Company Overview and History
Burke & Herbert Financial Services Corp. (BHRB) is a Virginia-based financial holding company that has served its local communities for over 170 years. With a focus on responsible growth and economic development, the company's wholly-owned subsidiary, Burke & Herbert Bank & Trust Company, has established itself as a quintessential community bank, providing a full range of business and personal financial solutions to its customers.
The company's history dates back to 1852, when it was founded as the Bank of the Old Dominion in Alexandria, Virginia. Over the decades, Burke & Herbert has navigated through economic cycles, adapting to the evolving financial landscape while remaining steadfast in its commitment to its local communities. On September 14, 2022, Burke & Herbert Financial Services Corp. was organized as a Virginia corporation to serve as the holding company for Burke & Herbert Bank & Trust Company. The company commenced operations as a bank holding company on October 1, 2022, following a reorganization transaction in which it became the Bank's holding company. This transaction was treated as an internal reorganization, with all shareholders of the Bank becoming shareholders of Burke & Herbert. In September 2023, Burke & Herbert made a strategic move by electing to become a financial holding company, further expanding its capabilities and positioning itself for continued growth. As a financial holding company, Burke & Herbert is subject to regulation and supervision by the Federal Reserve.
The Bank, which is a Virginia chartered commercial bank, is supervised and regulated by the Federal Deposit Insurance Corporation (FDIC) and the Bureau of Financial Institutions of the Virginia State Corporation Commission. The Bank's primary market area includes northern Virginia and West Virginia, with commercial loan offices across Delaware, Kentucky, Maryland, Virginia, and West Virginia. The company's branch locations accept business and consumer deposits from a diverse customer base, offering deposit products such as checking, savings, and term certificate accounts. The loan portfolio includes commercial and consumer loans, with a substantial portion secured by real estate.
Strategic Merger and Growth
In May 2024, Burke & Herbert completed a transformative merger with Summit Financial Group, Inc., creating a financial institution with more than $7.8 billion in assets and over 75 branches across five states: Virginia, West Virginia, Maryland, Delaware, and Kentucky. This merger has not only strengthened Burke & Herbert's regional presence but also enhanced its product offerings and synergies, positioning the company for enhanced financial performance.
Financials
As of September 30, 2024, Burke & Herbert reported total assets of $7.86 billion, a significant increase from the $3.62 billion reported at the end of 2023. This growth can be attributed to the successful integration of Summit's operations, which contributed $3.55 billion in loans and $3.70 billion in deposits to the combined entity. The company's loan portfolio grew to $5.57 billion, while deposits reached $6.60 billion, representing a loan-to-deposit ratio of 84.4%.
The company's financial performance has been resilient, with net interest income reaching $155.07 million for the nine months ended September 30, 2024, compared to $71.45 million for the same period in 2023. This increase was primarily driven by the merger, which led to higher interest-earning assets and improved net interest margins. The company's net interest margin on a fully taxable equivalent basis stood at 3.78% for the nine-month period, up from 2.90% in the prior year.
For the most recent quarter (Q3 2024), Burke & Herbert reported revenue of $118,526,000 and net income of $27,622,000. The company's operating cash flow (OCF) for the quarter was $21,193,000, while free cash flow (FCF) stood at $19,443,000. It's important to note that year-over-year comparisons are not available due to the significant changes in the company's structure following the merger with Summit Financial Group, Inc.
Despite the challenges presented by the COVID-19 pandemic and the recent volatility in the banking industry, Burke & Herbert has maintained a strong capital position. As of September 30, 2024, the company's Common Equity Tier 1 capital to risk-weighted assets ratio was 11.40%, and its Total risk-based capital to risk-weighted assets ratio was 14.45%, both well above the regulatory well-capitalized thresholds.
The company's asset quality has also remained stable, with non-performing loans accounting for 0.64% of total loans as of September 30, 2024. The allowance for credit losses stood at $67.82 million, or 1.22% of total loans, providing a solid cushion against potential credit risks.
Liquidity
Burke & Herbert's liquidity position remains strong, supported by its diverse funding sources and conservative balance sheet management. The company's loan-to-deposit ratio of 84.4% indicates a healthy balance between lending activities and deposit gathering, providing ample liquidity to meet operational needs and potential growth opportunities.
As of September 30, 2024, Burke & Herbert reported cash holdings of $291,760,000. The company has substantial borrowing capacity, with available secured lines of credit from the Federal Reserve Bank of Richmond and the Federal Home Loan Bank of Atlanta, as well as unsecured federal funds lines of credit. The total unused borrowing capacity as of September 30, 2024, stood at an impressive $2,353,963,000, providing significant financial flexibility.
Product Segments
Burke & Herbert operates across several key product segments, reflecting its diverse lending activities:
1. Commercial Real Estate Loans: This is the company's largest loan segment, accounting for 45.4% of its total gross loan portfolio as of September 30, 2024. It includes loans for various commercial real estate properties such as retail, multi-family, office buildings, hotels, industrial warehouses, self-storage facilities, nursing homes, restaurants, and gas stations.
2. Owner-Occupied Commercial Real Estate Loans: Representing 11.4% of the total gross loan portfolio, this segment focuses on loans for owner-occupied properties including office buildings, retail properties, industrial warehouses, gas stations, restaurants, and religious organizations.
3. Acquisition, Construction & Development Loans: This segment accounts for 8.0% of the total gross loan portfolio, covering loans for multi-family properties, land acquisition, office buildings, self-storage facilities, retail real estate, and residential for-sale properties.
4. Commercial & Industrial Loans: Making up 10.1% of the total loan portfolio, this segment includes a variety of commercial and industrial loans to different business types.
5. Residential 1-4 Unit Loans: This significant segment represents 21.5% of total loans, encompassing both consumer-purpose and investment 1-4 family residential mortgages.
6. Consumer Non-Real Estate & Other Loans: Accounting for 3.6% of total loans, this segment includes consumer loans not secured by real estate.
The acquisition of Summit Financial Group, Inc. in May 2024 has significantly expanded Burke & Herbert's lending activities across these various commercial and consumer loan segments. The company is focused on managing the credit risks associated with its commercial real estate and construction lending portfolios, which comprise a substantial portion of the overall loan book.
Community Commitment and Future Outlook
In addition to its strong financial performance, Burke & Herbert has demonstrated a steadfast commitment to its local communities. In October 2024, the company launched The Burke & Herbert Bank Foundation, a philanthropic initiative dedicated to supporting local organizations and addressing unique challenges within the communities it serves.
Looking ahead, Burke & Herbert is well-positioned to continue its growth trajectory. The company's conservative underwriting, diversified loan portfolio, and ample liquidity position it to navigate any potential headwinds. Furthermore, the successful integration of Summit's operations is expected to yield synergies and enhance the company's overall efficiency, ultimately driving improved profitability and shareholder value.
In conclusion, Burke & Herbert Financial Services Corp. (BHRB) is a resilient community bank with a rich history and a clear vision for the future. Its strategic merger, strong financial performance, and unwavering commitment to its local communities make it a standout player in the regional banking landscape, poised to deliver sustained growth and value for its shareholders. The company's diverse product segments, robust liquidity position, and strategic expansion across multiple states provide a solid foundation for future success in the competitive banking industry.