Beacon Financial Corp. (NYSE:BBT) Q3 2025 Earnings Call Transcript

Beacon Financial Corp. (NYSE:BBT) Q3 2025 Earnings Call Transcript October 31, 2025

Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Beacon Financial Corporation Third Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Dario Hernandez, Corporate Counsel. You may begin.

Dario Hernandez: Thank you, Jean, 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 and Carl Carlson. During the question-and-answer session, they will be joined by Mark Meiklejohn, Chief Credit 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 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 a 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 Perrault.

Paul Perrault: 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 & Trust. This powerful combination between our 2 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 1, 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, Bank 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 6 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 third quarter.

Carl Carlson: Thank you, Paul. As Paul mentioned, we closed our merger on September 1 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 mark-to-market and combined with Brookline as of September 1. On a combined basis, we finished the quarter with total assets of $22.8 billion. And on September 1, the fair value of Berkshire assets was $12.1 billion, of which we sold approximately $426 million, $177 million in securities and $249 million in loans. The proceeds were used to reduce wholesale funding. Excluding the purchase 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 held 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 $74 million, respectively. At the end of the quarter, the loan-to-deposit ratio was 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 while 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 million to $9 million a quarter as the reserve coverage ratio trends lower.

Net 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 first quarter when our core systems integrations are completed and the remaining cost synergies 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 pretax charges of $130 million, $78 million 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 first month of performance on a combined basis and adjusted for the onetime 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 in purchase 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 due to loan prepayments. We expect FASB to release the final rule on accounting for acquired loans and the credit mark to be reversed in the fourth quarter, increasing equity and no longer reflected in income going forward.

We currently estimate purchase accounting accretion to be in the range of $15 million to $20 million per quarter, depending on loan prepayment activity. Noninterest income was $8.5 million for the month, reflecting a $25 million to $26 million quarterly run rate. Noninterest expense of $40.6 million for the month captured some of the day 1 synergies created by the merger and reflects a quarterly run rate of $122 million. Amortization of intangibles at $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 third 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 to $0.3225 per share to be paid on November 24 to stockholders of record on November 10. This represents a 79% increase in the cash dividends previously received by Berkshire shareholders and 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 it back to Paul.

Paul Perrault: Thanks, Carl. We will now be joined by Mark Meiklejohn, our Chief Credit Officer, and we will open it up for questions.

Operator: [Operator Instructions] Your first question comes from the line of Mark Fitzgibbon with Piper Sandler.

Q&A Session

Mark Fitzgibbon: Congratulations on the completion of the deal.

Paul Perrault: Thanks, Mark.

Mark Fitzgibbon: First question I had, I guess, for Carl. Carl, what should we expect for the remaining deal-related charges to be in 4Q and 1Q? Do you have a sense for a rough range on that?

Paul Perrault: I think it’s going to be between $22 million and $24 million in that range.

Mark Fitzgibbon: Okay. Great. And then I wonder if you could share any color on that $12.4 million office loan that you referenced in Boston. Any color on that? And also, I was curious from which institution did this loan come from?

Mark Meiklejohn: Mark, this is Mark Meiklejohn. 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 a 30 — 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.

Mark Fitzgibbon: 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 fourth quarter, capital ratios get even a little bit better. I guess I’m curious what your thoughts are on stock buybacks going forward.

Paul Perrault: 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 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 we move forward.

Operator: Your next question comes from the line of Steve Moss with Raymond James.

Stephen Moss: Paul, maybe just starting off, following up on credit here with regard to potential for elevated charge-offs. Just kind of curious if 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.

Mark Meiklejohn: Yes. I think 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 in what we consider troubled assets. Of that, I would say that a fair amount of that will come out of the — 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.

Stephen Moss: Great. Okay. Got it. No, that’s helpful. I just dive 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 to get a sense for the type of deals you guys are seeing and where loan pricing is these days.

Carl Carlson: 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 we had coupons being added just a little south of 7%. And that does include some Eastern Funding originations in there as well.

Stephen Moss: Got it. And then maybe just on the loan portfolio yields here in terms of the — just curious, it’s probably a bigger step-up than I was expecting. I realize the purchase account increase rate math there. But just kind of how you’re thinking about where the loan portfolio yields shake out and how you guys are thinking about deposit betas as we go through these rate cuts on a combined basis?

Carl Carlson: Well, of course, the deposit betas, right now, we’re modeling about a 57% beta for all of our interest-bearing deposits. And it seems like 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%.

Stephen Moss: Okay. And one more housekeeping item here. Just curious how you guys are thinking about the core deposit intangible amortization expense going forward.

Carl Carlson: Yes. I think we provided some guidance on that. I think it was about $8.1 million a quarter. That will come down over time. I think we’re doing a 12-year sum of the years’ digits method on that.

Operator: Your next question comes from the line of David Bishop with Hovde Group.

David Bishop: Curious within the legacy Berkshire Hills, they 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 stuff to the finish line in terms of loan sales? I’m curious if there’s a significant backlog or pipeline within that segment.

Carl Carlson: That’s an excellent question. I don’t know if it really impacted September. I think September was fine. And as you know, you’re only seeing Berkshire’s results for the month of September in this. And I think that’s important to realize. So — but the fourth quarter, I would imagine there’ll be a little bit of a shortfall in — as far as timing and maybe even the level of gain on sale on the guaranteed portions of those SBA loans. So I do expect that, but I couldn’t give you really guidance on how much that might may or may not be.

David Bishop: Got it. Understood. And then I appreciate the deck noting some of the divestitures. Any more repositioning or loan sales or security sales anticipated after this?

Carl Carlson: Yes. 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.

Paul Perrault: And in terms of the branches, 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.

David Bishop: Right. And then, Carl, just curious, if you have available, the CRE concentration ratio at quarter end?

Carl Carlson: 355% for ICRE to total risk-based capital. And just I’d like to highlight that our construction portfolio is only 33%. It’s quite low. And it’s nice to remind people of that.

Operator: Your next question comes from the line of Karl Shepard with RBC Capital Markets.

Karl Shepard: Congrats on getting all this done.

Paul Perrault: Thanks, Karl.

Karl Shepard: 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 rightsize the provision and back out a little bit of the accelerated credit-related accretion this quarter. Is that fair? And then what’s the message on the size of the balance sheet?

Carl Carlson: You’re right on with that. 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 laying out and 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 targeting that probably mid-single-digit growth in 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 yield tables and things like that, you look at our yield table in 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 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 interest-earning assets going forward in the low single digits to mid-single digits.

Karl Shepard: Okay. Yes, I was trying to do the algebra on NII 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 2 months have gone as a combined organization? And then what’s the focus execution-wise between now and the systems integration for you?

Paul Perrault: 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.

Operator: Your next question comes from the line of David Konrad with KBW.

David Konrad: 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’m just looking at the September expenses of $40.6 million and then the amortization of $2.7 million. And if I kind of quarterize that, if you will, I get to about $130 million of expenses kind of a run rate. I guess 2 questions. One, how much of the $68.9 million cost saves has already been implemented in that number, if any?

Carl Carlson: I’d say quite a bit of the $68 million 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 are leaving — positions weren’t getting filled. There was a lot of double work going on, things of that — people — things getting done by additional folks. And so there’s been a lot of control around expenses right up until the merger on September 1. And both companies have done an excellent job of controlling those expenses and not spending a lot of money. Then you had September 1 come, and there are a lot of senior people and even department leaders that were let go on the first day.

So they exercised their change of control of their contracts and they’re gone. So while the number of people, and there’s quite a few people right day 1, those are pretty high salary numbers and bonuses and things of that nature, benefits. And so those came right out of the run rate September 1. So that’s a nice pickup. 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 then there’s another staffing reduction at that time.

Paul Perrault: Just to put some numbers around it for you, David, we’re down almost a couple of hundred 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.

David Konrad: Right, right. And then so when we look at the fourth quarter, the $130 million 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 for the fourth quarter range would be. And then the last question would be on Slide 11, that $119.8 million kind of 2Q expense number, we should probably add in the $8 million of the amortization on top of that to get the all-in expense?

Carl Carlson: 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, the things of that nature. But there are positions that needed to be filled that have been postponed. And of course, we postponed them even further because we’re not hiring anybody in December because we’re doing the payroll conversion at that time. So there’s a lot of things going on, but there’s positions that we’re going to have to fill. And so that $119.8 million is something that the management team is committed to delivering on, and we’re working very hard to make sure that happens. And…

Paul Perrault: And we’re close.

Carl Carlson: And I think — I don’t see a reason why we’re not going to hit that and perhaps do better.

David Konrad: And then for the fourth quarter, should we — is $130 million kind of a decent for that? Or should we up that a little bit before it goes down?

Carl Carlson: So I think I would use that number for now. I couldn’t really give you — 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 should be pretty accurate, including the intangible amortization.

Operator: Your next question comes from the line of Laurie Hunsicker with Seaport Research.

Laura Havener Hunsicker: I just wanted to clarify this. The $119.8 million on Page 11 there, that does or does not include the amortization expense?

Carl Carlson: It does not. That’s the operating cost.

Laura Havener Hunsicker: Got you. Okay. I just wanted to double check. Okay. And then same thing, when we look at the margin, the 3.90% to 4% that you’re guiding, that does include accretion income to the rate of an estimated $15 million to $20 million per quarter?

Carl Carlson: Yes, it does.

Laura Havener Hunsicker: 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.

Carl Carlson: Expand on that a little bit. I think I said it earlier, I wanted to keep my options open here. And I think for — and I want to get — this is something we will discuss with the Board more fully and size it correctly. But as you know, we both — both organizations had sub debt outstanding, and it’s something that we will probably look to refinance sometime during 2026. I don’t want every single banker in the world calling me, but that’s something 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.

Laura Havener Hunsicker: Okay. And then just to clarify, no spot secondary anywhere in the future. Is that correct?

Carl Carlson: We have nothing approved yet.

Laura Havener Hunsicker: Okay. All right. And then on diluted income statement share count, I just want to make sure I have this right. It dropped 1.6 million or so in September. It’s going down another 3.6 million just the accounting, right? So it takes diluted income statement share count will be about 84 million. Is that correct? Or is my math off on that?

Carl Carlson: 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 Berkshire share count and then the combined. It was really 2 months of Brookline’s share count and then the combined. So the combined share count is around $84 million — 84 million shares…

Laura Havener Hunsicker: 84 million.

Carl Carlson: On a diluted basis.

Laura Havener Hunsicker: 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 is Brookline and you added more stuff. So just 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 at all?

Paul Perrault: Yes, it’s just going to run off.

Carl Carlson: It’s about $23 million.

Laura Havener Hunsicker: Okay. Perfect. Just wanted to make sure you weren’t growing it. Okay. And then obviously, new here, it looks like — so you’re discontinuing the Fitness and the Macrolease.

Paul Perrault: That’s right.

Laura Havener Hunsicker: So that’s great. Okay. And then so your charge-offs this quarter, the $15.1 million in charge-offs, do you have a breakdown as to how much of that was Vehicle and how much of that was the Macrolease?

Mark Meiklejohn: Yes. Actually, there was 2 large Eastern Funding deals on that. Neither of them were Vehicle or Macrolease. 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 yes, those are 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.

Laura Havener Hunsicker: Okay. Great. That’s — yes, we’ve talked historically about the grocery. Okay. And then the specialty vehicle, what is that nonperforming? And same question with the Macrolease. So of your C&I equipment finance nonperformers of $42 million, how much is in those 2 buckets?

Carl Carlson: Specialty vehicle is about $4 million. That $42 million is just made up of a handful of names, largely.

Laura Havener Hunsicker: Okay. And then Macrolease, do you have nonperformers for that one?

Carl Carlson: I think that number is 11.

Paul Perrault: No, 13.

Carl Carlson: 13, sorry.

Laura Havener Hunsicker: 13. Okay. 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 your nonperformers and you’re 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, I’m 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.

Carl Carlson: Yes. The deal that we mentioned earlier, the downtown office that moved the nonaccrual number was a legacy Brookline account.

Laura Havener Hunsicker: Okay. And so then you had — it looks like then you had another, what, $10 million or so, so nonperforming from your book. Is that right?

Carl Carlson: Yes, that sounds about right.

Laura Havener Hunsicker: Okay. Okay. And then the criticized there, the $134 million, is any of that coming due in the next couple of quarters? Or any color on that?

Carl Carlson: In terms of office, we have 2 loans that are coming due over the next couple of quarters 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.

Laura Havener Hunsicker: Okay. And what is the amount on those?

Carl Carlson: About $30 million in total.

Laura Havener Hunsicker: In total. Great. Okay. And then do you happen to have the occupancies there on those?

Carl Carlson: I don’t. Off the top of my head, no. Sorry.

Operator: Your next question comes from the line of David Konrad with KBW.

David Konrad: Just had a follow-up on Slide 11 with the purchase account accretion expected to be $15 million to $20 million 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 million to $16 million? Or is that range contemplating the change of the accounting?

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

Operator: Your next question comes from the line of Mark Fitzgibbon with Piper Sandler. There are no further questions at this time. I will now turn the call back over to Paul Perrault for closing remarks.

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