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spk09: 2023 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'd now like to turn the conference over to Brookline Bancorp's attorney, Laura Vaughan. Please go ahead.
spk08: 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, BrooklynBainCorp.com, and has been filed with the SEC. We will not be doing a slide set this quarter. This afternoon's call will be hosted by Paul A. Pearl and Carl M. Carlson. This call may contain forward-looking statements with respect to the financial conditions, results of operations, and business of Brooklyn BainCorp. 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 those factors that could cause actual results to differ materially from these forward-looking statements. Any references mentioned in this presentation to non-GAAP measures are only made to assist you in understanding Brooklyn Bankrupt'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 Bainford's Chairman and CEO, Paul Holt.
spk07: 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 26 cents a share. Our bankers remain active, and we continue to see lots of opportunities to bank strong new relationships in our markets. The loan portfolio grew by $40 million, and customer deposits grew by $88 million in the quarter. Non-performing 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 allowances The loan loss represents 127 basis points of total loans. I'll now turn you over to Carl, who will review the second quarter results.
spk06: 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 team generated net loan growth of $40 million in the quarter, with growth of $48 million split evenly between CNI and Equipment Finance. with 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 core loan portfolio 14 basis points to 582 basis points at September 30th. 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 broker deposits were reduced $39 million for net growth and deposits of $49 million. Growth continued to be in higher-weight 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 eight basis points to 3.18%, resulting in net interest income of $84 million, a decline of $2 million from the second quarter. Non-interest 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 at $0.135 per share to be paid on November 24th to stockholders of record on November 10th. On an annualized basis, our dividend payout approximates a yield of approximately 6.3%. This concludes my formal comments. I will turn it back to Paul.
spk07: Thank you, Carl. We will now open it up for questions.
spk09: Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Mark Fitzgibbon of Piper Sadler. Your line is now open. Please go ahead.
spk03: Hey, guys. Good afternoon. 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?
spk06: 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 were going to have as much compression as we did experience the eight basis points. But right now, we're estimating to be around five to six basis points next quarter. Again, that all depends on what's going on with deposits. We're kind of modeling some aggressive moves and, you know, continued aggressive moves in deposits. My bankers are actually suggesting it might be far less than that, but we'll see.
spk03: 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 non-accrual?
spk07: Office buildings. 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.
spk03: Paul, you say well-owned. Was it participation with a bunch of other banks?
spk07: No, it's a property owner and manager who has partners in it with him. I think we may have a participant bank, too, on our side. But I was really referring to it's a bunch of investors who own it. It's managed by one very able guy.
spk03: Okay. And any color on what the LTV and debt service look like at origination?
spk07: 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.
spk03: 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?
spk07: Well, I think it's got 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. but it's really been very quiet, particularly in Metro Boston. It's been a little bit more active in Westchester, but most of the loans, as you know, are sort of inside 495. Okay.
spk03: And then last question for me. Clarendon Private, any updates there? How are things going? And an update on asset under management?
spk06: Yeah, we're still not reporting that out at this point. It's still early in the game, but everything's proceeding as we expect.
spk03: Thank you.
spk09: Thanks, Mark. Thank you. Our next question comes from Nick Kukarali from Hofty Group. Nick, your line is now open. Please go ahead.
spk01: Good afternoon, everyone. How are you?
spk07: Good, Nick.
spk01: Thank you. 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?
spk07: 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 their 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.
spk01: 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?
spk06: 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. But it jumps around. It jumps around. It does jump around. But it's slowing down.
spk01: Fair enough. Thanks for taking my questions.
spk09: Thank you. Our next question comes from Steve Moss of Raymond James. Your line is now open. Please go ahead.
spk04: Good afternoon. I'm just curious here if we just talk about loan pricing, where new loans are coming on the books and kind of that dynamic.
spk06: Sure. What would you like to know?
spk04: Where are you pricing today versus what did you put on in the third quarter? Let's put it that way.
spk06: So third quarter numbers are – On average for the third quarter. So things are coming in certainly higher than that. As you know, the five 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, you know, from two out to ten, particularly around five to ten, move quite a bit. We've not had to move our pricing on our deposit side, and we're still seeing growth. continue to grow our customer base there. So pretty optimistic in that sense.
spk04: Okay. And then in terms of just other questions related to the margin, just curious what was purchase count increasing for the quarter?
spk00: One second. Okay.
spk06: $2.6, almost $2.7 million on loans.
spk04: Okay. And then in terms of just curious on expenses here, you know, how are you guys feeling about expense trends into the fourth quarter, but also just even next year in the current environment?
spk06: We feel like we're going to be right around this area, around the $57 million a quarter at this point, with slight growth going into next year.
spk04: And then just one more for me. I saw on the deck you guys had, you know, your maturities for CRE over the next 24 months. Just curious kind of, you know, of what's come in due, you know, 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? Do you see any stress in that theory of maturity pipeline?
spk06: 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's not like we have a lot of pretty much steady of what we actually book.
spk07: Those loans were well underwritten. They've performed very well. The expectation is that that will continue. And in terms of current loan devalues, 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. They're 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.
spk04: Okay. Great. Thank you very much for all the color. Appreciate it.
spk07: You're welcome.
spk09: Thank you. Our next question comes from Laurie Hunsicker of Seaport Research Partners. Laurie, your line is now open. Please go ahead.
spk02: Great. Hi. Thanks, Paul and Carl. Just wanted to go back to commercial credits, please. So starting with your $14.8 million office tree that came over into non-accrual, is that a Class A or Class B?
spk07: I'd probably consider it Class B. Class B. Okay.
spk02: And then did you have the vacancy on that?
spk07: I don't have that in front of me. It's not empty. Got it.
spk02: Okay. But it's not quite enough. Okay. Yeah, that's true of most of Boston, right? And then you didn't have a current debt service on that?
spk07: Again, I don't have that in front of me. But it was not terrible. Yeah.
spk02: Okay. And then do you have a specific reserve against that $14.8 million credit?
spk07: That one, I don't think so.
spk02: Okay. Okay.
spk07: And then the two commercial... We only take a specific reserve when we've got, you know, a pretty serious situation. And this one is not quite in that category.
spk02: Okay. Okay. That's good. Your two commercial charge-offs, can you give us a little color as to what they were in the quarter? Sure.
spk07: Yeah, we had big reserves against both of them. These are things that have not been going well for quite some time. One's a medical enterprise, and the other is a development enterprise. And in both cases, their demise was self-inflicted wounds. It was not a market-driven thing. They were just not managed properly, and things fell apart. So, you know, the good news is it wasn't the market. The bad news is that we still lost some money.
spk02: So they were both C&I credits?
spk07: Correct. Yeah.
spk02: Okay. Okay. And then just going back to office here, your $747 million book, just hoping for a refresh on a couple things. How much of that is lower risk medical? Okay.
spk06: I don't have those numbers in front of me, Lori. It's not a big deal. Medical is not a big part of our portfolio in the office sense. Sometimes it stands up in the owner-occupied side of things.
spk02: Gotcha. Okay. And then can you just help us think about of your $747 million, how much is Class A versus B versus C?
spk06: We're not big class A lenders, so it's a small amount.
spk02: Okay. And then I know that most of what you do is in the suburbs, but can you just help us think about how much of your exposure roughly is downtown Boston?
spk06: I think we provide that in the deck.
spk02: You do? Okay. I'll go back and look at that. I must have missed that. Okay. And then last question on office. I'm sorry to put you so on the spot here on this. But on slide 18, it looks like you've got $26 million maturing in the fourth quarter. Any update on that? Have you had any renewals yet? I know we're early in the quarter. And maybe just of the $26 million, I guess how much is A, B, and C? Or just any color you can give us on what that's looking like. Thanks.
spk06: I don't have any color on the timing of when those are going to get renewed or whether it's A, B, or C. Yeah, I don't know either.
spk07: I haven't seen them yet, but I've not heard any noise. Okay.
spk02: And then, Paul, this last question. Can you help us think about, with your stock trading here below book, how you're thinking about buybacks?
spk07: Well, I'm thinking about Carl for buybacks.
spk06: So I think it's an attractive area. It's an attractive area. I'm sorry. Go ahead, Lori.
spk02: No, I was just going to say, Carl, how are you thinking about buybacks?
spk06: So it's an attractive place to be buying back stock, but we're also very thoughtful about our capital, and we're preserving capital at this point and using it for growth.
spk09: okay great thanks for taking my question thank you as a reminder to ask a question you can press star one on your telephone keypad our next question comes from chris o'connell of kbw your line is now open please go ahead hey good afternoon um i don't i don't
spk05: I think I missed it, but I apologize if I did. Did you guys give, you know, what the loan pipeline was at at the end of the quarter and just a breakdown of the categories?
spk06: Yeah, we don't really provide pipelines, Chris. They're too hard to define. I would say pipelines are certainly down from previous levels, but we're still very active. More so in the CNI space, the equipment finance side.
spk05: Got it. I guess just, you know, more thinking about how are you guys thinking about loan growth going forward, you know, given that, you know, the funding pressures are starting to abate a bit, you know, as the organic outlook changed and how are you guys thinking about growth into next year?
spk06: So we've always kind of targeted $80 to $100 million of loan growth. I think that still is a target for us per quarter. But a lot of that does depend on deposit growth. So as long as the deposits are there, we'll continue to grow loans. The market is still active. There's still very good customers that we're talking with. So, again, it's about the deposit side.
spk05: Got it. And as you guys were kind of, you know, looking at the market right now and the different dynamics with the Fed tightening, where are you finding the most attractive sectors or subsectors in terms of what type of growth you want to put on the balance sheet at this point?
spk07: Well, the equipment and C&I are certainly very attractive and we're very active in all three banks in these areas. partly as a result of the displacement of last spring of lots of companies are now banking with somebody that they didn't choose. And so that has been providing some opportunities for conversations and proposals. But that stuff takes a little time to harden up. And that's kind of the period that we're in now. And that's why we have a fair amount of optimism as we go toward the end of the year. Some of these companies want to wait until the first of the year for things like treasury services. So there's a good feeling in the air, but it would be in equipment and C&I mostly. And we'll stand by on real estate. We'll take care of our customers as needed, but there's not that much going on in real estate.
spk05: Got it. And should we take, you know, the new comments, you know, around, you know, another five to six pips maybe, you know, next quarter or potentially, you know, better if you see a little less pressure to be that, you know, that that could be the inflection point for the margin and start to head up in 24?
spk06: That's our current modeling suggests that.
spk05: Great. That's all I have for now. Thanks, Jake, for my question.
spk09: Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Perot for any closing remarks.
spk07: Thank you, Alex, and thank you all for joining us this afternoon, and we will look forward to talking with you again next quarter. Good day.
spk09: Thank you for joining today's call. You may now disconnect your lines.
spk07: and we will look forward to talking with you again next quarter. Good day.
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