Beacon Financial Corp Q2 FY2025 earnings call

• Strong second quarter, best since 2021 transformation began; operating net income up 14% linked and 36% y/y, operating EPS up, expenses down, operating leverage positive.
• Strategic initiatives: new digital deposit program has delivered over $100M in new deposits since early 2021. Merger with Brookline Bancorp expected to improve profitability with estimated 40% and 23% accretion on GAAP and cash basis respectively; Berkshire's net income in first half of 2025 annualizes to over $118M.
• Merger integration: Combined leadership team making good progress towards 12.6% cost save goal, tech stack expenses favorable.

Operating net income was $31.6 million, up 14% linked quarter and 36% year-over-year. Operating earnings per share were $0.69, up 15% from first quarter and 25% year-over-year. Net interest margin was 3.27%, up 3 basis points linked quarter. Operating expenses were $67 million, down 2% linked quarter and 7% year-over-year. Average loans were up $95 million linked quarter (1% linked quarter annualized) and $327 million year-over-year (4% year-over-year). Average deposits had an audio gap but excluding payroll and broker deposits, up 1% linked quarter and 6% year-over-year. Net interest income was up $2.2 million linked quarter (2%) and $1.6 million year-over-year (8%). Operating noninterest income was up $1.1 million linked quarter (5%) and $1.6 million year-over-year (8%). Asset quality metrics: net charge-offs at 14 basis points and nonperforming loans at 27 basis points of loans.

• Berkshire's net income in first half of 2025 annualizes to over $118M. - Merger closing expected end of September. - Tax rate expected to normalize to around 24%-25%.

Q: Just wondered if we could just start with margin. You guys had 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're thinking about it?

A: Brett Brbovic said the spot NIM for June was about 3.22%, and the FHLB decline coincided with deposit growth throughout the quarter.

Q: Do you have any sort of near-term large maturities coming due in CDs or borrowings that we think about here in the next quarter?

A: Brett Brbovic said no significant ones.

Q: But just wondered if you can help us think about that jump in the C&I nonperformers to $11.5 million from $9 million. And then also Firestone. I know it's small, but if you could just give us what is the Firestone C&I balance and how much in nonperformers and charge-offs?

A: Gregory Lindenmuth said the jump in NPLs was a handful of smaller credits; Firestone balance is down 15% quarter-over-quarter to $28 million, NPLs at $1.3 million, net NCOs $900,000 for the quarter.

Q: Your $700 million multifamily book, anything rent controlled in that network?

A: Gregory Lindenmuth said no rent control in their footprint, even in New York City where they have no loans.

Q: Noninterest income, the loan-related fees that were really strong. What were the BOLI gains in this quarter?

A: Brett Brbovic said BOLI gains were about $800,000 above normal.

Q: How do we think about the drop in the SBA loan gain on sale of SBA loans?

A: Sean Gray said it was a move back to the mean from strong prior quarters, but core business pipeline and volume look healthy.

Q: How should we be thinking about tax rate going forward?

A: Brett Brbovic said tax rate is elevated due to timing and merger-related aspects, expected to normalize to around 24%-25%.

Q: Can you help us think about your deal tangible dilution at announcement, tangible book dilution was 17% and then a 40% earnings pickup. Can you just help us think about what the what the new FASB impact on CECL updates and the double count sort of means for your tangible book dilution?

A: Brett Brbovic said ASU not finalized yet, expected to be adopted in third or fourth quarter, will impact combined entity but couldn't quantify on call.

Q: What about deal closing?

A: Nitin Mhatre said they expect closing to be end of September, everything on track awaiting regulatory approval.