Eagle Financial Services, Inc. Q4 2025 Earnings Call - Commercial loan momentum offsets marine runoff, but NII and efficiency feel the squeeze
Summary
Eagle closed 2025 with clear commercial momentum, reporting $13.1 million of net loan growth and a loan pipeline up more than $100 million versus January 2025. That growth came despite a $10.3 million reduction in the marine book, and management emphasized relationship-driven lending and expanding presence in Maryland.
Profitability slid modestly versus the prior quarter as net income fell to $4.3 million, driven by lower net interest income tied to a runoff of excess cash and higher salary and benefit costs. Credit remains stable though slightly higher non-performing assets reflect previously disclosed large relationships moving to non-accrual; management says collateral supports those loans. The company expects 2026 efficiency modestly below 70% and steady fee and gain-on-sale revenue, while remaining disciplined on M&A and focused on scaling organically.
Key Takeaways
- Net income was $4.3 million in Q4 2025, down from $5.6 million in Q3 2025, driven primarily by lower net interest income and higher salaries and benefits.
- Net interest income (NII) fell to $16.4 million in Q4, a 4.8% quarter over quarter decline, attributed to the runoff of excess cash after a customer disposed proceeds from a sale.
- Net interest margin (NIM) ticked up to 3.61% from 3.58% in Q3, reflecting improving earning asset yields and a better funding mix despite the NII decline.
- Loan portfolio expanded by $13.1 million in Q4, supported by $67 million of originations and $18.5 million growth in commercial loan categories.
- The marine portfolio declined by $10.3 million in the quarter, an expected headwind management flagged earlier in the year.
- Loan pipeline is up more than $100 million compared to January 2025, with particular opportunity cited in established markets and growing activity in Maryland.
- Non-performing assets ended at $14.6 million, or 0.77% of total assets, slightly higher than Q3s $14.3 million or 0.74%; management emphasizes confidence in collateral for large non-accrual relationships.
- Non-interest income was $5.4 million, up modestly from $5.2 million; wealth management fees rose to $2.3 million, a 25% increase quarter over quarter, helped partly by account settlement fees.
- Non-interest expense rose to $15.5 million, an 8% increase from Q3, driven mainly by higher headcount and incentive compensation tied to performance.
- Efficiency ratio deteriorated to 70.3% in Q4 from 64.1% in Q3; management expects it to move slightly below 70% in 2026 as spread income improves and compensation normalizes.
- Quarterly annualized ROAA was 0.91% and ROAE was 9.18% for Q4 2025, reflecting modest profitability given current operating mix.
- Management reiterated a disciplined M&A posture, continuing conversations with potential bank partners but only pursuing deals that clearly add franchise value.
- Capital raise earlier in the year funded strategic objectives: building a more granular, relationship-driven loan portfolio, growing core deposits and fee income, and expanding select markets.
- Management expects 2026 wealth management fees and gains on sale to be generally consistent with 2025 levels, providing some non-interest income stability.
- Executive narrative stressed scalability and resilience of the commercial engine, but acknowledged near-term pressures from runoff and investment-related expenses that compressed quarter over quarter results.
Full Transcript
Jordan, Conference Operator: Thank you for standing by. My name is Jordan, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Eagle Financial Services, Inc., Q4 earnings call. All lines have been placed on mute to prevent any background noise. I’d now like to turn the call over to Nick Smith to begin the meeting. Please go ahead.
Nick Smith, Unspecified Executive, Eagle Financial Services, Inc.: Good morning, and thank you for joining us for our fourth quarter earnings conference call. Before we begin, please note that the information provided during this call contains forward-looking statements. Actual results may differ materially from those statements. Please refer to our most recent Form 10-K, our Q4 earnings release, and other filings with the SEC for a detailed discussion of risk factors. We do not assume any obligation to update any forward-looking statements as a result of new information, except as required by law. Also, during the call, we will discuss certain non-GAAP financial measures in reference to the company’s performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation, which can be found on our investor relations website. With us today are our CEO, Brandon Lorey; our CFO, Kate Chappell; and our Chief Banking Officer, Joe Zmitrovich.
I will now turn the call over to Brandon.
Brandon Lorey, CEO, Eagle Financial Services, Inc.: Thank you, Nick, and thank you all for joining us today. Our fourth quarter results reflect both the progress we’ve made throughout 2025 and the intentional way we executed our strategy. For the quarter, we reported net income of $4.3 million, compared to $5.6 million in the third quarter. The linked quarter change was driven primarily by lower net interest income and higher salaries and benefits, which we anticipated as part of our continued investment in our people. Kate will walk through our income statement in greater detail later in the call. The credit quality remains stable. Non-performing assets ended the year at $14.6 million, or 0.77% of total assets, which compares to $14.3 million, or 0.74% last quarter.
While NPAs are higher than the prior year due to several large relationships moving to non-accrual that we have discussed in prior quarters, we remain confident in our collateral position and outlook. At the beginning of the year, following our successful capital raise, we set some ambitious goals. We wanted to build a more granular and relationship-driven loan portfolio, grow core deposits and fee income by showing up for our customers with our full suite of products, and expanded markets where we knew we could make a meaningful difference. We accomplished these goals, and we did it together. I’m especially proud of how we achieved this. Despite expected headwinds from marine runoff, our commercial teams continued to deliver strong organic loan growth. Our third quarter momentum continued in the fourth quarter with an additional $13.1 million in net loan growth, driven by commercial real estate and C&I lending.
This is clear evidence that our commercial engine is both resilient and scalable. As we wrap up 2025, I’m genuinely proud of what our team accomplished this year. Our fourth quarter results put a fitting close on a year defined by focus and follow-through. We strengthened our balance sheet, kept asset quality on solid footing, and continued to perform at a level that compares favorably to many of our peers. Now I’ll let Kate talk you through more of our fourth quarter results. Kate?
Kate Chappell, CFO, Eagle Financial Services, Inc.: Thanks, Brandon. Last night, we reported net income of $4.3 million, or $0.81 per diluted share for the Q4 of 2025. As Brandon mentioned, our profitability remains solid, with an annualized return on average assets of 0.91% and an annualized return on average equity of 9.18% for the quarter. Our efficiency ratio was 70.3% in the fourth quarter, compared to 64.1% in the third quarter. Our net interest income was $16.4 million in the fourth quarter, which was a 4.8% decrease from the third quarter due to the expected outflow of excess cash as the customer worked through the disposition of proceeds from the sale of their business.
Our net interest margin increased to 3.61%, up from 3.58% in the third quarter, reflecting the continued improvement in earning asset yields and a better funding mix over the past year. Turning to non-interest income and expenses, non-interest income totaled $5.4 million in the fourth quarter, up from $5.2 million in the third quarter. Within fee income, we continued to see strong contributions from wealth management, where fees increased to $2.3 million, up 25% from the third quarter, driven partially by the recognition of account settlement fees. Looking ahead to 2026, we expect both wealth management fees and gain on sale revenue to remain generally consistent with 2025 levels. On the expense side, non-interest expense was $15.5 million, which represented an 8% increase compared to the third quarter.
The quarter-over-quarter increase was driven primarily by higher salaries and employee benefits, reflecting increased headcount and incentive compensation tied to our performance. As I noted earlier, our efficiency ratio was 70% for the quarter. The increase from the third quarter primarily reflects the combination of lower net interest income and higher operating expenses, partially offset by higher fee income. Looking forward to 2026, we anticipate the efficiency ratio to move slightly below 70% as spread income continues to improve and salaries and benefits expenses move to a more normalized level. I will now let Joe speak about the loan portfolio.
Joe Zmitrovich, Chief Banking Officer, Eagle Financial Services, Inc.: Thank you, Kate. The Q4 continued our strong momentum in lending activity. The loan portfolio expanded by $13.1 million, driven by $67 million in total originations and $18.5 million of growth in commercial loan categories.
This is partially offset by a $10.3 million reduction in the marine portfolio. The Q4 continued to demonstrate our disciplined lending execution as we experienced good activity across our commercial lines. Demand in all our markets remains steady, and our relationship-driven approach continues to set us apart as clients look for consistency, responsiveness, and a true long-term partner. As we move into 2026, our loan pipeline is up over $100 million when compared to January of 2025. We are seeing solid opportunities, not only in our established markets, but also through new and expanding client relationships. We also expect continued growth from our commercial team in Maryland as they build momentum and expand their presence. Looking ahead, we expect commercial loan production to remain consistent with our strategy.
We will stay focused on strengthening relationships, maintaining our credit discipline, and supporting quality growth. With the team we have in place, we feel well positioned to continue delivering balanced, high-quality results. Brandon?
Brandon Lorey, CEO, Eagle Financial Services, Inc.: Thanks, Joe. As we enter 2026, our foundation is strong. We remain grounded in the values that have guided the Bank of Clarke for more than 140 years: leadership in our markets, outstanding service to our customers, commitment to community, adaptability as conditions change, and loyalty to one another and those we serve. I am grateful for the continued support of our shareholders and optimistic about what we will accomplish next for them, for our employees, and for the communities that we are proud to support. We continue to engage in conversations with potential bank partners that align with our community-focused model and long-term strategic objectives. Our approach to mergers and acquisitions remains disciplined, and we’ll only pursue opportunities that clearly enhance the strength and value of our franchise. At the same time, we remain a strong organic growth company.
The progress we delivered this year reflects the effectiveness of our execution and our relationship-based approach to banking. We believe our platform is well positioned to scale, and we are confident in our ability to deliver meaningful and sustainable growth. Thank you all for joining today’s call. We appreciate your continued support, and we are excited about the opportunities ahead as we continue to execute on our strategic plan.
Jordan, Conference Operator: This concludes today’s meeting. You may now disconnect.
