Q2 2021 Brookline Bancorp Inc Earnings Call

And and CEO Paul Perrault.

Thanks, Marissa and good afternoon, everyone. Thank you for joining us for todays earnings call.

I am pleased to report, we had record quarterly earnings of $31.6 million or.

Or <unk> 40 per share as our credit quality has remained stable our net interest margin and.

Income improved and our stable expense base benefited from a $2.1 million gain and sale of a piece of other real estate owned.

We continue to work with a small segment of our customers who are still working through the financial challenges.

As of June 30, we had $96 million remaining.

And fee modified loans under the cares Act.

The company recorded a negative provision for credit losses of $3.3 million and our reserve for loan losses declined 5 basis points to 160 basis points and outstanding non PPP loans.

In Q2, we.

And moving to another quarter of significant PPP originations.

And for gives us activity, we facilitated $22 million and new PPP loans before the program ended on May 31.

And $279 million of PPP loans were satisfied during the second quarter.

Excluding.

Our core loan portfolio remained flat growing $9 million for the quarter.

It may be too early to tell if this marks the turning point, but our pipelines continue to be very strong trends continue to improve and we remain optimistic.

And I am pleased to report that the board approved another quarterly dividend of <unk>.

<unk> <unk> per share.

I will now turn you over to Carl who will review the company's second quarter.

Paul.

On slide 4 we have provided summary, comparative income statements we.

We had record net income of $31.6 million, this quarter, which which was $5.1 million higher and last quarter and $19.6.

<unk> seen greater than a year ago.

Performance was driven by significantly higher pre tax pre provision revenue lower expenses as well as a negative provision for credit losses.

Second quarter revenues increased $3.1 million from Q1 and were $6.5 million or 9% ahead of last year.

Operating.

$6 for $2.8 million lower reflecting the $2.1 million gain on sale of other real estate owned as well as lower FDIC assessments.

As illustrated on page 5 net interest income increased $2 million from the prior quarter.

Driven by lower funding costs as broker deposits and borrowings.

Cost line and time deposits re price our shift to lower cost products.

Overall, our net interest margin improved to 250.352 basis points.

The 13 basis point increase from Q1.

Of the $2 million increase and net interest income from the prior quarter.

800000 is attributed to the increase and PTP interest and fees with the remaining benefit driven by lower funding costs.

On the bottom of slide 5 we have provided the estimated impact of the PPP loan program on the net interest margin.

Zooming no cost of funding PPP interest income contributed 15.

At this point since second quarter margin versus 11 basis points and the first quarter.

If you follow me to slide 6 our comparative summary balance sheets.

The second quarter finished with $8.5 billion and assets down $98 million from Q1.

Loans were down $248 million, while cash and security.

<unk> based combined increased $153 million.

On the funding side total deposits grew $28 million as borrowings declined $183 million.

The allowance for loan losses declined slightly to $106 million and represents reserve coverage of 160 basis points of loans excluding PPP.

Slide 7 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 declined $248 million from the prior quarter, driven by $257 million decline and PPP loans as our core loan portfolio grew.

Securities.

While the growth is very modest and is a dramatic change from the decline of $117 million or core portfolio experienced in Q1.

And the second quarter, we originated over $600 million and non PPP loans at a weighted average coupon of 373 basis points.

While we had a strong.

Nice quarter and originations, we also had significant pay offs driven and in part by the sale of some very well run family businesses and.

A very active real estate market.

The weighted average coupon on the core loan portfolio dropped 5 basis points during the quarter to 407 basis points at June 30.

Strong we continue to experience strong deposit growth and we are using excess liquidity to reducing outstanding broker deposits and borrowings.

Broker deposits declined $210 million and totaled $261 million at the end of the quarter.

Our loan to deposit ratio was just under 1% and 2% at June 30.

Slide 8 provides a snapshot of the PPP program at each of our banks.

At the end of the quarter, we had just under 2000 loans with $348 million outstanding net of under and fees.

Net deferred fees of approximately $10.3 million remains to be recognized into income over the life of the loans.

We saw PPP.

And forgiveness accelerate and the second quarter and we expect this activity to continue for the remainder of the year and perhaps into early 2022.

On slide 9 we are providing the status of our loan payment deferment activity.

And as Paul mentioned as of the quarter and 151 credits totaling 96.

Loan modification under the cares Act.

Representing 1.4% of total loan balances.

Low modifications are provided by sector on slide 10.

All loans remain accruing with modifications concentrated and the laundry fitness and <unk> sectors.

As shown on slide.

<unk> 11, and the companies 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 capital buffer for 4% for $291 million over regulatory well capitalized standards.

Slide 12 provides the history of our.

Our regular common dividend stock dividend payable.

Yesterday, the board approved a quarterly dividend of <unk> 12 per share to be paid on August 27 to stockholders of record on August 13.

On an annualized basis of payout approximates a 3.4% yield.

This concludes my formal comments and I'll turn it back over to Paul.

Thanks, Carl joining us this afternoon for the question and answer session is Robert Rose, our Chief Credit Officer and.

And I will now open it up for questions.

Thank you well now begin the question and answer session.

I'll ask a question and you May Press Star then 1 on the Touchstones wrong.

Ladies and the speaker from.

We ask that you please pick up your handset before pressing the keys. So majority of your question. Please press Star then 2.

Today's first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Good afternoon Mark.

Mark.

Carl just to start off what was the $1 million increase and other non interest income you referenced.

And the press release, what was that attributable to.

And thats driven by risk participation agreements with.

And with parties related to loans that we do with swaps on them. So we have to do a theoretical mark on that debt close to the income statement.

Okay.

And then <unk>.

I was wondering if you could maybe share with us your outlook for operating expenses and whether there might be any need for incremental technology investments any big tech spend coming up.

Sure so.

As we already kind of referenced adjusting our quarterly expenses for.

For the $2.1 million.

Gain and Oreo our expenses would have been $41 million for the quarter, which is very consistent with our overall run rate.

As far as technology spend we're continually spending on technology. So we I wouldn't say, we have anything big on the horizon there.

And Thats ongoing.

<unk> thing so it's it's built into our run rate.

And at the best I can tell you right now I have nothing on the horizon in that regard.

And then.

But what I do want to say is with the recent wave of bank consolidations within our market, there's quite a bit of dislocation.

And both.

Customers and talent.

<unk>, which we will certainly be taking advantage of so don't be surprised if we see expenses tick up a little bit.

As we had some particularly good athletes.

Okay.

And then for Bob Bob I wondered if you could share with us kind of the size of your commercial pipelines are those.

Build and any particular areas of strength.

The pipelines are are growing.

And they are channel, particularly.

<unk> strong and commercial real estate.

And they have remained quite healthy in equipment finance.

Starting to be a laundromat tow truck and exercise I realize exercised a smaller portfolio, but everyone is seeing more demand for things and the backlogs reflect it.

Mark I would just like to add that.

We have continuously had very strong.

Originations as.

As Carl alluded to in his comments and that continues and probably is getting even stronger.

When you when you think about we had something on the order of $600 million of originations and the second quarter, which is.

Greater than we probably have had and the past and <unk>.

That kind.

Kind of pace continues.

And what has slowed us down is that we bank very nice little family run companies.

Who are being offered tremendous amounts of money and this very liquid market to be acquired.

And so that I hope will slowdown.

And if that slows down and I'm very optimistic.

Domestic for growing the balance sheet.

Okay. Thank you.

And ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press Star then 1 our next question comes from Laurie Hunsicker with.

At this point. Please go ahead.

Yeah, Hi, Paul and Carl Laurie and action.

Just wondered actually if we could stay on credit Bob. So just very quick question for you I didn't see it broken out by the way the details in your slides are great, but the the food ex Duncan that that loan book was running around 30 to 35 million I'm just wondered it wasn't it wasn't flagged on the potential.

Net impact slide is that book gone or if you could give us an update what the deferrals are I know, it's a smaller piece right.

Thanks, Paul.

Food ex Duncan is your question and it's very small and there are no. There are no modifications or deferrals in that portfolio that I'm aware of.

And I must have just very small business banking, but this is a portfolio of <unk>.

Handful really.

Our family oriented family oriented restaurants, I think a couple of them were at the initial stages of the permits per day came back on it. So recently and we took it off that sector list yet not today.

Perfect.

Okay, and then just any comments around macro Lee and your deferral rates are great and just anything there that 1 and sell a lot of that on the high side and.

And.

It runs a touch on the high side I think there are $23 million. So 144 million are paying according to term and.

Most of those $23 million I think all of them are interest only but of the modifications.

California dominates planet fitness, and California dominates that California was the last 2 dropped restrictions and.

Allow for opening and we had granted some.

Lengthier modification.

Occasions than other businesses and other industries received and so theyre going to run off a little more slowly and the balance of them are independence and a handful of other types of.

And exercise.

But.

And it's logical that California with dominate that list I would just add Scott that Laurie.

The reports out of management and macro leases that the the occupancy if you will the use of the clubs that are open is for.

<unk>.

They don't lack for business when they are opened.

Yes.

Okay, that's helpful and.

And then Karl question for you on that.

And I appreciate the details on slide 5 and just trying to reconcile them.

That ppb forgiveness.

That I thought I had last quarter the March quarter was $1.4 million.

And then I'm just kind of reconcile I think at March.

So you had $14.4 million of unamortized fees.

And that that's under $10.3 and so.

And it seems like the majority of that $4 million dropped through and up and.

And coming up with a slightly different number just wanted your help what was the actual dollar amount of <unk>.

PPP income forgiveness and June and then was my March number right or maybe I have that.

And then thanks.

Thanks.

Yes, so the.

The total income for PPP loans for $7.2 million and the quarter.

$1.2 million of that was interest.

Fewer coupon interest.

And the remaining piece of that $6 million is.

And the FERC fees be recognized bolt on and amortized basis over the life of the loan as well as additional once if a loan prepays.

Gets accelerated and I don't have a breakout between what's normally amortized and what the.

And what the specific to work too.

Forgiveness loan book.

And I think we already gave you and about $279 million of loans were forgiven in the quarter.

And we continue to build and we continue to book.

PPP loans through through the second quarter while.

Not a great deal there was $22 million booked.

Yes that does all small.

And.

Geez.

Okay. Okay. That's helpful and I guess as we look out to 2022.

Maybe just help us think about margin your cost of core deposits.

14 basis points.

Can't go much lower your CD is maybe a little bit of room.

I guess stepping out that PPP, if we're thinking about.

There.

And where margin might settle is.

Is it going to be and that's where the $3.25 to 330 level as a starting point or how should we be thinking about that and I know you had accretion income in there and prepays.

While not a wow.

Trying to sort of net all of that put all of that together for 2002.

I'll answer that question and 2 parts. The first my first question, but first answers I'm not really giving guidance on 2022 at this point.

But as far as.

The 2 parts.

And I'll talk to the core portfolio and then the PPP impact.

So we expect our core more our core margin to be relatively flat to slightly higher.

And try and unpack that a little bit little bit we continue to see strong deposit balances and we.

<unk> continued to experience margin benefits as it relates.

For the Cds, the broker deposits and the borrowings repricing.

So we'll continue to see that benefit on the asset side all of our new production is coming in at coupons, which are lower than the existing portfolio, which depending on the growth may partially offset the margin gains on the funding side.

But overall will result and higher.

Overall net interest income.

And regarding PPP, we have $348 million at the end of the quarter $10.3 million of net the FERC fees.

Paul.

How that impacts the margin for the next 2 to 3 quarters is really going to be based on the velocity and the forgiveness.

<unk>.

And but I do expect most businesses will want to get this done by the end of the year, but of course there'll be some carryover.

Paul.

So I think.

And we probably peaked at $7.2 million contribution.

To revenues and.

And I expect that will Paul will likely be lower.

As we go forward as it trails off.

Yeah.

Got it Okay and then just last 1 on the income statement, what how should we be thinking about tax rate going forward.

Patrick.

Again, I'm not going to give you 2022 guidance.

But our year to date effective tax rate is.

<unk> 25 point to a lot closer to Washington, and you should know Paul.

For me.

No.

And any and.

25%, so what we should be thinking about R. R and here.

Picked up a bit because our revenues are a little bit higher business.

Less tax efficiency going on that.

Things that might have a tax benefit to them.

So effectively our tax rates $25.2 on a year to date basis, So I'm using that number as a full year number at this point.

Okay. That's helpful. And then Paul last question there has been a lot of M&A you mentioned.

And potentially teams that people can you can.

Can you help us just think a little bit about how you're thinking about for bank M&A right now.

And youre very competitive landscape.

Thanks.

I haven't changed my thoughts about it but there seems to be a lot less to think about.

It really is getting pretty thin.

And do keep our eye on situations.

<unk> regionally as we have made clear in the past that it wouldn't have to be and end market or adjacent situation.

So we have been.

And some level of conversations and some places that.

And as we have also said in the past we are very comfortable with our.

Our ability to have strong organic growth, we're big enough to get the job done and the markets that we elect to play and and.

So as interesting and.

And possible benefit could come out of out of M&A, it's not a requirement for us to execute our plans.

Great. Thanks.

And my question, Yeah, Okay, Laurie and I imagine.

Ladies and gentlemen, this concludes our question and answer session I'd like to turn the conference back over to Paul Perrault for any closing remarks.

Thank you Rocco and thank you all for joining us today, and we look forward to talking with you again next quarter.

Good day.

And he says this concludes.

Thanks for Thompson's call and thank you all for attending you may now disconnect your lines and have a wonderful day.

And.