-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K5Fh99S4jdTGaIR+/8GvCD467OE7875xVnjsaABeO0ebMuhK+DnZBuypkvyNIL/f c5fe12kJWKzB4h5AJevRgg== 0000950152-02-007746.txt : 20021023 0000950152-02-007746.hdr.sgml : 20021023 20021023143842 ACCESSION NUMBER: 0000950152-02-007746 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021023 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVANS BANCORP INC CENTRAL INDEX KEY: 0000842518 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 161332767 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18539 FILM NUMBER: 02796044 BUSINESS ADDRESS: STREET 1: 14-16 N MAIN ST CITY: ANGOLA STATE: NY ZIP: 14006 BUSINESS PHONE: 7165491000 MAIL ADDRESS: STREET 1: 14-16 N MAIN STREET CITY: ANGOLA STATE: NY ZIP: 14006 10-Q 1 l96637ae10vq.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended September 30, 2002 ------------------ [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ----------- Commission file number 0-18539 --------------------------- EVANS BANCORP, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) New York 16-1332767 ------------------------------- ---------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14 -16 North Main Street, Angola, New York 14006 ------------------------------------------------- (Address of principal executive offices) (Zip Code) (716) 549-1000 ------------------------------------------------- (Issuer's telephone number) Not Applicable ------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check (X) whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock, $.50 Par Value--2,223,580 shares as of October 17, 2002 INDEX EVANS BANCORP, INC. AND SUBSIDIARY
PAGE PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets-September 30, 2002 and December 31, 2001 1 Consolidated Statements of Income-Three months ended September 30, 2002 and 2001 2 Consolidated Statements of Income-Nine months ended September 30, 2002 and 2001 3 Consolidated Statements of Stockholders' Equity-Nine months ended September 30, 2002 and 2001 4 Consolidated Statements of Cash Flows-Nine months ended September 30, 2002 and 2001 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures About Market Risks 22 Item 4. Controls and Procedures 23 PART II. OTHER INFORMATION 23 - --------------------------- Item 1. Legal Proceedings Item 2. Changes In Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 24 CERTIFICATIONS 25
PART I - FINANCIAL INFORMATION PAGE 1 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS September 30, 2002 and December 31, 2001 (Unaudited)
September 30, December 31, 2002 2001 ------------ ------------ ASSETS Cash and due from banks $9,873,469 $7,894,087 Federal funds sold 1,275,000 2,800,000 Securities: Classified as available-for-sale, at fair value 88,124,018 81,735,376 Classified as held-to-maturity, at amortized cost 3,477,794 2,329,855 Loans, net of allowance for loan losses of $2,084,235 in 2002 and $1,786,115 in 2001 148,279,007 142,469,032 Properties and equipment, net 4,838,985 4,122,733 Goodwill, net 2,932,913 2,760,113 Other intangible assets, net 309,150 83,250 Other assets 5,508,525 4,958,966 ------------ ------------ TOTAL ASSETS $264,618,861 $249,153,412 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Demand $40,645,783 $39,597,700 NOW and money market accounts 9,396,415 9,604,537 Regular savings 81,212,419 64,351,240 Time deposits, $100,000 and over 25,946,016 28,864,608 Other time accounts 58,784,724 61,841,977 ------------ ------------ 215,985,357 204,260,062 Other borrowed funds 9,043,973 9,660,748 Dividend payable 686,787 0 Securities sold under agreements to repurchase 3,288,422 4,006,669 Other liabilities 5,370,614 4,265,164 ------------ ------------ TOTAL LIABILITIES 234,375,153 222,192,643 ------------ ------------ STOCKHOLDERS' EQUITY Common stock, $.50 par value; 10,000,000 shares authorized; 2,215,441 and 2,206,467 shares issued respectively 1,107,721 1,103,234 Capital surplus 13,885,565 13,727,084 Retained earnings 12,900,846 11,464,273 Accumulated other comprehensive income net 2,366,324 666,178 ------------ ------------ 30,260,456 26,960,769 Less: Treasury stock -16,748 0 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 30,243,708 26,960,769 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $264,618,861 $249,153,412 ============ ============
See Notes to Consolidated Financial Statements. PART I - FINANCIAL INFORMATION PAGE 2 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME For the Three Months ended September 30, 2002 and 2001 (Unaudited)
Three Months Ended September 30, 2002 2001 ----------- ---------- INTEREST INCOME Loans $2,689,269 $2,795,682 Federal funds sold 13,856 33,235 Securities: Taxable 580,543 726,969 Non-taxable 510,743 390,828 ---------- ---------- Total Interest Income 3,794,411 3,946,714 INTEREST EXPENSE Interest on deposits 1,037,567 1,452,732 Short term borrowing 130,600 158,398 ---------- ---------- NET INTEREST INCOME 2,626,244 2,335,584 PROVISION FOR LOAN LOSSES 105,000 139,000 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,521,244 2,196,584 ---------- ---------- NON-INTEREST INCOME: Service charges 260,993 273,736 Premium on loans sold-SLMA 1,374 2,352 Premium/discount on loans sold-FNMA 11,645 5,298 Insurance service and fees 737,126 562,429 Non deposit investment commissions 88,402 23,676 Other 302,165 201,795 ORE loss (27,201) 0 Securities gain 0 77,828 ---------- ---------- Total non-interest income 1,374,504 1,147,114 ---------- ---------- NON-INTEREST EXPENSE: Salaries and employee benefits 1,412,706 1,201,564 Occupancy 325,057 282,286 Supplies 61,132 52,933 Repairs and maintenance 97,485 91,817 Advertising and public relations 49,523 40,784 Professional services 146,335 136,394 FDIC assessments 8,876 8,755 Other insurance 72,253 66,108 Amortization of goodwill 0 79,620 Other 495,471 390,501 ---------- ---------- Total non-interest expense 2,668,838 2,350,762 ---------- ---------- Income before income taxes 1,226,910 992,936 ---------- ---------- INCOME TAXES 292,189 267,665 ---------- ---------- NET INCOME $ 934,721 $ 725,271 ========== ========== NET INCOME PER COMMON SHARE-BASIC* $ 0.42 $ 0.33 ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES* 2,215,174 2,199,042 ========== ========== *Adjusted for five-for-four stock split
See Notes to Consolidated Financial Statements. PART I - FINANCIAL INFORMATION PAGE 3 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME For the Nine Months ended September 30, 2002 and 2001 (Unaudited)
Nine Months Ended September 30, 2002 2001 ----------- ---------- INTEREST INCOME Loans $ 8,117,019 $8,438,926 Federal funds sold 54,037 115,656 Securities: Taxable 2,004,507 2,249,269 Non-taxable 1,466,210 1,142,332 ----------- ---------- Total interest income 11,641,773 11,946,183 INTEREST EXPENSE Interest on deposits 3,352,435 4,732,991 Short term borrowing 418,258 370,788 ----------- ---------- NET INTEREST INCOME 7,871,080 6,842,404 PROVISION FOR LOAN LOSSES 315,000 309,000 ----------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,556,080 6,533,404 ----------- ---------- NON-INTEREST INCOME: Service charges 817,726 768,301 Premium on loan sold-SLMA 2,474 4,266 Premium/Discount on loans sold-FNMA 31,786 9,523 Insurance service and fees 2,243,535 1,865,227 Non deposit investment commissions 183,066 91,906 Other 724,522 555,615 ORE loss (88,992) 0 Securities gain 111,302 165,967 ----------- ---------- Total non-interest income 4,025,419 3,460,805 ----------- ---------- NON-INTEREST EXPENSE: Salaries and employee benefits 4,104,031 3,615,880 Occupancy 962,797 863,058 Supplies 170,652 169,735 Repairs and maintenance 303,632 280,902 Advertising and public relations 145,475 110,153 Professional services 425,572 367,701 FDIC assessment 26,101 25,911 Other insurance 210,193 210,099 Amortization of goodwill 0 238,860 Other 1,508,699 1,197,399 ----------- ---------- Total non-interest expense 7,857,152 7,079,698 ----------- ---------- Income before income taxes 3,724,347 2,914,511 ----------- ---------- INCOME TAXES 983,189 884,000 ----------- ---------- NET INCOME $ 2,741,158 $2,030,511 =========== ========== NET INCOME PER COMMON SHARE-BASIC* $ 1.24 $ 0.92 =========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES* 2,211,862 2,199,042 =========== ========== *Adjusted for five-for-four stock split
See Notes to Consolidated Financial Statements. PART 1-FINANCIAL INFORMATION PAGE 4 ITEM 1-FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) - --------------------------------------------------------------------------------
ACCUMULATED OTHER COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY STOCK SURPLUS EARNINGS INCOME ( LOSS) STOCK TOTAL Balance, January 1, 2001 $ 879,801 $ 13,810,991 $ 9,953,780 $ 534,500 $ 0 $25,179,072 Comprehensive income: 2001 net income 2,030,511 2,030,511 Unrealized gain on available for sale securities, net of reclassification adjustment and tax effect of $297,425 708,156 708,156 ----------- Total comprehensive income 2,738,667 ----------- Cash dividends ($.49 per common share) (1,068,834) (1,068,834) Purchase of 3,086 shares for treasury (145,042) (145,042) Five-for-Four stock split 219,720 219,720 w/fractional shares paid in cash (241,317) (241,317) Reissuance of treasury stock under stock 145,042 145,042 dividend plan of 3,086 shares ----------- ------------ ------------ ----------- --------- ----------- Balance, September 30, 2001 $ 1,099,521 $ 13,569,674 $ 10,915,457 $ 1,242,656 $ 0 $26,827,308 =========== ============ ============ =========== ========= ===========
NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) - --------------------------------------------------------------------------------
ACCUMULATED OTHER COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY STOCK SURPLUS EARNINGS INCOME ( LOSS) STOCK TOTAL Balance, January 1, 2002 $ 1,103,234 $ 13,727,084 $ 11,464,273 $ 666,178 $ 0 26,960,769 Comprehensive income: 2002 net income 2,741,158 2,741,158 Unrealized gain on available for sale securities, net of reclassification adjustment and tax effect of $1,099,830 1,700,146 1,700,146 ----------- Total comprehensive income 4,441,304 ----------- Cash dividends ($.59 per common share) (1,304,585) (1,304,585) Issued 8,974 shares under dividend reinvestment plan 4,487 158,481 162,968 Purchases of 800 shares for treasury (16,748) (16,748) ----------- ------------ ------------ ----------- --------- ----------- Balance, September 30, 2002 $ 1,107,721 $ 13,885,565 $ 12,900,846 $ 2,366,324 $ (16,748) $30,243,708 =========== ============ ============ =========== ========= ===========
See Notes to Consolidated Financial Statements. PART I - FINANCIAL INFORMATION PAGE 5 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2002 and 2001 (Unaudited)
Nine Months Ended September 30, 2002 2001 ----------- ---------- OPERATING ACTIVITIES Interest received $11,620,469 $11,988,740 Fees and commissions received 3,833,511 3,082,454 Interest paid (3,946,881) (5,141,985) Cash paid to suppliers and employees (7,537,471) (4,818,860) Income taxes paid (1,107,877) (1,178,000) ----------- ----------- Net cash provided by operating activities 2,861,751 3,932,349 ----------- ----------- INVESTING ACTIVITIES Available for sale securities Purchases (42,210,419) (33,745,016) Proceeds from sales 8,463,344 13,110,548 Proceeds from maturities 29,512,656 14,994,873 Held to maturity securities Purchases (2,076,777) (2,387,454) Proceeds from maturities 1,532,038 2,060,247 Additions to properties and equipment (1,206,352) (755,129) Increase in loans, net of repayments (13,875,915) (16,304,557) Proceeds from sales of loans 7,750,943 6,087,254 Proceeds from sales of other real estate owned 69,420 0 Cash paid in acquisition of Eden Agency (50,000) 0 ----------- ----------- Net cash used in investing activities (12,091,062) (16,939,234) ----------- ----------- FINANCING ACTIVITIES Increase in deposits 11,725,295 8,814,543 Net (repayment) purchase of short term borrowing (1,570,022) 4,931,853 Purchase of treasury stock (16,748) 0 Dividends paid (454,832) (496,689) ----------- ----------- Net cash provided by financing activities 9,683,693 13,249,707 ----------- ----------- Net increase in cash and cash equivalents 454,382 242,822 Cash and cash equivalents, January 1 10,694,087 9,358,912 ----------- ----------- Cash and cash equivalents, September 30 $11,148,469 $ 9,601,734 =========== ===========
See Notes to Consolidated Financial Statements. PART I - FINANCIAL INFORMATION PAGE 6 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2002 and 2001 (Unaudited)
Nine Months Ended September 30, 2002 2001 ----------- ---------- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 2,741,158 $ 2,030,511 ----------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 736,455 996,237 Provision for loan losses 315,000 309,000 Gain on sale of assets (56,570) (179,756) Decrease in accrued interest payable (176,188) (38,207) Increase in accrued interest receivable (175,319) (46,948) Decrease in other liabilities (57,802) (853,413) (Increase) decrease in other assets (464,983) 1,714,925 ----------- ---------- Total adjustments 120,593 1,901,838 ----------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,861,751 $3,932,349 =========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Net unrealized gain on available for sale securities $ 3,897,108 $2,142,508 =========== ==========
See Notes to Consolidated Financial Statements. Page 7 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2002 and 2001 1. GENERAL The accounting and reporting policies followed by Evans Bancorp, Inc., (the "Company") a bank holding company, and its wholly-owned subsidiary, Evans National Bank, (the "Bank") and the Bank's wholly-owned subsidiaries, ENB Associates Inc., ("ENB"), M&W Agency, Inc., ("M&W") and Evans National Holding Corp ("ENHC") in the preparation of the accompanying interim financial statements conform with generally accepted accounting principles and with general practice within the banking industry. The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal recurring nature. The results of operations for the nine month period ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year. 2. SECURITIES Securities which the Company has the positive ability and intent to hold to maturity are stated at cost, plus discounts accrued and less premiums amortized. Securities which the Company has identified as available for sale are stated at fair value. 3. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses represents the amount charged against the Bank's earnings to establish a reserve or allowance sufficient to absorb expected loan losses based on management's evaluation of the loan portfolio. Factors considered include loan concentrations, charge-off history, delinquent loan percentages, input from regulatory agencies and general economic conditions. Management's provision for loan losses reflects its current assessment of the New York State and local economy. Both have lagged behind national prosperity, which is now unsettled. Marginal job growth, in conjunction with a declining population base, has left the Bank's market more susceptible to potential credit problems during an economic downturn. This is particularly true of commercial borrowers. Commercial loans represent a segment of significant past growth as well as concentration in the Company's real estate portfolio. Commercial real estate values may be susceptible to decline in an adverse economy. Management believes that the reserve is also in accordance with regulations promulgated by the OCC, and is reflective of its assessment of the local environment as well as a continued growth trend in commercial loans. The following table sets forth information regarding the allowance for loan losses for the three and nine month periods ended September 30, 2002 and 2001. Allowance for loan losses Three Months Ended September 30, 2002 2001 ---- ---- Beginning balance $1,983,060 $1,597,196 Total losses and charge offs (11,557) (20,278) Total recoveries 7,732 5,359 ---------- ---------- Total losses (3,825) (14,919) Provision for losses 105,000 139,000 ---------- ---------- Ending balance $2,084,235 $1,721,277 ========== ========== Page 8 Allowance for loan losses Nine Months Ended September 30, 2002 2001 ---- ---- Beginning balance $1,786,115 $1,428,467 Total losses and charge offs (32,180) (33,053) Total recoveries 15,300 16,863 ---------- ---------- Total losses (16,880) (16,190) Provision for losses 315,000 309,000 ---------- ---------- Ending balance $2,084,235 $1,721,277 ========== ========== 4. REVENUE RECOGNITION The Bank's primary sources of revenue are interest income from loans and investments and service charge income from loans and deposits. The revenue is recognized in the period in which it is earned. M&W's revenue is derived mainly from insurance commissions. The revenue is recognized on the accrual basis of accounting in accordance with generally accepted accounting principles. 5. INCOME TAXES Provision for deferred income taxes is made as a result of timing differences between financial and taxable income. These differences relate principally to loan loss provision, directors deferred compensation, pension premiums payable and deferred loan origination expenses. 6. PER SHARE DATA The common stock per share information is based upon the weighted average number of shares outstanding during each period, retroactively adjusted for stock dividends and stock splits. Only basic earnings per share is disclosed because the Company does not have any dilutive securities or other contracts to issue common stock or convert to common stock. 7. DIVIDEND A cash dividend of $0.31 per share was paid on October 2, 2002 to shareholders of record as of September 12, 2002. A total of $686,787 was paid on 2,215,441 shares. 8. STOCK SPLIT A 5 for 4 stock split was distributed on June 12, 2001 to shareholders of record as of May 25, 2001. Fractional shares were redeemed for cash. The stock split resulted in the issuance of 439,441 shares of common stock as well as fractional shares paid in cash totaling $21,597. All share and per share data reflect the split. 9. COMMON STOCK During the fourth quarter of 2002, the Company issued 8,139 shares of common stock. These shares were issued to shareholders of record on October 2, 2002 who elected to receive shares in lieu of cash under the Company's Dividend Reinvestment Plan. 10. TREASURY STOCK During the quarter ended September 30, 2002, the Company repurchased 800 shares of common stock at an average cost of $20.92 per share. These shares were issued to shareholders who have elected to receive shares in lieu of cash under the Company's Dividend Reinvestment Plan. Page 9 11. SEGMENT INFORMATION Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related Information was adopted by the Company during 2000. This Statement establishes standards for the way that the Company reports information about its operating segments. The Company is comprised of two primary business segments, banking and insurance. The following table sets forth information regarding these segments for the three and nine month periods ended September 30, 2002 and 2001. Three Months Ended September 30, 2002
BANKING ACTIVITIES INSURANCE ACTIVITIES TOTAL Net Interest Income(loss) $2,631,222 ($4,978) $2,626,244 Provision for credit losses 105,000 0 105,000 -------------------------- ------------------------- ----------------------- Net interest income(loss) after provision for credit losses 2,526,222 (4,978) 2,521,244 Non-interest income 637,378 0 637,378 Insurance commissions and fees 0 737,126 737,126 Non-interest expense 2,160,382 508,456 2,668,838 -------------------------- ------------------------- ----------------------- Income before income taxes 1,003,218 223,692 1,226,910 Income taxes 203,483 88,706 292,189 -------------------------- ------------------------- ----------------------- Net income $ 799,735 $134,986 $ 934,721 ========================== ========================= =======================
Nine Months Ended September 30, 2002
BANKING ACTIVITIES INSURANCE ACTIVITIES TOTAL Net Interest Income(loss) $7,887,034 ($15,954) $7,871,080 Provision for credit losses 315,000 0 315,000 -------------------------- ------------------------- ---------------------- Net interest income(loss) after provision for credit losses 7,572,034 (15,954) 7,556,080 Non-interest income 1,670,582 0 1,670,582 Insurance commissions and fees 0 2,243,535 2,243,535 Net securities gains 111,302 0 111,302 Non-interest expense 6,339,205 1,517,947 7,857,152 -------------------------- ------------------------- ---------------------- Income before income taxes 3,014,713 709,634 3,724,347 Income taxes 700,940 282,249 983,189 -------------------------- ------------------------- ---------------------- Net income $2,313,773 $427,385 $2,741,158 ========================== ========================= ======================
Page 10 Three Months Ended September 30, 2001
BANKING ACTIVITIES INSURANCE ACTIVITIES TOTAL Net Interest Income(loss) $2,340,604 ($5,020) $2,335,584 Provision for credit losses 139,000 0 139,000 -------------------------- ------------------------- ----------------------- Net interest income(loss) after provision for credit losses 2,201,604 (5,020) 2,196,584 Non-interest income 506,857 0 506,857 Insurance commissions and fees 0 562,429 562,429 Net securities gains 77,828 0 77,828 Non-interest expense 1,927,586 423,176 2,350,762 -------------------------- ------------------------- ----------------------- Income before income taxes 858,703 134,233 992,936 Income taxes 220,665 47,000 267,665 -------------------------- ------------------------- ----------------------- Net income $ 638,038 $87,233 $ 725,271 ========================== ========================= =======================
Nine Months Ended September 30, 2001
BANKING ACTIVITIES INSURANCE ACTIVITIES TOTAL Net Interest Income(loss) $6,861,831 ($19,427) $6,842,404 Provision for credit losses 309,000 0 309,000 -------------------------- ------------------------- ---------------------- Net interest income(loss) after provision for credit losses 6,552,831 (19,427) 6,533,404 Non-interest income 1,429,611 0 1,429,611 Insurance commissions and fees 0 1,865,227 1,865,227 Net securities gains 165,967 0 165,967 Non-interest expense 5,701,965 1,377,733 7,079,698 -------------------------- ------------------------- ---------------------- Income before income taxes 2,446,444 468,067 2,914,511 Income taxes 693,000 191,000 884,000 -------------------------- ------------------------- ---------------------- Net income $1,753,444 $277,067 $2,030,511 ========================== ========================= ======================
12. RECLASSIFICATIONS Certain reclassifications have been made to the 2001 financial statements to conform with the presentation used in 2002. 13. EVANS NATIONAL HOLDING CORP. Evans National Holding Corp. was incorporated in February, 2002 as a subsidiary of the Bank. In March, 2002, the Bank assigned its interests in approximately $65.7 million in real estate mortgages to Evans National Holding Corp. in exchange for 10 shares of common stock, 1,600 shares of preferred stock and 2,400 shares of excess stock, which Page 11 represented all of the outstanding stock at that time. Evans National Holding Corp. also entered into a Management and Servicing Agreement with the Bank to provide management and other services to it. Evans National Holding Corp. will be operated as a real estate investment trust (REIT) which will provide additional flexibility and planning opportunities for the business of the Bank. It is anticipated that Evans National Holding Corp. will issue additional shares of non-voting preferred stock to raise additional capital during 2002. 14. GOODWILL AND INTANGIBLE ASSETS As of January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the balance sheet, and no longer be amortized but tested for impairment on a periodic basis. The provisions of this accounting standard also require the completion of a transitional impairment test within six months of adoption, which was performed during the current year and no impairments were identified to be treated as a cumulative effect of a change in accounting principle. In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective January 1, 2002. A reconciliation of previously reported net income and earnings per share to the pro forma amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows:
Three Months Ended September 30, 2002 2001 ---- ---- Reported net income $934,721 $725,271 Add: Goodwill amortization, net of tax 0 79,620 - ------ Pro forma adjusted net income $934,721 $804,891 ======== ======== Reported earnings per share $0.42 $0.33 Add: Goodwill amortization, net of tax per share 0.00 0.04 ---- ---- Pro forma adjusted earnings per share $0.42 $0.37 ===== =====
Nine Months Ended September 30, 2002 2001 ---- ---- Reported net income $2,741,158 $2,030,511 Add: Goodwill amortization, net of tax 0 238,860 - ------- Pro forma adjusted net income $2,741,158 $2,259,371 ========== ========== Reported earnings per share $1.24 $0.92 Add: Goodwill amortization, net of tax per share 0.00 0.11 ---- ---- Pro forma adjusted earnings per share $1.24 $1.03 ===== =====
Page 12 Changes in the carrying amount of goodwill for the nine month period ended September 30, 2002, by operating segment, are as follows:
BANKING INSURANCE TOTAL ACTIVITIES ACTIVITIES Balance as of January 1, 2002 $0 $2,760,113 $2,760,113 Goodwill acquired during the period 0 172,800 172,800 - ------- ------- Balance as of September 30, 2002 $0 $2,932,913 $2,932,913 == ========== ==========
As required by the statement, intangible assets that do not meet the criteria for recognition apart from goodwill must be reclassified. As a result of the Company's analysis, no reclassifications were required as of September 30, 2002. Information regarding the Company's other intangible assets follows:
As of September 30, 2002 CARRYING ACCUMULATED NET AMOUNT AMORTIZATION Noncompete agreements $209,000 $33,600 $175,400 Insurance expirations 185,000 51,250 133,750 ------- ------ ------- Total $394,000 $84,850 $309,150 ======== ======= ========
As of December 31, 2001 CARRYING ACCUMULATED NET AMOUNT AMORTIZATION Noncompete agreements $ 9,000 $ 2,250 $ 6,750 Insurance expirations 100,000 23,500 76,500 ------- ------ ------ Total $109,000 $25,750 $83,250 ======== ======= =======
Amortization expense for the three months ended September 30, 2002 was $19,700. Estimated amortization expense for each of the five succeeding fiscal years is as follows: Year ending December 31, Amount ------ 2002 $78,800 2003 78,800 2004 78,800 2005 73,350 2006 57,000 Page 13 15. NEW ACCOUNTING STANDARDS PRONOUNCEMENTS SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued August 2001. This statement supercedes SFAS 121, APB No. 30, and amends ARB No. 51. The Statement establishes a single accounting model for long-lived assets to be disposed of by sale and resolve significant implementation issues related to Statement 121. However, this Statement retains fundamental provisions of Statement 121, Opinion 30, and ARB No. 51. The Statement was effective for the Company beginning on January 1, 2002 and did not have a material impact on the Company's financial statements. SFAS No. 147, Acquisitions of Certain Financial Institutions, was issued October 2002. This statement amends FASB statements No. 72 and 144 and FASB Interpretation No. 9. Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition, this Statement amends FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other long-lived assets that are held and used. The Statement is effective after September 30, 2002 and will not have a material impact on the Company's financial statements. Page 14 PART I - FINANCIAL NFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties. When used in this report, or in the documents incorporated by reference herein, the words "anticipate", "believe", "estimate", "expect", "intend", "may", and similar expressions identify such forward-looking statements. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. These forward-looking statements are based largely on the expectations of the Company or the Company's management and are subject to a number of risks and uncertainties, including but not limited to, economic, competitive, regulatory, and other factors affecting the Company's operations, markets, products and services, as well as expansion strategies and other factors discussed elsewhere in this report and other reports filed by the Company with the Securities and Exchange Commission. Many of these factors are beyond the Company's control. The Company's results of operations are dependent primarily on net interest income, which is the difference between the income earned on loans and securities and the Company's cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by the provision for credit losses, investment activities, loan origination, sale and servicing activities, service charges and fees collected on deposit accounts, and insurance services and fees. Noninterest expense primarily consists of salaries and employee benefits, occupancy and equipment expense and technology and communication expenses. ANALYSIS OF FINANCIAL CONDITION AVERAGE BALANCE SHEET The following table presents the significant categories of the assets and liabilities of the Company, interest income and interest expense, and the corresponding yields earned and rates paid for the periods indicated. The assets and liabilities are presented as daily averages. The average loan balances include both performing and non-performing loans. Interest income on loans does not include interest on loans for which the Bank has ceased to accrue interest. Interest and yields are not presented on a tax-equivalent basis. Page 15
Three Months Ended Three Months Ended September 30, 2002 September 30, 2001 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate Balance Paid Rate (000) (000) (000) (000) ASSETS Interest-earning assets: Loans, net $147,771 $2,689 7.28% $137,287 $2,796 8.15% Taxable investments 45,184 581 5.14% 47,575 727 6.11% Tax-exempt investments 45,107 511 4.53% 32,861 391 4.76% Federal funds sold 3,323 14 1.66% 3,111 33 4.27% ----------------- ------------ -------- -------------------- ---------- ------------- Total interest-earning assets 241,385 $3,795 6.29% 220,834 $3,947 7.15% ============ ========== Noninterest-earning assets Cash and due from banks 8,676 7,475 Premises and equipment, net 4,483 3,645 Other assets 8,441 8,002 ----------------- -------------------- Total Assets $262,985 $239,956 ================= ==================== LIABILITIES & STOCKHOLDER'S EQUITY Interest-bearing liabilities: NOW accounts $9,642 $12 0.50% $ 8,123 $ 20 0.99% Savings deposits 74,937 195 1.04% 63,071 344 2.18% Time deposits 88,208 831 3.77% 84,521 1,089 5.15% Fed funds purchased & securities sold u/a to repurchase and other 3,344 13 1.55% 4,310 30 2.86% FHLB advances 9,184 117 5.12% 9,804 128 5.21% ----------------- ------------ -------- -------------------- ---------- ------------- Total interest-bearing liabilities 185,315 $1,168 2.52% 169,829 $1,611 3.79% ------------ ---------- Noninterest-bearing liabilities: Demand deposits 42,589 37,289 Other 5,596 6,203 Total liabilities $233,500 $213,321 ----------------- -------------------- Stockholders' equity 29,485 26,635 ----------------- -------------------- Total Liabilities and Stockholders' $262,985 $239,956 Equity ================= ==================== Net interest earnings $2,627 $2,336 ============ ========== Net yield on interest earning assets 4.35% 4.23%
Page 16 Total net loans outstanding increased by 0.4% to $148.3 million at September 30, 2002 from $147.7 million at June 30, 2002. Year-to-date, total net loans have increased 4.1% from $142.5 million at December 31, 2001. During the quarter, the Company continued to shift its loan mix towards higher-yielding commercial loans. Total commercial loans increased 1.9% to approximately $104.0 million at September 30, 2002 from approximately $102.0 million at June 30, 2002. Year-to- date, total commercial loans have increased 9.0% from $95.4 million at December 31, 2001. Total consumer loans decreased by 2.6% to approximately $46.1 million at September 30, 2002 from approximately $47.3 million at June 30, 2002. Year-to- date, total consumer loans have decreased 5.1% from $48.5 million at December 31, 2001. Residential mortgages accounted for a large portion of this decrease as the balance outstanding has decreased $931 thousand for the quarter and $1.4 million year-to-date. These results continue to reflect the Company's strategy to deal with the current interest rate environment by continuing to emphasize commercial loan originations while selling fixed rate residential real estate loans originated under a certain interest rate level. For the three and nine month periods ended September 30, 2002, the Company sold residential mortgages to the Federal National Mortgage Association ("FNMA") totaling approximately $2.9 million and $7.4 million, respectively, as compared to approximately $2.7 million and $5.4 million, respectively, during the same periods in 2001. At September 30, 2002, the Company had a servicing portfolio principal balance of $21.2 million with FNMA. The Company maintains servicing rights on the loans that it sells to FNMA and earns a fee thereon. Page 17 LOAN PORTFOLIO COMPOSITION The following table presents selected information on the composition of the Company's loan portfolio in dollar amounts and in percentages as of the dates indicated.
SEPTEMBER 30, 2002 PERCENTAGE DECEMBER 31, 2001 PERCENTAGE ($000) ($000) COMMERCIAL LOANS Real Estate $ 79,705 53.2% $ 73,863 51.3% Installment 14,115 9.4% 10,549 7.3% Lines of Credit 10,092 6.7% 10,001 7.0% Lease Financing 0 0.0% 898 0.6% Cash Reserve 42 0.0% 52 0.0% --------------------- ---------------- ------------------------- ---------------- Total Commercial Loans 103,954 69.3% 95,363 66.2% Consumer Loans Real Estate 20,815 13.9% 22,228 15.5% Home Equity 22,601 15.1% 21,681 15.1% Installment 2,025 1.3% 2,761 1.9% Overdrafts 100 0.1% 1,113 0.8% Credit Card 306 0.2% 334 0.2% Student Loans 0 0.0% 234 0.2% Other 209 0.1% 188 0.1% --------------------- ---------------- ------------------------- ---------------- Total Consumer Loans 46,056 30.7% 48,539 33.8% --------------------- ---------------- ------------------------- ---------------- Total Loans 150,010 100.0% 143,902 100.0% ===================== ================ ========================= ================ Net Deferred Costs & 353 353 Unearned Discounts Allowance for Loan Losses (2,084) (1,786) --------------------- ------------------------- Total Loans, Net $ 148,279 $ 142,469 ===================== =========================
The Company's total non-accruing loans, expressed as a percentage of total loans, was 0.86% at September 30, 2002 as compared to 0.50% at December 31, 2001. Actual charge-offs for the three months ended September 30, 2002 were $11,600 compared to $20,000 for the same period in 2001. The Company's allowance for loan losses increased to approximately $2.1 million at September 30, 2002 from approximately $1.8 million at December 31, 2001. The allowance for loan losses as a percentage of total loans was 1.39% at September 30, 2002 compared to 1.24% at December 31, 2001. This increase is primarily a result of the increased amount of commercial loans. The increase in the loan portfolio, especially the increase in commercial loans, which tend to have higher credit risk than consumer loans, is reflected in the additional credit loss reserve levels reflected at September 30, 2002 and December 31, 2001. Page 18 The adequacy of the Company's allowance for loan losses is reviewed quarterly with consideration given to loan concentrations, charge-off history, delinquent loan percentages, and general economic conditions. Management believes the allowance for loan losses is adequate to absorb credit losses from existing loans. The following table sets forth information regarding non-accrual loans.
September 30, 2002 December 31, 2001 ------------------ ----------------- ($000) ($000) Non-accruing loans: One-to-four family $ 0 $ 0 Home equity 0 0 Commercial real estate and multi- 1,202 545 family Consumer 0 0 Commercial business 94 179 ------------------ ----------------- Total 1,296 724 ------------------ ----------------- Loans 90+ days past due 0 443 Total non-performing loans $1,296 $1,167 ================== ================= Total non-performing loans as a percentage 0.49% 0.47% of total assets ================== ================= Total non-performing loans as a percentage 0.86% 0.82% of total loans ================== =================
The following table sets forth information regarding the allowance for loan losses for the three and nine month periods ended September 30, 2002 and 2001.
Allowance for loan losses Three Months Ended September 30, 2002 2001 ---- ---- Beginning balance $1,983,060 $1,597,196 Total losses and charge offs (11,557) (20,278) Total recoveries 7,732 5,359 ----- ----- Total losses (3,825) (14,919) Provision for losses 105,000 139,000 ------- ------- Ending balance $2,084,235 $1,721,277 ========== ==========
Page 19
Allowance for loan losses Nine Months Ended September 30, 2002 2001 ---- ---- Beginning balance $1,786,115 $1,428,467 Total losses and charge offs (32,180) (33,053) Total recoveries 15,300 16,863 ------ ------ Total losses (16,880) (16,190) Provision for losses 315,000 309,000 ------- ------- Ending balance $2,084,235 $1,721,277 ========== ==========
Allocation of the Allowance for Loan Losses
Balance at Balance at 09/30/02 12/31/01 Attributable To: Attributable To: --------------- --------------- ($000) ($000) Real Estate Loans $669 $455 Commercial Loans & Leases 258 96 Installment Loans (Includes Credit 71 74 Cards) Student Loans 0 0 All Other Loans 0 0 Unallocated 1,086 1,161 ----- ----- Total $2,084 $1,786 ====== ======
INVESTING ACTIVITIES The Company's securities portfolio increased slightly by 0.2% to approximately $91.6 million at September 30, 2002 as compared to approximately $91.4 million at June 30, 2002. Year-to-date, the securities portfolio has increased 9.0% from $84.1 million at December 31, 2001. Available funds continue to be invested in US government and agency securities and tax-advantaged bonds issued by New York State municipalities and school districts. Available-for-sale securities with a total fair value of $32,310,672 at September 30, 2002 were pledged as collateral to secure public deposits and for other purposes required or permitted by law. FUNDING ACTIVITIES Total deposits during the quarter decreased by 0.9% to $216.0 million at September 30, 2002 from $218.0 million at June 30, 2002. Year-to-date, total deposits have increased 5.7% from $204.3 million at December 31, 2001. Core deposits (all deposits excluding time deposits greater than $100,000) increased 1.3% to $190.0 million at September 30, 2002 from $187.6 million at June 30, 2002. Year-to-date, core deposits have increased 8.3% from $175.4 million at December 31, 2001. Business savings, municipal savings, thrift-e savings and premium savings increased 130.9%, 87.6%, 14.9% and 4.8%, respectively, for the quarter. These increases can be attributed to industry-wide trends that show deposits at banks increasing, mainly as a result of poor alternative investment performance such as the equities markets. Additionally, the Company has focused on specific deposit products to retain and attract municipal funds. Tax collections in local municipalities traditionally contribute to increases in total deposits, usually certificates of deposit over $100,000 and municipal savings accounts, during the first and third quarters and then decrease in the second and fourth quarters as cash is needed by the municipalities for operations. NOW accounts, demand deposits, time deposits less than $100,000 decreased 17.9% , 9.9% and 4.9% respectively for the quarter. Time deposits greater than $100,000 decreased 14.4% or $30.3 million for the quarter to $25.9 million at September 30, 2002. The decrease in time deposits greater than $100,000 is a planned result of the Company's Page 20 ability to be selective in pricing due to the abundance of other less costly deposit growth in 2002. Securities sold under agreements to repurchase increased 15.0% to $3.3 million at September 30, 2002 from $2.9 million at June 30, 2002. Year- to-date, securities sold under agreements to repurchase have decreased 17.9% from $4.0 million at December 31, 2001. The higher balance at December 31, 2001 was due to normal deposit activity. OTHER BALANCE SHEET CHANGES Properties and equipment, net, has increased approximately $716,000 year-to-date as a result of renovations to a building the Company owns adjacent to the Derby branch on Erie Road, Derby, New York, which currently houses the Bank's loan division. Additionally, construction has begun on the Company's eighth branch located in Amherst, New York expected to be complete in late November, 2002. MATERIAL CHANGES IN THE RESULTS OF OPERATIONS NET INCOME The Company recorded net income of approximately $935,000 for the quarter ended September 30, 2002, an increase of 28.9% over net income of $725,000 for the same quarter in 2001. Earnings per share were $0.42 for the quarter ended September 30, 2002, and $0.33 for the same quarter in 2001. Year-to-date, the Company has recorded net income of approximately $2.7 million or $1.24 per share as compared to $2.0 million or $0.92 per share during the same time period in 2001. All share and per share information is stated after giving effect to the stock split distributed on June 12, 2001 to shareholders of record on May 25, 2001. Net income represented a return on average assets of 1.42% for the quarter ended September 30, 2002 compared to 1.21% for the same period in 2001. The return on average equity for the third quarter of 2002 was 13.43% compared to 11.28% for the third quarter of 2001. Third quarter 2002 net income reflects the January 1, 2002 implementation of Statement of Financial Accounting Standards (SFAS) No. 142, which resulted in the end to systematic goodwill amortization. Excluding the effect of goodwill amortization during the third quarter 2001, net income would have been $805,000 or $0.37 per share. Excluding the effect of goodwill amortization for the first nine months of 2001, net income would have been $2.3 million or $1.03 per share. OTHER OPERATING RESULTS Net interest income increased $291,000, or 12.4%, for the quarter ended September 30, 2002 compared to the same time period in 2001. Total interest income in the third quarter 2002 decreased 3.9% and interest paid on deposits decreased 28.6% from the third quarter of 2001. Interest income decreased in spite of the $20.6 million, or 9.3% annual increase in average interest-earning assets to $241.4 million for the third quarter of 2002 from $220.8 million for the third quarter of 2001. The historically low interest rates driven by the Federal Reserve monetary policy were the primary reason for the decrease in interest income for the third quarter 2002 as compared to the third quarter 2001. The yield on total interest earning assets decreased to 6.29% for the quarter ended September 30, 2002 from 7.15% for the quarter ended September 30, 2001. The interest expense decrease reflects the $15.5 million, or 9.1% annual increase in average interest-bearing liabilities to $185.3 million for the third quarter of 2002 from $169.8 million for the second quarter of 2001 as well as the offsetting effect of interest rate reductions made by the Company since September 30, 2001. The cost of interest-bearing liabilities decreased to 2.52% for the quarter ended September 30, 2002 from 3.79% for the quarter ended September 30, 2001. The Company's net interest margin, for the three month period ended September 30, 2002 was 4.42% as compared to 4.31% for the same time period in 2001. The increase in the net interest margin is reflective of the Company's lower costing deposit portfolio composition and focus on originating higher yielding commercial loans. The yield on average loans decreased to 7.28% for the third quarter of 2002 from 8.15% for the same time period in 2001. The tax equivalent yield on federal funds and investments decreased from 6.48% in the third quarter of 2001 to 5.86% in the third quarter of 2002. The cost of funds on interest bearing balances decreased to 2.52% for the third quarter of 2002 from 3.79% for the same time period in 2001. The provision for loan losses has decreased to $105,000 for the third quarter of 2002 from $139,000 for the same time period in 2001. The higher third quarter provision in 2001 was a result of significant commercial loan growth in that quarter. The Company believes that the increase in the size of the overall loan portfolio as well as an increase in the commercial loan composition as a percentage of the overall portfolio substantiates the current loan loss provision. Commercial loans tend to have a higher credit risk than consumer loans. Page 21 Non-interest income increased to $1.4 million for the quarter ended September 30, 2002 from $1.1 million for the same period in 2001. This increase of $227,000 is primarily attributable to an increase of $175,000 in sales of insurance products through M&W Agency, Inc. ("M&W") which acquired the business and certain assets of the Eden Agency on January 1, 2002. The remainder of the increase is attributable to $65,000 in non deposit investment commissions and an increase by $100,000 in other miscellaneous income (consisting of ATM interchange, merchant fees, appraisal fees, and other loan income) in the third quarter 2002 over the third quarter 2001. A $27,000 loss on real estate property owned, pertained to an additional write- down in the carrying value of a foreclosed commercial property held as Other Real Estate Owned, reflective of current market conditions and vacancies in such piece of commercial property. A decrease of $78,000 was realized in securities gain on sales in the third quarter 2002 over the third quarter 2001 as there were no security sales transactions in the third quarter 2002. Non-interest expense totaled $2.7 million for the third quarter of 2002 reflecting an approximate $318,000 increase over the third quarter of 2001 total of $2.4 million. Approximately $211,000 of this increase is primarily attributable to salaries and employee benefits which have risen as a result of normal pay adjustments and an overall increase in the number of employees of the Company. Occupancy expense increased approximately $43,000 primarily due to the elimination of rental income from a previously rented property at the Derby location. Miscellaneous expenses, whose increase consisted of telephone, appraisal expense, ATM card fees, correspondent bank service charges and M&W miscellaneous costs increased approximately $105,000 for the quarter ended September 30, 2002 over the quarter ended September 30, 2001. Amortization of goodwill related to the M&W acquisition decreased $80,000 as goodwill is no longer amortized under the provisions of SFAS No. 142 which was adopted on January 1, 2002. Income tax expense totaled $290,000 and $268,000 for the three month periods ended September 30, 2002 and 2001, respectively. The effective combined tax rate for the third quarter of 2002 was 23.8% compared to 27.0% for the third quarter of 2001. The decrease in the effective tax rate is primarily attributable to state tax advantages related to the recent establishment of Evans National Holding Corp, the Bank's subsidiary real estate investment trust and the elimination of goodwill amortization for book purposes. Page 22 ITEM 3 - QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS AND LIQUIDITY INTEREST RATE RISK Interest rate risk occurs when interest-earning assets and interest-bearing liabilities mature or reprice at different times or on a different basis. The Asset, Liability Committee, ("ALCO") of the Bank analyzes the gap position on a monthly basis to determine the Bank's exposure to interest rate risk. The gap position is the difference between the total of the Bank's rate- sensitive assets and rate-sensitive liabilities maturing or repricing during a given time frame. A "positive" gap results when more assets than liabilities reprice and a "negative" gap results when more liabilities than assets reprice within a given time period. Because assets historically reprice faster than liabilities, a slightly negative gap position is considered preferable. At September 30, 2002 the Bank was in a positive gap position with $13.1 million more in rate-sensitive assets repricing over the next year than in rate-sensitive liabilities. This "positive" gap position compares to a "negative" gap position at December 31, 2001 of $0.4 million. This change is due to a number of factors including, increases in investments in currently-paying collateralized mortgage obligations with short average lives and increases in variable rate mortgages and variable rate commercial loans. Rate-sensitive liabilities decreased in the category of long term certificates of deposits greater than $100,000 and a reduction in securities sold under agreements to repurchase (Repo) balances. The Bank's asset/liability target, under its asset/liability policy, is a difference of +/- 15% of the Bank's total assets, which amounted to +/- $39.3 million at September 30, 2002. The gap ratio (rate-sensitive assets/rate-sensitive liabilities) at that date was 116%. LIQUIDITY Liquidity represents the Company's ability to obtain cost-effective funding to meet the needs of customers as well as the Company's financial obligations. Liquidity is centrally managed by the ALCO, with oversight provided by the Board of Directors. The Company's main sources of funds to meet its liquidity requirements are sale of liquid assets, secured advances from the Federal Home Loan Bank and its core deposit base. It is the Company's objective to maintain sufficient liquidity at all times to meet expected daily funding needs, longer maturities, and other capital needs. The Company uses various liquidity measures to help manage its liquidity position. Short term liquidity is measured as assets available within 30 days less liabilities at risk in 30 days. The Company's action level for this measure is $1 million. Short term liquidity at September 30, 2002 was $41.6 million. Overall or longer term liquidity is measured by the liquidity ratio, liquid assets divided by total purchased funds. The Company's liquidity ratio action level is 100%, and was 169% at September 30, 2002. The Company anticipates sufficient funding through operations for principal payments on borrowed funds and capital purchases expected for the new Amherst branch. MARKET RISK When rates rise or fall, the market value of the Bank's assets and liabilities will increase or decrease. As a part of the Bank's asset/liability policy, the Bank has set limitations on the negative impact to the market value of its balance sheet that would be acceptable. The Bank's securities portfolio is priced monthly and adjustments are made on the balance sheet to reflect the market value of the available for sale portfolio per SFAS No. 115. A limitation of a negative 25% of total capital before SFAS No. 115 (after tax) has been established as the maximum impact to equity as a result of marking available for sale securities to market that would be acceptable. At quarter-end, the impact to equity as a result of marking available for sale securities to market was an unrealized gain of approximately $2.3 million. On a quarterly basis, the available for sale portfolio is shocked for immediate rate increases of 100 and 200 basis points. At September 30, 2002, the Bank determined it would take an immediate increase in rates in excess of 200 basis points to eliminate the current capital cushion. The Bank's capital ratios are also reviewed on a quarterly basis. Unrealized gains and losses on available for sale securities are not included in the calculation of these ratios. Page 23 ITEM 4 - CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls (As defined in Exchange Act Rule 13a-14(c)) are sufficiently effective to ensure that the information required to be disclosed by the Company in the reports it files under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness, based on an evaluation of such controls and procedures conducted within 90 days prior to the date hereof. CHANGES IN INTERNAL CONTROLS There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - None to report ITEM 2. Changes in Securities - None to report ITEM 3. Defaults upon Senior Securities - None to report ITEM 4. Submission of Matters To a Vote of Security Holders - None to report ITEM 5. Other Information - None to report ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits -------- Exhibit No. Name Page No. 99.1 Certification of Chief Executive Officer pursuant to 18 USC 27 Section 1350 as adopted pursuant to Section 906 of The Sabanes -Oxley Act of 2002 99.2 Certification of Chief Financial Officer pursuant to 18 USC 29 Section 1350 as adopted pursuant to Section 906 of The Sabanes -Oxley Act of 2002 99.3 Press Release-Announcing Earnings for Quarter ended 31 September 30, 2002 (b) REPORT ON FORM 8-K - None to report ------------------
Page 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. Evans Bancorp, Inc. DATE October 23, 2002 /s/James Tilley -------------------------------------------- James Tilley President and CEO DATE October 23, 2002 /s/Mark DeBacker -------------------------------------------- Mark DeBacker Senior Vice President & Chief Financial Officer Page 25 CERTIFICATION I, Mark DeBacker, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Evans Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 23, 2002 /s/ Mark DeBacker - ------------------------------------------------ Mark DeBacker Senior Vice President & Chief Financial Officer Page 26 CERTIFICATION I, James Tilley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Evans Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 23, 2002 /s/ James Tilley - ----------------------------------------------- James Tilley President & Chief Executive Officer EX-99.1 3 l96637aexv99w1.txt CEO CERTIFICATION Page 27 EXHIBIT 99.1 Page 28 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, James Tilley, the chief executive officer of Evans Bancorp, Inc (the "Company") certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge: that the Quarterly Report of Evans Bancorp, Inc. on Form 10-Q for the fiscal quarter ended September 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Evans Bancorp, Inc.. This certification is made to comply with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose. Date: October 23, 2002 By: /s/ James Tilley ----------------------------------- Name: James Tilley Title: President and Chief Executive Officer EX-99.2 4 l96637aexv99w2.txt CFO CERTIFICATION Page 29 EXHIBIT 99.2 Page 30 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Mark DeBacker, the chief financial officer of Evans Bancorp, Inc (the "Company") certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge: that the Quarterly Report of Evans Bancorp, Inc. on Form 10-Q for the fiscal quarter ended September 30, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Evans Bancorp, Inc.. This certification is made to comply with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose. Date: October 23, 2002 By: /s/ Mark DeBacker ----------------------------------- Name: Mark DeBacker Title: Senior Vice President and Chief Financial Officer EX-99.3 5 l96637aexv99w3.txt PRESS RELEASE Page 31 EXHIBIT 99.3 Page 32 FOR IMMEDIATE RELEASE For: Evans Bancorp, Inc. Contact: Mark DeBacker, Senior Vice President/CFO 14-16 North Main Street Phone: (716) 549-1000 Angola, New York 14006 Fax: (716) 549-0720 EVANS BANCORP ANNOUNCES 2002 THIRD QUARTER NET INCOME GROWTH OF 28.9% OVER PRIOR YEAR ANGOLA, N.Y.-OCTOBER 23, 2002-Evans Bancorp, Inc. (Nasdaq: EVBN) the holding company for Evans National Bank, a commercial bank with seven branches in Western New York, and approximately $264.6 million in assets, today reported strong growth in revenue and income for the third quarter and the first nine months of 2002. Third quarter 2002 net income was $935 thousand, or $0.42 per share, an increase of 28.9 percent compared to $725 thousand or $0.33 per share for the three months ended September 30, 2001. All per share results reflect the 5 for 4 stock split distributed in June 2001. The Company's third quarter 2001 net income includes goodwill amortization expense of $80 thousand or $0.04 per share as recorded by the holding company related to the M&W acquisition. Due to changes in accounting rules implemented on January 1, 2002, the Company no longer amortizes goodwill. This change has also improved the Company's effective tax rate. James Tilley, President and Chief Executive Officer, said, "the solid financial results achieved during the third quarter of 2002 are attributable to the strong performance by both the Company's bank activities and insurance sales." The Bank's net interest margin, a measure of net interest income relative to average assets, for the quarter ended September 30, 2002 was 4.42% as compared to 4.31% for the same quarter in 2001. The increase is partly attributable to strategic deposit and loan interest pricing decisions made by the Bank as well as the current historically low interest rate environment. Net interest income increased $291 thousand, or 12.4%, for the quarter ended September 30, 2002 as compared to the same time period in 2001. Total net loans (loans after provision for loan losses) have grown to $148.3 million at September 30, 2002, reflecting a 0.4% or $0.6 million increase for the quarter. Commercial loans total $104.0 million at September 30, 2002, reflecting a 1.9% or $1.9 million increase for the quarter. Total loan growth was in spite of a decrease in total consumer loans of 2.6% or $1.2 million for the quarter. This decrease was primarily in fixed rate residential mortgages which continue to refinance as a result of the low interest rate environment. The Bank continues to manage the current interest rate environment by selling certain fixed rate residential loans originated under a certain interest rate level, while maintaining the servicing rights to such loans. At September 30, 2002, the Bank had a servicing portfolio principal balance of $21.2 million upon which it earns a fee. This servicing portfolio balance compares to $19.2 million at June 30, 2002 and $16.0 million at December 31, 2001. The provision for loan losses was $105 thousand for the third quarter 2002 as compared to $139 thousand for the third quarter 2001. The higher 2001 third quarter provision was a result of significant commercial loan growth in that quarter. Total deposits decreased to $216.0 million at September 30, 2002 reflecting a 0.9% or $2.0 million decrease for the quarter. The decrease was primarily in certificates of deposit greater than $100,000, which are typically higher cost to the Bank than alternative deposits, and which decreased during the quarter by approximately $4.4 million or 14.4% to $25.9 million. Core deposits (all deposits excluding time deposits greater than $100,000) increased to $190.0 million, reflecting a 1.3% or $2.4 million increase for the quarter. The Bank's wholly-owned insurance subsidiary, M&W Agency Inc. contributed approximately $135 thousand to net income for the three months ended September 30, 2002 as compared to $87 thousand for the three months ended September 30, 2001. M&W Agency has accounted for a significant portion of the Company's increase in non-interest income and non-interest expense since its purchase in September 2000. Tilley noted, "net income for the first nine months of 2002 has already exceeded net income for all of 2001 by $162 thousand, reflecting our success in managing the Company during a period of low interest rates and economic uncertainty. This performance reinforces our confidence that 2002 net income per share will exceed our previously announced plan target for net income. We now believe net income per share for the year ending December 31, 2002 will Page 33 be within the range of $1.36 to $1.46 per share. Also, the opening of our new branch in Amherst, New York is anticipated prior to the end of November. This will be our eighth branch location and include an office of our insurance subsidiary." Year-to-date, the Company has recorded net income of approximately $2.7 million or $1.24 per share as compared to $2.0 million or $0.92 per share during the same time period in 2001. All per share results reflect the 5 for 4 stock split distributed in June 2001. Year-to-date, net interest income increased $1.0 million or 15.0% over the same time period in 2001. Year-to-date, total net loans have increased 4.1% from $142.5 million at December 31, 2001. The Bank continues to increase its commercial loan business in 2002. Year-to-date, commercial loans have increased 9.0% from $95.4 million at December 31, 2001. Year-to-date, total consumer loans have decreased 5.1% from $48.5 million at December 31, 2001. Sales of residential mortgages to FNMA totaled $7.4 million year-to-date in 2002 as compared to $5.4 million for the same time period in 2001. Year-to-date, core deposits have increased 8.3% from $175.4 million at December 31, 2001. Attached are Condensed Statements of Income and Balance Sheets for Evans Bancorp, Inc. A conference call will be held with company management at 11:00 a.m. (ET) on Wednesday, October 23 to discuss performance results for the third quarter of 2002 at 1-888-799-0475 (request Evans Bancorp Conference Call). An audio recording will be available one hour after the call for 90 days, and may be accessed at 1-800-642-1687, passcode 6039848. The call will also be simultaneously broadcast live over the Internet at the following link; http://www.firstcallevents.com/service/ajwz367164905gf12.html and will also be archived for 90 days. There is no charge to attend either event. Evans Bancorp, Inc. is the holding company for Evans National Bank, a commercial bank with seven branches located in Western New York, which had approximately $264.6 million in assets and approximately $216.0 million in deposits at September 30, 2002. Evans National Bank also owns M&W Agency, Inc., a retail property and casualty insurance agency with eight offices in Western New York, and ENB Associates, Inc. which provides non-deposit investment products. Evans Bancorp, Inc. common stock is listed on the Nasdaq National Market under the symbol EVBN. This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements concerning future business, revenues and earnings. There are risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements. Information on factors that could affect the Company's business and results is discussed in the Company's periodic reports filed with the Securities and Exchange Commission. Page 34 EVANS BANCORP, INC. CONDENSED STATEMENTS OF INCOME UNAUDITED ($000S) EXCEPT PER SHARE DATA
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2002 2001 2002 2001 ------------------ ------------------ -------------------- --------------- Net interest income $2,626 $2,336 $7,871 $6,842 Provision for loan losses 105 139 315 309 Non-interest income 1,375 1,147 4,025 3,461 Non-interest expense 2,669 2,351 7,857 7,080 ------------------ ------------------ -------------------- --------------- Income before income taxes 1,227 993 3,724 2,914 Income taxes 292 268 983 884 ------------------ ------------------ -------------------- --------------- Net income $ 935 $ 725 $2,741 $2,030 ================== ================== ==================== =============== Earnings per share * $ 0.42 $ 0.33 $ 1.24 $ 0.92
- ------ * All per share data reflects the 5 for 4 stock split distributed in June 2001. EVANS BANCORP, INC. CONDENSED BALANCE SHEETS UNAUDITED ($000S)
SEPTEMBER 30, DECEMBER 31 2002 2001 ------------------ ------------------ Assets Securities $ 91,602 $ 84,065 Loans, net 148,279 142,469 Other assets 24,738 22,619 ------------------ ------------------ Total assets $264,619 $249,153 ================== ================== Liabilities Deposits $215,985 $204,260 Other liabilities 18,390 17,932 ------------------ ------------------ Total Liabilities 234,375 222,192 Total Stockholders' Equity 30,244 26,961 ------------------ ------------------ Total Liabilities and Stockholders' Equity $264,619 $249,153 ================== ==================
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