Beacon Financial Corp. Q2 FY2026 earnings call

• Overall Financial & Integration Progress

• Q2 2026 results reflect improved operating momentum and solid execution, as the company completed merger integration activities after a 2024 combination. Profitability improved across all key metrics, with return on assets reaching 1.17% and return on tangible common equity reaching 12.84%.
• The company has fully realized all planned merger expense synergies, with Q2 core operating expenses coming in below the original target set at the time of the merger announcement.

• Balance Sheet & Lending Activity

• Modest overall loan decline was in line with expectations, driven by planned runoff in commercial real estate (CRE) and equipment finance portfolios, partially offset by growth in commercial and consumer lending. While overall loan demand remains uneven, origination pipelines are healthy.
• Deposit growth resumed in Q2 after seasonal outflows in Q1, with customer and broker deposits both increasing, allowing the company to reduce more expensive wholesale borrowed funds.
• The weighted average coupon on new originations was substantially higher than the existing portfolio, lifting the overall portfolio yield by 3 basis points to 5.99%.

• Expense Management

• Expense discipline remains a core strength; excluding merger-related costs from Q1, core operating expenses declined modestly quarter-over-quarter due to systems consolidation and facility optimization efficiencies. The core efficiency ratio improved significantly to 54.26%.

• Capital & Capital Return

• The capital position strengthened during the quarter, supported by solid earnings and disciplined balance sheet management, with the company maintaining a conservative balance sheet posture. The board approved a quarterly dividend of $0.325 per share (approximately 4.2% dividend yield), and a $500 million stock repurchase authorization remains available for opportunistic purchases.

• Credit Performance

• Credit performance remains manageable and in line with expectations. Q2 charge-offs were concentrated on a small number of previously identified, fully reserved credits. Non-performing assets and non-performing loans increased only modestly from Q1. The allowance for loan and lease losses totaled $238 million (130 basis points of total loans), which management believes appropriately covers current portfolio risks.

This call does not break out performance into distinct product segments with separate revenue figures or contribution percentages. Aggregate consolidated results for Q2 2026 are as follows: GAAP net income was $64.4 million (77 cents per share), up from $46.2 million (55 cents per share) in Q1 2026. Net interest income was $193.2 million, an increase of $2.4 million quarter-over-quarter, with a net interest margin of 3.81% (up 3 basis points from Q1). Non-interest income totaled $26 million, up $2 million (9%) quarter-over-quarter, driven by higher loan sale gains, derivative income, and growing wealth management fees. Total assets increased modestly to $22.3 billion; total loans declined $102 million quarter-over-quarter, with $850 million in new originations at a 6.31% weighted average coupon. Total deposits increased $194 million quarter-over-quarter. Tangible common equity reached 9.25% of tangible assets, with tangible book value of $23.98 per share.

• Management expects modest loan growth in Q3 2026, with growth accelerating into Q4 2026, supported by a substantially larger commercial pipeline compared to the end of Q1 (currently $1.9 billion including unapproved loans). • Core operating expenses are expected to stay near Q2 2026 levels for the remainder of 2026, with no significant expected increases or declines. More detailed guidance for 2027 will be provided later in 2026. • Net interest margin is expected to continue to benefit from higher-yielding new loan originations as production picks up; management does not expect deposit costs to meaningfully increase from current levels, and does not anticipate much additional downward movement in deposit costs after the Q2 decline. • Provisioning for credit losses is expected to remain moderate for the remainder of 2026 if credit conditions hold steady, though charge-off levels are expected to stay elevated as known problem credits are resolved proactively.

• The operating environment remains highly competitive, and ongoing economic uncertainty continues to delay client lending decision-making, which has constrained overall loan growth. • Management is actively watching credit risks in office, lab, and other commercial real estate sectors, as well as the residual runoff portfolio of specialty vehicle loans at Eastern Funding, which continues to experience small credit issues.

• Rent control policy uncertainty across the Northeast U.S. (Massachusetts, Rhode Island, New York) suppressed multifamily real estate lending activity through the first half of 2026, and even after a recent court ruling striking down some regulations, uncertainty remains that continues to limit activity.
• Pricing pressure on new loan originations exists in the current competitive market, with occasional one-off pressure on lending spreads, though this is not yet a widespread, systemic issue.

Q: What is driving the expected pickup in loan growth in the second half of 2026, how large is the current commercial pipeline, and will the recent end to Massachusetts rent control boost activity? / A: The first half market slowdown was industry-wide, compounded by Beacon's merger conversion work and planned portfolio runoff. The commercial pipeline is up substantially from Q1, now at $1.9 billion including unapproved loans. While rent control uncertainty has decreased after the court ruling, it has not fully eliminated, though multifamily activity has begun to pick up slightly. New pipeline borrowers are high-quality, with management optimistic originations will increase as clients move forward with planned activity.

Q: What is the geographic and sector breakdown of the strong loan pipeline, and what can we expect for loan yields going forward? / A: The $1.9 billion pipeline is strictly for C&I and commercial real estate, and is broadly diversified across geographies and sectors, with commercial real estate representing the largest share after the firm reduced its prior CRE concentration and redeployed that lending capacity. Recent originations have had a much higher weighted average coupon than the existing portfolio, and as higher-yielding new loans continue to come onto the balance sheet, overall portfolio yields will keep rising. While there is occasional competitive spread pressure on very attractive credits, it is not a widespread issue.

Q: Should we expect non-performing assets to crest here, and what is the outlook for charge-offs through the end of the year? / A: Management is closely watching credit, particularly office and related commercial sectors, but is comfortable that current reserve levels appropriately cover all known risks. Q2 charge-offs were mostly from pre-identified, fully reserved credits, with the largest charge-offs taken proactively ahead of expected resolutions that are expected to complete this quarter. Charge-offs will likely remain elevated for the rest of the year as known problem credits are cleaned up, while overall provisioning will stay moderate if current credit conditions hold. Beacon holds $75 million in specific reserves against $400 million in classified assets, which management says provides a strong buffer for expected losses.

Q: Is the $500 million stock buyback program going to be utilized this year as capital continues to build? / A: The authorization remains available, and the company retains flexibility to opportunistically repurchase shares when market conditions are favorable. Management describes the opportunity as fluid and would not confirm or rule out activity this year.

Q: What is the nature of recent criticized loan growth, and what is the status of remaining rent-controlled multifamily loans in New York City? / A: The $26 million increase in criticized assets came from a single downgrade of a single-tenant property after the occupant vacated; the firm is currently working with the sponsor to sell the asset. After Q2 charge-offs on two rent-controlled NYC multifamily properties, the remaining balance of these loans is in the low teens, and the charge-off taken this quarter was in advance of an expected sale of the remaining notes next quarter.