Good day and welcome to the Brookline Bancorp First Quarter 2021 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Marissa Martin, Associate General Counsel. Please go ahead.
BRKL Brookline Bancorp
Thank you, Betsy and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website brooklinebancorp and has been filed with the SEC. This afternoon's call will be hosted by Brookline Bancorp's executive team, Paul A. Perrault and Carl M. Carlson.
Before we begin, please note this presentation is being done from several different locations, so if there is a delay or technical problem, we appreciate your patience and understanding. This call may also 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.
If you could join us on page 3 of the earnings presentation, I'm pleased to introduce Brookline Bancorp's President and CEO, Paul Perrault.
Thanks, Marissa and good afternoon, everyone. Thank you for joining us for today's earnings call. With COVID-19 cases -- case numbers trending down in Massachusetts and Rhode Island and vaccine numbers increasing, we remain quite optimistic for the future.
Our branch locations are all fully open with employees providing all services to our customers, while for the most part our non-branch employees continue to work from home.
We are following the guidance in both Boston and Providence for employees who would like to return to the office one or two times per week and that is an evolving picture here over the next couple of months.
Turning to our earnings, I'm pleased to report we had a solid quarter of earnings of $26.5 million or $0.34 per share as our credit quality remained stable and our net interest margin actually improved.
We continue to work with a small segment of our customers who are still facing financial challenges related to the shutdowns and require some additional loan payment deferrals to get to the other side.
As of March 31, there are loans of $126 million with modifications under the CARES Act. The company recorded a negative provision for credit losses of $2.1 million and our reserve for loan losses declined 4 basis points to 165 basis points on outstanding non-PPP loans. In Q1, we experienced another quarter of significant lending activity as our bankers worked with our customers on the latest round of PPP loans. We facilitated a $133 million of loan forgiveness payments during in the first quarter and an additional $248 million of PPP loans were made. Outside of PPP prepayments continue to offset growing loan demand.
We continue to see improving trends and pipeline continues to grow. I'm also pleased to report the Board approved a 4.3% increase in our quarterly dividend to $0.12 per share. I will now turn you over to Carl who will review the company's first quarter. Carl?
Thank you, Paul. On slide 4, we have provided summary comparative income statements. Net income was $26.5 million driven by higher pre-tax pre-provision revenue and a negative $2.1 million in the provision for credit losses. Q1 revenues increased $1.5 million in Q4 and were $2.9 million ahead of last year and operating costs were $800,000 higher due to seasonally higher compensation-related costs.
As illustrated on page 5, net interest income increased $900,000 as funding costs dropped faster in the yield on earning assets. The yield on interest-earning assets declined three basis points from the prior quarter as the cost of funding declined to 15.
If you follow me to slide 6, you can reference our comparative summary balance sheets. In the first quarter, the company finished with $8.6 billion in assets down $382 million from Q4. Loans were flat, while cash and securities combined declined $320 million as we used excess liquidity to pay down brokered deposits and federal home loan bank advances. The allowance for loan losses declined slightly to $110 million and represents coverage of 165 basis points on loans excluding PPP. Slide 7 reflects the linked quarter and year-over-year activity in composition of our significant loan and deposit categories.
As I mentioned, the loan portfolio overall was flat from the prior quarter as the growth in PPP loans of $116 million offset declines of $117 million in the rest of the portfolio. Brokered deposits were reduced $223 million as we saw non-brokered deposits grow $179 million in the quarter.
We continue to see strong growth and demand in money market deposits and consumers continue to shift funds from CDs to other deposit products. Slide 8 provides a snapshot of the PPP program at each of our banks. At the end of the quarter, we had over 3,400 loans with $605 million outstanding. Net deferred fees of approximately $14 million will be recognized into income over the life of these loans.
As Paul mentioned, we had $133 million in PPP loan satisfactions during the first quarter with most of the activity occurring during March. On slide 9, we are providing the status of our loan payment deferment activity.
As Paul mentioned at quarter end 341 credits totaling $126 million have a loan modification under the CARES Act, representing 1.7% of total loan balances. Loan modifications are provided by sector on slide 10. All remain -- all loans remain accruing with modifications concentrated in our laundry, fitness and tow sectors.
As shown on slide 11, the company continues to be well-capitalized exceeding all regulatory requirements as well as our own internal policies and operating targets. At the end of the quarter, we had a capital buffer of 3.5% or $239 million of regulatory well-capitalized standards. Slide 12, provides a history of our regular common dividend payout. Yesterday, the Board approved a quarterly dividend of $0.12 per share to be paid on May 28th to stockholders of record on May 14th. On an annualized basis, our payout approximates a 3% yield. This concludes my formal comments and I'll turn it back to Paul.
Joining us for the question-and-answer session is Robert Rose, who is our Chief Credit Officer.
We will now open it up for questions. Betsy?
We’ll now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mark Fitzgibbon with Piper Sandler.
Hey, guys. Good morning or I guess, good afternoon.
First, I wondered if you could share with us the size and complexion of your loan pipelines, excluding the PPP loans any that are in process?
Well, -- Mark, hi. It's Bob Rose. I will tell you that business has picked up significantly this quarter, and it's fairly balanced, well balanced between C&I and CRE. We see it in our loan committees, the new-to-new is up quite a bit in the quarter and it's actually running higher than new-to-new. I can tell you that the loan officers across the board are reporting more interest in activity. And in the equipment world, there is strong demand for laundry in the way of consolidations, equipment refreshes, and in the exercise world demand is actually rising for acquisitions and the manufacturers, they are also pushing equipment refreshes. It is -- there is a bottleneck in both those latter, places, laundry and exercise for equipment, but it is fairly broad, and it is an impressive C change rather quickly.
Okay, great. And then Carl, could you talk a little bit about your expectations for the margin over the next few quarters, including and not including -- excluding PPP income?
We'll continue to see pressure on the net interest income prior to the PPP forgiveness while we'll still see -- it all depends really on this loan growth.
So, I really want to kind of caution that there is a lot of activity, so it depends on what gets booked during this quarter. But overall, it's going to -- a lot of it's going to be -- we'll see a little bit of benefit on the funding side as we continue to see CDs re-price into other loan -- other deposit products, and we continue to pay down brokered funds as well as federal home loan bank advances.
So, we'll see some relief there. But what I want to caution here is we just put on $250 million of PPP loans. And as you know, these carry a 1% coupon and while they come with a lot of fees, it all depends on how fast those fees get recognized and that really depends on the forgiveness, on the magnitude and speed of the forgiveness. These loans are now five-year loans. I tried to provide you guys a lot of detail behind that, so the yields of these loans, if they don't get forgiven are very low. It's probably in the $160 million to $170 million area, from a yield perspective.
So, I think a lot of it is going to be the timing of the PPP and of course, how fast we book new loans.
So, the core margin call this quarter was what?
Yes. I'm not providing a core margin. I am letting you guys try to figure that out yourself. I said the -- well, the deferred fees of $1.4 million related to PPP loans, came in during the quarter, so if you take that out and say that well, that's the core margin.
Next, I was curious if you could update us on your planning for crossing $10 billion. What kind of incremental costs we're likely to see this year next year and what -- if you could just refresh us on the impact that you expect from Durbin?
I'll take half and then, I'll give Carl half.
We will pass the $10 billion, when we pass it. We're not afraid of it. We're not racing to it. We're not running away from it. It will happen naturally. We feel we are very, very well prepared and have been for a long time already employing the practices that are required when you're over $10 billion everything from Board Risk Committees and model testing and all the other stuff that one needs to do, we've been doing for a long time.
So, from an operational point of view, I don't see anything at all happening when we cross.
As for Durbin, I'll let Carl.
We estimate that to be somewhere in the $1 million to $2 million range on the Durbin side.
Okay. And then lastly, kind of a multi-part question, obviously, there's been a lot of consolidation in your backyard recently and some of those banks have, believe it or not, suggested that scale is really important to be competitive. I guess, part one is do you agree with that? And part two, if you could talk maybe a little about the opportunity that you see to steal customers, employees from some of these other banks that are going through consolidation and where you might see the most opportunity? Thank you.
I find it's funny, Mark, that banks of virtually every size, $100 million to $100 billion, all say that nirvana is the next size up for them.
And so, it's a peculiar thing and I think we can appreciate that it seems that in most things in banking economies of scale are reached fairly early on and are not better when you get to be enormous.
So, I -- I'm not a big believer in it, once you're of a certain size.
Now having said all of that, the five deals sort of around us that have happened here recently, I think are a unique and wonderful opportunity for us. We're big enough. We're capable. We're in the right business lines. We're not a retail-oriented place. We're not a big residential lender or credit cards or things where maybe scale is a bit more important.
So, I think for the next couple of years, there's going to be a lot of very unhappy people at some sizable institutions that are going to be looking for new friends. It almost feels like it has started as Bob had reported that we are seeing a larger content in our new loan approvals with new customers than we've seen in some time.
Great. Thank you.
Our next question comes from Laurie Hunsicker with Compass Point. Please go ahead.
Yes, hi. Good afternoon.
Hi, Laurie. Good afternoon, at least where we are.
Just to follow-up on where Mark was going. Can you just help us think about this a little bit more so I'm looking at the Boston marketplace and I'm looking at the publicly-traded Massachusetts-based bank? We obviously have Eastern, they just did a deal. INDB, they just did a deal. And then there's you, and I guess for starters number one, can you just expand a little bit more on your current approach to M&A, given the fact that you're trading 1/6 of book, how you think about it, how protective you'll be around tangible book dilution earn back how you think about that? And then also point number two, can you help us think a little bit about geographically where you would want to stay, if you thought about M&A? And I guess the last point is, how do you think about asset size? In other words how small would you go would you entertain an MOE? Just any further comments around that would be super helpful.
Well, I don't think I have changed my opinion about M&A, or what I do or not do in quite a long time.
I think it's fair to say that, the recent deals announced in this area had a similar characteristic in that. In most cases, the acquirers had special currencies that they were able to use in order to accomplish some very light damage, if any at all to capital ratios tangible book and all that kind of thing. In Eastern's case, it was all cash because cash is what was needed to get that deal done.
So I haven't changed my mind in end market, or near market deals that make financial sense. We wouldn't go overboard on its dilution, as you know and we would need to be able to see tangible benefits in the relatively near future on earnings, mostly maybe a little product diversification but that would be about it. If we went out of town to do something, I don't want to draw a line in the sand but maybe the smallest that we go would be $1 billion. It's got to look and feel like a market that we'd be comfortable with they have to be in business lines that we would recognize and be able to help them with, and it would need to be a management team that's going to stick around and be helpful. And that's about it.
So in terms of – did I answer all your pieces?
Yeah. I just – maybe one more. Can you comment a little bit about how –
I would just add though – let me just add that, I don't feel under the gun by any means to go do a deal.
Okay. That's good. And what about an MOE, how would you think about an MOE if somebody like-minded -- ?
I mean, I think of an MOE – I would think of a MOE the same way that I would do any deal whether I'm buying or selling. The righteousness – the propriety of the transaction is paramount and it's got to be evident and not speculative and it's got to make sense for everybody.
Okay. Great. Thanks. And Carl just last question for you. Tax rate was 24.9% I think, I was using 26% anything I should think about there in terms of tax rate?
25% is what it looked like for the – that's what we estimated for the quarter for the full year. It'll all depend on what happens with taxable income as we move forward throughout the year, and I think that's going to depend a little bit on what our provisions are going to be in the future, as well as how fast forgiveness comes in. And then, we'll true up whatever that tax rate that needs to be based on what the full year looks like, so 25% is where we are – what I would use.
Okay. Great. Thanks for taking my questions and thanks for all of the credit details. It was helpful.
[Operator Instructions] Our next question comes from Christopher Keith with D.A. Davidson. Please go ahead.
Hey, good morning, everyone.
So, I just wanted to ask the CRE loan yields look to be stabilizing linked quarter, can you share where the new loans are coming on right now?
So just in total for the book – last time you guys asked me that question for the whole portfolio we booked about $328 million in originations, or draws during the quarter that's excluding the PPP loans, and the pre-book the weighted average coupon so this excludes fees and things of that nature, but the coupon itself was $365 million.
Okay. Great. And then looking over at loan growth in the core commercial loan portfolio so ex-PPP, the contribution looks like it's continued to decline over the last several quarters, so I'm just curious how much of that is driven by lower line of credit utilization if at all?
In our case, it's has been driven more because, we have a very high-quality portfolio of family-owned and operated businesses and we've just seen too many of them decide to sell in a market, where they are reaping a lot of money and they just pay us off. I can't tell you technically how much less line utilization. Do you know Carl? But I don't think –
I don't think the one – we look at the – we keep – we monitor that, I don't recall that changing much at all.
So I think it's mostly just pay downs.
Payoffs, sales and things of that nature.
It's amazing. It's amazing to me how – what's been going on. Lots of companies are just selling out.
Post consolidation, yeah.
Yeah. Got it. Well, thank you. That was helpful. And then I guess, just looking at the CRE portfolio, I assume pay downs and payoffs are also a headwind or had been a headwind there, is there any shifting in the momentum heading into the second quarter?
I don't think there is. That portfolio shrank by about $35 million $36 million in the quarter and you've got to add up construction and add up CRE and look at the two together. And they pretty proportionately came down in the quarter, but they are people paying people being careful during this time. But as I said earlier, there is a lot of stepping out and wanting to do the next thing because a lot of these guys have been dormant during the past 15 months – 12 months to 15 months.
Got it. Got it. Thank you. And then just last one for me.
So I think you had maybe somewhere around $370 million in CD maturities during the first quarter, I was curious what the retention is around those maturities and then any – if you have any additional color around coming CD maturities?
Sure. The new volumes that we had were – $263 million were booked at a rate about 43 basis points and that was the new volumes in the quarter.
We have run off about 360 – we had pay downs of $365 million and then new bookings of $263 million.
Got it. That's very helpful. Thank you so much.
And the things that we're coming off we're coming off at $183 million, so you have sense of the change. Thank you, Chris.
Got it. Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to Paul Perrault for any closing remarks.
Thank you, Betsy, and thank you all for joining us today, and we look forward to talking to you again in the next quarter. Have a good day.
The conference is now concluded. Thank you for attending today's presentation.
You may now disconnect.