Eagle Financial Services, Inc. Announces 2019 Third Quarter Financial Results And Quarterly Dividend

BERRYVILLE, Va., Oct. 18, 2019 /PRNewswire/ -- Eagle Financial Services, Inc. (OTCQX: EFSI), the holding company for Bank of Clarke County, whose divisions include Eagle Investment Group, reported increased quarterly earnings and continued solid financial performance. The Board of Directors announced a quarterly common stock cash dividend of $0.26 per common share, payable on November 15, 2019, to shareholders of record on November 1, 2019. Select highlights for the third quarter include:

• Net income of $2.2 million
• Net interest margin of 4.01%
• ALLL of 0.77% of total loans
• EPS of $0.65 per common share

Brandon Lorey, President and CEO, stated "Not only am I proud to announce that the Company delivered a continued solid performance for the third quarter of 2019, but also that the Bank of Clarke County has again been named the best Financial Institution, Financial Planning, and Customer Service winner by the Winchester Star. Despite continued market pressure on loan pricing, the Bank remains committed to protecting its net interest margin while showing year to date loan growth above 5.0% with pristine asset quality. We remain dedicated to growing the balance sheet with high quality, new client relationships and increasing net interest and non-interest income levels. Furthermore, I am pleased to announce that the Company has again increased its shareholders' dividend for the upcoming quarter, showing our commitment to sharing the positive results of a sound and competitive banking institution with our stockholders."

Income Statement Review

Net income was $2.2 million for the third quarter of 2019, up $371,000 from the same period one year ago and up $105,000 from the previous quarter ended June 30, 2019. These increases were driven by increased loan interest income and increased other service charges and fees.

Net interest income increased $263,000 to $8.0 million for the quarter ended September 30, 2019 when compared to the quarter ended June 30, 2019. Net interest income increased $526,000 from the $7.4 million for the quarter ended September 30, 2018. These increases resulted mostly from the increases in loan income generated by both increased volume and yield.

Total loan interest income was $8.0 million for the quarter ended September 30, 2019 and $7.7 million for the quarter ended June 30, 2019. Total loan interest income increased $930,000 from $7.1 million for the quarter ended September 30, 2018. These increases resulted from both increased loan volume and loan yield.

Average loans for the quarter ended September 30, 2019 were $637.3 million compared to $626.6 million for the quarter ended June 30, 2019. Total average accruing loans were $634.5 million for the three months ended September 30, 2019 and $622.6 million for the quarter ended June 30, 2019. For the third quarter of 2018, total average loans were $588.9 million and average accruing loans were $587.8 million. The tax equivalent yield on average loans for the quarter ended September 30, 2019 was 5.01%, up seven basis points from 4.94% for the quarter ended June 30, 2019 and up 21 basis points from 4.80% for the same quarter in 2018. Interest income from the investment portfolio was $971,000 for the quarter ended September 30, 2019 and $1.0 million for the quarter ended June 30, 2019. Average investments were $141.9 million for the quarter ended September 30, 2019 and $143.3 million for the quarter ended June 30, 2019. Interest income from the investment portfolio was $980,000 while average investments were $140.0 million for the quarter ended September 30, 2018. The tax equivalent yield on average investments for the quarter ended September 30, 2019 was 2.87%, down 10 basis points from 2.97% for the quarter ended June 30, 2019 and down 11 basis points from 2.98% for the same quarter in 2018.

Total interest expense was $1.1 million for the three months ended September 30 and June 30, 2019. The average cost of interest-bearing liabilities increased two basis points when comparing the quarter ended September 30, 2019 to the quarter ended June 30, 2019. The average balance of interest-bearing liabilities increased $12.6 million from the quarter ended June 30, 2019. The net interest margin was 4.01% for the quarter ended September 30, 2019 and 4.02% for the quarter ended June 30, 2019. For the quarter ended September 30, 2018, total interest expense was $705,000 and the net interest margin was 4.04%.

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 increased $341,000 to $2.2 million for the three months ended September 30, 2019 when compared to the $1.9 million for the quarter ended June 30, 2019. Noninterest income increased $415,000 when comparing the quarter ended September 30, 2019 to the same period in 2018. These increases are mostly attributed to increases in other service charges and fees. Specifically, fees related to safe deposit box rentals, ATM fees, service release premiums and commissions from sales of non-deposit investments.

Noninterest expense was $7.4 million for the quarter ended September 30, 2019. This represents an increase of $587,000 or 8.60% from $6.8 million for the quarter ended June 30, 2019. The increases in salaries and employee benefits and loss on the sale of other real estate owned contribute to the majority of this $587,000. The September 30, 2019 quarter's increase in salaries and employee benefits expense of $246,000 resulted mostly from the expenses incurred for the hiring and relocation of the Company's new CEO. In July 2019, the Company appointed Brandon C. Lorey to succeed John R. Milleson as President and CEO. On October 4, 2019, the Company agreed to sell a commercial property that it held as other real estate owned at an approximated loss of $377,000. The property, located in Front Royal, VA, was foreclosed upon in August 2019 and had an estimated value of $880,000.

Noninterest expense increased $101,000 or 1.38% from the quarter ended September 30, 2019 when compared to $7.3 million for the quartered ended September 30, 2018. This $101,000 increase results mostly from the expenses incurred for the hiring and relocation of the Company's new CEO.

Income tax expense increased $51,000 when comparing the quarter ended September 30, 2019 to the quarter ended June 30, 2019. Income tax expense increased $492,000 when comparing the quarter ended September 30, 2019 to the same period in 2018. During the third quarter of 2018, the Company recognized a $316,000 estimated tax credit related to its investment in a qualified affordable housing project. For additional details regarding the Company's qualified affordable housing project investments, please see the Company's Annual Report on Form 10-K for the year ended December 31, 2018, and other filings with the Securities and Exchange Commission.

Asset Quality and Provision for Loan Losses

Nonperforming assets consist of loans 90 days past due and still accruing interest, nonaccrual loans, other real estate owned (foreclosed properties), and repossessed assets. Nonperforming assets decreased from $4.4 million or 0.53% of total assets at June 30, 2019 to $2.6 million or 0.30% of total assets at September 30, 2019. This decrease was driven by the $2.3 million decrease in non-accrual loans. During the third quarter of 2019, three non-accrual loans, totaling $1.1 million had been charged off while an additional two non-accrual loans, totaling $1.4 million, were paid. There were six loans, totaling $431,000, that were placed on non-accrual status during the quarter ended September 30, 2019. Other changes to non-accrual loan balances resulted from loan payments. Most of the non-accrual loans at September 30, 2019 are secured by real estate. Management regularly evaluates the financial condition of borrowers with loans on non-accrual status 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 non-accrual loans. Other real estate owned was $442,000 at September 30, 2019 and $2.0 million at September 30, 2018. The Company held no other real estate owned at June 30, 2019. On August 23, 2019, the Bank took ownership of two pieces of property: one is a residential property located in Berryville, VA and the other is commercial restaurant property located in Front Royal, VA. After consideration of estimated selling costs, the properties were recorded as other real estate owned with individual balances of $183,00 and $827,000, respectively. On October 4, 2019, the Company accepted a purchase offer on the commercial property of $275,000. In order to recognize the estimated loss of $377,000 at September 30, 2019, a $568,000 valuation allowance was recorded. Loans greater than 90 days past due and still accruing totaled $61,000 and $68,000 at September 30 and June 30, 2019, respectively. At September 30, 2018, there were no loans that were greater than 90 days past due and still accruing. Nonperforming assets were $3.2 million or 0.40% of total assets at September 30, 2018.

The Company may, under certain circumstances, restructure loans in troubled debt restructurings as a concession to a borrower when the borrower is experiencing financial distress. Formal, standardized loan restructuring programs are not utilized by the Company. Each loan considered for restructuring is evaluated based on customer circumstances and may include modifications to one or more loan provision. Such restructured loans are included in impaired loans but may not necessarily be nonperforming loans. At September 30, 2019, the Company had 19 troubled debt restructurings totaling $3.1 million and all but five loans, totaling $549,000, are performing loans.

The Company realized $261,000 in net charge-offs for the quarter ended September 30, 2019 and $906,000 in net charge-offs for the quarter ended June 30, 2019. Net recoveries for the quarter ended September 30, 2018 were $25,000.

The Company recorded a provision for loan losses of $117,000 and $256,000 for the quarters ended September 30 and June 30, 2019, respectively. A provision for loan losses of $140,000 was recorded for the quarter ended September 30, 2018. The allowance for loan losses was $4.9 million, or 0.77% of total outstanding loans, at September 30, 2019. At June 30, 2019, the allowance for loan losses was $5.0 million or 0.79% of total outstanding loans. The allowance for loan losses was $4.7 million or 0.79% of total outstanding loans at September 30, 2018. 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 Company is committed to maintaining an allowance at a level that adequately reflects the risk inherent in the loan portfolio.

Total Consolidated Assets

Total consolidated assets of the Company at September 30, 2019 were $851.4 million, which represented an increase of $17.9 million or 2.15% from total assets of $833.5 million at June 30, 2019. Most of this increase is reflected in cash and due from banks. Cash and due from banks was positively impacted from the quarter's $4.5 million in deposit growth as well as the proceeds from the $10.0 million Federal Home Loan Bank advance. At September 30, 2018, total consolidated assets were $786.1 million. Total loans were relatively flat when comparing September 30, 2019 to June 30, 2019. At September 30, 2019, total loans increased $39.8 million to $638.3 million from $598.5 million at September 30, 2018.

Deposits and Other Borrowings

Total deposits increased $4.5 million to $735.4 million at September 30, 2019 from $730.9 million at June 30, 2019. At September 30, 2018, total deposits were $693.3 million.

Federal Home Loan Bank advances totaled $10.0 million at September 30, 2019, an increase of $10.0 million from June 30, 2019 and September 30, 2018. On August 12, 2019, the Company borrowed $10.0 million from the Federal Home Loan Bank of Atlanta. The borrowing is a convertible advance with a three-month call date and a 10-year maturity date.

Equity

Shareholders' equity at September 30, 2019 was $94.6 million, reflecting an increase of $1.9 million from $92.7 million at June 30, 2019. At September 30, 2018 shareholders' equity was $84.8 million. The book value of the Company at September 30, 2019 was $27.73 per common share. Total common shares outstanding were 3,439,980 at September 30, 2019. On October 16, 2019, the board of directors declared a $0.26 per common share cash dividend for shareholders of record as of November 1, 2019, and payable on November 15, 2019.

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, 2018, and other filings with the Securities and Exchange Commission.

SOURCE Eagle Financial Services, Inc.