Stonegate Capital Partners Updates Coverage on Eagle Financial Services, Inc. (OTCQX: EFSI) Q2 2023

DALLAS, TX -- September 11th, 2023 -- Eagle Financial Services, Inc (OTCQX:EFSI): Stonegate Capital Partners updates coverage on Eagle Financial Services, Inc (OTCQX:EFSI).

Summary

• Proven record of sustained profitability: Over the past four years, Eagle Financial has consistently shown increasing net income and EPS growth. From 2018 to 2022, net income and EPS have grown at a CAGR of 12.7% and 12.5%, respectively. Additionally, total assets grew at a CAGR of 19.2%, and its loan portfolio also grew at a CAGR of 21.5% for the same period. In 2Q23 y/y net income and EPS both decreased by 48% and 48% respectively with assets and loans growing 27% and 31% over that same period. Investments in people and technology, along with market expansion and more diversified revenue sources are the drivers of this performance.
• Community banks on strong footing: In the wake of the recent bank failures there has been increased scrutiny in the banking sector. When compared to larger regional banks, we believe that local banks like EFSI are better suited to weather this bank sector turmoil. This is in large part due to community banks in aggregate having less than 10% of their accounts uninsured by the FDIC as compared to SVB’s 95% of accounts being uninsured. It is also notable that banks now have access to the Bank Term Funding Program (“BTFP”), providing increased liquidity and confidence in the banking sector.
• Diverse market exposure: The Bank’s performance is tied to its primary market area in Northern Virginia and the Shenandoah Valley. The Bank has a solid market position in the counties it serves. Additionally, the market areas possess excellent demographics, as evidenced by its population numbers, median household income, and median home values. Furthermore, there are nearby expansion opportunities for the Bank in Fairfax County, VA, and Washington, DC. Per the most recent company report, all the regions that the Company operates in are expected to see population growth higher than the national average through 2027.
• Experienced management team with high levels of ownership: Eagle Financials’ management team has decades of experience, ranging from community banks to larger banking operations. Additionally, management’s interest is tied to shareholders with insider ownership at ~12.6%.
• The Company has strong ratios: At the end of 2Q23, tier 1 leverage ratio was 8.61%. Additionally, its non-performing loans to total loans percentage was at 0.23% in 2Q23. The Company has historically maintained solid capital ratios and has grown consolidated equity at a 3.9% CAGR from 2016 to 2Q23. Furthermore, the Company has $78.9 in cash as of 2Q23.
• Consistent dividend payer: The Company maintained its dividend level at $0.30 per share. This translates to a 3.8% dividend yield. Eagle Financials has raised its annualized dividend payments every year since 2009.
• Valuation: We use a P/TBV to help frame valuation of Eagle Financial. Using a P/TBV value range of 1.2x to 1.4x, with a mid-point of 1.3x, we arrive at a valuation range of $36.01 to $42.02 with a mid-point of $39.02. See page 9 for further details.