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, 2003
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 0-20146 54-1601306
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
2 East Main Street, Berryville, Virginia 22611
(Address of principal executive offices, including 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The number of shares of the Registrant's Common Stock ($2.50 par value)
outstanding as of May 9, 2003 was 1,482,389.
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, 2003 and December 31, 2002 .................... 3
Consolidated Statements of Income for the Three
Months Ended March 31, 2003 and 2002 ..................... 4
Consolidated Statements of Shareholders' Equity for
the Three Months Ended March 31, 2003 and 2002 .......... 5
Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2003 and 2002 .......... 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
Item 4. Controls and Procedures ..................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 11
Item 2. Changes in Securities and Use of Proceeds ................... 11
Item 3. Defaults Upon Senior Securities ............................. 11
Item 4. Submission of Matters to a Vote of Security Holders ......... 11
Item 5. Other Information ........................................... 11
Item 6. Exhibits and reports on Form 8-K ............................ 12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Eagle Financial Services, Inc. and Subsidiary
Consolidated Balance Sheets
As of March 31, 2003 and December 31, 2002
Unaudited
Mar 31, 2003 Dec 31, 2002
--------------- ---------------
Assets
Cash and due from banks $ 8,141,474 $ 14,341,473
Federal funds sold 9,564,000 1,857,000
Securities available for sale,
at fair value 27,005,192 25,068,025
Securities held to maturity
(fair value: 2003,$15,367,981;
2002, $15,861,743) 14,784,796 15,266,757
Loans, net allowance for loan losses
of $2,469,665 in 2003 and
$2,376,463 in 2002 233,905,986 223,601,868
Bank premises and equipment, net 7,966,274 7,653,104
Other assets 4,647,675 4,779,344
--------------- ---------------
Total assets $ 306,015,397 $ 292,567,571
=============== ===============
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest bearing demand deposits $ 52,500,005 $ 50,635,337
Interest bearing demand deposits,
money market and savings accounts 124,950,856 113,371,665
Time deposits 71,139,911 72,584,706
--------------- ---------------
Total deposits $ 248,590,772 $ 236,591,708
Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings 3,195,397 2,909,443
Federal Home Loan Bank advances 20,000,000 20,000,000
Trust preferred capital notes 7,000,000 7,000,000
Other liabilities 2,010,813 1,664,629
Commitments and contingent liabilities 0 0
--------------- ---------------
Total liabilities $ 280,796,982 $ 268,165,780
--------------- ---------------
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 2003, 1,482,389; issued
2002, 1,478,770 shares 3,705,973 3,696,926
Surplus 3,632,628 3,545,408
Retained Earnings 17,659,549 17,012,437
Accumulated other comprehensive income 220,265 147,020
--------------- ---------------
Total shareholders' equity $ 25,218,415 $ 24,401,791
--------------- ---------------
Total liabilities and
shareholders' equity $ 306,015,397 $ 292,567,571
=============== ===============
3
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Income
For the Periods Ended March 31, 2003 and 2002
Unaudited
Three Months Ended
March 31
2003 2002
--------------- ---------------
Interest and Dividend Income
Interest and fees on loans $ 3,568,858 $ 3,267,057
Interest on federal funds sold 19,415 0
Interest on securities held to maturity:
Taxable interest income 93,013 156,632
Interest income exempt from
federal income taxes 82,610 94,966
Interest and dividends on securities
available for sale:
Taxable interest income 251,506 202,902
Interest income exempt from
federal income taxes 16,048 17,738
Dividends 33,607 35,793
Interest on deposits in banks 175 126
--------------- ---------------
Total interest and
dividend income $ 4,065,232 $ 3,775,214
--------------- ---------------
Interest Expense
Interest on deposits $ 795,919 $ 1,006,640
Interest on federal funds purchased,
securities sold under agreements
to repurchase and other short-
term borrowings 8,233 41,482
Interest on Federal Home Loan
Bank advances 197,125 144,298
Interest on trust preferred
capital notes 84,747 0
--------------- ---------------
Total interest expense $ 1,086,014 $ 1,192,420
--------------- ---------------
Net interest income $ 2,979,218 $ 2,582,794
Provision For Loan Losses 125,000 264,400
--------------- ---------------
Net interest income after
provision for loan losses $ 2,854,218 $ 2,318,394
--------------- ---------------
Noninterest Income
Trust Department income $ 156,967 $ 116,170
Service charges on deposits 299,339 244,495
Other service charges and fees 429,078 315,274
Securities gains 0 36,036
Other operating income 23,080 29,899
--------------- ---------------
$ 908,464 $ 741,874
--------------- ---------------
Noninterest Expenses
Salaries and wages $ 1,162,809 $ 999,089
Pension and other employee benefits 301,550 141,521
Occupancy expenses 153,846 111,652
Equipment expenses 183,964 162,844
Credit card expense 33,593 56,909
ATM network fees 47,769 44,039
Postage expense 51,461 41,782
Stationary and supplies 64,606 49,599
Other operating expenses 459,791 355,251
--------------- ---------------
$ 2,459,389 $ 1,962,686
--------------- ---------------
Income before income taxes $ 1,303,293 $ 1,097,582
Income Tax Expense 390,002 327,832
--------------- ---------------
Net Income $ 913,291 $ 769,750
=============== ===============
Net income per common share,
basic and diluted $ 0.62 $ 0.53
=============== ===============
4
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Shareholders' Equity
For the Three Months Ended March 31, 2003 and 2002
Unaudited
Accumulated
Other
Common Retained Comprehensive Comprehensive
Stock Surplus Earnings Income(Loss) Income Total
------------- ------------- ------------- ------------- ------------- ------------
Balance, December 31, 2001 $ 3,653,487 $ 3,178,848 $ 14,407,901 $ 232,471 $ 21,472,707
Comprehensive income:
Net income 769,750 $ 769,750 769,750
Other comprehensive income:
Unrealized holding losses arising
during the period, net of
deferred income taxes of
$51,589 (100,143)
Reclassification adjustment, net
of deferred income taxes of
$12,252 (23,784)
-------------
Other comprehensive income, net of
deferred income taxes of $63,841 (123,927) (123,927) (123,927)
-------------
Total comprehensive income $ 645,823
=============
Issuance of common stock, dividend
investment plan (3,558 shares) 8,896 72,235 81,131
Dividends declared ($0.15 per share) (219,210) (219,210)
Fractional shares purchased (11) (92) (103)
------------- ------------- ------------- ------------- -------------
Balance, March 31, 2002 $ 3,662,372 $ 3,250,991 $ 14,958,441 $ 108,544 $ 21,980,348
============= ============= ============= ============= =============
Balance, December 31, 2002 $ 3,696,926 $ 3,545,408 $ 17,012,437 $ 147,020 $ 24,401,791
Comprehensive income:
Net Income 913,291 $ 913,291 913,291
Other comprehensive income:
Unrealized holding gains arising
during the period, net of
deferred income taxes of
$37,731 73,245 73,245 73,245
-------------
Total comprehensive income $ 986,536
=============
Issuance of common stock, dividend
investment plan (3,619 shares) 9,048 87,228 96,276
Dividends declared ($0.18 per share) (266,179) (266,179)
Fractional shares purchased (1) (8) (9)
------------- ------------- ------------- ------------- -------------
Balance, March 31, 2003 $ 3,705,973 $ 3,632,628 $ 17,659,549 $ 220,265 $ 25,218,415
============= ============= ============= ============= =============
5
Eagle Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2003 and 2002
Unaudited
Three Months Ended
March 31
2003 2002
------------- -------------
Cash Flows from Operating Activities
Net income $ 913,291 $ 769,750
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 110,295 105,285
Amortization of intangible and other assets 51,747 42,372
(Gain)Loss on equity investment (1,034) 2,341
Provision for loan losses 125,000 264,400
(Gain) on sale of securities 0 (36,036)
Premium amortization on securities, net 39,429 13,464
Changes in assets and liabilities:
(Increase)decrease in other assets 80,956 (131,968)
Increase in other liabilities 308,453 324,031
------------- -------------
Net cash provided by operating activities $ 1,628,137 $ 1,353,639
------------- -------------
Cash Flows from Investing Activities
Proceeds from maturities and principal
payments on securities held to maturity $ 1,476,091 $ 1,811,520
Proceeds from maturities and principal
payments on securities available for sale 1,637,863 891,787
Proceeds from sales of securities available
for sale 0 306,108
Purchases of securities held to maturity (1,000,000) 0
Purchases of securities available for sale (3,497,613) (927,038)
Purchases of bank premises and equipment (423,465) (671,566)
Net (increase) in loans (10,429,118) (21,249,809)
------------- -------------
Net cash (used in) investing activities $(12,236,242) $(19,838,998)
------------- -------------
Cash Flows from Financing Activities
Net increase in demand deposits,
money market and savings accounts $ 13,443,859 $ 12,411,965
Net (decrease) in certificates of deposit (1,444,795) (1,115,693)
Net increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase and other short-term
borrowings 285,954 (170,791)
Proceeds from Federal Home Loan Bank advances 0 8,000,000
Cash dividends paid (169,903) (138,079)
Fractional shares purchased (9) (103)
------------- -------------
Net cash provided by financing activities $ 12,115,106 $ 18,987,299
------------- -------------
Increase in cash and cash equivalents $ 1,507,001 $ 501,940
Cash and Cash Equivalents
Beginning 16,198,473 13,105,622
------------- -------------
Ending $ 17,705,474 $ 13,607,562
============= =============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 1,131,781 $ 1,215,106
============= =============
Income taxes $ 0 $ 401,155
============= =============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Issuance of common stock,
dividend investment plan $ 96,276 $ 81,131
============= =============
Unrealized gain(loss)on securities
available for sale $ 110,976 $ (187,768)
============= =============
6
EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(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 March 31,
2003 and December 31, 2002, the results of operations for the three months ended
March 31, 2003 and 2002, and cash flows for the three months ended March 31,
2003 and 2002. 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, 2002.
(3) The results of operations for the three month period ended March 31, 2003,
are not necessarily indicative of the results to be expected for the full year.
(4) Securities
The amortized costs and fair values of securities available for sale as of March
31, 2003 and December 31, 2002 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------------- -------------- -------------- --------------
March 31, 2003
--------------------------------------------------------------------
Obligations of U.S. government
corporations and agencies $ 8,138,179 $ 99,885 $ (116) $ 8,237,948
Mortgage-backed securities 5,258,107 39,245 (4,369) 5,292,983
Obligations of states and political
subdivisions 1,310,225 122,110 0 1,432,335
Corporate securities 9,913,295 726,800 (37,790) 10,602,305
Restricted stock 1,390,800 0 0 1,390,800
Other 48,821 0 0 48,821
-------------- -------------- -------------- --------------
$ 26,059,427 $ 988,040 $ (42,275) $ 27,005,192
============== ============== ============== ==============
December 31, 2002
--------------------------------------------------------------------
Obligations of U.S. government
corporations and agencies $ 7,152,565 $ 107,685 $ 0 $ 7,260,250
Mortgage-backed securities 4,711,530 38,419 0 4,749,949
Obligations of states and political
Subdivisions 1,309,526 119,918 0 1,429,444
Corporate securities 9,668,817 666,033 (97,268) 10,237,582
Restricted stock 1,390,800 0 0 1,390,800
-------------- -------------- -------------- --------------
$ 24,233,238 $ 932,055 $ (97,268) $ 25,068,025
============== ============== ============== ==============
The amortized costs and fair values of securities held to maturity as of March
31, 2003 and December 31, 2002 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------------- -------------- -------------- --------------
March 31, 2003
--------------------------------------------------------------------
Obligations of U.S. government
corporations and agencies $ 1,999,726 $ 31,054 $ (874) $ 2,029,906
Mortgage-backed securities 2,536,761 100,414 0 2,637,175
Obligations of states and political
subdivisions 10,248,309 452,591 0 10,700,900
-------------- -------------- -------------- --------------
$ 14,784,796 $ 584,059 $ (874) $ 15,367,981
============== ============== ============== ==============
December 31, 2002
--------------------------------------------------------------------
Obligations of U.S. government
corporations and agencies $ 999,541 $ 36,864 $ 0 $ 1,036,405
Mortgage-backed securities 3,042,902 126,059 (26) 3,168,935
Obligations of states and political
Subdivisions 11,224,314 432,497 (408) 11,656,403
-------------- -------------- -------------- --------------
$ 15,266,757 $ 595,420 $ (434) $ 15,861,743
============== ============== ============== ==============
(5) Loans
Net loans at March 31, 2003 and December 31, 2002 are summarized as follows (In
Thousands):
Mar 31, 2003 Dec 31, 2002
--------------- ---------------
Mortgage loans on real estate:
Construction and land development $ 14,456 $ 12,081
Secured by farmland 3,150 2,892
Secured by 1-4 family residential 118,182 111,273
Secured by nonfarm,nonresidential 48,562 48,459
Loans to farmers 822 1,071
Commercial and industrial loans 20,154 18,671
Consumer installment loans 30,886 31,377
All other loans 164 154
--------------- ---------------
Gross loans $ 236,376 $ 225,978
Less:
Unearned income 0 0
Allowance for loan losses (2,470) (2,376)
--------------- ---------------
Loans, net $ 233,906 $ 223,602
=============== ===============
(6) Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
Mar 31, 2003 Mar 31, 2002 Dec 31, 2002
-------------- -------------- --------------
Balance, beginning $ 2,376,463 $ 1,797,263 $ 1,797,263
Provision charged to operating expense 125,000 264,400 700,000
Recoveries added to the allowance 23,087 20,708 67,332
Loan losses charged to the allowance (54,885) (44,705) (188,132)
-------------- -------------- --------------
Balance, ending $ 2,469,665 $ 2,037,666 $ 2,376,463
============== ============== ==============
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CRITICAL ACCOUNTING POLICIES
The financial statements of the Company 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. The Company uses
historical loss factors as one element in determining the inherent loss that may
be present in the loan portfolio. Actual losses could differ significantly from
the historical factors that are used. In addition, GAAP itself may change from
one previously acceptable method to another method. Although the economics of
the transactions would be the same, the timing of events that would impact the
transactions could change.
The allowance for loan losses is an estimate of the losses that may be
sustained in the Company's 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 is 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 three months of 2002 and 2003 was
$769,750 and $913,291, respectively. This is an increase of $143,541 or 18.65%.
Net interest income after provision for loan losses for the first three months
of 2002 and 2003 was $2,318,394 and $2,854,218, respectively. This is an
increase of $535,824 or 23.11%. This increase can be attributed to continued
loan growth during 2003 being funded with growth in noninterest bearing demand
deposits, interest bearing demand deposits, and savings accounts. Total
noninterest income increased $166,590 or 22.46% from $741,874 for the first
three months of 2002 to $908,464 for the first three months of 2003. This change
can be attributed to increases in commissions earned on the sale of nondeposit
investment products, fees earned from the origination of secondary market
mortgages, and an increase in fees earned by the Bank's Trust Department. Total
noninterest expenses increased $496,703 or 25.31% from $1,962,686 during the
first three months of 2002 to $2,459,389 during the first three months of 2003.
This change can be attributed to an increase in compensation and benefits
expense from the hiring of additional personnel for the Bank's ninth branch
location and an increase in pension benefit expense.
Earnings per common share outstanding (basic and diluted) was $0.53 and $0.62
for the three months ended March 31, 2002 and 2003, respectively. Annualized
return on average assets for the three month periods ended March 31, 2002 and
2003 was 1.25% and 1.24%, respectively. Annualized return on average equity for
the three month periods ended March 31, 2002 and 2003 was 14.18% and 14.75%,
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 as discussed within
the section CRITICAL ACCOUNTING POLICIES above. The provision for loan losses
for the three month periods ended March 31, 2002 and 2003 was $264,400 and
$125,000, respectively. The allowance for loan losses increased $93,202 or 3.92%
during the first three months of 2003 from $2,376,463 at December 31, 2002 to
$2,469,665 at March 31, 2003. The allowance as a percentage of total loans
decreased slightly from 1.05% as of December 31, 2002 to 1.04% as of March 31,
2003. Charged-off loans were $44,705 and $54,885 for the three months ended
March 31, 2002 and 2003, respectively. Recoveries were $20,708 and $23,087 for
the three months ended March 31, 2002 and 2003, respectively. This resulted in
net charge-offs of $23,997 and $31,798 for the first three months of 2002 and
2003, respectively. The ratio of net charge-offs to average loans was 0.01% for
the first three months of 2002 and 2003, respectively.
Loans past due greater than 90 days and still accruing interest increased from
$26,674 at December 31, 2002 to $86,991 at March 31, 2003. There were no
nonaccrual or impaired loans as of December 31, 2002 and March 31, 2003.
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 December 31, 2002 and March 31,
2003 was $1,021,153 and $522,924, respectively. Most of these loans are well
secured and management expects to incur only immaterial losses, if any, on their
disposition.
BALANCE SHEET
Total assets increased $13.4 million or 4.60% from $292.6 million at December
31, 2002 to $306.0 million at March 31, 2003. Securities increased $1.5 million
or 3.61% during the first three months of 2003 from $40.3 million at December
31, 2002 to $41.8 million at March 31, 2003. Loans, net of unearned discounts
increased $10.4 million or 4.60% during the same period from $226.0 million at
December 31, 2002 to $236.4 million at March 31, 2003. Total liabilities
increased $12.6 million or 4.71% during the first three months of 2003 from
$268.2 million at December 31, 2002 to $280.8 million at March 31, 2003. Total
deposits increased $12.0 million or 5.07% during the same period from $236.6 at
December 31, 2002 to $248.6 million at March 31, 2003. Total shareholders'
equity increased $0.8 million or 3.35% during the first three months of 2003
from $24.4 million at December 31, 2002 to $25.2 million at March 31, 2003.
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 March 31, 2003 was 4.74%. 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
Shareholders' equity per common share outstanding (book value) increased $0.51
or 3.09% from $16.50 at December 31, 2002 to $17.01 at March 31, 2003. During
2002 the Company paid $0.65 per share in dividends. The Company's 2003 first
quarter dividend was $0.18 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 $93.2 million at December 31, 2002 and $99.9
million at March 31, 2003. These amounts represent 34.76% and 35.59% of total
liabilities as of December 31, 2002 and March 31, 2003, respectively.
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
There have been no material changes in Quantitative and Qualitative
Disclosures about Market Risk as reported at December 31, 2002 in the Company's
Form 10-K.
9
Item 4. Controls and Procedures
Under the supervision and with the participation of management,
including the Chief Executive Officer and Chief Financial Officer, the Company
has evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within ninety (90) days of the filing date of this
quarterly report. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that these controls and procedures are
effective. There were no significant changes in the internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
Disclosure controls and procedures are the Company's controls and
other procedures that are designed to ensure that information, required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act, is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
10
PART II. OTHER INFORMATION
Item 1. Legal proceedings.
None.
Item 2. Changes in securities and use of proceeds.
None.
Item 3. Defaults upon senior securities.
None.
Item 4. Submission of matters to a vote of security holders.
During the Annual Meeting of Shareholders of Eagle Financial
Services, Inc. on April 16, 2003, the shareholders voted upon and approved the
Eagle Financial Services, Inc. Stock Incentive Plan (the "Plan). In order to be
adopted, this Plan required approval by the holders of a majority of the shares
of Common Stock present or represented by properly executed and delivered
proxies at the Annual Meeting. Of the 1,482,389 shares outstanding, 1,057,738
shares were present or represented by properly executed and delivered proxies at
the Annual Meeting. Of the 1,057,738 shares represented, 957,820 shares voted
for the Plan, 72,190 shares voted against the Plan, and 27,728 shares abstained
from voting.
Item 5. Other Information.
None.
11
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).
10.4 Lease Agreement between Bank of Clarke
County (lessee) and MBC, L.C. (lessor)
dated October 25, 2002 for a parcel of
land to be used as a branch site located
on State Route 7 in Winchester, Virginia
and described as Lot #1 on the lands
of MBC, L.C. plat (incorporated herein
by reference to Exhibit 10.4 of
the Company's Quarterly Report on Form
10-Q for the quarter ended September 30,
2002).
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.
On April 22, 2003 the Company filed a report on Form 8-K to disclose its
results of operations for the quarter ended March 31, 2003 and to disclose
information regarding its second quarter dividend payable May 15, 2003 for
shareholders of record on May 1, 2003.
12
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, 2003 /s/ JOHN R. MILLESON
--------------------------
John R. Milleson
President and Chief Executive
Officer
Date: May 12, 2003 /s/ JAMES W. MCCARTY, JR.
--------------------------
James W. McCarty, Jr.
Vice President, Chief Financial
Officer, and Secretary/Treasurer
13
SECTION 302 CERTIFICATION
I, John R. Milleson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Eagle Financial
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ JOHN R. MILLESON
- --------------------------
John R. Milleson.
President and Chief Executive Officer
14
SECTION 302 CERTIFICATION
I, James W. McCarty, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Eagle Financial
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ JAMES W. MCCARTY, JR.
- --------------------------
James W. McCarty, Jr.
Vice President, Chief Financial Officer, and Secretary/Treasurer
15