Regional banking company Brookline Bancorp (NASDAQ: BRKL) fell short of the market’s revenue expectations in Q2 CY2025, but sales rose 9.6% year on year to $94.66 million. Its non-GAAP profit of $0.25 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Brookline Bancorp’s second quarter results drew a negative market response, as the company missed Wall Street’s revenue expectations despite posting nearly 10% sales growth. Management pointed to intentional reductions in commercial real estate and specialty vehicle lending as major factors, in part due to preparations for the upcoming merger with Berkshire Hills. CEO Paul Perrault noted, “The overall contraction of $61 million in our loan portfolio is intentional as we reduced exposures in commercial real estate and specialty vehicles and at the same time, grow our commercial and consumer loan portfolios.” Additional credit reserves were set aside for stressed Boston office properties, while deposit growth and an improved net interest margin offered some positive offsets.

Looking ahead, management’s expectations for modest loan and deposit growth are shaped by both the merger integration and ongoing credit concerns in select portfolios. CFO Carl Carlson emphasized a cautious approach: “We anticipate growth in the loan portfolio to be in the low single digits for the balance of 2025 as growth in commercial and consumer loans will be tempered by the runoff of specialty vehicle and the gradual pickup in commercial real estate activity.” Planned expense management and anticipated regulatory changes regarding credit loss accounting could further impact capital and future earnings, while the timeline for the merger’s closure and integration remains dependent on regulatory approvals.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to proactive balance sheet repositioning, loan portfolio adjustments, and continued merger preparations, while also noting ongoing challenges in segments like Boston office real estate.

• Loan portfolio repositioning: Brookline Bancorp deliberately reduced exposure to commercial real estate and specialty vehicle lending ahead of its merger, offsetting these declines with growth in commercial and consumer loans. This reflects a strategic shift to improve risk balance and regulatory capital ratios.

• Deposit growth supports margin: The company reported customer deposit growth of $59 million and noted a 10 basis point improvement in net interest margin, aided by lower funding costs and higher asset yields. Management expects further incremental margin improvements as liabilities continue to reprice down.

• Credit risk in Boston office properties: Additional reserves were allocated to credits within the Boston office market, where management observed ongoing stress and slow lease-up rates. CEO Perrault described these properties as “well-located… but lease-up has been very slow,” and the company is exercising patience while bolstering reserves.

• Merger integration progress: Both Brookline Bancorp and Berkshire Hills received shareholder approval for their merger, with system integration targeted for early February. Management indicated collaboration is proceeding without significant issues, but the closing date remains contingent on regulatory approval.

• Expense control ahead of merger: Noninterest expenses declined compared to the previous quarter, as the company managed staffing and other costs in anticipation of the merger. Merger-related charges were modest but contributed to a higher effective tax rate.

Drivers of Future Performance

Management’s outlook centers on loan and deposit growth, merger integration, and the impact of regulatory accounting changes on capital and earnings.

• Merger execution and integration: The merger with Berkshire Hills is expected to expand lending capacity—potentially enabling larger credits up to $90 million—while creating opportunities for operational efficiencies. However, the timeline for completion depends on regulatory approvals, which creates some near-term uncertainty.

• Credit quality management: Exposure to stressed Boston office loans and select equipment financing credits remains a key risk. Management is prioritizing reserve adequacy and expects gradual portfolio improvement, but noted that recovery in leasing and asset performance could be slow.

• Regulatory accounting changes: Anticipated revisions to the accounting standard for credit losses (CECL) could reduce tangible book value dilution and accelerate merger-related earnings accretion. CFO Carlson stressed that early adoption of the new rule would benefit capital and shorten the projected earn-back period for the merger’s impact.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be tracking (1) progress on the Berkshire Hills merger and system integration timeline, (2) credit trends and reserve developments in the Boston office and specialty equipment finance portfolios, and (3) the impact of regulatory changes related to credit loss accounting on capital and merger economics. The pace of loan and deposit growth as well as expense management will also be important to monitor.

Brookline Bancorp currently trades at $11, in line with $11 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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