UNITED STATES

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-18539

EVANS BANCORP, INC.

(716) 926-2000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.50 per share

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

On June 30, 2004, the aggregate market value of the registrant’s common stock, $.50 par value (the “Common Stock”), held by non-affiliates of the registrant was approximately $48.5 million, based upon the closing price of a share of the registrant’s Common Stock as quoted by The Nasdaq National Market.

As of March 14, 2005, 2,589,918 shares of the registrant’s Common Stock were outstanding.

Page 1 of 126
Exhibit Index on Page 79

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement relating to the registrant’s 2005 Annual Meeting of Shareholders, to be held on April 19, 2005, are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

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TABLE OF CONTENTS

INDEX

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PART I

Item 1. BUSINESS

EVANS BANCORP, INC.

Evans Bancorp, Inc. (the “Company”) is a New York business corporation which is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”). The principal offices of the Company are located at 14-16 North Main Street, Angola, New York 14006 and its telephone number is (716) 926-2000. The Company was incorporated on October 28, 1988. Except as the context otherwise requires, the Company and its direct and indirect subsidiaries are collectively referred to in this Report as the “Company.” The Company’s common stock is traded on the Nasdaq National Market system under the symbol “EVBN.”

At December 31, 2004, the Company had consolidated total assets of $429.0 million, deposits of $301.9 million and stockholders’ equity of $35.5 million. The Company had 163 full-time and 14 part-time employees at December 31, 2004.

The Company’s primary business is the operation of its subsidiaries. It does not engage in any other substantial business activities. The Company has two direct wholly-owned subsidiaries: Evans National Bank (“Evans National Bank” or the “Bank”), which provides a full range of banking services to consumer and commercial customers in Western New York, and Evans National Financial Services, Inc. (“ENFS”), which owns 100% of the common stock of ENB Insurance Agency, Inc. (“ENBI”), which sells various premium-based insurance policies on a commission basis. At December 31, 2004, the Bank represented 97.1% and ENFS represented 2.9% of the consolidated assets of the Company. For further detail, see Note 17 to the Company’s Consolidated Financial Statements under Item 8 of this Report on Form 10-K.

Evans National Bank

The Bank is a nationally chartered bank that has its headquarters and full-service banking office at 14 North Main Street, Angola, New York, and a total of ten full-service banking offices in Erie County and Chautauqua County, New York – one in each of Amherst, Angola, Derby, Evans, Forestville, Hamburg, Lancaster, North Boston, North Buffalo (as of January 2005) and West Seneca.

At December 31, 2004, the Bank had total assets of $416.4 million, security investments of $169.9 million, net loans of $217.6 million, deposits of $301.9 million and stockholders’ equity of $30.6 million compared to total assets of $334.7 million, security investments of $120.6 million, net loans of $185.5 million, deposits of $266.3 million and stockholders’ equity of $33.3 million at December 31, 2003. The Bank’s principal source of funding is deposits, which it reinvests in the community in the form of loans and investments. The Bank offers deposit products, which include checking and NOW accounts, passbook and statement savings, and certificates of deposit. The Bank’s deposits are insured to the applicable limit by the Bank Insurance Fund (the “Insurance Fund”) of the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of loan products to its customers, including commercial and consumer loans and commercial and residential mortgage loans.

As is the case with banking institutions generally, the Bank’s operations are significantly influenced by general economic conditions and by related monetary and fiscal policies of banking regulatory agencies, including the Federal Reserve Board (“FRB”) and FDIC. The Bank is also subject to the supervision, regulation and examination of the Office of the Comptroller of the Currency of the United States of America (the “OCC”).

Other Subsidiaries

In addition to the Bank, the Company has the following direct and indirect wholly-owned subsidiaries:

ENB Associates Inc. (“ENB Associates” or “ENB”). ENB, a wholly-owned subsidiary of the Bank, offers non-deposit investment products, such as annuities and mutual funds, to the Bank’s customers.

Evans National Leasing, Inc. (“Evans National Leasing” or “ENL”). ENL was organized in December 2004 as a wholly-owned subsidiary of the Bank to conduct the business of general business equipment leasing. ENL acquired the business

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and substantially all of the assets, and assumed certain liabilities of M&C Leasing Co., Inc. (“M&C Leasing”) on December 31, 2004. ENL provides direct financing to the commercial small ticket lease equipment market throughout the 48 contiguous United States.

Evans National Holding Corp. (“ENHC”). ENHC was incorporated in February 2002 as a subsidiary of the Bank, which owns 100% of the common stock of ENHC. ENHC operates as a real estate investment trust (“REIT”) that holds commercial real estate loans and residential mortgages, which provides additional flexibility and planning opportunities for the business of the Bank.

Evans National Financial Services, Inc. (“Evans National Financial Services” or “ENFS”). ENFS is located at One Grimsby Drive, Hamburg, New York. It was incorporated in September 2004 for the primary purpose of holding the business and assets of the Company’s non-banking financial services segment.

ENB Insurance Agency, Inc. (“ENB Insurance Agency” or “ENBI”). ENBI, a wholly-owned subsidiary of ENFS, is an insurance agency which sells various premium-based insurance policies on a commission basis, including business and personal insurance, surety bonds, risk management, life, disability and long-term care coverage. ENBI has offices located in Angola, Cattaraugus, Derby, Eden, Gowanda, Hamburg, Lockport, North Boston, Randolph, Silver Creek, South Dayton, and West Seneca, New York.

Frontier Claims Services, Inc. (“FCS”). FCS is a wholly-owned subsidiary of ENBI and provides claims adjusting services to various insurance companies.

The Company also has two special purpose entities: Evans Capital Trust I, a statutory trust formed on September 29, 2004 under the Statutory Trust Act, solely for the purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the trust, investing the proceeds thereof in certain debentures of the Company and engaging in those activities necessary, advisable or incidental thereto; and ENB Employers Insurance Trust, a Delaware trust company formed in February 2003 for the sole purpose of holding life insurance policies under the Bank’s bank-owned life insurance program.

The Company operates in two reportable segments – banking activities and insurance agency activities. See Note 17 to the Company’s Consolidated Financial Statements included under Item 8 of this Report on Form 10-K for more information on the Company’s reportable segments.

Reorganization

The Company reorganized its corporate structure during 2004. In August 2004, the Company filed for, and was approved as, a financial holding company under the Bank Holding Company Act of 1956. Prior to August 2004, the Company operated as a bank holding company. Subsequent to this change, the Company reorganized its corporate structure by creating a mid-tier holding company, ENFS, which, on October 1, 2004, received a dividend-in-kind of all the assets, liabilities and equity of ENBI from the Bank. The Company intends to conduct non-banking financial services activities under ENFS.

Acquisitions

On January 2, 2004, ENBI, the Company’s wholly-owned insurance agency subsidiary, acquired substantially all the business and assets of Ellwood Agency, Inc. (“Ellwood”) and Easy PA Insurance Agency, Inc. (“Easy PA”), two Hamburg, New York-based insurance agencies. The Company paid the aggregate purchase price of $0.8 million for these two agencies through a combination of cash and stock, including the issuance of 31,942 shares of common stock with a fair market value on January 2, 2004 of $0.7 million, and $0.1 million in cash. Both acquisitions were accounted for under the purchase method of accounting. Accordingly, the results of operations of the acquired companies have been included in the Company’s Consolidated Statements of Income from the date of acquisition and as a result, the Company recorded $0.8 million of intangible assets for 2004. The intangibles are being amortized over a five-year period, of which $0.4 million is tax deductible. The remaining intangibles are not tax deductible, due to the tax-free nature of the acquisition of the Ellwood Agency.

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Effective October 1, 2004, ENBI acquired substantially all the business and assets of Ulrich & Company, Inc. (“Ulrich”), a Lockport, New York-based insurance agency. The total purchase price payable at closing of $6.4 million was paid in cash. The acquisition was accounted for under the purchase method of accounting. Accordingly, the results of operations of the acquisition have been included in the Company’s Consolidated Statements of Income from the date of acquisition, and as a result, the Company recorded $4.8 million of goodwill and $1.5 million of intangible assets related to insurance expirations during 2004. The intangible assets are being amortized over 10 years. The goodwill was assigned to the Company’s insurance segment. Additional contingent consideration of up to $0.4 million may be paid over 12 months dependent on the outcome of certain post-closing performance measures specified in the purchase agreement. The contingent consideration, if any, may result in additional cost of the acquisition.

On December 31, 2004, Evans National Leasing, Inc., a wholly-owned subsidiary of the Bank, acquired all of the business and assets, and assumed certain liabilities of M&C Leasing Co., Inc. (“M&C Leasing”), a general business equipment leasing company located in West Seneca, New York. Following the transaction, the operations of M&C Leasing merged into ENL. The total purchase price included a cash payment of $1.2 million and assumption of $4.2 million in liabilities. The acquisition was accounted for under the purchase method of accounting. Accordingly, the Company recorded certain acquired assets and liabilities, as well as $1.5 million in goodwill. The goodwill is assigned to the Company’s banking segment. Additional contingent consideration of up to $0.5 million will be paid based on the outcome of certain post-closing performance measures for fiscal years 2005-2009, as specified in the purchase agreement. The contingent consideration, if any, will result in additional cost of the acquisition.

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, 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,” “plan,” “seek,” and similar expressions identify such forward-looking statements. These forward-looking statements include statements regarding the Company’s business plans, prospects, growth and operating strategies, statements regarding the asset quality of the Company’s loan and investment portfolios, and estimates of the Company’s risks and future costs and benefits.

These forward-looking statements are based largely on the expectations of the Company’s management and are subject to a number of risks and uncertainties, including but not limited to general economic conditions, either nationally or in the Company’s market areas, that are worse than expected; increased competition among depository or other financial institutions; inflation and changes in the interest rate environment that reduce the Company’s margins or reduce the fair value of financial instruments; changes in laws or government regulations affecting financial institutions, including changes in regulatory fees and capital requirements; the Company’s ability to enter new markets successfully and capitalize on growth opportunities; the Company’s ability to successfully integrate acquired entities; changes in accounting pronouncements and practices, as adopted by financial institution regulatory agencies, the Financial Accounting Standards Board (“FASB”) and the Public Company Accounting Oversight Board; changes in consumer spending, borrowing and saving habits; changes in the Company’s organization, compensation and benefit plans; and other factors discussed elsewhere in this report on Form 10-K, as well as in the Company’s periodic reports filed with the Securities and Exchange Commission (the “SEC”). Many of these factors are beyond the Company’s control and difficult to predict.

Because of these and other uncertainties, the Company’s actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. 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.

MARKET AREA

The Company’s primary market area is located in Erie County, Niagara County, northern Chautauqua County and northwestern Cattaraugus County, New York, which include the municipalities of Amherst, Boston, Cheektowaga, Depew, Evans, Forestville, Hamburg, Hanover, Lancaster, Kenmore, Lockport, West Seneca and the northern portion of the city of Buffalo. This primary market area is the primary area where the Bank receives deposits and makes loans and the ENBI sells insurance. Even though ENL conducts business outside of this defined market area, this activity is not deemed to expand the Company’s primary market.

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AVERAGE BALANCE SHEET INFORMATION

The table presents the significant categories of the assets and liabilities of the Bank, interest income and interest expense, and the corresponding yields earned and rates paid in 2004, 2003 and 2002. 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. Securities are stated at fair value. Interest and yield are not presented on a tax-equivalent basis.

SECURITIES ACTIVITIES

The primary objective of the Bank’s securities portfolio is to provide liquidity while preserving safety of principal. Secondary objectives include: the investment of funds during periods of decreased loan demand, interest sensitivity considerations, providing collateral to secure local municipal deposits, supporting local communities through the purchase

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of tax-exempt securities and tax planning considerations. The Bank’s Board of Directors is responsible for establishing overall policy and reviewing performance of the Bank’s investments.

The Bank’s policy provides that acceptable portfolio investments include: U.S. Government obligations, obligations of federal agencies, U.S. Government-sponsored enterprises, mortgage backed securities, municipal obligations (general obligations, revenue obligations, school districts and non-rated issues from the Bank’s general market area), banker’s acceptances, certificates of deposit, Industrial Development Authority Bonds, Public Housing Authority Bonds, corporate bonds (each corporation limited to the Bank’s legal lending limit), collateral mortgage obligations, Federal Reserve stock and Federal Home Loan Bank stock.

The Bank’s general investment policy is that in-state securities must be rated at least Moody’s BAA (or equivalent) at the time of purchase. Out-of-state issues must be rated at least Moody’s AA (or equivalent) at the time of purchase. Bonds or securities rated below A are reviewed periodically to assure their continued credit worthiness. The purchase of non-rated municipal securities is permitted, but limited to those bonds issued by municipalities in the Bank’s general market area which, in the Bank’s judgment, possess no greater credit risk than BAA (or equivalent) bonds. The financial statements of the issuers of non-rated securities are reviewed by the Bank and a credit file of the issuers is kept on each non-rated municipal security with relevant financial information. In addition, the Bank’s loan policy permits the purchase of notes issued by various states and municipalities which have not been rated by Moody’s or Standard & Poor’s. The securities portfolio of the Bank is priced on a monthly basis.

Pursuant to Statement of Financial Accounting Standard (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” which establishes accounting treatment for investments in securities, all securities in the Bank’s investment portfolio are either designated as “held to maturity” or “available for sale.”

Income from securities held in the Bank’s investment portfolio represented approximately 32.7% of total interest income of the Company in 2004 as compared to 29.4% in 2003 and 29.8% in 2002. At December 31, 2004, the Bank’s securities portfolio of $169.9 million consisted primarily of United States (“U.S.”) and federal agency obligations, state and municipal securities and mortgage-backed securities issued by the Government National Mortgage Association, Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corp.

The following table summarizes the Bank’s securities with those designated as available for sale valued at fair value and securities designated as held to maturity valued at amortized cost as of December 31, 2004, 2003 and 2002:

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The following table sets forth the contractual maturities and weighted average interest yields of the Bank’s securities portfolio (yields on tax-exempt obligations are not presented on a tax-equivalent basis) as of December 31, 2004:

LENDING ACTIVITIES

General. The Bank has a loan policy which is approved by its Board of Directors on an annual basis. The loan policy addresses the lending authorities of Bank officers, charge off policies, desired portfolio mix, and loan approval guidelines.

The Bank offers a variety of loan products to its customers, including residential and commercial real estate mortgage loans, commercial loans, and installment loans. The Bank primarily extends loans to customers located within the Western New York area. Income on loans represented approximately 66.7% of the total interest income of the Company in 2004 and approximately 70.0% and 69.6% of total interest income in 2003 and 2002, respectively. The Bank’s loan portfolio, after unearned discounts, loan origination costs and allowances for credit losses, totaled $217.6 million and $185.5 million at December 31, 2004 and December 31, 2003, respectively. At December 31, 2004, the Bank had $3.0 million as an allowance for loan losses which is approximately 1.36% of total loans. This compares with approximately $2.5 million at December 31, 2003 which was approximately 1.35% of total loans. The increase of the allowance for loan losses of $0.5 million in 2004 from $2.5 million in 2003 reflects management’s assessment of the portfolio composition, of which higher risk commercial real estate loans comprise a significant component, and its assessment of the New York State and local economy. The net loan portfolio represented approximately 50.7% and 55.4% of the Bank’s total assets at December 31, 2004 and December 31, 2003, respectively.

Real Estate Loans. Approximately 82.5% of the Bank’s loan portfolio at December 31, 2004 consisted of real estate loans or loans collateralized by mortgages on real estate, including residential mortgages, commercial mortgages and other types of real estate loans. The Bank’s real estate loan portfolio was $181.9 million at December 31, 2004, compared to $159.5

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million at December 31, 2003. The real estate loan portfolio increased approximately 14.1% in 2004 over 2003 compared to an increase of 25.1% in 2003 over 2002.

The Bank offers fixed rate residential mortgages with terms of 10 to 30 years with, typically, up to an 80% loan-to-value ratio. Fixed rate residential mortgage loans outstanding totaled $34.3 million at December 31, 2004, which was approximately 15.5% of total loans outstanding. In 1995, the Bank entered into a contractual arrangement with FNMA, whereby mortgages can be sold to FNMA and the Bank retains the servicing rights. In 2004, the Bank sold approximately $2.6 million in mortgages to FNMA under this arrangement, compared to $15.7 million in mortgages sold in 2003. The Bank currently retains the servicing rights on $29.2 million in mortgages sold to FNMA. The Company has recorded no net servicing asset for such loans as it is considered immaterial. During the 2004 fiscal year, the Bank portfolioed a larger percentage of fixed rate residential real estate loans with desired maturities, within the context of overall maturities in the loan portfolio, as a result of generally improving interest rates and the Bank’s capability to absorb the corresponding interest rate risk within the Company’s tolerance ranges.

Since 1993, the Bank has offered adjustable rate residential mortgages with terms of up to 30 years. Rates on these mortgages remain fixed for the first three years and are adjusted annually thereafter. On December 31, 2004, the Bank’s outstanding adjustable rate mortgages were $4.2 million or 1.9% of total loans. This balance did not include any construction mortgages, which are discussed below.

The Bank also offers commercial mortgages with up to a 80% loan-to-value ratio for up to 20 years on a variable and fixed rate basis. Many of these mortgages either mature or are subject to a rate call after three to five years. The Bank’s outstanding commercial mortgages were $107.4 million at December 31, 2004, which was approximately 48.7% of total loans outstanding. This balance included $26.6 million in fixed rate and $80.8 million in variable rate loans, which include rate calls.

The Bank also offers other types of loans collateralized by real estate such as home equity loans. The Bank offers home equity loans at variable and fixed interest rates with terms of up to 15 years and up to an 80% loan-to-value ratio. At December 31, 2004, the real estate loan portfolio included $27.8 million of home equity loans outstanding, which represented approximately 12.6% of its total loans outstanding. This balance included $22.2 million in variable rate and $5.6 million in fixed rate loans.

The Bank also offers both residential and commercial real estate construction loans at up to an 80% loan-to-value ratio at fixed interest or adjustable interest rates and multiple maturities. At December 31, 2004, fixed rate real estate construction loans outstanding were $1.9 million or 0.9% of the Bank’s loan portfolio, and adjustable rate construction loans outstanding were $6.3 million or 2.8% of the portfolio.

As of December 31, 2004, approximately $1.5 million or 0.7% of the Bank’s real estate loans were 30 to 90 days delinquent, and approximately $0.3 million or 0.2% of real estate loans were non-accruing.

Commercial Loans. The Bank offers commercial loans on a secured and unsecured basis, including lines of credit and term loans at fixed and variable interest rates and multiple maturities. The Bank’s commercial loan portfolio totaled $28.8 million and $24.3 million at December 31, 2004 and December 31, 2003, respectively. Commercial loans represented approximately 13.0% and 12.9% of the Bank’s total loans at December 31, 2004 and December 31, 2003, respectively.

As of December 31, 2004, approximately $0.7 million or 2.4% of the Bank’s commercial loans were 30 to 90 days past due and $1.4 million or 4.8% of its commercial loans were non-accruing. This was primarily as a result of one commercial loan being put on non-accrual status during the fourth quarter.

Commercial lending entails significantly more risk than real estate loans. Collateral, where applicable, may consist of inventory, receivables, equipment and other business assets. Approximately 77.1% of the Bank’s commercial loans are at variable rates which are tied to the prime rate.

Installment Loans. The Bank’s installment loan portfolio (which includes personal loans and revolving credit card balances) totaled $2.8 million and $2.6 million at December 31, 2004 and December 31, 2003, respectively, representing approximately 1.3% of the Bank’s total loans at December 31, 2004 and 1.4% of the Bank’s total loans at December 31, 2003. Traditional installment loans are offered at fixed interest rates with various maturities up to 60 months, on a secured and unsecured basis. At December 31, 2004, the installment loan portfolio included $0.2 million in fixed rate credit card

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balances at an interest rate of 10.0% and $0.1 million in the variable rate option. As of December 31, 2004, approximately $25 thousand or 0.9% of the Bank’s installment loans were 30 to 90 days past due.

Student Loans. During 2002, the Bank completed the sale of all of its direct student loans and entered into an agreement whereby it facilitates the submission of student loan applications to the Student Loan Marketing Association (“SLMA”) for a fee. The loans are then originated and subsequently serviced by SLMA. The Bank entered into this arrangement in order to enhance application response time, as well as Bank profitability.

Other Loans. Other loans totaled $2.0 million at December 31, 2004 and $1.2 million at December 31, 2003. Other loans consisted primarily of: loans to municipalities, hospitals, churches and non-profit organizations, at fixed or variable interest rates with multiple maturities; and overdrafts, which totaled $1.5 million and $0.8 million December 31, 2004 and 2003, respectively.

Direct Financing Leases. On December 31, 2004, the Company, together with its newly formed, indirect wholly-owned subsidiary, ENL, entered into a definitive asset purchase agreement with M&C Leasing, a general business equipment leasing company located in West Seneca, New York. As part of this transaction, the Bank purchased approximately $4.5 million in net lease receivables. The lease receivables represent approximately 2.1% of the Bank’s total loans. As of December 31, 2004, approximately $18 thousand or 0.4% of the Bank’s lease receivables were 30-90 days past due and $2 thousand or 0.04% were non-accruing.

The Bank’s lending limit to any one borrower is subject to regulation by the OCC. The Bank continually monitors its loan portfolio to review compliance with new and existing regulations.

The following table summarizes the major classifications of the Bank’s loans (net of deferred origination costs) as of the dates indicated.

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Loan Maturities and Sensitivities of Loans in Interest Rates. The following table shows the maturities of commercial and real estate construction loans outstanding as of December 31, 2004 and the classification of such loans due after one year according to sensitivity to changes in interest rates.

Non-accrual, Past Due and Restructured Loans. The following table summarizes the Bank’s non-accrual and accruing loans 90 days or more past due as of the dates listed below. The Bank had no restructured loans as of those dates. Any loans classified for regulatory purposes as loss, doubtful, substandard or special mention that have not been disclosed do not (i) represent or result from trends or uncertainties which management reasonably expects will materially impact the Company’s future operating results, liquidity or capital resources, or (ii) represent material credit about which management has serious doubts as to the ability of such borrowers to comply with the loan repayment terms. See also “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Allowance for Loan Losses.”

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The following table summarizes the Bank’s allowance for loan losses and changes in the allowance for loan losses by loan categories:

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

Management’s provision for loan losses reflects the continued growth trend in higher risk commercial loans and the Bank’s assessment of the local and New York State economic environment. Both the local and New York State economies have lagged behind national prosperity, which remains unsettled. Marginal job growth, combined with a declining population base, has left the Bank’s primary market more susceptible to potential credit problems. This is particularly true of commercial borrowers. Commercial loans represent a segment of significant past growth, as well as concentration in the Company’s commercial real estate portfolio. Commercial real estate values may be susceptible to decline in an adverse economy. Management believes that the provision for loan losses complies with the regulations of the OCC, and is reflective of its assessment of the local environment, as well as a continued trend in commercial loan activity and balance outstanding.

SOURCES OF FUNDS – DEPOSITS

General. Customer deposits represent the major source of the Bank’s funds for lending and other investment purposes. In addition to deposits, other sources of funds include loan repayments, loan sales on the secondary market, interest and dividends from investments, matured investments, and borrowings from the FRB and the Federal Home Loan Bank (“FHLB”), and from the First Tennessee Bank, which is a correspondent bank.

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Deposits. The Bank offers a variety of deposit products, including checking, passbook, statement savings, NOW accounts, certificates of deposit and jumbo certificates of deposit. Deposits of the Bank are insured up to the limits provided by the FDIC. At December 31, 2004, the Bank’s deposits totaled $301.9 million consisting of the following:

The following table shows daily average deposits and average rates paid on significant deposit categories by the Bank (dollars in thousands):

Federal Funds Purchased and Other Borrowed Funds. Another source of the Bank’s funds for lending and investing activities at December 31, 2004 consisted of short and long term borrowings from the Federal Home Loan Bank.

Other borrowed funds consisted of various advances from the Federal Home Loan Bank with both fixed and variable interest rate terms ranging from 1.53% to 5.34%. The maturities and weighted average rates of other borrowed funds are as follows (dollars in thousands):

Securities Sold Under Agreements to Repurchase. The Bank enters into agreements with depositors to sell to the depositors securities owned by the Bank and repurchase the identical security, generally within one day. No physical movement of the securities is involved. The depositor is informed that the securities are held in safekeeping by the Bank on behalf of the depositor. Securities sold under agreements to repurchase totaled $7.3 million at December 31, 2004 compared to $5.5 million at December 31, 2003.

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MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and/or interest rates of the Bank’s financial instruments. The primary market risk the Company is exposed to is interest rate risk. The core banking activities of lending and deposit-taking expose the Bank to interest rate risk, which occurs when assets and liabilities re-price at different times and by different amounts as interest rates change. As a result, net interest income earned by the Bank is subject to the effects of changing interest rates. The Bank measures interest rate risk by calculating the variability of net interest income in future periods under various interest rate scenarios using projected balances for earning assets and interest-bearing liabilities. Management’s philosophy toward interest rate risk management is to limit the variability of net interest income. The balances of financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of loans and investment securities and expected maturities of investment securities, loans and deposits. Management supplements the modeling technique described above with analysis of market values of the Company’s financial instruments and changes to such market values given changes in the interest rates.

The Bank’s Asset-Liability Committee, which includes members of senior management, monitors the Bank’s interest rate sensitivity with the aid of a computer model which considers the impact of ongoing lending and deposit gathering activities, as well as interrelationships in the magnitude and timing of the re-pricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities. When deemed prudent, management has taken actions, and intends to do so in the future, to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of interest-earning assets and interest-bearing liabilities, and other financial instruments used for interest rate risk management purposes.

SENSITIVITY OF NET INTEREST INCOME
TO CHANGES IN INTEREST RATES

Many assumptions were utilized by the Bank to calculate the impact that changes in interest rates may have on net interest income. The more significant assumptions related to the rate of prepayments of mortgage-related assets, loan and deposit volumes and pricing, and deposit maturities. The Bank also assumed immediate changes in rates, including 200 basis point rate changes. In the event that a 200 basis point rate change cannot be achieved, the applicable rate changes are limited to lesser amounts such that interest rates cannot be less than zero. These assumptions are inherently uncertain and, as a result, the Bank cannot precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly due to the timing, magnitude, and frequency of interest rate changes in market conditions and interest rate differentials (spreads) between maturity/re-pricing categories, as well as any actions, such as those previously described, which management may take to counter such changes. In light of the uncertainties and assumptions associated with the process, the amounts presented in the table above and changes in such amounts are not considered significant to the Bank’s projected net interest income.

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The following schedule sets forth the maturities of the Bank’s time deposits as of December 31, 2004:

ENVIRONMENTAL MATTERS

In the course of its business, the Bank has acquired and may acquire in the future, property securing loans that are in default. There is a risk that the Bank could be required to investigate and clean-up hazardous or toxic substances or chemical releases at such properties after acquisition by the Bank, and may be held liable to a governmental entity or third parties for property damage, personal injury and investigation and clean-up costs incurred by such parties in connection with such contamination. In addition, the owner or former owners of contaminated sites may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from such property.

To date, the Bank has not been required to perform any investigation or clean-up activities, nor has it been subject to any environmental claims. There can be no assurance, however, that this will remain the case in the future.

COMPETITION

All phases of the Company’s business are highly competitive. The Company competes actively with local, regional and national financial institutions, as well as with bank branches or insurance agency offices in the Company’s market area of Erie County, Niagara County, northern Chautauqua County, and northwestern Cattaraugus County, New York. These Western New York counties have a high density of financial institutions, many of which are significantly larger and have greater financial resources than the Company. The Company faces competition for loans and deposits from other commercial banks, savings banks, savings and loan associations, mortgage banking companies, credit unions, insurance companies and other financial services companies. The Company faces additional competition for deposits and insurance business from non-depository competitors such as the mutual fund industry, securities and brokerage firms, and insurance companies and brokerages. The Company attempts to be generally competitive with all financial institutions in its service area with respect to interest rates paid on time and savings deposits, service charges on deposit accounts, and interest rates charged on loans.

SUPERVISION AND REGULATION

Bank holding companies and banks are extensively regulated under both federal and state laws and regulations that are intended to protect depositors. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in the applicable law or regulation, or a change in the way such laws or regulations are interpreted by regulatory agencies or courts, may have a material effect on the business, operations and earnings of the Company.

Bank Holding Company Regulation

As a financial holding company registered under the BHCA, the Company is subject to the regulation and supervision of the FRB, and is required to file with the FRB periodic reports and other information regarding its business operations and those of its subsidiaries.

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The Company is required to obtain the prior approval of the FRB before acquiring direct or indirect ownership or control of more than 5% of the voting shares of a bank or bank holding company. The FRB will not approve any acquisition, merger or consolidation that would have a substantial anti-competitive result, unless the anti-competitive effects of the proposed transaction are outweighed by a greater public interest in meeting the needs and convenience of the public. The FRB also considers managerial, capital and other financial factors in acting on acquisition or merger applications. A bank holding company may not engage in, or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in any non-banking activity, unless such activity has been determined by the FRB to be closely related to banking or managing banks. The FRB has identified by regulation various non-banking activities in which a bank holding company may engage with notice to, or prior approval by, the FRB.

The FRB has enforcement powers over financial holding companies and their subsidiaries, among other things, to interdict activities that represent unsafe or unsound practices or constitute violations of law, rule, regulation, administrative orders, or written agreements with a federal bank regulator. These powers may be exercised through the issuance of cease and desist orders, civil monetary penalties or other actions.

Bank holding companies and their subsidiary banks are also subject to the provisions of the Community Reinvestment Act (“CRA”). Under the terms of the CRA, the FRB (or other appropriate bank regulatory agency, in the case of the Bank, the OCC) is required, in connection with its examination of a bank, to assess such bank’s record in meeting the credit needs of the communities served by that bank, including low- and moderate-income neighborhoods. Furthermore, such assessment is taken into account in evaluating any application made by a bank holding company or a bank for, among other things, approval of a branch or other deposit facility, office relocation, a merger or an acquisition of bank shares.

Supervision and Regulation of Bank Subsidiaries

The Bank is a nationally chartered banking corporation subject to supervision, examination and regulation of the FRB, the FDIC and the OCC. These regulators have the power to enjoin “unsafe or unsound practices,” require affirmative action to correct any conditions resulting from any violation or practice, issue an administrative order that can be judicially enforced, direct an increase in capital, restrict the growth of a bank, assess civil monetary penalties, and remove a bank’s officers and directors.

The operations of the Bank are subject to numerous statutes and regulations. Such statutes and regulations relate to required reserves against deposits, investments, loans, mergers and consolidations, issuance of securities, payment of dividends, establishment of branches, and other aspects of the Bank’s operations. Various consumer laws and regulations also affect the operations of the Bank, including state usury laws, laws relating to fiduciaries, consumer credit and equal credit, fair credit reporting, and privacy of non-public financial information.

The Bank is subject to Sections 23A and 23B of the Federal Reserve Act and Regulation W thereunder, which govern certain transactions, such as loans, extensions of credit, investments and purchases of assets between member banks and their affiliates, including their parent holding companies. These restrictions limit the transfer of funds to the Company in the form of loans, extensions of credit, investments or purchases of assets (collectively, “Transfers”), and they require that the Bank’s transactions with the Company be on terms no less favorable to the Bank than comparable transactions between the Bank and unrelated third parties. Transfers by the Bank to the Company are limited in amount to 10% of the Bank’s capital and surplus, and transfers to all affiliates are limited in the aggregate to 20% of the Bank’s capital and surplus. Furthermore, such loans and extensions of credit are also subject to various collateral requirements. These regulations and restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds for acquisitions, and the payment of dividends, interest and operating expenses.

The Bank is prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. For example, the Bank may not generally require a customer to obtain other services from the Bank or the Company, and may not require the customer to promise not to obtain other services from a competitor as a condition to an extension of credit. The Bank is also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal stockholders or any related interest of such persons. Extensions of credit: (i) must be made on substantially the same terms (including interest rates and collateral) as, and following credit underwriting procedures that are not less stringent than those prevailing at the time for comparable transactions with persons not covered above and who are not employees, and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. The Bank is also subject to certain lending limits and restrictions on overdrafts to such persons. A violation of these restrictions may result in the assessment of substantial civil monetary

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penalties on the Bank or any officer, director, employee, agent or other person participating in the conduct of the affairs of the Bank or the imposition of a cease and desist order.

The deposits of the Bank are insured by the FDIC through the Insurance Fund to the extent provided by law. Under the FDIC’s risk-based insurance system, institutions insured through the Insurance Fund are currently assessed premiums based on eligible deposits, and depending upon the institutions’ capital position and other supervisory factors. Legislation also provides for assessments against institutions insured through the Insurance Fund which will be used to pay certain financing corporation (“FICO”) obligations. In addition to any Insurance Fund assessments, banks insured through the Insurance Fund are expected to make payments for the FICO obligations based on eligible deposits each year. The assessment is determined quarterly.

Regulations promulgated by the FDIC pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 place limitations on the ability of certain insured depository institutions to accept, renew or rollover deposits by offering rates of interest which are significantly higher than the prevailing rates of interest on deposits offered by other depository institutions having the same type of charter in such depository institutions’ normal market area. Under these regulations, well-capitalized institutions may accept, renew or rollover such deposits without restriction, while adequately capitalized institutions may accept, renew or rollover such deposits with a waiver from the FDIC (subject to certain restrictions on payment of rates). Undercapitalized institutions may not accept, renew or rollover such deposits.

Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with: (i) the default of a commonly controlled FDIC-insured depository institution, or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured institution in danger of default. “Default” is defined generally as the appointment of a conservator or receiver, and “in danger of Default” is defined generally as the existence of certain conditions indicating that a “default” is likely to occur in the absence of regulatory assistance.

The federal regulators have adopted regulations and examination procedures promoting the safety and soundness of individual institutions by specifically addressing, among other things: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset growth; (vi) ratio of classified assets to capital; (vii) minimum earnings; and (viii) compensation and benefits standards for management officials.

The FRB, the OCC and other federal banking agencies have broad enforcement powers, including the power to terminate deposit insurance, and impose substantial fines and other civil and criminal penalties and appoint a conservator or receiver for the assets of a regulated entity. Failure to comply with applicable laws, regulations and supervisory agreements could subject the Company or its banking subsidiary, as well as officers, directors and other institution-affiliated parties of these organizations, to administrative sanctions and potential civil monetary penalties.

Capital Adequacy

The FRB, the FDIC and the OCC have adopted risk-based capital adequacy guidelines for bank holding companies and banks under their supervision. Under these guidelines, the so-called “Tier 1 capital” and “Total capital” as a percentage of risk-weighted assets and certain off-balance sheet instruments must be at least 4% and 8%, respectively.

The FRB, the FDIC and the OCC have also imposed a leverage standard to supplement their risk-based ratios. This leverage standard focuses on a banking institution’s ratio of Tier 1 capital to average total assets, adjusted for goodwill and certain other items. Under these guidelines, banking institutions that meet certain criteria, including excellent asset quality, high liquidity, low interest rate exposure and good earnings, and that have received the highest regulatory rating must maintain a ratio of Tier 1 capital to total adjusted average assets of at least 3%.

Institutions not meeting these criteria, as well as institutions with supervisory, financial or operational weaknesses, along with those experiencing or anticipating significant growth, are expected to maintain a Tier 1 capital to total adjusted average assets ratio equal to at least 4%. As reflected in the following table, the risk-based capital ratios and leverage ratios of the Company and the Bank as of December 31, 2004 and 2003 exceeded the required capital ratios for classification as “well capitalized,” the highest classification under the regulatory capital guidelines.

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Capital Components and Ratios at December 31,
(dollars in thousands)

The federal banking agencies, including the FRB and the OCC, maintain risk-based capital standards in order to ensure that those standards take adequate account of interest rate risk, concentration of credit risk, the risk of non-traditional activities and equity investments in non-financial companies, as well as reflect the actual performance and expected risk of loss on certain multifamily housing loans. Bank regulators periodically propose amendments to the risk-based capital guidelines and related regulatory framework, and consider changes to the risk-based capital standards that could significantly increase the amount of capital needed to meet the requirements for the capital tiers described below. While the Company’s management studies such proposals, the timing of adoption, ultimate form and effect of any such proposed amendments on the Company’s capital requirements and operations cannot be predicted.

The federal banking agencies are required to take “prompt corrective action” in respect of depository institutions and their bank holding companies that do not meet minimum capital requirements, FDICIA established five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier, or that of its bank holding company, depends upon where its capital levels are in relation to various relevant capital measures, including a risk-based capital measure and a leverage ratio capital measure, and certain other factors.

Under the implementing regulations adopted by the federal banking agencies, a bank holding company or bank is considered “well capitalized” if it has: (i) a total risk-based capital ratio of 10% or greater; (ii) a Tier 1 risk-based capital ratio of 6% or greater; and (iii) a leverage ratio of 5% or greater; and is not subject to any order or written directive to meet and maintain a specific capital level for an capital measure. An “adequately capitalized” bank holding company or bank is defined as one that has: (i) a total risk-based capital ratio of 8% or greater; (ii) a Tier 1 risk-based capital ratio of 4% or greater; and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of a bank with a composite CAMELS rating of (1)). A bank holding company or bank is considered (A) “undercapitalized” if it has: (i) a total risk-based capital ratio of less than 8%; (ii) a Tier 1 risk-based capital ratio of less than 4%; or (iii) a leverage ratio of less than 4% (or 3% in the case of a bank with a composite CAMELS rating of (1)); (B) “significantly undercapitalized” if the bank has: (i) a total risk-based capital ratio of less than 6%; or (ii) a Tier 1 risk-based capital ratio of less than 3%; or (iii) a leverage ratio of less than 3%; and (C) “critically undercapitalized” if the bank has a ratio of tangible equity to total assets equal to or less than 2%. The FRB may reclassify a “well capitalized” bank holding company or bank as “adequately capitalized” or subject an “adequately capitalized” or “undercapitalized” institution to the supervisory actions applicable to the next lower capital category if it determines that the bank holding company or bank is in an unsafe or unsound condition or deems the bank holding company or bank to be engaged in an unsafe or unsound practice and not to have corrected the deficiency. The Company and the Bank currently meet the definition of “well capitalized” institutions.

“Undercapitalized” depository institutions, among other things, are subject to growth limitations; are prohibited, with certain exceptions, from making capital distributions; are limited in their ability to obtain funding from a Federal Reserve Bank; and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan and provide appropriate assurances of performance. If a depository institution fails to submit an acceptable plan, including if the holding company refuses or is unable to make the guarantee described in the previous sentence, it is treated as if it is

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“significantly undercapitalized.” Failure to submit or implement an acceptable capital plan also is grounds for the appointment of a conservator or a receiver. “Significantly undercapitalized” depository institutions may be subject to a number of additional requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Moreover, the parent holding company of a “significantly undercapitalized” depository institution may be ordered to divest itself of the institution or of non-bank subsidiaries of the holding company. “Critically undercapitalized” institutions, among other things, are prohibited from making any payments of principal and interest on subordinated debt, and are subject to the appointment of a receiver or conservator.

Each federal banking agency prescribes standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares and other standards as they deem appropriate. The FRB and the OCC have adopted such standards.

Financial Services Modernization and Other Recent Legislation

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”) facilitates the interstate expansion and consolidation of banking organizations by permitting bank holding companies that are adequately capitalized and managed to acquire banks located in states outside their home states, regardless of whether such acquisitions are authorized under the law of the host state. The Riegle-Neal Act also permits interstate mergers of banks, with some limitations, and the establishment of new branches on an interstate basis, provided that such actions are authorized by the law of the host state.

The Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) permits banks, securities firms and insurance companies to affiliate under a common holding company structure. In addition to allowing new forms of financial services combinations, the GLB Act clarifies how financial services conglomerates will be regulated by the different federal and state regulators. The GLB Act amended by the BHCA and expanded the permissible activities of certain qualifying bank holding companies, known as financial holding companies. In addition to engaging in banking and activities closely related to banking, as determined by the FRB by regulation or order, financial holding companies may engage in activities that are financial in nature or incidental to financial activities that are complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. Under the GLB Act, all financial institutions, including the Company and the Bank, are required to develop privacy policies, restrict the sharing of non-public customer data with non-affiliated parties at the customer’s request, and establish procedures and practices to protect customer data from unauthorized access.

USA PATRIOT Act

The USA PATRIOT Act of 2002 (the “Patriot Act”) imposes additional obligations on U.S. financial institutions, including banks and broker-dealer subsidiaries, to implement policies, procedures and controls which are reasonably designed to prevent, detect and report instances of money laundering and the financing of terrorism. In addition, provisions of the Patriot Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.

Sarbanes-Oxley Act

On July 30, 2002, the Sarbanes-Oxley Act of 2002 (the “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.

The SOA includes very specific additional disclosure requirements and new corporate governance rules; requires the SEC, the national securities exchanges and the national securities associations to adopt and implement disclosure and corporate governance standards; and mandates further studies or 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.

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The SOA addresses, among other matters: audit committees; required reporting on internal controls over financial reporting by management and auditors; certification of financial statements by a reporting company’s chief executive officer and chief financial officer, or their equivalent; 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 12-month period following initial publication of any financial statements that later require restatement; a prohibition on insider trading during pension plan blackout periods; disclosure of off-balance sheet transactions; a prohibition on certain loans to directors and officers; expedited filing requirements for Forms 4; the adoption of a code of ethics for the issuer’s principal executive officer and principal financial and accounting officers, and disclosure of any change or waiver of such code; “real time” filing of periodic reports; the formation of a public company accounting oversight board; auditor independence; and various increased civil and criminal penalties for violations of securities laws.

Some provisions of the SOA went into effect immediately (July 30, 2002), while others required the SEC to adopt implementing rules within specified periods. Nearly all of the implementing rules have been finalized by the SEC.

Monetary Policy and Economic Control

The commercial banking business is affected not only by general economic conditions, but also by the monetary policies of the FRB. Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount window,” open market operations, the imposition of changes in reserve requirements against member banks’ deposits and assets of foreign branches and the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates are some of the instruments of monetary policy available to the FRB. These monetary policies are used in varying combinations to influence overall growth and distributions of bank loans, investments and deposits, and this use may affect interest rates charged on loans or paid on deposits. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks and are expected to continue to do so in the future. The monetary policies of these agencies are influenced by various factors, including inflation, unemployment, and short-term and long-term changes in the international trade balance and in the fiscal policies of the United States Government. Future monetary policies and the effect of such policies on the future business and earnings of the Company cannot be predicted.

SUBSIDIARIES OF THE COMPANY

Evans National Financial Services, Inc. ENFS, a wholly-owned subsidiary of the Company, is a holding company for the financial services business of the Company, including ENBI.

ENB Insurance Agency, Inc. ENBI, a retail property and casualty insurance agency, is a wholly-owned subsidiary of ENFS, formed in connection with the acquisition of M&W Group, Inc. on September 1, 2000. ENBI is headquartered in Angola, New York, with offices located throughout Western New York in Derby, Eden, Gowanda, Hamburg, Lockport, North Boston, Silver Creek, South Dayton, Cattaraugus, Randolph and West Seneca. ENBI is a full-service insurance agency offering personal, commercial and financial services products. It also has a small consulting department. For the year ended December 31, 2004, ENBI had a premium volume of approximately $36.9 million and net premium revenue of $4.9 million.

ENBI’s primary market area is Erie, Chautauqua, Cattaraugus and Niagara counties. All lines of personal insurance are provided, including automobile, homeowner’s, boat, recreational vehicle, landlord and umbrella coverages. Commercial insurance products are also provided, consisting of property, liability, automobile, inland marine, workers compensation, bonds, crop and umbrella insurance. ENBI also provides the following financial services products: life and disability insurance, Medicare supplements, long term care, annuities, mutual funds, retirement programs and New York State Disability.

ENBI has a small consulting division which does work almost exclusively with school districts. The majority of the work is done in preparing specifications for bidding and reviewing existing insurance programs. The majority of the consulting accounts are located in central and eastern New York.

In the personal insurance area, the majority of ENBI’s competition comes from direct writers, as well as some small local agencies located in the same towns and villages in which ENBI has offices. In the commercial business segment, the majority of the competition comes from larger agencies located in and around Buffalo, New York. By offering the large number of carriers which it has available to its customers, ENBI has attempted to remain competitive in all aspects of its business.

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ENBI is regulated by the New York State Insurance Department. It meets and maintains all licensing and continuing education requirements required by the State of New York.

Frontier Claims Services, Inc. FCS, a wholly-owned subsidiary of ENBI, provides insurance adjusting services for insurance companies. FCS is located in Buffalo, New York.

Evans National Bank. The Bank is a wholly-owned subsidiary of the Company. The Bank’s business is described above.

Evans National Leasing, Inc. ENL, a wholly-owned subsidiary of the Bank, was organized in December 2004 to acquire the business and substantially all of the assets, and assume certain liabilities, of M&C Leasing of West Seneca, New York. ENL provides direct financing leasing of commercial small-ticket general business equipment to companies located throughout the contiguous 48 United States.

ENB Associates Inc. ENB, a wholly-owned subsidiary of the Bank, provides non-deposit investment products, such as mutual funds and annuities, to Bank customers at Bank branch locations. ENB has an investment services agreement with O’Keefe Shaw & Co., Inc., through which ENB can purchase and sell securities to its customers.

Evans National Holding Corp. ENHC, a wholly-owned subsidiary of the Bank, holds certain real estate loans and provides management services. ENHC is operated as a REIT, which provides additional flexibility and planning opportunities for the business of the Bank.

Evans Capital Trust I. Evans Capital Trust I, a wholly-owned subsidiary of the Company, was organized solely to issue and sell certain securities representing undivided beneficial interests of the Trust and investing the proceeds thereof in certain debentures of the Company.

The Company currently operates in two reportable segments - banking and insurance. For the years ended December 31, 1999 and prior, the Company determined that its business was comprised of banking activity only. For disclosure of segmented operations, see Note 17 included in the Company’s Consolidated Financial Statements under Item 8 of this Report on Form 10-K.

EMPLOYEES

As of December 31, 2004, the Company had no direct employees. As of December 31, 2004, the following table summarizes the employment rosters of the Company’s subsidiaries:

The Company’s subsidiaries have good relationships with their employees.

OTHER INFORMATION

The Company’s Internet address is www.evansbancorp.com. Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(A) or 15(d) of The Exchange Act, are available through the Company’s website as soon as reasonably practical after filing such material with, or furnishing it to, the SEC. We are providing the address of the Company’s Internet site solely for the information of investors. We do not intend the address to be an active link or to otherwise incorporate the contents of the website into this Report on Form 10-K.

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Item 2.	PROPERTIES

The Bank conducts its business from its administrative office and nine branch offices as of December 31, 2004; its tenth branch office opened in January 2005. The administrative office is located at One Grimsby Drive in Hamburg, New York, and was purchased in June 2004. The administrative office facility is 26,000 square feet and is owned by the Bank. This facility is occupied by the Office of the President and Chief Executive Officer, as well as the Administrative and Loan Divisions.

The Bank’s locations are as follows:

The Bank also operates in-school branch banking facilities in the West Seneca East High School, 4760 Seneca Street, West Seneca, New York and the West Seneca West High School, 3330 Seneca Street, West Seneca, New York. The in-school branches each have a cash dispensing style ATM located at the sites. There are no lease payments required.

During fiscal 2004, ENL operated from its leased offices at 1050 Union Road, Suite 2, West Seneca, New York. In February 2005, ENL relocated their offices to One Grimsby Drive, Hamburg, New York.

ENBI operates from its headquarters, a 9,300 square foot office located at 16 North Main Street, Angola, New York, which is owned by the Bank, and retail locations as follows:

Item 3.	LEGAL PROCEEDINGS

There are no material legal proceedings to which the Company is a party.

The nature of the Company’s business generates a certain amount of litigation involving matters arising in the ordinary course of business. However, in the opinion of management of the Company, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely to the Company, would be

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material in relation to the Company’s financial condition. No material proceedings are pending or are known to be threatened or contemplated against the Company by governmental authorities.

Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of shareholders during the fourth quarter of fiscal 2004.

PART II

Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITES

Market. The Company’s common stock is quoted on The Nasdaq National Market system (“Nasdaq”) under the symbol EVBN, and has been quoted on Nasdaq since July 9, 2001. The Company distributed a 5% stock dividend declared on January 29, 2003 to shareholders of record on December 2, 2002; a 5% stock dividend on December 1, 2003 to shareholders of record on October 14, 2003; and a 5% stock dividend on December 30, 2004 to shareholders of record on December 9, 2004. All share and per share data contained in this Report on Form 10-K have been adjusted to reflect the stock dividends.

The following table shows, for the periods indicated, the high and low sales prices per share of the Company’s common stock as reported on Nasdaq for fiscal 2004 and 2003.

Holders. The approximate number of holders of record of the Company’s common stock at March 14, 2005 was 1,479.

Cash Dividends. The Company paid the following cash dividends on shares of the Company’s common stock during fiscal 2003 and 2004:

	•	A cash dividend of $0.29 per share on April 1, 2003 to holders of record on March 11, 2003.
	•	A cash dividend of $0.31 per share on October 1, 2003 to holders of record on September 10, 2003.
	•	A cash dividend of $0.31 per share on April 6, 2004 to holders of record on March 16, 2004.
	•	A cash dividend of $0.33 per share on October 4, 2004 to holders of record on September 10, 2004.

In addition, the Company has declared a cash dividend of $0.33 per share payable on April 4, 2005 to holders of record as of March 14, 2005.

All per share amounts have been adjusted to reflect the stock dividends described above. As a result of these adjustments, the amounts reported have been rounded for presentation purposes.

The amount, if any, of future dividends will be determined by the Company’s Board of Directors and will depend upon the Company’s earnings, financial conditions and other factors considered by the Board of Directors to be relevant. Banking regulations limit the amount of dividends that may be paid without prior approval of the OCC. See Notes 8 and 19 to the Company’s Consolidated Financial Statements included under Item 8 to this Report on Form 10-K.

Unregistered Sales of Equity Securities. On December 31, 2004, ENL acquired substantially all of the assets and business of M&C Leasing for an aggregate purchase price of approximately $1.2 million in cash, the assumption of $4.2 million in liabilities, plus up to approximately $0.5 million of potential earn-out payments payable to M&C Leasing if

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ENL’s operations meet or exceed future annual performance targets. The earn-out payments are tied to the attainment by ENL of annual net income, before taxes targets for its fiscal years ended December 31, 2005, 2006, 2007, 2008 and 2009. Up to a maximum of $162,000 of the 2006 earn-out payment, if any, may be paid to M&C Leasing in shares of Company common stock. Whether or not shares of Company common stock are actually issued and, if so, the number of shares that may be issued will depend upon, among other things, ENL’s net income, before taxes, for its fiscal year 2006 and the average closing sales price (or bid price, if no sales price is reported) per share of the Company’s common stock for the 20 trading days immediately prior to the date of issuance, if at all, of Company common stock. Any shares issued pursuant to the earn-out will be issued in reliance upon an exemption from registration under Regulation D under the Securities Act.

Securities Sold Under Dividend Reinvestment Plan. On August 26, 1997, the Company filed a registration statement on Form S-3D with the SEC registering 50,000 shares of its common stock under the Securities Act for issuance under the Company’s Dividend Reinvestment Plan (the “DRIP”). The Company has recently discovered that the number of shares of its common stock that have been issued and sold under the DRIP is in excess of the number of shares registered by the Company. As a result, the additional shares were issued and sold without registration under the Securities Act, which may expose the Company to certain liabilities under the Securities Act. Based upon the Company’s preliminary assessment, the Company believes that 11,545 unregistered shares were issued, consisting of 4,070 shares in connection with a dividend paid on April 4, 2004 and 7,475 shares in connection with a dividend paid on October 4, 2004. No shares of common stock have been issued or sold under the DRIP since October 4, 2004.

The Company will evaluate whether an offer of rescission to those participants in the DRIP who received unregistered shares of its common stock is appropriate. In consideration of all relevant facts and circumstances, including the market prices of the Company’s common stock at relevant times, the Company does not believe that any liability arising out of this matter will have a material adverse effect on its financial condition or results of operations.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers. The following table includes all issuer repurchases, including those made pursuant to publicly announced plans or programs.