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Item 7. Management’s Discussion and Analysis

2026-03-02 compared with 2025-03-03 · 1232 added, 575 removed, 33 unchanged (98% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

SELECTED FINANCIAL DATA

The following summary data is based in part on the Consolidated Financial Statements and accompanying notes, and other schedules appearing elsewhere in this Form 10-K.

Historical data is also based in part on, and should be read in conjunction with, prior filings with the SEC.

At or For the Years Ended December 31,

(In thousands, except per share data) 2024 2023 2022 2021 2020

Per Common Share Data:

Net earnings/(loss), diluted - continuing operations $ 1.43 $ 1.60 $ 2.02 $ 2.39 $ (10.21)

Net (loss), diluted - discontinued operations — — — — (0.39)

Net earnings/(loss), diluted $ 1.43 $ 1.60 $ 2.02 $ 2.39 $ (10.60)

Total book value per common share 25.15 23.27 21.51 24.30 23.37

Dividends 0.72 0.72 0.54 0.48 0.72

Common stock price:

High 32.36 31.52 31.78 29.16 33.04

Low 20.50 18.07 23.62 16.35 8.55

Close 28.43 24.83 29.90 28.43 17.12

Performance Ratios:

Return on assets 0.52 % 0.59 % 0.82 % 0.98 % (4.15) %

Return on equity 5.84 7.07 8.70 9.96 37.15

Return on tangible common equity (2)

Beacon Financial Corporation, a Delaware corporation, is the holding company for Beacon Bank & Trust and its subsidiaries and Clarendon Private.

The Company offers a wide range of commercial, business and retail banking services, including a full complement of cash management products, foreign exchange services, on-line and mobile banking services, consumer and residential loans and investment advisory services.

Clarendon Private is a registered investment advisor with the SEC.

Through Clarendon Private and the Trust and Investments Division of the Bank, the Company offers a wide range of wealth management services to individuals, families, endowments and foundations to help these clients meet their long-term financial goals.

As a full-service financial institution with 147 banking offices throughout New England and New York, the Bank and its subsidiaries focus their efforts on developing and deepening long-term banking relationships with qualified customers through a full complement of products, excellent customer service, and strong risk management.

The competition for loans and leases and deposits remains strong, with growth and pricing influenced by the FRB's interest rate-setting actions.

Management's scenario analysis of deposit sensitivity to the current rate environment and customer demand for non-depository investment alternatives suggests further deposit mix migration and increased sensitivity to interest rates.

As the interest rate environment resets to a more normal, upward-sloping yield curve with shorter-term interest rates lower than longer term interest rates, management expects the net interest margin to increase modestly.

This is due to deposit and wholesale funding costs repricing at lower rates, while loans do not reprice at the same magnitude, as well as the accretions from the purchase accounting marks.

If both short- and long-term interest rates fall, net interest income models, using a projected flat balance sheet with stable deposit balances, forecast that a parallel decrease in rates will have a negative impact on the Company's net interest income, net interest spread, and net interest margin.

While the Company's current asset sensitivity rate is approximately 40%, shifting to a more asset sensitive balance sheet could have additional pressure on interest margins.

As discussed above, changes in interest rates could also precipitate a change in the mix and volume of the Company's deposits and loans.

The future operating results of the Company will depend on its ability to maintain or increase the current net interest income, manage credit risk, increase sources of non-interest income, while managing non-interest expenses.

The Company’s common stock is traded on the New York Stock Exchange under the symbol “BBT.”

Executive Overview

Balance Sheet

Total assets increased $11.3 billion, or 95.0%, to $23.2 billion as of December 31, 2025 from $11.9 billion as of December 31, 2024.

The increase was primarily due to the assets assumed in the Transaction.

The Transaction created a $23 billion Northeast franchise by combining Legacy Berkshire’s stable, more rural funding base with Legacy Brookline’s commercial lending focus in metro markets.

The highly-complementary geographic footprints had minimal branch overlap ensuring minimal market disruption while also providing business diversification, fee income opportunities and improved competitive positioning.

The Transaction also created meaningful near-term cost synergies while positioning the Company to benefit from future economies of scale.

Total loans and leases increased $8.3 billion, or 84.4%, to $18.0 billion as of December 31, 2025 from $9.8 billion as of December 31, 2024.

The increase was primarily due to the loans assumed in the Transaction partially offset by the sales of $332.6 million of purchased mortgage loans acquired in the Transaction.

The Company's commercial loan portfolios, which are comprised of commercial real estate loans and commercial loans and leases, totaled $14.0 billion, or 77.4% of total loans and leases as of December 31, 2025, an increase of $5.7 billion, or 69.8%, from $8.2 billion, or 84.1% of total loans and leases, as of December 31, 2024.

Total investment securities increased $0.8 billion, or 88.7%, to $1.7 billion as of December 31, 2025 from $0.9 billion as of December 31, 2024, primarily due to investment securities assumed in the Transaction partially offset by the sale of $176.4 million of the Legacy Berkshire's investment portfolio during the third quarter.

Cash and cash equivalents increased $1.5 billion, or 275.5%, to $2.0 billion as of December 31, 2025 from $0.5 billion as of December 31, 2024.

The increase was primarily due to cash and equivalents assumed in the Transaction and an increased payroll deposit balance at December 31, 2025.

Total deposits increased $10.6 billion, or 119.2%, to $19.5 billion as of December 31, 2025 from $8.9 billion as of December 31, 2024, primarily due to the deposits assumed in the Transaction.

Core deposits, which include demand checking, NOW, non-payroll money market and savings accounts, totaled $13.1 billion, or 67.0% of total deposits, as of December 31, 2025, an increase of $6.9 billion, or 112.6%, from $6.1 billion, or 69.1% of total deposits, as of December 31, 2024.

Payroll deposits totaled $1.9 billion as of December 31, 2025, all of which was assumed in the Transaction.

Certificate of deposit balances totaled $4.2 billion, or 21.3% of total deposits, as of December 31, 2025, an increase of $2.3 billion, or 120.5%, from $1.9 billion, or 21.2% of total deposits, as of December 31, 2024.

Brokered deposit balances totaled $0.4 billion, or 2.1% of total deposits as of December 31, 2025, a decrease of $0.5 billion, or 52.8%, from $0.9 billion, or 9.8% of total deposits, as of December 31, 2024.

Total borrowed funds decreased $731.5 million, or 48.1%, to $788.4 million as of December 31, 2025 from $1.5 billion as of December 31, 2024 as combined liquidity as a result of the Transaction and the increase in deposits allowed for reduction in borrowings.

Asset Quality

Nonperforming assets as of December 31, 2025 totaled $116.7 million, or 0.50% of total assets, compared to $70.5 million, or 0.59% of total assets, as of December 31, 2024.

Total net charge-offs for the year ended December 31, 2025 were $37.6 million, or 0.30% of average loans and leases, compared to $28.2 million, or 0.29% of average loans and leases, for the year ended December 31, 2024.

The increase of $46.2 million in nonperforming assets was primarily driven by the Transaction.

The ratio of the allowance for loan and lease losses to total loans and leases was 1.40% as of December 31, 2025, compared to 1.28% as of December 31, 2024.

The ratio of the allowance for loan and lease losses to nonaccrual loans and leases was 221.49% as of December 31, 2025, compared to 180.37% as of December 31, 2024.

Capital Strength

The Company is a "well-capitalized" bank holding company as defined in the FRB's Regulation Y.

The Company's common equity Tier 1 capital ratio was 10.95% as of December 31, 2025, compared to 10.46% as of December 31, 2024.

The Company's Tier 1 leverage ratio was 9.25% as of December 31, 2025, compared to 9.06% as of December 31, 2024.

As of December 31, 2025, the Company's Tier 1 risk-based ratio was 11.12%, compared to 10.56% as of December 31, 2024.

The Company's total risk-based ratio was 13.01% as of December 31, 2025, compared to 12.42% as of December 31, 2024.

The Company's ratio of stockholders' equity to total assets was 10.75% and 10.26% as of December 31, 2025 and December 31, 2024, respectively.

The Company's tangible equity ratio was 8.62% and 8.27% as of December 31, 2025 and December 31, 2024, respectively.

For the year ended December 31, 2025, the Company reported net income of $90.3 million, or $1.03 per basic and diluted share, an increase of $21.6 million, or 31.4%, from $68.7 million, or $0.77 per basic and diluted share for the year ended December 31, 2024.

The increase in net income is primarily the result of an increase in net interest income of $173.5 million and an increase in non-interest income of $24.3 million, partially offset by an increase in non-interest expense of $147.9 million driven by merger costs, an increase in the provision for credit losses on loans of $19.4 million, and an increase in the provision for income taxes of $8.6 million.

The return on average assets was 0.59% for the year ended December 31, 2025, compared to 0.60% for the year ended December 31, 2024.

The return on average stockholders' equity was 5.44% for the year ended December 31, 2025, compared to 5.67% for the year ended December 31, 2024.

Net interest margin was 3.56% for the year ended December 31, 2025, up from 3.06% for the year ended December 31, 2024.

The increase in net interest margin is a result of a decrease of 54 basis points in the Company's cost of interest bearing liabilities to 3.05% in 2025 from 3.59% in 2024, and an increase in the yield on interest-earning assets of 4 basis points to 5.87% in 2025 from 5.83% in 2024.

Results for 2025 included a provision for credit losses of $41.4 million, as discussed in the "Allowance for Credit Losses—Allowance for Loan and Lease Losses" section below.

Non-interest income increased $24.3 million to $49.9 million for the year ended December 31, 2025 from $25.6 million for the year ended December 31, 2024.

The increase was driven by four months of combined Company activity in 2025.

Non-interest expense increased $147.9 million to $389.7 million for the year ended December 31, 2025 from $241.9 million for the year ended December 31, 2024.

The increase was largely attributable to an increase of $57.5 million in merger and restructuring expense and increases in all other non-interest expense categories for the four months of combined Company activity in 2025.

Critical Accounting Policies and Estimates

The accounting policies described below are considered critical to understanding the Company's financial condition and operating results.

Such accounting policies are considered to be especially important because they involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about matters that are inherently uncertain.

The use of different judgments, assumptions and estimates could result in material differences in the Company's operating results or financial condition.

Allowance for Credit Losses

The allowance for credit losses represents management's estimate of expected losses over the life of the loan and lease portfolio.

The allowance for credit losses consists of the allowance for loan and lease losses and reserve for unfunded commitments, which are classified as a contra-asset and liability within other liabilities, respectively, on the consolidated balance sheets.

Additions to the allowance for credit losses are made by charges to the provision for credit losses.

Losses on loans and leases are deducted from the allowance when all or a portion of a loan or lease is considered uncollectible.

The determination of the loans on which full collectability is not reasonably assured, the estimates of the fair value of the underlying collateral, and the assessment of economic and other conditions are subject to assumptions and judgments by management.

Valuation allowances could differ materially as a result of changes in, or different interpretations of, these assumptions and judgments.

Management evaluates the adequacy of the allowance on a quarterly basis and reviews its conclusion as to the amount to be established with the Audit Committee and the Board of Directors.

Judgments and Uncertainties.

In estimating the allowance for credit losses, the Company relies on models and economic forecasts developed by external parties as the primary driver of the allowance for credit losses.

These models and forecasts are based on nationwide sets of data.

As a result, the Company has calibrated the output of these models to match the performance of a relevant set of peer institutions during the development dataset in order to make the results more relevant to the Company.

Additionally, economic forecasts can change significantly over an economic cycle and have a significant level of uncertainty associated with them.

The performance of the models is dependent on the variables used in the models being reasonable proxies for the portfolio’s performance;

however, these variables may not capture all sources of risk within the portfolio.

As a result, management reviews the results and makes qualitative adjustments to the models to capture limitations of the models as necessary.

Such qualitative factors may include adjustments to better capture the risk of specialty lending portfolios, the imprecision associated with the economic forecasts, and the ability of the models to capture emerging risks within the portfolio that may not be represented in the historical dataset.

These judgments are thoroughly evaluated through management’s review process, and revised on a quarterly basis to account for changes in the facts and circumstances of the portfolio.

Effect If Actual Results Differ From Assumptions.

The allowance for credit losses is a reflection of the Company’s best estimate of loss based on a forecast of future conditions as of a point in time.

Conditions in the future may vary from those forecasts, causing realized losses to be either higher or lower than forecasted, which will result in either additional provisions from income or a benefit to income based on the performance of the portfolio.

Business Combinations

Business combinations are generally accounted for under the acquisition method of accounting whereby assets acquired and liabilities assumed in business combinations are recorded at their estimated fair value as of the acquisition date.

The determination of fair value may involve the use of internal or third-party valuation specialists to assist in the determination of the fair value of certain assets and liabilities at the acquisition date, including loans and leases and core deposit intangible.

The excess of the cost of acquisition over these fair values is recognized as goodwill.

A description of the valuation methodologies used to estimate the fair values of the significant assets acquired and liabilities assumed can be found in Note 2, "Business Combinations" within the notes to the consolidated financial statements.

Recent Accounting Developments

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures" to enhance the annual income tax disclosure requirements.

This update is effective for annual periods beginning after December 15, 2024.

The Company adopted ASU 2023-09 as of January 1, 2025.

The adoption did not have a material impact on the Company's consolidated financial statements.

In November 2025, the FASB issued ASU 2025-08, "Financial Instruments - Credit Losses (Topic 326):

Purchased Loans".

This ASU aligns the initial recognition of the allowance for loan losses on purchased loans between PCD and non‑PCD assets by applying the gross‑up approach previously required only for PCD loans.

The Company elected to adopt this ASU, effective January 1, 2025, and applied it to the Transaction completed in the third quarter, as permitted under the guidance.

See Note 1, “Basis of Presentation” in the notes to the consolidated financial statements for additional information regarding recent accounting developments.

Non-GAAP Financial Measures and Reconciliation to GAAP

In addition to evaluating the Company’s results of operations in accordance with GAAP, management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures, such as the operating earnings metrics, the return on average tangible assets, return on average tangible equity, the tangible stockholders' equity, tangible equity ratio, tangible book value per share and dividend payout ratio.

Management believes that these non-GAAP financial measures provide information useful to investors in understanding the Company’s underlying operating performance and trends, and facilitates comparisons with the performance assessment of financial performance, including non-interest expense control, while the tangible equity ratio and tangible book value per share are used to analyze the relative strength of the Company’s capital position.

The methodologies used by the Company for determining the non-GAAP financial measures discussed above may differ from those used by other financial institutions.

Operating Earnings

Operating earnings exclude the after-tax impact of securities gains, the Day 1 CECL provision and merger and restructuring expense.

By excluding such items, the Company's results can be measured and assessed on a more consistent basis from period to period.

Items excluded from operating earnings are also excluded when calculating the operating return and operating efficiency ratios.

The following table summarizes the Company's operating earnings and operating earnings per share ("EPS") for the periods indicated:

Year Ended December 31,

2025 2024 2023 2022 2021

Net interest margin, fully taxable equivalent ("FTE") (3)

(Dollars in Thousands, Except Per Share Data)

Net income, as reported $ 90,271 $ 68,715 $ 74,999 $ 109,744 $ 115,440

Security (losses) gains (after-tax) — — 1,361 252 (28)

Merger Day 1 CECL provision (after tax) (1)

6,239 — 13,372 — —

Growth Ratios:

Total commercial loans 7.32 % 5.66 % 12.99 % (12.09) % (4.58) %

Total loans 3.82 8.45 22.11 (15.54) 14.95

Total deposits (2.43) 2.96 2.57 (1.44) (1.16)

Earnings per share, (compared to prior year) (10.63) (20.79) (15.48) 122.55 (638.07)

Selected Financial Data:

Merger and restructuring expense (after-tax) (2)

45,743 3,697 5,918 1,763 —

Operating earnings $ 142,253 $ 72,412 $ 79,556 $ 111,255 $ 115,468

Earnings per share, as reported $ 1.03 $ 0.77 $ 0.85 $ 1.42 $ 1.48

Security gains (after-tax) — — 0.02 — —

Merger Day 1 CECL provision (after tax) (1)

0.07 — 0.15 — —

Merger and restructuring expense (after-tax) (2)

0.52 0.04 0.07 0.02 —

Operating earnings per share $ 1.62 $ 0.81 $ 1.05 $ 1.44 $ 1.48

_________________________________________________________________________

(1) The 2025 Merger Day1 CECL provision on unfunded commitments was related to the Transaction.

The 2023 Merger Day1 CECL provision was related to the acquisition of PCSB in the first quarter of 2023.

(2) The 2025 Merger and restructuring expense was related to the Transaction The 2024 Merger and restructuring expense was related to a non-recurring restructuring charge due to the exit of the specialty vehicle business at Eastern Funding.

The 2023 and 2022 Merger and restructuring expense was related to the acquisition of PCSB in the first quarter of 2023.

The following table summarizes the Company's operating return on average assets, operating return on average tangible assets, operating return on average stockholders' equity and operating return on average tangible stockholders' equity for the periods indicated:

Year Ended December 31,

2025 2024 2023 2022 2021

(Dollars in Thousands)

Operating earnings $ 142,253 $ 72,412 $ 92,928 $ 111,255 $ 115,468

Average total assets $ 15,230,648 $ 11,473,424 $ 11,214,371 $ 8,623,403 $ 8,518,200

Average goodwill and average identified intangible assets, net 354,267 262,011 270,637 162,447 163,122

Average tangible assets $ 14,876,381 $ 11,211,413 $ 10,943,734 $ 8,460,956 $ 8,355,078

Return on average assets 0.59 % 0.60 % 0.67 % 1.27 % 1.36 %

Security gains (after-tax) — % — % 0.01 % — % — %

Merger Day 1 CECL provision (after tax) 0.04 % — % 0.12 % — % — %

Merger and restructuring expense (after-tax) 0.30 % 0.03 % 0.05 % 0.02 % — %

Operating return on average assets 0.93 % 0.63 % 0.83 % 1.29 % 1.36 %

Return on average tangible assets 0.61 % 0.61 % 0.69 % 1.30 % 1.38 %

Security gains (after-tax) — % — % 0.01 % — % — %

Merger Day 1 CECL provision (after tax) 0.04 % — % 0.12 % — % — %

Merger and restructuring expense (after-tax) 0.31 % 0.03 % 0.05 % 0.02 % — %

Operating return on average tangible assets 0.96 % 0.64 % 0.85 % 1.32 % 1.38 %

Average total stockholders' equity $ 1,658,138 $ 1,211,036 $ 1,168,106 $ 984,237 $ 967,538

Average goodwill and average identified intangible assets, net 354,267 262,011 270,637 162,447 163,122

Average tangible stockholders' equity $ 1,303,871 $ 949,025 $ 897,469 $ 821,790 $ 804,416

Return on average stockholders' equity 5.44 % 5.67 % 6.42 % 11.15 % 11.93 %

Security gains (after-tax) — % — % 0.12 % 0.03 % — %

Merger Day 1 CECL provision (after tax) 0.38 % — % 1.14 % — % — %

Merger and restructuring expense (after-tax) 2.76 % 0.26 % 0.51 % 0.18 % — %

Operating return on average stockholders' equity 8.58 % 5.93 % 7.95 % 11.30 % 11.93 %

Return on average tangible stockholders' equity 6.92 % 7.24 % 8.36 % 13.35 % 14.35 %

Security gains (after-tax) — % — % 0.15 % 0.03 % — %

Merger Day 1 CECL provision (after tax) 0.48 % — % 1.49 % — % — %

Year Ended December 31,

2025 2024 2023 2022 2021

(Dollars in Thousands)

Merger and restructuring expense (after-tax) 3.51 % 0.33 % 0.66 % 0.21 % — %

Operating return on average tangible stockholders' equity 10.91 % 7.57 % 10.36 % 13.53 % 14.35 %

The following table summarizes the Company’s return on average tangible assets and return on average tangible stockholders’ equity for the periods indicated: