Q4 2023 Brookline Bancorp Inc Earnings Call
Good afternoon, and welcome to Brookline Bancorp Incorporated's fourth quarter 2023 earnings conference call. All participants will be in listen only mode. After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.
And I'd like to turn the conference I bet, you Brookline Bancorp's, Tony Laura Vaughn. Please go ahead.
Thank you Emily 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 Dotcom and has been filed with the SEC.
This afternoon's call will be hosted by Paul April and Carl M. Carlson.
Call may contain forward looking statements with respect to the financial condition results of operations and business of Brookline Bancorp.
These 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 actual results to differ materially from these forward looking statements.
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 I'm pretty.
<unk> introduced Brooklyn, Bancorp's, Chairman and CEO Paul Perrault.
Paul Perrault: Thanks, Laura and good afternoon, all and thank you for joining us for todays earnings call.
Paul Perrault: 2023 was a challenging year for the banking industry, you had a very productive one for Brookline Bancorp.
Paul Perrault: We started the year, but the successful acquisition management transition and integration of Dcs feedback.
Paul Perrault: In mid February the systems conversions were completed without incident and the synergies identified were realized.
Paul Perrault: Then in March and April as several banks fail, we were able to assist impacted customers and our markets as they navigated the significant near term uncertainty it created.
Paul Perrault: In a volatile interest rate environment, we've added bankers to our teams, while continuing to expand and enhance our technology infrastructure as well as our product and service offerings across our three banks with a sharp focus on boutique commercial banking.
Paul Perrault: Geographically, we are excited about the opportunities <unk> Bank provides us in the Hudson Valley of New York.
Paul Perrault: In Massachusetts, Brookline Bank expanded our weak field lending office and opened a new lending office of Needham.
And then Rhode Island Banquet Island has opened new branches in both Crimson and Newport.
Paul Perrault: Eastern funding, our national equipment Finance unit specializing in laundromats tow trucks from fitness equipment continued to demonstrate solid growth with enviable industry credit performance, which we attribute to the team's narrow focus and very deep expertise.
Paul Perrault: I'll now turn you over to Carl who will review the company's fourth quarter results.
Carl: Thank you Paul.
Carl: Yesterday, we reported net income for the quarter of $22 9 million or <unk> 26 per share.
Carl: Total assets finished the year at $11 4 billion.
Carl: Approximately $200 million higher than Q3, driven by loan growth of $261 million offset by a decline in other assets.
Carl: We experienced strong loan growth in all categories with commercial growth of $118 million commercial real estate of 95 equipment, finance 41, and $7 million and consumer loans.
Paul Perrault: In the fourth quarter, we originated $792 million in loans at a weighted average coupon of 727 basis points.
Paul Perrault: The weighted average coupon on the core loan portfolio rose 10 basis points.
Two 592 basis points at December 31.
On a linked quarter basis, the yield on our loan portfolio increased 17 basis points to six 1%.
Paul Perrault: On the funding side consumer customer deposits were basically flat, while broker deposits declined $13 million and borrowings increased $242 million.
Deposit growth continued to be focused in higher rate savings and time deposits offset by declines in DDA and money market products.
Paul Perrault: Total funding cost increased 23 basis points in the quarter to 339 basis points.
Paul Perrault: Total average interest, earning assets grew $63 million on a linked quarter basis and the net interest margin declined three basis points to three 5%, resulting in net interest income of $83 7 million a decline of 500000 from the third quarter.
Paul Perrault: Noninterest income was $8 million, which was $2 5 million higher than the prior quarter driven by loan level derivative income gains on participated loans and higher other noninterest income.
Paul Perrault: Expenses were $59 2 million for the quarter up $1 5 million from Q3, primarily driven by compensation and benefits.
Paul Perrault: Provision for credit losses was $3 8 million for the quarter up 800000 from Q3.
Paul Perrault: Yesterday, the board approved maintaining our quarterly dividend of $13.05 per share to be paid on February 23rd two.
Paul Perrault: Stockholders of record on February nine.
Paul Perrault: On an annualized basis, our dividend payout approximates a yield of approximately 5%.
Paul Perrault: This concludes my formal comments and I'll turn it back to Paul.
Paul Perrault: Yeah.
Paul Perrault: Thank you Carla and we will now open it up for questions.
Carla Williams: Thank you.
Carla Williams: Like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind I would like to be removed from the queue. Please press star and then K one preparing to ask a question. Please ensure that your device Andrew microphone on mute could likely.
Carla Williams: Our first question today comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead Marc.
Carla Williams: Yeah.
Mark Thomas Fitzgibbon: Hey, guys nice quarter.
Mark Thomas Fitzgibbon: Thank you.
Mark Thomas Fitzgibbon: First question I had for you.
The first question I had was loan growth continues to outpace deposit growth and I know you are opening some new branches and hopefully overtime that will catch up but I guess I was curious with the loan to deposit ratio at 113% where would you be willing to let that go to.
As you work hard to bring in new deposits.
Mark Thomas Fitzgibbon: Okay.
Mark Thomas Fitzgibbon: Back in the old days when you started looking at US we were quite a bit higher than this and I don't think I'd want to go back to that level.
Carla Williams: It was like 175.
Yeah.
Carla Williams: We're working hard at generating core deposits.
Carla Williams: The issue really has been the loan generation has been quite strong.
Carla Williams: So, we'll we'll keep with that strategy that we will see how we can manage the loan to deposit ratio, but I would hate to put it.
Carla Williams: Number out there mark.
Carla Williams: Okay.
Carla Williams: We know lower is better.
Carla Williams: Correct.
Carla Williams: Okay.
Carla Williams: And then Karl on the margin it feels like almost every bank is predicting that their margin will decline a little bit more in the first half of this year and then start to rebound when the fed begins to hopefully ease.
Karl: Do you share that view.
Carla Williams: For Brooklyn.
Carla Williams: Okay.
Brooklyn: Our current projections for the first quarter are probably flat to down a couple a couple of more basis points a lot of our growth in the loan book came near the end of the quarter. So you didn't really see it in the average balances I saw that the ending balances and of course, that's been funded for the most part right now with <unk>.
Brooklyn: As wholesale borrowings, which sort of wholesale borrowings jump up $242 million.
Carla Williams: We had a lower spread than our going margin.
Paul Perrault: As Paul mentioned, we're working hard to try to get those deposits up to.
Paul Perrault: Improve the margin.
Paul Perrault: While we might have net interest income the margin may be down a little bit.
Paul Perrault: But as we look forward depending on what the fed does with rates and what the market does we do expect the margin to improve going through through 2024.
Paul Perrault: Okay and then.
Paul Perrault: Paul can you help us think about expense growth given the new branches and people that youre hiring how that is likely to affect our operating expenses in 2024.
Paul Perrault: So if you use our our fourth quarter run rate, it's a little over $59 million I think.
Paul Perrault: We will only grow maybe one or 2% off that run rate.
Paul Perrault: It will pop a little bit in Q1, because of seasonality factors associated with payroll taxes and incentive accruals for the most part.
Paul Perrault: Unless we start getting snow storms, but so far we've been alright there.
Paul Perrault: And so that's kind of what we usually see in the first quarter.
Paul Perrault: The number of branches that were going to open is very strategic and limited because there'll be some closures and some moving of things. So I would tell them about the closures.
Paul Perrault: I'm going to start with you're not going to change the expense load very much there.
Paul Perrault: Okay.
Paul Perrault: Sure.
Paul Perrault: And then on.
Paul Perrault: In your slide deck on page 18, you have kind of a breakdown of the office portfolio and the maturities I guess I was curious if you could share with us any sort of high level thoughts on what the.
Carla Williams: What sort of the occupancy rates look like on those office buildings today.
Carla Williams: I don't I don't have occupancy rates at my fingertips on these on these loans I know our guys are looking at that all the time.
Carla Williams: <unk>.
Carla Williams: But we continue to work with our borrowers.
Carla Williams: Anybody thats coming up for maturities.
Carla Williams: On.
Carla Williams: Answering there.
Carla Williams: They are loans.
Carla Williams: Yeah.
Carla Williams: Paul you have anyway.
Carla Williams: <unk>.
Carla Williams: No I would think a lot of it is pretty good because it's mostly outside of the core businesses.
Carla Williams: It's all over the Hudson Valley, it's all over Rhode Island.
Paul Perrault: A lot of it is in suburban Boston, which would have havent really see.
Paul Perrault: The occupancy issues with central business District.
Paul Perrault: Thank you.
Paul Perrault: Thanks.
Speaker Change: Our next question comes from Nick <unk> with Husky great.
Speaker Change: These go ahead.
Speaker Change: Good afternoon, everyone how are you.
Speaker Change: Okay very good.
Speaker Change: Yes.
Speaker Change: So I just wanted to follow up on the accelerating loan growth could you provide some color there was it simply capitalizing on some good opportunities this quarter and that pace should revert back towards the mid single digits. We're used to seeing from you guys.
I think we're focused on up probably growth of 4% to 5% for 2024.
Speaker Change: We closed certainly close more loans in Q4 than I was expecting.
Speaker Change: And so some of that growth probably in Q1.
Carla Williams: <unk> got pulled into Q4, so we're starting to Europe very strong.
Carla Williams: And of course, that's my Guy So we stand back and be on the budgeting side, but that's another story, but we were off to a good start for 2024 and I think some of the pipelines are going to have to rebuild so Q1 may be slower site, but we're projecting 4% to 5% growth.
For 2024 at this point.
Carla Williams: I appreciate that color in a related vein could you give us some color on the lending environment across your markets have you seen a pullback or any hesitance from your competition, given the funding and capital challenges.
Carla Williams: Yeah.
Carla Williams: I don't think its because of funding or.
Carla Williams: Any other particular challenges, but it feels like the largest banks, which dominate our markets.
Carla Williams: Really pulled back and a lot of areas.
Really participating as much as they add.
Carla Williams: Which is one of the reasons why we're seeing a fair amount of business.
Carla Williams: And the displacement.
Carla Williams: There was some of the failed banks were pretty active in all of our markets.
Carla Williams: That created another level of opportunity but.
Carla Williams: I don't know that there is a liquidity or capital problem.
Carla Williams: People, who are playing.
Carla Williams: The Boston market that you would had Easter that you would have Rockland trust people like that.
Carla Williams: What this some people in Rhode Island is a few banks there.
Carla Williams: But.
Carla Williams: It's our opportunity.
Carla Williams: Okay.
Carla Williams: And then lastly can you just help us think about the effective tax rate for 2024.
Carla Williams: Excellent.
Carla Williams: Rate is going to jump back up to about 24%.
Carla Williams: Had some.
Tax efficient investments that we had that phase out at the end of this year. So at the end of 2023, So I will jump back up to about 24%.
Carla Williams: Thank you for taking my questions.
Carla Williams: Sure.
Carla Williams: Okay.
Carla Williams: Yeah.
Carla Williams: The next question comes from Steve Moss with Raymond James. Please. Please go ahead.
Speaker Change: Good afternoon guys.
Stephen M. Moss: Steve maybe could you talk about a little bit on loan pricing here.
Stephen M. Moss: Just on loan pricing, just curious where are new loans coming on and.
Stephen M. Moss: And just color on that.
Stephen M. Moss: Sure. So I kind of told you in my in my notes.
Stephen M. Moss: We have over $700 million of loans originated in the quarter.
Stephen M. Moss: 727 basis points with weighted average coupon on that.
Stephen M. Moss: Not sure how much more detailed you want but that's.
Stephen M. Moss: Our equipment finance unit doesn't particularly well.
Stephen M. Moss: Close close to 10% for.
Stephen M. Moss: For those loans.
Stephen M. Moss: I accidently dropped off I must have missed that.
Stephen M. Moss: Okay I appreciate that and just given the end of period balance sheet.
You look more liability sensitive given the borrowings here just kind of curious if we get some rate cuts.
Stephen M. Moss: How you guys are thinking about the margin.
Stephen M. Moss: With rate cuts.
Carla Williams: Everybody is talking about rate cuts.
Carla Williams: So we're our books fairly short, but not that short so if they start cutting rates, we will have assets repricing, a little faster than our liabilities.
Carla Williams: So it may take a little bit for us to catch up with that.
Carla Williams: Our borrowings.
Carla Williams: That's a benefit of <unk> borrowings and things of that nature or they do reprice fairly quickly and it depends on how fast we're able to.
Carla Williams: Adjust our market rates on our deposits.
Carla Williams: But I feel we feel pretty good shape there.
Carla Williams: Okay.
Carla Williams: Okay. Appreciate that and then you guys are in a good capital position.
Carla Williams: From a TCE standpoint, just kind of curious.
Carla Williams: <unk>.
Carla Williams: Yes.
Carla Williams: Probably going above a little bit this year.
Carla Williams: Or your thoughts around deploying our capital with an M&A transaction and maybe how our M&A discussions these days.
Carla Williams: M&A discussions these days.
Right now we have seen M&A pick up a little bit there is a few more <unk>.
Carla Williams: <unk> being announced.
Carla Williams: I'd say the holes are still very big on many of these banks that are in the worst shape with.
Carla Williams: Very low nims and huge marks in their loan books and the security books.
Carla Williams: So I think that deploying capital into something that is not something that we are.
Carla Williams: Particularly anxious to do.
Carla Williams: I do think there is an.
Carla Williams: <unk>, so there will be opportunities to do strategic strategic deals.
Carla Williams: That really makes sense.
Carla Williams: More to come on that.
Carla Williams: It's a very difficult environment.
Carla Williams: Okay.
Carla Williams: Okay great.
Carla Williams: You very much for all that.
Carla Williams: Okay, Steve Thanks.
Carla Williams: Yeah.
Carla Williams: Yeah.
Carla Williams: The next question comes from Laurie Hunsicker with Seaport research.
Laurie Hunsicker: Please go ahead.
Laurie Hunsicker: Hi, Thanks, good afternoon.
Laurie Hunsicker: Hello.
Laurie Hunsicker: Margin.
Laurie Hunsicker: Got it.
Laurie Hunsicker: That margin for the month of December do you have that Carl.
I do it was.
Laurie Hunsicker: 310.
Okay, Okay and then.
Laurie Hunsicker: What what was the accretion income number and net interest income.
Laurie Hunsicker: Thanks, Matt.
Laurie Hunsicker: For the month.
Laurie Hunsicker: Or for the quarter I'm, sorry, this quarter.
Laurie Hunsicker: Yes, so the quarter was just.
Laurie Hunsicker: It was just under just under $2 million.
Laurie Hunsicker: Okay.
Laurie Hunsicker: Okay.
Laurie Hunsicker: And then on non interest income that other other category of $3 million to $6 million that luck.
Laurie Hunsicker: Outsized by a couple million what was that and what is nonrecurring in that number.
Laurie Hunsicker: Yes.
Laurie Hunsicker: That's the numbers that it gets.
Laurie Hunsicker: That's a lot of volatility because there is.
Laurie Hunsicker: Our category and there is.
Laurie Hunsicker: Our mark to market on a risk participation agreements, which are really associated with swaps. So as rates change in the market that gets that gets mark.
Quarter and so this quarter was roughly just under $500000 this quarter and it was a loss of about $1 million for the prior quarter. So it was a big swing quarter to quarter in that number.
Laurie Hunsicker: Then we had some other.
Laurie Hunsicker: Non interest income items.
Laurie Hunsicker: To that as well.
Laurie Hunsicker: Okay. Okay. That's great and then same question on the noninterest expense line. The other other category that $5 5 million that looked outsized.
Laurie Hunsicker: Anything nonrecurring in that.
Laurie Hunsicker: Yes, there was about $800000 there that was nonrecurring.
So that has to do with the write off of.
Laurie Hunsicker: Some premises that projects projects that we're working on.
Laurie Hunsicker: Okay, Great and then and then on an Opex can you update us that that $14 8 million class B office in downtown Boston that went non accruing last quarter can you just give us an update on that and then.
Laurie Hunsicker: Do you happen to have a debt service coverage ratio.
Laurie Hunsicker: TV occupancy anything on that particular.
Laurie Hunsicker: Perfect.
Laurie Hunsicker: Well, we continue to work with the borrower and that it's a participated loans so what.
Laurie Hunsicker: So I think it's mostly working with the participant on this as well.
Laurie Hunsicker: To get this to.
Laurie Hunsicker: To the finish line.
Laurie Hunsicker: But the debt service coverage is in the <unk>.
And the LTV is.
Around 115% something like that.
Laurie Hunsicker: Yeah.
Laurie Hunsicker: Okay and then.
Laurie Hunsicker: And just very flat shareholders.
Larry: Go ahead Larry.
Larry: I was just going to say the rest of the rest of your office Buck.
Larry: You just help us think a little bit about that $774 million in terms of what's class a versus <unk>.
Larry: Do you have an average LTV or debt service on your fault Buck.
Larry: Sure, So and I guess, one more question.
Larry: Okay.
Larry: Go ahead.
Larry: Okay thoughts so.
Larry: About right.
Really not not a lot of day in there at all it's mostly b's and C's.
Larry: I think mostly the biscuit category there.
Larry: The LTV on that is right in the <unk>, but that's basically that.
Larry: Look that originate at origination.
Larry: I wouldn't want to try to guess what the recent appraisals are at this point.
Larry: Tough to get to.
Larry: And the debt service coverage around one six.
Larry: Okay great.
Larry:
Larry: Okay. That's great and then one more thing how much of that $774 million is medical that lower risk medical category.
Larry: 100 million.
Larry: Okay, Okay, great. Thanks, I'll leave it there.
Larry: Okay. Good.
Larry: Okay.
Larry: Our next question comes from Chris O'connell with <unk>. Please go ahead.
Larry: Hey, good afternoon.
Chris O'connell: Hey, Chris.
Chris O'connell: So just following up on the on the office line of questions.
Chris O'connell:
Chris O'connell: It looks like in the deck on that slide.
Chris O'connell: That the <unk> 24 office maturities.
Chris O'connell: From last quarter's deck to this quarter's deck went from like $1 million up to $24 million. I know you had a larger credit set to mature in the fourth quarter here.
Chris O'connell: Just wondering if that was the reason for that get shifted back a little bit or what was the driver of that kind of change in the maturity schedule.
Chris O'connell: I don't know I don't know the specifics around.
Chris O'connell: What you are trying to.
Chris O'connell: Specific question, you're asking here, but we did have a maturity that came up that we've done some extensions I want to say it might be two two loans that we did some extensions on.
Chris O'connell: To continue to resolve it so it may just be pushed out three to six months and as we continue to work with the borrower.
Chris O'connell: That might be that might be answering your question okay great.
Chris O'connell: Yeah.
Chris O'connell: Great that's helpful.
Chris O'connell: And then.
Chris O'connell: Far as.
Chris O'connell: The deposits go.
Chris O'connell: Slowed a bit.
Chris O'connell: On a quarterly basis in terms of the pace, but any read into how much of them are noninterest bearing.
Chris O'connell: Mix shift.
Chris O'connell: How is remaining.
Chris O'connell: So between.
Chris O'connell: October and December.
Chris O'connell: And what's kind of your baseline outlook for the next couple of quarters here.
Chris O'connell: It's a great question I wish I had a great answer for you up.
Chris O'connell: On the deposit side, we do expect to start seeing some growth in deposits. It may come a little bit later this year than earlier this year.
Chris O'connell: But the deposit outflows, we've seen largely be driven by the higher balance accounts, that's been moving their excess balances too.
Chris O'connell: Treasury funds seeking higher yields but that has largely played itself out I think that's kind of all done with.
Chris O'connell: The last fed hike, we had was in July.
Chris O'connell: And while deposit pricing remains very very competitive it's fairly stabilized at this point.
Chris O'connell: So we do feel like we're going to start seeing some deposit growth.
Chris O'connell: Albeit we'll also probably given the level of interest rates.
DDA, we may still continue to see a little bit of DDA and low cost deposits migrate into the higher higher cost of funds, but even that is that's growing at a much slower pace at this point.
Chris O'connell: But to give you.
Chris O'connell: Precise number I really couldn't do that.
Chris O'connell: Okay.
Chris O'connell: Understood.
Chris O'connell: And.
Chris O'connell: For next year.
Chris O'connell: Mid year I believe durbin.
Chris O'connell: So.
Chris O'connell: Your fees.
Chris O'connell: Maybe just an update on what that number is.
Chris O'connell: Okay.
Chris O'connell: So we've been guiding that to be about 200 to $250000 a quarter.
Chris O'connell: For the interchange.
Chris O'connell: Our expectation in that.
Chris O'connell: Would start happening in July.
Chris O'connell: That'll be that'll be.
Chris O'connell: A negative to the fee income side.
Chris O'connell: But we continue to work very hard on on other sources of fee income throughout the organization.
Chris O'connell: Sure.
Chris O'connell: Great.
Chris O'connell: And just circling back to the margin dynamics.
Chris O'connell: Can you remind us how much.
The portfolio on the loan side it immediately.
Chris O'connell: Re prices.
With short term rates.
Chris O'connell: And what.
Chris O'connell: How much of the.
Chris O'connell: The deposit book I guess.
Chris O'connell: Yeah.
Is indexed to short term rates.
Chris O'connell: We've got a nice little slide slide 22 kind of lays out.
Where we are on that so about 20% of arc our loan portfolio is floating.
Chris O'connell: So that basically reprice within two months.
And.
Chris O'connell: None of the deposits are indexed nothing's Nothing's index on the deposit side.
Chris O'connell: We can move rates on.
Chris O'connell: The non maturity deposits at will.
Chris O'connell: That's also very market driven.
Chris O'connell: Can imagine.
Chris O'connell: Our CD portfolio saw Cds, we have about $335 million of Cds that are repricing in Q1.
Chris O'connell: And surround 340, 345, something like that and yield for cost.
Chris O'connell: Those are repricing up into the force.
Chris O'connell: The mid force enforced.
Chris O'connell: Yes.
Chris O'connell: Great.
Chris O'connell: That's helpful.
Chris O'connell: And.
Chris O'connell: Yes.
Chris O'connell: As far as capital levels go I mean.
Chris O'connell: Yes.
Chris O'connell: Pretty good TCE here.
Chris O'connell: Should be building going forward.
Chris O'connell: It sounds like M&A is probably set on pause for now.
Chris O'connell: Any appetite for utilizing buyback or.
Chris O'connell: Kind of holding out for loan growth right now.
Chris O'connell: So I think I think.
Chris O'connell: From our perspective.
Chris O'connell: Letting capital build at this point and support growth.
Chris O'connell: And all of our markets.
Chris O'connell: Is the right thing to do.
Chris O'connell: Great.
Chris O'connell: I appreciate the time thank you.
Chris O'connell: Okay great.
Chris O'connell: This concludes our question and answer session I would like to turn the conference back over to Mr. <unk> for any closing remarks.
Chris O'connell: Thank you Emily and thank you all for joining us this afternoon.
Chris O'connell: We look forward to talking with you again next quarter.
Chris O'connell: Have a good day.
Chris O'connell: The conference has concluded. Thank you for attending today's presentation you may now disconnect.
Chris O'connell: [music].
Chris O'connell: Okay.
Chris O'connell: [music].