Brookline Bancorp - Q3 2021
October 28, 2021
Transcript
Speaker 0
Hello, and welcome to the Brookline Bancorp Third Quarter 2021 Earnings Call. My name is Emma, and I'll be your operator today. All participants are currently in listen only mode, and this call is being recorded. It It's now my pleasure to hand over to Marissa Martin, General Counsel to begin. Please go ahead.
Speaker 1
Thank you, Emma, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website, brooklandbancorp.com, and has 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 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.
If you can join us on Page 3 of the earnings presentation, 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 for today's earnings call. I'm pleased to report we had another quarter of solid earnings of $28,800,000 or $0.37 per share as our core loan portfolio grew. Our margins slightly expanded and asset quality and the economic environment continued to improve. The loan modifications under the CARES Act dropped to $56,000,000 We recorded a $3,100,000 release of our reserves and now have reserve coverage ratio of 151 basis points on non PPP loans.
In Q3, dollars 187,000,000 of PPP loans were satisfied as our core loan portfolio grew about $100,000,000 or 1.5 percent from Q2. Our power points continue to be very strong, trends continue to be positive, and we remain optimistic as we go into the final quarter of this year and into next year. I'm also pleased to report that the Board approved a 4.2% increase in our quarterly dividend to $0.125 per share. This was the 2nd increase this year in our dividend. As previously announced, we have recently created a new affiliate of Brookline Bancorp called Clarendon Private.
Clarendon Private is a boutique investment and wealth management firm led by Mark White. They are working closely with Brookline Bank and Banquet Island to deliver comprehensive investment advisory and private banking services to individuals, families, endowments and foundations. I will now turn you over to Carl, who will review the company's 3rd quarter results.
Speaker 3
Thank you, Paul. On Slide 4, we've provided summary comparative income statements. Net income this quarter was $2,800,000 lower than last quarter and $10,100,000 greater than a year ago. Performance was driven by solid core loan growth and a slightly better margin, offset by lower revenues related to PPP loans and higher expenses. Non interest expense was $2,900,000 greater than Q2, due primarily to the $2,100,000 gain on sale of OREO in Q2.
Expenses were flat with last year. As illustrated on Page 5, net interest income decreased $400,000 from the prior quarter, driven by a decrease of $1,400,000 in PPP related revenue as well as $890,000 in fees to prepay Federal Home Loan Bank borrowings during the quarter. Overall, our net interest margin improved to 353 basis points. On the bottom of Slide 5, we've provided the estimated impact of the PPP loan program on the net interest margin. Assuming no cost of funding, PPP interest income contributed 17 basis points to the 3rd quarter margin versus 15 basis points in the 2nd quarter.
The impact of the Federal Home Loan Bank prepayment penalties in Q3 on the net interest margin was 5 basis points. Adjusting for the impact of PPP and Federal Home Loan Bank prepayment fees, the net interest margin improved 4 basis points on a linked quarter basis to 3 41 basis points. Please follow me to Slide 6 and our comparative summary balance sheets. 3rd quarter finished with $8,300,000,000 in assets, down $159,000,000 from Q2. Loans were down $88,000,000 while cash and securities combined declined $43,000,000 On the funding side, total deposits declined 22,000,000 dollars and borrowings declined $95,000,000 Slide 7 reflects the linked quarter and year over year activity and composition of our significant loan and deposit categories.
As I mentioned, the loan portfolio overall declined $88,000,000 from the prior quarter, driven by a $187,000,000 decline in PPP loans as our core loan portfolio grew $99,000,000 In the Q3, we originated over $535,000,000 in non PPP loans at a weighted average coupon of 3.97 basis points. The weighted average coupon on the core portfolio dropped 5 basis points during the quarter to 4 0 2 basis points at September 30. We continue to experience solid deposit growth and we're using excess liquidity to reduce outstanding broker deposits and borrowings. Broker deposits declined $75,000,000 and totaled $186,000,000 at the end of the quarter. Our loan to deposit ratio was just under 101% at September 30.
Slide 8 provides a snapshot of the PPP program at each of our banks. At the end of the quarter, we had 8.19 loans with $161,000,000 outstanding, net of unearned fees. Net deferred fees of approximately $5,400,000 remains to be recognized into income over the life of the loans or will accelerate on loan satisfaction. We saw a strong PPP loan forgiveness, and we expect this activity to continue for the remainder of the year with perhaps a small remaining balance slipping into 2022. On Slide 9, we are providing the status of our loan payment deferment activity.
As Paul mentioned, as of quarter end, 77 credits totaling $56,000,000 have a loan modification under the CARES Act, representing less than 1% of total loan balances. Loan modifications are provided by sector on Slide 10. All loans remain accruing with modifications concentrated in the fitness and retail sectors. As shown on Slide 11, the company continues to be well capitalized, exceeding all regulatory requirements as well as our own internal policies and operating targets. At the end of the quarter, we had a capital buffer of 4.3 percent or $287,000,000 over regulatory well capitalized standards.
The company also purchased 690,253 shares during the quarter, completing the $10,000,000 stock buyback program authorized on January 21, 2021. No shares were purchased in Q1 and Q2. Slide 12 provides a history of our regular common stock dividend payout. Yesterday, the Board approved a 4 point 2% increase in the quarterly dividend to $0.125 per share to be paid on November 26 to stockholders of record on November 12. On an annualized basis, our payout approximates a 3.1% yield.
This concludes my formal comments. I will turn it back to Paul.
Speaker 2
Thanks, Carl. And now joining us for the Q and A session is Robert Rose, our Chief Credit Officer. And we will now open it up for questions.
Speaker 0
Thank you. Our first question today comes from Marcus Gibbon from Piper Sandler. Please go ahead, Mark. Your line is now open.
Speaker 4
Hey, guys. Thanks for taking my question. Good afternoon.
Speaker 3
Hey, Mark. Hi, Mark.
Speaker 4
I was curious if you could maybe sketch out some of the details on Clarendon Private, maybe what the rough plan looks like, sort of how big this business is likely to be, how many people, kind of time to break even, those sorts of things?
Speaker 3
Sure. So we currently have about 4 employees. So it's really getting kicked off here in the Q4. We've been talking about this as a seed versus sod strategy. So we're starting from nothing and growing this business.
We think we're in an excellent market to do it and it's the right time to do it for us. And so it's going to take some time to build this up. We do expect it to grow to breakeven within 3 years And we approximate you will have to be around $500,000,000 to $600,000,000 with assets under management to hit that breakeven point as we add people along the way.
Speaker 2
These are very, very seasoned people in this area, in this business, Mark. So they're very well known.
Speaker 4
Okay, great. And then separately on the deposit front, I guess I'm curious, do you feel like you still have some room to push your deposit costs down from where they are today?
Speaker 3
Very little, quite frankly. We've done quite a bit through our CD portfolio. We have about $235,000,000 that will reprice in the next quarter. The coupon on that is around 65 basis points or so and things are repricing down into 35 basis point to 40 basis point range. So there's a little bit of room on that side, but at this point, I think we've largely exhausted that.
Speaker 2
I'll just add that we continue to see some pretty good growth in the DDA sector, which is helpful in the aggregate cost of funding.
Speaker 4
Okay. And then on the lending side,
Speaker 3
I
Speaker 4
wondered if you could kind of share with us what you're seeing out there from a competitive standpoint in the commercial market as pressure is easing up much and what does your pipeline look like and maybe the average rate?
Speaker 2
Well, the competitive situation has probably calmed down a bit where we've had a number of meaningful M and A things going on around here, so that certainly distracts people. And so I think it's still very competitive, but it feels not quite as down and dirty as it had been. I think Carl mentioned what the originations were at. Pipeline is very strong.
Speaker 3
The pipeline is very strong. We originated $535,000,000 in the quarter. The coupon on that was 3.97 basis points, so right around that 4% rate. And of course, that all depends on the mix on any given quarter. But that's and I don't see that going down much.
Speaker 2
And that was a similar origination level as we saw in the previous quarter, but we didn't see quite as many payoffs in Q3 as it did in Q2, and it slowed down some more, I think, in Q4.
Speaker 4
Great. And then lastly, in terms of the reserve coverage, you guys obviously have a really strong reserve. But if loan growth is really starting to pick up, I'm curious, do we see maybe another quarter or 2 reserve releases before we sort of get to 0 or maybe even start to provide again?
Speaker 3
Well, I'd say that our reserve is adequate at September 30, Mark. Okay. Thank you.
Speaker 2
Okay.
Speaker 0
Thank you, Mark. Our next question today comes from Laurie Hunsicker from Compass Point. Please go ahead Laurie. Your line is now open.
Speaker 5
Great. Hi. Thanks. Good afternoon.
Speaker 2
Hi Laurie.
Speaker 5
I'm hoping that you can just give me the actual dollar amount of PPP forgiveness in the quarter? I'm getting that it's around $4,000,000 I'm just hoping you have a more actual number.
Speaker 3
One second. I had that at my fingertips here.
Speaker 5
Thanks. And then maybe the APL so go ahead.
Speaker 3
So deferred fees that were recognized during the quarter was $5,152,000 on PPP loans. And we had interest income of, I want to say, dollars 641,000 of interest income on that. So combined, that's the contribution of the PPP loans during the quarter.
Speaker 5
Okay, great. And I see there's $5,400,000 remaining. And then on prepaid fees, do you have that number?
Speaker 3
I'm sorry, I didn't hear the question.
Speaker 5
Prepaid fees?
Speaker 3
Well, prepays were $1,579,000
Speaker 5
Okay. And so I just want to to sort of put some of your comments together. As we're looking at this ex PPP in terms of, I guess, how you see the margins play out, it looks like on the funding side and certainly you referenced it, that we continue to see the CD book come down, but your core deposits can't really go anywhere. So how should we be thinking about margin as we head out
Speaker 3
into 2022? So of course, there's a lot of moving pieces to this. But when you look at what I've broken out there on Page 5, I believe it is, excluding PPP, excluding the Federal Home Loan Bank impact, the margin would have been in that 3.41% range. We see that to be fairly consistent going forward. And that reflects the recent move in the yield curve, the 2 year and the 5 year rates moving a little bit higher.
So we do see the margin in the 3.35% to 3.40% or 3.40 plus range for next year.
Speaker 5
Okay. That's helpful.
Speaker 3
Excluding any impact of PPP. I want to be clear on that, excluding impact of PPP.
Speaker 5
Correct. Correct. Well, there shouldn't be much PPP next year, right? The repurchase that you completed, so all $10,000,000 was done all $10,000,000 worth done this quarter. And the share number, you went through that really quickly.
Again, I'm at an approximate number. Just hoping you could give me that share count that was repurchased this quarter?
Speaker 3
600 right around 690,000 shares.
Speaker 5
690, okay. And then am I right all $10,000,000 was actually done this quarter?
Speaker 3
The $10,000,000 correct. So the average price is a little under $14.50
Speaker 5
Okay, perfect. And then Paul, how are you thinking about a buyback refresh? Love seeing the dividend increase, but how should we think about that here?
Speaker 2
I'm not sure I'd follow. We've been targeting sort of a core operating earnings payout ratio maybe 40 or so. The capital build is enough for the sort of mid to high single digit growth that we tend to see in a more normalized environment. Carl and I like to keep the share count contained if we can buyback opportunistically because we do annual grants of equity. This is helpful in that sense.
So it's kind of all part of capital management.
Speaker 5
Okay. Just last question, any comments? We're now a quarter out from when we last chatted about this M and A. Can you help us think about there's a lot going on in your marketplace? Can you help us think about where you are currently and how you're approaching it into next year?
Thanks.
Speaker 2
We certainly are planning to have our people take advantage of any disruption in the market, which will probably happen between now and the middle of next year, maybe a little bit longer than that, both in people and customers, that kind of thing. And beyond that, I mean, we keep our ear to the ground. We talk to people. We will pursue objectively any reasonable M and A opportunity.
Speaker 5
Okay. Thanks so much.
Speaker 2
Okay, Laurie.
Speaker 0
We currently have no further questions today. So I'll hand the call back to Paul Parol for some closing remarks.
Speaker 2
Well, this concludes the answer. There's a question and answer session, I guess. So I'd like to just thank you all and thank you, Emma, for joining us, and we look forward to talking to you again next quarter.
Speaker 0
This concludes today's call. Thank you all for joining us. You may now disconnect your lines.