NEW YORK--(BUSINESS WIRE)--On December 16, 2024, Berkshire Hills Bancorp, Inc. (NYSE: BHLB)(KBRA senior unsecured debt rating: BBB / Stable Outlook), the parent company of Berkshire Bank, and Brookline Bancorp, Inc. (NASDAQ: BRKL)(KBRA senior unsecured debt rating: BBB / Stable Outlook), the parent company of Brookline Bank, Bank Rhode Island, and PCSB Bank, announced a definitive agreement pursuant to which BRKL will merge with and into BHLB in an all-stock transaction valued at approximately $1.1 billion (or $12.68 per share of BRKL common stock, based on the $30.20 closing price of BHLB common stock) with an expected closing date in 3Q25. Additionally, BHLB announced that it has entered into subscription agreements with investors to issue $100 million of its common stock at $29.00 per share in support of the merger, with an expected close on the capital raise on December 19, 2024. The leadership of the combined company includes a 50/50 split of the 16 person board of directors, with BHLB's current chairperson retaining this role under the combined entity. BRKL's current CEO, Paul Perrault, CFO, Carl Carlson, and CCO, Mark Meiklejohn as well as BHLB's current COO, Sean Gray, are all expected to maintain these positions for the combined company.
The transaction provides both companies with meaningful scale and a more diversified geographic footprint with proforma assets of $24 billion, $19 billion in loans, and $18 billion in deposits. Both BHLB and BRKL have experienced varying levels of funding pressures related to the higher interest rate environment, though BHLB has largely maintained its NIM near the rated peer average. Each company had rather limited revenue diversification, with reported ROA tracking slightly below the rated peer average through 9M24. The combined entity will remain spread reliant though will benefit from operating efficiencies, with the expected cost savings projected to be 13% of combined noninterest expenses (roughly $65 million - $70 million in annual cost savings). The transaction also includes estimated interest rate marks of $204 million on the loan portfolio, $61 million on HTM securities, $5 million on trust preferred securities and $12 million on subordinated debt. As such, the proforma CET1 ratio would fall below 10% (~9.8%), though with improved earnings capacity boosted by meaningful accretion income, BHLB expects to rebuild capital ratios with a mid-10% CET1 ratio by YE26.
While both institutions are headquartered in Boston, MA, the combined entity will have a rather broad footprint with a retail branch network of over 140 offices spread throughout the New England region and parts of New York. BHLB would become the 3rd largest mid-sized bank within New England by deposit market share. However, the combination of BRKL's higher cost funding base, which has historically included a greater percentage of wholesale funding, with BHLB's funding base, which has reported peer-like funding costs in recent periods, is expected to create a higher-cost deposit base (proforma cost of deposits of 2.57%) with an above-average usage of wholesale funding (proforma loan-to-deposit ratio of 104%).
The loan portfolio would include an elevated concentration in investor CRE with ICRE representing 352% of total risk based capital at the consolidated level on a proforma basis. With that said, over time, the combined company is expected to materially reduce its ICRE concentration through various avenues, including potential loan sales or securitizations. The CRE portfolios for both BHLB and BRKL are rather well diversified, with moderate exposure to office (proforma office loans totaled $1.1 billion, or 6% of total proforma loans). C&I loans (including BRKL's $1.4 billion equipment financing book) as well as consumer loans (largely comprising of residential mortgage loans) would each represent 20% of the proforma loan portfolio. Both companies' loan portfolios have performed sufficiently with credit losses generally tracking in line or slightly above rated peer averages over a multi-year period. Notably, the merger includes an estimated gross credit mark of $143 million, including a day 2 CECL reserve of $95 million.
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