Operator
Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Eagle Financial Services, Inc. Q2 Earnings Call. All lines have been placed on a listen-only mode. Thank you. I would now like to turn the conference over to Nick Smith, Executive Vice President, Investor Relations.
Please go ahead. thank you good morning thank you for joining us for our second quarter earnings conference call before we begin please note that the information provided during this call will contain forward looking statements actual results or outcomes may differ materially from those expressed by those statements i'd like to direct all listeners to read the cautionary note regarding forward looking statements contained in our most recent annual report on Form 10-K filed with the SEC and in our earnings release, as well as the risk factors identified in the annual report and in our more recent periodic reports filed with the SEC. The company does not undertake to update any of the forward-looking statements made today. A copy of our earnings release, which contains non-GAAP financial measures, is available on our website at investors.bankofclark.com. bank and the information regarding our use of non-GAAP financial measures may be found in the body of the earnings release and a reconciliation to the most directly comparable GAAP financial measures is included at the end of the earnings release for your reference this quarter along with our earnings release we published an updated investor presentation that has additional disclosures that we believe will be helpful the presentation can be accessed on our investor Relations website. Please also note that as we discuss our financials today, unless otherwise noted, all of the prior period comparisons will be made with the first quarter of 2025. Joining us for management this morning is Brandon Lorry, our Chief Executive Officer, Kate Chappell, our Chief Financial Officer, and Joe Zontrovich, our Chief Banking Officer. At this time, I'll turn the call over to Brandon Lorry. Brandon?
Thank you, Nick, and thank you all for listening to the call today. Last night, we reported net income for the second quarter of $5.3 million. The second quarter of 2025 was our first full operating quarter, post-capital raise, and subsequent upload to NASDAQ that was completed in February, and I could not be prouder of the team at Bank of Clark and Eagle Financial Services. Our results speak to the continued execution on our strategic plan, focused on improving our earning asset and funding composition, reducing non-interest expense to total assets, and continued growth of our fee income areas. I'd like to take a moment to speak about credit quality. Non-performing assets were $17.5 million, or 0.86% of total assets, at 630 of 2025. $13.7 million of the reported non-performing assets were comprised of two relationships. The first of which, with an outstanding balance of $2.2 million, was an owner-occupied property whose owner passed away unexpectedly and business operations halted. The courts have since assigned an executor of the estate, and the bank is now filing a summary judgment, which will permit us to move forward with the foreclosure process in the third quarter. The second relationship was comprised of four residential multifamily income-producing properties in Washington, D.C., with a combined disclosure of approximately $11.5 million. The largest of the four properties, with a loan balance of $5.9 million, was sold on July 8th for $5.7 million, with the bank agreeing to a short sale of $4.8 million, creating a deficiency balance of $1.1 million after consideration of past due taxes and other costs. The owner has entered into an agreement with the bank to pay back the deficiency balance, and the bank has cross-collateralized that note with the existing three properties, as well as two additional properties as a condition of the short sale. The bank has allocated a specific reserve for the full amount of the deficiency balance included in the ACL at 630 of 2025. Concurrently, the owner agreed to pass along receivership of three remaining properties to the bank, which we anticipate will alleviate prolonged court proceedings. These properties were written down to their liquidation value assuming no repairs in the first quarter. The bank continues to demonstrate strong credit fundamentals with no underlying negative trends and minimal exposure to the Washington, D.C. market. Looking ahead, we maintain a positive outlook on the credit environment and remain confident in the performance trajectory of Eagle Financial Services and the Bank of Clark for the remainder of 2025. I will let Kate walk through the financial results with greater detail. Kate?
Thanks, Brandon. Last evening, we reported a net income of $5.3 million, or 98 cents per included share. Net interest income for the period was $24.8 million, up $1.3 million linked quarter. Debt interest margin for the quarter was 3.42%, an improvement of 44 basis points when compared to net interest margin of $298 linked quarter. In the second quarter, two customers of the bank filled their businesses, resulting in $151.7 million increase in demand deposits at the quarter end. While we are working to retain these deposits long term, we are unsure what portion of the deposits will remain with the bank. The sales proceeds resulted in an increase in average demand deposits and average interest earned cash for the second quarter of $48.4 million and an increase in interest income and net interest income of approximately $500,000. We estimate that net interest margin for the quarter adjusted for excess interest earned cash related to the proceeds from the sales was 3.4%. Some interest income was $4.9 million, up $1 million in the quarter when excluding the first quarter and had the security portfolio restructuring. structuring. Growth in non-interest income was led primarily by gain on sales loans and continued performance in wealth management interest. We anticipate that the gain on sales of loans will be flat the second half of the year when compared to the first six months. Non-interest expenses increased $810,000 to $13.4 million for the quarter into June 30, 2025, led primarily by an increase in salaries and benefit expense. The increase was led by the increase in FTEs as we continue to execute on our strategic plan. I will now let Joe speak about our loan portfolio.
Thank you, Kate. In the second quarter, the bank's loan portfolio decreased by 13 million, primarily driven by 7 million of runoff in the marine portfolio and 6 million in payoffs directly related to the sales of customers' business. Additionally, the construction category declined by approximately $22 million, including $15 million from a completed project converting to an owner-occupied CRA loan, with the remainder attributed to several completed projects that were sold. Despite these challenges, the commercial loan portfolio has remained flat year-to-date, reflecting disciplined credit management and stable demand. Total originations during the quarter were approximately $70 million, and the commercial pipeline expanded by $75 million since the first quarter. Despite increased deal flow, eliminated competition and sector-specific headwinds continue to impact borrower demand, competitive positioning, and the bank's credit scrutiny. Pricing pressure remains significant across most products, driven by aggressive terms from both traditional and non-bank lenders. In response, the bank has adopted a balanced approach, remaining responsive to evolving customer needs while maintaining disciplined risk management and profitability targets. Looking ahead, we anticipate modest commercial loan growth over the remainder of the year. While macroeconomic uncertainty and monetary policy developments may influence borrower behavior, we remain well positioned to capitalize on targeted opportunities. Focused origination efforts, coupled with vigilant portfolio management, to support our outlet for stable to moderate expansion in the commercial loan book. Brandon?
Thanks, Joe. I'd like to begin by first congratulating Bank of Clark's Chief Credit Officer, James George, on his planned retirement after 11 years of distinguished service. We had proactively identified an internal candidate for succession who transitioned into a senior credit role earlier this year, and James will continue to serve on the executive team through mid-November to ensure a smooth and thoughtful transition. Our strategic focus remains on driving strong, profitable, organic growth, with particular emphasis on expanding our commercial loan portfolio across our core markets. To support this momentum and better serve our growing customer base, we anticipate opening a full-service branch in Tyson's Corner during the fourth quarter, positioning us in one of the region's most dynamic commercial corridors. At the same time, we continue to monitor the disruption across the Northern Virginia, Maryland, and D.C. markets where bank consolidation activity remains elevated. We are actively engaging in conversations with potential bank partners and acquisition targets that align with our community-focused model and long-term growth objectives. As we look ahead, we remain confident in our strategic direction and the strength of our team to execute with both discipline and purpose. On behalf of the leadership team, I want to extend my sincere thanks to our customers for their continued trust, to our employees for their unwavering dedication, and to our shareholders for their ongoing support. We appreciate your partnership and look forward to building on our momentum in the quarters Thank you all for joining the call today.
Operator
This concludes today's conference. You may now disconnect.
