Brookline Bancorp Inc (BRKL) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Bancorp Rhode Island, Incorporated first quarter earnings conference call. (Operator Instructions) It is now pleasure to introduce your host, Ms. Merrill Sherman, President and Chief Executive Officer of Bancorp Rhode Island, Incorporated. Thank you, Ms. Sherman. You may now begin.

Thank you and good morning again. This is Merrill Sherman, President and CEO of Bancorp Rhode Island, Inc. I'd like to welcome you to our first quarter analyst conference call. With me is the Company's CFO and Treasurer, Al Rietheimer. Al will take you through the first quarter results. I will then come back and briefly discuss those results. Then we will both be available to answer any questions you may have.

During this conference call, we may make forward-looking statements within the meaning of the Securities and Exchange Act of 1934. These statements are based on our present beliefs and are necessarily based on certain assumptions, which are subject to risk and uncertainty. Actual results may differ materially from those discussed here. More information on these risk factors can be found in the Company's filings with the Securities and Exchange Commission. With that, I'll turn it over to Al.

Good morning and thank you, Merrill. Earnings for the first quarter were $2.4m or $.57 per share and represented record quarterly earnings for the Company. They also represented an increase of $343,000, or 17%, over the first quarter of 2004 and roughly $130,000, or 6% increase, over the fourth quarter of 2004. On an EPS basis, earnings were up $.08 or 16% over the first quarter and $.03, or roughly 6%, over the fourth quarter of 2004.

Before I talk further about our earnings, let me make a couple of comments about our balance sheet.

Total assets increased almost $70m, or just under 6% during the first quarter. While commercial and consumer loan growth was more modest for the quarter, commercial loans were up $2.3m and consumer loans were up $7.4m. We are pleased with where our pipelines are.

Much or our growth during the quarter was centered in investment securities, up $25m; MBS securities also up $25m and residential mortgage loans up $10m.

On the liability side of our balance sheet, while DDA growth finished the quarter healthy, up $7.1m or 4.2% now, and savings accounts experienced some softness, as they decreased a combined $18.7m or 4.2% during the quarter, as consumers shifted balances to higher yielding certificates of deposits, which increased $30.5m or 12.3% during the quarter.

As a result, the Company increased its borrowings from the Federal Home Loan Bank and also from the Street by $44m, or just under 19%.

Credit quality -- while loan growth continued to be achieved, while nonperforming assets remained below peer averages, there was a slight tick-up from $700,000 to $1.7m. But as I said, this level is still well below, in fact, less than half of what peer averages are.

For the quarter, we had net recoveries of $6,000 and as of March 31st, our allowance for loan losses stood at $12.2m and represented 1.35% of total loans and over 700% of nonperforming loans.

Our net interest margin increased 5 basis points from the fourth quarter to the first and this margin benefited from increases in the prime rate, along with a relatively stable core deposit pricing environment. But we caution that margin pressure may continue from a number of sources throughout the rest of the year, including the flattening yield curve and/or potential competitive pressures on both the core deposits and lending side.

Non-interest income was $2.1m for the quarter, compared to $2.0 for the first quarter of last year. This represents an increase of $77,000, or 4%, and is really centered in 3 areas. Loan fees were up, primarily because of loan prepayment penalties aggregating just under $190,000 during the first quarter, and service charges on deposit accounts showed 7% growth and commissions on non-deposit investment products showed 12.4% growth. We do note that we have begun to notice a possible reduction in NSF activity, as consumers appear to be modifying their behavior and incurring fewer overdrafts.

Non-interest expenses increased $937,000, or 12.4%, from the first quarter of last year to the first quarter of this year and these increases were centered in the following areas. Salary and benefits were up $730,000, as additional staff were added during the past year to support the continued growth of the Company. And professional services increased just over $200,000, and were accounted for by the accrual for the partial outsourcing of internal audit activity, consulting and legal costs regarding the possible acquisition of the leasing company, and the continued outside accounting fees in connection with the ongoing compliance with SOX- 404.

Our efficiency ratio for the first quarter of 2005 improved slightly and was 68.4%, compared to roughly 70% for all of last year.

Those conclude my prepared comments, and at this point, I'd like to turn the presentation back to Merrill.

Thank you, Al. For those of you who know me, these are probably my shortest comments ever, I think. I'm a little bit talked out from our road shows over the past several weeks. I just want to note that we're very pleased with the response to the common stock offering we just consummated, and we will continue to work hard to justify investor confidence.

Second, I also note that we're pleased with this quarter's results as well and I think they demonstrate the underlying earnings (inaudible) of the franchise. In a similar vein, to the note that Al is sounding, I just want to caution against getting too optimistic about the bank sustaining this net income growth rate for the balance of the year in light of some of the investments that we are planning in the growth -- in light of our growth strategy.

We'll remind you that we've got 2 new branches coming on line this quarter. In fact, 1 is already (inaudible) opened in Lincoln with a concominent expense increase, and as Al noted, we anticipate that the margin will be under pressure, and that on a year-over-year basis, we really did not exceed margin expansion, and the current margin, while we'd love to sustain it, is probably not sustainable.

My final comment is that our commercial balance growth was a little slow in the first quarter, slower than we would like, but the pipeline is healthy and we would anticipate the pickup this quarter. With that, I think we will open it up to questions.

Thank you. Ladies and gentleman, at this time, we will be conducting a question and answer session. (Operator Instructions) Our first question is coming from David Burst (ph) of FTN Midwest. Please proceed with your question.

Good morning. Can you give us indication of how you plan to leverage the capital raised over the short run and if you have any ideas of what amounts of either borrowing for securities you might add?

David, I'll take that one. We are looking at some strategies but, at this point, I don't want to comment any further.

Okay. And then -- well, I guess that's it. Thank you.

Thank you. Your next question is coming from Todd Ram of Way Bossett (ph) Research. Please proceed with your question.

Hello. It's Slay Lewis at Way Bossett Research.

Hi, Slay. How are you?

Pretty good. How is everything?

Fine.

Good. My question is -- we were having trouble a year or two ago because short-term rates were so low we couldn't make any money on our overnight money. Short-term rates are moving up, but, of course, long-term rates aren't, or not very much.

Right.

So how do these things equal out? Are making money on our overnight money now, but don't have the spreads you once had? What's sort of the net effect? Is the shape of the U-curve now good for us or bad for us?

The shape of the U-curve is not good for us. The rise in rates has not been particularly penalizing in this environment, anyway, because we've been able to hold the core deposit cost, which Al has noted. The problem is that you don't get compensated for taking any interest rate risk, and when your customers want 5 year and 10 year money, it becomes more difficult.

When your customers want 5 and 10 year money?

When anyone want -- if you go out 5 or 10 years, and the spread just tightens so much. I can't even recall what they are, but --

Pretty tight, anyway, yes.

Yes, they are very tight.

What I was going to add, Slay, was that with the curve being as flat as it is, as Merrill was saying, there really isn't a lot of compensation between, let's say, the 1 year and the 3 year or the 5 year points. So that's why it's not as advantageous to us.

At the net -- how do we make out between not making much on the -- ?

Well, I mean --

That's why we're saying the margin is under pressure.

Right.

The margin increased slightly, quarter-to-quarter. I'll just caution that the sustainability of that, we really believe, there is going to be continued pressure on the margin.

Okay. Okay. Thanks very much.

Thank you. Your next question is coming from Ryan Kelly of FDR. Please proceed with your question.

Good morning. A very good quarter.

Thank you.

Thank you, Ryan.

Just a little bit more color on some of the expense items, if you would. The SOX- 404 expense has decreased this quarter. Is this a good run-rate going forward, do you think, to use?

I think as far as SOX goes, let me talk directly to that. We have mentioned in our year-end filings that we incurred roughly about $200,000 for our external auditors in relationship to SOX. They've also informed us, that on a go-forward basis, to expect pretty much the same. So if you're looking only at SOX, that $200,000 annual cost is what it appears to be in the ballpark going forward. Were you looking for some other items, Ryan?

I guess just professional services in general dropped substantially in the late quarter -- I'm sorry, from December to March it dropped from 800 --

Yes. When we looked at last year's numbers, and again, a lot of this came to SOX and came to outsourcing of some of our internal audit functions, we were more backend loaded in the fourth quarter. So if you're talking about a more normalized amount, I guess I would agree with you that the first quarter is more representative for our SOX and professional services.

Okay. Great. And then on the branch -- in the new branches coming on line, 1 is already on; the other 1,sometime this quarter. How do you -- how much expense -- what do you see that actually doing to the expenses? Do you have that broken out for us?

Do you want me to take that? I'm going to respond to you on an annualized basis.

Okay.

The branch that opened in Lincoln is our smaller Excel branch and operating expense for that in the first 12 months is roughly $350,000.

I don't think that -- I think that's a loss rather than --

Yes. That's what I meant. The --

Oh. Okay.

The operating cost of the branch is a loss of $350,000, before taxes. For a traditional branch, which is what the East Greenwich one is, the first 12 month number is approximately $500,000.

Okay. Okay. And I guess just one last thing. As far as the securities uptick in this quarter, as far as percentage of total assets, any trend there that we'll continue to see or can you comment on that a little bit?

Most of that growth, I would say, was because, as we had mentioned, our commercial and consumer portfolio growth was more modest. Again, some of that is cyclical or seasonal in nature. So we wanted to continue to expand our total footprint. You will see ups, you will see downs from quarter to quarter, and as Merrill had mentioned, we're still exploring ways to limit the dilution from the offering and that also may cause some ups and some downs in those numbers.

Okay. Great. And a final housekeeping, 34% tax rate, is that a good number to use going forward?

Roughly, yes.

Okay. Great. Thank you very much.

You're welcome, Ryan.

Thank you. (Operator Instructions) Our next question is coming from Bill McCrystal of McConnell, Budd and Romano (ph). Please proceed with your question.

Good morning, Al and Merrill.

Good morning, Bill.

Hi, Bill.

I think the last question sort of alluded to mine. It's on the borrowings, on the uptick in the quarter, some of the rationale for that, is it trying to leverage just a little bit, or maybe you can just give some more flavoring to what was behind that?

Even before, I would say that, yes, we were trying to build the balance sheet a bit and we weren't seeing some of the loan growth we wanted. The other thing was that sometimes we use investments as counter balance to loans and I think that the spreads have tightened all over. There's just a tremendous demand for assets, and if we don't think it's worth it in the mortgage market, you might pick up MBSs instead, so some of that might be reflected in there.

Okay.

I'm sorry. When I say, "the mortgage market," I mean the whole loan mortgage market as opposed to investing. --

Okay.

-- in MBS.

Right. Well, that was it. Thanks very much.

You're welcome, Bill.

Thank you. At this time, I would like to turn the floor back over to management for any additional or closing comments.

Well, thank you for joining us this morning. We've got some great weather here and I hope you all enjoy your spring, and we look forward to talking to you sometime in July.

Ladies and gentleman, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.