Q4 2024 Brookline Bancorp Inc Earnings Call
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Operator: Good afternoon and welcome to Brookline Bancorp Inc's 4th 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. Please note this event is being recorded.
Speaker Change: Good afternoon, and welcome to Brookline Bancorp, Inc. Fourth quarter 2024 earnings Conference call.
All participants will be in listen only mode.
Speaker Change: After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded.
Laura Vaughn: I would now like to turn the conference over to Brookline Bancorp's attorney, Laura Vaughn.
Speaker Change: I'd now like to turn the conference that's at Brookline Bancorp's Attorney Laura Vaughn. Please go ahead.
Laura Vaughn: Please go ahead. Thank you, Emily.
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.
Laura Vaughn: And good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the investor relations page of our website, brooklynbankcorp.com, and has been filed with the SEC.
Laura Vaughn: This afternoon's call will be hosted by Paul A. Perrault and Carl M. Carlson. This call may contain forward-looking statements with respect to the financial conditions, results of operations, and business of Brookline Bancorp. Please refer to page two of our earnings presentation for our forward-looking statement disclaimer. Also, please refer to our other filings with the Securities and Exchange Commission, which contain risk factors that could cause 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.
Speaker Change: This afternoon's call will be hosted by Paul a perrault and Carl M. Carlson. This call may contain forward looking statements with respect to the financial condition results of operations and business of Brookline Bancorp.
Speaker Change: Please refer to page two of our earnings presentation are forward looking statement disclaimer.
Speaker Change: 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.
Speaker Change: 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 am pleased to.
Laura Vaughn: For a comparison and reconciliation to GAAP earnings, please see our earnings release.
Paul Perrault: I'm pleased to introduce Brookline Bancorp's Chairman and CEO, Paul Perrault.
Speaker Change: Introduce Brookline Bancorp's, Chairman and CEO Paul Perrault.
Paul Perrault: Thanks, Laura, and good afternoon, everyone. Thank you for joining us for today's earnings call. Our core operating performance improved slightly over the third quarter with net income of $20.7 million and operating earnings per share of $0.23. On a gap basis, which would include merger charges of $3.4 million, net income was $17.5 million with earnings per share of 20 cents. Loans grew a modest $24 million, and customer deposits increased by $116 million, and our margin increased by five bases. As market rates gradually return to normal, we would expect to see our net interest margin continue to improve through this year.
Speaker Change: Thanks, Laura and good afternoon, everyone. Thank you for joining us for todays earnings call.
Speaker Change: Our core operating performance improved slightly over the third quarter with net income of $20 7 billion and operating earnings per share of 23.
Speaker Change: On a GAAP basis, which would include merger charges of $3 $4 million net income was $17 $5 million with earnings per share of <unk> 20 cents.
Speaker Change: Loans grew a modest $24 million and customer deposits increased by $116 million and our margin increased by five basis points.
Speaker Change: As market rates gradually returned to normal we would expect to see our net interest margin continued to improve through this year.
Paul Perrault: In December, we announced the planned merger with Berkshire Hills Bancorp to create a $24 billion financial institution with highly complementary market footprints, covering most of the key markets in New England with very little branch overlap. This partnership generates significant economies of scale resulting in cost savings and the ability to leverage future investments driving the profitability metrics of a combined company. Additionally, we have a very experienced management team who continue to collaborate on the planning and preparation to execute and drive performance in this deal.
Speaker Change: In December we announced the planned merger with Berkshire Hills Bancorp to create a $24 billion financial institution with highly complementary market footprint covering most of the key markets in new England with very little branch overlap.
Speaker Change: This partnership generates significant economies of scale, resulting in cost savings and the ability to leverage future investments driving the profitability metrics are a combined company.
Speaker Change: Additionally, we have a very experienced management team, who continue to collaborate on the planning and preparation to execute and drive performance in this deal.
Carl Carlson: I will now turn you over to Carl, who will review the company's fourth quarter results.
Speaker Change: I will now turn you over to Carl who will review the company's fourth quarter results call.
Carl Carlson: Carl. Thank you, Paul. Total assets grew $228 million from September, driven by growth in securities and cash equivalents of $176 million, and loan growth of $24 million. Strong C&I growth of $84 million and $33 million in consumer loans were offset by reductions of $63 million in commercial real estate and $30 million in equipment finance. In the fourth quarter, we originated $492 million in loans at a weighted average coupon of $734,000. However, the weighted average coupon on the core loan portfolio declined 11 basis points during the quarter to 592 basis points, as approximately 23% of our loan portfolio repriced to lower rates as the Federal Reserve Bank continued to lower short-term rates.
Carl: Thank you Paul.
Carl: Total assets grew $228 million from September driven by growth in securities and cash equivalents of $176 million and loan growth of $24 million.
Strong C&I growth of $84 million and $33 million and consumer loans were offset by reductions of $63 million in commercial real estate and $30 million in equipment finance.
Carl: In the fourth quarter, we originated $492 million in loans at a weighted average coupon of four 734 basis points.
Carl: The weighted average coupon on the core loan portfolio declined 11 basis points during the quarter.
Carl: 592 basis points as approximately 23% of our loan portfolio re priced to lower rates as the Federal Reserve Bank continued to lower short term rates.
Carl Carlson: On a linked quarter basis, the yield on the loan portfolio decreased 10 basis points to 607 basis points. On the deposit side, customer deposits grew $117 million and broker deposits increased $53 million. Deposit growth continued to be focused in time deposits and money market, however, we also saw demand deposits grow 11%. Total funding costs were 346 basis points, a decline of 21 basis points from Q3, as the overall net interest margin improved five basis points to 312 basis points for the quarter. Total average interest earning assets grew $146 million on a linked quarter basis, resulting in net interest income of $85 million, an increase of $2 million from Q3.
Carl: On a linked quarter basis, the yield on our loan portfolio decreased 10 basis points to 607 basis points.
Carl: On the deposit side customer deposits grew $117 million in broker deposits increased $53 million.
Carl: Deposit growth continued to be focused in time deposits and money market.
Carl: We also saw demand deposits grow $11 million.
Carl: Total funding costs were 346 basis points, a decline of 21 basis points from Q3 as the overall net interest margin improved five basis points to 312 basis points for the quarter.
Carl: Total average interest, earning assets grew 146 million on a linked quarter basis, resulting in net interest income of $85 million, an increase of $2 million from Q3.
Carl Carlson: Non-interest income was $6.5 million, which was up slightly from the prior quarter of $6.3 million due to stronger loan level derivative income offset by the mark-to-market on swap. Operating expenses were $60.3 million for the quarter versus $57.9 million in Q3. Increase is largely driven by additional incentive and commission-related expenses in the quarter. Provision for credit losses was $4 million for the quarter, a decrease of $700,000 from the third quarter.
Carl: Noninterest income was $6 5 million, which was up slightly from the prior quarter of $6 3 million due to stronger loan level derivative income offset by the mark to market on swaps.
Carl: Operating expenses were $60 3 million for the quarter versus $57 9 million in Q3. The increase is largely driven by additional incentive and commission related expenses in the quarter.
Carl: The provision for credit losses was $4 million for the quarter, a decrease of 700000 from the third quarter.
Carl Carlson: Looking forward. The interest rate environment remains volatile and client behavior and industry responses will continually adapt. As the yield curve continues to normalize, we will see net interest margin improvement. The modest improvements in the environment so far suggest our net interest margin will increase four to eight basis points in Q1 and continue to improve throughout 2005. We anticipate growth in the loan portfolio to be in the low single digits for 2025 as growth in commercial and consumer loans will be tempered by the runoff of specialty vehicle and continued lower commercial real estate activity. Cash and securities combined are expected to represent 9 to 12% of total assets.
Carl: Looking forward.
Carl: The interest rate environment remains volatile and client behavior and industry shifts responses will continually adapt as the yield curve continues to normalize we will see net interest margin improvements.
Carl: The modest improvements in the environment. So far suggest our net interest margin will increase four to eight basis points in Q1 and continue to improve throughout 2005.
Carl: We anticipate growth in the loan portfolio to be in the low single digits for 2025% as growth in commercial and consumer loans will be tempered by the run off of specialty vehicle and continued lower commercial real estate activity.
Carl: Cash and securities combined are expected to represent 9% to 12% of total assets.
Carl Carlson: On the deposit side, we anticipate growth of four to five percent. Given prevailing interest rates, the migration of lower cost deposits may continue, but are anticipated to slow. Our first quarter margin is projected to fall within a range of 316 to 320 basis points. and will continue to improve throughout the year. However, this is dependent upon deposit flows and the timing and magnitude of future actions by the Federal Reserve. Non-interest income is projected to be in the range of $6 to $7 million per quarter, although components may vary significantly. We are managing expenses to $247 million or less for the full year, excluding merger-related costs, and our effective tax rate is expected to be in the range of 24.25%.
Carl: On the deposit side, we anticipate growth of 4% to 5%.
Carl: Given prevailing interest rates the migration of lower cost deposits may continue but are anticipated to slow.
Carl: Our first quarter margin is projected to fall within a range of 316 to 320 basis points and will continue to improve throughout the year. However, this is dependent upon deposit flows and the timing and magnitude of future actions by the federal reserve.
Carl: Noninterest income is projected to be in the range of $6 million to $7 million per quarter, although components made very significantly.
Carl: We are managing expenses to $247 million or less for the full year, excluding merger related costs and our effective tax rate is expected to be in the range of $24 two 5%.
Carl Carlson: Yesterday, the board approved maintaining our quarterly dividend at $0.135 per share to be paid on February 28th to stockholders of record on February 14th. On an annualized basis, our dividend payout approximates a yield of 4.5%.
Carl: Yesterday, the board approved maintaining our quarterly dividend of <unk> <unk> per share to be paid on February 28 to stockholders of record on February 14th.
Carl: On an annualized basis, our dividend payout approximates a yield of four 5%.
Carl Carlson: This concludes my formal comments and I'll turn it back to Paul.
Carl: This concludes my formal comments and I'll turn it back to Paul.
Paul Perrault: Thanks, Carl.
Paul Perrault: Thanks, Scott now we will open it up for questions.
Paul Perrault: Now we will open it up for questions. Thank you.
Paul Perrault: Thank you if 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.
Operator: If 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 or you feel like your question has already been answered, you can press star followed by two to withdraw yourself from the queue.
Paul Perrault: Have you changed your mind or you feel like your question has already been answered you can press star followed by two to withdraw yourself in the queue.
Mark Fitzgibbon: The first question today comes from Mark Fitzgibbon with Piper Sandler.
Speaker Change: The first question today comes from Mark Fitzgibbon with Piper Sandler.
Mark Fitzgibbon: Please go ahead Mark, your line is now open. Hey, guys. Good afternoon.
Speaker Change: Please go ahead Mark your line is now open.
Mark Fitzgibbon: Hey, guys good afternoon.
Paul Perrault: Hi, Mark. It's been a couple months, Paul, since you announced the acquisition of Berkshire Hills, or merger with Berkshire Hills. I guess I was curious, have you been able to yet triangulate in with the regulators on what the timeline for getting approvals on that deal might look like? We've certainly had contact with them, but I can't tell you that we have a read yet on on how that is going to happen.
Speaker Change: Hi, Mark.
It's been a couple of months.
Speaker Change: Paul Since you announced the acquisition of Berkshire Hills or merger with Berkshire Hills, I guess I was curious have you been able to yet triangulate in with the regulators on what the timeline for getting approvals on that deal might look like.
Speaker Change: Yeah.
Speaker Change: We certainly had contact with them, but I can't tell you that we have a read yet on.
Speaker Change: On how that is going to happen part of the sort of front end delay here I think has to do with the fact that.
Paul Perrault: Part of the sort of front end delay here, I think, has to do with the fact that we are advised, and I think Carl would have said this anyway, that they, the regulators are going to expect we use year end numbers. for the filings. So it sort of became a little bit awkward time. And if we had tried to bend as fast as possible, we would have been forced to use third quarter numbers with the expectation that when we got there, they would have told us, well, file again with the fourth quarter numbers. So I don't have a read yet, but I am reading about some favorable speeding up of approvals in the past few weeks.
Speaker Change: We are advised and I think Carl would've said this anyway that the regulators are going to we expect we use year round numbers.
Speaker Change: For the filings.
Speaker Change: So it sort of became a little bit awkward time, if we had tried to been as fast as possible. We would have been forced to use third quarter numbers.
Speaker Change: The expectation that when we got there they would've told us well file again with the fourth quarter.
So I don't I don't have a read yet, but I am reading about some stuff.
Speaker Change: Favorable speeding up of approvals in the past few weeks.
Paul Perrault: So I'm a bit hopeful that this could be a little bit faster than our anticipated Q3 approval.
Speaker Change: So I'm a bit hopeful that this could be a little bit faster than our anticipated Q3.
Speaker Change: Approval.
Mark Fitzgibbon: Okay, great.
Speaker Change: Okay, Great and then secondly, I wonder if you could share any color on the equipment finance loan that resulted in a $5 $1 million charge off in the quarter. I guess I was curious was that in the specialty vehicle sector or was that something else.
Paul Perrault: And then secondly, I wonder if you could share any color on the equipment finance loan that resulted in the $5.1 million charge off in the quarter. I guess I was curious, was that in the specialty vehicle sector? Or was that something? No, that's that's it wasn't a laundry. So we have a customer with some large industrial industrial laundry mats. We've been talking about this for a little while now. It was specifically reserved for so that was the charge off in the corner. It's not a type of loan that we have many of, so, you know, we'll put that in.
Speaker Change: No that's it wasn't a laundry.
Speaker Change: So we had a customer with some large.
Speaker Change: Industrial industrial laundry mats.
Speaker Change: We've been talking about this for a little while now it was specifically reserved for so that was the charge off in the quarter.
Speaker Change: Okay, not a type of loan.
Speaker Change: Oh, that's good.
Speaker Change: Okay, and then on page 26 of your slide deck, where you break out the deposit betas I was a little surprised that.
Paul Perrault: Okay, and then on page 26 of your slide deck where you break out the deposit betas, I was a little surprised that, you know, you haven't taken deposit rates down faster, given that, you know, many of your peers have. Is that simply a function of the fact that you're trying to hold that loan to deposit ratio kind of at or below the current level or something else at work? Now I can't think of anything at work. I mean, it's hard for me to evaluate just, you know, based on your review of that. But I think our deposit price setters have been reasonably aggressive.
Speaker Change: You haven't taken deposit rates down faster.
Speaker Change: Given that.
Speaker Change: Many of your peers have is that simply a function of the fact that you're trying to hold that loan to deposit ratio kind of at or below the current level or.
Speaker Change: Else at work there.
Speaker Change: No I can't think of anything at work I mean I.
Speaker Change: It's hard for me to evaluate.
Speaker Change: Just on your review of that but I think our deposit.
Speaker Change: Price setters have been reasonably aggressive, but we are careful that we want to hold the hold with funding.
Paul Perrault: But we are careful that we want to hold the funding.
Mark Fitzgibbon: Thank you. Thanks, Mark.
Speaker Change: Thank you.
Mark Fitzgibbon: Thanks Mark.
Speaker Change: Yeah.
Steve Moss: Our next question comes from Steve Moss with Raymond James. Steve, please go ahead. Good afternoon.
Speaker Change: Our next question comes from Steve Moss with Raymond James.
Speaker Change: Steve. Please go ahead.
Steve Moss: Hi, good afternoon.
Carl Carlson: Following up on Mark's question here with regard to the margin, just kind of curious, Paul, you know, or Carl, how, you know, you have 40 base points of margin expansion in the upcoming quarter, just kind of, as you think about it, how much should you have over the course of the year? Yeah, I'm not giving guidance on the course of the year at this time. I know we talked a little bit about it last time. It's been just too volatile out there, depending on what the what the Fed's going to do, and the timing of changes.
Speaker Change: Following up on Mark's question here with there with regard to the margin just kind of curious Paul.
Speaker Change: Our Karl how.
Speaker Change: You have 40 basis points of margin expansion in the upcoming quarter.
Speaker Change: Just kind of.
Speaker Change: As you think about it how much should you have over the course of the year.
Speaker Change: Mhm.
Speaker Change: Yeah, I'm not giving guidance on the course of the year at this time I know, we talked a little bit about it last time, it's been just too volatile out there depending on what the fed's going to do.
Speaker Change: And the timing of changes so whenever the fed does move it takes a little time for our liabilities to re price.
Carl Carlson: So whenever the Fed does move, it takes a little time for our liabilities to reprice. So we saw moves in November and December, and we're still seeing that play out, for the most part, in our, in our liability side of things. So I continue to see margin improvement going forward. We have a lot of, and the 22% of our loan book gets impacted immediately with those, those moves in prices. So we feel a slower, we may be doing better on the margin side, if the Fed is at a slower pace of reductions. But I don't know if there's gonna be one reduction next year, I don't know if it's gonna be three reductions next year, or no reductions next year.
Speaker Change: So you saw moves in November and December and we're still seeing that play out.
Speaker Change: For the most part.
Speaker Change: Our liability side of things.
Speaker Change: So I continue to see margin improvement going forward, we have a lot of.
Speaker Change: And the 22% of our loan book gets impacted immediately with those those moves in prices. So we feel a slower we may be even doing better on the margin side.
Speaker Change: If the fed is at a slower pace of reductions but.
Speaker Change: I don't know if theres going be one reduction next year, and obviously three reductions next year or no reductions next year, So right now I'm not giving guidance on that.
Carl Carlson: So right now, I'm not giving guidance on that.
Speaker Change: Yeah.
Steve Moss: I thought I'd try again, but I guess given that, maybe just as you think about deposit data here, you know, how are you guys thinking about the pace of downward cuts going forward here? I think it's a 33-ish type deposit data for the quarterly call correct? I think we'll continue to be on that pace. I think we're seeing that in the industry, everybody's pretty responsive to changes in any rates in the market as they move down. I think we're all looking for a normal yield curve. I know we always talk about the inversion of the yield curve is over from the 2 to the 10.
Speaker Change: I thought I'd try again, but.
I guess, Matt maybe just as you think about deposit betas here.
Speaker Change: How are you guys thinking about the pace of downward cuts.
Speaker Change: Going forward here I think is a 33 ish type deposit beta for the quarter, if I recall correctly.
Speaker Change: Yes, I think I think.
Speaker Change: We will continue to be on that pace I think we're seeing that in the industry everybody is pretty responsive to changes in the.
Speaker Change: Any rates in the market as they move down I think we're all looking for a normal yield curve I know, we always talk about the.
The inversion of the yield curve is over from the two to the tenant but when you look at the fed effective rate of five 433 and the.
Carl Carlson: But when you look at the Fed effective rate of 4.33 and the 5-year at 4.30 and the 2-year at 4.20, where banks make money, where we make money, it's still flat at best. So I think we'd love to see that come down a bit more and we'll be pretty responsive to their rates on our deposit price. Okay, at least for a little while.
Speaker Change: The five year at four 430 in the two year it for 'twenty, we're still where banks make money, where we make money it still.
Speaker Change: Flat.
Speaker Change: Best.
Speaker Change: So I think we're we'd love to see that come down a bit more and we'll be pretty pretty responsive to their rates on our deposit pricing.
Speaker Change: Okay.
Speaker Change: Well on the wind modeling at least for a little while.
Steve Moss: Got ya. Okay, fair enough.
Speaker Change: Got you, Okay fair enough and then in terms of on the loan growth front here I'm, assuming kind of a CRE runoff was maybe a bit planned given the merger just kind of curious how youre thinking about overall loan growth for.
Carl Carlson: And then in terms of on the loan growth front here, I'm assuming kind of the CRE runoff was maybe a bit planned given the merger. Just kind of curious how you're thinking about overall loan growth for for 25. Yeah, again, I think it's going to be in the low single digits. You know, we're going to continue to bring down commercial real estate loans in a in a thoughtful manner. We're certainly in the business taking care of our customers. But we're being more selective on what we're doing. And I think we'll and on a combined basis, we'll be we'll be searching to get that down to 300%.
Speaker Change: 25.
Speaker Change: Yes, again, I think it's going to be in the low single digits.
Speaker Change: We're going to continue to bring down commercial real estate loans in a in a store.
Speaker Change: Thoughtful manner.
Speaker Change: We're certainly in the business, taking care of our customers, but we're being more selective on what we're doing.
Speaker Change: <unk>.
Speaker Change: I think we will.
Speaker Change: On a combined basis will be will be searching to get that down to 300% I think the market appreciates that and so I think that's.
Carl Carlson: I think the market appreciates that.
Carl Carlson: And so I think that's, that's, that's, that's the goal of the organization.
Speaker Change: That's the goal of the organization.
Speaker Change: Okay.
Steve Moss: And one last one for me. In the deck, I noticed you guys made disclosure about the $10.8 million classified loan in the Central Business District. Just curious, you say it's in negotiations, do you expect it to close this quarter? And maybe could you give us a sense how much of a haircut, if any, the seller is taking?
And one last one for me in the deck I noticed you guys made disclosure back.
Speaker Change: The $10 $8 million classified loan.
Speaker Change: The central business District.
Speaker Change: Just curious you said the negotiations do you expect it to close this quarter and maybe could you give us a sense how much of a haircut if any of the sellers taking.
Speaker Change: Okay.
Carl Carlson: So, the first question, it may be late this quarter or early next quarter. I don't want to try to guess what that's going to be. Coming up. It's coming up. And the second part of the question. I have no idea. Well, we'll, we'll get out of what's left, basically with the with with the existing reserves against it, right. But what the outcome is for the for the owner, I don't I have no idea. It probably wasn't a great adventure for him either. Got ya. Okay, so you guys do expect to take a, realize a charge off.
Speaker Change: So the first question it may be late this quarter early next quarter.
Speaker Change: Want to try to guess.
Speaker Change: Guess, what that's coming up is coming up.
Speaker Change: The second part of the question that I have no idea okay.
Speaker Change: We'll we'll get out of what's left.
Speaker Change: Likely with the with the existing reserves against it right, but what the outcome is for the for the owner I don't I have no idea.
Speaker Change: It probably wasn't a greater need for.
Speaker Change: Yeah.
Speaker Change: Got you. Okay. So you guys do you expect to take a realized charge offs.
Carl Carlson: Sounds like, yes, yeah, we've we've we've we've got, but it's reserved. It's reserved for right?
Speaker Change: It sounds like yes, yes.
Speaker Change: We've got but its reserve is reserved for.
Speaker Change: Right.
Carl Carlson: Okay, and could you just remind us how much that is?
Speaker Change: Okay and could you just remind us how much that is.
Carl Carlson: What, the loan? What I can tell you is that I don't have the specifics. I don't have it here.
Speaker Change: What the alone.
Speaker Change: What I can tell you is there I'm sorry.
Speaker Change: I don't have the specific I don't have it here.
Steve Moss: All right, well, I appreciate all the color, and I'll step back. Thanks, guys.
Speaker Change: Alright, well I appreciate all the color and I'll step back thanks, guys.
Operator: All right, thank you.
Speaker Change: Alright, thank you.
Laurie Hunsicker: Our next question comes from Laurie Hunsicker with Seaport. Please go ahead, your line is now open. Great.
Speaker Change: Our next question comes from Laurie Hunsicker with Seaport. Please.
Speaker Change: Please go ahead. Your line is now open.
Great Hi, Thank Paul Paul and Carl.
Laurie Hunsicker: Hi, thanks.
Laurie Hunsicker: Hi, Paul and Carl. This may be where Steve was. And so I understand how you don't want to tell us the specific reserve with that office hasn't closed yet, but can you help us think what is what is the total reserve on your office book? your overall office reserve, what is that? So the general reserve is $2.23 billion. Okay, great. And then, how much did you have in office, non-performer? this quarter. I didn't see that number in your deck. It's not very much. the loan we're talking about and one more. Yeah, there's only two loans, I believe, that are...
Speaker Change: Alright.
Speaker Change: That's where Steve was.
Speaker Change: And so I understand you don't want to tell us the specific reserve with that office.
Speaker Change: Closed yet, but can you help us think what is what is the total reserve on your office back.
Speaker Change: I can't ever all officers there what is that.
But.
Speaker Change: So the general reserve is two 3%.
Speaker Change: Okay.
Speaker Change: Great and then how much how much did you have an office non performers.
Speaker Change: This quarter I didn't see that number in your deck.
It's not very much so.
Speaker Change: The loan was talking about in one more I think.
Speaker Change: Yeah, there's only there's only two loans I believe that our.
Carl Carlson: non-performers at this time. The other one's fairly small. Okay, good. And I appreciate the color that you put on your pass rate. It's a very strong number.
Speaker Change: Non performers at this time the government is fairly small.
Speaker Change: Okay.
Speaker Change: And I appreciate that color that you put on your pass rate and very strong number.
Carl Carlson: Just switching over to your specialty vehicle. I know that the 5.1 million was laundry, but the 1.6 million that's equipment finance, is that a specialty vehicle charge-off? Sorry, of your 7.3 million in charge-offs, it flagged the 5.1 and the 1.6. 5.1, you already talked about. The 1.6, is that specialty vehicle? It's a bit of a mix. It's 1.1 is really specialty vehicle in that charge us and you brought up the laundry. I misspoke earlier. It wasn't a laundry. It wasn't the laundromat. It was a grocery low at a significant grocery loan at Eastern Funding that we took the charge off.
Speaker Change: Just switching over to your your specialty vehicles. So.
Speaker Change: I know that the five 1 million with laundry, but the other the $1 6 million.
Speaker Change: <unk> finance is that.
Speaker Change: Is that a specialty vehicle charge offs, alright that I have your $7 3 million in charge offs flagged the $5. One in the one 5.1, you already talked about the one six is that specialty vehicle.
Speaker Change: It's a bit of a mix. Its 1.1 is really specialty vehicle and net charge offs and you brought up the laundry I misspoke earlier it wasn't a laundry wasn't the laundry, Matt It was a grocery low.
Speaker Change: A significant grocery loans at eastern funding that we took the charge off on.
Carl Carlson: Thank you. Okay, good. Yeah, thanks. Okay. And then, so $1.1 million is your charge up on your specialty vehicle. That book is sitting at $296 million now. Can you remind us, what is the runoff on that again? And is that tracking with what you think it's going to be tracking, or how are you looking at that? It is tracking exactly how we've been tracking. I think the CFO of that unit says I think it's $2.2 million a week that they're running off. And I think it's running off fairly, fairly consistent. They're doing great. Okay, and then can you just remind us what's the reserve that you have on that book?
Speaker Change: Okay great.
Speaker Change: Great.
Speaker Change: Can you remind hopefully mark you got that hopefully mark got that.
Speaker Change: Yes.
Speaker Change: [laughter] Okay. Okay. Yeah. Thanks, Okay, and then the third $1 1 million as your carriage out then you can actually be a call that that book is sitting at $296 million now can you remind us.
Speaker Change: But what is the runoff on that again.
Is that tracking with what you think it's going to be tracking or how are you looking at that.
Speaker Change: It is tracking exactly how we'd be tracking I think.
Speaker Change: The CFO of that unit says I think it's $2 2 million or <unk>.
Speaker Change: Week that that's running off.
And I think it's running off fairly fairly consistent.
Speaker Change: That's the right number.
Speaker Change: Okay.
Speaker Change: Okay, and then can you just remind us what that reserve that you have on that back.
Carl Carlson: on the Specialty Vehicles 2.6. Great. Okay.
Speaker Change: On the specialty vehicles two 6%.
Speaker Change: Okay next question.
Speaker Change: Right, Okay, and then tax rate.
Carl Carlson: And then tax rate... Do you have a number for what that's looking like for 25? Yeah, I think our run rates around 24.25%. But again, that's not going to include if there's any merger charges, because sometimes those things are not tax deductible. So in this quarter, about 2.5 million of the charges were not tax deductible, which can play play games with that. But on a regular run rate, we're in that 24.25%. Okay, great.
Speaker Change: Okay.
Speaker Change: Do you have a number for what that's looking like for 25.
Speaker Change: Yes, I think our run rates around $24, two 5%, but again, that's not going to include if there was any merger charges because sometimes those things are not tax deductible.
Speaker Change: In this quarter of about $2 5 million of the charges were not tax deductible, which can play play games with that but on a regular run rate we're in that $24 two 5%.
Speaker Change: Okay, Okay, great and then.
Laurie Hunsicker: And then margin, do you have a spot margin for December? December was a little lower than the run rate for the whole quarter, so it was 3.10%. Was there an interest reversal? Well, there's a lot of different things that go through that. So there might have been interest, you know, so that I don't know all the components of that, but there may have been some interest in reversals in timing of bringing deposit rates down, things like that. But. We'll see those folks. Okay, okay, great.
Speaker Change: Martin do you have a spot margin for December.
Speaker Change: If somebody was a little lower than the.
Speaker Change: The run rate for the whole quarter. So it was.
Speaker Change: It was three point, 10% three <unk>.
Speaker Change: Was there an interest reversal.
Speaker Change: There's a lot of different things that go through that so it might be.
Speaker Change: No.
Speaker Change: I don't know all the components of that but there may have been some interesting reversals timing of <unk>.
Speaker Change: Deposit rates down things like that but.
Speaker Change:
Speaker Change: Youll see those types of things.
Speaker Change: Okay. Okay, Great and then sorry, just one last question going back to that that $10 8 million dollar classified office.
Laurie Hunsicker: And then, sorry, just one last question. Going back to that, that $10.8 million classified office that you said would likely resolve in the first or second quarter, what is the vacancy rate on that property? 50%. Okay, okay, great.
Speaker Change: But you said, but likely resolve in the first or second quarter, what is the vacancy rate on that property.
Speaker Change: Bob.
Speaker Change: 50%.
Speaker Change: Okay, Okay, great. Thanks, I'll leave it there.
Laurie Hunsicker: Thanks. I'll leave it there.
Operator: Thanks, Laurie.
Speaker Change: Sure. Thanks Laurie.
Chris O'Connor: Our next question comes from Chris O'Connor with KBW. Chris, please go ahead.
Speaker Change: Our next question comes from Chris O'connell with <unk>, Chris. Please go ahead.
Chris O'Connor: Hey, good afternoon. I just want to circle back to the margin. the margin discussion. I think from, you know, the last quarter's call, you know, the spot margin in September, you know, was, you know, a 313, I think, and so I just was wondering, you know, you know, for this quarter, you know, maybe just What, you know, happened where, you know, you guys thought you'd get, you know, expansion, which you did off, you know, the full 3Q number, but, you know, why there wasn't more, you know, overall expansion over the course of the quarter? Was that deposit timing?
Chris O'connell: Hey, good afternoon.
Chris O'connell: I just wanted to circle back to the margin the.
Chris O'connell: Margin discussion.
Chris O'connell: I think from last quarter's call the spot margin in September.
Chris O'connell: It was.
Chris O'connell: Three.
Chris O'connell: Teen.
Speaker Change: I think and so I just was wondering you know.
Chris O'connell: Yeah.
Chris O'connell: This quarter you know maybe just.
Chris O'connell: What.
Chris O'connell: Happened, where you guys thought you would get.
Chris O'connell: Expansion.
Chris O'connell: You did.
Chris O'connell: Full <unk> number but.
Chris O'connell: Why there wasn't more you know overall expansion over the course of the quarter was that deposit timing.
Carl Carlson: You know, did you guys move rates a little later in the quarter than you had expected? But it's probably all of those things. You know, modeling isn't perfect. So I think it is probably a little bit on the deposit timing of when those things get get moved and and implemented.
Speaker Change: Did you guys move rates a little later in the quarter than you had expected or.
Speaker Change: But it's probably all of those things Youre modeling isn't perfect.
Speaker Change: I think it is probably a little bit on the deposit timing of when those things get get moved.
Speaker Change: And implemented.
Carl Carlson: Danielle. I don't think it's an interest reversal that caused it, but I think it's. And it might have been, you know, the timing of our sub debt and making sure that got recorded in our model, that was picked up by our model or not as well. Our sub-debt went from fixed to... so it might have been an impact as well.
Speaker Change: Daniela.
Speaker Change: No.
Speaker Change: I don't think it's an interest reversal it caused it but I think it's.
Speaker Change: Yeah.
Speaker Change: And it might have been the <unk>.
Speaker Change: <unk> of our sub debt.
Speaker Change: And making sure that got recorded in our model that trip that was picked up by our model or not as well.
Speaker Change: Our sub debt went from a fixed to floating so it might've been a pin impact as well.
Chris O'Connor: got it. And then for the quarter, I think you mentioned that, you know, the core loan yield was 592, which is, you know, about, you know, 15 basis points, you know, below, you know, the total loan yield, just wondering, you know, if that is, you know, I guess, what's in that? Is that prepay? Is that accretion? Is that, you know, not accrual or reversal? You know, what are the components there? And then, you know, is that been a typical, you know, differential from the core and the stated loan yield over the past couple quarters? Or is that, you know, either light or outside?
Speaker Change: Got it.
Speaker Change: And then for the quarter I think you mentioned that the core loan yield was $5 92.
Speaker Change:
Speaker Change: About 15 basis points.
Speaker Change: Below.
Speaker Change: The total loan yield just wondering.
Speaker Change: If that is I guess, what's in that is that prepay is that accretion is that non accrual reversal.
Speaker Change: What are the components there and then how has that been a typical.
Speaker Change: Differential from the core and the stated loan yield.
For the past couple of quarters or is that.
Speaker Change: Neither light or outsized.
Carl Carlson: It's such a moving piece. That's why I give you both. So the yield is for the quarter. And so rates are moving throughout the quarter, right, depending on when the Fed's doing the timing of originations, timing of payoffs, all of those things go into it, as well as any accretion income and things, you know, fees that are getting advertised over over the loan, the life of the loan. The accretions, you know, typically very, very stable. So that's not something that's moving it much. We haven't seen a lot of prepayments these days. So that's really not driving it as well.
Speaker Change: It's such a moving piece that's why I give you both so the yield is for the quarter and see rates are moving throughout the quarter right depending on what the fed's doing.
Speaker Change: Timing of originations timing of payoffs all of those things go into it as well as any accretion income and things fees that are getting amortized over over the loan.
Let alone the accretion typically very very stable, so thats not something thats moving it much.
Speaker Change: We haven't seen a lot of prepayments. These days, so that's really not driving it as well so I would say, it's just really the timing of when the fed has been moving rates.
Carl Carlson: So I would say it's just really the timing of when the Fed's been moving rates, how rates are and when those rates reprice in the system itself. Some loans reprice the next day, some reprice the first of the next month. And so all of those things go into it. So that's why I kind of give you, hey, what's the coupon on the book at the end of the quarter? because that kind of has everything in as of that moment. And then, and you can see what the loan yields are for the quarter as well. And I can see how you're trying to size those up.
Speaker Change: How rates are and windows rates repriced.
Speaker Change: In the system itself some luxury price.
Speaker Change: The next day some reprice the first of next month and so all of those things go into it.
Speaker Change: So that's why I tried to give you hey, whats the coupon on the book at the end of the quarter.
Speaker Change: Because that kind of has everything in as at that moment and then.
Speaker Change: And you can see what the loan yields are for the quarter as well.
Speaker Change: See how youre trying to try to size those up.
Chris O'Connor: Yeah, got it. And then I think, you know, the originations, you know, were about 491 million this quarter. Sorry if I missed it. But did you mention what the originate origination yields were there?
Speaker Change: Yeah got it.
Speaker Change: And then I think the originations.
We're about $491 million this quarter.
Speaker Change: Sorry, if I missed it but did you mentioned what the originates origination yields were there.
Carl Carlson: Yeah, it was 734 bases.
Speaker Change: Yes, it was 734 basis points.
Speaker Change: Okay.
Speaker Change: Got it.
Chris O'Connor: Um, and then with regards, you know, to the merger with Berkshire, um, you know, you guys had mentioned, uh, upon the announcement, you know, the contemplation of maybe, you know, outside actions, uh, with regards to managing the CRE concentration ratio pro forma. Um, any, you know, has, have you guys made any progress there? Is there, you know, anything being, you know, more specifically being discussed? But nothing in addition to what we've already discussed. I think when we talked about this, we had already had plans to reduce our CRE concentration over time. This accelerates that simply because the building capital is very, very helpful as well to the transaction.
Speaker Change: And then with regards.
Speaker Change: To the merger with Berkshire.
Speaker Change: You guys had mentioned.
Speaker Change: On the announcement.
Speaker Change: Completion of maybe.
Speaker Change: Outside actions with regards to managing the CRE concentration ratio pro forma.
Speaker Change: Any.
Speaker Change: Have you guys made any progress there or is there anything being more specific being discussed.
Speaker Change: But nothing nothing in addition to what we've already discussed I think when we talked about this we had already had plans to reduce our creek concentration over time.
Speaker Change: This accelerates that.
Speaker Change: Simply because the building capital is very very helpful as well to the transaction.
Carl Carlson: But it also gives us a lot of flexibility down the road if we want to do something more. But we're not providing any information around that.
Speaker Change: It also gives us a lot of flexibility down the road. If we wanted to do something more but we have not worked we're not we're not providing any information around that.
Chris O'Connor: Got it.
Speaker Change: Got it.
Chris O'Connor: And then last one for me, just, you know, on, you know, on the reserve from here, you know, you guys have, you know, made a couple of adjustments, you know, in the weightings the past couple of quarters. I was wondering if you had, you know, what the impact was, you know, on the, you know, overall reserve level. And, you know, I think you have, you know, a target kind of steady state, you know, targets for those weightings, you know, which indicate, you know, maybe a slight, you know, slight more shift in the coming quarters. Is that something that you think kind of occurs near term or happens over time?
Speaker Change: And then last one for me just on.
Speaker Change: On the on the reserve from here you guys have.
Speaker Change: Maybe a couple of adjustments in the readings of the past couple of quarters. I was wondering if you had what the impact was.
Speaker Change: On the overall reserve level.
Speaker Change: And I think you have some.
Speaker Change: A target kind of a steady state.
Speaker Change: The targets for those weightings.
Speaker Change: You indicate you know media.
Speaker Change: Right.
Speaker Change: Slight more shifts.
In the coming quarters is that something that you think kind of occurs near term or happens overtime.
Carl Carlson: I think that just happens over time. The Moody's scenarios have been changing. Our credit folks take a hard look at that and see what's going on with that and see what's appropriate. And so we adjust those weightings as we feel is appropriate. As you know, we've been moving more away, more from the recessionary environment and more towards a more balanced look at the market. I would expect that to continue. But I don't know if that's really going to happen or not. It's a quarter by quarter. That's a management decision at the end of the day.
Speaker Change: So I think that just happens over time.
Speaker Change: The Moody's scenarios have been changing.
Speaker Change: Our our credit folks take take a hard look at that and see what what's going on with that and see what's appropriate and so we.
Speaker Change: Adjust those weightings.
Speaker Change: Feel feels appropriate as you know we've been moving more away more from the recessionary environment and more towards a more balanced.
Speaker Change: Let's look at the market.
Speaker Change: Hi.
Speaker Change: We'd expect that to continue but I don't know, if that's really going to happen or not it's really quarter by quarter.
Speaker Change: Management decision.
Speaker Change: At the end of the day.
Chris O'Connor: And a lot of smart folks in the room that decide that. But I think as far as we saw the reserve or the reserve for long losses decline three basis points, I think, in the quarter to 128, still a very, very healthy reserve. tray. I feel the team's doing a great job. Got it. Just, I mean, it might be too specific, but I'm just like, you know, wondering how much like that last, you know, if you guys were to shift, you know, to the neutral targets, you know, next quarter, does, you know, do you know if that has like a one or two or three basis point kind of impact?
Speaker Change: A lot of smart folks in the room to decide that.
But I think as far as we saw the reserve or the reserve for loan losses declined.
Speaker Change: Three basis points I think in the quarter to 128 still a very very healthy reserve.
Speaker Change: And.
Speaker Change: Sorry.
Speaker Change: I feel I feel that the team is doing a great job.
Speaker Change: Got it.
Speaker Change: I mean, it might be too specific but just like.
Speaker Change: Wondering how much like that last if you guys were to shift.
Speaker Change: To the neutral targets next quarter does.
Speaker Change: That is like a one or two or three basis point kind of impact.
Carl Carlson: Yeah, I don't have I don't have insight into that, because a lot of it's based on what the underlying scenarios are. For instance, the scenario, the baseline scenario for the Moody's, you know, decreased the Cree price index quite a bit. And we actually, you know, so that's certainly more reasonable, that's a more reasonable outlook. And so we weighted that a little heavier, the baseline outlook on that. So those are the things that go into it. So if you just moved it, so if you would run this thing in Q4 using your. your baseline scenario are very should say baseline scenario, but a more weighted towards a normal weightings, I would say it's probably between $6 and $10 million on the reserve.
Speaker Change: Yes, I don't have I don't have insight into that because a lot of it's based on what the.
Speaker Change: Underlying.
Speaker Change: Scenarios are.
Speaker Change: For instance, the scenario is a baseline scenario for the Moody's.
Speaker Change: Decreased the Crete price index quite a bit.
Speaker Change: And we actually.
Speaker Change: That's certainly more reasonable that's a more reasonable outlook and so we waited that debt a little heavier.
Speaker Change: Baseline outlook on that so those are those are things that come with it so.
Speaker Change: If you just moved it.
Speaker Change: If you would run this thing in Q4.
Speaker Change: Using your your.
Speaker Change: Your baseline scenario are very but.
Speaker Change: Should say baseline scenario, but are more weighted towards towards a normal normal weightings.
Speaker Change: I would say, it's probably between six and $10 million on the reserve.
Chris O'Connor: If I had to guess, I'm guessing, though, to be honest with you. So. Hopefully that's helpful. Yeah, very. Thank you. Appreciate it.
Speaker Change: I guess I'm guessing, though to be honest with you.
Speaker Change: So.
Speaker Change: Hopefully that's helpful.
Speaker Change: Yes, Barry.
Speaker Change: Thank you I appreciate it.
Operator: Thank you.
Speaker Change: Sure Chris.
Speaker Change: Okay.
Operator: This concludes our question and answer session.
Speaker Change: This concludes our question and answer session I'd like to turn the conference back over to Mr. Perrault for any closing remarks.
Paul Perrault: I'd like to turn the conference back over to Mr Perrault for any closing remarks.
Paul Perrault: Thanks, Emily.
Speaker Change: Thanks, Emily and thank you all for joining US this afternoon, and we look forward to talking with you again next quarter.
Operator: And thank you all for joining us this afternoon. And we look forward to talking with you again next quarter.
Operator: Good day.
Paul Perrault: Good day.
Operator: The conference has concluded. Thank you for attending today's presentation. You may now disconnect.
Paul Perrault: The conference has concluded. Thank you for attending today's presentation you may now disconnect.
Paul Perrault: [music].