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spk03: Good afternoon, and welcome to Brookline Bancorp, Inc.' 's second quarter 2024 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Brookline Bancorp's attorney, Laura Vaughn. Please go ahead.
spk01: Thank you, Alyssa, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation. It is available on the investor relations page of our website, brooklynbankwork.com, and has been filed with the SEC. This afternoon's call may contain forward-looking statements with respect to the financial conditions of operations and business of Brooklyn Bainport. Please refer to page two of our earnings presentation for our forward-looking statements, Mr. Maymar. Also, please refer to our other finals 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 Procurement Day Corp.' 's results and performance trends and should not be relied on as financial measures for our comparison and reconciliation with GAAP earnings. based on our results. I'm pleased to introduce the President and Chairman and CEO, Walt Walton.
spk06: Thanks, Laura, and good afternoon, everyone. Thank you for joining us for today's earnings call. We had a solid quarter of loan and deposit growth across all three of our banks. While our net interest margin declined slightly, it appears to be hitting the bottom as the month of June was higher than May. This quarter, we decided to exit our specialty vehicle finance business, which is primarily tilt trucks. The spreads for this business line have been coming under pressure for some time now as more competitions enter the market. Unfortunately, costs also continue to rise, particularly collection costs, which drove this decision. We closed our office in Melville, Long Island, and had a reduction of staff of 21. The portfolio of $350 million in specialty vehicle loans will run off over time and will be a slight headwind to the overall growth in the equipment finance portfolio. We estimate runoff over the next 12 months to be $115 million. I will now turn you over to Carl, who will review the company's second quarter results in detail. Carl. Thank you, Paul.
spk07: Yesterday, we reported net income for the quarter of $16.4 million, or $0.18 per share. As Paul just mentioned, we entered a specialty vehicle finance business and recognized a restructuring charge of $823,000, which includes severance and other fixed costs. Excluding the restructuring charge, operating earnings for $17 million, operating EPS was $0.98 per share. During the quarter, total assets grew $92 million due in buying, loan growth of $66 million, spread across all loan caps. In the second quarter, we originated $491 million in loans at a weighted average coupon of 802 basis points. The weighted average coupon on the four-loan portfolio rose nine basis points during the quarter to 605 basis points in January. On the length quarter basis, the yield on the loan portfolio declined one basis point to 602 basis points, driven by the reversal of interest income due on two large commercial loans going non-accrual to the board. The reversal of accrued interest and quarterly interest foregone on those loans equal five basis points in the net interest margin for Q2. On the deposit side, customer deposits grew 66 million, while broker deposits increased to 48 million. Deposit growth continues to be focused on higher rate savings and time deposits. Total funding costs increased out of basis points and reported to 365 basis points. Overall, the margin declined six basis points to 300 basis points in October. Total average future starting assets were basically flat to $10.7 billion on the reported basis, resulting in a net interest income of $80 billion, a decline of $1.6 million in QV. The on-interest income was $6.4 million, which was basically flat in the prior quarter. as lower fees on derivative income were offset by owner participation in these under non-interest income. Operating expenses were $58.4 million for the quarter, excluding the restructuring charge. This is down $2.6 million from Q1, primarily driven by lower compensation and benefits and weather-related financing costs. The provision of credit losses was $5.6 million for the quarter, a decrease of $1.8 million from the first quarter. The charge-offs were $8.4 million, driven by a $3.8 million charge-off of an office building, and $4.6 million in C&I charge-offs, nearly all of which were related to equipment financing. The charge-offs were largely previously reserved for. Non-performing loans increased $20 million in the board, with an increase of $27 million in C&I, driven by two large credits. The increase was offset by a decline of $6.7 billion in non-performing commercial real estate. The total assets increased to 54 basis units. Our reserve coverage ratio increased slightly to 125 basis units. As I mentioned last quarter, client behavior and industry responses continue to adapt to a fairly volatile environment. Recently, we've seen greater market expectation of Federal Reserve with cup rates and longer term rates have declined significantly since the end of the quarter. approaching March levels. While loan demand is not robust, it is a bit better than we previously anticipated. We expect loan growth of 2 to 5 percent across all savings. Our cash and securities portfolio remains stable, representing 9 to 12 percent of total assets. On the deposit side, we anticipate growth of 4 to 5 percent. Given prevailing interest rates, the migration of demand deposit accounts and low-cost deposits may persist, but at a significantly slower pace. Our Q3 margins is projected to fall within a range of 300 to 310 basements and continue to improve. However, this is dependent upon the deposit flows and timing of actions by the firm producer. The non-interest income is projected to be in the range of $67 million per quarter, although components may vary significantly. We continue to manage operating expenses of $240 million or less for the full year. Exiting the specialty vehicle business will reduce operating expenses to approximately $800,000 per floor. Currently, our effective tax rate is expected to be in the range of 24.5% for the balance of the year. Yesterday, the Board approved maintaining our quarterly dividend at 13.5 cents per share to be paid on August 30th in stockholders' records from August 16th. On an annualized basis, our dividend period approximates a yield of 5.1%. This concludes my follow-up comments. I'll turn it back to Paul.
spk06: Thanks, Carl. And we will now open it up for questions.
spk03: We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove your question from the queue, you may press star 2. If you are using a speakerphone, please remember to pick up your handset before asking your question. Once again, please press star 1 to queue for questions. First question is from the line of Mark Fitzgibbon with Piper Sandler. Your line is now open.
spk04: Hey, guys. Good afternoon. Carl, could you just repeat your guidance on expenses? I missed that. I apologize.
spk07: Sure. We still expect to be in the $240 million or less for the full year.
spk04: And you said the benefit from an expense standpoint of getting out of the specialty finance business was how much? About $800,000 per quarter. 800,000 a quarter. Okay, great. And then secondly, I know it's been challenging recently from a credit perspective on the specialty vehicle business, but I guess I'm curious, longer term, what were some of the other major dynamics of why you're exiting this business?
spk06: Expensive origination costs, small ticket relative to other kinds of loans that we can do. The collection effort is very big and difficult, and you're just dealing with a lot of little pieces that make it unprofitable, and you can't get rate in that gig anymore. It was good while it lasted. It's something we got into about 10 years ago, and we were sticking with mostly larger operators for a while, but as time went on, we seemed to have ended up with more one or two truck kind of people, and it's just very hard to make money at that. The other piece, it's mostly photographs, but the other piece that was affected too is somewhere along the line they get into delivery vehicles, mostly for contractors with UPS or FedEx. And when Amazon decided to have its own delivery business, a lot of those guys kind of lost that business and it was kind of stuck without anything. So it's just Not knowing well, so it's time to stop. Okay, great.
spk04: And then I wondered if you could provide any color on those two large loans that caused the uptake in non-performers this quarter.
spk07: Sure. One's a Baker Island client, a long-term client that just was restructured, and so there was a deferred cadence for two quarters. So we just automatically put that on non-accrual, and that'll go back on accrual status after they pay for two quarters of the row. So we do expect that to happen by the end of this year, early next year.
spk04: And that's a C&I credit, Carl?
spk07: That's a C&I credit. Specialty food companies. Definitely. And the other is a large industrial laundry, basically two laundromats, or laundry companies, I don't know. Industrial long-term. Industrial long-term, that's staying in the process, staying northbound as well.
spk04: Okay, great. And then lastly, and I know the size of the portfolios are different, but how would you say asset quality in general is stacking up amongst your three different banks?
spk06: I would probably say that Putnam is the cleanest. at this point in rhode island and boston are probably neck and neck okay great thank you we've had a few quarters of a little bit bumpy for us in the asset quality area i'm optimistic that we we've kind of gotten through the worst of it we've dealt with it and i'm very hopeful that we'll go back to our normal kind of
spk04: Paul, just having been through the cycles, as we both have over a long time, I've talked to probably six other banks today that all seem to have one-off isolated credit instances. I guess I'm wondering, can there be that many one-off isolated credit situations, or are we seeing a trend here? And just curious as to your thoughts from a big picture, not specific to Brookline.
spk06: Well, I think that there's a lot of stuff that was tried post-pandemic, and some of it didn't work. Companies struggled through, didn't make ends meet, and things are not as solid as they were before. But I don't see any big overriding trends that show electric, like a whole industry being in trouble with something, unless I guess you have an electric car. We don't see inventory problems. We don't see collection problems. Real estate, knock on wood here, at least in the metro of Boston, and certainly Rhode Island and Westchester, continues to hold up pretty well. And we've only had the two downtown properties that were an issue, and those were relatively unique. They both have the same background in the sense that they were C properties that were acquired by very capable owners, who intended to operate them to almost a level of at least a month. And they got caught in the middle with the pandemic. And so the buildings got fixed, but not leased entirely. And so they, in both cases, they're looking to hold on to them, put in more money, and kind of wait it out. So I think real estate is okay in the C&I business. It's a little bit trickier to be successful than it might have been five years ago.
spk10: Thank you.
spk03: Thank you. The next question is from the line of Laurie Hunsaker with Seaport Research. Your line is now open.
spk00: Great. Hi, thanks. Good afternoon, Paul and Carl. Going back to your specialty vehicle portfolio of $352 million, can you share with us what the coupon is on that and then what the non-performers are on that?
spk08: Sure.
spk07: The coupon on the specialty vehicle, I'll go to the yield. The yield is around $750 on the entire one. Perfect.
spk00: Yeah, and then the non-performers, I mean, I guess your equipment, finance, non-performers are $27 million. How much of that is related to this book? I'll get back to you.
spk09: I don't have that for me right now.
spk00: Okay. Okay. Okay. And then also the charge-offs for this quarter, the $4.3 million equipment financing charge-off, C&I equipment financing charge-off, was that a specialty vehicle or was that something separate?
spk07: Mostly specialty vehicle. We had some car washers that come out of the car, the lion's share, the lion's share.
spk00: I missed it. You said how many people were terminated on the specialty vehicle side? Did that happen late in the quarter, middle of the quarter, beginning of the quarter? How should we think about that? It's happening right now. We're also going to see the Durban impact coming through in September. And I had in my notes that roughly, at least on the expense side, so obviously we know the non-interest income that deducts round numbers a million or something annually. But on the expense side, I had that impact running about 1.6 million annually to 400,000 next quarter. Am I thinking about that right? Or has that already been reflected? How should we think about that?
spk07: I'm not sure what you're referring to when you talk about Durbin. It might be a misunderstanding. Durbin's really just the amount of fee you could get on the debit card sign.
spk00: Right. It doesn't mean that's it. Right. It's just on the side, but I thought for some reason that you guys were doing something on the expense side around a compliance bill, or maybe I got that wrong.
spk07: No, I think when we first were asking... When we were first estimating what the impact would be about going over $10 billion, I think we estimated some higher expenses associated with adding a few people to staff. But that had nothing to do with Durban. That just had to do with going over to a lot of compliance, adding some people in credit, things of that nature. But that's largely done.
spk00: That's already done. Okay. Okay. That's great. And then... Okay. Perfect. Perfect. Okay. And then on office, the 3.8 million that you had that were net charge off, how big was that office credit that you took the charge off on? Just trying to think about what the right was.
spk07: It was around $14 million.
spk00: $14 million originally. Okay.
spk07: That's correct. Let me go into a little bit more detail on that. We currently are carrying out a $10.8 million. So we're still working through this. And we do have a specific reserve, $2.5 million.
spk00: Okay. And then where is that located? Is that a downtown property?
spk07: Downtown Boston.
spk00: Okay. And that's Class A, Class B? See, okay. And then just last question on that one. Is that, or what is the vacancy if you have it on that one?
spk07: It could be half. Could be half. Could be half. Could be half. Could be half. Could be half. Could be half. Could be half. Could be half.
spk00: Gotcha. Okay. Good, good. Okay. And then office non-accruals, I appreciate all the detail you've got in your deck here, but it looks like these are just the ones that are maturing. Do you have what your overall office non-performers are?
spk07: We just have the one. We only have the one. It's just that one. This is 10.8.
spk00: Just the one that's coming due. Okay. That's correct. Got it. Okay. Okay. Very helpful. Okay. And then I guess, Paul, just last question. There seems to be a little bit more M&A chatter going on. Obviously, you're one of the few banks you did an acquisition as rates started to go up. Can you just share with us your take on how you are thinking about M&A, how you see sort of the pulse on M&A, any chatter, any directional thoughts? That'd be really helpful. Thanks.
spk06: Well, I think you said it right. I mean, a little bit more talk, but very little. It's still a very difficult environment with the marks on everything and the difficulties of raising capital and having it all work. I think we're closer to getting to more normal M&A activity, but we're not quite there yet. And I'm not aware of that there's all that much around us anyway.
spk00: Okay, great. Thank you so much for taking my question.
spk08: Okay, Lori. Yes, sir.
spk03: Thank you. The next question is from the line of Chris O'Connell with KBW. Your line is now open.
spk05: Hey, good afternoon, Paul and Carl. Hey, Chris. Chris? I was just hoping to start off on some of the margin dynamics going forward. You know, it seems like the, you know, deposit mix shifts, you know, turned around and slowed this quarter. Are you guys still seeing pressure there at all? Do you expect, you know, a little bit, you know, slower pace in the back half of the year? I guess CSR out there.
spk07: Yeah. We're not seeing the movement between products that we've seen in the past, where people are moving a lot of money out of one product or a lower interest-bearing product into a higher interest-bearing product. Any growth in deposits is basically coming from higher interest, though, as you're trying new customers. We are starting to see more activity on the DDA side, particularly on the commercial side, and the cash management side, which is good to see. You don't have the outflows that you're seeing earlier. You start to see some growth there. But let's say on the CD side, you know, we're basically, you know, price to where the market is, right? So the book is maturing. So we've got about $330 million of CDs that will go off in Q3. And it's basically going on at similar rates. And wherever possible, we're trying to shorten those durations of the bid for people. we're actually offering a little bit of a higher rate for lower. We're eliminating the curve out there so that people are trying to take lower terms, so not finding any of this. So we're staying on the bad side.
spk05: And have you guys been able to test the waters at all with any reductions in any of the products on the deposit side at all year to date?
spk07: Yes, we have. So we have moved rates on the top tier offerings that we might have in money markets and certain savings, annual savings accounts.
spk06: The number of quarters, some were 10 basis points. That's a fairly recent development.
spk05: Got it. And just, you know, with the outlook for the rate environment, you know, now shifting a bit to, you know, hopefully be a little bit more favorable, you know, as you get further along to 24 to 25, you know, maybe just talk about your, you know, strategic priorities in terms of, does that, you know, make you a little bit more optimistic on loan growth into next year? Or, you know, there's still a good amount of broker deposits that, you know, at a fairly, you know, high cost right now that could make shift or come off the balance sheet. You know, is there any kind of strategic priority in terms of, you know, growing the assets out of the balance sheet or maybe taking it, you know, a little bit slower into next year and reducing some of, you know, those high cost, you know, broker deposits or even, you know, some of the, you know, highest cost borrowings?
spk07: Well, we're always looking to try to reduce those wholesale on the wholesale funding side of things. And I think, you know, when rates do start to, excuse me, reverse portion, we'll see more activity on the lending side. I think some people are sitting on the sidelines that they don't have to borrow, but they're going to trace that down a little bit. So all of those things are true. So we'll be out there.
spk10: Got it.
spk05: And just, you know, thinking about the margin, you know, as we get, you know, past, you know, the next quarter or so, I mean, how much do you think the dynamic changes depending on, you know, the pace of Fed fund cuts, you know, whether they're coming in kind of quickly as we enter, you know, 2025 or, you know, a little bit, you know, more measured than what's been priced in recently?
spk07: Well, as rates come down, our library is pretty responsive to that, and I expect that to be fairly responsive as it goes down. That data could be as immediate as, let's say, the prime rate going down, or the SOFA rate going down. Probably not. There'll probably be a little bit of a lag there. But we have quite a bit, like you said, of broker CDs, and so on, we'll make a base to have a repress fairly quickly. Yeah, so we monitor that very closely, of course, and try to match that up with what we look. So, we do also have a lot of adjustable weight floating rate logs that we've placed down as well.
spk08: But overall, I think it's going to be a benefit to the center.
spk05: Understood. And, you know, If the pace of growth, you know, does, you know, kind of continue to be, you know, relatively tepid, is there, you know, a point where, you know, capital ratios get, you know, high enough where you'd be interested in, you know, buying back shares?
spk07: So, we continually look at. So, we have a bill with capital.
spk08: I think that's something that's been talked about.
spk10: Got it. All right. That's all I have. Thanks for taking my questions.
spk05: Thanks, Chris.
spk03: Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Pearl for any closing remarks.
spk06: Thanks, Alyssa. And thank you all for joining us this afternoon. We look forward to talking with you again next quarter. Have a good day.
spk03: The conference has concluded. Thank you for attending today's presentation. You may now disconnect.
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