UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-20146
EAGLE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Virginia
54-1601306
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2 East Main Street
P.O. Box 391
Berryville, VA
22611
(Address of principal executive offices)
(Zip Code)
(540) 955-2510
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant’s Common Stock ($2.50 par value) outstanding as of May 9, 2024 was 3,556,844.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements:
Consolidated Balance Sheets at March 31, 2024 and December 31, 2023
1
Consolidated Statements of Income for the Three Months Ended March 31, 2024 and 2023
2
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2024 and 2023
3
Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2024 and 2023
4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023
5
Notes to Consolidated Financial Statements
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
36
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
55
Item 4.
Controls and Procedures
PART II - OTHER INFORMATION
Legal Proceedings
56
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
57
Item 1. Financial Statements
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
March 31, 2024
December 31, 2023
(Unaudited)
Assets
Cash and due from banks
$
12,887
15,417
Interest-bearing deposits with other institutions
55,393
96,649
Federal funds sold
59,353
26,287
Total cash and cash equivalents
127,633
138,353
Securities available for sale, at fair value, amortized cost of $156,962 and $160,251, respectively
131,867
137,443
Restricted investments, at cost
9,239
9,568
Loans held for sale
1,593
1,661
Loans
1,439,052
1,462,686
Allowance for credit losses
(14,448
)
(14,493
Net Loans
1,424,604
1,448,193
Bank premises and equipment, net
17,954
18,108
Bank owned life insurance
29,843
29,575
Other assets
40,168
42,696
Total assets
1,782,901
1,825,597
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest bearing demand deposits
424,869
436,619
Savings and interest bearing demand deposits
666,730
656,439
Time deposits
382,343
413,264
Total deposits
1,473,942
1,506,322
Federal funds purchased
347
—
Federal Home Loan Bank advances, short-term
10,000
20,000
Federal Home Loan Bank advances, long-term
145,000
Subordinated debt, net of unamortized issuance costs
29,461
29,444
Other liabilities
16,446
16,452
Total liabilities
1,675,196
1,717,218
Commitments and contingencies
Shareholders’ Equity
Preferred stock, $10 par value; 500,000 shares authorized and unissued
Common stock, $2.50 par value; authorized 10,000,000 shares; issued and outstanding 2024, 3,557,229 including 75,297 shares of unvested restricted stock; issued and outstanding 2023, 3,520,894 including 56,914 shares of unvested restricted stock
8,705
8,660
Surplus
14,368
14,280
Retained earnings
104,449
103,445
Accumulated other comprehensive (loss)
(19,817
(18,006
Total shareholders’ equity
107,705
108,379
Total liabilities and shareholders’ equity
See Notes to Consolidated Financial Statements
Consolidated Statements of Income (Unaudited)
Three Months Ended
March 31,
2024
2023
Interest and Dividend Income
Interest and fees on loans
19,963
17,167
Interest and dividends on securities available for sale:
Taxable interest income
758
804
Interest income exempt from federal income taxes
Dividends
156
83
Interest on deposits in banks
991
490
Interest on federal funds sold
39
10
Total interest and dividend income
21,912
18,558
Interest Expense
Interest on deposits
7,424
3,459
Interest on federal funds purchased
70
Interest on Federal Home Loan Bank advances
1,710
2,031
Interest on subordinated debt
354
Total interest expense
9,488
5,914
Net interest income
12,424
12,644
Provision for Credit Losses
475
664
Net interest income after provision for credit losses
11,949
11,980
Noninterest Income
Wealth management fees
1,456
1,158
Service charges on deposit accounts
454
436
Other service charges and fees
969
1,047
Gain on sale of loans
161
456
Bank owned life insurance income
268
179
Other operating income
163
250
Total noninterest income
3,471
3,526
Noninterest Expenses
Salaries and employee benefits
7,185
7,298
Occupancy expenses
569
518
Equipment expenses
373
323
Advertising and marketing expenses
237
296
Stationery and supplies
24
22
ATM network fees
380
351
Other real estate owned expense
(Gain) on other real estate owned
(7
FDIC assessment
409
266
Computer software expense
233
310
Bank franchise tax
331
263
Professional fees
506
713
Data processing fees
565
402
Other operating expenses
1,565
1,626
Total noninterest expenses
12,377
12,386
Income before income taxes
3,043
3,120
Income Tax Expense
495
535
Net income
2,548
2,585
Earnings Per Share
Net income per common share, basic
0.72
0.73
Net income per common share, diluted
Consolidated Statements of Comprehensive Income
(dollars in thousands)
Other comprehensive (loss) income:
Unrealized (loss) gain on available for sale securities, net of deferred income tax of $(480) and $792 for the three months ended, respectively
(1,807
2,980
Changes in benefit obligations and plan assets for post retirement benefit plans, net of reclassification adjustments, net of deferred income tax of $(1) and $(3) for the three months ended, respectively
(4
(5
Total other comprehensive (loss) income
(1,811
2,975
Total comprehensive income
737
5,560
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
Common Stock
RetainedEarnings
AccumulatedOtherComprehensiveIncome (Loss)
Total
December 31, 2022
8,629
13,268
100,278
(20,446
101,729
Cumulative effect adjustment for CECL
(1,961
Other comprehensive income
Vesting of restricted stock awards, stock incentive plan (12,749 shares)
31
(31
Stock-based compensation expense
317
Repurchase and retirement of common stock (3,590 shares)
(9
(119
(128
Dividends declared ($0.30 per share)
(1,057
March 31, 2023
8,651
13,435
99,845
(17,471
104,460
Cumulative effect adjustment for adopton of ASU 2023-02
(477
Other comprehensive (loss)
Vesting of restricted stock awards, stock incentive plan (23,557 shares)
59
(59
302
Repurchase and retirement of common stock (5,605 shares)
(14
(155
(169
(1,067
Consolidated Statements of Cash Flows (Unaudited)
Cash Flows from Operating Activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
248
244
Amortization of other assets
139
319
Origination of loans held for sale
(10,755
(4,078
Proceeds from sale of loans held for sale
10,984
4,445
Net (gain) on sales of loans
(161
(456
Provision for credit losses
Amortization of subordinated debt issuance costs
17
Premium amortization on securities, net
68
93
(268
(179
Changes in assets and liabilities:
Decrease (increase) in other assets
2,452
(3,017
Increase (decrease) in other liabilities
705
(733
Net cash provided by operating activities
6,754
214
Cash Flows from Investing Activities
Proceeds from maturities, calls, and principal payments of securities available for sale
3,221
3,945
Proceeds from the sale of restricted investments
950
Purchases of restricted investments
(621
(2,069
Purchases of bank premises and equipment
(94
Proceeds from the sale of other real estate owned
115
Proceeds from sales of loans
23,762
Origination of loans net of principal collected
23,003
(100,575
Funding of capital commitments related to other investments
(664
(275
Net cash provided by (used in) investing activities
25,795
(75,104
Cash Flows from Financing Activities
Net (decrease) increase in noninterest bearing demand deposits, savings, and interest bearing demand deposits
(1,459
10,744
Net (decrease) increase in time deposits
(30,921
115,132
Net increase (decrease) in federal funds purchased
(32,980
Net (decrease) in short-term Federal Home Loan Bank advances
(10,000
Advances of long-term Federal Home Loan Bank advances
45,000
Repurchase and retirement of common stock
Cash dividends paid
Net cash (used in) provided by financing activities
(43,269
136,711
(Decrease) increase in cash and cash equivalents
(10,720
61,821
Cash and Cash Equivalents
Beginning
66,894
Ending
128,715
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest
9,923
4,795
Income taxes
311
Supplemental Schedule of Noncash Investing and Financing Activities:
Unrealized (loss) gain on securities available for sale
(2,287
3,772
Minimum postretirement liability adjustment
(8
Repossessed assets acquired in settlement of loans
111
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1. General
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP.
In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at March 31, 2024 and December 31, 2023, the results of operations and the changes in shareholders' equity for the three months ended March 31, 2024 and 2023, and cash flows for the three months ended March 31, 2024 and 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).
Eagle Financial Services, Inc. (the "Company") owns 100% of Bank of Clarke (the “Bank”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.
Certain amounts in the consolidated financial statements have been reclassified to conform to current year presentations. None of the reclassifications were of a material nature and they had no effect on prior year net income or shareholders' equity.
On January 1, 2024, the Company adopted Accounting Standards Update ("ASU") 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method," ("ASC 323"). These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The adoption resulted in an adjustment of $477 thousand, which reduced the investment balance and shareholders' equity. The Company invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to preserve and protect project assets.
NOTE 2. Stock-Based Compensation Plan
On May 16, 2023, the Company’s shareholders approved the 2023 Stock Incentive Plan which allows key employees and directors to increase their personal financial interest in the Company. The 2023 plan permits the issuance of incentive stock options and non-qualified stock options and the award of common stock, restricted stock, and stock units. The plan authorizes the issuance of up to 250,000 shares of common stock. The 2023 Stock Incentive Plan replaced the 2014 Stock Incentive Plan.
The Company periodically grants restricted stock to its directors, executive officers and certain non-executive officers. Restricted stock provides grantees with rights to shares of common stock upon completion of a service period or achievement of Company performance measures. During the restriction period, all shares are considered outstanding and dividends are paid to the grantee. Outside directors are periodically granted restricted shares which vest over a period of one year. Executive officers have been granted restricted shares which vest over a three year service period and restricted shares which vest based on meeting annual performance measures over a two year period. Certain non-executive officers also have been granted restricted shares which vest
over a three year service period. The Company recognizes compensation expense over the restricted period based on the fair value of the Company's stock on the grant date. The Company's policy is to recognize forfeitures as they occur. As of March 31, 2024, there was $1.4 million of unrecognized compensation cost related to nonvested restricted stock.
The following table presents restricted stock activity for the three months ended March 31, 2024 and 2023:
Shares
WeightedAverageGrant DateFair Value
Nonvested, beginning of period
56,914
35.06
38,780
33.47
Granted
41,940
30.00
36,378
36.80
Vested
(23,557
34.22
(12,749
32.33
Forfeited
Nonvested, end of period
75,297
32.45
62,409
35.64
NOTE 3. Earnings Per Common Share
Basic earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Nonvested restricted shares are included in the weighted average number of common shares used to compute basic earnings per share because of dividend participation and voting rights. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The number of potential common shares is determined using the treasury method.
The following table shows the weighted average number of shares used in computing earnings per share for the three months ended March 31, 2024 and 2023. During 2024 and 2023, there were no potentially dilutive securities outstanding.
Average number of common shares outstanding used to calculate basic and diluted earnings per share
3,557,203
3,522,431
7
NOTE 4. Securities
On January 1, 2023, the Company adopted Accounting Standards Codification ("ASC") 326, which made changes to accounting for available for sale debt securities whereby credit losses should be presented as an allowance, rather than as a write-down when management does not intend to sell and does not believe that it is more likely than not they will be required to sell a security prior to maturity. In addition, ASC 326 requires financial assets measured at amortized cost to measure an expected credit loss under the current expected credit losses ("CECL") methodology that requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. All securities information presented below is in accordance with ASC 326.
Amortized costs and fair values of securities available for sale at March 31, 2024 and December 31, 2023 were as follows:
AmortizedCost
GrossUnrealizedGains
GrossUnrealized(Losses)
Fair Value
(in thousands)
Obligations of U.S. government corporations and agencies
8,960
(739
8,221
Mortgage-backed securities
137,061
(23,330
113,731
Obligations of states and political subdivisions
6,191
(360
5,831
Subordinated debt
4,750
(666
4,084
156,962
(25,095
9,258
(667
8,591
140,052
(21,230
118,822
(261
5,931
(651
4,099
160,251
(22,809
The amortized cost and estimated fair value of securities at March 31, 2024, by the earlier of contractual maturity or expected maturity, are shown below. The Company has elected to exclude accrued interest receivable, totaling $380 thousand at March 31, 2024, from the amortized cost basis of securities. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.
Amortized Cost
Due in one year or less
1,269
1,263
Due after one year through five years
7,446
7,033
Due after five years through ten years
17,473
15,512
Due after ten years
130,774
108,059
There have been no sales of available for sale securities during the three months ended March 31, 2024, or 2023.
8
The fair value and gross unrealized losses for securities available for sale, totaled by the length of time that individual securities have been in a continuous gross unrealized loss position, at March 31, 2024 and December 31, 2023 were as follows:
Less than 12 months
12 months or more
GrossUnrealizedLosses
739
23,330
496
5,335
356
360
3,584
666
130,871
25,091
131,367
25,095
Gross Unrealized Losses
667
21,230
5,430
261
221
29
3,378
622
3,599
651
136,221
22,780
136,442
22,809
The reference point for determining when securities are in an unrealized loss position is month end. As such, it is possible that a security's market value exceeded its amortized cost on other days during the past twelve-month period.
There were 104 debt securities with a fair value below the amortized cost basis, totaling $131.4 million of aggregate fair value as of March 31, 2024. The Company concluded that a credit loss does not exist in its securities portfolio at March 31, 2024, and no impairment loss has been recognized based on the fact that (1) changes in fair value were caused primarily by fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not that the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest. Additionally, the Company’s mortgage-backed securities are entirely issued by either U.S. government agencies or U.S. government-sponsored enterprises. Collectively, these entities provide a guarantee, which is either explicitly or implicitly supported by the full faith and credit of the U.S. government, that investors in such mortgage-backed securities will receive timely principal and interest payments.
Securities having a carrying value of $7.4 million at March 31, 2024 were pledged as security for trust accounts.
The composition of restricted investments at March 31, 2024 and December 31, 2023 was as follows:
Federal Reserve Bank Stock
344
Federal Home Loan Bank Stock
8,755
9,084
Community Bankers’ Bank Stock
140
9
NOTE 5. Loans and Allowance for Credit Losses on Loans
The composition of loans at March 31, 2024 and December 31, 2023 was as follows:
December 31,
Mortgage real estate loans:
Construction & Secured by Farmland
82,692
84,145
HELOCs
46,329
47,674
Residential First Lien - Investor
113,813
117,431
Residential First Lien - Owner Occupied
181,323
178,180
Residential Junior Liens
12,690
12,831
Commercial - Owner Occupied
254,744
251,456
Commercial - Non-Owner Occupied & Multifamily
344,192
348,879
Commercial and industrial loans:
SBA PPP loans
45
51
Other commercial and industrial loans
100,067
107,777
Marine loans
247,042
251,168
Consumer loans
34,529
42,419
Overdrafts
1,559
253
Other loans
12,466
12,895
Total loans
1,431,491
1,455,159
Net deferred loan costs and premiums
7,561
7,527
At March 31, 2024, the Company was servicing $7.6 million of loans for other financial institutions which are not included in the table above. Also excluded from the table above are net servicing assets of $144 thousand at March 31, 2024, which are recorded in other assets in the Consolidated Balance Sheets. When loans are sold with servicing retained, servicing assets are recorded which represent the Company's right to service loans that were sold. Servicing assets are initially recorded by the Company at fair value and are subsequently amortized in proportion to, and over the period of, estimated net servicing income.
Changes in the allowance for credit losses on loans for the three months ended March 31, 2024 and 2023, and the year ended December 31, 2023 were as follows:
Year Ended
Balance, beginning
14,493
11,218
Cumulative effect adjustment for adoption of ASC 326
2,077
1,641
709
Recoveries added to the allowance
185
298
21
Credit losses charged to the allowance
(705
(741
(75
Balance, ending
14,448
13,950
Past due loans by class at March 31, 2024 and December 31, 2023 were as follows:
30 - 59DaysPast Due
60 - 89DaysPast Due
90 or MoreDaysPast Due
Total PastDue
Current
Total Loans
90 or MoreDays Past Due StillAccruing
19
46,310
904
112,909
147
286
181,037
12,681
254,737
295
343,897
162
99,905
159
605
514
1,119
245,923
222
252
474
34,055
2,172
1,084
3,275
1,428,216
411
90 or MoreDays PastDue
90 or MorePast DueStillAccruing
844
1,097
116,334
78
149
227
177,953
12,822
26
35
107,742
14
552
250,616
173
167
340
42,079
1,026
903
2,260
1,452,899
181
11
Nonaccrual loans by class at March 31, 2024 and December 31, 2023 were as follows:
Nonaccruals with No Allowance for Credit Losses
Nonaccrual with an Allowance for Credit Losses
NonaccrualLoans
95
15
1,063
1,085
224
228
2,336
3,625
12
4,156
5,645
The allowance for credit losses on loans by segment at March 31, 2024 and December 31, 2023 was as follows:
As of and For the Three Months Ended
Constructionand Farmland
ResidentialReal Estate
CommercialReal Estate &MultiFamily
Commercial
Marine
Consumer
All OtherLoans
Unallocated
Allowance for credit losses:
Beginning Balance
772
4,725
6,224
1,027
1,153
198
394
Charge-Offs
(15
(74
(453
(38
Recoveries
155
Provision
197
(95
(473
841
(32
(85
98
Ending balance
877
4,621
5,906
1,541
133
281
Ending balance: Individually evaluated for impairment
Ending balance: Collectively evaluated for impairment
Loans:
354,155
598,936
100,112
14,025
4,113
352,892
596,600
246,528
1,427,378
13
As of and For the Year Ended
2,714
1,735
2,221
2,222
1,555
299
472
(1,840
1,933
(1,102
(285
(123
(90
(312
(126
(121
(182
18
43
48
(110
1,039
419
176
356,116
600,335
107,828
13,148
1,288
3,639
5,574
84,050
354,828
596,696
1,449,585
The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment:
Real Estate Collateral
Other Collateral
1,086
191
194
5,022
The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the period ended March 31, 2024.
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis is performed on a quarterly basis. The following table presents risk ratings by loan portfolio segment and origination year. Description of these ratings are as follows:
Pass
Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower in an as agreed manner.
Special Mention
Special mention loans exhibit negative trends and potential weakness that, if left uncorrected, may negatively affect the borrower’s ability to repay its obligations. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt.
Classified
Classified loans include loans rated Substandard, Doubtful and Loss.
Credit quality information by class at March 31, 2024 and December 31, 2023 was as follows:
Term Loan Amortized Cost Basis by Origination Year
2022
2021
2020
Prior
Revolving Loans Amortized Cost Basis
Revolving Loans Converted to Term
3,581
32,199
20,332
4,911
4,797
5,904
3,225
74,949
6,532
1,032
7,564
143
38,731
4,940
6,972
Current period gross charge-offs
94
46,280
49
1,674
18,785
22,529
30,136
9,795
24,715
1,146
108,780
277
276
1,772
1,645
3,970
22,806
31,475
11,567
26,360
8,267
55,504
34,025
23,561
35,310
23,404
556
180,627
47
649
24,100
242
2,643
2,836
3,357
1,460
1,926
186
12,650
25
40
1,951
201
3,795
35,991
66,215
35,461
22,616
62,550
1,629
4,226
232,483
558
10,193
4,397
2,129
3,525
20,802
958
494
1,459
36,549
76,408
40,816
25,239
66,082
16
959
41,292
80,586
65,003
62,800
47,580
1,196
5,561
304,977
15,671
10,807
3,659
6,741
36,878
2,337
56,963
91,393
68,662
71,878
3,766
12,803
25,956
8,154
4,421
6,268
32,496
1,042
94,906
2,969
44
1,829
316
5,158
15,772
4,424
6,312
34,325
1,358
54
74
84,210
126,544
35,114
660
84,724
366
87
453
699
2,993
13,411
5,966
8,448
1,692
1,279
41
28
38
65
9,927
2,409
Total by Risk Category
22,983
286,485
402,361
211,708
150,307
176,448
86,164
12,764
1,349,220
25,730
21,277
8,332
10,642
6,293
1,878
74,468
2,021
2,977
717
7,803
24,542
312,729
423,638
222,061
163,926
183,458
88,042
13,095
Total current period gross charge-offs
387
96
109
2019
34,617
21,460
7,584
4,851
2,389
2,829
7,052
80,839
1,173
1,040
815
3,028
145
278
22,633
4,996
3,429
3,777
47,610
19,394
23,205
31,371
10,667
4,054
22,265
367
111,323
1,273
1,180
626
1,944
5,023
24,478
32,456
11,847
4,680
24,209
59,007
33,793
23,749
35,783
3,932
20,413
589
177,266
258
656
21,327
2,562
2,902
1,486
606
1,613
189
12,787
27
1,640
206
36,736
68,868
40,707
22,871
13,971
50,059
3,088
4,364
240,664
3,817
64
2,145
1,877
1,402
9,305
967
498
1,487
72,685
41,738
25,514
15,848
51,469
4,378
56,510
88,518
64,005
65,075
15,563
34,619
5,651
331,137
624
4,748
3,685
5,060
14,117
2,355
1,270
57,134
93,266
67,690
72,490
35,889
15,052
26,798
8,659
4,824
2,629
3,898
43,188
1,005
106,053
1,125
220
1,712
16,177
4,840
2,630
3,907
43,417
1,349
231
81
312
86,001
128,456
35,492
86,368
128,641
126
3,427
6,205
8,687
1,747
8,354
20
66
52
121
182
69
10,176
2,587
313,375
418,126
221,252
154,911
44,891
138,304
110,543
12,258
1,413,660
1,749
11,011
3,749
8,398
3,544
4,428
269
33,492
620
2,052
3,001
2,094
8,007
315,744
429,322
227,053
166,310
48,435
144,826
110,836
12,633
413
210
741
NOTE 6. Restructurings for Borrowers Experiencing Financial Difficulty
There were no loans modified during the three months ended March 31, 2024. The following table presents the amortized cost of loans that were modified during the three months ended March 31, 2023 by loan portfolio segment:
(Dollars in thousands)
Term Extension
% of Total Class of Loans
355
0.27
%
None of the loans that were modified defaulted during the three months ended March 31, 2023 and the loans remain current with contractual payments as of March 31, 2024. The financial effects of the term extensions during the prior-year period added a weighted average of 1.0 years to the life of loans which reduced the payment amounts for the borrowers.
Management defines default as over 30 days contractually past due under the modified terms, the foreclosure and/or repossession of the collateral, or the charge-off of the loan during the twelve-month period subsequent to the modification.
NOTE 7. Deposits
The composition of deposits at March 31, 2024 and December 31, 2023 was as follows:
Savings and interest bearing demand deposits:
NOW accounts
263,579
253,353
Money market accounts
263,791
263,633
Regular savings accounts
139,360
139,453
Time deposits:
Balances of less than $250,000
243,226
257,418
Balances of $250,000 and more
139,117
155,846
NOTE 8. Leases
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s four long-term lease agreements are classified as operating leases. These leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liability to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for a residual value guarantee and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The following tables present information about the Company’s leases:
Lease liabilities
4,588
4,653
Right-of-use assets
4,291
4,387
Weighted average remaining lease term
13 years
14 years
Weighted average discount rate
3.11
3.09
Lease Cost
Operating lease cost
132
Short-term lease cost
Total lease cost
136
Cash paid for amounts included in the measurement of lease liabilities
118
117
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities is as follows:
As of
Lease payments due
Twelve months ending March 31, 2025
481
Twelve months ending March 31, 2026
484
Twelve months ending March 31, 2027
393
Twelve months ending March 31, 2028
392
Twelve months ending March 31, 2029
397
Thereafter
3,654
Total undiscounted cash flows
5,801
Discount
(1,213
23
NOTE 9. Fair Value Measurements
GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
“Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
•
Level 1
Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following section provides a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy:
Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
Derivative instruments are recorded at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.
The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023:
Fair Value Measurements at
Using
Balance as of
Quoted Pricesin ActiveMarkets forIdentical Assets
SignificantOtherObservableInputs
SignificantUnobservableInputs
(Level 1)
(Level 2)
(Level 3)
Assets:
Securities available for sale
Derivative:
Interest rate swaps
1,513
Total assets at fair value
133,380
Liabilities:
Total liabilities at fair value
Interest rate swap
1,465
138,908
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements:
Loans Held for Sale: Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). The Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during three months ended March 31, 2024 and the year ended December 31, 2023.
Individually Evaluated Collateral-Dependent Loans: The estimated fair value of individually evaluated collateral-dependent loans is based on the value of the underlying collateral or the value of the underlying collateral, less estimated cost to sell, as appropriate. Collateral is generally real estate; however, collateral may include vehicles, equipment, inventory, accounts receivable, and/or other business assets. The value of real estate collateral is determined using a market valuation approach based on an appraisal conducted by an independent, licensed appraiser. The value of other assets may also be based on an appraisal, market quotations, aging schedules or other sources. Collateral-dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy. Any fair value adjustments are recorded in the period incurred as a provision for credit losses on the Consolidated Statements of Income. There were no individually evaluated collateral dependent loans recorded at fair value at March 31, 2024 or December 31, 2023.
Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to fair value less cost to sell. The fair value measurement of real estate held in other real estate owned is assessed in the same manner as impaired loans described above. We believe that the fair value follows the provisions of GAAP. The Company held no other real estate owned at March 31, 2024 or December 31, 2023.
Repossessed Assets: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the asset, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant improvements are capitalized, whereas costs relating to holding assets are expensed. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of an asset to fair value less cost to sell. The fair value measurement of repossessed assets is assessed in the same manner as impaired loans described above. We believe that the fair value follows the provisions of GAAP. The Company held $415 thousand and $304 thousand at March 31, 2024 and December 31, 2023.
The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a nonrecurring basis for March 31, 2024 and December 31, 2023.
Quantitative information about Level 3 Fair Value Measurements
Valuation Technique(s)
Unobservable Input
Range
Weighted Average (1)
Repossessed assets
Discounted appraised value
Selling cost
4% - 10%
8 %
10 %
(1) Weighted based on the relative fair value of the specific items measured at fair value.
The following table summarizes the Company's nonfinancial assets that were measured at fair value on a nonrecurring basis at March 31, 2024 and December 31, 2023.
Carrying value at
IdenticalAssets
ObservableInputs
UnobservableInputs
Nonfinancial Assets:
415
Quoted Pricesin ActiveMarketsfor IdenticalAssets
304
The carrying value and fair value of the Company’s financial instruments at March 31, 2024 and December 31, 2023 were as follows:
CarryingValueas of
Quoted Pricesin ActiveMarkets forIdenticalAssets
Fair Valueas of
Financial assets:
Cash and short-term investments
Securities
Restricted investments
Loans, net
1,340,172
Accrued interest receivable
5,137
Financial liabilities:
Deposits
1,473,772
9,977
145,145
25,122
Accrued interest payable
1,912
Carrying Valueas of
Restricted Investments
1,377,017
5,008
1,506,147
19,954
145,141
25,581
2,364
NOTE 10. Change in Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes unrealized gains and losses on available for sale securities and changes in benefit obligations and plan assets for the post retirement benefit plan. Changes to accumulated other comprehensive income (loss) are presented net of their tax effect as a component of equity. Reclassifications out of accumulated other comprehensive income (loss) are recorded in the Consolidated Statements of Income either as a gain or loss.
Changes to accumulated other comprehensive income (loss) by component are shown in the following table for the periods indicated:
UnrealizedGains andLosses onAvailablefor SaleSecurities
Change inBenefitObligationsand PlanAssets forthe PostRetirementBenefitPlan
January 1
(18,020
(20,465
Other comprehensive (loss) income before reclassifications
(2,291
3,764
Reclassifications
(1
Tax effect of current period changes
480
(792
(789
Current period changes net of taxes
March 31
(19,827
(17,485
For the three months ended March 31, 2024 reclassifications out of accumulated other comprehensive income (loss) totaled $1 thousand and were recognized as a component of post retirement benefit cost in noninterest expenses of the Consolidated Statements of Income. Tax related to the reclassification was $1 thousand.
NOTE 11. Other Real Estate Owned
The following table is a summary of other real estate owned (“OREO”) activity for the three months ended March 31, 2024 and 2023 and the year ended December 31, 2023:
108
Transfer from loans
Gain on foreclosures
Sales
(108
Valuation adjustments
There were no loans collateralized by residential real estate in the process of foreclosure at March 31, 2024 and December 31, 2023.
NOTE 12. Qualified Affordable Housing Project Investments
The Company invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to preserve and protect project assets.
On January 1, 2024, the Company adopted ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." The adoption resulted in an adjustment of $477 thousand, which reduced the investment balance and shareholders' equity.
30
At March 31, 2024 and December 31, 2023, the balance of the investment for qualified affordable housing projects was $1.5 million and $2.0 million, respectively. These balances are reflected in Other assets on the Consolidated Balance Sheets. Total unfunded commitments related to the investments in qualified affordable housing projects totaled zero at both March 31, 2024 and December 31, 2023.
During each of the three months ended March 31, 2024 and March 31, 2023, the Company recognized amortization expense of $74 thousand and $104 thousand, respectively. Beginning in 2024, upon adoption of ASU 2023-02, the amortization expense was included in income tax expense, while in 2023 and prior it was included in Other operating expenses on the Consolidated Statements of Income.
Total estimated credits to be received during 2024 are $306 thousand based on the most recent quarterly estimates received from the funds. Total tax credits and other tax benefits recognized during the three months ended March 31, 2024 and 2023, were $77 thousand and $90 thousand, respectively.
NOTE 13. Recent Accounting Pronouncements and Other Authoritative Guidance
Pending Adoption
In March 2024, the Financial Accounting Standards Board ("FASB") issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concepts Statements”. This ASU contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively to all new transactions recognized on or after the date that the entity first applies the amendments or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. If an entity adopts the amendments retrospectively, it should adjust the opening balance of retained earnings as of the beginning of the earliest comparative period presented. The Company does not expect the adoption of ASU 2024-02 to have a material impact on our consolidated financial statements.
In March 2024, the FASB issued ASU 2024-01, “Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards”. This ASU provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. This ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2024-01 to have a material impact on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740), Improvements to Income Tax Disclosures." The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity's applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The
amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision marker ("CODM"), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures required by FASB ASU Topic 280 in interim periods as well, and the title and position of the CODM and how the CODM uses the reported measures. Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles used in an entity’s consolidated financial statements. Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements.
Recently Adopted
In March 2023, FASB issued ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. ASU 2023-02 was effective for the Company on January 1, 2024. The adjustment recorded at adoption consisted of a decrease to other assets and shareholders' equity of $477 thousand. In addition, during 2024 and forward, the amortization will be posted to income taxes instead of non-interest expense.
32
NOTE 14. Borrowings
On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $30.0 million in aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due April 1, 2032 (the “Notes”).
The Company uses the net proceeds of the Notes offering for general corporate purposes, organic growth and to support the Bank’s regulatory capital ratios. The Notes were structured to qualify as Tier 2 capital for regulatory capital purposes at the holding company and bear an initial interest rate of 4.50% until April 1, 2027, with interest during this period payable semi-annually in arrears. From and including April 1, 2027, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month SOFR, plus 2.35%, with interest during this period payable quarterly in arrears. The Notes are redeemable by the Company at its option, in whole or in part, on or after April 1, 2027. Initial debt issuance costs were $673 thousand. The debt balance of $30.0 million is presented net of unamortized issuance costs of $539 thousand at March 31, 2024.
The Company had $155.0 million in total borrowings with the FHLB at March 31, 2024, with $10.0 million being short-term borrowings and $145.0 million being long-term borrowings. The interest rates on the long-term borrowings with the FHLB ranged from 4.43% to 4.83%, with a weighted average rate of 4.65%. Of the long-term FHLB borrowings, $50.0 million is due in 2024, $55.0 million is due in 2025 and $40.0 million is due in 2026. At December 31, 2023, the Company had $145.0 million in long-term and $20.0 million in short-term outstanding borrowings with the FHLB. The Company had $115.6 million in irrevocable letters of credit at March 31, 2024 with the FHLB to secure public deposits.
NOTE 15. Derivatives
The Company uses derivative financial instruments primarily to manage risks to the Company associated with changing interest rates, and to assist customers with their risk management objectives. Derivative contracts that are not designated in a qualifying hedging relationships include customer accommodation loan swaps. The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Bank simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and offsetting terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Company receives a floating rate. These back-to-back loan swaps are derivative financial instruments and are reported at fair value in “other assets” and “other liabilities” in the Consolidated Balance Sheets. Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of the swaps with borrowers and the swaps with dealer counterparties.
The following table summarize key elements of the Company's derivative instruments at March 31, 2024 and December 31, 2023.
Notional Amount
Customer-related interest rate swap contracts:
Matched interest rate swaps with borrower
40,815
1,234
279
Matched interest rate swaps with counterparty
41,051
621
NOTE 16. Business Segments
33
The Company has three reportable operating segments: community banking, marine lending and wealth management. Revenue from community banking operations consist primarily of net interest income related to investments in loan and securities and outstanding deposits and borrowings, fees earned on deposit accounts and debit card interchange activity. Revenue from marine lending operations consist primarily of net interest income related to commercial and consumer marine loans. The wealth management division's net revenues are comprised primarily of income from offering wealth management services and insurance products through third-party service providers.
On August 23, 2023, the Company completed a sale of specific assets from its marine lending segment. As part of the sale, the Company sold its interest in marine vessel floor plan loans totaling $52.8 million, its rights to service loans that had been sold to secondary market investors prior to the date of sale (valued at $595 thousand on balance sheet prior to sale), and other assets that were not individually significant. The Company received total consideration, net of selling expenses, of $53.5 million and recognized a gain of $435 thousand. The assets sold as well as their related revenues and contribution to earnings did not constitute a significant portion of the Company's assets or operating results for the year ended December 31, 2023. Subsequent to the sale of these assets, the Company retained ownership of its marine vessel retail loans which continue to constitute a significant portion of the Company's assets, revenues, and earnings. The Company expects to cease accepting new marine lending business and hold the retained outstanding loans until they are ultimately repaid.
Financial information of the parent company is included in the "All Other" category. The parent company's revenue and expenses are comprised primarily of interest expense associated with subordinated debt.
The following table provides income and asset information as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and March 31, 2023, which are included within the Consolidated Balance Sheets and Consolidated Statements of Income. The results by business segment are based on management’s accounting process, which assigns income statement items and assets to each operating segment. Given the Company's reportable segments are contained within the Bank, management must make certain allocations of expenses, which may not be representative of the costs expected to be incurred if the specific business segments operated as stand-alone entities. The Company expects it will continue to evaluate its business segments and internal reporting structure, including the production of discrete financial information to the chief operating decision-maker.
34
Community Banking
Marine Lending
Wealth Management
All Other
Eliminations
Consolidated
Interest Income
18,450
3,462
7,694
1,440
Net Interest Income (Expense)
10,756
2,022
(354
Gain on sales of loans
Other noninterest income
1,932
1,378
3,310
Net Revenue
12,849
15,895
86
389
Noninterest expense
11,317
218
729
113
Income before taxes
1,446
1,415
(467
Income tax expense
297
(83
Net Income
1,301
1,118
513
(384
Other data:
Capital expenditures
91
Depreciation and amortization
338
15,241
3,317
4,367
1,193
10,874
2,124
1,862
50
3,070
12,950
2,416
16,170
158
10,360
1,282
603
141
2,084
976
555
(495
327
205
(114
1,757
771
438
(381
(10
420
563
Total assets at March 31, 2024
1,526,973
253,912
1,051
965
Total assets at December 31, 2023
1,562,600
261,011
1,080
906
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this discussion is to focus on the important factors affecting the Company’s financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Part I, Item 1, Financial Statements, of this Form 10-Q and Part II, Item 8, Financial Statements and Supplementary Data, of the 2023 Form 10-K.
GENERAL
Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank. The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law. At March 31, 2024, the Company had total assets of $1.78 billion, net loans of $1.42 billion, total deposits of $1.47 billion, and shareholders’ equity of $107.8 million. The Company’s net income was $2.5 million for the three months ended March 31, 2024.
MANAGEMENT’S STRATEGY
The Company strives to be an outstanding financial institution in its market by building solid sustainable relationships with: (1) its customers, by providing highly personalized customer service, a network of conveniently placed branches and ATMs, a competitive variety of products/services and courteous, professional employees, (2) its employees, by providing generous benefits, a positive work environment, advancement opportunities and incentives to exceed expectations, (3) its communities, by participating in local concerns, providing monetary support, supporting employee volunteerism and providing employment opportunities, and (4) its shareholders, by providing sound profits and returns, sustainable growth, regular dividends and committing to its local, independent status.
OPERATING STRATEGY
The Bank is a locally owned and managed financial institution. This allows the Bank to be flexible and responsive in the products and services it offers. The Bank grows primarily by lending funds to local residents and businesses at a competitive price that reflects the inherent risk of lending. The Bank attempts to fund these loans through deposits gathered from local residents and businesses. The Bank prices its deposits by comparing alternative sources of funds and selecting the lowest cost available. When deposits are not adequate to fund asset growth, the Bank relies on borrowings, both short and long term. The Bank’s primary source of borrowed funds is the Federal Home Loan Bank of Atlanta which offers numerous terms and rate structures to the Bank.
As interest rates change, the Bank attempts to maintain its net interest margin by changing the price, terms, and mix of its financial assets and liabilities. The Bank also earns fees on services provided through its trust department, sales of investments, secondary market mortgage activities, and deposit operations. The Bank also incurs noninterest expenses such as compensating employees, maintaining and acquiring fixed assets, and purchasing goods and services necessary to support its daily operations.
The Bank has a marketing department which seeks to develop new business. This is accomplished through an ongoing calling program whereby account officers visit with existing and potential customers to discuss the products and services offered. The Bank also utilizes traditional advertising such as television commercials, radio ads, newspaper ads, and billboards.
LENDING POLICIES
Administration and supervision over the lending process is provided by the Bank’s Credit Administration Department. The principal risk associated with the Bank’s loan portfolio is the creditworthiness of its borrowers. In an effort to manage this risk, the Bank’s policy gives loan amount approval limits to individual loan officers based on their position and level of experience. Credit risk is increased or decreased, depending on the type of loan and prevailing economic conditions. In consideration of the different types of loans in the portfolio, the risk associated with real estate mortgage loans, commercial loans and consumer loans varies based on employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the ability of borrowers to repay debt.
The Company has written policies and procedures to help manage credit risk. The Company utilizes a loan review process that includes formulation of portfolio management strategy, guidelines for underwriting standards and risk assessment, procedures for ongoing identification and management of credit deterioration, and regular portfolio reviews to establish loss exposure and to ascertain compliance with the Company’s policies.
The Bank uses a tiered approach to approve credit requests consisting of individual lending authorities, joint approval of Co-Approval officers (Executive, Regional Credit Officer, Small Business Credit Officer), and a director loan committee. Lending limits for individuals are set by the Board of Directors and are determined by loan purpose, collateral type, and internal risk rating of the borrower. The highest individual authority (Executive) is assigned to the Bank’s President/ Chief Executive Officer, Chief Banking Officer and Chief Credit Officer (approval authority only). Two Executive officers may combine their authority to approve loan requests to borrowers with credit exposure up to $10.0 million on a secured basis and $6.0 million unsecured. Three Executive officers may combine to approve loan requests to borrowers with credit exposure up to $15.0 million on a secured basis and $9.0 million unsecured. Consumer Central Lenders can co-approve consumer, home equity lines of credit and home equity loan requests up to their stated authorities. Officers in Categories A through F have lesser authorities and with approval of an Executive officer may extend loans to borrowers with exposure of $5.0 million on a secured basis and $3.0 million unsecured. Officers in Categories A through F can also utilize the co-approval of the Regional and Small Business Credit Officers to extend loans with exposures up to $2.5 million and $1.5 million respectively on a secured basis, and up to $1 million and $750 thousand respectively on an unsecured basis. Loans exceeding $15.0 million and up to the Bank’s legal lending limit can be approved by the Risk Committee consisting of four directors (three directors constituting a quorum). The Director’s Loan Committee also reviews and approves changes to the Bank’s Loan Policy as presented by management.
The following sections discuss the major loan categories within the total loan portfolio:
One-to-Four-Family Residential Real Estate Lending
Residential lending activity may be generated by the Bank’s loan officer solicitations, referrals by real estate professionals, and existing or new bank customers. Loan applications are taken by a Bank loan officer. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee. In connection with residential real estate loans, the Bank requires title insurance, hazard insurance and, if applicable, flood insurance. In addition to traditional residential mortgage loans secured by a first or junior lien on the property, the Bank offers home equity lines of credit.
37
Commercial Real Estate Lending
Commercial real estate loans are secured by various types of commercial real estate in the Bank’s market area, including multi-family residential buildings, commercial buildings and offices, small shopping centers and churches. Commercial real estate loan originations are obtained through broker referrals, direct solicitation of developers and continued business from customers. In its underwriting of commercial real estate, the Bank’s loan to original appraised value ratio is generally 80% or less. Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general. The Bank’s commercial real estate loan underwriting criteria require an examination of debt service coverage ratios, the borrower’s creditworthiness, prior credit history and reputation, and the Bank typically requires personal guarantees or endorsements of the borrowers’ principal owners.
Construction and Land Development Lending
The Bank makes local construction loans, primarily residential, and land acquisition and development loans. The construction loans are secured by residential houses under construction and the underlying land for which the loan was obtained. The average life of most construction loans is less than one year and the Bank offers both fixed and variable rate interest structures. The interest rate structure offered to customers depends on the total amount of these loans outstanding and the impact of the interest rate structure on the Bank’s overall interest rate risk. There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to 80% of the estimated appraised value of the finished construction project. The Bank also obtains a first lien on the property as security for its construction loans and typically requires personal guarantees from the borrower’s principal owners. Finally, the Bank performs inspections of the construction projects to ensure that the percentage of construction completed correlates with the amount of draws on the construction line of credit.
Commercial and Industrial Lending
Commercial business loans generally have more risk than residential mortgage loans, but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of its business borrowers. Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.
Consumer Lending
The Bank offers various secured and unsecured consumer loans, which include personal installment loans, personal lines of credit, automobile loans, and credit card loans. The Bank originates its consumer loans within its geographic market area and these loans are generally made to customers with whom the Bank has an existing relationship. Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.
The underwriting standards employed by the Bank for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and from any verifiable secondary income. Although creditworthiness of the applicant is the primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount.
The Bank’s marine loan portfolio is comprised of originated retail loans. In August 2023, the Company completed a sale of specific assets from its marine lending segment and reduced its workforce associated with the marine lending division, as it expects to cease accepting new marine lending business. As part of the sale, the Company sold its interest in marine vessel floor plan loans, its rights to service loans that had been sold to secondary market investors prior to the date of sale, and other assets that were not individually significant. Subsequent to the sale the Company retained ownership of its portfolio of marine vessel retail loans, which continue to constitute a significant portion of the Company's assets, revenues, and earnings. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid. Retail loans were generally limited to premium manufacturers with established relationships with the Company which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, and excess cash flow.
CRITICAL ACCOUNTING POLICIES
The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The financial information contained within these statements is, to a significant extent, based on measurements of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the transactions would be the same, the timing of events that would impact the transactions could change.
Allowance for Credit Losses on Loans
The Company establishes the allowance for credit losses through charges to earnings in the form of a provision for credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. The measurement of the allowance for credit losses is based in part on forecasts of unemployment, inflation, as well as the consumer price index, and may also consider other factors, which we believe to be indicative of risk factors related to collectability. Management also assesses the risk of credit losses arising from changes in economic conditions; the nature and volume of the loan portfolio; the volume and severity of delinquencies and adversely classified loan balances; lending policy and procedures; credit administration and lending staff; loan review; concentrations of credit and the value of underlying collateral in determining the recorded balance of the allowance for credit losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. In evaluating the level of the allowance, we consider a range of possible assumptions and outcomes related to the various factors identified above. Refer to the 2023 Form 10-K for additional detail concerning the determination of the allowance for credit losses on loans.
FORWARD LOOKING STATEMENTS
The Company makes forward looking statements in this report that are subject to risks and uncertainties. These forward looking statements include statements regarding our expectations, intentions or objectives concerning our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” "could," “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. These forward looking statements are subject to significant uncertainties because they are based upon or are affected by factors including:
Because of these uncertainties, actual future results may be materially different from the results indicated by these forward looking statements. In addition, past results of operations do not necessarily indicate future results.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2024 was $2.5 million, a decrease of 1.43%, or $37 thousand, when compared to the same period in 2023. Earnings per share, basic and diluted were $0.72 and $0.73 for the three months ended March 31, 2024 and 2023, respectively.
Return on average assets ("ROA") measures how efficiently the Company uses its assets to produce net income. Some issues reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control. The ROA of the Company, on an annualized basis, for the three months ended March 31, 2024 and 2023 was 0.57% and 0.63%, respectively.
Return on average equity ("ROE") measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by shareholders. The ROE of the Company, on an annualized basis, for the three months ended March 31, 2024 and 2023 was 9.41% and 10.14%, respectively.
Net Interest Income
Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates. Net interest income was $12.4 million and $12.6 million for the three months ended March 31, 2024 and 2023, respectively, which represents a decrease of $220 thousand, or 1.74%. Net interest income decreased due to the impact of the rising interest rate environment throughout 2023 as the increase in average rates paid outpaced the increase in average rates earned. The Company's net interest spread and net interest margin decreased 53 basis points and 36 basis points, respectively, for the three months ended March 31, 2024 compared to three months ended March 31, 2023.
Total interest and dividend income was $21.9 million and $18.6 million for the three months ended March 31, 2024 and 2023, respectively, which represents an increase of $3.3 million, or 18.07%. The increase in interest income was driven by an increase in the average balance of the loan portfolio along with the rise in interest rates over the past 15 months. Average interest-earning assets increased $147.3 million, or 9.36%, when comparing the three months ended March 31, 2023 to the three months ended March 31, 2024, while the average yield on earning-assets increased by 34 basis points over the same period.
Total interest expense was $9.5 million and $5.9 million for the three months ended March 31, 2024 and 2023, respectively, which represents an increase of $3.6 million, or 61.62%. The interest rate environment, coupled with the growth of higher-paying deposit accounts, have been the main drivers for the increase in interest expense. Interest expense on deposit accounts increased $4.0 million, or 114.63%, during the three months ended March 31, 2024, of which $3.0 million was attributable to time deposits. During the three months ended March 31, 2024 and 2023 the average balance of interest-bearing deposits was $1.05 billion and $867.0 million, respectively. The $4.0 million increase in deposit interest expense was slightly offset by a decrease in interest expense on Federal Home Loan Bank advances. The average balance of Federal Home Loan Bank advances was $145.9 million and $169.7 million with an average rate of 4.72% and 4.85% during the three months ended March 31, 2024 and 2023, respectively.
The net interest margin was 2.91% and 3.27% for the three months ended March 31, 2024 and 2023, respectively. Tax-equivalent net interest income is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 21% for 2024 and 2023.
42
Net interest margin has primarily declined due to deposit pricing pressure as interest rates increased throughout 2023 and competition for new deposits was experienced. If these factors persist, net interest margin may experience further downward pressure and may also result in the Company having to borrow additional wholesale funding to fund asset growth, which is more expensive than deposits.
The following table shows interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the three months ended March 31, 2024 and 2023 (dollars in thousands):
Average
Income/
Yield/
Balance
Expense
Rate (2)
Securities:
Taxable
142,700
914
2.58
157,078
886
2.29
Tax-Exempt (1)
499
4.84
545
4.46
Total Securities
143,199
920
157,623
892
1,433,871
19,858
5.57
1,355,259
17,076
5.11
Non-accrual
5,618
2,093
10,706
4.99
9,594
116
4.91
1,450,195
19,991
5.54
1,366,946
17,192
5.10
Federal funds sold and interest-bearing deposits in other banks
127,205
1,030
3.26
48,779
500
4.16
Total earning assets
1,720,599
21,941
5.13
1,573,348
18,584
4.79
(14,536
(13,426
Total non-earning assets
53,112
97,863
1,759,175
1,657,785
Liabilities and Shareholders' Equity:
Interest-bearing deposits:
256,282
1,497
2.35
236,210
1,055
1.81
263,755
1,413
2.15
258,077
1.32
Savings accounts
138,737
0.12
166,803
53
0.13
$250,000 and more
143,294
1,701
4.77
77,777
567
2.96
Less than $250,000
251,853
2,772
4.43
128,118
943
2.99
Total interest-bearing deposits
1,053,921
2.83
866,985
1.62
11,179
2.54
Federal Home Loan Bank advances
145,879
4.72
169,667
4.85
29,450
29,383
4.89
Total interest-bearing liabilities
1,229,261
3.10
1,077,214
2.23
Noninterest-bearing liabilities:
Demand deposits
405,166
462,265
Other Liabilities
17,268
14,567
1,651,695
1,554,046
Shareholders' equity
107,480
103,739
Total liabilities and shareholders' equity
12,453
12,670
Net interest spread
2.03
2.56
Interest expense as a percent of average earning assets
2.22
1.52
Net interest margin
2.91
3.27
The following table reconciles tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income.
GAAP Financial Measurements:
Interest Income - Loans
Interest Income - Securities and Other Interest-Earnings Assets
1,949
1,391
Interest Expense - Deposits
Interest Expense - Other Borrowings
2,064
2,455
Total Net Interest Income
Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income - Loans (1)
Add: Tax Benefit on Tax-Exempt Interest Income - Securities (1)
Total Tax Benefit on Tax-Exempt Interest Income
Tax-Equivalent Net Interest Income
The tax-equivalent yield on earning assets increased from 4.79% to 5.13% for the three months ended March 31, 2024 compared to the same three month period in 2023 . For those same time periods, the tax-equivalent yield on securities increased 29 basis points. The tax equivalent yield on loans increased 44 basis points from 5.10% for the three months ended March 31, 2023 to 5.54% for the same time period in 2024. The increase in the tax-equivalent yield on earning assets for the three months ended March 31, 2024 resulted mostly from the increase in the tax-equivalent yield on loans. The increase in the yield on loans as compared to the corresponding period in 2023 was primarily due to the rising interest rate environment over the past 15 months.
The average rate on interest-bearing liabilities increased from 2.23% to 3.10% for the three months ended March 31, 2024 compared to the same three month period in 2023. The average rate on interest-bearing deposits increased 121 basis points during the period, driven by the increase in time deposits. The interest rate environment, along with the growth of higher-cost deposit accounts, have been the main drivers for the increased in the average rate on interest bearing deposits.
The provision for credit losses is based upon management’s estimate of the amount required to maintain an adequate allowance for credit losses as discussed within the Critical Accounting Policies section above and in Note 1 of our interim financial information. The Company's calculation of the provision for credit losses consists of changes in the allowance for credit losses on loans and the reserve for unfunded loan commitments. The allowance for credit losses on loans represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. The amount of provision for credit losses on loans is affected by several factors including the growth rate of loans, net charge-offs (recoveries), and the estimated amount of expected losses within the loan portfolio. The provision for credit losses for the three months ended March 31, 2024 and 2023 was $475 thousand and $664 thousand, respectively. The provision for credit losses for the three months ended March 31, 2024 resulted mostly from net credit losses charged to the allowance as the composition of the portfolio was substantially the same as the prior measurement period.
Total noninterest income was $3.5 million for each of the three months ended March 31, 2024 and 2023. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of
noninterest income for the three months ended March 31, 2024 and 2023, which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.
$ Change
% Change
(78
)%
(295
(65
89
(87
(35
(55
(2
Wealth management fee income increased from 2023 to 2024. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management. Total assets under management have seen an increase during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023 as a result of new business efforts. Fee increases and one-time fees for estates and other services have also contributed to the year over year increases in revenue.
Other service charges and fees decreased during the three months ended March 31, 2024 when compared to the same period in 2023. This decrease can be attributed to lower loan servicing income as a result of the Company's August 2023 sale of certain marine finance division assets, including rights to service loans that had been sold to secondary market investors prior to the date of sale. The Company's portfolio of loans serviced for others was $7.6 million and $252.5 million at March 31, 2024 and 2023, respectively.
Gain on sale of loans decreased during the three months ended March 31, 2024 when compared to the same period in 2023. During the first quarter of 2024, the Company sold $10.9 million in mortgage loans on the secondary market. There were no sales of SBA commercial loans or marine loans during the first quarter of 2024. During the first quarter of 202,3 the Company sold $2.1 million in mortgage loans on the secondary market, $2.1 million in SBA commercial loans and $23.6 million of marine loans. These loan sales resulted in gains of $161 thousand and $456 thousand during the three months ended March 31, 2024 and 2023, respectively.
Bank owned life insurance ("BOLI") fee income increased during the three months ended March 31, 2024 when compared to the same period in 2023 as a result of an investment of $5 million into BOLI by the Company during the fourth quarter of 2023.
Other operating income decreased for the three months ended March 31, 2024 when compared to the same periods in 2023. This decrease can be mainly attributed to cash distributions received during the three months of 2023 from our investment in Bankers Insurance, that were not received during the three months of 2024.
Total noninterest expenses decreased $9 thousand, or 0.1% for the three months ended March 31, 2024 compared to the same period in 2023. The following table presents the components of noninterest expense for the three months ended March 31, 2024 and 2023, which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.
(113
(20
Stationary and supplies
NM
(77
(25
(207
(29
(61
(0
NM - Not Meaningful
On August 23, 2023, the Company completed a sale of specific assets from its marine lending segment. As part of the sale, the Company sold its interest in marine vessel floor plan loans totaling $52.8 million, its rights to service loans that had been sold to secondary market investors prior to the date of sale (valued at $595 thousand on balance sheet prior to sale), and other assets that were not individually significant. The Company received total consideration, net of selling expenses, of $53.5 million and recognized a gain of $435 thousand. The assets sold as well as their related revenues and contribution to earnings did not constitute a significant portion of the Company's assets or operating results for the year ended December 31, 2023. As part of the sale, the Company reduced its workforce associated with the marine lending division, as it expects to cease accepting new marine lending business. Subsequent to the sale of these assets, the Company retained ownership of approximately $260.5 million of marine vessel retail loans which continue to constitute a significant portion of the Company's assets, revenues, and earnings. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid. Subsequent to the sale, non-interest expenses related to marine lending have been significantly reduced or eliminated as discussed in variance explanation paragraphs below.
Salaries and employee benefits decreased during the three months ended March 31, 2024 over 2023, largely reflecting decreases in salaries and incentive expenses while experiencing increases in employee benefits and commission expenses. The Company's number of full-time equivalent employees ("FTE's") has decreased from 253 at March 31, 2023 to 238 at March 31, 2024. In addition to normal staffing fluctuation, the decrease in the number of FTE's was due to the sale of the marine finance assets during the third quarter of 2023. The Company reduced its workforce associated with the marine lending division as it expects to cease accepting new marine lending business. Partially offsetting the expense decreases due to the lower number of FTE's, were annual pay increases, commissions paid on new business efforts, increasing insurance costs and enhanced employee benefit plans.
Advertising and marketing expenses and computer software expenses decreased during the three months ended March 31, 2024 compared to the same period in 2023. This was primarily due to the discontinuation of new marine lending business, including the cost of business development and computer systems, as well as corporate rebranding expenses incurred during the 2023 period.
46
FDIC assessment and bank franchise tax expenses, which are based in part on asset size and capital levels, have increased during the three months ended March 31, 2024 over 2023. The increase in FDIC assessment was also due to a two basis point increase in the assessment rate charged by the FDIC, which was applied to all financial institutions.
Professional fees decreased between the three months ended March 31, 2024 and the same period in 2023. During the 2023 period there were legal expenses for the marine lending business, legal costs related to the ESOP termination, and strategic planning expenses that were not incurred during the 2024 period.
Data processing fee expenses increased during three months ended March 31, 2024 over the same period in 2023, reflecting increased costs for core systems, including fees that are volume based,
The efficiency ratio of the Company was 77.73% and 76.52% for the three months ended March 31, 2024 and 2023, respectively. The efficiency ratio is not a measurement under accounting principles generally accepted in the United States. It is calculated by dividing noninterest expense by the sum of tax equivalent net interest income and noninterest income excluding gains and losses on the investment portfolio and other gains/losses from OREO, repossessed vehicles, disposals of bank premises and equipment, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.
The calculation of the efficiency ratio for the three months ended March 31, 2024 and 2023 was as follows:
Summary of Operating Results:
Noninterest expenses
Less: (Gain) on other real estate owned
Adjusted noninterest expenses
12,393
Noninterest income
Tax equivalent adjustment (1)
Total net interest income and noninterest income, adjusted
15,924
16,196
Efficiency ratio
77.73
76.52
Income Taxes
Income tax expense was $495 thousand and $535 thousand during the three months ended March 31, 2024 and 2023, respectively. The effective tax rate was 16.27% and 17.15% for the three months ended March 31, 2024 and 2023, respectively. The effective tax rate is below the statutory rate of 21% due to tax-exempt income on investment securities and loans. The effective tax rate is also impacted by BOLI as well as income tax credits on qualified affordable housing project investments as discussed in Note 12 to the Consolidated Financial Statements as well as qualified rehabilitation credits.
Business Segments
The Company has three reportable operating segments: community banking, marine lending and wealth management. Revenue from community banking operations consist primarily of net interest income related to investments in loans and securities and outstanding deposits and borrowings, fees earned on deposit accounts and debit card interchange activity. Revenue from marine lending operations consist primarily of net interest income related to commercial and consumer marine loans and
gains on sales of loans. The wealth management division's net revenues are comprised primarily of income from offering wealth management services and insurance products through third-party service providers.
On August 23, 2023, the Company completed a sale of specific assets from its marine lending segment. As part of the sale, the Company sold its interest in marine vessel floor plan loans totaling $52.8 million, its rights to service loans that had been sold to secondary market investors prior to the date of sale (valued at $595.4 thousand on balance sheet prior to sale), and other assets that were not individually significant. The Company received total consideration, net of selling expenses, of $53.5 million and recognized a gain of $435 thousand. The assets sold as well as their related revenues and contribution to earnings did not constitute a significant portion of the Company's assets or operating results for the year-to-date period ending September 30, 2023. As part of the sale, the Company reduced its workforce associated with the marine lending division, as it expects to cease accepting new marine lending business. Subsequent to the sale of these assets, the Company retained ownership of approximately $260.5 million of marine vessel retail loans which continue to constitute a significant portion of the Company's assets, revenues, and earnings. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid.
Financial information for the parent company is included in the "All Other" category. The parent company's operating results are comprised primarily of interest expense associated with subordinated debt. Refer to Note 16 for additional information.
The following tables provide income and asset information for the three months ended March 31, 2024 and 2023 and as of March 31, 2024 and December 31, 2023, which are included within the Consolidated Balance Sheets and Consolidated Statements of Income.
FINANCIAL CONDITION
Total securities available for sale were $131.9 million at March 31, 2024, compared to $137.4 million at December 31, 2023. This represents a decrease of $5.5 million, or 4.06%. The Company purchased no securities during the three months ended March 31, 2024. The Company had total maturities, calls, and principal repayments of $3.2 million during the three months ended March 31, 2024. Note 4 to the Consolidated Financial Statements provides additional details about the Company’s securities portfolio at March 31, 2024 and December 31, 2023. The Company had a net unrealized loss on available for sale securities of $25.1 million at March 31, 2024 as compared to a net unrealized loss of $22.8 million at December 31, 2023. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss). The primary cause of the unrealized losses at March 31, 2024 and December 31, 2023 was changes in market interest rates and other market conditions and not credit concerns of the issuers. Since the losses can be primarily attributed to changes in market interest rates and conditions and not expected cash flows or an issuer’s financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the Company concluded a credit loss did not exist.
Loan Portfolio
The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Gross loans were $1.44 billion and $1.46 billion at March 31, 2024 and December 31, 2023, respectively. This represents a decrease of $23.6 million, or 1.62%, during the three months ended March 31, 2024. The ratio of gross loans to deposits increased during the three months ended March 31, 2024 from 97.10% at December 31, 2023 to 97.63% at March 31, 2024.
The loan portfolio consists primarily of loans for owner-occupied single-family dwellings and loans secured by commercial real estate. Note 5 to the Consolidated Financial Statements provides the composition of the loan portfolio at March 31, 2024 and December 31, 2023. During the three months ended March 31, 2024, through the normal course of business, $10.8 million in loans were sold, consisting of mortgage loans. These loan sales resulted in net gains of $161 thousand. The decline in loans was largely due to paydowns and a large consumer loan payoff, while experiencing modest growth in other areas during the quarter.
Residential real estate loans, consisting of first liens, junior liens and home equity loans, were $354.2 million, or 24.61%, and $356.1 million, or 24.35%, of total loans at March 31, 2024 and December 31, 2023, respectively. The decline of $2.0 million, or 0.55%, reflects the Company's efforts to originate more salable loans than portfolio loans.
Commercial real estate loans (including multifamily loans) were $598.9 million, or 41.62%, and $600.3 million, or 41.04%, of total loans at March 31, 2024 and December 31, 2023, respectively, representing a decrease of $1.4 million, or 0.23%, during the three months ended March 31, 2024. Owner occupied commercial real estate loans experienced a slight increase during the three months ended March 31, 2024, while non-owner occupied and multifamily commercial real estate loans declined during the same period.
Marine loans were $247.0 million, or 17.17%, and $251.2 million, or 17.17%, of total loans at March 31, 2024 and December 31, 2023, respectively, representing a decrease of $4.1 million or 1.64%. The decline in marine loans reflects paydowns only and no new originations. On August 23, 2023, the Company completed a sale of specific assets from its marine lending segment. As part of the sale, the Company sold its interest in marine vessel floor plan loans totaling $52.8 million and reduced its workforce associated with the marine lending division as it expects to cease accepting new marine lending business. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid.
The purpose of, and the methods for, measuring the allowance for credit losses on loans are discussed in the Critical Accounting Policies section above. Note 5 to the Consolidated Financial Statements shows the activity within the allowance for credit losses on loans during the three months ended March 31, 2024 and 2023 and the year ended December 31, 2023. Charged-off loans were $705 thousand and $75 thousand for the three months ended March 31, 2024 and 2023, respectively. Recoveries were $185 thousand and $21 thousand for the three months ended March 31, 2024 and 2023, respectively. This resulted in net charge-offs of $520 thousand and $54 for the three months ended March 31, 2024 and 2023, respectively. The annualized ratio of net charge-offs to average loans was 0.04% and 0.00% for the three months ended March 31, 2024 and 2023, respectively. The allowance for credit losses on loans as a percentage of loans was 1.00% at March 31, 2024 and 0.99% at December 31, 2023. The increase as compared to December 31, 2023 was mainly attributable to net loan charge-offs coupled with a slight decline in gross loan balances.
Management believes that the allowance for credit losses on loans is currently adequate to absorb the current expected losses in the loan portfolio.
Nonperforming Assets and Other Assets
Nonperforming assets consist of nonaccrual loans, repossessed assets, OREO (foreclosed properties), and loans past due 90 days or more and still accruing as detailed in the table below.
Nonaccrual loans
Loans past due 90 days or more and accruing interest
Other real estate owned and repossessed assets
Total nonperforming assets
4,982
6,130
Allowance for credit losses on loans
Gross loans
Allowance for credit losses on loans to nonperforming assets
290
236
Allowance for credit losses on loans to total loans
1.00
0.99
Allowance for credit losses on loans to nonaccrual loans
348
257
Nonaccrual loans to total loans
0.29
0.40
Non-performing assets to period end loans, other real estate owned and repossessed assets
0.35
0.42
Nonperforming assets decreased by $1.1 million during the three months ended March 31, 2024. Nonaccrual loans were $4.2 million and $5.6 million at March 31, 2024 and December 31, 2023. There was $415 thousand in OREO and repossessed at March 31, 2024 and $304 thousand at December 31, 2023. There were $411 thousand in loans past due 90 days or more and still accruing at March 31, 2024 and $181 thousand in loans past due 90 days or more and still accruing at December 31, 2023. The percentage of nonperforming assets to loans, OREO and repossessed assets was 0.35% at March 31, 2024 and 0.42% at December 31, 2023, respectively.
Total past due loans, as disclosed in Note 5 to the Consolidated Financial Statements, increased to $3.3 million at March 31, 2024 compared to $2.3 at December 31, 2023. The increase in past due loans was primarily due to three loans totaling $1.0
million, consisting of $605 thousand for a marine vessel, $295 thousand non-owner occupied commercial real estate property, and $185 thousand commercial business loan.
During the three months ended March 31, 2024, nonaccrual loans decreased by $1.5 million and totaled $4.2 million at March 31, 2024 compared to $5.6 million at December 31, 2023. The decrease reflects a $1.3 million payoff of a commercial real estate loan and loan charge-offs totaling $118 thousand. There were no new nonaccrual loans during the three months ended March 31, 2024. Management evaluates the financial condition of borrowers and the value of any collateral on nonaccrual 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 and are reflected in the allowance for credit losses on loans. At March 31, 2024 and December 31, 2023, there was no allowance for credit losses required on nonaccrual loans due to sufficient collateral values.
Loans are placed on nonaccrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due. There are three negative implications for earnings when a loan is placed on non-accrual status. First, all interest accrued but unpaid at the date that the loan is placed on non-accrual status is either deducted from interest income or written off as a loss. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Finally, there may be actual losses to principal that require additional provisions for credit losses to be charged against earnings.
For real estate loans, upon foreclosure, the balance of the loan is transferred to OREO and carried at the fair value of the property based on current appraisals and other current market trends, less estimated selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off to the allowance for credit losses. A review of the recorded property value is performed in conjunction with normal quarterly reviews, and if market conditions indicate that the recorded value exceeds the fair value, additional write downs of the property value are charged directly to operations.
Total deposits were $1.47 billion and $1.51 billion at March 31, 2024 and December 31, 2023, respectively. This represents a decrease of $32.4 million or 2.15% during the three months ended March 31, 2024. Note 7 to the Consolidated Financial Statements provides the composition of total deposits at March 31, 2024 and December 31, 2023. The decline in deposits was divided between core and non-core accounts, with decreases of $16.0 million and $16.4 million, respectively. During the first quarter of 2024, time deposits and noninterest demand deposits experienced the greatest declines. Time deposits with balances $250,000 and more decreased $16.7 million, time deposits with balances less than $250,000 decreased $14.2 million, reflecting maturities that are not being replaced. Noninterest bearing demand deposits decreased $11.8 million, while interest-bearing NOW accounts increased $10.2 million. Core deposits, consisting of checking accounts, NOW accounts, money market accounts, regular savings accounts and time deposits less than $250,000, totaled $1.27 billion, or 86.00% of total deposits at March 31, 2024 compared to $1.28 billion, or 85.22%, of total deposits at December 31, 2023. At March 31, 2024, over 75% of deposits were fully FDIC insured.
CAPITAL RESOURCES
The Bank continues to be a well capitalized financial institution. Total shareholders’ equity at March 31, 2024 was $107.7 million, reflecting a percentage of total assets of 6.04%, as compared to $108.4 million and 5.94% at December 31, 2023. The slight decrease in shareholders’ equity was primarily due to an increase in unrealized losses on the securities available for sale portfolio of $2.3 million or $1.8 million, net of tax and dividends declared of $1.1 million, offsetting net income of $2.5 million earned during the three months ended March 31, 2024. During each of the three months ended March 31, 2024 and 2023, the Company declared dividends of $0.30. The Company has a Dividend Investment Plan that allows shareholders to reinvest dividends in Company stock.
At March 31, 2024, the Bank met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions. The Bank monitors these ratios on a quarterly basis and has several strategies, including without limitation the issuance of common stock, to ensure that these ratios remain above regulatory minimums. The Bank's capital amounts and ratios are presented using the Federal Reserve's risk-based capital framework.
Effective January 1, 2015, the Federal Reserve issued final risk-based capital rules to align with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. The final rules require the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (iii) a total capital ratio of 8.0% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. In addition, a capital conservation buffer requirement of 2.5% was effective January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with any ratio (excluding the leverage ratio) above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The capital conservation buffer rule requires the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.
At March 31, 2024 and December 31, 2023, the Bank's capital ratios were as follows: Common equity Tier 1 capital was 10.40% and 10.27%, respectively, Tier 1 risk-based capital was 10.40% and 10.27%, respectively, Total risk-based capital was 11.32% and 11.16%, respectively, and Tier 1 leverage was 8.76% and 8.48%, respectively.
Pursuant to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements.
On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $30.0 million in aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due April 1, 2032. See Note 14 to the Consolidated Financial Statements included in this Form 10-Q, for discussion of subordinated debt.
LIQUIDITY
Liquidity management involves meeting the present and future financial obligations of the Company with the sale or maturity of assets or with the occurrence of additional liabilities. Liquidity needs are met with cash on hand, deposits in banks, federal funds sold, unpledged securities classified as available for sale and loans maturing within one year. At March 31, 2024, liquid assets totaled $351.8 million as compared to $367.7 million at December 31, 2023. These amounts represented 21.00% and 21.41% of total liabilities at March 31, 2024 and December 31, 2023, respectively. The Company generally attempts to minimize liquidity demand by primarily utilizing core deposits to fund asset growth. Securities provide a constant source of liquidity through paydowns and maturities. Also, the Company maintains short-term borrowing arrangements, namely federal funds lines of credit, with larger financial institutions as an additional source of liquidity. The Bank’s membership with the Federal Home Loan Bank of Atlanta provides a source of borrowings with numerous rate and term structures. The Company’s senior management monitors the liquidity position regularly and attempts to maintain a position which utilizes available funds most efficiently.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There have been no material changes in off-balance sheet arrangements and contractual obligations as reported in the 2023 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in Quantitative and Qualitative Disclosures about Market Risk as reported in the 2023 Form 10-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2024 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal control over the Company’s financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended). The Company is currently using the 2013 COSO Framework.
There were no changes in the Company’s internal control over financial reporting during the Company’s three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company is a party or of which the property of the Company is subject.
Item 1A. Risk Factors
There were no material changes to the Company’s risk factors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table details the Company's purchases of its common stock during the first quarter of 2024 pursuant to the Stock Repurchase Program. The Company authorized 150,000 shares for repurchase under the Stock Repurchase program which was renewed on June 21, 2023. The Program has start date of July 1, 2023 and an expiration date of June 30, 2024.
Issuer Purchases of Equity Securities
Total Numberof SharesPurchased
Average PricePaid Per Share
Total Numberof SharesPurchased asPart ofPubliclyAnnounced Plan
MaximumNumber ofShares thatmay Yet BePurchasedUnder thePlan
145,059
January 1 - January 31, 2024
5,605
30.06
139,454
February 1 - February 29, 2024
March 1 - March 31, 2024
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Item 5. Other Information
During the fiscal quarter ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408(a) of Regulation S-K).
Item 6. Exhibits
The following exhibits are filed with this Form 10-Q and this list includes the exhibit index:
10.1
Form of Restricted Stock Award Agreement for the Eagle Financial Services, Inc. 2023 Stock Incentive Plan.
10.2
Form of Performance Restricted Stock Award Agreement for the Eagle Financial Services, Inc. 2023 Stock Incentive Plan.
10.3
Form of Non-Employee Director Restricted Stock Award Agreement for the Eagle Financial Services, Inc. 2023 Stock Incentive Plan.
31.1
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following materials from the Eagle Financial Services, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 formatted in Inline Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) notes to Consolidated Financial Statements.
104
The cover page from the Eagle Financial Services, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 formatted in Inline XBRL (included with Exhibit 101).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, this 15th day of May, 2024.
Eagle Financial Services, Inc.
By:
/S/ BRANDON C. LOREY
Brandon C. Lorey
President and Chief Executive Officer
/S/ KATHLEEN J. CHAPPELL
Kathleen J. Chappell
Executive Vice President, Chief Financial Officer
58