Beacon Financial Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Fourth Quarter Highlights: The quarter was strong with robust improvement in operating earnings. Fee revenues were up 8% linked quarter, operating expenses down 2% linked quarter and 6% year-over-year. Asset quality was strong with low net charge-offs and delinquencies.
• Balance Sheet and Metrics: Capital ratios increased, liquidity remained solid, and loans to deposit ratio was 96%. Deposit costs and funding costs decreased.
• Strategic Initiatives: Successfully executed expense optimization, sold 10 branches in NY, de-risked the balance sheet, and invested in bankers/technology. Announced merger with Brookline Bancorp, expected to close in second half of 2025, improving scale and profitability.

Segment Performance

• Operating Earnings: Fourth quarter operating EPS was $0.60, up 3% linked quarter and 28% year-over-year. Operating net income was $26 million, up 5% linked quarter and 29% year-over-year. Operating ROTC was 9.93%.
• Net Interest Income: Fourth quarter net interest income was $86.9 million, down 1% linked quarter. Operating interest income was $23.2 million, up 8% linked quarter.
• Operating Expenses: Fourth quarter operating expenses were $71 million, down 2% linked quarter and 6% year-over-year.
• Asset Quality: Net charge-offs were $3.3 million or 14 basis points of loans. Reserve to loans was 122 basis points. Delinquencies and non-performing loans were 52 basis points of loans, the lowest in nearly 20 years.
• Deposits and Loans: Average deposits were up 3%, average loan balances up 0.4% linked quarter. Loans to deposit ratio was 96% on average.

Guidance

• Berkshire Bank will not provide line-item income statement and balance sheet guidance for 2025 due to the pending merger with Brookline Bancorp. They are encouraged by momentum in financial metrics and confirm comfort with the 2025 net income cited in the December 16 merger presentation.
• The merger with Brookline Bancorp is expected to improve scale and profitability, with an estimated 40% and 23% accretion to Berkshire's 2026 consensus EPS estimate on GAAP and cash basis respectively.

Risks

• Macroeconomic uncertainties could impact loan demand and credit quality.
• Regulatory approvals for the merger with Brookline Bancorp could face delays or issues.
• Fluctuations in interest rates may affect net interest income and funding costs.

Question and Answer

• Q: David Bishop asks about loan growth contribution from new hires and average loan size.

A: Nitin Mhatre states growth was broad-based, C&I grew faster, and loan size remained steady.

• Q: David Bishop inquires about funding costs and NIM progression.

A: Brett Brbovic responds that they expect modest NIM expansion in Q1 due to decreasing funding costs.

• Q: Billy Young asks about deposit growth and loan growth drivers.

A: Nitin Mhatre discusses broad-based deposit growth across products and channels, and loan growth being broad-based with C&I momentum.

• Q: Chris O'Connell asks about credit, office portfolio, digital deposits, and expense run rate.

A: Answers include normalized charge-offs, office portfolio maturity details, digital deposit growth, and expense momentum continuing.

• Q: Laurie Hunsicker asks about other income, normalized charge-offs, reserves on Upstart and Firestone, and merger timing.

A: Brett Brbovic and Greg Lindenmuth discuss BOLI, reserves, and regulatory approval timing for the merger.

• Q: Gregory Zingone asks about balance sheet actions and tax rate.

A: Brett Brbovic states no balance sheet actions are planned and the tax rate is expected to be around 22-23% in 2025.

• Q: David Bishop asks about federal government exposure and new originations.

A: Greg Lindenmuth talks about government lease protections, and Nitin Mhatre mentions new originations were modestly higher in Q4.