Eagle Financial Services, Inc. (OTC BULLETIN BOARD: EFSI), the holding company for Bank of Clarke County, whose divisions include Eagle Investment Group, announced third quarter 2010 financial results today.
The Company’s common stock is listed for trading on the Over- the-Counter (OTC) Bulletin Board under the ticker symbol EFSI.
Third Quarter 2010 Highlights:
- Dividend of $0.18 per share, an increase of 5.9%
- Net interest margin of 4.31 %
- Allowance for loan losses at 1.90% of total loans
- Retail deposit growth of $18.6 million since December 31, 2009
- Total equity to assets of 9.82%
- Net Income $81,000
John R. Milleson, President and CEO stated, “Our third quarter results fell short of expectations and well below the Company‘s typical standards.‘The Bank‘s credit quality suffered during the third quarter primarily due to declining real estate values associated with a few large loans and the continuance of the economic malaise. Accordingly, the Bank increased its allowance for loan losses by $2.9 million for the third quarter. Fortunately, strong earnings allowed us to absorb this substantial provision. We will continue to diligently monitor our loan portfolio in an attempt to minimize losses associated with existing and potential credit quality issues.
Because we are confident with our ability to sustain core earnings and have no restrictions associated with government bailout programs, our Board voted (0 increase the dividend for the quarter to $0.18 per share, marking the 25th consecutive year of a dividend increase. ”
Net interest income for the quarter ended September 30, 2010 was $5.6 million compared to $5.5 million for the quarter ended June 30, 2010. Average earning assets have increased $5.9 million since June 30, 2010 while their yield has decreased 11 basis points since June 30, 2010.
Total loan interest income was $5.9 million for the quarters ended September and June 30, 2010. Average loans increased $4.8 million since June 30, 2010. Interest income from the investment portfolio was $1.1 million for the quarters ended September and June 30, 2010. Average investments increased $5.8 million since June 30, 2010.
Total interest expense for the three months ended September and June 30, 2010 was $1.4 million. The average cost of interest bearing liabilities decreased four basis points from ·the quarter ended June 30, 2010 while the average balance of interest bearing liabilities increased $3.0 million from the quarter ended June 30, 2010.
The net interest margin decreased from 4.38% for the quarter ended June 30; 2010 to 4.31 % for the quarter ended September 30, 2010. The decrease in the net interest margin was mostly attributable to the decline in asset yields.
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 34%.
Asset Quality and Provision for-Loan Losses
Non performing assets increased from $9.5 million or 1.70% of total assets at June 30, to $12.2 million or 2.18% of total assets at September 30, 2010. This increase was driven mostly from the increase in non-accrual loans.
During the third quarter of2010, the Bank placed 12 loans totaling.$5.4 million on non accrual status. A large portion of the $5.4 million was attributed to one loan of $2.2 million on a commercial office building located in Winchester, VA. 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 non accrual loans. The majority of the loans placed on non-accrual status during the third quarter are secured by real estate has allocated specific allowances totaling $1.7 million.
Two real estate assets valued at $241,000’were foreclosed upon during the third quarter of 2010 while no sales of foreclosed property were realized during the same period. Loans greater than 90 days past due decreased from $1.4 million at June 30, 2010 to $208,000 at September 30, 2010.
The Company realized $1.6 million in net charge-offs for the quarter ended September 30, 2010 versus $499,000 for the three months ended June 30, 2010, The increased amount of loan charge offs related primarily to two partial charge offs, together totaling $1.2 million, on loans for large residential land development projects, One project is located in Woodstock, VA and the other is in Winchester, VA.
The ratio of allowance for loan losses to total loans was 1.90% at September 30, 2010 and 1.59% at June 30, 2010. The ratio of allowance for loan losses, to total non-accrual loans was 7935% at September 30, 2010 and 105.45% at June 30, 2010. Provisions for loan losses were $2.9 million for the three months ended September 30, 2010, compared to $750,000 for the quarter ended June 30; 2010. 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 increased provision for the quarter resulted from both the increase in specific allocations related to the quarter’s additional non-accrual loans and to an adjustment to ‘our method of analysis of the allowance for loan losses with respect to the Bank’s loss history. The period of loss history consider for the analysis was shortened in order to better reflect the level of losses that the Bank is currently realizing.
Asset quality remains a primary concern of the Company. Necessary resources continue to be devoted to the ongoing review of the loan portfolio and the workouts of problem assets to minimize any losses to the Company, Management will continue to monitor delinquencies, risk rating changes, charge-offs, market trends and other indicators of risk in the Company’s portfolio, particularly those tied to residential and commercial real estate, and adjust the allowance for loan losses accordingly.
Non-Interest Income and on Interest Expense
Non-interest income was $1.5 million for the quarter ended September 30, 2010′ and $1.4 million for the same period ended June 30, 2010. Income from fiduciary activities increased $26,000 from the three month period ended June 30, 2010. Most of this increase is -attributable to an estate that had been settled during the third quarter. Other service charges and fees increased 6.6% or $49,000 from $745,000 for the quarter ended June 30, 2010. This increase resulted mostly from the increase in service release premiums of $61,000.
Non-interest expense was $4.3 million for the quarter ended September 30, 2010 and $4.1 million for the quarter ended June 30, 2010. The increase is attributable to increases in various items including expenses related to other real estate owned, marketing and audit fees. ‘The Company continues to diligently manage and monitor its other operating expenses.
Total Consolidated Assets
Total consolidated assets of the Company at September 30, 2010 were $559.0 million, and were relatively unchanged from total consolidated assets at June 30, 20]0. Total loans increased $2.2 million from $410.7 million at June 30, 2010 to $412.9 million at September 30, 2010. Considering the current interest rate and competitive market environment, the Company has been conscientious about maintaining both its underwriting standards and its net interest margin and thereby cautious about the growth it has permitted in the loan portfolio.
Deposits and Other Borrowings
Total deposits, which include brokered deposits, increased $5.2 million to $426.7 million at September 30, 2010 from $421.5 million at June 30, 2010. Most of this growth was realized in the Bank’s lower cost transaction accounts. Brokered deposits were $19.9 million at September 30, 2010 and June 30, 2010.
Securities sold under agreement to repurchase were $14.9 million at September 30, 2010 and $15.0 million at June 30, 2010. Borrowings with the Federal Home Loan Bank of Atlanta were $52.3 million at September, 2010 and $57.3 million at June 30, 2010.
Shareholders’ equity at September 30, 2010 was $54.9 million and $54.4 million at June 30, 2010. The book value of the Company at September 30, 2010 was $16.86 per common share. Total common shares outstanding were 3,254,204 at September 30, 2010. On October 20, 2010, the board of directors declared a $0.18 per common share cash dividend for shareholders of record as of November I, 20 I 0 and payable on November 15, 2010.