Stonegate Capital Partners Updates Coverage on Eagle Financial Services, Inc. (OTCQX: EFSI) Q4 2022

DALLAS, TX -- April 12th, 2023 -- Eagle Financial Services, Inc (OTCQX:EFSI): Stonegate Capital Partners updates coverage on Eagle Financial Services, Inc (OTCQX:EFSI). The full report can be accessed by clicking on the following link: https://stonegateinc.com/reports/EFSI_22Q4.pdf

Company 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. Significant investments in people and technology, along with market expansion and more diversified revenue sources are the primary drivers of this performance.
• Community banks on strong footing: In the wake of the recent SVB failure there has been increased scrutiny on the banking sector. When compared to larger region 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 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 SVB had a much lower NIM, at 2.0% in 4Q22, as compared to EFSI at 3.68% in 4Q22.
• 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 ~ 21.2%.
• The Company is well capitalized: At the end of 4Q22, tier 1 capital ratio was 8.80%. Additionally, its total capital ratio was 10.34% and its tier 1 leverage ratio was 7.84%. The Company has historically maintained solid capital ratios and has grown consolidated equity at a 6.8% CAGR from 2016 to 2021. Furthermore, the Company has $66.9 in cash as of 4Q22. Total assets grew 9.75% Q/Q due to organic growth into newer market areas.
• Dividend payments increased: The Company raised its dividend payment in 4Q22 from $0.29 per share up to $0.30 per share. This was the second dividend increase in 2022. Eagle Financials has raised its annualized dividend payments every year since 2009.
• Valuation – We use a P/TB to help frame valuation of Eagle Financial. Using a P/TB value range of 1.2x to 1.4x, with a mid-point of 1.3x, we arrive at a valuation range of $34.98 to $40.81 with a mid-point of $37.89. See page 9 for further detail