Burke & Herbert Financial Services Corp. plans to raise $100 million through a registered offering of fixed-to-floating rate subordinated notes due 2036, with proceeds and cash on hand earmarked to refinance existing capital instruments and support its bank subsidiary. The Alexandria, Virginia-based bank holding company disclosed the planned transaction in a Sept. 28 preliminary prospectus supplement filed with the Securities and Exchange Commission.
The proposed notes will have a 10-year maturity and are expected to qualify as Tier 2 capital, subject to applicable regulatory requirements. The preliminary prospectus does not yet specify the final coupon, issue price or settlement date, meaning the offering terms remain subject to completion and pricing.
Burke & Herbert said it expects to use proceeds from the offering, together with cash on hand, to redeem up to $117.6 million of outstanding subordinated debt and up to $15 million of outstanding preferred stock. Any remaining proceeds would be available for general corporate purposes, including providing capital to Burke & Herbert Bank & Trust to support its growth.
The company’s fixed-income investor presentation described the proposed securities as fixed-to-floating rate subordinated notes due 2036 and said Kroll Bond Rating Agency is expected to assign a BBB- rating with a positive outlook. Keefe, Bruyette & Woods, a Stifel company, is serving as sole book-running manager.
The notes would pay a fixed interest rate for the first five years and then convert to a floating rate based on three-month Term SOFR plus a specified spread. Burke & Herbert would have the option to redeem the notes beginning in 2031, subject to applicable regulatory approval, including Federal Reserve approval if required.
The securities would be unsecured and subordinated obligations of Burke & Herbert Financial Services, ranking behind the company’s senior debt. They would also be structurally subordinated to liabilities of the bank subsidiary, including customer deposits and other claims against Burke & Herbert Bank & Trust.
The refinancing comes after Burke & Herbert expanded significantly through acquisitions. The company completed its merger with LINKBANCORP on May 1, creating an approximately $11 billion Mid-Atlantic community bank with operations across Delaware, Kentucky, Maryland, Pennsylvania, Virginia and West Virginia.
As of June 30, Burke & Herbert reported $11.0 billion of total assets, $8.0 billion of gross loans and $9.0 billion of deposits. Its fixed-income presentation showed more than 100 locations across six states and Washington, D.C., while its second-quarter results included $9.3 million of net income applicable to common shares and $37.5 million of operating net income after excluding merger-related expenses.
The company is also carrying several existing subordinated instruments that the new offering could help simplify. Its second-quarter filing showed subordinated debt assumed through the Summit Financial Group and LINKBANCORP transactions, including instruments with fixed-rate periods that subsequently reset to floating rates based on SOFR.
Burke & Herbert’s capital strategy follows a period of rapid balance-sheet expansion. The LINKBANCORP merger added scale to the company’s loan and deposit base, while the company said its capital ratios at June 30 were stronger than the levels modeled when the transaction was announced. Its total risk-based capital ratio was 14.42%, while its common equity Tier 1 ratio was 11.8%.
The planned notes would therefore replace portions of Burke & Herbert’s existing subordinated capital and preferred stock while potentially providing additional capital for its bank subsidiary. The transaction is not yet a completed financing: the Sept. 28 filing is a preliminary prospectus supplement, and final pricing, issuance and settlement remain subject to the completion of the offering process.
