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. In estimating the allowance for credit losses, the Company relies on models and economic forecasts developed by external parties as the primary driver of the allowance for credit losses. These models and forecasts are based on nationwide sets of data. As a result, the Company has calibrated the output of these models to match the performance of a relevant set of peer institutions during the development dataset in order to make the results more relevant to the Company. Additionally, economic forecasts can change significantly over an economic cycle and have a significant level of uncertainty associated with them. The performance of the models is dependent on the variables used in the models being reasonable proxies for the portfolio’s performance; however, these variables may not capture all sources of risk within the portfolio. As a result, management reviews the results and makes qualitative adjustments to the models to capture limitations of the models as necessary. Such qualitative factors may include adjustments to better capture the risk of specialty lending portfolios, the imprecision associated with the economic forecasts, and the ability of the models to capture emerging risks within the portfolio that may not be represented in the historical dataset. These judgments are thoroughly evaluated through management’s review process, and revised on a quarterly basis to account for changes in the facts and circumstances of the portfolio.
Effect If Actual Results Differ From Assumptions. The allowance for credit losses is a reflection of the Company’s best estimate of loss based on a forecast of future conditions as of a point in time. Conditions in the future may vary from those forecasts, causing realized losses to be either higher or lower than forecasted, which will result in either additional provisions from income or a benefit to income based on the performance of the portfolio.
Business Combinations
Business combinations are generally accounted for under the acquisition method of accounting whereby assets acquired and liabilities assumed in business combinations are recorded at their estimated fair value as of the acquisition date. The determination of fair value may involve the use of internal or third-party valuation specialists to assist in the determination of the fair value of certain assets and liabilities at the acquisition date, including loans and leases and core deposit intangible. The excess of the cost of acquisition over these fair values is recognized as goodwill. A description of the valuation methodologies used to estimate the fair values of the significant assets acquired and liabilities assumed can be found in Note 2, "Business Combinations" within the notes to the consolidated financial statements.
Recent Accounting Developments
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" to enhance the annual income tax disclosure requirements. This update is effective for annual periods beginning after December 15, 2024. The Company adopted ASU 2023-09 as of January 1, 2025. The adoption did not have a material impact on the Company's consolidated financial statements.
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In November 2025, the FASB issued ASU 2025-08, "Financial Instruments - Credit Losses (Topic 326): Purchased Loans". This ASU aligns the initial recognition of the allowance for loan losses on purchased loans between PCD and non‑PCD assets by applying the gross‑up approach previously required only for PCD loans. The Company elected to adopt this ASU, effective January 1, 2025, and applied it to the Transaction completed in the third quarter, as permitted under the guidance.
See Note 1, “Basis of Presentation” in the notes to the consolidated financial statements for additional information regarding recent accounting developments.
Non-GAAP Financial Measures and Reconciliation to GAAP
In addition to evaluating the Company’s results of operations in accordance with GAAP, management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures, such as the operating earnings metrics, the return on average tangible assets, return on average tangible equity, the tangible stockholders' equity, tangible equity ratio, tangible book value per share and dividend payout ratio. Management believes that these non-GAAP financial measures provide information useful to investors in understanding the Company’s underlying operating performance and trends, and facilitates comparisons with the performance assessment of financial performance, including non-interest expense control, while the tangible equity ratio and tangible book value per share are used to analyze the relative strength of the Company’s capital position.
The methodologies used by the Company for determining the non-GAAP financial measures discussed above may differ from those used by other financial institutions.
Operating Earnings
Operating earnings exclude the after-tax impact of securities gains, the Day 1 CECL provision and merger and restructuring expense. By excluding such items, the Company's results can be measured and assessed on a more consistent basis from period to period. Items excluded from operating earnings are also excluded when calculating the operating return and operating efficiency ratios.
The following table summarizes the Company's operating earnings and operating earnings per share ("EPS") for the periods indicated:
Year Ended December 31,
(Dollars in Thousands, Except Per Share Data)
Net income, as reported
Less:
Security (losses) gains (after-tax)
Add:
Merger Day 1 CECL provision (after tax) (1)
Merger and restructuring expense (after-tax) (2)
Operating earnings
Earnings per share, as reported
Less:
Security gains (after-tax)
Add:
Merger Day 1 CECL provision (after tax) (1)
Merger and restructuring expense (after-tax) (2)
Operating earnings per share
(1) The 2025 Merger Day1 CECL provision on unfunded commitments was related to the Transaction. The 2023 Merger Day1 CECL provision was related to the acquisition of PCSB in the first quarter of 2023.
(2) The 2025 Merger and restructuring expense was related to the Transaction The 2024 Merger and restructuring expense was related to a non-recurring restructuring charge due to the exit of the specialty vehicle business at Eastern Funding. The 2023 and 2022 Merger and restructuring expense was related to the acquisition of PCSB in the first quarter of 2023.
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The following table summarizes the Company's operating return on average assets, operating return on average tangible assets, operating return on average stockholders' equity and operating return on average tangible stockholders' equity for the periods indicated:
Year Ended December 31,
(Dollars in Thousands)
Operating earnings
Average total assets
Less: Average goodwill and average identified intangible assets, net
Average tangible assets
Return on average assets
Less:
Security gains (after-tax)
Add:
Merger Day 1 CECL provision (after tax)
Merger and restructuring expense (after-tax)
Operating return on average assets
Return on average tangible assets
Less:
Security gains (after-tax)
Add:
Merger Day 1 CECL provision (after tax)
Merger and restructuring expense (after-tax)
Operating return on average tangible assets
Average total stockholders' equity
Less: Average goodwill and average identified intangible assets, net
Average tangible stockholders' equity
Return on average stockholders' equity
Less:
Security gains (after-tax)
Add:
Merger Day 1 CECL provision (after tax)
Merger and restructuring expense (after-tax)
Operating return on average stockholders' equity
Return on average tangible stockholders' equity
Less:
Security gains (after-tax)
Add:
Merger Day 1 CECL provision (after tax)
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Year Ended December 31,
(Dollars in Thousands)
Merger and restructuring expense (after-tax)
Operating return on average tangible stockholders' equity
The following table summarizes the Company’s return on average tangible assets and return on average tangible stockholders’ equity for the periods indicated:
Year Ended December 31,
(Dollars in Thousands)
Net income, as reported
Average total assets
Less: Average goodwill and average identified intangible assets, net
Average tangible assets
Return on average tangible assets
Average total stockholders' equity
Less: Average goodwill and average identified intangible assets, net
Average tangible stockholders' equity
Return on average tangible stockholders' equity
The following table summarizes the Company's tangible equity ratio for the periods indicated:
At December 31,
(Dollars in Thousands)
Total stockholders' equity
Less: Goodwill and identified intangible assets, net
Tangible stockholders' equity
Total assets
Less: Goodwill and identified intangible assets, net
Tangible assets
Tangible equity ratio
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The following table summarizes the Company's tangible book value per share for the periods indicated:
Year Ended December 31,
(Dollars in Thousands)
Tangible stockholders' equity
Common shares issued
Less:
Treasury shares
Unallocated ESOP
Unvested restricted stock
Common shares outstanding
Tangible book value per share
The following table summarizes the Company's dividend payout ratio for the periods indicated:
Year Ended December 31,
(Dollars in Thousands)
Dividends paid
Net income, as reported
Dividend payout ratio
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Financial Condition
Loans and Leases
The following table summarizes the Company's portfolio of loan and lease receivables as of the dates indicated:
At December 31,
Balance
Percent
of Total
Balance
Percent
of Total
Balance
Percent
of Total
Balance
Percent
of Total
Balance
Percent
of Total
(Dollars in Thousands)
Commercial real estate loans:
Commercial real estate
Multi-family mortgage
Construction
Total commercial real estate loans
Commercial loans and leases:
Commercial
Equipment financing
Total commercial loans and leases
Consumer loans:
Residential mortgage
Home equity
Other consumer
Total consumer loans
Total loans and leases
Allowance for loan and lease losses
Net loans and leases
The following table sets forth the growth in the Company’s loan and lease portfolios during the year ending December 31, 2025:
At December 31,
At December 31,
Dollar Change
Percent Change
(Annualized)
(Dollars in Thousands)
Commercial real estate
Commercial
Consumer
Total loans and leases
Total core loans and leases
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The following table presents the maturity distribution of the Company's loan portfolio as of December 31, 2025.
At December 31, 2025
1 Year or Less
After 1-5 Years
After 5-15 Years
After 15 Years
Total
(Dollars in Thousands)
Commercial real estate
Commercial
Consumer
Total
The following table presents the distribution of the Company's loans that were due after one year between fixed and variable interest rates as of December 31, 2025.
At December 31, 2025
Fixed
Variable
Total
(Dollars in Thousands)
Commercial real estate
Commercial
Consumer
Total
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 the total credit exposure to one obligor relationship may not exceed $90.0 million unless approved by the Chief Executive Officer, Chief Credit Officer, or Management Loan Committee. As of December 31, 2025, there was one borrower with commitments over $90.0 million. The total of those commitments was $94.9 million or 0.8% of total loans and commitments as of December 31, 2025. As of December 31, 2024, the Company's maximum credit exposure without the approval of the Credit Committee, a committee of Legacy Brookline's Board of Directors, was $60.0 million and there were four borrowers with loans and commitments over $60.0 million. The total of those loans and commitments was $267.3 million, or 2.3% of total loans and commitments, as of December 31, 2024.
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 comprised 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 55.5% of total loans and leases outstanding as of December 31, 2025.
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
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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 commercial real estate portfolio was composed primarily of loans secured by multi-family buildings ($2.3 billion), retail stores ($1.9 billion), industrial properties ($1.3 billion), office buildings ($1.2 billion), mixed-use properties ($491.8 million), lodging services ($556.0 million) and food services ($73.8 million) as of December 31, 2025.
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 December 31, 2025.
At December 31, 2025
Owner Occupied
Non-Owner Occupied
Total
Borrower type:
Multi-family buildings
Office buildings
Retail stores
Industrial properties
Mixed-use properties
Lodging services
Food Services
Other
Total
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 December 31, 2025.
At December 31, 2025
Owner Occupied
Non-Owner Occupied
Total
Geographic concentration:
New England
New York
Other
Total
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 is different from the criteria applied in underwriting construction loans for which the primary source of repayment is the
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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 commercial loan and lease portfolio is comprised of commercial and equipment financing loans and leases representing 21.9% of total loans outstanding as of December 31, 2025.
The commercial loan and lease portfolio is composed primarily of loans in the following sectors: small businesses ($1.4 billion), food services ($411.7 million), rental and leasing services ($380.6 million), manufacturing ($285.3 million), retail ($217.3 million), transportation services ($208.3 million) and recreation services ($150.4 million) as of December 31, 2025.
The following table presents the percentage of the Company's commercial loan portfolio by geographic concentration as of December 31, 2025.
At December 31, 2025
At December 31, 2024
Total
Total
Geographic concentration:
New England
New York
Other
Total
The Company provides commercial banking services to companies in its market area. 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 a business. 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 Federal Home Loan Bank of Boston index.
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 is comprised of residential mortgage loans, home equity loans and lines of credit, and other consumer loans representing, 22.6% of total loans outstanding as of December 31, 2025. The Company focuses its mortgage and home equity lending on existing and new customers within its branch networks in its urban and suburban marketplaces in New England and New York.
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%
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unless private mortgage insurance is obtained and/or there is a financially strong guarantor. Appraisals are performed by outside independent 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 December 31, 2025, other consumer loans equaled $141.4 million, or 0.8% 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 if existing are not . Loans and leases rated as have well-defined that the orderly of debt and partial of principal is likely. As of December 31, 2025, the Company had $683.7 million of total assets that were designated as . This compares to $252.7 million of assets designated as as of December 31, 2024. The increase of $431 million in assets was primarily driven by the Transaction.
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 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 December 31, 2025, the Company had nonperforming assets of $116.7 million, representing 0.50% of total assets, compared to nonperforming assets of $70.5 million, or 0.59% of total assets as of December 31, 2024. The increase of $46.2 million was primarily driven by the Transaction.
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.
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Past Due and Accruing
As of December 31, 2025, the Company had $37.8 million loans and leases greater than 90 days past due and accruing, compared to $0.8 million as of December 31, 2024.
The following table sets forth information regarding nonperforming assets for the periods indicated:
At December 31,
(Dollars in Thousands)
Nonperforming loans and leases:
Nonaccrual loans and leases:
Commercial real estate
Multi-family mortgage
Construction
Total commercial real estate loans
Commercial
Equipment financing
Total commercial loans and leases
Residential mortgage
Home equity
Other consumer
Total consumer loans
Total nonaccrual loans and leases
Other real estate owned
Other repossessed assets
Total nonperforming assets
Loans and leases past due greater than 90 days and accruing
Total delinquent loans and leases 61-90 days past due
Total nonaccrual loans and leases as a percentage of total loans and leases
Total nonperforming assets as a percentage of total assets
Total delinquent loans and leases 61-90 days past due as a percentage of total loans and leases
Allowances for Credit Losses
The allowance for credit losses 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 allowance for credit losses on a quarterly basis. Management continuously evaluates and challenges inputs and assumptions in the allowance for credit losses.
While management evaluates currently available information in establishing the allowance for credit losses, 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 allowance for credit losses on a quarterly
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basis. In addition, various regulatory agencies, as an integral part of their examination process, periodically review a financial institution's allowance for credit losses and carrying amounts of other real estate owned. 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 probable 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 when model output does not align with management expectations. These adjustments are thoroughly reviewed and documented to provide clarity and a reasonable basis for any deviations from the model. For December 31, 2025, 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 loans and lease losses by portfolio category for the years ended December 31, 2025, 2024, 2023, 2022, and 2021, respectively.
Year Ended December 31, 2025
Commercial
Real Estate
Commercial
Consumer
Total
(In Thousands)
Balance at December 31, 2024
Charge-offs
Recoveries
Merger Day 1 allowance on non-PCD loans
Merger Day 1 allowance on PCD loans
Provision (credit) for loan and lease losses excluding unfunded commitments
Balance at December 31, 2025
Total loans and leases
Total allowance for loan and lease losses as a percentage of total loans and leases
Year Ended December 31, 2024
Commercial
Real Estate
Commercial
Consumer
Total
(In Thousands)
Balance at December 31, 2023
Charge-offs
Recoveries
Provision (credit) for loan and lease losses
Balance at December 31, 2024
Total loans and leases
Total allowance for loan and lease losses as a percentage of total loans and leases
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Year Ended December 31, 2023
Commercial
Real Estate
Commercial
Consumer
Total
(In Thousands)
Balance at December 31, 2022
Charge-offs
Recoveries
Provision (credit) for loan and lease losses
Balance at December 31, 2023
Total loans and leases
Allowance for loan and lease losses as a percentage of total loans and leases
Year Ended December 31, 2022
Commercial
Real Estate
Commercial
Consumer
Total
(In Thousands)
Balance at December 31, 2021
Charge-offs
Recoveries
Provision (credit) for loan and lease losses
Balance at December 31, 2022
Total loans and leases
Allowance for loan and lease losses as a percentage of total loans and leases
Year Ended December 31, 2021
Commercial
Real Estate
Commercial
Consumer
Total
(In Thousands)
Balance at December 31, 2020
Charge-offs
Recoveries
Provision (credit) for loan and lease losses
Balance at December 31, 2021
Total loans and leases
Allowance for loan and lease losses as a percentage of total loans and leases
At December 31, 2025, the allowance for loan and lease losses increased to $252.8 million, or 1.40% of total loans and leases outstanding. This compared to an allowance for loan and lease losses of $125.1 million, or 1.28% of total loans and leases outstanding, as of December 31, 2024.The increase in the allowance for loan and lease losses was primarily due to the Transaction.
Net charge-offs in the loans and leases portfolio for the years ending December 31, 2025 and 2024 were $37.6 million and $24.5 million, respectively. The $13.1 million increase in net charge-offs was primarily driven by net charge-off increases of $7.3 million in commercial loans and $6.3 million in commercial real estate loans, offset by a decrease of $0.5 million in consumer loans. $5.7 million of the increase was related to the Transaction.
Management believes that the allowance for loan and lease losses as of December 31, 2025 is appropriate based on the facts and circumstances discussed further below.
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The following tables set 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.
At December 31,
Amount
Percent of
Allowance
to Total
Allowance
Percent of
Loans
in Each
Category to
Total
Loans
Amount
Percent of
Allowance
to Total
Allowance
Percent of
Loans
in Each
Category to
Total
Loans
Amount
Percent of
Allowance
to Total
Allowance
Percent of
Loans
in Each
Category to
Total
Loans
(Dollars in Thousands)
Commercial real estate
Multi-family mortgage
Construction
Total commercial real estate loans
Commercial
Equipment financing
Total commercial loans and leases
Residential mortgage
Home equity
Other consumer
Total consumer loans
Total
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At December 31,
Amount
Percent of
Allowance
to Total
Allowance
Percent of
Loans
in Each
Category to
Total
Loans
Amount
Percent of
Allowance
to Total
Allowance
Percent of
Loans
in Each
Category to
Total
Loans
(Dollars in Thousands)
Commercial real estate
Multi-family mortgage
Construction
Total commercial real estate loans
Commercial
Equipment financing
Total commercial loans and leases
Residential mortgage
Home equity
Other consumer
Total consumer loans
Total
Investment Securities and Restricted Equity Securities
The investment portfolio exists primarily for liquidity purposes, and secondarily as sources 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, 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 increased $2.3 billion, or 159.3%, to $3.7 billion as of December 31, 2025 compared to $1.4 billion as of December 31, 2024. The increase was impacted by the Transaction. Cash, cash equivalents, and investment securities were 16.1% of total assets as of December 31, 2025, compared to 12.1% of total assets at December 31, 2024.
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The following table sets forth certain information regarding the amortized cost and market value of the Company's investment securities at the dates indicated:
At December 31,
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
(In Thousands)
Investment securities available-for-sale:
GSE debentures
GSE CMOs
GSE MBSs
Municipal obligations
Corporate debt obligations
U.S. Treasury bonds
Foreign government obligations
Total investment securities available-for-sale
Restricted equity securities:
FHLB stock
FRB stock
Other
Total restricted equity securities
Total investment securities and restricted equity securities primarily consist of investment securities available-for-sale, stock in the FHLB and stock in the FRB. The total securities portfolio increased $798.0 million, or 81.6% since December 31, 2024. As of December 31, 2025, the total securities portfolio was 7.65% of total assets, compared to 8.22% of total assets as of December 31, 2024.
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 equity securities held-for-trading, if any, are priced this way and are included in Level 1. 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, GSEs, MBSs and CMOs, trust preferred securities, and equity securities held-for-trading, all of which are included in Level 1, 2 and 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.
As of December 31, 2025, the fair value of all investment securities available-for-sale was $1.7 billion and carried a total of $27.5 million of net unrealized losses, compared to a fair value of $895.0 million and net unrealized losses of $69.4 million as of December 31, 2024. As of December 31, 2025, $552.9 million, or 32.7%, of the portfolio, had gross unrealized losses of $44.7 million. This compares to $705.3 million, or 78.8%, of the portfolio with gross unrealized losses of $70.2 million as of December 31, 2024. The Company's increased unrealized loss position in 2025 was primarily driven by higher interest rates year over year. In 2024, U.S. Treasury yields rose across the 3-to-10 year part of the curve which negatively impacted the value of the Company's longer duration primarily in the GSE CMOs and GSE MBS security portfolios. For additional discussion on investment securities available-for-sale by security type, see Note 4, "Investment Securities" to the consolidated financial statements.
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The Company reviews its debt securities portfolio on a quarterly basis in accordance with ASC 326. This analysis is done using probability of default and loss given default assumptions where a model is created to determine CECL for the remaining life of the securities. For the year ended December 31, 2025, the Company recognized $0.1 million as an allowance for credit loss. For additional discussion on how the Company validates fair values provided by the third-party pricing service, see Note 21, “Fair Value of Financial Instruments” to the consolidated financial statements.
Maturities, calls and principal repayments for investment securities available-for-sale totaled $190.0 million for the year ended December 31, 2025 compared to $174.0 million for the same period in 2024. For the year ended December 31, 2025, the Company purchased $33.1 million of investment securities available-for-sale, compared to $148.5 million for the same period in 2024. The Company sold investment securities available-for-sale during the twelve months ended December 31, 2025. Proceeds from the sale of investment securities available-for-sale were $176.3 million. Securities sales executed during the twelve months ended December 31, 2025 were related to the Transaction, resulting in a restructuring of the portfolio. There was no gain or loss on the sale. During the twelve months ended December 31, 2024, the Company did not sell any investment securities available-for-sale.
Restricted Equity Securities
FHLB Stock —The Company invests in the stock of the FHLB as a requirement to borrow funds from the FHLB. As of December 31, 2025, the Company owned stock in the FHLB with a carrying value of $29.4 million, a decrease of $31.7 million from $61.1 million as of December 31, 2024. The Company continually reviews its investment to determine if impairment exists. The Company reviews recent public filings, rating agency analysis and other factors when making its determination. See Note 5, "Restricted Equity Securities" to the consolidated financial statements for further information about the FHLB.
Federal Reserve Bank Stock —The Company invests in the stock of the Federal Reserve Bank of Boston as a condition of the membership for the Bank in the Federal Reserve System. The Federal Reserve Bank is the primary federal regulator for the Company and the Bank.
Carrying Value, Weighted Average Yields, and Contractual Maturities of Investment and Restricted Equity Securities
The table below sets forth certain information regarding the carrying value, weighted average yields and contractual maturities of the Company's investment and restricted equity securities portfolio at the date indicated.
Balance at December 31, 2025
One Year or Less
After One Year
Through Five Years
After Five Years
Through Ten Years
After Ten Years
Total
Carrying
Value
Weighted
Average
Yield (1)
Carrying
Value
Weighted
Average
Yield (1)
Carrying
Value
Weighted
Average
Yield (1)
Carrying
Value
Weighted
Average
Yield (1)
Carrying
Value
Weighted
Average
Yield (1)
(Dollars in Thousands)
Investment securities available-for-sale:
GSE debentures
GSE CMOs
GSE MBSs
Municipal obligations
Corporate debt obligations
U.S. Treasury bonds
Foreign government obligations
Total investment securities available-for-sale
Restricted equity
securities (2):
FHLB stock
FRB stock
Other stock
Total restricted equity securities
(1) Yields have been calculated on a pre-tax basis. The Company holds no investment securities available-for-sale that are tax-exempt.
(2) Equity securities have no contractual maturity, therefore they are reported above in the over ten year maturity column.
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Deposits
The following table presents the Company's deposit mix at the dates indicated.
At December 31,
Amount
Percent
of Total
Weighted
Average
Rate
Amount
Percent
of Total
Weighted
Average
Rate
Amount
Percent
of Total
Weighted
Average
Rate
(Dollars in Thousands)
Non-interest-bearing deposits:
Demand checking accounts
Interest-bearing deposits:
NOW accounts
Savings accounts
Money market accounts
Certificate of deposit accounts
Brokered deposit accounts
Total interest-bearing deposits
Total deposits
The Company seeks to increase its core deposits and decrease its loan-to-deposit ratio over time, while continuing to increase deposits as a percentage of total funding sources. The Company's loan-to-deposit ratio was 92.4% as of December 31, 2025, compared to 109.9% as of December 31, 2024.
Total deposits increased $10.6 billion, or 119.2%, to $19.5 billion as of December 31, 2025, compared to $8.9 billion as of December 31, 2024. Deposits as a percentage of total assets increased from 74.8% as of December 31, 2024 to 84.0% as of December 31, 2025. The increase was impacted by the Transaction.
In 2025, core deposits increased $6.9 billion. The ratio of core deposits to total deposits decreased from 69.1% as of December 31, 2024 to 67.0% as of December 31, 2025, as a result of increases in certificate of deposit accounts.
Certificate of deposit accounts increased $2.3 billion to $4.2 billion as of December 31, 2025, compared to $1.9 billion as of December 31, 2024. Certificate of deposit accounts increased as a percentage of total deposits to 21.3% as of December 31, 2025 from 21.2% as of December 31, 2024.
Brokered deposits decreased $458.6 million to $410.4 million as of December 31, 2025, compared to $869.0 million as of December 31, 2024. Brokered deposits decreased as a percentage of total deposits to 2.1% as of December 31, 2025 from 9.8% as of December 31, 2024. The decrease in brokered deposits was primarily driven by an increase in customer deposits allowing for less reliance on brokered deposits. 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 amount of brokered deposits to 15% of total assets.
The following table sets forth the distribution of the average balances of the Company's deposit accounts for the years indicated and the weighted average interest rates on each category of deposits presented. Averages for the years presented are based on daily balances.
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Year Ended December 31,
Average
Balance
Percent
of Total
Average
Deposits
Weighted
Average
Rate
Average
Balance
Percent
of Total
Average
Deposits
Weighted
Average
Rate
Average
Balance
Percent
of Total
Average
Deposits
Weighted
Average
Rate
(Dollars in Thousands)
Core deposits:
Non-interest-bearing demand checking accounts
NOW accounts
Savings accounts
Money market accounts (non-payroll)
Total core deposits
Certificate of deposit accounts
Payroll deposits
Brokered deposit accounts
Total deposits
As of December 31, 2025 and 2024, the Company had outstanding certificate of deposit of $250,000 or more, maturing as follows:
At December 31,
Amount
Weighted
Average Rate
Amount
Weighted
Average Rate
(Dollars in Thousands)
Maturity period:
Six months or less
Over six months through 12 months
Over 12 months
Total certificate of deposit of $250,000 or more
The following table presents the Company's insured and uninsured deposit mix at the date indicated.
At December 31, 2025
(Dollars in Millions)
Commercial
Consumer
Municipal
Brokered
Total
Insured or Collateralized
Uninsured
Total
Composition
As of December 31, 2025, the Company had uninsured municipal deposits requiring collateral of $240.0 million, included in Insured or Collateralized in the table above, which are covered by specific collateral and FHLB letters of credit. The remaining deposits, included in Insured or Collateralized in the table above, are insured with the FDIC.
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Borrowed Funds
The following table sets forth certain information regarding FHLB advances, subordinated debentures and notes and other borrowed funds for the periods indicated:
Year Ended December 31,
(Dollars in Thousands)
Borrowed funds:
Average balance outstanding
Maximum amount outstanding at any month end during the year
Balance outstanding at end of year
Weighted average interest rate for the period
Weighted average interest rate at end of period
Advances from the FHLB
On a long-term basis, the Company intends to continue to grow its core deposits. The Company also 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. The Company may also borrow from the Federal Reserve Discount Window as necessary.
FHLB borrowings decreased $800.1 million to $0.6 billion as of December 31, 2025 from $1.4 billion as of December 31, 2024. The Company's remaining borrowing capacity from the FHLB for advances and repurchase agreements was $3.9 billion 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 December 31, 2025, the Bank also has access to funding through certain uncommitted lines via AFX as well as committed and uncommitted lines from other large financial institutions. As of December 31, 2025, the Company had no borrowings outstanding with these committed and uncommitted lines.
The Company has access to the Federal Reserve Discount Window to supplement its liquidity. The Company has $601.9 million of borrowing capacity at the FRB as of December 31, 2025. As of December 31, 2025, the Company did not have any borrowings with the FRB outstanding.
As of December 31, 2025, the Company had $33.1 million in interest-bearing cash held as collateral from dealer counterparties. This compares to $79.6 million outstanding as of December 31, 2024. This cash collateralizes the fair value of the dealer side of derivative transactions.
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 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. As of December 31, 2025, the Company had capitalized costs of $0.4 million in relation to the issuance of these subordinated notes.
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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 3-month CME Term SOFR 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 3-month CME Term SOFR 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.
Carrying Amount
Issue Date
Rate
Maturity Date
Next Call Date
December 31, 2025
December 31, 2024
(Dollars in Thousands)
June 26, 2003
Variable;
3-month CME term SOFR + spread adjustment of 0.26% + 3.10%
June 26, 2033
March 26, 2026
March 17, 2004
Variable;
3-month CME term SOFR + spread adjustment of 0.26% + 2.79%
March 17, 2034
March 17, 2026
June 30, 2005
Variable;
3-month CME term SOFR + spread adjustment of 0.26% + 1.85%
August 23, 2035
February 23, 2026
September 21, 2006
Variable;
3-month CME term SOFR + spread adjustment of 0.26% + 1.70%
December 15, 2036
March 15, 2026
September 15, 2014
Variable;
3-month CME term SOFR + spread adjustment of 0.26% + 3.32%
September 15, 2029
March 16, 2026
June 30, 2022
Variable;
3-month CME term SOFR + 2.49%
July 1, 2032
June 30, 2027
Total
Derivative Financial Instruments
The Company has entered into loan level derivatives, risk participation agreements, and foreign exchange contracts with certain 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.
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The following table summarizes certain information concerning the Company's loan level derivatives, risk participation agreements, and foreign exchange contracts at December 31, 2025 and 2024:
At December 31, 2025
At December 31, 2024
(Dollars in Thousands)
Interest rate derivatives (Notional amounts):
Loan level derivatives (Notional Amount):
Receive fixed, pay variable
Pay fixed, receive variable
Risk participation-out agreements
Risk participation-in agreements
Foreign exchange contracts (Notional Amount)
Buys foreign currency, sells U.S. currency
Sells foreign currency, buys U.S. currency
Fixed weighted average interest rate of the swap portfolio
Floating weighted average interest rate of the swap portfolio
Weighted average remaining term to maturity (in months)
Fair value:
Recognized as an asset:
Interest rate derivatives
Loan level derivatives
Risk participation-out agreements
Foreign exchange contracts
Recognized as a liability:
Interest rate derivatives
Loan level derivatives
Risk participation-in agreements
Foreign exchange contracts
Stockholders' Equity and Dividends
The Company's total stockholders' equity was $2.5 billion as of December 31, 2025, representing a $1.3 billion increase compared to $1.2 billion at December 31, 2024. The increase for the twelve months ended December 31, 2025, was primarily driven by purchase price consideration as a result of the Transaction, net income of $90.3 million, unrealized gain on securities available-for-sale of $33.1 million, partially offset by dividends paid by the Company of $63.1 million, and restricted stock, net of awards surrendered of $54.6 million.
For the year ended December 31, 2025, the dividend payout ratio was 69.9%, compared to 69.9% for the year ended December 31, 2024. The dividends paid in the fourth quarter of 2025 represented the Company's 107th consecutive quarter of dividend payments. The Company's quarterly dividend distribution was $0.135 for each of the first two quarters and $0.3225 for each of the last two quarters, per share for 2025.
Stockholders' equity represented 10.75% of total assets as of December 31, 2025 and 10.26% of total assets as of December 31, 2024. Tangible stockholders' equity (total stockholders' equity less goodwill and identified intangible assets, net) represented 8.62% of tangible assets (total assets less goodwill and identified intangible assets, net) as of December 31, 2025 and 8.27% as of December 31, 2024.
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Results of Operations
The Company’s results of operations for the year ended December 31, 2025 include income from the four months following the Transaction and the results of Legacy Brookline prior to September 1, 2025. While Legacy Berkshire was the legal acquirer and surviving corporation following the Transaction, Legacy Brookline is considered the acquirer for accounting purposes. Accordingly, the Company’s historical operating results as of and for the years ended December 31, 2024 and 2023, as presented and discussed in this Annual Report on Form 10-K, do not include the historical results of Legacy Berkshire.
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 ("net interest margin"), 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. 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 are based on numerous assumptions and other subjective judgments. See the discussion in the "Measuring Interest-Rate Risk" section of Item 7A, "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.
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 years ended December 31, 2025, 2024 and 2023. 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.
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Year Ended December 31,
Average
Balance
Interest (1)
Average
Yield/
Cost
Average
Balance
Interest (1)
Average
Yield/
Cost
Average
Balance
Interest (1)
Average
Yield/
Cost
(Dollars in Thousands)
Assets:
Interest-earning assets:
Debt securities
Restricted equity securities
Short-term investments
Total investments
Commercial real estate loans (2)
Commercial loans (2)
Equipment financing (2)
Consumer loans (2)
Total loans and leases
Total interest-earning assets
Allowance for loan and lease losses
Non-interest-earning assets
Total assets
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts
Savings accounts
Money market accounts
Certificate of deposit accounts
Brokered deposit accounts
Total interest-bearing deposits (3)
Advances from the FHLB
Subordinated debentures and notes
Other borrowed funds
Total borrowed funds
Total interest-bearing liabilities
Non-interest-bearing liabilities:
Non-interest-bearing demand checking accounts (3)
Other non-interest-bearing liabilities
Total liabilities
Stockholders' equity
Total liabilities and equity
Net interest income (tax-equivalent basis) / Interest-rate spread (4)
Less adjustment of tax-exempt income
Net interest income
Net interest margin (5)
(1) Tax-exempt income on debt securities, equity securities and industrial revenue bonds are included in commercial real estate 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 2.29%, 2.68% and 2.08% in the years ended December 31, 2025, 2024 and 2023, 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.
See "Comparison of Years Ended December 31, 2025 and December 31, 2024" and "Comparison of Years Ended December 31, 2024 and December 31, 2023" below for a discussion of average assets and liabilities, net interest income, interest-rate spread and net interest margin.
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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.
Year Ended
December 31, 2025
Compared to Year Ended
December 31, 2024
Year Ended
December 31, 2024
Compared to Year Ended
December 31, 2023
Increase
(Decrease) Due To
Increase
(Decrease) Due To
Volume
Rate
Net Change
Volume
Rate
Net Change
(In Thousands)
Interest and dividend income:
Investments:
Debt securities
Restricted equity securities
Short-term investments
Total investments
Loans and leases:
Commercial real estate loans
Commercial loans and leases
Equipment financing
Consumer loans
Total loans
Total change in interest and dividend income
Interest expense:
Deposits:
NOW accounts
Savings accounts
Money market accounts
Certificate of deposit accounts
Brokered deposit accounts
Total deposits
Borrowed funds:
Advances from the FHLB
Subordinated debentures and notes
Other borrowed funds
Total borrowed funds
Total change in interest expense
Change in tax-exempt income
Change in net interest income
See "Comparison of Years Ended December 31, 2025 and December 31, 2024" and "Comparison of Years Ended December 31, 2024 and December 31, 2023" below for a discussion of changes in interest income, interest-rate spread and net interest margin resulting from changes in rates and volumes.
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Comparison of Years Ended December 31, 2025 and December 31, 2024
Net Interest Income
Net interest income increased $173.5 million to $503.1 million for the year ended December 31, 2025 from $329.6 million for the year ended December 31, 2024. The increase year over year reflects a $179.6 million increase in interest income on loans and leases and a $24.6 million increase in interest income on debt securities, short term investments and restricted equity securities, partially offset by a $30.7 million increase in interest expense on deposits and borrowings. The increases year over year were impacted by the Transaction.
Net interest margin increased 50 basis points to 3.56% in 2025 from 3.06% in 2024. The Company's weighted average interest rate on loans increased to 6.14% for the year ended December 31, 2025 from 6.07% for the year ended December 31, 2024.
The yield on interest-earning assets increased to 5.87% for the year ended December 31, 2025 from 5.83% for the year ended December 31, 2024. The increase is the result of higher yields on loans and leases and investments. The Company recorded $4.8 million in prepayment penalties and late charges, which contributed 3 basis points to yields on interest-earning assets for the year ended December 31, 2025 compared to $3.4 million, or 3 basis points, for the year ended December 31, 2024.
The cost of interest-bearing liabilities decreased 54 basis points to 3.05% for the year ended December 31, 2025 from 3.59% for the year ended December 31, 2024. 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. As a result of the Federal Reserve's rate cuts which began in September 2024 and continued throughout 2025, the Treasury yield curve has become less inverted in recent months, with shorter-term interest rates decreasing.
This trend positively impacts the Company's net interest income, net interest spread, and net interest margin. Management anticipates that net interest margin will increase as deposit and wholesale funding costs decrease more rapidly than loan yields. If the Federal Reserve cuts rates in the near term, net interest income and 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.
Interest Income—Loans and Leases
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Interest income—loans and leases:
Commercial real estate loans
Commercial loans
Equipment financing
Residential mortgage loans
Other consumer loans
Total interest income—loans and leases (1)
(1) Tax-exempt income of $2.6 million at December 31, 2025 and $1.3 million at December 31, 2024 is excluded from the table above.
Interest income from loans and leases was $767.6 million for 2025, and represented a yield on total loans of 6.14%. This compares to $587.9 million of interest on loans and leases and a yield of 6.07% for 2024. The $179.6 million increase in interest income from loans and leases was primarily attributable to an increase of $164.4 million in volume and an increase of $16.6 million in interest rates changes, partially offset by a decrease of $1.4 million in tax-exempt income. The year over year increase in interest income from loans and leases was impacted by the Transaction.
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Interest Income—Investments
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Interest income—investments:
Debt securities
Marketable and restricted equity securities
Short-term investments
Total interest income—investments
Total investment income was $65.2 million for the year ended December 31, 2025 compared to $40.6 million for the year ended December 31, 2024. As of December 31, 2025, the yield on total investments was 3.89% compared to 3.70% as of December 31, 2024. This year over year increase in total investment income of $24.6 million, or 60.7%, was driven by a $22.2 million increase due to volume and a $2.4 million increase due to rates. The year over year increase in total investment income was impacted by the Transaction.
Interest Expense—Deposits and Borrowed Funds
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Interest expense:
Deposits:
NOW accounts
Savings accounts
Money market accounts
Certificate of deposit accounts
Brokered deposit accounts
Total interest expense—deposits
Borrowed funds:
Advances from the FHLB
Subordinated debentures and notes
Other borrowed funds
Total interest expense—borrowed funds
Total interest expense
Deposits
In 2025, interest paid on deposits increased $47.5 million, or 20.4%, compared to 2024. The increase in interest expense on deposits was driven by an increase of $77.5 million primarily driven by the growth in volume of average customer deposits and payroll deposits partially offset by a decline in average brokered deposits balance, offset by a decrease of $29.9 million due to lower interest rates. For the year ended December 31, 2025, purchase accounting amortization was $2.1 million on acquired deposits and one basis point, compared to $1.0 million and one basis point for the year ended December 31, 2024.
Borrowed Funds
As of December 31, 2025, the Company's borrowed funds include $555.8 million in FHLB borrowings, $198.6 million in subordinated debentures and notes, and $34.0 million in other borrowed funds. In 2025, the average balance of FHLB borrowings decreased $297.6 million, or 26.5%, the average balance of other borrowed funds decreased $29.5 million, or 37.4%, and the average balance of subordinated debentures and notes increased $38.2 million, or 45.4%, for the year ended December 31, 2025.
For the year ended December 31, 2025, interest paid on borrowed funds decreased $16.8 million, or 25.5%, year over year. The cost of borrowed funds decreased to 4.86% for the year ended December 31, 2025 from 5.04% for the year ended December 31, 2024. The decrease in interest expense was driven by a decrease of $12.3 million due to volume and a decrease
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of $4.5 million due to borrowing rates. For the year ended December 31, 2025, purchase accounting amortization was $0.2 million on acquired borrowed funds compared to amortization of $0.2 million for the year ended December 31, 2024.
The year over year fluctuation in interest expense on deposits and borrowed funds was impacted by the Transaction.
Provision for Credit Losses
The provisions for credit losses are set forth below:
Year Ended
December 31,
(In Thousands)
Provision (credit) for credit losses:
Commercial real estate
Commercial
Consumer
Total provision (credit) for loan and lease losses
Unfunded credit commitments
Investment securities available-for-sale
Total provision (credit) for credit losses
For the year ended December 31, 2025, the provision for credit losses increased $19.7 million to $41.4 million from $21.6 million for the year ended December 31, 2024. The increase was driven by the day 1 provision on unfunded commitments assumed through the Transaction compared to a release in unfunded commitment reserve in 2024.
See management’s discussion of “Financial Condition — Allowance for Loan and Lease Losses” and Note 7, “Allowance for Credit Losses,” to the audited 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:
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Deposit fees
Loan fees
Loan level derivative income, net
Gain on sales of loans and leases
Wealth management fees
Other
Total non-interest income
Deposit fees increased $9.1 million, or 86.6%, to $19.7 million compared to $10.5 million for the same period in 2024, primarily driven by activity due to the Transaction.
Gain on sales of loans and leases increased $4.7 million, or 490.6%, to $5.6 million compared to $1.0 million for the same period in 2024, primarily driven by the activity of 44 Business Capital which was assumed in the Transaction.
Wealth management fees increased $3.8 million, or 62.7%, to $9.7 million compared to $6.0 million for the same period in 2024, primarily driven by activity due to the Transaction.
Other non-interest income increased $5.3 million or 129.9%, to $9.4 million compared to $4.1 million for the same period in 2024, primarily driven by activity due to the Transaction.
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Non-Interest Expense
The following table sets forth the components of non-interest expense:
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Compensation and employee benefits
Occupancy
Equipment and data processing
Professional services
FDIC insurance
Advertising and marketing
Amortization of identified intangible assets
Merger and restructuring expense
Other
Total non-interest expense
Compensation and employee benefits expense increased $47.5 million, or 33.0%, to $191.2 million for the year ended December 31, 2025 from $143.7 million for the same period in 2024. The increase was primarily driven by activity due to the Transaction.
Equipment and data expense increased $17.3 million, or 63.4%, to $44.7 million for the year ended December 31, 2025 from $27.4 million for the same period in 2024. The increase was primarily driven by activity due to the Transaction.
Merger and restructuring expense increased $57.5 million to $61.7 million for the year ended December 31, 2025 from $4.2 million for the same period in 2024 as a result of the Transaction.
The efficiency ratio increased to 70.48% for the year ended December 31, 2025 from 68.09% for the same period in 2024.
Provision for Income Taxes
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Income before provision for income taxes
Provision for income taxes
Net income,
Effective tax rate
The Company recorded income tax expense of $31.6 million for 2025, compared to $23.0 million for 2024. This represents an effective tax rate of 25.9% and 25.1% for 2025 and 2024, respectively.
Comparison of Years Ended December 31, 2024 and December 31, 2023
Net Interest Income
Net interest income decreased $10.1 million to $329.6 million for the year ended December 31, 2024 from $339.7 million for the year ended December 31, 2023. The decrease year over year reflects a $61.4 million increase in interest expense on deposits and borrowings, along with a $3.0 million decrease in interest income on debt securities, short term investments and restricted equity securities, partially offset by a $54.2 million increase in interest income on loans and leases which is reflective of the increase in volume and interest rate environment.
Net interest margin decreased 18 basis points to 3.06% in 2024 from 3.24% in 2023. The Company's weighted average interest rate on loans increased to 6.07% for the year ended December 31, 2024 from 5.72% for the year ended December 31, 2023.
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The yield on interest-earning assets increased to 5.83% for the year ended December 31, 2024 from 5.50% for the year ended December 31, 2023. The increase is the result of higher yields on loans and leases and investments. The Company recorded $3.4 million in prepayment penalties and late charges, which contributed 3 basis points to yields on interest-earning assets for the year ended December 31, 2024 compared to $2.9 million, or 3 basis points, for the year ended December 31, 2023.
The cost of interest-bearing liabilities increased 59 basis points to 3.59% for the year ended December 31, 2024 from 3.00% for the year ended December 31, 2023. 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. As a result of the Federal
Reserve's rate cut which began in September and continued into the fourth quarter, the Treasury yield curve has become less inverted in recent months, with shorter-term interest rates decreasing.
This trend positively impacts the Company's net interest income, net interest spread, and net interest margin. Management anticipates that net interest margin will increase as deposit and wholesale funding costs decrease more rapidly than loan yields. If the Federal Reserve cuts rates in the near term, net interest income and 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.
Interest Income—Loans and Leases
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Interest income—loans and leases:
Commercial real estate loans
Commercial loans
Equipment financing
Residential mortgage loans
Other consumer loans
Total interest income—loans and leases
Interest income from loans and leases was $587.9 million for 2024, and represented a yield on total loans of 6.07%. This compares to $533.7 million of interest on loans and leases and a yield of 5.72% for 2023. The $54.2 million increase in interest income from loans and leases was primarily due to an increase of $31.2 million related to interest rates changes, and an increase of $23.0 million in origination volume.
Interest Income—Investments
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Interest income—investments:
Debt securities
Marketable and restricted equity securities
Short-term investments
Total interest income—investments
Total investment income was $40.6 million for the year ended December 31, 2024 compared to $43.5 million for the year ended December 31, 2023. As of December 31, 2024, the yield on total investments was 3.70% compared to 3.72% as of December 31, 2023. This year over year decrease in total investment income of $3.0 million, or 6.8%, was driven by a $2.1 million decrease due to volume and a $0.9 million decrease due to rates.
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Interest Expense—Deposits and Borrowed Funds
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Interest expense:
Deposits:
NOW accounts
Savings accounts
Money market accounts
Certificate of deposit accounts
Brokered deposit accounts
Total interest expense—deposits
Borrowed funds:
Advances from the FHLB
Subordinated debentures and notes
Other borrowed funds
Total interest expense—borrowed funds
Total interest expense
Deposits
In 2024, interest paid on deposits increased $57.3 million, or 32.6%, compared to 2023. The increase in interest expense on deposits was driven by an increase of $41.9 million due to higher interest rates and an increase of $15.4 million primarily driven by the growth in volume of certificate of deposit balances and savings accounts. For the year ended December 31, 2024, purchase accounting amortization was $1.0 million on acquired deposits and one basis point, compared to $1.3 million and one basis point for the year ended December 31, 2023.
Borrowed Funds
As of December 31, 2024, the Company's borrowed funds include $1.4 billion in FHLB borrowings, $84.3 million in subordinated debentures and notes, and $79.6 million in other borrowed funds. In 2024, the average balance of FHLB borrowings increased $31.4 million, or 2.9%, the average balance of other borrowed funds, which includes repurchase agreements and other borrowings, decreased $45.9 million, or 36.8%, and the average balance of subordinated debentures and notes increased $142.0 thousand, or 0.2%, for the year ended December 31, 2024.
For the year ended December 31, 2024, interest paid on borrowed funds increased $4.1 million, or 6.6%, year over year. The cost of borrowed funds increased to 5.04% for the year ended December 31, 2024 from 4.69% for the year ended December 31, 2023. The increase in interest expense was driven by an increase of $4.3 million due to borrowing rates partially offset by a decrease of $0.2 million due to volume. For the year ended December 31, 2024, purchase accounting amortization was $0.2 million on acquired borrowed funds compared to amortization of $0.3 million for the year ended December 31, 2023.
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Provision for Credit Losses
The provisions for credit losses are set forth below:
Year Ended
December 31,
(In Thousands)
Provision (credit) for credit losses:
Commercial real estate
Commercial
Consumer
Total provision (credit) for loan and lease losses
Unfunded credit commitments
Investment securities available-for-sale
Total provision (credit) for credit losses
For the year ended December 31, 2024, the provision for credit losses decreased $16.6 million to $21.6 million from $38.2 million for the year ended December 31, 2023. The decrease in the provision for 2024 was largely driven by the lack of a day one provision of $16.7 million in acquired loans as a result of the PCSB acquisition.
See management’s discussion of “Financial Condition — Allowance for Loan and Lease Losses” and Note 7, “Allowance for Credit Losses,” to the audited 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:
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Deposit fees
Loan fees
Loan level derivative income, net
Gain (loss) on sales of investment securities, net
Gain on sales of loans and leases
Other
Total non-interest income
For the year ended December 31, 2024, non-interest income decreased $6.3 million, or 19.8%, to $25.6 million compared to $31.9 million for the same period in 2023. The decrease was primarily driven by decreases of 2.2 million in loan level derivative income, net, $1.7 million in gain on sales of investment securities, net, and $1.6 million in gain on sales of loans and leases.
Loan level derivative income, net, decreased $2.2 million, or 57.4%, to $1.7 million for the year ended December 31, 2024 from $3.9 million for the same period in 2023, driven by lower levels of swap deals in 2024.
There was no gain on sales of investment securities for the year ended December 31, 2024 compared to a gain of $1.7 million for the same period in 2023, driven by a $1.7 million gain on sales of investments from the repositioning of the PCSB portfolio in 2023 and no sales of investment securities in 2024.
Gain on sales of loans and leases decreased $1.6 million, or 63.2%, to $1.0 million for the year ended December 31, 2024 from $2.6 million for the same period in 2023, driven by a decrease in loan participations in 2024.
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Non-Interest Expense
The following table sets forth the components of non-interest expense:
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Compensation and employee benefits
Occupancy
Equipment and data processing
Professional services
FDIC insurance
Advertising and marketing
Amortization of identified intangible assets
Merger and restructuring expense
Other
Total non-interest expense
For the year ended December 31, 2024, non-interest expense increased $2.3 million, or 1.0%, to $241.9 million compared to $239.5 million for the same period in 2023. The increase was primarily driven by increases of $4.8 million in compensation and employee benefits and $1.9 million in occupancy expense, partially offset by decreases of $3.2 million in merger and restructuring expense, 1.1 million in amortization of identified intangible assets, and 1.0 million in other expenses.
The efficiency ratio increased to 68.09% for the year ended December 31, 2024 from 64.45% for the same period in 2023. The increase year over year was primarily driven by lower net interest income and non-interest income, and higher non-interest expense in 2024.
Compensation and employee benefits expense increased $4.8 million, or 3.5%, to $143.7 million for the year ended December 31, 2024 from $138.9 million for the same period in 2023. The increase was primarily driven by higher incentive/bonus, salaries, and health care benefits expenses.
Occupancy expense increased $1.9 million, or 9.2%, to $22.1 million for the year ended December 31, 2024 from $20.2 million for the same period in 2023. The increase was primarily driven by higher building maintenance, leasehold improvement depreciation, and rent expenses.
Merger and restructuring expense decreased $3.2 million, or 43.3%, to $4.2 million for the year ended December 31, 2024 from $7.4 million for the same period in 2023. The decrease was driven by higher merger-related expenses due to the PCSB acquisition in 2023, compared to Berkshire Hills Bancorp merger-related expenses and restructuring costs at Eastern Funding in 2024.
Provision for Income Taxes
Year Ended
December 31,
Dollar
Change
Percent
Change
(Dollars in Thousands)
Income before provision for income taxes
Provision for income taxes
Net income,
Effective tax rate
The Company recorded income tax expense of $23.0 million for 2024, compared to $18.9 million for 2023. This represents an effective tax rate of 25.1% and 20.1% for 2024 and 2023, respectively. The increase in the Company's effective tax rate was due to the lack of participation in energy tax credit investments in 2024 compared to 2023 as well as an increase in merger and restructuring expenses which were not tax deductible during the period.
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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 an 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 are dividends paid to it by the Bank. The primary sources of liquidity for the Bank consist of deposit inflows, loan repayments, borrowed funds, maturing investment securities and net income.
In the fourth quarter, the Company operated with increased liquidity. During the year, the Company shifted its balance sheet asset mix to include additional cash. Management will continue to monitor the economic conditions and evaluate changes to the Company’s liquidity position.
The Company held higher levels of on balance sheet liquidity in the form of cash and available-for-sale securities in the fourth quarter due to the Transaction. Cash and equivalents at the end of the quarter were $2.0 billion, or 8.8% of the balance sheet, compared to $543.6 million, or 4.6% of the balance sheet, as of December 31, 2024, primarily driven by elevated payroll deposits as a result of the Transaction. 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 December 31, 2025, cash, cash equivalents and investment securities available-for-sale totaled $3.7 billion, or 16.1% of total assets. This compares to $1.4 billion, or 12.1% of total assets, as of December 31, 2024. The increase was impacted by the Transaction.
Deposits, which are considered the most stable source of liquidity, totaled $19.5 billion as of December 31, 2025 and represented 96.1% of total funding (the sum of total deposits and total borrowings), compared to deposits of $8.9 billion, or 85.4% of total funding, as of December 31, 2024, primarily due to the deposits assumed in the Transaction. Core deposits, which consist of demand checking, NOW, savings and non-payroll money market accounts, totaled $13.1 billion as of December 31, 2025 and represented 67.0% of total deposits, compared to core deposits of $6.1 billion, or 69.1% of total deposits, as of December 31, 2024. Additionally, the Company had $410.4 million of brokered deposits as of December 31, 2025, which represented 2.1% of total deposits, compared to $869.0 million or 9.8% of total deposits, as of December 31, 2024. The Company offers attractive interest rates based on market conditions to increase deposits balances, while managing 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 $0.8 billion as of December 31, 2025, representing 3.9% of total funding, compared to $1.5 billion, or 14.6% of total funding, as of December 31, 2024 as combined liquidity as a result of the Transaction and the increase in deposits allowed for reduction in borrowings. Management will continue to monitor economic conditions and make adjustments to the balance sheet mix as appropriate.
As members of the FHLB of Boston, the Bank has access to both short- and long-term borrowings. The Company's remaining borrowing capacity from the FHLB of Boston for advances and repurchase agreements was $3.9 billion as of December 31, 2025 and December 31, 2024, respectively, based on the level of qualifying collateral available for these borrowings.
As of December 31, 2025, the Bank also has access to funding through certain uncommitted lines via AFX as well as other large financial institution specific lines.
The Company had a $50.0 million committed line of credit for contingent liquidity as of December 31, 2025.
The Company has access to the Federal Reserve Discount Window to supplement its liquidity. The Company has $601.9 million of borrowing capacity at the FRB as of December 31, 2025.
As of December 31, 2025, the Company did not have any borrowings outstanding with the FRB nor with these committed and uncommitted lines.
Additionally, the Bank has access to liquidity through repurchase agreements and brokered deposits.
While management believes that the Company has adequate liquidity to meet its commitments, and to fund the Banks 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.
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Capital Resources
As of December 31, 2025 and 2024, the Company and the Bank were under the primary regulation of and required to comply with the capital requirements of the FRB. At those dates, the Company and the Bank exceeded all regulatory capital requirements and the Bank was considered "well-capitalized." See "Supervision and Regulation" in Item 1 and Note 19, "Regulatory Capital Requirements", for the Company's and the Bank's actual and required capital amounts and ratios.
Off-Balance-Sheet Arrangements
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 loan level derivatives. According to GAAP, these financial instruments are not recorded in the financial statements until they are funded or related fees are incurred or received. The effect of such activity on the Company's financial condition and results of operations, such as recorded liability for unfunded credit commitment, is immaterial. See Note 13, "Commitments and Contingencies," to the consolidated financial statements for a description of off-balance-sheet financial instruments.
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