Evans Bancorp - 10-Q quarterly report FY

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended September 30, 2005


o		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 incorporation or organization)		(I.R.S. Employer Identification No.)

14 -16 North Main Street, Angola, New York 14006
(Address of principal executive offices)

(Zip Code)

(716) 926-2000

(Registrant’s telephone number, including area code)

Not applicable

(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. Yesþ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ

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— 2,595,876 shares as of October 26, 2005

INDEX

EVANS BANCORP, INC. AND SUBSIDIARIES


		PAGE
PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

	Unaudited Consolidated Balance Sheets–September 30, 2005 and December 31, 2004		1

	Unaudited Consolidated Statements of Income-Three months ended September 30, 2005 and 2004		2

	Unaudited Consolidated Statements of Income- Nine months ended September 30, 2005 and 2004		3

	Unaudited Consolidated Statements of Stockholders’ Equity–Nine months ended September 30, 2005 and 2004		4

	Unaudited Consolidated Statements of Cash Flows–Nine months ended September 30, 2005 and 2004		5

	Notes to Unaudited Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13

Item 3. Quantitative and Qualitative Disclosures About Market Risk			20

Item 4. Controls and Procedures			21

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			22
Item 3. Defaults upon Senior Securities		None
Item 4. Submission of Matters to a Vote of Security Holders		None
Item 5. Other Information		None
Item 6. Exhibits			22

SIGNATURES			23
EX-31.1 Certification Pursuant to Section 302-PEO
EX-31.2 Certification Pursuant to Section 302-PFO
EX-32.1 Certification Pursuant to Section 906-PEO
EX-32.2 Certification Pursuant to Section 906-PFO

1

PART I — FINANCIAL INFORMATION

ITEM I — FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2005 AND DECEMBER 31, 2004

(in thousands, except share and per share amounts)


	September 30,			December 31,
	2005			2004
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	11,366		$	8,124

Interest bearing deposits at other banks		—			984
Securities:
Available-for-sale, at fair value		160,405			166,817
Held-to-maturity, at amortized cost		4,367			3,062
Loans, net of allowance for loan losses of $3,326 in 2005 and $2,999 in 2004		248,711			217,599
Properties and equipment, net		8,248			7,747
Goodwill		9,639			9,219
Intangible assets		2,900			3,170
Bank-owned life insurance		7,675			7,943
Other assets		6,189			4,377


TOTAL ASSETS	$	459,500		$	429,042


LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Deposits:
Demand	$	66,046		$	54,013
NOW		12,581			11,650
Regular savings		92,701			101,540
Muni-Vest savings		47,245			40,235
Time deposits		136,303			94,490


Total deposits		354,876			301,928

Other borrowed funds		46,386			68,034
Junior subordinated debentures		11,330			11,330
Securities sold under agreements to repurchase		4,679			7,306
Other liabilities		6,208			4,970


Total liabilities		423,479			393,568


CONTINGENT LIABILITIES AND COMMITMENTS

STOCKHOLDERS’ EQUITY:
Common stock, $.50 par value; 10,000,000 shares authorized; 2,615,123 and 2,615,123 shares issued, respectively, and 2,589,111 and 2,592,423 shares outstanding, respectively		1,307			1,307
Capital surplus		23,509			23,361
Retained earnings		12,716			10,808
Accumulated other comprehensive (loss) income, net of tax		(876	)		563
Less: Treasury stock, at cost (26,012 and 22,700 shares, respectively)		(635	)		(565	)

Total stockholders’ equity		36,021			35,474


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	459,500		$	429,042

See Notes to Unaudited Consolidated Financial Statements

2

PART I — FINANCIAL INFORMATION
ITEM I — FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(in thousands, except share and per share amounts)


	Three Months Ended
	September 30,
	2005		2004
INTEREST INCOME
Loans	$	4,307	$	3,006
Federal funds sold/Interest on deposits at other banks		13		23
Securities:
Taxable		1,154		926
Non-taxable		478		524


Total interest income		5,952		4,479
INTEREST EXPENSE
Deposits		1,653		1,049
Borrowings		368		183
Junior subordinated debentures		173		—

Total interest expense		2,194		1,232

NET INTEREST INCOME		3,758		3,247
PROVISION FOR LOAN LOSSES		215		121

NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		3,543		3,126

NON-INTEREST INCOME:
Bank service charges		558		484
Insurance service and fees		1,508		1,143
Net gain on sales of securities		2		24
Premium on loans sold		4		3
Bank-owned life insurance		96		101
Life insurance proceeds		15		—
Other		322		275

Total non-interest income		2,505		2,030

NON-INTEREST EXPENSE:
Salaries and employee benefits		2,296		1,920
Occupancy		497		529
Supplies		73		66
Repairs and maintenance		136		124
Advertising and public relations		105		90
Professional services		237		170
Amortization of intangibles		132		86
Other Insurance		86		85
Other		732		645


Total non-interest expense		4,294		3,715


INCOME BEFORE INCOME TAXES		1,754		1,441

INCOME TAXES		498		367

NET INCOME	$	1,256	$	1,074


Net income per common share-basic	$	0.48	$	0.41

Net income per common share-diluted	$	0.48	$	0.41

Weighted average number of common shares		2,592,031		2,595,815

Weighted average number of diluted shares		2,594,545		2,596,487

See Notes to Unaudited Consolidated Financial Statements

3

PART I — FINANCIAL INFORMATION
ITEM I — FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(in thousands, except share and per share amounts)


	Nine Months Ended
	September 30,
	2005		2004
INTEREST INCOME
Loans	$	11,721	$	8,661
Federal funds sold/Interest on deposits at other banks		112		74
Securities:
Taxable		3,556		2,508
Non-taxable		1,456		1,617


Total interest income		16,845		12,860
INTEREST EXPENSE
Deposits		4,502		2,907
Borrowings		1,154		546
Junior subordinated debentures		474		—

Total interest expense		6,130		3,453

NET INTEREST INCOME		10,715		9,407
PROVISION FOR LOAN LOSSES		554		394

NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		10,161		9,013

NON-INTEREST INCOME:
Bank service charges		1,546		1,394
Insurance service and fees		5,084		3,539
Net gain on sales of securities		107		168
Premium on loans sold		16		11
Bank-owned life insurance		302		303
Life insurance proceeds		95		—
Other		890		886

Total non-interest income		8,040		6,301

NON-INTEREST EXPENSE:
Salaries and employee benefits		6,943		5,775
Occupancy		1,485		1,335
Supplies		270		222
Repairs and maintenance		430		334
Advertising and public relations		378		263
Professional services		785		533
Amortization of intangibles		386		258
Other Insurance		282		257
Other		2,122		1,918


Total non-interest expense		13,081		10,895


INCOME BEFORE INCOME TAXES		5,120		4,419

INCOME TAXES		1,427		1,098

NET INCOME	$	3,693	$	3,321


Net income per common share-basic	$	1.42	$	1.28

Net income per common share-diluted	$	1.42	$	1.28

Weighted average number of common shares		2,592,338		2,597,742

Weighted average number of diluted shares		2,595,948		2,599,245

See Notes to Unaudited Consolidated Financial Statements

4

PART 1 — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(in thousands, except share and per share amounts)


								Accumulated
								Other
	Common		Capital		Retained			Comprehensive			Treasury
	Stock		Surplus		Earnings			Income			Stock			Total
Balance, January 1, 2004	$	1,230	$	19,359	$	11,145		$	1,918		$	(328	)	$	33,324

Comprehensive income:
Net income						3,321									3,321

Unrealized loss on available-for-sale securities, net of tax effect of $601 and reclassification adjustment of $(168)									(943	)					(943	)


Total comprehensive income															2,378


Cash dividends ($0.64 per common share)						(1,658	)								(1,658	)

Stock options expense				127											127

Reissued 7,472 shares treasury stock under dividend reinvestment plan						16						164			180

Reissued 4,247 shares treasury stock under employee stock purchase plan						(9	)					93			84

Issued 31,942 shares for purchase of insurance agencies		15		708											723

Purchased 15,900 shares for treasury												(386	)		(386	)


Balance, September 30, 2004	$	1,245	$	20,194	$	12,815		$	975		$	(457	)	$	34,772


Balance, January 1, 2005	$	1,307	$	23,361	$	10,808		$	563		$	(565	)	$	35,474

Comprehensive income:
Net Income						3,693									3,693

Unrealized loss on available-for-sale securities, net of tax effect of $918 and reclassification adjustment of $(107)									(1,439	)					(1,439	)


Total comprehensive income															2,254


Cash dividends ($0.68 per common share)						(1,762	)								(1,762	)

Stock options expense				148											148

Reissued 7,391 shares treasury stock under dividend reinvestment plan						2						176			178

Reissued 4,817 shares treasury stock under employee stock purchase plan						(23	)					115			92

Reissued 800 shares treasury stock under director stock option plan						(2	)					19			17

Purchased 16,400 shares for treasury												(380	)		(380	)


Balance, September 30, 2005	$	1,307	$	23,509	$	12,716		$	(876	)	$	(635	)	$	36,021

See Notes to Unaudited Consolidated Financial Statements

5

PART I-FINANCIAL INFORMATION
ITEM I-FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

(in thousands)


	Nine Months Ended
	September 30,
	2005			2004
OPERATING ACTIVITIES:
Interest received	$	16,901		$	12,709
Fees received		7,314			5,972
Interest paid		(5,967	)		(3,472	)
Cash paid to employees and suppliers		(10,913	)		(9,958	)
Income taxes paid		(1,571	)		(1,289	)


Net cash provided by operating activities		5,764			3,962

INVESTING ACTIVITIES:
Available-for-sales securities:
Purchases		(23,077	)		(97,447	)
Proceeds from sales		7,067			15,807
Proceeds from maturities		20,545			22,357
Held-to-maturity securities:
Purchases		(1,891	)		(3,873	)
Proceeds from maturities		695			1,572
Cash paid for BOLI		—			(264	)
Additions to properties and equipment		(1,119	)		(1,984	)
Increase in loans, net of repayments		(34,257	)		(20,264	)
Proceeds from sales of loans		2,569			1,677
Proceeds from life insurance		665			—
Additions to goodwill and intangibles		(420	)		—
Acquisitions		(117	)		(138	)


Net cash used in investing activities		(29,340	)		(82,557	)

FINANCING ACTIVITIES:
Proceeds from borrowings		—			43,867
Repayments of borrowings		(15,202	)		(13,450	)
Repayments of long-term borrowings		(9,072	)		(5,488	)
Increase in deposits		52,947			66,723
Dividends paid, net		(1,762	)		(816	)
Purchase of treasury stock		(380	)		(386	)
Re-issuance of treasury stock		287			264


Net cash provided by financing activities		26,818			90,714

Net increase in cash and equivalents		3,242			12,119

CASH AND CASH EQUIVALENTS:
Beginning of period		8,124			8,509


End of period	$	11,366		$	20,628


	(continued)

6

PART I-FINANCIAL INFORMATION
ITEM I-FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(in thousands)


	Nine Months Ended
	September 30,
	2005			2004
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:

Net income	$	3,693		$	3,321

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization		1,405			1,192
Provision for loan losses		554			394
Net gain on sales of assets		(107	)		(168	)
Premiums on loans sold		(16	)		(11	)
Stock options expense		148			127
Changes in assets and liabilities affecting cash flow:
Other assets		(1,110	)		(1,392	)
Other liabilities		1,197			499


NET CASH PROVIDED BY OPERATING ACTIVITIES	$	5,764		$	3,962


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Acquisition of insurance agencies:
Fair value of:
Assets acquired, non-cash	$	—		$	861
Liabilities assumed	$	—		$	—
Securities issued	$	—		$	723

	(concluded)

See Notes to Unaudited Consolidated Financial Statements

7

PART 1 – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS

EVANS BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004

1.		ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

		The accounting and reporting policies followed by Evans Bancorp, Inc. (the “Company”), a financial holding company, and its two direct, wholly-owned subsidiaries: Evans National Bank (the “Bank”), and its subsidiaries, Evans National Leasing, Inc. (“ENL”) and Evans National Holding Corp. (“ENHC”); and Evans National Financial Services, Inc. (“ENFS”), and its subsidiary ENB Insurance Agency, Inc. (“ENBI”) and its subsidiaries, Frontier Claims Services, Inc., (“FCS”) and ENB Associates Inc. (“ENB”), in the preparation of the accompanying interim unaudited consolidated financial statements conform with accounting principles generally accepted in the United States of America and with general practice within the banking industry. On July 1, 2005, 100% of the outstanding stock of ENB was paid as a dividend-in-kind to the Company, which subsequently contributed such stock to ENBI to facilitate a corporate reorganization to operate business lines in a more conducive manner. Except as the context otherwise requires, the Company and its direct and indirect subsidiaries are collectively referred to in this report as the “Company.”

		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 nine month period ended September 30, 2005 are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004.

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 with changes in fair value included as a component of stockholders’ equity.

3.		ALLOWANCE FOR LOAN LOSSES

		The allowance for loan losses represents the amount charged against the Bank’s earnings to establish an allowance for probable loan losses based on the Bank’s management’s evaluation of the loan portfolio. Factors considered by the Bank’s management in establishing the allowance include: the collectibility of individual loans, current loan concentrations, charge-off history, delinquent loan percentages, input from regulatory agencies and general economic conditions.

		On a quarterly basis, management of the Bank meets to review and determine the adequacy of the allowance for loan losses. In making this determination, the Bank’s management analyzes the ultimate collectibility of the loans in its portfolio by incorporating feedback provided by the Bank’s internal loan staff, an independent internal loan review function and information provided by examinations performed by regulatory agencies.

		The analysis of the allowance for loan losses is composed of three components: specific credit allocation, general portfolio allocation and subjectively by determined allocation. The specific credit allocation includes a detailed review of the credit in accordance with the Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan” and No. 118, “Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosures,” and allocation is made based on this analysis. The general portfolio allocation consists of an assigned reserve percentage based on the actual credit rating of the loan.

		The subjective portion of the allowance reflects management’s evaluation of various conditions, and involves a higher degree of uncertainty because this component of the allowance is not identified with specific problem credits of portfolio segments. The conditions evaluated in connection with this component include

8

		the following: industry and regional conditions; seasoning of the loan portfolio and changes in the composition of and growth in the loan portfolio; the strength and duration of the business cycle; existing general economic and business conditions in the lending areas; credit quality trends in nonaccruing loans; historical loan charge-off experience; and the results of bank regulatory examinations.

		The following table sets forth information regarding the allowance for loan losses for the nine month periods ended September 30, 2005 and 2004.

Allowance for loan losses


	Nine months ended September 30,
	2005			2004
	(In thousands)
Beginning balance, January 1	$	2,999		$	2,539
Charge-offs:
Commercial		(175	)		—
Real estate mortgages		(2	)		—
Installment loans		(84	)		(8	)
Overdrafts		(23	)		—
Direct financing leases		(50	)		—

Total charge-offs		(334	)		(8	)

Recoveries:
Commercial		40			48
Real estate mortgages		—			8
Installment loans		10			3
Overdrafts		6			—
Direct financing leases		51			—

Total recoveries		107			59


Net (chargeoffs) recoveries		(227	)		51

Provision for loan losses		554			394


Ending balance, September 30	$	3,326		$	2,984


Ratio of net charge-offs to average net loans outstanding (annualized)		0.1	%		(0.0	)%

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. ENBI’s revenue is derived mainly from insurance commissions. Revenue is recognized in the period in which it is earned. The revenue is recognized on the accrual basis of accounting in accordance with the 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. The Company’s potential dilutive securities included 2,514 and 3,610 dilutive shares for the three and nine month periods ended September 30, 2005, respectively. There were 672 and 1,503 dilutive shares for the three and nine month periods ended September 30, 2004, respectively. On August 18, 2005, the Company declared a cash dividend of $0.35 per share payable on October 3, 2005 to shareholders of record as of September 9, 2005. All share and per share amounts have been adjusted to reflect a 5% stock dividend paid in December 2004.

9

		On October 20, 2005, the Company announced a 5% stock dividend payable on December 7, 2005 to shareholders of record on November 15, 2005. Share and per share amounts have not been adjusted to reflect the effect of this subsequent event.

6.		TREASURY STOCK

		During the quarter ended September 30, 2005 the Company repurchased 5,200 shares of common stock at an average cost of $22.66 per share, pursuant to the Company’s publicly announced common stock repurchase program.

7.		GOODWILL

		The Company applies the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” and discloses goodwill separate from other intangible assets in the consolidated balance sheets. The Company evaluates the carrying amount of goodwill for potential impairment on at least an annual basis. Changes in the carrying amount of goodwill of $0.4 million for the nine-month period ended September 30, 2005 are due to contingent payouts made from previous acquisitions.

8.		SEGMENT INFORMATION

		The Company is comprised of two primary business segments, banking and insurance agency activities. The following tables set forth information regarding these segments for the three and nine month periods ended September 30, 2005 and 2004.

Three Months
Ended September 30, 2005
(in thousands)


			Insurance Agency
	Banking Activities		Activities			Total
Net interest income (expense)	$	3,862	$	(104	)	$	3,758
Provision for loan losses		215		—			215

Net interest income (expense) after provision for loan losses		3,647		(104	)		3,543
Non-interest income		997		—			997
Insurance commission and fees		—		1,508			1,508
Non-interest expense		3,152		1,142			4,294

Income before income taxes		1,492		262			1,754
Income taxes		393		105			498

Net income	$	1,099	$	157		$	1,256

10

Nine Months Ended
September 30, 2005
(in thousands)


			Insurance Agency
	Banking Activities		Activities			Total
Net interest income (expense)	$	11,002	$	(287	)	$	10,715
Provision for loan losses		554		—			554

Net interest income (expense) after provision for loan losses		10,448		(287	)		10,161
Non-interest income		2,956		—			2,956
Insurance commission and fees		—		5,084			5,084
Non-interest expense		9,595		3,486			13,081

Income before income taxes		3,809		1,311			5,120
Income taxes		903		524			1,427

Net income	$	2,906	$	787		$	3,693

Three Months Ended
September 30, 2004
(in thousands)


			Insurance
	Banking Activities		Agency Activities			Total
Net interest income (expense)	$	3,251	$	(4	)	$	3,247
Provision for loan losses		121		—			121

Net interest income (expense) after provision for loan losses		3,130		(4	)		3,126
Non-interest income		887		—			887
Insurance commissions and fees		—		1,143			1,143
Non-interest expense		2,862		853			3,715

Income before income taxes		1,155		286			1,441
Income taxes		253		114			367

Net income	$	902	$	172		$	1,074

11

Nine Months Ended
September 30, 2004
(in thousands)


			Insurance
	Banking Activities		Agency Activities			Total
Net interest income (expense)		9,421		(14	)		9,407
Provision for loan losses		394		—			394

Net interest income (expense) after provision for loan losses		9,027		(14	)		9,013
Non-interest income		2,762		—			2,762
Insurance commissions and fees		—		3,539			3,539
Non-interest expense		8,249		2,646			10,895

Income before income taxes		3,540		879			4,419
Income taxes		746		352			1,098

Net income		2,794		527			3,321

		Starting January 1, 2005, the activities of non-deposit investment service sales were functionally reorganized into the Company’s Insurance Agency Activities and are being internally managed as a segment of ENBI. As a result, beginning January 1, 2005, all such activities are reported as Insurance Agency Activities. Activities of non-deposit investment service sales prior to January 1, 2005 were reclassified as Insurance Agency Activities for comparative purposes.

9.		CONTINGENT LIABILITIES AND COMMITMENTS

		The unaudited 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 consist of commitments to extend credit and standby letters of credit. A summary of the Bank’s commitments and contingent liabilities at September 30, 2005 and 2004 is as follows:


	2005		2004
	(in thousands)
Commitments to extend credit	$	62,926	$	54,025

Standby letters of credit		1,832		1,810


Total	$	64,758	$	55,835

		Commitments to extend credit and standby letters of credit include some exposure to 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 Company’s unaudited 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 of the Bank. The Bank has not incurred any losses on its commitments during the past two years.

		Certain lending commitments for construction residential mortgage loans are considered derivative instruments under the guidelines of SFAS No. 133, “Accounting for Derivative Instruments and Hedging

12

		Activities.” The changes in the fair value of these commitments due to interest rate risk are not recorded on the consolidated balance sheets as these derivatives are not considered material.

		The Company is subject to possible litigation proceedings in the normal course of business. As of September 30, 2005, there were no claims pending against the Company that management considered to be significant.

10.		RECLASSIFICATIONS

		Certain reclassifications have been made to the 2004 consolidated financial statements to conform with the presentation used in 2005.

11.		NET PERIODIC BENEFIT COSTS

		The Bank has a defined benefit pension plan covering substantially all Company employees. The plan provides benefits that are based on the employees’ compensation and years of service. The Bank uses an actuarial method of amortizing prior service cost and unrecognized net gains or losses which result from actual experience and assumptions being different than those that are projected. The amortized method the Bank is using recognizes the prior service cost and net gains or losses over the average remaining service period of active employees.

		The Bank also maintains a nonqualified supplemental executive retirement plan covering certain members of the Company’s senior management. The Bank uses an actuarial method of amortizing unrecognized net gains or losses which result from actual expense and assumptions being different than those that are projected. The amortization method the Bank uses recognizes the net gains or losses over the average remaining service period of active employees.

		The following table represents net periodic benefit costs recognized:

Three months ended September 30,
(in thousands)


							Supplemental Executive
	Pension Benefits						Retirement Plan
	2005			2004			2005		2004

Service cost	$	72		$	54		$	26	$	22
Interest cost		44			38			37		35
Expected return on plan assets		(48	)		(42	)		—		—
Amortization of prior service cost		(4	)		(4	)		15		24
Amortization of the net loss		1			1			4		3

Net periodic benefit cost	$	65		$	47		$	82	$	84

13

Nine months ended September 30,
(in thousands)


							Supplemental Executive
	Pension Benefits						Retirement Plan
	2005			2004			2005		2004

Service cost	$	216		$	162		$	78	$	66
Interest cost		132			114			111		105
Expected return on plan assets		(144	)		(126	)		—		—
Amortization of prior service cost		(12	)		(12	)		45		72
Amortization of the net loss		3			3			12		9

Net periodic benefit cost	$	195		$	141		$	246	$	252

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 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 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.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

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 unaudited consolidated financial statements and accompanying 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 than others, and as such have a greater possibility of producing results that could be materially different than originally reported.

14

The most significant accounting policies followed by the Company are presented in Note 1 to the Company’s audited consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2004. These policies provide information on how significant assets and liabilities are valued in the Company’s unaudited consolidated financial statements contained in this Report 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 judgments 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 in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment 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 judgment and the use of estimates related to the growth assumptions and market multiples used in the valuation model.

15

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. Yields are presented on a non-tax-equivalent basis.


	Three Months Ended							Three Months Ended
	September 30, 2005							September 30, 2004
	Average		Interest					Average		Interest
	Outstanding		Earned/		Yield/			Outstanding		Earned/		Yield/
	Balance		Paid		Rate			Balance		Paid		Rate
	(dollars in thousands)							(dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net	$	245,346	$	4,307		7.02	%	$	200,781	$	3,006		5.99	%
Taxable securities		124,928		1,154		3.69	%		104,882		926		3.53	%
Tax-exempt securities		45,917		478		4.16	%		49,578		524		4.23	%
Time deposits-other banks		—		—		0.00	%		1,071		4		1.49	%
Federal funds sold		2,770		13		1.88	%		5,044		19		1.51	%


Total interest-earning assets		418,961		5,952		5.68	%		361,356		4,479		4.96	%


Non interest-earning assets
Cash and due from banks		10,207							10,471
Premises and equipment, net		8,284							7,318
Other assets		26,083							17,600


Total Assets	$	463,535						$	396,745


LIABILITIES & STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
NOW	$	12,443	$	5		0.16	%	$	11,207	$	6		0.21	%
Regular savings		93,774		200		0.85	%		85,917		127		0.59	%
Muni-Vest savings		50,318		380		3.02	%		69,539		258		1.48	%
Time deposits		135,560		1,068		3.15	%		105,996		658		2.48	%
Fed funds purchased		4,766		42		3.52	%		2,810		11		1.57	%
Securities sold U/A to repurchase		6,070		12		0.79	%		6,997		14		0.80	%
FHLB advances		39,654		311		3.14	%		18,755		153		3.26	%
Junior subordinated debentures		11,330		173		6.11	%		—		—		0.00	%
Notes Payable		453		3		2.65	%		667		5		3.00	%



Total interest-bearing liabilities		354,368	$	2,194		2.48	%		301,888	$	1,232		1.63	%


Noninterest-bearing liabilities
Demand deposits		64,900							55,138
Other		7,362							5,339

Total liabilities	$	426,630						$	362,365

Stockholders’ equity		36,905							34,380

Total Liabilities and Equity	$	463,535						$	396,745


Net interest earnings			$	3,758						$	3,247


Net yield on interest earning assets						3.59	%						3.59	%


Interest rate spread						3.20	%						3.33	%

16

Loan Activity

Total gross loans grew to $252.0 million at September 30, 2005, reflecting a 3.5% or $8.4 million increase from June 30, 2005. Commercial loans totaled $176.1 million at September 30, 2005, reflecting a 2.2% or $3.9 million increase from June 30, 2005. Increases in commercial real estate loans, direct financing leases, and consumer real estate loans of $15.0 million, $8.5 million, and $6.3 million, respectively, were largely responsible for the increase of total gross loans of $31.4 million, or 14.3%, compared with December 31, 2004. 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 third quarter 2005, the Bank sold mortgages to FNMA totaling $0.8 million as compared to $0.4 million during the third quarter 2004. At September 30, 2005, the Bank had a loan servicing portfolio principal balance of $29.3 million upon which it earns servicing fees. This loan servicing portfolio balance compares to balances of $29.6 million and $29.2 million at June 30, 2005 and December 31, 2004, respectively.

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.


	September 30, 2005			Percentage			December 31, 2004			Percentage
	(in thousands)						(in thousands)
Commercial Loans
Real Estate	$	132,924			52.9	%	$	117,896			53.6	%
Installment		18,712			7.4	%		17,266			7.9	%
Lines of Credit		11,355			4.5	%		12,016			5.4	%
Direct Financing Leases		13,014			5.2	%		4,546			2.1	%
Cash Reserve		54			0.0	%		73			0.0	%

Total Commercial Loans		176,059			70.0	%		151,797			69.0	%

Consumer Loans
Real Estate		39,105			15.6	%		32,756			14.9	%
Home Equity		33,009			13.1	%		31,253			14.2	%
Installment		2,350			0.9	%		2,324			1.0	%
Overdrafts		439			0.2	%		1,456			0.7	%
Credit Card		320			0.1	%		290			0.1	%
Other		119			0.1	%		132			0.1	%

Total Consumer Loans		75,342			30.0	%		68,211			31.0	%

Total Loans		251,401			100.0	%		220,008			100.0	%

Net Deferred Costs & Unearned Discounts		636						590
Allowance for Loan Losses		(3,326	)					(2,999	)

Loans, net	$	248,711					$	217,599

Asset quality continues to remain strong. Net charge-offs were $55 thousand in the third quarter of 2005. Non-performing loans, defined as accruing loans greater than 90 days past due and non-accrual loans, totaled 0.84%

17

of total loans outstanding at September 30, 2005 as compared to 0.73% at June 30, 2005. The allowance for loan losses totaled $3.3 million or 1.32% of gross loans outstanding at September 30, 2005 as compared to $3.2 million or 1.30% of gross loans outstanding at June 30, 2005.

The adequacy of the Company’s allowance for loan losses is reviewed quarterly by the Company’s management 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 for credit losses from existing loans.

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


	September 30, 2005			December 31, 2004
	(in thousands)
Non-accruing loans:
Mortgage loans on real estate Residential 1-4 family	$	—		$	—
Commercial and multi-family		344			278
Construction		—			—
Second mortgages		—			—
Home equity lines of credit		—			—

Total mortgage loans on real estate		344			278
Direct financing leases		—			2
Commercial loans		1,349			1,375
Consumer installment loans
Personal		—			—
Credit cards		—			—
Other		—			—

Total consumer installment loans		—			—
Total non-accruing loans	$	1,693		$	1,655

Accruing loans 90+ days past due		413			151

Total non-performing loans		2,106			1,806

Total non-performing loans as a percentage of total assets		0.46	%		0.42	%
Total non-performing loans as a percentage of total loans		0.84	%		0.82	%

For the quarter ended September 30, 2005, gross interest income that would have been reported on non-accruing loans, had they been current, was $34 thousand. There was no interest income included in net income for the quarter ended September 30, 2005 on non-accruing loans.

18

Investing Activities

The Company’s securities portfolio decreased by 5.1%, or $8.9 million, to approximately $164.8 million at September 30, 2005, as compared to approximately $173.6 million and $169.9 million at June 30, 2005 and December 31, 2004, respectively. The decline in the securities portfolio was due in part to available funds being used for increased lending, along with the seasonal decline in Muni-Vest deposits during the three and nine month periods ended September 30, 2005. The Company monitors extension and prepayment risk in the portfolio to limit potential exposures. Management believes the average expected life of the portfolio is 3.7 years as of September 30, 2005, as compared to 3.4 years and 3.9 years as of June 30 2005 and December 31, 2004, respectively. Available-for-sale securities with a total fair value of $141.0 million at September 30, 2005 were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

Funding Activities

Total deposits at September 30, 2005 increased $52.9 million, or 17.5%, compared to December 31, 2004 due to increases in time deposits, demand deposits, and Muni-Vest savings of 44.3%, 22.3% and 17.4%, respectively, offset by a decrease in regular savings of 8.7%. The increase in time deposits was due in large part to promotions in the first quarter of 2005 related to the North Buffalo branch opening. Additionally, rising interest rates have increased time deposit rates, causing some shifting of funds from regular savings to time deposits. Demand deposits are experiencing growth due to competitive success in the market. Muni-Vest savings balances vary seasonally based on municipalities funding needs.

Total deposits during the quarter ended September 30, 2005, decreased 2.0% to $354.9 million at September 30, 2005 from $362.0 million at June 30, 2005. Regular savings deposits decreased to $92.7 million at September 30, 2005, reflecting a 0.4% or $0.4 million decrease for the quarter, partially due to seasonal declines in municipal savings, along with a shift of funds to time deposits. Time deposits less than $100,000 increased 2.8% or $2.3 million. Muni-Vest deposits decreased 14.7% or $8.1 million for the quarter, due to the normal outflow of municipal funds, which occurs during the second and third quarters of each calendar year, prior to the school tax collections in the fourth quarter. Core deposits (all deposits excluding time deposits greater than $100,000) decreased 1.0% or $3.1 million during the quarter ended September 30, 2005. Time deposits $100,000 and over decreased 6.9% or $4.1 million due primarily to highly competitive bidding for municipal certificates of deposit in the Bank’s market area. Demand deposits increased 4.0%, NOW accounts increased 5.7% and securities sold under agreement to repurchase decreased 17.1% from June 30, 2005. The balances of these items vary day to day based on customer transaction volume and represent 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. Total other borrowed funds were $46.4 million at September 30, 2005 as compared to $40.4 million and $68.0 million at June 30, 2005 and December 31, 2004, respectively. The decrease from December 31, 2004 is due largely to a decline in short-term borrowing caused by seasonal fluctuations in deposit accounts.

ANALYSIS OF RESULTS OF OPERATIONS

Net Income

Net income was $1.3 million or $0.48 per basic and diluted share for the quarter ended September 30, 2005 as compared to $1.1 million or $0.41 per basic and diluted share for the quarter ended September 30, 2004. Net income represented a return on average assets of 1.08% for the quarters ended September 30, 2005 and September 30, 2004. The return on average equity for the third quarter of 2005 was 13.61% compared to 12.49% for the third quarter of 2004.

On a year-to-date basis, net income was $3.7 million or $1.42 per basic and diluted share for the nine months ended September 30, 2005, as compared to $3.3 million or $1.28 per basic and diluted share for the nine months ended September 30, 2004. Return on average assets and return on average equity was 1.07% and 13.65%, respectively for the nine months ended September 30, 2005, as compared to 1.16% and 12.98%, respectively for the same period in 2004.

Other Operating Results

Net interest income for three and nine month periods ended September 30, 2005 was $3.8 million and $10.7 million, respectively, an increase of $0.5 and $1.3 million over the same periods in 2004, and is primarily as a result of growth in interest-earning assets and our entry into the small ticket leasing business through the Bank’s wholly-owned subsidiary, Evans National Leasing, acquired in December 2004.

19

The net interest margin for the three and nine month periods ended September 30, 2005 was 3.59% and 3.47%, respectively, as compared to 3.59% and 3.61% for the same periods in 2004. Net interest margin stabilized in the third quarter of 2005 compared to the third quarter of 2004. In the third quarter of 2005, the Company benefited from the receipt of approximately $115 thousand negotiated additional interest from a commercial loan which was paid off. The decrease in the net interest margin for the nine month period ended September 30, 2005 is primarily due to an increase in the Bank’s cost of interest-bearing liabilities, which increased to 2.32% from 1.60% in the same periods in 2004. Muni-Vest deposits, savings deposits, time deposits, borrowings, and interest on the Company’s junior subordinated debentures issued in October 2004 were the primary drivers of this increase in the cost of funds.

The provision for loan losses for the three and nine month periods ended September 30, 2005 increased to $215 thousand and $554 thousand, respectively, from $121 thousand and $394 thousand for the same periods in 2004. The increase was a result of our entry into the small ticket leasing business through Evans National Leasing, along with continued commercial loan growth. Commercial real estate loans tend to have a higher credit risk than consumer loans. The Bank continued to retain a high percentage of fixed rate residential loans originated during the three and nine month periods ended September 30, 2005 as opposed to selling the majority in the secondary markets.

Non-interest income was $2.5 million for the three months period ended September 30, 2005, an increase of $0.5 million, or 23.4% over the same period in 2004. Non-interest income was $8.0 million for the nine month period ended September 30, 2005, an increase of $1.7 million or 27.6% over the same period in 2004. These increases were primarily a result of increased insurance fee revenue for the three and nine month periods ended September 30, 2005, of $0.4 million or 31.2% and $1.5 million or 43.7%, respectively, as compared to the same periods in 2004. The increased insurance fee revenue was primarily the result of ENB Insurance Agency’s acquisition of Ulrich & Company, Inc. in October 2004. Bank service charges increased $0.1 million or 15.3%, and $0.2 million or 10.9% for the three and nine month periods ended September 30, 2005, due to increased activity from successful growth in demand deposits. Additionally, for the nine month period ended September 30, 2005, the Bank was the beneficiary of life insurance proceeds received with respect to a former director for approximately $0.1 million.

Non-interest expense was $4.3 million for the three month period ended September 30, 2005, an increase of $0.6 million, or 15.6% over the same period in 2004. Non-interest expense was $13.1 million for the nine month period ended September 30, 2005, an increase of $2.2 million or 20.1% over the same period in 2004. Salary and employee benefit expense for the three and nine month periods ended September 30, 2005 increased $0.4 million and $1.2 million, respectively, from the same periods in 2004, due to Company growth and merit pay increases awarded in early 2005, as well as an increase in the number of employees related to acquisitions completed in the fourth quarter of 2004. In addition, occupancy expense for the three and nine month periods ended September 30, 2005 increased $0.2 million, over the same period in 2004, primarily due to Company growth, including opening of a new office for Ulrich & Company in Lockport, New York in October 2004 and the Bank’s move to new administrative offices in Hamburg, New York in July 2004. Additionally, in the three and nine month periods ended September 30, 2005, there was an aggregate $0.2 million and $0.7 million increase, respectively, over the same periods in 2004, for the following: increased advertising and public relations expenses of $15 thousand and $0.1 million for the three and nine month periods ended September 30, 2005, respectively, due to efforts to promote the Bank’s name in its new markets; increased professional services expenses of $0.1 million and $0.3 million for the three and nine month periods ended September 30, 2005, respectively, due primarily to the Bank’s engagement of an outside consultant for a revenue enhancement project; and increased other expenses of $0.1 million and $0.2 million for the three and nine month periods ended September 30, 2005, respectively, primarily due to acquisitions completed in the fourth quarter of 2004.

Income tax expense totaled $498 thousand and $1.4 million for the three and nine month periods ended September 30, 2005, respectively, compared to $367 thousand and $1.1 million for same periods in 2004. The effective tax rate for the three and nine month periods ended September 30, 2005 were 28.4% and 27.9%, respectively, compared to 25.5% and 24.8% for the same periods in 2004. 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.

20

CAPITAL

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 September 30, 2005, compared to 8.0% and 8.3% at June 30, 2005 and December 31, 2004, respectively. Book value per common share was $13.96 at September 30, 2005, compared to $14.18 and $13.68 at June 30, 2005 and December 31, 2004, respectively. Total stockholders’ equity was $36.0 million at September 30, 2005, down from $36.8 million at June 30, 2005 and up from $35.5 million at December 31, 2004. The changes are primarily attributable to earnings, payment of dividends, and changes in accumulated other comprehensive income, which is due to an increase in unrealized losses in the investment portfolio.

LIQUIDITY

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 $44.5 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 $10.0 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 Company has access to capital markets as a funding source.

Cash flows from the Bank’s investment portfolio are laddered, so the 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 the securities are available-for-sale from time-to-time without the need to incur significant losses. At September 30, 2005, approximately 4.15% of the Bank’s securities had contractual maturity dates of one year or less and approximately 29.1% had maturity dates of five years or less. Available assets of $164.8 million, less public and purchased funds of $160.9 million, resulted in a long-term liquidity ratio of 102% at September 30, 2005, versus 102% at June 30, 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.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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. 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

21

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

Calculated increase(decrease)
in projected annual net interest income
(in thousands)


	September 30, 2005			December 31, 2004
Changes in interest rates
+200 basis points	$	(526	)	$	(497	)
-200 basis points		294			(425	)

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.

ITEM 4 — CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

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 September 30, 2005 (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.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No changes in the Company’s internal control over financial reporting were identified in the fiscal quarter ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

22

PART II — OTHER INFORMATION

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USED OF PROCEEDS

Issuer Purchases of Equity Securities

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.


					Total number of
					shares purchased as		Maximum number of
	Total number		Average price		part of publicly		shares that may yet be
	of shares		paid		announced plans or		purchased under the
Period	purchased		per share		programs		plans or programs
July 2005
(July 1, 2005 through July 31, 2005)		2,000	$	22.73		2,000		6,175

August 2005
(August 1, 2005 through August 31, 2005)		0		N/A		0		75,000

September 2005
(Sept. 1, 2005 through Sept. 30, 2005)		3,200	$	22.62		3,200		71,800


Total		5,200	$	22.66		5,200

All of the foregoing shares were purchased in open market transactions. On August 18, 2005, the Company announced that its Board of Directors had authorized a new common stock repurchase program, pursuant to which the Company may repurchase of up to 75,000 shares of the Company’s common stock over the next two years, unless the program is terminated earlier. This program supersedes and replaces the Company’s stock repurchase program approved by the Company’s Board of Directors on October 21, 2003, pursuant to which a maximum of 50,000 shares of common stock were authorized for repurchase. The Company did not make any repurchases during the quarter ended September 30, 2005 other than pursuant to these publicly announced programs, and there were no other publicly announced plans or programs outstanding during the quarter ended September 30, 2005

ITEM 6 – EXHIBITS


Exhibit No.	Name	Page No.
31.1	Certification of Principal Executive Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.		25

31.2	Certification of the Principal Financial Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.		26

32.1	Certification of Principal Executive Officer pursuant to 18 USC Section 1350 Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		27

32.2	Certification of Principal Financial Officer pursuant to 18 USC Section 1350 Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		28

23

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Evans Bancorp, Inc.


DATE
November 3, 2005	By:	/s/ James Tilley
		James Tilley
		President and CEO (On Behalf of the Registrant and as Principal Executive Officer)

DATE
November 3, 2005	By:	/s/ Mark DeBacker
		Mark DeBacker
		Treasurer (Principal Financial Officer)

24

Exhibit Index


Exhibit No.	Name	Page No.
31.1	Certification of Principal Executive Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.		25

31.2	Certification of the Principal Financial Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.		26

32.1	Certification of Principal Executive Officer pursuant to 18 USC Section 1350 Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		27

32.2	Certification of Principal Financial Officer pursuant to 18 USC Section 1350 Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		28

Evans Bancorp - 10-Q quarterly report FY

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