Brookline Bancorp, Inc. (BRKL) Q2 2025 Earnings Call Transcript
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Overview
The earnings call summary presents mixed signals. Positive aspects include improved net interest margin, increased net interest income, and a decrease in noninterest expenses. However, concerns arise from increased provisions for credit losses and a rise in C&I nonperformers. The Q&A section reveals uncertainties about merger approval and deteriorated loans. While the dividend increase is positive, the lack of specific guidance on loan resolutions and merger timing tempers optimism. Overall, these factors balance out, suggesting a neutral sentiment for the stock price in the short term.
Key Financial Performance
Earnings $22 million or $0.25 per share, with no specific year-over-year change mentioned.
Loan Portfolio Declined by $61 million, with reductions in commercial real estate ($95 million) and equipment finance ($46 million), while commercial loans grew by $53 million and consumer loans grew by $27 million. Reasons include intentional reduction in exposures in commercial real estate and specialty vehicles.
Customer Deposits Increased by $59 million, with no specific year-over-year change mentioned. Reason: Improvement in funding.
Net Interest Margin Improved by 10 basis points to 332 basis points. Reason: Higher asset yields and lower funding costs.
Net Interest Income Increased by $2.9 million to $88.7 million. No specific year-over-year change mentioned.
Fee Income Slightly higher at $6 million. No specific year-over-year change mentioned.
Total Revenues $94.7 million, 3% higher than Q1 and 10% higher than 2024.
Noninterest Expense $57.7 million, a decrease of $1.3 million from Q1. Reason: Lower expenses in nearly every category except marketing, which increased by $503,000.
Provision for Credit Losses $7 million, $1 million higher than Q1. Reason: Additional credit reserves for selected properties in the Boston office market.
Net Charge-Offs $5.1 million. No specific year-over-year change mentioned.
Reserve Coverage Increased to 132 basis points of total loans. No specific year-over-year change mentioned.
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Operating Highlights
Merger with Berkshire Hills: Stockholders of both Berkshire Hills and Brookline approved the merger. Teams are working together to ensure a smooth merger, with no significant issues identified to date. The merger is expected to enhance products and services for combined customers.
Loan Portfolio Management: Loan portfolio contracted by $61 million intentionally, with reductions in commercial real estate and specialty vehicles, while commercial and consumer loans grew.
Net Interest Margin: Improved by 10 basis points to 332 basis points due to higher asset yields and lower funding costs.
Deposit Growth: Customer deposits increased by $59 million during the quarter.
Expense Management: Noninterest expense decreased by $1.3 million from Q1, excluding merger charges.
Boston Office Portfolio: Several credits were downgraded, and reserves were added for stressed credits in the Boston office portfolio. However, office portfolios outside Boston are performing well.
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Risk or Challenges
Boston office portfolio stress: The Boston office portfolio continues to be under stress, with several credits downgraded during the quarter and additional reserves added for these credits.
Commercial real estate exposure: The company intentionally reduced exposures in commercial real estate, with a $61 million contraction in the loan portfolio and a $110 million decrease in investment commercial real estate. This reflects challenges in the commercial real estate market.
Specialty vehicle portfolio runoff: The specialty vehicle portfolio continues to decline, with a $27 million decrease during the quarter, indicating ongoing challenges in this segment.
Provision for credit losses: The provision for credit losses increased by $1 million to $7 million, with total net charge-offs of $5.1 million, reflecting credit quality concerns.
Merger-related expenses: Merger expenses for the quarter were $439,000 and were largely nontax deductible, contributing to a higher effective tax rate.
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Guidance & Outlook
Net Interest Margin: Anticipate modest improvements to net margin as liabilities continue to reprice lower. Estimating an increase in the margin of 4 to 8 basis points in Q3, dependent on market conditions, deposit flows, and Federal Reserve actions.
Loan Portfolio Growth: Expect growth in the loan portfolio to be in the low single digits for the balance of 2025. Growth in commercial and consumer loans will be tempered by the runoff of specialty vehicle loans and gradual pickup in commercial real estate activity.
Deposit Growth: Anticipate deposit growth of 4% to 5%, with growth generally favoring interest-bearing accounts.
Noninterest Income: Projected to be in the range of $5.5 million to $6.5 million per quarter.
Merger with Berkshire Hills: Managing expenses, particularly staffing, in preparation for the merger with Berkshire Hills later this year. Combination of systems expected in early February to enhance products and services for combined customers.
Effective Tax Rate: Expected to be in the range of 24.25%, excluding the impact of nondeductible merger charges.
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Shareholder Return Plan
Quarterly Dividend: The Board approved maintaining the quarterly dividend at $0.135 to be paid on August 22 to stockholders of record on August 8.
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Key Q&A
Q:When are you targeting to close the merger and the systems conversion?
A:The systems conversion is scheduled for February 9. The merger is awaiting Fed approval, and optimistically, it might close in September.
Q:What is the expected size of credits or relationships after the merger?
A:For well-sponsored relationships, the credit size could approach $100 million, which is double the current limit of each company. It would still be below the legal limits.
Q:Can you provide details on the two Eastern Funding credits where additional reserves were taken this quarter?
A:The two credits are a commercial laundry and a grocery exposure. An additional $1 million was added to reserves for each. Management feels good about the current position.
Q:Does the guidance of 4 to 8 basis points up in the third quarter assume a rate cut?
A:No, the guidance does not assume any rate cuts.
Q:What is the estimated impact of a 25 basis point rate cut on NIM?
A:The impact depends on timing, as many assets reprice down immediately. In the quarter, the impact may be flat initially. CDs, brokered CDs, and Federal Home Loan Bank advances are expected to reprice down further, benefiting the NIM.
Q:What was the spot margin for June?
A:The spot margin for June was 339 basis points.
Q:How much of the $647 million office book is in the Boston Central Business District?
A:$154 million is in the Boston Central Business District, including areas like Back Bay and Newbury Street.
Q:Can you provide details on the $28.9 million in loans that experienced deterioration this quarter?
A:These loans are well-sponsored and well-located properties with 50% to 70% occupancy. Lease-up has been slow, but sponsors are paying. None of these loans are due in the next couple of quarters.
Q:What caused the jump in C&I nonperformers from $33 million to $46 million?
A:The increase was driven by one credit at Eastern Funding related to fitness equipment, totaling a little over $11 million.
Q:What is the impact of the FASB's ASU on pro forma tangible book dilution and accretion?
A:The Day 2 CECL impact of $94.5 million ($71 million after tax) will not flow through the income statement once the rule is finalized. This equates to $0.84 per share, reducing tangible book dilution by about 20% and accelerating the earn-back period.
Q:Will the company adopt the FASB's ASU early?
A:Yes, the company plans to adopt it early.
Q:How will the accretion income change due to the FASB's ASU?
A:The $94.5 million will not be accreted back into income over 5 to 7 years, but the impact is not considered meaningful over time.
Q:What are the plans for share repurchases post-merger?
A:The company will focus on addressing the dividend first and then consider share repurchases after evaluating capital levels and progress in reducing commercial real estate exposure.
Q:What will the dividend adjustment be post-merger?
A:The dividend will be adjusted to align with the current level, increasing to $1.28 per share annually.
Q:How is new loan pricing holding up?
A:New loan pricing is competitive but holding up better than in previous years. Total loans originated in Q2 were $445 million at a weighted average coupon of 6.94%.
Q:What is the status of the Mass Housing takeout?
A:The loan is 90 days past due due to maturity but is accruing and 100% leased up. The takeout by Mass Housing is expected to be completed this quarter.
Q:What is the near-term outlook for expenses?
A:Expenses are expected to remain stable or decrease slightly in the third quarter.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer on the exact timing of the Fed approval for the merger closure, stating only that it might close in September if optimistic. Additionally, they did not provide specific details on the resolution timeline for the $28.9 million in deteriorated loans, only stating that they are exercising patience.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bancorp Pages
Berkshire Hills
Berkshire contraction
Boston office
Boston stockholder
Brookline merger
Bruyette Woods
CEO Konrad
CEO Perrault
Co Research
Corporate Participant
Division Conference
Division Havener
ET afternoon
Fitzgibbon Piper
Havener Hunsicker
Hernandez Corporate
Hernandez afternoon
Hills Brookline
Hills tax
Inc Research
Keefe Bruyette
Konrad Keefe
Officer Hernandez
Pages presentation
Participant Perrault
Research Division
balance
credit reserve
investment estate
merger charge
month
office portfolio
BRKL Transcript
Brookline Bancorp, Inc. (BRKL) Q2 2025 Earnings Call Transcript
Unknown7-24
The earnings call summary presents mixed signals. Positive aspects include improved net interest margin, increased net interest income, and a decrease in noninterest expenses. However, concerns arise from increased provisions for credit losses and a rise in C&I nonperformers. The Q&A section reveals uncertainties about merger approval and deteriorated loans. While the dividend increase is positive, the lack of specific guidance on loan resolutions and merger timing tempers optimism. Overall, these factors balance out, suggesting a neutral sentiment for the stock price in the short term.
Earnings call transcript: Brookline Bancorp Q1 2025 shows strategic progress despite earnings miss
Unknown4-24
The earnings call reveals mixed signals: while the merger with Berkshire Hills Bancorp promises cost savings and improved profitability, concerns like tariff implications, significant charge-offs, and uncertain interest rate impacts present risks. The Q&A highlights management's cautious outlook on tariffs and loan pricing, with unclear responses on key issues. Stable dividends and slight improvements in net interest margin are positive, but the lack of strong growth metrics and potential future expenses from the merger balance the sentiment. Overall, the stock is likely to remain neutral over the next two weeks.
Brookline Bancorp, Inc. (BRKL) Q1 2025 Earnings Call Transcript
Unknown4-24
The earnings call presents a mixed picture: while there are positives like improved net interest margin and maintained dividends, concerns arise from increased credit losses, merger expenses, and uncertainties in interest rates and tariffs. The Q&A reveals cautious optimism but lacks clarity on some critical issues. The merger with Berkshire Hills Bancorp offers potential benefits, yet the absence of a share buyback program and vague management responses temper enthusiasm. Considering these factors, along with the stable dividend, the stock price is likely to remain neutral in the short term.
Earnings call transcript: Brookline Bancorp Q4 2024 misses EPS forecast
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The earnings call presents a mixed outlook. Positive aspects include improved net income and operating earnings per share, along with deposit growth and stable dividends. However, concerns arise from charge-offs, particularly in the industrial laundry sector, and management's lack of clarity on regulatory timelines. The Q&A revealed uncertainties regarding deposit rates and margin expansion. While financial performance shows some strength, the lack of guidance and potential risks in loan segments balance the sentiment, leading to a neutral prediction for the stock price movement over the next two weeks.
BRKL Report
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