 31, 2008. Eastern loans delinquent over 30 days declined from $2,929,000 (1.99% of loans outstanding) at December 31, 2008 to $2,436,000 (1.58%) at September 30, 2009. The total of Eastern loans on watch, restructured loans and non-accrual loans decreased from $8,049,000 at December 31, 2008 to $7,951,000 at September 30, 2009. The allowance for Eastern loan losses was $2,737,000 (1.78%) of loans outstanding at September 30, 2009 and $2,577,000 (1.75%) at December 31, 2008.
The remainder of the Company's loan portfolio at September 30, 2009, which amounted to $1.553 billion (including unfunded credit commitments of $121 million), grew $88 million in the first nine months of 2009. An increase of $38 million in commercial mortgage loans, (which brought the total of that portfolio to $528 million), as well as increases of $47 million in multi-family mortgage loans ($398 million in total), $16 million in commercial loans ($195 million in total) and $9 million in home equity loans ($51 million in total), were partially offset by reductions of $19 million in one-to-four family mortgage loans ($344 million in total) and $4 million in construction loans ($33 million in total).
Loans on non-accrual in the portfolio mentioned in the preceding paragraph amounted to $4,869,000 at September 30, 2009 compared to $4,097,000 at June 30, 2009 and $2,950,000 at December 31, 2008; other loans on watch were $9.7 million, $12.2 million and $10.1 million at those respective dates. Additionally, $657,000 of one-to-four family mortgage loans were classified as restructured loans at September 30, 2009. The provision for loan losses relating to the loans mentioned in the preceding paragraph was $900,000 in the 2009 third quarter compared to $650,000 in the 2008 third quarter and $1,480,000 in the 2009 nine month period compared to $1,200,000 in the 2008 nine month period. The provisions were based primarily on loan growth in the respective periods as well as a $318,000 charge-off on commercial real estate mortgage loans to one borrower in the 2009 third quarter; no other loan charge-offs were experienced in the 2009 and 2008 periods other than inconsequential amounts of consumer loans.
The liability for unfunded credit commitments was reduced $100,000 in the 2009 third quarter and the 2009 nine month periods by credits to the provision for credit losses. In the 2008 third quarter and nine month periods, credits to the provision for credit losses were $330,000 and $304,000, respectively. The reductions in 2009 and 2008 were made to reflect management's judgments that the . . .
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