Brookline Bancorp, Inc. (NASDAQ:BRKL) Q4 2022 Earnings Call Transcript

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Brookline Bancorp, Inc. (NASDAQ:BRKL) Q4 2022 Earnings Call Transcript January 26, 2023

Operator: Good afternoon. And welcome to Brookline Bancorp, Inc.'s Fourth Quarter 2022 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 would now like to turn the conference over to Brookline Bancorp's attorney, Laura Vaugh . Please go ahead.

Unidentified Company Representative: Thank you, Alexis, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website, 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 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 am pleased to introduce Brookline Bancorp's Chairman and CEO, Paul Perrault.

Paul Perrault: Good afternoon, everyone, and thank you for joining us on today's call. I am pleased to report we had a very productive quarter, which capped off a solid year of performance. As previously announced, we received regulatory approval in December on the acquisition of PCSB Financial and we were able to close on that deal on January 1st. Earnings for the quarter were $29.7 million or $0.39 per share as our loan portfolio grew $223 million, while also recognizing loan participation income of $2.6 million. Before I turn it over to Carl to review the company's financials, I want to make a few comments about the PCSB Financial acquisition. We are very pleased that Willard Hill agreed to join our Board of Directors of Brookline Bancorp and he actually had his first Board meeting here yesterday in Boston.

And this morning, I had my first Board meeting with the PCSB Bank Board now chaired by the new President and CEO, Michael Goldrick. I also want to recognize the tremendous effort of the teams at both PCSB and Brookline, which are keeping us right on track for the core systems conversion in mid-February. I will now turn it over to Carl.

Carl Carlson: Thank you, Paul. As Paul mentioned, the loan portfolio advanced $223 million with growth in all asset classes. Commercial real estate grew $135 million, commercial $42 million, equipment finance $41 million and consumer $6 million. In the fourth quarter, we originated $687 million in loans at a weighted average coupon of 647 basis points. This is up 81 basis points from the prior quarter. This increased the weighted average coupon on the total loan portfolio of 56 basis points during the quarter to 537 basis points at December 31st. Prepayment fees increased $199,000 in Q4 to $1.2 million. The amortization of deferred fees was $1 million, which was $122,000 less than Q3. The combined impact of $321,000 had roughly a 1 basis point benefit on the net interest margin from the prior quarter.

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The provision for credit losses was $5.7 million, an increase of $2.9 million from Q3 and an impact of $0.03 per share in the quarter. The increase was primarily due to strong growth in loans outstanding, as well as continued growth in unfunded commitments. The allowance for loan losses increased $4 million, while net charge-offs were $310,000 or approximately 2 basis points on loans on an annualized basis. The reserve for unfunded credits also increased $2 million from Q3. Credit quality trends continue to be favorable as non-performing loans declined 19 basis points of total loans. However, due to a slight deterioration in economic forecasts, the reserve coverage increased slightly to 1.29%. During the fourth quarter, deposits declined $214 million with investment-oriented balances flowing to higher yielding opportunities.

Deposit betas accelerated in Q4 as total deposit funding increased 43 basis points or 34% of the 125 basis point increase in the Fed funds rate. Our total funding cost increased 65 basis points in the quarter or 52% of the increase in the Fed funds rate. As deposits migrated to higher payment products and asset growth was funded with wholesale funding, resulting in a net interest margin remaining consistent with Q3 at 3.8%. Revenues increased $3.9 million, excluding security gains, driven by a $2 million increase in the net interest income and an increase of $1.9 million in non-interest income due to strong loan participation income, which is reflected in gain on sale of loans. Operating expenses were up $2.7 million due largely to true-ups for incentive accruals and some non-capitalized costs related to software and systems enhancements, as well as increases in FDIC assessments.

Merger expenses were $641,000 in the quarter, a decline of $432,000 from Q3. Pretax pre-provision net revenue was $41.8 million, which was a $2 million increase over Q3. As Paul mentioned, the Board approved a quarterly dividend of $0.135 per share, which represents a 4% yield based on yesterday's closing price. The dividend will be paid on February 24th to stockholders of record on February 10th. This concludes our formal comments. We will now open up for questions.

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