KBRA Affirms Ratings for Burke & Herbert Financial Services Corp.; Revises Outlook to Positive

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Alexandria, VA based, Burke & Herbert Financial Services Corp. (NASDAQ: BHRB)(“the company”). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for its subsidiary, Burke and Herbert Bank and Trust Company. The Outlook for all long-term ratings is revised to Positive from Stable.

Key Credit Considerations

The revision of the Outlook to Positive from Stable reflects KBRA’s view toward the meaningful scale and diversification brought about by the recent acquisitions of Summit Financial Group, Inc. ("Summit") (2024) and LINKBANCORP, Inc. ("LINK") (2026). BHRB now operates a rather broad retail network spanning six states and Washington, D.C., a key factor in the company’s comparatively lower-cost (2.0% total cost of funds for 1H26), largely core deposit (85% - 90% of total funding) funding base. Moreover, while the company’s loan portfolio continues to maintain an elevated CRE concentration, it has become more diversified by both loan type and, importantly, geography, with Washington, D.C. and VA now representing less than 50% of CRE loans (as compared to ~60% at YE25). The ratings and Positive Outlook also consider BHRB’s favorable long-term performance and its rather conservative balance sheet management. The company has sustained below-peer credit losses over an extended time period, reporting an NCO ratio below 0.2% since 2010. Elevated NPAs are largely associated with its moderately sized office portfolio ($730 million, or 9% of total loans), though credit trends have been positive in recent quarters, with relatively negligible credit losses. BHRB has historically demonstrated a conservative approach to capital management, operating with well above-peer capital ratios. While its merger with LINK caused capital ratios to fall measurably, with risk-based ratios now more in line with rated peers, the company demonstrated its willingness and ability to rapidly rebuild capital ratios following the Summit merger in 2024. BHRB is expected to rebuild capital ratios closer to historical norms over the near-to-medium term.

BHRB’s core earnings (operating ROAA of 1.5% for 1H26 and YE25) have tracked above rated peers in recent periods, primarily driven by its above-average NIM (4.0% - 4.1%). Margin performance has benefited from an earning asset mix that is more aligned with rated peers (average loans were in the mid-70% range of average earning assets), as well as meaningful accretion income (~$16 million in 1H26), which added approximately 40 bps to NIM. Revenues are largely spread reliant (+85% of total revenues), though recent investments in its wealth management and trust business lines as well as growth in capital markets income should provide long term, fee income growth opportunity.

Rating Sensitivities

Successful execution of BHRB’s post-merger objectives, including rebuilding capital ratios with risk-based measures above peer averages, while sustaining strong credit metrics and earnings performance consistent with higher-rated peers, could support a rating upgrade. The Outlook could be revised to Stable if BHRB is unable to rebuild capital ratios toward historical levels or experiences meaningful deterioration in credit quality, resulting in elevated credit losses that materially impair profitability.

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