Q3 2023 Brookline Bancorp Inc Earnings Call

Thomson Reuters StreetEvents

Fri, Oct 27, 2023, 3:39 AM18 min read

In this article:

Participants

Carl M. Carlson; Co-President & CFO; Brookline Bancorp, Inc.

Laura Vaughn; Attorney; Brookline Bancorp, Inc.

Paul A. Perrault; Chairman & CEO; Brookline Bancorp, Inc.

Christopher Thomas O'Connell; Director; Keefe, Bruyette, & Woods, Inc., Research Division

Laura Katherine Havener Hunsicker; Senior Analyst; Seaport Research Partners

Mark Thomas Fitzgibbon; MD & Head of FSG Research; Piper Sandler & Co., Research Division

Nicholas Anthony Cucharale; Director; Hovde Group, LLC, Research Division

Stephen M. Moss; Research Analyst; Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good afternoon, and welcome to the Brookline Bancorp, Inc.'s Third Quarter 2023 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.
I'd now like to turn the conference over to Brookline Bancorp's Attorney, Laura Vaughn. Please go ahead.

Laura Vaughn

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 flip 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 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.
I'm pleased to introduce Brookline Bancorp's Chairman and CEO, Paul Perrault.

Paul A. Perrault

Thanks, Laura, 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's strong]new relationships in our markets.
The loan portfolio grew by $40 million and customer deposits grew by $88 million in the quarter. Nonperforming 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 it over to Carl who will review the second quarter results.

Carl M. Carlson

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, the 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 loan -- 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 brokered 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 $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.
Noninterest 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 of $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'll turn it back to Paul.

Paul A. Perrault

Thank you, Carl. We will now open it up for questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question for today comes from Mark Fitzgibbon of Piper Sandler.

Mark Thomas Fitzgibbon

Carl, I wondered if you could share some thoughts on the net interest margin. The rate of decline has obviously slowed some. Any help that you could share with us on fourth quarter NIM in terms of additional margin compression.

Carl M. Carlson

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 are going to have as much NIM compression as we did experience, the 8 basis points.
But right now, we're estimating to be around 5 to 6 basis points next quarter. Again, that all depends on what's going on with deposits. We're kind of modeling some aggressive moves -- continued aggressive moves in deposits. Our bankers are actually suggesting it might be far less than that, but we'll see.

Mark Thomas Fitzgibbon

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

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. And I'm pretty optimistic that, that will be in the right place fairly soon.

Mark Thomas Fitzgibbon

Paul, you say well owned, was there participation with a bunch of other banks?

Paul A. Perrault

No, no. It's a property owner and manager who has partners in it with him. I think we may have participant bank to -- on our side. But I was really referring to it's a bunch of investors who own it and it's managed by one very able guy.

Mark Thomas Fitzgibbon

Okay. And any color on what the LTV and debt service look like at origination?

Paul A. Perrault

I would be speculating. 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 Thomas Fitzgibbon

Okay. And then I guess I was curious at a high level, you guys traffic in a lot of different commercial and commercial real estate areas. What areas are you sort of monitoring most closely today or where you have kind of enhanced monitoring. What pieces of the loan book are you most focused on and watching carefully?

Paul A. Perrault

Well, I think it's going 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 cap rates are looking like, what trades are happening in the marketplace and occupancy, but it's really been very quiet, particularly in Metro Boston but it's been a little bit more active in Westchester. But most of the loans, as you know, are sort of inside 495.

Mark Thomas Fitzgibbon

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

Yes, we're still not reporting that out at this point, still early in the game, but everything is proceeding as we expect.

Operator

Our next question comes from Nick Cucharale from Hovde Group.

Nicholas Anthony Cucharale

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

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. And 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 our customers. And 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.

Nicholas Anthony Cucharale

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

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

And it jumps around.

Carl M. Carlson

It jumps around. It does jump around, but it's slowing down.

Operator

Our next question comes from Steve Moss of Raymond James.

Stephen M. Moss

Just curious here if we just talk about loan pricing, (inaudible) loans are coming on the books and kind of that dynamic.

Carl M. Carlson

Sure. What would you like to know?

Stephen M. Moss

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

So third quarter numbers are on average for the third quarter. So things are comping in certainly higher than that. As you know, the [5-year] has moved substantially even since September. So I don't have specific numbers to date, but all the pricing is doing much, 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 from 2 out of 10 move particularly around 5 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.

Stephen M. Moss

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

Almost $2.7 million on loans.

Stephen M. Moss

Okay. And then in terms of just curious on expenses here, 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

We feel like we're going to be right around this area, around the $57 million quarter at this point with slight growth going into next year.

Stephen M. Moss

And then just one more for me. I saw on the deck, you guys had your maturities, the first CRE over the next 24 months. Just curious kind of what's coming due? 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 do you see any stress in that [theory] maturity pipeline?

Carl M. Carlson

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 going to be very similar to the overall portfolio. It sounds like we have a lot of -- pretty much steady of what we actually book.

Paul A. Perrault

Those loans were well underwritten. They've performed very well. The expectation is that, that will continue. And in terms of current loan-to-value, it's a very difficult environment because there have been so few trades, but 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 are not in the right locations, and they might not have been well owned. So I don't expect that there will be a lot of noise in those renewals.

Operator

Our next question comes from Laura Hunsicker of Seaport Research Partners.