Q4 2020 Brookline Bancorp Inc Earnings Call
Good day and welcome to the Brookline Bancorp fourth quarter 2020 earnings Conference call.
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I would now like to turn the conference over to Marissa Martin. Please go ahead.
Thank you Tom and good afternoon, everyone.
Yesterday, we issued our earnings release and presentation on it will take the available on the Investor Relations page of our website.
Same Bancorp, Inc.
It has been filed with the SEC. This afternoon's call will be hosted by Brookline Bancorp's Executive team, Paul Perrault and Carl M. Carlson.
Before we begin please note. This presentation is being done from several different locations.
There is 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 operations and business of Brookline Bancorp. Please refer to page two of our earnings presentation for our forward looking statement disclaimer also please refer to our other filings with the Securities and Exchange Commission, which contain risk factors that could cause.
<unk> actual results to differ materially from these forward looking statements.
Any references made during this presentation not GAAP measures are only made to assist you in understanding Brookline Bancorp yourself and performance trends and should not be relied on our financial measures of actual results or future predictions for.
For comparison and a reconciliation to GAAP earnings please see our earnings release.
Hopefully you can join us on page three of the earnings presentation I'm pleased to introduce Brookline Bancorp's, President and CEO Paul Perrault.
Thanks, Marissa and good afternoon, everyone.
As we approach the holiday season, and all of them turned on winter, we saw infections on hospitalization spike higher on.
On the positive trends, we were seeing in Massachusetts, Rhode Island, and New York reverse themselves.
As new mandates and recommendations dampened economic activity.
We are very optimistic about the promise of the vaccine on the potential impact for the fiscal stimulus provided at the end of the year.
Work from home continues to be the predominant theme in the cities of Boston and Providence.
The health and safety of our employees and their families is our top priority.
With the Spike in infections, we also reversed our reopening efforts.
Cause encouraging non branch employees to come into the office once or twice a week until we see a sustained declined on the rate of infections and the benefits of more widespread vaccination becomes evident.
This past year was challenging in many respects and I would like to recognize our employees for their hard work and commitment.
We had a solid quarter of earnings of $26 $7 million or <unk> 34 per share as our credit quality remains stable and our net interest margin improved.
We continue to work with a small segment of our customers who are still facing financial challenges relating to the shutdowns and may require additional loan payment deferrals to get to the other side.
As I noted last quarter, we had granted 5422 short term deferrals.
On loan balances of $1 $2 billion.
I am very pleased to say that as of the end of the year. There were only 298 credits totaling $90 million with loan modifications.
I'm also pleased to report the board approved another <unk> <unk> dividend to stockholders, which will be paid in February.
And also approved a new $10 million stock buyback program, providing management with the flexibility to repurchase stock prudently.
When the opportunity presents itself in 2021.
I will now turn you over to Carl who will review the company's fourth quarter results call. Thank you Paul.
Hey, good afternoon, everyone.
On slide four we've provided summary, comparative income statements net.
Net income was $26 7 million compared to $18 seven in Q3, driven by higher net interest income lower expenses and a negative $2 1 million provision for credit losses.
Revenues increased $1 7 million from Q3, and we're slightly ahead of last year.
Gains in net interest income were offset by lower non interest income due to lower deposit fees derivatives and participation fee income.
Operating income operating costs were lower by 900000, principally due to lower compensation related costs.
Pre tax pre provision income of $32 4 million improved $2 6 million from Q3, it was only slightly better.
Slightly behind last year.
As illustrated on page five.
Net interest income increased $2 3 million as funding costs declined and processing fees were recognized on an accelerated basis on forgiven PPP loans as well as higher loan prepayment fee activity.
The yield on interest, earning assets improved four basis points from the prior quarter and the cost of funding declined 14 basis points, resulting in a 15 basis point increase in the net interest margin.
If you follow me to slide six you can reference our comparative summary balance sheets and the.
The fourth quarter, the company had $8 9 billion in assets down $58 million from Q3.
Loans declined $127 million and deposits grew $118 million.
The allowance for loan losses declined slightly to $114 million and represents 169 basis points of loans excluding PPP.
Slide seven reflects the linked quarter and year over year activity and composition of our significant loan and deposit categories.
As I mentioned the loan portfolio declined 110 $127 million in the quarter driven by the forgiveness of PPP loans.
Excluding PPP loan activity for core portfolio declined $48 million.
Deposit growth from the quarter was $118 million driven by the growth in DDA now on money market products.
On slide eight we are providing the status of our loan payment deferment activity.
As Paul mentioned as of December 31, 298 credits totaling $90 million continue to have a loan modification under the cares act, representing one 2% of total loan balances outstanding.
Modifications on predominantly in the equipment finance and commercial real estate portfolios.
On slide nine loan modification information as provided by sector.
All loans remain accruing with a handful of downgrades, if there were signs of deterioration.
We continue to closely monitor the exercise industry as a government shutdowns on limitations could have a meaningful impact.
As shown on slide 10, the company continues to be well capitalized.
Exceeding all regulatory requirements as well as our own internal policies and operating targets.
At the end of the year, we had capital buffer of three 2% for $219 million over regulatory well capitalized standards.
The $10 million stock repurchase program, Paul mentioned earlier represents 14 basis points of regulatory capital.
Slide 11 provides the history of our regular common dividend payout, which continued this quarter. The board approved a quarterly dividend of $11.05 per share, which was paid on February 26 to shareholders of record on February 12.
In total we paid out 46 cents from dividends per share during 2020, representing a four 5% increase over 2019.
Our payout currently approximates a three 5% yield.
This concludes my formal comments and I'll turn it back to Paul.
Thanks Carl.
Joining us for the question and answer session is Robert Rose, our Chief Credit Officer, and we will now open it up for questions.
We will now begin the question and answer session to ask a question you May Press Star and then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead, hey, guys.
Good afternoon.
Mark Hi, Mark.
I was wondering of the $90 million of loans that you have modified our most or all of those paying interest and also could you help us sort of think about the schedule of the maturity of those deferrals from kind of when they come on.
Hi.
Hi, there Mark.
Virtually all of those are paying interest.
And at this point, what's been deferred our principal payments.
On the deferrals that we've granted has been largely 90 day windows on time, there are certain credits, where we have offered different kinds of deferments, which more or like a rewrite but these are.
Short term returning to payment.
Soon.
Okay, Great and then Carl I Wonder if you could help us think about the core margin I know youll have some noise related to PPP stuff forgiveness, but the core margin what the trend might look like and also.
If theres any unusual items that you anticipate in the course of 2021 on the expense front.
Yes, certainly mark on the for.
On a core margin standpoint, we do expect the margin to continue to improve on a core basis.
Simply because we still have our liabilities repricing lower.
So I do expect the core margin to be probably flat with this quarter's margin.
For the first quarter before.
Before the benefits of PPP forgiveness.
That's something to take away from and we do expect PPP forgiveness to be pretty pretty robust in the first two quarters of 2021.
Outside of outside of that is as far as expenses go I would say nothing.
In particular on the expense side were there is no major programs to save expenses in that sense, and we're being very careful in what we continue to invest in them and our strategies there.
Mark just for legacy purposes, <unk> been with US a long time. This is the lowest by far that the loan to deposit ratio has ever been.
Ergo, our wholesale borrowings are the lowest they've been in memory and that pattern continues and that's been very beneficial to helping improve our margin.
So for all the wrong reasons, our position at the beginning of this was was helpful to get over the rate reduction.
As we all faced earlier last year and now we're a barrier we're getting the fruits out of that out of that effort.
Paul on that same vein I guess I'm curious as to your thoughts on the branch network in the wake of the pandemic and people moving to a greater degree to online banking do you.
Are you rethinking some of your physical locations.
Not much more than I, usually do you've heard me say many times that I think branch systems need to be pruned from time to time good locations become less good you want to be in different places, but we're not a branch heavy company per se.
We are thinking about the density of those branches in the inner circle of Metro Boston.
Some of that might be changed but.
Yeah.
In this market there is a lot more branch opening them closing.
Between Providence, and Boston Metro areas, I think chase's, putting up almost a 100 branches and theyre moving fast on that PNC youll seemed like they're opening up all over the place.
And so we are making sure that we are a fast follower in digital and other electronic ways of dealing with us both consumer and commercial I think we're pretty good at that and the numbers are all pointing north for new use of those tools, but we also had a very good record.
Of opening accounts most of that in branches last year. So.
If I wanted to throw rocks at others.
And heard to say that I think a lot of people are taking advantage of cleaning up their branch systems.
Using the pandemic and saying everything is growing electronic but that's not that's not something we need to do aggressively.
Thank you.
Okay.
The next question comes from Christopher Cats with D. A Davidson. Please go ahead.
Good afternoon, gentlemen, how are you.
Hey, Chris.
Thank you.
So I wanted to start out just with.
The move in and 90 plus days past due is that kind of a factor of the cares Act deferrals coming to an end and there is a transition period or is there or is there something in particular.
On driving that.
No.
Nothing in particular, there are actually three loans that are in the process of being renewed.
And their renewal has taken just a little longer than usual, but it's got nothing to do with the cares Act on it.
Cash to do with.
Just getting collateral in organizing ourselves.
Okay. So presumably.
All else being equal then we would see.
We would see a decline from that level as those loans renewals get completed.
That is correct unless some new one comes along but that is a category with power.
Once it's up and down a bit Chris sometimes alone runs past maturity and the loan officer had some delays in renewing it and that's usually the case.
When you see that bounce around like that.
Okay that makes sense. Thank you.
And then I guess, just moving to loan growth and and stepping back to look at it from kind of a big picture standpoint.
When do you expect news like the vaccines and <unk>.
The stimulus that we had recently when do you expect that to translate into two more strong growth and end and when should we get back to kind of pre pandemic levels.
Loan growth.
Christopher I am afraid that debt and one's a little bit too hard for me to even try to take a guess that we've seen.
Lots of prepayment activity.
Seen lots of stuff going on PPP is not immaterial to us.
So that moves around a lot originations have been uneven but not terrible.
We've got pretty good pipelines, but.
Economic activity has certainly curtailed.
Generally things are hard to get done.
I continue to be optimistic that we can make some positive progress on the balance sheet and loans this year.
But it is still only the first inning.
So I don't know how helpful that is but.
And on things are okay things are okay, but how quickly.
Paul this stuff translates into more activity as speculative at best.
Okay got it got it and then just looking at.
The deposit composition.
I'm curious do you expect to see further rundown on the CD book.
Okay.
On the CD side I do expect the <unk>.
Cds continue to decline.
We've got about $371 million on Cds that mature in Q1.
170 basis points.
Our offerings out there right now even specials are between 40, and 55 basis points and people aren't really too excited about locking in their money for a period of time. So they are choosing to move but for the most part.
So that's a general statement for the most part to either a money market account or something something more liquid.
So I do expect Cds to continue to decline, but deposits seemed very sticky and the more.
The federal government decides to.
Stimulate the economy or help out the economy and those those might need it.
We continue to see deposit growth substantial deposit growth.
Got it that's great.
Thanks for taking my questions.
Good day Christopher.
The next question comes from Laurie Hunsicker with compost point. Please go ahead.
Hi, Thanks, good afternoon Hello.
If we could go back to margin.
And and I apologize the book and your comments and I missed it but the dollars of PPP income that rolled into net interest income this quarter and the impact on margin do you have do you have those Paul.
Sure so.
Two big pieces, certainly this quarter.
So deferred fees and this is in total differed fees in total were $1 $9 million and net interest income this quarter.
Our $1 4 million of that was PPP forgiveness.
So in total deferred fees were up about $1 6 million from the prior quarter. So it just gives you a sense of the impact of that.
So almost all of that is the PPP forgiveness piece.
And then on the prepayment side prepayment fees in total were $1 5 million and that was about $500000 more than in Q3. So so both of those together had a meaningful impact on the margin this quarter and then the balance really driven by deposit funding.
Borrowings coming down.
Got it Okay and then do you have do you happen to have that calculated on margin number.
On the P. P P forgiveness.
It was one 5 million I want to say it was about seven basis points.
Okay, that's helpful and and of your 419 million or so of P. P. P rounds that are remaining what what are the what's the unamortized fees are on that.
Yeah.
You know what I think you asked me this debt last quarter and I didn't have the number at my fingertips and I still don't have the number one.
All right I'll follow up with you offline.
Okay, Great and then Paul a.
Question for you a bigger question I mean in the past you've talked about M&A. Obviously, there's been a lot to think about here on in the last 10 months, but you're your stock currency is back up.
It was obviously a lot happening in your market how are you thinking about M&A here.
Well, we keep our ear to the ground, we would be open to looking to do something.
But even though the stock has come back somewhat.
Relative term, it's not it's not been so strong is to is to make some of these things easy, particularly given the expectations.
But I feel about the same way I think I think deals are doable. There are just more difficult in this environment.
It would be a little bit easier for the stock price were somewhat higher.
So I haven't really changed my opinion.
Yeah.
Okay, great. Thanks, I'll leave it there.
Yeah.
Yeah.
As a reminder, if you have a question. Please press star and then one to be joined into the queue.
Our next question comes from William Wallace with Raymond James. Please go ahead.
Thanks, Good afternoon.
Hello.
Hi, I apologize if this question was asked and answered already.
Paul drops and so I had to dial back in but.
I caught on in the life transcripts from conversation about loan growth and I know that you said that it was hard to answer I'm curious if you can talk about how pipelines have had been building if they've been building our.
Or what youre seeing in the pipeline activity.
The pipelines have been slowly rebuilding.
<unk> got on also remember that.
Besides the pandemic or early part of the year, particularly in commercial banking is not the most robust by any means things usually slow down at that point companies are getting themselves reorganize getting ready for their taxes on all that kind of stuff.
But I'm feeling okay about the outlook.
What has slowed us down here in Q4 and early this year has more been the prepayments.
And the whole picture gets clouded by PPP.
Which was a lot of the production when you looked at the sort of middle part of last year. The bankers were exceptionally busy doing that.
So.
I would say here, we go again at least for the moment, we're working on.
I believe its approximately 500 loans already.
<unk> I heard is being called.
So.
Wally.
I'm not trying to Dodge here, but I think if you tried to model modest growth.
Somewhere along the year here I could probably agree with that.
Okay, including the new PPP loans.
Can you sort of when you net everything out.
Kind of when you net everything out because those those PPP loans will have characteristics PPP three will have characteristics that are likely to be different than one and two.
I guess I don't have my head wrapped around what those differences might be how long they might be around how they might be used and how they might prepay.
So.
On sort of washing everything into the same bucket.
Saying, if you're still on balance sheet.
So show modest growth consistently through the year I would be okay with that.
Okay, Alright, sorry on the PPP is going to replace Pvp wanted to [laughter], yeah, yeah, what so what's the dollar amount of the applications on on park three so far.
As you've kind of what's the cadence of those applications come in what what might you think you might end up with on the part III.
The last part Wally is almost impossible to tell.
Because people are moving more.
On a more paced way than they did at the last one I.
I was just hold on 100 or $130 million, we have 130 in process in the pipeline.
But theres a lot more capacity left in the plan at the federal level and we do know from talking to customers that they are kind of taken their time of fabric because they recognize that they've got more time and capability and capacity. This time, whereas last time. It was a scramble before the bucket ran dry.
Yes.
Okay, alright, great well, thanks for for helping clarify the statements I know, it's pretty pretty tricky right. Now so we'll see how things play out we are doing our best to be.
But it's tough.
Understood.
Yeah.
This concludes our question and answer session.
I would now like to turn the conference back over to Paul Perrault for any closing remarks.
Okay. Thank you Tom and thank you all for joining us and we will look forward to talking with you again next quarter have a good day.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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