UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - ------------------------------------------------------------------------------- Form 10-Q X Quarterly Report Under Section 13 or 15(d) of the Securities --------- Exchange Act of 1934 For the quarterly period ended March 31, 2001 Transition Report Under Section 13 or 15(d) of the Exchange --------- Act - ------------------------------------------------------------------------------- EAGLE FINANCIAL SERVICES, INC (Exact name of registrant as specified in its charter) Virginia 54-1601306 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Post Office Box 391 Berryville, Virginia 22611 (Address of principal executive offices) (Zip Code) (540) 955-2510 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of the Registrant's Common Stock ($2.50 par value) outstanding as of May 11, 2001 was 1,448,400. 1
EAGLE FINANCIAL SERVICES, INC. INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) ............................ 3 Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 .................... 3 Consolidated Statements of Income for the Three Months Ended March 31, 2001 and 2000 ..................... 4 Consolidated Statements of Shareholders' Equity for the Three Months Ended March 31, 2001 and 2000 .......... 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 .......... 6 Notes to Consolidated Financial Statements .............. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............... 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk ........................................... 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings ...........................................10 Item 2. Changes in Securities .......................................10 Item 3. Defaults Upon Senior Securities .............................10 Item 4. Submission of Matters to a Vote of Security Holders .........10 Item 5. Other Information ...........................................10 Item 6. Exhibits and reports on Form 8-K ............................11 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Eagle Financial Services, Inc. and Subsidiary Consolidated Balance Sheets As of March 31, 2001 and December 31, 2000 <TABLE> <CAPTION> Mar 31, 2001 Dec 31, 2000 --------------- --------------- <S> <C> <C> Assets Cash and due from banks $ 6,175,156 $ 5,623,765 Federal funds sold 209,000 2,881,000 Securities available for sale 12,683,287 11,662,805 Securities held to maturity (fair value: 2001,$25,887,586; 2000,$26,075,829) 25,735,026 26,295,851 Loans, net allowance for loan losses of $1,400,392 in 2001 and $1,340,086 in 2000 144,391,594 140,709,430 Bank premises and equipment, net 5,014,464 4,909,252 Other assets 4,109,373 4,091,185 --------------- --------------- Total assets $ 198,317,900 $ 196,133,288 =============== =============== Liabilities and Shareholders' Equity Liabilities Deposits: Noninterest bearing demand deposits $ 28,498,725 $ 28,189,351 Interest bearing demand deposits, money market and savings accounts 59,013,464 56,699,785 Time deposits 80,815,117 83,167,640 --------------- --------------- Total deposits $ 168,327,306 $ 168,056,776 Federal funds purchased and securities sold under agreements to repurchase 3,830,062 2,782,666 Federal Home Loan Bank advances 5,000,000 5,000,000 Other liabilities 1,282,992 1,028,360 Commitments and contingent liabilities 0 0 --------------- --------------- Total liabilities $ 178,440,360 $ 176,867,802 -------------- --------------- 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 2001, 1,448,400; issued 2000, 1,445,431 shares 3,620,999 3,613,578 Surplus 2,934,174 2,873,924 Retained Earnings 13,127,789 12,760,698 Accumulated other comprehensive income 194,578 17,286 --------------- --------------- Total shareholders' equity $ 19,877,540 $ 19,265,486 --------------- --------------- Total liabilities and shareholders' equity $ 198,317,900 $ 196,133,288 =============== =============== </TABLE> 3
Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Income For the Three Months Ended March 31, 2001 and 2000 <TABLE> <CAPTION> Three Months Ended March 31 2001 2000 --------------- --------------- <S> <C> <C> Interest and Dividend Income Interest and fees on loans $ 2,930,844 $ 2,530,561 Interest on federal funds sold 3,950 0 Interest on securities held to maturity: Taxable interest income 254,344 284,460 Interest income exempt from federal income taxes 101,135 106,727 Interest and dividends on securities available for sale: Taxable interest income 145,858 123,503 Interest income exempt from federal income taxes 18,377 15,032 Dividends 35,137 29,313 Interest on deposits in banks 633 1,285 --------------- --------------- Total interest and dividend income $ 3,490,278 $ 3,090,881 --------------- --------------- Interest Expense Interest on deposits $ 1,453,677 $ 1,193,103 Interest on federal funds purchased and securities sold under agreements to repurchase 64,987 87,327 Interest on Federal Home Loan Bank advances 61,750 62,441 --------------- --------------- Total interest expense $ 1,580,414 $ 1,342,871 --------------- --------------- Net interest income $ 1,909,864 $ 1,748,010 Provision For Loan Losses 90,000 90,000 --------------- --------------- Net interest income after provision for loan losses $ 1,819,864 $ 1,658,010 --------------- --------------- Noninterest Income Trust Department income $ 146,629 $ 108,083 Service charges on deposits 197,421 176,428 Other service charges and fees 229,686 216,074 Securities gains 55,390 0 Other operating income 13,549 14,930 --------------- --------------- $ 642,675 $ 515,515 --------------- --------------- Noninterest Expenses Salaries and wages $ 775,333 $ 691,725 Pension and other employee benefits 186,657 145,931 Occupancy expenses 114,416 123,914 Equipment expenses 155,291 136,626 Stationary and supplies 46,603 32,536 Credit card expense 46,073 42,231 ATM network fees 37,928 32,820 Postage 32,605 40,305 Other operating expenses 302,289 278,387 --------------- --------------- $ 1,697,195 $ 1,524,475 --------------- --------------- Income before income taxes $ 765,344 $ 649,050 Income Tax Expense 210,483 160,412 --------------- --------------- Net Income $ 554,861 $ 488,638 =============== =============== Net income per common share, basic and diluted $ 0.38 $ 0.34 =============== =============== </TABLE> 4
<TABLE> Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Shareholders' Equity For the Three Months Ended March 31, 2001 and 2000 <CAPTION> Accumulated Other Common Retained Comprehensive Comprehensive Stock Surplus Earnings Income (Loss) Income Total ------------- ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Balance, December 31, 1999 $ 3,581,992 $ 2,602,005 $ 11,407,018 $ (130,167) $ 17,460,848 Comprehensive income: Net income 488,638 $ 488,638 488,638 Other comprehensive income: Unrealized (loss) on securities available for sale, net of deferred income taxes of $41,524 (80,605) (80,605) (80,605) ------------- Total comprehensive income $ 408,033 ============= Issuance of common stock, dividend investment plan (2,219 shares) 5,547 55,587 61,134 Dividends declared ($0.11 per share) (157,607) (157,607) ------------- ------------- ------------- ------------- ------------- Balance, March 31, 2000 $ 3,587,539 $ 2,657,592 $ 11,738,049 $ (210,772) $ 17,772,408 ============= ============= ============= ============= ============= Balance, December 31, 2000 $ 3,613,578 $ 2,873,924 $ 12,760,698 $ 17,286 $ 19,265,486 Comprehensive income: Netncome 554,861 $ 554,861 554,861 Other comprehensive income: Unrealized (loss) on securities available for sale, net of deferred income taxes of $91,332 177,292 177,292 177,292 ------------- Total comprehensive income $ 732,153 ============= Issuance of common stock, dividend investment plan (2,971 shares) 7,427 60,311 67,738 Dividends declared ($0.13 per share) (187,770) (187,770) Fractional shares purchased (6) (61) (67) ------------- ------------- ------------- ------------- ------------- Balance, March 31, 2001 $ 3,620,999 $ 2,934,174 $13,127,789 $ 194,578 $ 19,877,540 ============= ============= ============= ============= ============= </TABLE> 5
Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2001 and 2000 <TABLE> <CAPTION> Three Months Ended March 31 2001 2000 ------------- ------------- <S> <C> <C> Cash Flows from Operating Activities Net income $ 554,861 $ 488,638 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 144,707 127,750 Amortization of intangible assets 11,263 11,263 (Gain) Loss on equity investment 1,149 (2,609) Provision for loan losses 90,000 90,000 Loss on sale of other real estate owned 0 299 (Gain) on sale of securities (55,390) Premium amortization on securities, net 15,246 15,691 Changes in assets and liabilities: (Increase) in other assets (67,669) (241,053) Increase in other liabilities 163,300 302,896 ------------- ------------- Net cash provided by operating activities $ 857,467 $ 792,875 ------------- ------------- Cash Flows from Investing Activities Proceeds from maturities and principal payments on securities held to maturity $ 547,881 $ 1,550,867 Proceeds from maturities and principal payments on securities available for sale 3,538,482 502,070 Purchases of securities available for sale (4,277,252) (486,535) Purchases of bank premises and equipment (212,850) (126,776) Proceeds from sale of other real estate owned 0 2,701 Net (increase) decrease in loans (3,772,164) (2,627,832) ------------- ------------- Net cash (used in) investing activities $ (4,175,903) $ (1,185,505) ------------- ------------- Cash Flows from Financing Activities Net increase in demand deposits, money market and savings accounts $ 2,623,053 $ 1,521,166 Net (decrease) in certificates of deposits (2,352,523) (1,771,922) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 1,047,396 (774,299) Proceeds form issuance of common stock to ESOP 0 0 Cash dividends paid (120,032) (96,473) Fractional shares purchased (67) 0 ------------- ------------- Net cash provided by (used in) financing activities $ 1,197,827 $ (1,121,528) ------------- ------------- (Decrease) in cash and cash equivalents $ (2,120,609) $ (1,514,158) Cash and Cash Equivalents Beginning 8,504,765 6,420,162 ------------- ------------- Ending $ 6,384,156 $ 4,906,004 ============= ============= Supplemental Disclosures of Cash Flow Information Cash payments for: Interest $ 1,608,555 $ 1,375,845 ============= ============= Income taxes $ 74,161 $ 0 ============= ============= Supplemental Schedule of Non-Cash Investing and Financing Activities: Issuance of common stock, dividend investment plan $ 67,738 $ 61,134 ============= ============= Unrealized (loss) on securities available for sale $ 268,627 $ (122,129) ============= ============= </TABLE> 6
EAGLE FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (1) The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principals from interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. (2) In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of March 31, 2001 and December 31, 2000, and the results of operations and cash flows for the three months ended March 31, 2001 and 2000. The statements should be read in conjunction with the Notes to Financial Statements included in the Company's Annual Report for the year ended December 31, 2000. (3) The results of operations for the three month periods ended March 31, 2001 and 2000, are not necessarily indicative of the results to be expected for the full year. (4) Securities held to maturity and available for sale as of March 31, 2001 and December 31, 2000, are: <TABLE> <CAPTION> March 31, 2001 Dec 31, 2000 Held to Maturity Amortized Cost Amortized Cost - ---------------- -------------- -------------- <S> <C> <C> U.S. Treasury securities $ 121,984 $ 121,983 Obligations of U.S. government corporations and agencies 3,500,283 3,501,765 Mortgage-backed securities 7,625,347 8,176,056 Obligations of states and political subdivisions 14,487,412 14,496,047 -------------- -------------- $ 25,735,026 $ 26,295,851 ============== ============== March 31, 2001 Dec 31, 2000 Fair Value Fair Value -------------- -------------- U.S. Treasury securities $ 125,240 $ 124,554 Obligations of U.S. government corporations and agencies 3,537,345 3,498,510 Mortgage-backed securities 7,642,156 8,103,514 Obligations of states and political subdivisions 14,582,845 14,349,251 -------------- -------------- $ 25,887,586 $ 26,075,829 ============== ============== </TABLE> <TABLE> <CAPTION> March 31, 2001 Dec 31, 2000 Available for Sale Amortized Cost Amortized Cost - ------------------ -------------- -------------- <S> <C> <C> Obligations of U.S. government corporations and agencies $ 500,035 $ 2,752,025 Mortgage-backed securities 3,716,341 4,162,991 Obligations of states and political Subdivisions 1,495,908 1,494,942 Corporate securities 4,745,053 1,192,125 Other 1,931,135 1,994,531 -------------- -------------- $ 12,388,472 $ 11,596,614 ============== ============== March 31, 2001 Dec 31, 2000 Fair Value Fair Value -------------- -------------- Obligations of U.S. government corporations and agencies $ 511,250 $ 2,762,237 Mortgage-backed securities 3,760,514 4,177,761 Obligations of states and political Subdivisions 1,554,497 1,535,210 Corporate securities 4,861,986 1,214,903 Other 1,995,040 1,932,694 -------------- -------------- $ 12,683,287 $ 11,622,805 ============== ============== </TABLE> (5) Net loans at March 31, 2001 and December 31, 2000 are summarized as follows (In Thousands): <TABLE> <CAPTION> March 31, 2001 Dec 31, 2000 --------------- --------------- <S> <C> <C> Loans secured by real estate: Construction and land development $ 5,054 $ 4,396 Secured by farmland 4,916 5,109 Secured by 1-4 family residential 76,528 75,809 Nonfarm, nonresidential loans 25,372 25,217 Loans to finance agricultural production 499 656 Commercial and industrial loans 12,395 10,749 Loans to individuals 20,120 18,749 Loans to U.S. state and political subdivisions 867 1,306 All other loans 46 66 --------------- --------------- Gross loans $ 145,797 $ 142,057 Less: Unearned income (5) (8) Allowance for loan losses (1,400) (1,340) --------------- --------------- Loans, net $ 144,392 $ 140,709 =============== =============== </TABLE> (6) Allowance for Loan Losses <TABLE> <CAPTION> March 31, 2001 March 31, 2000 Dec 31, 2000 -------------- -------------- -------------- <S> <C> <C> <C> Balance, beginning $ 1,340,086 $ 1,122,616 $ 1,122,616 Provision charged to operating expense 90,000 90,000 350,000 Recoveries added to the allowance 9,174 10,986 37,988 Loan losses charged to the allowance (38,868) (34,319) (170,518) -------------- -------------- -------------- Balance, ending $ 1,400,392 $ 1,189,283 $ 1,340,086 ============== ============== ============== </TABLE> (7) New Accounting Pronouncements There are no new accounting pronouncements to disclose within this Form 10-Q. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PERFORMANCE SUMMARY Net income of the company for the first three months of 2001 and 2000 was $554,861 and $488,638, respectively. This is an increase of $66,223 or 13.55%. Net interest income after provision for loan losses for the first three months of 2001 and 2000 was $1,819,864 and $1,658,010, respectively. This is an increase of $161,854 or 9.76%. Total noninterest income increased $127,160 or 24.67% from $515,515 for the first three months of 2000 to $642,675 for the first three months of 2001. Total noninterest expenses increased $172,720 or 11.33% from $1,524,475 during the first three months of 2000 to $1,697,195 during the first three months of 2001. Earnings per common share outstanding (basic and diluted) was $0.38 and $0.34 for the three months ended March 31, 2001 and 2000, respectively. Annualized return on average assets for the three month periods ended March 31, 2001 and 2000 was 1.13% and 1.10%, respectively. Annualized return on average equity for the three month periods ended March 31, 2001 and 2000 was 11.37% and 11.14%, respectively. PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses is based upon management's estimate of the amount required to maintain an adequate allowance for loan losses reflective of the risks in the loan portfolio. The Company reviews the adequacy of the allowance for loan losses monthly and utilizes the results of these evaluations to establish the provision for loan losses. The allowance is maintained at a level believed by management to absorb potential losses in the loan portfolio. The methodology considers specific identifications, specific and estimate pools, trends in delinquencies, local and regional economic trends, concentrations, commitments, off balance sheet exposure and other factors. The provision for loan losses for the three month periods ended March 31, 2001 and 2000 was $90,000. The allowance for loan losses increased $60,306 or 4.50% during the first three months of 2001 from $1,340,086 at December 31, 2000 to $1,400,392 at March 31, 2001. The allowance as a percentage of total loans increased from 0.94% as of December 31, 2000 to 0.96% as of March 31, 2001. The Company had net charge-offs of $29,694 and $23,333 for the first three months of 2001 and 2000, respectively. The ratio of net charge-offs to average loans remained the same at 0.02% for the first three months of 2001 and 2000. Loans past due greater than 90 days and still accruing interest decreased from $46,713 at December 31, 2000 to $7,378 at March 31, 2001. Loans are viewed as potential problem loans when management questions the ability of the borrower to comply with current repayment terms. These loans are subject to constant review by management and their status is reviewed on a regular basis. The amount of problem loans as of March 31, 2001 was $672,143. Most of these loans are well secured and management expects to incur only immaterial losses on their disposition. BALANCE SHEET Total assets increased $2.2 million or 1.11% from $196.1 million at December 31, 2000 to $198.3 million at March 31, 2001. Securities increased $0.5 million or 1.32% during the first three months of 2001 from $37.9 million at December 31, 2000 to $38.4 million at March 31, 2001. Loans, net of unearned discounts increased $3.7 million or 2.63% during the same period from $142.0 million at December 31, 2000 to $145.8 million at March 31, 2001. Total liabilities increased $1.6 million or 0.89% during the first three months of 2001 from $176.9 million at December 31, 2000 to $178.4 million at March 31, 2001. Total deposits increased $0.2 million or 0.16% during the same period from $168.1 at December 31, 2000 to $168.3 million at March 31, 2001. Total shareholders' equity increased $0.6 million or 3.18% during the first three months of 2001 from $19.3 million at December 31, 2000 to $19.9 million at March 31, 2001. SHAREHOLDERS' EQUITY The Company continues to be a well capitalized financial institution. Shareholders' equity per share increased $0.39 or 2.93% from $13.33 per share at December 31, 2000 to $13.72 per share at March 31, 2001. During 2000 the Company paid $0.46 per share in dividends. The Company's dividend for the first quarter was $0.13 per share. The Company has a Dividend Investment Plan that reinvests the dividends of participating shareholders in Company stock. 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. Total liquid assets were $50.9 million at March 31, 2001 and $47.5 million at December 31, 2000. These represent 28.52% and 26.85% of total liabilities as of March 31, 2001 and December 31, 2000, respectively. There have been no material changes in Quantitative and Qualitative Disclosures about Market Risk as reported at December 31, 2000 in the Company's Form 10-K. 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. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk The information required by Part I, Item 3., is incorporated herein by reference to the section titled LIQUIDITY AND MARKET RISK within Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operation." 9
PART II. OTHER INFORMATION Item 1. Legal proceedings. None. Item 2. Changes in securities. None. Item 3. Defaults upon senior securities. None. Item 4. Submission of matters to a vote of security holders. None. Item 5. Other Information. None. 10
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following exhibits, when applicable, are filed with this Form 10-Q or incorporated by reference to previous filings. Number Description --------- ----------------------------------------- Exhibit 2. Not applicable. Exhibit 3. (i) Articles of Incorporation of Registrant (incorporated herein by reference to Exhibit 3.1 of Registrant's Form S-4 Registration Statement, Registration No. 33-43681.) (ii) Bylaws of Registrant (incorporated herein by reference to Exhibit 3.2 of Registrant's Form S-4 Registration Statement, Registration No. 33-43681) Exhibit 4. Not applicable. Exhibit 10. Material Contracts. 10.1 Description of Executive Supplemental Income Plan (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 10.2 Lease Agreement between Bank of Clarke County (tenant) and Winchester Development Company (landlord) dated August 1, 1992 for the branch office at 625 East Jubal Early Drive, Winchester, Virginia (incorporated herein by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.3 Lease Agreement between Bank of Clarke County (tenant) and Winchester Real Estate Management, Inc. (landlord) dated March 20, 2000 for the branch office at 190 Campus Boulevard, Suite 120, Winchester, Virginia (incorporated herein by reference to Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000). Exhibit 11. Computation of Per Share Earnings (incorporated herein as Exhibit 11). Exhibit 15. Not applicable. Exhibit 18. Not applicable. Exhibit 19. Not applicable. Exhibit 22. Not applicable. Exhibit 23. Not applicable. Exhibit 24. Not applicable. Exhibit 27. Not applicable Exhibit 99. Not applicable. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the registrant during the first quarter of 2001. 11
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE FINANCIAL SERVICES, INC. Date: May 11, 2001 /s/ JOHN R. MILLESON -------------------------- John R. Milleson President and Chief Executive Officer Date: May 11, 2001 /s/ JAMES W. MCCARTY, JR. -------------------------- James W. McCarty, Jr. Vice President, Chief Financial Officer, and Secretary/Treasurer 12