EX-99 3 a4495004_ex991.txt BROOKLINE EXHIBIT 99.1 Exhibit 99.1 Oct. 16, 2003--Brookline Bancorp, Inc. (the "Company") (NASDAQ:BRKL) announced today that it earned $4,502,000, or $0.08 per share (on a basic and diluted basis), for the quarter ended September 30, 2003 compared to $5,461,000, or $0.09 per share (on a basic and diluted basis) for the quarter ended September 30, 2002. The decline in earnings resulted primarily from a higher rate of income taxes (42.1% versus 36.5%) caused by the elimination of the favorable tax treatment of the Company's real estate investment ("REIT") subsidiary, a $361,000 dividend equivalent rights payment triggered by the special dividend paid to stockholders in August 2003 and a $194,000 reduction in after-tax gains from the sale of securities. If the rate of income taxes had remained the same, net income for the 2003 quarter would have been greater by $420,000. Net income for the nine months ended September 30, 2003 was $11,041,000, or $0.19 per share (on a basic and diluted basis), compared to $16,071,000, or $0.28 per share (on a basic and diluted basis), for the nine months ended September 30, 2002. The decline in earnings was due primarily to the following factors: (a) a $2,788,000 after-tax charge resulting from settlement of a tax dispute, (b) $1,262,000 more in income taxes due to an increase in the rate of income taxes from 36.3% to 41.2%, (c) a $660,000 reduction in after-tax gains from the sale of securities and (d) a decline in net interest margin from 3.62% in the 2002 period to 3.34% in the 2003 period. On March 5, 2003, a new law was enacted denying favorable tax treatment for dividend distributions from REITs in determining Massachusetts taxable income not only for the year 2003 and thereafter, but also retroactively for tax years 1999 through 2002. The Company disputed the retroactive tax assessments. In June 2003, the Company reached an agreement with the Commissioner of Revenue of the Commonwealth of Massachusetts to settle all disputes relating to the tax treatment of the Company's REIT subsidiary. The Company paid $4,341,000 as full settlement of the dispute, resulting in the after-tax charge to earnings of $2,788,000 mentioned in the preceding paragraph. The Company entered the indirect automobile lending business in the first quarter of 2003. Total indirect automobile loans outstanding increased from $84 million at June 30, 2003 to $155 million at September 30, 2003. The average credit score of all loans outstanding at September 30, 2003 was over 730 and the total of loans with credit scores below 660 was less than 10%. The total of loans delinquent over 30 days at September 30, 2003 was $211,000, or 0.14% of the portfolio. Total assets were $1.46 billion at September 30, 2003 compared to $1.41 billion at June 30, 2003 and $1.42 billion at December 31, 2002. While the growth in assets since the beginning of the year has been modest (2.5%), asset composition has changed more significantly. Loans as a percent of total assets increased from 55% at December 31, 2002 to 68% at September 30, 2003. Of the $209 million net increase in loans outstanding, $155 million related to the indirect automobile portfolio. Loan originations were funded primarily from maturing short-term investments, prepayment of loans underlying collateralized mortgage obligations purchased as investments, deposit growth (2.8%) and $45 million of borrowings from the Federal Home Loan Bank of Boston, $30 million of which mature in two years and $15 million of which mature in five years. The borrowings were initiated in anticipation of a rising rate environment commencing in 2004. While the cost of the borrowings is slightly penalizing net interest income in 2003, it is believed that operating results thereafter will benefit from this funding decision. In the 2003 second and third quarters, the Company reduced pre-tax earnings by $1,680,000 and $126,000, respectively, as a result of accelerated amortization of premiums paid in purchasing collateralized mortgage obligations and pass-through mortgage-backed securities (collectively "mortgage securities"). Unprecedented prepayment of loans underlying the mortgage securities shortened the estimated life of the securities significantly, thus necessitating the accelerated expensing of part of the premiums paid to purchase the securities. Total premium amortization was $1,198,000 in the 2003 third quarter compared to $3,093,000 in the 2003 second quarter. Due to prepayments, the Company's investment in mortgage securities declined from $315 million at March 31, 2003 to $263 million at June 30, 2003 and $158 million at September 30, 2003. Continuation of high levels of prepayments could require further accelerated expensing of unamortized premiums in the future. The total of unamortized premiums at September 30, 2003 was $3,219,000, $608,000 of which is scheduled to be amortized in the 2003 fourth quarter. Despite an increase in average interest-earning assets of $170 million, or 13.7%, in the 2003 nine month period compared to the 2002 nine month period, total interest income declined by $4,429,000, or 8.3%, between the two periods. While part of the decline was attributable to the premium amortization referred to in the preceding paragraph, the primary reason for the decline has been the continuation of an interest rate environment that is the lowest experienced in over forty years. Continuation of that environment or further declines in interest rates will have a negative impact on the Company's net interest income and net interest margin. Since a high percent of the Company's assets (over 40%) are funded by stockholders' equity, 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. Conversely, rising interest rates would have a positive effect on the Company's net interest income and net interest margin. While net interest margin was lower in the 2003 nine month period (3.34%) than in the 2002 nine month period (3.62%), it improved to 3.42% in the 2003 three month period due primarily to growth of the loan portfolio. Provision for loan losses in the 2003 periods were higher than in the 2002 periods due primarily to growth in the indirect automobile loan and the non-residential mortgage loan portfolios. Non-performing assets remained diminimus ($111,000) at September 30, 2003. Excluding securities gains and a loss from prepayment of FHLB advances in 2002, net interest income was higher in the 2003 periods due primarily to increased fees from mortgage loan prepayments, changes in the pricing of deposit services, favorable valuation adjustments related to the Company's swap agreement and improved earnings from the Company's equity investment in a specialty finance company. Non-interest expenses were higher in the 2003 periods than in the 2002 periods because of the commencement of the indirect automobile lending activities in 2003, the opening of a new branch in the third quarter of 2003, added personnel, higher costs for benefits, occupancy, professional fees associated with resolution of the REIT matter, corporate governance and stockholder related matters, and payment of dividend equivalent rights ($361,000) to holders of unexercised options as a result of the $0.20 per share special dividend paid to stockholders in August 2003. On August 27, 2003, the stockholders of the Company approved the 2003 Recognition and Retention Plan (the "Recognition Plan"). Pursuant to that plan, up to 1,250,000 shares of the Company's common stock may be awarded to the Company's employees and directors. On October 16, 2003, the Compensation Committee of the Board of Directors awarded to directors and certain employees of the Company 1,158,000 shares under the Recognition Plan. The shares awarded vest over periods extending from January, 2004 through October, 2012. The total expense of the shares awarded, approximately $17.3 million, will be charged to earnings over the periods in which the shares vest, approximately $3.9 million of which will be charged in the fourth quarter of 2003, $2.7 million in 2004 and the remainder in varying amounts over the years 2005 through 2012. The Board of Directors of the Company approved a quarterly dividend of $0.085 per share of common stock to stockholders of record as of October 31, 2003 and payable November 17, 2003. This press release 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 might 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) September 30,December 31,September 30, 2003 2002 2002 -------------------------------------- (unaudited) (unaudited) ASSETS Cash and due from banks $ 12,547 $ 13,571 $ 13,055 Short-term investments 121,610 224,897 353,800 Securities available for sale 293,222 361,049 254,834 Securities held to maturity (market value of $1,450, $4,944 and $4,953, respectively) 1,411 4,861 4,887 Restricted equity securities 9,423 9,423 9,423 Loans, excluding money market loan participations 1,013,764 803,425 809,199 Money market loan participations 3,000 4,000 7,000 Allowance for loan losses (15,954) (15,052) (15,156) ----------- ----------- ------------ Net loans 1,000,810 792,373 801,043 ----------- ----------- ------------ Other investment 4,166 3,979 3,844 Accrued interest receivable 5,046 5,224 5,189 Bank premises and equipment, net 2,763 1,813 1,803 Deferred tax asset 6,868 5,779 3,071 Other assets 593 388 369 ----------- ----------- ------------ Total assets $1,458,459 $1,423,357 $1,451,318 =========== =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 667,771 $ 649,325 $ 632,531 Borrowed funds 170,531 124,900 164,606 Mortgagors' escrow accounts 4,935 4,256 4,638 Income taxes payable 895 4,970 4,859 Accrued expenses and other liabilities 10,007 7,525 7,138 ----------- ----------- ------------ Total liabilities 854,139 790,976 813,772 ----------- ----------- ------------ 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; 58,996,410 shares, 58,714,948 shares and 58,651,222 shares issued, respectively 590 587 587 Additional paid-in capital 451,512 449,254 448,734 Retained earnings, partially restricted 170,824 185,788 184,829 Accumulated other comprehensive income (A) 3,424 4,155 8,949 Treasury stock, at cost - 1,335,299 shares, 170,299 shares and none, respectively (17,017) (1,944) - Unearned compensation - recognition and retention plan (548) (741) (769) Unallocated common stock held by ESOP - 818,861 shares, 865,364 shares and 877,296 shares, respectively (4,465) (4,718) (4,784) ----------- ----------- ------------ Total stockholders' equity 604,320 632,381 637,546 ----------- ----------- ------------ ----------- ----------- ------------ Total liabilities and stockholders' equity $1,458,459 $1,423,357 $1,451,318 =========== =========== ============ (A) Represents net unrealized gains on securities available for sale, net of taxes. BROOKLINE BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands except share data) Three months ended Nine months ended September 30, September 30, ---------------------- ----------------------- 2003 2002 2003 2002 ---------------------- ----------------------- (unaudited) Interest income: Loans, excluding money market loan participations $ 14,403 $14,215 $ 41,572 $43,046 Money market loan participations 7 43 25 128 Debt securities 1,750 2,455 5,912 7,324 Marketable equity securities 90 109 298 378 Restricted equity securities 71 87 219 257 Short-term investments 288 1,723 1,215 2,537 ---------------------- ----------------------- Total interest income 16,609 18,632 49,241 53,670 ---------------------- ----------------------- Interest expense: Deposits 2,860 3,946 9,525 12,113 Borrowed funds 1,608 2,675 4,439 7,946 ----------- ------- ----------------------- Total interest expense 4,468 6,621 13,964 20,059 ----------- ------- ----------------------- Net interest income 12,141 12,011 35,277 33,611 Provision (credit) for loan losses 240 (50) 975 (150) ----------- ------- ----------------------- Net interest income after provision (credit) for loan losses 11,901 12,061 34,302 33,761 ----------- ------- ----------------------- Non-interest income: Fees and charges 572 378 1,832 1,195 Gains on securities, net - 302 508 1,537 Loss from pre-payment of FHLB advances - (282) - (282) Swap agreement market valuation credit (charge) 60 (146) 97 (210) Other income 173 121 421 439 ---------------------- ----------------------- Total non-interest income 805 373 2,858 2,679 ---------------------- ----------------------- Non-interest expense: Compensation and employee benefits 2,439 2,147 7,254 6,361 Occupancy 360 304 1,141 866 Equipment and data processing 879 654 2,282 2,038 Advertising and marketing 188 187 563 523 Dividend equivalent rights 361 - 361 - Other 701 538 2,040 1,409 ---------------------- ----------------------- Total non-interest expense 4,928 3,830 13,641 11,197 ---------------------- ----------------------- Income before income taxes 7,778 8,604 23,519 25,243 ---------------------- ----------------------- Income tax expense: Provision for income taxes 3,276 3,143 8,137 9,172 Retroactive assessment related to REIT - - 4,341 - ---------------------- ----------------------- Total income tax expense 3,276 3,143 12,478 9,172 ---------------------- ----------------------- ---------------------- ----------------------- Net income $ 4,502 $ 5,461 $ 11,041 $16,071 ====================== ======================= Earnings per common share: Basic $ 0.08 $ 0.09 $ 0.19 $ 0.28 Diluted 0.08 0.09 0.19 0.28 Weighted average common shares outstanding during the period: Basic 56,644,208 57,583,175 56,901,014 57,523,780 Diluted 57,658,817 58,614,100 57,881,992 58,416,186 BROOKLINE BANCORP, INC. AND SUBSIDIARIES Average Yields / Costs Three months ended September 30, --------------------------------------------------- 2003 2002 --------------------------------------------------- Average Average Average Interest yield/ Average Interest yield/ balance (1) cost balance (1) cost --------------------------------------------------- (Dollars in thousands) Assets ------------------- Interest-earning assets: Short-term investments $ 115,109 $ 288 0.99 % $ 398,330 $1,723 1.72% Debt securities (2) (4) 302,612 1,759 2.33 209,806 2,455 4.68 Equity securities (2) 21,535 194 3.59 32,873 235 2.86 Mortgage loans (3) 828,683 12,564 6.06 788,275 13,806 7.01 Money market loan participations 2,653 7 1.12 9,242 44 1.89 Other commercial loans (3) 26,052 372 5.71 20,819 340 6.53 Indirect automobile loans (3) 127,067 1,419 4.43 - - - Other consumer loans (3) 2,561 48 7.50 3,273 69 8.43 -------------------- -------------------- Total interest- earning assets 1,426,272 16,651 4.67 % 1,462,618 18,672 5.11% -------------- ------------ Allowance for loan losses (15,868) (15,214) Non-interest earning assets 29,044 26,602 ----------- ------------ Total assets $1,439,448 $ 1,474,006 =========== ============ Liabilities and Stockholders' Equity ------------------- Interest-bearing liabilities: Deposits: NOW accounts $ 59,804 22 0.15 %$ 72,980 55 0.30% Savings accounts (5) 23,591 29 0.49 14,414 33 0.91 Money market savings accounts 306,958 1,077 1.39 244,975 1,116 1.81 Certificate of deposit accounts 243,624 1,732 2.82 285,783 2,654 3.68 -------------------- -------------------- Total deposits 633,977 2,860 1.79 618,152 3,858 2.48 Borrowed funds 152,000 1,608 4.14 178,057 2,675 5.88 -------------------- -------------------- Total deposits and borrowed funds 785,977 4,468 2.26 796,209 6,533 3.26 Stock offering proceeds - - - 34,269 88 1.02 -------------------- -------------------- Total interest bearing liabilities 785,977 4,468 2.26 % 830,478 6,621 3.16% -------------- ------------ Non-interest- bearing demand checking accounts 32,130 18,267 Other liabilities 12,315 19,800 ----------- ------------ Total liabilities 830,422 868,545 Stockholders' equity 609,026 605,461 ----------- ------------ Total liabilities and stockholders' equity $1,439,448 $ 1,474,006 =========== ============ Net interest income (tax equivalent basis)/interest rate spread (6) 12,183 2.41 % 12,051 1.95% ===== ===== Less adjustment of tax exempt income 42 40 --------- -------- Net interest income $12,141 $12,011 ========= ======== Net interest margin (7) 3.42 % 3.30% ===== ===== (1) Tax exempt income on equity securities 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) Included in interest income in the 2003 period is $126 of accelerated premium amortization on the CMO portfolio. Excluding the accelerated amortization, the average yield for the 2003 period would have been 2.49% for debt securities and 4.70% for total interest-earning assets. (5) Savings accounts include mortgagors' escrow accounts. (6) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. (7) 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 Nine months ended September 30, September 30, ---------------------------------------- 2003 2002 2003 2002 ---------------------------------------- Performance Ratios (annualized): Return on average assets 1.25 % 1.48 % 1.03 % 1.70 % Return on average stockholders=equity 2.96 % 3.61 % 2.38 % 5.40 % Return on average stockholders=equity, excluding effect of unrealized gains on securities available for sale, net of taxes 2.97 % 3.67 % 2.40 % 5.52 % Interest rate spread 2.41 % 1.95 % 2.21 % 2.52 % Net interest margin 3.42 % 3.30 % 3.34 % 3.62 % Efficiency ratio (A) 38.07 % 30.98 % 36.25 % 31.96 % Dividend paid per share during period $0.285 $0.085 $0.455 $0.231 (B) (A) Represents the ratio of non-interest expenses divided by the sum of net interest income and non-interest income (exclusive of securities gains). (B) Adjusted to reflect exchange of shares resulting from reorganization on July 9, 2002. At At At September 30, December 31, September 30, 2003 2002 2002 ------------------------------------------- (dollars in thousands except per share data) Capital Ratio: Stockholders' equity to total assets 41.44 % 44.43 % 43.93 % Asset Quality: Non-performing loans $ 39 $ 5 $ 1 Non-performing assets 111 5 1 Allowance for loan losses 15,954 15,052 15,156 Allowance for loan losses as a percent of total loans, excluding money market loan participations 1.57 % 1.87 % 1.87 % Non-performing assets as a percent of total assets 0.01 % - - Per Share Data: Book value per share $ 10.48 $ 10.80 $ 10.87 Market value per share $ 14.77 $ 11.90 $ 11.75 CONTACT: Brookline Bancorp, Inc. Paul Bechet, 617-278-6405