Burke & Herbert Financial Services Corp. Announces Second Quarter 2024 Results

July 26, 2024

Burke & Herbert Financial Services Corp. (Nasdaq: BHRB) reported financial results for the quarter ended June 30, 2024. In addition, at its meeting on July 25, 2024, the board of directors declared a $0.53 per share regular cash dividend to be paid on September 3, 2024, to shareholders of record as of the close of business on August 15, 2024.

Q2 2024 Highlights

  • On May 3, 2024, the Company announced the completion of the merger of Summit Financial Group, Inc. (“Summit”) with and into Burke & Herbert and the merger of Summit Community Bank, Inc., with and into Burke & Herbert Bank & Trust Company. The merger created a financial holding company with more than $7.8 billion in assets and more than 75 branches across Virginia, West Virginia, Maryland, Delaware, and Kentucky, with more than 800 employees serving our communities.

  • Related to the merger, the total aggregate consideration paid was approximately $397.4 million and resulted in approximately $32.8 million of preliminary goodwill subject to adjustment in accordance with ASC 805.

  • Reflective of the current expected credit losses (“CECL”) provision expenses related to the day 2 purchase accounting impact from acquired loans and merger related expenses, the Company reported a net loss applicable to common shares of $17.1 million for the quarter; adjusted (non-GAAP1) operating net income applicable to common shares of $25.0 million for the quarter.

  • Basic and diluted loss per common share for the quarter was $1.41; adjusted (non-GAAP1) diluted EPS for the quarter was $2.04.

  • Net interest income for the quarter was $59.8 million; net interest income on a fully taxable equivalent basis (non-GAAP1) for the quarter was $60.5 million.

  • Net interest margin on a fully taxable equivalent basis (non-GAAP1) for the quarter was 4.06%.

  • Non-interest expense for the quarter was $64.4 million; adjusted (non-GAAP1) non-interest expense for the quarter was $40.6 million.

  • Provision for credit losses (“provision”) of $23.9 million for the quarter; $29.5 million of CECL Day 2 non-purchased credit deteriorated (“non-PCD”) provision expense2.

  • Balance sheet remains strong with ample liquidity. Total liquidity, including all available borrowing capacity with cash and cash equivalents, totaled $2.4 billion at the end of the second quarter.

  • Ending total loans of $5.6 billion and ending total deposits of $6.6 billion; ending loan-to-deposit ratio of 84.6%.

  • Asset quality remains stable across the loan portfolio with adequate reserves.

  • The Company continues to be well-capitalized, ending the quarter with 10.9% Common Equity Tier 1 capital to risk-weighted assets3, 13.8% Total risk-based capital to risk-weighted assets3, and a leverage ratio of 9.0%3.

From David P. Boyle, Company Chair and Chief Executive Officer

“The consummation of our partnership with Summit brought together two organizations committed to being the quintessential community bank in our markets, where we care about the people who live and work among us. Our results for the second quarter demonstrate the financial benefits of the merger and we look forward to delivering increased value not only for our shareholders but for our customers, employees, and communities.”

Results of Operations

Second Quarter 2024

The Company reported second quarter 2024 net loss applicable to common shares of $17.1 million, or $(1.41) per diluted common share.

Included in the second quarter were pre-tax charges of $29.5 million of CECL Day 2 non-PCD provision expense related to the allowance established on acquired non-PCD loans and $23.8 million of expenses related to the merger with Summit. Excluding these items from the current quarter on a tax effected basis, adjusted operating net income was $25.0 million, or $2.04 per diluted share.

  • Period-end total loans were $5.6 billion at June 30, 2024, up from $2.1 billion at December 31, 2023, primarily due to the merger.

  • Period-end total deposits were $6.6 billion at June 30, 2024, up from $3.0 billion at December 31, 2023, primarily due to the merger.

  • Net interest income increased to $59.8 million in the second quarter of 2024 compared to $22.1 million in the first quarter of 2024.

  • Net interest margin on a fully taxable equivalent basis increased 138.1 bps to 4.06% compared to 2.68% in the first quarter of 2024, driven by the mix of interest-earning assets added by the merger and the impact of the fair value accretion and amortization marks.

  • Accretion income on loans was $13.4 million and the amortization expense impact on interest expense was $2.5 million, or 18.2 bps of net interest margin in the second quarter of 2024.

  • The cost of total deposits was 2.43% in the second quarter of 2024 compared to 1.75% in the first quarter of 2024.

  • The Company recorded a total provision expense in the second quarter of 2024 of $23.9 million, which included $29.5 million of CECL Day 2 non-PCD provision expense related to the allowance for credit losses established on acquired non-PCD loans and $3.2 million attributable to the provision for unfunded commitments, compared to $0.7 million of total provision recapture in the first quarter of 2024.

  • The allowance for credit losses at June 30, 2024, was $68.0 million, or 1.2% of total loans, which included $29.5 million of CECL Day 2 non-PCD provision expense related to acquired non-PCD loans and $23.5 million of allowance related to acquired PCD loans.

  • Total non-interest income for the second quarter of 2024 was $9.5 million, an increase of $5.3 million from the first quarter of 2024 due to the merger.

  • Non-interest expense for the second quarter of 2024 was $64.4 million and included $23.8 million of merger-related charges.

Regulatory capital ratios4

The Company continues to be well-capitalized with capital ratios that are above regulatory requirements. As of June 30, 2024, our Common Equity Tier 1 capital to risk-weighted asset and Total risk-based capital to risk-weighted asset ratios were 10.9%4 and 13.8%4, respectively, and significantly above the well-capitalized requirements of 6.5% and 10%, respectively. The leverage ratio was 9.0%4 compared to a 5% level to be considered well-capitalized.

Burke & Herbert Bank & Trust Company (“the Bank”), the Company’s wholly-owned bank subsidiary, also continues to be well-capitalized with capital ratios that are above regulatory requirements. As of June 30, 2024, the Bank’s Common Equity Tier 1 capital to risk-weighted asset and Total risk-based capital to risk-weighted asset ratios were 12.4%4 and 13.5%4, respectively, and significantly above the well-capitalized requirements. In addition, the Bank’s leverage ratio of 9.9%4 is considered to be well-capitalized.

For more information about the Company’s financial condition, including additional disclosures pertinent to recent events in the banking industry, please see our financial statements and supplemental information attached to this release.

About Burke & Herbert

Burke & Herbert Financial Services Corp. is the financial holding company for Burke & Herbert Bank & Trust Company. Burke & Herbert Bank & Trust Company is the oldest continuously operating bank under its original name headquartered in the greater Washington, D.C. metropolitan area. With over 75 branches across Delaware, Kentucky, Maryland, Virginia, and West Virginia, Burke & Herbert Bank & Trust Company offers a full range of business and personal financial solutions designed to meet customers’ banking, borrowing, and investment needs. Learn more at investor.burkeandherbertbank.com.