UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
- -------------------------------------------------------------------------------
Form 10-Q
X Quarterly Report Under Section 13 or 15(d) of the Securities
--------- Exchange Act of 1934
For the quarterly period ended March 31, 1998
Transition Report Under Section 13 or 15(d) of the Exchange
--------- Act
- -------------------------------------------------------------------------------
EAGLE FINANCIAL SERVICES, INC
(Exact name of registrant as specified in its charter)
Virginia 54-1601306
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Post Office Box 391
Berryville, Virginia 22611
(Address of principal executive offices) (Zip Code)
(540) 955-2510
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock ($2.50 par value)
outstanding as of May 12, 1998 was 1,410,432
1
EAGLE FINANCIAL SERVICES, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) .......................... 3
Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 ................. 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1998 and 1997 ............ 4
Consolidated Statement of Changes in
Stockholder's Equity for the Three Months
Ended March 31, 1998 and 1997 ......................... 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 ............ 6
Notes to Consolidated Financial Statements ............ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............. 8
Item 3. Quantitative and Qualitative Disclosures
about Market Risk ......................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................ 10
Item 2. Changes in Securities .................................... 10
Item 3. Defaults Upon Senior Securities .......................... 10
Item 4. Submission of Matters to a Vote of Security Holders ...... 10
Item 5. Other Information ........................................ 10
Item 6. Exhibits and reports on Form 8-K ......................... 11
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Eagle Financial Services, Inc. and Subsidiary
Consolidated Balance Sheets
As of March 31, 1998 and December 31, 1997
March 31, 1998 December 31, 1997
-------------- --------------
Assets
Cash and due from banks $ 4,390,236 $ 5,242,309
Securities held to maturity (fair value:
1998, $37,207,285; 1997, $33,207,946) 37,167,345 33,160,658
Securities available for sale, at fair value 3,797,525 4,258,122
Federal funds sold 5,088,000 2,300,000
Loans, net of unearned discounts 80,318,467 81,425,186
Less allowance for loan losses (793,250) (748,558)
-------------- --------------
Net loans 79,525,217 80,676,628
Bank premises and equipment, net 4,133,171 4,060,501
Other real estate owned 189,688 189,688
Intangible assets 590,244 602,949
Other assets 2,665,100 2,748,546
-------------- --------------
Total assets $ 137,546,526 $ 133,239,401
============== ==============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest bearing $ 17,404,411 $ 17,774,480
Interest bearing 103,805,991 99,304,875
-------------- --------------
Total deposits $ 121,210,402 $ 117,079,355
Other liabilities 1,051,854 1,101,931
-------------- --------------
Total liabilities $ 122,262,256 $ 118,181,286
-------------- --------------
Stockholders' Equity
Preferred Stock, $10 par value;
500,000 shares authorized
and unissued $ 0 $ 0
Common Stock, $2.50 par value;
authorized 1,500,000 shares;
issued 1998, 1,410,432; issued
1997, 1,408,485 shares 3,526,079 3,521,213
Surplus 2,149,187 2,107,826
Retained Earnings 9,584,919 9,419,266
Accumulated other comprehensive income 24,085 9,810
-------------- --------------
Total stockholders' equity $ 15,284,270 $ 15,058,115
-------------- --------------
Total liabilities and stockholders'
equity $ 137,546,526 $ 133,239,401
============== ==============
3
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Income
For the Three Months Ended March 31, 1998 and 1997
Three Months Ended
March 31,
1998 1997
-------------- --------------
Interest Income
Interest and fees on loans $ 1,740,175 $ 1,863,241
Interest on securities held to
maturity:
Taxable interest income 469,845 349,010
Interest income exempt from
federal income taxes 39,282 35,748
Interest and dividends on securities
available for sale, taxable 66,004 20,486
Interest on federal funds sold 34,137 28,651
Interest on deposits in banks 782 0
-------------- --------------
Total interest income $ 2,350,225 $ 2,297,136
-------------- --------------
Interest Expense
Interest on deposits $ 1,014,897 $ 923,743
Interest on federal funds purchased 178 0
-------------- --------------
Total interest expense $ 1,015,075 $ 923,743
-------------- --------------
Net interest income $ 1,335,150 $ 1,373,393
Provision For Loan Losses 80,000 75,000
-------------- --------------
Net interest income after
provision for loan losses $ 1,255,150 $ 1,298,393
-------------- --------------
Other Income
Trust Department income $ 92,064 $ 48,662
Service charges on deposits 137,437 122,764
Other service charges and fees 59,765 46,363
Gain (loss) on equity investment (1,289) (2,150)
Other operating income 90,802 38,150
-------------- --------------
$ 378,779 $ 253,789
-------------- --------------
Other Expenses
Salaries and wages $ 554,035 $ 454,596
Pension and other employee benefits 147,242 128,306
Occupancy expenses 101,692 96,811
Equipment expenses 121,503 107,659
Stationary and supplies 51,143 43,524
Postage 30,511 23,951
Credit card expense 45,311 32,264
Bank franchise tax 24,000 24,048
ATM network fees 13,983 32,553
Intangible amortization 12,705 12,563
Other operating expenses 174,371 210,342
-------------- --------------
$ 1,276,496 $ 1,166,617
-------------- --------------
Income before income taxes $ 357,433 $ 385,565
Income Tax Expense 79,101 80,685
-------------- --------------
Net Income $ 278,332 $ 304,880
============== ==============
Earnings Per Share
(basic and assuming dilution) $ 0.20 $ 0.22
============== ==============
4
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
For the Three Months Ended March 31, 1998 and 1997
Accumulated
Other
Comprehensive Common Retained Comprehensive
Income Stock Surplus Earnings Income (Loss) Total
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 $ 0 $ 3,499,714 $ 1,945,891 $ 8,756,281 $ (5,030) $14,196,856
Comprehensive income
Net income 304,880 304,880 304,880
Other comprehensive income (loss)
Unrealized gain (loss) on
securities available for
sale, net of deferred
income taxes of $500 (974) (974) (974)
-----------
Total comprehensive income $ 303,906
===========
Dividend declared ($0.08 per share) (111,990) (111,990)
Issuance of common stock, dividend
investment plan (2,268 shares) 5,669 39,585 45,254
Fractional shares purchased (4) (32) (36)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 $ 3,505,379 $ 1,985,444 $ 8,949,171 $ (6,004) $14,433,990
=========== =========== =========== =========== ===========
5
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
For the Three Months Ended March 31, 1998 and 1997
Accumulated
Other
Comprehensive Common Retained Comprehensive
Income Stock Surplus Earnings Income (Loss) Total
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 $ 0 $ 3,521,213 $ 2,107,826 $ 9,419,266 $ 9,810 $15,058,115
Comprehensive income
Net income 278,332 278,332 278,332
Other comprehensive income (loss)
Unrealized gain (loss) on
securities available for
sale, net of deferred
income taxes of $7,354 14,275 14,275 14,275
-----------
Total comprehensive income $ 292,607
===========
Dividend declared ($0.08 per share) (112,679) (112,679)
Issuance of common stock, dividend
investment plan (2,268 shares) 4,869 41,383 46,252
Fractional shares purchased (3) (22) (25)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998 $ 3,526,079 $ 2,149,187 $ 9,584,919 $ 24,085 $15,284,270
=========== =========== =========== =========== ===========
6
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1998 and 1997
1998 1997
------------ ------------
Cash Flows from Operating Activities
Net income $ 278,332 $ 304,880
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 90,883 103,511
Amortization of intangible assets 12,705 12,563
Loss on equity investment 1,289 2,150
Provision for loan losses 80,000 75,000
Premium amortization on securities, net 14,602 8,940
Decrease in other assets 74,803 103,654
Increase (decrease) in other liabilities (50,077) 83,592
------------ ------------
Net cash provided by operating activities $ 502,537 $ 694,290
------------ ------------
Cash Flows from Investing Activities
Proceeds from maturities and principal
payments on securities held to maturity $ 3,611,912 $ 920,129
Proceeds from maturities and principal
payments on securities available for sale 750,000 308,000
Purchases of securities held to maturity (7,633,475) (3,233,032)
Purchases of securities available for sale (267,500) (45,100)
Purchases of bank premises and equipment (163,553) (26,755)
Net decrease in loans 1,071,411 3,379,999
------------ ------------
Net cash provided by (used in) investing
activities $ (2,631,205) $ 1,303,241
------------ ------------
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits,
money market, and savings accounts $ 1,101,502 $ (115,303)
Net increase in certificates of deposits 3,029,545 564,506
Cash dividends paid (66,427) (66,736)
Fractional shares purchased (25) (36)
------------ ------------
Net cash provided by financing activities $ 4,064,595 $ 382,431
------------ ------------
Increase in cash and cash equivalents $ 1,935,927 $ 2,379,962
Cash and Cash Equivalents
Beginning 7,542,309 5,962,250
------------ ------------
Ending $ 9,478,236 $ 8,342,212
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 1,086,563 $ 976,620
============ ============
Income taxes $ 0 $ 0
============ ============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Issuance of common stock,
dividend investment plan $ 46,252 $ 45,254
============ ============
Unrealized gain (loss) on securities
available for sale $ 21,629 $ (1,474)
============ ============
Other real estate acquired in settlement
of loans $ 0 $ 0
============ ============
7
EAGLE FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(1) The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles.
(2) In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of
March 31, 1998 and December 31, 1997, and the result of operations and
cash flows for the three months ended March 31, 1998 and 1997. The
statements should be read in conjunction with the Notes to Financial
Statements included in the Company's Annual Report for the year ended
December 31, 1997.
(3) The results of operations for the three month period ended March 31,
1998 and 1997, are not necessarily indicative of the results to be
expected for the full year.
(4) Securities held to maturity and available for sale as of March 31, 1998
and December 31, 1997, are:
March 31, 1998 December 31, 1997
Held to Maturity Amortized Cost Amortized Cost
- ---------------- -------------- --------------
U.S. Treasury securities $ 381,781 $ 371,922
Obligations of U.S. government
corporations and agencies 12,658,227 10,148,139
Mortgage-backed securities 18,137,929 17,257,777
Obligations of states and political
subdivisions 5,989,408 5,382,820
-------------- --------------
$ 37,167,345 $ 33,160,658
============== ==============
March 31, 1998 December 31, 1997
Fair Value Fair Value
-------------- --------------
U.S. Treasury securities $ 388,416 $ 378,455
Obligations of U.S. government
corporations and agencies 12,682,491 10,178,461
Mortgage-backed securities 18,107,452 17,231,410
Obligations of states and political
subdivisions 6,028,926 5,419,620
-------------- --------------
$ 37,207,285 $ 33,207,946
============== ==============
March 31, 1998 December 31, 1997
Available for Sale Amortized Cost Amortized Cost
- ------------------ -------------- --------------
Obligations of U.S. government
corporations and agencies $ 2,751,332 $ 3,501,058
Other securities 1,009,700 742,200
-------------- --------------
$ 3,761,032 $ 4,243,258
============== ==============
March 31, 1998 December 31, 1997
Fair Value Fair Value
-------------- --------------
Obligations of U.S. government
corporations and agencies $ 2,767,825 $ 3,515,922
Other securities 1,029,700 742,200
-------------- --------------
$ 3,797,525 $ 4,258,122
============== ==============
(5) Net loans at March 31, 1998 and December 31, 1997 are summarized as
follows (In Thousands):
March 31, 1998 December 31, 1997
-------------- --------------
Loans secured by real estate:
Construction and land development $ 513 $ 588
Secured by farmland 3,642 3,700
Secured by 1-4 family residential 44,930 44,863
Nonfarm, nonresidential loans 10,841 11,141
Loans to finance agricultural production 681 770
Commercial and industrial loans 5,430 5,116
Loans to individuals 13,487 14,458
Loans to U.S. state and political
subdivisions 1,093 1,155
All other loans 67 97
-------------- --------------
Gross loans $ 80,684 $ 81,888
Less:
Unearned income (366) (462)
Allowance for loan losses (793) (749)
-------------- --------------
Loans, net $ 79,525 $ 80,677
============== ==============
(6) Allowance for Loan Losses
March 31, 1998 December 31, 1997
-------------- --------------
Balance, beginning $ 748,558 $ 913,955
Provision charged to operating expense 80,000 476,667
Recoveries added to the allowance 37,299 44,624
Loan losses charged to the allowance (72,607) (686,688)
-------------- --------------
Balance, ending $ 793,250 $ 748,558
============== ==============
(7) New Accounting Pronouncements
There are no new accounting pronouncements which will affect the Company.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PERFORMANCE SUMMARY
Net income of the company for the first three months of 1998 and 1997 was $278,
332 and $304,880, respectively. This is a decrease of $26,548 or 8.71%.The
results of operations for the three month periods ended March 31, 1998 and 1997
are not necessarily indicative of the results to be expected for the full year.
Net interest income after provision for loan losses for the first three months
of 1998 and 1997 was $1,255,150 and $1,298,393, respectively. This is a decrease
of $43,243 or 3.33%. Total other income increased $124,990 or 49.25% from
$253,789 for the first three months of 1997 to $378,779 for the first three
months of 1998. Total other expenses increased $109,879 or 9.42% from $1,166,617
during the first three months of 1997 to $1,276,496 during the first three
months of 1998.
Earnings per common share outstanding (basic and diluted) was $0.20 and $0.22
for the three months ended March 31, 1998 and 1997, respectively. Annualized
return on average assets for the quarter ended March 31, 1998 was 0.84% as
compared to 0.97% for the quarter ended March 31, 1997. Annualized return on
average equity for 1998 was 7.35% as compared to 8.54% for 1997.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based upon management's estimate of the amount
required to maintain an adequate allowance for loan losses reflective of the
risks in the loan portfolio. The Company reviews the adequacy of the allowance
for loan losses monthly and utilizes the results of these evaluations to
establish the provision for loan losses. The allowance is maintained at a level
believed by management to absorb potential losses in the loan portfolio. The
methodology considers specific identifications, specific and estimate pools,
trends in delinquencies, local and regional economic trends, concentrations,
commitments, off balance sheet exposure and other factors. The provision for
loan losses increased $5,000 from $75,000 in 1997 to $80,000 in 1998. The
allowance for loan losses increased $44,692 or 5.97% during the first three
months of 1998 from $748,558 at December 31, 1997 to $793,250 at March 31, 1998.
The allowance as a percentage of total loans increased from 0.92% at December
31, 1997 to 0.99% at March 31, 1998. The Company had net charge-offs of $35,308
and $160,943 for the first three months of 1998 and 1997, respectively. The
ratio of net charge-offs to average loans was 0.04% for the first three months
of 1998 as compared to 0.19% for the first three months of 1997.
The coverage for the allowance for loan losses over non-performing assets and
loans 90 days past due and still accruing interest has increased from 60.42% at
December 31, 1997 to 89.18% at March 31, 1998. Loans past due greater than 90
days and still accruing interest decreased from $615,410 at December 31, 1997 to
$361,799 at March 31, 1998.
Potential problem loans are included in the loans past due 90 days or more and
still accruing interest. Loans are viewed as potential problem loans when
management questions the ability of the borrower to comply with current
repayment terms. These loans are subject to constant review by management and
their status is reviewed on a regular basis. The amount of problem loans as of
March 31, 1998 was $1,010,704. Most of these loans are well secured and
management expects to incur only immaterial losses on their disposition.
BALANCE SHEET
Total assets increased $4.3 million or 3.23% from $133.2 million at December 31,
1997 to $137.5 million at March 31, 1998. Securities increased $3.5 million or
9.48% during the first three months of 1998 from $37.4 million at December 31,
1997 to $41.0 million at March 31, 1998. Loans, net of unearned discounts
decreased $1.1 million or 1.36% during the same period from $81.4 million at
December 31, 1997 to $80.3 million at March 31, 1998.
Total liabilities increased $4.1 million or 3.45% during the first three months
of 1998 from $118.2 million at December 31, 1997 to $122.3 million at March 31,
1998. Total deposits increased $4.1 million or 3.5% during the same period from
$117.1 at December 31, 1997 to $121.2 million at March 31, 1998. Total
stockholders' equity increased $0.2 million during the first three months of
1998 from $15.1 million at December 31, 1997 to $15.3 million at March 31, 1998.
STOCKHOLDERS' EQUITY
The Company continues to be a well capitalized financial institution.
Stockholders' equity per share increased $0.15 or 1.40% from $10.69 per share at
December 31, 1997 to $10.84 per share at March 31, 1998. During 1997 the Company
paid $0.32 per share in dividends. The Company's 1998 first quarter dividend was
$0.08 per share. The Company has a Dividend Investment Plan that reinvests the
dividends of participating shareholders in Company stock.
LIQUIDITY
Asset and liability management assures liquidity and maintains the balance
between rate sensitive assets and liabilities. Liquidity management involves
meeting the present and future financial obligations of the Company with the
sale or maturity of assets or through the occurrence of additional liabilities.
Liquidity needs are met with cash on hand, deposits in banks, federal funds
sold, securities classified as available for sale and loans maturing within one
year. Total liquid assets were $29.2 million at March 31, 1998 and $28.6 million
at December 31, 1997. These represent 23.9% and 24.2% of total liabilities as of
March 31, 1998 and December 31, 1997, respectively.
9
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in information reported as of
December 31, 1997 in Form 10-K.
10
PART II. OTHER INFORMATION
Item 1. Legal proceedings.
None
Item 2. Changes in securities.
None.
Item 3. Defaults upon senior securities.
None.
Item 4. Submission of matters to a vote of security holders.
None.
Item 5. Other Information.
None
11
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits, when applicable, are filed with this Form 10-Q or
incorporated by reference to previous filings.
Number Description
--------- -----------------------------------------
Exhibit 2. Not applicable.
Exhibit 3. (i) Articles of Incorporation of Registrant
(incorporated herein by reference to
Exhibit 3.1 of Registrant's Form S-4
Registration Statement, Registration No.
33-43681.)
(ii) Bylaws of Registrant (incorporated
herein by reference to Exhibit 3.2 of
Registrant's Form S-4 Registration
Statement, Registration No. 33-43681)
Exhibit 4. Not applicable.
Exhibit 10. Material Contracts.
10.1 Description of Executive Supplemental
Income Plan (incorporated by reference
to Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1996).
10.2 Lease Agreement between Bank of Clarke
County (tenant) and Winchester
Development Company (landlord) dated
August 1, 1992 for the branch office at
625 East Jubal Early Drive, Winchester,
Virginia (incorporated herein by
reference to Exhibit 10.2 of the
Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
10.3 Lease Agreement between Bank of Clarke
County (tenant) and Winchester
Development Company (landlord) dated July
1, 1997 for an office at 615 East Jubal
Early Drive, Winchester, Virginia
(incorporated herein by reference to
Exhibit 10.3 of the Company's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1997).
10.4 Lease Agreement between Bank of Clarke
County (tenant) and Steven R. Koman
(landlord) dated December 2, 1997 for the
branch office at 40 West Piccadilly
Street, Winchester, Virginia
(incorporated herein by reference to
Exhibit 10.4 of the Company's Annual
Report on Form 10-K for the year ended
December 31, 1997).
Exhibit 11. Not applicable.
Exhibit 15. Not applicable.
Exhibit 18. Not applicable.
Exhibit 19. Not applicable.
Exhibit 22. Not applicable.
Exhibit 23. Not applicable.
Exhibit 24. Not applicable.
Exhibit 27. Financial Data Schedule
(incorporated herein as Exhibit 27).
Exhibit 99. Not applicable.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the registrant during the first
quarter of 1998.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE FINANCIAL SERVICES, INC.
Date: May 14, 1998 /s/ LEWIS M. EWING
--------------------------
Lewis M. Ewing
President and CEO
Date: May 14, 1998 /s/ JOHN R. MILLESON
--------------------------
John R. Milleson
Executive Vice President and
Secretary/Treasurer
Date: May 14, 1998 /s/ JAMES W. MCCARTY, JR.
--------------------------
James W. McCarty, Jr.
Vice President and CFO
13