Burke & Herbert Financial Services Corp.BHRB
Burke & Herbert Financial Services Corp. Income Taxes Disclosure
Income Taxes
The components of applicable income tax expense (benefit) from continuing operations for the years ended December 31, 2025, December 31, 2024, and December 31, 2023, were as follows (in thousands):
| December 31, 2025 | December 31, 2024 | December 31, 2023 | |||||||||||||||
| Current Expense: | |||||||||||||||||
| Federal | $ | 11,502 | $ | 4,464 | $ | 3,592 | |||||||||||
| State | 2,858 | 1,233 | 230 | ||||||||||||||
| $ | 14,360 | $ | 5,697 | $ | 3,822 | ||||||||||||
Deferred Expense (Benefit): | |||||||||||||||||
| Federal | $ | 12,899 | $ | (1,181) | $ | (1,422) | |||||||||||
| State | 373 | (326) | (31) | ||||||||||||||
| $ | 13,272 | $ | (1,507) | $ | (1,453) | ||||||||||||
| Total | $ | 27,632 | $ | 4,190 | $ | 2,369 | |||||||||||
The Company did not have any income tax expense or operations in foreign jurisdictions for the years presented.
The components of the effective tax rate: amount (in thousands), and percent, for the years ended December 31, 2025, December 31, 2024, and December 31, 2023 were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| $ | 30,437 | 21.0 | % | $ | 8,379 | 21.0 | % | $ | 5,263 | 21.0 | % | ||||||||||||||||||||||||
State and local income tax, net of federal benefit (1) | 2,552 | 1.8 | 716 | 1.8 | 157 | 0.6 | |||||||||||||||||||||||||||||
Tax credits (2) | |||||||||||||||||||||||||||||||||||
Low income housing tax credits, net amortization | (1,162) | (0.8) | (3,619) | (9.1) | (1,840) | (7.3) | |||||||||||||||||||||||||||||
Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
Benefit of tax exempt income | (3,455) | (2.4) | (1,143) | (2.9) | (363) | (1.4) | |||||||||||||||||||||||||||||
Nontaxable income from company owned life insurance | (1,718) | (1.2) | (991) | (2.5) | (604) | (2.4) | |||||||||||||||||||||||||||||
Merger expense | 186 | 0.1 | 280 | 0.7 | 382 | 1.5 | |||||||||||||||||||||||||||||
Nondeductible compensation | 744 | 0.5 | 530 | 1.3 | — | — | |||||||||||||||||||||||||||||
Other, net | 283 | 0.3 | 272 | 0.8 | (602) | (2.4) | |||||||||||||||||||||||||||||
Other adjustments | (235) | (0.2) | (234) | (0.6) | (24) | (0.1) | |||||||||||||||||||||||||||||
Total | $ | 27,632 | 19.1 | % | $ | 4,190 | 10.5 | % | $ | 2,369 | 9.5 | % | |||||||||||||||||||||||
(1)State taxes in West Virginia and Maryland make up the majority (greater than 50%) of the tax effect in this category for 2025 and 2024. State taxes in Maryland made up the majority of the tax effect in this category for 2023.
(2)The tax credits category includes the effects of proportional amortization and other tax benefits.
Deferred income taxes are provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and net operating losses and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and net operating loss carry-forwards and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deferred tax assets.
The Company follows accounting guidance related to accounting for uncertainty in income taxes. The Company’s policy is to account for interest and penalties as a component of income tax expense. The Company is no longer subject to examination by federal, state, and local taxing authorities for years before January 1, 2022.
Deferred income taxes reflect the impact of “temporary differences” between amounts of assets and liabilities for financial reporting purposes and such amounts as measured for tax purposes. Deferred tax assets and liabilities
represent the future tax return consequences of temporary differences, which will either be taxable or deductible when the related assets and liabilities are recovered or settled.
The net deferred tax amounts in the accompanying Consolidated Balance Sheets include the following components (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Provision for credit losses | $ | 16,096 | $ | 16,387 | |||||||
| Lease liability | 4,278 | 3,914 | |||||||||
| Compensation accruals | 12,799 | 10,714 | |||||||||
| Partnership investments | 2,718 | 2,587 | |||||||||
| Purchase accounting adjustments | 25,593 | 35,497 | |||||||||
| Unrealized losses on securities available-for-sale | 16,301 | 26,627 | |||||||||
| Tax credit carryforward | — | 9,777 | |||||||||
| Other | 974 | 630 | |||||||||
| Total deferred tax asset | $ | 78,759 | $ | 106,133 | |||||||
| Deferred tax liabilities: | |||||||||||
| Tax over book depreciation | $ | (6,014) | $ | (6,003) | |||||||
| Pension accrual | (415) | (458) | |||||||||
| Unrealized gains on interest rate swaps | (881) | (833) | |||||||||
| Purchase accounting adjustments | (11,735) | (16,588) | |||||||||
| Right of use asset | (4,055) | (3,757) | |||||||||
| Mortgage servicing rights | (440) | (460) | |||||||||
| Total deferred tax liability | $ | (23,540) | $ | (28,099) | |||||||
| Net deferred tax asset | $ | 55,219 | $ | 78,034 | |||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 17, 2025 | |
| 2023 | Mar 22, 2024 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.