Burke & Herbert Financial Services Corp.
05/08/2026 | Press release | Distributed by Public on 05/08/2026 06:32
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
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, 2025, included in our Form 10-K filed with the SEC on February 27, 2026 (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.
Disclosure Regarding Forward-Looking Statements
This Form 10-Q contains statements that we believe are, or may be considered to be, "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the beliefs, goals, intentions, and expectations of the Company regarding revenues, earnings, earnings per share, loan production, asset quality, and capital levels, among other matters; our estimates of future costs and benefits of the actions we may take; our assessments of expected losses on loans; our assessments of interest rate and other market risks; our ability to achieve our financial and other strategic goals; and other statements that are not historical facts.
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. Additionally, forward-looking statements speak only as of the date they are made; the Company does not assume any duty, does not undertake, and specifically disclaims any obligation to update such forward-looking statements, whether written or oral, that may be made from time to time, whether because of new information, future events, or otherwise, except as required by law. Furthermore, because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those indicated in or implied by such forward-looking statements because of a variety of factors, many of which are beyond the control of the Company. Further, factors identified herein are not necessarily all of the factors that could cause the Company's actual results, performance or achievements to differ materially from those expressed in or implied by any of the forward-looking statements. Other factors, including unknown or unpredictable factors, also could harm the Company. Accordingly, you should consider all of these risks, uncertainties and other factors carefully in evaluating all such forward-looking statements made by the Company and not place undue reliance on forward-looking statements. The risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements include, but are not limited to, the following: the possibility that the anticipated benefits of the LNKB Merger will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where the Company does business; the possibility that we may be unable to achieve expected synergies and operating efficiencies of the LNKB Merger within the expected timeframes or at all and to successfully integrate LNKB's operations and those of the Company; such integration may be more difficult, time-consuming or costly than expected; revenues following the LNKB Merger may be lower than expected; the Company's success in executing its business plans and strategies and managing the risks involved in the foregoing; the dilution caused by the Company's issuance of additional shares of its capital stock in connection with the LNKB Merger; costs or difficulties associated with newly developed or acquired operations; changes in general economic, political, or market trends (either nationally or locally in the areas in which we conduct, or will conduct, business), including inflation, changes in interest rates, market volatility and monetary fluctuations, and changes in federal government policies and practices, including the impact of the federal government shutdown that began in October 2025 and with respect to spending on industries concentrated in our market area, as well as the impact from recently announced and future tariffs on the markets we serve; increased competition; changes in consumer confidence and demand for financial services, including changes in consumer borrowing, repayment, investment,
and deposit practices; changes in asset quality and credit risk; our ability to control costs and expenses; adverse developments in borrower industries or declines in real estate values; changes in and compliance with federal and state laws and regulations that pertain to our business and capital levels; our ability to raise capital as needed; the impact, extent and timing of technological changes; the effects of any cybersecurity breaches or events; the development and use of artificial intelligence ("AI") in business processes, services, and products, including emerging external focus among regulators and other officials related to risks in connection with the development and use of AI; the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, geopolitical conflicts and tensions, or public health events (such as pandemics), and of governmental and societal responses thereto; and the other factors discussed in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2025 and in Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 1A. Risk Factors in this Form 10-Q.
Overview
Burke & Herbert was organized as a Virginia corporation in 2022 to serve as the holding company for the Bank. Burke & Herbert became a bank holding company when it commenced operations on October 1, 2022, following a reorganization transaction in which it acquired control of the Bank under the BHCA. This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of Burke & Herbert. Burke & Herbert has no material operations other than owning the Bank. In September 2023, Burke & Herbert elected to become a financial holding company under the BHCA. As a financial holding company of a Virginia state bank, Burke & Herbert is subject to regulation, supervision, and examination by the Federal Reserve and the Virginia BFI. The Bank is a Virginia chartered commercial bank that commenced operations in 1852. The Bank became a member of the Federal Reserve System on December 31, 2024. The Bank is subject to regulation, supervision, and examination by the Federal Reserve (through the Federal Reserve Bank of Richmond) and the Virginia BFI.
The Bank's primary market area includes northern Virginia and West Virginia, and as of March 31, 2026, it has over 77 branches and commercial loan offices across Delaware, Kentucky, Maryland, Virginia, and West Virginia. The Company's branch locations accept business and consumer deposits from a diverse customer base. The Company's deposit products include checking, savings, and term certificate accounts. The Company's loan portfolio includes commercial and consumer loans, a substantial portion of which are secured by real estate.
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.
As of March 31, 2026, we had total consolidated assets of $7.9 billion, gross loans of $5.4 billion, total deposits of $6.3 billion, and total shareholders' equity of $864.5 million. As of March 31, 2026, we had 830 full-time employees. None of our employees are covered by a collective bargaining agreement.
Merger With LINKBANCORP, Inc.
Effective on May 1, 2026, Burke & Herbert Financial Services Corp., a Virginia corporation, completed its previously announced merger with LINKBANCORP, Inc., a Pennsylvania corporation, pursuant to the LNKB Merger Agreement between Burke & Herbert and LNKB. See Note 1 - Nature of Business Activities and Significant Accounting Policies, in Notes to Consolidated Financial Statements for additional information regarding the LNKB merger.
Critical Accounting Policies and Estimates
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 business combination and goodwill, 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.
Business Combination and Goodwill
For acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit intangibles, and the liabilities assumed at their respective fair values. The difference between consideration and the net fair value of assets acquired is recorded as goodwill. Management uses significant estimates and assumptions to value such items, including projected cash flows, repayment rates, default rates and losses assuming default, discount rates, and realizable collateral values. The allowance for credit losses for purchased credit deteriorated ("PCD") and purchased seasoned loans ("PSL") loans is recognized within acquisition accounting. The allowance for credit losses for non-PCD and non-PSL assets is recognized as provision for credit losses in the same reporting period as the acquisition. Fair value adjustments are amortized or accreted into the income statement over the estimated life of the acquired assets or assumed liabilities. The purchase date valuations and any subsequent adjustments determine the amount of goodwill recognized in connection with the acquisition. The use of different assumptions could produce significantly different valuation results, which could have material positive or negative effects on our results of operations. The carrying value of goodwill recorded must be reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill.
The determination of fair values is based on valuations using management's assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors. In addition, we engage third party specialists to assist in the development of fair values. Preliminary estimates of fair values may be adjusted for a period of time subsequent to the acquisition date if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments recorded during this period are recognized in the current reporting period. Management uses various valuation methodologies to estimate the fair value of these assets and liabilities, and often involves a significant degree of judgment, particularly when liquid markets do not exist for the particular item being valued. Examples of such items include loans, deposits, identifiable intangible assets, and certain other assets and liabilities.
Changes in these factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the carrying value of assets, including goodwill and liabilities, which could result in impairment losses affecting our financial statements as a whole and our banking subsidiary in which the goodwill resides.
Allowance for Credit Losses
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, 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 weighted average remaining maturity ("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 forecast period of two years with subsequent immediate reversion to the 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 forecast and the subsequent reversion to historical loss information on collectively evaluated loans. As the reasonable and supportable forecast and reversion period forecast reflects 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, 2026, 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 judgment.
Income Taxes
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 position 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 position and the estimates and judgments used in determining the income tax provision and records adjustments, as necessary.
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, 2025, Consolidated Financial Statements of the Company for additional information.
Non-GAAP Financial Measures
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.
Commercial Real Estate Sector Concentration
In recent years, commercial real estate ("CRE") markets have been impacted by economic disruptions, including those resulting from the effects of increases in remote work in urban centers and changes in the characteristics of certain urban centers. CRE loans are generally viewed as having a greater risk of default than other types of loans and depend on cash flows from the owner's business or the property's tenants to service the debt. The borrower's cash flows may be affected significantly by general economic conditions. Adverse conditions in the real estate market or the general business climate and economy or in occupancy rates where the property is located could increase the likelihood of default. In particular, CRE office borrowers in central business districts have been impacted by decreased property valuations, oversupply due to remote work trends, and rising interest rates which has increased default rates and impeded their ability to secure new financing. CRE loans generally have large loan balances, and therefore, the deterioration of one or a few of these loans could cause a significant increase in the percentage of our non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses, and an increase in charge-offs, all of which could have a material adverse effect on our financial condition and results of operations.
The Bank continues to monitor its commercial real estate portfolio by reviewing various credit risk and concentration reports. The Bank's exposure to CRE at March 31, 2026, was $2.8 billion, or 51.9%, 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, 2026, was 35.4%, not including owner-occupied commercial real estate and acquisition, construction & development. Including owner-occupied commercial real estate and acquisition, construction & development, total exposure was at $3.7 billion, or 69.1%, of our total gross loans and 47.2% of total assets at March 31, 2026.
Loan balances by portfolio segment amortized cost (in thousands) and by percentage of our total gross loan portfolio at March 31, 2026, were as follows:
| March 31, 2026 | ||||||||||||||
| Amortized Cost | Percentage | |||||||||||||
| Commercial real estate | $ | 2,806,846 | 51.9 | % | ||||||||||
| Owner-occupied commercial real estate | 579,365 | 10.7 | ||||||||||||
| Acquisition, construction & development | 352,686 | 6.5 | ||||||||||||
| Commercial & industrial | 504,229 | 9.4 | ||||||||||||
| Single family residential (1-4 units) | 1,128,740 | 20.9 | ||||||||||||
| Consumer non-real estate and other | 32,801 | 0.6 | ||||||||||||
| Total gross loans | $ | 5,404,667 | 100.0 | % | ||||||||||
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 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 Company's commercial real estate, owner-occupied commercial real estate, and acquisition, construction & development portfolios by collateral type and geographic location as of March 31, 2026 (in thousands).
|
Commercial Real Estate by Collateral Type and Geographic Location
|
||||||||||||||||||||||||||||||||||||||||||||
| VA | WV | MD | DC | Other | Total | Percentage | ||||||||||||||||||||||||||||||||||||||
| Retail Real Estate | $ | 308,099 | $ | 62,863 | $ | 97,696 | $ | 38,831 | $ | 93,640 | $ | 601,129 | 21.4 | % | ||||||||||||||||||||||||||||||
| Multi-Family | 228,517 | 100,220 | 29,206 | 77,503 | 29,270 | 464,716 | 16.6 | |||||||||||||||||||||||||||||||||||||
| Office Buildings/Condos | 234,939 | 33,561 | 131,080 | 66,599 | 56,805 | 522,984 | 18.6 | |||||||||||||||||||||||||||||||||||||
| Hotels/Motels | 99,065 | 46,460 | 105,145 | 36,933 | 84,319 | 371,922 | 13.3 | |||||||||||||||||||||||||||||||||||||
| Industrial/Warehouse | 241,484 | 12,129 | 34,700 | - | - | 288,313 | 10.2 | |||||||||||||||||||||||||||||||||||||
| Self-Storage | 53,926 | 21,994 | 1,401 | - | 41,995 | 119,316 | 4.3 | |||||||||||||||||||||||||||||||||||||
| Nursing-Assisted Living | 41,692 | 26,250 | 6,238 | - | 37,080 | 111,260 | 4.0 | |||||||||||||||||||||||||||||||||||||
| Restaurants | 14,958 | 2,253 | 10,081 | 5,140 | 3,900 | 36,332 | 1.3 | |||||||||||||||||||||||||||||||||||||
| Gas Stations | 7,737 | 1,481 | 1,927 | 14,292 | 2,286 | 27,723 | 1.0 | |||||||||||||||||||||||||||||||||||||
| Other | 171,739 | 7,631 | 15,610 | 46,685 | 21,486 | 263,151 | 9.3 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 1,402,156 | $ | 314,842 | $ | 433,084 | $ | 285,983 | $ | 370,781 | $ | 2,806,846 | 100.0 | % | ||||||||||||||||||||||||||||||
| Owner-Occupied Commercial Real Estate by Collateral Type and Geographic Location | ||||||||||||||||||||||||||||||||||||||||||||
| VA | WV | MD | DC | Other | Total | Percentage | ||||||||||||||||||||||||||||||||||||||
| Office Buildings/Condos | $ | 58,193 | $ | 29,396 | $ | 14,964 | $ | 719 | $ | 8,118 | $ | 111,390 | 19.2 | % | ||||||||||||||||||||||||||||||
| Retail | 43,941 | 34,492 | 12,032 | - | 14,979 | 105,444 | 18.3 | |||||||||||||||||||||||||||||||||||||
| Industrial/Warehouse | 41,100 | 12,577 | 1,232 | - | 11,047 | 65,956 | 11.4 | |||||||||||||||||||||||||||||||||||||
| Gas Stations | 27,046 | 9,547 | 4,401 | - | 18,343 | 59,337 | 10.2 | |||||||||||||||||||||||||||||||||||||
| Restaurants | 7,216 | 7,612 | 3,933 | - | 10,135 | 28,896 | 5.0 | |||||||||||||||||||||||||||||||||||||
| Churches/Religious Organizations | 16,377 | 7,399 | 906 | 224 | 2,582 | 27,488 | 4.7 | |||||||||||||||||||||||||||||||||||||
| Coal, oil, gas, and natural resource extraction | 538 | 5,947 | - | - | - | 6,485 | 1.1 | |||||||||||||||||||||||||||||||||||||
| Private School | 14,165 | - | - | - | - | 14,165 | 2.4 | |||||||||||||||||||||||||||||||||||||
| Other | 94,129 | 19,446 | 29,750 | 314 | 16,565 | 160,204 | 27.7 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 302,705 | $ | 126,416 | $ | 67,218 | $ | 1,257 | $ | 81,769 | $ | 579,365 | 100.0 | % | ||||||||||||||||||||||||||||||
|
Acquisition, Construction & Development by Collateral Type and Geographic Location
|
||||||||||||||||||||||||||||||||||||||||||||
| VA | WV | MD | DC | Other | Total | Percentage | ||||||||||||||||||||||||||||||||||||||
| Multi-Family | $ | 22,897 | $ | - | $ | 43,088 | $ | 28,945 | $ | 36,182 | $ | 131,112 | 37.2 | % | ||||||||||||||||||||||||||||||
| Land | 101,817 | 20,677 | 12,990 | - | 5,776 | 141,260 | 40.1 | |||||||||||||||||||||||||||||||||||||
| Office Buildings/Condos | 4,470 | - | 1,124 | - | 6,881 | 12,475 | 3.5 | |||||||||||||||||||||||||||||||||||||
| Self-Storage | 5,423 | - | 23,673 | - | - | 29,096 | 8.2 | |||||||||||||||||||||||||||||||||||||
| Retail Real Estate | 1,492 | - | - | - | 944 | 2,436 | 0.7 | |||||||||||||||||||||||||||||||||||||
| Residential For-Sale | 597 | 1,022 | - | - | - | 1,619 | 0.5 | |||||||||||||||||||||||||||||||||||||
| Other | 12,311 | 15,705 | 4,189 | - | 2,483 | 34,688 | 9.8 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 149,007 | $ | 37,404 | $ | 85,064 | $ | 28,945 | $ | 52,266 | $ | 352,686 | 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.
The Bank believes its underwriting and monitoring standards for commercial real estate loans are sufficient to evaluate its loan portfolio and keep it from incurring significant losses. The largest concentration of the Bank's commercial real estate loans are in Virginia (approximately 49.6%), and the Bank 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 Building / Condo" collateral type is 17.3% 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".
Liquidity Management
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 and Liability Management 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 asset portion of the balance sheet provides liquidity primarily through unencumbered securities available-for-sale, loan principal and interest payments, maturities and prepayments of investment securities, and, to a lesser extent, sales of investment securities available-for-sale. Other short-term investments available to the Company that could act as potential sources of liquidity are federal funds sold, securities purchased under agreements to resell, and maturing interest-bearing deposits with other banks.
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.
Management believes that the current sources of liquidity are adequate to meet the Company's requirements and plans for continued growth. See Note 6 - Borrowed Funds and Note 10 - Commitments and Contingencies, in Notes to Consolidated
Financial Statements for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations.
Capital
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements.
Applicable capital rules under the Basel III Framework 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 Framework 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.
As of March 31, 2026, and December 31, 2025, the Bank complied with all regulatory capital standards and qualifies as "well capitalized." Note 8 - Regulatory Capital Matters in Notes to Consolidated Financial Statements contains additional discussion and analysis regarding the Company and the Bank's regulatory capital requirements.
Effects of Inflation
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.
Key Factors Affecting Financial Performance
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, 2025, included in our Form 10-K.
Our success will depend upon, among other things, the following factors that we manage or control:
•Effectively managing capital and liquidity, including:
•Continuing to maintain and, over time, grow our deposit base as a low-cost stable funding source,
•Prudent liquidity and capital management to meet evolving regulatory capital, capital planning, stress testing, and liquidity standards, and
•Actions we take within the capital and other financial markets,
•Our ability to manage any material costs related to the execution of our strategic priorities, including increased employees, infrastructure, compliance, and other costs in a profitable manner over the long term,
•Management of credit risk and interest rate risk in our portfolio,
•Our ability to continue to attract customers and compete with other banks and financial services providers in our markets,
•Our ability to manage and implement strategic business objectives within the changing regulatory environment,
•The impact of legal and regulatory-related contingencies,
•The appropriateness of critical accounting estimates and related contingencies,
•Our ability to manage operational risks related to new products and services, changes in processes and procedures, or the implementation of new technology, and
•The ability to make investments to promote compliance with existing and evolving regulatory requirements that will increase as the Company grows and will result in increased administrative expenses that we did not previously incur, which costs may materially increase our general and administrative expenses, and
•Our success realizing the expected benefits of the LNKB Merger and integrating the operations and customers of LNKB, and continuing to efficiently satisfy the obligations associated with being a public company, all of which will require significant resources and management attention and may divert management's attention from our business operations.
Our financial performance is also substantially affected by a number of external factors outside of our control, including the following:
•Economic conditions, and volatility in markets, including the effects of pandemics, wars, political conflicts, political instability and uncertainty both in the U.S. and abroad, government spending policies, trade policies, including tariffs and tariff counter-measures, and other barriers to trade (including the threat of such actions), the availability of labor, supply chain volatility, and any actions taken to mitigate and manage such impacts;
•The actions or inactions (including assumptions about potential actions or inactions) by the Federal Reserve, U.S. Treasury, and other government agencies, including those that impact money supply and market interest rates and inflation;
•The level of, and direction, timing, and magnitude of movement in interest rates and the shape of the interest rate yield curve;
•The functioning and other performance of and availability of liquidity in U.S. and global financial markets, including capital markets;
•Changes in the competitive landscape;
•Impacts of changes in federal, state, and local governmental policy, including on the regulatory landscape, capital markets, employment and unemployment levels in our markets, taxes, infrastructure spending, and social programs;
•The effect of climate change on our business and performance, including indirectly through impacts on our customers;
•The impact of market credit spreads on asset valuations;
•The ability of customers, counterparties, and issuers to perform in accordance with contractual terms and the resulting impact on our asset quality;
•Loan demand, utilization of credit commitments, and standby letters of credit; and
•The impact on customers and changes in customer behavior due to changing business and economic conditions or regulatory or legislative initiatives.
Risks related to these items, where material to the Company's business, are discussed in the applicable sections of this Management's Discussion and Analysis of Financial Condition and Results of Operation. For additional information on the risks we face, see Part II, Item 1A. - Risk Factors.
Selected Financial Data
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, 2026, and March 31, 2025, and the selected income statement data for the three months ended March 31, 2026, and March 31, 2025, have been derived from our consolidated financial statements included elsewhere in this Form 10-Q and in other filings we have submitted with the SEC and should be read in conjunction with the other information contained in this Form 10-Q.
|
For the Period Ended March 31,
|
||||||||||||||
| (In thousands, except ratios, share and per share data) | 2026 | 2025 | ||||||||||||
| Selected Financial Condition Data: | ||||||||||||||
| Total assets | $ | 7,927,711 | $ | 7,838,090 | ||||||||||
| Total cash and cash equivalents | 69,592 | 148,846 | ||||||||||||
| Total investment securities, at fair value | 1,826,037 | 1,436,869 | ||||||||||||
| Net loans | 5,336,712 | 5,579,754 | ||||||||||||
| Company-owned life insurance | 214,606 | 184,018 | ||||||||||||
| Premises and equipment, net | 136,806 | 132,289 | ||||||||||||
| Total deposits | 6,332,265 | 6,541,871 | ||||||||||||
|
Short-term borrowings
|
525,000 | 300,000 | ||||||||||||
| Total shareholders' equity | 864,504 | 758,000 | ||||||||||||
|
Common shareholders' equity
|
854,091 | 747,587 | ||||||||||||
|
As of or for the Three Months Ended March 31,
|
||||||||||||||
| 2026 | 2025 | |||||||||||||
| Selected Operating Data: | ||||||||||||||
| Interest income | $ | 105,456 | $ | 110,786 | ||||||||||
| Interest expense | 33,613 | 37,799 | ||||||||||||
| Net interest income | 71,843 | 72,987 | ||||||||||||
|
Provision for credit losses
|
12 | 501 | ||||||||||||
| Total non-interest income | 12,853 | 10,023 | ||||||||||||
| Total non-interest expenses | 51,381 | 49,664 | ||||||||||||
|
Income before income taxes
|
33,303 | 32,845 | ||||||||||||
|
Income tax expense
|
5,954 | 5,644 | ||||||||||||
|
Preferred stock dividends
|
225 | 225 | ||||||||||||
|
Net income applicable to common shares
|
27,124 | 26,976 | ||||||||||||
| Per Share Data: | ||||||||||||||
|
Average shares of common stock outstanding, basic
|
15,037,330 | 14,976,483 | ||||||||||||
|
Average shares of common stock outstanding, diluted
|
15,131,481 | 15,026,376 | ||||||||||||
|
Total shares of common stock outstanding
|
15,045,941 | 14,982,807 | ||||||||||||
|
Basic net income per common share
|
$ | 1.80 | $ | 1.80 | ||||||||||
|
Diluted net income per common share
|
1.79 | 1.80 | ||||||||||||
|
Dividends declared per common share
|
0.55 | 0.55 | ||||||||||||
|
Common stock dividend payout ratio (1)
|
30.73 | % | 30.56 | % | ||||||||||
|
Book value per common share (at period end)
|
$ | 56.77 | $ | 49.90 | ||||||||||
|
As of or for the Three Months Ended March 31,
|
||||||||||||||
| 2026 | 2025 | |||||||||||||
| Performance Ratios: | ||||||||||||||
| Return on average assets | 1.39 | % | 1.41 | % | ||||||||||
|
Return on average common equity (2)
|
12.77 | 14.78 | ||||||||||||
|
Interest rate spread (3)
|
3.53 | 3.55 | ||||||||||||
|
Net interest margin (4)
|
4.09 | 4.18 | ||||||||||||
|
Efficiency ratio (5)
|
60.67 | 59.83 | ||||||||||||
| Capital Ratios: | ||||||||||||||
| Common equity tier 1 (CET 1) capital to risk-weighted assets | 13.78 | % | 11.77 | % | ||||||||||
| Total risk-based capital to risk-weighted assets | 16.52 | 14.79 | ||||||||||||
| Tier 1 capital to risk-weighted assets | 14.22 | 12.20 | ||||||||||||
|
Tier 1 capital to average assets (leverage ratio)
|
11.27 | 10.12 | ||||||||||||
| Asset Quality Ratios: | ||||||||||||||
| Allowance coverage ratio | 1.26 | % | 1.20 | % | ||||||||||
| Allowance for credit losses as a percentage of non-performing loans | 86.50 | 104.63 | ||||||||||||
| Net charge-offs to average outstanding loans during the period | 0.00 | 0.02 | ||||||||||||
| Non-performing loans as a percentage of total loans | 1.45 | 1.15 | ||||||||||||
| Non-performing assets as a percentage of total assets | 1.03 | 0.86 | ||||||||||||
| Other Data: | ||||||||||||||
| Number of full-service branches | 77 | 77 | ||||||||||||
| Number of full-time equivalent employees | 830 | 814 | ||||||||||||
(1) Common stock dividend payout ratio represents per share dividends declared divided by diluted earnings per share.
(2) Return on average common equity computed using total average common equity at period-end.
(3) The interest rate spread represents the difference between the fully taxable-equivalent weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.
(4) The net interest margin represents fully taxable-equivalent net interest income as a percent of average interest-earning assets for the period.
(5) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income and non-interest income.
Results of Operations for the Three Months Ended March 31, 2026, and March 31, 2025
General
Net income applicable to common shares for the three months ended March 31, 2026, was $27.1 million, compared to net income applicable to common shares of $27.0 million during the three months ended March 31, 2025. The $0.1 million increase was due to a decrease in interest expense, and an increase in non-interest income, partially offset by a decrease in interest income, and an increase in non-interest expense for the three months ended March 31, 2026, compared to the three months ended March 31, 2025.
Net interest income decreased by $1.1 million to $71.8 million for the three months ended March 31, 2026, compared to $73.0 million for the three months ended March 31, 2025. The main driver for this decrease was results that reflect lower interest income, primarily related to lower accretion income, which was partially offset by lower interest expense when compared to the three months ended March 31, 2025.
For the three months ended March 31, 2026, the Company recorded credit provision expense of $12.0 thousand compared to a provision of $501.0 thousand for the three months ended March 31, 2025. For the three months ended March 31, 2026, credit loss expense on loans and AFS securities was $213.0 thousand compared to $900.0 thousand for the three months ended March 31, 2025. For the three months ended March 31, 2026, credit loss expense on loans and AFS securities was offset by a credit expense recapture of $201.0 thousand on off-balance sheet credit exposures. For the three months ended March 31, 2025, credit loss expense on loans and AFS securities was offset by a credit expense recapture of $398.8 thousand on off-balance sheet credit exposures.
Non-interest income increased by $2.8 million, or 28.2%, to $12.9 million for the three months ended March 31, 2026, as compared to $10.0 million for the three months ended March 31, 2025. Increases in fiduciary and wealth management, net gains on securities, income from company-owned life insurance, and other non-interest income exceeded declines in service charges and fees income and bank debit and other card revenue for the three months ended March 31, 2026, compared to the three months ended March 31, 2025.
Non-interest expense increased by $1.7 million, or 3.5%, to $51.4 million for the three months ended March 31, 2026, as compared to $49.7 million for the three months ended March 31, 2025. The increase was primarily due to increases in salaries and wages, pensions and other employee benefits, equipment rentals, depreciation and maintenance, FDIC and other regulatory assessments and other operating expense for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increases were partially offset by a decrease in core deposit intangible amortization for the three months ended March 31, 2026, compared to the three months ended March 31, 2025.
Net Interest Income and Net Interest Margin
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 earning 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 $71.8 million for the three months ended March 31, 2026, compared to $73.0 million for the three months ended March 31, 2025. The decrease in net interest income was primarily driven by results that reflect lower interest income, primarily related to lower accretion income, partially offset by lower interest expense related to lower deposit rates when compared to the three months ended March 31, 2025. Accretion income associated with acquired loans totaled $6.8 million for the three months ended March 31, 2026, compared to $11.4 million for the three months ended March 31, 2025. Amortization expense associated with fair value marks for time deposits, subordinated debt, and trust preferred securities totaled $1.4 million for the three months ended March 31, 2026, compared to $2.2 million for the three months ended March 31, 2025.
The tax-adjusted net interest margin was 4.09% for the three months ended March 31, 2026, compared to 4.18% for the three months ended March 31, 2025. The decrease in tax-adjusted net interest margin was primarily driven by results that reflect lower interest income, primarily related to lower accretion income, partially offset by lower interest expense related to lower deposit rates, when compared to the three months ended March 31, 2025.
The yield for the taxable loan portfolio was 6.64% for the three months ended March 31, 2026, compared to 6.96% for the three months ended March 31, 2025. The decrease was primarily the result of lower accretion income for three months ended March 31, 2026 compared to the three months ended March 31, 2025.
The tax-adjusted yield on the total investment securities portfolio was 4.05% for the three months ended March 31, 2026, compared to 3.85% for the three months ended March 31, 2025. The increase was primarily the result of an increase in balance of higher-yielding securities for the three months ended March 31, 2026, compared to the three months ended March 31, 2025.
The yield on interest-bearing deposits decreased to 2.16% during the three months ended March 31, 2026, from 2.53% during the three months ended March 31, 2025. The decrease was primarily due to lower market interest rates on deposit products reflecting decreases in the Federal Funds Rate and other market rates.
The yield on our short-term borrowings for the three months ended March 31, 2026, was 3.78%, compared to 3.88% for the three months ended March 31, 2025. The decrease was due to decreases in the Federal Funds Rate and other short-term market rates and the addition of derivative swaps that decreased our cost of borrowing. The yield on our subordinated debt assumed in the Summit Merger was 10.46% for the three months ended March 31, 2026, compared to 9.85% for the three months ended March 31, 2025.
The following table sets forth the major components of net interest income and the related yields and rates for the three months ended March 31, 2026, and March 31, 2025, for comparison (dollars in thousands).
|
For the Three Months Ended March 31,
|
|||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
| Average Outstanding Balance | Interest Income/Expense |
Average Yield / Rate
|
Average Outstanding Balance | Interest Income/Expense |
Average Yield / Rate
|
||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
|
Loans, gross (1)(2)
|
$ | 5,380,967 | $ | 88,083 | 6.64 | % | $ | 5,651,937 | $ | 97,031 | 6.96 | % | |||||||||||||||||||||||
|
Tax-exempt loans (1)(2)
|
2,903 | 51 | 7.12 | 4,057 | 59 | 5.90 | |||||||||||||||||||||||||||||
|
Total loans
|
5,383,870 | 88,134 | 6.64 | 5,655,994 | 97,090 | 6.96 | |||||||||||||||||||||||||||||
| Interest-earning deposits and fed funds sold | 70,361 | 738 | 4.25 | 40,757 | 579 | 5.76 | |||||||||||||||||||||||||||||
|
Taxable AFS securities and other securities (3)
|
1,128,486 | 10,513 | 3.78 | 1,039,391 | 9,862 | 3.85 | |||||||||||||||||||||||||||||
|
Tax-exempt AFS securities (3)(4)
|
696,580 | 7,699 | 4.48 | 435,789 | 4,136 | 3.85 | |||||||||||||||||||||||||||||
| Total securities | 1,825,066 | 18,212 | 4.05 | 1,475,180 | 13,998 | 3.85 | |||||||||||||||||||||||||||||
| Total interest-earning assets | 7,279,297 | 107,084 | 5.97 | 7,171,931 | 111,667 | 6.31 | |||||||||||||||||||||||||||||
| Non-interest-earning assets | 633,801 | 596,807 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 7,913,098 | $ | 7,768,738 | |||||||||||||||||||||||||||||||
| Liabilities and shareholders' equity: | |||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||
| Non-interest-bearing demand | $ | 1,332,090 | $ | 1,371,615 | |||||||||||||||||||||||||||||||
| Interest-bearing demand | 2,286,206 | 11,161 | 1.98 | % | 2,216,243 | 11,816 | 2.16 | % | |||||||||||||||||||||||||||
|
Money market & savings
|
1,675,034 | 7,558 | 1.83 | 1,633,307 | 8,139 | 2.02 | |||||||||||||||||||||||||||||
|
Brokered CDs & time deposits
|
1,044,605 | 8,001 | 3.11 | 1,253,841 | 11,896 | 3.85 | |||||||||||||||||||||||||||||
| Total interest-bearing deposits | 5,005,845 | 26,720 | 2.16 | 5,103,391 | 31,851 | 2.53 | |||||||||||||||||||||||||||||
| Total deposits | 6,337,935 | 26,720 | 1.71 | 6,475,006 | 31,851 | 1.99 | |||||||||||||||||||||||||||||
| Borrowings: | |||||||||||||||||||||||||||||||||||
|
Short-term borrowings and other
|
496,501 | 4,624 | 3.78 | 336,245 | 3,219 | 3.88 | |||||||||||||||||||||||||||||
|
Subordinated debt borrowings
|
87,979 | 2,269 | 10.46 | 112,383 | 2,729 | 9.85 | |||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 5,590,325 | 33,613 | 2.44 | 5,552,019 | 37,799 | 2.76 | |||||||||||||||||||||||||||||
| Non-interest-bearing liabilities | 118,995 | 94,274 | |||||||||||||||||||||||||||||||||
| Equity | 871,688 | 750,830 | |||||||||||||||||||||||||||||||||
| Total liabilities and equity | $ | 7,913,098 | $ | 7,768,738 | |||||||||||||||||||||||||||||||
|
Taxable-equivalent net interest income /net interest spread (5)
|
73,471 | 3.53 | % | 73,868 | 3.55 | % | |||||||||||||||||||||||||||||
|
Taxable-equivalent net interest margin (6)
|
4.09 | % | 4.18 | % | |||||||||||||||||||||||||||||||
| Taxable-equivalent net adjustment | (1,628) | (881) | |||||||||||||||||||||||||||||||||
| Net interest income | $ | 71,843 | $ | 72,987 | |||||||||||||||||||||||||||||||
| Net interest-earning assets | $ | 1,688,972 | $ | 1,619,912 | |||||||||||||||||||||||||||||||
(1)Non-accrual loans are included in average loan balances.
(2)Loan fees are included in the calculation of interest income.
(3)Calculated based on fair value of investment securities.
(4)Yields and interest income on tax-exempt assets are computed on a taxable-equivalent basis assuming a 21% tax rate.
(5)The interest rate spread represents the difference between the fully taxable-equivalent weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.
(6)The net interest margin represents FTE net interest income as a percent of average interest-earning assets for the period.
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 provides 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, 2026 | March 31, 2025 | |||||||||||||
| GAAP Financial Measurements | ||||||||||||||
| Interest income - Loans | $ | 88,083 | $ | 97,031 | ||||||||||
| Interest income - Tax-exempt loans | 40 | 46 | ||||||||||||
| Interest income - Taxable AFS securities and other securities | 9,758 | 9,487 | ||||||||||||
| Interest income - Tax-exempt AFS securities | 6,082 | 3,267 | ||||||||||||
| Interest income - Other interest income | 1,493 | 955 | ||||||||||||
| Total Interest Income | 105,456 | 110,786 | ||||||||||||
| Interest expense - Deposits | 26,720 | 31,851 | ||||||||||||
| Interest expense - Borrowed funds | 4,590 | 3,192 | ||||||||||||
| Interest expense - Subordinated debt | 2,269 | 2,729 | ||||||||||||
| Interest expense - Other | 34 | 27 | ||||||||||||
| Total interest expense | 33,613 | 37,799 | ||||||||||||
| Total net interest income | $ | 71,843 | $ | 72,987 | ||||||||||
| Non-GAAP Financial Measurements | ||||||||||||||
| Add: Tax benefit on tax-exempt interest income | $ | 1,628 | $ | 881 | ||||||||||
|
Total tax benefit on tax-exempt interest income (1)
|
1,628 | 881 | ||||||||||||
| Tax-equivalent net interest income | $ | 73,471 | $ | 73,868 | ||||||||||
(1)Tax benefit was calculated using the federal statutory tax rate of 21%.
Yield/Rate and Volume Analysis
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, 2026, and March 31, 2025, are annualized using 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, 2026, compared to March 31, 2025
|
||||||||||||||||||||
| Dollar Increase (Decrease) Due to Change in: | ||||||||||||||||||||
| Average Volume |
Average Yield / Rate
|
Net Change | ||||||||||||||||||
| Income from the interest-earning assets: | ||||||||||||||||||||
|
Loans,(1) gross
|
$ | (4,671) | $ | (4,285) | $ | (8,956) | ||||||||||||||
|
AFS securities and other securities (1)
|
3,320 | 894 | 4,214 | |||||||||||||||||
| Interest-bearing deposits and fed funds sold | 421 | (262) | 159 | |||||||||||||||||
| Total interest income on interest-earning assets | (930) | (3,653) | (4,583) | |||||||||||||||||
| Expense from the interest-bearing liabilities: | ||||||||||||||||||||
| Interest-bearing demand deposits | 373 | (1,028) | (655) | |||||||||||||||||
|
Money market & savings
|
208 | (789) | (581) | |||||||||||||||||
|
Brokered CDs & time deposits
|
(1,985) | (1,910) | (3,895) | |||||||||||||||||
| Total interest expense on interest-bearing deposits | (1,404) | (3,727) | (5,131) | |||||||||||||||||
| Borrowings | ||||||||||||||||||||
| Short-term borrowings | 1,534 | (129) | 1,405 | |||||||||||||||||
| Subordinated debt and other | (593) | 133 | (460) | |||||||||||||||||
| Total borrowings | 941 | 4 | 945 | |||||||||||||||||
| Total interest expense on interest-bearing liabilities | (463) | (3,723) | (4,186) | |||||||||||||||||
|
Taxable-equivalent net interest income
|
$ | (467) | $ | 70 | $ | (397) | ||||||||||||||
(1)Yields and interest income on tax-exempt loans and securities have been computed on a taxable-equivalent basis.
Interest Income
Total interest income was $105.5 million for the three months ended March 31, 2026, compared to $110.8 million for the three months ended March 31, 2025, a decrease of 4.8%. The decrease in interest income was primarily due to lower accretion income when compared to the three months ended March 31, 2025. Interest income on loans decreased by $9.0 million and interest income on securities increased $3.1 million, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. Accretion income associated with acquired loans totaled $6.8 million for the three months ended March 31, 2026, compared to $11.4 million for the three months ended March 31, 2025.
Interest Expense
Total interest expense was $33.6 million for the three months ended March 31, 2026, compared to $37.8 million for the three months ended March 31, 2025. The decrease in interest expense was due to results that reflect lower rates on interest-bearing liabilities, and lower amortization expense associated with fair value marks for liabilities acquired in the Summit Merger. Interest expense on interest-bearing deposits decreased by $5.1 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, due to lower market rates. Interest on subordinated debt acquired in the Summit Merger was $2.3 million for the three months ended March 31, 2026, compared to $2.7 million for the three months ended March 31, 2025. Interest expense on short-term borrowings amounted to $4.6 million for the three months ended March 31, 2026, compared to $3.2 million for the three months ended March 31, 2025, due to higher average balances. Amortization expense associated with fair value marks for time deposits, subordinated debt, and trust preferred securities totaled $1.4 million for the three months ended March 31, 2026, compared to $2.2 million for the three months ended March 31, 2025.
Provision for (Recapture of) Credit Losses
The provision for credit losses was $12.0 thousand for the three months ended March 31, 2026, compared to a provision of $501.0 thousand for the three months ended March 31, 2025. For the three months ended March 31, 2026, credit loss expense on loans and AFS securities was $213.0 thousand compared to $900.0 thousand for the three months ended March 31, 2025. For the three months ended March 31, 2026, credit loss expense on loans and AFS securities was offset by a credit expense recapture of $201.0 thousand on off-balance sheet credit exposures. For the three months ended March 31, 2025, credit loss expense on loans and AFS securities was offset by a credit expense recapture of $398.8 thousand on off-balance sheet credit exposures.
Non-interest Income
The following table sets forth the various components of our non-interest income for the periods indicated (in thousands):
|
Three months ended March 31,
|
Increase (Decrease) | ||||||||||||||||||||||
| 2026 | 2025 | Amount | Percent | ||||||||||||||||||||
| Fiduciary and wealth management | $ | 3,227 | $ | 2,443 | $ | 784 | 32.1 | % | |||||||||||||||
| Service charges and fees | 1,855 | 2,178 | (323) | (14.8) | |||||||||||||||||||
| Net gains (losses) on securities | 1,799 | 1 | 1,798 | NM | |||||||||||||||||||
| Income from company-owned life insurance | 1,479 | 1,193 | 286 | 24.0 | |||||||||||||||||||
| Bank debit and other card revenue | 2,835 | 2,884 | (49) | (1.7) | |||||||||||||||||||
| Other non-interest income | 1,658 | 1,324 | 334 | 25.2 | |||||||||||||||||||
| Total | $ | 12,853 | $ | 10,023 | $ | 2,830 | 28.2 | % | |||||||||||||||
Non-interest income increased 28.2% for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The largest dollar increase was a $1.8 million increase in net gains on securities for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. This increase was driven by an increase in sales in our AFS securities portfolio for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. Increases in fiduciary and wealth management, income from company-owned life insurance, and other non-interest income exceeded declines in service charges and fees income and bank debit and other card revenue for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The fiduciary and wealth management increase was driven by increased wealth and fiduciary services performance.
Non-interest Expense
The following table sets forth the various components of our non-interest expense for the periods indicated (in thousands):
|
Three months ended March 31,
|
Increase (Decrease) | ||||||||||||||||||||||
| 2026 | 2025 | Amount | Percent | ||||||||||||||||||||
| Salaries and wages | $ | 21,413 | $ | 20,941 | $ | 472 | 2.3 | % | |||||||||||||||
| Pensions and other employee benefits | 5,370 | 5,136 | 234 | 4.6 | |||||||||||||||||||
| Occupancy | 4,027 | 4,045 | (18) | (0.4) | |||||||||||||||||||
| Equipment rentals, depreciation and maintenance | 4,188 | 4,084 | 104 | 2.5 | |||||||||||||||||||
| Core deposit intangible amortization | 3,684 | 4,298 | (614) | (14.3) | |||||||||||||||||||
| ATM, card, and network expense | 1,134 | 1,132 | 2 | 0.2 | |||||||||||||||||||
| FDIC and other regulatory assessments | 1,140 | 914 | 226 | 24.7 | |||||||||||||||||||
| Other operating | 10,425 | 9,114 | 1,311 | 14.4 | |||||||||||||||||||
| Total | $ | 51,381 | $ | 49,664 | $ | 1,717 | 3.5 | % | |||||||||||||||
Non-interest expense increased $1.7 million, or 3.5%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase was primarily driven by increases in salaries and wages, pensions and other employee benefits, equipment rentals, depreciation and maintenance, FDIC and other regulatory assessments, and other operating expenses for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The largest dollar increase for the three months ended March 31, 2026, compared to the three months ended March 31, 2025 was a $1.3 million increase in other operating expenses, mostly driven by an increase in merger related expenses. The largest dollar decrease was a $614.0 thousand decrease in core deposit intangible amortization which declined due to its accelerated amortization method. See Note 13 - Other Operating Expense in Notes to Consolidated Financial Statements for further information on "Other" non-interest expense.
Income Tax Expense
Income tax expense was $6.0 million for the three months ended March 31, 2026, an increase of $310.0 thousand from the tax expense of $5.6 million for the three months ended March 31, 2025. The increase was mostly due to additional state taxes incurred in the combined market area after the Summit Merger, for the three months ended March 31, 2026, when
compared to the three months ended March 31, 2025. For the three months ended March 31, 2026, the effective tax rate was 17.9%, while the effective tax rate was 17.2% for March 31, 2025.
Analysis of Financial Condition for the Period Ended March 31, 2026, and December 31, 2025
Assets increased by $7.1 million to $7.9 billion as of March 31, 2026, compared to $7.9 billion as of December 31, 2025. Loans, net of ACL, was essentially flat at $5.3 billion as of March 31, 2026, increasing by $16.9 million from December 31, 2025. Deposits decreased by $71.7 million and amounted to $6.3 billion at March 31, 2026, compared to $6.4 billion at December 31, 2025. Short-term borrowings increased by $75.0 million to $525.0 million as of March 31, 2026, compared to $450.0 million at December 31, 2025. Subordinated debt and subordinated debt owed to unconsolidated subsidiary trusts, which were assumed in the Summit Merger, totaled $88.8 million at March 31, 2026, compared to $87.5 million at December 31, 2025.
Investment Securities
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, 2026, the unrealized losses on our holdings increased $14.6 million from December 31, 2025.
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, 2026, or at December 31, 2025.
The Company has sufficient access to liquidity such that management does not believe it would be necessary to sell any of its investment securities at a loss to offset any unexpected deposit outflows. Management believes the structure of the Bank's investment portfolio is appropriately aligned with the rest of the balance sheet to protect against significant and unexpected charges against earnings and capital.
The following tables reflect the amortized cost and fair market values for the total portfolio for each category of investment for March 31, 2026, and December 31, 2025 (in thousands):
|
March 31, 2026
|
|||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Securities Available-for-Sale | |||||||||||||||||||||||
| U.S. Treasuries and government agencies | $ | 158,733 | $ | - | $ | 9,270 | $ | 149,463 | |||||||||||||||
| Obligations of states and municipalities | 1,054,158 | 1,868 | 65,757 | 990,269 | |||||||||||||||||||
| Residential mortgage backed - agency | 60,008 | 357 | 2,990 | 57,375 | |||||||||||||||||||
| Residential mortgage backed - non-agency | 379,401 | 1,097 | 8,012 | 372,486 | |||||||||||||||||||
| Commercial mortgage backed - agency | 72,465 | 29 | 810 | 71,684 | |||||||||||||||||||
| Commercial mortgage backed - non-agency | 100,064 | 282 | 1,969 | 98,377 | |||||||||||||||||||
|
Asset-backed
|
50,732 | 111 | 543 | 50,300 | |||||||||||||||||||
| Other | 36,954 | 186 | 1,057 | 36,083 | |||||||||||||||||||
| Total | $ | 1,912,515 | $ | 3,930 | $ | 90,408 | $ | 1,826,037 | |||||||||||||||
|
December 31, 2025
|
|||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Securities Available-for-Sale | |||||||||||||||||||||||
| U.S. Treasuries and government agencies | $ | 159,088 | $ | - | $ | 8,964 | $ | 150,124 | |||||||||||||||
| Obligations of states and municipalities | 977,104 | 5,414 | 59,944 | 922,574 | |||||||||||||||||||
| Residential mortgage backed - agency | 57,731 | 464 | 2,810 | 55,385 | |||||||||||||||||||
| Residential mortgage backed - non-agency | 221,443 | 1,860 | 5,211 | 218,092 | |||||||||||||||||||
| Commercial mortgage backed - agency | 74,253 | 250 | 607 | 73,896 | |||||||||||||||||||
| Commercial mortgage backed - non-agency | 112,082 | 584 | 1,557 | 111,109 | |||||||||||||||||||
|
Asset-backed
|
53,954 | 89 | 577 | 53,466 | |||||||||||||||||||
| Other | 32,162 | 158 | 1,012 | 31,308 | |||||||||||||||||||
|
Total
|
$ | 1,687,817 | $ | 8,819 | $ | 80,682 | $ | 1,615,954 | |||||||||||||||
The investment maturity table below summarizes contractual maturities for our investment securities at March 31, 2026. 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 4.6 years at March 31, 2026. 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, 2026
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | - | - | % | $ | 158,733 | 1.34 | % | $ | - | - | % | $ | - | - | % | $ | 158,733 | 1.34 | % | |||||||||||||||||||||||||||||||||||||||
| Obligations of states and municipalities | 6,000 | 4.16 | 273,806 | 2.57 | 543,525 | 3.56 | 230,827 | 3.16 | 1,054,158 | 3.22 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage backed - agency | - | - | 25,872 | 4.66 | 26,284 | 2.72 | 7,852 | 4.27 | 60,008 | 3.76 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage backed - non-agency | 2,014 | 3.19 | 82,568 | 3.88 | 267,098 | 4.25 | 27,721 | 4.74 | 379,401 | 4.20 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage backed - agency | - | - | 46,711 | 4.61 | 25,754 | 5.41 | - | - | 72,465 | 4.89 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage backed - non-agency | 7,162 | 5.36 | 66,128 | 4.33 | 26,774 | 4.99 | - | - | 100,064 | 4.58 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
Asset-backed
|
2,610 | 5.23 | 33,268 | 4.94 | 14,854 | 4.69 | - | - | 50,732 | 4.88 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | - | - | 2,811 | 6.45 | 25,034 | 5.91 | 9,109 | 9.52 | 36,954 | 6.84 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 17,786 | 4.69 | % | $ | 689,897 | 2.96 | % | $ | 929,323 | 3.91 | % | $ | 275,509 | 3.56 | % | $ | 1,912,515 | 3.52 | % | |||||||||||||||||||||||||||||||||||||||
Lending Activities
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.
The following tables set forth the composition of our loan portfolio as of the dates indicated (in thousands):
|
March 31, 2026
|
December 31, 2025 | |||||||||||||
|
Commercial real estate
|
$
|
2,806,846
|
$
|
2,769,287
|
||||||||||
|
Owner-occupied commercial real estate
|
579,365
|
593,120
|
||||||||||||
|
Acquisition, construction & development
|
352,686
|
386,870
|
||||||||||||
|
Commercial & industrial
|
504,229
|
461,921
|
||||||||||||
|
Single family residential (1-4 units)
|
1,128,740
|
1,127,684
|
||||||||||||
|
Consumer non-real estate and other
|
32,801
|
48,794
|
||||||||||||
|
Loans, gross
|
5,404,667 | 5,387,676 | ||||||||||||
|
Allowance for credit losses
|
(67,955) | (67,823) | ||||||||||||
|
Loans, net
|
$
|
5,336,712
|
$
|
5,319,853
|
||||||||||
The loan portfolio, excluding ACL, at March 31, 2026, increased by $17.0 million from December 31, 2025, primarily due to growth in the commercial real estate and commercial & industrial loan segments.
The following table shows the maturity distribution for total loans outstanding as of March 31, 2026. The maturity distribution is grouped by remaining scheduled principal payments that are due in the following periods. The principal balance of loans is indicated by both fixed and floating rate categories in the table below (in thousands).
| March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 286,860 | $ | 183,699 | $ | 1,037,733 | $ | 471,230 | $ | 221,911 | $ | 319,638 | $ | 2,159 | $ | 283,616 | $ | 2,806,846 | |||||||||||||||||||||||||||||||||||
| Owner-occupied commercial real estate | 17,824 | 6,824 | 148,444 | 38,085 | 94,326 | 171,213 | 10,367 | 92,282 | 579,365 | ||||||||||||||||||||||||||||||||||||||||||||
| Acquisition, construction & development | 62,279 | 103,256 | 24,934 | 102,742 | 13,730 | 30,748 | 6,030 | 8,967 | 352,686 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial & industrial | 14,230 | 207,295 | 116,265 | 84,891 | 28,772 | 32,322 | 16,941 | 3,513 | 504,229 | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial loans | 381,193 | 501,074 | 1,327,376 | 696,948 | 358,739 | 553,921 | 35,497 | 388,378 | 4,243,126 | ||||||||||||||||||||||||||||||||||||||||||||
| Single family residential (1-4 units) | 13,139 | 10,954 | 41,644 | 8,702 | 69,629 | 70,068 | 479,813 | 434,791 | 1,128,740 | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer non-real estate and other | 3,672 | 1,542 | 21,293 | 1,533 | 3,701 | 437 | 110 | 513 | 32,801 | ||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | 398,004 | $ | 513,570 | $ | 1,390,313 | $ | 707,183 | $ | 432,069 | $ | 624,426 | $ | 515,420 | $ | 823,682 | $ | 5,404,667 | |||||||||||||||||||||||||||||||||||
Asset Quality
The Company maintains policies and procedures to promote sound underwriting and mitigate credit risk. The Chief Credit Officer is responsible for establishing credit risk policies and procedures, including underwriting guidelines and credit approval authority, and monitoring credit exposure and performance of the Company's lending-related transactions. We regularly monitor the level of loan delinquencies and believe these levels are a key indicator of credit quality in our loan portfolio. We manage credit risk based on the risk profile of the borrower, repayment sources, underlying collateral, and other support given current events, economic conditions and expectations.
A loan is placed on non-accrual status when (i) the Company is advised by the borrower that scheduled principal or interest payments cannot be met, (ii) when management's best judgment indicates that payment in full of principal and interest can no longer be expected, or (iii) when any such loan or obligation becomes delinquent for 90 days, unless it is both well-secured and in the process of collection.
The Company's asset quality metrics remain within the Company's risk profile with adequate reserve coverage. The Company's nonaccrual loan balances increased by $3.7 million from December 31, 2025, while the Company's loans 90 days past due and still accruing increased $577.0 thousand from December 31, 2025. 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, 2026, totaled $81.7 million, an increase of $4.7 million from $76.9 million at December 31, 2025.
The following table summarizes the Company's non-performing assets as of March 31, 2026, and December 31, 2025 (in thousands):
| March 31, 2026 | December 31, 2025 | |||||||||||||
| Non-accrual loans | $ | 74,359 | $ | 70,613 | ||||||||||
| 90 days past due and still accruing | 4,200 | 3,623 | ||||||||||||
| Total non-performing loans | 78,559 | 74,236 | ||||||||||||
| Other real estate owned | 3,106 | 2,689 | ||||||||||||
| Total non-performing assets | $ | 81,665 | $ | 76,925 | ||||||||||
Allowance for Credit Losses
Refer to the discussion in Note 1 - Nature of Business Activities and Significant Accounting Policies in Notes to Consolidated Financial Statements for management's approach to estimating the ACL.
The Company maintains the ACL at a level deemed adequate by management for expected credit losses. 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.
The Company recorded a provision expense of $213.0 thousand and a provision of $900.0 thousand on loans for the three months ended March 31, 2026, and March 31, 2025, respectively.
Gross charged-off loans were $490.0 thousand and $1.4 million for the three months ended March 31, 2026, and March 31, 2025, respectively. Gross recoveries totaled $409.0 thousand and $237.0 thousand for the three months ended March 31, 2026, and March 31, 2025, respectively. The ACL as a percentage of gross loans, net of unearned income, was 1.26% and 1.20% as of March 31, 2026, and March 31, 2025, respectively.
The following table summarizes the changes in the Company's credit loss experience by portfolio for the three months ended March 31, 2026, and 2025 (dollars in thousands):
| Three months ended | ||||||||||||||
|
March 31, 2026
|
March 31, 2025
|
|||||||||||||
| Loans outstanding at end of period | $ | 5,404,667 | $ | 5,647,507 | ||||||||||
| Balance of allowance at beginning of period | (67,823) | (68,040) | ||||||||||||
| Allowance established for acquired PCD Loans | - | - | ||||||||||||
| Loans charged-off: | ||||||||||||||
| Commercial real estate | - | - | ||||||||||||
| Owner-occupied commercial real estate | 65 | 687 | ||||||||||||
| Acquisition, construction & development | - | - | ||||||||||||
| Commercial & industrial | - | 93 | ||||||||||||
| Residential | 65 | 33 | ||||||||||||
| Consumer non-real estate and other | 360 | 611 | ||||||||||||
| Total loans charged-off | 490 | 1,424 | ||||||||||||
| Recoveries of loans charged-off: | ||||||||||||||
| Commercial real estate | (6) | (6) | ||||||||||||
| Owner-occupied commercial real estate | - | - | ||||||||||||
| Acquisition, construction & development | - | - | ||||||||||||
| Commercial & industrial | (11) | (4) | ||||||||||||
| Residential | (108) | (132) | ||||||||||||
| Consumer non-real estate and other | (284) | (95) | ||||||||||||
| Total recoveries of loans charged-off | (409) | (237) | ||||||||||||
| Net loan charge-offs (recoveries) | 81 | 1,187 | ||||||||||||
| Provision for (recapture of) credit losses for the period | 213 | 900 | ||||||||||||
| Ending allowance | $ | (67,955) | $ | (67,753) | ||||||||||
| Average loans outstanding during the period | $ | 5,383,870 | $ | 5,655,994 | ||||||||||
|
Allowance coverage ratio (1)
|
1.26 | % | 1.20 | % | ||||||||||
|
Net charge-offs to average outstanding loans during the period (2)
|
0.00 | 0.02 | ||||||||||||
|
Allowance for credit losses as a percentage of non-performing loans (3)
|
86.50 | 104.63 | ||||||||||||
(1)The allowance coverage ratio is calculated by dividing the ACL at the end of the period by gross loans, net of unearned income at the end of the period.
(2)The Net charge-offs to average outstanding loans during the period is calculated by dividing total net loan charge-offs (recoveries) during the year by average gross loans outstanding during the year.
(3)The Allowance for credit losses as a percentage of non-performing loans ratio is calculated by dividing the ACL at the end of the period by non-accrual loans and loans 90 days past due and still accruing at the end of the period.
The following table summarizes the ACL by portfolio with a comparison of the percentage composition in relation to total ACL and allowance for credit losses and total loans as of March 31, 2026, and December 31, 2025 (dollars in thousands).
| March 31, 2026 | ||||||||||||||||||||
| 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 | $ | 27,001 | 39.74 | % | 51.93 | % | ||||||||||||||
| Owner-occupied commercial real estate | 3,150 | 4.64 | 10.72 | |||||||||||||||||
| Acquisition, construction & development | 16,773 | 24.68 | 6.53 | |||||||||||||||||
| Commercial & industrial | 8,191 | 12.05 | 9.33 | |||||||||||||||||
| Residential | 11,928 | 17.55 | 20.88 | |||||||||||||||||
| Consumer non-real estate and other | 912 | 1.34 | 0.61 | |||||||||||||||||
| Total | $ | 67,955 | 100.00 | % | 100.00 | % | ||||||||||||||
| December 31, 2025 | ||||||||||||||||||||
| Allowance for credit losses | Percent of Allowance in Each Category to Total Allocated Allowance | Percent of Loans in Each Category to Total Loans | ||||||||||||||||||
| Commercial real estate | $ | 26,190 | 38.62 | % | 51.40 | % | ||||||||||||||
| Owner-occupied commercial real estate | 2,760 | 4.07 | 11.01 | |||||||||||||||||
| Acquisition, construction & development | 17,221 | 25.39 | 7.18 | |||||||||||||||||
| Commercial & industrial | 8,227 | 12.13 | 8.57 | |||||||||||||||||
| Residential | 12,536 | 18.48 | 20.93 | |||||||||||||||||
| Consumer non-real estate and other | 889 | 1.31 | 0.91 | |||||||||||||||||
| Total | $ | 67,823 | 100.00 | % | 100.00 | % | ||||||||||||||
Derivative Financial Instruments
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 accrued interest and 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.
Off-Balance Sheet Arrangements
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.
Funding Activities
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. The Company has available secured lines of credit with the Federal Reserve Bank of Richmond, such as the Borrower-In-Custody program, the FHLB of Atlanta, and unsecured federal funds
lines of credit from correspondent banking relationships. The Company also utilizes brokered time deposits. For more discussion of brokered time deposits, see the Deposits heading below this section.
As of March 31, 2026, the Company has available unused borrowing capacity of $4.7 billion through its available lines of credit with the FHLB of Atlanta, the Federal Reserve Borrower-In-Custody Program line, and unsecured federal fund lines of credit from correspondent banking relationships. Advances on credit lines are secured by both securities and loans.
The following table shows certain information regarding short-term borrowings as of the three months ended March 31, 2026, and December 31, 2025, respectively (dollars in thousands):
| Balance at end of period | March 31, 2026 | December 31, 2025 | ||||||||||||
| Short-term borrowings | $ | 525,000 | $ | 450,000 | ||||||||||
|
Weighted average interest yield
|
3.78% | 3.90% | ||||||||||||
The following table shows certain information regarding long-term debt as of the three months ended March 31, 2026, and December 31, 2025, respectively (dollars in thousands):
| Balance at end of period | March 31, 2026 | December 31, 2025 | |||||||||
| Subordinated debentures, net | $ | 71,510 | $ | 70,222 | |||||||
| Subordinated debentures owed to unconsolidated subsidiary trusts | 17,331 | 17,268 | |||||||||
| Total long-term debt | $ | 88,841 | $ | 87,490 | |||||||
| Weighted average interest yield | 10.46% | 9.85% | |||||||||
Deposits
Total deposits decreased by $71.7 million from December 31, 2025, to March 31, 2026, primarily due to a decrease in brokered deposits of $61.0 million. The Company's brokered time deposits amounted to $3.4 million as of March 31, 2026, and $64.4 million at December 31, 2025. All of the Company's brokered deposits are in the form of certificates of deposits that are insured by the FDIC. Excluding the brokered deposit balance, the total deposit balance decreased by $10.7 million from December 31, 2025 to March 31, 2026.
The following table sets forth the balance of each category of deposits as of the dates indicated (in thousands):
|
March 31, 2026
|
December 31, 2025 | |||||||||||||
| Balance | Balance | |||||||||||||
| Demand, non-interest-bearing | $ | 1,367,050 | $ | 1,336,380 | ||||||||||
| Demand, interest-bearing | 2,243,090 | 2,330,181 | ||||||||||||
| Money market and savings | 1,701,707 | 1,665,304 | ||||||||||||
| Brokered deposits | 3,431 | 64,410 | ||||||||||||
| Time deposits, other | 1,016,987 | 1,007,666 | ||||||||||||
| Total interest-bearing | 4,965,215 | 5,067,561 | ||||||||||||
| Total deposits | $ | 6,332,265 | $ | 6,403,941 | ||||||||||
The Company continues 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.
The Company has deposits that meet or exceed the FDIC insurance limit of $250,000 in the amounts of $2.1 billion and $2.1 billion at March 31, 2026, and December 31, 2025, respectively. The Company does not have material deposit concentration risk to any significant market, industry or individual at March 31, 2026 or December 31, 2025.
The following table sets forth maturity ranges of time deposits as of March 31, 2026, that meet or exceed the FDIC insurance limit (in thousands).
|
March 31, 2026
|
||||||||
| Due within 3 months or less | $ | 120,826 | ||||||
| Due after 3 months and within 6 months | 106,448 | |||||||
| Due after 6 months and within 12 months | 65,648 | |||||||
| Due after 12 months | 9,316 | |||||||
| Total uninsured, time deposits | $ | 302,238 | ||||||
Shareholders' Equity
Total shareholders' equity at March 31, 2026, was $864.5 million, compared to $854.6 million at December 31, 2025. Shareholders' equity increased by $9.9 million mostly due to an increase in earnings since December 31, 2025. Accumulated other comprehensive loss increased by $10.0 million from December 31, 2025, to March 31, 2026, from $(59.0) million to $(69.0) million due to an increase in unrealized losses in our securities portfolio.
Burke & Herbert Financial Services Corp. published this content on May 08, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 08, 2026 at 12:32 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]