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spk01: Hello and welcome to the Brookline Bancorp Inc. Q1 2022 Earnings Call. My name is Katie and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. I'll now hand over to your host, Marissa Martin, to begin. Marissa, please go ahead.
spk02: Thank you, Katie, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which are available on the Investor Relations page of our website. BrooklineBancorp.com and have been filed with the SEC. This afternoon's call will be hosted by Paul A. Peralt 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 Brooklyn Bancorp's Chairman and CEO, Paul Perel.
spk07: Thanks, Marisa, and good afternoon, everyone. Thank you for joining us on today's call. I'm pleased to report we had another quarter of solid earnings of $24.7 million, or 32 cents per share. And as well, we did an increase in our quarterly dividend of 4% to bring it to 13 cents per share. On an annualized basis, our core loan portfolio grew 6.9%, and deposits grew by 5.5%, excluding the $50 million pay down in broker deposits. Our core margin, excluding PPP, continued to improve and increase seven basis points from Q4. Our bankers continue to be very active in our select markets, and I am very optimistic for the balance of the year. I will now turn you over to Carl, who will review the company's first quarter. Carl?
spk04: Thank you, Paul. As Mercer mentioned, we have provided an earnings presentation on our website and has been filed with the SEC. I will not be doing a slide flip for this quarter. Net income this quarter was $24.7 million, which was $3.8 million lower than last quarter. The decline is primarily due to lower PPP revenues of $2.7 million, and lower derivative and participation income of $5.2 million after coming off an unusually strong fourth quarter. This was partially offset by stronger core margin as well as lower operating and provisioning expenses. Overall, our net interest margin declined three basis points to 3.49%. Again, this was due to lower PPP revenues. Excluding the favorable impact of PPP on our margin, NIM increased seven basis points from Q4 to 3.44%. The loan portfolio overall increased 69 million from the prior quarter, driven by a growth in our core portfolio of 122 million, offset by PPP loan satisfactions. At the end of March, we had 56 PPP loans with 14 million outstanding and approximately 400,000 . In the first quarter, we originated 550 million loans at a weighted average coupon of 399 basis points. The weighted average coupon total loan portfolio rose one basis point during the quarter to 396 basis points on March 31st. Prepayment fees were $1.5 million in Q1, which was down $210,000 from Q4, and deferred fees were $1.4 million, or $342,000 less than Q4, resulting in a net positive impact on net interest income of $132,000 in the quarter. Our credit quality and the economic environment continue to improve, resulting in slight negative provision for loan losses. At quarter end, there were 69 credits, totaling $15 million, remaining with a loan modification under the CARES Act. Our reserve coverage is at 132 basis points, and our capital position is strong. First quarter saw significant increases in interest rates, particularly in the mid- to long-term rates, and the Federal Reserve increased short-term rates 25 basis points in March. The sharp increase in market rates impacted the value of our securities portfolio, which is classified as available for sale. The $29 million after-tax accounting impact of market-to-market securities portfolio had a negative impact of 38 cents per share on tangible book value for the quarter. After accounting for earnings and dividends, shareholders' equity declined 13 million, and tangible book value declined a net 17 cents in the quarter. Currently, the market is pricing in further increases in short-term rates, which have the potential to benefit us due to our moderately asset-sensitive position. Assuming a flat balance sheet and a forward curve as of 3-31, our simulations reflect a 6.8 percent increase in net interest income over the next 12 months. Our simulations reflect a blended beta of 46 percent on interest-bearing deposits. As Paul mentioned, the Board approved an increase to our quarterly dividend to 13 cents per share, which will be paid on May 27th to stockholders of record on May 13th. On an annualized basis, our dividend payout currently approximates a 30.6% yield. This concludes our formal comments, and we will now open it up for questions.
spk01: If you would like to ask a question, please press star followed by one on your telephone keypad now. If you would like to remove your question, please press star followed by two. And when preparing to ask your question, please ensure your phone is unmuted locally. We take our first question from Mark Fitzgibbon from Piper Sandler. Please go ahead, Mark.
spk05: Hey, guys. Good afternoon. Hi, Mark. Hi, Mark. First question, Carl, I wonder if you could help us think about the outlook for fees. You know, you guys have a little bit of volatility there recently, and I'm just wondering if you could help us think about particularly loan level derivative income and the gain on sale line.
spk04: Those are volatile. I think that's my best estimation on that. It really depends on the types of loans that we're doing in the pipeline, whether we're going to be participating in that or not, or doing swaps. We didn't do a lot of swaps this quarter, but that's That's something that is volatile. It's hard for me to give you a really good estimation from a quarter to quarter. It is an activity. It is growing within our loan departments and our clients, but it is something that from a quarter to quarter basis, I really won't... I would add, though, Mark, just to make sure you understand that that gain on sale is entirely in commercial banking participations.
spk07: We do not... any longer sell residential loans into the market, into the secondary market. So it's all stuff that we originate here that are with friends and family.
spk05: Okay. Second question, Paul, I guess I'm curious as I was looking at sort of the breakdown that you had between the two banks. Have you given any more thought to potentially consolidating the charters of those two companies in an effort to reduce costs? Does that make sense? Or maybe asked a different way, why wouldn't you do that?
spk07: Well, it looks to me like it's working pretty well. That's why I wouldn't do it. And the reporting structures are terrific. And so the CEO in Rhode Island handles that whole market. And I would fear... that we would be leaking functionality and we would lose the presence in each of the markets being totally controlled by their CEOs. And I look at our efficiency ratio and it looks pretty good on a relative basis. And so I think it's beneficial and it is a pattern that perhaps can be expanded.
spk05: Okay. And I wonder if you could also maybe update us. I know it's early days, but update us on how things are going at Clarendon Private.
spk04: Exactly that. Very early days. But we've had, you know, very strong response, you know, from both of our banks as far as referrals and things of that nature. And I think we're doing quite well with the reception by customers.
spk05: Okay. And then lastly, Carl, the margin. I heard what you said about the NII impact. how are you thinking about the second quarter margin with, you know, the remaining PPP burning off and, you know, what the rate impacts, rate hikes we've seen thus far?
spk04: So, you know, like I said, PPP only, there's another 400,000 left on that. I'm not sure if that's, you know, when that's going to come in, quite frankly, it's just the timing of when people are going to be satisfied on that. Right now, when we model, you know, forward curves and, you know, right now, I think there's this, almost consensus that the Fed's going to raise 50 basis points in May. If that happens, I would not be surprised to see our margin expand by 10 basis points in that range. You know, we're talking about 344 as a core margin. I would expect that to improve by about 10 basis points in the second quarter. Great. Thank you.
spk01: The next question comes from Lori Hunsicker from CompassPoint. Please go ahead, Lori.
spk03: Yeah, hi, thanks. Good afternoon. Hi, Lori. Just wanted to make sure I heard. So prepay fees that were in that interest income this quarter, that was $1.5 million, is that correct?
spk04: That's correct.
spk03: Okay, great. Great. Okay. And then non-interest income, can you help us think about NSF and overdraft fees and how you're thinking about a more sort of consumer-friendly option when that hits the income and just maybe quantify for us how much is actually in this quarter?
spk04: Well, sure. So on a quarterly basis, on a combined basis for both banks – NSFs are about $402,000, about $400,000 a quarter. You break that down, it's about 280,000 in consumer, and the rest is about 120,000 in commercial to get a sense of the overall size of that. We continue to look at that and to work on what we want to do on that in the future.
spk03: Okay. That's helpful. In occupancy expense, it looks like there was a pretty sharp uptick. Link quarter, did I miss something? Did you guys open another branch or do you have a redo or is this a good run recently?
spk04: It was a combination of maintenance. It was really maintenance entirely. It wasn't like rent or anything like that. It was a lot of maintenance. Some of it's snow removal and other things that may have happened at the branches that needed some maintenance.
spk07: A lot of bad weather this winter.
spk03: Yeah. Okay. Fair. Okay. And so that should be running closer to three and a half or so per quarter. Is that the right way to think about that?
spk04: I think so. I think so.
spk03: Okay. Okay. Great. And then, Paul, last question for you. Can you give us a refresh on any acquisition chatter and just how you're approaching acquisitions, what you're seeing out there, any thoughts from the standpoint that, you know, with rates up, obviously your interest rate marks are much more expensive. And so just anything you're hearing in terms of how that might be impacting M&A. Okay.
spk07: Well, I'm not hearing any more or less than I usually do. And we certainly were in the conversations with the flurry of activity that's going on here in the past couple of years, obviously not on the acquiring end of those conversations. So other than the potential pool continuously reducing, I wouldn't say that there's anything much new in the whole arena.
spk03: Okay, thanks for taking my question.
spk07: Happy to.
spk01: As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad now. We take our next question from Chris O'Connell from KBW. Please go ahead, Chris.
spk06: Hey, good afternoon, guys. Hi, Chris. So just want to follow up on the expense discussion. I know that there was a you know, some higher accruals and salaries, et cetera, in the fourth quarter, which came off this quarter. But I think the guys for the year was around, you know, 5% to 6% for 2022 for the full year. Is that still how you guys are feeling about it after, you know, pretty good first quarter?
spk04: We're still feeling that that's likely the right trend that we're going to be seeing.
spk06: Okay, great. And then, I mean, you guys still have pretty robust capital levels here. Obviously, you know, the dividend increase, you know, you're comfortable with them and, you know, not a very big impact on AOCI relative to others. Can you just remind us how you're thinking about, you know, the buyback utilization going forward?
spk04: We do have the $20 million approved program. We didn't buy anything back during the very first three months of the year, but there's been a lot of market volatility, so we may see more activity as we go forward. So we've got the capability to do a buyback right now.
spk07: You know, we just... Got to be at the right price. Be at the right price.
spk06: Yeah, absolutely. And then I appreciate the color on the originations and the yields during the first quarter. You know, just given the uptick in rates even post, you know, the first quarter moves, where are you seeing, you know, the new loan yields come on the balance sheet at? Sorry, what is the question? Origination yields, where they're coming on at. Origination yields for the first quarter? No, currently, I think. No, yeah, currently.
spk04: I don't have the actual yields that we're booking loans at currently, but we've seen a really nice increase in, you know, the two-year and five-year. That's basically where we live for most of our, you know, originations. And so, we've seen that increase substantially from December. And so we're in that category right now.
spk07: A lot of the real estate loans are priced off the five-year federal home loan bank deal. And virtually all of the swaps are something over LIBOR. And obviously LIBOR is going up from 12 basis points to 50 or whatever it is. So without having the data right in front of us, we can feel that there's been improved origination yields.
spk06: All right, great. Thanks for taking our questions.
spk07: Okay, Chris.
spk01: We have no further questions on the line, so I'll hand it back to Paul Peralt for any closing remarks.
spk07: Well, thank you, Katie, and thank you all for joining us, and we look forward to talking with you again next quarter. Good day.
spk01: Thank you all for joining. This now concludes the call. Please disconnect your lines.
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