Q1 2021 Brookline Bancorp Inc Earnings Call
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Good day and welcome to the Brookline Bancorp.
First quarter 2021 earnings call.
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Please note. This event is being recorded I would now like to turn the conference over to Marissa Martin Associate General Counsel. Please go ahead.
Thank you Betsy and good afternoon, everyone yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website Brookline Bancorp and has been filed with the SEC.
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. 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 operations and business of Brookline Bancorp. Please refer to page two.
Two of our earnings presentation for a forward looking statement disclaimer on.
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 Brookline bancorp's results and performance trends and should not be relied on as financial measures of actual results for future prediction for a comparison and reconciliation to GAAP earnings. Please see our earnings release.
You could join us on page three of the earnings presentation, I'm pleased to introduce Brookline Bancorp's, President and CEO Paul Perrault.
Thanks for the Russell and good afternoon, everyone. Thank you for joining us for todays earnings call.
With COVID-19 cases case numbers trending down in Massachusetts, and Rhode Island, and vaccine number is increasing.
We remain quite optimistic for the future.
Our branch locations are all fully opened with employees, providing all services to our customers while for the most part our non branch employees continue to work from home.
We are following the guidance on both Boston and Providence for employees, who would like to return to the office, one or two times per week and that is an evolving picture here over the next couple of months.
Turning to our earnings I am pleased to report, we had a solid quarter of earnings of $26 $5 million or <unk> 34 per share.
Our credit quality remained stable and our net interest margin actually improved.
We continue to work with a small segment of our customers who are still facing financial challenges related to the shutdowns and require some additional loan payment deferrals to get to the other side.
As of March 31, there were loans of $126 million with modifications under the cares Act.
The company recorded a negative provision for credit losses of $2 $1 million.
Our reserve for loan losses declined four basis points to 165 basis points on outstanding non PPP loans.
In Q1, we experienced another quarter of significant lending activity as our bankers worked with our customers on the latest round of PPP loans we.
Facilitated a $133 million of loan forgiveness payments during the first quarter and an additional $248 million of PPP loans were made.
Outside of PPP prepayments continued to offset growing loan demand.
We continue to see improving trends and pipeline to continue to grow.
I'm also pleased to report the board approved a four 3% increase in our quarterly dividend to <unk> 12 per share.
I will now turn you over to Carl who will review the company's first quarter.
Sure.
Thank you Paul.
On slide four we have provided summary, compared with income statements.
Net income was $26 $5 million driven by higher pre tax pre provision revenue and a negative $2 1 million in the provision for credit losses.
Q1 revenues increased $1 5 million from Q4 and were $2 9 million ahead of last year and operating costs were 800000 higher due to seasonally higher compensation related costs.
As illustrated on page five net interest income increased 900000, and funding costs dropped faster than the yield on earning assets.
Yield on interest, earning assets declined three basis points from the prior quarter as the cost of funding declined 15.
If you follow me to slide six you can reference on a comparative summary balance sheets.
On the first quarter. The company finished with $8 6 billion in assets down $382 million from Q4.
Loans were flat, while cash and securities combined declined $320 million as we used excess liquidity to pay down broker deposits and federal home loan bank advances.
The allowance for loan losses declined slightly to $110 million and represents coverage of 160 day five basis points on 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 overall was flat from the prior quarter as the growth in PPP loans of $116 million offset declines of $117 million on the rest of the portfolio.
Broker deposits were reduced $223 million as we saw a non broker deposits grow $179 million in the quarter.
We continue to see strong growth in demand and money market deposits and consumers continue to shift funds from Cds to other deposit products.
Slide eight provides a snapshot of the PPP program at each of our banks.
At the end of the quarter, we had over 3400 loans with $605 million outstanding net.
Net deferred fees of approximately $14 million will be recognized into income over the life of these loans.
As Paul mentioned, we had $133 million on PPP loan satisfaction during the first quarter with most of the activity occurring during March.
On slide nine we are providing the status of our loan payment deferment activity.
As Paul mentioned as of quarter end 341 credits totaling 126 million have a loan modification under the cares act, representing one 7% of total loan balances.
Loan modifications are provided by sector on slide 10.
All remain all loans remain accruing with modifications concentrated in our laundry fitness and total sectors.
As shown on slide 11, 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 quarter, we had a capital buffer of three 5% for $239 million of regulatory well capitalized standards.
Slide 12 provides a history of our regular common dividend payout.
Yesterday, the board approved a quarterly dividend of <unk> 12 per share to be paid on may 28 to stockholders of record on may 14th.
On an annualized basis, our payout approximate a 3% 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, who is our chief credit Officer.
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 then one on your Touchtone phone.
If youre going to speaker phone. Please pickup your handset for quick question Keith.
At any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two 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 morning, or I guess good afternoon.
First I wondered if you could share with us the size and complexion of your loan pipelines, excluding the PPP.
Loans.
Any that are on profit.
Sure.
Mark Hi, its Bob Rose I will tell you that business has picked up significantly this quarter and it's fairly balanced well balanced between.
C&I on Crane.
We see it in our loan committees are new to new is up quite a bit in the quarter.
And it's actually running running higher than new to new.
I can tell you that the loan officers across the board our reported more interest and activity.
In the equipment World.
Strong demand for laundry.
<unk>.
<unk> equipment refreshes.
And.
In the exercise world demand is actually rising for acquisitions and the manufacturers. They are also pushing equipment refreshes.
It is there was a bottleneck in both of those latter replaces laundry and exercise for equipment, but it is fairly broad and it is it is an impressive sea change that will quickly.
Okay great.
And then Paul could you talk a little bit about your expectations for the margin over the next few quarters, including in non including excluding PPP income.
We will continue to see.
Pressure on the net zinc on the net interest income.
Prior to the PPP.
Forgiveness.
While we will still see it all depends really on this loan growth. So I really want to kind of caution that there is a lot of activity. So it depends on what gets booked during this quarter.
But.
Overall, it's a lot of it is going to be we'll see a little bit of benefit on the.
On the funding side as we continue to see Cds.
Reprice into other loan on the.
The deposit products.
We continue to pay down brokered funds as well as federal home loan bank advances.
So we'll see some relief there.
But.
What I want to caution here is we just put on $250 million of.
PPP loans and as you know these these carry a 1% coupon and while they come with a lot of fees. It all depends on how fast those fees get <unk>.
Recognize and that really depends on on the.
On the forgiveness on.
On the magnitude and speed of the forgiveness on these loans are now five year loans I tried to provide you guys a lot of a lot of detail behind that so the yields on these loans, if they don't get forgiven or very low risk and the $161 70.
Paul.
Area from from a yield perspective, so I think a lot of it is going to be the timing of the PPP and of course on how fast we book new loans.
So the core margin card this quarter was what.
Yes, I'm not providing a core margin I'm letting you guys try to figure that out yourself I said the well.
Deferred fees of $1 4 million.
Related to PPP loans came in.
During the quarter.
So you could take that out and say that that's the core margin.
Okay.
Next I was curious if you could update us on your planning for crossing $10 billion.
What kind of incremental costs, we're likely to see this year next year and and what if you could just refresh us on the impact that you expect from Durbin.
Ill take half and then I'll give carl have.
We will pass the $10 billion when we pass it we're not afraid of it we're not racing to it we're not running away from it.
It will happen naturally.
We feel we are very very well prepared and have been for a long time already.
<unk> the practices that are required when you are over $10 billion everything from board risk committees.
Model testing and all the other stuff that one needs to do we've been doing for a long time. So from an operational point of view I don't see anything at all happening when we cross.
As the Durbin I'll, let Carl.
We estimate that to be somewhere in the 1 million to $2 million range on the urban side.
Okay, and then lastly, kind of a multi part question, obviously theres been a lot of consolidation in your backyard recently and really yes.
Some of those banks believe it or not suggested that scale is really important to be competitive I guess part. One is do you agree with that and in part two if you could talk maybe a little about the opportunity that you see to steal customers employees from some of these other banks that are going through consolidation and where you.
You see the most opportunity. Thanks for funded study I find this funny mark that banks for virtually every size of 100 million to 100 billion on say that Nirvana is the next size up for them.
So for.
Acuity thing.
We can appreciate that it seems that in most things in banking economies of scale are reached fairly early on.
Better when you get to be enormous so.
I'm not a big believer on it once you are of a certain size now.
Now having said all of that.
Five deals sort of around us that have happened here recently.
I think are unique and wonderful opportunity for us we're big enough. We're capable we're in the right business lines, we're not a retail oriented place, we're not a big residential lender credit cards or things, where maybe scale is a bit more important. So I think for the next couple of years is going to be a lot of early on.
Happy people at some sizable institutions.
That are going to be looking for new friends.
It almost feels like it has started as Bob had reported that we are seeing a larger content and our new loan approvals with new customers and we've seen in some time.
Great. Thank you.
Our next question comes from Laurie Hunsicker with Compass point.
Please go ahead.
Yeah.
Hi, Good morning, Hey, Lori afternoon button.
Yes.
At least at least wherever we are.
Jim just a follow up on Mark with Boeing.
Can you just help us think about this a little bit more so I'm looking at the Boston marketplace and Im looking at the publicly traded Massachusetts based bank.
Obviously Easter and they just did a deal Imdb they just did a deal.
And then there's Yale.
And I guess for starters number one.
Can you just expand a little bit more on your current approach to M&A.
Given the fact that you're trading lines ex the book, how you think about it how protective you'll be around tangible book dilution earn back how you think about that and then also point number Q can you can you help us think a little bit about <unk>.
Geographically, where you would want US day, if you thought about M&A and I guess the last point is how do you think about asset size in other words, how small would you go would you entertain an MLP.
Just any further comments around that would be super helpful.
Well I don't think I have changed my opinion about M&A or what I would do or not do in quite a long time.
I think it's fair to say that the recent deals announced in this area.
Had a similar characteristic in net in most cases, the acquirers had special.
Currencies that they were able to use in order to accomplish.
Some some very light damage if any at all to capital ratios tangible book and all that kind of thing and then eastern case. It was all cash because cash is what was needed to get that deal done.
So.
I haven't changed my mind and in market or near market deals got a got to make financial sense. We wouldnt go overboard on that solution as you know and.
We would need to be able to see tangible benefits.
In the relatively near future on earnings mostly.
Maybe maybe a low product diversification, but that would be about it. If we went out of town to do something.
I don't want to draw a line in the sand, but maybe the smallest that we'd go would be $1 billion.
It's got it's got to look and feel like a market that we'd be comfortable with they have to be in business lines that.
But we would recognize and be able to help them with.
It would need to be a management team thats going to stick around and be helpful.
And that's about it.
In terms of.
Did I answer all your pieces.
Yes, just maybe one more can you comment a little bit.
I would just add though let me just add debt I don't feel under the gun by any means to go do a deal.
Okay. That's good.
And what about on MLB, how would you how would you think about an MLP.
Yes, so many life of mine.
Think of an MLP.
I would think of it the same way that I would do any deal whether on buying or selling.
The the righteousness the propriety of the transaction as is Paramount and it's going to be evident and not speculative.
Got it makes sense for everybody.
Okay.
Great.
And Karl just last question for you tax rate.
With 24, 9% I think I was using 26% any anything I should think about there in terms of tax rate.
I would note that 25% to what it looked like for the quarter Thats what.
What we estimated for the quarter for the full year. It will all depend on what happens with taxable income as we move forward throughout the year and I think thats going to depend a little bit on what our provisions are going to be in the future as well as.
How fast forgiveness comes in.
And then we'll true up whatever that attach rate on that needs to be based on what the full year.
Looks like.
So 25 is where we are.
On reviews.
Okay, great. Thanks for taking my questions and thanks for all of the credit detail helpful.
Thank you.
As a reminder, if you have a question. Please press star then one to be joining us for the Q.
Our next question comes from Christopher Keith with D. A Davidson. Please go ahead.
Hey, good morning, everyone.
Hi, Chris.
So I just wanted to ask the CRE loan yields look to be stabilizing linked quarter.
Can you share where the new loans are coming on.
Now.
Sure. So just in total for the book.
Ill up on you guys asked me that question for the whole for the whole portfolio, we booked about $328 million.
Originations are draws during the quarter, that's excluding the PPP loans.
And the pre book.
The weighted average coupons for this excludes fees and things of that nature, but the coupon itself was $3 65.
Okay.
Great.
And then.
Looking over at loan growth in the core commercial loan portfolios so ex PPP.
The contribution looks like it's continued to decline over the last several quarters. So I'm just curious how much of that is driven by.
Lower line of credit utilization if at all.
In our case it has been driven more because we have a very high quality portfolio of family owned and operated businesses.
We've just seen too many of them decided to sell.
In a market, where they are reaping a lot of money and they just pay us off.
I can't tell you technically how much less line utilization do you know current but I don't think I don't think per line you look at the we keep we monitor that and I don't recall it changed much at all so I think it's mostly just pay downs pay offs pay offs sales and thanks for that makes lasers, it's amazing to me.
What's been going on lots of companies that are just selling out force consolidations.
<unk>.
Yeah got it well. Thank you that was helpful. And then I guess just looking at the CRE.
Yeah.
Portfolio.
I assume paydowns and payoffs are also a.
A headwind for had been a headwind there is is there any shifting in the momentum heading into the second quarter.
Robert.
I don't think there is that portfolio shrank by about $35 $36 million in the quarter and you got to add up construction and add up Korea and look at the two together and.
Day, they pretty proportionately came down in the quarter, but.
They are people paying people being careful during this time, but as I said earlier, there's a lot of stepping out and wanting to.
The next thing because a lot of these guys have been dormant during the.
For the past 15 months 12 to 15 months.
Got it got it. Thank you and then just last one for me.
So I think you had maybe somewhere around $370 million on CD maturities during the first quarter.
Was curious what the retention is around those maturities and then any if you have any additional color around coming CD maturities.
Sure so.
Okay. So on page eight.
Yes.
The new the new volume 70 net.
We're at $263 million were booked.
At a rate of about 43 basis points.
And that was the new volumes in the quarter, we had run off for about 360, we had paydowns on 365, and then and then new bookings.
A $2 63.
Okay got it that's very helpful. Thank you so much.
Things are the things that were coming off we're coming off at 183 C on a.
Sensus.
The change thank you Chris got it thank you.
This concludes our question and answer session I would like to turn the conference back over to Paul Perrault for any closing remarks.
Thank you Betsy and thank you all for joining us today, and we look forward to talking to you again in the next quarter have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.