Beacon Financial Corp Q3 FY2025 earnings call

• Merger of Brookline and Berkshire was completed on September 1. Core system integration to be finalized in first quarter next year, continuing to operate as divisions until then.
• Finished quarter with $22.8 billion in total assets, $19 billion in deposits (combined), and $18 billion in loans (combined). Third quarter operating earnings were approximately $38.5 million or $0.44 per share before merger expenses and special charges.
• Dividend increased to $0.3225 per share, representing 79% increase for Berkshire shareholders and maintaining level for Brookline stockholders.
• Sale of Berkshire assets: $426 million sold, including $177 million in securities and $249 million in loans, proceeds used to reduce wholesale funding.
• Net interest margin was 372 basis points for the quarter, with a 30 basis point benefit from purchase accounting. September net interest income was $72 million with net interest margin of 412 basis points.

Beacon Financial finished the quarter with combined total assets of $22.8 billion. Combined customer deposits increased $89 million. The combined loan portfolio declined $484 million during the quarter, largely due to the sale of $249 million of purchased residential mortgage loans and reclass of $83 million in similar loans to held for sale. Loan-to-deposit ratio was 96.5% at quarter end. Allowance for loan losses was $254 million with a coverage ratio of 139 basis points.

• Provision for credit losses expected to be in range of $5 million to $9 million per quarter as reserve coverage ratio trends lower.
• Remaining deal-related charges expected to be between $22 million and $24 million in 4Q and 1Q.
• Purchase accounting accretion expected to be in range of $15 million to $20 million per quarter depending on loan prepayment activity.
• Targeting core deposit intangible amortization expense of $8.1 million per quarter, using 12-year sum of the years' digits method.
• Targeting 300% commercial real estate concentration ratio by end of 2027.

• Commercial real estate loan: $12.4 million office loan in Boston with 25%-30% reserve, being marketed for sale.
• Potential shortfall in gain on sale of guaranteed portions of SBA loans in fourth quarter due to timing.
• Charge-offs may remain elevated as working through substandard assets, with specific reserves on $380 million of loans.

Q: What should we expect for the remaining deal-related charges to be in 4Q and 1Q?

A: Paul Perrault thinks it's going to be between $22 million and $24 million in that range.

Q: Any color on the $12.4 million office loan in Boston?

A: Mark Meiklejohn says it's a downtown Boston office property, retail first floor, office above, largely vacant, with 25%-30% reserve, being marketed for sale.

Q: Thoughts on stock buybacks going forward?

A: Paul Perrault says they love the idea but first priority is increasing dividend and concentrating on commercial real estate, but may explore stock buybacks while maintaining 300% commercial real estate concentration ratio goal.

Q: Potential for elevated charge-offs?

A: Mark Meiklejohn says specific reserves of about $80 million on $380 million in troubled assets, with a fair amount coming from Eastern Funding portfolio.

Q: Impact of Berkshire Hills' 44 Business Capital on loan sales?

A: Carl Carlson says September was fine, but fourth quarter may have shortfall in gain on sale of guaranteed portions of SBA loans, but can't give specific guidance.

Q: CRE concentration ratio at quarter end?

A: Carl Carlson says 355% for ICRE to total risk-based capital, construction portfolio is 33%