UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-------------
For the fiscal year ended Commission File Number 0-20146
December 31, 1999
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $2.50
Indicate by check mark whether the Registrant (1) has filed all 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 [ ]
Indicate by check mark if disclosures of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[X]
PAGE 1 OF 64 PAGES. Exhibit index on page 37 .
------ ------ ------
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 24, 2000 was $36,782,928. The aggregate market value of
the stock was computed using a market rate of $28.00 per share.
The number of shares of Registrant's Common Stock outstanding as of March
24, 2000 was 1,435,016.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's 1999 Annual Report to Shareholders are
incorporated by reference in Parts I, II, and IV of this Form 10-K.
(2) Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders are incorporated by reference in Part III of this Form 10-K.
1
<PAGE>
EAGLE FINANCIAL SERVICES, INC.
INDEX TO FORM 10-K
Page
------
PART I
Item 1. Business................................................. 3
Item 2. Properties............................................... 17
Item 3. Legal Proceedings........................................ 17
Item 4. Submission of Matters to a Vote of Security Holders...... 17
PART II
Item 5. Market for Registrant's Common Equity and
Related Shareholder Matters............................ 18
Item 6. Selected Financial Data.................................. 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 20
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk.............................................. 33
Item 8. Financial Statements and Supplementary Data.............. 33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 33
PART III
Item 10. Directors and Executive Officers of the Registrant....... 34
Item 11. Executive Compensation................................... 34
Item 12. Security Ownership of Certain Beneficial Owners
and Management.... ................................... 34
Item 13. Certain Relationships and Related Transactions........... 34
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K................................... 35
2
<PAGE>
PART I
Item 1. Business.
General
The Registrant was incorporated October 2, 1991 by the Bank of Clarke
County, Berryville, Virginia (the "Bank"), for the purpose of establishing a one
bank holding company upon consummation of a Plan of Share Exchange between the
Registrant and the Bank. The Bank is a Virginia banking corporation chartered on
April 1, 1881. On December 31, 1991, the Share Exchange was consummated
resulting in the Bank becoming a wholly-owned subsidiary of the Registrant. The
Registrant has no other subsidiaries.
The Registrant is regulated by the Board of Governors of the Federal
Reserve System under the Bank Holding Company Act of 1956, which limits the
Registrant's activities to managing or controlling banks and engaging in other
activities closely related to banking. The Bank is a member of the Federal
Deposit Insurance Corporation and is a state member bank of the Federal Reserve
System. The Bank is supervised and regulated by the Federal Reserve Board and
the Virginia Bureau of Financial Institutions.
The Bank offers a wide range of retail and commercial banking
services, including demand, savings and time deposits and consumer, mortgage and
commercial lending services. The Bank makes seasonal and term commercial loans,
both alone and in conjunction with other banks or governmental agencies. The
Bank also offers a wide variety of trust services to customers. During 1999 the
Bank expanded its internet web site to offer internet banking. Customers may
utilize the site to perform inquiries on account balances and activity, transfer
funds among deposit and loan accounts, and pay bills online. During 1997 the
Bank formed Eagle Investment Services, a division of the Bank which sells
non-deposit investment products through a third party provider, UVEST Investment
Services. During 1997 the Bank also formed Eagle Home Funding, a wholly owned
subsidiary of the Bank, which offered secondary market mortgage products. This
subsidiary has been dissolved and the operations of Eagle Home Funding have been
merged into the Bank's loan department during the first quarter of 2000.
The Bank's main office is located in Berryville, Clarke County,
Virginia, and it operates branch offices in Boyce, Jubal Early Drive in
Winchester, Piccadilly Street in Winchester, Senseny Road in Frederick County
and in Stephens City. Clarke and Frederick Counties and the City of Winchester
are the Bank's primary trade area. Within its primary trade area, the Bank
competes with numerous large and small financial institutions, credit unions,
insurance companies and other non-bank competitors. Eagle Home Funding is
currently located at 615 Jubal Early Drive in Winchester, in the same retail
center as the Jubal Early branch, however, this office will vacated before the
expiration of the lease on June 30, 2000.
The Bank had twenty-seven officers, fifty-eight other full-time and
ten part-time employees as of December 31, 1999. None of the Bank's employees
are represented by a union or covered under a collective bargaining agreement.
Employee relations have been good.
The Bank's loan portfolio is primarily comprised of real estate loans,
particularly those secured by 1-4 family residential properties. The Bank also
offers many other types of loans including consumer loans, commercial real
estate loans, commercial and industrial loans (not secured by real estate),
agricultural production loans, and construction loans. See the respective
sections in Items 6, 7, and 8 for additional discussion and analysis of the
Bank's loan portfolio.
The loss of any one depositor or the failure by any one borrower to
repay a loan would not have a material adverse effect on the Bank.
3
<PAGE>
Statistical Information
The following statistical information is furnished pursuant to the
requirements of Guide 3 (Statistical Disclosure by Bank Holding Companies)
promulgated under the Securities Act of 1933.
<TABLE>
<CAPTION>
INDEX
<S> <C>
Table 1 Average Balances, Income/Expenses and Average Rates
Table 2 Rate/Volume Variance
Table 3 Analysis of Allowance for Loans Losses
Table 4 Allocation of Allowance for Loan Losses
Table 5 Loan Portfolio
Table 6 Maturity Schedule of Selected Loans
Table 7 Non-Performing Assets
Table 8 Maturity Distribution and Yields of Securities
Table 9 Deposits and Rates Paid
Table 10 Maturities of Certificates of Deposit of $100,000 and More
Table 11 Risk Based Capital Ratios
Table 12 Interest Rate Sensitivity Schedule
</TABLE>
4
<PAGE>
<TABLE>
Table 1 - Average Balances, Income/Expenses and Average Rates
(In Thousands) (Fully Taxable Equivalent)
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
Average Income/ Average Average Income/ Average
Balances Expense Rate Balances Expense Rate
--------- --------- --------- --------- --------- ---------
<S> <C>
ASSETS:
Loans
Taxable $105,436 $ 8,601 8.16% $ 83,536 $ 7,189 8.61%
Tax-exempt (1) 1,427 103 7.22% 1,440 109 7.57%
Non-accrual 227 0 0.00% 352 0 0.00%
--------- --------- --------- ---------
Total Loans $107,090 $ 8,704 8.13% $ 85,328 $ 7,298 8.55%
--------- --------- --------- ---------
Securities
Taxable $ 30,555 $ 1,863 6.10% $ 35,765 $ 2,149 6.01%
Tax-Exempt (1) 10,911 708 6.49% 4,966 333 6.71%
--------- --------- --------- ---------
Total Securities $ 41,466 $ 2,571 6.20% $ 40,731 $ 2,482 6.09%
--------- --------- --------- ---------
Deposits in banks $ 38 $ 1 2.63% $ 41 $ 2 4.88%
--------- --------- --------- ---------
Federal funds sold $ 217 $ 15 6.91% $ 2,090 $ 114 5.45%
--------- --------- --------- ---------
Total Earning Assets $148,811 $ 11,291 7.59% $128,190 $ 9,896 7.72%
========= =========
Less: Reserve for
loan losses (987) (800)
Cash and due from banks 5,845 4,985
Bank premises and
equipment, net 4,024 4,127
Other assets 3,307 3,413
--------- ---------
Total Assets $161,000 $139,915
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits
Demand deposits $ 22,343 $ 0 $ 18,443 $ 0
--------- --------- --------- ---------
NOW accounts $ 19,120 $ 330 1.73% $ 16,365 $ 325 1.99%
Money market accounts 19,460 568 2.92% 17,488 553 3.16%
Savings accounts 15,178 339 2.23% 13,773 330 2.40%
Time deposits 57,383 2,768 4.82% 56,604 2,971 5.25%
--------- --------- --------- ---------
Total Interest-
Bearing Deposits $111,141 $ 4,005 3.60% $104,230 $ 4,179 4.01%
Fed funds purchased and
securities sold under
agreements to repurchase 4,754 230 4.84% 305 14 4.59%
Federal Home Loan
Bank advances 5,000 250 5.00% 233 12 5.15%
--------- --------- --------- ---------
Total Interest-
Bearing Liabilities $120,895 $ 4,485 3.71% $104,768 $ 4,205 4.01%
--------- --------- --------- ---------
Other Liabilities $ 1,050 $ 1,160
--------- ---------
Shareholders' Equity $ 16,712 $ 15,544
--------- ---------
Total Liabilities &
Shareholders' Equity $161,000 $139,915
========= =========
Net interest spread 3.88% 3.71%
Interest expense as a percent
of average earning assets 3.01% 3.28%
Net interest margin 4.57% 4.44%
(1) Income and rates on non-taxable assets are computed on a tax equivalent
basis using a federal tax rate of 34%.
</TABLE>
<TABLE>
<CAPTION>
Average Balances, Income/Expenses and Average Rates (continued)
(In Thousands) (Fully Taxable Equivalent)
1997
---------------------------------
Average Income/ Average
Balances Expense Rate
--------- --------- ---------
<S> <C>
ASSETS:
Loans
Taxable $ 81,525 $ 7,184 8.81%
Tax-exempt (1) 1,389 107 7.70%
Non-accrual 495 0 0.00%
--------- ---------
Total Loans $ 83,409 $ 7,291 8.74%
--------- ---------
Securities
Taxable $ 28,671 $ 1,809 6.31%
Tax-Exempt (1) 3,106 219 7.05%
--------- ---------
Total Securities $ 31,777 $ 2,028 6.38%
--------- ---------
Deposits in banks $ 0 $ 0 0.00%
--------- ---------
Federal funds sold $ 1,793 $ 101 5.63%
--------- ---------
Total Earning Assets $116,979 $ 9,420 8.05%
=========
Less: Reserve for
loan losses (817)
Cash and due from banks 4,643
Bank premises and
equipment, net 4,122
Other assets 3,209
---------
Total Assets $128,136
=========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits
Demand deposits $ 15,846 $ 0
--------- ---------
NOW accounts $ 15,062 $ 309 2.05%
Money market accounts 16,709 520 3.11%
Savings accounts 13,956 341 2.44%
Time deposits 50,655 2,729 5.39%
--------- ---------
Total Interest-
Bearing Deposits $ 96,382 $ 3,899 4.05%
Fed funds purchased and
securities sold under
agreements to repurchase 115 5 4.35%
Federal Home Loan
Bank advances 0 0 0.00%
--------- ---------
Total Interest-
Bearing Liabilities $ 96,497 $ 3,904 4.05%
--------- ---------
Other Liabilities $ 1,143
---------
Shareholders' Equity $ 14,650
---------
Total Liabilities &
Shareholders' Equity $128,136
=========
Net interest spread 4.00%
Interest expense as a percent
of average earning assets 3.34%
Net interest margin 4.72%
(1) Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%.
</TABLE>
5
<PAGE>
Table 2 - Rate/Volume Variance (In Thousands)
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
--------------------------------------------------------------------
Due to Due to Due to Due to
Change Volume Rate Change Volume Rate
-------- -------- -------- -------- -------- --------
<S> <C>
INTEREST INCOME:
Loans; taxable $ 1,412 $ 1,764 $ (352) $ (9) $ 729 $ (738)
Loans; tax-exempt (6) (1) (5) 24 4 20
Securities; taxable (286) (319) 33 340 421 (81)
Securities; tax-exempt 375 386 (11) 114 124 (10)
Deposits in banks (1) (1) 0 2 2 0
Federal funds sold (99) (141) 42 13 16 (3)
-------- -------- -------- -------- -------- --------
Total Interest Income $ 1,395 $ 1,688 $ (293) $ 484 $ 1,296 $ (812)
-------- -------- -------- -------- -------- --------
INTEREST EXPENSE:
NOW accounts $ 5 $ 22 $ (17) $ 16 $ 24 $ (8)
Money market accounts 15 46 (31) 33 25 8
Savings accounts 9 29 (20) (11) (5) (6)
Time deposits (203) 41 (244) 242 311 (69)
Federal funds purchased and
securities sold under
agreements to repurchase 216 216 0 9 9 0
Federal Home Loan
Bank advances 238 238 0 12 12 0
-------- -------- -------- -------- -------- --------
Total Interest Expense $ 280 $ 592 $ (312) $ 301 $ 376 $ (75)
-------- -------- -------- -------- -------- --------
Net Interest Income $ 1,115 $ 1,096 $ 19 $ 183 $ 920 $ (737)
-------- -------- -------- -------- -------- --------
</TABLE>
6
<PAGE>
Table 3 - Analysis of Allowance for Loans Losses
(In Thousands)
<TABLE>
<CAPTION>
Year Ended
December 31
------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C>
Allowance for Loan
Losses, January 1 $ 925 $ 749 $ 914 $ 828 $ 808
Loans Charged-Off:
Commercial, financial
and agricultural $ 73 $ 1 $ 4 $ 0 $ 144
Real estate-construction
and development 0 0 0 0 0
Real estate-mortgage 27 7 42 0 0
Consumer 137 286 640 267 130
------- ------- ------- ------- -------
Total Loans Charged-Off $ 237 $ 294 $ 686 $ 267 $ 274
------- ------- ------- ------- -------
Recoveries:
Commercial, financial
and agricultural $ 0 $ 0 $ 1 $ 6 $ 10
Real estate-construction
and development 0 0 0 0 0
Real estate-mortgage 1 4 4 0 0
Consumer 99 94 39 57 44
------- ------- ------- ------- -------
Total Recoveries $ 100 $ 98 $ 44 $ 63 $ 54
------- ------- ------- ------- -------
Net Charge-Offs $ 137 $ 196 $ 642 $ 204 $ 220
------- ------- ------- ------- -------
Provision for Loan Losses $ 335 $ 372 $ 477 $ 290 $ 240
------- ------- ------- ------- -------
Allowance for Loan
Losses, December 31 $1,123 $ 925 $ 749 $ 914 $ 828
======= ======= ======= ======= =======
Ratio of Net Charge-Offs
to Average Loans: 0.13% 0.23% 0.77% 0.24% 0.26%
======= ======= ======= ======= =======
</TABLE>
7
<PAGE>
Table 4 - Allocation of Allowance for Loan Losses
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
Allowance Percentage Allowance Percentage Allowance Percentage
for Loan of Total for Loan of Total for Loan of Total
Losses Loans Losses Loans Losses Loans
---------- ---------- ---------- ---------- ---------- ----------
<S> <C>
Commercial, financial,
and agricultural $ 374 9.5% $ 352 8.8% $ 323 8.8%
Real Estate: mortgage 187 78.7% 110 77.2% 125 74.0%
Consumer 562 11.8% 463 14.0% 301 17.2%
---------- ---------- ----------
$ 1,123 $ 925 $ 749
========== ========== ==========
</TABLE>
8
<PAGE>
Table 5 - Loan Portfolio (In Thousands)
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C>
Loans secured by real estate:
Construction and land development $ 4,138 $ 2,168 $ 588 $ 1,434 $ 0
Secured by farmland 6,057 3,565 3,700 4,013 4,112
Secured by 1-4 family residential 64,566 51,444 44,863 45,156 41,411
Nonfarm, nonresidential loans 23,457 16,902 11,141 9,518 10,372
Loans to farmers (except secured
by real estate) 495 745 770 1,446 1,605
Commercial and industrial loans
(except those secured by real estate) 9,952 6,463 5,116 6,145 6,349
Loans to individuals (except those
secured by real estate) 14,745 13,603 14,458 19,633 22,508
All other loans 1,445 1,193 1,251 1,732 1,239
--------- --------- --------- --------- ---------
Total loans 124,855 96,083 81,887 89,077 87,596
Less: Unearned discount (37) (150) (462) (1,207) (1,725)
--------- --------- --------- --------- ---------
Total Loans, Net $124,818 $95,933 $81,425 $87,870 $85,871
========= ========= ========= ========= =========
</TABLE>
9
<PAGE>
Table 6 - Maturity Schedule of Selected Loans
(In Thousands)
<TABLE>
<CAPTION>
After
1 Year
Within Within After
1 Year 5 Years 5 Years Total
--------- --------- --------- ---------
<S> <C>
Loans secured by real estate $ 17,050 $ 50,649 $ 30,519 $ 98,218
Agricultural production loans 248 243 0 491
Commercial and industrial loans 5,180 4,670 102 9,952
Consumer loans 2,523 10,806 1,383 14,712
All other loans 51 1,394 0 1,445
--------- --------- --------- ---------
$ 25,052 $ 67,762 $ 32,004 $124,818
========= ========= ========= =========
For maturities over one year:
Floating rate loans $ 1,748 $ 7,320 $ 9,068
Fixed rate loans 66,014 24,684 90,698
--------- --------- ---------
$ 67,762 $ 32,004 $ 99,766
========= ========= =========
</TABLE>
10
<PAGE>
Table 7 - Non-Performing Assets (In Thousands)
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C>
Nonaccrual loans $ 156 $ 227 $ 437 $ 0 $ 430
Restructured loans 0 0 0 0 0
Other real estate owned 109 0 190 47 47
------ ------ ------ ------ ------
Total Non-Performing Assets $ 265 $ 227 $ 627 $ 47 $ 477
====== ====== ====== ====== ======
Loans past due 90 days
accruing interest $ 642 $ 372 $ 614 $ 967 $1,694
====== ====== ====== ====== ======
Allowance for loan losses to
period end loans 0.90% 0.96% 0.92% 1.04% 0.96%
Non-performing assets to
period end loans and other
real estate owned 0.21% 0.24% 0.77% 0.05% 0.52%
</TABLE>
The amount of gross interest income that would have been recorded during the
periods if the non-accrual loans had been current in accordance with their
original terms is incorporated by reference to Note 4 of the Consolidated
Financial Statements which are contained herein as Exhibit 99.1.
A discussion of the Company's policy for placing loans on non-accrual status is
incorporated by reference to Note 1 of the Consolidated Financial Statements
which are contained herein as Exhibit 99.1.
11
<PAGE>
<TABLE>
Table 8 - Maturity Distribution and Yields of Securities
(In Thousands)
<CAPTION>
Due in one year Due after 1 Due after 5
or less through 5 years through 10 years
---------------- ---------------- ----------------
Amount Yield Amount Yield Amount Yield
------- ----- ------- ----- ------- -----
<S> <C>
Securities held to maturity:
U.S. Treasury securities $ 0 0.00% $ 0 0.00% $ 122 7.63%
Obligations of U.S. government
corporations and agencies 0 0.00% 3,508 5.86% 0 0.00%
Mortgage-backed securities 0 0.00% 3,581 6.40% 3,178 6.09%
Obligations of states and
political subdivisions,
taxable 726 6.57% 3,964 6.19% 980 6.03%
------- ------- -------
Total taxable 726 11,053 4,280
Obligations of states and
political subdivisions,
tax-exempt (1) 730 6.55% 2,822 6.66% 6,584 6.32%
------- ------- -------
Total $ 1,456 $13,875 $10,864
------- ------- -------
Securities available for sale:
Obligations of U.S. government
corporations and agencies $ 999 5.97% $ 2,724 5.96% $ 0 0.00%
Mortgage-backed securities 1,573 5.42% 1.243 5.89% 1,681 6.20%
Other taxable securities 0 0.00% 0 0.00% 0 0.00%
------- ------- -------
Total taxable $ 2,572 $ 3,967 $ 1,681
------- ------- -------
Obligations of states and
Political subdivision
Tax-exempt 0 0.00% 0 0.00% 1,049 7.11%
------- ------- -------
Total $ 2,572 $ 3,967 $ 2,730
------- ------- -------
Total securities: $ 4,028 $17,842 $13,594
======= ======= =======
(1) Yields on tax-exempt securities have been computed on a tax-equivalent
basis using a federal tax rate of 34%.
</TABLE>
Maturity Distribution and Yields of Securities (continued)
(In Thousands)
<TABLE>
<CAPTION>
Due after
10 years and
Equity Securities Total
---------------- ----------------
Amount Yield Amount Yield
------- ----- ------- -----
<S> <C>
Securities held to maturity:
U.S. Treasury securities $ 0 0.00% $ 122 7.63%
Obligations of U.S. government
corporations and agencies 0 0.00% 3,508 5.86%
Mortgage-backed securities 2,852 6.42% 9,611 6.31%
Obligations of states and
political subdivisions,
taxable 0 0.00% 5,670 6.21%
------- -------
Total taxable 2,852 18,911
Obligations of states and
political subdivisions,
tax-exempt (1) 440 6.44% 10,576 6.43%
------- -------
Total $ 3,292 $29,487
------- -------
Securities available for sale:
Obligations of U.S. government
corporations and agencies $ 0 0.00% $ 3,723 5.96%
Mortgage-backed securities 0 0.00% 4,497 5.84%
Other taxable securities 1,832 6.83% 1,832 6.83%
------- -------
Total taxable $ 1,832 $10,052
------- -------
Obligations of state and
Political subdivisions
Tax-exempt 0 0.00% 1,049 7.11%
------- -------
Total $ 1,832 $11,101
------- -------
Total securities: $ 5,124 $40,588
======= =======
(1) Yields on tax-exempt securities have been computed on a tax-equivalent
basis using a federal tax rate of 34%.
</TABLE>
12
<PAGE>
Table 9 - Deposits and Rates Paid (In Thousands)
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
Amount Rate Amount Rate Amount Rate
-------- ------ -------- ------ -------- ------
<S> <C>
Noninterest-bearing $ 22,883 $ 21,289 $ 17,774
-------- -------- --------
Interest-bearing:
NOW accounts 20,267 1.73% 18,053 1.99% 15,796 2.05%
Money market accounts 19,384 2.92% 18,922 3.16% 16,232 3.11%
Regular savings accounts 15,494 2.23% 13,959 2.40% 13,572 2.44%
Certificates of deposit:
Less than $100,000 48,820 4.82% 37,540 5.16% 38,743 5.39%
$100,000 and more 22,040 4.78% 20,477 5.46% 14,962 5.49%
-------- -------- --------
Total interest-bearing $126,005 3.60% $108,921 4.01% $ 99,305 4.05%
-------- -------- --------
Total deposits $148,888 $130,210 $117,079
======== ======== ========
</TABLE>
13
<PAGE>
<TABLE>
Table 10 - Maturities of Certificates of Deposit and Other Time
Deposits of $100,000 and More (In Thousands)
<CAPTION>
Within Three to Six to One to Over
Three Six Twelve Five Five
Months Months Months Years Years Total
-------- -------- -------- -------- -------- --------
<S> <C>
At December 31, 1999 $ 8,893 $ 5,203 $ 7,238 $ 706 $ 0 $ 22,040
======== ======== ======== ======== ======== ========
</TABLE>
14
<PAGE>
Table 11 - Risk Based Capital Ratios (In Thousands)
<TABLE>
<CAPTION>
December 31
----------------------------------
1999 1998
-------- --------
<S> <C>
Tier 1 Capital:
Shareholders' Equity $ 17,084 $ 15,563
Tier 2 Capital:
Allowable Allowance for Loan Losses 1,123 925
-------- --------
Total Capital: $ 18,207 $ 16,488
======== ========
Risk Adjusted Assets: $119,959 $102,313
======== ========
Risk Based Capital Ratios:
Tier 1 to Risk Adjusted Assets 14.24% 15.21%
Total Capital to Risk Adjusted Assets 15.18% 16.12%
</TABLE>
15
<PAGE>
<TABLE>
Table 12 - Interest Rate Sensitivity Schedule (In Thousands)
<CAPTION>
December 31, 1999
------------------------------------------------------
Mature or Reprice Within
------------------------------------------------------
Over Three
Months Over
Three Through One Year Over
Months Twelve To Five Five
Or Less Months Years Years Total
--------- --------- --------- --------- ---------
<S> <C>
INTEREST-EARNING ASSETS:
Loans (net of unearned income) $ 24,743 $ 9,378 $ 66,014 $ 24,683 $124,818
Securities and other
interest-earning assets 1,081 3,282 17,738 18,500 40,601
--------- --------- --------- --------- ---------
Total interest-earning assets $ 25,824 $ 12,660 $ 83,752 $ 43,183 $165,419
--------- --------- --------- --------- ---------
INTEREST-BEARING LIABILITIES:
Certificates of deposit:
$100,000 and more $ 8,893 $ 12,441 $ 706 $ 0 $ 22,040
less than $100,000 9,056 34,103 5,658 3 48,820
Other deposits 55,145 0 0 0 55,145
Federal funds purchased and
securities sold under
agreements to repurchase 6,161 0 0 0 6,161
Federal Home Loan Bank advances 0 0 0 5,000 5,000
--------- --------- --------- --------- ---------
Total interest-bearing
liabilities $ 79,255 $ 46,544 $ 6,364 $ 5,003 $137,166
--------- --------- --------- --------- ---------
Interest sensitivity gap:
Asset sensitive
(Liability sensitive) ($53,431) ($33,884) $ 77,388 $ 38,180 $ 28,253
========= ========= ========= ========= =========
Cumulative interest rate gap: $(53,431) $(87,315) $ (9,927) $ 28,253
========= ========= ========= =========
Ratio of cumulative gap to total
interest earning assets: -32.30% -52.78% -6.00% 17.08%
========= ========= ========= =========
</TABLE>
16
<PAGE>
Item 2. Properties.
The present headquarters building of the Registrant and the Bank,
which is owned, was substantially enlarged and remodeled in 1983-84 and again in
1993. The building now consists of a two-story building of brick construction,
with approximately 20,000 square feet of floor space located at 2 East Main
Street, Berryville, Virginia. This office has seven teller stations in the
lobby, a remote drive-through facility with a walk-up window, and a 24 hour
automated teller machine. The Bank also owns and operates branch offices at 108
West Main Street, Boyce, Virginia, 1508 Senseny Road, Winchester, Virginia, and
382 Fairfax Pike, Stephens City, Virginia. The Bank also presently operates
leased branches at 625 East Jubal Early Drive, Winchester, Virginia and 40 West
Piccadilly Street, Winchester, Virginia.
The Bank also purchased a 1.5 acre parcel of land located adjacent to
the Food Lion north of Berryville on Route 340. The site will house a branch in
the future. The Bank also owns a building at 18 North Church Street in
Berryville for future expansion. This site is currently leased and used for
offices.
Item 3. Legal Proceedings.
There are no material pending legal proceedings against the Registrant
or the Bank and no material proceedings to which any director, officer or
affiliate of the Registrant, any beneficial owner of more than 5% of the Common
Stock of the Registrant, or any associate of such director, officer or affiliate
of the Registrant, is a party adverse to the Registrant or the Bank or has a
material interest adverse to the Registrant or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.
17
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters.
The Common Stock of the Registrant is not listed for trading on a
registered exchange or any automated quotation system. Accordingly, there is no
established public trading market for shares of the Registrant's Common Stock.
Trades in shares of the Registrant's Common Stock occur sporadically on a local
basis. Based on information available to the Registrant concerning such trading,
the following table shows the trading ranges of the Common Stock of the
Registrant and dividends for the periods indicated.
<TABLE>
<CAPTION>
1999 1998 1997 Dividends Per Share
---------------------------------------------------------------------------
High Low High Low High Low 1999 1998 1997
---------------------------------------------------------------------------
<S> <C>
1st Quarter $28.00 $27.00 $25.00 $24.00 $22.00 $20.50 $0.09 $0.08 $0.08
2nd Quarter 29.00 28.00 26.00 25.00 23.00 22.00 0.09 0.08 0.08
3rd Quarter 28.00 28.00 27.00 26.00 24.00 23.00 0.10 0.08 0.08
4th Quarter 29.00 28.00 27.00 27.00 24.00 24.00 0.10 0.09 0.08
</TABLE>
The Company's dividend policy was changed during 1997 to pay quarterly
dividends beginning February 15, 1997. The company has paid quarterly dividends
during 1997, 1998 and 1999.
The Registrant's future dividends will depend upon its earnings and
financial condition and upon other factors not presently determinable. It is
anticipated that the Registrant will obtain the funds needed for the payment of
its dividends and expenses from the Bank in the form of dividends.
There were 1,136 holders of record of the Registrant's Common Stock as
of March 24, 2000.
18
<PAGE>
Item 6. Selected Financial Data.
The following Selected Financial Data for the five fiscal years ended December
31, 1999 should be read in conjunction with Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial
Statements of the Registrant incorporated by reference in response to Item 8,
Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------------
1999 1998 1997 1996 1995
Income Statement Data: ------------ ------------ ------------ ------------ ------------
<S> <C>
Interest Income $ 11,014,989 $ 9,746,590 $ 9,310,237 $ 9,402,870 $ 8,726,902
Interest Expense 4,485,143 4,204,254 3,904,197 3,910,612 3,584,788
------------ ------------ ------------ ------------ ------------
Net Interest Income $ 6,529,846 $ 5,542,336 $ 5,406,040 $ 5,492,258 $ 5,142,114
Provision for
Loan Losses 335,000 371,886 476,667 290,000 240,000
------------ ------------ ------------ ------------ ------------
Net Interest Income after
Provision for Loan Losses $ 6,194,846 $ 5,170,450 $ 4,929,373 $ 5,202,258 $ 4,902,114
Non-Interest Income 2,024,649 1,707,712 1,245,781 1,024,770 811,968
------------ ------------ ------------ ------------ ------------
Net Revenue $ 8,219,495 $ 6,878,162 $ 6,175,154 $ 6,227,028 $ 5,714,082
Non-Interest Expense 5,982,827 5,099,167 4,690,999 4,378,387 3,976,155
------------ ------------ ------------ ------------ ------------
Income before
Income Taxes $ 2,236,668 $ 1,778,995 $ 1,484,155 $ 1,848,641 $ 1,737,927
Applicable Income Taxes 551,538 470,190 372,143 537,304 477,237
------------ ------------ ------------ ------------ ------------
Net Income $ 1,685,130 $ 1,308,805 $ 1,112,012 $ 1,311,337 $ 1,260,690
============ ============ ============ ============ ============
Performance Ratios:
Return on Average Assets 1.05% 0.94% 0.87% 1.06% 1.12%
Return on Average Equity 10.08% 8.42% 7.59% 9.58% 9.94%
Shareholders' Equity
to Assets 9.79% 10.58% 11.30% 11.25% 10.80%
Dividend Payout Ratio 32.06% 35.60% 40.38% 31.86% 30.18%
Per Share Data (1):
Net Income, basic
and diluted $ 1.18 $ 0.93 $ 0.79 $ 0.94 $ 0.91
Cash Dividends Declared 0.38 0.33 0.32 0.30 0.28
Book Value 12.19 11.42 10.69 10.14 9.44
Market Price * 29.00 27.00 24.00 20.50 18.75
Average Shares Outstanding 1,423,312 1,413,172 1,404,645 1,392,298 1,383,152
Balance Sheet Data:
Assets $178,377,761 $153,124,559 $133,239,401 $126,241,741 $121,492,853
Loans 124,817,215 95,933,498 81,425,186 87,870,194 85,871,203
Securities 40,857,858 43,081,952 37,418,780 26,089,574 26,618,148
Deposits 148,888,478 130,209,888 117,079,355 111,087,867 105,612,562
Shareholders' Equity 17,460,848 16,193,501 15,058,115 14,196,856 13,120,419
(1) Adjusted for a stock split effected in the form of a 100% stock dividend
of Eagle Financial Services, Inc. stock on December 31, 1996.
* The Company issues one class of stock, Common, which is not listed for
trading on a registered exchange or quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ). Trades in the
Company's stock occur sporadically on a local basis. Accordingly, there
is no established public trade market for shares of the Company's stock,
and quotations do not necessarily reflect the price that would be paid in
an active and liquid market.
</TABLE>
19
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
The purpose of this discussion is to focus on the important factors
affecting the Company's financial condition and results of operations. This
discussion should be read in conjunction with the Selected Financial Data and
the Company's Consolidated Financial Statements (including the notes thereto).
The Company's Form 10-K may be obtained from the S.E.C.'s EDGAR Database on the
internet or by request from the Company's transfer agent.
OVERVIEW
During 1999 total assets of the company increased $25.3 million or
16.49% from $153.1 million at December 31, 1998 to $178.4 at December 31, 1999.
Loan growth was funded through an increase in total deposits, primarily time
deposits. Net loans increased $28.7 million or 30.19% from $95.0 million to
$123.7 million at year end 1998 and 1999, respectively. Securities decreased
$2.5 million or 5.79% from $43.1 million to $40.6 million at year 1998 and 1999,
respectively. Total deposits of the Company increased from $130.2 million to
$148.9 million, which represents an increase of $18.7 million or 14.35% from
December 31, 1998 to December 31, 1999. Shareholders' equity increased $1.3
million or 7.83% during 1999 from $16.2 million to $17.5 million.
For the year ended December 31, 1999, net income totaled $1.7 million,
a $0.4 million or 28.75% increase over 1998 net income of $1.3 million. Earnings
per share were $1.18, $0.93 and $0.79 for 1999, 1998 and 1997, respectively.
This is a $0.14 or 17.72% increase in 1998 and a $0.25 or 26.88% increase for
1999. Return of average equity for 1999 was 10.08% as compared to 8.42% for 1998
and 7.59% in 1997. Return on average assets for 1999 was 1.05% as compared to
0.94% for 1998 and 0.87% for 1997. During the past five years, the Company has
earned $6.7 million, resulting in an increase in shareholders' equity of 45.88%.
The market value of the Company has risen steadily over the same period. The
market value of the stock has increased from $17.50 per share to $29.00 over the
same five year period which represents an increase of 65.71%.
20
<PAGE>
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income, the difference between total interest income and
total interest expense, is the Company's primary source of earnings. Net
interest income increased $1.0 million or 17.82% in 1999 and increased $0.1
million or 2.52% in 1998 from $5.4 million in 1997, $5.5 million in 1998 and
$6.5 million in 1999. The amount of net interest income is derived from the
volume of earning assets, the rates earned on those assets, and the cost of
funds. The difference between rates on earning assets and the cost of funds is
measured by the net interest margin, which decrease from 4.72% in 1997 to 4.44%
in 1998, then increased to 4.57% in 1999.
Earning assets yielded 7.59% on a fully taxable equivalent basis in
1999 as compared to 7.72% in 1998 and 8.05% in 1997. The average rate on total
loans decreased from 8.55% in 1998 to 8.13% in 1999 as compared to 8.74% in
1997. The total income earned on loans was $8.7 million as compared to $7.3
million for 1999 and 1998, respectively. Average loans increased $21.8 million
or 25.56% from $85.3 million in 1998 to $107.1 million in 1999 as compared to an
increase of $1.9 million or 2.30% from $83.4 million in 1997 to 1998. Interest
earned on securities increased from $2.0 million in 1997 to $2.5 million in 1998
and $2.6 million in 1999, an increase of $0.5 million or 22.39% and $0.1 million
or 3.59% in 1998 and 1999, respectively. The average balance of securities
increased by $0.8 million or 1.80% in 1999 and $9.0 million or 28.18% in 1998
from $31.8 million, $40.7 million and $41.5 million in 1997, 1998 and 1999,
respectively. The average rate on securities decreased from 6.38% in 1997 to
6.09 in 1998, then increased to 6.20% in 1999.
Interest expense increased from $3.9 million for 1997 to $4.2 million
in 1998 and $4.5 million in 1999. This represents an increase of $0.3 million or
7.71% in 1998 and $0.3 million or 6.66% in 1999. Average balances on
interest-bearing liabilities increased by $16.1 million or 15.39% from $104.8
million in 1998 to $120.9 million in 1999. The average rate on interest-bearing
liabilities has decreased from 4.05% in 1997 to 4.01% in 1998 and 3.71% in 1999.
Interest expense as a percent of average earning assets decreased from 3.34% in
1997 to 3.28% in 1998 and 3.01% in 1999. Net interest spread decreased from
4.00% in 1997 to 3.71% in 1998, then increased to 3.88% in 1999.
21
<PAGE>
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 provision for loan losses decreased
$36,886 from $371,886 in 1998 to $335,000 in 1999 as compared to a decrease in
1998 of $104,781 from $476,667 in 1997. The ratio of net charge-offs to average
loans was 0.13% for 1999 as compared to 0.23% in 1998 and 0.77% in 1997. The
allowance for loan losses as a percentage of loans increased from 0.92% at the
end of 1997 to 0.96% at the end of 1998, then decreased to 0.90% at the end of
1999. Charged-off loans decreased $56,180 or 19.14% and recoveries increased
$1,538 or 1.57% in 1999 compared to 1998, which resulted in net charge-offs of
$137,555 for 1999 and $195,273 for 1998.
The coverage for the allowance for loan losses over non-performing
assets and loans 90 days past due and still accruing interest was 123.68% in
1999 as compared to 154.36% in 1998 and 60.35% in 1997. Loans 90 days past due
and still accruing interest as a percentage of total loans, net unearned
discount, decreased from 0.75% in 1997 to 0.39% in 1998, then increased to 0.51%
in 1999. The amount of loans past due greater than 90 days and still accruing
interest decreased from $614,410 in 1997 to $372,101 in 1998, then increased to
$642,299 in 1999. Of the $642,299 in loans past due greater than 90 days, 78.42%
are secured by real estate. The allowance for loan losses at year end covered
net charge-offs 8.16 times in 1999 as compared to 4.74 times in 1998 and 1.17
times in 1997.
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 methods utilized consider
specific identifications, specific and estimate pools, trends in delinquencies,
local and regional economic trends, concentrations, commitments, off balance
sheet exposure and other factors.
22
<PAGE>
OTHER INCOME AND EXPENSES
Total other income increased $0.3 million or 18.56% from $1.7 million
in 1998 to $2.0 million in 1999 and increased $0.5 million or 37.08% in 1998
from $1.2 million in 1997. Service charges on deposit accounts increased
$112,174 or 20.55% from $545,782 in 1998 to $657,956 in 1999. This increase can
be attributed to revising the Bank's fee schedule to cover increasing costs of
providing certain services and handling certain transactions. Other service
charges and fees realized an increase of $107,470 or 14.25% from $754,379 in
1998 to $861,849 in 1999. This increase can be attributed to commissions
received from the sale of non-deposit investment products through Eagle
Investment Services and fees generated from the Bank's ATM/debit card and credit
card products.
Total other expenses increased $0.9 million or 17.33% from $5.1
million in 1998 to $6.0 million in 1999 and increased $0.4 million or 8.70% in
1998 from $4.7 million in 1997. Salaries and wages increased $344,080 or 14.84%
from $2,318,317 in 1998 to $2,662,397 in 1999. This increase can be attributed
to changing the method by which annual salary adjustments are given to certain
employees and the hiring of additional personnel. ATM network fees increased
$93,031 or 130.68% from $71,188 in 1998 to $164,219 in 1999. This increase can
be attributed to conversion costs from changing ATM network service providers
during 1999.
The efficiency ratio of the Company, a measure of its performance
based upon the relationship between non-interest expense and operating income,
was 69.46% in 1997, 68.90% in 1998 and 67.76% in 1999. It is management's
objective to maintain an efficiency ratio at or below 68.00% for the Company.
23
<PAGE>
INCOME TAXES
Income tax expense was $551,538, $470,190, $372,143 for the years
ended December 31, 1999, 1998 and 1997, respectively. The increase in income tax
expense can be attributed to increased taxable earnings at the federal statutory
income tax rate of 34%. These amounts correspond to an effective tax rate of
24.66%, 26.43% and 25.07% for 1999, 1998 and 1997, respectively. Note 7 to the
Consolidated Financial Statements provides a reconciliation between income tax
expense computed using the federal statutory income tax rate and the Company's
actual income tax expense. In addition, Note 7 to the Consolidated Financial
Statements provides information regarding the principal items giving rise to
deferred taxes for 1999, 1998 and 1997.
24
<PAGE>
LOAN PORTFOLIO
The Company uses its funds primarily to support lending activities
from which it derives the greatest amount of income. The objective is to invest
70% to 85% of total deposits in loans. The ratio of loans to deposits increased
10.15% and 4.13% in 1999 and 1998, respectively, from 69.55% in 1997 to 73.68%
in 1998 and 83.83% in 1999. Loans, net of unearned income increased $28.9
million or 30.11% from $95.9 million to $124.8 million at year end 1998 and
1999, respectively. The loan portfolio consists primarily of loans for
owner-occupied single family dwellings, loans to acquire consumer products such
as automobiles, and loans to small farms and businesses. Loans secured by real
estate were $98.2 million or 78.67% of total loans in 1999 and $74.1 million or
77.10% of total loans in 1998 which represents an increase of $24.1 million or
32.59% during the year. These loans are well-secured and based on conservative
appraisals in a stable market. The Company generally does not make real estate
loans outside its primary market area which consists of Clarke and Frederick
Counties and the City of Winchester, all of which are located in the Northern
Shenandoah Valley in the state of Virginia.
25
<PAGE>
RISK ELEMENTS AND NON-PERFORMING ASSETS
Non-performing assets consist of nonaccrual loans, restructured loans,
and other real estate owned (foreclosed properties). Total nonperforming assets
were $265,365 and $227,256 on December 31, 1999 and 1998, respectively. This is
an increase of $38,109 or 16.77%.
Total loans past due 90 days or more and still accruing interest were
$642,299 and $372,101 at December 31, 1999 and 1998, respectively. This is an
increase of $270,198 or 72.61%. The loans past due 90 days or more and still
accruing interest are primarily well-secured and in the process of collection
and therefore, are not classified as nonaccrual. Any loan over 90 days past due
without being in the process of collection or where the collection of its
principal or interest is doubtful would be placed on nonaccrual status. Any
accrued interest would then be reversed and future accruals would be
discontinued with interest income being recognized on a cash basis.
The ratio of non-performing assets and other real estate owned to
loans is expected to remain at its low level relative to the Company's peers.
The amount of classified loans decreased from $2.4 million to $1.2 million for
1998 and 1999, respectively. These loans are primarily well-secured and in the
process of collection and the allowance for loan losses includes $243,550 in
specific allocations for these loans as well as percentage allocations for
classified assets without specific allocations.
26
<PAGE>
SECURITIES
The total amount of securities as of December 31, 1999 was $40.6
million compared to $43.1 million as of December 31, 1998. Securities decreased
$2.5 million or 5.79% in 1999 from 1998. The decrease from 1998 to 1999 is due
to loan growth using funds which would have otherwise been used to purchase
securities. The Company continued to invest in Obligations of states and
political subdivisions (municipal bonds). These securities increased $5.4
million or 44.81% from $11.9 in 1998 to $17.3 in 1999.
The Company had $29.5 million and $28.7 million in securities
classified as held to maturity in 1999 and 1998, respectively. The Company's
available for sale securities totaled $11.1 million in 1999 and $14.4 million in
1998.
The Company had an unrealized loss on available for sale securities in
the amount of $197,223 in 1999 as compared to an unrealized gain in the amount
$118,075 in 1998. This resulted in a total unrealized loss of $315,298. This
unrealized loss can be attributed to the overall rise in interest rates during
1999. Unrealized gains or losses on available for sale securities are reported
as increases or decreases in shareholders' equity, net of the related deferred
tax effect as accumulated other comprehensive income.
27
<PAGE>
DEPOSITS
Total deposits increased $18.7 million or 14.35% from $130.2 million
in 1998 to $148.9 million in 1999. Noninterest bearing demand deposits increased
$1.6 million or 7.49% from $21.3 in 1998 to $22.9 in 1999. Savings and interest
bearing demand deposits increased $4.2 million or 8.27% from $50.9 million in
1998 to $55.1 million in 1999. Time deposits increased $12.9 million or 22.20%
from $58.0 million in 1998 to $70.9 in 1999. The increase in time deposits can
be attributed to a certificate of deposit promotion offered during the fourth
quarter of 1999.
The Company will continue funding assets with deposit liability
accounts and focus upon core deposit growth as its primary source of liquidity
and stability. Core deposits consist of demand deposits, interest checking
accounts, money market accounts, savings accounts, and time deposits of less
than $100,000. Core deposits totaled $126.8 million or 85.20% of total deposits
in 1999 as compared to $109.8 million or 84.30% of total deposits in 1998.
Certificates of deposit of $100,000 or more totaled $22.0 million or 14.80% of
total deposits in 1999 as compared to $20.4 million or 15.70% of total deposits
in 1998. The Company neither purchases brokered deposits nor solicits deposits
from sources outside of its primary market area.
28
<PAGE>
CAPITAL RESOURCES
The Company continues to be a well capitalized financial institution.
Total shareholders' equity on December 31, 1999 was $17.5 million, reflecting a
percentage of total assets of 9.79% compared to $16.2 million and 10.58% at
year-end 1998. Shareholders' equity per share increased $0.77 or 6.74% from
$11.42 per share in 1998 to $12.19 per share in 1999. The return on average
shareholders' equity increased from 8.42% in 1998 to 10.08% in 1999. During 1999
the Company paid $0.38 per share in dividends as compared to $0.33 per share in
1998. The Company has a Dividend Investment Plan that reinvests the dividends of
the shareholder in Company stock.
Federal regulatory risk-based capital guidelines require percentages
to be applied to various assets, including off-balance sheet assets, based on
their perceived risk. Tier I capital consists of total shareholders' equity.
Tier II capital is comprised of Tier I capital plus the allowable portion of the
allowance for loan losses. Financial institutions must maintain a Tier I capital
ratio of at least 4% and a Tier II capital ratio of at least 8%. Additionally, a
4% minimum leverage ratio of shareholders' equity to average assets must be
maintained. On December 31, 1999, the Company's Tier I capital ratio was 14.24%
compared to 15.21% in 1998, the Tier II capital ratio was 15.18% compared to
16.12% in 1998 and the leverage ratio was 9.93% compared to 11.17% in 1998. See
Note 12 to the Consolidated Financial Statements as of December 31, 1999 for
additional discussion and analysis of regulatory capital requirements.
29
<PAGE>
YEAR 2000
The Y2K issue involved the risk that computer programs and computer
systems would not be able to perform without interruption into the year 2000. If
computer systems did not correctly recognize the date change from December 31,
1999 to January 1, 2000, computer applications that rely on a date field could
have failed or created erroneous results. All computer programs and systems at
the Company operated without problems when the date changed from December 31,
1999 to January 1, 2000. While the Company will continue to monitor computer
programs and systems, no Y2K related problems are expected to occur.
To date, the Company has expensed approximately $25,000 related to the
Year 2000 issue. Most of these costs are associated with the testing of mission
critical software and upgrading the Bank's ATM's. Any remaining expenses related
to Y2K are not expected to have a material effect on the Company's consolidated
financial statements.
30
<PAGE>
LIQUIDITY AND MARKET RISK
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. At December 31, 1999, liquid assets totaled $42.6
million as compared to $44.3 million at year-end 1998. These amounts represent
26.46% for 1999 and 32.38% for 1998, of total deposits, federal funds purchased
and securities sold under agreements to repurchase, long-term borrowings, and
other liabilities. The Company minimizes liquidity demand by relying on core
deposits, which represent 85.20% and 84.30% of total deposits at December 31,
1999 and 1998, respectively. Securities provide a constant source of funds
through paydowns and maturities. As additional sources of liquidity, the Company
maintains short-term borrowing arrangements, namely federal funds lines of
credit, with larger financial institutions. Finally, the Bank's membership in
the Federal Home Loan Bank provides a source of borrowings with a variety of
maturities. The Company's senior management monitors the liquidity position
regularly and attempts to maintain an interest sensitive position that maximizes
the net interest margin.
As the holding company of Bank of Clarke County, the Company's primary
component of market risk is interest rate volatility. Fluctuations in interest
rates will impact the amount of interest income and expense the Bank receives or
pays on almost all of its assets and liabilities and the market value of its
interest-earning assets and interest-bearing liabilities, excluding those which
have a very short term until maturity. Interest rate risk exposure of the
Company is, therefore, experienced at the Bank level. It is the responsibility
of senior management to enact appropriate interest rate risk management
procedures.
The loan portfolio's primary volatility is due to the concentration of
loans made in the Counties of Clarke and Frederick, Virginia and the City of
Winchester, Virginia. This subjects the portfolio to fluctuations in the local
economy. The Bank does not subject itself to foreign currency exchange or
commodity price risk due to prohibition through policy and the current nature of
operations. As of December 31, 1999, the Company does not have any hedging
transactions in place such as interest rate swaps or caps.
The Bank's interest rate management strategy is designed to stabilize
net interest income and preserve the capital of the Company. The Bank utilizes
several procedures to analyze the maturities of assets and liabilities along
with their associated rate or yield. Senior management also monitors the economy
closely in order to be knowledgeable of events which may immediately or
eventually effect the pricing of assets and liabilities. The Bank also uses
interest rate sensitivity analysis which measures the term to maturity or
repricing for the interest sensitive assets and liabilities of the Bank. The
Company had negative cumulative twelve month gaps of $34.8 million or 21.01% of
total interest earning assets at December 31, 1999 and $37.4 million or 26.23%
of total interest earning assets at December 31, 1998. The decrease of $2.6
million in the negative cumulative twelve month gap can be attributed to the
increase in fixed rate loans which mature within one year and variable rate
loans which reprice within three months.
The following tables provide information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1999 and 1998. The expected maturities for loans, securities, and certificates
of deposit are the based on the contractual maturity of the instruments. The
expected maturities of money market, savings, and N.O.W. accounts are based on
the Bank's internal interest rate sensitivity analysis which considers the
amount of these accounts which would remain if rates increased or decreased. The
average interest rate for loans is the weighted average contractual rate of the
loans maturing during the period indicated. The average interest rate for
taxable securities is the weighted average yield of the securities maturing
during the period indicated. The average interest rate for tax-exempt securities
is the weighted average tax-equivalent yield assuming a federal tax rate of 34%
for the securities maturing during the period indicated. The average interest
rate for money market, savings, and N.O.W. accounts is the weighted average
annual percentage yield as of December 31, 1999 and 1998 for the amount maturing
during the period indicated. The average rate for certificates of deposit is the
weighted average contractual rate of the certificates maturing during the period
indicated.
<TABLE>
<CAPTION> At December 31, 1999
Principal Amount Maturing In
- ----------------------------------------------------------------------------------------------------
There- Fair
(Dollars In Thousands) 2000 2001 2002 2003 2004 after Total Value
- ----------------------------------------------------------------------------------------------------
<S> <C>
Earning assets:
Fixed rate loans $ 15,597 $ 14,071 $ 14,298 $ 18,646 $ 18,999 $ 24,684 $106,295 $103,992
Average interest rate 8.15% 8.09% 8.11% 7.59% 7.48% 7.59% 7.79%
Variable rate loans $ 9,455 $ 318 $ 276 $ 682 $ 472 $ 7,320 $ 18,523 $ 18,124
Average interest rate 8.98% 8.54% 8.59% 8.47% 8.74% 8.39% 8.71%
Taxable securities $ 3,298 $ 4,876 $ 3,416 $ 2,524 $ 4,205 $ 10,643 $ 28,962 $ 28,377
Average interest rate 5.91% 5.94% 6.34% 6.10% 6.17% 6.37% 6.19%
Tax-exempt securities $ 730 $ 642 $ 889 $ 681 $ 610 $ 8,074 $ 11,626 $ 11,307
Average interest rate 6.55% 6.76% 6.93% 6.48% 6.35% 6.95% 6.85%
Interest-bearing liabilities:
Money market, savings,
and N.O.W. accounts $ 17,426 $ 6,201 $ 6,201 $ 3,099 $ 3,099 $ 19,119 $ 55,145 $ 55,146
Average interest rate 2.65% 2.65% 2.65% 2.21% 2.21% 1.73% 2.28%
Certificates of deposit $ 63,529 $ 6,110 $ 387 $ 405 $ 426 $ 3 $ 70,860 $ 70,687
Average interest rate 5.14% 4.85% 5.08% 4.82% 4.47% 5.15% 5.11%
Long-term borrowings 0 0 0 0 0 $ 5,000 $ 5,000 $ 4,401
Average interest rate 0 0 0 0 0 5.01% 5.01%
Other interest-bearing
Liablities $ 6,161 $ 0 0 0 0 0 $ 6,161 $ 6,161
Average interest rate 4.41% 0 0 0 0 0 4.41%
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> At December 31, 1998
Principal Amount Maturing In
- ----------------------------------------------------------------------------------------------------
There- Fair
(Dollars In Thousands) 1999 2000 2001 2002 2003 after Total Value
- ----------------------------------------------------------------------------------------------------
<S> <C>
Earning assets:
Fixed rate loans $ 16,495 $ 10,074 $ 17,154 $ 11,581 $ 18,521 $ 11,575 $ 85,400 $ 88,309
Average interest rate 7.99% 8.82% 8.09% 8.27% 7.48% 7.94% 8.03%
Variable rate loans $ 5,763 $ 442 $ 434 $ 322 $ 323 $ 3,249 $ 10,533 $ 10,533
Average interest rate 8.57% 8.71% 8.45% 8.47% 8.61% 8.01% 8.40%
Taxable securities $ 4,559 $ 4,021 $ 5,686 $ 4,704 $ 3,474 $ 11,797 $ 34,241 $ 34,357
Average interest rate 5.55% 5.98% 6.06% 6.45% 6.69% 6.56% 6.27%
Tax-exempt securities $ 355 $ 735 $ 674 $ 892 $ 431 $ 5,754 $ 8,841 $ 8,883
Average interest rate 7.60% 6.49% 6.72% 6.90% 6.90% 6.36% 6.53%
Other interest-earning
assets $ 2,323 0 0 0 0 0 $ 2,323 $ 2,323
Average interest rate 4.62% 0 0 0 0 0 4.62%
Interest-bearing liabilities:
Money market, savings,
and N.O.W. accounts $ 17,412 $ 5,878 $ 5,878 $ 2,791 $ 2,791 $ 16,184 $ 50,934 $ 50,934
Average interest rate 2.69% 2.73% 2.73% 2.25% 2.25% 1.75% 2.36%
Certificates of deposit $ 48,805 $ 7,466 $ 1,081 $ 275 $ 357 $ 3 $ 57,987 $ 58,500
Average interest rate 4.98% 5.80% 5.02% 5.28% 4.92% 5.27% 5.09%
Long-term borrowings $ 0 $ 0 $ 0 $ 0 $ 0 $ 5,000 $ 5,000 $ 5,030
Average interest rate 0 0 0 0 0 5.01% 5.01%
Other interest-bearing
liabilities $ 696 $ 0 $ 0 $ 0 $ 0 $ 0 $ 696 $ 696
Average interest rate 3.98% 0 0 0 0 0 3.98%
- ----------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements contained in this annual report that are not
historical facts may be forward looking statements. The forward looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from historical or expected results. Readers
are cautioned not to place undue reliance on these forward looking statements.
32
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information required by Part II, Item 7A., is incorporated herein
by reference to the section titled LIQUIDITY AND MARKET RISK within Part II,
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operation."
Item 8. Financial Statements and Supplementary Data
Pursuant to General Instruction G(2) information required by this Item
is incorporated by reference to Part IV, Item 14.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
33
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Part III, Item 10., is incorporated herein
by reference to the Company's proxy statement, dated March 24, 2000, for the
Company's 2000 Annual Meeting of Shareholders to be held April 19, 2000.
Item 11. Executive Compensation.
The information required by Part III, Item 11., is incorporated herein
by reference to the Company's proxy statement, dated March 24, 2000, for the
Company's 2000 Annual Meeting of Shareholders to be held April 19, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Part III, Item 12., is incorporated herein
by reference to the Company's proxy statement, dated March 24, 1999, for the
Company's 2000 Annual Meeting of Shareholders to be held April 19, 2000.
Item 13. Certain Relationships and Related Transactions.
The information required by Part III, Item 13., is incorporated herein
by reference to the Company's proxy statement, dated March 24, 2000, for the
Company's 2000 Annual Meeting of Shareholders to be held April 19, 2000.
34
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed or incorporated by reference as part of
this report on Form 10-K.
(1) Financial Statements
Financial statements of the registrant for the fiscal year ended December
31, 1999 are incorporated herein by reference to Exhibit 99.1.
(2) Financial Statement Schedules
All financial statement schedules are omitted because of the absence of
conditions under which they are required or because the required
information is given in the financial statements or notes thereto.
(3) Exhibits
The following exhibits, when applicable, are filed with this Form 10-K 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 9. 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 as Exhibit 10.4 of
the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
Exhibit 11. Computation of Per Share Earnings
(incorporated herein as Exhibit 11).
Exhibit 12. Not applicable.
Exhibit 13. Portions of the 1999 Annual Report to
Shareholders for the year ended December
31, 1999 (filed herein).
Exhibit 16. Not applicable.
Exhibit 18. Not applicable.
Exhibit 21. Subsidiaries of the Registrant
(incorporated herein as Exhibit 21).
Exhibit 22. Not applicable.
Exhibit 23. Not applicable.
Exhibit 24. Not applicable.
Exhibit 27. Financial Data Schedule (incorporated
herein as Exhibit 27).
Exhibit 99. Additional Exhibits
99.1 The following consolidated financial
statements of the Company including the
related notes and the report of the
independent auditors for the year ended
December 31, 1999 (incorporated herein as
Exhibit 99.1).
1. Independent Auditor's Report.
2. Consolidated Balance Sheets -
At December 31, 1999 and 1998.
3. Consolidated Statements of Income -
Years ended December 31, 1999, 1998,
and 1997.
4. Consolidated Statements of Changes in
Shareholders' Equity Years ended
December 31, 1999, 1998, and 1997.
5. Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998,
and 1997.
6. Notes to Consolidated Financial
Statements.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the registrant during the fourth
quarter of 1999.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 24th day of
March, 2000.
Eagle Financial Services, Inc.
By: /s/ JOHN R. MILLESON
---------------------------------
John R. Milleson, President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ JOHN R. MILLESON President, Chief Executive March 24, 2000
- ------------------------- Officer, Treasurer, and
John R. Milleson Director (principal executive
officer)
/s/ JAMES W. MCCARTY, JR. Vice President, Chief March 24, 2000
- ------------------------- Financial Officer, and
James W. McCarty, Jr. Secretary (principal
financial officer)
/s/ JOHN D. HARDESTY Chairman of the Board March 24, 2000
- ------------------------- and Director
John D. Hardesty
/s/ LEWIS M. EWING Director March 24, 2000
- -------------------------
Lewis M. Ewing
/s/ MARILYN C. BECK Director March 24, 2000
- -------------------------
Marilyn C. Beck
/s/ THOMAS T. BYRD Director March 24, 2000
- -------------------------
Thomas T. Byrd
Director March 24, 2000
- -------------------------
Thomas T. Gilpin
Director March 24, 2000
- -------------------------
Mary Bruce Glaize
/s/ JOHN F. MILLESON, JR. Director March 24, 2000
- -------------------------
John F. Milleson, Jr.
/s/ ROBERT W. SMALLEY, JR. Director March 24, 2000
- -------------------------
Robert W. Smalley, Jr.
Director March 24, 2000
- -------------------------
Randall G. Vinson
Director March 24, 2000
- -------------------------
James R. Wilkins, Jr.
</TABLE>
36
<PAGE>
EAGLE FINANCIAL SERVICES, INC.
EXHIBIT INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBIT NUMBER DESCRIPTION
-------------- ----------------------------------------
11 Computation of Per Share Earnings .
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
99.1 The following consolidated financial
statements of the Company including the
related notes and the report of the
independent auditors for the year ended
December 31, 1999.
1. Independent Auditor's Report.
2. Consolidated Balance Sheets -
At December 31, 1999 and 1998.
3. Consolidated Statements of Income -
Years ended December 31, 1999, 1998,
and 1997.
4. Consolidated Statements of Changes
in Shareholders' Equity Years ended
December 31, 1999, 1998, and 1997.
5. Consolidated Statements of Cash
Flows Years ended December 31, 1999,
1998, and 1997.
6. Notes to Consolidated Financial
Statements.
37
EXHIBIT 11
EAGLE FINANCIIAL SERVICES, INC. AND SUBSIDIARY
Computations of Weighted Average Shares Outstanding and Earnings Per Share
(Shares Outstanding End of Month)
1999 1998 1997
Shares Shares Shares
Outstanding Outstanding Outstanding
(As Restated)
------------- ------------- -------------
January 1,418,341 1,408,485 1,399,885
February 1,420,287 1,410,433 1,402,153
March 1,420,287 1,410,433 1,402,153
April 1,420,287 1,410,433 1,402,153
May 1,422,201 1,412,320 1,404,356
June 1,422,201 1,412,320 1,404,356
July 1,422,201 1,412,320 1,404,356
August 1,424,326 1,414,165 1,406,454
September 1,424,326 1,414,165 1,406,454
October 1,425,191 1,416,310 1,406,454
November 1,427,297 1,418,341 1,408,485
December 1,432,797 1,418,341 1,408,485
------------- ------------- -------------
17,079,742 16,958,066 16,855,744
12 12 12
- ------------ ------------- ------------- -------------
Weighted
Average
Shares
Outstanding 1,423,312 1,413,172 1,404,645
- ------------ ------------- ------------- -------------
Net Income $ 1,685,130 $ 1,308,805 $ 1,112,012
- ------------ ------------- ------------- -------------
Earnings Per
Share, Basic
and Assuming
Dilution $ 1.18 $ .93 $ 0.79
- ------------ ------------- ------------- -------------
38
EXHIBIT 21
The only subsidiary of the Registrant is Bank of Clarke County, a
Virginia banking corporation, located in Berryville, Clarke County, Virginia. It
is owned 100% by the Registrant.
39
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,407
<INT-BEARING-DEPOSITS> 13
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,101
<INVESTMENTS-CARRYING> 29,487
<INVESTMENTS-MARKET> 28,583
<LOANS> 124,818
<ALLOWANCE> 1,123
<TOTAL-ASSETS> 178,378
<DEPOSITS> 148,888
<SHORT-TERM> 6,161
<LIABILITIES-OTHER> 868
<LONG-TERM> 5,000
<COMMON> 3,582
0
0
<OTHER-SE> 13,879
<TOTAL-LIABILITIES-AND-EQUITY> 178,378
<INTEREST-LOAN> 8,669
<INTEREST-INVEST> 2,330
<INTEREST-OTHER> 16
<INTEREST-TOTAL> 11,015
<INTEREST-DEPOSIT> 4,004
<INTEREST-EXPENSE> 4,485
<INTEREST-INCOME-NET> 6,530
<LOAN-LOSSES> 335
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,983
<INCOME-PRETAX> 2,237
<INCOME-PRE-EXTRAORDINARY> 2,237
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,685
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 4.57
<LOANS-NON> 156
<LOANS-PAST> 642
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 800
<ALLOWANCE-OPEN> 925
<CHARGE-OFFS> 237
<RECOVERIES> 100
<ALLOWANCE-CLOSE> 1,123
<ALLOWANCE-DOMESTIC> 1,123
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Berryville, Virginia
FINANCIAL REPORT
DECEMBER 31, 1999
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
41
<PAGE>
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, 1999 and 1998, and
the related consolidated statements of income, shareholders' equity, and cash
flows for the years ended December 31, 1999, 1998, and 1997. 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, 1999 and 1998, and
the results of their operations and their cash flows for the years ended
December 31, 1999, 1998, and 1997, in conformity with generally accepted
accounting principles.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
January 27, 2000
42
<PAGE>
<TABLE>
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
<CAPTION>
1999 1998
--------------- ---------------
Assets
<S> <C>
Cash and due from banks $ 6,420,162 $ 5,313,475
Federal funds sold 0 2,323,000
Securities available for sale 11,100,666 14,414,498
Securities held to maturity (fair value:
1999, $28,582,990; 1998, $28,825,254) 29,487,192 28,667,454
Loans, net of allowance for loan losses of
$1,122,616 in 1999 and $925,171 in 1998 123,694,599 95,008,327
Bank premises and equipment, net 3,997,919 4,117,903
Other assets 3,677,223 3,279,902
--------------- ---------------
Total assets $ 178,377,761 $ 153,124,559
=============== ===============
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest bearing $ 22,883,062 $ 21,289,370
Savings and Interest bearing 55,145,407 50,933,486
Time deposits 70,860,009 57,987,032
--------------- ---------------
Total deposits $ 148,888,478 $ 130,209,888
Federal funds purchased and securities
sold under agreements to repurchase 6,160,852 695,915
Federal Home Loan Bank advances 5,000,000 5,000,000
Other liabilities 867,583 1,025,255
Commitments and contingent liablities 0 0
--------------- ---------------
Total liabilities $ 160,916,913 $ 136,931,058
--------------- ---------------
Shareholders' Equity
Preferred stock, $10 par value;
500,000 shares authorized
and unissued $ 0 $ 0
Common stock, $2.50 par value;
authorized 5,000,000 shares;
issued 1999, 1,432,797; issued
1998, 1,418,341 shares 3,581,992 3,545,853
Surplus 2,602,005 2,307,615
Retained earnings 11,407,018 10,262,104
Accumulated other comprehensive
income (loss) (130,167) 77,929
--------------- ---------------
Total shareholders' equity $ 17,460,848 $ 16,193,501
--------------- ---------------
Total liabilities and
shareholders' equity $ 178,377,761 $ 153,124,559
=============== ===============
See Notes to Consolidated Financial Statements.
</TABLE>
43
<PAGE>
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C>
Interest and Dividend Income
Interest and fees on loans $ 8,669,159 $ 7,261,271 $ 7,255,085
Interest on federal funds sold 15,395 114,207 101,842
Interest on securities held to maturity:
Taxable interest income 1,160,355 1,308,419 1,617,097
Interest income exempt from
federal income taxes 438,576 217,573 145,016
Interest and dividends on securities
available for sale:
Taxable 595,134 766,511 142,480
Interest income exempt from
federal income taxes 27,997 2,215 0
Dividends 107,305 74,612 48,717
Interest on deposits in banks 1,068 1,782 0
--------------- --------------- ---------------
Total interest and
dividend income $ 11,014,989 $ 9,746,590 $ 9,310,237
--------------- --------------- ---------------
Interest Expense
Interest on deposits $ 4,004,374 $ 4,178,511 $ 3,899,598
Interest on federal funds purchased and
securities sold under agreements
to repurchase 230,348 14,079 4,599
Interest on Federal Home Loan Bank advances 250,421 11,664 0
--------------- --------------- ---------------
Total interest expense $ 4,485,143 $ 4,204,254 $ 3,904,197
--------------- --------------- ---------------
Net interest income $ 6,529,846 $ 5,542,336 $ 5,406,040
Provision For Loan Losses 335,000 371,886 476,667
--------------- --------------- ---------------
Net interest income after
provision for loan losses $ 6,194,846 $ 5,170,450 $ 4,929,373
--------------- --------------- ---------------
Other Income
Trust Department income $ 338,140 $ 342,769 $ 233,180
Service charges on deposits 657,956 545,782 532,277
Other service charges and fees 861,849 754,379 432,650
Other operating income 116,704 64,782 47,674
--------------- --------------- ---------------
$ 2,024,649 $ 1,707,712 $ 1,245,781
--------------- --------------- ---------------
Other Expenses
Salaries and wages $ 2,662,397 $ 2,318,317 $ 1,951,569
Pension and other employee benefits 492,823 508,343 491,913
Occupancy expenses 431,875 355,468 332,916
Equipment expenses 560,241 485,775 468,785
Stationary and supplies 207,865 179,543 190,154
Credit card expense 191,851 152,647 101,156
ATM network fees 164,219 71,188 119,827
Postage 137,576 127,784 119,713
Telephone expense 108,653 85,997 69,639
Bank franchise tax 101,640 103,586 95,344
Other operating expenses 923,687 710,519 749,983
--------------- --------------- ---------------
$ 5,982,827 $ 5,099,167 $ 4,690,999
--------------- --------------- ---------------
Income before income taxes $ 2,236,668 $ 1,778,995 $ 1,484,155
Income Tax Expense 551,538 470,190 372,143
--------------- --------------- ---------------
Net Income $ 1,685,130 $ 1,308,805 $ 1,112,012
=============== =============== ===============
Earnings Per Share
Net income per common share,
basic and diluted $ 1.18 $ 0.93 0.79
=============== =============== ===============
See Notes to Consolidated Financial Statements.
</TABLE>
44
<PAGE>
<TABLE>
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1999, 1998, and 1997
<CAPTION>
Accumulated
Other
Common Retained Comprehensive Comprehensive
Stock Surplus Earnings Income (Loss) Income Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C>
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, employee
benefit 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
Comprehensive income:
Net income - 1999 1,685,130 $ 1,685,130 1,685,130
Other comprehensive (loss):
Unrealized gain on
securities available for
sale, net of deferred
income taxes of $107,202 (208,096) (208,096) (208,096)
------------
Total comprehensive income $ 1,477,034
============
Issuance of common stock to employee
benefit plan (6,365 shares) 15,913 99,421 115,334
Issuance of common stock, dividend
investment plan (8,098 shares) 20,244 195,152 215,396
Dividends declared ($0.38 per share) (540,216) (540,216)
Fractional shares purchased (18) (183) (201)
------------ ------------ ------------ ------------- ------------
Balance, December 31, 1999 $ 3,581,992 $ 2,602,005 $11,407,018 $ (130,167) $17,460,848
============ ============ ============ ============= ============
See Notes to Consolidated Financial Statements
</TABLE>
45
<PAGE>
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C>
Cash Flows from Operating Activities
Net income $ 1,685,130 $ 1,308,805 $ 1,112,012
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation amortization 468,540 344,249 389,742
Amortization of intangible assets 56,582 50,817 50,675
Loss on equity investment 7,900 4,352 4,880
Provision for loan losses 335,000 371,886 476,667
(Gain) on sale of other real estate owned 0 (14,652) 0
Premium amortization on securities, net 77,945 633 63,141
Deferred tax expense (benefit) (51,365) (27,506) 60,807
Changes in assets and liabilities:
(Increase) decrease in other assets (358,610) 4,436 (540,104)
Increase (decrease) in other liabilities (50,470) (111,768) 144,913
-------------- -------------- --------------
Net cash provided by operating activities $ 2,170,652 $ 1,931,252 $ 1,762,733
-------------- -------------- --------------
Cash Flows from Investing Activities
Proceeds from maturities and principal
payments of securities held to maturity $ 7,564,378 $ 21,117,817 $ 5,995,036
Proceeds from maturities and principal
payments of securities available for sale 5,188,176 5,612,602 377,000
Purchases of securities held to maturity (8,453,579) (25,295,813) (14,873,594)
Purchases of securities available for sale (2,198,124) (6,995,200) (2,868,304)
Purchases of bank premises and equipment (291,499) (362,157) (198,568)
Proceeds from sale of other real estate owned 0 204,340 0
Net (increase) decrease in loans (29,130,157) (14,703,585) 5,659,861
-------------- -------------- --------------
Net cash (used in) investing activities $ (27,320,805) $ (20,421,996) $ (5,908,569)
-------------- -------------- --------------
Cash Flows from Financing Activities
Net increase in demand deposits,
money market, and savings accounts $ 5,805,613 $ 8,848,140 $ 834,027
Net increase in certificates of deposits 12,872,977 4,282,393 5,157,461
Net increase in federal funds purchased and
securities sold under agreements to repurchase 5,464,937 695,915 0
Proceeds from Federal Home Loan Bank advances 0 5,000,000 0
Proceeds from issuance of common stock to ESOP 115,334 33,897 0
Cash dividends paid (324,820) (275,322) (265,528)
Fractional shares purchased (201) (113) (65)
-------------- -------------- --------------
Net cash provided by financing activities $ 23,933,840 $ 18,584,910 $ 5,725,895
-------------- -------------- --------------
Increase (decrease) in cash and
cash equivalents $ (1,216,313) $ 94,166 $ 1,580,059
Cash and Cash Equivalents
Beginning 7,636,475 7,542,309 5,962,250
-------------- -------------- --------------
Ending $ 6,420,162 $ 7,636,475 $ 7,542,309
============== ============== ==============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 4,452,258 $ 4,321,635 $ 3,907,348
============== ============== ==============
Income taxes $ 596,088 $ 295,522 $ 439,616
============== ============== ==============
Supplemental Schedule of Noncash Investing and Financing Activities:
Issuance of common stock,
dividend investment plan $ 215,396 $ 190,645 $ 183,499
============== ============== ==============
Unrealized gain (loss) on securities
available for sale $ (315,298) $ 103,211 $ 22,485
============== ============== ==============
Other real estate acquired in settlement
of loans $ 108,885 $ 0 $ 143,083
============== ============== ==============
See Notes to Consolidated Financial Statements
</TABLE>
46
<PAGE>
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
Debt securities that management has the positive intent and ability to hold to
maturity are classified as "held to maturity" and recorded at amortized cost.
Securities not classified as held to maturity, including equity securities with
readily determinable fair values, are classified as "available for sale" and
recorded at fair value, with unrealized gains and losses excluded from earnings
and reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair value of
held to maturity and available for sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
Gains and losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.
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. The Company holds no
derivatives as defined by SFAS No. 133.
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and
are initially recorded at the lesser of the fair value of the property, less
selling costs or the loan balance outstanding at the date of foreclosure.
Subsequent to foreclosure, valuations are periodically performed by management
and the assets are carried at the lower of carrying amount or fair value less
cost to sell. Revenue and expenses from operations and changes in the valuation
allowance are included in net expenses from foreclosed assets.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
Loans
The Company grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio is represented by mortgage loans
throughout the Counties of Clarke and Frederick, Virginia and the City of
Winchester, Virginia. The ability of the Corporation's debtors to honor their
contracts is dependent upon the real estate and general economic conditions in
this area.
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances adjusted for the allowance for loan losses and any
deferred fees or costs on originated loans. Interest income is accrued on the
unpaid principal balance. Loan origination and commitment fees and direct loan
costs are being recognized as collected and incurred. The use of this method or
recognition 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 loan.
The accrual of interest on mortgage and commercial loans is discontinued at the
time the loan is 90 days delinquent unless the credit is well-secured and in
process of collection. Credit card loans and other personal loans are typically
charged off no later than 180 days past due. In all cases, loans are placed on
nonaccrual or charged off at an earlier date if collection of principal or
interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual
or charged off is reversed against interest income. The interest on these loans
is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments
are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibilty of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payment of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstance
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction loans by either
the present value of expected further cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogenous loans are collectively evaluated for
impairment. Accordingly, the Company does not separately identify individual
consumer and residential loans for impairment disclosures. The company had no
impaired loans at December 31, 1999, 1998 and 1997.
Bank Premises and Equipment
Land is carried at cost. Buildings and equipment are carried at cost, less
accumulated depreciation computed on the straight-line or declining-balance
method over the estimated useful lives of the assets.
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 six
retired employees 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. 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 that 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.
Pension Plan
The Company has a trusteed, noncontributory defined benefit pension plan
covering substantially all full-time employees.
Earnings Per Share
Basic earnings per share represents income available to common shareholders
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Weighted average shares were 1,423,312, 1,413,172 and 1,404,645 for the years
ended 1999, 1998 and 1997, respectively. The Corporation had no potential
dilution of common stock as of December 31, 1999, 1998 and 1997.
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
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, and the
valuation of foreclosed real estate and deferred tax assets.
47
<PAGE>
Note 2. Securities
The amortized costs and fair values of securities being held to maturity as of
December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION> Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------- ------------- ------------- -------------
1999
-------------------------------------------------------------
<S> <C>
U.S. Treasury securities $ 121,982 $ 2,535 $ 0 $ 124,517
Obligations of U.S. government
corporations and agencies 3,508,336 0 (65,051) 3,443,285
Mortgage-backed securities 9,610,658 0 (345,089) 9,265,569
Obligations of states and
political subdivisions 16,246,216 2,765 (499,362) 15,749,619
------------- ------------- ------------- -------------
$ 29,487,192 $ 5,300 $ (909,502) $ 28,582,990
============= ============= ============= =============
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
============= ============= ============= =============
</TABLE>
The amortized cost and fair value of securities being held to maturity as of
December 31, 1999, 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.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------ ------------
<S> <C>
Due in one year or less $ 1,456,022 $ 1,454,526
Due after one year through five years 10,294,365 10,097,636
Due after five years through ten years 7,685,780 7,324,892
Due after ten years 440,367 440,367
Mortgage-backed securities 9,610,658 9,265,569
------------- ------------
$ 29,487,192 $ 28,582,990
============= ============
Amortized costs and fair values of securities available for sale as of December
31, 1999 and 1998, are as follows:
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------- ------------- ------------- -------------
1999
-------------------------------------------------------------
Obligations of U.S. government
corporations and agencies $ 3,753,082 $ 304 $ (30,719) $ 3,722,667
Mortgage-backed securities 4,621,081 139 (124,460) 4,496,760
Obligations of states and
political subdivisions 1,080,608 2,302 (33,614) 1,049,296
Other 1,843,118 7,500 (18,675) 1,831,943
------------- ------------- ------------- -------------
$ 11,297,889 $ 10,245 $ (207,468) $ 11,100,666
============= ============= ============= =============
<CAPTION>
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
------------- ------------- ------------- -------------
$ 14,296,423 $ 132,623 $ (14,548) $ 14,414,498
============= ============= ============= =============
The amortized cost and fair value of securities available for sale as of
December 31, 1999, 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 $ 1,000,321 $ 999,065
Due after one year through five years 2,752,761 2,723,602
Due after five years through ten years 1,080,608 1,049,296
Mortgage backed securities 4,621,081 4,496,760
Other 1,843,118 1,831,943
------------- -------------
$ 11,297,889 $ 11,100,666
============= =============
</TABLE>
Proceeds from maturities and principal payments of securities being held to
maturity during 1999, 1998 and 1997 were $7,564,378,$21,117,817, and $5,995,036.
There were no sales of securities being held to maturity during 1999, 1998 and
1997.
Proceeds from maturities and principal payments of securities available for sale
during 1999, 1998 and 1997 were $5,188,176, $5,612,602, and $377,000. There were
no sales of securities available for sale during 1999, 1998 and 1997.
Securities having a book value of $13,679,153 and $11,423,378 at December 31,
1999 and 1998, were pledged to secure public deposits and for other purposes
required by law.
48
<PAGE>
Note 3. Loans
The composition of loans is as follows:
<TABLE>
<CAPTION>
December 31
------------------------------
1999 1998
----------- -----------
(thousands)
<S> <C>
Loans secured by real estate:
Construction and land development $ 4,138 $ 2,168
Secured by farmland 6,057 3,565
Secured by 1-4 family residential 64,566 51,444
Nonfarm, nonresidential loans 23,457 16,902
Loans to farmers (except secured by real estate) 495 745
Commercial and industrial loans
(except those secured by real estate) 9,952 6,463
Loans to individuals (except those
secured by real estate) 14,745 13,603
Loans to U.S. state and political subdivisions 1,343 1,093
All other loans 102 100
----------- -----------
Total loans $ 124,855 $ 96,083
Less:
Unearned income (37) (150)
Allowance for loan losses (1,123) (925)
----------- -----------
Loans, net $ 123,695 $ 95,008
=========== ===========
</TABLE>
49
<PAGE>
Note 4. Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C>
Balance, beginning $ 925,171 $ 748,558 $ 913,955
Provision charged to operating
expense 335,000 371,886 476,667
Recoveries added to the allowance 99,746 98,208 44,624
Loan losses charged to the allowance (237,301) (293,481) (686,688)
------------- ------------- -------------
Balance, ending $ 1,122,616 $ 925,171 $ 748,558
============= ============= =============
</TABLE>
Nonaccrual loans excluded from the impaired loan disclosure under FASB 114
amounted to $156,480,$227,256 and $437,261 at December 31, 1999, 1998 and 1997,
respectively. If interest would have been accrued, such income would have been
approximately $4,527 for 1999, $24,712 for 1998 and $11,021 for 1997.
50
<PAGE>
Note 5. Bank Premises and Equipment, Net
The major classes of bank premises and equipment and the total accumulated
depreciation are as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------
1999 1998
------------- -------------
<S> <C>
Land $ 787,918 $ 787,918
Land held for future branch site 150,587 150,587
Buildings and improvements 3,647,915 3,625,862
Furniture and equipment 3,220,080 2,950,633
------------- -------------
$ 7,806,500 $ 7,515,000
Less accumulated depreciation 3,808,581 3,397,097
------------- -------------
Bank premises and equipment, net $ 3,997,919 $ 4,117,903
============= =============
</TABLE>
Depreciation expense on buildings and improvements was $133,732, $59,060, and
$123,721 for the years ended December 31, 1999, 1998, and 1997, respectively.
Depreciation expense on furniture and equipment was $277,751, $245,696 and
$227,337 for the years ended December 31, 1999, 1998 and 1997, respectively.
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, 1999 under these leases is $150,184, which is due as follows:
Due in the year ending December 31, 2000 $ 75,134
2001 37,800
2002 37,250
-------------
$ 150,184
=============
The total rental expense was $110,255, $106,087 and $52,955 in 1999, 1998 and
1997, respectively.
51
<PAGE>
Note 6. Deposits
The aggregate amount of time deposits which had a balance of $100,000 or greater
was $22,039,608 and $20,447,339 at December 31, 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of time deposits are as follows:
2000 $ 63,529,115
2001 6,109,989
2002 387,312
2003 405,415
2004 and thereafter 428,178
-------------
$ 70,860,009
=============
52
<PAGE>
Note 7. Income Taxes
Net deferred tax assets (liabilities) consist of the following components as of
December 31, 1999 and 1998.
December 31
--------------------------
1999 1998
------------ ------------
Deferred tax assets:
Allowance for loan losses $ 266,120 $ 213,345
Deferred compensation 115,994 111,526
Securities available for sale 67,056 0
Accrued postretirement benefits 47,206 76,648
Non-accrual interest 1,539 8,402
------------ ------------
$ 497,915 $ 409,921
------------ ------------
Deferred tax liabilities:
Property and equipment $ 292,286 $ 321,050
Prepaid pension costs 82,808 84,471
Securities available for sale 0 40,146
------------ ------------
$ 375,094 $ 445,667
------------ ------------
$ 122,821 $ (35,746)
============ ============
The provision for income taxes charged to operations for the years ended
December 31, 1999, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
December 31
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C>
Current tax expense $ 602,903 $ 497,696 $ 311,336
Deferred tax expense (benefit) (51,365) (27,506) 60,807
------------ ------------ ------------
$ 551,538 $ 470,190 $ 372,143
============ ============ ============
</TABLE>
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, 1999, 1998 and 1997, due to the
following:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C>
Computed "expected" tax expense $ 760,467 $ 604,858 $ 504,613
(Decrease) increase in income taxes
resulting from:
Tax-exempt interest (161,469) (86,684) (63,985)
Low income housing credits (46,227) (46,227) (44,454)
Nontaxable life insurance (14,306) (4,471) (8,712)
Other 13,073 2,714 (15,319)
------------ ------------ ------------
$ 551,538 $ 470,190 $ 372,143
============ ============ ============
</TABLE>
53
<PAGE>
Note 8. Pension and Postretirement Benefit Plans
The following tables provide a reconciliation of the changes in the benefit
obligations and fair value of assets for 1999, 1998 and 1997 and a statement of
the funded status as of December 31, 1999, 1998 and 1997 for the pension plan
and postretirement benefit plan of the Company.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
----------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C>
Change in Benefit Obligation
Benefit obligation,
beginning $1,721,065 $1,488,638 $1,219,706 $ 229,057 $ 157,632 $ 157,743
Service cost 84,505 80,962 62,353 0 0 0
Interest cost 117,547 117,129 95,716 16,034 12,611 12,619
Actuarial (gain) loss 0 171,759 157,373 0 70,814 (490)
Benefits paid (425,566) (137,423) (46,510) (14,832) (12,000) (12,240)
----------- ----------- ----------- ----------- ----------- -----------
Benefit obligation,
ending $1,497,551 $1,721,065 $1,488,638 $ 230,259 $ 229,057 $ 157,632
----------- ----------- ----------- ----------- ----------- -----------
Change in Plan Assets
Fair value of plan
assets, beginning $1,638,513 $1,469,557 $1,127,104 $ 0 $ 0 $ 0
Actual return on plan
assets 113,969 220,610 233,696 0 0 0
Employer contributions 68,242 85,769 155,267 14,832 12,000 12,240
Benefits paid (425,566) (137,423) (46,510) (14,832) (12,000) (12,240)
----------- ----------- ----------- ----------- ----------- -----------
Fair value of plan
assets, ending $1,395,158 $1,638,513 $1,469,557 $ 0 $ 0 $ 0
----------- ----------- ----------- ----------- ----------- -----------
Funded status
Funded status,
beginning $ (102,393) $ (82,552) $ (19,081) $ (230,259) $ (229,057) $ (157,632)
Unrecognized net
actuarial loss 250,717 237,065 171,964 64,146 67,092 33,529
Unrecognized net
obligation at
transition (25,695) (38,539) (51,383) 28,305 30,917 (3,722)
Unrecognized prior
service cost 103,328 114,873 126,418 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Prepaid (accrued)
benefits $ 225,957 $ 230,847 $ 227,918 $ (137,808) $ (131,048) $ (127,825)
=========== =========== =========== =========== =========== ===========
</TABLE>
The following table provides the components of net periodic benefit cost for the
years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C>
Components of Net Periodic
Benefit Cost
Service cost $ 84,505 $ 80,962 $ 62,353 $ 0 $ 0 $ 0
Interest cost 117,547 117,129 95,716 16,034 12,611 12,611
Expected return on
plan assets (131,952) (115,602) (94,519) 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
loss 4,331 1,650 2,271 2,946 0 0
---------- ---------- ---------- ---------- ---------- ----------
Net periodic benefit cost $ 73,132 $ 82,840 $ 64,522 $ 21,592 $ 15,223 $ 15,223
========== ========== ========== ========== ========== =========
</TABLE>
The weighted average discount rates used for the pension calculations was 7.00%
for 1999 and 1998, 8.00% for 1997,the expected return on plans assets was 8.00%
for all periods and the rate of compensation increase was 5.00% for 1999 and
1998, and 6.00% for 1997. For measurement purposes, an 8.75% annual rate of
increase in per capita health care costs of covered benefits was assumed for
1998. This rate was assumed to decrease to 5 percent for 2004 and remain at that
level. If assumed health care cost trend rates were increased by 1 percentage
point in each year, the accumulated postretirement benefit obligation at
December 31, 1999 would be increased by $12,048 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for the
year ended December 31, 1999 would be increased by $838. The weighted average
discount rate used in estimating the accumulated postretirement benefit
obligation was 7.00% for 1999 and 1998, and 8% for 1997.
54
<PAGE>
Note 9. Employee Benefits
The Company has established an Employee Stock Ownership Plan (ESOP) to provide
additional retirement benefits to substantially all employees. Contributions are
made to the Bank of Clarke County Employee Retirement Trust to be used to
purchase the Company's common stock. There were no contributions in 1999, 1998
or 1997.
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 50 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 $39,507 in 1999, $33,175 in 1998 and
$8,160 in 1997.
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
1999, 1998, and 1997 based on the present value of the retirement benefits,
amounted to $31,440, $43,589 and $47,590, 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.
55
<PAGE>
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.
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, 1999 and 1998, the amount of
daily average required balances were approximately $1,104,000 and $952,000,
respectively. In addition, the Bank was required to maintain a compensating
balance on deposit with a correspondent bank in the amount of $1,450,000 at
December 31, 1999.
See Note 15 with respect to financial instruments with off-balance-sheet risk.
56
<PAGE>
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 $3,712,318, and $3,807,959 at December 31,
1999 and 1998, respectively. During 1999, total principal additions were
$3,022,097 and total principal payments were $3,117,738.
57
<PAGE>
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, 1999,
that the Company meets all capital adequacy requirements to which it is subject.
Prompt corrective action provisions are not applicable to bank holding
companies.
As of December 31, 1999, 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.
<TABLE>
<CAPTION>
Minimum
To Be Well
Capitalized Under
Minimum Capital Prompt Corrective
Actual Requirement Action Provisions
-------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------- ---------- ------- ---------- -------
(Amount in Thousands)
<S> <C>
As of December 31, 1999:
Total Capital to Risk Weighted Assets
Consolidated $ 18,207 15.18% >=$ 9,597 8.00% N/A
Bank of Clarke County $ 15,846 13.38% >=$ 9,475 8.00% >=$ 11,844 10.00%
Tier 1 Capital to Risk Weighted Assets
Consolidated $ 17,084 14.24% >=$ 4,798 4.00% N/A
Bank of Clarke County $ 14,723 12.43% >=$ 4,738 4.00% >=$ 7,106 6.00%
Tier 1 Capital to Average Assets
Consolidated $ 17,084 9.93% >=$ 6,880 4.00% N/A
Bank of Clarke County $ 14,723 8.66% >=$ 6,799 4.00% >=$ 8,498 5.00%
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%
</TABLE>
58
<PAGE>
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, 1999, the aggregate amount of
unrestricted funds, which could be transferred from the Bank to the Parent
Company without prior regulatory approval, amounted to $1,354,546 or 7.76% of
the consolidated net assets.
59
<PAGE>
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.
60
<PAGE>
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, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 25,433,806 $ 23,101,413
Standby letters of credit 1,047,612 150,750
</TABLE>
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, 1999, none
of the outstanding letters of credit were collateralized.
The Company has cash accounts in other commercial banks. The amount on deposit
in these banks at December 31, 1999 exceeded the insurance limits of the Federal
Deposit Insurance Corporation by $1,595,231.
61
<PAGE>
Note 16. Federal Home Loan Bank Advances and Available Lines of Credit
The Company has a $30,000,000 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 $25,000,000 and
$8,000,000 at December 31, 1999 and 1998, 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 $7,631,522 with other
nonaffiliated banks at December 31, 1999.
62
<PAGE>
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.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
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, 1999 and 1998, 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:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
(in thousands) (in thousands)
<S> <C>
Financial assets:
Cash and short-term investments $ 6,420,162 $ 6,420,162 $ 7,636,475 $ 7,636,475
Securities 40,587,858 39,683,656 43,081,952 43,239,752
Loans 123,694,599 122,116,000 95,008,327 97,917,000
Accrued interest receivable 944,578 944,578 857,972 857,972
------------ ------------ ------------ ------------
Total financial assets $171,647,197 $169,164,396 $146,584,726 $149,651,199
============ ============ ============ ============
Financial liabilities:
Deposits $148,888,478 $148,717,000 $130,209,888 $130,750,000
Federal funds purchased and
securities sold under agree-
ments to repurchase 6,160,852 6,161,000 695,915 696,000
Federal Home Loan Bank advances 5,000,000 4,401,000 5,000,000 5,030,000
Accrued interest payable 322,190 322,190 289,305 289,305
------------ ------------ ------------ ------------
Total financial liabilities $160,371,520 $159,601,190 $136,195,108 $136,765,305
============ ============ ============ ============
</TABLE>
63
<PAGE>
Note 18. Condensed Financial Information - Parent Company Only
EAGLE FINANCIAL SERVICES, INC.
(Parent Company Only)
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C>
Assets
Cash held in subsidiary bank $ 1,075 $ 27,093
Securities 2,052,939 986,393
Investment in subsidiary, at cost,
plus undistributed net income 15,117,043 14,916,718
Equity investment in Johnson Williams
Limited Partnership 254,156 262,057
Other Assets 35,635 9,748
-------------- --------------
Total assets $ 17,460,848 $ 16,202,009
============== ==============
Liabilities and Shareholders' Equity
Other liabilities $ 0 8,508
-------------- --------------
Shareholders' Equity
Preferred stock $ 0 $ 0
Common stock 3,581,992 3,545,853
Surplus 2,602,005 2,307,615
Retained earnings 11,407,018 10,262,104
Accumulated other comprehensive
income (loss) (130,167) 77,929
-------------- --------------
Total shareholders' equity $ 17,460,848 $ 16,193,501
-------------- --------------
Total liabilities and
shareholders' equity $ 17,460,848 $ 16,202,009
============== ==============
</TABLE>
EAGLE FINANCIAL SERVICES, INC.
(Parent Company Only)
Statements of Income
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C>
Income
Dividends from subsidiary $ 1,230,000 $ 1,130,000 $ 223,000
Interest and dividends on
securities available for sale 80,668 27,514 773
------------- ------------- -------------
Total income $ 1,310,668 $ 1,157,514 $ 223,773
------------- ------------- -------------
Expenses
Legal expense 3,374 1,710 1,409
Other operating expenses 18,848 17,178 20,914
------------- ------------- -------------
Total expenses $ 22,222 $ 18,888 $ 22,323
------------- ------------- -------------
Other Income
(Loss) on equity investment $ (7,900) $ (4,352) $ (4,880)
------------- ------------- -------------
Income before allocated tax
benefits and equity in
undistributed net income
of subsidiary $ 1,280,546 $ 1,134,274 $ 196,570
Allocated Income Tax Benefit (40,719) (45,852) (53,440)
------------- ------------- -------------
Income before equity in
undistributed net income
of subsidiary $ 1,321,265 $ 1,180,126 $ 250,010
Equity in Undistributed Net Income
of Subsidiary 363,865 128,679 862,002
------------- ------------- -------------
Net income $ 1,685,130 $ 1,308,805 $ 1,112,012
============= ============= =============
</TABLE>
EAGLE FINANCIAL SERVICES, INC.
(Parent Company Only)
Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C>
Cash Flows from Operating Activities
Net income $ 1,685,130 $ 1,308,805 $ 1,112,012
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss on equity investment 7,900 4,352 4,880
(Discount accretion) on securities (1,017) (77) 0
Undistributed earnings of subsidiary (363,865) (128,679) (862,002)
Changes in assets and liabilities:
Decrease in prepaid expenses 0 0 453
(Increase) in other assets (11,440) (9,748) 0
Increase (decrease) in other liabilities 0 (7) 7
------------- ------------- -------------
Net cash provided by operating activities $ 1,316,708 $ 1,174,646 $ 255,350
------------- ------------- -------------
Cash Flows from Investing Activities
Purchase of securities available for sale $ (1,623,039) $ (1,255,293) $ 0
Proceeds from maturities of securities
available for sale 490,000 299,000 55,000
------------- ------------- -------------
Net cash provided by (used in)
investing activities $ (1,133,039) $ (956,293) $ 55,000
------------- ------------- -------------
Cash Flows from Financing Activities
Cash dividends paid $ (324,820) $ (275,322) $ (265,528)
Fractional shares purchased (201) (113) (65)
Proceeds from issuance of common
Stock to ESOP 115,334 33,897 0
------------- ------------- -------------
Net cash (used in) financing activities $ (209,687) $ (241,538) $ (265,593)
------------- ------------- -------------
Increase (decrease) in cash $ (26,018) $ (23,185) $ 44,757
Cash
Beginning $ 27,093 $ 50,278 $ 5,521
------------- ------------- -------------
Ending $ 1,075 $ 27,093 $ 50,278
============= ============= =============
Supplemental Schedule of Noncash Financing Activities
Issuance of common stock-
dividend investment plan $ 215,396 $ 190,645 $ 183,499
============= ============= =============
Unrealized gain (loss) on securities
available for sale $ (315,298) $ 103,211 $ 22,485
============= ============= =============
</TABLE>
64
