Burke & Herbert Financial Services Corp.
For the period ended Jun 30, 2026. Filed Aug 7, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2026 · Filed Aug 7, 2026
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Notes to the Consolidated Financial Statements (Unaudited)
Notes to Consolidated Financial Statements
Note 1—Nature of Business Activities and Significant Accounting Policies
Nature of operations
The consolidated financial statements include Burke & Herbert Financial Services Corp. (“Burke & Herbert”) and its wholly-owned subsidiary Burke & Herbert Bank & Trust Company (“the Bank”), together referred to as “the Company” for purposes of the Notes to the Financial Statements.
Burke & Herbert Financial Services Corp. was organized as a Virginia corporation in 2022 to serve as the holding company for the Bank. Burke & Herbert became a bank holding company when it commenced operations on October 1, 2022, following a reorganization transaction in which it acquired control of the Bank under the Bank Holding Company Act of 1956 (“BHCA”). This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of Burke & Herbert. Burke & Herbert has no material operations other than owning the Bank. In September 2023, Burke & Herbert elected to become a financial holding company under the BHCA. As a financial holding company of a Virginia state bank, the Company is subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Bureau of Financial Institutions of the Virginia State Corporation Commission (the “Virginia BFI”). The Bank is a Virginia chartered commercial bank that commenced operations in 1852. The Bank became a member of the Federal Reserve System on December 31, 2024. The Bank is subject to regulation, supervision, and examination by the Federal Reserve (through the Federal Reserve Bank of Richmond) and the Virginia BFI.
The Bank’s operations are conducted from it’s over 105 branches and commercial loan offices across Delaware, Kentucky, Maryland, Virginia, West Virginia, and Pennsylvania. The Company’s branch locations accept business and consumer deposits from a diverse customer base. The Company’s deposit products include checking, savings, and term certificate accounts. The Company’s loan portfolio includes commercial and consumer loans, a substantial portion of which are secured by real estate.
Merger with LINKBANCORP, Inc.
Effective on May 1, 2026 (the “Closing Date”) Burke & Herbert completed its previously announced merger with LINKBANCORP, Inc., a Pennsylvania corporation (“LNKB”), pursuant to the Agreement and Plan of Merger dated, December 18, 2025, between Burke & Herbert and LNKB (the “LNKB Merger Agreement”).
Pursuant to the LNKB Merger Agreement, on the Closing Date, (i) LNKB merged with and into Burke & Herbert, with Burke & Herbert continuing as the surviving corporation (the “LNKB Merger”), and (ii) immediately following the LNKB Merger, LINKBANK, a Pennsylvania chartered commercial bank and a wholly-owned subsidiary of LNKB (“Link”), merged with and into the Bank with the Bank as the surviving bank.
Pursuant to the LNKB Merger Agreement, at the effective time of the LNKB Merger (the “Effective Time”), each LNKB share of common stock, par value $0.01 per share (“LNKB Common Stock”) issued and outstanding immediately prior to the Effective Time, other than certain shares held by Burke & Herbert and LNKB, was converted into the right to receive 0.1350 shares of Burke & Herbert common stock. Holders of LNKB Common Stock received cash in lieu of fractional shares of Burke & Herbert common stock in accordance with the terms of the LNKB Merger Agreement. The total aggregate consideration payable in the LNKB Merger was approximately 5,082,605 shares of Burke & Herbert common stock.
Basis of Presentation
The accompanying consolidated financial statements include Burke & Herbert Financial Services Corp. and its wholly owned subsidiary Burke & Herbert Bank & Trust Company and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and with applicable quarterly reporting regulations of the U.S. Securities and Exchange Commission (“SEC”). The accounting and reporting policies of the Company conform to GAAP and reflect practices of the banking industry. They do not include all of the information and notes required by GAAP for complete financial statements. As such, these unaudited financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2025, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2026.
The consolidated financial statements include the accounts of the Company and the Bank (as its wholly-owned subsidiary). All significant intercompany accounts and transactions between the Company and the Bank have been eliminated. In
Note 1— Nature of Business Activities and Significant Accounting Policies (continued)
preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made. The results of operations for the three and six months ended June 30, 2026, are not necessarily indicative of the results to be expected for any other interim period or for the full year. All December 31, 2025, amounts and disclosures included in this quarterly report were derived from the Company’s audited consolidated financial statements. Certain items in the prior period have been reclassified to conform to the current presentation. These reclassifications had no effect on prior year net income or on shareholders’ equity.
Newly issued not yet adopted accounting standards
In November 2024, the FASB issued ASU 2024-03, Income Statement (Subtopic 220-40): Reporting Comprehensive Income—Expense Disaggregation Disclosures. This ASU seeks to improve the disclosures about a public business entity’s expenses and addresses requests from investors for more detailed information about the types of expenses in commonly presented expense captions. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. This ASU is not expected to have a material impact on our consolidated financial statements.
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU incorporates certain amendments to SEC disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of the related disclosure requirement becomes effective. For all other entities, the effective date will be two years after the date of such removal. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. We do not expect the adoption of ASU 2023-06 to have a material impact on our consolidated financial statements.
Recently Adopted Standards
In November 2025, the FASB issued ASU 2025-08, Financial Instruments - Credit Losses (Topic 326): Purchased Loans. This ASU amends the accounting for certain acquired loans by expanding the use of the “gross‑up” approach under the CECL model to include purchased seasoned loans. Under this approach, the allowance for expected credit losses is recognized at the acquisition date as an adjustment to the loan’s amortized cost basis, rather than through a provision for credit losses, thereby eliminating a “day‑one” credit loss expense for loans within the scope of the guidance. The amendments do not change the accounting for purchased credit‑deteriorated loans, originated loans, credit card loans, or debt securities. The amendments in this update are effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years, and are to be applied on a prospective basis. Early adoption is permitted. As permitted, the Company has elected to early adopt the amended guidance on January 1, 2026 on a prospective basis. The Company expects that substantially all the loans acquired in the LNKB Merger will be considered seasoned.
Note 2—Securities
The carrying amount of available-for-sale (“AFS”) securities and their approximate fair values at June 30, 2026, and December 31, 2025, are summarized as follows (in thousands):
| June 30, 2026 | ||||
|---|---|---|---|---|
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |
| Securities Available-for-Sale | ||||
| U.S. Treasuries and government agencies | $158,373 | $— | $9,427 | $148,946 |
| Obligations of states and municipalities | 1,157,655 | 7,952 | 57,839 | 1,107,768 |
| Residential mortgage backed - agency | 86,719 | 302 | 3,033 | 83,988 |
| Residential mortgage backed - non-agency | 380,791 | 635 | 8,893 | 372,533 |
| Commercial mortgage backed - agency | 73,742 | 22 | 1,026 | 72,738 |
| Commercial mortgage backed - non-agency | 95,248 | 95 | 1,996 | 93,347 |
| Asset-backed | 47,486 | 95 | 564 | 47,017 |
| Other | 37,262 | 373 | 934 | 36,701 |
| Total | $2,037,276 | $9,474 | $83,712 | $1,963,038 |
| December 31, 2025 | ||||
|---|---|---|---|---|
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |
| Securities Available-for-Sale | ||||
| U.S. Treasuries and government agencies | $159,088 | $— | $8,964 | $150,124 |
| Obligations of states and municipalities | 977,104 | 5,414 | 59,944 | 922,574 |
| Residential mortgage backed - agency | 57,731 | 464 | 2,810 | 55,385 |
| Residential mortgage backed - non-agency | 221,443 | 1,860 | 5,211 | 218,092 |
| Commercial mortgage backed - agency | 74,253 | 250 | 607 | 73,896 |
| Commercial mortgage backed - non-agency | 112,082 | 584 | 1,557 | 111,109 |
| Asset-backed | 53,954 | 89 | 577 | 53,466 |
| Other | 32,162 | 158 | 1,012 | 31,308 |
| Total | $1,687,817 | $8,819 | $80,682 | $1,615,954 |
At June 30, 2026, and December 31, 2025, AFS securities with amortized costs of $1.5 billion and $1.1 billion, respectively, and with estimated fair values of $1.4 billion and $1.1 billion, respectively, were pledged to serve as collateral for secured borrowings, derivative exposures, or to secure public deposits as required or permitted by law.
The proceeds from sales, calls, and maturities of debt securities available-for-sale, including principal payments received, and the related gross gains and losses realized, for the six months ended June 30, 2026, and June 30, 2025, were as follows (in thousands):
| Proceeds from · Gross realized | |||||
|---|---|---|---|---|---|
| Six Months Ended June 30, | Sales | Calls and maturities | Principal Payments | Gains | Losses |
| 2026 | $299,014 | $11,425 | $47,993 | $2,210 | $2,279 |
| 2025 | 963 | 25,281 | 82,455 | 45 | 6 |
The tax benefit (provision) related to these net realized gains and losses for June 30, 2026, and June 30, 2025, was $15.8 thousand, and ($8.2) thousand, respectively.
The maturities of AFS securities at June 30, 2026, were as follows (in thousands): (Expected maturities of securities not due at a single maturity date are based on average life at estimated prepayment speed. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay some obligations with or without call or prepayment penalties).
| June 30, 2026 | |||||
|---|---|---|---|---|---|
| Amortized Cost | |||||
| One Year or Less | One to Five Years | Five to Ten Years | After Ten Years | Total | |
| Securities Available-for-Sale | |||||
| U.S. Treasuries and government agencies | $— | $158,373 | $— | $— | $158,373 |
| Obligations of states and municipalities | 6,303 | 324,909 | 607,699 | 218,744 | 1,157,655 |
| Residential mortgage backed - agency | 847 | 41,580 | 28,937 | 15,355 | 86,719 |
| Residential mortgage backed - non-agency | 3,127 | 88,562 | 265,209 | 23,893 | 380,791 |
| Commercial mortgage backed - agency | 1,083 | 24,509 | 48,150 | — | 73,742 |
| Commercial mortgage backed - non-agency | 6,084 | 58,963 | 30,201 | — | 95,248 |
| Asset-backed | 2,047 | 31,093 | 14,346 | — | 47,486 |
| Other | — | 4,824 | 23,305 | 9,133 | 37,262 |
| Total | $19,491 | $732,813 | $1,017,847 | $267,125 | $2,037,276 |
| June 30, 2026 | |||||
|---|---|---|---|---|---|
| Fair Value | |||||
| One Year or Less | One to Five Years | Five to Ten Years | After Ten Years | Total | |
| Securities Available-for-Sale | |||||
| U.S. Treasuries and government agencies | $— | $148,946 | $— | $— | $148,946 |
| Obligations of states and municipalities | 6,301 | 312,390 | 585,361 | 203,716 | 1,107,768 |
| Residential mortgage backed - agency | 846 | 41,537 | 26,031 | 15,574 | 83,988 |
| Residential mortgage backed - non-agency | 3,118 | 85,033 | 260,621 | 23,761 | 372,533 |
| Commercial mortgage backed - agency | 1,031 | 24,247 | 47,460 | — | 72,738 |
| Commercial mortgage backed - non-agency | 6,031 | 57,447 | 29,869 | — | 93,347 |
| Asset-backed | 2,040 | 30,788 | 14,189 | — | 47,017 |
| Other | — | 4,837 | 22,913 | 8,951 | 36,701 |
| Total | $19,367 | $705,225 | $986,444 | $252,002 | $1,963,038 |
At June 30, 2026, and December 31, 2025, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in any amount greater than 10% of shareholders’ equity.
The following table shows the gross unrealized losses and fair value of the Company’s securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2026, and December 31, 2025.
AFS securities in a continuous unrealized loss position for less than twelve months and more than twelve months are as follows (in thousands):
| June 30, 2026 | |||||
|---|---|---|---|---|---|
| Less Than Twelve Months · More Than Twelve Months | |||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Total Unrealized Losses | |
| Securities Available-for-Sale | |||||
| U.S. Treasuries and government agencies | $— | $— | $148,946 | $9,427 | $9,427 |
| Obligations of states and municipalities | 97,878 | 910 | 497,891 | 56,929 | 57,839 |
| Residential mortgage backed - agency | 28,677 | 222 | 18,107 | 2,811 | 3,033 |
| Residential mortgage backed - non-agency | 198,806 | 3,887 | 78,485 | 5,006 | 8,893 |
| Commercial mortgage backed - agency | 46,670 | 697 | 24,748 | 329 | 1,026 |
| Commercial mortgage backed - non-agency | 42,763 | 501 | 20,873 | 1,495 | 1,996 |
| Asset-backed | 8,247 | 29 | 24,162 | 535 | 564 |
| Other | — | — | 22,422 | 934 | 934 |
| Total | $423,041 | $6,246 | $835,634 | $77,466 | $83,712 |
| December 31, 2025 | |||||
|---|---|---|---|---|---|
| Less Than Twelve Months · More Than Twelve Months | |||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Total Unrealized Losses | |
| Securities Available-for-Sale | |||||
| U.S. Treasuries and government agencies | $— | $— | $150,124 | $8,964 | $8,964 |
| Obligations of states and municipalities | 134,143 | 1,852 | 513,623 | 58,092 | 59,944 |
| Residential mortgage backed - agency | 4,461 | 4 | 24,832 | 2,806 | 2,810 |
| Residential mortgage backed - non-agency | 11,545 | 17 | 85,750 | 5,194 | 5,211 |
| Commercial mortgage backed - agency | 14,987 | 93 | 26,032 | 514 | 607 |
| Commercial mortgage backed - non-agency | 29,730 | 131 | 30,175 | 1,426 | 1,557 |
| Asset-backed | 14,531 | 38 | 27,750 | 539 | 577 |
| Other | — | — | 22,288 | 1,012 | 1,012 |
| Total | $209,397 | $2,135 | $880,574 | $78,547 | $80,682 |
The Company is required to conduct an impairment evaluation on AFS securities to determine whether the Company has the intent to sell the security or it is more likely than not that it will be required to sell the security before recovery. If these situations apply, the guidance requires the Company to reduce the security’s amortized cost basis down to its fair value through earnings. The Company also evaluates the unrealized losses on AFS securities to determine if a security’s decline in fair value below its amortized cost basis is due to credit factors. The evaluation is based upon factors such as the creditworthiness of the underlying borrowers, performance of the underlying collateral, if applicable, and the level of credit support in the security structure. Management also evaluates other factors and circumstances that may be indicative of a decline in the fair value of the security due to a credit factor.
This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost, and near-term prospects of the issuer. If this assessment indicates that a credit loss exists, the present value of the expected cash flows of the security is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost, an allowance for credit losses (“ACL”) is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis under the current expected credit loss (“CECL”) standard, and declines due to non-credit factors are recorded in accumulated other comprehensive income (“AOCI”), net of taxes. If a credit loss is recognized in earnings, subsequent improvements to the expectation of collectability will be recognized through the ACL. If the fair value of the security increases above its amortized cost, the unrealized gain will be recorded in accumulated other comprehensive income, net of taxes, in the Consolidated Balance Sheets.
The Company didnot record an ACL on the AFS securities as of June 30, 2026, or December 31, 2025. The Company considers the unrealized losses on the AFS securities to be related to fluctuations in market conditions, primarily interest rates, and not reflective of deterioration in credit. The Company had 454 securities in an unrealized loss position as of June 30, 2026. The Company has evaluated AFS securities in an unrealized loss position for credit-related impairment at June 30, 2026, and concludedno impairment existed based on a combination of factors, which included: (1) the securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility and increases in market interest rates, (3) the contractual terms of the investments do not permit the issuer(s) to settle the securities at a price less than the par value of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis. As such, there wasno ACL on AFS securities at June 30, 2026.
Securities of U.S. Treasury and Federal Agencies and Federal Agency Mortgage (Residential and Commercial) Backed Securities
At June 30, 2026, the unrealized losses associated with 10 U.S. Treasuries and Government Agency securities,63 Residential Mortgage Backed – Agency securities, and 25 Commercial Mortgage Backed – Agency securities were generally driven by changes in interest rates and not due to credit losses given the explicit or implicit guarantees provided by the U.S. government. Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2026.
Securities of U.S. States and Municipalities
At June 30, 2026, the unrealized losses associated with 257 State and Municipal securities were primarily caused by changes in interest rates and not the credit quality of the securities. These securities are investment grade and were generally underwritten in accordance with our own investment standards prior to the decision to purchase, without relying on a bond insurer’s guarantee in making the investment decision. These securities will continue to be monitored as part of our ongoing impairment analysis but are expected to perform, even if the rating agencies reduce the credit rating of the bond insurers. As a result, we expect to recover the entire amortized cost basis of these securities. Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2026.
Residential & Commercial Mortgage Backed – Non-Agency Securities
At June 30, 2026, the unrealized losses associated with 67 Residential Mortgage Backed – Non-Agency securities and 8 Commercial Mortgage Backed – Non-Agency securities were generally driven by changes in interest rates, credit spreads, and projected collateral losses. We assess for credit impairment by estimating the present value of expected cash flows. The key assumptions for determining expected cash flows include default rates, loss severities, and/or prepayment rates. Based on our assessment of the expected credit losses and the credit enhancement level of the securities, we expect to recover the entire amortized cost of these securities. Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2026.
Asset-Backed Securities
At June 30, 2026, the unrealized losses associated with 17 Asset-Backed securities were generally driven by changes in interest rates, credit spreads, and projected collateral losses. We assess for credit impairment by estimating the present value of expected cash flows. The key assumptions for determining expected cash flows include default rates, loss severities, and/or prepayment rates. Based on our assessment of the expected credit losses and the credit enhancement level of the securities, we expect to recover the entire amortized cost of these securities. Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2026.
Other Securities
At June 30, 2026, the unrealized losses associated with 7 securities were primarily driven by interest rates and not the credit quality of the securities. These investments were underwritten in accordance with our own investment standards prior to the decision to purchase, without relying on a bond insurer’s guarantee in making the investment decision. Based on our assessment of the expected credit losses, we expect to recover the entire amortized cost basis of the securities. Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2026.
Restricted stock, at cost
The Company’s investment in Federal Home Loan Bank (“FHLB”) stock totaled $31.9 million and $26.8 million at June 30, 2026, and December 31, 2025, respectively. The Company’s investment in Federal Reserve Bank stock totaled $24.0 million and $14.8 million at June 30, 2026, and December 31, 2025, respectively. FHLB and Federal Reserve stock are generally viewed as long-term investments and as restricted investment securities, which are carried at cost, because there is no market for the stocks other than member institutions. Therefore, when evaluating FHLB and Federal Reserve stock for impairment, their values are based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does not consider these investments to be impaired at June 30, 2026, and no impairment has been recognized. FHLB stock and Federal Reserve stock are included in a separate line item, restricted stock, at cost on the Consolidated Balance Sheets and are not part of the Company’s AFS securities portfolio.
The Company’s restricted stock line item on the Consolidated Balance Sheets also includes an investment in Community Bankers’ Bank, totaling $111 thousand at June 30, 2026, and $111 thousand at December 31, 2025, which is carried at cost and is not impaired at June 30, 2026. The Company also has other restricted investments including Independent Community Bancorp, Inc. and WV Bankers Title which are included in restricted stock on the Consolidated Balance Sheets as of June 30, 2026, and December 31, 2025.
Note 3—Loans
The Company’s loan portfolio segments, as reported in the tables below, include (i) commercial real estate, (ii) owner-occupied commercial real estate, (iii) acquisition, construction & development, (iv) commercial & industrial, (v) single family residential (1-4 units), and (vi) consumer non-real estate and other. The risks associated with lending activities differ among the various loan segments and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions.
Commercial real estate loans carry risk associated with either the net operating income generated from the lease of the real estate collateral or income generated from the sale of the collateral. Other risk factors include the credit-worthiness of the sponsor and the value of the collateral.
Owner-occupied commercial real estate loans carry risk associated with the operations of the business that occupies the property and the value of the collateral.
Acquisition, construction & development loans carry risk associated with the credit-worthiness of the borrower, project completion within budget including the potential impact of volatile construction costs, sale after completion, and the value of the collateral.
Commercial & industrial loans carry the risk associated with the operations of the business and the value of the collateral, if any.
Single family residential (1-4 units) loans for consumer purposes carry risk associated with the continued credit-worthiness of the borrower and the value of the collateral. Single family residential (1-4 units) loans for investment purpose carry risk associated with the continued credit-worthiness of the borrower, the value of the collateral, and either the net operating income generated from the lease of the real estate collateral or income generated from the sale of the collateral.
Consumer non-real estate and other loans, which includes overdrafts, carry risk associated with the credit-worthiness of the borrower and the value of the collateral, if any.
Note 3— Loans (continued)
Loan balances as of June 30, 2026, and December 31, 2025, by portfolio segment were as follows (in thousands):
| June 30, 2026 | December 31, 2025 | |
|---|---|---|
| Commercial real estate | $3,898,387 | $2,769,287 |
| Owner-occupied commercial real estate | 1,152,749 | 593,120 |
| Acquisition, construction & development | 452,638 | 386,870 |
| Commercial & industrial | 840,878 | 461,921 |
| Single family residential (1-4 units) | 1,605,524 | 1,127,684 |
| Consumer non-real estate and other | 49,589 | 48,794 |
| Loans, gross | 7,999,765 | 5,387,676 |
| Allowance for credit losses | (94,470) | (67,823) |
| Loans, net | $7,905,295 | $5,319,853 |
Net deferred loan fees included in the above loan categories totaled $7.3 million and $6.2 million at June 30, 2026, and December 31, 2025, respectively.
Note 4—Allowance for Credit Losses
The Company’s ACL is calculated quarterly, with any adjustment recorded to the provision for credit losses in the Consolidated Statement of Income. Management calculates the quantitative portion of collectively evaluated loans for all loan categories using the weighted average remaining maturity (“WARM”) method. For purposes of estimating the Company’s ACL, management generally evaluates collectively evaluated loans by federal call code in order to group loans with similar risk characteristics. During the quarter, management updated the calculation of expected loss rates for the ACL from an internally developed application to a third-party modeling platform. The input change had a net effect of reducing the modeled reserve by $2.4 million. As a result of this change, the largest reserve reductions occurred in the acquisition, construction & development category of $6.5 million, and the commercial real estate category of $2.5 million while the modeled reserve for the single family residential category increased by $3.5 million, and owner-occupied real estate increased by $3.8 million.
Loans that do not share similar risk characteristics are evaluated on an individual loan basis and are excluded from the collective evaluation for the ACL. Loans identified to be individually evaluated under CECL include loans on non-accrual status and may include accruing loans that do not share similar risk characteristics to other accruing loans that are collectively evaluated on a loan pool basis. A specific reserve analysis is applied to the individually evaluated loans, which considers collateral value, an observable market price, or the present value of the expected future cash flows. A specific reserve is assigned if the measured value of the loan using one of the before mentioned methods is less than the carrying value of the loan.
Based on management’s analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond the information that is used to calculate the quantitative reserve. Management may consider an additional or reduced reserve as warranted through qualitative risk factors based on the current and expected conditions as measured in supplemental information relative to the macroeconomic variable loss drivers used to calculate a reasonable and supportable forecast and a reversion period forecast. These qualitative risk factors considered by management are largely comparable to legacy factors prior to the adoption of CECL.
The following tables present the activity in the ACL for the three and six months ended June 30, 2026, and for the three and six months ended June 30, 2025, including the impact of the allowance established for Purchased Seasoned Loans (“PSL”) and Purchased Credit Deteriorated (“PCD”) loans for the six months ended June 30, 2026, (in thousands).
| Commercial real estate | Owner-occupied commercial real estate | Acquisition, construction & development | Commercial & industrial | Single family residential (1-4 units) | Consumer non-real estate and other | Total | |
|---|---|---|---|---|---|---|---|
| Three months ended | |||||||
| Balance, beginning of period | $27,001 | $3,150 | $16,773 | $8,191 | $11,928 | $912 | $67,955 |
| Allowance established for acquired PSL loans | 6,439 | 5,532 | 1,722 | 4,845 | 3,751 | 959 | 23,248 |
| Allowance established for acquired PCD loans | 770 | 745 | 788 | 544 | 2,390 | 22 | 5,259 |
| Provision for (recapture of) credit losses | 340 | 6,093 | (12,069) | 1,754 | 3,226 | (177) | (833) |
| Charge-offs | (100) | — | — | (258) | — | (1,075) | (1,433) |
| Recoveries | 7 | 1 | 1 | 14 | 42 | 209 | 274 |
| Balance, end of period | $34,457 | $15,521 | $7,215 | $15,090 | $21,337 | $850 | $94,470 |
| Balance, beginning of period | $34,746 | $3,273 | $11,474 | $8,272 | $9,554 | $434 | $67,753 |
| Provision for (recapture of) credit losses | (6,543) | 660 | 611 | 2,454 | 2,669 | 866 | 717 |
| Charge-offs | (97) | (413) | — | (104) | (45) | (881) | (1,540) |
| Recoveries | 7 | 10 | — | 21 | 30 | 258 | 326 |
| Balance, end of period | $28,113 | $3,530 | $12,085 | $10,643 | $12,208 | $677 | $67,256 |
| Commercial real estate | Owner-occupied commercial real estate | Acquisition, construction & development | Commercial & industrial | Single family residential (1-4 units) | Consumer non-real estate and other | Total | |
|---|---|---|---|---|---|---|---|
| Six months ended | |||||||
| Balance, beginning of period | $26,190 | $2,760 | $17,221 | $8,227 | $12,536 | $889 | $67,823 |
| Allowance established for acquired PSL loans | 6,439 | 5,532 | 1,722 | 4,845 | 3,751 | 959 | 23,248 |
| Allowance established for acquired PCD loans | 770 | 745 | 788 | 544 | 2,390 | 22 | 5,259 |
| Provision for (recapture of) credit losses | 1,145 | 6,548 | (12,517) | 1,707 | 2,575 | (78) | (620) |
| Charge-offs | (100) | (65) | — | (258) | (35) | (1,435) | (1,893) |
| Recoveries | 13 | 1 | 1 | 25 | 120 | 493 | 653 |
| Balance, end of period | $34,457 | $15,521 | $7,215 | $15,090 | $21,337 | $850 | $94,470 |
| Balance, beginning of period | $30,444 | $3,261 | $17,386 | $6,633 | $9,763 | $553 | $68,040 |
| Provision for (recapture of) credit losses | (2,247) | 1,359 | (5,301) | 4,182 | 2,361 | 1,263 | 1,617 |
| Charge-offs | (116) | (1,100) | (1) | (197) | (37) | (1,513) | (2,964) |
| Recoveries | 32 | 10 | 1 | 25 | 121 | 374 | 563 |
| Balance, end of period | $28,113 | $3,530 | $12,085 | $10,643 | $12,208 | $677 | $67,256 |
The recorded investment in loans excludes accrued interest receivable due to immateriality. The following table presents the aging of the recorded investment in past due loans as of June 30, 2026, and December 31, 2025, by portfolio segment (in thousands):
| 30 - 59 Days Past Due | 60 - 89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current Loans | Total Loans | 90 Days Past Due or More & Still Accruing | Non-accrual loans | |
|---|---|---|---|---|---|---|---|---|
| Commercial real estate | $32,830 | $860 | $20,137 | $53,827 | $3,844,560 | $3,898,387 | $444 | $37,754 |
| Owner-occupied commercial real estate | 2,690 | 7,216 | 8,644 | 18,550 | 1,134,199 | 1,152,749 | 183 | 12,532 |
| Acquisition, construction & development | 3,418 | 1,781 | 8,858 | 14,057 | 438,581 | 452,638 | 4,842 | 12,273 |
| Commercial & industrial | 8,549 | 10,029 | 5,273 | 23,851 | 817,027 | 840,878 | 644 | 8,495 |
| Single family residential (1-4 units) | 10,567 | 5,345 | 9,448 | 25,360 | 1,580,164 | 1,605,524 | 802 | 16,995 |
| Consumer non-real estate and other | 373 | 41 | 269 | 683 | 48,906 | 49,589 | 5 | 339 |
| Total | $58,427 | $25,272 | $52,629 | $136,328 | $7,863,437 | $7,999,765 | $6,920 | $88,388 |
| 30 - 59 Days Past Due | 60 - 89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current Loans | Total Loans | 90 Days Past Due or More & Still Accruing | Non-accrual loans | |
| Commercial real estate | $4,535 | $1,676 | $37,891 | $44,102 | $2,725,185 | $2,769,287 | $677 | $37,318 |
| Owner-occupied commercial real estate | 1,251 | 1,091 | 6,310 | 8,652 | 584,468 | 593,120 | 177 | 7,800 |
| Acquisition, construction & development | 578 | 699 | 13,243 | 14,520 | 372,350 | 386,870 | 559 | 12,793 |
| Commercial & industrial | 2,008 | 2,354 | 5,629 | 9,991 | 451,930 | 461,921 | 512 | 5,512 |
| Single family residential (1-4 units) | 14,823 | 7,541 | 3,594 | 25,958 | 1,101,726 | 1,127,684 | 1,694 | 6,802 |
| Consumer non-real estate and other | 395 | 151 | 346 | 892 | 47,902 | 48,794 | 4 | 388 |
| Total | $23,590 | $13,512 | $67,013 | $104,115 | $5,283,561 | $5,387,676 | $3,623 | $70,613 |
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, current economic information, and other factors. The Company analyzes loans individually by classifying the loans by credit risk. The Company internally grades all commercial loans at the time of origination. In addition, the Company performs an annual review on at least 50% of the Bank’s commercial credit exposure. The Company uses the following definitions for credit risk classifications:
Pass: These include satisfactory loans that have acceptable levels of risk.
Special Mention: Loans classified as special mention have a potential credit weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard: Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the orderly liquidation of debt. Loans classified as substandard are inadequately protected by sound net worth, payment capacity of the borrower, or of the collateral pledged. If weaknesses go uncorrected, there is potential for partial loss of principal and/or interest.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and unlikely.
Loss: Loans classified as a loss are considered to be uncollectible and cannot be justified to continue as viable assets. While there may be the possibility of some recovery in the future, it is not practical or desirable to defer writing off these loans at the present time.
The Company has a portfolio of smaller homogenous loans that are not individually risk rated that are included within the single family residential and consumer non-real estate and other loan classes. Generally, these loan classes are rated as “Pass” unless these loans are on non-accrual and are then classified as substandard.
The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of June 30, 2026, and December 31, 2025 (in thousands):
| Term Loans | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans | Total | |
| Commercial real estate | ||||||||
| Pass | $318,535 | $554,537 | $353,016 | $456,039 | $665,435 | $1,151,543 | $143,546 | $3,642,651 |
| Special Mention | 534 | 1,961 | 5,350 | 5,234 | 5,150 | 32,791 | — | 51,020 |
| Substandard | — | 132 | — | 16,027 | 41,181 | 127,299 | 15,762 | 200,401 |
| Doubtful | — | — | — | — | 260 | 4,055 | — | 4,315 |
| Loss | — | — | — | — | — | — | — | — |
| Total | $319,069 | $556,630 | $358,366 | $477,300 | $712,026 | $1,315,688 | $159,308 | $3,898,387 |
| Year to date gross charge-offs | $— | $— | $— | $100 | $— | $— | $— | $100 |
| Owner-occupied commercial real estate | ||||||||
| Pass | $81,038 | $183,481 | $102,732 | $103,544 | $159,306 | $433,365 | $51,395 | $1,114,861 |
| Special Mention | — | 344 | — | 2,947 | — | 8,938 | 1,305 | 13,534 |
| Substandard | — | 3,925 | 2,606 | 1,137 | 7,755 | 5,245 | 163 | 20,831 |
| Doubtful | — | — | — | — | 3,414 | 109 | — | 3,523 |
| Loss | — | — | — | — | — | — | — | — |
| Total | $81,038 | $187,750 | $105,338 | $107,628 | $170,475 | $447,657 | $52,863 | $1,152,749 |
| Year to date gross charge-offs | $— | $— | $— | $— | $65 | $— | $— | $65 |
| Acquisition, construction & development | ||||||||
| Pass | $39,438 | $111,919 | $58,435 | $75,161 | $49,142 | $48,005 | $42,884 | $424,984 |
| Special Mention | — | — | — | 3,005 | — | 5,931 | 2,515 | 11,451 |
| Substandard | — | — | — | 6,878 | 917 | 8,193 | — | 15,988 |
| Doubtful | — | — | — | — | — | 151 | 64 | 215 |
| Loss | — | — | — | — | — | — | — | — |
| Total | $39,438 | $111,919 | $58,435 | $85,044 | $50,059 | $62,280 | $45,463 | $452,638 |
| Year to date gross charge-offs | $— | $— | $— | $— | $— | $— | $— | $— |
| Commercial & industrial | ||||||||
| Pass | $54,850 | $99,279 | $85,620 | $35,028 | $44,229 | $79,997 | $406,185 | $805,188 |
| Special Mention | — | 488 | 6,885 | 277 | 8,502 | 1,407 | 1,419 | 18,978 |
| Substandard | — | 1,008 | 260 | 956 | 4,291 | 2,285 | 4,943 | 13,743 |
| Doubtful | — | — | — | — | 1,608 | 7 | 1,313 | 2,928 |
| Loss | — | — | — | — | — | 10 | 31 | 41 |
| Total | $54,850 | $100,775 | $92,765 | $36,261 | $58,630 | $83,706 | $413,891 | $840,878 |
| Year to date gross charge-offs | $— | $53 | $— | $104 | $99 | $2 | $— | $258 |
| Single family residential (1-4 units) | ||||||||
| Pass | $89,427 | $118,179 | $92,257 | $165,172 | $242,991 | $617,424 | $258,421 | $1,583,871 |
| Special Mention | — | — | 101 | — | 931 | 381 | 183 | 1,596 |
| Substandard | — | 114 | 4,732 | 2,311 | 3,618 | 4,325 | 1,895 | 16,995 |
| Doubtful | — | — | — | — | — | 82 | 2,930 | 3,012 |
| Loss | — | — | — | — | — | 50 | — | 50 |
| Total | $89,427 | $118,293 | $97,090 | $167,483 | $247,540 | $622,262 | $263,429 | $1,605,524 |
| Year to date gross charge-offs | $— | $— | $— | $32 | $— | $3 | $— | $35 |
|---|---|---|---|---|---|---|---|---|
| Consumer non-real estate and other | ||||||||
| Pass | $8,662 | $9,056 | $9,243 | $6,327 | $2,785 | $4,026 | $9,052 | $49,151 |
| Special Mention | — | — | — | 78 | — | 23 | — | 101 |
| Substandard | — | 2 | 88 | 130 | 27 | — | 24 | 271 |
| Doubtful | — | 1 | — | — | 2 | — | 63 | 66 |
| Loss | — | — | — | — | — | — | — | — |
| Total | $8,662 | $9,059 | $9,331 | $6,535 | $2,814 | $4,049 | $9,139 | $49,589 |
| Year to date gross charge-offs | $653 | $11 | $97 | $54 | $465 | $155 | $— | $1,435 |
| Totals | $592,484 | $1,084,426 | $721,325 | $880,251 | $1,241,544 | $2,535,642 | $944,093 | $7,999,765 |
| Term Loans | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Total | |
| Commercial real estate | ||||||||
| Pass | $324,565 | $245,763 | $377,142 | $437,116 | $383,808 | $620,673 | $128,260 | $2,517,327 |
| Special Mention | — | 5,395 | 5,224 | 13,941 | — | 34,172 | 2,468 | 61,200 |
| Substandard | — | — | 15,675 | 50,300 | 50,745 | 53,091 | 16,058 | 185,869 |
| Doubtful | — | — | — | 3,156 | — | 1,735 | — | 4,891 |
| Loss | — | — | — | — | — | — | — | — |
| Total | $324,565 | $251,158 | $398,041 | $504,513 | $434,553 | $709,671 | $146,786 | $2,769,287 |
| Year to date gross charge-offs | $— | $— | $— | $— | $— | $116 | $— | $116 |
| Owner-occupied commercial real estate | ||||||||
| Pass | $72,903 | $57,923 | $61,402 | $75,692 | $91,329 | $175,545 | $32,434 | $567,228 |
| Special Mention | — | — | 274 | 6,182 | 232 | 3,421 | — | 10,109 |
| Substandard | 459 | — | 521 | 2,002 | 1,113 | 6,391 | 73 | 10,559 |
| Doubtful | — | — | — | 3,404 | 1,820 | — | — | 5,224 |
| Loss | — | — | — | — | — | — | — | — |
| Total | $73,362 | $57,923 | $62,197 | $87,280 | $94,494 | $185,357 | $32,507 | $593,120 |
| Year to date gross charge-offs | $— | $— | $— | $363 | $10 | $632 | $95 | $1,100 |
| Acquisition, construction & development | ||||||||
| Pass | $51,546 | $27,499 | $139,222 | $56,766 | $32,792 | $13,664 | $48,012 | $369,501 |
| Special Mention | — | — | 3,511 | — | — | 137 | 91 | 3,739 |
| Substandard | — | — | 258 | 812 | 4,062 | 4,974 | — | 10,106 |
| Doubtful | — | — | — | 3,415 | — | — | 109 | 3,524 |
| Loss | — | — | — | — | — | — | — | — |
| Total | $51,546 | $27,499 | $142,991 | $60,993 | $36,854 | $18,775 | $48,212 | $386,870 |
| Year to date gross charge-offs | $— | $— | $1 | $— | $— | $— | $— | $1 |
| Commercial & industrial | ||||||||
| Pass | $63,901 | $66,758 | $27,018 | $25,659 | $16,991 | $26,677 | $206,654 | $433,658 |
| Special Mention | 1,814 | 2,086 | 637 | 13,788 | — | 1,238 | 1,009 | 20,572 |
| Substandard | 704 | 64 | 855 | 2,286 | 192 | 1,083 | 2,463 | 7,647 |
| Doubtful | — | — | — | — | — | — | — | — |
| Loss | — | — | — | — | — | 37 | 7 | 44 |
| Total | $66,419 | $68,908 | $28,510 | $41,733 | $17,183 | $29,035 | $210,133 | $461,921 |
| Year to date gross charge-offs | $— | $— | $32 | $8 | $— | $14 | $184 | $238 |
| Single family residential (1-4 units) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Pass | $66,662 | $82,957 | $131,349 | $180,837 | $125,345 | $362,811 | $168,043 | $1,118,004 |
| Special Mention | — | 283 | 134 | 788 | 401 | 503 | 673 | 2,782 |
| Substandard | 115 | — | 1,615 | 589 | 713 | 3,434 | 336 | 6,802 |
| Doubtful | — | — | — | — | — | 95 | — | 95 |
| Loss | — | — | — | — | — | 1 | — | 1 |
| Total | $66,777 | $83,240 | $133,098 | $182,214 | $126,459 | $366,844 | $169,052 | $1,127,684 |
| Year to date gross charge-offs | $— | $— | $— | $— | $— | $60 | $172 | $232 |
| Consumer non-real estate and other | ||||||||
| Pass | $9,612 | $10,961 | $5,543 | $2,804 | $687 | $1,645 | $17,335 | $48,587 |
| Special Mention | — | — | 92 | — | 33 | — | — | 125 |
| Substandard | — | 62 | 20 | — | — | — | — | 82 |
| Doubtful | — | — | — | — | — | — | — | — |
| Loss | — | — | — | — | — | — | — | — |
| Total | $9,612 | $11,023 | $5,655 | $2,804 | $720 | $1,645 | $17,335 | $48,794 |
| Year to date gross charge-offs | $1,750 | $195 | $133 | $62 | $2 | $1 | $5 | $2,148 |
| Totals | $592,281 | $499,751 | $770,492 | $879,537 | $710,263 | $1,311,327 | $624,025 | $5,387,676 |
The following tables present information about collateral-dependent loans that were individually evaluated for purposes of determining the ACL as of June 30, 2026, and December 31, 2025 (in thousands):
| With Allowance · With No Related Allowance · Total | |||||
|---|---|---|---|---|---|
| Amortized Cost | Related Allowance | Amortized Cost | Amortized Cost | Related Allowance | |
| Commercial real estate | $18,141 | $3,717 | $21,085 | $39,226 | $3,717 |
| Owner-occupied commercial real estate | 8,728 | 2,885 | 5,135 | 13,863 | 2,885 |
| Acquisition, construction & development | 301 | 153 | 12,414 | 12,715 | 153 |
| Commercial & industrial | 7,175 | 5,837 | 1,098 | 8,273 | 5,837 |
| Single family residential (1-4 units) | 9,017 | 2,168 | 6,989 | 16,006 | 2,168 |
| Consumer non-real estate and other | 32 | 32 | — | 32 | 32 |
| Total | $43,394 | $14,792 | $46,721 | $90,115 | $14,792 |
| With Allowance · With No Related Allowance · Total | |||||
|---|---|---|---|---|---|
| Amortized Cost | Related Allowance | Amortized Cost | Amortized Cost | Related Allowance | |
| Commercial real estate | $14,316 | $3,939 | $23,857 | $38,173 | $3,939 |
| Owner-occupied commercial real estate | — | — | 8,987 | 8,987 | — |
| Acquisition, construction & development | 4,071 | 1,431 | 9,276 | 13,347 | 1,431 |
| Commercial & industrial | 4,440 | 4,227 | — | 4,440 | 4,227 |
| Single family residential (1-4 units) | 258 | 35 | 3,516 | 3,774 | 35 |
| Consumer non-real estate and other | — | — | — | — | — |
| Total | $23,085 | $9,632 | $45,636 | $68,721 | $9,632 |
Purchased Credit Deteriorated Loans
The Company has purchased loans relating to the LNKB Merger for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans, at acquisition, is as follows (in thousands):
| Amounts | |
|---|---|
| Purchase price of loans at acquisition | $75,655 |
| Allowance for credit losses at acquisition | 5,259 |
| Non-credit discount/(premium) at acquisition | 16,545 |
| Par value of acquired loans at acquisition | $97,459 |
Loan Modifications
On January 1, 2023, the Company adopted ASU 2022-02 on a modified retrospective basis. ASU 2022-02 eliminates the troubled debt restructuring (“TDR”) accounting model and requires that the Company evaluate, based on the accounting for loan modifications, whether the borrower is experiencing financial difficulty, and the modification results in a more-than-insignificant direct change in the contractual cash flows and represents a new loan or a continuation of an existing loan. This change required all loan modifications to be accounted for under the general loan modification guidance in ASC 310-20, Receivables — Nonrefundable Fees and Other Costs, and subjects entities to new disclosure requirements on loan modifications to borrowers experiencing financial difficulty.
The Company may modify loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, interest rate reduction, or an other-than-insignificant payment delay. When principal forgiveness is provided, the amount of forgiveness is charged off against the ACL. The Company may also provide multiple types of modifications on an individual loan. For the six months ended June 30, 2026, and for the year ended, December 31, 2025, the Company did not extend any modifications to borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan.
Other Real Estate Owned
Real estate owned activity was as follows for the six months ended June 30, 2026, and for the year ended, December 31, 2025 (in thousands):
| June 30, 2026 | December 31, 2025 | |
|---|---|---|
| Beginning balance | $2,689 | $2,783 |
| Loans acquired/transferred to real estate owned | 417 | 259 |
| Capital expenditures | — | — |
| Direct write-downs | — | (195) |
| Sales of real estate owned | (172) | (158) |
| End of period balance | $2,934 | $2,689 |
Note 5—Deposits
The aggregate amount of time deposits that meet or exceed the FDIC Insurance Limit of $250,000, was approximately $492.5 million and $295.4 million on June 30, 2026, and December 31, 2025, respectively. Brokered time deposits, which are fully insured, totaled $120.7 million and $64.4 million as of June 30, 2026, and December 31, 2025, respectively. Time deposits through the Certificate of Deposit Account Registry Service (“CDARS”) program totaled $28.5 million at June 30, 2026, compared to $22.4 million at December 31, 2025.
Note 5— Deposits (continued)
The remaining maturities of time deposits as of June 30, 2026, are as follows (in thousands):
| As of June 30, 2026 | |
|---|---|
| Remaining six months ending, December 31, 2026 | $1,178,960 |
| 2027 | 441,422 |
| 2028 | 89,177 |
| 2029 | 10,188 |
| 2030 | 7,144 |
| Thereafter | 9,542 |
| Total | $1,736,433 |
At June 30, 2026, and December 31, 2025, amounts included in time deposits for individual retirement accounts totaled $159.8 million and $111.2 million, respectively.
Overdrafts of $756.0 thousand and $704.0 thousand were reclassified to loans as of June 30, 2026, and the year ended December 31, 2025, respectively.
Note 6—Borrowed Funds
Short-term borrowings
The Company had borrowings of $525.0 million and $450.0 million at June 30, 2026, and December 31, 2025, respectively. At June 30, 2026, the interest rate on this debt was 3.82%. At December 31, 2025, the interest rate on this debt was 3.75%. The average balance outstanding during the six months ending June 30, 2026, and the year ending December 31, 2025, was $571.2 million and $422.1 million, respectively. The Company has a finance lease liability that is not included in these balances - see Note 7 - Leased Property for a discussion of this liability that is included in the accrued interest and other liabilities line in the Consolidated Balance Sheets.
The Company has available secured lines of credit with the Federal Reserve Bank of Richmond, such as the Borrower-In-Custody program, the FHLB of Atlanta, and unsecured federal funds lines of credit from correspondent banking relationships. Through these sources, the Company has unused capacity of $6.0 billion in remaining borrowing capacity as of June 30, 2026. The advances on credit lines are secured by both securities and loans. The lendable collateral value of securities and loans pledged against available lines of credit as of June 30, 2026, and December 31, 2025, was $5.0 billion and $3.2 billion, respectively. As of June 30, 2026, all of the Company’s borrowings will mature within one calendar year.
The contractual maturities of these borrowings, which all occur within one year of the reporting date, are as follows as of June 30, 2026, (in thousands):
| Due in 2026 | $525,000 |
|---|---|
| Total | $525,000 |
Long-term borrowings
Subordinated Debentures
As part of the merger with Summit Financial Group, Inc., which closed on May 3, 2024, (the “Summit Merger”), Burke & Herbert assumed $75.0 million of subordinated debentures, that were fair valued at $61.5 million with a $13.5 million discount being amortized into interest expense over the stated maturity. As of June 30, 2026, the net balance was $72.8 million. The subordinated debt qualifies as Tier 2 capital under Federal Reserve Board guidelines, until the debt is within 5 years of its maturity; thereafter, the amount qualifying as Tier 2 capital is reduced 20% each year until maturity. The subordinated debentures were issued in the fourth quarter of 2021. This subordinated debt bears interest at a fixed rate of 3.25% per year, from acquisition date to, but excluding, December 1, 2026, payable semi-annually in arrears. From and including, December 1, 2026 to, but excluding, the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”), as
Note 6— Borrowed Funds (continued)
published by the Federal Reserve Bank of New York, plus 230 basis points, payable quarterly in arrears. This debt has a 10-year term, and generally, is not prepayable by us within the first 5 years from issuance, which was fourth quarter 2021.
In connection with the LNKB Merger, Burke & Herbert assumed $62.6 million of subordinated debentures, that were fair valued at $62.1 million with a $0.5 million discount being amortized into interest expense over the stated maturity. As of June 30, 2026, the net balance was $62.0 million. The subordinated debt qualifies as Tier 2 capital under Federal Reserve Board guidelines, until the debt is within 5 years of its maturity; thereafter, the amount qualifying as Tier 2 capital is reduced by 20% each year until maturity.
There were three distinct issuances of subordinated debt assumed in the LNKB Merger. The first has a face value of $20.0 million and was issued in the second quarter of 2022. This subordinated debt, which will mature on April 15, 2032, bears interest at a fixed rate of 4.50% for the period up to but excluding April 15, 2027 (the “Fixed Interest Rate Period”). From April 15, 2027, until maturity or redemption (the “Floating Interest Rate Period”), the interest rate will adjust to a floating rate of three-month SOFR plus 203 basis points. The Company pays interest in arrears semi-annually during the Fixed Interest Rate Period and quarterly during the Floating Interest Rate Period. Subject to limited exceptions, the Company cannot redeem the Notes before the fifth anniversary of the issuance date.
The second issuance, with face value of $20.0 million matures on October 1, 2030, and initially bore interest at a fixed rate of 5.00% until October 1, 2025. Since October 1, 2025, to the stated maturity date or earlier redemption date, the interest rate resets semi-annually to an annual floating rate of three-month SOFR plus a spread of 475 basis points, but no less than 5.0%. The Company has the ability to redeem the notes in this issuance, in whole or in part, since October 1, 2025 plus accrued and unpaid interest. These Notes are also redeemable in whole or in part upon the occurrence of specific events defined within the indenture.
The third issuance hastwo tranches. The first tranche was issued in January 2018, with a face value of $4.5 million, which bears interest at a fixed rate of 6.875% and matures in April 1, 2028. Interest is payable quarterly in arrears. The second tranche has a face value of $18.1 million and initially bore interest at a fixed rate of 6.00%, from June 25, 2020 up to but excluding July 1, 2025, and was payable semi-annually in arrears. From and including July 1, 2025, up to but excluding July 1, 2030, or to a redemption date, the interest rate on the second tranche shall reset quarterly to the then current three-month SOFR plus 590 basis points, payable quarterly in arrears. Beginning on July 1, 2025, through maturity, the subordinated notes may be redeemed at the Company’s option on any scheduled interest payment date. These subordinated notes mature on July 1, 2030.
Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts
As part of the Summit Merger, Burke & Herbert became the sponsor for SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III. For each of these trusts,100% of the common equity is owned by us. SFG Capital Trust I issued $3.5 million in capital securities and $109 thousand in common securities and invested the proceeds in $3.6 million of debentures, which were assumed by Burke & Herbert in the Summit Merger. SFG Capital Trust II issued $7.5 million in capital securities and $232 thousand in common securities and invested the proceeds in $7.7 million of debentures, which were assumed by Burke & Herbert in the Summit Merger. SFG Capital Trust III issued $8.0 million in capital securities and $248 thousand in common securities and invested the proceeds in $8.3 million of debentures, which were assumed by Burke & Herbert in the Summit Merger. Distributions on the capital securities issued by the trusts are payable quarterly at a variable rate equal to three-month term SOFR plus 345 basis points for SFG Capital Trust I, three-month term SOFR plus 280 basis points for SFG Capital Trust II, and three-month term SOFR plus 145 basis points for SFG Capital Trust III, and equals the interest rate earned on the debentures held by the trusts and is recorded as interest expense by us. The capital securities are subject to mandatory redemption in whole, or in part, upon repayment of the debentures. We have entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of the guarantee. The debentures of each Capital Trust are redeemable by us quarterly.
The capital securities issued by SFG Capital Trust I, SFG Capital Trust II, and SFG Capital Trust III qualify as Tier 1 capital under the Federal Reserve guidelines. In accordance with these guidelines, trust preferred securities are limited to
Note 6— Borrowed Funds (continued)
25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital.
The remaining maturities of subordinated debentures as of June 30, 2026, are as follows (in thousands):
| Subordinated debentures · Subordinated debentures owed to unconsolidated subsidiary trusts | ||
|---|---|---|
| Remaining six months ending, December 31, 2026 | $— | $— |
| 2027 | — | — |
| 2028 | 4,500 | — |
| 2029 | — | — |
| 2030 | 38,050 | — |
| Thereafter | 95,000 | 19,589 |
| Total | $137,550 | $19,589 |
Note 7—Leased Property
Lessor Arrangements
The Company enters into operating leases with customers to lease vacant space in certain owned premises that is not being used by the Company. These operating leases are typically payable in monthly installments with terms ranging from aroundone year to around nine years and may contain renewal options. The components of lease income, which were included in non-interest expense in the occupancy line item on the Consolidated Statements of Income, were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||
|---|---|---|---|---|
| 2026 | 2025 | 2026 | 2025 | |
| Operating lease income | $662 | $699 | $1,357 | $1,393 |
| Total lease income | $662 | $699 | $1,357 | $1,393 |
The remaining maturities of operating lease receivables as of June 30, 2026, are as follows (in thousands):
| Operating Leases | |
|---|---|
| Remaining six months ending, December 31, 2026 | $1,302 |
| 2027 | 2,427 |
| 2028 | 2,330 |
| 2029 | 2,130 |
| 2030 | 1,585 |
| Thereafter | 1,371 |
| Total lease receivables | $11,145 |
Lessee Arrangements
The Company has entered into leases for branches and office space. The leases are evaluated for whether the lease will be classified as either a finance or operating lease. Certain leases offer the option to extend the lease term, and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. Including renewal options, the terms of the Company’s leases range from less thanone year to approximately twelve years. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. These cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. The right-of-use asset and lease liability are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.
Note 7— Leased Property (continued)
Right-of-use assets and liabilities by lease type, and the associated balance sheet classifications are as follows (in thousands):
| Balance Sheet Classification | June 30, 2026 | December 31, 2025 | |
|---|---|---|---|
| Right-of-use assets: | |||
| Operating leases | Other assets | $27,591 | $14,096 |
| Finance leases | Other assets | 4,193 | 3,795 |
| Total right-of-use assets | $31,784 | $17,891 | |
| Lease liabilities: | |||
| Operating leases | Other liabilities | $29,234 | $14,717 |
| Finance leases | Other liabilities | 4,597 | 4,158 |
| Total lease liabilities | $33,831 | $18,875 | |
The components of total lease cost were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||
|---|---|---|---|---|
| 2026 | 2025 | 2026 | 2025 | |
| Finance lease cost | ||||
| Right-of-use asset amortization | $106 | $71 | $202 | $143 |
| Interest expense | 39 | 26 | 74 | 53 |
| Operating lease cost | 1,488 | 842 | 2,977 | 1,677 |
| Total lease cost | $1,633 | $939 | $3,253 | $1,873 |
The Company’s future undiscounted lease payments for finance and operating leases with initial terms of one year or more as of June 30, 2026, are as follows (in thousands):
| Operating Leases · Finance Leases | ||
|---|---|---|
| Remaining six months ending, December 31, 2026 | $2,921 | $248 |
| 2027 | 5,606 | 504 |
| 2028 | 4,887 | 515 |
| 2029 | 4,674 | 526 |
| 2030 | 4,144 | 538 |
| Thereafter | 12,570 | 3,157 |
| Total undiscounted lease payments | 34,802 | 5,488 |
| Less: discount | (5,568) | (891) |
| Net lease liabilities | $29,234 | $4,597 |
Note 7— Leased Property (continued)
The following table presents additional information about the Company’s leases as of June 30, 2026, and December 31, 2025.
| Supplemental lease information (dollars in thousands) | June 30, 2026 | December 31, 2025 |
|---|---|---|
| Finance lease weighted average remaining lease term (years) | 10.03 | 10.61 |
| Finance lease weighted average discount rate | 3.44% | 3.32% |
| Operating lease weighted average remaining lease term (years) | 7.12 | 6.66 |
| Operating lease weighted average discount rate | 4.54% | 4.64% |
| Six Months Ended June 30, | ||
| Cash paid for amounts included in the measurement of lease liabilities | 2026 | 2025 |
| Operating cash flows from operating leases | $2,912 | $1,574 |
| Operating cash flows from finance leases | 74 | 53 |
| Financing cash flows from finance leases | 162 | 113 |
| Right-of-use assets obtained in exchange for new finance lease liabilities | 600 | — |
| Right-of-use assets obtained in exchange for new operating lease liabilities | 412 | — |
Note 8—Regulatory Capital Matters
Banks and financial holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, “prompt corrective action” regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Under the Basel III Framework, an entity must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The net unrealized gain or loss on AFS securities is not included in computing regulatory capital. Management believes as of June 30, 2026, the Company and the Bank meet all capital adequacy requirements to which they are subject.
“Prompt corrective action” regulations provide five classifications: “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized”, and “critically undercapitalized”, although these terms are not used to represent overall financial condition. If “adequately capitalized”, regulatory approval is required to accept brokered deposits. If “undercapitalized”, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of June 30, 2026, and December 31, 2025, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for “prompt corrective action.”
Note 8— Regulatory Capital Matters (continued)
The following table presents the actual and required capital amounts and ratios for the Company and the Bank at June 30, 2026, and December 31, 2025 (in thousands except for ratios):
| Actual | Minimum Required Capital - Basel III | Minimum Required to be Well Capitalized | ||||
|---|---|---|---|---|---|---|
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |
| Total Capital to risk weighted assets | ||||||
| Consolidated | $1,310,782 | 14.43% | $953,726 | ≥ 10.5% | $908,311 | N/A |
| Burke & Herbert Bank & Trust | 1,299,177 | 14.31 | 953,467 | ≥ 10.5 | 908,064 | ≥ 10.0% |
| Tier 1 (Core) Capital to risk weighted assets | ||||||
| Consolidated | 1,097,404 | 12.08 | 772,064 | ≥ 8.5 | 726,648 | N/A |
| Burke & Herbert Bank & Trust | 1,209,314 | 13.32 | 771,854 | ≥ 8.5 | 726,451 | ≥ 8.0 |
| Common Tier 1 (CET 1) to risk-weighted assets | ||||||
| Consolidated | 1,069,597 | 11.78 | 635,817 | ≥ 7.0 | 590,402 | N/A |
| Burke & Herbert Bank & Trust | 1,209,314 | 13.32 | 635,645 | ≥ 7.0 | 590,241 | ≥ 6.5 |
| Tier 1 (Core) Capital to average assets (leverage ratio) | ||||||
| Consolidated | 1,097,404 | 11.07 | 396,431 | ≥ 4.0 | 495,538 | N/A |
| Burke & Herbert Bank & Trust | 1,209,314 | 12.26 | 394,692 | ≥ 4.0 | 493,365 | ≥ 5.0 |
| Total Capital to risk weighted assets | ||||||
| Consolidated | $1,004,898 | 16.17% | $652,648 | ≥ 10.5% | $621,570 | N/A |
| Burke & Herbert Bank & Trust | 986,269 | 15.92 | 650,649 | ≥ 10.5 | 619,665 | ≥ 10.0% |
| Tier 1 (Core) Capital to risk weighted assets | ||||||
| Consolidated | 863,657 | 13.89 | 528,334 | ≥ 8.5 | 497,256 | N/A |
| Burke & Herbert Bank & Trust | 915,250 | 14.77 | 526,716 | ≥ 8.5 | 495,732 | ≥ 8.0 |
| Common Tier 1 (CET 1) to risk-weighted assets | ||||||
| Consolidated | 835,976 | 13.45 | 435,099 | ≥ 7.0 | 404,020 | N/A |
| Burke & Herbert Bank & Trust | 915,250 | 14.77 | 433,766 | ≥ 7.0 | 402,782 | ≥ 6.5 |
| Tier 1 (Core) Capital to average assets (leverage ratio) | ||||||
| Consolidated | 863,657 | 10.92 | 316,492 | ≥ 4.0 | 395,615 | N/A |
| Burke & Herbert Bank & Trust | 915,250 | 11.59 | 315,898 | ≥ 4.0 | 394,873 | ≥ 5.0 |
The Company’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. As of June 30, 2026, approximately $345.7 million of retained earnings was available for dividend declaration consistent with the Company’s capital plan.
Note 9—Derivatives
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
Cash flow hedges of interest rate risk
The Company’s objective in using interest rate derivatives is to add stability to net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps, caps, and floors as part of its interest rate risk management strategy. Interest rate swaps, designated as cash flow hedges, involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of June 30, 2026, such derivatives were used to hedge the variable cash flows associated with variable-rate liabilities. As of June 30, 2025, such derivatives were used to hedge the variable cash flows associated with variable-rate liabilities.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense or interest income in the same period(s) during which the hedged transaction affects earnings. During the next twelve months, the Company estimates that an additional $1.8 million will be reclassified as a reduction in interest expense.
Derivatives not designated as hedges
The Company enters into interest rate swaps with its loan customers to facilitate their financing requests. Upon entering into swaps with our loan customers, the Company will enter into corresponding offsetting derivatives with third parties. These derivatives represent economic hedges and do not qualify as hedges for accounting. These back-to-back interest rate swaps are reported at fair value in other assets and accrued interest and other liabilities in the Company’s Consolidated Balance Sheets. Changes in the fair value of interest rate swaps are recorded in other non-interest expense in the other operating line item and sum tozero because of offsetting terms of swaps with borrowers and swaps with dealer counterparties.
The table below presents the fair value of the Company’s derivative financial instruments, which includes accrued interest, as well as their classification on the Consolidated Balance Sheets as of June 30, 2026, and December 31, 2025 (in thousands):
| June 30, 2026 | |||
|---|---|---|---|
| Balance Sheet Location | Notional Amount | Fair Value | |
| Derivatives designated as hedges: | |||
| Interest rate swaps related to cash flow hedges | Other assets | $425,000 | $3,791 |
| Interest rate swaps related to cash flow hedges | Other liabilities | — | — |
| Derivatives not designated as hedges: | |||
| Interest rate swaps related to customer loans | Other assets | $270,514 | $2,292 |
| Interest rate swaps related to customer loans | Other liabilities | 270,514 | 2,292 |
| December 31, 2025 | |||
|---|---|---|---|
| Balance Sheet Location | Notional Amount | Fair Value | |
| Derivatives designated as hedges: | |||
| Interest rate swaps related to cash flow hedges | Other assets | $150,000 | $273 |
| Interest rate swaps related to cash flow hedges | Other liabilities | 400,000 | 340 |
| Derivatives not designated as hedges: | |||
| Interest rate swaps related to customer loans | Other assets | $203,904 | $2,331 |
| Interest rate swaps related to customer loans | Other liabilities | 203,904 | 2,331 |
The table below presents the effect of cash flow hedge accounting on AOCI for the three months ended June 30, 2026, and June 30, 2025 (in thousands):
| Derivatives in Cash FlowHedging Relationships · June 30, 2026 · Location of Gain or (Loss) Reclassified from AOCI into Income · June 30, 2026 | |||||||
|---|---|---|---|---|---|---|---|
| Amount of Gain or (Loss) Recognized in OCI on Derivative · Amount of Gain or (Loss) Recognized in OCI Included Component · Amount of Gain or (Loss) Recognized in OCI Excluded Component · Amount of Gain or (Loss) Reclassified from AOCI into Income · Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component · Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component | |||||||
| Interest Rate Products | $— | $— | $— | Interest Income | $— | $— | $— |
| Interest Rate Products | 953 | 953 | — | Interest Expense | 289 | 289 | — |
| Total | $953 | $953 | $— | $289 | $289 | $— | |
| Derivatives in Cash FlowHedging Relationships · June 30, 2025 · Location of Gain or (Loss) Reclassified from AOCI into Income · June 30, 2025 | |||||||
|---|---|---|---|---|---|---|---|
| Amount of Gain or (Loss) Recognized in OCI on Derivative · Amount of Gain or (Loss) Recognized in OCI Included Component · Amount of Gain or (Loss) Recognized in OCI Excluded Component · Amount of Gain or (Loss) Reclassified from AOCI into Income · Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component · Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component | |||||||
| Interest Rate Products | $— | $— | $— | Interest Income | $— | $— | $— |
| Interest Rate Products | 877 | 877 | — | Interest Expense | 732 | 732 | — |
| Total | $877 | $877 | $— | $732 | $732 | $— | |
The table below presents the effect of cash flow hedge accounting on AOCI for the six months ended June 30, 2026, and June 30, 2025 (in thousands):
| Derivatives in Cash FlowHedging Relationships · June 30, 2026 · Location of Gain or (Loss) Reclassified from AOCI into Income · June 30, 2026 | |||||||
|---|---|---|---|---|---|---|---|
| Amount of Gain or (Loss) Recognized in OCI on Derivative · Amount of Gain or (Loss) Recognized in OCI Included Component · Amount of Gain or (Loss) Recognized in OCI Excluded Component · Amount of Gain or (Loss) Reclassified from AOCI into Income · Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component · Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component | |||||||
| Interest Rate Products | $— | $— | $— | Interest Income | $— | $— | $— |
| Interest Rate Products | 2,620 | 2,620 | — | Interest Expense | 324 | 324 | — |
| Total | $2,620 | $2,620 | $— | $324 | $324 | $— | |
| Derivatives in Cash FlowHedging Relationships · June 30, 2025 · Location of Gain or (Loss) Reclassified from AOCI into Income · June 30, 2025 | |||||||
|---|---|---|---|---|---|---|---|
| Amount of Gain or (Loss) Recognized in OCI on Derivative · Amount of Gain or (Loss) Recognized in OCI Included Component · Amount of Gain or (Loss) Recognized in OCI Excluded Component · Amount of Gain or (Loss) Reclassified from AOCI into Income · Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component · Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component | |||||||
| Interest Rate Products | $— | $— | $— | Interest Income | $— | $— | $— |
| Interest Rate Products | 396 | 396 | — | Interest Expense | 1,158 | 1,158 | — |
| Total | $396 | $396 | $— | $1,158 | $1,158 | $— | |
The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the three and six months ended June 30, 2026, and June 30, 2025 (in thousands).
| Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships | ||||
|---|---|---|---|---|
| Three months ended | ||||
| June 30, 2026 | June 30, 2025 | |||
| Interest Income | Interest Expense | Interest Income | Interest Expense | |
| Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded | $684 | $289 | $40 | $732 |
| The effects of fair value and cash flow hedging: | ||||
| Gain or (loss) on fair value hedging relationships in Subtopic 815-20 | ||||
| Interest contracts | ||||
| Hedged items (1) | 684 | — | 40 | — |
| Derivatives designated as hedging instruments | — | — | — | — |
| Gain or (loss) on cash flow hedging relationships in Subtopic 815-20 | ||||
| Interest contracts | ||||
| Amount of gain or (loss) reclassified from AOCI into income | — | 289 | — | 732 |
| Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring | — | — | — | — |
| Amount of gain or (loss) reclassified from AOCI into income - included component | — | 289 | — | 732 |
| Amount of gain or (loss) reclassified from AOCI into income - excluded component | — | — | — | — |
| Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships | ||||
|---|---|---|---|---|
| Six months ended | ||||
| June 30, 2026 | June 30, 2025 | |||
| Interest Income | Interest Expense | Interest Income | Interest Expense | |
| Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded | $723 | $324 | $80 | $1,158 |
| The effects of fair value and cash flow hedging: | ||||
| Gain or (loss) on fair value hedging relationships in Subtopic 815-20 | ||||
| Interest contracts | ||||
| Hedged items (1) | 723 | — | 80 | — |
| Derivatives designated as hedging instruments | — | — | — | — |
| Gain or (loss) on cash flow hedging relationships in Subtopic 815-20 | ||||
| Interest contracts | ||||
| Amount of gain or (loss) reclassified from AOCI into income | — | 324 | — | 1,158 |
| Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring | — | — | — | — |
| Amount of gain or (loss) reclassified from AOCI into income - included component | — | 324 | — | 1,158 |
| Amount of gain or (loss) reclassified from AOCI into income - excluded component | — | — | — | — |
(1) The Company voluntarily discontinued a fair value hedging relationship and these amounts include the gain or (loss) and the hedging adjustment on a voluntary discontinued hedging relationship. The Company has allocated the basis adjustment to the remaining individual assets in the closed portfolio and will amortize the basis adjustment over a period consistent with amortization of other discounts or premiums on the assets.
Credit-risk-related Contingent Features
As of June 30, 2026, excluding back to back interest rate swaps, there areno derivatives in a liability position. As of December 31, 2025, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk related to these agreements, was $340.0 thousand. As of December 31, 2025, the Company has posted the full amount of collateral related to these agreements.
Note 10—Commitments and Contingencies
Credit extension commitments
The Company’s financial statements do not reflect various financial instruments which arise in the normal course of business and which involve elements of credit risk, interest rate risk, and liquidity risk. These financial instruments include commitments to extend credit (e.g., revolving lines of credit) and commercial letters of credit.
Many of our lending relationships contain both funded and unfunded elements. The funded portion is reflected on our balance sheet. The unfunded portion of these commitments is not recorded on our balance sheet until a draw is made under the loan facility. Since many of our commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
A summary of the contractual amounts of the Company’s financial instruments outstanding at June 30, 2026, and December 31, 2025, is as follows (in thousands):
| June 30, 2026 | December 31, 2025 | |
|---|---|---|
| Commitments to extend credit | $1,457,160 | $970,255 |
| Commercial letters of credit | 22,697 | 23,959 |
Commitments to extend credit and commercial letters of credit both include exposure to some credit loss in the event of non-performance of the customer. The Company’s credit policies and procedures for credit commitments and financial guarantees are the same as those for extensions of credit that are recorded on the Consolidated Balance Sheets. Many of these instruments have fixed maturity dates, and many of them will expire without being drawn upon; accordingly, they do not generally present any significant liquidity risk to the Company.
Allowance for credit losses - off-balance-sheet credit exposures
The Company recorded a provision for credit losses on unfunded commitments of $2.2 million and recapture of credit losses of $93.0 thousand on unfunded commitments for the three months ended June 30, 2026 and June 30, 2025, respectively. The Company recorded a provision for credit losses on unfunded commitments of $2.0 million and a recapture of credit losses of $492.0 thousand for the six months ended June 30, 2026 and June 30, 2025, respectively. The ACL on off-balance-sheet credit totaled $5.2 million and $3.2 million as of June 30, 2026, and December 31, 2025, and is included in accrued interest and other liabilities on the accompanying Consolidated Balance Sheets.
Litigation
The Company is a party to litigation, claims, and proceedings arising in the normal course of business that are ordinary and routine to the nature of the Company’s business and operations. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from any currently pending or threatened litigation, claims, or proceedings will not be material to the Company’s financial position as of June 30, 2026, and December 31, 2025, respectively.
Note 11—Fair Value Measurements
Determination of Fair Value
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1– Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2– Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3– Significant unobservable inputs that reflect our own assumptions that market participants would use in pricing an asset or liability.
In instances in which multiple levels of inputs are used to measure fair value, hierarchy classification is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The Company used the following methods and significant assumptions to estimate fair value:
Investment securities
The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Equity Investments
Equity investments are recorded at fair value on a recurring basis, with changes in fair value reported in net income. Through the Summit Merger we acquired an investment in an S&P 500 index fund that is traded on an exchange, and we classify it as Level 1 as of June 30, 2026.
Through the Summit Merger, we acquired perpetual preferred stock of a bank holding company issued in October 2022 in a private offering. The perpetual preferred stock does not trade on an exchange or in an active over-the-counter market; therefore, we estimate its fair value using the present value of its future cash flows using observed discount rates of similar publicly-traded securities, adjusted for a liquidity premium. We classify the perpetual preferred stock as Level 2.
Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment. Such equity securities are included in other assets on the accompanying Consolidated Balance Sheets.
Derivatives
The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The Company has contracted with a third-party vendor to provide valuations for interest rate swaps using standard swap valuation techniques. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its interest rate swap liabilities.
Loans held-for-sale
The fair value of loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan (Level 2). These loans currently consist of one-to-four family residential loans originated for sale in the secondary market.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| Fair Value Measurements at June 30, 2026, Using: | ||||
|---|---|---|---|---|
| Quoted Prices in Active Markets for Identical Assets · Significant Other Observable Inputs · Significant Unobservable Inputs | ||||
| (Level 1) | (Level 2) | (Level 3) | Total | |
| Financial assets | ||||
| Investment Securities | ||||
| U.S. Treasuries and government agencies | $148,946 | $— | $— | $148,946 |
| Obligations of states and municipalities | — | 1,107,768 | — | 1,107,768 |
| Residential mortgage backed - agency | — | 83,988 | — | 83,988 |
| Residential mortgage backed - non-agency | — | 372,533 | — | 372,533 |
| Commercial mortgage backed - agency | — | 72,738 | — | 72,738 |
| Commercial mortgage backed - non-agency | — | 93,347 | — | 93,347 |
| Asset-backed | — | 47,017 | — | 47,017 |
| Other | — | 36,701 | — | 36,701 |
| Total investment securities available-for-sale | $148,946 | $1,814,092 | $— | $1,963,038 |
| Loans held-for-sale | $— | $2,074 | $— | $2,074 |
| Equity investments | $10,014 | $6,107 | $— | $16,121 |
| Derivatives | $— | $6,083 | $— | $6,083 |
| Financial liabilities | ||||
| Derivatives | $— | $2,292 | $— | $2,292 |
| Fair Value Measurements at December 31, 2025, Using: | ||||
|---|---|---|---|---|
| Quoted Prices in Active Markets for Identical Assets · Significant Other Observable Inputs · Significant Unobservable Inputs | ||||
| (Level 1) | (Level 2) | (Level 3) | Total | |
| Financial assets | ||||
| Investment Securities | ||||
| U.S. Treasuries and government agencies | $150,124 | $— | $— | $150,124 |
| Obligations of states and municipalities | — | 922,574 | — | 922,574 |
| Residential mortgage backed - agency | — | 55,385 | — | 55,385 |
| Residential mortgage backed - non-agency | — | 218,092 | — | 218,092 |
| Commercial mortgage backed - agency | — | 73,896 | — | 73,896 |
| Commercial mortgage backed - non-agency | — | 111,109 | — | 111,109 |
| Asset-backed | — | 53,466 | — | 53,466 |
| Other | — | 31,308 | — | 31,308 |
| Total investment securities available-for-sale | $150,124 | $1,465,830 | $— | $1,615,954 |
| Loans held-for-sale | $— | $365 | $— | $365 |
| Equity investments | $9,144 | $5,057 | $— | $14,201 |
| Derivatives | $— | $2,604 | $— | $2,604 |
| Financial liabilities | ||||
|---|---|---|---|---|
| Derivatives | $— | $2,671 | $— | $2,671 |
The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a non-recurring basis in the financial statements:
Collateral dependent loans
Loans for which the borrower is experiencing financial difficulty and repayment is dependent upon the operation or sale of collateral, are considered collateral-dependent. For collateral-dependent loans, the fair value is measured based on the value of the collateral securing the loans, less estimated costs of disposal. Collateral may be in the form of real estate or business assets, including equipment, inventory, and accounts receivable. The vast majority of the collateral underlying collateral-dependent loans is real estate, the fair value of which is measured through an appraisal. The appraisals of the collateral supporting collateral-dependent loans may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Any fair value adjustments are recorded in the period incurred as provision for (recapture of) credit losses on the Consolidated Statements of Income. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.
Other real estate owned
Assets acquired through foreclosure or other proceedings are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The fair value of foreclosed properties is determined on a nonrecurring basis generally utilizing current appraisals performed by an independent, licensed appraiser applying an income or market value approach using observable market data. Updated appraisals of foreclosed properties are generally obtained if the existing appraisal is more than 18 months old or more frequently if there is a known deterioration in value. However, if a current appraisal is not available, the original appraised value is discounted, as appropriate, to compensate for the estimated depreciation in the value of the real estate since the date of its original appraisal. Such discounts are generally estimated based upon management’s knowledge of sales of similar property within the applicable market area and its knowledge of other real estate market-related data, as well as general economic trends. Upon foreclosure, any fair value adjustment is charged against the allowance for credit losses on loans. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense in the Consolidated Statements of Income.
Assets that were measured at fair value on a non-recurring basis during the period are summarized below (in thousands):
| Fair Value Measurements at June 30, 2026, Using: | ||||
|---|---|---|---|---|
| Quoted Prices in Active Markets for Identical Assets · Significant Other Observable Inputs · Significant Unobservable Inputs | ||||
| (Level 1) | (Level 2) | (Level 3) | Total | |
| Collateral dependent loans | ||||
| Commercial real estate | $— | $— | $14,424 | $14,424 |
| Owner-occupied commercial real estate | — | — | 5,843 | 5,843 |
| Acquisition, construction & development | — | — | 148 | 148 |
| Commercial & industrial | — | — | 1,338 | 1,338 |
| Single family residential | — | — | 6,849 | 6,849 |
| Consumer non-real estate and other | — | — | — | — |
| Other real estate owned | — | — | 2,934 | 2,934 |
| Fair Value Measurements at December 31, 2025, Using: | ||||
|---|---|---|---|---|
| Quoted Prices in Active Markets for Identical Assets · Significant Other Observable Inputs · Significant Unobservable Inputs | ||||
| (Level 1) | (Level 2) | (Level 3) | Total | |
| Collateral dependent loans | ||||
| Commercial real estate | $— | $— | $10,377 | $10,377 |
| Owner-occupied commercial real estate | — | — | — | — |
| Acquisition, construction & development | — | — | 2,640 | 2,640 |
| Commercial & industrial | — | — | 213 | 213 |
| Single family residential | — | — | 223 | 223 |
| Consumer non-real estate and other | — | — | — | — |
| Other real estate owned | — | — | 2,689 | 2,689 |
The following table presents quantitative information about Level 3 Fair Value Measurements for assets measured at fair value on a non-recurring basis at June 30, 2026, and December 31, 2025 (in thousands except for percentages):
| Description | Fair Value | Valuation Techniques | Unobservable Inputs | Range |
|---|---|---|---|---|
| Collateral dependent loans | $28,602 | Appraisal of collateral | Management adjustments (e.g., liquidity, selling costs, etc.) | 5.0% to 20.0% for liquidity, 6.0% to 8.0% for selling costs |
| Other real estate owned | 2,934 | Appraisal of collateral | Management adjustments (e.g., liquidity, selling costs, etc.) | 5.0% to 20.0% for liquidity, 6.0% to 8.0% for selling costs |
| Collateral dependent loans | $13,453 | Appraisal of collateral | Management adjustments (e.g., liquidity, selling costs, etc.) | 5.0% to 20.0% for liquidity, 6.0% to 8.0% for selling costs |
| Other real estate owned | 2,689 | Appraisal of collateral | Management adjustments (e.g., liquidity, selling costs, etc.) | 5.0% to 20.0% for liquidity, 6.0% to 8.0% for selling costs |
Fair value of financial instruments
The carrying amounts and estimated fair values of financial instruments not carried at fair value, at June 30, 2026, and December 31, 2025, were as follows (in thousands):
| Fair Value Measurements at June 30, 2026, Using: | |||||
|---|---|---|---|---|---|
| Carrying Amount · Quoted Prices in Active Markets for Identical Assets · Significant Other Observable Inputs · Significant Unobservable Inputs | |||||
| (Level 1) · (Level 2) · (Level 3) · Total | |||||
| Financial Assets | |||||
| Cash and due from banks | $116,443 | $116,443 | $— | $— | $116,443 |
| Interest-earning deposits with banks | 50,710 | 50,710 | — | — | 50,710 |
| Loans, net | 7,905,295 | — | — | 7,875,255 | 7,875,255 |
| Accrued interest | 50,007 | — | 50,007 | — | 50,007 |
| Financial Liabilities | |||||
| Non-interest-bearing deposits | $2,058,076 | $— | $2,058,076 | $— | $2,058,076 |
| Interest-bearing deposits | 6,910,006 | — | 6,901,676 | — | 6,901,676 |
| Short-term borrowings | 525,000 | — | 524,983 | — | 524,983 |
| Subordinated debentures, net | 134,789 | — | 132,805 | — | 132,805 |
| Subordinated debentures owed to unconsolidated subsidiary trusts | 17,394 | — | 16,381 | — | 16,381 |
| Accrued interest | 6,155 | — | 6,155 | — | 6,155 |
| Fair Value Measurements at December 31, 2025, Using: | |||||
|---|---|---|---|---|---|
| Carrying Amount · Quoted Prices in Active Markets for Identical Assets · Significant Other Observable Inputs · Significant Unobservable Inputs | |||||
| (Level 1) · (Level 2) · (Level 3) · Total | |||||
| Financial Assets | |||||
| Cash and due from banks | $53,497 | $53,497 | $— | $— | $53,497 |
| Interest-bearing deposits with banks | 235,630 | 235,630 | — | — | 235,630 |
| Loans, net | 5,319,853 | — | — | 5,284,210 | 5,284,210 |
| Accrued interest | 35,442 | — | 35,442 | — | 35,442 |
| Financial Liabilities | |||||
| Non-interest-bearing deposits | $1,336,380 | $— | $1,336,380 | $— | $1,336,380 |
| Interest-bearing deposits | 5,067,561 | — | 5,062,925 | — | 5,062,925 |
| Short-term borrowings | 450,000 | — | 450,005 | — | 450,005 |
| Subordinated debentures, net | 70,222 | — | 70,800 | — | 70,800 |
| Subordinated debentures owed to unconsolidated subsidiary trusts | 17,268 | — | 16,494 | — | 16,494 |
| Accrued interest | 4,447 | — | 4,447 | — | 4,447 |
Note 12—Accumulated Other Comprehensive Income (Loss)
The following table presents changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and six months ended June 30, 2026, and June 30, 2025 (in thousands):
| Three months ended June 30, 2026 | ||||
|---|---|---|---|---|
| Gains and Losses on Cash Flow Hedges | Unrealized Gains and Losses on Available-for-Sale Securities | Defined Benefit Pension Items | Accumulated Other Comprehensive Income | |
| Beginning Balance | $1,194 | $(66,157) | $(4,039) | $(69,002) |
| Net unrealized gains (losses) | 735 | 7,998 | — | 8,733 |
| Less: net realized (gains) losses reclassified to earnings | (223) | 913 | — | 690 |
| Net change in pension plan benefits | — | — | (58) | (58) |
| Ending Balance | $1,706 | $(57,246) | $(4,097) | $(59,637) |
| Three months ended June 30, 2025 | ||||
| Gains and Losses on Cash Flow Hedges | Unrealized Gains and Losses on Available-for-Sale Securities | Defined Benefit Pension Items | Accumulated Other Comprehensive Income | |
| Beginning Balance | $213 | $(83,661) | $(4,576) | $(88,024) |
| Net unrealized gains (losses) | 675 | 145 | — | 820 |
| Less: net realized (gains) losses reclassified to earnings | (564) | (60) | — | (624) |
| Net change in pension plan benefits | — | — | (26) | (26) |
| Ending Balance | $324 | $(83,576) | $(4,602) | $(87,854) |
Note 12— Accumulated Other Comprehensive Income (Loss) (continued)
| Six months ended June 30, 2026 | ||||
|---|---|---|---|---|
| Gains and Losses on Cash Flow Hedges | Unrealized Gains and Losses on Available-for-Sale Securities | Defined Benefit Pension Items | Accumulated Other Comprehensive Income | |
| Beginning Balance | $(64) | $(54,857) | $(4,039) | $(58,960) |
| Net unrealized gains (losses) | 2,020 | (1,884) | — | 136 |
| Less: net realized (gains) losses reclassified to earnings | (250) | (505) | — | (755) |
| Net change in pension plan benefits | — | — | (58) | (58) |
| Ending Balance | $1,706 | $(57,246) | $(4,097) | $(59,637) |
| Six months ended June 30, 2025 | ||||
| Gains and Losses on Cash Flow Hedges | Unrealized Gains and Losses on Available-for-Sale Securities | Defined Benefit Pension Items | Accumulated Other Comprehensive Income | |
| Beginning Balance | $911 | $(92,055) | $(4,576) | $(95,720) |
| Net unrealized gains (losses) | 305 | 8,571 | — | 8,876 |
| Less: net realized (gains) losses reclassified to earnings | (892) | (92) | — | (984) |
| Net change in pension plan benefits | — | — | (26) | (26) |
| Ending Balance | $324 | $(83,576) | $(4,602) | $(87,854) |
Note 12— Accumulated Other Comprehensive Income (Loss) (continued)
The following table presents amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2026, and June 30, 2025 (in thousands).
| Details about Accumulated Other Comprehensive Income Components · Amount Reclassified From Accumulated Other Comprehensive Income · Affected Line Item in the Statements of Income | |||||
|---|---|---|---|---|---|
| Three months ended · Six months ended | |||||
| June 30, 2026 · June 30, 2025 · June 30, 2026 · June 30, 2025 | |||||
| Cash flow hedges: | |||||
| Interest rate contracts | $— | $— | $— | $— | Interest income |
| Interest rate contracts | 289 | 732 | 324 | 1,158 | Interest expense |
| Tax effect | (66) | (168) | (74) | (266) | Income tax expense (benefit) |
| Net of tax | $223 | $564 | $250 | $892 | |
| Available-for-sale securities: | |||||
| Realized gains (losses) on securities | $(1,868) | $38 | $(69) | $39 | Net gains/(losses) on securities |
| Realized gains (losses) on basis adjustment for fair value hedges | 684 | 40 | 723 | 81 | Interest income |
| Tax effect | 271 | (18) | (149) | (28) | Income tax expense (benefit) |
| Net of tax | $(913) | $60 | $505 | $92 | |
| Defined benefit pension plan: | |||||
| Amortization of actuarial gain / (loss) | 75 | 34 | 75 | 34 | Pension and other employee benefits |
| Tax effect | (17) | (8) | (17) | (8) | Income tax expense (benefit) |
| Net of tax | $58 | $26 | $58 | $26 | |
| Total reclassifications, net of tax | $(632) | $650 | $813 | $1,010 | Net income |
Note 13—Other Operating Expense
Other operating expense from the Consolidated Statements of Income for the three and six months ended June 30, 2026, and June 30, 2025, is as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||
|---|---|---|---|---|
| 2026 | 2025 | 2026 | 2025 | |
| Historic tax credit amortization | $240 | $435 | $479 | $870 |
| IT related | 465 | 497 | 861 | 914 |
| Consultant fees | 10,814 | 948 | 11,527 | 1,454 |
| Directors' fees | 484 | 513 | 947 | 956 |
| Audit expense | 510 | 357 | 1,092 | 579 |
| Legal expense | 933 | 462 | 2,231 | 805 |
| Virginia franchise tax | 1,034 | 960 | 1,999 | 1,920 |
| Marketing expense | 552 | 382 | 995 | 769 |
| Donation expense | 80 | 73 | 103 | 84 |
| Other | 9,146 | 5,380 | 14,449 | 10,770 |
| Total | $24,258 | $10,007 | $34,683 | $19,121 |
Note 13— Other Operating Expense (continued)
The Company incurred merger-related expenses of $33.7 million for the six months ended June 30, 2026, including $1.2 million of which were incurred during the three months ended March 31, 2026. These expenses are included in the consultant fees, audit fees, legal expense, and other line items detailed in other operating expenses.
Note 14—Share-Based Compensation
The Company has a share-based incentive plan described below that allows it to offer a variety of equity compensation awards subject to approval. Total compensation cost that has been charged against income for equity compensation awards granted was $3.0 million and $1.5 million for the three months ended June 30, 2026, and June 30, 2025, respectively. The total income tax benefit was $697.1 thousand and $310.4 thousand for the three months ended June 30, 2026, and June 30, 2025, respectively.
Total compensation cost that has been charged against income for equity compensation awards granted was $4.1 million and $2.4 million for the six months ended June 30, 2026, and June 30, 2025, respectively. The total income tax benefit was $945.6 thousand and $499.5 thousand for the six months ended June 30, 2026, and June 30, 2025, respectively.
2019 Stock Incentive Plan
In 2019, the Company’s Stock Incentive Plan (“2019 SIP”) was approved by the Bank’s Board of Directors (the “Bank Board”). The 2019 SIP provides for the issuance of share-based awards to directors and employees of the Company. The 2019 SIP authorized 240,000 units to be issued, and the Company’s practice is using authorized unissued shares to satisfy these share-based awards. Each unit represents a contingent right to receiveone common share or an equivalent amount of cash, or a combination of the two, at the discretion of the Company. Currently, we have a sufficient number of authorized unissued shares to satisfy all outstanding equity awards.
Under the 2019 SIP, the Company has issued restricted stock unit (“RSU”) awards that are both time-based and performance-based. Each RSU award will indicate the number of shares, the conditions (e.g., service, performance, and/or a combination), and the grant date. Compensation expense is recognized over the vesting period of the awards based on the fair value of the award at grant date. No new awards are issuable under the 2019 SIP.
2023 Stock Incentive Plan
In 2023, a new stock incentive plan (“2023 SIP”) was approved by the Company’s Board of Directors (the “Board”) and shareholders. Following shareholder approval of the 2013 SIP on March 30, 2023, no further share-based awards will be issued under the 2019 SIP. The 2023 SIP provides for the issuance of share-based awards to directors and employees of the Company. The 2023 SIP authorized the issuance of 250,000 shares, subject to an annual increase in available shares and the addition of shares recycled from the 2019 SIP that were cancelled. Based on our shares outstanding as of June 30, 2026, and awards that were recycled from the 2019 SIP, the total shares authorized for issuance under the plan as of June 30, 2026 was 474,578.
A total of 118,192 and 96,132 shares were issued during the six months ended June 30, 2026, and June 30, 2025, respectively.
For time-based RSUs, the fair value was determined by using the closing stock price on the date prior to the grant date. These RSUs vest over three years.
The Board, from time to time, approves performance-based RSU awards that may be earned between athree tofive year performance period. Whether or not units are earned at the end of the performance period will be determined based on the achievement of performance and/or market targets (e.g., market capitalization target) over the performance period. If the conditions are achieved, the grant recipient will receive 100% of the units granted as these awards do not provide for a multiplier effect. The performance/market targets are determined by the Board.
The fair value for performance-based RSU awards was determined by using a Monte Carlo simulation analysis to estimate the achievement of the market capitalization target determined by the Board. The Monte Carlo simulation analysis required the following inputs: (1) expected term, (2) expected volatility, (3) risk-free rate, and (4) dividend yield. The expected term was based on the stated performance period. Management used the expected volatility from a peer group. The risk-free interest rate is based on the U.S. Treasury yield curve over the performance period. The dividend yield assumption was based on historical and anticipated dividend payouts.
Note 14— Share-Based Compensation (continued)
The following is a summary of all the Company’s RSU awards issued under both the 2019 SIP and 2023 SIP:
| Non-vested Shares | Shares | Weighted-Average Grant-Date Fair Value |
|---|---|---|
| Non-vested at December 31, 2025 | 180,849 | $59.43 |
| Granted | 118,192 | 66.16 |
| Vested | (62,015) | 58.22 |
| Forfeited | (4,000) | 63.34 |
| Non-vested at June 30, 2026 | 233,026 | $63.10 |
As of June 30, 2026, there was $11.1 million of total unrecognized compensation costs related to non-vested shares granted under both the 2019 SIP and 2023 SIP. The cost is expected to be recognized over a weighted average period of 1.97 years.
2023 Employee Stock Purchase Plan
In 2023, an employee stock purchase plan (“2023 ESPP”) was approved by the Board and shareholders. Upon the 2023 ESPP’s shareholder approval date of March 30, 2023, the 2023 ESPP reserved 250,000 shares of common stock for issuance to employees, subject to an annual increase in reserved shares. At June 30, 2026,473,978 shares were available to be issued. Whole shares are sold to participants in the 2023 ESPP at 85% of the lower of the stock price at the beginning or end of each semi-annual offering period. The first semi-annual offering period began on September 1, 2023, and the current semi-annual offering period began on March 1, 2026. Eligible employees may purchase shares in an amount that does not exceed the lesser of the IRS limit of $25,000 or 15% of their annual salary.
The following table presents information for the 2023 ESPP for the six months ended June 30, 2026:
| Shares purchased | 6,917 |
|---|---|
| Weighted average price of shares purchased | $54.03 |
| Compensation expense recognized (in 000's) | $106.6 |
Stock Appreciation Rights (“SARs”)
Upon completion of the Summit Merger, Burke & Herbert assumed SAR awards that had been issued to existing employees that would continue with the same terms and conditions adjusted for the exchange ratio of 0.5043. As part of the Summit Merger, a significant portion of SAR awards accelerated their vesting and thus did not require any future service component. Management used the Black-Scholes option-pricing model to fair value these accelerated SAR awards and included this value as part of the purchase price for the Summit Merger .
The Company also used the Black-Scholes option-pricing model to fair value the non-accelerated SAR awards that were not fully vested. The SAR awards that have been assumed by the Company, were issued in 2019, 2021, and 2023, and these SAR awards become exercisable ratably over seven years (14.3% per year) and contractually expireten years after the grant date. As of June 30, 2026, there were 106,883 SARs outstanding with a weighted average exercise price of $48.10. These options have a remaining expense amount of $263 thousand that will be recognized throughout the next 3.10 years.
Stock Options
Upon completion of the LNKB Merger and as part of the Merger Agreement, the Company assumed incentive stock options and non-qualified stock option awards that had been issued to existing employees that will continue with the same terms and conditions, adjusted for the exchange ratio of 0.135. As of June 30, 2026, there were 68,219 outstanding stock options with a weighted average exercise price of $68.43. The stock options were acquired through the LNKB Merger and were valued upon acquisition using the Black-Scholes method. This resulted in a remaining expense on these stock options of $173 thousand that will be recognized throughout the next 2.4 years.
Note 14— Share-Based Compensation (continued)
Warrants
As part of the LNKB Merger, the Company assumed stock purchase warrants that were initially issued by LNKB in connection with LNKB’s initial stock offering via private placement, giving organizers the right to purchase shares of common stock at the initial offering price of $10.00 per share, or $74.07 per share as adjusted by the LNKB Merger’s exchange ratio. For organizers, the warrants serve as a reward for bearing the financial risk of the Company’s organization by advancing “seed money” for its organizational and pre-opening expenses. The organizers’ warrants are non-voting and are exercisable for a period often years from the date of grant. All grants were issued during 2019. These warrants are transferable in accordance with the warrant agreement, but are not puttable to the Company. These shares may be issued from previously authorized but unissued shares of stock. To date, organizers have not exercised any warrants since their issuance. As of June 30, 2026, there were 207,560 warrants outstanding with a strike price of $74.07 and a total fair value of $2.5 million.
The Board has made no additional authorization to issue any further warrants as of June 30, 2026, and has no current plans for future issuance of warrants.
Note 15—Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential impact of contingently issuable shares. The Company uses the treasury stock method as described by ASC 260 -Earnings Per Share for each dilutive instrument when computing diluted earnings per share.
The following shows the weighted average number of shares used in computing earnings per share and the effect of weighted average number of shares dilutive potential common stock. Dilutive potential common stock has no effect on income available to common shareholders.
| Three Months Ended June 30, | Six Months Ended June 30, | |||
|---|---|---|---|---|
| 2026 | 2025 | 2026 | 2025 | |
| Net income (loss) applicable to common shares (in thousands) | $9,257 | $29,672 | $36,381 | $56,648 |
| Weighted average number of shares | 18,416,204 | 14,998,857 | 16,736,101 | 14,987,732 |
| Net effect of dilutive securities | 82,826 | 24,950 | 106,634 | 33,497 |
| Weighted average dilutive shares | 18,499,030 | 15,023,807 | 16,842,735 | 15,021,229 |
| Basic earnings (loss) per common share | $0.50 | $1.98 | $2.17 | $3.78 |
| Diluted earnings (loss) per common share | 0.50 | 1.97 | 2.16 | 3.77 |
The following table presents a summary of securities that could potentially dilute basic earnings per share in future periods that were included in the computation of diluted earnings per share for the periods presented.
| Dilutive securities | Three Months Ended June 30, | Six Months Ended June 30, | ||
|---|---|---|---|---|
| 2026 | 2025 | 2026 | 2025 | |
| Stock options and stock appreciation rights | 115,551 | 167,024 | 115,551 | 167,024 |
| Warrants | — | — | — | — |
| Restricted stock units | 165,442 | — | 169,839 | — |
| Total dilutive securities | 280,993 | 167,024 | 285,390 | 167,024 |
Note 15— Earnings Per Share (continued)
The following table presents a summary of securities that could potentially dilute basic earnings per share in future periods that were not included in the computation of diluted earnings per share because inclusion would have been anti-dilutive for the periods presented.
| Antidilutive securities | Three Months Ended June 30, | Six Months Ended June 30, | ||
|---|---|---|---|---|
| 2026 | 2025 | 2026 | 2025 | |
| Stock options and stock appreciation rights | 17,109 | 26,042 | 17,109 | 26,042 |
| Warrants | 207,560 | — | 207,560 | — |
| Restricted stock units | 67,584 | 188,379 | 63,187 | 188,379 |
| Total anti-dilutive securities | 292,253 | 214,421 | 287,856 | 214,421 |
Note 16—Business Combination
Effective on May 1, 2026, Burke & Herbert completed the LNKB Merger. In the LNKB Merger, holders of LNKB Common Stock outstanding at the Effective Time of the LNKB Merger received 0.135 shares of Burke & Herbert common stock for each share of LNKB Common Stock they owned, subject to the payment of cash in lieu of fractional shares. The total aggregate consideration payable in the LNKB Merger was approximately 5,082,605 shares of Burke & Herbert common stock.
LNKB’s results of operations from May 1, 2026, were included in the Company’s results beginning with reporting as of June 30, 2026. Net interest income and income before income taxes for LNKB were estimated to be $18.1 million and $5.0 million, respectively, since the date of the acquisition through June 30, 2026, and are included in the Company’s Consolidated Statement of Income. LNKB Merger-related costs of $33.7 million are included in non-interest expense in the Company’s income statement for the six months ended June 30, 2026. A portion of these LNKB Merger-related costs are captured in the line item Other Operating Non-Interest Expense on the consolidated Income Statement with further description in Note 13 - Other Operating Expense. The fair value of the common shares issued as part of the consideration paid for LNKB was determined on the basis of the closing price of the Company’s common shares on the date of completion of the LNKB Merger.
We accounted for the LNKB Merger using the acquisition method of accounting in accordance with ASC 805, Business Combinations, and accordingly, the assets and liabilities of LNKB were recorded at their respective fair values on the date of completion of the LNKB Merger. We recognized goodwill of $82.1 million in connection with the acquisition, which is not amortized for financial reporting purposes, but is subject to annual impairment testing. The goodwill arising from the transaction isnot deductible for tax purposes and consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies. The fair values of assets and liabilities are subject to refinement for up to one year after the acquisition date if any additional information relative to the acquisition date fair values becomes available. This one year period will expire during the quarter ending June 30, 2027.
The following table summarizes adjustments to or acquired goodwill subsequent to December 31, 2025 (in thousands):
| Goodwill | |
|---|---|
| Balance at December 31, 2025 | $34,149 |
| Goodwill acquired in acquisition of Burke & Herbert Wealth Services, LLC | 2,104 |
| Goodwill acquired in acquisition of LNKB | 82,092 |
| Balance at June 30, 2026 | $118,345 |
The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction and will be amortized over an estimated weighted average life of 7 years using an accelerated method which approximates the estimated run-off of the acquired deposits. The fair value of intangible assets related to core deposits was $48.2 million on the date of acquisition.
The fair value of purchased financial assets with credit deterioration was $80.9 million on the date of the acquisition. The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $97.5 million. At acquisition, all of the securities, held-to-maturity, were reclassified as available-for-sale.
Note 16— Business Combination (continued)
The following table details the total consideration paid for LNKB on May 1, 2026, the fair values of the assets acquired and liabilities assumed and the resulting goodwill at the acquisition date.
| ($ in thousands, except share information) | |
|---|---|
| Consideration | May 1, 2026 |
| Common stock of LINKBANCORP, Inc. | 37,652,888 |
| Exchange ratio | 0.135 |
| Expected Burke & Herbert common stock to be issued | 5,083,140 |
| Actual Burke & Herbert common stock issued | 5,082,605 |
| Fractional common stock to be paid in cash | 535 |
| Actual Burke & Herbert common stock issued | 5,082,605 |
| Price per share of Burke & Herbert common stock issued | $64.31 |
| Purchase price consideration for common stock issued | 326,862 |
| Fractional common stock to be paid in cash | 535 |
| Average 10 day closing price used to pay fractional common stock | $64.35 |
| Cash paid for fractional shares | 34 |
| Implied value of warrants | 2,505 |
| Implied value of stock options | 324 |
| Fully diluted transaction value | $329,725 |
| Goodwill | $82,092 |
Note 16— Business Combination (continued)
| As Recorded · Estimated · Estimated | ||||
|---|---|---|---|---|
| by LNKB · Fair Value · Fair Value | ||||
| ($ in thousands) · May 1, 2026 · Adjustments · May 1, 2026 | ||||
| Total purchase price consideration | $329,725 | |||
| Recognized amounts of identifiable assets acquired and liabilities assumed | ||||
| Cash and equivalents | $74,609 | $— | 74,609 | |
| Securities, available-for-sale, at fair value | 246,652 | — | 246,652 | |
| Securities, held-to-maturity, at amortized cost | 24,832 | (379) | 24,453 | |
| Equity and other investments | 12,504 | — | 12,504 | |
| Loans, gross | 2,600,294 | (22,206) | 2,578,088 | |
| Allowance for credit losses | (27,373) | (1,134) | (28,507) | |
| Loans, net of allowance | 2,572,921 | (23,340) | 2,549,581 | |
| Premises and equipment, net | 30,071 | 787 | 30,858 | |
| Accrued interest receivable | 10,719 | — | 10,719 | |
| Company-owned life insurance | 54,298 | — | 54,298 | |
| Goodwill and intangibles | 72,889 | (24,668) | 48,221 | |
| Other assets | 26,839 | (3,212) | 23,627 | |
| Total identifiable assets acquired | 3,126,334 | (50,812) | 3,075,522 | |
| Deposits | 2,562,680 | 107 | 2,562,787 | |
| Borrowings | 175,000 | — | 175,000 | |
| Subordinated debentures and trust preferred securities | 62,318 | (240) | 62,078 | |
| Unfunded reserve liability | 2,507 | (2,507) | — | |
| Accrued interest and other liabilities | 25,667 | 2,357 | 28,024 | |
| Total liabilities | 2,828,172 | (283) | 2,827,889 | |
| Total identifiable net assets | 298,162 | (50,529) | 247,633 | |
| Goodwill | $82,092 | |||
At acquisition, all of the securities, held-to-maturity were reclassified as available-for-sale.
The following table presents supplemental pro forma information as if the LNKB Merger had occurred on January 1, 2025. The unaudited pro forma information includes adjustments for non-recurring operating expenses and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed dates.
| Three Months Ended June 30, | Six Months Ended June 30, | |||
|---|---|---|---|---|
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 |
| Net Interest Income | $102,434 | $99,182 | $201,059 | $198,000 |
| Net Income | 37,275 | 37,284 | 72,155 | 79,828 |
Note 17—Goodwill and Other Intangible Assets
The following table presents the change in goodwill for the three and six months ended June 30, 2026, and June 30, 2025, (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||
|---|---|---|---|---|
| 2026 | 2025 | 2026 | 2025 | |
| Beginning of period | $36,253 | $32,842 | $34,149 | $32,783 |
| Acquired goodwill | 82,092 | — | 84,196 | — |
| Goodwill adjustment | — | 1,307 | — | 1,366 |
| Impairment | — | — | — | — |
| End of period | $118,345 | $34,149 | $118,345 | $34,149 |
During the six months ended June 30, 2026, the Company recorded $82.1 million associated with the LNKB Merger and $2.1 million of additional goodwill associated with the acquisition of Burke & Herbert Wealth Services, LLC, formerly known as Piedmont Wealth Management. See Note 16 - Business Combination to the consolidated financial statements for additional detail regarding the transaction with LNKB.
The Company performs the annual goodwill impairment test on September 30 every year.
Other intangible assets consist of the core deposit intangible which is being amortized on an accelerated basis over its estimated useful life of 7 years. At the Closing Date of the LNKB Merger, the Company recorded $48.2 million of core deposit intangibles associated with the acquisition.
The gross carrying amount and accumulated amortization of core deposit intangibles for the three and six months ended June 30, 2026, and June 30, 2025, was as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||
|---|---|---|---|---|
| 2026 | 2025 | 2026 | 2025 | |
| Beginning of period | $38,063 | $53,002 | $41,747 | $57,300 |
| Core deposit intangible acquired | 48,221 | — | 48,221 | — |
| Amortization | (5,530) | (3,888) | (9,214) | (8,186) |
| Impairment | — | — | — | — |
| Total core deposit intangible | $80,754 | $49,114 | $80,754 | $49,114 |
The Company reviews other intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Total amortization expense associated with intangible assets was $9.2 million for the six months ended June 30, 2026.
Estimated amortization expense for future years is as follows (in thousands):
| Estimated Amortization | |
|---|---|
| Remaining six months ending, December 31, 2026 | $12,582 |
| 2027 | 22,069 |
| 2028 | 17,668 |
| 2029 | 13,267 |
| 2030 | 8,866 |
| Thereafter | 6,302 |
| Total | $80,754 |
Note 18—Segment Information
The Company operates inone reportable segment, Community Banking. The Company's Chief Executive Officer has been identified as the chief operating decision maker (“CODM”). The CODM uses consolidated net income to evaluate the Company's overall operating performance and to allocate capital and other resources. While the CODM reviews information regarding the Company's products, services, revenue streams, and other operating activities, these activities are managed and evaluated on a consolidated basis. Information regarding individual business activities is reviewed for operational management purposes and not for the purpose of allocating resources among separate operating segments. Accordingly, the Company has concluded that it operates in a single reportable segment.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.