Burke & Herbert Bank Reports 2019 Results
Alexandria, VA – Burke & Herbert Bank reported net income after taxes for the twelve months ending December 31, 2019 of $17.0 million, resulting in earnings per share of $90.63. Net income declined from $34.4 million the prior year and earnings per share declined from $181.62 per share in 2018. Key factors contributing to the decline include a single credit loss, increased interest expense without offsetting gains in interest income, and incremental employment-related costs.
In the fourth quarter, the Bank recorded a $6.8 million credit loss driven by a single distressed loan relationship. Additionally, the Bank recorded a reserve for unfunded credit of $1.3 million in the fourth quarter related to the same troubled loan.
Net interest income, the Bank’s principal source of revenue, declined by $6.7 million (-7.0%) from 2018, and totaled $82.7 million in 2019. Net interest income was dampened by the low interest rate environment that persisted throughout most of the year. Given the lower rate environment, yields on newer loans were lower than those on maturing loans being replaced in our loan portfolio. Also in 2019, the size of the Bank’s investment portfolio was reduced as part of our strategy to decrease institutional borrowings. The resulting lower pool of interest-bearing assets, combined with lower average returns on the Bank’s loans and investments, resulted in lower levels of interest income.
The market rate environment had a significant impact on the Bank’s interest expense as well. The Bank’s deposit interest expense increased by $9.0 million year-over-year. Much of this increase was driven by higher rates paid by the Bank on Certificates of Deposit (“CD”) and money market accounts in response to Federal Reserve Bank interest rate hikes in 2018 and the resulting increased competition for deposits. In the latter part of 2019, the Bank was able to reduce rates paid on deposits and, by the end of the year, interest expense trends were moving in a favorable direction.
Earnings also were dampened by an increase of $8.9 million (11.8%) in non-interest expense over the previous year, driven primarily by higher salary and benefits expenses. A significant portion of the rise in this category is related to the executive leadership transition that took place at the Bank this past year.
Total assets at December 31, 2019, were $2.9 billion, a 4.7% decline when compared to year-end 2018. The decline resulted primarily from our decision to reduce outstanding institutional borrowing, with funding provided through deposit growth and a reduction in the size of the Bank’s investment portfolio. In 2019, the loan portfolio grew by 1.7% on a year-over-year basis, while the investment portfolio declined by 19.1% to $700.0 million. The deposit portfolio grew by $86.9 million, or 3.8%, to end the year at $2.4 billion. At the same time, the Bank was able to reduce its institutional borrowing from the Federal Home Loan Bank by $245 million. At December 31, 2019, the Bank had equity capital of $353.5 million, a 2.2% increase over year-end 2018.
In 2019, the Board declared dividends totaling $80.00 per share, equaling the amount paid in 2018. Despite the year-over-year decline in net income, the Board believes the 2019 dividend was appropriate, given the Bank’s strong capital position and forecast of future earnings. At December 31, 2019, the Bank maintained a Tier 1 Leverage Ratio of 12.3% and a Tier 1 Capital Ratio 16.5%, both of which are significantly above the 5.0% and 8.0% ratios a commercial bank must maintain to be classified as Well Capitalized in accordance with regulatory requirements.
Established in 1852, Burke & Herbert Bank & Trust Company is the oldest bank in the Commonwealth of Virginia and the oldest continuously operating bank in the Washington, D.C. area. The Bank offers a full range of personal and business banking products and services designed to meet customers' banking, borrowing, and investing needs. Burke & Herbert Bank is headquartered in Alexandria and operates 25 branches in Northern Virginia.