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 September 30, 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 November 12, 1998 was 1,416,310
1
<PAGE>
EAGLE FINANCIAL SERVICES, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) .......................... 3
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 .............. 3
Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 1998 and 1997 ..... 4
Consolidated Statements of Changes in
Stockholder's Equity for the Nine Months
Ended September 30, 1998 and 1997 ..................... 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 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
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Eagle Financial Services, Inc. and Subsidiary
Consolidated Balance Sheets
As of September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
Sep 30, 1998 Dec 31, 1997
-------------- --------------
<S> <C>
Assets
Cash and due from banks $ 4,999,791 $ 5,242,309
Securities held to maturity (fair value:
1998, $39,438,960; 1997, $33,207,946) 38,992,185 33,160,658
Securities available for sale, at fair value 2,639,951 4,258,122
Federal funds sold 0 2,300,000
Loans, net of unearned discounts 89,903,488 81,425,186
Less allowance for loan losses (829,976) (748,558)
-------------- --------------
Net loans 89,073,512 80,676,628
Bank premises and equipment, net 4,148,881 4,060,501
Other real estate owned 206,183 189,688
Intangible assets 564,836 602,949
Other assets 2,814,720 2,748,546
-------------- --------------
Total assets $ 143,440,059 $ 133,239,401
============== ==============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest bearing $ 19,283,752 $ 17,774,480
Interest bearing 105,483,202 99,304,875
-------------- --------------
Total deposits $ 124,766,954 $ 117,079,355
Federal funds purchased and securities
sold under agreements to repurchase 1,766,911 0
Other liabilities 1,073,363 1,101,931
-------------- --------------
Total liabilities $ 127,607,228 $ 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, 1,414,166; issued
1997, 1,408,485 shares 3,535,414 3,521,213
Surplus 2,232,071 2,107,826
Retained Earnings 10,020,664 9,419,266
Accumulated other comprehensive income 44,682 9,810
-------------- --------------
Total stockholders' equity $ 15,832,831 $ 15,058,115
-------------- --------------
Total liabilities and stockholders'
equity $ 143,440,059 $ 133,239,401
============== ==============
</TABLE>
3
<PAGE>
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Income
For the Periods Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
-------------- --------------
<S> <C>
Interest Income
Interest and fees on loans $ 1,837,649 $ 1,792,685
Interest on securities held to maturity:
Taxable interest income 496,989 418,674
Interest income exempt from
federal income taxes 58,707 34,888
Interest and dividends on securities
available for sale, taxable 46,591 65,989
Interest on federal funds sold 26,820 10,776
Interest on deposits in banks 444 452
-------------- --------------
Total interest income $ 2,467,200 $ 2,323,464
-------------- --------------
Interest Expense
Interest on deposits $ 1,082,540 $ 999,933
Interest on federal funds purchased and
securities sold under agreements
to repurchase 4,297 1,516
-------------- --------------
Total interest expense $ 1,086,837 $ 1,001,449
-------------- --------------
Net interest income $ 1,380,363 $ 1,322,015
Provision For Loan Losses 65,000 140,000
-------------- --------------
Net interest income after
provision for loan losses $ 1,315,363 $ 1,182,015
-------------- --------------
Other Income
Trust Department income $ 85,334 $ 56,906
Service charges on deposits 137,670 131,918
Other service charges and fees 93,990 142,932
Gain (loss) on equity investment (1,774) (2,362)
Other operating income 128,082 1,911
-------------- --------------
$ 443,302 $ 331,305
-------------- --------------
Other Expenses
Salaries and wages $ 594,866 $ 505,072
Pension and other employee benefits 149,884 127,325
Occupancy expenses 69,970 83,241
Equipment expenses 113,511 117,608
Stationary and supplies 34,728 44,850
Postage 30,332 28,240
Credit card expense 35,724 24,936
Bank franchise tax 31,793 24,726
ATM network fees 30,083 39,637
Intangible amortization 12,704 12,704
Other operating expenses 197,838 208,949
-------------- --------------
$ 1,301,433 $ 1,217,288
-------------- --------------
Income before income taxes $ 457,232 $ 296,032
Income Tax Expense 108,831 58,344
-------------- --------------
Net Income $ 348,401 $ 237,688
============== ==============
Earnings Per Share
(basic and assuming dilution) $ 0.25 $ 0.17
============== ==============
</TABLE>
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Income
For the Periods Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
-------------- --------------
<S> <C>
Interest Income
Interest and fees on loans $ 5,327,780 $ 5,502,130
Interest on securities held to maturity:
Taxable interest income 1,489,112 1,170,176
Interest income exempt from
federal income taxes 145,168 108,198
Interest and dividends on securities
available for sale, taxable 163,248 123,915
Interest on federal funds sold 92,414 62,586
Interest on deposits in banks 1,514 912
-------------- --------------
Total interest income $ 7,219,236 $ 6,967,917
-------------- --------------
Interest Expense
Interest on deposits $ 3,148,836 $ 2,879,700
Interest on federal funds purchased and
securities sold under agreements
to repurchase 6,130 4,427
-------------- --------------
Total interest expense $ 3,154,966 $ 2,884,127
-------------- --------------
Net interest income $ 4,064,270 $ 4,083,790
Provision For Loan Losses 202,500 306,667
-------------- --------------
Net interest income after
provision for loan losses $ 3,861,770 $ 3,777,123
-------------- --------------
Other Income
Trust Department income $ 261,694 $ 160,941
Service charges on deposits 409,764 387,947
Other service charges and fees 260,279 236,216
Gain (loss) on equity investment (3,284) (5,508)
Other operating income 330,566 95,154
-------------- --------------
$ 1,259,019 $ 874,750
-------------- --------------
Other Expenses
Salaries and wages $ 1,726,812 $ 1,440,204
Pension and other employee benefits 440,171 359,208
Occupancy expenses 277,493 245,528
Equipment expenses 358,746 337,343
Stationary and supplies 141,929 123,479
Postage 96,080 84,471
Credit card expense 118,836 81,767
Bank franchise tax 79,793 70,618
ATM network fees 69,147 99,587
Intangible amortization 38,112 37,972
Other operating expenses 571,379 586,764
-------------- --------------
$ 3,918,498 $ 3,466,941
-------------- --------------
Income before income taxes $ 1,202,291 $ 1,184,932
Income Tax Expense 262,394 275,852
-------------- --------------
Net Income $ 939,897 $ 909,080
============== ==============
Earnings Per Share
(basic and assuming dilution) $ 0.67 $ 0.65
============== ==============
</TABLE>
4
<PAGE>
<TABLE>
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 1998 and 1997
<CAPTION>
Accumulated
Other
Comprehensive Common Retained Comprehensive
Income Stock Surplus Earnings Income (Loss) Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C>
Balance, December 31, 1996 $ 0 $ 3,499,714 $ 1,945,891 $ 8,756,281 $ (5,030) $14,196,856
Comprehensive income
Net income 909,080 909,080 909,080
Other comprehensive income (loss)
Unrealized gain on
securities available for
sale, net of deferred
income taxes of $5,721 11,106 11,106 11,106
-----------
Total comprehensive income $ 920,186
===========
Dividend declared ($0.24 per share) (336,512) (336,512)
Issuance of common stock, dividend
investment plan (6,571 shares) 16,427 120,749 137,176
Fractional shares purchased (5) (41) (46)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1997 $ 3,516,136 $ 2,066,599 $ 9,328,849 $ 6,076 $14,917,660
=========== =========== =========== =========== ===========
Accumulated
Other
Comprehensive Common Retained Comprehensive
Income Stock Surplus Earnings Income (Loss) Total
----------- ----------- ----------- ----------- ----------- -----------
<S><C>
Balance, December 31, 1997 $ 0 $ 3,521,213 $ 2,107,826 $ 9,419,266 $ 9,810 $15,058,115
Comprehensive income
Net income 939,897 939,897 939,897
Other comprehensive income (loss)
Unrealized gain (loss) on
securities available for
sale, net of deferred
income taxes of $17,964 34,872 34,872 34,872
-----------
Total comprehensive income $ 974,769
===========
Dividend declared ($0.24 per share) (338,499) (338,499)
Issuance of common stock, dividend
investment plan (5,683 shares) 14,208 124,321 138,529
Fractional shares purchased (7) (76) (83)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1998 $ 3,535,414 $ 2,232,071 $10,020,664 $ 44,682 $15,832,831
=========== =========== =========== =========== ===========
</TABLE>
5
<PAGE>
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S><C>
Cash Flows from Operating Activities
Net income $ 939,897 $ 909,080
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 276,209 223,505
Amortization of intangible assets 38,113 37,972
Loss on equity investment 3,284 5,508
Provision for loan losses 202,500 306,667
Premium amortization on securities, net (8,376) 43,706
(Increase) in other assets (100,787) (474,456)
Increase (decrease) in other liabilities (46,533) 70,462
------------ ------------
Net cash provided by operating activities $ 1,304,307 $ 1,122,444
------------ ------------
Cash Flows from Investing Activities
Proceeds from maturities and principal
payments on securities held to maturity $ 17,394,343 $ 4,383,825
Proceeds from maturities and principal
payments on securities available for sale 2,132,000 377,000
Purchases of securities held to maturity (23,217,798) (10,428,722)
Purchases of securities available for sale (460,688) (2,868,304)
Purchases of bank premises and equipment (333,260) (211,787)
Net (increase) decrease in loans (8,615,879) 5,483,380
------------ ------------
Net cash (used in) investing activities $(13,101,282) $ (3,264,608)
------------ ------------
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits,
money market, and savings accounts $ 5,474,887 $ (759,643)
Net increase in certificates of deposits 2,212,712 4,308,785
Net increase in federal funds purchased and
securities sold under agreements to repurchase 1,766,911 0
Cash dividends paid (199,970) (199,336)
Fractional shares purchased (83) (46)
------------ ------------
Net cash provided by financing activities $ 9,254,457 $ 3,349,760
------------ ------------
Increase (decrease) in cash and
cash equivalents $ (2,542,518) $ 1,207,596
Cash and Cash Equivalents
Beginning 7,542,309 5,962,250
------------ ------------
Ending $ 4,999,791 $ 7,169,846
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 3,283,453 $ 2,899,014
============ ============
Income taxes $ 157,073 $ 439,616
============ ============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Issuance of common stock,
dividend investment plan $ 138,529 $ 137,176
============ ============
Unrealized gain (loss) on securities
available for sale $ 52,836 $ 16,828
============ ============
Other real estate acquired in settlement
of loans $ 16,495 $ 25,887
============ ============
</TABLE>
6
<PAGE>
EAGLE FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(1) The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principals from 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
September 30, 1998 and December 31, 1997, and the results of operations
and cash flows for the three and nine months ended September 30, 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 and nine month periods ended
September 30, 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 September 30,
1998 and December 31, 1997, are:
<TABLE>
<CAPTION>
Sep 30, 1998 Dec 31, 1997
Held to Maturity Amortized Cost Amortized Cost
- ---------------- -------------- --------------
<S><C>
U.S. Treasury securities $ 371,970 $ 371,922
Obligations of U.S. government
corporations and agencies 13,063,528 10,148,139
Mortgage-backed securities 16,587,678 17,257,777
Obligations of states and political
subdivisions 8,969,009 5,382,820
-------------- --------------
$ 38,992,185 $ 33,160,658
============== ==============
Sep 30, 1998 Dec 31, 1997
Fair Value Fair Value
-------------- --------------
U.S. Treasury securities $ 383,178 $ 378,455
Obligations of U.S. government
corporations and agencies 13,234,135 10,178,461
Mortgage-backed securities 16,693,601 17,231,410
Obligations of states and political
subdivisions 9,128,046 5,419,620
-------------- --------------
$ 39,438,960 $ 33,207,946
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Sep 30, 1998 Dec 31, 1997
Available for Sale Amortized Cost Amortized Cost
- ------------------ -------------- --------------
<S><C>
Obligations of U.S. government
corporations and agencies $ 1,501,362 $ 3,501,058
Other securities 1,070,888 742,200
-------------- --------------
$ 2,572,250 $ 4,243,258
============== ==============
Sep 30, 1998 Dec 31, 1997
Fair Value Fair Value
-------------- --------------
Obligations of U.S. government
corporations and agencies $ 1,541,563 $ 3,515,922
Other securities 1,098,388 742,200
-------------- --------------
$ 2,639,951 $ 4,258,122
============== ==============
</TABLE>
(5) Net loans at September 30, 1998 and December 31, 1997 are summarized as
follows (In Thousands):
<TABLE>
<CAPTION>
Sep 30, 1998 Dec 31, 1997
-------------- --------------
<S><C>
Loans secured by real estate:
Construction and land development $ 2,590 $ 588
Secured by farmland 3,785 3,700
Secured by 1-4 family residential 48,854 44,863
Nonfarm, nonresidential loans 14,105 11,141
Loans to finance agricultural production 620 770
Commercial and industrial loans 6,008 5,116
Loans to individuals 12,866 14,458
Loans to U.S. state and political
subdivisions 1,152 1,155
All other loans 136 97
-------------- --------------
Gross loans $ 90,116 $ 81,888
Less:
Unearned income (212) (462)
Allowance for loan losses (830) (749)
-------------- --------------
Loans, net $ 89,074 $ 80,677
============== ==============
</TABLE>
(6) Allowance for Loan Losses
<TABLE>
<CAPTION>
Sep 30, 1998 Dec 31, 1997
-------------- --------------
<S><C>
Balance, beginning $ 748,558 $ 913,955
Provision charged to operating expense 202,500 476,667
Recoveries added to the allowance 82,551 44,624
Loan losses charged to the allowance (203,633) (686,688)
-------------- --------------
Balance, ending $ 829,976 $ 748,558
============== ==============
</TABLE>
(7) New Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers Disclosures about Pensions
and Other Post Retirement Benefits." This statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. This Statement
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures. Restatement of
disclosures for earlier periods is required. This Statement is effective for the
Company's financial statements for the year ended December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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. This statement is not expected to have a material impact
on the Company's financial statements. This statement is effective for fiscal
years beginning after June 15, 1999, with earlier adoption encouraged. The
Company intends to adopt this accounting standard effective October 1, 1998.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP provides
guidance on accounting for the costs of computer software developed or
obtained for internal use. This SOP requires that entities capitalize certain
internal-use software costs once certain criteria are met. This statement is
not expected to have a material impact on the Company's financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which requires the costs of start-up activities and organization
costs to be expensed as incurred. This statement is effective for the fiscal
year 1999 financial statements. This statement is not expected to have a
material impact on the Company's financial statements.
Effective January 1, 1998, the company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement establishes
standards for reporting and the display of comprehensive income and its
components (revenues, expenses, gains and losses) in full for general purpose
financial statements. Financial statements for prior periods have been restated
as required.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PERFORMANCE SUMMARY
Net income of the company for the first nine months of 1998 and 1997 was $939,
897 and $909,080, respectively. This is an increase of $30,817 or 3.39%.The
results of operations for the nine month periods ended September 30, 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 nine
months of 1998 and 1997 was $3,861,770 and $3,777,123, respectively. This is an
increase of $84,647 or 2.24%. Total other income increased $384,269 or 43.93%
from $874,750 for the first nine months of 1997 to $1,259,019 for the first nine
months of 1998. Total other expenses increased $451,557 or 13.02% from
$3,466,941 during the first nine months of 1997 to $3,918,498 during the first
nine months of 1998.
Earnings per common share outstanding (basic and diluted) was $0.67 and $0.65
for the nine months ended September 30, 1998 and 1997, respectively. Annualized
return on average assets for the nine month periods ended September 30, 1998 and
1997 was 0.91% and 0.95%, respectively. Annualized return on average equity for
the nine month periods ended September 30, 1998 and 1997 was 8.14% and 8.33%,
respectively.
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 for the nine month periods ended September 30, 1998 and 1997
decreased $104,167 from $306,667 in 1997 to $202,500 in 1998. The allowance for
loan losses increased $81,418 or 10.88% during the first nine months of 1998
from $748,558 at December 31, 1997 to $829,976 at September 30, 1998. The
allowance as a percentage of total loans remained the same at 0.92% as of
December 31, 1997 and September 30, 1998. The Company had net charge-offs of
$121,082 and $432,528 for the first nine months of 1998 and 1997, respectively.
The ratio of net charge-offs to average loans decreased significantly from 0.51%
for the first nine months of 1997 to 0.15% for the first nine months of 1998.
The coverage of 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 79.59% at September 30, 1998. Loans past due greater than
90 days and still accruing interest increased from $615,410 at December 31, 1997
to $836,615 at September 30, 1998.
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 September 30, 1998 was
$815,993. Most of these loans are well secured and management expects to incur
only immaterial losses on their disposition.
BALANCE SHEET
Total assets increased $10.2 million or 7.66% from $133.2 million at December
31, 1997 to $143.4 million at September 30, 1998. Securities increased $4.2
million or 11.26% during the first nine months of 1998 from $37.4 million at
December 31, 1997 to $41.6 million at September 30, 1998. Loans, net of unearned
discounts increased $8.5 million or 10.41% during the same period from $81.4
million at December 31, 1997 to $89.9 million at September 31, 1998.
Total liabilities increased $9.4 million or 7.98% during the first nine months
of 1998 from $118.2 million at December 31, 1997 to $127.6 million at September
30, 1998. Total deposits increased $7.7 million or 6.57% during the same period
from $117.1 at December 31, 1997 to $124.8 million at September 30, 1998. Total
stockholders' equity increased $0.7 million or 5.14% during the first nine
months of 1998 from $15.1 million at December 31, 1997 to $15.8 million at
September 30, 1998.
STOCKHOLDERS' EQUITY
The Company continues to be a well capitalized financial institution.
Stockholders' equity per share increased $0.51 or 4.77% from $10.69 per share at
December 31, 1997 to $11.20 per share at September 30, 1998. During 1997 the
Company paid $0.32 per share in dividends. The Company's 1998 dividends have
been $0.08 per quarter for a total dividend of $0.24 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 $30.7 million at September 30, 1998 and $28.6
million at December 31, 1997. These represent 24.1% and 24.2% of total
liabilities as of September 30, 1998 and December 31, 1997, respectively.
YEAR 2000
During 1998 the Company's subsidiary (the Bank) has been assessing the effect of
the Year 2000 on its systems, vendors, and customers. The assessment of mission
critical computer systems is expected to the substantially complete by December
31, 1998. The assessment of customers and vendors is also expected to be
substantially complete by December 31, 1998, however, correspondence will be
maintained with these groups throughout 1999 to assure that they continue to
address their Year 2000 issues or remain ready throughout 1999. The Bank will
continue to assess internal and external Year 2000 issues throughout 1999 and
make renovations as exceptions are discovered. Although expenditures have been
incurred as the Bank prepares for Year 2000, the cost of Year 2000 readiness is
not expected to have a material effect on the Company's consolidated financial
statements.
8
<PAGE>
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.
9
<PAGE>
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
10
<PAGE>
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 third
quarter of 1998.
11
<PAGE>
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: November 13, 1998 /s/ LEWIS M. EWING
--------------------------
Lewis M. Ewing
President and CEO
Date: November 13, 1998 /s/ JOHN R. MILLESON
--------------------------
John R. Milleson
Executive Vice President and
Secretary/Treasurer
Date: November 13, 1998 /s/ JAMES W. MCCARTY, JR.
--------------------------
James W. McCarty, Jr.
Vice President and CFO
12
<PAGE>
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