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 March 31, 1998 --------------------- [ ] 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--1,698,950 shares as of March 31, 1998
2 INDEX EVANS BANCORP, INC. AND SUBSIDIARY PAGE PART 1. FINANCIAL INFORMATION - ------------------------------- Item 1. Financial Statements (Unaudited) Consolidated balance sheets--March 31, 1998 and December 31, 1997 1 Consolidated statements of income--Three months ended March 31, 1998 and 1997 2 Consolidated statements of cash flows--Three months ended March 31, 1998 and 1997 3 Notes to consolidated financial statements-- March 31, 1998 and 1997 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II. OTHER INFORMATION 7 - ----------------------------- 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 8
3 <TABLE> <CAPTION> PART I - FINANCIAL INFORMATION PAGE 1 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS March 31, 1998 and December 31, 1997 (Unaudited) March 31, December 31, ASSETS 1998 1997 -------------------- ------------------ <S> <C> <C> Cash and due from banks $6,227,992 $5,821,532 Interest bearing deposits in other banks 0 0 Federal Funds sold 0 4,515,000 Securities: Classified as available-for-sale, at fair value 37,785,156 33,822,334 Classified as held-to-maturity, at amortized cost 6,260,038 6,578,040 Loans, net 104,153,606 101,627,427 Premises and equipment, net 3,950,213 3,827,672 Other assets 2,674,797 2,350,158 -------------------- ------------------ $161,051,802 $158,542,163 ==================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Demand $21,893,048 $21,680,839 NOW and money market accounts 6,925,028 7,093,959 Regular savings 49,481,190 44,264,697 Time Deposits, $100,000 and over 24,272,273 22,873,379 Other time accounts 38,775,011 42,478,453 -------------------- ------------------ 141,346,550 138,391,327 Dividend Payable 0 0 Other liabilities 2,557,874 3,111,536 -------------------- ------------------ 143,904,424 141,502,863 -------------------- ------------------ STOCKHOLDERS' EQUITY Common Stock, $.50 and $2.50 par value; 10,000,000 and 1,000,000 shares authorized; 1,698,950 and 339,790 shares issued and outstanding 849,475 849,475 Surplus 10,990,720 10,990,720 Retained earnings 5,186,765 4,985,249 Unrealized gains on available for sale securities 120,418 213,856 -------------------- ------------------ 17,147,378 17,039,300 -------------------- ------------------ $161,051,802 $158,542,163 ==================== ================== </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 March 31, 1998 and 1997 (Unaudited) Three Months Ended March 31, 1998 1997 -------------------- ----------------- <S> <C> <C> INTEREST INCOME Loans $2,310,399 $2,098,404 Federal funds sold 30,964 41,564 Securities: Taxable 324,629 362,045 Non-taxable 260,924 199,148 Deposits in other banks 0 0 -------------------- ----------------- 2,926,916 2,701,161 INTEREST EXPENSE Interest on Deposits 1,211,402 1,107,429 Short Term Borrowing 11,152 199 -------------------- ----------------- NET INTEREST INCOME 1,704,362 1,593,533 PROVISION FOR CREDIT LOSSES 30,001 15,000 -------------------- ----------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 1,674,361 1,578,533 -------------------- ----------------- NON-INTEREST INCOME: Service charges 171,198 162,619 Other 72,559 70,681 Securities Gains 4,592 374 -------------------- ----------------- 248,349 233,674 -------------------- ----------------- NON-INTEREST EXPENSE: Salaries and employee benefits 662,835 629,061 Occupancy 191,498 186,180 Supplies 31,114 21,378 Repairs and maintenance 45,328 37,530 Advertising and public relations 27,000 28,129 Professional services 68,489 54,819 FDIC assessments 4,125 2,592 Other 216,284 214,157 -------------------- ----------------- 1,246,673 1,173,846 -------------------- ----------------- Income before income taxes 676,037 638,361 -------------------- ----------------- PROVISION FOR INCOME TAXES 185,700 200,816 -------------------- ----------------- NET INCOME $490,337 $437,545 ==================== ================= NET INCOME PER COMMON SHARE $0.29 $0.26 ==================== ================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES 1,698,950 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 CASH FLOWS For the Three Months Ended March 31, 1998 and 1997 (Unaudited) Three Months Ended March 31, 1998 1997 -------------------- -------------------- <S> <C> <C> OPERATING ACTIVITIES Interest received $2,457,431 $2,402,873 Fees and commissions received 268,545 243,468 Interest paid (1,208,701) (1,090,095) Cash paid to suppliers and employees (1,190,540) (1,148,463) Income taxes paid (47,223) (53,250) -------------------- -------------------- Net cash provided by operating activities 279,512 354,533 -------------------- -------------------- INVESTING ACTIVITIES Available for sale securities Purchases (11,469,420) (13,498,292) Proceeds from sales 4,892,987 6,961,774 Proceeds from maturities 2,793,975 208,332 Held to maturity securities Purchases (188,104) (280,754) Proceeds from sales 0 0 Proceeds from maturities 311,252 283,463 Additions to bank premises and equipment (137,463) (183,922) Increase in loans, net of repayments (3,165,495) (2,411,135) Proceeds from sales of loans 613,502 271,098 -------------------- -------------------- Net cash used in investing activities (6,348,766) (8,649,436) -------------------- -------------------- FINANCING ACTIVITIES Increase in deposits 2,955,223 10,115,754 Short Term Borrowing (705,687) 0 Cash Dividends Paid (288,822) (169,895) -------------------- -------------------- Net cash provided by financing activities 1,960,714 9,945,859 -------------------- -------------------- Net increase in cash and cash equivalents (4,108,540) 1,650,956 Cash and cash equivalents, January 1 10,336,532 7,112,231 -------------------- -------------------- Cash and cash equivalents, March 31 $6,227,992 $8,763,187 ==================== ==================== </TABLE> See Notes to Consolidated Financial Statements.
6 <TABLE> <CAPTION> PART I - FINANCIAL INFORMATION PAGE 4 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1998 and 1997 (Unaudited) Three Months Ended March 31, 1998 1997 ---------------- -------------- <S> <C> <C> RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $490,337 $437,545 ---------------- -------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (96,797) 59,577 Provision for credit losses 30,001 15,000 Gain on sale of assets (8,779) (2,410) Increase in accrued interest payable 13,854 17,533 Increase in accrued interest receivable (294,919) (252,357) Increase in other liabilities 146,042 153,776 Increase in other assets (227) (74,131) ---------------- -------------- Total adjustments (210,825) (83,012) ---------------- -------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $279,512 $354,533 ================ ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Transfers of available for sale securities to held $0 $0 ================ ============== to maturity securities Net unrealized gain/(loss) on available for sale securities $177,086 ($549,839) ================ ============== </TABLE> See Notes to Consolidated Financial Statements.
7 PART I - FINANCIAL INFORMATION PAGE 5 ITEM 1 - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1998 AND 1997 (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 financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal recurring nature. The results of operations for the three month period ending March 31, 1998 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 CREDIT LOSSES --------------------------- The provision for credit 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 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. 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.
8 PART I - FINANCIAL INFORMATION PAGE 6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS MATERIAL CHANGES IN FINANCIAL CONDITION - --------------------------------------- Total deposits increased 2.1% in the first quarter of 1998 versus an increase of 8.2% over the first three months of 1997. In 1997, deposit growth was bolstered by an increase of 39.1% in time deposits over $100,000. In 1998, this deposit category increased only 6.1% and time deposits under $100,000 decreased 8.7%. Competition for time deposits has been increasingly intense as financial institutions turn to this source of funding to meet loan demand and other obligations. Traditional first quarter growth experienced in other deposit categories provided an offset to the decline in time deposits. Total net loans outstanding increased 2.5% over the first three months of 1998 which compares to an increase of 2.3% over the first quarter of 1997. Total commercial loans increased $2.4 million over the first quarter of 1998, where growth remains concentrated in the Bank's commercial mortgage portfolio. On the consumer side, less significant growth of $141,000 reflects the current trend towards residential mortgage refinancing and the sale of $460,000 in residential mortgages to the Federal National Mortgage Association ("FNMA"). Additionally, $149,000 in student loans were sold to the Student Loan Marketing Association ("SLMA"). The securities portfolio increased 9.0% over the first three months of 1998 versus growth of 16.1% which occurred in the first quarter of 1997. 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 available for sale portfolio declined slightly in value since December 31, 1997. At December 31, the portfolio was valued at $376,000 over amortized cost whereas at March 31, 1998 the portfolio was valued at $231,000 over amortized cost. The annualized return on average assets at March 31, 1998 was 1.24% versus 1.19% at year-end 1997. The return on average equity improved to 11.65% at March 31, 1998 versus 11.06% at December 31, 1997. The capital to assets ratio of 10.93% at March 31, 1998 compares to 10.95% at December 31, 1997. Total assets have increased $2.5 million or 1.6% since year-end. MATERIAL CHANGES IN THE RESULTS OF OPERATIONS - --------------------------------------------- Net interest income for the quarter ending March 31, 1998 increased 7.0% over the first quarter of 1997. Interest income increased 8.4%. Loan interest income was up 10.1% as a result of increased volume. Interest income on federal funds sold and securities increased only 2.3%, but there is a benefit derived from increasing the volume of tax-exempt income that is not reflected in interest income, but in a lower effective tax rate. Interest paid on deposits increased 9.4% and the cost of short-term borrowing was substantially higher due to the increased use of the Bank's funding options as a member of the Federal Home Loan Bank. The Bank's year-to-date net interest margin at March 31, 1998 was 4.65% as compared to 4.67% at March 31, 1997. The year-to-date yield on average earning assets has declined from 8.29% at March 31, 1997 to 8.24% at March 31, 1998. The yield on loans has declined to 9.01% from 9.10% over that time period and the tax-equivalent yield on federal funds sold and investments have decreased to 6.51% from 6.53%. Comparatively, the year-to-date cost of funds on interest-bearing balances increased from 4.11% at March 31, 1997 to 4.17% at March 31, 1998. This increase reflects a change in the mix of interest-bearing deposits, Time deposits made up 55.7% of interest-bearing deposits at March 31, 1998 versus 53.0% the previous year. A new premium rate retail savings account product introduced in May 1997 has also contributed to the change in mix and a higher overall cost of funds, as has a volume decrease in average regular savings balances. The year-to-date provision for credit losses was $30,001 through March 31, 1998 versus $15,000 through the first quarter of 1997. Management has increased the amount set aside for potential credit losses due to the substantial increase in the volume of the portfolio experienced over the past two years. Management believes that the credit quality of the portfolio remains high. Net operating expenses increased 6.2% for the quarter ending March 31, 1998 over the quarter ending March 31, 1997. This compares to an increase of only 3.0% in the first quarter of 1997 over the first quarter of 1996. Annual salary adjustments and increase in the number of full-time equivalent employees from 75 at March 31, 1997 to 80 at March 31, 1998 contributed to the 5.40% increase in salary and benefit expense. The cost of forms and other necessary supplies is up 45.5% over the same time period in 1997 and professional services, such as legal, accounting and payroll and benefit services, are up 24.9%.
9 PAGE 7 Net income for the first quarter of $490,337 reflects an increase of 12.1% over the first quarter of 1997. The effective combined tax rate for the first three months of 1998 was 28% compared to 32% for the same period in 1997. The 28% rate for 1998 demonstrates the impact of increasing the Bank's investment in tax-advantaged municipal bonds and the benefit realized from a favorable deferred tax position. 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 The annual shareholders meeting for the Registrant was held on April 29, 1998. At the meeting, Phillip Brothman, David M. Taylor and Thomas H. Waring, Jr. were reelected as directors for a term of three (3) years. The following votes were cast for the nominees: FOR AGAINST Phillip Brothman 1,346,343 2,308 David M. Taylor 1,340,555 8,096 Thomas H. Waring, Jr. 1,324,803 23,848 Edward R. Gerecke, Jr. 2,686 The following directors continue their terms of office: Robert W. Allen William F. Barrett Richard M. Craig LaVerne G. Hall Richard C. Stevenson ITEM 5. Other Information: A cash dividend of $.17 per share was paid on March 26, 1998 to holders of record on March 12, 1998. A total of $288,822 was paid on 1,698,950 shares. 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 10
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 May 13, 1998 /s/Richard M. Craig --------------------------------------- Richard M. Craig President and Chief Executive Officer DATE May 13, 1998 /s/James Tilley --------------------------------------- James Tilley Senior Vice President