Beacon Financial Corp Q3 FY2024 earnings call

• Strong quarter with robust improvement in operating earnings QoQ and YoY. - Asset quality and balance sheet metrics remain strong; excluding Upstart charge-off, net charge-offs were 16 basis points of loans. - Sold 10 branches in New York in Q3, pre-tax gain $16M (slightly lower than expected due to higher client-selected deposit retention). - Sold $46.5M of Upstart loan portfolio, resulting in $1.9M charge-off. - Rollout of Berkshire One and digital deposit products ongoing. - Capital ratios increased: CET1 at 11.9% and TCE at 9.1%. - CRE and multifamily portfolios well-diversified, with granular and geographically diverse loan books.

Operating EPS was $0.58, up 5% quarter-over-quarter (QoQ) and 16% year-over-year (YoY). Operating net income was $24.8 million, up 7% QoQ and 15% YoY. Operating ROTC was 9.91%, up 26 basis points QoQ and 64 basis points YoY. Excluding the Upstart loan sale charge-off, net charge-offs were 16 basis points of loans, and the reserve to loans was 122 basis points (flat to second quarter). Average loans were up 1% QoQ and 3% YoY. Average deposits were up 1% QoQ and down 3% YoY. Loan-to-deposit ratio was 96%, and average noninterest-bearing deposits as a percentage of total deposits was 24%.

• Fourth quarter net interest margin (NIM) expected to be between 3.10% and 3.20%. - Revenue expected to be flat to slightly down in Q4, with expenses modestly down. - Net charge-offs expected to be stable excluding Upstart loan sale charge-offs. - Significant CDs maturing in next six months, swaps rolling off, and low-yield fixed rate securities/loans maturing and repricing at higher yields as tailwinds.

• Check fraud expenses, with one isolated incident in Q3 causing $1.5M higher than average of prior eight quarters. - Economic uncertainties affecting CRE and multifamily portfolios; monitoring new originations and existing portfolios carefully. - Competition affecting deposit pricing, with peers beginning to lower deposit rates.

Q: Was the guidance still valid from the 2024 updated guidance provided last quarter?

A: Brett Brbovic said NIM for Q4 expected between 3.10% and 3.20%, revenue flat to slightly down in Q4 with expenses modestly down, and net charge-offs stable excluding Upstart loan sale charge-offs.

Q: Color on deposit beta and managing margins in downcycle?

A: Nitin Mhatre mentioned significant CDs maturing in next two quarters, swaps rolling off, and teams working to manage deposit pricing sharply. Spot NIM for September was about 3.10%.

Q: Update on expenses, including fraud and branch closures?

A: Brett Brbovic said Q4 operating expenses expected to be around $71 million, removing $1.34 million fraud losses and considering expenses related to branches already captured.

Q: Upstart loan sale details?

A: Greg Lindenmuth said sale criteria included loans with FICO above 660 (excluding one to 30 days past due), sale closed on 10/16, weighted average FICO of sold loans was ~711, and retained book had weighted average credit score 682.

Q: Upstart/Firestone loan sales in future?

A: Nitin Mhatre said Upstart is down to $10 million and sufficiently provided for, Firestone in runoff mode with net recovery in Q3.

Q: Priorities for capital, acquisition readiness, and BEST goals update?

A: Nitin Mhatre said first priority is organic loan growth, Berkshire is positioned to consider acquisitions if opportunities arise, and annual guidance with mid-term guidance expected in January.