Brookline Bancorp , Inc. (NASDAQ:BRKL) announced its financial results for the third quarter of 2024, revealing a net income of $20.1 million and earnings per share of $0.23. The bank experienced a modest loan growth and a significant increase in customer deposits. Net interest margin saw an improvement, and total assets grew modestly. Meanwhile, the company expects continued margin improvement and measured loan portfolio growth in the future.
Key Takeaways
- Brookline Bancorp reported a net income of $20.1 million with earnings per share of $0.23.
- Loan growth was modest at $34 million, while customer deposits increased by $103 million.
- Net interest margin improved by 7 basis points to 307 basis points.
- Operating expenses decreased, with anticipated savings from a recent reduction in force.
- The company approved a quarterly dividend of $0.135 per share.
- Discussions on potential stock buybacks are ongoing, and merger and acquisition activity is expected to pick up as market conditions stabilize.
Company Outlook
- Brookline Bancorp anticipates continued improvement in net interest margin.
- Loan portfolio growth is expected to be measured with a Q4 margin projected between 312 to 320 basis points.
- Noninterest income is expected to range from $6 million to $7 million per quarter.
- Operating costs are projected to grow by 3% to 3.5% in 2025.
Bearish Highlights
- Nonperforming loans increased by $10.5 million, largely due to a single significant relationship financing grocery stores.
- The company has $4.6 million in nonperforming loans related to specialty vehicles.
Bullish Highlights
- Total assets increased by $42 million.
- The company originated $459 million in loans with favorable coupon rates.
- Noninterest income remained stable, and operating expenses decreased.
Misses
- Total funding costs rose to 367 basis points.
- The provision for credit losses was reported at $4.7 million with net charge-offs of $3.8 million.
Q&A Highlights
- The company discussed future charge-offs related to specialty vehicles, with recent trends suggesting potential improvements.
- Reserve ratios may decline as the market improves, with the credit provision for unfunded commitments decreasing.
- Management is actively managing deposit rates to optimize net interest income in response to changing economic conditions.
Brookline Bancorp's third quarter results show a stable financial performance with a focus on maintaining a measured growth strategy. The company's proactive management of deposit rates and costs, coupled with a cautious approach to loan growth and asset quality, positions it to navigate the current economic landscape effectively. Investors and stakeholders can anticipate the company's continued efforts to optimize financial performance in the quarters ahead.
InvestingPro Insights
Brookline Bancorp's (BRKL) recent financial results can be further contextualized with additional insights from InvestingPro. The company's market capitalization stands at $967.36 million, reflecting its position in the regional banking sector.
One of the most notable InvestingPro Tips is that Brookline Bancorp has maintained dividend payments for 27 consecutive years, demonstrating a strong commitment to shareholder returns. This aligns with the company's recent approval of a quarterly dividend of $0.135 per share, as mentioned in the earnings report. The current dividend yield is an attractive 5.12%, which may appeal to income-focused investors.
Another relevant InvestingPro Tip highlights that BRKL has seen a large price uptick over the last six months. This is corroborated by the InvestingPro Data showing a 28.91% price total return over the same period. This positive momentum could be attributed to the company's stable financial performance and improving net interest margin, as outlined in the earnings report.
The company's P/E ratio of 12.99 suggests that the stock is reasonably valued compared to earnings, which may be of interest to value investors. Additionally, the Price to Book ratio of 0.78 indicates that the stock is trading below its book value, potentially offering a margin of safety.
It's worth noting that InvestingPro has 6 additional tips available for Brookline Bancorp, which could provide further insights for investors looking to deepen their analysis of the company's prospects.
Full transcript - Brookline Bancorp Inc (BRKL) Q3 2024:
Operator: Good afternoon, and welcome to Brookline Bancorp, Inc's. Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brookline Bancorp's Attorney, Laura Vaughn. Please proceed.
Laura Vaughn: Thank you, Sara, 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 have 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: Thank you, Laura, and good afternoon, everyone. Thank you for joining us for today's earnings call. Performance improved in the quarter with net income of $20.1 million and earnings per share of $0.23. Loans grew by a modest $34 million. Customer deposits increased $103 million. And our margin increased 7 basis points. As market rates gradually return to normal, we expect to see our net interest margin continue to improve right through 2025. I will now turn you over to Carl, who will review the company's third quarter results.
Carl Carlson: Thank you, Paul. During the quarter, total assets grew $42 million, driven by loan growth of $34 million in C&I and consumer, while the equipment finance and commercial real estate portfolios declined. In the third quarter, we originated $459 million in loans at a weighted average coupon of 735 basis points. The weighted average coupon on the core loan portfolio declined 2 basis points during the quarter to 603 basis points at September 30. On a linked-quarter basis, the yield on the loan portfolio increased 15 basis points to 617 basis points. On the deposit side, customer deposits grew $103 million, while brokered deposits declined $107 million. Deposit growth continued to be focused on the time deposits. However, we also saw demand deposits grow $44 million in the quarter. Total funding costs were 367 basis points, an increase of 2 basis points as the overall net interest margin improved 7 basis points to 307 basis points for the quarter. Total average interest-earning assets grew modestly by $36 million on a linked quarter basis, resulting in net interest income of $83 million, an increase of $3 million from Q2. Noninterest income was $6.3 million, which was flat with the prior quarter as lower deposit fees were offset by higher participation fees and other noninterest income. Operating expenses were $57.9 million for the quarter versus $59.2 million in Q2. In the second quarter, there was an $823,000 restructuring charge as we exited the specialty vehicle business. Excluding this charge, operating expenses declined $500,000 on a linked quarter basis due to lower marketing and other operating expenses, partially offset by higher compensation and professional fees. The provision for credit losses was $4.7 million for the quarter, a decrease of $900,000 from the second quarter. Net charge-offs were $3.8 million or 16 basis points on loans annualized. Nonperforming loans increased $10.5 million in the quarter due to one Eastern funding relationship, financing multiple grocery stores. NPAs to total assets increased to 62 basis points of total loans. Our reserve coverage ratio increased to 131 basis points. Looking forward, as I mentioned last quarter, client behavior and industry responses continue to adapt to a fairly volatile interest rate environment. In mid-September, the Federal Reserve cut short-term rates 50 basis points. Longer-term rates initially declined significantly with the 10-year treasury closing below 3.75% and the 5-year rate around 3.50%. Since early October, rates have more than retraced the decline and now the 10-year is around 4.2% and the 5-year is a little over 4%. As the yield curve continues to normalize, we will see net interest margin improvements. The modest improvements in the environment suggests our net interest margin will increase 5 to 10 basis points in Q4 and continue to improve throughout 2025. Our net interest margin for the month of September was 313 basis points. We anticipate increases in loan portfolio to be measured for the remainder of 2024 and into 2025, as growth in commercial and consumer loans will be tempered by the runoff of specialty vehicle and continued lower commercial real estate activity. Our cash and securities portfolio will remain stable, representing 9% to 12% of total assets. On the deposit side, we anticipate growth of 4% to 5%. Given the prevailing interest rates, the migration of lower cost deposits may persist, but is anticipated to slow. Our Q4 margin is projected to fall within a range of 312 to 320 basis points and continue to improve. However, this is dependent upon deposit flows and the timing and magnitude of future actions by the Federal Reserve. Noninterest income is projected to be in the range of $6 million to $7 million per quarter, although components may vary significantly, with growth of 5% to 10% in 2025. Currently, we are projecting overall operating costs to grow in the 3% to 3.5% range for 2025, and our effective tax rate is expected to be in the range of 24.25%. Yesterday, the Board approved maintaining our quarterly dividend at $0.135 per share to be paid on November 29 to stockholders of record on November 15. On an annualized basis, our dividend payout approximates a yield of 5.1%. This concludes my formal comments, and I'll turn it back to Paul.
Paul Perrault: Thanks, Carl, and we will now open it up for questions.
Operator: [Operator Instructions] Our first question today comes from Mark Fitzgibbon with Piper Sandler. Your line is now open.
Mark Fitzgibbon: Hi guys. Good afternoon. First question, Carl, could you just clarify your comments? I missed them on that one equipment finance loan. Can you give us -- share any color on that?
Carl Carlson: I imagine you're talking about the one loan that went nonaccrual this quarter, right? So that was one large loan at Eastern Funding and it finances two grocery stores.
Mark Fitzgibbon: Okay. And any thoughts on timing for resolution?
Carl Carlson: I don't have any idea of exactly when that's going to get resolved. And we do have a sizable specific reserve set up for that loan, about $5 million we set up this quarter.
Mark Fitzgibbon: Okay. Great. And then can you share with us what the margin was? Spot margin in September?
Carl Carlson: Spot margin was 3.13%.
Mark Fitzgibbon: Okay. Great. And also, I was curious about the loan pipelines and the complexion. What those look like today?
Paul Perrault: We're actually seeing a lot more institutional type things. We've hired some personnel who -- from this area, specializing in that. And so we're seeing that in all the markets in Greater Boston, Rhode Island and in Westchester County, things like private schools, some colleges. It's all very, very good business. Obviously, we're being very, very selective in real estate, specialty vehicles and one-off modes, so we're not originating there. And I'd say that the equipment finance is beginning to pick up a little bit more in their traditional -- in their laundromats. Some C&I, but it is not robust by any means at all, but it is moving forward pretty well. So I'll take a step back. I don't know. I don't think Carl gave a number, but I would be very happy with 4% or 5% gain in 2025 in the loan portfolio.
Mark Fitzgibbon: Okay. Great. And then I know you guys like to keep private sort of what's going on at Clarendon Private. But I wondered, we're a couple of years in now. If you could share any metrics on how that's going, whether we're at profitability and what AUM or AUA are currently?
Carl Carlson: Sure. We're not at profitability yet. We're seeing the mix of those assets under management change. So in the early stages, we were basically doing a lot of treasury business, which we did not make any money on at all. But it was good introductory business to the clients and being able to help them out. We're seeing that transition over to more of a balanced portfolios, thank goodness on both counts. I think they've done quite well in this market. And so we're still around that $350 million in assets under management. So it's growing. We really like the growth that we've had in it, the customers that we're attracting into that business and able to take care of. Just would like to see it grow a little faster than that.
Paul Perrault: Impatient.
Carl Carlson: I'm a CFO. I'm impatient.
Mark Fitzgibbon: Any idea what percentage of the customers are coming from the bank versus outside?
Paul Perrault: Most.
Carl Carlson: I'd say most. Probably, it is 70% or so.
Paul Perrault: In some cases, it's a customer who's selling their business. They might have favored some other Wall Street firm for their money, but they come here now.
Mark Fitzgibbon: Thank you.
Operator: Our next question today comes from Laurie Hunsicker with Seaport. Your line is open.
Laurie Hunsicker: Yes. Hi. Good afternoon, Paul and Carl, just wondered if we could circle back on credit here. So of your $37.2 million of equipment nonperforming loans, how much of that was specialty vehicles?
Carl Carlson: About $4.6 million is tow, tow related specialty vehicles. Yes.
Laurie Hunsicker: Okay, $4.6 million. Okay. Great. And then, I guess, same question on the charge-offs. You had $3.8 million in charge-offs, that was equipment finance. Is that all the spec vehicles that discontinued book? Or was that split somehow?
Carl Carlson: About $2.1 million was specialty vehicle of the $3.8 million in charge-offs.
Laurie Hunsicker: Okay. Great. Okay. And then what is your reserve on your equipment finance book? Or what is your reserve on your spec vehicles?
Paul Perrault: He's looking it up.
Carl Carlson: So I'll give you a little break. I don't have any total. I had it based on our Eastern Funding core, which is about 128 basis points on that. Specialty vehicle, we have 224 basis points. And the macro lease portfolio, kind of look at that separately. We included in core, but we break it out, it's 132 basis points. And that excludes any specific reserves that we may have on a specific -- a particular credit. We take that out. So those are the general reserves on those portfolios. I don't have the dollars in front of me.
Laurie Hunsicker: Okay. And then with the discontinued spec vehicle, I know you had done a reduction in force. And I guess we're going to see the sort of the full results of that come through in the fourth quarter. Is that right from the expense savings side? Or how should we be thinking about that?
Carl Carlson: You're already seeing it in basically the second half of Q3. So you'll see it in full force in Q4. It's about $800,000 a quarter in benefit.
Laurie Hunsicker: In benefit, right? Okay. And so then with respect, Carl, to your guide, your 3% to 3.5% expense growth guide. What base are you using for that? How should we think about that, especially relative to the $800,000 a quarter savings?
Carl Carlson: I use our current quarter, take off a couple of hundred thousand for this quarter, that's about it for the fourth quarter, and that will be the run rate or $240 million, I would say, on an annualized basis and 3% to 3.5% off that.
Laurie Hunsicker: Perfect. Okay. Okay. That's great. Okay. And then office. Can you help us think about maybe just -- and you guys have some great slides here. But office nonaccruals, how much was that? And then the criticized and classified that you present, super helpful that you presented office maturity. But what is that relative to your total book, the office nonperformers?
Carl Carlson: That's a tricky question. Okay. So starting with the nonaccrual loans related to office, that hasn't changed. That's still basically one credit. It's about $10.8 million, that's in that book. I think that's also the number that's criticized and classified loans is the same amount. I don't think that has changed. Around about $9.2 million I think is criticized and classified.
Laurie Hunsicker: Got you. Okay. And then just looking at your deck here, it looks like the way that you're presenting the office criticized and classified, this is just the maturities, the $137 million, right? So how do we think about it relative to your $700 million book? Or is it just that $10.5 million, that's it?
Carl Carlson: I lost where you're going with that, Laurie.
Laurie Hunsicker: Yes, sorry. Well, so the office nonperformers, that $10.5 million, that's just on the book that is occurring in the next two years. I mean I love this slide. Slide 18 is great, right, because the maturity wall is really what we care about. That's the triggering of nonperformers. I'm just wondering more broadly what your overall nonperformers are on your $700 million? The total office book, not just the part that's maturing in two years. Sorry, I think I'm not asking this right. I'm just looking for what is...
Carl Carlson: The only nonaccrual loan, yes. The total nonaccrual office is $10.8 million.
Paul Perrault: That's the only office nonaccrual, Laurie.
Carl Carlson: The slides goes to show two years, so focus on the two years. But overall, it's still the same.
Laurie Hunsicker: No, I love the quarterly breakdown. This is super helpful. I wish more people put this in. So that's great. The office reserves, how much is that on your $700 million book?
Carl Carlson: It's 2%, excluding any specific reserves.
Laurie Hunsicker: Okay. And then what specific reserves do you have presumably on that $10.8 million?
Carl Carlson: So we have an additional $2 million in specific reserves.
Laurie Hunsicker: Okay. That's great. Okay. And then I guess last question, Paul, more for you. Can you talk a little bit about buybacks below book value, even just to offset your option dilution? Just how you're thinking about that?
Carl Carlson: We get this question frequently, which you would expect when you're trading at or below tangible book value. I think we've been very careful to say, signal that we would be doing anything in the near term considering the inverted yield curve, the margin and the questionable credit and office environment. I think things have materially changed. In that regard, I think we're starting to see the turn. We've seen the curve starts to steepen or at least flatten to steepen. Credit is improving. We're seeing the NIM turnaround. So I think that's going to be more of a conversation going forward with the Board about the opportunity to do stock buybacks. We've historically put something in place early in the year, but that's something we'll continue to talk about at the Board level.
Laurie Hunsicker: Okay. Okay. Great. And sorry, just one more question actually. Paul, can you talk a little bit about M&A? You guys have been active in M&A, and obviously, the interest rate environment has not been very favorable. But that's coming back, too. Just how you're thinking about M&A more broadly? And I don't know, any tidbits you can spare on that better?
Paul Perrault: Well, it's been fairly quiet for exactly the reasons that you cited. And I do think in much the same way that Carl just described the environment for the income statement and balance sheet, I think the same thing is beginning to come around in M&A. And as these rates come down, if they come down, it's easier to deal with the marks. But in the meantime, it's very difficult. It's very difficult and it's a relatively thin market. There's a deal here and there. But I think it will improve, but it's going to take a little time.
Laurie Hunsicker: Okay, great. Thanks for taking my questions.
Paul Perrault: Okay, Laurie.
Operator: Our next question comes from Christopher O'Connell with KBW. Your line is open.
Christopher O'Connell: Hi. Good afternoon. I just wanted to kind of keep going on the specialty vehicles in runoff mode. I think you said $2 million and change of the net charge-offs this quarter were related to that. As this portfolio runs off over the next few quarters, do you think that, that's within shooting distance of kind of what you'd expect for future charge-offs there?
Paul Perrault: Possibly. Possibly. I think there was some catch-up in the past couple of quarters that you've seen in those charge offs. So I'm hopeful that it will get better, but it is a portfolio that's still experiencing some level of trouble. You might recall, these are small tow truck operators in a lot of cases, and delivery vehicle, route owners, if you will, who have been disenfranchised when stuff moved to Amazon (NASDAQ:AMZN). When Amazon started doing their own deliveries, a lot of these guys were out of business. So that's kind of behind us. And now it's in a more normal, slightly riskier portfolio level mode. So I think I'm hopeful that it will improve. And the balances are coming down fast and hard.
Christopher O'Connell: Okay. Great. That's helpful. And then on the provision, the credit for unfunded commitments was pretty substantial the past couple of quarters, like around $4.5 million, seems kind of above average relative to the past. Is there anything specific that's driving that?
Carl Carlson: Well, it did come down materially this quarter. And I think that's due to the revisiting some of the assumptions that went into particularly home equity lines of credit and the losses that you might experience on those unused lines. So they updated the models with some actual data, more current data which brought that down, as well as the slight change that we've done in the weightings of the economic scenarios. So we did move a little bit away from the recession scenario, with the Fed cutting rates and the economic environment improving, things of that nature. It really made sense to move away from the 60% weighting that we had for recession, the recession scenario towards a more 50-45-5, I believe. Our long term -- what we would consider a neutral environment would be a 30-40-30 mix. And so I think over time, we'll continue to see that if it warrants.
Christopher O'Connell: Okay. Great. So long term, the overall kind of reserve ratio, a combination of the specialty vehicle coming off and returning to a normal environment probably settles out a bit lower?
Carl Carlson: Yes. So we're pretty, I don't want to say aggressive, but we're very responsive to loans that go on to watch or anything that we're looking at that we see there might be some weakness and setting up specific reserves around that. So we have over about $25 million of specific reserves in that allowance for loan losses today. And so when you take that out, that's 131 basis points on total loans. But you take that out, you say, okay, the general reserve is around 110 basis points. I would not be surprised if that goes down over time just as the market continues to improve.
Christopher O'Connell: Okay. Great. And then I noticed that just on the -- on Slide 15, with the CRE LTVs. One is just, is the medical category there, is that office? And then I just noticed that like the 70-plus portion of that has kind of gone up over the past year or so. Any color around what's driving that?
Carl Carlson: I don't have any color on that.
Christopher O'Connell: Okay. Great. And then I appreciate all the maturity schedules that you guys gave on the CRE for the next couple of years. For the CRE that is set to mature, reprice, what are generally kind of the yields that those are coming off that?
Carl Carlson: One second. About 6%, a little north of 6%.
Christopher O'Connell: Okay. Great. And I know you guys gave the blended originations this quarter. I guess, just breaking it down a little further, do you have some of the origination yields just for the C&I versus the equipment finance in the CRE?
Carl Carlson: Sure. So I mentioned earlier, we originated about $459 million of loans. The coupon on that was about 735. Just trying to break that out. Total commercial real estate loans, about $170 million of that at 722. Total commercial loans, which includes equipment financing, about $195 million at about 771. And then we've got some residential mortgages, home equities and things of that nature of consumer loans at around 684.
Christopher O'Connell: Awesome. Perfect. Appreciate it. Thanks for taking my questions.
Carl Carlson: Okay, Chris.
Operator: Next question comes from Steve Moss with Raymond James. Your line is now open.
Steve Moss: Good afternoon, guys. I just want to go on the NII and the margin here thought process. Just kind of curious, maybe starting with what have you seen in terms of deposit rates coming in here? I hear you guys in terms of margin expansion. Just kind of curious where funding costs are shaking out? Because I see like in your ALCO disclosure, lower rates hurt NII, but obviously, you guys are signaling margin expansion here.
Carl Carlson: Yes, that's a great question. And we debate what we should put in this presentation, quite frankly. But our asset liability models, we've been holding true to that 40% deposit betas overall for the pricing in the model. We also provide the betas throughout the cycle that we've actually experienced. And so you kind of look at this thing when rates change, how do the rates change on our individual products, and those kind of drive the beta discussions. But then you have the actual activity of folks moving balances between deposit products, which actually increases your beta on a total funding basis and driving that. So what are we seeing going forward? So when you look at this model, it's more of a flat balance sheet type of environment saying we'll move if the pricing on overall is 40 basis points, betas are much, much higher. So we did see the Fed cut rates 50 basis points in September 18. And we basically, immediately cut our rates on our CD products and the highest tiers of our savings and money market accounts by 50 basis points. So you'd say, okay, that's 100% beta that you experienced on those particular products. Now some of the lower tiers, we didn't move the rates, right, because they were already at fairly attractive rates. And it's good money at those rates. You don't really want to move that. So we're being very proactive in moving those rates. We also have a lot of CDs that mature. So we've got CDs at $413 million or so, million dollars of CDs maturing in Q4, coming off at 448 coupon. And so that's repricing into the 4s, the low 4s. Brokered CDs, $140 million of brokered CDs at 540, those are coming down into the low 4s or mid-4s. And when we got borrowing, we got $170 million of borrowings center, a little over 5 that's coming down into the mid-4s. So we're seeing a lot of the movement on the liability side. And then the ability to reprice the savings now in money market accounts and continue to be active in that space. I don't think we're seeing any pushback in the market. I think a lot of the competition is doing the same. So it doesn't feel like we're losing out in that regard. And so we feel pretty optimistic that we're able to meet the decline in market interest rates that we're seeing on our loan portfolio because we have $2.2 billion of loans at reprices within three months, being able to reprice the liability side to meet that or exceed that.
Steve Moss: Okay. Great. And then just kind of -- so I hear you on the higher deposit beta and obviously a positive step on the margin with trends for the upcoming quarter. As you think about 2025 and if we get 100 basis points or a little bit more than that, just kind of curious where do you think that margin kind of shakes out by the fourth quarter of '25?
Carl Carlson: Right now, our model suggests it will be in the 3.40s.
Steve Moss: Okay, great. That's all my questions. I appreciate all the color here.
Carl Carlson: Okay, Steve, thank you.
Operator: Thank you all for your questions. This concludes our Q&A session. I'd like to turn the conference back over to Mr. Perrault for any closing remarks.
Paul Perrault: Thank you, Sara, and thank you all for joining us today, and we look forward to talking to you again next quarter.
Operator: The conference has concluded. Thank you for attending today's presentation. You may now disconnect.
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