EAGLE FINANCIAL SERVICES, INC. ANNOUNCES 2024 SECOND QUARTER FINANCIAL RESULTS AND QUARTERLY DIVIDEND

BERRYVILLE, Va., July 26, 2024 /PRNewswire/ -- Eagle Financial Services, Inc. (OTCQX: EFSI), the holding company for Bank of Clarke, whose divisions include Bank of Clarke Wealth Management, announced its second quarter 2024 results. On July 24, 2024, the Board of Directors announced a quarterly common stock cash dividend of $0.30 per common share, payable on August 16, 2024, to shareholders of record on August 5, 2024. Select highlights for the second quarter (compared to the first quarter of 2024) include:

• Noninterest income increased $824 thousand or 23.7% during the quarter.
• Return on average total equity increased from 9.43% to 11.89%.
• Earnings per share increased by $0.17 for the quarter to $0.89.

Brandon Lorey, President and CEO, stated, "Reflecting on our performance in the second quarter of 2024, we have demonstrated resilience and strategic agility in a dynamic economic landscape. Despite the challenges posed by market fluctuations and interest rate pressures, our focus on organic growth and operational excellence has allowed us to maintain a robust financial position. We remain optimistic about the future, as we continue to leverage our strengths and explore new opportunities for growth and innovation."

Income Statement Review

Net income for the quarter ended June 30, 2024 was $3.2 million reflecting an increase of 25.0% from the quarter ended March 31, 2024 and an increase of 54.8% from the quarter ended June 30, 2023. The increase from the quarter ended March 31, 2024 was due mainly to the $824 thousand increase in total noninterest income. The increase of total noninterest income was due to increased sales activity in loans held for sale resulting in a $492 thousand gain on sale of loans held for sale for the quarter ended June 30, 2024 compared to $161 thousand for the quarter ended March 31, 2024. Other operating income also increased due to a $254 thousand bank owned life insurance (BOLI) payout. Net income was $2.4 million for the three-month period ended March 31, 2024 and $2.1 million for the quarter ended June 30, 2023.

Total loan interest income was $19.5 million and $20.0 million for the quarters ended June 30, 2024 and March 31, 2024, respectively.  Total loan interest income was $18.8 million for the quarter ended June 30, 2023. Total loan interest income increased $771 thousand or 4.1% from the quarter ended June 30, 2023 to the quarter ended June 30, 2024. Average loans remained stable at 1.44 billion for the quarters ended June 30, 2024 and June 30, 2023. The tax equivalent yield on average loans for the quarter ended June 30, 2024 was 5.46%, an increase of 22 basis points from the 5.24% average yield for the same time period in 2023. The decrease in loan interest income during the second quarter of 2024 compared to the first quarter of 2024 is mainly due to early payoffs in the marine portfolio which negatively impacted deferred fees, which are included in loan interest income. The majority of the increase compared to June 30, 2023 can be attributed to the current rising interest rate environment.

Interest and dividend income from the investment portfolio was $897 thousand for the quarter ended June 30, 2024 compared to $919 thousand for the quarter ended March 31, 2024. Interest income and dividend income from the investment portfolio was $926 thousand for the quarter ended June 30, 2023. The tax equivalent yield on average investments for the quarter ended June 30, 2024 was 2.62%, up four basis points from 2.58% for the quarter ended March 31, 2024 and up 23 basis points from 2.39% for the quarter ended June 30, 2023.

Total interest expense was $9.6 million for the three months ended June 30, 2024 and $9.5 million and $7.9 million for three months ended March 31, 2024 and June 30, 2023, respectively. The slight increase in interest expense between June 30, 2024 and March 31, 2024 was due mostly to deposit rate specials during the quarter. The increase in interest expense from June 30, 2023 to June 30, 2024 resulted from deposit rate specials during the year. The average cost of interest-bearing liabilities increased four and 43 basis points when comparing the quarter ended June 30, 2024 to the quarters ended March 31, 2024 and  June 30, 2023, respectively. The average balance of interest-bearing liabilities decreased $3.5 million from the quarter ended March 31, 2024 to the quarter ended June 30, 2024. The average balance of interest-bearing liabilities increased $51.9 million from the quarter ended June 30, 2023 to the same period in 2024. In addition to the growth in interest-bearing liabilities, there has been a shift in the mix of interest-bearing deposits towards higher interest-bearing deposits. 

Net interest income for the quarter ended June 30, 2024 was $12.2 million reflecting a decrease of 2.1% from the quarter ended March 31, 2024 and a decrease of 2.2% from the quarter ended June 30, 2023. Net interest income was $12.4 million for the quarters ended March 31, 2024 and June 30, 2023.

The net interest margin was 2.81% for the quarter ended June 30, 2024. For the quarters ended March 31, 2024 and June 30, 2023, the net interest margin was 2.91% and 2.99%, respectively. The net interest margin for the quarter ended June 30, 2024 was negatively impacted by recognizing additional deferred fees due to early loan payoffs, mainly in the Marine portfolio. 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 21%.

Noninterest income was $4.3 million for the quarter ended June 30, 2024, which represented an increase of $824 thousand or 23.7% from the $3.5 million for the three months ended March 31, 2024. Noninterest income for the quarter ended June 30, 2023 was $3.4 million. The increase from the quarter ended March 31, 2024 was mainly due to the increase of gains on loans held for sale and a $254 thousand BOLI payout. 

Noninterest expense increased $133 thousand, or 1.1%, to $12.5 million for the quarter ended June 30, 2024 from $12.4 million for the quarter ended March 31, 2024. Noninterest expense was $13.0 million for the quarter ended June 30, 2023, representing an decrease of $445 thousand or 3.4% when comparing the quarter ended June 30, 2024 to the quarter ended June 30, 2023. A $168 thousand or 2.3% increase in salaries and benefits expenses was noted between June 30, 2024 and March 31, 2024. This is mainly due to larger incentive accruals as employees reached certain goals. 

Asset Quality and Provision for Credit Losses

Nonperforming assets consist of nonaccrual loans, loans 90 days or more past due and still accruing, other real estate owned (foreclosed properties), and repossessed assets. Nonperforming assets decreased from $5.0 million or 0.28% of total assets at March 31, 2024 to $3.3 million or 0.18% of total assets at June 30, 2024. Nonperforming assets were $3.3 million at June 30, 2023.  Total nonaccrual loans were $2.7 million at June 30, 2024 and $4.2 million at March 31, 2024. Nonaccrual loans were $3.1 million at June 30, 2023. Nonperforming assets decreased between March 31, 2024 and June 30, 2024 mainly due to two large relationships paying off. Nonaccrual loans, and in turn nonperforming assets, decreased between June 30, 2023 and June 30, 2024 due to regular payments. The majority of all nonaccrual loans are secured by real estate and 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.  Other real estate owned was zero at June 30, 2024, March 31, 2024 and June 30, 2023.

The Company realized $252 thousand in net recoveries for the quarter ended June 30, 2024 compared to $520 thousand for the three months ended March 31, 2024. During the three months ended June 30, 2023, $150 thousand in net recoveries were recognized.

The amount of provision for credit losses reflects the results of the Bank's analysis used to determine the adequacy of the allowance for credit losses. The Company recorded $315 thousand in provision for credit loss for the quarter ended June 30, 2024. A small provision this quarter resulted from the net recoveries realized during the period. The Company recognized provision for credit losses of $475 thousand and $403 thousand for the quarters ended March 31, 2024 and June 30, 2023, respectively. The provision for the quarter ended March 31, 2024 was mainly needed due to the larger net charge-offs during the quarter. The provision for the quarter ended June 30, 2023 was mainly needed to keep pace with strong loan growth.

The ratio of allowance for credit losses to total loans was 1.04% and 1.00% at June 30, 2024 and March 31, 2024, respectively. The ratio of allowance for loan losses to total loans was 0.99% at June 30, 2023. The ratio of allowance for credit losses to total nonaccrual loans was 555.46% and 347.64% at June 30, 2024 and March 31, 2024, respectively.  The ratio of allowance for loan losses to total nonaccrual loans was 466.74% at June 30, 2023. Management's judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower's ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses. The Company is committed to maintaining an allowance at a level that adequately reflects the risk inherent in the loan portfolio.

Balance Sheet

Total consolidated assets of the Company at June 30, 2024 were $1.79 billion, which represented an increase of $7.5 million or 0.42% from total assets of $1.78 billion at March 31, 2024. At June 30, 2023, total consolidated assets were $1.78 billion. Consolidated assets remained stable during the quarter ended June 30, 2024.

Total cash and cash equivalents (including cash and due from banks and federal funds sold) decreased $4.0 million or 3.1% as of June 30, 2024, compared to March 31, 2024. Cash and cash equivalents decreased as a percentage of total assets to 6.9% as of June 30, 2024 as compared to 7.2% at March 31, 2024 and increased as compared to 4.4% at June 30, 2023. The prior quarter change was minimal. The year over year change was due mainly to deposit growth exceeding the change in net loans allowing for additional cash and cash equivalents.

At June 30, 2024, total securities available for sale were $138.3 million, a decrease of $2.8 million from March 31, 2024, and a decrease of $13.2 million from June 30, 2023. At  June 30, 2024, total net unrealized losses on the AFS securities portfolio were $23.8 million, a decrease in losses of $1.3 million from total net unrealized losses on AFS securities of $25.1 million at March 31, 2024 and a decrease in losses of $800 thousand from June 30, 2023.

Total net loans increased $9.3 million from $1.42 billion at March 31, 2024 to $1.43 billion at June 30, 2024. These increases were mainly in the commercial non-owner occupied and commercial and industrial loans during the second quarter of 2024. During the quarter ended June 30, 2024, through the normal course of business, $14.6 million in mortgage loans were sold on the secondary market. These loan sales resulted in net gains of $255 thousand. During the quarter ended March 31, 2024, $10.8 million in mortgage loans were sold on the secondary market. These loan sales resulted in net gains of $161 thousand.

On August 23, 2023, the Company completed the sale of its marine finance business, operating under the name LaVictoire Finance, to Axos Bank. Under the Asset Purchase Agreement, Axos Bank agreed to assume the servicing of Bank of Clarke's retail marine loans and those of third parties, each of which were previously being serviced by Bank of Clarke. All LaVictoire Finance employees became employees of Axos Bank. Pursuant to the Loan Purchase Agreement, Axos Bank acquired all the marine vessel dealer floor plans loans currently held by Bank of Clarke at par value. The acquired loans had an aggregate principal balance of approximately $52.8 million as of the date of the Loan Purchase Agreement. All marine finance loans, with a balance of $236.9 million as of June 30, 2024, are still assets of Bank of Clarke. 

Total deposits increased to $1.49 billion as of June 30, 2024 when compared to March 31, 2024 deposits of $1.47 billion. At June 30, 2023 total deposits were $1.46 billion.  During the second quarter of 2024, total deposits increased $14.6 million. The majority of this increase was due to time deposit balances increasing by $43.9 million. Time deposits as a percentage of total deposits have increased from 26.0% at June 30, 2023 to 28.6% at June 30, 2024.  Time deposits as a percentage of total deposits increased from 25.9% at December 31, 2023. The increase in deposits between June 30, 2023 and  June 30, 2024 was mainly due to the growth of certificates of deposit over $250 thousand. At June 30, 2024, over 75% of deposits were fully FDIC insured.

The Company had $145.0 million and $155.0 million, respectively, in outstanding borrowings from the Federal Home Loan Bank of Atlanta at June 30, 2024 and March 31, 2024.  There was $170.0 million in outstanding borrowings from the Federal Home Loan Bank as of June 30, 2023.  The average rate paid on Federal Home Loan Bank advances as of June 30, 2024 and March 31, 2024 was 4.65% and 4.71%, respectively.  These borrowings were used mainly to fund the strong loan growth that occurred during 2023.

On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers and accredited institutional investors, pursuant to which the Company issued 4.50% Fixed-to-Floating Rate Subordinated Notes due 2032, in the aggregate principal amount of $30.0 million.

Shareholders' equity was $111.1 million and $107.7 million at June 30, 2024 and March 31, 2024, respectively. Shareholders' equity was $104.0 million at June 30, 2023. Shareholders' equity has been impacted by an accumulated other comprehensive loss related to securities available-for-sale. These unrealized losses are primarily a result of rapid increases in interest rates during 2022 and 2023 and continued high rates in 2024. The book value of the Company at June 30, 2024 was $31.24 per common share. Total common shares outstanding were 3,556,844 at June 30, 2024. On July 24, 2024, the Board of Directors announced a quarterly common stock cash dividend of $0.30 per common share, payable on July 16, 2024, to shareholders of record on July 5, 2024.

Cautionary Note Regarding Forward-Looking Statements

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.

Factors that could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to: changes in interest rates and general economic conditions; the legislative and regulatory climate; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and Federal Reserve; the quality or composition of the Company's loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company's market area; acquisitions and dispositions; the Company's ability to keep pace with new technologies; a failure in or breach of the Company's operational or security systems or infrastructure, or those of third-party vendors or other service providers, including as a result of cyberattacks; the Company's capital and liquidity; changes in tax and accounting rules, principles, policies and guidelines; and other factors included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 and other filings with the Securities and Exchange Commission.