BRKL Q1 Deep Dive: Merger Integration and Loan Strategy Headline Solid Quarter

Regional banking company Brookline Bancorp (NASDAQ:BRKL) fell short of the market’s revenue expectations in Q1 CY2025 as sales rose 4.1% year on year to $91.49 million. Its non-GAAP profit of $0.22 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Brookline Bancorp’s first quarter results were marked by disciplined execution in loan portfolio management and deposit growth, as management intentionally reduced commercial real estate exposure while expanding in commercial and industrial lending. CEO Paul Perl highlighted the planned runoff in the specialty vehicle portfolio and a 10 basis point increase in net interest margin, despite persistent market volatility and higher provision for credit losses. The company’s focus on expense control, including lower marketing and compensation costs, supported stable core earnings, while customer deposits expanded. As Perl noted, “We had solid core operating results for the first quarter with operating earnings of $20 million or $0.22 per share.”

Looking ahead, Brookline Bancorp’s outlook is shaped by continued uncertainty in the interest rate environment, the pace of deposit and loan growth, and the anticipated merger with Berkshire Hills Bancorp. Management expects modest improvements in net interest margin and low single-digit loan growth, with a focus on commercial and consumer segments offsetting runoff in specialty vehicles and reduced commercial real estate activity. CFO Carl Carlson emphasized the importance of adaptability, stating, “The interest rate environment, the potential impact of tariffs, and how our customers respond remains uncertain and the need to continually adapt is greater than ever.”

Key Insights from Management’s Remarks

Management attributed first quarter performance to a deliberate reduction in riskier loan categories, deposit growth, and strict cost control, while merger integration planning advanced.

• Loan portfolio repositioning: The company purposefully reduced its exposure to commercial real estate and specialty vehicles, with CEO Paul Perl noting an intentional $130.6 million contraction in total loans. This shift aligns with regulatory scrutiny and positions the bank for a more stable risk profile.
• Deposit growth and margin expansion: Customer deposits increased by $113.8 million, and net interest margin improved by 10 basis points to 3.22%, reflecting lower funding costs and management’s strategy to favor interest-bearing accounts.
• Expense discipline: Noninterest expenses (excluding merger charges) declined by $1.3 million quarter over quarter, driven by lower compensation and marketing spend. Management cited careful hiring and spending as the merger approaches, helping support profitability.
• Credit quality focus: The quarter included a $7.6 million net charge-off, mainly from a single large commercial and industrial (C&I) loan in the food manufacturing sector. Management emphasized ongoing efforts to monitor risk, particularly in sectors sensitive to economic and tariff uncertainty.
• Merger integration progress: Regulatory applications and shareholder processes for the Berkshire Hills Bancorp merger are on track, with system conversion planning underway. Management completed diligence on the core banking platform, and conversion is scheduled for February, although some cost savings may be delayed due to timing.

Drivers of Future Performance

Brookline Bancorp’s guidance reflects careful management of loan growth and expenses amid rate uncertainty and merger execution.

• Interest rate and margin outlook: Management expects only modest net interest margin improvement in coming quarters, with projections sensitive to Federal Reserve actions and market volatility. CFO Carl Carlson noted that a rate cut could be beneficial if longer-term rates remain stable, but the outlook is highly dependent on market movements.
• Loan and deposit growth dynamics: The company anticipates loan growth in the low single digits for the remainder of the year, led by commercial and consumer lending, while continuing to reduce exposure to specialty vehicles and commercial real estate. Deposit growth is expected to favor interest-bearing accounts, with a targeted 4-5% annual increase.
• Merger-related cost management: As Brookline Bancorp integrates with Berkshire Hills Bancorp, both organizations are closely managing expenses and hiring. Some cost savings from the merger may be delayed due to conversion scheduling, but management is confident that overall expense levels will remain tightly controlled.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be monitoring (1) the pace and quality of loan growth as Brookline Bancorp shifts its portfolio toward commercial and consumer lending, (2) execution of expense management targets during the Berkshire Hills Bancorp merger integration, and (3) any changes in margin trends as interest rates evolve. Progress on system conversion and realization of merger-related cost savings will also be key milestones.

Brookline Bancorp currently trades at $10.31, up from $10.18 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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