bhrb-20240331


	March 31, 2024 (Unaudited)		December 31, 2023 (Audited)
Assets
Cash and due from banks	$	9,152	$	8,896
Interest-earning deposits with banks	44,925		35,602
Cash and cash equivalents	54,077		44,498
Securities available-for-sale, at fair value	1,275,520		1,248,439
Restricted stock, at cost	16,357		5,964
Loans held-for-sale, at fair value	2,422		1,497
Loans	2,118,155		2,087,756
Allowance for credit losses	(24,606)		(25,301)
Net loans	2,093,549		2,062,455
Premises and equipment, net	61,576		61,128
Accrued interest receivable	16,328		15,895
Company-owned life insurance	94,755		94,159
Other assets	81,806		83,544
Total Assets	$	3,696,390	$	3,617,579

Liabilities and Shareholders’ Equity
Liabilities
Non-interest-bearing deposits	$	822,767	$	830,320
Interest-bearing deposits	2,167,346		2,171,561
Total deposits	2,990,113		3,001,881
Borrowed funds	360,000		272,000
Accrued interest and other liabilities	26,969		28,948
Total Liabilities	3,377,082		3,302,829

Commitments and contingent liabilities (see Note 10)

Shareholders’ Equity
Preferred Stock, $1.00 par value per share; 2,000,000 shares authorized; no shares issued or outstanding	—		—
Common Stock	4,006		4,000
$0.50 par value; 20,000,000 shares authorized and 8,011,315 issued at March 31, 2024, and 8,000,000 issued at December 31, 2023; 7,440,025 shares outstanding at March 31, 2024, and 7,428,710 shares outstanding at December 31, 2023
Additional paid-in capital	15,308		14,495
Retained earnings	428,532		427,333
Accumulated other comprehensive income (loss)	(100,954)		(103,494)
Treasury stock	(27,584)		(27,584)
571,290 shares, at cost, at March 31, 2024, and 571,290 shares, at cost, at December 31, 2023
Total Shareholders’ Equity	319,308		314,750
Total Liabilities and Shareholders’ Equity	$	3,696,390	$	3,617,579


	Three Months Ended March 31,
	2024		2023
Interest income
Loans, including fees	$	28,045	$	22,760
Taxable securities	8,943		9,802
Tax-exempt securities	1,361		1,458
Other interest income	396		308
Total interest income	38,745		34,328
Interest expense
Deposits	12,931		5,401
Borrowed funds	3,655		4,138
Other interest expense	28		15
Total interest expense	16,614		9,554
Net interest income	22,131		24,774

Credit loss expense - loans and available-for-sale securities	(670)		523
Credit loss expense - off-balance sheet credit exposures	—		(8)
Total provision for (recapture of) credit losses	(670)		515
Net interest income after credit loss expense	22,801		24,259

Non-interest income
Fiduciary and wealth management	1,419		1,337
Service charges and fees	1,606		1,635
Net gains (losses) on securities	—		—
Income from company-owned life insurance	547		560
Other non-interest income	682		682
Total non-interest income	4,254		4,214

Non-interest expense
Salaries and wages	9,518		9,494
Pensions and other employee benefits	2,365		2,468
Occupancy	1,538		1,457
Equipment rentals, depreciation and maintenance	1,281		1,339
Other operating	6,463		5,607
Total non-interest expense	21,165		20,365

Income before income taxes	5,890		8,108
Income tax expense	678		584

Net income	$	5,212	$	7,524
Earnings per common share:
Basic	$	0.70	$	1.01
Diluted	0.69		1.00

See Notes to Consolidated Financial Statements.


	Three Months Ended March 31,
	2024		2023
Net income	$	5,212	$	7,524
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities:
Unrealized gain (loss) arising during period, net of tax of $117 and ($4,577) for the three months ended March 31, 2024, and March 31, 2023, respectively	(441)		17,218
Reclassification adjustment for loss (gain) on securities, net of tax of $— and $— for the three months ended March 31, 2024, and March 31, 2023, respectively	—		—
Reclassification adjustment for loss (gain) on fair value hedge, net of tax of $8 and $496 for the three months ended March 31, 2024, and March 31, 2023, respectively	(32)		(1,866)
Unrealized gain (loss) on cash flow hedge:
Unrealized holding gain (loss) on cash flow hedge, net of tax of ($707) and ($13) for the three months ended March 31, 2024, and March 31, 2023, respectively	2,660		47
Reclassification adjustment for loss (gain) included in net income, net of tax ($94) and ($76) for the three months ended March 31, 2024, and March 31, 2023, respectively	353		287
Total other comprehensive income (loss)	2,540		15,686
Comprehensive income (loss)	$	7,752	$	23,210


	Common Stock			Additional Paid-in Capital		Retained Earnings		Comprehensive Income (Loss)		Treasury Stock		Shareholders’ Equity
	Shares Outstanding	Amount
Balance December 31, 2023	7,428,710	$	4,000	$	14,495	$	427,333	$	(103,494)	$	(27,584)	$	314,750
Net income	—	—		—		5,212		—		—		5,212
Other comprehensive income (loss)	—	—		—		—		2,540		—		2,540
(Purchase) sale of treasury stock, net	—	—		—		—		—		—		—
Cash dividends, declared - $0.53 per share	—	—		—		(3,939)		—		—		(3,939)
Share-based compensation expense, net	11	6		813		(74)		—		—		745
Balance March 31, 2024	7,440,025	$	4,006	$	15,308	$	428,532	$	(100,954)	$	(27,584)	$	319,308

Balance December 31, 2022	7,425,760	$	4,000	$	12,282	$	424,391	$	(139,495)	$	(27,725)	$	273,453
Cumulative effect adjustment due to the adoption of CECL, net of tax	—	—		—		(3,439)		—		—		(3,439)
Net income	—	—		—		7,524		—		—		7,524
Other comprehensive income (loss)	—	—		—		—		15,686				15,686
(Purchase) sale of treasury stock, net	2,080	—		—		—		—		99		99
Cash dividends, declared - $0.53 per share	—	—		—		(3,936)		—		—		(3,936)
Share-based compensation expense, net	—	—		404		(8)		—		—		396
Balance March 31, 2023	7,427,840	$	4,000	$	12,686	$	424,532	$	(123,809)	$	(27,626)	$	289,783


	Three Months Ended March 31,
	2024		2023
Cash Flows from Operating Activities
Net Income	$	5,212	$	7,524
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets	820		684
Amortization of housing tax credits	1,372		1,398
Realized loss (gain) on sales of available-for-sale securities	—		—
Provision for (recapture of) credit losses	(670)		515
Income from company-owned life insurance	(547)		(560)
Deferred tax (benefit)	741		(1,234)
Loss on disposal of fixed assets	235		—
Accretion of securities	(442)		(466)
Amortization of securities	2,228		2,350
Share-based compensation expense	632		581
Repayment of operating lease liabilities	(598)		(810)
(Gain) on loans held-for-sale	(67)		(15)
Proceeds from sale of loans held-for-sale	5,457		658
Change in fair value of loans held-for-sale	26		7
Originations of loans held-for-sale	(6,340)		(1,010)
(Increase) decrease in accrued interest receivable	(433)		323
(Increase) decrease in other assets	1,006		(1,235)
Increase (decrease) in accrued interest payable and other liabilities	(1,543)		2,216
Net cash flows provided by operating activities	$	7,089	$	10,926

Cash Flows from Investing Activities
Proceeds from maturities, prepayments, and calls of securities available-for-sale, net	35,010		28,883
Proceeds from sale of securities available-for-sale, net	1,281		—
Purchases of securities available-for-sale, net	(65,718)		—
Sales of restricted stock	2,304		22,232
Purchases of restricted stock	(12,696)		(14,918)
Purchases of property and equipment, net of disposals	(1,503)		(2,671)
Proceeds from (purchase of) company-owned life insurance	1,130		(6)
(Increase) in loans made to customers, net	(30,425)		(64,517)
Net cash flows (used in) investing activities	$	(70,617)	$	(30,997)

Cash Flows from Financing Activities
Net (decrease) in non-interest-bearing accounts	(7,553)		(53,969)
Net increase (decrease) in interest-bearing accounts	(4,215)		165,960
Increase (decrease) in other short-term borrowings	88,000		(21,400)
Repayment of finance lease liabilities	(53)		(39)
Cash dividends paid	(3,939)		(3,936)
Proceeds from employee stock purchase program	48		—
Issuance of common stock	819		—


Sale of treasury stock	—		99
Net cash flows provided by financing activities	$	73,107	$	86,715
Increase in cash and cash equivalents	9,579		66,644
Cash and cash equivalents
Beginning of period	44,498		50,295
End of period	$	54,077	$	116,939

Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors	$	14,978	$	4,276
Interest paid on other borrowed funds	785		3,952
Interest paid on finance lease	28		15
Income taxes	625		—
Change in unrealized gains on available-for-sale securities	(559)		21,795
Lease liability arising from obtaining right-of-use assets	—		—
Transfers from portfolio loans to loans held-for-sale	—		—
Financing of sale from loan held-for-sale	—		—

The Company may modify loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, interest rate reduction, or an other-than-insignificant payment delay. When principal forgiveness is provided, the amount of forgiveness is charged off against the ACL. The Company may also provide multiple types of modifications on an individual loan. For the three months ended March 31, 2024, and for the year ended December 31, 2023, the Company did not extend any modifications to borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan.

The following discussion and analysis of our consolidated financial condition and results of operations of the Company should be read in conjunction with the preceding consolidated financial statements and notes presented in Item 1. Financial Statements of this Form 10-Q, as well as with the audited consolidated financial statements and notes for the year ended December 31, 2023, included in our Form 10-K filed with the SEC on March 22, 2024, and as amended on April 12, 2024 (the “Form 10-K”). Historical results of operations and the percentage relationships among any amounts included and any trends that may appear may not indicate trends in operations or results of operations for any future periods. We are a financial holding company, and we conduct all of our material business operations through the Bank. As a result, the discussion and analysis below primarily relate to activities conducted at the Bank.

This Form 10-Q contains statements that we believe are, or may be considered to be, “forward-looking statements”. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current beliefs, expectations, or assumptions regarding the future of the business, future plans and strategies, operational results, and other future conditions of the Company. All statements other than statements of historical fact included in this Form 10-Q regarding the prospects of our industry or our prospects, plans, financial position, or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “plans,” “expects” or “does not expect,” “is expected,” “look forward to,” “budget,” “scheduled,” “estimates,” “forecasts,” “will continue,” “intends,” “the intent of,” “have the potential,” “anticipates,” “does not anticipate,” “believes,” “should,” “should not,” or variations of such words and phrases that indicate that certain actions, events, or results “may,” “could,” “would,” “might,” or “will,” “be taken,” “occur,” or “be achieved,” or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections, and other forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates, and intentions expressed in such forward-looking statements. Important risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company, as applicable, to be materially different from any expected future results, performance, or achievements expressed or implied by such forward-looking information and statements include, but are not limited to, the risks described in Item 1A, under the caption “Risk Factors” in our Form 10-K, and in Part II, Item 1A. Risk Factors in this Form 10-Q.

Readers are cautioned not to place undue reliance on any forward-looking statements contained in this Form 10-Q, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Form 10-Q.

Burke & Herbert Financial Services Corp. was organized as a Virginia corporation on September 14, 2022, to serve as the holding company for the Bank. 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 as all shareholders of the Bank became shareholders of the Company. In September 2023, the Company elected financial holding company status. As a financial holding company, the Company is subject to regulation and supervision by the Federal Reserve. The Company has no material operations and owns 100% of the Bank. The Bank

The Bank derives a significant portion of its income from interest received on loans and investments. The Bank’s primary source of funding is deposits, both interest-bearing and non-interest-bearing. In order to maximize the Bank’s net interest income, or the difference between the income on interest-earning assets and the expense of interest-bearing liabilities, the Bank must not only manage the volume of these balance sheet items, but also the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities. To account for credit risk inherent in all loans, the Bank maintains an ACL to absorb expected credit losses on existing loans that may become uncollectible. The Bank establishes and maintains this ACL by charging a provision for credit losses against operating earnings. In order to maintain its operations and branch locations, the Bank incurs various operating expenses, which are further described within the “Results of Operations” later in this section.

Pursuant to the Merger Agreement, on the Closing Date, (i) Summit merged with and into Burke & Herbert, with Burke & Herbert continuing as the surviving corporation (the “Merger”), and (ii) immediately following the Merger, Summit Community Bank, Inc., a West Virginia chartered bank and a wholly-owned subsidiary of Summit (“SCB”), merged with and into Burke & Herbert Bank & Trust Company, a Virginia chartered bank and a wholly-owned subsidiary of Burke & Herbert (“Burke & Herbert Bank”), with Burke & Herbert Bank as the surviving bank (the “Bank Merger”).

In the merger, holders of Summit common stock outstanding at the effective time of the merger received 0.5043 shares of Burke & Herbert common stock for each share of Summit common stock they owned (the “exchange ratio”), subject to the payment of cash in lieu of fractional shares. The total aggregate consideration payable in the Merger was approximately 7,405,772 shares of Burke & Herbert Common Stock. Additionally, each share of the Summit Series 2021 Preferred Stock issued and outstanding was converted into the right to receive a share of the new Burke & Herbert Series 2021 Preferred Stock.

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions, and judgments based on available information. These estimates, assumptions, and judgments affect the amounts reported in the financial statements and accompanying notes and are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions, and judgments inherent in those policies, are critical in understanding our financial statements.

Our most significant accounting policies are presented in the notes to the accompanying consolidated financial statements. These policies, along with the other disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, we have identified the determination of the allowance for credit losses and income taxes to be the accounting areas that require the most subjective or complex judgments, and as such, could be most subject to revision as new information becomes available.

The allowance for credit losses represents our estimate of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and projections including reasonable and supportable forecasts, reversion, and post-reversion forecasts. It is a valuation account that is deducted from the financial assets’ amortized cost basis to present the net amount expected to be collected on the financial asset. Financial assets are charged-off against the allowance when management believes the uncollectibility of a financial asset is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company’s loan portfolio is the largest financial asset that is in scope of this critical accounting estimate. Determining the amount of the allowance for credit losses is considered a critical accounting estimate, because it is based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts, and prepayment experience as related to credit contractual terms. Management estimates the allowance balance using relevant available information from internal and external sources. Historical credit loss experience provides the basis for the estimation of expected credit losses; adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, and delinquency levels, as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. The model methodology used for funded credits, along with taking into consideration the probability of drawdowns or funding on unfunded commitments and whether such commitments are irrevocable or not by the Company, is how the Company determines the allowance for credit losses for unfunded commitments. These evaluations are conducted at least quarterly and more frequently, if deemed necessary.

The Company is using an internally developed model that produces an estimate of the allowance for credit losses as the lifetime expected credit losses of the loan portfolio. This model uses a remaining useful life or WARM method within defined-contractual terms by federal call codes. The model forecasts net charge-off rates by call codes using ordinary least squares (“OLS”) regression models that use macroeconomic variables to forecast the Company’s and peer banks’ net charge-off rates. These models are used to produce reasonable and supportable forecasts of net charge-off rates. The macroeconomic variables utilized by the Company include variables that meet defined criteria in forecasting credit losses for our loan portfolio. These variables include, but are not limited to, unemployment rates, housing and commercial real estate prices, gross domestic product levels, equity market conditions or interest rates, as well as other variables that are portfolio-specific, such as those pertaining to commercial real estate or to residential loan portfolios. The Company sources the macroeconomic variables and the macroeconomic variable forecasts that it uses in its ACL model from the Standard & Poor’s Global Market Intelligence and from CoStar Group.

The Company currently has set an initial reasonable and supportable period of two years with a subsequent straight-line loss-rate reversion for the following four quarters before then utilizing historical average loss rates in remaining periods of the modeled contractual terms. Based on management’s analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond information used to calculate reasonable and supportable, reversion and post-reversion period forecasts on collectively evaluated loans. As the reasonable and supportable and reversion period forecasts reflect the use of the macroeconomic variable loss drivers, management may consider that an additional or reduced reserve is warranted through qualitative risk factors based on current and expected conditions, including those that utilize supplemental information relative to the macroeconomic variable loss drivers. Qualitative adjustments considered by management include the following: (i) management’s assessment of macroeconomic forecasts used in the model and how those forecasts align with management’s overall evaluation of current expected credit conditions; (ii) organization specific risks such as credit concentrations, collateral specific risks, nature and size of the portfolio, and external factors that may ultimately impact credit quality; and (iii) underwriting and delinquency trends. The qualitative factors applied at March 31, 2024, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management’s assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model. Management reviews supplemental data sources including historical net charge-off rates and data measuring other specific credit outcomes from its systems of record in supporting qualitative factors. However, qualitative factor evaluations are inherently imprecise and require significant management judgement.

The Company’s income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated taxes due. The calculation of each component of the Company’s income tax provision is complex and requires the use of estimates and judgments in its determination. As part of the Company’s evaluation and implementation of business strategies, consideration is given to the regulations and tax laws that apply to the specific facts and circumstances for any tax positions under evaluation. Management closely monitors tax developments on both the federal and state level in order to evaluate the effect they may have on the Company’s overall tax

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expenses. In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, the Company must consider all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and the results of recent operations. A valuation allowance is recognized for a deferred tax asset if, based on the available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized. See Note 8 — Income Taxes, in Notes to the December 31, 2023 Consolidated Financial Statements of the Company for additional information.

We prepare our financial statements in accordance with U.S. GAAP and also present certain non-GAAP financial measures that exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with U.S. GAAP. Non-GAAP measures are provided as additional useful information to assess our financial condition and results of operations (including period-to-period operating performance). These non-GAAP measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP measures with similar names used by other companies. For more information, including the reconciliation of these non-GAAP financial measures to their corresponding GAAP financial measures, see the respective sections where the measures are presented.

The commercial real estate (“CRE”) sector has been impacted significantly by rising interest rates and higher vacancies, increasing the prospect of default that borrowers may face due to the record amount of upcoming maturities. In addition, the office market continues to struggle with fewer employees in the office after the COVID-19 pandemic. The Bank continues to monitor its commercial real estate portfolio by reviewing various credit risk and concentration reports. The Bank’s exposure to commercial real estate at March 31, 2024, was $1.3 billion or 61.6% of its gross loan portfolio, not including owner-occupied commercial real estate and acquisition, construction & development. Commercial real estate as a percent of total assets at March 31, 2024, was 35.3%, not including owner-occupied commercial real estate and acquisition, construction & development. Including owner-occupied commercial real estate and acquisition, construction & development, total exposure was $1.5 billion or 71.2% of our total gross loans and 40.7% of total assets at March 31, 2024.

Monitoring of the CRE concentration is performed at both the loan level and at the portfolio level. The Credit Risk Management team provides management and the board of directors with periodic reports on the credit portfolio, which include the CRE portfolio (including owner-occupied CRE and acquisition, construction & development loans). These reports provide an assessment of asset quality and risk rating migration and monitor concentrations against the board approved concentration limits (including sub-limits). The tables below present the Bank’s commercial real estate, owner-


	Commercial Real Estate by Collateral Type and Geographic Location
	VA		MD		DC		Other		Total		Percentage
Retail Real Estate	$	211,511	$	111,204	$	29,693	$	8,966	$	361,374	27.7	%
Industrial/Warehouse	189,849		20,264		—		—		210,113		16.1
Multi-Family	123,068		19,602		39,573		901		183,144		14.0
Office Buildings/Condos	124,522		39,108		24,549		—		188,179		14.4
Hotels/Motels	36,384		39,844		52,767		13,779		142,774		10.9
Self-Storage	58,081		—		—		—		58,081		4.5
Nursing-Assisted Living	38,090		—		—		—		38,090		2.9
Restaurants	18,868		4,256		10,668		863		34,655		2.7
Gas Stations	7,420		1,676		14,882		—		23,978		1.8
Other	24,206		9,648		30,910		—		64,764		5.0
Total	$	831,999	$	245,602	$	203,042	$	24,509	$	1,305,152	100.0	%


	Owner-Occupied Commercial Real Estate by Collateral Type and Geographic Location
	VA		MD		DC		Other		Total		Percentage
Industrial/Warehouse	$	38,694	$	598	$	—	$	5,896	$	45,188	34.5	%
Office Buildings/Condos	22,380		596		635		—		23,611		18.0
Churches/Religious Organizations	19,704		1,244		243		—		21,191		16.2
Retail	11,373		—		133		—		11,506		8.8
Private School	7,616		—		—		—		7,616		5.8
Gas Stations	5,335		1,088		—		—		6,423		4.9
Restaurants	2,254		171		—		—		2,425		1.8
Other	12,245		581		368		—		13,194		10.0
Total	$	119,601	$	4,278	$	1,379	$	5,896	$	131,154	100.0	%


	Acquisition, Construction & Development by Collateral Type and Geographic Location
	VA		MD		DC		Other		Total		Percentage
Multi-Family	$	—	$	—	$	12,951	$	14,515	$	27,466	38.1	%
Industrial/Warehouse	—		11,411		—		—		11,411		15.8
Land	10,999		1,150		—		—		12,149		16.9
Retail Real Estate	—		7,153		—		1,658		8,811		12.2
Storage	3,999		—		—		—		3,999		5.6
Residential For-Sale	2,114		723		—		—		2,837		3.9
Other	5,349		—		—		—		5,349		7.5
Total	$	22,461	$	20,437	$	12,951	$	16,173	$	72,022	100.0	%

CRE loans are monitored through various processes that include payment monitoring, financial reporting, and covenant compliance monitoring, and annual reviews for larger relationships. Furthermore, construction loans are monitored throughout the life of the project and the construction loan administration function is centralized within the Credit Risk Management team. Monitoring the market conditions is also an important component of prudent CRE risk management. Quarterly construction progress reviews are also completed on all acquisition, construction & development loans. For each loan, management reviews the adequacy of the construction budget, adequacy of the interest reserve, pace of construction, and review of any loan covenants.

Virginia (approximately 64.6%) and within the Greater Washington, DC MSA area, and it does not have significant exposure to any economic areas of the country that are underperforming the national economy. Additionally, the Bank’s overall exposure to the “Office” collateral type is 14.0% of total commercial real estate loans, including owner-occupied commercial real estate and acquisition, construction & development. The Bank believes that the combined loan portfolio is well-diversified, generally seasoned, manageable, and will outperform the industry in terms of performance through the economic cycle; however, our underwriting, review, and monitoring cannot eliminate all of the risks related to these loans. For further discussion see Part II, Item 1A . “Risk Factors”.

The Company’s key inputs and certain assumptions of the stress testing included, but were not limited to, uninsured deposits, deposit composition and deposit flows, borrowings and borrowing capacity, interest rate movements and sensitivity, unrealized losses in the investment securities portfolio, loan balances and loan demand, credit risks, and current allowances for credit losses. Results of the stress tests indicated capital levels that remained above the well capitalized regulatory ratios and liquidity metrics remained within internal policy guidelines. For additional information related to capital, see Notes to the Consolidated Financial Statements – Note 8 — Regulatory Capital Matters. The Company intends to continue conducting such stress tests on a periodic basis.

Liquidity is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the Company’s ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves.

The Company assesses the need for liquidity in a variety of scenarios. Those scenarios may include projected growth, credit deterioration, deposit decay, interest rate changes, and a variety of other economic scenarios that can impact the liquidity position of the Company. These analyses are performed on a quarterly basis in conjunction with the Company’s Asset/Liability meetings, and findings are reported to the Asset/Liability Committee (the “ALCO”) and to the Board. From time to time, management may change the frequency of such testing or update certain inputs as a result of abnormal market conditions.

Findings, as a result of the Company’s prudent liquidity modeling, may result in the change of certain products offered to customers or adjust the way the Company manages its balance sheet. Such changes could include adjusting interest rates offered on certain deposit products, changes to interest rates charged in lending activities, or the suspension of certain products and activities altogether. Times of significant economic stress may cause the mix of funding to shift and increase the likelihood of changes to certain products in order to manage the Company’s overall liquidity and capital position.

The liability portion of the balance sheet provides liquidity through interest-bearing and non-interest-bearing deposit accounts and through FHLB and other borrowings. Brokered deposits, federal funds purchased, securities sold under agreements to repurchase, and other short-term borrowings are additional sources of liquidity and basically represent the Company’s incremental borrowing capacity. These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs.

In addition to the Company’s financial performance and condition, liquidity may be impacted by the Company’s structure as a financial holding company that is a separate legal entity from the Bank. The Company requires cash for various operating needs that could include payment of dividends to its shareholders, the servicing of debt, and the payment of general corporate expenses. The primary source of liquidity for the Company is dividends paid by the Bank. Applicable federal and state statutes and regulations impose restrictions on the amount of dividends that may be paid by the Bank. In addition to the formal statutes and regulations, regulatory authorities also consider the adequacy of the Bank’s total capital in relation to its assets, deposits, and other such items. Any future dividends must be set forth in the Company’s capital plans before any dividends can be paid.

Applicable Basel III Capital Rules require the Company and the Bank to maintain minimum Common Equity Tier 1 (“CET 1”), Tier 1, and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and counter-cyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The Basel III Capital Rules also provide for a “counter-cyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank.

Under capital adequacy guidelines and the regulatory framework for “prompt corrective action”, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Additionally, federal banking laws require regulatory authorities to take “prompt corrective action” with respect to depository institutions that do not satisfy minimum capital requirements. The extent of these powers depends upon whether the institution in question is “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized”, or “critically undercapitalized”, as such terms are defined under federal banking agency regulations. Depository institutions that do not meet minimum capital requirements will face constraints on payment of dividends, equity repurchases, and compensation based on the amount of shortfall. A depository institution that is not “well capitalized” is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, may be subject to asset growth limitations, and may be required to submit capital restoration plans.

The majority of assets and liabilities of a financial institution are monetary in nature; therefore, a financial institution differs greatly from most commercial and industrial companies, which have significant investments in fixed assets or inventories that are greatly impacted by inflation. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher-than-normal rates in order to maintain an appropriate equity-to-assets ratio. Inflation also affects other expenses that tend to rise during periods of general inflation.

Management believes the most significant potential impact of inflation on financial results is a direct result of the Company’s ability to manage the impact of changes in interest rates. Management attempts to maintain a balanced position between rate-sensitive assets and liabilities over an economic cycle in order to minimize the impact of interest rate fluctuations on net interest income. However, this goal can be difficult to completely achieve in times of rapidly changing interest rates and is one of many factors considered in determining the Company’s interest rate positioning.

We face a variety of risks that may impact various aspects of our financial performance from time to time. The extent of such impacts may vary depending on factors such as the current business and economic conditions, political and regulatory environment, and operational challenges. Many of these risks and our risk management strategies are described in more detail elsewhere in this Report as well as with the audited consolidated financial statements and notes for the year ended December 31, 2023, included in our Form 10-K.

The following table contains selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of March 31, 2024, and March 31, 2023, and the selected income statement data for the three months ended March 31, 2024, and March 31, 2023, have been derived from our consolidated financial statements included elsewhere in this Form 10-Q and should be read in conjunction with the other information contained in this Form 10-Q.


	As of the Three Months Ended March 31,
(In thousands, except ratios, share and per share data)	2024			2023
Selected Financial Condition Data:
Total assets	$	3,696,390		$	3,671,186
Total cash and cash equivalents	54,077			116,939
Total investment securities, at fair value	1,275,520			1,362,785
Net loans	2,093,549			1,926,034
Company-owned life insurance	94,755			93,053
Premises and equipment, net	61,576			55,157
Total deposits	2,990,113			3,032,391
Advances and other borrowings	360,000			321,700
Total shareholders’ equity	319,308			289,783

	As of or for the Three Months Ended March 31,
	2024			2023
Selected Operating Data:
Interest income	$	38,745		$	34,328
Interest expense	16,614			9,554
Net interest income	22,131			24,774
Provision for (recapture of) credit losses	(670)			515
Total non-interest income	4,254			4,214
Total non-interest expenses	21,165			20,365
Income before income taxes	5,890			8,108
Income tax expense	678			584
Net income	5,212			7,524

Per Share Data:
Average shares of common stock outstanding, basic	7,433,481			7,426,638
Average shares of common stock outstanding, diluted	7,527,489			7,504,473
Total shares of common stock outstanding	7,440,025			7,427,840
Basic net income per share	$	0.70		$	1.01
Diluted net income per share	0.69			1.00
Dividends declared per share	0.53			0.53
Dividend payout ratio (1)	76.81		%	53.00		%
Book value (at period end)	$	42.92		$	39.01


	As of or for the Three Months Ended March 31,
	2024		2023
Performance Ratios:
Return on average assets	0.58	%	0.85	%
Return on average equity	6.67		10.83
Interest rate spread (2)	1.95		2.58
Net interest margin (3)	2.68		3.06
Efficiency ratio (4)	80.22		70.25

Capital Ratios:
Common equity tier 1 (CET 1) capital to risk-weighted assets	16.56	%	17.55	%
Total risk-based capital to risk-weighted assets	17.54		18.65
Tier 1 capital to risk-weighted assets	16.56		17.55
Tier 1 capital to average assets	11.36		11.19
Average equity to average assets	8.69		7.85

Asset Quality Ratios:
Allowance coverage ratio	1.16	%	1.32	%
Allowance for credit losses as a percentage of non-performing loans	91.99		791.87
Net charge-offs to average outstanding loans during the period	0.00		0.00
Non-performing loans as a percentage of total loans	1.26		0.17
Non-performing assets as a percentage of total assets	0.72		0.09

Other Data:
Number of full-service branches	23		23
Number of full-time equivalent employees	381		411

Consolidated net income for the three months ended March 31, 2024, was $5.2 million, compared to $7.5 million earned during the three months ended March 31, 2023. The $2.3 million, or 30.7%, decrease in net income is primarily due to increased funding costs and merger-related costs that were partially offset by an increase in loan interest income, due to increased loan balances and higher rates, and a recapture of credit loss provision in the current quarter ended March 31, 2023.

For the three months ended March 31, 2024, the Company recorded credit loss provision recapture of $0.7 million compared to a provision of $0.5 million for the three months ended March 31, 2023. For the three months ended March 31, 2024, the Company was able to recapture provision as a result of loan payoffs and loan upgrades that resulted in a lower percentage of credit watch list loans to total loans. These loan payoffs and loan upgrades resulted in provision recapture from our ACL model even with new loan growth for the quarter.

Non-interest expense increased by $0.8 million, or 3.9%, to $21.2 million for the three months ended March 31, 2024, as compared to $20.4 million for the three months ended March 31, 2023. The increase was primarily due to increases in other non-interest expenses of $0.9 million including higher legal, consulting, and audit fees arising from merger-related filings slightly offset by reduced employee benefit expenses and equipment and occupancy costs.

Net interest income is the principal component of the Company’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Net interest margin, stated as a percentage, is the yield obtained by dividing the difference between interest income generated on earning assets and the interest expense paid on all funding sources by average earning assets.

Fluctuations in interest rates as well as changes in the volume and mix of earnings assets and interest-bearing liabilities can impact net interest income and net interest margin. Management closely monitors both total net interest income and the net interest margin and seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk through our asset and liability policies. Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities.

Net interest income totaled $22.1 million for the three months ended March 31, 2024, compared to $24.8 million for the three months ended March 31, 2023. The decrease in net interest income was primarily driven by both higher interest rates and higher volume of interest-bearing liabilities. The impact of higher rates on interest-bearing liabilities was partially offset by the increase in volume and rates of interest-earning assets. However, the current interest rate environment has resulted in higher deposit rates to retain depositors and increased the cost of borrowings from the FHLB and the Federal Reserve which has more than offset increases in interest income from higher rates and the increase in volume of loans.

The rate paid on interest-bearing deposits increased to 2.41% during the three months ended March 31, 2024, from 1.09% during the three months ended March 31, 2023. The large increase was a result of market and economic conditions, which led to an increase in our offering rate for selected parts of our deposit portfolio, specifically the time and money-market deposit accounts. Additional increases in the market rates may negatively impact our cost of funds rate.


	For the Three Months Ended March 31,
	2024						2023
	Average Outstanding Balance		Interest Income/Expense		Rate Earned/Paid		Average Outstanding Balance		Interest Income/Expense		Rate Earned/Paid

Assets:
Loans, gross (1)(2)	$	2,085,826	$	28,045	5.41	%	$	1,919,678	$	22,760	4.81	%
Interest-earning deposits and fed funds sold	41,692		396		3.82		43,973		308		2.84
Taxable securities	989,875		8,943		3.63		1,095,486		9,803		3.63
Tax-exempt securities (3)	259,699		1,723		2.67		272,783		1,845		2.74
Total securities	1,249,574		10,666		3.43		1,368,269		11,648		3.45
Total interest-earning assets	3,377,092		39,107		4.66		3,331,920		34,716		4.23
Non-interest-earning assets	243,145						257,675
Total assets	$	3,620,237					$	3,589,595

Liabilities and shareholders’ equity:
Deposits:
Non-interest-bearing demand	$	812,199					$	923,039
Interest-bearing demand	489,779		765		0.63	%	572,547		199		0.14	%
Savings	922,732		4,529		1.97		1,018,851		2,673		1.06
Time	745,945		7,637		4.12		411,785		2,530		2.49
Total interest-bearing deposits	2,158,456		12,931		2.41		2,003,183		5,402		1.09
Total deposits	2,970,655		12,931		1.75		2,926,222		5,402		0.75
Borrowings:
FHLB advances and other	307,446		3,683		4.82		358,124		4,153		4.70
Total interest-bearing liabilities	2,465,902		16,614		2.71		2,361,307		9,555		1.64
Non-interest-bearing liabilities	27,718						23,588
Equity	314,418						281,661
Total liabilities and equity	$	3,620,237					$	3,589,595

Taxable-equivalent net interest income /net interest spread (4)			22,493		1.95	%			25,161		2.58	%
Taxable-equivalent net interest margin (5)					2.68	%					3.06	%
Taxable-equivalent net adjustment			(362)						(387)
Net interest income			$	22,131					$	24,774
Net interest-earning assets	$	911,190					$	970,613

Taxable-equivalent net interest margin, as presented above, is calculated by dividing FTE net interest income by total average earning assets. Net interest income, on an FTE basis, is a non-GAAP financial measure that the Company believes to provide a more accurate picture of the interest margin for comparative purposes. Management believes FTE net interest income is a standard practice in the banking industry, and when net interest income is adjusted on an FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable; however, the adjustment to an FTE basis has no impact on

net income. FTE net interest income is calculated by adding the tax benefit on certain financial interest earning assets, whose interest is tax-exempt, to total interest income then subtracting total interest expense. As a non-GAAP measure, FTE net interest income should not be considered as a substitute for the nearest comparable GAAP measure, net interest income. Net interest income shown elsewhere in this presentation is GAAP net interest income. The following table reconciles GAAP net interest income to FTE net interest income (in thousands).


	Three Months Ended
	March 31, 2024		March 31, 2023
GAAP Financial Measurements
Interest Income - Loans	$	28,045	$	22,760
Interest Income - Securities taxable	8,943		9,802
Interest Income - Securities tax-exempt	1,361		1,458
Interest Income - Other interest income	396		308
Interest Expense - Deposits	12,931		5,401
Interest Expense - Borrowed funds	3,655		4,138
Interest Expense - Other	28		15
Total Net Interest Income	$	22,131	$	24,774

Non-GAAP Financial Measurements
Add: Tax Benefit on Tax-Exempt Interest Income - Securities	$	362	$	387
Total Tax Benefit on Tax-Exempt Interest Income (1)	362		387
Tax-Equivalent Net Interest Income	$	22,493	$	25,161

The following table sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Interest income and interest expense for the three months ended March 31, 2024, and March 31, 2023, are annualized using an actual days over calendar year method. Volume variances are equal to the increase or decrease in average balance multiplied by current period rates, and rate variances are equal to the increase or decrease in rate times prior period average balances. Variances attributable to both rate and volume changes are calculated by multiplying the change in rate by the change in average balance and are allocated to the volume variance. See table below (in thousands).


	Three Months Ended March 31, 2024, compared to March 31, 2023
	Dollar Increase (Decrease) Due to Change in:
	Average Volume		Average Rate		Net Change
Income from the interest-earning assets:
Loans, gross	$	2,283	$	3,002	$	5,285
Securities (1)	(1,013)		30		(983)
Interest-bearing deposits and fed funds sold	(22)		110		88
Total interest income on interest-earning assets	1,248		3,142		4,390
Expense from the interest-bearing liabilities:
Interest-bearing demand deposits	(129)		696		567
Savings deposits	(472)		2,328		1,856
Time deposits	3,606		1,501		5,107
Total interest expense on interest-bearing deposits	3,005		4,525		7,530
Borrowings	(607)		137		(470)
Total interest expense on interest-bearing liabilities	2,398		4,662		7,060
Taxable-equivalent net interest income	$	(1,150)	$	(1,520)	$	(2,670)

Total interest income was $38.7 million for the three months ended March 31, 2024, compared to $34.3 million for the three months ended March 31, 2023, an increase of 12.9%. The increase in interest income was primarily driven by an increase in both rates and volume for the loan portfolio slightly offset by lower volume in the securities portfolio. Interest income on loans increased by $5.3 million while interest income on securities decreased $1.0 million, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Total interest expense was $16.6 million for the three months ended March 31, 2024, compared to $9.6 million for the three months ended March 31, 2023. The increase in interest expense was primarily driven by increasing rates for both deposits and borrowed funds and an increased volume of time deposits, slightly offset by declines in volume of borrowings, interest-bearing demand deposits, and savings deposits. Interest expense on interest-bearing deposits increased by $7.5 million while interest on borrowed funds decreased by $0.5 million due to volume, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

The provision recapture of credit losses was $0.7 million for the three months ended March 31, 2024, compared to a provision of $0.5 million for the three months ended March 31, 2023. The provision recapture was the result of loan payoffs and loan upgrades that resulted in a lower percentage of credit watch list loans to total loans. These loan payoffs and loan upgrades resulted in provision recapture from our ACL model even with new loan growth for the quarter. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information.

increases in salaries and wages of $24.0 thousand and occupancy expenses of $81.0 thousand. Increases were partially offset by declines in pensions and other employee benefits expense of $103.0 thousand and equipment rentals, depreciation and maintenance expenses of $58.0 thousand. For the three months ended March 31, 2024, the Company incurred $633.0 thousand of legal, consulting, and audit fees related to the merger with Summit Financial Group, Inc. that are included in other non-interest expense for the three months ended March 31, 2024. See Note 13 — Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense.

Income tax expense was $0.7 million for the three months ended March 31, 2024, an increase of $0.1 million from the tax provision for the three months ended March 31, 2023. The increase was due to a tax adjustment that resulted in a reduction of the tax expense for the three months ended March 31, 2023. Removing that benefit would have resulted in a consistent effective tax rate for the three months ended March 31, 2024, and March 31, 2023. For the three months ended March 31, 2024, and March 31, 2023, our effective tax rates were 11.5% and 7.2%, respectively.

Assets increased by $78.8 million to $3.70 billion as of March 31, 2024, compared to $3.62 billion as of December 31, 2023. Loans, net of ACL, increased by $31.1 million from $2.06 billion as of December 31, 2023, to $2.09 billion as of March 31, 2024. Deposits decreased by $11.8 million and amounted to $2.99 billion at March 31, 2024, compared to $3.00 billion at December 31, 2023. Borrowed funds increased by $88.0 million to $360.0 million as of March 31, 2024, compared to $272.0 million at December 31, 2023.

Our investment policy is established and reviewed annually by the Board. We are permitted under federal law to invest in various types of liquid assets, including United States Government obligations, securities of various federal agencies and of state and municipal governments, mortgage-backed securities, time deposits of federally insured institutions, certain bankers’ acceptances, and federal funds. Our securities are all classified as AFS.

Our investments provide a source of liquidity because we can pledge them to support borrowed funds or can liquidate them to generate cash proceeds. Our investment portfolio is also a resource in managing interest rate risk because the maturity and interest rate characteristics of this asset class can be modified to match changes in the loan and deposit portfolios. The majority of our AFS investment portfolio is comprised of obligations of states and municipalities and residential mortgage-backed securities. During the three months ended March 31, 2024, the value of our securities portfolio increased $27.1 million from December 31, 2023, as a result of purchasing new securities and an insignificant change in unrealized losses during the period.

On January 1, 2023, the Company adopted the new CECL standard in accordance with ASU 2016-13, which changed the accounting framework by replacing the other-than-temporary impairment (“OTTI”) assessment with the recognition of an ACL. The Company determined that the declines in market value were due to increases in interest rates and market movements and not due to credit factors. Therefore, the Company has concluded that the unrealized losses for the AFS securities do not require an ACL at March 31, 2024, and at December 31, 2023.


	March 31, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Available-for-Sale
U.S. Treasuries and government agencies	$	196,742	$	—	$	19,211	$	177,531
Obligations of states and municipalities	533,934		3		75,343		458,594
Residential mortgage backed - agency	47,108		—		4,114		42,994
Residential mortgage backed - non-agency	312,730		28		16,752		296,006
Commercial mortgage backed - agency	35,395		29		1,005		34,419
Commercial mortgage backed - non-agency	176,385		2		5,988		170,399
Asset backed	83,742		179		1,063		82,858
Other	14,179		—		1,460		12,719
Total	$	1,400,215	$	241	$	124,936	$	1,275,520


	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Available-for-Sale
U.S. Treasuries and government agencies	$	197,026	$	—	$	17,955	$	179,071
Obligations of states and municipalities	535,229		21		72,047		463,203
Residential mortgage backed - agency	47,074		—		4,836		42,238
Residential mortgage backed - non-agency	284,826		17		18,812		266,031
Commercial mortgage backed - agency	36,151		28		1,294		34,885
Commercial mortgage backed - non-agency	183,454		—		6,393		177,061
Asset backed	79,315		23		1,402		77,936
Other	9,500		—		1,486		8,014
Total	$	1,372,575	$	89	$	124,225	$	1,248,439

The investment maturity table below summarizes contractual maturities for our investment securities at March 31, 2024. The actual timing of principal payments may differ from remaining contractual maturities because obligors may have the right to repay certain obligations with or without penalties. The overall weighted average duration of the Company’s investment portfolio is 4.0 years at March 31, 2024. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security (dollars in thousands). Interest on securities below excludes tax-equivalent adjustments.


	March 31, 2024
	One Year or Less				One to Five Years				Five to Ten Years				After Ten Years				Total
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield
Securities Available-for-Sale
U.S. Treasuries and government agencies	$	29,986	1.61	%	$	141,415	1.30	%	$	25,341	1.36	%	$	—	—	%	$	196,742	1.36	%
Obligations of states and municipalities	—		—		29,704		2.39		342,328		2.08		161,902		2.12		533,934		2.11
Residential mortgage backed - agency	43		3.66		19,002		5.15		28,063		2.68		—		—		47,108		3.67
Residential mortgage backed - non-agency	93,656		4.29		120,285		4.28		97,243		3.60		1,546		7.48		312,730		4.09
Commercial mortgage backed - agency	25		6.37		21,637		5.52		13,733		5.41		—		—		35,395		5.48
Commercial mortgage backed - non-agency	60,657		6.32		110,594		4.02		5,134		1.43		—		—		176,385		4.73
Asset backed	8,034		5.83		40,745		7.03		34,963		5.96		—		—		83,742		6.47
Other	—		—		—		—		9,500		5.13		4,679		8.34		14,179		6.19
Total	$	192,401	4.57	%	$	483,382	3.56	%	$	556,305	2.71	%	$	168,127	2.35	%	$	1,400,215	3.22	%

Our loan portfolio consists primarily of commercial real estate loans, but we offer a variety of products to meet the credit needs of our borrowers. The risks associated with lending activities differ among loan classes and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions. Any of these factors may adversely impact a borrower’s ability to repay loans and also impact the associated collateral. Additional discussion on the classes of loans the Company makes and related risks is included in Note 3 — Loans in Notes to Consolidated Financial Statements.


	March 31, 2024		December 31, 2023
Commercial real estate	$	1,305,152	$	1,309,084
Owner-occupied commercial real estate	131,154		131,381
Acquisition, construction & development	72,022		49,091
Commercial & industrial	82,774		67,847
Single family residential (1-4 units)	524,804		527,980
Consumer non-real estate and other	2,249		2,373
Loans, gross	2,118,155		2,087,756
Allowance for credit losses	(24,606)		(25,301)
Loans, net	$	2,093,549	$	2,062,455


	March 31, 2024
	Within One Year				One Year to Five Years				Five Years to 15 Years				After 15 Years
	Fixed Rates		Adjustable Rates		Fixed Rates		Adjustable Rates		Fixed Rates		Adjustable Rates		Fixed Rates		Adjustable Rates		Total
Loans:
Commercial real estate	$	116,996	$	13,648	$	624,128	$	126,348	$	328,544	$	94,755	$	733	$	—	$	1,305,152
Owner-occupied commercial real estate	3,509		235		60,520		9,125		52,882		565		3,193		1,125		131,154
Acquisition, construction & development	1,607		6,179		2,380		58,182		—		—		3,053		621		72,022
Commercial & industrial	154		22,212		37,910		11,581		4,677		6,240		—		—		82,774
Total commercial loans	122,266		42,274		724,938		205,236		386,103		101,560		6,979		1,746		1,591,102
Single family residential (1-4 units)	3,766		1,146		9,258		13,724		17,531		9,872		275,278		194,229		524,804
Consumer non-real estate and other	246		157		611		461		—		—		384		390		2,249
Total loans	$	126,278	$	43,577	$	734,807	$	219,421	$	403,634	$	111,432	$	282,641	$	196,365	$	2,118,155

The Company’s non-performing loans total increased by $23.0 million from December 31, 2023, due to one loan that was 90 days past due and still accruing as of March 31, 2024. The Company determined that the loan was well-secured and subsequent to March 31, 2024, the loan was current. The Company’s non-performing assets, which includes non-performing loans consisting of non-accrual loans, loans that are more than 90 days past due and still accruing, and other real estate owned as of March 31, 2024, totaled $26.7 million.

The Company maintains the ACL at a level deemed adequate by management for expected credit losses. As disclosed in Note 1 and Note 4, on January 1, 2023, the Company implemented CECL and increased the ACL, previously the allowance for credit losses, with a cumulative-effect adjustment to the ACL for credit losses of $4.4 million, which included a cumulative-effect adjustment to the ACL for off-balance sheet exposures of $274.8 thousand. The Company’s ACL is calculated quarterly with any adjustment recorded to the provision for credit losses in the consolidated Statement of Income. Management evaluates the adequacy of the ACL utilizing a defined methodology to determine if it properly addresses the current and expected risks in the loan portfolio, which considers the performance of borrowers and specific evaluation of individually evaluated loans, including historical loss experiences, trends in delinquencies, non-performing loans and other risk assets, and qualitative factors. Risk factors are continuously reviewed and adjusted, as needed, by management when conditions support a change. Management believes its approach properly addresses relevant accounting and bank regulatory guidance for loans both collectively and individually evaluated.


	Three months ended
	March 31, 2024			March 31, 2023
Loans outstanding at end of period	$	2,118,155		$	1,951,738
Balance of allowance at beginning of period	(25,301)			(21,039)
Impact of the adoption of CECL	—			(4,125)
Loans charged-off:
Commercial real estate	—			—
Owner-occupied commercial real estate	—			—
Acquisition, construction & development	—			—
Commercial & industrial	—			—
Residential	—			—
Consumer non-real estate and other	30			17
Total loans charged-off	30			17
Recoveries of loans charged-off:
Commercial real estate	(3)			(28)
Owner-occupied commercial real estate	—			—
Acquisition, construction & development	—			—
Commercial & industrial	—			—
Residential	(1)			(3)
Consumer non-real estate and other	(1)			(3)
Total recoveries of loans charged-off	(5)			(34)
Net loan charge-offs (recoveries)	25			(17)
Provision for (recapture of) credit losses for the period	(670)			523
Ending allowance	$	(24,606)		$	(25,704)

Average loans outstanding during the period	$	2,085,826		$	1,919,678
Allowance coverage ratio (1)	1.16		%	1.32		%
Net charge-offs to average outstanding loans during the period (2)	0.00			0.00
Allowance for credit losses as a percentage of non-performing loans (3)	91.99			791.87


	March 31, 2024
	Allowance for credit losses		Percent of Allowance in Each Category to Total Allocated ACL		Percent of Loans in Each Category to Total Loans
Commercial real estate	$	18,977	77.12	%	61.61	%
Owner-occupied commercial real estate	782		3.18		6.19
Acquisition, construction & development	674		2.74		3.40
Commercial & industrial	824		3.35		3.91
Residential	3,272		13.30		24.78
Consumer non-real estate and other	77		0.31		0.11
Total	$	24,606	100.00	%	100.00	%


	December 31, 2023
	Allowance for credit losses		Percent of Allowance in Each Category to Total Allocated ACL		Percent of Loans in Each Category to Total Loans
Commercial real estate	$	20,633	81.56	%	62.71	%
Owner-occupied commercial real estate	783		3.09		6.29
Acquisition, construction & development	368		1.45		2.35
Commercial & industrial	645		2.55		3.25
Residential	2,797		11.05		25.29
Consumer non-real estate and other	75		0.30		0.11
Total	$	25,301	100.00	%	100.00	%

The Company utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. The Company recognizes derivative financial instruments at fair value as either other assets or other liabilities on the Consolidated Balance Sheets. The Company’s use of derivative financial instruments is described more fully in Note 9 — Derivatives in Notes to Consolidated Financial Statements.

The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of its customers. These off-balance sheet arrangements include commitments to extend credit, standby letters of credit, and financial guarantees which would impact the Company’s liquidity and capital resources to the extent customers accept and/or use these commitments. See Note 10 — Commitments and Contingencies in Notes to Consolidated Financial Statements for a discussion of credit extension commitments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. With the exception of these off-balance sheet arrangements, the Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

The Company’s funding activities are monitored and governed through the Company’s asset/liability management process. Deposits are the primary source of funds for lending and investing activities; however, the Company will use borrowings to meet liquidity needs and for temporary funding. Sources of borrowings include advances from the FHLB of Atlanta, borrowings from correspondent banks, and the Fed Discount Window. The Company also utilizes brokered time deposits. For more discussion of brokered time deposits, see the Deposits heading below this section.

Total deposits decreased by $11.8 million from December 31, 2023, to March 31, 2024, due to a decrease in both non-interest-bearing and interest-bearing deposits of $7.6 million and $4.2 million, respectively. However, excluding brokered deposits, the Company’s deposit balance increased by $6.4 million. This increase is due to the Company continuing to seek organic growth in both interest-bearing and non-interest-bearing deposits consistent with our relationship-based strategy. Management evaluates its utilization of brokered deposits, taking into consideration the interest rate curve and regulatory views on non-core funding sources, and balances this funding source with its funding needs based on growth initiatives.

Total shareholders’ equity at March 31, 2024, was $319.3 million, compared to $314.8 million at December 31, 2023. Shareholders’ equity increased by $4.6 million in part due to a decrease in accumulated other comprehensive income (loss) of $2.5 million from December 31, 2023, to March 31, 2024, primarily as a result of an increase in unrealized gains on cash flow hedges see Note 1 2 — Accumulated Other Comprehensive Income (Loss ) in Notes to Consolidated Financial Statements for more detail.

Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk inherent in lending, investment, and deposit-taking activities. To that end, management actively monitors and manages its interest rate risk exposure, and on at least a quarterly basis, in conjunction with the Company’s Asset/Liability meetings, reports its findings to the ALCO and to the Board. From time to time, management may change the frequency of such testing or update certain inputs as a result of abnormal market conditions. Our profitability is affected by fluctuations in interest rates; a sudden and substantial change in interest rates may adversely impact our earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. We monitor the impact of changes in interest rates on net interest income using several tools. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Recent Events in the Financial Services Industry.

In addition, the Company’s Asset/Liability policy provides for a subcommittee of the ALCO, comprised of executive and senior management that, upon the determination that abnormal market risks are occurring or may be forthcoming, will convene with the responsibility of making all decisions related to mitigation of potential negative impacts to the Company. This subcommittee acts as a clearinghouse for information on Company earnings, credit risk, lending and deposit activities, and liquidity management necessary for internal communications, including to the Board, and external communications.

Interest rate risk is the risk to earnings and fair value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricing and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay home mortgage loans at any time, depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve, where interest rates increase or decrease in a non-parallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and SOFR (basis risk).

The rates on some interest-bearing financial instruments may adjust promptly with changes in market rates, while others adjust only periodically or are fixed for a predefined term. Such instances can cause a mismatch between the sensitivity and behavior of financial assets and liabilities. Interest rate fluctuations and economic factors, coupled with repricing mismatches and embedded options inherent in these financial assets and liabilities, may impact the Company’s interest expense, interest income, and the value of certain financial assets and liabilities. Through the ALCO, we attempt to manage the balance sheet in a manner that increases the benefit or reduces the negative impacts from such events.

The overall impact of changes in interest rates, including, but not limited to, the impact to our net interest income and to our securities portfolio, can be enhanced or diluted depending on the variability of interest rates. From time to time, the Company may hedge its interest rate risk position, which can impact earnings. We generally do not hedge all of our interest rate risk, nor can we guarantee that any attempts to do so will be successful. See Note 9 - Derivatives in Notes to Consolidated Financial Statements for a discussion of our hedging activity.

The Company actively manages its interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income to risks associated with interest rate movements and to achieve sustainable growth in net interest income. The ALCO, using policies and procedures approved by the Company’s Board, is responsible for the management of the Company’s interest rate sensitivity position. The Company manages interest rate sensitivity by changing the mix, pricing and re-pricing characteristics of its assets and liabilities, through the management of its investment portfolio, its offerings of loan and selected deposit terms, and through wholesale funding. Wholesale funding consists of, but is not limited to, borrowings with the FHLB, federal funds purchased, and brokered time deposits.

The Company uses several tools to manage its interest rate risk, including interest rate sensitivity analysis, or gap analysis, market value of portfolio equity analysis, interest rate simulations under various rate scenarios, and net interest margin reports. The results of these reports are compared to limits established by the Company’s ALCO policies, and appropriate adjustments are made if the results are outside the established limits.

There are an infinite number of potential interest rate scenarios, each of which can be accompanied by differing economic/political/regulatory climates; can generate multiple differing behavior patterns by markets, borrowers, depositors, etc.; and can last for varying degrees of time. Therefore, by definition, interest rate risk sensitivity cannot be predicted with certainty. Accordingly, the Company’s interest rate risk measurement philosophy focuses on maintaining an appropriate balance between theoretical and practical scenarios; especially given the primary objective of the Company’s overall asset/liability management process, which is to facilitate meaningful strategy development and implementation.

Therefore, we model a set of interest rate scenarios capturing the financial effects of a range of plausible rate scenarios; the collective impact of which will enable the Company to clearly understand the nature and extent of its sensitivity to interest rate changes. Doing so necessitates an assessment of rate changes over varying time horizons and of varying/sufficient degrees such that the impact of embedded options within the balance sheet are sufficiently examined.

The following tables demonstrate the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift, or “shock”, in the yield curve and subjective adjustments in deposit pricing might have on the Company’s projected net interest income over the next 12 months. This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next 12 months.

Economic Value of Equity Analysis (“EVE”). We analyze the sensitivity of our financial condition to changes in interest rates through our economic value of equity model. This analysis measures the difference between predicted changes in the fair value of our assets and predicted changes in the present value of our liabilities, assuming various changes in current interest rates. The table below represents an analysis of our interest rate risk as measured by the estimated changes in our economic value of equity, resulting from an instantaneous and sustained parallel shift in the yield curve at March 31, 2024, and December 31, 2023.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2024. Based on their evaluation of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and regulations are designed and operating in an effective manner.

In the ordinary course of our operations, and from time to time, the Company and its subsidiary are parties to various legal claims, lawsuits and proceedings incidental to the ordinary nature of the Company’s business. Currently, we are not party to any material legal proceedings, and no such proceedings are, to management’s knowledge, threatened against us. Although the ultimate outcome of any pending legal proceedings cannot be ascertained at this time, it is the opinion of management that the liabilities (if any) resulting from such legal proceedings will not have a material adverse effect on the Company’s business, including its consolidated financial position, results of operations, or cash flows, or otherwise require disclosure under the federal securities laws.


Virginia		92-0289417
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 S. Fairfax Street, Alexandria, Virginia		22314
(Address of principal executive offices)		(Zip Code)

	703-666-3555
Registrant’s telephone number, including area code


			Page
Consolidated Balance Sheets as of March 31, 2024 (Unaudited), and December 31, 202 3			2
Consolidated Statements of Income for the Three Months Ended March 31, 202 4 , and March 31, 202 3 (Unaudited)			3
Consolidated Statements of Comprehensive Income (Loss) for the Three Ended March 31 , 2024 , and March 31, 2023 (Unaudited)			4
Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 20 2 4 , and March 31, 202 3 (Unaudited)			5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 202 4 , and March 31 , 202 3 (Unaudited)			6
Notes to the Consolidated Financial Statements (Unaudited)			8


As of March 31, 2024
Remaining nine months ending, December 31, 2024	$	383,222
2025	159,208
2026	84,314
2027	49,583
2028	78,369
2029	173
Total	$	754,869


	Operating Leases
Remaining nine months ending December 31, 2024	$	1,726
2025	2,265
2026	1,657
2027	1,356
2028	1,333
Thereafter	2,450
Total lease receivables	$	10,787


	Balance Sheet Classification	March 31, 2024		December 31, 2023
Right-of-use assets:
Operating leases	Other assets	$	5,283	$	5,110
Finance leases	Other assets	3,518		3,590
Total right-of-use assets		$	8,801	$	8,700
Lease liabilities:
Operating leases	Other liabilities	$	5,490	$	5,327
Finance leases	Other liabilities	3,787		3,840
Total lease liabilities		$	9,277	$	9,167


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended March 31, 2024


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to


			Page
Part I - Financial Information			1
Item 1. Financial Statements			1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			39
Item 3. Quantitative and Qualitative Disclosures About Market Risk			62
Item 4. Controls and Procedures			64

Part II - Other Information			65
Item 1. Legal Proceedings			65
Item 1A. Risk Factors			65
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			65
Item 3. Defaults Upon Senior Securities			65
Item 4. Mine Safety Disclosures			65
Item 5. Other Information			65
Item 6. Exhibits			66
Signatures			67


	March 31, 2024		March 31, 2023
Gross realized gains	$	—	$	—
Gross realized losses	—		—
Proceeds from sales of securities	1,281		—


	March 31, 2024
	Less Than Twelve Months				More Than Twelve Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Total Unrealized Losses
Securities Available-for-Sale
U.S. Treasuries and government agencies	$	—	$	—	$	177,531	$	19,211	$	19,211
Obligations of states and municipalities	210		—		454,027		75,343		75,343
Residential mortgage backed - agency	33		1		42,961		4,113		4,114
Residential mortgage backed - non-agency	46,997		605		236,676		16,147		16,752
Commercial mortgage backed - agency	—		—		33,645		1,005		1,005
Commercial mortgage backed - non-agency	30,142		210		133,257		5,778		5,988
Asset-backed	8,493		38		53,526		1,025		1,063
Other	4,678		1		8,041		1,459		1,460
Total	$	90,553	$	855	$	1,139,664	$	124,081	$	124,936


	March 31, 2024
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		90 Days Past Due & Still Accruing		Non-accrual loans
Commercial real estate	$	—	$	—	$	22,094	$	22,094	$	1,283,058	$	1,305,152	$	22,094	$	—
Owner-occupied commercial real estate	134		—		635		769		130,385		131,154		—		1,287
Acquisition, construction & development	—		—		—		—		72,022		72,022		—		—
Commercial & industrial	90		—		339		429		82,345		82,774		339		—
Single family residential (1-4 units)	3,341		—		27		3,368		521,436		524,804		—		3,028
Consumer non-real estate and other	24		—		—		24		2,225		2,249		—		—
Total	$	3,589	$	—	$	23,095	$	26,684	$	2,091,471	$	2,118,155	$	22,433	$	4,315

	December 31, 2023
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		90 Days Past Due & Still Accruing		Non-accrual loans
Commercial real estate	$	10,496	$	—	$	—	$	10,496	$	1,298,588	$	1,309,084	$	—	$	—
Owner-occupied commercial real estate	—		—		790		790		130,591		131,381		—		1,000
Acquisition, construction & development	—		—		—		—		49,091		49,091		—		—
Commercial & industrial	195		364		—		559		67,288		67,847		—		—
Single family residential (1-4 units)	1,657		289		1,532		3,478		524,502		527,980		—		2,744
Consumer non-real estate and other	3		—		—		3		2,370		2,373		—		—
Total	$	12,351	$	653	$	2,322	$	15,326	$	2,072,430	$	2,087,756	$	—	$	3,744


	March 31, 2024
	Term Loans
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
Commercial real estate
Pass	$	39,603	$	189,776	$	257,828	$	149,843	$	22,496	$	490,273	$	37,907	$	1,187,726
Special Mention	—		—		12,235		35,586		—		—		—		47,821
Substandard	—		—		15,360		2,351		—		51,894		—		69,605
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	$	39,603	$	189,776	$	285,423	$	187,780	$	22,496	$	542,167	$	37,907	$	1,305,152

Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Owner-occupied commercial real estate
Pass	$	1,999	$	9,260	$	31,907	$	11,035	$	13,551	$	51,867	$	8,384	$	128,003
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		529		—		—		2,298		—		2,827
Doubtful	—		—		—		—		—		324		—		324
Loss	—		—		—		—		—		—		—		—
Total	$	1,999	$	9,260	$	32,436	$	11,035	$	13,551	$	54,489	$	8,384	$	131,154

Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Acquisition, construction & development
Pass	$	2,030	$	20,603	$	31,779	$	3,490	$	—	$	929	$	11,925	$	70,756
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		1,266		—		1,266
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	$	2,030	$	20,603	$	31,779	$	3,490	$	—	$	2,195	$	11,925	$	72,022

Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial & industrial
Pass	$	2,275	$	23,424	$	13,949	$	2,499	$	114	$	1,218	$	38,792	$	82,271
Special Mention	—		—		—		—		—		—		—		—


Substandard	—		—		291		243		—		2,171		39		2,744
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	$	78,222	$	122,067	$	60,493	$	32,401	$	40,938	$	139,547	$	54,312	$	527,980

Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer non-real estate and other
Pass	$	334	$	150	$	43	$	151	$	386	$	325	$	984	$	2,373
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	$	334	$	150	$	43	$	151	$	386	$	325	$	984	$	2,373

Year to date gross charge-offs	$	—	$	165	$	—	$	—	$	—	$	—	$	—	$	165

Totals	$	321,368	$	483,436	$	305,178	$	69,608	$	134,601	$	656,867	$	116,698	$	2,087,756


	March 31, 2024
	With Allowance				With No Related Allowance		Total
	Amortized Cost		Related Allowance		Amortized Cost		Amortized Cost		Related Allowance
March 31, 2024
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Owner-occupied commercial real estate	324		247		963		1,287		247
Acquisition, construction & development	—		—		—		—		—
Commercial & industrial	—		—		—		—		—
Single family residential (1-4 units)	289		18		2,739		3,028		18
Consumer non-real estate and other	—		—		—		—		—
Total	$	613	$	265	$	3,702	$	4,315	$	265


Supplemental lease information (dollars in thousands)	March 31, 2024			December 31, 2023
Finance lease weighted average remaining lease term (years)	12.41			12.66
Finance lease weighted average discount rate	2.96		%	2.96		%
Operating lease weighted average remaining lease term (years)	3.73			3.71
Operating lease weighted average discount rate	3.62		%	3.33		%

	Three Months Ended March 31,
Cash paid for amounts included in the measurement of lease liabilities	2024			2023
Operating cash flows from operating leases	$	644		$	868
Operating cash flows from finance leases	28			15
Financing cash flows from finance leases	53			39
Right-of-use assets obtained in exchange for new finance lease liabilities	—			—
Right-of-use assets obtained in exchange for new operating lease liabilities	—			—


	Actual				Minimum Required for Capital Adequacy Purposes (includes applicable Capital Conservation Buffer)			To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio		Amount		Ratio	Amount		Ratio
As of March 31, 2024
Total Capital to risk weighted assets
Consolidated	$	445,121	17.54	%	$	266,504	≥ 10.5%	$	253,814	≥ 10.0%
Burke & Herbert Bank & Trust	442,168		17.43		266,399		≥ 10.5	253,713		≥ 10.0
Tier 1 (Core) Capital to risk weighted assets
Consolidated	420,261		16.56		215,742		≥ 8.5	203,051		≥ 8.0
Burke & Herbert Bank & Trust	417,308		16.45		215,656		≥ 8.5	202,971		≥ 8.0
Common Tier 1 (CET 1) to risk-weighted assets
Consolidated	420,261		16.56		177,670		≥ 7.0	164,979		≥ 6.5
Burke & Herbert Bank & Trust	417,308		16.45		177,599		≥ 7.0	164,914		≥ 6.5
Tier 1 (Core) Capital to average assets
Consolidated	420,261		11.36		148,038		≥ 4.0	185,048		≥ 5.0
Burke & Herbert Bank & Trust	417,308		11.28		148,035		≥ 4.0	185,044		≥ 5.0

As of December 31, 2023
Total Capital to risk weighted assets
Consolidated	$	443,799	17.88	%	$	260,694	≥ 10.5%	$	248,280	≥ 10.0%
Burke & Herbert Bank & Trust	442,414		17.82		260,626		≥ 10.5	248,215		≥ 10.0
Tier 1 (Core) Capital to risk weighted assets
Consolidated	418,244		16.85		211,038		≥ 8.5	198,624		≥ 8.0
Burke & Herbert Bank & Trust	416,859		16.79		210,983		≥ 8.5	198,572		≥ 8.0
Common Tier 1 (CET 1) to risk-weighted assets
Consolidated	418,244		16.85		173,796		≥ 7.0	161,382		≥ 6.5
Burke & Herbert Bank & Trust	416,859		16.79		173,751		≥ 7.0	161,340		≥ 6.5
Tier 1 (Core) Capital to average assets
Consolidated	418,244		11.31		147,965		≥ 4.0	184,957		≥ 5.0
Burke & Herbert Bank & Trust	416,859		11.27		147,986		≥ 4.0	184,982		≥ 5.0


	March 31, 2024
	Balance Sheet Location	Notional Amount		Fair Value
Derivatives designated as hedges:
Interest rate swaps related to cash flow hedges	Other assets	$	250,000	$	3,356
Interest rate swaps related to cash flow hedges	Other liabilities	50,000		481


Derivatives not designated as hedges:
Interest rate swaps related to customer loans	Other assets	$	72,305	$	1,478
Interest rate swaps related to customer loans	Other liabilities	72,305		1,478


Derivatives in Cash Flow Hedging Relationships	March 31, 2024						Location of Gain or (Loss) Reclassified from AOCI into Income	March 31, 2024
	Amount of Gain or (Loss) Recognized in OCI on Derivative		Amount of Gain or (Loss) Recognized in OCI Included Component		Amount of Gain or (Loss) Recognized in OCI Excluded Component			Amount of Gain or (Loss) Reclassified from AOCI into Income		Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component		Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component
Interest Rate Products	$	(17)	$	(17)	$	—	Interest Income	$	(483)	$	(483)	$	—
Interest Rate Products	3,385		3,385		—		Interest Expense	36		36		—
Total	$	3,368	$	3,368	$	—		$	(447)	$	(447)	$	—


	Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	Three months ended
	March 31, 2024				March 31, 2023
	Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded.	$	(443)	$	36	$	(203)	$	—
The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships in Subtopic 815-20
Interest contracts
Hedged items (1)	40		—		2,362		—
Derivatives designated as hedging instruments	—		—		(2,202)		—
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
Interest contracts
Amount of gain or (loss) reclassified from AOCI into income	(483)		36		(363)		—
Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring	—		—		—		—
Amount of gain or (loss) reclassified from AOCI into income - included component	(483)		36		(363)		—
Amount of gain or (loss) reclassified from AOCI into income - excluded component	—		—		—		—


	March 31, 2024		December 31, 2023
Commitments to extend credit	$	283,042	$	278,923
Commercial letters of credit	10,904		10,718


	Fair Value Measurements at March 31, 2024, Using:
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Financial assets
Investment Securities
U.S. Treasuries and government agencies	$	177,531	$	—	$	—	$	177,531
Obligations of states and municipalities	—		458,594		—		458,594
Residential mortgage backed - agency	—		42,994		—		42,994
Residential mortgage backed - non-agency	—		296,006		—		296,006
Commercial mortgage backed - agency	—		34,419		—		34,419
Commercial mortgage backed - non-agency	—		170,399		—		170,399
Asset-backed	—		82,858		—		82,858
Other	—		12,719		—		12,719
Total investment securities available-for-sale	$	177,531	$	1,097,989	$	—	$	1,275,520

Loans held-for-sale, at fair value	$	—	$	2,422	$	—	$	2,422

Derivatives	$	—	$	4,834	$	—	$	4,834

Financial liabilities
Derivatives	$	—	$	1,959	$	—	$	1,959


	Fair Value Measurements at December 31, 2023, Using:
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Financial assets
Investment Securities
U.S. Treasuries and government agencies	$	179,071	$	—	$	—	$	179,071
Obligations of states and municipalities	—		463,203		—		463,203
Residential mortgage backed - agency	—		42,238		—		42,238
Residential mortgage backed - non-agency	—		266,031		—		266,031
Commercial mortgage backed - agency	—		34,885		—		34,885
Commercial mortgage backed - non-agency	—		177,061		—		177,061
Asset-backed	—		77,936		—		77,936
Other	—		8,014		—		8,014
Total investment securities available-for-sale	$	179,071	$	1,069,368	$	—	$	1,248,439

Loans held-for-sale, at fair value	$	—	$	1,497	$	—	$	1,497

Derivatives	$	—	$	1,063	$	—	$	1,063

Financial liabilities
Derivatives	$	—	$	2,045	$	—	$	2,045


			Fair Value Measurements at March 31, 2024, Using:
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)		Total
Financial Assets
Cash and due from banks	$	9,152	$	9,152	$	—	$	—	$	9,152
Interest-earning deposits with banks	44,925		44,925		—		—		44,925
Loans, net	2,093,549		—		—		1,931,927		1,931,927
Accrued interest	16,328		—		16,328		—		16,328

Financial Liabilities
Non-interest-bearing	$	822,767	$	—	$	822,767	$	—	$	822,767
Interest-bearing	2,167,346		—		2,162,288		—		2,162,288
Other borrowed funds	360,000		—		356,679		—		356,679
Accrued interest	5,268		—		5,268		—		5,268


	Three months ended March 31, 2024
	Gains and Losses on Cash Flow Hedges		Unrealized Gains and Losses on Available-for-Sale Securities		Defined Benefit Pension Items		Accumulated Other Comprehensive Income
Beginning Balance	$	(490)	$	(97,259)	$	(5,745)	$	(103,494)
Net unrealized gains (losses)	2,660		(441)		—		2,219
Less: net realized (gains) losses reclassified to earnings	353		(32)		—		321
Net change in pension plan benefits	—		—		—		—
Ending Balance	$	2,523	$	(97,732)	$	(5,745)	$	(100,954)

	Three months ended March 31, 2023
	Gains and Losses on Cash Flow Hedges		Unrealized Gains and Losses on Available-for-Sale Securities		Defined Benefit Pension Items		Accumulated Other Comprehensive Income
Beginning Balance	$	(1,589)	$	(130,875)	$	(7,031)	$	(139,495)
Net unrealized gains (losses)	47		17,218		—		17,265
Less: net realized (gains) losses reclassified to earnings	287		(1,866)		—		(1,579)
Net change in pension plan benefits	—		—		—		—
Ending Balance	$	(1,255)	$	(115,523)	$	(7,031)	$	(123,809)


Details about Accumulated Other Comprehensive Income Components	Amount Reclassified From Accumulated Other Comprehensive Income				Affected Line Item in the Statements of Income
	Three months ended
	March 31, 2024		March 31, 2023
Cash flow hedges:
Interest rate contracts	$	(447)	$	(363)	Interest income
Tax effect	94		76		Income tax expense (benefit)
Net of tax	$	(353)	$	(287)

Available-for-sale securities:
Realized gains (losses) on securities	$	—	$	—	Net gains/(losses) on securities
Realized gains (losses) on basis adjustment for fair value hedges	40		2,362		Interest income
Tax effect	(8)		(496)		Income tax expense (benefit)
Net of tax	$	32	$	1,866

Total reclassifications, net of tax	$	(321)	$	1,579	Net income


Non-vested Shares	Shares	Weighted-Average Grant-Date Fair Value
Non-vested at December 31, 2023	143,585	$	51.21
Granted	—	—
Vested	(6,600)	45.14
Forfeited	(200)	73.00
Non-vested at March 31, 2024	136,785	$	51.47


	March 31, 2024
Shares purchased	6,380
Weighted average price of shares purchased	$	43.11
Compensation expense recognized (in 000’s)	41.3


	2024		2023
Net income (in thousands)	$	5,212	$	7,524

Weighted average number of shares	7,433,481		7,426,638
Options effect of dilutive shares	94,008		77,835
Weighted average dilutive shares	7,527,489		7,504,473

Basic EPS	$	0.70	$	1.01
Diluted EPS	0.69		1.00


	Three months ended March 31,				Increase (Decrease)
	2024		2023		Amount		Percent
Fiduciary and wealth management	$	1,419	$	1,337	$	82	6.1	%
Service charges and fees	1,606		1,635		(29)		(1.8)
Net gains (losses) on securities	—		—		—		N/A
Income from company-owned life insurance	547		560		(13)		(2.3)
Other non-interest income	682		682		—		0.0
Total	$	4,254	$	4,214	$	40	0.9	%


	March 31, 2024		December 31, 2023
Balance at end of period	$	360,000	$	272,000
Weighted average interest rate at end of period	5.38%		4.75%


	March 31, 2024		December 31, 2023
Demand, non-interest-bearing	$	822,767	$	830,320
Demand, interest-bearing	492,468		509,646
Money market and savings	920,009		925,853
Brokered deposits	370,847		389,011
Time deposits, other	384,022		347,051
Total interest-bearing	2,167,346		2,171,561
Total deposits	$	2,990,113	$	3,001,881


	March 31, 2024
	Average Balance		Average Rate Paid
Demand, non-interest-bearing	$	812,199	—
Demand, interest-bearing	489,779		0.63	%
Money market and savings	922,732		1.97	%
Brokered deposits	378,407		4.65	%
Time deposits, other	367,538		3.57	%
Total interest-bearing	2,158,456		2.41	%
Total deposits	$	2,970,655	1.75	%


	March 31, 2024
Due within 3 months or less	$	41,379
Due after 3 months and within 6 months	31,798
Due after 6 months and within 12 months	31,741
Due after 12 months	3,127
Total uninsured, time deposits	$	108,045


	As of March 31, 2024		As of December 31, 2023
Change in Interest Rates (in Basis Points)	Percentage Change in Net Interest Income		Percentage Change in Net Interest Income
300	3.2	%	0.8	%
200	2.5		0.9
100	2.0		1.2
(100)	(1.3)		(1.0)
(200)	(1.5)		(0.8)


Exhibit No.						Description
2.1*						Agreement and Plan of Reorganization between Burke & Herbert Financial Services Corp. and Summit Financial Group, Inc., dated as of August 24, 2023 (incorporated by reference to Exhibit 2.1 to the Registrant’s Registration Statement on Form S-4 filed October 2, 2023)
3.1*						Articles of Incorporation of Burke & Herbert Financial Services Corp. (incorporated by reference to Exhibit 3.1 to the Form 10 Registration Statement, filed February 28, 2023)
3.2*						Articles of Amendment to the Articles of Incorporation of Burke & Herbert Financial Services Corp. (incorporated by reference to Exhibit 3.2 to the Form 10/A Registration Statement, filed April 3, 2023)
3.3*						Articles of Amendment to the Articles of Incorporation of Burke & Herbert Financial Services Corp., effective as of 12:01 a.m. Eastern Time on May 3, 2024 (incorporated by reference to Exhibit 3.3 to the Form 8-K, filed May 3, 2024)
3.4#						Bylaws of Burke & Herbert Financial Services Corp.
4.1*						Summit Financial Group, Inc., Form of 5.00% Fixed-to-Floating Rate Subordinated Notes due 2030 (included as Exhibit A to the Form of Subordinated Note Purchase Agreement dated as of September 22, 2020, by and between Summit Financial Group, Inc. and each of the Purchasers) (incorporated by reference to Exhibit 10.1 to Summit Financial Group, Inc.’s Form 8-K filed on September 23, 2020 (File No. 000-16587))
4.2*						Summit Financial Group, Inc., Forms of 3.25% Fixed-to-Floating Rate Subordinated Note due 2031 (included as Exhibit A-1 and Exhibit A-2 to the Indenture, dated as of November 16, 2021, by and between Summit Financial Group, Inc. and UMB Bank, N.A., as Trustee) (incorporated by reference to Exhibit 4.1 to Summit Financial Group, Inc.’s Form 8-K filed on November 17, 2021 (File No. 000-16587))
10.1*†						Employment Agreement, dated as of August 24, 2023, by and between Burke & Herbert Bank & Trust Company and H. Charles Maddy, III
10.2*†						Burke & Herbert Bank 2024-2025 Merger Incentive Plan
10.3*†						Burke & Herbert Bank 2024-2025 Merger Incentive Plan Form of Performance-Based Restricted Stock Unit Award Agreement
31.1#						Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2#						Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1#						Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Burke & Herbert Financial Services Corp.

By:			/s/ David P. Boyle
Name:			David P. Boyle
Title:			Chief Executive Officer

By:			/s/ Roy E. Halyama
Name:			Roy E. Halyama
Title:			Executive Vice President, Chief Financial Officer