Q2 2023 Brookline Bancorp Inc Earnings Call
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Good afternoon, and welcome to the Brookline Bancorp, Inc. Second quarter 2023 earnings Conference call, all participants will be in listen only mode.
Today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.
I would now like to turn the conference I've to Brookline Bancorp's, a tiny little revolt. Please go ahead.
Thank you Alan 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 Dot com and has been filed with the SEC.
I'm not hearing a flight slipped this quarter.
Afternoon's call will be hosted by Paul <unk>, Paul 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 could cause apt.
As a result 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 or future predictions.
A comparison and reconciliation to GAAP earnings. Please see our earnings release I am pleased to introduce Brookline, Bancorp's, Chairman and CEO Paul Perrault.
Thank you Laura and good afternoon, everyone. Thank you for joining us today on this earnings call yesterday, we reported net income for the quarter of 41 $9 million.
25 per share excluding about $1 million in merger charges non-GAAP operating earnings were $23 2 million with operating EPS of <unk> 26 cents.
As we discussed during last quarter's call in the first quarter, we added over half a billion dollars to our on balance sheet liquidity in the form of cash and securities.
During the second quarter, we prudently reduced most of this position.
Our bankers remain very active in the markets and while we continue to be prudent and attentive to our existing customers. We are seeing opportunities to bank strong new relationships.
Loan portfolio grew $94 million this quarter and core deposits grew by $110 million.
Nonperforming assets increased in the quarter off historically low levels and remain less than half of 1% of total assets.
Net charge offs for the quarter were just five basis points annualized while the allowance for loan losses increased to 135 basis points of total loss.
I will now turn you over to Carl who will review the company's second quarter results.
Thank you Paul.
This quarter total assets finished at $11 2 billion, which is $316 million lower than Q1.
As Paul noted, we reduced cash and securities of $419 million in the quarter after building on balance sheet liquidity.
$513 million in Q1 during market disruption caused by the failure of several banks.
As we began normalizing these positions during the second quarter, we also reduced our combined borrowings and broker deposits by $453 million.
The banking teams generated solid loan growth of $94 million in the quarter with growth of $120 million split between evenly split between commercial real estate and equipment finance with declines of $14 million in C&I and $12 million and consumer loans.
In the second quarter, we originated $506 million in loans at a weighted average coupon of 714 basis points.
The weighted average coupon on the core loan portfolio Rose 20 basis points during the quarter to 568 basis points at June 30.
On a linked quarter basis, the yield on our loan portfolio increased 37 basis points to five 7%.
On the funding side core deposits grew $110 million in broker deposits were reduced $49 million for a net growth in deposits of $61 million.
The growth was in higher rate savings and time deposits, partially offset by declines in DDA now and money market products.
The average cost of total deposits increased 58 basis points in the quarter to 204 basis points.
While total average interest, earning assets increased $193 million on a linked quarter basis. The net interest margin declined 10 basis points.
Three 6%, resulting in net interest income of $86 million, which was consistent with the first quarter.
Noninterest income was $5 5 million for the quarter, which is down $5 7 million when excluding the $1 $7 million in security gains realized in Q1.
The decline is due to lower customer swap activity as well as lower gain on sale related to loan participations.
We also recorded a negative $367000 mark to market on risk participation agreements versus a positive $1 6 million Mark in Q1, which is reflected in other non interest income.
Expenses were $57 8 million for the quarter versus $64 8 million in Q1.
Excluding the impact of merger charges in both quarters expenses declined one $5 million.
Compensation and benefits were down $3 1 million as a result of full quarter run rate of anticipated efficiency efficiencies. After the Tcs. The systems conversions were completed in the first quarter as well as lower benefit costs. This was partially offset by higher professional fees and FDIC assessments.
Yeah.
Provision for credit losses was $5 8 million for the quarter versus $1 1 million in net charge offs, resulting in an allowance for loan losses, increasing to $125 $8 million, representing 135 basis points on total loans.
Yesterday, the board approved maintaining our quarterly dividend of $13.05 per share to be paid on August 25th to stockholders on record.
As of August 11th.
On an annualized basis, our dividend payout approximates a yield of approximately four 9%.
This concludes my formal comments ill turn it back to Paul.
Thanks, Carl and now we will open it up for questions.
Yeah.
As a reminder, if you'd like to ask a question you can press star followed by one on your telephone keypad.
I'd like to remove your question you May press Star followed by two please.
Please ensure your unmetered likely when asking your question.
Our first question for today comes from Mark Fitzgibbon of Piper Sandler.
Your line is now open. Please go ahead.
Hey, guys good afternoon.
Hey, Mark.
And your first question.
For you Paul.
We're sort of six months past the Pcs be closing I wondered if you have noticed any surprises with that franchise or.
Things you've come across in that market that are little surprising positively or negatively.
Mostly positive.
No big surprises mark, but they are thrilled.
Being part of this company and we have brought a lot of new modern things to them. They had been sort of behind the eight ball in terms of technology.
Things like that so they're enjoying playing with all their new toys.
I think we have yet to see the benefit of that as they get used to them and start exposing them to their customers.
The broader product lines that we have and things like that.
So I have been pleasantly surprised but not not in a bad way.
And we're feeling very good that it has been consolidated very nicely.
It is operating well.
Okay.
And then secondly, Carl I Wonder if you could help us think about the net interest margin in the third quarter you guys. Obviously.
<unk> had pretty good control and we're able to sort of control. The descent. If you will of the margin how are you thinking about it for <unk>.
Sure Mark so when it comes to the margin right now its deposits deposits deposits right. So basically I think of that the three drivers.
One the first is pricing.
I think we are largely caught up on the historical basis, but I anticipate basis to be slightly higher this cycle due to the greater convenience customers have.
To move funds and access.
More choices.
So we expect to continue to see a bit more pressure on the pricing side, but dramatically slower.
Given the environment and the <unk>.
And also dependent on competition.
<unk> is the funding mix.
We've seen a lot of transfers of funds out of DDA and now accounts into savings and Cds.
But I also expect that to diminish over the next quarter or so and basically stabilize.
And third is the growth side.
So I'm very optimistic given everything I'm hearing from our bankers and what they're working on.
As well as how busy our cash management folks are.
So and I know, it's a very very competitive environment, but I feel very good about where where things are headed.
So while we will continue to see pressure on the funding side.
I think it's going to be largely offset by the repricing of our assets and so right now our models reflect a margin being down as much as three basis points next quarter, three or four basis points.
<unk> being flat.
That's kind of where we are right now.
But that being said I want to highlight the significant sources of uncertainty around this particularly around the economic outlook and the competition for deposits.
Okay, Great and then I'm wondering if you could share any details on that that $9 3 million commercial relationship.
It went on non accrual and also the $2 8 million CRE loan.
Any.
Without revealing anything specific on the bar would you be able to kind of share what what sort of drove those or any characteristics of the loans and what the ltvs look like.
The C&I loan.
Is technically in bankruptcy, so we're going to start to see some of the some of the proceeds from that liquidation if you will.
It's very well reserved with specific reserves.
And it is it is an operating company, which.
The different operating units have joined up with other similar kinds of organizations. So I think it will.
It will take its pace and it gets settled up probably over the balance of this year.
The.
The real estate loan is one that is in the Boston Central business District.
And it's had occupancy problems for some time.
Its under 3 million Bucks.
It's got a good owner I think we're all going to be exercising a little bit of patience, but I don't see any major auto crashes there.
Sort of a poster child of what.
Smallish.
Business District building would look like.
Thank you.
Thank you.
Next question comes from Steve Moss of Raymond James Your.
Your line is now open. Please go ahead.
Hi, good afternoon.
Maybe just following up on the margin here curious.
What's the rate on new originations that you're receiving these days.
Like I said during the quarter, we were originating on balance.
About 714 basis points on a weighted average.
Amount.
I'm a coupon standpoint.
I expect that to continue to increase and we had some things that were legacy loans that were getting draws on that were lower lower rates.
But a lot of things right now are being originated north north of that so we feel good about that.
Okay.
Got it and then in terms of just.
Now post the <unk> merger curious how much purchase accounting has contributed margin.
Any.
Quantity around there.
So on the loan side, there was about $2 $9 million in the quarter associated with the purchase accounting on that side and I think there was about 300 to $400000 on the negative side on the deposits.
So net net about $2 5 million contributing to net interest income in the quarter.
Okay.
Great.
That and then just in terms of.
<unk> here.
Okay.
Pleasingly I think close to what you guys guided to just curious how youre thinking about the expense run rate here going forward and maybe any areas of investment and you all may have.
Okay.
So we've gotten all the efficiencies we expected out of the acquisition of <unk> that kind of is reflected this quarter.
Still continuing to invest in the business, we're still particularly around the.
Customer facing side of things I don't see a lot more being added in the back office that I'm aware of at the moment.
But we are open.
We just opened up a branch bank, Rhode Island, we still have other other activities moving forward. So we will continue to build that out thats in our plans.
Nothing nothing significant that's going to drive it materially I think.
<unk> is going to be running at a higher run rate I do expect that to be probably in the $2 one to $2 $2 million range next quarter, we had a little bit of a true up this quarter for Q1, when we got the bill from the FDIC was little higher than we thought it was going to be and.
I think legal and professional fees should moderate as well going forward, we have a couple of items in there so.
We feel we're keeping a very close eye on expenses.
Okay great.
Great. Thank you very much.
Okay.
As a reminder, if you'd like to ask a question compressed followed by one on your telephone keypad.
Our next question comes from Chris <unk> from <unk>.
Chris Your line is now open. Please go ahead.
Hey, good afternoon.
Hey, Chris Hey, Chris.
I was hoping to just start off with the balance sheet movements this quarter.
<unk> and cash.
Is that more or less finished at this point.
And what's the level of cash and securities that you would look to keep on balance sheet longer term.
Yes.
I'd say it's.
It's largely done I'd say, we'd probably have $50 million to $100 million that we would let off let out over time.
I'm very comfortable in the 8% to 12% range of having cash and securities on the books.
In a normal operating environment.
But there are certain times, you feel like Hey, we should have a little bit more liquidity on hand, just in case something happens and that's more that's driven by the market. The environment, we have a tremendous amount of access to liquidity quite frankly.
But.
Sometimes you need a little bit more on balance sheet makes regulators happy it makes <unk> I can sleep easier at night, all those types of things so.
Overall, I think we are happy in the 8% to 12% range I'd say, we're probably close to 10% at this point right now.
Okay great.
It doesn't move much because of the cash on hand is around your earning over 5% at the fed and we're paying around that same amount.
Federal home loan bank borrowings or broker deposits. So those are the those are the levers around that.
Yes.
On the deposit side.
You guys had really good growth in the savings line and I think you mentioned in the prepared comments that there is a higher higher yield savings product out there.
Maybe just provide a little color on that.
Sure. So we have very competitive CD rates out there, but there are folks that we'd like to have something more liquid than that.
We offer a high rate savings product minimum balances of $100000.
Really was made to create it to attract new deposits as well as take care of our current customer base.
And that is paid I think we're paying $4 35 at the moment on that product.
We originally started that process in around 4%.
No.
Got it got it and is that ongoing scale.
Absolutely.
Great.
And then.
Around the NIM commentary.
It sounds like given the moves this quarter and some of the impact.
Positive rates.
Going down a bit.
Should be minimal compression next quarter is that.
That would imply.
We started kind of bottom out here.
<unk> <unk> based on the current yield curve.
Yes based on our current modeling suggests that we would.
<unk> be down slightly in Q3 to possibly flat.
And then actually increasing in Q4 going forward.
But I'll also caution you theres a lot of lot of.
A lot of assumptions in that.
Yeah, and you mentioned.
I believe in the comments that you expect the data to be higher this cycle.
Is that higher than the.
39% beta I think thats in the IRR.
Disclosures in the slide deck.
That's correct.
Correct.
So.
Our disclosures assumes a flat balance sheet.
Huge assumption right, there and the historical betas that we've observed over past cycles and so but.
That's what that's what the model reflects.
And then my comments, we also do a lot of simulations away from that.
And that's what I'm basing my.
Guidance.
Okay great.
<unk>.
And I know you mentioned last quarter that given the pipeline.
We're seeing.
There'll be a little bit less derivative and participation income.
Obviously these dropped off quite a bit this quarter.
Relative to <unk>.
Late last year.
And from a pipeline there and customer demand on those types of products.
Where fees could shake out.
In the second half of the year.
It's hard to provide guidance around that I would say on the.
The swap side, that's all dependent on the loan volumes and what we're doing how we're structuring this though.
Those transactions.
That can be very lumpy. So we can have a movie or we can't we may not on the so I don't want to provide that we could have we could see a nice bump bounce back in that line item.
On the participation side I'm less optimistic on.
I think the participation.
A market type thing I think a lot of banks are not participating in.
We are able to participate things out.
And so I think thats.
That revenue line is probably going to be.
Hamstring for awhile.
Okay.
Okay great.
And then.
On the capital side.
You guys are at a pretty pretty good capital levels now all around.
Ticked up above 8% on Tc.
But it sounds like you have a relatively.
More robust growth outlook and a lot of the industry.
Into the back half of the year.
Guys considering at all any share repurchases at this time.
No we continue to prioritize paying a very competitive dividend and funding our organic growth.
Right now we're not.
Planning any share repurchase at this time.
Okay great.
Thanks for taking my question.
Okay great.
Thank you. This concludes our question and answer session I would like to turn the conference back over to Mr. <unk> for any closing remarks.
Thanks, Alex and thank you all for joining us today, and we will look forward to talking with you again next quarter.
Great.
Sure.
Thank you for joining today's call you may now disconnect your lines.
[music].
We will begin next quarter.
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