Eagle Financial Services Q2 2026 Earnings Results & Report

Eagle Financial Services EPS Results

• Actual EPS: $0.41
• Consensus EPS: $0.7770
• Beat/Miss: Missed by -$0.3670
• One Year Ago EPS: N/A
• EPS Beat Rate: 1 of last 4 quarters

Eagle Financial Services Revenue Results

• Actual Revenue: $25.56 million
• Expected Revenue: $21.29 million
• Beat/Miss: Beat by +$4.27 million
• YoY Revenue Growth: N/A

Eagle Financial Services (NASDAQ:EFSI), Inc. is a bank holding company headquartered in Berryville, Virginia. Through its principal subsidiary, Bank of Clarke County, the company provides community banking services to individuals, families, businesses and organizations.

Bank of Clarke County offers a range of deposit products, including checking, savings and certificates of deposit, along with commercial, residential mortgage and consumer lending. Its services also include online and mobile banking, treasury management and other financial solutions designed for personal and business customers.

The bank traces its history to the establishment of Bank of Clarke County in 1881 and serves communities in Virginia’s Northern Shenandoah Valley, including Clarke, Frederick and Loudoun counties and the Winchester area. Eagle Financial Services focuses on relationship-based banking and supporting the financial needs of the local communities in which it operates.

Eagle Financial Services Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Core banking performance improved materially, with net interest income up 6.7% sequentially and net interest margin expanding to 3.86%, helped by lower funding costs and the payoff of FHLB advances.
• Positive Sentiment: Loan growth was strong and broad-based, as net loans increased $39.5 million, led by construction, commercial real estate, and C&I lending.
• Negative Sentiment: Credit issues continued to pressure results, with provision expense rising to $3.2 million, non-performing assets increasing to $16.5 million, and net charge-offs totaling $2.2 million.
• Positive Sentiment: Liquidity, deposits, and capital remained solid, with deposits stable at $1.62 billion, capital above well-capitalized thresholds, and significant borrowing capacity still available.
• Neutral Sentiment: Management expects margin to moderate slightly, projecting second-half 2026 net interest margin of approximately 3.75% while continuing to focus on disciplined growth and credit management.

Presentation

[Operator]

Good morning, and welcome everyone to the Eagle Financial Services, Inc. second quarter earnings call. All lines have been placed on mute to prevent any background noise. Today's call is being recorded. At this time, I would like to turn the conference over to Nick Smith, Deputy Chief Financial Officer. Please go ahead.

[Nick Smith, Deputy CFO at Eagle Financial Services]

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 contains forward-looking statements. Actual results may differ materially from those statements. Please refer to our most recent Form 10-K, our Q2 earnings release, and other filings with the SEC for a detailed discussion of risk factors. We do not assume any obligation to update any forward-looking statements as a result of new information, except as required by law. Also, during the call, we will discuss certain non-GAAP financial measures in reference to the company's performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation, which can be found on our investor relations website.

[Nick Smith, Deputy CFO at Eagle Financial Services]

With us today are our CEO, Brandon Lorey, our CFO, Kate Chappell, and our Chief Banking Officer, Joe Zmitrovich. I will now turn the call over to Brandon.

[Brandon Lorey, CEO at Eagle Financial Services]

Thank you, Nick. Good morning, everyone. For the quarter, we reported net income of $5 million or $0.92 per diluted share. Excluding the one-time gain associated with the sale of our interest in the Bering Insurance Group, adjusted net income was $2.2 million or $0.41 per diluted share. The decrease in adjusted earnings from the prior quarter was primarily driven by higher provision expense associated with identified credit relationships and continued reserve strengthening. The second quarter reflected both the opportunities and challenges within our franchise. While earnings continued to be impacted by a small number of identified credit relationships, the more important story is the continued improvement in our core banking performance. We generated strong loan growth, meaningful margin expansion, improved our funding profile, and continued to strengthen our balance sheet.

[Brandon Lorey, CEO at Eagle Financial Services]

Net interest income increased 6.7% from the first quarter, net interest margin expanded to 3.86%, representing a 23-basis point increase from the linked quarter and a 44-basis point increase from a year ago. We are now seeing the full benefit of the actions we took over the past year to improve our funding costs, reduce wholesale borrowings, and reposition the balance sheet. Loan growth was also encouraging. Net loans increased $39.5 million during the quarter, driven by continued demand across several of our core lending categories, including construction, commercial real estate, and commercial and industrial lending. Our balance sheet remains a source of strength. Liquidity remains robust, capital levels exceeded well-capitalized thresholds, deposits were stable, and we continue to maintain significant borrowing capacity should it be needed. As we move through the remainder of 2026, our priorities remain unchanged.

[Brandon Lorey, CEO at Eagle Financial Services]

We are focused on disciplined growth, prudent credit management, operating efficiency, and identifying opportunities that enhance long-term shareholder value. Kate will now discuss the financial results in more detail.

[Kate Chappell, CFO at Eagle Financial Services]

Thanks, Brandon. Reported net income for the quarter was $5 million or $0.92 per diluted share. Excluding the gain from the sale of our Bering Insurance Group ownership interest, adjusted net income was $2.2 million or $0.41 per diluted share. Return on average assets was 1.08%. Return on average equity was 10.35% on a reported basis. Net interest income increased to $16.9 million, up $1.1 million from first quarter. Net interest margin expanded to 3.86% compared to 3.53% in the prior quarter. The increase was driven by continued loan growth, the elimination of FHLB borrowing costs following the March payoff of all advances, and ongoing improvement in our deposit mixing funding costs, as well as approximately five basis points of benefit from the recognition of above-average fees and prepayment penalties in the quarter. We anticipate margin for the second half of 2026 to move to approximately 3.75%.

[Kate Chappell, CFO at Eagle Financial Services]

Adjusted non-interest income was $5.1 million. Wealth management revenue continued to perform well and benefit from both growth in assets under management and higher transaction-related revenue associated with estate and client services activity. Those increases were partially offset by lower gain on sale revenue from SBA loan production. Non-interest expense totaled $15.5 million, increasing from $14.2 million in the first quarter. The increase was primarily attributable to higher incentive compensation accruals tied to performance metrics, increased loan production incentives associated with higher loan growth, annual merit increases, and workforce investments. Turning to credit quality, provision expense totaled $3.2 million during the quarter. The increase was primarily driven by changes in certain historical loss factors, higher qualitative adjustments, loan growth, and higher specific reserves associated with identified credits. Non-performing assets increased to $16.5 million or 0.89% of total assets.

[Kate Chappell, CFO at Eagle Financial Services]

The increase was largely attributable to the addition of one commercial real estate relationship to non-accrual status. We have completed updated collateral evaluations and established specific reserves where appropriate. The majority of our non-accrual balances remain secured by real estate. Net charge-offs totaled $2.2 million during the quarter, primarily related to a partial write-down of a previously identified multifamily credit with estimated fair value of the underlying collateral. By quarter end, the allowance for credit losses totaled $18.3 million, or 1.22% of total loans, compared to 1.19% in prior quarter and 1.11% a year ago. We believe the allowance appropriately reflects portfolio growth, current economic conditions, and identified credit risks. On the balance sheet, total assets ended the quarter at $1.85 billion. Net loans increased to $39.5 million from prior quarter, while deposits increased modestly to $1.62 billion. I'll now turn the call over to Joe.

[Joe Zmitrovich, President and Chief Banking Officer at Eagle Financial Services]

Thank you, Kate. As Kate mentioned, loan growth was strong during the quarter, with net loans increasing by approximately $39.5 million. Growth was broad-based across several key lending categories, including construction, commercial real estate, and C&I. In addition, residential mortgage settlements are up 19% year-over-year, contributing to increased gain on sale and fee income. Also, as previously discussed, credit performance during the quarter continued to be influenced by a limited number of larger, previously identified problem credits. While non-performing assets increased during the quarter, the increase was driven primarily by the migration of one commercial real estate relationship into non-accrual status, continued impairment analysis on certain classified credits, and ongoing resolution activities within our existing non-accrual portfolio. We believe several of the credits have identifiable paths toward meaningful resolution milestones during the second half of 2026.

[Joe Zmitrovich, President and Chief Banking Officer at Eagle Financial Services]

While these relationships require management attention, they are generally well understood and actively managed. Importantly, we continue to view the current credit environment as one of concentrated challenges rather than broad deterioration across the portfolio. We do not see systemic weakness in our markets or across our loan book. The broader portfolio continues to perform largely as expected, and we believe our proactive approach to credit management positions us well as workout efforts progress and criticized assets decline over time. Finally, our pipeline remains healthy, and we believe we are well-positioned to support continued growth during the second half of the year while maintaining the same disciplined underwriting standards that have historically served us well. Brandon.

[Brandon Lorey, CEO at Eagle Financial Services]

Thanks, Joe. The second quarter reflects the continued progress of our franchise. While our results continue to reflect the impact of a limited number of identified credit relationships, the underlying direction of the franchise remains positive. Our margin continues to improve, loan growth remains healthy, deposits are stable, and our capital and liquidity position remains strong. We believe those fundamentals position us well for the remainder of 2026. We also remain open to strategic opportunities, including potential partnerships and acquisitions. We'll continue to maintain a disciplined approach and pursue only those opportunities that create long-term value for our shareholders. We appreciate the continued support of our shareholders and look forward to updating you next quarter. Thank you for joining us today.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Nick Smith, Deputy CFO
• Brandon Lorey, CEO
• Kate Chappell, CFO
• Joe Zmitrovich, President and Chief Banking Officer