UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - ------------------------------------------------------------------------------- Form 10-Q X Quarterly Report Under Section 13 or 15(d) of the Securities --------- Exchange Act of 1934 For the quarterly period ended September 30, 1998 Transition Report Under Section 13 or 15(d) of the Exchange --------- Act - ------------------------------------------------------------------------------- EAGLE FINANCIAL SERVICES, INC (Exact name of registrant as specified in its charter) Virginia 54-1601306 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Post Office Box 391 Berryville, Virginia 22611 (Address of principal executive offices) (Zip Code) (540) 955-2510 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of the Registrant's Common Stock ($2.50 par value) outstanding as of November 12, 1998 was 1,416,310 1
EAGLE FINANCIAL SERVICES, INC. INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) .......................... 3 Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997 .............. 3 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1998 and 1997 ..... 4 Consolidated Statements of Changes in Stockholder's Equity for the Nine Months Ended September 30, 1998 and 1997 ..................... 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997 ......... 6 Notes to Consolidated Financial Statements ............ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............. 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk ......................................... 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings ........................................ 10 Item 2. Changes in Securities .................................... 10 Item 3. Defaults Upon Senior Securities .......................... 10 Item 4. Submission of Matters to a Vote of Security Holders ...... 10 Item 5. Other Information ........................................ 10 Item 6. Exhibits and reports on Form 8-K ......................... 11 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Eagle Financial Services, Inc. and Subsidiary Consolidated Balance Sheets As of September 30, 1998 and December 31, 1997 <TABLE> <CAPTION> Sep 30, 1998 Dec 31, 1997 -------------- -------------- <S> <C> Assets Cash and due from banks $ 4,999,791 $ 5,242,309 Securities held to maturity (fair value: 1998, $39,438,960; 1997, $33,207,946) 38,992,185 33,160,658 Securities available for sale, at fair value 2,639,951 4,258,122 Federal funds sold 0 2,300,000 Loans, net of unearned discounts 89,903,488 81,425,186 Less allowance for loan losses (829,976) (748,558) -------------- -------------- Net loans 89,073,512 80,676,628 Bank premises and equipment, net 4,148,881 4,060,501 Other real estate owned 206,183 189,688 Intangible assets 564,836 602,949 Other assets 2,814,720 2,748,546 -------------- -------------- Total assets $ 143,440,059 $ 133,239,401 ============== ============== Liabilities and Stockholders' Equity Liabilities Deposits: Noninterest bearing $ 19,283,752 $ 17,774,480 Interest bearing 105,483,202 99,304,875 -------------- -------------- Total deposits $ 124,766,954 $ 117,079,355 Federal funds purchased and securities sold under agreements to repurchase 1,766,911 0 Other liabilities 1,073,363 1,101,931 -------------- -------------- Total liabilities $ 127,607,228 $ 118,181,286 -------------- -------------- Stockholders' Equity Preferred Stock, $10 par value; 500,000 shares authorized and unissued $ 0 $ 0 Common Stock, $2.50 par value; authorized 1,500,000 shares; issued 1998, 1,414,166; issued 1997, 1,408,485 shares 3,535,414 3,521,213 Surplus 2,232,071 2,107,826 Retained Earnings 10,020,664 9,419,266 Accumulated other comprehensive income 44,682 9,810 -------------- -------------- Total stockholders' equity $ 15,832,831 $ 15,058,115 -------------- -------------- Total liabilities and stockholders' equity $ 143,440,059 $ 133,239,401 ============== ============== </TABLE> 3
Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Income For the Periods Ended September 30, 1998 and 1997 <TABLE> <CAPTION> Three Months Ended September 30, 1998 1997 -------------- -------------- <S> <C> Interest Income Interest and fees on loans $ 1,837,649 $ 1,792,685 Interest on securities held to maturity: Taxable interest income 496,989 418,674 Interest income exempt from federal income taxes 58,707 34,888 Interest and dividends on securities available for sale, taxable 46,591 65,989 Interest on federal funds sold 26,820 10,776 Interest on deposits in banks 444 452 -------------- -------------- Total interest income $ 2,467,200 $ 2,323,464 -------------- -------------- Interest Expense Interest on deposits $ 1,082,540 $ 999,933 Interest on federal funds purchased and securities sold under agreements to repurchase 4,297 1,516 -------------- -------------- Total interest expense $ 1,086,837 $ 1,001,449 -------------- -------------- Net interest income $ 1,380,363 $ 1,322,015 Provision For Loan Losses 65,000 140,000 -------------- -------------- Net interest income after provision for loan losses $ 1,315,363 $ 1,182,015 -------------- -------------- Other Income Trust Department income $ 85,334 $ 56,906 Service charges on deposits 137,670 131,918 Other service charges and fees 93,990 142,932 Gain (loss) on equity investment (1,774) (2,362) Other operating income 128,082 1,911 -------------- -------------- $ 443,302 $ 331,305 -------------- -------------- Other Expenses Salaries and wages $ 594,866 $ 505,072 Pension and other employee benefits 149,884 127,325 Occupancy expenses 69,970 83,241 Equipment expenses 113,511 117,608 Stationary and supplies 34,728 44,850 Postage 30,332 28,240 Credit card expense 35,724 24,936 Bank franchise tax 31,793 24,726 ATM network fees 30,083 39,637 Intangible amortization 12,704 12,704 Other operating expenses 197,838 208,949 -------------- -------------- $ 1,301,433 $ 1,217,288 -------------- -------------- Income before income taxes $ 457,232 $ 296,032 Income Tax Expense 108,831 58,344 -------------- -------------- Net Income $ 348,401 $ 237,688 ============== ============== Earnings Per Share (basic and assuming dilution) $ 0.25 $ 0.17 ============== ============== </TABLE> Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Income For the Periods Ended September 30, 1998 and 1997 <TABLE> <CAPTION> Nine Months Ended September 30, 1998 1997 -------------- -------------- <S> <C> Interest Income Interest and fees on loans $ 5,327,780 $ 5,502,130 Interest on securities held to maturity: Taxable interest income 1,489,112 1,170,176 Interest income exempt from federal income taxes 145,168 108,198 Interest and dividends on securities available for sale, taxable 163,248 123,915 Interest on federal funds sold 92,414 62,586 Interest on deposits in banks 1,514 912 -------------- -------------- Total interest income $ 7,219,236 $ 6,967,917 -------------- -------------- Interest Expense Interest on deposits $ 3,148,836 $ 2,879,700 Interest on federal funds purchased and securities sold under agreements to repurchase 6,130 4,427 -------------- -------------- Total interest expense $ 3,154,966 $ 2,884,127 -------------- -------------- Net interest income $ 4,064,270 $ 4,083,790 Provision For Loan Losses 202,500 306,667 -------------- -------------- Net interest income after provision for loan losses $ 3,861,770 $ 3,777,123 -------------- -------------- Other Income Trust Department income $ 261,694 $ 160,941 Service charges on deposits 409,764 387,947 Other service charges and fees 260,279 236,216 Gain (loss) on equity investment (3,284) (5,508) Other operating income 330,566 95,154 -------------- -------------- $ 1,259,019 $ 874,750 -------------- -------------- Other Expenses Salaries and wages $ 1,726,812 $ 1,440,204 Pension and other employee benefits 440,171 359,208 Occupancy expenses 277,493 245,528 Equipment expenses 358,746 337,343 Stationary and supplies 141,929 123,479 Postage 96,080 84,471 Credit card expense 118,836 81,767 Bank franchise tax 79,793 70,618 ATM network fees 69,147 99,587 Intangible amortization 38,112 37,972 Other operating expenses 571,379 586,764 -------------- -------------- $ 3,918,498 $ 3,466,941 -------------- -------------- Income before income taxes $ 1,202,291 $ 1,184,932 Income Tax Expense 262,394 275,852 -------------- -------------- Net Income $ 939,897 $ 909,080 ============== ============== Earnings Per Share (basic and assuming dilution) $ 0.67 $ 0.65 ============== ============== </TABLE> 4
<TABLE> Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Changes in Stockholders' Equity For the Nine Months Ended September 30, 1998 and 1997 <CAPTION> Accumulated Other Comprehensive Common Retained Comprehensive Income Stock Surplus Earnings Income (Loss) Total ----------- ----------- ----------- ----------- ----------- ----------- <S> <C> Balance, December 31, 1996 $ 0 $ 3,499,714 $ 1,945,891 $ 8,756,281 $ (5,030) $14,196,856 Comprehensive income Net income 909,080 909,080 909,080 Other comprehensive income (loss) Unrealized gain on securities available for sale, net of deferred income taxes of $5,721 11,106 11,106 11,106 ----------- Total comprehensive income $ 920,186 =========== Dividend declared ($0.24 per share) (336,512) (336,512) Issuance of common stock, dividend investment plan (6,571 shares) 16,427 120,749 137,176 Fractional shares purchased (5) (41) (46) ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1997 $ 3,516,136 $ 2,066,599 $ 9,328,849 $ 6,076 $14,917,660 =========== =========== =========== =========== =========== Accumulated Other Comprehensive Common Retained Comprehensive Income Stock Surplus Earnings Income (Loss) Total ----------- ----------- ----------- ----------- ----------- ----------- <S><C> Balance, December 31, 1997 $ 0 $ 3,521,213 $ 2,107,826 $ 9,419,266 $ 9,810 $15,058,115 Comprehensive income Net income 939,897 939,897 939,897 Other comprehensive income (loss) Unrealized gain (loss) on securities available for sale, net of deferred income taxes of $17,964 34,872 34,872 34,872 ----------- Total comprehensive income $ 974,769 =========== Dividend declared ($0.24 per share) (338,499) (338,499) Issuance of common stock, dividend investment plan (5,683 shares) 14,208 124,321 138,529 Fractional shares purchased (7) (76) (83) ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1998 $ 3,535,414 $ 2,232,071 $10,020,664 $ 44,682 $15,832,831 =========== =========== =========== =========== =========== </TABLE> 5
Eagle Financial Services, Inc. and Subsidiary Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1998 and 1997 <TABLE> <CAPTION> 1998 1997 ------------ ------------ <S><C> Cash Flows from Operating Activities Net income $ 939,897 $ 909,080 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 276,209 223,505 Amortization of intangible assets 38,113 37,972 Loss on equity investment 3,284 5,508 Provision for loan losses 202,500 306,667 Premium amortization on securities, net (8,376) 43,706 (Increase) in other assets (100,787) (474,456) Increase (decrease) in other liabilities (46,533) 70,462 ------------ ------------ Net cash provided by operating activities $ 1,304,307 $ 1,122,444 ------------ ------------ Cash Flows from Investing Activities Proceeds from maturities and principal payments on securities held to maturity $ 17,394,343 $ 4,383,825 Proceeds from maturities and principal payments on securities available for sale 2,132,000 377,000 Purchases of securities held to maturity (23,217,798) (10,428,722) Purchases of securities available for sale (460,688) (2,868,304) Purchases of bank premises and equipment (333,260) (211,787) Net (increase) decrease in loans (8,615,879) 5,483,380 ------------ ------------ Net cash (used in) investing activities $(13,101,282) $ (3,264,608) ------------ ------------ Cash Flows from Financing Activities Net increase (decrease) in demand deposits, money market, and savings accounts $ 5,474,887 $ (759,643) Net increase in certificates of deposits 2,212,712 4,308,785 Net increase in federal funds purchased and securities sold under agreements to repurchase 1,766,911 0 Cash dividends paid (199,970) (199,336) Fractional shares purchased (83) (46) ------------ ------------ Net cash provided by financing activities $ 9,254,457 $ 3,349,760 ------------ ------------ Increase (decrease) in cash and cash equivalents $ (2,542,518) $ 1,207,596 Cash and Cash Equivalents Beginning 7,542,309 5,962,250 ------------ ------------ Ending $ 4,999,791 $ 7,169,846 ============ ============ Supplemental Disclosures of Cash Flow Information Cash payments for: Interest $ 3,283,453 $ 2,899,014 ============ ============ Income taxes $ 157,073 $ 439,616 ============ ============ Supplemental Schedule of Non-Cash Investing and Financing Activities: Issuance of common stock, dividend investment plan $ 138,529 $ 137,176 ============ ============ Unrealized gain (loss) on securities available for sale $ 52,836 $ 16,828 ============ ============ Other real estate acquired in settlement of loans $ 16,495 $ 25,887 ============ ============ </TABLE> 6
EAGLE FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (1) The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principals from interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. (2) In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 1998 and December 31, 1997, and the results of operations and cash flows for the three and nine months ended September 30, 1998 and 1997. The statements should be read in conjunction with the Notes to Financial Statements included in the Company's Annual Report for the year ended December 31, 1997. (3) The results of operations for the three and nine month periods ended September 30, 1998 and 1997, are not necessarily indicative of the results to be expected for the full year. (4) Securities held to maturity and available for sale as of September 30, 1998 and December 31, 1997, are: <TABLE> <CAPTION> Sep 30, 1998 Dec 31, 1997 Held to Maturity Amortized Cost Amortized Cost - ---------------- -------------- -------------- <S><C> U.S. Treasury securities $ 371,970 $ 371,922 Obligations of U.S. government corporations and agencies 13,063,528 10,148,139 Mortgage-backed securities 16,587,678 17,257,777 Obligations of states and political subdivisions 8,969,009 5,382,820 -------------- -------------- $ 38,992,185 $ 33,160,658 ============== ============== Sep 30, 1998 Dec 31, 1997 Fair Value Fair Value -------------- -------------- U.S. Treasury securities $ 383,178 $ 378,455 Obligations of U.S. government corporations and agencies 13,234,135 10,178,461 Mortgage-backed securities 16,693,601 17,231,410 Obligations of states and political subdivisions 9,128,046 5,419,620 -------------- -------------- $ 39,438,960 $ 33,207,946 ============== ============== </TABLE> <TABLE> <CAPTION> Sep 30, 1998 Dec 31, 1997 Available for Sale Amortized Cost Amortized Cost - ------------------ -------------- -------------- <S><C> Obligations of U.S. government corporations and agencies $ 1,501,362 $ 3,501,058 Other securities 1,070,888 742,200 -------------- -------------- $ 2,572,250 $ 4,243,258 ============== ============== Sep 30, 1998 Dec 31, 1997 Fair Value Fair Value -------------- -------------- Obligations of U.S. government corporations and agencies $ 1,541,563 $ 3,515,922 Other securities 1,098,388 742,200 -------------- -------------- $ 2,639,951 $ 4,258,122 ============== ============== </TABLE> (5) Net loans at September 30, 1998 and December 31, 1997 are summarized as follows (In Thousands): <TABLE> <CAPTION> Sep 30, 1998 Dec 31, 1997 -------------- -------------- <S><C> Loans secured by real estate: Construction and land development $ 2,590 $ 588 Secured by farmland 3,785 3,700 Secured by 1-4 family residential 48,854 44,863 Nonfarm, nonresidential loans 14,105 11,141 Loans to finance agricultural production 620 770 Commercial and industrial loans 6,008 5,116 Loans to individuals 12,866 14,458 Loans to U.S. state and political subdivisions 1,152 1,155 All other loans 136 97 -------------- -------------- Gross loans $ 90,116 $ 81,888 Less: Unearned income (212) (462) Allowance for loan losses (830) (749) -------------- -------------- Loans, net $ 89,074 $ 80,677 ============== ============== </TABLE> (6) Allowance for Loan Losses <TABLE> <CAPTION> Sep 30, 1998 Dec 31, 1997 -------------- -------------- <S><C> Balance, beginning $ 748,558 $ 913,955 Provision charged to operating expense 202,500 476,667 Recoveries added to the allowance 82,551 44,624 Loan losses charged to the allowance (203,633) (686,688) -------------- -------------- Balance, ending $ 829,976 $ 748,558 ============== ============== </TABLE> (7) New Accounting Pronouncements In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers Disclosures about Pensions and Other Post Retirement Benefits." This statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. This Statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures. Restatement of disclosures for earlier periods is required. This Statement is effective for the Company's financial statements for the year ended December 31, 1998. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. This statement is not expected to have a material impact on the Company's financial statements. This statement is effective for fiscal years beginning after June 15, 1999, with earlier adoption encouraged. The Company intends to adopt this accounting standard effective October 1, 1998. In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This SOP provides guidance on accounting for the costs of computer software developed or obtained for internal use. This SOP requires that entities capitalize certain internal-use software costs once certain criteria are met. This statement is not expected to have a material impact on the Company's financial statements. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," which requires the costs of start-up activities and organization costs to be expensed as incurred. This statement is effective for the fiscal year 1999 financial statements. This statement is not expected to have a material impact on the Company's financial statements. Effective January 1, 1998, the company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and the display of comprehensive income and its components (revenues, expenses, gains and losses) in full for general purpose financial statements. Financial statements for prior periods have been restated as required. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PERFORMANCE SUMMARY Net income of the company for the first nine months of 1998 and 1997 was $939, 897 and $909,080, respectively. This is an increase of $30,817 or 3.39%.The results of operations for the nine month periods ended September 30, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. Net interest income after provision for loan losses for the first nine months of 1998 and 1997 was $3,861,770 and $3,777,123, respectively. This is an increase of $84,647 or 2.24%. Total other income increased $384,269 or 43.93% from $874,750 for the first nine months of 1997 to $1,259,019 for the first nine months of 1998. Total other expenses increased $451,557 or 13.02% from $3,466,941 during the first nine months of 1997 to $3,918,498 during the first nine months of 1998. Earnings per common share outstanding (basic and diluted) was $0.67 and $0.65 for the nine months ended September 30, 1998 and 1997, respectively. Annualized return on average assets for the nine month periods ended September 30, 1998 and 1997 was 0.91% and 0.95%, respectively. Annualized return on average equity for the nine month periods ended September 30, 1998 and 1997 was 8.14% and 8.33%, respectively. PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses is based upon management's estimate of the amount required to maintain an adequate allowance for loan losses reflective of the risks in the loan portfolio. The Company reviews the adequacy of the allowance for loan losses monthly and utilizes the results of these evaluations to establish the provision for loan losses. The allowance is maintained at a level believed by management to absorb potential losses in the loan portfolio. The methodology considers specific identifications, specific and estimate pools, trends in delinquencies, local and regional economic trends, concentrations, commitments, off balance sheet exposure and other factors. The provision for loan losses for the nine month periods ended September 30, 1998 and 1997 decreased $104,167 from $306,667 in 1997 to $202,500 in 1998. The allowance for loan losses increased $81,418 or 10.88% during the first nine months of 1998 from $748,558 at December 31, 1997 to $829,976 at September 30, 1998. The allowance as a percentage of total loans remained the same at 0.92% as of December 31, 1997 and September 30, 1998. The Company had net charge-offs of $121,082 and $432,528 for the first nine months of 1998 and 1997, respectively. The ratio of net charge-offs to average loans decreased significantly from 0.51% for the first nine months of 1997 to 0.15% for the first nine months of 1998. The coverage of the allowance for loan losses over non-performing assets and loans 90 days past due and still accruing interest has increased from 60.42% at December 31, 1997 to 79.59% at September 30, 1998. Loans past due greater than 90 days and still accruing interest increased from $615,410 at December 31, 1997 to $836,615 at September 30, 1998. Loans are viewed as potential problem loans when management questions the ability of the borrower to comply with current repayment terms. These loans are subject to constant review by management and their status is reviewed on a regular basis. The amount of problem loans as of September 30, 1998 was $815,993. Most of these loans are well secured and management expects to incur only immaterial losses on their disposition. BALANCE SHEET Total assets increased $10.2 million or 7.66% from $133.2 million at December 31, 1997 to $143.4 million at September 30, 1998. Securities increased $4.2 million or 11.26% during the first nine months of 1998 from $37.4 million at December 31, 1997 to $41.6 million at September 30, 1998. Loans, net of unearned discounts increased $8.5 million or 10.41% during the same period from $81.4 million at December 31, 1997 to $89.9 million at September 31, 1998. Total liabilities increased $9.4 million or 7.98% during the first nine months of 1998 from $118.2 million at December 31, 1997 to $127.6 million at September 30, 1998. Total deposits increased $7.7 million or 6.57% during the same period from $117.1 at December 31, 1997 to $124.8 million at September 30, 1998. Total stockholders' equity increased $0.7 million or 5.14% during the first nine months of 1998 from $15.1 million at December 31, 1997 to $15.8 million at September 30, 1998. STOCKHOLDERS' EQUITY The Company continues to be a well capitalized financial institution. Stockholders' equity per share increased $0.51 or 4.77% from $10.69 per share at December 31, 1997 to $11.20 per share at September 30, 1998. During 1997 the Company paid $0.32 per share in dividends. The Company's 1998 dividends have been $0.08 per quarter for a total dividend of $0.24 per share. The Company has a Dividend Investment Plan that reinvests the dividends of participating shareholders in Company stock. LIQUIDITY Asset and liability management assures liquidity and maintains the balance between rate sensitive assets and liabilities. Liquidity management involves meeting the present and future financial obligations of the Company with the sale or maturity of assets or through the occurrence of additional liabilities. Liquidity needs are met with cash on hand, deposits in banks, federal funds sold, securities classified as available for sale and loans maturing within one year. Total liquid assets were $30.7 million at September 30, 1998 and $28.6 million at December 31, 1997. These represent 24.1% and 24.2% of total liabilities as of September 30, 1998 and December 31, 1997, respectively. YEAR 2000 During 1998 the Company's subsidiary (the Bank) has been assessing the effect of the Year 2000 on its systems, vendors, and customers. The assessment of mission critical computer systems is expected to the substantially complete by December 31, 1998. The assessment of customers and vendors is also expected to be substantially complete by December 31, 1998, however, correspondence will be maintained with these groups throughout 1999 to assure that they continue to address their Year 2000 issues or remain ready throughout 1999. The Bank will continue to assess internal and external Year 2000 issues throughout 1999 and make renovations as exceptions are discovered. Although expenditures have been incurred as the Bank prepares for Year 2000, the cost of Year 2000 readiness is not expected to have a material effect on the Company's consolidated financial statements. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in information reported as of December 31, 1997 in Form 10-K. 9
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 Development Company (landlord) dated July 1, 1997 for an office at 615 East Jubal Early Drive, Winchester, Virginia (incorporated herein by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 10.4 Lease Agreement between Bank of Clarke County (tenant) and Steven R. Koman (landlord) dated December 2, 1997 for the branch office at 40 West Piccadilly Street, Winchester, Virginia (incorporated herein by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997). Exhibit 11. Not applicable. Exhibit 15. Not applicable. Exhibit 18. Not applicable. Exhibit 19. Not applicable. Exhibit 22. Not applicable. Exhibit 23. Not applicable. Exhibit 24. Not applicable. Exhibit 27. Financial Data Schedule (incorporated herein as Exhibit 27). Exhibit 99. Not applicable. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the registrant during the third quarter of 1998. 11
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE FINANCIAL SERVICES, INC. Date: November 13, 1998 /s/ LEWIS M. EWING -------------------------- Lewis M. Ewing President and CEO Date: November 13, 1998 /s/ JOHN R. MILLESON -------------------------- John R. Milleson Executive Vice President and Secretary/Treasurer Date: November 13, 1998 /s/ JAMES W. MCCARTY, JR. -------------------------- James W. McCarty, Jr. Vice President and CFO 12