Evans Bancorp - 10-Q quarterly report FY

 

(Exact name of registrant as specified in its charter)

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed

since last report)

     Indicate by check mark whether the registrant: (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 þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act: (Check one):

Large accelerated filer o       Accelerated filer o      Non-accelerated filer þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $.50 Par Value—2,726,778 shares as of May 1, 2006

INDEX

EVANS BANCORP, INC. AND SUBSIDIARIES

ITEM I — FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2006 AND DECEMBER 31, 2005

(in thousands, except share and per share amounts)

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2006 AND 2005

(in thousands, execept share and per share amounts)

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2006 AND 2005

(in thousands, except share and per share amounts)

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2006 AND 2005

(in thousands)

(continued)

PART I-FINANCIAL INFORMATION
ITEM I-FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2006 AND 2005

(in thousands)

EVANS BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2006 AND 2005

Three Months Ended
March 31, 2006
(in thousands)

Three Months Ended
March 31, 2005
(in thousands)

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the fair value approach in SFAS No. 123(R) is similar to the fair value approach described in SFAS No. 123. In 2005, the Company used the Black-Scholes-Merton formula to estimate the fair value of stock options granted to employees. The Company adopted SFAS No. 123(R), using the modified-prospective method, beginning January 1, 2006. Based on the terms of its equity compensation plans, the adoption of SFAS No. 123(R ) did not require the Company to record a cumulative effect of adjustment. The Company also elected to continue to estimate the fair value of stock options using the Black-Scholes-Merton formula.

In the first quarter of 2006, because the fair value recognition provisions of SFAS No. 123,Stock-Based Compensation, and SFAS No. 123(R) were materially consistent under our equity plans, the adoption of SFAS No. 123(R) did not have a significant impact on our financial position or our results of operations. Further, the Company believes the adoption of SFAS No. 123(R) will not have a material impact on the Company’s future stock-based compensation expense.

Under the Company’s 1999 Employee Stock Option and Long-Term Incentive Plan, as amended (the “Option Plan”), the Company may grant options to officers, directors and key employees for up to 289,406 shares of common stock (as adjusted for stock dividends). Under the Option Plan, the exercise price of each option is not to be less than 100% of the market price of the Company’s stock on the date of grant and an option’s maximum term is ten years. The Company normally issues shares out of its treasury for any options exercised. The options have vesting schedules from 1 1/2 years through 9 years. At March 31, 2006, there were a total of 196,970 shares available for grant under the Option Plan.

As of December 31, 2005 there were 88,577 stock options outstanding under the Option Plan with a weighted-average exercise price of $21.32. During the three month period ended March 31, 2006 there were no options granted, exercised, forfeited, or expired. At March 31, 2006 there were 38,502 options exercisable at a weighted average exercise price of $21.77, no intrinsic value, and a weighted-average remaining contractual term of 8.10 years. At March 31, 2006 there were 88,577 stock options outstanding under the Option Plan with a weighted-average exercise price of $21.32, no intrinsic value, and a weighted-average remaining contractual term of 8.31 years.

On February 18, 2003, the Board of Directors of the Company adopted the Evans Bancorp, Inc. Employee Stock Purchase Plan (the “Purchase Plan”). As of March 31, 2006, there were 89,863 shares of common stock available to issue to its full-time employees, nearly all of whom are eligible to participate. Under the terms of the Purchase Plan, employees can choose each year to have up to 15% of their annual base earnings withheld to purchase the Company’s common stock. The Company grants options on January 1 and July 1 of each year during the term of the Purchase Plan. The purchase price of the stock is 85% of the lower of its price on the grant date or the exercise date. Compensation cost is recognized for the fair value of the employees’ purchase rights, which was estimated using the Black-Scholes-Merton model.

As of March, 31, 2006, there was approximately $181 thousand of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 2.6 years. This expected cost does not include the impact of any future stock-based compensation awards. The compensation cost charged against income for those plans was $30 thousand and $47 thousand for three month periods ended March 31, 2006 and 2005, respectively.

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections, a replacement of Accounting Principles Board (“APB”) Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. APB Opinion No. 20, “Accounting Changes,” previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 became effective for the Company on January 1, 2006. The adoption of SFAS No. 154 did not have a material impact on the consolidated financial statements. The Company will continue to apply the requirements of SFAS No. 154 to any future accounting changes and error corrections.

This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. When used in this report, or in the documents incorporated by reference herein, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” and similar expressions identify such forward-looking statements. These forward-looking statements include statements regarding the Company’s business plans, prospects, growth and operating strategies, statements regarding the asset quality of the Company’s loan and investment portfolios, and estimates of the Company’s risks and future costs and benefits.

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

Because of these and other uncertainties, the Company’s actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation, to publicly update or revise forward-looking information, whether as a result of new, updated information, future events or otherwise.

The Company’s Unaudited Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the Company’s Unaudited Consolidated Financial Statements and

Notes. These estimates, assumptions and judgments are based on information available as of the date of the Unaudited Consolidated Financial Statements. Accordingly, as this information changes, the Unaudited Consolidated Financial Statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments, and as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.

The most significant accounting policies followed by the Company are presented in Note 1 to the Audited Consolidated Financial Statements included in Item 8 in its Annual Report on Form 10-K. These policies, along with the disclosures presented in the other Notes to the Company’s Audited Consolidated Financial Statements contained in its Annual Report on Form 10-K and in this financial review, provide information on how significant assets and liabilities are valued in the Company’s Unaudited Consolidated Financial Statements and how those values are determined.

Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan and lease losses and valuation of goodwill to be the accounting areas that require the most subjective or complex judgments, and as such, could be most subject to revision as new information becomes available.

The allowance for loan and lease losses represents management’s estimate of probable losses in the Bank’s loan and lease portfolio. Determining the amount of the allowance for loan and lease losses is considered a critical accounting estimate because it requires significant judgment on the part of management and the use of estimates related to the amount and timing of expected future cash flows on impaired loans and leases, estimated losses on pools of homogeneous loans and leases based on historical loss experience and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan and lease portfolio also represents the largest asset type on the Unaudited Consolidated Balance Sheets. Note 1 to the Audited Consolidated Financial Statements included in Item 8 in its Annual Report on Form 10-K describes the methodology used to determine the allowance for loan and lease losses.

The amount of goodwill reflected in the Company’s Unaudited Consolidated Financial Statements is required to be tested by management for impairment on at least an annual basis. The test for impairment of goodwill on the identified reporting unit is considered a critical accounting estimate because it requires judgment on the part of management and the use of estimates related to the growth assumptions and market multiples used in the valuation model.

     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 and lease balances include both performing and non-performing loans and leases. Investments are included at amortized cost. Yields are presented on a non-tax-equivalent basis.

     Total gross loans and leases grew to $261.5 million at March 31, 2006, reflecting a 0.6% or $1.5 million increase from December 31, 2005. Gross loans and leases are net of $4.9 million and $4.0 million unearned income on direct financing leases as of March 31, 2006 and December 31, 2005, respectively. Commercial loans and leases totaled $181.9 million at March 31, 2006, reflecting a 0.4% or $0.7 million decrease from December 31, 2005. Increases in direct financing leases of $3.7 million, were offset by declines in commercial real estate, installment loans and lines of credit. Consumer loans totaled $78.9 million at March 31, 2006, reflecting a 2.8% or $2.1 million increase from December 31, 2005. Increases in consumer real estate and home equity loans of $1.6 million and $0.9

million, respectively, were largely responsible for this increase. The Bank continues to sell certain fixed rate residential mortgages originated below a designated interest level to the Federal National Mortgage Association (“FNMA”), while maintaining the servicing rights for those mortgages. During the first quarter 2006, the Bank sold mortgages to FNMA totaling $0.5 million as compared to $1.2 million during the first quarter 2005. At March 31, 2006, the Bank had a loan servicing portfolio principal balance of $28.9 million upon which it earns servicing fees, compared to $28.8 million at December 31, 2005.

     The following table presents selected information on the composition of the Company’s loan and lease portfolio in dollar amounts and in percentages as of the dates indicated.

     Net charge-offs were $129 thousand in the first quarter of 2006 as compared to net recoveries of $29 thousand in the first quarter of 2005. Non-performing loans and leases, defined as accruing loans and leases greater than 90 days past due and non-accrual loans and leases, totaled 0.38% of total loans and leases outstanding at March 31, 2006 as compared to 0.72 % at December 31, 2005. The allowance for loan and lease losses totaled $3.4 million or 1.29% of total loans and leases outstanding at March 31, 2006 as compared to $3.2 million or 1.23% of total loans and leases outstanding at December 31, 2005.

     The adequacy of the Company’s allowance for loan and lease losses is reviewed quarterly by the Company’s management with consideration given to loan and lease concentrations, charge-off history, delinquent loan and lease percentages, and general economic conditions. Management believes the allowance for loan and lease losses is adequate for losses from existing loans and leases.

     The following table sets forth information regarding non-performing loans and leases as of the dates specified.

     For the quarter ended March 31, 2006, gross interest income that would have been reported on non-accruing loans and leases, had they been current, was $34 thousand. There was no interest income included in net income for the quarter ended March 31, 2006 on non-accruing loans and leases. Non-accruing commercial loans declined $0.6 million in the three month period ended March 31, 2006 due mainly to a $0.5 million recovery on collateral for one significant non-accrual loan.

     The Company’s securities portfolio decreased by 4.0%, or $6.5 million, to approximately $153.5 million at March 31, 2006, as compared to approximately $160.0 million at December 31, 2005. The decline in the securities portfolio was due in part to available funds being used for increased lending, along with repayments of short term borrowings. The Company monitors extension and prepayment risk in the portfolio to limit potential exposures. Management believes the average expected life of the portfolio is 3.6 years as of March 31, 2006, as compared to 3.5 as of December 31, 2005. Available-for-sale securities with a total fair value of $145.9 million at March 31, 2006 were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

     Total deposits during the quarter ended March 31, 2006, increased 9.3% to $368.2 million at March 31, 2006 from $336.8 million at December 31, 2005. Time deposits $100,000 and over increased 46.2% or $30.0

million in the quarter due in large part to successful bidding on large municipal deposits. Due to higher short-term interest rates, many municipalities have preferred short-term time deposit funding as an investment option. Muni-vest deposits increased 39.1% or $10.8 million due to the normal inflow of municipal tax receipts, which occurs during the first quarter of the calendar year. Core deposits (all deposits excluding time deposits greater than $100,000) increased 0.5% or $1.4 million during the quarter ended March 31, 2006. Demand deposits decreased 11.3%, NOW accounts decreased 7.0% and federal funds purchased and securities sold under agreement to repurchase decreased 40.3% or $3.6 million from December 31, 2005, which is mainly attributable to the pay down of federal funds purchased with the additional municipal funding garnered in the first quarter of 2006. Balances in demand deposits, NOW accounts and securities sold under agreement to repurchase vary from day to day based on customer transaction volume and represents normal deposit activity.

     The Company also uses borrowings from other correspondent banks and the Federal Home Loan Bank of New York as sources of funding. There was no short-term borrowing at March 31, 2006 as compared to $34.6 million at December 31, 2005. The decrease from December 31, 2005 is due largely to a decline in short-term borrowing caused by seasonal fluctuations in municipal deposit accounts.

     Net income was $1.4 million or $0.52 per basic and diluted share for the three months ended March 31, 2006, as compared to $1.3 million or $0.46 per basic and diluted share for the same period in 2005. Net income represented a return on average assets of 1.21% and 1.14% for the three month periods ended March 31, 2006 and 2005. The return on average equity was 15.04% and 14.17% for the three months periods ended March 31, 2006 and 2005, respectively.

     Net interest income for the three month period ended March 31, 2006 was $3.6 million, an increase of $0.3 million over the same period in 2005, and is primarily as a result interest income growth related to the loan and lease portfolio, offset by increased interest expense on deposits.

     The net interest margin for the three month period ended March 31, 2006 was 3.49% as compared to 3.42% for the same period in 2005. The increase was the result of a 65 basis point increase in interest earning assets, mainly attributable to an increase in the volume of loans and leases as well as increased yields on loans and leases. Interest free funds also contributed 43 basis points in the three month period ended March 31, 2006 due to an increase in average demand deposits, compared to a 25 basis point contribution in the same period of 2005. These were partially offset by an increase in the Bank’s cost of interest-bearing liabilities, which increased to 2.89% from 2.13% in 2005. Higher interest rates on federal funds purchased and time deposits were the primary drivers of this increase in cost of funds.

     The provision for loan and lease losses for the three month period ended March 31, 2006 increased to $282 thousand from $151 thousand for the same period in 2005. The increase was a result of the Company’s expanding direct financing lease portfolio through Evans National Leasing, along with continued commercial loan growth. Commercial loans and direct financing leases tend to have a higher credit risk than consumer loans. The Bank continues to retain a high percentage of fixed rate residential loans originated during the three month period ended March 31, 2006 as opposed to selling in the secondary markets, based on an improving interest rate environment.

     Non-interest income was $3.2 million for the three month period ended March 31, 2006, an increase of $0.1 million, or 4.2% over the same period in 2005. This was primarily a result of increased insurance fee revenue for the three month period ended March 31, 2006, of $0.2 million or 7.4%, compared to the same period in 2005. The increased insurance fee revenue was primarily the result of increased profit sharing revenue at ENBI in the first quarter of 2006. Also contributing to the increase was increased fee income on the direct financing lease portfolio which has grown significantly since the first quarter of 2005. This increase was offset by a $0.1 million decline in gains on sales of securities, of which there were none in the three month period ended March 31, 2006.

     Non interest expense was $4.5 million for each of the three month periods ended March 31, 2006 and 2005. Salary and employee benefit expense for the three month period ended March 31, 2006 increased $0.1 from the same period in 2005, due to Company growth and merit pay increases awarded in early 2006. Advertising and public relations expense for the three month period ended March 31, 2006 declined $0.1 million from the same period in 2005, as expenses incurred in 2005 for the Bank’s new North Buffalo branch opening were not repeated in 2006. Professional services expense for the three month period ended March 31, 2006 declined $0.1 million from the same period in 2005 mainly attributable to expenses for certain revenue enhancement projects in 2005. Other expense for the three month period ended March 31, 2005 increased $0.1 million from the same period in 2005, mainly due to Company growth.

Income tax expense totaled $616 thousand for the three month period ended March 31, 2006, compared to $492 thousand for the same period in 2005. The effective tax rate for the three month period ended March 31, 2006 was 30.5%, compared to 28.1% for the same period in 2005. The increase is primarily a result of the decreased composition of non-taxable municipal securities interest income as a percentage of the overall investment portfolio and the larger contribution of non-tax advantaged income from insurance operations.

     The Bank has consistently maintained regulatory capital ratios at, or above, federal “well capitalized” standards. Equity as a percentage of assets was 7.9% at both March 31, 2006 and December 31, 2005. Book value per common share was $13.41 at March 31, 2006, compared to $13.51 at December 31, 2005. Total stockholders’ equity was $36.5 million at March 31, 2006, down from $36.9 million at December 31, 2005. The decline is primarily attributable to the payment of dividends, and an increase in unrealized losses in the investment portfolio, which offset net income of $1.4 million in first quarter 2006.

     The Bank utilizes cash flows from the investment portfolio and federal funds sold balances to manage the liquidity requirements related to loan demand and deposit fluctuations. The Bank also has many borrowing options. As a member of the Federal Home Loan Bank (“FHLB”) the Bank is able to borrow funds at competitive rates. Advances of up to $45.0 million can be drawn on the FHLB via an Overnight Line of Credit Agreement between the Bank and the FHLB. An amount equal to 25% of the Bank’s total assets could be borrowed through the advance programs under certain qualifying circumstances. The Bank also has the ability to purchase up to $14.0 million in federal funds from its correspondent banks. By placing sufficient collateral in safekeeping at the Federal Reserve Bank, the Bank could also borrow at the discount window. Additionally, the Company has access to capital markets as a funding source.

     Cash flows from the Bank’s investment portfolio are laddered, so that securities mature at regular intervals, to provide funds from principal and interest payments at various times as liquidity needs may arise. Contractual maturities are also laddered, with consideration as to the volatility of market prices, so that securities are available-for-sale from time-to-time without the need to incur significant losses. At March 31, 2006, approximately 8.4% of the Bank’s securities had contractual maturity dates of one year or less and approximately 32.6% had maturity dates of five years or less. Available assets of $153.6 million, less public and purchased funds of $180.8 million, resulted in a long-term liquidity ratio of 85% at March 31, 2006, versus 90% at December 31, 2005.

     The Company’s liquidity needs can also be met by more aggressively pursuing municipal deposits, which are normally awarded on the basis of competitive bidding. The Company believes that the Bank maintains a sufficient level of U.S. government and government agency securities and New York State municipal bonds that can be pledged as collateral for these deposits.

     Additional information responsive to this Item is contained in the Liquidity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, which information is incorporated herein by reference.

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

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

     The following table demonstrates the possible impact of changes in interest rates on the Bank’s net interest income over a 12 month period of time:

SENSITIVITY OF NET INTEREST INCOME
TO CHANGES IN INTEREST RATES

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

     The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures as of March 31, 2006 (the end of the period covered by this Report) have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

     No changes in the Company’s internal control over financial reporting were identified in the fiscal quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The following table includes all Company repurchases of its common stock, $0.50 par value, made on a monthly basis during the period covered by this Report, including those made pursuant to publicly announced plans, or programs.