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, 2003 -------------- [ ] 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of The Act). Yes [ ] No [X] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock, $.50 Par Value--2,333,862 shares as of March 31, 2003
INDEX EVANS BANCORP, INC. AND SUBSIDIARY PAGE PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets-March 31, 2003 and December 31, 2002 1 Consolidated Statements of Income-Three months ended March 31, 2003 and 2002 2 Consolidated Statements of Stockholders' Equity-Three months ended March 31, 2003 and 2002 3 Consolidated Statements of Cash Flows-Three months ended March 31, 2003 and 2002 4 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risks 17 Item 4. Controls and Procedures 18 PART II. OTHER INFORMATION 18 Item 1. Legal Proceedings Item 2. Changes In Securities and Use of Proceeds 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 20 CERTIFICATIONS 21
PART I - FINANCIAL INFORMATION PAGE 1 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS March 31, 2003 and December 31, 2002 (Unaudited) <TABLE> <CAPTION> March 31, December 31, ASSETS 2003 2002 ------------- ------------- <S> <C> <C> Cash and due from banks $ 10,859,440 $ 11,308,727 Federal funds sold 2,550,000 8,450,000 ------------- ------------- Total cash and cash equivalents 13,409,440 19,758,727 Interest bearing accounts in other banks 877,230 877,230 Securities: Available-for-sale, at fair value 136,408,515 103,031,200 Held-to-maturity, at amortized cost 3,331,024 3,640,714 Loans, net of allowance for loan losses of $2,265,829 in 2003 157,909,197 148,997,646 and $2,145,606 in 2002 Properties and equipment, net 5,425,982 5,348,994 Goodwill 2,944,913 2,944,913 Intangible assets 921,749 787,115 Bank owned life insurance 6,936,504 662,733 Other assets 3,485,002 2,661,588 ------------- ------------- TOTAL ASSETS $ 331,649,556 $ 288,710,860 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Demand $ 46,863,504 $ 44,664,537 NOW and money market accounts 9,665,871 10,535,456 Regular savings 119,689,560 94,907,508 Time deposits, $100,000 and over 32,512,138 28,440,994 Other time accounts 67,239,289 60,958,340 ------------- ------------- Total deposits 275,970,362 239,506,835 Other borrowed funds 14,957,444 8,110,964 Dividend payable 746,838 0 Securities sold under agreements to repurchase 4,964,495 6,543,456 Other liabilities 4,000,633 3,687,604 ------------- ------------- Total liabilities 300,639,772 257,848,859 ------------- ------------- CONTINGENT LIABILITIES AND COMMITMENTS (Note 11) STOCKHOLDERS' EQUITY Common stock, $.50 par value; 10,000,000 shares authorized; 2,334,162 shares issued 1,167,081 1,167,081 Capital surplus 16,578,868 16,578,868 Retained earnings 11,494,716 11,179,871 Accumulated other comprehensive income 1,775,233 1,942,295 ------------- ------------- 31,015,898 30,868,115 Less: Treasury stock (6,114) (6,114) ------------- ------------- Total stockholders' equity 31,009,784 30,862,001 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 331,649,556 $ 288,710,860 ============= ============= </TABLE> See Notes to Consolidated Financial Statements.
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, 2003 and 2002 (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 2003 2002 ---------- ---------- <S> <C> <C> INTEREST INCOME Loans $2,640,091 $2,750,203 Federal funds sold & interest on deposits in other banks 48,064 28,365 Securities: Taxable 572,456 704,342 Non-taxable 560,567 461,133 ---------- ---------- Total Interest Income 3,821,178 3,944,043 INTEREST EXPENSE Interest on deposits 1,013,261 1,177,519 Interest on borrowings 121,499 149,341 ---------- ---------- Total Interest Expense 1,134,760 1,326,860 ---------- ---------- NET INTEREST INCOME 2,686,418 2,617,183 PROVISION FOR LOAN LOSSES 120,000 105,000 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,566,418 2,512,183 ---------- ---------- NON-INTEREST INCOME: Service charges 449,757 273,383 Insurance service and fees 1,041,310 791,803 Commission fees 40,152 34,923 Net gain on sales of securities 248,965 10,235 Premium on loans sold 19,464 12,546 Other 337,916 231,077 ---------- ---------- Total non-interest income 2,137,564 1,353,967 ---------- ---------- NON-INTEREST EXPENSE: Salaries and employee benefits 1,686,366 1,344,537 Occupancy 404,560 319,735 Supplies 83,803 50,333 Repairs and maintenance 118,730 106,540 Advertising and public relations 76,390 49,805 Professional services 267,118 159,329 FDIC assessments 8,900 8,571 Other insurance 67,855 62,326 Other 596,655 511,623 ---------- ---------- Total non-interest expense 3,310,377 2,612,799 ---------- ---------- Income before income taxes 1,393,605 1,253,351 INCOME TAXES 319,784 374,000 ---------- ---------- NET INCOME $1,073,821 $ 879,351 ========== ========== NET INCOME PER COMMON SHARE-BASIC* $ 0.46 $ 0.38 ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES* 2,334,162 2,316,790 ========== ========== *Adjusted for 1 for 20 stock dividend </TABLE> See Notes to Consolidated Financial Statements.
PAGE 3 EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------------------- ACCUMULATED OTHER COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY STOCK SURPLUS EARNINGS INCOME(LOSS) STOCK TOTAL <S> <C> <C> <C> <C> <C> <C> Balance, January 1, 2002 $ 1,103,234 $ 13,727,084 $ 11,464,273 $ 666,178 $ 0 $ 26,960,769 Comprehensive income: 2002 net income 879,351 879,351 Unrealized loss on available for sale securities, net of reclassification adjustment and tax effect of $94,079 (145,428) (145,428) ----------- Total comprehensive income 733,923 ----------- Cash dividends ($.28 per common share) (617,801) (617,801) ----------- ------------ ------------ --------- --- ------------ Balance, March 31, 2002 $ 1,103,234 $ 13,727,084 $ 11,725,823 $ 520,750 $ 0 $ 27,076,891 =========== ============ ============ ========= === ============ </TABLE> THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED) <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------------------- ACCUMULATED OTHER COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY STOCK SURPLUS EARNINGS INCOME(LOSS) STOCK TOTAL <S> <C> <C> <C> <C> <C> <C> Balance, January 1, 2003 $ 1,167,081 $ 16,578,868 $ 11,179,871 $ 1,942,295 $ (6,114) $ 30,862,001 Comprehensive income: 2003 net income 1,073,821 1,073,821 Unrealized loss on available for sale securities, net of reclassification adjustment and tax effect of $106,587 (167,062) (167,062) ------------ Total comprehensive income 906,759 ------------ Cash dividends ($.32 per common share) (746,838) (746,838) Fractional shares paid in cash on stock dividend (12,138) (12,138) ----------- ------------ ------------ ----------- -------- ------------ Balance, March 31, 2003 $ 1,167,081 $ 16,578,868 $ 11,494,716 $ 1,775,233 $ (6,114) $ 31,009,784 =========== ============ ============ =========== ======== ============ </TABLE> See Notes to Consolidated Financial Statements *All share information adjusted for 1 for 20 stock dividend
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, 2003 and 2002 (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 2003 2002 ------------ ------------ <S> <C> <C> OPERATING ACTIVITIES Interest received $ 3,598,033 $ 3,787,388 Fees and commissions received 1,831,628 1,187,044 Interest paid (1,197,820) (1,434,846) Cash paid to suppliers and employees (3,539,795) (2,622,172) Income taxes paid (18,100) (73,800) ------------ ------------ Net cash provided by operating activities 673,946 843,614 ------------ ------------ INVESTING ACTIVITIES Available for sale securities Purchases (54,047,383) (15,314,345) Proceeds from sales 8,679,796 671,376 Proceeds from maturities 11,695,653 5,299,063 Held to maturity securities Purchases (151,177) (436,812) Proceeds from maturities 465,867 137,476 Cash paid for bank owned life insurance (6,200,000) 0 Additions to properties and equipment (66,208) (287,183) Increase(decrease) in loans, net of repayments (8,615,690) 820,043 Originations of loans held for sale (3,253,400) (3,326,741) Proceeds from sales of loans 2,870,900 2,821,741 Acquisition of insurance agencies (180,000) (50,000) ------------ ------------ Net cash used in investing activities (48,801,642) (9,665,382) ------------ ------------ FINANCING ACTIVITIES Increase in deposits 36,523,029 9,877,413 Repayments of borrowings (1,732,482) (1,293,336) Proceeds of borrowing 7,000,000 0 Dividends paid (12,138) (617,811) ------------ ------------ Net cash provided by financing activities 41,778,409 7,966,266 ------------ ------------ Net decrease in cash and cash equivalents (6,349,287) (855,502) Cash and cash equivalents, beginning of period 19,758,727 10,635,530 ------------ ------------ Cash and cash equivalents, end of period $ 13,409,440 $ 9,780,028 ============ ============ </TABLE> See Notes to Consolidated Financial Statements
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, 2003 and 2002 (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 2003 2002 ----------- ----------- <S> <C> <C> RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 1,073,821 $ 879,351 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 263,629 251,153 Provision for loan losses 120,000 105,000 Gain on sale of assets (268,429) (22,781) Decrease in accrued interest payable (63,060) (107,987) Increase in accrued interest receivable (461,801) (213,073) Increase in other liabilities 170,365 187,617 Decrease in other assets (160,579) (235,666) ----------- ----------- Total adjustments (399,875) (35,737) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 673,946 $ 843,614 =========== =========== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTMENTS AND FINANCIAL ACTIVITIES Acquisition of insurance agencies debt incurred $ 202,000 $ 457,800 =========== =========== </TABLE> See Notes to Consolidated Financial Statements
PART I - FINANCIAL INFORMATION Page 6 ITEM 1 - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2003 and 2002 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"), M&W Agency, Inc., ("M&W") and Evans National Holding Corp ("ENHC") in the preparation of the accompanying interim financial statements conform with accounting principles generally accepted in the United States of America 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 ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year. 2. SECURITIES Securities which the Company has the positive ability and intent to hold to maturity are stated at amortized cost. Securities which the Company has identified as available for sale are stated at fair value which is included as a component of stockholders' equity. 3. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is established through a provision for loan losses. Recoveries on loans previously charged off are credited directly to the allowance for loan losses. The allowance is an amount that management believes is adequate to absorb estimated losses on existing loans. Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan-loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay, estimated value of any underlying collateral, and current economic conditions. In addition, various regulatory agencies, as part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments of information available to them at the time of their examination. Management's allowance for loan losses reflects its current assessment of the New York State and local economy. Both have historically lagged behind the national economy, which is now unsettled. Marginal job growth, in conjunction with a declining population base, has left the Bank's market increasingly susceptible to potential credit problems. This is particularly true of commercial borrowers, which is a segment of significant past growth as well as a concentration in the Company's commercial real estate portfolio. Commercial real estate values may be susceptible to decline in an adverse economy. Management believes that the reserve is also in accordance with regulations promulgated by the OCC, and is reflective of management's assessment of the local environment as well as a continued growth trend in commercial loans.
Page 7 The following table sets forth information regarding the allowance for loan losses for the three month period ended March 31, 2003 and 2002. Allowance for loan losses Three Months Ended March 31, 2003 2002 ---- ---- Beginning balance $2,145,606 $1,786,115 Total charge offs (0) (2,078) Total recoveries 223 7,402 ---------- ---------- Net recoveries 223 5,324 Provision for loan losses 120,000 105,000 ---------- ---------- Ending balance $2,265,829 $1,896,439 ========== ========== 4. REVENUE RECOGNITION The Bank's primary sources of revenue are interest income from loans and investments and service charge income from loans and deposits. 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 accounting principles generally accepted in the United States of America. 5. PER SHARE DATA The common stock per share information is based upon the weighted average number of shares outstanding during each period, retroactively adjusted for stock dividends and stock splits. Only basic earnings per share is disclosed because the Company does not have any dilutive securities or other contracts to issue common stock or convert to common stock. 6. DIVIDEND A cash dividend of $0.32 per share was paid on April 1, 2003 to shareholders of record as of March 11, 2003. A total of $746,838 was paid on 2,333,869 shares. 7. STOCK DIVIDEND A 1-for-20 stock dividend was paid on January 29, 2003, for shareholders of record as of December 2, 2002. The stock dividend resulted in the issuance of 110,589 shares of common stock. All share and per share amounts have been restated to reflect the issuance of the stock dividend. 8. BANK OWNED LIFE INSURANCE During the first quarter of 2003, the Bank purchased $6.2 million of additional insurance on the lives of certain officers and directors. The policies accumulate asset value to meet future liabilities including the payment of certain employee retirement benefits. The amount of bank owned life insurance is included in other assets on the balance sheet and the increase in the cash surrender value is recorded as other income in the statement of income. 9. OTHER BORROWED FUNDS The Company borrowed an additional $7.0 million from the Federal Home Loan Bank ("FHLB") during the first quarter 2003 to fund a leverage strategy which included the purchase of certain mortgage backed and agency securities. The borrowing is a 10 year repurchase advance at an interest rate of 3.39%. The debt is callable by the FHLB if LIBOR ("London Inter-Bank Offer Rate") is 7.5% or more. The debt is collateralized at the Federal Home Loan Bank by the purchased securities.
Page 8 10. SEGMENT INFORMATION Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related Information was adopted by the Company during 2000. This Statement establishes standards for the way that the Company reports information about its operating segments. The Company is comprised of two primary business segments, banking and insurance. The following table sets forth information regarding these segments for the three month period ended March 31, 2003 and 2002. Three Months Ended March 31, 2003 BANKING INSURANCE ACTIVITIES ACTIVITIES TOTAL Net interest income (expense) $2,692,979 ($6,561) $2,686,418 Provision for loan losses 120,000 0 120,000 ---------- ---------- ---------- Net interest income (expense) after provision for loan losses 2,572,979 (6,561) 2,566,418 Non-interest income 1,096,254 0 1,096,254 Insurance commissions and fees 0 1,041,310 1,041,310 Non-interest expense 2,575,390 734,987 3,310,377 ---------- ---------- ---------- Income before income taxes 1,093,843 299,762 1,393,605 Income taxes 199,866 119,918 319,784 ---------- ---------- ---------- Net income $893,977 $179,844 $1,073,821 ========== ========== ========== Three Months Ended March 31, 2002 BANKING INSURANCE ACTIVITIES ACTIVITIES TOTAL Net interest income (expense) $2,622,878 ($5,695) $2,617,183 Provision for loan losses 105,000 0 105,000 ---------- ---------- ---------- Net interest income (expense) after provision for loan losses 2,517,878 (5,695) 2,512,183 Non-interest income 562,164 0 562,164 Insurance commissions and fees 0 791,803 791,803 Non-interest expense 2,090,602 522,197 2,612,799 ---------- ---------- ---------- Income before income taxes 989,440 263,911 1,253,351 Income taxes 268,457 105,543 374,000 ---------- ---------- ---------- Net income $720,983 $158,368 $879,351 ========== ========== ==========
Page 9 11. CONTINGENT LIABILITIES AND COMMITMENTS The consolidated financial statements do not reflect various commitments and contingent liabilities, which arise in the normal course of business, and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities are commitments to extend credit and standby letters of credit. A summary of the Bank's commitments and contingent liabilities at March 31, 2003 and 2002 is as follows: 2003 2002 ---- ---- Commitments to extend credit $39,374,000 $27,049,000 Standby letters of credit 2,457,000 1,747,000 ----------- ----------- Total $41,831,000 $28,796,000 Commitments to extend credit and standby letters of credit include exposure to some credit loss in the event of nonperformance of the customer. The Bank's credit policies and procedures for credit commitments and financial guarantees are the same as those for extensions of credit that are recorded on the consolidated balance sheets. Because these instruments have fixed maturity dates, and because they may expire without being drawn upon, they do not necessarily represent cash requirements to the Bank. The Bank has not incurred any losses on its commitments during the past three years. Certain lending commitments for conforming residential mortgage loans to be sold into the secondary market are considered derivative instruments under the guidelines of SFAS No. 133. The changes in the fair value of these commitments due to interest rate risk are not recorded on the balance sheet as these derivatives are not considered material. The Company and its subsidiary, M&W Agency, Inc., lease certain offices, land, and equipment under long-term operating leases. The aggregate minimum annual rental commitments under these leases total approximately $293,000 in 2003, $265,000 in 2004, $175,000 in 2005, $173,000 in 2006, $179,220 in 2007, and $1,727,000 thereafter. The Company is subject to possible litigation proceedings in the normal course of business. As of March 31, 2003, the Company had no asserted claims pending against the Company that management considers to be significant. 12. RECLASSIFICATIONS Certain reclassifications have been made to the 2002 financial statements to conform with the presentation used in 2003. 13. SUBSEQUENT EVENTS Effective April 1, 2003, the Company implemented a non-qualified deferred compensation plan whereby directors and certain officers may defer a portion of their base pre-tax compensation until retirement. This plan had no impact on the March 31, 2003 consolidated financial statements. The Company is also the process of finalizing new and amended employee benefit and supplemental executive retirement plans. These plans will be effective in the second quarter 2003, and had no effect on the consolidated March 31, 2003 financial statements. 14. RECENT REGULATORY LEGISLATION Sarbanes-Oxley Act. On July 30, 2002, the Sarbanes-Oxley Act fo 2002 ("SOA") was signed into law. The stated goals of the SOA are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.
Page 10 The SOA includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General. The SOA represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees. The SOA addresses, among other matters: audit committees; certification of financial statements by the Chief Executive Officer and the Chief Financial Officer; the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement; a prohibition on insider trading during pension plan black out periods; disclosure of off-balance sheet transactions; a prohibition on certain loans to directors and officers; expedited filing requirements for Forms 4; disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code; "real time" filing of periodic reports; the formation of a public accounting oversight board; auditor independence; and various increased criminal penalties for violations of securities laws. The SOA contains provisions that became effective upon enactment, and provisions that will become effective from within 30 days to one year from enactment. The SEC has been delegated the task of enacting rules to implement various provisions with respect to, among other matters, disclosure in periodic filings pursuant to the Exchange Act. PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties. When used in this report, or in the documents incorporated by reference herein, the words "anticipate", "believe", "estimate", "expect", "intend", "may", and similar expressions identify such forward-looking statements. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. These forward-looking statements are based largely on the expectations of the Company or the Company's management and are subject to a number of risks and uncertainties, including but not limited to, economic, competitive, regulatory, and other factors affecting the Company's operations, markets, products and services, as well as expansion strategies and other factors discussed elsewhere in this report and other reports filed by the Company with the Securities and Exchange Commission. Many of these factors are beyond the Company's control. 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 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 loan 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 and technology and communication expenses. APPLICATION OF CRITICAL ACCOUNTING ESTIMATES The Company's 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 financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. Accordingly, as this information changes, the 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
Page 11 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 consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in 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 losses and valuation of goodwill to be the accounting areas that require the most subjective or complex judgements and as such could be most subject to revision as new information becomes available. The allowance for loan losses represents management's estimate of probable credit losses, inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgement and the use of estimates related to the amount and timing of expected future cash flows on the impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated balance sheets. The amount of goodwill reflected in the Company's 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 judgement and the use of estimates related to the growth assumptions and market multiples used in the valuation model.
Page 12 ANALYSIS OF FINANCIAL CONDITION Average Balance Sheet The following table presents the significant categories of the assets and liabilities of the Company, interest income and interest expense, and the corresponding yields earned and rates paid for the periods indicated. The assets and liabilities are presented as daily averages. The average loan balances include both performing and non-performing loans. Investments are included at amortized cost. Interest is not presented on a tax-equivalent basis. Yields are not presented at a tax equivalent basis. <TABLE> <CAPTION> THREE MONTHS ENDED THREE MONTHS MARCH 31, 2003 ENDED MARCH 31, 2002 AVERAGE INTEREST AVERAGE INTEREST OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ BALANCE PAID RATE BALANCE PAID RATE (000) (000) (000) (000) <S> <C> <C> <C> <C> <C> <C> ASSETS Interest-earning assets: Loans, net $154,194 $2,640 6.85% $142,431 $2,750 7.72% Taxable investments 65,766 572 3.48% 48,385 705 5.82% Tax-exempt investments 50,739 561 4.42% 39,857 461 4.63% Time Deposits-Other Bank 877 6 2.60% 0 0 0.00% Federal funds sold 14,252 42 1.19% 7,275 28 1.56% -------- ------ ---- -------- ------ ---- Total interest-earning assets 285,828 $3,821 5.35% 237,948 $3,944 6.63% ====== ====== Noninterest-earning assets Cash and due from banks 9,845 9,088 Premises and equipment, net 5,414 4,115 Other assets 11,388 8,203 -------- -------- Total Assets $312,475 $259,354 ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts $9,904 $6 0.24% $9,479 $11 0.48% Savings deposits 109,659 293 1.07% 70,518 215 1.22% Time deposits 97,896 714 2.92% 92,862 952 4.10% Fed funds purchased & securities sold u/a to repurchase and other 5,606 16 1.14% 4,945 24 1.96% FHLB advances 8,095 99 4.89% 9,282 119 5.14% Notes payable 669 7 3.95% 440 6 1.30% -------- ------ ---- -------- ------ ---- Total interest-bearing liabilities 231,829 $1,135 1.96% 187,526 $1,327 2.83% ------ ------ Noninterest-bearing liabilities: Demand deposits 44,764 39,790 Other 4,801 4,670 -------- -------- Total liabilities $281,394 $231,986 Stockholders' equity 31,081 27,368 -------- -------- Total Liabilities and Stockholders' Equity $312,475 $259,354 ======== ======== Net interest earnings $2,686 $2,617 ====== ====== Net yield on interest earning assets 3.76% 4.40% Net interest margin 3.89% 4.49% </TABLE>
Page 13 Total gross loans have grown to $160.2 million at March 31, 2003, reflecting a 6.0% or $9.0 million increase for the quarter. Total net loans (loans after provision for loan losses) have grown to $157.9 million at March 31, 2003, reflecting a 6.0% or $8.9 million increase for the quarter. During the quarter, the Bank has continued to shift its loan portfolio composition toward higher-yielding commercial loans, especially those secured by real estate. Commercial loans total $113.3 million at March 31, 2003, reflecting a 7.4% or $7.8 million increase for the quarter. Consumer loans total $46.5 million at March 31, 2003, reflecting a 2.6% or $1.2 million increase for the quarter. Given the current low interest rate environment, the Bank continues to sell certain fixed rate residential loans originated under a certain interest rate level, while maintaining the servicing rights to such loans. During the first quarter 2003, the Bank sold loans to FNMA totaling $2.9 million as compared to $2.8 million during the first quarter 2002. At March 31, 2003, the Bank had a loan servicing portfolio principal balance of $25.3 million upon which it earns a servicing fee. This loan servicing portfolio balance compares to $24.0 million at December 31, 2002. Loan Portfolio Composition The following table presents selected information on the composition of the Company's loan portfolio in dollar amounts and in percentages as of the dates indicated. <TABLE> <CAPTION> MARCH 31, 2003 PERCENTAGE DECEMBER 31, 2002 PERCENTAGE ($000) ($000) <S> <C> <C> <C> <C> COMMERCIAL LOANS Real Estate $ 90,550 56.7% $ 84,581 56.1% Installment 13,899 8.7% 12,512 8.3% Lines of Credit 8,759 5.5% 8,333 5.5% Cash Reserve 58 0.0% 47 0.0% --------- ---------- --------- ---------- Total Commercial Loans 113,266 70.9% 105,473 69.9% Consumer Loans Real Estate 19,363 12.1% 19,789 13.1% Home Equity 24,414 15.3% 23,132 15.3% Installment 2,002 1.2% 1,886 1.3% Overdrafts 320 0.2% 104 0.1% Credit Card 283 0.2% 298 0.2% Other 157 0.1% 126 0.1% --------- ---------- --------- ---------- Total Consumer Loans 46,539 29.1% 45,335 30.1% --------- ---------- --------- ---------- Total Loans 159,805 100.0% 150,808 100.0% ========= ========== ========= ========== Net Deferred Costs & Unearned Discounts 370 336 Allowance for Loan Losses (2,266) (2,146) --------- ---------- Loans, Net $ 157,909 $ 148,998 ========= ========== </TABLE> Loan quality has remained stable with no charge offs incurred during the quarter ended March 31, 2003. Non-performing loans, defined as loans greater than 90 days past due and non-accrual loans, totaled 0.14% of total loans outstanding at March 31, 2003 as compared to 0.79% at December 31, 2002. At March 31, 2003 one loan with an outstanding principal balance of $763,692 was considered impaired. No loans were considered impaired at December 31, 2002. The allowance for loan losses totaled $2.3 million or 1.41% of gross loans outstanding at March 31, 2003 as compared to $2.1 million or 1.42% of gross loans outstanding at December 31, 2002.
Page 14 The adequacy of the Company's allowance for loan losses is reviewed quarterly with consideration given to loan concentrations, charge-off history, delinquent loan percentages, and general economic conditions. Management believes the allowance for loan losses is adequate to absorb credit losses from existing loans. The following table sets forth information regarding non-performing loans. <TABLE> <CAPTION> March 31, 2003 December 31, 2002 -------------- ----------------- ($000) ($000) <S> <C> <C> Non-accruing loans: One-to-four family $ 0 $ 0 Home equity 0 0 Commercial real estate and multi-family 126 1,104 Consumer 0 0 Commercial business 93 93 ------- ------- Total 219 1,197 ------- ------- Loans 90+ days past due 17 0 ------- ------- Total non-performing loans $236 $1,197 ======= ======= Total non-performing loans as a percentage of 0.07% 0.41% total assets ======= ======= Total non-performing loans as a percentage of 0.14% 0.79% total loans ======= ======= </TABLE> The following table sets forth information regarding the allowance for loan losses for the three month period ended March 31, 2003 and 2002. Three Months Ended March 31, 2003 2002 ---- ---- Beginning balance $2,145,606 $1,786,115 Total charge offs (0) (2,078) Total recoveries 223 7,402 ---------- ---------- Net recoveries 223 5,324 Provision for loan losses 120,000 105,000 ---------- ---------- Ending balance $2,265,829 $1,896,439 ========== ==========
Page 15 Allocation of the Allowance for Loan Losses <TABLE> <CAPTION> Balance at Balance at 03/31/03 12/31/02 Attributable to: Attributable to: ---------------- ---------------- ($000) ($000) <S> <C> <C> Real Estate Loans $1,074 $844 Commercial Loans and Leases 297 259 Installment Loans (Includes Credit Cards) 76 72 Unallocated 819 971 ------ ------ Total $2,266 $2,146 ====== ====== </TABLE> Investing Activities The Company's securities portfolio increased by 31% to approximately $139.7 million at March 31, 2003 as compared to approximately $106.7 million at December 31, 2002. The Company utilized its membership in Federal Home Loan Bank of New York to fund a leverage strategy. During the quarter, the Company borrowed $7 million from FHLB and purchased securities of the same amount benefitting from the interest rate spread between the borrowing and investments. Additionally, the success of attracting municipal deposits, with Muni-vest, has increased the excess funds available for investment and not used for lending . Muni-Vest is a product which pays higher money-market equivalent rates of return to municipalities and school districts in markets where the Bank operates. 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. Available-for-sale securities with a total fair value of $94,815,206 at March 31, 2003 were pledged as collateral to secure public deposits and for other purposes required or permitted by law. Funding Activities Total deposits increased to $276.0 million at March 31, 2003 reflecting a 15.2% or $36.5 million increase for the quarter. Demand deposits increased to $46.9 million at March 31, 2003, reflecting a 4.9% or $2.2 million increase for the quarter. Regular savings deposits increased to $119.7 million at March 31, 2003, reflecting a 26.1% or $24.8 million increase for the quarter, primarily due to the Bank's success in attracting municipal deposits with a revamped money market product called Muni-Vest. Typically, in the first quarter of each year, the Bank experiences an influx of tax deposits from municipalities which can be expected to decrease as they pay expenses as the year progresses. Core deposits (all deposits excluding time deposits greater than $100,000) increased to $243.5 million, reflecting a 15.3% or $32.4 million increase for the quarter. Demand deposits increased 4.9%, Now accounts decreased 8.3%, and securities sold under agreement to repurchase decreased 24.1% from December 31, 2002 all of which vary day to day within a range based on customer transaction volume and represent normal deposit activity. Other Balance Sheet Changes $6.2 million of bank owned life insurance was purchased during the first quarter 2003. The life insurance contracts (naming the Bank as primary beneficiary) were established to indirectly fund various employee benefit plans which will be established in the second quarter. Other borrowed funds increased $6.8 million at March 31, 2003 from $8.1 million at December 31, 2002. The increase is attributed to a $7 million borrowing from FHLB as described above under Investing Activities. The borrowing is a 10 year callable product with an interest rate of 3.39%.
Page 16 MATERIAL CHANGES IN THE RESULTS OF OPERATIONS Net Income Net income was $1.1 million or $0.46 per share for the quarter ended March 31, 2003 as compared to $0.9 million or $0.38 per share for the quarter ended March 31, 2002. All per share amounts reflect the special 5 percent stock dividend paid on January 29, 2003. Net income represented a return on average assets of 1.39% for the quarter ended March 31, 2003 compared to 1.38% for the same period in 2002. The return on average equity for the first quarter of 2003 was 14.79% compared to 13.47% for the first quarter of 2002. Other Operating Results Net interest income increased $69.4 thousand, or 2.6%, for the quarter ended March 31, 2003 compared to the same time period in 2002. Total interest income in the first quarter 2003 decreased 3.1% and interest paid on deposits and borrowings decreased 14.5% from the first quarter of 2002. Interest income decreased in spite of the $47.9 million, or 20.1% increase in average interest-earning assets to $285.8 million for the first quarter of 2003 from $237.9 million for the first quarter of 2002. The tax equivalent yield on total interest earning assets decreased to 5.75% for the quarter ended March 31, 2003 from 7.03% for the quarter ended March 31, 2002. The interest expense decrease reflects the $44.3 million, or 23.6% increase in average interest-bearing liabilities to $231.8 million for the first quarter of 2003 from $187.5 million for the first quarter of 2002 as well as the offsetting effect of interest rate reductions made by the Company since March 31, 2002. The cost of interest-bearing liabilities decreased to 1.96% for the quarter ended March 31, 2003 from 2.83% for the quarter ended March 31, 2002. The Company's net interest margin, for the three month period ended March 31, 2003 was 3.89% as compared to 4.49% for the same time period in 2002. The decrease reflects investment and loan prepayments of the assets in the portfolio with the continued historical low interest rate environment. These prepayments are being invested in the lower environment. Additionally, a large volume increase has been realized in this environment. The yield on average loans decreased to 6.85% for the first quarter of 2003 from 7.72% for the same time period in 2002. The tax equivalent yield on federal funds and investments decreased from 6.00% in the first quarter of 2002 to 4.48% in the first quarter of 2003. The cost of funds on interest bearing balances decreased to 1.96% for the first quarter of 2003 from 2.83% for the same time period in 2002. The provision for loan losses has increased to $120 thousand for the first quarter of 2003 from $105 thousand for the same time period in 2002. The higher first quarter provision in 2003 was a result of continued commercial loan growth. The Company believes that the increase in the size of the overall loan portfolio as well as an increase in the commercial loan composition as a percentage of the overall portfolio substantiates the current loan loss provision. Commercial loans tend to have a higher credit risk than consumer loans. The decrease in net interest margin is due primarily to two factors: increased competition from both a loan and deposit pricing perspective and a decrease in the potential to adjust deposit rates significantly lower as a result of the historically low interest rate environment. Non-interest income increased to $2.1 million for the first quarter 2003 as compared to $1.4 million for the first quarter 2002. M&W Agency insurance commissions represented the largest increase with $250 thousand growth in the first quarter 2003 over the first quarter 2002. The Bank also realized $249 thousand in gains on sales of securities during the first quarter 2002 as compared to $10 thousand in the first quarter 2002. Service charges increased to $450 thousand in the first quarter 2003, a 64.5% or $176 thousand increase over the first quarter 2002, due to a concentrated effort on increasing fee income in late 2002 and early 2003 and the roll out of the Bank's Safeguard Overdraft Service in early 2003. Other increases included merchant fee income and income on the increase in cash surrender value of life insurance surrounding the purchase of Bank Owned Life Insurance during the first quarter 2003. Non interest expense increased by $0.7 million to $3.3 million for the first quarter 2003 as compared to $2.6 million for the first quarter 2002. The primary increase is salaries of $0.3 million which is a result of the Bank and M&W Agency's growth over the past year, as well as normal salary raises. Occupancy costs have risen $0.1 million due to the increased cost of utilities and added Bank site and M&W Agency locations. Professional services have increased $0.1 million primarily as a result of fees connected with a consulting engagement to increase fee income. Other expenses have increased $0.1 million due to a number of items including costs associated with the Bank's conversion to a new item processing data center environment, which have resulted in increased capacity, capability and opportunity for future efficiencies. Income tax expense totaled $320,000 and $374,000 for the three month periods ended March 31, 2003 and 2002, respectively. The effective combined tax rate for the first quarter of 2003 was 23.0% compared to 29.8% for the first quarter of 2002. The decrease in the effective tax rate is primarily attributable to state tax advantages related to the recent establishment of Evans National Holding Corp, the Bank's subsidiary real estate investment trust, and the benefit of the Bank owned life insurance income.
Page 17 CAPITAL The Bank has consistently maintained regulatory capital ratios at, or above "well capitalized" standards. Total stockholders' equity was $31.0 million at March 31, 2003, up from $30.9 million at December 31, 2002. Equity as a percentage of assets was 9.35% at March 31, 2003, compared to 10.7% at December 31, 2002. Book value per common share rose to $13.29 at March 31, 2003, up from $13.22 at December 31, 2002. CAPITAL EXPENDITURES The Bank has approved the construction and furnishing of a new branch office in Lancaster, New York for 2003. The cost to the Bank is expected to be approximately $0.9 million. Other planned expenditures include replacing a number of personal computers, replacing/adding automated teller machines (ATMs) and miscellaneous other equipment. The Bank believes it has a sufficient capital base to support these capital expenditures with current assets and retained earnings. ITEM 3 - QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS AND LIQUIDITY INTEREST RATE RISK The Company's asset/liability management strategy is to maximize earnings and return on capital while limiting exposure to risks associated with a volatile interest rate environment. The Company's exposure to interest rate risk is managed primarily through the Company's strategy of selecting the type and terms of interest earning assets and interest bearing liabilities that generate favorable earnings, while limiting the potential negative effects of changes in market interest rates. Management uses income simulation models to quantify the potential impact on earnings and capital with changes in interest rates. The model uses cash flows and repricing information from loans and certificates of deposit, plus repricing assumptions on products without specific repricing dates (e.g. savings and interest bearing demand accounts), to calculate durations of each of the Bank's assets and liabilities. In addition, the model uses management assumptions on growth with duration to project income. The model also projects the effect on income due to changes in interest rates as well as the value of the Company's equity in each of the theoretical rate environments. The Company maintains specific interest rate risk management policy limits. Based on simulation modeling, these guidelines include a +/- 5.25% of net interest income and a 6% of capital threshold on the value of the Company's economic value of equity. At March 31, 2003, the effect of an immediate 200 basis point increase in interest rate would decrease the Company's annual net interest income by 3.9%, or $0.5 million. A 200 basis point decrease in interest rate would decrease annual net interest income by 1.4% or approximately $0.2million. LIQUIDITY The Bank utilizes cash flows from the investment portfolio and federal funds sold balances to manage the liquidity requirements it experiences due 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 $13.1 million can be drawn on the FHLB via the Overnight Line of Credit Agreement. 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 $7 million in federal funds from one of 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 Bank has access to capital markets as a funding source. The cash flows from the 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, 2003, approximately 3.3% of the Bank's securities had maturity dates of one year or less and approximately 20.7% had maturity dates of five years or less. At March 31, 2003, the Bank had net short-term liquidity of $2.4 million as compared to $36.9 million at December 31, 2002. Available assets of $146.0 million, less public and purchased funds of $107.2 million, resulted in a long-term liquidity ratio of 136% at March 31, 2003, versus 158% at December 31, 2002. The decrease is due to the large increase in deposits over the quarter, which are considered volatile funds. Liquidity needs can also be met by aggressively pursuing municipal deposits, which are normally awarded on the basis of competitive bidding. The Bank maintains a sufficient level of US government and government agency securities and New York State municipal bonds that can be pledged as collateral for these deposits.
Page 18 MARKET RISK When rates rise or fall, the market value of the Bank's rate-sensitive assets and liabilities increases or decreases. 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. On a monthly basis, the balance sheet is shocked for immediate rate increases of 100 and 200 basis points. At March 31, 2003, 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. ITEM 4 - CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls (As defined in Exchange Act Rule 13a-14(c)) are sufficiently effective to ensure that the information required to be disclosed by the Company in the reports it files under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness, based on an evaluation of such controls and procedures conducted within 90 days prior to the date hereof. CHANGES IN INTERNAL CONTROLS There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - None to report ITEM 2. Changes in Securities - None to report ITEM 3. Defaults upon Senior Securities - None to report ITEM 4. Submission of Matters To a Vote of Security Holders - None to report ITEM 5. Other Information - On April 16, 2003 Evans National Bank entered into a contract with Mellon Financial Corporation ("Mellon"), to serve as a referral source for trust and private wealth financial services. Under the terms of the agreement, the Bank will receive fees from Mellon based on a certain portion of the fees earned by Mellon during the first year of a referred customer's relationship with Mellon. An additional fee will be earned in subsequent years, provided the Bank has referred customers to Mellon who maintain a certain aggregate dollar threshold of balances under Mellon management. There is no obligation on the part of the Bank to utilize Mellon as the exclusive resource for trust or investment management services. Additionally, there is no obligation on the part of Mellon to accept referrals made by the Bank. There is no established term of this agreement as it is ongoing. The agreement is terminable by either party without cause or penalty upon ninety days of notice.
Page 19 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits <TABLE> <CAPTION> Exhibit No. Name Page No. <S> <C> <C> 10.17 Deferred Compensation Plan For Officers and Directors 23 99.1 Certification of Chief Executive Officer pursuant to 18 USC 31 Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer pursuant to 18 USC 33 Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 99.3 Press Release-Announcing Earnings for Quarter ended 35 March 31, 2003 </TABLE> (b) Report on Form 8-K : The registrant filed a Form 8-K on January 28, 2003 to report under Item 5-Other Events its 2002 and fourth quarter 2002 earnings. A press release was filed as an exhibit. The registrant filed a Form 8-K on February 20, 2003 to report under Item 5-Other Events its semiannual cash dividend. A press release was filed as an exhibit. The registrant filed a Form 8-K on March 24, 2003, to report under Item 4-Change in Registrant's Certifying Accountant that it had decided to engage KPMG LLP as its principal accountants for the fiscal year ending December 31, 2003 and chose not to renew the engagement of Deloitte & Touche LLP.
Page 20 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 April 23, 2003 /s/ James Tilley ----------------------------------- James Tilley President and CEO DATE April 23, 2003 /s/ Mark DeBacker ----------------------------------- Mark DeBacker Senior Vice President & Chief Financial Officer
Page 21 CERTIFICATION I, Mark DeBacker, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Evans Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 23, 2003 /s/ Mark DeBacker - ----------------------------------------------- Mark DeBacker Senior Vice President & Chief Financial Officer
Page 22 CERTIFICATION I, James Tilley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Evans Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 23, 2003 /s/ James Tilley - -------------------------------------- James Tilley President & Chief Executive Officer