Burke & Herbert Financial Services Corp. Announces Second Quarter 2024 Results and Declares Common Stock Dividend
For Immediate Release
July 26, 2024
Alexandria, VA – Burke & Herbert Financial Services Corp. (the “Company” or “Burke & Herbert”) (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.
(1) 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. Non-GAAP measures should not be used as a substitute for the closest comparable GAAP measurements.
(2) Refers to the initial increase in allowance for credit losses required on acquired non-PCD loans through the provision for credit losses.
(3) Estimated.
1
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.
2
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.
Cautionary Note Regarding Forward-Looking Statements
This communication contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the beliefs, goals, intentions, and expectations of the Company regarding revenues, earnings, earnings per share, loan production, asset quality, and capital levels, among other matters; our estimates of future costs and benefits of the actions we may take; our assessments of expected losses on loans; our assessments of interest rate and other market risks; our ability to achieve our financial and other strategic goals; the expected cost savings, synergies, returns, and other anticipated benefits from the integration of Summit following the recently completed merger of Summit with and into the Company; and other statements that are not historical facts.
Forward–looking statements are typically identified by such words as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “will,” “should,” and other similar words and expressions, and are subject to numerous assumptions, risks, and uncertainties, which change over time. Additionally, forward–looking statements speak only as of the date they are made; the Company does not assume any duty, does not undertake, and specifically disclaims any obligation to update such forward–looking statements, whether written or oral, that may be made from time to time, whether because of new information, future events, or otherwise, except as required by law. Furthermore, because forward–looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those indicated in or implied by such forward-looking statements because of a variety of factors, many of which are beyond the control of the Company. Accordingly, you should not place undue reliance on forward-looking statements.
(4) Estimated.
3
The risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements include, but are not limited to, the following: costs or difficulties associated with newly developed or acquired operations; risks related to our ability to successfully integrate Summit into the Company and operate the combined company; changes in general economic trends (either nationally or locally in the areas in which we conduct, or will conduct, business), including inflation, interest rates, market and monetary fluctuations; increased competition; changes in consumer demand for financial services; our ability to control costs and expenses; adverse developments in borrower industries or declines in real estate values; changes in and compliance with federal and state laws and regulations that pertain to our business and capital levels; our ability to raise capital as needed; the effects of any cybersecurity breaches; and the other factors discussed in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s Annual Report on Form 10–K for the year ended December 31, 2023, the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, and other reports the Company files with the SEC.
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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 | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Taxable loans, including fees | $ | 81,673 | $ | 25,300 | $ | 109,718 | $ | 48,060 | ||||||||||||||||||
| Tax-exempt loans, including fees | 33 | — | 33 | — | ||||||||||||||||||||||
| Taxable securities | 10,930 | 9,419 | 19,873 | 19,221 | ||||||||||||||||||||||
| Tax-exempt securities | 2,556 | 1,409 | 3,917 | 2,867 | ||||||||||||||||||||||
| Other interest income | 905 | 988 | 1,301 | 1,296 | ||||||||||||||||||||||
| Total interest income | 96,097 | 37,116 | 134,842 | 71,444 | ||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Deposits | 30,373 | 10,030 | 43,304 | 15,431 | ||||||||||||||||||||||
| Borrowed funds | 4,071 | 3,279 | 7,726 | 7,417 | ||||||||||||||||||||||
| Subordinated debt | 1,860 | — | 1,860 | — | ||||||||||||||||||||||
| Other interest expense | 28 | 15 | 56 | 30 | ||||||||||||||||||||||
| Total interest expense | 36,332 | 13,324 | 52,946 | 22,878 | ||||||||||||||||||||||
| Net interest income | 59,765 | 23,792 | 81,896 | 48,566 | ||||||||||||||||||||||
| Credit loss expense - loans and available-for-sale securities | 20,100 | (97) | 19,430 | 834 | ||||||||||||||||||||||
| Credit loss expense - off-balance sheet credit exposures | 3,810 | 311 | 3,810 | (105) | ||||||||||||||||||||||
| Total provision for (recapture of) credit losses | 23,910 | 214 | 23,240 | 729 | ||||||||||||||||||||||
| Net interest income after credit loss expense | 35,855 | 23,578 | 58,656 | 47,837 | ||||||||||||||||||||||
| Non-interest income | ||||||||||||||||||||||||||
| Fiduciary and wealth management | 2,211 | 1,305 | 3,630 | 2,642 | ||||||||||||||||||||||
| Service charges and fees | 4,088 | 1,741 | 5,694 | 3,376 | ||||||||||||||||||||||
| Net gains (losses) on securities | 613 | (111) | 613 | (111) | ||||||||||||||||||||||
| Income from company-owned life insurance | 922 | 571 | 1,469 | 1,131 | ||||||||||||||||||||||
| Other non-interest income | 1,671 | 1,119 | 2,353 | 1,801 | ||||||||||||||||||||||
| Total non-interest income | 9,505 | 4,625 | 13,759 | 8,839 | ||||||||||||||||||||||
| Non-interest expense | ||||||||||||||||||||||||||
| Salaries and wages | 20,895 | 9,922 | 30,413 | 19,416 | ||||||||||||||||||||||
| Pensions and other employee benefits | 5,303 | 2,406 | 7,668 | 4,874 | ||||||||||||||||||||||
| Occupancy | 2,997 | 1,545 | 4,535 | 3,002 | ||||||||||||||||||||||
| Equipment rentals, depreciation and maintenance | 12,663 | 1,457 | 13,944 | 2,796 | ||||||||||||||||||||||
| Other operating | 22,574 | 6,018 | 29,037 | 11,625 | ||||||||||||||||||||||
| Total non-interest expense | 64,432 | 21,348 | 85,597 | 41,713 | ||||||||||||||||||||||
| Income (loss) before income taxes | (19,072) | 6,855 | (13,182) | 14,963 | ||||||||||||||||||||||
| Income tax expense (benefit) | (2,153) | 821 | (1,475) | 1,405 | ||||||||||||||||||||||
| Net income (loss) | (16,919) | 6,034 | (11,707) | 13,558 | ||||||||||||||||||||||
| Preferred stock dividends | 225 | — | 225 | — | ||||||||||||||||||||||
| Net income (loss) applicable to common shares | $ | (17,144) | $ | 6,034 | $ | (11,932) | $ | 13,558 | ||||||||||||||||||
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Burke & Herbert Financial Services Corp.
Consolidated Balance Sheets
(In thousands)
| June 30, 2024 | December 31, 2023 | |||||||||||||
| (Unaudited) | (Audited) | |||||||||||||
| Assets | ||||||||||||||
| Cash and due from banks | $ | 35,072 | $ | 8,896 | ||||||||||
| Interest-earning deposits with banks | 176,848 | 35,602 | ||||||||||||
| Cash and cash equivalents | 211,920 | 44,498 | ||||||||||||
| Securities available-for-sale, at fair value | 1,414,870 | 1,248,439 | ||||||||||||
| Restricted stock, at cost | 15,169 | 5,964 | ||||||||||||
| Loans held-for-sale, at fair value | 3,268 | 1,497 | ||||||||||||
| Loans | 5,616,724 | 2,087,756 | ||||||||||||
| Allowance for credit losses | (68,017) | (25,301) | ||||||||||||
| Net loans | 5,548,707 | 2,062,455 | ||||||||||||
| Property held-for-sale | 3,334 | — | ||||||||||||
| Premises and equipment, net | 135,581 | 61,128 | ||||||||||||
| Accrued interest receivable | 33,371 | 15,895 | ||||||||||||
| Intangible assets | 65,895 | — | ||||||||||||
| Goodwill | 32,783 | — | ||||||||||||
| Company-owned life insurance | 182,112 | 94,159 | ||||||||||||
| Other assets | 163,183 | 83,544 | ||||||||||||
| Total Assets | $ | 7,810,193 | $ | 3,617,579 | ||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||
| Liabilities | ||||||||||||||
| Non-interest-bearing deposits | $ | 1,397,030 | $ | 830,320 | ||||||||||
| Interest-bearing deposits | 5,242,541 | 2,171,561 | ||||||||||||
| Total deposits | 6,639,571 | 3,001,881 | ||||||||||||
| Short-term borrowings | 285,161 | 272,000 | ||||||||||||
| Subordinated debentures, net | 92,178 | — | ||||||||||||
| Subordinated debentures owed to unconsolidated subsidiary trusts | 16,886 | — | ||||||||||||
| Accrued interest and other liabilities | 83,271 | 28,948 | ||||||||||||
| Total Liabilities | 7,117,067 | 3,302,829 | ||||||||||||
| Shareholders’ Equity | ||||||||||||||
| Preferred stock and surplus | 10,413 | — | ||||||||||||
| Common Stock | 7,752 | 4,000 | ||||||||||||
| Common stock, additional paid-in capital | 399,553 | 14,495 | ||||||||||||
| Retained earnings | 403,422 | 427,333 | ||||||||||||
| Accumulated other comprehensive income (loss) | (100,430) | (103,494) | ||||||||||||
| Treasury stock | (27,584) | (27,584) | ||||||||||||
| Total Shareholders’ Equity | 693,126 | 314,750 | ||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | 7,810,193 | $ | 3,617,579 | ||||||||||
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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 | |||||||||||||||||||||||||
| 2024 | 2024 | 2023 | 2023 | 2023 | |||||||||||||||||||||||||
| Per common share information | |||||||||||||||||||||||||||||
| Basic earnings (loss) | $ | (1.41) | $ | 0.70 | $ | 0.68 | $ | 0.55 | $ | 0.81 | |||||||||||||||||||
| Diluted earnings (loss) | (1.41) | 0.69 | 0.67 | 0.55 | 0.80 | ||||||||||||||||||||||||
| Cash dividends | 0.53 | 0.53 | 0.53 | 0.53 | 0.53 | ||||||||||||||||||||||||
| Book value | 45.72 | 42.92 | 42.37 | 36.46 | 39.05 | ||||||||||||||||||||||||
Tangible book value (non-GAAP1) | 39.11 | 42.92 | 42.37 | 36.46 | 39.05 | ||||||||||||||||||||||||
| Balance sheet-related (at period end, unless indicated) | |||||||||||||||||||||||||||||
| Assets | $ | 7,810,193 | $ | 3,696,390 | $ | 3,617,579 | $ | 3,585,188 | $ | 3,569,226 | |||||||||||||||||||
| Average earning assets | 5,994,383 | 3,377,092 | 3,332,733 | 3,337,282 | 3,379,534 | ||||||||||||||||||||||||
| Loans (gross) | 5,616,724 | 2,118,155 | 2,087,756 | 2,070,616 | 2,000,969 | ||||||||||||||||||||||||
| Loans (net) | 5,548,707 | 2,093,549 | 2,062,455 | 2,044,505 | 1,975,050 | ||||||||||||||||||||||||
| Securities, available-for-sale, at fair value | 1,414,870 | 1,275,520 | 1,248,439 | 1,224,395 | 1,252,190 | ||||||||||||||||||||||||
| Intangible assets | 65,895 | — | — | — | — | ||||||||||||||||||||||||
| Goodwill | 32,783 | — | — | — | — | ||||||||||||||||||||||||
| Non-interest-bearing deposits | 1,397,030 | 822,767 | 830,320 | 853,385 | 876,396 | ||||||||||||||||||||||||
| Interest-bearing deposits | 5,242,541 | 2,167,346 | 2,171,561 | 2,132,233 | 2,128,867 | ||||||||||||||||||||||||
| Deposits, total | 6,639,571 | 2,990,113 | 3,001,881 | 2,985,618 | 3,005,263 | ||||||||||||||||||||||||
| Brokered deposits | 403,668 | 370,847 | 389,011 | 389,018 | 389,051 | ||||||||||||||||||||||||
| Uninsured deposits | 1,931,786 | 700,846 | 677,308 | 670,735 | 681,908 | ||||||||||||||||||||||||
| Short-term borrowings | 285,161 | 360,000 | 272,000 | 299,000 | 249,000 | ||||||||||||||||||||||||
| Subordinated debt, net | 109,064 | — | — | — | — | ||||||||||||||||||||||||
Unused borrowing capacity5 | 2,162,112 | 704,233 | 914,980 | 883,525 | 958,962 | ||||||||||||||||||||||||
| Total equity | 693,126 | 319,308 | 314,750 | 270,819 | 290,072 | ||||||||||||||||||||||||
| Total common equity | 682,713 | 319,308 | 314,750 | 270,819 | 290,072 | ||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | (100,430) | (100,954) | (103,494) | (146,159) | (126,177) | ||||||||||||||||||||||||
(5) Includes Federal Home Loan Bank, Borrower-in-Custody (BIC), 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 | |||||||||||||||||||||||||
| 2024 | 2024 | 2023 | 2023 | 2023 | |||||||||||||||||||||||||
| Income statement | |||||||||||||||||||||||||||||
| Interest income | $ | 96,097 | $ | 38,745 | $ | 38,180 | $ | 37,272 | $ | 37,116 | |||||||||||||||||||
| Interest expense | 36,332 | 16,614 | 15,876 | 14,383 | 13,324 | ||||||||||||||||||||||||
| Non-interest income | 9,505 | 4,254 | 4,824 | 4,289 | 4,625 | ||||||||||||||||||||||||
Total revenue (non-GAAP1) | 69,270 | 26,385 | 27,128 | 27,178 | 28,417 | ||||||||||||||||||||||||
| Non-interest expense | 64,432 | 21,165 | 22,300 | 22,423 | 21,348 | ||||||||||||||||||||||||
Pretax, pre-provision earnings (non-GAAP1) | 4,838 | 5,220 | 4,828 | 4,755 | 7,069 | ||||||||||||||||||||||||
| Provision for (recapture of) credit losses | 23,910 | (670) | (750) | 235 | 214 | ||||||||||||||||||||||||
| Income (loss) before income taxes | (19,072) | 5,890 | 5,578 | 4,520 | 6,855 | ||||||||||||||||||||||||
| Income tax expense (benefit) | (2,153) | 678 | 500 | 464 | 821 | ||||||||||||||||||||||||
| Net income (loss) | (16,919) | 5,212 | 5,078 | 4,056 | 6,034 | ||||||||||||||||||||||||
| Preferred stock dividends | 225 | — | — | — | — | ||||||||||||||||||||||||
| Net income (loss) applicable to common shares | $ | (17,144) | $ | 5,212 | $ | 5,078 | $ | 4,056 | $ | 6,034 | |||||||||||||||||||
| Ratios | |||||||||||||||||||||||||||||
| Return on average assets (annualized) | (1.06) | % | 0.58 | % | 0.56 | % | 0.45 | % | 0.67 | % | |||||||||||||||||||
| Return on average equity (annualized) | (12.44) | 6.67 | 7.30 | 5.60 | 8.34 | ||||||||||||||||||||||||
Net interest margin (non-GAAP1) | 4.06 | 2.68 | 2.70 | 2.76 | 2.87 | ||||||||||||||||||||||||
| Efficiency ratio | 93.02 | 80.22 | 82.20 | 82.50 | 75.12 | ||||||||||||||||||||||||
| Loan-to-deposit ratio | 84.59 | 70.84 | 69.55 | 69.35 | 66.58 | ||||||||||||||||||||||||
Common Equity Tier 1 (CET1) capital ratio6 | 10.92 | 16.56 | 16.85 | 16.44 | 17.60 | ||||||||||||||||||||||||
Total risk-based capital ratio6 | 13.82 | 17.54 | 17.88 | 17.48 | 18.71 | ||||||||||||||||||||||||
Leverage ratio6 | 9.04 | 11.36 | 11.31 | 11.32 | 11.20 | ||||||||||||||||||||||||
(6) Estimated.
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Burke & Herbert Financial Services Corp.
Non-GAAP Reconciliations (unaudited)
(In thousands, except ratios and per share amounts)
| Operating net income, adjusted diluted EPS, and adjusted non-interest expense (non-GAAP) | ||||||||||||||||||||||||||||||||
| For the three months ended | ||||||||||||||||||||||||||||||||
| June 30 | March 31 | December 31 | September 30 | June 30 | ||||||||||||||||||||||||||||
| 2024 | 2024 | 2023 | 2023 | 2023 | ||||||||||||||||||||||||||||
| Net income (loss) applicable to common shares | $ | (17,144) | $ | 5,212 | $ | 5,078 | $ | 4,056 | $ | 6,034 | ||||||||||||||||||||||
| Add back significant items (tax effected): | ||||||||||||||||||||||||||||||||
| Listing-related | — | — | — | — | 79 | |||||||||||||||||||||||||||
| Merger-related | 18,806 | 537 | 1,141 | 1,592 | 92 | |||||||||||||||||||||||||||
| Day 2 non-PCD Provision | 23,305 | — | — | — | — | |||||||||||||||||||||||||||
| Total significant items | 42,111 | 537 | 1,141 | 1,592 | 171 | |||||||||||||||||||||||||||
| Operating net income | $ | 24,967 | $ | 5,749 | $ | 6,219 | $ | 5,648 | $ | 6,205 | ||||||||||||||||||||||
| Weighted average dilutive shares | 12,262,979 | 7,527,489 | 7,508,289 | 7,499,278 | 7,514,955 | |||||||||||||||||||||||||||
Adjusted diluted EPS7 | $ | 2.04 | $ | 0.76 | $ | 0.83 | $ | 0.75 | $ | 0.83 | ||||||||||||||||||||||
| Non-interest expense | $ | 64,432 | $ | 21,165 | $ | 22,300 | $ | 22,423 | $ | 21,348 | ||||||||||||||||||||||
| Remove significant items: | ||||||||||||||||||||||||||||||||
| Listing-related | — | — | — | — | 100 | |||||||||||||||||||||||||||
| Merger-related | 23,805 | 680 | 1,444 | 2,015 | 116 | |||||||||||||||||||||||||||
| Total significant items | $ | 23,805 | $ | 680 | $ | 1,444 | $ | 2,015 | $ | 216 | ||||||||||||||||||||||
| Adjusted non-interest expense | $ | 40,627 | $ | 20,485 | $ | 20,856 | $ | 20,408 | $ | 21,132 | ||||||||||||||||||||||
Operating net income is a non-GAAP measure that is derived from net income adjusted for significant items. The Company believes that operating net income is useful in periods with certain significant items, such as listing-related, merger-related expenses, or Day 2 non-PCD provision. The operating net income is more reflective of management’s ability to grow the business and manage expenses. Adjusted non-interest expense also removes these significant items such as listing-related and merger-related expenses. Management believes it represents a more normalized non-interest expense total for periods with identified significant items.
| Total Revenue (non-GAAP) | ||||||||||||||||||||||||||||||||
| For the three months ended | ||||||||||||||||||||||||||||||||
| June 30 | March 31 | December 31 | September 30 | June 30 | ||||||||||||||||||||||||||||
| 2024 | 2024 | 2023 | 2023 | 2023 | ||||||||||||||||||||||||||||
| Interest income | $ | 96,097 | $ | 38,745 | $ | 38,180 | $ | 37,272 | $ | 37,116 | ||||||||||||||||||||||
| Interest expense | 36,332 | 16,614 | 15,876 | 14,383 | 13,324 | |||||||||||||||||||||||||||
| Non-interest income | 9,505 | 4,254 | 4,824 | 4,289 | 4,625 | |||||||||||||||||||||||||||
| Total revenue (non-GAAP) | $ | 69,270 | $ | 26,385 | $ | 27,128 | $ | 27,178 | $ | 28,417 | ||||||||||||||||||||||
(7) Weighted average diluted shares for Q2 2024 calculated only for computation of adjusted diluted EPS. Weighted average diluted shares for GAAP diluted EPS are the same as shares for calculating basic EPS due to the antidilutive effect of the diluted shares when considering the GAAP net loss for the quarter.
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Burke & Herbert Financial Services Corp.
Non-GAAP Reconciliations (unaudited)
(In thousands, except ratios and per share amounts)
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 demonstrates how stable our revenue sources are from period to period.
| Pretax, Pre-Provision Earnings (non-GAAP) | ||||||||||||||||||||||||||||||||
| For the three months ended | ||||||||||||||||||||||||||||||||
| June 30 | March 31 | December 31 | September 30 | June 30 | ||||||||||||||||||||||||||||
| 2024 | 2024 | 2023 | 2023 | 2023 | ||||||||||||||||||||||||||||
| Income (loss) before taxes | $ | (19,072) | $ | 5,890 | $ | 5,578 | $ | 4,520 | $ | 6,855 | ||||||||||||||||||||||
| Provision for (recapture of) credit losses | 23,910 | (670) | (750) | 235 | 214 | |||||||||||||||||||||||||||
| Pretax, pre-provision earnings (non-GAAP) | $ | 4,838 | $ | 5,220 | $ | 4,828 | $ | 4,755 | $ | 7,069 | ||||||||||||||||||||||
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.
| Tangible Common Equity (non-GAAP) | ||||||||||||||||||||||||||||||||
| For the three months ended | ||||||||||||||||||||||||||||||||
| June 30 | March 31 | December 31 | September 30 | June 30 | ||||||||||||||||||||||||||||
| Actual balances | 2024 | 2024 | 2023 | 2023 | 2023 | |||||||||||||||||||||||||||
| Common shareholders' equity | $ | 682,713 | $ | 319,308 | $ | 314,750 | $ | 270,819 | $ | 290,072 | ||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||
| Intangible assets | 65,895 | — | — | — | — | |||||||||||||||||||||||||||
| Goodwill | 32,783 | — | — | — | — | |||||||||||||||||||||||||||
| Tangible common equity (non-GAAP) | $ | 584,035 | $ | 319,308 | $ | 314,750 | $ | 270,819 | $ | 290,072 | ||||||||||||||||||||||
| Shares outstanding at end of period | 14,932,169 | 7,440,025 | 7,428,710 | 7,428,710 | 7,428,710 | |||||||||||||||||||||||||||
| Tangible book value per common share | $ | 39.11 | $ | 42.92 | $ | 42.37 | $ | 36.46 | $ | 39.05 | ||||||||||||||||||||||
In management's view, tangible common equity measures are capital adequacy metrics that may be meaningful to the Company, as well as analysts and investors, in assessing the Company's use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution's capital strength because they eliminate intangible assets from stockholders' equity and retain the effect of accumulated other comprehensive income/(loss) in stockholders' equity.
10
Burke & Herbert Financial Services Corp.
Non-GAAP Reconciliations (unaudited)
(In thousands, except ratios and per share amounts)
| Net Interest Margin & Taxable-Equivalent Net Interest Income (non-GAAP) | ||||||||||||||||||||||||||||||||
| As of or for the three months ended | ||||||||||||||||||||||||||||||||
| June 30 | March 31 | December 31 | September 30 | June 30 | ||||||||||||||||||||||||||||
| 2024 | 2024 | 2023 | 2023 | 2023 | ||||||||||||||||||||||||||||
| Net interest income | $ | 59,765 | $ | 22,131 | $ | 22,304 | $ | 22,889 | $ | 23,792 | ||||||||||||||||||||||
| Taxable-equivalent adjustments | 688 | 362 | 365 | 366 | 375 | |||||||||||||||||||||||||||
| Net interest income (Fully Taxable-Equivalent - FTE) | $ | 60,453 | $ | 22,493 | $ | 22,669 | $ | 23,255 | $ | 24,167 | ||||||||||||||||||||||
| Average earning assets | $ | 5,994,383 | $ | 3,377,092 | $ | 3,332,733 | $ | 3,337,282 | $ | 3,379,534 | ||||||||||||||||||||||
| Net interest margin (non-GAAP) | 4.06 | % | 2.68 | % | 2.70 | % | 2.76 | % | 2.87 | % | ||||||||||||||||||||||
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 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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