Q2 2025 Brookline Bancorp Inc Earnings Call
Good afternoon and welcome to Brookline Bank or Pink's second quarter, 2025 earnings conference call.
Speaker Change: All participants will be in listen-only mode.
Speaker Change: After today's presentation, there'll be an opportunity to ask questions.
Speaker Change: Please note this event is being recorded.
Speaker Change: I'd now like to turn the conference over to Brooklyn bankruptcy Dario Hernandez. Please go ahead.
Speaker Change: This afternoon's call will be hosted by Paul, perreault and Carl. Carlson this call may contain forward-looking statements with respect to the financial condition results of operations and business of Brookline Bank court. Please refer to Pages 2 and 3 of our earnings presentation for our 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,
any references made during this presentation to non-gaap measures are only made to assist you. In understanding. Brookline Bank Parx, results and performance Trends and should not be relied on as Financial measures of actual results or future predictions.
Speaker Change: For a comparison and Reconciliation to gaap earnings, please see our earnings release. I placed introduced Brooklyn Bank Force, chairman, and CEO, Paul Pearl.
Thanks, Dario and good afternoon, everyone. Thank you for joining us for today's earnings call.
Speaker Change: Our results continue to improve in the second quarter with earnings of approximately 22 million or 25 cents per share.
Speaker Change: As we have discussed, over the last couple of quarters, we have been managing the balance sheet in advance of the merger of equals with Berkshire.
The overall contraction of 61 million in our loan portfolio is intentional. As we reduce exposures in commercial real estate and Specialty vehicles
Speaker Change: and at the same time, grow our commercial in consumer loan portfolios.
Speaker Change: We continue to see improvement in our funding as our customer deposits, increased 59 million, and our margin increased 10 basis points during the quarter.
Speaker Change: We sold 2 commercial real estate loans during the quarter and recognized the charge of 3 and a half million dollars. Additionally, our Boston office portfolio continues to be under stress and we downgraded several credits during the quarter and added to the reserves for these credits.
Speaker Change: The office portfolio outside of Boston, this continuing to perform very well.
Speaker Change: In May the stockholders of both Berkshire Hills and Brookline approved the merger and I continue to be pleased with the progress. The teams are making, we have been working together over the last few months to ensure a smooth merger. And no significant issues have been identified to date.
Speaker Change: We are looking forward to being 1, Bank in the coming months, with a combination of our systems and early February enhancing the products and services for our combined customers.
Carl Carlson: I will now turn you over to Carl who will review the company's second quarter?
Carl Carlson: Thank you, Paul.
This Paul mentioned loans declined by 61 million with commercial, real estate and Equipment, Finance declining, 95 million and 46 million respectively.
While commercial loans, grew 53 million and Consumer loans, grew 27 billion.
Carl Carlson: Owner occupied commercial, real estate, in 15 million and investment commercial real estate. Decreased by 110 million, bringing the percentage of investment commercial, real estate to Total risk space Capital to 363% that quarters Act.
Carl Carlson: The decline in the equipment Finance Loans was driven by the continued runoff of the Specialty Vehicle portfolio, which decreased by 27 million during the quarter to 240 million.
Carl Carlson: Our net interest margin improved 10 basis points to 332 basis points on higher asset yields as well as lower funding costs.
Carl Carlson: Net interest income increased 2.9 Million for the quarter to 88.7 million.
Carl Carlson: Fee income was slightly higher at 6 million, bringing total revenues for the quarter to 94.7 million, which is 3% higher than q1 and 10% higher than 2024.
Carl Carlson: Non-interest expense excluding larger charges was 57.7, million. A decrease of 1.3 million from q1 due to lower expenses, in nearly every category except marketing, which increased 503,000.
Carl Carlson: Merger expenses for the quarter were 439,000 and were largely non-tax-deductible contributing to a higher effective tax rate.
Carl Carlson: The provision for credit, losses was 7 million 1 million higher than q1. We had total net charge of 5.1 million and provided additional credit reserves for selected properties in the Boston office Market.
The reserve coverage increased to 132 basis points of total loans.
Carl Carlson: Yesterday, the board approved maintaining our quarterly dividend at 13 and a half cents per share to be paid on August 22nd.
To stockholders of record on August 8th.
Looking forward, we continue to anticipate modest improvements to the Net's, just margin as liabilities, continue to replace re-priced lower.
Carl Carlson: Direction timing and magnitude of future actions, but a Federal Reserve.
We anticipate growth in the loan portfolio to be in the low single digits for the balance of 2025 as growth in commercial and Consumer, loans will be tempered by the runoff of Specialty Vehicle and the gradual pickup in commercial real estate activity.
On the top deposit side. We anticipate growth of 4 to 5% with growth generally, favoring interest bearing accounts.
Carl Carlson: Not income is projected to be in the range of 5 and a half to 6 and a half million per quarter.
Carl Carlson: We are managing expenses, particularly Staffing and preparation for the merger with Berkshire Hills later this year.
Our effective tax rate is expected to be in the range of 24.225%.
Carl Carlson: Excluding the impact of non-deductible. Merger charges.
Carl Carlson: This concludes my formal comments. I will turn back to Paul.
Thanks Carl. And now we will open it up for questions.
Thank you.
Please, press star, followed by the number 1. If you'd like to ask a question and ensure your devices are muted locally when it's your turn to speak.
Carl Carlson: If you change your mind to your questions already been answered. You can withdraw your question by pressing star. Followed by the number 2.
Our first question today comes from Mark Fitzgibbon with Piper Sandler.
Speaker Change: Please go ahead. Your line is open.
Mark Fitzgibbon: Hey guys, good afternoon.
Speaker Change: First question, I had hi, Paul. First question I had for you and I know, you know, don't know this exactly because it's regulatory driven, but when he is sort of targeting to close the acquisition, um, when do you think it's a reasonable guest him and also, do you have a sense for when you're targeting the systems conversion?
Speaker Change: Well, it's a merger. It's not an acquisition, the merger of equals. Um and um the
Speaker Change: Systems conversion is sometime mid-February. I don't remember the exact date, but it's very nice. Nice, nice. Um, and we we weighed every day for the FED approval, which then has a little time frame to it. So, um, if we want to be very optimistic and forward-looking, we might say September
Okay.
Speaker Change: And then I guess I'm curious when the 2 companies do come together. Um in a merger. Um I I was I assume there's some opportunity to do bigger loans with existing customers. I I guess I was curious how big a credit to you or relationships. You'd be willing to do 1 that that companies come together.
Um, that the whole credit Administration thing is, is getting done now, but I would, uh, expect that for certain kinds of well sponsored relationships. It would be, um, perhaps approaching 100 million,
um,
Speaker Change: maybe a little bit less than that sort of depending on what the categories are.
Uh, but that that would be about it.
Yeah, it might be 90, you know?
Speaker Change: Which is, which is double.
Speaker Change: What each company does now?
Speaker Change: Right? And that's relationship below the legal limits.
Speaker Change: It's a, it's a small. It's a fraction of the legal limit.
Speaker Change: Where you took some additional um, reserves this quarter.
Any.
Speaker Change: That that's basically the color. Uh, we're, we're continue to work with those those credits, and, uh, We've added a little bit more to the reserves for both of those. Uh, so the 2 credits, you're referring to is the uh, we have a commercial laundry as well as a, a grocery, uh exposure. There, we've added basically another million dollars, to each 1 of those for specific reserves against that. We, we feel
Speaker Change: Good where we are.
Speaker Change: Okay, and then Carl your guidance of 4 to 8 basis points up in the third quarter, that assume 1 ray cut or no.
No, no rate cuts.
Speaker Change: In that number, okay?
Speaker Change: What, what do you guesstimate? The impact of a 25 base Point rate, cut would be on the nymph.
Speaker Change: again, that's always, you know, as far as timing uh
Speaker Change: Because, you know, we have a lot of assets that do reprice down immediately with that. So, the timing in the quarter when that happens. Uh, so I think in in a quarter, it it may be fairly flat, uh, for the initial 25, and it hits both deposits, and it's, it's both deposit loans. And we'll, we'll and a lot of we've seen a lot of benefits already, but we do have a lot of, uh, CDs and uh, broker deposits as well as borrowings that continue to repriced down.
Speaker Change: Our CDs that went on the books around 375. Um,
brokered CDs about 194 million maturing in the next quarter at at 480 basis points and federal Home Loan Bank advances about 371 million uh, at 477 basis points. So, we're still seeing the benefits of those repricing down, the FED moves 25. They they'll repriced out even more. So uh, and and we've also reduced materially the entirety of postal funding.
Speaker Change: Which is even better. Thank you.
Mark Fitzgibbon: Thank you. Okay. Mark
Speaker Change: Here. Um, next question, comes from Lori Hansa. With C, Port research Partners. Please go ahead.
Speaker Change: Yeah. Hi, good afternoon. How are you Carl? Um,
Lori Hansa: Uh, this wanted to uh just on margin. Um, do you have a spot margin for June?
Lori Hansa: Well, the spot margin for June was 339 basis points.
Lori Hansa: Okay. And then just going over to credit. Uh, really appreciate all the details, you provide so just looking at your office but that 647 million. How much of that is in
Lori Hansa: The Box in central business district.
Lori Hansa: 154 million.
Okay, and that includes.
Lori Hansa: Those 2 credits that's not just the central but that's downtown. All Boston. That's that's all of downtown. It's not just the financial district so we don't have that kind of concentration. Some of those are in the Back Bay.
Lori Hansa: Newberry Street.
Speaker Change: Gotcha. Okay. And then the the 29 million. Uh, so great that you resolved, the 10.8 million the the the 28.9 million. Um, that
Basically, experienced some deterioration in this corner. Can you give us a little color on those loans? In terms of, you know, when you're thinking resolution what the vacancy is looking like.
Speaker Change: Um, do those have maturity? I think they're all. They're all well, sponsored properties. They're well-located properties.
Speaker Change: Uh, they have vacancies, they they might be at 50 to 50 to 70% occupied. Uh, lease up has been very slow as you can imagine, but great sponsors, they pay, um,
Speaker Change: And so we are exercising some patience but sort of being careful with our reserves as we always are.
Speaker Change: Gotcha and do any of those come due in the next couple quarters.
Speaker Change: No, I don't think so.
Okay.
Speaker Change: Okay.
Speaker Change: Um, and then
Speaker Change: Just going back over to the the jump in the cni non-performers that equipment financing um just link quarter.
Speaker Change: Um can you help us? Think about that a little bit, you know, going from 33 million to 40.
Speaker Change: 6 million, then non-performers in that bucket.
yeah, that was uh, driven by 1 1, Credit at Eastern funding or at the equipment financing unit, uh,
Related to fitness equipment.
Speaker Change: A little over 11 million dollars.
Speaker Change: Okay.
Um, and then, um,
Can you help us? Um this is sort of I guess more more broad here. Can you help us? Think about the fasb's ASU with respect to, you know what it means for
Speaker Change: Perform a tangible book. Dilution
Versus a crease. And right, so your tangible book. Dilution should be a little less your creation should be more.
Speaker Change: Um, can you help us quantify that a little bit?
Speaker Change: Sure.
Speaker Change: So Lori. We we we've known each other a long time, you know. I hated this for so long. I think the entire banking industry is always question. Why why this rule was ever put in place? But they're finally, uh, said they're going to fix it, uh, the whole double counting on this. So the whole Cecil, you know, this the day to Cecil, uh, booking. So I'll I'll refer back to and we we I think the presentation that we do when we announced the transaction was very, you know, provided a lot of good insight there. So I would recommend if, if you want to go go see that and, and we we lay it out pretty well and I'll refer that number. So we, we had estimated that to be 94.5 million when we announced the transaction with the date to Cecil would be
Speaker Change: up flow through the income statement uh, once, uh, Faz finally does this uh,
Speaker Change: Issues the final Rule. Now they said, they're issuing. It, I've been waiting for it patiently. Uh, and you know how patient I am? Uh, but we'll see. We'll see when that comes out. Uh, uh, KPMG told it told me the other day that they expected in the likely in the fourth quarter. It wasn't going to be a third quarter event. It'll probably be a fourth quarter event, uh, so that that equates to about 84 cents per share, right? So that's, that's some real money. Uh, so it's it's great for our Capital ratios, uh, it'll be great for the earnings, uh, it, you know, that, you know, 84 cents that represents about 20% of the dilution we were talking about. Uh, so it does does improve how fast you as you know we announced uh when we did the deal a 2.9 year earn back, this this will make it a lot faster than that. Um so we're we're looking forward to that happening. If the I want to be clear on this, if the Faz does not issue it by the time, this deal closes and we release earnings for the third quarter,
If if it does not happen in the third quarter, we would still have to recognize that day day 2. Cecil uh,
Speaker Change: Impact. And then get reversed basically in the fourth quarter, when they, when they do finally meet, uh, issue the, uh,
Issue of the final rule.
Speaker Change: I hope that helps clarify.
Speaker Change: What what that might look like? Yeah, okay, so, so, okay a couple more questions related to that. So it's also looking like, um, assuming this goes through that early adoption, um, will be permitted, but you don't necessarily have to do it. Would you all be early adopters? How do you think about that?
Speaker Change: Absolutely.
Absolutely. Okay.
Speaker Change: Okay, and then the increase in income is obviously going to go down.
Speaker Change: Um, so how do we? How do we think about that?
Speaker Change: in other words, the deal when you announced it was
Oh, go ahead, right? So so when we announced it, uh, when we announced that like I just said, 94.5 million would know would not get a created back into income over time, but as you can understand that 94 million would be getting a created over the life of the loans.
Speaker Change: Which is, you know.
Speaker Change: 567 years, maybe even longer. Uh, you know, when you think about it over time, uh, so, uh, it'll it's, it's not as, as meaningful impact when it when you think about it that way.
Speaker Change: Okay. Okay, all right. So 5 to 7 years, okay. Um and then um, to your point on you'll have more Capital, how do you think about, you know, assuming close this deal, September 30th? How do you think about repurchasing shares?
Speaker Change: That's your thought there.
I think that that that will just that'll take some a little bit of time. Uh, I think you will, we would have to get through the the the initial couple of quarters and the the board will the board will take that up if they, if they feel that that's the right thing to do. I think the first order of business will be uh, addressing the dividend. Uh, and then we'll then we'll address. Uh,
Speaker Change: The stock and where our Capital levels are okay. Uh, we we do, we're we're we've been very clear that we want to get the uh, commercial real estate uh, down to 300%.
Speaker Change: In a fairly short order. Uh, and uh, you know, we're well on our way we've we've done had a lot of progress in that uh, towards that end. And so I think that's going to be the first order of business there.
Okay. Okay. And then just call last last question on the dividend as you mentioned it. So if we look at Berkshire Hills right now there are 72 cents annually and you all said you would be adjusting it to make it, you know, on par with where you all currently are. So that's suggesting about a128 per share.
Speaker Change: Is that correct? Is that still the thinking?
Speaker Change: That's correct.
Okay, great, thanks for taking my question. I'll leave it there.
Lori Hansa: Yeah, Lori.
Thank you. And uh next question comes from Steve Moss with Raymond James, please go ahead.
Chase: Okay guys, this is Chase on to Steve good afternoon.
Steve: Good afternoon.
Speaker Change: Um, first 1 for me, um, how is new loan pricing? Holding up these days?
Steve: um,
I think we are less exposed to the viciousness
Steve: that coming from things, like, institutional lenders, insurance companies, and the like, but in the, in the equipment Finance, uh, business, um, those uh, those rates are strong and in the pure cni business, and in the consumer business, they're they're good but competitive.
Yeah just to give you a sense you know during the we can give you some numbers I'll give you just a quick overview there. So total loans are originated in the in the second quarter of 445 million. Uh at a at a weighted average coupon of 694 basis points.
Steve: So, just shy of 7%.
Steve: All right, thank you for that color. Um,
1 more for me. Uh, I saw in your, your deck um, mentioning of the math housing, taking takeout being delayed. Um, can you provide any more, um, color on that.
Steve: Which. Yeah, so this if there's a loan that it, it's in our uh
Steve: It's basically a considered. It's a 90-day pay past due loan because of the maturity date. Uh, it's it's being taken out by Mass housing, everything's in order, it's an accruing loan, it's not, I wouldn't consider it, uh, anything wrong with the loan at all. It's just that because it's 90 days past due, uh, from a, uh, from a maturity standpoint. It, it, it falls into that category. We're just waiting for the
Steve: The paperwork to go through and and for it to be taken out by Mass housing but it's 100% leased up. It's it's the the properties in in in good order.
Steve: I expect that to be out this, this court that they're
Speaker Change: Got it. Thank you so much. Appreciate it.
Thank you on. Next question. Comes from David Conrad with KBW. Please go ahead.
David Conrad: Yeah, good afternoon, uh, real quick 1 from me. Um, I guess really regarding 3 Q on a standalone basis. Um, expenses are really good this quarter. Just your near-term outlook. Is this a good run rate or how should we think about that for the third quarter?
David Conrad: Yeah, I, I don't, uh, I don't see anything, it's anything, it would be down a little bit. Uh,
We're you're a good run rate, been running it? Yeah, pretty solid.
David Conrad: Okay, great. Thank you.
David Conrad: Thank you, we have no further questions. So I'll pass you back over to Paul parole for any closing comments.
Thank you, Lydia and thank you all for joining us today and we will look forward to talking you with you again next quarter. Good day.
David Conrad: Thank you very much. This concludes our call today. Thank you for joining.
Speaker Change: You may now disconnect your line.