Marissa Frerk - IR Paul Perrault - President, CEO & Director Carl Carlson - CFO.

Mark Fitzgibbon - Sandler O'Neill + Partners Matthew Breese - Piper Jaffray Companies Collyn Gilbert - KBW Laurie Hunsicker - Compass Point Research & Trading.

Good afternoon, and welcome to the Brookline Bancorp, Inc.'s First Quarter 2018 Earnings Release Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Marissa Frerk. Please go ahead..

Thank you, Brandon. Good afternoon, everyone, and welcome to Brookline Bancorp, Inc.'s First Quarter 2018 Earnings Conference Call. Yesterday, we issued our earnings release, 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 Brookline Bancorp's executive team, Paul Perrault and Carl Carlson. Before we begin, please note, this call may contain forward-looking statements with respect to the financial condition, results of operations and business of Brookline Bancorp. Actual results may differ from these forward-looking statements.

Factors that may cause actual results to differ include those identified in our Annual Report on Form 10-K, our most recently filed 10-Q and our earnings press release.

Brookline Bancorp cautions you against unduly relying upon any forward-looking statements and disclaims any intent to update publicly any forward-looking statement, whether in response to new information, future events or otherwise.

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.

And now I'm pleased to introduce Brookline Bancorp's President and CEO, Paul Perrault..

Thanks, Marissa. Good afternoon, all. I'm accompanied today by our Chief Financial Officer, Carl Carlson, who will walk you through our quarterly financial results following my comments. I'm proud to say that we had a very productive first quarter. We closed the acquisition of First Commons Bank on March 1.

At that time, First Commons was merged into our lead subsidiary, Brookline Bank, adding $260 million in loans and $270 million of deposits. We are pleased to report another quarter of record earnings due to strong organic loan and deposit growth; margin expansion; improved asset quality; and, of course, the lower tax rate.

Yesterday, our Board of Directors approved an 11.1% increase in our quarterly dividend. We reported earnings of $18.6 million or $0.24 per share for the first quarter of 2018. Excluding the impact of securities gains and merger charges, net income would have been $20 million or $0.26 per share.

Loan balances grew $384 million in the quarter, as I mentioned, $262 million attributable to the First Commons acquisition and $122 million organically. Deposits grew by $320 million, $274 million from the First Commons acquisition and $46 million organically.

We have a great group of dedicated employees serving our customers, making Brookline Bancorp one of the region's leading commercial banking enterprises. I will now turn you over to Carl, who will review the company's first quarter results in more detail..

Thank you, Paul. As Paul mentioned, our loans grew organically $122 million or 8.5% on an annualized basis. The weighted average coupon on the loan portfolio increased 9 basis points to 4.75%, driven by originations and repricings during the quarter. In the first quarter, deposits grew organically $46.5 million or 3.8% on an annualized basis.

During this period, the cost of interest-bearing deposits increased 5 basis points. Net interest income increased $1.8 million in the first quarter, driven by asset growth and margin expansion as the net interest margin increased 7 basis points from the fourth quarter to 3.66%.

Purchase accounting was $114,000 for the first quarter, down $60,000 from the fourth quarter. And prepayment fees were $635,000, down $427,000 from the fourth quarter. Combined with quarter-over-quarter decline in these items are $487,000 negatively impacted the margin 3 basis points in the first quarter compared to Q4.

Noninterest income was $6.2 million for the first quarter and included $1.2 million in securities gains. Excluding security gains, noninterest income was down $809,000 sequentially, due primarily to lower loan sale activity.

Our provision for credit losses for the quarter was $641,000, a decrease of $1.6 million from the fourth quarter, driven primarily by lower net charge-offs and overall improvements in asset quality and risk factor assessments.

During the quarter, nonaccrual loans declined $1 million to $26.3 million or 43 basis points of total loans, and net charge-offs were $505,000 or 3 basis points on loans on an annualized basis. The allowance as a percentage of loans was 96 basis points at the end of the quarter, down from 102 basis points at year-end.

Excluding acquired loans, the allowance as a percentage of originated loans was 103 basis points for Q1 versus 105 at the end of the year.

The company's noninterest expense increased $4.8 million from the fourth quarter to $39.9 million, driven by merger acquisition costs; the in-seasonal impact on compensation costs; and 1 month of operating costs associated with First Commons Bank.

We're anticipating converting the core systems and consolidating the 2 locations in Newton Centre and Wellesley into existing Brookline Bank branches on June 1, 2018. Net income for the quarter was $18.6 million or $0.24 per share.

And as Paul mentioned, the board approved an increase in the quarterly common dividend to $0.10 per share, which will be paid on March -- I'm sorry, May 25 to shareholders of record on May 11. The quarterly $0.10 per share dividend represents an annualized yield of 242 basis points based on yesterday's closing price of $16.50.

With that, I'll turn it back over to Paul for concluding remarks..

Thanks, Carl. We have gotten off to a very nice start for 2018, and we look forward to building on this positive momentum throughout the rest of the year. Now we will open it up for questions..

[Operator Instructions]. Our first question comes from Mark Fitzgibbon with Sandler O'Neill..

First, on the provision, Carl, are we likely to see the provision sort of normalize a bit in the second quarter? And also connected with that, I know it's a while before implementation, but was curious if you guys have sort of sized the potential CECL impact yet?.

Well, the CECL answer is pretty easy to answer. We do not have the size of the CECL impact just yet. We are continuing that process, and we'll be looking more and more of that in 2019 of getting a better idea of what that might look like. As far as provision, I would expect it to normalize a bit. We had very low charge-offs this quarter.

And while we had very strong organic loan growth, we had continued improvement in the asset quality of all of our assets, which was very nice..

Okay. And then how are you thinking about the effective tax rate, Carl? I think in the past, you'd sort of said 24% was a good rough range.

Is that still where you're thinking about it for the remainder of this year?.

Correct. We expect that to be 24% going forward..

Okay.

And then with respect to the net interest margin, should we assume a couple -- with a couple more rate increases, that the margin continues to slowly grind higher?.

That's a great question. Our modeling suggest it to be flat to a little bit higher, but we also know that there's quite a bit of competitive pressure, both on the loan side, on margins and spreads as well also on the deposit side. So, so far, we've been running ahead of that. So the beta has been very good.

We've got a good -- a good size of our portfolio that continues to reprice. But I would say, right now, I would guide flat to up or down 1 or 2 basis points. It can be either way..

Okay.

And then just curious, I'm not sure if you have this at your fingertips, but do you have a sense for what the average rate on the pipeline is today in comparison to the average on the portfolio?.

No, I don't. I don't. No, that's something -- I don't have that. And of course, that -- usually, those things are being done or negotiated on a spread basis. So it all depends on what happens to the curve, but right now, everything we've been booking has been over our portfolio rates..

Okay. And then sort of a macro question, Paul.

I'm curious, which of the geographies you guys operate in do you sort of feel best about where you see the best opportunities today?.

I think they're all looking very good but just because of the scale. I mean, you have to pick on Metro Boston a little bit. But we've seen continuing good stuff out of Rhode Island. And even our small First Ipswich Bank is showing some pretty sizable, for them, sort of gains in the marketplace..

Our next question comes from Matthew Breese with Piper Jaffray..

Just a couple of quick ones. Organic loan growth picked up quite a bit this quarter outside of the typical range. Just wanted to get a sense for what you attribute that to.

And then is the new level -- the $120 million level, the new level that you would hope for in the quarters to come?.

I wouldn't view the $120 million as sort of an outlier. I think it's certainly very strong. We're very happy about it, but I think it was more a reflection of deals underway in the latter part of last year that didn't get finished last year, that kind of slipped over into this year. And it feels like the momentum is as it has been, which is very good.

I think if you go back a quarter or two, we were in the roughly $100 million range, which tends to be our run rate, if you will. And this one just had a few more deals that flipped over from year-end, as I mentioned..

Okay.

So you still feel like that $100 million range is a pretty good run rate still?.

I think so..

Okay. And then just curious, you've got one deal behind you, what the M&A landscape looks like and how conversation flow has been going more recently..

Well, I would guess that your colleagues would know more about that than I. But I'd say that there really hasn't been much change, in my view. Now I may not be in the right loop, but it really has been pretty quiet. I think everybody is enjoying conditions. We're all showing great increases because of the tax rate changes.

So I don't know that there's anything imminent out there..

Understood. Just one more quick one.

Carl, just on purchase accounting, any meaningful changes coming there? Or should we expect typical 1 basis point even for that number to grind a little bit lower?.

I would say it's about -- so for Q2, I'll give you some insight on Q2. Right now, we're projecting it to be around $375,000 impact between loans and deposits related to purchase accounting. So on the deposit side, we'd be taking the purchase accounting over about 2 years. And then on the loan side, it'll be over 5 years.

There wasn't a lot of purchase accounting in this transaction, but that would be about the impact. And then on the CDI side, you have the CDI amortization about $123,000 a quarter..

Okay.

And so that impact on the accretable yield, that's outside of your core NIM guidance, correct?.

Yes. You know what? No, no, it isn't. I'm sorry. [Indiscernible] All those numbers were in my model. So I'm sorry. So that's included..

Okay.

So that 3.66% first quarter reported NIM, we should work off of that, plus or minus two basis points and within that as the accretable yields?.

You got it. It's a good question..

Our next question comes from Collyn Gilbert with KBW..

Just a question, Carl, for you on expenses and just the -- how the cost saves are going to kind of phase in as we look out over the next quarter or so on -- from First Commons..

Okay. So as I said, we'll be seeing the cost savings once we close the 2 branches next quarter. So we'll get 1 month of cost savings next quarter that we're projecting, and then we're going to have basically the full run rate of cost savings in the third and fourth quarters of this year.

So on an overall basis, I do have expenses going down from where we finished up this quarter, next quarter..

Okay, okay. Okay, that's helpful. And then just on the fee side, how do you sort of see that trending as the quarters go out? I know there's some volatility in there, and -- but just broadly, how you're thinking about the fee -- the fee line..

I look at the fee line probably roundabout $5.5 million a quarter, and it can be up or down depending on the level of activity on the loan sales as well as derivative income, but that's basically where we are..

Okay, okay. And you mentioned your outlook for loan growth but just curious about deposit growth, kind of what you're expecting there and maybe how you're seeing the composition of the deposit growth come in as the year goes on from where you're focusing your efforts to generate new deposits..

I think the past will continue to be represented in the future along those lines. We see much of our deposit growth comes from existing and new commercial customers, mostly in nonprofits and professional firms and partly derivative, if you will, to use a word from our cash management and treasury services businesses.

And the retail part will probably redouble our efforts as we go through this year. But I think that that is symptomatic of the whole industry right now. So everybody seems to be doing that, and we get much better gains in these core transactional commercial enterprise relationships. I think that will continue..

Okay, okay.

And just, Carl, as you're modeling your kind of NIM outlook, what are you assuming for deposit betas?.

About 30%..

Okay.

And is that for the full year?.

Correct. Well, that's moving forward, as we move forward when we....

[Operator Instructions]. Our next question comes from Laurie Hunsicker with Compass Point..

Just wanted to follow on the first comment, how many shares were exactly issued?.

Exactly issued? So it's right on the press release, 3,481,477..

Great. I missed that.

Second question, on taxi, can you just give us an update on your balance, your reserves and the nonperformers?.

Total taxi portfolio is about $18.5 million; reserves, $2.9 million; and nonperformers -- I would say almost everything's nonperforming, There's about $10 million that's -- almost $11 million that's performing, sorry. $10 million -- $11 million of that $18.5 million is performing..

Okay. And the $18.5 million, that's not net of reserves? It's $18.5 million, and you have net of $2.9 million in reserves.

Is that correct?.

We have $2.9 million on the $18 million..

On the $18 million? Okay, perfect..

Yes..

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, Brandon, and thank you all for joining us. We will look forward to talking with you again next quarter. Have a good day..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..