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What changed in EAGLE FINANCIAL SERVICES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of EAGLE FINANCIAL SERVICES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+477 added−442 removedSource: 10-K (2024-03-29) vs 10-K (2023-03-29)

Top changes in EAGLE FINANCIAL SERVICES INC's 2023 10-K

477 paragraphs added · 442 removed · 322 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

49 edited+10 added−17 removed182 unchanged
Biggest changeFurther, if local customer deposits are not sufficient to fund the Company’s normal operations and growth, we may rely on secondary sources of liquidity, such as borrowings from the Federal Home Loan Bank of Atlanta (FHLB) and federal funds lines of credit with larger institutions; however, there can be no assurance that these arrangements will be available to us when needed on favorable terms, or at all, or that they will be sufficient to meet future liquidity needs.
Biggest changeEither of these factors could reduce the Company’s net interest margin and net interest income and could have a material adverse effect on the Company’s business, financial condition, results of operations, liquidity and cash flows from operations. 13 Further, if local customer deposits are not sufficient to fund the Company’s normal operations and growth, we may rely on secondary sources of liquidity, such as borrowings from the Federal Home Loan Bank of Atlanta ("FHLB"), and federal funds lines of credit with larger institutions; however, there can be no assurance that these arrangements will be available to us when needed on favorable terms, or at all, or that they will be sufficient to meet future liquidity needs.
Because the Company’s common stock is registered with the SEC, it is currently subject to these requirements. Incentive Compensation. In June 2010, the Federal Reserve issued a final rule on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
Because the Company’s common stock is registered with the SEC, it is currently subject to these requirements. 10 Incentive Compensation. In June 2010, the Federal Reserve issued a final rule on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
The Company’s lack of history and familiarity with those markets, clients and lines of business may lead to unexpected challenges or difficulties that inhibit its success and adversely affect the Company’s results of operations. 16 Severe weather, natural disasters, acts of war or terrorism, geopolitical instability, public health issues, and other external events could significantly impact the Company's business.
The Company’s lack of history and familiarity with those markets, clients and lines of business may lead to unexpected challenges or difficulties that inhibit its success and adversely affect the Company’s results of operations. Severe weather, natural disasters, acts of war or terrorism, geopolitical instability, public health issues, and other external events could significantly impact the Company's business.
To date, the Company has not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, but the Company’s systems and those of its customers and third-party service providers are under constant threat and it is possible that the Company could experience a significant event in the future.
To date, the Company has not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, but the Company’s 12 systems and those of its customers and third-party service providers are under constant threat and it is possible that the Company could experience a significant event in the future.
Under the Paycheck Protection Program, funds were authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt. The loans were provided through participating financial institutions, including the Bank, that processed loan applications and serviced the loans. Item 1 A.
Under the Paycheck Protection Program, funds were authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt. The loans were provided through participating financial institutions, including the Bank, that processed loan applications and serviced the loans. 11 Item 1 A.
In that event, the Company might have to increase the provision for loan losses, which could have a material adverse effect on its operating results and financial condition. An inadequate allowance for loan losses would reduce our earnings. Our earnings are significantly affected by our ability to properly originate, underwrite and service loans.
In that event, the Company might have to increase the provision for loan losses, which could have a material adverse effect on its operating results and financial condition. An inadequate allowance for credit losses would reduce our earnings. Our earnings are significantly affected by our ability to properly originate, underwrite and service loans.
The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. 10 Dodd-Frank Act. In July 2010, the Dodd-Frank Act was signed into law, incorporating numerous financial institution regulatory reforms.
The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Dodd-Frank Act. In July 2010, the Dodd-Frank Act was signed into law, incorporating numerous financial institution regulatory reforms.
The primary source of money to pay our cash dividends comes from dividends paid to the Company by the Bank. The Bank’s ability to pay dividends to the Company is subject to, among other things, its earnings, financial condition and applicable regulations, which in some instances limit the amount that may be paid as dividends.
The primary source of money to pay our cash dividends comes from dividends paid to the Company by the Bank. The Bank’s ability to pay dividends to the Company is subject to, among other things, its earnings, financial condition and applicable 17 regulations, which in some instances limit the amount that may be paid as dividends.
A decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control would impact the demand for banking products and services generally, which could negatively affect our financial condition and performance. 15 The soundness of other financial institutions could adversely affect us.
A decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control would impact the demand for banking products and services generally, which could negatively affect our financial condition and performance. The soundness of other financial institutions could adversely affect us.
The Bank of Clarke, is a partner in Bankers Title Shenandoah, LLC, which sells title insurance and is an investor in Virginia Bankers Insurance Center, LLC, which serves as the broker for insurance sales through its member banks. Bank of Clarke is also an investor in low-income housing projects in Virginia and building rehabilitation projects in surrounding states.
The Bank of Clarke is a member in Bankers Title Shenandoah, LLC, which sells title insurance and is an investor in Virginia Bankers Insurance Center, LLC, which serves as the broker for insurance sales through its member banks. Bank of Clarke is also an investor in low-income housing projects in Virginia and building rehabilitation projects in surrounding states.
A common equity Tier 1 capital ratio of 4.5% of risk-weighted assets also was added with the rules effective January 1, 2015. 6 Each of the federal bank regulatory agencies also has established a minimum leverage capital ratio of Tier 1 capital to average adjusted assets (“Tier 1 leverage ratio”).
A common equity Tier 1 capital ratio of 4.5% of risk-weighted assets also was added with the rules effective January 1, 2015. Each of the federal bank regulatory agencies also has established a minimum leverage capital ratio of Tier 1 capital to average adjusted assets (“Tier 1 leverage ratio”).
The CFPB further removed the Regulation P provision that allowed for use of the alternative delivery method for annual privacy notices because the CFPB believes the alternative delivery method will no longer be used in light of the annual notice exception. 9 Anti-Money Laundering Laws and Regulations.
The CFPB further removed the Regulation P provision that allowed for use of the alternative delivery method for annual privacy notices because the CFPB believes the alternative delivery method will no longer be used in light of the annual notice exception. Anti-Money Laundering Laws and Regulations.
The Company fully expects that the financial institution industry will remain heavily regulated in the near future and that additional laws or regulations may be adopted further regulating specific banking practices. 11 Wage and Hour Division, Department of Labor.
The Company fully expects that the financial institution industry will remain heavily regulated in the near future and that additional laws or regulations may be adopted further regulating specific banking practices. Wage and Hour Division, Department of Labor.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act implemented a number of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered or that file reports under the Securities Exchange Act of 1934.
The Sarbanes-Oxley Act implemented a number of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered or that file reports under the Securities Exchange Act of 1934.
Item 1. Business General Eagle Financial Services, Inc. is a bank holding company that was incorporated in 1991. The company is headquartered in Berryville, Virginia and conducts its operations through its subsidiary, Bank of Clarke (the “Bank”). The Bank changed its name from Bank of Clarke Cunty to Bank of Clarke in 2022. The Bank is chartered under Virginia law.
Item 1. Business General Eagle Financial Services, Inc. is a bank holding company that was incorporated in 1991. The company is headquartered in Berryville, Virginia and conducts its operations through its subsidiary, Bank of Clarke (the “Bank”). The Bank changed its name from Bank of Clarke County to Bank of Clarke in 2022. The Bank is chartered under Virginia law.
The Company could be adversely affected by economic conditions in its market area. The Company’s branches are located in the counties of Clarke, Frederick, Fauquier, and Loudoun, the towns of Purcellville, Leesburg and Ashburn, and the City of Winchester. The Company also operates loan production offices in the counties of Fairfax (Virgina) as well as Frederick (Maryland).
The Company could be adversely affected by economic conditions in its market area. The Company’s branches are located in the counties of Clarke, Frederick, Fauquier, and Loudoun, the towns of Purcellville, Leesburg and Ashburn, and the City of Winchester. The Company also operates loan production offices in the counties of Fairfax (Virginia) as well as Frederick (Maryland).
Our stock price could fluctuate significantly in response to our quarterly or annual results, annual projections, and the impact of these risk factors on our operating results or financial position. 19 Item 1B. Unresol ved Staff Comments None.
Our stock price could fluctuate significantly in response to our quarterly or annual results, annual projections, and the impact of these risk factors on our operating results or financial position. 18 Item 1B. Unresol ved Staff Comments None.
As directed by the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”), the federal banking regulators jointly issued a final rule in 2019 that permits qualifying banks that have less than $10 billion in total consolidated assets to elect to be subject to a 9% “community bank leverage ratio.” A qualifying bank that has chosen the proposed framework is not required to calculate the existing risk-based and leverage capital requirements and would be considered to have met the capital ratio requirements to be “well capitalized” under prompt corrective action rules, provided it has a community bank leverage ratio greater than 9%.
As directed by the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”), the federal banking regulators jointly issued a final rule in 2019 that permits qualifying banks that have less than $10 billion in total consolidated assets to elect to be subject to a 9% “community bank leverage ratio.” A qualifying bank that has chosen the proposed framework is not required to calculate the existing risk-based and leverage capital requirements and would be considered to have met the capital ratio requirements to be “well capitalized” under prompt corrective action rules, provided it has a community bank leverage ratio greater than 9%. 7 Other Safety and Soundness Regulations .
In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business information and personally identifiable information of its customers and employees in systems and on networks. The secure processing, maintenance, and use of this information is critical to the Company's operations and business strategy.
In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business information and personally identifiable information of its customers and employees in systems and on networks of the Company and its customers and third-party service providers. The secure processing, maintenance, and use of this information is critical to the Company's operations and business strategy.
However, if the Bank fails to meet these minimum capital guidelines and/or other regulatory requirements, the Bank could be subject to regulatory restrictions, including limitations on paying dividends to the holding company for shareholder dividends and share repurchases and paying discretionary bonuses, or experience other adverse consequences that could cause its financial condition to be materially and adversely affected. 17 Changes in accounting standards could impact reported earnings and capital.
However, if the Bank fails to meet these minimum capital guidelines and/or other regulatory requirements, the Bank could be subject to regulatory restrictions, including limitations on paying dividends to the holding company for shareholder dividends and share repurchases and paying discretionary bonuses, or experience other adverse consequences that could cause its financial condition to be materially and adversely affected.
During 2022, the Company paid cash dividends of $3.8 million and total dividends of $4.0 million, including cash dividends that were reinvested in Company stock. Insurance of Accounts, Assessments and Regulation by the FDIC . The Bank’s deposits are insured up to applicable limits by the FDIC.
During 2023, the Company paid total dividends of $4.2 million, including cash dividends that were reinvested in Company stock. Insurance of Accounts, Assessments and Regulation by the FDIC . The Bank’s deposits are insured up to applicable limits by the FDIC.
As the Company has experienced due to rising interest rates in 2022, interest rate changes can reduce unrealized gains or increase unrealized losses in its portfolio and thereby negatively impact its accumulated other comprehensive income and equity levels. Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position.
Interest rate changes can reduce unrealized gains or increase unrealized losses in its portfolio and thereby negatively impact its accumulated other comprehensive income and equity levels. Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position.
If adopted, these rules also could impose increased costs. 18 The lack of empirical data surrounding the credit and other financial risks posed by climate change render it impossible to predict how specifically climate change may impact the Company’s financial condition and results of operations; however, the physical effects of climate change may also directly impact the Company.
The lack of empirical data surrounding the credit and other financial risks posed by climate change render it impossible to predict how specifically climate change may impact the Company’s financial condition and results of operations; however, the physical effects of climate change may also directly impact the Company.
Based on total deposits at June 30, 2022 as reported to the FDIC, the Company has 7.28% of the total deposits in its market area. The Company’s deposit market area includes Clarke County, Frederick County, Loudoun County, Fauquier County and the City of Winchester. Supervision and Regulation General .
Based on total deposits at June 30, 2023 as reported to the FDIC, the Bank has 9.27% of the total deposits in its market area. The Company’s primary deposit market area includes Clarke County, Frederick County, Loudoun County, Fauquier County and the City of Winchester. Supervision and Regulation General .
Additionally, in March 2022, the SEC proposed new climate-related disclosure rules, which if adopted, would require new climate-related disclosures in SEC filings and audited financial statements, including certain climate-related metrics and greenhouse gas emissions data, information about climate-related targets and goals, transition plans, if any, and attestation requirements.
In March 2024, the SEC issued new climate-related disclosure rules, which when effective, will require new climate-related disclosures in SEC filings and audited financial statements, including certain climate-related metrics and greenhouse gas emissions data, information about climate-related targets and goals, transition plans, if any, and attestation requirements.
The Company relies heavily on its senior management team and the unexpected loss of key officers could adversely affect operations. The Company believes that its growth and success depends heavily upon the skills of its senior management team. The Company also depends on the experience of its subsidiary’s officers and on their relationships with the customers they serve.
The Company believes that its growth and success depends heavily upon the skills of its senior management team. The Company also depends on the experience of its subsidiary’s officers and on their relationships with the customers they serve.
We maintain an allowance for loan losses based upon many factors, including the following: • actual loan loss history; • nature, terms, and volume of the loan portfolio; • the amount and trends of problems loans and non-performing loans; • the effect of changes in the local real estate market on collateral values; • the legal and regulatory environment; • lending policies and procedures; • credit administrations and lending staff; • concentrations of credit; • the loan review function; • the effect of current economic conditions on a borrower’s ability to pay; and • other factors deemed relevant by management. 12 These determinations are based upon estimates that are inherently subjective, and their accuracy depends on the outcome of future events; therefore, realized losses may differ from current estimates.
We maintain an allowance for credit losses on loans based upon many factors, including the following: • actual loan loss history; • nature, terms, and volume of the loan portfolio; • the amount and trends of problems loans and non-performing loans; • the effect of changes in the local real estate market on collateral values; • the legal and regulatory environment; • lending policies and procedures; • credit administrations and lending staff; • concentrations of credit; • the loan review function; • the effect of current economic conditions on a borrower’s ability to pay; and • other factors deemed relevant by management.
The authorities that promulgate accounting standards, including the Financial Accounting Standards Board (the “FASB”), the SEC, and other regulatory authorities, periodically change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements.
Changes in accounting standards could impact reported earnings and capital. The authorities that promulgate accounting standards, including the Financial Accounting Standards Board (the “FASB”), the SEC, and other regulatory authorities, periodically change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements.
We cannot provide assurance that our allowance for loan losses is sufficient to cover actual loan losses should such losses differ significantly from the current estimates. Technology Risks The Company’s operations may be adversely affected by cyber security risks.
As a result, actual losses could exceed our current allowance estimate. We cannot provide assurance that our allowance for credit losses is sufficient to cover actual loan losses should such losses differ significantly from the current estimates. Technology Risks The Company’s operations may be adversely affected by cybersecurity risks.
Under these risk-based capital requirements of the Federal Reserve, the Bank is required to maintain a minimum ratio of total capital (which is defined as core capital and supplementary capital less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-weighted assets of at least 8.0%.
The rules implemented the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. 6 Under these risk-based capital requirements of the Federal Reserve, the Bank is required to maintain a minimum ratio of total capital (which is defined as core capital and supplementary capital less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-weighted assets of at least 8.0%.
These investments generate tax credits for the Bank. Employees The Company, including the Bank, had 91 officers, 146 other full-time and 8 part-time employees (or 241 full-time equivalent employees) at December 31, 2022. None of the Company’s employees are represented by a union or covered under a collective bargaining agreement. The Company considers relations with its employees to be excellent.
These investments generate tax credits for the Bank. Employees The Company, including the Bank, had 92 officers, 142 other full-time and 9 part-time employees (or 241 full-time equivalent employees) at December 31, 2023. None of the Company’s employees are represented by a union or covered under a collective bargaining agreement.
Fair Lending; Consumer Laws . In addition to the Community Reinvestment Act, other federal and state laws regulate various lending and consumer aspects of the banking business.
The new evaluation framework is “tailored” based on the size of the bank. Fair Lending; Consumer Laws . In addition to the Community Reinvestment Act, other federal and state laws regulate various lending and consumer aspects of the banking business.
Certain divisions within the banking subsidiary face competition from wealth management and investment brokerage firms. A number of these banks and other financial institutions are significantly larger and have substantially greater access to capital and other resources, as well as larger lending limits and branch systems, and offer a wider array of banking services.
A number of these banks and other financial institutions are significantly larger and have substantially greater access to capital and other resources, as well as larger lending limits and branch systems, and offer a wider array of banking services.
If the Company is unable to access funding sufficient to support our business operations and growth strategies or are unable to access such funding on attractive terms, the Company may not be able to implement our business strategies or satisfy our obligations.
If the Company is unable to access funding sufficient to support our business operations and growth strategies or are unable to access such funding on attractive terms, the Company may not be able to implement our business strategies or satisfy our obligations. Market Risks The Company’s success depends upon its ability to compete effectively in the banking industry.
The occurrence of any such events in the future and the economic impact from such events could have a material adverse effect on the Company's business, which, in turn, could have a material adverse effect on its financial condition and results of operations.
The occurrence of any such events in the future and the economic impact from such events could have a material adverse effect on the Company's business, which, in turn, could have a material adverse effect on its financial condition and results of operations. 15 The Company relies heavily on its senior management team and the unexpected loss of key officers could adversely affect operations.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact the Company’s business. The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased.
At December 31, 2022, loans secured by real estate totaled $939 million and represented 70.92% of the Company’s loan portfolio, net of net deferred loan costs and premiums.
At December 31, 2023, loans secured by real estate totaled $1.0 billion and represented 71.5% of the Company’s loan portfolio, net of net deferred loan costs and premiums.
These factors include competition, federal economic, monetary and fiscal policies, and general economic conditions. 13 In addition, changes in interest rates may negatively affect both the returns on and market value of the Company’s investment securities.
These factors include competition, federal economic, monetary and fiscal policies, and general economic conditions. In addition, changes in interest rates may negatively affect both the returns on and market value of the Company’s investment securities. During 2022 and early 2023, the FRB increased the federal funds rate 11 times and has held such rates steady since July 2023.
Investor advocacy groups, investment funds, and influential investors are also increasingly focused on these practices, especially as they relate to climate risk, hiring practices, the diversity of the work force, and racial and social justice issues. Increased ESG related compliance costs could result in increases to the Company’s overall operational costs.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESG practices and disclosure. Investor advocacy groups, investment funds, and influential investors are also increasingly focused on these practices, especially as they relate to climate risk, hiring practices, the diversity of the work force, and racial and social justice issues.
Effective January 1, 2015, the Federal Reserve adopted capital rules intended to revise and strengthen its risk-based and leverage capital requirements and its method for calculating risk-weighted assets. The rules implemented the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.
Effective January 1, 2015, the Federal Reserve adopted capital rules intended to revise and strengthen its risk-based and leverage capital requirements and its method for calculating risk-weighted assets.
An institution may not disclose to a non-affiliated third party, other than to a consumer reporting agency, customer account numbers or other similar account identifiers for marketing purposes. The GLBA also provides that the states may adopt customer privacy protections that are more strict than those contained in the act.
An institution may not disclose to a non-affiliated third party, other than to a consumer reporting agency, customer account numbers or other similar account identifiers for marketing purposes.
Market Risks The Company’s success depends upon its ability to compete effectively in the banking industry. The Company’s banking subsidiary faces competition from banks and other financial institutions, including savings and loan associations, savings banks, finance companies and credit unions for deposits, loans and other financial services in our market area.
The Company’s banking subsidiary faces competition from banks and other financial institutions, including savings and loan associations, savings banks, finance companies and credit unions for deposits, loans and other financial services in our market area. Certain divisions within the banking subsidiary face competition from wealth management and investment brokerage firms.
Regulation P provides an exception under which financial institutions that meet certain conditions are not required to provide annual privacy notices to customers. To qualify for this exception, a financial institution must not share nonpublic personal information about customers except as described in certain statutory exceptions.
To qualify for this exception, a financial institution must not share nonpublic personal information about customers except as described in certain statutory exceptions.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact the Company’s reputation, ability to do business with certain partners, and the Company’s stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
Increased ESG related compliance costs could result in increases to the Company’s overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact the Company’s reputation, ability to do business with certain partners, and the Company’s stock price.
If the Company is required to materially increase the level of the allowance for credit losses or incurs additional expenses to determine the appropriate level of the allowance for credit losses, such changes could adversely affect the Company’s capital levels, financial condition and results of operations.
If the Company is required to materially increase the level of the allowance for credit losses or incurs additional expenses to determine the appropriate level of the allowance for credit losses, such changes could adversely affect the Company’s capital levels, financial condition and results of operations. 16 Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (ESG) practices may impose additional costs on the Company or expose it to new or additional risks.
An unsatisfactory rating can significantly delay or even prohibit regulatory approval of a proposed transaction by a bank holding company or its depository institution subsidiaries. In May 2022, the federal bank regulatory agencies jointly issued a proposed rule intended to strengthen and modernize the CRA regulatory framework.
An unsatisfactory rating can significantly delay or even prohibit regulatory approval of a proposed transaction by a bank holding company or its depository institution subsidiaries. In October 2023, the Office of the Comptroller of the Currency ("OCC"), the Federal Reserve System Board and the FDIC finalized comprehensive revisions to their CRA regulations.
There is no assurance that any such losses would not materially and adversely affect our results of operations. Operational Risks Our exposure to operational risk may adversely affect our business.
There is no assurance that any such losses would not materially and adversely affect our results of operations. In addition, financial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry.
Changes in economic, operating, and other conditions, including changes in interest rates, which are generally beyond our control, could increase actual loan losses significantly. As a result, actual losses could exceed our current allowance estimate.
These determinations are based upon estimates that are inherently subjective, and their accuracy depends on the outcome of future events; therefore, realized losses may differ from current estimates. Changes in economic, operating, and other conditions, including changes in interest rates, which are generally beyond our control, could increase actual loan losses significantly.
Securities and Exchange Commission Filings The Company maintains an internet website at www.bankofclarke.bank .
The Company considers relations with its employees to be excellent, receiving a Great Place to Work® certified. designation in the fourth quarter of 2023. Securities and Exchange Commission Filings The Company maintains an internet website at www.bankofclarke.bank .
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In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).
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The objectives in issuing the final rule include strengthening the achievement of the core purpose of the statute, adapting to changes in the banking industry, including the expanded role of mobile and online banking, tailoring performance standards to account for differences in bank size and business models and local conditions, confirming that CRA and fair lending responsibilities are mutually reinforcing, and promoting a consistent regulatory approach that applies to banks regulated by all three agencies.
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Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital.
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The final rule is expected to go into effect on April 1, 2024, but most provisions of the rule, including the new tests, the need to define retail lending assessment areas, and the data collection requirements, will become applicable on January 1, 2026. Reporting of the collected data will not be required until 2027.
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Under the proposed framework, these standards will generally be effective on January 1, 2023, with an aggregate output floor phasing-in through January 1, 2027. Under the current capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company.
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In addition to numerous technical revisions, the final rule introduces major changes to the CRA regulations in four key areas: (A) the delineation of assessment areas; (B) the overall evaluation framework and performance standards and metrics; (C) the definition of community development activities; and (D) data collection and reporting.
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The impact of Basel IV on the Company and the Bank will depend on the manner in which it is implemented by the federal bank regulatory agencies.
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The GLBA also provides that the states may adopt customer privacy protections that are more strict than those contained in the act. 9 Regulation P provides an exception under which financial institutions that meet certain conditions are not required to provide annual privacy notices to customers.
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The Bank opted into the CBLR framework as of December 31, 2022. 7 Other Safety and Soundness Regulations .
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In 2023, the SEC issued a final rule that requires disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy and governance.
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If implemented, the rule would, among other things, (i) expand access to credit, investment and basic banking services in low- and moderate-income communities, (ii) adapt to changes in the banking industry, including internet and mobile banking, (iii) provide greater clarity, consistency and transparency in the application of the regulations and (iv) tailor performance standards to account for differences in bank size, business model, and local conditions.
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Under this rule, banking organizations that are SEC registrants must generally disclose information about a material cybersecurity incident within four business days of determining it is material with periodic updates as to the status of the incident in subsequent filings as necessary. Sarbanes-Oxley Act of 2002.
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While the Company believes that its current interest rate exposure does not present any significant negative exposure to interest rate changes, it cannot eliminate its exposure to interest rate risk because the factors which cause interest rate risk are beyond the Company’s control.
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In March 2023, Silicon Valley Bank and Signature Bank experienced large deposit outflows coupled with insufficient liquidity to meet withdrawal demands, resulting in the institutions being placed into FDIC receiverships. In the aftermath, there was substantial market disruption and concern that diminished depositor confidence could spread across the banking industry, leading to deposit outflows that could destabilize other institutions.
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Either of these factors could reduce the Company’s net interest margin and net interest income and could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows from operations.
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While public confidence in the banking 14 system has stabilized, deposit outflows caused by reputational concerns or events affecting the banking industry generally could adversely affect the Company’s liquidity, financial condition, and results of operations. Operational Risks Our exposure to operational risk may adversely affect our business.
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The Company will be required to transition from the use of the London Inter Offered Rate (“LIBOR”) index in the future . The Company has certain variable-rate loans indexed to LIBOR to calculate the loan interest rate.
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New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact the Company’s business.
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The United Kingdom Financial Conduct Authority, which regulates LIBOR, has previously announced that the continued availability of the LIBOR on the current basis is not guaranteed after 2021.
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While the final rule was scaled-down from the original proposal and includes a phase-in period, these rules could impose increased costs.
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In November 2020, the administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered rates will cease after December 31, 2021; but, the publication of the remaining LIBOR offered rates will continue until June 30, 2023. 14 Regulators, industry groups, and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fall-back language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., SOFR, as the recommended alternative to U.S.
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Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. The Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”), enacted in March 2022, provides a statutory framework to replace LIBOR with a benchmark rate based on SOFR for contracts governed by U.S. law that have no or ineffective fallbacks.
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Although governmental authorities have endeavored to facilitate an orderly discontinuation of LIBOR, no assurance can be provided that this aim will be achieved or that the use, level, and volatility of LIBOR or other interest rates or the value of LIBOR-based securities will not be adversely affected.
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For example, SOFR is a relatively new reference rate, has a very limited history, and differs fundamentally from U.S. Dollar LIBOR. SOFR is a broad U.S. Treasury repo financing rate that represents overnight secured funding transactions, whereas U.S. Dollar LIBOR is an unsecured rate that represents interbank funding over different maturities.
Removed
As a result, there can be no assurance that SOFR will perform in the same way as U.S. Dollar LIBOR would have done at any time, and there is no guarantee that it is a comparable substitute for U.S. Dollar LIBOR.
Removed
The transition to alternative reference rate for new contracts, or the implementation of a substitute index or indices for the calculation of interest rates under the Company’s existing loan agreements with borrowers or other financial arrangements, could change the Company’s market risk profile, interest margin, interest spread and pricing models, may cause the Company to incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept a substitute index or indices, and may result in disputes or litigation with customers or other counter-parties over the appropriateness or comparability to LIBOR of the substitute index or indices, any of which could have a material adverse effect on the Company’s results of operations.
Removed
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (ESG) practices may impose additional costs on the Company or expose it to new or additional risks. Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESG practices and disclosure.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAt December 31, 2022, Bank of Clarke operated thirteen full-service branches, one loan production office, and one drive-through only facility in the Virginia communities of Berryville, Winchester, Boyce, Stephens City, Purcellville, Warrenton, Leesburg, Ashburn and Fairfax. The Bank also operated one loan production office in the Maryland community of Frederick.
Biggest changeAt December 31, 2023, Bank of Clarke operated thirteen full-service branches, one loan production office, and one drive-through only facility in the Virginia communities of Berryville, Winchester, Boyce, Stephens City, Purcellville, Warrenton, Leesburg, Ashburn and Fairfax. The Bank also operated one loan production office in the Maryland community of Frederick.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeTotal Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares that may Yet Be Purchased Under the Plan October 1 - October 31, 2022 — $ — — 148,969 November 1 - November 30, 2022 — — — 148,969 December 1 - December 31, 2022 — — — 148,969 — $ — — 148,969 21 Item 6.
Biggest changeTotal Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares that may Yet Be Purchased Under the Plan October 1 - October 31, 2023 — $ — — 145,059 November 1 - November 30, 2023 — — — 145,059 December 1 - December 31, 2023 — — — 145,059 — $ — — 145,059
As of March 20, 2023, the Company had approximately 888 shareholders of record. The Company has historically paid dividends on a quarterly basis. The final determination of the timing, amount and payment of dividends on the Common Stock is at the discretion of the Company’s Board of Directors.
As of March 22, 2024, the Company had approximately 868 shareholders of record. The Company has historically paid dividends on a quarterly basis. The final determination of the timing, amount and payment of dividends on the Common Stock is at the discretion of the Company’s Board of Directors.
Issuer Purchases of Equity Securities for the Quarter Ended December 31, 2022 On June 15, 2022, the Corporation renewed the stock repurchase program to repurchase up to 150,000 shares of its common stock prior to June 30, 2023. During 2022, the Company purchased 4,442 shares of its Common Stock under its stock repurchase program at an average price of $34.79.
Issuer Purchases of Equity Securities for the Quarter Ended December 31, 2023 On June 21, 2023, the Corporation renewed the stock repurchase program to repurchase up to 150,000 shares of its common stock prior to June 30, 2024. During 2023, the Company purchased 8,531 shares of its Common Stock under its stock repurchase program at an average price of $35.34.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTwelve Months Ended December 31, 2022 Community Banking Marine Lending All Other Eliminations Consolidated (in thousands) Interest Income $ 47,554 $ 7,132 $ — $ — $ 54,686 Interest Expense 3,826 580 1,067 — 5,473 Net Interest Income 43,728 6,552 (1,067 ) — 49,213 Gain on sales of loans 478 1,397 — — 1,875 Other noninterest income 7,222 99 4,149 — 11,470 Net Revenue 51,428 8,048 3,082 — 62,558 Provision for loan losses 1,059 771 — — 1,830 Noninterest expense 36,401 3,695 2,961 — 43,057 Income (loss) before taxes 13,968 3,582 121 — 17,671 Income tax expense (benefit) 2,343 794 13 — 3,150 Net Income (loss) $ 11,625 $ 2,788 $ 108 $ — $ 14,521 Other data: Capital expenditures $ 829 $ 9 $ — $ — $ 838 Depreciation and amortization 1,550 236 124 — 1,910 Twelve Months Ended December 31, 2021 Community Banking Marine Lending All Other Eliminations Consolidated (in thousands) Interest Income $ 40,003 $ 2,630 $ 43 $ — $ 42,676 Interest Expense 1,645 32 — — 1,677 Net Interest Income 38,358 2,598 43 — 40,999 Gain on sales of loans 636 1,022 — — 1,658 Other noninterest income 6,597 10 3,055 — 9,662 Net Revenue 45,591 3,630 3,098 — 52,319 Provision for loan losses 2,657 (1,153 ) (21 ) — 1,483 Noninterest expense 33,525 2,056 2,468 — 38,049 Income (loss) before taxes 9,409 2,727 651 — 12,787 Income tax expense (benefit) 1,034 573 159 — 1,766 Net Income (loss) $ 8,375 $ 2,154 $ 492 $ — $ 11,021 Other data: Capital expenditures $ 520 $ — $ — $ — $ 520 Depreciation and amortization 1,632 14 22 $ — 1,668 Community Banking Marine Lending All Other Eliminations Consolidated Total assets at December 31, 2022 $ 1,377,461 $ 237,595 $ 1,661 $ — $ 1,616,717 Total assets at December 31, 2021 1,190,471 110,726 1,841 — 1,303,038 37 The increase in community banking segment net income for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to higher interest income resulting from higher average balances of interest-earning assets, including loans and securities, and the effects of rising interest rates on asset yields.
Biggest changeTwelve Months Ended December 31, 2023 Community Banking Marine Lending Wealth Management All Other Eliminations Consolidated (in thousands) Interest Income $ 67,990 $ 15,138 $ — $ — $ — $ 83,128 Interest Expense 25,850 5,570 — 1,417 — 32,837 Net Interest Income (Expense) 42,140 9,568 — (1,417 ) — 50,291 Gain on sales of loans 1,117 311 — — — 1,428 Other noninterest income 7,313 1,078 4,926 — — 13,317 Net Revenue 50,570 10,957 4,926 (1,417 ) — 65,036 Provision for credit losses 2,051 (402 ) — — — 1,649 Noninterest expense 44,479 5,106 2,646 523 — 52,754 Income before taxes 4,040 6,253 2,280 (1,940 ) — 10,633 Income tax expense (benefit) (103 ) 1,313 479 (413 ) — 1,276 Net Income $ 4,143 $ 4,940 $ 1,801 $ (1,527 ) $ — $ 9,357 Other data: Capital expenditures $ 1,035 $ 36 $ — $ — $ — $ 1,071 Depreciation and amortization 1,573 224 126 67 — 1,990 Twelve Months Ended December 31, 2022 Community Banking Marine Lending Wealth Management All Other Eliminations Consolidated (in thousands) Interest Income $ 47,554 $ 7,132 $ — $ — $ — $ 54,686 Interest Expense 4,026 380 — 1,067 — 5,473 Net Interest Income (Expense) 43,528 6,752 — (1,067 ) — 49,213 Gain on sales of loans 478 1,397 — — — 1,875 Other noninterest income 7,222 99 4,149 — — 11,470 Net Revenue 51,228 8,248 4,149 (1,067 ) — 62,558 Provision for credit losses 1,059 771 — — — 1,830 Noninterest expense 36,401 3,695 2,590 371 — 43,057 Income before taxes 13,768 3,782 1,559 (1,438 ) — 17,671 Income tax expense (benefit) 2,343 794 328 (315 ) — 3,150 Net Income $ 11,425 $ 2,988 $ 1,231 $ (1,123 ) $ — $ 14,521 Other data: Capital expenditures $ 829 $ 9 $ — $ — $ — $ 838 Depreciation and amortization 1,499 236 124 51 — 1,910 Community Banking Marine Lending Wealth Management All Other Eliminations Consolidated Total assets at December 31, 2023 $ 1,562,600 $ 261,011 $ 1,080 $ 906 $ — $ 1,825,597 Total assets at December 31, 2022 1,377,461 237,595 1,206 455 — 1,616,717 36 The decrease in community banking segment net income for the year ended December 31, 2023 compared to the year ended December 31, 2022 was due to impact of the rising interest rate environment as the cost of interest-bearing liabilities outpaced income earned on interest-earning assets along with an increase in noninterest expenses.
The Bank generally originates its consumer loans within its geographic market area and these loans are largely 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.
The Bank generally originates its consumer loans within its geographic market area and these loans are largely made to customers with whom the Bank has an existing relationship. Consumer loans 25 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.
The table also shows the ratios for the allowance for loan losses as a percentage of nonperforming assets and nonperforming assets as a percentage of loans outstanding and other real estate owned. Loans are placed on non-accrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due.
The table also shows the ratios for the allowance for credit losses on loans as a percentage of nonperforming assets and nonperforming assets as a percentage of loans outstanding and other real estate owned. Loans are placed on non-accrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due.
The amount of allowance for loan losses allocated to each loan category is based on the amount of delinquent loans in that loan category, the status of nonperforming assets in that loan category, the historical losses for that loan category, the evaluation of qualitative factors impacting the portfolio and the financial condition of certain borrowers whose financial conditional is monitored on a periodic basis.
The amount of allowance for credit losses allocated to each loan category is based on the amount of delinquent loans in that loan category, the status of nonperforming assets in that loan category, the historical losses for that loan category, the evaluation of qualitative factors impacting the portfolio and the financial condition of certain borrowers whose financial conditional is monitored on a periodic basis.
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.
Revenue from community banking operations consist primarily of net interest income related to investments in non-marine 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.
For real estate loans, upon foreclosure, the properties are recorded at the fair value of the property based on current appraisals and other current market trends, less selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off against the allowance for loan losses.
For real estate loans, upon foreclosure, the properties are recorded at the fair value of the property based on current appraisals and other current market trends, less selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off against the allowance for credit losses on loans.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS Note 18 to the Consolidated Financial Statements provides information about the off-balance sheet arrangements which arise through the lending activities of the Company. These arrangements increase the degree of both credit and interest rate risk beyond that which is recognized through the financial assets and liabilities on the consolidated balance sheets. 47
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS Note 18 to the Consolidated Financial Statements provides information about the off-balance sheet arrangements which arise through the lending activities of the Company. These arrangements increase the degree of both credit and interest rate risk beyond that which is recognized through the financial assets and liabilities on the consolidated balance sheets. 45
Loans exceeding $15.0 million and up to the Bank’s legal lending limit can be approved by the Director Loan Committee consisting of four directors (three directors 25 constituting a quorum). The Director’s Loan Committee also reviews and approves changes to the Bank’s Loan Policy as presented by management.
Loans exceeding $15.0 million and up to the Bank’s legal lending limit can be approved by the Director Loan Committee consisting of four directors (three directors 24 constituting a quorum). The Director’s Loan Committee also reviews and approves changes to the Bank’s Loan Policy as presented by management.
Additionally, at December 31, 2022, the most recent notification from the Federal Reserve categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Bank’s category.
Additionally, at December 31, 2023, the most recent notification from the Federal Reserve categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Bank’s category.
The tax rate used to calculate the tax benefit was the federal statutory rate of 21%. The table titled “Tax-Equivalent Net Interest Income” reconciles net interest income to tax-equivalent net interest income, which is not a measurement under GAAP, for the years ended December 31, 2022 and 2021.
The tax rate used to calculate the tax benefit was the federal statutory rate of 21%. The table titled “Tax-Equivalent Net Interest Income” reconciles net interest income to tax-equivalent net interest income, which is not a measurement under GAAP, for the years ended December 31, 2023 and 2022.
Refer to the table titled “Volume and Rate Analysis” for further detail. The table titled “Average Balances, Income and Expenses, Yields and Rates” displays the composition of interest earnings assets and interest bearing liabilities and their respective yields and rates for the years ended December 31, 2022 and 2021.
Refer to the table titled “Volume and Rate Analysis” for further detail. The table titled “Average Balances, Income and Expenses, Yields and Rates” displays the composition of interest earnings assets and interest bearing liabilities and their respective yields and rates for the years ended December 31, 2023 and 2022.
Local competition for funds also affects the cost of time deposits, which are primarily comprised of certificates of deposit. The Company prefers to rely most heavily on non-maturity deposits, which include NOW accounts, money market accounts, and savings accounts.
Local competition for funds also affects the cost of time deposits, which are primarily comprised of certificates of deposit. The Company prefers to rely most heavily on non-maturity deposits when possible, which include NOW accounts, money market accounts, and savings accounts.
During 2021, one of the Company's rehabilitation tax credit investments was finalized and the total amount of credits to be received was determined and certified. The effective tax rate is also impacted by tax-exempt income on investment securities and loans.
During 2023, one of the Company's rehabilitation tax credit investments was finalized and the total amount of credits to be received was determined and certified. The effective tax rate is also impacted by tax-exempt income on investment securities and loans.
Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Finally, there may be actual losses that require additional provisions for loan losses to be charged against earnings.
Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Finally, there may be actual losses that require additional provisions for credit losses to be charged against earnings.
The ROA of the Company, on an annualized basis, was 1.02% and 0.90% for 2022 and 2021, 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 the shareholders.
The ROA of the Company, on an annualized basis, was 0.54% and 1.02% for 2023 and 2022, 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 the shareholders.
The Company calculates and reviews this ratio as a means of evaluating operational efficiency. A reconciliation of tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income is presented within the Net Interest Income section above.
The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency. A reconciliation of tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income is presented within the Net Interest Income section above.
The table titled “Volume and Rate Analysis” provides information about the effect of changes in financial assets and liabilities and changes in rates on net interest income. Tax-equivalent net interest income increased $8.1 million during 2022.
The table titled “Volume and Rate Analysis” provides information about the effect of changes in financial assets and liabilities and changes in rates on net interest income. Tax-equivalent net interest income increased $1.1 million during 2023.
These include underwriting standards for new originations and ongoing monitoring and reporting of asset quality and adequacy of the allowance for loan losses. There were $2.6 million in total non-performing assets, which consist of nonaccrual loans, loans 90 days or more past due and still accruing, other real estate owned, and repossessed assets at December 31, 2022.
These include underwriting standards for new originations and ongoing monitoring and reporting of asset quality and adequacy of the allowance for credit losses. There were $6.1 million in total non-performing assets, which consist of nonaccrual loans, loans 90 days or more past due and still accruing, other real estate owned, and repossessed assets at December 31, 2023.
Basic and diluted earnings per share were $4.17 and $3.20 for 2022 and 2021, 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.
Basic and diluted earnings per share were $2.66 and $4.17 for 2023 and 2022, 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 table titled “Average Deposits and Rates Paid” shows the average deposit balances and average rates paid for 2022 and 2021.
The table titled “Average Deposits and Rates Paid” shows the average deposit balances and average rates paid for 2023 and 2022.
The net interest margin was 3.68% for 2022 and 3.59% for 2021. The net interest margin is calculated by dividing tax-equivalent net interest income by total average earnings assets. 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 net interest margin was 2.96% for 2023 and 3.68% for 2022. The net interest margin is calculated by dividing tax-equivalent net interest income by total average earnings assets. 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 increase in tax-equivalent net interest income during 2022 is comprised of an increase due to volume of $7.6 million and a increase due to rate of $530 thousand. The increase in tax-equivalent net interest income during 2022 was largely affected by the increased volume of taxable loans, as well as increases in rates earned from interest-earning assets.
The net increase in tax-equivalent net interest income during 2023 is comprised of an increase due to volume of $6.7 million and a decrease due to rate of $5.6 million. The increase in tax-equivalent net interest income during 2023 was largely affected by the increased volume of taxable loans, as well as increases in rates earned from interest-earning assets.
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 also provides a source of borrowings with numerous rate and term structures.
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 also provides a source of borrowings with numerous rate and term structures.
The increase in the tax-equivalent yield on securities as compared to the corresponding period in the prior year was due to a combination of increase of volume of securities and the rising interest rate environment. The average rate on interest-bearing liabilities increased 41 basis points from 2021 to 2022.
The increase in the tax-equivalent yield on loans as compared to the corresponding period in the prior year was due to a combination of increase of volume of loans and the rising interest rate environment. The average rate on interest-bearing liabilities increased 210 basis points from 2022 to 2023.
Reciprocal deposit accounts balances (included in total money market account and NOW account balances) increased from $42.2 million to $59.5 million at December 31, 2021 and December 31, 2022, respectively. The reciprocal deposits balance at December 31, 2022 and December 31, 2021 consists of money market and NOW accounts obtained through the ICS network.
Reciprocal deposit accounts balances (included in total money market account and NOW account balances) increased from $59.5 million to $115.7 million at December 31, 2022 and December 31, 2023, respectively. The reciprocal deposits balance at December 31, 2023 and December 31, 2022 consists of money market and NOW accounts obtained through the ICS network.
As fully phased in effective January 1, 2019, the rules require 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.
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 December 31, 2022 and 2021, the Company had remaining credit availability in the amounts of $105.7 million and $244.3 million, respectively, with the Federal Home Loan Bank of Atlanta. The Company also had unused lines of credit with financial institutions of $78.0 million at December 31, 2022 and 2021.
At December 31, 2023 and 2022, the Company had remaining credit availability in the amounts of $169.6 million and $105.7 million, respectively, with the Federal Home Loan Bank of Atlanta. The Company also had unused lines of credit with financial institutions of $78.0 million at December 31, 2023 and 2022.
In addition, increases in asset size and capital levels have impacted both the FDIC assessment and bank franchise tax amounts. Salaries and employee benefits expense increased during 2022. Annual pay increases, newly hired employees, increasing insurance costs and enhanced employee incentive plans have attributed to these increases.
In addition, increases in asset size and capital levels have impacted both the FDIC assessment and bank franchise tax amounts. Salaries and employee benefits expense increased during 2023. Annual pay increases, staffing changes, increasing insurance costs and enhanced employee incentive plans have attributed to these increases.
Note 9 to the Consolidated Financial Statements provides a reconciliation between income tax expense computed using the federal statutory income tax rate and the Company’s actual income tax expense during 2022 and 2021. Business Segments The Company has two reportable operating segments: community banking and marine lending.
Note 9 to the Consolidated Financial Statements provides a reconciliation between income tax expense computed using the federal statutory income tax rate and the Company’s actual income tax expense during 2023 and 2022. 34 Business Segments The Company has three reportable operating segments: community banking, marine lending and wealth management.
During 2021, the Company purchased 4,479 shares of its Common Stock under its stock repurchase program at an average price of $31.26. At December 31, 2022, and 2021, Management believes the Bank met all capital adequacy requirements to which it was subject.
During 2022, the Company purchased 4,442 shares of its Common Stock under its stock repurchase program at an average price of $34.79. At December 31, 2023, and 2022, Management believes the Bank met all capital adequacy requirements to which it was subject.
The table titled “Allocation of Allowance for Loan Losses” shows the amount of the allowance for loan losses which is allocated to the indicated loan categories, along with that category’s percentage of total loans, at December 31, 2022 and 2021.
The table titled “Allocation of Allowance for Credit Losses on Loans” shows the amount of the allowance for credit losses which is allocated to the indicated loan categories, along with that category’s percentage of total loans, at December 31, 2023 and 2022.
As of or for the Years Ended December 31, 2022 2021 2020 2019 2018 (dollars in thousands, except per share amounts) Income Statement Data: Interest and dividend income $ 54,686 $ 42,676 $ 38,908 $ 35,454 $ 31,923 Interest expense 5,473 1,677 3,281 4,239 2,515 Net interest income $ 49,213 $ 40,999 $ 35,627 $ 31,215 $ 29,408 Provision for loan losses 1,830 1,483 1,457 629 777 Net interest income after provision for loan losses $ 47,383 $ 39,516 $ 34,170 $ 30,586 $ 28,631 Noninterest income 13,345 11,320 8,579 7,759 3,879 Net revenue $ 60,728 $ 50,836 $ 42,749 $ 38,345 $ 35,510 Noninterest expenses 43,057 38,049 29,441 26,776 25,195 Income before income taxes $ 17,671 $ 12,787 $ 13,308 $ 11,569 $ 10,315 Applicable income taxes 3,150 1,766 2,136 1,810 1,314 Net Income $ 14,521 $ 11,021 $ 11,172 $ 9,759 $ 9,001 Performance Ratios: Return on average assets 1.02 % 0.90 % 1.11 % 1.18 % 1.16 % Return on average equity 14.06 % 10.28 % 11.03 % 10.60 % 10.67 % Shareholders’ equity to assets 6.29 % 8.46 % 9.30 % 10.98 % 10.96 % Dividend payout ratio 27.58 % 34.38 % 31.80 % 35.21 % 36.15 % Non-performing loans to total loans 0.19 % 0.28 % 0.57 % 0.34 % 0.35 % Non-performing assets to total assets 0.16 % 0.21 % 0.47 % 0.27 % 0.28 % Share and Per Share Data: Net income, basic $ 4.17 $ 3.20 $ 3.27 $ 2.84 $ 2.60 Net income, diluted 4.17 3.20 3.27 2.84 2.60 Cash dividends declared 1.15 1.10 1.04 1.00 0.94 Book value 29.15 31.93 30.86 28.08 25.42 Market price 35.95 34.65 29.50 31.05 30.99 Average shares outstanding, basic 3,482,368 3,440,080 3,417,543 3,438,410 3,467,667 Average shares outstanding, diluted 3,482,368 3,440,080 3,417,543 3,438,410 3,467,667 Balance Sheet Data: Total securities $ 158,389 $ 193,370 $ 166,222 $ 166,200 $ 145,468 Total loans 1,323,783 985,720 836,334 644,760 606,827 Total assets 1,616,717 1,303,038 1,130,152 877,320 799,617 Total deposits 1,264,075 1,177,235 1,013,087 771,544 703,104 Shareholders’ equity 101,729 110,280 105,074 96,326 87,599 24 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 our local, independent status.
As of or for the Years Ended December 31, 2023 2022 2021 2020 2019 (dollars in thousands, except per share amounts) Income Statement Data: Interest and dividend income $ 83,128 $ 54,686 $ 42,676 $ 38,908 $ 35,454 Interest expense 32,837 5,473 1,677 3,281 4,239 Net interest income $ 50,291 $ 49,213 $ 40,999 $ 35,627 $ 31,215 Provision for credit losses 1,649 1,830 1,483 1,457 629 Net interest income after provision for credit losses $ 48,642 $ 47,383 $ 39,516 $ 34,170 $ 30,586 Noninterest income 14,745 13,345 11,320 8,579 7,759 Net revenue $ 63,387 $ 60,728 $ 50,836 $ 42,749 $ 38,345 Noninterest expenses 52,754 43,057 38,049 29,441 26,776 Income before income taxes $ 10,633 $ 17,671 $ 12,787 $ 13,308 $ 11,569 Applicable income taxes 1,276 3,150 1,766 2,136 1,810 Net Income $ 9,357 $ 14,521 $ 11,021 $ 11,172 $ 9,759 Performance Ratios: Return on average assets 0.54 % 1.02 % 0.90 % 1.11 % 1.18 % Return on average equity 9.05 % 14.06 % 10.28 % 11.03 % 10.60 % Shareholders’ equity to assets 5.94 % 6.29 % 8.46 % 9.30 % 10.98 % Dividend payout ratio 45.11 % 27.58 % 34.38 % 31.80 % 35.21 % Non-performing loans to total loans 0.40 % 0.19 % 0.28 % 0.57 % 0.34 % Non-performing assets to total assets 0.34 % 0.16 % 0.21 % 0.47 % 0.27 % Share and Per Share Data: Net income, basic $ 2.66 $ 4.17 $ 3.20 $ 3.27 $ 2.84 Net income, diluted 2.66 4.17 3.20 3.27 2.84 Cash dividends declared 1.20 1.15 1.10 1.04 1.00 Book value 30.78 29.15 31.93 30.86 28.08 Market price 30.00 35.95 34.65 29.50 31.05 Average shares outstanding, basic 3,523,547 3,482,368 3,440,080 3,417,543 3,438,410 Average shares outstanding, diluted 3,523,547 3,482,368 3,440,080 3,417,543 3,438,410 Balance Sheet Data: Total securities $ 147,011 $ 158,389 $ 193,370 $ 166,222 $ 166,200 Total loans 1,462,686 1,323,783 985,720 836,334 644,760 Total assets 1,825,597 1,616,717 1,303,038 1,130,152 877,320 Total deposits 1,506,322 1,264,075 1,177,235 1,013,087 771,544 Shareholders’ equity 108,379 101,729 110,280 105,074 96,326 23 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 our local, independent status.
Net interest income and net interest margin may experience some decline due to additional deposit pricing pressure as interest rates continue to increase and increased competition for new deposits is experienced.
Net interest income and net interest margin may experience some decline due to additional deposit pricing pressure as interest rates continue to increase or remain at the current level and increased competition for new deposits is experienced.
The provision for loan losses for the years ended December 31, 2022 and 2021 was $1.8 million and $1.5 million, respectively. The provision for loan losses in 2022 and 2021 reflected mainly loan growth in the portfolio.
The provision for credit losses for the years ended December 31, 2023 and 2022 was $1.6 million and $1.8 million, respectively. The provision for credit losses in 2023 and 2022 reflected mainly loan growth in the portfolio.
Income Taxes Income tax expense was $3.2 million and $1.8 million for the years ended December 31, 2022 and 2021, respectively. These amounts correspond to an effective tax rate of 17.83% and 13.81% for 2022 and 2021, respectively.
Income Taxes Income tax expense was $1.3 million and $3.2 million for the years ended December 31, 2023 and 2022, respectively. These amounts correspond to an effective tax rate of 12.00% and 17.83% for 2023 and 2022, respectively.
The Company has a Dividend Investment Plan that allows participating shareholders to reinvest the dividends in Company stock. During 2022, the Company purchased 4,442 shares of its Common Stock under its stock repurchase program at an average price of $34.79.
The Company has a Dividend Investment Plan that allows participating shareholders to reinvest the dividends in Company stock. During 2023, the Company purchased 8,531 shares of its Common Stock under its stock repurchase program at an average price of $35.34.
The final rule became effective on January 1, 2020. The CBLR removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio.
The CBLR removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio.
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 net of net deferred costs and premiums were $1.32 billion and $985.7 million at December 31, 2022 and 2021, respectively. This represents an increase of $338.1 million or 34.30% for 2022.
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 net of net deferred costs and premiums were $1.46 billion and $1.32 billion at December 31, 2023 and 2022, respectively. This represents an increase of $138.8 million or 10.55% for 2023.
The average rate on total interest-bearing deposits increased 13 basis points from 2021 to 2022. The Federal Reserve interest rate increases during early 2022 heightened interest rates paid on deposit accounts. In general, deposit pricing is done in response to monetary policy actions and yield curve changes.
The average rate on total interest-bearing deposits increased 200 basis points from 2022 to 2023. The Federal Reserve's interest rate increases beginning early 2022 and continuing into 2023 heightened interest rates paid on deposit accounts. In general, deposit pricing is done in response to monetary policy actions and yield curve changes.
The gross amount of interest income that would have been recognized on nonaccrual loans was $93 thousand for 2022 and $133 thousand for 2021. None of this interest income was included in net income for 2022 or 2021. A total of 12 loans totaling $544 thousand were placed on nonaccrual during 2022.
The gross amount of interest income that would have been recognized on nonaccrual loans was $140 thousand for 2023 and $93 thousand for 2022. None of this interest income was included in net income for 2023 or 2022. A total of 13 loans totaling $4.1 million were placed on nonaccrual during 2023.
Note 1 to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data, of the 2022 Form 10-K, provides additional information related to the allowance for loan losses. 28 FORWARD LOOKING STATEMENTS The Company makes forward looking statements in this report that are subject to risks and uncertainties.
Note 1 to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data, of the 2023 Form 10-K, provides additional information concerning the determination of the allowance for credit losses on loans. 26 FORWARD LOOKING STATEMENTS The Company makes forward looking statements in this report that are subject to risks and uncertainties.
Net interest income is derived from the volume of earning assets and the rates earned on those assets as compared to the cost of funds. Total interest income was $54.7 million for 2022 and $42.7 million for 2021, which represents an increase of $12.0 million or 28.14% for 2022.
Net interest income is derived from the volume of earning assets and the rates earned on those assets as compared to the cost of funds. Total interest income was $83.1 million for 2023 and $54.7 million for 2022, which represents an increase of $28.4 million or 52.01% for 2023.
The Company’s net income was $14.5 million for the year ended December 31, 2022. 23 The following table presents selected financial data, which was derived from the Company’s audited financial statements for the periods indicated.
The Company’s net income was $9.4 million for the year ended December 31, 2023. 22 The following table presents selected financial data, which was derived from the Company’s audited financial statements for the periods indicated.
Bank owned life insurance ("BOLI") fee income increased during 2022 when compared to 2021 as a result of investment of $10 million into BOLI by the Company during the second quarter of 2021. Other operating income increased during 2022.
Bank owned life insurance ("BOLI") fee income increased during 2023 when compared to 2022 as a result of an investment of $5 million into BOLI by the Company during the fourth quarter of 2023. 32 Other operating income decreased during 2023.
(2) Interest and yields on loans include the amortization/accretion of origination costs/fees as well as any purchase premiums or discounts. 31 Tax-Equivalent Net Interest Income (dollars in thousands) Twelve Months Ended December 31, 2022 2021 (in thousands) GAAP Financial Measurements: Interest Income - Loans $ 50,682 $ 39,871 Interest Income - Securities and Other Interest-Earnings Assets 4,004 2,805 Interest Expense - Deposits 2,941 1,677 Interest Expense - Other Borrowings 2,532 — Total Net Interest Income $ 49,213 $ 40,999 Non-GAAP Financial Measurements: Add: Tax Benefit on Tax-Exempt Interest Income - Loans (1) $ 45 $ 61 Add: Tax Benefit on Tax-Exempt Interest Income - Securities (1) 59 111 Total Tax Benefit on Tax-Exempt Interest Income $ 104 $ 172 Tax-Equivalent Net Interest Income $ 49,317 $ 41,171 (1) Tax benefit was calculated using the federal statutory tax rate of 21%.
(2) Interest and yields on loans include the amortization/accretion of origination costs/fees as well as any purchase premiums or discounts. 29 Tax-Equivalent Net Interest Income (dollars in thousands) Twelve Months Ended December 31, 2023 2022 (in thousands) GAAP Financial Measurements: Interest Income - Loans $ 75,520 $ 50,682 Interest Income - Securities and Other Interest-Earnings Assets 7,608 4,004 Interest Expense - Deposits 23,630 2,941 Interest Expense - Other Borrowings 9,207 2,532 Total Net Interest Income $ 50,291 $ 49,213 Non-GAAP Financial Measurements: Add: Tax Benefit on Tax-Exempt Interest Income - Loans (1) $ 104 $ 45 Add: Tax Benefit on Tax-Exempt Interest Income - Securities (1) 4 59 Total Tax Benefit on Tax-Exempt Interest Income $ 108 $ 104 Tax-Equivalent Net Interest Income $ 50,399 $ 49,317 (1) Tax benefit was calculated using the federal statutory tax rate of 21%.
Gains on properties acquired through foreclosure where the fair value less costs to sell exceeds the related loan balance and there have been no prior charge-offs are recorded to current earnings. In addition, the Company may, under certain circumstances, restructure loans in troubled debt restructurings as a concession to a borrower when the borrower is experiencing financial distress.
Gains on properties acquired through foreclosure where the fair value less costs to sell exceeds the related loan balance and there have been no prior charge-offs are recorded to current earnings. In addition, the Company may, under certain circumstances, modify loans.
Total interest expense was $5.5 million for 2022 and $1.7 million for 2021, which represents an increase of $3.8 million or 226.36% in 2022. The increase in total interest income, total interest expense and net interest income during 2022 was driven by the growth in interest-earning assets, interest-bearing liabilities and the rising interest rate environment.
Total interest expense was $32.8 million for 2023 and $5.5 million for 2022, which represents an increase of $27.4 million or 499.98% in 2023. The increase in total interest income, total interest expense and net interest income during 2023 was driven by the growth in interest-earning assets, interest-bearing liabilities and the rising interest rate environment.
Total assets have grown by $313.7 million or 24.1% from December 31, 2021 to December 31, 2022. This growth has required investments to be made in the Company’s infrastructure, causing increases in salaries and employee benefits, occupancy expenses, equipment expenses, advertising and marketing expenses, stationary and supplies, and other operating expenses.
Total assets have grown by $208.9 million or 12.9% from December 31, 2022 to December 31, 2023. This growth has required investments to be made in the Company’s infrastructure, causing increases in salaries and employee benefits, occupancy expenses, equipment expenses, advertising and marketing expenses, computer software expense, and other operating expenses.
The tax-equivalent yield on earning assets increased 35 basis points from 2021 to 2022. The tax-equivalent yield on securities increased 45 basis points from 2021 to 2022. The tax-equivalent yield on loans increased five basis points from 2021 to 2022. The increase in the tax-equivalent yield on earning assets resulted mostly from the increase in the tax-equivalent yield on securities.
The tax-equivalent yield on earning assets increased 81 basis points from 2022 to 2023. The tax-equivalent yield on securities increased 41 basis points from 2022 to 2023. The tax-equivalent yield on loans increased 79 basis points from 2022 to 2023. The increase in the tax-equivalent yield on earning assets resulted mostly from the increase in the tax-equivalent yield on loans.
Maturities of Certificates of Deposit and Other Time Deposits of $250,000 and Greater (dollars in thousands) Within Three Months Three to Six Months Six to Twelve Months Over One Year Total Percent of Total Deposits December 31, 2022 $ 5,522 $ 4,846 $ 55,747 $ 4,248 $ 70,363 5.57 % 44 The table titled “Certificates of Deposit and Other Time Deposits Otherwise Uninsured" shows the balances of certificates of deposit that were in excess of the FDIC insurance limit at December 31, 2022.
Maturities of Certificates of Deposit and Other Time Deposits of $250,000 and Greater (dollars in thousands) Within Three Months Three to Six Months Six to Twelve Months Over One Year Total Percent of Total Deposits December 31, 2023 $ 40,372 $ 44,333 $ 70,761 $ 380 $ 155,846 10.35 % 42 The table titled “Certificates of Deposit and Other Time Deposits Otherwise Uninsured" shows the balances of certificates of deposit that were in excess of the FDIC insurance limit at December 31, 2023.
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 Loan Losses The allowance for loan losses is an estimate of the probable losses inherent in the Company’s loan portfolio.
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.
The calculation of the efficiency ratio for the twelve months ended December 31, 2022 and 2021 were as follows: December 31, 2022 2021 (in thousands) Summary of Operating Results: Noninterest expenses $ 43,057 $ 38,049 Less: Loss on other real estate owned — 201 Adjusted noninterest expenses $ 43,057 $ 37,848 Net interest income $ 49,213 $ 40,999 Noninterest income $ 13,345 $ 11,320 Less: (Loss) gain on sales of securities (737 ) 24 Less: (Loss) on the sale and disposal of premises and equipment (11 ) — Adjusted noninterest income $ 14,093 $ 11,296 Tax equivalent adjustment (1) 104 172 Total net interest income and noninterest income, adjusted $ 63,410 $ 52,467 Efficiency ratio 67.90 % 72.14 % (1) Includes tax-equivalent adjustments on loans and securities using the federal statutory tax rate of 21%.
The calculation of the efficiency ratio for the twelve months ended December 31, 2023 and 2022 was as follows: December 31, 2023 2022 (in thousands) Summary of Operating Results: Noninterest expenses $ 52,754 $ 43,057 Less: (Gain) on other real estate owned (7 ) — Adjusted noninterest expenses $ 52,761 $ 43,057 Net interest income $ 50,291 $ 49,213 Noninterest income $ 14,745 $ 13,345 Less: (Loss) on sales of securities — (737 ) Less: Gain on the sale of marine finance assets 435 — Less: Gain (loss) on the sale and disposal of premises and equipment 14 (11 ) Adjusted noninterest income $ 14,296 $ 14,093 Tax equivalent adjustment (1) 108 104 Total net interest income and noninterest income, adjusted $ 64,695 $ 63,410 Efficiency ratio 81.55 % 67.90 % (1) Includes tax-equivalent adjustments on loans and securities using the federal statutory tax rate of 21%.
During the last three quarters of 2021, the Company sold $18.1 million in mortgage loans on the secondary market and $99.2 million of loans from the commercial and consumer loan portfolios. These loan sales resulted in gains of $1.9 million and $1.7 million during the years ended December 31, 2022 and 2021, respectively.
During 2022, the Company sold $12.2 million in mortgage loans on the secondary market, $155.0 million of loans from the commercial and consumer loan portfolios and $2.8 million in SBA loans. These loan sales resulted in gains of $1.4 million and $1.9 million during the years ended December 31, 2023 and 2022, respectively.
The following table provides the components of noninterest income for the twelve months ended December 31, 2022 and 2021, which are included within the respective Consolidated Statements of Income headings. The following paragraphs provide information about activities which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.
The following paragraphs provide information about activities which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.
The total amount maturing within one year is $66.1 million or 93.96% of the total amount outstanding.
The total amount maturing within one year is $106.1 million or 99.88% of the total amount outstanding.
The ROE for the Company was 14.06% and 10.28% for 2022 and 2021, respectively. Net Interest Income Net interest income, the difference between total interest income and total interest expense, is the Company’s primary source of earnings. Net interest income was $49.2 million for 2022 and $41.0 million for 2021, which represents an increase of $8.2 million or 20.03%.
The ROE for the Company was 9.05% and 14.06% for 2023 and 2022, respectively. Net Interest Income Net interest income, the difference between total interest income and total interest expense, is the Company’s primary source of earnings. Net interest income was $50.3 million for 2023 and $49.2 million for 2022, which represents an increase of $1.1 million or 2.19%.
At December 31, 2022 and 2021, the Company had $4.6 million and $2.7 million in restructured loans, respectively. 41 Nonperforming Assets and Credit Ratios (dollars in thousands) December 31, 2022 2021 Nonaccrual loans $ 2,162 $ 2,723 Loans past due 90 days and accruing interest 318 43 Other real estate owned and repossessed assets 108 — Total nonperforming assets $ 2,588 $ 2,766 Allowance for loan losses $ 11,218 $ 8,787 Gross loans $ 1,323,783 $ 985,720 Allowance for loan losses to nonperforming assets 433 % 318 % Allowance for loan losses to total loans 0.85 % 0.89 % Allowance for loan losses to nonaccrual loans 519 % 323 % Nonaccrual loans to total loans 0.19 % 0.28 % Non-performing assets to period end loans and other real estate owned 0.20 % 0.28 % Other potential problem loans are defined as performing loans that possess certain risks that management has identified that could result in the loans not being repaid in accordance with their terms.
Nonperforming Assets and Credit Ratios (dollars in thousands) December 31, 2023 2022 Nonaccrual loans $ 5,645 $ 2,162 Loans past due 90 days and accruing interest 181 318 Other real estate owned and repossessed assets 304 108 Total nonperforming assets $ 6,130 $ 2,588 Allowance for credit losses on loans $ 14,493 $ 11,218 Gross loans $ 1,462,686 $ 1,323,783 Allowance for credit losses on loans to nonperforming assets 236 % 433 % Allowance for credit losses on loans to total loans 0.99 % 0.85 % Allowance for credit losses on loans to nonaccrual loans 257 % 519 % Nonaccrual loans to total loans 0.40 % 0.19 % Non-performing assets to period end loans, other real estate owned and repossessed assets 0.42 % 0.20 % Other potential problem loans are defined as performing loans that possess certain risks that management has identified that could result in the loans not being repaid in accordance with their terms.
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. 29 RESULTS OF OPERATIONS Net Income Net income for 2022 was $14.5 million, a increase of $3.5 million or 31.76% from 2021’s net income of $11.0 million.
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. 27 RESULTS OF OPERATIONS Net Income Net income for 2023 was $9.4 million, a decrease of $5.2 million or 35.56% from 2022’s net income of $14.5 million.
The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans. Nonaccrual loans that were evaluated for impairment at December 31, 2022 totaled $2.2 million and had $73 thousand in specific allocations assigned.
The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans. Nonaccrual loans that were individually evaluated for impairment at December 31, 2023 totaled $5.6 million, none of which required a specific allocation to be assigned.
Allowance for Loan Losses The purpose and the methods for measuring the allowance for loans are discussed in the Critical Accounting Policies section above. Charged-off loans were $659 thousand and $110 thousand for 2022 and 2021, respectively. Recoveries were $1.3 million and $318 thousand for 2022 and 2021, respectively. Net recoveries were $601 thousand for 2022.
Additional information on the purpose and the methods for measuring the allowance for credit losses on loans are discussed in the Critical Accounting Policies section above. Charged-off loans were $741 thousand and $659 thousand for 2023 and 2022, respectively. Recoveries were $298 thousand and $1.3 million for 2023 and 2022, respectively. Net charge-offs were $443 thousand for 2023.
A net loss of $201 thousand was recognized on other real estate owned during 2021. Nonperforming and Other Assets Nonperforming assets consist of nonaccrual loans, loans past due 90 days and accruing interest, other real estate owned (foreclosed properties), and repossessed assets.
A net gain of $7 thousand was recognized on the sale of other real estate owned during the twelve months ended December 31, 2023. 39 Nonperforming and Other Assets Nonperforming assets consist of nonaccrual loans, loans past due 90 days and accruing interest, other real estate owned (foreclosed properties), and repossessed assets.
Interest-bearing deposits, which include NOW accounts, money market accounts, regular savings accounts and time deposits, increased $78.4 million or 11.10% from $706.9 million at December 31, 2021 to $785.3 million at December 31, 2022.
Interest-bearing deposits, which include NOW accounts, money market accounts, regular savings accounts and time deposits, increased $284.4 million or 36.21% from $785.3 million at December 31, 2022 to $1.07 billion at December 31, 2023.
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.
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.
During 2022, the Company sold $12.2 million in mortgage loans on the secondary market and $155.0 million of loans from the commercial and consumer loan portfolios. During the third quarter of 2022, the Company sold $3.0 million in Small Business Association ("SBA") loans.
During 2023, the Company sold $32.1 million in mortgage loans on the secondary market, $51.7 million of loans from the commercial and consumer loan portfolios and $8.0 million in Small Business Association ("SBA") loans.
This is a decrease of $178 thousand when compared to the December 31, 2021 balance of $2.8 million. This decrease resulted mostly from a decrease in nonaccrual loans. Nonaccrual loans were $2.2 million at December 31, 2022 and $2.7 million at the end of 2021.
This is an increase of $3.5 million when compared to the December 31, 2022 balance of $2.6 million. This increase resulted mostly from an increase in nonaccrual loans. Nonaccrual loans were $5.6 million at December 31, 2023 and $2.2 million at the end of 2022.
The common stock’s book value per share decreased $2.78 or 8.70% to $29.15 per share at December 31, 2022 from $31.93 per share at December 31, 2021. During 2022, the Company paid $1.15 per share in dividends as compared to $1.10 per share for 2021.
Our common stock’s book value per share increased $1.63 or 5.60% to $30.78 per share at December 31, 2023 from $29.15 per share at December 31, 2022. During 2023, the Company paid $1.20 per share in dividends as compared to $1.15 per share for 2022.
Certificates of Deposit and Other Time Deposits Otherwise Uninsured (dollars in thousands) Within Three Months Three to Six Months Six to Twelve Months Over One Year Total Percent of Total Deposits December 31, 2022 $ 4,021 $ 2,846 $ 47,703 $ 1,498 $ 56,068 4.44 % CAPITAL RESOURCES Total shareholders’ equity on December 31, 2022 was $101.7 million, reflecting a percentage of total assets of 6.29% as compared to $110.3 million and 8.46% at December 31, 2021.
Certificates of Deposit and Other Time Deposits Otherwise Uninsured (dollars in thousands) Within Three Months Three to Six Months Six to Twelve Months Over One Year Total Percent of Total Deposits December 31, 2023 $ 27,686 $ 33,392 $ 44,972 $ 130 $ 106,180 7.05 % CAPITAL RESOURCES Total shareholders’ equity on December 31, 2023 was $108.4 million, reflecting a percentage of total assets of 5.94% as compared to $101.7 million and 6.29% at December 31, 2022.
The efficiency ratio is calculated by dividing total noninterest expenses by the sum of tax-equivalent net interest income and total 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 efficiency ratio of the Company was 81.55% and 67.90% for 2023 and 2022, respectively. The efficiency ratio is calculated by dividing total noninterest expenses by the sum of tax-equivalent net interest income and total noninterest income, excluding gains and losses on investment portfolio sales and other gains/losses from OREO, repossessed assets, sale or disposals of bank assets, etc.
The increase in marine lending segment net income for the year ended December 31, 2022 compared to the year ended December 31, 2021 was also primarily due to higher interest income resulting from higher average balances of interest-earning assets, including loans, and the effects of rising interest rates on asset yields.
The increase in marine lending segment net income for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to higher interest income resulting from loan growth, as well as the effects of rising interest rates on asset yields. The average balance of marine loans increased $108.1 million, or 65.18% during 2023.
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.
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.
Loan growth was also driven by the expansion into new market areas. The table titled “Maturity Schedule of Selected Loans” shows the different loan categories and the period during which they mature. For loans maturing in more than one year, the table also shows a breakdown between fixed rate loans and floating rate loans.
The table titled “Maturity Schedule of Selected Loans” shows the different loan categories and the period during which they mature. For loans maturing in more than one year, the table also shows a breakdown between fixed rate loans and floating rate loans. The table indicates that $567.1 million or 38.97% of the loan portfolio matures within five years.
This represents an increase of $5.0 million or 13.16% during 2022. The following table provides the components of noninterest expense for the twelve months ended December 31, 2022 and 2021, which are included within the respective Consolidated Statements of Income headings. The following paragraphs provide information about activities which are included within the respective Consolidated Statements of Income headings.
Noninterest Expenses Total noninterest expenses were $52.8 million and $43.1 million during 2023 and 2022, respectively. This represents an increase of $9.7 million or 22.52% during 2023. The following table provides the components of noninterest expense for the twelve months ended December 31, 2023 and 2022, which are included within the respective Consolidated Statements of Income headings.
These combined also could result in the Company having to borrow wholesale funding to fund asset growth which is more expensive than deposits. 30 Average Balances, Income and Expenses, Yields and Rates (dollars in thousands) Years Ended December 31, 2022 December 31, 2021 Average Interest Income/ Average Average Interest Income/ Average Balance Expense Rate Balance Expense Rate Assets: Securities: Taxable $ 172,501 $ 3,401 1.97 % $ 162,717 $ 2,317 1.42 % Tax-Exempt (1) 8,305 280 3.37 % 15,936 530 3.33 % Total Securities $ 180,806 $ 3,681 2.04 % $ 178,653 $ 2,847 1.59 % Loans: (2) Taxable 1,121,429 50,509 4.50 % 889,035 39,643 4.46 % Non-accrual 2,350 — — % 4,024 — — % Tax-Exempt (1) 5,671 218 3.85 % 6,734 289 4.29 % Total Loans $ 1,129,450 $ 50,727 4.49 % $ 899,793 $ 39,932 4.44 % Federal funds sold 5,311 30 0.57 % 223 — 0.10 % Interest-bearing deposits in other banks 27,251 352 1.29 % 68,868 69 0.10 % Total earning assets $ 1,342,818 $ 54,790 4.08 % $ 1,147,537 $ 42,848 3.73 % Allowance for loan losses (9,852 ) (7,980 ) Total non-earning assets 93,289 79,122 Total assets $ 1,426,255 $ 1,218,679 Liabilities and Shareholders' Equity: Interest-bearing deposits: NOW accounts $ 173,843 $ 663 0.38 % $ 145,652 $ 312 0.21 % Money market accounts 270,725 1,155 0.43 % 225,960 583 0.26 % Savings accounts 179,709 130 0.07 % 156,861 92 0.06 % Time deposits: $250,000 and more 62,757 560 0.89 % 67,287 411 0.61 % Less than $250,000 62,907 433 0.69 % 58,565 279 0.48 % Total interest-bearing deposits $ 749,941 $ 2,941 0.39 % $ 654,325 $ 1,677 0.26 % Federal funds purchased 7,882 170 2.16 % 1 — 0.36 % Federal Home Loan Bank advances 39,589 1,295 3.27 % — — — % Subordinated debt 22,193 1,067 4.81 % — — — % Total interest-bearing liabilities $ 819,605 $ 5,473 0.67 % $ 654,326 $ 1,677 0.26 % Noninterest-bearing liabilities: Demand deposits 485,061 443,662 Other Liabilities 18,293 12,521 Total liabilities $ 1,322,959 $ 1,110,509 Shareholders' equity 103,296 108,170 Total liabilities and shareholders' equity $ 1,426,255 $ 1,218,679 Net interest income $ 49,317 $ 41,171 Net interest spread 3.42 % 3.47 % Interest expense as a percent of average earning assets 0.41 % 0.15 % Net interest margin 3.68 % 3.59 % (1) Income and yields are reported on a tax-equivalent basis using the federal tax rate of 21%.
These combined also could result in the Company having to borrow wholesale funding to fund asset growth which is more expensive than deposits. 28 Average Balances, Income and Expenses, Yields and Rates (dollars in thousands) Years Ended December 31, 2023 December 31, 2022 Average Interest Income/ Average Average Interest Income/ Average Balance Expense Rate Balance Expense Rate Assets: Securities: Taxable $ 150,187 $ 3,663 2.44 % $ 172,501 $ 3,401 1.97 % Tax-Exempt (1) 507 21 4.13 % 8,305 280 3.37 % Total Securities $ 150,694 $ 3,684 2.45 % $ 180,806 $ 3,681 2.04 % Loans: (2) Taxable 1,418,916 75,127 5.29 % 1,121,429 50,509 4.50 % Non-accrual 3,458 — — % 2,350 — — % Tax-Exempt (1) 10,106 497 4.91 % 5,671 218 3.85 % Total Loans $ 1,432,480 $ 75,624 5.28 % $ 1,129,450 $ 50,727 4.49 % Federal funds sold and interest-bearing deposits in other banks 118,789 3,928 3.31 % 32,562 382 1.17 % Total earning assets $ 1,701,963 $ 83,236 4.89 % $ 1,342,818 $ 54,790 4.08 % Allowance for loan losses (14,176 ) (9,852 ) Total non-earning assets 59,388 93,289 Total assets $ 1,747,175 $ 1,426,255 Liabilities and Shareholders' Equity: Interest-bearing deposits: NOW accounts $ 244,277 $ 5,238 2.14 % $ 173,843 $ 663 0.38 % Money market accounts 257,496 4,491 1.74 % 270,725 1,155 0.43 % Savings accounts 151,556 185 0.12 % 179,709 130 0.07 % Time deposits: $250,000 and more 116,077 4,756 4.10 % 62,757 560 0.89 % Less than $250,000 219,809 8,960 4.08 % 62,907 433 0.69 % Total interest-bearing deposits $ 989,215 $ 23,630 2.39 % $ 749,941 $ 2,941 0.39 % Federal funds purchased 2,801 70 2.50 % 7,882 170 2.16 % Federal Home Loan Bank advances 162,548 7,720 4.75 % 39,589 1,295 3.27 % Subordinated debt 29,408 1,417 4.82 % 22,193 1,067 4.81 % Total interest-bearing liabilities $ 1,183,972 $ 32,837 2.77 % $ 819,605 $ 5,473 0.67 % Noninterest-bearing liabilities: Demand deposits 442,539 485,061 Other Liabilities 17,328 18,293 Total liabilities $ 1,643,839 $ 1,322,959 Shareholders' equity 103,336 103,296 Total liabilities and shareholders' equity $ 1,747,175 $ 1,426,255 Net interest income $ 50,399 $ 49,317 Net interest spread 2.12 % 3.42 % Interest expense as a percent of average earning assets 1.93 % 0.41 % Net interest margin 2.96 % 3.68 % (1) Income and yields are reported on a tax-equivalent basis using the federal tax rate of 21%.
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. 45 In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the Community Bank Leverage Ratio framework (CBLR), for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.
In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the Community Bank Leverage Ratio framework (CBLR), for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule became effective on January 1, 2020.
In addition, a capital conservation buffer requirement was phased in beginning January 1, 2016, at 0.625% of risk-weighted assets, increased by the same amount each year until it was fully implemented at 2.5% effective January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress.
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.
Other real estate owned increased from zero at December 31, 2021 to $108 thousand at December 31, 2022. One property was foreclosed on during 2022. The difference between the amount of other real estate owned and the settlement proceeds is recognized as a gain or loss on the sale of other real estate owned.
The difference between the amount of other real estate owned and the settlement proceeds is recognized as a gain or loss on the sale of other real estate owned.
Average Deposits and Rates Paid (dollars in thousands) Years Ended December 31, 2022 2021 Amount Rate Amount Rate Noninterest-bearing $ 485,061 $ 443,662 Interest-bearing: NOW accounts 173,843 0.38 % 145,652 0.21 % Money market accounts 270,725 0.43 % 225,960 0.26 % Regular savings accounts 179,709 0.07 % 156,861 0.06 % Time deposits: $250,000 and more 62,757 0.89 % 67,287 0.61 % Less than $250,000 62,907 0.69 % 58,565 0.48 % Total interest-bearing $ 749,941 0.39 % $ 654,325 0.26 % Total deposits $ 1,235,002 $ 1,097,987 Noninterest-bearing demand deposits, which are comprised of checking accounts, increased $8.4 million or 1.78% from $470.4 million at December 31, 2021 to $478.8 million at December 31, 2022.
Average Deposits and Rates Paid (dollars in thousands) Years Ended December 31, 2023 2022 Amount Rate Amount Rate Noninterest-bearing $ 442,539 $ 485,061 Interest-bearing: NOW accounts 244,277 2.14 % 173,843 0.38 % Money market accounts 257,496 1.74 % 270,725 0.43 % Regular savings accounts 151,556 0.12 % 179,709 0.07 % Time deposits: $250,000 and more 116,077 4.10 % 62,757 0.89 % Less than $250,000 219,809 4.08 % 62,907 0.69 % Total interest-bearing $ 989,215 2.39 % $ 749,941 0.39 % Total deposits $ 1,431,754 $ 1,235,002 Noninterest-bearing demand deposits, which are comprised of checking accounts, decreased $42.1 million or 8.80% from $478.8 million at December 31, 2022 to $436.6 million at December 31, 2023.
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.
Total capital is comprised of Tier 1 capital plus the allowable portion of the allowance for loan losses and any excess trust preferred securities that do not qualify as Tier 1 capital. 43 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 ratio of net loans to deposits increased during the year from 82.99% to 104.72% at December 31, 2021 and December 31, 2022, respectively. Loans secured by real estate were $938.9 million or 70.92% and $754.8 million or 76.57% of total loans at December 31, 2022 and 2021, respectively. This represents an increase of $184.1 million or 24.39% for 2022.
The ratio of net loans to deposits decreased during the year from 104.72% to 97.10% at December 31, 2022 and December 31, 2023, respectively. Loans secured by real estate were $1.04 billion, or 71.51%, and $928.3 million, or 70.52%, of total loans at December 31, 2023 and 2022, respectively. This represents an increase of $112.3 million or 12.10% for 2023.
This increase was partially offset by higher salaries and employee benefits expense, including adding new talent to the marine lending team. FINANCIAL CONDITION Assets, Liabilities and Shareholders’ Equity The Company’s total assets were $1.62 billion at December 31, 2022, an increase of $313.7 million or 24.07% from $1.30 billion at December 31, 2021.
The increase in interest income was partially offset by higher interest expense and salaries and employee benefits expense. FINANCIAL CONDITION Assets, Liabilities and Shareholders’ Equity The Company’s total assets were $1.83 billion at December 31, 2023, an increase of $208.9 million or 12.92% from $1.62 billion at December 31, 2022. Securities decreased $11.7 million or 7.85% between 2022 and 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe following table displays quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a nonrecurring basis for December 31, 2022 and December 31, 2021: Quantitative information about Level 3 Fair Value Measurements December 31, 2022 Valuation Technique(s) Unobservable Input Range Weighted Average (1) Assets: Impaired loans Present value of cash flows Discount rate 4 % - 5 % 4 % Other real estate owned Discounted contract price Discount for selling costs 6 % 6 % December 31, 2021 Valuation Technique(s) Unobservable Input Range Weighted Average Assets: Impaired loans Discounted appraised value Selling cost 12 % 12 % Impaired loans Present value of cash flows Discount rate 4 % - 6 % 5 % (1) Weighted based on the relative fair values of the specific items measured at fair value . 89 The following table summarizes the Company’s financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at December 31, 2022 and December 31, 2021: Carrying value at December 31, 2022 Balance as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs December 31, 2022 (Level 1) (Level 2) (Level 3) (in thousands) Financial Assets: Impaired loans $ 489 $ — $ — $ 489 Nonfinancial Assets: Other real estate owned 108 — 108 — Carrying value at December 31, 2021 Balance as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs December 31, 2021 (Level 1) (Level 2) (Level 3) (in thousands) Financial Assets: Impaired loans $ 746 $ — $ — $ 746 90 The carrying amount and fair value of the Company’s financial instruments at December 31, 2022 and 2021 were as follows: Fair Value Measurements at December 31, 2022 Using Carrying Value as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Fair Value as of December 31, 2022 (Level 1) (Level 2) (Level 3) December 31, 2022 (in thousands) Financial Assets: Cash and short-term investments $ 66,894 $ 66,894 $ — $ — $ 66,894 Securities 149,156 — 149,156 — 149,156 Restricted Investments 9,233 — 9,233 — 9,233 Loans held for sale 153 — 153 — 153 Loans, net 1,312,565 — — 1,260,149 1,260,149 Bank owned life insurance 23,862 — 23,862 — 23,862 Accrued interest receivable 3,902 — 3,902 — 3,902 Interest rate swap 1,017 — 1,017 — 1,017 Financial Liabilities: Deposits $ 1,264,075 $ — $ 1,262,859 $ — $ 1,262,859 Federal funds purchased 32,980 — 32,980 — 32,980 Federal Home Loan Bank advances 175,000 — 174,705 — 174,705 Subordinated debt 29,377 — 26,101 — 26,101 Accrued interest payable 926 — 926 — 926 Interest rate swap 1,017 — 1,017 — 1,017 91 Fair Value Measurements at December 31, 2021 Using Carrying Value as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Fair Value as of December 31, 2021 (Level 1) (Level 2) (Level 3) December 31, 2021 (in thousands) Financial Assets: Cash and short-term investments $ 64,068 $ 64,068 $ — $ — $ 64,068 Securities 192,321 — 192,321 — 192,321 Restricted Investments 1,049 — 1,049 — 1,049 Loans held for sale 876 876 876 Loans, net 976,933 — — 969,612 969,612 Bank owned life insurance 23,236 — 23,236 — 23,236 Accrued interest receivable 2,634 — 2,634 — 2,634 Interest rate swap 58 — 58 — 58 Financial Liabilities: Deposits $ 1,177,235 $ — $ 1,177,582 $ — $ 1,177,582 Accrued interest payable 67 — 67 — 67 Interest rate swap 58 — 58 — 58 The Company assumes interest rate risk (the risk that general interest rate levels will change) during its normal operations.
Biggest changeThe following table summarizes the Company’s financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at December 31, 2022: Carrying value at December 31, 2022 Balance as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs December 31, 2022 (Level 1) (Level 2) (Level 3) (in thousands) Nonfinancial Assets: Other real estate owned $ 108 $ — $ 108 $ — 88 The carrying amount and fair value of the Company’s financial instruments at December 31, 2023 and 2022 were as follows: Fair Value Measurements at December 31, 2023 Using Carrying Value as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Fair Value as of December 31, 2023 (Level 1) (Level 2) (Level 3) December 31, 2023 (in thousands) Financial Assets: Cash and short-term investments $ 138,353 $ 138,353 $ — $ — $ 138,353 Securities available for sale 137,443 — 137,443 — 137,443 Restricted Investments 9,568 — 9,568 — 9,568 Loans held for sale 1,661 — 1,661 — 1,661 Loans, net 1,448,193 — — 1,377,017 1,377,017 Bank owned life insurance 29,575 — 29,575 — 29,575 Accrued interest receivable 5,008 — 5,008 — 5,008 Interest rate swaps 1,465 — 1,465 — 1,465 Financial Liabilities: Deposits $ 1,506,322 $ — $ 1,506,147 $ — $ 1,506,147 Federal Home Loan Bank advances, short-term 20,000 — 19,954 — 19,954 Federal Home Loan Bank advances, long-term 145,000 — 145,141 — 145,141 Subordinated debt 29,444 — 25,581 — 25,581 Accrued interest payable 2,364 — 2,364 — 2,364 Interest rate swaps 1,465 — 1,465 — 1,465 89 Fair Value Measurements at December 31, 2022 Using Carrying Value as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Fair Value as of December 31, 2022 (Level 1) (Level 2) (Level 3) December 31, 2022 (in thousands) Financial Assets: Cash and short-term investments $ 66,894 $ 66,894 $ — $ — $ 66,894 Securities available for sale 149,156 — 149,156 — 149,156 Restricted Investments 9,233 — 9,233 — 9,233 Loans held for sale 153 153 153 Loans, net 1,312,565 — — 1,260,149 1,260,149 Bank owned life insurance 23,862 — 23,862 — 23,862 Accrued interest receivable 3,902 — 3,902 — 3,902 Interest rate swaps 1,017 — 1,017 — 1,017 Financial Liabilities: Deposits $ 1,264,075 $ — $ 1,262,859 $ — $ 1,262,859 Federal funds purchased and securities sold under agreements to repurchase 32,980 — 32,980 — 32,980 Federal Home Loan Bank advances, short-term 175,000 — 174,705 — 174,705 Subordinated debt 29,377 — 26,101 — 26,101 Accrued interest payable 926 — 926 — 926 Interest rate swaps 1,017 — 1,017 — 1,017 The Company assumes interest rate risk (the risk that general interest rate levels will change) during its normal operations.
Maturities may differ from contractual maturities primarily (others could be called) in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties.
Maturities may differ from contractual maturities primarily in mortgage-backed securities (others could be called) because the mortgages underlying the securities may be called or repaid without any penalties.
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.
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.
During the normal course of business, various legal claims arise from time to time which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements. The Bank was required to maintain a total compensating balance on deposit with two correspondent banks in the amount of $ 250 thousand at December 31, 2022 and 2021.
During the normal course of business, various legal claims arise from time to time which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements. The Bank was required to maintain a total compensating balance on deposit with two correspondent banks in the amount of $ 250 thousand at December 31, 2023 and 2022.
In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the Community Bank Leverage Ratio framework (CBLR), for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule became effective on January 1, 2020.
In 2019, the federal banking agencies jointly issued a final rule that provided for an optional, simplified measure of capital adequacy, the Community Bank Leverage Ratio framework (CBLR), for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule became effective on January 1, 2020.
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 loan losses.
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 on loans.
Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income. The Company has no uncertain tax positions. Advertising The Company follows the policy of charging the costs of advertising to expense as incurred. Reclassifications Certain reclassifications have been made to the 2021 financial statements to conform to reporting for 2022 .
Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income. The Company has no uncertain tax positions. Advertising The Company follows the policy of charging the costs of advertising to expense as incurred. Reclassifications Certain reclassifications have been made to the 2022 financial statements to conform to reporting for 2023 .
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Eagle Financial Services, Inc. and its subsidiary (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Eagle Financial Services, Inc. and its subsidiary (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).
Nature of Banking Activities and Significant Accounting Policies Eagle Financial Services, Inc. (the “Company” or “Corporation”) and Bank of Clarke (the “Bank”) grant commercial, financial, agricultural, residential and consumer loans to customers in Virginia, Maryland and the Eastern Panhandle of West Virginia. The loan portfolio is well diversified and generally is collateralized by assets of the customers.
Nature of Banking Activities and Significant Accounting Policies Eagle Financial Services, Inc. (the “Company” or “Corporation”) and Bank of Clarke (the “Bank”) make commercial, financial, agricultural, residential and consumer loans to customers in Virginia, Maryland and the Eastern Panhandle of West Virginia. The loan portfolio is well diversified and generally is collateralized by assets of the customers.
Refer to Note 13 for further discussion of the Company's accounting for its leasing arrangements. 60 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 at the date of foreclosure.
Refer to Note 13 for further discussion of the Company's accounting for its leasing arrangements. 59 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 at the date of foreclosure.
Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit losses is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
The Bank views the immediate shock of rates as a more effective measure of interest rate risk exposure. The analysis assesses the impact on net interest income over a 12 month period after an immediate increase or “shock” in rates, of 100 basis points up to 400 basis points.
The Bank views the immediate shock of rates as a more effective measure of interest rate risk exposure. The analysis assesses the impact on net interest income over a 12 month period after an immediate change or “shock” in rates, of 100 basis points up to 400 basis points.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting the terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk. 92 NOTE 22.
Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting the terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk. 90 NOTE 22.
There is a realm of uncertainty in using these assumptions but the analysis does provide the Bank with the ability to estimate interest rate risk position over time. 48 The table below examines the EVE.
There is a realm of uncertainty in using these assumptions but the analysis does provide the Bank with the ability to estimate interest rate risk position over time. 46 The table below examines the EVE.
Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of swaps with borrowers and swaps with dealer counterparties. Retirement Plans The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of their compensation on a pretax basis.
Ch anges in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of swaps with borrowers and swaps with dealer counterparties. Retirement Plans The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of their compensation on a pretax basis.
The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.
The amendments eliminated the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.
The CBLR removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio.
The CBLR removed the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio.
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. 86 The following sections provide 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.
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. 85 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.
With few exceptions, the Company is no longer subject to federal, state, or local income tax examinations for years prior to 2019.
With few exceptions, the Company is no longer subject to federal, state, or local income tax examinations for years prior to 2020.
Other Real Estate Owned The following table is a summary of other real estate owned ("OREO") activity for the twelve months ended December 31, 2022 and 2021: Year Ended Year Ended December 31, December 31, 2022 2021 Balance, beginning $ — $ 607 Net loans transferred to OREO 108 266 Gain on foreclosure — — Sales — ( 781 ) Valuation adjustments — ( 92 ) Balance, ending $ 108 $ — The major classifications of other real estate owned in the consolidated balance sheets at December 31, 2022 and 2021 were as follows: As of December 31, 2022 December 31, 2021 (in thousands) Construction and Farmland $ — $ — Residential Real Estate 108 — Commercial Real Estate — — Subtotal $ 108 $ — Less valuation allowance — — Total $ 108 $ — There were no loans in the process of foreclosure at December 31, 2022 and December 31, 2021 .
Other Real Estate Owned The following table is a summary of other real estate owned ("OREO") activity for the twelve months ended December 31, 2023 and 2022: Year Ended Year Ended December 31, December 31, 2023 2022 Balance, beginning $ 108 $ — Net loans transferred to OREO — 108 Gain on foreclosure — — Sales ( 108 ) — Valuation adjustments — — Balance, ending $ — $ 108 The major classifications of other real estate owned in the consolidated balance sheets at December 31, 2023 and 2022 were as follows: As of December 31, 2023 December 31, 2022 (in thousands) Construction and Farmland $ — $ — Residential Real Estate — 108 Commercial Real Estate — — Subtotal $ — $ 108 Less valuation allowance — — Total $ — $ 108 There were no loans in the process of foreclosure at December 31, 2023 and December 31, 2022 .
If a loan was accruing prior to being modified as a TDR and if the Company concludes that the borrower is able to make such payments, and there are no other factors or circumstances that would cause it to conclude otherwise, the loan will remain on an accruing status.
If a loan was accruing prior to being modified and if the Company concludes that the borrower is able to make such payments, and there are no other factors or circumstances that would cause it to conclude otherwise, the loan will remain on accrual status.
Transactions with Directors and Officers The Bank grants loans to and accepts deposits from its directors, principal officers and related parties of such persons during the ordinary course of business. The aggregate balance of loans to directors, principal officers and their related parties was $ 5.1 million and $ 5.4 million at December 31, 2022 and 2021 , respectively.
Transactions with Directors and Officers The Bank grants loans to and accepts deposits from its directors, principal officers and related parties of such persons during the ordinary course of business. The aggregate balance of loans to directors, principal officers and their related parties was $ 5.0 million and $ 5.1 million at December 31, 2023 and 2022 , respectively.
The EVE of the balance sheet is defined as the discounted present value of expected asset cash flows minus the discounted present value of the expected liability cash flows. The analysis involves changing the interest rates used in determining the expected cash flows and in discounting the cash flows. The model indicates an exposure to falling interest rates.
The EVE of the balance sheet is defined as the discounted present value of expected asset cash flows minus the discounted present value of the expected liability cash flows. The analysis involves changing the interest rates used in determining the expected cash flows and in discounting the cash flows. The model indicates a more significant exposure to falling interest rates.
Shares of common stock purchased through the Plan can be purchased at a price equal to the market price of the shares. No changes have been made to the operation of the dividend reinvestment features of the Plan during 2022 and 2021. NOTE 18.
Shares of common stock purchased through the Plan can be purchased at a price equal to the market price of the shares. No changes have been made to the operation of the dividend reinvestment features of th e Plan during 2023 and 2022. NOTE 18.
The Company’s performance obligations on revenue generated from these ancillary services are generally satisfied immediately, when the transaction occurs, or by month-end. Typically, the duration of a contract does not extend beyond the services performed.
The Company’s performance obligations on revenue generated from deposit accounts are generally satisfied immediately, when the transaction occurs, or by month-end. Typically, the duration of a contract does not extend beyond the services performed.
The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of December 31, 2022 and December 31, 2021 , the Company did not have any significant contract balances. 85 NOTE 20.
The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of December 31, 2023 and December 31, 2022 , the Company did not have any significant contract balances. 84 NOTE 20.
Funds available for loans or advances by the Bank to the Company amounted to $ 15.4 million at December 31, 2022 . NOTE 17. Dividend Investment Plan The Company has a Dividend Investment Plan, which allows participants’ dividends to purchase additional shares of common stock at its fair market value on each dividend record date.
Funds available for loans or advances by the Bank to the Company amounted to $ 16.9 million at December 31, 2023 . NOTE 17. Dividend Investment Plan The Company has a Dividend Investment Plan, which allows participants’ dividends to purchase additional shares of common stock at its fair market value on each dividend record date.
(3) Includes income within the scope of Topic 606 of $1.2 million and $834 thousand for the years ended December 31, 2022 and 2021 , respectively. The remaining balance is outside the scope of Topic 606.
(3) Includes income within the scope of Topic 606 of $778 thousand and $1.2 million for the years ended December 31, 2023 and 2022 , respectively. The remaining balance is outside the scope of Topic 606.
In addition to net income, the Company’s comprehensive income includes changes in the benefit obligations and plan assets for postretirement benefit plans and unrealized gains or losses on available for sale securities. 62 Business Segments The Company operates in two reportable business segments through the Bank: community banking and marine lending.
In addition to net income, the Company’s comprehensive income includes changes in the benefit obligations and plan assets for postretirement benefit plans and unrealized gains or losses on available for sale securities. 61 Business Segments The Company operates in three reportable business segments through the Bank: community banking, marine lending and wealth management.
The tax (benefit) expense related to these reclassifications was ($ 155 ) thousand and $ 5 thousand for the years ended December 31, 2022 and 2021 , respectively. The tax is included in Income Tax Expense in the Consolidated Statements of Income. 93 NOTE 23. Condensed Financial Information – Parent Company Only EAGLE FINANCIAL SERVICES, INC.
The tax benefit related to these reclassifications was $ 0 and $ 155 thousand for the years ended December 31, 2023 and 2022 , respectively. The tax is included in Income Tax Expense in the Consolidated Statements of Income. 91 NOTE 23. Condensed Financial Information – Parent Company Only EAGLE FINANCIAL SERVICES, INC.
The Company also provides a match to participants in this plan, as described more fully in Note 11. Stock-Based Compensation Plan During 2014, the Company’s shareholders approved a stock incentive plan which allows key employees and directors to increase their personal financial interest in the Company.
The Company also provides a match to participants in this plan, as described more fully in Note 11. 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.
(2) Includes income within the scope of Topic 606 of $309 thousand and $337 thousand for the years ended December 31, 2022 and 2021 , respectively. The remaining balance is outside the scope of Topic 606.
(2) Includes income within the scope of Topic 606 of $327 thousand and $309 thousand for the years ended December 31, 2023 and 2022 , respectively. The remaining balance is outside the scope of Topic 606.
Business Segments The Company has two reportable operating segments: community banking and marine lending. 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.
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 non-marine loans and securities and outstanding deposits and borrowings, fees earned on deposit accounts and debit card interchange activity.
Servicing fee income, net of amortization and impairment, if any, is reported in other service charges and fees in the consolidated statements of income. Loans The Company grants mortgage, commercial and consumer loans to customers.
Servicing fee income, net of amortization and impairment, if any, is reported in other service charges and fees in the consolidated statements of income. Loans Held for Investment The Company makes mortgage, commercial and consumer loans to customers.
Twelve Months Ended December 31, 2022 2021 Average number of common shares outstanding 3,482,368 3,440,080 Effect of dilutive common stock — — Average number of common shares outstanding used to calculate diluted earnings per share 3,482,368 3,440,080 There were no potentially dilutive securities outstanding in 2022 or 2021 .
Twelve Months Ended December 31, 2023 2022 Average number of common shares outstanding 3,523,547 3,482,368 Effect of dilutive common stock — — Average number of common shares outstanding used to calculate diluted earnings per share 3,523,547 3,482,368 There were no potentially dilutive securities outstanding in 2023 or 2022 .
Interest income is accrued on the unpaid principal balance. Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans. Deferred fees and costs are recorded as an adjustment to interest income using a method that approximates a constant yield.
Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans. Deferred fees and costs are recorded as an adjustment to interest income using a method that approximates a constant yield.
The total vest date fair value of Restricted Stock which vested was $ 819 thousand and $ 690 thousand for the years ended December 31, 2022 and 2021 , respectively. Unrecognized compensation cost related to unvested Restricted Stock was $ 377 thousand at December 31, 2022 .
The total vest date fair value of restricted stock which vested was $ 609 thousand and $ 819 thousand for the years ended December 31, 2023 and 2022 , respectively. Unrecognized compensation cost related to unvested restricted stock was $ 456 thousand at December 31, 2023 .
Compensation expense was $ 1.0 million and $ 850 thousand during December 31, 2022 and 2021 , respectively. The total grant date fair value of Restricted Stock which vested was $ 741 thousand and $ 653 thousand for the years ended December 31, 2022 and 2021 , respectively.
Compensation expense was $ 1.2 million and $ 1.0 million during December 31, 2023 and 2022 , respectively. The total grant date fair value of restricted stock which vested was $ 579 thousand and $ 741 thousand for the years ended December 31, 2023 and 2022 , respectively.
Recent Accounting Pronouncements During June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts.
Recent Accounting Pronouncements a nd Other Authoritative Guidance Recently Adopted In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts.
At December 31, 2022 , the Bank’s retained earnings available for the payment of dividends to the Company was $ 32.4 million. Accordingly, $ 90.3 million of the Company’s equity in the net assets of the Bank was restricted at December 31, 2022 .
At December 31, 2023 , the Bank’s retained earnings available for the payment of dividends to the Company was $ 32.3 million. Accordingly, $ 103.9 million of the Company’s equity in the net assets of the Bank was restricted at December 31, 2023 .
We have served as the Company's auditor since 2015. Winchester, Virginia March 29, 2023 51 EAGLE FINANCIAL SERVICES, INC.
We have served as the Company's auditor since 2015. Winchester, Virginia March 29, 2024 49 EAGLE FINANCIAL SERVICES, INC.
Right-of-use assets and leases liabilities are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets. 80 The following tables present information about the Company’s leases: (dollars in thousands) December 31, 2022 December 31, 2021 Lease liability $ 4,978 $ 5,289 Right-of-use asset $ 4,766 $ 5,139 Weighted average remaining lease term 14 years 15 years Weighted average discount term 3.04 % 2.99 % Twelve Months Ended Lease Cost December 31, 2022 December 31, 2021 Operating lease cost $ 528 $ 376 Variable lease cost — — Short-term lease cost 15 19 Total lease cost $ 543 $ 395 Cash paid for amounts included in the measurement of lease liabilities $ 466 $ 314 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 December 31, 2022 Twelve months ending December 31, 2023 $ 473 Twelve months ending December 31, 2024 480 Twelve months ending December 31, 2025 504 Twelve months ending December 31, 2026 397 Twelve months ending December 31, 2027 391 Thereafter 4,149 Total undiscounted cash flows $ 6,394 Discount ( 1,416 ) Lease liability $ 4,978 NOTE 14.
Right-of-use assets and leases liabilities are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets. 79 The following tables present information about the Company’s leases: (dollars in thousands) December 31, 2023 December 31, 2022 Lease liability $ 4,653 $ 4,978 Right-of-use asset $ 4,387 $ 4,766 Weighted average remaining lease term 14 years 14 years Weighted average discount term 3.09 % 3.04 % Twelve Months Ended Lease Cost December 31, 2023 December 31, 2022 Operating lease cost $ 528 $ 528 Variable lease cost — — Short-term lease cost 14 15 Total lease cost $ 542 $ 543 Cash paid for amounts included in the measurement of lease liabilities $ 473 $ 466 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 December 31, 2023 Twelve months ending December 31, 2024 $ 480 Twelve months ending December 31, 2025 504 Twelve months ending December 31, 2026 397 Twelve months ending December 31, 2027 391 Twelve months ending December 31, 2028 395 Thereafter 3,754 Total undiscounted cash flows $ 5,921 Discount ( 1,268 ) Lease liability $ 4,653 NOTE 14.
Income tax expense for the years ended December 31, 2022 and 2021 consisted of the following components: December 31, 2022 2021 (in thousands) Current tax expense $ 3,236 $ 3,203 Deferred tax (benefit) ( 86 ) ( 1,437 ) $ 3,150 $ 1,766 78 The following table reconciles income tax expense to the statutory federal corporate income tax amount, which was calculated by applying the federal corporate income tax rate to pre-tax income for the years ended December 31, 2022 and 2021.
Income tax expense for the years ended December 31, 2023 and 2022 consisted of the following components: December 31, 2023 2022 (in thousands) Current tax expense $ 2,785 $ 3,236 Deferred tax (benefit) ( 1,509 ) ( 86 ) $ 1,276 $ 3,150 The following table reconciles income tax expense to the statutory federal corporate income tax amount, which was calculated by applying the federal corporate income tax rate to pre-tax income for the years ended December 31, 2023 and 2022.
The following tables set forth information on the Company’s troubled debt restructurings by class of loans occurring during the years ended December 31, 2022 and 2021: Twelve Months Ended December 31, 2022 (in thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Commercial Real Estate: Owner occupied 1 $ 185 $ 185 Non-owner occupied 1 161 161 Construction and Farmland: Commercial 1 639 639 Consumer: Installment 1 20 21 Residential Single family 9 1,676 1,704 Total 13 $ 2,681 $ 2,710 Twelve Months Ended December 31, 2021 (in thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Consumer: Installment 2 $ 15 $ 15 Residential Single family 1 98 98 Total 3 $ 113 $ 113 74 During the twelve months ended December 31, 2022 , the Company restructured thirteen loans by granting a concession to the borrowers experiencing financial difficulty.
Two loans, totaling $ 133 thousand, were in nonaccrual status at December 31, 2022. 73 The following tables set forth information on the Company’s troubled debt restructurings by class of loans occurring during the year ended December 31, 2022: Twelve Months Ended December 31, 2022 (in thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Commercial - Non Real Estate: Commercial & Industrial Commercial Real Estate Owner Occupied 1 $ 185 $ 185 Non-owner occupied 1 161 161 Construction and Farmland Commercial 1 639 639 Consumer: Installment 1 20 21 Residential Equity Single family 9 1,676 1,704 Total 13 $ 2,681 $ 2,710 During the twelve months ended December 31, 2022, the Company restructured thirteen loans by granting a concession to the borrowers experiencing financial difficulty.
In 2022 , the Company sold non-mortgage loans totaling approximately $ 156 million as part of its portfolio management strategies that were previously classified as held for investment. Gains and losses on sales of loans are recorded based on the differential between the sales proceeds and carrying value of the underlying loans.
In 2023, the Company sold non-mortgage loans totaling approximatel y $ 59.6 million a s part of its portfolio management strategies that were previously classified as held for investment. Gains and losses on sales of loans are recorded based on the differential between the sales proceeds and carrying value of the underlying loans.
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.
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.
At December 31, 2022 and 2021, the following financial instruments were outstanding whose contract amounts represent credit risk: December 31, 2022 December 31, 2021 (dollars in thousands) Commitments to extend credit $ 27,927 $ 21,886 Unfunded commitments under lines of credit 191,259 171,406 Commercial and standby letters of credit 7,069 10,397 Commitments to extend credit are agreements to lend to a customer as long as the terms offered are acceptable and certain other conditions are met.
At December 31, 2023 and 2022, the following financial instruments were outstanding whose contract amounts represent credit risk: December 31, 2023 December 31, 2022 (dollars in thousands) Commitments to extend credit $ 37,724 $ 27,927 Unfunded commitments under lines of credit 227,717 191,259 Commercial and standby letters of credit 3,964 7,069 Commitments to extend credit are agreements to lend to a customer as long as the terms offered are acceptable and certain other conditions are met.
Depreciation expense on furniture and equipment was $ 493 thousand and $ 514 thousand for the years ended 2022 and 2021 , respectively. 75 NOTE 7.
Depreciation expense on furniture and equipment was $ 504 thousand and $ 493 thousand for the years ended 2023 and 2022 , respectively. NOTE 7.
Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements.
Capital Requirements The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements.
The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at December 31, 2022 and December 31, 2021: Fair Value Measurements at December 31, 2022 Using Balance as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs December 31, 2022 (Level 1) (Level 2) (Level 3) (in thousands) Assets: Securities available for sale Obligations of U.S. government corporations and agencies $ 9,135 $ — $ 9,135 $ — Mortgage-backed securities 129,153 — 129,153 — Obligations of states and political subdivisions 6,607 — 6,607 — Subordinated debt 4,261 — 4,261 — Derivative: Interest rate swaps on loans 1,017 — 1,017 — Total assets at fair value $ 150,173 $ — $ 150,173 $ — Liabilities: Interest rate swaps on loans $ 1,017 $ 1,017 $ — Total liabilities at fair value $ 1,017 $ — $ 1,017 $ — 87 Fair Value Measurements at December 31, 2021 Using Balance as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs December 31, 2021 (Level 1) (Level 2) (Level 3) (in thousands) Assets: Securities available for sale Obligations of U.S. government corporations and agencies $ 14,921 $ — $ 14,921 $ — U.S. treasury notes 2,003 — 2,003 — Mortgage-backed securities 151,012 — 151,012 — Obligations of states and political subdivisions 21,877 — 21,877 — Subordinated debt 2,508 — 2,508 — Derivative: Interest rate swaps on loans 58 — 58 — Total assets at fair value $ 192,379 $ — $ 192,379 $ — Liabilities: Interest rate swaps on loans $ 58 $ — $ 58 $ — Total liabilities at fair value $ 58 $ — $ 58 $ — Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP.
The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at December 31, 2023 and December 31, 2022: Fair Value Measurements at December 31, 2023 Using Balance as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs December 31, 2023 (Level 1) (Level 2) (Level 3) (in thousands) Assets: Securities available for sale Obligations of U.S. government corporations and agencies $ 8,591 $ — $ 8,591 $ — Mortgage-backed securities 118,822 — 118,822 — Obligations of states and political subdivisions 5,931 — 5,931 — Subordinated debt 4,099 — 4,099 — Derivative: Interest rate swaps on loans 1,465 — 1,465 — Total assets at fair value $ 138,908 $ — $ 138,908 $ — Liabilities: Interest rate swaps on loans $ 1,465 $ 1,465 $ — Total liabilities at fair value $ 1,465 $ — $ 1,465 $ — 86 Fair Value Measurements at December 31, 2022 Using Balance as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs December 31, 2022 (Level 1) (Level 2) (Level 3) (in thousands) Assets: Securities available for sale Obligations of U.S. government corporations and agencies $ 9,135 $ — $ 9,135 $ — U.S. treasury notes — — — Mortgage-backed securities 129,153 — 129,153 — Obligations of states and political subdivisions 6,607 — 6,607 — Subordinated debt 4,261 — 4,261 — Derivative: Interest rate swaps on loans 1,017 — 1,017 — Total assets at fair value $ 150,173 $ — $ 150,173 $ — Liabilities: Interest rate swaps on loans $ 1,017 $ 1,017 $ — Total liabilities at fair value $ 1,017 $ — $ 1,017 $ — Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP.
Changes to accumulated other comprehensive (loss) by components are shown in the following tables for the years ended December 31, 2022 and 2021: Twelve Months Ended December 31, 2022 2021 Unrealized Gains and Losses on Available for Sale Securities Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan Total Unrealized Gains and Losses on Available for Sale Securities Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan Total (dollars in thousands) (dollars in thousands) January 1 $ ( 174 ) $ 19 $ ( 155 ) $ 3,260 $ 19 $ 3,279 Other comprehensive (loss) before reclassifications ( 26,422 ) — ( 26,422 ) ( 4,322 ) — ( 4,322 ) Reclassifications from other comprehensive (loss) 737 — 737 ( 24 ) — ( 24 ) Tax effect of current period changes 5,394 — 5,394 912 — 912 Current period changes net of taxes ( 20,291 ) — ( 20,291 ) ( 3,434 ) — ( 3,434 ) December 31 $ ( 20,465 ) $ 19 $ ( 20,446 ) $ ( 174 ) $ 19 $ ( 155 ) For the years ended December 31, 2022 and 2021 , ($ 737 ) thousand and $ 24 thousand, respectively, was reclassified out of accumulated other comprehensive (loss) and appeared as (Loss) gain on sale of securities in the Consolidated Statement of Income.
Changes to accumulated other comprehensive (loss) by components are shown in the following tables for the years ended December 31, 2023 and 2022: Twelve Months Ended December 31, 2023 2022 Unrealized Gains and Losses on Available for Sale Securities Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan Total Unrealized Gains and Losses on Available for Sale Securities Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan Total (dollars in thousands) (dollars in thousands) January 1 $ ( 20,465 ) $ 19 $ ( 20,446 ) $ ( 174 ) $ 19 $ ( 155 ) Other comprehensive income (loss) before reclassifications 3,095 ( 8 ) 3,087 ( 26,422 ) — ( 26,422 ) Reclassifications from other comprehensive (loss) — — — 737 — 737 Tax effect of current period changes ( 650 ) 3 ( 647 ) 5,394 — 5,394 Current period changes net of taxes 2,445 ( 5 ) 2,440 ( 20,291 ) — ( 20,291 ) December 31 $ ( 18,020 ) $ 14 $ ( 18,006 ) $ ( 20,465 ) $ 19 $ ( 20,446 ) For the years ended December 31, 2023 and 2022 , $ 0 and ($ 737 ) thousand, respectively, was reclassified out of accumulated other comprehensive (loss) and appeared as loss on sale of securities in the Consolidated Statement of Income.
Bank owned life insurance is recorded at the amount that may be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement.
Bank owned life insurance is recorded at the amount that may be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement. These amounts are recorded in noninterest income and are generally not subject to income taxes.
In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.
In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 was effective for the Company on January 1, 2023.
December 31, 2022 Notional Amount Assets Liabilities (in thousands) Customer-related interest rate swap contracts: Matched interest rate swaps with borrower $ 23,141 $ 1,017 $ — Matched interest rate swaps with counterparty 23,141 — 1,017 December 31, 2021 Notional Amount Assets Liabilities (in thousands) Customer-related interest rate swap contracts: Matched interest rate swaps with borrower $ 2,391 $ 58 $ — Matched interest rate swaps with counterparty 2,391 — 58 NOTE 27.
December 31, 2023 Notional Amount Assets Liabilities (in thousands) Customer-related interest rate swap contracts: Matched interest rate swaps with borrower $ 41,051 $ 844 $ 621 Matched interest rate swaps with counterparty 41,051 621 844 December 31, 2022 Notional Amount Assets Liabilities (in thousands) Customer-related interest rate swap contracts: Matched interest rate swaps with borrower $ 23,141 $ 1,017 $ — Matched interest rate swaps with counterparty 23,141 — 1,017 NOTE 27.
Time deposits with balances of less than $250,000 includ e $ 4.6 million and zero in brokered certificates of deposit at December 31, 2022 and 2021, respectively.
Time deposits with balances of less than $250,000 included $ 30.1 million and $ 4.6 million in brokered certificates of deposit at December 31, 2023 and 2022, respectively.
The line of credit amount is determined by the creditworthiness of the Bank and, in particular, its regulatory capital ratios, which are discussed in Note 15. Federal funds purchased generally mature each business day.
The line of credit amount is determined by the creditworthiness of the Bank and, in particular, its regulatory capital ratios, which are discussed in Note 15. Federal funds purchased generally mature each business day. At December 31, 2023 these available lines totaled $ 78.0 million.
Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration. The Company adopted ASU 2016-13 as of January 1, 2023 in accordance with the required implementation date.
Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration. ASU 2016-13, as amended, was effective for the Company on January 1, 2023.
Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized no less than monthly. 84 Noninterest income disaggregated by major source, for the years ended December 31, 2022 and 2021 consisted of the following: December 31, 2022 December 31, 2021 (dollar in thousands) Noninterest income: Wealth management fees(1): Trust asset management fees $ 3,095 $ 1,891 Brokerage commissions 1,054 1,164 Service charges on deposit accounts(1): Overdrawn account fees 1,194 853 Monthly and other service charges 424 382 Other service charges and fees: Interchange fees (1) 366 227 ATM fees (1) 3,103 3,014 Secondary market fees 3 236 Other charges and fees (2) 471 463 (Loss) on the sale and disposal of bank premises and equipment (1) ( 11 ) — (Loss) gain on sale of securities ( 737 ) 24 Gain on sale of loans 1,875 1,658 Bank owned life insurance income 626 527 Other operating income (3) 1,882 881 Total noninterest income $ 13,345 $ 11,320 (1) Income within the scope of Topic 606.
Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized no less than monthly. 83 Noninterest income disaggregated by major source, for the years ended December 31, 2023 and 2022 consisted of the following: December 31, 2023 December 31, 2022 (dollar in thousands) Noninterest income: Wealth management fees(1): Trust asset management fees $ 3,871 $ 3,095 Brokerage commissions 1,055 1,054 Service charges on deposit accounts(1): Overdrawn account fees 1,399 1,194 Monthly and other service charges 411 424 Other service charges and fees: Interchange fees (1) 449 366 ATM fees (1) 3,392 3,103 Secondary market fees — 3 Other charges and fees (2) 572 471 Gain (loss) on the sale and disposal of bank premises and equipment (1) 14 ( 11 ) Gain on the sale of marine finance assets 435 — (Loss) on sale of securities — ( 737 ) Gain on sale of loans 1,428 1,875 Bank owned life insurance income 713 626 Other operating income (3) 1,006 1,882 Total noninterest income $ 14,745 $ 13,345 (1) Income within the scope of Topic 606.
During the twelve months ended December 31, 2021 , the Company sold $ 15.9 million in available for sale securities with gross gains of $ 143 thousand and gross losses of $ 119 . 65 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 unrealized loss position, at December 31, 2022 and 2021 were as follows: Less than 12 months 12 months or more Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses December 31, 2022 (in thousands) Obligations of U.S. government corporations and agencies $ 6,140 $ 543 $ 2,994 $ 315 $ 9,134 $ 858 Mortgage-backed securities 31,771 4,052 97,382 20,084 129,153 24,136 Obligations of states and political subdivisions 6,065 422 — — 6,065 422 Subordinated debt 2,431 319 1,080 170 3,511 489 $ 46,407 $ 5,336 $ 101,456 $ 20,569 $ 147,863 $ 25,905 Less than 12 months 12 months or more Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses December 31, 2021 (in thousands) Obligations of U.S. government corporations and agencies $ 2,616 $ 37 $ — $ — $ 2,616 $ 37 Mortgage-backed securities $ 101,080 $ 1,214 $ 29,555 $ 918 $ 130,635 $ 2,132 Subordinated debt 247 3 — — 247 3 $ 103,943 $ 1,254 $ 29,555 $ 918 $ 133,498 $ 2,172 Gross unrealized losses on available for sale securities included one hundred four (104) and forty one (41) debt securities at December 31, 2022 and December 31, 2021, respectively.
During the twelve months ended December 31, 2022 , the Company sold $ 15.4 million in available for sale securities with gross gains of $ 6 thousand and gross losses of $ 743 thousand. 64 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 unrealized loss position, at December 31, 2023 and 2022 were as follows: Less than 12 months 12 months or more Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses December 31, 2023 (in thousands) Obligations of U.S. government corporations and agencies $ — $ — $ 8,591 $ 667 $ 8,591 $ 667 Mortgage-backed securities — — 118,822 21,230 118,822 21,230 Obligations of states and political subdivisions — — 5,430 261 5,430 261 Subordinated debt 221 29 3,378 622 3,599 651 $ 221 $ 29 $ 136,221 $ 22,780 $ 136,442 $ 22,809 Less than 12 months 12 months or more Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses December 31, 2022 (in thousands) Obligations of U.S. government corporations and agencies $ 6,140 $ 543 $ 2,994 $ 315 $ 9,134 $ 858 Mortgage-backed securities 31,771 4,052 97,382 20,084 129,153 24,136 Obligations of states and political subdivisions 6,065 422 — — 6,065 422 Subordinated debt 2,431 319 1,080 170 3,511 489 $ 46,407 $ 5,336 $ 101,456 $ 20,569 $ 147,863 $ 25,905 Gross unrealized losses on available for sale securities included one hundred three (103) and one hundred four (104) debt securities at December 31, 2023 and December 31, 2022, respectively.
The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses.
The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in these areas. 56 Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for the charge-offs, unearned discounts, any deferred fees or costs on originated loans, and the allowance for credit losses.
Buildings and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from 10 to 39 years for buildings and 3 to 10 years for furniture and equipment. Maintenance and repairs of property and equipment are charged to operations and major improvements are capitalized.
Bank Premises and Equipment Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from 10 to 39 years for buildings and 3 to 10 years for furniture and equipment.
At December 31, 2022 and 2021 , the balance of the investments for qualified affordable housing projects was $ 2.3 million and $ 2.6 million, respectively. These balances are reflected in Other assets on the Consolidated Balance Sheets.
At December 31, 2023 and 2022 , the balance of the investments for qualified affordable housing projects was $ 2.0 million and $ 2.3 million, respectively. These balances are reflected in Other assets on the Consolidated Balance Sheets. There were no unfunded commitments related to the Company's qualified affordable housing projects at December 31, 2023 and 2022.
(Parent Company Only) Statements of Cash Flows Years Ended December 31, 2022 and 2021 (dollars in thousands) 2022 2021 Cash Flows from Operating Activities Net Income $ 14,521 $ 11,021 Adjustments to reconcile net income to net cash (used in) provided by operating activities Stock-based compensation expense 1,017 850 Provision for loan losses — ( 21 ) Undistributed earnings of subsidiary bank ( 15,642 ) ( 9,745 ) Amortization of debt issuance costs 51 — Changes in assets and liabilities: (Increase) decrease in other assets ( 330 ) 10 Increase in other liabilities 338 — Net cash (used in) provided by operating activities $ ( 45 ) $ 2,115 Cash Flows from Investing Activities Capital contribution to bank subsidiary $ ( 20,000 ) $ — Net decrease in loans — 2,953 Net cash (used in) provided by investing activities $ ( 20,000 ) $ 2,953 Cash Flows from Financing Activities Issuance of subordinated debt, net of issuance costs $ 29,326 $ — Cash dividends paid ( 3,808 ) ( 3,261 ) Issuance of common stock, employee benefit plan 164 179 Retirement of common stock ( 154 ) ( 149 ) Net cash provided by (used in) financing activities $ 25,528 $ ( 3,231 ) Increase in cash $ 5,483 $ 1,837 Cash Beginning $ 2,739 $ 902 Ending $ 8,222 $ 2,739 96 NOTE 24.
(Parent Company Only) Statements of Cash Flows Years Ended December 31, 2023 and 2022 (dollars in thousands) 2023 2022 Cash Flows from Operating Activities Net Income $ 9,357 $ 14,521 Adjustments to reconcile net income to net cash provided by (used in) operating activities Stock-based compensation expense 1,213 1,017 Undistributed earnings of subsidiary bank ( 6,884 ) ( 15,642 ) Amortization of debt issuance costs 67 51 Changes in assets and liabilities: (Increase) in other assets ( 451 ) ( 330 ) Increase in other liabilities — 338 Net cash provided by (used in) operating activities $ 3,302 $ ( 45 ) Cash Flows from Investing Activities Capital contribution to bank subsidiary $ ( 6,000 ) $ ( 20,000 ) Net cash (used in) investing activities $ ( 6,000 ) $ ( 20,000 ) Cash Flows from Financing Activities Issuance of subordinated debt, net of issuance costs $ — $ 29,326 Cash dividends paid ( 4,229 ) ( 3,808 ) Issuance of common stock, employee benefit plan 132 164 Retirement of common stock ( 302 ) ( 154 ) Net cash (used in) provided by financing activities $ ( 4,399 ) $ 25,528 (Decrease) increase in cash $ ( 7,097 ) $ 5,483 Cash Beginning $ 8,222 $ 2,739 Ending $ 1,125 $ 8,222 94 NOTE 24.
Bank Premises and Equipment, Net The major classes of bank premises and equipment and the total accumulated depreciation at December 31, 2022 and 2021 were as follows: December 31, 2022 2021 (in thousands) Land $ 6,644 $ 6,644 Buildings and improvements 18,649 18,561 Furniture and equipment 9,345 8,815 $ 34,638 $ 34,020 Less accumulated depreciation 16,574 15,771 Bank premises and equipment, net $ 18,064 $ 18,249 Depreciation expense on buildings and improvements was $ 486 thousand and $ 482 thousand for the years ended 2022 and 2021 , respectively.
Bank Premises and Equipment, Net The major classes of bank premises and equipment and the total accumulated depreciation at December 31, 2023 and 2022 were as follows: December 31, 2023 2022 (in thousands) Land $ 6,644 $ 6,644 Buildings and improvements 19,247 18,649 Furniture and equipment 9,729 9,345 $ 35,620 $ 34,638 Less accumulated depreciation 17,512 16,574 Bank premises and equipment, net $ 18,108 $ 18,064 74 Depreciation expense on buildings and improvements was $ 498 thousand and $ 486 thousand for the years ended 2023 and 2022 , respectively.
Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.
Equity securities with readily determinable fair values are carried at fair value, with changes in fair value reported in income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.
The following table presents the activity for Restricted Stock for the years ended December 31, 2022 and 2021: Twelve Months Ended December 31, 2022 2021 Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Nonvested, beginning of period 31,738 $ 30.70 20,928 $ 29.98 Granted 31,648 35.19 32,496 31.16 Vested ( 23,079 ) 32.11 ( 21,261 ) 30.70 Forfeited ( 1,527 ) 32.13 ( 425 ) 31.05 Nonvested, end of period 38,780 $ 33.47 31,738 $ 30.70 The Company recognizes compensation expense over the vesting period based on the fair value of the Company's stock on the grant date.
The following table presents the activity for restricted stock awards for the years ended December 31, 2023 and 2022: Twelve Months Ended December 31, 2023 2022 Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Nonvested, beginning of period 38,780 $ 33.47 31,738 $ 30.70 Granted 37,941 35.79 31,648 35.19 Vested ( 17,402 ) 33.26 ( 23,079 ) 32.11 Forfeited ( 2,405 ) 35.40 ( 1,527 ) 32.13 Nonvested, end of period 56,914 $ 35.06 38,780 $ 33.47 The Company recognizes compensation expense over the vesting period based on the fair value of the Company's stock on the grant date.
December 31, 2022 2021 (in thousands) Statutory federal corporate tax amount $ 3,711 $ 2,685 Tax-exempt interest (income) ( 81 ) ( 135 ) Officer insurance (income) ( 131 ) ( 102 ) Net tax credits ( 353 ) ( 686 ) Other, net 4 4 $ 3,150 $ 1,766 The effective tax rates were 17.83 % and 13.81 % for years ended December 31, 2022 and 2021 , respectively.
December 31, 2023 2022 (in thousands) Statutory federal corporate tax amount $ 2,232 $ 3,711 Tax-exempt interest (income) ( 76 ) ( 81 ) Officer insurance (income) ( 134 ) ( 131 ) Net tax credits ( 756 ) ( 353 ) Other, net 10 4 $ 1,276 $ 3,150 77 The effective tax rates were 12.00 % and 17.83 % for years ended December 31, 2023 and 2022 , respectively.
During 2021 , the Company purchased 4,749 shares of its Common Stock under its stock repurchase program at an average price of $ 31.26 . The maximum number of shares that may yet be purchased under the June 2022 plan as of December 31, 2022 are 148,969 .
During 2022 , the Company purchased 4,442 shares of its Common Stock under its stock repurchase program at an average price of $ 34.79 . The maximum number of shares that may yet be purchased under the June 2023 plan as of December 31, 2023 is 145,059 .
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 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 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 component in its valuation follows the provisions of GAAP. The Company had a a balance of $ 108 thousand in other real estate owned at December 31, 2022.
The fair value measurement of real estate held in other real estate owned is assessed in the same manner as collateral-dependent loans described above. We believe that the fair value component in its valuation follows the provisions of GAAP.
“Business Segments.” Stock Repurchase Program On July 11, 2022, the Corporation renewed the stock repurchase program to repurchase up to 150,000 shares of its common stock prior to June 30, 2023. During 2022 , the Company purchased 4,442 shares of its Common Stock under its stock repurchase program at an average price of $ 34.79 .
“Business Segments.” Stock Repurchase Program On June 21, 2023, th e Company renewed the stock repurchase program to repurchase up to 150,000 shares of its common stock prior to June 30, 2024. During 2023 , the Company purchased 8,531 shares of its Common Stock under its stock repurchase program at an average price of $ 35.34 .
The net deferred tax asset at December 31, 2022 and 2021 consisted of the following components: December 31, 2022 2021 (in thousands) Deferred tax assets: Allowance for loan losses $ 2,356 $ 1,845 Share-based compensation 222 136 Accrued postretirement benefits 21 21 Home equity origination costs 81 67 Nonaccrual interest 48 65 Lease liabilities 1,045 1,110 Credit carryforward 648 973 Securities available for sale 5,440 46 Other 26 27 $ 9,887 $ 4,290 Deferred tax liabilities: Property and equipment $ 710 $ 659 Right-of-use assets 1,001 1,079 Loan servicing rights 144 — $ 1,855 $ 1,738 Net deferred tax asset $ 8,032 $ 2,552 The Company has not recorded a valuation allowance for deferred tax assets because management believes that it is more likely than not that they will be ultimately realized.
The net deferred tax asset at December 31, 2023 and 2022 consisted of the following components: December 31, 2023 2022 (in thousands) Deferred tax assets: Allowance for credit losses $ 3,043 $ 2,342 Reserve for unfunded commitments 101 14 Share-based compensation 327 222 Accrued postretirement benefits 18 21 Home equity origination costs 85 81 Accrued incentive benefit 89 — Nonaccrual interest 75 48 Lease liabilities 977 1,045 Credit carryforward 1,689 648 Securities available for sale 4,790 5,440 Other 25 26 $ 11,219 $ 9,887 Deferred tax liabilities: Property and equipment $ 853 $ 710 Right-of-use assets 921 1,001 Loan servicing rights 32 144 $ 1,806 $ 1,855 Net deferred tax asset $ 9,413 $ 8,032 The Company has not recorded a valuation allowance for deferred tax assets because management believes that it is more likely than not that they will be ultimately realized.
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.
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. 57 Construction and Land Development Lending There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending.
(Parent Company Only) Balance Sheets December 31, 2022 and 2021 (dollars in thousands) 2022 2021 Assets Cash held in subsidiary bank $ 8,222 $ 2,739 Investment in subsidiary 122,767 107,416 Other assets 455 125 Total assets $ 131,444 $ 110,280 Liabilities and Shareholders’ Equity Subordinated debt $ 29,377 $ — Other liabilities 338 — Total liabilities $ 29,715 $ — Shareholders’ Equity Common stock 8,629 8,556 Surplus 13,268 12,115 Retained earnings 100,278 89,764 Accumulated other comprehensive (loss) ( 20,446 ) ( 155 ) Total shareholders’ equity $ 101,729 $ 110,280 Total liabilities and shareholders’ equity $ 131,444 $ 110,280 94 EAGLE FINANCIAL SERVICES, INC.
(Parent Company Only) Balance Sheets December 31, 2023 and 2022 (dollars in thousands) 2023 2022 Assets Cash held in subsidiary bank $ 1,125 $ 8,222 Investment in subsidiary 136,130 122,767 Other assets 906 455 Total assets $ 138,161 $ 131,444 Liabilities and Shareholders’ Equity Subordinated debt $ 29,444 $ 29,377 Other liabilities 338 338 Total liabilities $ 29,782 $ 29,715 Shareholders’ Equity Common stock $ 8,660 $ 8,629 Surplus 14,280 13,268 Retained earnings 103,445 100,278 Accumulated other comprehensive (loss) ( 18,006 ) ( 20,446 ) Total shareholders’ equity $ 108,379 $ 101,729 Total liabilities and shareholders’ equity $ 138,161 $ 131,444 92 EAGLE FINANCIAL SERVICES, INC.
AND SUBSIDIARY Consolidated Balance Sheets December 31, 2022 and 2021 (dollars in thousands, except per share amounts) December 31, 2022 December 31, 2021 Assets Cash and due from banks $ 16,629 $ 14,536 Interest-bearing deposits with other institutions 49,902 49,304 Federal funds sold 363 228 Total cash and cash equivalents 66,894 64,068 Securities available for sale, at fair value 149,156 192,321 Restricted investments 9,233 1,049 Loans held for sale 153 876 Loans 1,323,783 985,720 Allowance for loan losses ( 11,218 ) ( 8,787 ) Net Loans 1,312,565 976,933 Bank premises and equipment, net 18,064 18,249 Other real estate owned, net of allowance 108 — Bank owned life insurance 23,862 23,236 Other assets 36,682 26,306 Total assets $ 1,616,717 $ 1,303,038 Liabilities and Shareholders’ Equity Liabilities Deposits: Noninterest bearing demand deposits $ 478,750 $ 470,355 Savings and interest bearing demand deposits 627,431 583,296 Time deposits 157,894 123,584 Total deposits $ 1,264,075 $ 1,177,235 Federal funds purchased 32,980 — Federal Home Loan Bank advances 175,000 — Subordinated debt 29,377 — Other liabilities 13,556 15,523 Total liabilities $ 1,514,988 $ 1,192,758 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 2022, 3,490,086 including 38,780 unvested restricted stock; issued and outstanding 2021, 3,454,128 including 31,738 unvested restricted stock 8,629 8,556 Surplus 13,268 12,115 Retained earnings 100,278 89,764 Accumulated other comprehensive (loss) ( 20,446 ) ( 155 ) Total shareholders’ equity $ 101,729 $ 110,280 Total liabilities and shareholders’ equity $ 1,616,717 $ 1,303,038 See Notes to Consolidated Financial Statements 52 EAGLE FINANCIAL SERVICES, INC.
AND SUBSIDIARY Consolidated Balance Sheets December 31, 2023 and 2022 (dollars in thousands, except per share amounts) December 31, 2023 December 31, 2022 Assets Cash and due from banks $ 15,417 $ 16,629 Interest-bearing deposits with other institutions 96,649 49,902 Federal funds sold 26,287 363 Total cash and cash equivalents 138,353 66,894 Securities available for sale, at fair value 137,443 149,156 Restricted investments 9,568 9,233 Loans held for sale 1,661 153 Loans 1,462,686 1,323,783 Allowance for credit losses ( 14,493 ) ( 11,218 ) Net loans 1,448,193 1,312,565 Bank premises and equipment, net 18,108 18,064 Other real estate owned, net of allowance — 108 Bank owned life insurance 29,575 23,862 Other assets 42,696 36,682 Total assets $ 1,825,597 $ 1,616,717 Liabilities and Shareholders’ Equity Liabilities Deposits: Noninterest bearing demand deposits $ 436,619 $ 478,750 Savings and interest bearing demand deposits 656,439 627,431 Time deposits 413,264 157,894 Total deposits $ 1,506,322 $ 1,264,075 Federal funds purchased — 32,980 Federal Home Loan Bank advances, short-term 20,000 175,000 Federal Home Loan Bank advances, long-term 145,000 — Subordinated debt 29,444 29,377 Other liabilities 16,452 13,556 Total liabilities $ 1,717,218 $ 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, 3,520,894 including 56,914 unvested restricted stock; issued and outstanding 2022, 3,490,086 including 38,780 unvested restricted stock 8,660 8,629 Surplus 14,280 13,268 Retained earnings 103,445 100,278 Accumulated other comprehensive (loss) ( 18,006 ) ( 20,446 ) Total shareholders’ equity $ 108,379 $ 101,729 Total liabilities and shareholders’ equity $ 1,825,597 $ 1,616,717 See Notes to Consolidated Financial Statements 50 EAGLE FINANCIAL SERVICES, INC.
(Parent Company Only) Statements of Income Years Ended December 31, 2022 and 2021 (dollars in thousands) 2022 2021 Income Dividends from subsidiary bank $ — $ 1,500 Interest and fees on loans — 64 Total income $ — $ 1,564 Expenses Interest expense on subordinated debt $ 1,067 $ — Other operating expenses 369 319 Total expenses $ 1,436 $ 319 (Loss) income before income tax (benefit) and equity in undistributed earnings of subsidiary bank $ ( 1,436 ) $ 1,245 Income Tax (Benefit) ( 315 ) ( 31 ) (Loss) income before equity in undistributed earnings of subsidiary bank $ ( 1,121 ) $ 1,276 Equity in Undistributed Net Income of Subsidiary Bank 15,642 9,745 Net income $ 14,521 $ 11,021 Comprehensive (loss) income $ ( 5,770 ) $ 7,587 95 EAGLE FINANCIAL SERVICES, INC.
(Parent Company Only) Statements of Income Years Ended December 31, 2023 and 2022 (dollars in thousands) 2023 2022 Income Dividends from subsidiary bank $ 4,000 $ — Total income $ 4,000 $ — Expenses Interest expense on subordinated debt $ 1,417 $ 1,067 Other operating expenses 523 369 Total expenses $ 1,940 $ 1,436 Income (loss) before income tax (benefit) and equity in undistributed earnings of subsidiary bank $ 2,060 $ ( 1,436 ) Income Tax (Benefit) ( 413 ) ( 315 ) Income (loss) before equity in undistributed earnings of subsidiary bank $ 2,473 $ ( 1,121 ) Equity in Undistributed Net Income of Subsidiary Bank 6,884 15,642 Net income $ 9,357 $ 14,521 Comprehensive income (loss) $ 11,797 $ ( 5,770 ) 93 EAGLE FINANCIAL SERVICES, INC.
Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation balances are cleared the differential between the proceeds, if any, and the carrying value is recorded as a gain or loss in the Company's results of operations. Leases The Company accounts for its leasing arrangements in accordance with ASC 842 "Leases".
Maintenance and repairs of property and equipment are charged to operations and major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation balances are cleared the differential between the proceeds, if any, and the carrying value is recorded as a gain or loss in the Company's results of operations.
AND SUBSIDIARY Consolidated Statements of Cash Flows Years Ended December 31, 2022 and 2021 (dollars in thousands) 2022 2021 Cash Flows from Operating Activities Net income $ 14,521 $ 11,021 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 979 996 Amortization of other assets 931 672 Provision for loan losses 1,830 1,483 Origination of loans held for sale ( 14,276 ) ( 19,015 ) Proceeds from sale of loans held for sale 15,486 18,775 Net (gains) on sales of loans ( 1,875 ) ( 1,658 ) Loss (gain) on other real estate owned — 201 Loss on the sale and disposal of premises and equipment 11 — Loss (gain) on the sale of securities 737 ( 24 ) Amortization of subordinated debt issuance costs 51 — Stock-based compensation expense 1,017 850 Premium amortization on securities, net 562 1,239 Bank owned life insurance (income) ( 626 ) ( 527 ) Deferred tax (benefit) ( 86 ) ( 1,437 ) Changes in assets and liabilities: (Increase) decrease in other assets ( 4,742 ) 6 (Decrease) increase in other liabilities ( 706 ) 3,877 Net cash provided by operating activities $ 13,814 $ 16,459 Cash Flows from Investing Activities Proceeds from maturities, calls, and principal payments of securities available for sale $ 27,630 $ 52,012 Proceeds from the sale of securities available for sale 15,370 15,885 Purchases of securities available for sale ( 26,819 ) ( 100,824 ) Proceeds from the sale of restricted investments — 222 Purchase of restricted investments ( 8,184 ) ( 4 ) Proceeds for the sale of bank premises and equipment 33 — Purchases of bank premises and equipment ( 838 ) ( 520 ) Proceeds from the sale of other real estate owned — 672 Changes in collateral posted with other financial institutions, net ( 700 ) — Purchase of bank-owned life insurance — ( 10,000 ) Proceeds from sales of loans 155,525 100,176 Origination of loans net of prinicpal collected ( 492,592 ) ( 248,598 ) Funding of capital commitments related to other investments ( 761 ) ( 2,238 ) Net cash (used in) investing activities $ ( 331,336 ) $ ( 193,217 ) Cash Flows from Financing Activities Net increase in demand deposits, money market and savings accounts $ 52,530 $ 169,211 Net increase (decrease) in certificates of deposit 34,310 ( 5,074 ) Net increase in federal funds purchased 32,980 — Net increase in Federal Home Loan Bank advances 175,000 — Issuance of subordinated debt, net of issuance costs 29,326 — Issuance of common stock, employee benefit plan 164 179 Retirement of common stock ( 154 ) ( 149 ) Cash dividends paid ( 3,808 ) ( 3,261 ) Net cash provided by financing activities $ 320,348 $ 160,906 Increase (decrease) in cash and cash equivalents $ 2,826 $ ( 15,852 ) Cash and Cash Equivalents Beginning 64,068 79,920 Ending $ 66,894 $ 64,068 Supplemental Disclosures of Cash Flow Information Cash payments for: Interest $ 4,563 $ 1,682 Income taxes $ 4,368 $ 2,816 Supplemental Schedule of Noncash Investing and Financing Activities: Unrealized (loss) on securities available for sale $ ( 25,685 ) $ ( 4,346 ) Other real estate and repossessed assets acquired in settlement of loans $ 108 $ 266 Issuance of common stock, dividend investment plan $ 199 $ 520 Lease liabilities arising from right-of-use assets $ - $ 1,404 See Notes to Consolidated Financial Statements 56 NOTE 1.
AND SUBSIDIARY Consolidated Statements of Cash Flows Years Ended December 31, 2023 and 2022 (dollars in thousands) 2023 2022 Cash Flows from Operating Activities Net income $ 9,357 $ 14,521 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,002 979 Amortization of other assets 988 931 Origination of loans held for sale ( 41,606 ) ( 14,276 ) Proceeds from sale of loans held for sale 41,224 15,486 Net (gain) on sales of loans ( 1,428 ) ( 1,875 ) Provision for credit losses 1,649 1,830 (Gain) on other real estate owned ( 7 ) — (Gain) on the sale of marine finance assests ( 435 ) — (Gain) loss on the sale and disposal of premises and equipment ( 14 ) 11 Loss on the sale of securities — 737 Amortization of subordinated debt issuance costs 67 51 Stock-based compensation expense 1,213 1,017 Premium amortization on securities, net 335 562 Bank owned life insurance income ( 713 ) ( 626 ) Deferred tax (benefit) ( 1,509 ) ( 86 ) Changes in assets and liabilities: (Increase) in other assets ( 4,583 ) ( 4,742 ) Increase (decrease) in other liabilities 1,335 ( 706 ) Net cash provided by operating activities $ 6,875 $ 13,814 Cash Flows from Investing Activities Proceeds from maturities, calls, and principal payments of securities available for sale $ 14,473 $ 27,630 Proceeds from the sale of securities available for sale — 15,370 Purchases of securities available for sale — ( 26,819 ) Proceeds from the sale of restricted investments 4,975 — Purchase of restricted investments ( 5,310 ) ( 8,184 ) Proceeds for the sale of bank premises and equipment 39 33 Purchases of bank premises and equipment ( 1,071 ) ( 838 ) Purchase of bank-owned life insurance ( 5,000 ) — Proceeds from the sale of other real estate owned 115 — Changes in collateral posted with other financial institutions, net — ( 700 ) Proceeds from sale of marine finance assets 53,987 — Proceeds from sales of loans 51,871 155,525 Origination of loans, net of prinicpal collected ( 243,441 ) ( 492,592 ) Funding of capital commitments related to other investments ( 922 ) ( 761 ) Net cash (used in) investing activities $ ( 130,284 ) $ ( 331,336 ) Cash Flows from Financing Activities Net (decrease) increase in demand deposits, money market and savings accounts $ ( 13,123 ) $ 52,530 Net increase in certificates of deposit 255,370 34,310 Net (decrease) increase in federal funds purchased ( 32,980 ) 32,980 Net (decrease) increase in short-term Federal Home Loan Bank advances ( 155,000 ) 175,000 Advances of long-term Federal Home Loan Bank advances 145,000 — Issuance of subordinated debt, net of issuance costs — 29,326 Issuance of common stock, employee benefit plan 132 164 Repurchase and retirement of common stock ( 302 ) ( 154 ) Cash dividends paid ( 4,229 ) ( 3,808 ) Net cash provided by financing activities $ 194,868 $ 320,348 Increase in cash and cash equivalents $ 71,459 $ 2,826 Cash and Cash Equivalents Beginning 66,894 64,068 Ending $ 138,353 $ 66,894 Supplemental Disclosures of Cash Flow Information Cash payments for: Interest $ 31,332 $ 4,563 Income taxes $ 2,068 $ 4,368 Supplemental Schedule of Noncash Investing and Financing Activities: Unrealized gain (loss) on securities available for sale $ 3,095 $ ( 25,685 ) Minimum postretirement liability adjustment $ ( 8 ) $ — Repossessed assets acquired in settlement of loans $ 304 $ 108 Issuance of common stock, dividend investment plan $ — $ 199 See Notes to Consolidated Financial Statements 54 NOTE 1.
AND SUBSIDIARY Consolidated Statements of Comprehensive Income (Loss) Years Ended December 31, 2022 and 2021 (dollars in thousands) 2022 2021 Net income $ 14,521 $ 11,021 Other comprehensive (loss): Unrealized (loss) on available for sale securities, net of reclassification adjustments, net of deferred income tax of ($ 5,394 ) and ($ 912 ) for the years ended December 31, 2022 and 2021, respectively ( 20,291 ) ( 3,434 ) Total other comprehensive (loss) ( 20,291 ) ( 3,434 ) Total comprehensive (loss) income $ ( 5,770 ) $ 7,587 See Notes to Consolidated Financial Statements 54 EAGLE FINANCIAL SERVICES, INC.
AND SUBSIDIARY Consolidated Statements of Comprehensive Income (Loss) Years Ended December 31, 2023 and 2022 (dollars in thousands) 2023 2022 Net income $ 9,357 $ 14,521 Other comprehensive income (loss): Changes in benefit obligations and plan assets for post retirement benefit plans, net of reclassification adjustments, net of deferred income tax of $( 3 ) and $ 0 for the years ended December 31, 2023 and 2022, respectively ( 5 ) — Unrealized gain (loss) on available for sale securities, net of reclassification adjustments, net of deferred income tax of $ 650 and ($ 5,394 ) for the years ended December 31, 2023 and 2022, respectively 2,445 ( 20,291 ) Total other comprehensive income (loss) 2,440 ( 20,291 ) Total comprehensive income (loss) $ 11,797 $ ( 5,770 ) See Notes to Consolidated Financial Statements 52 EAGLE FINANCIAL SERVICES, INC.

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