Eagle Financial Services, Inc. (OTCQX: EFSI), the holding company for Bank of Clarke, whose divisions include Bank of Clarke Wealth Management, announced its fourth quarter 2024 results. On January 22, 2025, the Board of Directors announced a quarterly common stock cash dividend of $0.31 per common share, payable on February 14, 2025, to shareholders of record on February 3, 2025. Net income was $6.2 million for the fourth quarter of 2024 compared to $3.4 million for the third quarter of 2024. The following table presents selected financial performance highlights for the periods indicated:
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Brandon Lorey, President and CEO, stated, “The Bank of Clarke reported another strong quarter of core earnings for Eagle Financial Services, Inc. (“EFSI”) to conclude the year. The team effectively executed on each of our strategic initiatives resulting in a higher net interest margin (NIM), increased deposits, core net loan growth, reduced borrowings, growth in core non-interest income and return on assets (ROA). Additionally, we successfully completed the sale of the Old Town Center building in Winchester, thus unlocking capital for continued expansion. These efforts have further stabilized EFSI's ability to deliver continued value to our shareholders. I would like to extend my personal gratitude to our exceptional staff, whose dedication ensures that our customers remain the focal point of our endeavors, as we continue to serve our clients and communities.”
Key highlights for the fourth quarter of 2024 are as follows:
— Deposit growth of $29.2 million or 1.9% during the quarter.
— Borrowings decreased by $50.0 million during the quarter to $120.0 million.
— Sales of $18.6 million and $7.4 million in mortgage and SBA loans, respectively, with a gain on sales of $861 thousand recognized during the quarter.
— Earnings per share increased by $0.77 for the quarter to $1.74.
Income Statement Review
Net income for the quarter ended December31, 2024 was $6.2 million reflecting an increase of 80.7% from the quarter ended September 30, 2024 and an increase of 158.3% from the quarter ended December31, 2023. Net income was $3.4 million for the three-month period ended September 30, 2024 and $2.4 million for the quarter ended December31, 2023. The increase from the quarters ended September 30, 2024 and December31, 2023 was due mainly to increases in total noninterest income. Total noninterest income increased primarily due to the sale-leaseback transaction of our OTC branch in Winchester, during the fourth quarter of 2024. Excluding the net of tax impact of the $3.9 million gain recognized during the fourth quarter of 2024 from the sales-leaseback, net income for the quarter ended December31, 2024 was $3.1 million reflecting a slight decrease of $299 thousand from the quarter ended September 30, 2024 and an increase of $730 thousand or 30.5% from the quarter ended December31, 2023.
Total loan interest income was $21.1 million for the quarters ended December31, 2024 and September 30, 2024. Total loan interest income was $19.4 million for the quarter ended December31, 2023. Total loan interest income increased $1.7 million or 8.9% from the quarter ended December31, 2023 to the quarter ended December31, 2024. The increase in loan interest income for the fourth quarter of 2024 compared to the fourth quarter of 2023 is due to the increase in loan volume along with the interest rate environment. Average loans increased from $1.45 billion for the quarter ended December 31, 2023 to $1.48 billion for the quarter ended December31, 2024. The tax equivalent yield on average loans for the quarter ended December31, 2024 was 5.70%, an increase of 38 basis points from the 5.32% average yield for the same time period in 2023. The increase in yield was due mainly to loans paying off and being replaced at higher rates due to the current market environment.
Interest and dividend income from the investment portfolio was $879 thousand for the quarter ended December31, 2024 compared to $873 thousand for the quarter ended September 30, 2024. Interest and dividend income from the investment portfolio was $932 thousand for the quarter ended December31, 2023. The tax equivalent yield on average investments for the quarter ended December31, 2024 was 2.57%, up four basis points from 2.53% for the quarter ended September 30, 2024 and down six basis points from 2.63% for the quarter ended December31, 2023.
Total interest expense was $10.5 million for the three months ended December31, 2024 and September 30, 2024 and $9.7 million for three months ended December31, 2023. The increase in interest expense between the quarter ended December31, 2024 and the quarter ended December31, 2023 was due to the growth in interest-bearing deposit accounts and the increasing cost of these accounts year over year. The average cost of interest-bearing liabilities increased nine basis points when comparing the quarter ended December31, 2024 to the quarter ended December31, 2023. The average balance of interest-bearing liabilities increased $66.4 million from the quarter ended December31, 2023 to the same period in 2024.
Net interest income for the quarter ended December31, 2024 was $13.5 million reflecting an increase of 2.6% from the quarter ended September 30, 2024 and an increase of 9.9% from the quarter ended December31, 2023. Net interest income was $13.2 million and $12.3 million, respectively, for the quarters ended September 30, 2024 and December31, 2023.
The net interest margin was 3.03% for the quarter ended December31, 2024. For the quarters ended September 30, 2024 and December31, 2023, the net interest margin was 3.03% and 2.85%, respectively. The increase in the net interest margin from December31, 2023 is mainly due to the origination of higher interest earnings assets during 2024. 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%. This is a non-GAAP financial measure. Please refer to the “Reconciliation of Tax-Equivalent Net Interest Income” table for additional information.
Noninterest income was $8.5 million for the quarter ended December31, 2024, which represented an increase of $3.3 million or 62.3% from $5.3 million for the three months ended September 30, 2024. Noninterest income for the quarter ended December31, 2023 was $3.7 million. Total noninterest income increased primarily due to a $3.9 million gain on the sale of the OTC building. Excluding the $3.9 million gain recognized during the fourth quarter of 2024 from the sales-leaseback, noninterest income for the quarter ended December31, 2024 was $4.6 million reflecting a decrease of $604 thousand from the quarter ended September 30, 2024 and an increase of $985 thousand from the quarter ended December31, 2023. The decrease in total noninterest income when comparing the third and fourth quarters of 2024 was due largely to a $653 BOLI settlement resulting in gains recognized during the third quarter of 2024. No BOLI settlements were recognized during the fourth quarter of 2024. The increase of total noninterest income when comparing the quarter ended December31, 2024 to the quarter ended December31, 2023 was due to more mortgage and SBA loan sale activity, resulting in a $861 thousand gain from those sales for the quarter ended December 31, 2024 compared to $515 thousand for the quarter ended December31, 2023. In addition, income from the Bank's holdings of Small Business Investment Company (SBIC) increased to $475 thousand for the three months ended December31, 2024 from $35 thousand for the three months ended December31, 2023, respectively.
Noninterest expense increased $665 thousand, or 5.2%, to $13.6 million for the quarter ended December31, 2024 from $12.9 million for the quarter ended September 30, 2024. Noninterest expense was $13.3 million for the quarter ended December31, 2023, representing an increase of $275 thousand or 2.1% when comparing the quarter ended December31, 2024 to the quarter ended December31, 2023. A $425 thousand or 5.6% increase in salaries and benefits expenses was noted between December31, 2024 and September 30, 2024. This is mainly due to increased insurance costs and increased incentive accruals as employees surpassed established goals. The increase from the quarter ended December31, 2023 to the quarter ended December31, 2024 was largely due to increased commissions expense within the salaries and benefits expenses category. Commissions expenses were higher during the fourth quarter of 2024 due to increased sales activity for mortgage and SBA loans.
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 increased from $2.5 million or 0.13% of total assets at September 30, 2024 to $3.0 million or 0.16% of total assets at December31, 2024. Nonperforming assets were $6.1 million or 0.34% of total assets at December31, 2023. Total nonaccrual loans were $2.1 million at December31, 2024 and $2.3 million at September 30, 2024. Nonaccrual loans were $5.6 million at December31, 2023. Nonaccrual loans, and in turn nonperforming assets, decreased between December31, 2023 and December31, 2024 due to loan payoffs. 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 and repossessed assets was $514 thousand, $99 thousand and $304 thousand at December31, 2024, September 30, 2024 and December31, 2023, respectively.
The Company realized $486 thousand in net charge-offs for the quarter ended December31, 2024 compared to $1.2 million for the three months ended September 30, 2024. During the three months ended December31, 2023, $383 thousand in net charge-offs were recognized. The majority of the charge-offs recognized during the third and fourth quarters of 2024 were related to a limited number of loans in the marine portfolio and does not reflect a systemic performance issue within the portfolio.
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 $351 thousand in provision for credit loss for the quarter ended December31, 2024. The Company recognized provision for credit losses of $1.5 million and $366 thousand for the quarters ended September 30, 2024 and December31, 2023, respectively. The provision for the quarter ended September 30, 2024 was mainly needed due to the larger net charge-offs during the quarter coupled with $34.6 million in total loan growth. The provision for the quarters ended December31, 2024 and December31, 2023 was mainly needed to replenish the allowance for credit losses from smaller net charge-offs.
The ratio of allowance for credit losses to total loans was 1.02% and 1.03% at December31, 2024 and September 30, 2024, respectively. The ratio of allowance for credit losses to total loans was 0.99% at December31, 2023. The ratio of allowance for credit losses to total nonaccrual loans was 725.24% and 652.86% at December31, 2024 and September 30, 2024, respectively. The ratio of allowance for credit losses to total nonaccrual loans was 256.74% at December31, 2023. The ratio of allowance for credit losses to nonaccrual loans was lower at December31, 2023 due to a higher amount of nonaccrual loans. Several large nonaccrual loan relationship have paid off since December31, 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 December31, 2024 was $1.87 billion, which represented a slight decrease of $15.5 million or 0.82% from total assets of $1.88 billion at September 30, 2024. At December31, 2023, total consolidated assets were $1.83 billion. Total assets decreased during the fourth quarter of 2024 due mainly to net loans declining by $16.0 million. Total asset growth between December31, 2023 and December31, 2024 was largely attributed to $63.7 million growth in cash and due from banks that was funded by strong deposit growth of $68.8 million during the same period.
Total net loans decreased $16.0 million from $1.47 billion at September 30, 2024 to $1.45 billion at December31, 2024 driven largely by marine run-off of $15.8 million and mortgage run-off of $4.5 million. During the quarter ended December31, 2024, through the normal course of business, $18.6 million in mortgage loans were sold on the secondary market. These loan sales resulted in net gains of $308 thousand. During the quarter ended September 30, 2024, $14.9 million in mortgage loans were sold on the secondary market. These loan sales resulted in net gains of $257 thousand.
Total deposits increased to $1.58 billion as of December31, 2024 when compared to September 30, 2024 deposits of $1.55 billion. At December31, 2023 total deposits were $1.51 billion. During the fourth quarter of 2024, total deposits increased $29.2 million. The majority of this increase was due to savings and interest bearing demand deposit balances increasing by $23.7 million. Year over year deposits increased $68.8 million. The majority of the growth was in time deposits. Core deposit growth for the quarter and year ended December31, 2024 was $8.0 million and $23.9 million, respectively. Core deposits consist of checking accounts, NOW accounts, money market accounts, regular savings accounts and time deposits less than $250 thousand. At December31, 2024, over 75% of deposits were fully FDIC insured.
Liquidity
The objective of the Company's liquidity management is to ensure the continuous availability of funds to satisfy the credit needs of our customers and the demands of our depositors, creditors and investors. Uninsured deposits represent an estimate of amounts above the Federal Deposit Insurance Corporation (FDIC) insurance coverage limit of $250,000. As of December31, 2024, the Company's uninsured deposits were approximately $188.5 million, or 12.0% of total deposits.
The Company's liquid assets, which include cash and due from banks, interest-bearing deposits at other banks, loans with a maturity less than one year and nonpledged securities available for sale, were $335.9 million and borrowing availability was $410.1 million as of December31, 2024, which in total exceed uninsured deposits, excluding intercompany cash holdings and secured municipal deposits, by $557.5 million. Liquid assets have increased by $25.2 million during the fourth quarter due to an increase in loans with a maturity less than one year. In addition to deposits, the Company utilizes short-term and long-term borrowings as sources of funds. Short-term borrowings from the Federal Reserve Bank and the Federal Home loan Bank of Atlanta (FHLB) as well as federal funds purchased from Community Bankers Bank may be used to fund the Company's day-to-day operations. Long-term borrowings include FHLB advances as well as subordinated debt. Total borrowings decreased to $149.5 million at December31, 2024 from $194.4 million at December 31, 2023. Borrowings decreased $50.2 million from $199.7 million at September 30, 2024. These decreases were primarily due to strong deposit growth and slowing loan growth.
Additional sources of liquidity available to the Company include cash flows from operations, loan payments and payoffs, deposit growth, maturities, calls and sales of securities and the issuance of brokered certificates of deposit.
Capital and Dividends
On January 22, 2025, the Board of Directors announced a quarterly common stock cash dividend of $0.31 per common share, payable on February 14, 2025, to shareholders of record on February 3, 2025. The Board of Directors of the Company continually reviews the amount of cash dividends per share and the resulting dividend payout ratio in light of changes in economic conditions, current and future capital requirements, and expected future earnings.
Total consolidated equity increased $10.6 million at December31, 2024, compared to December 31, 2023, due primarily to net income and partially offset by dividends paid on the Company's common stock.
The Company's securities available for sale are fixed income debt securities and their unrealized loss position is a result of increased market interest rates since they were purchased. The Company expects to recover its investments in debt securities through scheduled payments of principal and interest and unrealized losses are not expected to affect the earnings or regulatory capital of the Company. The accumulated other comprehensive loss related to the Company's securities available for sale increased to $18.6 million at December31, 2024 compared to $18.0 million at December 31, 2023 due primarily to fluctuations in debt security market interest rates.
As of December31, 2024, the most recent notification from the FDIC categorized the Bank of Clarke as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized under regulations applicable at December31, 2024, Bank of Clarke was required to maintain minimum total risk-based, Tier 1 risk-based, CET1 risk-based and Tier 1 leverage ratios. In addition to the regulatory risk-based capital requirements, Bank of Clarke must maintain a capital conservation buffer of additional capital of 2.5 percent of risk-weighted assets as required by the Basel III capital rules. The Bank of Clarke exceeded these ratios at December31, 2024.
Explanation of Non-GAAP Financial Measures
This release contains financial information determined by methods other than in accordance with GAAP. Management believes that the supplemental Non-GAAP information provides a better comparison of period-to-period operating performance and the impact of non-recurring expenses on the Bank's ratios. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results in accordance with GAAP, nor are they necessarily comparable to Non-GAAP performance measures which may be presented by other companies.
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.
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