Eagle Financial Services, Inc. Announces 2010 Third Quarter Financial Results

Oct 29, 2010, 12:30 ET from Eagle Financial Services, Inc.

BERRYVILLE, Va., Oct. 29 /PRNewswire-FirstCall/ -- Eagle Financial Services, Inc. (OTC Bulletin Board: EFSI), the holding company for Bank of Clarke County, whose divisions include Eagle Investment Group, announces third quarter 2010 financial results.  The Company's common stock is listed for trading on the Over-the-Counter (OTC) Bulletin Board under the ticker symbol EFSI.

Third Quarter 2010 Highlights:

  • Dividend of $0.18 per share, an increase of 5.9%
  • Net interest margin of 4.31%
  • Allowance for loan losses at 1.90% of total loans
  • Retail deposit growth of $18.6 million since December 31, 2009
  • Total equity to assets of  9.82%
  • Net Income $81,000

John R. Milleson, President and CEO, stated, "Our third quarter results fell short of  expectations and well below the Company's typical standards.  The Bank's credit quality suffered during the third quarter primarily due to declining real estate values associated with a few large loans and the continuance of the economic malaise. Accordingly, the Bank increased its allowance for loan losses by $2.9 million for the third quarter. Fortunately, strong earnings allowed us to absorb this substantial provision. We will continue to diligently monitor our loan portfolio in an attempt to minimize losses associated with existing and potential credit quality issues.

Because we are confident with our ability to sustain core earnings and have no restrictions associated with government bailout programs, our Board voted to increase the dividend for the quarter to $0.18 per share, marking the 25th consecutive year of a dividend increase."

Net Interest Income and Net Interest Margin

Net interest income for the quarter ended September 30, 2010 was $5.6 million compared to $5.5 million for the quarter ended June 30, 2010.  Average earning assets have increased $5.9 million since June 30, 2010 while their yield has decreased 11 basis points since June 30, 2010.  

Total loan interest income was $5.9 million for the quarters ended September and June 30, 2010.  Average loans increased $4.8 million since June 30, 2010.  Interest income from the investment portfolio was $1.1 million for the quarters ended September and June 30, 2010.  Average investments increased $5.8 million since June 30, 2010.  

Total interest expense for the three months ended September and June 30, 2010 was $1.4 million. The average cost of interest bearing liabilities decreased four basis points from the quarter ended June 30, 2010 while the average balance of interest bearing liabilities increased $3.0 million from the quarter ended June 30, 2010.

The net interest margin decreased from 4.38% for the quarter ended June 30, 2010 to 4.31% for the quarter ended September 30, 2010. The decrease in the net interest margin was mostly attributable to the decline in asset yields.

The Company's net interest margin is not a measurement under accounting principles generally accepted in the United States, but it is a common measure used by the financial services industry to determine how profitably earning assets are funded. The Company's net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets. Tax equivalent net interest income is calculated by grossing up interest income for the amounts that are non-taxable (i.e., municipal income) then subtracting interest expense. The tax rate utilized is 34%.

Asset Quality and Provision for Loan Losses

Non performing assets increased from $9.5 million or 1.70% of total assets at June 30, 2010 to $12.2 million or 2.18% of total assets at September 30, 2010. This increase was driven mostly from the increase in nonaccrual loans.    

During the third quarter of 2010, the Bank placed 12 loans totaling $5.4 million on non accrual status.   A large portion of the $5.4 million was attributed to one loan of $2.2 million on a commercial office building located in Winchester, VA. Management evaluates the financial condition of these borrowers and the value of any collateral on these loans.  The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans.  The majority of the loans placed on nonaccrual status during the third quarter are secured by real estate has allocated specific allowances totaling $1.7 million.  

Two real estate assets valued at $241,000 were foreclosed upon during the third quarter of 2010 while no sales of foreclosed property were realized during the same period.  Loans greater than 90 days past due decreased from $1.4 million at June 30, 2010 to $208,000 at September 30, 2010.

The Company realized $1.6 million in net charge-offs for the quarter ended September 30, 2010 versus $499,000 for the three months ended June 30, 2010. The increased amount of loan charge offs related primarily to two partial charge offs, together totaling $1.2 million, on loans for large residential land development projects.  One project is located in Woodstock, VA and the other is in Winchester, VA.  

The ratio of allowance for loan losses to total loans was 1.90% at September 30, 2010 and 1.59% at June 30, 2010.  The ratio of allowance for loan losses to total nonaccrual loans was 79.35% at September 30, 2010 and 105.45% at June 30, 2010.  Provisions for loan losses were $2.9 million for the three months ended September 30, 2010, compared to $750,000 for the quarter ended June 30, 2010.  The amount of provision for loan losses during each quarter reflects the results of the Bank's analysis used to determine the adequacy of the allowance for loan losses.  The increased provision for the quarter resulted from both the increase in specific allocations related to the quarter's additional nonaccrual loans and to an adjustment to our method of analysis of the allowance for loan losses with respect to the Bank's loss history.  The period of loss history consider for the analysis was shortened in order to better reflect the level of losses that the Bank is currently realizing.  

Asset quality remains a primary concern of the Company. Necessary resources continue to be devoted to the ongoing review of the loan portfolio and the workouts of problem assets to minimize any losses to the Company. Management will continue to monitor delinquencies, risk rating changes, charge-offs, market trends and other indicators of risk in the Company's portfolio, particularly those tied to residential and commercial real estate, and adjust the allowance for loan losses accordingly.

Non Interest Income and Non Interest Expense

Noninterest income was $1.5 million for the quarter ended September 30, 2010 and $1.4 million for the same period ended June 30, 2010.  Income from fiduciary activities increased $26,000 from the three month period ended June 30, 2010. Most of this increase is attributable to an estate that had been settled during the third quarter.   Other service charges and fees increased 6.6% or $49,000 from $745,000 for the quarter ended June 30, 2010.  This increase resulted mostly from the increase in service release premiums of $61,000.  

Noninterest expense was $4.3 million for the quarter ended September 30, 2010 and $4.1 million for the quarter ended June 30, 2010.  The increase is attributable to increases in various items including expenses related to other real estate owned, marketing and audit fees. The Company continues to diligently manage and monitor its other operating expenses.

Total Consolidated Assets

Total consolidated assets of the Company at September 30, 2010 were $559.0 million, and were relatively unchanged from total consolidated assets at June 30, 2010. Total loans increased $2.2 million from $410.7 million at June 30, 2010 to $412.9 million at September 30, 2010.  Considering the current interest rate and competitive market environment, the Company has been conscientious about maintaining both its underwriting standards and its net interest margin and thereby cautious about the growth it has permitted in the loan portfolio.

Deposits and Other Borrowings

Total deposits, which include brokered deposits, increased $5.2 million to $426.7 million at September 30, 2010 from $421.5 million at June 30, 2010. Most of this growth was realized in the Bank's lower cost transaction accounts. Brokered deposits were $19.9 million at September 30, 2010 and June 30, 2010.

Securities sold under agreement to repurchase were $14.9 million at September 30, 2010 and $15.0 million at June 30, 2010. Borrowings with the Federal Home Loan Bank of Atlanta were $52.3 million at September, 2010 and $57.3 million at June 30, 2010.

Equity

Shareholders' equity at September 30, 2010 was $54.9 million and $54.4 million at June 30, 2010. The book value of the Company at September 30, 2010 was $16.86 per common share. Total common shares outstanding were 3,254,204 at September 30, 2010.  On October 20, 2010, the board of directors declared a $0.18 per common share cash dividend for shareholders of record as of November 1, 2010 and payable on November 15, 2010.

Certain information contained in this discussion may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to the Company's future operations and are generally identified by phrases such as "the Company expects," "the Company believes" or words of similar import. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. For details on factors that could affect expectations, see the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, and other filings with the Securities and Exchange Commission.

EAGLE FINANCIAL SERVICES, INC. KEY STATISTICS

For the Three Months Ended

3Q10

2Q10

1Q10

4Q09

3Q09

Net Income (dollars in thousands)

$           81

$      1,484

$      1,578

$         792

$         790

Earnings per share, basic

$        0.03

$        0.46

$        0.49

$        0.25

$        0.25

Earnings per share, diluted

$        0.02

$        0.46

$        0.49

$        0.25

$        0.25

Return on average total assets

0.06%

1.07%

1.19%

0.59%

0.60%

Return on average total equity

0.59%

11.13%

12.17%

6.15%

6.33%

Dividend payout ratio

566.67%

36.96%

34.69%

68.00%

68.00%

Fee revenue as a percent of total revenue

21.01%

20.88%

19.93%

18.06%

11.35%

Net interest margin(1)

4.31%

4.38%

4.48%

4.52%

4.51%

Yield on average earning assets

5.34%

5.45%

5.61%

5.67%

5.73%

Yield on average interest-bearing liabilities

1.35%

1.39%

1.44%

1.49%

1.56%

Net interest spread

3.99%

4.06%

4.17%

4.18%

4.17%

Tax equivalent adjustment to net interest income (dollars in thousands)

$         198

$         202

$         204

$         191

$         195

Non-interest income to average assets

1.04%

1.00%

1.02%

0.96%

0.67%

Non-interest expense to average assets

3.03%

2.97%

3.05%

3.26%

3.20%

Efficiency ratio(2)

59.22%

57.56%

58.01%

62.43%

60.82%

(1) The net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets.  Tax equivalent interest income is calculated by grossing up interest income for the amounts that are non taxable (i.e., municipal income) then subtracting interest expense.  The rate utilized is 34%.  See the table below for the quarterly tax equivalent net interest income and the reconciliation of net interest income to tax equivalent net interest income.  The Company's net interest margin is a common measure used by the financial service industry to determine how profitable earning assets are funded.  Because the Company earns a fair amount of non taxable interest income due to the mix of securities in its investment security portfolio, net interest income for the ratio is calculated on a tax equivalent basis as described above.  

(2) The net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets.  Tax equivalent interest income is calculated by grossing up interest income for the amounts that are non taxable (i.e., municipal income) then subtracting interest expense.  The rate utilized is 34%.  See the table below for the quarterly tax equivalent net interest income and the reconciliation of net interest income to tax equivalent net interest income.  The Company's net interest margin is a common measure used by the financial service industry to determine how profitable earning assets are funded.  Because the Company earns a fair amount of non taxable interest income due to the mix of securities in its investment security portfolio, net interest income for the ratio is calculated on a tax equivalent basis as described above.

EAGLE FINANCIAL SERVICES, INC. SELECTED FINANCIAL DATA BY QUARTER

3Q10

2Q10

1Q10

4Q09

3Q09

BALANCE SHEET RATIOS

Loans to deposits

96.78%

97.45%

97.56%

101.50%

104.31%

Average interest-earning assets to

   average-interest bearing liabilities

130.60%

130.10%

128.13%

129.55%

136.59%

PER SHARE DATA

Dividends

$            0.18

$            0.17

$            0.17

$            0.17

$        0.17

Book value

$          16.86

$          16.85

$          16.42

$          16.14

$      15.88

Tangible book value

$          16.86

$          16.84

$          16.40

$          16.13

$      15.88

SHARE PRICE DATA

Closing price

$          17.00

$          16.00

$          18.00

$          15.75

$      15.35

Diluted earnings multiple(1)

1.01

0.96

1.10

0.98

0.97

Book value multiple(2)

1.10

0.95

1.10

0.98

0.97

COMMON STOCK DATA

Outstanding shares at end of period

3,254,204

3,226,923

3,231,964

3,199,636

3,190,304

Weighted average shares outstanding

3,249,236

3,236,763

3,227,129

3,194,970

3,185,806

Weighted average shares outstanding, diluted

3,259,231

3,245,229

3,232,700

3,202,595

3,193,758

CAPITAL RATIOS

Total equity to total assets

9.82%

9.73%

9.65%

9.65%

9.72%

CREDIT QUALITY

Net charge-offs to average loans

1.51%

0.49%

0.23%

0.37%

0.14%

Total non-performing loans to total loans

2.44%

1.84%

1.84%

1.27%

0.34%

Total non-performing assets to total assets

2.18%

1.70%

1.64%

1.48%

0.81%

Non-accrual loans to:

     total loans

2.39%

1.51%

1.84%

1.26%

0.27%

     total assets

1.77%

1.11%

1.35%

0.95%

0.20%

Allowance for loan losses to:

     total loans

1.90%

1.59%

1.56%

1.48%

1.25%

    non-performing assets

64.20%

69.04%

69.85%

75.46%

116.68%

    non-accrual loans

79.35%

105.45%

84.62%

117.08%

458.66%

NON-PERFORMING ASSETS:

(dollars in thousands)

   Loans delinquent over 90 days

$             208

$          1,366

$                 2

$               13

$         284

   Non-accrual loans    

9,870

6,204

7,434

5,099

1,067

   Other real estate owned and repossessed assets

2,122

1,906

1,571

2,799

2,845

NET LOAN CHARGE-OFFS (RECOVERIES):

(dollars in thousands)

   Loans charged off

$          1,618

$             531

$             281

$             448

$         617

   (Recoveries)

(58)

(32)

(52)

(72)

(79)

Net charge-offs (recoveries)

1,560

499

229

376

537

PROVISION FOR LOAN LOSSES (dollars in thousands)

$          2,850

$             750

$             550

$          1,450

$      1,050

ALLOWANCE FOR LOAN LOSS SUMMARY

(dollars in thousands)

Balance at the beginning of period

$          6,542

$          6,291

$          5,970

$          4,896

$      4,383

Provision

2,850

750

550

1,450

1,050

Net charge-offs (recoveries)

1,560

499

229

376

537

Balance at the end of period

$          7,832

$          6,542

$          6,291

$          5,970

$      4,896

(1) The diluted earnings multiple (or price earnings ratio) is calculated by dividing the period's closing market price per share by total equity per weighted average shares outstanding, diluted for the period. The diluted earnings multiple is a measure of how much an investor may be willing to pay for $1.00 of the Company's earnings.

(2) The book value multiple (or price to book ratio) is calculated by dividing the period's closing market price per share by the period's book value per share. The book value multiple is a measure used to compare the Company's market value per share to its book value per share.

EAGLE FINANCIAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands)

Unaudited

Unaudited

Unaudited

Audited

Unaudited

9/30/2010

6/30/2010

3/31/2010

12/31/2009

9/30/2009

Assets

Cash and due from banks

$       12,439

$       18,951

$       24,385

$         7,354

$         8,625

Federal funds sold

-

-

-

179

-

Securities available for sale, at fair value

112,175

107,104

100,148

101,210

97,882

Loans, net of allowance for loan losses

405,075

404,177

398,134

398,096

387,418

Bank premises and equipment, net

15,881

15,591

14,984

14,778

14,980

Other assets

13,402

13,059

11,904

13,768

12,180

             Total assets

$     558,972

$     558,882

$     549,555

$     535,385

$     521,085

Liabilities and Shareholders' Equity

Liabilities

   Deposits:

      Noninterest bearing demand deposits

$       97,409

$       94,354

$       91,477

$       90,575

$       87,105

      Savings and interest bearing demand deposits

177,798

177,999

171,317

170,485

159,928

      Time deposits

151,456

149,098

151,765

137,047

128,565

         Total deposits

$     426,663

$     421,451

$     414,559

$     398,107

$     375,598

   Federal funds purchased and securities

       sold under agreements to repurchase

14,920

14,987

14,628

14,016

21,807

   Federal Home Loan Bank advances

52,250

57,250

57,250

62,250

62,250

   Trust preferred capital notes

7,217

7,217

7,217

7,217

7,217

   Other liabilities

3,047

3,616

2,847

2,152

3,548

   Commitments and contingent liabilities

-

-

-

-

-

             Total liabilities

$     504,097

$     504,521

$     496,501

$     483,742

$     470,420

Shareholders' Equity

   Preferred stock, $10 par value

$               -

$               -

$               -

$               -

$               -

   Common stock, $2.50 par value

8,090

8,067

8,045

7,999

7,976

   Surplus

8,930

8,733

8,559

8,504

8,307

   Retained earnings

35,544

36,014

35,079

34,048

33,804

   Accumulated other comprehensive income

2,311

1,547

1,371

1,092

578

             Total shareholders' equity

$       54,875

$       54,361

$       53,054

$       51,643

$       50,665

             Total liabilities and shareholders' equity

$     558,972

$     558,882

$     549,555

$     535,385

$     521,085

EAGLE FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited, dollars in thousands)

For the Three Months Ended,

9/30/2010

6/30/2010

3/31/2010

12/31/2009

9/30/2009

Interest and Dividend Income

       Interest and fees on loans

$             5,875

$             5,873

$             5,807

$            5,934

$            5,765

       Interest on federal funds sold

-

8

3

1

2

       Interest and dividends on securities available for sale:

             Taxable interest income

753

621

595

617

666

             Interest income exempt from federal income taxes

320

324

328

304

307

             Dividends

-

108

111

113

116

       Interest on deposits in banks

1

-

-

-

1

                   Total interest and dividend income

$             6,949

$             6,934

$             6,844

$            6,969

$            6,857

Interest Expense

       Interest on deposits

$                741

$                765

$                784

$               806

$               826

       Interest on federal funds purchased and securities

           sold under agreements to repurchase

97

96

98

98

102

       Interest on Federal Home Loan Bank advances

461

460

455

464

484

       Interest on trust preferred capital notes

80

79

77

80

82

                  Total interest expense

$             1,379

$             1,400

$             1,414

$            1,448

$            1,494

                  Net interest income

$             5,570

$             5,534

$             5,430

$            5,521

$            5,363

Provision For Loan Losses

2,850

750

550

1,450

1,050

                  Net interest income after provision for loan losses

$             2,720

$             4,784

$             4,880

$            4,071

$            4,313

Noninterest Income

       Income from fiduciary activities

$                248

$                222

$                240

$               174

$               200

       Service charges on deposit accounts

438

477

446

522

537

       Other service charges and fees

794

745

668

534

634

       (Loss) Gain on the sale of bank premises and equipment

-

-

-

(5)

-

       (Loss) on the sale of repossessed assets

3

(123)

(126)

15

(50)

       Gain (Loss) on sales of AFS securities

-

-

98

20

(439)

       Other operating income

(8)

62

38

29

(4)

                   Total noninterest income

$             1,475

$             1,383

$             1,364

$            1,289

$               878

Noninterest Expenses

       Salaries and employee benefits

$             2,334

$             2,344

$             2,189

$            2,312

$            2,493

       Occupancy expenses

260

281

292

264

291

       Equipment expenses

172

144

152

153

176

       Advertising and marketing expenses

138

95

105

85

142

       Stationery and supplies

69

47

65

94

52

       ATM network fees

194

265

157

95

20

       FDIC assessment

179

178

314

216

204

       Other operating expenses

943

751

785

1,145

803

                   Total noninterest expenses

$             4,289

$             4,105

$             4,059

$            4,364

$            4,181

                   Income before income taxes

$                (94)

$             2,062

$             2,185

$               996

$            1,010

Income Tax Expense

(175)

578

607

204

220

                   Net income

$                  81

$             1,484

$             1,578

$               792

$               790

Earnings Per Share

       Net income per common share, basic

$               0.03

$               0.46

$               0.49

$              0.25

$              0.25

       Net income per common share, diluted

$               0.02

$               0.46

$               0.49

$              0.25

$              0.25

EAGLE FINANCIAL SERVICES, INC. Average Balances, Income and Expenses, Yields and Rates (dollars in thousands)

For the Three Months Ended September,

2010

2009

Interest

Interest

Average

Income/

Average

Average

Income/

Average

Assets:

Balance

Expense

Rate

Balance

Expense

Rate

Securities:

       Taxable

75,933

2,971

3.91%

65,095

3,103

4.77%

       Tax-Exempt(1)

34,188

1,924

5.63%

33,144

1,841

5.55%

           Total Securities

110,121

4,895

4.45%

98,239

4,944

5.03%

Loans:

       Taxable

405,430

23,056

5.69%

383,465

22,589

5.89%

       Tax-Exempt(1)

5,439

383

7.03%

6,090

431

7.08%

           Total Loans

410,869

23,439

5.73%

389,555

23,020

5.91%

Federal funds sold

170

-

0.00%

496

7

1.41%

Interest-bearing deposits in other banks

9,710

20

0.20%

185

2

1.08%

           Total earning assets

530,870

28,354

5.34%

488,475

27,973

5.73%

Allowance for loan losses

(6,736)

(4,499)

Total non-earning assets

37,020

34,558

Total assets

561,154

518,534

Liabilities and Shareholders' Equity:

Interest-bearing deposits:

       NOW accounts

68,847

243

0.35%

59,995

246

0.41%

       Money market accounts

67,903

387

0.57%

58,952

428

0.73%

       Savings accounts

40,467

66

0.16%

37,347

78

0.21%

Time deposits:

       $100,000 and more

62,489

758

1.21%

48,606

813

1.67%

       Less than $100,000

88,291

1,485

1.68%

88,175

1,710

1.94%

           Total interest-bearing deposits

327,997

2,939

0.90%

293,075

3,275

1.12%

Federal  funds purchased and securities

    sold under agreements to repurchase

14,933

385

2.58%

17,146

402

2.34%

Federal Home Loan Bank advances

56,326

1,829

3.25%

62,141

1,922

3.09%

Trust preferred capital notes

7,217

317

4.40%

7,217

155

2.15%

           Total interest-bearing liabilities

406,473

5,470

1.35%

379,579

5,754

1.52%

Noninterest-bearing liabilities:

       Demand deposits

95,627

86,002

       Other Liabilities

3,804

3,539

           Total liabilities

505,904

469,120

Shareholders' equity

55,250

49,414

Total liabilities and shareholders' equity

561,154

518,534

Net interest income

22,884

22,219

Net interest spread

3.99%

4.21%

Interest expense as a percent of

    average earning assets

1.03%

1.18%

Net interest margin

4.31%

4.55%

(1) Income and yields are reported on a tax equivalent basis using a federal tax rate of 34%.

EAGLE FINANCIAL SERVICES, INC.

Average Balances, Income and Expenses, Yields and Rates (dollars in thousands)

For the Three Months Ended June,

2010

2009

Interest

Interest

Average

Income/

Average

Average

Income/

Average

Assets:

Balance

Expense

Rate

Balance

Expense

Rate

Securities:

       Taxable

70,278

2,924

4.16%

71,617

3,478

4.86%

       Tax-Exempt(1)

34,022

1,969

5.79%

32,614

1,814

5.56%

           Total Securities

104,299

4,893

4.69%

104,231

5,292

5.08%

Loans:

       Taxable

400,245

23,287

5.82%

380,692

22,595

5.94%

       Tax-Exempt(1)

5,815

409

7.03%

6,221

393

6.32%

           Total Loans

406,060

23,696

5.84%

386,913

22,988

5.94%

Federal funds sold

-

-

0.00%

7,647

12

0.16%

Interest-bearing deposits in other banks

14,588

20

0.14%

215

8

3.72%

           Total earning assets

524,947

28,609

5.45%

499,006

28,300

5.67%

Allowance for loan losses

(6,037)

(4,359)

Total non-earning assets

35,541

35,402

Total assets

554,451

530,049

Liabilities and Shareholders' Equity:

Interest-bearing deposits:

       NOW accounts

68,958

310

0.45%

57,173

287

0.50%

       Money market accounts

65,287

429

0.66%

60,352

557

0.92%

       Savings accounts

40,964

80

0.20%

36,734

124

0.34%

Time deposits:

       $100,000 and more

60,487

732

1.21%

53,221

1,109

2.08%

       Less than $100,000

88,341

1,501

1.71%

102,638

2,257

2.20%

           Total interest-bearing deposits

324,037

3,068

0.95%

310,118

4,334

1.40%

Federal  funds purchased and securities

    sold under agreements to repurchase

14,981

370

2.47%

14,685

382

2.60%

Federal Home Loan Bank advances

57,250

1,846

3.22%

62,250

2,125

3.41%

Trust preferred capital notes

7,217

317

4.39%

7,217

317

4.39%

           Total interest-bearing liabilities

403,485

5,601

1.39%

394,270

7,158

1.82%

Noninterest-bearing liabilities:

       Demand deposits

94,304

84,477

       Other Liabilities

3,203

3,230

           Total liabilities

500,992

481,978

Shareholders' equity

53,459

48,072

Total liabilities and shareholders' equity

554,451

530,049

Net interest income

23,008

21,142

Net interest spread

4.06%

3.85%

Interest expense as a percent of

    average earning assets

1.07%

4.30%

Net interest margin

4.38%

4.24%

(1) Income and yields are reported on a tax equivalent basis using a federal tax rate of 34%.

EAGLE FINANCIAL SERVICES, INC.

Reconciliation of Tax-Equivalent Net Interest Income

(dollars in thousands)

Three Months Ended

9/30/2010

6/30/2010

3/31/2010

12/31/2009

9/30/2009

GAAP Financial Measurements:

  Interest Income - Loans

$            5,875

$            5,873

$            5,807

$            5,934

$          5,765

  Interest Income - Securities and Other Interest-Earnings Assets

1,074

1,061

1,037

1,035

1,092

  Interest Expense - Deposits

741

765

784

806

826

  Interest Expense - Other Borrowings

638

635

630

642

668

Total Net Interest Income

$            5,570

$            5,534

$            5,430

$            5,521

$          5,363

Non-GAAP Financial Measurements:

  Add:  Tax Benefit on Tax-Exempt Interest Income - Loans

$                 33

$                 35

$                 35

$                 35

$               37

  Add:  Tax Benefit on Tax-Exempt Interest Income - Securities

165

167

169

156

158

Total Tax Benefit on Tax-Exempt Interest Income

$               198

$               202

$               204

$               191

$             195

Tax-Equivalent Net Interest Income

$            5,768

$            5,736

$            5,634

$            5,712

$          5,558

SOURCE Eagle Financial Services, Inc.