Beacon Financial Corp (BBT) 2025 Q2 法說會逐字稿

Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Berkshire Hills Bankcorp second-quarter earnings conference call.

(Operator Instructions)

Thank you. I would now like to turn the call over to Kevin Conn. Please go ahead.

Good morning, and thank you for joining Berkshire Bank's second-quarter earnings call. My name is Kevin Conn, Investor Relations and Corporate Development Officer. Here with me today are Nitin Mhatre, Chief Executive Officer; Sean Gray, Chief Operating Officer; Brett Bebovic, Chief Financial Officer; and Gregory Lindenmuth, Chief Risk Officer.

Our remarks will include forward-looking statements and refer to non-GAAP financial measures. Actual results could differ materially from those statements. Please see our legal disclosures on page 2 of the earnings presentation referencing forward-looking statements and non-GAAP financial measures. Reconciliation of non-GAAP to GAAP measures is included in our news release.

At this time, I will turn the call over to Nitin. Nitin?

Thank you, Kevin. Good morning, everyone, and thank you all for joining us today. I will begin my comments on slide 3, where you can see highlights for the second-quarter. Overall, this was a very strong quarter and the best quarter yet since we began our transformational journey in early 2021.

We had operating net income of $31.6 million, up 14% linked quarter and up 36% year over year. Operating earnings per share of $0.69 was up 15% from first quarter and up 25% year over year. We continue to drive expenses lower with operating expenses of $67 million, down 2% in quarter and down 7% year over year. We had positive operating leverage of 5% linked quarter and 11% year over year driven by both improved revenues and lower expenses.

Operating ROTCE was 10.76%, up about 110 basis points linked quarter and year over year. Asset quality and balance sheet matrix remains strong. Net charge offs and non-performing loans remained low at 14 basis points and 27 basis points of loans respectively. We continue to make steady progress on our strategic initiatives. Our focus on new digital deposit program has gained momentum and has delivered over $100 million of new deposits since inception earlier this year.

Our bankers' commitment to delivering relationship focused personalized solutions to our clients has been at the core of our improved financial performance and has earned us yet another recognition this quarter. This time from TIME magazine that recognized us again amongst the top performing mid-sized US companies in 2025.

As you know, in December, we announced a Merger of Equals with Brookline Bancorp. The transaction improves scale and meaningfully improves profitability as reflected in the estimated 40% and 23% accretion to Berkshire's 2026 consensus estimate on GAAP and cash basis respectively.

Berkshire’s' net income in the first half of 2025 annualizes to over $118 million and is tracking well ahead of the 2025 consensus net income of $101 million shared in our MOE investor in December. Our team continues to work proactively on requisite integration planning for a seamless transition.

And on that note, I will turn the call over to Sean Gray to provide an overview of the merger integration planning process. Sean?

Thanks, Nitin. As we await regulatory approval, there's only so much in detail we can share. But I can say this, the combined organization's leadership team has made really good progress and continues to work towards our pro forma cost save goal of 12.6%.

I can speak to where our tech stack expenses are coming in as most of that work is complete. And where that is coming in versus plans. So I'm very pleased with the favorable outcome of where our tech stack expense is showing up, and that will bid favorably for the overall goal of the 12.6%. Thanks, Nitin.

Thanks, Sean. I will begin going over the financial details for the quarter. I will begin on slide 5, which shows an overview of the second quarter metrics. As Nitin mentioned, our operating earnings were $31.6 million or $0.69 per share. Our net interest margin was 3.27%, up 3 basis points linked quarter. Operating expenses were down $1.3 million or 2% linked quarter, and our efficiency ratio was 56.7%.

Slide 6 shows our average loan balances. Average loans were up $95 million or 1% linked quarter on annualized, and up $327 million or 4% year over year. Linked quarter, we had solid broad-based growth led by C&I.

Slide 7 shows average (technical difficulty) quarter and up 6% year over year. Excluding payroll and broker deposits, average deposits were up 1% linked quarter and up 6% year over year. Average non-interest bearing deposits as a percentage of total deposits remain steady at 23%.

Turning to slide 8. Net interest income was up $2.2 million or 2% linked quarter and up 4% year over year. Net interest margin was up 3 basis points linked to 3.27%.

Slide 9 shows operating non-interest income up $1.1 million or 5% linked quarter and up $1.6 million or 8% year over year. Loan-related fees were up linked quarter, driven by higher loan servicing fees and [BOLI] gains, offsetting lower SBA gains in the quarter.

Slide 10 shows expenses. Operating expenses were down $1.3 million, or down 2% linked quarter to $67 million and down $4.7 million or 7% year over year. Linked quarter and year over year expense declines were broad based. Non-operating expenses of $1.5 million were primarily related to the merger.

Slide 11 shows a summary of asset quality metrics. Non-performing loans as a percentage of total loans was 27 basis points. And loan reserves to NPLs was 462%. Net charge-offs of $3.3 million were down 200,000 linked quarter, and our coverage ratio remained flat at 124 basis points.

And with that, I'll turn it back to Nitin further comments. Nitin?

Thank you, Brett. As Brett outlined, we had a very strong second-quarter that has continued the EPS growth momentum over multiple quarters. This quarter was in fact the best quarter since we launched our transformation program in early 2021.

Over the last 4.5 years, our turnaround has been a journey of efficient growth and profitability while creating a positive impact for all stakeholders. We made significant strategic decisions, embraced innovation to invest in technology, reignited organic growth, and remained committed to our communities.

We have not only improved our financial performance despite the macroeconomic headwinds that have impacted the industry over the last few years, but I also positioned ourselves for continued strength in the long term. Our progress is a testament to the unwavering dedication and hard work of our employees, the trust and loyalty of our clients, and the confidence and support of our shareholders.

As I reflect on our progress since we began our transformation program in early 2021, I want to express my deepest gratitude to every member of Berkshire team, our clients, and our Board of Directors. Our bankers' dedication, resilience, and commitment to our clients has been the driving force behind our improved operating and financial performance.

Together we've navigated challenges, embraced change, and delivered strong results for our clients, shareholders, and communities. It has truly been an honor and a privilege to lead such an outstanding team of purpose-driven, values guided, talented bankers. I am incredibly proud of what we've accomplished together and excited to see what the combined company will achieve next.

With that, I'll turn it over to the operator for questions. Carly?

(Operator Instructions)

Laurie Hunsicker, Seaport Research Partners.

Hi, good morning. Just wondered, if we could just start with margin. You guys have that $100 million drop in FHLB. Just remind us when in the quarter that fell and then also your spot margin for June and just how you are thinking about it? Thanks.

Hey Laurie, this is Brett. Our spot NIM for June was about 3.22%. The FHLB drop --

Sorry, I think, yeah, there was a dead spot there. Can you start over? Thanks.

Sure. The spot NIM for June was 3.22%. And the FHLB declined coincided with an increase in our deposits throughout the quarter. So it wasn't at a specific point in time, it was just based on what we needed to borrow to -- or what we didn't need to borrow to -- based on the deposit growth that we saw this quarter.

Okay. Got you. And do you have any sort of near-term large maturities coming due and CDs or borrowings that we think about here in the next quarter?

No, nothing. I wouldn't say anything significant.

Okay, great. And then, just jumping over to credit, obviously your credit is looking great, but just wondered if you can help us think about that jump in the C&I non-performers to $11.5 million from $9 million. And then also a Firestone. I know it is small, but if you could just give us what is the Firestone C&I balance and how much a non-performer and charge-offs?

Yeah, Gerg, do you want to give some color on it?

Sure, the jump in MPLs, it's a handful of just smaller credits, probably just a half dozen of smaller credits with just individual problems related to each business. As far as Firestone, the balance is down 15% quarter over quarter to $28 million.

And NPLs have historically ranged in the $1.5 million range. They're at $1.3 million right now. And for NCOs there's a net $900,000 for the quarter.

$900,000. Okay. And then again, you had outs outside charge-offs just in the C&I bucket. Was there anything specific there that's worth calling out?

No, very similar to the NPLs, nothing noteworthy, just a handful of individual credits on the smaller side.

Got you. Okay. And then I think I know the answer to this, but I just want to triple check. Your $700 million multi-family book, anything rent controlled in that network?

There, we have no rent control in our footprint. Even though New York City is technically within our footprint, we do not have any loans there.

Okay. And then I know [Mandami] he's expressed a desire to target other markets too, i.e., Albany. Do you have any rent controlled anywhere?

We do not, not in our footprints. No and not in Albany.

Okay. That's great. And then not interesting kind of the loan related fees that were really strong. What were the [BOLI] gains in this quarter?

They were about $800,000 above normal.

Okay. Just non-recurring benefit, death benefit. Okay. And then how do we think about the drop in the SBA loan gain on sale of SBA loans? How should we be thinking about that?

So, I think we very --

It's Sean. Brett is probably going to say the same thing, we're coming off a really good Q4 and Q1. We pulled some of that value forward. So a little bit of a move back to the mean, but when we look at the core business, we look at pipeline and volume. It looks very healthy.

Okay. So this current run rate, 2Q is probably a better run rate?

I would say it's in between the Q1, Q2.

Okay, great. And then how should we be thinking about tax rate going forward?

So our tax rate is a bit elevated right now due to timing and merger related aspects. I would expect it to normalize going forward.

Okay. And so what would be a good like 23%, 24%?

I would say about 24%, 25%.

Okay. And then this last sort of more high-level question here, can you help us think about your deal tangible dilution at announcement, tangible book dilution with 17% and then 40% earnings pick up.

Can you just help us think about what the new FASB impact on CECL updates the double count sort of means for your tangible book dilution? Can you help quantify that?

And also, presumably your tangible book dilution is something less, but your earnings pick up is also something less. Just how do we think about that and then also deal related, can you help us think about the timing?

Sure. So obviously, the ASU hasn't been finalized yet. It's expected to be adopted at the third or fourth quarter of this year. It will have an impact on our combined entity as we move forward. I don't think at this time, we can quantify that right now on this call. But it definitely will have an impact, and it's something we're continuing to analyze as we get more information on the ASU and what it's going to look like in its final state.

Okay. And then what about deal closing? We've seen things really ramp up on the M&A side on deal closing just happen really, really a lot faster. Any color on that?

Yeah, Laurie, I think we -- in the investor materials we did say we expect the closing to be end of September. Everything is on track so far, so we are just awaiting the regulatory approval, and the teams are already working on the integration planning as Sean highlighted.

Okay, great. Thanks. Thanks for taking my question.

Thank you, Laurie.

Thanks, Laurie.

There are no further questions at this time. I will now turn the conference back over to Nitin Mhatre for closing remarks.

Thank you all for joining us today for our call and for your continued interest in Berkshire. Have a great day and be well.

This concludes today's conference. You may now disconnect.