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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For fiscal year ended: December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number: 0-18539
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EVANS BANCORP, INC.
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(Exact name of registrant as specified in its charter)
New York 16-1332767
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14-16 North Main Street, Angola, New York 14006
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number (including area code) (716) 549-1000
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
------------------- ------------------------------------
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.50 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
As of January 31, 2002, the aggregate market value of the registrant's
common stock, $.50 par value, (the "Common Stock") held by nonaffiliates of the
registrant was approximately $33.6 million based upon the per share price as
quoted by the Nasdaq National Market.
As of January 31, 2002, 2,206,467 shares of the registrant's Common
Stock were outstanding.
Page 1 of 86
Exhibit Index on Page 37
-2-
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Registration Statement on Form 10, as
amended by Amendment Nos. 1 and 2 (Registration No. 0-18539), the Registrant's
Registration Statement on Form S-4 (Registration No. 33-25321), and the
Registrant's Report on form 10-QSB for the period ended March 31, 1995, and the
Registrant's Report on Form 10-KSB for the period ended December 31, 1995 and
the Registrant's Reports on Form 10-Q for the periods ended June 30, 1996, March
31, 1997, September 30, 1999, March 31, 2000 and June 30, 2001 and the
Registrant's Reports on Form 10-K for the periods ended December 31, 1997,
December 31, 1998 and December 31, 2000 are incorporated by reference in Part IV
of this Form 10-K.
Portions of the Registrant's 2001 Annual Report to Shareholders are
incorporated by reference in Part II of this Form 10-K.
-3-
TABLE OF CONTENTS
INDEX
PART I
Page
----
Item 1. BUSINESS...............................................................................................5
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Evans Bancorp, Inc. ...................................................................................5
Evans National Bank ...................................................................................5
Forward Looking Statements ............................................................................5
Market Area ...........................................................................................5
Average Balance Sheet Information..................................................................... 6
Securities Activities................................................................................. 7
Securities Policy.................................................................................. 8
Lending Activities ....................................................................................9
General ............................................................................................9
Real Estate Loans .................................................................................10
Commercial Loans...................................................................................10
Installment Loans..................................................................................11
Student Loans .....................................................................................11
Other Loans .......................................................................................11
Direct Financing Lease Loans ......................................................................11
Loan Maturities....................................................................................12
Loan Losses........................................................................................12
Sources of Funds - Deposits ..........................................................................14
General............................................................................................14
Deposits...........................................................................................14
Federal Funds Purchased & Other Borrowed Funds.....................................................14
Securities Sold Under Agreements to Repurchase.....................................................15
Asset and Liability Management .......................................................................15
Monetary Policy ......................................................................................16
Environmental Matters.................................................................................16
Competition...........................................................................................16
Regulation ...........................................................................................16
Subsidiaries of the Bank .............................................................................19
M&W Agency, Inc ...................................................................................19
ENB Associates Inc.................................................................................19
Evans National Holding Corp........................................................................19
Employees ............................................................................................19
Item 2. PROPERTIES............................................................................................20
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Item 3. LEGAL PROCEEDINGS.....................................................................................20
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Item 4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS.........................................................................21
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-4-
PART II
Page
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Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
-------------------------------------
AND RELATED STOCKHOLDER MATTERS..................................21
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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.............................22
------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................23
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Item 7a. QUANTATIVE AND QUALITATIVE DISCLOSURES
---------------------------------------
ABOUT MARKET RISK................................................30
-----------------
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ........30
--------------------------------------------------------
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURES..........................30
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PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF
-----------------------------------
THE REGISTRANT...................................................31
--------------
Item 11. EXECUTIVE COMPENSATION...........................................34
----------------------
Item 12. SECURITY OWNERSHIP OF CERTAIN
-----------------------------
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
AND RELATED STOCKHOLDER MATTERS..................................36
-------------------------------
Item 13. CERTAIN RELATIONSHIPS AND
-------------------------
RELATED TRANSACTIONS.............................................37
--------------------
PART IV
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Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
---------------------------------------
AND REPORTS ON FORM 8-K .........................................37
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-5-
ITEM 1. BUSINESS
--------
EVANS BANCORP, INC.
Evans Bancorp, Inc. (the "Company") was organized as a New York business
corporation and incorporated under the laws of the State of New York on October
28, 1988 for the purpose of becoming a bank holding company. The Company is
registered with the Federal Reserve Board as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHCA"), and conducts its
business through its wholly-owned subsidiary, Evans National Bank (the "Bank")
and the Bank's wholly-owned subsidiaries, ENB Associates Inc. ("ENB"), M&W
Agency, Inc. ("M&W") and, as of February 2002, the newly created Evans National
Holding Corp. ("ENHC"). The principal business of the Company, through the Bank,
is commercial banking and consists of, among other things, attracting deposits
from the general public and using these funds to extend credit and to invest in
securities. The Bank offers a variety of loan products to its customers
including commercial loans, commercial and residential mortgage loans, and
consumer loans. In addition, the Bank offers deposit products which include
checking and NOW accounts, passbook and statement savings and certificates of
deposit. The Bank also offers electronic banking services including Internet
Banking, telephone banking, PC banking, and Eas-E check card.
The Company has no material assets other than its investment in the Bank.
The Company's sole business, therefore, is the ongoing business of the Bank and
its subsidiaries.
EVANS NATIONAL BANK
The Bank was established in 1920 as a national banking association and
currently is regulated by the Comptroller of the Currency. Prior to February
1995, the Bank was known as The Evans National Bank of Angola. Its legal
headquarters is located at 14-16 N. Main Street, Angola, New York 14006.
The Bank is a full service commercial bank offering secured and unsecured
commercial loans, consumer loans, educational loans and mortgages. It also
accepts time and demand deposits.
As of December 31, 2001, the Bank had two subsidiaries, M&W Agency, Inc. and
ENB Associates Inc. See "Subsidiaries of the Bank."
As of December 31, 2001, the Bank had total assets of $249.2 million, total
deposits of $204.3 million and total stockholders' equity of $27.0 million.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K may contain certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1993, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), that involve substantial risks and
uncertainties. When used in this report, or in the documents incorporated by
reference herein, the words "anticipate", "believe", "estimate", "expect",
"intend", "may", and similar expressions identify such forward-looking
statements. Actual results, performance or achievements could differ materially
from those contemplated, expressed or implied by the forward-looking statements
contained herein. These forward-looking statements are based largely on the
expectations of the Company or the Company's management and are subject to a
number of risks and uncertainties, including but not limited to economic,
competitive, regulatory, and other factors affecting the Company's operations,
markets, products and services, as well as expansion strategies and other
factors discussed elsewhere in this report filed by the Company with the
Securities and Exchange Commission. Many of these factors are beyond the
Company's control.
MARKET AREA
The Bank's primary market area is located in southern Erie County, northern
Chautauqua County and northwestern Cattaraugus County, which includes the towns
of Evans, Boston, Hamburg, Eden, Orchard Park, West Seneca and Hanover. This
market area is the primary area where the Bank receives deposits and makes
loans. In February 2002, the Bank announced plans to construct a new branch
location in Amherst, New York, which would expand the Bank's service area to
include the northern suburban area of Erie County. The Bank has conducted loan
business in this area of Erie County as of December 31, 2001.
-6-
AVERAGE BALANCE SHEET INFORMATION
The table presents the significant categories of the assets and liabilities
of the Company, interest income and interest expense, and the corresponding
yields earned and rates paid in 2001 and 2000. The assets and liabilities are
presented as daily averages. The average loan balances include both performing
and nonperforming loans. Interest income on loans does not include interest on
loans for which the Company has ceased to accrue interest. Interest and yield
are not presented on a tax-equivalent basis.
2001 2000
---- ----
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Assets ($000) ($000) ($000) ($000)
Interest-earning assets:
Loans, Net $135,436 $11,051 8.16% $121,788 $10,616 8.72%
Taxable securities 46,001 2,892 6.29% 37,715 2,746 7.28%
Tax-exempt securities 33,040 1,571 4.75% 33,385 1,550 4.64%
Federal funds sold 3,214 133 4.14% 2,626 159 6.05%
-------- ------- ----- -------- ------- -----
Total interest-earning assets 217,691 15,647 7.19% 195,514 15,071 7.71%
Non interest-earning assets
Cash and due from banks 7,492 6,768
Premises and equipment, net 3,779 3,790
Other assets 8,130 4,907
-------- --------
Total $237,092 $210,979
======== ========
LIABILITIES & SHAREHOLDER'S EQUITY
Interest-bearing liabilities:
NOW accounts $8,510 76 0.89% $8,668 85 0.98%
Savings deposits 63,953 1,415 2.21% 60,420 1,664 2.75%
Time deposits 86,005 4,516 5.25% 77,073 4,328 5.61%
Fed Funds Purchased & Securities
Sold U/A to Repurchase 4,057 125 3.07% 3,434 163 4.74%
FHLB Advances and Other
Interest-bearing liabilities 7,749 405 5.23% 4,909 251 5.18%
-------- ------- ----- -------- ------ -----
Total interest-bearing liabilities 170,274 6,537 3.84% 154,504 6,491 4.20%
Noninterest-bearing liabilities:
Demand deposits 36,133 33,974
Other 4,437 2,361
-------- --------
Total liabilities 210,844 190,839
Shareholders' equity 26,248 20,140
-------- --------
Total $237,092 $210,979
======== ========
Net interest earnings $9,110 $8,580
====== ======
Net yield on interest earning assets 4.18% 4.40%
-7-
In 2001, the Company's interest income increased by $0.6 million over
2000, compared to an increase of $2.5 million in 2000 over 1999. Interest
expense increased by $46,000 in 2001 from 2000 compared to an increase of $1.4
million in 2000 over 1999. The following table segregates these changes for the
past two years into amounts attributable to changes in volume and changes in
rates by major categories of assets and liabilities. The change in interest
income and expense due to both volume and rate has been allocated to volume and
rate changes in proportion to the relationship of the absolute dollar amounts of
the change in each.
2001 Compared to 2000 2000 Compared to 1999
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------------------------------------------------
($000)
------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest earned on:
Loans ...................... $982 ($547) $435 $1,040 $281 $1,321
Taxable securities ......... 263 (117) 146 707 277 984
Tax-exempt securities ...... (16) 37 21 163 69 232
Federal funds sold ......... 51 (77) (26) (77) 56 (21)
Time deposits in other banks 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total interest-earning assets $1,280 ($704) $576 $1,833 $683 $2,516
======= ======= ======= ======= ======= =======
Interest paid on:
NOW accounts ............... ($2) ($7) ($9) $9 $0 $9
Savings deposits ........... 105 (354) (249) 138 89 227
Time deposits .............. 414 (226) 188 656 462 1,118
Federal Funds Purchased &
Securities Sold U/A Repurch 149 (33) 116 57 36 93
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities .................. $666 ($620) $46 $860 $587 $1,447
======= ======= ======= ======= ======= =======
SECURITIES ACTIVITIES
Income from securities represented approximately 28.5% of total interest
income of the Company in 2001 and 2000. At December 31, 2001, the Bank's
securities portfolio of $84.1 million consisted primarily of United States
("U.S.") and federal agency obligations, state and municipal securities and
mortgage-backed securities issued by the Government National Mortgage
Association, Federal National Mortgage Association and Federal Home Loan
Mortgage Corp.
Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" promulgates accounting
treatment for investments in securities. All securities in the Bank's portfolio
are either designated as "held to maturity" or "available for sale".
-8-
The following table summarizes the Bank's securities with those designated
as available for sale at fair value and securities designated as held to
maturity valued at amortized cost as of December 31, 2001 and 2000:
2001 2000
---- ----
($000) ($000)
Available for Sale:
U.S. Treasury and other U.S. government agencies $42,665 $39,487
States and political subdivisions in the U.S. 37,817 28,894
Other 1,253 1,265
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Total Securities Designated as Available for Sale $81,735 $69,646
======= =======
Held to Maturity:
U.S. Treasury and other U.S. government agencies $40 $42
States and political subdivisions in the U.S. 2,290 3,433
------- -------
Total Securities Designated as Held to Maturity $2,330 $3,475
======= =======
Total Securities $84,065 $73,121
======= =======
SECURITIES POLICY. The Bank's asset liability management policy encompasses the
areas of securities, capital, liquidity and interest sensitivity. The primary
objective of the securities portfolio is to provide liquidity while maintaining
safety of principal. Secondary objectives include investment of funds in periods
of decreased loan demand, interest sensitivity considerations, providing
collateral to secure local municipal deposits, supporting local communities
through the purchase of tax-exempt securities and tax planning considerations.
The Board of Directors of the Bank is responsible for establishing overall
policy and reviewing performance.
The Bank's policy provides that acceptable portfolio investments include:
U.S. Government obligations, obligations of federal agencies, municipal
obligations (general obligations, revenue obligations, school districts and
non-rated issues from Bank's general market area), banker's acceptances,
certificates of deposit, Industrial Development Authority Bonds, Public Housing
Authority Bonds, corporate bonds (each corporation limited to the Bank's legal
lending limit), and collateral mortgage obligations, Federal Reserve stock and
Federal Home Loan Bank stock.
The Bank's securities policy is that in-state securities must be rated
Moody's BAA (or equivalent) at the time of purchase. Out-of-state issues must be
rated AA (or equivalent) at the time of purchase. Bonds or securities rated
below A will be reviewed periodically to assure their continued credit
worthiness. The purchase of non-rated municipal securities is permitted, but
limited to those bonds issued by municipalities in the Bank's general market
area which, in the Bank's judgment, possess no greater credit risk than BAA (or
equivalent) bonds. The annual budgets of the issuers of non-rated securities are
reviewed by the Bank and a credit file of the issuers is kept on each non-rated
municipal security with relevant financial information. In addition, the Bank's
loan policy permits the purchase of notes issued by various states and
municipalities which have not been rated by Moody's or Standard & Poors. The
securities portfolio of the Bank is priced and rated on a monthly basis.
-9-
The following table sets forth the maturities and weighted average interest
yields of the Bank's securities portfolio (yields on tax-exempt obligations have
been computed on a tax-equivalent basis) as of December 31, 2001:
Maturing
--------------------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
--------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
($000) ($000) ($000) ($000)
CLASSIFIED AS AVAILABLE FOR
SALE AT FAIR VALUE:
U.S. Treasury and other U.S. $0 0% $1,360 5.27% $6,398 7.35% $34,907 6.74%
government agencies
States and political subdivisions 1,703 5.70 5,941 6.36 11,369 6.80 18,804 7.48
Other 1,253 5.40 0 0.00 0 0.00 0 0.00
------ ------ ------- -------
Total Available for Sale 2,956 5.57 7,301 6.16 17,767 7.00 53,711 7.00
CLASSIFIED AS HELD TO MATURITY
AT AMORTIZED COST:
U.S. Treasury and other U.S. 0 0.00 0 0.00 0 0.00 40 0.00
government agencies
States and political subdivisions 1,471 5.17 535 7.22 153 7.96 131 8.70
------ ------ ------- -------
Total Held to Maturity 1,471 5.17 535 7.22 153 7.96 171 6.67
------ ------ ------- -------
Total Securities $4,427 5.44 $7,836 6.23 $17,920 7.01 $53,882 7.00
====== ====== ======= =======
At December 31, 2001, approximately $42.7 million of the Bank's securities
portfolio were obligations of the U.S. Treasury and other U.S. government
agencies.
LENDING ACTIVITIES
GENERAL. The Bank has a loan policy which is approved by the Board of
Directors on an annual basis. The loan policy addresses the lending authorities
of Bank officers, charge off policies, desired portfolio mix, and loan approval
guidelines.
The Bank offers a variety of loan products to its customers including
residential and commercial real estate mortgage loans, commercial loans,
installment loans and student loans. The Bank primarily extends loans to
customers located within the Western New York area. Income on loans represented
approximately 70.6% of the total interest income of the Company in 2001 and
approximately 70.4% of total interest income in 2000. The Bank's loan portfolio
after unearned discounts, loan origination costs and allowances for credit
losses totaled $142.5 million and $128.8 million at December 31, 2001 and
December 31, 2000, respectively. At December 31, 2001, the Bank had established
approximately $1.8 million as an allowance for loan losses which is
approximately 1.24% of total loans. This compares with approximately $1.4
million at December 31, 2000 which was approximately 1.11% of total loans. The
increase to the provision for loan losses reflects management's assessment of
the portfolio composition, of which commercial loans have been an increasing
component, and assessment of the New York State and local economy. The net loan
portfolio represented approximately 57.2% and 57.4% of the Bank's total assets
at December 31, 2001 and December 31, 2000, respectively.
-10-
REAL ESTATE LOANS. Approximately 84.8% of the Bank's loan portfolio at
December 31, 2001 consisted of real estate loans or loans collateralized by
mortgages on real estate including residential mortgages, commercial mortgages
and other types of real estate loans. The Bank's real estate loan portfolio was
$122.3 million at December 31, 2001, compared to $109.2 million at December 31,
2000. The real estate loan portfolio increased approximately 12.0% in 2001 over
2000 compared to an increase of 10.4% in 2000 over 1999.
The Bank offers fixed rate residential mortgages with terms of ten to thirty
years with up to an 80% loan-to-value ratio. Fixed rate residential mortgage
loans outstanding totaled $20.4 million at December 31, 2001, which was
approximately 14.2% of total loans outstanding. In 1995, the Bank entered into a
contractual arrangement with the Federal National Mortgage Association ("FNMA")
whereby mortgages can be sold to FNMA and the Bank retains the servicing rights.
In 2001, approximately $8.5 million of mortgages were sold to FNMA under this
arrangement compared to $0.7 million of mortgages sold in 2000. The Bank
currently retains the servicing rights on $16.0 million in mortgages sold to
FNMA. The Company has recorded no net servicing asset for such loans.
Since 1993 the Bank has offered adjustable rate residential mortgages with
terms of up to thirty years. Rates on these mortgages remain fixed for the first
three years and are adjusted annually thereafter. On December 31, 2001, the
Bank's outstanding adjustable rate mortgages were $1.8 million or 1.2% of total
loans. This balance did not include any construction mortgages.
The Bank also offers commercial mortgages with up to a 75% loan-to-value
ratio for up to fifteen years on a variable and fixed rate basis. Many of these
mortgages either mature or are subject to a rate call after three to five years.
The Bank's outstanding commercial mortgages were $73.9 million at December 31,
2001, which was approximately 51.2% of total loans outstanding. This balance
included $6.5 million in fixed rate and $67.4 million in variable rate loans,
which include rate calls.
The Bank also offers other types of loans collateralized by real estate
such as home equity loans. The Bank offers home equity loans at variable and
fixed interest rates with terms of up to fifteen years and up to an 80%
loan-to-value ratio. At December 31, 2001, the real estate loan portfolio
included $21.7 million of home equity loans outstanding which represented
approximately 15.0% of its total loans outstanding. This balance included $10.6
million in variable rate and $11.1 million in fixed rate loans.
The Bank also offers both residential and commercial real
estate-construction loans at up to an 80% loan-to-value ratio at fixed interest
or adjustable interest rates and multiple maturities. At December 31, 2001,
fixed rate real estate-construction loans outstanding were $0.8 million or 0.6%
of the Bank's loan portfolio, and adjustable rate construction loans outstanding
were $0.7 million or 0.5% of the portfolio.
As of December 31, 2001, approximately $4.1 million or 3.4% of the Bank's
real estate loans were 30 to 90 days delinquent, $0.4 million or 0.4% of the
bank's real estate loans were more than 90 days delinquent and approximately
$0.6 million or 0.5% of real estate loans were nonaccruing.
COMMERCIAL LOANS. The Bank offers commercial loans on a secured and
unsecured basis including lines of credit and term loans at fixed and variable
interest rates and multiple maturities. The Bank's commercial loan portfolio
totaled $16.3 million and $14.8 million at December 31, 2001 and December 31,
2000, respectively. Commercial loans represented approximately 11.3% and 11.4%
of the Bank's total loans at December 31, 2001 and December 31, 2000,
respectively.
As of December 31, 2001, approximately $0.02 million or 0.1% of the Bank's
commercial loans were 30 to 90 days past due and $0.1 million or 0.7% of its
commercial loans were nonaccruing.
Commercial lending entails significant additional risk as compared with real
estate loans. Collateral, where applicable, may consist of inventory,
receivables, equipment and other business assets. Approximately seventy-three
percent of the Bank's commercial loans are variable rate which are tied to the
prime rate.
-11-
INSTALLMENT LOANS. The Bank's installment loan portfolio (which includes
commercial and automobile loans, personal loans and revolving credit card
balances) totaled $2.9 million and $3.1 million at December 31, 2001 and
December 31, 2000, respectively, representing approximately 2.0% of the Bank's
total loans at December 31, 2001 and 2.4% of the Bank's total loans at December
31, 2000. Traditional installment loans are offered at fixed interest rates with
various maturities up to 60 months, on a secured and unsecured basis. On
December 31, 2001, the installment loan portfolio included $0.3 million in fixed
rate credit card balances at an interest rate of 15.6% and $0.05 million in the
variable rate option. As of December 31, 2001, approximately $0.03 million or
0.9% of the Bank's installment loans were 30-90 days past due.
STUDENT LOANS. The Bank's student loan portfolio totaled $0.2 million at
December 31, 2001 and $0.3 million at December 31, 2000. Student loans
represented 0.2% of the Bank's total loans at December 31, 2001 and 0.3% of the
Bank's total loans at December 31, 2000. These loans are guaranteed by the
federal government and the New York State Higher Education Assistance
Corporation. The Bank offers student loans at variable interest rates with terms
of up to 10 years. In 1995, the Bank entered into a contract with the Student
Loan Marketing Association ("SLMA"). Under terms of this agreement, SLMA
services the Bank's loans to students who are still in school and subsequently
purchases those loans when the student goes into repayment. The Bank sold
approximately $0.7 million and $0.8 million of its student loans to SLMA in 2001
and 2000 respectively. Student loan products include Federal Plus and HEAL
loans.
OTHER LOANS. Other loans totaled $1.3 at December 31, 2001 and $1.4 million
at December 31, 2000. Other loans consisted primarily of loans to
municipalities, hospitals, churches and non-profit organizations. These loans
are at fixed or variable interest rates with multiple maturities. Other loans
also include overdrafts.
DIRECT FINANCING LEASE LOANS. The Bank participates as a lessor in a leasing
agreement that is classified as a direct financing lease. The direct financing
lease loan totaled $0.9 million at December 31, 2001 and $1.0 million at
December 31, 2000. This loan represented 0.6% of the Bank's total loans at
December 31, 2001 and 0.8% at December 31, 2000.
The Bank's ability to lend larger amounts to any one borrower is subject to
regulation by the Comptroller of the Currency. The Bank continually monitors its
loan portfolio to review compliance with new and existing regulations.
The following table summarizes the major classifications of the Bank's loans
(net of deferred origination costs) at December 31, 2001 and 2000:
December 31,
----------------------------------
2001 2000
---- ----
($000)
Real Estate $122,285 $109,184
Commercial 16,333 14,783
Installment 2,859 3,140
Student Loans 234 337
All Other 1,293 1,350
Direct Financing Lease 898 1,041
Net deferred loan origination costs 353 372
--- ---
Total Loans 144,255 130,207
------- -------
Allowance for credit losses (1,786) (1,428)
------- -------
Net loans $142,469 $128,779
======== ========
-12-
LOAN MATURITIES. The following table shows the maturities of commercial and
real estate construction loans outstanding as of December 31, 2001 and the
classification of loans due after one year according to sensitivity to changes
in interest rates:
($000)
0-1 Yr. 1-5 Yrs. Over 5 Yrs. Total
-------- -------- ----------- -----
Commercial $3,057 $5,943 $7,333 $16,333
Real estate construction 1,432 88 0 1,520
----- -- - -----
$4,489 $6,031 $7,333 $17,853
====== ====== ====== =======
Loans maturing after one year with:
Fixed rates $3,477 $75
Variable rates 2,554 7,258
----- -----
$6,031 $7,333
====== ======
LOAN LOSSES. The following table summarizes the Bank's non-accrual and past due
loans as of December 31, 2001 and December 31, 2000. The Bank had no
restructured loans as of those dates. Any loans classified for regulatory
purposes as loss, doubtful, substandard or special mention that have not been
disclosed do not (i) represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity or capital resources, or (ii) represent material credit about which
management has serious doubts as to the ability of such borrowers to comply with
the loan repayment terms. See also "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Results of Operations -
Provision for Loan Losses."
2001 2000
---- ----
($000)
Nonaccrual loans $724 $1,195
Accruing loans past due 90 days or more 443 265
--- ---
Total $1,167 $1,460
====== ======
Information with respect to nonaccrual loans at December 31, 2001 and December
31, 2000 is as follows:
2001 2000
---- ----
($000)
Nonaccrual loans $724 $1,195
Interest income that would have been 36 78
recorded under the original terms
Interest income recorded during the period 43 70
At December 31, 2001, $0.7 million of nonaccrual loans are collateralized.
-13-
The following tables summarize the Bank's allowance for loan losses and
changes in the allowance for credit losses by loan categories:
ANALYSIS OF CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
2001 2000
---- ----
BALANCE AT BEGINNING OF YEAR $1,428 $838
CHARGE-OFFS
Commercial, Financial, Agricultural (24) (54)
Real Estate - Mortgages (42) (48)
Installment Loans (14) (3)
------- -------
TOTAL CHARGE-OFFS (80) (105)
RECOVERIES
Commercial, Financial, Agricultural 11 0
Real Estate - Mortgages 1 1
Installment Loans 6 5
Overdrafts 0 0
------- -------
TOTAL RECOVERIES 18 6
------- -------
NET CHARGE-OFFS (62) (99)
ADDITIONS CHARGED TO OPERATIONS 420 689
------- -------
BALANCE AT END OF YEAR $1,786 $1,428
======= =======
Management's provision for loan losses reflects the continued growth trend
in commercial loans and the Bank's assessment of the local and New York State
economic environment. Both the local and New York State economies have lagged
behind national prosperity which is now unsettled. Marginal job growth, in
conjunction with a declining population base, has left the Bank's market more
susceptible to potential credit problems during an economic downturn. This is
particularly true of commercial borrowers. Commercial loans represent a segment
of significant past growth as well as concentration in the Company's commercial
real estate portfolio. Commercial real estate values may be susceptible to
decline in an adverse economy. Management believes that the reserve is also in
accordance with the regulations promulgated by the Office of the Comptroller of
the Currency, and is reflective of its assessment of the local environment as
well as a continued trend in commercial loans.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
Balance at Balance at Percent of Loans in
12/31/01 12/31/00 Each Category to
Attributable to: Attributable to: Total Loans:
---------------- ---------------- ------------
($000) ($000) 2001 2000
---- ----
Real Estate Loans $455 $600 85.0% 84.1%
Commercial Loans & Leases 96 96 11.9 12.2
Installment Loans (Includes Credit Cards) 74 66 2.0 2.4
Student Loans 0 0 0.2 0.3
All Other Loans 0 0 0.9 1.0
Unallocated 1,161 666 n/a n/a
------ ------ ----- -----
Total $1,786 $1,428 100.0% 100.0%
====== ====== ===== =====
-14-
SOURCES OF FUNDS - DEPOSITS
GENERAL. Customer deposits represent the major source of the Bank's funds
for lending and other investment purposes. In addition to deposits, other
sources of funds include loan repayments, loan sales on the secondary market,
interest and dividends from investments, matured investments, and borrowings
from the Federal Reserve Bank, Federal Home Loan Bank and First Tennessee Bank.
DEPOSITS. The Bank offers a variety of deposit products including checking,
passbook, statement savings, NOW accounts, certificates of deposit and jumbo
certificates of deposit. Deposits of the Bank are insured up to the limits
provided by the Federal Deposit Insurance Corporation ("FDIC"). At December 31,
2001, the Bank's deposits totaled $204.3 million consisting of the following (in
thousands):
Demand deposits $39,598
NOW and Money Market accounts 9,604
Regular savings 64,351
Time deposits, $100,000 and over 28,865
Other time deposits 61,842
------
Total $204,260
========
The following table shows daily average deposits and average rates paid on
significant deposit categories by the Bank:
2001 2000
------ -----
Average Weighted Average Weighted
Balance Average Balance Average
($000) Rate ($000) Rate
Demand Deposits $ 36,133 ---% $ 33,973 ---%
NOW and Money Market Accounts 8,510 0.89% 8,668 0.98%
Regular Savings 63,953 2.21% 60,056 2.77%
Time Deposits 86,005 5.25% 77,073 5.61%
------ ------
Total $194,601 3.09% $179,770 3.38%
======== ========
Historically, the Bank has had a very stable deposit base and no material
amount of deposits is obtained from a single depositor or group of depositors
(including federal, state and local governments). The Bank has not experienced
any significant seasonal fluctuations in the amount of its deposits.
FEDERAL FUNDS PURCHASED AND OTHER BORROWED FUNDS. Another source of the Bank's
funds for lending at December 31, 2001 consisted of long term borrowings from
the Federal Home Loan Bank.
Other borrowed funds consisted of $9.7 million in long-term borrowings.
These long-term borrowings consisted of various advances from the Federal Home
Loan Bank with interest rates ranging from 4.83% to 5.07%. The maturities of
other borrowed funds are as follows (in thousands):
2002 $ 2,032
2003 3,165
2004 2,318
2005 1,367
2006 779
---
Total $ 9,661
=======
-15-
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. The Bank enters into agreements
with depositors to sell to the depositors securities owned by the Bank and
repurchase the identical security, generally within one day. No physical
movement of the securities is involved. The depositor is informed the securities
are held in safekeeping by the Bank on behalf of the depositor. Securities sold
under agreements to repurchase totaled $4.0 million at December 31, 2001
compared to $3.9 million at December 31, 2000.
ASSET AND LIABILITY MANAGEMENT
Like all financial institutions, the Bank regularly monitors its exposure to
interest rate risk. Proper management of interest sensitive funds is important
to help secure the Bank's earnings against extreme changes in interest rates. In
1995, an Asset/Liability Management Committee ("ALCO") was established for the
purpose of evaluating the Bank's short-range and long-range liquidity position
and the potential impact of a sudden change in interest rates on the Bank's
capital and earnings. Specific minimum guidelines for liquidity and capital
ratios have been established, and maximum guidelines have been set for the
negative impact acceptable on net interest income and the market value of assets
as a result of a shift in interest rates. These guidelines have been delineated
in the Bank's formal Asset/Liability Policy which also includes guidelines for
investment activities and funds management. The ALCO meets regularly to review
the Bank's liquidity, gap, interest rate risk and capital positions and to
formulate its strategy based on current economic conditions, interest rate
forecasts, loan demand, deposit volatility and the Bank's earnings objectives.
The following table summarizes the interest rate sensitivity analysis for
the Bank as of December 31, 2001 for the periods indicated:
0 to 3 4 to 12 One to Five Over Five
Months Months Years Years
------ ------ ----- -----
(in millions)
Interest-sensitive assets $52.2 $36.6 $95.9 $45.1
Interest-sensitive liabilities 41.8 47.4 116.6 12.2
---- ---- ----- ----
Interest sensitivity gap $10.4 ($10.8) ($20.7) ($32.9)
===== ======= ======= =======
The primary assets and liabilities in the one year maturity range are
securities, commercial loans and time deposits. As of December 31, 2001, the
Bank's cumulative one year gap ratio (rate sensitive assets divided by rate
sensitive liabilities) was 1.00 as compared to .84 at December 31, 2000 and 0.72
as of December 31, 1999. The Bank has more liabilities than assets repricing
over the next twelve months. However, since liabilities tend to reprice less
quickly than assets, management believes that earnings will not be significantly
impaired should rates rise.
The following schedule sets forth the maturities of the Bank's time deposits
as of December 31, 2001:
Time Deposit Maturity Schedule
(in millions)
0-3 3-6 6-12 Over
Mos. Mos. Mos. 12 Mos. Total
Time deposits - $100,000 and over $14.4 $2.0 $5.1 $7.4 $28.9
Other time deposits 11.5 8.2 21.2 20.9 61.8
---- --- ---- ---- ----
Total time deposits $25.9 $10.2 $26.3 $28.3 $90.7
===== ===== ===== ===== =====
-16-
MONETARY POLICY
The earnings of the Company and the Bank are also affected by the monetary
policy of the Federal Reserve Board. An important function of the Federal
Reserve System is to regulate the money supply and prevailing interest rates.
Among the instruments used to implement those objectives are open market
operations in U.S. Government securities and changes in reserve requirements
against member bank deposits. These instruments are used in varying combinations
to influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans by the
Bank or paid on its deposits.
ENVIRONMENTAL MATTERS
To date, the Bank has not been required to perform any investigation or
clean-up activities, nor has it been subject to any environmental claims. There
can be no assurance, however, that this will remain the case in the future.
In the course of its business, the Bank has acquired and may acquire in the
future, property securing loans that are in default. There is a risk that the
Bank could be required to investigate and clean-up hazardous or toxic substances
or chemical releases at such properties after acquisition by the Bank, and may
be held liable to a governmental entity or third parties for property damage,
personal injury and investigation and clean-up costs incurred by such parties in
connection with such contamination. In addition, the owner or former owners of
contaminated sites may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from such
property.
COMPETITION
All phases of the Bank's business are highly competitive. The Bank competes
actively with local commercial banks as well as other commercial banks with
branches in the Bank's market area of southern Erie County, northern Chautauqua
County, and Northwestern Cattaraugus County, New York. The Bank considers its
major competition to be HSBC Bank USA (formerly Marine Midland Bank) and
Manufacturers and Traders Trust Company, both headquartered in Buffalo, New
York. Other major competition consists of Key Bank, N.A., and Fleet National
Bank of New York, both headquartered in Albany, New York, First Niagara Bank
(formerly Lockport Savings Bank), headquartered in Lockport, New York and also
Community Bank, N.A., headquartered in DeWitt, New York.. Additional competition
includes Charter One Bank, headquartered in Cleveland, Ohio and Citibank, NA,
headquartered in Rochester, New York. The Bank attempts to be generally
competitive with all financial institutions in its service area with respect to
interest rates paid on time and savings deposits, service charges on deposit
accounts, and interest rates charged on loans.
REGULATION
The operations of the Bank are subject to federal and state statutes
applicable to banks chartered under the banking laws of the United States, to
members of the Federal Reserve System and to banks whose deposits are insured by
the Federal Deposit Insurance Corporation ("the FDIC"). Bank operations are also
subject to regulations of the Comptroller of the Currency, the Federal Reserve
Board, the FDIC and the New York State Banking Department.
The primary supervisory authority of the Bank is the Comptroller of the
Currency, who regularly examines the Bank. The Comptroller of the Currency has
the authority under the Financial Institutions Supervisory Act to prevent a
national bank from engaging in an unsafe or unsound practice in conducting its
business.
Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, the investments a bank may make, the reserves
against deposits a bank must maintain, the loans a bank makes and collateral it
takes, the activities of a bank with respect to mergers and consolidations and
the establishment of branches. Branches may be established within the permitted
areas of New York State only after approval by the Comptroller of the Currency.
-17-
A subsidiary bank (such as the Bank) of a bank holding company is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries and on
taking such stock or securities as collateral for loans. The Federal Reserve Act
and Federal Reserve Board regulations also place certain limitations and
reporting requirements on extensions of credit by a bank to principal
shareholders of its parent holding company, among others, and to related
interests of such principal shareholders. In addition, such legislation and
regulations would affect the terms upon which any person becoming a principal
shareholder of a holding company may obtain credit from banks with which the
subsidiary bank maintains a correspondent relationship.
Federal law also prohibits acquisitions of control of a bank holding company
(such as the Company) without prior notice to certain federal bank regulators.
Control is defined for this purpose as the power, directly, or indirectly, to
direct the management or policies of the bank or bank holding company or to vote
25% or more of any class of voting securities of the bank holding company.
In addition to the restrictions imposed upon a bank holding company's
ability to acquire control of additional banks, federal law generally prohibits
a bank holding company from acquiring a direct or indirect interest in, or
control of 5% or more of the outstanding voting shares of any company, and from
engaging directly or indirectly in activities other than that of banking,
managing or controlling banks or furnishing services to subsidiaries, except
that a bank holding company may engage in, and may own shares of companies
engaged in certain activities found by the Federal Reserve Board to be closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
The Gramm-Leach-Bliley Act of 1999 modernizes the laws regarding the
financial services industry by expanding considerably the powers of banks and
bank holding companies to sell financial products and services. The Act
authorizes operating subsidiaries of national banks to sell financial products
without geographic limitation, reforms the Federal Home Loan Bank system to
increase access to loan funding, protects banks from certain state insurance
regulation considered discriminatory and includes new provision in the area of
privacy and customer information. The Bank utilized the provisions of this act
to commence the operations of M&W Agency, Inc. and ENB Associates Inc.
From time to time, various types of federal and state legislation have been
proposed that could result in additional regulation of, and restrictions on, the
business of the Bank. It cannot be predicted whether any such legislation will
be adopted or how such legislation would affect the business of the Bank. As a
consequence of the extensive regulation of commercial banking activities in the
United States, the Bank's business is particularly susceptible to being affected
by federal legislation and regulations that may increase the costs of doing
business.
Under the Federal Deposit Insurance Act, the Comptroller of the Currency
possesses the power to prohibit institutions regulated by it (such as the Bank)
from engaging in any activity that would be an unsafe and unsound banking
practice or would otherwise be in violation of law. Moreover, the Financial
Institutions and Interest Rate Control Act of 1978 ("FIRA") generally expanded
the circumstances under which officers or directors of a bank may be removed by
the institution's federal supervisory agency, restricts lending by a bank to its
executive officers, directors, principal shareholders or related interests
thereof, restricts management personnel of a bank from serving as directors or
in other management positions with certain depository institutions whose assets
exceed a specified amount or which have an office within a specified geographic
area, and restricts management personnel from borrowing from another institution
that has a correspondent relationship with their bank. Additionally, FIRA
requires that no person may acquire control of a bank unless the appropriate
federal supervisory agency has been given 60 days prior written notice and
within that time has not disapproved of the acquisition or extended the period
for disapproval.
Under the Community Reinvestment Act of 1977, the Comptroller of the
Currency is required to assess the record of all financial institutions
regulated by it to determine if these institutions are meeting the credit needs
of the community (including low and moderate income neighborhoods) which they
serve and to take this record into account in its evaluation of any application
made by any such institutions for, among other things, approval of a branch or
other deposit facility, office relocation, a merger or an acquisition of bank
shares.
-18-
The Company must give prior notice to the Federal Reserve Board of certain
purchases or redemptions of its outstanding equity securities. The Federal
Reserve Board has adopted capital adequacy guidelines for bank holding companies
(on a consolidated basis) substantially similar to those that apply to the Bank.
Under guidelines adopted in January 1989, bank holding companies with at least
$150 million in assets are required to maintain a ratio of qualifying total
capital to weighted risk assets of at least 8% effective December 31, 1993. For
bank holding companies with less than $150 million in assets, the
above-described ratio will not apply on a consolidated basis, but will apply on
a bank-only basis unless (i) the parent holding company is engaged in non-bank
activities involving significant leverage, or (ii) the parent holding company
has a significant amount of outstanding debt held by the general public. The
Federal Reserve Board has the discretionary authority to require higher capital
ratios.
In connection with the risk-based capital framework applicable to bank
holding companies described above, the Federal Reserve Board applies a
risk-based capital framework for Federal Reserve member banks, such as the Bank.
The framework requires banks to maintain minimum capital levels based upon a
weighing of their assets according to risk. Since December 31, 1992, Federal
Reserve member banks have been required to maintain a ratio of qualifying total
capital to risk-weighted assets of a minimum of 8%, and Tier 1 Capital to Assets
ratio of 4%. A minimum leverage ratio of 3% is required for banks with the
highest regulatory examination ratings and not contemplating or experiencing
significant growth or expansion. All other banks are required to maintain a
minimum leverage ratio of at least 1-2% above the stated minimum leverage ratio
of 3%.
A comparison of the Bank's capital ratios as of December 31, 2001 and
December 31, 2000 with these minimum requirements is presented below:
Bank
---------------------------------------------------
Minimum
2001 2000 Requirements
---- ---- ------------
Total Risk-based Capital 16.4% 16.6% 8%
Tier 1 Risk-based 15.2% 15.6% 4%
Capital
Leverage Ratio 9.6% 9.9% 4%
As of December 31, 2001, the Bank met all three capital requirements.
Management is not aware of any known trends, events, uncertainties, or
current regulatory recommendations that will have, or that are reasonably
likely, to have a material effect on the Bank's liquidity, capital resources or
operations.
The following table shows consolidated operating and capital ratios for the
Company for the last three years:
2001 2000 1999
Return on Average Assets 1.09% 1.53% 1.10%
Return on Average Equity 10.18% 15.25% 10.72%
Dividend Payout Ratio 41.44% 28.41% 39.50%
Equity to Assets Ratio 10.82% 11.54% 10.17%
-19-
SUBSIDIARIES OF THE BANK
M&W AGENCY, INC. Effective September 1, 2000, the Company completed its
acquisition of the assets, business and certain liabilities of M&W Group, Inc.,
a retail property and casualty insurance agency headquartered at Silver Creek,
New York, with offices located in Angola, North Collins, South Dayton,
Cattaraugus, Randolph and West Seneca, New York. The insurance agency acquired
is operated through M&W Agency, Inc. ("M&W"), an operating subsidiary of the
Bank.
M&W's legal headquarters are located at 265 Central Ave., Silver Creek, New
York 14136. M&W is a full-service insurance agency offering personal,
commercial and financial services products. It also has a small consulting
department. For the year ended December 31, 2001, M&W had a premium volume of
$13.9 million and net premium revenue of $2.4 million.
M&W's primary market area is southern Erie, Chautauqua and Cattaraugus
counties. M&W maintains offices in Silver Creek, Angola, North Collins, West
Seneca, Cattaraugus, South Dayton and Randolph, New York. All lines of personal
insurance are provided including automobile, homeowners, umbrellas, boats,
recreational vehicles and landlord coverages. Commercial insurance products are
also provided, consisting of property, liability, automobile, inland marine,
workers compensation, umbrellas, bonds and crop insurance. M&W also provides the
following financial services products: life and disability insurance, medicare
supplements, long term care, annuities, mutual funds, retirement programs and
New York State Disability.
M&W has a small consulting division which does work almost exclusively with
school districts. The majority of the work is done in preparing specifications
for bidding and reviewing existing insurance programs. The majority of the
consulting accounts are located in Central and Eastern New York. In the personal
insurance area the majority of M&W's competition comes from direct writers as
well as some small local agencies located in the same towns and villages in
which M&W has offices. In the commercial business segment the majority of the
competition comes from larger agencies located in and around Buffalo, New York.
By offering the large number of carriers which it has available to its
customers, M&W has attempted to remain competitive in all aspects of their
business.
M&W is regulated by the New York State Insurance Department. It meets and
maintains all licensing and continuing education requirements required by the
State of New York.
ENB ASSOCIATES INC. ENB Associates Inc., a wholly-owned subsidiary of the
Bank, was established during the first quarter of 2000 and provides non-deposit
investment products, such as mutual funds and annuities, to bank customers at
bank branch locations. ENB Associates Inc. has an investment services agreement
with O'Keefe Shaw & Co.,Inc., through which ENB can purchase and sell securities
to its customers. Prior to 2000, there was no impact on the Company's financial
statements for this subsidiary.
EVANS NATIONAL HOLDING CORP. Evans National Holding Corp. was incorporated in
February, 2002. In March, 2002, the Bank assigned its interests in approximately
$65.7 million in real estate mortgages to Evans National Holding Corp. in
exchange for 10 shares of common stock, 1,600 shares of preferred stock and
2,400 shares of excess stock, which represented all of the outstanding stock at
that time. Evans National Holding Corp. also entered into a Management and
Servicing Agreement with the Bank to provide management and other services to
it. Evans National Holding Corp. will be operated as a real estate investment
trust (REIT) which will provide additional flexibility and planning
opportunities for the business of the Bank. It is anticipated that Evans
National Holding Corp. will issue additional shares of non-voting preferred
stock to raise additional capital during 2002.
Commencing in 2000, the Company operates in two reportable segments-banking
and insurance. For the years ended December 31, 1999 and prior, the Company
determined that its business was comprised of banking activity only. For
disclosure of segmented operations, see Item 8." Consolidated Financial
Statements and Supplementary Data".
EMPLOYEES
As of February 28, 2002, the Bank employed 84 persons on a full-time basis
and 16 part-time employees. In addition, ENB Associates Inc. employed 1 person
on a full-time basis. M&W Agency, Inc. also employed 33 persons on a full-time
basis and 2 part-time employees.
-20-
ITEM 2. PROPERTIES
----------
The Bank conducts its business from its main office and six branch offices.
The main office is located at 14-16 North Main Street in Angola, New York. The
main office facility is 9,344 square feet and is owned by the Bank. This
facility is occupied by the Office of the President as well as the Loan and
Administration Divisions.
The Bank also owns four of its six branch offices. One is a 3,900 square
foot facility located at 8599 Erie Road in the Town of Evans. Another is a 1,530
square foot facility located at 25 Main Street, Forestville, New York and the
third is a 3,650 square foot branch located at 6480 Erie Road, Derby, New York.
In 2001, the Bank constructed a new branch on a vacant lot it acquired adjacent
to its existing North Boston Branch in 1991. The Bank moved into the 2,880
square foot branch in September 2001. The lease agreement with the former North
Boston Branch expired on December 31, 2001.
In 1995, the Bank purchased property adjacent to the Derby Office,
providing additional parking facilities for customers and enabling future
expansion. An existing building on the property was leased to a tenant for a
five year term which expired November 30, 2000. The Bank extended the lease on a
month to month basis until the tenant vacated the building during the fourth
quarter of 2001. Currently, the Bank is renovating the building for its own use
and housing of the loan division.
The Bank currently leases branch offices in Hamburg and West Seneca. The
3,000 square foot branch office at 5999 South Park Avenue, Hamburg, New York, is
occupied pursuant to a long-term lease. In September 1999, the Bank relocated
its West Seneca branch office to 3864 square feet of space at 938 Union Road,
West Seneca, N.Y. 14224, in the Southgate Plaza, which carries a long-term
lease. In addition the Bank leases 726 square feet for a drive-thru facility.
In February 2002, the Bank signed a long-term land lease for a property
located at the corner of Sweet Home Road and Sheridan Drive in Amherst, New York
upon which it plans to construct its eighth branch office.
The Bank operates an in-school branch banking facility in the West Seneca
East High School, 4760 Seneca Street, West Seneca, N.Y. 14224. The Bank also
opened a new in-school banking facility in the West Seneca West High School,
3330 Seneca Street, West Seneca, N.Y. 14224 in March 2002. The in-school
branches each have a cash dispensing style ATM located at the sites. There are
no lease payments required.
M&W leases the following offices from Millpine Enterprises, a partnership
owned by Mr. Robert Miller and his family: 265 Central Avenue, Silver Creek, New
York; 5 Commercial Street, Angola, New York; 11 Main Street, Cattaraugus, New
York; 213 Pine Street, South Dayton, New York. Each lease is dated September 1,
2000 and extends for a period of four years with three options to renew for an
additional three year term each.
M&W also leases the following offices on a month to month basis: 10510 Main
Street, North Collins, New York; 7 Bank Street, Randolph, New York.
In January 2002, M&W entered into a five year lease for the office at the
site of the former Eden Agency whose business it acquired on January 1, 2002.
This site is located at 8226 North Main Street, Eden, New York 14057.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no legal proceedings to which the Company is a party.
The nature of the Bank's business generates a certain amount of litigation
involving matters arising in the ordinary course of business. However, in the
opinion of management of the Bank, there are no proceedings pending to which the
Bank is a party or to which its property is subject, which, if determined
adversely to the Bank, would be material in relation to the Bank's financial
condition, nor are there any proceedings pending other than ordinary routine
litigation incident to the business of the Bank. In addition, no material
proceedings are pending or are known to be threatened or contemplated against
the Bank or its subsidiaries by governmental authorities or others.
-21-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS
- -------
(a) MARKET. The Company's common stock began trading on the Nasdaq National
Market system on July 9, 2001. Prior to that time, the common stock was not
traded on an exchange and the price listed represents the highest and lowest per
share prices known to management at which the stock of the Company was sold in
private transactions during the periods indicated, without retail markup,
markdown or commission. Evans Bancorp, Inc. distributed a 5 for 4 split of its
common stock on June 12, 2001 and the information listed has been adjusted to
reflect this stock split.
2001 2000
------ -----
QUARTER High Low High Low
------- ---- ---- ---
FIRST $37.60 $37.60 $37.60 $37.60
SECOND $37.60 $37.60 $37.60 $37.60
THIRD $30.00 $18.00 $37.60 $37.60
FOURTH $22.57 $17.40 $37.60 $37.60
(b) HOLDERS. As of January 31, 2002, 2,206,467 shares of the Company's common
stock were outstanding and the number of holders of record of the Common
Stock at that date was 1,197.
(c) DIVIDENDS.
---------
CASH DIVIDENDS.
--------------
The Company paid a cash dividend of $0.20 per share on April 5, 2000
to holders of record on February 15, 2000.
The Company paid a cash dividend of $0.22 per share on October 5,
2000 to holders of record on September 21, 2000.
The Company paid a cash dividend of $0.22 per share on March 27, 2001
to holders of record on February 27, 2001.
The Company paid a cash dividend of $0.27 per share on November 5,
2001 to holders of record on October 9, 2001.
The Company has declared a cash dividend of $0.28 per share payable
on April 2, 2002 to holders of record on March 12, 2002.
All per share amounts have been adjusted to reflect the 5 for 4 stock
split distributed in June 2001.
-22-
The amount, if any, of future dividends will be determined by the Company's
Board of Directors and will depend upon the Company's earnings, financial
conditions and other factors considered by the Board of Directors to be
relevant. Banking regulations limit the amount of dividends that may be paid
without prior approval of the Comptroller of the Currency. See Footnote 17 to
the Consolidated Financial Statements.
STOCK DIVIDENDS AND SPLITS. A 5 for 4 stock split was distributed on June 12,
2001 to shareholders of record as of May 25, 2001. Fractional shares were
redeemed for cash. The stock split resulted in the issuance of 439,441 shares of
common stock as well as fractional shares paid in cash totaling $21,597. All
share and per share data reflect the split. There were no stock dividends or
splits in 2000 or 1999.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
-------------------------------------
For the Year Ended December 31, 2001 2000 1999 1998 1997
RESULTS OF OPERATIONS
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income $ 15,647 $ 15,071 $ 12,555 $ 11,852 $ 11,073
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Expense 6,537 6,491 5,043 4,947 4,588
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 9,110 8,580 7,512 6,905 6,485
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Interest Income 4,528 3,648 A 1,343 1,220 951
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Interest Expense 9,531 7,535 6,050 5,197 4,849
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income 2,579 3,223 A 2,027 2,043 1,802
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 249,153 $ 224,549 $ 198,788 $ 174,120 $ 158,542
- ------------------------------------------------------------------------------------------------------------------------------------
Loans - Net 142,469 128,779 116,433 110,526 101,627
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses 1,786 1,428 838 729 609
- ------------------------------------------------------------------------------------------------------------------------------------
Securities 84,065 73,121 63,000 50,060 40,400
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits 204,260 186,701 169,949 144,084 138,391
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity 26,961 25,179 18,285 18,623 17,039
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA *
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.17 $ 1.47 $ 0.95 $ 0.96 $ 0.85
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Dividend $ 0.49 $ 0.41 $ 0.38 $ 0.30 $ 0.24
- ------------------------------------------------------------------------------------------------------------------------------------
Book Value at Year End $ 12.22 $ 11.45 $ 8.61 $ 8.78 $ 8.02
- ------------------------------------------------------------------------------------------------------------------------------------
Market Value $ 18.99 $ 37.60 $ 37.60 $ 36.00 $ 30.40
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Shares 2,200,130 2,195,869 2,123,154 2,123,265 2,123,688
- ------------------------------------------------------------------------------------------------------------------------------------
A Includes one-time insurance proceeds of approximately $1.4 million
*Retroactively adjusted for stock splits
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Item 8."Consolidated Financial Statements and
Supplementary Data" for further information and analysis.
-23-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------------
RESULTS OF OPERATIONS
This discussion is intended to compare the performance of the Company for the
years ended December 31, 2001, 2000 and 1999. The review of the information
presented should be read in conjunction with the consolidated financial
statements and accompanying notes.
Evans Bancorp, Inc. (The "Company") is the holding company for Evans National
Bank (the "Bank"), its wholly-owned subsidiary which is a nationally chartered
bank founded in 1920 and headquartered in Angola, New York. The Bank's principal
business is to provide a full range of banking services and other financial
services to consumer and commercial customers in Erie, Chautauqua and
Cattaraugus Counties of Western New York.
The Bank serves its market through seven banking offices located in Angola,
Derby, Evans, Forestville, Hamburg, North Boston and West Seneca, New York. In
early 2002, the Bank signed a long term land lease commitment in Amherst, New
York, where it plans to construct its eighth branch. The Bank's principal source
of funding is through deposits which it reinvests in the community in the form
of loans and investments. Deposits are insured to the applicable limit by the
Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"). The
Bank is regulated by the Office of the Comptroller of the Currency.
On March 11, 2000, ENB Associates Inc., a wholly-owned subsidiary of the Bank,
began the activity of providing non-deposit investment products, such as
annuities and mutual funds, to bank customers. Effective September 1, 2000, the
Bank completed the acquisition of the assets, business and certain liabilities
of M&W Group, Inc., a retail property and casualty insurance agency
headquartered in Silver Creek, New York, with offices located in Angola, North
Collins, South Dayton, Cattaraugus, Randolph, and West Seneca, New York. The
insurance agency acquired is operated by M&W Agency, Inc., a wholly-owned
subsidiary of the Bank. M&W Agency, Inc. sells various premium-based insurance
policies on a commission basis. Also, as of January 1, 2002, M&W Agency, Inc.,
acquired the assets, business and certain liabilities of the Eden Agency in
Eden, New York.
Commencing in 2000, the Company operates in two reportable segments-banking and
insurance. For the year ended December 31, 1999, the Company determined that its
business was comprised of banking activity only.
The following discussion of financial condition and results of operations of the
Company and the Bank and its wholly-owned subsidiaries should be read in
conjunction with the consolidated financial statements and accompanying notes.
Statements included in this Management's Discussion and Analysis may contain
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1993, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
involve substantial risks and uncertainties. When used in this report, the words
"anticipate", "believe", "estimate", "expect", "intend", "may", and similar
expressions identify such forward-looking statements. Actual results,
performance or achievements could differ materially from those contemplated,
expressed or implied by the forward-looking statements contained herein. These
forward-looking statements are based largely on the expectations of the Company
or the Company's management and are subject to a number of risks and
uncertainties, including but not limited to economic, competitive, regulatory,
and other factors affecting the Company's operations, markets, products and
services, as well as expansion strategies and other factors discussed elsewhere
in this report and other reports filed by the Company with the Securities and
Exchange Commission. Many of these factors are beyond the Company's control.
RESULTS OF OPERATIONS
Net interest income, the difference between interest income and fee income on
earning assets, such as loans and securities, and interest expense on deposits
and borrowings, provides the basis for the Bank's results of operations. These
results are also impacted by non-interest income, the provision for credit
losses, non-interest expense and income taxes. Net income of $2.6 million in
2001 consists of $2.3 million related to the Company's banking activities and
$0.3 million related to the Bank's insurance activities. The total net income of
$2.6 million or $1.17 per share in 2001 compares
-24-
to $3.2 million or $1.47 per share for 2000. However, 2000 net income included
one-time insurance proceeds of approximately $1.4 million on a life insurance
policy on the former Chairman, President and CEO. This policy was purchased to
indirectly fund a future obligation of the Bank under a Supplemental Employee
Retirement Plan ("SERP"). Excluding the 2000 one-time insurance proceeds, 2001
net income increased by $0.7 million or 40.0%. Net income in 1999 was $2.0
million or $.95 per share. All share and per share information presented is
stated after giving effect to a 5 for 4 stock split distributed on June 12,
2001, to shareholders of record on May 25, 2001.
NET INTEREST INCOME
Net interest income, before the provision for credit losses, increased 6.2% from
2000 to 2001, compared to an increase of 14.2% from 1999 to 2000. This increase
in 2001 is primarily attributable to the increase in average earning assets of
$19.1 million versus an increase of $15.9 million in average interest-bearing
liabilities over 2000. The tax-equivalent yield on earning assets decreased 49
basis points from 8.07% in 2000 to 7.58% in 2001. The cost of funds decreased
only 35 basis points, from 4.20% in 2000 to 3.85% in 2001. The Bank's net
interest margin decreased from 4.43% at December 31, 2000 to 4.20% at December
31, 2001.
Management believes there are two main factors contributing to the net interest
margin decline from 2000 to 2001. In an effort to stimulate the U.S. economy,
the Federal Reserve decreased short-term interest rates 11 times for a
cumulative impact of 475 basis points during 2001. These moves led to decreases
in the prime rate which reduced the Bank's interest income. The Bank made
subsequent adjustments to deposit rate offerings to offset such decreases which
lagged behind the changes in the prime rate. The dollar volume and rate volume
changes both contributed to the decrease in net interest margin. In addition to
the fact that the cost of funds decreased 35 basis points, while the tax-
equivalent yield on interest-earning assets decreased 49 basis points, the
volume of average interest-earning assets increased by 9.7% or $19.1 million
while average interest-bearing liabilities increased 10.4% or $15.9 million in
2001 as compared to 2000.
The second factor is competition. Banks are not only competing with each other
for available business, but with other providers of loan and investment
products, such as credit unions and insurance companies. As the Bank continues
to expand into new markets, competition is likely to increase further, including
direct competition with other community banks. A wealth of information regarding
competitors is easily obtained by consumers via the Internet, from television
and through print media. Competitors exist beyond the geographic trade area and
banks generally have increased business volumes by offering higher deposit rates
and lower loan rates, looking to other potential sources of income, such as fees
and service charges, to increase earnings. The Bank, therefore, has priced its
products to be competitive with these competitors which has affected its net
interest margin.
The Bank regularly monitors its exposure to interest rate risk. The proper
management of interest-sensitive funds will help protect the Bank's earnings
against extreme changes in interest rates. The Bank's Asset/Liability Management
Committee ("ALCO") meets monthly for the purpose of evaluating the Bank's
short-range and long-range liquidity position and the potential impact on
capital and earnings as a result of sudden changes in interest rates. The Bank
has adopted an asset/liability policy that specifies minimum limits for
liquidity and capital ratios. Maximum limits have been set for the negative
impact acceptable on net interest income and the market value of investments as
a result of a shift in interest rates. The asset/liability policy also includes
guidelines for investment activities and funds management. At its monthly
meeting, the ALCO reviews the Bank's status and formulates its strategy based on
current economic conditions, interest rate forecasts, loan demand, deposit
volatility and the Bank's earnings objectives.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents the amount charged against the Bank's
earnings to establish a reserve or allowance sufficient to absorb expected loan
losses based on management's evaluation of the loan portfolio. Factors
considered include future loan concentrations, charge-off history, delinquent
loan percentages, input from regulatory agencies and general economic
conditions. In 2001, the Bank charged $0.4 million against earnings for loan
losses as compared to $0.7 million in 2000. In 1999, $0.2 million was charged
against earnings for this purpose.
-25-
The amount charged to loan losses over the past three years has been greater
than the Bank's actual loan losses. The following table summarizes the Bank's
actual loan losses, total of non-performing loans and total allowance for loan
losses for 2001, 2000 and 1999, both in dollars and as a percentage of total
loans outstanding:
2001 2000 1999
- --------------------------------------------------------------------------------------------------
Actual Loan Losses $79,602 0.06% $105,056 0.08% $70.543 0.06%
- --------------------------------------------------------------------------------------------------
Non-Performing Loans $1,167,000 0.81% $1,460,000 1.13% $1,771,625 1.52%
- --------------------------------------------------------------------------------------------------
Allowance for Loan Losses $1,786,115 1.24% $1,428,467 1.11% $838,167 0.72%
- --------------------------------------------------------------------------------------------------
Management's provision for loan losses reflects its current assessment of the
New York State and local economy. Both have lagged behind national prosperity,
which is now unsettled. Marginal job growth, in conjunction with a declining
population base, has left the Bank's market more susceptible to potential credit
problems during an economic downturn. This is particularly true of commercial
borrowers. Commercial loans represent a segment of significant past growth as
well as concentration in the Company's real estate portfolio. Commercial real
estate values may be susceptible to decline in an adverse economy. Management
believes that the reserve is also in accordance with regulations promulgated by
the OCC, and is reflective of its assessment of the local environment as well as
a continued growth trend in commercial loans.
NON-INTEREST INCOME
Total non-interest income increased approximately $0.9 million or 24.1% in 2001
over 2000. This compares to an increase of approximately $2.3 million from 1999
to 2000. Non-interest income for 2000 included approximately $1.4 million of
life insurance proceeds, which the Bank recorded as the beneficiary of a life
insurance policy on its former Chairman, President and CEO. Excluding this
one-time item, non-interest income increased $2.3 million or 99.7% from 2000 to
2001. Income from the M&W Agency, Inc. accounted for a substantial portion of
this increase in non-interest income, approximately $1.8 million. Income on a
property foreclosed on in 2001 accounted for approximately $0.1 million in
additional income in 2001.
In 2001, the Bank received a six-month benefit from the increase in service
charges on deposit accounts instituted in July 2001. Loan-related income also
increased in 2001. This included prepayment penalties collected on loans and
dividends received as a result of the Bank's participation in the New York State
Bankers Group Insurance Trust.
Gains realized on the sale of assets, primarily planned sales of securities,
totaled approximately $0.2 million in 2001 versus an approximate $0.1 million
loss realized in 2000.
NON-INTEREST EXPENSE
Total non-interest expense increased approximately $2.0 million or 26.5% in 2001
over 2000. In 2001, the ratio of non-interest expense to average assets was
4.01% compared to 3.55% in 2000 and 3.24% in 1999. Non-interest expense
categories include those most impacted by branch expansion and the operations of
the M&W Agency, Inc. and ENB Associates Inc.: salaries, occupancy, advertising,
and supplies, among others. Salary and benefit expense increased 27.1% in 2001.
Of the $1.1 million increase in salary and benefit expenses in 2001,
approximately $0.9 million is attributable to the addition of the M&W Agency,
Inc. The remainder of the increase included merit/promotional increases, other
additional staffing and expenses related to the Bank's retirement plans.
Occupancy expenses increased about $0.1 million or 12.9%. The cost of the
occupancy expense for M&W Agency, Inc. contributed $0.1 million to occupancy
expense. Repairs and maintenance increased approximately $0.1 million or 38.2%.
This was largely due to M&W Agency, Inc. Professional services increased about
$0.2 million or 65.7% due to increased fees related to the listing of the
Company's common stock on the Nasdaq National Market. Accounting and legal fees
comprised a majority of these expenses. M&W Agency, Inc. professional costs
increased as a result of additional audit fees required to perform their annual
external audit. The FDIC Assessment expense remained stable in 2001 as compared
to 2000, however, it increased 102.3% in 2000 over 1999. New assessment rates
went into
-26-
effect on January 1, 2000. Other insurance decreased approximately $0.1 million
or 22.9% in 2001 due to one-time premiums paid in 2000 for life insurance
policies held on certain bank officers and directors.
Miscellaneous other expenses increased 41.7% or approximately $0.5 million in
2001. Expenses associated with Internet banking, ATM expense, telephone costs,
postal costs, maintenance on foreclosed properties, director fees and
correspondent bank service charges fall under miscellaneous expenses. All of
these categories increased in 2001 as compared to 2000. Amortization of goodwill
related to the M&W Agency, Inc. acquisition accounted for approximately $0.2
million of the increase. Due to the January 1, 2002 Statement of Financial
Accounting Standards (SFAS) No. 142 adoption by the Company, systematic goodwill
amortization is likely to cease and the net goodwill recorded by the Company
will be evaluated for impairment at least on an annual basis. Evans Bancorp,
Inc. parent company expense increased approximately $0.1 million due to costs
incurred for initial listing and annual fees for listing of the Company's common
stock on the Nasdaq National Market. M&W Agency, Inc. miscellaneous costs
increased approximately $0.1 million due to a full year of operation as a part
of the Company in 2001 versus four months during 2000.
TAXES
The provision for income taxes in 2001 of $1.1 million reflects an effective tax
rate of 30%. This compares to $0.8 million or 19% in 2000 and $0.6 million or
23% in 1999. A significant reason for the increase in the effective tax rate in
2001 was a full year of non-tax deductible goodwill amortization expense related
to the M&W Agency acquisition. Additionally, the life insurance proceeds
recorded in 2000 were tax-exempt income also contributing to the favorable tax
position in that year. The Bank maintains a substantial investment in
tax-advantaged municipal bonds, which contributes to its favorable tax position.
FINANCIAL CONDITION
The Bank had total assets of $249.2 million at December 31, 2001, an increase of
$24.6 million or 11.0% over $224.5 million at December 31, 2000. Net loans of
$142.5 million increased 10.6% or $13.7 million over the previous year.
Securities increased $10.9 million or 15.0% and cash and cash equivalents
increased $1.3 million or 13.6%. Deposits grew by $17.6 million or 9.4%.
Shareholders' equity increased $1.8 million or 7.1%. Net unrealized gains/losses
on investment securities held by the Bank, after tax effect, increased $0.1
million over 2000.
LOANS
Loans comprised 62.5% of the Bank's total average earning assets in 2001. Actual
year-end total loan balances increased 10.8% versus an increase of 10.6% in 2000
and 5.3% in 1999. The Bank continues to focus its lending on commercial and
residential mortgages, commercial loans and home equity loans. Commercial
mortgages made up the largest segment of the portfolio at 51.3% of total loans.
Residential mortgages comprise 15.5% of the portfolio and 15.1% are home equity
loans. Other commercial loans account for 14.9% of outstanding loans.
At December 31, 2001, the Bank had a loan/deposit ratio of 70.6%. This compares
to a loan/deposit ratio of 69.7% at December 31, 2000.
The Bank currently retains the servicing rights to $16.0 million in long-term
mortgages sold to the Federal National Mortgage Association ("FNMA") since
becoming a member in 1995. This arrangement allows the Bank to offer long-term
mortgages without exposure to the associated interest rate risks, while
retaining customer account relationships. In 2001 and 2000 the Bank sold loans
to FNMA totaling approximately $8.5 million and $0.7 million respectively.
The Bank continued its contractual arrangement with the Student Loan Marketing
Association ("SLMA") during 2001 whereby SLMA services the Bank's loans to
borrowers who are still in school and subsequently purchases those loans.
Approximately $0.7 million in student loans were sold to SLMA in 2001. Student
loans presently make up 0.2% of total loans.
-27-
SECURITIES AND FEDERAL FUNDS SOLD
Securities and federal funds sold made up the remaining 37.5% of the Bank's
total average earning assets at December 31, 2001. These categories provide the
Bank with additional sources of liquidity and income. The Bank's securities
portfolio increased 15.0% over the prior year. It continues to be strongly
concentrated in tax-advantaged municipal bonds, which make up 47.7% of the
portfolio, US government-guaranteed mortgage-backed securities which make up
20.4% of bonds, and US government-sponsored agency bonds of various types which
comprise 30.4% of the total. As a member of both the Federal Reserve System and
the Federal Home Loan Bank, the Bank is required to hold stock in those
entities. These investments made up 1.5% of the portfolio at December 31, 2001.
The credit rating of the portfolio is strong, with 93.9% of the portfolio
carrying the equivalent of a Moody's rating of AAA.
Federal funds sold balances are largely maintained for liquidity purposes. The
average balance maintained in federal funds sold increased slightly in 2001 to
1.5% of total average earning assets from 1.3% the previous year.
The tax-equivalent yield earned on securities and federal funds sold decreased
30 basis points in 2001 moving from 7.00% in 2000 to 6.70% in 2001. This
compares to 6.33% in 1999. Decreasing yields were available on bonds purchased
throughout the year, and new investments were concentrated in longer term bonds
with call provisions. Also, certain planned sales of securities with accumulated
gains were made and replaced with similar-yielding bonds where possible. The
Bank experienced $0.2 million in net gains on these sales. As stated earlier,
the volume of federal funds sold increased in 2001, however, the yield on this
category decreased from 6.04% in 2000 to 4.12% in 2001.
SFAS No. 115 outlines accounting and reporting requirements for investment
securities. All securities are designated at the time of purchase as either
"held to maturity" or "available for sale". Securities designated as held to
maturity are stated on the balance sheet at amortized cost. Those designated as
available for sale are reported at fair market value. At December 31, 2001, $2.3
million in securities were designated as held to maturity. These bonds are
primarily investments that the Bank has made in its local trade area.
The available for sale portfolio totaled $81.7 million or approximately 97.2% of
the Bank's securities portfolio at December 31, 2001. Net unrealized gains and
losses on available for sale securities resulted in a net unrealized gain of
$1.1 million at December 31, 2001 as compared to $0.8 million at December 31,
2000. Rates decreased throughout 2001 as discussed above, driving market prices
up on fixed income bonds held in the portfolio. Unrealized gains and losses on
available for sale securities are reported, net of taxes, as a separate
component of shareholders' equity. At December 31, 2001, the impact to equity
was a net unrealized gain of approximately $0.7 million.
DEPOSITS
Total deposits increased $17.6 million or 9.4% in 2001 over 2000. Although all
of the Bank's branches have experienced deposit growth, the most significant
increases have come from the West Seneca and Hamburg offices opened in 1999 and
1995, respectively. Core deposit growth has been an area the Bank has focused on
which has resulted in an 8.2% increase in demand deposits and 10.7% increase in
savings accounts. The tiered rate premium savings product remains a strong
product with a 13.0% increase in 2001 over 2000. Time deposits of less than
$100,000 increased 19.8% in 2001 partially as a result of the favorable reaction
to the CD Plus promotion related to the relocation and grand opening of the
Bank's new North Boston branch in September 2001.
Certificates of deposit in excess of $100,000 decreased 6.2%. These funds are
generally not considered core deposits. Most of these deposits are obtained from
municipalities through the competitive bidding process. Others are obtained from
commercial and retail customers looking for the safety of a FDIC-insured
deposit. Certificates of deposit in excess of $100,000 have increased
significantly over the past several years due to the Bank's expansion of its
trade area.
-28-
LIQUIDITY
The Bank utilizes cash flows from the investment portfolio and federal funds
sold balances to manage the liquidity requirements it experiences due to loan
demand and deposit fluctuations. The Bank also has many borrowing options. As a
member of the Federal Home Loan Bank ("FHLB"), the Bank is able to borrow funds
at competitive rates. Advances of up to $11.7 million can be drawn on the FHLB
via the Overnight Line of Credit Agreement. An amount equal to 25% of the Bank's
total assets could be borrowed through the advance programs under certain
qualifying circumstances. The Bank also has the ability to purchase $7 million
in federal funds from one of its correspondent banks. By placing sufficient
collateral in safekeeping at the Federal Reserve Bank, the Bank could also
borrow at the discount window.
The cash flows from the investment portfolio are laddered, so that securities
mature at regular intervals, to provide funds from principal and interest
payments at various times as liquidity needs may arise. Contractual maturities
are also laddered, with consideration as to the volatility of market prices, so
that securities are available for sale from time to time without the need to
incur significant losses. At December 31, 2001 approximately 5.3% of the Bank's
securities had maturity dates of one year or less and approximately 14.6% had
maturity dates of five years or less. At December 31, 2001, the Bank had net
short-term liquidity of $37.0 million as compared to $18.0 million at December
31, 2000. Available assets of $86.7 million less public and purchased funds of
$48.9 million resulted in a long-term liquidity ratio of 177% versus 167% at
December 31, 2000.
Liquidity needs can also be met by aggressively pursuing municipal deposits,
which are normally awarded on the basis of competitive bidding. The Bank
maintains a sufficient level of US government and government agency securities
and New York State municipal bonds that can be pledged as collateral for these
deposits.
Total cash and cash equivalents increased approximately $1.3 million or 13.6%
from 2000 to 2001. During 2001, the Bank found itself in a liquid position as
funds entered the Bank as a result of uncertainty in major equities markets.
INTEREST RATE RISK
Interest rate risk occurs when interest-earning assets and interest-bearing
liabilities mature or reprice at different times or on a different basis. The
ALCO analyzes the gap position on a monthly basis to determine the Bank's
exposure to interest rate risk. The gap position is the difference between the
total of the Bank's rate-sensitive assets and rate-sensitive liabilities
maturing or repricing during a given time frame. A "positive" gap results when
more assets than liabilities reprice and a "negative" gap results when more
liabilities than assets reprice within a given time period. Because assets
historically reprice faster than liabilities, a slightly negative gap position
is considered preferable. At December 31, 2001 the Bank was in a negative gap
position with $0.4 million more in rate-sensitive liabilities repricing over the
next year than in rate-sensitive assets. The Bank had a $13.0 million negative
gap position at December 31, 2000. Based on the decrease in the negative gap
position, management feels that the Bank is well positioned for potential future
prime rate increases in 2002, considering assets typically reprice more quickly
than liabilities. The Bank's asset/liability target, as defined in its
asset/liability policy, is a difference of +/- 15% of the Bank's total assets,
which amounted to +/- $37.4 million at December 31, 2001. The gap ratio
(rate-sensitive assets/rate-sensitive liabilities) at that date was 1.00%.
Off-balance sheet financial instruments at December 31, 2001 included $8.4
million in undisbursed lines of credit at an average interest rate of 5.9%, $5.2
million in fixed rate loan origination commitments at 9.4%, $12.8 million in
adjustable rate loan origination commitments at 5.9% and $1.9 million in
adjustable rate letters of credit at an average rate of 5.8%.
-29-
Expected maturity
Year ended December 31 2002 2003 2004 2005 2006 Thereafter Total Fair Value
Interest - Assets
($000s)
Loans Receivable, Fixed 8,824 6,044 5,089 5,049 5,040 17,042 47,088 52,723
Average Interest 8.58% 8.69% 8.31% 8.23% 8.08% 7.98%
Loans Receivable, Adj 26,152 4,570 5,008 6,443 7,692 45,796 95,661 95,661
Average Interest 6.22% 7.54% 7.27% 8.04% 7.87% 7.37%
Federal Funds 2,800
Average Interest 1.75%
Investments 27,317 15,482 6,779 6,323 2,148 26,016 84,065 84,065
Average Interest 6.36% 6.89% 6.99% 7.25% 6.93% 7.33%
Interest - Liabilities
($000s)
Deposits 76,042 37,689 14,689 14,188 17,100 4,955 164,663 166,995
Average Interest 3.93% 3.26% 2.16% 2.08% 2.71% 2.00%
Borrowed Funds 6,039 3,165 2,318 1,367 674 104 13,667 13,667
Average Interest 3.78% 5.06% 5.36% 5.48% 5.34% 9.00%
MARKET RISK
When rates rise or fall, the market value of the Bank's rate sensitive assets
and liabilities will increase or decrease. As a part of the Bank's
asset/liability policy, the Bank has set limitations on the negative impact to
the market value of its balance sheet that would be acceptable. The Bank's
securities portfolio is priced monthly and adjustments are made on the balance
sheet to reflect the market value of the available for sale portfolio per SFAS
No. 115. The Bank has established an acceptable range target of negative 25% of
total capital, before SFAS No. 115 (after tax), as the maximum impact to equity
as a result of marking available for sale securities to market. At year-end, the
impact to equity as a result of marking available for sale securities to market
was an unrealized gain of $0.7 million. On a quarterly basis, the available for
sale portfolio is shocked for immediate rate increases of 100 and 200 basis
points. At December 31, 2001 the Bank determined it would take an immediate
increase in rates in excess of 200 basis points to eliminate the current capital
cushion. The Bank's capital ratios are also reviewed on a quarterly basis.
Unrealized gains and losses on available for sale securities are not included in
the calculation of these ratios.
CAPITAL EXPENDITURES
The construction and furnishing of the new office planned in Amherst, New York
is anticipated to cost the Bank approximately $0.7 million in 2002. The Bank
executed a long-term land lease in early 2002 for the site. Based on prior
capital improvements, especially in information systems technology, the Bank
feels it has the appropriate infrastructure in place to absorb the additional
capacity of this expansion without incurring any significant additional overhead
costs. The tenant in the Erie Road building adjacent to the Derby Office vacated
the building in late fall of 2001. In early 2002, the Bank began to renovate the
building for its own use. These renovations and furnishings for such building
are expected to total approximately $0.4 million. The Bank also plans on
renovating its Angola site in Spring 2002 at an estimated cost of $0.1 million.
M&W Agency, Inc. expects to incur approximately $0.1 million in capital costs
related to improvement of its information systems infrastructure. Other planned
expenditures include replacing a number of personal computers, replacing/adding
automated teller machines (ATMs) and miscellaneous other equipment and software
upgrades. The Bank believes it has a sufficient capital base to support these
capital expenditures with current assets and retained earnings.
-30-
IMPACT OF INFLATION AND CHANGING PRICES
There will always be economic events, such as the changes in the economic
policies of the Federal Reserve Board that will have an impact on the
profitability of the Company. Inflation may result in impaired asset growth,
reduced earnings and substandard capital ratios. The net interest margin can be
adversely impacted by the volatility of interest rates throughout the year.
Since these factors are unknown, management attempts to structure the balance
sheet and repricing frequency of assets and liabilities to avoid a significant
concentration that could result in a negative impact on earnings.
NEW ACCOUNTING STANDARDS
Several new Statement of Financial Accounting Standards ("SFAS") have been
adopted recently, none of which is expected to have a negative impact on the
Company's financial statements.
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued in September 2000. This statement
replaces SFAS No. 125, and requires certain disclosures, but carries over most
of the provisions of SFAS No. 125. SFAS No. 140 was effective for transfers and
servicing of financial assets and extinguishments of liabilities of the Company
occurring after March 31, 2001 and did not have a material impact on the
Company's financial statements.
SFAS No. 141, Business Combinations issued on June 29, 2001 requires business
combinations entered into after June 30, 2001 to be accounted for using the
purchase method of accounting. Specifically identifiable intangible assets
acquired, other than goodwill, will be amortized over their estimated useful
economic life. This pronouncement had no effect on the Company's 2001 financial
statements.
SFAS No. 142, Goodwill and Other Intangible Assets, issued on June 29, 2001,
addresses how intangible assets that are acquired individually or with a group
of other assets should be accounted for in financial statements upon their
acquisition. This statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. This statement will result in the end to systematic
goodwill and other intangible amortization and require impairment testing on
those balances at least annually. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001 to all goodwill and other intangible assets
recognized in an entity's statement of financial position at that date,
regardless of when those assets were initially recognized. At December 31, 2001,
the Company had approximately $2.8 million of goodwill and recorded
approximately $0.3 million of goodwill expense for the year ended December 31,
2001. The Company believes this pronouncement will result in the cessation of
the regular annual expense for goodwill amortization. However, the Company will
continue to evaluate the net amount of goodwill recorded at least annually for
impairment and expense any excess.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------
See discussion under Item 7. Management's Discussion And Analysis Of
Financial Condition And Results Of Operations - "Interest Rate Risk" and "Market
Risk"
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------
See Part IV, Item 14, "Exhibits, Financial Statement Schedules and
Reports on Form 8-K"
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------
None.
-31-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The following table sets forth the names, ages and positions of the
Directors and Executive Officers of the Company.
NAME AGE POSITION TERM AS DIRECTOR
---- --- -------- EXPIRES
James Tilley 60 President and Chief Executive
Officer of Company and Bank,
Director 2003
William R. Glass 55 Senior Vice President and
Treasurer N/A
Mark DeBacker 31 Senior Vice President and
Chief Financial Officer N/A
Robert G. Miller, Jr. 46 President of M&W Agency,
Inc. and ENB Associates Inc.,
Director 2003
Robert W. Allen 76 Secretary, Director 2002
William F. Barrett 60 Director 2002
James E. Biddle, Jr. 40 Director 2002
Phillip Brothman 64 Chairman of the Board,
Director 2004
LaVerne G. Hall 64 Director 2003
David C. Koch 66 Director 2002
David M. Taylor 51 Director 2004
Thomas H. Waring, Jr. 44 Director 2004
Each Director, except for Mr. Biddle, was elected to hold office for a
three year term and until his successor is elected and qualified. Mr. Biddle was
appointed to a term which will expire in 2002 when his successor is elected and
qualified. The same persons serve as Directors of the Company and the Bank.
Mr. Tilley has been a Director since 2001 and is the President and
Chief Executive Officer of Evans Bancorp, Inc. and Evans National Bank. From
January 1988 until January, 2001, he was a Senior Vice President of the Bank.
Mr. Glass has been employed as a Senior Vice President of the Bank
since 1993.
-32-
Mr. DeBacker has been employed as an officer of the Company since May
2001. Prior to May 2001, he was employed as Chief Financial Officer of Niagara
Falls Memorial Medical Center in Niagara Falls, New York from June 1999 through
May 2001. From November 1998 through May 1999, he was employed as Director of
Accounting and Financial Reporting at ViaHealth in Rochester, New York. Prior to
November 1998, Mr. DeBacker was employed as Audit Manager at Deloitte & Touche
LLP in Buffalo, New York.
Mr. Miller has been a Director since 2001. He is the President of M&W
Agency, Inc. and ENB Associates, Inc., subsidiaries of Evans National Bank. From
January 1, 1994 to September 1, 2000, he was the President of M&W Group, Inc.,
an insurance agency.
Mr. Allen has been a Director since 1960. He was the Executive Vice
President of the Bank until his retirement in 1988.
Mr. Barrett has been a Director since 1971. He has been a property
developer and real estate manager since 1986.
Mr. Biddle has been a Director since 2001 and is the Chairman of Mader
Construction Co., Inc.
Mr. Brothman has been a Director since 1976 and is a partner in the law
firm of Hurst, Brothman & Yusick. He was elected Chairman of the Board by the
Board of Directors in January, 2001.
Mr. Hall has been a Director since 1981. He has been retired since
1997.
Mr. Koch has been a Director since 1979 and is Chairman and Chief
Executive Officer of New Era Cap Co., Inc.
Mr. Taylor has been a Director since 1986 and is President of Concord
Nurseries, Inc.
Mr. Waring has been a Director since 1998. He is the principal of
Waring Financial Group, an insurance and financial services firm.
The committees of the Board of Directors, which are nominated by the Chairman of
the Board and approved by the Board of Directors, are as follows:
Loan Committee:
--------------
William F. Barrett, Chairman Robert W. Allen Phillip Brothman
David C. Koch James Tilley
The Loan Committee met eleven times during 2001. Its purpose is to
review and approve loans exceeding $500,000 or loans that are non-conventional.
Planning Committee:
------------------
LaVerne G. Hall, Chairman William F. Barrett Phillip Brothman
David C. Koch Robert G. Miller, Jr. James Tilley
Thomas H. Waring, Jr.
The Planning Committee met once in 2001. The Planning Committee is
responsible for reviewing the strategic plan of the Bank and actions taken to
obtain those objectives.
Loan Review Committee:
---------------------
Phillip Brothman, Chairman James E. Biddle, Jr. LaVerne G. Hall
David M. Taylor James Tilley
-33-
The Loan Review Committee met four times during 2001. Its purpose is to
review the Bank's provision and reserve for credit losses. The Loan Review
Committee meets quarterly with the Bank's Loan Review Officer, who independently
conducts the loan review. As a result of her recommendations, loans are graded
based upon payment history, credit strength of borrower and other factors. This
information is then aggregated to determine the overall adequacy of the credit
loss reserve.
Audit Committee:
---------------
David M. Taylor, Chairman James E. Biddle, Jr. David C. Koch
Thomas H. Waring, Jr.
The Audit Committee met five times in 2001.The function of the Audit
Committee is to assist the Board of Directors in fulfilling its responsibilities
for oversight of the quality and integrity of the accounting, auditing, and
reporting practices of the corporation and other such duties as directed by the
Board. The members of the Audit Committee receive and review with the internal
auditor a quarterly report which describes findings for the prior quarter. In
addition, the Audit Committee recommends to the Board of Directors the services
of a reputable independent accounting firm. The Audit Committee reviews with
management and the independent accountants the Company's quarterly Form 10-Q and
annual Form 10-K prior to filing. The Committee also receives and reviews the
reports of the independent accountants, discusses them with management and the
independent accountants, and presents them to the Board of Directors with
comments and recommendations.
Insurance Committee:
-------------------
William F. Barrett, Chairman Robert W. Allen Phillip Brothman
Robert G. Miller, Jr. James Tilley
The Insurance Committee met once in 2001. This committee reviews the
coverage of insurance policies of the Company and monitors costs.
Compensation Committee:
----------------------
Thomas H. Waring, Jr., Chairman William F. Barrett Phillip Brothman
LaVerne G. Hall David C. Koch James Tilley
The Compensation Committee met once during 2001. Its purpose is to
review management's recommendation as it relates to job classification, salary
ranges and annual merit increases. The committee also reviews fringe benefits.
The Compensation Committee also establishes the compensation of the Executive
Officers of the Company.
The Board of Directors of the Company met fifteen times during 2001.
Each incumbent director of the Company, except for Mr. Waring, attended at least
75% of the aggregate of all the meetings of the Board of Directors and the
Committees of which they were members.
-34-
ITEM 11. EXECUTIVE COMPENSATION
----------------------
There is shown below information concerning the annual and long-term
compensation of the following named executive officers for service in all
capacities to the Company for the years 2001, 2000, and 1999: President and
Chief Executive Officer; Senior Vice President of the Loan Division; Senior Vice
President and Chief Financial Officer; and President of M&W Agency, Inc. No
other executive officer earned in excess of $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
========================================== ======================================================
AWARDS PAYOUTS
NAME OF AND STOCK LONG-TERM
PRINCIPAL OPTION INCENTIVE ALL OTHER
POSITION YEAR SALARY BONUS OTHER(1) (SHARES) PAYOUTS COMPENSATION
- -------- ---- ------ ----- -------- -------- ------- ------------
James Tilley 2001 $143,301 $15,000 $2,866 -0- -0- -0-
President & CEO 2000 $122,412 $12,500 $2,448 -0- -0- -0-
1999 $115,820 $10,500 $2,316 -0- -0- -0-
William R. Glass 2001 $124,264 $15,000 $2,485 -0- -0- -0-
Senior Vice 2000 $115,022 $12,500 $2,300 -0- -0- -0-
President 1999 $109,614 $10,500 $2,192 -0- -0- -0-
Mark DeBacker 2001 53,711 -0- -0- -0- -0- -0-
Senior Vice
President & Chief
Financial Officer
Robert G. Miller, 2001 $161,569 $25,000 $3,231 -0- -0- -0-
Jr. 2000 $40,752 -0- -0- -0- -0- -0-
President
M&W Agency,
Inc.
ENB Associates,
Inc.
- ---------------
(1) Includes the Bank's contribution to the Employee Savings Plan made for
the benefit of Mr. Tilley of $2,866 in 2001, $2,448 in 2000, and $2,316
in 1999; for the benefit of Mr. Glass of $2,485 in 2001, $2,300 in
2000, and $2,192 in 1999; and for the benefit of Mr. Miller of $3,231
in 2001. See "EMPLOYEE SAVINGS PLAN". Does not include personal
benefits which did not exceed 10% of Mr. Tilley's, Mr. Glass', Mr.
DeBacker's or Mr. Miller's salary and bonus in any year.
Employment Agreements
- ---------------------
Mr. James Tilley, Mr. William Glass, and Mr. Mark DeBacker have each
entered into an Employment Agreement with the Bank which runs through December
31, 2006. Each Employment Agreement provides that salary will be set annually by
the Board of Directors. If the Bank terminates the Employment Agreement without
cause, the Bank is obligated to continue to pay base salary for the longer of
three months or the remainder of the term of the Employment Agreement.
Mr. Miller has entered into an Employment Agreement with M&W Agency,
Inc. which runs through December 31, 2005. Under the Employment Agreement, he
receives an annual salary of $150,000 plus a bonus
-35-
based upon the earnings before interest and taxes of M&W Agency, Inc. in excess
of specific target amounts, up to $100,000 annually. If M&W Agency, Inc.
terminates the Employment Agreement without cause, it is obligated to pay his
salary, plus benefits, for the longer of three months or the remainder of the
term of the Employment Agreement.
Pension Plan
- ------------
The Bank maintains a defined benefit pension plan for all eligible
employees, including employees of its subsidiaries. An employee becomes vested
in a pension benefit after five years of service. Upon retirement at age 65,
vested participants are entitled to receive a monthly benefit. Prior to a May 1,
1994 amendment to the plan, the monthly benefit under the pension plan was 3% of
average monthly compensation multiplied by years of service up to a maximum of
fifteen years of service. In 1994, the pension plan was amended to change the
benefit to 1% of average monthly compensation multiplied by years of service up
to a maximum of thirty years of service. However, the benefits already accrued
by employees prior to this amendment were not reduced by the amendment. Mr.
Tilley, Mr. Glass, and Mr. Miller are participants in the pension plan, and as
of December 31, 2001, Mr. Tilley had twelve years of credited service and his
average monthly compensation under the plan was $10,815; Mr. Glass had eight
years of credited service and his average monthly compensation under the plan
was $10,055; Mr. DeBacker had no accrued benefit under the plan; and Mr. Miller
had one year of credit service and his average monthly compensation under the
plan was $13,464.
Supplemental Executive Retirement Plans
- ---------------------------------------
During 2001, the Bank amended its existing Supplemental Executive
Retirement Plans (SERPs) with Mr. Tilley and Mr. Glass. Under the SERPs, as
amended, Mr. Tilley and Mr. Glass are entitled to additional annual pension
payments of $66,943 and $30,000, respectively, for 20 years after retirement at
age 65, unless their employment is terminated earlier. The SERPs, as amended,
also provide death benefits in the same annual amounts in the event the
executive dies prior to age 65, which are payable over 20 years. The Bank has
purchased life insurance policies on Mr. Tilley and Mr. Glass to assist in
funding its obligations under their SERPs.
Employee Savings Plan
- ---------------------
The Bank also maintains a 401(k) salary deferral plan to assist
employees, including employees of its subsidiaries, in saving for retirement.
All employees are eligible to participate on the first of the month
following one year of service, provided they have completed 1,000 hours of
service. Eligible employees can contribute up to a maximum of $11,000 annually.
An automatic 1% of base pay contribution is made by the Bank and in addition,
the Bank makes a matching contribution at a rate of 25% of the first 4%
contributed by a participant. Participants are always 100% vested in their own
contributions and the Bank's matching contribution is also 100% vested.
Individual account earnings will depend on the performance of the
investment funds in which the participant invests. Specific guidelines govern
adjustments to contribution levels, investment decisions and withdrawals from
the plan. The benefit is paid as an annuity unless the employee elects one of
the optional forms of payment available under the plan. See "Summary
Compensation Table" for a summary of the amounts contributed by the Bank to this
Plan for the benefit of Mr. Tilley, Mr. Glass, and Mr. Miller.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's stock, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. Executive officers, directors and greater than ten percent
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
-36-
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during 2001 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent beneficial owners were complied with by such persons, except that
Mr. DeBacker filed one late report in 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth, as of January 31, 2002, the number
(rounded to the nearest whole share) of outstanding shares of Common Stock
beneficially owned by (i) each shareholder known by the Company to beneficially
own more than 5% of the Company's Common Stock, (ii) all directors and nominees
of the Company individually, and (iii) by all executive officers and directors
as a group:
Name and Address of Beneficial Nature and Amount of Percent of
Owner Owning More Than 5% Beneficial Ownership Class
- ------------------------- -------------------- -----
Robert W. Allen(1) 38,081 1.73%
William F. Barrett(2) 201,680 9.14%
8685 Old Mill Run
Angola, NY 14006
James E. Biddle, Jr.(3) 600 0.03%
Phillip Brothman(4) 26,070 1.18%
LaVerne G. Hall(5) 64,224 2.91%
David C. Koch(6) 33,421 1.51%
Robert G. Miller, Jr.(7) 58,012 2.63%
David M. Taylor(8) 5,362 0.24%
James Tilley(9) 678 0.03%
Thomas H. Waring, Jr. 662 0.03%
Directors and Officers as a Group 430,040 19.49%
(12 persons)
(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)
(1) Includes 3,548 shares owned by Mr. Allen's wife.
(2) Includes 54,737 shares owned by Mr. Barrett's wife and 7,931 shares
owned by Mr. Barrett's son, as to which he disclaims beneficial
ownership.
(3) Owned jointly with Mr. Biddle's wife.
(4) Includes 1,924 shares owned by Mr. Brothman's wife.
(5) Includes 25,287 shares owned by Mr. Hall's wife.
(6) Includes 1,856 shares owned jointly by Mr. Koch and his wife, and 968
shares owned by Mr. Koch's son, as to which he disclaims beneficial
ownership.
-37-
(7) Includes 11,522 shares held for Mr. Miller's benefit under an escrow
agreement dated September 1, 2000 entered into in connection with the
acquisition of the assets and business of M&W Group, Inc. by the
Company; 132 shares owned by Mr. Miller's son, as to which he disclaims
beneficial ownership; and 265 shares owned by Mr. Miller's daughter, to
which he disclaims beneficial ownership.
(8) Includes 375 shares owned jointly by Mr. Taylor and his wife.
(9) Includes 13 shares held by Mr. Tilley in trust for his grandson, and 98
shares owned jointly by Mr. Tilley and his mother.
(10) Includes 1,250 shares owned by Mr. William Glass, Treasurer of Evans
Bancorp, Inc., held jointly with Mr. Glass's wife.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Bank has had, and in the future expects to have, banking and
fiduciary transactions with Directors and Executive Officers of the Company and
some of their affiliates. All such transactions have been in the ordinary course
of business and on substantially the same terms (including interest rates and
collateral on loans) as those prevailing at the time for comparable transactions
with others, and do not involve more than a normal risk of collectibility or
present other unfavorable features.
Mr. Phillip Brothman is a partner of the law firm of Hurst, Brothman &
Yusick which served as general counsel to the Company and received legal fees.
In 2001, the Company paid approximately $177,719 in life insurance
premiums to Massachusetts Mutual. Waring Financial Group, which is owned by
Thomas H. Waring, Jr., received commissions on such premium payments.
M&W Agency, Inc., a subsidiary of Evans National Bank, leases certain
of its offices from Millpine Enterprises, a partnership of Robert G. Miller,
Jr., his father, and his brother.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
The following financial statements and independent auditors' report
thereon are included herein or are incorporated by reference are included from
2001 Annual Report to Shareholders pages 42 through 84 in response to Part II,
Item 7.
(a) Documents filed as a part of this Report:
None
(b) Documents Incorporated by Reference:
1. Consolidated Financial Statements.
---------------------------------
Independent Auditors' Report of Deloitte & Touche LLP
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
-38-
2. All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits
--------
Exhibit Page
No Name No.
-------- ---- ----
3.1 Certificate of Incorporation(1) n/a
3.2 Certificate of Amendment to
Certificate of Incorporation(3) n/a
3.3 By-Laws(1) n/a
3.4 Amended Section 204 of By-Laws(4) n/a
3.5 Amended Section 203 of By-Laws(6) n/a
4.1 Specimen common stock certificate (3) n/a
10.1 Employment Agreement dated August 19, 1997 n/a
between the Bank and Richard M. Craig(6)
10.2 Employment Agreement dated August 19, 1997 n/a
between the Bank and James Tilley(6)
10.3 Employment Agreement dated August 19, 1997 n/a
between the Bank and William R. Glass(6)
10.4 Specimen 1984 Director Deferred Compensation
Agreement(2) n/a
10.5 Specimen 1989 Director Deferred Compensation
Agreement(2) n/a
10.6 Summary of Provisions of Director Deferred
Compensation Agreements(2) n/a
10.7 Evans National Bank Supplemental Executive n/a
Retirement Plan for Richard M. Craig dated
February 16, 1999(7)
10.8 Evans National Bank Supplemental Executive n/a
Retirement Plan for James Tilley dated
February 16, 1999(7)
10.9 Evans National Bank Supplemental Executive n/a
Retirement Plan for William R. Glass dated
February 16, 1999(7)
10.10 Evans National Bank Amended Supplemental n/a
Executive Retirement Plan for Richard M. Craig
dated October 17, 2000(10)
-39-
10.11 Employment Agreement dated September 1, 2000 n/a
between the Bank and Robert Miller(10)
10.12 Investment Service Agreement between n/a
O'Keefe Shaw & Co.,Inc.
and ENB Associates Inc.(9)
10.13 Evans National Bank Supplemental Executive n/a
Retirement Plan for James Tilley dated
October 17, 2000(11)
10.14 Evans National Bank Amended Supplemental n/a
Executive Retirement Plan for William R. Glass
dated October 17, 2000(11)
10.15 Employment Agreement dated May 29, 2001 n/a
between the Bank and Mark DeBacker (11)
13.1 2001 Annual Report to Shareholders (12) 42
21.1 Subsidiaries of the Registrant (6) n/a
23.1 Independent Auditors' Consent (12) 85
Footnotes
- ---------
(1) Filed as Exhibits to the Company's Registration Statement on Form S-4
(Registration No. 33-25321) and incorporated herein by reference.
(2) Filed as Exhibits to the original Form 10 (Registration No. 0-18539) and
incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Form 10-Q for the quarter ended
March 31, 1997 (File No. 0-18539) and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Form 10-Q for the quarter ended
June 30, 1996 (File No. 0-18539) and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Form 10-QSB for the quarter ended
March 31, 1995 (File No. 0-18539) and incorporated herein by reference.
(6) Filed as an Exhibit to the Company's Form 10-K for the year ended
December 31, 1997 (File No.0-18539) and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Form 10-K for the year ended
December 31, 1998 (File No. 0-18539) and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Form 10-Q for the quarter ended
September 30, 1999 (File No. 0-18539) and incorporated herein by reference.
(9) Filed as an Exhibit to the Company's Form 10-Q for the quarter ended
March 31, 2000 (File No. 0-18539) and incorporated herein by reference.
(10) Filed as an Exhibit to the Company's Form 10-K for the year ended
December 31, 2000 (File No. 0-18539) and incorporated herein by reference.
-40-
(11) Filed as an Exhibit to the Company's Form 10-Q for the quarter ended
June 30, 2001 (File No. 0-18539) and incorporated herein by reference.
(12) Filed herewith.
(b) Reports on Form 8-K.
--------------------
The registrant filed a Form 8-K on January 25, 2002 to report under ITEM 5 -
OTHER EVENTS the acquisition of the business and assets of the Eden Agency by
M&W Agency, Inc., a wholly-owned subsidiary of Evans National Bank effective
January 1, 2002. A press release was filed as an exhibit to the Form 8-K.
The registrant filed a Form 8-K on January 29, 2002 to report under ITEM 5 -
OTHER EVENTS the Company's 2001 and fourth quarter earnings. A press release was
filed as an exhibit to the Form 8-K.
The registrant filed a Form 8-K on February 13, 2002 to report under
ITEM 5 - OTHER EVENTS the Company's plans for a new eighth branch location.
A press release was filed as an exhibit to the Form 8-K.
The registrant filed a Form 8-K on March 7, 2002 to report under ITEM 5 -
OTHER EVENTS the Company's declaration of a semi- annual dividend to be paid on
outstanding EVBN common stock. A press release was filed as an exhibit to the
Form 8-K.
-41-
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, EVANS BANCORP, INC. has duly caused this Annual Report to be signed on its
behalf by the undersigned thereunto duly authorized:
EVANS BANCORP, INC.
By: /s/James Tilley
--------------------------
James Tilley, President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/James Tilley President and CEO/Director March 28, 2002
- ------------------------
James Tilley
/s/Mark DeBacker Senior Vice President and March 28, 2002
- ------------------------ Chief Financial Officer
Mark DeBacker
/s/Phillip Brothman Chairman of the Board/ March 28, 2002
- ------------------------ Director
Phillip Brothman
/s/Thomas H. Waring, Jr. Vice Chairman March 28, 2002
- ------------------------ of the Board/Director
Thomas H. Waring, Jr.
/s/Robert W. Allen Secretary/Director March 28, 2002
- ------------------------
Robert W. Allen
/s/LaVerne G. Hall Director March 28, 2002
- ------------------------
LaVerne G. Hall
/s/David M. Taylor Director March 28, 2002
- ------------------------
David M. Taylor
/s/David C. Koch Director March 28, 2002
- ------------------------
David C. Koch