Beacon Financial Corp (BBT) 2025 Q3 法說會逐字稿

Thank you for standing by. At this time, I would like to welcome everyone to the Deacon Financial Corporation 3rd quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press one again.

Thank you. I would now like to turn the call over to Dario Hernandez, corporate counsel. You may begin.

Thank you, Jean, and good afternoon everyone. Yesterday we issued our earnings release presentation which is available on the investor relations page of our website, Deaconfinancial Corporation.com and as we filed with the SCC. This afternoon's call will be hosted by Paulerall and Carl Carlson. During the question-and-answer session, they will be joined by Mark Mel, Chief officer.

This call may contain forward-looking statements with respect to the financial condition, results of operations, and business of Beacon Financial Corporation. Please refer to page 2 of our earnings presentation for our forward-looking statement of exclaimer. Also, please refer to our other filings of 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 the presentation to non-GAAP measures are only made to assist you in understanding beacon financials 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 relief.

At this time I'm pleased to introduce Sheikan Financial's President and Chief Executive Officer Paul Pearl.

Thanks, Dario, and good afternoon everyone, and thank you for joining us for our first earnings call as Beacon Financial Corp.

Let me start by welcoming the Brookline and Berkshire stockholders, employees, and customers to the new Beacon Financial Corporation, the holding company for Beacon Bank and Trust.

This powerful combination between our two great legacy organizations will help position us as a leading Northeast financial institution that provides enhanced service capabilities for our clients, performance for our shareholders, and resources for our communities.

On September 1st, the merger and consolidation of the bank charters was completed. However, until we finalize our core system integration in the first quarter of next year, we will continue to conduct business as Brookline Bank, Berkshire Bank, Ban Rhode Island, and PCSB Bank, operating as divisions of Beacon.

We will formally introduce our Beacon Bank brand to the market over the next few months as we get closer to finalizing our system integrations.

The Beacon Bank name represents guidance, strength, and the promise of stability. The core principles the legacy institutions have upheld for generations.

With the combined strengths of Berkshire and Brookline, Beacon can help customers make financial decisions with clarity and confidence.

The integration is moving ahead as expected. Our priority remains ensuring our customers and communities continue to experience the outstanding service and support our banks are known for, which is driven by the attitude and expertise of our employees and supported by our six regional Presidents.

I want to thank all of our Beacon Bank employees for their hard work on this integration, their continued superior service to our customers, and a commitment to ensuring a smooth transition.

Beacon Financial finished the quarter with $23 billion in assets, $19 billion in deposits, and $18 billion in loans with third quarter operating earnings of approximately $38.5 million or $0.44 per share before merger expenses and special charges.

We're already beginning to see the rationale for the merger play out with the addition of Berkshire's lower cost deposit base combined with Brookline's higher growth markets, creating opportunities to deepen relationships with clients.

I'm particularly pleased with our strong retention of client facing talent through this and the excitement amongst the team, and I'm optimistic to see this excitement and energy translated to even more robust results.

I will now turn you over to Carl, who will review the company's 3rd quarter.

Thank you, Paul.

As Paul mentioned, we closed our merger on September 1st with Berkshire as the legal acquirer and Brookline as the accounting acquirer.

As such, historical results reflect Brookline performance, and the assets and liabilities of Berkshire were marked to market and combined with Brooklines as of September 1st.

On a combined basis, we finished the quarter with total assets of $22.8 billion.

And on September 1st, the fair value of Berkshire assets was $12.1 billion of which we sold approximately $426 million 177 million dollars in securities, and $249 million in loans.

The proceeds were used to reduce wholesale funding.

Excluding theur accounting mark, the combined loan portfolio declined $484 million during the quarter, largely driven by the sale of $249 million of purchased residential mortgage loans and the reclass of $83 million in similar loans to help for sale.

The sale of those loans closed in October except for a small pool which closes next week.

On the funding side, combined customer deposits increased 89 million.

Payroll deposits declined $186 million while broker deposits and borrowings declined by $249 million and $0.74 million dollars respectively.

At the end of the quarter, the loan to deposit ratio is 96.5%. The allowance for loan losses finished at $254 million reflecting a coverage ratio of 139 basis points.

The allowance includes $77 million in specific reserves on approximately $380 million of loans representing a coverage rate of 20%.

The general reserve of $177 million represents a 99 basis point coverage on the balance of the portfolio.

Given the strong coverage rate in the current environment, we expect that, well, charge-offs may remain elevated as we continue to work through these substandard assets. We expect the run rate for the provision to be 5 to $9 million a quarter as the reserve coverage ratio trends lower.

That charge-offs for the quarter were 15.8 million. All but 1.4 million of the charge-offs were previously reserved for.

Our quarterly results reflect 2 months of earnings for Brookline and 1 month of earnings on a combined basis. The quarter also included the merger charges and purchase accounting associated with the transaction.

We will continue to have merger charges through the 1st quarter when our core systems integrations are completed and the remaining cost energies realized.

As we anticipated, we reported a GAAP loss for the third quarter of $56 million or $0.64 per share. The third quarter included pre-tax charges of $130 million and $0.78 million dollars related to the initial provision expense, and $52 million in merger expenses. Excluding these charges, operating earnings were $39 million or $0.44 per share.

The net interest margin was 372 basis points for the quarter, which included a 30 basis point benefit from purchase accounting.

We provided the performance for the month of September, representing the 1st month of performance on a combined basis and adjusted it for the one-time merger related charges. This is provided on page 5 of the presentation.

Net interest income for September was $72 million which included $10.7 million inur accounting accretion for the month and resulted in a net interest margin of 412 basis points for September.

Of the 10.7 million $3.8 million was related to the credit mark, with the remaining $6.9 million related to the interest rate mark.

Of the 6.9 million, 1.8 million is is due to loan pre-payments.

We expect FASB to release the final rule on accounting for acquired loans and the credit mark to be reversed in the 4th quarter, increasing equity and no longer reflected in income going forward.

We currently estimate purchase accounting accretion to be in the range of 15 to 20 million per quarter depending on loan pre-payment activity.

Non-interest income was 8.5 million for the month, reflecting a 25 to 26 million quarterly run rate.

Non-interest expense of $40.6 million for the month captured some of the day one synergies created by the merger and reflects a quarterly run rate of $122 million.

Amortization in tangibles that 2.7 million for the month reflects an 8.1 million quarterly run rate.

Provision for credit losses for September was 6.6 million, but as is typical true up of reserves and provision requirements take place in the 3rd month of the quarter.

As I stated earlier, we anticipate quarterly provisions to be in the range of $5 million to $9 million.

The September operating performance of 129 basis points on assets and over 15% return on tangible equity illustrates the strong performance of the combined franchise and the potential opportunity going forward.

Yesterday the board approved increasing our quarterly dividend of 32.$0.25 per share to be paid on November 24th to stockholders of record on November 10th. This represents a 79% increase in the cash dividends previously received by Berkshire shareholders. It maintains the level of cash dividends previously received by Brookline stockholders.

The quarterly dividend equates to an annual dividend of $1.29 per share, which was communicated when we announced the merger and currently represents a dividend yield of approximately 5.4%. As Paul mentioned, the team is optimistic and excited as we continue to deliver on the merger benefits.

This continues my formal comments and I'll turn back to Paul.

Thanks, Carl.

We will now be joined by Mark Mickle John, our Chief Credit Officer, and we will open it up for questions.

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad.

Your first question comes from a line of Mark Fitzgibbon with Piper Sandler. Please go ahead.

Hey guys, good afternoon and congratulations on the on the completion of the deal.

Thanks, Mark.

First question I had, I guess for Carl, what should we expect for the remaining deal-related charges to be in 4Q and 12? Do you have a sense for a rough range on that?

I think it's going to be between 22 million and 24 million in that range.

Okay, great. And then I wondered if you could share any color on that $12.4 million dollar office loan that you referenced in Boston, any color on that and also was curious from which institution did this loan come from?

Mark, this is Mark Mickle John. That loan is a downtown Boston office property.

It's a retail first floor office above.

At this point, the retail is full and the otherwise the building is largely vacant.

We've got about 25% to 30% reserve on that loan. Currently it's being marketed for a potential sale, so we feel like we're in a pretty good place on it.

Okay, great. And then lastly, it looks like your capital ratios were stronger than we expected coming out of the deal and it sounds like with the accounting adjustment potentially in the 4th quarter, capital ratios will get even a little bit better. I guess I'm curious what your thoughts are on stock buybacks going forward.

We love the idea, particularly with the price where it is, but I think our first priority, well, our first priority was to get the dividend.

Increased as we as we promised when we announced the transaction and now it's really to get the concentration on the commercial real estate to where we all want it to be.

And so right now we're targeting 300% by the end of 2027 now.

We may have an opportunity to still be able to do increases in dividends and stock buybacks while also, maintaining our goal of getting to 300%. So we'll continue to explore that as.

As we move forward.

Thank you.

Your next question comes from the line of Steve Moss with Raymond James. Please go ahead.

Good afternoon.

I see. Hey Paul, maybe just starting off following up on credit here with regard to, the potential for elevated charge-offs just kind of, you, curious you could size that up a little bit. It sounds like it's going to be coming from, the equipment finance portfolio if I heard that correctly.

Yeah, I think just a just a comment, to be a little repetitive to Carl, we've got specific reserves of about almost $80 million on a population of about $380 million and what we consider troubled assets of that, I would say that, a fair amount of that will come out of those problems as they resolve themselves will come out of the Eastern funding portfolio.

There's really not much of that in office at this point.

Right, okay, got you. I know that that's helpful. I just size that up a little bit and then, the other thing here in terms of the commentary, it sounds upbeat with regard to C&I lending, just kind of curious, get a sense for the type of deals you guys are seeing and where loan pricing is these days.

Well, to give you a sense, we put in the deck, what the originations were, and of course that's on a combined basis for the quarter, but you know we had we had coupons being added and just a little south of 7% and that does include some eastern funding originations in there as well.

But far as.

Yeah, and then maybe just on the loan portfolio yields here, in terms of the just curious, it's a probably a bigger step up than I was expecting. I realized the purchase can increase like math there, but just kind of how you're thinking about where the loan portfolio you'll shake out and how you guys are thinking about deposit betas, as we go through these rate cuts on on a combined basis.

Of course, the The deposit beta is right now we're modeling about a 57% beta for all all of our interest-bearing deposits and it seems like the The lines have been doing a little bit better job than that than our modeling and sometimes that happens initially and then it slows down, but in the model that's what we're using is 57%.

Okay, and one more housekeeping item here just curious how you guys are thinking about the core deposit in tangible amortization expense going forward.

Yeah, I think we provided some guidance on that. I think it was about $8.1 million a quarter.

That'll come down over time. I think we're doing a 12 year, some of the year's digits method on that.

Okay.

Got you.

Appreciate that. I'll step back in the queue.

Thank you.

Okay.

Your next question comes from the line of David Bishop with Hobty Group. Please go ahead.

Hey, good afternoon Gentlemen.

I curious, within the legacy Berkshire Hills, they had had some resilience and strength recently in the 44 business capital, back, small business line. Any impact this quarter in terms of their ability to get up to the finish line in terms of loan sales and curious if there's a significant backlog or pipeline within that within that segment.

That's an excellent question. I don't know if it really impacted September. I think September was fine, and as you're only seeing Berkshire's results for the month of September in this, and I think that that's important to realize.

So but the fourth quarter, I would imagine there would be a little bit of A shortfall in as far as timing and and maybe even the level of gain on sale on the guaranteed portions of those those those SBA loans.

So I do expect that, but I couldn't give you really guidance on how much that might or may or may not be.

Got it. Understood. And then appreciate the deck noting some of the dives tigers any more repositioning or loan sales or security sales anticipated.

After this. Yeah, I put a note in there to keep my options open, but I think I'm pretty much done with that. There may be a few more securities that we would like to sell, but it's nothing material.

And in terms of the branches, there's there's 4 or 5 overlaps which will be dealt with post-conversion, but I think that Berkshire had sort of cleaned up the footprint quite handily in the past couple of years, maybe 2 or 3 years.

Right.

And then Carl, just curious if you have available the C concentration ratio at quarter.

355%, for IR, the total risk-based capital, and I just I like to highlight that our construction portfolio is only 33%. It's quite low and.

It's it's nice to remind people of that.

Great, appreciate the call.

Your next question comes from the line of Karl Shepard with RBC Capital Markets. Please go ahead.

Hey, good afternoon, and congrats on getting all this done.

Thanks.

I guess I wanted to start with Carl.

Thanks for all the help with slide 5, and I'm just thinking high level here. This feels like a pretty good starting point once we kind of right size the provision and back out a little bit of the accelerated and credit related accretion this quarter.

Is that fair? And then what's the message on the size of the balance sheet?

You're right on with that. That's that's why I spent so much time, almost all of my time on that. I think that gives you a good sense of the direction, in the different categories and how that's that's laying out in September gives us a little snapshot of that.

As far as the size of the balance sheet, we basically reduced the balance sheet $500 million when you include the loans held for sale.

I don't expect that to go down going forward.

We'll see exactly what kind of loan growth we're seeing on a combined basis as we move forward, but over time, I think we're we're targeting that probably mid single-digit growth in the interest earning assets. And so I would be taking.

I want to be careful, a lot of ratios that people calculate and even when you look at the the yield tables and things like that, you look at our yield table and our press release and you'll see interest earning assets or loans might be $12 billion or something like that. It's a much higher number on, when you look at just where we ended September, right, because that included Brookline for 2 months and the combined organization for 1 month. So you got to be careful about averages and average balances and calculations like that.

But we expect to be able to get on a growth trajectory on on if you're selling assets going forward in the low single-digits to mid single-digits.

Okay, yeah, I was trying to do the algebra on NAI and for for September, but, I guess then one for everyone but maybe Paul in particular just.

Can we get a few more thoughts on how the first two months have gone as a combined organization and then what's what's the focus execution wise between now and the systems integration for you?

Well, I think it's gone exceptionally well. I mean, everybody has an important role to play, and my management committee works very well together and have been knocking off the kinds of things that are necessary to do in these kinds of mergers, everything from employee benefits to consolidating contracts for services. All the technology stuff is well underway. That was done very early on. The selections were made. And so we're about execution at this point, and we've got the banking centers all set up under Chief Banking Officer Mike McCurdy.

We have 6 regions given the footprint that we have, and so we have decentralized all of the support for those regions. And as I travel around the land, I feel very good about the people that I'm meeting and the enthusiasm that they're bringing to this new adventure for everybody. So this is a lot different for everybody, but the optimism is there and the talent is there, and so I'm feeling very good about where we are here, a couple of months away from the conversion.

Okay great thanks for all the help.

Your next question comes from the line of David Konrad with KBW. Please go ahead.

Hey, good afternoon.

Since you spent so much time on slide 5, let's spend a little bit more time on it, I guess, if we could, but I just look at the, September expenses of, 40.6 and then the amortization of 2.7.

And if I kind of cauterize that if you will, I get to about 130 million of expenses kind of a run rate I guess two questions one, how much of the 68.9 cost save has already been implemented in that number, if any?

I'd say quite a bit of the 68 has already been realized.

Just to step through that a little bit, just since we announced the transaction, even before we announced the transaction, both companies were being very thoughtful about expenses going into that. And so when we were looking at and just people weren't getting hired, people who were leaving weren't positions weren't getting filled. There was a lot of double work going on, things of that nature, people, things getting done. A by additional folks and so there's been a lot of control around expenses right up until the the the merger on September 1st, and both companies have done an excellent job of controlling those expenses and not spending a lot of money. Then you had September 1st come and there are a lot of senior senior people and even even department leaders that were let go on the first day, so they exercised their change of control their contracts, and they're gone. So while the number of people, and there's quite a few people like day one.

It's those are those are pretty high salary numbers and bonuses and things of that nature, benefits, and so those those came right out of the run rate.

September 1st so that's a nice pick up. Now there's still some savings and synergies to be had on all the contracts and things of that nature, vendors that we use, professional services that we use, and so those things are still going on and as we get through to conversion, we'll be able to realize on those and and then there's another.

Staffing reduction at that time.

Just to put some numbers around it for you, David. We're down almost a couple 100 people in the combined company since a little bit before the combination actually came to fruition and scheduled to let go post-conversion at some point is almost another 100.

And so we're being very methodical about it and as Carl pointed out, there's a fair number of those people who have already left who are highly paid.

Right, and then so when we look at the 4th quarter.

The 1:30 is probably a good run rate. Maybe, I don't know if there's going to be more expenses, core expenses seasonally in the fourth quarter.

So I'm just kind of wondering what the core number of the fourth quarter range would be and then the last question would be on slide 11, that 119.8 kind of 2 expense number we should probably add in the 88 million of the amortization on top of that to get the all in expense.

That's correct. That's correct.

What I want to add, I mean, there's a million moving parts on this thing, as you can imagine, and whether it's aligning the benefits across the organization, it's aligning salaries across the organization, there's things of that nature, but there are positions that needed to be filled that have been postponed. And of course we've postponed them even further because we're not hiring anybody in December because we're doing payroll conversion at that time. So there's a lot of things going on, but there's some, there's positions that we're going to have to fill. And so that 1,198 is something that the management team is committed to delivering on and we're working very hard to make sure that happens and they might close, and I think I don't see a reason why we're not going to hit that and perhaps do better.

And then for the 4th quarter should be is 1:30 kind of a A decent for that or should we should we up that a little bit before it goes down?

So I would, I think I would use that number for now. I couldn't really give you that. I don't see a real reason why it would vary too much off of September. I didn't really do a deep dive on that, but I think that that should be pretty accurate, including the intangible amortization.

Right, great. Okay, thank you, very helpful.

Your next question comes from the line of Laurie Hunsicker with Seaport Research. Please go ahead.

Yeah, hi, thanks. Good afternoon. Yeah, I just wanted to clarify this, the 119.8 million on page 11 there that does or does not include the amortization expense.

It does Not At its operating costs.

Got you. Okay, just I just wanted to double check. Okay, and then, same thing when we look at the margin, the 390 to 4% that you're guiding.

That does include an increase of income to the rate of an estimated 15 million to 20 million per quarter.

Yes, it does. Okay.

Okay, and then Just your comments here at the bottom of page 11, can you expand a little bit on that, Paul and Carl, that management will continue to explore opportunities to optimize the balance sheet and capital structure over the next few quarters.

Just help us think about that.

And on that a little bit.

I think I said it earlier. I wanted to keep my options open here and I think for I want to get this is something we will discuss with the board more more fully and size it correctly, but as we both both organizations had sub debt outstanding, and it's something that we will we will probably look to refinance sometime during 2026. I don't want every single banker in the in the world calling me, but that's something that that will be, we will be looking to explore that.

And I think we'd like to get a nice clean quarter behind us before we move forward with that.

Okay, and then just to clarify, no spot secondary anywhere in the future, is that correct?

No, we have nothing approved yet.

All right. And then on diluted income statement share account, I just want to make sure I have this right. It dropped 106 or so in September. It's going down another 3.6 million just the accounting, right? So it takes diluted income statement your account will be about 84 million. Is that correct or is my math off on that?

No, I think that's where folks got a little bit tricked up when it was Berkshire as the legal acquirer and Brookline as the accounting acquirer, and they were using the the Berkshire share account.

And then the combined, it was really, two months of Brookline's share count and then the combined. So the combined share counts around $84 million and $0.84 million shares on a diluted basis.

That's perfect. Okay. Good. And then, by the way, I appreciate so much all of your detail. You kept everything that you had in there that we loved in Brooklyn and you added more stuff, so that's great. But just going to slide 14, Can you help us think a little bit about this is a smaller line item but Firestone that came over with Berkshire Hills what are you doing with that? Is that discontinued all?

Yes, it's just got a runoff. It's about.

23 million.

Okay, good, perfect. Just wanted to make sure you weren't growing it. Okay, and then, obviously new here looks like so you're discontinuing the fitness and the macro leaf.

That's down 150, so that's great. Okay. And then so your charge off this quarter, the 15.1 million in charge off.

Do you have a breakdown as to, how much of that was vehicle and how much of that was the macro leaf?

Yeah.

Actually there were 2 large eastern funding deals in that neither of them were.

Vehicle or Mac release they were both eastern funding but I would say they were noncore type businesses one was a commercial laundry and the other was a grocery operator, so yeah, those are for both long-term workouts and those reserves had been put up over the last year or so. So we thought now was the appropriate time given where those deals are to take those charge-offs.

Okay, great. That's great, yeah, and we talked historically about the grocery. Okay, and then the specialty vehicle, what is that non-performing and same question with the macro so of your Your C&I Equipment finances of 42 million. How much is in those two buckets?

Specialty vehicles about $4 million.

Okay.

That 42 is just made up of a handful of names.

Largely okay, and the Mac release, do you have non-performers for that one?

I think that number is 13 sorry.

13. Okay.

That's great. And then the office, detail, and I appreciate the detail that you added around that, but can you just talk a little bit more? So you have 0 no formers and now at 22 million.

And I think Mark asked the question earlier. Was this a Brookline or was this a Berkshire Hills credit? And not that it matters. It's just kind of curious. And then also, can you comment you had a massive jump to the criticized office. It looks like that's now 134 million.

Just any color on that would be great.

Yeah, the deal that we mentioned earlier, the downtown office, that moved the non accrual number was a legacy Brookline account.

Okay.

And so, then you had, it looks like then you had another what, 10 million or so now I'm performing from your book.

Is that right?

Yeah, that sounds about right.

Okay. And then the criticize there, the 134 million, is any of that coming due in the next couple quarters or any color on that?

In terms of office, we have two loans that are coming due over the next couple of quarters that are that are in the criticized bucket. Those loans are on short-term maturities at this point. We're well reserved on both of those loans, and we expect some resolution of them over the coming quarters.

Okay, and what is the amount on that?

About 30 million in total.

In total, great. Okay. And then do you happen to have the occupancies there on those?

I don't off the top of my head, no, sorry.

Okay, I think you had all my questions.

Thank you so much for all the details. I appreciate it.

It Your next question comes from the line of David Conrad with KBW. Please go ahead.

Thanks for letting me jump back on. Just had a follow-up on slide 11 with the first account creation expected to be 15 to 20.

Per quarter just wanted to kind of clarify to make sure like if you did adopt the new FASB rule.

Would we think of that range of being more like 11 to 16, or is that range contemplating the change of the accounting?

It does contemplate the change in accounting, but again, this is an estimate. It's the best look because just so we, that's done at the loan level, the individual loan level, and so you know it can be very volatile based on prepayments and things of that nature.

Right, definitely.

Okay, thank you.

Your next question comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mr. Fitzgibbon, your line is open.

There are no further questions at this time. I will now turn the call back over to Paul Per for closing remarks.

Thank you, Gene, and thank you all for joining us, and we look forward to talking with you again next quarter. Good day.

Ladies and gentlemen, that concludes today's call.

Thank you all for joining. You may now disconnect.