Brookline Bancorp - Q1 2022

Transcript

Speaker 0

Hello, and welcome to the Brookline Bancorp Inc. Q1 2022 Earnings Call. My name is Katie, and I'll be coordinating your call today. I'll now hand over to your host, Marissa Martin, begin, Marissa, please go ahead.

Speaker 1

Thank you, Katie, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, Which are available on the Investor Relations page of our website, brooklynbancorp.com, and have been filed with the SEC. 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. Please refer to Page 2 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 For a comparison and reconciliation to GAAP earnings, please see our earnings release. I'm pleased to introduce Brookline Bancorp's Chairman and CEO, Paul Perrault.

Speaker 2

Thanks, Marissa, and good afternoon, everyone. Thank you for joining us on today's call. I'm pleased to report we had another quarter of solid earnings of $24,700,000 or 0.32 per share. And as well, we did an increase in our quarterly dividend of 4% to bring it to $0.13 per share. On an annualized basis, our core loan portfolio grew 6.9% and deposits grew by 5.5%, Excluding the $50,000,000 pay down in Booker deposits.

Our core margin, excluding PPP, Continued to improve and increase 7 basis points from Q4. Our bankers continue to be very active in our select markets, And I am very optimistic for the balance of the year. I will now turn you over to Carl, who will review the company's Q1. Carl?

Speaker 3

Thank you, Paul. As Mercer mentioned, we have provided an earnings presentation on our website and has been filed with the SEC. I will not be doing a slide split for this quarter. Net income in this quarter was 24,700,000 was $3,800,000 lower than last quarter. The decline is primarily due to lower PPP revenues of 2,700,000 And lower derivative and participation income of $5,200,000 after coming off an unusually strong Q4.

This was partially offset by stronger core margin well as lower operating and provisioning expenses. Overall, our net interest margin declined 3 basis points to 3.49%. Again, this was due to lower PPP revenues. Excluding the favorable impact of PPP on our margin, NIM increased 7 basis points from Q4 3.44 percent. The loan portfolio overall increased $69,000,000 from the prior quarter, driven by a growth in our core portfolio of 122,000,000 Offset by PPP loan satisfactions.

At the end of March, we had 56 PPP loans with $14,000,000 outstanding And approximately 400,000 of 100 employees. In the Q1, we originated $550,000,000 loans A weighted average coupon of 3.99 basis points. The weighted average coupon on the total loan portfolio rose 1 basis point during the quarter 396 basis points at March 31. Prepayment fees were $1,500,000 in Q1, which was down $210,000 from Q4 And deferred fees were $1,400,000 or $342,000 less than Q4, resulting in net positive impact on net interest income of 132 Our credit quality and the economic environment continue to improve, resulting in net slight negative provision for loan losses. At quarter end, there were 69 credits totaling $15,000,000 remaining with the loan modification under the CARES Act.

Our reserve coverage is At 132 basis points, and our capital position is strong. 1st quarter saw significant increases in interest rates, particularly in the mid to long term rates, And the Federal Reserve increased short term rates 25 basis points in March. The sharp increase in market rates impacted the value of our securities portfolio, which is Classified as available for sale. The $29,000,000 after tax accounting impact of mark to market the securities portfolio had a negative impact of $0.38 per share on After accounting for earnings and dividends, shareholders' equity declined $13,000,000 and tangible book value declined a net $0.17 in the quarter. Currently, the market is pricing in further increases in short term rates, which have the potential to Benefit us due to our moderately asset sensitive position.

Assuming a flat balance sheet and the forward curve as of threethirty 1, Our simulations reflect a 6.8% increase in net interest income over the next 12 months. Our simulations reflect the blended beta of 46% On interest bearing deposits. As Paul mentioned, the Board approved an increase to our quarterly dividend to 0 point Which will be paid on May 27 to stockholders of record on May 13. On an annualized basis, our dividend payout currently approximates A 30.6 percent yield. This concludes our formal comments, and we will now open it up for questions.

Speaker 0

We take our first question from Mark Fitzgibbon from Piper Sandler. Please go ahead, Mark.

Speaker 4

Hey, guys. Good afternoon. Hi, Mark. Hi, Mark. First question, Karl, I wonder if you could help us think about the outlook for fees.

You guys Have a little bit of volatility there recently and I'm just wondering if you could help us think about particularly loan level derivative income and the gain on sale line?

Speaker 3

Those are volatile. I think that's my best estimation on that. It really depends on the types of loans that we're doing in the pipeline, Whether we're going to be participating in that or not or doing swaps, we didn't do a lot of swaps this quarter, but That's something that is volatile. It's hard for me to give you a really good estimation from a quarter to quarter. It is an activity we are it is growing within our loan departments and our clients, But it is something that from a quarter to quarter basis, I really won't

Speaker 2

I would add though, Mark, just to make sure you understand that that gain on sale is entirely in Commercial banking participation, we do not any longer sell residential loans into the market into the secondary market. So it's all Stuff that we originate here are with friends and family.

Speaker 4

Okay. Second question, Paul, I guess I'm curious as I was looking at sort of the breakdown that you had between the two banks. Have you given any more thought to Potentially consolidating the charters of those two companies in an effort to reduce costs, is that does that make sense? Or maybe ask A different way, why wouldn't you do that?

Speaker 2

Well, it looks to me like it's working pretty well. That's why I wouldn't do it. And the reporting structures are terrific. And so the CEO in Rhode Island handles that whole market. And I would fear that we would be leaking functionality, and we would lose the presence in each of the markets Being totally controlled by their CEOs.

And I look at our efficiency ratio, and it looks pretty good on a relative basis. And so I think it's beneficial, and it is a pattern that perhaps can be expanded.

Speaker 4

Okay. And I wonder if you could also maybe update us, I know it's early days, but update us on how things are going at Clarion and Private?

Speaker 3

Exactly that. Very early days, but we've had very strong response From both of our banks as far as referrals and things of that nature, and I think we're doing quite well with the reception by customers.

Speaker 4

Okay. And then lastly, Carl, the margin, I heard what you said about the NII impact. How How are you thinking about the Q2 margin with the remaining PPP burning off and with the rate impacts rate hikes we've seen thus far?

Speaker 3

So like I said, PPP only there's another $400,000 left on that. I'm not sure if that's when that's going to come in, quite frankly. Just the timing of when people are going to be satisfied on that. Right now, when we model forward curves And right now, I think there's this almost consensus that the Fed is going to raise 50 basis points in May. If that happens, I would not be surprised to see our margin expand by 10 basis points in that range.

We're talking about 3.44 percent as a core margin, and I expect that to improve by about 10 basis points in the 2nd quarter.

Speaker 4

Great. Thank you.

Speaker 0

The next question comes from Laurie Hunsicker from Compass Point. Please go ahead, Laurie.

Speaker 5

Yes. Hi, thanks. Good afternoon.

Speaker 2

Hi, Laurie.

Speaker 5

Just wanted to make sure I heard. So Prepaid fees that were in net interest income this quarter was that was $1,500,000 is that correct?

Speaker 3

That's correct.

Speaker 5

Okay, great. Great. Okay. And then non interest income, can you help us think about NSF and overdraft fees and how you're thinking about a more sort of consumer friendly option when that hits The income and just maybe quantify for us how much is actually in this quarter?

Speaker 3

Sure. So On a quarterly basis, on a combined basis for both banks, NSFs are about $402,000 about $400,000 a quarter. You break that down, it's about 280,000 in consumer and the rest is About $120,000 in commercial, to get a sense of the overall size of that. We continue to look at that and to Work on what we want to do on that in the future.

Speaker 5

Okay. That's helpful. And In occupancy expense, it looks like there was a pretty sharp uptick linked quarter. Was did I miss something? Did you guys open another branch or do you have a redo or

Speaker 6

Nothing that you did. Is it run remotely?

Speaker 3

It was a combination of maintenance. It was really maintenance entirely. It wasn't like rent or anything like that. It was a lot of maintenance, some of it's Snow removal and other things that may have happened at the branches that needed some maintenance.

Speaker 2

A lot of bad weather this winter.

Speaker 5

Okay, fair. Okay. And so that should be running closer to 3.5 or so per quarter. Is that the right way to think about that?

Speaker 3

I think so. I think so.

Speaker 5

Okay, okay. Great. And then Paul, last question for you. Can you give us a refresh on any acquisition chatter and How you're approaching acquisitions, what you're seeing out there, any thoughts from the standpoint that with rates up, Obviously, your interest rate marks are much more expensive and so just anything you're hearing in terms of how that might be impacting M and A?

Speaker 4

Well, I'm

Speaker 2

not hearing any more or less than I usually do. And we certainly were in the Conversations with the flurry of activity that's going on here in the past couple of years, obviously, not on the Acquiring end of those conversations. So, other than their the potential pool continuously reducing, I wouldn't say that there's anything much new in the whole arena.

Speaker 5

Okay. Thanks for taking my questions. Happy

Speaker 0

to. We take our next question from Chris O'Connell from KBW. Please go ahead, Chris.

Speaker 6

Hey, good morning or afternoon, guys.

Speaker 2

Hi, Chris.

Speaker 6

So just wanted to follow-up on the expense discussion. I know that there was Some higher accruals in salaries, etcetera, in the Q4, which came off this quarter. But I think The guide for the year was around 5% to 6% for 2022 for the full year. Is that still how you guys are feeling about it after Pretty good Q1?

Speaker 3

We're still feeling that that's likely the right trend that we're going to be seeing.

Speaker 6

Okay, great. And then, I mean, you guys still have pretty robust capital levels here. Obviously, The dividend increase, you're comfortable with them and not a very big impact on AOCI relative to others. Can you just remind us how you're thinking about the buyback utilization going forward?

Speaker 3

We do have the $20,000,000 approved. We didn't buy anything back during the very first 3 months of the year. There's been a lot of market volatility. So we may see more activity as we go forward. So we've got the capability to do a buyback right now.

Speaker 2

Got to be at the right price.

Speaker 6

Yes, absolutely. And then appreciate the color on the originations and the yields during the Q1. Just given the uptick in rates even post the Q1 moves, Where are you seeing the new loan yields come on the balance sheet at?

Speaker 3

Sorry, what is the question?

Speaker 6

Origination yields, where they're coming on at?

Speaker 3

Origination yields for the Q1? No, currently.

Speaker 6

No, yes, currently.

Speaker 3

I don't have the actual yields that we're booking loans at currently, but we've seen a really nice increase And the 2 year 5 year, that's basically where we live for most of our originations. And so we've seen that Increased substantially from December. And so we're in that category right now.

Speaker 2

A lot of the real estate loans are priced off the 5 year Federal Home Loan Bank deal and virtually all of the swaps are something over LIBOR. And obviously, LIBOR has gone up from 12 basis points to 50 or whatever it has. So without having the data right in front of us, we can feel that there's been improved Origination yields.

Speaker 1

All right,

Speaker 6

great. Thanks for taking my questions.

Speaker 2

Okay, Chris.

Speaker 0

We have no further questions on the line. So I'll hand it back to Paul Burrell for any closing remarks.

Speaker 2

Well, thank you, Katie, and thank you all for joining us, and we look forward to talking with you again next quarter. Good day.

Speaker 4

Thank

Speaker 0

you all for joining. This now concludes the call. Please disconnect your lines.