Brookline Bancorp, Inc. (NASDAQ:BRKL) Q3 2023 Earnings Call Transcript

Brookline Bancorp, Inc. (NASDAQ:BRKL) Q3 2023 Earnings Call Transcript October 26, 2023

Operator: Good afternoon, and welcome to the Brookline Bancorp, Inc.’s Third Quarter 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 now like to turn the conference over to Brookline Bancorp’s Attorney, Laura Vaughn. Please go ahead.

Laura Vaughn: 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, brooklinebancorp.com and has been filed with the SEC. We will not be doing a slide flip this quarter. This afternoon’s call will be hosted by Paul A. Perrault 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 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 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 Brookline Bancorp’s Chairman and CEO, Paul Perrault.

Paul Perrault: 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 $0.26 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. Nonperforming 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 allowance for loan loss represents 127 basis points of total loans. I’ll now turn it over to Carl who will review the second quarter results.

Carl Carlson: 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 teams generated net loan growth of $40 million in the quarter, with growth of $48 million, split evenly between C&I and Equipment Finance, the 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 loan – core loan portfolio 14 basis points to 582 basis points at September 30. 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 brokered deposits were reduced $39 million for net growth in deposits of $49 million. Growth continued to be in higher rate 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 to $110 million on a linked quarter basis, and the net interest margin declined 8 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 of $0.135 per share, to be paid on November 24 to stockholders of record on November 10. On an annualized basis, our dividend payout approximates a yield of approximately 6.3%. This concludes my formal comments, and I’ll turn it back to Paul.

Paul Perrault: Thank you, Carl. We will now open it up for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question for today comes from Mark Fitzgibbon of Piper Sandler. Your line is now open. Please go ahead.

Mark Fitzgibbon: Hi, 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?

Carl Carlson: 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 are going to have as much NIM compression as we did experience, eight basis points. But right now, we’re estimating to be around five to six basis points next quarter. But again, that all depends on what’s going on with deposits. We’re kind of modeling some aggressive moves – continued aggressive moves in deposits. Our bankers are actually suggesting, it might be far less than that, but we’ll see.

Mark Fitzgibbon: 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 nonaccrual?

Paul Perrault: Office building 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.

Mark Fitzgibbon: Paul, you say well owned, was there participation with a bunch of other banks?

Paul Perrault: No, no. It’s a property owner and manager who has partners in it with him. I think, we may have participant bank to – on our side. But I was really referring, to it’s a bunch of investors, who own it and it’s managed by one very able guy.

Mark Fitzgibbon: Okay. And any color on what the LTV and debt service look like at origination?

Paul Perrault: I would be speculating. It would look like most of our originations, which would have been a pretty low loan-to-value with a pretty high coverage ratio.

Mark Fitzgibbon: 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?

Paul Perrault: 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 and occupancy. 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.

Mark Fitzgibbon: Okay. And then last question for me. Clarendon Private, any updates there? How are things going, or – and an update on asset under management?

Carl Carlson: Yes, we’re still not reporting that out at this point, still early in the game, but everything is proceeding as we expect.

Mark Fitzgibbon: Thank you.

Paul Perrault: Thank you, Mark.

Operator: Thank you. Our next question comes from Nick Cucharale from Hovde Group. Nick, your line is now open. Please go ahead.

Nick Cucharale: Good afternoon, everybody. How are you?

Paul Perrault: Good Nick. Thanks.

Nick Cucharale: 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?