Q3 2019 Earnings Call

Good day and welcome to the Brooklyn Bank Corp. Inc. Q3, 2019 earnings conference call.

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Now, let's turn the conference over to Marissa Martin Associate General Counsel. Please go ahead.

Thank you.

Good afternoon, everyone and welcome to Brooklyn, Bancorps third quarter 2019 earnings Conference call.

Yesterday, we issued our earnings release, which is available on the Investor Relations page, if our website Green Bancorp Dotcom and has been filed with the FCC.

Afternoon call will be hosted by Brookline Bancorp's Executive team, Paul April and Carl Carl.

Before we begin. Please note. This call may contain forward looking statements with respect to the financial condition results of operations and business Brookline Bancorp actual results may differ from these forward looking statement.

Factors that may cause actual results or get hurt include those identified and our annual report on Form 10-K .

Most recently filed 10-Q and our earnings press release, the crime Bancorp cautions you against 10 duly relying upon any forward looking statements and disclaims any intent to update publicly any forward looking statements whether in response to new information future events or otherwise any references made during this presentation.

non-GAAP measures are only made to assist you in understanding Brookline Bancorp's result, and performance trend and should not be relied on its financial measures actual results for future production.

For comparison and reconciliation to GAAP earnings please see our earnings release.

And now I'm pleased to introduce you to Brooklyn, Bancorp's, President and CEO Paul problem.

Actual results.

Afternoon all.

Today by our Chief Financial Officer coal coal from who will walk you through our quarterly financial results. Following my comments.

I'm pleased to report we had another solid quarter, driven by organic loan and deposit book.

Quarter loan balances grew by $141 million.

Deposits increased by $107 billion.

Falling short term wage flattening yield curve continue to put pressure on net interest margin. However, our net interest income slightly improved.

Also had another solid quarter for fee income.

We reported earnings of $22.6 million worth 28 cents per share before quarter end yesterday. The board approved an increase in our quarterly common dividend to 11 other half starts per share.

Just a second increase in this year.

We also announced our attention to consolidate the bank charter for first step switch back into booked like back.

As many of you know first up switchback became a member of our family of banks and 20 alone.

Over the past eight years.

EPS, which Dan has had great success and nearly doubling the banks asset size.

Honored and $64 million six branches, serving the community is north of Boston.

With that success. The teams outreach has grown so toward Boston as Brookline Beck's growth has taken up north.

The emerging overlap in the marketplace. That's what was the ever growing requirements for investments in technology and compliance they stand alone of that size inefficient in our opinion.

We expect to complete the charter and systems consolidations during the first quarter of 2020.

There will be no branch closure. Those are result of the charter consolidation and we remain dedicated to preserving our tradition of banking locally that's our number one priority.

I'll now turn you over to Carl who will review the company's third quarter.

Thank you Paul.

Aforementioned earnings for the quarter were 22.6 million 2.1 going from the second quarter.

Net interest income.

Proved one or $2000 noninterest income improved 400.

51000, and the provision for loan losses decreased 2.9 million courts <unk> expenses decreased 538000 from Q2.

This was partially offset by a 1.1 billion dollar restructuring charge for the first its which bank charter consolidation Paul mentioned.

We expect the charter consolidation to say about $2.5 million, an operating expense on an annualized basis.

$2 million realized in 2020.

We had strong loan growth of $141.5 million in the third quarter, 40.7% on an annualized basis.

For the quarter commercial real estate group.

95.9 million.

And I grew 24.1 million and consumer loans grew 21.5 <unk>.

Loan originations and brought out within the quarter was $619 million with an average weighted coupon 510 basis points.

The weighted average yield on the loan portfolio for the quarter was 5.8 basis points, but decreased six basis points from the second quarter as the overall yield on earning assets declined five basis points to 483 basis points.

Total deposits grew 106.8 million during the quarter with the growth of 63.8 million in demand deposits 90.2 million savings and 27.2 million in Cds.

Well, where asset yields and slightly higher funding costs resulted in our net interest margin compression 10 basis points from the second quarter, the 3.4 or 5%.

Moreover, our net interest income improved 102000 on a linked quarter basis, driven by our growth in earning assets.

Included in net interest income impact the purchase accounting and prepayment fees purchase accounting was 162000 in the third quarter flat from the second quarter and prepayment fees were 873000 down 74000, combined the quarter over quarter changes at a one basis point negative impact on margin.

Non interest income was 7.9 million in third quarter 451000 from Q2.

Increase was driven by strong customer derivative activity offset by the negative mark to market of 116000 on the equity portfolio versus a positive mark a 357000 in the second quarter.

The company's noninterest expense.

Increased 587000 from the second quarter to 40.2 million.

Excluding the 1.1 million restructuring charge for the bank charter consolidation expenses declined on a linked quarter basis 538000 <unk>.

The linked quarter decline was due to lower charges related to Oreo when repossessed assets as well as FDIC expense offset by increases in compensation occupancy and equipment.

[noise] provision for credit losses for the quarter was 871000, a decrease of 2.9 million from two to the decrease in the provision was driven by a reduction in classified assets lower loan charge offs and stronger recoveries. The allowance for loan losses increased 500000 in the quarter to 59.1 million and represent 89 basis.

Points on loans.

[noise] as Paul mentioned, the board increased our quarterly dividend to 11, and a half centsper share, which approximates 2.98% yield based on Yesterdays closing price of 15 44.

We also opportune opportunistically repurchased $1.9 million worth of stock at an average price of $13.74 during the quarter yes.

$8.1 million remaining under the $10 million program [noise].

That concludes our formal statements we will now opened up for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.

Try your question. Please press Star then too.

Our first question comes from Mark Fitzgibbon, with Sander Sandler O'neill and partners.

Hey, guys good afternoon Mark.

I was wondering now that you're consolidating Ipswich, whether it would make sense at some point to also consolidate bank, Rhode Island, and if so what kind of synergies could potentially come from that.

No actually a I don't think still more color, but island continues to improve every quarter. They had a great a third quarter. Other originations are very strong they are a leader in that market and they are big enough in our opinion that we can realize the efficiencies.

At that size it to the two and a half billion dollars.

Going towards three and so I think we're very comfortable with the Qubec situation right now.

Okay.

And then it looked like cash and cash equivalents roughly doubled from last quarter, well that get deployed in the fourth quarter or or do you just playing to run with a higher cash balances.

Well, probably have a little bit at higher cash balances compared to previous previous quarters.

But we'll we'll be deploying some of that in Q4.

Yes, it looked like construction loan balances were up quite a bit I know, it's off a very low base, but is it commercial construction residential construction and yeah. What geography is that coming from it is it is virtually all a commercial construction, we do very very little residential construction and it would be a pretty uniformly across.

All of our markets.

Everything continues to be very strong in Rhode Island that in Massachusetts, Southern New Hampshire.

And so it's not it's not any one particular project was just a lot going on.

Okay, and then I was little surprised it looks like you average CD costs rose a little bit this quarter.

Four or five basis points, where should we expect that that's going to turn the corner in the fourth quarter and we'll start to see those CD rates coming down.

Yes.

Well that just as its carryover from the previous yeah, I think that's the residual from the early part of the year one.

With pretty aggressive around here the C. D E rate business [laughter] and then you can you just any guidance you provided to us on the margin over the next quarter or two would be would be great. Thank you.

Yes, so the relatively flat yield curve would falling short term rates will continue to put pressure on our net net interest margin.

We definitely come off the peaks in the CD pricing.

But we'll still see customer migration into into those products. So.

For modeling currently flex one caught in October .

Which will probably be solved in our net margin net interest margin than that.

3.39% range for Q4 and.

Right now were approximating a 350 NIM <unk> for 2020.

[noise] no. Thank you you know as far as like.

<unk> 25 basis point impact Oh, we typically see 67 basis point impact in the immediate quarter.

And and then with the following quarter it catching up on the that's art Cds and voluntary price.

Carl if that's the case and we see some rate cuts. It strikes me to 350, you might be aggressive now.

For 2000 <unk> it.

What we also we are also have it might be I wouldn't say it depends on how many rate cuts. If we just have one rate cut.

We do see that improving going it it can we do see them in improving institute into 2020.

Thank you.

Our next question comes from Collyn Gilbert of KBW.

[noise]. Thanks, Karl just following up on that on the on the comment on the NIM on [noise].

With so one rate cut could get you did a 350 what are you assuming the kind of the on the long end of the curve to do I mean does that assume that the long end stays where it is as well.

Yes.

Okay. So we get a slightly.

Taking a long rates, where they are sort of thought okay.

Okay, and then the dynamic that would that would drive that would just be continue well into the same way as you had indicated some of that the repricing into higher cost deposits, but yet that there would be an inflection that would come and then you would just CE mark.

More drops in funding cost as the year goes on.

Well, there's there's a strong demand deposit growth, there's there's more capital going into the equation than it is sort of the run off of those Cds that.

It occurred when rates sort of.

I hate to use the word peaked but [laughter] when they were up a little higher [laughter] that all runs off.

Okay, and just to frame that a little <unk> what are some of the higher you know some of it the tranches of either some promotional money that you'd put on the balance sheet, they're rolling off what are some of the rates that you're seeing either on the C.D. side of the money market that you expected to roll off it was basically in the 2% range.

Hi, good.

Okay, and offering that we went out with a six month guaranteed the 2% those things will be we know repricing reprice and.

Okay, and you make some run off of those deposits will see all depends on.

What goes on there but.

I think your country, we do project out what things, replacing it into the current rates for lower rates.

Okay, Okay and then.

Paul You would you know talks a little bit about the commercial construction that you're seeing that they demand you're seeing across all markets, but even outside of that and he does put up some really good loan growth this quarter and in most all categories.

What is how are the pipelines looking it as you move into the fourth quarter do you think theres some pull through effect.

They could be happening on the on loan growth side or do you feel optimistic that you can continue these trends in your 2020.

What's the what's a pull through [laughter], well I don't know everybody's taking advantage of rates dropping and some stability here and I just if that business activity is heightened now versus maybe what happens next year with uncertainty election or.

Currently currently the pipelines all strong.

And if it does tend to be primarily net new business activity of some cod.

And so I expect that we will continue on a path that that we have gone on here I'll leave it and make it a little bit stronger for you in telling you that in recent months, we've sort of ahead of spot of our customers being acquired [laughter]. Some a lot better customers and so we've seen matures.

We'll pay downs, along the way for all the right reasons.

And that we've been able to overcome that still up pretty good growth. So that might give you a clue as to how strong these economies continue to be.

Okay. Okay. That's helpful and I missed it Carl what was it that you repurchased this quarter and in terms of shares.

Oh, approximately 136000 shares.

Okay.

And what is your appetite or for that going forward or how does that factor into your kinda overall capital management strategy.

Oh, it's not it's basically not an overall capital management strategy as far as they did the buyback is concerned the board approved the 10 million dollar.

Program earlier this year.

To be used opportunistically and so when we saw the opportunity to buying some stock, but we felt was a very cheap we.

We did.

Okay, and we'll continue to do that.

If we see opportunities to buy cheap.

Okay.

And then just lastly on M M&A front Paul any.

You no change in and outlook their appetite, where you're seeing potential supply of targets there.

On the likelihood that you would do another M&A deal in the next 12 months.

Hi.

It's very hard to speculate I, but I'd say that the kolon, there's been really no change in our view of the world. We looked good stuff doesn't come by and we some of it we like some we don't and recently, we haven't got [laughter], Okay, Alright, very good I will I'll leave it there.

Again, if you had a question. Please press Star then one.

Our next question comes from Laurie Hunsicker Compass point.

[noise].

I've always.

Lori Your line is open.

Oh, hi, there so sorry, I was on mute and good afternoon accretion in time I was looking for accretion income and pre pay fees.

A third quarter do you have those.

Yeah.

[noise], so as far as prepayment fees there were 873000.

That's down 74000 barrels from the prior quarter.

[noise] [noise] purchase accounting was $162000 basically flat with the second quarter.

Okay.

Great. Thanks, and then I know, it's very very small at this point, but can you just update us on the taxi Buck.

Where are you are.

And obviously, we saw charge offs, you know drop completely so presumably now taxi charge offs see that that's corridor.

Right and just been any changes and how those those medallions are mark thanks.

Oh, no changes in helping diamonds or mark.

The both styles that we have right now it's about $10.4 million.

With the reserve about 1.1 million on that.

And during the quarter and as you know there's there's a large piece there. That's a that's supported by going to say, it's about 24 taxi medallion loans.

It does a substantial guaranteed behind that.

And so we treat that more of that I've seen IMO that than necessarily attacking die.

And Oh, so we did have charge off about $395000 for the quarter. So.

But we also had a recovery a pay off of alone and a 400000 dollar recovery.

So net net there was no net charge offs on the taxi medallion <unk> point zero basically.

Okay, great. Thanks.

Leave it there.

This concludes our question answer session I would like to turn the conference back over to Paul Perrault for any closing remarks.

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

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.