Burke & Herbert Financial Services Corp.

Previous wording

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

Current wording

The following discussion and analysis of our consolidated financial condition and results of operations of the Company should be read in conjunction with the preceding consolidated financial statements and notes presented in Item 1. Financial Statements of this Form 10-Q, as well as with the audited consolidated financial statements and notes for the year ended December 31, 2024, included in our Form 10-K filed with the SEC on March 17, 2025 (the “Form 10-K”). Historical results of operations and the percentage relationships among any amounts included and any trends that may appear may not indicate trends in operations or results of operations for any future periods. We are a financial holding company, and we conduct all of our material business operations through the Bank. As a result, the discussion and analysis below primarily relate to activities conducted at the Bank.

Previous wording

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

Current wording

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current beliefs, expectations, or assumptions regarding the future of the business, future plans and strategies, operational results, and other future conditions of the Company. All statements other than statements of historical fact included in this Form 10-Q regarding the prospects of our industry or our prospects, plans, financial position, or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “plans,” “expects” or “does not expect,” “is expected,” “look forward to,” “budget,” “scheduled,” “estimates,” “forecasts,” “will continue,” “intends,” “the intent of,” “have the potential,” “anticipates,” “does not anticipate,” “believes,” “should,” “should not,” or variations of such words and phrases that indicate that certain actions, events, or results “may,” “could,” “would,” “might,” or “will,” “be taken,” “occur,” or “be achieved,” or the negative of these terms or variations of them or similar terms. Additionally, forward–looking statements speak only as of the date they are made; the Company does not assume any duty, does not undertake, and specifically disclaims any obligation to update such forward–looking statements, whether written or oral, that may be made from time to time, whether because of new information, future events, or otherwise, except as required by law. Furthermore, because forward–looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those indicated in or implied by such forward-looking statements because of a variety of factors, many of which are beyond the control of the Company. Further, factors identified herein are not necessarily all of the factors that could cause the Company’s actual results, performance or achievements to differ materially from those expressed in or implied by any of the forward-looking statements. Other factors, including unknown or unpredictable factors, also could harm the Company. Accordingly, you should consider all of these risks, uncertainties and other factors carefully in evaluating all such forward-looking statements made by the Company and not place undue reliance on forward-looking statements. The risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements include, but are not limited to, the following: costs or difficulties associated with newly developed or acquired operations; changes in general economic, political, or market trends (either nationally or locally in the areas in which we conduct, or will conduct, business), including inflation, changes in interest rates, market volatility and monetary fluctuations, and changes in federal government policies and practices, as well as the impact from recently …

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Burke & Herbert Financial Services Corp. was organized as a Virginia corporation on September 14, 2022, to serve as the holding company for the Bank. 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

Current wording

Burke & Herbert Financial Services Corp. 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. 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 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.

Previous wording

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

Current wording

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.

Previous wording

As of September 30, 2024, we had total consolidated assets of $7.9 billion, gross loans of $5.6 billion, total deposits of $6.6 billion, and total shareholders’ equity of $738.1 million. As of September 30, 2024, we had 857 full-time employees. None of our employees are covered by a collective bargaining agreement.

Current wording

As of March 31, 2025, we had total consolidated assets of $7.8 billion, gross loans of $5.6 billion, total deposits of $6.5 billion, and total shareholders’ equity of $758.0 million. As of March 31, 2025, we had 814 full-time employees. None of our employees are covered by a collective bargaining agreement.

Previous wording

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 the Summit Series 2021 Preferred Stock issued and outstanding was converted into the right to receive a share of the new Burke & Herbert Series 2021 Preferred Stock. Summit results of operations are included from the Closing Date forward.

Current wording

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 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 results of operations are included from the Closing Date forward.

Previous wording

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

Current wording

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

Previous wording

The commercial real estate (“CRE”) sector has been impacted significantly by rising interest rates and higher vacancies, increasing the prospect of default that borrowers may face due to the record amount of upcoming maturities. In addition, the office market continues to struggle with fewer employees in the office after the COVID-19 pandemic. The Bank continues to monitor its commercial real estate portfolio by reviewing various credit risk and concentration reports. The Bank’s exposure to commercial real estate at September 30, 2024, was $2.5 billion, or 45.4%, of its gross loan portfolio, not including owner-occupied commercial real estate and acquisition, construction & development. Commercial real estate as a percent of total assets at September 30, 2024, was 32.1%, not including owner-occupied commercial real estate and acquisition, construction & development. Including owner-occupied commercial real estate and acquisition, construction & development, total exposure was at $3.6 billion, or 64.8%, of our total gross loans and 45.9% of total assets at September 30, 2024.

Current wording

The commercial real estate (“CRE”) sector has been impacted significantly by rising interest rates and rising vacancies, increasing the prospect of default that borrowers may face due to the record amount of upcoming maturities. In addition, the office market continues to struggle with fewer employees in the office after the COVID-19 pandemic. The Bank continues to monitor its commercial real estate portfolio by reviewing various credit risk and concentration reports. 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. We would expect the federal return to office mandate, combined with mandates at private sector employers and decreasing interest rates could help the region’s CRE office market; however, we cannot be certain that this would be the case or the degree to which such mandates may improve the CRE sector in our markets in 2025, if at all. Additionally, recent reductions, and possible further reductions, in the federal workforce, combined with general economic uncertainty as a result of federal trade and other policies could continue to challenge the economy and impact the CRE sector. The Bank’s exposure to CRE at March 31, 2025, was $2.8 billion, or 49.7%, of its gross loan portfolio, not including owner-occupied commercial real estate and acquisition, construction & development. Commercial real estate as a percent of total assets at March 31, 2025, was 35.8%, not including owner-occupied commercial real estate and acquisition, construction & development. Including owner-occupied commercial real estate and acquisition, construction & development, total exposure was at $3.7 billion, or 65.8%, of our total gross loans and 47.4% of total assets at March 31, 2025.

Previous wording

Monitoring of the CRE concentration is performed at both the loan level and at the portfolio level. The Credit Risk Management team provides management and the Board of Directors with periodic reports on the credit portfolio, which include the CRE portfolio (including owner-occupied CRE and acquisition, construction & development loans). These reports provide an assessment of asset quality and risk rating migration and monitor concentrations against the board approved concentration limits (including sub-limits). The tables below present the Bank’s commercial real estate, owner-occupied commercial real estate, and acquisition, construction & development portfolios by collateral type and geographic location as of September 30, 2024 (in thousands).

Current wording

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

Previous wording

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

Current wording

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

Previous wording

The Bank believes its underwriting and monitoring standards for commercial real estate loans are sufficient to evaluate its loan portfolio and keep it from incurring significant losses. The largest concentration of the Bank’s commercial real estate loans are in Virginia (approximately 46.1%), and the Bank does not have significant exposure to any economic areas of the country that are underperforming the national economy. Additionally, the Bank’s overall exposure to the “Office Building / Condo” collateral type is 17.2% of total commercial real estate loans, including owner-occupied commercial real estate and acquisition, construction & development. The Bank believes that the combined loan portfolio is well-diversified, generally seasoned, manageable, and will outperform the industry in terms of performance through the economic cycle; however, our underwriting, review, and monitoring cannot eliminate all of the risks related to these loans. For further discussion see Part II, Item 1A. “Risk Factors”.

Current wording

The Bank believes its underwriting and monitoring standards for commercial real estate loans are sufficient to evaluate its loan portfolio and keep it from incurring significant losses. The largest concentration of the Bank’s commercial real estate loans are in Virginia (approximately 46.8%), and the Bank does not have significant exposure to any economic areas of the country that are underperforming the national economy. Additionally, the Bank’s overall exposure to the “Office Building / Condo” collateral type is 15.9% of total commercial real estate loans, including owner-occupied commercial real estate and acquisition, construction & development. The Bank believes that the combined loan portfolio is well-diversified, generally seasoned, manageable, and will outperform the industry in terms of performance through the economic cycle; however, our underwriting, review, and monitoring cannot eliminate all of the risks related to these loans. For further discussion see Part II, Item 1A. “Risk Factors”.

Previous wording

Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth. See Note 6 -Borrowed Funds and Note 10 - Commitments and Contingencies, in Notes to Consolidated Financial Statements for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations.

Current wording

Management believes that the current sources of liquidity are adequate to meet the Company’s requirements and plans for continued growth. See Note 6 - Borrowed Funds and Note 10 - Commitments and Contingencies, in Notes to Consolidated

Previous wording

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

Current wording

Applicable capital rules under the Basel III Framework require the Company and the Bank to maintain minimum Common Equity Tier 1 (“CET 1”), Tier 1, and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and counter-cyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The Basel III Framework also provides 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.

Previous wording

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

Current wording

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

Previous wording

•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

Current wording

•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.

Previous wording

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

Current wording

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

Previous wording

The following table contains selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of September 30, 2024, and September 30, 2023, and the selected income statement data for the three months and nine months ended September 30, 2024, and September 30, 2023, have been derived from our consolidated financial statements included elsewhere in this Form 10-Q and in other filings we have submitted with the SEC and should be read in conjunction with the other information contained in this Form 10-Q.

Current wording

The following table contains selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of March 31, 2025, and March 31, 2024, and the selected income statement data for the three months ended March 31, 2025, and March 31, 2024, have been derived from our consolidated financial statements included elsewhere in this Form 10-Q and in other filings we have submitted with the SEC and should be read in conjunction with the other information contained in this Form 10-Q.

Previous wording

Net income applicable to common shares for the three months ended September 30, 2024, was $27.4 million, compared to net income applicable to common shares of $4.1 million during the three months ended September 30, 2023. The $23.3 million increase was primarily due to results that reflect combined income after the Merger completion for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Current wording

Net income applicable to common shares for the three months ended March 31, 2025, was $27.0 million, compared to net income applicable to common shares of $5.2 million during the three months ended March 31, 2024. The $21.8 million increase was primarily due to results that reflect combined income after the Merger completion for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Previous wording

Net interest income increased by $50.3 million to $73.2 million for the three months ended September 30, 2024, compared to $22.9 million for the three months ended September 30, 2023. The main driver for this increase was the impact of the Merger.

Current wording

Net interest income increased by $50.9 million to $73.0 million for the three months ended March 31, 2025, compared to $22.1 million for the three months ended March 31, 2024. The main driver for this increase was the impact of the Merger.

Previous wording

For the three months ended September 30, 2024, the Company recorded credit provision expense of $0.1 million compared to a provision of $0.2 million for the three months ended September 30, 2023. For the three months ended September 30, 2024, the Company recognized less credit loss expense on loans and off-balance sheet credit exposures which led to a decrease in credit provision expense for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Current wording

For the three months ended March 31, 2025, the Company recorded credit provision expense of $0.5 million compared to a provision recapture of $0.7 million for the three months ended March 31, 2024. For the three months ended March 31, 2025, the Company recognized additional credit loss expense on loans which led to an increase in credit provision expense for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Previous wording

Non-interest income increased by $6.3 million, or 147.5%, to $10.6 million for the three months ended September 30, 2024, as compared to $4.3 million for the three months ended September 30, 2023, as a result of the Merger. All categories of non-interest income increased as a result of the combined operations for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Current wording

Non-interest income increased by $5.8 million, or 135.6%, to $10.0 million for the three months ended March 31, 2025, as compared to $4.3 million for the three months ended March 31, 2024, as a result of the Merger. All categories of non-interest income increased as a result of the combined operations for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Previous wording

Net interest income totaled $73.2 million for the three months ended September 30, 2024, compared to $22.9 million for the three months ended September 30, 2023. The increase in net interest income was primarily driven by higher interest earning assets, higher rates, and higher accretion income, as a result of the Merger. Accretion income associated with acquired loans and borrowings totaled $15.4 million for the three months ended September 30, 2024. Amortization expense associated with fair value marks for time deposits, subordinated debt, and trust preferred securities totaled $3.8 million for the three months ended September 30, 2024.

Current wording

Net interest income totaled $73.0 million for the three months ended March 31, 2025, compared to $22.1 million for the three months ended March 31, 2024. The increase in net interest income was primarily driven by higher interest earning assets, higher rates, and higher accretion income, as a result of the Merger. Accretion income associated with acquired loans and borrowings totaled $11.4 million for the three months ended March 31, 2025. Amortization expense associated with fair value marks for time deposits, subordinated debt, and trust preferred securities totaled $2.2 million for the three months ended March 31, 2025.

Previous wording

The tax-adjusted net interest margin was 4.07% for the three months ended September 30, 2024, compared to 2.76% for the three months ended September 30, 2023. The increase in tax-adjusted net interest margin was primarily driven by the effect of the Merger and the acquisition of additional, higher-yielding interest-earning assets.

Current wording

The tax-adjusted net interest margin was 4.18% for the three months ended March 31, 2025, compared to 2.68% for the three months ended March 31, 2024. The increase in tax-adjusted net interest margin was primarily driven by the effect of the Merger and the acquisition of additional, higher-yielding interest-earning assets.

Previous wording

The yield for the taxable loan portfolio was 7.34% for the three months ended September 30, 2024, compared to 5.15% for the three months ended September 30, 2023. The increase was primarily the result of the effect of the Merger, which resulted in the acquisition of additional, higher-yielding loans.

Current wording

The yield for the taxable loan portfolio was 6.96% for the three months ended March 31, 2025, compared to 5.41% for the three months ended March 31, 2024. The increase was primarily the result of the effect of the Merger, which resulted in the acquisition of additional, higher-yielding loans.

Previous wording

The tax-adjusted yield on the total investment securities portfolio was 3.91% for the three months ended September 30, 2024, compared to 3.37% for the three months ended September 30, 2023. The increase was partly due to higher yields in our investment portfolio in addition to the Merger, which resulted in the acquisition of additional securities with higher tax-adjusted yields.

Current wording

The tax-adjusted yield on the total investment securities portfolio was 3.85% for the three months ended March 31, 2025, compared to 3.43% for the three months ended March 31, 2024. The increase was partly due to higher yields in our investment portfolio in addition to the Merger, which resulted in the acquisition of additional securities with higher tax-adjusted yields.

Previous wording

The yield on interest-bearing deposits increased to 2.86% during the nine months ended September 30, 2024, from 1.70% during the nine months ended September 30, 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.

Current wording

The yield on interest-bearing deposits increased to 2.53% during the three months ended March 31, 2025, from 2.41% during the three months ended March 31, 2024. The increase was a result of the Merger, which resulted in the assumption of additional interest-bearing deposits with higher interest rates.

Previous wording

The yield on our short-term borrowings for the three months ended September 30, 2024, was 4.06%, compared to 4.69% for the three months ended September 30, 2023. The decrease was due to decreases in the Federal Funds Rate and other short-term market rates. The yield on our subordinated debt assumed in the Merger was 10.16%.

Current wording

The yield on our short-term borrowings for the three months ended March 31, 2025, was 3.88%, compared to 4.82% for the three months ended March 31, 2024. The decrease was due to decreases in the Federal Funds Rate and other short-term market rates. The yield on our subordinated debt assumed in the Merger was 9.85%.

Previous wording

The following table sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Interest income and interest expense for the three months ended September 30, 2024, and September 30, 2023, are annualized using an actual days over calendar year method. Volume variances are equal to the increase or decrease in average balance multiplied by current period rates, and rate variances are equal to the increase or decrease in rate times prior period average balances. Variances attributable to both rate and volume changes are calculated by multiplying the change in rate by the change in average balance and are allocated to the volume variance. See table below (in thousands).

Current wording

The following table sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Interest income and interest expense for the three months ended March 31, 2025, and March 31, 2024, are annualized using actual days over calendar year method. Volume variances are equal to the increase or decrease in average balance multiplied by current period rates, and rate variances are equal to the increase or decrease in rate times prior period average balances. Variances attributable to both rate and volume changes are calculated by multiplying the change in rate by the change in average balance and are allocated to the volume variance. See table below (in thousands).

Previous wording

(1)Yields and interest income on tax-exempt securities have been computed on a taxable-equivalent basis.

Current wording

(1)Yields and interest income on tax-exempt loans and securities have been computed on a taxable-equivalent basis.

Previous wording

Total interest income was $118.5 million for the three months ended September 30, 2024, compared to $37.3 million for the three months ended September 30, 2023, an increase of 218.0%. The increase in interest income was due to the effect of the Merger and the acquisition of additional interest-earning assets. Interest income on loans increased by $77.3 million and interest income on securities increased $2.9 million, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Current wording

Total interest income was $110.8 million for the three months ended March 31, 2025, compared to $38.7 million for the three months ended March 31, 2024, an increase of 185.9%. The increase in interest income was due to the effect of the Merger and the acquisition of additional interest-earning assets. Interest income on loans increased by $69.0 million and interest income on securities increased $2.5 million, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Previous wording

Total interest expense was $45.3 million for the three months ended September 30, 2024, compared to $14.4 million for the three months ended September 30, 2023. The increase in interest expense was a result of the Merger and the assumption of additional interest-bearing liabilities. Interest expense on interest-bearing deposits increased by $28.2 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Interest on subordinated debt acquired in the Merger was $2.8 million for the three months ended September 30, 2024, while interest expense on short-term borrowings amounted to $3.1 million for the three months ended September 30, 2024.

Current wording

Total interest expense was $37.8 million for the three months ended March 31, 2025, compared to $16.6 million for the three months ended March 31, 2024. The increase in interest expense was a result of the Merger and the assumption of additional interest-bearing liabilities. Interest expense on interest-bearing deposits increased by $18.9 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Interest on subordinated debt acquired in the Merger was $2.7 million for the three months ended March 31, 2025, while interest expense on short-term borrowings amounted to $3.2 million for the three months ended March 31, 2025, compared to $3.7 million for the three months ended March 31, 2024.

Previous wording

The provision for credit losses was $0.1 million for the three months ended September 30, 2024, compared to a provision of $0.2 million for the three months ended September 30, 2023. The decreased provision expense is a function of the Merger closing last quarter and the Day 2 non-PCD provision expense captured for the acquired portfolio, resulting in a lower credit loss expense on loans and off-balance sheet credit exposures, compared to the three months ended September 30, 2023. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information.

Current wording

The provision for credit losses was $0.5 million for the three months ended March 31, 2025, compared to a provision recapture of $0.7 million for the three months ended March 31, 2024. The increased provision expense was due to additional credit loss expense in the loan portfolio which was somewhat offset by a recapture in credit expense on off-balance sheet credit exposures, compared to the three months ended March 31, 2024. See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information.

Previous wording

Non-interest income increased 85.7% for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase was primarily driven by the Merger. The largest increase was a $6.2 million increase in service charges and fees for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. A majority of the securities acquired in the Merger were sold, resulting in gains of $0.6 million for the nine months ended September 30, 2024, compared to losses of $0.1 million during the nine months ended September 30, 2023. Loan swap fees included in other non-interest income increased $0.1 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Other categories of non-interest income also increased due to the Merger, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Current wording

Non-interest income increased 135.6% for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase was primarily driven by the Merger. The largest increase was a $1.8 million increase in bank debit and other card revenue for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. This increase was driven by the Merger and the increase in card revenue as a result of the increase in the customer base. The second largest increase was a $1.4 million increase in service charges and fees for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. This increase was primarily driven by an increase in deposit-based fees of $1.3 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, resulting from the increase in accounts as a result of the Merger. All other categories of non-interest income also increased, primarily due to the Merger for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Previous wording

Non-interest expense increased $28.4 million, or 126.7%, for the three months ended September 30, 2024, compared to September 30, 2023. The increase was primarily due to effect of the Merger and also included higher legal fees, consulting fees, audit fees, investment banking fees, software contract terminations and other merger-related expenses. For the three months ended September 30, 2024, the Company incurred $3.1 million of merger-related expenses within non-interest expense for the three months ended September 30, 2024. See Note 16 — Business Combination in Notes to Consolidated Financial Statements for further information on merger-related expenses and Note 13 — Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense.

Current wording

Non-interest expense increased $28.5 million, or 134.7%, for the three months ended March 31, 2025, compared to March 31, 2024. The increase was primarily due to effect of the Merger. All other categories of non-interest expense also increased, primarily due to the effect of the Merger, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. See Note 13 — Other Operating Expense in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense.

Previous wording

Income tax expense was $5.2 million for the three months ended September 30, 2024, an increase of $4.7 million from the tax provision for the three months ended September 30, 2023. The increase was due to the increase in net income for the three months ended September 30, 2024, when compared to the three months ended September 30, 2023. For the three months ended September 30, 2024, the effective tax rate was 15.8%, while the effective tax rate was 10.3% for September 30, 2023.

Current wording

Income tax expense was $5.6 million for the three months ended March 31, 2025, an increase of $5.0 million from the tax provision for the three months ended March 31, 2024. The increase was due to the increase in net income and additional state taxes incurred in the combined market area after the Merger, for the three months ended March 31, 2025, when compared to the three months ended March 31, 2024. For the three months ended March 31, 2025, the effective tax rate was 17.2%, while the effective tax rate was 11.5% for March 31, 2024.

Previous wording

Due mostly to the Merger, assets increased by $4.25 billion to $7.86 billion as of September 30, 2024, compared to $3.62 billion as of December 31, 2023. Loans, net of ACL, increased by $3.44 billion from $2.06 billion as of December 31, 2023, to $5.51 billion as of September 30, 2024. Deposits increased by $3.60 billion and amounted to $6.60 billion at September 30, 2024, compared to $3.00 billion at December 31, 2023. Short-term borrowings increased by $48.2 million to $320.2 million as of September 30, 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 $110.5 million at September 30, 2024, compared to zero at December 31, 2023.

Current wording

Assets increased by $25.9 million to $7.84 billion as of March 31, 2025, compared to $7.8 billion as of December 31, 2024. Loans, net of ACL, decreased by $24.4 million from $5.6 billion as of December 31, 2024, to $5.6 billion as of March 31, 2025. Deposits increased by $26.6 million and amounted to $6.5 billion at March 31, 2025, compared to $6.5 billion at December 31, 2024. Short-term borrowings decreased by $65.0 million to $300.0 million as of March 31, 2025, compared to $365.0 million at December 31, 2024. Subordinated debt and subordinated debt owed to unconsolidated subsidiary trusts, which were assumed in the Merger, totaled $113.3 million at March 31, 2025, compared to $111.9 million at December 31, 2024.

Previous wording

Our investments provide a source of liquidity because we can pledge them to support borrowed funds or can liquidate them to generate cash proceeds. Our investment portfolio is also a resource in managing interest rate risk because the maturity and interest rate characteristics of this asset class can be modified to match changes in the loan and deposit portfolios. The majority of our AFS investment portfolio is comprised of obligations of states and municipalities and residential mortgage-backed securities. During the nine months ended September 30, 2024, the unrealized losses on our holdings decreased $36.3 million from December 31, 2023.

Current wording

Our investments provide a source of liquidity because we can pledge them to support borrowed funds or can liquidate them to generate cash proceeds. Our investment portfolio is also a resource in managing interest rate risk because the maturity and interest rate characteristics of this asset class can be modified to match changes in the loan and deposit portfolios. The majority of our AFS investment portfolio is comprised of obligations of states and municipalities and residential mortgage-backed securities. During the three months ended March 31, 2025, the unrealized losses on our holdings decreased $7.7 million from December 31, 2024.

Previous wording

The investment maturity table below summarizes contractual maturities for our investment securities at September 30, 2024. The actual timing of principal payments may differ from remaining contractual maturities because obligors may have the right to repay certain obligations with or without penalties. The overall weighted average duration of the Company’s investment portfolio is 4.3 years at September 30, 2024. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security (dollars in thousands). Interest on securities below excludes tax-equivalent adjustments.

Current wording

The investment maturity table below summarizes contractual maturities for our investment securities at March 31, 2025. The actual timing of principal payments may differ from remaining contractual maturities because obligors may have the right to repay certain obligations with or without penalties. The overall weighted average duration of the Company’s investment portfolio is 4.6 years at March 31, 2025. 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.

Previous wording

The loan portfolio, excluding ACL, at September 30, 2024, increased by $3.49 billion primarily due to the Merger.

Current wording

The loan portfolio, excluding ACL, at March 31, 2025, decreased by $24.7 million primarily due to the exiting of loans that do not align with the Company’s desired risk profile.

Previous wording

The Company maintains policies and procedures to promote sound underwriting and mitigate credit risk. The Chief Credit Officer is responsible for establishing credit risk policies and procedures, including underwriting guidelines and credit approval authority, and monitoring credit exposure and performance of the Company’s lending-related transactions.

Current wording

The Company maintains policies and procedures to promote sound underwriting and mitigate credit risk. The Chief Credit Officer is responsible for establishing credit risk policies and procedures, including underwriting guidelines and credit approval authority, and monitoring credit exposure and performance of the Company’s lending-related transactions. We regularly monitor the level of loan delinquencies and believe these levels are a key indicator of credit quality in our loan portfolio. We manage credit risk based on the risk profile of the borrower, repayment sources, underlying collateral, and other support given current events, economic conditions and expectations.