Burke & Herbert Financial Services Corp. Announces Second Quarter 2023 Results and Declares Common Stock Dividend
For Immediate Release
July 28, 2023
Alexandria, VA – Burke & Herbert Financial Services Corp. (the “Company”) (Nasdaq: BHRB) reported financial results for the quarter ended June 30, 2023. In addition, at its meeting on July 27, 2023, the board of directors declared a $0.53 per share regular cash dividend to be paid on September 1, 2023, to shareholders of record as of the close of business August 15, 2023.
The Company notes the following highlights:
•Balance sheet remains strong with ample liquidity and capital ratios significantly higher than regulatory defined well-capitalized levels;
•Asset quality remains stable across the loan portfolio with adequate reserves; and
•Focus remains on strategic initiatives to profitably expand market share, transform the Company’s digital capabilities and grow sources of non-interest income.
From David P. Boyle, Company Chair, President and Chief Executive Officer
“Despite the headwinds facing the industry and the resulting pressure on bank earnings, our focus remains on executing our strategic priorities. This quarter we increased loans, maintained a strong liquidity position, and continued to make investments in our businesses designed to deliver increased shareholder value over the long-term.”
Results of Operations
Second Quarter 2023 - Comparison to prior year quarter
Net income for the three months ended June 30, 2023, was $6.0 million or $4.4 million lower than the three months ended June 30, 2022, primarily due to increased funding costs and the change in provision for credit losses that included a recapture of credit losses in the prior year quarter.
Total revenue (non-GAAP) for the three months ended June 30, 2023, was $28.4 million or 6% lower than the three months ended June 30, 2022, and included $25.3 million in interest and fees on loans and $10.8 million in investment security income, which was a 45% increase and a 20% increase, respectively, over the prior year three months ended June 30, 2022. Overall, interest income for the three months ended June 30, 2023, was $37.1 million or 40% higher than the three months ended June 30, 2022. The increase in interest income for the Company’s loans was due to increased loan growth and higher rates, and the interest income increase in investment securities was due to higher rates. Loans, net of allowance for credit losses, ended the quarter at $2.0 billion or 14% higher than June 30, 2022, while the investment portfolio fair value ended the quarter at $1.3 billion or 17% lower than the prior year quarter.
The increase in interest income was offset by an increase in interest expense, which was $13.3 million for the three months ended June 30, 2023, or $12.4 million higher than the prior year period. The rapidly rising rate environment resulted in an increase in the Company’s cost of funds that outpaced the resulting benefit of higher rates on assets. The Company’s deposit and borrowing interest expense was $10.0 million and $3.3 million or $9.7 million and $2.8 million higher, respectively, for the three months ended June 30, 2023. Total deposits ended the quarter at $3.0 billion or 2% higher than the same period in 2022.
Non-GAAP financial measures referenced in this release are used by management to measure performance in operating the business that management believes enhances investors’ ability to better understand the underlying business performance and trends related to core business activities. Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included in the non-GAAP reconciliation tables in this release.
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Non-interest-bearing deposits decreased by 11% to $876.4 million, and borrowed funds decreased by 20% to $249.0 million from the prior year quarter ended June 30, 2022.
Non-interest income for the three months ended June 30, 2023, increased $0.1 million from the same period last year to $4.6 million. The increase was primarily due to higher other non-interest income revenue. Within other non-interest income, the Company received an increase in dividend income from the Federal Home Loan Bank (“FHLB”) and also included increased fee income from customer swap activity when compared to the prior year quarter ended June 30, 2022.
For the three months ended June 30, 2023, the Company recorded a provision for credit losses of $0.2 million compared to a recapture of credit losses of $2.5 million in the prior year quarter. Total revenue (non-GAAP) after provision for credit losses was $28.2 million for the three months ended June 30, 2023, which was a decrease of 14% compared to the same period last year due to the recapture of credit losses recorded in the prior year quarter.
Non-interest expense increased by $1.0 million, or 5%, for the three months ended June 30, 2023, from the prior year three months ended June 30, 2022. The increase was driven by higher personnel related expenses, primarily benefits and pension, due to increased healthcare costs and general macro-economic conditions. The Company also incurred expenses during the second quarter of 2023 related to the efforts of listing our common stock on the Nasdaq stock exchange and the filing of a Form 10 Registration Statement with the U.S. Securities and Exchange Commission (“SEC”) to register our common stock under the Securities Exchange Act of 1934, as amended.
As of June 30, 2023, total shareholders’ equity was $290.1 million or $1.1 million lower than June 30, 2022, due to the impact of higher rates on the fair value of our securities portfolio.
Six months ended June 30, 2023 - Comparison to prior year period
Net income for the six months ended June 30, 2023, was $13.6 million or $6.0 million lower than the six months ended June 30, 2022.
Total revenue (non-GAAP) for the six months ended June 30, 2023, was $57.4 million or 1% lower than the six months ended June 30, 2022, and included $48.1 million in interest and fees on loans and $22.1 million in investment security income, which was a 42% increase and a 31% increase, respectively, over the prior year six months ended June 30, 2022. Overall, interest income for the six months ended June 30, 2023, was $71.4 million or 41% higher than the six months ended June 30, 2022. The increase in interest income for the Company’s loans was due to increased loan growth and higher rates, and the interest income increase on investment securities was due to higher rates.
The increase in interest income was offset by an increase in interest expense, which was $22.9 million for the six months ended June 30, 2023, or $21.2 million higher than the prior year period. The rapidly rising rate environment resulted in an increase in the Company’s cost of funds that outpaced the resulting benefit of higher rates on assets. The Company’s deposit and borrowing interest expense was $15.4 million and $7.4 million or $14.7 million and $6.5 million higher, respectively, for the six months ended June 30, 2023, than for the six months ended June 30, 2022.
Non-interest income for the six months ended June 30, 2023, increased $0.2 million from the same period last year to $8.8 million. The increase was primarily due to higher other non-interest income revenue. Within other non-interest income, the Company received an increase in dividend income from the FHLB and also included increased fee income from customer swap activity when compared to the prior year period ended June 30, 2022.
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For the six months ended June 30, 2023, the Company recorded a provision for credit losses of $0.7 million compared to a recapture of credit losses of $5.2 million in the prior year period. Total revenue (non-GAAP) after provision for credit losses was $56.7 million for the six months ended June 30, 2023, which was a decrease of 10% compared to the same period last year.
Non-interest expense increased by $2.2 million, or 6%, for the six months ended June 30, 2023, from the prior year six months ended June 30, 2022. The increase was driven by higher personnel related expenses, primarily benefits and pension, due to increased healthcare costs and general macro-economic conditions. The Company also incurred expenses during 2023 related to the efforts of listing our common stock on the Nasdaq stock exchange and the filing of a Form 10 Registration Statement with the SEC to register our common stock under the Securities Exchange Act of 1934, as amended.
Regulatory capital ratios
The Company continues to be well-capitalized with capital ratios that are above regulatory requirements. As of June 30, 2023, our Common Equity Tier 1 capital to risk-weighted asset and Total risk-based capital to risk weighted asset ratios were 17.6% and 18.7%, respectively, and significantly above the well-capitalized requirements of 6.5% and 10%, respectively. The leverage ratio was 11.2% compared to a 5% level to be considered well-capitalized.
Burke & Herbert Bank & Trust Company (“the Bank”), the Company’s wholly-owned bank subsidiary, continues to be well-capitalized with capital ratios that are above regulatory requirements. As of June 30, 2023, the Bank’s Common Equity Tier 1 capital to risk-weighted asset and Total risk-based capital to risk weighted asset ratios were 17.5% and 18.6%, respectively, and significantly above the well-capitalized requirements. In addition, the Bank’s leverage ratio of 11.1% 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.
Burke & Herbert Financial Services Corp. is the bank 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 DC Metro area. The Bank offers a full range of business and personal financial solutions designed to meet customers’ banking, borrowing, and investment needs and has over 20 branches throughout the Northern Virginia region and commercial loan offices in Fredericksburg, Loudoun County, Richmond, and in Bethesda, Maryland. Learn more at www.burkeandherbertbank.com.
Member FDIC; Equal Housing Lender
Cautionary Note Regarding Forward-Looking Statements
This press release may contain certain forward-looking statements that are based on certain assumptions and describe future plans, strategies and expectations of the Company and the Bank, including with respect to the Company's ability to maintain adequate liquidity, meet and exceed regulatory capitalization requirements, execute on strategic priorities and initiatives, expand market share, and transform its digital capabilities. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "will," "should," "may," "view," "opportunity," "potential," or similar expressions or expressions of confidence. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The Company’s forward-looking statements are subject to the following principal risks and uncertainties: the risk factors discussed in the
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Company’s Registration Statement on Form 10, as amended, and as ordered effective by the SEC on April 21, 2023 and in subsequent 2023 Quarterly Reports on Form 10-Q and other 2023 filings with the SEC. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Any forward-looking statement made by us in this release is based only on information currently available to us and speaks only as of the date on which it is made. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
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Burke & Herbert Financial Services Corp.
Consolidated Statements of Income (unaudited)
(In thousands)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Loans, including fees | $ | 25,300 | $ | 17,418 | $ | 48,060 | $ | 33,868 | |||||||||||||||
| Taxable securities | 9,419 | 6,572 | 19,221 | 11,930 | |||||||||||||||||||
| Tax-exempt securities | 1,409 | 2,464 | 2,867 | 4,890 | |||||||||||||||||||
| Other interest income | 988 | 88 | 1,296 | 106 | |||||||||||||||||||
| Total interest income | 37,116 | 26,542 | 71,444 | 50,794 | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Deposits | 10,030 | 368 | 15,431 | 769 | |||||||||||||||||||
| Borrowed funds | 3,279 | 527 | 7,417 | 892 | |||||||||||||||||||
| Other interest expense | 15 | 16 | 30 | 31 | |||||||||||||||||||
| Total interest expense | 13,324 | 911 | 22,878 | 1,692 | |||||||||||||||||||
| Net interest income | 23,792 | 25,631 | 48,566 | 49,102 | |||||||||||||||||||
| Provision for (recapture of) credit losses | 214 | (2,538) | 729 | (5,176) | |||||||||||||||||||
| Net interest income after credit loss expense | 23,578 | 28,169 | 47,837 | 54,278 | |||||||||||||||||||
| Non-interest income | |||||||||||||||||||||||
| Fiduciary and wealth management | 1,305 | 1,362 | 2,642 | 2,667 | |||||||||||||||||||
| Service charges and fees | 1,741 | 1,761 | 3,376 | 3,394 | |||||||||||||||||||
| Net gains (losses) on securities | (111) | — | (111) | 104 | |||||||||||||||||||
| Income from life insurance | 571 | 542 | 1,131 | 1,079 | |||||||||||||||||||
| Other non-interest income | 1,119 | 831 | 1,801 | 1,367 | |||||||||||||||||||
| Total non-interest income | 4,625 | 4,496 | 8,839 | 8,611 | |||||||||||||||||||
| Non-interest expense | |||||||||||||||||||||||
| Salaries and wages | 9,922 | 9,617 | 19,416 | 19,146 | |||||||||||||||||||
| Pensions and other employee benefits | 2,406 | 1,901 | 4,874 | 3,940 | |||||||||||||||||||
| Occupancy | 1,545 | 1,609 | 3,002 | 3,155 | |||||||||||||||||||
| Equipment rentals, depreciation and maintenance | 1,457 | 1,383 | 2,796 | 2,762 | |||||||||||||||||||
| Other operating | 6,018 | 5,858 | 11,625 | 10,530 | |||||||||||||||||||
| Total non-interest expense | 21,348 | 20,368 | 41,713 | 39,533 | |||||||||||||||||||
| Income before income taxes | 6,855 | 12,297 | 14,963 | 23,356 | |||||||||||||||||||
| Income tax expense | 821 | 1,900 | 1,405 | 3,833 | |||||||||||||||||||
| Net income | $ | 6,034 | $ | 10,397 | $ | 13,558 | $ | 19,523 | |||||||||||||||
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Burke & Herbert Financial Services Corp.
Consolidated Balance Sheets
(In thousands)
| June 30, 2023 | December 31, 2022 | ||||||||||
| (Unaudited) | (Audited) | ||||||||||
| Assets | |||||||||||
| Cash and due from banks | $ | 9,047 | $ | 9,124 | |||||||
| Interest-earning deposits with banks | 71,752 | 41,171 | |||||||||
| Cash and cash equivalents | 80,799 | 50,295 | |||||||||
| Securities available-for-sale, at fair value | 1,252,190 | 1,371,757 | |||||||||
| Restricted stock, at cost | 3,914 | 16,443 | |||||||||
| Loans held-for-sale, at fair value | 456 | — | |||||||||
| Loans | 2,000,969 | 1,887,221 | |||||||||
| Allowance for credit losses | (25,919) | (21,039) | |||||||||
| Net loans | 1,975,050 | 1,866,182 | |||||||||
| Premises and equipment, net | 56,183 | 53,170 | |||||||||
| Accrued interest receivable | 14,781 | 15,481 | |||||||||
| Company-owned life insurance | 93,625 | 92,487 | |||||||||
| Other assets | 92,228 | 97,083 | |||||||||
Total Assets | $ | 3,569,226 | $ | 3,562,898 | |||||||
| Liabilities and Shareholders’ Equity | |||||||||||
| Liabilities | |||||||||||
| Non-interest-bearing deposits | $ | 876,396 | $ | 960,692 | |||||||
| Interest-bearing deposits | 2,128,867 | 1,959,708 | |||||||||
| Total deposits | 3,005,263 | 2,920,400 | |||||||||
| Borrowed funds | 249,000 | 343,100 | |||||||||
| Accrued interest and other liabilities | 24,891 | 25,945 | |||||||||
| Total Liabilities | 3,279,154 | 3,289,445 | |||||||||
| Shareholders’ Equity | |||||||||||
| Common Stock | 4,000 | 4,000 | |||||||||
| Additional paid-in capital | 13,208 | 12,282 | |||||||||
| Retained earnings | 426,625 | 424,391 | |||||||||
| Accumulated other comprehensive income (loss) | (126,177) | (139,495) | |||||||||
| Treasury stock | (27,584) | (27,725) | |||||||||
| Total Shareholders’ Equity | 290,072 | 273,453 | |||||||||
| Total Liabilities and Shareholders’ Equity | $ | 3,569,226 | $ | 3,562,898 | |||||||
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Burke & Herbert Financial Services Corp.
Supplemental Information (unaudited)
As of or for the three months ended
(In thousands, except ratios and per share amounts)
| June 30 | March 31 | December 31 | September 30 | June 30 | |||||||||||||||||||||||||
| 2023 | 2023 | 2022 | 2022 | 2022 | |||||||||||||||||||||||||
| Per common share information | |||||||||||||||||||||||||||||
| Basic earnings | $ | 0.81 | $ | 1.01 | $ | 1.80 | $ | 1.50 | $ | 1.40 | |||||||||||||||||||
| Diluted earnings | 0.80 | 1.00 | 1.78 | 1.49 | 1.39 | ||||||||||||||||||||||||
| Cash dividends | 0.53 | 0.53 | 0.53 | 0.53 | 0.53 | ||||||||||||||||||||||||
| Book value | 39.05 | 39.02 | 36.82 | 34.40 | 39.21 | ||||||||||||||||||||||||
| Balance sheet-related (at period end, unless indicated) | |||||||||||||||||||||||||||||
| Assets | $ | 3,569,226 | $ | 3,671,186 | $ | 3,562,898 | $ | 3,501,145 | $ | 3,585,822 | |||||||||||||||||||
| Average earning assets | 3,379,534 | 3,331,920 | 3,255,213 | 3,328,594 | 3,342,045 | ||||||||||||||||||||||||
| Loans (gross) | 2,000,969 | 1,951,738 | 1,887,221 | 1,751,827 | 1,748,508 | ||||||||||||||||||||||||
| Loans (net) | 1,975,050 | 1,926,034 | 1,866,182 | 1,730,874 | 1,725,146 | ||||||||||||||||||||||||
| Securities, available-for-sale, at fair value | 1,252,190 | 1,362,785 | 1,371,757 | 1,453,104 | 1,515,974 | ||||||||||||||||||||||||
| Non-interest-bearing deposits | 876,396 | 906,723 | 960,692 | 980,714 | 987,748 | ||||||||||||||||||||||||
| Interest-bearing deposits | 2,128,867 | 2,125,668 | 1,959,708 | 1,996,946 | 1,972,675 | ||||||||||||||||||||||||
| Deposits, total | 3,005,263 | 3,032,391 | 2,920,400 | 2,977,660 | 2,960,423 | ||||||||||||||||||||||||
| Brokered deposits | 389,051�� | 389,185 | 100,273 | — | — | ||||||||||||||||||||||||
| Uninsured deposits | 681,908 | 715,053 | 843,431 | 847,973 | 897,669 | ||||||||||||||||||||||||
| Borrowed funds | 249,000 | 321,700 | 343,100 | 243,000 | 310,000 | ||||||||||||||||||||||||
Unused borrowing capacity(1) | 958,962 | 809,127 | 622,186 | 743,456 | 977,935 | ||||||||||||||||||||||||
| Equity | 290,072 | 289,783 | 273,453 | 255,471 | 291,138 | ||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | (126,177) | (123,809) | (139,495) | (147,578) | (104,221) | ||||||||||||||||||||||||
(1) Includes Federal Home Loan Bank and correspondent bank availability.
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Burke & Herbert Financial Services Corp.
Supplemental Information (unaudited)
As of or for the three months ended
(In thousands, except ratios and per share amounts)
| June 30 | March 31 | December 31 | September 30 | June 30 | |||||||||||||||||||||||||
| 2023 | 2023 | 2022 | 2022 | 2022 | |||||||||||||||||||||||||
| Ratios | |||||||||||||||||||||||||||||
| Return on average assets (annualized) | 0.67 | % | 0.85 | % | 1.51 | % | 1.23 | % | 1.17 | % | |||||||||||||||||||
| Return on average equity (annualized) | 8.34 | 10.83 | 20.66 | 14.99 | 13.48 | ||||||||||||||||||||||||
| Net interest margin (non-GAAP) | 2.87 | 3.06 | 3.46 | 3.25 | 3.15 | ||||||||||||||||||||||||
| Efficiency ratio | 75.12 | 70.25 | 51.24 | 64.48 | 67.61 | ||||||||||||||||||||||||
| Loans to deposit ratio | 66.58 | 64.36 | 64.62 | 58.83 | 59.06 | ||||||||||||||||||||||||
Common Equity Tier 1 (CET1) capital ratio(2) | 17.47 | 17.40 | 17.89 | 18.23 | 18.09 | ||||||||||||||||||||||||
Total capital to risk-weighted assets ratio(2) | 18.57 | 18.50 | 18.81 | 19.18 | 19.16 | ||||||||||||||||||||||||
Leverage ratio(2) | 11.11 | 11.09 | 11.30 | 11.03 | 10.94 | ||||||||||||||||||||||||
| Income statement | |||||||||||||||||||||||||||||
| Interest income | $ | 37,116 | $ | 34,328 | $ | 32,574 | $ | 29,265 | $ | 26,542 | |||||||||||||||||||
| Interest expense | 13,324 | 9,554 | 4,665 | 2,584 | 911 | ||||||||||||||||||||||||
| Non-interest income | 4,625 | 4,214 | 4,217 | 4,259 | 4,496 | ||||||||||||||||||||||||
| Total revenue (non-GAAP) | 28,417 | 28,988 | 32,126 | 30,940 | 30,127 | ||||||||||||||||||||||||
| Non-interest expense | 21,348 | 20,365 | 16,462 | 19,951 | 20,368 | ||||||||||||||||||||||||
| Pretax, pre-provision earnings (non-GAAP) | 7,069 | 8,623 | 15,664 | 10,989 | 9,759 | ||||||||||||||||||||||||
| Provision for (recapture of) credit losses | 214 | 515 | 98 | (2,388) | (2,538) | ||||||||||||||||||||||||
| Income before income taxes | 6,855 | 8,108 | 15,566 | 13,377 | 12,297 | ||||||||||||||||||||||||
| Income tax expense | 821 | 584 | 2,213 | 2,240 | 1,900 | ||||||||||||||||||||||||
| Net income | $ | 6,034 | $ | 7,524 | $ | 13,353 | $ | 11,137 | $ | 10,397 | |||||||||||||||||||
(2) Ratios are for Burke & Herbert Bank & Trust Company for all periods presented.
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Burke & Herbert Financial Services Corp.
Non-GAAP Reconciliations (unaudited)
As of or for the three months ended
(In thousands)
| Total Revenue (non-GAAP) | ||||||||||||||||||||||||||||||||
| June 30 | March 31 | December 31 | September 30 | June 30 | ||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | 2022 | 2022 | ||||||||||||||||||||||||||||
| Interest income | $ | 37,116 | $ | 34,328 | $ | 32,574 | $ | 29,265 | $ | 26,542 | ||||||||||||||||||||||
| Interest expense | 13,324 | 9,554 | 4,665 | 2,584 | 911 | |||||||||||||||||||||||||||
| Non-interest income | 4,625 | 4,214 | 4,217 | 4,259 | 4,496 | |||||||||||||||||||||||||||
| Total revenue (non-GAAP) | $ | 28,417 | $ | 28,988 | $ | 32,126 | $ | 30,940 | $ | 30,127 | ||||||||||||||||||||||
Total revenue is a non-GAAP measure and is derived from total interest income less total interest expense plus total non-interest income. We believe that total revenue is a useful tool to determine how the Company is managing its business and how stable our revenue sources are from period to period.
| Pretax, Pre-Provision Earnings (non-GAAP) | ||||||||||||||||||||||||||||||||
| June 30 | March 31 | December 31 | September 30 | June 30 | ||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | 2022 | 2022 | ||||||||||||||||||||||||||||
| Income before taxes | $ | 6,855 | $ | 8,108 | $ | 15,566 | $ | 13,377 | $ | 12,297 | ||||||||||||||||||||||
| Provision for (recapture of) credit losses | 214 | 515 | 98 | (2,388) | (2,538) | |||||||||||||||||||||||||||
| Pretax, pre-provision earnings (non-GAAP) | $ | 7,069 | $ | 8,623 | $ | 15,664 | $ | 10,989 | $ | 9,759 | ||||||||||||||||||||||
Pretax pre-provision earnings is a non-GAAP measure and is based on adjusting income before income taxes and to exclude provision for (recapture of) credit losses. We believe that pretax, pre-provision earnings is a useful tool to help evaluate the ability to provide for credit costs through operations and provides an additional basis to compare results between periods by isolating the impact of provision for (recapture of) credit losses, which can vary significantly between periods.
| Net Interest Margin & Taxable-Equivalent Net Interest Income (non-GAAP) | ||||||||||||||||||||||||||||||||
| June 30 | March 31 | December 31 | September 30 | June 30 | ||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | 2022 | 2022 | ||||||||||||||||||||||||||||
| Net interest income | $ | 23,792 | $ | 24,774 | $ | 27,909 | $ | 26,681 | $ | 25,631 | ||||||||||||||||||||||
| Taxable-equivalent adjustments | 375 | 387 | 455 | 621 | 655 | |||||||||||||||||||||||||||
| Net interest income (Fully Taxable-Equivalent - FTE) | $ | 24,167 | $ | 25,161 | $ | 28,364 | $ | 27,302 | $ | 26,286 | ||||||||||||||||||||||
| Average earning assets | 3,379,534 | 3,331,920 | 3,255,213 | 3,328,594 | 3,342,045 | |||||||||||||||||||||||||||
| Net interest margin (non-GAAP) | 2.87 | % | 3.06 | % | 3.46 | % | 3.25 | % | 3.15 | % | ||||||||||||||||||||||
The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest income, we use net interest income on a fully
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Burke & Herbert Financial Services Corp.
Non-GAAP Reconciliations (unaudited)
As of or for the three months ended
(In thousands)
taxable-equivalent (FTE) basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. FTE net interest income is calculated by adding the tax benefit on certain financial interest earning assets, whose interest is tax-exempt, to total interest income then subtracting total interest expense. Management believes FTE net interest income is a standard practice in the banking industry, and when net interest income is adjusted on an FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable; however, the adjustment to an FTE basis has no impact on net income and this adjustment is not permitted under GAAP. FTE net interest income is only used for calculating FTE net interest margin, which is calculated by annualizing FTE net interest income and then dividing by the average earning assets. The tax-rate used for this adjustment is 21%. Net interest income shown elsewhere in this presentation is GAAP net interest income.
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