Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Commission file number 001-41633 Burke & Herbert Financial Services Corp. (Exact name of registrant as specified in its charter) Virginia 92-0289417 (State or other jurisdiction of incorporation or organization) 100 S. Fairfax Street, Alexandria, Virginia 22314 (Address of principal executive offices) (Zip Code) 703-666-3555 (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHA ...

Investors might want to bet on Burke & Herbert Financial Services (BHRB) , as it has been recently upgraded to a Zacks Rank #2 (Buy). This upgrade is essentially a reflection of an upward trend in earnings estimates -- one of the most powerful forces impacting stock prices.The sole determinant of the Zacks rating is a company's changing earnings picture. The Zacks Consensus Estimate -- the consensus of EPS estimates from the sell-side analysts covering the stock -- for the current and following years is tra ...

Core Insights - Burke & Herbert Financial Services (BHRB) reported quarterly earnings of $1.97 per share, exceeding the Zacks Consensus Estimate of $1.88 per share, but slightly down from $1.98 per share a year ago, resulting in an earnings surprise of +4.79% [1] - The company posted revenues of $85.36 million for the quarter ended September 2025, missing the Zacks Consensus Estimate by 1.78%, compared to $83.79 million in the same quarter last year [2] - The stock has underperformed the market, losing about 1.9% year-to-date, while the S&P 500 has gained 13.9% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $1.86 on revenues of $86.8 million, and for the current fiscal year, it is $7.52 on revenues of $342 million [7] - The estimate revisions trend for Burke & Herbert was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - The Financial - Miscellaneous Services industry, to which Burke & Herbert belongs, is currently in the top 34% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Performance - For Q3 2025, net income applicable to common shares was $29.7 million, maintaining a diluted EPS of $1.97, consistent with Q2 2025 results [4]. - Net income for the three months ended September 30, 2025, was $29,964,000, compared to $27,622,000 in the previous quarter, reflecting an increase of 8.5% [17]. - Net income applicable to common shares for Q3 2025 was $29,739,000, compared to $29,672,000 in Q2 2025, reflecting a slight increase of 0.23% [29]. - Return on average assets (annualized) for Q3 2025 was 1.50%, compared to 1.51% in Q2 2025, indicating a marginal decline [34]. - Return on average equity (annualized) for Q3 2025 was 14.88%, down from 15.50% in Q2 2025, a decrease of 4.00% [34]. - The efficiency ratio for Q3 2025 was 56.34%, slightly improved from 56.60% in Q2 2025 [34]. - Adjusted diluted EPS for Q3 2025 was $1.97, unchanged from Q2 2025, indicating stable earnings per share [29]. Loan and Deposit Activity - Total gross loans at the end of Q3 2025 were $5.6 billion, a decrease of $31.0 million from Q2 2025, while new loan commitments amounted to $228.9 million [9]. - Total deposits increased to $6.4 billion, up by $21.1 million from Q2 2025, with core deposits rising by $28.8 million [9]. - Total deposits decreased to $6,412,052,000 as of September 30, 2025, from $6,515,239,000 at the end of 2024, a decline of 1.6% [19]. - The loan-to-deposit ratio for Q3 2025 was 86.70%, a decrease from 87.47% in Q2 2025, indicating improved liquidity [34]. Interest Income and Margin - The net interest margin for Q3 2025 was 4.08%, down from 4.17% in Q2 2025, primarily due to lower loan interest income [9]. - Total interest income for the three months ended September 30, 2025, was $111,209,000, compared to $118,526,000 for the previous quarter, reflecting a decrease of 6.4% [17]. - Interest income for Q3 2025 was $111,209,000, slightly lower than $111,858,000 in Q2 2025, a decrease of 0.58% [32]. - The taxable-equivalent net interest margin for the three months ended September 30, 2025, was 4.08%, compared to 4.17% in the previous quarter [21]. - The net interest margin (non-GAAP) for Q3 2025 was 4.08%, down from 4.17% in Q2 2025 [39]. Non-Interest Income and Expense - Non-interest income for Q3 2025 was $11.6 million, a decrease from $12.9 million in the prior quarter [9]. - Total non-interest income for the three months ended September 30, 2025, was $11,585,000, an increase of 9.1% from $10,616,000 in the previous quarter [17]. - Non-interest expense decreased to $48.1 million in Q3 2025, reflecting operational efficiency gains post-merger [9]. - Non-interest expense for Q3 2025 was $48,092,000, a decrease from $49,305,000 in Q2 2025, down by 2.46% [29]. Credit Quality - The Company reported a credit provision expense of $262 thousand, with an allowance for credit losses at 1.2% of total loans [9]. - The company reported a total provision for credit losses of $1,387,000 for the nine months ended September 30, 2025, significantly lower than $23,387,000 in the same period last year [17]. - Provision for credit losses decreased to $262 thousand for the three months ended September 30, 2025, down from $624 thousand in the previous quarter, a reduction of 58.13% [24]. - Nonperforming loans rose to $89,051 thousand as of September 30, 2025, compared to $85,531 thousand as of June 30, 2025, an increase of 1.77% [24]. - Total delinquencies increased to 34,722 thousand as of September 30, 2025, from 29,056 thousand as of June 30, 2025, an increase of 19.83% [24]. Capital and Assets - As of September 30, 2025, the Common Equity Tier 1 capital ratio was 12.7%, and the Total risk-based capital ratio was 15.4%, both above regulatory requirements [8]. - Total assets as of September 30, 2025, reached $7,889,037,000, compared to $7,812,185,000 at the end of 2024, indicating a growth of 1.0% [19]. - The company’s retained earnings increased to $495,400,000 as of September 30, 2025, from $434,106,000 at the end of 2024, showing a growth of 14.1% [19]. - Total equity increased to $822,231 thousand as of September 30, 2025, up from $780,018 thousand as of June 30, 2025, representing a growth of 5.39% [24]. Branch Expansion - The Company opened its first branch in Bethesda, Maryland, and is expanding into new markets in Virginia, which are exceeding expectations [3].

Core Insights - Burke & Herbert Financial Services Corp. reported solid financial results for Q3 2025, with net income of $29.7 million, maintaining a diluted earnings per share of $1.97, consistent with the previous quarter [4][10][18] - The board declared a regular cash dividend of $0.55 per share, to be paid on December 1, 2025, to shareholders of record as of November 14, 2025 [1][3] Financial Performance - The company achieved a net interest income of $73.8 million for Q3 2025, slightly down from $74.2 million in Q2 2025, primarily due to a decrease in loan interest income [11][18] - Total gross loans were reported at $5.6 billion, a decrease of $31 million from the previous quarter, while total deposits increased by $21.1 million to $6.4 billion [11][18] - The net interest margin decreased to 4.08% from 4.17% in the prior quarter, attributed to lower yields on the loan portfolio [11][18] Capital Ratios - The company remains well-capitalized, with a Common Equity Tier 1 capital ratio of 12.7% and a Total risk-based capital ratio of 15.4%, both significantly above regulatory requirements [5][6][18] - The leverage ratio stood at 10.7%, also above the well-capitalized threshold of 5% [5][6] Operational Highlights - The company opened its first branch in Bethesda, Maryland, and reported strong performance in newer markets in Virginia, including Fredericksburg and Richmond [3] - The balance sheet is characterized by ample liquidity, with total liquidity of $4.3 billion at the end of Q3 2025 [10][11] Asset Quality - The allowance for credit losses was $67.6 million, representing 1.2% of total loans, indicating a moderate risk profile [10][18] - Non-performing loans accounted for 1.60% of total loans, reflecting a slight increase from previous quarters [18]

Financial Performance - The company's total assets reached $7.9 billion[10] - Total gross loans amounted to $5.6 billion[10] - Total deposits were $6.4 billion[10] - The return on average assets was 1.50%[10] - The return on average equity was 14.88%[10] - Net income was $30.0 million[20] - Diluted earnings per share (EPS) were $1.97[20] Key Ratios and Metrics - The loan-to-deposit ratio was 86.7%[20, 38] - Uninsured deposits represented 31.5% of total deposits[20, 38] - The efficiency ratio was 56.3%[20] - The total risk-based capital ratio was 15.37%[20] - Tangible book value per common share was $48.72, with a growth of 15.8% from 4Q24 to 3Q25[20, 21]

Part I - Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements and detailed notes for Burke & Herbert Financial Services Corp. for the specified periods [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the Company's assets, liabilities, and shareholders' equity at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total Assets | $8,053,084 | $7,812,185 | | Cash and cash equivalents | $325,146 | $135,314 | | Net loans | $5,523,201 | $5,604,196 | | Total deposits | $6,390,974 | $6,515,239 | | Short-term borrowings | $650,000 | $365,000 | | Total Liabilities | $7,273,066 | $7,082,028 | | Total Shareholders' Equity | $780,018 | $730,157 | - Total Assets increased by **$240.9 million** to **$8.05 billion** as of June 30, 2025, from **$7.81 billion** at December 31, 2024[10](index=10&type=chunk)[284](index=284&type=chunk) - Cash and cash equivalents significantly increased from **$135.3 million** at December 31, 2024, to **$325.1 million** at June 30, 2025[10](index=10&type=chunk) - Net loans decreased by **$81.0 million** from **$5.6 billion** at December 31, 2024, to **$5.5 billion** at June 30, 2025[10](index=10&type=chunk)[284](index=284&type=chunk) - Total deposits decreased by **$124.3 million** to **$6.4 billion** at June 30, 2025, from **$6.5 billion** at December 31, 2024[10](index=10&type=chunk)[284](index=284&type=chunk) - Short-term borrowings increased by **$285.0 million** to **$650.0 million** as of June 30, 2025, from **$365.0 million** at December 31, 2024[10](index=10&type=chunk)[284](index=284&type=chunk) - Total Shareholders' Equity increased by **$49.9 million** to **$780.0 million** at June 30, 2025, from **$730.2 million** at December 31, 2024, primarily due to increased earnings[10](index=10&type=chunk)[320](index=320&type=chunk) [Consolidated Statements of Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Income%20(Loss)) This section details the Company's revenues, expenses, and net income or loss over specific reporting periods Consolidated Statements of Income (Loss) Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $111,858 | $96,097 | $222,644 | $134,842 | | Total interest expense | $37,625 | $36,332 | $75,424 | $52,946 | | Net interest income | $74,233 | $59,765 | $147,220 | $81,896 | | Total provision (recapture) for credit losses | $624 | $23,910 | $1,125 | $23,240 | | Total non-interest income | $12,877 | $9,505 | $22,900 | $13,759 | | Total non-interest expense | $49,305 | $64,432 | $98,969 | $85,597 | | Net income (loss) | $29,897 | $(16,919) | $57,098 | $(11,707) | | Net income (loss) applicable to common shares | $29,672 | $(17,144) | $56,648 | $(11,932) | | Basic EPS | $1.98 | $(1.41) | $3.78 | $(1.22) | | Diluted EPS | $1.97 | $(1.41) | $3.77 | $(1.22) | - Net income applicable to common shares for the six months ended June 30, 2025, was **$56.6 million**, a significant increase from a net loss of **$11.9 million** in the prior year, primarily due to a full six months of combined income after the Merger and lower merger-related expenses[226](index=226&type=chunk) - Net interest income increased by **$65.3 million** to **$147.2 million** for the six months ended June 30, 2025, driven by the Merger's combined income and higher rates on interest-earning assets[227](index=227&type=chunk)[233](index=233&type=chunk) - Credit provision expense decreased significantly to **$1.1 million** for the six months ended June 30, 2025, from **$23.2 million** in the prior year, which included a one-time CECL Day 2 provision related to the Merger[228](index=228&type=chunk)[251](index=251&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section presents the Company's net income and other comprehensive income (loss) components, reflecting changes in equity from non-owner sources Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $29,897 | $(16,919) | $57,098 | $(11,707) | | Total other comprehensive income (loss) | $170 | $524 | $7,866 | $3,064 | | Comprehensive income (loss) | $30,067 | $(16,395) | $64,964 | $(8,643) | - Total other comprehensive income (loss) for the six months ended June 30, 2025, was **$7.9 million**, an increase from **$3.1 million** in the prior year, primarily due to higher unrealized gains on securities[14](index=14&type=chunk)[136](index=136&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This section outlines the changes in the Company's shareholders' equity over specific periods, including net income, dividends, and other comprehensive income Changes in Shareholders' Equity (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Balance, beginning of period (Six Months) | $730,157 | $314,750 | | Net income | $57,098 | $(11,707) | | Other comprehensive income (loss) | $7,866 | $3,064 | | Common stock cash dividends, declared | $(16,491) | $(11,808) | | Preferred stock cash dividends, declared | $(450) | $(225) | | Share-based compensation expense, net | $1,838 | $1,607 | | Balance, end of period (Six Months) | $780,018 | $693,126 | - Shareholders' equity increased by **$49.9 million** from December 31, 2024, to June 30, 2025, primarily driven by net income and other comprehensive income[20](index=20&type=chunk)[320](index=320&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash generated and used by the Company's operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :--------------------------------------- | :----- | :----- | | Net cash flows provided by (used in) operating activities | $37,688 | $(38,879) | | Net cash flows provided by investing activities | $9,012 | $165,657 | | Net cash flows provided by financing activities | $143,132 | $40,644 | | Increase in cash and cash equivalents | $189,832 | $167,422 | | Cash and cash equivalents, End of period | $325,146 | $211,920 | - Net cash flows from operating activities significantly improved to **$37.7 million** provided in 2025, compared to **$38.9 million** used in 2024[23](index=23&type=chunk) - Net cash flows from investing activities decreased substantially from **$165.7 million** provided in 2024 to **$9.0 million** provided in 2025[23](index=23&type=chunk) - Net cash flows from financing activities increased to **$143.1 million** provided in 2025, from **$40.6 million** in 2024, primarily due to increased short-term borrowings[23](index=23&type=chunk)[25](index=25&type=chunk) [Note 1— Nature of Business Activities and Significant Accounting Policies](index=11&type=section&id=Note%201%E2%80%94%20Nature%20of%20Business%20Activities%20and%20Significant%20Accounting%20Policies) This note describes the Company's primary business operations and the key accounting principles and methods used in preparing its financial statements - Burke & Herbert Financial Services Corp. operates as a bank holding company for Burke & Herbert Bank & Trust Company, primarily serving northern Virginia and West Virginia with over 77 branches[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - The Company completed a merger with Summit Financial Group, Inc. on May 3, 2024, integrating Summit's operations from that date forward[30](index=30&type=chunk)[32](index=32&type=chunk) - The financial statements are prepared in accordance with GAAP for interim reporting and SEC regulations, with estimates and assumptions that may differ from actual results[33](index=33&type=chunk)[35](index=35&type=chunk) [Note 2— Securities](index=13&type=section&id=Note%202%E2%80%94%20Securities) This note provides details on the Company's investment securities portfolio, including classifications, fair values, and unrealized gains or losses Securities Available-for-Sale (AFS) Fair Value (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | U.S. Treasuries and government agencies | $153,345 | $149,127 | | Obligations of states and municipalities | $809,133 | $698,724 | | Residential mortgage backed - agency | $55,137 | $53,186 | | Residential mortgage backed - non-agency | $233,004 | $247,876 | | Commercial mortgage backed - agency | $54,449 | $33,071 | | Commercial mortgage backed - non-agency | $130,108 | $154,511 | | Asset-backed | $56,426 | $64,056 | | Other | $31,009 | $31,820 | | Total | $1,522,611 | $1,432,371 | - The fair value of AFS securities increased to **$1.52 billion** at June 30, 2025, from **$1.43 billion** at December 31, 2024[40](index=40&type=chunk) - Gross unrealized losses on AFS securities decreased from **$118.9 million** at December 31, 2024, to **$111.1 million** at June 30, 2025, primarily due to market conditions and interest rate fluctuations, not credit deterioration[40](index=40&type=chunk)[45](index=45&type=chunk)[48](index=48&type=chunk) - The Company did not record an Allowance for Credit Losses (ACL) on AFS securities, as unrealized losses are considered temporary and not credit-related[48](index=48&type=chunk) [Note 3— Loans](index=17&type=section&id=Note%203%E2%80%94%20Loans) This note provides a breakdown of the Company's loan portfolio by segment, along with information on gross loans and the allowance for credit losses Loan Portfolio Segments (in thousands) | Loan Segment | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Commercial real estate | $2,767,261 | $2,637,802 | | Owner-occupied commercial real estate | $617,811 | $614,362 | | Acquisition, construction & development | $347,659 | $465,537 | | Commercial & industrial | $605,064 | $613,085 | | Single family residential (1-4 units) | $1,148,869 | $1,173,749 | | Consumer non-real estate and other | $103,793 | $167,701 | | Loans, gross | $5,590,457 | $5,672,236 | | Allowance for credit losses | $(67,256) | $(68,040) | | Loans, net | $5,523,201 | $5,604,196 | - Gross loans decreased by **$81.8 million** to **$5.59 billion** at June 30, 2025, from **$5.67 billion** at December 31, 2024, primarily due to exiting loans not aligning with the Company's risk profile[58](index=58&type=chunk)[293](index=293&type=chunk) - Commercial real estate remains the largest segment, increasing to **$2.77 billion** at June 30, 2025, from **$2.64 billion** at December 31, 2024[58](index=58&type=chunk) [Note 4— Allowance for Credit Losses](index=18&type=section&id=Note%204%E2%80%94%20Allowance%20for%20Credit%20Losses) This note details the activity and balances of the allowance for credit losses, including provisions, charge-offs, recoveries, and asset quality ratios Allowance for Credit Losses (ACL) Activity (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :--------------------------------------- | :----- | :----- | | Balance, beginning of period | $68,040 | $25,301 | | Allowance established for acquired PCD loans | — | $23,910 | | Provision for (recapture of) credit losses | $1,617 | $19,430 | | Charge-offs | $(2,964) | $(641) | | Recoveries | $563 | $17 | | Balance, end of period | $67,256 | $68,017 | - The ACL decreased slightly to **$67.3 million** at June 30, 2025, from **$68.0 million** at December 31, 2024[58](index=58&type=chunk)[63](index=63&type=chunk) - Provision for credit losses was **$1.6 million** for the six months ended June 30, 2025, significantly lower than **$19.4 million** in the prior year, which included a **$23.9 million** allowance for acquired Purchase Credit Deteriorated (PCD) loans[63](index=63&type=chunk)[251](index=251&type=chunk)[302](index=302&type=chunk) - Net loan charge-offs increased to **$2.4 million** for the six months ended June 30, 2025, from **$0.6 million** in the prior year[63](index=63&type=chunk)[305](index=305&type=chunk) Asset Quality Ratios | Metric | June 30, 2025 | June 30, 2024 | | :--------------------------------------- | :------------ | :------------ | | Allowance coverage ratio | 1.20% | 1.21% | | Allowance for credit losses as a percentage of non-performing loans | 78.63% | 207.10% | | Net charge-offs to average outstanding loans during the period | 0.04% | 0.02% | | Non-performing loans as a percentage of total loans | 1.53% | 0.58% | | Non-performing assets as a percentage of total assets | 1.10% | 0.46% | - Non-performing loans as a percentage of total loans increased to **1.53%** at June 30, 2025, from **0.58%** at June 30, 2024[223](index=223&type=chunk) [Note 5— Deposits](index=24&type=section&id=Note%205%E2%80%94%20Deposits) This note provides a detailed breakdown of the Company's deposit balances by type, including demand, money market, savings, and time deposits Deposit Balances (in thousands) | Deposit Type | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Demand, non-interest-bearing | $1,363,617 | $1,379,940 | | Demand, interest-bearing | $2,227,501 | $2,223,540 | | Money market and savings | $1,654,665 | $1,658,480 | | Brokered deposits | $132,098 | $244,802 | | Time deposits, other | $1,013,093 | $1,008,477 | | Total deposits | $6,390,974 | $6,515,239 | - Total deposits decreased by **$124.3 million** to **$6.39 billion** at June 30, 2025, from **$6.52 billion** at December 31, 2024, primarily due to a **$112.7 million** decrease in brokered deposits[10](index=10&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk) - Brokered time deposits decreased from **$244.8 million** at December 31, 2024, to **$132.1 million** at June 30, 2025[78](index=78&type=chunk)[315](index=315&type=chunk) [Note 6— Borrowed Funds](index=25&type=section&id=Note%206%E2%80%94%20Borrowed%20Funds) This note outlines the Company's various borrowing activities, including short-term borrowings, subordinated debentures, and available borrowing capacity Borrowed Funds (in thousands) | Borrowing Type | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Short-term borrowings | $650,000 | $365,000 | | Subordinated debentures, net | $97,552 | $94,872 | | Subordinated debentures owed to unconsolidated subsidiary trusts | $17,140 | $17,013 | | Total long-term debt | $114,692 | $111,885 | - Short-term borrowings increased by **$285.0 million** to **$650.0 million** at June 30, 2025, from **$365.0 million** at December 31, 2024[81](index=81&type=chunk)[314](index=314&type=chunk) - The Company has **$4.1 billion** in unused borrowing capacity from secured lines of credit with the Federal Reserve Bank of Richmond and FHLB of Atlanta, and unsecured federal funds lines[82](index=82&type=chunk)[313](index=313&type=chunk) - Subordinated debentures assumed in the Merger totaled **$105.0 million** (par value) with varying fixed and variable interest rates and maturities[84](index=84&type=chunk)[86](index=86&type=chunk)[89](index=89&type=chunk) [Note 7— Leased Property](index=26&type=section&id=Note%207%E2%80%94%20Leased%20Property) This note provides information on the Company's leased properties, including right-of-use assets, lease liabilities, and associated income and costs Lease Information (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Total right-of-use assets | $17,849 | $16,515 | | Total lease liabilities | $18,672 | $17,206 | | Operating lease income (Six Months) | $1,393 | $1,131 | | Total lease cost (Six Months) | $1,873 | $1,486 | - The Company has operating leases for vacant space and finance/operating leases for branches and office space, with terms up to twelve years[90](index=90&type=chunk)[92](index=92&type=chunk) - Operating lease income for the six months ended June 30, 2025, was **$1.4 million**, an increase from **$1.1 million** in the prior year[91](index=91&type=chunk) [Note 8— Regulatory Capital Matters](index=28&type=section&id=Note%208%E2%80%94%20Regulatory%20Capital%20Matters) This note details the Company's compliance with regulatory capital requirements and its capital adequacy ratios Regulatory Capital Ratios (Consolidated, as of June 30, 2025) | Capital Ratio | Actual Ratio | Minimum Required (Basel III) | Minimum for Well Capitalized | | :--------------------------------------- | :----------- | :--------------------------- | :--------------------------- | | Total Capital to risk weighted assets | 15.27% | ≥ 10.5% | N/A | | Tier 1 (Core) Capital to risk weighted assets | 12.65% | ≥ 8.5% | N/A | | Common Tier 1 (CET 1) to risk-weighted assets | 12.22% | ≥ 7.0% | N/A | | Tier 1 (Core) Capital to average assets (leverage ratio) | 10.42% | ≥ 4.0% | N/A | - Both the Company and the Bank meet all capital adequacy requirements and are categorized as 'well capitalized' under prompt corrective action regulations as of June 30, 2025[97](index=97&type=chunk)[98](index=98&type=chunk)[213](index=213&type=chunk) - As of June 30, 2025, approximately **$293.6 million** of retained earnings was available for dividend declaration[99](index=99&type=chunk) [Note 9— Derivatives](index=29&type=section&id=Note%209%E2%80%94%20Derivatives) This note describes the Company's use of derivative financial instruments to manage interest rate risk, including their fair values and accounting treatment Derivative Financial Instruments Fair Value (in thousands) | Derivative Type | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :--------------------------------------- | :------------------------- | :------------------------- | | Interest rate swaps related to cash flow hedges (assets) | $606 | $1,368 | | Interest rate swaps related to cash flow hedges (liabilities) | $163 | $165 | | Interest rate swaps related to customer loans (assets) | $1,970 | $1,823 | | Interest rate swaps related to customer loans (liabilities) | $1,970 | $1,823 | - The Company uses interest rate swap agreements to manage interest rate risk, with some designated as cash flow hedges and others as economic hedges not qualifying for hedge accounting[100](index=100&type=chunk)[101](index=101&type=chunk)[104](index=104&type=chunk) - For cash flow hedges, an estimated **$514.6 thousand** will be reclassified as a reduction to interest expense in the next twelve months[103](index=103&type=chunk) [Note 10— Commitments and Contingencies](index=33&type=section&id=Note%2010%E2%80%94%20Commitments%20and%20Contingencies) This note outlines the Company's off-balance sheet commitments, such as credit extensions and letters of credit, and discusses potential legal and environmental contingencies Off-Balance Sheet Commitments (in thousands) | Commitment Type | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Commitments to extend credit | $944,598 | $969,317 | | Commercial letters of credit | $26,064 | $13,333 | - Commitments to extend credit decreased to **$944.6 million** at June 30, 2025, from **$969.3 million** at December 31, 2024[114](index=114&type=chunk) - Commercial letters of credit increased to **$26.1 million** at June 30, 2025, from **$13.3 million** at December 31, 2024[114](index=114&type=chunk) - The Allowance for Credit Losses (ACL) on off-balance-sheet credit exposures totaled **$3.5 million** at June 30, 2025, a decrease from **$4.0 million** at December 31, 2024[115](index=115&type=chunk) [Note 11— Fair Value Measurements](index=34&type=section&id=Note%2011%E2%80%94%20Fair%20Value%20Measurements) This note describes the Company's methodology for fair value measurements, categorizing assets and liabilities into Level 1, 2, or 3 based on observability of inputs - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)[117](index=117&type=chunk)[118](index=118&type=chunk) Assets Measured at Fair Value on a Recurring Basis (June 30, 2025, in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Total investment securities available-for-sale | $153,345 | $1,369,266 | $— | $1,522,611 | | Loans held-for-sale | $— | $1,511 | $— | $1,511 | | Equity investments | $— | $13,038 | $— | $13,038 | | Derivatives | $— | $2,575 | $— | $2,575 | - The majority of investment securities are valued using Level 2 inputs, reflecting market prices of similar securities[120](index=120&type=chunk)[126](index=126&type=chunk) Assets Measured at Fair Value on a Non-Recurring Basis (June 30, 2025, in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Collateral dependent loans | $— | $— | $1,582 | $1,582 | | Other real estate owned | $— | $— | $2,742 | $2,742 | - Collateral-dependent loans and other real estate owned are measured at fair value on a non-recurring basis, primarily using Level 3 inputs based on collateral appraisals and management adjustments[127](index=127&type=chunk)[128](index=128&type=chunk)[130](index=130&type=chunk) [Note 12— Accumulated Other Comprehensive Income (Loss)](index=39&type=section&id=Note%2012%E2%80%94%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note details the components and changes in accumulated other comprehensive income (loss), including unrealized gains or losses on securities and pension plan adjustments Changes in Accumulated Other Comprehensive Income (Loss) (Six Months Ended June 30, in thousands) | Component | 2025 | 2024 | | :--------------------------------------- | :----- | :----- | | Beginning Balance | $(95,720) | $(103,494) | | Net unrealized gains (losses) | $8,876 | $3,946 | | Less: net realized (gains) losses reclassified to earnings | $(984) | $(882) | | Net change in pension plan benefits | $(26) | $— | | Ending Balance | $(87,854) | $(100,430) | - Accumulated other comprehensive income (loss) improved from **$(95.7) million** at December 31, 2024, to **$(87.9) million** at June 30, 2025, primarily due to net unrealized gains on available-for-sale securities[136](index=136&type=chunk)[320](index=320&type=chunk) [Note 13— Other Operating Expense](index=41&type=section&id=Note%2013%E2%80%94%20Other%20Operating%20Expense) This note provides a breakdown of various operating expenses not categorized elsewhere, including regulatory assessments, consultant fees, and amortization Other Operating Expense (Six Months Ended June 30, in thousands) | Expense Category | 2025 | 2024 | | :--------------------------------------- | :----- | :----- | | FDIC & other regulatory assessments | $2,002 | $1,463 | | Consultant fees | $1,454 | $4,280 | | Donation expense | $84 | $5,119 | | Core deposit intangible amortization | $8,186 | $2,865 | | Other | $10,770 | $5,804 | | Total | $31,755 | $29,037 | - Total other operating expense increased to **$31.8 million** for the six months ended June 30, 2025, from **$29.0 million** in the prior year[138](index=138&type=chunk) - Merger-related expenses decreased to **zero** for the six months ended June 30, 2025, from **$9.5 million** in the prior year, contributing to the overall change in other operating expenses[138](index=138&type=chunk) - Core deposit intangible amortization significantly increased to **$8.2 million** in 2025 from **$2.9 million** in 2024[138](index=138&type=chunk) [Note 14— Share-Based Compensation](index=41&type=section&id=Note%2014%E2%80%94%20Share-Based%20Compensation) This note details the Company's share-based compensation plans, including costs recognized, unrecognized compensation, and assumed awards from mergers - Total share-based compensation cost charged against income was **$2.4 million** for the six months ended June 30, 2025, up from **$1.4 million** in the prior year[140](index=140&type=chunk) - The Company has two Stock Incentive Plans (2019 SIP and 2023 SIP) and an Employee Stock Purchase Plan (2023 ESPP) for equity compensation[141](index=141&type=chunk)[143](index=143&type=chunk)[148](index=148&type=chunk) - As of June 30, 2025, there was **$7.8 million** of total unrecognized compensation costs related to non-vested shares, expected to be recognized over a weighted average period of **1.48 years**[147](index=147&type=chunk) - The Company assumed Stock Appreciation Rights (SARs) as part of the Merger, with **$383.2 thousand** of unrecognized compensation costs remaining as of June 30, 2025[150](index=150&type=chunk)[151](index=151&type=chunk) [Note 15— Earnings Per Share](index=44&type=section&id=Note%2015%E2%80%94%20Earnings%20Per%20Share) This note provides a calculation of basic and diluted earnings per share, including the reconciliation of shares used in the computation Earnings Per Common Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :--------------------------------------- | :----- | :----- | | Net income (loss) applicable to common shares (in thousands) | $56,648 | $(11,932) | | Weighted average number of shares, basic | 14,987,732 | 9,803,684 | | Weighted average dilutive shares | 15,021,229 | 9,803,684 | | Basic earnings (loss) per common share | $3.78 | $(1.22) | | Diluted earnings (loss) per common share | $3.77 | $(1.22) | - Basic EPS for the six months ended June 30, 2025, was **$3.78**, a significant improvement from a loss of **$1.22** in the prior year[154](index=154&type=chunk) - Dilutive shares were **33,497** for the six months ended June 30, 2025, but were anti-dilutive in the prior year due to the net loss[154](index=154&type=chunk) [Note 16— Business Combination](index=44&type=section&id=Note%2016%E2%80%94%20Business%20Combination) This note details the Company's merger with Summit Financial Group, Inc., including the accounting method, goodwill, and intangible assets recognized - The Company completed its merger with Summit Financial Group, Inc. on May 3, 2024, accounted for using the acquisition method[155](index=155&type=chunk)[157](index=157&type=chunk) - Goodwill of **$34.1 million** was recognized in connection with the acquisition, which is not amortized but subject to annual impairment testing[157](index=157&type=chunk)[162](index=162&type=chunk) - The fair value of intangible assets related to core deposits was **$68.8 million** at acquisition, amortized over an estimated weighted average life of **7 years**[159](index=159&type=chunk)[165](index=165&type=chunk) - The total consideration paid for Summit was **$397.4 million**, including **7,405,772** shares of common stock and preferred stock[162](index=162&type=chunk) [Note 17— Goodwill and Other Intangible Assets](index=47&type=section&id=Note%2017%E2%80%94%20Goodwill%20and%20Other%20Intangible%20Assets) This note provides information on the Company's goodwill and other intangible assets, including changes in balances and amortization expense Goodwill and Other Intangible Assets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Goodwill, End of period | $34,149 | $32,783 | | Total core deposit intangible, End of period | $49,114 | $57,300 | | Total amortization expense (Six Months) | $8,186 | $2,865 | - Goodwill increased by **$1.3 million** to **$34.1 million** at June 30, 2025, due to an adjustment related to the Summit acquisition[158](index=158&type=chunk)[164](index=164&type=chunk) - Core deposit intangible assets decreased to **$49.1 million** at June 30, 2025, from **$57.3 million** at December 31, 2024, due to amortization[166](index=166&type=chunk) [Note 18— Segment Information](index=48&type=section&id=Note%2018%E2%80%94%20Segment%20Information) This note clarifies that the Company operates in a single reportable segment, Community Banking, as financial performance is evaluated on a Company-wide basis - The Company operates in a single reportable segment: Community Banking, as financial performance is evaluated on a Company-wide basis[168](index=168&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the Company's financial condition and operating results, including key performance drivers and merger impact, for periods ended June 30, 2025, and December 31, 2024 [Overview](index=50&type=section&id=Overview) This section provides a high-level summary of the Company's business, recent financial performance, and significant events like the Summit Financial Group merger - Burke & Herbert Financial Services Corp. is a financial holding company for Burke & Herbert Bank & Trust Company, operating in northern Virginia and West Virginia with over 77 branches[173](index=173&type=chunk)[174](index=174&type=chunk) - As of June 30, 2025, the Company reported total consolidated assets of **$8.1 billion**, gross loans of **$5.6 billion**, total deposits of **$6.4 billion**, and total shareholders' equity of **$780.0 million**[176](index=176&type=chunk) - The merger with Summit Financial Group, Inc. was completed on May 3, 2024, with Summit's operations included from the closing date forward[177](index=177&type=chunk)[178](index=178&type=chunk) [Critical Accounting Policies and Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses the accounting policies and estimates that require significant management judgment and can materially impact the Company's financial results - Key critical accounting estimates include business combination and goodwill, allowance for credit losses, and income taxes, which involve significant management judgment and assumptions[181](index=181&type=chunk) - Goodwill from acquisitions is recorded at fair value and reviewed annually for impairment, with valuation based on projected cash flows and discount rates[182](index=182&type=chunk)[183](index=183&type=chunk) - The Allowance for Credit Losses (ACL) is estimated quarterly using a Weighted Average Remaining Maturity (WARM) method, incorporating historical experience, current conditions, and macroeconomic forecasts[185](index=185&type=chunk)[186](index=186&type=chunk)[188](index=188&type=chunk) [Non-GAAP Financial Measures](index=53&type=section&id=Non-GAAP%20Financial%20Measures) This section explains the Company's use of non-GAAP financial measures to supplement GAAP information, providing additional insights into financial condition and operating performance - The Company presents non-GAAP financial measures to provide additional useful information for assessing financial condition and operating performance, noting they are not substitutes for GAAP measures[193](index=193&type=chunk) [Commercial Real Estate Sector Concentration](index=53&type=section&id=Commercial%20Real%20Estate%20Sector%20Concentration) This section details the Company's exposure to the Commercial Real Estate (CRE) sector, including loan balances, geographic concentrations, and risk management practices - The Company's exposure to Commercial Real Estate (CRE) was **$2.8 billion** (**49.5%** of gross loans) at June 30, 2025, excluding owner-occupied and acquisition, construction & development loans[194](index=194&type=chunk)[195](index=195&type=chunk) - Including owner-occupied and acquisition, construction & development, total CRE exposure was **$3.7 billion** (**66.8%** of gross loans) and **46.4%** of total assets[194](index=194&type=chunk)[195](index=195&type=chunk) - The largest concentration of CRE loans is in Virginia (approximately **47.4%**), with office buildings/condos representing **16.6%** of total CRE loans[197](index=197&type=chunk)[199](index=199&type=chunk)[201](index=201&type=chunk) - The Company actively monitors its CRE portfolio through credit risk and concentration reports, assessing asset quality and risk rating migration against board-approved limits[195](index=195&type=chunk)[200](index=200&type=chunk) [Liquidity Management](index=56&type=section&id=Liquidity%20Management) This section describes the Company's approach to managing liquidity, ensuring sufficient funds to meet obligations, and outlines primary liquidity sources and assessment methods - Liquidity management involves maintaining the ability to meet customer cash flow requirements and is assessed quarterly through various scenarios, including projected growth, credit deterioration, and interest rate changes[202](index=202&type=chunk)[203](index=203&type=chunk) - Primary liquidity sources include unencumbered AFS securities, loan payments, and deposit accounts, supplemented by FHLB and other borrowings[205](index=205&type=chunk)[206](index=206&type=chunk) - The Company's primary source of liquidity is dividends from the Bank, subject to regulatory restrictions and capital plans[207](index=207&type=chunk) [Capital](index=57&type=section&id=Capital) This section discusses the Company's capital structure and compliance with regulatory capital requirements, including Basel III standards and 'well capitalized' status - The Company and the Bank are subject to Basel III regulatory capital requirements, including minimum CET 1, Tier 1, and Total Capital ratios, along with a capital conservation buffer[209](index=209&type=chunk)[210](index=210&type=chunk) - As of June 30, 2025, the Bank complied with all regulatory capital standards and qualifies as 'well capitalized' under prompt corrective action regulations[213](index=213&type=chunk) [Effects of Inflation](index=57&type=section&id=Effects%20of%20Inflation) This section addresses the impact of inflation on the Company's financial results, particularly its ability to manage interest rate changes and their effect on net interest income - Inflation's most significant impact on financial results is the Company's ability to manage interest rate changes, aiming to balance rate-sensitive assets and liabilities to minimize impact on net interest income[215](index=215&type=chunk) [Key Factors Affecting Financial Performance](index=57&type=section&id=Key%20Factors%20Affecting%20Financial%20Performance) This section identifies the internal and external factors that significantly influence the Company's financial performance and operational outcomes - Internal factors affecting performance include managing capital and liquidity, controlling costs, managing credit and interest rate risk, attracting customers, and adapting to regulatory changes[218](index=218&type=chunk) - External factors include economic conditions, market volatility, actions by federal agencies (Federal Reserve, U.S. Treasury), interest rate movements, competitive landscape, and governmental policy changes[218](index=218&type=chunk) [Selected Financial Data](index=60&type=section&id=Selected%20Financial%20Data) This section presents a summary of key financial condition and operating data, providing a concise overview of the Company's performance over specified periods Selected Financial Condition Data (in thousands) | Metric | June 30, 2025 | June 30, 2024 | | :--------------------------------------- | :------------ | :------------ | | Total assets | $8,053,084 | $7,810,193 | | Total deposits | $6,390,974 | $6,639,571 | | Total shareholders' equity | $780,018 | $693,126 | Selected Operating Data (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :--------------------------------------- | :----- | :----- | | Net interest income | $147,220 | $81,896 | | Net income (loss) applicable to common shares | $56,648 | $(11,932) | | Diluted net income (loss) per common share | $3.77 | $(1.22) | | Return on average assets | 1.46% | (0.48)% | | Return on average equity | 15.04% | (5.52)% | | Net interest margin | 4.17% | 3.56% | | Efficiency ratio | 58.18% | 89.49% | [Results of Operations for the Six Months Ended June 30, 2025, and June 30, 2024](index=62&type=section&id=Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%2C%20and%20June%2030%2C%202024) This section analyzes the Company's financial performance for the six-month periods ended June 30, 2025, and June 30, 2024, highlighting key income and expense trends - Net income applicable to common shares increased by **$68.6 million** to **$56.6 million** for the six months ended June 30, 2025, compared to a net loss of **$11.9 million** in the prior year, primarily due to the full six months of combined income after the Merger and lower merger-related expenses[226](index=226&type=chunk) [General](index=62&type=section&id=General_SixMonths) This sub-section provides a general overview of the Company's financial performance for the six months ended June 30, 2025, compared to the prior year - Net income applicable to common shares for the six months ended June 30, 2025, was **$56.6 million**, a **$68.6 million** increase from a net loss of **$11.9 million** in the prior year, reflecting a full six months of combined income after the Merger and reduced merger-related expenses[226](index=226&type=chunk) [Net Interest Income and Net Interest Margin](index=62&type=section&id=Net%20Interest%20Income%20and%20Net%20Interest%20Margin_SixMonths) This sub-section analyzes the Company's net interest income and net interest margin, explaining the factors influencing changes in these key profitability metrics - Net interest income increased by **$65.3 million** to **$147.2 million** for the six months ended June 30, 2025, driven by a full six months of combined income after the Merger, higher rates on interest-earning assets, and higher accretion income[227](index=227&type=chunk)[233](index=233&type=chunk) - The tax-adjusted net interest margin increased to **4.17%** for the six months ended June 30, 2025, from **3.56%** in the prior year[234](index=234&type=chunk) - Accretion income from acquired loans and borrowings totaled **$23.0 million** in 2025, up from **$13.3 million** in 2024[233](index=233&type=chunk) - The yield on interest-bearing deposits decreased to **2.47%** in 2025 from **2.73%** in 2024, due to lower market interest rates[237](index=237&type=chunk) [Interest Income](index=66&type=section&id=Interest%20Income_SixMonths) This sub-section details the components of the Company's interest income, including contributions from loans, securities, and other interest-earning assets - Total interest income increased by **65.1%** to **$222.6 million** for the six months ended June 30, 2025, primarily due to the full six months of combined income after the Merger, higher rates on interest-earning assets, and increased accretion income[249](index=249&type=chunk) - Interest income on loans increased by **$84.2 million**, and accretion income from acquired loans and borrowings was **$23.0 million**[249](index=249&type=chunk) [Interest Expense](index=66&type=section&id=Interest%20Expense_SixMonths) This sub-section analyzes the Company's interest expense, breaking down costs associated with interest-bearing deposits, borrowings, and other liabilities - Total interest expense increased to **$75.4 million** for the six months ended June 30, 2025, from **$52.9 million** in the prior year, driven by combined operations after the Merger, partially offset by lower rates on interest-bearing liabilities[250](index=250&type=chunk) - Interest expense on interest-bearing deposits increased by **$19.0 million**, and on subordinated debt by **$3.6 million**[250](index=250&type=chunk) [Provision for (Recapture of) Credit Losses](index=66&type=section&id=Provision%20for%20(Recapture%20of)%20Credit%20Losses_SixMonths) This sub-section discusses the Company's provision for credit losses, explaining changes in the allowance for credit losses and the impact of specific events like the CECL Day 2 provision - The provision for credit losses was **$1.1 million** for the six months ended June 30, 2025, a significant decrease from **$23.2 million** in the prior year, which included a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger[251](index=251&type=chunk) [Non-interest Income](index=67&type=section&id=Non-interest%20Income_SixMonths) This sub-section examines the Company's non-interest income, detailing revenue streams from sources other than interest, such as service charges, fees, and other operating income - Non-interest income increased by **66.4%** to **$22.9 million** for the six months ended June 30, 2025, compared to **$13.8 million** in the prior year, primarily due to a full six months of combined income after the Merger[229](index=229&type=chunk)[252](index=252&type=chunk) - Income from company-owned life insurance increased by **$2.7 million**, and bank debit and other card revenue increased by **$2.3 million**[252](index=252&type=chunk) [Non-interest Expense](index=67&type=section&id=Non-interest%20Expense_SixMonths) This sub-section analyzes the Company's non-interest expenses, including salaries, occupancy costs, data processing, and other operational expenditures - Non-interest expense increased by **$13.4 million**, or **15.6%**, to **$99.0 million** for the six months ended June 30, 2025, reflecting a full six months of combined operations after the Merger, partially offset by merger cost savings[230](index=230&type=chunk)[253](index=253&type=chunk) - Salaries and wages increased by **$11.8 million**, and occupancy costs increased by **$3.0 million**[253](index=253&type=chunk) - Equipment rentals, depreciation and maintenance decreased by **$5.8 million**[253](index=253&type=chunk) [Income Tax Expense](index=67&type=section&id=Income%20Tax%20Expense_SixMonths) This sub-section discusses the Company's income tax expense, including the effective tax rate and factors influencing changes in tax liabilities - Income tax expense was **$12.9 million** for the six months ended June 30, 2025, an increase of **$14.4 million** from a tax benefit in the prior year, due to increased net income and additional state taxes post-Merger[254](index=254&type=chunk) - The effective tax rate for the six months ended June 30, 2025, was **18.5%**, compared to an effective tax benefit of **11.2%** in the prior year[254](index=254&type=chunk) [Results of Operations for the Three Months Ended June 30, 2025, and June 30, 2024](index=68&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025%2C%20and%20June%2030%2C%202024) This section analyzes the Company's financial performance for the three-month periods ended June 30, 2025, and June 30, 2024, highlighting key income and expense trends - Net income applicable to common shares for the three months ended June 30, 2025, was **$29.7 million**, a **$46.8 million** increase from a net loss of **$17.1 million** in the prior year, reflecting a full three months of combined income after the Merger and reduced merger-related expenses[255](index=255&type=chunk) [General](index=68&type=section&id=General_ThreeMonths) This sub-section provides a general overview of the Company's financial performance for the three months ended June 30, 2025, compared to the prior year - Net income applicable to common shares for the three months ended June 30, 2025, was **$29.7 million**, a **$46.8 million** increase from a net loss of **$17.1 million** in the prior year, reflecting a full three months of combined income after the Merger and reduced merger-related expenses[255](index=255&type=chunk) [Net Interest Income and Net Interest Margin](index=68&type=section&id=Net%20Interest%20Income%20and%20Net%20Interest%20Margin_ThreeMonths) This sub-section analyzes the Company's net interest income and net interest margin, explaining the factors influencing changes in these key profitability metrics - Net interest income increased by **$14.5 million** to **$74.2 million** for the three months ended June 30, 2025, driven by a full three months of combined income after the Merger and lower rates on interest-bearing liabilities[256](index=256&type=chunk)[262](index=262&type=chunk) - The tax-adjusted net interest margin increased to **4.17%** for the three months ended June 30, 2025, from **4.06%** in the prior year[263](index=263&type=chunk) - Accretion income from acquired loans and borrowings totaled **$11.5 million** in 2025, compared to **$13.4 million** in 2024[262](index=262&type=chunk) - The yield on interest-bearing deposits decreased to **2.41%** in 2025 from **2.90%** in 2024, due to lower market interest rates[266](index=266&type=chunk) [Interest Income](index=72&type=section&id=Interest%20Income_ThreeMonths) This sub-section details the components of the Company's interest income, including contributions from loans, securities, and other interest-earning assets - Total interest income increased by **16.4%** to **$111.9 million** for the three months ended June 30, 2025, primarily due to a full three months of combined income after the Merger[278](index=278&type=chunk) - Interest income on loans increased by **$15.1 million**, while interest income on securities decreased by **$0.2 million**[278](index=278&type=chunk) [Interest Expense](index=72&type=section&id=Interest%20Expense_ThreeMonths) This sub-section analyzes the Company's interest expense, breaking down costs associated with interest-bearing deposits, borrowings, and other liabilities - Total interest expense increased to **$37.6 million** for the three months ended June 30, 2025, from **$36.3 million** in the prior year, driven by combined operations after the Merger, partially offset by lower rates on interest-bearing liabilities[279](index=279&type=chunk) - Interest expense on interest-bearing deposits increased by **$0.1 million**, and on subordinated debt by **$0.8 million**[279](index=279&type=chunk) [Provision for (Recapture of) Credit Losses](index=72&type=section&id=Provision%20for%20(Recapture%20of)%20Credit%20Losses_ThreeMonths) This sub-section discusses the Company's provision for credit losses, explaining changes in the allowance for credit losses and the impact of specific events like the CECL Day 2 provision - The provision for credit losses was **$0.6 million** for the three months ended June 30, 2025, a significant decrease from **$23.9 million** in the prior year, which included a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger[280](index=280&type=chunk) [Non-interest Income](index=73&type=section&id=Non-interest%20Income_ThreeMonths) This sub-section examines the Company's non-interest income, detailing revenue streams from sources other than interest, such as service charges, fees, and other operating income - Non-interest income increased by **35.5%** to **$12.9 million** for the three months ended June 30, 2025, compared to **$9.5 million** in the prior year, primarily due to a full three months of combined income after the Merger[258](index=258&type=chunk)[281](index=281&type=chunk) - Income from company-owned life insurance increased by **$2.1 million**, driven by increased collection of death proceeds[281](index=281&type=chunk) [Non-interest Expense](index=73&type=section&id=Non-interest%20Expense_ThreeMonths) This sub-section analyzes the Company's non-interest expenses, including salaries, occupancy costs, data processing, and other operational expenditures - Non-interest expense decreased by **$15.1 million**, or **23.5%**, to **$49.3 million** for the three months ended June 30, 2025, compared to **$64.4 million** in the prior year, primarily due to merger cost savings[259](index=259&type=chunk)[282](index=282&type=chunk) - Equipment rentals, depreciation and maintenance decreased by **$8.6 million**[282](index=282&type=chunk) [Income Tax Expense](index=73&type=section&id=Income%20Tax%20Expense_ThreeMonths) This sub-section discusses the Company's income tax expense, including the effective tax rate and factors influencing changes in tax liabilities - Income tax expense was **$7.3 million** for the three months ended June 30, 2025, an increase of **$9.4 million** from a tax benefit in the prior year, due to increased net income and additional state taxes post-Merger[283](index=283&type=chunk) - The effective tax rate for the three months ended June 30, 2025, was **19.6%**, compared to an effective tax benefit of **11.3%** in the prior year[283](index=283&type=chunk) [Analysis of Financial Condition for the Period Ended June 30, 2025, and December 31, 2024](index=74&type=section&id=Analysis%20of%20Financial%20Condition%20for%20the%20Period%20Ended%20June%2030%2C%202025%2C%20and%20December%2031%2C%202024) This section provides a detailed analysis of the Company's balance sheet, comparing financial condition at June 30, 2025, with December 31, 2024 - Total assets increased by **$240.9 million** to **$8.05 billion** as of June 30, 2025, compared to **$7.81 billion** as of December 31, 2024[284](index=284&type=chunk) - Loans, net of ACL, decreased by **$81.0 million** to **$5.5 billion**, while deposits decreased by **$124.3 million** to **$6.4 billion**[284](index=284&type=chunk) - Short-term borrowings increased by **$285.0 million** to **$650.0 million**[284](index=284&type=chunk) [Investment Securities](index=74&type=section&id=Investment%20Securities_FinancialCondition) This sub-section analyzes changes in the Company's investment securities portfolio, including fair value movements and unrealized gains or losses - The fair value of the AFS investment portfolio increased, and unrealized losses decreased by **$7.9 million** during the six months ended June 30, 2025[286](index=286&type=chunk) - The Company determined that declines in market value were due to interest rate increases and market movements, not credit factors, thus no ACL was required for AFS securities[287](index=287&type=chunk) - The overall weighted average duration of the investment portfolio was **4.6 years** at June 30, 2025[290](index=290&type=chunk) [Lending Activities](index=75&type=section&id=Lending%20Activities_FinancialCondition) This sub-section discusses trends in the Company's loan portfolio, including changes in gross loans and the composition of lending segments - The loan portfolio, excluding ACL, decreased by **$81.8 million** from December 31, 2024, to June 30, 2025, primarily due to exiting loans that do not align with the Company's desired risk profile[293](index=293&type=chunk) - The loan portfolio consists primarily of commercial real estate loans, with a variety of products offered to meet borrower needs[292](index=292&type=chunk) [Asset Quality](index=76&type=section&id=Asset%20Quality_FinancialCondition) This sub-section provides an analysis of the Company's asset quality, including non-performing assets, non-accrual loans, and loans past due Non-Performing Assets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Non-accrual loans | $81,059 | $35,871 | | 90 days past due and still accruing | $4,472 | $2,497 | | Total non-performing loans | $85,531 | $38,368 | | Other real estate owned | $2,742 | $2,783 | | Total non-performing assets | $88,273 | $41,151 | - Total non-performing assets increased by **$47.1 million** to **$88.3 million** at June 30, 2025, from **$41.2 million** at December 31, 2024[298](index=298&type=chunk) - Non-accrual loan balances increased by **$45.2 million**, and loans 90 days past due and still accruing increased by **$2.0 million**[298](index=298&type=chunk) [Allowance for Credit Losses](index=77&type=section&id=Allowance%20for%20Credit%20Losses_FinancialCondition) This sub-section analyzes the Company's allowance for credit losses, including changes in the provision, charge-offs, and the ACL as a percentage of gross loans - The ACL as a percentage of gross loans, net of unearned income, was **1.20%** at June 30, 2025, compared to **1.21%** at June 30, 2024[303](index=303&type=chunk) - The Company recorded a provision expense of **$0.7 million** on loans for the three months ended June 30, 2025, compared to **$20.1 million** in the prior year, which included a **$23.9 million** provision for acquired PCD loans[302](index=302&type=chunk) - Net loan charge-offs increased to **$1.2 million** for the three months ended June 30, 2025, from **$0.6 million** in the prior year[305](index=305&type=chunk) [Derivative Financial Instruments](index=79&type=section&id=Derivative%20Financial%20Instruments_FinancialCondition) This sub-section discusses the Company's derivative financial instruments, their fair value recognition, and their role in managing interest rate risk - The Company recognizes derivative financial instruments at fair value as either other assets or accrued interest and other liabilities on the Consolidated Balance Sheets[309](index=309&type=chunk) [Off-Balance Sheet Arrangements](index=79&type=section&id=Off-Balance%20Sheet%20Arrangements_FinancialCondition) This sub-section describes the Company's off-balance sheet arrangements, such as commitments to extend credit and letters of credit, and their associated risks - Off-balance sheet arrangements include commitments to extend credit, standby letters of credit, and financial guarantees, which involve credit and interest rate risk[310](index=310&type=chunk) [Funding Activities](index=79&type=section&id=Funding%20Activities_FinancialCondition) This sub-section analyzes the Company's funding sources, including deposits and various borrowings, and its available borrowing capacity - Deposits are the primary source of funds, supplemented by borrowings from the FHLB, Federal Reserve Borrower-In-Custody program, and federal funds lines of credit[311](index=311&type=chunk)[312](index=312&type=chunk) - As of June 30, 2025, the Company had **$4.1 billion** in unused borrowing capacity[313](index=313&type=chunk) Short-term and Long-term Borrowings (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Short-term borrowings | $650,000 | $365,000 | | Weighted average interest yield (short-term) | 3.91% | 3.35% | | Total long-term debt | $114,692 | $111,885 | | Weighted average interest yield (long-term) | 9.62% | 10.08% | [Deposits](index=80&type=section&id=Deposits_FinancialCondition) This sub-section analyzes trends in the Company's deposit base, including changes in total deposits, brokered deposits, and uninsured deposit levels - Total deposits decreased by **$124.3 million** from December 31, 2024, to June 30, 2025, primarily due to a **$112.7 million** decrease in brokered deposits[315](index=315&type=chunk) - Brokered time deposits decreased to **$132.1 million** at June 30, 2025, from **$244.8 million** at December 31, 2024[315](index=315&type=chunk) - The Company has **$2.0 billion** in deposits exceeding the FDIC insurance limit at June 30, 2025[317](index=317&type=chunk) [Shareholders' Equity](index=81&type=section&id=Shareholders'%20Equity_FinancialCondition) This sub-section discusses changes in the Company's shareholders' equity, including the impact of earnings and accumulated other comprehensive income (loss) - Total shareholders' equity increased by **$49.9 million** to **$780.0 million** at June 30, 2025, from **$730.2 million** at December 31, 2024, mainly due to increased earnings[320](index=320&type=chunk) - Accumulated other comprehensive income/(loss) improved by **$7.9 million**, from **$(95.7) million** to **$(87.9) million**, due to a decrease in unrealized losses in the securities portfolio[320](index=320&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=82&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the Company's exposure to market risk, primarily interest rate risk, and its strategies for management, including quantitative analyses of interest rate sensitivity and economic value of equity under various scenarios [Market Risk](index=82&type=section&id=Market%20Risk) This section defines the Company's market risk, primarily interest rate risk, and outlines the objectives and governance structure for its management - Market risk primarily stems from interest rate risk in lending, investment, and deposit-taking activities, which is actively monitored and managed by the Asset/Liability Committee (ALCO) and the Board[322](index=322&type=chunk) - The primary objective is to minimize the adverse impact of interest rate changes on net interest income and capital, while maximizing the yield-cost spread[323](index=323&type=chunk) [Interest Rate Sensitivity](index=82&type=section&id=Interest%20Rate%20Sensitivity) This section analyzes the Company's interest rate sensitivity, detailing how changes in interest rates could impact earnings and the economic value of equity - Interest rate risk arises from repricing mismatches, embedded options, yield curve changes, and basis risk, impacting interest expense, income, and asset/liability values[325](index=325&type=chunk)[326](index=326&type=chunk) - The Company uses interest rate sensitivity analysis, market value of portfolio equity analysis, and interest rate simulations to manage interest rate risk[329](index=329&type=chunk) Estimated Percentage Change in Earnings from Parallel Interest Rate Shift (Next 12 Months) | Change in Interest Rates (in Basis Points) | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | 200 | (2.7)% | (2.1)% | | 100 | (1.1)% | (0.7)% | | (100) | 0.1% | 0.5% | | (200) | (0.3)% | 0.5% | | (300) | (0.2)% | 0.5% | Estimated Percentage Change in Economic Value of Equity (EVE) from Parallel Interest Rate Shift | Change in Interest Rates (in Basis Points) | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | 200 | (8.1)% | (8.7)% | | 100 | (3.7)% | (3.6)% | | (100) | 2.7% | 1.9% | | (200) | 3.2% | 0.5% | | (300) | 2.2% | (3.4)% | [Item 4. Controls and Procedures](index=85&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, concluding they are effective, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated as effective as of June 30, 2025, ensuring timely and accurate reporting[335](index=335&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[336](index=336&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=86&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in routine legal claims and proceedings incidental to its business, but management believes that any liabilities arising from currently pending or threatened litigation will not have a material adverse effect on the Company's financial position - The Company is not party to any material legal proceedings, and none are threatened, with management believing any liabilities will not be material[338](index=338&type=chunk) [Item 1A. Risk Factors](index=86&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to risk factors were reported since the December 31, 2024, Form 10-K filing[339](index=339&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=86&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company's Board authorized a $50.0 million share repurchase program on April 25, 2025, but no open market or private purchases were made under this program for the six months ended June 30, 2025, though some shares were transferred from employees for tax withholding - A **$50.0 million** share repurchase program was authorized on April 25, 2025[340](index=340&type=chunk)[342](index=342&type=chunk) - No shares were purchased under the repurchase program for the six months ended June 30, 2025[340](index=340&type=chunk)[342](index=342&type=chunk) - **354** shares in April and **8,563** shares in May were transferred from employees to satisfy tax withholding obligations related to restricted stock unit vesting[341](index=341&type=chunk) [Item 3. Defaults Upon Senior Securities](index=86&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[343](index=343&type=chunk) [Item 4. Mine Safety Disclosures](index=86&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[344](index=344&type=chunk) [Item 5. Other Information](index=86&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[345](index=345&type=chunk) [Item 6. Exhibits](index=87&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, offer letters, certifications (CEO, CFO), and Inline XBRL financial statements - Exhibits include corporate governance documents, executive offer letters, Sarbanes-Oxley certifications, and Inline XBRL formatted financial statements[346](index=346&type=chunk) [Signatures](index=88&type=section&id=Signatures) The report is duly signed on behalf of Burke & Herbert Financial Services Corp. by its Chairman of the Board and Chief Executive Officer, David P. Boyle, and Executive Vice President, Chief Financial Officer, Roy E. Halyama, on August 8, 2025 - The report was signed by David P. Boyle, Chairman of the Board and CEO, and Roy E. Halyama, EVP and CFO, on August 8, 2025[349](index=349&type=chunk)

Financial Performance - Net income reached $299 million[20] - Diluted earnings per share (EPS) amounted to $197[20] - The net interest margin stood at 417%[20] - Return on average assets was 151%[10] - Return on average equity was 1550%[10] Balance Sheet & Capitalization - Total assets reached $81 billion[10] - Total gross loans amounted to $56 billion[10] - Total deposits reached $64 billion[10] - The loan-to-deposit ratio was 875%[20,37] - Uninsured deposits represented 307% of total deposits, totaling $196 billion[20,37] - Total risk-based capital ratio was 1526%[20]

Financial Performance - Burke & Herbert Financial Services reported quarterly earnings of $1.97 per share, exceeding the Zacks Consensus Estimate of $1.85 per share, but down from $2.04 per share a year ago, representing an earnings surprise of +6.49% [1] - The company posted revenues of $87.11 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 1.41%, compared to year-ago revenues of $69.27 million [2] Stock Performance - Burke & Herbert shares have increased approximately 4.1% since the beginning of the year, while the S&P 500 has gained 8.1% [3] - The current status of estimate revisions for Burke & Herbert translates into a Zacks Rank 4 (Sell), indicating expected underperformance in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $1.93 on revenues of $87.4 million, and for the current fiscal year, it is $7.53 on revenues of $344.4 million [7] - The outlook for the Financial - Miscellaneous Services industry is favorable, ranking in the top 38% of over 250 Zacks industries, suggesting that stocks in the top 50% outperform those in the bottom 50% by more than 2 to 1 [8]

[Q2 2025 Earnings Announcement & Highlights](index=1&type=section&id=Q2%202025%20Earnings%20Announcement%20%26%20Highlights) Burke & Herbert Financial Services Corp. reported increased net income for Q2 2025 and declared a cash dividend of $0.55 per common share [1.1. Q2 2025 Overview](index=1&type=section&id=1.1.%20Q2%202025%20Overview) The company announced its Q2 2025 financial results, including a cash dividend payment and a focus on strategic financial management - The company declared a **cash dividend of $0.55 per common share**, payable on September 2, 2025, to shareholders of record as of August 15, 2025[1](index=1&type=chunk) [1.2. CEO Commentary](index=1&type=section&id=1.2.%20CEO%20Commentary) The CEO expressed satisfaction with H1 2025 performance, highlighting a strong balance sheet, strategic loan replacement, and future expansion plans - Strategic focus included successfully replacing non-strategic loans with relationship-based assets, maintaining **ample liquidity**, **robust capital ratios**, and **sufficient loss reserves**[3](index=3&type=chunk) - Future investments include planned expansion in Bethesda, Maryland, and Fredericksburg and Richmond, Virginia[3](index=3&type=chunk) [1.3. Key Financial Highlights](index=1&type=section&id=1.3.%20Key%20Financial%20Highlights) Q2 2025 saw increased net income and diluted EPS compared to Q1 2025, alongside strong profitability metrics and robust capital ratios Q2 2025 vs Q1 2025 Financial Performance Comparison | Metric | Q2 2025 | Q1 2025 | | :-------------------------------- | :------ | :------ | | Net Income Applicable to Common Shares | $29.7 million | $27.0 million | | Diluted EPS | $1.97 | $1.80 | | Annualized Return on Average Assets | 1.51% | N/A | | Annualized Return on Average Equity | 15.50% | N/A | | Net Interest Margin (non-GAAP) | 4.17% | N/A | Balance Sheet Strength as of June 30, 2025 | Metric | Value | | :-------------------- | :---------- | | Ending Total Gross Loans | $5.6 billion | | Ending Total Deposits | $6.4 billion | | Ending Loan-to-Deposit Ratio | 87.5% | | Total Liquidity | $4.4 billion | Capital Ratios as of June 30, 2025 | Metric | Ratio | Well-Capitalized Requirement | | :-------------------------------- | :------ | :--------------------------- | | Common Equity Tier 1 Capital to RWA | 12.2% | 6.5% | | Total Risk-Based Capital to RWA | 15.3% | 10% | | Leverage Ratio | 10.4% | 5% | [Results of Operations (Q2 2025 vs Q1 2025)](index=1&type=section&id=Results%20of%20Operations%20(Q2%202025%20vs%20Q1%202025)) This section details the company's financial performance in Q2 2025 compared to Q1 2025, covering income, balance sheet, and credit quality [2.1. Net Income and EPS Performance](index=1&type=section&id=2.1.%20Net%20Income%20and%20EPS%20Performance) Net income applicable to common shares increased to $29.7 million in Q2 2025, with diluted EPS rising to $1.97 from $1.80 in Q1 2025 Net Income and EPS Growth | Metric | Q2 2025 | Q1 2025 | | :-------------------------------- | :------ | :------ | | Net Income Applicable to Common Shares | $29.7 million | $27.0 million | | Diluted EPS | $1.97 | $1.80 | [2.2. Balance Sheet Dynamics](index=2&type=section&id=2.2.%20Balance%20Sheet%20Dynamics) Total gross loans decreased due to non-strategic loan divestitures, while total deposits also declined, primarily driven by a reduction in brokered deposits - Loan portfolio changes (Q2 2025 vs Q1 2025): - Ending total gross loans decreased by **$57.1 million to $5.6 billion**[9](index=9&type=chunk) - Approximately **$90.8 million** in non-strategic loans were divested[9](index=9&type=chunk) - **$200 million** in new relationship-based loans were originated[9](index=9&type=chunk) - Deposit portfolio changes (Q2 2025 vs Q1 2025): - Ending total deposits decreased by **$150.9 million to $6.4 billion**[9](index=9&type=chunk) - Primarily due to a **$114.8 million** decrease in brokered deposits[9](index=9&type=chunk) [2.3. Net Interest Income and Net Interest Margin Analysis](index=2&type=section&id=2.3.%20Net%20Interest%20Income%20and%20Net%20Interest%20Margin%20Analysis) Net interest income slightly increased to $74.2 million in Q2 2025, driven by lower interest expense and higher securities interest income, while net interest margin (non-GAAP) marginally decreased Net Interest Income (Q2 2025 vs Q1 2025) | Metric | Q2 2025 | Q1 2025 | Change | | :---------------- | :------ | :------ | :----- | | Net Interest Income | $74.2 million | $73.0 million | +$1.2 million | | Interest Expense | Decreased by $0.2 million | | | | Interest Income | Increased by $1.1 million | | | - Net Interest Margin (non-GAAP) (Q2 2025 vs Q1 2025): - Decreased from **4.18% to 4.17%**[9](index=9&type=chunk) - Primarily attributed to a decrease in loan portfolio yields, offset by an increase in securities portfolio yields and a decrease in interest-bearing liability yields[9](index=9&type=chunk) - Total Cost of Deposits (Q2 2025 vs Q1 2025): - Decreased from **1.99% to 1.90%**[9](index=9&type=chunk) - Mainly due to a **$0.8 million** reduction in acquired time deposit amortization and lower rates on savings and brokered time deposits[9](index=9&type=chunk) [2.4. Non-Interest Income and Expense](index=2&type=section&id=2.4.%20Non-Interest%20Income%20and%20Expense) Total non-interest income significantly increased to $12.9 million in Q2 2025, driven by life insurance death benefits and card network revenue, while non-interest expense slightly decreased due to merger-related cost savings Total Non-Interest Income (Q2 2025 vs Q1 2025) | Metric | Q2 2025 | Q1 2025 | Change | | :-------------------- | :------ | :------ | :----- | | Total Non-Interest Income | $12.9 million | $10.0 million | +$2.9 million | | Drivers | Company-owned life insurance death benefits (+$1.8 million), bank card network partnership income (+$1.3 million), additional swap income | | | Non-Interest Expense (Q2 2025 vs Q1 2025) | Metric | Q2 2025 | Q1 2025 | Change | | :------------------ | :------ | :------ | :----- | | Non-Interest Expense | $49.3 million | $49.7 million | -$0.4 million | | Reason | Cost savings realized following the Q4 2024 merger-related conversion | | | [2.5. Credit Quality and Provision](index=2&type=section&id=2.5.%20Credit%20Quality%20and%20Provision) The company recorded a $0.624 million provision for credit losses in Q2 2025, maintaining an allowance of $67.3 million, representing 1.2% of total loans, with asset quality within moderate risk parameters - Provision for credit losses (Q2 2025): **$0.624 million**[9](index=9&type=chunk) - Allowance for credit losses (as of June 30, 2025): **$67.3 million**, representing **1.2% of total loans**[9](index=9&type=chunk) - Asset quality metrics remained within the company's moderate risk parameters, supported by **ample reserves**[6](index=6&type=chunk) [2.6. Capital Adequacy](index=2&type=section&id=2.6.%20Capital%20Adequacy) Burke & Herbert Financial Services Corp. and its subsidiary bank maintained strong capital positions, with all regulatory capital ratios significantly exceeding minimum requirements Company Capital Ratios (as of June 30, 2025) | Metric | Ratio | Well-Capitalized Requirement | | :-------------------------------- | :------ | :--------------------------- | | Common Equity Tier 1 Capital to RWA | 12.2% | 6.5% | | Total Risk-Based Capital to RWA | 15.3% | 10% | | Leverage Ratio | 10.4% | 5% | Bank Subsidiary Capital Ratios (as of June 30, 2025) | Metric | Ratio | | :-------------------------------- | :------ | | Common Equity Tier 1 Capital to RWA | 14.0% | | Total Risk-Based Capital to RWA | 15.1% | | Leverage Ratio | 11.5% | [Company Information](index=3&type=section&id=Company%20Information) This section provides an overview of Burke & Herbert Financial Services Corp., highlighting its historical significance and extensive service offerings [3.1. About Burke & Herbert](index=3&type=section&id=3.1.%20About%20Burke%20%26%20Herbert) Burke & Herbert Financial Services Corp. is the financial holding company for Burke & Herbert Bank & Trust Company, the oldest continuously operating bank in the D.C. metropolitan area - Company structure: Financial holding company for **Burke & Herbert Bank & Trust Company**[11](index=11&type=chunk) - Historical significance: The **oldest continuously operating bank** under its original name in the Washington D.C. metropolitan area[11](index=11&type=chunk) - Business scope and products: Over **75 branches** across Delaware, Kentucky, Maryland, Virginia, and West Virginia, offering a full range of commercial and personal financial solutions[11](index=11&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section contains cautionary notes regarding forward-looking statements, which are subject to various risks and uncertainties, and the company disclaims any obligation to update them [4.1. Cautionary Note](index=3&type=section&id=4.1.%20Cautionary%20Note) This report includes forward-looking statements about future financial performance and strategic objectives, which are inherently subject to various risks and uncertainties - Nature of statements: Includes beliefs, goals, intentions, and expectations regarding revenue, earnings, EPS, loan originations, asset quality, capital levels, estimates of future action costs and benefits, assessments of expected loan losses, evaluations of interest rate and other market risks, and the ability to achieve financial and strategic objectives, along with other non-historical facts[12](index=12&type=chunk) - Disclaimer: Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from these statements; the company undertakes no obligation to update these statements, except as required by law[13](index=13&type=chunk) [4.2. Risks and Uncertainties](index=3&type=section&id=4.2.%20Risks%20and%20Uncertainties) Factors that could cause actual results to differ from forward-looking statements include economic and market trends, increased competition, changes in consumer behavior, and regulatory and technological risks - Economic and market risks: Changes in general economic, political, or market trends (nationally or within the company's operating areas), including **inflation, interest rates, market volatility, and currency fluctuations**, as well as changes in federal government policies and practices[14](index=14&type=chunk)[15](index=15&type=chunk) - Operational and business risks: Costs or difficulties associated with new business development or acquisitions; **increased competition**; changes in consumer confidence and demand for financial services, including changes in consumer borrowing, repayment, investment, and deposit habits; changes in asset quality and credit risk; the company's ability to control costs and expenses; adverse developments in borrower industries or declines in real estate values[14](index=14&type=chunk)[15](index=15&type=chunk) - Regulatory and technological risks: Changes in and compliance with federal and state laws and regulations related to the company's business and capital levels; the company's ability to raise capital as needed; the impact, extent, and timing of technological changes; and the impact of any cybersecurity breaches[15](index=15&type=chunk) [Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements, including the statements of income, balance sheets, and detailed net interest margin information [5.1. Consolidated Statements of Income](index=5&type=section&id=5.1.%20Consolidated%20Statements%20of%20Income) The consolidated statements of income show a significant increase in net income applicable to common shares in Q2 2025 compared to Q2 2024, driven by higher net interest and non-interest income and a substantial reduction in credit loss expense Consolidated Statements of Income (Q2 2025 vs Q2 2024, in thousands of US dollars) | Metric | Q2 2025 | Q2 2024 | | :-------------------------------- | :------ | :------ | | Total Interest Income | $111,858 | $96,097 | | Total Interest Expense | $37,625 | $36,332 | | Net Interest Income | $74,233 | $59,765 | | Total Provision for Credit Losses | $624 | $23,910 | | Total Non-Interest Income | $12,877 | $9,505 | | Total Non-Interest Expense | $49,305 | $64,432 | | Net Income (Loss) Applicable to Common Shares | $29,672 | $(17,144) | [5.2. Consolidated Balance Sheets](index=6&type=section&id=5.2.%20Consolidated%20Balance%20Sheets) The consolidated balance sheets as of June 30, 2025, indicate an increase in total assets, primarily from cash and available-for-sale securities, while total deposits slightly decreased and shareholders' equity grew Consolidated Balance Sheets (June 30, 2025 vs December 31, 2024, in thousands of US dollars) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total Assets | $8,057,981 | $7,812,185 | | Cash and Cash Equivalents | $325,146 | $135,314 | | Securities Available-for-Sale | $1,522,611 | $1,432,371 | | Loans (gross) | $5,590,457 | $5,672,236 | | Total Deposits | $6,390,974 | $6,515,239 | | Total Liabilities | $7,277,963 | $7,082,028 | | Total Shareholders' Equity | $780,018 | $730,157 | [5.3. Details of Net Interest Margin](index=7&type=section&id=5.3.%20Details%20of%20Net%20Interest%20Margin) This section provides detailed insights into the company's net interest margin, including yield percentages and average balances for interest-earning assets and interest-bearing liabilities [5.3.1. Yield Percentages](index=7&type=section&id=5.3.1.%20Yield%20Percentages) Total interest-earning asset yield slightly decreased to 6.25% in Q2 2025 from 6.31% in Q1 2025, primarily due to lower taxable loan yields, accompanied by a decrease in total interest-bearing liability costs Yield Percentages (Q2 2025 vs Q1 2025) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Taxable loans | 6.90% | 6.96% | | Total interest-earning assets | 6.25% | 6.31% | | Total interest-bearing deposits | 2.41% | 2.53% | | Total interest-bearing liabilities | 2.68% | 2.76% | | Taxable-equivalent net interest margin (non-GAAP) | 4.17% | 4.18% | [5.3.2. Average Balances](index=8&type=section&id=5.3.2.%20Average%20Balances) Average interest-earning assets increased to $7.248 billion in Q2 2025 from $7.172 billion in Q1 2025, driven by higher average taxable loans and securities, with average interest-bearing liabilities also slightly increasing Average Balances (Q2 2025 vs Q1 2025, in thousands of US dollars) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Total loans | $5,630,973 | $5,655,994 | | Total securities | $1,535,896 | $1,475,180 | | Total interest-earning assets | $7,248,238 | $7,171,931 | | Total interest-bearing deposits | $5,060,651 | $5,103,391 | | Total interest-bearing liabilities | $5,632,239 | $5,552,019 | [5.4. Supplemental Information](index=9&type=section&id=5.4.%20Supplemental%20Information) This section provides additional financial details, including per common share metrics, balance sheet items, asset quality indicators, and key income statement ratios [5.4.1. Per Common Share & Balance Sheet Metrics](index=9&type=section&id=5.4.1.%20Per%20Common%20Share%20%26%20Balance%20Sheet%20Metrics) Per common share metrics show growth in diluted EPS and book value, while balance sheet items indicate increased total assets and equity, alongside reduced total and brokered deposits Per Common Share Information (Q2 2025 vs Q1 2025) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------- | :------------ | :------------- | | Diluted earnings (loss) | $1.97 | $1.80 | | Cash dividends | $0.55 | $0.55 | | Book value | $51.28 | $49.90 | | Tangible book value (non-GAAP) | $45.73 | $44.17 | Balance Sheet Related (June 30, 2025 vs March 31, 2025, in thousands of US dollars) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------- | :------------ | :------------- | | Assets | $8,057,981 | $7,838,090 | | Loans (gross) | $5,590,457 | $5,647,507 | | Deposits, total | $6,390,974 | $6,541,871 | | Brokered deposits | $132,098 | $246,902 | | Total equity | $780,018 | $758,000 | [5.4.2. Asset Quality Metrics](index=9&type=section&id=5.4.2.%20Asset%20Quality%20Metrics) Asset quality indicators show an increase in nonperforming loans and assets as a percentage of total loans and assets, while the allowance for credit losses as a percentage of nonperforming loans decreased Asset Quality (Q2 2025 vs Q1 2025) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Provision for credit losses | $624 | $501 | | Net loan charge-offs | $1,214 | $1,187 | | Allowance for credit losses | $67,256 | $67,753 | | Total delinquencies | $29,056 | $86,223 | | Nonperforming loans | $85,531 | $64,756 | | Allowance for credit losses as % of non-performing loans | 78.63% | 104.63% | | Non-performing loans as % of total loans | 1.53% | 1.15% | | Non-performing assets as % of total assets | 1.10% | 0.86% | [5.4.3. Income Statement & Key Ratios](index=10&type=section&id=5.4.3.%20Income%20Statement%20%26%20Key%20Ratios) Income statement data indicates growth in net income and total revenue, while key ratios show improved return on average assets and equity, stable net interest margin, and enhanced efficiency Income Statement (Q2 2025 vs Q1 2025, in thousands of US dollars) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Interest income | $111,858 | $110,786 | | Interest expense | $37,625 | $37,799 | | Non-interest income | $12,877 | $10,023 | | Total revenue (non-GAAP) | $87,110 | $83,010 | | Non-interest expense | $49,305 | $49,664 | | Net income (loss) applicable to common shares | $29,672 | $26,976 | Key Ratios (Q2 2025 vs Q1 2025) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Return on average assets (annualized) | 1.51% | 1.41% | | Return on average equity (annualized) | 15.50% | 14.57% | | Net interest margin (non-GAAP) | 4.17% | 4.18% | | Efficiency ratio | 56.60 | 59.83 | | Loan-to-deposit ratio | 87.47 | 86.33 | | Consolidated Common Equity Tier 1 (CET1) capital ratio | 12.21% | 11.77% | | Consolidated Total risk-based capital ratio | 15.26% | 14.79% | | Consolidated Leverage ratio | 10.42% | 10.12% | [Non-GAAP Reconciliations (Unaudited)](index=11&type=section&id=Non-GAAP%20Reconciliations%20(Unaudited)) This section provides unaudited non-GAAP reconciliations for key financial metrics, offering a clearer view of core business performance by excluding significant non-recurring items [6.1. Operating Net Income, Adjusted Diluted EPS, and Adjusted Non-Interest Expense](index=11&type=section&id=6.1.%20Operating%20Net%20Income%2C%20Adjusted%20Diluted%20EPS%2C%20and%20Adjusted%20Non-Interest%20Expense) This section presents reconciliations for non-GAAP operating net income, adjusted diluted EPS, and adjusted non-interest expense, excluding significant items like merger-related costs to reflect core business performance Operating Net Income and Adjusted EPS (Q2 2025 vs Q1 2025) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Net income (loss) applicable to common shares | $29,672 | $26,976 | | Operating net income | $29,672 | $26,976 | | Adjusted diluted EPS | $1.97 | $1.80 | Adjusted Non-Interest Expense (Q2 2025 vs Q1 2025) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------- | :------------ | :------------- | | Non-interest expense | $49,305 | $49,664 | | Adjusted non-interest expense | $49,305 | $49,664 | - Purpose: These non-GAAP metrics are used by management to measure performance, enhancing understanding of underlying business performance by excluding significant items, and reflecting management's ability to grow the business and manage expenses[31](index=31&type=chunk) [6.2. Total Revenue (Non-GAAP)](index=11&type=section&id=6.2.%20Total%20Revenue%20(Non-GAAP)) Non-GAAP total revenue, calculated as total interest income less total interest expense plus total non-interest income, increased to $87.1 million in Q2 2025 from $83.0 million in Q1 2025, indicating stable revenue streams Total Revenue (Non-GAAP) (Q2 2025 vs Q1 2025, in thousands of US dollars) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------- | :------------ | :------------- | | Total revenue (non-GAAP) | $87,110 | $83,010 | - Purpose: A useful tool for measuring the company's operating condition and demonstrating the stability of revenue sources[32](index=32&type=chunk) [6.3. Pretax, Pre-Provision Earnings (Non-GAAP)](index=12&type=section&id=6.3.%20Pretax%2C%20Pre-Provision%20Earnings%20(Non-GAAP)) Non-GAAP pretax, pre-provision earnings increased to $37.8 million in Q2 2025 from $33.3 million in Q1 2025, providing insight into the company's ability to cover credit costs from operations by isolating the impact of credit loss provisions Pretax, Pre-Provision Earnings (Non-GAAP) (Q2 2025 vs Q1 2025, in thousands of US dollars) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Pretax, pre-provision earnings (non-GAAP) | $37,805 | $33,346 | - Purpose: Helps assess the ability to cover credit costs through operations and compare performance across periods by isolating the impact of credit loss provisions[37](index=37&type=chunk) [6.4. Tangible Common Equity (Non-GAAP)](index=12&type=section&id=6.4.%20Tangible%20Common%20Equity%20(Non-GAAP)) Non-GAAP tangible common equity increased to $686.3 million as of June 30, 2025, from $661.7 million as of March 31, 2025, with tangible book value per share rising to $45.73 Tangible Common Equity (Non-GAAP) (June 30, 2025 vs March 31, 2025, in thousands of US dollars) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Common shareholders' equity | $769,605 | $747,587 | | Tangible common equity (non-GAAP) | $686,342 | $661,743 | | Tangible book value per common share | $45.73 | $44.17 | - Purpose: An important measure of a financial institution's capital strength, assessing the company's equity utilization and facilitating peer comparisons by excluding intangible assets from shareholders' equity[38](index=38&type=chunk) [6.5. Net Interest Margin & Taxable-Equivalent Net Interest Income (Non-GAAP)](index=13&type=section&id=6.5.%20Net%20Interest%20Margin%20%26%20Taxable-Equivalent%20Net%20Interest%20Income%20(Non-GAAP)) The non-GAAP taxable-equivalent net interest margin for Q2 2025 was 4.17%, a slight decrease from 4.18% in Q1 2025, with this adjustment providing a more comparable view of net interest income by considering tax-exempt assets Net Interest Margin (Non-GAAP) (Q2 2025 vs Q1 2025) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Net interest income (FTE) | $75,292 | $73,868 | | Net interest margin (non-GAAP) | 4.17% | 4.18% | - Purpose: Provides a more meaningful comparison of net interest income by adjusting for tax-exempt instruments, making yields on taxable, tax-exempt, and partially tax-exempt assets comparable[42](index=42&type=chunk)