Beacon Financial Corp: Form 10-Q for the period ended Mar 31, 2026

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 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, 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 144 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 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 deposit 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 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 17.1% on an annualized basis, to $22.2 billion as of March 31, 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. Cash, cash equivalents and available for sale investment securities decreased $0.9 billion, or 96.4% on an annualized basis, to $2.8 billion as of March 31, 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 12.7% of total assets as of March 31, 2026.

Total loans and leases decreased $105.4 million, or 2.3% on an annualized basis, to $17.9 billion as of March 31, 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 77.9% of total loans and leases as of March 31, 2026 and represented 77.4% of total loans and leases as of December 31, 2025.

Total investment securities increased $29.9 million, or 7.1% on an annualized basis, to $1.7 billion as of March 31, 2026 from $1.7 billion as of December 31, 2025.

Cash and cash equivalents decreased $0.9 billion, or 182.0% on an annualized basis, to $1.1 billion as of March 31, 2026 from $2.0 billion as of December 31, 2025. The decrease was primarily due to the fluctuation within payroll deposits.

Total deposits decreased $1.2 billion, or 25.1% on an annualized basis, to $18.3 billion as of March 31, 2026 from $19.5 billion as of December 31, 2025, consisting of a $276.0 million decrease in customer deposits, a $664.9 million decrease in payroll deposits, and a $281.5 million decrease in brokered deposits. The decline in customer deposits was driven largely by seasonal first quarter factors such as tax payments, with additional movement concentrated in a small number of rate‑sensitive, higher‑cost accounts. Core consumer and relationship-based deposits remain stable. Core deposits, which include demand checking, NOW, non-payroll money market and savings accounts, totaled $12.9 billion, or 70.3% of total deposits, as of March 31, 2026, a decrease of $0.2 billion 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 March 31, 2026, a decrease of $664.9 million, or 141.6% 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 22.3% of total deposits as of March 31, 2026, a decrease of $0.1 billion, or 6.8% on an annualized basis, from $4.2 billion, or 21.3% of total deposits as of December 31, 2025. Brokered deposits totaled $128.8 million, or 0.7% of total deposits as of March 31, 2026, a decrease of $281.5 million, or 274.4% on an annualized basis, from $410.4 million, or 2.1% of total deposits as of December 31, 2025.

Total borrowed funds increased $284.1 million, or 144.2% on an annualized basis, to $1.1 billion as of March 31, 2026 from $0.8 billion as of December 31, 2025.

Asset Quality

Nonperforming assets as of March 31, 2026 totaled $151.2 million, or 0.68% 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 March 31, 2026 were $13.6 million, or 0.30% of average loans and leases on an annualized basis, compared to $7.6 million, or 0.31% of average loans and leases on an annualized basis, for the three months ended March 31, 2025.

The ratio of the allowance for loan and lease losses to total loans and leases was 1.36% as of March 31, 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 164.44% as of March 31, 2026, compared to 221.49% as of December 31, 2025.

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 11.24% as of March 31, 2026, compared to 10.95% as of December 31, 2025. The Company's Tier 1 leverage ratio was 9.59% as of March 31, 2026, compared to 9.25% as of December 31, 2025. As of March 31, 2026, the Company's Tier 1 risk-based capital ratio was 11.40%, compared to 11.12% as of December 31, 2025. The Company's Total risk-based capital ratio was 13.27% as of March 31, 2026, compared to 13.01% as of December 31, 2025.

The Company's ratio of stockholders' equity to total assets was 11.27% and 10.75% as of March 31, 2026 and December 31, 2025, respectively. The Company's ratio of tangible stockholders' equity to tangible assets (non-GAAP) was 9.07% and 8.62% as of March 31, 2026 and December 31, 2025, respectively.

Net Income

For the three months ended March 31, 2026, the Company reported a net income of $46.2 million, or $0.55 per basic and diluted share, an increase of $27.1 million, or 142.0%, from net income of $19.1 million, or $0.21 per basic and diluted share, for the three months ended March 31, 2025. This increase in net income is primarily the result of an increase in net interest income of $104.9 million and an increase in non-interest income of $18.3 million, partially offset by an increase of $80.8 million in non-interest expense, an increase in the provision for income taxes of $13.4 million, and an increase in provision for credit losses on loans of $1.9 million. Refer to "Non-GAAP Financial Measures and Reconciliation to GAAP" for operating earnings measures. Refer to“Results of Operations" below for further discussion.

The annualized return on average assets was 0.84% for the three months ended March 31, 2026, compared to 0.66% for the three months ended March 31, 2025. The annualized return on average stockholders' equity was 7.32% for the three months ended March 31, 2026, compared to 6.19% for the three months ended March 31, 2025.

The net interest margin was 3.78% for the three months ended March 31, 2026, up from 3.22% for the three months ended March 31, 2025. The increase in the net interest margin was a result of a decrease of 61 basis points in the Company's cost of interest-bearing liabilities to 2.68% for the three months ended March 31, 2026 from 3.29% for the three months ended March 31, 2025, and an increase in the yield on interest-earning assets of 3 basis points to 5.70% for the three months ended March 31, 2026 from 5.67% for the three months ended March 31, 2025.

The Company’s net interest margin and net interest income are sensitive to the structure and level of interest rates as well as competitive pricing in all loan and deposit categories.

Critical Accounting Policies and Estimates

The SEC defines “critical accounting policies” as those involving significant judgments and difficult or complex assumptions by management, often as a result of the need to make estimates about matters that are inherently uncertain or variable, which have, or could have, a material impact on the carrying value of certain assets or net income. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. As discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, management has identified the determination of the ACL as the Company’s most critical accounting policy.

As a result of the Transaction, business combinations became a critical accounting policy.

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, core deposit intangibles and time deposits. 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 November 2025, the FASB issued ASU 2025-08, "Financial Instruments - Credit Losses (Topic 326): Purchased Loans" ("ASU 2025-08"). 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 of 2025, as permitted under the guidance.

In November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (subtopic 220-40): Disaggregation of Income Statement Expense". This ASU updates the disclosure and presentation requirements for certain expenses. This ASU is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The adoption is not expected to have a material impact on the Company’s consolidated financial statements.

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 operating earnings metrics, the return on average tangible assets, return on average tangible equity, the tangible stockholders' equity to tangible assets 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 following table reconciles the Company’s operating earnings, operating return on average assets and operating return on average stockholders’ equity for the periods indicated:

(Dollars in Thousands)

(1) For the three months ended March 31, 2026 and 2025, merger and restructuring expense was related to the Transaction.

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

(Dollars in Thousands)

48

(Dollars in Thousands)

The following table reconciles the Company's tangible equity ratio for the periods indicated:

(Dollars in Thousands)

49

The following table reconciles the Company's tangible book value per share for the periods indicated:

(Dollars in Thousands)

The following table reconciles the Company's dividend payout ratio for the periods indicated:

(Dollars in Thousands)

50

Financial Condition

Loans and Leases

The following table summarizes the Company's portfolio of loan and lease receivables as of the dates indicated:

(Dollars in Thousands)

The following table sets forth the growth in the Company’s loan and lease portfolios during the three months ended March 31, 2026:

(Dollars in Thousands)

The Company's loan portfolio consists primarily of first mortgage loans secured by commercial, multi-family and residential real estate properties located in the Company's primary lending area, loans to business entities, including commercial lines of credit, loans to condominium associations and loans and leases used to finance equipment used by small businesses. The Company also provides financing for construction and development projects, home equity and other consumer loans.

The Company employs seasoned commercial lenders and retail bankers who rely on community and business contacts as well as referrals from customers, attorneys and other professionals to generate loans and deposits. Existing borrowers are also an important source of business since many of them have more than one loan outstanding with the Company. The Company's ability to originate loans depends on the strength of the economy, trends in interest rates, and levels of customer demand and market competition.

The Company's current policy is that a total credit exposure to one obligor relationship may not exceed $90.0 million unless approved by the Company's Credit Committee. As of March 31, 2026, there were zero borrowers with loans and commitments over $90.0 million. As of December 31, 2025, the Company's maximum credit exposure was $90.0 million and there was one borrower with loans and commitments over $90.0 million. The total of those loans and commitments was $94.9 million, or 0.8% of total loans and commitments, as of December 31, 2025.

The Company has written underwriting policies to control the inherent risks in loan origination. The policies address approval limits, loan-to-value ratios, appraisal requirements, debt service coverage ratios, loan concentration limits and other matters relevant to loan underwriting.

Commercial Real Estate Loans

The commercial real estate portfolio is composed of commercial real estate loans, multi-family mortgage loans, and construction loans and is the largest component of the Company's overall loan portfolio, representing 55.6% of total loans and leases outstanding as of March 31, 2026.

Typically, commercial real estate loans are larger in size and involve a greater degree of risk than owner-occupied residential mortgage loans. Loan repayment is usually dependent on the successful operation and management of the properties and the value of the properties securing the loans. Economic conditions can greatly affect cash flows and property values.

A number of factors are considered in originating commercial real estate and multi-family mortgage loans. The qualifications and financial condition of the borrower (including credit history), as well as the potential income generation and the value and condition of the underlying property, are evaluated. When evaluating the qualifications of the borrower, the Company considers the financial resources of the borrower, the borrower's experience in owning or managing similar property and the borrower's payment history with the Company and other financial institutions. Factors considered in evaluating the underlying property include the net operating income of the mortgaged premises before debt service and depreciation, the debt service coverage ratio (the ratio of cash flow before debt service to debt service), the use of conservative capitalization rates, and the ratio of the loan amount to the appraised value. Generally, personal guarantees are obtained from commercial real estate loan borrowers.

Commercial real estate and multi-family mortgage loans are typically originated for terms of five to fifteen years with amortization periods of 20 to 30 years. Many of the loans are priced at inception on a fixed-rate basis generally for periods ranging from two to five years with repricing periods for longer-term loans. When possible, prepayment penalties are included in loan covenants on these loans. For commercial customers who are interested in loans with terms longer than five years, the Company offers loan level derivatives to accommodate customer need.

The Company's urban and suburban market area is characterized by a large number of apartment buildings, condominiums and office buildings. As a result, commercial real estate and multi-family mortgage lending has been a significant part of the Company's activities for many years. These types of loans typically generate higher yields, but also involve greater credit risk. Many of the Company's borrowers have more than one multi-family or commercial real estate loan outstanding with the Company.

The Company's commercial real estate portfolio is composed primarily of loans secured by apartment buildings $2.8 billion), retail stores ($2.0 billion), industrial properties ($1.6 billion), office buildings ($1.2 billion), and lodging services ($556.8 million) as of March 31, 2026.

The following table presents the percentage of the Company's commercial real estate loan portfolio by borrower type that is owner and non-owner occupied as of March 31, 2026.

The following table presents the percentage of the Company's commercial real estate loan portfolio by geographic concentration that is owner and non-owner occupied as of March 31, 2026.

Construction and development financing is generally considered to involve a higher degree of risk than long-term financing on improved, occupied real estate and thus has lower concentration limits than do other commercial credit classes. Risk of loss on a construction loan is largely dependent upon the accuracy of the initial estimate of construction costs, the estimated time to sell or rent the completed property at an adequate price or rate of occupancy, and market conditions. If the estimates and projections prove to be inaccurate, the Company may be confronted with a project which, upon completion, has a value that is insufficient to assure full loan repayment.

Criteria applied in underwriting construction loans for which the primary source of repayment is the sale of the property are different from the criteria applied in underwriting construction loans for which the primary source of repayment is the stabilized cash flow from the completed project. For those loans where the primary source of repayment is from resale of the property, in addition to the normal credit analysis performed for other loans, the Company also analyzes project costs, the attractiveness of the property in relation to the market in which it is located and demand within the market area. For those construction loans where the source of repayment is the stabilized cash flow from the completed project, the Company analyzes not only project costs but also how long it might take to achieve satisfactory occupancy and the reasonableness of projected rental rates in relation to market rental rates.

Commercial Loans

The Company's commercial loan and lease portfolio is composed of commercial loans & equipment financing loans and leases, which represented 22.4% of total loans outstanding as of March 31, 2026.

The Company's commercial loan and lease portfolio is composed primarily of loans and leases to small to medium sized businesses ($1.4 billion), retail ($434.1 million), recreation services ($362.4 million), manufacturing ($321.0 million), rental and leasing services ($220.3 million), food services ($184.9 million), and transportation services ($132.7 million) as of March 31, 2026.

The following table presents the percentage of the Company's commercial loan portfolio by geographic concentration as of March 31, 2026.

The Company provides commercial banking services to companies in its market areas. Product offerings include lines of credit, term loans, letters of credit, deposit services and cash management. These types of credit facilities have as their primary source of repayment cash flows from the operations of businesses. Interest rates offered are available on a floating basis tied to the prime rate or a similar index or on a fixed-rate basis referenced on the FHLB indices.

Credit extensions are made to established businesses on the basis of loan purpose and assessment of capacity to repay as determined by an analysis of their financial statements, the nature of collateral to secure the credit extension and, in most instances, the personal guarantee of the owner of the business as well as industry and general economic conditions.

The Company’s equipment financing divisions focus on market niches in which its lenders have deep experience and industry contacts, and on making loans to customers with business experience. An important part of the Company’s equipment financing loan origination volume comes from equipment manufacturers, distributors, and owner-operated start-ups as well as existing customers that are expanding their operations. The equipment financing portfolio is composed primarily of loans to finance vended-laundry, and to a lesser degree larger industrial laundries, tow trucks, fitness, and convenience/grocery stores. Typically, the loans are priced at a fixed rate of interest and require monthly payments over their 5- to 10-year life. The yields earned on equipment financing loans are higher than those earned on the commercial loans made by the Bank because they involve a higher degree of credit risk. Equipment financing customers are typically small-business owners who operate with limited financial resources and who face greater risks when the economy weakens or unforeseen adverse events arise. Because of these characteristics, personal guarantees of borrowers are usually obtained along with liens on available assets. The size of loan is determined by an analysis of cash flow and other characteristics pertaining to the business and the equipment to be financed, based on detailed revenue and profitability data of similar operations.

Consumer Loans

The consumer loan portfolio, which is composed of residential mortgage loans, home equity loans and lines of credit, and other consumer loans, represented 22.0% of total loans outstanding as of March 31, 2026. The Company focuses its mortgage and home equity lending on existing and new customers within its branch networks.

The Company originates adjustable- and fixed-rate residential mortgage loans secured by one- to four-family residences. Each residential mortgage loan granted is subject to a satisfactorily completed application, employment verification, credit history and a demonstrated ability to repay the debt. Generally, loans are not made when the loan-to-value ratio exceeds 80% unless private mortgage insurance is obtained and/or there is a financially strong guarantor. Appraisals are performed by outside independent fee appraisers.

Underwriting guidelines for home equity loans and lines of credit are similar to those for residential mortgage loans. Home equity loans and lines of credit are limited to no more than 80% of the appraised value of the property securing the loan including the amount of any existing first mortgage liens.

Other consumer loans have historically been a modest part of the Company's loan originations. As of March 31, 2026, other consumer loans equaled $131.0 million, or 0.7% of total loans outstanding.

Asset Quality

Criticized and Classified Assets

The Company's management rates certain loans and leases as OAEM, "substandard" or "doubtful" based on criteria established under banking regulations. These loans and leases are collectively referred to as "criticized" assets. Loans and leases rated OAEM have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the loan or lease at some future date. Loans and leases rated as substandard are inadequately protected by the payment capacity of the obligor or of the collateral pledged, if any. Substandard loans and leases have a well-defined weakness or weaknesses that jeopardize the liquidation of debt and are characterized by the distinct possibility that the Company will sustain some loss if existing deficiencies are not corrected. Loans and leases rated as doubtful have well-defined weaknesses that jeopardize the orderly liquidation of debt and partial loss of principal is likely. As of March 31, 2026, the Company had $797.6 million of total assets that were designated as criticized. This compares to $683.7 million of assets designated as criticized as of December 31, 2025. The increase of $113.9 million in criticized assets was primarily driven by downgrades in four loans in our commercial real estate portfolio.

Nonperforming Assets

"Nonperforming assets" consist of nonaccrual loans and leases, OREO and other repossessed assets. Under certain circumstances, the Company may restructure the terms of a loan or lease as a concession to a borrower, except for acquired loans and leases which are individually evaluated against expected performance on the date of acquisition. These restructured loans and leases are generally considered "nonperforming loans and leases" until a history of collection of at least six months on the restructured terms of the loan or lease has been established. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of a deed in lieu of foreclosure. Other repossessed assets consist of assets that have been acquired through foreclosure that are not real estate and are included in other assets on the Company's unaudited consolidated balance sheets.

Accrual of interest on loans generally is discontinued when contractual payment of principal or interest becomes past due 90 days or, if in management's judgment, reasonable doubt exists as to the full timely collection of interest. When a loan is placed on nonaccrual status, interest accruals cease and all previously accrued and uncollected interest is reversed and charged against current interest income. Interest payments on nonaccrual loans are generally applied to principal. If collection of the principal is reasonably assured, interest payments are recognized as income on the cash basis. Loans are generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured and a consistent record of at least six months of performance has been achieved.

In cases where a borrower experiences financial difficulties and the Company makes or reasonably expects to make certain concessionary modifications to contractual terms, the loan is classified as a modified loan. In determining whether a debtor is experiencing financial difficulties, the Company considers, among other factors, if the debtor is in payment default or is likely to be in payment default in the foreseeable future without the modification, the debtor declared or is in the process of declaring bankruptcy, there is substantial doubt that the debtor will continue as a going concern, the debtor's entity-specific projected cash flows will not be sufficient to service its debt, or the debtor cannot obtain funds from sources other than the existing creditors at market terms for debt with similar risk characteristics.

As of March 31, 2026, the Company had nonperforming assets of $151.2 million, representing 0.68% of total assets, compared to nonperforming assets of $116.7 million, or 0.50% of total assets as of December 31, 2025. The increase of $34.5 million in nonperforming assets during the three months ended March 31, 2026 was primarily driven by increases in nonperforming commercial real estate and multi-family loans, partially offset by a decline in equipment financing nonperforming balances.

The Company evaluates the underlying collateral of each nonaccrual loan and lease and continues to pursue the collection of interest and principal. Management believes that the current level of nonperforming assets remains manageable relative to the size of the Company's loan and lease portfolio. If economic conditions were to worsen or if the marketplace were to experience prolonged economic stress, it is likely that the level of nonperforming assets would increase, as would the level of charged-off loans.

Past Due and Accruing

As of March 31, 2026, the Company had $5.8 million loans and leases greater than 90 days past due and accruing, compared to $37.8 million loans as of December 31, 2025.

The following table sets forth information regarding nonperforming assets for the periods indicated:

(Dollars in Thousands)

Allowance for Credit Losses

The ACL consists of general and specific allowances and reflects management's estimate of expected loan and lease losses over the life of the loan or lease. Management uses a consistent and systematic process and methodology to evaluate the adequacy of the ACL on a quarterly basis. Management continuously evaluates and challenges inputs and assumptions in the ACL.

While management evaluates currently available information in establishing the ACL, future adjustments to the allowance for loan and lease losses may be necessary if conditions differ substantially from the assumptions used in making the evaluations. Management performs a comprehensive review of the ACL on a quarterly basis. In addition, various regulatory agencies, as an integral part of their examination process, periodically review a financial institution's ACL and carrying amounts of OREO. Such agencies may require the financial institution to recognize additions or reductions to the allowance based on their judgments about information available to them at the time of their examination.

The Company’s allowance methodology provides a quantification of estimated losses in the portfolio. Under the current methodology, management estimates losses over the life of the loan using reasonable and supportable forecasts. Forecasts, loan data, and model documentation are extensively analyzed and reviewed throughout the quarter to ensure estimated losses are appropriate at quarter end. Qualitative adjustments are applied to account for risk factors not captured by the model. These adjustments are thoroughly reviewed and documented to provide clarity and a reasonable basis for any deviations from the model. For March 31, 2026, qualitative adjustments were applied to the commercial real estate, commercial, and consumer portfolios resulting in a net addition in total reserves compared to modeled calculations.

The following tables present the changes in the allowance for loan and lease losses by portfolio category for the three months ended March 31, 2026 and 2025.

(In Thousands)

(In Thousands)

At March 31, 2026, the allowance for loan and lease losses decreased to $244.4 million, or 1.36% of total loans and leases outstanding. This compared to an allowance for loan and lease losses of $252.8 million, or 1.40% of total loans and leases outstanding, as of December 31, 2025.

Net charge-offs on loans and leases for the three months ended March 31, 2026 and 2025 were $13.6 million and $7.6 million, respectively. As a percentage of average loans and leases, annualized net charge-offs for the three months ended March 31, 2026 and 2025 were 0.30% and 0.31%, respectively. The year over year increase in net charge-offs was primarily due to increases in net charge-offs of $7.0 million in commercial real estate loans.

As of March 31, 2026, the Company had $192.9 million loans and leases delinquent more than 30 days, compared to $176.2 million loans as of December 31, 2025. The increase of $17.2 million was primary driven by higher delinquencies in commercial real estate mortgage loans and leases.

The following table sets forth the Company's percent of allowance for loan and lease losses to the total allowance for loan and lease losses, and the percent of loans to total loans for each of the categories listed at the dates indicated.

(Dollars in Thousands)

Management believes that the allowance for loan and lease losses as of March 31, 2026 is appropriate.

Investment Securities

The investment portfolio exists primarily for liquidity purposes, and secondarily as a source of interest and dividend income, interest-rate risk management and tax planning as a counterbalance to loan and deposit flows. Investment securities are utilized as part of the Company's asset/liability management and may be sold in response to, or in anticipation of, factors such as changes in market conditions and interest rates, security prepayment rates, deposit outflows, liquidity concentrations and regulatory capital requirements.

The investment policy of the Company, which is reviewed and approved by the Board of Directors on an annual basis, specifies the types of investments that are acceptable, required investment ratings by at least one nationally recognized rating agency, concentration limits and duration guidelines. Compliance with the investment policy is monitored on a regular basis. In general, the Company seeks to maintain a high degree of liquidity and targets cash, cash equivalents and investment securities available-for-sale balances between 10% and 14% of total assets.

Cash, cash equivalents, and investment securities decreased $0.9 billion to $2.8 billion as of March 31, 2026, from $3.7 billion as of December 31, 2025. Cash, cash equivalents, and investment securities were 12.7% of total assets as of March 31, 2026, compared to 16.1% of total assets at December 31, 2025.

The following table sets forth certain information regarding the amortized cost and market value of the Company's investment securities at the dates indicated:

(In Thousands)

The fair value of investment securities is based principally on market prices and dealer quotes received from third-party, nationally-recognized pricing services for identical investment securities such as U.S. Treasury and agency securities. The Company's marketable equity securities are priced this way and are included in Level 1 of the fair value hierarchy in accordance with the “Fair Value Measurements and Disclosures” Topic of the FASB, or ASC 820. These prices are validated by comparing the primary pricing source with an alternative pricing source when available. When quoted market prices for identical securities are unavailable, the Company uses market prices provided by independent pricing services based on recent trading activity and other observable information, including but not limited to market interest-rate curves, referenced credit spreads and estimated prepayment speeds where applicable. These investments include certain U.S. and government agency debt securities, municipal and corporate debt securities, GSE residential MBSs and CMOs, all of which are included in Level 2. Certain fair values are estimated using pricing models and are included in Level 3.

Additionally, management reviews changes in fair value from period to period and performs testing to ensure that prices received from the third parties are consistent with their expectation of the market. Changes in the prices obtained from the pricing service are analyzed from month to month, taking into consideration changes in market conditions including changes in mortgage spreads, changes in U.S. Treasury security yields and changes in generic pricing of 15-year and 30-year securities. Additional analysis may include a review of prices provided by other independent parties, a yield analysis, a review of average life changes using Bloomberg analytics and a review of historical pricing for the particular security.

Maturities, calls and principal repayments for investment securities available-for-sale totaled $89.2 million for the three months ended March 31, 2026 compared to $27.2 million for the same period in 2025. For the three months ended March 31, 2026 and 2025 , the Company did not sell any investment securities available-for-sale. For the three months ended March 31, 2026, the Company purchased $129.1 million of investment securities available-for-sale, compared to $0.7 million for the same period in 2025.

As of March 31, 2026, the fair value of all investment securities available-for-sale was $1.7 billion with $42.7 million of net unrealized losses, compared to a fair value of $1.7 billion and net unrealized losses of $27.5 million as of December 31, 2025. As of March 31, 2026, $1.0 billion, or 59.5%, of the portfolio, had gross unrealized losses of $51.0 million. This compares to $552.9 million, or 32.7%, of the portfolio with gross unrealized losses of $44.7 million as of December 31, 2025. The Company's unrealized loss position increased in 2026 primarily driven by a increase in current market rates.

Restricted Equity Securities

*FHLB of Boston and FHLB of New York Stock—*The Company invests in the stock of the FHLB of Boston and FHLB of New York as a requirement to borrow funds from the FHLB. As of March 31, 2026, the Company owned stock in the FHLBs with a carrying value of $39.6 million, an increase of $10.2 million from $29.4 million as of December 31, 2025.

*Federal Reserve Bank Stock—*The Company invests in the stock of the Federal Reserve Bank of Boston and the Federal Reserve Bank of New York as a condition of the Bank's membership in the Federal Reserve System. As of March 31, 2026 the Company owned stock in the Federal Reserve Banks with a carrying value of $57.2 million, a decrease of $0.2 million from $57.4 million as of December 31, 2025.

*Other Stock—*The Company invests in a small number of other restricted equity securities. As of March 31, 2026, the Company owned stock in other restricted equity securities with a carrying value of $0.6 million, unchanged from December 31, 2025.

Deposits

The following table presents the Company's deposit mix at the dates indicated.

(Dollars in Thousands)

Total deposits decreased $1.2 billion to $18.3 billion as of March 31, 2026, compared to $19.5 billion as of December 31, 2025. Deposits as a percentage of total assets was 82.3% and 84.0% as of March 31, 2026 and December 31, 2025, respectively.

During the three months ended March 31, 2026, Core deposits decreased $0.2 billion. The ratio of Core deposits to total deposits decreased to 70.3% as of March 31, 2026 from 67.0% as of December 31, 2025.

Payroll deposits totaled $1.2 billion as of March 31, 2026, compared to $1.9 billion as of December 31, 2025.

Certificate of deposit accounts were $4.1 billion as of March 31, 2026, compared to $4.2 billion as of December 31, 2025. Certificate of deposit accounts increased as a percentage of total deposits to 22.3% as of March 31, 2026 from 21.3% as of December 31, 2025.

Brokered deposits decreased $281.5 million to $128.8 million as of March 31, 2026, compared to $410.4 million as of December 31, 2025. Brokered deposits decreased as a percentage of total deposits to 0.7% as of March 31, 2026 from 2.1% as of December 31, 2025. Brokered deposits allow the Company to seek additional funding by attracting deposits from outside the Company's core market. The Company's investment policy limits the total amount of brokered deposits the Company may hold to 15% of total assets.

The following table sets forth the distribution of the average balances of the Company's deposit accounts for the periods indicated and the weighted average interest rates on each category of deposits presented. Averages for the periods presented are based on daily balances.

(Dollars in Thousands)

As of March 31, 2026 and December 31, 2025, the Company had outstanding certificates of deposit of $250,000 or more, maturing as follows:

(Dollars in Thousands)

In accordance with the FDIC’s Call Report instructions, the Company reported uninsured deposits of $7.1 billion as of March 31, 2026 which includes approximately $665.8 million of internal operating deposit accounts. The Company participates in the IntraFi Network. This allows customers to seek increased FDIC insurance protection above the federally insured limit of $250,000. The Company had total IntraFi Network deposits as of March 31, 2026 of $929.4 million which are excluded from our uninsured deposit total.

Borrowed Funds

The following table sets forth certain information regarding advances from the FHLB, subordinated debentures and notes and other borrowed funds for the periods indicated:

(Dollars in Thousands)

Advances from the FHLB

The Company uses FHLB borrowings and other wholesale borrowings as part of the Company's overall strategy to fund loan growth and manage interest rate risk and liquidity. The advances are secured by a blanket security agreement which requires the Bank to maintain certain qualifying assets as collateral, principally mortgage loans and securities in an aggregate amount at least equal to outstanding advances. The maximum amount that the FHLB will advance to member institutions, including the Company, fluctuates from time to time in accordance with the policies of the FHLB.

FHLB borrowings increased $266.3 million to $822.1 million as of March 31, 2026 with a total capacity of $4.6 billion. As of December 31, 2025, FHLB borrowings stood at $555.8 million.

Subordinated Debentures and Notes

The Company has two $5.0 million subordinated debentures due on June 26, 2033 and March 17, 2034, respectively. The Company is obligated to pay 3-month CME term SOFR plus spread adjustment of 0.26% plus 3.10% and 3-month CME term SOFR plus spread adjustment of 0.26% plus 2.79%, respectively, on a quarterly basis until the debentures mature.

The Company sold $75.0 million of 6.0% fixed-to-floating rate subordinated notes due September 15, 2029. The Company is obligated to pay 3-month CME term SOFR plus spread adjustment of 0.26% plus 3.32% quarterly until the notes mature in September 2029.

In connection with the Transaction, the Company assumed ten year subordinated notes in the amount of $100.0 million. The interest rate is fixed at 5.50% until June 30, 2027, after which the notes become callable and will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be Three-Month Term SOFR), plus 249 basis points.

The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets with a cost of $0.5 million. The sole asset of Trust I is $15.5 million of the Company’s junior subordinated debentures due in 2035. These debentures bear interest at a variable rate equal to LIBOR plus 1.85%. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value on each quarterly payment date. Trust I is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust I is not consolidated into the Company’s financial statements.

The Company holds 100% of the common stock of SI Capital Trust II (“Trust II”) which is included in other assets with a cost of $0.2 million. The sole asset of Trust II is $8.2 million of the Company’s junior subordinated debentures due in 2036. These debentures bear interest at a variable rate equal to LIBOR plus 1.70%. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust II is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust II is not consolidated into the Company’s financial statements.

The following table summarizes the Company's subordinated debentures and notes at the dates indicated.

(Dollars in Thousands)

The above carrying amounts of the subordinated debentures included $0.2 million of accretion adjustments and $0.4 million of capitalized debt issuance costs as of March 31, 2026. This compares to $0.2 million of accretion adjustments and $0.4 million of capitalized debt issuance costs as of December 31, 2025.

Other Borrowed Funds

In addition to advances from the FHLB and subordinated debentures and notes, the Company utilizes other funding sources as part of the overall liquidity strategy. Those funding sources include repurchase agreements, and committed and uncommitted lines of credit with several financial institutions.

As of March 31, 2026, the Bank also has access to funding through certain uncommitted lines via AFX as well as other large financial institution specific lines. As of March 31, 2026 and December 31, 2025, the Company did not have borrowings on outstanding uncommitted lines of credit.

As of March 31, 2026, the Company had $50.5 million in interest-bearing cash received on collateral from dealer counterparties. This compares to $33.1 million outstanding as of December 31, 2025. This cash collateralizes the fair value of the dealer side of derivative transactions.

Derivative Financial Instruments

The Company has entered into loan level derivatives, risk participation agreements, and foreign exchange contracts with certain of its commercial customers and concurrently enters into offsetting swaps with third-party financial institutions. The Company may also, from time to time, enter into risk participation agreements. The Company uses interest rate futures that are designated and qualify as cash flow hedging instruments.

The following table summarizes certain information concerning the Company's loan level derivatives, interest rate derivatives, risk participation agreements, and foreign exchange contracts at March 31, 2026 and December 31, 2025:

(Dollars in Thousands)

Stockholders' Equity and Dividends

The Company's total stockholders' equity was $2.5 billion as of March 31, 2026 representing an $8.7 million increase compared to $2.5 billion at December 31, 2025. The increase for the three months ended March 31, 2026 was primarily driven by net income of $46.2 million, offset by dividends paid by the Company of $27.0 million, and unrealized loss on securities available for sale of $11.3 million.

Stockholders' equity represented 11.27% of total assets as of March 31, 2026 and 10.75% of total assets as of December 31, 2025. Tangible stockholders' equity (total stockholders' equity less goodwill and identified intangible assets, net) represented 9.07% of tangible assets (total assets less goodwill and identified intangible assets, net) as of March 31, 2026 and 8.62% as of December 31, 2025.

The dividend payout ratio was 58.49% for the three months ended March 31, 2026, compared to 62.98% for the same period in 2025.

Results of Operations

The primary drivers of the Company's net income are net interest income, which is strongly affected by the net yield on and growth of interest-earning assets and liabilities, the quality of the Company's assets, its levels of non-interest income and non-interest expense, and its tax provision.

The Company's net interest income represents the difference between interest income earned on its investments, loans and leases, and its cost of funds. Interest income is dependent on the amount of interest-earning assets outstanding during the period and the yield earned thereon. Cost of funds is a function of the average amount of deposits and borrowed money outstanding during the year and the interest rates paid thereon. The net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The increases or decreases, as applicable, in the components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are summarized under "Rate/Volume Analysis" below. Information as to the components of interest income, interest expense and average rates is provided under "Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin" below.

Because the Company's assets and liabilities are not identical in duration and in repricing dates, the differential between the two is vulnerable to changes in market interest rates as well as the overall shape of the yield curve. These vulnerabilities are inherent to the business of banking and are commonly referred to as "interest-rate risk." How interest-rate risk is measured and, once measured, how much interest-rate risk is taken on, are based on numerous assumptions and other subjective judgments. See the discussion in “Item 3. Quantitative and Qualitative Disclosures about Market Risk” below.

The quality of the Company's assets also influences its earnings. Loans and leases that are not paid on a timely basis and exhibit other weaknesses can result in the loss of principal and/or interest income. Additionally, the Company must make timely provisions to the allowance for loan and lease losses based on estimates of probable losses inherent in the loan and lease portfolio. These additions, which are charged against earnings, are necessarily greater when greater probable losses are expected. Further, the Company incurs expenses as a result of resolving troubled assets. These variables reflect the "credit risk" that the Company takes on in the ordinary course of business and are further discussed under "Financial Condition—Asset Quality" above.

Net Interest Income

Net interest income increased $104.9 million to $190.8 million for the three months ended March 31, 2026 from $85.8 million for the three months ended March 31, 2025. This increase reflects a $123.6 million increase in interest income on loans and leases, along with a $15.0 million increase in interest income in investment securities, partially offset by a $33.7 million increase in interest expense on deposits and borrowings. The increases year over year are primarily a result of the Transaction. Refer to “Results of Operations - Comparison of the Three-Month Period Ended March 31, 2026 and March 31, 2025 — Interest Income” and “Results of Operations - Comparison of the Three-Month Period Ended March 31, 2026 and March 31, 2025 — Interest Expense -Deposit and Borrowed Funds” below for more details.

Net interest margin increased 56 basis points to 3.78% for the three months ended March 31, 2026 from 3.22% for the three months ended March 31, 2025. The Company's weighted average interest rate on loans increased to 5.96% for the three months ended March 31, 2026 from 5.92% for the three months ended March 31, 2025.

The yield on interest-earning assets increased to 5.70% for the three months ended March 31, 2026 from 5.67% for the three months ended March 31, 2025. During the three months ended March 31, 2026, the Company recorded $0.6 million in prepayment penalties and late charges, which contributed 1 basis point to yields on interest-earning assets, compared to $0.6 million, or 2 basis points, for the three months ended March 31, 2025.

The cost of interest-bearing liabilities decreased 61 basis points to 2.68% for the three months ended March 31, 2026 from 3.29% for the three months ended March 31, 2025. Refer to "Financial Condition - Borrowed Funds" above for more details.

Management aims to position the balance sheet to be neutral to changes in interest rates. With the market's expectation for no additional FRB rate cuts in 2026 and with the Treasury yield curve becoming steeper since the prior quarter end, management anticipates that the net interest margin will be stable in the near term.

If the FRB cuts rates in the coming quarters, the net interest income and the net interest margin will be highly dependent on the Company's ability and timing to reduce deposit pricing as well as the overall mix of funding.

Average Balances, Net Interest Income, Interest-Rate Spread and Net Interest Margin

The following table sets forth information about the Company's average balances, interest income and interest rates earned on average interest-earning assets, interest expense and interest rates paid on average interest-bearing liabilities, interest-rate spread and net interest margin for the three months ended March 31, 2026 and March 31, 2025. Average balances are derived from daily average balances and yields include fees, costs and purchase-accounting-related premiums and discounts which are considered adjustments to coupon yields in accordance with GAAP.

(Dollars in Thousands)

(1) Tax-exempt income on debt securities, equity securities and industrial revenue bonds are included in commercial loans on a tax-equivalent basis.

(2) Loans on nonaccrual status are included in the average balances.

(3) Including non-interest-bearing checking accounts, the average interest rate on total deposits was 2.03% and 2.44% in the three months ended March 31, 2026 and March 31, 2025, respectively.

(4) Interest-rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(5) Net interest margin represents net interest income (tax equivalent basis) divided by average interest-earning assets.

67

Rate/Volume Analysis

The following table presents, on a tax-equivalent basis, the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

(In Thousands)

68

Interest Income

Loans and Leases

(Dollars in Thousands)

(1) Change in tax-exempt income of $522 thousand is excluded from the three months ended tables above.

Total interest income from loans and leases was $266.9 million for the three months ended March 31, 2026, and represented a yield on total loans of 5.96%. This compares to $143.3 million of interest on loans and a yield of 5.92% for the three months ended March 31, 2025. The $123.6 million increase in interest income from loans and leases was primarily due to an increase of $118.3 million in the portfolio composition in origination volume and due to the Transaction and a $5.8 million increases in changes to interest rates, partially offset by a decrease of $0.5 million in the change of tax-exempt income.

Investments

(Dollars in Thousands)

(1) Change in tax-exempt income of $595 thousand is excluded from the three months ended table above.

Total interest income from investments was $25.4 million for the three months ended March 31, 2026, compared to $10.4 million for the three months ended March 31, 2025. For the three months ended March 31, 2026 and 2025, the yield on total investments was 3.9% and 3.6%, respectively. The year over year increase in interest income on investments of $15.0 million, or 144.3%, was primarily driven by a $13.5 million increase due to volume and a $1.5 million increase due to rates.

Interest Expense—Deposits and Borrowed Funds

(Dollars in Thousands)

Deposits

For the three months ended March 31, 2026, interest expense on deposits increased $39.6 million, or 74.0%, compared to the same period in 2025. The increase in interest expense on deposits was driven by an increase of $45.9 million primarily driven by the growth in volume of average customer deposits partially offset by a decline in average brokered deposits balance, offset by a decrease of $6.3 million due to lower interest rates. For the three months ended March 31, 2026, the purchase accounting amortization on acquired deposits was $887.0 thousand, compared to $112.0 thousand for the same period in 2025.

Borrowed Funds

For the three months ended March 31, 2026, interest expense on borrowed funds decreased $5.9 million, or 40.7% year over year. The decrease in interest expense on borrowed funds was primarily driven by a decrease of $3.9 million due to volume and a decrease of $2.0 million due to borrowing rates which decreased to 4.87% for the three months ended March 31, 2026 from 4.96% for the three months ended March 31, 2025. For the three months ended March 31, 2026, the purchase accounting amortization on acquired borrowed funds was $92.0 thousand, compared to $9.0 thousand for the same period in 2025.

Provision for Credit Losses

The provisions for credit losses are set forth below:

(Dollars in Thousands)

70

For the three months ended March 31, 2026, the provision for credit losses increased $2.0 million to $7.9 million, compared to a provision for credit losses of $6.0 million for the three months ended March 31, 2025. The increase in the provision for credit losses for the three months ended March 31, 2026 is primarily driven by the Transaction.

See management’s discussion of “Financial Condition — Allowance for Loan and Lease Losses” and Note 5, “Allowance for Loan and Lease Losses,” to the unaudited consolidated financial statements for a description of how management determined the allowance for loan and lease losses for each portfolio and class of loans.

Non-Interest Income

The following table sets forth the components of non-interest income:

(Dollars in Thousands)

Deposit fees increased $6.0 million, or 253.5%, to $8.3 million for the three months ended March 31, 2026, compared to $2.4 million for the same period in 2025, primarily driven by activity due to the Transaction.

Loan fees increased $2.0 million, or 502.0%, to $2.4 million for the three months ended March 31, 2026, compared to $0.4 million for the same period in 2025, primarily driven by activity due to the Transaction.

Loan level derivative income increased to $0.8 million for the three months ended March 31, 2026, compared to $0.1 million for the same period in 2025, as there were no loan level derivative transactions completed for the three months ended March 31, 2025.

Gains on sales of loans and leases held-for-sale, wealth management fees, and other income for the three months ended March 31, 2026 increased compared to the same period in 2025, primarily as a result of the Transaction.

Non-Interest Expense

The following table sets forth the components of non-interest expense:

(Dollars in Thousands)

71

Merger and restructuring expense increased to $13.0 million for the three months ended March 31, 2026, compared to $1.0 million for the same period in 2025. Excluding merger and restructuring expense, non-interest expense (non-GAAP) increased $68.7 million to $127.8 million for the three months ended March 31, 2026, compared to $59.1 million for the same period in 2025.

Compensation and employee benefits expense increased $33.8 million, or 94.3%, to $69.7 for the three months ended March 31, 2026, compared to $35.9 million for the same period in 2025, primarily driven by activity due to the Transaction.

Equipment and data processing expense increased $13.1 million, or 187.0%, to $20.1 million for the three months ended March 31, 2026, compared to $7.0 million for the same period in 2025, primarily driven by activity due to the Transaction.

Provision for Income Taxes

(Dollars in Thousands)

The Company recorded an income tax expense of $19.7 million for the three months ended March 31, 2026, compared to an income tax expense of $6.4 million for the three months ended March 31, 2025, representing effective tax rates of 29.9% and 25.0%, respectively. The increase in effective tax rate for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was primarily driven by Transaction related items, including the discrete tax impact of nondeductible expenses.

Liquidity and Capital Resources

Liquidity

Liquidity is defined as the ability to meet current and future financial obligations of a short-term nature. The Company further defines liquidity as the ability to respond to the needs of depositors and borrowers, as well as to earnings enhancement opportunities, in a changing marketplace. Liquidity management is monitored by the Company's ALCO, consisting of members of management, which is responsible for establishing and monitoring liquidity targets as well as strategies and tactics to meet these targets. The primary source of funds for the payment of dividends and expenses by the Company is dividends paid to it by the Bank. The primary sources of liquidity for the Bank consists of deposit inflows, loan repayments, borrowed funds, and maturing investment securities.

In the first quarter, the Company operated with decreased liquidity. Due to the Transaction, the Company shifted its balance sheet asset mix to include additional cash and available for sale securities. Management will continue to monitor the economic markets and evaluate changes to the Company’s liquidity position.

The Company held lower levels of on balance sheet liquidity in the form of cash and available for sale securities in the first quarter. Cash and equivalents at the end of the quarter were $1.1 billion, or 5.0% of the balance sheet, compared to $2.0 billion, or 8.8% of the balance sheet, as of December 31, 2025. In general, in a normal operating environment, the Company seeks to maintain liquidity levels of cash, cash equivalents and investment securities available-for-sale of between 10% and 14% of total assets. As of March 31, 2026, cash, cash equivalents and investment securities available-for-sale totaled $2.8 billion, or 12.7% of total assets. This compares to $3.7 billion, or 16.1% of total assets, as of December 31, 2025.

Deposits, which are considered the most stable source of liquidity, totaled $18.3 billion as of March 31, 2026 and represented 94.4% of total funding (the sum of total deposits and total borrowings), compared to deposits of $19.5 billion, or 96.1% of total funding, as of December 31, 2025. Core deposits totaled $12.9 billion as of March 31, 2026 and represented 70.3% of total deposits, compared to Core deposits of $13.1 billion, or 67.0% of total deposits, as of December 31, 2025. Additionally, the Company had $128.8 million of brokered deposits as of March 31, 2026, which represented 0.7% of total deposits, compared to $410.4 million or 2.1% of total deposits, as of December 31, 2025. The Company offers attractive interest rates based on market conditions to increase deposits balances, while managing the cost of funds.

Borrowings are used to diversify the Company's funding mix and to support asset growth. When profitable lending and investment opportunities exist, access to borrowings provides a means to grow the balance sheet. Borrowings totaled $1.1 billion as of March 31, 2026, representing 5.5% of total funding, compared to $0.8 billion, or 3.9% of total funding, as of

December 31, 2025. The growth in the balance sheet is driven by the Transaction, management will continue to monitor economic conditions and make adjustments to the balance sheet mix as appropriate.

As members of the FHLB, the Bank has access to both short- and long-term borrowings. As of March 31, 2026, the Company's total borrowing limit from the FHLB for advances and repurchase agreements was $4.6 billion, compared to $4.6 billion as of December 31, 2025.

As of March 31, 2026, the Bank also has access to funding through certain uncommitted lines via AFX as well as other large financial institution specific lines. As of March 31, 2026 and December 31, 2025, the Company had no borrowings on outstanding uncommitted lines of credit.

The Company has access to the Federal Reserve Discount Window to supplement its liquidity. The Company had $607.2 million of borrowing capacity at the FRB as of March 31, 2026. As of March 31, 2026, the Company did not have any outstanding borrowings with the FRB.

Additionally, the Bank has access to liquidity through repurchase agreements and additional untapped brokered deposits.

While management believes the Company has adequate liquidity to meet its commitments and to fund the Bank's lending and investment activities, the availabilities of these funding sources are subject to broad economic conditions and could be restricted in the future. Such restrictions would impact the Company's immediate liquidity and/or additional liquidity needs.

Off-Balance-Sheet Financial Instruments

The Company is party to off-balance-sheet financial instruments in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby and commercial letters of credit and interest-rate swaps. According to GAAP, these financial instruments are not recorded in the financial statements until they are funded or related fees are incurred or received. See Note 12, "Commitments and Contingencies", to the consolidated financial statements for a description of off-balance-sheet financial instruments.

Capital Resources

As of March 31, 2026, the Company and the Bank are under the primary regulation of, and must comply with, the capital requirements of the FRB. Under these rules, the Company and the Bank are required to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital leverage ratio of 6.0%, a minimum total risk based capital ratio of 8% and a minimum Tier 1 leverage ratio of 4%. Additionally, the Company and the Bank are required to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases. As of March 31, 2026, the Company and the Bank exceeded all regulatory capital requirements, and the Bank was considered “well-capitalized” under prompt corrective action regulations.

The following table presents actual and required capital amounts and capital ratios as of March 31, 2026 for the Company and the Bank.

(Dollars in Thousands)

(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets.

(2) Tier 1 leverage capital ratio is calculated by dividing Tier 1 capital by average assets.

(3) Tier 1 risk-based capital ratio is calculated by dividing Tier 1 capital by risk-weighted assets.

(4) Total risk-based capital ratio is calculated by dividing total capital by risk-weighted assets.

The following table presents actual and required capital amounts and capital ratios as of December 31, 2025 for the Company and the Bank.

(Dollars in Thousands)

(1) Common equity Tier 1 capital ratio is calculated by dividing common equity Tier 1 capital by risk-weighted assets.

(2) Tier 1 leverage capital ratio is calculated by dividing Tier 1 capital by average assets.

(3) Tier 1 risk-based capital ratio is calculated by dividing Tier 1 capital by risk-weighted assets.

(4) Total risk-based capital ratio is calculated by dividing total capital by risk-weighted assets.

Market Risk

Market risk is the risk that the market value or estimated fair value of the Company's assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that the Company's net income will be significantly reduced by interest-rate changes.

Interest-Rate Risk

The principal market risk facing the Company is interest-rate risk, which can occur in a variety of forms, including repricing risk, yield-curve risk, basis risk, and prepayment risk. Repricing risk occurs when the change in the average yield of either interest-earning assets or interest-bearing liabilities is more sensitive than the other to changes in market interest rates. Such a change in sensitivity could reflect a number of possible mismatches in the repricing opportunities of the Company's assets and liabilities. Yield-curve risk reflects the possibility that changes in the shape of the yield curve could have different effects on the Company's assets and liabilities. Basis risk occurs when different parts of the balance sheet are subject to varying base rates reflecting the possibility that the spread from those base rates will deviate. Prepayment risk is associated with financial instruments with an option to prepay before the stated maturity, often a disadvantage to person selling the option; this risk is most often associated with the prepayment of loans, callable investments, and callable borrowings.

Asset/Liability Management

Market risk and interest-rate risk management is governed by the Company's ALCO. The ALCO establishes exposure limits that define the Company's tolerance for interest-rate risk. The ALCO and the Company's Treasury Group measure and manage the composition of the balance sheet over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. The ALCO monitors current exposures versus limits and reports those results to the Board of Directors. The policy limits and guidelines serve as benchmarks for measuring interest-rate risk and for providing a framework for evaluation and interest-rate risk-management decision-making. The Company measures its interest-rate risk by using an asset/liability simulation model. The model considers several factors to determine the Company's potential exposure to interest-rate risk, including measurement of repricing gaps, duration, convexity, value-at-risk, market value of portfolio equity under assumed changes in the level of interest rates, the shape of yield curves, and general market volatility.

Management controls the Company's interest-rate exposure using several strategies, which include adjusting the maturities of securities in the Company's investment portfolio, limiting or expanding the terms of loans originated, limiting fixed-rate customer deposits with terms of more than five years, and adjusting maturities of wholesale funding. The Company limits this risk by restricting the types of MBSs it invests into those with limited average life changes under certain interest-rate-shock scenarios, or securities with embedded prepayment penalties. The Company also places limits on holdings of fixed-rate mortgage loans with maturities greater than five years. The Company enters into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed payments.

Measuring Interest-Rate Risk

As noted above, interest-rate risk can be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest-rate sensitivity gap. An asset or liability is said to be interest-rate sensitive within a specific period if it will mature or reprice within that period. The interest-rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive liabilities. A gap is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets. During a period of falling interest rates, a positive gap would tend to adversely affect net interest income. Conversely, during a period of rising interest rates, a positive gap position would tend to result in an increase in net interest income.

The Company's interest-rate risk position is measured using both income simulation and interest-rate sensitivity "gap" analysis. Income simulation is the primary tool for measuring the interest-rate risk inherent in the Company's balance sheet at a given point in time by showing the effect on net interest income, over a twelve-month period, of a variety of interest-rate shocks. These simulations take into account repricing, maturity, and prepayment characteristics of individual products. The ALCO reviews simulation results to determine whether exposure resulting from changes in market interest rates remains within established tolerance levels over a one-year and two-year horizon, and develops appropriate strategies to manage this exposure. The Company's interest-rate risk analysis remains modestly asset-sensitive as of March 31, 2026.

The assumptions used in the Company’s interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates.

As of March 31, 2026, net interest income simulation indicated that the Company's exposure to changing interest rates was within tolerance. The ALCO reviews the methodology utilized for calculating interest-rate risk exposure and may periodically adopt modifications to this methodology. The following table presents the estimated impact of interest-rate changes on the Company's estimated net interest income over the twelve-month periods indicated while maintaining a flat balance sheet:

(Dollars in Thousands)

Asset sensitivity increased at March 31, 2026 when compared to December 31, 2025 as a result of funding and asset mix changes. The estimated impact of a 400 basis point instantaneous increase in market interest rates on the Company's estimated net interest income over a twelve-month horizon was 12.1% as of March 31, 2026, compared to 9.4% as of December 31, 2025. The estimated impact of a 400 basis point instantaneous decrease in market interest rates on the Company's estimated net interest income over a twelve-month horizon was (6.3)% as of March 31, 2026, compared to (7.0)% as of December 31, 2025.

The Company also utilizes interest-rate sensitivity "gap" analysis to provide a broader overview of its interest-rate risk profile. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. As of March 31, 2026, the Company’s one-year cumulative gap was a positive $981.0 million, or 4.77% of total interest-earning assets, compared to a positive $0.5 billion, or 2.14% of total interest-earning assets, as of December 31, 2025.

The assumptions used in the Company's interest-rate sensitivity simulation discussed above are inherently uncertain and, as a result, the simulations cannot precisely measure net interest income or precisely predict the impact of changes in interest rates. For additional discussion on interest-rate risk see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

The EVE at Risk Simulation is conducted in tandem with net interest income simulations to ascertain a longer term view of the Company’s interest-rate risk position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of the economic value of equity to changes in interest rates. The EVE at Risk Simulation values only the current balance sheet and does not incorporate growth assumptions. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, and 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. The Company conducts non-maturity deposit behavior studies on a periodic basis to support deposit assumptions used in the valuation process. All key assumptions are subject to a periodic review.

EVE at Risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates as well as parallel shocks to the current interest-rate environment. The following table sets forth the estimated percentage change in the Company’s EVE at Risk, assuming various shifts in interest rates.

The Company's EVE-at-risk is modestly more asset sensitive from December 31, 2025 to March 31, 2026 driven by changes to the funding and asset mix.

Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), the Company has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer considered that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a -15(f). The Company’s internal control system was designed to provide reasonable assurance to its management and the Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company’s management assessed the effectiveness of its internal control over financial reporting as of the end of the period covered by this report. During the quarter ended March 31, 2026, the Company completed a core banking system conversion as a result of the Transaction which resulted in material changes to certain key financial reporting processes and the corresponding internal controls over financial reporting. Management has designed and implemented new controls and updated existing controls to reflect these changes.

Management’s Report on Internal Control Over Financial Reporting as of December 31, 2025 and the related Report of Independent Registered Public Accounting Firm thereon appear on pages F-1 and F-2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

There have been no material changes in the risk factors described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 2, 2026.