Brookline Bancorp Inc (BRKL) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Fourth Quarter and Full Year 2009 Bancorp Rhode Island conference call. (Operator Instructions) I would now like to turn the conference call over to Ms. Merrill Sherman, President and CEO of Bancorp Rhode Island. The call is yours, Ms. Sherman.

Thank you, and good morning again. As indicated, I'm Merrill Sherman, President and CEO of Bancorp Rhode Island, Inc. I'd like to welcome you to our Fourth Quarter and Full Year 2009 Conference Call. With me this morning is the Company's CFO and treasurer, Linda Simmons. Linda is going to take you through our Fourth Quarter and year-end 2009 results as well as comment on our outlook for 2010. I will then come back and discuss my thoughts on both our 2009 results and the Company's plans for 2010. After that, we will open the floor to questions.

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 risks and uncertainties. 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. And with that, I'd like to turn the call over to Linda Simmons.

Good morning. Net income for the Fourth Quarter of 2009 was $2.1 million, or $0.44 per common share. On the linked quarter basis, net income was down $147,000 or 6.7%, and diluted EPS was up $0.27 per share from $0.17. Net income for the Fourth Quarter 2009 was down $197,000 or 8.7% from the Fourth Quarter of 2008. [Diluted] EPS was down $0.04 per share.

Fourth Quarter highlights include margin expansion of 4 basis points to 342, and this was driven by core deposit growth. We sold a $10 million lease portfolio. This generated a gain on sale of $291,000 but more importantly, it is evidence that the market is seeing improved levels of liquidity.

The provision was $2.4 million, and charge-offs were $2.4 million. Non-performing assets declined by 4.9% and we had an OTTI charge for $314,000 related to both of our [special] holdings.

Quarter-over-quarter, the balance sheet increased by $22.2 million. Total loans were down $3.3 million or 0.3% on a linked quarter basis. Declines in our consumer and residential portfolios outweighed the growth in our commercial books. Commercial loans and leases increased by $9.4 million on a linked quarter basis, and were up $75.4 million year over year for 11.5%.

During 2009, we added 30 new relationships in excess of $1 million. The consumer loan portfolio declined by $3.7 million and is down $499,000 from year-end in 2008. The residential portfolio continues to decline, as no new product has been added.

We have had great success in growing our deposits this year. Total deposits increased by $6.4 million, or 0.6% on a linked quarter basis, and is up $56.1 million, or 5.4% from December 31, 2008.

Most importantly, core deposits--and we define them as DDA, NOW, Money Market and Savings Accounts--grew by $92.4 million or 14.9% for the year. Core deposits accounted for 65% of total deposits on 12/31/09, and this is up from 59% from 12/31/08.

We have a three-prong approach to growing our deposits. Commercial relationships, BDOs, and the retail network. During 2009, deposits tied to commercial lending relationships grew by $28 million, ending the year at $113 million. This is a 33% growth rate, and 89% of these deposits are core.

Non-performing loans and leases decreased by $539,000 during the Fourth Quarter to $14.4 million and represents 1.29% of total loans and leases. This is down from the year's high of 1.59% on 6/30/09. The provision for the quarter was $2.4 million and net charge-offs were $2.4 million. The coverage ratio on 12/31/09 was 1.49%, up one basis point from 9/30, and up from 136 on December 31, 2008.

REO on 12/31/09 was $1.7 million, down $295,000 from September. We were able to resolve two residential credits and no new credits were added. The margin for the Fourth Quarter was 342, up four basis points on a linked quarter basis. This is a result of asset yields declining by 7 basis points, offset by lower funding costs of 16 basis points.

Increases of core deposits had been our primary driver in lowering our overall cost of funds. While we have taken advantage of low costing wholesale funding, our primary goal is to expand our retail customer base and deepen our relationships with our current customers.

Interest income grew by $3 million, or 6.5%, from 2008 to 2009. Non-interest income was $2.4 million for the Fourth Quarter, and was up slightly on a linked quarter basis, and on a year-to-date basis we were down $1.4 million or 13.6%. During the quarter, the gain on the sale of leases was offset by OTTI charges and the decline of [commissions] related to non-deposit investment products.

Year to date, we had declines across all categories with the exception of [BOLI] income and [loan] related fees. Total non-interest expenses increased $137,000, or 1.4% from the Third Quarter of '09. Throughout 2009, management has continued to hold the line on expenses. On a year-to-date basis, expenses are up $1.6 million, or 4.3%. Year-to-date, the increases in the FDIC premiums have been $1.8 million.

If we were to exclude the increase in the FDIC insurance premiums, year-to-date expenses would have actually been down $190,000.

It goes without saying that there is a great deal of uncertainty around our industry and the markets in which we operate. For that reason, it is very difficult to provide guidance for 2010. There are several items which can have a dramatic impact on our earnings-- the level of the provision, the amount of the charge-off, and any additional OTTI charges related to our investment portfolio. Let me review what we are comfortable projecting.

The margin-- although this is very dependent on changes in interest rates, we believe that we will be in this interest rate range for most of 2010. On average we believe the margin for the year will be slightly higher than that of 2009. We will continue to grow our commercial builder business, but we will not see the historical double-digit growth that we have seen in the past. The consumer portfolio will be flat year-over-year, and the residential portfolio will continue to run off.

We believe that we can grow deposits by 4% and our focus will remain on the growth of core deposits. Non-interest income we expect to be up 3% over the 2009 base, and [non-interest] expenses up 4% over the 2009 base. Our tax rate will remain between 33% and 34%.

At this point, I'd like to turn this presentation back to Merrill Sherman.

Thank you, Linda. We're pleased with our Fourth Quarter results, and believe that Bancorp Rhode Island has performed well over the last 12 months despite the difficult environment. During 2009, the key areas we focused on were our capital strength, credit quality, and core deposit growth. Those areas will continue to be areas of focus for us in 2010.

As of year-end 2009, our total risk-based capital ratio was approximately 12% and our tangible common equity ratio was 6.92%, putting us in a solid capital position. Given our internal projections for 2010 earnings, it is our belief that we will be able to self-fund our capital needs for 2010. As you may know, we have a commitment in place for an additional $8 million of capital in the form of price-preferred securities. While the commitment provides us with important flexibility, there is no plan to draw upon it at this time.

In reviewing 2009, I remind you that we were able to quickly secure approval to repay the US Treasuries Capital Purchase Program Fund, and did so in the Third Quarter. We also redeemed all of the warrants issued to the (technical difficulty). We felt then, and still feel now, that we had in place the capital to support our objectives, and so we were pleased at our CPP expense is behind us.

Let me turn to our credit quality. As you can see, our non-performing assets levels have declined moderately over the past two quarters, and at $16.1 million, and 1.01% of total assets, they are about $800,000 greater than they were at year end 2008. We have seen a modest increase in delinquency levels year-over-year in our loan portfolio. At the end of 2008, 3.98% of our residential mortgage portfolio was delinquent versus 5.09% at December 31, 2009. I remind you, this is largely a purchased residential portfolio serviced for us by others, and we are strategically letting it run off to be replaced by bank-originated assets.

Given the overall decline in the portfolio during 2009, namely it dropped from $213 million to $173 million, the actual amount of over-30-day delinquencies has only increased by about $400,000 year-over-year.

As of December 31, 2008, 82 basis points of our consumer loan portfolio was over 30 days delinquent. That compares to 86 basis points at year-end 2009. Within the delinquencies, the non-performing category increased from $49,000 to $664,000 as of year-end 2009. That's on a better than $200 million portfolio. I believe these numbers are too small to say there is a trend. Given the high local unemployment rate, we continue to monitor that portfolio closely.

With respect to the CNI and CRE portfolios, the over-30-day delinquencies were 2.48% at year end 2008. They rose to 2.99% at the end of 2009. The over-30 ranged during the course of the year between 3.66% at their high, to 2.65% at their low.

We are experiencing increased delinquencies in the [macro lease] portfolio. It was up from 3.09% at year-end '08 to 5.23% as of the end of 2009. That portfolio has reached about 100 million in total footing. From a risk management standpoint, we believe that's about the maximum level for this portfolio in an institution of our size. And, while we are seeing increased stress in that portfolio and have increased our monitoring of the same, we remain satisfied with the credit quality.

From an overall portfolio standpoint, we are still in a stressful environment, economically. We believe these conditions will require an intense focus on credit and (technical difficulty) continue to experience elevated credit costs. We are comfortable that our institution, from a risk management standpoint, has an accurately-graded and actively-monitored loan portfolio. So, [as risk rating grades] drive the [spending] of our reserves and the grades combined with the monitoring drive transfer of credits to our workout area, I believe we understand our risk profile. However, as Linda indicated, and I have said, the environment remains uncertain and provision and charge-off levels for 2010 are difficult to predict.

During 2009, our charge-offs totaled $6.6 million with 41 basis points on assets as compared to $2.5 million with 16 basis points on assets in 2008. Similarly, our provision increased to $8.5 million during 2009 compared to $4.5 million in 2008. As Linda indicated, we are able to increase the coverage ratio in the loan portfolio to 1.49% as of year-end 2009.

The manageable level of our troubled credits and our strong capital position allowed us to take advantage of marketplace opportunities and grow our business. I couldn't be more pleased with the results that you are seeing on the deposit side. We put more feet on the street this year and really emphasized core deposit generation with our BDOs (technical difficulty) our lending officers in our branches. I think the results we are reporting, reflect that focus. That core deposits are up, as Linda indicated, 15% and for us they represent a lower-cost source of funding which helps drive earnings as well as constitute a strong part of our inherent franchise value and attractive customer base.

On the commercial loan front, we enjoyed 11.5% growth year-over-year. The portfolio remains a high quality portfolio. For the next year, we are projecting lower commercial lending growth reflecting both marketplace conditions as well as our holding level [in] the macro lease portfolio.

Our strong core deposit and commercial loan portfolio growth reflect our consistent execution of a customer-focused business strategy. In a marketplace where three large national institutions hold better than 80% market share, Bank Rhode Island competes by being on par with their product and service offerings, while delivering to customers a level of responsiveness and personal service that larger institutions cannot and do not. Demonstrating consistency in strategies and approach, and being there day in and day out for customers, is not only helpful for our customers, it's also helpful to our marketplace positioning.

All in all, we are pleased with 2009 results. We attained positive earnings, maintained a dividend, repaid the TARP money, and continued to grow our quality loans and deposits. I also can't resist mentioning again that we became the number one SBA lender in Rhode Island, supplanting a major national institution which held that position for nine years in a row, and has resulted in a lot of good publicity for this institution.

In 2009, while substantially holding the line on expenses, we were still able to add talent in key areas, from BDOs to Risk Management, as well as to complete a number of capital projects that enabled us to improve our effectiveness in efficiencies. For 2010 we look to continue to implement a number of technology improvement projects and allocate resources appropriately to strengthen our systems, improve our interaction with our customers, and support our business growth. While the difficult economic conditions persist throughout the region and some questions remain as to what 2010 may bring, I am confident that Bank Rhode Island remains well-positioned for the long term and has the ability to focus not only on the areas of credit and capital [spend], but on business growth and business development, and reaching out to more Rhode Islanders.

With that, I will now open the call to questions.

Thank you. (Operator Instructions) Our first question is from Damon DelMonte of KBW.

Hi, good morning guys, this is actually [Timor Briziller] with KBW. The first question is, can you provide a breakout on the charge-offs by loan segment for the quarter?

Sure. Residential real estate $322,000 -- CNI $350,000 -- Leases $150,000 -- Residential Mortgages $850,000 -- and, Consumer Loans $586,000. And then you're missing maybe just tiny little numbers.

Okay, great. And for the commercial loan growth that you achieved during the quarter, where was that coming from? Was that more in the CNR space, or in the CNI space?

I think it's both, and I don't have a specific breakout for you but we're adding customers across the business lines.

Okay, and can you just maybe talk a little bit on the commercial demand throughout 2009, and if you're expecting much change into 2010?

I think we see a bit less demand out there. I think that people are wrestling through what was a difficult year. There are some people doing well, but on the whole sales levels are down, people are tightening their belts, and looking to make ends meet. And so, I think there's less of a focus on needing increased credit, because they should be doing, tightening their belt that way. So you don't get as much demand and then at the same time, because of the more difficult climate, I think people wake up in the morning thinking, what are they going to do to move their business along. And you have really, only event-triggered marketing. I don't think people are out focusing on their banking relationships nearly as much as trying to drive their own business growth.

Great, and one final question. The reserve level has kind of remained around this 150 level over the last three quarters. Is that something that you're going to look to maintain into 2010, or are you going to start to see some reserve releasing happening?

You know, we evaluate the reserve quarterly so it's not like we have a target reserve. We believe we're adequately reserved and we evaluate that quarterly, so I can't say "Oh yes, we're targeting 1.5% for a reserve level," it depends on what we're seeing in the portfolio and trends and all the fact and circumstances that go into setting an appropriate level of reserves.

Okay great, and that's all that I have, thank you.

Thank you.

Thank you, our next question is from Laurie Hunsicker, Stifel Nicolaus.

Yes hi, good morning, Merrill and Linda. Just going back to charge-offs, do you have a breakdown of how much of that is the macro lease, if any?

It was $148,000.

$148,000, okay. And so, I know that you said on the call that the portfolio is maxed out. Would you look to shrink it just given the credit trends, or --

No, no, I just think that as you're aware, because of liquidity in the marketplace, and other capital constraints, we were for the last year-and-a-half not able to sell out of that portfolio. So, as Linda indicated, we had a sale in the last quarter, and I'm -- you know, we're hopeful that in some point liquidity returns to the marketplace and so, the answer is, we're happy at this level.

Yes, traditionally we've sold between 50% and 25% of new production, and we just haven't been able to get it off in this environment.

Okay.

The other comment is, that the portfolio is relatively short-term so it amortizes quickly. So, it's not like we're not originating new equipment leases regularly, we'll just slow down some of the origination pace.

Got it, okay, great. And then same question on your small business book, how much in charge-offs were from that?

$89,000.

$89,000 okay. And--

For the Fourth Quarter.

For the Fourth Quarter, right. And any comment with respect to the delinquencies there [up-ticked] the smaller portfolio, I mean what's your outlook for small business? Have you pulled back?

Oh, absolutely not pulled back at all. I think the performance of the portfolio has been very strong. For credits that are a little tougher, the SBA guarantee is available, and we were again--I said we finished a year which ended September 30, the SBA's fiscal year, as number one lender. We were number one SBA lender again in the Fourth Quarter. So, we are actively looking for credit, and like anything else in this environment of course we're focused on credits but we've got a monitoring system, we've got a number of triggers that we look at for the portfolio, and I think there's some stress in that portfolio. But, at this point, the phrase we've consistently used is, "Manageable."

Okay. And I mean, the most recent balance I have is as of June, it's about -- or September, rather, it's about $50-some-odd million. Where do you see that portfolio growing?

I think it may be up a little higher than that at this point, but that portfolio in some ways, as you say it's like the macro lease portfolio. It has rapid amortization. So, we can add lots of business and it's still hard to get it to increase materially in size.

Okay.

Linda will give you a comment, I see her looking.

We finished the year at $56 million. Traditionally, we've seen 5% growth in that portfolio.

Okay. And do you have the breakdown of period-end loan balances? Do you have that handy?

I didn't hear what you said?

Yes, do you have the breakdown as far as your loan balances, with commercial real estate, owner-occupied, CNI, CRE, non-owner, small business, multi-family, construction, do you have those period-end balances handy?

I do, do you want me to read them to you?

Oh, I'd love it. Thanks.

Can I round them?

Sure.

Okay. Real estate owner-occupied $168 million, real estate non-owner-occupied $170 million.

That's million.

Million, yes. CNI $175 million, small business $56 million, construction $24 million, multi-family $66 million, lease and other $75 million, residential $173 million, and consumer $206 million.

Okay, fantastic. Okay. And do you happen to have TDRs available?

Sure. Total TDRs is $1.1 million, of which $445,000 are accruing and $659,000 are non-accruing.

Non-accruing, okay. And of the accruing, is there a primary category?

There's only two credits, Laurie.

Okay. And what, what type?

I knew you'd ask, I think they're both residential.

Okay. Okay great, and then you know, I guess sort of just on a more macro basis, you guys have cleared a lot of hurdles within the last year-and-a-half. Can you talk about footprint expansion and where you're looking, where you're heading, whether it's de novo versus acquisitions, how you're kind of seeing the landscape?

Well, I think that we review all options in terms of expansion, and if the right opportunity came along strategically in the acquisition front of course, we would consider it. But, the flip side is for de novo expansion we're still growing into our footprint. For one of our branches, it will be relocated at some point in the future. There is a major new development going in, and it's a chance for us to upgrade a very good branch, so that's on the drawing board. We do not have any plans for a new branch opening for 2010, but we are actively looking at other locations. There are two or three other cities and towns that we would very much like to be in, and I think longer-term, there will be some opportunity for us that way.

Okay. And then just going back to potential acquisition, whole-bank acquisition, if you were to identify sort of your top few markets of where you'd like to go, where are they?

Oh, I think that deepening in the state of Rhode Island and going into a contiguous state, presumably Massachusetts, but you know, Connecticut isn't out of the picture either, are targets for us.

Okay great, thank you all very much.

(Operator Instructions) Our next question is from Frank Schiraldi of Sandler O'Neill Asset Management.

Good morning.

Good morning, Frank.

Good morning, Frank.

I just was wondering on if maybe Linda you could talk a little bit about growth in the securities book in the quarter, and how that's funded and then what we're likely to see going forward.

Sure. We were able to add a little bit to the securities book, and basically it's a steep-yield curve, and we've added a little bit of duration on through MBS's, so we've been able to have a nice carry on that. Basically they're funding with overnight deposits, or wholesale borrowings, at this point and we will look for an opportunity to close that if we believe interest rates will start to rise.

Okay, and how long is the duration of stuff you are putting on?

The duration for the entire book is a little over three years.

And sort of similar stuff I guess you're putting on, is it changing the duration at all, the stuff you're putting on, or no?

A little bit longer. We try to balance it up with some callable agencies so we're not putting on six-year, seven-year duration assets.

Right, okay. And then just wondering, what drove-- and maybe this is just too specific, or-- but what, if there's any more color you can give on what drove OCI balances lower linked-quarter? Or what drove unrealized loss lower, unrealized gains or higher losses?

I'm not sure I heard that.

I'm not sure I have the answer for that. It wasn't the mark on the [specials] or the mark on the-- I think it's probably a combination of just duration.

Okay, so that's what I was getting at. It's not a specific mark on--

Yes.

Okay. I think I might have missed, I'm not sure if you gave it, but in terms of talking about 2010 I think you said 4% deposit growth, so that's total deposit growth?

Yes.

And did you give loan growth?

We didn't, we just said I wouldn't expect double digit commercial growth, and I think Linda's talked about the consumer and the residential.

Okay, so no specific number there, okay. Thank you.

Thank you.

(Operator Instructions) I am seeing no further questions in the queue, so I will turn the call back to Ms. Sherman for any closing comments.

Thank you for joining us, and belated wishing you a happy and healthy New Year. We look forward to talking with you at the conclusion of the First Quarter.

This concludes today's conference, thank you for joining us. You may now disconnect.