Eagle Financial Services Inc. Q2 2025 Earnings Call - Net income $5.3M, NIM expands to 3.42% amid deposit spikes and loan runoff

Carly, Conference Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Eagle Financial Services Inc. Q2 Earnings Call. All lines have been placed on a listen only mode.

Thank you. I would now like to turn the conference over to Nick Smith, Executive Vice President, Investor Relations. Please go ahead.

Nick Smith, Executive Vice President, Investor Relations, Eagle Financial Services Inc.: Thank you. Good morning. Thank you for joining us for our second quarter earnings conference call. Before we begin, please note that the information provided during this call will contain forward looking statements. Actual results or outcomes may differ materially from those expressed by those statements.

I’d like to direct all listeners to read the cautionary note regarding forward looking statements contained in our most recent annual report on Form 10 ks filed with the SEC and in our earnings release as well as the risk factors identified in the annual report and in our more recent periodic reports filed with the SEC. The company does not undertake to update any of the forward looking statements made today. A copy of our earnings release, which contains non GAAP financial measures, is available on our website at investors.bankofclark.bank. Any information regarding our use of non GAAP financial measures may be found in the body of the earnings release and a reconciliation to the most directly comparable GAAP financial measures is included at the end of the earnings release for your reference. This quarter, along with our earnings release, we published an updated investor presentation that has additional disclosures that we believe will be helpful.

The presentation can be accessed on our Investor Relations website. Please also note that as we discuss our financials today, unless otherwise noted, all of the prior period comparisons will be made with the 2025. Joining us from management this morning is Brandon Lorry, our chief executive officer, Kate Chappell, our chief financial officer, and Joseph Trovich, our chief banking officer. At this time, I’ll turn the call over to Brandon Lorry. Brandon?

Thank you, Nick, and thank you all for listening to the call today. Last night, we reported net income for the second quarter of $5,300,000. The 2025 was our first full operating quarter post capital raise and subsequent up close to NASDAQ that was completed in February. And I could not be prouder of the team at Bank of Clark and Eagle Financial Services. Our results speak to the continued execution on our strategic plan, focused on improving our earning asset and funding composition, reducing non interest expense to settle assets, and continued growth of our fee income areas.

I’d like to take a moment to speak about credit quality. Nonperforming assets were 17,500,000.0 or point 86% of total assets at six thirty of twenty twenty five. 13,700,000.0 of the reported nonperforming assets were comprised of two relationships. The first of which with an outstanding balance of $2,200,000 was an owner occupied property whose owner passed away unexpectedly and business operations halted. The courts have since assigned an executor of the estate and the bank is now filing a summary judgment which will permit us to move forward with the foreclosure process in the third quarter.

The second relationship was comprised of four residential multifamily income producing properties in Washington DC with combined exposure of approximately $11,500,000. The largest of the four properties with a loan balance of 5,900,000.0 was sold on July 8 for 5,700,000.0 with the bank agreeing to a short sale of $4,800,000 creating a deficiency balance of 1,100,000.0 after consideration of past due taxes and other costs. The owner has entered into an agreement with the bank to pay back the deficiency balance and the bank has cross collateralized that note with the existing three properties as well as two additional properties as a condition of the short sale. The bank has allocated a specific reserve for the full amount of the deficiency balance included in the ACL at $6.30 of $20.25. Concurrently, the owner agreed to pass along receivership of the three remaining properties to the bank, which we anticipate will alleviate prolonged court proceedings.

These properties were written down to their liquidation value assuming no repairs in the first quarter. The bank continues to demonstrate strong credit fundamentals with no underlying negative trends and minimal exposure to the Washington DC market. Looking ahead, we maintain a positive outlook on the credit environment and remain confident in the performance trajectory of Eagle Financial Services and the Bank of Clark for the remainder of 2025. I will let Kate walk through the financial results with greater detail. Kate?

Kate Chappell, Chief Financial Officer, Eagle Financial Services Inc.: Thanks, Brandon. Last evening, we reported net income of 5,300,000.0 or 98¢ per fully share. Net interest income for the period was 24,800,000.0, up 1,300,000.0 linked quarter. Net interest margin for the quarter was 3.42%, an improvement of 44 basis points when compared to net interest margin of two ninety eight linked quarter. In the second quarter, two customers of the bank sold their businesses resulting in a 151,700,000.0 increase in demand deposits at quarter end.

While we are working to retain these deposits long term, we are unsure what portion of the deposits will remain with the bank. The sales proceeds resulted in an increase in average demand deposits and average interest bearing cash for the second quarter of $48,400,000 and an increase in interest income and net interest income of approximately $500,000 We estimate that net interest margin for the quarter adjusted for excess interest earning cash related to the proceeds from the sales was 3.4%. Fund interest income was 4,900,000.0, up 1,000,000 quarter when excluding the first quarter impact of security portfolio restructuring. Growth in noninterest income was led primarily by gain on sale of loans and continued performance in wealth management and trust. Interest paid at the gain on sales of loans will be flat for the second half of the year when compared to the first six months.

Noninterest expenses increased 810,000 to 13,400,000.0 for the quarter ended 06/30/2025, led primarily by an increase in salaries and benefit expense. The increase was led by the increase in FTEs as we continue to execute on our strategic plan. I will now let Joe speak about our loan portfolio.

Nick Smith, Executive Vice President, Investor Relations, Eagle Financial Services Inc.: Thank you, Kate. In the second quarter, the bank’s loan portfolio decreased by $13,000,000 primarily driven by $7,000,000 of runoff in the marine portfolio and $6,000,000 in payoffs directly related to the sales of customers’ business. Additionally, the construction category declined by approximately $22,000,000 including $15,000,000 from a completed project agreed to owner occupied CRE loan, with the remainder attributed to several completed projects that were sold. Despite these challenges, the commercial loan portfolio has remained flat year to date, reflecting disciplined credit management and stable demand. Total originations during the quarter were approximately $70,000,000 and the commercial pipeline expanded by $75,000,000 since the first quarter.

Despite increased deal flow, elevated competition and sector specific headwinds continue to impact borrower demand, competitive positioning and the bank’s credit scrutiny. Pricing pressure remains significant across most products driven by aggressive terms from both traditional and nonbank lenders. In response, the bank has adopted a balanced approach, remaining responsive to evolving customer needs while maintaining disciplined risk management and profitability targets. Looking ahead, we anticipate modest commercial loan growth over the remainder of the year. While macroeconomic uncertainty and monetary policy developments may influence borrower behavior we remain well positioned to capitalize on target opportunities.

Focused origination efforts coupled with vigilant portfolio management support our outlook for stable to moderate expansion in the commercial loan book.

Kate Chappell, Chief Financial Officer, Eagle Financial Services Inc.: Brandon?

Nick Smith, Executive Vice President, Investor Relations, Eagle Financial Services Inc.: Thanks Joe. I’d like to begin by first congratulating Bank of America’s Chief Credit Officer James George on his planned retirement after eleven years of distinguished service. We had proactively identified an internal candidate for succession who transitioned into a senior credit role earlier this year and James will continue to serve on the executive team through mid November to ensure a smooth and thoughtful transition. Our strategic focus remains on driving strong profitable organic growth with particular emphasis on expanding our commercial loan portfolio across our core markets. To support this momentum and better serve our growing customer base, we anticipate opening a full service branch in Tysons Corner during the fourth quarter positioning us in one of the region’s most dynamic commercial corridors.

At the same time, we continue to monitor the disruption across the Northern Virginia, Maryland and DC markets with bank consolidation activity remains elevated. We are actively engaging in conversations with potential bank partners and acquisition targets that align with our community focused model and long term growth objectives. As we look ahead, we remain confident in our strategic direction and the strength of our team to execute with both discipline and purpose. On behalf of the leadership team, want to extend my sincere thanks to our customers for their continued trust, to our employees for their unwavering dedication, and to our shareholders for their ongoing support. We appreciate your partnership and look forward to building on our momentum in the quarters ahead.

Thank you all for joining the call today.

Carly, Conference Operator: This concludes today’s conference. You may now disconnect.