Burke & Herbert Profit Fell as Merger Costs Swelled
Adjusted operating net income rose sequentially to $37.5 million after the LINKBANCORP acquisition.
Burke & Herbert Financial Services (BHRB), the community-bank holding company, reported that second-quarter net income applicable to common shares fell to $9.3 million, or $0.50 a diluted share, as merger-related costs weighed on results.
The May 1 acquisition of LINKBANCORP reshaped the quarter, adding about $3.1 billion of assets and lifting Burke & Herbert’s total assets to roughly $11.0 billion. The company paid approximately $329.7 million and recorded preliminary goodwill of about $82.1 million.
The acquisition expanded the underlying business even as it reduced GAAP profit. Excluding merger-related items, operating net income increased from $28.2 million in the first quarter, while adjusted diluted earnings rose to $2.03 a share from $1.87 and topped the year-earlier figure of $1.97.
Non-GAAP total revenue rose to $106.9 million from $84.7 million sequentially, driven largely by the acquired operations. Net interest income increased to $93.0 million from $71.8 million as the acquisition’s contribution to interest income exceeded the related increase in interest expense.
The taxable-equivalent net interest margin widened six basis points from the first quarter to 4.15%, supported by higher securities yields, acquisition-related asset growth and purchase-accounting accretion. Funding costs moved higher, with the cost of total deposits rising to 1.75% from 1.71%.
Merger-related noninterest expense increased to $32.4 million from $1.4 million in the preceding quarter, pushing total noninterest expense to $93.5 million. The efficiency ratio worsened to 87.47% from 60.67%, while pretax, pre-provision earnings declined to $13.4 million despite the revenue increase.
Credit measures were mixed following the portfolio expansion. Nonperforming loans increased to $95.3 million, though they declined as a percentage of loans to 1.19%, while the provision for credit losses rose to $1.38 million mainly because of acquisition-related off-balance-sheet exposures.
The larger balance sheet reduced Burke & Herbert’s common-equity Tier 1 capital ratio to 11.79% from 13.78%. Tangible book value declined to $49.29 a share as goodwill and other intangible assets increased after the merger, leaving the pace of integration and expense normalization central to the company’s post-acquisition results.