EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Berryville, Virginia
FINANCIAL REPORT
DECEMBER 31, 1998
CONTENTS
INDEPENDENT AUDITOR'S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets
Consolidated statements of income
Consolidated statements of shareholders' equity Consolidated statements of
cash flows Notes to consolidated financial statements
39
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Directors
Eagle Financial Services, Inc. and Subsidiary
Berryville, Virginia
We have audited the accompanying consolidated balance sheets of Eagle
Financial Services, Inc. and Subsidiary, as of December 31, 1998 and 1997, and
the related consolidated statements of income, shareholders' equity, and cash
flows for the years ended December 31, 1998, 1997, and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We have conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Eagle
Financial Services, Inc. and Subsidiary as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for the years ended
December 31, 1998, 1997, and 1996, in conformity with generally accepted
accounting principles.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
January 22, 1999
40
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
1998 1997
--------------- ---------------
Assets
Cash and due from banks $ 5,313,475 $ 5,242,309
Federal funds sold 2,323,000 2,300,000
Securities held to maturity (fair value:
1998, $43,239,752; 1997, $37,466,068) 43,081,952 37,418,780
Loans, net of unearned discounts 95,933,498 81,425,186
Less allowance for loan losses (925,171) (748,558)
--------------- ---------------
Net loans $ 95,008,327 80,676,628
Bank premises and equipment, net 4,117,903 4,060,501
Other real estate owned 0 189,688
Other assets 3,279,902 3,351,495
--------------- ---------------
Total assets $ 153,124,559 $ 133,239,401
=============== ===============
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest bearing $ 21,289,370 $ 17,774,480
Savings and Interest bearing 50,933,486 45,600,236
Time deposits 57,987,032 53,704,639
--------------- ---------------
Total deposits $ 130,209,888 $ 117,079,355
Federal funds purchased and securities
sold under agreements to repurchase 695,915 0
Federal Home Loan Bank advances 5,000,000 0
Other liabilities 1,025,255 1,101,931
Commitments and contingent liablities 0 0
--------------- ---------------
Total liabilities $ 136,931,058 $ 118,181,286
--------------- ---------------
Shareholders' 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, 1,418,341; issued
1997, 1,408,485 shares 3,545,853 3,521,213
Surplus 2,307,615 2,107,826
Retained Earnings 10,262,104 9,419,266
Accumulated other comprehensive income 77,929 9,810
--------------- ---------------
Total shareholders' equity $ 16,193,501 $ 15,058,115
--------------- ---------------
Total liabilities and
shareholders' equity $ 153,124,559 $ 133,239,401
=============== ===============
See Notes to Consolidated Financial Statements.
41
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996
--------------- --------------- ---------------
Interest Income
Interest and fees on loans $ 7,261,271 $ 7,255,085 $ 7,750,646
Interest on federal funds sold 114,207 101,842 51,219
Interest on securities held to maturity:
Taxable interest income 1,308,419 1,617,097 1,308,152
Interest income exempt from
federal income taxes 217,573 145,016 158,070
Interest and dividends on securities
available for sale:
, Taxable 766,511 142,480 90,459
Interest income exempt from
Federal income taxes 2,215 0 0
Dividends 74,612 48,717 44,324
Interest on deposits in banks 1,782 0 0
--------------- --------------- ---------------
Total interest income $ 9,746,590 $ 9,310,237 $ 9,402,870
--------------- --------------- ---------------
Interest Expense
Interest on deposits $ 4,178,511 $ 3,899,598 $ 3,853,810
Interest on federal funds purchased and
securities sold under agreements
to repurchase 14,079 4,599 56,802
Interest on Federal Home Loan Bank advances 11,664 0 0
--------------- --------------- ---------------
Total interest expense $ 4,204,254 $ 3,904,197 $ 3,910,612
--------------- --------------- ---------------
Net interest income $ 5,542,336 $ 5,406,040 $ 5,492,258
Provision For Loan Losses 371,886 476,667 290,000
--------------- --------------- ---------------
Net interest income after
provision for loan losses $ 5,170,450 $ 4,929,373 $ 5,202,258
--------------- --------------- ---------------
Other Income
Trust Department income $ 342,769 $ 233,180 $ 199,587
Service charges on deposits 545,782 532,277 522,436
Other service charges and fees 336,682 289,465 196,232
Gain (loss) on equity investment (4,352) (4,880) 595
Other operating income 486,831 195,739 105,920
--------------- --------------- ---------------
$ 1,707,712 $ 1,245,781 $ 1,024,770
--------------- --------------- ---------------
Other Expenses
Salaries and wages $ 2,318,317 $ 1,951,569 $ 1,732,542
Pension and other employee benefits 508,343 491,913 478,669
Occupancy expenses 355,468 332,916 323,962
Equipment expenses 485,775 468,785 472,462
Stationary and supplies 179,543 190,154 150,313
Postage 127,784 119,713 126,724
Credit card expense 152,647 101,156 93,637
Bank franchise tax 103,586 95,344 113,484
ATM network fees 71,188 119,827 129,385
Other operating expenses 796,516 819,622 757,209
--------------- --------------- ---------------
$ 5,099,167 $ 4,690,999 $ 4,378,387
--------------- --------------- ---------------
Income before income taxes $ 1,778,995 $ 1,484,155 $ 1,848,641
Income Tax Expense 470,190 372,143 537,304
--------------- --------------- ---------------
Net Income $ 1,308,805 $ 1,112,012 $ 1,311,337
=============== =============== ===============
Earnings Per Share
Net income per common share,
basic and diluted $ 0.93 $ 0.79 0.94
=============== =============== ===============
See Notes to Consolidated Financial Statements.
42
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1998, 1997, and 1996
Accumulated
Other
Common Retained Comprehensive Comprehensive
Stock Surplus Earnings Income (Loss) Income Total
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 $ 1,738,212 $ 1,782,186 $ 9,612,627 $ (12,606) $13,120,419
Comprehensive income:
Net income - 1996 1,311,337 1,311,337 1,311,337
Other comprehensive income:
Unrealized gain on
securities available for
sale, net of deferred
income taxes of $3,903 7,576 7,576 7,576
-----------
Total comprehensive income $ 1,318,913
===========
Issuance of common stock, dividend
investment plan (4,662 shares) 11,656 163,875 175,531
Dividends declared ($0.30 per share) (417,826) (417,826)
Issuance of common stock, stock split
effected in the form of a 100% stock
dividend (699,943 shares) 1,749,857 (1,749,857) 0
Discretionary transfer from retained
earnings 1,749,857 (1,749,857) 0
Fractional shares purchased (11) (170) (181)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 $ 3,499,714 $ 1,945,891 $ 8,756,281 $ (5,030) $14,196,856
Comprehensive income:
Net income - 1997 1,112,012 $ 1,112,012 1,112,012
Other comprehensive income:
Unrealized gain on
securities available for
sale, net of deferred
income taxes of $7,645 14,840 14,840 14,840
-----------
Total comprehensive income $ 1,126,852
===========
Issuance of common stock, dividend
investment plan (8,603 shares) 21,507 161,992 183,499
Dividends declared ($0.32 per share) (449,027) (449,027)
Fractional shares purchased (8) (57) (65)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 $ 3,521,213 $ 2,107,826 $ 9,419,266 $ 9,810 $15,058,115
Comprehensive income:
Net income - 1998 1,308,805 $ 1,308,805 1,308,805
Other comprehensive income:
Unrealized gain on
securities available for
sale, net of deferred
income taxes of $35,092 68,119 68,119 68,119
-----------
Total comprehensive income $ 1,376,924
===========
Issuance of common stock to Employee
Stock Ownership Plan (2,145 shares) 5,363 28,534 33,897
Issuance of common stock, dividend
investment plan (7,715 shares) 19,288 171,357 190,645
Dividends declared ($0.33 per share) (465,967) (465,967)
Fractional shares purchased (11) (102) (113)
----------- ----------- ----------- ------------ -----------
Balance, December 31, 1998 $ 3,545,853 $ 2,307,615 $10,262,104 $ 77,929 $16,193,501
=========== =========== =========== ============ ===========
See Notes to Consolidated Financial Statements
43
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996
-------------- -------------- --------------
Cash Flows from Operating Activities
Net income $ 1,308,805 $ 1,112,012 $ 1,311,337
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation amortization 344,249 389 ,742 399,076
Amortization of intangible assets 50,817 50,675 52,496
(Income) loss on equity investment 4,352 4,880 (595)
Provision for loan losses 371,886 476,667 290,000
(Gain) on sale of other real estate owned (14,652) 0 0
Premium amortization (discount accretion)
on securities, net 633 63,141 (2,854)
Deferred tax (benefit) (27,506) 60,807 (891)
Changes in assets and liabilities:
(Increase) decrease in other assets 4,436 (540,104) (805,499)
Increase (decrease) in other liabilities (111,768) 144,913 64,145
-------------- -------------- --------------
Net cash provided by operating activities $ 1,931,252 $ 1,762,733 $ 1,307,215
-------------- -------------- --------------
Cash Flows from Investing Activities
Proceeds from maturities and principal
payments of securities held to maturity $ 21,117,817 $ 5,995,036 $ 5,128,436
Proceeds from maturities and principal
payments of securities available for sale 5,612,602 377,000 1,748,844
Purchases of securities held to maturity (25,295,813) (14,873,594) (6,178,873)
Purchases of securities available for sale (6,995,200) (2,868,304) (155,500)
Purchases of bank premises and equipment (362,157) (198,568) (1,157,029)
Proceeds from sale of other real estate owned 204,340 0 0
Net (increase) decrease in loans (14,703,585) 5,659,861 (2,203,140)
-------------- -------------- --------------
Net cash (used in) investing activities $ (20,421,996) $ (5,908,569) $ (2,817,262)
-------------- -------------- --------------
Cash Flows from Financing Activities
Net increase in demand deposits,
money market, and savings accounts $ 8,848,140 $ 834,027 $ 7,222,447
Net increase (decrease) in certificates
of deposits 4,282,393 5,157,461 (1,747,141)
Net increase in federal funds purchased and
securities sold under agreements to repurchase 695,915 0 (1,867,000)
Proceeds from Federal Home Loan Bank advances 5,000,000 0 0
Proceeds from issuance of common stock to ESOP 33,897 0 0
Cash dividends paid (275,322) (265,528) (242,295)
Fractional shares purchased (113) (65) (181)
-------------- -------------- --------------
Net cash provided by financing activities $ 18,584,910 $ 5,725,895 $ 3,365,830
-------------- -------------- --------------
Increase in cash and
cash equivalents $ 94,166 $ 1,580,059 $ 1,855,783
Cash and Cash Equivalents
Beginning 7,542,309 5,962,250 4,106,467
-------------- -------------- --------------
Ending $ 7,636,475 $ 7,542,309 $ 5,962,250
============== ============== ==============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 4,321,635 $ 3,907,348 $ 3,960,889
============== ============== ==============
Income taxes $ 295,522 $ 439,616 592,372
============== ============== ==============
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Issuance of common stock,
dividend investment plan $ 190,645 $ 183,499 $ 175,531
============== ============== ==============
Unrealized gain on securities
available for sale $ 103,211 $ 22,485 $ 11,479
============== ============== ==============
Other real estate acquired in settlement
of loans $ 0 $ 143,083 $ 0
============== ============== ==============
See Notes to Consolidated Financial Statements
44
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 1. Nature of Banking Activities and Significant Accounting Policies
Eagle Financial Services, Inc. and Subsidiary (the Company) grant commercial,
financial, agricultural, residential and consumer loans to customers in Virginia
and the Eastern Panhandle of West Virginia. The loan portfolio is well
diversified and generally is collateralized by assets of the customers. The
loans are expected to be repaid from cash flow or proceeds from the sale of
selected assets of the borrowers.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and to accepted practice within the banking
industry.
Principles of Consolidation
Eagle Financial Services, Inc. owns 100% of Bank of Clarke County (the "Bank").
An additional subsidiary, Eagle Home Funding, Inc., is a wholly-owned subsidiary
of the Bank. The consolidated financial statements include the accounts of Eagle
Financial Services, Inc. and its wholly-owned subsidiary. All significant
intercompany accounts have been eliminated.
Trust Assets
Securities and other property held by the Trust Department in a fiduciary or
agency capacity are not assets of the Company and are not included in the
accompanying consolidated financial statements.
Securities
Investments are to be classified in three categories and accounted for as
follows:
(a) Securities Held to Maturity
Securities classified as held to maturity are those debt securities the Company
has both the intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method over their contractual
lives.
(b) Securities Available for Sale
Securities classified as available for sale are those debt and equity securities
that the Company intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as available
for sale would be based on various factors, including significant movements in
interest rates, changes in the maturity mix of the Company's assets and
liabilities, liquidity needs, regulatory capital considerations, and other
similar factors. Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as a separate component of other
comprehensive income, net of the related deferred tax effect. Realized gains or
losses, determined on the basis of the cost of specific securities sold, are
included in earnings.
(c) Trading Securities
Trading securities, which are generally held for the short term in anticipation
of market gains, are carried at fair value. Realized and unrealized gains and
losses on trading account assets are included in interest income on trading
account securities. The Company had no trading securities at December 31, 1998
and 1997.
As of October 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement requires companies to record derivatives on the
balance sheet as assets and liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. Paragraph 54 of the Standard allows a reallocation of securities
among the three categories outlined above. As a result of adoption, the Company
transferred securities with an amortized cost of $12,135,479 and a fair value of
$12,249,003 from Held to Maturity to Available for Sale.
Derivative Financial Instruments
FASB No. 119, Disclosure About Derivative Financial Instruments and Fair Value
of Financial Instruments requires various disclosures for derivative financial
instruments which are futures, forward, swap or option contract, or other
financial instruments with similar characteristics. The Company does not have
any derivative financial instruments as defined under this statement.
Other Real Estate Owned
Other real estate owned is carried at the lower of estimated market value or the
carrying amount of the loan. A reserve for other real estate owned is maintained
to recognize estimated selling costs or declines in value. Provisions for
estimated selling costs or declines in value, net gains and losses on the sale
of other real estate owned, and net direct expenses attributable to these
properties are included in other operating expenses. Assets, other than real
estate, acquired in the settlement of loans are recorded as other assets.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
Loans
Loans are shown on the balance sheets net of unearned discounts and the
allowance for loan losses. Interest is computed by methods which result in level
rates of return on principal. Loans are charged off when in the opinion of
management they are deemed to be uncollectible after taking into consideration
such factors as the current financial condition of the customer and the
underlying collateral and guarantees.
Unearned interest on certain installment loans is amortized to income over the
life of the loan, using the sum-of-digits formula. For all other loans, interest
is computed on the loan balance outstanding.
Loan origination and commitment fees and direct loan origination costs are being
recognized as collected and incurred. The use of this method does not produce
results that are materially different from results which would have been
produced if such costs and fees were deferred and amortized as an adjustment of
the loan yield over the life of the related loans.
The Company has adopted FASB No. 114, Accounting by Creditors for Impairment of
a Loan. This statement has been amended by FASB No. 118, Accounting by Creditors
for Impairment of a Loan Income Recognition and Disclosures. Statement 114, as
amended, requires that the impairment of loans that have been separately
identified for evaluation is to be measured based on the present value of
expected future cash flows or, alternatively, the observable market price of the
loans or the fair value of the collateral. However, for those loans that are
collateral dependent (that is, if repayment of those loans is expected to be
provided solely by the underlying collateral) and for which management has
determined foreclosure is probable, the measure of impairment of those loans is
to be based on the fair value of the collateral. Statement 114, as amended, also
requires certain disclosures about investments in impaired loans and the
allowance for credit losses and interest income recognized on loans.
The Company considers all consumer installment loans and residential mortgage
loans to be homogeneous loans. These loans are not subject to impairment under
FASB No. 114. A loan is considered impaired when it is probable that the Company
will be unable to collect all principal and interest amounts according to the
contractual terms of the loan agreement. Factors involved in determining
impairment include, but are not limited to, expected future cash flows,
financial condition of the borrower, and the current economic conditions. A
performing loan may be considered impaired, if the factors above indicate a need
for impairment. A loan on nonaccrual status may not be impaired if it is in the
process of collection or there is an insignificant shortfall in payment. An
insignificant delay of less than 30 days or a shortfall of less than 5% of the
required principal and interest payment generally does not indicate an
impairment situation, if in management's judgement the loan will be paid in
full. Loans that meet the regulatory definitions of doubtful or loss generally
qualify as an impaired loan under FASB 114. Charge-offs for impaired loans occur
when the loan, or portion of the loan is determined to be uncollectible, as is
the case for all loans. The Company had no loans subject to FASB No. 114 at
December 31, 1998 and 1997.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans and economic conditions.
Allowances for impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. The allowance is increased
by a provision for loan losses, which is charged to expense and reduced by
charge-offs, net of recoveries. Changes in the allowances relating to impaired
loans are charged or credited to the provision for loan losses. Because of
uncertainties inherent in the estimation process, management's estimate of
credit losses in the loan portfolio and the related allowance may change in the
near term.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is computed principally on the
straight-line and declining-balance methods.
Maintenance and repairs of property and equipment are charged to operations and
major improvements are capitalized. Upon retirement, sale, or other disposition
of property and equipment, the cost and accumulated depreciation are eliminated
from the accounts and gain or loss is included in operations.
Intangible Assets
Acquired intangible assets, such as the value of purchased core deposits and
organizational costs, are amortized over the periods benefited, not exceeding
fifteen years.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences, operating loss
carryforwards, and tax credit carryforwards. Deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amount of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Postretirement Benefits
The Company provides certain health care and life insurance benefits for all
retired employees and one current employee who have met certain eligibility
requirements. All other employees retiring after reaching age 65 and having at
least 15 years service with the Company will be allowed to stay on the Company's
group life and health insurance policies, but will be required to pay premiums.
Effective January 1, 1993, the Company adopted FASB No. 106 to account for its
share of the costs of those benefits. Under FASB No. 106, the Company's share of
the estimated costs that will be paid after retirement is generally being
accrued by charges to expense over the employees' active service periods to the
dates they are fully eligible for benefits, except that the Company's unfunded
cost that existed at January 1, 1993 is being accrued primarily in a
straight-line manner that will result in its full accrual by December 31, 2013.
Prior to 1993, the Company expensed its share of costs as they were paid.
Pension Plan
The Company has a trusteed, noncontributory defined benefit pension plan
covering substantially all full-time employees. In 1998, the Company adopted
FASB No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This pronouncement does not change the measurement or recognition of
amounts in the Company's financial statements applicable to its defined benefit
plan. FASB No. 132 standardizes the disclosure requirements for pensions by
requiring certain additional information on changes in the benefit obligations
and fair values of plan assets and by eliminating certain disclosures.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Basic
earnings per share exclude any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share are very similar to the
previously reported fully diluted earnings per share.
Weighted average shares were 1,413,172, 1,404,645 and 1,392,298 for the years
ended 1998, 1997 and 1996, respectively after giving retroactive effect to the
100% stock dividend declared in 1996. The Corporation had no potential dilution
of common stock as of December 31, 1998, 1997 and 1996.
Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130
established new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this statement had no impact on the
Company's net income or shareholders' equity. SFAS No. 130 requires other
comprehensive income to include the unrealized gains or losses on available for
sale securities, which prior to adoption were reported separately in
shareholders' equity. The financial statements for previous periods have been
reclassified to conform to the requirements of SFAS No. 130.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
45
Note 2. Securities
The amortized costs and fair values of securities being held to maturity as of
December 31, 1998 and 1997, are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------- ------------- ------------- -------------
1998
-------------------------------------------------------------
U.S. Treasury securities $ 121,981 $ 10,275 $ 0 $ 132,256
Obligations of U.S. government
corporations and agencies 6,490,582 89,380 (2,000) 6,577,962
Mortgage-backed securities 10,609,645 19,470 (40,705) 10,588,410
Obligations of states and
political subdivisions 11,445,246 117,939 (36,559) 11,526,626
------------- ------------- ------------- -------------
$ 28,667,454 $ 237,064 $ (79,264) $ 28,825,254
============= ============= ============= =============
1997
-------------------------------------------------------------
U.S. Treasury securities $ 371,922 $ 7,570 $ (1,037) $ 378,455
Obligations of U.S. government
corporations and agencies 10,148,139 54,127 (23,805) 10,178,461
Mortgage-backed securities 17,257,777 56,959 (83,326) 17,231,410
Obligations of states and
political subdivisions 5,382,820 41,677 (4,877) 5,419,620
------------- ------------- ------------- -------------
$ 33,160,658 $ 160,333 $ (113,045) $ 33,207,946
============= ============= ============= =============
The amortized cost and fair value of securities being held to maturity as of
December 31, 1998, by contractual maturity, are shown below. Maturities may
differ from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the maturity summary.
Amortized Fair
Cost Value
------------ ------------
Due in one year or less $ 2,341,728 $ 2,344,257
Due after one year through five years 9,962,656 10,126,834
Due after five years through ten years 5,503,425 5,513,419
Due after ten years 250 000 252,334
Mortgage-backed securities 10,609,645 10,588,410
------------- ------------
$ 28,667,454 $ 28,825,254
============= ============
Amortized costs and fair values of securities available for sale as of December
31, 1998 and 1997, are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------- ------------- ------------- -------------
1998
-------------------------------------------------------------
Obligations of U.S. government
corporations and agencies $ 5,150,116 $ 80,943 $ (5,000) $ 5,226,059
Mortgage-backed securities 7,421,338 23,069 (5,961) 7,438,446
Obligations of states and
Political subdivisions 497,157 1,111 0 498,268
Other 1,227,812 27,500 (3,587) 1,251,725
------------- ------------- ------------- -------------
$ 4 243 258 $ 132,623 $ (14,548) $ 14,414,498
============= ============= ============= =============
1997
-------------------------------------------------------------
Obligations of U.S. government
corporations and agencies $ 3,501,058 $ 17,432 $ (2,568) $ 3,515,922
Other 742,200 0 0 742,200
------------- ------------- ------------- -------------
$ 4,243,258 $ 17,432 $ (2,568) $ 4,258,122
============= ============= ============= =============
The amortized cost and fair value of securities available for sale as of
December 31, 1998, by contractual maturity, are shown below. Maturities may
differ from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the maturity summary.
Amortized Fair
Cost Value
------------- -------------
Due in one year or less $ $ 1,400,035 $ 1,400,843
Due after one year through five years 3,750,081 3,825,216
Due after five years through ten years 497,157 498,268
Mortgage backed securities 7,421,338 7,438,446
Other 1,227,812 1,251,725
------------- -------------
$ 14,296,423 $ 14,414,498
============= =============
Proceeds from maturities and principal payments of securities being held to
maturity during 1998, 1997 and 1996 were $21,117,817, $5,995,036 and $5,128,436.
There were no sales of securities being held to maturity during 1998, 1997 and
1996.
Proceeds from maturities and principal payments of securities available for sale
during 1998, 1997 and 1996 were $5,612,602, $377,000 and $1,748,844. There were
no sales of securities available for sale during 1998, 1997 and 1996.
Securities having a book value of $11,423,378 and $8,473,317 at December 31,
1998 and 1997, were pledged to secure public deposits and for other purposes
required by law.
46
Note 3. Loans, Net
The composition of the net loans is as follows:
December 31
------------------------------
1998 1997
----------- -----------
(thousands)
Loans secured by real estate:
Construction and land development $ 2,168 $ 588
Secured by farmland 3,565 3,700
Secured by 1-4 family residential 51,444 44,863
Nonfarm, nonresidential loans 16,902 11,141
Loans to farmers (except secured by real estate) 745 770
Commercial and industrial loans
(except those secured by real estate) 6,463 5,116
Loans to individuals (except those
secured by real estate) 13,603 14,458
Loans to U.S. state and political subdivisions 1,093 1,155
All other loans 100 97
----------- -----------
Total loans $ 96,083 $ 81,888
Less:
Unearned income (150) (462)
Allowance for loan losses (925) (749)
----------- -----------
Loans, net $ 95,008 $ 80,677
=========== ===========
47
Note 4. Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
December 31
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
Balance, beginning $ 748,558 $ 913,955 $ 828,104
Provision charged to operating
expense 371,886 476,667 290,000
Recoveries added to the allowance 98,208 44,624 63,561
Loan losses charged to the allowance (293,481) (686,688) (267,710)
------------- ------------- -------------
Balance, ending $ 925,171 $ 748,558 $ 913,955
============= ============= =============
Nonaccrual loans excluded from the impaired loan disclosure under FASB 114
amounted to $227,256 and $437,261 at December 31, 1998 and 1997, respectively.
If interest would have been accrued, such income would have been approximately
$24,712 for 1998 and $11,021 for 1997. There were no loans on which the accrual
of interest was discontinued or reduced in 1996.
48
Note 5. Bank Premises and Equipment, Net
The major classes of bank premises and equipment and the total accumulated
depreciation are as follows:
December 31
-----------------------------
1998 1997
------------- -------------
Land $ 787,918 $ 787,918
Land held for future branch site 150,587 150,587
Buildings and improvements 3,625,862 3,546,330
Furniture and equipment 2,950,633 2,668,100
------------- -------------
$ 7,515,000 $ 7,152,935
Less accumulated depreciation 3,397,097 3,092,434
------------- -------------
Bank premises and equipment, net $ 4,117,903 $ 4,060,501
============= =============
Depreciation expense on furniture and equipment was $304,755, $351,058, and
$370,450 for the years ended December 31, 1998, 1997, and 1996, respectively.
49
Note 6. Deposits
The aggregate amount of jumbo time deposits, each with a minimum denomination of
$100,000, was approximately $20,447,339 and $14,961,859 at December 31, 1998 and
1997, respectively.
At December 31, 1998, the scheduled maturities of time deposits are as follows:
1999 $ 48,804,445
2000 7,466,794
2001 1,080,348
2002 274,271
2003 and thereafter 361,174
-------------
$ 57,987,032
=============
50
Note 7. Income Taxes
Net deferred tax (liabilities) consist of the following components as of
December 31, 1998 and 1997.
December 31
--------------------------
1998 1997
------------ ------------
Deferred tax assets:
Allowance for loan losses $ 213,345 $ 164,159
Deferred compensation 111,526 101,039
Accrued postretirement benefits 76,648 91,189
Reserve for other real estate owned 0 2,040
Non-accrual interest 8,402 6,908
------------ ------------
$ 409,921 $ 365,335
------------ ------------
Deferred tax liabilities:
Property and equipment $ 321,050 $ 305,804
Prepaid pension costs 84,471 82,637
Securities available for sale 40,146 5,054
------------ ------------
$ 445,667 $ 393,495
------------ ------------
$ (35,746) $ (28,160)
============ ============
The provision for income taxes charged to operations for the years ended
December 31, 1998, 1997 and 1996 consists of the following:
December 31
----------------------------------------
1998 1997 1996
------------ ------------ ------------
Current tax expense $ 497,696 $ 311,336 $ 538,195
Deferred tax (benefit) (27,506) 60,807 (891)
------------ ------------ ------------
$ 470,190 $ 372,143 $ 537,304
============ ============ ============
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income from continuing
operations for the years ended December 31, 1998, 1997 and 1996, due to the
following:
1998 1997 1996
------------ ------------ ------------
Computed "expected" tax expense $ 604,858 $ 504,613 $ 628,538
(Decrease) increase in income taxes
resulting from:
Tax-exempt interest (86,684) (63,985) (74,765)
Nontaxable life insurance (4,471) (8,712) 0
Low income housing credits (46,227) (44,454) (48,000)
Other 2,714 (15,319) 31,531
------------ ------------ ------------
$ 470,190 $ 372,143 $ 537,304
============ ============ ============
51
Note 8. Pension and Postretirement Benefit Plan
The following tables provide a reconciliation of the changes in the benefit
obligation and fair value of assets for 1998 and 1997 and a statement of the
funded status as of December 31, 1998 and 1997 for the pension plan and
postretirement benefit plan of the Company.
Pension Benefits Postretirement Benefits
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
Change in Benefit Obligation
Benefit obligation, beginning $ 1,488,638 $ 1,219,706 $ 157,632 $ 157,743
Service cost 80,962 62,353 0 0
Interest cost 117,129 95,716 12,611 12,619
Actuarial (gain) loss 0 157,373 0 (490)
Benefits paid (137,423) (46,510) (12,000) (12,240)
------------- ------------- ------------- -------------
Benefits obligation, ending $ 1,549,306 $ 1,488,638 $ 158,243 $ 157,632
------------- ------------- ------------- -------------
Change in Plan Assets
Fair value of plan assets,
beginning $ 1,469,557 $ 1,127,104 $ 0 $ 0
Actual return on plan assets 220,610 233,696 0 0
Employer contributions 85,769 155,267 12,000 12,240
Benefits paid (137,423) (46,510) (12,000) (12,240)
------------- ------------- ------------- -------------
Fair value of plan assets,
ending $ 1,638,513 $ 1,469,557 $ 0 $ 0
------------- ------------- ------------- -------------
Funded status
Funded status, beginning $ 89,207 $ (19,081) $ (158,243) $ (157,632)
Unrecognized net actuarial loss 65,306 171,964 30,917 33,529
Unrecognized net obligation
at transition (38,539) (51,383) (3,722) (3,722)
Unrecognized prior service cost 114,873 126,418 0 0
------------- ------------- ------------- -------------
Net amount recognized $ 230,847 $ 227,918 $ (131,048) $ (127,825)
============= ============= ============= =============
The following table provides the components of net periodic benefit cost for the
years ended December 31, 1998, 1997 and 1996:
Pension Benefits Postretirement Benefits
------------------------------------- ---------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
Components of Net Periodic
Benefit Cost
Service cost $ 80,962 $ 62,353 $ 57,734 $ 0 $ 0 $ 0
Interest cost 117,129 95,716 87,942 12,659 12,611 12,619
Expected return on
plan assets (115,602) (94,519) (80,060) 0 0 0
Amortization of prior
service costs 11,545 11,545 11,545 0 0 0
Amortization of net
obligation at transition (12,844) (12,844) (12,844) 2,612 2,612 2,612
Recognized net actuarial
gain 1,650 2,271 5,109 0 0 0
---------- ---------- ---------- ---------- ---------- ----------
Net periodic benefit cost $ 82,840 $ 64,522 $ 69,426 $ 15,271 $ 15,223 $ 15,231
========== ========== ========== ========== ========== ==========
The weighted average discount rates used for the pension calculations was 8.00%,
the expected return on plans assets was 8.00% and the rate of compensation
increase was 6.00% for all periods. For measurement purposes, a 9.38% annual
rate of increase in per capita health care costs of covered benefits was assumed
for 1998, with such annual rate of increase gradually declining to 5 percent in
2004. If assumed health care cost trend rates were increased by 1 percentage
point in each year, the accumulated postretirement benefit obligation at
December 31, 1998 would be increased by $4,083 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for the
year ended December 31, 1998 would be increased by $325. The weighted average
discount rate used in estimating the accumulated postretirement benefit
obligation was 8.00% for 1998, 1997 and 1996.
52
Note 9. Employee Benefits
NOTE 9. Employee Benefits
The Company has established an Employee Stock Ownership Plan (ESOP) to provide
additional retirement benefits to substantially all employees. There were no
contributions in 1998, 1997 or 1996. The contributions are made to the Bank of
Clarke County Employee Retirement Trust to be used to purchase the Company's
common stock. The plan was leveraged to the extent that money was borrowed
during 1995 to purchase available stock. The debt related to these borrowings
was guaranteed by the Company. At December 31, 1998 there was no outstanding
debt related to the ESOP.
The Company sponsors a 401(k) savings plan under which eligible employees may
choose to save up to 15 percent of their salary on a pretax basis, subject to
certain IRS limits. The Company matches 25 percent (up to 6 percent of the
employee's salary) of employee contributions with Company common stock. The
shares for this purpose are provided principally by the Company's employee stock
ownership plan (ESOP), supplemented, as needed, by newly issued shares.
Contributions under the plan amounted to $33,175 in 1998 and $8,160 in 1997 and
1996.
In addition, an Executive Supplemental Income Plan was developed for certain key
employees. Benefits are to be paid in monthly installments following retirement
or death. The agreement provides that if employment is terminated for reasons
other than death or disability prior to age 65, the amount of benefits could be
reduced or forfeited. The executive supplemental income benefit expense for
1998, 1997, and 1996 based on the present value of the retirement benefits,
amounted to $43,589, $47,590 and $38,499, respectively. The plan is unfunded.
However, life insurance has been acquired on the lives of those employees in
amounts sufficient to discharge the obligations thereunder.
53
Note 10. Commitments and Contingencies
In the normal course of business, the Company makes various commitments and
incurs certain contingent liabilities, which are not reflected in the
accompanying financial statements. These commitments and contingent liabilities
include various guarantees, commitments to extend credit and standby letters of
credit. The Company does not anticipate any material losses as a result of these
commitments.
The Bank leases certain facilities under operating leases, which expire at
various dates through 2002. These leases require payment of certain operating
expenses and contain renewal options. The total minimum rental commitment at
December 31, 1998 under these leases is $241,610, which is due as follows:
Due in the year ending December 31, 1999 $ 98,046
2000 68,514
2001 37,800
2002 37,250
------------
$ 241,610
============
The total rental expense was $106,087, $52,955 and $49,035 in 1998, 1997 and
1996, respectively.
As a member of the Federal Reserve System, the Bank is required to maintain
certain average reserve balances. These reserve balances include usable vault
cash and amounts on deposit with the Federal Reserve. For the final weekly
reporting period in the years ended December 31, 1998 and 1997, the amount of
daily average required balances were approximately $952,000 and $752,000,
respectively.
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue, and is
developing a remediation plan to resolve the issue. The issue is whether
computer systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. The Company is heavily
dependent on computer processing in the conduct of its business activities.
Failure of these systems could have a significant impact on the Company's
operations.
See Note 15 with respect to financial instruments with off-balance-sheet risk.
54
Note 11. Transactions with Directors and Officers
The Company has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they are
principal shareholders (commonly referred to as related parties) on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others. These persons and firms were indebted
to the Company for loans totaling $3,697,036 and $916,493 at December 31, 1998
and 1997, respectively. During 1998, total principal additions were $4,316,861
and total principal payments were $1,536,318.
55
Note 12. Capital Requirements
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory - possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require the Company to
maintain minimum amounts and ratios (set forth in the table below) of total and
Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of
Tier 1 capital to average assets. Management believes, as of December 31, 1998,
that the Company meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the Federal Reserve
Bank categorized the Company as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Company
must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the table. The Company's actual capital amounts and
ratios are also presented in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------- ---------- ------- ---------- -------
(Amount in Thousands)
As of December 31, 1998:
Total Capital (to Risk Weighted Assets)
Consolidated $ 16,488 16.12% >=$ 8,185 8.00% N/A
Bank of Clarke County $ 15,229 15.01% >=$ 8,118 8.00% >=$ 10,148 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $ 15,563 15.21% >=$ 4,093 4.00% N/A
Bank of Clarke County $ 14,304 14.10% >=$ 4,059 4.00% >=$ 6,089 6.00%
Tier 1 Capital (to Average Assets)
Consolidated $ 15,563 11.17% >=$ 5,575 4.00% N/A
Bank of Clarke County $ 14,304 10.32% >=$ 5,546 4.00% >=$ 6,933 5.00%
As of December 31, 1997:
Total Capital (to Risk Weighted Assets)
Consolidated $ 15,194 18.43% >=$ 6,595 8.00% N/A
Bank of Clarke County $ 14,872 18.10% >=$ 6,573 8.00% >=$ 8,217 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $ 14,445 17.52% >=$ 3,298 4.00% N/A
Bank of Clarke County $ 14,123 17,19% >=$ 3,287 4.00% >=$ 4,930 6.00%
Tier 1 Capital (to Average Assets)
Consolidated $ 14,445 11.06% >=$ 5,224 4.00% N/A
Bank of Clarke County $ 14,123 10,84% >=$ 5,211 4.00% >=$ 6,514 5.00%
56
Note 13. Retained Earnings
Transfers of funds from the banking subsidiary to the Parent Company, in the
form of loans, advances and cash dividends, are restricted by federal and state
regulatory authorities. At December 31, 1998, the aggregate amount of
unrestricted funds, which could be transferred from the Bank to the Parent
Company without prior regulatory approval, amounted to $2,078,789 or 12.8% of
the consolidated net assets.
57
Note 14. Dividend Investment Plan
The Company has in effect a Dividend Investment Plan, which provides an
automatic conversion of dividends into common stock for enrolled shareholders.
It is based on 95% of the stock's fair market value on each dividend record
date.
58
Note 15. Financial Instruments With Off-Balance Sheet Risk
The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The contract
or notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual notional
amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
A summary of the contractual notional amount of the Company's exposure to
off-balance-sheet risk as of December 31, 1998 and 1997, is as follows:
1998 1997
------------- -------------
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 23,101,413 $ 9,651,769
Standby letters of credit 150,750 139,631
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property and equipment, and income-producing
commercial properties.
Standby letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in granting loans to customers. The
Company holds real estate and bank deposits as collateral supporting those
commitments for which collateral is deemed necessary. At December 31, 1998, none
of the outstanding letters of credit were collateralized.
The Company has cash accounts in other commercial banks. The amount on deposit
at one of these banks at December 31, 1998 exceeded the insurance limits of the
Federal Deposit Insurance Corporation by $1,323,923.
59
Note 16. Federal Home Loan Bank Advances and Available Lines of Credit
The Company has a $13,000,000 line of credit with the Federal Home Loan Bank
(FHLB) of Atlanta. Advances bear interest at a fixed or floating rate depending
on the terms and maturity of each advance and numerous renewal options are
available to the Company. These advances are secured by the Company's real
estate loan portfolio. The unused line of credit totaled $8,000,000 and
$13,000,000 at December 31, 1998 and 1997, respectively. A $5,000,000 advance
was taken during 1998 which has a ten year term and a fixed rate of 4.94% for
the first six years. After six years, FHLB may convert the advance to an indexed
floating interest rate for the final four years of the term. If the advance
converts to a floating interest rate, the Company may pay back all or part of
the advance without a prepayment penalty.
The Company had unused lines of credit totaling $12,200,000 with other
nonaffiliated banks at December 31, 1998.
60
Note 17. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Short-Term Investments
For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Securities
For securities held for investment purposes, fair values are based on quoted
market prices or dealer quotes.
Loans
For variable-rate loans that reprice frequently and with no significant change
in credit risk, fair values are based on carrying values. The fair values for
other loans were estimated using discounted cash flow analyses, using interest
rates currently being offered.
Deposits and Borrowings
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of all other deposits and borrowings is determined using the discounted cash
flow method. The discount rate was equal to the rate currently offered on
similar products.
Off-Balance-Sheet Financial Instruments
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter similar agreements, taking into account the remaining
terms of the agreements and the present credit worthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.
The fair value of standby letters of credit is based on fees currently charged
for similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date. At
December 31, 1998 and 1997, the difference between the carrying amounts and fair
values of loan commitments and standby letters of credit were immaterial.
The estimated fair values of the Company's financial instruments are as follows:
1998 1997
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
(in thousands) (in thousands)
Financial assets:
Cash and short-term investments $ 7,636,475 $ 7,636,475 $ 7,542,309 $ 7,542,309
Securities 43,081,952 43,239,752 37,418,780 37,466,068
Loans 95,008,327 97,917,000 80,676,628 79,267,000
------------ ------------ ------------ ------------
Total financial assets $145,726,754 $148,793,227 $125,637,717 $124,275,377
============ ============ ============ ============
Financial liabilities:
Deposits $130,209,888 $130,750,000 $117,079,355 $118,113,000
Federal funds purchased and
securities sold under agree-
ments to repurchase 695,915 696,000 0 0
Federal Home Loan Bank advances 5,000,000 5,030,000 0 0
------------ ------------ ------------ ------------
Total financial liabilities $135,905,803 $136,476,000 $117,079,355 $118,113,000
============ ============ ============ ============
61
Note 18. Condensed Financial Information - Parent Company Only
EAGLE FINANCIAL SERVICES, INC.
(Parent Company Only)
Balance Sheets
December 31, 1998 and 1997
1998 1997
-------------- --------------
Assets
Cash held in subsidiary bank $ 27,093 $ 50,278
Securities 986,393 5,000
Investment in subsidiary, at cost,
plus undistributed net income 14,916,718 14,736,435
Equity investment in Johnson Williams
Limited Partnership 262,057 266,409
Other Assets 9,748 0
-------------- --------------
Total assets $ 16,202,009 $ 15,058,122
============== ==============
Liabilities and Shareholders' Equity
Other liabilities $ 8,508 $ 7
-------------- --------------
Shareholders' Equity
Preferred stock $ 0 $ 0
Common stock 3,545,853 3,521,213
Surplus 2,307,615 2,107,826
Retained earnings 10,262,104 9,419,266
Accumulated other comprehensive income 77,929 9,810
-------------- --------------
Total shareholders' equity $ 16,193,501 $ 15,058,115
-------------- --------------
Total liabilities and
shareholders' equity $ 16,202,009 $ 15,058,122
============== ==============
EAGLE FINANCIAL SERVICES, INC.
(Parent Company Only)
Statements of Income
Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996
------------- ------------- -------------
Income
Dividends from subsidiary $ 1,130,000 $ 223,000 $ 200,000
Interest and dividends on
securities available for sale 27,514 773 1,414
------------- ------------- -------------
Total income $ 1,157,514 $ 223,773 $ 201,414
------------- ------------- -------------
Expenses
Amortization of organizational costs $ 0 $ 0 $ 13,023
Legal expense 1,710 1,409 565
Other operating expenses 17,178 20,914 22,989
------------- ------------- -------------
Total expenses $ 18,888 $ 22,323 $ 36,577
------------- ------------- -------------
Other Income
Income (loss) on equity investment $ (4,352) $ (4,880) $ 595
------------- ------------- -------------
Income before allocated tax
benefits and equity in
undistributed net income
of subsidiary $ 1,134,274 $ 196,570 $ 165,432
Allocated Income Tax Benefit (45,852) (53,440) (57,797)
------------- ------------- -------------
Income before equity in
undistributed net income
of subsidiary $ 1,180,126 $ 250,010 $ 223,229
Equity in Undistributed Net Income
of Subsidiary 128,679 862,002 1,088,108
------------- ------------- -------------
Net income $ 1,308,805 $ 1 112 012 $ 1 311 337
============= ============= =============
EAGLE FINANCIAL SERVICES, INC.
(Parent Company Only)
Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996
------------- ------------- -------------
Cash Flows from Operating Activities
Net income $ 1,308,805 $ 1,112,012 $ 1,311,337
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of organizational costs 0 0 13,023
(Income) loss on equity investment 4,352 4,880 (595)
(Discount accretion) on securities (77) 0 0
Undistributed earnings of subsidiary (128,679) (862,002) (1,088,108)
Changes in assets and liabilities:
Decrease in prepaid expenses 0 453 11,267
Decrease in income tax credits receivable 0 0 48,000
(Increase) in other assets (9,748) 0 0
Increase (decrease) in other liabilities (7) 7 0
------------- ------------- -------------
Net cash provided by operating activities $ 1,174,646 $ 255,350 $ 294,924
------------- ------------- -------------
Cash Flows from Investing Activities
Purchase of securities available for sale $ (1,255,293) $ 0 $ (51,000)
Proceeds from maturities of securities
available for sale 299,000 55,000 0
------------- ------------- -------------
Net cash provided by (used in)
investing activities $ (956,293) $ 55,000 $ (51,000)
------------- ------------- -------------
Cash Flows from Financing Activities
Cash dividends paid $ (275,322) $ (265,528) $ (242,295)
Fractional shares purchased (113) (65) (181)
Proceeds from issuance of common
Stock to ESOP 33,897 0 0
------------- ------------- -------------
Net cash (used in) financing activities $ (241,538) $ (265,593) $ (242,476)
------------- ------------- -------------
Increase (decrease) in cash $ (23,185) $ 44,757 $ 1,448
Cash
Beginning $ 50,278 $ 5,521 $ 4,073
------------- ------------- -------------
Ending $ 27,093 $ 50,278 $ 5,521
============= ============= =============
Supplemental Schedule of Noncash Financing Activities
Issuance of common stock-
dividend investment plan $ 190,645 $ 183,499 $ 175,531
============= ============= =============
Unrealized gain on securities
available for sale $ 103,211 $ 22,485 $ 11,479
============= ============= =============
62