Eagle Financial Services, Inc. (OTCQX: EFSI), the holding company for Bank of Clarke County, whose divisions include Eagle Investment Group, announced its first quarter 2022 results. Select highlights for the first quarter include:
Net income of $3.3 millionDeposit growth of $54.1 millionBasic and diluted earnings per share of $0.94Loan activity:PPP forgiveness – $7.5 millionSales – $36.5 millionNet growth – $35.2 million Eagle financial services, inc. Announces 2022 first quarter financial results of Eagle financial
Brandon Lorey, President and CEO, stated, “I am happy to report another strong quarter for the Company with a number of “1sts” for EFSI and the Bank. The Organization’s loan portfolio breached the $1 billion dollar mark in the first quarter and posted a record annualized net income figure of $13.2 million. Annualized earnings per share also reached a record high of $3.80. Despite $7.5 million of PPP loan runoff, as that portfolio continues to shrink, and over $36.0 million in loan sales, the Bank’s loan portfolio grew by $35.7 million which was more than matched by quarter’s core deposit growth of $54.0 million resulting in annualized 5-year compound annual growth rates (CAGR) of 14.9% and 16.05%, respectively. We continue to strengthen diversified revenue streams as our non-interest income provides over 20% of the Bank’s total income, driven primarily by our expanded Trust and Advisory Services and loan sales and servicing. I would like to thank our shareholders for their continued support as well as our employees for their tireless efforts to ensure we meet and exceed the needs of our customers every single day.”
Income Statement Review
Net income for the quarter ended March 31, 2022 was $3.3 million reflecting an increase of 42.4% from the quarter ended December 31, 2021 and an increase of 13.6% from the quarter ended March 31, 2021. The increase from the quarter ended December 31, 2021 was mainly driven by increased legal expenses during the quarter ended December 31, 2021. Net income was $2.3 million for the three-month period ended December 31, 2021 and $2.9 million for the quarter ended March 31, 2021.
Net interest income for the quarters ended March 31, 2022 and December 31, 2021 was $11.1 million. Net interest income was $9.5 million for the quarter ended March 31, 2021. The increase in net interest income from the quarter March 31, 2021 resulted primarily from growth in the Company’s loan portfolio.
Total loan interest income was $10.6 million and $10.7 million for the quarters ended March 31, 2022 and December 31, 2021, respectively. Total loan interest income was $9.4 million for the quarter ended March 31, 2021. Total loan interest income increased $1.2 million or 12.9% from the quarter ended March 31, 2021 to the quarter ended March 31, 2022. Average loans for the quarter ended March 31, 2022 were $1.01 billion compared to $854.5 million for the quarter ended March 31, 2021. The tax equivalent yield on average loans for the quarter ended March 31, 2022 was 4.25%, a decrease of 23 basis points from the 4.48% average yield for the same time period in 2021. The majority of this decrease in yield can be attributed to loans being originated at a rate lower than those that are paying off.
Interest and dividend income from the investment portfolio was $872 thousand for the quarter ended March 31, 2022 compared to $784 thousand for the quarter ended December 31, 2021. Interest income and dividend income from the investment portfolio was $596 thousand for the quarter ended March 31, 2021. The increase in interest and dividend income resulted from the increase in rates on securities purchased during the first quarter of 2022 as well as the increase in the balance of the investment portfolio.
Average investments for the quarter ended March 31, 2022 were $198.0 million compared to $197.1 million for the quarter ended December 31, 2021. Average investments were $162.1 million for the quarter ended March 31, 2021. The tax equivalent yield on average investments for the quarter ended March 31, 2022 was 1.83%, up 19 basis points from 1.64% for the quarter ended December 31, 2021 and up 26 basis points from 1.57% for the quarter ended March 31, 2021.
Total interest expense was $370 thousand for the three months ended March 31, 2022 and $373 thousand and $487 thousand for three months ended December 31, 2021 and March 31, 2021, respectively. The decrease in interest expense resulted from the reduction in interest rates paid on deposit accounts. The average cost of interest-bearing liabilities decreased one and 11 basis points when comparing the quarter ended March 31, 2022 to the quarters ended December 31, 2021 and March 31, 2021, respectively. The average balance of interest-bearing liabilities increased $26.4 million from the quarter ended December 31, 2021 to the quarter ended March 31, 2022. The average balance of interest-bearing liabilities increased $108.6 million from the quarter ended March 31, 2021 to the same period in 2022.
The net interest margin was 3.61% for the quarter ended March 31, 2022. For the quarters ended December 31, 2021 and March 31, 2021, the net interest margin was 3.67% and 3.62%, respectively. 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 $3.2 million for the quarter ended March 31, 2022, which represented a decrease of $119 thousand or 3.5% from the $3.4 million for the three months ended December 31, 2021. Noninterest income for the quarter ended March 31, 2021 was $2.4 million. The $816 thousand increase between the quarters ended March 31, 2022 and March 31, 2021 was driven by several factors including the gain on sale of loans held for sale. In addition, income from fiduciary activities increased $314 or 51.7% due to an increase in assets under management.
Noninterest expense decreased $2.0 million, or 16.5%, to $9.9 million for the quarter ended March 31, 2022 from $11.9 million for the quarter ended December 31, 2021. Legal expenses were higher during the fourth quarter of 2021 primarily from the expansion of the Bank’s wealth management business line and also its build out of the marine lending division. Approximately $2.0 million of these fourth-quarter expenses are expected to be one-time fees. Noninterest expense was $7.9 million for the quarter ended March 31, 2021, representing an increase of $2.0 million or 25.4% when comparing to the quarter ended March 31, 2022 to the quarter ended March 31, 2021. An increase in salaries and benefits expenses was also noted between the first quarter of 2022 when compared to the same period in 2021. Annual pay increases, newly hired employees, incentive plan accruals and increased insurance costs have attributed to these increases. The number of full-time equivalent employees (FTEs) has increased from 195 at March 31, 2021, to 224 at March 31, 2022.
Asset Quality and Provision for Loan 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 $2.8 million or 0.21% of total assets at December 31, 2021 to $2.6 million or 0.19% of total assets at March 31, 2022. Nonperforming assets were $4.8 million at March 31, 2021. Total nonaccrual loans were $2.6 million at March 31, 2022 and $2.7 million at December 31, 2021. Nonaccrual loans were $4.3 million at March 31, 2021. 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 at zero at March 31, 2022 and December 31, 2021.
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 March 31, 2022, the Company had 17 troubled debt restructurings totaling $2.6 million. Approximately $2.5 million or 15 loans are performing loans, while the remaining loans are on non-accrual status. At December 31, 2021, the Company had 17 troubled debt restructurings totaling $2.7 million. Approximately $2.5 million or 15 loans were performing loans, while the remaining loans were on non-accrual status.
The Company realized $12 thousand in net charge-offs for the quarter ended March 31, 2022 versus $39 thousand in net recoveries for the three months ended December 31, 2021. During the three months ended March 31, 2021, $61 thousand in net recoveries were recognized. The amount of provision for loan losses reflects the results of the Bank’s analysis used to determine the adequacy of the allowance for loan losses. The Company recorded a provision for loan losses of $540 thousand for the quarter ended March 31, 2022. The Company recognized provision for loan losses of $300 thousand and $599 thousand for the quarters ended December 31, 2021 and March 31, 2021, respectively. The provision for the quarters ended March 31, 2022, December 31, 2021 and March 31, 2021 resulted mostly from loan growth during the quarter. The ratio of allowance for loan losses to total loans was 0.91% at March 31, 2022 and 0.89% at December 31, 2021. The ratio of allowance for loan losses to total loans was 0.88% at March 31, 2021. Excluding outstanding PPP loans, the allowance for loan losses as a percentage of total loans was 0.92% at March 31, 2022, 0.91% at December 31, 2021 and 0.98% as March 31, 2021. The ratio of allowance for loan losses to total nonaccrual loans was 357.47% at March 31, 2022. The ratio of allowance for loan losses to total nonaccrual loans was 322.70% and 179.82% at December 31, 2021 and March 31, 2021, respectively. 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.
Total Consolidated Assets
Total consolidated assets of the Company at March 31, 2022 were $1.37 billion, which represented an increase of $71.3 million or 5.5% from total assets of $1.30 billion at December 31, 2021. At March 31, 2021 total consolidated assets were $1.18 billion. Total net loans increased $35.2 million from $976.9 million at December 31, 2021 to $1.01 billion at March 31, 2022. During the quarter, $7.5 million in SBA PPP loans were forgiven or paid down and $36.5 million in loans were sold. The Company sold $4.2 million in mortgage loans on the secondary market and $32.3 million of loans from the commercial and consumer loan portfolios. These loan sales resulted in gains of $285 thousand. Total securities increased $1.2 million from $193.4 million at December 31, 2021, to $194.6 million at March 31, 2022. At March 31, 2021 total investment securities were $175.0 million and net loans were $867.2 million. The growth in total loans and total assets was largely due to organic loan portfolio growth as the Company expands lending types and markets.
Deposits and Other Borrowings
Total deposits increased $54.1 million to $1.23 billion at March 31, 2022 from $1.18 billion at December 31, 2021. At March 31, 2021 total deposits were $1.07 billion. The growth in deposits was mainly organic growth as the Company continues to expand and grow into newer market areas.
The Company had no outstanding borrowings from the Federal Home Loan Bank of Atlanta at March 31, 2022, December 31, 2021 or March 31, 2021.
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. The Company intends to use the net issuance proceeds for general corporate purposes, including a capital contribution to its wholly owned subsidiary, Bank of Clarke County, to support its continued organic growth.
Equity
Shareholders’ equity was $102.1 million and $110.3 million at March 31, 2022 and December 31, 2021, respectively. Shareholders’ equity was $105.1 million at March 31, 2021. The decrease in shareholder’s equity at March 31, 2022 was driven by the other comprehensive loss from the unrealized loss on available for sale securities. The book value of the Company at March 31, 2022 was $29.37 per common share. Total common shares outstanding were 3,477,020 at March 31, 2022. On April 20, 2022, the board of directors declared a $0.28 per common share cash dividend for shareholders of record as of May 4, 2022 and payable on May 18, 2022.
COVID-19 Impacts
The COVID-19 crisis has changed our communities, both in the way we live and the way we do business. While circumstances continue to change, the Company is continuing to work steadfastly to meet and exceed the needs of its customers, employees, and the communities in which it does business. Customers’ banking needs have continued to be fulfilled through multiple banking channels including mobile, digital, and adjusted-schedule physical. In efforts to assist local businesses during this pandemic, the Company originated 1,372 PPP loans (through two rounds of lending), totaling $132.1 million, into the hands of our community’s small businesses. During the quarter ended March 31, 2022, $7.5 million of PPP loans were forgiven or paid down. As of March 31, 2022, $8.4 million in PPP loans are still outstanding. In addition to local small businesses, the Company worked with its consumer and commercial customers through its loan deferral program whereby customers experiencing hardships due to COVID-19 were granted a deferral in loan payments for up to 90 days. During 2020 and through the quarter ended March 31, 2021, the Company approved 256 deferrals with loan balances totalling approximately $127.5 million for its customers experiencing hardships related to COVID-19. As of March 31, 2022, all loans had begun making payments on their loans after the deferral date had passed.
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 effects of the COVID-19 pandemic, including on the Company’s credit quality and business operations, as well as its impact on general economic and financial market 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 requirements; 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, 2021 and other filings with the Securities and Exchange Commission.
This article was shared with Prittle Prattle News as a Press Release.
