Beacon Financial Corporation (BBT) 2026 Q2 法說會逐字稿

Hello and welcome to the Beacon Financial Corporation Second Quarter 2026 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, and if you would like to ask a question during this time, please press *1 on your telephone keypad. I would now like to turn the conference over to Dario Hernandez, Corporate Counsel. You may begin.

Thank you, Sarah, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website, beaconfinancialcorporation.com, and has been filed with the SEC. This afternoon's call will be hosted by Paul Perrault, Carl Carlson. During the question-and-answer session, they will also be joined by our Chief Credit Officer, Mark Micheljohn.

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 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 Beacon Financial's results and performance trends and should not be relied on as financial measures of actual results or future predictions. For our comparison and reconciliation to GAAP earnings, please see our earnings release.

At this time, I'm pleased to introduce Beacon Financial's President and Chief Executive Officer, Paul Perl.

Thanks, Dario. Good afternoon, everyone, and thank you for joining us for our second quarter earnings call. Our second quarter results reflect improved operating momentum and solid execution across the organization as we continue to move beyond merger integration activities and focus on realizing the full potential of the combined franchise.

We took a clear step forward from the first quarter with stronger profitability and improved operating performance across several key measures. GAAP earnings were $0.77 per share compared to $0.55 per share last quarter, driven by higher net interest income, increased fee income, lower credit provisioning and the elimination of further merger-related expenses. Return on assets improved to 1.17%.

While return on tangible common equity increased to 12.84%, reflecting the earnings power of the franchise as integrated related disruption subsides. While the operating environment remains competitive and economic uncertainty continues to influence client decision-making, we saw encouraging trends during the quarter. Our net interest margin expanded to 3.81%, deposit growth resumed. And non-interest income improved across several business lines. These results underscore the value of our diversified business model and the resilience of our funding base. Loan balances declined modestly during the quarter, consistent with our expectations as runoff in commercial real estate and equipment finance portfolios were partly offset by growth in commercial and consumer lending.

Although overall loan demand remains uneven, client activity and pipeline levels are quite healthy. We continue to see opportunities across our commercial banking platform and remain optimistic production levels will continue to improve. Expense discipline remains a core strength, excluding the benefits of completed merger-related activities. Operating expenses declined modestly from the prior quarter as we realized additional efficiencies from systems consolidation and facility optimization efforts. Our core efficiency ratio improved significantly to just over 54%, demonstrating the benefits of the integration work completed over the past year or so. Credit performance remains manageable and generally in line with our expectations. While non-performing assets increased modestly, charge-offs were concentrated on a small number of previously identified credits which were reserved in prior periods. We remain focused on active portfolio management and continue to believe our reserve levels appropriately reflect the current risks in the portfolio. Our capital position continued to strengthen during the quarter, supported by solid earnings generation and disciplined balance sheet management.

Tangible common equity increased to 9.25% of tangible assets and tangible book value grew $0.50 during the quarter to $23.98 per share. These results reflect the strong earnings generation capacity of the business while maintaining a conservative balance sheet posture. As we look ahead, our priorities remain unchanged. We are focused on driving profitable growth, improving operating efficiency. Maintaining strong credit discipline and delivering consistent value to our shareholders. With the merger integration completed and expense synergy is fully realized, we believe we are well positioned to continue building earnings momentum through the remainder of 2026. I will now turn it over to Carl to discuss the financial results in more detail.

Thank you, Paul.

Second quarter results reflect a meaningful improvement in profitability and operating performance as the organization moved beyond the merger integration period. GAAP earnings totaled $64.4 million or $0.77 per share compared to $46.2 million or $0.55 per share in the first quarter. Profitability metrics improved significantly.

Return on average assets increased to 117 basis points from 84 basis points, while return on tangible common equity increased to 12.84% from 9.3%. The improvement reflects stronger revenues, lower provisioning costs and continued expense discipline, resulting in positive operating leverage and a core efficiency ratio of 54.26%. Turning to the income statement. Net interest income increased $2.4 million to $193.2 million. Our net interest margin expanded by 3 basis points to 381 basis points, benefiting from a higher yield on earning assets and continued improvement in funding costs. Interest-bearing deposit costs declined 8 basis points during the quarter to 249 basis points, reflecting the repricing of deposits.

Non-interest income totaled $26 million, an increase of $2 million or 9% from the first quarter. The increase was driven by stronger gains on loan sales, higher loan level derivative income and continued growth in wealth management fees. Non-interest expense declined $13.6 million from the first quarter, reflecting the absence of $13 million of merger and restructuring expenses recognized in the prior quarter.

Excluding merger related costs, quarterly core operating expenses were $118.9 million, which is favorable to our original target of $119.8 million when our merger was announced in December 2024. Turning to the balance sheet, total assets increased modestly to $22.3 billion, while loans declined $102 million during the quarter.

We had originations of over $850 million with a weighted average coupon of 631 basis points, which lifted the quarterly yield of the entire portfolio 3 basis points to 599. Deposits increased $194 million during the quarter. Customer deposits increased approximately $93 million, while broker deposits increased $103 million. Payroll deposits were essentially unchanged.

The growth in customer deposits represents a positive change from the seasonal outflows experienced during the first quarter and reflects the strength of our franchise and customer relationships. Borrowed funds declined by $184 million during the quarter as excess liquidity and deposit growth allowed us to reduce wholesale funding.

Turning to credit, overall trends were relatively stable. Net charge-offs were $14.3 million or 32 basis points annualized compared to $13.6 million or 30 basis points annualized in the first quarter. Charge-offs were concentrated in a Boston office credit, a large industrial laundry relationship at Eastern Funding and two rent-controlled multifamily properties. Importantly, these exposures were fully reserved for in prior periods.

Nonperforming loans increased modestly to 86 basis points of total loans from 83 basis points in the prior quarter, reflecting slightly higher non-accrual balances within the equipment financing portfolio. Nonperforming assets increased to 70 basis points of total assets from 68 basis points. The allowance for loan and lease losses ended the quarter at $238 million or 130 basis points of loans and leases. Compared to 136 basis points at the end of the first quarter. Provision expense declined to $5 million from $7.9 million, reflecting modest balance sheet contraction, stable credit conditions and the participation of an unfunded construction loan, which reduced our reserve on unfunded credits. As Paul mentioned, capital levels continue to strengthen during the quarter. Tangible common equity increased to 9.25% of tangible assets. From 9.07% and tangible book value increased $0.50 per share to $23.98. There was no stock repurchased during the quarter and the $50 million authorization remains available for opportunistic purchases. I'll note that our board approved a quarterly dividend of $0.32.25 per share, reflecting a dividend yield of approximately 4.2%.

And continued commitment to returning capital to stockholders while supporting future growth opportunities. Looking ahead, we are encouraged by the positive trends that emerged during the quarter. Deposit growth resumed, margin performance improved, fee income strengthened and expense synergies from the merger continued to support profitability. While loan growth was somewhat constrained by market conditions and client caution. Our pipelines are robust and we continue to expect modest loan growth in Q3 with acceleration into Q4. With integration activities behind us, a strong capital position and continued progress on our strategic initiatives, we believe the franchise is well positioned to continue generating improved financial performance and shareholder value in the coming quarters. That concludes my prepared remarks. Thank you, Paul.

Thanks, Carl. And we will now be joined by Mark Meiklejohn, and we'll open it up for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Your first question comes from Justin Crowley with Piper Sandler. Your line is open.

Hey, good afternoon, guys.

Hi, Justin.

Just wanted to start out on loan growth and the expectation here for a pickup over the remainder of the year. Is that predicated on some of this runoff and paydown slowing or more function.

Of activity just expected to pick up over the next couple of quarters. Can you walk us through the thinking there?

Yeah, it's a few things. The first six months of this year, our markets were awfully quiet and I check ourselves by looking at our competitors and what was going on at the other institutions. And everybody had terrible loan growth at that time and we were saddled not only with conditions in the market, but also with our conversions.

And also with some portfolio runoff activity, which had been planned. And so now that we've sort of turned the corner, I can't see a lot of it yet, but I can certainly feel it and I love the names that we have on our pipeline reports. These are great names in the different regions that we operate that I'll look forward to having them on as customers. Now, how quickly all of that takes place is more up to the customer than it is up to us, but they're there, they're committed and we are beginning to see that come to fruition. So I'm optimistic as we go into the second half of the year here. Carl, you want to add anything to that?

And then I guess maybe just to put the numbers around it, do you have where the commercial pipeline was at the end of June and maybe how that compared to where you were?

Back at the end of March?

I've got my pipeline as of June. I don't recall exactly what it was at the end of March, but it is up substantially from there. So right now, our commercial pipeline is about $1.3 billion. If you include loans that are basically.

Not yet approved, but in that pipeline, I'd say it's closer to $1.9 billion.

And then, Paul, you kind of mentioned a slower first quarter for the whole market. I guess part of that with rent control in Massachusetts being struck down by the courts, any early thoughts here on how that might impact or help just the overall level of activity?

Well, while that was going on, it was going on in Massachusetts as well as in Rhode Island. And obviously, for our Westchester County region, our Hudson Valley region, they have some exposure toward the New York feelings. So it was pretty widespread. So there really wasn't very much going on. That has turned some but not entirely because I don't think that property owners and families that deal in multifamily real estate think it's totally gone away.

But at least we're beginning to see a little bit of activity.

And then maybe just one last one. Can you just update us on where you stand on the buyback and potentially getting active there? Is that something we could see perhaps this year as capital continues to rebuild and just with the Cree concentration continuing to come down?

So as I said, we haven't purchased any stock during the quarter.

During the second quarter and it gives us the flexibility to take advantage of the market if we see the opportunity. I'll kind of leave it at that.

Would it be fair to say you don't see that opportunity at present?

It's fluid. It's a fluid situation.

Got it. I will leave it there. Thanks so much.

Your next question comes from David Conrad with KBW. Your line is open.

Good afternoon. I want to talk about expenses a little bit. Congrats on beating your target, but maybe just some thoughts on the next couple of quarters where expenses might trend.

I think we'll see expenses trend right along this, I think, from now to the end of the year, not significant growth or declines either way, just based on the visibility we have right now. I think for next year, we'll provide better guidance for 2027 probably later this year.

And then maybe just a follow-up on loan yield. The driver for the increased loan yields is on the consumer side. Maybe we're still seeing declines on CRE and commercial loan yields. As you start to grow the pipeline and the loans come on the balance sheet, what are your expectations for those two categories in terms of loan yields coming into the NEM?

Well, like I said, we had originations of a little over $850 million during the quarter with a weighted average coupon of 631 basis points, which is substantially higher than the portfolio. We continue to see a yield curve that seems to be steepening as we speak. So I think there's continued benefit on loan yields as we go forward, particularly as we see.

Originations pick up. So I feel good about where that's headed. Now, spreads may come under a little bit of pressure. We are seeing some pretty competitive. But I'd call those more one-off situations, not necessarily wholesale type of across the board situations. I think it's just there's some very attractive credits in the market that we're very happy to participate in.

And so we look at those. So I'll kind of leave it at that.

Your next question comes from Carl Shepard with RBC Capital Markets. Your line is open.

Just to pick back up on loan growth, I think I hear you loud and clear on robust pipelines. My question is that C&I focused or is it broader-based and includes kind of all the categories and all the geographies?

It's pretty broad based. Because of our success in reducing the concentration in real estate, we have put those guys back out there to get to work. And so that takes a little while to happen. And so it is happening. But I'd say it's pretty broad based. But commercial real estate would be most of it. There's a little bit of highly specialized consumer stuff. We help some of the money managers around town.

We do the banking for their customers, and that's an interesting business that has been growing very nicely, but we are not major players in residential, so that comes from time to time as we take care of our customers. So C&I and CRE would dominate.

I would say the numbers that I provided, and I keep providing these numbers by the way, but the numbers I provided, that was strictly commercial and commercial real estate, doesn't include small business, doesn't include residential and consumer, doesn't include Eastern Funding, those are smaller. Smaller portfolios, small business is pretty good, but those numbers were strictly the C&I side and the commercial real estate.

Side.

And then as a follow-up, I wanted to check in on credit for a second. The charge-offs this quarter sounds like were things you all had visibility into at least for a few quarters, but on MPAs that the increased slowed, should we be expecting kind of a crest here or do you have a few more things that you guys are watching that could migrate next couple of quarters?

Well, I'll comment on that. I mean, we're watching everything pretty closely right now and we're particularly focused on office, lab and some other sectors.

But when we look at credit, we're comfortable where we are with a reserve standpoint and based upon the visibility we have, we think we're well reserved and positioned to handle the problems we're aware of.

But the market is tough right now and to the extent we see new issues, we will deal with them as we see them, but where we sit today, we're pretty comfortable.

Your next question comes from Steve Moss with Raymond James. Your line is open.

Hey, Paul. Maybe just following up on credit here, just kind of curious, where are you guys, what are your criticizing classified trends for the quarter, just kind of get a feel for underlying credit metrics there?

Well, I think generally speaking, we considered a pretty flat quarter that we did see a little bit of very slight deterioration in our criticized classified bucket and we did see a little bit of an increase in NPAs. That increase was really driven by smaller dollar accounts, Eastern funding, particularly in the specialty vehicle portfolio, which.

I think we've mentioned before is in runoff at this point, it's a business we decided to exit a couple of years ago and it's running off nicely, but it still continues to be plagued by some credit problems, again smaller dollar and that was really what contributed to the NPA growth this quarter.

I hear you on that. And then I guess just kind of thinking about the charge-offs going forward here, I realize there's office charge-off, which seems fairly sizable, and then the laundry from Eastern Funding, which I feel like has been around for a little bit. Just kind of curious, how do we think about the level of charge-offs here going forward? Like is this kind of the peak? And maybe we're in moderation or is there still some more content in the pipeline for the second-half, maybe you guys are looking to clean things up this year?

Well, so just a couple of comments. I'll talk about it in general, but then specifically as it relates to this quarter, the largest component of the charge-offs was the three credits that Karl mentioned.

The Eastern Funding Credit has been a long-term workout. It's in litigation at this point, and we are just with with our charge, we're reacting to the current conditions and where we feel that credit sits at the moment.

With respect to the office loan and the rent control loan, we took those charges ahead of what we believe the resolution is. So we try to be proactive on both of those relationships are expected to be paid out in the current quarter. So we wanted to kind of get ahead of that a little bit. We know sort of the financial settlement where it's going to end up, the deals are inked at this point. So we took those charges early.

Similarly, we did the same thing last quarter with an office credit we had, so I feel pretty good about being proactive and looking forward to some resolutions that we have coming up over the remainder of the year as it relates to charge-off levels, I think we've guided here in the past. But we expect provisioning, and I think Carl provided some guidance in this package, but we expect provisioning to be moderate over the remainder of the year if credit quality sort of stays where it is today. But I do expect charge-offs will be elevated over the remainder of the year as a lot of those things have been paid for either through the credit mark or through specific reserves that we have in place on known problems. So as it sits today, we're sitting with about $75 million.

In specific reserves on about $400 million in classified assets. So we think that positions us very well to absorb any losses in the portfolio over the coming quarters.

Okay, great. Appreciate all that color there. And then maybe just kind of turning over to just the deposit funding here. Good to see the deposit growth this quarter and definitely see funding costs come down. Just kind of curious.

Obviously a pretty competitive environment and just kind of curious as to how you guys are thinking about deposit cost going forward and both along those lines.

Yeah, I think.

Right now, we don't anticipate rates going up.

We did the Fed didn't move rates at the last meeting, but there's probably a bias to going up. We don't exceed that right now. That's not our expectations for the balance of the year.

But we are positioning our CD book to be a little start to extend out.

It's gotten fairly short, extend out those types of maturities. So we are offering a slight premium for a little longer rate. But I don't think that's going to meaningfully move our deposit costs, to be quite H1st.

But we are going to be out there doing that. So you might see a few basis points. I just don't see much more relief. We've been seeing rates continue to come down, repricing in our deposits and certainly on our borrowing. I just don't see too much more room going down at this point. I think the benefit that we're seeing in the margin will be continued from repricing and growth on the interest-earning asset side.

Great. I appreciate all that color, and I'll step back in the queue.

Thank you very much.

Your next question comes from Lori Hunsicker with Seaport Research.

Yeah, hi. Good afternoon, Paul, Carl and Mark.

Just wanted to go back to credit here. So looking at Slide 15 here, the 21% or 200 and round numbers, $50 million that's maturing in the next two quarters, is any of that uncriticized? And if so, how much? Or maybe asked a different way. Is any of the $198 million in criticized maturing in the next two quarters?

And how do we think about that?

So, Laurie, when we take a look at that and I think we covered this last quarter too, we have one over the next couple of quarters with all the maturities that you mentioned, there is one substandard loan that is maturing this quarter. It's in the process of being extended.

There is a potential resolution in play on that property. It's a good outcome and that loan is in the process of being extended, so we should feel pretty good about that one.

And I think -- And what is the balance on that one?

Around $21 million, I believe, $21 million.

And then we had noted last quarter that there was a large office maturity. It is not a substandard loan, it's a special mention loan that's maturing in the fourth quarter.

That loan is in Connecticut. We expect to be able to -- we're working on it now. We expect to be able to extend that for a couple of years based upon some increased occupancy and some good news that they've had with LeaseUp, and that's in Stamford, Connecticut.

Okay. And what is the balance on that one?

I think it's around 16.

16, okay, great.

And then the...

Okay.

Okay. And then the jump that you had in criticized in the Class B, that was sort of the biggest jump there, going from 100 million of criticized Class B last quarter to 126 million. Was that one or two properties or any color that you could add there? Any other things to suggest?

Yeah, we had.

A loan in one of our regions that it was a single tenant occupant and the property vacated. So that resulted in a downgrade and we're in the process of working with the sponsor to sell that asset now.

Okay. And so that's about $26 million or so.

It's a little less than that.

Okay.

Great. And then on charge-offs.

Or just maybe thinking about it a different way. So of the $7.5 million increase charge-off, $3.7 million were multifamily. Your New York City multifamily properties, and you started discussing this last quarter here, I know there's only a handful left. Can you just remind us how many rent-controlled New York City multifamily properties you have and then what the balance is now that we're past that $3.7 million or so in charge-off?

Yes. So last quarter, I think the number I'm doing this from memory, Lori, but I think it was $17 million last quarter and we took about $3.5 million to $4 million in charge on the single credit. It's two properties, it's a single name during the quarter. So that would bring that number down into the sort of low 10s.

And as I mentioned to an earlier question, that charge down we took was in anticipation of the sale of those notes in the coming quarter.

Okay. Great. And then just two more questions. Jumping over to expenses, I just wanted to drill down a little bit more. $11.3 million, so that included $1.1 million of REO workout expense.

Yes. Well, the increase was $1.1 million in workout expenses quarter over quarter.

It was $1.1 million increase. And so, I mean, how should we think about that other line that was a big jump from $8 million last quarter to $11 million?

I mean, it seems like you have room to beat your number.

Can you help us think a little bit more about that, Carl? Like I look at that $11 million, where should that be running?

I'm not providing exactly what the run rate is going to be on that because there are some items in there that fluctuate quite a bit, quite frankly, whether it's fraud or.

Things of that nature that flow through that number.

I do want to highlight, we do look at the whole of expenses and every line we look at and try to optimize that.

You will notice that market expenses are down or significantly lower than what we expect them to be on a go-forward basis.

And so I do expect market expense to increase.

We had pretty good we we had a very good quarter for fee income, which had some pressure on our incentive plans and we love when our costs for incentive plans come in higher than planned. So that's a good thing.

So we'll see some movement, I won't say volatility, but movement in some of these numbers.

But overall, I think we're in very good shape on how we're managing the overall expenses for the company.

And what was the workout expense number?

I think it was around $0.5 million in Q1, and it was up $1.1 million. So it was $1.6 million in total in Q2.

And then just last question here, your tax rate of 26%, it seems like maybe there would be some room at some point to bring that down, just sort of comparing you guys to some of your peers, how do you think more broadly about tax rate as we look forward into 2027?

Well, we don't do a lot of funny stuff with the tax rate, to be H1st.

We do participate in a lot of things that are tax advantaged from whether it's in low-income housing, that's for the most part. We also have BOLI income that has a positive impact on that number.

But we don't participate in solar credits. We stay out of all those types of things.

And so we're not trying to manage that -- we don't manage the tax rate, just to manage the tax rate.

Okay.

Great. Thanks for taking my questions.

Once again, if you have a question, it is star 1. Your next question comes from David Bishop with Hovde Group. Your line is open.

A quick question on the loan pipeline. I appreciate the color there. Just curious, do you have any sort of details where that breaks geographically, i.e., what percent might be coming from some of the legacy.

Upstate New York Berkshire franchise, just curious if you have any color around the geographic dispersion of the pipeline?

I do. I have dramatic, all kinds of details behind the pipeline.

You can keep it high-level.

It's not something we're going to share.

Not even reason, MSA type stuff.

No.

Sounds like Albany versus, okay, got it. And then saw the stability in the payroll deposit balances, remind us, should we expect, obviously we came off a quarter, we had significant volatility in the first quarter, remind us, is there a line of sight into that potentially repeating, should we build that into sort of the. The modeling here as we move through the year, are there any sort of quarters where you expect to see that volatility?

The payroll deposits, David, are continuously very volatile and they range anywhere from $400 million or $500 million to over $2 billion at any point in time. And so it depends on the day that the quarter ends. I think Q1 and Q2 just happened to have a similar number.

But it should not be viewed as reflecting less volatility on a day-by-day basis. Now obviously, our treasury areas understand all these movements, they track it very carefully. So we don't employ in our day-by-day operations much more than the core amount of the maybe $400 million, $500 million, the rest stays at the Fed, we earn a few basis points and life goes on, this is mostly a fee business.

But we just happened to hit a time when on the same day at the quarter end, they were unusually close.

The next day, it might have been $1.5 billion.

On average, those deposits were about $1.1 million, I think it's $1.127 million for the quarter.

And the cost of funds was $305 million. I'm going to want to break that out in the future. We'll start breaking that out. In our financials at some point?

Got it. But as you look at like the third or fourth quarter even next year, I mean, you guys can map it out, right, in terms of when these payrolls are ending, so you have a sense when these deposits are going to obviously leave the balance sheet, just curious if there's any of those sort of.

Big outflows are sort of looming from a counter perspective.

We're talking daily. These are daily occurrences. So Thursday, I think it's Thursday is the highest day of the week for deposits. We may have $2 billion on a Thursday in deposits, over $2 billion in deposits.

But Wednesday, it might have been $400 million or $500 million.

So the funds come in.

From hundreds of different companies wire their money in or ACH their money in. And then we ACH the money out to employees of those companies. And so that happens on a weekly basis.

And there are tax money, there's taxes and there's bonuses and things like that. So it does vary throughout the year. But.

In general, on average, we have those funds. So we can't put those funds to work. I want to be very clear on this. There's only so much that we feel very confident to say, hey, this supports the balance sheet. We can put these in investments or fund loans with it. The rest just basically sits at the Fed. So you'll see a lot more cash on our balance sheet than you might see at another company just because on average or at any particular day of the month.

It's just sitting at the Fed earning the Fed effective rate.

And we pay a certain amount to the payroll companies for those funds. And so there's a little bit of spread that we make on the funds.

But as Paul said, it's a fee income business.

The team does an incredible job. They've been doing this for decades now. And so I think it's.

They've really got it done well and take care of these payroll companies to fill the payroll needs that they need.

Got it. Appreciate the color.

Okay, David. You're welcome.

This concludes the question-and-answer session. I'll turn the call to Paul Pouro for closing remarks.

Thank you, Sarah, and thank you all for joining us today, and we will look forward to talking with you again next quarter.

Have a good day.

This concludes today's conference call.

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