Brookline Bancorp Q2 2025 Earnings Call Transcript

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July 24, 2025

Key Takeaways

  • Positive Sentiment: Q2 earnings of $22 million, or $0.25 per share, were supported by $59 million in deposit growth and a 10 bps improvement in net interest margin.
  • Neutral Sentiment: Management intentionally reduced the loan portfolio by $61 million, cutting commercial real estate and specialty vehicle exposures while growing commercial and consumer loans.
  • Negative Sentiment: The sale of two commercial real estate loans triggered a $3.5 million charge and additional reserves were added for stressed Boston office credits.
  • Positive Sentiment: The merger of equals with Berkshire Hills, approved by shareholders in May, remains on track with systems integration planned for February 9 and no major issues identified.
  • Positive Sentiment: Q3 guidance anticipates a 4–8 bps net interest margin increase, low-single-digit loan growth, 4–5% deposit growth and quarterly noninterest income of $5.5–$6.5 million.
AI Generated. May Contain Errors.
Earnings Conference Call
Brookline Bancorp Q2 2025
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good afternoon, and welcome to Brookline Bancorp, Inc. Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there'll 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, Dario Hernandez. Please go ahead.

Speaker 1

Thank you, Lydia, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page on our website, brooklinebancorp.com, as has been filed with the SEC. This afternoon's call will be hosted by Paul Perrault and Carl 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 Pages two and three of our earnings presentation for our forward looking statement disclaimer.

Speaker 1

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

Speaker 2

Thanks, Dario, and good afternoon, everyone. Thank you for joining us for today's earnings call. Our results continue to improve in the second quarter with earnings of approximately $22,000,000 or $0.25 per share. As we have discussed over the last couple of quarters, we have been managing the balance sheet in advance of the merger of equals with Berkshire. The overall contraction of $61,000,000 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.

Speaker 2

We continued to see improvement in our funding as our customer deposits increased $59,000,000 and our margin increased 10 basis points during the quarter. We sold two commercial real estate loans during the quarter and recognized a charge of $3,500,000 Additionally, our Boston office portfolio continues to be under stress and we downgraded several credits during the quarter and added to the reserves for these credits. The office portfolio outside of Boston is continuing to perform very well. In May, the stockholders of both Berkshire Hills and Brookline approved the merger and I continue to be pleased with the progress the teams are making. We have been working together over the last few months to ensure a smooth merger and no significant issues have been identified to date.

Speaker 2

We are looking forward to being one bank in the coming months with a combination of our systems at early February enhancing the products and services for our combined customers. I will now turn you over to Carl who will review the company's second quarter.

Speaker 3

Thank you, Paul. As Paul mentioned, loans declined by $61,000,000 with commercial real estate and equipment finance declining $95,000,000 and $46,000,000 respectively, while commercial loans grew $53,000,000 and consumer loans grew $27,000,000 Owner occupied commercial real estate increased by $15,000,000 and investment commercial real estate decreased by $110,000,000 bringing the percentage of investment commercial real estate to total risk based capital to 363% at quarter's end. The decline in equipment finance loans was driven by the continued runoff of the specialty vehicle portfolio, which decreased by $27,000,000 during the quarter to $240,000,000 Our net interest margin improved 10 basis points to three thirty two basis points on higher asset yields as well as lower funding costs. Net interest income increased $2,900,000 for the quarter to $88,700,000 Fee income was slightly higher at $6,000,000 bringing total revenues for the quarter to $94,700,000 which is 3% higher than Q1 and 10% higher than 2024. Non interest expense excluding merger charges was $57,700,000 a decrease of $1,300,000 from Q1 due to lower expenses in nearly every category except marketing which increased $503,000 Merger expenses for the quarter were $439,000 and were largely non tax deductible contributing to a higher effective tax rate.

Speaker 3

The provision for credit losses was $7,000,000.1000000 dollars higher than Q1. We had total net charge offs of $5,100,000 and provided additional credit reserves for selected properties in the Boston office market. The reserve coverage increased to 132 basis points of total loans. Yesterday, the Board approved maintaining our quarterly dividend at $0.01 $35 per share to be paid on August 22 to stockholders of record on August 8. Looking forward, we continue to anticipate modest improvements to the net interest margin as liabilities continue to reprice lower.

Speaker 3

We are currently estimating an increase in the margin of four to eight basis points in Q3. This is dependent upon market conditions, deposit flows and the direction, timing and magnitude of future actions by the Federal Reserve. 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. On the deposit side, we anticipate growth of 4% to 5% with growth generally favoring interest bearing accounts. Non interest income is projected to be in the range of 5,500,000.0 to $6,500,000 per quarter.

Speaker 3

We are managing expenses, particularly staffing in preparation for the merger with Berkshire Hills later this year. Our effective tax rate is expected to be in the range of 24.25 excluding the impact of non deductible merger charges. This concludes my formal comments. I will turn back to Paul.

Speaker 2

Thanks Carl. And now we will open it up for questions.

Operator

Thank Our first question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead. Your line is open.

Speaker 4

Hey, guys. Good afternoon. First question I had hi, Paul. First question I had for you, and I know you don't know this exactly because it's regulatory driven, but when are you sort of targeting to close the acquisition? When do you think it's a reasonable guesstimate?

Speaker 4

And also do you have a sense for when you're targeting the systems conversion?

Speaker 2

Well, it's a merger. It's not an acquisition, a merger of equals. And the systems conversion is sometime mid February, I don't remember the exact date, but it's

Speaker 4

February 9.

Speaker 2

Ninth. And we wait every day for the Fed approval, which then has a little timeframe to it. So if we want to be very optimistic and forward looking, we might say September.

Speaker 4

Okay. And then I guess I'm curious when the two companies do come together in

Speaker 2

a merger,

Speaker 4

I was I assume there's some opportunity to do bigger loans with existing customers. I guess I was curious how big a credit or relationship you'd be willing to do when the companies come together?

Speaker 2

That the whole credit administration thing is getting done now, but I would expect that for certain kinds of well sponsored relationships, it would be perhaps approaching $100,000,000 maybe a little bit less than that sort of depending on what the categories are. But that would be about it. Yes, it might be 90,000,000 which is double what each company does now.

Speaker 4

Right. And that's relationship

Speaker 2

the legal limits. It's a it's a small it's a fraction of the legal limit.

Speaker 4

Okay. And then I wonder if you could give us any color on those two eastern funding credits where you took some additional reserves this quarter. Any

Speaker 3

That's basically the color. We continue to work with those credits, and we've added a little bit more to the reserves for both of those. So the two credits you're referring to is the we have a commercial laundry as well as a grocery exposure there. We've added basically another $1,000,000 to each one of those for specific reserves against that. We feel good where we are.

Speaker 4

Okay. And then, Karl, your guidance of four to eight basis points up in the third quarter, did that assume one rate cut or no?

Speaker 3

No. No rate cuts in that number.

Speaker 2

Okay.

Speaker 4

What what do you guesstimate the impact of a 25 basis point rate cut would be on NIM?

Speaker 3

Again, that's always, you know, as far as timing because, you know, we have a lot of assets that do reprice down immediately with that. So the timing in the quarter when that happens. So I think in in a quarter, it may be fairly flat for the initial 25.

Speaker 2

It hits both deposits and loans.

Speaker 3

It hits deposits and loans. And we'll we'll continue and a lot of we've seen a lot of benefits already, but we do have a lot of CDs and broker deposits as well as borrowings that continue to be priced down as we move forward. Just to give you a little sense on that, CDs, we have about $556,000,000 rolling off at 410 basis points. Last quarter, our CDs that went on the books around three seventy five. Brokered CDs, about a 194,000,000 maturing in the next quarter at at 480 basis points.

Speaker 3

And Federal Home Loan Bank advanced about $371,000,000 at four seventy seven basis points. So we're still seeing the benefits of those repricing down. The Fed moves 25%, they'll reprice down even more.

Speaker 2

So And we've also reduced materially the entirety of wholesale funding, which is even better.

Speaker 3

Thank you.

Speaker 4

Thank you.

Speaker 2

Okay, Mark.

Operator

Our next question comes from Laurie Hunsicker with Seaport Research Partners. Please go ahead.

Speaker 5

Yes. Hi. Good afternoon,

Speaker 1

I Laurie and

Speaker 5

just wanted to just on margin, do you have a spot margin for June?

Speaker 3

The spot margin for June was three thirty nine basis points.

Speaker 5

Okay. And then just going over to credit, I really appreciate all the details you provide. So just looking at your office book, that 647,000,000, how much of that is in the Boston Central Business District?

Speaker 3

$154,000,000

Speaker 5

Okay. And that includes those two credits?

Speaker 2

That's not just the central, but that's downtown.

Speaker 3

All of Boston. That's all of downtown.

Speaker 2

It's not just the financial district. We don't have that kind of concentration. Some of those are in the Back Bay, Newbury Street.

Speaker 5

Gotcha. Okay. And then the 29,000,000 so great that you resolved the 10,800,000.0. The 28,900,000.0 that basically experienced some deterioration this quarter, can you give us a little color on those loans in terms of when you're thinking resolution, what the vacancy is looking like? Do those have maturity I

Speaker 2

think they're all well sponsored properties. They're well located properties. They have vacancies, might be at 50% to 70% occupied. Lease up has been very slow as you can imagine, but great sponsors, they pay. And so we are exercising some patience, but sort of being careful with our reserves as we always are.

Speaker 5

Gotcha. And do any of those come due in the next couple of quarters?

Speaker 2

Do they? No. I don't think so.

Speaker 5

Okay. And then just going back over to the the jump in the C and I non performers, that equipment financing, just linked quarter. Can you help us think about that a little bit, you know, going from 33,000,000 to 46,000,000, the nonperformers in that bucket?

Speaker 3

Yeah. That was, driven by one one credit at Eastern Funding or at the equipment finance unit related to fitness equipment. Little over $11,000,000.

Speaker 5

Gotcha. Okay. Okay. Gotcha. And then, can you help us, this is sort of, I I guess, more more broad here.

Speaker 5

Can you help us think about the FASB's ASU with respect to, you know, what it means for pro form a tangible book dilution versus accretion. Right? So your tangible book dilution should be a little less. Your accretion should be more. Can you help us quantify that a little bit?

Speaker 5

Sure. The MOE?

Speaker 3

Laurie, we we we've known each other a long time. You know, I've hated this for so long. I think the entire banking industry is always questioned why why this rule was ever put in place. But they finally said they're gonna fix it, the whole double counting on this, so the whole CECL, the day two CECL booking. So I'll refer back.

Speaker 3

And we I think the presentation that we did when we announced the transaction was very provided a lot of good insight there. So I would recommend that if you want to go go see that, and and we we lay it out pretty well, and I'll refer to that number. So we we had estimated that to be 94,500,000 when we announced the transaction with the day two CECL would be. So that charge on an after tax basis is roughly $71,000,000 after tax. That is not gonna go flow through the income statement once FASB finally does this issues the final rule.

Speaker 3

Now they said they're issuing it. I've been waiting for it patiently. And you know how patient I am, but we'll see we'll see when that comes out. Our KPMG told told me the other day that they expect it likely in the fourth quarter. It wasn't gonna be a third quarter event.

Speaker 3

It'll probably be a fourth quarter event. So that that equates to about $0.84 per share. Right? So that's that's some real money. So it's it's great for our capital ratios.

Speaker 3

It'll be great for the earnings. Know, you know, $0.84 that represents about 20% of dilution we were talking about. So it does does improve how fast as you know, we announced when we did the deal a two point nine year earn back. This this will make it a lot faster than that. So we're we're looking forward to that happening.

Speaker 3

If the I wanna be clear on this. If the FASB does not issue it by the time this deal closes and we release earnings for the third quarter, if it does not happen in the third quarter, we would still have to recognize that day two CECL impact, and then it get reversed basically in the fourth quarter when they when they do finally meet, issue the issue the final rule. I hope that helps clarify what what that might look like.

Speaker 5

Yeah. Okay. So so okay. A couple more questions related to that. So it's also looking like, assuming, obviously, this goes through, that early adoption, will be permitted, but you don't necessarily have to do it.

Speaker 5

Would you all be early adopters? How do you think about that?

Speaker 3

Absolutely. Absolutely.

Speaker 5

Okay. Okay. And then the accretion income is obviously gonna go down. And so how do we how do we think about that? In other words, this deal when you announced it was oh, go ahead.

Speaker 3

Right. So so when we announced it, when we announced that, like I just said, $94,500,000 would would not get accreted back into income over time. But as you can understand, that $94,000,000 would be getting accreted over the life of the loans, which is, you know, five, six, seven years, maybe even longer when, you know, when you think about it over time. So it'll it's it's not as as meaningful impact when it when you think about it that way.

Speaker 5

Okay. Okay. Alright. So five to seven years. Okay.

Speaker 5

And then to your point on you'll have more capital, how do you think about assuming you close this deal September 30, how do you think about repurchasing shares? What's your thoughts there?

Speaker 3

I think that will just that will take some a little bit of time. I think we would have to get through the initial couple of quarters, and the Board will take that up if they feel that's the right thing to do. I think the first order of business will be, addressing the dividend, and then we'll then we'll address the stock and where our capital levels are. Okay. We we do we're we're pre we've been very clear that we wanna get the commercial real estate down to 300% in a fairly short order.

Speaker 3

And, you know, we're well on our way. We've we've had a lot of progress in that towards that end. And so I think that's gonna be the first order of business there.

Speaker 5

Okay. Okay. And then just, Carl, last last question on the dividend as you mentioned it. So if we look at Berkshire Hills right now, they're 72¢ annually, and you all said you would be adjusting it to make it, you know, on par with where you all currently are. So that's suggesting about a dollar 28 per share.

Speaker 5

Is that correct? Is that still the thinking?

Speaker 3

That's correct.

Speaker 5

Okay. Great. Thanks for taking my questions. I'll leave it there.

Speaker 2

Thank

Operator

you. And our next question comes from Steve Moss with Raymond James. Please go ahead.

Speaker 6

Hey, guys. This is Chase on for Steve. Good afternoon.

Speaker 2

Good afternoon.

Speaker 6

First one for me, how is new loan pricing holding up these days?

Speaker 2

It's holding up better than it had been over the years, but I think it's still a very competitive marketplace. And because we are originating much less in real estate, I think we are less exposed to the viciousness that's coming from things like institutional lenders, insurance companies and the like. But in the equipment finance business, those rates are strong and in the pure C and I business and in the consumer business, they're good, but competitive.

Speaker 3

To give a sense during the

Speaker 2

We can give you some numbers.

Speaker 3

I'll give you just a quick overview there. So total loans originated in second quarter were $445,000,000 a weighted average coupon of six ninety four basis points, so just shy of 7%.

Speaker 6

Alright. Thank you for that color. One more for me. I saw in your your deck, mentioning of the mass housing taking takeout being delayed. Can you provide any more, color on that?

Speaker 6

Which

Speaker 3

Yeah. So this if there's a loan that it it's in our it's basically a considered it's a ninety day past due loan because of the maturity date. It's it's being taken out by Mass Housing. Everything's in order. It's an accruing loan.

Speaker 3

It's not I wouldn't consider anything wrong with the loan at all. It's just that because it's ninety days past due from a from a maturity standpoint, it it it falls into that category. We're just waiting for the the paperwork to go through and and for it to be taken out by Mass Housing. But it's a 100% leased up. It's the property's in good order.

Speaker 3

I expect that to be out this Got

Speaker 6

it. Thank you so much. Appreciate it.

Speaker 3

Sure.

Operator

Thank you. Our next question comes from David Conrad with KBW. Please go ahead.

Speaker 3

Yes. Good afternoon. Real quick one

Speaker 4

for me. I guess really regarding 3Q on a standalone basis. Expenses are really good this quarter. Just your near term outlook, is this a good run rate? Or how should we think about that for the third quarter?

Speaker 3

Yes. I don't see anything. If anything, it would be down a little bit. We're Good run rate. Been running at pretty solid.

Speaker 4

Okay, great. Thank you.

Operator

Thank you. We have no further questions. So I'll pass you back over to Paul Perrault for any closing comments.

Speaker 2

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

Operator

Thank you very much. This concludes our call today. Thank you for joining. You may now disconnect your line.

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