Good afternoon. Welcome to Brookline Bancorp, Inc.'s Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brookline Bancorp's Attorney, Laura Vaughn. Please go ahead. Thank you, Alexis, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, 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 Paul A. Perrault and Carl M. Carlson. This call may contain forward-looking statements with respect to the financial condition, results of operations, and business of Brookline Bancorp. Please refer to page two 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. Good afternoon, everyone. Thank you for joining us on today's call. I'm pleased to report we had a very productive quarter, which capped off a solid year of performance. As previously announced, we received regulatory approval in December on the acquisition of PCSB Financial, and we were able to close on that deal on January 1st. Earnings for the quarter were $29.7 million or $0.39 per share as our loan portfolio grew $223 million while also recognizing loan participation income of $2.6 million. Before I turn it over to Carl to review the company's financials, I want to make a few comments about the PCSB Financial acquisition. We are very pleased that Willard Hill agreed to join our board of directors at Brookline Bancorp, and he actually had his first board meeting here yesterday in Boston. This morning, I had my first board meeting with the PCSB Bank board, now chaired by the new President and CEO, Michael Goldrick. I also want to recognize the tremendous effort of the teams at both PCSB and Brookline, which are keeping us right on track for the core systems conversion in mid-February. I will now turn it over to Carl. Thank you, Paul. As Paul mentioned, the loan portfolio advanced $223 million with growth in all asset classes. Commercial real estate grew $135 million, commercial $42 million, equipment finance $41 million, consumer $6 million. In the fourth quarter, we originated $687 million in loans at a Weighted Average Coupon of 647 basis points. This is up 81 basis points from the prior quarter. This increased the Weighted Average Coupon on the total loan portfolio 56 basis points during the quarter to 537 basis points at December 31st. Prepaid fees increased $199,000 in Q4 to $1.2 million. The amortization of deferred fees was $1 million, which was $122,000 less than Q3. The combined impact of 321,000 had roughly a 1 basis point benefit on the net interest margin from the prior quarter. The provision for credit losses was $5.7 million, an increase of $2.9 million from Q3, and an impact of $0.03 per share in the quarter. The increase was primarily due to strong growth in loans outstanding, as well as continued growth in unfunded commitments. The allowance for loan losses increased $4 million, while net charge-offs were 310,000 or approximately 2 basis points on loans on an annualized basis. The reserve for unfunded credits also increased $2 million from Q3. Credit quality trends continue to be favorable as non-performing loans declined 19 basis points of total loans. Due to a slight deterioration in economic forecasts, the reserve coverage increased slightly to 1.29%. During the fourth quarter, deposits declined $214 million, with investment-oriented balances flowing to higher-yielding opportunities. Deposit betas accelerated in Q4 as total deposit funding increased 43 basis points or 34% of the 125 basis point increase in the fed funds rate. Our total funding costs increased 65 basis points in the quarter or 52% of the increase in the fed funds rate. As deposits migrated to higher paying products and asset growth was funded with wholesale funding, resulting in a net interest margin remaining consistent with Q3 at 3.8%. Revenues increased $3.9 million, excluding security gains, driven by a $2 million increase in the net interest income and an increase of $1.9 million in non-interest income due to strong loan participation income, which is reflected in gain on sale of loans. Operating expenses were up $2 million due largely to true ups for incentive accruals and some non-capitalized costs related to software and systems enhancements, as well as increases in FDIC assessments. Merger expenses were $641,000 in the quarter, a decline of $432,000 from Q3. Pre-tax, pre-provision net revenue was $41.8 million, which was a $2 million increase over Q3. As Paul mentioned, the board approved a quarterly dividend of 13.5 cents per share, which represents a 4% yield based on yesterday's closing price. The dividend will be paid on February 24th to stockholders of record on February 10th. This concludes our formal comments. We will now open up for questions. Absolutely. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from the line of Mark Fitzgibbon with Piper Sandler. You may proceed. Hey, guys. Happy Thursday. Thanks, Mark. Hi. A couple of quick questions first on PCSB. I guess I'm curious, any surprises there, good or bad? Are you thinking at all about doing some restructuring post the closing of PCSB, doing some balance sheet restructuring? Let me start with the qualitative, and then I'll give it to Carl for the quantitative. I am seeing certainly no negative surprises. I've never seen such an enthusiastic group of acquired people. Things are proceeding apace, and things are going very well. Certainly on the one of the great benefits of PCSB Bank is the liquidity in the markets it's in. It's, you know, right off the bat, we will be restructuring the investment portfolio, which will provide additional liquidity for the company overall and be able to pay down some borrowings, which is actually better than actually having the investments on the balance sheet. Some restructuring will be happening in the near term particularly around the investment portfolio. It also provides funding for, you know, higher-yielding assets such as our equipment finance unit. Okay, great. Then, Carl, I noticed on the balance sheet you have, like, $71.4 million of restricted equity securities. What exactly are those? That's primarily investments in... We're Federal Reserve Bank members. There's stock that you have to hold with the Fed, at the Fed, o f the Fed, I should say. Yeah. The also Federal Home Loan Banks memberships. Okay. At both in New York and that number represents New- Boston ... Boston. Boston. The New England Federal Home Loan Banks. We also have the New York. Okay. Carl, could you maybe share with us how you're thinking about the margin and expenses in the first quarter combined with PCSB? Help us triangulate that. Sure. Directionally, I believe we'll continue to see deposit betas at an accelerated pace, particularly as the Fed slows, just because of the lag in how things get priced. You'll see that. I think deposit flows out of the system will slope. I don't think they're gonna accelerate from here. I think they will slow from here. It still puts pressure on the funding side of things as we rely on wholesale funding to fund additional growth. We continue to see a pretty good pipeline on the growth, at least in the near term. We'll see what happens as time progresses. Directionally I see challenges, not challenges, but the margin coming back towards, you know, down rather than up from here. PCSB will be very helpful on the margin side. It's too early for me to really comment on how much that might be. We're still doing a lot of the purchase accounting adjustments on this. I really can't give you a good answer on that. Fair enough. Then on the,expense side, combined, maybe $56 million-ish- Oh, on the expense side, you know. Go ahead. I'm sorry. No, I was gonna say, is sort of $56 million, you know, a good rough ballpark estimate before all the synergies are extracted? Yeah. I'm not gonna comment on the $56 million. I would say this quarter we were a little bit, we had some true ups to incentives and some other, I don't like to call them one-time items or non-recurring items, but I would say non-run rate type items in our expense base. I do expect FDIC insurance to accelerate even more so in the next quarter due to increases in rates at FDIC. That's industry-wide. But as far as costs, once we get through the first quarter, we do expect. We're right on track for a conversion in mid- to mid-February. I think it's February 17th, that weekend. So we'll have folks, you know, through that time period. It'll have an impact on the first quarter. After that, right now we're on track for our, the cost savings that we had projected. A lot of those costs have already come out. A lot of, as you know, when we announced the transaction, there were ESOP expenses, SERP expenses, things like that that were really driving this. There isn't a lot of, you know, and some executives that were leaving the organization. There weren't a lot of staff folks that were getting impacted. Not a lot of cost savings associated with that. We do have retention bonuses and things of that nature as we go through this. Once we get through the first quarter, we'll be back on track of what we expect, what we had initially projected for savings around that. Okay. Last question. I know you guys are really conservative underwriters, are you seeing any signs of distress at all in your office book, which is, I think, a little over $600 million? We're not seeing any stress in our book. I don't mean to be cocky, but in the metro Boston area, there is occupancy weakness in the old financial district, which tends to be bigger, older buildings, which we don't have much involvement in. It appears that like the Seaport area, the newer part of Boston is still quite robust. Stuff is going on. Here in the Back Bay, things are relatively stable. No, all is good. Okay. Thank you. Thank you, Mark. Thank you, Mr. Fitzgibbon. The next question comes from the line of Steve Moss with Raymond James. You may proceed. Good afternoon. Good afternoon. Maybe just following up on-. Steve. Hey, Paul. Carl. Maybe just following up on the margin here. Just curious, maybe a little color around loan pricing, just kind of what you're seeing in your market, as we head into the new year. Like, you know, spreads really are still hanging in there quite nicely. Of course, you know, with the yield curve continuing to move up a little bit, in the short end particularly, we're still seeing nice yields in that area. I think the challenge is the inversion of the curve. We've seen that continue to come down in the longer end. That kind of. Spreads are there, but they, you know, you see in the coupon a little bit. Get a little bit more challenged, particularly when you're comparing to our funding side. New loans, you know, you're you are adding those at a reduced spread to what our net interest margin is at the moment, in general. That's something that gives you a little bit of color. I kind of provided what the WACs were, the coupons and the spreads that we booked in the fourth quarter in my comments. Okay. Okay. Got it. That's helpful. Then maybe just in terms of, just curious on your on just the Brookline side of the house. Your CD bucket had about $900 million or so in CDs for the quarter with an average cost of 1.23%. Just kind of curious, you know, what's the remaining average life there and kind of just how we think about the repricing dynamic there. We see that stuff rolling or repricing at about, it's about $75 million a month in CDs that kind of roll on a constant basis that reprice. I don't know if that's helpful for you. Okay. Kind of just curious maybe where are your rack rates these days? What we're booking new production at? Yes. It's in the fours at this point. Okay. Okay. That's helpful. Then just in terms of, you know, just thinking about, you know, loan growth here, kind of, you know, it sounds like you're still upbeat about business opportunities. You know, kind of curious, you know, how you're thinking about the pace of loan growth going forward here. Well, I, as of today, Steve, the pipelines are still very strong. You know, you saw we had a really big fourth quarter. We're already seeing very good production so far. I'm optimistic that we'll see the kind of historic growth that we've had maybe a little bit better, maybe not. We're seeing it at all three banks. Okay. Great. Appreciate that. Thank you very much. Okay. Yep. Thank you, Mr. Moss. The next question comes from the line of Laurie Hunsicker with Compass Point. You may proceed. Great. Hi, Paul. Hi, Carl. Hello, Laurie. Just going back to expenses, I just want to make sure that I have this right. PCSB had been running, I guess, pre-everything about $9 million a quarter. Once it's fully phased in, call it, you know, $6.5 million or a little $6 million a quarter, assuming that 30% cost saves is still about right. Does that gel with where you guys are? Yes. Okay Of an increase because of FDIC insurance and just natural, you know. Inflation ... inflation and, you know, merit increases and things of that nature. Nothing, you know, as far as the cost savings. Using the, what you framed out, the $9 million down to $6.5 million. Yes. Okay. Okay, great. Then looking at PCSB, their margin was substantially lighter than yours was, and obviously you've just said, "Hey, we're probably gonna restructure." Can you help us think about that a little bit more? I mean, you know, I think we're obviously very cognizant across the industry of watching funding pressure and everything else, and you guys did a nice job, you know, holding the line thus far. As we look further out, we put your two banks together, there's gonna be accretion income PCSB would otherwise drag you down. I mean, can you help us think about it directionally if we were just to look out even into the June quarter, what that might look like? Sure. As Mark asked, are we planning on doing anything on the investment portfolio? The investment portfolio gets marked to market when we buy the company. You own it at market, at market yields. It's actually better for us to sell those securities in the market and pay down borrowings because the yields on the securities isn't as high as the cost of borrowing, particularly when you look at the inversion of the yield curve. We can pay down shorter term borrowings at higher yields. It costs us more money than what holding these securities that have longer duration. I think you're following that part of it. At the end of the day, it makes sense for us to pay down some of pay down some of those. Now we certainly need securities for collateral purpose, for liquidity purpose, and you don't liquidate the entire portfolio, but we'll be reducing that portfolio and then paying down borrowings throughout the organization. That gives you a sense of how we'll be structuring that. As far as the purchase accounting around loans, that, you know, that we're still working on, so I really can't give you a good insight on that, and what that means to yields. That'll, that'll be something we'll factor in. We'll provide that information in an 8-K, probably in early March. You'll get a sense of what that looks like. Hopefully that's helpful. Their margin actually was doing better than what we had originally projected when we were first doing the analysis back in May. You know, they did a really nice job of growing loans. Deposits, they've done actually a fantastic job on deposits in the interim. I think it just shows the strength of having this yet another excellent market in the Lower Hudson Valley for us to be able to attract deposits and grow loans in that market. I think that's something it doesn't happen in 45 days, but it's definitely a wonderful long-term perspective for this. As we bring additional services, particularly on the commercial side, but we have a lot of benefits on the consumer side as well. Particularly on the commercial side, whether it's cash management, enhancements, foreign exchange, you know, we have our own swaps desk that we can help out on the loan side. There's a lot that we can bring to the table here, we're very excited about this. They are too. Good. Okay. And just remind me, Carl, you know, initially you were closing at the end of the year. Obviously, since you closed at the beginning, that pushes off the Durbin, right? Since the cross happened this year. Does that put us then at July 2024 instead of July 2023? Just making sure I got that right. Yeah, you're absolutely right. That was one of the benefits. One of Carl's fancy moves. Well, it wasn't a fancy move. It was not intended that way, but it worked out nicely. Okay. You're absolutely right on that. That saves you $1 million? Is that- It does save us a little less than $1 million in over 12 months of revenue. You know, closing it a little bit later, the retention bonuses that we're gonna have to pay for folks and things like that, a little bit less. You know, some of the contract payouts were a little bit more because it was a year-end type of thing. There's movement in multiple directions on some of the merger charges. Largely in line with what we expected. Got it. Got it. Okay. Maybe just with respect to pro forma intangibles, and I guess it sounds like you're still marking everything, but can you give us just a rough estimation of what that's gonna look like? Yeah. What's interesting is, just from where the yield curve was at the end of the year, they are in the process of doing that. It was worse than the marks, the interest rate marks out in particular. Like I'll stay with that. The interest rate marks on the loan portfolio and the securities portfolio were worse than we originally expected. I don't have the loan marks yet. That's still being worked on by folks. As well as the CECL adjustment is still being worked on. You know, the securities portfolio, I think it came in around $66 million or something like that, underwater at the end of the year. If you remember, we estimated it was $50 million when we announced the transaction back in... It was materially different. That is a factor. You mark it as of 12/31, so don't be surprised to see security gains in Q1 as we liquidate this because actually the curve has inverted further. These securities are slight gains at this moment. It's one of those things that you have to work through, and the accounting's fun, you know, funny on that. On the loan portfolio, I would expect it to be a little bit worse than what we expect or worse, I don't know how much, than what we originally estimated to be when we first announced the transaction. CDI may actually be higher. You know, we estimate around 2% CDI, and, you know, deposits naturally are worth more than ever, as rates have moved up, you know, 425 basis points this year. You know, if those deposits become worth more, which actually is not necessarily helpful because you have to amortize that as an expense going forward. It's a non-cash expense. Your tangible book value goes up as that amortizes down. That's just another thing for your models. I don't have those numbers yet. That's still being worked on. It's a little early yet for that. Okay, great. Just tax rate, how should we be thinking about that going forward? Yeah. I did not expect us to close. Well, I knew that we had some things in the pipeline on leases that had an energy tax credit associated with it. I thought that was gonna be a 2023 event. It ended up being a December 2022 event. We did recognize that benefit in Q4. I don't know of anything right now in the pipeline along those lines. I will. My estimate right now is for, you know, taxes. You know, my previous estimates on that, I think it's 24% range on taxes. You know, more will come out of that because PCSB, it's in New York, so it does have a bit of an impact being in New York. They also have a lot of municipal securities that we're not planning on selling, and so that will have a positive impact on our tax rate. I think that 24% is my current estimate. We'll have a better number come end of Q1. Okay, great. Just one last question, just going back to margin. Do you have a spot margin for December? Have a what? What our margin was for December? Well, I'm sure I do. Yeah. I'm like... Okay. Nope, that's okay. Thanks. Thanks for all the color. I appreciate it, Carl. Yeah. Thank you. Thanks a lot, Carl. We're good. Thank you, Ms. Hunsicker. The next question comes from the line of Chris O'Connell with KBW. You may proceed. Hey, good morning. Hey, Chris. I wanted to start off with, you know, the interest, you know, rate risk slide. In your earlier commentary, you know, it sounds like ex-PCSB, you know, there's still, you know, a bit of, you know, core margin compression coming. And just trying to reconcile that with like the forward implied rates and the NII going up on a flat balance sheet there for that slide. So maybe if you could just, you know, comment on that or kind of connect the two. Sure. Just to give you a little bit of background on this. We start from a sensitivity standpoint when we're running our asset liability models and this is more of a governance and risk management standpoint, and looking at the position of our organization on an ongoing basis. One of the things we say is, "What's the forward curve suggesting rates are gonna do? What if our balance sheet doesn't change at all, keeping a flat balance sheet?" That gives us a starting point, and it's something that we can continue to look through time. Are we getting more sensitive or less sensitive? How are we positioning the balance sheet in this? We can run a lot of different scenarios around that. What if deposits run off $200 million? What if loans grow $200 million? How is that being funded? What is the impact on that? We can run a lot of different scenarios that may become our base case. Sometimes I talk to you guys and tell you what we think our base case is and what we think our margin's gonna be and what our projection for the margin's gonna be. Naturally, there's a lot of moving parts and things change and it never happens the way you expect it to happen. I want to try at least provide you some guidance with that slide to say, this is kind of where we are today and our current projections with that. When I say the forward curve, it's as of December 31st. That's the forward curve that we use. It does include all of our rates. It includes what are we booking CDs at? you know, what terms are we expecting CDs to book at? Things of that nature. What's the rollover in our loan portfolio? What's the new loan originations going in at our loan portfolio? We can do models away from that. That gives you our baseline because I know you guys have your own models and how you guys do. I don't know if it's helpful or not for you to understand that, but we provide that information. I think on that slide, we give you a good sense of what the loan originations were in the quarter and say, "Hey, this is what's, you know, the percentage of them that are, you know, reprice, you know, immediately or within three months. What's more of a fixed rate, and what's more of a, you know, a floating rate that reprices maybe three years or five years?" Then of course, what the whole portfolio looks like and the duration of that portfolio, just so you have a sense of where our risks might be. Got it. Just a result of, you know, the growth and, you know, the potential for a little bit of a, you know, mix shift on the funding side going forward, it sounds like. Okay, great. And, for the, you know, the potential restructuring, you know, I know, you know, things still being considered, you know, and that you don't have exact numbers. Do you have like a rough estimate of, you know, a dollar level of, you know, their securities portfolio that, you know, you're thinking about, you know, selling off? The total amount that we're gonna sell off in that securities portfolio? I would. Yeah. Uh. Yeah. I would expect the securities portfolio in the $150 million-$200 million range at the end of the day at PCSB Bank. We like to kind of keep the securities portfolio in the 8%-12% of total assets from a liquidity management standpoint. And then a ny balance of that becomes additional liquidity. They, you know, they had a relatively low loan-to-deposit ratio. When I say relative, that's for a northeast bank, 87% is a relatively low number. Of course, ours is significantly higher than that when because of the Eastern Funding business that we have, the equipment finance business we have. The ability for us to fund that a little bit less instead of relying on wholesale borrowings is beneficial at the end of the day. Yep. Got it. You know, on the fee side, you know, the past couple of quarters, you guys have had, you know, some nice levels on the loan participations. It sounds like the overall growth outlook, you know, still remains, you know, pretty solid from here. Do you think that, you know, are you still seeing kind of a market for that? Do you think that that's gonna, you know, continue at a, you know, a relatively, you know, solid pace compared to, you know, the first half of 2022? Well, yeah, it might look more like the first half of 2022. As we went toward year-end, the amount of activity that we had seemed to have accelerated a bit, and there was some relatively large transactions in there which have rolled over a little bit now. Even though I pointed out earlier, the pipelines are still strong. It would not surprise me as we roll into the year, we get back into a normal or more normal for us sort of pace where growth might be 6%-7%, pace, if you will, by the end of the year. We'll try to beat that. Yeah. I hear you. I know you guys touched on, you know, the office portfolio. In general, you know, things kind of continue to migrate positively on the credit front this quarter. I mean, is there any other pockets or areas of concern that you're seeing as you look through the portfolio? You know, I know you just came out of the PCSB, you know, board meetings. You know, anything that they're seeing in their markets of concern? No. All sectors are performing very well within the portfolio. I would point out that the office portfolio at the legacy Brookline Bancorp is not that big. It's pretty big, but it's not enormous. It's $650 million or so. It's well spread out. It's not like it's a bunch of stuff in the financial district in Boston. A lot of that stuff is in the leafy suburbs of metro Boston and across Rhode Island. It is very, very well diversified and has performed exceptionally well. All right. Got it. I appreciate the time. Thanks for taking my questions. Thanks, Chris. Thank you, Mr. O'Connell. That concludes the question- and- answer session. I will now pass the line back to Paul Perrault for any additional remarks. Thank you, Alexis, and thank you all for joining us today, and we look forward to talking with you again next quarter. Good day. That concludes the conference call. Thank you for your participation. You may now disconnect your line. I think that's one.