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Item 7. Management’s Discussion and Analysis

2025-03-17 compared with 2024-03-22 · 200 added, 167 removed, 584 unchanged (39% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our consolidated financial condition and results of operations of the Company should be read in conjunction with our consolidated financial statements and notes thereto presented in I tem 8.

Financial Statement s and Supplementa ry Data .

Financial Statements and Supplementary Data .

Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods.

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Burke & Herbert Financial Services Corp.

was organized as a Virginia corporation on September 14, 2022, to serve as the holding company for the Bank.

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

was organized as a Virginia corporation in 2022 to serve as the holding company for Burke & Herbert Bank & Trust Company.

The Company became a bank holding company when it commenced operations on October 1, 2022, following a reorganization transaction in which it acquired control of the Bank under the BHCA.

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

In September 2023, the Company elected financial holding company status.

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

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

The Company has no material operations other than owning the Bank.

In September 2023, the Company elected to become a financial holding company under the BHCA.

As a financial holding company of a Virginia state bank, the Company is subject to regulation, supervision, and examination by the Federal Reserve and the Virginia BFI.

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

The Bank is supervised and regulated by the FDIC and the Virginia BFI.

The Bank offers a full range of business and personal financial solutions designed to meet customers’ banking, borrowing, and investment needs and has over 20 branches throughout the Northern Virginia region and commercial loan offices in Fredericksburg, Loudoun County, and Richmond, Virginia, and in Bethesda, Maryland.

The Bank became a member of the Federal Reserve System on December 31, 2024.

The Bank is subject to regulation, supervision, and examination by the Federal Reserve (through the Federal Reserve Bank of Richmond) and the Virginia BFI.

The Bank’s primary market area includes northern Virginia and West Virginia, and it has over 77 branches and commercial loan offices across Delaware, Kentucky, Maryland, Virginia, and West Virginia.

The Company’s branch locations accept business and consumer deposits from a diverse customer base.

The Company’s deposit products include checking, savings, and term certificate accounts.

The Company’s loan portfolio includes commercial and consumer loans, a substantial portion of which are secured by real estate.

The Bank derives a significant portion of its income from interest received on loans and investments.

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As of December 31, 2024, we had total consolidated assets of $7.8 billion, gross loans of $5.7 billion, total deposits of $6.5 billion, and total shareholders’ equity of $730.2 million.

As of December 31, 2023, we had 400 full-time employees.

As of December 31, 2024, we had 815 full-time equivalent employees.

None of our employees are covered by a collective bargaining agreement.

Pending Merger with Summit Financial Group, Inc.

On August 24, 2023, the Company and Summit Financial Group, Inc., entered into a merger agreement pursuant to which Summit will merge with and into Burke & Herbert, with Burke & Herbert as the continuing corporation.

Immediately following the merger, Summit Community Bank, Inc., a West Virginia banking corporation and a wholly-owned direct subsidiary of Summit, will merge with and into the Bank, with the Bank as the continuing bank.

In the merger, Summit shareholders will receive 0.5043 shares of Burke & Herbert common stock for each share of Summit common stock they own (the “exchange ratio”), subject to the payment of cash in lieu of fractional shares.

In addition, each share of Summit series 2021 preferred stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive one share of a newly created series of Burke & Herbert preferred stock having rights, preferences, privileges, and voting powers, and limitations, and restrictions, thereof, that are not materially less or more favorable to the holders of the Summit series 2021 preferred stock.

On December 6, 2023, the Company and Summit, Inc.

announced that at special meetings of their respective shareholders held on December 6, 2023, Burke & Herbert and Summit shareholders each approved the merger of Summit with and into Burke & Herbert, pursuant to the merger agreement.

The merger is expected to close in the second quarter of 2024, subject to regulatory approvals and certain other customary closing conditions.

Merger with Summit Financial Group, Inc.

Effective on the Closing Date, the Company completed the M erger with Summit, pursuant to the August 24, 2023 Merger Agreement.

Pursuant to the Merger Agreement, on the Closing Date, (i) Summit merged with and into the Company, with the Company as the surviving entity and (ii) immediately following the Merger, SCB merged with and into the Bank, with the Bank as the surviving bank.

In the Merger, holders of Summit common stock outstanding at the effective time of the Merger received 0.5043 shares of the Company 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 the Company Common Stock.

Additionally, each share of the Summit Series 2021 Preferred Stock issued and outstanding was converted into the right to receive a share of the newly created Burke & Herbert Series 2021 Preferred Stock.

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

The impact of this transaction, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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To prepare financial statements in conformity with GAAP, management makes estimates, assumptions, and judgments based on available information.

These estimates, assumptions, and judgments affect the amounts reported in the financial

statements and accompanying notes and are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements.

These estimates, assumptions, and judgments affect the amounts reported in the financial statements and accompanying notes and are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements.

In particular, management has identified several accounting policies that, due to the estimates, assumptions, and judgments inherent in those policies, are critical in understanding our financial statements.

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These policies, along with the other disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, we have identified the determination of the allowance for credit losses and income taxes to be the accounting areas that require the most subjective or complex judgments, and as such, could be most subject to revision as new information becomes available.

Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, we have identified business combination and goodwill, the determination of the allowance for credit losses, and income taxes to be the accounting areas that require the most subjective or complex judgments, and as such, could be most subject to revision as new information becomes available.

Business Combination and Goodwill

For acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit intangibles, and the liabilities assumed at their respective fair values.

The difference between consideration and the net fair value of assets acquired is recorded as goodwill.

Management uses significant estimates and assumptions to value such items, including projected cash flows, repayment rates, default rates and losses assuming default, discount rates, and realizable collateral values.

The allowance for credit losses for purchased credit deteriorated (“PCD”) loans is recognized within acquisition accounting.

The allowance for credit losses for non-PCD assets is recognized as provision for credit losses in the same reporting period as the acquisition.

Fair value adjustments are amortized or accreted into the income statement over the estimated life of the acquired assets or assumed liabilities.

The purchase date valuations and any subsequent adjustments determine the amount of goodwill recognized in connection with the acquisition.

The use of different assumptions could produce significantly different valuation results, which could have material positive or negative effects on our results of operations.

The carrying value of goodwill recorded must be reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired.

An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill.

The determination of fair values is based on valuations using management’s assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors.

In addition, we engage third party specialists to assist in the development of fair values.

Preliminary estimates of fair values may be adjusted for a period of time subsequent to the acquisition date if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

Adjustments recorded during this period are recognized in the current reporting period.

Management uses various valuation methodologies to estimate the fair value of these assets and liabilities, and often involves a significant degree of judgment, particularly when liquid markets do not exist for the particular item being valued.

Examples of such items include loans, deposits, identifiable intangible assets, and certain other assets and liabilities.

Changes in these factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the carrying value of assets, including goodwill and liabilities, which could result in impairment losses affecting our financial statements as a whole and our banking subsidiary in which the goodwill resides.

Allowance for Credit Losses

The allowance for credit losses represents our estimate of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and projections including reasonable and supportable, reversion, and post-reversion forecasts.

supportable, reversion, and post-reversion forecasts.

It is a valuation account that is deducted from the financial assets’ amortized cost basis to present the net amount expected to be collected on the financial asset.

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adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, and delinquency levels, as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

The model methodology used for funded credits, along with taking into consideration the probability of drawdowns or funding om unfunded commitments and whether such commitments are irrevocable or not by the Company, is how the Company determines the allowance for credit losses for unfunded commitments.

The model methodology used for funded credits, along with taking into consideration the probability of drawdowns or funding on unfunded commitments and whether such commitments are irrevocable or not by the Company, is how the Company determines the allowance for credit losses for unfunded commitments.

These evaluations are conducted at least quarterly and more frequently, if deemed necessary.

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The Company currently has set an initial reasonable and supportable period of two years with a subsequent straight-line loss-rate reversion for the following four quarters before then utilizing historical average loss rates in remaining periods of the modeled contractual terms.

Based on management’s analysis, adjustments may be applied

for additional factors impacting the risk of loss in the loan portfolio beyond information used to calculate reasonable and supportable, reversion and post-reversion period forecasts on collectively evaluated loans.

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

As the reasonable and supportable and reversion period forecasts reflect the use of the macroeconomic variable loss drivers, management may consider that an additional or reduced reserve is warranted through qualitative risk factors based on current and expected conditions, including those that utilize supplemental information relative to the macroeconomic variable loss drivers.

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The qualitative factors applied at December 31, 2024, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management’s assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model.

Management reviews supplemental data sources including historical net charge-off rates and data measuring other specific credit outcomes from its systems of record in supporting qualitative factors.

Management reviews supplemental data sources including historical net charge-off rates and data measuring other specific credit

outcomes from its systems of record in supporting qualitative factors.

However, qualitative factor evaluations are inherently imprecise and require significant management judgement.

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A valuation allowance is recognized for a deferred tax asset if, based on the available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

See Note 8 — Income Taxes , in Notes to the December 31, 2023 Consolidated Financial Statements of the Company for additional information.

See Note 8 — Income Taxes , in Notes to the Consolidated Financial Statements of the Company for additional information.

Non-GAAP Financial Measures

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For more information, including the reconciliation of these non-GAAP financial measures to their corresponding GAAP financial measures, see the respective sections where the measures are presented.

Current Economic Environment in the Financial Services Industry

Commercial Real Estate Concerns

Commercial Real Estate Sector Concentration

The commercial real estate (“CRE”) sector has been impacted significantly by rising interest rates and higher vacancies, increasing the prospect of default that borrowers may face due to the record amount of upcoming maturities.

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The Bank continues to monitor its commercial real estate portfolio by reviewing various credit risk and concentration reports.

However, in late 2024 interest rates began falling, and in January 2025 the U.S.

president signed an executive order requiring all federal employees to return to offices on a five day a week basis.

Additionally, several large private-sector employers instituted similar return to office mandates in 2024.

Given our concentration in the Washington, D.C.

MSA we would expect that the federal return to office mandate, combined with mandates at private sector employers and decreases interest rates could help the region’s struggling CRE market;

however, we cannot be certain that this would be the case or the degree to which such mandates may improve the CRE picture in 2025, if at all.

The Bank’s exposure to commercial real estate at December 31, 2024, was $2.6 billion or 46.5% of its gross loan portfolio, not including owner-occupied commercial real estate and acquisition, construction & development.

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Monitoring of the CRE concentration is performed at both the loan level and at the portfolio level.

The Credit Risk Management team provides management and the board of directors with periodic reports on the credit portfolio, which include the CRE portfolio (including owner-occupied CRE and acquisition, construction & development loans).

The Credit Risk Management team provides management and the Board with periodic reports on the credit portfolio, which include the CRE portfolio (including owner-occupied CRE and acquisition, construction & development loans).

These reports provide an assessment of asset quality and risk rating migration and monitor concentrations against the board approved concentration limits (including sub-limits).

The tables below present the Bank’s commercial real estate, owner-occupied commercial real estate, and acquisition, construction & development portfolios by collateral type and geographic location (in thousands).

The tables below present the Company’s commercial real estate, owner-occupied commercial real estate, and acquisition, construction & development portfolios by collateral type and geographic location as of December 31, 2024 (in thousands).

Commercial Real Estate by Collateral Type and Geographic Location

VA MD DC Other Total Percentage

VA WV MD DC Other Total Percentage

Retail Real Estate $ 279,620 $ 78,356 $ 127,684 $ 39,395 $ 52,692 $ 577,747 22.0 %

Industrial/Warehouse 190,210 23,406 — — 213,616 16.3

Multi-Family 234,278 108,721 41,989 80,839 26,097 491,924 18.6

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Hotels/Motels 131,070 48,409 67,318 51,515 77,121 375,433 14.2

Industrial/Warehouse 232,820 9,274 20,538 — — 262,632 10.0

Self-Storage 67,214 24,902 1,471 — 31,085 124,672 4.7

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Owner-Occupied Commercial Real Estate by Collateral Type and Geographic Location

VA MD DC Other Total Percentage

Industrial/Warehouse $ 39,131 $ 602 $ — $ 5,971 $ 45,704 34.8 %

VA WV MD DC Other Total Percentage

Office Buildings/Condos $ 68,349 $ 34,002 $ 19,520 $ 635 $ 7,872 $ 130,378 21.2 %

Churches/Religious Organizations 20,126 1,267 246 — 21,639 16.5

Retail 43,918 39,084 14,218 — 24,402 121,622 19.8

Private School 7,670 — — — 7,670 5.8

Industrial/Warehouse 47,221 15,370 1,310 — 18,226 82,127 13.4

Gas Stations 30,800 10,362 5,170 — 23,033 69,365 11.3

Restaurants 7,234 8,069 3,561 — 11,259 30,123 4.9

Churches/Religious Organizations 21,173 8,517 1,334 236 3,329 34,589 5.6

Coal, oil, gas, and natural resource extraction 677 10,176 — — 118 10,971 1.8

Private School 7,453 — — — — 7,453 1.2

Other 49,183 19,734 44,585 347 13,885 127,734 20.8

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Acquisition, Construction & Development by Collateral Type and Geographic Location

VA MD DC Other Total Percentage

VA WV MD DC Other Total Percentage

Multi-Family $ 6,228 $ 2,912 $ 7,708 $ 52,950 $ 71,216 $ 141,014 30.3 %

Industrial/Warehouse — 11,335 — — 11,335 23.1

Land 61,376 25,071 10,970 — 7,305 104,722 22.5

Office Buildings/Condos 11,904 — — 28,967 41,099 81,970 17.6

Self-Storage 9,161 569 22,823 — 22,548 55,101 11.8

Retail Real Estate 14,216 2,804 10,723 — 2,474 30,217 6.5

Residential For-Sale 2,603 5,192 1,123 2,641 471 12,030 2.6

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The Bank believes its underwriting and monitoring standards for commercial real estate loans are sufficient to evaluate its loan portfolio and keep it from incurring significant losses.

The majority of the Bank’s commercial real estate loans are in Virginia (approximately 63.8%) and within the Greater Washington, DC MSA area, and it does not have significant exposure to any economic areas of the country that are underperforming the national economy.

Additionally, the Bank’s overall exposure to the “Office” collateral type is 14.0% of total commercial real estate loans, including owner-occupied commercial real estate and acquisition, construction & development.

The majority of the Company’s commercial real estate loans are in Virginia (approximately 46.7%), and it does not have significant exposure to any economic areas of the country that are underperforming the national economy.

Additionally, the Bank’s overall exposure to the “Office Building/Condo” collateral type is 16.4% of total commercial real estate loans, including owner-occupied commercial real estate and acquisition, construction & development.

The Bank believes that the combined loan portfolio is well-diversified, generally seasoned, manageable, and will outperform the industry in terms of performance through the economic cycle;

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For further discussion see Item 1A, under the caption “Risk Factors” .

2023 Banking Failures and Ensuing Liquidity Concerns

In response to the bank failures that occurred during March and May 2023 and the attendant stress on economic agents, including various financial markets, the Company took multiple proactive measures to mitigate any potential financial and operational impacts.

Such measures included, but were not limited to:

• dissemination of internal communication to inform the Board and employees of current events and the Company’s condition and desired market response;

• testing of available liquidity sources;

• real-time analysis of our deposit composition and deposit concentrations;

• assessment of our investment securities portfolio;

• stress testing of liquidity and capital metrics based on observed financial conditions with particular emphasis on the causes of such risk events.

For further discussion see Item 1A, under the caption “Risk Factors” .

The measures taken followed meetings convened by a subcommittee provided for in our Asset/Liability policy more fully described in Item 7A.

— Quantitative and Qualitative Disclosures About Market Risk .

The Company’s key inputs and certain assumptions of the stress testing included, but were not limited to, uninsured deposits, deposit composition and deposit flows, borrowings and borrowing capacity, interest rate movements and sensitivity, unrealized losses in the investment securities portfolio, loan balances and loan demand, credit risks, and current allowances for credit losses.

Results of the stress tests indicated capital levels that remained above the well capitalized regulatory ratios and liquidity metrics remained within internal policy guidelines.

For additional information related to capital, see Notes to the Consolidated Financial Statements – Note 12 — Regulatory Capital Matters .

The Company intends to continue conducting such stress tests on a periodic basis.

Liquidity Management

Liquidity is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities.

Liquidity management involves maintaining the Company’s ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs.

Liquidity management involves maintaining the Company’s ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to

withdraw funds or borrowers requiring funds to meet their credit needs.

Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves.

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Those scenarios may include projected growth, credit deterioration, deposit decay, interest rate changes, and a variety of other economic scenarios that can impact the liquidity position of the Company.

These analyses are performed on a quarterly basis in conjunction with the Company’s Asset/Liability meetings, and findings are reported to the Asset/Liability Committee (the “ALCO”) and to the Board.

These analyses are performed on a quarterly basis in conjunction with the Company’s Asset/Liability meetings, and findings are reported to the Asset and Liability Management Committee (the “ALCO”) and to the Board.

From time to time, management may change the frequency of such testing or update certain inputs as a result of abnormal market conditions.

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The asset portion of the balance sheet provides liquidity primarily through unencumbered securities available-for-sale, loan principal and interest payments, maturities and prepayments of investment securities, and, to a lesser extent, sales of investment securities available-for-sale.

Other short-term investments available to the Company that

could act as potential sources of liquidity are federal funds sold, securities purchased under agreements to resell, and maturing interest-bearing deposits with other banks.

Other short-term investments available to the Company that could act as potential sources of liquidity are federal funds sold, securities purchased under agreements to resell, and maturing interest-bearing deposits with other banks.

The liability portion of the balance sheet provides liquidity through interest-bearing and non-interest-bearing deposit accounts and through FHLB and other borrowings.

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Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth.

See Note 7 — Advances and Other Borrowings and Note 14 — Commitments and Contingencies , in Notes to Consolidated Financial Statements for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations.

Capital Management

See Note 7 — Borrowed Funds and Note 14 — Commitments and Contingencies , in Notes to Consolidated Financial Statements for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

Applicable Basel III Capital Rules require the Company and the Bank to maintain minimum Common Equity Tier 1 (“CET 1”), Tier 1, and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios.

Applicable capital rules under the Basel III Framework require the Company and the Bank to maintain minimum Common Equity Tier 1 (“CET 1”), Tier 1, and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios.

The capital conservation buffer is designed to absorb losses during periods of economic stress.

Banking institutions with a ratio of CET 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and counter-cyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

The Basel III Capital Rules also provide for a “counter-cyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank.

Banking institutions with a ratio of CET 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and

counter-cyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

The Basel III Framework also provide for a “counter-cyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank.

Under capital adequacy guidelines and the regulatory framework for “prompt corrective action”, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

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• The appropriateness of critical accounting estimates and related contingencies,

• Our ability to manage operational risks related to new products and services, changes in processes and procedures, or the implementation of new technology,

• The ability to make investments to promote compliance with existing and evolving regulatory requirements that will increase as the Company grows and will result in increased administrative expenses that we did not previously incur, which costs may materially increase our general and administrative expenses, and

• The ability to execute our strategic objectives, including completing our pending merger with Summit, successfully integrating Summit’s operations, people, and technology with ours, and continuing to efficiently satisfy the obligations associated with being a public company, all of which will require significant resources and management attention and may divert management’s attention from our business operations.

• Our ability to manage operational risks related to new products and services, changes in processes and procedures, or the implementation of new technology, and

Our financial performance is also substantially affected by a number of external factors outside of our control, including the following:

• Economic conditions, including the length and extent of the economic impacts of events affecting the financial services market generally as well as pandemics and political conflicts, and any actions taken to mitigate and manage such impacts,

• Economic conditions, including pandemics and political conflicts, the availability of labor, supply chain volatility, and any actions taken to mitigate and manage such impacts,

• The effect of climate change on our business and performance, including indirectly through impacts on our customers,

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• The ability of customers, counterparties, and issuers to perform in accordance with contractual terms and the resulting impact on our asset quality,

• Loan demand, utilization of credit commitments, and standby letters of credit,

• Loan demand, utilization of credit commitments, and standby letters of credit, and

• The impact on customers and changes in customer behavior due to changing business and economic conditions or regulatory or legislative initiatives.

• The possibility that the Summit merger will not close when expected, or at all, because required regulatory or other approvals are not received or other conditions to the closing are not satisfied on a timely basis, or at all, and

• Our ability to eventually and successfully integrate into our operations Summit’s assets, liabilities, and systems, as well as new management personnel and customers, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto.

The impact of these items, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Total deposits 6,515,239 3,001,881 2,920,400

Advances and other borrowings

Borrowed funds

365,000 272,000 343,100

Total shareholders’ equity 730,157 314,750 273,453

Common shareholders’ equity

719,744 314,750 273,453

As of or for the Year Ended December 31,

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Total non-interest income 36,166 17,952 17,087

Total non-interest expenses 86,436 75,946 74,414

Total non-interest expense

197,833 86,436 75,946

Income before income taxes 39,898 25,061 52,299

Income tax expense 4,190 2,369 8,286

Net income 22,692 44,013 36,165

Preferred stock dividends

Net income applicable to common shares

35,033 22,692 44,013

Per Share Data:

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Total shares of Common Stock outstanding 14,969,104 7,428,710 7,425,760

Basic net income per share $ 3.05 $ 5.93 $ 4.87

Diluted net income per share 3.02 5.89 4.87

Dividends declared per share 2.12 2.12 2.00

Basic net income per common share

$ 2.83 $ 3.05 $ 5.93

Diluted net income per common share

2.82 3.02 5.89

Dividends declared per common share

2.14 2.12 2.12

Dividend payout ratio (1)

75.89 % 70.20 % 35.99 %

Book value (at period end) $ 42.37 $ 36.82 $ 52.48

Book value per common share (at period end)

$ 48.08 $ 42.37 $ 36.82

As of or for the Year Ended December 31,

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Return on average equity (2)

5.97 8.00 14.28

Interest rate spread (3)

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11.96 16.85 17.97

Tier 1 capital to average assets (5)

11.31 11.34 10.81

Average equity to average assets (5)

Tier 1 capital to average assets (leverage ratio)

9.80 11.31 11.34

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(1) Dividend payout ratio represents per share dividends declared divided by diluted earnings per share.

(1) Dividend payout ratio represents dividends declared per common share divided by diluted earnings per common share.

(2) Return on average equity computed using total average equity at period-end.

(3) The interest rate spread represents the difference between the fully taxable-equivalent weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.

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(5) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income and non-interest income.

(5) Capital ratios are for Burke & Herbert Financial Services Corp.

in 2023 and 2022 and Burke & Herbert Bank & Trust Company in 2021.

See Note 12 — Regulatory Capital Matters in Notes to the December 31, 2023 Consolidated Financial Statements of the Company for additional information.

Results of Operations

Results of Operations for Years Ended December 31, 2024, and December 31, 2023

Consolidated net income for the year ended December 31, 2023, was $22.7 million compared to $44.0 million earned during the year ended December 31, 2022.

The $21.3 million or 48.4% decrease in net income in 2023 compared to 2022 was primarily due to increased funding costs, Nasdaq listing costs, merger-related costs, and the change in provision for credit losses that included a recapture of the allowance for loan losses in the prior year ended December 31, 2022.

Consolidated net income applicable to common shares for the year ended December 31, 2024, was $35.0 million compared to $22.7 million earned during the year ended December 31, 2023.

The $12.3 million or 54.4% increase in net income applicable to common shares in 2024 compared to 2023 was primarily due to the effect of the Merger which resulted in increases in all categories of interest income exceeding increases in interest expense compared to the prior year ended December 31, 2023.

Net interest income totaled $225.8 million for the year ended December 31, 2024, compared to $93.8 million for the year ended December 31, 2023.

The $9.9 million decrease in net interest income was primarily driven by higher deposit and borrowing interest expense and was partially offset by higher interest income from loan growth as well as increases in interest rates for loans and securities.

Savings and time deposits were the primary driver of increased net interest expense due to both volume and rate.

For the year ended December 31, 2023, the Company recorded credit provision expense of $0.2 million compared to a recapture of provision of $7.5 million for the year ended December 31, 2022.

For the year ended December 31, 2022, the Company was able to recapture a provision related to the initial uncertainty of the COVID-19 pandemic and the sale of a non-performing loan note.

This non-performing loan had a specific reserve prior to the sale of the note.

For the current period, the adoption of CECL (which requires the Company to estimate provision of credit losses using an expected life-time loss approach versus an incurred model), along with increased loan portfolio balances resulted in a higher credit expense for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The $132.0 million increase in net interest income was primarily driven by the Merger which resulted in higher loan interest income partially offset by higher deposit interest expense.

Interest-bearing demand deposits and time deposits were the primary driver of increased net interest expense due mostly to an increase in volume and partly to an increase in rate.

For the year ended December 31, 2024, the Company recorded credit provision expense of $24.2 million compared to $0.2 million for the year ended December 31, 2023.

For the year ended December 31, 2024, the Company recognized a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger, which resulted in a higher credit provision expense compared to the year ended December 31, 2023.

Non-interest income increased by $18.2 million, or 101.5%, to $36.2 million for the year ended December 31, 2024, compared to $18.0 million for the year ended December 31, 2023.

The increase in non-interest income was primarily due to a $0.5 million increase in other non-interest income, which included an increase in dividend income from FHLB stock, and an increase in fee income from customer swap activity compared to the year ended December 31, 2022.

The Company also realized lower losses on the sale of securities resulting in an increase of $0.3 million in net gains/(losses) from securities compared to the year ended December 31, 2022.

The increase in non-interest income was mostly due to the Merger, and included increases in all categories of non-interest income.

The largest increase was in service charges and fees of $8.9 million followed by an increase in fiduciary and wealth management of $3.1 million and and increase in other non-interest income of $2.9 million.

The Company also realized gains on the sale of securities resulting in an increase of $1.5 million in net gains/(losses) from securities compared to the year ended December 31, 2023.

Non-interest expense increased by $111.4 million, or 128.9%, to $197.8 million for the year ended December 31, 2024, compared to $86.4 million for the year ended December 31, 2023.

The increase was primarily due an increase in pensions and other employee benefit costs of $1.7 million, costs associated with the listing of our common stock on the Nasdaq stock exchange, including the filing of a Form 10 Registration Statement, costs incurred for the pending merger with Summit, and the sale of corporate buildings that lowered non-interest expense by $4.6 million for the year ended December 31, 2022.

For the year ended December 31, 2023, the Company incurred $3.0 million of legal, consulting, and audit fees related to the announced merger with Summit Financial Group, Inc.

The increase was mostly due to the Merger, and included increases in all categories of non-interest expense.

The largest increase was in other operating expenses which included $36.5 million of legal, consulting, and audit fees related to the Merger with Summit Financial Group, Inc.

Other large increases included salaries and wages which increased by $37.8 million and equipment rentals, depreciation and maintenance which increased $17.4 million compared to the year ended December 31, 2023.

Net Interest Income and Net Interest Margin

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Net interest income totaled $225.8 million for the year ended December 31, 2024, compared to $93.8 million for the year ended December 31, 2023.

Interest-bearing deposits were the primary driver of increased net interest expense due to both volume and rate.

The increase in volume for the interest-bearing deposits was due to the shift from non-interest-bearing deposit accounts to these accounts.

The taxable-equivalent net interest margin was 2.85% for the year ended December 31, 2023, compared to 3.19% for the year ended December 31, 2022.

The decrease in tax-adjusted net interest margin was primarily driven by the increase in market rates that increased the cost of deposits and other borrowings in excess of the increase in interest income from interest-earning assets.

The $132.0 million increase in net interest income was primarily driven by

the Merger which resulted in higher loan interest income driven by higher accretion income, partially offset by higher deposit interest expense.

Interest income on loans increased by $209.6 million while interest income on securities increased $7.3 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Accretion income associated with acquired loans and borrowings totaled $40.9 million for the year ended, December 31, 2024.

Deposit interest expense increased by $79.5 million, while interest expense on subordinated debt assumed in the Merger led to an increase in interest expense of $7.4 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

The tax adjusted net interest margin was 3.08% for the year ended December 31, 2024, compared to 2.85% for the year ended December 31, 2023.

The increase in tax-adjusted net interest margin was primarily driven by the the effect of the Merger and the acquisition of additional, higher-yielding interest-earning assets.

The yield for the year ended December 31, 2024, for the loan portfolio was 5.48% compared to 5.07% for the year ended December 31, 2023.

The increase was primarily the result of new loan production in a rising rate environment.

The increase was primarily the result of the Merger which resulted in higher accretion income and the acquisition of additional, higher-yielding loans.

For the year ended December 31, 2024, the tax-adjusted yield on the total investment securities portfolio was 3.30% compared to 3.44% for the year ended December 31, 2023.

The increase was primarily due to higher market interest rates that increased the effective rate earned on investment securities.

The decrease was primarily due to the recovery on unrealized losses that decreased the effective rate earned on investment securities.

The rate paid on interest-bearing deposits increased to 2.27% during the year ended December 31, 2024, from 1.86% during the year ended December 31, 2023.

The increase was a result of market and economic conditions, which led to an increase in rates paid on selected parts of our deposit portfolio.

Increases in deposit rates rose at a faster pace due to the increases in the Federal Funds Rate through 2023.

The increase was a result of the Merger which resulted in the assumption of additional interest-bearing deposits with higher interest rates and to a lesser extent by higher market interest rates.

The rate paid on our borrowings for the year ended December 31, 2024, was 3.35% compared to 4.69% for the year ended December 31, 2023.

The increase was due to the increase in short-term borrowing costs, driven by increases in the Federal Funds Rate through 2023.

The decrease was due to the decrease in short-term borrowing costs, driven by decreases in the Federal Funds Rate during 2024.

The rate paid on subordinated debt and trust preferred securities acquired in the merger was 10.08% for the year ended December 31, 2024.

The following table sets forth the major components of net interest income and the related yields and rates for the years ended December 31, 2024, and December 31, 2023, for comparison (dollars in thousands).

3 unchanged sentences

$ 5,684,348 $ 311,304 5.48 % $ 2,007,030 $ 101,800 5.07 %

Tax-exempt loans

4,097 149 3.64 — — N/A

5,688,445 311,453 5.48 2,007,030 101,800 5.07

Interest-bearing deposits and fed funds sold 118,067 4,457 3.77 52,002 2,302 4.43

15 unchanged sentences

426,278 14,300 3.35 297,111 13,942 4.69

Subordinated debt and other

73,507 7,412 10.08 — — N/A

Total interest-bearing liabilities 5,720,198 140,376 2.45 2,406,864 53,137 2.21

19 unchanged sentences

however, the adjustment to an FTE basis has no impact on net income.

FTE net interest income is calculated by adding the tax benefit on certain financial interest earning assets, whose interest is tax-exempt, to total interest income and then subtracting total interest expense.

FTE net interest income is

calculated by adding the tax benefit on certain financial interest earning assets, whose interest is tax-exempt, to total interest income and then subtracting total interest expense.

As a non-GAAP measure, FTE net interest income should not be considered as a substitute for the nearest comparable GAAP measure, net interest income.

income shown elsewhere in this Form 10-K is GAAP net interest income.

Net interest income shown elsewhere in this Form 10-K is GAAP net interest income.

The following table reconciles GAAP net interest income to FTE net interest income (in thousands).

For the Years Ended

December 31, 2024 December 31, 2023

GAAP Financial Measurements

Interest Income - Loans $ 311,303 $ 101,800

Interest Income - Tax-exempt loans 118 —

Interest Income - Securities taxable 39,817 37,179

4 unchanged sentences

Interest Expense - Borrowed funds 14,189 13,856

Interest Expense - Subordinated debt 7,412 —

Interest Expense - Other 111 86

33 unchanged sentences

Total interest income was $366.2 million for the year ended December 31, 2024, compared to $146.9 million for the year ended December 31, 2023, an increase of 149.3%.

The increase in interest income was primarily driven by increased loan balances and higher rates along with increased rates in the securities portfolio.

The increase in interest income was primarily driven by the Merger which resulted in higher loan and security interest income.

Interest income on securities increased by $7.3 million or 17.0% for the year ended December 31, 2024, compared to the year ended December 31, 2023.

2 unchanged sentences

Total interest expense was $140.4 million for the year ended December 31, 2024, compared to $53.1 million for the previous year ended December 31, 2023, an increase of 164.2%.

The increase in interest expense was primarily driven by increasing interest rates for both interest-bearing deposits and borrowed funds and by a lesser extent from balance increases in both interest-bearing deposits and borrowed funds.

The increase in interest expense was primarily driven by the effect of the Merger and increases in deposit and debt balances.

Interest expense on interest-bearing deposits increased by $79.5 million or 202.8% for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Interest expense on borrowed funds increased by $0.3 million or 2.4% for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Interest expense on subordinated debt acquired in the Merger led to an increase in interest expense of $7.4 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Provision for (Recapture of) Credit Losses

The provision for credit losses was $0.2 million for the year ended December 31, 2023, compared to a recapture of credit losses of $7.5 million for the year ended December 31, 2022.

The increased provision expense was due to the Company estimating credit losses using an expected life-time loss model versus an incurred model and a large recapture of credit losses in 2022.

The recapture of credit losses in 2022 was a result of reassessing COVID-19 qualitative factors and the sale of a non-performing loan note.

Proceeds obtained for this non-performing loan note were greater than the net of the loan note’s carrying value and specific reserve.

Additionally, loan balances have risen significantly for the year ended December 31, 2023, versus the year ended December 31, 2022.

The provision for credit losses was $24.2 million for the year ended December 31, 2024, compared to $0.2 million for the year ended December 31, 2023.

For the year ended December 31, 2024, the Company recognized a one-time CECL Day 2 provision for non-PCD assets acquired in the Merger and acquired commitments for unfunded commitments, which resulted in a higher credit provision expense compared to the year ended December 31, 2023.

Additionally, loan balances have risen significantly for the year ended December 31, 2024, due to the Merger versus the year ended December 31, 2023.

See Note 4 — Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information.

5 unchanged sentences

Service charges and fees 15,594 6,670 8,924 133.8

Net gains (losses) on securities (112) (454) 342 (75.3)

Net gains (losses) on securities 1,357 (112) 1,469 NM

Income from company-owned life insurance 4,686 2,844 1,842 64.8

2 unchanged sentences

Non-interest income increased by $18.2 million or 101.5% for the year ended December 31, 2024, compared to December 31, 2023.

The increase was primarily driven by an increase in other non-interest income of $0.5 million, which included an increase in dividend income from FHLB stock of $0.2 million and an increase in fee income from customer swap activity of $0.4 million compared to the year ended December 31, 2022.

The increase was primarily driven by the Merger, and included increases in all categories of non-interest income.

See Note 22 — Revenue from Contracts with Customers in Notes to Consolidated Financial Statements for further information.

The Company also realized lower losses on the sale of securities resulting in an increase of $0.3 million from the prior year and an increase in income from Company-owned life insurance of $0.2 million.

These increases were partially offset by a decrease in service charges and fees of $0.2 million for the year ended December 31, 2023, compared to December 31, 2022.

The Company also realized gains on the sale of securities resulting in an increase of $1.5 million in non-interest income and an increase in income from Company-owned life insurance of $1.8 million for the year ended December 31, 2024, compared to December 31, 2023.

Non-interest Expense

6 unchanged sentences

Equipment rentals, depreciation and maintenance 23,174 5,770 17,404 301.6

Other 25,983 17,419 8,564 49.2

Other operating 68,807 25,983 42,824 164.8

Total $ 197,833 $ 86,436 $ 111,397 128.9 %

Non-interest expense increased 128.9% for the year ended December 31, 2024, compared to December 31, 2023.

The increase in pensions and other employee benefit costs of $1.7 million or 22.1%, from the prior year, was primarily driven by an increase in the Company’s periodic pension cost of $1.0 million and increasing costs arising due to new and existing employee benefits.

In addition, our other non-interest expense increased by $8.6 million for the year ended December 31, 2023, largely due to the sale of corporate buildings that lowered other non-interest expense by $4.6 million for the year ended December 31, 2022 along with listing and merger-related costs incurred during the year ended December 31, 2023 which increased other non-interest expense.

The costs associated with the listing of our common stock on the Nasdaq stock exchange, including the filing of a Form 10 Registration Statement with the SEC, and costs incurred for the pending merger with Summit totaled $3.4 million for the year ended December 31, 2023.

The majority of these listing and merger-related costs consist of legal, consulting, and audit fees.

The increase was mostly due to the Merger, and included increases in all categories of non-interest expense.

The largest increase was in other operating expenses which included $36.5 million of legal, consulting, and audit fees related to the Merger with Summit Financial Group, Inc.

The majority of these merger-related costs consist of legal, consulting, and audit fees.

See Note 20 — Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense.

Other large increases included salaries and wages which increased by $37.8 million, or 96.4%, and equipment rentals, depreciation and maintenance which increased $17.4 million, or 301.6%, compared to the year ended December 31, 2023.

Pensions and other employee benefits increased by $7.8 million while occupancy increased by $5.5 million for the year ended December 31, 2024, compared to December 31, 2023.

Income Tax Expense

Income tax expense was $2.4 million for the year ended December 31, 2023, a decrease of $5.9 million from the tax provision for the year ended December 31, 2022.

Income tax expense was $4.2 million for the year ended December 31, 2024, a increase of $1.8 million from the tax provision for the year ended December 31, 2023.

For 2024 and 2023, our effective tax rates were 10.5% and 9.5%, respectively.

A decrease in income from operations led to the decrease in the effective tax rate for 2023.

A increase in income from operations led to a slight increase in the effective tax rate for 2024.

The effective tax rate going forward will continue to depend on income from operations as well as any legislative corporate tax changes.

Results of Operations for Years Ended December 31, 2023, and December 31, 2022

For a comparison of the 2022 results to the 2021 results and other 2021 information not included herein, refer to the "Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, “Financial Information” of the Company’s Registration Statement on Form 10 as amended and declared effective on April 21, 2023.

For a comparison of the 2023 results to the 2022 results and other 2022 information not included herein, refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of the Company’s 10-K filed with the SEC on March 22, 2024, as amended by the Company’s 10-K/A filed with the SEC on April 12, 2024.

Analysis of Financial Condition for Years Ended December 31, 2024, and December 31, 2023

Assets increased by $54.7 million to $3.62 billion as of December 31, 2023, compared to $3.56 billion as of December 31, 2022.

The increase in assets was primarily due to an increase in loans, net of ACL, of $196.3 million, partially offset by a decrease of $123.3 million in the balance of our securities portfolio due to paydowns and maturities partially offset by an increase in fair value.

The securities portfolio amounted to $1.25 billion at December 31, 2023, compared to $1.37 billion at December 31, 2022.

Deposits increased by $81.5 million and amounted to $3.00 billion at December 31, 2023, compared to $2.92 billion at December 31, 2022.

Borrowed funds decreased by $71.1 million to $272.0 million as of December 31, 2023, compared to $343.1 million at December 31, 2022.

Assets increased by $4.2 billion to $7.8 billion as of December 31, 2024, compared to $3.6 billion as of December 31, 2023.

The increase in assets was primarily due to the Merger and included an increase in loans, net of ACL, of $3.5 billion, and an increase of $183.9 million in the securities portfolio as of December 31, 2024 compared to December 31, 2023.

Deposits increased by $3.5 billion and amounted to $6.5 billion at December 31, 2024, compared to $3.0 billion at December 31, 2023, while short-term borrowings increased by $93.0 million to $365.0 million as of December 31, 2024, compared to $272.0 million at December 31, 2023.

Subordinated debt and subordinated debt owed to unconsolidated subsidiary trusts, which were assumed in the Merger, totaled $111.9 million at December 31, 2024, compared to zero at December 31, 2023.

Investment Securities

5 unchanged sentences

The majority of our AFS investment portfolio is comprised of obligations of states and municipalities and residential mortgage-backed securities.

During the year ended December 31, 2023, the unrealized losses on our holdings decreased from December 31, 2022, increasing the fair value of the portfolio, offset by portfolio runoff, and rebalancing which had a negative impact on the value of our AFS portfolio.

On January 1, 2023, the Company adopted the new CECL standard in accordance with ASU 2016-13, which changed the accounting framework by replacing the other-than-temporary impairment (“OTTI”) assessment with the recognition of an ACL.

During the year ended December 31, 2024, the unrealized losses on our holdings decreased $6.9 million from December 31, 2023.

The Company determined that the declines in market value were due to increases in interest rates and market movements and not due to credit factors.

Therefore, the Company has concluded that the unrealized losses for the AFS securities do not require an ACL at December 31, 2023.

Under the prior OTTI framework, the Company did not record any cumulative OTTI expense as of December 31, 2022.

Therefore, the Company has concluded that the unrealized losses for the AFS securities do not require an ACL at December 31, 2024, or at December 31, 2023.

The Company has sufficient access to liquidity such that management does not believe it would be necessary to sell any of its investment securities at a loss to offset any unexpected deposit outflows.

28 unchanged sentences

The overall weighted average duration of the Company’s investment portfolio is 4.5 years at December 31, 2024.

The weighted-average

yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security (dollars in thousands).

The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security (dollars in thousands).

Interest on securities below excludes tax-equivalent adjustments.

18 unchanged sentences

Loan balances by portfolio segment were as follows (in thousands):

12/31/2023 12/31/2022

December 31, 2024 December 31, 2023

Commercial real estate $ 2,637,802 $ 1,309,084

7 unchanged sentences

Loans, net $ 5,604,196 $ 2,062,455

The loan portfolio, excluding ACL, increased by $200.5 million from December 31, 2022, to December 31, 2023, primarily due to commercial real estate, commercial & industrial, and residential real estate loan production.

The Company has continued to grow organically by continuing to serve existing customers and new customers through our expansion into newer markets.

The loan portfolio, excluding ACL, increased by $3.6 billion from December 31, 2023, to December 31, 2024, primarily due to the effect of the Merger.

Additionally, the Company has continued to grow organically by continuing to serve existing customers and new customers through our expansion into newer markets.

The following table shows the maturity distribution for total loans outstanding as of December 31, 2024.

18 unchanged sentences

The Company’s non-performing assets, which includes non-performing loans consisting of non-accrual loans, loans that are more than 90 days past due and still accruing, and other real estate owned, as of December 31, 2024, and December 31, 2023, totaled $41.2 million and $3.7 million, respectively.

The increase in the non-performing asset balance is mostly due to the effect of the Merger and the related increase in the loan portfolio as of December 31, 2024 when compared to December 31, 2023.

In addition, the other real estate owned assets were entirely assumed as part of the Merger.

The following table summarizes the Company’s non-performing assets as of December 31, 2024, and December 31, 2023 (in thousands).

12/31/2023 12/31/2022

December 31, 2024 December 31, 2023

Non-accrual loans $ 35,871 $ 3,744

12 unchanged sentences

Gross charged-off loans were $1.8 million, $0.2 million, and $3.5 million for the years ended December 31, 2024, December 31, 2023, and December 31, 2022, respectively.

The increase in charge-offs during 2024, when compared to 2023, was due to the merger and the increase in the value of the loan portfolio.

A majority of the charge-offs in 2022 related to a loan that the Company sold as part of a portfolio management strategy.

1 unchanged sentence

The ACL as a percentage of gross loans, net of unearned income, was 1.20%, 1.21%, and 1.11% as of December 31, 2024, December 31, 2023, and December 31, 2022, respectively.

The Company recorded a provision for credit losses of $0.2 million, a provision recapture of credit losses of $7.5 million, and a provision recapture of credit losses of $1.0 million for the years ended December 31, 2023, December 31, 2022, and December 31, 2021, respectively.

The increased provision expense in 2023 was partly due to the Company estimating credit losses using an expected life-time loss model versus an incurred model but primarily the result of a large recapture in 2022.

The provision recapture in 2022 was a result of reassessing COVID-19 qualitative factors and the sale of a non-performing loan note.

The Company recorded a provision for credit losses of $20.5 million, a provision for credit losses of $0.2 million, and a provision recapture of credit losses of $7.5 million for the years ended December 31, 2024, December 31, 2023, and December 31, 2022, respectively.

The increase in provision for the year ended

December 31, 2024 was due to the Merger and the requirement to record an immediate provision expense for loans classified as non-PCD versus PCD loans where the Company is allowed to establish an adjustment to the ACL.

The following table summarizes the changes in the Company’s credit loss experience by portfolio for the year ended December 31, 2024, and the changes in the Company’s allowance for loan losses for the years ended December 31, 2023, and December 31, 2022 (dollars in thousands):

3 unchanged sentences

Initial CECL adjustment — (4,125) —

Allowance established for acquired PCD loans (23,910) — —

Loans charged-off

26 unchanged sentences

__________________

(1) The allowance coverage ratio is calculated by dividing the ACL at the end of the period by gross loans, net of unearned income at the end of the period for the year ended December 31, 2023, and by dividing the allowance for loan losses at the end of the period by gross loans, net of unearned income at the end of the period for all other periods presented.

(1) The allowance coverage ratio is calculated by dividing the ACL at the end of the period by gross loans, net of unearned income at the end of the period.

(2) The Net charge-offs to average outstanding loans during the period is calculated by dividing total net loan charge-offs (recoveries) during the year by average gross loans outstanding during the year.

(3) The Allowance for credit losses as a percentage of non-performing loans ratio is calculated by dividing the ACL at the end of the period by non-accrual loans at the end of the period for the year ended December 31, 2023, and by dividing the allowance for loan losses at the end of the period by nonaccrual loans at the end of the period for all other periods presented.

The following table summarizes the allowance for credit losses by portfolio segment with a comparison of the percentage composition in relation to total ACL and total loans as of December 31, 2023, and the allowance for loan

losses by portfolio with a comparison of the percentage composition in relation to total allowance for loan losses and total loans for December 31, 2022 (dollars in thousands).

(3) The Allowance for credit losses as a percentage of non-performing loans ratio is calculated by dividing the ACL at the end of the period by non-accrual loans at the end of the period.

The following table summarizes the ACL by portfolio with a comparison of the percentage composition in relation to total ACL and allowance for credit losses and total loans as of December 31, 2024, and December 31, 2023 (dollars in thousands).

December 31, 2024

In thousands Allowance for credit losses Percent of Allowance in Each Category to Total Allocated Allowance Percent of Loans in Each Category to Total Loans

6 unchanged sentences

Total $ 68,040 100.00 % 100.00 %

December 31, 2023

In thousands Allowance for loan losses Percent of Allowance in Each Category to Total Allocated Allowance Percent of Loans in Each Category to Total Loans

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however, the Company will use borrowings to meet liquidity needs and for temporary funding.

Sources of borrowings include advances from the FHLB of Atlanta, borrowings from correspondent banks, and the Fed Discount Window.

The Company has available secured lines of credit with the Federal Reserve Bank of Richmond, such as the Borrower-In-Custody program, the FHLB of Atlanta, and unsecured federal funds lines of credit from correspondent banking relationships.

The Company also utilizes brokered time deposits.

For more discussion of brokered time deposits, see the Deposits heading below this section.

As of December 31, 2023, the Company has available unused borrowing capacity of $987.0 million through its available lines of credit with the FHLB of Atlanta and unsecured federal fund lines of credit from correspondent banking relationships.

Advances on credit lines are secured by both securities and loans.

The following table shows certain information regarding borrowings at year end 2023 and 2022 (dollars in thousands):

As of December 31, 2024, the Company has available unused borrowing capacity of $4.1 billion through its available lines of credit with the FHLB of Atlanta, the Federal Reserve Borrower-In-Custody Program line, and unsecured federal fund lines of credit from correspondent banking relationships.

The following table shows certain information regarding short-term borrowings at year end 2024 and 2023 (dollars in thousands):

Balance at end of period 2024 2023

Short-term borrowings $ 365,000 $ 272,000

Weighted average interest rate at end of period 3.35 % 4.75 %

Total deposits increased by $81.5 million from December 31, 2023, to December 31, 2022, primarily driven by the issuance of brokered deposits.

The following table shows certain information regarding long-term debt at year end 2024, and 2023, respectively (dollars in thousands):

Balance at end of period December 31, 2024 December 31, 2023

Subordinated debentures, net $ 94,872 $ —

Subordinated debentures owed to unconsolidated subsidiary trusts 17,013 —

Total long-term debt $ 111,885 $ —

Weighted average interest yield at end of period 10.08% N/A

Total deposits increased by $3.5 billion from December 31, 2024, to December 31, 2023, primarily driven by the Merger.

The Company’s brokered deposits balance was $244.8 million and $389.0 million at December 31, 2024, and December 31, 2023, respectively.

All of the Company’s brokered deposits are in the form of certificates of deposits that are insured by the FDIC.

The Company issued brokered CDs in tranches, with varying initial maturities from 18 months to 60 months and varying call options between 6 months and 12 months.

The Company has the ability to call all current issuances by the end of February 2024, at par.

Excluding the brokered deposit balance, the total deposit balance decreased by $207.3 million due to economic and competitive conditions.

The following table sets forth the average balances of deposits and the average interest rates paid as of the dates indicated (dollars in thousands).

Excluding the brokered deposit balance, the total deposit balance increased by $3.7 billion from December 31, 2023 to December 31, 2024 mostly due to the completion of the Merger.

The following table sets forth the balance of each category of deposits as of the dates indicated (dollars in thousands).

Dec 31, 2024 Dec 31, 2023

Average Balance Average Rate Paid Average Balance Average Rate Paid

Demand, non-interest-bearing $ 1,379,940 $ 830,320

2 unchanged sentences

Brokered deposits 244,802 389,011

Time deposits, other 250,214 2.07 252,161 0.22

Time deposits

1,008,477 347,051

Total interest-bearing 5,135,299 2,171,561

Total Deposits $ 6,515,239 $ 3,001,881

Total average deposits increased by $25.6 million, due to the Company’s issuance of brokered deposits that more than offset declines in deposit balances during the year ended, December 31, 2023 .

The Company continues to seek organic growth in both interest-bearing and non-interest-bearing deposits consistent with our relationship-based strategy.

Management evaluates its utilization of brokered deposits, taking into consideration the interest rate curve and regulatory views on non-core funding sources, and balances this funding source with its funding needs based on growth initiatives.

The Company has deposits that meet or exceed the FDIC insurance limit of $250,000 of $677.3 million and $843.4 million at December 31, 2023, and December 31, 2022.

The Company has deposits that meet or exceed the FDIC insurance limit of $250,000 of $1.9 billion and $677.3 million at December 31, 2024, and December 31, 2023.

The increase in uninsured deposits as of December 31, 2024 was due to the completion of the Merger and the related increase in total deposits.

The Company does not have material deposit concentration risk to any significant market, industry or individual at December 31, 2024.

The following table sets forth maturity ranges of certificates of deposit, as of December 31, 2023, that meet or exceed the FDIC insurance limit (in thousands).

The following table sets forth maturity ranges of time deposits, as of December 31, 2024, that meet or exceed the FDIC insurance limit (in thousands).

Due within 3 months or less $ 142,793

5 unchanged sentences

Total shareholders’ equity at December 31, 2024, was $730.2 million, compared to $314.8 million at December 31, 2023.

Shareholders’ equity increased by $41.3 million primarily due to lower unrealized losses from the AFS securities portfolio in accumulated other comprehensive income.

Overall, accumulated other comprehensive loss decreased by $36.0 million as a result of an increase in the fair value of investment securities available-for-sale.

Shareholders’ equity increased by $415.4 million primarily due to the completion of the Merger.

Additionally, accumulated other comprehensive loss decreased by $7.8 million as a result of an increase in the fair value of investment securities available-for-sale.

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-K

Item 7. Management’s Discussion and Analysis