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, 2000 ---------------- [ ] 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--1,698,484 shares as of June 30, 2000
2 INDEX EVANS BANCORP, INC. AND SUBSIDIARY PAGE PART 1. FINANCIAL INFORMATION - ------------------------------- Item 1. Financial Statements (Unaudited) Consolidated balance sheets--June 30, 2000 and December 31, 1999 1 Consolidated statements of income--Three months ended June 30, 2000 and 1999 2 Consolidated statements of income--Six months ended June 30, 2000 and 1999 3 Consolidated statements of cash flows--Six months ended June 30, 2000 and 1999 4 Notes to consolidated financial statements-- June 30, 2000 and 1999 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantative and Qualitative Disclosures About Market Risks 8 PART II. OTHER INFORMATION 9 - --------------------------- 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 10
3 <TABLE> <CAPTION> PART I - FINANCIAL INFORMATION PAGE 1 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS June 30, 2000 and December 31, 1999 (Unaudited) June 30, December 31, ASSETS 2000 1999 ------------------- ------------------- <S> <C> <C> Cash and due from banks $ 7,755,036 $ 8,528,778 Federal Funds sold 3,550,000 3,450,000 Securities: Classified as available-for-sale, at fair value 67,398,387 59,550,786 Classified as held-to-maturity, at amortized cost 3,551,855 3,448,892 Loans, net 120,884,484 116,433,438 Properties and equipment, net 3,727,635 3,834,496 Other assets 4,127,380 3,541,993 ------------------- ------------------- TOTAL ASSETS $210,994,777 $198,788,383 =================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Demand $ 34,856,615 $ 29,683,357 NOW and money market accounts 9,675,126 8,048,455 Regular savings 60,908,274 58,819,156 Time Deposits, $100,000 and over 30,250,280 28,856,320 Other time accounts 46,676,381 44,541,611 ------------------- ------------------- 182,366,676 169,948,899 Other Borrowed Funds 5,000,000 5,000,000 Other liabilities 4,514,995 5,554,546 ------------------- ------------------- TOTAL LIABILITIES 191,881,671 180,503,445 ------------------- ------------------- STOCKHOLDERS' EQUITY Common Stock, $.50 par value; 10,000,000 shares authorized; 1,698,950 shares issued 849,475 849,475 Capital surplus 10,990,720 10,990,720 Retained earnings 8,383,554 7,629,839 Accumulated other comprehensive (loss) income (net of tax) (1,088,741) (1,185,096) ------------------- ------------------- 19,135,008 18,284,938 Less: Treasury Stock, at cost (466 shares) (21,902) 0 ------------------- ------------------- Total Stockholders' equity 19,113,106 18,284,938 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $210,994,777 $198,788,383 =================== =================== </TABLE> See Notes to Consolidated Financial Statements.
4 <TABLE> <CAPTION> 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, 2000 and 1999 (Unaudited) Three Months Ended June 30, 2000 1999 ------------------- ------------------- <S> <C> <C> INTEREST INCOME Loans $2,650,423 $2,332,930 Federal funds sold 26,111 54,107 Securities: Taxable 689,105 423,054 Non-taxable 388,449 311,934 ------------------- ------------------- Total Interest Income 3,754,088 3,122,025 INTEREST EXPENSE Interest on Deposits 1,469,410 1,151,710 Short Term Borrowing 109,420 74,361 ------------------- ------------------- NET INTEREST INCOME 2,175,258 1,895,954 PROVISION FOR LOAN LOSSES 100,000 45,000 ------------------- ------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,075,258 1,850,954 ------------------- ------------------- NON-INTEREST INCOME: Service charges 195,961 169,710 Other 224,084 102,667 Securities (Loss) Gain (6,642) 0 ------------------- ------------------- Total Non-interest Income 413,403 272,377 ------------------- ------------------- NON-INTEREST EXPENSE: Salaries and employee benefits 867,021 773,501 Occupancy 244,980 219,120 Supplies 46,616 34,797 Repairs and maintenance 53,557 59,062 Advertising and public relations 32,776 49,171 Professional services 60,040 62,969 FDIC assessments 8,527 4,087 Other 330,213 291,195 ------------------- ------------------- Total Non-interest Expense 1,643,730 1,493,902 ------------------- ------------------- Income before income taxes 844,931 629,429 ------------------- ------------------- INCOME TAXES 209,800 171,250 ------------------- ------------------- NET INCOME $635,131 $458,179 =================== =================== NET INCOME PER COMMON SHARE-BASIC $0.37 $0.27 =================== =================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 1,698,268 1,698,950 =================== =================== </TABLE> See Notes to Consolidated Financial Statements.
5 <TABLE> <CAPTION> 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, 2000 and 1999 (Unaudited) Six Months Ended June 30, 2000 1999 ------------------- ------------------- <S> <C> <C> INTEREST INCOME Loans $5,181,489 $4,661,556 Federal Funds Sold 80,349 93,318 Securities: Taxable 1,318,378 777,535 Non-taxable 772,720 607,338 ------------------- ------------------- Total Interest Income 7,352,936 6,139,747 INTEREST EXPENSE Interest on Deposits 2,867,606 2,271,794 Short Term Borrowing 207,816 158,236 ------------------- ------------------- NET INTEREST INCOME 4,277,514 3,709,717 PROVISION FOR LOAN LOSSES 160,000 80,000 ------------------- ------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,117,514 3,629,717 ------------------- ------------------- NON-INTEREST INCOME: Service charges 388,786 347,031 Other 425,798 239,688 Securities (Loss) Gain (15,480) 1,064 ------------------- ------------------- Total Non-interest Income 799,104 587,783 ------------------- ------------------- NON-INTEREST EXPENSE: Salaries and employee benefits 1,741,635 1,513,121 Occupancy 482,897 434,902 Supplies 94,556 67,905 Repairs and maintenance 111,683 113,031 Advertising and public relations 62,316 95,838 Professional services 128,820 126,111 FDIC Assessment 16,751 8,299 Other 689,708 553,209 ------------------- ------------------- Total Non-interest Expense 3,328,366 2,912,416 ------------------- ------------------- Income before income taxes 1,588,252 1,305,084 ------------------- ------------------- INCOME TAXES 409,800 352,450 ------------------- ------------------- NET INCOME $1,178,452 $952,634 =================== =================== NET INCOME PER COMMON SHARE-BASIC $0.69 $0.56 =================== =================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 1,698,268 1,698,950 =================== =================== </TABLE> See Notes to Consolidated Financial Statements.
6 <TABLE> <CAPTION> PART I - FINANCIA INFORMATION PAGE 4 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2000 and 1999 (Unaudited) Six Months Ended June 30, 2000 1999 ------------------- ------------------- <S> <C> <C> OPERATING ACTIVITIES Interest received $7,172,600 $6,101,106 Fees and commissions received 749,576 559,856 Interest paid (3,003,150) (2,449,218) Cash paid to suppliers and employees (3,189,304) (2,791,423) Income taxes paid (499,500) (347,000) ------------------- ------------------- Net cash provided by operating activities 1,230,222 1,073,321 ------------------- ------------------- INVESTING ACTIVITIES Available for sale securities Purchases (11,494,166) (18,272,730) Proceeds from sales 2,228,379 2,842,567 Proceeds from maturities 1,564,975 6,904,242 Held to maturity securities Purchases (1,629,027) (1,592,571) Proceeds from maturities 1,526,065 1,014,678 Additions to properties and equipment (166,692) (97,593) Investment unconsolidated subsidiary (10,500) 0 Increase in loans, net of repayments (4,988,600) (2,379,120) Proceeds from sales of loans 315,856 3,204,950 ------------------- ------------------- Net cash used in investing activities (12,653,710) (8,375,577) ------------------- ------------------- FINANCING ACTIVITIES Increase in deposits 12,417,777 12,152,332 Repayment of short term borrowing (1,221,392) (1,858,669) (Purchase) sale treasury stock (21,902) 60,840 Dividends paid (424,737) (390,448) ------------------- ------------------- Net cash provided by financing activities 10,749,746 9,964,055 ------------------- ------------------- Net (decrease) increase in cash and cash equivalents (673,742) 2,661,799 Cash and cash equivalents, January 1 11,978,778 7,300,780 ------------------- ------------------- Cash and cash equivalents, June 30 $11,305,036 $9,962,579 =================== =================== </TABLE> See Notes to Consolidated Financial Statements.
7 <TABLE> <CAPTION> 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, 2000 and 1999 (Unaudited) Six Months Ended June 30, 2000 1999 ------------------- ------------------- <S> <C> <C> RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $1,178,452 $952,634 ------------------- ------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 285,147 309,199 Provision for loan losses 160,000 80,000 Loss(Gain) on sale of assets 13,887 (11,137) Increase(Decrease) in accrued interest payable 72,272 (19,188) Increase in accrued interest receivable (173,102) (84,938) Decrease in other liabilities (34,886) (2,775) Increase in other assets (271,548) (150,474) ------------------- ------------------- Total adjustments 51,770 120,687 ------------------- ------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $1,230,222 $1,073,321 =================== =================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Net unrealized loss on available for sale securities ($1,601,178) ($695,457) =================== =================== </TABLE> See Notes to Consolidated Financial Statements.
8 PART I - FINANCIAL INFORMATION PAGE 6 ITEM 1 - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 AND 1999 (UNAUDITED) 1. GENERAL ------- The accounting and reporting policies followed by Evans Bancorp, Inc., a bank holding company, and its subsidiary, Evans National Bank, 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 ended June 30, 2000 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. 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, allowance for loan losses and deferred loan origination expenses. 5. 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. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," during the fourth quarter of 1997. Only basic earnings per share is disclosed because the Company does not have any dilutive securities or other contracts to issue common stock or convert to common stock. 6. NEW ACCOUNTING STANDARDS PRONOUNCEMENTS --------------------------------------- SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information was issued in 1997 by the Financial Accounting Standards Board. This Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements. Management has determined that the Bank is the Company's only operating segment. As such additional disclosures are not considered necessary. 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. Because the Company does not use derivatives, the adoption of SFAS No. 133 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. The realized and unrealized gains on the securities transferred were not material to the Company.
9 PART I - FINANCIAL INFORMATION PAGE 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS MATERIAL CHANGES IN FINANCIAL CONDITION - --------------------------------------- Total deposits increased 7.3% over the first six months of 2000 versus an increase of 8.4% over the first six months of 1999. Demand deposits increased 17.4%, NOW accounts increased 20.2%, Other time accounts increased 4.8% and Time Deposits over $100,000 increased 4.8% during the first six months of 2000. Deposit increases primarily are attributable to the expansion of the Bank's trade area to include West Seneca, NY since opening a new branch in February 1999. All of the Bank's branches continue to exhibit growth in deposits. Total net loans outstanding increased 3.8% over the first six months of 2000 which compares to a decrease of 1.3% over the first six months of 1999. Growth was concentrated primarily in commercial mortgages (approximately $5.1 million) and home equity loans (approximately $900 thousand). Residential mortgage sales to the Federal National Mortgage Association ("FNMA") for the first six months of 1999 totaled $2.8 million compared to $206 thousand for the first six months of 2000. The Bank typically sells residential mortgages to FNMA for the purpose of reducing exposure to the risks inherent in long-term loans, while keeping the customer relationships through servicing. In January 2000, the Bank introduced a residential mortgage product which provides for bi-weekly payments. This substantially reduces the life of the loans and these mortgages have been retained in the portfolio. Total commercial loans outstanding at June 30, 2000 year-to-date increased approximately $8.2 million over the amount outstanding at June 30, 1999 year-to-date and consumer loans increased approximately $3.7 million during that period. This growth was concentrated primarily in commercial mortgages (approximately $6.1 million), new and increased usage on commercial lines of credit (approximately $2.6 million) and home equity loans (approximately $3.5 million). The securities portfolio increased 12.6% between December 31, 1999 and June 30, 2000 versus an increase of 15.3% over the same time period last year. 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. The annualized return on average assets ("ROAA") at June 30, 2000 was 1.15%. The ROAA at December 31, 1999 was 1.10%. The return on average equity at June 30, 2000 was 12.01% versus 10.72% at December 31, 1999. The capital to assets ratio of 10.00% at June 30,2000 compares to 10.17% at December 31, 1999. Total assets have increased approximately $12.2 million or 6.1% since December 31, 1999. MATERIAL CHANGES IN THE RESULTS OF OPERATIONS - --------------------------------------------- Net interest income for the semi-annual period ending June 30, 2000 increased 15.3% over the same six month period in 1999. Interest paid on deposits increased 26.2%. The increase reflects the impact of Federal Reserve raising short term interest rates 175 basis points since June of last year. The cost of short term borrowing was substantially higher due to the fact that the Repo Sweep accounts, which are considered borrowing, are now based on a tiered rate structure with the primary users of this account qualifying for the highest rate offered. The Bank's year-to-date net interest margin at June 30, 2000 was 4.55% as compared to 4.54% at June 30, 1999. The year-to-date yield on average earning assets has increased to 7.97% at June 30, 2000 from 7.73% at June 30, 1999. The yield on loans has increased to 8.64% from 8.50% over that time period and the tax-equivalent yield on federal funds and investments has increased from 6.24% to 6.90%. Comparatively, the year-to-date cost of funds on interest bearing balances increased from 3.75% at June 30, 1999 to 4.04% at June 30, 2000. This increase reflects increases in short term rates on Time Deposits over $100,000 impacted from Federal Reserve raising short term interest rates and higher balances in the Repo Sweep accounts. The year-to-date provision for loan losses was $160,000 through June 30, 2000 versus $80,000 through the second quarter of 1999. Management has increased the amount set aside for potential loan losses due to the substantial increase in the volume of the loan portfolio experienced over the past two years. Management believes that the credit quality of the portfolio remains high as supported by the fact that the charge-offs for the six month period ending June 2000 were $1,000 versus $5,000 for the same period in June 1999.
10 PAGE 8 Total non-interest expenses increased 14.3% in the first six months of 2000. This compares to an increase of 16.2% in the first six months of 1999. All expense categories continue to be impacted by the branch expansion into West Seneca. Salary and employee benefits increased 15.1% due to annual salary adjustments and additional staffing. Two loan officer positions were filled and an additional commercial loan officer was hired. A full-time officer was also hired for ENB Associates Inc. Supplies are up 39.2% over the same time period in 1999 due in part to the new debit card program, supplies for the mass Y2K mailing in January and the purchase of stationery with the Bank's new logo. Advertising and public relations have decreased 35% compared to an increase of 55.1% over June 1999. Last year additional costs were experienced as a result of the West Seneca branch expansion. FDIC assessments have increased 101.8% due to new assessment rates which went into effect on January 1, 2000. Miscellaneous other expenses increased 24.7% for the second quarter of 2000 compared to the second quarter of 1999. Net income through June 30, 2000 of $1,178,452 reflects an increase of 23.7% over the first six months of 1999. The effective combined tax rate for the first six months of 2000 was 26% compared to 27% for the first six months of 1999. The relatively low tax rates experienced in 2000 and 1999 demonstrate the impact of increasing the Bank's investment in tax- advantaged municipal bonds and the benefit realized from a favorable deferred tax position. On March 11, 2000 ENB Associates Inc. a wholly-owned subsidiary of Evans National Bank, began doing business. Through an agreement with O'Keefe Shaw & Co. Inc., ENB Associates, Inc. provides customers with access to non-deposit products, such as annuities and mutual funds. As of June 30, 2000 ENB Associates Inc. generated $17 thousand in revenue for the Bank. ITEM 3 - QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company does not hold investments in instruments (i.e. such as derivative financial or commodity instruments) that are considered to be subject of any significant market risk. The Company realizes income principally from the interest earned on loans and investments. Loan volumes and yields, as well as the volume of and rates on investments, deposits and borrowings, are affected by market interest rate volatility.
11 PART II - OTHER INFORMATION PAGE 9 - --------------------------- 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 18, 2000 reported in the Form 10-Q filed for the quarter ended March 31, 2000. ITEM 5. Other Information: In October of 1999, the Company announced that it had entered into a letter of intent to acquire the business and assets of M&W Group, Inc., an insurance agency headquartered in Silver Creek, New York. That transaction is expected to close during the third quarter of 2000. ITEM 6. Exhibits and Reports on Form 8-K - None to Report. The following Exhibits are filed as part of this Report: Exhibit No. Description Page ----------- ----------- ---- 27 Financial Data Schedule 11
12 PAGE 10 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 August 9, 2000 /s/Richard M. Craig ------------------------------------------- Richard M. Craig President and Chief Executive Officer DATE August 9, 2000 /s/James Tilley ------------------------------------------- James Tilley Senior Vice President