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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended September 30, 2002
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
------------ -----------
Commission file number 0-18539
---------------------------
EVANS BANCORP, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 16-1332767
------------------------------- ----------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 -16 North Main Street, Angola, New York 14006
-------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(716) 549-1000
-------------------------------------------------
(Issuer's telephone number)
Not Applicable
-------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check (X) whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common Stock, $.50 Par Value--2,223,580 shares as of October 17, 2002
INDEX
EVANS BANCORP, INC. AND SUBSIDIARY
PAGE
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets-September 30, 2002 and
December 31, 2001 1
Consolidated Statements of Income-Three months
ended September 30, 2002 and 2001 2
Consolidated Statements of Income-Nine months
ended September 30, 2002 and 2001 3
Consolidated Statements of Stockholders' Equity-Nine months
ended September 30, 2002 and 2001 4
Consolidated Statements of Cash Flows-Nine months
ended September 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risks 22
Item 4. Controls and Procedures 23
PART II. OTHER INFORMATION 23
- ---------------------------
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 24
CERTIFICATIONS 25
PART I - FINANCIAL INFORMATION PAGE 1
ITEM I - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 2002 and December 31, 2001
(Unaudited)
September 30, December 31,
2002 2001
------------ ------------
ASSETS
Cash and due from banks $9,873,469 $7,894,087
Federal funds sold 1,275,000 2,800,000
Securities:
Classified as available-for-sale, at fair value 88,124,018 81,735,376
Classified as held-to-maturity, at amortized cost 3,477,794 2,329,855
Loans, net of allowance for loan losses of $2,084,235 in 2002
and $1,786,115 in 2001 148,279,007 142,469,032
Properties and equipment, net 4,838,985 4,122,733
Goodwill, net 2,932,913 2,760,113
Other intangible assets, net 309,150 83,250
Other assets 5,508,525 4,958,966
------------ ------------
TOTAL ASSETS $264,618,861 $249,153,412
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $40,645,783 $39,597,700
NOW and money market accounts 9,396,415 9,604,537
Regular savings 81,212,419 64,351,240
Time deposits, $100,000 and over 25,946,016 28,864,608
Other time accounts 58,784,724 61,841,977
------------ ------------
215,985,357 204,260,062
Other borrowed funds 9,043,973 9,660,748
Dividend payable 686,787 0
Securities sold under agreements to repurchase 3,288,422 4,006,669
Other liabilities 5,370,614 4,265,164
------------ ------------
TOTAL LIABILITIES 234,375,153 222,192,643
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.50 par value; 10,000,000 shares
authorized; 2,215,441 and 2,206,467 shares issued
respectively 1,107,721 1,103,234
Capital surplus 13,885,565 13,727,084
Retained earnings 12,900,846 11,464,273
Accumulated other comprehensive income net 2,366,324 666,178
------------ ------------
30,260,456 26,960,769
Less: Treasury stock -16,748 0
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 30,243,708 26,960,769
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $264,618,861 $249,153,412
============ ============
See Notes to Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION PAGE 2
ITEM I - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months ended September 30, 2002 and 2001
(Unaudited)
Three Months Ended
September 30,
2002 2001
----------- ----------
INTEREST INCOME
Loans $2,689,269 $2,795,682
Federal funds sold 13,856 33,235
Securities:
Taxable 580,543 726,969
Non-taxable 510,743 390,828
---------- ----------
Total Interest Income 3,794,411 3,946,714
INTEREST EXPENSE
Interest on deposits 1,037,567 1,452,732
Short term borrowing 130,600 158,398
---------- ----------
NET INTEREST INCOME 2,626,244 2,335,584
PROVISION FOR LOAN LOSSES 105,000 139,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,521,244 2,196,584
---------- ----------
NON-INTEREST INCOME:
Service charges 260,993 273,736
Premium on loans sold-SLMA 1,374 2,352
Premium/discount on loans sold-FNMA 11,645 5,298
Insurance service and fees 737,126 562,429
Non deposit investment commissions 88,402 23,676
Other 302,165 201,795
ORE loss (27,201) 0
Securities gain 0 77,828
---------- ----------
Total non-interest income 1,374,504 1,147,114
---------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,412,706 1,201,564
Occupancy 325,057 282,286
Supplies 61,132 52,933
Repairs and maintenance 97,485 91,817
Advertising and public relations 49,523 40,784
Professional services 146,335 136,394
FDIC assessments 8,876 8,755
Other insurance 72,253 66,108
Amortization of goodwill 0 79,620
Other 495,471 390,501
---------- ----------
Total non-interest expense 2,668,838 2,350,762
---------- ----------
Income before income taxes 1,226,910 992,936
---------- ----------
INCOME TAXES 292,189 267,665
---------- ----------
NET INCOME $ 934,721 $ 725,271
========== ==========
NET INCOME PER COMMON SHARE-BASIC* $ 0.42 $ 0.33
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES* 2,215,174 2,199,042
========== ==========
*Adjusted for five-for-four stock split
See Notes to Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION PAGE 3
ITEM I - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months ended September 30, 2002 and 2001
(Unaudited)
Nine Months Ended
September 30,
2002 2001
----------- ----------
INTEREST
INCOME
Loans $ 8,117,019 $8,438,926
Federal funds sold 54,037 115,656
Securities:
Taxable 2,004,507 2,249,269
Non-taxable 1,466,210 1,142,332
----------- ----------
Total interest income 11,641,773 11,946,183
INTEREST EXPENSE
Interest on deposits 3,352,435 4,732,991
Short term borrowing 418,258 370,788
----------- ----------
NET INTEREST INCOME 7,871,080 6,842,404
PROVISION FOR LOAN LOSSES 315,000 309,000
----------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,556,080 6,533,404
----------- ----------
NON-INTEREST INCOME:
Service charges 817,726 768,301
Premium on loan sold-SLMA 2,474 4,266
Premium/Discount on loans sold-FNMA 31,786 9,523
Insurance service and fees 2,243,535 1,865,227
Non deposit investment commissions 183,066 91,906
Other 724,522 555,615
ORE loss (88,992) 0
Securities gain 111,302 165,967
----------- ----------
Total non-interest income 4,025,419 3,460,805
----------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 4,104,031 3,615,880
Occupancy 962,797 863,058
Supplies 170,652 169,735
Repairs and maintenance 303,632 280,902
Advertising and public relations 145,475 110,153
Professional services 425,572 367,701
FDIC assessment 26,101 25,911
Other insurance 210,193 210,099
Amortization of goodwill 0 238,860
Other 1,508,699 1,197,399
----------- ----------
Total non-interest expense 7,857,152 7,079,698
----------- ----------
Income before income taxes 3,724,347 2,914,511
----------- ----------
INCOME TAXES 983,189 884,000
----------- ----------
NET INCOME $ 2,741,158 $2,030,511
=========== ==========
NET INCOME PER COMMON SHARE-BASIC* $ 1.24 $ 0.92
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES* 2,211,862 2,199,042
=========== ==========
*Adjusted for five-for-four stock split
See Notes to Consolidated Financial Statements.
PART 1-FINANCIAL INFORMATION PAGE 4
ITEM 1-FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
- --------------------------------------------------------------------------------
ACCUMULATED
OTHER
COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY
STOCK SURPLUS EARNINGS INCOME ( LOSS) STOCK TOTAL
Balance, January 1, 2001 $ 879,801 $ 13,810,991 $ 9,953,780 $ 534,500 $ 0 $25,179,072
Comprehensive income:
2001 net income 2,030,511 2,030,511
Unrealized gain on available
for sale securities, net of reclassification
adjustment and tax effect of $297,425 708,156 708,156
-----------
Total comprehensive income 2,738,667
-----------
Cash dividends ($.49 per
common share) (1,068,834) (1,068,834)
Purchase of 3,086 shares
for treasury (145,042) (145,042)
Five-for-Four stock split 219,720 219,720
w/fractional shares paid in cash (241,317) (241,317)
Reissuance of treasury stock under stock 145,042 145,042
dividend plan of 3,086 shares
----------- ------------ ------------ ----------- --------- -----------
Balance, September 30, 2001 $ 1,099,521 $ 13,569,674 $ 10,915,457 $ 1,242,656 $ 0 $26,827,308
=========== ============ ============ =========== ========= ===========
NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
- --------------------------------------------------------------------------------
ACCUMULATED
OTHER
COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY
STOCK SURPLUS EARNINGS INCOME ( LOSS) STOCK TOTAL
Balance, January 1, 2002 $ 1,103,234 $ 13,727,084 $ 11,464,273 $ 666,178 $ 0 26,960,769
Comprehensive income:
2002 net income 2,741,158 2,741,158
Unrealized gain on available
for sale securities, net of reclassification
adjustment and tax effect of $1,099,830 1,700,146 1,700,146
-----------
Total comprehensive income 4,441,304
-----------
Cash dividends ($.59 per
common share) (1,304,585) (1,304,585)
Issued 8,974 shares under dividend
reinvestment plan 4,487 158,481 162,968
Purchases of 800 shares for treasury (16,748) (16,748)
----------- ------------ ------------ ----------- --------- -----------
Balance, September 30, 2002 $ 1,107,721 $ 13,885,565 $ 12,900,846 $ 2,366,324 $ (16,748) $30,243,708
=========== ============ ============ =========== ========= ===========
See Notes to Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION PAGE 5
ITEM I - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)
Nine Months Ended
September 30,
2002 2001
----------- ----------
OPERATING ACTIVITIES
Interest received $11,620,469 $11,988,740
Fees and commissions received 3,833,511 3,082,454
Interest paid (3,946,881) (5,141,985)
Cash paid to suppliers and employees (7,537,471) (4,818,860)
Income taxes paid (1,107,877) (1,178,000)
----------- -----------
Net cash provided by operating
activities 2,861,751 3,932,349
----------- -----------
INVESTING ACTIVITIES
Available for sale securities
Purchases (42,210,419) (33,745,016)
Proceeds from sales 8,463,344 13,110,548
Proceeds from maturities 29,512,656 14,994,873
Held to maturity securities
Purchases (2,076,777) (2,387,454)
Proceeds from maturities 1,532,038 2,060,247
Additions to properties and equipment (1,206,352) (755,129)
Increase in loans, net of repayments (13,875,915) (16,304,557)
Proceeds from sales of loans 7,750,943 6,087,254
Proceeds from sales of other real estate owned 69,420 0
Cash paid in acquisition of Eden Agency (50,000) 0
----------- -----------
Net cash used in investing activities (12,091,062) (16,939,234)
----------- -----------
FINANCING ACTIVITIES
Increase in deposits 11,725,295 8,814,543
Net (repayment) purchase of short term borrowing (1,570,022) 4,931,853
Purchase of treasury stock (16,748) 0
Dividends paid (454,832) (496,689)
----------- -----------
Net cash provided by financing
activities 9,683,693 13,249,707
----------- -----------
Net increase in cash and cash
equivalents 454,382 242,822
Cash and cash equivalents, January 1 10,694,087 9,358,912
----------- -----------
Cash and cash equivalents, September 30 $11,148,469 $ 9,601,734
=========== ===========
See Notes to Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION PAGE 6
ITEM I - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)
Nine Months Ended
September 30,
2002 2001
----------- ----------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 2,741,158 $ 2,030,511
----------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 736,455 996,237
Provision for loan losses 315,000 309,000
Gain on sale of assets (56,570) (179,756)
Decrease in accrued interest payable (176,188) (38,207)
Increase in accrued interest receivable (175,319) (46,948)
Decrease in other liabilities (57,802) (853,413)
(Increase) decrease in other assets (464,983) 1,714,925
----------- ----------
Total adjustments 120,593 1,901,838
----------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 2,861,751 $3,932,349
=========== ==========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Net unrealized gain on available for sale securities $ 3,897,108 $2,142,508
=========== ==========
See Notes to Consolidated Financial Statements.
Page 7
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
1. GENERAL
The accounting and reporting policies followed by Evans Bancorp, Inc., (the
"Company") a bank holding company, and 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 Evans National
Holding Corp ("ENHC") in the preparation of the accompanying interim
financial statements conform with generally accepted accounting principles
and with general practice within the banking industry.
The accompanying consolidated financial statements are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation of
financial position and results of operations for the interim periods have
been made. Such adjustments are of a normal recurring nature.
The results of operations for the nine month period ended September 30,
2002 are not necessarily indicative of the results to be expected for the
full year.
2. SECURITIES
Securities which the Company has the positive ability and intent to hold to
maturity are stated at cost, plus discounts accrued and less premiums
amortized. Securities which the Company has identified as available for
sale are stated at fair value.
3. 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 loan concentrations, charge-off
history, delinquent loan percentages, input from regulatory agencies and
general economic conditions. 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. The
following table sets forth information regarding the allowance for loan
losses for the three and nine month periods ended September 30, 2002 and
2001.
Allowance for loan losses Three Months Ended September 30,
2002 2001
---- ----
Beginning balance $1,983,060 $1,597,196
Total losses and charge offs (11,557) (20,278)
Total recoveries 7,732 5,359
---------- ----------
Total losses (3,825) (14,919)
Provision for losses 105,000 139,000
---------- ----------
Ending balance $2,084,235 $1,721,277
========== ==========
Page 8
Allowance for loan losses Nine Months Ended September 30,
2002 2001
---- ----
Beginning balance $1,786,115 $1,428,467
Total losses and charge offs (32,180) (33,053)
Total recoveries 15,300 16,863
---------- ----------
Total losses (16,880) (16,190)
Provision for losses 315,000 309,000
---------- ----------
Ending balance $2,084,235 $1,721,277
========== ==========
4. REVENUE RECOGNITION
The Bank's primary sources of revenue are interest income from loans and
investments and service charge income from loans and deposits. The revenue
is recognized in the period in which it is earned. M&W's revenue is derived
mainly from insurance commissions. The revenue is recognized on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
5. INCOME TAXES
Provision for deferred income taxes is made as a result of timing
differences between financial and taxable income. These differences relate
principally to loan loss provision, directors deferred compensation,
pension premiums payable and deferred loan origination expenses.
6. PER SHARE DATA
The common stock per share information is based upon the weighted average
number of shares outstanding during each period, retroactively adjusted for
stock dividends and stock splits. Only basic earnings per share is
disclosed because the Company does not have any dilutive securities or
other contracts to issue common stock or convert to common stock.
7. DIVIDEND
A cash dividend of $0.31 per share was paid on October 2, 2002 to
shareholders of record as of September 12, 2002. A total of $686,787 was
paid on 2,215,441 shares.
8. STOCK SPLIT
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.
9. COMMON STOCK
During the fourth quarter of 2002, the Company issued 8,139 shares of
common stock. These shares were issued to shareholders of record on October
2, 2002 who elected to receive shares in lieu of cash under the Company's
Dividend Reinvestment Plan.
10. TREASURY STOCK
During the quarter ended September 30, 2002, the Company repurchased 800
shares of common stock at an average cost of $20.92 per share. These shares
were issued to shareholders who have elected to receive shares in lieu of
cash under the Company's Dividend Reinvestment Plan.
Page 9
11. SEGMENT INFORMATION
Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures
about Segments of an Enterprise and Related Information was adopted by the
Company during 2000. This Statement establishes standards for the way that
the Company reports information about its operating segments. The Company
is comprised of two primary business segments, banking and insurance. The
following table sets forth information regarding these segments for the
three and nine month periods ended September 30, 2002 and 2001.
Three Months Ended
September 30, 2002
BANKING ACTIVITIES INSURANCE ACTIVITIES TOTAL
Net Interest Income(loss) $2,631,222 ($4,978) $2,626,244
Provision for credit losses 105,000 0 105,000
-------------------------- ------------------------- -----------------------
Net interest income(loss) after
provision for credit losses 2,526,222 (4,978) 2,521,244
Non-interest income 637,378 0 637,378
Insurance commissions and fees 0 737,126 737,126
Non-interest expense 2,160,382 508,456 2,668,838
-------------------------- ------------------------- -----------------------
Income before income taxes 1,003,218 223,692 1,226,910
Income taxes 203,483 88,706 292,189
-------------------------- ------------------------- -----------------------
Net income $ 799,735 $134,986 $ 934,721
========================== ========================= =======================
Nine Months Ended
September 30, 2002
BANKING ACTIVITIES INSURANCE ACTIVITIES TOTAL
Net Interest Income(loss) $7,887,034 ($15,954) $7,871,080
Provision for credit losses 315,000 0 315,000
-------------------------- ------------------------- ----------------------
Net interest income(loss) after
provision for credit losses 7,572,034 (15,954) 7,556,080
Non-interest income 1,670,582 0 1,670,582
Insurance commissions and fees 0 2,243,535 2,243,535
Net securities gains 111,302 0 111,302
Non-interest expense 6,339,205 1,517,947 7,857,152
-------------------------- ------------------------- ----------------------
Income before income taxes 3,014,713 709,634 3,724,347
Income taxes 700,940 282,249 983,189
-------------------------- ------------------------- ----------------------
Net income $2,313,773 $427,385 $2,741,158
========================== ========================= ======================
Page 10
Three Months Ended
September 30, 2001
BANKING ACTIVITIES INSURANCE ACTIVITIES TOTAL
Net Interest Income(loss) $2,340,604 ($5,020) $2,335,584
Provision for credit losses 139,000 0 139,000
-------------------------- ------------------------- -----------------------
Net interest income(loss) after
provision for credit losses 2,201,604 (5,020) 2,196,584
Non-interest income 506,857 0 506,857
Insurance commissions and fees 0 562,429 562,429
Net securities gains 77,828 0 77,828
Non-interest expense 1,927,586 423,176 2,350,762
-------------------------- ------------------------- -----------------------
Income before income taxes 858,703 134,233 992,936
Income taxes 220,665 47,000 267,665
-------------------------- ------------------------- -----------------------
Net income $ 638,038 $87,233 $ 725,271
========================== ========================= =======================
Nine Months Ended
September 30, 2001
BANKING ACTIVITIES INSURANCE ACTIVITIES TOTAL
Net Interest Income(loss) $6,861,831 ($19,427) $6,842,404
Provision for credit losses 309,000 0 309,000
-------------------------- ------------------------- ----------------------
Net interest income(loss) after
provision for credit losses 6,552,831 (19,427) 6,533,404
Non-interest income 1,429,611 0 1,429,611
Insurance commissions and fees 0 1,865,227 1,865,227
Net securities gains 165,967 0 165,967
Non-interest expense 5,701,965 1,377,733 7,079,698
-------------------------- ------------------------- ----------------------
Income before income taxes 2,446,444 468,067 2,914,511
Income taxes 693,000 191,000 884,000
-------------------------- ------------------------- ----------------------
Net income $1,753,444 $277,067 $2,030,511
========================== ========================= ======================
12. RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 financial statements
to conform with the presentation used in 2002.
13. EVANS NATIONAL HOLDING CORP.
Evans National Holding Corp. was incorporated in February, 2002 as a
subsidiary of the Bank. 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
Page 11
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.
14. GOODWILL AND INTANGIBLE ASSETS
As of January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which addresses the financial accounting and reporting
standards for the acquisition of intangible assets outside of a business
combination and for goodwill and other intangible assets subsequent to their
acquisition. This accounting standard requires that goodwill be separately
disclosed from other intangible assets in the balance sheet, and no longer be
amortized but tested for impairment on a periodic basis. The provisions of this
accounting standard also require the completion of a transitional impairment
test within six months of adoption, which was performed during the current year
and no impairments were identified to be treated as a cumulative effect of a
change in accounting principle.
In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective January 1, 2002. A reconciliation of previously reported
net income and earnings per share to the pro forma amounts adjusted for the
exclusion of goodwill amortization net of the related income tax effect follows:
Three Months Ended September 30,
2002 2001
---- ----
Reported net income $934,721 $725,271
Add: Goodwill amortization, net of tax 0 79,620
- ------
Pro forma adjusted net income $934,721 $804,891
======== ========
Reported earnings per share $0.42 $0.33
Add: Goodwill amortization, net of tax
per share 0.00 0.04
---- ----
Pro forma adjusted earnings per share $0.42 $0.37
===== =====
Nine Months Ended September 30,
2002 2001
---- ----
Reported net income $2,741,158 $2,030,511
Add: Goodwill amortization, net of tax 0 238,860
- -------
Pro forma adjusted net income $2,741,158 $2,259,371
========== ==========
Reported earnings per share $1.24 $0.92
Add: Goodwill amortization, net of tax
per share 0.00 0.11
---- ----
Pro forma adjusted earnings per share $1.24 $1.03
===== =====
Page 12
Changes in the carrying amount of goodwill for the nine month period ended
September 30, 2002, by operating segment, are as follows:
BANKING INSURANCE TOTAL
ACTIVITIES ACTIVITIES
Balance as of January 1, 2002 $0 $2,760,113 $2,760,113
Goodwill acquired during the period 0 172,800 172,800
- ------- -------
Balance as of September 30, 2002 $0 $2,932,913 $2,932,913
== ========== ==========
As required by the statement, intangible assets that do not meet the
criteria for recognition apart from goodwill must be reclassified. As a result
of the Company's analysis, no reclassifications were required as of September
30, 2002.
Information regarding the Company's other intangible assets follows:
As of September 30, 2002
CARRYING ACCUMULATED NET
AMOUNT AMORTIZATION
Noncompete agreements $209,000 $33,600 $175,400
Insurance expirations 185,000 51,250 133,750
------- ------ -------
Total $394,000 $84,850 $309,150
======== ======= ========
As of December 31, 2001
CARRYING ACCUMULATED NET
AMOUNT AMORTIZATION
Noncompete agreements $ 9,000 $ 2,250 $ 6,750
Insurance expirations 100,000 23,500 76,500
------- ------ ------
Total $109,000 $25,750 $83,250
======== ======= =======
Amortization expense for the three months ended September 30, 2002 was
$19,700. Estimated amortization expense for each of the five succeeding fiscal
years is as follows:
Year ending December 31, Amount
------
2002 $78,800
2003 78,800
2004 78,800
2005 73,350
2006 57,000
Page 13
15. NEW ACCOUNTING STANDARDS PRONOUNCEMENTS
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, was issued August 2001. This statement supercedes SFAS 121, APB No. 30,
and amends ARB No. 51. The Statement establishes a single accounting model for
long-lived assets to be disposed of by sale and resolve significant
implementation issues related to Statement 121. However, this Statement retains
fundamental provisions of Statement 121, Opinion 30, and ARB No. 51. The
Statement was effective for the Company beginning on January 1, 2002 and did not
have a material impact on the Company's financial statements.
SFAS No. 147, Acquisitions of Certain Financial Institutions, was issued
October 2002. This statement amends FASB statements No. 72 and 144 and FASB
Interpretation No. 9. Except for transactions between two or more mutual
enterprises, this Statement removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with FASB Statements No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets. In
addition, this Statement amends FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss recognition and
measurement provisions that Statement 144 requires for other long-lived assets
that are held and used. The Statement is effective after September 30, 2002 and
will not have a material impact on the Company's financial statements.
Page 14
PART I - FINANCIAL NFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q 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 and other reports filed by the
Company with the Securities and Exchange Commission. Many of these factors are
beyond the Company's control.
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on loans and
securities and the Company's cost of funds, consisting of the interest paid on
deposits and borrowings. Results of operations are also affected by the
provision for credit losses, investment activities, loan origination, sale and
servicing activities, service charges and fees collected on deposit accounts,
and insurance services and fees. Noninterest expense primarily consists of
salaries and employee benefits, occupancy and equipment expense and technology
and communication expenses.
ANALYSIS OF FINANCIAL CONDITION
AVERAGE BALANCE SHEET
The following 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 for the periods indicated. The assets
and liabilities are presented as daily averages. The average loan balances
include both performing and non-performing loans. Interest income on loans does
not include interest on loans for which the Bank has ceased to accrue interest.
Interest and yields are not presented on a tax-equivalent basis.
Page 15
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(000) (000) (000) (000)
ASSETS
Interest-earning assets:
Loans, net $147,771 $2,689 7.28% $137,287 $2,796 8.15%
Taxable investments 45,184 581 5.14% 47,575 727 6.11%
Tax-exempt investments 45,107 511 4.53% 32,861 391 4.76%
Federal funds sold 3,323 14 1.66% 3,111 33 4.27%
----------------- ------------ -------- -------------------- ---------- -------------
Total interest-earning assets 241,385 $3,795 6.29% 220,834 $3,947 7.15%
============ ==========
Noninterest-earning assets
Cash and due from banks 8,676 7,475
Premises and equipment, net 4,483 3,645
Other assets 8,441 8,002
----------------- --------------------
Total Assets $262,985 $239,956
================= ====================
LIABILITIES & STOCKHOLDER'S
EQUITY
Interest-bearing liabilities:
NOW accounts $9,642 $12 0.50% $ 8,123 $ 20 0.99%
Savings deposits 74,937 195 1.04% 63,071 344 2.18%
Time deposits 88,208 831 3.77% 84,521 1,089 5.15%
Fed funds purchased & securities
sold u/a to repurchase and other 3,344 13 1.55% 4,310 30 2.86%
FHLB advances 9,184 117 5.12% 9,804 128 5.21%
----------------- ------------ -------- -------------------- ---------- -------------
Total interest-bearing liabilities 185,315 $1,168 2.52% 169,829 $1,611 3.79%
------------ ----------
Noninterest-bearing liabilities:
Demand deposits 42,589 37,289
Other 5,596 6,203
Total liabilities $233,500 $213,321
----------------- --------------------
Stockholders' equity 29,485 26,635
----------------- --------------------
Total Liabilities and Stockholders' $262,985 $239,956
Equity
================= ====================
Net interest earnings $2,627 $2,336
============ ==========
Net yield on interest earning assets 4.35% 4.23%
Page 16
Total net loans outstanding increased by 0.4% to $148.3 million at
September 30, 2002 from $147.7 million at June 30, 2002. Year-to-date, total net
loans have increased 4.1% from $142.5 million at December 31, 2001. During the
quarter, the Company continued to shift its loan mix towards higher-yielding
commercial loans. Total commercial loans increased 1.9% to approximately $104.0
million at September 30, 2002 from approximately $102.0 million at June 30,
2002. Year-to- date, total commercial loans have increased 9.0% from $95.4
million at December 31, 2001. Total consumer loans decreased by 2.6% to
approximately $46.1 million at September 30, 2002 from approximately $47.3
million at June 30, 2002. Year-to- date, total consumer loans have decreased
5.1% from $48.5 million at December 31, 2001. Residential mortgages accounted
for a large portion of this decrease as the balance outstanding has decreased
$931 thousand for the quarter and $1.4 million year-to-date. These results
continue to reflect the Company's strategy to deal with the current interest
rate environment by continuing to emphasize commercial loan originations while
selling fixed rate residential real estate loans originated under a certain
interest rate level. For the three and nine month periods ended September 30,
2002, the Company sold residential mortgages to the Federal National Mortgage
Association ("FNMA") totaling approximately $2.9 million and $7.4 million,
respectively, as compared to approximately $2.7 million and $5.4 million,
respectively, during the same periods in 2001. At September 30, 2002, the
Company had a servicing portfolio principal balance of $21.2 million with FNMA.
The Company maintains servicing rights on the loans that it sells to FNMA and
earns a fee thereon.
Page 17
LOAN PORTFOLIO COMPOSITION
The following table presents selected information on the composition of the
Company's loan portfolio in dollar amounts and in percentages as of the dates
indicated.
SEPTEMBER 30, 2002 PERCENTAGE DECEMBER 31, 2001 PERCENTAGE
($000) ($000)
COMMERCIAL LOANS
Real Estate $ 79,705 53.2% $ 73,863 51.3%
Installment 14,115 9.4% 10,549 7.3%
Lines of Credit 10,092 6.7% 10,001 7.0%
Lease Financing 0 0.0% 898 0.6%
Cash Reserve 42 0.0% 52 0.0%
--------------------- ---------------- ------------------------- ----------------
Total Commercial Loans 103,954 69.3% 95,363 66.2%
Consumer Loans
Real Estate 20,815 13.9% 22,228 15.5%
Home Equity 22,601 15.1% 21,681 15.1%
Installment 2,025 1.3% 2,761 1.9%
Overdrafts 100 0.1% 1,113 0.8%
Credit Card 306 0.2% 334 0.2%
Student Loans 0 0.0% 234 0.2%
Other 209 0.1% 188 0.1%
--------------------- ---------------- ------------------------- ----------------
Total Consumer Loans 46,056 30.7% 48,539 33.8%
--------------------- ---------------- ------------------------- ----------------
Total Loans 150,010 100.0% 143,902 100.0%
===================== ================ ========================= ================
Net Deferred Costs & 353 353
Unearned Discounts
Allowance for Loan Losses (2,084) (1,786)
--------------------- -------------------------
Total Loans, Net $ 148,279 $ 142,469
===================== =========================
The Company's total non-accruing loans, expressed as a percentage of total
loans, was 0.86% at September 30, 2002 as compared to 0.50% at December 31,
2001. Actual charge-offs for the three months ended September 30, 2002 were
$11,600 compared to $20,000 for the same period in 2001. The Company's allowance
for loan losses increased to approximately $2.1 million at September 30, 2002
from approximately $1.8 million at December 31, 2001. The allowance for loan
losses as a percentage of total loans was 1.39% at September 30, 2002 compared
to 1.24% at December 31, 2001. This increase is primarily a result of the
increased amount of commercial loans. The increase in the loan portfolio,
especially the increase in commercial loans, which tend to have higher credit
risk than consumer loans, is reflected in the additional credit loss reserve
levels reflected at September 30, 2002 and December 31, 2001.
Page 18
The adequacy of the Company's allowance for loan losses is reviewed
quarterly with consideration given to loan concentrations, charge-off history,
delinquent loan percentages, and general economic conditions. Management
believes the allowance for loan losses is adequate to absorb credit losses from
existing loans.
The following table sets forth information regarding non-accrual loans.
September 30, 2002 December 31, 2001
------------------ -----------------
($000) ($000)
Non-accruing loans:
One-to-four family $ 0 $ 0
Home equity 0 0
Commercial real estate and multi- 1,202 545
family
Consumer 0 0
Commercial business 94 179
------------------ -----------------
Total 1,296 724
------------------ -----------------
Loans 90+ days past due 0 443
Total non-performing loans $1,296 $1,167
================== =================
Total non-performing loans as a percentage 0.49% 0.47%
of total assets
================== =================
Total non-performing loans as a percentage 0.86% 0.82%
of total loans
================== =================
The following table sets forth information regarding the allowance for loan
losses for the three and nine month periods ended September 30, 2002 and 2001.
Allowance for loan losses Three Months Ended September 30,
2002 2001
---- ----
Beginning balance $1,983,060 $1,597,196
Total losses and charge offs (11,557) (20,278)
Total recoveries 7,732 5,359
----- -----
Total losses (3,825) (14,919)
Provision for losses 105,000 139,000
------- -------
Ending balance $2,084,235 $1,721,277
========== ==========
Page 19
Allowance for loan losses Nine Months Ended September 30,
2002 2001
---- ----
Beginning balance $1,786,115 $1,428,467
Total losses and charge offs (32,180) (33,053)
Total recoveries 15,300 16,863
------ ------
Total losses (16,880) (16,190)
Provision for losses 315,000 309,000
------- -------
Ending balance $2,084,235 $1,721,277
========== ==========
Allocation of the Allowance for Loan Losses
Balance at Balance at
09/30/02 12/31/01
Attributable To: Attributable To:
--------------- ---------------
($000) ($000)
Real Estate Loans $669 $455
Commercial Loans & Leases 258 96
Installment Loans (Includes Credit 71 74
Cards)
Student Loans 0 0
All Other Loans 0 0
Unallocated 1,086 1,161
----- -----
Total $2,084 $1,786
====== ======
INVESTING ACTIVITIES
The Company's securities portfolio increased slightly by 0.2% to
approximately $91.6 million at September 30, 2002 as compared to approximately
$91.4 million at June 30, 2002. Year-to-date, the securities portfolio has
increased 9.0% from $84.1 million at December 31, 2001. Available funds continue
to be invested in US government and agency securities and tax-advantaged bonds
issued by New York State municipalities and school districts. Available-for-sale
securities with a total fair value of $32,310,672 at September 30, 2002 were
pledged as collateral to secure public deposits and for other purposes required
or permitted by law.
FUNDING ACTIVITIES
Total deposits during the quarter decreased by 0.9% to $216.0 million at
September 30, 2002 from $218.0 million at June 30, 2002. Year-to-date, total
deposits have increased 5.7% from $204.3 million at December 31, 2001. Core
deposits (all deposits excluding time deposits greater than $100,000) increased
1.3% to $190.0 million at September 30, 2002 from $187.6 million at June 30,
2002. Year-to-date, core deposits have increased 8.3% from $175.4 million at
December 31, 2001. Business savings, municipal savings, thrift-e savings and
premium savings increased 130.9%, 87.6%, 14.9% and 4.8%, respectively, for the
quarter. These increases can be attributed to industry-wide trends that show
deposits at banks increasing, mainly as a result of poor alternative investment
performance such as the equities markets. Additionally, the Company has focused
on specific deposit products to retain and attract municipal funds. Tax
collections in local municipalities traditionally contribute to increases in
total deposits, usually certificates of deposit over $100,000 and municipal
savings accounts, during the first and third quarters and then decrease in the
second and fourth quarters as cash is needed by the municipalities for
operations. NOW accounts, demand deposits, time deposits less than $100,000
decreased 17.9% , 9.9% and 4.9% respectively for the quarter. Time deposits
greater than $100,000 decreased 14.4% or $30.3 million for the quarter to $25.9
million at September 30, 2002. The decrease in time deposits greater than
$100,000 is a planned result of the Company's
Page 20
ability to be selective in pricing due to the abundance of other less costly
deposit growth in 2002. Securities sold under agreements to repurchase increased
15.0% to $3.3 million at September 30, 2002 from $2.9 million at June 30, 2002.
Year- to-date, securities sold under agreements to repurchase have decreased
17.9% from $4.0 million at December 31, 2001. The higher balance at December 31,
2001 was due to normal deposit activity.
OTHER BALANCE SHEET CHANGES
Properties and equipment, net, has increased approximately $716,000
year-to-date as a result of renovations to a building the Company owns adjacent
to the Derby branch on Erie Road, Derby, New York, which currently houses the
Bank's loan division. Additionally, construction has begun on the Company's
eighth branch located in Amherst, New York expected to be complete in late
November, 2002.
MATERIAL CHANGES IN THE RESULTS OF OPERATIONS
NET INCOME
The Company recorded net income of approximately $935,000 for the quarter
ended September 30, 2002, an increase of 28.9% over net income of $725,000 for
the same quarter in 2001. Earnings per share were $0.42 for the quarter ended
September 30, 2002, and $0.33 for the same quarter in 2001. Year-to-date, the
Company has recorded net income of approximately $2.7 million or $1.24 per share
as compared to $2.0 million or $0.92 per share during the same time period in
2001. All share and per share information is stated after giving effect to the
stock split distributed on June 12, 2001 to shareholders of record on May 25,
2001. Net income represented a return on average assets of 1.42% for the quarter
ended September 30, 2002 compared to 1.21% for the same period in 2001. The
return on average equity for the third quarter of 2002 was 13.43% compared to
11.28% for the third quarter of 2001.
Third quarter 2002 net income reflects the January 1, 2002 implementation
of Statement of Financial Accounting Standards (SFAS) No. 142, which resulted in
the end to systematic goodwill amortization. Excluding the effect of goodwill
amortization during the third quarter 2001, net income would have been $805,000
or $0.37 per share. Excluding the effect of goodwill amortization for the first
nine months of 2001, net income would have been $2.3 million or $1.03 per share.
OTHER OPERATING RESULTS
Net interest income increased $291,000, or 12.4%, for the quarter ended
September 30, 2002 compared to the same time period in 2001. Total interest
income in the third quarter 2002 decreased 3.9% and interest paid on deposits
decreased 28.6% from the third quarter of 2001. Interest income decreased in
spite of the $20.6 million, or 9.3% annual increase in average interest-earning
assets to $241.4 million for the third quarter of 2002 from $220.8 million for
the third quarter of 2001. The historically low interest rates driven by the
Federal Reserve monetary policy were the primary reason for the decrease in
interest income for the third quarter 2002 as compared to the third quarter
2001. The yield on total interest earning assets decreased to 6.29% for the
quarter ended September 30, 2002 from 7.15% for the quarter ended September 30,
2001. The interest expense decrease reflects the $15.5 million, or 9.1% annual
increase in average interest-bearing liabilities to $185.3 million for the third
quarter of 2002 from $169.8 million for the second quarter of 2001 as well as
the offsetting effect of interest rate reductions made by the Company since
September 30, 2001. The cost of interest-bearing liabilities decreased to 2.52%
for the quarter ended September 30, 2002 from 3.79% for the quarter ended
September 30, 2001. The Company's net interest margin, for the three month
period ended September 30, 2002 was 4.42% as compared to 4.31% for the same time
period in 2001. The increase in the net interest margin is reflective of the
Company's lower costing deposit portfolio composition and focus on originating
higher yielding commercial loans.
The yield on average loans decreased to 7.28% for the third quarter of 2002
from 8.15% for the same time period in 2001. The tax equivalent yield on federal
funds and investments decreased from 6.48% in the third quarter of 2001 to 5.86%
in the third quarter of 2002. The cost of funds on interest bearing balances
decreased to 2.52% for the third quarter of 2002 from 3.79% for the same time
period in 2001.
The provision for loan losses has decreased to $105,000 for the third
quarter of 2002 from $139,000 for the same time period in 2001. The higher third
quarter provision in 2001 was a result of significant commercial loan growth in
that quarter. The Company believes that the increase in the size of the overall
loan portfolio as well as an increase in the commercial loan composition as a
percentage of the overall portfolio substantiates the current loan loss
provision. Commercial loans tend to have a higher credit risk than consumer
loans.
Page 21
Non-interest income increased to $1.4 million for the quarter ended
September 30, 2002 from $1.1 million for the same period in 2001. This increase
of $227,000 is primarily attributable to an increase of $175,000 in sales of
insurance products through M&W Agency, Inc. ("M&W") which acquired the business
and certain assets of the Eden Agency on January 1, 2002. The remainder of the
increase is attributable to $65,000 in non deposit investment commissions and an
increase by $100,000 in other miscellaneous income (consisting of ATM
interchange, merchant fees, appraisal fees, and other loan income) in the third
quarter 2002 over the third quarter 2001. A $27,000 loss on real estate property
owned, pertained to an additional write- down in the carrying value of a
foreclosed commercial property held as Other Real Estate Owned, reflective of
current market conditions and vacancies in such piece of commercial property. A
decrease of $78,000 was realized in securities gain on sales in the third
quarter 2002 over the third quarter 2001 as there were no security sales
transactions in the third quarter 2002.
Non-interest expense totaled $2.7 million for the third quarter of 2002
reflecting an approximate $318,000 increase over the third quarter of 2001 total
of $2.4 million. Approximately $211,000 of this increase is primarily
attributable to salaries and employee benefits which have risen as a result of
normal pay adjustments and an overall increase in the number of employees of the
Company. Occupancy expense increased approximately $43,000 primarily due to the
elimination of rental income from a previously rented property at the Derby
location. Miscellaneous expenses, whose increase consisted of telephone,
appraisal expense, ATM card fees, correspondent bank service charges and M&W
miscellaneous costs increased approximately $105,000 for the quarter ended
September 30, 2002 over the quarter ended September 30, 2001. Amortization of
goodwill related to the M&W acquisition decreased $80,000 as goodwill is no
longer amortized under the provisions of SFAS No. 142 which was adopted on
January 1, 2002.
Income tax expense totaled $290,000 and $268,000 for the three month
periods ended September 30, 2002 and 2001, respectively. The effective combined
tax rate for the third quarter of 2002 was 23.8% compared to 27.0% for the third
quarter of 2001. The decrease in the effective tax rate is primarily
attributable to state tax advantages related to the recent establishment of
Evans National Holding Corp, the Bank's subsidiary real estate investment trust
and the elimination of goodwill amortization for book purposes.
Page 22
ITEM 3 - QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS AND LIQUIDITY
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
Asset, Liability Committee, ("ALCO") of the Bank 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 September 30, 2002
the Bank was in a positive gap position with $13.1 million more in
rate-sensitive assets repricing over the next year than in rate-sensitive
liabilities. This "positive" gap position compares to a "negative" gap position
at December 31, 2001 of $0.4 million. This change is due to a number of factors
including, increases in investments in currently-paying collateralized mortgage
obligations with short average lives and increases in variable rate mortgages
and variable rate commercial loans. Rate-sensitive liabilities decreased in the
category of long term certificates of deposits greater than $100,000 and a
reduction in securities sold under agreements to repurchase (Repo) balances. The
Bank's asset/liability target, under its asset/liability policy, is a difference
of +/- 15% of the Bank's total assets, which amounted to +/- $39.3 million at
September 30, 2002. The gap ratio (rate-sensitive assets/rate-sensitive
liabilities) at that date was 116%.
LIQUIDITY
Liquidity represents the Company's ability to obtain cost-effective funding
to meet the needs of customers as well as the Company's financial obligations.
Liquidity is centrally managed by the ALCO, with oversight provided by the Board
of Directors. The Company's main sources of funds to meet its liquidity
requirements are sale of liquid assets, secured advances from the Federal Home
Loan Bank and its core deposit base. It is the Company's objective to maintain
sufficient liquidity at all times to meet expected daily funding needs, longer
maturities, and other capital needs. The Company uses various liquidity measures
to help manage its liquidity position. Short term liquidity is measured as
assets available within 30 days less liabilities at risk in 30 days. The
Company's action level for this measure is $1 million. Short term liquidity at
September 30, 2002 was $41.6 million. Overall or longer term liquidity is
measured by the liquidity ratio, liquid assets divided by total purchased funds.
The Company's liquidity ratio action level is 100%, and was 169% at September
30, 2002. The Company anticipates sufficient funding through operations for
principal payments on borrowed funds and capital purchases expected for the new
Amherst branch.
MARKET RISK
When rates rise or fall, the market value of the Bank's 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. A limitation
of a negative 25% of total capital before SFAS No. 115 (after tax) has been
established as the maximum impact to equity as a result of marking available for
sale securities to market that would be acceptable. At quarter-end, the impact
to equity as a result of marking available for sale securities to market was an
unrealized gain of approximately $2.3 million. On a quarterly basis, the
available for sale portfolio is shocked for immediate rate increases of 100 and
200 basis points. At September 30, 2002, 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.
Page 23
ITEM 4 - CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's chief executive officer and chief financial officer have
concluded that the Company's disclosure controls (As defined in Exchange Act
Rule 13a-14(c)) are sufficiently effective to ensure that the information
required to be disclosed by the Company in the reports it files under the
Exchange Act is gathered, analyzed and disclosed with adequate timeliness,
accuracy and completeness, based on an evaluation of such controls and
procedures conducted within 90 days prior to the date hereof.
CHANGES IN INTERNAL CONTROLS
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of the evaluation referred to above.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - None to report
ITEM 2. Changes in Securities - None to report
ITEM 3. Defaults upon Senior Securities - None to report
ITEM 4. Submission of Matters To a Vote of Security Holders - None to report
ITEM 5. Other Information - None to report
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit No. Name Page No.
99.1 Certification of Chief Executive Officer pursuant to 18 USC 27
Section 1350 as adopted pursuant to Section 906 of The
Sabanes -Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to 18 USC 29
Section 1350 as adopted pursuant to Section 906 of The
Sabanes -Oxley Act of 2002
99.3 Press Release-Announcing Earnings for Quarter ended 31
September 30, 2002
(b) REPORT ON FORM 8-K - None to report
------------------
Page 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Evans Bancorp, Inc.
DATE
October 23, 2002 /s/James Tilley
--------------------------------------------
James Tilley
President and CEO
DATE
October 23, 2002 /s/Mark DeBacker
--------------------------------------------
Mark DeBacker
Senior Vice President & Chief Financial
Officer
Page 25
CERTIFICATION
I, Mark DeBacker, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Evans Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 23, 2002
/s/ Mark DeBacker
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Mark DeBacker
Senior Vice President & Chief Financial Officer
Page 26
CERTIFICATION
I, James Tilley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Evans Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 23, 2002
/s/ James Tilley
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James Tilley
President & Chief Executive Officer