Brookline Bancorp Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

There are 9 speakers on the call.

Operator

Afternoon, and welcome to Brookline Bancorp Inc. 3rd Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I'd now like to turn the conference over to Brookline Bancorp's Attorney, Laura Vaughn. Please go ahead.

Speaker 1

Thank you, Alex, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website, The plainbancorp dot com has been filed with the SEC. We will not be doing a slide set this quarter. This afternoon's call will be hosted by Paul A. Peltz and Carl M.

Speaker 1

Carlson. This call may contain forward looking statements with respect to the financial condition, Results of operations and business of Brookline Bancorp. Please refer to Page 2 of our earnings presentation for our forward looking statement disclaimer. Also, please refer to our other filings with the Securities and Exchange Commission, which contain risk factors that could cause actual results to differ materially from these forward looking statements. Any references made during this presentation to non GAAP measures are only Thank you in understanding Brookline Bancorp's results and performance trends and should not be relied on as financial measures of actual results or future predictions.

Speaker 1

For a comparison and reconciliation to GAAP earnings, please see our earnings release. I'm pleased to introduce Brookline Bancorp's Chairman and CEO,

Speaker 2

Thanks, Laura, and good afternoon, everyone. Thank you for joining us for today's earnings call. Yesterday, we reported net income for the quarter of $22,700,000 or $0.26 a share. Our bankers remain active and we continue to see lots of opportunities to bank strong new relationships in our markets. The loan portfolio grew by $40,000,000 and customer deposits grew by $88,000,000 in the quarter.

Speaker 2

Non performing assets increased slightly in the quarter off historically low levels and remain less than half of 1% of total assets. Net charge offs for the quarter were $11,000,000 which were largely previously reserved for. Net charge offs over the Past 12 months represent approximately 14 basis points, while the allowance for loan loss represents 127 basis points of total loans. I'll now turn you over to Carl, who will review the 2nd quarter results.

Speaker 3

Thank you, Paul. This quarter's total assets finished the quarter basically flat with Q2, driven by a reduction in cash and securities, partially offset by the growth in loans. The banking team generated net loan growth of $40,000,000 in the quarter with growth of $48,000,000 split evenly between C and I And Equipment Finance, with declines of $1,000,000 in commercial real estate and $7,000,000 in consumer loans. In the Q3, we originated 5 $62,000,000 in loans at a weighted average coupon of 7 26 basis points. This increased the weighted average coupon on the core loan portfolio 14 basis points to 5 82 basis points at September 30.

Speaker 3

On a linked quarter basis, the yield on the loan portfolio increased 14 basis points to 5.84%. On the funding side, customer deposits grew $88,000,000 and broker deposits were reduced $39,000,000 for net growth and deposits of $49,000,000 Growth continued to be in higher rate savings and time deposits, partially offset by declines in DDA Now and Money Market Products. The average cost of total deposits increased 24 basis points in the quarter to 228 basis points. Total average interest earning assets declined $110,000,000 on a linked quarter basis And the net interest margin declined 8 basis points to 3.18 percent, resulting in net interest income of $84,000,000 A decline of $2,000,000 from the 2nd quarter. Non interest income was $5,500,000 for the quarter, which was consistent

Speaker 4

with the prior quarter. Expenses

Speaker 3

were $57,700,000 for the quarter, up $900,000 from Q2 when excluding merger charges recorded in Q2. Provision for credit losses was $3,000,000 for the quarter, down $2,900,000 from Q2. Yesterday, the Board approved maintaining our quarterly dividend at $0.135 per share to be paid on November 24 to stockholders of record on November 10. On an annualized basis, our dividend payout approximates a yield of approximately 6.3%. This concludes my formal comments.

Speaker 3

I will turn it back to Paul.

Speaker 2

Thank you, Carl. We will now open it up for questions.

Operator

Thank you. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Mark Fitzgibbon of Piper Sandler. Your line is now open. Please go ahead.

Speaker 5

Hey, guys. Good afternoon. Carl, wondered if you could share some thoughts on the net interest margin. The rate of decline has obviously slowed some. Any help that you could share with us on 4th quarter NIM in terms of additional margin compression?

Speaker 3

Sure. Again, it's very difficult to estimate what's really going to happen here. Last quarter, we saw July's deposits really not a lot of movement on the deposit side. That accelerated in August. So I didn't think we were going to have as much NIM compression as we did experience, 8 basis points.

Speaker 3

But right now, we're estimating to be around 5 to 6 basis points next quarter. Again, that all depends on what's going on with deposits. We're kind of modeling some aggressive moves and continued aggressive moves in deposits. Our bankers are actually Suggesting it might be far less than that, but we'll see.

Speaker 5

Okay, great. And then secondly, I wondered if you could share any details with us on that $14,800,000 commercial real estate loan that went on non accrual?

Speaker 2

Office building here in Boston, it is very well owned. It is Significantly occupied, but they have not been able to get it over the top. And we're working with them to Create an environment where they can be helpful and we can be patient. And I'm pretty optimistic that that will be in the right place fairly soon.

Speaker 5

Paul, you say well owned, it was a participation with a bunch of other banks?

Speaker 2

No, no. It's a property owner and manager who has partners in it with him. I think we may have a participant Thank you. On our side. But I was really referring to it's a bunch of investors who own it.

Speaker 2

It's managed by one very able guy.

Speaker 5

Okay. And any color on what the LTV and debt service Look like at origination?

Speaker 2

I would be speculating. It would look like most of our originations, which would have been a pretty low loan to value and a pretty high coverage ratio.

Speaker 5

Okay. And then I guess I was curious at a high level, You guys traffic in a lot of different commercial and commercial real estate areas. What areas are you sort of monitoring most Closely today or where you have kind of enhanced monitoring, what pieces of the loan book are you most focused on watching carefully?

Speaker 2

Well, I think it's got to be office, which represents about 8% of our loans. We've got Maturities coming up over the next few years that don't amount to a whole lot, but we're just trying to monitor What the cap rates are looking like, what trades are happening in the marketplace and occupancy, but it's really been very quiet, particularly in Metro Boston, it's been a little bit more active in Westchester, But most of the loans, as you know, are sort of inside 495.

Speaker 6

Okay.

Speaker 5

And then last question for me. Clarind in private, any updates there? How are things going or And an update on assets under management?

Speaker 3

Yes. We're still not reporting that out at this point. Still early in the game, But everything is proceeding as we expect.

Speaker 7

Thank you.

Speaker 2

Thanks Mark.

Operator

Thank you. Our next question comes from Nick Cucarale from Hovde Group. Nick, your line is now open. Please go ahead.

Speaker 6

Good afternoon, everyone. How are you?

Speaker 2

Good. Thanks.

Speaker 6

Another strong quarter for growth in the Equipment Finance division. How high are you willing to take those balances as a percentage of the total loan portfolio? And Can you comment on how you're approaching credit risk in that segment considering the higher rates to customers and overall economic environment?

Speaker 2

I've long held that I would be comfortable up to as much as 20% of the loan book We'll be in the equipment finance area. We're well below that at this point. And I think that They are carrying on business as usual. They are seeing consolidation in a lot of the areas where they operate. So they see opportunities To bulk up for some of our customers and with the inflation being as it has been, I think That their operators are able to take care of these deals at the higher rates.

Speaker 2

It really hasn't been a problem. We haven't seen any uptick in delinquencies or anything.

Speaker 6

Okay. That's helpful. And then just to follow-up on the Deposit discussion. At this point in the quarter, are you seeing stability in your demand deposits?

Speaker 3

We are. So we're still seeing some runoff, but Not as aggressive as we've seen in the past, but I would have said that last July too. So I'll couch that

Speaker 2

As we go forward. Then it jumps around. It jumps around. It does jump around.

Speaker 3

But it's slowing down. Fair

Speaker 6

enough. Thanks for taking my questions.

Operator

Thank you. Our next question comes from Steve Moss of Raymond James. Your line is now open. Please go ahead.

Speaker 4

Good afternoon. Just Curious here if we just talk about loan pricing, where new loans are coming on the books and kind of that dynamic?

Speaker 3

Sure. What would you like to know?

Speaker 4

Where are you pricing today and versus what do you put on in the 3rd quarter? Let's put it that way.

Speaker 3

So 3rd quarter numbers are On average for the Q3, so things are coming in certainly higher than that. As you know, the 5 year has moved substantially even since September. So I don't have specific numbers to date, But all the pricing is doing much, much better on the loan side. And so we're very optimistic there. On the deposit side, the funding side, What I'm optimistic about is that we really haven't moved our rates much on the deposit side at all, even though we've seen naturally The longer part of the curve from 2 out to 10 move particularly around 5 to 10 moved quite a bit.

Speaker 3

We've not had to move our pricing on our deposit side and we're still seeing growth, continue to grow our customer base there. So pretty optimistic in that sense. Okay.

Speaker 4

And then in terms of just other question related to the margin, just curious what was purchase count increasing for the quarter?

Speaker 3

2,600,000 almost $2,700,000 on loans.

Speaker 4

Okay. And then in terms of just curious on expenses here, how are you guys feeling about Expense trends into the 4th quarter, but also just even next year,

Speaker 5

in the current environment.

Speaker 3

We feel like we're going to be right around this area, around the $57,000,000 a quarter at this point with site growth going into next year.

Speaker 4

And then

Speaker 3

Just one more for me. I saw

Speaker 4

on the deck you guys had your maturities, the 1st CRE over the next 24 months. Just curious kind of of what's come and do, should we think about the maturities having a similar LTV To what you show in the earlier slides, the overall composition of portfolio, do you see any stress in that theory maturity pipeline?

Speaker 3

I don't have the maturities by quarter or by the maturity buckets in front of me. As Paul mentioned earlier, I imagine they're going to be very similar to the overall portfolio. It sounds like we have a lot of pretty much steady of what we actually book.

Speaker 2

Those loans were well underwritten. They've performed very well. The expectation is that, that will continue. And in terms of current loan to values, it's a very difficult environment because there have been so few trades But it's very hard to pinpoint what something is worth right now. There have been a few Sort of spectacular crashes of things that have been around here, a few buildings here and there.

Speaker 2

But for the most part, those weren't traditional bank deals They're not in the right locations and they might not have been well owned. So I don't expect that there will be a lot of noise in those Renewals.

Speaker 4

Okay, great. Thank you very much for all the color. Appreciate it.

Speaker 2

You're welcome.

Speaker 6

Thank you.

Operator

Our next question comes from Laurie Hunsicker of Seaport Research Partners. Laurie, your line is now open. Please go ahead.

Speaker 8

Great. Hi. Thanks, Paul and Carl. Just wanted to go back to commercial credits, please. So starting with your $14,800,000 Office 3 that came over Into non accrual, is that a Class A or Class B?

Speaker 2

It's probably considered Class B.

Speaker 8

I see. Okay. And then did you have the vacancy on that?

Speaker 2

I don't have that in front of me. It's not empty.

Speaker 8

Got it. Okay. And

Speaker 2

But it's not quite enough. Right. That's right.

Speaker 8

Yes. That's true of most of Boston, right? And then you didn't have a current debt service on that?

Speaker 2

Again, I don't have that in front of me. But it was not that open.

Speaker 3

Yes.

Speaker 8

Okay. And then is there do you have a specific reserve against that $14,800,000 credit?

Speaker 2

That one, I don't think so.

Speaker 8

Okay. Okay. And then the 2 car sold We take

Speaker 2

a specific reserve.

Speaker 8

Hard talk.

Speaker 2

We only take a specific reserve when we've got a pretty serious situation. And this one is not quite in that category.

Speaker 8

Okay. Okay, that's good. Your 2 commercial charge offs, can you give us a little color as to what they were in the quarter?

Speaker 2

Yes. Those we had big reserves against both of them. These are things that have not been going well for quite some time. One is a medical enterprise and the other is a development enterprise. And in both cases, Their demise was self inflicted wounds.

Speaker 2

It was not a market driven thing. They were just not managed properly And things fell apart. So the good news is it wasn't the market. The bad news is that we still lost some money.

Speaker 8

So they were both C and I credit?

Speaker 2

Correct. Yes.

Speaker 8

Okay. Okay. And then just going back to office here, your $747,000,000 book, just hoping for a refresh on a couple of things. How much of that is lower risk medical?

Speaker 3

I don't have those numbers in front of me, Laurie. It's not a big deal. Medical is not a big part of our portfolio In the office sense. Sometimes it stands up in the owner occupied side. It's more in the owner occupied side of things.

Speaker 8

Got you. Okay. And then can you just help us think about of your $747,000,000 how much is Class A

Speaker 3

We're not big Class A lenders. So it's a small amount.

Speaker 8

Okay. And then I know that most of what you do is in the suburbs, but can you just help us think about how much Of your exposure roughly as downtown Boston? I

Speaker 2

think we provide that

Speaker 3

in the deck.

Speaker 8

You do. Okay. I'll go back and look at that. I must have missed that. Okay.

Speaker 8

And then last question on office. I'm sorry to put you still on the spot here on this. But On Slide 18, it looks like you've got $26,000,000 maturing in the 4th quarter. Any update on that? Have you had any renewals yet?

Speaker 8

I know we're early in Quarter and maybe just of the $26,000,000 I guess how much is A, B and C or just any color you can give us on what

Speaker 3

I don't have any color on the timing of when those are going to get renewed or Whether it's A, B or C.

Speaker 2

Yes, I don't know either. I haven't seen them yet, but I've not heard any noise.

Speaker 8

Okay. And then Paul, just last question. Can you help us think about with your stock trading here below book, How you're thinking about buybacks?

Speaker 2

Well, I'm thinking about Carl for buybacks.

Speaker 3

So we're yes, I think it's an attractive area. It's an attractive area. I'm sorry, go ahead, Flora. Flora.

Speaker 8

No, I was just going to say, Carl, how are you thinking about buybacks?

Speaker 3

So it's an attractive place to be buying back stock, but we're also very thoughtful about our capital and we're preserving capital at this point and we're using it for growth.

Speaker 8

Okay, great. Thanks for taking my questions.

Speaker 2

Sure. You're welcome.

Operator

Our next question comes from Chris O'Connell of KBW. Your line is now open. Please go ahead.

Speaker 4

Hey, good afternoon.

Speaker 3

Hi, Chris.

Speaker 7

I don't think I missed I apologize if I did. Did you guys give what the loan pipeline was at the end of the quarter, interest breakdown of the categories?

Speaker 3

Yes, we don't really provide pipelines,

Speaker 1

Chris.

Speaker 2

It's too hard to define.

Speaker 3

I would say Pipelines are certainly down from previous levels, but we're still very active. More so in the C and I space. The equipment finance side.

Speaker 7

Got it. I guess just more thinking about

Operator

how are

Speaker 7

you guys thinking about loan growth going forward given that Yes. The funding pressures are starting to abate a bit as the organic outlook changed and how are you guys thinking about growth into next year?

Speaker 3

So we've always kind of targeted $80,000,000 to $100,000,000 of loan growth. I think that still is a target for us per quarter and but a lot of that does depend on deposit growth. So as long as the deposits are there, we'll be continuing to grow loans. The market is still active. There's still very good customers that we're talking with.

Speaker 3

So again, it's about the deposit side.

Speaker 6

Got it.

Speaker 7

And as you guys are kind of looking at the market right now, in the different dynamics With the Fed tightening, where are you finding the most attractive sectors or subsectors In terms of what type of growth you want to put on the balance sheet at this point?

Speaker 2

The equipment and C and I are certainly very attractive and we're very active in all three banks in these areas, Partly as a result of the displacement of last spring of lots of companies are now banking with somebody that they didn't choose. And so that has been providing some opportunities for conversations and proposals. But that stuff takes a little time to Pardon up. And that's kind of the period that we're in now. And that's why we have a fair amount of optimism as we go toward the end of the year.

Speaker 2

Some of these companies want to wait till the 1st of the year for things like treasury services. So there's a good feeling in the air, But it would be an equipment and C and I mostly. And we'll stand by on real estate. We'll take care of our customers As needed, but there's not that much going on in real estate.

Speaker 7

Got it. And should we take the NIM comments around Another 5 to 6 bps maybe next quarter or potentially better if you see a little less pressure To be that that could be the inflection point for the margin and start to head up in 2024?

Speaker 3

That's our current modeling suggests that.

Speaker 7

Great. That's all I have for now. Thanks for taking my questions.

Speaker 2

Thanks, Chris.

Operator

Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Perrault for any closing remarks.

Speaker 2

Thank you, Alex, and thank you all for joining us this afternoon, and we will look forward to talking with you again next quarter. Good day.

Operator

Thank you for joining today's call. You may now disconnect your lines.

Powered by Quartr

Key Takeaways

  • Brookline reported Q3 net income of $22.7 million, or $0.26 per share.
  • The quarter saw $40 million in loan growth and $88 million in customer deposit growth.
  • The net interest margin declined 8 basis points to 3.18% and is projected to compress another 5–6 basis points in Q4.
  • Credit metrics remained stable with net charge-offs of $11 million (14 bps annualized), an allowance for loan losses of 127 bps, and non-performing assets below 0.5% of total assets.
  • The board approved maintaining the quarterly dividend at $0.135 per share, reflecting a 6.3% annualized yield.
AI Generated. May Contain Errors.
Earnings Conference Call
Brookline Bancorp Q3 2023
00:00 / 00:00