Q3 2021 Brookline Bancorp Inc Earnings Call

Hello, and welcome to the Brookline Bancorp third quarter 2021 earnings call. My name is and I'll be your operator today. All participants are currently in listen only mode and this call is being recorded.

You would like to ask a question at the end of the presentation simply press Star followed by one on your telephone keypad, if you'd like to withdraw. Your question. Please press star followed by two mm for operator assistance Press Star followed by Zero is now my pleasure to hand over to Melissa Martin General Counsel to begin. Please go ahead.

Thank you Emma and good afternoon, everyone yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website proclaimed being core dotcom and has been filed with the SEC. This afternoon's call will be hosted by Paul April and Carl M. Carlson.

This call may 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.

It could cause actual results to differ materially from these forward looking statements and.

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 or future predictions for a comparison and 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 Brookline, Bancorp's, Chairman and CEO Paul Perrault.

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

I am pleased to report we had another quarter of solid earnings of $28 8 million or <unk> 37 per share as our core loan portfolio grew our margins slightly expanded.

Asset quality and the economic environment continue to improve.

The loan modifications under the cares act dropped to $56 million.

We recorded a $3 $1 million release of our reserves.

Now I'll have reserve coverage ratio of 151 basis points on non PPP loans.

In Q3 $187 million of PPP loans were satisfied as our core loan portfolio grew about $100 million or one 5% from Q2.

Our pipelines continue to be very strong trends continue to be positive and we remain optimistic as we go into the final quarter of this year and into next year.

I'm also pleased to report that the board approved a four 2% increase in our quarterly dividend to <unk> 12, and a half cents per share.

This was the second increase this year in our dividend.

As previously announced we have recently created a new affiliate both Brookline Bancorp called Clarendon private cloud.

Clarendon private is a boutique investment and wealth management firm led by Mark White.

They are working closely with Brookline Bank Bank, Rhode Island to deliver comprehensive investment advisory and private banking services to individuals families and dominance and foundations.

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

Thank you Paul.

On slide four we provided summary, comparatist income statements.

Net income this quarter was $2 8 million lower than last quarter, and $10 1 million greater than a year ago.

Performance was driven by solid core loan growth and a slightly better margin offset by lower revenues related to PPP loans and higher expenses.

Non interest non interest expense was $2 9 million greater than Q2, due primarily to $2 $1 million gain on sale of Oreo in Q2.

Expenses were flat with last year.

As illustrated on page five net interest income decreased 400000 from the prior quarter driven by a decrease of $1 4 million in Pvp related revenue as well as 890 <unk>.

Fees to prepay federal home loan bank borrowings during the quarter.

Overall, our net interest margin improved to 353 basis points.

On the bottom of slide five we've provided the estimated impact of the PPP loan program on the net interest margin.

Assuming no cost of funding PPP interest income contributed 17 basis points for the third quarter margin versus 15 basis points from the second quarter.

The impact of the federal home loan bank prepayment penalties in Q3 on the net interest margin was five basis points.

Adjusting for the impact of PPP and federal home loan bank prepayment fees. The net interest margin improved four basis points on a linked quarter basis to 341 basis points.

Please follow me to slide six and our comparative summary balance sheets.

Third quarter finished with $8 3 billion in assets down $159 million from Q2.

Loans were down $88 million cash and securities combined declined 43 million.

Funding side total deposits declined $22 million in borrowings declined 95.

Slide seven reflects the linked quarter and year over year activity and composition of our significant loan and deposit categories.

As I mentioned in the loan portfolio overall declined 88 million from the prior quarter driven by a $187 million decline in PPP loans as our core loan portfolio grew $99 million.

In the third quarter, we originated over $535 million in non PPP loans at a weighted average coupon of 397 basis points.

The weighted average coupon on the core portfolio dropped five basis points during the quarter to 402 basis points at September 30.

We continue to experience solid deposit growth and we are using excess liquidity to reduce outstanding broker deposits and borrowings broker deposits declined $75 million and totaled $186 million at the end of the quarter.

Our loan to deposit ratio was just under 101% at September 30.

Slide eight provides a snapshot of the PPP program at each of our banks at the end of the quarter, we had 819 loans with $161 million outstanding net of unearned fees.

Net deferred fees of approximately $5 $4 million remains to be recognized into income over the life of the loans or accelerate on loan satisfaction.

We saw strong PPP loan forgiveness, and we expect activity to continue for the remainder of the year.

<unk> is a small remaining balance slipping into 2022.

On slide nine we are providing the status of our loan payments the Permian activity.

As Paul mentioned as of quarter end 77 credits totaling $56 million of a loan modification under the cares act representing less than 1% of total loan balances.

Yeah.

Loan modifications are provided by sector on slide 10.

All in all loans remain accruing with modifications concentrated in the fitness and retail 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 four 3% for $287 million of regulatory well capitalized standards.

The company also purchased 690253 shares during the quarter completing the $10 million stock buyback program authorized on January 21 2021.

No shares were purchased in Q1 and Q2.

Slide 12 provides a history of a regular common stock dividend payout.

Yesterday, the board approved a four 2% increase in the quarterly dividend of $12 five per share to be paid on November 26 to stockholders of record on November 12.

On an annualized basis, our payout approximates a three 1% yield.

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

Thanks Carl.

Joining us for the Q&A session is Robert Rose, our Chief Credit Officer.

And we will now open it up for questions.

[laughter].

Thank you if you'd like to ask a question today you can do so by pressing star followed by one on your telephone keypad.

Our first question today comes from Mark Fitzgibbon.

From Piper Sandler. Please go ahead Mark your line is now open.

Hey, guys. Thanks for taking my question good afternoon.

Hi, Mark Hi, Mark.

I was curious if you could maybe sketch out some of the details on Clarendon private maybe what the rough plan looks like sort of how big this business is likely to be how many people you know kind of time to breakeven those sorts of things.

Sure.

We currently have about four employees.

So it's really getting kicked off here in the fourth quarter.

We've been talking about this as a seed versus solid strategy. So we're starting from nothing and growing this business.

We are in an excellent market to do it and it's the right time to do it for us.

So it's going to take some time to build this up we do expect it to grow to breakeven within three years and we approximate.

We'll have to be around $500 million to $600 million with assets under management.

We hit that breakeven point as we add people along the way.

Okay.

These are these are very very seasoned people in this area in this business Mark so.

They are very well known.

Okay, Great and then separately on the deposit front I guess I'm curious do you feel like you still have some room to push deposit costs down from where they are today.

Yes, very little quite frankly, we've done quite a bit through our.

CD portfolio, we have about $235 million that will reprice in the next quarter.

The coupon on that is around 65 basis points or so and things are repricing down into the 35 to 40 basis point range. So there's a little bit of room on that side, but at this point I think we largely largely exhausted that.

I'll just add that we continue to see some pretty good growth in the in the DDA.

Sector, which is helpful with the aggregate cost of funding.

Okay, and then on the on the lending side I wondered if you could kind of share with us what you're seeing out there from a competitive standpoint in the commercial market as pressures easing up much and what does your pipeline look like and maybe the average rate.

Well the competitive situation is probably.

Calmed down a bit.

We've had a number of meaningful.

M&A things going on around here and so thats really distracts people.

And so.

It's still very competitive, but it feels not quite as down and dirty as it had been.

Carl mentioned, what the originations were at pipeline very strong the pipeline is very strong we originated $535 million in the quarter.

The coupon on that was 397 basis points of right around that 4% rate.

Of course that all depends on the mix on any.

Any given quarter, but thats and I don't see that going down much and that was a similar origination level that we saw the previous quarter, but we didn't see quite as many payoffs in Q3 as it did in Q2 and it slowed down some more I think in Q4.

Great and then lastly in terms of the reserve coverage you guys, obviously have a really strong reserve, but if.

Loan growth is really starting to pick up I am curious.

Do we see maybe another quarter or two reserve releases before.

Sort of.

Get to zero or maybe even start to provide again.

Well I'd say that our reserve is adequate at September 30, Mark.

[laughter].

Okay.

Thank you.

Okay.

Okay.

Thank you Mark next question today comes from Laurie Hunsicker from Compass point. Please go ahead, Laura Your line is now open.

Great Hi, Thanks, good afternoon.

Hello, Eric.

The thing that you can just give me the actual dollar amount of the PPP forgiveness in.

In the quarter I'm getting that is around $4 million I'm, just hoping you have a more actual number.

One second I have that at my fingertips here.

Thanks.

And yeah go.

Go ahead.

So the deferred fees that were recognized during the quarter was $5.152 million on PPP loans.

And we had interest income of.

Once a 630 $641000 in interest income on that so combined thats the thats the contribution of the PPP loans during the quarter.

Okay, Great and I think there's five four remaining and then Prepays fees do you have that number.

I'm, sorry, I didn't hear the question.

Our prepaid fees.

Our total prepays.

All were $1 million 579.

Okay.

Okay, and so I just wanted to.

Try to put some of your comments together as we're looking at the P. P. P.

In terms of.

I guess, how we see the margins play out it looks like on the funding side and certainly you referenced it.

We continue to see the CD book come down, but quite a positive can't really go anywhere.

So how how should we be thinking about margin as we head out into 2022.

So yes of course, there's a lot of moving pieces to this.

But when you look at what a broken out there on page five I believe it is.

Excluding PPP, excluding the federal home loan bank impact the margin would have been in that.

341 range.

We see that to be fairly consistent going forward.

And at least that reflects the recent move in.

In the yield curve, the two year and the five year rates moving a little bit higher. So we do see the margin in the $3 35 to $3 40, or $3 40, plus range for <unk>.

For next year.

Okay, that's helpful, including and excluding any impact of PPP I want to be clear on that excluding impact of PPP.

Right right well there shouldn't be much P. P. P next year right.

The repurchase that you completed so all $10 million was done all $10 million were done this quarter and that the sheer number.

You went through that really quickly again I'm I'm at an approximate number just hoping you could give me that share count that was repurchased this quarter.

Six are right around 690000 shares.

690, Okay, and then am I right all 10 million was actually done this quarter.

The $10 million.

Correct. So the average price was a little under $14 50.

Okay, Perfect and then Paul how are you thinking about a buyback refresh love seeing the dividend increase that how should we think about that yes.

I'm not sure I follow.

Sure.

We've been targeting sort of a core operating earnings.

Payout ratio, maybe 40 or so.

The capital build is enough for the sort of.

Mid to high single digit growth that we tend to see on a more normalized environment.

Karla and I like to keep the share count contained if we can buy buyback opportunistically because we do annual grants.

Equity. This is helpful in that in that sense.

So it was kind of all part of the capital Medicine.

Okay.

Yeah.

Just last question any any.

Any comments for now a quarter out from when we last chatted about this M&A can you help us think about there's a lot going on in your market place can.

Can you help us think about where you are currently and how you're approaching it into next year.

Thanks.

Well, we certainly are planning to have our people take advantage of any disruption in the market, which will probably happen between now and the middle of next year, maybe a little bit longer than that both in people and customers.

That that kind of thing and beyond that I mean, we keep our ear to the ground we've talked to people.

We will pursue.

Objectively any reasonable M&A opportunity.

Okay. Thanks, so much.

Okay Laurie.

We currently have no further questions today, so I'll hand, the call back to Paul Perrault for some closing thoughts.

This concludes the answer there is a question and answer session I guess, so I'd like to.

Just thank you all and thank you for joining us and we look forward to talking to you again next quarter.

This concludes today's call. Thank you all for joining US you may now disconnect your lines.

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