Brookline Bancorp Announces 2006 Third Quarter Earnings and Dividend Declaration.

BROOKLINE, Mass. -- Brookline Bancorp, Inc. (the "Company") (NASDAQ:BRKL) announced today its earnings for the 2006 third quarter and approval by the Board of Directors of a regular quarterly dividend of $0.085 per share payable November 15, 2006 to stockholders of record on October 31, 2006.

The Company earned $5,109,000, or $0.08 per share on a basic and diluted basis, for the quarter ended September 30, 2006 compared to $5,521,000, or $0.09 per share on a basic and diluted basis, for the quarter ended September 30, 2005. As a result of a change in policy regarding the timing of dividend declarations, the Federal Home Loan Bank of Boston ("FHLB") declared cash dividends on its common stock in the 2006 third quarter that were equivalent to two quarters of income. FHLB dividend income in the 2006 and 2005 quarters was $761,000 and $239,000, respectively. Of the 2006 amount, $378,000 ($220,000 on an after-tax basis) is the amount that would have been recognized in the 2006 second quarter if the FHLB had not changed its policy. After exclusion of the extra quarterly dividend, the decline in net income was due primarily to the rise in the provision for loan losses from $32,000 in the 2005 quarter to $813,000 in the 2006 quarter. The considerably lower provision in the 2005 quarter was due primarily to a $650,000 credit resulting from payoff of loans acquired in the January 2005 Mystic transaction, including certain higher risk loans. Net income was also affected by the adverse consequences of an inverted yield curve environment. The negative effect of these factors on net income was softened by the additional earnings resulting from the purchase of a controlling interest in Eastern Funding LLC ("Eastern") on April 13, 2006.

Net income for the nine months ended September 30, 2006 was $15,435,000, or $0.25 per share on a basic and diluted basis, compared to $16,494,000, or $0.27 per share on a basic and diluted basis, for the nine months ended September 30, 2005. Included in the 2006 and 2005 nine month periods were after-tax securities gains of $358,000 and $547,000, respectively. Excluding securities gains, the $870,000, or 5.5%, decline in net income was attributable primarily to a $1,196,000 ($696,000 on an after-tax basis) reduction in mortgage loan prepayment fees in the 2006 period compared to the 2005 period and the adverse consequences of the inverted yield curve environment.

Interest rate spread has been declining steadily from 2.59% in the 2005 first quarter to 2.42% in the 2005 third quarter and to 2.17% in the 2006 third quarter (2.11% after exclusion of the extra FHLB dividend received in that quarter). The trend in net interest margin has been similar to that in interest rate spread, although less pronounced in the degree of decline. Net interest margin was 3.20% in the 2005 third quarter compared to 3.15% in the 2006 third quarter (3.11% after exclusion of the extra FHLB dividend). Net interest margin has been aided in the 2006 second and third quarters by inclusion of the higher yielding Eastern loan portfolio. Improvement in interest rate spread and net interest margin will continue to be difficult to achieve until the slope in the yield curve commences an upward movement.

While interest income (excluding the extra FHLB dividend) was 27% higher in the 2006 third quarter than in the 2005 third quarter, interest expense rose 64% between the two quarterly periods. The significant increase in expense resulted from a rising interest rate environment triggered by rate setting actions of the Federal Reserve, increased competition for deposits and a shift in the mix of deposits. Customarily, higher rates are paid on certificates of deposit than on transaction accounts. Retail certificates of deposit comprised 61% of total retail deposits at September 30, 2006 compared to 55% at December 31, 2005 and 52% at September 30, 2005. As to asset yields, rates earned on mortgage loans generally are higher than the rates earned on most of the Company's other interest-earning assets. Over the past year, mortgage loan pricing has been subjected to increased competitive pressure and, as a result, it has been increasingly difficult to incorporate the rise in funding costs into the pricing of new loan originations. Due in part to this development, the average balance of mortgage loans outstanding was $13.8 million less in the 2006 third quarter compared to the 2006 second quarter and $11.9 million less in the 2006 nine month period compared to the 2005 nine month period.

The provision for loan losses is comprised of amounts related to indirect automobile lending, the Eastern portfolio and the remainder of the Company's loan portfolio. The provisions related to indirect automobile lending in the 2006 and 2005 quarters were $850,000 and $692,000, respectively, and in the 2006 and 2005 nine month periods $2,355,000 and $2,019,000, respectively. The higher amounts resulted from increases in loans outstanding from $369 million at the end of 2004 to $459 million at the end of 2005 and $531 million at September 30, 2006. Net charge-offs in the 2006 and 2005 nine month periods were $1,380,000 and $863,000, respectively, or annualized rates of 0.36% and 0.28%, respectively, based on average indirect automobile loans outstanding during those periods. Indirect automobile loans delinquent more than 30 days were $4.8 million or 0.91% of the portfolio at September 30, 2006 compared to $5.3 million, or 1.01% of the portfolio, at June 30, 2006 and $5.5 million, or 1.21% of the portfolio, at December 31, 2005.

The provision for loan losses related to the Eastern portfolio was $238,000 in the 2006 third quarter and $415,000 since the acquisition of a controlling interest by the Company in April 2006. The Eastern portfolio has increased from $106 million since the acquisition to $125 million at September 30, 2006. Loans delinquent over 30 days amounted to $2,077,000, or 1.66% of total loans at September 30, 2006. Of that amount, $796,000 is on non-accrual; additionally $400,000 is included in non-performing assets as equipment in possession. The rate of losses on Eastern loans will normally exceed that experienced in the other segments of the Company's loan portfolio because of the higher risk characteristics associated with those loans. Likewise, the yields earned on those loans are substantially higher than those earned on the other loan segments.

Regarding the remainder of the loan portfolio, credits to the provision for loan losses of $275,000 and $660,000 were taken to income in the 2006 and 2005 third quarters, respectively, and $350,000 and $376,000 were taken to income in the 2006 and 2005 nine month periods, respectively. Such credits resulted from reductions in loans outstanding caused by payoffs.

The decline in non-interest income in the 2006 nine month period compared to the 2005 nine month period was due primarily to the decreases in mortgage loan prepayment fees and securities gains mentioned earlier as well as the change in the reporting of the Company's share of Eastern's earnings from the equity method before the date of the acquisition to inclusion in the consolidated results subsequent to the date of acquisition.

Non-interest expenses in the 2005 nine month period included $894,000 of merger/conversion expenses related to the Mystic acquisition. Excluding those expenses, the increases in non-interest expenses in the 2006 quarterly and nine month periods compared to the 2005 quarterly and nine month periods were due primarily to the inclusion of Eastern's expenses since the date of the acquisition, the expenses related to a new branch that opened in April 2006, the hiring of new loan officers, and higher processing and servicing costs resulting from growth of the indirect automobile loan portfolio.

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

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(A) Represents net unrealized losses on securities available for sale, net of taxes.

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

(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) The Federal Home Loan Bank ("FHLB") changed the timing of its declaration of dividends on its common stock. As a result, no dividend was declared by the FHLB in the second quarter of 2006 and, accordingly, no dividend income was recognized by the Company in that period. In the third quarter of 2006, the FHLB declared dividends that were equivalent to two quarterly periods. The amount of dividend income recognized by the Company in the third quarter of 2006 and 2005 was $761 and $239, respectively. The yield on average interest-earning assets in the three months ended September 30, 2006 was 0.06% higher than it otherwise would have been if the equivalent of an extra quarterly dividend had not been received during that three month period.

(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.

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