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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, 2002
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 August 7, 2002 was 1,468,772.
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
June 30, 2002 and December 31, 2001 ..................... 3
Consolidated Statements of Income for the Three
and Six Months Ended June 30, 2002 and 2001 .............. 4
Consolidated Statements of Shareholders' Equity for
the Six Months Ended June 30, 2002 and 2001 ............. 5
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2002 and 2001 ............. 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 June 30, 2002 and December 31, 2001
Jun 30, 2002 Dec 31, 2001
--------------- ---------------
Assets
Cash and due from banks $ 15,451,200 $ 13,105,622
Federal funds sold 1,561,000 0
Securities available for sale,
at fair value 15,867,791 16,713,595
Securities held to maturity
(fair value: 2002,$18,513,459;
2001,$20,519,159) 18,030,734 20,259,234
Loans, net allowance for loan losses
of $2,195,470 in 2002 and
$1,797,263 in 2001 207,765,279 177,871,629
Bank premises and equipment, net 6,394,896 5,422,574
Other assets 4,612,787 4,269,285
--------------- ---------------
Total assets $ 269,683,687 $ 237,641,939
=============== ===============
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest bearing demand deposits $ 45,221,897 $ 36,718,703
Interest bearing demand deposits,
money market and savings accounts 101,416,532 83,597,263
Time deposits 70,875,179 77,032,485
--------------- ---------------
Total deposits $ 217,513,608 $ 197,348,451
Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings 3,370,153 7,816,807
Federal Home Loan Bank advances 18,000,000 10.000,000
Trust preferred capital notes 7,000,000 0
Other liabilities 834,713 1,003,974
Commitments and contingent liabilities 0 0
--------------- ---------------
Total liabilities $ 246,718,474 $ 216,169,232
--------------- ---------------
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 2002, 1,468,772; issued
2001, 1,461,395 shares 3,671,930 3,653,487
Surplus 3,328,606 3,178,848
Retained Earnings 15,627,845 14,407,901
Accumulated other comprehensive income 336,832 232,471
--------------- ---------------
Total shareholders' equity $ 22,965,213 $ 21,472,707
--------------- ---------------
Total liabilities and
shareholders' equity $ 269,683,687 $ 237,641,939
=============== ===============
3
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Income
For the Periods Ended June 30, 2002 and 2001
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Interest and Dividend Income
Interest and fees on loans $ 3,474,724 $ 3,038,239 $ 6,741,781 $ 5,969,083
Interest on federal funds sold 242 5,305 242 9,255
Interest on securities held to maturity:
Taxable interest income 136,741 228,247 293,373 482,591
Interest income exempt from
federal income taxes 93,800 99,453 188,766 200,588
Interest and dividends on securities
available for sale:
Taxable interest income 198,959 180,810 401,861 326,668
Interest income exempt from
federal income taxes 16,048 18,378 33,786 36,755
Dividends 36,802 35,882 72,595 71,019
Interest on deposits in banks 149 287 275 920
--------------- --------------- --------------- ---------------
Total interest and
dividend income $ 3,957,465 $ 3,606,601 $ 7,732,679 $ 7,096,879
--------------- --------------- --------------- ---------------
Interest Expense
Interest on deposits $ 874,510 $ 1,447,970 $ 1,881,150 $ 2,901,647
Interest on federal funds purchased,
securities sold under agreements
to repurchase and other short-
term borrowings 50,363 56,891 91,845 121,878
Interest on Federal Home Loan
Bank advances 163,884 62,436 308,182 124,186
Interest on long-term debt 5,189 0 5,189 0
--------------- --------------- --------------- ---------------
Total interest expense $ 1,093,946 $ 1,567,297 $ 2,286,366 $ 3,147,711
--------------- --------------- --------------- ---------------
Net interest income $ 2,863,519 $ 2,039,304 $ 5,446,313 $ 3,949,168
Provision For Loan Losses 157,500 145,000 421,900 235,000
--------------- --------------- --------------- ---------------
Net interest income after
provision for loan losses $ 2,706,019 $ 1,894,304 $ 5,024,413 $ 3,714,168
--------------- --------------- --------------- ---------------
Noninterest Income
Trust Department income $ 102,600 $ 131,993 218,770 278,622
Service charges on deposits 261,106 238,573 505,601 435,994
Other service charges and fees 450,458 362,393 765,732 592,079
Securities gains 0 0 36,036 55,390
Other operating income 28,658 12,677 58,557 26,226
--------------- --------------- --------------- ---------------
$ 842,822 $ 745,636 $ 1,584,696 $ 1,388,311
--------------- --------------- --------------- ---------------
Noninterest Expenses
Salaries and wages $ 951,040 $ 824,166 $ 1,950,129 $ 1,599,499
Pension and other employee benefits 324,648 218,737 466,169 405,394
Occupancy expenses 117,327 106,621 228,979 221,037
Equipment expenses 196,919 180,767 359,763 336,058
Credit card expense 72,345 56,723 129,254 102,796
Stationary and supplies 71,923 62,222 121,522 108,825
ATM network fees 48,088 38,137 92,127 76,065
Postage 36,226 37,194 78,008 69,799
Other operating expenses 427,075 370,421 782,326 672,710
--------------- --------------- --------------- ---------------
$ 2,245,591 $ 1,894,988 $ 4,208,277 $ 3,592,183
--------------- --------------- --------------- ---------------
Income before income taxes $ 1,303,250 $ 744,952 $ 2,400,832 $ 1,510,296
Income Tax Expense 399,455 201,371 727,287 411,854
--------------- --------------- --------------- ---------------
Net Income $ 903,795 $ 543,581 $ 1,673,545 $ 1,098,442
=============== =============== =============== ===============
Net income per common share,
basic and diluted $ 0.62 $ 0.37 $ 1.14 $ 0.76
=============== =============== =============== ===============
4
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Shareholders' Equity
For the Six Months Ended June 30, 2002 and 2001
Accumulated
Other
Common Retained Comprehensive Comprehensive
Stock Surplus Earnings Income Income Total
------------- ------------- ------------- ------------- ------------- ------------
Balance, December 31, 2000 $ 3,613,578 $ 2,873,924 $ 12,760,698 $ 17,286 $ 19,265,486
Comprehensive income:
Netncome 1,098,442 $ 1,098,442 1,098,442
Other comprehensive income:
Unrealized holding gains arising
during the period, net of
deferred income taxes of
$111,402 216,251
Reclassification adjustment, net
of deferred income taxes of
$18,833 (36,557)
-------------
Other comprehensive income, net of
deferred income taxes of $92,569 179,694 179,694 179,694
-------------
Total comprehensive income $ 1,278,136
=============
Issuance of common stock, dividend
investment plan (6,036 shares) 15,091 122,538 137,629
Dividends declared ($0.26 per share) (376,062) (376,062)
Fractional shares purchased (9) (81) (90)
------------- ------------- ------------- ------------- -------------
Balance, June 30, 2001 $ 3,628,660 $ 2,996,381 $ 13,483,078 $ 196,980 $ 20,305,099
============= ============= ============= ============= =============
Balance, December 31, 2001 $ 3,653,487 $ 3,178,848 $ 14,407,901 $ 232,471 $ 21,472,707
Comprehensive income:
Net Income 1,673,545 $ 1,673,545 1,673,545
Other comprehensive income:
Unrealized holding losses arising
during the period, net of
deferred income taxes of
$66,014 128,145
Reclassification adjustment, net
of deferred income taxes of
$12,252 (23,784)
Other comprehensive income, net of
Deferred income taxes of $53,762 104,361 104,361 104,361
-------------
Total comprehensive income $ 1,777,906
=============
Issuance of common stock, dividend
investment plan (7,383 shares) 18,458 149,892 168,350
Dividends declared ($0.31 per share) (453,601) (453,601)
Fractional shares purchased (15) (134) (149)
------------- ------------- ------------- ------------- -------------
Balance, June 30, 2002 $ 3,671,930 $ 3,328,606 $ 15,627,845 $ 336,832 $ 22,965,213
============= ============= ============= ============= =============
5
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2002 and 2001
Six Months Ended
June 30
2002 2001
------------- -------------
Cash Flows from Operating Activities
Net income $ 1,673,545 $ 1,098,442
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 281,954 279,034
Amortization of intangible assets 22,525 22,525
Loss on equity investment 3,706 3,433
Provision for loan losses 421,900 235,000
(Gain) on sale of securities (36,036) (55,390)
Premium amortization on securities, net 25,387 32,793
Changes in assets and liabilities:
(Increase) in other assets (441,027) (362,246)
(Decrease) in other liabilities (223,023) (126,881)
------------- -------------
Net cash provided by operating activities $ 1,728,931 $ 1,126,710
------------- -------------
Cash Flows from Investing Activities
Proceeds from maturities and principal
payments on securities held to maturity $ 2,560,802 $ 2,676,223
Proceeds from maturities and principal
payments on securities available for sale 1,878,478 2,089,510
Proceeds from sales of securities available
for sale 306,108 2,531,732
Purchases of securities held to maturity (346,500) 0
Purchases of securities available for sale (1,155,812) (8,081,416)
Purchases of bank premises and equipment (1,182,982) (344,240)
Net (increase) in loans (30,315,550) (15,089,369)
------------- -------------
Net cash (used in) investing activities $(28,255,456) $(16,217,560)
------------- -------------
Cash Flows from Financing Activities
Net increase in demand deposits,
money market and savings accounts $ 26,322,463 $ 12,217,504
Net increase (decrease) in certificates
of deposits (6,157,306) 2,547,902
Net increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase and other short-term
borrowings (4,446,654) 961,509
Proceeds from Federal Home Loan Bank advances 8,000,000 0
Proceeds from trust preferred capital notes 7,000,000 0
Cash dividends paid (285,251) (238,433)
Fractional shares purchased (149) (90)
------------- -------------
Net cash provided by financing activities $ 30,433,103 $ 15,488,392
------------- -------------
Increase in cash and cash equivalents $ 3,906,578 $ 397,542
Cash and Cash Equivalents
Beginning 13,105,622 8,504,765
------------- -------------
Ending $ 17,012,200 $ 8,902,307
============= =============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 2,353,831 $ 3,170,697
============= =============
Income taxes $ 968,321 $ 556,868
============= =============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Issuance of common stock,
dividend investment plan $ 168,350 $ 137,629
============= =============
Unrealized gain on securities
available for sale $ 158,123 $ 272,263
============= =============
6
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(1) The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America 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 accounting principles generally
accepted in the United States of America.
(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 June 30, 2002
and December 31, 2001, the results of operations for the three and six months
ended June 30, 2002 and 2001, and cash flows for the six months ended June 30,
2002 and 2001. The statements should be read in conjunction with the Notes to
Consolidated Financial Statements included in the Company's Annual Report for
the year ended December 31, 2001.
(3) The results of operations for the six month period ended June 30, 2002, 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 June 30, 2002 and
December 31, 2001, are:
Jun 30, 2002 Dec 31, 2001
Held to Maturity Amortized Cost Amortized Cost
- ---------------- -------------- --------------
U.S. Treasury securities $ 0 $ 121,985
Obligations of U.S. government
corporations and agencies 1,499,038 1,998,678
Mortgage-backed securities 4,210,927 5,383,586
Obligations of states and political
subdivisions 12,320,769 12,754,985
-------------- --------------
$ 18,030,734 $ 20,259,234
============== ==============
Jun 30, 2002 Dec 31, 2001
Fair Value Fair Value
-------------- --------------
U.S. Treasury securities $ 0 $ 123,068
Obligations of U.S. government
corporations and agencies 1,536,560 2,053,910
Mortgage-backed securities 4,322,954 5,452,775
Obligations of states and political
subdivisions 12,653,945 12,889,406
-------------- --------------
$ 18,513,459 $ 20,519,159
============== ==============
Jun 30, 2002 Dec 31, 2001
Available for Sale Amortized Cost Amortized Cost
- ------------------ -------------- --------------
Obligations of U.S. government
corporations and agencies $ 1,491,326 $ 1,989,914
Mortgage-backed securities 1,361,870 2,009,049
Obligations of states and political
Subdivisions 1,308,128 1,498,807
Corporate securities 9,681,726 9,693,902
Other 1,514,389 1,169,694
-------------- --------------
$ 15,357,439 $ 16,361,366
============== ==============
Jun 30, 2002 Dec 31, 2001
Fair Value Fair Value
-------------- --------------
Obligations of U.S. government
corporations and agencies $ 1,532,815 $ 2,014,850
Mortgage-backed securities 1,399,788 2,054,114
Obligations of states and political
Subdivisions 1,393,757 1,545,255
Corporate securities 10,027,042 9,901,227
Other 1,514,389 1,198,149
-------------- --------------
$ 15,867,791 $ 16,713,595
============== ==============
(5) Net loans at June 30,2002 and December 31, 2001 are summarized as
follows (In Thousands):
Jun 30, 2002 Dec 31, 2001
--------------- ---------------
Loans secured by real estate:
Construction and land development $ 15,224 $ 10,383
Secured by farmland 3,174 4,778
Secured by 1-4 family residential 105,063 93,042
Nonfarm, nonresidential loans 39,631 30,295
Loans to farmers (except those secured
by real estate) 1,139 1,002
Commercial and industrial loans (except
those secured by real estate) 16,349 13,912
Consumer installment loans (except those
secured by real estate) 29,283 25,909
Loans to U.S. state and political
subdivisions 0 0
All other loans 97 350
--------------- ---------------
Gross loans $ 209,960 $ 179,671
Less:
Unearned income 0 (2)
Allowance for loan losses (2,195) (1,797)
--------------- ---------------
Loans, net $ 207,765 $ 177,872
=============== ===============
(6) Allowance for Loan Losses
Jun 30, 2002 Jun 30, 2001 Dec 31, 2001
-------------- -------------- --------------
Balance, beginning $ 1,797,263 $ 1,340,086 $ 1,340,086
Provision charged to operating expense 421,900 235,000 712,500
Recoveries added to the allowance 39,324 19,738 95,217
Loan losses charged to the allowance (63,017) (93,432) (350,540)
-------------- -------------- --------------
Balance, ending $ 2,195,470 $ 1,501,392 $ 1,797,263
============== ============== ==============
(7) Recent 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
CRITICAL ACCOUNTING POLICIES
The financial statements of Eagle Financial Services, Inc. are prepared in
accordance with accounting principles generally accepted in the United States of
America(GAAP). The financial information contained within these statements is,
to a significant extent, based on measurements of the financial effects of
transactions and events that have already occurred. A variety of factors could
affect the ultimate value that is obtained when earning income, recognizing an
expense, recovering an asset or relieving a liability. We use historical loss
factors as one element in determining the inherent loss that may be present in
our loan portfolio. Actual losses could differ significantly from the historical
factors that we use. In addition, GAAP itself may change from one previously
acceptable method to another method. Although the economics of our transactions
would be the same, the timing of events that would impact our transactions could
change.
The allowance for loan losses is an estimate of the losses that may be sustained
in our loan portfolio. The allowance for loan losses is based on two accounting
principles: (1) Statement of Financial Accounting Standards (SFAS) No. 5
Accounting for Contingencies, which requires that losses be accrued when their
occurrence is probable and they are estimable, and (2) SFAS No. 114, Accounting
by Creditors for Impairment of a Loan, which requires that losses be accrued
based on the differences between the loan balance and the value of its
collateral, the present value of future cash flows, or the price established in
the secondary market.
The Company's allowance for loan losses has three basic components: the formula
allowance, the specific allowance and the unallocated allowance. Each of these
components is determined based upon estimates that can and do change when actual
events occur. The formula allowance uses historical experience factors to
estimate future losses and, as a result, the estimated amount of losses can
differ significantly from the actual amount of losses which would be incurred in
the future. However, the potential for significant differences is mitigated by
continuously updating the loss history of the Company. The specific allowance is
based upon the evaluation of specific loans on which a loss may be realized.
Factors such as past due history, ability to pay, and collateral value are used
to identify those loans on which a loss may be realized. Each of these loans are
then classified as to how much loss would be realized on their disposition. The
sum of the losses on the individual loans becomes the Company's specific
allowance. This process is inherently subjective and actual losses may be
greater than or less than the estimated specific allowance. The unallocated
allowance captures losses that are attributable to various economic events which
may affect a certain loan type within the loan portfolio or a certain industrial
or geographic sector within the Company's market. As the loans are identified
which are affected by these events or losses are experienced on the loans which
are affected by these events, they will be recognized within the specific or
formula allowances.
PERFORMANCE SUMMARY
Net income of the company for the first six months of 2002 and 2001 was
$1,673,545 and $1,098,442, respectively. This is an increase of $575,103 or
52.36%. Net interest income after provision for loan losses for the first six
months of 2002 and 2001 was $5,024,413 and $3,714,168, respectively. This is an
increase of $1,310,245 or 35.28%. This increase can be attributed to continued
loan growth during 2002 being funded with growth in noninterest bearing demand
deposits, interest bearings demand deposits, and savings accounts. Total
noninterest income increased $196,385 or 14.15% from $1,388,311 for the first
six months of 2001 to $1,584,696 for the first six months of 2002. This change
can be attributed to increases in commissions earned on the sale of nondeposit
investment products and fees earned from the origination of secondary market
mortgages. Total noninterest expenses increased $616,094 or 17.15% from
$3,592,183 during the first six months of 2001 to $4,208,277 during the first
six months of 2002. This change can be attributed to an increase in compensation
and benefits expense from the hiring of additional personnel for the Bank's
eighth branch location and in the loan department.
Earnings per common share outstanding (basic and diluted) was $1.14 and $0.76
for the six months ended June 30, 2002 and 2001, respectively. Annualized return
on average assets for the six month periods ended June 30, 2002 and 2001 was
1.32% and 1.10%, respectively. Annualized return on average equity for the six
month periods ended June 30, 2002 and 2001 was 15.17% and 11.12%, 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 six month periods ended June 30, 2001 and 2002 was $235,000
and $421,900, respectively. The allowance for loan losses increased $398,207 or
22.16% during the first six months of 2002 from $1,797,263 at December 31, 2001
to $2,195,470 at June 30, 2002. The allowance as a percentage of total loans
increased from 1.00% as of December 31, 2001 to 1.05% as of June 30, 2002. The
Company had net charge-offs of $73,694 and $23,693 for the first six months of
2001 and 2002, respectively. The ratio of net charge-offs to average loans was
0.05% and 0.01% for the first six months of 2001 and 2002, respectively.
Loans past due greater than 90 days and still accruing interest increased from
$7,827 at December 31, 2001 to $55,591 at June 30, 2002. Total nonaccrual loans
were $2,029,379 as of December 31, 2001 and $32,584 as if June 30, 2002. There
were no impaired loans as of December 31, 2001 and June 30, 2002.
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 June 30, 2002 was $135,407.
Most of these loans are well secured and management expects to incur only
immaterial losses on their disposition.
BALANCE SHEET
Total assets increased $32.1 million or 13.48% from $237.6 million at December
31, 2001 to $269.7 million at June 30, 2002. Securities decreased $3.1 million
or 8.32% during the first six months of 2002 from $37.0 million at December 31,
2001 to $33.9 million at June 30, 2002. Loans, net of unearned discounts
increased $30.3 million or 16.86% during the same period from $179.7 million at
December 31, 2001 to $210.0 million at June 30, 2002. Total liabilities
increased $30.5 million or 14.13% during the first six months of 2002 from
$216.2 million at December 31, 2001 to $246.7 million at June 30, 2002. Total
deposits increased $20.2 million or 10.22% during the same period from $197.3 at
December 31, 2001 to $217.5 million at June 30, 2002. Total shareholders' equity
increased $1.5 million or 6.95% during the first six months of 2002 from $21.5
million at December 31, 2001 to $23.0 million at June 30, 2002.
TRUST PREFERRED CAPITAL NOTES
On May 23, 2002, Eagle Financial Statutory Trust I ("the Trust"), a wholly-owned
subsidiary of the Company, was formed for the purpose of issuing redeemable
capital securities. On June 26, 2002, $7 million of trust preferred securities
were issued through a pooled underwriting totaling approximately $554 million.
The securities have a LIBOR-indexed floating rate of interest. The interest rate
at June 30, 2002 was 5.34%. The securities have a mandatory redemption date of
June 26 2032, and are subject to varying call provisions beginning June 26,
2007. The principal asset of the Trust is $7 million of the Company's junior
subordinated debt securities with maturities and interest rates like the Capital
Securities.
The trust preferred securities may be included in Tier I capital for regulatory
capital adequacy purposes as long as their amount does not exceed 25% of Tier I
capital, including total trust preferred securities. The portion of the trust
preferred securities not considered as Tier I capital, if any, may be included
in Tier 2 capital. The total amount ($7 million) of trust preferred securities
issued by the Trust can be included in the Company's Tier I capital.
SHAREHOLDERS' EQUITY
The Company continues to be a well capitalized financial institution.
Shareholders' equity per share increased $0.95 or 6.47% from $14.69 per share at
December 31, 2001 to $15.64 per share at June 30, 2002. During 2001 the Company
paid $0.55 per share in dividends. The Company's 2002 total dividends for the
first two quarters was $0.31 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 $64.3 million at December 31, 2001 and $79.2
million at June 30, 2002. These amounts represent 29.74% and 32.10% of total
liabilities as of December 31, 2001 and June 30, 2002, respectively.
There have been no material changes in Quantitative and Qualitative Disclosures
about Market Risk as reported at December 31, 2001 in the Company's Form 10-K.
FORWARD LOOKING STATEMENTS
Certain statements contained in this 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. Additional Exhibits
99.1 Certification Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the registrant during the second
quarter of 2002.
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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: August 9, 2002 /s/ JOHN R. MILLESON
--------------------------
John R. Milleson
President and Chief Executive
Officer
Date: August 9, 2002 /s/ JAMES W. MCCARTY, JR.
--------------------------
James W. McCarty, Jr.
Vice President, Chief Financial
Officer, and Secretary/Treasurer
12