Q4 2019 Earnings Call

Thank you, Andrew. Good afternoon everyone and welcome to Brooklyn bank or fourth quarter 2019 earnings conference call yesterday. We issued our earnings release, which is available investor relations page of our website reclaim bancorp.com and has been filed with the SEC this afternoon call will be hosted by Brooklyn bankruptcy executive team call April M Carlson before we begin. Please note this call may contain forward-looking statements with respect to the financial condition results of operation and business of Brookline Bancorp actual results, May differ from these forward-looking statements factors that may cause actual results to differ include those identified in our annual report on Form 10-K are most recently filed 10-q and our earnings, press release reclaim day in court cautioned you against or unduly relying upon any forward-looking statements and disclaims any intent to update publicly any phone number.

statement

Weather in response to new information future events or otherwise any references made during this presentation to non-GAAP measures are only made to assist you in understanding Brooklyn corpse 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 rep and now I'm pleased to introduce Brooklyn bancorp's president and CEO call. Thanks Marissa and good afternoon all I'm accompanied today by our Chief Financial Officer called a person who will walk you through our quarterly Financial results following my comments. We reported earnings of twenty two point two million dollars or Twenty Eight cents per share in the fourth quarter of 2019 resulting in record earnings for the year of eighty seven point seven million dollars or a dollar ten cents per share.

For the year loan balances grew by four hundred thirty-four million dollars an increase of almost 7% from 2018 and deposits also grew about 7% or three thousand Seventy-Six million dollars 2019 was also a year of rising and then falling interest rates with a relatively flat yield curve, which actually inverted at one point. We try to position the banks to be as neutral as possible to change has an interest rates. However, we did experience a 10 basis-point decrease year-over-year in our margin to 3.51% due to that flat deal curve and customer preferences for certificates of deposits later in the year.

excluding the impact

The Securities gains revenues increased 1.2 million dollars a year over a year or 1.8%

Also, excluding the impact of murder charges related to the first Ipswich Bank merger into Brookline Bank expenses decreased $941,000 year-over-year or off of 2.4% which resulted in positive operating Leverage.

The work we do serving our customers and our communities would not be possible without the exceptional team of people that we have in place. I continue to be pleased by their dedication which helps make Brookline Bancorp. One of the Region's leading Commercial Banking companies. I will now turn you over to Carl who will review the fourth quarter results.

Thank you Paul. We'd 191 million in the fourth quarter or 45.5% on an annualized basis loan originations and downs in the quarter was $6,000 million with an average weight of a coupon for 481 basis twice.

We do.

Average yield on the loan portfolio for the quarter was 499 basis points the decrease of 9 basis points on the linked quarter basis as the overall yield on earning assets to climb ten basis points 2/4 and 73 basis points.

Deposits grew 101 million during the quarter with growth of $35 million and demand deposits 91 million and now accounts and thirty-five million in savings money-market and time accounts off our net interest margin declined to basis points from the prior quarter to 3.43% while our net interest income improved $695,000 driven by growth in Iraq.

Non-interest income is seven point eight million dollars in the quarter down 173,000 from the decrease was due to slightly lower loan fees gain on sale of lungs and other operating income offset by again on investment Securities of 133000 versus a loss of $116,000 in the prior quarter. The company's not interest expense declined one point four million from the 3rd to 38.8 million, excluding the one point 1 million restructure charge into three expenses the climb on a linked quarter basis $251,000.

We quarter decline was due to lower costs related to compensation equipment in advertising.

Provisions for credit losses for the quarter was 3.6 million and increase a 2.7 million from two three now charge you to a 1.6 million for ten basis points on an annualized basis month vs. 2 basis points in Q3.

Allowance for loan losses increased 1.9 million in the quarter to 61.1 million and represents 91 basis points on loans vs. 89 basis points at the end of September .

During the quarter nautical loans decline 2.2 million to 19.5 million representing 29 basis points of total loans and repossessed assets increased 499,000 during the quarter to two point six million.

Waterproof our quarterly dividend of 11 and 1/2 cents per share with approximately 3% yield based on yesterday's closing price.

Just because our formal statements will now open it up for questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you were using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

The first question comes from Lori hunsaker of compass point, please go ahead. I thanks good afternoon. Just was hoping that you could give birth what prepaid fees and accretion income or for the quarter.

Sure, and then also just wondered how we should be thinking about day-to-day Lamaze provision under Cecil given that there's a little bit of a wider range here with consensus. Just hoping you could help us think about that and tighten that down thanks sure purchase counting was $350,000 and prepayment fees were 2.1 million and 4.

Okay, great. So on the Cecil side, you know, we've been we've been running parallel for several quarters. Now, we're we're going to see an impact of plus or minus 55% a large, you know, it'll be heavier to heavier waiting to the to the unfunded commitments.

Yeah, so you won't see it all in the allowance part of that will be in the reserve for four unplugged commitments. But that's what that's what the numbers are are shaping up to be. We're in the final stages of recommendation and model validation and that sort of thing.

Okay, and then can you help us think about loan growth going forward how you're looking at that for full? You're twenty.

I think we're going to still be you know steady at the hundred million dollars or so a quarter, you know will be plus or minus that

Okay, and then how should we be thinking about buy back?

Very opportunistically, okay. Okay, and then just last question here tax rate. How should we be thinking about that? But we're still budgeting with a 25% but it's been trending a little bit lower than that. So I I probably in that 24 and half the 25% Okay. Great. Thanks.

The next question comes from Colin Gilbert of KBW, please. Go ahead. Thanks. Good afternoon guys Carl just on the on the loan growth took a quarter as your as your sort of seeing it. Can you just talk a little bit about how you you're seeing the mix of all of and then also how you're seeing loan yields trending this year and then Thursday is part one of the question that then goes to part two in the name, which I'll I'll ask you about after that.

I would say it's it's going to be more of the same very consistent what we're doing. I do expect cni to take up a bit as far as part of that mix but back then you know that grows. We may also see the total loan amount Grill so I don't see a big change in the mix going forward off of where we are now right now, you know new origination are going down slightly lower than what our portfolio yields are. So we'll see in a lot of a lot of our lot of our production is

Shorter in duration, so we will see the see the impact of that as well.

Okay, just on that point. Where where are you seeing some of the best pricing, you know the better spreads within your business segments?

Well, let's say it's the equipment Finance units that get the yields but that's nothing new and not uncommon. Yeah, I mean, I'm not seeing the dynamic the competitive Dynamics change within that business. I guess that's part of it too just is you know, many banks are kind of Shifting more to to having that been a focus. I didn't know if you've seen pricing start to compress or spread start to compress any of the loan categories because of competitive Dynamics I think in recent years has been a little bit of compression and Equipment Finance do probably to what you're describing. It's more it's more competitive than it has been in the past but it still provides opportunities that yield higher than the core banking stuff at a level that we like. Okay? Okay. And are you finding your able to as you look at the growth is this you know how much of birth?

Coming from new customers vs. Current customers, you know kind of building their own.

This is our building their own lines.

I'm in a totally unscientific answer to that would be half and half good answer good answer. Okay? All right, and then, shifting to the Nim. Maybe could you just talk about how you're seeing sort of some of the deposit pricing trending maybe where your new offering rates are on deposits and the outlook for them for this year?

Sure, I would say, you know deposits continue to be very competitive. But we we are seeing benefits on our pricing efforts on the deposit side. As far as that is concerned. We're projecting out 3:45 or so in that in that range for a few one last, you know last quarter we gave guidance Iraq or so a little bit higher than 350 for the full year. We're still seeing that we we spell some visibility to that as as we continue to revisit our pricing but we also know that the you know, we've seen you live or continue to come down and and we're seeing a very flat yield curve at present. So we'll see how long that lasts and if that that life support additional pressure on it on our loan Hills and we'll adjust on the on the deposit side.

and then

Okay. Thank you, too. So we see we see some some relief there. Okay, and your the 350 the guide that you had given for the full year. Is that including any kind of rate Cuts throughout the year?

No, no, that's that's a flat a flat environment. Okay. Okay. Okay, and I know your touch on I mean this part of it and I apologize the beginning wage. I think some of the swap activity that you saw I know that's hard to to predict. But any thoughts just in terms of your own internal kind of Business Development efforts as it relates to cross that line or where you're you see the customer demand going in in 2024 how you think that the swap income can trend?

Every court has been very solid. I've always been very cautious on this and are lending teams continue to continue to pleasantly surprised me and and and type of look good, but I'm not going to try to guess on you know, what's going to close and what particular quarter and if customer appetite seems fishy as robust and with a long yield wage with such a flat yield curve and where the 10-year treasury is today. I would say customer appetite for a long-term funding is is pretty is is not going away and and that's how we got that. We accommodate that is through swamps. So I will see okay, and then I guess my last question just maybe just a bit more broadly for you as you manage the business and and obviously there's something so much volatility in the markets over the last year or so, but if there's a you know a specific metric Financial metrics.

you would point to that sort of you kind of measure yourselves against and

Terms of where you're being successful or where you're not what what would be the financial metric that we should we should monitor in terms of how you would be measuring your success.

GPS

you'd be I mean, it's pretty basic South just you know isolation like on an absolute basis on a relative basis or I mean and I guess that points to the fact that you know, do you try to manage to you know, EPS growth growing year-over-year more than it did the prior-year just just trying to keep it going north. Maybe I'll try to answer it a little bit differently call is a great preacher around the company about operating leverage. And you know, I guess I'd say that if we if we can only produce operating leverage quarter after quarter, then all of the other indicators probably are going in the right direction.

Okay. Okay, there isn't any singular. I mean, I I'm half joking when I say but this is this is a balancing act of a whole bunch of things as you know, and our job is to keep an eye on them to keep them all and in good stead. Yeah. Okay. That is all I had. Thank you. Okay. Thank you. Again. If you have a question, please press * then 1 on a touch-tone phone. The next question comes from Mark Fitzgibbon of Piper Sandler, please. Go ahead.

Hey guys. Good afternoon.

I was curious first that the provision was quite a bit higher than I I anticipated this quarter, especially given, you know, you guys have really strong credit quality and choice, you know, relatively modest charge-offs and and Loan growth. I I would have thought it would have been a lower number and and so I'm just curious as to was there something else there that was unique as you you know, sort of bump up the provision to the the level of what

I would say your first start with the charge on strike since the charge us for a little bit higher at one point six million. We had line growth of ninety million dollars. We have, you know Reserve coverage for that as well. And then you have you know, whatever activities there's going on with, you know, you're screwing up all your loss factors and things of that nature they go into it and then of course, there's risk migrations. I probably got a few more credits, um, get you know, the wrist ratings go down versus, you know, so, you know you go through this process throughout throughout the core throughout the year that the loans get off. That's a good observation. I mean it was for us. Yeah, probably a little bit more in there than normal in the fourth quarter a little more noise than we than we typically will have them but we don't we don't see it as anything trending. Okay, you saw are covered go up by 2 basis points. Yeah, and then on the front you guys, you know look like wage.

It's a good progress on cost there this call.

Or is is that sustainable absent sort of the normal first quarter, you know uptick you have related to a variety of small items or just curious as to your thoughts on life for twenty twenty. Yeah, I would say so a couple of things to keep in mind. We we are a few things that you come out, but that way the month. We we had some relief on FDIC insurance that you you really still in the third and fourth quarters. So you'll you'll have you'll have that expense coming back in the first quarter off like you said already on the employee benefits and taxes and things of that nature usually get a pop associated with that in the first quarter and

that's those are probably the big things that would be driving that as you know, when they were also working on the

for which consolidation into replying bank that will happen in February . So we'll see some benefit of that and that you really won't start really seeing the benefit of that into off YouTube.

but but the most of that in Q2

And we're just very focused on those revenues are growing. We have no problem investing where we thought if we come across a path leads to join the team. We're we're very open to those opportunities. So what we want to keep revenue grown faster than expenses. Okay, and then lastly I know on Thursday off. There's been some talk of bringing back, you know rent control to the Boston Cambridge Market. I'm just curious as to how likely you think that is to come to pass.

I'd say the odds are against it was this low-level noise about it.

But I don't really see any anybody at at a serious level pushing it at this point.

Thank you.

Okay, the next question comes from William Wallace of Raymond James, please go ahead. Thanks. Good afternoon guys, just a quick follow-up on the expense line of questioning. Once the switch conversion is done. What's the what's the benefit that you anticipate on a quarterly or annual basis?

Think on an annual basis. I was estimating about two million dollars a benefit on an annualized basis, right? And then last question you age said in response to an earlier question that you will be opportunistic as it relates to a buyback. I'm curious if you were in the market early in January when the stock sold off or if you'd be willing to give us a general price range where you feel like it it opportunistically makes more sense.

I'm not willing to give you that price range for you in thanks. I appreciate it.

Very good. This concludes our question-and-answer session. I would like to turn the conference back over to Paul pero chief executive officer for any closing remarks.

Thank you, Andrew, and thank you all for joining us. We look forward to talking with you again next quarter.

Good day.

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

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