Eagle Financial Services, Inc. (OTCQX: EFSI), the holding company for Bank of Clarke, whose divisions include Bank of Clarke Wealth Management, announced its first quarter 2024 results. On April 24, 2024, the Board of Directors announced a quarterly common stock cash dividend of $0.30 per common share, payable on May 17, 2024, to shareholders of record on May 6, 2024. Select highlights for the first quarter (compared to the fourth quarter of 2023) include:
- Noninterest expenses decreased $903 thousand or 6.8% during the quarter.
- Efficiency ratio decreased to 77.73% during the quarter from 83.01%.
- Earnings per share increased by $0.03 for the quarter to $0.72.
Brandon Lorey, President and CEO, stated, “We are pleased with our strong performance in the first quarter, which reflects the effectiveness of our business strategy and the dedication of our team. With improved efficiencies, Net Interest Margin, and Earnings Per Share, we are well positioned for 2024. Despite the evolving market landscape, we remain committed to delivering value to our clients and shareholders while pursuing sustainable growth opportunities.”
Income Statement Review
Total loan interest income was $20.0 million and $19.4 million for the quarters ended March 31, 2024 and December 31, 2023, respectively. Total loan interest income was $17.2 million for the quarter ended March 31, 2023. Total loan interest income increased $2.8 million or 16.3% from the quarter ended March 31, 2023 to the quarter ended March 31, 2024. Average loans for the quarter ended March 31, 2024 were $1.45 billion compared to $1.37 billion for the quarter ended March 31, 2023. The tax equivalent yield on average loans for the quarter ended March 31, 2024 was 5.54%, an increase of 44 basis points from the 5.10% average yield for the same time period in 2023. The increase in loan interest income during the first quarter of 2024 compared to the fourth quarter of 2023 is mainly due to the increase in the average loans outstanding during the period. The majority of the increase compared to March 31, 2023 can be attributed to the current rising interest rate environment and the increase in the average loans outstanding during the period.
Interest and dividend income from the investment portfolio was $919 thousand for the quarter ended March 31, 2024 compared to $932 thousand for the quarter ended December 31, 2023. Interest income and dividend income from the investment portfolio was $891 thousand for the quarter ended March 31, 2023. The tax equivalent yield on average investments for the quarter ended March 31, 2024 was 2.58%, down five basis points from 2.63% for the quarter ended December 31, 2023 and up 29 basis points from 2.26% for the quarter ended March 31, 2023.
Total interest expense was $9.5 million for the three months ended March 31, 2024 and $9.7 million and $5.9 million for three months ended December 31, 2023 and March 31, 2023, respectively. The decline in interest expense between March 31, 2024 and December 31, 2023 was due mostly to a reduction in average noninterest-bearing liabilities during the period. The increase in interest expense from March 31, 2023 to March 31, 2024 resulted from increases on rates paid on deposit accounts and Federal Home Loan Bank advances entered into during 2022 and 2023 with varying interest rates and terms. The average cost of interest-bearing liabilities increased one and 87 basis points when comparing the quarter ended March 31, 2024 to the quarters ended December 31, 2023 and March 31, 2023, respectively. The average balance of interest-bearing liabilities decreased $18.6 million from the quarter ended December 31, 2023 to the quarter ended March 31, 2024. The average balance of interest-bearing liabilities increased $170.6 million from the quarter ended March 31, 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 March 31, 2024 was $12.4 million reflecting an increase of 1.1% from the quarter ended December 31, 2023 and a decrease of 1.7% from the quarter ended March 31, 2023. Net interest income was $12.3 million and $12.6 million for the quarters ended December 31, 2023 and March 31, 2023, respectively.
Net income for the quarter ended March 31, 2024 was $2.5 million reflecting an increase of 6.4% from the quarter ended December 31, 2023 and a decrease of 1.4% from the quarter ended March 31, 2023. The increase from the quarter ended December 31, 2023 was due mainly to the $664 thousand decrease in salaries and employee benefits largely due to larger incentive accruals that needed to be made in the fourth quarter of 2023 as employees reached certain goals. Net income was $2.4 million for the three-month period ended December 31, 2023 and $2.6 million for the quarter ended March 31, 2023.
The net interest margin was 2.91% for the quarter ended March 31, 2024. For the quarters ended December 31, 2023 and March 31, 2023, the net interest margin was 2.85% and 3.27%, 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 $3.5 million for the quarter ended March 31, 2024, which represented a decrease of $182 thousand or 5.0% from the $3.7 million for the three months ended December 31, 2023. Noninterest income for the quarter ended March 31, 2023 was $3.5 million. The decrease from the quarter ended December 31, 2023 was mainly due to the reduction of gains on loans held for sale.
Noninterest expense decreased $903 thousand, or 6.8%, to $12.4 million for the quarter ended March 31, 2024 from $13.3 million for the quarter ended December 31, 2023. Noninterest expense was $12.4 million for the quarter ended March 31, 2023, representing an decrease of $9 thousand or 0.1% when comparing the quarter ended March 31, 2024 to the quarter ended March 31, 2023. A decrease in salaries and benefits expenses was noted between March 31, 2024 and December 31, 2023. This is mainly due to larger incentive accruals that needed to be made in the fourth quarter of 2023 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 $6.1 million or 0.34% of total assets at December 31, 2023 to $5.0 million or 0.28% of total assets at March 31, 2024. Nonperforming assets were $2.0 million at March 31, 2023. Total nonaccrual loans were $4.2 million at March 31, 2024 and $5.7 million at December 31, 2023. Nonaccrual loans were $1.8 million at March 31, 2023. Nonperforming assets decreased between December 31, 2023 and March 31, 2024 mainly due to one large relationship paying off. Nonaccrual loans, and in turn nonperforming assets, increased during 2023 due mainly to two loan relationships, one residential real estate relationship totaling $1.1 million and a non-owner occupied commercial real estate loan in the amount of $2.4 million. 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 March 31, 2024, December 31, 2023 and March 31, 2023.
The Company realized $520 thousand in net charge-offs for the quarter ended March 31, 2024 compared to $383 thousand for the three months ended December 31, 2023. During the three months ended March 31, 2023, $709 thousand in net charge-offs 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 $475 thousand in provision for credit loss for the quarter ended March 31, 2024 due mainly to replacing the charge-offs that occurred during the quarter. The Company recognized provision for credit losses of $366 thousand and $664 thousand for the quarters ended December 31, 2023 and March 31, 2023, respectively. The provision for the quarters ended December 31, 2023 and March 31, 2023 was mainly needed to keep pace with strong loan growth.
The ratio of allowance for credit losses to total loans was 1.00% and 0.99% at March 31, 2024 and December 31, 2023, respectively. The ratio of allowance for loan losses to total loans was 1.00% at March 31, 2023. The ratio of allowance for credit losses to total nonaccrual loans was 347.64% and 256.74% at March 31, 2024 and December 31, 2023, respectively. The ratio of allowance for loan losses to total nonaccrual loans was 758.56% at March 31, 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 March 31, 2024 were $1.78 billion, which represented a decrease of $42.7 million or 2.34% from total assets of $1.83 billion at December 31, 2023. At March 31, 2023, total consolidated assets were $1.76 billion. Much of the decline in consolidated assets during the quarter ended March 31, 2024 was due to the decrease in net loans. Most of the decrease in loans during the quarter was in consumer and commercial & industrial loans. The majority of growth in consolidated assets between March 31, 2023 and March 31, 2024 was due to growth in net loans. Much of the loan growth was in consumer real estate.
Total cash and cash equivalents (including cash and due from banks and federal funds sold) decreased $10.7 million or 7.8% as of March 31, 2024, compared to December 31, 2023. Cash and cash equivalents decreased as a percentage of total assets to 7.2% as of March 31, 2024 as compared to 7.6% at December 31, 2023 and 7.3% at March 31, 2023. The year over year and prior quarter change was minimal.
At March 31, 2024, total securities available for sale were $141.1 million, a decrease of $5.9 million from December 31, 2023, and a decrease of $19.1 million from March 31, 2023. At March 31, 2024, total net unrealized losses on the AFS securities portfolio were $25.1 million, an increase of $2.3 million from total net unrealized losses on AFS securities of $22.8 million at December 31, 2023 and an increase of $3.0 million from March 31, 2023.
Total net loans decreased $23.6 million from $1.45 billion at December 31, 2023 to $1.42 billion at March 31, 2024. During the quarter ended March 31, 2024, through the normal course of business, $10.2 million in mortgage loans were sold on the secondary market. These loan sales resulted in net gains of $161 thousand. In addition, consumer loans decreased by $7.3 million due to a large loan payoff during the first quarter.
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 $247.0 million as of March 31, 2024, are still assets of Bank of Clarke.
Total deposits decreased to $1.47 billion as of March 31, 2024 when compared to December 31, 2023 deposits of $1.51 billion. At March 31, 2023 total deposits were $1.39 billion. During the first quarter of 2024, total deposits decreased $32.4 million. The majority of this decrease was due to time deposit balances decreasing by $30.9 million. Time deposits as a percentage of total deposits have increased from 19.6% at March 31, 2023 to 25.9% at March 31, 2024. Time deposits as a percentage of total deposits decreased from 27.4% at December 31, 2023. The increase in deposits between March 31, 2023 and March 31, 2024 was mainly due to the core growth at a rate of 111.9% compared to non-core decline at 11.9%. At March 31, 2024, over 75% of deposits were fully FDIC insured.
The Company had $155.0 million and $165.0 million, respectively, in outstanding borrowings from the Federal Home Loan Bank of Atlanta at March 31, 2024 and December 31, 2023. There was $220.0 million in outstanding borrowings from the Federal Home Loan Bank as of March 31, 2023. The average rate paid on Federal Home Loan Bank advances as of March 31, 2024 and December 31, 2023 was 4.71% and 4.76%, 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 $107.7 million and $108.4 million at March 31, 2024 and December 31, 2023, respectively. Shareholders’ equity was $104.5 million at March 31, 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. The book value of the Company at March 31, 2024 was $30.28 per common share. Total common shares outstanding were 3,557,229 at March 31, 2024. On April 24, 2024, the Board of Directors announced a quarterly common stock cash dividend of $0.30 per common share, payable on May 17, 2024, to shareholders of record on May 6, 2024.
