KBRA Affirms Ratings for Brookline Bancorp, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Boston, Massachusetts-based Brookline Bancorp, Inc. (NASDAQ: BRKL) (“Brookline” or “the company”). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for the subsidiary banks, Brookline Bank, Bank Rhode Island, and PCSB Bank ("the banks"). The Outlook for all long-term ratings is Stable.

Brookline’s ratings are supported by the management team’s experience within its operating markets, having successfully enhanced the company’s core performance and footprint scale over time. The ratings are also bolstered by the company’s generally stable net interest margin performance in recent periods. With a relatively balanced loan portfolio in terms of rate structure, the company was able to absorb some of the escalating funding costs while maintaining its margin in the 3% range.

The company’s revenue sources are considered less diversified. Total noninterest income accounted for 7.2% of total revenue for YTD2Q24 (or 0.26% of average assets), although KBRA acknowledges management’s recent efforts to grow the fee income business over time, including the wealth and asset management business started in 2022.

While KBRA recognizes that the company has historically maintained peer-like regulatory capital ratios, recent capital levels were adversely impacted by the PCSB merger and the current elevated common dividends. Considering the elevated CRE concentration (Investor CRE amounted to 396% of total RBC), KBRA believes that the maintenance of regulatory capital ratios at levels more closely aligned with peers is integral to the ratings.

Asset quality metrics remain manageable, despite modest upticks starting in 2Q23. On a last-twelve-month basis, the majority of the net charge-offs were associated with the C&I book ($30 million). The recent increase in the NPA ratio was also mainly driven by the C&I book. We note that Eastern Funding, a nationwide equipment finance division and a subsidiary of the Brookline Bank with $1.3 billion in loans (13% of total loans), is currently running off the specialty vehicle lending business ($352 million, or 4% of total loans).

Cash and short-term investments and investment securities constitute about 10% of consolidated assets. About 86% of the securities portfolio is pledged mainly to either public funds or to secured borrowings capacity from the FHLB. Total on-balance sheet asset liquidity is low, as the company largely relies on contingent sources of funding backed by pledged securities and loans for liquidity purposes. Coverage of uninsured deposits (including contingent funding sources) was 107% as of 2Q24.

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