Beacon Financial Corp (BBT)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These statements include, among others, statements regarding the Company’s intent, belief or expectations with respect to economic conditions, trends affecting the Company’s financial condition or results of operations, and the Company’s exposure to market, liquidity, interest-rate and credit risk.

Forward-looking statements are based on the current assumptions underlying the statements and other information with respect to the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and the financial condition, results of operations, future performance and business are only expectations of future results. Although the Company believes that the expectations reflected in the Company’s forward-looking statements are reasonable, the Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among other important factors, changes in interest rates; general economic conditions (including the impact of ongoing armed conflicts, tariffs, inflation, and concerns about liquidity) on a national basis or in the local markets in which the Company operates; turbulence in the capital and debt markets; competitive pressures from other financial institutions; changes in consumer behavior due to changing political, business and economic conditions, or legislative or regulatory initiatives; changes in the value of securities and other assets in the Company’s investment portfolio; increases in loan and lease default and charge-off rates; the adequacy of allowances for loan and lease losses; decreases in deposit levels that necessitate increases in borrowing to fund loans and investments; the diversion of management’s attention from ongoing business operations and opportunities; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters, and future pandemics; changes in regulation; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions and adverse economic developments; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; and changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 and other filings submitted to the SEC. Forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Introduction

Beacon Financial Corporation, a Delaware corporation, is the holding company for Beacon Bank & Trust and its subsidiaries including, as of July 1, 2026, 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, 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 145 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 Federal Reserve's interest rate-setting actions. Management's scenario analysis of deposit sensitivity to the current competitive rate environment 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 funding costs repricing at lower rates, while loans yields stabilize, 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

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income, net interest spread, and net interest margin. While the Company's current deposit sensitivity rate is approximately 45%, an 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 and the Bank are supervised, examined and regulated by the FRB. As a Massachusetts-chartered trust company, Beacon Bank & Trust is subject to supervision, examination and regulation by the Massachusetts Division of Banks. The FDIC insures the Bank's deposits up to $250,000 per depositor.

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

Executive Overview

Balance Sheet

Total assets decreased $1.0 billion, or 8.3% on an annualized basis, to $22.3 billion as of June 30, 2026 from $23.2 billion as of December 31, 2025. The decrease was primarily driven by the reduction in cash balances due to timing fluctuations in customer payroll deposits and a decline in loans and leases. Cash, cash equivalents and available for sale investment securities decreased $0.8 billion, or 40.4% on an annualized basis, to $3.0 billion as of June 30, 2026 from $3.7 billion as of December 31, 2025. This decreased the Company's on balance sheet liquidity from 16.1% of total assets as of December 31, 2025 to 13.4% of total assets as of June 30, 2026.

Total loans and leases decreased $207.3 million, or 2.3% on an annualized basis, to $17.8 billion as of June 30, 2026 from $18.0 billion as of December 31, 2025. The Company's commercial loan portfolios, which are composed of commercial real estate loans and commercial loans and leases, represented 77.8% of total loans and leases as of June 30, 2026 and represented 77.4% of total loans and leases as of December 31, 2025.

Total investment securities increased $72.5 million, or 8.6% on an annualized basis, to $1.8 billion as of June 30, 2026 from $1.7 billion as of December 31, 2025.

Cash and cash equivalents decreased $0.8 billion, or 80.9% on an annualized basis, to $1.2 billion as of June 30, 2026 from $2.0 billion as of December 31, 2025. The decrease was primarily due to the fluctuation within payroll deposits.

Total deposits decreased $1.0 billion, or 10.5% on an annualized basis, to $18.5 billion as of June 30, 2026 from $19.5 billion as of December 31, 2025, consisting of a $183.2 million decrease in customer deposits, a $666.6 million decrease in payroll deposits, and a $179.0 million decrease in brokered deposits. Core deposits, which include demand checking, NOW, non-payroll money market and savings accounts, totaled $13.0 billion, or 70.2% of total deposits, as of June 30, 2026, a decrease of $91.2 million from $13.1 billion, or 67.0% of total deposits, as of December 31, 2025. Payroll deposits totaled $1.2 billion, or 6.6% of total deposits as of June 30, 2026, a decrease of $666.6 million, or 71.0% on an annualized basis, from $1.9 billion, or 9.6% of total deposits as of December 31, 2025. Certificate of deposit balances totaled $4.1 billion, or 22.0% of total deposits as of June 30, 2026, a decrease of $92.0 million, or 4.4% on an annualized basis, from $4.2 billion, or 21.3% of total deposits as of December 31, 2025. Brokered deposits totaled $231.4 million, or 1.3% of total deposits as of June 30, 2026, a decrease of $179.0 million, or 87.2% on an annualized basis, from $410.4 million, or 2.1% of total deposits as of December 31, 2025.

Total borrowed funds increased $100.2 million, or 25.4% on an annualized basis, to $0.9 billion as of June 30, 2026 from $0.8 billion as of December 31, 2025.

Asset Quality

Nonperforming assets as of June 30, 2026 totaled $155.2 million, or 0.70% of total assets, compared to $116.7 million, or 0.50% of total assets, as of December 31, 2025. Net charge-offs for the three months ended June 30, 2026 were $14.3 million, or 0.32% of average loans and leases on an annualized basis, compared to $5.1 million, or 0.21% of average loans and leases on an annualized basis, for the three months ended June 30, 2025.

The ratio of the allowance for loan and lease losses to total loans and leases was 1.34% as of June 30, 2026, compared to 1.40% as of December 31, 2025.

The ratio of the allowance for loan and lease losses to nonaccrual loans and leases was 156.04% as of June 30, 2026, compared to 221.49% as of December 31, 2025.

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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 11.57% as of June 30, 2026, compared to 10.95% as of December 31, 2025. The Company's Tier 1 leverage ratio was 9.80% as of June 30, 2026, compared to 9.25% as of December 31, 2025. As of June 30, 2026, the Company's Tier 1 risk-based capital ratio was 11.74%, compared to 11.12% as of December 31, 2025. The Company's Total risk-based capital ratio was 13.61% as of June 30, 2026, compared to 13.01% as of December 31, 2025.

The Company's ratio of stockholders' equity to total assets was 11.41% and 10.75% as of June 30, 2026 and December 31, 2025, respectively. The Company's ratio of tangible stockholders' equity to tangible assets (non-GAAP) was 9.25% and 8.62% as of June 30, 2026 and December 31, 2025, respectively.

Net Income

For the three months ended June 30, 2026, the Company reported a net income of $64.4 million, or $0.77 per basic and diluted share, an increase of $42.4 million, or 192.5%, from net income of $22.0 million, or $0.25 per basic and diluted share, for the three months ended June 30, 2025. This increase in net income is primarily the result of an increase in net interest income of $104.5 million, an increase in non-interest income of $20.0 million, and a decrease in provision for credit losses on loans of $2.0 million, partially offset by an increase of $69.2 million in non-interest expense and an increase in the provision for income taxes of $15.0 million. Refer to "Non-G

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

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.

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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.

Net Income

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.

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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

Description. 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.

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