Q1 2022 Brookline Bancorp Inc Earnings Call

Hello, and welcome to the Brookline Bancorp, Inc. Q1, 2022 earnings call. My name is Katie and I'll be coordinating your call today, if you would like to ask a question. During the presentation. You may do so by pressing star one on your telephone keypad.

Now how does it your highest memory simonton to begin Larissa. Please go ahead.

Thank you Katie and good afternoon, everyone yesterday, we issued our earnings release and presentation, which are available on the Investor Relations page of our website Brookline Bancorp Dot com and have been filed with the SEC.

This afternoon's call will be hosted by Paul Perrault and Carl M. Carlson.

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.

So 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 financial measures of actual results or future predictions.

For a comparison and reconciliation to GAAP earnings please see our earnings release.

Pleased to introduce Brookline, Bancorp's, Chairman and CEO Paul Perrault.

Thanks, Marissa and good afternoon, everyone. Thank you for joining us on today's call.

I am pleased to report we had another quarter of solid earnings of $24 $7 million or <unk> 32 per share and as well we did an increase in our quarterly dividend of 4% to bring it to <unk> 13 per share.

On an annualized basis, our core loan portfolio grew six 9% and deposits grew by five 5%, excluding the $50 million pay down in broker deposits.

Our core margin excluding PPP.

To improve and increased seven basis points from Q4.

Our bankers continue to be very active in our select markets and I am very optimistic for the balance of the year.

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

Thank you Paul.

As Marshall mentioned, we have provided an earnings presentation on our website and has been filed with the SEC.

I will not be doing a slide flipped for this quarter.

Net income this quarter was $24 7 million, which was $3 $8 million lower than last quarter. The decline is.

Primarily due to lower PPP revenues of $2 7 million and lower derivative and participation income of $5 2 million after coming off an unusually strong fourth quarter.

This was partially offset by stronger core margin as well as lower operating and provisioning expenses.

Overall, our net interest margin declined three basis points to 349%.

Again this was due to lower PPP revenues, excluding the favorable impact of PPP on our margin NIM increased seven basis points from Q4 to $3 four 4%.

The loan portfolio overall increased $69 million from the prior quarter driven by growth in our core portfolio of $122 million offset by PPP loan satisfaction.

At the end of March we had 56 P. P. P loans was $14 million outstanding and approximately 400100. Please.

In the first quarter, we originated 550 million loans at a weighted average coupon of 399 basis points the.

The weighted average coupon on the total loan portfolio Rose one basis point during the quarter to 396 basis points at March 31.

Prepayment fees were $1 5 million in Q1, which was down 210000 from Q4 and deferred fees were $1 4 million or 342.

Less in Q4, resulting a net positive impact on net interest income of 132000 in the quarter.

Our credit quality in the economic environment continue to improve resulting in slight negative provision for loan losses at quarter end, there were 69 credits totaling $15 million.

Remaining with the loan modification under the cares Act.

Our reserve coverage is at 132 basis points and our capital position is strong.

First quarter saw significant increases in interest rates, particularly in the mid to long term rates and the federal reserve increased short term rates 25 basis points in March.

The sharp increase in market rates impacted the value of our securities portfolio, which is classified as available for sale the $29 million after tax accounting impact of marking to market. The securities portfolio had a negative impact of <unk> 38 per share intangible book value for the quarter.

After accounting for earnings and dividends shareholders' equity declined $13 million in tangible book value declined a net 17 cents in the quarter.

Currently the market is pricing in further increases in short term rates, which have the potential to benefit benefit us due to a moderately asset sensitive position.

Assuming a flat balance sheet and the forward curve as of $3 31, our simulations reflect a six 8% increase in net interest income over the next 12 months.

Our simulations reflect the blended beta of 46% on interest bearing deposits.

As Paul mentioned, the board approved an increase to our quarterly dividend to <unk> 13 per share, which will be paid on may 27th to stockholders of record on may.

<unk> on.

On an annualized basis, our dividend payout currently approximates a three 6% yield.

This concludes our formal comments and we will now open it up for questions.

If you would like to ask a question. Please press star followed by one on your telephone keypad now.

If you would like to remedial question. Please press star followed by T Muesli and when preparing to ask a question. Please ensure your phone is on mute you'd likely.

We take our first question from Mark Fitzgibbon from Piper Sandler. Please go ahead Marc.

Hey, guys good afternoon.

Hi, Mark.

First question Carl I Wonder if you could help us think about the outlook for fees. It you know you guys.

A little bit of volatility there recently and I'm. Just wondering if you could help us think about particularly loan level derivative income and the gain on sale line.

Those are volatile I think.

My best.

Estimation on that it really depends on the types of loans that we're doing in the pipeline.

Whether we are going to be participating in that or not or.

Doing swaps.

Didn't do a lot of swaps this quarter, but thats.

That's something that is volatile it's hard for me to give you.

A really good estimation from a quarter to quarter from quarter to quarter, but it is an activity where it is growing within the within our.

Our loan departments.

With friends and family.

Okay.

Second question, Paul I guess I'm curious as I was looking at sort of the breakdown that you had between the two banks.

Have you given any more thought to potentially consolidating the charters of those two companies in an effort to reduce cost is that does that make sense or maybe maybe asked a different way why why wouldn't you do that.

Well it looks to me like it's working pretty well.

Wouldn't do it.

And the reporting structures are terrific and so the CEO in Rhode Island handles that whole market and I would fear that.

We would be leaking functionality and we would lose the presence in each of the markets being totally control by their Ceos.

And I look at our efficiency ratio and it looks pretty good on a relative basis.

And so.

I think it is beneficial and it is a pattern that that perhaps can be expanded.

Okay.

And I Wonder if you could also maybe update us I know, it's early days, but update us on how things are going in Clarendon private.

Exactly that very early days, but we've had very strong response.

From both of our banks as far as referrals and things of that nature.

We're doing quite well with the reception by customers.

Okay, and then lastly, Carl the margin I heard what you said about the NII impact.

How are you thinking about the second quarter margin with <unk>.

The remaining PPP burning off and you know with the rate impacts rate hikes, we've seen thus far.

Yes.

I said PPP only business. Another 400000 left on that I'm not sure if thats when thats going to come in quite frankly, it's just the timing of when people are going to be satisfied on that.

Right now when we model forward curves.

Right now I think.

This almost consensus.

The fed's going to raise 50 basis points in May.

If that happens.

Would not be surprised to see our margin expand by 10 basis points.

In that range.

Are we talking about $3 44, as a core margin.

Expect that to improve.

Improved by about 10 basis points in the second quarter.

Great. Thank you.

The next question comes from Laurie Hunsicker from Compass point. Please go ahead Lori.

Yeah, Hi, Thanks, good afternoon.

Hey, Laurie just one just wanted to make sure I heard so prepay fees that were in that interest income. This quarter was that was one 5 million is that correct.

That's correct.

Okay great.

Right. Okay, and then non interest income can you help us think about NSF and overdraft fees.

And how you're thinking about a more sort of consumer friendly option when that hits the income and just maybe quantify for us how much is actually in this quarter.

Well sure so.

On a quarterly basis on a combined basis for both banks.

NSS or about $402000 about $400000 a quarter.

Can you break that down it's about 280.

280000, and consumer and the rest is about 120000 commercial.

To get a sense of the overall size of that.

We continue to look at that.

Two.

Work on what we want to do on the future.

Okay.

That's helpful.

And.

In occupancy expense it looks like there was a pretty sharp uptick linked quarter was what did I Miss something.

Did you guys open another branch are.

Do you have a redo our nothing magic about that Ron.

Lee.

Yes.

It was it was a combination of maintenance it was really maintenance entirely it wasn't like renter or anything like that it was a lot of maintenance some of its.

Snow removal and other things that may have happened at the branches that needs to make a lot of bad weather. This winter.

Yeah, Okay fair, Okay, and so that should be running closer to three and a half.

Or so per quarter is that the right way to think about that.

I think so I think so.

Okay. Okay, Great and then Paul last question for you can you can you give us a refresh on on any acquisition shatter and.

How you're approaching acquisitions, what youre seeing out there any any thoughts from the standpoint that.

With rates up.

Obviously your your your interest rate marks are much more expensive and so just anything you're hearing in terms of how that might be impacting M&A.

Well I'm not hearing any more.

Hearing any more or less than I, usually do.

We certainly were in the in the conversations.

With the flurry of activity that's going on here over the past couple of years, obviously not on the.

Acquiring and have those conversations so other than there.

The potential pool continuously reducing I wouldn't say that there's anything much new in the hole and the whole arena.

Okay.

For taking my questions.

Happy to.

As a reminder, if you would like to ask a question. Please press star followed by one on no telephone keypad now.

We take our next question from Chris O'connell from K B W. Please go ahead Chris.

Hey, good morning or afternoon guys.

Hi, Chris So just wanted to follow up on the expense discussion I know that there was.

It has some higher accruals.

Salaries et cetera in the fourth quarter.

Which came off this quarter, but I think the guide for the year was around 5% to 6% for 2022.

For the full year.

Is that still how you guys are feeling about it after a pretty pretty good first quarter.

We're still feeling it.

Likely the right the right trend that we're going to be seen.

Okay great.

And then.

Uh huh.

I mean, you guys still a pretty robust capital levels here, obviously the dividend increase.

You're comfortable with them in.

Not a very big impact on OCI relative to others.

Can you just remind us how you're thinking about the buyback utilization going forward.

Well, we do have that we have the $20 million approved.

We didn't buy anything back during the very first.

The first three months of the year.

But theres been a lot of market volatility.

We may see more activity as we go forward.

So we've okay. We've got the capability to do a buyback right now.

<unk>.

Got to be at the right price right.

Yes, absolutely.

And then I appreciate the color on the originations and the yields Darrin during the first quarter.

Just given the uptick in rates, even even post.

The first quarter moves.

Where are you seeing new loan yields come on the balance sheet at.

I'm sorry, what was the question.

Where origination yields.

Where they're coming out of that.

Origination yields for the first quarter.

Currently no.

Yeah currently.

Well I don't I don't have I don't have the actual yields that we're booking loans at currently but we've seen a really nice increase in the two year and five year, that's basically where we live for.

For most of our originations and so we've seen that increase.

Stanchion from.

From December and so we're in that in that category right now so a lot of our real estate loans are priced off the five year Federal home loan bank deal.

Virtually all of the swaps are something over LIBOR.

Obviously LIBOR has gone up from 12 basis points to 50 or whatever it is so.

Without having the data right in front of US we can feel that theres been improved.

Origination yields.

Alright.

Great. Thanks for taking my questions.

Okay Chris.

We have no further questions on the line so I'll hand, it back to Paul Perrault for any closing remarks.

Well, thank you Katie and thank you all for joining us and we look forward to talking with you again next quarter good day.

Thank you. Thank you for joining this now concludes the call. Please disconnect your lines.

Yes.

Yeah.

Yes.

Okay.

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