Q3 2024 Brookline Bancorp Inc Earnings Call
The
Speaker Change: Good afternoon. Welcome to Brookline Bank Corp. Inks 3rd quarter 2024 earnings conference call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions.
Speaker Change: Please note this event is being recorded. I'll now return the conference over to Brookline Bank Corpse Attorney, Laura Vaughn, please proceed.
Laura Vaughn: Thank you CRR for the afternoon everyone. Yesterday we get you our earnings release and presentation, which is available on the Investor Relations page of our website, www.1Bain4.com, and have a file for the SEC.
Laura Vaughn: The school may contain four lipid statements to respect your financial condition for the ulcer of operations in business of book on-day work.
Laura Vaughn: Please refer to page 2 of our earnings presentation for our political and state-medicine market.
Laura Vaughn: Also, please refer to our other findings to the Security and Exchange Commission, which you can address factors that we caused actual results to determine a serial need from these law-remblem statements.
Laura Vaughn: Any participant may experience presentations from the LMPH measures are only made to assist you in understanding the language of the results in performance time and should no fear of lie on as financial measures of actual results or future predictions.
Laura Vaughn: for Eucharist and Reconciliation to the App earnings. Please see our earnings release. Please to introduce the Blackface Ross Chairman and CEO Paul Gold.
Paul Gold: Thank you, Laura and good afternoon everyone. Thank you for joining us for today's earnings call. Performance improved in the quarter with net income of $2.1 million and earnings per share of 23 cents.
Paul Gold: loans grew by a modest $34 million, and customer deposits increased $103 million, and I'm urgent increase 7 basis points.
Paul Gold: As Market rates gradually return to normal, we expect to see our net interest margin continue to improve through 2025. I will now turn you over to Carl who will review the company's third quarter results.
Carl: Thank you Paul. During the quarter total assets grew 42 million driven by long gross of 34 million in CNI and consumer. While the equipment finance and commercial real estate portfolios declined.
Speaker Change: In the third quarter, we originated 459 million in loans at a weighted average coupon of 735 basis points.
Speaker Change: The way the average crew found on the four-long portfolio decline two basis points during the quarter to six hundred and three basis points at September 30th.
Speaker Change: On a linked quarter basis, the yield on the loan portfolio increased 15 basis points to 617 basis points.
Speaker Change: On the deposit side, customer deposits grew 103 million while broker deposits declined 107 million. The deposit growth continued to be focused in the time deposits, however we also saw the demand deposits grow 44 million in the quarter.
Speaker Change: Total funding costs were 367 basis points and increase of two basis points as the overall net-insure smart and improved 7 basis points to 307 basis points for the quarter.
Alibargin: Hello, I'm Alibargin, Interest Learning Assets grew modestly by 36 million on a link for the basis, resulting in net interest income of 83 million and increased of $3 million from Q2.
Alibargin: It's non-interesting comb with 6.3 million, which was flat with a priori border, as lower deposit fees were offset by higher participation fees and other non-interesting comb.
Alibargin: Operating Spancers were 57.9 million for the quarter versus 59.2 million in Q2. In the second quarter there was an $823,000 restructuring charge as we exited the specialty vehicle business.
Alibargin: including the excluding this charge operating expenses decline 500,000 on a link quarter basis due to lower marketing and other operating expenses partially offset by higher compensation and professional fees.
Alibargin: The provision for credit losses was 4.7 million for the quarter, a decrease of 900,000 from the second quarter. Now, charge your ups with 3.8 million or 16 basis points on loans annualized.
Alibargin: Not the foreign loans increased 10.5 million in the quarter due to one Eastern funding relationship, financing multiple grocery stores.
Alibargin: and Paese to total assets increased to 62 basis points, total loans.
Alibargin: Our Reserve Coverage Ratio increased to 131 basis for this.
Alibargin: Looking forward, as I mentioned last quarter, climb behavior and industry responses continued to adapt to a fairly volatile interest rate environment. In mid-September, the Federal Reserve cuts short-term rates 50 basis points.
Alibargin: Longer term rates initially declined significantly with the 10-year Treasury closing below 375 in the 5-year rate around 350.
Alibargin: Sensorly October rates have more than retraced the decline and now the 10 years around 4.2% and the 5 year is a little over 4%.
Alibargin: As a yield curve, continue to normalize, we will see net interest margin improvements. The modest improvements in the environment suggests our net interest margin will increase five to ten basis points in Q4 and continue to improve throughout 2025.
Alibargin: On Eddish's portion for the month of September was 313 basis points.
Alibargin: We anticipate increases in loan portfolio to be measured for the remainder of 2024 and it to 225. As growth in commercial and consumer loan loans will be tempered by the runoff of specialty vehicle and continued lower commercial real estate activity.
Alibargin: Our Cash and Security Sportfolio will remain stable representing 9-12% of total assets.
Alibargin: On the deposit side we anticipate growth of 4% to 5%. Getting them prevailing interest rates, the migration of lower cost deposits may persist, but is anticipated to slow.
Alibargin: Mark Q4 margin, projected full within a range of 312 to 320 basis points and continue to improve. However, this is dependent upon deposit flows and the timing and magnitude of future actions by the Federal Reserve.
Speaker Change: The next year, the president of the United States, the president of the United States, [inaudible]
Speaker Change: Currently we're projecting overall operating costs to grow in a 3 to 3.5% range for 2025 and our effective tax rate is expected to be in the range of 24.25%.
Speaker Change: Yesterday the board approved maintaining our quarterly dividend at 13 and a half cents per share, be paid on November 29th to stockholders of record on November 15.
Speaker Change: On a manualized basis, our dividend payout approximates a yield of 5.1%.
Speaker Change: This concludes my formal comments and I'll turn it back to form. Thanks Carl and we will now open it up for questions.
Speaker Change: If you would like to ask a question, please first start, follow by one on your telephone keypad.
Speaker Change: If you like to remove that question, press star follow by tune.
Speaker Change: And if you are using a speaker phone, please pick up your hands that before asking your question.
Speaker Change: and I will start with the first question today, from Mark Fitzgibbon with Hyper-Sandler. The line is not open. Hey guys, good afternoon.
Speaker Change: Emaud.
Mark Fitzgibbon: First question, Carl, can you just clarify your comments? I miss them on that one quote in Fianan Sloan. Can you give us a share of any color on that?
Speaker Change: I imagine you're talking about the one loan that went not a cruel this quarter, right? So that's one large loan, at Eastern funding, and if finances two grocery stores.
Speaker Change: Okay.
Speaker Change: and any thoughts on timing for resolution?
Speaker Change: I don't have any idea of exactly when that's going to get resolved. And we do have a sizable specific reserve set up for that long.
Speaker Change: and Laura Vaughn, 5 million dollars per cent of this quarter.
Speaker Change: Okay, great and then can you share with us what the margin was, spot margin in September?
Speaker Change: Spock Margin was 313.
Speaker Change: Okay great and also it was curious about the lone pipelines and the complexion, what those look like today.
Speaker Change: We're actually seeing a lot more institutional type things. We've had some personnel from this area specializing in that. And so we're seeing that in all the markets and great of Austin, Rhode Island and in less gesture county. Things like private schools.
Speaker Change: Some colleges, it's all very, very good business. Obviously, we're being very, very selective and real estate.
Speaker Change: Special particles and one-off modes, so we're not originating there. And I'd say that equipment finance is beginning to pick up a little bit more in their traditional superimpact in their wandermats.
Speaker Change: Some C&I.
Speaker Change: But it is not robust by any means at all, but it is moving forward.
Speaker Change: Pretty well, pretty well, so I...
Speaker Change: I'll take a stab, I don't think Carl gave a number but I would be very happy with 45% game in 2025 in the Lord Portfolio.
Speaker Change: Okay, great. And then I know you guys like to keep private so what's going on at Clarence and private but I wondered, were a couple years in now, if you could share any metrics on how that's going, whether we're at profitability and what AUM or AUAR currently.
Speaker Change: We're not at profitability yet. We're seeing the mix of those assets on the management change. So in the early stages, we were basically doing a lot of treasury business.
Speaker Change: which we did not make any money on at all, but it was good introductory business to the clients and being able to help them out. We're seeing that transition over to more of a balanced portfolio.
Speaker Change: Thank goodness on both counts. I think they've done quite well in this market and you know, so we're still around that $350 million and asks us on the management. So
Speaker Change: It's growing, we really liked the growth that we've had in it, the customer's that we're tracking into that business and able to take care of. Just wouldn't like to see it grow a little faster than that.
Speaker Change: in patient. I'm a staffer for our on-the-patient.
Speaker Change: are remote a lot, you know, any idea what percentage of the customers are coming from the bank versus outside.
Speaker Change: I think most probably it's 70% or so.
Speaker Change: Okay, yeah.
Speaker Change: and some cases it's a customer who's selling their business.
Speaker Change: They might have favored some other Wall Street firm for their money, but they come here now.
Speaker Change: Thank you.
Speaker Change: Our next question that they come to Laura Hansiker with Seaport. They'll have to open.
Laura Hansiker: Yes, hi, good afternoon Paul and Carl. I learned this one. If we could circle back on credit here. So, of your 37.2 million of equipment, not performing loans, how much of that was specialty vehicles?
Speaker Change: $4.6 million is tow.
Speaker Change: and we later especially vehicles.
Speaker Change: Okay, 4.6 million, okay great and then I guess same question on the charge off, you get 3.8 million in charge off.
Speaker Change: It was a Clement Finance. Is that all the effects of the occult that just continued book or was that flick?
Speaker Change: Samcha.
Speaker Change: But about 2.1 was specialty vehicle of the 3.8 million dollars in charge of.
Speaker Change: Okay
Speaker Change: Great. Okay. And then, um...
Speaker Change: What is your reserve on your equipment finance book or what is your reserve on your, your check the occult?
Speaker Change: The
Speaker Change: He's looking it up. So I'll give you a little break. I don't have a total based on Eastern Funding Core.
Speaker Change: which is about a hundred twenty eight basis points on that. Special vehicle, we have a 224 basis points.
Speaker Change: and the Macrelease portfolio, kind of look at that separately. We included in Corb, but we break it out, there's 132 basis points. And that excludes any specific reserves that we may have on a particular credit. We take that out. So those are the general reserves on those portfolios.
Speaker Change: Okay, it's great. I don't know the dollar's in the book.
Speaker Change: Okay. And then with the discontinued...
Speaker Change: with the disc continued spec vehicle and there you head.
Speaker Change: You had done a reduction in force.
Speaker Change: and I guess we're going to see the sort of the full results of that come through in the fourth quarter is that right from the the expense savings side or how she would be thinking about that.
Speaker Change: You're already seeing it in the...
Speaker Change: In basically a second half of Q2, 3, so you'll see it in full force in Q4. It's about $800,000 a quarter.
Speaker Change: and benefit.
Speaker Change: and benefit, right? Okay. And so then with respect, with respect, Carl to your guide, your three to three and half percent expense gross guide, what base are you using for that? How should we think about that, especially well, that's for the 800,000 or quarter savings?
Speaker Change: I use our current quarter, take off a couple hundred thousand to this quarter, that's about it.
Speaker Change: for the fourth quarter and that will be the run rate. Or 240 million, I would say, on an annualized basis and three to three and a half percent off that.
Speaker Change: Perfect, okay, okay, that's great. Okay, and then office.
Speaker Change: Can you help us think about it?
Speaker Change: Maybe just and you guys have some great slides here but office not a cool how much was that and then the criticized and classified that you present.
Speaker Change: and the Ficcler helpful that you present that off maturity. But what is that relative to your total buck?
Speaker Change: So, I have the trick get the trick, I have the question, they are okay.
Speaker Change: So starting with the non-acool loans related to office, that hasn't changed. That's still basically one credit, it's about $10.8 million. That's in that book. I think that's also the number that's criticized in classified loans is the same amount. I don't think that has changed.
Speaker Change: around about my family. I think it's Christmas, I'm gonna come back.
Speaker Change: Okay, and then just looking at your deck here, it looks like the way that you're presenting the office.
Speaker Change: Criticizing classified, this is just the maturity, 137 million. So how do we think about it relative to your 700 million dollar buck?
Speaker Change: or did just that 10 and a half million.
Speaker Change: I lost where you're going with that.
Speaker Change: Oh, you know, I just wanted you to leave.
Speaker Change: Well, so the office non-performance that's 10.5 million, that's just on the boat it's stirring in the next two years. I mean, I love this slide, but I do think it's great, right? Because in the 30 Wallas.
Speaker Change: is really what we care about. That's triggering an optometrist. I'm just wondering more broadly what your overall non-performers are on your $700 million dollar. The total op-escent, not just the part that's maturing in two years.
Speaker Change: I'm just looking for what is... The total amount of Paul Perrault is 10.8.
Speaker Change: and that's that's all we've got to do.
Speaker Change: Perrault, Perrault, okay. I know I got the show two years to focus on the two years, but overall it's still the same.
Speaker Change: I love this quarterly breakdown. This is super helpful. I wish more people put this in. So that's great. The office reserved how much is that on your 700 million bucks?
Speaker Change: It's 2% excluding any specific reserves.
Speaker Change: Okay, and then...
Speaker Change: So we have an additional $2 million in specific reserves.
Speaker Change: oh
Speaker Change: and the other side of the screen.
Speaker Change: and then one last question Paul Marf for you. Can you talk a little bit about
Speaker Change: by back to the little book value, even just to offset your option delusion.
Speaker Change: and I'm just trying to tell you what you're thinking about that. Thanks.
Speaker Change: We get this question frequently, which you would expect when you're trading out of a low-cangeable book value.
Speaker Change: I think we've been very careful to say you know, signal that we would be doing anything in the near term considering the inverted yield curve, the margin.
Speaker Change: and the questionable credit in the office environment. I think things have materially changed. In that regard, I think we're starting to see the turn. We've seen the curve start to steepen, or at least flattened to steepen.
Speaker Change: Creditism proving we're seeing the nidin turn around so I think that's going to be more of a
Speaker Change: and more of a conversation going forward with the board.
Speaker Change: from Paul Perrault.
Speaker Change: The opportunity to start by, we, we, we.
Speaker Change: Historically, put something in place early in the year, but that's something we'll continue to talk about at the board level.
Speaker Change: Okay, okay great and I'll start just one more question actually. Paul can you talk a little bit about M&A you guys have been um
Speaker Change: Activin M&A, and obviously the interest rate environment has not been very favorable, but that's coming back to just how you're thinking about M&A more broadly and I don't know any tips that are really you can share on it better.
Paul Gold: Well, it's been fairly quiet for exactly the reasons that you cited and I do think
Paul Gold: and much the same way that Carl just described the environment through the income statement and balance sheet. I think the same thing is beginning to come around in M&A.
Paul Gold: and as these rates come down if they come down.
Paul Gold: is easier to deal with the marks, but you know, on the meantime it's very difficult.
Paul Gold: It's very difficult and it's a relatively thin market. There's a deal here and there, but I think it will.
Paul Gold: Improved, but it's going to take a little time.
Speaker Change: Okay, great, thanks for taking my questions.
Speaker Change: Ok, Laura.
Speaker Change: Hey, good afternoon.
Speaker Change: Thank you said, you know, 2 million in change of the net charge officer's quarter were related to that. You know, as this portfolio runs off over the next few quarters.
Speaker Change: Possibly, possibly, I think there was some catch-up.
Speaker Change: in the past couple of quarters that you've seen in those charges of, so I'm hopeful that it'll get better, but it is a portfolio that's still experiencing some level of trouble. You might work call these are...
Speaker Change: World Tote Truck Operators in a lot of cases in delivery vehicle. Root owners, if you will, who have been disenfranchised when stuff moved to Amazon when the Amazon started doing their own deliveries a lot of these guys.
Speaker Change: The
Speaker Change: We're out of business. So that's kind of behind us and now it's in a more normal, slightly riskier portfolio level mode. So I think I'm hopeful that it will improve.
Speaker Change: and the balance is a coming down fast and hard.
Speaker Change: Okay, great, it's helpful. And then I'm the...
Speaker Change: On the provision, the credit for unfunner commitments.
Speaker Change: was pretty substantial. The past couple quarters, like around 4.5 million, she was kind of above average relative to the past. Is there anything specific that's driving that?
Speaker Change: Well, it did come down materially this quarter and I think that's due to the revisiting some of the assumptions that went into.
Speaker Change: and the Precipable Home Equity lines have credit.
Speaker Change: and the losses that you might experience on those unused blinds.
Speaker Change: So they updated the yel.
Speaker Change: the models with some actual data, more current data, which brought that down, as well as the slight change that we've done in the waitings of the economics scenarios. So we did move a little bit away from the recession scenario with the Fed cutting rates and the economic plan, proving things of that nature.
Speaker Change: It really made sense to move away from the 60% waiting that we had for recession. The recession scenario towards a more 50.
Speaker Change: 50, 45 and 5, I believe. You are long-term, you know, what we consider a neutral environment would be a 30, 40, 30 mix. And so I think over time we'll continue to see that if it works.
Speaker Change: So long-term, you know, the overall kind of reserve ratio and a combination of, you know, the specialty vehicle coming off and returning to a normal environment, you know, probably settles out a bit lower.
Speaker Change: Yeah, so we're pretty, I don't want to say aggressive, but we're very responsive to loans that go on to watch or anything that we're looking at that we see, there might be some weakness and setting up specific reserves around that. We have over about $25 million of specific reserves.
Speaker Change: in that allows for loan losses today. And so when you take that out, you know, that's a hundred thirty one basis points on total loans, but you take that out, you see, okay, the general reserves around a hundred and ten basis pays.
Speaker Change: I would not be surprised if that goes down over time just as the market continues to improve.
Speaker Change: Okay great.
Speaker Change: And then I noticed that just on the...
Speaker Change: I'm flying 15.
Speaker Change: with the CRDLTVs. One is just the medical category there is that office.
Speaker Change: and then...
Speaker Change: I don't have any color on that.
Speaker Change: Okay great, see you in the next one.
Speaker Change: and then appreciate all the maturity schedules that you guys get on the CR-E for the next couple of years. For the CR-E that is set to maturity price,
Speaker Change: The
Speaker Change: i
Speaker Change: i
Speaker Change: Okay great.
Speaker Change: And I know you guys give the blood into the regulations, you know, this quarter.
Speaker Change: I guess just breaking it down a little further and seeing some of the origination you'll just see in the universe as the equipment fight and the CREDI.
Speaker Change: So I mentioned earlier we were going to say about $459 million a loan coupon on that was about 735.
Speaker Change: of.
Speaker Change: Just trying to break that out. Total commercial real estate loans, not 170 million of that, at 722.
Speaker Change: Total commercial loans, which includes equipment financing, about $195 million at about 7771.
Speaker Change: and then we've got some residential mortgages from that where these are things of that nature. It's assumed the loans that are up 684.
Speaker Change: Awesome Perrault. I appreciate it. Thanks for taking my questions.
Speaker Change: Don't be a Chris
Speaker Change: Steve Moss, with Frame and Jings. Your line is not open.
Speaker Change: I'm a graphic man, guys. I say wanted this.
Steve Moss: I'm just going to go on the NII and the margin here thought process. Just going to hear us maybe starting with, you know, what have you seen in terms of the positive rates coming in here? You know, here you guys in terms of margin expansion just kind of curious for funding and cause a shaking out. So I see like.
Steve Moss: and your Alco to Scloser, Laura Wright's hurt and I, but obviously, you know, you guys are a big, really margin of space here.
Speaker Change: Yeah, that's a great question and we debate what we should put in this presentation quite frankly, but our RSI liability models, we've been holding true to that 40% deposit date is over all.
Speaker Change: for the pricing in the model. We also provide the bait as throughout the cycle that we've actually experienced. And so you kind of look at this thing.
Speaker Change: When bridge change, how do the bridge change on our individual products and those kind of drive the beta discussions, but then you have that actual activity of
Speaker Change: Folks moving balances between the positive products which actually increases your beta on a total funding basis and driving that.
Speaker Change: So what do we seeing going forward? So when you look at this model it's more of a flat balance sheet type of an environment single. If the pricing on overall is 40 basis pay.
Speaker Change: The bait is over much much higher so we did see the Fed cut rates 50 basis points
Speaker Change: in September 18th and we basically immediately cut our rates on our CD products and the highest tiers of our savings and money market accounts.
Speaker Change: by 50 basis points. So you say, okay, that's 100% data that you experience on those particular products.
Speaker Change: Now some of the lower tiers we didn't move the rates because they were already fairly attractive rates and it's good money at those rates and you don't really want to move that. So we're being very proactive in moving those rates.
Speaker Change: We also have a lot of CDs that mature, so we've got CDs, you know, I've $413 or so million dollars of CDs, maturing a Q4 coming off at a 48, 448.
Speaker Change: and the Coupon, and so that's repricing into the force, the low force, broken CDs, 140 million of broken CDs, these are 540, those are coming down into the low force or mid force.
Speaker Change: Uh...
Speaker Change: So, and when we got borrow we got 470 million dollars of borrowing 7 million dollars in total over 5
Speaker Change: that's coming down into the mid-force. So we're seeing a lot of the movement on the liability side and then the ability to reprise the savings now in money market accounts and continue to be active in that space. I don't think we're seeing any pushback in the market. I think a lot of
Speaker Change: and the competition is doing the same so it doesn't feel like we're losing out in that regard. And so we feel pretty optimistic that we're able to meet the meet the meet the meet the
Speaker Change: The client and market interest rates that we're seeing on our loan portfolio because we have 2.2 billion dollars of loans that reprises within three months. Be able to reprise the liability side.
Speaker Change: To meet that or see that.
Speaker Change: Okay, great, and then just kind of...
Speaker Change: So I hear you on the higher deposit data and obviously the deposit step on the margin with stands for the upcoming quarter.
Speaker Change: As you think about 2025 and you know we get a hundred-based points or a little bit more than that just kind of curious where do you think that margin kind of shakes out by the fourth quarter of 25.
Speaker Change: Right now our models suggest it will be in the 340s.
Speaker Change: Good night.
Speaker Change: Great. That's all my questions. I appreciate all the color here.
Speaker Change: Thank you all for your question.
Speaker Change: This concludes our Q&A session. I'd like to turn the conference back over to Mr. Perrault for any closing remarks.
Mr. Perrault: Thank you, Sierra and thank you all for joining us today and we look forward to talking to you again next quarter.
Speaker Change: The conference has included. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The