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Brookline Bancorp Inc (BRKL 2.24%)
Q3 2019 Earnings Call
Oct 24, 2019, 1:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the Brookline Bancorp Inc. Q3 2019 Earnings Conference Call. [Operator Instructions]
I would now like to turn the conference over to Marissa Martin, Associate General Counsel. Please go ahead.
Marissa Martin -- Associate General Counsel
Thank you, Allie. Good afternoon, everyone, and welcome to Brookline Bancorp's Third Quarter 2019 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 A. Perrault and Carl M. Carlson. Before we begin, please note, this call may contain forward-looking statements with respect to the financial condition, results of operation and business of Brookline Bancorp.
The 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 statements, 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 you to Brookline Bancorp's President and CEO, Paul Perrault.
Paul A. Perrault -- President and Chief Executive Officer
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 pleased to report that we had another solid quarter, driven by organic loan and deposit growth. For the quarter, loan balances grew by $141 million and our deposits increased by $107 million. The following short-term rates and the flattening yield curve continue to put pressure on our net interest margin. However, our net interest income slightly improved.
We also had another solid quarter for fee income. We reported earnings of $22.6 million or $0.28 per share for the third quarter. And yesterday, the Board approved an increase in our quarterly common dividend to $0.115 per share, which is our second increase in this year. We also announced our intention to consolidate the bank charter for First Ipswich Bank into Brookline Bank. As many of you know, First Ipswich Bank became a member of our family of banks in 2011.
Over the past eight years, the Ipswich team has had great success in nearly doubling the bank's asset size to $464 million, with 6 branches serving the communities north of Boston. With that success, the team's outreach has grown south toward Boston as Brookline Bank's growth has taken it north. The emerging overlap in the marketplace as well as the ever-growing requirements for investments in technology and compliance make a stand-alone of that size inefficient in our opinion. We expect to complete the charter and systems consolidations during the first quarter of 2020. There will be no branch closures as a result of the charter consolidation, and we remain dedicated to preserving our tradition of banking locally as our #1 priority.
I will now turn you over to Carl, who will review the companies third quarter. Carl?
Carl M. Carlson -- Chief Financial Officer
Thank you, Paul. As Paul mentioned, earnings for the quarter were $22.6 million, up $2.1 million from the second quarter. Net interest income improved $102,000, noninterest income improved $451,000 and the provision for loan loss decreased $2.9 million and core expenses decreased $538,000 from Q2. This was specially offset by a $1.1 million restructuring charge for the First Ipswich Bank charter consolidation Paul mentioned. We expect the charter consolidation to save us $2.5 million in operating expense on an annualized basis, with $2 million realized in 2020. We had strong loan growth of $141.5 million in the third quarter, or 8.7% on an annualized basis. For the quarter, commercial real estate grew $95.9 million, C&I grew $24.1 million and consumer loans grew $21.5 million. Loan originations and drawdowns in the quarter were $619 million with an average weighted coupon of 510 basis points.
The weighted average yield on the loan portfolio for the quarter was 508 basis points, a decrease of 6 basis points from the second quarter as the overall yield on earning assets declined 5 basis points to 483 basis points. Total deposits grew $106.8 million during the quarter, with a growth of $63.8 million in demand deposits, $19.2 million in savings and $27.2 million in CDs. Lower asset yields and slightly higher funding costs resulted in our net interest margin compressing 10 basis points from the second quarter to 3.45%. However, our net interest income improved $102,000 on a linked quarter basis driven by our growth in earning assets. Included in net interest income is the impact of purchase accounting and prepayment fees. Purchase accounting was $162,000 in the third quarter, flat from the second quarter and prepayment fees were $873,000, down $74,000. Combined, the quarter-over-quarter changes had a 1 basis point negative impact on our margin.
Noninterest income was $7.9 million in the third quarter, up $451,000 from Q2. The increase was driven by strong customer derivative activity, offset by the negative mark-to-market of $116,000 on the equity portfolio versus a positive mark of $357,000 in the second quarter. The company's noninterest expense increased $587,000 from the second quarter to $40.2 million. Excluding the $1.1 million restructure charge for the bank charter consolidation, expenses declined on a linked quarter basis, $538,000. The linked quarter decline was due to lower charges related to OREO and repossessed assets as well as FDIC expense, offset by increases in compensation, occupancy and equipment. Our provision for credit losses for the quarter was $871,000, a decrease of $2.9 million from Q2. The decrease in the provision was driven by a reduction in classified assets, lower loan charge-offs and stronger recoveries.
The allowance for loan losses increased $500,000 in the quarter to $59.1 million and represents 89 basis points on loans. As Paul mentioned, the Board increased our quarterly dividend to $0.115 per share, which approximates 2.98% yield based on yesterday's closing price of $15.44. We also opportunistically repurchased $1.9 million worth of stock at an average price of $13.74 during the quarter. We have $8.1 million remaining under the $10 million program. That concludes our formal statements.
We will now open it up for questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from Mark Fitzgibbon with Sandler O'Neill + Partners.
Mark Fitzgibbon -- Sandler O'Neill & Partners. -- Analyst
Hey guys, good afternoon,I was wondering now that your consolidating Ipswich, whether it would make sense at some point to also consolidate Bank Road Island. And if so, what kind of synergies could potentially come from that?
Paul A. Perrault -- President and Chief Executive Officer
No. Actually I don't think so, Mark. Rhode Island continues to improve every quarter. They had a great third quarter, their originations are very strong. They are a leader in that market. And they are big enough in our opinion that we could realize the efficiencies at that size, the $2.5 million going toward $3 million. And so I think we're very comfortable with the 2-bank situation right now.
Mark Fitzgibbon -- Sandler O'Neill & Partners. -- Analyst
Okay. And then it looked like cash and cash equivalents roughly doubled from last quarter. Will that get deployed in the fourth quarter? Or do you just plan to run with the higher cash balances?
Carl M. Carlson -- Chief Financial Officer
We'll probably have a little bit of higher cash balances compared to previous quarters, but we'll be deploying some of that in Q4.
Mark Fitzgibbon -- Sandler O'Neill & Partners. -- Analyst
Okay. And it looked like construction loan balances were up quite a bit. I know it's off a very low base but is it commercial construction, residential construction, and what geography is that coming from?
Paul A. Perrault -- President and Chief Executive Officer
It is virtually all commercial construction. We do very, very little residential construction, and it would be pretty uniformly across all of our markets. Everything continues to be very strong in Rhode Island and in Massachusetts, Southern New Hampshire and so it's not any one particular project, it was just a lot going on.
Mark Fitzgibbon -- Sandler O'Neill & Partners. -- Analyst
Okay. And then I was a little surprised. It looked like your average CD cost rose a little bit this quarter, 4 or 5 basis points. Should we expect that, that's going to turn the corner in the fourth quarter and we'll start to see those CD rates coming down?
Carl M. Carlson -- Chief Financial Officer
Yes. Part of that just is carryover from the previous guide.
Paul A. Perrault -- President and Chief Executive Officer
Yes. I think that's the residual from the early part of the year when it was pretty aggressive around here in the CD rate business.
Mark Fitzgibbon -- Sandler O'Neill & Partners. -- Analyst
Okay. And then could you just -- any guidance you can provide to us on the margin over the next quarter or 2 would be great.
Carl M. Carlson -- Chief Financial Officer
Yes. So the relatively flat yield curve with the falling short-term rates will continue to put pressure on our net interest margin. We've definitely come off the peaks in the CD pricing, but we'll still see customer migration into those products. So our modeling currently reflects 1 cut in October, which will probably result in our net interest margin in 3.39% range for Q4 and right now, we're approximating a 350 NIM for 2020. As far as like -- for every 25 basis point impact, we typically see 6 to 7 basis point impact in the immediate quarter. And then with the following quarter, it catching up on the -- as our CDs and borrowings reprice.
Mark Fitzgibbon -- Sandler O'Neill & Partners. -- Analyst
Well, Carl, if that's the case and we see some rate cuts, it strikes me, the 350 might be aggressive, no? For 2020?
Carl M. Carlson -- Chief Financial Officer
What we also have -- it might be -- I wouldn't -- it depends on how many rate cuts. If we just have 1 rate cut, we do see that improving going into -- we do see the NIM improving into 2020.
Mark Fitzgibbon -- Sandler O'Neill & Partners. -- Analyst
Thank you.
Operator
Our next question comes from Collyn Gilbert with KBW.
Collyn Gilbert -- KBW -- Analyst
Thanks, Carl, just following up on that, on the comment on the NIM. With -- so 1 rate cut could get you to 350. What are you assuming the -- kind of the long end of the curve to do? I mean does that assume that the long end stays where it is as well?
Carl M. Carlson -- Chief Financial Officer
Yes. So we get a slightly -- keeping loan rates where they are for the five years. Yes.
Collyn Gilbert -- KBW -- Analyst
Okay. And then the dynamics that would drive that would just be -- continue -- will be in the same way as you had indicated some of the repricing into higher cost deposits, but yet, that there would be an inflection that would come, and then you would just see more drops in funding cost as the year goes on?
Paul A. Perrault -- President and Chief Executive Officer
Well, there's strong demand deposit growth, there's more capital going into the equation than it is, sort of, a runoff of those CDs that occurred when rates, sort of -- I hate to use the word peaked but when they were up a little higher that all runs off.
Collyn Gilbert -- KBW -- Analyst
Okay. And just to frame that a little bit, what was -- what are some of the higher -- some of the tranches of either some promotional money that you'd put on the balance sheet that are rolling off? What are some of the rates that you're seeing either on the CD side or the money market that you expect to roll off?
Carl M. Carlson -- Chief Financial Officer
It was basically in the 2% range. We really get -- an offering that we went out with a 6-month guarantee for 2%. Those things will be repricing down. And you may see some runoff of those deposits. We'll see. Depends on what goes on there. But as things continue, we do project that with the things repricing into current rates or lower rates.
Collyn Gilbert -- KBW -- Analyst
Okay. And then Paul, you had talked a little bit about the commercial construction that you're seeing, the demand that you're seeing across all markets. But even outside of that, I mean, you guys put up some really good loan growth this quarter in most -- all categories. What is -- how are the pipelines looking as you move into the fourth quarter? Do you think there's some pull-through effect that could be happening on the loan growth side? Or do you feel optimistic that you can continue these trend into 2020?
Paul A. Perrault -- President and Chief Executive Officer
What's a pull-through?
Collyn Gilbert -- KBW -- Analyst
Well, I don't know, everybody is taking advantage of rates dropping and some stability here and just that business activity is heightened now versus maybe what happens next year with uncertainty on election or...
Paul A. Perrault -- President and Chief Executive Officer
Well, currently the pipelines are all strong. And it does tend to be primarily net new business activity of some kind. And so I expect that we will continue on the path that we have gone on here. I'll even make it a little bit stronger for you in telling you that in recent months, we've sort of had a spat of our customers being acquired, some of our better customers. And so we've seen material pay downs along the way for all the right reasons, and yet, we've been able to overcome that and still have pretty good growth. So that might give you a clue as to how strong these economies continue to be.
Collyn Gilbert -- KBW -- Analyst
Okay. That's helpful. And I missed it, Carl, what was it that you repurchased this quarter in terms of shares?
Carl M. Carlson -- Chief Financial Officer
Well, approximately, 136,000 shares.
Collyn Gilbert -- KBW -- Analyst
Okay. And what is your appetite for that going forward? Or how does that factor into your kind of overall capital management strategy?
Carl M. Carlson -- Chief Financial Officer
It's not -- it's basically not an overall capital management strategy as far as the buyback is concerned. The Board approved a $10 million program earlier this year to be used opportunistically. And so when we saw the opportunity to buy some stock that we really felt was very cheap, we did. And we'll continue to do that if we see opportunities to buy it cheap.
Collyn Gilbert -- KBW -- Analyst
Okay. And then just lastly on M&A front. Paul, any change in outlook there, appetite where you're seeing potential supplies, targets or the likelihood that you would do another M&A deal in the next 12 months?
Paul A. Perrault -- President and Chief Executive Officer
It's very hard to speculate. But I'd say that, Collyn, there's been really no change in our view of the world. We look at stuff as it comes by and we -- some of it we like, some we don't and recently, we haven't gotten.
Collyn Gilbert -- KBW -- Analyst
Okay. All right, very good. I will I'll leave it there.
Operator
[Operator Instructions] Our next question comes from Laurie Hunsicker with Compass Point.
Laurie Hunsicker -- Compass Point -- Analyst
Oh, hi there.Accretion income. I was looking for accretion income and prepaid fees for the third quarter. Do you have those?
Carl M. Carlson -- Chief Financial Officer
Yes. So as far as prepayment fees, they were $873,000, that's down $74,000 from the prior quarter, and purchase accounting was $162,000, basically flat with the second quarter.
Laurie Hunsicker -- Compass Point -- Analyst
Right, thanks. Great. And then I know it's very, very small at this point, but can you just update us on the taxi book? Where you are? And obviously, we saw charge-offs drop completely, so presumably no taxi charge-offs either this quarter. And just -- has there been any changes in how those medallions are marked?
Carl M. Carlson -- Chief Financial Officer
No changes in how the medallions are marked. The gross balance that we have right now is about $10.4 million, with the reserve about $1.1 million on that. And during the quarter -- and as you know, there's a large piece there that's supported by, let me say, it's about 24 taxi medallion loans. But there's a substantial guarantee behind that. And so we treat that more as a C&I loan than necessarily a taxi medallion loan. And so we did have charge-offs about $395,000 for the quarter, so it's not. But we also had a recovery, a payoff of a loan and a $400,000 recovery. So net-net -- there was net charge-offs on the taxi medallion portfolio was 0, basically.
Laurie Hunsicker -- Compass Point -- Analyst
Okay, thanks.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Paul Perrault for any closing remarks.
Paul A. Perrault -- President and Chief Executive Officer
Thank you, Allie. And thank you all for joining us today, and we look forward to talking with you again next quarter.
Operator
[Operator Closing Remarks]
Duration: 20 minutes
Call participants:
Marissa Martin -- Associate General Counsel
Paul A. Perrault -- President and Chief Executive Officer
Carl M. Carlson -- Chief Financial Officer
Mark Fitzgibbon -- Sandler O'Neill & Partners. -- Analyst
Collyn Gilbert -- KBW -- Analyst
Laurie Hunsicker -- Compass Point -- Analyst
