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spk01: I'd now like to turn the conference over to Brookline Bancorp's attorney, Laura Vaughan. Please go ahead.
spk00: Thank you, Emily, 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. 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 and 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 for 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 Workline Bancorp's Chairman and CEO, Paul Perrault.
spk03: Thanks, Laura, and good afternoon, all, and thank you for joining us for today's earnings call. 2023 was a challenging year for the banking industry, yet a very productive one for Workline Bancorp. We started the year with the successful acquisition, management transition, and integration of PCSB Bank. In mid-February, the system's conversions were completed without incident, and the synergies identified were realized. Then in March and April, as several banks failed, we were able to assist impacted customers in our markets as they navigated the significant near-term uncertainty it created. In a volatile interest rate environment, We have added bankers to our teams while continuing to expand and enhance our technology infrastructure as well as our product and service offerings across our three banks with a sharp focus on boutique commercial banking. Geographically, we are excited about the opportunities PCSB Bank provides us in the Hudson Valley of New York. In Massachusetts, Brookline Bank expanded our Wakefield Lending Office and opened a new lending office in Needham And in Rhode Island, Bank Rhode Island has opened new branches in both Cranston and Newport. Eastern Funding, our national equipment finance unit, specializing in laundromats, tow trucks, and fitness equipment, continue to demonstrate solid growth with enviable industry credit performance, which we attribute to the team's narrow focus and very deep expertise. I will now turn you over to Carl, who will review the company's fourth quarter results.
spk08: Thank you, Paul. Yesterday, we reported net income for the quarter of $22.9 million, or $0.26 per share. Total assets finished the year at $11.4 billion, approximately $200 million higher than Q3, driven by loan growth of $261 million, offset by a decline in other assets. We experienced strong loan growth in all categories, with commercial growth of $118 million, commercial real estate of $95 million, equipment finance $41 million, and $7 million in consumer loans. In the fourth quarter, we originated $792 million in loans at a weighted average coupon of 727 basis points. The weighted average coupon on the core loan portfolio rose 10 basis points to 592 basis points at December 31st. On a linked quarter basis, the yield on the loan portfolio increased 17 basis points to 6.01%. On the funding side, customer deposits were basically flat, while broker deposits declined $13 million and borrowings increased $242 million. Deposit growth continued to be focused in higher rate savings and time deposits, offset by declines in DDA and money market products. Total funding costs increased 23 basis points in the quarter to 339 basis points. Total average interest earning assets grew $63 million on a linked quarter basis, and the net interest margin declined three basis points to 3.15%, resulting in net interest income of $83.7 million, a decline of $500,000 from the third quarter. Non-interest income was $8 million, which was $2.5 million higher than the prior quarter, driven by loan level, derivative income, gains on participated loans, and higher other non-interest income. Expenses were $59.2 million for the quarter, up $1.5 million from Q3, primarily driven by compensation and benefits. Provision for credit losses was $3.8 million for the quarter, up $800,000 from Q3. Yesterday, the Board approved maintaining our quarterly dividend at $13.5 per share to be paid on February 23 to stockholders of record on February 9. On an annualized basis, our dividend payout approximates a yield of approximately 5%. This concludes my formal comments, and I'll turn it back to Paul.
spk03: Thank you, Carl, and we will now open it up for questions.
spk01: Thank you. If you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the queue, please press star and then two. When preparing to ask your question, please ensure that your device and your microphone are unmuted locally. Our first question today comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead, Mark.
spk05: Hey, guys. Nice quarter. Thank you. First question I had for you, the first question I had was, loan growth continues to outpace deposit growth. And I know you're opening some new branches, and hopefully over time that will catch up. But I guess I was curious, with the loan-to-deposit ratio at 113%, where would you be willing to let that go to? as you work hard to bring in new deposits.
spk03: Back in the old days, when you started looking at us, we were quite a bit higher than this, and I don't think I'd want to go back to that level, which was like 175. But we're working hard at generating core deposits. The issue really has been that loan generation has been quite strong. So we'll keep with that strategy and we'll see how we can manage the loan to deposit ratio. But I would hate to put a hard number out there, Mark. We know lower is better.
spk05: And then, Carl, on the margin, it feels like almost every bank is predicting that their margin will decline a little bit more in the first half of this year and then start to rebound when the Fed begins to hopefully ease. Do you share that view for Brookline?
spk08: Our current projections for the first quarter are probably flat to down a couple more basis points. A lot of our growth in the loan book came near the end of the quarter. So you didn't really see it in the average balances. You saw it at the ending balances. And, of course, that's been funded for the most part right now as wholesale borrowings. So the wholesale borrowings jump up 242 million. So that's definitely at a lower spread than our going margin. As Paul mentioned, we're working hard to try to get those deposits up to improve the margin. So while we might have net interest income up, the margin may be down a little bit. But as we look forward, depending on what the Fed does with rates and what the market does, we do expect the margin to improve going out through 2024.
spk05: Okay. And then, Carl, can you help us think about expense growth, given the new branches and people that you're hiring, how that's likely to affect operating expenses in 2024?
spk08: So if you use our fourth quarter run rate, it's a little over $59 million. I think we'll only grow maybe 1% or 2% off that run rate. It'll pop a little bit in Q1 because of seasonality factors associated with payroll taxes and incentive accruals for the most part, unless we start getting snowstorms. But so far, we've been all right there. And so that's kind of what we usually see in the first quarter.
spk03: And the number of branches that we're going to open is very strategic and limited because there'll be some closures. and some moving of things. See, I don't tell them about the closures, Paul. It's not going to change the expensive mode very much.
spk05: Okay. And then in your slide deck on page 18, you have kind of a breakdown of the office portfolio and the maturities. I guess I was curious if you could share with us any sort of high-level thoughts on what the – you know, what sort of the occupancy rates look like on those office buildings today?
spk08: I don't have occupancy rates at my fingertips on these loans. I know our guys are looking at that all the time. But, you know, we continue to work with our borrowers, anybody that's coming up for maturities on refinancing their loans.
spk03: Paul, you have any? Thank you. No, I would think a lot of it is pretty good because it's mostly outside of the core business district. It's all over the Hudson Valley. It's all over Rhode Island. And a lot of it is in suburban Boston, which haven't really seen the occupancy issues that central business district has.
spk05: Thank you.
spk01: Our next question comes from Nick Cucciarelli with Hovde Group. Please go ahead.
spk04: Good afternoon, everyone. How are you? I just wanted to follow up on the accelerating loan growth. Could you provide some color there? Was this simply capitalizing on some good opportunities this quarter and that pace should revert back towards the mid-single digits we're used to seeing from you guys?
spk08: I think we're focused on probably growth of 4% to 5% for 2024. We closed, certainly closed more loans in Q4 than I was expecting. And so some of that growth probably in Q1 has gotten pulled into Q4. So we're starting the year off very strong. And of course, that's my guys always sandbagging me on the budgeting side, but that's another story. But we're off to a good start for 2024. And I think some of the pipelines are going to have to rebuild. So Q1 may be a little slower side, but we're projecting, you know, four to 5% growth for 2024 at this point.
spk04: I appreciate that color in a related vein. Can you give us some color on the lending environment across your markets? Have you seen a pullback or any hesitance from your competition, given the funding and capital challenges?
spk03: I don't think it's because of funding or, uh, any other particular challenges, but it feels like the largest banks which nominate our markets have really pulled back in a lot of areas and are not really participating as much as they had, which is one of the reasons why we're seeing a fair amount of business. And the displacement, there was some of the failed banks were pretty active in all of our markets, and that created another level of opportunity. I don't know that there is a liquidity or capital problem at the people who are playing, you know, the Boston market that you would have Eastern and you would have Rockland Trust, people like that. You know, some people in Rhode Island, there's a few banks there, but it's our opportunity.
spk04: And then lastly, can you just help us think about the effective tax rate for 2024?
spk08: Oh, excellent. Yeah, tax rate's going to jump back up to about 24%. We had some tax-efficient investments that we had that phase out at the end of this year, or end of 2023, so it'll jump back up to about 24%.
spk04: Thank you for taking my questions.
spk08: Sure. Okay, thanks, Nick.
spk01: The next question comes from Steve Moss with Raymond James. Steve, please go ahead.
spk07: Good afternoon, guys. Just maybe could you talk about a little bit on loan pricing here? Just on loan pricing, just curious, you know, where are new loans coming on? And just call it right now.
spk08: Sure. So I kind of told you in my notes, you know, over $700 million of loans originated in the quarter. 727 basis points was the weighted average coupon on that. I'm not sure how much more detail you want, but our equipment finance unit does particularly well, close to 10% for those loans.
spk07: I accidentally dropped off. I must have missed that right there. OK, appreciate that. And just given the end of period balance sheet, you look more liability sensitive given the borrowings here. Just kind of curious, you know, if we get some rate cuts, how you guys are thinking about the margin with rate cuts?
spk08: Everybody's talking about rate cuts. So we're, our book's fairly short, but not that short. So if they start cutting rates, we will have assets repricing a little faster than our liabilities. So it may take a little bit for us to catch up with that. But our borrowings, we have, you know, that's a benefit of borrowings and things of that nature. They do reprice fairly quickly. And it depends on how, how fast we're able to adjust our market rates on our, on our deposits. But I feel, you know, we feel in pretty good shape there.
spk07: Okay. Appreciate that. And then, you know, you guys are in a good capital position on from a TC standpoint, just kind of curious, you know you know, probably going to build a little bit this year. What are your thoughts around deploying the capital with an M&A transaction and maybe how are M&A discussions these days?
spk08: M&A discussions these days? Right now, we have seen M&A pick up a little bit. There's a few more deals being announced. I'd say the holes are still very big on many of these banks that are in the worst shape with you know, very low NIMS and huge marks in their loan books and their security books. So I think, you know, deploying capital into something like that is not something that we're particularly anxious to do. I do think, you know, that there is an opportunity, so there will be opportunities to do strategic deals. That really makes sense. But more to come on that.
spk03: It's a very difficult environment. Yeah, that's all. Okay.
spk02: okay great well thank you very much for all that okay thanks the next question comes from laurie hunsaker with seaport research laurie please go ahead yeah hi thanks good afternoon um maybe margin just just um spot margin for the month of december do you have that carl
spk08: I do. It was 310. Okay.
spk02: And then what was the accretion income number in net interest income this month?
spk08: For the month or for the quarter?
spk02: I'm sorry, this quarter.
spk08: So the quarter was just under $2 million.
spk02: Okay, so less than last. Okay. And then a non-interest income, that other category of $3.26 million, that looked outsized by a couple million. What was that and what's non-recurring in that number?
spk08: Yeah, that's a number that has a lot of volatility in it because there's a category in there that are marked to market on our risk participation agreements, which are really associated with swaps. So as rates change in the market, that gets marked every quarter. And so this quarter, it was roughly, it was just under $500,000 this quarter, and it was a loss of about a million four in the prior quarter. So it was a big swing quarter to quarter in that number. And then we had some other non-interest income items that go through that as well.
spk02: Okay, that's great. And then same question on the non-interest expense line, the other category, that $5.5 million that looked outsized, anything non-recurring in that?
spk08: There was about $800,000 there that was non-recurring. That had to do with right off of some premises that we were working on.
spk02: Okay, great. And then on office, can you update us that $14.8 million cost the office in downtown Boston that went non-accruing last quarter? Can you just give us an update on that? And then do you happen to have a death service coverage ratio, LTV occupancy, anything on that particular property?
spk08: Well, we continue to work with the borrower on that. It's a participated loan, so I think it's mostly working with the participant on this as well to get this to the finish line. But the debt service coverage is in the 50s, and the LTV is, I think, around 115%, something like that. Okay.
spk02: And then, and just the rest of your office book.
spk05: Go ahead, Laurie.
spk02: I was just going to say, the rest of your office book, can you just help us think a little bit about that $774 million in terms of what's Class A versus Class B and C, and do you have an average LTV or debt service on your whole book? Sure. And I guess I'll get one more question. Go ahead.
spk08: Okay. So of that, about, there's really not a lot of A in there at all. It's mostly Bs and Cs. I'd say mostly the Bs, B category there. The LTV on that is right in the 50s, but that's, you know, basically at, At origination. At origination. So I wouldn't want to try to guess what the recent appraisals are at this point because I think that's just tough to get to. And the debt service coverage around 1.6.
spk02: Okay, great. Okay, that's great. And then one more thing. How much of that $774 million is medical, that lower risk medical category?
spk08: A hundred million.
spk02: Okay, great. Thanks. I'll leave it there. You're good.
spk01: Our next question comes from Chris O'Connor with KBW. Please go ahead.
spk06: Hey, good afternoon. Chris, so just following up on the office line questions. It looks like in the deck on that slide that the 1Q24 office maturities, you know, from last quarter's debt to this quarter's debt went from like $1 million up to $24 million. I know you had a larger credit set to mature in the fourth quarter here. Just wondering if that was the reason that that gets shifted back a little bit or, you know, what was the driver of that kind of change in the maturity schedule?
spk08: I don't know the specifics around the specific question you're asking here, but we did have a maturity that came up that we've done some extensions. I want to say it might have been two loans that we did some extensions on to continue to resolve it. So it may just be pushed out three to six months as we continue to work with the borrower on things. That might be answering your question. Okay, great.
spk06: Great. It's helpful. And then, you know, as far as, you know, the deposits go, you know, it's slowed a bit on a quarterly basis in terms of the pace. But, you know, any read into, you know, how much of the noninterest bearing, you know, makeshift, you know, has remaining? I mean, did it slow between, you know, the October and December? And, you know, what's kind of your, you know, Bayside outlook for the next couple quarters here?
spk08: It's a great question. I wish I had a great answer for you. You know, on the deposit side, we do expect to start seeing some growth in deposits. It may come a little bit later this year than earlier this year. But, you know, the deposit outflows we've seen have largely been driven by the higher balance accounts. that have been moving their excess balances to treasury funds and seeking higher yields. But that has largely played itself out. I think that's kind of all done with. The last Fed hike we had was in July. And while deposit pricing remains very, very competitive, it's fairly stabilized at this point. So we do feel like we're gonna start seeing some deposit growth. We'll also probably given the level of interest rates We may still continue to see a little bit of DDA and the low-cost deposits migrate into the higher cost of funds. But even that, that's going at a much slower pace at this point. But to give you a precise number, I really couldn't do that.
spk06: Okay. Understood. For next year, mid-year, I believe Durbin starts to hit your fees. Maybe just an update on what that number is.
spk08: So we've been guiding that to be about $200,000 to $250,000 a quarter for the interchange. That's our expectation. And that would start happening in July. And so that'll be a negative to the fee income side. But we continue to work very hard on other sources of fee income throughout the organization.
spk06: Great. And just circling back to the margin dynamics, you know, can you remind us how much you know, of the portfolio on the loan side immediately, you know, reprices with short-term rates, and what, you know, how much of, you know, the deposit book, I guess, you know, is indexed to short-term rates?
spk08: We got a nice little slide. Slide 22 kind of lays out where we are on that. So about 20% of our loan portfolio is floating. So that basically reprices within months.
spk03: None of the deposits are indexed.
spk08: Yeah, nothing's indexed on the deposit side. We can move rates on the non-maturity deposits at will. But that's also very market driven, as you can imagine. Our CD portfolios, so CDs, we have about $335 million of CDs that are repricing in Q1. And it's around 340, 345, something like that in yield or cost. And those are repricing up into the fours, the mid-fours, mid-fours.
spk06: Great. That's helpful. And, you know, as... As far as capital levels go, I mean, you guys have pretty good TC here, should be building going forward. It sounds like M&A is probably set on pause for now. Any appetite for utilizing buyback or kind of holding out for long growth right now?
spk08: I think from our perspective, letting capital build at this point and support growth in all of our markets is the right thing to do.
spk06: Great. Appreciate the time. Thank you.
spk01: This concludes our question and answer session. I'd like to turn the conference back over to Mr. Perel for any closing remarks.
spk03: Thank you, Emily, and thank you all for joining us this afternoon. We look forward to talking with you again next quarter. Have a good day.
spk01: The conference has concluded. Thank you for attending today's presentation. You may now disconnect.
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