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 June 30, 2023

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 August 4, 2023 was 3,525,624.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets at June 30, 2023 and December 31, 2022	1
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2023 and 2022	2
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2023 and 2022	3
	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	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	57
Item 4.	Controls and Procedures	57
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	59

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

EAGLE FINANCIAL SERVICES, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

	June 30, 2023			December 31, 2022
	(Unaudited)
Assets
Cash and due from banks	$	15,692		$	16,629
Interest-bearing deposits with other institutions		33,215			49,902
Federal funds sold		29,988			363
Total cash and cash equivalents	$	78,895		$	66,894
Securities available for sale, at fair value, amortized cost of $167,529 and $175,059, respectively		142,936			149,156
Restricted investments, at cost		8,577			9,233
Loans held for sale		3,570			153
Loans		1,470,970			1,323,783
Allowance for credit losses		(14,511	)		(11,218	)
Net Loans	$	1,456,459		$	1,312,565
Bank premises and equipment, net		18,064			18,064
Other real estate owned, net of allowance		—			108
Bank owned life insurance		24,219			23,862
Other assets		43,996			36,682
Total assets	$	1,776,716		$	1,616,717
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest bearing demand deposits	$	433,220		$	478,750
Savings and interest bearing demand deposits		645,834			627,431
Time deposits		378,954			157,894
Total deposits	$	1,458,008		$	1,264,075
Federal funds purchased		—			32,980
Federal Home Loan Bank advances, short-term		25,000			175,000
Federal Home Loan Bank advances, long-term		145,000			—
Subordinated debt, net of unamortized issuance costs		29,411			29,377
Other liabilities		15,327			13,556
Total liabilities	$	1,672,746		$	1,514,988
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 2023, 3,528,240 including 63,972 shares of unvested restricted stock; issued and outstanding 2022, 3,490,086 including 38,780 shares of unvested restricted stock		8,661			8,629
Surplus		13,881			13,268
Retained earnings		100,844			100,278
Accumulated other comprehensive (loss)		(19,416	)		(20,446	)
Total shareholders’ equity	$	103,970		$	101,729
Total liabilities and shareholders’ equity	$	1,776,716		$	1,616,717

See Notes to Consolidated Financial Statements

EAGLE FINANCIAL SERVICES, INC.

Consolidated Statements of Income (Unaudited)

(dollars in thousands, except per share amounts)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2023		2022			2023			2022
Interest and Dividend Income
Interest and fees on loans	$	18,754	$	11,663		$	35,921		$	22,283
Interest and dividends on securities available for sale:
Taxable interest income		785		847			1,589			1,626
Interest income exempt from federal income taxes		5		75			9			158
Dividends		136		17			219			27
Interest on deposits in banks		656		41			1,146			56
Interest on federal funds sold		28		4			38			6
Total interest and dividend income	$	20,364	$	12,647		$	38,922		$	24,156
Interest Expense
Interest on deposits	$	5,535	$	383		$	8,994		$	753
Interest on federal funds purchased		—		8			70			8
Interest on Federal Home Loan Bank advances		2,032		—			4,063			—
Interest on subordinated debt		355		337			709			337
Total interest expense	$	7,922	$	728		$	13,836		$	1,098
Net interest income	$	12,442	$	11,919		$	25,086		$	23,058
Provision for Credit Losses		403		360			1,067			900
Net interest income after provision for credit losses	$	12,039	$	11,559		$	24,019		$	22,158
Noninterest Income
Wealth management fees	$	1,263	$	1,062		$	2,421		$	1,983
Service charges on deposit accounts		447		389			883			763
Other service charges and fees		1,135		1,029			2,182			1,938
Gain (loss) on the sale of bank premises and equipment		7		(11	)		7			(11	)
Gain on sale of loans		192		498			648			976
Bank owned life insurance income		179		178			358			357
Other operating income		134		704			384			1,086
Total noninterest income	$	3,357	$	3,849		$	6,883		$	7,092
Noninterest Expenses
Salaries and employee benefits	$	7,561	$	5,983		$	14,859		$	11,935
Occupancy expenses		533		516			1,051			1,034
Equipment expenses		315		258			638			515
Advertising and marketing expenses		342		146			638			257
Stationery and supplies		56		66			78			101
ATM network fees		365		310			716			596
Other real estate owned expense		—		—			5			—
(Gain) on other real estate owned		—		—			(7	)		—
FDIC assessment		346		137			612			314
Computer software expense		281		184			591			438
Bank franchise tax		313		221			576			419
Professional fees		753		876			1,466			1,340
Data processing fees		478		479			880			959
Other operating expenses		1,612		1,352			3,238			2,543
Total noninterest expenses	$	12,955	$	10,528		$	25,341		$	20,451
Income before income taxes	$	2,441	$	4,880		$	5,561		$	8,799
Income Tax Expense		383		888			918			1,557
Net income	$	2,058	$	3,992		$	4,643		$	7,242
Ear