Brookline Bancorp Incorporated (NASDAQ:BRKL) announced a net income of $22.9 million for the fourth quarter of 2023, with total assets reaching $11.4 billion. The company experienced robust growth across all loan categories, despite a slight decline in net interest margin to 3.15%. The focus for the upcoming period will be on generating core deposits to enhance the loan-to-deposit ratio, alongside a careful approach to expenses and potential mergers and acquisitions (M&A) opportunities.
Key Takeaways
- Brookline Bancorp reported a net income of $22.9 million with total assets of $11.4 billion.
- The company saw strong loan growth across all categories, including commercial and consumer loans.
- Net interest margin declined slightly to 3.15%, with net interest income totaling $83.7 million.
- Brookline Bancorp aims to improve its loan-to-deposit ratio by focusing on core deposit generation.
- The company is open to M&A opportunities but not actively seeking to acquire banks in poor condition.
- A non-accruing loan worth $14.8 million is noted in the Downtown Boston office portfolio.
- Deposit growth is expected to begin later in the year, with an estimated quarterly impact of $200,000 to $250,000 from interchange fees starting in July.
- Around 20% of the loan portfolio is floating with a reprice period of two months; there are no indexed deposits.
- The company plans to build capital to support market growth, with no current plans for buybacks.
Company Outlook
- Core deposit generation targeted to improve loan-to-deposit ratio.
- Expenses are expected to grow by 1-2% from the current rate.
- Deposit growth anticipated to start later in the year.
- No current plans for stock buybacks; focus on capital buildup for market growth.
Bearish Highlights
- Slight decrease in net interest margin to 3.15%.
- Negative impact on fees expected due to interchange fees, ranging from $200,000 to $250,000 per quarter starting in July.
Bullish Highlights
- Strong loan growth across all categories, with $700 million of loans originated in the quarter.
- Assets expected to reprice faster than liabilities if interest rates are cut.
- No liquidity or capital issues in the Boston market.
Misses
- A notable non-accruing loan of $14.8 million in the Downtown Boston office portfolio.
Q&A Highlights
- CEO Paul Perrault sees opportunities as larger banks pull back in various areas.
- CFO Carl Carlson forecasts an effective tax rate of about 24% for 2024.
- The company originated loans with a weighted average coupon of 727 basis points.
- No immediate plans for M&A; cautious approach to potential strategic deals.
- Deposit outflows have been driven by high-balance accounts moving to treasury funds, but this trend is slowing down.
- Deposit pricing has stabilized, and migration to higher cost funds is occurring at a slower pace.
The earnings call concluded with optimism for the upcoming quarters and a commitment to prudent financial management. Brookline Bancorp is poised to leverage market opportunities while maintaining a strong focus on strategic growth and stability.
InvestingPro Insights
Brookline Bancorp Incorporated (BRKL) has demonstrated a strong performance with an impressive return over the last three months, showcasing a 30.3% price total return. This bullish signal is reinforced by the company's history of maintaining dividend payments for 27 consecutive years, and notably, it has raised its dividend for 6 consecutive years. The commitment to shareholder returns is further evidenced by a current dividend yield of 4.82%.
InvestingPro Data reveals that BRKL has a market capitalization of approximately $989.2M, with a P/E Ratio (Adjusted) for the last twelve months as of Q4 2023 standing at 12.42. This valuation metric suggests a reasonable market assessment of the company's earnings. Moreover, the company has managed to achieve a revenue growth of 4.37% over the last twelve months, indicating a steady financial progression despite market challenges.
InvestingPro Tips highlight that analysts predict BRKL will be profitable this year, which aligns with the company's positive performance over the last twelve months. However, it is important for investors to note the weak gross profit margins, which could be a point of consideration in their investment strategy.
For investors looking to delve deeper into Brookline Bancorp's financials and future prospects, InvestingPro offers a wealth of additional tips. Currently, there are 5 more InvestingPro Tips available, which can provide further insights into the company's performance and outlook.
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Full transcript - Brookline Bancorp (BRKL) Q4 2023:
Operator: Good afternoon, and welcome to Brookline Bancorp Incorporated Fourth 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 would now like to turn the conference over to Brookline Bancorp's Attorney, Laura Vaughn. Please go ahead.
Laura Vaughn: 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. 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, all. Thank you for joining us for today's earnings call. 2023 was a challenging year for the banking industry. We had a very productive one for Brookline Bancorp. We started the year with the successful acquisition, management transition and integration of PCSB Bank. Mid-February, the systems 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 (NYSE:HUD) 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 it over to Carl, who will review the company's fourth quarter results.
Carl Carlson: 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, consumer -- customer deposits were basically flat, while broker deposits declined $13 million and borrowings increased $242 million. Deposit growth continued to be focused on higher rate savings and time deposits, offset by declines in DDA and Money Market products. Total funding cost 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 of $0.135 per share to be paid on February 23rd to stockholders of record on February 9th. 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.
Paul Perrault: Thank you, Carl. And we will now open it up for questions.
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.
Mark Fitzgibbon: Hey, guys. Nice quarter.
Paul Perrault: Thank you.
Carl Carlson: Thanks.
Mark Fitzgibbon: 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, overtime, 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?
Paul Perrault: 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.
Mark Fitzgibbon: And then Carl…
Paul Perrault: We know lower is better.
Mark Fitzgibbon: Okay. 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?
Carl Carlson: Our core 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 sort of the ending balances. And of course, that's been funded for the most part right now with as wholesale borrowings, so the wholesale borrowings jumped 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, what the market does, we do expect the margin to improve going out through 2024.
Mark Fitzgibbon: 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?
Carl Carlson: So if you use our fourth quarter run rate, it's a little over $59 million. I think we'll always grow maybe 1% or 2% off that run rate, it will 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 snow storms, but so far, we've been right there. And so that's kind of what we usually see in the first quarter.
Paul Perrault: And the number of branches that we're going to open is very strategic and limited because there will be some closures and some moving of things.
Carl Carlson: I'll tell them about the closures Paul.
Paul Perrault: We're not going to change the expense to move very much, yeah.
Mark Fitzgibbon: 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 sort of the occupancy rates look like on those office buildings today?
Carl Carlson: I don't have occupancy rates at my fingertips on these loans. I know our guys are looking at that all the time. But we continue to work with our borrowers, anybody that's coming up for maturities on refinancing their loans. Paul, you have any more time?
Mark Fitzgibbon: Okay. Thank you.
Paul Perrault: No, I would think a lot of it is pretty good because it's mostly outside of the core business. It's all over the Hudson Valley. It's all over Rhode Island and a lot of it has been suburban Boston, which haven't really seen the occupancy issues that central businesses district has.
Mark Fitzgibbon: Thank you
Operator: Our next question comes from Nick Cucharale with Hovde Group. Please go ahead.
Nick Cucharale: Good afternoon, everyone. How are you?
Paul Perrault: Hi, Nick.
Carl Carlson: Very good.
Nick Cucharale: So I just wanted to follow-up on the accelerating loan growth. Could you provide some color there? Was it 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?
Carl Carlson: 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 that we stand back 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 maybe a little slower side. But we're projecting 4% to 5% growth for 2024 at this point.
Nick Cucharale: 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?
Paul Perrault: I don't think it's because of funding or any other particular challenges, but it feels like the largest banks, which dominate 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 were some of the failed banks were pretty active in all of our markets, and that created another level of opportunity. But I don't know that there is a liquidity or capital problem that the people who are playing, the Boston market that you would have Eastern and you would have Rockland Trust people like that. Like us, some people in Rare Island, there's a few banks there. But it's our opportunity.
Nick Cucharale: And then lastly, can you just help us think about the effective tax rate for 2024?
Carl Carlson: Excellent. Tax rate is 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, so that for end of 2023. So it will jump back up to about 24%.
Nick Cucharale: Thank you for taking my questions.
Paul Perrault: Sure. Okay, Nick.
Carl Carlson: Thanks Nick.
Operator: The next question comes from Steve Moss with Raymond James. Steve, please go ahead.
Steve Moss: Good afternoon, guys.
Paul Perrault: Hey, Steve.
Carl Carlson: Hey, Steve.
Steve Moss: Maybe could you talk about a little bit on loan pricing here. Just on loan pricing, just curious where are new loans coming on and just color around that.
Carl Carlson: Sure. So I kind of told you in my notes, we hold $700 million of loans originated in the quarter, 727 basis points as the weighted average coupon on that. I'm not sure how much more detail you want. But it's our equipment finance unit does particularly well, close to 10% for those loans.
Paul Perrault: Actually we drop that but it must be in spread right there.
Steve Moss: Okay. Appreciate that. And just given the end of period balance sheet, you look more liability sensitive given the borrowings here. Just kind of curious if we get some rate cuts, how you guys are thinking about the margin with rate cuts?
Carl Carlson: Everybody's talking about rate cuts, so we're -- our book is 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 -- that's a benefit of borrowings and things of that nature, they do reprice fairly quickly and it depends on how fast we are able to adjust our market rates on our deposits. But I feel -- we feel in pretty good shape there.
Steve Moss: Okay. I appreciate that. And then you guys are in a good capital position on -- from a TC standpoint. Just kind of curious 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.
Paul Perrault: M&A discussions these days. Its -- 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 very low NIMs and huge marks in their loan books and the security books. So I think that deploying capital to something like that is not something that we're particularly anxious to do. I do think there is an opportunity, so there will be opportunities to do strategic deals that really makes sense. But more to come on that.
Carl Carlson: It's a very difficult environment. Yes. That's all
Steve Moss: Okay. Great. Well, thank you very much for all that
Carl Carlson: Okay Steve.
Paul Perrault: Thanks.
Operator: The next question comes from Laurie Hunsicker with Seaport Research. Laurie, please go ahead.
Q – Laurie Hunsicker: Yes. Hi. Thanks. Good afternoon.
Carl Carlson: Hi, Laurie.
Paul Perrault: Hi, Laurie.
Q – Laurie Hunsicker: Maybe your margin, just -- spot margin for the month of December. Do you have that Carl.
Carl Carlson: I do. It was 310.
Q – Laurie Hunsicker: Okay. And then what was the accretion income number in net interest income this month.
Carl Carlson: For the month or for the quarter.
Q – Laurie Hunsicker: I'm sorry, this quarter.
Carl Carlson: Yes. So the quarter it was just under $2 million.
Q – Laurie Hunsicker: Okay. So less than last. Okay. And then noninterest income that the other category of $3.26 million, that looks outsized by a couple of million. What was that? And what's nonrecurring in that number?
Carl Carlson: Yes, that's the number that gets -- has a lot of volatility in it because there's a category in there is our mark-to-market on our risk participation agreements, which is 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 $1.4 million in the prior quarter. So it was a big swing quarter-to-quarter in that number. And then we had some other noninterest income items that go through that as well.
Q – Laurie Hunsicker: Okay. Okay. That's great. And then same question on the noninterest expense line, the other category, that $5.5 million outlook outsized, anything nonrecurring in that?
Carl Carlson: There was about $800,000 there that was nonrecurring. That has to do with the write-off of some premises that were
Paul Perrault: Projects
Carl Carlson: Projects that we're working on.
Q – Laurie Hunsicker: Okay. Great. And then on office. Can you update us that $14.8 million cost be office in Downtown Boston that went nonaccruing last quarter. Can you just give us an update on that? And then, do you happen to have a debt service coverage ratio, LTV occupancy, anything on that particular port [ph].
Carl Carlson: Well, we continue to work with the borrower on that. It's a participated loan. So we're -- I think it's mostly working with the participant on this as well to get this to the finish line. What the debt service coverage is in the 50s and the LTV is, I think, around 15%, something like that.
Laurie Hunsicker: Okay. And then…
Carl Carlson: Go ahead, Laurie.
Laurie Hunsicker: 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 across the EMC (NYSE:EMC_old) and do you have an average LTV or debt service on your full book?
Carl Carlson: Sure.
Laurie Hunsicker: And I guess one more question -- go ahead.
Carl Carlson: Okay. So I had about -- there's really not a lot of day in there at all. It's mostly Bs and Cs. It's like, mostly the Bs, B category there. The LTV on that is right in the 50s, but that's basically 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 is around $1.6 billion.
Laurie Hunsicker: Okay. That's great. And then one more thing. How much of that $774 million is medical, that lower risk medical category?
Carl Carlson: $100 million.
Laurie Hunsicker: $100 million. Okay. Great. Thanks. I’ll leave it there.
Carl Carlson: Sure.
Operator: Our next question comes from Chris O'Connell with KBW. Please go ahead.
Chris O'Connell: Hey good afternoon. So just following up on the office line of questions. It looks like in the deck on that slide that the 1Q '24 office maturities from last quarter's deck to this quarter's deck 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, does that get shifted back a little bit, or what was the driver of that kind of change in the maturity schedule?
Carl Carlson: I don't know the specifics around what you're trying to -- 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 too long 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. That might be answering your question.
Chris O'Connell: Okay. Great. That's helpful. And then, as far as the deposits go, it slowed a bit on a quarterly basis in terms of the pace. But any read into how much of the non-interest-bearing mix shift has remaining? I mean, did it fell between the October and December, and what's kind of your baseline outlook for the next couple of quarters here?
Carl Carlson: It's a great question. I wish had a great answer for you. 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 the positive outflows we've seen have largely been driven by the higher balance accounts that have been moving their excess balances to treasury funds 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 going to start seeing some deposit growth, albeit we'll also probably given the level of interest rates. DDA, we may still continue to see a little bit of DDA in 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 can't do that.
Chris O'Connell: Okay. Understood. And for next year, mid-year, I believe there have been -- starts to hit your fees. Maybe just an update on what that number is?
Carl Carlson: 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 will be a negative to the fee income side. We continue to work very hard on other sources of fee income throughout the organization
Chris O'Connell: Great. And just circling back to the margin dynamics. Can you remind us how much of the portfolio on the loan side immediately reprices with short-term rates? And what – how much of the deposit book, I guess is indexed to short-term rates?
Carl Carlson: We've 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 that basically reprices within two months.
Paul Perrault: And none of the deposits are indexed.
Carl Carlson: Yes. Nothing is indexed on the deposit side. We can move rates on the non-maturity deposits that will. But that's also very market-driven, as you can imagine. Our CD portfolio, so CDs, we have about $335 million of CDs that are repricing in Q1 and around $340, $345, something like that in yield or cost. And those are repricing up into the force, the mid-4s.
Chris O'Connell: Great. That’s helpful. And 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 a buyback, or kind of holding out for loan growth right now?
Carl Carlson: 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.
Chris O'Connell: Great. Appreciate the time. Thank you.
Paul Perrault: Thank you.
Operator: This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Perrault for any closing remarks.
Paul Perrault: 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.
Operator: The conference has concluded. Thank you for attending today's presentation. You may now disconnect.
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