管理層發言
Thank you for joining us for the Beacon Financial Corporation Fourth Quarter 2025 Earnings Conference Call. I will now hand the call over to Dario Hernandez, Corporate Counsel. Please go ahead.
Thank you, Rob, 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, Carl Carlson and will be joined by Mark Meiklejohn as well. 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 SEC, 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.
Thanks, Dario, and good afternoon, everyone. Thank you for joining us for our fourth quarter earnings call, which represents the first full quarter of results for Beacon Financial Corporation. We finished the quarter and the year with $23.2 billion in assets, $19.5 billion in deposits and $18 billion in loans. Our net interest margin improved to 3.82% with fourth quarter operating earnings of approximately $66 million or $0.79 per share before merger expenses and special charges. We also continued our record of returning capital to stockholders with a $0.32 per share quarterly dividend. Our balance sheet and asset quality remain solid. Operating performance improved with fourth quarter return on assets of 1.13% and return on tangible equity of 13.43%. These results exclude the full benefit of projected cost savings announced at the time of the merger. Overall, the strategic and financial goals outlined in our initial merger announcement are already materializing, and I fully expect to meet our remaining targets as intended. The entire integration remains on course, and we are scheduled to complete our core systems conversions in February 2026. Our highly experienced teams have spent many months preparing for this milestone by developing robust integration plans, testing technology and training of colleagues. We continue to speak with our clients and introduce the new Beacon Bank brand so that they are fully prepared for a seamless transition. I'm pleased with the positive responses to date, which gives me added confidence that we will execute a successful conversion with strong client retention next month. I'm proud of the hard work and dedication of our colleagues who continue to provide exceptional service to support our clients and are working to drive meaningful performance improvements across the entire organization. Their leadership, resilience and collaboration are integral to our ability to support those we serve, create greater value for our stockholders and generate long-term success. I will now turn you over to Carl, who will review the company's fourth quarter results in detail.
Thank you, Paul. Before I get into the fourth quarter, I'd like to briefly cover two items. First, the early adoption of FASB's ASU; and second, how the early adoption changes expectations for the merger since our original announcement back in December 2024. As we mentioned in our press release, we chose to early adopt FASB's new ASU 2025-08 related to purchased loans. The FASB finalized this update in November, and it fixes what many in the industry refer to as the CECL double count. By adopting the new standard for 2025, purchase credit deteriorated loans for our merger of equals are treated the same as non-PCD loans. In financial terms, that means there's no day one hit to the income statement. Therefore, equity increases immediately. However, we no longer accrete the credit mark into income over the life of the loan. For Beacon, the day one impact was an increase of roughly $49 million to equity and about $0.55 to tangible book value per share. Estimated pretax annual credit mark accretion of $10 million to $13 million is foregone. Both the balance sheet and income statement for Q3 and year-to-date have been updated to reflect this. Since this is our first full quarter of combined results and there have been a few changes since we announced the merger, I thought a brief reconciliation of expectations might be helpful. Back in December 2024, our announcement provided a reconciliation of 2026 earnings per share on Page 29 of that presentation. Based on analyst expectations at the time, we projected a 2028 GAAP EPS of $3.85. As I just mentioned, the FASB issued the ASU impacting the accounting for acquired PCD loans. At the time of the merger announcement, the annual after-tax impact was estimated at $13.9 million. This reduces the EPS projection by $0.17 per share to $3.68, which I would consider operating. At announcement, we also estimated a November 2025 systems conversion, which was moved to February 2026, which delayed some of the timing on synergies and pushed some of the merger charges to the first quarter of 2026, which will lower GAAP EPS estimates. Based on the six analysts covering Beacon, which I track, the average EPS for 2026 was $3.62 with a high of $3.75 and a low of $3.49, with stock prices ranging from $28 to $39. I believe all of these are operating EPS estimates and exclude Q1 merger charges. Turning to Q4. Total assets were up $353 million in the quarter, mainly due to higher cash and equivalents tied to strong period-end payroll fulfillment deposits. Loans declined $275 million with commercial real estate making up $235 million of that decrease. Investor commercial real estate declined to 333% of total risk-based capital. Loan originations and draws were just over $1 billion with a weighted average coupon of 631 basis points. 49% of originations were floating rate. On the funding side, customer deposits grew by $262 million, driven by $127 million of DDA growth. Broker deposits and borrowings both moved lower, down $496 million and $293 million, respectively. Our loan-to-deposit ratio ended the quarter at 92.4%. I'd like to take a minute and discuss the payroll fulfillment deposits. This business works with various payroll processing companies, which process payrolls for hundreds of companies and pay thousands of employees. Funds are transferred in for payroll, taxes and benefits with ACH payments to employees shortly thereafter. The average balance of payroll deposits ranges from $800 million to $900 million. For liquidity purposes, we maintain balances over $500 million at the Fed. Depending on the day of the week the quarter ends on, payroll deposits can fluctuate significantly. A more informative calculation of the loan-to-deposit ratio uses average balances. Our average loans to average deposits was 96.8% at year-end. The allowance for loan losses was close to $253 million or 140 basis points of coverage. This includes $76 million of specific reserves on about $354 million of substandard loans, for a coverage rate of 22%. The general reserve of $177 million represents a coverage level of about 100 basis points on the balance of the portfolio. Given the strong reserve position and the current environment and improving risk rating trends, we continue to see the quarterly provision running in the $5 million to $9 million range. We expect the coverage ratio to gradually trend lower as charge-offs will likely exceed provision as we work through existing substandard credits. Net charge-offs were $9 million for the quarter or 20 basis points annualized, all about $1.4 million of that had already been reserved. Turning to the income statement. This was our first full quarter of combined results. On a GAAP basis, including $14.4 million of merger-related charges, we earned $53.4 million or $0.64 per share, which translates to a 94 basis point ROA and 11.2% return on tangible equity. Our net interest margin came in at 382 basis points, which included a 26 basis point lift from purchase accounting. Net interest income was $199.7 million, which included $13.8 million of purchase accounting accretion. Of that amount, only a net $1.9 million came from loan prepayments on purchased loans. Noninterest income was $25.9 million, noninterest expense was $119.1 million, and the provision for credit losses was $8.1 million. Excluding the $14.1 million of merger charges, operating earnings were $89.6 million or $0.79 per share. That's an operating ROA of 113 basis points, a 13.4% return on tangible equity and an efficiency ratio of 56.7%. Excluding noncash intangible amortization, our core efficiency ratio was 52.8%. We'll continue to see merger-related charges in the first quarter as we complete our core systems, integrations and realize the remaining cost synergies. I want to recognize the Beacon teams for the work they've done preparing for the upcoming systems conversions. They've partnered closely with our vendors, and we're all looking forward to getting to the other side of this process. The strategic and economic benefits of the merger are already showing up enhanced diversification, better balance, lower overall risk, and stronger efficiency along with focused regional leadership and customer service. Yesterday, the Board approved a quarterly dividend of $0.3225 per share payable February 27 to stockholders of record on February 13. That represents a dividend yield of about 4.5%. That concludes my comments. Back to you, Paul.
Thanks, Carl. We will now be joined by our Chief Credit Officer, Mark Meiklejohn, and we will open it up for questions.
分析師問答
Your first question comes from the line of Karl Shepherd from RBC.
I guess my first question is on capital. I think you had a nice build with the accounting change and some of the CRE paydowns. And you kept the language in the deck around exploring opportunities to optimize capital. Just how do you want us to think about that, and kind of any landmarks over the next couple of quarters after you get past the conversion?
Sure. I'm referring specifically to the sub-debt at legacy Brookline, which is $75 million. Currently, about 40% of it does not count as regulatory capital. By September of this year, another 20% will decline. Legacy Berkshire has $100 million of sub-debt that will start to experience a similar discount factor next year in 2027. We will consider refinancing, but I'd like to wait for a clean quarter with good results and all our cost savings in place before we proceed. My goal is to secure the best rate for the refinancing. We also have options like common equity stock buybacks, which we keep in mind if we believe it's the right move. However, as I’ve mentioned before, we value capital greatly and want to be very thoughtful about it as we continue forward.
Okay. As a follow-up, you maintained the loan growth guidance. There were notable declines in commercial real estate, which I believe you would view positively. Did anything surprise you regarding the pace of those declines? How should we consider core commercial and industrial lending and when might we see a shift in the net number?
Well, we are targeting to get down to the 300% level by the end of next year. In the meantime, we want to take very good care of our very important customers who are the backbone, the legacy Brookline's real estate families. One of the tools that we're going to use to do that is legacy Berkshire had brought in a significant amount of participations led by other banks. As those mature, we will kindly bow out of the refinance. In the meantime, the normal order of business, the real estate in Metro Boston does seem to be stabilizing a little bit. I think we'll have a good pace of originations and paydowns which will keep us on track and keep our customers happy.
Your next question comes from the line of Mark Fitzgibbon from Piper Sandler.
First question I had for you, Carl, is you have a little over $2 billion of cash today in short-term investments on the balance sheet. I guess I'm curious what your target for that is and maybe how long it takes you to get cash balances back to the appropriate level?
Well, that happens very quickly, Mark. I'll go over this a little bit. Those who really follow Berkshire understand the payroll deposits business. It's a nice business, and we appreciate the fee income it generates. The efficiency they’ve built is impressive, and it's a significant part of the new Beacon Financial Corporation. However, payroll deposits are highly volatile; they come in and go out. It’s very predictable—they know exactly what's coming in and what's going out. On average, those balances range from $800 million to $900 million. That’s why I was trying to highlight something common to look at, which is the loan-to-deposit ratio. For us, a more useful measure is the average loan to average deposit ratio as it tells a better story. We ended the year with nearly $1.9 billion in payroll deposits, which was around $800 million more than the prior quarter. Regarding predictability, our payroll deposits increased by $600 million yesterday, and today they’re around $2 billion. So, they fluctuate significantly. Money comes in and goes out. We consider about $500 million of that as core, which can be used to fund loans, securities, or the balance sheet. The remainder, we prefer to keep at the Fed, where we earn a little spread, but we’re not actively using it since it’s just moving in and out. I hope that answers your question.
It does. Just one other question for me. I guess you guys have talked in the past about the opportunity to do some larger loans with new and existing customers given the increased size of the balance sheet. I guess I'm curious, is that baked into your projections of mid- to lower single-digit loan growth for 2026?
I think a little bit. We will still look to try to syndicate some of the largest loans as we have in the past. So we will walk through glue on the size thing. We don't want to move too fast, but we are interested in looking at somewhat larger loans.
Your next question comes from the line of Laura Hunsicker from Seaport.
Yes, just wanted to go back to the buyback. I wanted to understand that a little bit more. Certainly, a lot of your peers are actively buying back stock, and you're sitting with a plethora of capital, right? Your CET1 is 11%. So how do you think about that? I mean, obviously, I realize price is a consideration and other uses. But where do you want that CET1 ratio? Or how is it that you look at it? What is it that would get you excited and say, okay, now we have to be back in the market? How should we think about that?
You should consider buying back stock when it isn't performing well and doesn't reflect the company’s value, which limits growth opportunities. We have met our targets and analysts believe we are undervalued. While I personally bought some stock, that’s separate from our long-term strategy. Our current goal is to achieve a 300% capital concentration for our ICRE portfolio, which requires both capital and loan growth. If loan growth doesn’t meet expectations, we recognize that as an opportunity. Additionally, when we raise subordinated debt, we might use some proceeds for common stock buybacks if it makes financial sense. We believe we are on the right track, and our capital ratios are available in our presentation for further details.
Sorry, I see them provided in the deck. Can you name a target? Did I miss that?
We have operating targets that we're very comfortable with. Our stress tests show that we could operate at that level. That doesn't mean that we're going to go right down to that level because you also have to consider the market and what peers are doing and things of that nature as well as other uses of capital. You always need capital for growth.
I just want to add one more thing. Your dividend yield seems quite high, which I agree indicates that your stock is undervalued. However, that high dividend yield represents a significant cost that could be alleviated if you retire those shares. Is that part of your strategy?
It does factor into the calculations whenever you're considering buybacks.
Okay. And then moving on to credit, there was a small increase in your commercial real estate nonperformers, all of which seems to be related to office properties. Can you provide any insight on the $10 million rise? Additionally, regarding the $137 million in criticized assets, how much of that is scheduled to mature this year in 2026?
So Laura, to answer your question, the jump on the nonaccruals was a single office property in the CBD. It was about a $9 million loan with vacancy issues, and we have a very strong reserve on that. It's 56% reserved.
Okay...
And I apologize. I missed the second part of your question?
Yes, the $137 million you have of criticized office, and by the way, I really appreciate all the disclosures here. How much of that is set to mature this year?
Very little actually. In the past five quarters, including the current quarter, we had only two criticized loans scheduled to mature. One is the loan I just described to you. The second loan is a special mention loan, which is not substandard, and it is not due until the third quarter of 2026. Honestly, I don't anticipate any issues with that loan.
Okay. Okay. Great. And then the reserves to loans, you mentioned that's obviously nice and high at 1.4%, and you'd expect that to obviously come down. Where do you see that ending up as we look throughout 2026? Where could we see it in the fourth quarter?
Yes, I would be cautious about providing a specific number since it is influenced by certain reserves related to our substandard loan portfolio, as Carl noted. Some of these loans are long-term workout loans, and we are actively working on strategies for all of them. However, it is difficult for me to predict exactly when the charge-offs will occur, although we have indicated that we expect elevated charge-offs based on the level of provision we hold. I think over the next 4 to 6 quarters, we will see that number move down to around 125%.
Okay. Okay. That great. Okay. And then last question, one-time charges by my math, there's about $10 million or so remaining for the first quarter. Is that still a good number? Or is there a better number to be using?
I think it's in the $10 million to $13 million range.
Your next question comes from the line of David Konrad from KBW.
Carl, thanks for your comments earlier in the call regarding the accounting change. But I wanted to take it another way with your guidance. You were 15% to 20% accretive yield prior with the 3.90% to 4% NIM. I was interpreting the 15% to be with the new accounting change. And so now your accretable yield is estimated to be 15% and the guide now is 3.85% to 3.95% for the NIM. So I kind of get why the high end would be reduced, but maybe am I interpreting the accounting change and why do we drop to the 3.85% NIM on the low end? That makes sense.
Sure. We provided guidance that closely matched last quarter's figures, specifically in the range of 3.90% to 4%. My thoughts regarding prepayments related to the loans associated with the merger had a positive outlook, estimating around $3 million in benefits from those prepayments. While our actual prepayments might have been a bit higher, they were affected by a significant loan that prepaid at a premium, which I hadn't fully accounted for. This had a substantial impact on our quarterly interest realization, resulting in a drop to just above 13%. I should consider this adjustment. Additionally, the $15 million mentioned did not factor in the FASB impact since we anticipated it. Prepayments tend to be more unpredictable, so I aimed to give myself some additional flexibility.
Got it. Okay. And then on the expenses, one quick question. Amortization expense came in at $8.8 million, I think, which is a little bit higher than I thought. Is that a good number to think about going forward?
Yes. That's a good number. I mean it does step down over time because we do it on some years digits basis. I think if the CDI component is over 12 years, so it does step down over time. And we've got a wealth amortization component of that as well.
And then last one, as you achieve all the cost saves in the 2Q '26 area, what should we expect for like the back half of the year expense growth rate once all the cost saves are down?
I believe we will maintain a growth rate of 3% to 3.5% after we achieve our cost savings. We are currently focusing heavily on our branding efforts, which will start to influence our run rate in Q1, but the effects will be more noticeable by Q2. In Q2, we will see the net impact of the cost savings along with some of the investments we've made in the organization.
Lot of signs.
There's a lot of signs. We're upgrading some of our systems, but we're also seeing significant savings related to systems, vendors, and similar areas.
Our next question comes from the line of Steve Moss from Raymond James.
Paul, could you discuss how to approach the loan runoff portfolios, specifically regarding the equipment finance and the Berkshire Hills commercial real estate participations? I'm interested in knowing the amount you plan to reduce or let go over the next 12 to 18 months.
Mark? They get the three portfolios that are running off that we're not in those businesses anymore.
For Eastern funding, the tow portfolio is currently around $190 million. Macro lease is approximately $150 million, and Firestone is just under $20 million. The runoff rates are about $27 million per quarter for tow, $19 million per quarter for macro lease, and $2 million to $3 million per quarter for Firestone. These are depleting relatively quickly. Regarding participation, I can't provide a specific number due to various influencing factors such as loan maturities, market desirability, and our capability to navigate through them. This is a declared strategic goal for us, but it would be inappropriate to assign a specific figure to it.
Okay. Got you. Appreciate that. And then in terms of just the office loan, I apologize if I missed it. Just kind of curious as to how you're thinking about the timing of resolution around that $9 million NPL?
Currently on that, that's the new nonaccrual that we discussed. We're working. The sponsor is very amenable to working with the bank on a potential sale of that property. So we think there's some interest, and we're hopeful.
Okay. I know there is a disclosure regarding the rent control multifamily properties in New York. Could you provide an estimate of how large that portfolio is?
Yes, we discussed this last quarter. If I remember correctly, we have seven loans in that portfolio, totaling about $18 million or $19 million. It's a very small number of loans, and they originate from the former PCSB bank.
Okay. Appreciate that color.
Yes, the Eastern funding, as far as equipment financing, that's a subset of commercial loans, 853 basis points on that book.
Curious from an economic backdrop perspective, I think, Paul, maybe you mentioned this in the preamble. Maybe just an update in terms of what you're seeing in terms of the health of the Boston commercial real estate market. I know life science is pausing up there in terms of available space, maybe what you're seeing from a macro level perspective on the commercial real estate side?
Yes, this is Mark. There continues to be stress in the portfolio, particularly regarding the market related to office and lab spaces. There are good lease opportunities and quality tenants available, but they currently hold significant leverage, which is leading to a decrease in values. We've observed this decline in some of our problematic assets. Generally, stress in the marketplace is impacting price per square foot values, and I expect this trend to persist. However, a positive development is that there are tenants, particularly in the life sciences sector, beginning to successfully secure financing rounds. This creates new opportunities in the market, especially for those looking to buy leases.
I would just add, David, that the core business district in Boston has gone through some pain, probably has to go through some more pain, but it does seem to be coming back with green shoots. I think Mark mentioned, and some life science stuff, which got overbuilt in the past few years where we don't have all that much in that. I think that continues to suffer. But in our entire footprint, the rest of the stuff is really pretty good. That's all going pretty well. When I talk about Rhode Island and even Western Mass and all many places like that they are all holding up pretty well.
Got it. And then maybe back to the loan side of the equation on the yields. Just curious what you're seeing in terms of new origination yields, how this trended quarter-over-quarter?
So like I said, we originated a little over $1 billion at 631 basis points on average. Now, remember, we had three rate moves in the quarter as well. So we saw the impact on that on not only just the originations, but 49% of our originations are basically floating rate, but also on the balance sheet of those loans that reprice. So if there's any particular category you're interested in, C&I loans were coming in on a weighted average basis of 701 basis points, consumer loans around 549 basis points, and commercial real estate, 607 basis points.
Eastern fund, I appreciate that color.
Yes, the Eastern funding, as far as equipment financing, that's a subset of commercial loans, 853 basis points on that book.
Got it. Then maybe one final question. Turning back to capital. Carl, you probably saw maybe one of your peers last week, I think, announced they did a credit risk transfer. Any thoughts? Is that something that could ever enter the capital management equation?
I never want to say never, but it's not something that we're really interested in. And God forbid, I said I was interested. I get 400 calls.
That ends our question-and-answer session. I will now turn the call back over to Paul Perrault for closing remarks.
Thanks, Rob, and thank you all for joining us today, and we will look forward to talking with you next quarter.
This concludes today's conference call. Thank you for your participation, and you may now disconnect.