Hello, and welcome to the Brookline Bancorp, Inc. Q1 2022 Earnings Call. My name is Katie and I'll be coordinating your call today. [Operator Instructions] I'll now hand over to your host, Marissa Martin to begin. Marissa, please, go ahead. .

Thank you, Katie, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which are 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 conditions, 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..

Thanks, Marissa, and good afternoon, everyone. Thank you for joining us on today's call. I'm pleased to report we had another quarter of solid earnings of $24.7 million or $0.32 per share and as well, we did an increase in our quarterly dividend of 4% to bring it to $0.13 per share.

On an annualized basis, our core loan portfolio grew 6.9% and deposits grew by 5.5%, excluding a $50 million paydown in broker deposits. Our core margin, excluding PPP continued to improve and increased 7 basis points from Q4. Our bankers continue to be very active in our select markets and I am very optimistic for the balance of the year.

I will now turn you over to Carl, who will review the company's first quarter.

Carl?.

Thank you, Paul. As Marissa mentioned, we have provided an earnings presentation on our website and has been filed with the SEC. I will not be doing a slide split for this quarter. Net income this quarter was $24.7 million, which was $3.8 million lower than last quarter.

The decline is primarily due to lower PPP revenues of $2.7 million and lower derivative and participation income of $5.2 million after coming off an unusually strong fourth quarter. This was partially offset by stronger core margin as well as lower operating and provisioning expenses. Overall, our net interest margin declined 3 basis points to 3.49%.

Again, this was due to lower PPP revenues. Excluding the favorable impact of PPP on our margin, NIM increased 7 basis points from Q4 to 3.44%. The loan portfolio overall increased $69 million from the prior quarter, driven by a growth in our core portfolio of $122 million, offset by PPP loan satisfactions.

At the end of March, we had 56 PPP loans with $14 million outstanding and approximately $400,000 of unearned fees. In the first quarter, we originated $550 million in loans at a weighted average coupon of 399 basis points. The weighted average coupon on the total loan portfolio rose 1 basis point during the quarter to 396 basis points at March 31.

Prepayment fees were $1.5 million in Q1, which was down $210,000 from Q4 and deferred fees were $1.4 million or $342,000 less than Q4, resulting in net positive impact on net interest income of $132,000 in the quarter. Our credit quality in the economic environment continue to improve, resulting in net slight negative provision for loan losses.

At quarter end, there were 69 credits totaling $15 million remaining with a loan modification under the CARES Act. Our reserve coverage is at 132 basis points and our capital position is strong.

First quarter saw significant increases in interest rates, particularly in the mid to long-term rates and the Federal Reserve increased short-term rates 25 basis points in March. The sharp increase in market rates impacted the value of our securities portfolio, which is classified as available for sale.

The $29 million after-tax accounting impact of marking-to-market the securities portfolio had a negative impact of $0.38 per share on tangible book value for the quarter. After accounting for earnings and dividends, shareholders' equity declined $13 million and tangible book value declined a net $0.17 in the quarter.

Currently, the market is pricing in further increases in short-term rates, which have the potential to benefit us due to our moderately asset-sensitive position. Assuming a flat balance sheet in the forward curve as of March 31, our simulations reflect a 6.8% increase in net interest income over the next 12 months.

Our simulations reflect the blended beta of 46% on interest-bearing deposits. As Paul mentioned, the Board approved an increase to our quarterly dividend to $0.13 per share, which will be paid on May 27 to stockholders of record on May 13. On an annualized basis, our dividend payout currently approximates a 3.6% yield.

This concludes our formal comments, and we will now open it up for questions..

[Operator Instructions] We take our first question from Mark Fitzgibbon from Piper Sandler. Please, go ahead, Mark..

Hey, guys. Good afternoon..

Hi, Mark..

Hi, Mark..

First question, Carl. I wonder if you could help us think about the outlook for fees. You guys have a little bit of volatility there recently and I'm just wondering if you could help us think about particularly loan level derivative income and the gain on sale line..

Those are volatile. I think that's my best estimation on that. It really depends on the types of loans that we're doing in the pipeline, whether we're going to be participating out or not or doing swaps. We didn't do a lot of swaps this quarter, but that's something that is volatile.

It's hard for me to give you a really good estimation from a quarter-to-quarter -- it is an activity we are -- it is growing within our loan departments and our clients, but it is something that from a quarter-to-quarter basis, I really won't....

I would add though, Mark, just to make sure you understand. That gain on sale is entirely in commercial banking participations. We do not any longer sell residential loans into the secondary market. So, it's all stuff that we originate here that are with friends and family..

Okay. Second question, Paul. I guess I'm curious as I was looking at sort of the breakdown that you had between the two banks.

Have you given any more thought to potentially consolidating the charters of those two companies in an effort to reduce costs? Does that make sense? Or maybe asked a different way, why wouldn't you do that?.

Well, it looks to me like it's working pretty well. It's why I wouldn't do it. And the reporting structures are terrific. So, the CEO in Rhode Island handles that whole market and I would fear that we would be leaking functionality and we would lose the presence in each of the markets being totally controlled by their CEOs.

And I look at our efficiency ratio and it looks pretty good on a relative basis. So, I think it's beneficial and it is a pattern that perhaps can be expanded..

Okay. And I wonder if you could also maybe update us. I know it's early days, but update us on how things are going at Clarendon private..

Exactly that. Very early days, but we've had very strong response from both of our banks as far as referrals and things of that nature and I think we're doing quite well with the reception by customers..

Okay. And then lastly, Carl, the margin. I heard what you said about the NII impact.

How are you thinking about the second quarter margin with the remaining PPP burning off and what the rate impacts, rate hikes we've seen thus far?.

Yes. So like I said, a PPP, there's another $400,000 left on that. I'm not sure when that's going to come in, quite frankly. It's just the timing of when people are going to be satisfied on that.

Right now, when we modeled forward curves and right now, I think there's almost consensus that the Fed is going to raise 50 basis points in May, if that happens, I would not be surprised to see our margin expand by 10 basis points in that range.

We talked about 344 as a core margin and we expect that to improve by about 10 basis points in the second quarter..

Great, thank you. .

The next question comes from Laurie Hunsicker from Compass Point. Please, go ahead, Laurie. .

Yes. Hi. Thanks. Good afternoon..

Hi, Laurie..

I just wanted to make sure I heard. So, prepay fees that were in net interest income this quarter, that was $1.5 million.

Is that correct?.

That's correct..

Okay. Great.

And then non-interest income, can you help us think about NSF and overdraft fees and how you're thinking about a more sort of consumer-friendly option when that hits the income and just maybe quantify for us how much is actually in this quarter?.

Sure. So, on a quarterly basis, on a combined basis for both banks, NSFs are about $402,000 -- about $400,000 a quarter. If you break that down, it's about $280,000 in consumer and the rest is about $120,000 in commercial to get a sense of the overall size of that. We continue to look at that and to work on what we want to do on that in the future..

Okay. That's helpful. And in occupancy expense, it looks like there was a pretty sharp uptick linked quarter. Did I miss something? Did you guys open another branch or do you have a redo or....

Nothing that....

[Indiscernible] importantly?.

It was a combination of maintenance. It was really maintenance entirely. It wasn't like rent or anything like that. It was a lot of maintenance. Some of it is snow removal and other things that may have happened at the branches that need to make the....

A lot of bad weather this winter..

Yes. Okay. Fair.

So, that should be running closer to 3.5% or so per quarter? Is that the right way to think about that?.

I think so..

Okay. Great. And then, Paul, last question for you. Can you give us a refresh on any acquisition chatter and just how you're approaching acquisitions, what you're seeing out there? Any thoughts from the standpoint that with rates up, obviously, your interest rate marks are much more expensive.

And so, just anything you're hearing in terms of how that might be impacting M&A?.

Well, I'm not hearing any more or less than I usually do and we certainly were in the conversations with the flurry of activity that's going on here in the past couple of years. Obviously, not on the acquiring end of those conversations.

So, other than the potential pool continuously reducing, I wouldn't say that there's anything much new in the whole arena..

Okay. Thanks for taking my questions..

Happy to..

[Operator Instructions] We take our next question from Chris O'Connell from KBW. Please go ahead, Chris..

Hey, good afternoon, guys..

Hi, Chris..

So, I just wanted to follow up on the expense discussion. I know that there was some higher accruals in salaries, et cetera in the fourth quarter, which came off this quarter. But I think the guides for the year was around 5% to 6% for 2022 for the full year.

Is that still how you guys are feeling about it after a pretty good first quarter?.

We're still feeling it. That's likely the right trend that we're going to be seeing..

Okay, great. You guys still have pretty robust capital levels year. Obviously, the dividend increase, you're comfortable with them and not a very big impact on AOCI relative to others.

Can you just remind us how you're thinking about the buyback utilization going forward?.

Well, we do the $20 million approved. We didn't buy anything back during the first three months of the year. But there's been a lot of market volatility, so we may see more activity as we go forward..

Okay..

We've got the capability to do a buyback right now. We just....

Got to be at the right price..

Yes, the right price..

Yes, absolutely. And then I appreciate the color on the originations and the yields during the first quarter.

Just given the uptick in rates, even post the first quarter moves, where are you seeing the new loan yields come on the balance sheet at?.

Sorry, what is the question?.

Where origination yields, where they're coming on at?.

Origination yields for the first quarter?.

No, currently, I think..

Yes, currently..

I don't have the actual yields that we're booking loans at currently, but we've seen a really nice increase in the two-year and five-year. That's basically where we live for most of our originations. So, we've seen that increase substantially from December and so, we're in that category right now..

A lot of our real estate loans are priced off the five-year Federal Home Loan Bank deal and virtually all of the swaps are something over LIBOR. And obviously, LIBOR is going up from 12 basis points to 50 or whatever it has. Without having the data right in front of us, we can feel that there's been improved origination yields..

All right, great. Thanks for taking the questions..

Okay, Chris..

We have no further questions on the line. So I'll hand it back to Paul Perrault for any closing remarks..

Well, thank you, Katie, and thank you all for joining us and we look forward to talking with you again next quarter. Good day..

Thank you all for joining. This now concludes the call. Please disconnect your lines..