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spk02: Good day and welcome to the Brookline Bancorp fourth quarter 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star and then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on a touch-tone phone. To withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Marissa Martin. Please go ahead.
spk09: Thank you, Tom, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the investor relations page of our website, brooklinebankcorp.com, and has been filed with the SEC. This afternoon's call will be hosted by Brookline Bancorp's executive team, Paul A. Peralt and Carl M. Carlson. Before we begin, please note this presentation is being done from several different locations, so if there is a delay or technical problem, we appreciate your patience and understanding. This call may also 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 Brooklyn Bancorp's results and performance trends and should not be relied on as financial measures of actual results or future predictions. For comparison and reconciliation to GAAP earnings, please see our earnings release. If you can join us on page three of the earnings presentation, I'm pleased to introduce Brookline Bancorp's president and CEO, Paul Perrault.
spk01: Thanks, Marissa, and good afternoon, everyone. As we approached the holiday season and autumn turn to winter, we saw infections and hospitalizations spike higher, and the positive trends we were seeing in Massachusetts, Rhode Island, and New York reversed themselves, as new mandates and recommendations dampened economic activity. We are very optimistic about the promise of the vaccine and the potential impact of the fiscal stimulus provided at the end of the year. Work from home continues to be the predominant theme in the cities of Boston and Providence. The health and safety of our employees and their families is our top priority. With the spike in infections, we also reversed our reopening efforts and paused, encouraging non-branch employees to come into the office once or twice a week until we see a sustained decline in the rate of infections and the benefits of more widespread vaccinations becomes evident. This past year was challenging in many respects, and I would like to recognize our employees for their hard work and commitment. We had a solid quarter of earnings of $26.7 million or $0.34 per share as our credit quality remains stable and our net interest margin improved. We continue to work with a small segment of our customers who are still facing financial challenges relating to the shutdowns and may require additional loan payment deferrals to get to the other side. As I noted last quarter, we had granted 5,422 short-term deferrals on loan balances of $1.2 billion. I'm very pleased to say that as of the end of the year, there were only 298 credits totaling $90 million with loan modifications. I'm also pleased to report the Board approved another 11.5 cent dividend to stockholders, which will be paid in February, and also approved a new $10 million stock buyback program providing management with the flexibility to repurchase stock prudently when the opportunity presents itself in 2021. I will now turn you over to Carl, who will review the company's fourth quarter results. Carl?
spk07: Thank you, Paul. And good afternoon, everyone. On slide four, we've provided summary comparative income statements. Net income was $26.7 million compared to $18.7 in Q3, driven by higher net interest income lower expenses, and a negative $2.1 million provision for credit losses. Revenues increased $1.7 million from Q3 and were slightly ahead of last year. Gains in net interest income were offset by lower non-interest income due to lower deposit fees, derivatives, and participation fee income. Operating costs were lower by $900,000 principally due to lower compensation-related costs. Pre-tax, pre-provision income of $32.4 million improved $2.6 million from Q3 and was only slightly behind last year. As illustrated on page 5, net interest income increased $2.3 million as funding costs declined and processing fees were recognized on an accelerated basis on forgiven PPP loans, as well as higher loan prepayment fee activity. The yield on interest-earning assets improved four basis points from the prior quarter, and the cost of funding declined 14 basis points, resulting in a 15 basis point increase in the net interest margin. If you follow me to slide six, you can reference our comparative summary balance sheets. In the fourth quarter, the company had $8.9 billion in assets, down $58 million from Q3. Loans declined $127 million, and deposits grew $118 million. The allowance for loan losses declined slightly to $114 million and represents 169 basis points of loans, excluding PPP. Slide seven reflects the length quarter and year-over-year activity and composition of our significant loan and deposit categories. As I mentioned, the loan portfolio declined $127 million in the quarter, driven by the forgiveness of PPP loans. Excluding PPP loan activity, The core portfolio declined $48 million. Deposit growth in the quarter was $118 million, driven by the growth in DDA, NOW, and money market products. On slide eight, we are providing the status of our loan payment deferment activity. As Paul mentioned, as of December 31st, 298 credits totaling $90 million continue to have a loan modification under the CARES Act, representing 1.2 percent of total loan balances outstanding. Modifications are predominantly in the equipment finance and commercial real estate portfolios. On slide 9, loan modification information is provided by sector. All loans remain accruing with a handful of downgrades if there were signs of deterioration. We continue to closely monitor the exercise industry as government shutdowns and limitations could have a meaningful impact. As shown on slide 10, 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 year, we had capital buffer of 3.2% for $219 million over regulatory well-capitalized standards. The $10 million stock repurchase program Paul mentioned earlier represents 14 basis points of regulatory capital. Slide 11 provides a history of our regular common dividend payout, which continued this quarter. The Board approved a quarterly dividend of 11.5 cents per share, which we'll have paid on February 26th to shareholders of record on February 12th. In total, we paid out 46 cents in dividends per share during 2020, representing a 4.5% increase over 2019. Our payout currently approximates a 3.5% yield. This concludes my formal comments, and I'll turn it back to Paul.
spk01: Thanks, Carl. Joining us for the question and answer session is Robert Rose, our Chief Credit Officer, and we will now open it up for questions.
spk02: We will now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.
spk05: Hey, guys. Good afternoon. Hi, Mark. Hi, Mark. I was wondering, of the $90 million of loans that you have modified, are most or all of those paying interest? And also, could you help us sort of think about the schedule of the maturity of those deferrals and kind of when they come off?
spk06: Hi. Hi there, Mark. Virtually all of those are paying interest. And at this point, what's been deferred are principal payments. The deferrals that we've granted have been largely 90-day windows at a time. There are certain credits where we have offered different kinds of deferments, which more are like a rewrite, but these are short-term returning to payment soon.
spk05: Okay, great. And then, Carl, I wonder if you could help us think about the core margin. I know you'll have some noise related to TPP stuff, forgiveness. but the core margin, what the trend might look like, and also if there's any unusual items that you anticipate in the course of 2021 on the expense front.
spk07: Yeah, certainly, Mark. From a core margin standpoint, we do expect the margin to continue to improve on a core basis simply because we still have liabilities repricing lower. So I do expect the core margin to be probably flat with this quarter's margin for the first quarter before the benefits of PPP forgiveness. So that's something to take away from. And we do expect PPP forgiveness to be pretty robust in the first two quarters of 2021. Outside of that, as far as expenses go, I would say nothing in particular on the expense side. There's no major programs to save expenses in that sense, and we're being very careful in what we continue to invest in and our strategies there.
spk01: You know what, Mark? Just for legacy purposes, you've been with us a long time. This is the lowest by far that the loan-to-deposit ratio has ever been. Ergo, our wholesale borrowings are the lowest that they've been in memory. And that pattern continues, and that's been very beneficial to helping improve our margin. So for all the wrong reasons, our position at the beginning of this was helpful to get over the rate reduction crisis we all faced earlier last year, and now we're getting the fruit out of that effort.
spk05: Paul, in that same vein, I guess I'm curious as to your thoughts on the branch network in the wake of the pandemic and people moving to a greater degree to online banking. Are you rethinking some of your physical locations?
spk01: Not much more than I usually do. You've heard me say many times that I think branch systems need to be pruned from time to time. Good locations become less good. You want to be in different places. But we're not a branch-heavy company per se. We're We are thinking about the density of those branches in the inner circle of Metro Boston. Some of that might be changed. But in this market, there's a lot more branch opening than closing between Providence and Boston metro areas. I think Chase is putting up almost 100 branches, and they're moving fast on that. PNC seems like they're opening up all over the place. And so we are making sure that we are a fast follower in digital and other electronic ways of dealing with us, both consumer and commercial. I think we're pretty good at that. And the numbers are all pointing north in the use of those tools. But we also had a very good record of opening accounts, most of that in branches, last year. If I wanted to throw rocks at others, I've been heard to say that I think a lot of people are taking advantage of cleaning up their branch systems using the pandemic and saying everything's going electronic. That's not something we need to do aggressively.
spk02: Thank you. The next question comes from Christopher Ketz with DA Davidson. Please go ahead.
spk04: Good afternoon, gentlemen. How are you? Good, Chris. Very good. Thank you. So I wanted to start out just with the move in 90-plus days past due. Is that kind of a factor of the CARES Act deferrals coming to an end and there's a transition period, or is there something in particular driving that?
spk06: No, there's nothing in particular. There are actually three loans that are in the process of being renewed, and their renewal has taken just a little longer than usual, but it's got nothing to do with the CARES Act. It has to do with just getting collateral and organizing ourselves.
spk04: Okay, so presumably, all else being equal, then we would see a decline from that level as those loan renewals get completed.
spk06: That is correct, unless some new one comes along. That is a category that bounces up and down a bit, Chris. Sometimes a loan runs past maturity and the loan officer has some delays in renewing it, and that's usually the case when you see that bounce around like that.
spk04: Okay, that makes sense. Thank you. And then I guess just moving to loan growth and and stepping back to look at it from kind of a big picture standpoint, when do you expect news like the vaccines and the stimulus that we had recently, when do you expect that to translate into more strong growth and when should we get back to kind of pre-pandemic levels of loan growth?
spk01: Christopher, I'm afraid that that one's a little bit too hard for me to even try to take a guess at. You know, we've seen Lots of prepayment activity. We've seen lots of stuff going on. PPP is not immaterial to us, so that moves around a lot. Originations have been uneven but not terrible. I think we've got pretty good pipelines, but economic activity is certainly curtailed. Generally, things are hard to get done. I continue to be optimistic that we can make some positive progress on the balance sheet in loans this year. but it is still only the first inning. So I don't know how helpful that is, but things are okay. Things are okay, but how quickly all this stuff translates into more activity is speculative at best.
spk04: Okay, got it, got it. And then just looking at the deposit composition, I'm curious, do you expect to see further rundown in the CD books?
spk07: On the CDs side, I do expect the CDs to continue to decline. We've got about $371 million in CDs that mature in Q1 at 170 basis points. And our offerings out there right now, even specials, are between 40 and 55 basis points. And people aren't really too excited about locking in their money for any period of time. So they are choosing to move, for the most part, That's a general statement, for the most part, to either a money market account or something more liquid. So I do expect CDs to continue to decline. But deposits have seemed very sticky. And the more the federal government decides to stimulate the economy or help out the economy and those that might need it, we continue to see deposit growth, substantial deposit growth.
spk04: Got it. That's great. Well, thanks for taking my questions.
spk01: Okay, Christopher.
spk02: The next question comes from Laurie Hunsicker with CompostPoint. Please go ahead.
spk08: Hi, thanks. Good afternoon. Hi, Laurie. If we could go back to margin, and I apologize if this was in your comments and I missed it, but the dollars of PPP income that rolled into net interest income this quarter and the impact on margin. Do you have those, Carl?
spk07: Sure. So two big pieces, certainly this quarter. So deferred fees, and this is in total. Deferred fees in total were $1.9 million in net interest income this quarter. $1.4 million of that was PPP forgiveness. And so, you know, in total, deferred fees were up about $1.6 million from the prior quarter. So it just gives you a sense of the impact of that. So almost all of that is the PPP forgiveness piece. And then on the prepayment side, prepayment fees in total were $1.5 million, and that was about $500,000 more than in Q3. So both of those together had a meaningful impact on the margin this quarter. And then the balance really driven by deposit funding and borrowings coming down.
spk08: Got it. Okay. And then do you happen to have a calculated margin number on the PPP forgiveness?
spk07: It was 1.5 million. I want to say it was about seven basis points. Okay. Thanks. That's helpful. And
spk08: And of your 490 million or so of PPP loans that are remaining, what's the unamortized fees around that?
spk07: You know what? I think you asked me this that last quarter, and I didn't have the number at my fingertips, and I still don't have the number.
spk08: Oh, you know what? I'm sorry. I'll follow up with you offline. I'll talk to you offline. Okay. Great. Thanks. And then, Paul, a question for you, a bigger question. I mean, in the past, you've talked about M&A. Obviously, there's been a lot to think about here in the last 10 months. But your stock currency is back up. There's obviously a lot happening in your market. How are you thinking about M&A here?
spk01: Well, we keep our ear to the ground. We would be open to looking to do something. But even though the stock has come back somewhat, that's a relative term. It's not back so strong as to make some of these things easy. particularly given expectations. But I feel about the same way. I think deals are doable. They're just more difficult in this environment, and it would be a little bit easier if the stock price were somewhat higher. So I haven't really changed my opinion, I don't think.
spk08: Okay, great. Thanks. I'll leave it there.
spk01: Yep.
spk02: As a reminder, if you have a question, please press star and then one to be joined into the queue. Our next question comes from William Wallace with Raymond James. Please go ahead.
spk03: Thanks. Good afternoon. Hi, I apologize if this question was asked and answered already. My call dropped, so I had to dial back in. I caught in the live transcript some conversation about loan growth, and I know that you said that it was hard to answer. I'm curious if you can talk about how pipelines have been building, if they've been building, or what you're seeing in the pipeline activity.
spk01: The pipelines have been slowly rebuilding. You've got to also remember that besides the pandemic, the early part of the year, particularly in commercial banking, is not the most robust by any means. Things usually slow down at that point. Companies are getting themselves reorganized, getting ready for their taxes and all that kind of stuff. But I'm feeling okay about the outlook. What has slowed us down here in Q4 and early this year has more been the prepayments. And the whole picture gets clouded by PPP, which was a lot of the production when you looked at the sort of middle part of last year. The bankers were exceptionally busy doing that. So I'd say here we go again, at least for the moment. We're working on, I believe it's approximately 1,500 loans already. In PPP3, I heard it's being called. So, Wally, I'm not trying to dodge you, but I think if you tried to model modest growth somewhere along the year here, I could probably agree with that.
spk03: Okay, including the new PPP loans?
spk01: Well, I'm saying sort of when you net everything out. Kind of when you net everything out, right? those PPP loans will have characteristics. PPP-3 will have characteristics that are likely to be different than 1 and 2. And I guess I don't have my head wrapped around what those differences might be, how long they might be around, how they might be used, and how they might prepay. So I'm sort of washing everything into the same bucket and saying if you saw a balance sheet show modest growth, consistently through the year, I would be okay with that.
spk03: Okay. All right.
spk01: The PPP-3 is going to replace PPP-1 and 2.
spk03: Yeah. So what's the dollar amount of the applications on Part 3 so far? And, you know, as you kind of watch the cadence of those applications come in, what might you think you might end up with on the Part 3?
spk01: The last part, Wally, is almost impossible to tell. because people are moving in a more paced way than they did at the last one. I think I was just told about 130 million. We have 130 in process right now. In the pipeline. But there's a lot more capacity left in the plan at the federal level. And we do know from talking to customers that they're kind of taking their time about it because they recognize that they got more time and capability and capacity this time whereas last time it was a scramble before the bucket ran dry.
spk03: Yeah. Okay. All right. Great. Well, thanks for helping clarify those statements. I know it's pretty tricky right now, so we'll see how things play out.
spk01: Thank you. We're doing our best to be precise, but it's tough.
spk03: Understood.
spk02: This concludes our question and answer session. I would now like to turn the conference back over to Paul Peralt for any closing remarks.
spk01: Okay. Thank you, Tom, and thank you all for joining us, and we will look forward to talking with you again next quarter. Have a good day.
spk02: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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