Brookline Bancorp - Q3 2023
October 26, 2023
Transcript
Operator (participant)
Good afternoon, and welcome to Brookline Bancorp, Inc.'s Third Quarter 2023 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. I'd now like to turn the conference over to Brookline Bancorp's attorney, Marissa S. Martin. Please go ahead.
Marissa S. Martin (General Counsel)
Thank you, Alex, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the investor relations page of our website, brooklinebancorp.com, and has been filed with the SEC. We will not be doing a slide set this quarter. 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 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. 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 A. Perrault.
Paul A. Perrault (Chairman and CEO)
Thanks, Marissa, and good afternoon, everyone. Thank you for joining us for today's earnings call. Yesterday, we reported net income for the quarter of $22.7 million or $0.26 a share. Our bankers remain active, and we continue to see lots of opportunities to bank strong new relationships in our markets. The loan portfolio grew by $40 million, and customer deposits grew by $88 million in the quarter. Non-performing assets increased slightly in the quarter off historically low levels and remain less than half of 1% of total assets. Net charge-offs for the quarter were $11 million, which were largely previously reserved for. Net charge-offs over the past 12 months represent approximately 14 basis points, while the allowance for loan loss represents 127 basis points of total loans.
I'll now turn you over to Carl, who will review the second quarter results.
Carl M. Carlson (Co-President and CFO)
Thank you, Paul. This quarter's total assets finished the quarter basically flat with Q2, driven by a reduction in cash and securities, partially offset by the growth in loans. The banking teams generated net loan growth of $40 million in the quarter, with growth of $48 million split evenly between C&I and equipment finance, with declines of $1 million in commercial real estate and $7 million in consumer loans. In the third quarter, we originated $562 million in loans at a weighted average coupon of 726 basis points. This increased the weighted average coupon on the core loan portfolio 14 basis points to 582 basis points at September 30. On a linked-quarter basis, the yield on the loan portfolio increased 14 basis points to 5.84%.
On the funding side, customer deposits grew $88 million, and broker deposits were reduced $39 million for net growth in deposits of $49 million. Growth continued to be in higher rate savings and time deposits, partially offset by declines in DDA, NOW and Money Market products. The average cost of total deposits increased 24 basis points in the quarter to 228 basis points. Total average interest earning assets declined to $110 million on a linked quarter basis, and the net interest margin declined 8 basis points to 3.18%, resulting in net interest income of $84 million, a decline of $2 million from the second quarter. Non-interest income was $5.5 million for the quarter, which was consistent with the prior quarter.
Expenses were $57.7 million for the quarter, up $900,000 from Q2, when excluding merger charges recorded in Q2. Provision for credit losses was $3 million for the quarter, down $2.9 million from Q2. Yesterday, the board approved maintaining our quarterly dividend at $0.135 per share to be paid on November 24 to stockholders of record on November 10. On an annualized basis, our dividend payout approximates a yield of approximately 6.3%. This concludes my formal comments, and I will turn it back to Paul.
Paul A. Perrault (Chairman and CEO)
Thank you, Carl. We will now open it up for questions.
Operator (participant)
Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Mark Fitzgibbon of Piper Sandler. Your line is now open. Please go ahead.
Mark Fitzgibbon (Managing Director)
Hey, guys. Good afternoon. Carl, I wondered if you could share some thoughts on the net interest margin. The rate of decline has obviously slowed some. You know, any help that you could share with us on fourth quarter NIM, in terms of additional margin compression?
Carl M. Carlson (Co-President and CFO)
Sure. Again, it's very difficult to estimate what's really going to happen here. Last quarter, we saw July's deposits really not a lot of movement on the deposit side that accelerated in August. So I didn't think we were going to have as much NIM compression as we did experience, 8 basis points. But right now we're estimating to be around 5-6 basis points next quarter. Now, again, that all depends on what's going on with deposits. We're kind of modeling some aggressive moves and, you know, continued aggressive moves in deposits. My bankers are actually suggesting it might be far less than that, but we'll see.
Mark Fitzgibbon (Managing Director)
Okay, great. And then secondly, I wondered if you could share any details with us on that $14.8 million commercial real estate loan that went on nonaccrual?
Paul A. Perrault (Chairman and CEO)
Office building here in Boston. It is very well-owned. It is significantly occupied, but they have not been able to get it over the top, and we're working with them to create an environment where they can be helpful, and we can be patient. I'm pretty optimistic that that will be in the right place fairly soon.
Mark Fitzgibbon (Managing Director)
Paul, you say well-owned. Was the participation with a bunch of other banks?
Paul A. Perrault (Chairman and CEO)
No, no. It's a property owner and manager who has partners in it with him. I think we may have a participant bank, too, on our side, but I was really referring to it's a bunch of investors who own it. It's managed by one very able guy.
Mark Fitzgibbon (Managing Director)
Okay. And any color on what the LTV and debt service look like at origination?
Paul A. Perrault (Chairman and CEO)
I would be speculating.
Mark Fitzgibbon (Managing Director)
Okay.
Paul A. Perrault (Chairman and CEO)
It would look like most of our originations, which would have been a pretty low loan-to-value and a pretty high coverage ratio.
Mark Fitzgibbon (Managing Director)
Okay. And then I guess I was curious at a high level, you guys traffic in a lot of different, you know, commercial and commercial real estate areas. What areas are you sort of monitoring most closely today, or, you know, where you have kind of enhanced monitoring? What pieces of the loan book are you most focused on and watching carefully?
Paul A. Perrault (Chairman and CEO)
Well, I think, I think it's got to be office, which represents about 8% of our loans. We've got maturities coming up over the next few years that don't amount to a whole lot. But we're just trying to monitor what the, what the cap rates are looking like, what trades are happening in the marketplace and occupancy. But it's really been very quiet, though, particularly in metro Boston. It's been a little bit more active in Westchester, but most of the loans, as you know, are sort of inside 495.
Mark Fitzgibbon (Managing Director)
Okay. And then last question for me. Clarendon Private, any updates there? How are things going, or and an update on asset under management?
Carl M. Carlson (Co-President and CFO)
Yeah, we're still not reporting that out at this point. Still early in the game, but everything's proceeding as we expect.
Mark Fitzgibbon (Managing Director)
Thank you.
Paul A. Perrault (Chairman and CEO)
Thanks, Mark.
Operator (participant)
Thank you. Our next question comes from Nick Cucharale from Hovde Group. Nick, your line is now open. Please go ahead.
Nick Cucharale (Director)
Good afternoon, everyone. How are you?
Paul A. Perrault (Chairman and CEO)
Good, thanks. Thanks.
Mark Fitzgibbon (Managing Director)
Hi, Nick.
Nick Cucharale (Director)
Good. Another strong quarter for growth in the equipment finance division. How high are you willing to take those balances as a percentage of the total loan portfolio? And can you comment on how you're approaching credit risk in that segment, considering the higher rates to customers and overall economic environment?
Paul A. Perrault (Chairman and CEO)
I've long held that I would be comfortable up to as much as 20% of the loan book would be in the equipment finance area. We're well below that at this point. I think that they are carrying on business as usual. They are seeing consolidation in a lot of the areas where they operate, so they see opportunities to bulk up for some of their customers. With the inflation being as it has been, I think that their operators are able to take care of these deals at the higher rates. It really hasn't been a problem. We haven't seen any uptick in delinquencies or anything.
Nick Cucharale (Director)
Okay, that's helpful. And then just to follow up on the deposit discussion. At this point in the quarter, are you seeing stability in your demand deposits?
Carl M. Carlson (Co-President and CFO)
We are. So we're still seeing some runoff, but not as aggressive as we've seen in the past. But I would have said that last July, too. So I'll couch that as we go forward.
Paul A. Perrault (Chairman and CEO)
It jumps around.
Carl M. Carlson (Co-President and CFO)
It jumps around.
Paul A. Perrault (Chairman and CEO)
It does jump around.
Carl M. Carlson (Co-President and CFO)
But it's slowing down.
Nick Cucharale (Director)
Fair enough. Fair enough. Thanks for taking my questions.
Paul A. Perrault (Chairman and CEO)
Yeah.
Operator (participant)
Thank you. Our next question comes from Steve Moss of Raymond James. Your line is now open. Please go ahead.
Steve Moss (Managing Director)
Good afternoon. On,
Paul A. Perrault (Chairman and CEO)
Hello.
Steve Moss (Managing Director)
You know, just curious here if we just talk about loan pricing, you know, where new loans are coming on the books and kind of, you know, that dynamic.
Carl M. Carlson (Co-President and CFO)
Sure. What would you like to know?
Steve Moss (Managing Director)
Where, where are you pricing today and versus what did you put on in the third quarter? Let's put it that way.
Carl M. Carlson (Co-President and CFO)
So third quarter numbers are, on average for the third quarter, so things are coming in certainly higher than that. As you know, the five year has moved substantially, even since September. So I don't have specific numbers to date, but all the pricing is doing much better on the loan side, and so we're very optimistic there. On the deposit side, the funding side, what I'm optimistic about is that we really haven't moved our rates much on the deposit side at all. Even though we've seen naturally the longer part of the curve, you know, from two out to 10, move particularly around five to 10, moved quite a bit.
We've not had to move our pricing on our deposit side, and we still consider we're still seeing growth, continue to grow our customer base there, so pretty optimistic in that sense.
Steve Moss (Managing Director)
Okay. And then in terms of just other question related to the margin, just curious, what was purchase accounting accretion for the quarter?
Carl M. Carlson (Co-President and CFO)
One second. $2.6 million almost $2.7 million.
Steve Moss (Managing Director)
Okay.
Carl M. Carlson (Co-President and CFO)
On loans.
Steve Moss (Managing Director)
Okay. Then, in terms of just curious on expenses here, you know, how are you guys feeling about expense trends into the fourth quarter, but also just even next year, in the current environment?
Carl M. Carlson (Co-President and CFO)
Well, we feel like we're gonna be right around this area, around the $57 million a quarter at this point, with slight growth going into next year.
Steve Moss (Managing Director)
And then, you know, just one more for me. I saw on the deck you guys had, you know, your maturities, the first CRE over the next 24 months. Just curious, kind of, you know, of what's coming due. You know, should we think about the maturities having a similar LTV to what you show in the earlier slides as the overall composition of the portfolio? And, you know, do you see any stress in that CRE maturity pipeline?
Carl M. Carlson (Co-President and CFO)
I don't have the maturities by quarter or by the maturity buckets in front of me. But as Paul mentioned earlier, I imagine they're gonna be very similar to the overall portfolio. It's not like we have a lot of, you know, pretty much steady of what we actually book.
Paul A. Perrault (Chairman and CEO)
Those, those loans were well underwritten. They've, they've performed very well. The expectation is that will continue. In terms of current loan-to-values, it's a very difficult environment because there have been so few trades, that it's very hard to pinpoint what something is worth right now. There have been a few sort of spectacular crashes of things that have been around here, a few buildings here and there, but for the most part, those weren't traditional bank deals. They're not in the right locations, and they might not have been well-owned. I don't expect that there will be a lot of noise in those renewals.
Steve Moss (Managing Director)
Okay. Great. Thank you very much for all the color. Appreciate it.
Paul A. Perrault (Chairman and CEO)
You're welcome. Thank you.
Operator (participant)
Thank you. Our next question comes from Laurie Hunsicker of Seaport Research Partners. Laurie, your line is now open. Please go ahead.
Laurie Hunsicker (Senior Analyst)
Great. Hi. Thanks, Paul and Carl.
Paul A. Perrault (Chairman and CEO)
Hello.
Laurie Hunsicker (Senior Analyst)
Just wanted to-
Paul A. Perrault (Chairman and CEO)
Hello
Laurie Hunsicker (Senior Analyst)
go back to commercial credits, please. So starting with your $14.8 million office CRE that came over into non-accrual, is that a Class A or Class B?
Paul A. Perrault (Chairman and CEO)
I'd probably consider it Class B.
Laurie Hunsicker (Senior Analyst)
Class B. Okay, and then did you have the vacancy on that?
Paul A. Perrault (Chairman and CEO)
I don't have that in front of me. It's not empty.
Laurie Hunsicker (Senior Analyst)
Got it. Okay, and-
Paul A. Perrault (Chairman and CEO)
But it's not quite enough.
Laurie Hunsicker (Senior Analyst)
Right. Yeah, that's, that's true of most of Boston, right? And then you didn't have a current debt service on that?
Paul A. Perrault (Chairman and CEO)
Again, I don't have that in front of me, but it-
Laurie Hunsicker (Senior Analyst)
Okay
Paul A. Perrault (Chairman and CEO)
it was-
Laurie Hunsicker (Senior Analyst)
I'll follow up with you.
Paul A. Perrault (Chairman and CEO)
Not applicable. Yep.
Laurie Hunsicker (Senior Analyst)
Okay. And then is there, do you have a specific reserve against that $14.8 million credit?
Paul A. Perrault (Chairman and CEO)
On that one, I don't think so.
Laurie Hunsicker (Senior Analyst)
Okay. Okay, and then the two commercial-
Paul A. Perrault (Chairman and CEO)
We only take a specific reserve.
Laurie Hunsicker (Senior Analyst)
Charge-off.
Paul A. Perrault (Chairman and CEO)
We only take a specific reserve when we've got, you know, a pretty serious situation, and this one is not quite in that category.
Laurie Hunsicker (Senior Analyst)
Okay. Okay, that's good. Your two commercial charge-offs, can you give us a little color as to what they were in the quarter?
Paul A. Perrault (Chairman and CEO)
Yeah, those, we had big reserves against both of them. These are things that have not been going well for quite some time. One's a medical enterprise and the other is a development enterprise, and in both cases, their demise was self-inflicted wounds. It was not a market-driven thing. They were just not managed properly, and things fell apart. So, you know, the good news is it wasn't the market. The bad news is that we still lost some money.
Laurie Hunsicker (Senior Analyst)
So they were both C&I credits?
Paul A. Perrault (Chairman and CEO)
Correct. Yeah.
Laurie Hunsicker (Senior Analyst)
Okay. Okay, and then just, just going back to office here, your $747 million book, just hoping for a refresh on a couple things. How much of that is lower risk medical?
Carl M. Carlson (Co-President and CFO)
I don't have that, those numbers in front of me, Laurie. It's not a big deal.
Laurie Hunsicker (Senior Analyst)
And I might-
Carl M. Carlson (Co-President and CFO)
Medical's not a big part of our portfolio in the office sense.
Laurie Hunsicker (Senior Analyst)
I-
Carl M. Carlson (Co-President and CFO)
You know, sometimes it ends up in the owner-occupied.
Paul A. Perrault (Chairman and CEO)
Owner-occupied.
Carl M. Carlson (Co-President and CFO)
It's more in the owner-occupied side of things.
Laurie Hunsicker (Senior Analyst)
Got you. Okay. And then can you just help us think about, of your $747 million, how much is Class A versus B versus C?
Carl M. Carlson (Co-President and CFO)
We're not big Class A lenders, so it's a small amount.
Laurie Hunsicker (Senior Analyst)
Okay. And then I know that most of what you do is in the suburbs, but can you just help us think about how much of your exposure roughly is downtown Boston?
Carl M. Carlson (Co-President and CFO)
I think we provide that in the deck.
Laurie Hunsicker (Senior Analyst)
You do? Okay.
Carl M. Carlson (Co-President and CFO)
Yes.
Laurie Hunsicker (Senior Analyst)
I'll go back and look at that. I must have missed that. Okay. And then last question on office, I'm sorry to put you so on the spot here on this, but on slide 18, it looks like you've got $26 million maturing in the fourth quarter. Any update on that? Have you had any renewals yet? I know we're early in the quarter, and maybe just, just of the $26 million, I guess, how much is A, B, and C, or just any color you can give us on what that's looking like? Thanks.
Carl M. Carlson (Co-President and CFO)
I don't have any color on the timing of when those are going to get renewed or whether it's A, B, or C.
Paul A. Perrault (Chairman and CEO)
Yeah, I don't know either. I haven't seen them yet, but I've not heard any noise.
Carl M. Carlson (Co-President and CFO)
Yeah.
Laurie Hunsicker (Senior Analyst)
Okay. Then Paul, just last question. Can you help us think about with your stock trading here below book, how you're thinking about buybacks?
Paul A. Perrault (Chairman and CEO)
Well, I'm thinking about Carl for buybacks.
Carl M. Carlson (Co-President and CFO)
I think it's an attractive area. It's an attractive area. I'm sorry. Go ahead, Laurie. Laurie.
Laurie Hunsicker (Senior Analyst)
No, I was just going to say, Carl, how are you thinking about buybacks?
Carl M. Carlson (Co-President and CFO)
Well, so it's an attractive place to be buying back stock, but we're also very thoughtful about our capital, and we're preserving capital at this point, and using it for growth.
Laurie Hunsicker (Senior Analyst)
Okay, great. Thanks for taking my questions.
Carl M. Carlson (Co-President and CFO)
Sure.
Paul A. Perrault (Chairman and CEO)
You're welcome.
Operator (participant)
Thank you. As a reminder, to ask a question, you can press star one on your telephone keypad. Our next question comes from Chris O'Connell of KBW. Your line is now open. Please go ahead.
Christopher O'Connell (Director)
Hey, good afternoon.
Paul A. Perrault (Chairman and CEO)
Hi, Chris.
Christopher O'Connell (Director)
I don't think I missed it, but apologize if I did. Did you guys give, you know, what the loan pipeline was at, at the end of the quarter, interest or breakdown of the categories?
Carl M. Carlson (Co-President and CFO)
Yeah, we don't really provide pipelines, Chris.
Paul A. Perrault (Chairman and CEO)
They're too hard to define.
Carl M. Carlson (Co-President and CFO)
I would say pipelines are certainly down from previous levels, but we're still very active. More so in the C&I space.
Paul A. Perrault (Chairman and CEO)
The equipment side, finance side.
Christopher O'Connell (Director)
Got it. I guess just, you know, more thinking about how are you guys thinking about loan growth going forward, you know, given that, you know, the funding pressures are starting to abate a bit, you know, has the organic outlook changed? And how are you guys thinking about growth into next year?
Carl M. Carlson (Co-President and CFO)
So we've always kind of targeted $80 million-$100 million of loan growth. I think that still is a target for us-
Paul A. Perrault (Chairman and CEO)
Per quarter.
Carl M. Carlson (Co-President and CFO)
Per quarter. But a lot of that does depend on deposit growth. So as long as the deposits are there, we'll be continuing to grow loans. The market is still active. There's still very good customers that we're talking with. So again, it's about the deposit side.
Christopher O'Connell (Director)
Got it. And as you guys are kind of, you know, looking at the market right now, you know, in the different dynamics, you know, with the Fed tightening, you know, where are you finding, you know, the most attractive, you know, sectors or subsectors, in terms of, you know, what type of growth you want to put on the balance sheet at this point?
Paul A. Perrault (Chairman and CEO)
Well, the equipment and C&I are certainly very attractive, and we're very active in all three banks in these areas. Partly as a result of the displacement of last spring, lots of companies are now banking with somebody that they didn't choose. That has been providing some opportunities for conversations and proposals. That stuff takes a little time to harden up, and that's kind of the period that we're in now, and that's why we have a fair amount of optimism as we go toward the end of the year. Some of these companies want to wait till the first of the year for things like treasury services. There's a good feeling in the air, but it would be in equipment and C&I mostly.
We'll stand by on real estate. We'll take care of our customers, as needed, but there's not that much going on in real estate.
Christopher O'Connell (Director)
Got it. And should we take, you know, the NIM comments, you know, around, you know, another five to six dips, maybe, you know, next quarter, or potentially, you know, better, if you see a little less pressure, to be that, you know, that that could be the inflection point for the margin and start to head up, in 2024?
Carl M. Carlson (Co-President and CFO)
That's our current. Current modeling suggests that.
Christopher O'Connell (Director)
Great. That's all I have for now. Thanks for taking my questions.
Paul A. Perrault (Chairman and CEO)
Thanks, Chris.
Operator (participant)
Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Perrault for any closing remarks.
Paul A. Perrault (Chairman and CEO)
Thank you, Alex, and thank you all for joining us this afternoon, and we will look forward to talking with you again next quarter. Good day.
Operator (participant)
Thank you for joining today's call. You may now disconnect your lines.