Burke & Herbert Financial Services Corp. Announces First Quarter 2023 Results and Declares Common Stock Dividend

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:

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• 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.

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.                                                                                                              

SOURCE Burke & Herbert Financial Services Corp.