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B&HB 2020 Audited Financial Statements

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B&HB 2020 Audited Financial Statements 2020 Audited Financial Statements CONTENTS FINANCIAL STATEMENTS Balance sheets 1 Statements of income 2 Statements of comprehensive income 3 Statements of stockholders’ equity 4 Statements of cash flows 5 - 6 Notes to financial statements 7 - 53 INDEPENDENT AUDITOR’S REPORT 54 BURKE & HERBERT BANK & TRUST COMPANY BALANCE SHEETS December 31, 2020 and 2019 In thousands, except share and per share data ASSETS 2020 2019 Cash and due from banks $ 228,704 $ 83,747 Securities available for sale, at fair value 1,159,701 693,750 Restricted stock, at cost 12,192 5,944 Loans held for sale, at fair value 8,211 1,969 Loans, net of allowance for loan losses of $32,697 in 2020 and $24,201 in 2019 1,801,078 1,859,001 Bank premises and equipment, net 40,494 41,188 Accrued interest receivable 13,784 8,113 Bank owned life insurance 88,977 86,667 Other assets 79,503 85,560 $ 3,432,644 $ 2,865,939 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Deposits: Demand deposits $ 852,008 $ 621,424 Interest checking accounts 538,289 386,617 Savings deposits and money market accounts 1,050,929 975,358 Time deposits 346,741 410,613 2,787,967 2,394,012 Other borrowed funds 225,000 75,000 Accrued interest and other liabilities 34,800 43,399 3,047,767 2,512,411 Stockholders’ Equity Common stock, $20 par value; 200,000 shares authorized; outstanding 186,202 in 2020 and 186,958 in 2019 3,724 3,739 Additional paid-in capital 10,178 10,032 Retained earnings 348,395 338,331 Accumulated other comprehensive income 22,580 1,426 384,877 353,528 $ 3,432,644 $ 2,865,939 See Notes to Financial Statements 1 BURKE & HERBERT BANK & TRUST COMPANY STATEMENTS OF INCOME Years Ended December 31, 2020 and 2019 In thousands, except per share data 2020 2019 Interest income: Loans $ 78,308 $ 84,734 Securities 23,236 25,952 101,544 110,686 Interest expense: Deposits 9,696 17,572 Other borrowed funds 1,579 3,884 Finance lease 6 - 11,281 21,456 Net interest income 90,263 89,230 Provision for loan losses 12,648 6,243 Net interest income after provision for loan losses 77,615 82,987 Noninterest income: Income from fiduciary & wealth management activities 4,451 4,254 Service charges and fees 9,757 8,750 Net gains on securities 1,944 3,192 Income from bank owned life insurance 2,303 1,913 Other 89 41 18,544 18,150 Noninterest expenses: Salaries and wages 33,377 43,274 Pensions and other employee benefits 7,568 9,655 Occupancy expenses 6,003 6,527 Equipment rentals, depreciation and maintenance 4,929 5,030 Net (gains) on other real estate owned - (78) Other operating expenses 15,843 20,006 67,720 84,414 Income before income taxes 28,439 16,723 Income tax expense (benefit) 1,940 (255) Net income $ 26,499 $ 16,978 Basic earnings per common share $ 142.21 $ 90.63 Diluted earnings per common share $ 142.14 $ 90.60 See Notes to Financial Statements 2 BURKE & HERBERT BANK & TRUST COMPANY STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2020 and 2019 In thousands 2020 2019 Net income $ 26,499 $ 16,978 Other comprehensive income, net of tax: Unrealized gains on securities: Unrealized holding gains arising during period, net of tax of ($6,008) for 2020 and ($2,740) for 2019 22,603 10,308 Reclassification adjustment for gain on securities, net of tax of ($408) for 2020 and ($670) for 2019 (1,536) (2,522) Changes in pension plan benefits, net of tax of ($23) for 2020 and ($261) for 2019 87 984 Total other comprehensive income 21,154 8,770 Comprehensive income $ 47,653 $ 25,748 See Notes to Financial Statements 3 BURKE & HERBERT BANK & TRUST COMPANY STATEMENTS OF STOCKHOLDERS’ EQUITY Years Ended December 31, 2020 and 2019 In thousands, except share data Accumulated Additional Other Total Common Stock Paid-in Retained Comprehensive Stockholders’ Shares Amount Capital Earnings Income (Loss) Equity Balance, December 31, 2018 188,100 $ 3,762 $ 10,000 $ 339,445 $ (7,344) $ 345,863 Net income 16,978 16,978 Cash dividends paid (14,990) (14,990) $80 per share Other comprehensive income 8,770 8,770 Stock-based compensation expense 32 32 Common stock transactions (1,142) (23) (3,102) (3,125) Balance, December 31, 2019 186,958 $ 3,739 $ 10,032 $ 338,331 $ 1,426 $ 353,528 Net income 26,499 26,499 Cash dividends paid (14,905) (14,905) $80 per share Other comprehensive income 21,154 21,154 Stock-based Compensation expense 146 146 Common stock Transactions (756) (15) (1,530) (1,545) Balance, December 31, 2020 186,202 $ 3,724 $ 10,178 $ 348,395 $ 22,580 $ 384,877 See Notes to Financial Statements 4 BURKE & HERBERT BANK & TRUST COMPANY STATEMENTS OF CASH FLOWS Years Ended December 31, 2020 and 2019 In thousands 2020 2019 Cash flows from operating activities: Net income $ 26,499 $ 16,978 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,937 3,041 Realized (gain) on available for sale securities (1,944) (3,192) (Gain) on sale of other real estate owned properties - (78) Provision for loan losses 12,648 6,243 Income from Bank owned life insurance (2,303) (1,913) Deferred tax (benefit) (3,830) (5,092) Loss on disposal of fixed assets 7 4 Accretion of bond discount (1,087) (975) Amortization of bond premium 5,791 5,117 Stock based compensation expense 146 32 (Gain) on loans held for sale (122) (292) Proceeds from sale of loans held for sale 59,896 14,859 Originations of loans held for sale (66,016) (16,536) (Increase) decrease in accrued interest receivable (5,671) 1,754 Decrease (increase) in other assets 4,712 (5,135) Decrease (increase) in accrued interest and other liabilities (8,489) 10,869 Net cash provided by operating activities 23,174 25,684 Cash flows from investing activities: Proceeds from maturities of securities available for sale 188,653 115,566 Proceeds from sale of securities available for sale, net 49,233 149,150 Purchases of securities available for sale, net (679,933) (101,784) Sales of restricted stock 2,252 12,612 Purchases of restricted stock (8,500) (2,126) Purchases of property and equipment (2,697) (1,772) (Purchases of) Bank owned life insurance (7) (10,006) Proceeds from sale of other real estate owned properties - 416 (Increase) decrease in loans made to customers, net 45,277 (29,699) Net cash provided by investing activities $ (405,722) $ 132,357 (continued) 5 BURKE & HERBERT BANK & TRUST COMPANY STATEMENTS OF CASH FLOWS (continued) Years Ended December 31, 2020 and 2019 In thousands 2020 2019 Cash flows from financing activities: Net increase in demand deposits, NOW accounts, savings deposits and money market accounts $ 457,827 $ 12,471 (Decrease) increase in other time deposits (63,872) 74,470 Increase (decrease) in other borrowed funds 150,000 (245,000) Cash dividends paid (14,905) (14,990) Common stock transactions (1,545) (3,125) Net cash provided by (used in) financing activities 527,505 (176,174) Increase (decrease) in cash and cash equivalents 144,957 (18,133) Cash and cash equivalents Beginning 83,747 101,880 Ending $ 228,704 $ 83,747 Supplemental Disclosures of Cash Flow Information Cash payments for: Interest paid to depositors $ 10,194 $ 17,338 Interest paid on other borrowed funds $ 1,456 $ 4,063 Interest paid on finance lease $ 6 $ - Income taxes $ 1,400 $ 100 Change in unrealized gains on available for sale Securities $ 26,668 $ 9,856 Change in pension plan benefits $ 110 $ 1,245 Loans transferred to other real estate owned $ - $ - Bank premises and equipment transferred to property Held for sale $ 447 $ - See Notes to Financial Statements 6 BURKE & HERBERT BANK & TRUST COMPANY NOTES TO FINANCIAL STATEMENTS Note 1. Nature of Banking Activities and Significant Accounting Policies Nature of banking activities: Burke & Herbert Bank & Trust Company (the Bank) conducts its banking business in northern Virginia. The Bank’s 23 branch locations accept business and consumer deposits from a diverse clientele. The Bank’s loan portfolio includes commercial and consumer loans, a substantial portion of which are secured by area real estate. A summary of the Bank’s significant accounting policies follows: Estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly sensitive to significant change relate to the determination of the allowance for loan losses, other-than-temporary impairment of securities, deferred taxes and fair value measurements. Cash, cash equivalents and cash flows: For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks, including cash items in process of clearing. Cash flows from loans, federal funds purchased and sold, securities sold under agreements to repurchase and deposits are reported net. Securities: Management determines the appropriate classification of securities at the time of purchase. Debt securities that the Bank has both the positive intent and ability to hold to maturity are classified as held to maturity and are reported at cost, adjusted for amortization of premiums and accretion of discounts. Debt securities that the Bank intends to hold for an indefinite period of time, but not necessarily to maturity, are classified as available for sale and are reported at fair value.
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