Eagle Financial Services (NASDAQ:EFSI) reported second-quarter net income of $5 million, or $0.92 per diluted share, including a one-time gain from the sale of its ownership interest in Bering Insurance Group. Excluding that gain, adjusted net income was $2.2 million, or $0.41 per diluted share.
Chief Executive Officer Brandon Lorey said adjusted earnings declined from the prior quarter primarily because of higher provision expense tied to identified credit relationships and continued reserve strengthening. Still, he pointed to growth in net interest income, expansion in net interest margin, loan growth and funding improvements as evidence of progress in the company’s core banking operations.
Margin Expands as Borrowing Costs Decline
Chief Financial Officer Kate Chappell attributed the improvement to loan growth, the elimination of Federal Home Loan Bank borrowing costs after the company repaid all advances in March, and continued improvements in deposit mix and funding costs. The quarter also included approximately five basis points of benefit from above-average fees and prepayment penalties.
Chappell said Eagle Financial Services expects net interest margin to move to approximately 3.75% during the second half of 2026.
The company’s reported return on average assets was 1.08%, while reported return on average equity was 10.35%.
Loans Grow Across Core Lending Categories
Net loans increased by $39.5 million during the quarter, supported by demand in construction, commercial real estate and commercial-and-industrial lending, according to management. Chief Banking Officer Joe Zmitrovich said growth was broad-based across those categories and that the company’s lending pipeline remained healthy.
Residential mortgage settlements increased 19% year over year, Zmitrovich said, contributing to higher gain-on-sale and fee income.
Total assets ended the quarter at $1.85 billion, while deposits increased modestly to $1.62 billion. Lorey said deposits remained stable, liquidity was robust, capital levels were above well-capitalized thresholds, and the company retained significant borrowing capacity if needed.
Credit Costs Rise on Identified Relationships
Provision expense totaled $3.2 million in the second quarter. Chappell said the increase reflected changes in certain historical loss factors, higher qualitative adjustments, loan growth and higher specific reserves associated with identified credits.
Nonperforming assets rose to $16.5 million, or 0.89% of total assets. The increase was largely driven by one commercial real estate relationship being placed on nonaccrual status, according to Chappell. The company completed updated collateral evaluations and established specific reserves where appropriate, she said, adding that most nonaccrual balances are secured by real estate.
Net charge-offs totaled $2.2 million, primarily due to a partial write-down of a previously identified multifamily credit based on the estimated fair value of underlying collateral. The allowance for credit losses rose to $18.3 million, or 1.22% of total loans, from 1.19% in the prior quarter and 1.11% a year earlier.
Zmitrovich characterized the credit issues as concentrated among a limited number of larger, previously identified problem credits rather than evidence of broad portfolio weakness. He said the company sees potential for meaningful resolution milestones on several credits during the second half of 2026 and continues to actively manage the affected relationships.
Expenses Increase; Strategic Options Remain Open
Adjusted noninterest income was $5.1 million. Wealth management revenue benefited from higher assets under management and increased transaction-related revenue from estate and client services activity, Chappell said. Those gains were partly offset by lower gain-on-sale revenue from SBA loan production.
Noninterest expense increased to $15.5 million from $14.2 million in the first quarter. The rise reflected higher incentive compensation accruals linked to performance metrics, increased loan-production incentives, annual merit increases and workforce investments.
Looking ahead, Lorey said the company’s priorities remain disciplined growth, prudent credit management, operating efficiency and opportunities to enhance long-term shareholder value. He added that Eagle Financial Services remains open to strategic opportunities, including potential partnerships and acquisitions, but intends to pursue only transactions it believes create long-term value.
About Eagle Financial Services (NASDAQ:EFSI)
Eagle Financial Services, Inc (NASDAQ: EFSI) is the bank holding company for Eagle National Bank, a community-oriented financial institution headquartered in Fredericksburg, Virginia. The company offers a broad range of retail and commercial banking solutions, focusing on personalized service for individuals, small businesses, and nonprofit organizations. Through its subsidiary, Eagle National Bank, it maintains a commitment to local decision-making and relationship-driven service.
Eagle Financial Services provides deposit products including checking and savings accounts, money market funds, certificates of deposit, and individual retirement accounts.
