1 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 June 30, 2001 --------------------------------- [ ] 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--2,199,042 shares as of June 30, 2001
2 INDEX EVANS BANCORP, INC. AND SUBSIDIARY PAGE PART 1. FINANCIAL INFORMATION - ----------------------------- Item 1. Financial Statements (Unaudited) Consolidated balance sheets--June 30, 2001 and December 31, 2000 1 Consolidated statements of income--Three months ended June 30, 2001 and 2000 2 Consolidated statements of income--Six months ended June 30, 2001 and 2000 3 Consolidated statements of stockholders' equity-- Six months ended June 30, 2001 and 2000 4 Consolidated statements of cash flows--Six months ended June 30, 2001 and 2000 5 Notes to consolidated financial statements-- June 30, 2001 and 2000 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantative and Qualitative Disclosures About Market Risks 16 PART II. OTHER INFORMATION 17 - ----------------------------- 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 18
3 PART I - FINANCIAL INFORMATION PAGE 1 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS June 30, 2001 and December 31, 2000 (Unaudited) <TABLE> <CAPTION> June 30, December 31, ASSETS 2001 2000 ------------ ------------ <S> <C> <C> Cash and due from banks $ 7,271,351 $ 8,108,912 Federal Funds sold 1,700,000 1,250,000 Securities: Classified as available-for-sale, at fair value 75,772,303 69,645,817 Classified as held-to-maturity, at amortized cost 2,759,883 3,475,401 Loans, net 136,154,760 128,779,052 Properties and equipment, net 3,651,426 3,776,869 Other assets 8,143,814 9,513,092 ------------ ------------ TOTAL ASSETS $235,453,537 $224,549,143 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Demand $ 36,184,557 $ 36,607,680 NOW and money market accounts 8,740,086 9,550,131 Regular savings 64,107,098 58,142,285 Time Deposits, $100,000 and over 30,451,178 30,779,658 Other time accounts 52,334,237 51,621,565 ------------ ------------ 191,817,156 186,701,319 Other Borrowed Funds 10,266,435 4,409,068 Securities sold under agreements to repurchase 3,351,987 3,869,172 Other liabilities 3,857,409 4,390,512 ------------ ------------ TOTAL LIABILITIES 209,292,987 199,370,071 ------------ ------------ STOCKHOLDERS' EQUITY Common Stock, $.50 par value; 10,000,000 shares authorized; 2,199,042 and 1,759,601 shares issued respectively 1,099,521 879,801 Capital surplus 13,569,674 13,810,991 Retained earnings 10,783,928 9,953,780 Accumulated other comprehensive income (net of tax) 707,427 534,500 ------------ ------------ 26,160,550 25,179,072 Less: Treasury Stock 0 0 ------------ ------------ Total Stockholders' equity 26,160,550 25,179,072 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $235,453,537 $224,549,143 ============ ============ </TABLE> See Notes to Consolidated Financial Statements
4 PART I - FINANCIAL INFORMATION PAGE 2 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME For the Three Months ended June 30, 2001 and 2000 (Unaudited) Three Months Ended June 30, 2001 2000 ----------- ----------- INTEREST INCOME Loans $2,841,004 $2,650,423 Federal funds sold 19,745 26,111 Securities: Taxable 765,510 689,105 Non-taxable 372,118 388,449 ----------- ----------- Total Interest Income 3,998,377 3,754,088 INTEREST EXPENSE Interest on Deposits 1,585,421 1,469,410 Short Term Borrowing 113,856 109,420 ----------- ----------- NET INTEREST INCOME 2,299,100 2,175,258 PROVISION FOR LOAN LOSSES 95,000 100,000 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,204,100 2,075,258 ----------- ----------- NON-INTEREST INCOME: Service charges 258,543 195,961 Premium on loans sold-SLMA 1,559 2,037 Premium/Discount on loans sold-FNMA 2,785 1,009 Insurance Service and Fees 627,678 0 Other 208,639 221,038 Securities (Loss)Gain 72,395 (6,642) ----------- ----------- Total Non-interest Income 1,171,599 413,403 ----------- ----------- NON-INTEREST EXPENSE: Salaries and employee benefits 1,171,550 867,021 Occupancy 289,599 244,980 Supplies 52,205 46,616 Repairs and maintenance 93,861 53,557 Advertising and public relations 41,228 32,776 Professional services 146,745 60,040 FDIC assessments 8,540 8,527 Other Insurance 57,137 86,052 Other 527,996 244,161 ----------- ----------- Total Non-interest Expense 2,388,861 1,643,730 ----------- ----------- Income before income taxes 986,838 844,931 ----------- ----------- INCOME TAXES 336,735 209,800 ----------- ----------- NET INCOME $ 650,103 $ 635,131 =========== =========== NET INCOME PER COMMON SHARE-BASIC $ 0.30 $ 0.30 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 2,198,218 2,122,835 =========== =========== See Notes to Consolidated Financial Statements
5 PART I - FINANCIAL INFORMATION PAGE 3 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME For the Six Months ended June 30, 2001 and 2000 (Unaudited) Six Months Ended June 30, 2001 2000 ----------- ----------- INTEREST INCOME Loans $5,643,244 $5,181,489 Federal Funds Sold 82,421 80,349 Securities: Taxable 1,522,300 1,318,378 Non-taxable 751,504 772,720 ----------- ----------- Total Interest Income 7,999,469 7,352,936 INTEREST EXPENSE Interest on Deposits 3,280,259 2,867,606 Short Term Borrowing 212,390 207,816 ----------- ----------- NET INTEREST INCOME 4,506,820 4,277,514 PROVISION FOR LOAN LOSSES 170,000 160,000 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,336,820 4,117,514 ----------- ----------- NON-INTEREST INCOME: Service charges 494,565 388,786 Premium on loan sold-SLMA 1,914 2,392 Premium/Discount on loans sold-FNMA 4,225 1,133 Insurance Service and Fees 1,302,798 0 Other 422,050 422,273 Securities (Loss)Gain 88,139 (15,480) ----------- ----------- Total Non-interest Income 2,313,691 799,104 ----------- ----------- NON-INTEREST EXPENSE: Salaries and employee benefits 2,414,316 1,741,635 Occupancy 580,772 482,897 Supplies 116,802 94,556 Repairs and maintenance 189,085 111,683 Advertising and public relations 69,369 62,316 Professional services 231,307 128,820 FDIC Assessment 17,156 16,751 Other Insurance 143,991 172,691 Other 966,138 517,017 ----------- ----------- Total Non-interest Expense 4,728,936 3,328,366 ----------- ----------- Income before income taxes 1,921,575 1,588,252 ----------- ----------- INCOME TAXES 616,335 409,800 ----------- ----------- NET INCOME $1,305,240 $1,178,452 =========== =========== NET INCOME PER COMMON SHARE-BASIC $ 0.59 $ 0.56 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 2,198,218 2,122,835 =========== =========== See Notes to Consolidated Financial Statements
6 PART 1-FINANCIAL INFORMATION PAGE 4 ITEM 1-FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> ACCUMULATED OTHER COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY STOCK SURPLUS EARNINGS INCOME ( LOSS) STOCK TOTAL <S> <C> <C> <C> <C> <C> <C> Balance, January 1, 2000 $ 849,475 $ 10,990,720 $ 7,629,839 $(1,185,096) $ 0 $ 18,284,938 Comprehensive income: 2000 net income 1,178,452 1,178,452 Unrealized gain on available for sale securities, net of reclassification adjustment and tax effect of $45,255 96,355 96,355 --------- Total comprehensive income 1,274,807 --------- Cash dividends ($.25 per common share) (424,737) (424,737) Purchase of 3,591 shares for treasury (168,777) (168,777) Reissuance of treasury stock under stock dividend plan of 3,125 shares 146,875 146,875 ---------- ------------ ----------- ------------ ---------- ------------ Balance, June 30, 2000 $ 849,475 $ 10,990,720 $ 8,383,554 $(1,088,741) $ (21,902) $ 19,113,106 ========== ============ =========== ============ ========== ============ </TABLE> SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> ACCUMULATED OTHER COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY STOCK SURPLUS EARNINGS INCOME STOCK TOTAL <S> <C> <C> <C> <C> <C> <C> Balance, January 1, 2001 $ 879,801 $ 13,810,991 $ 9,953,780 $ 534,500 $ 0 $ 25,179,072 Comprehensive income: 2001 net income 1,305,240 1,305,240 Unrealized gain on available for sale securities, net of reclassification adjustment and tax effect of $81,378 172,927 172,927 --------- Total comprehensive income 1,478,167 --------- Cash dividends ($.27 per common share) (475,092) (475,092) 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 dividend plan of 3,086 shares 145,042 145,042 ---------- ------------ ----------- --------- --------- ------------ Balance, June 30, 2001 $1,099,521 $ 13,569,674 $10,783,928 $ 707,427 $ 0 $ 26,160,550 ========== ============ =========== ========= ========= ============ </TABLE>
7 PART I - FINANCIAL INFORMATION PAGE 5 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2001 and 2000 (Unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 2001 2000 ------------ ------------ <S> <C> <C> OPERATING ACTIVITIES Interest received $ 8,073,684 $ 7,172,600 Fees and commissions received 2,014,127 749,576 Interest paid (3,556,681) (3,003,150) Cash paid to suppliers and employees (2,856,182) (3,189,304) Income taxes paid (858,000) (499,500) ------------ ------------ Net cash provided by operating activities 2,816,948 1,230,222 ------------ ------------ INVESTING ACTIVITIES Available for sale securities Purchases (20,930,358) (11,494,166) Proceeds from sales 6,897,405 2,228,379 Proceeds from maturities 8,230,278 1,564,975 Held to maturity securities Purchases (862,092) (1,629,027) Proceeds from maturities 1,577,611 1,526,065 Additions to properties and equipment (277,313) (166,692) Investment in Joint Venture 0 (10,500) Increase in loans, net of repayments (10,852,966) (4,988,600) Proceeds from sales of loans 3,053,596 315,856 ------------ ------------ Net cash used in investing activities (13,163,839) (12,653,710) ------------ ------------ FINANCING ACTIVITIES Increase in deposits 5,115,837 12,417,777 Purchase (Repayment) of short term borrowing 5,340,182 (1,221,392) (Purchase) sale treasury stock 0 (21,902) Dividends paid (496,689) (424,737) ------------ ------------ Net cash provided by financing activities 9,959,330 10,749,746 ------------ ------------ Net decrease in cash and cash equivalents (387,561) (673,742) Cash and cash equivalents, January 1 9,358,912 11,978,778 ------------ ------------ Cash and cash equivalents, June 30 $ 8,971,351 $ 11,305,036 ============ ============ </TABLE> See Notes to Consolidated Financial Statements
8 PART I - FINANCIAL INFORMATION PAGE 6 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2001 and 2000 (Unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 2001 2000 ----------- ----------- <S> <C> <C> RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $1,305,240 $1,178,452 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 711,599 285,147 Provision for loan losses 170,000 160,000 (Gain)Loss on sale of assets (94,569) 13,887 (Decrease)Increase in accrued interest payable (64,032) 72,272 Decrease(Increase) in accrued interest receivable 55,814 (173,102) Decrease in other liabilities (847,261) (34,886) Decrease(Increase) in other assets 1,580,157 (271,548) ----------- ----------- Total adjustments 1,511,708 51,770 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES $2,816,948 $1,230,222 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Net unrealized gain(loss) on available for sale securities $1,040,335 ($1,601,178) =========== =========== </TABLE> See Notes to Consolidated Financial Statements
9 Page 7 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 AND 2000 (UNAUDITED) 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") and M&W Agency, Inc., ("M&W") 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 six month period ending June 30, 2001 are not necessarily indicative of the results to be expected for the full year. 2. SECURITIES ---------- Securities which the Bank has the ability and intent to hold to maturity are stated at cost, plus discounts accrued and less premiums amortized. Securities which the Bank has identified as available for sale are stated at fair value. 3. ALLOWANCE FOR LOAN LOSSES ------------------------- The provision for loan losses is based on management's evaluation of the relative risks inherent in the loan portfolio and, on an annual basis, generally exceeds the amount of net loan losses charged against the allowance. 4. REVENUE RECOGNITION ------------------- The Bank's primary sources of revenue are interest income from loans and investments and service charge income. 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 are made as a result of timing differences between financial and taxable income. These differences relate principally to directors deferred compensation, pension premiums payable and deferred loan origination expenses. 6. PER SHARE DATA -------------- The per share of common stock 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. STOCK SPLIT ----------- On May 17, 2001, the Board of Directors announced a 5 for 4 stock split. The 5 for 4 stock split was distributed on June 12, 2001 to shareholders on 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.
10 Page 8 8. TREASURY STOCK -------------- During the quarter ended June 30, 2001, the Company repurchased 1,785 shares of common stock at a cost of $47.00 per share (prior to the 5 for 4 stock split). These shares have been issued to shareholders who have elected to receive shares in lieu of cash under the Company's Dividend Reinvestment Plan or as part of the 5 for 4 stock split. 9. SEGMENT INFORMATION ------------------- Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related Information was adopted by the Company during 2000. This Statement establishes standards for the way that the Company reports information about its operating segments. The Company is comprised of two primary business segments, banking and insurance. The following table sets forth information regarding these segments for the three month and six month period ended June 30, 2001. Three Months Ended June 30, 2001 <TABLE> <CAPTION> BANKING ACTIVITIES INSURANCE ACTIVITIES TOTAL <S> <C> <C> <C> Net Interest Income(loss) $2,305,298 $ (6,198) $2,299,100 Provision for credit losses 95,000 0 95,000 -------------- ----------- ----------- Net interest income(loss) after provision for credit losses 2,210,298 (6,198) 2,204,100 Non-interest income 471,526 0 471,526 Insurance Commissions & Fees 0 627,678 627,678 Net securities gains 72,395 0 72,395 Non-interest expense 1,942,394 446,467 2,388,861 -------------- ----------- ----------- Income before income taxes 811,825 175,013 986,838 Income tax expense 260,735 76,000 336,735 -------------- ----------- ----------- Net income $ 551,090 $ 99,013 $ 650,103 ============== =========== =========== </TABLE> Six Months Ended June 30, 2001 <TABLE> <CAPTION> BANKING ACTIVITIES INSURANCE ACTIVITIES TOTAL <S> <C> <C> <C> Net Interest Income(loss) $4,521,227 $ (14,407) $4,506,820 Provision for credit losses 170,000 0 170,000 ---------- ---------- ---------- Net interest income(loss) after provision for credit losses 4,351,227 (14,407) 4,336,820 Non-interest income 922,754 0 922,754 Insurance Commissions & Fees 0 1,302,798 1,302,798 Net securities gains 88,139 0 88,139 Non-interest expense 3,774,379 954,557 4,728,936 ---------- ---------- ---------- Income before income taxes 1,587,741 333,834 1,921,575 Income tax expense 472,335 144,000 616,335 Net income $1,115,406 $ 189,834 $1,305,240 ============= ========== ========== </TABLE>
11 Page 9 For the six months ended June 30, 2000, the Company determined that its business was comprised of banking activities only, as M&W Agency, Inc. was acquired during the third quarter of 2000. 10. NEW ACCOUNTING STANDARDS PRONOUNCEMENTS --------------------------------------- SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued in June 1998. The Company adopted the provisions of SFAS No. 133 effective October 1, 1998. The adoption of SFAS No. 133 (as amended by SFAS No. 138) did not impact the Company's earnings or financial position. As allowed by SFAS No. 133 the Company transferred approximately $2,900,000 of certain securities from held to maturity to the available for sale classification during 1998. The realized and unrealized gains on the securities transferred were not material to the Company. SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities Accounting, was issued in September 2000. This statement replaces SFAS No. 125, and requires certain disclosures, but carries over most of the provisions of SFAS No. 125. SFAS No. 140 was effective for transfers and servicing of financial assets and extinguishments of liabilities of the Company occurring after March 31, 2001 and did not have a material impact on the Company's financial statements. On June 29, 2001, the FASB voted to approve two new statements which will be issued in the second half of July 2001: SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 will require business combinations entered into after June 30, 2001 to be accounted for using the purchase method of accounting. Specifically identifiable intangible assets acquired, other than goodwill, will be amortized over their estimated useful economic life. SFAS No. 142 will require that goodwill will not be amortized, but should be tested for impairment at least annually. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. At June 30, 2001, the Company had approximately $3.0 million of goodwill and recorded approximately $85,000 of goodwill amortization expense during the quarter ended June 30, 2001.
12 Page 10 PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties. When used in this report, or in the documents incorporated by reference herein, the words "anticipate", "believe", "estimate", "expect", "intend", "may", and similar expressions identify such forward-looking statements. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. These forward-looking statements are based largely on the expectations of the Company or the Company's management and are subject to a number of risks and uncertainties, including but not limited to, economic, competitive, regulatory, and other factors affecting the Company's operations, markets, products and services, as well as expansion strategies and other factors discussed elsewhere in this report and other reports filed by the Company with the Securities and Exchange Commission. Many of these factors are beyond the Company's control. 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, technology and communication expenses, and goodwill amortization. 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.
13 Page 11 <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, 2001 THREE MONTHS ENDED JUNE 30, 2000 AVERAGE INTEREST AVERAGE INTEREST OUTSTANDING EARNED/ YIELD / OUTSTANDING EARNED/ YIELD/ BALANCE PAID RATE BALANCE PAID RATE (000) (000) (000) (000) <S> <C> <C> <C> <C> <C> <C> ASSETS Interest-earning assets: Loans, Net $133,907 $2,841 8.49% $120,773 $2,650 8.78% Taxable Investments 46,935 766 6.53% 37,420 689 7.37% Tax-exempt Investments 31,046 372 4.79% 33,734 388 4.60% Federal funds sold 2,215 20 3.61% 1,443 26 7.21% -------- ------ ---- -------- ------ ---- Total interest-earning assets 214,103 3,999 7.47% 193,370 3,753 7.76% Non-interest-earning assets Cash and due from banks 7,113 6,936 Premises and equipment, net 3,640 3,782 Other assets 8,207 3,906 -------- -------- Total Assets $233,063 $207,994 ======== ======== LIABILITIES & SHAREHOLDER'S EQUITY Interest-bearing liabilities: NOW accounts $8,810 $22 1.00% $8,458 $21 0.99% Savings deposits 63,078 387 2.45% 58,231 398 2.73% Time deposits 86,613 1,177 5.44% 77,993 1,050 5.39% Fed Funds Purchased & Securities Sold U/A to Repurchase 4,015 37 3.69% 3,859 48 4.98% FHLB Advances 6,126 77 5.03% 5,000 61 4.88% -------- ------ ---- -------- ------ ---- Total interest-bearing liabilities 168,642 1,700 4.03% 153,541 1,578 4.11% Non-interest-bearing liabilities: Demand deposits 34,448 34,021 Other 4,076 1,962 -------- -------- Total liabilities 207,166 189,524 Shareholders' equity 25,897 18,470 -------- -------- Total Liabilities and Equity $233,063 $207,994 ======== ======== Net interest earnings $2,299 $2,175 Net yield on interest earning assets 4.30% 4.50% </TABLE>
14 Page 12 Total net loans outstanding increased 4.3% to $136.2 million at June 30, 2001 from $130.5 million at March 31, 2001. Year-to-date, total net loans have increased 5.7% from $128.8 million at December 31, 2000. During the quarter, the Company continued to shift its loan mix towards higher-yielding commercial loans. As a result, loan growth for the quarter ended June 30, 2001 was concentrated primarily in commercial mortgages (approximately $4.0 million). Total commercial loans increased 6.8% to approximately $89.0 million at June 30, 2001 from approximately $83.4 million at March 31, 2001. Year-to-date, commercial loans have increased 10.2% from $80.8 million at December 31, 2000. Consumer loans remained stable at approximately $48.3 million at June 30, 2001 and March 31, 2001, as compared to $49.0 million at December 31, 2000. These results reflect the Company's strategy to deal with the declining 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 six months ended June 30, 2001, the Company sold residential mortgages to the Federal National Mortgage Association ("FNMA") totaling approximately $2,726,000 as compared to approximately $206,000 during the same period in 2000. The Company maintains servicing rights on the loans that it sells to FNMA and earns an annual fee thereon.
15 Page 13 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. <TABLE> <CAPTION> JUNE 30, 2001 PERCENTAGE DECEMBER 31, 2000 PERCENTAGE ($000) ($000) COMMERCIAL LOANS <S> <C> <C> <C> <C> Real Estate $ 67,682 49.3% $ 61,628 47.5% Installment 11,092 8.1% 10,327 8.0% Lines of Credit 9,222 6.7% 7,748 6.0% Lease Financing 981 0.7% 1,041 0.8% Cash Reserve 65 0.0% 51 0.0% --------- ----- ------------ ----- TOTAL COMMERCIAL LOANS 89,043 64.8% 80,795 62.3% CONSUMER LOANS Real Estate 23,521 17.1% 24,333 18.7% Home Equity 20,252 14.8% 19,971 15.4% Installment 3,026 2.2% 2,989 2.3% Overdrafts 710 0.5% 1,012 0.8% Credit Card 296 0.2% 297 0.2% Student Loans 355 0.3% 338 0.3% Other 177 0.1% 100 0.0% --------- ----- ------------ ----- TOTAL CONSUMER LOANS 48,337 35.2% 49,041 37.7% --------- ----- ------------ ----- Total Loans 137,380 100.0% 129,835 100.0% ========= ===== ============ ===== Net Deferred Costs & Unearned 372 372 Discounts Allowance for Credit Losses (1,597) (1,428) Total Loans, Net $ 136,155 $ 128,779 ========= ============ </TABLE> The Company's total non-accruing loans, expressed as a percentage of total loans was 0.46% at June 30, 2001 as compared to 0.92% at December 31, 2001. Actual charge-offs for the three months ended June 30, 2001 were $552 compared to $851 for the same period in 2000. The decrease in non-accruing loans is substantially a result of foreclosure on one parcel of commercial real estate during 2001 which is reflected in the table below. This property is currently held for sale by the Bank. The Company's allowance for credit losses increased to approximately $1.6 million at June 30, 2001 from approximately $1.4 million at December 31, 2000. The allowance for credit loss as a percentage of total loans was 1.16% at June 30, 2001 compared to 1.11% at December 31, 2000. This increase is a result of the increase in the overall loan portfolio balances as well as the increasing amount of commercial loans. This change in the loan portfolio with increasing commercial loans which tend to have higher credit risk than consumer loans is reflected in the additional credit loss reserve levels reflected at June 30, 2001 and December 31, 2000.
16 Page 14 The adequacy of the Company's allowance for credit 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 credit losses is adequate to absorb credit losses from existing loans. The following table sets forth information regarding non-accrual loans and non-performing assets. <TABLE> <CAPTION> June 30, 2001 December 31, 2000 ------------- ----------------- ($000) ($000) <S> <C> <C> Non-accruing loans: One-to-four family $0 $0 Home equity 0 0 Commercial real estate and multi-family 509 1,113 Consumer 0 0 Commercial business 131 82 ------- ------ Total 640 1,195 ------- ------ Non-performing assets 1,135 265 ------- ------ Total non-accruing loans and non-performing $1,775 $1,460 assets ======= ====== Total non-accruing loans and non-performing 0.75% 0.65% assets as a percentage of total assets ======= ====== Total non-accruing loans and non-performing 1.30% 1.12% assets as a percentage of total loans ======= ====== </TABLE>
17 Page 15 Investing Activities - -------------------- The Company's securities portfolio decreased slightly to approximately $78.5 million at June 30, 2001 as compared to approximately $78.6 million at March 31, 2001. Year-to-date, the securities portfolio has grown 7.4% from $73.1 million at December 31, 2000. The lack of growth this quarter can be attributed to normal maturities and payments received during the quarter. 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. Funding Activities - ------------------ Total deposits during the quarter decreased by 0.5% to $191.8 million at June 30, 2001 from $192.7 million at March 31, 2001. Year-to-date, total deposits increased 2.7% from $186.7 million at December 31, 2000. Tax collections in local municipalities traditionally contribute to increases in total deposits, usually certificates of deposit over $100,000, during the first quarter and then decrease in the second quarter as cash is needed by the municipalities for operations. Core deposits (all deposits excluding time deposits greater than $100,000), increased 2.2% to $161.4 million at June 30, 2001 from $157.9 million at March 31, 2001. Year-to-date, core deposits increased 3.4% from $156.0 million at December 31, 2000. Demand deposits increased 9.9% to $36.2 million at June 30, 2001 from $32.9 million at March 31, 2001. Premium savings, NOW accounts, and Statement savings also increased 7.1%, 6.3% and 6.0% for the quarter. Borrowed funds increased $5.9 million for a new borrowing undertaken in late May 2001 from the Federal Home Loan Bank. This borrowing was made to allow the Company to leverage low interest rates at the Federal Home Loan Bank to primarily fund an increase in commercial loan demand. MATERIAL CHANGES IN THE RESULTS OF OPERATIONS - --------------------------------------------- Net Income - ---------- The Company recorded earnings of approximately $650,000 for the quarter ended June 30, 2001, an increase of 2.4% over the earnings of $635,000 for the same quarter in 2000. Earnings per share were $0.30 for the quarter ended June 30, 2001, and $0.30 for the same quarter in 2000. 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 1.12 % for the quarter ended June 30, 2001 compared to 1.22% for the same period in 2000. The return on average equity for the second quarter of 2001 was 10.34% compared to 12.75% for the second quarter of 2000. Cash Operating Results - ---------------------- The Company has recorded its recent business acquisitions under the purchase method of accounting. As a result, the Company had recorded net intangible assets consisting predominately of goodwill totaling approximately $3.0 million at June 30, 2001 and $3.2 million at December 31, 2000. Amortization expense of goodwill was approximately $85,000 and $1,000 in the second quarter of 2001 and 2000, respectively. Since the amortization of goodwill does not result in a cash expense, the Company believes that supplemental reporting of its operating results on a "cash" or "tangible" basis (which excludes the after-tax effect of amortization of goodwill and the related asset balances) represents a relevant measure of financial performance. The supplemental cash basis data presented herein includes the effect of other non-cash operating expenses such as depreciation, provision for credit losses, or deferred income taxes associated with the results of operations. Cash net income grew 15.2% to $733,000 in the second quarter of 2001 from $636,000 in the same period in 2000. Cash earnings per share were $0.33 for the three months ended June 30, 2001 as compared to $0.30 for the same time period in 2000. Other Operating Results - ----------------------- Net interest income increased $124,000, or 5.7%, for the quarter ended June 30, 2001 compared to the same time period in 2000. Total interest income increased 6.5% and interest paid on deposits increased 7.9% from the second quarter of 2000. This increase reflects the $20.7 million, or 10.7%, increase in average interest-earning assets to $214.1 million for the second quarter of 2001 from $193.4 million for the second quarter of 2000. The increase in average interest-earnings assets resulted primarily from continued emphasis on loan originations. The Bank's net interest margin, for the three month period ended June 30, 2001 was 3.96% as compared to 4.19% for the same time period in 2000. The decrease is partly attributable to the impact on the Bank's rate-sensitive assets by the Federal Reserve decreasing short-term interest rates 125 basis points during the second quarter of 2001 and 275 basis points year-to-date in 2001. The yield on loans decreased to 8.49% for the second quarter of 2001 from 8.78% for the same time period in 2000. The tax equivalent yield on federal funds and investments decreased from 6.97% in the second quarter of 2000 to 6.85% in the second quarter of 2001. The cost of funds on interest bearing balances decreased to 4.03% for the second quarter of 2001 from 4.11% for the same time period in 2000. These decreases are, again, attributable to the Federal Reserve monetary rate adjustments noted above.
18 Page 16 Non-interest income increased to $1.2 million for the quarter ended June 30, 2001 from $413,000 for the same period in 2000. This increase of $758,000 is primarily attributable to the $628,000 of non-interest income related to the sale of insurance products through M&W Agency, Inc. which commenced operations in September 2000. Additionally, planned sales of investments provided a gain of $72,000 in non-interest income. Non-interest expense totaled $2.4 million for the second quarter of 2001 reflecting a $745,000 increase over the second quarter of 2000 total of $1.6 million. Approximately $525,000 of this increase, primarily salaries and benefits, occupancy and equipment costs and goodwill amortization, is directly attributable to the operations of M&W Agency, Inc. Additionally, during the second quarter of 2001, the Company prepared a filing to have its common stock listed on the Nasdaq National Market. This filing process resulted in one-time costs for attorney's fees, accountant's fees, investment banking fees as well as shareholder mailings and SEC filings. These costs totaled approximately $96,000 and had a tax-adjusted impact on the 2001 second quarter earnings of approximately $65,000 or $0.03 per share. The Company's application was accepted by the Nasdaq National Market during June 2001 and its listing became effective July 9, 2001. Certain expenses related to this listing were incurred after the close of the second quarter of 2001. All costs have been expensed as incurred with respect to this filing. Income tax expense totaled $337,000 and $210,000 for the three month periods ended June 30, 2001 and 2000, respectively. The effective combined tax rate for the second quarter of 2001 is 34.1% compared to 24.8% for the second quarter of 2000 reflecting the impact of M&W Agency, Inc. and the impact of the goodwill amortization expense, substantially all of which is not tax deductible. The effective tax rate maintained by the Bank is attributable to the substantial investments in tax advantaged municipal bonds and the benefit realized from a favorable deferred tax position. ITEM 3 - QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS - ------------------------------------------------------------------ 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 June 30, 2001 the Bank was in a negative gap position with $10.8 million more in rate-sensitive liabilities repricing over the next year than in rate-sensitive assets. 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 +/- $35.3 million at June 30, 2001. The gap ratio (rate-sensitive assets/rate-sensitive liabilities) at that date was 87%. 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 $707,427. On a quarterly basis, the available for sale portfolio is shocked for immediate rate increases of 100 and 200 basis points. At June 30, 2001 the Bank determined it would take an immediate increase in rates in excess of 200 basis points to eliminate the current capital cushion. The Bank's capital ratios are also reviewed on a quarterly basis. Unrealized gains and losses on available for sale securities are not included in the calculation of these ratios.
19 Page 17 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 except for the annual shareholders meeting held on April 24, 2001 reported in the Form 10-Q filed for the quarter ended March 31, 2000. ITEM 5. Other Information A cash dividend of $.27 per share was paid on March 27, 2001 to holders of record as of February 27, 2001. A total of $475,092 was paid on 1,759,601 shares. A 5 for 4 stock split was distributed on June 12, 2001 to shareholders on record as of May 25, 2001. Fractional shares were redeemed for cash. At the July 17, 2001 Board of Directors meeting, a new Board member was elected, James Biddle ,Jr., effective August 1, 2001. Mr. Biddle is the treasurer of Mader Construction Corporation in Elma, New York. In conjunction with the listing of its common stock on the Nasdaq National Market, the Company changed the members of its audit committee. The members now consist of David Taylor, Chairman, David Koch, and Thomas Waring. Effective May 29, 2001, Mark DeBacker was appointed Chief Financial Officer of Evans National Bank. ITEM 6. Exhibits and Reports on Form 8-K (a.) Exhibits -------- <TABLE> <CAPTION> Exhibit No. Name Page No. <S> <C> <C> 10.13 Evans National Bank Supplemental Executive Retirement Plan for 19 James Tilley dated October 17, 2000 10.14 Evans National Bank Supplemental Executive Retirement Plan for 22 William R. Glass dated October 17, 2000 10.15 Evans National Bank Employment Agreement with Mark 25 DeBacker dated May 29, 2001 99.1 Press Release-Announcing Earnings for Quarter ended June 30, 2001 32 </TABLE> (b.) Report on Form 8-K ------------------ The registrant filed a Form 8-K on April 26, 2001 to report under ITEM 5 - OTHER EVENTS the Company's first quarter earnings, the Board's consideration of strategies to list its common stock on a national exchange and the results of its Annual Shareholders Meeting. A press release was filed as an Exhibit to the Form 8-K. The registrant filed a Form 8-K on May 17, 2001 to report under ITEM 5 - OTHER EVENTS the Company's 5-for-4 stock split and the decision to apply for Nasdaq National Market listing of its Common Stock. A press release was filed as an Exhibit to the Form 8-K. The registrant filed a Form 8-K on July 2, 2001 to report under ITEM 5 - OTHER EVENTS that the Company's common stock will trade on the Nasdaq National Market beginning July 9, 2001. A press release was filed as an Exhibit to the Form 8-K.
20 Page 18 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 July 31, 2001 /s/James Tilley ------------------------------------- James Tilley President DATE July 31, 2001 /s/Mark DeBacker ------------------------------------- Mark DeBacker Chief Financial Officer