Beacon (BBT) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• Corporate Counsel - Dario Hernandez
• Chief Executive Officer - Sean A. Gray
• Chief Financial Strategy Officer - Carl Carlson
• Chief Credit Officer - Mark J. Meiklejohn
• Chief Banking Officer - Michael W. McCurdy

TAKEAWAYS

• Net Income -- $61.2 million, reflecting a sequential decrease from $64.4 million due to nonrecurring charges related to the leadership transition.
• Operating Earnings -- $64.7 million, compared to $64.4 million in the second quarter.
• GAAP EPS -- $0.73, representing a decline from $0.77 in the prior quarter.
• Operating EPS -- $0.77, remaining stable sequentially.
• Net Interest Income -- $197.2 million, an increase of $3.9 million driven by improved net interest margin.
• Net Interest Margin -- 3.85%, expanding 4 basis points from the prior quarter due to higher loan yields.
• Loan Yield -- 6.13%, representing a 14-basis-point increase driven by originations at a weighted average coupon of 6.4%.
• Total Assets -- $21.9 billion, a decrease of $375 million primarily from lower cash balances related to payroll deposit timing.
• Total Loans -- $17.7 billion, declining $170 million as growth in commercial loans was offset by a $270 million combined decrease in commercial real estate, consumer, and equipment finance.
• Total Deposits -- $18.2 billion, a decrease of $303 million driven by a $326.7 million reduction in payroll deposits.
• Tangible Common Equity Ratio -- 9.35%, an increase from 9.25% in the second quarter.
• Core Efficiency Ratio -- 53.5%, reflecting sequential improvement from 54.3%.
• Provision for Credit Losses -- $8.9 million, an increase from $5.0 million in the prior quarter due to specific reserves on three commercial real estate loans.
• Net Charge-Offs -- $13.5 million, or 30 basis points of average loans on an annualized basis, primarily involving a restructured asset-based lending transaction.
• Nonaccrual Loans -- $160.6 million, an increase of $7.9 million driven by two commercial real estate credits in Connecticut and Massachusetts.
• ICRE Concentration Ratio -- 295%, achieving the company target of staying below 300% of risk-based capital following a runoff of over $500 million.
• Share Repurchase Authorization -- $125 million, including a new $75 million increase approved to reflect confidence in the company valuation.
• Quarterly Dividend -- $0.3225 per share, resulting in a 4.7% dividend yield at the time of the announcement.
• Subordinated Debt -- $175 million issued as 10-year notes with a 6.25% coupon to replace $75 million of floating rate debt.
• Non-GAAP Operating Return on Assets -- 1.17%, remaining stable compared to the second quarter.
• Net New Funding Pipeline -- $610 million anticipated for the fourth quarter, though management noted potential offsets from loan paydowns.
• Purchase Accounting Accretion -- approximately $12 million per quarter based on contractual cash flows.

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RISKS

• Mark Meiklejohn reported that two larger real estate loans migrated to nonaccrual status, including an office property in Stanford with significant tenant roll and an industrial property in Boston.
• Michael McCurdy warned that "opportunities are highly competitive with overly aggressive rates and terms, not to mention the market is extremely sensitive right now to the changes in interest rates that have occurred over the last 30 to 60 days," citing a challenging environment for net growth.

SUMMARY

Beacon Financial Corporation (NYSE:BBT) reported third quarter results highlighting expansion in net interest margin and the achievement of its targeted reduction in commercial real estate concentration. Management reported that the investor commercial real estate ratio fell to 295% of risk-based capital, fulfilling a core objective established during the 2025 merger of equals. The company introduced seven strategic priorities to guide operations through 2027, focusing on improving the balance sheet composition, increasing fee-based revenue, and lowering nominal expense run rates. Capital management remains a central focus, evidenced by a board approval to increase the total share repurchase authorization to $125 million.

• Sean Gray, who was appointed Chief Executive Officer in September, described the leadership change as a transition aimed at disciplined execution and urgency.
• Management expects net interest margin to range from 3.85% to 3.9% in the near term, assuming a stable interest rate environment.
• The company intends to increase fee revenue from 11% to the mid-teens over time by scaling wealth management and Small Business Administration loan platforms.
• Management stated the organization will focus on organic growth and team lift-outs while abstaining from whole bank acquisitions.
• The core efficiency ratio improved to 53.5% as the company realized operational benefits from its completed merger integration.
• Credit quality was characterized by a decline in criticized and classified loans from $813 million to $763 million despite the migration of two larger credits to nonaccrual status.
• Management reported a goal of using artificial intelligence for operational efficiency and workforce enablement while expanding digital banking capabilities.

INDUSTRY GLOSSARY

• ABL: Asset-Based Lending, a type of business loan secured by collateral such as inventory or accounts receivable.
• C&I: Commercial and Industrial loans, typically made to businesses for working capital or capital expenditures rather than real estate.
• ICRE: Investor Commercial Real Estate, referring to loans where repayment comes primarily from rental income on the property.
• NIM: Net Interest Margin, the difference between the interest income generated and the amount of interest paid to lenders.
• PPNR: Pre-Provision Net Revenue, income earned before deducting the provision for credit losses and income taxes.
• ROTCE: Return on Tangible Common Equity, a performance ratio measuring the return on the tangible portion of common shareholders' equity.
• SBA: Small Business Administration, a government agency that provides loan guarantees and support to small businesses.
• TI: Tenant Improvements, referring to custom alterations a landlord makes to a rental space as part of a lease agreement.

Full Conference Call Transcript

Operator: Question please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Dario Hernandez, corporate counsel. Please go ahead.

Dario Hernandez: Thank you, Samantha, 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 Sean A. Gray, our chief executive officer Carl Carlson, our Chief Financial Strategy Officer, During the question and answer session, they will also be joined by our chief credit officer, Mark J. Meiklejohn, our chief banking officer, Michael W. McCurdy. 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 am pleased to introduce Beacon Financial's chief executive officer, Sean A. Gray.

Sean A. Gray: Thank you, Dario, and good afternoon, everyone. Welcome to Beacon Financial Corporation's third quarter earnings call. I am Sean A. Gray, Chief Executive Officer of Beacon Financial Corp. And Beacon Bank. I stepped into the role in September after previously serving as chief operating officer. I am pleased to join you today for my first earnings call as CEO. Before turning to quarterly results and the direction I see for Beacon, I would like to share some more on my background and experience. Spent the past 19 years with Berkshire Bank following our merger with Beacon Bank as well. At Berkshire, I served as interim CEO from 2020 into early 2021, and as president of Berkshire Bank, for 7 years.

I led commercial banking for 6 years and retail banking for 19 years. And managed support functions including IT, marketing, HR, risk and compliance. I am fortunate to have managed and recruited many of our commercial banking teams, private banking, and our digital banking channel. Following the completion of our merger of equals last September, I also led the team through our systems integration in the Q1 of this year. Over the past month, I have appreciated the opportunity to speak with investors, clients, employees, and our market teams. My experience working directly in our markets with our leadership team, employee, and clients has allowed me to reengage quickly and build immediately on existing momentum.

This is not a reset. it is a transition built with urgency and for disciplined execution. Over my first 90 days, I have been and will continue to listen to our key stakeholders, align our senior leaders around the highest impact opportunities and translate our priorities into a thoughtful 2027 plan with measurable financial and operating goals. While the operating environment remains challenging, Beacon has meaningful scale, and attractive footprint and distinct strengths we can build upon. Before I discuss our financial results, I would also like to recognize Paul A. Perrault. For his many years of service and leadership.

Paul played an instrumental role in building both Brookline and Beacon, and his contributions to the banking industry span a remarkable 50-year career. Paul? Thank you for your leadership and your many contributions. Our Q3 results demonstrate the strength of our diversified business model and our ability to generate consistent profitability. We delivered earnings of $0.73 per share on a GAAP basis, operating earnings of $0.77 per share reflecting disciplined execution across our franchise. The quarter had several positive developments. Net interest income increased $3.9 million sequentially, driven by improved net interest margin, Our net interest margin expanded to 3.85%, driven by loan yields up 14 basis points, and stable funding costs. Operating PPNR was up 4% linked-quarter.

Our capital position strengthened further during the quarter. With tangible common equity of 9.35% of tangible assets. Well above regulatory minimums. This capital strength provides us with flexibility to invest in growth while returning capital to shareholders through our dividend and stock buybacks. Now I will turn the call over to Carl to review our Q3 results in more detail.

Carl Carlson: Thank you, Sean. Third quarter net income totaled $61.2 million on a GAAP basis. Or $0.73 per share compared to $64.4 million or $0.77 per share in the second quarter. On an operating basis, which excludes restructuring charges and gains on asset sales, third quarter earnings were $64.7 million or $0.77 per share. The sequential decline in GAAP EPS primarily reflects nonrecurring charges related to the CEO transition as well as a net gain recognized from the sale of 3 facilities. Return on average assets declined 6 basis points to 1.11%, return on tangible common equity decreased 682 basis points to 12.02%.

Excluding the nonrecurring items, core operating return on assets and return on tangible common equity remains stable at 1.17% and 12.69%, respectively. Net interest income increased $3.9 million sequentially to $197.2 million. Benefiting from margin expansion and an additional day in the quarter. Our net interest margin expanded 4 basis points to 3.85%, reflecting expansion in the yield on interest earning assets of 11 basis points, as funding costs increased 1 basis point. Yield on the loan portfolio increased 14 basis points to 6.13%, driven by originations of $1.04 billion at a weighted average coupon of 6.4%. 64% of which are floating rate. Looking ahead, we expect net interest margin to be in the range of 3.85% to 3.9%.

Purchase accounting accretion contributes approximately $12 million per quarter, based on contractual cash flows, and will fluctuate based on prepayment activity. Our base case currently does not reflect future changes to the Fed funds rate. Noninterest income remained stable across our diversified revenue streams. Reflecting consistent performance in wealth management, loan level derivative income, and service charges. Operating expense totaled $119.5 million, excluding restructuring charges and intangibles. This compares to $118.9 million in the prior quarter and reflects higher marketing loan servicing, and fraud costs in the quarter. Our core efficiency ratio improved to 53.5% demonstrating the operational momentum from our completed merger integration. Turning to the balance sheet.

Our total assets declined $375 million to $21.9 billion from the prior quarter, driven by a combination of factors. Cash and equivalents decreased $445 million to $771 million, reflecting normal daily volatility and payroll fulfillment deposits. Loans declined $170 million to $17.7 billion with CRE consumer, and equipment finance loans declining $270 million combined offset by growth in commercial loans of $100 million Deposits declined $303 million to $18.2 billion predominantly driven by payroll deposits. of $327 million. Our loan to deposit ratio was 97% at quarter end. Credit quality remains strong and well managed. Nonperforming loans increased approximately $8 million to 91 basis points of total loans. Net charge offs totaled $13.5 million or 30 basis points annualized.

Provision expense was $8.9 million resulting in the reserve coverage of 132 basis points of loans and leases. Our capital position strengthened further during the quarter, with total risk based capital ratio of 14.6%, as we issued $175 million of 10-year non-call 5-year subordinated debt with a coupon of 6.25% while retiring $75 million of floating rate debt which had a cost of around 7.25 And was scheduled to drop the 40% qualifying Tier 2 capital. On September 15. The growth in common equity and Tier 2 regulatory capital combined with the reduction in the investor commercial real estate portfolio resulted in an ICRE concentration ratio of 295%. At the end of the quarter.

These capital metrics provide significant capacity for organic growth and continued capital returns to shareholders. This concludes my prepared remarks. I will turn it back to Sean.

Sean A. Gray: Thank you, Carl. As for the quarter's results, we are making progress in several important areas, but we also recognize that there is more work to do. With this transition comes an opportunity to align on what matters most. Today, I would like to outline the priorities that will guide our work together. As we complete our strategic planning and budget work in the fourth quarter, we will provide additional detail on our plan during our fourth quarter call in January. Our objective is clear. To be the Northeast premier commercial relationship bank. Achieving that objective will require disciplined execution across our balance sheet, revenue mix, expense base, and capital allocation.

Our first priority is to improve the composition and profitability of our balance sheet. On the asset side, we will accelerate quality, relationship led loan growth and improve the composition of our loan portfolio. With greater emphasis on C&I and owner occupied commercial real estate lending. As Carl noted, we ended the quarter with an ICRE to risk based capital ratio, of 295%. Achieving the goal we set when we announced the merger and C&I loans grew 1% on a linked quarter basis and 4% annualized. marking the second consecutive quarter of solid C&I loan growth.

Our pipeline is healthy, and now that the CRE concentration is under our 300% goal, we expect to redeploy capacity into high quality, appropriately priced credits. We will deepen relationships in businesses where we already perform well. We will scale proven verticals and add middle market bankers. At the same time, new production must meet our credit and risk adjusted return standards. On the funding side, we will reduce our reliance on wholesale borrowings. Growing core relationship deposits, and improve our deposit mix. Our market facing teams, private banking teams, and digital deposit engine give us a proven scalable path to core deposit growth. We are slightly asset sensitive, but we are not relying on rates alone.

We are focused on controlling funding costs, improving loan and deposit mix, and disciplined pricing to protect spread, and improve profitability. Our second priority is to make fee income a larger part of our earnings mix and reduce our reliance on spread income. Fee revenue currently represents approximately 11% of total revenue,. And our goal is to increase that contribution to the mid teens over time. Our primary opportunities include cash management, wealth management, including Clarendon Private, payments, and SBA loan sales through 44 Business Capital. 44 Business Capital demonstrates our ability to identify, specialized fee income opportunity and build the platform and scale it. Our third priority is to improve efficiency.

We delivered on the original expense targets established in our merger of equals plan. Now that we are past the integration, additional opportunity remains. Our objective is not only to improve the efficiency ratio, but to also lower our nominal dollar expense run rate. We are pursuing the next layer of opportunity through organizational simplification, further optimization of our branch network, and simplification of our operating platforms. And that is without underinvesting in growth talent, or client facing capabilities. Our fourth priority is to maintain a disciplined shareholder focus to capital management. We will put capital where it creates the best long term value. Our first use of capital is to support organic growth.

We remain committed to maintaining our dividend, increasing buybacks, while preserving balance sheet strength. We will remain open to team lift outs that add proven client facing talent and support organic growth. We will not pursue whole bank acquisitions. We believe our shares remain significantly undervalued. Our board approved a $50 million share repurchase authorization in April, and an additional $75 million yesterday. Bringing our total authorization to $125 million or approximately 5% of our market capitalization. The Board also approved a quarterly dividend of $0.3225 per share reflecting a 4.7% dividend yield. Over time, our goal is to reduce our share count as part of a more structured approach that supports organic growth, balance sheet strength, and shareholder returns.

Our fifth priority is to maintain proactive, credit management. Credit remains stable, well understood, and actively managed. About half of the portfolio was credit marked at the close of the merger. Providing additional protection as we work through the current environment. Over time and subject to portfolio performance and economic conditions, we believe there is an opportunity to modestly reduce our reserves to loans ratio. We will remain conservative disciplined, and proactive. Our 6 priority is to use the technology the merger has already afforded us. To expand how we serve clients, and improve how we operate.

We will continue to bring the capabilities of the branch to our clients through digital channels, making it easier for them to bank with us when and how they choose. We also see meaningful opportunity to use artificial intelligence responsibly for operational efficiency and workforce enablement. Our seventh priority is people. We are targeting top quartile employee and client retention, because engaged employees in durable client relationships, are fundamental to consistent growth. We will continue to retain, attract, and deploy top client facing talent to deepen relationships and scale the businesses where we have proven capabilities. Taken together, these priorities supported by the scale of our combined franchise and management controllable levers provide a path to stronger returns.

We have not yet achieved the performance levels contemplated in our merger of equals plan. However, we believe a mid teens ROTCE is an appropriate near term we will provide greater detail on our expectations and timing as we finalize our strategic plan. Finally, I want to thank our employees for their continued commitment to our customers. Their engagement, and the trust and loyalty of our clients will be critical as we execute our priorities, and build a stronger, higher performing beacon. With that, we will now be joined by Mark J. Meiklejohn and Mike McCurdy and we will open it up for questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If necessary, you may rejoin the queue. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of David Bishop with Hovde Group. Your line is open. Please go ahead.

Analyst: Hey. Good afternoon, everybody. If I could, I wanted to start on credit, just ask about some of the drivers in the decline in criticized and classified in the quarter. As well as the 3 larger CRE loans that moved? Can you talk about the puts and takes on both the moves in non accrual? And could we possibly see more declines in criticized and classifieds in future quarters?

Mark J. Meiklejohn: So this is Mark Meiklejohn. I will take that. And there is a few things wrapped in there. So if I do not hit everything, you can me. So we did see a small increase in NPLs for the quarter. About $8 million. 2 loans migrated, 2 larger real estate loans migrated into NPL. 1 is an office property in Connecticut. And the second is an industrial property in Boston. Both of those were loans that we had identified as problem loans and have been working on for some time. We expect the industrial property to be resolved in the next quarter or 2. We are currently working on a short sale.

And I think we have got an agreement on that deal. So we should be in pretty decent shape there. That loan has been, reserved down to appropriate levels. With respect to the Connecticut property, that is an office property. As I mentioned, it is in Stanford. They are about 80% occupied, but have some pretty significant tenant role. And we are working with them to help retenant the property or address that tenant role, I should say. Some significant TI that needs to be done there. So we think that is a longer term solution, but we think we are, you know, we are in pretty good shape on that 1.

Also, as it relates to the criticized and classified, we were happy to see that decline. We are hoping that represents you know, a stabilization in the market. You know, having said that, you know, there is a number of credits that, you know, we continue to work through and that we believe we are appropriately reserved for. So, I may have missed something in your question.

Analyst: No. It was a long question, but you hit it all. Thank you very much. Alright. And just 1 quick follow-up for me is just, you know, on the repurchases, can you help us think through kind of what the pace could be, whether there is a baseline on common equity Tier 1 or just managing that CRE concentration, keeping that below 300%? I mean, what should we think about as kind of, I guess, a guiding light on the repurchases in future quarters?

Sean A. Gray: Sure. The deck does provide on Slide 10, I think, highlights meaningful excess capital. So I do believe at these levels, we will be very active. So when. Whether you look at it to regulatory limits or you look at a board set targets and management targets, We feel we have access. And we feel the authorization of $125 million is the right amount at this time. We can be active in the market. Alright. Great.

Operator: Your next question comes from the line of Justin Crowley with Piper Sandler. Justin, your line is open. Please go ahead.

Justin Crowley: Hey. Good afternoon, everyone. Just wanted to, start off on loan growth. And, you know, I think last quarter, you guys referenced it was a pretty healthy pipeline. You know, looks like that helped out with a nice pickup in originations, but I guess the offset here was pay downs. And so how do you see that dynamic evolving just given where rates have moved to and with potentially a couple more hikes on the way?

Michael W. McCurdy: Yeah. Good question. that is definitely what is on everybody's mind right now. You know, as Sean mentioned earlier, we think the pipeline does remain healthy. Currently, we have about $610 million in net new funding anticipated for fourth quarter. But note, as you referenced earlier, that excludes pay downs, regular amortization, and that is the critical piece right now. You know, the market remains challenging and unsettled. Spreads are thin. Opportunities are highly competitive. With overly aggressive rates and terms, not to mention the market is extremely sensitive right now to the changes in interest rates that have occurred over the last 30 to 60 days.

With that, question remaining an open question going through Q4, we are still going to be dealing with that.

Justin Crowley: Okay. And do you think, like, the pace of pay downs. could slow, just given what we are seeing in rates? And, you know, is there a path to, you know, putting up some sort of net growth, you know, into the end of the year and through next year, or how are you thinking about that?

Michael W. McCurdy: No. That is a fair statement. Right? I mean, we do expect to pay down slow down given that interest rates have ticked back up. it is hard to gauge that. it is hard to estimate that in particular, but no question that there is gonna be a slowdown, I would suspect.

Justin Crowley: Okay. Helpful. And if I could just squeeze in 1 more. And, Carl, I appreciate some of the outlook you gave on the margin. But, you know, if we think about that potential for a couple more hikes out of the Fed, Any thoughts on how the NIM could behave under that scenario?

Carl Carlson: Yeah. I think as Sean mentioned, we are slightly asset sensitive. So we will I think it will benefit us as we move forward. And particularly as rates are rising. I think we typically get a nice expansion early upfront and then with a little bit lag on the. Just the. Pricing of our funding. So I do expect to see that over time. Margin expanding. Sorry. Okay.

Justin Crowley: Great. I will leave it there. Thanks so much.

Operator: Your next question comes from the line of Karl Shepard with RBC Capital Markets. Carl, your line is open. Please go ahead.

Karl Shepard: Hey. Good afternoon, guys, and congratulations, Sean. Thanks, Sean.

Sean A. Gray: I guess, I just wanted to start. I think you referenced some of the remixing underneath. Whether it is clients or the loan portfolio. You guys obviously made a lot of progress getting under 300% CRE this quarter, but how do you want us to think about the size of the remixing to be done? And how does that kind of impact net balance sheet growth maybe over the next couple of quarters or a year?

Michael W. McCurdy: Sure. So we. We are very confident with the teams we have. With the capabilities we have, with our value proposition, that we can maintain New England type growth metrics. So with that said, the good news is the headwind is behind us. Getting down to the 295 ICRE level represented more than $500 million in runoff. So we are happy we are ahead of target, and we do not think that headwind exists anymore. So we can get back to more of a normalized pipeline, normalized growth rate. You know, as far as the type of business, it is going to be, you know, really good sponsors, known sponsors, high quality, and we can be selective. Right?

We can be selective as we refill that bucket. We feel very comfortable maintaining a 300% ICRE to risk based capital level. With current amortization, we can be active in the markets. And still be participating and growing. So all in all, we feel the headwinds are behind us. We feel there is good business to be had. We have running room at the level we are at right now so our teams can be very selective out there in the markets. I hope that helps a bit.

Karl Shepard: Yeah. that is great color. And as a follow-up, I. The priority slide for 2027 discussed is continuing to bring the reserve down. I know reserving is very formulaic, but can you just talk about conceptually, is that just a matter of resolving credits that already have a specific reserve or is it improvement in the portfolio? Is it the market? Just help us understand that a little bit more. Thank you.

Mark J. Meiklejohn: Yeah. So I think it is important to kind of understand a little bit of the component of the reserve. So you know, we have--it is been consistent over the last several quarters in terms of the message that we have been providing and kind of where we are. You know, we have about $70 million in specific reserves in place. About $350 million in substandard loans. Already taken some significant charges within that 350 million. So, you know, while that $70 million represents about 20% coverage, you know, really we feel like we are in pretty good shape as it relates to those problem assets. Our, you know, sort of collective portfolio coverage is running around 93 basis points.

It was 94 last quarter. 92 the quarter before that. So, you know, we expect, you know, that we will see some elevated charge offs as we continue to work through those specific reserves and those problems that we do have. While maintaining a solid coverage on our base portfolio.

Karl Shepard: Okay. Great. And thanks again for the 2027 priority slide, looking forward to hearing more in January. Thank you.

Operator: Your next question comes from the line of David Konrad with KBW. David, your line is open. Please go ahead.

David Konrad: Yeah. Thanks. Good afternoon. Sean, in the slide deck, there is a couple mentions of branch efficiency, branch optimization. Just wanted to get your kind of philosophy or views on the branch network. Is it you know, you are pretty dense in New England, maybe less so in other markets. Is it a matter of MSA market share? Or maybe in the dense markets, it is better to serve some of those digitally. Just kinda think what you are thinking about with the branch footprint.

Sean A. Gray: No, I think you are right. In the dense markets, to continue to serve and enhance with digital, And I would say the markets where we may not be as dense to really leverage banker led private banking. We have talked about things like MyBanker in the past or digital instead of additional brick and mortar. So filling in the network will be done with people and digital. As far as, you know, how we look at our branch-- How we look at our branch network, I think a management team should always be proactively you know, evaluating branch counts, looking at profitability, looking at changing traffic to customer behaviors.

And it is something we have had success in the past. From you know, with legacy BHLB, we did trim the branch count from about 132 to the mid-80s. Right, while maintaining deposits and growing in some stead. So there is a proven track. Now do I expect that level? No. But we do look at ourselves and the number of branches we have and the deposits per branch and look at our peers. And we are going to be proactive in how we manage those counts. Great. Thank you. Appreciate it.

Operator: Your next question comes from the line of Steve Moss with Raymond James. Steve, your line is open. Please go ahead.

Stephen Moss: Good afternoon. Maybe just following up on the priority slide in the deck here. You know, Sean, I am just curious here when you talk about team lift outs, are there any business lines you would like to enhance or add or any targets in particular you would give us color on?

Sean A. Gray: Nothing that we are looking to add. At this point. But I do see 1 of our greatest opportunities is we do some things in some regions very well. So we have an opportunity to port certain C&I or business banking or ABL or SBA from a region that is doing really well, and replicate that and really a like-type region or opportunity. So we have not really filled in the coverage of our most profitable businesses in totality yet. You know, a smaller example is that in Hudson Valley, we do not have a tremendous amount of wealth management coverage down there. Yet the market indicates opportunity for us.

So it is things like that I think are most important And in the comments and in the script, it. it is really leveraging proven businesses. Where we know we win, where we know we can compete, and where we know we already have the talent that can be scaled.

Stephen Moss: Okay. Great. that is helpful. And then I guess the other thing that caught my attention on that slide, you know, in terms of target top quartile employee and client retention, just curious, have there been some challenges in terms of retention here post the merger? And maybe that is just a greater emphasis You know, just kind of curious on that. And you know, does that also mean maybe we are going to see a step-up in terms of expenses as you guys make more investments over the next 12 months? I know you guys talk about expenses lower, over time, but is there maybe a need to remix some of the expenses? I should phrase it that way.

Sean A. Gray: No. No. Good question. I do not think we need to remix expenses. When we do talk about adding Teams and using capital to be tactical on that front, it would be more 1 off. We are not expecting any new business at this at this point. You know, in regards to retention, I can say this, and I talked a little bit about it. I have had the fortune to either recruit and manage many of our commercial teams about half our regional presidents, ABL, wealth management, SBA, And I have gotten to know the last year some of the talent on the legacy Brookline side.

Of which I am incredibly impressed with the regional leadership in both Boston and Rhode Island. So I think we have got the necessary talent. We are spending the time leveraging that talent. And I feel good about retention at this point. Okay. Great. Thank you very much. I will step back in the queue here.

Operator: Your next question comes from Laura Havener Hunsicker with Seaport Research Partners. Laura, your line is open. Please go ahead.

Laura Havener Hunsicker: Great. Hi. Thanks. Good afternoon. Sean, I am hoping I am hoping you can just circle back on expenses here. I just, you know, kind of want a higher level read. Obviously, at Berkshire Health, as you mentioned, you were a huge part of branch reduction. And you know, the branch footprint got reduced close to 40%. So can you help us think of your 145 branches sitting currently what that number looks like, you know, a year from now, 2 years from now.

Sean A. Gray: So, Laura, we will. We will provide more of that detail in the January plan and be very specific. Right now, I can say it is more 1-offs. There is not any specific market and it is really just doing the work doing the necessary work to understand if we even have branch overlap that we may or not considered in the original merger of equals. So, you know, I do anticipate. I would not be saying it, but I did not think it would be meaningful. but it will be more 1-offs, and we will announce, you know, more detail as we move into January.

Laura Havener Hunsicker: Okay. Perfect. And then just staying with expenses here. The other expense line, that is $13.4 million was elevated, there anything in that nonrecurring? And then, I guess, specifically, what was workout expense in that figure? Thanks.

Carl Carlson: Thanks, Laura. I would not say anything were 1-offs in that There are some things that come and go with the higher and lower. So for instance, fraud expense was up about $600 thousand in the quarter from prior quarters. But that can, you know, come and goes. As things pick up and we find ways of fixing them. Sometimes we get recoveries out of that. So we will we will see how that goes. But I would not say anything in particular. We. Our marketing expenses, but that is not in other. We do expect that to accelerate into the fourth quarter. And FDIC insurance is something we will.

As a as a larger institution now, we will be under a different calculation. So we will we will see how that comes out. Okay.

Laura Havener Hunsicker: And then what was workout in the quarter?

Carl Carlson: The loan workout expense, it was $1.6 million last quarter. It was $1.2 million this quarter.

Laura Havener Hunsicker: Okay. Okay. Great. And then. Thank you. And then my last question, just around office. You know, as we are looking at that 9% bucket, that roughly $100 million or so coming due in the fourth quarter, Is any of the $193 million of criticized, is any of that set to mature in the fourth quarter? And if so, how much? Thanks.

Mark J. Meiklejohn: Laura, it is Mark. So on that, there is. We have got within that maturing bucket in the fourth quarter, there are 2 criticized loans totaling $32 million. 1 of those is in the process right now of being extended out, so that maturity will come off. And then the others being worked on, I expect that will also be extended also. So, you know, we have a plan in place for both of those. So, I think we are in pretty good shape there, and there are no criticized and class maturing in the first quarter.

Laura Havener Hunsicker: Perfect. Thanks for taking my question. Thanks, Laura.

Operator: Your final question comes from Daniel Cardenas with Janney Montgomery Scott. Daniel, your line is open. Please go ahead.

Daniel Cardenas: Good afternoon, everybody. Just, most of my questions have been asked and Just a quick 1 on the on the fee revenue side. Your growth expectations, do you plan to do that purely organically, or are you open to doing maybe selected non bank acquisitions to help you get to your mid teens goal.

Sean A. Gray: We. Organic. We have done the work. We have started to dig in. I gave an example of better wealth management and broker dealer coverage in all of our markets. So it will be some team 1 offs. it will be leveraging the businesses like SBA that we have, that we see prospects in some regions and markets that have not, put an emphasis on it. But we believe it to be organic. Great. Great. Appreciate it. Appreciate the answer. Thank you.

Operator: We have reached the end of the Q&A session. I will now turn the call back to Sean A. Gray for closing remarks.

Sean A. Gray: Thank you, and thank you all for joining us today. We appreciate your interest in Beacon and look forward to speaking with you again next quarter. Thanks again.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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