Yahoo Finance Brookline Bancorp, Inc. (NASDAQ:BRKL) Q1 2024 Earnings Call Transcript
Brookline Bancorp, Inc. (NASDAQ:BRKL) Q1 2024 Earnings Call Transcript April 25, 2024
Brookline Bancorp, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to Brookline Bancorp, Inc.'s First Quarter 2024 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 A. Perrault : Thanks, Laura. Good afternoon, and thank you for joining us on today's earnings call. At the start of the year, prevailing market sentiment suggested inflation was well contained and the Federal Reserve would implement substantial rate cuts, potentially up to 6 to 7 reductions throughout 2024. However, the economic landscape remains dynamic. Unemployment rates persist at historically low levels, consumer spending remains steady and overall economic vitality endures as inflation remains a persistent concern. Within a matter of months, the market now anticipates only one rate cut for the year with some even speculating no cuts at all. The five-year and 10-year treasury rates have surged over 80 basis points since the end of last year.
Unfortunately, the prolonged period of higher interest rates continues to hinder the anticipated improvement in net interest margins. We remain vigilant in our efforts to navigate this challenging environment. While the New England and New York economies continue to perform well, the impact of rising interest rates on loan demand is evident. Our deposit composition and funding costs further contribute to the strain on the net interest margins and overall revenues. Our goal is to provide boutique commercial banking services to our valued customers efficiently, careful investments in our team of bankers, technology and locations play a pivotal role in achieving this objective. This quarter, we celebrated the grand opening of our relocated PCSB branch in Mount Vernon, New York.
Additionally, our newest Bank Rhode Island branches in Cranston and Newport, Rhode Island are off to a very promising start. I will now turn you over to Carl, who will review the company's first quarter results.
Carl M. Carlson : Thank you, Paul. Yesterday, we reported net income for the quarter of $14.7 million, equivalent to $0.16 per share. During the quarter, total assets grew approximately $161 million driven by the growth in cash and equivalents of $169 million, with modest loan growth of $13 million distributed across C&I, equipment finance and consumer as commercial real estate experienced a decline of $10 million. In the first quarter, we had loan originations and draws of $435 million at a weighted average coupon of 779 basis points. The weighted average coupon on the loan portfolio rose 4 basis points to 596 basis points with the quarterly yield on the portfolio increasing 2 basis points for the quarter. On the funding side, customer deposits grew $81 million.
Broker deposits increased $90 million and borrowings declined $15 million. Deposit growth centered around higher rate savings and time deposits, offset by decreases in demand deposits and money market products. Funding costs increased 19 basis points in the quarter. Consequently, our net interest margin compressed 9 basis points to 3.06%, resulting in net interest income of $81.6 million a decline of $2 million from Q4. Non-interest income was $6.3 million, reflecting a decrease of $1.7 million compared to the prior quarter. Factors contributing to this change include lower loan level derivative activity, gains on participated loans and a swing in the mark-to-market adjustment on derivatives, which is reflected in other non-interest income.
Notably, due to the sharp increase in interest rates. The mark-to-market adjustment shifted from a positive adjustment of 447,000 in Q4 to a negative adjustment of 358,000 in Q1. Expenses were $61 million for the quarter, up $1.8 million from Q4, due to the seasonality of compensation and benefits and weather related occupancy costs. Provision for credit losses was $7.4 million for the quarter, an increase of $3.6 million from the fourth quarter, increases driven by net charge-offs and reserve build. Net charge-offs were $8.8 million driven by $4.7 million in C&I charge-offs. Previously specifically reserved for, $3.5 million associated with equipment finance and 600,000 associates with exiting two office credits. Non-accrual loans experienced a modest decline in the quarter and our reserve coverage ratio increased to 124 basis points.
Over the past few weeks, the outlook for 2024 Federal Reserve rate cuts has significantly shifted. Longer-term rates have risen notably, client behavior and industry responses continue to adapt to this evolving environment. We face renewed pressure on our deposit mix and funding costs, for the economy remains robust, loan demand has softened. Consequently, we now anticipate our margin and net interest income for the full year to be lower than initially projected. We expect overall loan growth of 1% to 4%, primarily driven by C&I and equipment finance. Although, there appears to be market opportunity in non owner-occupied commercial real estate, our focus remains on serving relationship customers. Hence we anticipate only slight growth in this segment.
Our cash and securities portfolio remained stable, representing 9% to 12% of total assets. On the deposit side, we anticipate growth of 4% to 5%. Given prevailing interest rates, the migration of demand deposit accounts and other lower-cost deposits may persist. Our Q2 margin is currently projected to fall within the range of 300 to 305 basis points and then improved throughout the year. However, this is dependent upon deposit flows. Non-interest income is projected to be in the range of $6 million to $7 million per quarter, although components may vary significantly. We continue to manage operating expenses at $240 million for the full year. However, we are actively reviewing investment plans and evaluating potential cost savings opportunities.
Currently our effective tax rate is expected to be around 24.7% for the balance of the year. Yesterday, the Board approved maintaining our quarterly dividend at $0.135 per share to be paid on May 24th to stockholders of record on May 10th. On an annualized basis, our dividend payout approximates the yield of approximately 6.5%. This concludes my formal comments. And with that I’ll turn back to Paul.
Paul A. Perrault: Thanks, Karl. And we will now open it up for questions.
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