ALEXANDRIA, Va., April 28,
2023 /PRNewswire/ -- Burke & Herbert Financial
Services Corp. (the "Company") (Nasdaq: BHRB) reported financial
results for the quarter ended March 31,
2023. In addition, at its meeting on April 27, 2023, the board of directors declared a
$0.53 per share regular cash dividend
to be paid on June 1, 2023, to
shareholders of record as of the close of business May 15, 2023.
The Company notes the following first quarter 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;
- Focus remains on strategic initiatives to profitably expand
market share, transform the Company's digital capabilities and grow
sources of non-interest income; and
- On April 26, 2023, the Company's
common shares, previously quoted on OTC Markets, began trading on
the Nasdaq stock exchange.
From David P. Boyle,
Company Chair, President and Chief Executive Officer
"During an extremely volatile quarter across the industry, we
grew loans, opportunistically bolstered our liquidity position, and
increased our capital position. Despite an environment that
resulted in a rapid increase in interest expense, the team
delivered a year-over-year increase in pretax, pre-provision
earnings and remains steadfastly focused on executing our strategic
initiatives."
Results of Operations
First Quarter 2023 - Comparison to prior year quarter
Net income for the three months ended March 31, 2023, was $7.5
million or $1.6 million lower
than the three months ended March 31,
2022.
Total revenue (non-GAAP) for the three months ended March 31, 2023, was $29.0
million or 5% higher than the three months ended
March 31, 2022, and included
$22.8 million in interest and fees on
loans and $11.3 million on investment
security income, which was a 38% increase and a 45% increase,
respectively, over the prior year three months ended March 31, 2022. Overall, interest income for the
three months ended March 31, 2023,
was $34.3 million or 42% higher than
the three months ended March 31,
2022. The increase in interest income for the Company's
loans was due to higher balances and rates, and the interest income
increase in investment securities was primarily due to higher
rates. Loans, net of allowance for credit losses, ended the quarter
at $1.9 billion or 11% higher than
March 31, 2022, while the investment
portfolio fair value ended the quarter at $1.4 billion or 11% lower than the prior year
quarter.
The increase in interest income was offset by an increase in
interest expense, which was $9.6
million for the three months ended March 31, 2023, or $8.8
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
$5.4 million and $4.2 million or $5.0
million and $3.8 million
higher for the three months ended March 31,
2023, and March 31, 2022,
respectively. Deposits ended the quarter at $3.0 billion or 2% higher than the same period in
2022. Non-interest-bearing deposits decreased by 6% to $906.7 million and borrowed funds increased by
43% to $321.7 million from the prior
year quarter ended March 31,
2022.
Non-interest income for the three months ended March 31, 2023, increased $0.1 million from the same period last year to
$4.2 million. The increase was
primarily due to higher other non-interest income revenue. Within
other non-interest income, the Company received more dividend
income from the Federal Home Loan Bank than in the prior year
quarter ended March 31, 2022.
On January 1, 2023, the Company
adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments, as
amended, which replaces the incurred loss methodology with an
expected loss methodology that is referred to as the current
expected credit loss ("CECL") methodology. The adoption was
prospective with a day-one non-earnings impact adjustment to the
Company's capital, net of taxes, of $3.4
million. This impact is reflected in our capital ratios
without any transition adjustment for the adoption of CECL. For the
three months ended March 31, 2023,
the Company recorded a provision for credit losses of $0.5 million compared to a recapture of credit
losses of $2.6 million in the prior
year quarter. Revenue after provision for credit losses was
$28.5 million for the three months
ended March 31, 2023, which was a
decrease of 6% compared to the same period last year.
Non-interest expense increased by $1.2
million, or 6%, for the three months ended March 31, 2023, from the prior year three months
ended March 31, 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
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.
Burke & Herbert Bank &
Trust Company, the Company's wholly-owned bank subsidiary,
continues to be well-capitalized with capital ratios that are above
regulatory requirements. As of March 31,
2023, our Common Equity Tier 1 capital to risk-weighted
asset and Total risk-based capital to risk weighted asset ratios
were 17.4% and 18.5% and significantly above the well-capitalized
requirements of 6.5% and 10%, respectively. The leverage ratio was
11.1% compared to a 5% level to be considered well-capitalized.
As of March 31, 2023, total
shareholders' equity was $289.8
million or 12% lower than March 31,
2022, due to the impact of higher rates on the fair value of
our securities portfolio.
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.
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.
|
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
Company's Registration Statement on Form 10-K, as amended, and as
ordered effective by the Securities and Exchange Commission on
April 21, 2023. 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.
Burke & Herbert Financial Services Corp.
Consolidated Statements of Income
(unaudited) (In
thousands)
|
|
|
|
|
Three months ended
March 31,
|
|
2023
|
|
2022
|
Interest
income
|
|
|
|
|
|
Loans, including
fees
|
$
|
22,760
|
|
$
|
16,450
|
Taxable
securities
|
|
9,802
|
|
|
5,358
|
Tax-exempt
securities
|
|
1,458
|
|
|
2,426
|
Other interest
income
|
|
308
|
|
|
18
|
Total interest income
|
|
34,328
|
|
|
24,252
|
Interest expense
|
|
|
|
|
|
Deposits
|
|
5,401
|
|
|
400
|
Borrowed
funds
|
|
4,138
|
|
|
366
|
Other interest
expense
|
|
15
|
|
|
15
|
Total interest expense
|
|
9,554
|
|
|
781
|
Net interest income
|
|
24,774
|
|
|
23,471
|
|
|
|
|
|
|
Provision for
(recapture of) credit losses
|
|
515
|
|
|
(2,638)
|
Net interest income after credit loss
expense
|
|
24,259
|
|
|
26,109
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
Fiduciary and wealth
management
|
|
1,337
|
|
|
1,305
|
Service charges and
fees
|
|
1,635
|
|
|
1,633
|
Net gains (losses) on
securities
|
|
—
|
|
|
104
|
Income from life
insurance
|
|
560
|
|
|
537
|
Other non-interest
income
|
|
682
|
|
|
536
|
Total non-interest income
|
|
4,214
|
|
|
4,115
|
|
|
|
|
|
|
Non-interest expense
|
|
|
|
|
|
Salaries and
wages
|
|
9,494
|
|
|
9,529
|
Pensions and other
employee benefits
|
|
2,468
|
|
|
2,039
|
Occupancy
|
|
1,457
|
|
|
1,546
|
Equipment rentals,
depreciation and maintenance
|
|
1,339
|
|
|
1,379
|
Other
operating
|
|
5,607
|
|
|
4,672
|
Total non-interest expense
|
|
20,365
|
|
|
19,165
|
Income before income taxes
|
|
8,108
|
|
|
11,059
|
|
|
|
|
|
|
Income tax
expense
|
|
584
|
|
|
1,933
|
Net income
|
$
|
7,524
|
|
$
|
9,126
|
Burke & Herbert Financial Services Corp.
Consolidated Balance Sheets (In thousands)
|
|
|
March 31, 2023
|
|
December 31, 2022
|
|
(Unaudited)
|
|
(Audited)
|
Assets
|
|
|
|
Cash and due
from banks
|
$
|
10,616
|
|
$
|
9,124
|
Interest-bearing
deposits with banks
|
|
106,323
|
|
|
41,171
|
Cash and cash
equivalents
|
|
116,939
|
|
|
50,295
|
Securities
available-for-sale, at fair value
|
|
1,362,785
|
|
|
1,371,757
|
Restricted
stock, at cost
|
|
9,129
|
|
|
16,443
|
Loans
held-for-sale, at fair value
|
|
360
|
|
|
—
|
Loans
|
|
1,951,738
|
|
|
1,887,221
|
Allowance for
credit losses
|
|
(25,704)
|
|
|
(21,039)
|
Net loans
|
|
1,926,034
|
|
|
1,866,182
|
Premises and
equipment, net
|
|
55,157
|
|
|
53,170
|
Accrued interest
receivable
|
|
15,158
|
|
|
15,481
|
Company-owned
life insurance
|
|
93,053
|
|
|
92,487
|
Other
assets
|
|
92,571
|
|
|
97,083
|
Total
Assets
|
$
|
3,671,186
|
|
$
|
3,562,898
|
|
|
|
|
|
|
Liabilities and Shareholders'
Equity
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Non-interest-bearing deposits
|
$
|
906,723
|
|
$
|
960,692
|
Interest-bearing
deposits
|
|
2,125,668
|
|
|
1,959,708
|
Total
deposits
|
|
3,032,391
|
|
|
2,920,400
|
Borrowed
funds
|
|
321,700
|
|
|
343,100
|
Accrued interest
and other liabilities
|
|
27,312
|
|
|
25,945
|
Total
Liabilities
|
|
3,381,403
|
|
|
3,289,445
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
|
Common
Stock
|
|
4,000
|
|
|
4,000
|
Additional
paid-in capital
|
|
12,686
|
|
|
12,282
|
Retained
earnings
|
|
424,532
|
|
|
424,391
|
Accumulated
other comprehensive income (loss)
|
|
(123,809)
|
|
|
(139,495)
|
Treasury
stock
|
|
(27,626)
|
|
|
(27,725)
|
Total Shareholders'
Equity
|
|
289,783
|
|
|
273,453
|
Total Liabilities and
Shareholders' Equity
|
$
|
3,671,186
|
|
$
|
3,562,898
|
Burke & Herbert Financial Services Corp.
Supplemental Information (unaudited)
As of or for the three months ended (In thousands,
except ratios and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
2023
|
|
December 31
2022
|
|
September 30
2022
|
|
June 30
2022
|
|
March 31
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings
|
$
|
1.01
|
|
$
|
1.80
|
|
$
|
1.50
|
|
$
|
1.40
|
|
$
|
1.23
|
Diluted
earnings
|
|
1.00
|
|
|
1.78
|
|
|
1.49
|
|
|
1.39
|
|
|
1.23
|
Cash
dividends
|
|
0.53
|
|
|
0.53
|
|
|
0.53
|
|
|
0.53
|
|
|
0.53
|
Book
value
|
|
39.02
|
|
|
36.82
|
|
|
34.40
|
|
|
39.21
|
|
|
44.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet-related (at period end, unless
indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
$
|
3,671,186
|
|
$
|
3,562,898
|
|
$
|
3,501,145
|
|
$
|
3,585,822
|
|
$
|
3,551,739
|
Average earning
assets
|
|
3,331,920
|
|
|
3,255,213
|
|
|
3,328,594
|
|
|
3,342,045
|
|
|
3,384,644
|
Loans
(gross)
|
|
1,951,738
|
|
|
1,887,221
|
|
|
1,751,827
|
|
|
1,748,508
|
|
|
1,760,308
|
Loans
(net)
|
|
1,926,034
|
|
|
1,866,182
|
|
|
1,730,874
|
|
|
1,725,146
|
|
|
1,731,247
|
Securities,
available-forsale, at fair value
|
|
1,362,785
|
|
|
1,371,757
|
|
|
1,453,104
|
|
|
1,515,974
|
|
|
1,526,948
|
Non-interest-bearing
deposits
|
|
906,723
|
|
|
960,692
|
|
|
980,714
|
|
|
987,748
|
|
|
965,482
|
Interest-bearing
deposits
|
|
2,125,668
|
|
|
1,959,708
|
|
|
1,996,946
|
|
|
1,972,675
|
|
|
2,008,137
|
Deposits,
total
|
|
3,032,391
|
|
|
2,920,400
|
|
|
2,977,660
|
|
|
2,960,423
|
|
|
2,973,619
|
Brokered
deposits
|
|
389,185
|
|
|
100,273
|
|
|
—
|
|
|
—
|
|
|
—
|
Uninsured
deposits
|
|
715,053
|
|
|
843,431
|
|
|
847,973
|
|
|
897,669
|
|
|
870,749
|
Borrowed
funds
|
|
321,700
|
|
|
343,100
|
|
|
243,000
|
|
|
310,000
|
|
|
225,000
|
Unused borrowing
capacity(1)
|
|
809,127
|
|
|
622,186
|
|
|
743,456
|
|
|
977,935
|
|
|
995,436
|
Equity
|
|
289,783
|
|
|
273,453
|
|
|
255,471
|
|
|
291,138
|
|
|
330,910
|
Accumulated other comprehensive income (loss)
|
|
(123,809)
|
|
|
(139,495)
|
|
|
(147,578)
|
|
|
(104,221)
|
|
|
(57,496)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes Federal
Home Loan Bank and correspondent bank availability.
|
Burke & Herbert
Financial Services Corp.
Supplemental Information (unaudited)
As of or for the three months ended
(In thousands, except ratios and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
2023
|
|
December 31
2022
|
|
September 30
2022
|
|
June 30
2022
|
|
March 31
2022
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets (annualized)
|
|
0.85 %
|
|
|
1.51 %
|
|
|
1.23 %
|
|
|
1.17 %
|
|
|
1.03 %
|
Return on average
equity (annualized)
|
|
10.83
|
|
|
20.66
|
|
|
14.99
|
|
|
13.48
|
|
|
9.91
|
Net interest margin
(non-GAAP)
|
|
3.06
|
|
|
3.46
|
|
|
3.25
|
|
|
3.15
|
|
|
2.89
|
Efficiency
ratio
|
|
70.25
|
|
|
51.24
|
|
|
64.48
|
|
|
67.61
|
|
|
69.47
|
Loans to deposit
ratio
|
|
64.36
|
|
|
64.62
|
|
|
58.83
|
|
|
59.06
|
|
|
59.20
|
Common Equity Tier 1
(CET1) capital ratio(2)
|
|
17.40
|
|
|
17.89
|
|
|
18.23
|
|
|
18.09
|
|
|
17.47
|
Total capital to
riskweighted assets ratio(2)
|
|
18.50
|
|
|
18.81
|
|
|
19.18
|
|
|
19.16
|
|
|
18.72
|
Leverage
ratio(2)
|
|
11.09
|
|
|
11.30
|
|
|
11.03
|
|
|
10.94
|
|
|
10.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
$
|
34,328
|
|
$
|
32,574
|
|
$
|
29,265
|
|
$
|
26,542
|
|
$
|
24,252
|
Interest
expense
|
|
9,554
|
|
|
4,665
|
|
|
2,584
|
|
|
911
|
|
|
781
|
Non-interest
income
|
|
4,214
|
|
|
4,217
|
|
|
4,259
|
|
|
4,496
|
|
|
4,115
|
Total revenue (non-GAAP)
|
|
28,988
|
|
|
32,126
|
|
|
30,940
|
|
|
30,127
|
|
|
27,586
|
Non-interest
expense
|
|
20,365
|
|
|
16,462
|
|
|
19,951
|
|
|
20,368
|
|
|
19,165
|
Pretax, pre-provision
earnings (non-
GAAP)
|
|
8,623
|
|
|
15,664
|
|
|
10,989
|
|
|
9,759
|
|
|
8,421
|
Provision for
(recapture of) credit
losses
|
|
515
|
|
|
98
|
|
|
(2,388)
|
|
|
(2,538)
|
|
|
(2,638)
|
Income before
income taxes
|
|
8,108
|
|
|
15,566
|
|
|
13,377
|
|
|
12,297
|
|
|
11,059
|
Income tax
expense
|
|
584
|
|
|
2,213
|
|
|
2,240
|
|
|
1,900
|
|
|
1,933
|
Net
income
|
$
|
7,524
|
|
$
|
13,353
|
|
$
|
11,137
|
|
$
|
10,397
|
|
$
|
9,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Ratios are for
Burke & Herbert Bank & Trust Company for all periods
presented.
|
Burke & Herbert
Financial Services Corp.
Non-GAAP Reconciliations (unaudited)
As of or for the three months ended
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
(non-GAAP)
|
|
|
|
|
|
|
|
|
|
|
March 31
2023
|
|
December 31
2023
|
|
September 30
2022
|
|
June 30
2022
|
|
March 31
2022
|
Interest
income
|
$
|
34,328
|
|
$
|
32,574
|
|
$
|
29,265
|
|
$
|
26,542
|
|
$
|
24,252
|
Interest
expense
|
|
9,554
|
|
|
4,665
|
|
|
2,584
|
|
|
911
|
|
|
781
|
Non-interest
income
|
|
4,214
|
|
|
4,217
|
|
|
4,259
|
|
|
4,496
|
|
|
4,115
|
Total revenue (non-GAAP)
|
$
|
28,988
|
|
$
|
32,126
|
|
$
|
30,940
|
|
$
|
30,127
|
|
$
|
27,586
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
March 31
2023
|
|
December 31
2022
|
|
September 30
2022
|
|
June 30
2022
|
|
March 31
2022
|
Income before
taxes
|
$
|
8,108
|
|
$
|
15,566
|
|
$
|
13,377
|
|
$
|
12,297
|
|
$
|
11,059
|
Provision for
(recapture of) credit losses
|
|
515
|
|
|
98
|
|
|
(2,388)
|
|
|
(2,538)
|
|
|
(2,638)
|
Pretax, preprovision
earnings (non-GAAP)
|
$
|
8,623
|
|
$
|
15,664
|
|
$
|
10,989
|
|
$
|
9,759
|
|
$
|
8,421
|
|
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)
|
|
|
|
March 31
2023
|
|
December 31
2022
|
|
September 30
2022
|
|
June 30
2022
|
|
March 31
2022
|
Net interest
income
|
$
|
24,774
|
|
$
|
27,909
|
|
$
|
26,681
|
|
$
|
25,631
|
|
$
|
23,471
|
Taxable-equivalent
adjustments
|
|
387
|
|
|
455
|
|
|
621
|
|
|
655
|
|
|
645
|
Net interest
income (Fully TaxableEquivalent
- FTE)
|
$
|
25,161
|
|
$
|
28,364
|
|
$
|
27,302
|
|
$
|
26,286
|
|
$
|
24,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average earning
assets
|
$
|
3,331,920
|
|
$
|
3,255,213
|
|
$
|
3,328,594
|
|
$
|
3,342,045
|
|
$
|
3,384,644
|
Net interest
margin
(non-GAAP)
|
|
3.06 %
|
|
|
3.46 %
|
|
|
3.25 %
|
|
|
3.15 %
|
|
|
2.89 %
|
|
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 interest
income on a taxable-equivalent basis by increasing the interest
income earned on tax-exempt assets to make it fully equivalent to
interest income earned on taxable investments. This adjustment is
not permitted under GAAP. Taxableequivalent net interest income is
only used for calculating net interest margin. The fully taxable
equivalent net interest income is annualized and then is divided by
the average earning assets to calculate net interest margin. Net
interest income shown elsewhere in this presentation is GAAP net
interest income. The tax-rate used for this adjustment is
21%.
|
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SOURCE Burke & Herbert Financial Services Corp.