8-K/A
Burke & Herbert Financial Services Corp. (BHRB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 8-K/A
(Amendment No. 3)
_________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
May 3, 2024
Date of Report (date of earliest event reported)
___________________________________
Burke & Herbert Financial Services Corp.
(Exact name of registrant as specified in its charter)
___________________________________
| Virginia<br><br>(State or other jurisdiction of<br><br>incorporation or organization) | 001-41633<br><br>(Commission File Number) | 92-0289417<br><br>(I.R.S. Employer Identification Number) |
|---|---|---|
| 100 S. Fairfax Street<br><br>Alexandria, VA 22314 | ||
| (Address of principal executive offices and zip code) | ||
| (703) 666-3555 | ||
| (Registrant's telephone number, including area code) |
___________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||
|---|---|---|---|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | Securities registered pursuant to Section 12(b) of the Act: | |||
| --- | --- | --- | |||
| Title of each class | Trading Symbol | Name of each exchange on which registered | |||
| Common stock, par value $.50 | BHRB | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
EXPLANATORY NOTE
Effective on May 3, 2024 (the "Closing Date"), Burke & Herbert Financial Services Corp. ("Burke & Herbert"), a Virginia corporation, completed its previously announced merger with Summit Financial Group, Inc. ("Summit"), a West Virginia corporation, pursuant to the Agreement and Plan of Reorganization and accompanying Plan of Merger (the "Merger Agreement") dated August 24, 2023 between Burke & Herbert and Summit.
Pursuant to the Merger Agreement, on the Closing Date, (i) Summit merged with and into Burke & Herbert, with Burke & Herbert continuing as the surviving corporation (the “Merger”), and (ii) immediately following the Merger, Summit Community Bank, Inc., a West Virginia chartered bank and a wholly-owned subsidiary of Summit ("SCB"), merged with and into Burke & Herbert Bank & Trust Company, a Virginia chartered bank and a wholly-owned subsidiary of Burke & Herbert ("Burke & Herbert Bank"), with Burke & Herbert Bank as the surviving bank (the "Bank Merger").
On May 3, 2024, the Company filed a Current Report on Form 8-K, as amended by Amendment No. 1 thereto, reporting the completion of the Merger (the "Original Report"). On July 10, 2024, the Company filed Amendment No. 2 to the Original Report to provide certain pro forma financial information in connection with the merger ("Amendment No. 2"). This Amendment No. 3 to the Original Report ("Amendment No. 3") amends and supplements Item 9.01 of the Original Report to provide certain pro forma financial information in connection with the Merger. The pro forma financial information in this Amendment No. 3 replaces and supersedes the pro forma financial information filed with Amendment No. 2. Any information required to be set forth in the Original Report which is not being amended or supplemented pursuant to this Amendment No. 3 is hereby incorporated by reference. Except as set forth herein, no modifications have been made to the information contained in the Original Report and the Company has not updated any information contained therein to reflect the events that have occurred since the date of the Original Report. Accordingly, this Amendment No. 3 should be read in conjunction with the Original Report.
The pro forma financial information included in this Amendment No. 3 has been presented for informational purposes only and does not purport to represent the actual results that Burke & Herbert and Summit would have achieved had the companies been combined during the periods presented, and is not intended to project any future results of operations for the combined company.
Item 9.01 - Financial Statements and Exhibits.
(a) Financial Statements of businesses acquired.
The audited consolidated financial statements of Summit as of and for the years ended December 31, 2023, and 2022, including the independent auditor's report, are filed herewith as Exhibit 99.1 and are incorporated by reference into this item 9.01(a). The unaudited consolidated balance sheets of Summit as of March 31, 2024, and the unaudited consolidated statements of operations and cash flows for the three months ended March 31, 2024, and 2023 are filed herewith as Exhibit 99.2 and are incorporated by reference into this item 9.01(a).
(b) Pro Forma financial information
The unaudited pro forma condensed consolidated combined financial information as of and for the three months ended March 31, 2024, and for the year ended December 31, 2023, is filed herewith as Exhibit 99.3 and is incorporated by reference into this item 9.01(b).
(c) Shell company transactions. None.
(d) Exhibits.
*Filed herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto, duly authorized on this 11th day of July, 2024.
| Burke & Herbert Financial Services Corp. | |
|---|---|
| By: | /s/ Roy E. Halyama |
| Name: | Roy E. Halyama |
| Title: | Executive Vice President, CFO |
Document
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed combined consolidated financial information has been prepared using the acquisition method of accounting under the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification, ASC 805 "Business Combinations", giving effect to Burke & Herbert's acquisition of Summit. Under this method, Summit's assets and liabilities as of the date of the merger will be recorded at their respective fair values and added to those of Burke & Herbert. Any difference between the purchase price for Summit and the fair value of the identifiable net assets acquired (including core deposit intangibles) will be recorded as goodwill. The goodwill resulting from the merger will not be amortized to expense, but instead will be reviewed for impairment at least annually. Any core deposit intangible and other intangible assets with estimated useful lives to be recorded by Burke & Herbert in connection with the merger will be amortized to expense over their estimated useful lives. The financial statements of Burke & Herbert issued after the merger will reflect the results attributable to the acquired operations of Summit beginning on the date of completion of the merger. Effective at 12:01 A.M. Eastern Time on May 3, 2024 (the "Effective Time"), Burke & Herbert Financial Services Corp. ("Burke & Herbert"), a Virginia corporation, completed its merger with Summit Financial Group, Inc. ("Summit"), a West Virginia corporation, pursuant to the Agreement and Plan of Reorganization and accompanying Plan of Merger (the "Merger Agreement") dated August 24, 2023 between Burke & Herbert and Summit.
The following unaudited pro forma condensed combined consolidated financial information and accompanying notes are based on and should be read in conjunction with (i) the historical audited consolidated financial statements of Burke & Herbert and accompanying notes included in Burke & Herbert's Annual Report on Form 10-K for the year ended December 31, 2023, (ii) the historical unaudited consolidated financial statements of Burke & Herbert and accompanying notes included in Burke & Herbert’s quarterly report on Form 10-Q for the three months ended March 31, 2024, (iii) the historical audited consolidated financial statements of Summit and accompanying notes included in Summit's Annual Report on Form 10-K for the year ended December 31, 2023, which are incorporated by reference herein, and (iv) the historical unaudited consolidated financial statements of Summit and accompanying notes included in Summit’s quarterly report on Form 10-Q for the three months ended March 31, 2024, which are incorporated by reference herein.
The unaudited pro forma condensed combined consolidated financial information is provided for illustrative information purposes only. The unaudited pro forma condensed combined financial information is not necessarily, and should not be assumed to be, an indication of the actual results that would have been achieved had the merger been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma condensed combined consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Information, which requires the depiction of the accounting for the transaction, which we refer to as transaction accounting adjustments.
Regulation S-X also allows for management adjustments that could include presentation of the reasonably estimable cost savings and revenue enhancements and other transaction effects that have occurred or are reasonably expected to occur. Please note the unaudited pro forma condensed combined consolidated financial information does not include management adjustments for any potential effects of changes in market conditions, revenue enhancements or expense efficiencies, or any post-closing sale of loans or deposits, among other factors.
The following unaudited pro forma condensed combined consolidated balance sheet as of March 31, 2024, combines the historical financial statements of Burke & Herbert and Summit and gives effect to the merger as if the merger occurred on March 31, 2024. The unaudited pro forma condensed combined consolidated income statements give effect to the merger as if the merger occurred on January 1, 2023, for the twelve months ended December 31, 2023, and the three months ended March 31, 2024. Certain reclassification adjustments have been made to Summit's financial statements to conform to Burke & Herbert's financial statement presentation.
The unaudited pro forma condensed combined consolidated financial statements were prepared with Burke & Herbert as the accounting acquirer and Summit as the accounting acquiree under the acquisition method of accounting. Accordingly, the consideration paid by Burke & Herbert to complete the merger of Summit will be allocated to Summit's assets and liabilities based upon their estimated fair values as of the date of completion of the merger. The allocation is dependent upon certain valuations and other studies that have been included in the
unaudited condensed pro forma financial statements. The pro forma calculations, shown below, include a closing share price of $51.67, which represents the closing price of Burke & Herbert's common stock on May 2, 2024, and a 10-day average share price of $53.66 used to pay fractional shares as agreed upon within the Merger Agreement, defined as the average of the closing sale prices of Burke & Herbert common stock as reported on the Nasdaq Stock Market, LLC market for the ten (10) full trading days ending on the trading day immediately preceding (but not including) May 3, 2024.
The unaudited pro forma condensed combined consolidated combined statements of income and earnings per share data do not include anticipated cost savings or revenue enhancements. Burke & Herbert is continuing to assess the two companies’ personnel, benefits plans, premises, equipment, computer systems, and service contracts to determine where the companies may take advantage of redundancies or where it will be beneficial or necessary to convert to one system. Certain decisions arising from these assessments may involve canceling contracts between either Burke & Herbert or Summit and certain service providers. There is no assurance that the anticipated cost savings will be realized on the anticipated time schedule or at all.
The pro forma combined basic and diluted earnings per share of Burke & Herbert common stock are based on the pro forma combined net income per common share for Burke & Herbert and Summit divided by the pro forma basic or diluted common shares of the combined entities. The pro forma information includes adjustments related to the fair value of assets and liabilities of Summit and is subject to adjustment in accordance with ASC 805 for facts and circumstances that existed as of the merger date as additional information becomes available and as final merger data analyses are performed.
The unaudited pro forma data are qualified by the statements set forth under this caption and should not be considered indicative of the market value of Burke & Herbert's common stock or the actual or future results of operations of Burke & Herbert for any period. Actual results may be materially different than the pro forma information presented.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of March 31, 2024
(in thousands)
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The unaudited pro forma condensed combined balance sheet as of March 31, 2024, is presented as if the merger had occurred on March 31, 2024.
| Burke & Herbert | Summit | Transaction | Combined | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Historical | Historical | Adjustments | Notes | Pro Forma | |||||
| Assets | |||||||||
| Cash and due from banks | $ | 9,152 | $ | 23,706 | $ | — | $ | 32,858 | |
| Interest-earning deposits with banks | 44,925 | 31,950 | (19,250) | (14) | 57,625 | ||||
| Cash and cash equivalents | 54,077 | 55,656 | (19,250) | 90,483 | |||||
| Debt securities available-for-sale, at fair value | 1,275,520 | 490,271 | 86,306 | (3) | 1,852,097 | ||||
| Debt securities held-to-maturity, at amortized cost | — | 93,737 | (93,737) | (3) | — | ||||
| Equity and other investments | 16,357 | 33,413 | — | 49,770 | |||||
| Loans held-for-sale, at fair value | 2,422 | — | — | 2,422 | |||||
| Loans | 2,118,155 | 3,697,042 | (153,306) | (5) | 5,661,891 | ||||
| Allowance for credit losses | (24,606) | (49,232) | (2,192) | (6) | (76,030) | ||||
| Net loans | 2,093,549 | 3,647,810 | (155,498) | 5,585,861 | |||||
| Premises and equipment, net | 61,576 | 65,725 | 13,276 | (13) | 140,577 | ||||
| Accrued interest receivable | 16,328 | 20,238 | — | 36,566 | |||||
| Company-owned life insurance | 94,755 | 86,230 | — | 180,985 | |||||
| Goodwill and other intangible assets | — | 73,443 | 29,770 | (8) | 103,213 | ||||
| Other assets | 81,806 | 76,361 | 17,929 | (6) (7) (9) | 176,096 | ||||
| Total Assets | $ | 3,696,390 | $ | 4,642,884 | $ | (121,204) | $ | 8,218,070 | |
| Liabilities and Shareholders’ Equity | |||||||||
| Liabilities | |||||||||
| Non-interest-bearing deposits | $ | 822,767 | $ | 605,509 | — | $ | 1,428,276 | ||
| Interest-bearing deposits | 2,167,346 | 3,142,906 | (7,136) | (10) | 5,303,116 | ||||
| Total deposits | 2,990,113 | 3,748,415 | (7,136) | 6,731,392 | |||||
| Borrowed funds | 360,000 | 262,989 | — | 622,989 | |||||
| Subordinated debentures & trust preferred securities | — | 123,493 | (16,466) | (11) | 107,027 | ||||
| Accrued interest and other liabilities | 26,969 | 53,706 | — | 80,675 | |||||
| Total Liabilities | 3,377,082 | 4,188,603 | (23,602) | 7,542,083 | |||||
| Shareholders’ Equity | |||||||||
| Preferred Stock | — | 14,920 | (4,507) | (2) (12) | 10,413 | ||||
| Common Stock | 4,006 | 36,717 | (33,014) | (2) | 7,709 | ||||
| Additional paid-in capital | 15,308 | 93,518 | 289,812 | (2) | 398,638 | ||||
| Retained earnings | 428,532 | 316,375 | (357,142) | (2) (6) (14) | 387,765 | ||||
| Accumulated other comprehensive income (loss) | (100,954) | (7,249) | 7,249 | (2) | (100,954) | ||||
| Treasury stock | (27,584) | — | — | (27,584) | |||||
| Total Shareholders’ Equity | 319,308 | 454,281 | (97,602) | 675,987 | |||||
| Total Liabilities and Shareholders’ Equity | $ | 3,696,390 | $ | 4,642,884 | $ | (121,204) | $ | 8,218,070 |
Unaudited Pro Forma Condensed Combined Income Statement
For the Three Months Ended March 31, 2024
(in thousands except share and per share data)
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
The unaudited pro forma condensed combined income statement for the three months ended March 31, 2024, are presented as if the merger had occurred on January 1, 2023.
| Burke & Herbert | Summit | Transaction | Combined | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Historical | Historical | Adjustments | Notes | Pro Forma | |||||
| Interest income | |||||||||
| Loans, including fees | $ | 28,045 | $ | 59,249 | $ | 13,446 | (5) | $ | 100,740 |
| Taxable securities | 8,943 | 5,025 | 2,396 | (3) (4) | 16,364 | ||||
| Tax-exempt securities | 1,361 | 1,116 | — | 2,477 | |||||
| Other interest income | 396 | 132 | — | 528 | |||||
| Total interest income | 38,745 | 65,522 | 15,842 | 120,109 | |||||
| Interest expense | |||||||||
| Deposits | 12,931 | 21,430 | 593 | (10) | 34,954 | ||||
| Short-term borrowings | 3,655 | 2,661 | — | 6,316 | |||||
| Long-term borrowings and subordinated debt | — | 1,508 | 1,412 | (11) | 2,920 | ||||
| Other interest expense | 28 | — | — | 28 | |||||
| Total interest expense | 16,614 | 25,599 | 2,005 | 44,218 | |||||
| Net interest income | 22,131 | 39,923 | 13,837 | 75,891 | |||||
| Provision for (recapture of) credit losses | (670) | — | — | (670) | |||||
| Net interest income after credit loss expense | 22,801 | 39,923 | 13,837 | 76,561 | |||||
| Non-interest income | |||||||||
| Fiduciary and wealth management | 1,419 | 847 | — | 2,266 | |||||
| Service charges, fees, & card revenue | 1,606 | 3,556 | — | 5,162 | |||||
| Net gains (losses) on securities | — | (54) | — | (54) | |||||
| Income from life insurance | 547 | 463 | — | 1,010 | |||||
| Other non-interest income | 682 | 266 | — | 948 | |||||
| Total non-interest income | 4,254 | 5,078 | — | 9,332 | |||||
| Non-interest expense | |||||||||
| Salaries, wages and employee benefits | 11,883 | 12,058 | — | 23,941 | |||||
| Occupancy | 1,538 | 1,695 | 79 | (7) | 3,312 | ||||
| Equipment rentals, depreciation and maintenance | 1,281 | 2,508 | 472 | (13) | 4,261 | ||||
| Amortization of intangibles | — | 987 | 4,083 | (8) | 5,070 | ||||
| Merger-related expenses | — | 53 | — | 53 | |||||
| Other operating | 6,463 | 5,657 | — | 12,120 | |||||
| Total non-interest expense | 21,165 | 22,958 | 4,634 | 48,757 | |||||
| Income before income taxes | 5,890 | 22,043 | 9,203 | 37,136 | |||||
| Income tax expense | 678 | 4,996 | 2,117 | 7,791 | |||||
| Net income | 5,212 | 17,047 | 7,086 | 29,345 | |||||
| Preferred stock dividends | — | 225 | — | 225 | |||||
| Net income applicable to common shares | $ | 5,212 | $ | 16,822 | $ | 7,086 | $ | 29,120 | |
| Earnings per common share: | |||||||||
| Basic | $ | 0.70 | $ | 1.15 | $ | 0.11 | (a) | $ | 1.96 |
| Diluted | $ | 0.69 | $ | 1.14 | $ | 0.12 | (a) | $ | 1.95 |
| Weighted average number of shares | 7,433,481 | 14,683,596 | (7,278,659) | (a) | 14,838,418 | ||||
| Weighted average dilutive shares | 7,527,489 | 14,750,052 | (7,311,601) | (a) | 14,965,940 | ||||
| (a) Summit average number and diluted were adjusted by the exchange ratio to calculate pro forma EPS calculations |
Unaudited Pro Forma Condensed Combined Income Statement
For the Twelve Months Ended December 31, 2023
(in thousands except share and per share data)
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
The unaudited pro forma condensed combined income statement for the fiscal year ended December 31, 2023, are presented as if the merger had occurred on January 1, 2023.
| Burke & Herbert | Summit | Transaction | Combined | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Historical | Historical | Adjustments | Notes | Pro Forma | |||||
| Interest income | |||||||||
| Loans, including fees | $ | 101,800 | $ | 217,855 | $ | 42,583 | (5) | $ | 362,238 |
| Taxable securities | 37,179 | 18,412 | 9,635 | (3) (4) | 65,226 | ||||
| Tax-exempt securities | 5,615 | 5,549 | — | 11,164 | |||||
| Other interest income | 2,302 | 732 | — | 3,034 | |||||
| Total interest income | 146,896 | 242,548 | 52,218 | 441,662 | |||||
| Interest expense | |||||||||
| Deposits | 39,195 | 73,191 | 3,568 | (10) | 115,954 | ||||
| Short-term borrowings | 13,856 | 6,816 | — | 20,672 | |||||
| Long-term borrowings and subordinated debt | — | 5,972 | 5,678 | (11) | 11,650 | ||||
| Other interest expense | 86 | — | — | 86 | |||||
| Total interest expense | 53,137 | 85,979 | 9,246 | 148,362 | |||||
| Net interest income | 93,759 | 156,569 | 42,972 | 293,300 | |||||
| Provision for (recapture of) credit losses | 214 | 12,250 | 27,944 | (6) | 40,408 | ||||
| Net interest income after credit loss expense | 93,545 | 144,319 | 15,028 | 252,892 | |||||
| Non-interest income | |||||||||
| Fiduciary and wealth management | 5,354 | 3,436 | — | 8,790 | |||||
| Service charges, fees, & card revenue | 6,670 | 14,276 | — | 20,946 | |||||
| Net gains (losses) on securities | (112) | 474 | — | 362 | |||||
| Income from life insurance | 2,844 | 1,576 | — | 4,420 | |||||
| Other non-interest income | 3,196 | 1,114 | — | 4,310 | |||||
| Total non-interest income | 17,952 | 20,876 | — | 38,828 | |||||
| Non-interest expense | |||||||||
| Salaries, wages and employee benefits | 48,648 | 46,296 | — | 94,944 | |||||
| Occupancy | 6,035 | 5,851 | 395 | (7) | 12,281 | ||||
| Equipment rentals, depreciation and maintenance | 5,770 | 9,094 | 1,897 | (13) | 16,761 | ||||
| Amortization of intangibles | — | 3,335 | 15,760 | (8) | 19,095 | ||||
| Merger-related expenses | — | 6,444 | 25,000 | (14) | 31,444 | ||||
| Other operating | 25,983 | 23,773 | — | 49,756 | |||||
| Total non-interest expense | 86,436 | 94,793 | 43,052 | 224,281 | |||||
| Income before income taxes | 25,061 | 70,402 | (28,024) | 67,439 | |||||
| Income tax expense | 2,369 | 15,163 | (6,446) | 11,086 | |||||
| Net income | 22,692 | 55,239 | (21,578) | 56,353 | |||||
| Preferred stock dividends | — | 900 | — | 900 | |||||
| Net income applicable to common shares | $ | 22,692 | $ | 54,339 | $ | (21,578) | $ | 55,453 | |
| Earnings per common share: | |||||||||
| Basic | $ | 3.05 | $ | 3.82 | $ | (3.07) | (a) | $ | 3.80 |
| Diluted | $ | 3.02 | $ | 3.81 | $ | (3.06) | (a) | $ | 3.77 |
| Weighted average number of shares | 7,428,042 | 14,206,811 | (7,042,317) | (a) | 14,592,536 | ||||
| Weighted average dilutive shares | 7,506,855 | 14,249,129 | (7,063,294) | (a) | 14,692,690 | ||||
| (a) Summit average number and diluted were adjusted by the exchange ratio to calculate pro forma EPS calculations |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
($ in thousands, except share information)
1.Transaction Accounting Adjustments
At the Effective Time of the merger, each share of Summit common stock, par value $2.50 per share, outstanding immediately prior to the Effective Time, was converted into the right to receive 0.5043 of shares (the "Exchange Ratio") of Burke & Herbert common stock, par value $0.50 per share. Holders of Summit common stock received cash in lieu of fractional shares. In addition, each share of Summit series 2021 preferred stock issued and outstanding immediately prior to the Effective Time of the merger was converted into the right to receive one share of new Burke & Herbert preferred stock, having rights, preferences, privileges and voting powers and limitations and restrictions thereof that are not materially less or more favorable to the holders of the Summit series 2021 preferred stock. The merger is intended to be a tax-free reorganization under Section 368(a) of the Internal Revenue Code.
Pursuant to the Merger Agreement also provides that, at the Effective Time, each Summit RSU that is outstanding and unsettled as of the date of the Merger Agreement, will automatically and without any required action on the part of the holder thereof, convert into a RSU award in respect of shares of the continuing corporation’s common stock on the same terms and conditions as were applicable under the Summit RSU (each such converted RSU award, a "Replacement RSU"), provided that, the number of shares of continuing corporation common stock underlying such Replacement RSU equaled the product of (i) the number of shares of Summit common stock underlying such Summit RSU, multiplied by (ii) the exchange ratio, with any fractional share rounded down to the next lower whole number of shares.
Pursuant to the Merger Agreement provides that, at the Effective Time, each Summit SAR in effect prior to the Effective Time that may be settled in Summit common stock, whether vested or unvested or exercised but unsettled, shall, by virtue of the merger and without any action on the part of the Summit SAR holder, convert into a SAR of Burke & Herbert, as the continuing corporation (each, a "Replacement SAR"), on the same terms and conditions as were applicable to the Summit SAR. The number of Burke & Herbert shares that underly each Replacement SAR equaled the product of (i) the number of shares of Summit common stock underlying the Summit SAR, multiplied by (ii) the exchange ratio, with any fractional share rounded down to the next lower whole number of shares. Certain Summit SAR agreements had a change-in-control feature that resulted in acceleration of the entire unvested portion of a SAR award to become vested with the ability to exercise prior to the expiration of the option.
The total estimated fully diluted transaction value (inclusive of the implied value of unvested restricted stock unit awards, outstanding in-the-money stock appreciation rights of Summit including the awards that are accelerated, the fair value of the preferred stock, and the cash paid for fractional shares) for the purpose of this pro forma financial information is approximately $397.4 million, based on Burke & Herbert’s closing price of $51.67 per share on May 2, 2024. The following is a summary of the fair value of assets acquired and liabilities assumed resulting in goodwill. Goodwill is created when the purchase price consideration exceeds the fair value of the net assets acquired or a bargain purchase gain results when the current fair value of the net assets acquired exceeds the purchase price consideration. For purposes of this analysis as of March 31, 2024, goodwill of $34.5 million results from the transaction; however, the final purchase accounting analysis will be performed as of the merger date and amounts therein are subject to change based on operations subsequent to March 31, 2024, as additional information becomes available and as additional analyses are performed.
| Summit Book | Fair | Summit Fair | |||||
|---|---|---|---|---|---|---|---|
| Value | Value | Value | |||||
| ($ in thousands) | 3/31/2024 | Adjustments | Notes | 3/31/2024 | |||
| Total purchase price consideration | $ | 397,446 | |||||
| Recognized amounts of identifiable assets acquired and liabilities assumed | |||||||
| Cash and equivalents | $ | 55,656 | $ | 55,656 | |||
| Securities, available-for-sale, at fair value | 490,271 | 490,271 | |||||
| Securities, held-to-maturity, at amortized cost | 93,737 | $ | (7,431) | (3) | 86,306 | ||
| Equity and other investments | 33,413 | 33,413 | |||||
| Loans, gross | 3,697,042 | (153,306) | (5) | 3,543,736 | |||
| Allowance for credit losses | (49,232) | 25,752 | (6) | (23,480) | |||
| Loans, net of allowance | 3,647,810 | (127,554) | 3,520,256 | ||||
| Premises and equipment, net | 65,725 | 13,276 | (13) | 79,001 | |||
| Accrued interest receivable | 20,238 | 20,238 | |||||
| Company-owned life insurance | 86,230 | 86,230 | |||||
| Goodwill and intangibles | 73,443 | (4,683) | (8) | 68,760 | |||
| Other assets | 76,361 | 11,502 | (7)(9) | 87,863 | |||
| Total identifiable assets acquired | 4,642,884 | (114,890) | 4,527,994 | ||||
| Deposits | 3,748,415 | (7,136) | (10) | 3,741,279 | |||
| Borrowings | 262,989 | 262,989 | |||||
| Subordinated debentures and trust preferred securities | 123,493 | (16,466) | (11) | 107,027 | |||
| Accrued interest and other liabilities | 53,706 | 53,706 | |||||
| Total liabilities | 4,188,603 | (23,602) | 4,165,001 | ||||
| Total identifiable net assets | $ | 454,281 | $ | (91,288) | $ | 362,993 | |
| Pro Forma Goodwill | $ | 34,453 | |||||
| ( in thousands, except share information) | |||||||
| --- | --- | ||||||
| Purchase Price | |||||||
| Common shares of Summit Financial Group, Inc. | |||||||
| Total shares to be exchanged | |||||||
| Exchange ratio | |||||||
| Burke & Herbert Shares to be Issued | |||||||
| Price per share of Burke & Herbert common stock | 51.67 | ||||||
| Purchase price consideration for common stock | |||||||
| Implied value of stock appreciation rights ("SARs") and restricted stock units | |||||||
| Cash paid for fractional shares | |||||||
| Fair value of preferred stock | |||||||
| Fully diluted transaction value | |||||||
| Pro Forma Goodwill | 34,453 |
All values are in US Dollars.
Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2024 & Adjustments to the Unaudited Pro Forma Condensed Combined Income Statements as of December 31, 2023, and March 31, 2024
- The Pro Forma Condensed Combined Balance Sheet was adjusted to reflect the reversal of Summit’s historical equity accounts, the purchase price considerations, the fair value adjustments, and the after-tax provision expense for non-PCD loans to record the necessary transaction accounting adjustments for common stock, additional paid in capital ("APIC"), retained earnings, accumulated other comprehensive income ("AOCI"), and preferred equity.
| Balance Sheet | |||
|---|---|---|---|
| ( in thousands, except share information) | 3/31/2024 | ||
| Transaction accounting adjustment for common stock | |||
| Reversal of Summit's common stock | $ | (36,717) | |
| Number of Burke & Herbert shares issued | |||
| Par value of Burke & Herbert common stock | 0.50 | ||
| Par value of Burke & Herbert shares issued for merger | 3,703 | ||
| Total transaction accounting adjustment for common stock | $ | (33,014) | |
| Balance Sheet | |||
| ( in thousands, except share information) | 3/31/2024 | ||
| Transaction accounting adjustment for APIC | |||
| Reversal of Summit's common stock to APIC | $ | 36,717 | |
| Reversal of Summit's retained earnings to APIC | 316,375 | ||
| Reversal of Summit's AOCI to APIC | (7,249) | ||
| Reversal of Summit's preferred equity | 14,920 | ||
| Summit shares outstanding | |||
| Exchange ratio | |||
| Number of Burke & Herbert shares issued | |||
| Value assigned to Burke & Herbert common shares | 51.67 | ||
| Purchase price consideration for common stock | |||
| Implied value of stock appreciation rights ("SARs") & restricted stock units | |||
| Cash paid for fractional shares using 10 day average | |||
| Less: par value of Burke & Herbert common stock issued for merger | |||
| APIC adjustment for Burke & Herbert shares issued | |||
| Less: Summit equity | |||
| Net adjustment to APIC for stock consideration | (70,951) | ||
| Total transaction accounting adjustment for APIC | $ | 289,812 | |
| Balance Sheet | |||
| ( in thousands) | 3/31/2024 | ||
| Transaction accounting adjustment for retained earnings | |||
| Reversal of Summit's retained earnings | $ | (316,375) | |
| Provision for credit losses for Non-PCD loans (see note 6) | (21,517) | ||
| Merger cost adjustment (see note 14) | (19,250) | ||
| Total transaction accounting adjustments for retained earnings | $ | (357,142) | |
| Balance Sheet | |||
| ( in thousands) | 3/31/2024 | ||
| Transaction accounting adjustments for AOCI | |||
| Reversal of Summit's AOCI | $ | 7,249 | |
| Total transaction accounting adjustment for AOCI | $ | 7,249 |
All values are in US Dollars.
| Balance Sheet | ||
|---|---|---|
| ($ in thousands) | 3/31/2024 | |
| Transaction accounting adjustments for Preferred Equity | ||
| Reversal of Summit's preferred equity | $ | (14,920) |
| Fair Value of preferred equity | 10,413 | |
| Total transaction accounting adjustment for Preferred Equity | $ | (4,507) |
- Securities held to maturity were recorded at amortized cost at March 31, 2024; therefore, the balance sheet requires a fair value adjustment of $(7.4) million. The income statement adjustment includes prospective reclassification of the fair value adjustment that will be accreted into income based on the expected life of the securities. Post-merger, all of the securities held to maturity were reclassified as securities available-for-sale resulting in a transaction adjustment of $(86.3) million to the debt securities available-for-sale.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ($ in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Transaction accounting adjustments for debt securities held-to-maturity, at amortized cost | ||||||
| Fair value adjustment on debt securities held-to-maturity, at amortized cost | $ | (7,431) | $ | 1,239 | $ | 309 |
| Debt securities held-to-maturity, at amortized cost moved to debt securities available-for-sale, at fair value | (86,306) | — | — | |||
| Total held-to-maturity securities adjustment | $ | (93,737) | $ | 1,239 | $ | 309 |
- Securities available-for-sale were recorded at fair value at March 31, 2024; therefore, no balance sheet adjustment is necessary. Income statement adjustment includes a prospective reclassification of existing available-for-sale securities fair value adjustment of $(42.0) million that will be accreted into income based on the expected life of the securities.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ($ in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Debt securities available-for-sale, at fair value | $ | — | $ | 8,396 | $ | 2,087 |
- Loans were adjusted to reflect the fair value discount for acquired PCD and non-PCD loans of $(153.3) million of which $(172.6) million is assigned to non-PCD loans (overall fair value adjustment) and PCD loans (just non-credit fair value adjustment) on loans acquired and $19.3 million represents reversal of deferred loan fees and fair value adjustments, net. The accruing loan fair value adjustments will be substantially recognized over the expected life of the loans.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ( in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Fair value adjustments on loans acquired | ||||||
| $ | (134,549) | 28,347 | 8,198 | |||
| (38,069) | 14,236 | 5,248 | ||||
| (23,480) | — | — | ||||
| Total fair value adjustment assigned to loans | (196,098) | 42,583 | 13,446 | |||
| 19,312 | — | — | ||||
| 23,480 | — | — | ||||
| Total loan fair value adjustment | $ | (153,306) | $ | 42,583 | $ | 13,446 |
All values are in US Dollars.
- Allowance for credit losses was adjusted to reverse Summit’s existing allowance for credit losses of $49.2 million and to include the gross-up adjustment for PCD loans of $(23.5) million. Additionally, the allowance for credit losses was adjusted to include an additional provision as required by U.S. generally accepted accounting principles for acquired non-PCD loans of $(27.9) million. The pro forma condensed combined income statement includes a one-time after-tax provision expense of $(21.5) million; the pro forma condensed balance sheet reflects this amount as a direct equity adjustment.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ( in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Allowance for credit losses | ||||||
| $ | 49,232 | $ | — | $ | — | |
| (23,480) | — | — | ||||
| Total adjustment to allowance for credit losses excluding CECL ACL for non-PCD loans (see note (1)) | 25,752 | — | — | |||
| (27,944) | (27,944) | — | ||||
| Total adjustment to allowance for credit losses | $ | (2,192) | $ | (27,944) | $ | — |
| Retained Earnings Impact to non-PCD | ||||||
| $ | 6,427 | $ | — | $ | — | |
| $ | (21,517) | $ | — | $ | — |
All values are in US Dollars.
- Other assets were adjusted to record a fair value adjustment for lease contracts of $1.2 million. This fair value adjustment will be amortized into income based on the expected life of the lease contracts.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ($ in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Other assets | $ | 1,184 | $ | (395) | $ | (79) |
- A balance sheet adjustment to intangible assets was made to reflect the reversal of existing core deposit intangible ("CDI") of $(20.4) million, reversal of existing goodwill of $(53.0) million, and to record the acquired CDI fair value of $68.8 million. The pro forma condensed income statement adjustments reflect the acquired CDI amortization upon an expected life of 7 years and the reversal of the existing CDI amortization reflected in the Summit stand-alone income statement.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ( in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Core deposit intangible asset | ||||||
| $ | (20,400) | $ | 1,440 | $ | 217 | |
| 68,760 | (17,200) | (4,300) | ||||
| Total core deposit intangible asset | $ | 48,360 | $ | (15,760) | $ | (4,083) |
| Goodwill adjustment | ||||||
| $ | (53,043) | $ | — | $ | — | |
| Transaction Goodwill | ||||||
| 34,453 | — | — | ||||
| $ | 29,770 | $ | (15,760) | $ | (4,083) |
All values are in US Dollars.
- The balance sheet adjustment reflects the net deferred tax asset / liability established for the reversal of the CDI, the fair value adjustments and the elimination of prior deferred positions upon the transaction, using an effective tax rate of 23%.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ( in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Deferred Tax Asset / Liability Impact | ||||||
| $ | (93,221) | $ | — | $ | — | |
| 48,360 | — | — | ||||
| Total items subject to tax impact | $ | (44,861) | $ | — | $ | — |
| $ | 10,318 | $ | — | $ | — |
All values are in US Dollars.
- Time deposits were adjusted to reflect the fair value adjustment based on current interest rates for similar instruments. The fair value adjustment will be amortized based upon the maturities of the time deposits.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ($ in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Time Deposits | $ | (7,136) | $ | (3,568) | $ | (593) |
- Subordinated debt & trust preferred securities were adjusted to reflect the fair value adjustments based on current interest rates for similar instruments. This fair value adjustment will be amortized based upon the maturities of these liabilities.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ($ in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Subordinated debt & trust preferred securities | $ | (16,466) | $ | (5,678) | $ | (1,412) |
- Preferred stock was adjusted to reflect the fair value adjustment using market-based pricing for similar instruments. The fair value adjustment for an equity account does not impact earnings.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ($ in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Preferred stock | $ | (4,507) | $ | — | $ | — |
- Balance sheet adjustment to reflect the fair value adjustment of Summit's fixed assets based on current market value. The increase in fair value will be depreciated over an estimated 7 year useful life on a straight line basis.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ($ in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Premises and equipment, net | $ | 13,276 | $ | (1,897) | $ | (472) |
- Merger Cost Adjustment: This adjustment represents the merger costs incurred after the Effective Time that impacted the balance sheet and the income statement. The adjustments impacting the balance sheet are an after-tax adjustment reducing our cash position and a reduction in our retained earnings. The gross adjustment is reflected on the income statement line item merger related expenses.
| Balance Sheet | Income Statement | |||||
|---|---|---|---|---|---|---|
| ($ in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2024 | |||
| Transaction accounting adjustments for merger costs | ||||||
| Merger-related expenses | $ | 25,000 | $ | 25,000 | $ | — |
| Tax Impact | (5,750) | (5,750) | — | |||
| Merger-related expenses (after-tax) | $ | 19,250 | $ | 19,250 | $ | — |