1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended March 31, 2000 ----------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-18539 EVANS BANCORP, INC. (Exact name of registrant as specified in its charter) New York 16-1332767 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14 -16 North Main Street, Angola, New York 14006 (Address of principal executive offices) (Zip Code) (716) 549-1000 (Issuer's telephone number) Not applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check (X) whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock, $.50 Par Value--1,696,050 shares as of March 31, 2000
2 INDEX EVANS BANCORP, INC. AND SUBSIDIARY PAGE PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated balance sheets--March 31, 2000 and December 31, 1999 1 Consolidated statements of income--Three months ended March 31, 2000 and 1999 2 Consolidated statements of cash flows--Three months ended March 31, 2000 and 1999 3 Notes to consolidated financial statements-- March 31, 2000 and 1999 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Quantative and Qualitative Disclosures About Market Risks 7 PART II. OTHER INFORMATION 8 Item 1. Legal Proceedings Item 2. Changes In Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 9
3 <TABLE> <CAPTION> PART I - FINANCIAL INFORMATION PAGE 1 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS March 31, 2000 and December 31, 1999 (Unaudited) March 31, December 31, ASSETS 2000 1999 ------------- ------------- <S> <C> <C> Cash and due from banks $ 5,916,663 $ 8,528,778 Federal Funds sold 250,000 3,450,000 Securities: Classified as available-for-sale, at fair value 68,317,372 59,550,786 Classified as held-to-maturity, at amortized cost 4,030,350 3,448,892 Loans, net 122,016,612 116,433,438 Properties and equipment, net 3,775,019 3,834,496 Other assets 3,852,199 3,541,993 ------------- ------------- TOTAL ASSETS $ 208,158,215 $ 198,788,383 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Demand $ 31,522,718 $ 29,683,357 NOW and money market accounts 7,578,163 8,048,455 Regular savings 61,759,167 58,819,156 Time Deposits, $100,000 and over 31,806,174 28,856,320 Other time accounts 45,684,467 44,541,611 ------------- ------------- 178,350,689 169,948,899 Other Borrowed Funds 5,000,000 5,000,000 Dividend Payable 424,738 Other liabilities 6,110,082 5,554,546 ------------- ------------- TOTAL LIABILITIES 189,885,509 180,503,445 ------------- ------------- STOCKHOLDERS' EQUITY Common Stock, $.50 par value 10,000,000 shares authorized; 1,698,950 shares issued 849,475 849,475 Capital surplus 10,990,720 10,990,720 Retained earnings 7,748,422 7,629,839 Accumulated other comprehensive loss income (net of tax) (1,179,611) (1,185,096) ------------- ------------- 18,409,006 18,284,938 Less: Treasury stock, at cost (2,900 shares) (136,300) 0 ------------- ------------- Total stockholders' equity 18,272,706 18,284,938 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 208,158,215 $ 198,788,383 ============= ============= </TABLE> See Notes to Consolidated Financial Statements
4 <TABLE> <CAPTION> PART I - FINANCIAL INFORMATION PAGE 2 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME For the Three Months ended March 31, 2000 and 1999 (Unaudited) Three Months Ended March 31, 2000 1999 ----------- ----------- INTEREST INCOME <S> <C> <C> Loans $ 2,531,066 $ 2,328,626 Federal funds sold 54,238 39,211 Securities: Taxable 629,273 354,481 Non-taxable 384,271 295,404 ----------- ----------- Total Interest Income 3,598,848 3,017,722 INTEREST EXPENSE Interest on Deposits 1,398,196 1,120,084 Short Term Borrowing 98,396 83,875 ----------- ----------- NET INTEREST INCOME 2,102,256 1,813,763 PROVISION FOR LOAN LOSSES 60,000 35,000 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,042,256 1,778,763 ----------- ----------- NON-INTEREST INCOME: Service charges 192,825 177,321 Other 201,714 137,021 Securities (Losses)gains (8,838) 1,064 ----------- ----------- Total Non-interest Income 385,701 315,406 ----------- ----------- NON-INTEREST EXPENSE: Salaries and employee benefits 874,614 739,620 Occupancy 237,917 215,782 Supplies 47,940 33,108 Repairs and maintenance 58,126 53,969 Advertising and public relations 29,540 46,667 Professional services 68,780 63,142 FDIC assessments 8,224 4,212 Other 359,495 262,014 ----------- ----------- Total Non-interest Expense 1,684,636 1,418,514 ----------- ----------- Income before income taxes 743,321 675,655 ----------- ----------- INCOME TAXES 200,000 181,200 ----------- ----------- NET INCOME $ 543,321 $ 494,455 =========== =========== NET INCOME PER COMMON SHARE-BASIC $ 0.32 $ 0.29 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 1,697,850 1,695,179 =========== =========== </TABLE> See Notes to Consolidated Financial Statements
5 <TABLE> <CAPTION> PART I - FINANCIAL INFORMATION PAGE 3 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2000 and 1999 (Unaudited) Three Months Ended March 31, 2000 1999 ------------ ------------ OPERATING ACTIVITIES <S> <C> <C> Interest received $ 3,396,533 $ 2,853,510 Fees and commissions received 351,917 300,172 Interest paid (1,443,261) (1,231,916) Cash paid to suppliers and employees (1,730,109) (1,559,382) Income taxes paid (66,500) (5,000) ------------ ------------ Net cash provided by operating activities 508,580 357,384 ------------ ------------ INVESTING ACTIVITIES Available for sale securities Purchases (9,800,895) (6,056,445) Proceeds from sales 552,214 2,842,567 Proceeds from maturities 480,009 2,142,991 Held to maturity securities Purchases (691,622) (97,640) Proceeds from maturities 110,165 1,058,841 Additions to properties and equipment (73,300) (52,084) Investment Unconsolidated Subsidiary (10,500) 0 (Increase)Decrease in loans, net of repayments (5,764,836) 360,280 Proceeds from sales of loans 122,141 1,686,333 ------------ ------------ Net cash (used in)provided by investing activities (15,076,624) 1,884,843 ------------ ------------ FINANCING ACTIVITIES Increase in deposits 8,401,790 8,795,261 Purchase of Treasury Stock (136,300) (48,015) Purchase(Repayment) of Short Term Borrowing 490,439 (3,191,969) Dividends Paid 0 (390,448) ------------ ------------ Net cash provided by financing activities 8,755,929 5,164,829 ------------ ------------ Net (decrease)increase in cash and cash equivalents (5,812,115) 7,407,056 Cash and cash equivalents, January 1 11,978,778 7,300,780 ------------ ------------ Cash and cash equivalents, March 31 $ 6,166,663 $ 14,707,836 ============ ============ </TABLE> See Notes to Consolidated Financial Statements
6 <TABLE> <CAPTION> PART I - FINANCIAL INFORMATION PAGE 4 ITEM I - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2000 and 1999 (Unaudited) Three Months Ended March 31, 2000 1999 ----------- ----------- <S> <C> <C> RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 543,321 $ 494,455 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 154,352 158,455 Provision for loan losses 60,000 35,000 Loss(Gain) on sale of assets 8,359 (5,447) Increase(Decrease) in accrued interest payable 53,331 (27,956) Increase in accrued interest receivable (213,406) (192,261) (Decrease)Increase in other liabilities (12,815) 140,909 Increase in other assets (84,562) (245,771) ----------- ----------- Total adjustments (34,741) (137,071) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 508,580 $ 357,384 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Net unrealized (loss)gain on available for sale securities ($1,734,721) $ 339,758 =========== =========== </TABLE> See Notes to Consolidated Financial Statements
7 PART I - FINANCIAL INFORMATION PAGE 5 ITEM 1 - FINANCIAL STATEMENTS EVANS BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 AND 1999 (UNAUDITED) 1. GENERAL The accounting and reporting policies followed by Evans Bancorp, Inc., a bank holding company, and its subsidiary, Evans National Bank, in the preparation of the accompanying interim financial statements conform with generally accepted accounting principles and with general practice within the banking industry. The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal recurring nature. The results of operations for the three month period ending March 31, 2000 are not necessarily indicative of the results to be expected for the full year. 2. SECURITIES Securities which the Bank has the ability and intent to hold to maturity are stated at cost, plus discounts accrued and less premiums amortized. Securities which the Bank has identified as available for sale are stated at fair value. 3. ALLOWANCE FOR LOAN LOSSES The provision for loan losses is based on management's evaluation of the relative risks inherent in the loan portfolio and, on an annual basis, generally exceeds the amount of net loan losses charged against the allowance. 4. INCOME TAXES Provision for deferred income taxes are made as a result of timing differences between financial and taxable income. These differences relate principally to directors deferred compensation, pension premiums payable and deferred loan origination expenses. 5. PER SHARE DATA The per share of common stock information is based upon the weighted average number of shares outstanding during each period, retroactively adjusted for stock dividends. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," during the fourth quarter of 1997. Only basic earnings per share is disclosed because the Company does not have any dilutive securities or other contracts to issue common stock or convert to common stock. 6. NEW ACCOUNTING STANDARDS PRONOUNCEMENTS SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information was issued in 1997 by the Financial Accounting Standards Board. This Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements. Management has determined that the Bank is the Company's only operating segment. As such additional disclosures are not considered necessary. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued in June 1998. The Company adopted the provisions of SFAS No. 133 effective October 1, 1998. Because the Company does not use derivatives, the adoption of SFAS No. 133 did not impact the Company's earnings or financial position. As allowed by SFAS No. 133 the Company transferred approximately $2,900,000 of certain securities from held to maturity to the available for sale classification. The realized and unrealized gains on the securities transferred were not material to the Company.
8 PART I - FINANCIAL INFORMATION PAGE 6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS MATERIAL CHANGES IN FINANCIAL CONDITION Total deposits increased 5.0% in the first quarter of 2000 versus an increase of 6.1% over the first three months of 1999. Tax collections in local municipalities traditionally contribute to significant increases in the total deposits in the first quarter. Time Deposits over $100,000 have increased 10.2%, as municipalities have placed funds in short-term time deposits since December 31, 1999 and Regular Savings Deposits have increased 5.0%. Deposit increases of 6.4%, also reflect the expansion of the Bank's trade area to include West Seneca, NY since opening a new branch in February, 1999. Total net loans outstanding increased 4.8% over the first three months of 2000 which compares to a decrease of 1.9% over the first quarter of 1999. Growth was concentrated primarily in commercial mortgages approximately ($1.5 million) and home equity loans approximately ($1.0 million). Total commercial loans outstanding at March 31, 2000 year-to-date increased approximately $10.1 million over the amount outstanding at March 31, 1999 year-to-date and consumer loans increased approximately $3.6 million during that period. This growth was concentrated primarily in commercial mortgages approximately ($6.5 million), new and increased usage on commercial lines of credit approximately ($2.8 million) and home equity loans approximately ($4.2 million). The securities portfolio increased 14.8% over the first three months of 2000 versus a decrease of .5% which occurred over the first three months of 1999. 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. On February 15, 2000 the Bank entered into an agreement with O'Keefe Shaw & Co.,Inc. establishing ENB Associates Inc., a wholly owned subsidiary of Evans National Bank. Beginning March 11, 2000 ENB Associates Inc. began the activity of providing non-deposit investment products such as annuities and mutual funds. As of March 31, 2000 ENB Associates Inc. assets totaled $67,532.19. The annualized return on average assets at March 31, 2000 was 1.07% versus 1.10% at December 31, 1999. The return on average equity at March 31, 2000 was 11.20% versus 10.72% at December 31, 1999. The capital to assets ratio of 9.73% at March 31, 2000 compares to 10.17% at December 31, 1999. Total assets have increased approximately $9.4 million or 4.7% since December 31, 1999. MATERIAL CHANGES IN THE RESULTS OF OPERATIONS Net interest income for the quarter ending March 31, 2000 increased 15.9% over the first quarter of 1999. Interest income increased 19.3%. Interest income on federal funds sold increased 38.3%. Interest paid on deposits increased 24.8%. The cost of short-term borrowing was substantially higher due to the increased use of the Bank's funding options as a member of the Federal Home Loan Bank. The Bank's year-to-date net interest margin at March 31, 2000 was 4.52% as compared to 4.55% at March 31, 1999. The year-to-date yield on average earning assets increased to 7.90% at March 31, 2000 from 7.78% at March 31, 1999. The yield on loans has increased to 8.58% from 8.52% over that time period and the tax-equivalent yield on federal funds sold and investments has increased to 6.82% from 6.51%. Comparatively, the year-to-date cost of funds on interest- bearing balances increased from 3.81% at March 31, 1999 to 3.94% at March 31, 2000. This increase reflects a change in the mix of interest-bearing deposits. A shift from passbook saving accounts to the higher interest bearing premium savings accounts reflects an increase in the mix of premium accounts from 7.96% at March 31, 1999 to 11.42% at March 31, 2000. The year-to-date provision for loan losses was $60,000 through March 31, 2000 versus $35,000 through the first quarter of 1999. Management has increased the amount set aside for potential loan losses due to the substantial increase in the volume of the portfolio experienced over the past two years. Management believes that the credit quality of the portfolio remains high.
9 PAGE 7 Non-interest expenses increased 18.8% for the quarter ending March 31, 2000 over the quarter ending March 31, 1999. This compares to an increase of 13.8% in the first quarter of 1999 over the first quarter of 1998. All expense categories were impacted by the branch expansion into West Seneca. Annual salary adjustments and an increase in the number of full-time equivalent employees from 85 at March 31, 1999 to 87 at March 31, 2000 contributed to the 18.3% increase in salary and benefit expense. Supplies are up 44.8% over the same time period in 1999 due in part to the new debit card program . Advertising and public relations have decreased 36.7% for the quarter ending March 31, 2000 compared to an increase of 72.8% over the quarter ending March 31, 1999 compared to 1998 which was related to the branch expansion cost. FDIC assessments have increased 95.3% due to assessment rates increased as of January 1, 2000. Miscellaneous other expenses increased 37.2% for the first quarter of 2000 compared to the first quarter of 1999. Net income for the first quarter of $543,321 reflects an increase of 9.9% over the first quarter of 1999. The increase was in line with projections and growth due to the branch expansion. The effective combined tax rate for the first three months of 2000 and for the first three months of 1999 was 27%. The 27% for 2000 and 1999 demonstrates the impact of increasing the Bank's investment in tax-advantaged municipal bonds and the benefit realized from a favorable deferred tax position. ITEM 3 - QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company does not hold investments in instruments (ie: such as derivative financial or commodity instruments) that are considered to be subject of any market risk. The Company realizes income principally from the interest earned on loans and investments. Loan volumes and yields, as well as the volume of and rates on investments, deposits and borrowings, are affected by market interest rate volatility.
10 PAGE 8 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - None to report ITEM 2. Changes in Securities - None to report ITEM 3. Defaults upon Senior Securities - None to report ITEM 4. Submission of Matters To a Vote of Security Holders The 2000 Annual Shareholders meeting of the Registrant was held on April 18, 2000. At the meeting, Richard M. Craig, LaVerne G. Hall and Richard C. Stevenson were reelected as directors for a term of three (3) years. The following votes were cast for the nominees: FOR WITHHELD Richard M. Craig 1,280,353 16,198 LaVerne G. Hall 1,277,877 18,680 Richard C. Stevenson 1,204,770 91,787 The following directors also continue their terms of office: Robert W. Allen William F. Barrett David C. Koch David M. Taylor Phillip Brothman Thomas H. Waring, Jr. ITEM 5. Other Information: A cash dividend of $.25 per share was paid on April 5, 2000 to holders of record on February 15, 2000. A total of $424,738 was paid on 1,698,950 shares. In October of 1999, the Company announced that it had entered into a letter of intent to acquire the business and assets of M&W Group, Inc., an insurance agency headquartered in Silver Creek, New York. That transaction is expected to close within the second quarter of 2000. ITEM 6. Exhibits and Reports on form 8-K - None to report The following Exhibits are filed as part of this Report: Exhibit No. Description Page 10.1 Investment Service Agreement 10 between O'Keefe Shaw & Co.,Inc. and ENB Associates Inc. 27 Financial Data Schedule 26
11 PAGE 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. Evans Bancorp, Inc. DATE May 8, 2000 /s/Richard M. Craig Richard M. Craig President and Chief Executive Officer DATE May 8, 2000 /s/James Tilley James Tilley Senior Vice President