Q1 2024 Brookline Bancorp Inc Earnings Call
Okay.
Operator: Good afternoon, and welcome to Brookline Bancorp Inc.'s first quarter 2024 earnings conference call. All participants will be in listen-only mode.
Good afternoon, and welcome to Brookline Bancorp, Inc. 's first quarter 2024 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.
Operator: After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brookline Bancorp's attorney, Laura Vaughn. Please do so.
Tony: I'd now like to turn the conference over to Brookline Bancorp's, Tony Laura Vaughn. Please go ahead.
Laura Vaughn: 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, BrooklineBancorp.com, and has been filed with the SEC. This afternoon's call will be hosted by Paul A. Perrault and Carl M. Carlson. This column may contain forward-looking statements with respect to the financial condition, results of operations, and business of Brookline Bancorp. Please refer to page 2 of our earnings presentation for our forward-looking statement disclaimer.
Laura Vaughn: 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.
al: This afternoon's call will be hosted by Al a perrault and Carl M. Carlson.
Laura Vaughn: 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.
Laura Vaughn: Also, please refer to our other filings with the Securities and Exchange Commission, which contain risk factors for 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 as financial measures of actual results or future predictions. For a comparison and reconciliation to GAAP earnings, please see our earnings release. I'm pleased to introduce Brookline Bancorp's Chairman and CEO, Paul Perrault. Thanks, Laura.
Laura Vaughn: Also please refer to our other filings with the Securities and Exchange Commission, which contain risk factors.
Laura Vaughn: Actual results to differ materially from these forward looking statements.
Laura Vaughn: 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.
Laura Vaughn: I'm pleased to introduce Brookline, Bancorp's, Chairman and CEO Paul Perrault.
Paul A. Perrault: Thanks, Laura. Good afternoon, and thank you for joining us on today's earnings call. At the start of the year, prevailing market sentiment suggested inflation was well contained and the Federal Reserve would implement substantial rate cuts, potentially up to six to seven reductions throughout 2024. However, the economic landscape remains dynamic, and unemployment rates persist at historically low levels.
Paul A. Perrault: Thanks, Laura good afternoon, and thank you for joining us on today's earnings call.
Paul A. Perrault: At the start of the year prevailing market sentiment suggested inflation was well contained.
Paul A. Perrault: Federal reserve would implement substantial rate cuts potentially up to 6% to seven reductions throughout 2024.
Paul A. Perrault: However, the economic landscape remains dynamic.
Paul A. Perrault: Unemployment rates persist at historically low levels consumer spending remains steady.
Paul A. Perrault: Consumer spending remains steady, and overall economic vitality endures as inflation remains a persistent concern. Within a matter of months, the market now anticipates only one rate cut for the year, with some even speculating about no cuts at all. The five-year and ten-year Treasury rates have surged over 80 basis points since the end of last year. Unfortunately, the prolonged period of high interest rates continues to hinder the anticipated improvement in net interest margins.
Paul A. Perrault: Overall, economic vitality and doors as inflation remains a persistent.
Paul A. Perrault: Within a matter of months the market now anticipates only one rate cut.
Paul A. Perrault: With some even speculating no cuts at all the <unk>.
Paul A. Perrault: Five year, and 10 year Treasury rates have surged over 80 basis points since the end of last year.
Paul A. Perrault: Unfortunately, the prolonged period of higher interest rates continues to hinder the anticipated improvement in net interest margin.
Paul A. Perrault: We remain vigilant in our efforts to navigate this challenging environment. While the New England and New York economies continue to perform well, the impact of rising interest rates on loan demand is evident. Our deposit composition and funding costs further contribute to the strain on the net interest margins and overall revenues. Nevertheless, our goal is to provide boutique commercial banking services to our valued customers efficiently. Careful investments in our team of bankers, technology, and locations play a pivotal role in achieving this objective.
Paul A. Perrault: We will remain vigilant in our efforts to navigate this challenging environment.
Paul A. Perrault: While the new England, and New York economies continue to perform well the impact of rising interest rates and loan demand is evident.
Paul A. Perrault: Deposit composition and funding costs further contribute to the strain on the net interest margins and overall revenues.
Paul A. Perrault: Our goal is to provide boutique commercial banking services to our valued customers sufficiently.
Paul A. Perrault: Careful investments in our team of bankers technology and locations play a pivotal role in achieving this objective.
Paul A. Perrault: This quarter, we celebrated the grand opening of our relocated PCSB branch in Mount Vernon, New York. Additionally, our newest Bank Rhode Island branches in Cranston and Newport, Rhode Island are off to a very promising start. I will now turn you over to Carl, who will review the company's first quarter report.
Paul A. Perrault: This quarter, we celebrated the Grand opening of a relocated PTSD branch in Mount Vernon New York. Additionally, our newest bank, Rhode Island branches and cramps in Newport, Rhode Island are off to a very promising start.
Paul A. Perrault: I will now turn you over to Carl who will review the company's first quarter results.
Carl: Thank you Paul.
Carl M. Carlson: Yesterday, we reported net income for the quarter of $14.7 million, equivalent to $0.16 per share. During the quarter, total assets grew approximately $161 million, driven by the growth in cash and equivalents of $169 million, with modest loan growth of $13 million distributed across C&I, equipment finance, and consumer, as commercial real estate experienced a decline of $10 million. In the first quarter, we had loan originations and draws of $435 million at a weighted average coupon of $779,000. The weighted average coupon on the loan portfolio rose four basis points to 596 basis points.
Carl: Yesterday, we reported net income for the quarter of $14 7 million.
Carl M. Carlson: Equivalent to <unk> 16 per share.
Carl M. Carlson: During the quarter total assets grew approximately $161 million driven by the growth in cash and equivalents of $169 million with modest loan growth of $13 million distributed across C&I equipment finance and consumer.
Carl M. Carlson: Commercial real estate experienced a decline of $10 million.
Carl M. Carlson: In the first quarter, we had loan originations and draws a $435 million at a weighted average coupon of 779 basis points.
Carl M. Carlson: The weighted average coupon on the loan portfolio rose four basis points to 596 basis points.
Carl M. Carlson: The quarterly yield on the portfolio increased two basis points for the quarter. On the funding side, customer deposits grew $81 million, broker deposits increased $90 million, and borrowings declined $15 million. Deposit growth centered around higher rate savings and time deposits, offset by decreases in demand deposits and money markets. Funding costs increased 19 basis points in the quarter.
Carl M. Carlson: With the quarterly yield on the portfolio increased two basis points for the quarter.
Carl M. Carlson: On the funding side customer deposits grew $81 million.
Carl M. Carlson: Broker deposits increased $90 million and borrowings declined $15 million.
Carl M. Carlson: Deposit growth centered around higher rates savings and time deposits offset by decreases in demand deposits and money market products.
Carl M. Carlson: Funding costs increased 19 basis points in the quarter.
Carl M. Carlson: Consequently, our net interest margin compressed nine basis points to 3.06%, resulting in net interest income of $81.6 million, a decline of $2 million from Q4. Non-interest income was $6.3 million, a decrease of $1.7 million compared to the prior quarter. Factors contributing to this change include lower loan-level derivative activity, gains on participated loans, and a swing in the mark-to-market adjustment on derivatives, which is reflected in other non-interesting. Notably, due to the sharp increase in interest rates, the mark-to-market adjustment shifted from a positive adjustment of $447,000 in Q4 to a negative adjustment of $358,000 in Q1. Expenses were $61 million for the quarter, up $1.8 million from Q4 due to the seasonality of compensation and benefits and weather-related occupancy costs.
Carl M. Carlson: Consequently, our net interest margin compressed nine basis points to three 6%, resulting in net interest income of $81 6 million a decline of $2 million from Q4.
Carl M. Carlson: Noninterest income noninterest income was $6 3 million, reflecting a decrease of $1 7 million compared to the prior quarter.
Carl M. Carlson: Factors contributing to this change include lower loan level derivative activity gains all participated loans and a swing in the mark to market adjustment on derivatives, which are which is reflected in other non interest income.
Carl M. Carlson: Notably due to the sharp increase in interest rates, the mark to market adjustment shifted from a positive adjustment of 447000 in Q4 to a negative adjustment of 358000 in Q1.
Carl M. Carlson: Expenses were $61 million for the quarter up $1 8 million from Q4, due to the seasonality of compensation and benefits and weather related occupancy costs.
Carl M. Carlson: The provision for credit losses was $7.4 million for the quarter, an increase of $3.6 million from the fourth quarter. The increase is driven by net charge-offs and reserve bills. Their charge-offs were $8.8 million, driven by $4.7 million in C&I charge-offs previously specifically reserved for, $3.5 million associated with equipment finance, and $600,000 associated with exiting two office credits.
Carl M. Carlson: The provision for credit losses was $7 4 million for the quarter, an increase of $3 6 million from the fourth quarter.
Carl M. Carlson: The increase was driven by net charge offs and reserve build.
Carl M. Carlson: Net charge offs were $8 8 million driven by $4 7 million in C&I charge offs previously specifically reserved for.
Carl M. Carlson: $3 5 million associated with equipment finance and 600000 associated with exiting two office credits.
Carl M. Carlson: Non-accrual loans experienced a modest decline in the quarter, and our reserve coverage ratio increased to 124 basis points. Over the past few weeks, the outlook for 2024 Federal Reserve rate cuts has significantly shifted. Longer-term rates have risen notably, client behavior, and industry responses continue to adapt to this evolving environment, and we face renewed pressure on our deposit mix and funding costs. Meanwhile, while the economy remains robust, loan demand has softened. Consequently, we now anticipate our margin and net interest income for the full year to be lower than initially projected. We expect overall long-term growth of one to four percent, primarily driven by C&I and equipment finance. Although there appears to be a market opportunity for non-owner-occupied commercial real estate, our focus remains on serving relationship customers.
Carl M. Carlson: Non accrual loans experienced a modest decline in the quarter and our reserve coverage ratio increased to 124 basis points.
Carl M. Carlson: Over the past few weeks the outlook for 2020 for Federal reserve rate cuts has significantly shifted.
Carl M. Carlson: Longer term rates have risen notably.
Carl M. Carlson: Client behavior and industry responses continue to adapt to this evolving environment.
Carl M. Carlson: We face renewed pressure on our deposit mix and funding costs, while the economy remains robust loan demand has softened.
Carl M. Carlson: Consequently, we now anticipate our margin and net interest income for the full year to be lower than initially projected.
Carl M. Carlson: We expect overall loan growth of 1% to 4% pre.
Carl M. Carlson: Primarily driven by C&I and equipment finance.
Carl M. Carlson: Although there appears to be market opportunity in non owner occupied commercial real estate, our focus remains on serving relationship customers.
Carl M. Carlson: Hence, we anticipate only slight growth in this segment. Our cash and securities portfolio remains stable, representing 9 to 12% of total assets. On the deposit side, we anticipate growth of four to five percent. Given prevailing interest rates, the migration of demand deposit accounts and other lower cost deposits may persist. Our Q2 margin is currently projected to fall within the range of 300 to 305 basis points and then improve throughout the year. However, this is dependent upon deposit flows.
Carl M. Carlson: We anticipate only slight growth in this segment.
Carl M. Carlson: Our cash and securities portfolio remained stable, representing 9% to 12% of total assets.
Carl M. Carlson: On the deposit side, we anticipate growth of 4% to 5%.
Carl M. Carlson: Given prevailing interest rates the migration of demand deposit accounts and other lower cost deposits may persist.
Carl M. Carlson: Our Q2 margin is currently projected to fall within the range of 300 to 305 basis points and then improve throughout the year. However, this is dependent upon deposit flows.
Carl M. Carlson: Manish's income is projected to be in the range of $6 to $7 million per quarter, although components may vary significantly. We continue to manage operating expenses at $240 million for the full year. However, we are actively reviewing investment plans and evaluating potential cost savings opportunities.
Carl M. Carlson: Noninterest income is projected to be in the range of $6 million to $7 million per quarter, although components may vary significantly.
Carl M. Carlson: We continue to manage operating expenses of $240 million for the full year. However, we are actively reviewing investment plans and evaluating potential cost savings opportunities.
Paul A. Perrault: Currently, our effective tax rate is expected to be around 24.7% for the balance of the year. Yesterday, the board approved maintaining our quarterly dividend at 13.5 cents per share to be paid on May 24th to stockholders of record on May 10th. On an annualized basis, our dividend payout approximates a yield of approximately 6.5%. This concludes my formal comments, and I will turn it back to Paul.
Carl M. Carlson: Currently our effective tax rate is expected to be around 24, 7% for balance of the year.
Paul A. Perrault: Yesterday, the board approved maintaining our quarterly dividend of $13 five per share to be paid.
Paul A. Perrault: May 24 to stockholders of record on May 10th.
Paul A. Perrault: On an annualized basis, our dividend payout approximates a yield of approximately six 5%.
Paul A. Perrault: This concludes my formal comments.
Paul A. Perrault: Turn it back to Paul.
Paul A. Perrault: Thanks Carl, and we will now open it up for questions.
Paul: Thanks, Carl and we will now open it up for questions.
Paul A. Perrault: Yes.
Operator: Thank you. If you would like to ask a question today, please do so now by pressing star followed by the number 1 on your telephone keypad. If you change your mind and would like to be removed from the queue, please press star and then 2. When preparing to ask your question, please ensure that your device and your microphone are unmuted locally. The first question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Paul: Thank you. Thank you would 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 case, we're preparing to ask a question. Please ensure that your device Andrew microphone on mute it lately.
Operator: The first question today comes from Mark Fitzgibbon with Piper Sandler.
Mark Thomas Fitzgibbon: Please go ahead.
Mark Thomas Fitzgibbon: Good afternoon gentlemen.
Mark Thomas Fitzgibbon: Hi, Mark Hi, Mark.
Mark Thomas Fitzgibbon: Good afternoon, gentlemen. Hi Mark. Hi Mark.
Mark Thomas Fitzgibbon: Carl just a follow up on your tax guidance do you plan to replace those tax credits that expired this quarter or.
Carl M. Carlson: Carl, just to follow up on your tax guidance, do you plan to replace those tax credits that expired this quarter, or does it sound like maybe not? We're always looking at those opportunities, but I don't have any visibility into them, so I don't have a pipeline. Let's say if we came across them, we would do them. Okay, and then it looked like cash balances wore up quite a bit this quarter, which I assume is a function of, you know, some deposit flows.
Carl M. Carlson: It sounds like maybe not.
Carl M. Carlson: We're always looking at those opportunities, but I don't have any visibility into it. So I don't have a pipeline lets say.
Carl M. Carlson: If that came across so we came across so we would do.
Carl M. Carlson: Okay, and then it looked like cash balances were up quite a bit this quarter, which I assume is a function of some deposit flows.
Carl M. Carlson: But.
Carl M. Carlson: I would assume it's probably weighing on the margin a little bit how should we think about cash balances moving forward.
Carl M. Carlson: I think it will be fairly stable in that range of 10%.
Carl M. Carlson: But that, I would assume, is probably weighing on the margin a little bit. How should we think about cash balances moving forward? I think we'll be fairly stable in that regard, of 10%. Okay, and then between 10% and with securities, cash, and securities around 10% of the balance. It's kind of where we target. And then in your press release, you kind of mentioned the fact that, yeah, there's been an uptick in expected losses in the equipment finance business. You know, I guess I'm curious which segment of the equipment finance business is kind of suffering.
Carl M. Carlson: Yeah.
Carl M. Carlson: Okay.
Carl M. Carlson: So between 10% and <unk>.
Carl M. Carlson: Securities cash and securities around 10% of the balance sheet, that's kind of where we target.
Carl M. Carlson: Okay and then in your <unk>.
Carl M. Carlson: Press release, you kind of mentioned the fact that yes, there's been an uptick in expected losses in the equipment finance business.
Carl M. Carlson: I guess I am curious which segment.
Carl M. Carlson: The equipment finance businesses is kind of driving that.
Mark: Mark the biggest single category would be related to transport things.
Carl M. Carlson: is kind of driving that. (inaudible)
Carl M. Carlson: They financed trucks for contractors for the big package companies like Fedex, UBS and stuff like that and what's been happening is that a lot of those guys would carrying stuff for.
Paul A. Perrault: Mark, the biggest single category would be related to transport. They finance trucks for contractors for the big package companies like FedEx, UPS, and stuff like that. And what's been happening is that a lot of those guys were carrying stuff for Amazon, and Amazon has developed its own delivery system, so they lose some of that business. And these are small entrepreneurs that don't have a lot of places to turn to. That's been the single biggest element, get on the truck, so we're about to hit repair. And it's not a huge portfolio. So I expect there will be some more dribbling in over the next couple of quarters, but it's not a waterfall or anything like that.
Paul A. Perrault: Amazon and Amazon has developed their own delivery.
Paul A. Perrault: Systems. So they lose some of that business at least these are small entrepreneurs that don't have a lot of places to turn to.
Paul A. Perrault: That's been the single biggest.
Paul A. Perrault: Element.
Paul A. Perrault: And on the truck sorry about repair.
Paul A. Perrault: And it's not a huge portfolio.
Paul A. Perrault: I expect there will be some more dribbling into the next couple of quarters, but it's not a it's not a.
Paul A. Perrault: Waterfall or anything like that.
Paul A. Perrault: Okay.
Paul A. Perrault: And then lastly, I know you guys didn't buy back any stock this quarter. And given the environment, maybe, maybe you don't want to, but given
Paul A. Perrault: And then lastly, I know you guys didnt buyback any stock this quarter.
Paul A. Perrault: And given the environment, maybe maybe you don't want to but given the pullback in your stock price today do you feel like buybacks makes some sense here trading comfortably below tangible book.
Paul A. Perrault: make some sense here, trading comfortably below tangible book. We'll continue to evaluate that, but we have no... No expectation to do anything new.
Paul A. Perrault: We will continue to evaluate that but we had no.
Paul A. Perrault: No expectation to do anything near term.
Speaker Change: Thank you.
Operator: The next question comes from the line of Steve Moss with Raymond James. Steve, please go ahead.
Speaker Change: Thanks Mark.
Operator: The next question comes from the line of Steve Moss with Raymond James Steve.
Stephen M. Moss: Steve. Please go ahead.
Stephen M. Moss: Hi Steve. Hi Steve. Maybe Carl, just starting off. Hey, Paul, Carl, maybe I'm just starting off on the office portfolio here, the two credits that were charged off, were those resolved, you know, sold, liquidated during the quarter, or was that just a charge off ahead of an expected sale? Uh, no, those were two note sales, one of which was on our balance sheet at the end of the quarter as a loan held for sale and was subsequently closed.
Stephen M. Moss: Hi, good afternoon.
Stephen M. Moss: Thanks, Steve Steve maybe Karl just starting off just hoping maybe to start off on <unk>.
Stephen M. Moss: The office portfolio here too.
Stephen M. Moss: So were charged off.
Stephen M. Moss: Solved.
Stephen M. Moss: Sold liquidated during the quarter or was that just the charge off ahead of an expected sale.
Stephen M. Moss: No those were two note sales.
Stephen M. Moss: Which one was on our balance sheet at the end of the quarter as a loan held for sale.
Stephen M. Moss: Were subsequently closed.
Carl M. Carlson: They were sold a little bit under par, which is what created that small loss, but we got rid of a couple of properties that were a bit troubled.
Stephen M. Moss: They were sold a little bit under par.
Carl M. Carlson: Which is what created the small loss, but we got rid of a couple of properties that.
Carl M. Carlson: We're a bit troubled.
Carl M. Carlson: Got it. And you guys mentioned the deck, you know, only two loans maturing of about 23 million represent criticized and classified within office. Those are separate of those loan sales, I take it. They were not part of those numbers. Okay, and just in terms of, I realize it's small, but just curious, like what type of properties are they, you know, kind of geographically, where are they located?
Carl M. Carlson: Got you and.
Carl M. Carlson: You guys mentioned in the deck only two loans maturing.
Carl M. Carlson:
Carl M. Carlson: About $23 million, representing criticizing classified within office those are separate of those loan sales I take it.
Carl M. Carlson: They were not part of those those those numbers.
Carl M. Carlson: Okay, and just in terms of like I realize it's small, but just curious like what type of properties of RNA.
Carl M. Carlson: Kind of geographically where are they located.
Carl M. Carlson: Okay.
Carl M. Carlson: They're Boston-based, and one of them that I'm aware of was retail and commercial on the upper floors.
Carl M. Carlson: Theyre Boston based the Boston based and is one of them.
Carl M. Carlson: Our railroad was retail and commercial.
Carl M. Carlson: On the upper floors.
Carl M. Carlson: And then turning to the margin here, you know, with a 3% to 3.305 guide, just, you know, maybe bottling out, just curious, like, you know, what do you think gives you comfort here that the margin could bottom in the second quarter? And just, you know, what if we stay in the higher for longer? How are you guys thinking about the margin beyond the second quarter? No, it's a great question, and comfort's a tough word to come by.
Carl M. Carlson: Okay.
Speaker Change: Got you.
Carl M. Carlson: And then just turning to the margin here.
Carl M. Carlson: Yeah.
Carl M. Carlson: With a 3% to three three or five guide just.
Carl M. Carlson: Maybe bottoming now just curious like what do you think.
Carl M. Carlson: It gives you comfort here that margin could bottom in the second quarter.
Carl M. Carlson: And just what.
Carl M. Carlson: What if we stay at a higher for longer how are you guys thinking about the margin beyond the second quarter.
Carl M. Carlson: Okay.
Carl M. Carlson: No. It's a great question and comfort is tough the tough word to come by I think we model a lot of.
Carl M. Carlson: I think we model a lot of deposit migration. I think in the first quarter, we saw more deposit migration than we anticipated. I do anticipate that it's going to go down, or everything suggests that the deposit migration is not going to continue. Our models right now are coming in around the 303 range for a margin that we're going to try to be precise. And that was before the rate increases, you know, just the recent rate increases.
Carl M. Carlson: <unk>.
Carl M. Carlson: Migration I think in the first quarter, we saw more deposit migration than we anticipated.
Carl M. Carlson: I do anticipate that it's going to go down.
Carl M. Carlson: Or everything suggests that the migration is not going to continue.
Carl M. Carlson: Our models right now are coming in around the 303 range.
Carl M. Carlson: Range of for our margin that that would kind of try to be precise.
Carl M. Carlson: And that was before the rate just the recent rate increases.
Carl M. Carlson: You know, we're using more like March 31st numbers, and so we get a little bit of a bump with the repricing of loans throughout the quarter from where the five-year is now. It's over 80 basis points higher, almost 90 basis points higher than where it was at the end of the year. I'm not sure exactly how much higher it is from March 31st, but it's helpful. So 50 basis points just in the last couple of weeks, so that's helpful.
Carl M. Carlson: Use them more like March March 31st numbers off.
Carl M. Carlson: And so we get a little bit of a bump with the repricing of loans.
Carl M. Carlson: Throughout the quarter from where the five year is now its over 80 basis points higher almost 90 basis points higher than where it was at the end of at the end of the year.
Carl M. Carlson: Not sure exactly how much higher is from from March 31.
Carl M. Carlson: It's helpful.
Carl M. Carlson: So up 50 basis points, just just in the last couple of weeks. So that's helpful.
Stephen M. Moss: Great. Okay. That's a good color for me. I appreciate all that. I'll step back into the queue here. Thanks.
Speaker Change: Alright, okay.
Carl M. Carlson: Okay.
Speaker Change: Good color for me appreciate it appreciate all I'll step back in the queue here. Thanks.
Speaker Change: Thanks, Steve.
Stephen M. Moss: The next question comes from the line of Laurie Hunsicker with Seaport Research. Please go ahead.
Operator: The next question comes from the line of Laurie Hunsicker with Seaport Research. Laurie, please go ahead.
Laura Katherine Havener Hunsicker: Yeah. Hi. Thanks. Good afternoon.
Laura Katherine Havener Hunsicker: Yeah, Hi, Thanks, good afternoon.
Paul A. Perrault: Thanks for all the detail on the real estate that you guys added. That's super helpful. But actually, I wanted to go back to the equipment finance section, and I'm looking at page 14 of your deck. Can you just help us think about the three and a half million in charts? So the specialty vehicle category looks like You have tow trucks, it wasn't bad, it wasn't a heavy tow. Are you saying it came from sort of that FedEx category of 40 million or another vehicle category? Or just, how should we think about that? I guess that's sort of my first question about equipment finance. What's his segment coming from?
Laura Katherine Havener Hunsicker: Hi, Laurie all the detail on that.
Paul A. Perrault: Real estate that you guys added that's super helpful.
Paul A. Perrault: But I ask you I wanted to go back to the equipment finance.
Paul A. Perrault: Section and I'm looking at page 14 of your deck.
Paul A. Perrault: Can you just help us think about the the $3 5 million in Sparta.
Paul A. Perrault: We'll keep vehicle category it looks like.
Paul A. Perrault: You have to go test it wasn't that it wasn't a heavy how are you.
Paul A. Perrault: It came from sort of that Fedex category of Ford.
Paul A. Perrault: <unk> million dollars or the other vehicle category.
Paul A. Perrault: Should we think about that I guess, that's sort of my first question around equipment finance.
Paul A. Perrault: What segment that you're coming from.
Carl M. Carlson: So to break that down a little bit, we have about $3.5 million of net charge-offs in the Eastern Funding Segment overall. And as we said, you know, Paul was mentioning 1.6 of that was just basically in FedEx. Transport. Yeah, transport. Well, in this category, when you look at page 14, it's probably mostly in FedEx and maybe in the other vehicle categories. We have about $800,000 in charge-offs on the tote. 600 in laundry and about 600 in fitness. And then we've got some nets, you know, some recoveries that are sprinkled throughout for the entire piece of equipment.
Speaker Change: No sure so.
Paul A. Perrault: Break that down a little bit so we have about three point.
Carl M. Carlson: $5 million of net charge offs in the eastern funding segment overall.
Carl M. Carlson: And as we said as Paul was mentioning one six of that was.
Carl M. Carlson: Just basically.
Carl M. Carlson: The Fedex freight.
Carl M. Carlson: Yes transport.
Carl M. Carlson: And this category when you look at page 14, its probably mostly in the Fedex or maybe in the other vehicle categories.
Carl M. Carlson: Yes, we had about $800000 in charge offs on the tote.
Carl M. Carlson: 600, laundry and about 600 fitness.
Carl M. Carlson: And then we've got some some recoveries that are sprinkled throughout for the entire equipment finance portfolio is far and away. The vast majority of it is you can probably see there is laundromats.
Carl M. Carlson: The entire equipment finance portfolio, far and away the vast majority of it, as you can probably see there, is laundromats. [inaudible]
Carl M. Carlson: Yes.
Carl M. Carlson: Which bridge got exceptional Scott.
Carl M. Carlson: Yeah, So walk through more of it we're going to do more loan growth.
Paul A. Perrault: Yeah, so let's do more. We're going to do more laundromats. It makes sense. It makes a lot of sense.
Paul A. Perrault: Sure.
Paul A. Perrault: It makes sense.
Speaker Change: Makes a lot of sense okay.
Carl M. Carlson: Okay, and so just thinking about equipment finance, I mean, directionally, you know, the categories that you mentioned are very, very small. Directionally, there's nothing there that you're thinking, hey, we should pull back. We've seen a change.
Paul A. Perrault: Looking about equivalent finance director.
Carl M. Carlson: Directionally, yes.
Carl M. Carlson: The categories that you mentioned, they're very small directionally. There is nothing there that youre thinking hey, recent pullback with CNET sands.
Carl M. Carlson: Youre still there.
Carl M. Carlson: Oh, they are working on it. Yeah, we're feeling good about it. But the guys who run Eastern Eastern funding are sort of reevaluating their strategic direction and all of that.
Carl M. Carlson: We're working on.
Carl M. Carlson: Yes, we're feeling good about it but the guys the guys who run eastern East.
Carl M. Carlson: Eastern funding are sort of reevaluating their strategic direction and all of us.
Carl M. Carlson: As we speak yes, I think the difficulty of getting.
Carl M. Carlson: Yeah, I think the difficulty of getting, when we talk about recoveries, I think they're very comfortable with how they underwrite and things of that nature. But when things do go bad, you have to recover these vehicles, and I think it's becoming a little bit more difficult, taking a lot more time. And so they're rethinking some of that. Some of those loans are pretty small, and they become very expensive.
Carl M. Carlson: When we talk about recoveries I think theyre very comfortable how they underwrite and things of that nature, but when things do go bad you have to recover. These these vehicles and I think it's becoming a little bit more difficult taking a lot more time.
Carl M. Carlson: And so they're rethinking about some some of that some of those loans are pretty small and they become very expensive.
Carl M. Carlson: The trucks are in bad repair, and it's not a wonderful picture. And it's not something that they've done forever either. The nice thing about the laundry equipment, it's not going.
Carl M. Carlson: The trucks are in bad repair.
Carl M. Carlson: It's not a wonderful picture, that's not something that they've done forever either.
Carl M. Carlson: The nice thing about the laundry equipment, it's not going anywhere.
Carl M. Carlson: <unk>.
Paul A. Perrault: Yes, with that, I'm going to close.
Carl M. Carlson: Right yes.
Paul A. Perrault: with that particular address.
Carl M. Carlson: With that revenue.
Carl M. Carlson: Right. I guess when you think about that, yeah, that specialty vehicle bucket, then, would you potentially look to sell those loans or get out of that? Or how do you think about that? Let's not go any further.
Speaker Change: Right go ahead, where I guess when you think about that yes, that's special TBA call bucket that I mean would you potentially look to sell those bonds or get out of that or how do you think about that.
Carl M. Carlson: With MACRA them further.
Carl M. Carlson: Well, there are meetings concurrent to now that are considering all of those.
Carl M. Carlson: While there are there are meetings.
Carl M. Carlson: Current to now that are considering all of those things.
Carl M. Carlson: Okay, okay. And then one other question here on Equipment Finance. You've got a category, it's ES Cree, so Equipment Finance Cree. What is that? That's $166 million. If you don't know, I can follow up with you.
Carl M. Carlson: Okay. Okay, and then one other question here on the equipment finance, you've got to you've got a category, yes cream and finance what is that that the $166 million.
Carl M. Carlson: So have you got that right.
Carl M. Carlson: That's when the laundromat owner requires the building that the laundromat is in, and in a lot of cases, it might be a little strip mall, for example, that the guy that the guy wants to own, but it's always attached to a lawn. There's always a laundromat involved. Okay, gotcha, gotcha. Okay, and then...
Carl M. Carlson: That's when the laundromat owner acquires the building of the laundromat is in a lot of cases, it might be a little strip mall.
Carl M. Carlson: For example that the guide that the guy wants to own.
Carl M. Carlson: But it's always attached to a laundry.
Carl M. Carlson: There's always a laundromat involved.
Speaker Change: Okay Gotcha Gotcha, Okay, and then and then one more question and Mark you have already asked this but I am just curious.
Laura Katherine Havener Hunsicker: Okay, gotcha, gotcha. Okay, and then one more question, and Mark sort of already asked this, but I am just so curious. It would seem you guys have such a plethora of capital that buybacks here, you know, in the high 70s percent of books would just be absolutely top of mind. I mean, at what point do you say, "oh my gosh, you know, we have to pivot and get excited about
Laura Katherine Havener Hunsicker: It would seem you guys have such a plethora of capital that buybacks here in the high 70 percentage of back.
Laura Katherine Havener Hunsicker: Just the absolutely top of mind.
Laura Katherine Havener Hunsicker: Point do you say Oh, my Gosh, you know, we have to pivot and get excited about that.
Laura Katherine Havener Hunsicker: Yeah.
Paul A. Perrault: Well, right now in this environment, I would say that, still in this environment, we still think capital is very precious, and it certainly is attractive to buy stock at this level, there's no question. But I also think it's very important to keep the capital that you have and continue to use that capital to support the balance sheet and opportunities that present themselves. So that's kind of where we are on it.
Speaker Change: Well right now in this environment.
Paul A. Perrault: I would say it's still in this environment, we still think capital is very precious.
Paul A. Perrault: And.
Paul A. Perrault: It certainly is attractive to buy the stock at this level. There is no question.
Paul A. Perrault: But I also think it's very important to keep the capital that you have.
Paul A. Perrault: And continue to use that capital to support the balance sheet and opportunities that present themselves.
Paul A. Perrault: <unk>.
Paul A. Perrault: So that's kind of where we are on it.
Paul A. Perrault: Okay, great. I'll leave it there. Thanks. Sure. Thanks, Laurie.
Speaker Change: Okay, Great I'll leave it there thanks.
Speaker Change: Thanks Laurie.
Paul A. Perrault: Thanks, Laurie.
Paul A. Perrault: Yeah.
Operator: Our next question comes from the line of Chris O'Connor with KPW. Please go ahead, Chris.
Paul A. Perrault: Our next question comes from the line of Chris O'connell with <unk>. Please go ahead Chris.
Chris O'Connor: Hey, good afternoon. Thank you. Staying on the credit front, can you just remind us about the non-equipment finance portion, you know, the $4.7 million that was, you know, had some partial reserves for it previously?
Chris O'Connor: Hey, good afternoon.
Chris O'Connor: Hi, Chris.
Chris O'Connor: Staying on the credit front.
Chris O'Connor: Can you just remind us about the non equipment finance portion of the $4 7 million.
Chris O'Connor: That was.
Chris O'Connor: <unk> had some partial reserves for it previously.
Carl M. Carlson: Sure, Chris. So those were fully reserved. They had specific reserves on those. One had to, and we talked about this in the past, one was the construction firm that we took the charge off on as well as the medical.
Speaker Change: Sure Chris So those were fully reserved at specific reserves on those.
Speaker Change: One has to.
Carl M. Carlson: Talked about this in the past one was.
Carl M. Carlson: It was construction firm.
Carl M. Carlson: That we took the charge off on as well as a medical.
Carl M. Carlson: And these are loans that have been dogging us. We've pretty well wrapped them up now, but for the past couple of quarters, you've heard us cite those two loans that were being worked out.
Carl M. Carlson: Groups.
Carl M. Carlson: And these are loans that have been dogging us pretty well wrap them up now but for the past couple of quarters.
Carl M. Carlson: Are those cycles those two loans that were being worked out.
Speaker Change: Got it.
Carl M. Carlson: And on the CRE front, I mean, outside of the office, you know, as you're looking at, you know, the rest of the maturities throughout 2024, how do you feel about, kind of, the core CRE or the, you know, X office and, and the credit quality there as these maturities come through over the course of the year?
Carl M. Carlson: And on the CRE front, I mean outside of the office.
Carl M. Carlson: We're looking at the rest of the maturities.
Carl M. Carlson: Throughout 2024.
Carl M. Carlson: How do you feel about kind of the core CRE or ex office and in the credit quality there.
Carl M. Carlson: As these maturities come through over the course of the year.
Carl M. Carlson: Yeah, so far, we feel very good about it. Not only the maturities but the repricings. As you can imagine, we have a lot of our commercial real estate, particularly multifamily space, and other things that reprice. They may not mature, but they'll reprice after five years. They may have a 10 year final bloom, and so they may be repricing up 280 basis points compared to five years ago. And so right now, debt service coverage, things of that nature are just fine.
Carl M. Carlson: Yeah.
Carl M. Carlson: Yes, so far we feel very good about it not only the maturities, but the re pricings as you can imagine we have a lot of our commercial real estate.
Carl M. Carlson: Particularly in multifamily space and other things that were repriced.
Carl M. Carlson: Reprice, they may not mature, but they will reprice. After five years, you may have a 10 year final balloon.
Carl M. Carlson: And so they may be repricing up 200 basis 280 basis points compared to five years to five years ago.
Carl M. Carlson: And so right now those those debt service coverage.
Carl M. Carlson: Things of that nature or just fine.
Carl M. Carlson: Rents have gone up significantly more than that, so we're in good shape there. I don't think there's any issues with that. I think the office, even the office, is doing well. I think it's just the inside of, you know, certain properties in certain places that we have to work with our customers.
Carl M. Carlson: Rents have gone up significantly more than that so we're in good shape. There I don't think theres any issues on that.
Carl M. Carlson: The office, even even office is doing well I think it's just the.
Carl M. Carlson: Inside of certain certain properties in certain places that we have to.
Carl M. Carlson: We'll work with our customers on.
Speaker Change: Got it and it has.
Carl M. Carlson: and it has the Has the recent increase in rates, has that, you know, tempered demand or even just the timing of potential pipeline closings in the CRA?
Carl M. Carlson: Has the recent increase in rates.
Carl M. Carlson: Has that.
Carl M. Carlson: Tempered demand or even just the timing.
Carl M. Carlson: Potential pipeline closings.
Carl M. Carlson: It certainly is tempered demand. I don't know if it stopped closings at all. If it did, they're probably regretting it. Yeah, there's just not a lot of trades going on in our markets in real estate, isn't it? There aren't a lot of buyers, not a lot of sellers, got it, and it's probably due to
Carl M. Carlson: And the CRE book.
Carl M. Carlson: Probably it certainly has tempered demand I don't know if its stopped closings at all if it did there theyre probably regretting it vigorously.
Carl M. Carlson: They've just done a lot of trades going on in our markets and real estate given that there's not a lot of buyers not a lot of sellers.
Carl M. Carlson: Yeah.
Carl M. Carlson: Got it.
Carl M. Carlson: Probably due to rates, but it's also probably due to the views on occupancy.
Carl M. Carlson: as an investor, particularly
Carl M. Carlson: As an investor friendly.
Carl M. Carlson: Yep. And the demand that you're seeing, you know, for loan growth, you mentioned, you know, C&I and equipment finance, you know, kind of leading that and the C&I segment. What's the type of loans that you're seeing, you know, the most attractive demand for?
Carl M. Carlson: Okay.
Carl M. Carlson: Yep.
Carl M. Carlson: The demand that Youre seeing.
Carl M. Carlson: For our loan growth.
Carl M. Carlson: You mentioned.
Carl M. Carlson: C&I inquiry and equipment finance.
Carl M. Carlson: Kind of leading that.
Carl M. Carlson: <unk> segment.
Carl M. Carlson:
Carl M. Carlson: What's the type of loans that youre seeing the most attractive demand for.
Carl M. Carlson: Yes.
Carl M. Carlson: Oh, well, the industrial sector has been strong. Import-export stuff has been strong, law firms. A little of everything. There's not a particular expertise; some, particularly in our New York operation, things like private schools and non-profits, have been doing quite well, and Brookline's gotten involved in some of that as well. So they tend to be very well established, low leveraged organizations that have great, great cash flow and are doing something, it might be building a gym or
Speaker Change: Oh, well industrial has been strong.
Carl M. Carlson: Import export stuff has been strong.
Carl M. Carlson: Law firms.
Carl M. Carlson: There's a little of everything there's not a particular expertise.
Carl M. Carlson: Some.
Carl M. Carlson: Particularly in our New York Operation.
Carl M. Carlson: Things like private schools and nonprofits.
Carl M. Carlson: <unk> been doing quite well.
Carl M. Carlson: Brooklyn has gotten involved in some of that as well.
Carl M. Carlson: So they tend to be very very well established low leverage organs.
Carl M. Carlson: Organizations that have great cash flow and are doing something.
Carl M. Carlson: It might be building, a gym or something.
Speaker Change: Got it.
Carl M. Carlson: And I know, you know, last quarter was pretty, uh, you know, light on the M&A discussions. I mean, has there been any pickup at all in your general market or discussions since then?
Carl M. Carlson:
Carl M. Carlson: I don't know.
Carl M. Carlson: Last quarter.
Carl M. Carlson: <unk>.
Speaker Change: You know.
Carl M. Carlson: Light on the M&A discussions I mean has there been any pick up at all on kind of your.
Carl M. Carlson: General market or discussions since then.
Carl M. Carlson: Maybe a little bit, but it's not too strong because it's so difficult and everybody pushes the stuff around, and you get these capital holes.
Speaker Change: Yes, maybe a little bit but it's.
Speaker Change: It's not.
Speaker Change: It's not.
Carl M. Carlson: Two strong.
Carl M. Carlson: Because it's so difficult I mean, everybody pushes the stuff around and we get these capital holds.
Carl M. Carlson: The calls are just way too big.
Carl M. Carlson: The holes are just way too big to fill from a capital perspective at the moment. Part of the problem is that the investment bankers have nothing to do, so they come up with all these great ideas.
Carl M. Carlson: Phil from a capital perspective at the moment part of the problem is that the investment bankers have nothing to do so they come up with all these great ideas.
Carl M. Carlson: [laughter].
Carl M. Carlson: [laughter].
Carl M. Carlson: Yeah. Got it. And, uh, you know, just in general, I guess, going forward. Where are you guys thinking about in terms of, you know, normalized, you know, charge-off rate in this type of environment?
Speaker Change: Got it.
Carl M. Carlson: And.
Carl M. Carlson: Yeah.
Carl M. Carlson: Just in general I guess going forward I mean.
Carl M. Carlson: Where are you guys thinking about in terms of <unk>.
Carl M. Carlson: A normalized charge off rate.
Carl M. Carlson: In this type of environment.
Carl M. Carlson: Certainly, less than we saw in Q1 is where I plan to be headed. It's a little bit difficult early in the cycle here to try to pick a number, but if you look at our charge-off behavior in our past, that was a lot more comfortable, so that's where we're going to try to get to.
Speaker Change: Well certainly less than we saw in Q1 is where I plan to be added it's a little bit difficult early in the cycle here.
Carl M. Carlson: To try to pick a number but if you look at our charge offs behavior.
Carl M. Carlson: In our past.
Carl M. Carlson: That was a lot more comfortable so that's where we're going to try to get to.
Carl M. Carlson: Yeah.
Chris O'Connor: Great, that's all I had. Thanks for taking my questions.
Carl M. Carlson: Great.
Speaker Change: That's all I had thanks for taking my questions.
Speaker Change: Thanks, Chris.
Chris O'Connor: Okay.
Chris O'Connor: Yeah.
Operator: This concludes our question and answer session. I'd like to turn the conference back over to Mr. Perrault for any closing remarks.
Speaker Change: This concludes our question and answer session.
Perrault: To turn the conference back over to Mr. <unk> for any closing remarks.
Paul A. Perrault: Thank you, Emily, and thank you all for joining us this afternoon. And we will look forward to talking with you again in the next quarter. Have a good day.
Perrault: Thank you Emily and thank you all for joining US this afternoon, and we will look forward to talking with you again in the next quarter have a good day.
Operator: The conference has concluded. Thank you for attending today's presentation. You may now disconnect.
Paul A. Perrault: Okay.
Operator: The conference has concluded.
Operator: You for attending today's presentation you may now disconnect.
Operator: [music].
Operator: Okay.
Operator: Yes.
Operator: Okay.