Eagle Financial Services EFSI Form 10-Q filing Q1 FY2026

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

See Notes to Consolidated Financial Statements

• Derived from the consolidated audited financial statements.

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

EAGLE FINANCIAL SERVICES, INC.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2026

NOTE 1. General

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP.

In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at March 31, 2026 and December 31, 2025, the results of operations and the changes in shareholders' equity for the three months ended March 31, 2026 and 2025, and cash flows for the three months ended March 31, 2026 and 2025. The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”).

Eagle Financial Services, Inc. (the "Company") owns 100% of Bank of Clarke (the “Bank”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.

Certain amounts in the consolidated financial statements have been reclassified to conform to current year presentations. None of the reclassifications were of a material nature and they had no effect on prior year net income or shareholders' equity.

Application of the principles of GAAP and practices within the banking industry require management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance of credit losses on loans.

The Company's significant accounting policies followed in preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the Company's 2025 Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2025.

NOTE 2. 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. The 2023 plan permits the issuance of incentive stock options and non-qualified stock options and the award of common stock, restricted stock, and stock units. The plan authorizes the issuance of up to 250,000 shares of common stock. The 2023 Stock Incentive Plan replaced the 2014 Stock Incentive Plan.

The Company periodically grants restricted stock to its directors, executive officers and certain non-executive officers. Restricted stock provides grantees with rights to shares of common stock upon completion of a service period or achievement of Company performance measures. During the restricted period, all shares are considered outstanding and dividends are paid to the grantee. Outside directors are periodically granted restricted shares which vest over a period of one year. Executive officers have been

granted restricted shares which vest over a three year service period and restricted shares which cliff vest based on meeting performance measures over a three year period. Certain non-executive officers also have been granted restricted shares which vest over a three year service period. The Company recognizes compensation expense over the restricted period based on the fair value of the Company's stock on the grant date. The Company's policy is to recognize forfeitures as they occur. As of March 31, 2026, there was $2.1 million of unrecognized compensation cost related to nonvested restricted stock, with a weighted average remaining term of 2.18 years.

The following table presents restricted stock activity for the three months ended March 31, 2026 and 2025:

NOTE 3. Earnings Per Common Share

Basic earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Nonvested restricted shares are included in the weighted average number of common shares used to compute basic earnings per share because of dividend participation and voting rights. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The number of potential common shares is determined using the treasury method.

The following table shows the weighted average number of shares used in computing earnings per share for the three months ended March 31, 2026 and 2025. During 2026 and 2025, there were no potentially dilutive securities outstanding.

NOTE 4. Securities

Amortized costs and fair values of securities available for sale at March 31, 2026 and December 31, 2025 were as follows:

The Company has elected to exclude accrued interest receivable, totaling $442 thousand and $669 thousand at March 31, 2026 and December 31, 2025, respectively from the amortized cost basis of securities. The deferred tax asset on the securities portfolio at March 31, 2026 and December 31, 2025 was $1.6 million and $1.4 million, respectively, and is included in Other Assets in the Consolidated Balance Sheets.

In March 2025, balance sheet repositioning transactions were executed. The Bank sold available for sale securities with an amortized cost balance of $99.2 million and reinvested $66.0 million into purchases of available for sale securities. The sale of securities resulted in a net realized pre-tax loss of $12.4 million recognized during the three months ended March 31, 2025. There were no sales of available for sale securities during the three months ended March 31, 2026.

The following table summarizes amounts related to the sale of available for sale securities:

The amortized cost and estimated fair value of securities at March 31, 2026, by the earlier of contractual maturity or expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

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 gross unrealized loss position, at March 31, 2026 and December 31, 2025 were as follows:

The reference point for determining when securities are in an unrealized loss position is month end. As such, it is possible that a security's market value exceeded its amortized cost on other days during the past twelve-month period.

There were 47 and 39 debt securities with a fair value below the amortized cost basis, totaling $82.7 million and $46.1 million of aggregate fair value as of March 31, 2026 and December 31, 2025 respectively. The Company concluded that a credit loss does not exist in its securities portfolio at March 31, 2026 based on the fact that (1) changes in fair value were caused by non-credit-related factors, primarily fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) as of March 31, 2026, the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not that the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest. Additionally, the Company’s mortgage-backed securities, collateralized

mortgage obligations, U.S. treasury securities, and obligations of U.S. government corporations and agencies are entirely issued by either U.S. government agencies or U.S. government-sponsored enterprises. Collectively, these entities provide a guarantee, which is either explicitly or implicitly supported by the full faith and credit of the U.S. government, that investors in such mortgage-backed securities will receive timely principal and interest payments.

Securities having carrying values of $3.9 million, $3.0 million and $87.3 million at March 31, 2026 were pledged as security for trust accounts, a deposit relationship and for borrowing capacity at the Federal Reserve Bank ("FRB") discount window, respectively.

The composition of restricted investments at March 31, 2026 and December 31, 2025 was as follows:

NOTE 5. Loans and Allowance for Credit Losses on Loans

The composition of loans at March 31, 2026 and December 31, 2025 was as follows:

At March 31, 2026, the Company was servicing $47.3 million of loans for other financial institutions which are not included in the table above. Also excluded from the table above are net servicing assets of $742 thousand at March 31, 2026, which are recorded in Other Assets in the Consolidated Balance Sheets. When loans are sold with servicing retained, servicing assets are recorded which represent the Company's right to service loans that were sold. Servicing assets are initially recorded by the Company at fair value and are subsequently amortized in proportion to, and over the period of, estimated net servicing income.

Changes in the allowance for credit losses on loans for the three months ended March 31, 2026 and 2025 and year-ended December 31, 2025 were as follows:

Past due loans by class at March 31, 2026 and December 31, 2025 were as follows:

Nonaccrual loans by class at March 31, 2026 and December 31, 2025 were as follows:

The allowance for credit losses on loans by segment at March 31, 2026 and December 31, 2025 was as follows:

The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment:

The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the period ended March 31, 2026.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis is performed on a quarterly basis. The following table presents risk ratings by loan portfolio segment and origination year. Description of these ratings are as follows:

Pass Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. 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. Loan relationships with stale financial statements at their annual review will also cause a downgrade to special mention until current financials are received and upgrade is approved. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt.

Classified Classified loans include loans rated Substandard, Doubtful and Loss.

• Substandard loans exhibit well defined weaknesses resulting in a higher probability of default. The borrowers exhibit adverse financial trends and a diminishing ability or willingness to service debt.
• Doubtful loans exhibit all of the characteristics inherent in substandard loans; however given the severity of weaknesses, the collection of 100% of the principal is unlikely under current conditions.
• Loss loans are considered uncollectible over a reasonable period of time and of such little value that its continuance as a bankable asset is not warranted.

Credit quality information by class at March 31, 2026 and gross charge-offs by year of origination for the three months ended March 31, 2026 was as follows:

Credit quality information by class at December 31, 2025 and gross charge-offs by year of origination for the year ended December 31, 2025 was as follows:

Unfunded Commitments: The Company maintains a separate reserve for credit losses on unfunded commitments, which is included in Other Liabilities on the Consolidated Balance Sheet. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the Consolidated Statement of Operations. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, utilizing the same models and approaches for the Company's other loan portfolio segments, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that maybe drawn prior to the cancellation of the arrangement.

During the three months ended March 31, 2026, a reduction to the unfunded commitment reserve of $11 thousand was recorded as a credit to the provision for credit losses in the consolidated statement of operations. During the three months ended March 31, 2025, an increase to the unfunded commitment reserve of $87 thousand was recorded, thereby increasing the provision for credit losses in the consolidated income statement. The reserve for unfunded commitments at March 31, 2026 and 2025 and December 31, 2025 was $315 thousand, $592 thousand, and $326 thousand, respectively.

Restructurings for Borrowers Experiencing Financial Difficulty: A loan that has been modified is considered a troubled loan modification when the modification is made to a borrower experiencing financial difficulty and the modification has a direct impact to the contractual cash flows.

There were no new loan modifications to borrowers experiencing financial difficulty made during the three months ended March 31, 2026 and 2025.

At March 31, 2026, the amortized cost balance of loans modified in the past 12 months was $5.3 million. This balance represents one customer relationship comprised of three residential multifamily income producing properties in Washington D.C. (the District). These loans are on nonaccrual status and are 90 or more days past due. The Bank has been granted receivership and is actively working with the receiver to update the properties and ready them for sale while continuing to collect the housing payments directly from the District.

There were no loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2025 and were modified in the twelve months prior to that default.

Default is determined at 30 days or more past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance of credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly.

NOTE 6. DepositsThe composition of deposits at March 31, 2026 and December 31, 2025 was as follows:

NOTE 7. Leases

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. Right-of-use assets and lease liabilities are included in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets.

The Company’s five long-term lease agreements are classified as operating leases. These leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liability to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantee and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following tables present information about the Company’s leases:

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities is as follows:

NOTE 8. Fair Value Measurements

GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

“Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. 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.

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. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

Derivative instruments are recorded at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.

The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at March 31, 2026 and December 31, 2025:

The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis classified as Level 3 for the periods indicated. Level 3 securities consist of one corporate subordinated debt security for which no pricing information was available and therefore priced at book value.

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements:

Loans Held for Sale: Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). The Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during three months ended March 31, 2026 and the year ended December 31, 2025.

Individually Evaluated Collateral-Dependent Loans: The estimated fair value of individually evaluated collateral-dependent loans is based on the value of the underlying collateral or the value of the underlying collateral, less estimated cost to sell, as appropriate. Collateral is generally real estate; however, collateral may include vehicles, marine vessels, equipment, inventory, accounts receivable, and/or other business assets. The value of real estate collateral is determined using a market valuation approach based on an appraisal conducted by an independent, licensed appraiser. The value of other assets may also be based on an appraisal, market quotations, aging schedules or other sources. Collateral-dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy. Any fair value adjustments are recorded in the period incurred as a provision for credit losses on the Consolidated Statements of Operations. At March 31, 2026 collateral-dependent loans totaling $6.4 million were individually evaluated and being carried at fair value of $4.3 million, the majority of which represents three relationships consisting of loans secured by owner occupied commercial real estate properties and commercial business loans collateralized by equipment. At December 31, 2025 there were four collateral-dependent relationships totaling $2.7 million, which were individually evaluated and being carried at fair value of $2.3 million. Three relationships represent five commercial business loans collateralized by equipment and one relationship is collateralized by commercial real estate.

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. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to fair value less cost to sell. 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 follows the provisions of GAAP. The Company held no other real estate owned at March 31, 2026 or December 31, 2025.

Repossessed Assets: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the asset, 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. Costs of significant improvements are capitalized, whereas costs relating to holding assets are expensed. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of an asset to fair value less cost to sell. The fair value measurement of repossessed assets is assessed in the same manner as collateral dependent loans described above. We believe that the fair value follows the provisions of GAAP. The Company held no repossessed assets at March 31, 2026 and $135 thousand at December 31, 2025. Repossessed assets are included in Other Assets in the Consolidated Balance Sheets.

The following table summarizes the Company's financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at March 31, 2026 and December 31, 2025.

The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial and nonfinancial assets measured at fair value on a nonrecurring basis for March 31, 2026 and December 31, 2025.

(1) Weighted based on the relative fair value of the specific items measured at fair value.

The carrying value and fair value of the Company’s financial instruments at March 31, 2026 and December 31, 2025 were as follows:

NOTE 9. Change in Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss includes unrealized gains and losses on available for sale securities and changes in benefit obligations and plan assets for the post retirement benefit plan. Changes to accumulated other comprehensive loss are presented net of their tax effect as a component of equity. Reclassifications out of accumulated other comprehensive loss are recorded in the Consolidated Statements of Operations either as a gain or loss.

Changes to accumulated other comprehensive loss by component are shown in the following table for the periods indicated:

For the three months ended March 31, 2025, the reclassification out of accumulated other comprehensive loss represents the realized loss on the sale of available for sale securities, which appears as loss on the sale of securities in the Consolidated Statements of Operations. The tax benefit related to this reclassification was $2.6 million and was included in income tax expense in the Consolidated Statements of Operations.

NOTE 10. Other Real Estate Owned & Repossessed Assets

The following table is a summary of other real estate owned (“OREO”) and repossessed asset activity for the three months ended March 31, 2026 and 2025 and the year ended December 31, 2025:

The balance at December 31, 2025 represents a repossessed marine vessel.

There was one loan collateralized by residential real estate with a balance of $156 thousand in the process of foreclosure at March 31, 2026 and none at December 31, 2025.

NOTE 11. Qualified Affordable Housing Project Investments

The Company invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to preserve and protect project assets.

At March 31, 2026 and December 31, 2025, the balance of the investment for qualified affordable housing projects was $914 thousand and $977 thousand, respectively. These balances are reflected in Other Assets on the Consolidated Balance Sheets. There were no unfunded commitments related to the investments in qualified affordable housing projects at March 31, 2026 and December 31, 2025.

During the three months ended March 31, 2026 and March 31, 2025, the Company recognized amortization expense of $63 thousand and $67 thousand, respectively. Amortization expense is included in income tax expense on the Consolidated Statements of Operations.

Total estimated credits to be received during 2026 are $258 thousand based on the most recent quarterly estimates received from the funds. Total tax credits and other tax benefits recognized during the three months ended March 31, 2026 and 2025, were $65 thousand and $69 thousand, respectively.

NOTE 12. Recent Accounting Pronouncements and Other Authoritative Guidance

Pending Adoption

In November 2025, the FASB issued ASU 2025-09, “Derivatives and Hedging (Topic 815): Hedge Accounting Improvements.” The amendments in this ASU enables entities to apply hedge accounting to a greater number of highly effective economic hedges in the following five areas: 1) similar risk assessment for cash flow hedges, 2) hedging forecasted interest payments on choose-your-rate debt instruments, 3) cash flow hedges of nonfinancial forecasted transactions, 4) net written options as hedging instruments, and 5) foreign-currency-denominated debt instrument as hedging instrument and hedged item (dual hedge). This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is permitted on any date on or after November 25, 2025. The Company does not expect the adoption of ASU 2025-09 to have a material impact on its consolidated financial statements.

In November 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-08, “Financial Instruments—Credit Losses (Topic 326): Purchased Loans.” The amendments in this ASU expand the population of acquired financial assets accounted for using the gross-up approach. Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the gross-up approach upon acquisition if criteria established by the new guidance are met. This change aims to enhance comparability, consistency, and better reflect the economics of acquiring financial assets. This ASU is effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts this ASU in an interim reporting period, it should apply it as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period. The Company does not expect the adoption of ASU 2025-08 to have a material impact on its consolidated financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Company's financial position, results of operations or cash flows.

NOTE 13. Revenue Recognition

Substantially all of the Company's revenue from contracts with customers that is within the scope of ASC 606, "Revenue from Contracts with Customers" is reported within noninterest income. A limited amount of other in-scope items such as gains and losses on other real estate owned are recorded in noninterest expense. The recognition of interest income and certain sources of noninterest income (e.g. gains on securities transactions, bank owned life insurance income, etc.) are governed by other areas of U.S. GAAP. Significant revenue streams that are within the scope of ASC 606 and included in noninterest income are discussed in the following paragraphs.

Income from Fiduciary Activities

Trust asset management fee income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. Estate management fees are based upon the size of the estate. Revenue for estate management fees are recorded periodically, according to a fee schedule and are based on the services that have been provided. The Company does not earn performance-based incentives on customer products sold. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.

Service Charges on Deposit Accounts

Service charges on deposit accounts are principally comprised of overdrawn account fees, account maintenance charges and other activity based fees. 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. Due to the short duration of most customer contracts which generate these sources of noninterest income, no significant judgments must be made in the determination of the amount and timing of revenue recognized.

Other Service Charges and Fees

The majority of the Company’s noninterest income is derived from short term contracts associated with services provided for other ancillary services such as ATM fees, safe deposit box fees and loan servicing fees. 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. Due to the short duration of most customer contracts which generate these sources of noninterest income, no significant judgments must be made in the determination of the amount and timing of revenue recognized. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. Since the rentals and renewals occur fairly consistently, revenue is recognized on a basis consistent with the duration of the performance obligation.

The Company earns interchange fees from credit cardholder transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized no less than monthly.

Noninterest income (loss) and the related amounts that are from contracts with customers within the scope of ASC 606 disaggregated by major source, for the three months ended March 31, 2026 and 2025 consisted of the following:

(1)

As reported in the Unaudited Consolidated Statements of Operations.

(2)

Revenue from contracts with customers in scope of ASC 606.

Contract Balances

The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of March 31, 2026 and December 31, 2025, the Company did not have any significant contract balances.

NOTE 14. BorrowingsThe composition of borrowings at March 31, 2026 and December 31, 2025 was as follows:

On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $30.0 million in aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due April 1, 2032 (the “Notes”).

The Notes were structured to qualify as Tier 2 capital for regulatory capital purposes at the holding company and bear an initial interest rate of 4.50% until April 1, 2027, with interest during this period payable semi-annually in arrears. From and including April 1, 2027, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month SOFR, plus 2.35%, with interest during this period payable quarterly in arrears. The Notes are redeemable by the Company at its option, in whole or in part, on or after April 1, 2027. Initial debt issuance costs were $673 thousand. The debt balance of $30.0 million is presented net of unamortized issuance costs of $404 thousand and $421 thousand at March 31, 2026 and December 31, 2025 respectively.

The Bank pledges certain qualified loans and available for sale investment securities as collateral to the FHLB and FRB. At March 31, 2026, available borrowing capacity totaled $496.3 million and $61.0 million at the FHLB and FRB discount window, respectively. The Company also has access to federal fund lines of credit extended to the Bank by nonaffiliated banks with which a correspondent banking relationship exists. At March 31, 2026 these available lines totaled $78.0 million.

Additionally, the Company had $70 million in irrevocable letters of credit at March 31, 2026 with the FHLB to secure public deposits.

NOTE 15. Derivatives

The Company uses derivative financial instruments primarily to manage risks to the Company associated with changing interest rates, and to assist customers with their risk management objectives. Derivative contracts that are not designated in a qualifying hedging relationships include customer accommodation loan swaps.

On August 15, 2024, the Company executed a 2-year, 3.862% pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $35.0 million. The Company receives a variable rate equal to the daily secured overnight financing rate ("SOFR"). This swap will terminate on August 15, 2026. The Company designated the fair value swap under the portfolio layer method ("PLM"). Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period. Adjustments are made to record the swap at fair value as either an Other asset or Other liability on the Consolidated Balance Sheets, with changes in fair value recognized in net loans. The carrying value of the fair value swap on the Consolidated Balance Sheets will also be adjusted through loan interest income, based on changes in the fair value attributable to changes in the hedged risk.

The following table represents the carrying value of the portfolio layer method hedged asset and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset as of March 31, 2026 and December 31, 2025.

(1) These amounts include the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the hedged period. As of March 31, 2026, the amortized cost basis of the closed portfolio used in this hedging relationship was $450.5 million and the cumulative basis adjustment associated with this hedging relationship was $56 thousand. At March 31, 2026, the amount of the designated hedged item was $35.0 million.

The following table summarizes the effect of the fair value hedging relationship recognized in the Consolidated Statements of Operations for the three months ended March 31, 2026.

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 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. Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of the swaps with borrowers and the swaps with dealer counterparties.

The following tables summarize key elements of the Company's derivative instruments at March 31, 2026 and December 31, 2025.

NOTE 16. Business Segments

The Company has three reportable operating segments: community banking, marine lending and wealth management.

The community banking segment offers a wide range of retail and community banking services in the form of loan and deposit products. Revenues 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. During the first quarter of 2025 the Company sold available for sale securities with an amortized cost of $99.2 million, which resulted in a net realized

pre-tax loss of $12.4 million. This loss on the sale of securities is the main driver of the community banking segment's reported net loss, total noninterest loss and income tax benefit for the three months ended March 31, 2025.

Revenue from marine lending operations consist primarily of net interest income related to commercial and consumer marine vessel loans originated through August 2023, at which time the Company ceased accepting new marine lending business. The interest expense allocation is a function of the Bank's internal cost of funds rate and the average loan balance of marine lending. The balance of the marine loan portfolio, which constitutes a significant portion of the Company's assets, revenues, and earnings, totaled $170.2 million and $175.6 million at March 31, 2026 and December 31, 2025, respectively. This balance will continue to decline as the loans are repaid.

The wealth management segment offers both a trust department and investment services. Trust department services include a full range of personal and retirement plan services, and investment services products include, among other products, annuities, IRA's, life insurance, fixed income investing, and full service or discount brokerage services. Non-deposit investment products are offered through a third-party service provider.

Financial information of the parent company is included in the "All Other" category. The parent company's revenue and expenses are comprised primarily of interest expense associated with subordinated debt.

The Company's segment structure reflects the financial information and reports used by our chief operating decision maker to make decisions regarding the business, including resource allocations and performance. Our Chief Executive Officer is the chief operating decision maker ("CODM"). We evaluate performance and allocate resources based on the operating income of each operating segment. The CODM uses segment operating income in the annual budget process. The operating income of each operating segment includes the revenues of the segment less expenses that are directly related to those revenues. Operating overhead, shared costs and share-based compensation costs are included in Community Banking. As such, expenses may not be representative of the costs expected to be incurred if the specific business segments operated as stand-alone entities. The Company expects it will continue to evaluate its business segments and internal reporting structure, including the production of discrete financial information to the CODM.

The following tables provide income and asset information as of March 31, 2026 and December 31, 2025 and for three months ended March 31, 2026 and 2025, which are included within the Consolidated Balance Sheets and Consolidated Statements of Operations.

NOTE 17. Subsequent Events

The Bank is a member in Bankers Title Shenandoah, LLC, which is an investor in Bearing Insurance Group, LLC ("Bearing"). On May 1, 2026, Bearing was sold to an unaffiliated third party. Based on the Company's ownership percentage in Bearing, The Bank received proceeds of $5.06 million. A pre-tax gain of approximately $3.5 million is estimated to be recognized from this sale and included in the Company's financial results for the second quarter of 2026.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this discussion is to focus on certain information relevant to the Company’s financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with the Company’s Audited Consolidated Financial Statements and notes thereto included in the 2025 Form 10-K, and in conjunction with the Unaudited Consolidated Financial Statements and notes thereto presented in Part I, Item 1, Financial Statements, of this Form 10-Q. Operating results for the three months ended March 31, 2026 are not necessarily indicative of the results for the full-year ending December 31, 2026 or any future period.

GENERAL

Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank.

The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and mortgage-backed securities, municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law.

The Company strives to be an outstanding financial institution in its market by: building solid sustainable relationships with its customers, employees, communities, and shareholders; offering best-in-class products and services; and being the leader in the markets it serves.

At March 31, 2026, the Company had total assets of $1.84 billion, net loans of $1.44 billion, total deposits of $1.60 billion, and shareholders’ equity of $190.3 million.

The Company has continued to build on its strategic actions taken during 2025, which was marked by a successful capital raise and balance sheet repositioning of its investment securities portfolio. These actions strengthened its balance sheet and improved its forward earnings profile. Our vision for 2026 is about disciplined growth with smart investment and continued focus on people and technology, which we believe will lead to stronger core earnings and a balance sheet positioned for more consistent results.

CRITICAL ACCOUNTING ESTIMATES

The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which requires us to make estimates and assumptions. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported.

Our most significant policies are described in in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to our audited financial statements for the year ended December 31, 2025, included in the Company's 2025 Annual Report on Form 10-K filed with the SEC. There have been no changes since that time.

NON-GAAP FINANCIAL MEASURES

This report refers to certain financial measures that are computed under a basis other than GAAP ("non-GAAP"). The Company uses certain non-GAAP financial measures, including non-GAAP net income, non-GAAP noninterest income, non-GAAP earnings per share, non-GAAP return on average equity and average assets, tax-equivalent net interest income and efficiency ratio, to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.

There were no significant non-recurring transactions executed during the first quarter of 2026 that substantially impacted the Company's operating results, unlike during the 2025 quarter. During the three months ended March 31, 2025, the Company executed balance sheet repositioning transactions and recorded a realized loss on the sale of the available for sale securities totaling $12.4 million. This loss significantly impacted the Company's operating results and certain performance metrics and ratios for three months ended March 31, 2025.

The following table reconciles the GAAP reported measure to the adjusted non-GAAP measure to show the impact of significant non-recurring transactions for the periods presented:

For additional information and calculations of tax-equivalent net interest income and efficiency ratio, see the sections entitled "Tax-Equivalent Net Interest Income" and "Efficiency Ratio" below.

RESULTS OF OPERATIONS

Summary

The following table presents a summarized consolidated statement of operations for the periods indicated:

(1) Adjusted to exclude the loss on sale of securities in connection with the Company's balance sheet repositioning transactions during the three months ended March 31, 2025. See "Non-GAAP Financial Measures" for a reconciliation to comparable measures calculated in accordance with GAAP.

The Company's net income increased during the three months ended March 31, 2026, compared to the three months ended March 31, 2025 primarily due to the loss on the sale of available for sale securities totaling $12.4 million, or $9.8 million, net of tax, recognized during the prior year period. The first quarter of 2026 also experienced an increase in net interest income, which was partially offset by higher noninterest expenses and provision for credit losses over the corresponding 2025 period.

The following table presents a summary of performance metrics and ratios for the periods indicated:

(1) Adjusted to exclude the loss on sale of securities in connection with the Company's balance sheet repositioning transactionsduring the three months ended March 31, 2025. See "Non-GAAP Financial Measures" for a reconciliation to comparable measures calculated in accordance with GAAP.

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 shareholders.

Return on average assets ("ROA") measures how efficiently the Company uses its assets to produce net income. Factors reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control.

Average Balances, Income and Expenses, Yields and Rates (Tax-Equivalent Basis)

The following table shows average balance, interest, and yield/rate information, as well as net interest margin on a tax- equivalent basis for the three months ended March 31, 2026 and 2025 (dollars in thousands):

(1)

Income and yields are reported on a tax-equivalent basis using a federal tax rate of 21% (Non-GAAP).

(2)

Annualized.

(3)

Refer to section entitled "Tax-Equivalent Net Interest Income" for the reconciliation of tax-equivalent net interest income.

NM - Not Meaningful

Tax-Equivalent Net Interest Income

The following table reconciles tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income. Tax-equivalent net interest income (Non-GAAP) 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 tax rate used to calculate the tax benefit was 21% for 2026 and 2025.

(1)

Tax benefit was calculated using the federal statutory tax rate of 21%.

Net Interest Income

Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates.

The year-over-year improvements in net interest income, tax-equivalent net interest income, net interest spread, and net interest margin primarily reflect a decrease in the average balances of interest-bearing liabilities and reductions in the average rates paid. Additionally, the impact of the balance sheet repositioning strategy completed in March 2025, pursuant to which the Company raised capital, increased cash on hand and replaced lower-yielding investment securities with higher yielding securities, and an increase in the average yield earned on loans contributed to the increase in net interest income during the three months ended March 31, 2026.

Net interest income, on a tax-equivalent basis, was $15.9 million and $13.4 million for the three months ended March 31, 2026 and 2025, respectively, an increase of $2.6 million, or 19.2%.

The Company's net interest spread and net interest margin increased 67 basis points and 65 basis points, respectively, for the three months ended March 31, 2026 compared to three months ended March 31, 2025. These increases are primarily attributable to the repositioning of the securities portfolio and reductions in the average rate paid on and average balances of time deposits. Ongoing margin pressures include loan demand unpredictability, deposit competition, and elevated funding costs.

Total average balance of securities increased by $4.4 million for the three months ended March 31, 2026 from the average balance in the prior year period due to purchases exceeding routine paydowns and maturities in the portfolio. The average yield on securities increased 141 basis points during the three months ended March 31, 2026 compared to the three months ended March 31, 2025 reflecting the sale of lower-yielding securities and reinvestment into higher-yielding securities in the first quarter of 2025.

The total average loan balances for the three months ended March 31, 2026 remained level with the same period in 2025 reflecting growth in commercial real estate and home equity lines of credit loan portfolios, offset by the sale of a pool of mortgage loans totaling $18.8 million early in the first quarter of 2025 ahead of the Company's public offering, continued amortization of the marine loan portfolio as the Company is no longer accepting new marine business, and a net decrease in the commercial and industrial loan portfolio largely due to sales of SBA loans to the secondary market.

Total average balance of federal funds sold and interest-bearing deposits in other banks decreased $46.7 million during the three months ended March 31, 2026 compared to the three months ended March 31, 2025, due to the payoff of maturing borrowings.

Total average interest-bearing deposit balances for three months ended March 31, 2026 decreased $21.2 million from the same period in 2025. Time deposits and savings accounts decreased $60.6 million and $10.3 million, respectively, partially offset by NOW and money market accounts which increased $36.9 million and $12.8 million, respectively. The average rate paid on interest-bearing deposits decreased 39 basis points during the three months ended March 31, 2026 compared to the three months ended March 31, 2025 reflecting lower average rates paid on time deposits.

The average balance of FHLB advances decreased $82.1 million during the three months ended March 31, 2026 compared to the three months ended March 31, 2025 due to maturing advances that were not replaced with new borrowings. During the three months ended March 31, 2026 the Company's remaining FHLB borrowings were fully paid down, which materially reduced our reliance on wholesale funding.

Volume and Rate Analysis (Tax-Equivalent Basis)

Interest income and expense are affected by fluctuation in interest rates, by changes in the volume of earning assets and interest-bearing liabilities, and by the interaction of rate and volume factors. Changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of change in each.

The following table provides information about changes in rate and volume (dollars in thousands):

Provision for Credit Losses

The provision for credit losses results from management's review of the adequacy of the allowance for credit losses. The allowance for credit losses is management’s estimate, at the reporting date, of expected lifetime credit losses and includes consideration of current forecasted economic conditions. Estimating the amount required to maintain an adequate allowance for credit losses involves a high degree of judgment.

The following table presents the provision for credit losses:

The provision for credit losses for the three months ended March 31, 2026 and 2025 included the impact of net losses and specific reserve allocations on individually evaluated nonaccrual loans and reflected management's estimate of forecasted economic conditions and changes in loan balances.

During the three months ended March 31, 2026, net recoveries totaled $34 thousand compared to net charge-offs totaling $891 thousand during the three months ended March 31, 2025.

Specific reserve allocations totaled $2.1 million at March 31, 2026 primarily reflecting four commercial loan relationships, three of which are commercial and industrial relationships and one includes both commercial and industrial and commercial real estate loans. The specific reserves on these four relationships comprised $1.7 million, or 81%, of the total allocation at March 31, 2026. At March 31, 2025, specific reserve allocations totaled $152 thousand consisting of two commercial loan relationships.

The increase in the specific reserve allocation at March 31, 2026 was primarily attributable to two commercial and industrial relationships for which new or increased specific allocations were recorded during the first quarter of 2026, driven by updated collateral information. Additional appraisals on certain nonaccrual and individually evaluated loans have been ordered and are expected to be received in the middle to late portion of the second quarter of 2026. The results of these appraisals may indicate that further specific reserves are warranted on certain existing nonaccrual or impaired loans, which could result in additional provisioning in future periods.

Noninterest Income

Total noninterest income (loss) was $4.9 million and $(8.6) million for the three months ended March 31, 2026 and 2025, respectively. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of noninterest income for the three months ended March 31, 2026 and 2025, which are included within the respective Consolidated Statements of Operations headings.

NM - Not Meaningful

Wealth management fee income increased from 2025 to 2026. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management, which has increased $48.5 million, or 9.22%, to $574.4 million since March 31, 2025. Additionally, per transaction fees for estates and other services have also contributed to the year over year increase in revenue. Partially offsetting these increases was a decrease in investment sales commissions.

The Company executed balance sheet repositioning transactions within its investment securities portfolio during March 2025. The sale of $99.2 million of available for sale debt securities, with a fair value of $86.8 million, resulted in a net pre-tax loss of $12.4 million during three months ended March 31, 2025. There was no sale of available for sale debt securities in the three months ended March 31, 2026 .

Gain on sale of loans increased during the three months ended March 31, 2026 when compared to the same period in 2025. The Company sold $24.1 million in mortgage loans on the secondary market, consisting of $16.6 million of loans originated for sale and $7.5 million of SBA commercial loans during the three months ended March 31, 2026. This compares to loan sales of $16.9 million, consisting of $14.9 million of loans originated for sale and $2.0 million SBA commercial loans, during the three months ended March 31, 2025. Additionally, during three months ended March 31, 2025 a pool of $18.8 million residential mortgage loans held for investment was sold at par.

Income from holdings in small business investment companies increased during three months ended March 31, 2026, compared to the same period in 2025. The increase during the current year period is mainly attributed to higher cash distributions received, based on the results of their performance and difference in timing of distributions.

Noninterest Expenses

Total noninterest expenses increased $1.6 million, or 13%, for the three months ended March 31, 2026 compared to the same period in 2025. The following table presents the components of noninterest expense for the three months ended March 31, 2026 and 2025, which are included within the respective Consolidated Statements of Operations headings.