What changed in this filing

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Item 1. Financial Statements

2024-08-13 compared with 2024-05-10 · 648 added, 318 removed, 871 unchanged (53% of the section changed)

2 unchanged sentences

Consolidated Financial Statements:

Consolidated Balance Sheets as of March 31, 2024 (Unaudited), and December 31, 202 3

Consolidated Statements of Income for the Three Months Ended March 31, 202 4 , and March 31, 202 3 (Unaudited)

Consolidated Statements of Comprehensive Income (Loss) for the Three Ended March 31 , 2024 , and March 31, 2023 (Unaudited)

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 20 2 4 , and March 31, 202 3 (Unaudited)

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 202 4 , and March 31 , 202 3 (Unaudited)

Consolidated Balance Sheets as of June 30, 202 4 (Unaudited), and December 31 , 202 3

Consolidated Statements of Income ( L oss) for the Three and Six Months Ended June 30, 202 4 , and June 30, 202 3 (Unaudited)

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 202 4 , and June 30, 202 3 (Unaudited)

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 202 4 , and June 30, 202 3 (Unaudited)

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 202 4 , and Jun e 30, 202 3 (Unaudited)

Notes to the Consolidated Financial Statements (Unaudited)

2 unchanged sentences

(In thousands, except share and per share data)

March 31, 2024

June 30, 2024

December 31, 2023

9 unchanged sentences

Premises and equipment, net 135,581 61,128

Other real estate owned 3,334 —

Accrued interest receivable 33,371 15,895

Intangible assets 65,895 —

Goodwill 32,783 —

Company-owned life insurance 182,112 94,159

5 unchanged sentences

Total deposits 6,639,571 3,001,881

Borrowed funds 360,000 272,000

Short-term borrowings 285,161 272,000

Subordinated debentures, net 92,178 —

Subordinated debentures owed to unconsolidated subsidiary trusts 16,886 —

Accrued interest and other liabilities 83,271 28,948

3 unchanged sentences

Shareholders’ Equity

Preferred Stock, $ 1.00 par value per share;

Preferred stock and related surplus, $ 1.00 par value per share;

2,000,000 shares authorized;

no shares issued or outstanding

1,500 shares issued and outstanding at June 30, 2024;

no shares issued and outstanding at December 31, 2023

Common Stock 7,752 4,000

$ 0.50 par value;

20,000,000 shares authorized and 8,011,315 issued at March 31, 2024, and 8,000,000 issued at December 31, 2023;

7,440,025 shares outstanding at March 31, 2024, and 7,428,710 shares outstanding at December 31, 2023

Additional paid-in capital 15,308 14,495

20,000,000 shares authorized, 15,503,459 shares issued and 14,932,169 shares outstanding at June 30, 2024;

8,000,000 shares issued and 7,428,710 shares outstanding at December 31, 2023

Common stock, additional paid-in capital 399,553 14,495

Retained earnings 403,422 427,333

1 unchanged sentence

Treasury stock ( 27,584 ) ( 27,584 )

571,290 shares, at cost, at March 31, 2024, and 571,290 shares, at cost, at December 31, 2023

571,290 shares, at cost, at June 30, 2024, and 571,290 shares, at cost, at December 31, 2023

Total Shareholders’ Equity

4 unchanged sentences

Burke & Herbert Financial Services Corp.

Consolidated Statements of Income

Consolidated Statements of Income (Loss)

(In thousands, except share and per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Interest income

Loans, including fees $ 28,045 $ 22,760

Taxable loans, including fees $ 81,673 $ 25,300 $ 109,718 $ 48,060

Tax-exempt loans, including fees 33 — 33 —

Taxable securities 10,930 9,419 19,873 19,221

4 unchanged sentences

Deposits 30,373 10,030 43,304 15,431

Borrowed funds 3,655 4,138

Short-term borrowings 4,071 3,279 7,726 7,417

Subordinated debt 1,860 — 1,860 —

Other interest expense 28 15 56 30

4 unchanged sentences

Credit loss expense - off-balance sheet credit exposures 3,810 ( 96 ) 3,810 ( 104 )

Total provision for (recapture of) credit losses ( 670 ) 515

Total provision for credit losses 23,910 214 23,240 729

Net interest income after credit loss expense 35,855 23,578 58,656 47,837

13 unchanged sentences

Total non-interest expense 64,432 21,348 85,597 41,713

Income before income taxes 5,890 8,108

Income tax expense

Income (loss) before income taxes ( 19,072 ) 6,855 ( 13,182 ) 14,963

Income tax expense (benefit)

( 2,153 ) 821 ( 1,475 ) 1,405

Earnings per common share:

Net income (loss) ( 16,919 ) 6,034 ( 11,707 ) 13,558

Preferred stock dividends 225 — 225 —

Net income (loss) applicable to common shares $ ( 17,144 ) $ 6,034 $ ( 11,932 ) $ 13,558

Earnings (loss) per common share:

Basic $ ( 1.41 ) $ 0.81 $ ( 1.22 ) $ 1.82

4 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended March 31,

Net income $ 5,212 $ 7,524

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Net income (loss) $ ( 16,919 ) $ 6,034 $ ( 11,707 ) $ 13,558

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on securities:

Unrealized gain (loss) arising during period, net of tax of $ 117 and ($ 4,577 ) for the three months ended March 31, 2024, and March 31, 2023, respectively

Unrealized gains (losses) on securities:

Unrealized gain (loss) arising during period, net of tax of ($ 221 ) and $ 1,397 for the three months ended June 30, 2024, and June 30, 2023, respectively, net of tax of ($ 104 ) and ($ 3,180 ) for the six months ended June 30, 2024, and June 30, 2023, respectively

833 ( 5,254 ) 392 11,964

Reclassification adjustment for loss (gain) on securities, net of tax of $ — and $ — for the three months ended March 31, 2024, and March 31, 2023, respectively

Reclassification adjustment for loss (gain) on fair value hedge, net of tax of $ 8 and $ 496 for the three months ended March 31, 2024, and March 31, 2023, respectively

Reclassification adjustment for loss (gain) on securities, net of tax of $ 129 and ($ 23 ) for the three months ended June 30, 2024, and June 30, 2023, respectively, net of tax of $ 129 and ($ 23 ) for the six months ended June 30, 2024, and June 30, 2023, respectively

( 484 ) 88 ( 484 ) 88

Reclassification adjustment for loss (gain) on fair value hedge, net of tax of $ 9 and ($ 728 ) for the three months ended June 30, 2024, and June 30, 2023, respectively, net of tax of $ 17 and ($ 232 ) for the six months ended June 30, 2024, and June 30, 2023, respectively

( 32 ) 2,739 ( 64 ) 873

Unrealized gain (loss) on cash flow hedge:

Unrealized holding gain (loss) on cash flow hedge, net of tax of ($ 707 ) and ($ 13 ) for the three months ended March 31, 2024, and March 31, 2023, respectively

Reclassification adjustment for loss (gain) included in net income, net of tax ($ 94 ) and ($ 76 ) for the three months ended March 31, 2024, and March 31, 2023, respectively

Unrealized holding gain (loss) on cash flow hedge, net of tax of ($ 238 ) and $ 73 for the three months ended June 30, 2024, and June 30, 2023, respectively, net of tax of ($ 945 ) and $ 61 for the six months ended June 30, 2024, and June 30, 2023, respectively

894 ( 275 ) 3,554 ( 228 )

Reclassification adjustment for losses (gains) included in net income, net of tax $ 183 and ($ 89 ) for the three months ended June 30, 2024, and June 30, 2023, respectively, net of tax of $ 89 and ($ 165 ) for the six months ended June 30, 2024, and June 30, 2023, respectively

( 687 ) 334 ( 334 ) 621

Total other comprehensive income (loss) 524 ( 2,368 ) 3,064 13,318

4 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2024, and March 31, 2023

For the Three Months Ended June 30, 2024, and 2023

(In thousands, except share and per share data)

Common Stock Additional Paid-in

Capital Retained

Preferred Stock and Surplus Common Stock Retained

Earnings Comprehensive

1 unchanged sentence

Stock Shareholders’

Shares Outstanding Amount

Balance December 31, 2023 7,428,710 $ 4,000 $ 14,495 $ 427,333 $ ( 103,494 ) $ ( 27,584 ) $ 314,750

Shares Outstanding Amount Additional Paid-in

Balance March 31, 2024 $ — 7,440,025 $ 4,006 $ 15,308 $ 428,532 $ ( 100,954 ) $ ( 27,584 ) $ 319,308

Acquisition of Summit Financial Group, Inc.

10,413 7,405,772 3,703 383,329 — — — 397,445

Net income (loss) — — — — ( 16,919 ) — — ( 16,919 )

Other comprehensive income (loss) — — — — — 524 — 524

(Purchase) sale of treasury stock, net — — — — — — — —

Common stock cash dividends, declared — — — — ( 7,869 ) — — ( 7,869 )

Preferred stock cash dividends, declared — — — — ( 225 ) — — ( 225 )

Share-based compensation expense, net — 86,372 43 916 ( 97 ) — — 862

Balance June 30, 2024 $ 10,413 14,932,169 $ 7,752 $ 399,553 $ 403,422 $ ( 100,430 ) $ ( 27,584 ) $ 693,126

Balance March 31, 2023 $ — 7,427,840 $ 4,000 $ 12,686 $ 424,532 $ ( 123,809 ) $ ( 27,626 ) $ 289,783

Net income — — — — 6,034 — — 6,034

1 unchanged sentence

(Purchase) sale of treasury stock, net — 870 — — — — 42 42

Cash dividends, declared - $ 0.53 per share

Common stock cash dividends, declared — — — — ( 3,936 ) — — ( 3,936 )

Share-based compensation expense, net — — — 522 ( 5 ) — — 517

Balance June 30, 2023 $ — 7,428,710 $ 4,000 $ 13,208 $ 426,625 $ ( 126,177 ) $ ( 27,584 ) $ 290,072

See Notes to Consolidated Financial Statements.

Burke & Herbert Financial Services Corp.

Consolidated Statements of Changes in Shareholders’ Equity

For the Six Months Ended June 30, 2024, and 2023

(In thousands, except share and per share data)

Preferred Stock and Surplus Common Stock Retained

Earnings Comprehensive

Income (Loss) Treasury

Stock Shareholders’

Shares Outstanding Amount Additional Paid-in

Balance December 31, 2023 $ — 7,428,710 $ 4,000 $ 14,495 $ 427,333 $ ( 103,494 ) $ ( 27,584 ) $ 314,750

Acquisition of Summit Financial Group, Inc.

10,413 7,405,772 3,703 383,329 — — — 397,445

Net income (loss) — — — — ( 11,707 ) — — ( 11,707 )

Other comprehensive income (loss) — — — — — 3,064 — 3,064

(Purchase) sale of treasury stock, net — — — — — — — —

Common stock cash dividends, declared — — — — ( 11,808 ) — — ( 11,808 )

Preferred stock cash dividends, declared — — — — ( 225 ) — — ( 225 )

Share-based compensation expense, net — 97,687 49 1,729 ( 171 ) — — 1,607

Balance March 31, 2024 7,440,025 $ 4,006 $ 15,308 $ 428,532 $ ( 100,954 ) $ ( 27,584 ) $ 319,308

Balance June 30, 2024 $ 10,413 14,932,169 $ 7,752 $ 399,553 $ 403,422 $ ( 100,430 ) $ ( 27,584 ) $ 693,126

Balance December 31, 2022 $ — 7,425,760 $ 4,000 $ 12,282 $ 424,391 $ ( 139,495 ) $ ( 27,725 ) $ 273,453

3 unchanged sentences

(Purchase) sale of treasury stock, net — 2,950 — — — — 141 141

Cash dividends, declared - $ 0.53 per share

— — — ( 3,936 ) — — ( 3,936 )

Common stock cash dividends, declared — — — — ( 7,872 ) — — ( 7,872 )

Share-based compensation expense, net — — — 926 ( 13 ) — — 913

Balance March 31, 2023 7,427,840 $ 4,000 $ 12,686 $ 424,532 $ ( 123,809 ) $ ( 27,626 ) $ 289,783

Balance June 30, 2023 $ — 7,428,710 $ 4,000 $ 13,208 $ 426,625 $ ( 126,177 ) $ ( 27,584 ) $ 290,072

See Notes to Consolidated Financial Statements.

2 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities

Net Income $ 5,212 $ 7,524

Adjustments to reconcile net income to net cash provided by operating activities:

Net Income (loss) $ ( 11,707 ) $ 13,558

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization of fixed assets 2,315 1,354

Amortization of other intangible assets 2,865 —

Accretion on assumed liabilities 2,526 —

Accretion income related to acquired loans 13,302 —

Amortization of housing tax credits 2,745 2,796

Realized loss (gain) on sales of available-for-sale securities — —

Provision for (recapture of) credit losses ( 670 ) 515

Realized (gain) loss on sales of available-for-sale securities ( 613 ) 111

Realized (gain) on sales of OREO property ( 26 ) —

Provision for credit losses 23,240 729

Income from company-owned life insurance ( 1,469 ) ( 1,131 )

11 unchanged sentences

(Increase) decrease in other assets ( 39,733 ) 2,750

Increase (decrease) in accrued interest payable and other liabilities ( 1,543 ) 2,216

Net cash flows provided by operating activities $ 7,089 $ 10,926

Increase in accrued interest payable and other liabilities 32,178 656

Net cash flows provided by (used in) operating activities $ ( 12,275 ) $ 22,864

Cash Flows from Investing Activities

2 unchanged sentences

Purchases of securities available-for-sale, net ( 480,920 ) —

Cash (paid) from merger, net ( 750 ) —

Sales of restricted stock 24,201 27,447

1 unchanged sentence

Purchases of property and equipment, net of disposals ( 2,523 ) ( 4,367 )

Proceeds from (purchase of) company-owned life insurance 1,130 ( 6 )

(Increase) in loans made to customers, net ( 30,425 ) ( 64,517 )

Net cash flows (used in) investing activities $ ( 70,617 ) $ ( 30,997 )

(Purchase of) proceeds from company-owned life insurance 1,433 ( 6 )

(Increase) decrease in loans made to customers, net 137,008 ( 113,748 )

Net cash flows provided by investing activities $ 139,053 $ 24,688

Cash Flows from Financing Activities

1 unchanged sentence

Net increase (decrease) in interest-bearing accounts ( 56,300 ) 169,159

Increase (decrease) in other short-term borrowings 88,000 ( 21,400 )

Net increase (decrease) in other short-term borrowings 122,064 ( 94,100 )

Repayment of finance lease liabilities ( 107 ) ( 80 )

6 unchanged sentences

Sale of treasury stock — 141

Net cash flows provided by financing activities $ 73,107 $ 86,715

Net cash flows provided by (used in) financing activities $ 40,644 $ ( 17,048 )

Increase in cash and cash equivalents 167,422 30,504

5 unchanged sentences

Interest paid to depositors $ 41,716 $ 14,302

Interest paid on other borrowed funds 785 3,952

Interest paid on finance lease 28 15

Interest paid on short-term borrowings 14,004 8,379

Interest paid on subordinated debt and trust preferred securities 1,860 —

Interest paid on finance leases 56 30

Income taxes 775 275

1 unchanged sentence

Lease liability arising from obtaining right-of-use assets 10,362 —

Transfers from portfolio loans to loans held-for-sale — —

Financing of sale from loan held-for-sale — —

Common stock issued for merger, net 387,032 —

Preferred stock issued for merger, net 10,413 —

See Notes to Consolidated Financial Statements.

2 unchanged sentences

Burke & Herbert Financial Services Corp.

(“Burke & Herbert”) was organized as a Virginia corporation on September 14, 2022, to serve as the holding company for Burke & Herbert Bank & Trust Company (“the Bank”), together referred to as the “Company”.

The Company commenced operations as a bank holding company on October 1, 2022, following a reorganization transaction in which it became the Bank’s holding company.

This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of the Company.

In September 2023, the Company elected to be a financial holding company.

As a financial holding company, the Company is subject to regulation and supervision by the Federal Reserve.

The Company has no material operations and owns 100 % of the Bank.

(“Burke & Herbert”) was organized as a Virginia corporation on September 14, 2022, to serve as the holding company for Burke & Herbert Bank & Trust Company (“the Bank” and, together with Burke & Herbert, the “Company”).

Burke & Herbert commenced operations as a bank holding company on October 1, 2022, following a reorganization transaction in which it became the Bank’s holding company.

This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of Burke & Herbert.

In September 2023, Burke & Herbert elected to be a financial holding company.

As a financial holding company, Burke & Herbert is subject to regulation and supervision by the Federal Reserve.

Burke & Herbert has no material operations and owns 100 % of the Bank.

The Bank is a Virginia chartered commercial bank that commenced operations in 1852.

The Bank is supervised and regulated by the Federal Deposit Insurance Corporation (the “FDIC”) and the Bureau of Financial Institutions of the Virginia State Corporation Commission (the “Virginia BFI”).

The Bank’s primary market area includes northern Virginia, and it has 23 branches throughout the Northern Virginia region and commercial loan offices in Fredericksburg, Loudoun County, and Richmond, Virginia, and in Bethesda, Maryland.

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.

Merger with Summit Financial Group, Inc.

Effective on May 3, 2024 (the “Closing Date”), Burke & Herbert completed its previously announced merger with Summit Financial Group, Inc., a West Virginia corporation (“Summit”), pursuant to the Agreement and Plan of Reorganization and accompanying Plan of Merger dated August 24, 2023, between Burke & Herbert and Summit (the “Merger Agreement”).

Below is a description of the nature of the event as of the merger closing date, but at this time management is not able to estimate its financial statement impact.

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

In the merger, holders of Summit common stock outstanding at the effective time of the Merger received 0.5043 shares of Burke & Herbert common stock for each share of Summit common stock they owned (the “exchange ratio”), subject to the payment of cash in lieu of fractional shares.

Below is a description of the nature of the event as of the merger Closing Date.

In the Merger, holders of Summit common stock outstanding at the effective time of the Merger received 0.5043 shares of Burke & Herbert common stock for each share of Summit common stock they owned, subject to the payment of cash in lieu of fractional shares.

The total aggregate consideration payable in the Merger was approximately 7,405,772 shares of Burke & Herbert Common Stock.

Additionally, each share of Summit’s 6.0 % Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series 2021 (the “Summit Series 2021 Preferred Stock”) issued and outstanding was converted into the right to receive a share of a newly created series of preferred stock of Burke & Herbert, the Burke & Herbert Series 2021 Preferred Stock (the “Burke & Herbert Series 2021 Preferred Stock”).

Additionally, each share of Summit’s 6.0 % Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series 2021 (the “Summit Series 2021 Preferred Stock”) issued and outstanding was converted into the right to receive a share of a newly created series of preferred stock, the Burke & Herbert Series 2021 Preferred Stock (the “Burke & Herbert Series 2021 Preferred Stock”).

Summit’s results of operations are included from the Closing Date.

The Bank’s primary market area includes northern Virginia and West Virginia, and it has over 75 branches and other 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.

Basis of Presentation

4 unchanged sentences

They do not include all of the information and notes required by GAAP for complete financial statements.

As such, these unaudited financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ending December 31, 2023, included in the Company’s Form 10-K filed with the SEC on March 22, 2024.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.

The consolidated financial statements include the accounts of the Company and the Bank (as its wholly-owned subsidiary).

All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that

Note 1— Nature of Business Activities and Significant Accounting Policies (continued)

reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period.

affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.

The results of operations for the three months ended March 31, 2024, are not necessarily indicative of the results to be expected for any other interim period or for the full year.

All amounts and disclosures included in this quarterly report as of December 31, 2023, were derived from the Company’s audited consolidated financial statements.

The results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of the results to be expected for any other interim period or for the full year.

All December 31, 2023 amounts and disclosures included in this quarterly report were derived from the Company’s audited consolidated financial statements.

Certain items in the prior period have been reclassified to conform to the current presentation.

These reclassifications had no effect on prior year net income or on shareholders’ equity.

Purchased Credit Deteriorated (PCD) Loans

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

PCD loans are loans on nonaccrual status, are greater than 60 days past due at any time since loan origination or have a risk rating of special mention, substandard, doubtful, or loss.

PCD loans are recorded at the amount paid.

An allowance for credit losses is determined using the same methodology as other loans held for investment.

The initial allowance for credit losses determined on a collective basis is allocated to individual loans.

The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.

Subsequent changes to the allowance for credit losses are recorded through credit loss expense.

Goodwill and Other Intangible Assets

Goodwill arises from business combinations and is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.

Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that an impairment test should be performed.

The Company has selected September 30 as the date to perform the annual impairment test.

Intangible assets with finite useful lives are amortized over their estimated useful lives to their estimated residual values.

Amortized intangibles must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset (group) might not be recoverable.

An impairment loss related to intangible assets with finite useful lives is recognized if the carrying amount of the intangible asset is not recoverable and its carrying amount exceeds its fair value.

After the impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis.

Goodwill is the only intangible asset with an indefinite life on our balance sheet.

Other intangible assets consists of core deposit intangible assets arising from whole bank and branch acquisitions and is amortized using an accelerated method over their estimated useful lives of seven years .

Recently adopted accounting standards

10 unchanged sentences

Improvements to Income Tax Disclosures .

The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis.

The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide

Note 1— Nature of Business Activities and Significant Accounting Policies (continued)

additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis.

Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received).

14 unchanged sentences

Note 2— Securities

The carrying amount of available-for-sale (“AFS”) securities and their approximate fair values at March 31, 2024, and December 31, 2023, are summarized as follows (in thousands):

March 31, 2024

The carrying amount of available-for-sale (“AFS”) securities and their approximate fair values at June 30, 2024, and December 31, 2023, are summarized as follows (in thousands):

June 30, 2024

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

9 unchanged sentences

Total $ 1,539,111 $ 1,774 $ 126,015 $ 1,414,870

Note 2— Securities (continued)

December 31, 2023

10 unchanged sentences

Total $ 1,372,575 $ 89 $ 124,225 $ 1,248,439

At March 31, 2024, and December 31, 2023, AFS securities with amortized costs of $ 827.5 million and $ 826.5 million, respectively, and with estimated fair values of $ 740.2 million and $ 742.5 million, respectively, were pledged to serve as collateral for secured borrowings, derivative exposures, or to secure public deposits as required or permitted by law.

The gross realized gains, realized losses, and proceeds from the sales of securities for the three months ended March 31, 2024, and March 31, 2023, were as follows (in thousands):

March 31, 2024 March 31, 2023

Gross realized gains $ — $ —

Gross realized losses — —

Proceeds from sales of securities 1,281 —

The tax benefit (provision) related to these net realized gains and losses for March 31, 2024, and March 31, 2023, was $ — , and $ — , respectively.

The maturities of AFS securities at March 31, 2024, were as follows (in thousands):

At June 30, 2024, and December 31, 2023, AFS securities with amortized costs of $ 1.1 billion and $ 826.5 million, respectively, and with estimated fair values of $ 953.0 million and $ 742.5 million, respectively, were pledged to serve as collateral for secured borrowings, derivative exposures, or to secure public deposits as required or permitted by law.

The proceeds from sales, calls, and maturities of debt securities available-for-sale, including principal payments received, and the related gross gains and losses realized, for the six months ended June 30, 2024, and June 30, 2023, were as follows (in thousands):

Proceeds from Gross realized

Six months ended, June 30 Sales Calls and maturities Principal Payments Gains Losses

2024 $ 365,990 $ 32,801 $ 95,219 $ 2,637 $ 2,024

2023 77,780 1,400 52,123 773 884

The tax benefit (provision) related to these net realized gains and losses for June 30, 2024, and June 30, 2023, was ($ 128.7 ) thousand, and $ 23.3 thousand, respectively.

The maturities of AFS securities at June 30, 2024, were as follows (in thousands):

(Expected maturities of securities not due at a single maturity date are based on average life at estimated prepayment speed.

Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay some obligations with or without call or prepayment penalties).

Note 2— Securities (continued)

March 31, 2024

June 30, 2024

Amortized Cost

10 unchanged sentences

Total $ 139,394 $ 473,996 $ 669,009 $ 256,712 $ 1,539,111

March 31, 2024

Note 2— Securities (continued)

June 30, 2024

One Year or Less One to Five Years Five to Ten Years After Ten Years Total

9 unchanged sentences

Total $ 137,217 $ 447,168 $ 608,919 $ 221,566 $ 1,414,870

At March 31, 2024, and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S.

At June 30, 2024, and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S.

Government and its agencies, in any amount greater than 10% of shareholders’ equity.

Note 2— Securities (continued)

The following table shows the gross unrealized losses and fair value of the Company’s securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2024, and December 31, 2023.

AFS securities in a continuous unrealized loss position for less than twelve months and more than twelve months are as follows (in thousands):

March 31, 2024

June 30, 2024

Less Than Twelve Months More Than Twelve Months

10 unchanged sentences

Total $ 209,760 $ 2,483 $ 1,042,431 $ 123,532 $ 126,015

Note 2— Securities (continued)

December 31, 2023

16 unchanged sentences

Management also evaluates other factors and circumstances that may be indicative of a decline in the fair value of the security due to a credit factor.

This includes, but is not limited to, an evaluation of the type of security and extent to which the fair value has been less than cost and near-term prospects of the issuer.

This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost, and near-term prospects of the issuer.

If this assessment indicates that a credit loss exists, the present value of the expected cash flows of the security is compared to the amortized cost basis of the security.

If the present value of the cash flows expected to be collected is less than the amortized cost, an allowance for credit losses (“ACL”) is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis under the current expected credit loss (“CECL”) standard, and declines due to non-credit factors are recorded in accumulated other comprehensive income

Note 2— Securities (continued)

(“AOCI”), net of taxes.

If a credit loss is recognized in earnings, subsequent improvements to the expectation of collectability will be recognized through the ACL.

1 unchanged sentence

Prior to implementation of the CECL standard, unrealized losses caused by a credit event would require the direct write-down of the AFS security through the other-than-temporary impairment approach.

The Company did not record an ACL on the AFS securities at March 31, 2024.

The Company did no t record an ACL on the AFS securities as of June 30, 2024 or December 31, 2023.

The Company considers the unrealized losses on the AFS securities to be related to fluctuations in market conditions, primarily interest rates, and not reflective of deterioration in credit.

The Company had 391 securities in an unrealized loss position as of March 31, 2024.

The Company has evaluated AFS securities in an unrealized loss position for credit-related impairment at March 31, 2024, and concluded no impairment existed based on a combination of factors, which included:

The Company had 445 securities in an unrealized loss position as of June 30, 2024.

The Company has evaluated AFS securities in an unrealized loss position for credit-related impairment at June 30, 2024, and concluded no impairment existed based on a combination of factors, which included:

(1) the securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility and increases in market interest rates, (3) the contractual terms of the investments do not permit the issuer(s) to settle the securities at a price less than the par value of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis.

As such, there was no ACL on AFS securities at March 31, 2024.

As such, there was no ACL on AFS securities at June 30, 2024.

Securities of U.S.

Treasury and Federal Agencies and Federal Agency Mortgage (Residential and Commercial) Backed Securities

At March 31, 2024, the unrealized losses associated with 12 U.S.

Treasuries and Government Agency securities, 16 Residential Mortgage Backed – Agency securities, and 14 Commercial Mortgage Backed – Agency securities were generally driven by changes in interest rates and not due to credit losses given the explicit or implicit guarantees provided by the U.S.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at March 31, 2024.

At June 30, 2024, the unrealized losses associated with 11 U.S.

Treasuries and Government Agency securities, 16 Residential Mortgage Backed – Agency securities, and 15 Commercial Mortgage Backed – Agency securities were generally driven by changes in interest rates and not due to credit losses given the explicit or implicit guarantees provided

Note 2— Securities (continued)

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2024.

Securities of U.S.

States and Municipalities

At March 31, 2024, the unrealized losses associated with 202 State and Municipal securities were primarily caused by changes in interest rates and not the credit quality of the securities.

At June 30, 2024, the unrealized losses associated with 257 State and Municipal securities were primarily caused by changes in interest rates and not the credit quality of the securities.

These securities are investment grade and were generally underwritten in accordance with our own investment standards prior to the decision to purchase, without relying on a bond insurer’s guarantee in making the investment decision.

1 unchanged sentence

As a result, we expect to recover the entire amortized cost basis of these securities.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at March 31, 2024.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2024.

Residential & Commercial Mortgage Backed – Non-Agency Securities

At March 31, 2024, the unrealized losses associated with 90 Residential Mortgage Backed – Non-Agency securities and 32 Commercial Mortgage Backed – Non-Agency securities were generally driven by changes in interest rates, credit spreads, and projected collateral losses.

At June 30, 2024, the unrealized losses associated with 84 Residential Mortgage Backed – Non-Agency securities and 31 Commercial Mortgage Backed – Non-Agency securities were generally driven by changes in interest rates, credit spreads, and projected collateral losses.

We assess for credit impairment by estimating the present value of expected cash flows.

1 unchanged sentence

Based on our assessment of the expected credit losses and the credit enhancement level of the securities, we expect to recover the entire amortized cost of these securities.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at March 31, 2024.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2024.

Asset-Backed Securities

At March 31, 2024, the unrealized losses associated with 21 Asset-Backed securities were generally driven by changes in interest rates, credit spreads, and projected collateral losses.

At June 30, 2024, the unrealized losses associated with 19 Asset-Backed securities were generally driven by changes in interest rates, credit spreads, and projected collateral losses.

We assess for credit impairment by estimating the present value of expected cash flows.

1 unchanged sentence

Based on our assessment of the expected credit losses and the credit enhancement level of the securities, we expect to recover the entire amortized cost of these securities.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at March 31, 2024.

Note 2— Securities (continued)

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2024.

Other Securities

At March 31, 2024, the unrealized losses associated with 4 securities were primarily driven by interest rates and not the credit quality of the securities.

At June 30, 2024, the unrealized losses associated with 12 securities were primarily driven by interest rates and not the credit quality of the securities.

These investments were underwritten in accordance with our own investment standards prior to the decision to purchase, without relying on a bond insurer’s guarantee in making the investment decision.

Based on our assessment of the expected credit losses, we expect to recover the entire amortized cost basis of the securities.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at March 31, 2024.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2024.

Restricted stock, at cost

The Company’s investment in Federal Home Loan Bank (“FHLB”) stock totaled $ 16.3 million and $ 5.9 million at March 31, 2024, and December 31, 2023, respectively.

The Company’s investment in Federal Home Loan Bank (“FHLB”) stock totaled $ 15.1 million and $ 5.9 million at June 30, 2024, and December 31, 2023, respectively.

FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock other than the FHLB or member institutions.

Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

The Company does not consider this investment to be impaired at March 31, 2024, and no impairment has been recognized.

The Company does not consider this investment to be impaired at June 30, 2024, and no impairment has been recognized.

FHLB stock is included in a separate line item Restricted stock, at cost on the Consolidated Balance Sheets and is not part of the Company’s AFS securities portfolio.

The Company’s Restricted stock line item on the Consolidated Balance Sheets also includes an investment in Community Bankers’ Bank, totaling $ 50 thousand at both March 31, 2024, and December 31, 2023, which is carried at cost and is not impaired at March 31, 2024.

The Company’s Restricted stock line item on the Consolidated Balance Sheets also includes an investment in Community Bankers’ Bank, totaling $ 50 thousand at both June 30, 2024, and December 31, 2023, which is carried at cost and is not impaired at June 30, 2024.

Note 3— Loans

The Company’s loan portfolio segments, as reported in the tables below, include (i) commercial real estate, (ii) owner-occupied commercial real estate, (iii) acquisition, construction & development, (iv) commercial & industrial, (v) single family residential (1-4 units), and (vi) consumer non-real estate and other.

The risks associated with lending activities differ among the various loan segments and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions.

The risks associated with lending activities differ

Note 3— Loans (continued)

among the various loan segments and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions.

• Commercial real estate loans carry risk associated with either the net operating income generated from the lease of the real estate collateral or income generated from the sale of the collateral.

5 unchanged sentences

Single family residential (1-4 units) loans for investment purpose carry risk associated with the continued credit-worthiness of the borrower, the value of the collateral, and either the net operating income generated from the lease of the real estate collateral or income generated from the sale of the collateral.

• Consumer non-real estate and other loans carry risk associated with the credit-worthiness of the borrower and the value of the collateral, if any.

Note 3— Loans (continued)

Loan balances at March 31, 2024, and December 31, 2023, by portfolio segment were as follows (in thousands):

March 31, 2024 December 31, 2023

• Consumer non-real estate and other loans, which includes overdrafts, carry risk associated with the credit-worthiness of the borrower and the value of the collateral, if any.

Loan balances as of June 30, 2024, and December 31, 2023, by portfolio segment were as follows (in thousands):

June 30, 2024 December 31, 2023

Commercial real estate $ 2,543,668 $ 1,309,084

7 unchanged sentences

Loans, net $ 5,548,707 $ 2,062,455

Net deferred loan fees included in the above loan categories totaled $ 3.3 million and $ 3.5 million at March 31, 2024, and December 31, 2023, respectively.

The Company holds $ 1.3 million and $ 3.0 million in Paycheck Protection Program loans, net of deferred fees and costs as of March 31, 2024, and December 31, 2023, respectively.

Net deferred loan fees included in the above loan categories totaled $ 3.2 million and $ 3.5 million at June 30, 2024, and December 31, 2023, respectively.

The Company holds $ 1.0 million and $ 3.0 million in Paycheck Protection Program loans, net of deferred fees and costs, as of June 30, 2024, and December 31, 2023, respectively.

Note 4— Allowance for Credit Losses

1 unchanged sentence

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables.

All information presented as of March 31, 2024, is in accordance with ASC 326.

All information presented as of June 30, 2024, is in accordance with ASC 326.

The Company’s ACL is calculated quarterly, with any adjustment recorded to the provision for credit losses in the Consolidated Statement of Income.

2 unchanged sentences

Loans that do not share similar risk characteristics are evaluated on an individual loan basis and are excluded from the collective evaluation for the ACL.

Loans identified to be individually evaluated under CECL include loans on non-accrual status and may include accruing loans that do not share similar risk characteristics to other accruing loans that are collectively evaluated on a loan pool basis.

Loans identified to be individually evaluated under CECL include loans on non-accrual

Note 4— Allowance for Credit Losses (continued)

status and may include accruing loans that do not share similar risk characteristics to other accruing loans that are collectively evaluated on a loan pool basis.

A specific reserve analysis may be applied to the individually evaluated loans, which considers collateral value, an observable market price, or the present value of the expected future cash flows.

1 unchanged sentence

Based on management’s analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond the information that is used to calculate a reasonable and supportable forecast and a reversion period forecast on collectively evaluated loans.

Management may consider an additional or reduced reserve as warranted through qualitative risk factors based on the current and expected conditions, as measured in supplemental information relative to the macroeconomic variable loss drivers used to calculate a reasonable and supportable forecast and a reversion period

Note 4— Allowance for Credit Losses (continued)

Management may consider an additional or reduced reserve as warranted through qualitative risk factors based on the current and expected conditions as measured in supplemental information relative to the macroeconomic variable loss drivers used to calculate a reasonable and supportable forecast and a reversion period forecast.

These qualitative risk factors considered by management are largely comparable to legacy factors prior to the adoption of CECL.

The following tables present the activity in the ACL, including the impact of the adoption of CECL, for the three months ended March 31, 2024, and for the three months ended March 31, 2023 (in thousands).

The following tables present the activity in the ACL for the three months and six months ended June 30, 2024, and for the three months and six months ended June 30, 2023, including the impact of the adoption of CECL for the six months ended June 30, 2023, and the impact of the allowance established for PCD loans for the three months and six months ended June 30, 2024, (in thousands).

Commercial real estate Owner-occupied commercial real estate Acquisition, construction & development Commercial & industrial Single family residential (1-4 units) Consumer non-real estate and other Unallocated Total

Three months ended

March 31, 2024

June 30, 2024

Balance, beginning of period $ 18,977 $ 782 $ 674 $ 824 $ 3,272 $ 77 $ — $ 24,606

Allowance established for acquired PCD loans 7,503 1,931 5,968 5,684 2,608 216 — 23,910

Provision for (recapture of) credit losses 1,030 2,327 11,997 ( 1,594 ) 5,805 535 — 20,100

( 1,659 ) ( 1 ) 306 179 474 31 — ( 670 )

Charge-offs ( 210 ) — — ( 146 ) ( 37 ) ( 218 ) — ( 611 )

1 unchanged sentence

Balance, end of period $ 27,304 $ 5,040 $ 18,639 $ 4,768 $ 11,648 $ 618 $ — $ 68,017

March 31, 2023

June 30, 2023

Balance, beginning of period $ 18,409 $ 556 $ 1,852 $ 700 $ 4,030 $ 157 $ — $ 25,704

Impact of the adoption of CECL 2,686 ( 6 ) ( 640 ) 237 1,661 187 — 4,125

Provision for (recapture of) loan losses

218 ( 73 ) 410 25 ( 13 ) ( 44 ) — 523

Provision for (recapture of) credit losses 227 163 ( 533 ) ( 59 ) 487 25 — 310

Charge-offs — — — ( 29 ) — ( 75 ) — ( 104 )

2 unchanged sentences

Note 4— Allowance for Credit Losses (continued)

Six months ended

June 30, 2024

Balance, beginning of period $ 20,633 $ 783 $ 368 $ 645 $ 2,797 $ 75 $ — $ 25,301

Allowance established for acquired PCD loans 7,503 1,931 5,968 5,684 2,608 216 — 23,910

Provision for (recapture of) credit losses ( 629 ) 2,326 12,303 ( 1,415 ) 6,279 566 — 19,430

Charge-offs ( 210 ) — — ( 146 ) ( 37 ) ( 248 ) — ( 641 )

Recoveries 7 — — — 1 9 — 17

Balance, end of period $ 27,304 $ 5,040 $ 18,639 $ 4,768 $ 11,648 $ 618 $ — $ 68,017

June 30, 2023

Balance, beginning of period $ 15,477 $ 635 $ 2,082 $ 438 $ 2,379 $ 28 $ — $ 21,039

Impact of adoption CECL 2,686 ( 6 ) ( 640 ) 237 1,661 187 — 4,125

Provision for (recapture of) credit losses 445 90 ( 123 ) ( 34 ) 474 ( 19 ) — 833

Charge-offs — — — ( 29 ) — ( 92 ) — ( 121 )

Recoveries 31 — — — 6 6 — 43

Balance, end of period $ 18,639 $ 719 $ 1,319 $ 612 $ 4,520 $ 110 $ — $ 25,919

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

The following table presents the aging of the recorded investment in past due loans as of March 31, 2024, and December 31, 2023, by portfolio segment (in thousands):

March 31, 2024

The following table presents the aging of the recorded investment in past due loans as of June 30, 2024, and December 31, 2023, by portfolio segment (in thousands):

June 30, 2024

30 - 59 Days Past Due 60 - 89 Days Past Due 90 Days or More Past Due Total Past Due Current Loans Total Loans 90 Days Past Due & Still Accruing Non-accrual loans

15 unchanged sentences

Total $ 12,351 $ 653 $ 2,322 $ 15,326 $ 2,072,430 $ 2,087,756 $ — $ 3,744

The amount of interest income recognized on nonaccrual loans during the periods presented is immaterial.

Credit Quality Indicators

5 unchanged sentences

The Company uses the following definitions for credit risk classifications:

Note 4— Allowance for Credit Losses (continued)

These include satisfactory loans that have acceptable levels of risk.

6 unchanged sentences

If weaknesses go uncorrected, there is potential for partial loss of principal and/or interest.

Note 4— Allowance for Credit Losses (continued)

Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and unlikely.

3 unchanged sentences

Generally, these loan classes are rated as “Pass” unless these loans are on non-accrual and are then classified as substandard.

The following tables present the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of March 31, 2024, and December 31, 2023 (in thousands):

March 31, 2024

The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of June 30, 2024, and December 31, 2023 (in thousands):

June 30, 2024

2024 2023 2022 2021 2020 Prior Revolving Loans Total

23 unchanged sentences

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

Note 4— Allowance for Credit Losses (continued)

Commercial & industrial

1 unchanged sentence

Special Mention — — 11,738 — — — — 11,738

Note 4— Allowance for Credit Losses (continued)

Substandard 248 697 5,263 15,088 991 3,211 11,131 36,629

19 unchanged sentences

Year to date gross charge-offs $ 245 $ — $ — $ — $ — $ 3 $ — $ 248

Note 4— Allowance for Credit Losses (continued)

Totals $ 234,634 $ 807,818 $ 1,151,642 $ 990,937 $ 371,241 $ 1,466,140 $ 594,312 $ 5,616,724

December 31, 2023

18 unchanged sentences

Pass $ 8,535 $ 24,286 $ 13,698 $ — $ 728 $ 241 $ 1,603 $ 49,091

Note 4— Allowance for Credit Losses (continued)

Special Mention — — — — — — — —

15 unchanged sentences

Special Mention — — — — — — — —

Note 4— Allowance for Credit Losses (continued)

Substandard — — 291 243 — 2,171 39 2,744

12 unchanged sentences

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

The following tables present information about collateral-dependent loans that were individually evaluated for purposes of determining the ACL as of March 31, 2024, and December 31, 2023 (in thousands):

March 31, 2024

Note 4— Allowance for Credit Losses (continued)

The following tables present information about collateral-dependent loans that were individually evaluated for purposes of determining the ACL as of June 30, 2024, and December 31, 2023 (in thousands):

June 30, 2024

With Allowance With No Related Allowance Total

Amortized Cost Related Allowance Amortized Cost Amortized Cost Related Allowance

March 31, 2024

June 30, 2024

Commercial real estate $ 8,260 $ 5,282 $ 9,294 $ 17,554 $ 5,282

16 unchanged sentences

Total $ — $ — $ 3,744 $ 3,744 $ —

Purchased Credit Deteriorated Loans

The Company has purchased loans for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

The carrying amount of those loans, at acquisition, is as follows (in thousands):

Purchase price of loans at acquisition $ 380,795

Allowance for credit losses at acquisition 23,910

Non-credit discount/(premium) at acquisition 37,640

Par value of acquired loans at acquisition $ 442,344

Loan Modifications

On January 1, 2023, the Company adopted ASU 2022-02 on a modified retrospective basis.

ASU 2022-02 eliminates the troubled debt restructuring (“TDR”) accounting model and requires that the Company evaluate, based on the accounting for

Note 4— Allowance for Credit Losses (continued)

loan modifications, whether the borrower is experiencing financial difficulty, and the modification results in a more-than-insignificant direct change in the contractual cash flows and represents a new loan or a continuation of an existing loan.

ASU 2022-02 eliminates the troubled debt restructuring (“TDR”) accounting model and requires that the Company evaluate, based on the accounting for loan modifications, whether the borrower is experiencing financial difficulty, and the modification results in a more-than-insignificant direct change in the contractual cash flows and represents a new loan or a continuation of an existing loan.

This change required all loan modifications to be accounted for under the general loan modification guidance in ASC 310-20, Receivables — Nonrefundable Fees and Other Costs, and subjects entities to new disclosure requirements on loan modifications to borrowers experiencing financial difficulty.

1 unchanged sentence

When principal forgiveness is provided, the amount of forgiveness is charged off against the ACL.

The Company may also provide multiple types of modifications on an individual loan.

For the three months ended March 31, 2024, and for the year ended December 31, 2023, the Company did not extend any modifications to borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan.

The Company may also provide multiple types of modifications on

Note 4— Allowance for Credit Losses (continued)

an individual loan.

For the three and six months ended June 30, 2024, and for the year ended, December 31, 2023, the Company did not extend any modifications to borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan.

Other Real Estate Owned

Real estate owned activity was as follows (in thousands):

June 30, 2024 December 31, 2023

Beginning balance $ — $ —

Loans acquired/transferred to real estate owned 3,432 —

Capital expenditures — —

Direct write-downs — —

Sales of real estate owned ( 97 ) —

End of period balance $ 3,334 $ —

Note 5— Deposits

The aggregate amount of time deposits that meet or exceed the FDIC Insurance Limit of $250,000, was approximately $ 108.0 million and $ 92.3 million on March 31, 2024, and December 31, 2023, respectively.

Brokered time deposits, which are fully insured, totaled $ 370.8 million and $ 389.0 million as of March 31, 2024, and December 31, 2023, respectively.

Time deposits through the Certificate of Deposit Account Registry Service (“CDARS”) program totaled $ 24.3 million at March 31, 2024, compared to $ 24.2 million at December 31, 2023.

At March 31, 2024, the scheduled maturities of time deposits for the remaining nine months ending December 31, 2024, and the following five years were as follows (in thousands):

As of March 31, 2024

Remaining nine months ending, December 31, 2024 $ 383,222

The aggregate amount of time deposits that meet or exceed the FDIC Insurance Limit of $250,000, was approximately $ 247.1 million and $ 92.3 million on June 30, 2024, and December 31, 2023, respectively.

Brokered time deposits, which are fully insured, totaled $ 403.7 million and $ 389.0 million as of June 30, 2024, and December 31, 2023, respectively.

Time deposits through the Certificate of Deposit Account Registry Service (“CDARS”) program totaled $ 41.0 million at June 30, 2024, compared to $ 24.2 million at December 31, 2023.

At June 30, 2024, the scheduled maturities of time deposits for the remaining six months ending June 30, 2024, and the following five years were as follows (in thousands):

As of June 30, 2024

Remaining six months ending, December 31, 2024 $ 750,178

Thereafter 4,065

Total $ 1,338,443

At March 31, 2024, and December 31, 2023, amounts included in time deposits for individual retirement accounts totaled $ 27.4 million and $ 28.5 million, respectively.

Overdrafts of $ 117 thousand and $ 110 thousand were reclassified to loans as of March 31, 2024, and the year ended December 31, 2023, respectively.

Note 6— Advances and Other Borrowings

The Company had borrowings of $ 360.0 million and $ 272.0 million at March 31, 2024, and December 31, 2023, respectively.

At March 31, 2024, the interest rate on this debt ranged from 4.78 % to 5.58 %.

At June 30, 2024, and December 31, 2023, amounts included in time deposits for individual retirement accounts totaled $ 123.6 million and $ 28.5 million, respectively.

Overdrafts of $ 5.0 million and $ 110 thousand were reclassified to loans as of June 30, 2024, and the year ended December 31, 2023, respectively.

Note 6— Borrowed Funds

Short-term borrowings

The Company had borrowings of $ 285.2 million and $ 272.0 million at June 30, 2024, and December 31, 2023, respectively.

At June 30, 2024, the interest rate on this debt ranged from 4.87 % to 5.46 %.

At December 31, 2023, the interest rate on this debt ranged from 4.38 % to 5.57 %.

The average balance outstanding during the three months ending March 31, 2024, and the year ending December 31, 2023, was $ 303.6 million and $ 293.9 million, respectively.

The Company has a finance lease liability that is not included in these balances - see Note 7 - Leased Pro perty for a discussion of this liability that is included in the accrued interest and other liabilities line in the Consolidated Balance Sheets.

The Company’s short-term borrowings from time to time may consist of advances from the FHLB of Atlanta, unsecured lines from Correspondent Banks, and secured lines from the Federal Reserve Discount Window.

The Company has available lines of credit with the FHLB of Atlanta and unsecured federal funds lines of credit from correspondent banking relationships.

Through these sources, the Company had total borrowing capacity of $ 994.2 million with an unused capacity of $ 704.2 million as of March 31, 2024.

The average balance outstanding during the six months ending June 30, 2024, and the year ending December 31, 2023, was $ 334.8 million and $ 293.9 million, respectively.

The Company has a finance lease liability that is not included in these balances - see Note 7 - Leased Property for a discussion of this liability that is included in the accrued interest and other liabilities line in the Consolidated Balance Sheets.

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

Note 6— Borrowed Funds (continued)

relationships.

Through these sources, the Company has unused capacity of $ 2.2 billion in remaining borrowing capacity as of June 30, 2024.

The advances on credit lines are secured by both securities and loans.

The lendable collateral value of securities and loans pledged against available lines of credit as of March 31, 2024, and December 31, 2023, was $ 805.9 million and $ 797.8 million, respectively.

As of March 31, 2024, all of the Company’s borrowings will mature within one calendar year.

Note 6— Federal Home Loan Bank Advances and Other Short-Term Borrowings

The contractual maturities of these borrowings, which all occur within one year of the reporting date, are as follows as of March 31, 2024, (in thousands):

The lendable collateral value of securities and loans pledged against available lines of credit as of June 30, 2024, and December 31, 2023, was $ 1.3 billion and $ 797.8 million, respectively.

As of June 30, 2024, all of the Company’s borrowings will mature within one calendar year.

The contractual maturities of these borrowings, which all occur within one year of the reporting date, are as follows as of June 30, 2024, (in thousands):

Due in 2024 $ 265,161

1 unchanged sentence

Total $ 285,161

Long-term borrowings

Subordinated Debentures

As part of the Merger, Burke & Herbert assumed $ 75 million of subordinated debentures, that were fair valued at $ 61.5 million with a $ 13.5 million discount being amortized into interest expense over the stated maturity.

As of June 30, 2024, the net balance was $ 62.4 million.

The subordinated debt qualifies as Tier 2 capital under Federal Reserve Board guidelines, until the debt is within 5 years of its maturity;

thereafter, the amount qualifying as Tier 2 capital is reduced 20 % each year until maturity.

The subordinated debentures were issued in the fourth quarter of 2021.

This subordinated debt bears interest at a fixed rate of 3.25 % per year, from acquisition date to, but excluding, December 1, 2026, payable semi-annually in arrears.

From and including, December 1, 2026 to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”), as published by the Federal Reserve Bank of New York, plus 230 basis points, payable quarterly in arrears.

This debt has a 10 -year term, and generally, is not prepayable by us within the first 5 years from issuance, which was fourth quarter 2021.

Through the Merger, Burke & Herbert also assumed $ 30 million of subordinated debentures that were fair valued at $ 30 million with a $ 0.2 million discount being amortized into interest expense over the stated maturity.

As of June 30, 2024, the net balance was $ 30 million.

The subordinated debt qualifies as Tier 2 capital under Federal Reserve Board guidelines, until the debt is within 5 years of its maturity;

thereafter, the amount qualifying as Tier 2 capital is reduced by 20 % each year until its maturity.

The subordinated debentures were issued in the third quarter of 2020.

This subordinated debt bears interest at a fixed rate of 5.00 % per year from the date of assumption to, but excluding, September 30, 2025, payable quarterly in arrears.

From and including September 30, 2025, to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 487 basis points, payable quarterly in arrears.

This debt has a 10 -year term, and generally, is not prepayable by us within the first 5 years from issuance, which was third quarter 2020.

Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts

As part of the Merger, Burke & Herbert became the sponsor for SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III.

For each of these trusts, 100 % of the common equity is owned by us.

SFG Capital Trust I issued $ 3.5 million in capital securities and $ 109 thousand in common securities and invested the proceeds in $ 3.61 million of debentures, which were assumed by Burke & Herbert in the Merger.

SFG Capital Trust II issued $ 7.5 million in capital securities and $ 232 thousand in common securities and invested the proceeds in $ 7.73 million of debentures, which were assumed by Burke & Herbert in the Merger.

SFG Capital Trust III issued $ 8.0 million in capital securities and $ 248 thousand in common securities and invested the proceeds in $ 8.25 million of debentures, which were assumed by Burke & Herbert in the Merger.

Distributions on the capital securities issued by the trusts are payable quarterly at a variable rate equal to 3 month LIBOR plus 345 basis points for SFG Capital Trust I, 3 months of LIBOR plus 280 basis points for SFG Capital Trust II, and 3 month LIBOR plus 145 basis points for SFG Capital Trust III, and equals the interest rate earned on the debentures held by the trusts and is recorded as interest expense by us.

The capital securities are subject to mandatory redemption in whole, or in part, upon repayment of the debentures.

We have entered into agreements which, taken

Note 6— Borrowed Funds (continued)

collectively, fully and unconditionally guarantee the capital securities subject to the terms of the guarantee.

The debentures of each Capital Trust are redeemable by us quarterly.

The capital securities issued by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under the Federal Reserve guidelines.

In accordance with these Guidelines, trust preferred securities are limited to 25% of Tier 1 capital elements, net of goodwill.

The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.

The remaining maturities of subordinated debentures as of June 30, 2024, are as follows (in thousands):

Subordinated debentures

Subordinated debentures owed to unconsolidated subsidiary trusts

Remaining six months ending, December 31, 2024 $ — $ —

Thereafter 105,000 19,589

Total $ 105,000 $ 19,589

Note 7— Leased Property

1 unchanged sentence

The Company enters into operating leases with customers to lease vacant space in certain owned premises that is not being used by the Company.

These operating leases are typically payable in monthly installments with terms ranging from around two years to around eleven years and may contain renewal options.

The components of lease income, which is included in non-interest expense on the Consolidated Statements of Income, were as follows (in thousands):

Three Months Ended March 31,

These operating leases are typically payable in monthly installments with terms ranging from around two years to around sixteen years and may contain renewal options.

The components of lease income, which was included in non-interest expense on the Consolidated Statements of Income, were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Operating lease income $ 556 $ 575 $ 1,131 $ 1,150

Total lease income $ 556 $ 575 $ 1,131 $ 1,150

The remaining maturities of operating lease receivables as of March 31, 2024, are as follows (in thousands):

The remaining maturities of operating lease receivables as of June 30, 2024, are as follows (in thousands):

Operating Leases

Remaining nine months ending December 31, 2024 $ 1,726

Remaining six months ending, December 31, 2024 $ 1,083

Thereafter 4,732

4 unchanged sentences

Certain leases offer the option to extend the lease term, and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised.

Including renewal options, the terms of the Company’s leases range from less than one year to around fourteen years .

Including renewal options, the terms of the Company’s leases range from less than one year to around thirteen years .

The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

Note 7— Leased Property (continued)

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows.

1 unchanged sentence

The right-of-use asset and lease liability are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.

Note 7— Leased Property (continued)

Right-of-use assets and liabilities by lease type, and the associated balance sheet classifications are as follows (in thousands):

Balance Sheet Classification March 31, 2024 December 31, 2023

Balance Sheet Classification June 30, 2024 December 31, 2023

Right-of-use assets:

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The components of total lease cost were as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Finance lease cost

3 unchanged sentences

Total lease cost $ 816 $ 905 $ 1,486 $ 1,799

The Company’s future undiscounted lease payments for finance and operating leases with initial terms of one year or more as of March 31, 2024, are as follows (in thousands):

The Company’s future undiscounted lease payments for finance and operating leases with initial terms of one year or more as of June 30, 2024, are as follows (in thousands):

Operating Leases Finance Leases

Remaining nine months ending December 31, 2024 $ 1,774 $ 246

Remaining six months ending, December 31, 2024 $ 3,203 $ 330

2024 2,577 337

2025 2,380 344

2026 2,041 350

2027 1,883 357

Thereafter 6,543 2,810

3 unchanged sentences

Note 7— Leased Property (continued)

The following table presents additional information about the Company’s leases as of March 31, 2024, and December 31, 2023.

Supplemental lease information (dollars in thousands) March 31, 2024 December 31, 2023

The following table presents additional information about the Company’s leases as of June 30, 2024, and December 31, 2023.

Supplemental lease information (dollars in thousands) June 30, 2024 December 31, 2023

Finance lease weighted average remaining lease term (years) 12.24 12.66

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Operating lease weighted average discount rate 4.59 % 3.33 %

Three Months Ended March 31,

Six Months Ended June 30,

Cash paid for amounts included in the measurement of lease liabilities 2024 2023

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Failure to meet capital requirements can initiate regulatory action.

Under the Basel Committee on Banking Supervision’s capital guidelines for U.S.

Banks (“Basel III rules”), an entity must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios.

The net unrealized gain or loss on AFS securities is not included in computing regulatory capital.

Management believes as of March 31, 2024, the Company and the Bank meet all capital adequacy requirements to which they are subject.

Management believes as of June 30, 2024, the Company and the Bank meet all capital adequacy requirements to which they are subject.

“Prompt corrective action” regulations provide five classifications:

2 unchanged sentences

If “undercapitalized”, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

As of March 31, 2024, and December 31, 2023, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for “prompt corrective action”.

The following table presents the actual and required capital amounts and ratios for the Company and the Bank at March 31, 2024, and December 31, 2023 (in thousands except for ratios).

As of June 30, 2024, and December 31, 2023, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for “prompt corrective action”.

Note 8— Regulatory Capital Matters (continued)

Actual Minimum Required for Capital Adequacy Purposes (includes applicable Capital Conservation Buffer) To Be Well Capitalized Under Prompt Corrective Action Regulations

The following table presents the actual and required capital amounts and ratios for the Company and the Bank at June 30, 2024, and December 31, 2023 (in thousands except for ratios):

Actual Minimum Required Capital - Basel III Minimum Required to be Well Capitalized

Amount Ratio Amount Ratio Amount Ratio

As of March 31, 2024

As of June 30, 2024

Total Capital to risk weighted assets

Consolidated $ 889,854 13.91 % $ 671,804 ≥ 10.5 %

$ 253,814 ≥ 10.0 %

$ 639,813 N/A

Burke & Herbert Bank & Trust 864,853 13.53 671,181 ≥ 10.5

2 unchanged sentences

Consolidated 725,595 11.34 543,841 ≥ 8.5

203,051 ≥ 8.0

Burke & Herbert Bank & Trust 792,772 12.40 543,337 ≥ 8.5

2 unchanged sentences

Consolidated 698,296 10.91 447,869 ≥ 7.0

164,979 ≥ 6.5

Burke & Herbert Bank & Trust 792,772 12.40 447,454 ≥ 7.0

415,493 ≥ 6.5

Tier 1 (Core) Capital to average assets

Tier 1 (Core) Capital to average assets (leverage ratio)

Consolidated 725,595 9.04 320,911 ≥ 4.0

185,048 ≥ 5.0

Burke & Herbert Bank & Trust 792,772 9.89 320,638 ≥ 4.0

3 unchanged sentences

Consolidated $ 443,799 17.88 % $ 260,694 ≥ 10.5 %

$ 248,280 ≥ 10.0 %

$ 248,280 N/A

Burke & Herbert Bank & Trust 442,414 17.82 260,626 ≥ 10.5

2 unchanged sentences

Consolidated 418,244 16.85 211,038 ≥ 8.5

198,624 ≥ 8.0

Burke & Herbert Bank & Trust 416,859 16.79 210,983 ≥ 8.5

2 unchanged sentences

Consolidated 418,244 16.85 173,796 ≥ 7.0

161,382 ≥ 6.5

Burke & Herbert Bank & Trust 416,859 16.79 173,751 ≥ 7.0

161,340 ≥ 6.5

Tier 1 (Core) Capital to average assets

Tier 1 (Core) Capital to average assets (leverage ratio)

Consolidated 418,244 11.31 147,965 ≥ 4.0

184,957 ≥ 5.0

Burke & Herbert Bank & Trust 416,859 11.27 147,986 ≥ 4.0

2 unchanged sentences

Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.

As of March 31, 2024, approximately $ 175.8 million of retained earnings was available for dividend declaration without regulatory approval.

As of June 30, 2024, approximately $ 193.7 million of retained earnings was available for dividend declaration c onsistent with the Company’s capital plan.

Note 9— Derivatives

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The Company’s objective in using interest rate derivatives is to add stability to interest income and to manage its exposure to interest rate movements.

To accomplish this objective, the Company primarily uses interest rate swaps and floors as part of its interest rate risk management strategy.

To accomplish this objective, the Company primarily uses interest rate swaps, caps, and floors as part of its interest rate risk management strategy.

Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

2 unchanged sentences

over the life of the agreements without exchange of the underlying notional amount.

During 2024, such derivatives were used to hedge the variable cash flows associated with variable-rate debt and assets.

During 2024, such derivatives were used to hedge the variable cash flows associated with variable-rate assets.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense or interest income in the same period(s) during which the hedged transaction affects earnings.

During the next twelve months, the Company estimates that an additional $ 0.1 million will be reclassified as a reduction to interest income, and an additional $ 2.8 million will be reclassified as a reduction to interest expense.

During the next twelve months, the Company estimates that an additional $ 2.8 million will be reclassified as a reduction to interest expense.

Derivatives not designated as hedges

4 unchanged sentences

Changes in the fair value of interest rate swaps are recorded in other non-interest expense and sum to zero because of offsetting terms of swaps with borrowers and swaps with dealer counterparties.

The table below presents the fair value of the Company’s derivative financial instruments, which includes accrued interest, as well as their classification on the Consolidated Balance Sheets as of March 31, 2024, and December 31, 2023 (in thousands):

March 31, 2024

The table below presents the fair value of the Company’s derivative financial instruments, which includes accrued interest, as well as their classification on the Consolidated Balance Sheets as of June 30, 2024, and December 31, 2023 (in thousands):

June 30, 2024

Balance Sheet Location Notional Amount Fair Value

1 unchanged sentence

Interest rate swaps related to cash flow hedges Other assets $ 90,725 $ 1,422

Interest rate swaps related to cash flow hedges Other liabilities 50,000 481

Derivatives not designated as hedges:

9 unchanged sentences

Interest rate swaps related to customer loans Other liabilities 72,572 998

The table below presents the effect of cash flow hedge accounting on AOCI for the three months ended June 30, 2024, and June 30, 2023, as follows (in thousands):

Derivatives in Cash Flow

Hedging Relationships June 30, 2024 Location of Gain or (Loss) Reclassified from AOCI into Income June 30, 2024

Amount of Gain or (Loss) Recognized in OCI on Derivative

Amount of Gain or (Loss) Recognized in OCI Included Component Amount of Gain or (Loss) Recognized in OCI Excluded Component Amount of Gain or (Loss) Reclassified from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component

Interest Rate Products $ ( 2 ) $ ( 2 ) $ — Interest Income $ ( 128 ) $ ( 128 ) $ —

Interest Rate Products 1,133 1,133 — Interest Expense 997 997 —

Total $ 1,131 $ 1,131 $ — $ 869 $ 869 $ —

Note 9— Derivatives (continued)

The table below presents the effect of cash flow hedge accounting on AOCI for the three months ended March 31, 2024, and March 31, 2023, as follows (in thousands):

Derivatives in Cash Flow

Hedging Relationships March 31, 2024 Location of Gain or (Loss) Reclassified from AOCI into Income March 31, 2024

Hedging Relationships June 30, 2023 Location of Gain or (Loss) Reclassified from AOCI into Income June 30, 2023

Amount of Gain or (Loss) Recognized in OCI on Derivative

1 unchanged sentence

Interest Rate Products $ ( 348 ) $ ( 348 ) $ — Interest Income $ ( 423 ) $ ( 423 ) $ —

Total $ ( 348 ) $ ( 348 ) $ — $ ( 423 ) $ ( 423 ) $ —

The table below presents the effect of cash flow hedge accounting on AOCI for the six months ended June 30, 2024, and June 30, 2023, as follows (in thousands):

Derivatives in Cash Flow

Hedging Relationships June 30, 2024 Location of Gain or (Loss) Reclassified from AOCI into Income June 30, 2024

Amount of Gain or (Loss) Recognized in OCI on Derivative

Interest Rate Products $ ( 19 ) $ ( 19 ) $ — Interest Income $ ( 611 ) $ ( 611 ) $ —

Interest Rate Products 4,518 4,518 — Interest Expense 1,034 1,034 —

1 unchanged sentence

Derivatives in Cash Flow

Hedging Relationships March 31, 2023 Location of Gain or (Loss) Reclassified from AOCI into Income March 31, 2023

Hedging Relationships June 30, 2023 Location of Gain or (Loss) Reclassified from AOCI into Income June 30, 2023

Amount of Gain or (Loss) Recognized in OCI on Derivative

2 unchanged sentences

Total $ ( 289 ) $ ( 289 ) $ — $ ( 786 ) $ ( 786 ) $ —

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the three months ended March 31, 2024, and March 31, 2023.

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the three and six months ended June 30, 2024, and June 30, 2023 (in thousands).

Note 9— Derivatives (continued)

Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships

Three months ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

Interest Income Interest Expense Interest Income Interest Expense

5 unchanged sentences

Hedged items (1)

40 — ( 3,468 ) —

Derivatives designated as hedging instruments — — 2,977 —

6 unchanged sentences

Amount of gain or (loss) reclassified from AOCI into income - excluded component

Note 9— Derivatives (continued)

Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships

Six months ended

June 30, 2024 June 30, 2023

Interest Income Interest Expense Interest Income Interest Expense

Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded.

$ ( 531 ) $ 1,034 $ ( 1,116 ) $ —

The effects of fair value and cash flow hedging:

Gain or (loss) on fair value hedging relationships in Subtopic 815-20

Interest contracts

Hedged items (1)

80 — ( 1,106 ) —

Derivatives designated as hedging instruments — — 776 —

Gain or (loss) on cash flow hedging relationships in Subtopic 815-20

Interest contracts

Amount of gain or (loss) reclassified from AOCI into income ( 611 ) 1,034 ( 786 ) —

Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring — — — —

Amount of gain or (loss) reclassified from AOCI into income - included component

( 611 ) 1,034 ( 786 ) —

Amount of gain or (loss) reclassified from AOCI into income - excluded component

(1) The Company voluntarily discontinued a fair value hedging relationship and these amounts include the gain or (loss) and the hedging adjustment on a voluntary discontinued hedging relationship.

The Company has allocated the basis adjustment to the remaining individual assets in the closed portfolio and will amortize the basis adjustment over a period consistent with amortization of other discounts or premiums on the hedged assets.

Credit-risk-related Contingent Features

As of March 31, 2024, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk related to these agreements, was $ 0.5 million.

As of March 31, 2024, the Company has posted the full amount of collateral related to these agreements.

Note 9— Derivatives (continued)

As of June 30, 2024, the Company has no derivatives in a net liability position that would require the posting of collateral.

Note 10— Commitments and Contingencies

Interest rate lock commitments

Commitments to fund consumer mortgage loans (interest rate lock commitments) to be sold into the secondary market are defined as derivatives under GAAP.

The Company enters into best effort forward commitments for the future delivery of mortgage loans to third-party investors.

The Company has elected the fair value option (“FVO”) on both the best-efforts forward commitments and the consumer mortgage loans held-for-sale in order to economically hedge the effect of changes in interest rates resulting from the commitment to fund the loans.

Interest Rate lock commitments are not designated as hedging instruments, and therefore, changes in the fair value of these free-standing derivative instruments are reported as non-interest income.

The net gains (losses) relating to the free-standing derivative instruments (interest rate lock commitments) were $ 15.4 thousand and $ 4.2 thousand for the three months ending March 31, 2024, and March 31, 2023, respectively.

The notional amount of the mortgage pipeline that resulted in an interest rate lock commitment was $ 3.0 million and $ 838.0 thousand at March 31, 2024, and March 31, 2023, respectively.

Interest rate lock commitments are not designated as hedging instruments, and therefore, changes in the fair value of these free-standing derivative instruments are reported as non-interest income on the Consolidated Statements of Income.

Credit extension commitments

The Company’s financial statements do not reflect various financial instruments which arise in the normal course of business and which involve elements of credit risk, interest rate risk, and liquidity risk.

These financial instruments include commitments to extend credit (e.g.

revolving lines of credit) and commercial letters of credit.

These financial instruments include commitments to extend credit (e.g., revolving lines of credit) and commercial letters of credit.

Many of our lending relationships contain both funded and unfunded elements.

2 unchanged sentences

Since many of our commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.

A summary of the contractual amounts of the Company’s financial instruments outstanding at March 31, 2024, and December 31, 2023, is as follows (in thousands):

March 31, 2024 December 31, 2023

A summary of the contractual amounts of the Company’s financial instruments outstanding at June 30, 2024, and December 31, 2023, is as follows (in thousands):

June 30, 2024 December 31, 2023

Commitments to extend credit $ 1,091,678 $ 278,923

5 unchanged sentences

Allowance for credit losses - off-balance-sheet credit exposures

The Company recorded zero credit losses on unfunded commitments for the three months ended March 31, 2024, and had an ACL on off-balance sheet credit exposures that totaled $ 254.2 thousand at March 31, 2024.

The Company recorded a

Note 10— Commitments and Contingencies (continued)

recapture of $ 7.5 thousand for the three months ended March 31, 2023, and had an ACL on off-balance sheet credit exposures that totaled $ 267.3 thousand at March 31, 2023.

The ACL on off-balance sheet credit exposures is included in accrued interest and other liabilities on the accompanying Consolidated Balance Sheets.

The Company recorded a provision for credit losses on unfunded commitments of $ 3.8 million for the three and six months ended June 30, 2024.

The Company recorded a recapture of credit losses on unfunded commitments of $ 96.0 thousand and $ 104.0 thousand for the three and six months ended June 30, 2023.

The ACL on off-balance-sheet credit totaled $ 4.1 million and $ 254.2 thousand as of June 30, 2024 and December 31, 2023, and is included in accrued interest and other liabilities on the accompanying Consolidated Balance Sheets.

The Company is a party to litigation, claims, and proceedings arising in the normal course of business that are ordinary and routine to the nature of the Company’s business and operations.

8 unchanged sentences

or other inputs that are observable or can be corroborated by observable market data.

Note 11— Fair Value Measurements (continued)

Level 3 – Significant unobservable inputs that reflect our own assumptions that market participants would use in pricing an asset or liability.

7 unchanged sentences

For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Equity Investments

Equity investments are recorded at fair value on a recurring basis, with changes in fair value reported in net income.

Through the Merger, at June 30, 2024, we acquired an investment in an S&P 500 index mutual fund that is actively traded on an exchange, and we classify it as Level 1.

Through the Merger, we acquired perpetual preferred stock of a bank holding company issued in October 2022 in a private offering.

The perpetual preferred stock does not trade on an exchange or in an active over-the-counter market;

therefore, we estimate its fair value using the present value of its future cash flows using observed discount rates of similar publicly-traded securities, adjusted for a liquidity premium.

We classify the perpetual preferred stock as Level 2.

Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment.

Such equity securities are included in Equity Investments on the accompanying consolidated balance sheets.

The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

8 unchanged sentences

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements at March 31, 2024, Using:

Fair Value Measurements at June 30, 2024, Using:

Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs

12 unchanged sentences

Loans held-for-sale, at fair value $ — $ 3,268 $ — $ 3,268

Equity investments $ 7,351 $ 4,671 $ — $ 12,022

Derivatives $ — $ 1,954 $ — $ 1,954

19 unchanged sentences

Derivatives $ — $ 2,045 $ — $ 2,045

Note 11— Fair Value Measurements (continued)

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a non-recurring basis in the financial statements:

Individually evaluated loans

Upon the adoption of CECL, loans individually evaluated for credit expected losses included non-accrual loans and other loans that do not share similar risk characteristics to loans in the CECL loan pools and have been classified as Level 3.

Individually evaluated loans with an allocation to the ACL are measured at fair value on a non-recurring basis.

Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income.

Prior to adoption of CECL and ASU 2022-02, which eliminated the TDR accounting model, loans were designated as impaired when, in the judgment of management and based on current information and events, it was probable that all amounts due, according to the contractual terms of the loan agreement, would not be collected.

The measurement of loss associated with impaired loans can be based on either the observable market price of the loan, the present value of the expected future cash flows, or the fair value of the collateral.

Generally, the fair value of impaired loans will be determined by the present value of the expected future cash flows or, if collateral-dependent, based on recent real estate appraisals.

For collateral-dependent, the fair value is measured based on the value of the collateral securing the loans, less estimated costs of disposal.

Collateral dependent loans

Loans for which the borrower is experiencing financial difficulty and repayment is dependent upon the operation or sale of collateral, are considered collateral dependent.

For collateral-dependent loans, the fair value is measured based on the value

Note 11— Fair Value Measurements (continued)

of the collateral securing the loans, less estimated costs of disposal.

Collateral may be in the form of real estate or business assets, including equipment, inventory, and accounts receivable.

The vast majority of the collateral is real estate.

These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach.

Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income and will result in a Level 3 fair value classification.

Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.

The vast majority of the collateral underlying collateral dependent loans is real estate, the fair value of which is measured through an appraisal.

The appraisals of the collateral supporting collateral dependent loans may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach.

Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income.

Other real estate owned

Assets acquired through foreclosure or other proceedings are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell.

Fair value is commonly based on recent real estate appraisals, which are updated no less frequently than annually.

Any fair value adjustments are recorded in the period incurred and expensed against current earnings.

The fair value of foreclosed properties is determined on a nonrecurring basis generally utilizing current appraisals performed by an independent, licensed appraiser applying an income or market value approach using observable market data.

Updated appraisals of foreclosed properties are generally obtained if the existing appraisal is more than 18 months old or more frequently if there is a known deterioration in value.

However, if a current appraisal is not available, the original appraised value is discounted, as appropriate, to compensate for the estimated depreciation in the value of the real estate since the date of its original appraisal.

Such discounts are generally estimated based upon management’s knowledge of sales of similar property within the applicable market area and its knowledge of other real estate market-related data as well as general economic trends.

Upon foreclosure, any fair value adjustment is charged against the allowance for credit losses on loans.

Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense in the consolidated statements of income.

Assets that were measured at fair value on a non-recurring basis during the period are summarized below (in thousands):

Fair Value Measurements at March 31, 2024, Using:

Fair Value Measurements at June 30, 2024, Using:

Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs

(Level 1) (Level 2) (Level 3) Total

Individually evaluated loans:

Collateral dependent loans

Commercial real estate $ — $ — $ 2,978 $ 2,978

5 unchanged sentences

Other real estate owned — — 3,334 3,334

Note 11— Fair Value Measurements (continued)

Fair Value Measurements at December 31, 2023, Using:

1 unchanged sentence

(Level 1) (Level 2) (Level 3) Total

Individually evaluated loans:

Collateral dependent loans

Commercial real estate $ — $ — $ — $ —

5 unchanged sentences

Other real estate owned — — — —

The following table presents quantitative information about Level 3 Fair Value Measurements for assets measured at fair value on a non-recurring basis at March 31, 2024, and December 31, 2023 (in thousands except for percentages):

Description Fair Value Valuation Techniques Unobservable Inputs Range Weighted Average

March 31, 2024

Individually evaluated loans $ 3,371 Income, Market, & Discounted cash flow analysis External appraised values;

management assumptions regarding market trends, market rate for borrower, or other relevant factors 3.6 % - 9.0 %

348 Appraisal of collateral Management adjustments (e.g.

liquidity, selling costs, etc.) 5.0 % - 20.0 % for liquidity

6.0 %- 8.0 % for selling costs

December 31, 2023

Individually evaluated loans $ 3,417 Income, Market, & Discounted cash flow analysis External appraised values;

management assumptions regarding market trends, market rate for borrower, or other relevant factors 3.6 % - 9.0 %

Note 11— Fair Value Measurements (continued)

The following table presents quantitative information about Level 3 Fair Value Measurements for assets measured at fair value on a non-recurring basis at June 30, 2024, and December 31, 2023 (in thousands except for percentages):

Description Fair Value Valuation Techniques Unobservable Inputs Range

June 30, 2024

Collateral dependent loans $ 3,288 Appraisal of collateral Management adjustments (e.g.

liquidity, selling costs, etc.) 5.0 % to 20.0 % for liquidity, 6.0 % to 8.0 % for selling costs

Other real estate owned 3,334 Appraisal of collateral Management adjustments (e.g.

liquidity, selling costs, etc.) 5.0 % to 20.0 % for liquidity, 6.0 % to 8.0 % for selling costs

December 31, 2023

Collateral dependent loans $ — Appraisal of collateral Management adjustments (e.g.

liquidity, selling costs, etc.) 5.0 % to 20.0 % for liquidity, 6.0 % to 8.0 % for selling costs

Fair value of financial instruments

The carrying amounts and estimated fair values of financial instruments not carried at fair value, at March 31, 2024, and December 31, 2023, were as follows (in thousands):

Fair Value Measurements at March 31, 2024, Using:

The carrying amounts and estimated fair values of financial instruments not carried at fair value, at June 30, 2024, and December 31, 2023, were as follows (in thousands):

Fair Value Measurements at June 30, 2024, Using:

Carrying Amount Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs

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Financial Liabilities

Non-interest-bearing $ 822,767 $ — $ 822,767 $ — $ 822,767

Interest-bearing 2,167,346 — 2,162,288 — 2,162,288

Other borrowed funds 360,000 — 356,679 — 356,679

Non-interest-bearing deposits $ 1,397,030 $ — $ 1,397,030 $ — $ 1,397,030

Interest-bearing deposits 5,242,541 — 5,230,701 — 5,230,701

Short-term borrowings 285,161 — 281,404 — 281,404

Subordinated debentures, net 92,178 — 92,178 — 92,178

Subordinated debentures owed to unconsolidated subsidiary trusts 16,886 — 16,886 — 16,886

Accrued interest 7,476 — 7,476 — 7,476

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Financial Liabilities

Non-interest-bearing $ 830,320 $ — $ 830,320 $ — $ 830,320

Interest-bearing 2,171,561 — 2,167,218 — 2,167,218

Other borrowed funds 272,000 — 271,716 — 271,716

Non-interest-bearing deposits $ 830,320 $ — $ 830,320 $ — $ 830,320

Interest-bearing deposits 2,171,561 — 2,167,218 — 2,167,218

Short-term borrowings 272,000 — 271,716 — 271,716

Accrued interest 8,954 — 8,954 — 8,954

Note 12— Accumulated Other Comprehensive Income (Loss)

The following table presents changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2024, and March 31, 2023 (in thousands):

Three months ended March 31, 2024

The following table presents changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and six months ended June 30, 2024, and June 30, 2023 (in thousands):

Three months ended June 30, 2024

Gains and Losses on Cash Flow Hedges Unrealized Gains and Losses on Available-for-Sale Securities Defined Benefit Pension Items Accumulated Other Comprehensive Income

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Ending Balance $ 2,730 $ ( 97,415 ) $ ( 5,745 ) $ ( 100,430 )

Three months ended March 31, 2023

Three months ended June 30, 2023

Gains and Losses on Cash Flow Hedges Unrealized Gains and Losses on Available-for-Sale Securities Defined Benefit Pension Items Accumulated Other Comprehensive Income

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Ending Balance $ ( 1,196 ) $ ( 117,950 ) $ ( 7,031 ) $ ( 126,177 )

The following table presents amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three months ended March 31, 2024, and March 31, 2023 (in thousands).

Six months ended June 30, 2024

Gains and Losses on Cash Flow Hedges Unrealized Gains and Losses on Available-for-Sale Securities Defined Benefit Pension Items Accumulated Other Comprehensive Income

Beginning Balance $ ( 490 ) $ ( 97,259 ) $ ( 5,745 ) $ ( 103,494 )

Net unrealized gains (losses) 3,554 392 — 3,946

net realized (gains) losses reclassified to earnings ( 334 ) ( 548 ) — ( 882 )

Net change in pension plan benefits — — — —

Ending Balance $ 2,730 $ ( 97,415 ) $ ( 5,745 ) $ ( 100,430 )

Six months ended June 30, 2023

Gains and Losses on Cash Flow Hedges Unrealized Gains and Losses on Available-for-Sale Securities Defined Benefit Pension Items Accumulated Other Comprehensive Income

Beginning Balance $ ( 1,589 ) $ ( 130,875 ) $ ( 7,031 ) $ ( 139,495 )

Net unrealized gains (losses) ( 228 ) 11,964 — 11,736

net realized (gains) losses reclassified to earnings 621 961 — 1,582

Net change in pension plan benefits — — — —

Ending Balance $ ( 1,196 ) $ ( 117,950 ) $ ( 7,031 ) $ ( 126,177 )

Note 12— Accumulated Other Comprehensive Income (Loss) (continued)

The following table presents amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2024, and June 30, 2023 (in thousands).

Details about Accumulated Other Comprehensive Income Components Amount Reclassified From Accumulated Other Comprehensive Income Affected Line Item in the Statements of Income

Three months ended

March 31, 2024 March 31, 2023

Three months ended Six months ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Cash flow hedges:

Interest rate contracts $ ( 128 ) $ ( 423 ) $ ( 611 ) $ ( 786 ) Interest income

Interest rate contracts 997 — 1,034 — Interest expense

Tax effect ( 182 ) 89 ( 89 ) 165 Income tax expense (benefit)

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Note 13— Other Operating Expense

Other operating expense from the Consolidated Statements of Income for the three months ended March 31, 2024, and March 31, 2023, is as follows (in thousands):

Three Months Ended March 31,

FDIC & other regulatory assessment $ 516 $ 734

Other operating expense from the Consolidated Statements of Income for the three and six months ended June 30, 2024, and June 30, 2023, is as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

FDIC assessment $ 947 $ 686 $ 1,463 $ 1,033

Historic tax credit amortization 631 631 1,263 1,263

IT related 704 466 1,254 957

Consultant and advisory expenses 581 470

ATM & network expense 551 429

Consultant fees 3,699 508 4,280 978

ATM, card, & network expense 1,108 483 1,659 912

Directors' fees 961 434 1,454 844

Accounting and audit expenses 343 307

Legal fees and expenses 345 305

Audit expense 261 213 604 520

Legal expense 870 328 1,215 633

Virginia franchise tax 675 630 1,350 1,260

Marketing expense 378 119 707 338

Donation expense 5,119 — 5,119 —

Core deposit intangible amortization 2,865 — 2,865 —

Other 4,356 1,520 5,804 2,887

Total $ 22,574 $ 6,018 $ 29,037 $ 11,625

The Company incurred merger-related expenses of $ 633.0 thousand for the three months ended March 31, 2024.

The Company did no t incur any merger-related expenses for the three months ended March 31, 2023.

These expenses are primarily included in the consultant and advisory expenses and legal fees and expenses line items in the table above.

The Company incurred Merger-related expenses of $ 9.5 million for the six months ended June 30, 2024, including $ 8.9 million of which were incurred during the three months ended June 30, 2024.

These expenses are included in the consultant fees, audit fees, legal expense, donation, and other line items detailed in other operating expenses.

Note 14— Share-Based Compensation

The Company has a share-based incentive plan described below that allows it to offer a variety of equity compensation awards subject to approval.

Total compensation expense that has been charged against income for the share-based awards granted was $ 590.5 thousand and $ 580.6 thousand for the three months ended March 31, 2024, and March 31, 2023, respectively.

The total income tax benefit was $ 124.0 thousand and $ 121.9 thousand for the three months ended March 31, 2024, and March 31, 2023, respectively.

Total compensation cost that has been charged against income for the share-based awards granted was $ 937.6 thousand and $ 607.2 thousand for the three months ended June 30, 2024, and June 30, 2023, respectively.

The total income tax benefit was $ 196.9 thousand and $ 127.5 thousand for the three months ended June 30, 2024, and June 30, 2023, respectively.

Total compensation cost that has been charged against income for the share-based awards granted was $ 1.4 million and $ 1.2 million for the six months ended June 30, 2024, and June 30, 2023, respectively.

The total income tax benefit was $ 291.5 thousand and $ 249.4 thousand for the six months ended June 30, 2024, and June 30, 2023, respectively.

2019 Stock Incentive Plan

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2023 Stock Incentive Plan

In 2023, a new stock incentive plan (“2023 SIP”) was approved by the Board of directors and shareholders.

Upon the plan’s shareholder approval date of March 30, 2023, no further share-based awards will be issued under the 2019 SIP.

The plan provides for the issuance of share-based awards to directors and employees of the Company.

In 2023, a new stock incentive plan (“2023 SIP”) was approved by the Company’s Board of Directors and shareholders.

Upon the 2023 SIP’s shareholder approval date of March 30, 2023, no further share-based awards will be issued under the 2019 SIP.

The 2023 SIP provides for the issuance of share-based awards to directors and employees of the Company.

The 2023 SIP authorized the issuance of 250,000 shares, subject to an annual increase in available shares.

A total of zero and 24,705 shares were issued during the three months ended March 31, 2024, and March 31, 2023, respectively.

Note 14— Share-Based Compensation (continued)

A total of 48,450 and 24,705 shares were issued during the six months ended June 30, 2024, and June 30, 2023, respectively.

For time-based RSUs, the fair value was determined by using the closing stock price on the date prior to the grant date.

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The Board, from time to time, approves performance-based RSU awards that may be earned between a three to five year performance period.

Whether units are earned at the end of the performance period will be determined based on the achievement of performance and/or market targets (e.g.

market capitalization target) over the performance period.

Whether or not units are earned at the end of the performance period will be determined based on the achievement of performance and/or market targets (e.g., market capitalization target) over the performance period.

If the conditions are achieved, the grant recipient will receive 100 % of the units granted as these awards do not provide for a multiplier effect.

The performance / market targets are determined by the Board.

The fair value for performance-based RSU awards was determined by using a Monte Carlo simulation analysis to estimate the achievement of the market capitalization target determined by the Board.

The performance / market targets are determined by the Board of Directors.

The fair value for performance-based RSU awards was determined by using a Monte Carlo simulation analysis to estimate the achievement of the market capitalization target determined by the Board of Directors.

The Monte Carlo simulation analysis required the following inputs:

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The dividend yield assumption was based on historical and anticipated dividend payouts.

Note 14— Share-Based Compensation (continued)

The following is a summary of all the Company’s RSU awards issued under both the 2019 SIP and 2023 SIP:

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Non-vested at December 31, 2023 143,585 $ 51.21

Granted 48,450 51.14

Vested ( 103,560 ) 46.87

Forfeited ( 600 ) 73

Non-vested at March 31, 2024 136,785 $ 51.47

As of March 31, 2024, there was $ 2.3 million of total unrecognized compensation costs related to non-vested shares granted under the 2019 SIP.

Non-vested at June 30, 2024 87,875 $ 56.15

As of June 30, 2024, there was $ 3.3 million of total unrecognized compensation costs related to non-vested shares granted under the 2019 SIP.

The cost is expected to be recognized over a weighted average period of 1.86 years.

2023 Employee Stock Purchase Plan

In 2023, a new employee stock purchase plan (“2023 ESPP”) was approved by the Board of directors and shareholders.

Upon the plan’s shareholder approval date of March 30, 2023, the 2023 ESPP reserved 250,000 shares of common stock for issuance to employees.

At March 31, 2024, 243,620 shares were available to be issued.

Whole shares are sold to participants in the plan at 85 % of the lower of the stock price at the beginning or end of each semi-annual offering period that began on September 1, 2023.

In 2023, a new employee stock purchase plan (“2023 ESPP”) was approved by the Company’s Board of Directors and shareholders.

Upon the 2023 ESPP’s shareholder approval date of March 30, 2023, the 2023 ESPP reserved 250,000 shares of common stock for issuance to employees.

At June 30, 2024, 243,620 shares were available to be issued.

Whole shares are sold to participants in the 2023 ESPP at 85 % of the lower of the stock price at the beginning or end of each semi-annual offering period that began on September 1, 2023.

Eligible employees may purchase shares in an amount that does not exceed the lesser of the IRS limit of $25,000 or 15 % of their annual salary.

The following table presents information for the employee stock purchase plan at the end of March 31, 2024.

March 31, 2024

The following table presents information for the 2023 ESPP at the end of June 30, 2024:

June 30, 2024

Shares purchased 6,380

1 unchanged sentence

Compensation expense recognized (in 000's) 81.1

Stock Appreciation Rights (“SAR”)

Upon completion of the Merger and as a part of the Merger Agreement, Burke & Herbert assumed SAR awards that had been issued to existing employees that would continue with the same terms and conditions adjusted for the exchange ratio of 0.5043 .

As part of the Merger, a significant portion of SAR awards accelerated their vesting and thus did not require any future service component.

Management used the Black-Scholes option-pricing model to fair value these accelerated SAR awards and included this value as part of the purchase price consideration discussed in Note 16 - Business Combination .

The Company also used the Black-Scholes option-pricing model to fair value the non-accelerated SAR awards that were not fully vested.

The SAR awards that have been assumed by the Company, were issued in 2019, 2021, and 2023, and these SAR awards become exercisable ratably over seven years ( 14.3 % per year) and contractually expire ten years after the grant date.

Upon completion of the Merger, the Company determined the fair value per SAR using the following assumptions:

# of years to full vesting 7 years 7 years 7 years

# of awards unvested as of June 30, 2024

3,202 17,322 25,921

Fair value $ 14.89 $ 16.92 $ 14.56

Risk-free interest rate 4.51 % 4.32 % 4.14 %

Expected dividend yield 3.95 % 3.95 % 3.95 %

Expected common stock volatility 32.56 % 32.56 % 32.56 %

Expected contractual life (in years)

4.77 7.20 8.77

A summary of SAR and option activity during the six months ended June 30, 2024, is as follows:

Note 14— Share-Based Compensation (continued)

Weighted Average

Dollars in thousands, expect per share information SARs

Aggregate Fair Value Remaining Contractual Term (Yrs.) Exercise Price

Outstanding, December 31, 2023 — $ — — $ —

Granted (or acquired) 299,556 4,996 5.67 45.24

Exercised — — — —

Forfeited — — — —

Expired — — — —

Outstanding, June 30, 2024 299,556 $ 4,996 5.67 $ 45.24

Exercisable SARs:

At June 30, 2024 253,111 $ 4,278 5.29 $ 44.63

The total fair value of SARs exercised was zero during the six months ended June 30, 2024.

The total fair value of SARs vested was zero during the six months ended June 30, 2024.

As of June 30, 2024, there was $ 691.1 thousand of total unrecognized compensation costs related to non-vested SARs acquired through the Merger.

The cost is expected to be recognized over a weighted average period of 4.75 years.

Note 15— Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period.

Basic earnings per share excludes dilution and is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding for the period.

Diluted earnings per share reflects the potential impact of contingently issuable shares.

The Company uses the treasury stock method as described by ASC 260 - Earnings Per Share for each dilutive instrument when computing diluted earnings per share.

The following shows the weighted average number of shares used in computing earnings per share and the effect of the weighted average number of shares of dilutive potential Common Stock.

The following shows the weighted average number of shares used in computing earnings per share and the effect of weighted average number of shares dilutive potential common stock.

Dilutive potential common stock has no effect on income available to common shareholders.

Three Months Ended March 31,

Note 15— Earnings Per Share (continued)

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

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Net income (loss) applicable to common shares (in thousands) $ ( 17,144 ) $ 6,034 $ ( 11,932 ) $ 13,558

Weighted average number of shares 12,174,169 7,428,079 9,803,684 7,427,363

1 unchanged sentence

Weighted average dilutive shares 12,174,169 7,514,955 9,803,684 7,509,831

Basic EPS $ 0.70 $ 1.01

Diluted EPS 0.69 1.00

Stock awards equivalent to zero and zero shares of Common Stock were not considered in computing diluted earnings per common share for the three months ended March 31, 2024, and March 31, 2023, respectively, because they were antidilutive.

Basic earnings (loss) per common share $ ( 1.41 ) $ 0.81 $ ( 1.22 ) $ 1.82

Diluted earnings (loss) per common share ( 1.41 ) 0.80 ( 1.22 ) 1.80

For the three months ended June 30, 2024, and the six months ended June 30, 2024, the options effect of dilutive shares is anti-dilutive and not considered in calculating diluted EPS.

Stock awards equivalent to 323,902 and zero shares of common stock were not considered in computing diluted earnings per common share for the three months ended June 30, 2024, and June 30, 2023, respectively, because they are antidilutive.

Stock awards equivalent to 329,572 and zero shares of common stock are not considered in computing diluted earnings per share for the six months ended June 30, 2024, and June 30, 2023, respectively, because they are antidilutive.

Note 16— Business Combination

Effective on May 3, 2024, Burke & Herbert completed the Merger with Summit, pursuant to the Merger Agreement.

Note 16— Business Combination (continued)

The total aggregate consideration payable in the Merger was approximately 7,405,772 shares of Burke & Herbert common stock.

Additionally, each share of Summit’s 6.0 % Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series 2021 issued and outstanding was converted into the right to receive a share of Burke & Herbert Series 2021 Preferred Stock.

Summit’s results of operations from May 3, 2024 were included in the Company’s results beginning with reporting as of June 30, 2024.

Net interest income and pre-tax net income for Summit were estimated to be $ 25.3 million and $ 27.5 million, respectively, since the date of the acquisition through June 30, 2024 and are included in the Company’s Consolidated Statement of Income.

Merger-related costs of $ 24.4 million are included in non-interest expense in the Company’s income statement for the six months ended, June 30, 2024.

A portion of these Merger-related costs are captured in the line item Other Operating Non-Interest Expense on the consolidated Income Statement with further description in Note 13 - Other O perating Expense .

An additional $ 14.9 million is captured in line items for Salaries and Wages, Pensions and Other Employee Benefits, Occupancy, and Equipment Rentals, depreciation and maintenance.

These costs captured in those line items represent change-in-control payments, acceleration of benefit due to the change-in-control, software breakage, and other lease breakage fees.

The fair value of the common shares issued as part of the consideration paid for Summit was determined in the basis of the closing price of the Company’s common shares on the date of completion of the merger.

We accounted for the Merger using the acquisition method of accounting in accordance with ASC 805, Business Combinations and accordingly, the assets and liabilities of Summit were recorded at their respective fair values on the date of completion of the merger.

The fair values of assets and liabilities are preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to the acquisition date fair values becomes available.

We recognized preliminary goodwill of $ 32.8 million in connection with the acquisition, which is not amortized for financial reporting purposes, but is subject to annual impairment testing.

The goodwill arising from the transaction is no t deductible for tax purposes and consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies.

The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction and will be amortized over an estimated weighted average life of 7 years using an accelerated method which approximates the estimated run-off of the acquired deposits.

The fair value of $ 68.8 million of intangible assets related to core deposits is subject to change pending the receipt of the final valuation.

The fair value of purchased financial assets with credit deterioration was $ 380.8 million on the date of the acquisition.

The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $ 442.3 million.

The Company estimates, on the date of the acquisition, that $ 23.9 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

The following table details the total consideration paid for Summit on May 3, 2024, the fair values of the assets acquired and liabilities assumed and the resulting preliminary goodwill at the acquisition date.

Note 16— Business Combination (continued)

($ in thousands, except share information)

Consideration May 3, 2024

Common stock of Summit Financial Group, Inc.

Exchange ratio 0.5043

Expected Burke & Herbert common stock to be issued 7,406,522

Actual Burke & Herbert common stock issued 7,405,772

Fractional common stock to be paid in cash 750

Actual Burke & Herbert common stock issued 7,405,772

Price per share of Burke & Herbert common stock issued $ 51.67

Purchase price consideration for common stock issued 382,656

Fractional common stock to be paid in cash 750

Average 10 day closing price used to pay fractional common stock $ 53.66

Cash paid for fractional shares 40

Implied value of stock appreciation rights ("SARs") and restricted stock units 4,336

Fair value of preferred stock issued by Burke & Herbert 10,413

Fully diluted transaction value $ 397,445

Preliminary Goodwill $ 32,783

Note 16— Business Combination (continued)

As Recorded Estimated Estimated

by Summit Fair Value Fair Value

($ in thousands) May 3, 2024 Adjustments May 3, 2024

Total purchase price consideration $ 397,445

Recognized amounts of identifiable assets acquired and liabilities assumed

Cash and equivalents $ 53,357 $ — $ 53,357

Securities, available-for-sale, at fair value 491,608 — 491,608

Securities, held-to-maturity, at amortized cost 93,573 ( 7,430 ) 86,143

Equity and other investments 36,085 — 36,085

Loans, gross 3,707,940 ( 153,306 ) 3,554,634

Allowance for credit losses ( 49,471 ) 25,991 ( 23,480 )

Loans, net of allowance 3,658,469 ( 127,315 ) 3,531,154

Premises and equipment, net 62,255 13,276 75,531

Accrued interest receivable 19,610 — 19,610

Company-owned life insurance 86,363 — 86,363

Goodwill and intangibles 73,144 ( 4,384 ) 68,760

Other assets 83,381 11,322 94,703

Total identifiable assets acquired 4,657,845 ( 114,531 ) 4,543,314

Deposits 3,704,072 ( 7,136 ) 3,696,936

Borrowings 323,610 — 323,610

Subordinated debentures and trust preferred securities 123,533 ( 16,466 ) 107,067

Unfunded reserve liability 6,692 ( 3,190 ) 3,502

Accrued interest and other liabilities 47,537 — 47,537

Total liabilities 4,205,444 ( 26,792 ) 4,178,652

Total identifiable net assets $ 452,401 $ ( 87,739 ) 364,662

Preliminary Goodwill $ 32,783

Post merger, all of the securities, held-to-maturity were reclassified as available-for-sale.

The following table presents supplemental pro forma information as if the Merger had occurred on January 1, 2023.

The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, and the related income tax effects.

The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed dates.

Three Months Ended June 30, Six Months Ended June 30,

($ in thousands) 2024 2023 2024 2023

Net Interest Income $ 70,290 $ 74,848 $ 140,972 $ 144,555

Net Income 25,683 18,815 51,668 4,245

Note 17— Goodwill and Other Intangible Assets

The following table presents the change in goodwill for the three and six months ended June 30, 2024, and June 30, 2023, (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Beginning of period $ — $ — $ — $ —

Acquired goodwill 32,783 — 32,783 —

Impairment — — — —

End of period $ 32,783 $ — $ 32,783 $ —

During the three months ended, June 30, 2024, the Company recorded $ 32.8 million of preliminary goodwill associated with the acquisition of Summit.

See Note 16 - B usiness Combination to the consolidated financial statements for additional detail regarding this transaction.

The Company will perform the annual goodwill impairment test on September 30 every year.

Other intangible assets consist of the core deposit intangible which is being amortized on an accelerated basis over its estimated useful life of 7 years.

During the three months ended, June 30, 2024, the Company recorded $ 68.8 million of core deposit intangibles associated with the acquisition of Summit.

The gross carrying amounts and accumulated amortization of other intangible assets for the three and six months ended June 30, 2024, and June 30, 2023, was as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Core deposit intangible $ 68,760 $ — $ 68,760 $ —

Accumulated amortization ( 2,865 ) — ( 2,865 ) —

Total intangible assets $ 65,895 $ — $ 65,895 $ —

The Company reviews other intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Total amortization expense associated with intangible assets was $ 2.9 million for the three months ended June 30, 2024.

Estimated amortization expense for future years is as follows (in thousands):

Estimated Amortization

6 months ended December 31, 2024 $ 8,595

Thereafter 9,823

Total $ 65,895

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements