Q3 2020 Brookline Bancorp Inc Earnings Call
Hello, and welcome to the Brooklyn, Bancorp Inc. third quarter 2020, <unk> earnings Conference call.
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I would now like turn the conference over to Marie <unk> Associate General Counsel. Please go ahead.
Thank you Brenda and good afternoon, everyone yesterday, we issued our earnings release presentation, which is available on the Investor Relations page of our website claim Bancorp Dot com and has been filed with the FCC. This after the call will be hosted by the same bancorp's executive team, Paul <unk> Peralta and Carl.
Uh huh.
Before we begin. Please note. This presentation is being done from several different locations. So there's a delay or technical problems. We appreciate your patience and understanding.
This call May also contain forward looking statements with respect to the financial condition results of operations and business I'm quite pleased.
Please refer to page two of our earnings presentation for forward looking statement disclaimer Oh.
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 need to assist you in understanding but claimed bancorp's results and performance trends and should not be relied on financial measures to the actual results or future predictions.
For comparison in reconciliation to GAAP earnings.
Please see our earnings release.
If you can join us on page three of the earnings presentation I'm pleased to introduce proclaim bancorp's, President and CEO, Paul probably [noise].
Thanks, Marissa and good afternoon all.
I remain cautiously optimistic as we continue to see positive trends in Massachusetts, Rhode Island in New York as the reopening process every day economic activity seems to be slowly recover.
Activity within the cities of Boston and Providence remain mixed as work from home continues to be the predominant theme well. Some schools are open sidewalk cafes and restaurants are quite busy.
We are cautious as the weather cools and rates of infection, possibly increasing.
The health and safety of our employees and their families continues to be our priority.
Well not mandatory we are encouraging non branch employees to come into the office, one or two times a week, while maintaining social distancing in safety guidelines in all of our locations.
We will continue to work with the small segment of our customers who are still facing financial challenges.
Related to the shutdowns and may require additional deferrals.
Since March 1st we granted 5422 short term deferrals on loan balances of $1.2 billion.
I'm pleased to say that as of the end of the third quarter. Most of these customers have returned to normal repayment status and there were 910 credits totaling $280 million with loan modifications.
We had a solid quarter of earnings at $18.7 million or 24 cents per share as our net interest margin stabilized and we maintained our substantial loan loss reserve position.
I'm also pleased to report the board approved another 11, and a half cent dividend to stockholders, which will be paid in November and also approved the resumption of our stock buyback back program, which had been suspended in March.
I will now turn you over to Karl who will review the company's third quarter results Carl.
Thank you Paul.
On slide four we have provided summary, comparative income statements.
Net income was 18.7 million compared to 19.6 million in Q2, driven by stable revenues higher expenses and slightly lower provision for credit losses.
Revenues were relatively flat for the quarter as net interest income increased fee income decline fees.
Fees related to customer back to back interest rate swaps were significantly lower as commercial real estate originations or lower.
Operating costs were higher due to compensation costs and higher FDIC assessments.
Well the economic forecasts, we use for modeling credit losses have marginally improve.
There remains significant uncertainty and volatility related to the COVID-19 pin down we maintained our reserve coverage for loan loss provision for credit losses 4.5 million.
As illustrated on page five.
Net interest income increased 1.6 million driven by average, earning asset growth to 142 million as our net interest margin stabilized 308 basis points.
The yield on the loan portfolio declined 30 basis points as the cost of funding declined 23 basis points.
If you could follow me to slide six you can reference our comparative summary balance sheets in the third quarter. The company had $9 billion in assets down 70 million from Q2.
Loans declined 12 million in deposits grew 353 million you.
The allowance for loan losses remained stable at 120 million represents 176 basis points of loans, excluding PPP loans.
Slide seven reflects the growth and composition of our significant long.
The categories the loan portfolio was relatively flat for the quarter with.
With slight declines evenly distributed across the portfolio.
Deposit growth was largely driven by broker deposits as we took advantage of favorable rates for non maturity brokered deposits to replace federal home loan bank advances.
While demand deposits and Cds declined in the quarter increases in now saving some money markets offset this decline.
On slide eight we are providing the status of our loan payment the from an activity that's.
As Paul mentioned as of quarter end 910 credits totaling $218 million continue to have loan modifications.
Under the cares act, representing 3.8% of total loans outstanding.
On slide nine loan modification information is provided by sector.
All loans remain accruing with a handful of downgrades, if there were signs of deterioration.
Continue to closely monitor exercise laundry and retail sectors as government shutdowns or limitations could have a meaningful impact as we go into the fall and winter months.
As shown on slide 10, the company continues to be well capitalized succeeding all regulatory requirements.
September Thirtyth, good capital buffer of 2.8% or 108 $98 million of <unk> regulatory well capitalized standards.
The board of directors yesterday approved or resuming the stock buyback program. We paused in March we have remaining 9.6 million funding, which will be used to opportunistically repurchase shares before year end.
Slide 11 provides the history of our regular common dividend payout, which continued this quarter. The board approved the quarterly dividend 11 half cents per share we paid on November 27 to stockholders of record on November 13.
In total we are paying a 46 cents in dividends per share during two.
2020, representing a 4.5% increase over 2019.
Payout currently approximates five.
5.9% yield.
This concludes my formal comments and I'll turn it back to Paul.
Thanks, Carl joining us now for the question and answer session is Robert Rose, our Chief Credit Officer.
We will now open it up for questions Brenda.
Thank you 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.
To withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Hey, guys good afternoon, Hi, Mark.
Carl I wondered if you could kind of break down for us what the CD maturities look like over the next couple of quarters, what sort of rates those are out.
Sure. So next quarter, we've got about $300 million in Cds maturing and this excludes brokered Cds.
Exactly what that rate is.
It's around 2% little little higher than 2% lets.
Lets say about 2.2%.
Yeah that will be quite helpful. [laughter] becomes due in the fourth quarter call.
Just in the fourth quarter.
And then how about one Q.
Oh.
Okay, because I can't add this up my head I'll give you I'll give you a run down a 138 million in January 120 million in February and $105 million in March and that's all around 180 point 85.
Okay great.
And then you mentioned a broker deposits I guess I was just curious I think you you booked about $350 million brokered deposit this quarter, what kind of rates and terms are those oh.
Oh. So yes. These are not brokered Cds. These are basically a broker D.A. and brokered now accounts with an average cost of around America bore plus 10.
So right around 20 basis points on average.
Okay.
Okay great.
And then you know in general I assume that we'd probably see a little bit more degradation in the margin in coming quarters. Despite some of the downward liability repricing is that is that fair.
Well actually we expect margin to increase going forward.
And I know I guided that we thought we were going to see a little bit higher margin. This quarter, well, we just had a little bit more liquidity on hand.
[laughter] put pressure on that but we still have the same level of.
Net interest income that we were anticipating.
Just just the margin showed a small or smaller number but we do expect that the margin increased about five to 10 basis points next quarter.
Okay, and then lastly, I was just curious if you could comment at all there was a large de mutualization your market recently a company with.
A pile of capital now.
It was a competitor of yours I'm, just wondering are they affecting pricing on the loan side in the market really in our markets work [laughter].
I don't think so there's certainly nothing evident that's been going on everybody sort of keeping to their knitting and taking care of business.
Thank you.
Thanks Mark.
Our next question comes from Christopher Keith with D.A. Davidson. Please go ahead.
Good afternoon, gentlemen, how are you.
Yes.
Good so.
I I'd like to just to get a little more detail on the asset pricing side, that's all right.
Could you give us a sense for where commercial real estate loans are coming on and then maybe just a sense of what's repricing over the next few quarters.
Yeah. So I'll give you a sense to get tighter loan book in the third quarter, New originations were 394 weighted average 394 basis points.
Commercial real estate loans themselves with 344 basis points.
I see and I have 475, and the consumer loans around 345.
A breakdown of those.
As far as repricing, we know a lot about our commercial book.
Is repricings, we got about 1.9.
Billion dollars of loans that reprice, but we don't expect those to be coming down at all so I think that a lot of that repricing has already happened.
Earlier in the year. So a lot of that is a floating rate floating or three months or it is.
Is the definition of that 1.9 billion.
Got it that's very helpful. Thank you and then and then I guess just looking at loan growth. If you could give me a sense for out of.
The Buckeye.
Buckets that you disclosed the commercial real estate or commercial loans and leases and then consumer loans, where are you seeing a strength in the pipeline and do you have a sense for.
General direction that we're going to be and for 2021 is as far as overall loan growth.
Well first the first Christopher let's take the PPP thing off the table because that just makes.
Makes it murky to figure out we don't know when the forgiveness is going to happen, but we expect it will be sometime next year first half, presumably if you put that aside we're seeing what I'd say is modest activity.
In real estate.
And then see an eye and stronger activity in residential which is not a huge business for us, but it's more than it has been historically I expect that that will continue through next year or so.
So I don't I don't think we will have a sort of the pattern of high single digit growth overall that we've seen in recent years and I suspect it may be half of that.
But you.
We're all looking at a rather clouded situation right now so I'm not I'm, assuming that things continue to operate reasonably well in that environment I think we could.
Do four or 5%.
Okay. That's fair that's great. Thank you and then and then just one more if I can you mentioned excess liquidity I'm curious what.
Especially given your comments on on loan growth.
Your intent is to work or or or how to put that excess liquidity to work out are you looking at securities market you see anything that fits within your strategy I know rates are less attractive, but were seeing a little less and that the long end of the curve. So just any color on your thoughts there would be great.
No I think we have built up some liquidity when this crisis first started and basically.
Basically still have that liquidity on our balance sheet. We also put put securities on basically before rates came down dramatically.
We do not expect the securities portfolio to grow from here, if anything its going to continue to shrink.
And so really.
Really the cash balances that we have on the balance sheet, we weren't sure. If we were going to start getting back funds from.
From the SB eight on the on the forgiveness side, so we'll be monitoring that that liquidity and paying off basically paying off broker.
Broker deposits as well as federal home loan bank.
Advances with with that liquidity in any added liquidity around that.
The pockets are holding in very very solid and continue to grow.
Throughout this so.
That's where I think.
Some of US may have been surprised by Oh, yeah.
That level of growth in deposits.
Great and I'm, sorry, I like that last one but do you see when you brought up deposits I mean do you see that waning in the next few quarters or I mean are we going to continue to see.
This level of growth.
Well I don't think you'll see this level unless there is another PPP 2.0 kind of thing that again, we have to put that aside a little bit I will speculate that.
I don't know if it's half, but something of that magnitude of order came out of the PPP crew program for the deposit growth. The rest was attracting some some pretty good customers, who have a lot of cash balances were not being treated by their money Center bank very well.
So.
Some portion of it is solid regular growth. The other is the PPP inflation.
And I just described this as another one of those we might have the same deposit growth otherwise, we'll continue to see an upward trend in deposit gathering.
Got it well. Thank you so much for taking my questions I appreciate it.
That's correct.
Our next question comes from Laurie Hunsicker with Compass point. Please go ahead.
Yeah, Hi, good afternoon, I don't work.
The detail on the Doctor wondered maybe five this is a question for you is if you could help us think about looks like a third of your deferrals now.
Our laundry if you've got any additional comments around laundry and maybe also how much of that is planned to run down payment.
In the coming weeks, just any any added color on that 94 million short from Barclays.
Yeah, sure Hi, Laurie.
You know, we expect the majority of that to come back over the next one.
One to three months I think that we were we erred on the side of caution hearing more generous with people in that area, but you know when.
When our people talk with their customers. They don't talk about Cologuard at all they talk about acquiring other laundromats and a unique moment in time, so restrictions do affect them. They affect the number of people that can put through laundromats, but it's an essential business other sites are chosen well and.
We expect that to moderate quite a bit into the future I eat those resumed payment.
And do you do you have a a geographic breakdown and maybe can you just remind us how much of that is sitting in New York City, and that's if you're seeing any sort of outsized deferrals in the New York market.
And just any other color around that well you know the portfolio reasoning all all 50 states. It is concentrated more in the five boroughs of New York and then the large cities you know throughout the throughout the country and it's surprising where do you see defaults, they're not all in New York there not all in the fall.
California has been a difficult place to do business because when they go from closure. They didn't know forest fires and you know people are just not out so.
So they are pretty well spread around Laurie.
Okay. Okay, and then just one more question here and abroad. So that the 280 million that you had as of September 30, do you have a refreshed number as to what that is currently.
You know were October number may be then what that looks like you know beginning of November I do not because it takes a few days after that month ends to recalculate. This I can't tell you what kind of good news that presently macro lease which has $32 million of deferrals shown here on the Thirtyth of September that is falling to 20.
$2 million as the other day.
Okay.
So okay, great. So what are we will refresh that for the Q when we file the Q.
Okay. Great. That's this is a fabulous side, okay, great call I'm quick question for you on the P. Pcs can you just update us where those are as of September 30, I'm thinking about 17 18 million just said that you had a more exact number.
You know I don't have an exact number at my fingertips.
Okay.
In other words, it's probably it's whatever that number about $560 million well we did.
582 million I believe in loans and its on the balance sheet right now it's at.
568, so the difference between those two numbers as of September Thirtyth is the net deferred fees and costs.
Got it.
Perfect. That's helpful. Okay. Thanks.
Thanks, and then Paul last question for you just kind of Dovetailing with with Mark's question can you talk a little bit about maybe how you how you see that.
<unk> for M&A in the Boston market place <unk>.
Certainly that the banks that Mark mentioned, you know they said, they're going to be very acquisitive. That's that's a path that you take and just how you're how you're thinking about M&A here.
Does that put a little bit more pressure on you had to sort of rethink things are.
Johnny any color or comments, you could give would be helpful.
Ladies first did I hear a lot about.
Well I'd say not much I mean, I don't I'm not bothered are worried that eastern went public and has a war chest and can do something with it. We we have a history and plan to continue to play our own game, where we're getting it done we're doing just fine there are some candidates in the in the region.
Which.
Somebody like eastern could go after but I think it's a very difficult environment.
To pull off.
Today give.
Given the pandemic as well as the stock prices.
Right now so I you know I.
Unless there's an unusual circumstance I don't think you're going to have normal M&A for a while.
Right sure.
Okay. Thanks, so much.
As a reminder.
Operator, if you would like to ask a question. Please press Star then one.
Our next question comes from Collyn Gilbert with KBW. Please go ahead.
Thanks, Good afternoon gentlemen.
[noise] maybe.
Maybe Karl if we could just start with the NIM. So appreciate the color that you gave going into the fourth quarter, but I, just but kind of thinking more broadly as we get through as.
Paul you mentioned like the P.P.T. mass or whatever get through 21, and it just seems like you're either set up for this for the NIM expansion is pretty robust as you had mentioned write the loan book seems to have repriced to a floor. You still have you know meaningfully higher funding costs on the brokerage side traditional C. D side, whatever the case might be and so just curious.
How you're seeing that NIM trajectory as we look out to 21, and 22, and maybe where you think kind of a normalized or where funding cost could settle out.
Q.
Excellent question Sarah.
And I'll I'll try not to answer any of them, but [laughter] washout basically yes.
So I suppose you give good guidance on things get thrown at you and you always get Curveball. So everything's always done very dynamic, but with that being said Oh, we do continue to see benefits on the funding side going forward into two separate into 2021.
Britain modest modest.
Reductions as as basically Cds and federal home loan bank advances continue to come down and we re prices and pay some of those things off.
[music].
To.
To give you what actual NIM on that I've given guidance that we expect them to go up five to 10 basis points next quarter alone.
And we do expect them to go low modestly higher after that into 2021, excluding any impact from PPP.
Oh, so any any acceleration of forgiveness that would just be a additional additional revenue hitting that line or recognizing that sooner rather than later.
Oh.
That that's basically I I don't have a funding cost number that I.
Willing to provide.
Okay.
Okay, all right got.
I just yeah, Okay, all right [laughter] I'll leave it.
It's just very very do I understand no not really and I guess no I got you, but just kind of thinking you know as for you know as we go through the cycle like would there be anything I, just I wouldn't think anything structurally that maybe we're missing I'm missing that that would impede you guys from getting to say like a 50 basis point cost of a fun.
As you look out [laughter].
And I guess I'm asking is there are there longer duration structures in there is there a competitive position that you think you're going to need to sustain in the market. That's going to cause you to keep your funding cost perhaps higher than peers, I mean anything I guess I'm asking you right like strategic initiatives step that would come into play I think you're right on here I think the Cds that did.
Actually roll.
A lot of that money is it.
It is going into other products, but [laughter] Cds that do roll or are coming in at around 54 basis points last quarter. So I don't expect that 50 basis point number isn't is a very very.
Reasonable number.
At some point in the future Yep, if not go away.
Well, we don't have any we do not have any unusually we had no loan structures quite frankly in our book I think we probably probably provide a lot of that detailing the queues up yeah, it's actually gotten quite short at this time.
Okay, Okay, because I know historically you guys have utilized the wholesale funding structure to just sort of fun and you know the equipment Finance book.
That's right we would use that in latter that out so that we would closely match that but over the last [laughter] last several [laughter] rebid, we've been totally bring down that duration, what GE yep Yep make sense, Okay alright.
Okay, and then just shifting to the reserve [laughter] could you give us a little bit of insight as to how you're thinking about that trajectory. You know if you are foreseeing anymore or additional qualitative [laughter] inputs coming into the fourth quarter, and then how you're thinking about loss risk and I guess that would be my quick.
Sure maybe for Bob too as we look at that deferral slide you know what the collateral looks like on some of those on some of those buckets. So it's a multi part question, but centering around the reserve trajectory well the reserve trajectory calling is.
Yeah, we look at it at a very in a very short term way.
I hate to say that but.
Given the way things change and they change rather quickly.
You know, we just have to evaluate the facts, we have at the time and for the moment, we're very happy with the level of the reserve today.
Which we've had the opportunity to shift a few dollars around with that.
For example, we've increased the reserve levels on the exercise portfolio, that's not a big portfolio, but you know when you have a business that gets ordered closed by the state or the city.
Can't you can't make your payments the same way you could before so you know.
So I'm I'm, just not going to go out on 11 say, it's going to go up or it's going to go down I'm going to say that we can keep looking at it and making it appropriate each quarter because of the way things change the losses that are embedded in these in these modifications are examined by us.
All the time.
And you know we are we are not seeing areas that are screaming out in the in the wash area. You know if you looked at the first one for example, its food and lodging by that we really need it's it's not Dunkin' donuts, it's a handful of family restaurants, and know that $10 million.
Bucks each of those has loan to values that are a couple of them are in the 50% range and another one in 70, 580% range, where we could liquidate.
If we had to <unk>.
You know the one that would bother me out of this the most is what I said, the macro lease fitness equipment portfolio because.
You know liquidating used exercise equipment would have rather high loss rates. Despite the fact that we have cross guarantees and we have personal guarantees.
You know it.
Could it could put in some some losses and we have reserved appropriately as I stated earlier, so nothing screaming out at us at the moment.
That particular portfolio today.
Can I go on I would follow.
Yes, Scott I would just add to that that.
Yeah, we are very comfortable with the level of our reserves, we think its appropriate we think the future is murky and even though the seasonal modeling.
Third quarter showed favorable characteristics the previous modeling.
We thought that the better the better part of Valor was to stay the course.
Okay. Okay. That's helpful. Thank you and then just lastly on the buyback what would what are some of the the criteria that you're you're most closely paying attention to that would determine how aggressive you would or would not be on the buyback.
The price, it's about [laughter] sure right [laughter] about it.
I mean.
And you would be buying it back like Mad right now that I would assume.
If its share price driven.
That's that's that's correct.
Okay.
Okay, and and I'd have to go back and look and I just don't I, sorry, I should have it I should know this but just your appetite I mean do you foresee you know you've got obviously plenty of capital if share prices is you know the trigger could you be as aggressive in doing multiple like 5% authorized repurchase programs back to back or.
Just curious as to what how aggressive your appetite would be which again I guess then takes you to the question of where you want to take your capital.
We would we would we would revisit that likely in December or January.
After you finish this current authorization.
Okay.
Okay got it okay. That's all I had thanks guys. Thanks.
This concludes our question and answer session I would like.
Like to turn the conference back over to Paul parole for any closing remarks.
Oh, Thanks, Brendan and thank you all for joining US this afternoon, and we will look forward to talking you again next quarter.
I know.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
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