Burke & Herbert Financial Services (BHRB) - 2023 Q1 - Quarterly Report

Financial Performance - Net income decreased by $1.6 million (17.6$7.5 million for the three months ended March 31, 2023, compared to $9.1 million in the same period in 2022[326] - Net income for the three months ended March 31, 2023, was$7.524 million, compared to $9.126 million for the same period in 2022[230] - Net income for the three months ended March 31, 2023, was$7.524 million, compared to $9.126 million for the same period in 2022[14] - Comprehensive income for the three months ended March 31, 2023, was$23.210 million, compared to a loss of $55.326 million for the same period in 2022[14] - Basic net income per share decreased to$1.01 for the three months ended March 31, 2023, compared to $1.23 in the same period in 2022[323] - Basic earnings per share (EPS) for Q1 2023 was$1.01, while diluted EPS was $1.00[230] - Return on average assets decreased to 0.85$3,671.2 million as of March 31, 2023, compared to $3,562.9 million as of December 31, 2022[323] - Total consolidated assets as of March 31, 2023, were$3.7 billion, with gross loans of $2.0 billion and total deposits of$3.0 billion[280] - Assets increased by $108 million to$3.67 billion as of March 31, 2023, compared to $3.56 billion as of December 31, 2022[349] - Total deposits increased to$3,032.4 million as of March 31, 2023, compared to $2,920.4 million as of December 31, 2022[323] - Deposits increased by$112 million to $3.03 billion as of March 31, 2023, compared to$2.92 billion as of December 31, 2022[349] - Total loans increased to $1,951.7 million as of March 31, 2023, compared to$1,887.2 million as of December 31, 2022[354] - Loans increased by $60 million to$1.93 billion as of March 31, 2023, compared to $1.87 billion as of December 31, 2022[349] - Total shareholders' equity increased to$289.8 million as of March 31, 2023, compared to $273.5 million as of December 31, 2022[323] - The company had$289.8 million in total shareholders' equity as of March 31, 2023[280] - Total interest-bearing deposits increased to $2,125,668 at March 31, 2023, from$1,959,708 at December 31, 2022[416] Interest Income and Expenses - Net interest income increased to $24.8 million for the three months ended March 31, 2023, compared to$23.5 million in the same period in 2022[331] - Net interest income increased by $1.3 million to$24.8 million for Q1 2023, driven by loan growth and higher interest rates, offset by increased funding costs[303] - Loan portfolio yield increased to 4.81% for the three months ended March 31, 2023, compared to 3.80% in the same period in 2022[332] - The yield on gross loans increased to 4.81% for the three months ended March 31, 2023, compared to 3.80% for the same period in 2022[311] - The tax-adjusted yield on the investment securities portfolio increased to 3.45% in Q1 2023 from 2.18% in Q1 2022, reflecting higher market interest rates[308] - The yield on taxable securities increased to 3.63% for the three months ended March 31, 2023, compared to 1.83% for the same period in 2022[311] - The total interest-earning assets yield increased to 4.23% for the three months ended March 31, 2023, compared to 2.98% for the same period in 2022[311] - The weighted average yield on total securities available-for-sale was 3.10% as of March 31, 2023[353] - The rate paid on FHLB and other borrowings increased sharply to 4.70% in Q1 2023 from 0.60% in Q1 2022, reflecting higher short-term borrowing costs[309] - The weighted average interest rate on deposits increased to 4.63% at March 31, 2023, from 4.42% at December 31, 2022[390] Credit and Loan Performance - Credit loss expense was $0.5 million for the three months ended March 31, 2023, compared to a recapture of$2.6 million in the same period in 2022[327] - The company recorded a provision of $0.5 million for credit losses for the three months ended March 31, 2023, compared to a provision recapture of$2.6 million for the same period in 2022[359] - The company's provision for credit losses for the period was $523, compared to a recapture of$2,638 in the previous period[384] - Non-performing loans as a percentage of total loans decreased significantly to 0.17% in Q1 2023 from 1.45% in Q1 2022[302] - Non-performing loans decreased to $3.2 million as of March 31, 2023, from$5.5 million as of December 31, 2022[357] - The allowance for credit losses (ACL) as a percentage of gross loans decreased to 1.32% as of March 31, 2023, from 1.65% as of March 31, 2022[383] - The company's total allowance for credit losses (ACL) was $25,704, with commercial real estate loans accounting for 71.62$3,931 thousand as of March 31, 2023, from $2,496 thousand as of December 31, 2022[195] - Net loan charge-offs for the period were$(17), with total recoveries of loans charged-off amounting to $34[384] Non-Interest Income and Expenses - Non-interest expense increased by$1.2 million (6.3%) to $20.4 million for the three months ended March 31, 2023, compared to$19.2 million in the same period in 2022[329] - Non-interest expense increased by 6.3% to $20.4 million for the three months ended March 31, 2023, compared to$19.2 million for the same period in 2022[369] - Total non-interest expenses increased to $5,607 for the three months ended March 31, 2023, compared to$4,672 for the same period in 2022[223] - Non-interest income rose by $99 thousand (2.4$4.2 million in Q1 2023, primarily due to a $102 thousand increase in FHLB stock dividend income[305] - Non-interest income increased by 2.4$4.2 million for the three months ended March 31, 2023, compared to $4.1 million for the same period in 2022[368] - Share-based compensation cost was$580.6 thousand for the three months ended March 31, 2023, up from $506.2 thousand in the same period in 2022[223] Investment and Securities - Total investment securities available-for-sale were$1,371,757 as of March 31, 2023[213] - The weighted average duration of the company's investment portfolio is 4.0 years as of March 31, 2023[377] - The company's investment securities provide a source of liquidity and are used to manage interest rate risk[373] - Net unrealized gains on available-for-sale securities were $17,218 for the three months ended March 31, 2023[221] - Total reclassifications from AOCI to net income were$1,579 for the three months ended March 31, 2023[221] - Accumulated Other Comprehensive Income (AOCI) decreased to $(123,809) as of March 31, 2023, compared to$(57,497) as of March 31, 2022[221] Liquidity and Capital - The company maintains a strong liquidity position with capital levels above well-capitalized regulatory ratios and liquidity metrics within internal policy guidelines[283] - The company's stress testing considers various factors including uninsured deposits, deposit flows, interest rate movements, and credit risks[283] - Common equity tier 1 (CET 1) capital ratio improved slightly to 17.55% in Q1 2023 from 17.47% in Q1 2022[302] - The company has available unused borrowing capacity of $809.1 million through its credit lines with the FHLB of Atlanta and unsecured federal fund lines[389] - Deposits exceeding the FDIC insurance limit of$250,000 were $715.1 million at March 31, 2023, down from$843.4 million at December 31, 2022[416] Employee and Compensation - The company had 411 full-time employees as of March 31, 2023, with none covered by collective bargaining agreements[280] - The company issued 24,705 restricted stock units (RSUs) during Q1 2023, compared to 12,160 RSUs in Q1 2022[249] - Total unrecognized compensation costs related to nonvested shares under the 2019 SIP were $4.7 million as of March 31, 2023, expected to be recognized over 2.08 years[227] - The 2023 Stock Incentive Plan (2023 SIP) authorized the issuance of 250,000 shares, with no awards issued as of March 31, 2023[228] Derivatives and Other Financial Instruments - Net gains on free-standing derivative instruments (interest rate lock commitments) were$4.2 thousand as of March 31, 2023, compared to $(74.5) thousand as of March 31, 2022[203] - The notional amount of loan pipeline resulting in interest rate lock commitments was$838 thousand as of March 31, 2023, down from $1.4 million as of March 31, 2022[203] - The ACL on off-balance-sheet credit totaled$267.3 thousand at March 31, 2023[207] Loan Portfolio and Allowance - The company's loans, net of allowance, were $1.813 billion as of March 31, 2023[219] - Total loans outstanding at the end of the period were$1,951,738, with an ending allowance for credit losses of $25,704, representing an allowance coverage ratio of 1.32$112.0 million from December 31, 2022, to March 31, 2023, driven by a rise in brokered time deposits, which amounted to $389.2 million at March 31, 2023, compared to$100.3 million at December 31, 2022[390] Interest Rate and Margin - Net interest margin improved to 3.06% in Q1 2023 from 2.89% in Q1 2022, while the efficiency ratio increased to 70.25% from 69.47%[302] - The tax-adjusted net interest margin was 3.06% for the three months ended March 31, 2023, compared to 2.89% for the same period in 2022[307]