SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

ý   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2003

 

OR

 

o   TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to             

 

Commission file number 0-23695

 

Brookline Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.

 

YES  ý  NO  o

 

Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.

 

Common stock, $0.01 par value – 57,611,505 shares outstanding as of May 6, 2003.

 

 

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

FORM 10-Q

 

Index

 

Part I	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002
	Consolidated Statements of Income for the three months ended March 31, 2003 and 2002
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2003 and 2002
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2003 and 2002
	Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002
	Notes to Unaudited Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risks
Item 4.	Controls and Procedures
Part II	Other Information
Item 1.	Legal Proceedings
Item 2.	Changes in Securities
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
	Signatures

 

 

Part I - Financial Information

Item 1.  Financial Statements

 

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands except share data)

 

		March 31, 2003			December 31, 2002
		(unaudited)
ASSETS
Cash and due from banks		$	11,651		$	13,571
Short-term investments		148,897			224,897
Securities available for sale		393,017			361,049
Securities held to maturity (market value of $3,776 and $4,944, respectively)		3,717			4,861
Restricted equity securities		9,423			9,423
Loans, excluding money market loan participations		842,811			803,425
Money market loan participations		8,700			4,000
Allowance for loan losses		(15,424		)	(15,052		)
Net loans		836,087			792,373
Other investment		3,917			3,979
Accrued interest receivable		5,150			5,224
Bank premises and equipment, net		2,175			1,813
Deferred tax asset		9,516			5,779
Other assets		496			388
Total assets		$	1,424,046		$	1,423,357
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits		$	663,018		$	649,325
Borrowed funds		123,945			124,900
Mortgagors’ escrow accounts		4,790			4,256
Income taxes payable		10,248			4,970
Accrued expenses and other liabilities		8,534			7,525
Total liabilities		810,535			790,976
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; 58,924,935 shares and 58,714,948 shares issued, respectively		589			587
Additional paid-in capital		450,893			449,254
Retained earnings, partially restricted		180,720			185,788
Accumulated other comprehensive income		3,279			4,155
Treasury stock, at cost - 1,305,299 shares and 170,299 shares, respectively		(16,635		)	(1,944		)
Unearned compensation - recognition and retention plan		(701		)	(741		)
Unallocated common stock held by ESOP - 849,863 shares and 865,364 shares, respectively		(4,634		)	(4,718		)
Total stockholders’ equity		613,511			632,381
Total liabilities and stockholders’ equity		$	1,424,046		$	1,423,357

 

See accompanying notes to the unaudited consolidated financial statements.

 

1

 

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands except share data)

 

		Three months ended March 31,
		2003			2002
		(unaudited)
Interest income:
Loans, excluding money market loan participations		$	13,255		$	14,439
Money market loan participations		13			37
Debt securities		3,253			2,309
Marketable equity securities		111			132
Restricted equity securities		77			83
Short-term investments		577			351
Total interest income		17,286			17,351
Interest expense:
Deposits		3,442			4,076
Borrowed funds		1,421			2,604
Total interest expense		4,863			6,680
Net interest income		12,423			10,671
Provision (credit) for loan losses		375			(100		)
Net interest income after provision (credit) for loan losses		12,048			10,771
Non-interest income:
Fees and charges		546			368
Gains on sales of securities, net		328			922
Swap agreement market valuation credit		18			53
Other income		68			161
Total non-interest income		960			1,504
Non-interest expense:
Compensation and employee benefits		2,392			2,082
Occupancy		337			287
Equipment and data processing		627			703
Advertising and marketing		187			162
Other		591			486
Total non-interest expense		4,134			3,720
Income before income taxes		8,874			8,555
Income tax expense:
Provision for income taxes		3,507			3,077
Retroactive assessment related to REIT		5,515			—
Total income tax expense		9,022			3,077
Net income (loss)		$	(148	)	$	5,478
Earnings per common share:
Basic		$	(0.00	)	$	0.10
Diluted		(0.00		)	0.09
Weighted average common shares outstanding during the period:
Basic		57,468,369			57,456,025
Diluted		57,468,369			58,094,324

 

See accompanying notes to the unaudited consolidated financial statements.

 

2

 

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

 

		Three months ended March 31,
		2003			2002
		(unaudited)
Net income (loss)		$	(148	)	$	5,478
Other comprehensive income, net of taxes:
Unrealized holding gains (loss)		(1,012		)	1,019
Income tax expense (benefit)		(347		)	350
Net unrealized holding gains (loss)		(665		)	669
Less reclassification adjustment for gains included in net income:
Realized gains		328			922
Income tax expense		117			331
Net reclassification adjustment		211			591
Net other comprehensive gain (loss)		(876		)	78
Comprehensive income (loss)		$	(1,024	)	$	5,556

 

See accompanying notes to the unaudited consolidated financial statements.

 

3

 

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

Three months ended March 31, 2003 and 2002 (unaudited)

(Dollars in thousands)

 

		Common stock			Additional paid-in capital			Retained earnings			Accumulated other comprehensive income			Treasury stock			Unearned compensation- recognition and retention plan			Unallocated common stock held by ESOP			Total stockholders’ equity
Balance at December 31, 2001		$	297		$	141,021		$	177,167		$	6,720		$	(33,813	)	$	(903	)	$	(5,044	)	$	285,445
Net income		—			—			5,478			—			—			—			—			5,478
Unrealized gain on securities available for sale, net of reclassification adjustment		—			—			—			78			—			—			—			78
Common stock dividend of $0.16 per share before reorganization (equivalent to $0.073 after reorganization)		—			—			(1,749		)	—			—			—			—			(1,749		)
Exercise of stock options before reorganization (29,494 shares)		—			220			—			—			—			—			—			220
Compensation under recognition and retention plan		—			—			—			—			—			41			—			41
Common stock held by ESOP committed to be released (7,281 shares before reorganization)		—			35			—			—			—			—			87			122
Balance at March 31, 2002		$	297		$	141,276		$	180,896		$	6,798		$	(33,813	)	$	(862	)	$	(4,957	)	$	289,635

 

4

 

		Common stock			Additional paid-in capital			Retained earnings			Accumulated other comprehensive income			Treasury stock			Unearned compensation- recognition and retention plan			Unallocated common stock held by ESOP			Total stockholders’ equity
Balance at December 31, 2002		$	587		$	449,254		$	185,788		$	4,155		$	(1,944	)	$	(741	)	$	(4,718	)	$	632,381
Net loss		—			—			(148		)	—			—			—			—			(148		)
Unrealized loss on securities available for sale, net of reclassification adjustment		—			—			—			(876		)	—			—			—			(876		)
Common stock dividend of $0.085 per share		—			—			(4,920		)	—			—			—			—			(4,920		)
Exercise of stock options (209,987 shares)		2			1,135			—			—			—			—			—			1,137
Income tax benefit from exercise of non-incentive stock options		—			392			—			—			—			—			—			392
Treasury stock purchases (1,135,000 shares)		—			—			—			—			(14,691		)	—			—			(14,691		)
Compensation under recognition and retention plan		—			—			—			—			—			40			—			40
Common stock held by ESOP committed to be released (15,501 shares)		—			112			—			—			—			—			84			196
Balance at March 31, 2003		$	589		$	450,893		$	180,720		$	3,279		$	(16,635	)	$	(701	)	$	(4,634	)	$	613,511

 

See accompanying notes to the unaudited consolidated financial statements.

 

5

 

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

 

		Three months ended March 31,
		2003			2002
		(unaudited)
Cash flows from operating activities:
Net income (loss)		$	(148	)	$	5,478
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision (credit) for loan losses		375			(100		)
Depreciation and amortization		141			137
Amortization, net of accretion, of securities premiums and discounts		1,171			144
Amortization (accretion) of deferred loan origination costs (fees)		33			(33		)
Net gains from sales of securities		(328		)	(922		)
Equity interest in earnings of other investment		60			(155		)
Swap agreement market valuation credit		(18		)	(53		)
Compensation under recognition and retention plan		40			41
Release of ESOP shares		196			121
Deferred income taxes		(3,272		)	421
Retroactive assessment related to REIT		5,515			—
(Increase) decrease in:
Accrued interest receivable		74			(128		)
Other assets		(108		)	(172		)
Increase (decrease) in:
Income taxes payable		155			6,385
Accrued expenses and other liabilities		1,027			(974		)
Net cash provided from operating activities		4,913			10,190
Cash flows from investing activities:
Proceeds from sales and calls of securities available for sale		925			1,228
Proceeds from redemptions and maturities of securities available for sale		26,541			10,629
Proceeds from redemptions and maturities of securities held to maturity		1,142			1,067
Purchase of securities available for sale		(61,616		)	(52,729		)
Purchase of Federal Home Loan Bank of Boston stock		—			(142		)
Net (increase) decrease in loans		(39,481		)	5,554
Proceeds from sales of participations in loans		59			2,990
Purchase of bank premises and equipment		(503		)	(33		)
Distribution from other investment		2			69
Net cash used for investing activities		(72,931		)	(31,367		)
Cash flows from financing activities:
Increase in demand deposits and NOW, savings and money market savings accounts		20,444			6,947
Increase (decrease) in certificates of deposit		(6,751		)	12,542
Proceeds from Federal Home Loan Bank of Boston advances		—			4,000
Repayment of Federal Home Loan Bank of Boston advances		(955		)	(3,160		)
Increase in mortgagors’ escrow deposits		534			322
Exercise of stock options		1,137			220
Purchase of treasury stock		(14,691		)	—
Payment of dividends on common stock		(4,920		)	(1,749		)
Net cash provided from (used for) financing activities		(5,202		)	19,122
Net (decrease) increase in cash and cash equivalents		(73,220		)	(2,055		)
Cash and cash equivalents at beginning of period		242,468			88,715
Cash and cash equivalents at end of period		$	169,248		$	86,660
Supplemental disclosures of cash flow information:
Cash (received) paid during the period for:
Interest on deposits and borrowed funds		$	4,906		$	6,626
Income taxes		5,625			(3,729		)

 

See accompanying notes to the unaudited consolidated financial statements.

 

6

 

BROOKLINE BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Three months ended March 31, 2003 and 2002

(unaudited)

 

(1)                                 Basis of Presentation (Dollars in Thousands)

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been included. Results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. Certain prior period amounts have been reclassified to conform to current period presentation.

 

Critical Accounting Policy

 

The Company’s critical accounting policy relates to the allowance for loan losses. It is based on management’s estimate of probable known and inherent credit losses existing in the loan portfolio. The allowance is established through provisions for loan losses charged to income. Loans are charged off against the allowance when the collectibility of principal is unlikely. Recoveries of loans previously charged off are credited to the allowance.

 

In determining the level of the allowance for loan losses, management evaluates specific credits and the loan portfolio in general using several criteria that include historical performance, collateral values, cash flows and current economic conditions. The evaluation culminates with a judgment on the probability of collection of loans outstanding. Management’s methodology provides for three allowance components. The first component represents allowances established for specific identified loans. The second component represents allowances for groups of homogenous loans that currently exhibit no identified weaknesses and are evaluated on a collective basis. Allowances for groups of similar loans are established based on factors such as historical loss experience, the level and trends of loan delinquencies, and the level and trends of classified assets. The last component is an unallocated allowance based on evaluation of factors such as trends in the economy and real estate values in the areas where the Company lends money, concentrations in the amount of loans the Company has outstanding to large borrowers and concentrations in the type and geographic location of loan collateral. Determination of the unallocated allowance is a very subjective process. Management believes the unallocated allowance is an important component of the total allowance because it (a) addresses the probable inherent risk of loss that exists in the Company’s loan portfolio (which is substantially comprised of loans with repayment terms extended over many years) and (b) helps to recognize the risk related to the margin of imprecision inherent in the estimation of the other two components of the allowance.

 

Cash Equivalents

 

For purposes of reporting cash flows, cash equivalents include highly liquid assets with an original maturity of three months or less. Highly liquid assets include cash and due from banks, short-term investments and money market loan participations.

 

Earnings Per Common Share

 

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the periods presented. ESOP shares committed to be released are considered outstanding while unallocated ESOP shares are not considered outstanding. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

 

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”, the Company adheres to Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, in accounting for its stock option plans and discloses pro forma net income and earnings per share information as if the fair value based method had been adopted.

 

7

 

On a pro forma basis, had compensation expense for the Company’s stock-based compensation plan been determined based on the fair value at the grant date for awards made under the plan, consistent with SFAS No. 123, the Company’s net income and earnings per share for the three months ended March 31, 2003 and 2002 would have been reduced as follows:

 

		Three months ended March 31,
		2003			2002
Net income (loss):
As reported		$	(148	)	$	5,478
Stock-based employee compensation expense determined under the fair value based method, net of related tax effects		(126		)	(161		)
Pro forma		$	(274	)	$	5,317
Weighted average shares:
Basic		57,468,369			57,456,025
Effect of dilutive stock options		—			638,299
Diluted		57,468,369			58,094,324
Basic earnings per share:
As reported		$	(0.00	)	$	0.10
Pro forma		(0.00		)	0.09
Diluted earnings per share:
As reported		$	(0.00	)	$	0.09
Pro forma		(0.00		)	0.09

 

(2)                                 Corporate Structure and Stock Offering (Dollars in Thousands Except Per Share Amounts)

 

On April 4, 2002, the Boards of Directors of Brookline Bancorp, MHC (the “MHC”), Brookline Bancorp, Inc. (the “Company”) and Brookline Savings Bank (“Brookline”) adopted a Plan of Conversion and Reorganization to convert the MHC from mutual to stock form and to complete a related stock offering in which shares of common stock representing the MHC’s ownership interest in the Company would be sold to investors.  (In January 2003, Brookline Savings Bank changed its name to Brookline Bank).

 

The Plan of Conversion and Reorganization was approved by the stockholders of the Company and the depositors of Brookline on June 27, 2002 and by the Office of Thrift Supervision (the “OTS”) on July 8, 2002. The reorganization and stock offering were completed on July 9, 2002. As of that date, the 15,420,350 shares owned by the MHC were retired and the Company sold 33,723,750 shares of common stock for $10.00 per share. After taking into consideration related expenses of $4,549, net proceeds from the stock offering amounted to $332,688. An additional 24,888,478 shares were issued to existing stockholders based on an exchange rate of 2.186964 new shares of common stock for each existing share, resulting in 58,612,228 total new shares outstanding. Cash was paid in lieu of fractional shares.

 

Upon completion of the conversion and stock offering, (a) Brookline Bancorp Inc. changed from a federally-chartered holding company to a new Delaware holding company and (b) the MHC ceased to exist and its net assets of $8,457 were transferred into Brookline.

 

The conversion was accounted for as a reorganization in corporate form with no change in the historical basis of the Company’s assets, liabilities and equity. All references to the number of shares outstanding for purposes of calculating per share amounts prior to completion of the Conversion have been restated to give retroactive recognition to the exchange ratio applied in the conversion.

 

8

 

(3)                                 Accumulated Other Comprehensive Income (Dollars in Thousands)

 

Accumulated other comprehensive income is comprised entirely of unrealized gains on securities available for sale, net of income taxes. At March 31, 2003 and December 31, 2002, such taxes amounted to $1,983 and $2,449, respectively.

 

(4)                                 Commitments and Swap Agreement (Dollars in Thousands)

 

At March 31, 2003, the Company had outstanding commitments to originate loans of $68,037, $50,386 of which were commercial real estate and multi-family mortgage loans. Unused lines of credit available to customers were $20,325, of which $13,385 were equity lines of credit.

 

Brookline entered into an interest-rate swap agreement with a third-party that matures April 14, 2005. The notional amount of the agreement is $5,000. Under this agreement, each quarter, Brookline pays interest on the notional amount at an annual fixed rate of 5.9375% and receives from the third-party interest on the notional amount at the floating three month U.S. dollar LIBOR rate. Brookline entered into this transaction to match more closely the repricing of its assets and liabilities and to reduce its exposure to increases in interest rates. The net interest expense paid for the three months ended March 31, 2003 and 2002 was $56 and $50, respectively.

 

Changes in the fair value of the outstanding swap agreement are recognized as charges or credits to earnings. For the three months ended March 31, 2003 and 2002, $18 and $53, respectively, were credited to pre-tax earnings.

 

(5)                                 Dividend Declaration

 

On April 16, 2003, the Board of Directors of the Company approved and declared a regular quarterly cash dividend of $0.085 per share of common stock to shareholders of record as of April 30, 2003 and payable on May 15, 2003.

 

(6)                                 1999 Stock Option Plan and 1999 Recognition and Retention Plan (Dollars in Thousands)

 

Activity under the Company’s 1999 Stock Option Plan for the three months ended March 31, 2003 was as follows:

 

Options outstanding at January 1, 2003		2,411,000
Options granted at $12.91 per share		40,000
Options exercised at $4.944 per share		(171,715	)
Options exercised at $7.517 per share		(38,272	)
Options outstanding at March 31, 2003		2,241,013
Exercisable at March 31, 2003:
at $4.944 per share		1,731,984
at $11.00 per share		5,393
		1,737,377

 

Shares issued upon the exercise of a stock option may be either authorized but unissued shares or reacquired shares held by the Company as treasury shares. Any shares subject to an award which expires or is terminated unexercised will again be available for issuance under the Stock Option Plan. Options awarded vest over periods ranging from less than six months through five years. As of March 31, 2003, 242,042 options remain available for award under the Stock Option Plan.

 

At March 31, 2003, under the 1999 Recognition and Retention Plan (the “RRP”), 18,707 shares of the Company’s common stock remained available for issuance as restricted stock awards to officers, employees and non-employee directors. Shares issued upon vesting may be either authorized but unissued shares or reacquired shares held by the Company as treasury shares. Any shares not issued because vesting requirements are not met become available for re-issuance under the RRP. Expense is recognized for shares awarded over the vesting period based on the fair market value of the shares on the date they were awarded. Expense for the three months ended March 31, 2003 and 2002 was $40 and $41, respectively.

 

9

 

(7)                                 Employee Stock Ownership Plan (Dollars in Thousands)

 

Brookline has an employee stock ownership plan (the “ESOP”). All Brookline employees meeting age and service requirements are eligible to participate in the ESOP. For the three months ended March 31, 2003 and 2002, compensation and employee benefits expense was charged $196 and $121, respectively, based on the commitment to release 15,501 shares and 15,922 shares, respectively, to eligible employees.

 

(8)                                 Income Taxes (Dollars in Thousands)

 

160 Associates, Inc. (“Associates”), a wholly-owned subsidiary of Brookline, owns 99.9% of Brookline Preferred Capital Corporation (“BPCC”), a real estate investment trust. Associates has received from the Department of Revenue of the Commonwealth of Massachusetts (“DOR”) Notices of Assessments for state excise taxes of $3,930 plus interest of $811. The assessments are based on a desk review of the financial institution excise returns filed by Associates for its 1999, 2000 and 2001 tax years. It is expected that the DOR will submit another Notice of Assessment for state excise taxes for the 2002 tax year. It is estimated that such assessment could amount to $3,748. The DOR contends that dividend distributions from a real estate investment trust (“REIT”) are not deductible in determining Massachusetts taxable income. Associates believes that the Massachusetts statute that provides for a dividend received deduction equal to 95% of certain dividend distributions applies to the distributions made by BPCC to Associates. Accordingly, the Company made no provision in its consolidated financial statements through December 31, 2002 for the amounts assessed or additional amounts that might be assessed that relate to the years 1999 through 2002.

 

On March 5, 2003, the Governor of the Commonwealth of Massachusetts signed a law that denies dividend received deductions for dividend distributions from REITs in determining Massachusetts taxable income. The law not only disallows dividend received deductions for the year 2003 and thereafter, but also disallows dividend received deductions retroactively to tax years beginning in 1999. While the Company is evaluating whether to challenge the constitutionality of the retroactive legislation and intends to continue to appeal the Notices of Assessment it received from the Massachusetts Department of Revenue, it was obliged under U.S. generally accepted accounting principles to provide for the taxes and interest resulting from the new law at the time of its enactment. Accordingly, $5,515 was charged to earnings in the three months ended March 31, 2003 to recognize the liabilities for taxes and interest resulting from the retroactive application of the new law to the Company=s REIT subsidiary for the years 1999 through 2002. This amount is net of federal and state income tax benefits. State excise taxes and interest payments are deductible for federal income tax purposes and interest payments are deductible for state tax purposes. The inability to deduct dividends received from the Company=s REIT and the accrual of interest on taxes not yet paid resulted in an after-tax charge of $302 to earnings for the three months ended March 31, 2003. It is expected that net income during the remainder of 2003 will likewise be reduced by approximately $300 per quarter.

 

(9)                                 Qualified Thrift Lender Test

 

As a federally-chartered institution, Brookline is required to meet a qualified thrift lender test. Under that test, Brookline must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12-month period. “Portfolio assets” generally means Brookline’s total assets less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of Brookline’s business. “Qualified thrift investments” includes various types of loans made for residential and housing purposes, investments related to such purposes, including certain mortgage-backed and related securities, and loans for personal, family, household and certain other purposes up to a limit of 20% of portfolio assets. A financial institution that fails the qualified thrift lender test is subject to certain operating restrictions and may be required to convert to a bank charter. At March 31, 2003 and 2002, 71.6% and 70.0%, respectively, of Brookline’s portfolio assets were in “qualified thrift investments”.

 

(10)                          Stockholders' Equity (Dollars in Thousands, Except Per Share Amounts)

 

Capital Distributions and Restrictions Thereon

 

OTS regulations impose limitations on all capital distributions by savings institutions. Capital distributions include cash dividends, payments to repurchase or otherwise acquire the institution’s shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The regulations establish three tiers of institutions. An institution, such as the Bank, that exceeds all capital requirements before and after a proposed capital distribution

 

10

 

(“Tier 1 institution”) may, after prior notice but without the approval of the OTS, make capital distributions during a year up to 100% of its current year net income plus its retained net income for the preceding two years not previously distributed. Any additional capital distributions require OTS approval.

 

Common Stock Repurchases

 

On March 6, 2003, the Company received non-objection from the OTS to the Company’s repurchase of up to 5%, or 2,937,532 shares, of its common stock. The regulatory non-objection was necessary because the repurchase program commenced less than one year from the date of the Company’s reorganization and stock offering, which closed on July 8, 2002. As of March 31, 2003, the Company had repurchased 1,135,000 shares at an aggregate cost of $14,691, or $12.94 per share.

 

Restricted Retained Earnings

 

As part of the stock offering in 2002 and as required by regulation, Brookline established a liquidation account for the benefit of eligible account holders and supplemental eligible account holders who maintain their deposit accounts at Brookline after the stock offering. In the unlikely event of a complete liquidation of Brookline (and only in that event), eligible depositors who continue to maintain deposit accounts at Brookline shall be entitled to receive a distribution from the liquidation account. Accordingly, retained earnings of the Company are deemed to be restricted up to the balance of the liquidation account. The liquidation account balance is reduced annually to the extent that eligible depositors have reduced their qualifying deposits as of each anniversary date. Subsequent increases in deposit account balances do not restore an account holder’s interest in the liquidation account. The liquidation account totaled $72,020 at December 31, 2002.

 

11

 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This quarterly report on form 10-Q contains statements about future events that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes”, “anticipates”, “plans”, “expects” and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company’s actual results to differ materially from those contemplated by such forward-looking statements. These important factors include, but are not limited to, general economic conditions, changes in interest rates, regulatory considerations, competition, technological developments, retention and recruitment of qualified personnel and market acceptance of the Company’s pricing, products and services.

 

Comparison of Financial Condition at March 31, 2003 and December 31, 2002

 

While total assets increased modestly from $1.423 billion at December 31, 2002 to $1.424 billion at March 31, 2003, loans (excluding money market loan participations) increased $39.4 million, or 4.9%, to $842.8 million at March 31, 2003. During the quarter, the Company inaugurated its indirect automobile lending business. At March 31, 2003, such loans amounted to $13.0 million. During the quarter, the Company’s mortgage loan portfolio increased $27.7 million. Most of that growth was in the multi-family and commercial real estate segments and was partly attributable to a program that offered discounted rates on selected new loans. Rates offered exceeded rates that otherwise would have been earned on the Company’s excess liquidity.

 

The activity to date with respect to the volume and credit quality of indirect automobile loans originated has been encouraging. As a result, we expect the total of indirect automobile loan originations for 2003 to be increased from the $30 million to $50 million range previously communicated to a range of $70 million to $100 million. We continue to project that the indirect automobile lending business will reduce 2003 earnings by around $0.01 per share and operate profitably in the second half of 2004.

 

Short-term investments are comprised of assets that mature within 90 days of purchase. Such assets decreased from $224.9 million at December 31, 2002 to $148.9 million at March 31, 2003 as a result of funding loan growth, repurchases of the Company’s common stock and acquisition of investment securities during the quarter.

 

Growth in securities available for sale from $361.0 million at December 31, 2002 to $393.0 million at March 31, 2003 resulted primarily from the purchase of mortgage-backed securities and collateralized mortgage obligations with expected average lives in the two to four year range. Actual average lives will depend on the rate of prepayment of mortgage loans that comprise the securities.

 

Total deposits were $663.0 million at March 31, 2003 compared to $649.3 million at December 31, 2002, an increase of $13.7 million, or 2.1% (8.4% on an annualized basis). Between those dates, transaction deposit accounts increased $20.4 million, or 5.4%, and certificates of deposit decreased $6.7 million, or 2.5%. The growth in transaction deposit accounts resulted from marketing initiatives while the decline in certificates of deposit was attributable to the continuation of a very low interest rate environment.

 

Total stockholders’ equity declined from $632.4 million at December 31, 2002 to $613.5 million at March 31, 2003 primarily as a result of the repurchase of 1,135,000 shares of the Company’s common stock at a total cost of $14.7 million and payment of a $4.9 million cash dividend to stockholders. During the quarter, 209,987 options were exercised resulting in capital proceeds of $1.1 million.

 

12

 

Non-Performing Assets, Restructured Loans and Allowance for Loan Losses

 

The following table sets forth information regarding non-performing assets, restructured loans and the allowance for loan losses:

 

 

In addition to identifying non-performing loans, the Company identifies loans that are characterized as “impaired” pursuant to generally accepted accounting principles. The definition of “impaired loans” is not the same as the definition of “non-accrual loans,” although the two categories tend to overlap. Impaired loans (excluding non-accrual loans) amounted to $51,000 at March 31, 2003 and $52,000 at December 31, 2002. None of the impaired loans at those dates required a specific allowance for impairment due primarily to prior charge-offs and the sufficiency of collateral values.

 

During the three months ended March 31, 2003 and 2002, recoveries of loans previously charged off amounted to $3,000 and $20,000, respectively, and loan charge-offs were $6,000 and $9,000, respectively. The Company increased its allowance for loan losses by charging $375,000 to earnings in the three months ended March 31, 2003 and decreased its allowance for loan losses by crediting $100,000 to earnings in the three months ended March 31, 2002. The charge to earnings in the 2003 quarter was attributable to growth in loans outstanding during that period. The credit to earnings in the 2002 quarter was attributable to an $8.5 million decline in loans outstanding and net loan recoveries during that quarter. While management believes that based on information currently available, the allowance for loan losses is sufficient to cover losses inherent in the Company’s loan portfolio at this time, no assurance can be given that the level of allowance will be sufficient to cover future loan losses or that future adjustments to the allowance will not be necessary if economic and/or other conditions differ substantially from the economic and other conditions considered by management in evaluating the adequacy of the current level of the allowance.

 

In the second quarter of 2001, the Company charged earnings $495,000 to recognize an other than temporary impairment in the carrying value of a $2.0 million bond issued by Southern California Edison that matured on June 1, 2001. Interest of $65,000 due on the bond was received at the maturity date and applied as a reduction of the carrying value of the bond instead of being credited to interest income. An interest payment of $65,000 received on December 1, 2001 was credited to income. On March 1, 2002, principal and interest due on the bond was paid in full resulting in a credit to income of $592,500 in the 2002 quarter ($495,000 to gain on repayment of securities and $97,500 to interest income).

 

13

 

Comparison of Operating Results for the Three Months Ended March 31, 2003 and 2002

 

General

 

Operating results are dependent primarily on the Company’s net interest income, which is the difference between interest earned on the Company’s loan and investment portfolio and interest paid on deposits and borrowings. Operating results are also affected by provisions for loan losses, the level of income from non-interest sources such as service fees and sales of investment securities, operating expenses and income taxes. Operating results are also affected significantly by general economic conditions, particularly changes in interest rates, as well as governmental policies and actions of regulatory authorities.

 

The Company incurred a net loss of $148,000, or $0.00 per share (on a basic and diluted basis), for the three months ended March 31, 2003 compared to net income of $5.5 million, or $0.10 per share ($0.09 per share on a diluted basis) for the three months ended March 31, 2002. The net loss in the 2003 quarter resulted from a $5.5 million charge to earnings resulting from the retroactive disallowance of dividend received deductions for dividend distributions from the Company’s real estate investment trust (“REIT”) subsidiary in determining Massachusetts taxable income. See note 8 of the notes to unaudited consolidated financial statements on page 10 herein for additional information regarding this matter.

 

Excluding the $5.5 million charge described in the preceding paragraph, net income was $5.4 million in the 2003 quarter compared to $5.5 million in the 2002 quarter. These amounts include securities gains on an after-tax basis of $211,000 and $591,000, respectively.

 

14

 

Average Balance Sheets and Interest Rates

 

The following table sets forth information relating to the Company for the three months ended March 31, 2003 and 2002. The average yields and costs were derived by dividing interest income or interest expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown. Average balances were derived from daily average balances. The yields and costs include fees which are considered adjustments to yields.

 

		Three months ended March 31,
		2003								2002
		Average balance			Interest (1)			Average yield/ cost		Average balance			Interest (1)			Average yield/ cost
		(Dollars in thousands)
Assets:
Interest-earning assets:
Short-term investments		$	191,207		$	577		1.22	%	$	82,317		$	351		1.73	%
Debt securities (2) (4)		371,163			3,253			3.51		158,103			2,244			5.68
Equity securities (2)		22,872			230			4.02		26,991			263			3.92
Mortgage loans (3)		793,170			12,819			6.47		787,127			13,958			7.09
Commercial participation loans		3,921			13			1.34		7,856			37			1.91
Other commercial loans (3)		22,833			344			6.03		31,576			409			5.18
Consumer loans (3)		3,305			63			7.62		3,149			72			9.15
Indirect automobile loans (3)		2,911			29			4.04		—			—			—
Total interest-earning assets		1,411,382			17,328			4.91		1,097,119			17,334			6.32
Allowance for loan losses		(15,187		)						(15,301		)
Non-interest earning assets		27,416								28,432
Total assets		$	1,423,611							$	1,110,250
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Deposits:
NOW accounts		$	65,237		35			0.22		72,668			88			0.49
Savings accounts (5)		16,992			35			0.84		13,911			43			1.25
Money market savings accounts		278,233			1,244			1.81		262,156			1,290			2.00
Certificate of deposit accounts		265,539			2,128			3.25		260,841			2,655			4.13
Total deposits		626,001			3,442			2.23		609,576			4,076			2.71
Borrowed funds (6)		124,088			1,396			4.50		178,885			2,604			5.91
Total interest bearing liabilities		750,089			4,838			2.62		788,461			6,680			3.44
Non-interest-bearing demand checking accounts		27,017								17,998
Other liabilities		16,319								15,930
Total liabilities		793,425								822,389
Stockholders’ equity		630,186								287,861
Total liabilities and Stockholders’ equity		$	1,423,611							$	1,110,250
Net interest income (tax equivalent basis)/interest rate spread (7)					12,490			2.29	%				10,654			2.88	%
Less adjustment of tax exempt income					42								48
Net interest income					$	12,448							$	10,606
Net interest margin (8)								3.54	%							3.88	%

 

(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)	Excluded from interest income in the 2002 period is $65 of an interest payment on a defaulted bond that relates to prior periods.
(5)	Savings accounts include mortgagors’ escrow accounts.
(6)	The 2003 period excludes a $25 interest charge on a prepaid FHLB advance that relates to a prior period.
(7)	Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(8)	Net interest margin represents net interest income (tax equivalent basis) divided by average interest-earning assets.

 

15

 

 

Average earning assets were $314.3 million, or 28.6%, higher in the 2003 first quarter than in the 2002 first quarter primarily as a result of completion of the Company’s stock offering and reorganization from a mutual holding company structure in July 2002. The net proceeds from the stock offering exceeded $332 million. Most of the proceeds from the stock offering were immediately placed in short-term investments and, thereafter, were gradually reinvested in higher yielding investment securities with maturities in the two to four year range.

 

Interest Rate Spread. Interest rate spread is the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities. Interest rates are influenced by the actions of the Federal Reserve in establishing the benchmark federal funds rate for overnight borrowings between banks. During 2001, the Federal Reserve cut the federal funds rate eleven times for an aggregate reduction of 475 basis points. Those actions represented the most aggressive pace of rate cuts by the Federal Reserve since 1982 and the resulting rate at the end of 2001 (1.75%) was the lowest rate in over forty years. On November 6, 2002, the rate was cut by another 50 basis points to 1.25%. The impact of rate changes on operating results varies depending on the maturity and date of repricing of the Company’s loans, investments, deposits and borrowed funds.

 

Interest rate spread declined from 2.88% in the 2002 first quarter to 2.29% in the 2003 first quarter, but increased from 1.95% in the 2002 third quarter and 2.19% in the 2002 fourth quarter. The decline since last year was due primarily to the initial placement of much of the net proceeds from the stock offering in short-term investments and thereafter in high quality investment securities with relatively short maturities. The increase in the two most recent quarters was attributable to greater reductions in rates paid on liabilities than in rates earned on assets. Prepayment of borrowings from the Federal Home Loan Bank (“FHLB”) ($10 million in the third quarter of 2002 and $35 million in the fourth quarter of 2002) and refinancing of an additional $65 million of FHLB borrowings in the fourth quarter of 2002 were significant contributing factors to the liability rate reduction.

 

Net Interest Margin. Net interest margin, which represents net interest income (on a tax equivalent basis) divided by average interest-earning assets, declined from 3.88% in the 2002 first quarter to 3.54% in the 2003 first quarter, but increased from 3.30% in the 2002 third quarter and 3.49% in the 2002 fourth quarter. The changes were attributable primarily to the factors described above in the interest rate spread section.

 

Since a significant part of the Company’s assets are funded by stockholders’ equity for which there is no interest cost, a decline in asset yield of the magnitude over the past two years has had a substantial negative effect on net interest income and net interest margin. Average stockholders’ equity as a percent of total interest-earning assets was 44.7% in the 2003 first quarter and 26.2% in the 2002 first quarter.

 

Interest Income

 

Total interest income was $17.3 million in the 2003 quarter, a decline of $65,000, or 0.4% from the 2002 quarter. The income resulting from the additional $314.3 million of average interest-earning assets in the 2003 quarter compared to the 2002 quarter was more than offset by the reduction in income resulting from the decline in overall asset yield from 6.32% in the 2002 quarter to 4.91% in the 2003 quarter.

 

While the average total of loans outstanding, excluding money market loan participations, increased modestly from $821.9 million in the 2002 quarter to $822.2 million in the 2003 quarter, total interest income on loans declined $1.2 million, or 8.2%, in the 2003 quarter compared to the 2002 quarter. The decline resulted from a reduction in the average yield earned from 7.03% to 6.45% caused by extensive refinancing of existing mortgage loans and the origination of new loans at lower rates.

 

Due to investment of the net proceeds from the stock offering, average balances of short-term investments and investment securities were $321.9 million, or 133.9%, higher in the 2003 quarter compared to the 2002 quarter. Interest income on such investments, however, increased only $1.2 million, or 47.6%, due to lower average yields earned. Available yields were influenced greatly by the federal funds rate changes made by the Federal Reserve described above in the interest rate spread section.

 

Interest Expense

 

Interest expense on deposits was $3.4 million in the 2003 quarter, a 15.6% decrease from the $4.1 million expended in the 2002 quarter. The increase in expense resulting from higher average deposit balances ($626.0 million compared to $609.6 million) was more than offset by the effect of the lower average rate paid on those deposits (2.23% compared to 2.71%).

 

Average borrowings from the FHLB decreased from $178.9 million in the 2002 quarter to $124.1 million in the 2003 quarter and the average rates paid on those balances were 5.91% and 4.50%, respectively. The changes resulted primarily from the prepayments and refinancings mentioned above in the interest rate spread section.

 

16

 

Provision (Credit) for Loan Losses

 

A $375,000 provision for loan losses was charged to earnings in the 2003 quarter compared to a $100,000 credit to earnings in the 2002 quarter. The credit resulted primarily from shrinkage in loans outstanding during the first quarter of 2002. The 2003 provision resulted primarily from $27.7 million of mortgage loan growth during the quarter and inauguration of indirect automobile lending which grew to $13.0 million of loans outstanding at March 31, 2003. Most of the mortgage loan growth was in the multi-family and commercial real estate segments.

 

Non-Interest Income

 

Excluding securities gains, non-interest income increased from $582,000 in the 2002 quarter to $632,000 in the 2003 quarter. Increased fees from changes in pricing of deposit services and from mortgage loan prepayments offset a decline in earnings from the Company’s equity interest in a specialty finance company and from market valuation of the Company’s outstanding swap agreement.

 

Gains on sales of equity securities were $328,000 in the 2003 quarter and $427,000 in the 2002 quarter. Also included in the 2002 quarter was a gain of $495,000 resulting from payment of a corporate bond on which an impairment loss of a like amount had been charged to earnings in 2001 upon its default.

 

Non-Interest Expense

 

Non-interest expense increased $414,000, or 11.1%, in the 2003 quarter compared to the 2002 quarter. The increase was attributable to expense related to indirect automobile lending activities ($102,000); higher personnel costs ($195,000, or 9.4%) due to expanded staff, higher premiums for medical and dental benefits and added ESOP expense caused by the increase in the market value of the Company’s stock; higher occupancy costs; higher contributions expense as a result of no longer having a mutual holding company structure; and a Delaware franchise tax. Partly offsetting these increases was a reduction in data processing expenses due primarily to consolidation of customer accounts.

 

Income Taxes

 

The effective income tax rate on earnings, excluding the effect of the retroactive REIT assessment, increased from 36.0% in the 2002 quarter to 39.5% in the 2003 quarter. The higher rate, which resulted from the change in the tax treatment of REITS described more fully in note 8 of the notes to unaudited consolidated financial statements on page 10 herein, is expected to continue throughout 2003.

 

The inability to deduct dividends received from the Company’s REIT subsidiary and the accrual of interest on state taxes not yet paid resulted in an after-tax charge of $302,000 in the 2003 first quarter. It is expected that net income during the remainder of 2003 will likewise be reduced by approximately $300,000 per quarter.

 

Asset/Liability Management

 

The Company’s Asset/Liability Committee is responsible for managing interest rate risk and reviewing with the Board of Directors on a quarterly basis its activities and strategies, the effect of those strategies on the Company’s operating results, the Company’s interest rate risk position and the effect changes in interest rates would have on the Company’s net interest income.

 

Generally, it is the Company’s policy to reasonably match the rate sensitivity of its assets and liabilities. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within the same time period. Also taken into consideration are interest rate swap agreements entered into by the Company.

 

At March 31, 2003, interest-earning assets maturing or repricing within one year amounted to $567.6 million and interest-bearing liabilities maturing or repricing within one year (net of an interest rate swap agreement) amounted to $438.7 million, resulting in a cumulative one year positive gap position of $128.9 million, or 9.1% of total assets. At December 31, 2002, the Company had a positive one year cumulative gap position of $186.4 million, or 13.1% of total assets. The change in the one year gap position at March 31, 2003 compared to December 31, 2002 resulted primarily from use of short-term investments to fund loan growth.

 

17

 

Liquidity and Capital Resources

 

The Company’s primary sources of funds are deposits, principal and interest payments on loans and debt securities and borrowings from the FHLB. While maturities and scheduled amortization of loans and investments are predictable sources of funds, deposit flows and mortgage loan prepayments are greatly influenced by interest rate trends, economic conditions and competition.

 

During the past few years, the combination of low interest rates on deposit products and the attraction of alternative investments such as mutual funds and annuities resulted in little growth or a net decline in deposits in certain periods. During 2002 and the first quarter of 2003, deposits have increased in part because of concern by the public regarding the downward trend in the stock market. Based on its monitoring of historic deposit trends and its current pricing strategy for deposits, management believes the Company will retain a large portion of its existing deposit base.

 

From time to time, the Company utilizes advances from the FHLB primarily in connection with its management of the interest rate sensitivity of its assets and liabilities. Total advances outstanding at March 31, 2003 amounted to $123.9 million compared to $124.9 million at December 31, 2002.

 

The Company’s most liquid assets are cash and due from banks, short-term investments, debt securities and money market loan participations that generally mature within ninety days. At March 31, 2003, such assets amounted to $173.3 million, or 12.2% of total assets.

 

At March 31, 2003, Brookline exceeded all regulatory capital requirements. At that date, its leverage capital was $413.6 million, or 33.7% of its adjusted assets. The minimum required leverage capital ratio is 3.00% to 5.00% depending on a bank’s supervisory rating.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risks

 

For a discussion of the Company’s management of market risk exposure, see “Asset/Liability Management” in Item 2 of Part 1 of this report (page 17 herein) and pages 11 through 14 of the Company’s Annual Report incorporated by reference in Part II item 7A of Form 10-K for the fiscal year ending December 31, 2002.

 

For quantitative information about market risk, see pages 11 through 14 of the Company’s 2002 Annual Report.

 

Item 4. Controls and Procedures

 

(a)                                  Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of the Company’s management, including its chief executive officer and chief financial officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934 as of a date (the “Evaluation Date”) within 90 days prior to the filing date of this report. Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective in timely alerting them to the material information relating to the Company and its consolidated subsidiaries required to be included in the Company’s periodic SEC filings.

 

(b)                                 Changes in Internal Controls

 

There were no significant changes made in the Company’s internal controls during the period covered by this report or, to such officers’ knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation.

 

18

 

Part II - Other Information

 

Item 1. Legal Proceedings

 

The Company and its subsidiaries are not involved in any litigation, nor is the Company aware of any pending litigation, other than legal proceedings incident to the business of the Company. Management believes the results of any current pending litigation would be immaterial to the consolidated financial condition or results of operations of the Company.

 

Item 2. Changes in Securities

 

Not applicable.

 

Item 3. Default Upon Senior Securities

 

Not applicable.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

Item 6. Exhibits and Reports on Form 8-K

 

Exhibits

 

Exhibit 11                                             Statement Re Computation of Per Share Earnings. The required information is included in Part I under Notes to Unaudited Consolidated Financial Statements, note 1, on page 8 herein.

 

Exhibit 99.1                                    Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit is filed as part of this report and is included herein.

 

Reports on Form 8-K

 

A Form 8-K was filed on January 17, 2003 to report a change in the outside accounting firm engaged to audit the Company’s consolidated financial statements as of and for the year ending December 31, 2003.

 

A Form 8-K was filed on March 5, 2003 to report a tax liability emanating from a change in Massachusetts law. Information regarding this matter is also included in note 8 of the Notes to Consolidated Financial Statements on page 10 herein. The 8-K also referred to the filing with the Office of Thrift Supervision of a notice of the Company’s intention to repurchase up to 5.0% of its common stock.

 

A Form 8-K was filed on March 6, 2003 regarding receipt from the Office of Thrift Supervision of non-objection to the Company’s intent to repurchase up to 5.0% (or up to 2,937,532 shares) of its common stock.

 

19

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.

 

 

BROOKLINE BANCORP, INC.
	Date:  May 8, 2003	By:	/s/ Richard P. Chapman, Jr.
			Richard P. Chapman, Jr.
			President and Chief Executive Officer
	Date:  May 8, 2003	By:	/s/ Paul R. Bechet
			Paul R. Bechet
			Senior Vice President, Treasurer and Chief Financial Officer

 

20

 

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Richard P. Chapman, Jr., President and Chief Executive Officer, certify that:

 

1.                                     I have reviewed this quarterly report on Form 10-Q of Brookline Bancorp, Inc.;

 

2.                                     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.                                     Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.                                     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)                                     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)                                      presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.                                     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a)                                      all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)                                     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.                                     The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

May 8, 2003		/s/ Richard P. Chapman, Jr.
Date		Richard P. Chapman, Jr.
		President and Chief Executive Officer

 

21

 

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Paul R. Bechet, Chief Financial Officer, certify that:

 

1.                                       I have reviewed this quarterly report on Form 10-Q of Brookline Bancorp, Inc.;

 

2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.                                       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a)                                    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)                                   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)                                    presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a)                                      all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)                                     any fraud, whether or not material, that involves management or other employees who have a significant role in  the registrant’s internal controls; and

 

6.                                       The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

May 8, 2003		/s/ Paul R. Bechet
Date		Paul R. Bechet
		Chief Financial Officer

 

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