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spk05: Good day and welcome to the Brookline Bank Corp first quarter 2021 earnings call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Marissa Martin, Associate General Counsel. Please go ahead.
spk04: Thank you, Betsy, and good afternoon, everyone. Yesterday we issued our earnings release and presentation, which is available on the Investor Relations page of our website, Brookline Bancorp, 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's 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 Brookline 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 could join us on page three of the earnings presentation, I'm pleased to introduce Brooklyn Bancorp's president and CEO, Paul Peralta.
spk01: Thanks, Marissa, and good afternoon, everyone. Thank you for joining us for today's earnings call. With COVID-19 case numbers trending down in Massachusetts and Rhode Island and vaccine numbers increasing, we remain quite optimistic for the future. Our branch locations are all fully open with employees providing all services to our customers, while for the most part, our non-branch employees continue to work from home. We are following the guidance in both Boston and Providence for employees who would like to return to the office one or two times per week, and that is an evolving picture here over the next couple of months. Turning to our earnings, I am pleased to report we had a solid quarter of earnings of $26.5 million. or 34 cents per share as our credit quality remains stable and our net interest margin actually improved. We continue to work with a small segment of our customers who are still facing financial challenges related to the shutdowns and require some additional loan payment deferrals to get to the other side. As of March 31, there were loans of $126 million with modifications under the CARES Act. The company recorded a negative provision for credit losses of $2.1 million, and our reserve for loan losses declined four basis points to 165 basis points on outstanding non-PPP loans. In Q1, we experienced another quarter of significant lending activity as our bankers worked with our customers on the latest round of PPP loans. We facilitated $133 million of loan forgiveness payments during the first quarter, and an additional $240 million of PPP loans were made. Outside of PPP, prepayments continue to offset growing loan demand. We continue to see improving trends and pipelines continue to grow. I'm also pleased to report the Board approved a 4.3% increase in our quarterly dividend to $0.12 per share. I will now turn you over to Carl, who will review the company's first quarter. Carl? Thank you, Paul.
spk08: On slide four, we have provided summary comparative income statements. Net income was $26.5 million driven by higher pre-tax, pre-provision revenue and a negative $2.1 million in the provision for credit losses. Q1 revenues increased $1.5 million from Q4 and were $2.9 million ahead of last year. and operating costs were 800,000 higher due to seasonally higher compensation related costs. As illustrated on page five, net interest income increased 900,000 as funding costs dropped faster than the yield on earning assets. The yield on interest earning assets declined three basis points from the prior quarter as the cost of funding declined 15. If you follow me to slide six, you can reference our comparative summary balance sheets. In the first quarter, the company finished with $8.6 billion in assets, down $382 million from Q4. Loans were flat, while cash and securities combined declined $320 million as we used excess liquidity to pay down broker deposits and federal home loan bank advances. The allowance for loan losses declined slightly to $110 million and represents coverage of 165 basis points on loans, excluding PPP. Slide 7 reflects the length quarter in year-over-year activity and composition of our significant loan and deposit categories. As I mentioned, the loan portfolio overall was flat from the prior quarter as the growth in PPP loans of $116 million offset declines of $117 million in the rest of the portfolio. Broker deposits were reduced $223 million as we saw non-broker deposits grow $179 million in the quarter. We continue to see strong growth in demand and money market deposits, and consumers continue to shift funds from CDs to other deposit products. Slide eight provides a snapshot of the PPP program at each of our banks. At the end of the quarter, we had over 3,400 loans with $605 million outstanding. Net deferred fees of approximately $14 million will be recognized into income over the life of these loans. As Paul mentioned, we had 133 million in PPP loan satisfactions during the first quarter, with most of the activity occurring during March. On slide nine, we are providing the status of our loan payment deferment activity. As Paul mentioned, as of quarter end, 341 credits totaling 126 million have a loan modification under the CARES Act representing 1.7% of total loan balances. Loan modifications are provided by sector on slide 10. All loans remain accruing with modifications concentrated in the laundry, fitness, and tow 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 3.5% or $239 million over regulatory well-capitalized standards. Slide 12 provides a history of our regular common dividend payout. Yesterday, the Board approved a quarterly dividend of 12 cents per share to be paid on May 28th to stockholders of record on May 14th. On an annualized basis, our payout approximates a 3% yield. This concludes my formal comments, and I will turn it back to Paul.
spk01: Thanks, Carl. Joining us for the question and answer session is Robert Rose, who is our Chief Credit Officer. We will now open it up for questions. Betsy?
spk05: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're 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 then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.
spk07: Hey, guys. Good morning, or I guess good afternoon. First, I wondered if you could share with us the size and complexion of your loan pipelines, excluding the PPP loans, any that are in process. Robert?
spk02: Well, you know, Mark, hi. It's Bob Rose. I will tell you that Business has picked up significantly this quarter, and it's fairly balanced, well-balanced between CNI and Cree. We see it in our loan committees. The new-to-new is up quite a bit in the quarter, and it's actually running higher than new-to-new. I can tell you that the loan officers across the board are reporting more interest in activity. And in the equipment world, there is strong demand for laundry equipment. in the way of consolidations, equipment refreshes, and in the exercise world, demand is actually rising for acquisitions, and the manufacturers there are also pushing equipment refreshes. There is a bottleneck in both those latter places, laundry and exercise for equipment, but it is fairly broad, and it is an impressive sea change rather quickly.
spk07: Okay, great. And then, Carl, could you talk a little bit about your expectations for the margin over the next few quarters, including and not including, excluding PPP income?
spk08: We'll continue to see pressure on the net interest income prior to the PPP forgiveness period. While we'll still see, it all depends really on this loan growth. So I really want to kind of caution that. There is a lot of activity, so it depends on what gets booked during this quarter. But overall, a lot of it's going to be, we'll see a little bit of benefit on the funding side as we continue to see CDs reprice into other deposit products. And we continue to pay down brokered funds as well as federal and world bank advances. So we'll see some relief there. But what I want to caution here is we just put on $250 million of PPP loans. And as you know, these carry a 1% coupon. And while they come with a lot of fees, it all depends on how fast those fees get recognized. And that really depends on the... on the forgiveness, on the magnitude and speed of the forgiveness. These loans are now five-year loans. I tried to provide you guys a lot of detail behind that. So the yields of these loans, if they don't get forgiven, are very low. It's probably in the 160 to 170 area from a yield perspective. So I think a lot of it is going to be the timing of the PPP and, of course, how fast we book new loans.
spk07: So the core margin, Carl, this quarter was what?
spk08: Yeah, I'm not providing a core margin. I'm letting you guys try to figure that out yourself. I said the deferred fees of $1.4 million related to PPP loans came in during the quarter. So you could take that out and say, well, that's the core margin.
spk07: Next, I was curious if you could update us on your planning for crossing $10 billion, what kind of incremental costs we're likely to see this year, next year, and if you could just refresh us on the impact that you expect from Durban.
spk01: I'll take half, and then I'll give Carl half. We will pass the $10 billion when we pass it. We're not afraid of it. We're not racing to it. We're not running away from it. it will happen naturally. We feel we are very, very well prepared and have been for a long time already employing the practices that are required when you're over $10 billion, everything from board risk committees and model testing and all the other stuff that one needs to do. We've been doing for a long time. So from an operational point of view, I don't see anything at all happening when we cross. As to Durbin, I'll let Carl talk.
spk08: We estimate that to be somewhere in the million to $2 million range on the Durbin side. Okay.
spk07: And then lastly, kind of a multi-part question. Obviously, there's been a lot of consolidation in your backyard recently. Really? Some of those banks have, believe it or not, suggested that scale is is really important to be competitive. I guess part one is, do you agree with that? And part two, if you could talk maybe a little about the opportunity that you see to steal customers, employees from some of these other banks that are going through consolidation and where you might see the most opportunity. Thank you.
spk01: I find it funny, Mark, that banks of virtually every size, 100 million to 100 billion, all say that Nirvana is the next size up for them. And so it's a peculiar thing, and I think we can appreciate that it seems that in most things in banking, economies of scale are reached fairly early on and are not better when you get to be enormous. So, you know, I'm not a big believer in it once you're of a certain size. Now, having said all of that, the five deals sort of around us that have happened here recently I think are a unique and wonderful opportunity for us. We're big enough. We're capable. We're in the right business lines. We're not a retail-oriented place. We're not a big residential lender or credit cards or things where maybe scale is a bit more important. So I think for the next couple of years, there's going to be a lot of very unhappy people at some sizable institutions that are going to be looking for new friends. It almost feels like it has started, as Bob had reported, that we are seeing a larger content in our new loan approvals with new customers than we've seen in some time. Great. Thank you.
spk05: Our next question comes from Laurie Hunsaker with Compass Point. Please go ahead.
spk03: Hi. Good morning.
spk01: Hey, Laurie.
spk03: Afternoon by now. You know, where is it?
spk01: At least where we are. I know.
spk03: Just to follow up on where Mark was going, can you just help us think about this a little bit more? So I'm looking at the Boston marketplace, and I'm looking at the publicly traded Massachusetts-based banks. We obviously have Eastern. They just did a deal. INDB, they just did a deal. And then there's you. And I guess, you know, for starters, number one, can you just expand a little bit more on your current approach to M&A and Given the fact that you're trading one-sixth a book, how you think about it, how protective you'll be around tangible books, dilution, earn back, how you think about that. And then also point number two, can you help us think a little bit about geographically where you would want to stay if you thought about M&A? And I guess the last point is, how do you think about asset size? In other words, how small would you go? Would you entertain an MOE? Just any further comments around that would be super helpful. Okay.
spk01: Well, I don't think I've changed my opinion about M&A or what I do or not do in quite a long time. I think it's fair to say that the recent deals announced in this area had a similar characteristic in that in most cases, the acquirers had special currencies that they were able to use in order to accomplish some very light damage, if any at all, to capital ratios, tangible book, and all that kind of thing. And in Eastern's case, it was all cash because cash is what was needed to get that deal done. So, you know, I haven't changed my mind. An in-market or near-market deal has got to make financial sense. We wouldn't go overboard on its solution, as you know, and we would need to be able to see tangible benefits in the relatively near future. on earnings mostly, maybe a little product diversification, but that would be about it. If we went out of town to do something, I don't want to draw a line in the sand, but maybe the smallest that we'd go would be a billion dollars. It's got to look and feel like a market that we'd be comfortable with. They have to be in business lines that we would recognize and be able to help them with. And it would need to be a management team that's going to stick around and be helpful. And that's about it. So in terms of – did I answer all your pieces?
spk03: Yeah, I just – maybe one more. Can you comment a little bit?
spk01: I would just add, though – let me just add that I don't feel under the gun by any means to go do a deal.
spk03: Okay. That's good. And what about an MOE? How would you think about an MOE or – Yeah, somebody like-minded.
spk01: I mean, I think of an MOE the same way that I would do any deal, whether I'm buying or selling. The righteousness, the propriety of the transaction is paramount, and it's got to be evident and not speculative, and it's got to make sense for everybody.
spk03: Okay. Okay, great. Thanks. And, Carl, just last question for you, tax rate – Was 24.9%. I think I was using 26%. Anything I should think about there in terms of tax rate?
spk08: No, 25 is what it looked like for the quarter. That's what we estimated for the quarter for the full year. It all depends on what happens with taxable income as we move forward throughout the year. And I think that's going to depend a little bit on what our provisions are going to be in the future as well as how fast forgiveness comes in. And we'll true up whatever that tax rate needs to be based on what the full year looks like. So 25 is what I would use.
spk03: Okay, great. Thanks for taking my questions, and thanks for all of the credit details. Helpful.
spk01: Thank you.
spk05: As a reminder, if you have a question, please press star then 1 to be joined into the queue. Our next question comes from Christopher Keith with DA Davidson. Please go ahead.
spk06: Hey, good morning, everyone. Hi, Chris. So I just wanted to ask, the CRE loan yields look to be stabilizing late quarter. Can you share where the new loans are coming on right now?
spk08: Sure. So, you know, just in total for the book, a lot of times you guys ask me that question. For the whole portfolio, we booked about $328 million in originations or draws during the quarter. That's excluding the PPP loans. And the Cree book, the weighted average coupon, so this excludes fees and things of that nature, but the coupon itself was $365. Okay.
spk06: Great. And then... Looking over at loan growth and the core commercial loan portfolio, so XPPP, the contribution looks like it's continued to decline over the last several quarters. So I'm just curious how much of that is driven by lower line of credit utilization, if at all?
spk01: In our case, it's been driven more because we have a very high-quality portfolio of family-owned and operated businesses and businesses We've just seen too many of them decide to sell in a market where they're reaping a lot of money and they just pay us off. I can't tell you technically how much less line utilization. Do you know, Carl?
spk08: But I don't think – I don't think the line – we monitor that, and I don't recall that changing much at all. So I think it's mostly just pay downs. Payoffs. Payoffs. Sales and things of that nature.
spk01: It's amazing. It's amazing to me what's been going on. Lots of companies are just selling out.
spk08: Well, it's consolidation.
spk01: Yeah.
spk06: Yeah. Got it. Well, thank you. That was helpful. And then I guess just looking at the CRE – portfolio, I assume paydowns and payoffs are also a headwind or had been a headwind there. Is there any shifting in the momentum heading into the second quarter? Robert?
spk02: You know, I don't think there is. You know, that portfolio shrank by about $35, $36 million in the quarter. And you've got to add up construction and add up Cree and look at the two together. And, you know, they pretty proportionately came down in the quarter. But they are people paying, people being careful during this time. But as I said earlier, there's a lot of stepping out and wanting to, you know, do the next thing because a lot of these guys have been dormant during the past 15 months, 12 to 15 months.
spk06: Got it. Got it. Thank you. And then just last one for me. So I think you had maybe somewhere around $370 million in CD maturities during the first quarter. I was curious what the retention is around those maturities and then if you have any additional color around coming CD maturities.
spk08: Sure. So the new volumes that we had were about $263 million were booked. at a rate of about 43 basis points. And that was the new volumes in the quarter. We had runoff of about 360, you know, we had paydowns of 365, and then new bookings of 263.
spk06: Okay. Got it. That's very helpful. Thank you so much.
spk08: The things that were coming off were coming off at 183, just so you have a sense of the change. Thank you, Chris.
spk06: Got it.
spk08: Thank you.
spk05: This concludes our question and answer session. I would like to turn the conference back over to Paul Peralt for any closing remarks.
spk01: Thank you, Betsy, and thank you all for joining us today, and we look forward to talking to you again in the next quarter. Have a good day.
spk05: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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