Q2 2020 Brookline Bancorp Inc Earnings Call
Okay and welcome to the Brooklyn, Bancorp Inc. Q2, 20, <unk> earnings conference call the webcast.
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Let's turn the conference call much Somebody's Morris Smart.
<unk> Bancorp Ms. Born the floor is yours.
Thank you, Mike and good afternoon, everyone.
Yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website proclaim Bancorp Dot com and has been filed with the FCC. This afternoons call will be hosted by proclaim Bancorp's executive team, Paul a perrault and Carl M. Carlson.
Before we begin. Please note. This presentation is being done from several different locations. So if there's a delay or technical problem. We appreciate your patience and understanding. This call may also contain forward looking statements with respect to the financial condition results of operation and business Brookline Bancorp.
Please refer to page two of our earnings presentation for 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 made to assist you in understanding proclaim bancorp's results in performance trends and should not be relied on s. financial measures of actual results or future predictions for comparison and reconciliation to GAAP earnings. Please see our earnings release.
If you can join us on page three of the earnings presentation.
We used to introduce proclaim bancorp's, president and CEO apparel.
Thanks, Marissa and good afternoon all.
I'm cautiously optimistic the positive trends, we have seen related to the pandemic enough to choose that's what island and New York will continue.
In both Massachusetts, and Rhode Island, most areas are in phase three of the reopening process that every day economic activity seems to be slowly recovering.
The health and safety of our employees and their families is a priority and we continue to employ our work from home and bank by appointment protocols.
We continue to see traffic increases in our branches and also while maintaining our bank by appointment strategy limiting the number of people in the branch at any one time for the safety of our employees as well as customers and this has been well received by customers.
At our headquarters here in Boston as well as our operation centers.
Accidentally 70% of the company's non retail employees continue to work remotely minimizing potential exposure and ensuring social disconcerting.
Our bankers were quite busy in the second quarter, providing PPP loans loan payment the deferrals.
As we entered the third quarter I'm happy to report those attentions will now be focused on returning most of the phase one customers to peg status.
Assisting PPP customers through the SPD loan forgiveness process when it is available.
We will continue to work with a small segment of our customers who are still facing financial challenges related to that shutdown and may require additional loan payment deferrals, which we refer to as phase two.
The way I want to publicly recognized our amazing employees, who have been incredible supporting our customers as well as each other.
We had a solid quarter burnt ends up $19.6 million.
25 cents per share driven by a lower provision for loan loss as we continued to build on the substantial reserve position. We've had established in the first quarter.
I'm also pleased to report the board approved another 11, and I have some dividends to stockholders and that will be paid in August.
I will now turn you over the Carl who will review the company's second quarter results.
Thank you Paul.
On slide four we've provided summary income statements for the quarter prior quarter than prior year. We recognized net income of 19.69 compared to a loss of 17.3 million in Q1, driven by stable revenues lower expenses and a lower provision for credit losses.
Revenues were relatively flat for the quarter as net interest income.
Creased and fee income declined.
Truck debit card usage and interchange income on a weekly basis as compared with the same period in the prior year.
Additionally, we saw a very sharp drop off of over 40% as a pandemic kit and business is shutdown.
Weekly activity is steadily improve and is now nearly flat with last year.
Fees related to customer back to back interest rate swaps were also significantly lower as commercial real estate originations declined sharply.
Operating costs were lower due to seasonality the first that switch bank consolidation and deferred costs associated with PPP loan originations.
This was offset by higher FDIC insurance expense as credits where exhausted during Q1.
Oh pretax pre provision net revenue improved 1.1 million from Q1 and 400000 from last year, we continue to build our reserve for loan losses with the provision for credit losses of 5.3 million.
After taxes, we are 19.6 million 25 cents per share.
As illustrated on page five net interest income increased 2.6 million driven by averaging nine earning asset growth of $870 million as our net interest margin compression 22 basis points.
The yield on the loan portfolio declined 46 basis points at the full impact of the decline in market rates in Q1 was realized as well as the continued decline in LIBOR rates during Q2.
Overall, our cost of interest bearing liabilities declined 38 basis points, which consisted of 33 basis point decline in the cost of interest bearing deposits and 74 basis points decline in the cost of borrowings.
Following me to slide six you can reference our comparative summary balance sheet.
The second quarter. The company grew nine point group to 9.1 billion in assets with loan growth of 585 million in deposits grew 550 million.
The allowance for loan losses also do 7 million represents 175 basis points of loans, excluding PPP loans.
We also shifted some of our on balance sheet liquidity from cash to securities as we continue to ensure prudent position in this environment to meet the financial needs of our clients.
Slide seven reflects the growth in composition of our significant loan and deposit categories.
Second quarter was driven by our efforts to help customers participate in the Sps Paycheck protection program.
$585 million in loan growth 566 million was the result of PDP.
We also had 76 million of growth in commercial real estate and 31 million.
Equipment finance.
Offset by declines in Cnine in consumer loans.
Deposit growth was also largely driven by the funding of the PPP loans into customer accounts, we continue to see customer preferences ship from CBS to money markets.
Due to the added flexibility and low interest rate environment.
If you follow me to slide eight will provide an update to our PPP participation.
Company funded its first GPP loan on Friday April Threerd and at the end of June had nearly 3000 loans totaling 566 million.
We've collected 90.4 million in fees from the FDA, which net of origination costs will be recognized over the life of alone.
We do expect a large percentage of these loans to be forgiven under the program over the next few quarters with the remaining portions of the loan paid over their original 24 month Tom.
On slide nine, we're providing insight into our loan payment deferment activity and expectations.
Provided 90 day relief on loan payments were 1.2 billion or 16% of total loans as of June thirtyth.
Based on loan Officer communications with borrowers, we expect 70% of these loans to return to payment status at the end of the initial deferral period, what we call phase one.
Currently expect 335 million or 5% of our portfolio will seek an additional 90 day deferral.
As part of phase two.
We want to emphasize these are estimates, which could materially change based on many factors.
At this time. These short term modifications have had no impact on our internal credit ratings related to these credits our accrual of interest or counting for these assets.
On slide 10 deferred payment information provided by selected seven segments.
Some of these segments are relatively more significant works unique to us such as apartments, Dunkin' Donuts laundry in total.
More pandemic sensitive segments, such as retail fitness and hotels provided separately.
Many of you were followed us for years and though we have no. We're not active in the energy airline cruise line or syndicated lending.
Apartments are the largest component of our investment commercial real estate portfolio. There was little need for initial deferments nearly all our clients work which participated.
Phase one have indicated they will be returning to pain state status at the end of the 90 day period.
This is also true for our healthcare segment.
While many of our Dunkin' Donuts clients requested deferrals, most will be returning to paint status at the end of phase one.
Turning to our national equipment Finance segment Mondrian toe over half of our clients requested phase one deferrals with most indicating a return to payments that.
10% to 12% are currently expected to participate in phase two.
The pandemic sensitive areas of retail fitness equipment hotel in food will continue to need some level of assistance.
878 million in these portfolios, we expect 202 million to participate in phase two at this time.
The most impacted areas being hotel and our national fitness equipment business.
I want to highlight again these are well run businesses and we're all in good standing before the impacts of the pandemic fit the economy.
As shown on slide 11, the company continues to be very well capitalized nor regulatory requirements as well as our own internal policies and operating targets.
33 had a capital buffer of 2.6% or $184 million over regulatory well capitalized standards.
Slide 12 provides the history of our regular dividend payout, which continued this quarter as the board approved the quarterly dividend 11.5 cents per share, which was paid on August 20, onest to stockholders of record on August.
Yes.
If our dividend remains constant permit for the remainder of the year full year Pershare dividends would be 46 cents, a 4.5% increase over 2019, and currently approximates a 4.8% yield.
This concludes my formal comments I'll turn it back to Paul.
Thank you Carl and now joining US further question and answer session is Robert Rose, our Chief Credit Officer, We will now Mike open it up for questions.
Thank you Sir we will now begin the question answer session.
Good question in the press Star then one or touched some so it's easier speakerphone. Please pick up Brad said before pressing the keys.
Let me turn the question has been adjusted we'd like to withdraw your question. Please press Star then.
Again. This star then one to ask your question at this time, we'll just pause momentarily to assemble Ross.
Okay.
And the first question when we have will come from Mark Fitzgibbon of Piper Sadler. Please go ahead Sir.
Hi, everybody good afternoon.
Our.
First question I had I wondered if you could share with us some of the details on the $176 million fitness credits on the sort of the macro lease.
Credit said through bank write down there could you give us some metrics on the portfolio.
Sure.
Our cloud rose.
First off I tell you that 170 fives, the whole macro lease portfolio the fitness pure fitness is less than that maybe $160 million.
But it is it is comprised of about 35% planet fitness franchises in most of those are multiple store operators.
About 50% of it comes from why MC A's why WCS news.
About 30% would come from homeowners associations exercise facilities in prisons Parks office parks office buildings and schools, a little bit Gold's gym.
30%, the remainder 20% would be independent operators.
123 store operations.
Okay, Great and then secondly, I guess sort of a macro question, Bob or the of the 335 million in loans that you're expecting will stay on deferral.
Did most of those in your estimation have the ability to return to full paying say at the end of the year or.
Or some of these companies you know.
It's hard to envision that they're going to get back to that place and therefore.
Theres, a very different conversation at the end of the year with them. It's very early to answer that with precision is our expectation that the majority of them, we'll be able to come back to full payment.
Ads as time passes mark.
These returned to payment will sort of coagulate around certain industries I can give you example of one that may have difficulty coming back.
Company Didnt leases audio visual equipment into the.
Meeting business right, you're going to a conference in Las Vegas, and they might supply the stuff.
They are going to be the recipient of the main street loan which gets them.
Maybe to the time when people are going to business meetings, but that's an example of one that may have difficulty coming back without the benefit of that stimulus money.
From a main street program, but it is only a handful at this time that have emerged as potentially having more serious.
Okay, and then lastly on credit.
Are you seeing much of a difference in business conditions for commercial customers in say, Rhode Island versus Massachusetts.
No I think I think both of our states were early locked down.
And our both enjoying moving from our phase threes into phase for us with very low inception hospitalization rates.
Okay, and then just a couple of financial questions, excluding the impacts from the PPP forgiveness on the margin.
How are you thinking about the margins sort of over the back half of the year.
Now, we'll continue to see some pressure on the asset side.
Just as as things reprice down continuing to reprice down, but the liability side will reprice faster. So we do expect the margin to improve slightly going forward.
Okay, and then cash balances came down a fair bit this quarter should we expect those will also continue to come down to be redeployed into either securities laws.
I would say.
Modestly I think we'll continue to bring slowly gradually bring the.
Cash balances down.
Perhaps not so much into loans or into.
Into securities.
I don't expect loans to be growing robustly going forward.
Unless the PBT I know there's talk of.
PPP too I'm not sure how much that may impact us, but I think the general loan environment right now I think it's going be very flat to down a bit.
Okay, and then lastly, I saw you file the $200 million shelf yesterday was that just sort of a refresh of.
The existing show.
Exactly that's just to refresh is no plans on doing anything it does keep it [laughter].
Great. Thank you.
Thanks Mark.
Next we have very aggressive.
Good day.
Hi, good afternoon.
Of course.
Quick question in terms of the the outlook you guys did a nice job sort of holding the line.
In terms of operating expenses in the face the margin compression here, how should we think about that trending into the second half of the year. It sounds like there could be some.
TPP program fees from Amit those get netted against the feed through that spread income or they think they hit the operating stats times as sort of thoughts in terms of the how that should trend for us.
We continue to see.
Operating expenses to basically flat.
Going forward.
But thats the question and Thats not contemplating any sort of the movement in terms of the branch footprint or such as of yet.
Oh, we did close one branch late in the quarter Burlington branch will get a little bit of benefit from that but just ongoing expenses slowly slowly increase I think that will get eaten up by that thats, why im saying kind of flat flat environment.
For expenses at this time.
I know there was a lot of questions I guess, the past call maybe just.
What's happening with up the exposure up there in terms of student housing at colleges in commercial real estate sounds like from what's happening in terms of the outlook from phase two.
At least on the apartment.
Segment, not seeing too much pressure related to that thus far.
Bob.
Well you first asked about the student issue.
Blended into another question, maybe you could repeat it but we expect.
From the reports coming out of the colleges between 25% to 50% of the usual student population.
In Boston, Cambridge, and environs and.
We probably have we mentioned this on the last quarter's call, we do ZIP code non of.
In Rhode Island, and in the Boston area, what kind of exposure. We have we're colleges are located and it's about $220 million departments in those areas that does not mean that every one of those is full of students phenomenon. When you reduce student population like that.
The thing that's going along with it is reducing the number of kids can be indoor rooms. So some landlords are reporting interesting kids and schools seeking to book rooms. So they can put one kit to an apartment bath.
So the.
In fact on apartments.
From the students is yet to be proven out, but perhaps not as negative as people anticipated I can tell you the collection rates on apartments in both of our markets are running between 90% to 100%.
As expected collections.
Got it Thats good color and then.
Probably call just circling back to Ptcs did any does impact spread income this quarter did any of those get recognized this quarter is that all can be a second half of 2021 event.
No.
The fees, they're getting recognized on a monthly basis amortized.
To income in putting through interest income.
It did forgiveness process is not begun yet I think that SBK in Congress still work and working through what they are actually going to come out with.
And so is that that opens up or that get some clarity happens there as loans get forgiven that that and get paid so we have to wait for the estimated pay us. That's when we maybe we'll take that we will take that fee income into into earnings along with the deferred cost along with them for goes.
Great. Thank you.
Lux with Collyn Gilbert of KBW.
Thanks, Good afternoon gentlemen.
If we could just start.
Drilling into the margin a little bit on I know you'd indicated excluding TPP than that.
The bias is perhaps upward, but can you just give us a little bit more color in terms of what you're seeing on our new loan origination yields and then where you're also adding new Cds kind of what the cost is that some of your new Cds at this point.
So on the.
New loans during the quarter long long rates were around 395 on a weighted average basis 395, or so and.
I think that specs, continuing we're starting to putting some floors in place and things of that nature with folks.
So it's it's it's holding in that 3.33 to 9% to 4% rate.
I think thats thats going to be consistent going forward.
On the CD side right to just much lower and we're actually not seeing a lot of CD activity.
In the book a lot of folks are opting out of our CD rates and preferring to go into money markets just seeing the differential between the two not being substantial enough to lock in a rate they prefer to have the flexibility of a money market account at this time. So that's why you're not seeing the rates or the yields on the CD book.
Down as much as you might have expected simply because nothing's rolling over and whats in there in the book is at a higher rate certainly there is nothing promotional in the CD business, but not worry a little liquidity around.
Okay. Okay.
Right, which I guess, okay that makes sense because I'm just looking at your CD rates into things that can be I would think we could be a lot lower but that's just the timing of that's kind of the maturation schedule for when those start to all of our more than anything.
All right up is the shrinking category.
Got it okay, but and then just.
Sort of tied into that in terms of the the deposits that you saw PPP related.
I think what kind of hearing mixed things from from banks in terms of when.
Those money is expected to expect to be drawn down do you have a sense of how how those deposit balances might run in this it with the point being that somebody TPP borrowers are saying you know this very low cost source of borrowing for us and we're going to just maintain this level liquidity.
Give a sense of what youre PPP customers are doing or how they're thinking about it.
No I can't give you any insight exactly on that I know there are certain customers that need that money to just.
Keep keep stay alive and so those folks are using it but it's getting offset by folks that are.
Meaning maintaining more additional liquidity. So it's it's all across the board. So it's really hard to to give you a really answer on that and it's almost 3000 loans for us so it's kind of difficult, but all little pieces.
Yes, yes, okay. Okay, and then just in terms of and maybe this is for you Bob.
As we look at the provision this quarter right and.
Obviously.
The reserve came down on.
As you would indicate I guess, just thinking about that the phase two deferrals.
The 202 million and if we look at kind of those three heightened segments between retail theory fitness equipment and hotel like 198.
Just just trying to sort of reconcile maybe what you think the inherent risks truly is within that book and and how that qualitative risk maybe played into the the provisioning this quarter or just how you're looking at that.
First thing the allowance went up.
Okay. I think I think you might have said that it went down I heard you right, but they're just went all the reserve ratio the reserves just reserve.
The reserve to non pp lupton, PPP loans, which I think I think all the analysts as well.
Right. Okay. It increased to 175 of of lands and that's that's that's a good increase over where we were before.
And I think it's still substantially higher than most.
Yep that don't have these types of okay, and Bob would you take the latter part of that question, but.
I will it's kind of like a two part answer thanks first of all.
First of all call and deferrals were like only one out of six major things, we considered as we evaluated the proper level of provision.
The reserve for this quarter.
But the way we look at those segments.
Looking at Carl's slide our slide on page 10.
Example.
The.
We have a little residual left if you think of them differently about 22% of the deferrals in the eastern funding core portfolio asked for second extensions as a little bit of color. There remember that the vast majority of this business is essential meaning it's a laundromat and they do some bodega isn't a handful.
Although the.
All essential businesses and they found that those customers.
Most of them have a proclivity to want to pay their loans off faster than the maturities, but in this environment. Some of them said Oh, what the heck I'll take another 90 days just because it can we don't expect anything but the weakest of the week to be hurt in that portfolio. We think the rest of.
The tow business same percentage, if you do that arithmetic its 21% of the deferrals and we simply need volume on the highways to pick up to where it was in this business. Another essential part of life should return.
Nicely regarding the.
The fitness business.
Most of those segments that I mentioned.
Our strong the planet business, well capitalized owners multiple stores.
Everything is personally guaranteed and cross collateralized and.
Some of the runs that believes that is more likely that those people will consolidate operations.
And pay down loans, rather than get stuck on something a part of that at the end of the day might be might be too soon to tell but the independents alone wanting to exercise places. So we're looking at that hotels.
You can understand why they get deferrals like that but 50% of our hotels are in vacation sites Martha's Vineyard flock Island, the coast of Rhode Island, the coast of Connecticut.
And those people reporting near 100% bookings through their summer season Provincetown.
It's the business ones that are a little weak and virtually all of those are with very well capitalized sponsors.
We have lots of flexibility and we're working with them too.
Determine what we do so we are not terribly worried about any of these.
Pieces asking for additional deferrals at this moment in time.
Okay, that's great color Thats very helpful. Bob.
Okay. Thanks, that's all I had thank you. Thank you call.
Again as a reminder, through like to participate in today's Kunaev. Please press Star then one on this has some sub again not a star then one last question.
At this time, we have Laurie hunsicker of Compass point.
Yes, thanks, good afternoon.
Just wanted to follow up I know you give great color here on the LTV is that on specifically on the hotel Buck.
Do you Havent on what Laurie.
On that notes on that.
Yes, Bob will have a hotel.
Okay.
I'm sorry, whats the question.
Ltvs on hotel business generally well you know.
Fairly modest in the 65 to 75 at the very top and those that are up there, but that higher end, Larry would be smaller projects like a being be somewhere on buying individual.
So no nothing nothing way out there.
Okay, Great and then just quick question Carl for you on that $566 million.
PPP like how much of that is under 150000.
All Thats a great question.
A large part of it and I'd like 70%.
I think the median loans, we show average loans there, but the median loan I think at Brookline 75000 in the median loan at.
Bank, Rhode Island is 56000, so its a.
And I might have those things backwards, but I think thats the numbers.
And so most of the loans are very very small.
Okay perfect. Thank you so much.
The next with William Wallace of Raymond James.
Thanks for taking my call quick question on just Big picture thoughts around the branch networks, you think that.
This this new.
Kind of adoption or accelerated adoption of digital channel could should lead to.
Faster or more branch consolidation opportunities.
I think maybe a little bit, but thats something that will take time to really develop I mean, we've been we've been working with our branches as sales offices, where we can both meat.
Customers and prospects as well as go from there to meet them.
Im going to pandemic you might recall that this is a very congested area.
Providence is fairly congested to not quite as bad.
But there is there is sort of the idea that you need to be able to get out and about and so we have never been a branch heavy.
Situation.
Pretty well spread out so.
The the traditional consolidation of branches is probably not in the cards for us.
But here and there depending on how the world develops and behaves we would obviously pick a hard look at where were located.
Okay Fair enough and then on the phone the flip side of that are you.
Are you considering whether you need to invest more on the technology side on the digital.
Offering side for your customer.
I don't know that it's more William I think it's just a continuing.
Pacing, making sure that we include in our budgets the right kinds of technology projects, and we execute on them and keep going.
It's not it's not an event.
So never ending process that were on all the time.
Okay fair enough.
And then call just one kind of housekeeping question, maybe put a bow on the PPP discussion, Tom and I apologize. If you gave us I did see deep can you share what the average PPP bonds, where during the quarter and then what the Eni contribution was.
I honestly don't have a good a good number on what that average balance was for the quarter.
Okay. Do you do you have you calculate what the NIM impact was or what the average yield was.
Net of the caverns yield is the average yield on the book is around to 35 to 40.
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Yeah.
And that's net of the tossed strike.
That's the yield.
Yes that includes would be amortization the cost as well okay. Thank you.
The next one follow up for more houses.
At this point.
Yes, hi, Thanks, and sorry, just two more quick question Carl for you I was looking for prepay fees and accretion income this quarter and the Eni. Thanks.
Thanks.
Alright and product line.
So that sort of prepays were about $1.1 million.
Thats loan prepayments related land benefits and deferred pruning.
Was one point.
Hi, good cost so say, it's 1.8 million.
All right to prepay fees for 1.1 and that did you have accretion income.
No accretion income just deferred cost so thats sort of loan prepayment that but that's a benefit by that the benefit coming in.
Equal to about five basis points of our NIM and.
The deferred cost.
Coming at a negative thats 1.8 million or in basis point drag. So the two of those together is up three basis point drag on the core NIM.
As far as accretion as far as purchase accounting that's gone that's done.
Okay.
Great.
Thank you thanks.
But the Sun was showing no further questions. We'll then conclude our question answer session, our and I'd like to turn the conference call back over to Mr., Paul Burroughs for any closing remarks, Sir.
Well, Thank you Mike and thank you all for joining us and we look forward to talking with you again next quarter.
We thank you Sir Tom also into the rest of the management team again the conference calls now I moved up to suddenly may disconnect. Your lines. Thank you take care of a good day everyone.
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