Beacon Financial Corp 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss to earnings, capital and the economic values of certain assets and liabilities resulting from changes in interest rates and equity prices. The only significant market risk exposure for the Company is Interest Rate Risk (“IRR”). This is a result of the Company’s core business activities of making loans and accepting deposits, as well as investments and funding activities. The effective management of IRR is essential to achieving the Company’s financial objectives. This responsibility resides with the Asset Liability Committee (“ALCO”). The ALCO’s role is to establish an effective asset/liability decision-making process to aid in managing risk exposures and achieving strategic objectives and corporate financial goals. The Company manages IRR by using two primary risk measurement techniques: simulation of net interest income and simulation of economic value of equity. These two measurements are complementary and provide both short-term and long-term risk profiles of the Company. Net Interest Income (“NII”) at Risk Simulation is used to measure the sensitivity of net interest income to changes in market rates over a 12 month period assuming a static balance sheet. This simulation captures underlying product behaviors, such as asset and liability repricing dates, balloon dates, interest rate indices and spreads, rate caps and floors, as well as other behavioral attributes. The simulation of net interest income also requires a number of key assumptions such as (i) prepayment projections for loans and securities; (ii) new business loan spreads; and (iii) deposit pricing assumptions. Combined, these assumptions can be inherently uncertain, and as a result, actual results may differ from simulation forecasts due to the timing, magnitude and frequency of interest rate changes, future business conditions, as well as unanticipated changes in management strategies. The Company uses two sets of standard scenarios to measure NII Sensitivity. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario, while twist scenarios assume the shape of the curve flattens or steepens instantaneously. The following tables set forth the estimated percent change in the Company’s NII Sensitivity compared to the flat rate scenario over one-year simulation periods beginning December 31, 2024 and December 31, 2023. 67 Table of Contents ITEM 7 - 7A TABLE 3 - QUALITATIVE ASPECTS OF MARKET RISK Parallel Interest Rate Shock (basis points) Estimated Percent Change in Net Interest Income December 31, 2024 December 31, 2023 +200 2.2 % 0.5 % +100 1.2 0.3 -100 (1.4) (0.6) -200 (2.9) (2.1) Yield Curve Twist Interest Rate Shock December 31, 2024 December 31, 2023 Short End +100 (0.4) % (0.5) % Short End -100 0.3 (0.5) Long End +100 1.6 1.1 Long End -100 (1.7) (1.1) The Company’s NII sensitivity results at period-end were mostly little changed from the start of the year, with modest asset sensitivity in parallel shock simulations. The slight increase in asset sensitivity year-over-year was due to the impact of the December 2024 $100 million equity raise along with the approaching maturities of some fixed rate hedges in 2025. Yield curve twist simulations were mostly little changed from the prior year-end, with slight liability sensitivity in the short end of the yield curve and modest asset sensitivity on the long end. In the situation of a normalization of the yield curve to a positive slope due to both lower short-term rates and higher long-term rates, the result is modeled to be positive to net interest income in the framework of a static balance sheet. Economic Value of Equity ("EVE") Sensitivity is conducted to ascertain a longer-term view of the Company’s exposure to changes in interest rates. As with NII modeling, EVE Sensitivity captures product characteristics such as loan resets, repricing terms, maturity and amortization dates, rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. All key assumptions are subject to periodic review. Base case EVE Sensitivity is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates. The current spot interest rate curve is shocked up and down. These new interest rate curves are then used to recalculate EVE Sensitivity for rate shock scenarios. The following table sets forth the estimated percent change in the Company’s EVE Sensitivity from the base case scenario, assuming various instantaneous parallel shocks in interest rates. Estimated Percent Change in Economic Value of Equity Parallel Shock Rate Change (basis points 12/31/2024 12/31/2023 +200 (1.4) % (3.9) % +100 (0.6) (1.8) -100 0.2 1.2 -200 (0.1) 1.3 The Company’s EVE Sensitivity profile indicates that at December 31, 2024 the balance sheet was modestly liability sensitive, with this sensitivity decreasing compared to December 31, 2023. 68 Table of Contents ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and supplementary data required by this item are presented elsewhere in this report beginning on page F-1, in the order shown below: Management’s Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm (PCAOB ID 173 ) Consolidated Balance Sheets as of December 31, 2024 and 2023 Consolidated Statements of Income for the years ended December 31, 2024, 2023, and 2022 Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2024, 2023, and 2022 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2024, 2023, and 2022 Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023, and 2022 Notes to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.