SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ----------------------- Form 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 --------------------- For the quarterly period ended: March 31, 1996 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) Registrant's telephone number, including area code: 540-955-2510 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________________ Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date: Class Outstanding at Common Stock, $2.50 par value May 10, 1996 695,283 No Exhibits
PART I. FINANCIAL INFORMATION Item 1. Financial Statements. The following financial statements are provided at the page numbers indicated. Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995.................................7 Consolidated Statements of Income for the Three Months Ended March 31, 1996 and 1995.......................8 Consolidated Statement of Changes in Stockholder's Equity for the Three Months Ended March 31, 1996 and 1995............9 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995.................10 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Eagle Financial Services, Inc. had net income of $310,099 in the first three months of 1996. The Company had net income in the first three months of 1995 of $286,870. This is an increase of 8.1% or $23,229. The results of operations for the three month periods ended March 31, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. The Company's earnings have improved primarily through an increase in net interest income which has increased $29,695 or 2.3% comparing quarter end 1996 to 1995. Interest income and expense have both increased. Interest income has increased $198,555 or 9.4% and interest expense has increased $168,860 or 20.2%. Other income has improved because of increasing service fees last August. Other income has increased $38,576 or 21.1%. The Limited Partnership entitled Johnson Williams Limited Partnership has also begun to break even. The project lost $1,306 during the first quarter as compared to a loss of $20,329 last year during the first quarter. Other expenses have also increased from last year to this year. They have increased $33,016 or 3.3% comparing last year's first quarter to this year. Salaries and benefits have increased by $39,469 which have been partially offset by the decrease in accruals for FDIC premiums. Those accruals have decreased by $52,742. The Company strives to have a balanced investment portfolio meeting both the needs of liquidity and profit. The liquidity ratio is still a strong 25.02% on March 31, 1996 as compared to 24.52% in December 31, 1995.
The Company has a $269,388 investment in the Johnson Williams Limited Partnership. This amounts to a 37.7% interest in the project. The limited partnership refurbished an old school and converted it into forty apartment units that provide much needed housing for the low to moderate income elderly. The project had gotten off to a slow start and is now becoming fully occupied. This investment should improve our community in accordance with the Community Reinvestment Act and generate low income housing credits. The allowance for loan losses is an estimate of an amount adequate to provide for potential losses in the loan portfolio of the Company. The level of loan losses is affected by general economic trends as well as conditions affecting individual borrowers. As a result, management's judgment regarding the amount of the allowance is necessarily approximated and imprecise. The allowance is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance in comparison to peer companies identified by regulatory agencies. The provision for loan losses in the first nine months of 1996 was $60,000 as compared to $60,000 in 1995. The Company had net charge-offs of $45,491 and $38,690 in the first three months of 1996 and 1995, respectively. Net charge-offs to average loans was 0.05% in 1996 and 0.05% in 1995. Total nonperforming assets, which consist of nonaccrual loans and foreclosed properties, were $470,728 at March 31, 1996. Other real estate owned decreased by $103,399 over the past two years, leaving the Company with only one property left to sell. Proper reserves were accrued for each property and only minimal immaterial losses have occurred on sales. Loans past due 90 days and still accruing interest because they are both well secured and in the process of collection amounted to $1,143,807 at March 31, 1996 and $1,694,502 at December 31, 1995. This decrease in loans past due greater than ninety days is attributable to two loans secured by real estate being classified as non accrual. Both loans are well collateralized and guaranteed by Farm Service Agency (FSA). These loans are monitored closely and management would not expect to incur any material losses should foreclosure occur. The Allowance for Loan Losses as a percentage of nonperforming assets and loans past due 90 days and still accruing interest was 52.2% at March 31, 1996 and 47.6% at December 31, 1995. Potential problem loans are included in the categories mentioned above. Loans are viewed as potential problem loans when management questions the ability of such borrowers to comply with current repayment terms. These loans are subject to constant management attention, and their status is reviewed on a regular basis. The potential problem loans identified at March 31, 1996 are well secured with collateral values that exceed the principal balance.
The Purchase and Assumption Agreement with First Union National Bank, dated October 26, 1995, was finalized on March 15, 1996 with the opening of the Stephens City branch. The branch is located in a market targeted by management as a growing population center. The Company's total capital to asset ratio as of March 31, 1996 was 10.90% as compared to 10.80% in 1995. Capital adequacy is reviewed monthly by the Board of Directors. Risk based capital for both periods well exceeded the minimum limits under the new guidelines. Return on average assets for the first three months (annualized) of 1995 was 1.03% as compared to 1.04% in the first three months of 1995. Return on average equity (annualized) for the same period was 9.34%, compared to 9.45% for 1995.
Eagle Financial Services, Inc. and Subsidiary Consolidated Balance Sheets As of March 31, 1996 and December 31, 1995 <TABLE> <CAPTION> March 31, 1996 December 31, 1995 -------------- ----------------- <S> <C> Assets Cash and due from banks $4,560,486 $4,106,467 Securities held to maturity (fair value: 1996, $24,755,789; 1995, $23,332,317) 25,059,809 23,290,979 Securities available for sale, at fair value 2,472,354 3,327,169 Federal funds sold -- -- Loans (net of unearned income) 84,716,122 85,871,203 Less allowance for loan losses (842,612) (828,104) -------------- ---------------- Net loans 83,873,510 85,043,099 Bank premises and equipment 4,284,644 3,493,722 Other real estate owned 46,605 46,605 Intangible assets 737,348 -- Other assets 2,269,452 2,184,812 -------------- ---------------- Total assets $123,304,208 $121,492,853 ============== ================ Liabilities and Stockholders' Equity Liabilities Deposits: Noninterest bearing $12,482,283 $11,971,823 Interest bearing 95,494,626 93,640,739 -------------- ---------------- Total deposits $107,976,909 $105,612,562 Federal funds purchased 901,000 1,867,000 Other liabilities 992,205 892,872 -------------- ---------------- Total liabilities $109,870,114 $108,372,434 -------------- ---------------- Stockholders' Equity Preferred Stock, $10 par value; authorized 500,000 shares; no shares outstanding $ -- $ -- Common Stock, $2.50 par value; authorized 1,500,000 shares; issued 1996, 695,283; issued 1995, 695,285 shares 1,738,207 1,738,212 Surplus 1,782,115 1,782,186 Retained Earnings 9,922,726 9,612,627 Unrealized loss on securities available for sale, net (8,954) (12,606) -------------- ---------------- Total stockholders' equity $13,434,094 $13,120,419 -------------- ---------------- Total liabilities and stockholders' equity $123,304,208 $121,492,853 ============== ================ </TABLE>
Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Income For the Three Months Ended March 31, 1996 and 1995 Three Months Ended March 31, 1996 1995 ---------- ---------- Interest Income Interest and fees on loans $1,910,514 $1,794,133 Interest on securities held to maturity: Taxable interest income 308,424 216,833 Interest income exempt from federal income taxes 41,425 41,696 Interest and dividends on securities available for sale 41,739 49,554 Interest on federal funds sold 3,507 4,838 ---------- ---------- Total interest income $2,305,609 $2,107,054 ---------- ---------- Interest Expense Interest on deposits $957,938 $807,240 Interest on federal funds purchased 47,260 26,315 Interest on Federal Home Loan Bank advances --- 2,783 ---------- ---------- Total interest expense $1,005,198 $836,338 ---------- ---------- Net interest income $1,300,411 $1,270,716 Provision For Loan Losses 60,000 60,000 ---------- ---------- Net interest income after provision for loan losses $1,240,411 $1,210,716 ---------- ---------- Other Income Trust Department income $48,353 $37,500 Service charges on deposits 118,396 79,486 Other service charges and fees 43,633 63,643 Loss on equity investment (1,306) (20,329) Other operating income 12,677 22,877 ---------- ---------- $221,753 $183,177 ---------- ---------- Other Expenses Salaries and wages $407,092 $359,827 Pension and other employee benefits 105,554 113,350 Occupancy expenses 76,341 57,605 Equipment expenses 60,969 85,492 FDIC assessment 1,000 53,742 Intangible amortization 2,199 --- Other operating expenses 384,181 334,304 ---------- ---------- $1,037,336 $1,004,320 ---------- ---------- Income before income taxes $424,828 $389,573 Income Tax Expense 114,729 102,703 ---------- ---------- Net Income $310,099 $286,870 ========== ========== Earnings Per Share $0.45 $0.42 ========== ==========
<TABLE> <CAPTION> Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Changes in Stockholders' Equity Period Ended March 31, 1996 and 1995 Unrealized Gain (Loss) on Securities Available Common Retained for Sale, Stock Surplus Earnings Net Total ---------- ---------- ---------- ---------- ----------- <S> <C> Balance, December 31, 1994 $1,726,685 $1,633,368 $8,732,419 ($123,098) $11,969,374 Net income 286,870 286,870 Net change in unrealized (loss) on securities available for sale 59,404 59,404 Retirement of common shares, dividend investment plan (3) (48) (51) ---------- ---------- ---------- ---------- ----------- Balance, March 31, 1995 $1,726,682 $1,633,320 $9,019,289 ($63,694) $12,315,597 ========== ========== ========== ========== =========== Balance, December 31, 1995 $1,738,212 $1,782,186 $9,612,627 ($12,606) $13,120,419 Net income 310,099 310,099 Net change in unrealized (loss) on securities available for sale 3,652 3,652 Retirement of common shares, dividend investment plan (5) (71) (76) ---------- ---------- ---------- ---------- ----------- Balance, March 31, 1996 $1,738,207 $1,782,115 $9,922,726 ($8,954) $13,434,094 ========== ========== ========== ========== =========== </TABLE>
Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Cash Flows For the Three Months Ended March 31, 1996 and 1995 <TABLE> <CAPTION> Three Months Ended March 31, 1996 1995 ---------- ---------- <S> <C> Cash Flows from Operating Activities Net income $310,099 $286,870 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 77,243 62,975 Amortization of intangible assets 3,150 3,150 Loss on equity investment 1,306 20,329 Provision for loan losses 60,000 60,000 Increase in other assets (89,096) (32,179) Increase in other liabilities 99,333 209,247 ---------- ---------- Net cash provided by operating activities $462,035 $610,392 ---------- ---------- Cash Flows from Investing Activities Proceeds from maturities of securities held to maturity $793,045 $3,315,994 Purchases of securities held to maturity (2,561,875) (51,650) Proceeds from maturities of securities available for sale 998,844 21,000 Purchases of securities available for sale (140,377) (54,100) Purchase of bank premises and equipment (868,165) (204,600) Acquisition of intangible assets (737,348) -- Net (increase) decrease in loans 1,109,589 (762,151) ---------- ---------- Net cash (used in) investing activities ($1,406,287) $2,264,493 ---------- ---------- Cash Flows from Financing Activities Net increase (decrease) in demand deposits, NOW accounts, money market and savings accounts $2,538,395 ($2,988,136) Net (decrease) in certificates of deposit (174,048) (764,637) Net increase (decrease) in federal funds purchased (966,000) 2,407,000 Decrease of Federal Home Loan Bank advance -- (3,000,000) Retirement of common stock (76) (51) ---------- ---------- Net Cash (used in) financing activities $1,398,271 ($4,345,824) ---------- ---------- (Decrease) in cash and cash equivalents $454,019 ($1,470,939) Cash and Cash Equivalents Beginning 4,106,467 5,813,599 ---------- ---------- Ending $4,560,486 $4,342,660 ========== ========== </TABLE>
Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Cash Flows For the Three Months Ended March 31, 1996 and 1995 <TABLE> <CAPTION> Three Months Ended March 31, 1996 1995 ---------- -------- <S> <C> Supplemental Disclosures of Cash Flow Information Cash payments for: Interest $1,019,297 $765,439 ========== ======== Income taxes $6,480 $6,480 ========== ======== Supplemental Schedule of Non-Cash Financing Activities: Unrealized gain (loss) on securities available for sale $3,652 $59,404 ========== ======== </TABLE>
EAGLE FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 (1) In the opinion of management, the accompanying unaudited financial statements contain adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position and the results of operations for the periods presented. These statements should be read in conjunction with the financial statements and accompanying notes included in the Annual Report on Form 10-K as of December 31, 1995.
PART II. OTHER INFORMATION Item 1. Legal Proceedings. The registrant and its subsidiary are not the subject of legal proceedings which, in the opinion of management, will have a material effect on the financial position of the registrant or its results of operations. 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. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. None.
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 12, 1996 /s/ Lewis M. Ewing --------------------- Lewis M. Ewing President and CEO Date: May 12, 1996 /s/ John R. Milleson --------------------- John R. Milleson Executive Vice President and Treasurer Date: May 12, 1996 /s/ James W. McCarty, Jr. ------------------------- James W. McCarty, Jr. Controller