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, 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--1,758,300 shares as of March 31, 2001
2 INDEX EVANS BANCORP, INC. AND SUBSIDIARY <TABLE> <CAPTION> PAGE <S> <C> PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated balance sheets--March 31, 2001 and December 31, 2000 1 Consolidated statements of income--Three months ended March 31, 2001 and 2000 2 Consolidated statements of stockholders' equity--Three months ended March 31, 2001 and 2000 3 Consolidated statements of cash flows--Three months ended March 31, 2001 and 2000 4 Notes to consolidated financial statements-- March 31, 2001 and 2000 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantative and Qualitative Disclosures About Market Risks 9 PART II. OTHER INFORMATION 11 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 12 </TABLE>
3 PART I - FINANCIAL INFORMATION PAGE 1 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS March 31, 2001 and December 31, 2000 (Unaudited) <TABLE> <CAPTION> March 31, December 31, ASSETS 2001 2000 ---- ---- <S> <C> <C> Cash and due from banks $ 6,919,038 $ 8,108,912 Federal Funds sold 1,475,000 1,250,000 Securities: Classified as available-for-sale, at fair value 75,940,755 69,645,817 Classified as held-to-maturity, at amortized cost 2,706,180 3,475,401 Loans, net 130,523,439 128,779,052 Properties and equipment, net 3,687,234 3,776,869 Other assets 8,343,229 9,513,092 ------------- ------------ TOTAL ASSETS $ 229,594,875 $224,549,143 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Demand $ 32,919,598 $ 36,607,680 NOW and money market accounts 8,221,432 9,550,131 Regular savings 63,897,147 58,142,285 Time Deposits, $100,000 and over 34,953,728 30,779,658 Other time accounts 52,734,803 51,621,565 ------------- ------------ 192,726,708 186,701,319 Other Borrowed Funds 4,386,689 4,409,068 Securities sold under agreements to repurchase 2,386,350 3,869,172 Other liabilities 4,280,707 4,390,512 ------------- ------------ TOTAL LIABILITIES 203,780,454 199,370,071 ------------- ------------ STOCKHOLDERS' EQUITY Common Stock, $.50 par value 10,000,000 shares authorized; 1,759,601 shares issued and outstanding 879,801 879,801 Capital surplus 13,810,991 13,810,991 Retained earnings 10,133,825 9,953,780 Accumulated other comprehensive income (net of tax) 1,050,951 534,500 ------------- ------------ 25,875,568 25,179,072 Less: Treasury stock, at cost (1,301 shares) (61,147) 0 ------------- ------------ Total stockholders' equity 25,814,421 25,179,072 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 229,594,875 $224,549,143 ============= ============ </TABLE> See Notes to Consolidated Financial Statements. 2
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 March 31, 2001 and 2000 (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 2001 2000 ---- ---- <S> <C> <C> INTEREST INCOME Loans $2,802,240 $ 2,531,066 Federal funds sold 62,676 54,238 Securities: Taxable 756,790 629,273 Non-taxable 379,386 384,271 ---------- ----------- Total Interest Income 4,001,092 3,598,848 INTEREST EXPENSE Interest on Deposits 1,694,838 1,398,196 Short Term Borrowing 98,534 98,396 ---------- ----------- NET INTEREST INCOME 2,207,720 2,102,256 PROVISION FOR LOAN LOSSES 75,000 60,000 ---------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,132,720 2,042,256 ---------- ----------- NON-INTEREST INCOME: Service charges 236,022 192,825 Premium on Loans Sold-SLMA 355 355 Premium/Discount on Loans Sold-FNMA 1,440 124 Insurance service and fees 675,120 0 Other 213,411 201,235 Securities gains(losses) 15,744 (8,838) ---------- ----------- Total Non-interest Income 1,142,092 385,701 ---------- ----------- NON-INTEREST EXPENSE: Salaries and employee benefits 1,242,766 874,614 Occupancy 291,173 237,917 Supplies 64,597 47,940 Repairs and maintenance 95,224 58,126 Advertising and public relations 28,141 29,540 Professional services 84,562 68,780 FDIC assessments 8,616 8,224 Other Insurance 86,854 86,639 Other 438,142 272,856 ---------- ----------- Total Non-interest Expense 2,340,075 1,684,636 ---------- ----------- Income before income taxes 934,737 743,321 ---------- ----------- INCOME TAXES 279,600 200,000 ---------- ----------- NET INCOME $ 655,137 $ 543,321 ========== =========== NET INCOME PER COMMON SHARE-BASIC $ 0.37 $ 0.32 ========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 1,759,572 1,697,850 ========== =========== </TABLE> See Notes to Consolidated Financial Statements. 3
5 PAGE 3 EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 2000 - -------------------------------------------------------------------------------- <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 543,321 543,321 Unrealized gain on available for sale securities, net of reclassification adjustment and tax effect of $2,314 5,485 5,485 ----------- Total comprehensive income 548,806 ----------- Cash dividends ($.25 per common share) (424,738) (424,738) Purchase of 2,900 shares for treasury (136,300) (136,300) --------- ------------ ---------- ----------- --------- ----------- Balance, March 31, 2000 $ 849,475 $ 10,990,720 $7,748,422 $(1,179,611) $(136,300) $18,272,706 ========= ============ ========== =========== ========= =========== </TABLE> THREE MONTHS ENDED MARCH 31, 2001 - -------------------------------------------------------------------------------- <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 655,137 655,137 Unrealized gain on available for sale securities, net of reclassification adjustment and tax effect of $218,149 516,451 516,451 ----------- Total comprehensive income 1,171,588 ----------- Cash dividends ($.27 per common share) (475,092) (475,092) Purchase of 1,301 shares for treasury (61,147) (61,147) ----------- ------------ ----------- ---------- -------- ----------- Balance, March 31, 2001 $ 879,801 $ 13,810,991 $10,133,825 $1,050,951 $(61,147) $25,814,421 =========== ============ =========== ========== ======== =========== </TABLE> 4
6 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, 2001 and 2000 (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 2001 2000 ---- ---- <S> <C> <C> OPERATING ACTIVITIES Interest received $ 3,931,659 $ 3,396,533 Fees and commissions received 914,230 351,917 Interest paid (1,815,462) (1,443,261) Cash paid to suppliers and employees (592,904) (1,730,109) Income taxes paid (255,000) (66,500) ------------ ------------ Net cash provided by operating activities 2,182,523 508,580 ------------ ------------ INVESTING ACTIVITIES Available for sale securities Purchases (11,731,688) (9,800,895) Proceeds from sales 1,757,991 552,214 Proceeds from maturities 4,384,019 480,009 Held to maturity securities Purchases (74,823) (691,622) Proceeds from maturities 849,044 110,165 Additions to properties and equipment (256,591) (73,300) Investment Joint Venture 0 (10,500) Sale of Other Real Estate 0 0 Increase in loans, net of repayments (2,990,511) (5,764,836) Proceeds from sales of loans 930,944 122,141 ------------ ------------ Net cash used in investing activities (7,131,615) (15,076,624) ------------ ------------ FINANCING ACTIVITIES Increase in deposits 6,025,390 8,401,790 Purchase of Treasury Stock (61,147) (136,300) (Repayment) Purchase of Short Term Borrowing (1,505,201) 490,439 Dividends Paid (474,824) 0 ------------ ------------ Net cash provided by financing activities 3,984,218 8,755,929 ------------ ------------ Net decrease in cash and cash equivalents (964,874) (5,812,115) Cash and cash equivalents, January 1 9,358,912 11,978,778 ------------ ------------ Cash and cash equivalents, March 31 $ 8,394,038 $ 6,166,663 ============ ============ </TABLE> See Notes to Consolidated Financial Statements. 5
7 PART I - FINANCIAL INFORMATION PAGE 5 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2001 and 2000 (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 2001 2000 ---- ---- <S> <C> <C> RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 655,137 $ 543,321 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 443,893 154,352 Provision for loan losses 75,000 60,000 (Gain)loss on sale of assets (17,539) 8,359 (Decrease)Increase in accrued interest payable (22,090) 53,331 Increase in accrued interest receivable (68,973) (213,406) Decrease in other liabilities (272,911) (12,815) Decrease(Increase) in other assets 1,390,006 (84,562) ----------- ----------- Total adjustments 1,527,386 (34,741) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,182,523 $ 508,580 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Net unrealized gain(loss) on available for sale securities $ 1,545,515 $(1,734,721) =========== =========== </TABLE> See Notes to Consolidated Financial Statements. 6
8 PART I - FINANCIAL INFORMATION PAGE 6 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 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 three month period ending March 31, 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. Only basic earnings per share is disclosed because the Company does not have any dilutive securities or other contracts to issue common stock or convert to common stock. 7. DIVIDEND A cash dividend of $.27 per share was paid on March 27, 2001 to holders of record on February 27, 2001. A total of $475,092 was paid on 1,759,601 shares.
9 Page 7 8. TREASURY STOCK During the quarter ended March 31, 2001, the Company repurchased 1,301 shares of common stock at a cost of $47.00 per share. These shares will be issued to shareholders who have elected to receive shares in lieu of cash under the Company's Dividend Reinvestment Plan. 9. SEGMENT INFORMATION Statement of Financial Accounting Standards 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 period ended March 31, 2001. Three Months Ended March 31, 2001 <TABLE> <CAPTION> Banking Insurance Total Activities Activities <S> <C> <C> <C> Net Interest Income(loss) $2,215,877 ($ 8,157) $2,207,720 Provision for credit losses 75,000 0 75,000 ---------- --------- ---------- Net interest income(loss) after provision for credit losses 2,140,877 (8,157) 2,132,720 Non-interest income 451,280 0 451,280 Insurance Commissions & Fees 0 675,068 675,068 Net securities gains 15,744 0 15,744 Non-interest expense 1,831,985 508,090 2,340,075 ---------- --------- ---------- Income before income taxes 775,916 158,821 934,737 Income tax expense 211,600 68,000 279,600 ---------- --------- ---------- Net income $ 564,316 $ 90,821 $ 655,137 ========== ========= ========== </TABLE> For the three months ended March 31, 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. Management has determined that this standard will not have a significant impact on the Company's financial condition and results of operation.
10 Page 8 PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS 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 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. MATERIAL CHANGES IN FINANCIAL CONDITION Total net loans outstanding increased 1.4% to $130.5 million at March 31, 2001 from $128.8 million at December 31, 2000. Growth was concentrated primarily in commercial mortgages (approximately $1.9 million), and in new and increased usage on commercial lines of credit (approximately $1.0 million). Residential mortgage sales to the Federal National Mortgage Association ("FNMA") for the first three months of 2001 were $823,000 compared to $30,000 for the first three months of 2000. The increase in sales over the first quarter of 2000 reflects increased mortgage volume as a result of the declining rate environment. Total commercial loans increased 3.2% to approximately $83.4 million at March 31, 2001 from approximately $80.8 million at December 31, 2000. Consumer loans increased to $ 48.3 million at March 31, 2001 from $ 48.0 million at December 31, 2000. This growth was concentrated primarily in commercial mortgages, commercial loans, direct financing lease loans and residential mortgages. The Company's securities portfolio increased 7.6% to $78.6 million at March 31, 2001 from $73.1 million at December 31, 2000. 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. Total deposits increased 3.2% in the first quarter of 2001. Tax collections in local municipalities traditionally contribute to significant increases in the total deposits in the first quarter. During the first quarter of 2001, Time Deposits, $100,000 and over have increased 13.6% as municipalities have placed funds in short term time deposits since December 31, 2000 and Regular Savings Deposits increased 9.9%. Demand Deposit decreases of 10.1% during the first quarter of 2001 are attributable to fluctuating balances in commercial checking accounts. NOW account decreases of 13.9% reflect the movement of balances into the municipal savings products from municipal NOW account balances. The decrease in Demand Deposits and NOW balances also reflect the seasonal declines in balances related to tax activity. MATERIAL CHANGES IN THE RESULTS OF OPERATIONS The Company recorded earnings of $655,000 for the quarter ended March 31, 2001, an increase of 20.6% over the earnings of $543,000 for the same quarter in 2000. Earnings per share for the first quarter of 2001 increased 15.6% to $0.37 per share from $0.32 per share for the first quarter of 2000. This increase in earnings primarily can be attributed to income from the Bank's new subsidiary, M&W Agency, Inc., which commenced operations in September of 2000. Net income represented a return on average assets of 1.16% for the quarter ended March 31, 2001 compared to 1.07% for the
11 Page 9 same period in 2000. The return on average equity for the first quarter of 2001 was 10.66% compared to 11.20% for the first quarter of 2000. Net interest income increased $105,000, or 5%, for the quarter ended March 31, 2001 compared to the same time period in 2000. Total interest income increased 11.2% and interest paid on deposits increased 21.2% from the first quarter of 2000. This increase reflects the $15.6 million, or 8.1%, increase in average interest-earning assets to $206.9 million for the first quarter of 2001 from $191.3 million for the first quarter of 2000. The increase in average interest-earnings assets resulted primarily from continued emphasis on loan originations. The Bank's net interest margin at March 31, 2001 was 4.26% as compared to 4.52% at March 31, 2000. The decrease is partly attributable to the impact on the Bank's variable rate loan assets by the Federal Reserve decreasing short-term interest rates 150 basis points during the first quarter of 2001. The yield on loans increased to 8.63% for the first quarter of 2001 from 8.58% for the same time period in 2000. The tax equivalent yield on federal funds and investments increased from 6.82% to 7.17%. The cost of funds on interest bearing balances increased to 4.42% for the first quarter of 2001 from 3.94% for the same time period in 2000. This increase is due to a large percent of the Bank's time deposits repricing in the last half of the year 2000, prior to the fall in rates in January 2001. The provision for loan losses was increased to $75,000 for the first quarter of 2001 as compared to $60,000 for the first quarter of 2000. Management continues to increase the provision for loan losses due to the continued growth trend in commercial loans over the past two years. The adequacy of the Company's provision for loan losses is reviewed quarterly with consideration given to potential risk inherent within the loan portfolio, the status of particular loans, historical loan loss experience, as well as current and anticipated economic and market conditions. Non-interest income increased to $1.1 million for the three months ended March 31, 2001 from $386,000 for the same period in 2000. This increase of $756,000 is primarily attributable to the $675,000 of non-interest income related to the sale of insurance products through M&W Agency, Inc. which commenced operations in September 2000. Non-interest expense totaled $2.3 million for the first quarter of 2001 reflecting a $656,000 increase over the first quarter of 2000 total of $1.7 million. Approximately $588,000 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. Income tax expense totaled $279,000 and $200,000 for the three month periods ended March 31, 2001 and 2000, respectively. The effective combined tax rate for the first three months of 2001 is 29.9% compared to 26.9% for the first three months 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 low 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") 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 March 31, 2001 the Bank was in a negative gap position with $5.7 million more in rate-sensitive liabilities repricing over the next year than in rate-sensitive assets. The Bank's asset/liability limit, as defined in its asset/liability policy, is a difference of +/- 15% of the Bank's total assets, which amounted to +/- $34.5 million at March 31, 2001. The gap ratio (rate-sensitive assets/rate-sensitive liabilities) at that date was 93%.
12 Page 10 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 $1,050,951. On a quarterly basis, the available for sale portfolio is shocked for immediate rate increases of 100 and 200 basis points. At March 31, 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.
13 Page 11 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 2001 Annual Shareholders meeting of the Registrant was held on April 24, 2001. At the meeting, Phillip Brothman, David M. Taylor and Thomas H. Waring, Jr. were elected as directors for a term of three years and Robert G. Miller, Jr. and James Tilley were elected as directors for a term of two years. The following votes were cast for the nominees: FOR Phillip Brothman 1,220,999 David M. Taylor 1,217,318 Thomas H. Waring, Jr. 1,220,999 Robert G. Miller, Jr. 1,219,843 James Tilley 1,219,985 The following directors also continue their terms of office: Robert W. Allen William F. Barrett LaVerne G. Hall David C. Koch ITEM 5. Other Information A cash dividend of $.27 per share was paid on March 27, 2001 to holders of record on February 27, 2001. A total of $475,092 was paid on 1,759,601 shares. ITEM 6. Exhibits and Reports on form 8-K (a.) Exhibits - None (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.
14 Page 12 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 11, 2001 /s/James Tilley -------------------------------------- James Tilley President/Principal Financial Officer