8-K
Burke & Herbert Financial Services Corp. (BHRB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 8-K
___________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
April 28, 2023
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) 549-2304 | ||
| (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 $0.50 | 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. ☐
Item 2.02 - Results of Operations and Financial Condition.
On April 28, 2023, Burke & Herbert Financial Services Corp. (the " Company ") issued a press release announcing its results of operations and financial condition for the quarter ended March 31, 2023. A copy of the press release is included as Exhibit 99.1 to this report.
Item 9.01 - Financial Statements and Exhibits
(d) The following exhibits are being filed herewith:
| Exhibit No. | Description |
|---|---|
| 99.1 | Press release, dated April 28, 2023 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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 28th day of April, 2023.
| Burke & Herbert Financial Services Corp. | |
|---|---|
| By: | /s/ Roy E. Halyama |
| Name: | Roy E. Halyama |
| Title: | Executive Vice President, CFO |
Document
Burke & Herbert Financial Services Corp. Announces First Quarter 2023 Results and Declares Common Stock Dividend
For Immediate Release
April 28, 2023
Alexandria, VA – 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
Non-GAAP financial measures referenced in this release are used by management to measure performance in operating the business that management believes enhances investors’ ability to better understand the underlying business performance and trends related to core business activities. Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included in the non-GAAP reconciliation tables in this release.
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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.
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 | December 31 | September 30 | June 30 | March 31 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2022 | 2022 | 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-for-sale, 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.
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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)
| March 31 | December 31 | September 30 | June 30 | March 31 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2022 | 2022 | 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 risk-weighted 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.
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Burke & Herbert Financial Services Corp.
Non-GAAP Reconciliations (unaudited)
As of or for the three months ended
(In thousands)
| Total Revenue (non-GAAP) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| March 31 | December 31 | September 30 | June 30 | March 31 | ||||||
| 2023 | 2022 | 2022 | 2022 | 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 | December 31 | September 30 | June 30 | March 31 | ||||||
| 2023 | 2022 | 2022 | 2022 | 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, pre-provision 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 | December 31 | September 30 | June 30 | March 31 | |||||||||||
| 2023 | 2022 | 2022 | 2022 | 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 Taxable-Equivalent - 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-
Burke & Herbert Financial Services Corp.
Non-GAAP Reconciliations (unaudited)
As of or for the three months ended
(In thousands)
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. Taxable-equivalent 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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