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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 March 31, 2003
--------------
[ ] 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
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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
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(Address of principal executive offices)
(Zip Code)
(716) 549-1000
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(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of The Act). Yes [ ] No [X]
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--2,333,862 shares as of March 31, 2003
INDEX
EVANS BANCORP, INC. AND SUBSIDIARY
PAGE
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets-March 31, 2003 and
December 31, 2002 1
Consolidated Statements of Income-Three months
ended March 31, 2003 and 2002 2
Consolidated Statements of Stockholders' Equity-Three
months ended March 31, 2003 and 2002 3
Consolidated Statements of Cash Flows-Three months
ended March 31, 2003 and 2002 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risks 17
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION 18
Item 1. Legal Proceedings
Item 2. Changes In Securities and Use of Proceeds
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 20
CERTIFICATIONS 21
PART I - FINANCIAL INFORMATION PAGE 1
ITEM I - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, 2003 and December 31, 2002
(Unaudited)
March 31, December 31,
ASSETS 2003 2002
------------- -------------
Cash and due from banks $ 10,859,440 $ 11,308,727
Federal funds sold 2,550,000 8,450,000
------------- -------------
Total cash and cash equivalents 13,409,440 19,758,727
Interest bearing accounts in other banks 877,230 877,230
Securities:
Available-for-sale, at fair value 136,408,515 103,031,200
Held-to-maturity, at amortized cost 3,331,024 3,640,714
Loans, net of allowance for loan losses of $2,265,829 in 2003 157,909,197 148,997,646
and $2,145,606 in 2002
Properties and equipment, net 5,425,982 5,348,994
Goodwill 2,944,913 2,944,913
Intangible assets 921,749 787,115
Bank owned life insurance 6,936,504 662,733
Other assets 3,485,002 2,661,588
------------- -------------
TOTAL ASSETS $ 331,649,556 $ 288,710,860
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 46,863,504 $ 44,664,537
NOW and money market accounts 9,665,871 10,535,456
Regular savings 119,689,560 94,907,508
Time deposits, $100,000 and over 32,512,138 28,440,994
Other time accounts 67,239,289 60,958,340
------------- -------------
Total deposits 275,970,362 239,506,835
Other borrowed funds 14,957,444 8,110,964
Dividend payable 746,838 0
Securities sold under agreements to repurchase 4,964,495 6,543,456
Other liabilities 4,000,633 3,687,604
------------- -------------
Total liabilities 300,639,772 257,848,859
------------- -------------
CONTINGENT LIABILITIES AND COMMITMENTS (Note 11)
STOCKHOLDERS' EQUITY
Common stock, $.50 par value; 10,000,000 shares authorized;
2,334,162 shares issued 1,167,081 1,167,081
Capital surplus 16,578,868 16,578,868
Retained earnings 11,494,716 11,179,871
Accumulated other comprehensive income 1,775,233 1,942,295
------------- -------------
31,015,898 30,868,115
Less: Treasury stock (6,114) (6,114)
------------- -------------
Total stockholders' equity 31,009,784 30,862,001
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 331,649,556 $ 288,710,860
============= =============
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 March 31, 2003 and 2002
(Unaudited)
Three Months Ended
March 31,
2003 2002
---------- ----------
INTEREST INCOME
Loans $2,640,091 $2,750,203
Federal funds sold & interest on deposits in other banks 48,064 28,365
Securities:
Taxable 572,456 704,342
Non-taxable 560,567 461,133
---------- ----------
Total Interest Income 3,821,178 3,944,043
INTEREST EXPENSE
Interest on deposits 1,013,261 1,177,519
Interest on borrowings 121,499 149,341
---------- ----------
Total Interest Expense 1,134,760 1,326,860
---------- ----------
NET INTEREST INCOME 2,686,418 2,617,183
PROVISION FOR LOAN LOSSES 120,000 105,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,566,418 2,512,183
---------- ----------
NON-INTEREST INCOME:
Service charges 449,757 273,383
Insurance service and fees 1,041,310 791,803
Commission fees 40,152 34,923
Net gain on sales of securities 248,965 10,235
Premium on loans sold 19,464 12,546
Other 337,916 231,077
---------- ----------
Total non-interest income 2,137,564 1,353,967
---------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,686,366 1,344,537
Occupancy 404,560 319,735
Supplies 83,803 50,333
Repairs and maintenance 118,730 106,540
Advertising and public relations 76,390 49,805
Professional services 267,118 159,329
FDIC assessments 8,900 8,571
Other insurance 67,855 62,326
Other 596,655 511,623
---------- ----------
Total non-interest expense 3,310,377 2,612,799
---------- ----------
Income before income taxes 1,393,605 1,253,351
INCOME TAXES 319,784 374,000
---------- ----------
NET INCOME $1,073,821 $ 879,351
========== ==========
NET INCOME PER COMMON SHARE-BASIC* $ 0.46 $ 0.38
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES* 2,334,162 2,316,790
========== ==========
*Adjusted for 1 for 20 stock dividend
See Notes to Consolidated Financial Statements.
PAGE 3
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 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 879,351 879,351
Unrealized loss on available
for sale securities, net of reclassification
adjustment and tax effect of $94,079 (145,428) (145,428)
-----------
Total comprehensive income 733,923
-----------
Cash dividends ($.28 per
common share) (617,801) (617,801)
----------- ------------ ------------ --------- --- ------------
Balance, March 31, 2002 $ 1,103,234 $ 13,727,084 $ 11,725,823 $ 520,750 $ 0 $ 27,076,891
=========== ============ ============ ========= === ============
THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER
COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY
STOCK SURPLUS EARNINGS INCOME(LOSS) STOCK TOTAL
Balance, January 1, 2003 $ 1,167,081 $ 16,578,868 $ 11,179,871 $ 1,942,295 $ (6,114) $ 30,862,001
Comprehensive income:
2003 net income 1,073,821 1,073,821
Unrealized loss on available
for sale securities, net of reclassification
adjustment and tax effect of $106,587 (167,062) (167,062)
------------
Total comprehensive income 906,759
------------
Cash dividends ($.32 per common share) (746,838) (746,838)
Fractional shares paid in cash on stock dividend (12,138) (12,138)
----------- ------------ ------------ ----------- -------- ------------
Balance, March 31, 2003 $ 1,167,081 $ 16,578,868 $ 11,494,716 $ 1,775,233 $ (6,114) $ 31,009,784
=========== ============ ============ =========== ======== ============
See Notes to Consolidated Financial Statements
*All share information adjusted for 1 for 20 stock dividend
PART I - FINANCIAL INFORMATION PAGE 4
ITEM I - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
Three Months Ended
March 31,
2003 2002
------------ ------------
OPERATING ACTIVITIES
Interest received $ 3,598,033 $ 3,787,388
Fees and commissions received 1,831,628 1,187,044
Interest paid (1,197,820) (1,434,846)
Cash paid to suppliers and employees (3,539,795) (2,622,172)
Income taxes paid (18,100) (73,800)
------------ ------------
Net cash provided by operating
activities 673,946 843,614
------------ ------------
INVESTING ACTIVITIES
Available for sale securities
Purchases (54,047,383) (15,314,345)
Proceeds from sales 8,679,796 671,376
Proceeds from maturities 11,695,653 5,299,063
Held to maturity securities
Purchases (151,177) (436,812)
Proceeds from maturities 465,867 137,476
Cash paid for bank owned life insurance (6,200,000) 0
Additions to properties and equipment (66,208) (287,183)
Increase(decrease) in loans, net of repayments (8,615,690) 820,043
Originations of loans held for sale (3,253,400) (3,326,741)
Proceeds from sales of loans 2,870,900 2,821,741
Acquisition of insurance agencies (180,000) (50,000)
------------ ------------
Net cash used in investing activities (48,801,642) (9,665,382)
------------ ------------
FINANCING ACTIVITIES
Increase in deposits 36,523,029 9,877,413
Repayments of borrowings (1,732,482) (1,293,336)
Proceeds of borrowing 7,000,000 0
Dividends paid (12,138) (617,811)
------------ ------------
Net cash provided by financing
activities 41,778,409 7,966,266
------------ ------------
Net decrease in cash and cash
equivalents (6,349,287) (855,502)
Cash and cash equivalents, beginning of period 19,758,727 10,635,530
------------ ------------
Cash and cash equivalents, end of period $ 13,409,440 $ 9,780,028
============ ============
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 Three Months Ended March 31, 2003 and 2002
(Unaudited)
Three Months Ended
March 31,
2003 2002
----------- -----------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 1,073,821 $ 879,351
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 263,629 251,153
Provision for loan losses 120,000 105,000
Gain on sale of assets (268,429) (22,781)
Decrease in accrued interest payable (63,060) (107,987)
Increase in accrued interest receivable (461,801) (213,073)
Increase in other liabilities 170,365 187,617
Decrease in other assets (160,579) (235,666)
----------- -----------
Total adjustments (399,875) (35,737)
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 673,946 $ 843,614
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTMENTS AND
FINANCIAL ACTIVITIES
Acquisition of insurance agencies
debt incurred $ 202,000 $ 457,800
=========== ===========
See Notes to Consolidated Financial Statements
PART I - FINANCIAL INFORMATION Page 6
ITEM 1 - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003 and 2002
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 accounting
principles generally accepted in the United States of America 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 three month period ended March 31,
2003 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 amortized cost. Securities which the Company
has identified as available for sale are stated at fair value which is
included as a component of stockholders' equity.
3. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses. Recoveries on loans previously charged off are credited
directly to the allowance for loan losses. The allowance is an amount
that management believes is adequate to absorb estimated losses on
existing loans. Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan-loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrowers' ability to repay, estimated value of any underlying
collateral, and current economic conditions.
In addition, various regulatory agencies, as part of their examination
process, periodically review the Bank's allowance for loan losses. Such
agencies may require the Bank to recognize additions to the allowance
based on their judgments of information available to them at the time of
their examination.
Management's allowance for loan losses reflects its current assessment
of the New York State and local economy. Both have historically lagged
behind the national economy, which is now unsettled. Marginal job
growth, in conjunction with a declining population base, has left the
Bank's market increasingly susceptible to potential credit problems.
This is particularly true of commercial borrowers, which is a segment of
significant past growth as well as a 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 regulations promulgated by the
OCC, and is reflective of management's assessment of the local
environment as well as a continued growth trend in commercial loans.
Page 7
The following table sets forth information regarding the allowance for
loan losses for the three month period ended March 31, 2003 and 2002.
Allowance for loan losses Three Months Ended March 31,
2003 2002
---- ----
Beginning balance $2,145,606 $1,786,115
Total charge offs (0) (2,078)
Total recoveries 223 7,402
---------- ----------
Net recoveries 223 5,324
Provision for loan losses 120,000 105,000
---------- ----------
Ending balance $2,265,829 $1,896,439
========== ==========
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 accounting
principles generally accepted in the United States of America.
5. 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.
6. DIVIDEND
A cash dividend of $0.32 per share was paid on April 1, 2003 to
shareholders of record as of March 11, 2003. A total of $746,838 was
paid on 2,333,869 shares.
7. STOCK DIVIDEND
A 1-for-20 stock dividend was paid on January 29, 2003, for shareholders
of record as of December 2, 2002. The stock dividend resulted in the
issuance of 110,589 shares of common stock. All share and per share
amounts have been restated to reflect the issuance of the stock
dividend.
8. BANK OWNED LIFE INSURANCE
During the first quarter of 2003, the Bank purchased $6.2 million of
additional insurance on the lives of certain officers and directors. The
policies accumulate asset value to meet future liabilities including the
payment of certain employee retirement benefits. The amount of bank
owned life insurance is included in other assets on the balance sheet
and the increase in the cash surrender value is recorded as other income
in the statement of income.
9. OTHER BORROWED FUNDS
The Company borrowed an additional $7.0 million from the Federal Home
Loan Bank ("FHLB") during the first quarter 2003 to fund a leverage
strategy which included the purchase of certain mortgage backed and
agency securities. The borrowing is a 10 year repurchase advance at an
interest rate of 3.39%. The debt is callable by the FHLB if LIBOR
("London Inter-Bank Offer Rate") is 7.5% or more. The debt is
collateralized at the Federal Home Loan Bank by the purchased
securities.
Page 8
10. 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 month period ended March 31, 2003
and 2002.
Three Months Ended
March 31, 2003
BANKING INSURANCE
ACTIVITIES ACTIVITIES TOTAL
Net interest income (expense) $2,692,979 ($6,561) $2,686,418
Provision for loan losses 120,000 0 120,000
---------- ---------- ----------
Net interest income (expense) after
provision for loan losses 2,572,979 (6,561) 2,566,418
Non-interest income 1,096,254 0 1,096,254
Insurance commissions and fees 0 1,041,310 1,041,310
Non-interest expense 2,575,390 734,987 3,310,377
---------- ---------- ----------
Income before income taxes 1,093,843 299,762 1,393,605
Income taxes 199,866 119,918 319,784
---------- ---------- ----------
Net income $893,977 $179,844 $1,073,821
========== ========== ==========
Three Months Ended
March 31, 2002
BANKING INSURANCE
ACTIVITIES ACTIVITIES TOTAL
Net interest income (expense) $2,622,878 ($5,695) $2,617,183
Provision for loan losses 105,000 0 105,000
---------- ---------- ----------
Net interest income (expense) after
provision for loan losses 2,517,878 (5,695) 2,512,183
Non-interest income 562,164 0 562,164
Insurance commissions and fees 0 791,803 791,803
Non-interest expense 2,090,602 522,197 2,612,799
---------- ---------- ----------
Income before income taxes 989,440 263,911 1,253,351
Income taxes 268,457 105,543 374,000
---------- ---------- ----------
Net income $720,983 $158,368 $879,351
========== ========== ==========
Page 9
11. CONTINGENT LIABILITIES AND COMMITMENTS
The consolidated financial statements do not reflect various commitments
and contingent liabilities, which arise in the normal course of
business, and which involve elements of credit risk, interest rate risk
and liquidity risk. These commitments and contingent liabilities are
commitments to extend credit and standby letters of credit. A summary of
the Bank's commitments and contingent liabilities at March 31, 2003 and
2002 is as follows:
2003 2002
---- ----
Commitments to extend credit $39,374,000 $27,049,000
Standby letters of credit 2,457,000 1,747,000
----------- -----------
Total $41,831,000 $28,796,000
Commitments to extend credit and standby letters of credit include
exposure to some credit loss in the event of nonperformance of the
customer. The Bank's credit policies and procedures for credit
commitments and financial guarantees are the same as those for
extensions of credit that are recorded on the consolidated balance
sheets. Because these instruments have fixed maturity dates, and because
they may expire without being drawn upon, they do not necessarily
represent cash requirements to the Bank. The Bank has not incurred any
losses on its commitments during the past three years.
Certain lending commitments for conforming residential mortgage loans to
be sold into the secondary market are considered derivative instruments
under the guidelines of SFAS No. 133. The changes in the fair value of
these commitments due to interest rate risk are not recorded on the
balance sheet as these derivatives are not considered material.
The Company and its subsidiary, M&W Agency, Inc., lease certain offices,
land, and equipment under long-term operating leases. The aggregate
minimum annual rental commitments under these leases total approximately
$293,000 in 2003, $265,000 in 2004, $175,000 in 2005, $173,000 in 2006,
$179,220 in 2007, and $1,727,000 thereafter.
The Company is subject to possible litigation proceedings in the normal
course of business. As of March 31, 2003, the Company had no asserted
claims pending against the Company that management considers to be
significant.
12. RECLASSIFICATIONS
Certain reclassifications have been made to the 2002 financial
statements to conform with the presentation used in 2003.
13. SUBSEQUENT EVENTS
Effective April 1, 2003, the Company implemented a non-qualified
deferred compensation plan whereby directors and certain officers may
defer a portion of their base pre-tax compensation until retirement.
This plan had no impact on the March 31, 2003 consolidated financial
statements. The Company is also the process of finalizing new and
amended employee benefit and supplemental executive retirement plans.
These plans will be effective in the second quarter 2003, and had no
effect on the consolidated March 31, 2003 financial statements.
14. RECENT REGULATORY LEGISLATION
Sarbanes-Oxley Act. On July 30, 2002, the Sarbanes-Oxley Act fo 2002
("SOA") was signed into law. The stated goals of the SOA are to increase
corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and
to protect investors by improving the accuracy and reliability of
corporate disclosures pursuant to the securities laws.
Page 10
The SOA includes very specific additional disclosure requirements and
new corporate governance rules, requires the SEC and securities
exchanges to adopt extensive additional disclosure, corporate governance
and other related rules and mandates further studies of certain issues
by the SEC and the Comptroller General. The SOA represents significant
federal involvement in matters traditionally left to state regulatory
systems, such as the regulation of the accounting profession, and to
state corporate law, such as the relationship between a board of
directors and management and between a board of directors and its
committees.
The SOA addresses, among other matters: audit committees; certification
of financial statements by the Chief Executive Officer and the Chief
Financial Officer; the forfeiture of bonuses or other incentive-based
compensation and profits from the sale of an issuer's securities by
directors and senior officers in the twelve month period following
initial publication of any financial statements that later require
restatement; a prohibition on insider trading during pension plan black
out periods; disclosure of off-balance sheet transactions; a prohibition
on certain loans to directors and officers; expedited filing
requirements for Forms 4; disclosure of a code of ethics and filing a
Form 8-K for a change or waiver of such code; "real time" filing of
periodic reports; the formation of a public accounting oversight board;
auditor independence; and various increased criminal penalties for
violations of securities laws.
The SOA contains provisions that became effective upon enactment, and
provisions that will become effective from within 30 days to one year
from enactment. The SEC has been delegated the task of enacting rules to
implement various provisions with respect to, among other matters,
disclosure in periodic filings pursuant to the Exchange Act.
PART I - FINANCIAL INFORMATION
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. Forward-looking statements speak only as of the
date they are made. The Company undertakes no obligation to publicly update or
revise forward-looking information, whether as a result of new, updated
information, future events or otherwise.
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 loan 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.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The Company's consolidated financial statements, are prepared in
accordance with accounting principles generally accepted in the United States of
America and follow general practices within the industries in which it operates.
Application of these principles requires management to make estimates,
assumptions, and judgments that affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions, and judgments
are based on information available as of the date of the financial statements.
Accordingly, as this information changes, the financial statements could reflect
different estimates, assumptions and judgments. Certain policies inherently have
a greater reliance on the use of estimates, assumptions and judgments, and as
such have a greater possibility of producing results that could be materially
different than originally reported. Estimates, assumptions and judgments are
necessary when assets and liabilities are required to be recorded at fair value,
when a decline in the value of an asset not carried on the financial statements
at fair value
Page 11
warrants an impairment write-down or valuation reserve to be established, or
when an asset or liability needs to be recorded contingent upon a future event.
Carrying assets and liabilities at fair value inherently results in more
financial statement volatility. The fair values and the information used to
record valuation adjustments for certain assets and liabilities are based either
on quoted market prices or are provided by other third-party sources, when
available. When third-party information is not available, valuation adjustments
are estimated in good faith by management primarily through the use of internal
cash flow modeling techniques.
The most significant accounting policies followed by the Company are
presented in Note 1 to the consolidated financial statements. These policies,
along with the disclosures presented in the other financial statement notes and
in this financial review, provide information on how significant assets and
liabilities are valued in financial statements and how those values are
determined. Based on the valuation techniques used and the sensitivity of
financial statement amounts to the methods, assumptions and estimates underlying
those amounts, management has identified the determination of the allowance for
loan losses and valuation of goodwill to be the accounting areas that require
the most subjective or complex judgements and as such could be most subject to
revision as new information becomes available.
The allowance for loan losses represents management's estimate of
probable credit losses, inherent in the loan portfolio. Determining the amount
of the allowance for loan losses is considered a critical accounting estimate
because it requires significant judgement and the use of estimates related to
the amount and timing of expected future cash flows on the impaired loans,
estimated losses on pools of homogeneous loans based on historical loss
experience and consideration of current economic trends and conditions, all of
which may be susceptible to significant change. The loan portfolio also
represents the largest asset type on the consolidated balance sheets.
The amount of goodwill reflected in the Company's consolidated
financial statements is required to be tested by management for impairment on at
least an annual basis. The test for impairment of goodwill on the identified
reporting unit is considered a critical accounting estimate because it requires
judgement and the use of estimates related to the growth assumptions and market
multiples used in the valuation model.
Page 12
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. Investments are included at
amortized cost. Interest is not presented on a tax-equivalent basis. Yields are
not presented at a tax equivalent basis.
THREE MONTHS ENDED THREE MONTHS
MARCH 31, 2003 ENDED MARCH 31, 2002
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 $154,194 $2,640 6.85% $142,431 $2,750 7.72%
Taxable investments 65,766 572 3.48% 48,385 705 5.82%
Tax-exempt investments 50,739 561 4.42% 39,857 461 4.63%
Time Deposits-Other Bank 877 6 2.60% 0 0 0.00%
Federal funds sold 14,252 42 1.19% 7,275 28 1.56%
-------- ------ ---- -------- ------ ----
Total interest-earning assets 285,828 $3,821 5.35% 237,948 $3,944 6.63%
====== ======
Noninterest-earning assets
Cash and due from banks 9,845 9,088
Premises and equipment, net 5,414 4,115
Other assets 11,388 8,203
-------- --------
Total Assets $312,475 $259,354
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts $9,904 $6 0.24% $9,479 $11 0.48%
Savings deposits 109,659 293 1.07% 70,518 215 1.22%
Time deposits 97,896 714 2.92% 92,862 952 4.10%
Fed funds purchased & securities
sold u/a to repurchase and other 5,606 16 1.14% 4,945 24 1.96%
FHLB advances 8,095 99 4.89% 9,282 119 5.14%
Notes payable 669 7 3.95% 440 6 1.30%
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities 231,829 $1,135 1.96% 187,526 $1,327 2.83%
------ ------
Noninterest-bearing liabilities:
Demand deposits 44,764 39,790
Other 4,801 4,670
-------- --------
Total liabilities $281,394 $231,986
Stockholders' equity 31,081 27,368
-------- --------
Total Liabilities and
Stockholders' Equity $312,475 $259,354
======== ========
Net interest earnings $2,686 $2,617
====== ======
Net yield on interest earning assets 3.76% 4.40%
Net interest margin 3.89% 4.49%
Page 13
Total gross loans have grown to $160.2 million at March 31, 2003, reflecting a
6.0% or $9.0 million increase for the quarter. Total net loans (loans after
provision for loan losses) have grown to $157.9 million at March 31, 2003,
reflecting a 6.0% or $8.9 million increase for the quarter. During the quarter,
the Bank has continued to shift its loan portfolio composition toward
higher-yielding commercial loans, especially those secured by real estate.
Commercial loans total $113.3 million at March 31, 2003, reflecting a 7.4% or
$7.8 million increase for the quarter. Consumer loans total $46.5 million at
March 31, 2003, reflecting a 2.6% or $1.2 million increase for the quarter.
Given the current low interest rate environment, the Bank continues to sell
certain fixed rate residential loans originated under a certain interest rate
level, while maintaining the servicing rights to such loans. During the first
quarter 2003, the Bank sold loans to FNMA totaling $2.9 million as compared to
$2.8 million during the first quarter 2002. At March 31, 2003, the Bank had a
loan servicing portfolio principal balance of $25.3 million upon which it earns
a servicing fee. This loan servicing portfolio balance compares to $24.0 million
at December 31, 2002.
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.
MARCH 31, 2003 PERCENTAGE DECEMBER 31, 2002 PERCENTAGE
($000) ($000)
COMMERCIAL LOANS
Real Estate $ 90,550 56.7% $ 84,581 56.1%
Installment 13,899 8.7% 12,512 8.3%
Lines of Credit 8,759 5.5% 8,333 5.5%
Cash Reserve 58 0.0% 47 0.0%
--------- ---------- --------- ----------
Total Commercial Loans 113,266 70.9% 105,473 69.9%
Consumer Loans
Real Estate 19,363 12.1% 19,789 13.1%
Home Equity 24,414 15.3% 23,132 15.3%
Installment 2,002 1.2% 1,886 1.3%
Overdrafts 320 0.2% 104 0.1%
Credit Card 283 0.2% 298 0.2%
Other 157 0.1% 126 0.1%
--------- ---------- --------- ----------
Total Consumer Loans 46,539 29.1% 45,335 30.1%
--------- ---------- --------- ----------
Total Loans 159,805 100.0% 150,808 100.0%
========= ========== ========= ==========
Net Deferred Costs & Unearned
Discounts 370 336
Allowance for Loan Losses (2,266) (2,146)
--------- ----------
Loans, Net $ 157,909 $ 148,998
========= ==========
Loan quality has remained stable with no charge offs incurred during
the quarter ended March 31, 2003. Non-performing loans, defined as loans greater
than 90 days past due and non-accrual loans, totaled 0.14% of total loans
outstanding at March 31, 2003 as compared to 0.79% at December 31, 2002. At
March 31, 2003 one loan with an outstanding principal balance of $763,692 was
considered impaired. No loans were considered impaired at December 31, 2002. The
allowance for loan losses totaled $2.3 million or 1.41% of gross loans
outstanding at March 31, 2003 as compared to $2.1 million or 1.42% of gross
loans outstanding at December 31, 2002.
Page 14
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-performing loans.
March 31, 2003 December 31, 2002
-------------- -----------------
($000) ($000)
Non-accruing loans:
One-to-four family $ 0 $ 0
Home equity 0 0
Commercial real estate and multi-family 126 1,104
Consumer 0 0
Commercial business 93 93
------- -------
Total 219 1,197
------- -------
Loans 90+ days past due 17 0
------- -------
Total non-performing loans $236 $1,197
======= =======
Total non-performing loans as a percentage of 0.07% 0.41%
total assets
======= =======
Total non-performing loans as a percentage of 0.14% 0.79%
total loans
======= =======
The following table sets forth information regarding the allowance for loan
losses for the three month period ended March 31, 2003 and 2002.
Three Months Ended March 31,
2003 2002
---- ----
Beginning balance $2,145,606 $1,786,115
Total charge offs (0) (2,078)
Total recoveries 223 7,402
---------- ----------
Net recoveries 223 5,324
Provision for loan losses 120,000 105,000
---------- ----------
Ending balance $2,265,829 $1,896,439
========== ==========
Page 15
Allocation of the Allowance for Loan Losses
Balance at Balance at
03/31/03 12/31/02
Attributable to: Attributable to:
---------------- ----------------
($000) ($000)
Real Estate Loans $1,074 $844
Commercial Loans and Leases 297 259
Installment Loans (Includes Credit Cards) 76 72
Unallocated 819 971
------ ------
Total $2,266 $2,146
====== ======
Investing Activities
The Company's securities portfolio increased by 31% to approximately
$139.7 million at March 31, 2003 as compared to approximately $106.7 million at
December 31, 2002. The Company utilized its membership in Federal Home Loan Bank
of New York to fund a leverage strategy. During the quarter, the Company
borrowed $7 million from FHLB and purchased securities of the same amount
benefitting from the interest rate spread between the borrowing and investments.
Additionally, the success of attracting municipal deposits, with Muni-vest, has
increased the excess funds available for investment and not used for lending .
Muni-Vest is a product which pays higher money-market equivalent rates of return
to municipalities and school districts in markets where the Bank operates.
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 $94,815,206
at March 31, 2003 were pledged as collateral to secure public deposits and for
other purposes required or permitted by law.
Funding Activities
Total deposits increased to $276.0 million at March 31, 2003 reflecting
a 15.2% or $36.5 million increase for the quarter. Demand deposits increased to
$46.9 million at March 31, 2003, reflecting a 4.9% or $2.2 million increase for
the quarter. Regular savings deposits increased to $119.7 million at March 31,
2003, reflecting a 26.1% or $24.8 million increase for the quarter, primarily
due to the Bank's success in attracting municipal deposits with a revamped money
market product called Muni-Vest. Typically, in the first quarter of each year,
the Bank experiences an influx of tax deposits from municipalities which can be
expected to decrease as they pay expenses as the year progresses. Core deposits
(all deposits excluding time deposits greater than $100,000) increased to $243.5
million, reflecting a 15.3% or $32.4 million increase for the quarter. Demand
deposits increased 4.9%, Now accounts decreased 8.3%, and securities sold under
agreement to repurchase decreased 24.1% from December 31, 2002 all of which vary
day to day within a range based on customer transaction volume and represent
normal deposit activity.
Other Balance Sheet Changes
$6.2 million of bank owned life insurance was purchased during the
first quarter 2003. The life insurance contracts (naming the Bank as primary
beneficiary) were established to indirectly fund various employee benefit plans
which will be established in the second quarter.
Other borrowed funds increased $6.8 million at March 31, 2003 from $8.1
million at December 31, 2002. The increase is attributed to a $7 million
borrowing from FHLB as described above under Investing Activities. The borrowing
is a 10 year callable product with an interest rate of 3.39%.
Page 16
MATERIAL CHANGES IN THE RESULTS OF OPERATIONS
Net Income
Net income was $1.1 million or $0.46 per share for the quarter ended
March 31, 2003 as compared to $0.9 million or $0.38 per share for the quarter
ended March 31, 2002. All per share amounts reflect the special 5 percent stock
dividend paid on January 29, 2003. Net income represented a return on average
assets of 1.39% for the quarter ended March 31, 2003 compared to 1.38% for the
same period in 2002. The return on average equity for the first quarter of 2003
was 14.79% compared to 13.47% for the first quarter of 2002.
Other Operating Results
Net interest income increased $69.4 thousand, or 2.6%, for the quarter
ended March 31, 2003 compared to the same time period in 2002. Total interest
income in the first quarter 2003 decreased 3.1% and interest paid on deposits
and borrowings decreased 14.5% from the first quarter of 2002. Interest income
decreased in spite of the $47.9 million, or 20.1% increase in average
interest-earning assets to $285.8 million for the first quarter of 2003 from
$237.9 million for the first quarter of 2002. The tax equivalent yield on total
interest earning assets decreased to 5.75% for the quarter ended March 31, 2003
from 7.03% for the quarter ended March 31, 2002. The interest expense decrease
reflects the $44.3 million, or 23.6% increase in average interest-bearing
liabilities to $231.8 million for the first quarter of 2003 from $187.5 million
for the first quarter of 2002 as well as the offsetting effect of interest rate
reductions made by the Company since March 31, 2002. The cost of
interest-bearing liabilities decreased to 1.96% for the quarter ended March 31,
2003 from 2.83% for the quarter ended March 31, 2002. The Company's net interest
margin, for the three month period ended March 31, 2003 was 3.89% as compared to
4.49% for the same time period in 2002. The decrease reflects investment and
loan prepayments of the assets in the portfolio with the continued historical
low interest rate environment. These prepayments are being invested in the lower
environment. Additionally, a large volume increase has been realized in this
environment.
The yield on average loans decreased to 6.85% for the first quarter of
2003 from 7.72% for the same time period in 2002. The tax equivalent yield on
federal funds and investments decreased from 6.00% in the first quarter of 2002
to 4.48% in the first quarter of 2003. The cost of funds on interest bearing
balances decreased to 1.96% for the first quarter of 2003 from 2.83% for the
same time period in 2002.
The provision for loan losses has increased to $120 thousand for the
first quarter of 2003 from $105 thousand for the same time period in 2002. The
higher first quarter provision in 2003 was a result of continued commercial loan
growth. 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.
The decrease in net interest margin is due primarily to two factors:
increased competition from both a loan and deposit pricing perspective and a
decrease in the potential to adjust deposit rates significantly lower as a
result of the historically low interest rate environment.
Non-interest income increased to $2.1 million for the first quarter
2003 as compared to $1.4 million for the first quarter 2002. M&W Agency
insurance commissions represented the largest increase with $250 thousand growth
in the first quarter 2003 over the first quarter 2002. The Bank also realized
$249 thousand in gains on sales of securities during the first quarter 2002 as
compared to $10 thousand in the first quarter 2002. Service charges increased to
$450 thousand in the first quarter 2003, a 64.5% or $176 thousand increase over
the first quarter 2002, due to a concentrated effort on increasing fee income in
late 2002 and early 2003 and the roll out of the Bank's Safeguard Overdraft
Service in early 2003. Other increases included merchant fee income and income
on the increase in cash surrender value of life insurance surrounding the
purchase of Bank Owned Life Insurance during the first quarter 2003.
Non interest expense increased by $0.7 million to $3.3 million for the
first quarter 2003 as compared to $2.6 million for the first quarter 2002. The
primary increase is salaries of $0.3 million which is a result of the Bank and
M&W Agency's growth over the past year, as well as normal salary raises.
Occupancy costs have risen $0.1 million due to the increased cost of utilities
and added Bank site and M&W Agency locations. Professional services have
increased $0.1 million primarily as a result of fees connected with a consulting
engagement to increase fee income. Other expenses have increased $0.1 million
due to a number of items including costs associated with the Bank's conversion
to a new item processing data center environment, which have resulted in
increased capacity, capability and opportunity for future efficiencies.
Income tax expense totaled $320,000 and $374,000 for the three month
periods ended March 31, 2003 and 2002, respectively. The effective combined tax
rate for the first quarter of 2003 was 23.0% compared to 29.8% for the first
quarter of 2002. 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 benefit of the Bank owned life insurance income.
Page 17
CAPITAL
The Bank has consistently maintained regulatory capital ratios at, or
above "well capitalized" standards. Total stockholders' equity was $31.0 million
at March 31, 2003, up from $30.9 million at December 31, 2002. Equity as a
percentage of assets was 9.35% at March 31, 2003, compared to 10.7% at December
31, 2002. Book value per common share rose to $13.29 at March 31, 2003, up from
$13.22 at December 31, 2002.
CAPITAL EXPENDITURES
The Bank has approved the construction and furnishing of a new branch
office in Lancaster, New York for 2003. The cost to the Bank is expected to be
approximately $0.9 million. Other planned expenditures include replacing a
number of personal computers, replacing/adding automated teller machines (ATMs)
and miscellaneous other equipment. The Bank believes it has a sufficient capital
base to support these capital expenditures with current assets and retained
earnings.
ITEM 3 - QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS AND LIQUIDITY
INTEREST RATE RISK
The Company's asset/liability management strategy is to maximize
earnings and return on capital while limiting exposure to risks associated with
a volatile interest rate environment. The Company's exposure to interest rate
risk is managed primarily through the Company's strategy of selecting the type
and terms of interest earning assets and interest bearing liabilities that
generate favorable earnings, while limiting the potential negative effects of
changes in market interest rates.
Management uses income simulation models to quantify the potential
impact on earnings and capital with changes in interest rates. The model uses
cash flows and repricing information from loans and certificates of deposit,
plus repricing assumptions on products without specific repricing dates (e.g.
savings and interest bearing demand accounts), to calculate durations of each of
the Bank's assets and liabilities. In addition, the model uses management
assumptions on growth with duration to project income. The model also projects
the effect on income due to changes in interest rates as well as the value of
the Company's equity in each of the theoretical rate environments.
The Company maintains specific interest rate risk management policy
limits. Based on simulation modeling, these guidelines include a +/- 5.25% of
net interest income and a 6% of capital threshold on the value of the Company's
economic value of equity. At March 31, 2003, the effect of an immediate 200
basis point increase in interest rate would decrease the Company's annual net
interest income by 3.9%, or $0.5 million. A 200 basis point decrease in interest
rate would decrease annual net interest income by 1.4% or approximately
$0.2million.
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 $13.1 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 up to $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. Additionally, the Bank has access to capital
markets as a funding source.
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 March 31, 2003, approximately 3.3% of the
Bank's securities had maturity dates of one year or less and approximately 20.7%
had maturity dates of five years or less. At March 31, 2003, the Bank had net
short-term liquidity of $2.4 million as compared to $36.9 million at December
31, 2002. Available assets of $146.0 million, less public and purchased funds of
$107.2 million, resulted in a long-term liquidity ratio of 136% at March 31,
2003, versus 158% at December 31, 2002. The decrease is due to the large
increase in deposits over the quarter, which are considered volatile funds.
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.
Page 18
MARKET RISK
When rates rise or fall, the market value of the Bank's rate-sensitive
assets and liabilities increases or decreases. 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. On a monthly
basis, the balance sheet is shocked for immediate rate increases of 100 and 200
basis points. At March 31, 2003, 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.
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 -
On April 16, 2003 Evans National Bank entered into a contract with
Mellon Financial Corporation ("Mellon"), to serve as a referral source
for trust and private wealth financial services. Under the terms of the
agreement, the Bank will receive fees from Mellon based on a certain
portion of the fees earned by Mellon during the first year of a
referred customer's relationship with Mellon. An additional fee will be
earned in subsequent years, provided the Bank has referred customers to
Mellon who maintain a certain aggregate dollar threshold of balances
under Mellon management. There is no obligation on the part of the Bank
to utilize Mellon as the exclusive resource for trust or investment
management services. Additionally, there is no obligation on the part
of Mellon to accept referrals made by the Bank. There is no established
term of this agreement as it is ongoing. The agreement is terminable by
either party without cause or penalty upon ninety days of notice.
Page 19
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Name Page No.
10.17 Deferred Compensation Plan For Officers and Directors 23
99.1 Certification of Chief Executive Officer pursuant to 18 USC 31
Section 1350 as adopted pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to 18 USC 33
Section 1350 as adopted pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002
99.3 Press Release-Announcing Earnings for Quarter ended 35
March 31, 2003
(b) Report on Form 8-K :
The registrant filed a Form 8-K on January 28, 2003 to report
under Item 5-Other Events its 2002 and fourth quarter 2002
earnings. A press release was filed as an exhibit.
The registrant filed a Form 8-K on February 20, 2003 to report
under Item 5-Other Events its semiannual cash dividend. A press
release was filed as an exhibit.
The registrant filed a Form 8-K on March 24, 2003, to report
under Item 4-Change in Registrant's Certifying Accountant that
it had decided to engage KPMG LLP as its principal accountants
for the fiscal year ending December 31, 2003 and chose not to
renew the engagement of Deloitte & Touche LLP.
Page 20
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
April 23, 2003 /s/ James Tilley
-----------------------------------
James Tilley
President and CEO
DATE
April 23, 2003 /s/ Mark DeBacker
-----------------------------------
Mark DeBacker
Senior Vice President & Chief Financial Officer
Page 21
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: April 23, 2003
/s/ Mark DeBacker
- -----------------------------------------------
Mark DeBacker
Senior Vice President & Chief Financial Officer
Page 22
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: April 23, 2003
/s/ James Tilley
- --------------------------------------
James Tilley
President & Chief Executive Officer