Berkshire Hills' Q3 2025: Contradictions Emerge on Equipment Finance Charge-Offs, SBA Loan Gains, Dividend Policy, and Loan Growth

Date of Call: October 30, 2025

Financials Results

• EPS: $0.44 per share operating (pre-merger and special charges); GAAP loss of $0.64 per share including $130M pretax charges (initial provision $78M, merger expenses $52M)

Guidance:

• Purchase-accounting accretion expected roughly $15M to $20M per quarter (estimate, volatile with prepayments)
• Net interest margin guidance ~3.90%–4.00% (includes accretion)
• Quarterly provision for credit losses expected to be $5M to $9M
• Core deposit intangible amortization ~ $8.1M/quarter today and will decline (12-year SYD)
• Target to reduce CRE concentration to ~300% by end of 2027
• Exploring capital actions (e.g., refinancing sub debt in 2026); no spot secondary approved

Business Commentary:

• Merger Completion and Strategic Integration:
• Beacon Financial Corporation completed the merger and consolidation of its bank charters on September 1, resulting in a combined total of $23 billion in assets, $19 billion in deposits, and $18 billion in loans.

• The merger integrates Berkshire's lower-cost deposit base with Brookline's higher growth markets, aiming to deepen client relationships and leverage potential synergies.

• Earnings and Expense Management:

• The company reported operating earnings of approximately $38.5 million or $0.44 per share, excluding merger-related expenses and special charges.

• Cost synergies are expected to be realized through staff reductions and contract consolidations following the merger, contributing to expense savings.

• Credit Quality and Loan Portfolio:

• Net charge-offs for the quarter were $15.8 million, with $1.4 million not previously reserved.

• The allowance for loan losses finished at $254 million, reflecting a coverage ratio of 139 basis points, indicating strong coverage in the current environment.

• Dividend Increase and Capital Structure:

• Beacon Financial increased its quarterly dividend to $0.3225 per share, representing a 79% increase for Berkshire shareholders and maintaining Brookline's dividend levels.
• The company is optimistic about future capital management, potentially considering stock buybacks while maintaining commercial real estate concentration targets.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly stated optimism about the merger ("optimistic and excited"), cited strong retention of client-facing talent, reported September operating NIM of 4.12% and "over 15% return on tangible equity," and highlighted realized day‑1 synergies and a dividend increase to $0.3225 per quarter.

Q&A:

• Question from Mark Fitzgibbon (Piper Sandler & Co., Research Division): 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?
  Response: $22M to $24M of remaining deal-related charges across 4Q and 1Q.

• Question from Mark Fitzgibbon (Piper Sandler & Co., Research Division): Any color on that $12.4 million office loan you referenced in Boston? From which institution did this loan come from?
  Response: Downtown Boston office loan (legacy Brookline) with ~25%–30% reserve, retail floor occupied, building largely vacant and being marketed for sale.

• Question from Mark Fitzgibbon (Piper Sandler & Co., Research Division): Thoughts on stock buybacks going forward?
  Response: Buybacks are attractive but priority is raising the dividend and reducing CRE concentration to ~300% by end‑2027; buybacks/dividend increases may be considered as progress is made.

• Question from Stephen Moss (Raymond James & Associates, Inc., Research Division): On elevated charge-offs — will these come from the equipment finance portfolio?
  Response: Yes — most charge-offs expected to emerge from Eastern Funding/equipment finance; specific reserves are ~ $80M on ~$380M of troubled assets.

• Question from Stephen Moss (Raymond James & Associates, Inc., Research Division): What are you seeing on C&I deals and loan pricing?
  Response: New originations had coupons just under ~7% (combined quarter, includes Eastern Funding originations).

• Question from Stephen Moss (Raymond James & Associates, Inc., Research Division): How are you modeling deposit betas and loan yields?
  Response: Modeling a ~57% beta on interest‑bearing deposits; actual early experience slightly better but model uses 57%.

• Question from Stephen Moss (Raymond James & Associates, Inc., Research Division): How should we think about core deposit intangible amortization expense going forward?
  Response: Core deposit intangible amortization is ~ $8.1M per quarter today and will decline over time using a 12‑year sum‑of‑years‑digits schedule.

• Question from David Bishop (Hovde Group, LLC, Research Division): Any impact in the 44 Business Capital/SBA loan sales pipeline or backlog?
  Response: September was fine, but Q4 may see timing-related shortfalls and potentially lower gain‑on‑sale on guaranteed SBA portions; magnitude uncertain.

• Question from David Bishop (Hovde Group, LLC, Research Division): Any more repositioning, loan sales or security sales anticipated after the recent disposals?
  Response: Management is largely done with material disposals; possibly a few small security sales remain but nothing material expected.

• Question from David Bishop (Hovde Group, LLC, Research Division): What is the CRE concentration ratio at quarter end?
  Response: ICRE to total risk‑based capital ~355%; construction portfolio low at ~33%.

• Question from Karl Shepard (RBC Capital Markets, Research Division): Is September/Slide 5 a fair starting point once you rightsize the provision and exclude accelerated accretion? Message on balance sheet size?
  Response: September gives a representative snapshot; balance sheet was reduced roughly $500M (including loans HFS) and management targets low‑ to mid‑single‑digit growth in interest‑earning assets going forward.

• Question from Karl Shepard (RBC Capital Markets, Research Division): How have the first two months gone as a combined organization and what's the execution focus pre-systems integration?
  Response: Integration has gone very well; focus now is execution (contracts, benefits, tech conversion) and preparing for the core systems conversion; regional structure and leadership in place.

• Question from David Konrad (Keefe, Bruyette, & Woods, Inc., Research Division): How much of the $68.9M cost saves have already been implemented in the September run rate?
  Response: A sizable portion has been realized via pre‑merger expense discipline and Day‑1 senior reductions; additional vendor/contract savings remain to be captured around conversion.

• Question from David Konrad (Keefe, Bruyette, & Woods, Inc., Research Division): Is $130M a reasonable Q4 expense run rate (including amortization)?
  Response: Yes — $130M is a reasonable near‑term Q4 run rate including intangible amortization and aligns with September monthly run rate annualized.

• Question from Laura Havener Hunsicker (Seaport Research Partners): Does the $119.8M on Slide 11 include amortization expense?
  Response: No — $119.8M is operating expense only and excludes intangible amortization.

• Question from Laura Havener Hunsicker (Seaport Research Partners): Does the 3.90%–4.00% margin guidance include the estimated $15M–$20M accretion?
  Response: Yes — that NIM range includes estimated purchase accounting accretion of $15M–$20M per quarter.

• Question from Laura Havener Hunsicker (Seaport Research Partners): What did you mean by exploring opportunities to optimize the balance sheet and capital structure?
  Response: Management plans to evaluate options such as refinancing sub debt (targeting 2026) and other capital actions after achieving a clean quarter and in consultation with the Board.

• Question from Laura Havener Hunsicker (Seaport Research Partners): Any spot secondary planned?
  Response: No spot secondary has been approved.

• Question from Laura Havener Hunsicker (Seaport Research Partners): Is the combined diluted income statement share count ~84 million?
  Response: Yes — combined diluted share count is approximately 84 million shares.

• Question from Laura Havener Hunsicker (Seaport Research Partners): What is the plan for Firestone that came over with Berkshire Hills?
  Response: Firestone will be run off; portfolio is roughly $23 million.

• Question from Laura Havener Hunsicker (Seaport Research Partners): Breakdown of the $15.1M charge-offs — Vehicle vs Macrolease?
  Response: Charge-offs were two large Eastern Funding non‑core deals (commercial laundry and a grocery operator), not vehicle or Macrolease; reserves had been previously recorded.

• Question from Laura Havener Hunsicker (Seaport Research Partners): Of the C&I equipment finance nonperformers ($42M), how much is specialty vehicle and Macrolease?
  Response: Specialty vehicle ~ $4M; Macrolease nonperformers ~ $13M.

• Question from Laura Havener Hunsicker (Seaport Research Partners): The office nonaccrual and criticized increase — was the downtown office Brookline or Berkshire and any near-term maturities?
  Response: The downtown office nonaccrual was legacy Brookline; two criticized office loans (~$30M total) mature in the next couple quarters, are well reserved and expected to see resolution.

• Question from David Konrad (Keefe, Bruyette, & Woods, Inc., Research Division): Does the $15M–$20M accretion estimate contemplate the new FASB accounting change (i.e., would it be lower if adopted)?
  Response: Yes — the $15M–$20M range contemplates the accounting change; it's an estimate and can vary materially at the individual loan level with prepayments.

Contradiction Point 1

Charge-Off Expectations in Equipment Finance Portfolio

It involves differing expectations regarding potential charge-offs in the equipment finance portfolio, which impacts risk assessments and financial forecasting.

Can you quantify the potential for elevated charge-offs in the equipment finance portfolio? - Stephen Moss (Raymond James & Associates, Inc., Research Division)

2025Q3: We've got specific reserves of about almost $80 million on approximately $380 million in troubled assets, with most of the problems expected to come from the Eastern Funding portfolio. - Mark Meiklejohn(CSO)

What caused the increase in C&I nonperformers to $11.5 million from $9 million? - Laura Havener Hunsicker (Seaport Research Partners)

2025Q2: Reserves for loan losses net of BOLI were $48 million at June 30, 2025, compared to $35 million at March 31, 2025, primarily due to an $11 million increase in provisions for C&I loan losses. - Gregory Lindenmuth(CSO)

Contradiction Point 2

SBA Loan Gain on Sale Expectations

It involves differing expectations regarding SBA loan gain on sale, which impacts revenue forecasts and financial performance.

Did the legacy Berkshire Hills Business Capital small business lending line experience any loan sales impact this quarter? Is there a significant backlog or pipeline in this segment? - David Bishop (Hovde Group, LLC, Research Division)

2025Q3: There may be a little bit of a shortfall in timing and perhaps the level of gain on sale on the guaranteed portions of those SBA loans, but I couldn't give you guidance on how much that might be. - Carl Carlson(CFO)

How should we interpret the decline in gains from SBA loan sales? - Laura Havener Hunsicker (Seaport Research Partners)

2025Q2: It's a move back to the mean after pulling some value forward in Q4 and Q1. The core business, pipeline, and volume look healthy. - Sean Gray(COO)

Contradiction Point 3

Dividend and Share Repurchase Policy

It involves differing priorities regarding dividend increases and share repurchases, which impacts shareholder returns and capital management.

Given stronger-than-expected capital ratios post-deal, what are your thoughts on future stock buybacks? - Mark Fitzgibbon (Piper Sandler & Co., Research Division)

2025Q3: We love the idea, particularly with the price where it is. But our first priority is to get the dividend increased as we promised when we announced the transaction. We're also focused on getting the concentration on the commercial real estate to where we all want it to be, targeting 300% by the end of 2027. - Paul Perrault(CEO)

Can you share details on the deal closing timeline? - Laura Havener Hunsicker (Seaport Research Partners)

2025Q2: We're committed to growing our capital base to support growth and maintain strong capital ratios. And as we get on our growth trajectory, both organically and through M&A, we'll continue to evaluate capital deployment opportunities, balance sheet optimization, share repurchase and dividend increases. - Paul Perrault(CEO)

Contradiction Point 4

Loan Growth Expectations

It involves differing expectations for loan growth, which are critical for financial planning and investor expectations.

What is the outlook for the balance sheet size? - Karl Shepard(RBC Capital Markets)

2025Q3: We expect to get on a growth trajectory on interest-earning assets in the low single digits to mid-single digits. - Carl Carlson(CFO)

Has loan demand changed this year, and how do you expect stand-alone growth to develop? - Chris O'Connell(KBW)

2025Q1: We anticipate about 5% annualized loan growth. - Nitin Mhatre(CEO)