EX-99.2 3 a4q24investordeckfinal.htm EX-99.2 a4q24investordeckfinal
1 4Q24 Update (Nasdaq: BHRB) January 2025


 
2 Cautionary Statement Regarding Forward-Looking Information This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the beliefs, goals, intentions, and expectations of Burke & Herbert Financial Services Corp. (the “Company”) regarding revenues, earnings, earnings per share, loan production, asset quality, and capital levels, among other matters; our estimates of future costs and benefits of the actions we may take; our assessments of expected losses on loans; our assessments of interest rate and other market risks; our ability to achieve our financial and other strategic goals; the expected cost savings, synergies, returns, and other anticipated benefits from the integration of Summit Financial Group, Inc. (“Summit”) following the recently completed merger of Summit with and into the Company; and other statements that are not historical facts. Forward–looking statements are typically identified by such words as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “will,” “should,” and other similar words and expressions, and are subject to numerous assumptions, risks, and uncertainties, which change over time. Additionally, forward–looking statements speak only as of the date they are made; the Company does not assume any duty, does not undertake, and specifically disclaims any obligation to update such forward–looking statements, whether written or oral, that may be made from time to time, whether because of new information, future events, or otherwise, except as required by law. Furthermore, because forward–looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those indicated in or implied by such forward-looking statements because of a variety of factors, many of which are beyond the control of the Company. Accordingly, you should not place undue reliance on forward-looking statements. The risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements include, but are not limited to, the following: costs or difficulties associated with newly developed or acquired operations; risks related to our ability to successfully integrate Summit into the Company and operate the combined company; changes in general economic trends (either nationally or locally in the areas in which we conduct, or will conduct, business), including inflation, interest rates, market and monetary fluctuations; increased competition; changes in consumer demand for financial services; our ability to control costs and expenses; adverse developments in borrower industries or declines in real estate values; changes in and compliance with federal and state laws and regulations that pertain to our business and capital levels; our ability to raise capital as needed; the effects of any cybersecurity breaches; and the other factors discussed in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s Annual Report on Form 10–K for the year ended December 31, 2023, the Company’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2024, June 30, 2024, and September 30, 2024, and other reports the Company files with the SEC. Non-GAAP Financial Measures This presentation contains certain financial measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such non-GAAP financial measures may include the following: fully tax-equivalent net interest margin, core operating earnings, core net income, tangible book value per common share, total risk-based capital ratio, tier one leverage ratio, tier one capital ratio, and the tangible common equity to tangible assets ratio. Management uses these non-GAAP financial measures to assess the performance of the Company’s core business and the strength of its capital position. Management believes that these non-GAAP financial measures provide meaningful additional information about the Company to assist investors in evaluating operating results, financial strength, and capitalization. The non-GAAP financial measures should be considered as additional views of the way our financial measures are affected by significant charges for credit costs and other factors. These non-GAAP financial measures should not be considered as a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. The computations of the non-GAAP financial measures used in this presentation are referenced in a footnote or in the appendix to this presentation.


 
3 Introduction • Thank you for your interest in Burke & Herbert Financial Services Corp., and its wholly owned subsidiary Burke & Herbert Bank & Trust Company. A quintessential community banking institution, we are headquartered in Old Town Alexandria, Virginia, and have served the banking, borrowing and investing needs of businesses, organizations, families, and individuals since 1852. • As a true community bank, we are deeply tied to the people, neighborhoods, and institutions where we live and work. Our employees form a diverse, dedicated, close-knit team that upholds a culture of customer service and forges strong and lasting relationships with our customers and shared communities. We are selective in our hiring, proud of the caliber of our people, and encourage a collegial environment in which each individual feels valued. • On May 3, 2024, we merged with Summit Financial Group, Inc. (Summit), creating an $8 billion financial institution with more than 75 branches across Virginia, West Virginia, Maryland, Delaware, and Kentucky, with more than 800 employees serving our communities.


 
4 Our Business Model • Our business model is built on customer service - Understanding our customers’ financial goals and offering our diverse products and services to help them achieve financial prosperity • Our approach is concentrated on growing and deepening relationships across our businesses that meet our risk/return measures • We are focused on our strategic priorities which are designed to enhance value over the long term - Being a trusted advisor - Growing fee revenue - Profitably expanding our markets


 
5 An Attractive Footprint  Population: 137k  Pop. CAGR: 0.70%   Proj. Pop. CAGR: 0.57%   Median HHI: $70k  Proj. Median HHI: $81k Harrisonburg, VA Eastern Shore of MD (2)  Population: 70k  Pop. CAGR: 0.24%  Median HHI: $75k   Proj. Median HHI: $81k Charleston, WV  Population: 252k  Median HHI: $52k  Proj. Median HHI: $60k Hagerstown-Martinsburg, MD-WV  Population: 302k  Pop. CAGR: 0.88%   Proj. Pop. CAGR: 0.70%   Median HHI: $68k  Proj. Median HHI: $74k  Population: 6.44mm  Pop. CAGR: 1.01%   Proj. Pop. CAGR: 0.54%   Median HHI: $118k   Proj. Median HHI: $132k  Greater Washington D.C. Lexington-Fayette, KY  Population: 523k  Pop. CAGR: 0.79%   Proj. Pop. CAGR: 0.52%   Proj. Median HHI: $77k  Population: 147k  Pop. CAGR: 1.04%   Proj. Pop. CAGR: 0.95%   Median HHI: $82k   Proj. Median HHI: $93k  Winchester, VA-WV Huntington-Ashland, WV-KY-OH  Population: 354k  Median HHI: $54k  Proj. Median HHI: $59k Salisbury, MD-DE  Population: 436k  Pop. CAGR: 1.19%   Proj. Pop. CAGR: 1.03%   Median HHI: $68k  Proj. Median HHI: $74k Fastest Growing Metro in VA Horse Capital of the World Capital of the U.S. Capital of West Virginia Indicates higher than U.S. National Average (1) Source: S&P Global Market Intelligence. Current population and HHI metrics are for the year 2023. Population CAGR is based on through 2023; Projected population and HHI CAGRs are based on 2023 actual through 2028 projected (1) U.S. National Benchmark defined as the median for HHI metrics and as the growth rate pertaining to the total U.S. population for population CAGR metrics; U.S. population CAGR is 0.62%; U.S. projected population CAGR is 0.42%; U.S. median HHI is $74k; U.S. projected HHI is $83k (2) Eastern Shore of MD is made up of the Easton, MD and Cambridge, MD MSAs; Median HHI calculated using a weighted average based on pro forma deposits


 
6 Key merger-related metrics Aug. 24, 20231 June 30, 2024 Sept. 30, 2024 Dec. 31, 2024  Tangible book value per common share2 $34.57 $39.11 $42.32 $42.06  Tangible common equity/tangible assets2 6.4% 7.6% 8.2% 8.2%  Leverage ratio3 8.1% 9.0% 9.7% 9.8%  Common equity tier 1 ratio3 10.4% 10.9% 11.4% 11.5%  Tier 1 capital ratio3 10.6% 11.3% 11.8% 11.9%  Total capital ratio3 12.5% 13.9% 14.5% 14.6% (1) Estimated at August 24, 2023, Summit merger announcement date assuming December 31, 2023, close. Actual closing was May 3, 2024. (2) Non-GAAP measure. See the appendix for further information. (3) December 31, 2024, is estimated. Delivering on Expectations – Merger Related Statistics Merger Related Cost Saves Software Professional services Processing Personnel related Depreciation / amortization Identified annualized cost saves Goal $20MM $2.5MM $7.7MM $15.1MM $1.4MM $1.1MM  Achieved $27.8MM


 
7 Balance Sheet Trends Highlights • Our objective is to build and maintain a fortress balance sheet - Maintain credit discipline through the cycle - Ensure proper allowances for credit losses - Stay liquid and have multiple sources of liquidity - Manage capital for the long term - Stress test the balance sheet for severe shocks - Continually improve risk, governance, and controls - Operate an effective risk-adjusted return culture • Loan to deposit ratio of 87.1% • Brokered deposits to total deposits of 3.8% • Uninsured deposits to total deposits of 29.6% • Relatively neutral interest rate position Balance Sheet ($ in 000s) Dec. 31, 2024 Sept. 30, 2024 June 30, 2024 Assets Cash and Cash Equivalents 135,314$ 291,765$ 211,920$ Investments 1,465,930 1,453,263 1,430,039 Loans Held for Sale 2,331 4,216 3,268 AOCIncome/(Loss) 5,672,236 5,574,037 5,616,724 Allowance for Loan Losses (68,040) (67,817) (68,017) Net Loans 5,604,196 5,506,220 5,548,707 Goodwill and Other Intangibles 90,083 94,381 98,678 Other Assets 514,331 515,068 517,581 Total Assets 7,812,185 7,864,913 7,810,193 Liabilities Total Deposits 6,515,239 6,600,825 6,639,571 Short-term Borrowings 365,000 320,163 285,161 Subordinated Debentures 111,885 110,482 109,064 Other Liablities 89,904 95,384 83,271 Total Liabilities 7,082,028 7,126,854 7,117,067 Shareholders' Equity Common Stock 7,770 7,767 7,752 Preferred Stock 10,413 10,413 10,413 Additional Paid-in Capital 401,172 400,377 399,553 Retained Earnings 434,106 422,844 403,422 AOCIncome/(Loss) (95,720) (75,758) (100,430) Treasury Stock (27,584) (27,584) (27,584) Total Shareholders' Equity 730,157 738,059 693,126 Total Liabilities & Shareholders' Equity 7,812,185$ 7,864,913$ 7,810,193$


 
8 Income Statement Trends Income Statement ($ in 000s) Dec. 31, 2024 Sept. 30, 2024 Operating Net Income (non-GAAP) Dec. 31, 2024 Sept. 30, 2024 (1) See appendix for reconciliation of merger-related expenses. • Loan growth in high single digits • Deposit growth in low single digits • Net interest margin 4.05% - 4.10% • Operating leverage > 10% versus 4Q24 annualized adjusted • Top quartile returns on assets and equity relative to peers Expectations for 2025 3 months ended 3 months ended Net income applicable to common shares $ 19,568 $ 27,397 Addback significant items (tax effected): Merger-related 7,069 2,449 Total significant items 7,069 2,449 Operating net income $ 26,637 $ 29,846 Weighted average dilutive shares 15,038,442 15,040,145 Adjusted diluted EPS 1.77$ 1.98$ Non-interest expense $ 61,410 $ 50,826 Remove significant items: Merger-related1 8,948 3,101 Total significant items 8,948 3,101 Adjusted non-interest expense $ 52,462 $ 47,725 Interest income 3 months ended 12 months ended 3 months ended 9 months ended Loans $ 97,940 $ 311,421 $ 103,730 $ 213,481 Securities 13,059 50,060 13,211 37,001 Other Interest Income 1,794 4,680 1,585 2,886 Total Interest Income 112,793 366,161 118,526 253,368 Interest expense Deposits 35,919 118,664 39,441 82,745 Borrowed Funds 3,383 14,189 3,080 10,806 Subordinated Debt and other interest 2,781 7,523 2,826 4,742 Total Interest Expense 42,083 140,376 45,347 98,293 Net Interest Income 70,710 225,785 73,179 155,075 Provision expense 833 24,220 147 23,387 Net Interest Income after Provision 69,877 201,565 73,032 131,688 Non-interest income Fiduciary and wealth management 2,429 8,411 2,352 5,982 Service charges and fees 4,447 15,594 5,453 11,147 Other non-interest income 4,915 12,161 2,811 7,246 Total Non-interest Income 11,791 36,166 10,616 24,375 Non-interest expense Salaries and other benefits 30,658 94,275 25,536 63,617 Occupancy 3,630 11,577 3,412 7,947 Other operating 27,122 91,981 21,878 64,859 Total Non-interest Expense 61,410 197,833 50,826 136,423 Income tax expense 465 4,190 5,200 3,725 Net income 19,793 35,708 27,622 15,915 Preferred stock dividends 225 675 225 450 Net income applicable to common shares $ 19,568 $ 35,033 $ 27,397 $ 15,465


 
9 Loan Portfolio as of 4Q24 ($ in 000s) Residential $1,173,749 Owner-Occupied CRE $614,362 Commercial & Industrial $613,085 AD&C $465,537 Consumer $167,701 Commercial Real Estate $2,637,802 Portfolio $5,672,236 Loan Segment Adjustable Rate Fixed Rate Commercial Real Estate $ 1,111,665 $ 1,526,137 Residential 577,347 596,402 Owner-occupied CRE 314,447 299,915 AD&C 355,847 109,690 Commercial & Industrial 421,104 191,981 Consumer 123,159 44,542 $ 2,903,569 $ 2,768,667 • The commercial real estate (CRE) portfolio is well-diversified across asset classes - CRE as a percentage of bank total risk-based capital is estimated at 337% - AD&C as a percentage of bank total risk-based capital is estimated at 51% • The CRE loan portfolio geographic footprint is spread across the West Virginia and greater DC / Maryland / Virginia (DMV) area with minimal office building exposure within Washington D.C. • In line with our overall strategy, we are focused on commercial & industrial loan growth and greater portfolio granularity Commercial Real Estate Category $ by Asset Class % by Asset Class Retail Real Estate $ 577,747 22% Multi-Family 491,924 19% Office Bldgs/Condos 398,331 15% Hotels/Motels 375,433 14% Industrial/Warehouse 262,632 10% Other 205,434 8% Nursing-Assisted Living 132,846 5% Self-Storage 124,672 4% Restaurants and Gas Stations 68,783 3% $ 2,637,802 100%


 
10 Security Portfolio as of 4Q24 ($in 000s) U.S Treasury & Agency $149,127 Municipal $698,724 Agency RMBS $53,186 Non-Agency RMBS $247,876 Agency CMBS $33,071 Non-Agency CMBS $154,511 Asset-Backed $64,056 Other $31,820 Portfolio FV $1,432,371 • Portfolio duration is approximately 4.5 years • 81% of unrealized losses have a duration of approximately 5.5 years; remainder less than 2.5 years • Unrealized losses are the result of the interest rate environment • AOCI accretion is expected to be approximately 5.5% per quarter assuming a stagnant interest rate environment • The current portfolio is held as available-for-sale, and there is no intent to reclassify any part • Majority of non-agency CMBS and ABS are equity enhanced through structure and credit support Category Net Unrealized Losses Amortized Cost WA Yield U.S. Treasury & Agency $ 16,492 $ 165,619 1.31% Municipal 78,457 777,181 2.76% Agency RMBS 4,058 57,244 3.63% Non-Agency RMBS 12,088 259,964 4.09% Agency CMBS 720 33,791 4.85% Non-Agency CMBS 4,110 158,621 3.92% Asset-Backed 252 64,308 6.05% Other 1,041 32,861 7.37% $ 117,218 $1,549,589 3.26%


 
11 Funding Sources as of 4Q24 ($ in 000s) Demand (non- interest) $1,379,940 Demand (interest) $2,223,540 Money Market & Savings $1,658,480 Brokered CDs $244,802 Time Deposits & Other $1,008,477 Deposits $6,515,239 Category Average Rate QTD Demand (non-interest bearing) − % Demand (interest bearing) 2.51% Money Market & Savings 1.60% Brokered Certificate of Deposits 4.45% Time Deposits & Other 4.57% Total Interest-Bearing Deposits 2.76% Total Deposits 2.17% • Loan-to-deposit ratio of 87.1% and loan + security-to-deposit ratio of 109.6% • Brokered deposits represent 3.8% of total deposits • Uninsured deposits totaled $1.9 billion, representing 29.6% of total deposit balance • Borrowings totaled $365 million with a total capacity of $4.4 billion and remaining capacity of $4.1 billion • Stress tests are performed on liquidity and capital on a quarterly basis • We believe we have ample liquidity to withstand significant stress


 
12 Capital Ratio Trends1 16.6% 10.9% 11.4% 11.5% 1Q24 2Q24 3Q24 4Q24 Common Equity Tier 1 Ratio 16.6% 11.3% 11.8% 11.9% 1Q24 2Q24 3Q24 4Q24 Tier 1 Capital Ratio 17.5% 13.9% 14.5% 14.6% 1Q24 2Q24 3Q24 4Q24 Total Capital Ratio 11.4% 9.0% 9.7% 9.8% 1Q24 2Q24 3Q24 4Q24 Leverage Ratio Capital Management • We take a forward-looking, disciplined approach to capital management that emphasizes acceptable risk-adjusted returns over the long- term • Our capital management priorities include - Supporting customers - Funding business investments - Maintaining appropriate capital in light of economic conditions and regulatory expectations - Returning excess capital to shareholders • Modeled stress scenarios include evaluating the impact of deposit shocks, interest rate scenarios, and general balance sheet repositioning • Stress scenarios result in capital levels well above well-capitalized levels (1) All 4Q24 capital ratios are estimated.


 
13 Asset Quality Trends 1.16% 1.21% 1.22% 1.20% 1Q24 2Q24 3Q24 4Q24 Allowance Coverage Ratio 0.00% 0.01% 0.01% 0.01% 1Q24 2Q24 3Q24 4Q24 NCOs / Average Loans 92.0% 207.1% 189.1% 177.3% 1Q24 2Q24 3Q24 4Q24 Allowance for Credit Losses / NPLs 1.26% 0.58% 0.64% 0.68% 1Q24 2Q24 3Q24 4Q24 NPLs / Total Loans Credit Management • Our objective is to maintain a moderate risk profile through the economic cycle • Credit risk management is embedded in our risk culture and in our decision-making processes - Managed through specific policies and processes - Measured and evaluated against our risk appetite and credit concentration limits - Reported, along with specific mitigation activities, to management and the Board of Directors through our governance structure • Underwriting guidelines are adjusted to reflect current market conditions • Loan reviews include ongoing monitoring procedures that involve additional stress testing of interest rate movements and collateral performance


 
14 Final Thoughts • Our business model is built on customer service - Understanding our customers’ financial goals and offering our diverse products and services to help them achieve financial prosperity • Our approach is concentrated on growing and deepening relationships across our businesses that meet our risk/return measures • We are focused on our strategic priorities which are designed to enhance value over the long term - Being a trusted advisor - Growing fee revenue - Profitably expanding our markets


 
15 Appendix: Notes on Non-GAAP Financial Measures Total Common Equity, Tangible Book Value & Tangible Assets: Tangible common equity measures are capital adequacy metrics that may be meaningful to the Company, as well as analysts and investors, in assessing the Company's use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from stockholders' equity and retain the effect of accumulated other comprehensive income/(loss) in stockholders' equity. Dec. 31, 2024 Sept. 30, 2024 June 30, 2024 Common Shareholders’ Equity $ 719,744 $ 727,646 $ 682,713 Less: Goodwill and intangible assets, net 90,083 94,381 98,678 Tangible common equity (non-GAAP) 629,661 633,265 584,035 Shares outstanding at end of period 14,969,104 14,963,003 14,932,169 Tangible book value per common share $ 42.06 $ 42.32 $ 39.11 Total Assets 7,812,185 7,864,913 7,810,193 Less: Goodwill and Intangible assets, net 90,083 94,381 98,678 Tangible assets (non-GAAP) $ 7,722,102 $ 7,770,532 $ 7,711,515


 
16 Appendix: Noninterest Expense Reconciliation Dec. 31, QTD Merger Adjusted non- 2024 Related interest expense Sept. 30, QTD Merger Adjusted non- 2024 Related interest expense Salaries and wages 25,818$ (2,926)$ 22,892$ 20,858$ -$ 20,858$ Pensions and other employee benefits 4,840 (36) 4,804 4,678 - 4,678 Occupancy 3,630 - 3,630 3,412 (63) 3,349 Equipment rentals, depreciation & maintenance 4,531 (332) 4,199 4,699 (1,249) 3,450 Other Operating 22,591 (5,654) 16,937 17,179 (1,789) 15,390 Total non-interest expense 61,410$ (8,948)$ 52,462$ 50,826$ (3,101)$ 47,725$ 3 months ended3 months ended