KBRA Comments on Merger Agreement Between Berkshire Hills Bancorp, Inc. and Brookline Bancorp, Inc.

Rhea-AI Summary

Berkshire Hills Bancorp (NYSE: BHLB) and Brookline Bancorp (NASDAQ: BRKL) have announced a $1.1 billion all-stock merger agreement, creating a combined entity with $24 billion in assets. The merger, expected to close in Q3 2025, includes a $100 million common stock issuance by BHLB at $29.00 per share.

The combined company will maintain a 50/50 split of the 16-person board of directors, with key executives from both companies retaining their positions. The merger is projected to generate $65-70 million in annual cost savings, representing 13% of combined noninterest expenses.

The proforma entity will have $19 billion in loans and $18 billion in deposits, becoming the 3rd largest mid-sized bank in New England. The transaction includes significant interest rate marks totaling $282 million across various portfolios, with an expected CET1 ratio of 9.8%, projected to reach mid-10% by year-end 2026.

Positive

• All-stock merger valued at $1.1 billion creates significant scale advantage
• Projected annual cost savings of $65-70 million (13% of combined expenses)
• Becomes 3rd largest mid-sized bank in New England
• Expanded geographic footprint with 140+ offices across New England and New York
• Diversified loan portfolio with well-performing credit metrics

Negative

• Higher-cost deposit base with 2.57% proforma cost of deposits
• Above-average wholesale funding dependency (104% loan-to-deposit ratio)
• Elevated investor CRE concentration at 352% of total risk-based capital
• CET1 ratio expected to drop below 10% (to ~9.8%) post-merger
• revenue diversification with continued spread reliance

Insights

Financial Analyst

This $1.1 billion all-stock merger between Berkshire Hills and Brookline Bancorp represents significant consolidation in the New England banking sector. The combined entity will have $24 billion in assets, creating the region's 3rd largest mid-sized bank. Key financial metrics include projected annual cost savings of $65-70 million (13% of combined expenses) and a proforma CET1 ratio of 9.8%. However, challenges include an elevated investor CRE concentration at 352% of risk-based capital and a high loan-to-deposit ratio of 104%. The $100 million capital raise at $29.00 per share helps support the transaction, though the combined entity's higher funding costs (proforma cost of deposits at 2.57%) warrant monitoring.

Banking Sector Analyst

The merger's strategic rationale centers on achieving operational scale and geographic diversification across New England and New York. The 140+ branch network provides solid market presence, though the combined entity faces funding challenges with above-average wholesale funding reliance. The credit portfolio requires careful management, particularly the $1.1 billion office exposure (6% of total loans) amid current market conditions. The substantial credit mark of $143 million and interest rate marks totaling $282 million provide some cushion. Integration risks appear mitigated by the balanced board structure and retention of key executives from both institutions.

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.

To access ratings and relevant documents for Berkshire Hills Bancorp, Inc., click here.

To access ratings and relevant documents for Brookline Bancorp, Inc., click here.

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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Jason Szelc, Senior Director

+1 301-969-3174

jason.szelc@kbra.com

John Rempe, Senior Director

+1 301-969-3045

john.rempe@kbra.com

Shannon Servaes, Managing Director

+1 301-969-3247

shannon.servaes@kbra.com

Business Development Contact

Justin Fuller, Managing Director

+1 312-680-4163

justin.fuller@kbra.com

Source: Kroll Bond Rating Agency, LLC

FAQ

What is the value of the merger between BHLB and Brookline Bancorp?

The merger is valued at approximately $1.1 billion, or $12.68 per share of BRKL common stock, based on BHLB's closing price of $30.20.

When is the BHLB-Brookline merger expected to close?

The merger is expected to close in the third quarter of 2025 (3Q25).

What are the projected cost savings from the BHLB-Brookline merger?

The merger is expected to generate $65-70 million in annual cost savings, representing 13% of combined noninterest expenses.

What will be the total assets of BHLB after the Brookline merger?

The combined entity will have proforma assets of $24 billion, with $19 billion in loans and $18 billion in deposits.

How will the BHLB-Brookline merger affect capital ratios?

The proforma CET1 ratio will initially decrease to approximately 9.8% but is expected to rebuild to mid-10% by year-end 2026.

What is the leadership structure of the merged BHLB-Brookline entity?

The combined company will have a 50/50 split of the 16-person board of directors, with key executives from both companies maintaining their current positions.