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EXHIBIT 13.1
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'99
[LOGO]
EVANS BANCORP, INC.
1999 ANNUAL REPORT
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[GRAPHICS]
CONTENTS
Profile ............................................... 1
President's Message ................................... 2
Selected Financial Information ........................ 5
Management Discussion and Analysis .................... 6
Independent Auditors' Report .......................... 13
Consolidated Financial Statements ..................... 14
Corporate Information ................................. 32
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Exhibit 13.1
PROFILE
Evans Bancorp, Inc. is a bank holding company headquartered in Angola, New York
and conducts its business through its wholly-owned subsidiary, Evans National
Bank. The Bank is an FDIC insured full-service commercial bank, and as of
December 31, 1999, had total assets of $198,788,383, total deposits of
$169,948,899 and total stockholders' equity of $18,284,938. The Bank's primary
market area is located in Western New York State, and specifically in southern
Erie County, northern Chautauqua County and northwestern Cattaraugus County.
The principal business of the Bank is commercial banking and consists of,
among other things, attracting deposits from the general public and using these
funds to extend credit and to invest in securities. The Bank offers a variety of
loan products to its customers including commercial loans, commercial and
residential mortgage loans, and consumer loans. The Bank also offers various
checking, savings, and premium savings accounts, certificates of deposit and
electronic banking services including telephone banking, PC banking and Eas-E
check card.
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TO OUR STOCKHOLDERS
I am pleased to report that 1999 was a year of record growth for Evans
Bancorp, Inc. and its subsidiary, Evans National Bank. Total assets increased by
$24,668,153 to $198,788,383 from $174,120,230, or 14.2%, the largest one-year
increase in the history of the Bank. By remaining focused on our business plan
and strategic direction, we effectively addressed and met the challenges
presented this past year. A full discussion of the results can be found in the
"Management Discussion and Analysis" section; however, I would like to point out
some highlights.
We achieved strong deposit growth as deposits increased $25,865,263, or 18%
over the previous year. Loans increased by $5,906,989 in 1999 to $116,433,438, a
5.3% increase over 1998's $110,526,449. The quality of the loan portfolio
continues to remain at a high level. Net charge-offs totaled $70,543 for 1999,
which equated to .06% of outstanding loans, as compared to $71,458, or .06% in
1998.
Net income in 1999 was $2,027,270, a slight decrease of $16,081, or .8%
from 1998's record high of $2,043,351. Accordingly, net income per share was
down from $1.20 in 1998 to $1.19 in 1999. Based on our level of earnings and
strong capital position, the Board of Directors declared a cash dividend of $.47
in 1999 as compared to $.37 per share in 1998. During 1999, our stock price
increased from $45.00 to $47.00, or 4.5%. Other key performance ratios include
return on average assets of 1.10% as compared to 1.24% in 1998, and 10.72%
return on average equity as compared to 11.63% the previous year.
Our capital ratios continue to remain strong. The Tier I capital ratio of
15.9%, total capital ratio of 16.6%, and leverage ratio of 10.1% substantially
exceeded the regulatory requirements of 4.0%, 8.0%, and 4.0%, respectively.
Significant expenditures were made in 1999 in connection with the addition
of key members to our team, the opening of a new branch facility in West Seneca,
and additional upgrades in technology. These
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expenditures, which contributed to a higher than normal increase in non-interest
expense this past year, are key investments which will contribute to future
performance.
As we enter the new millennium, we have taken measures which we believe
will ensure we remain competitive in our marketplace. The Bank is in the process
of developing a Website, and will introduce an Internet Banking Service during
the second quarter of the year 2000. This new service will be referred to as
Eas-E Net, and will complete our family of electronic banking products. Designed
for the benefit of both commercial and retail customers, Eas-E Net will provide
on-line account access allowing customers to perform a variety of banking
transactions, including bill payment, all under the protection of enhanced
security.
Our growth over the years has come through branch expansion, competitive
bank products, and service to our customers. However, to ensure our future
success, we continue to evaluate acquisition opportunities for growth by Evans
Bancorp, Inc. in related businesses. In this regard, I am pleased to announce
that during 1999, we signed a letter of intent with the M&W Insurance Group to
acquire the business and assets of this corporation in exchange for stock of
Evans Bancorp, Inc. It is expected the acquisition will be completed at the end
of the first quarter of 2000. We are also evaluating possibilities to deliver
the sale of mutual funds and annuities throughout our branch system. We believe
these opportunities will increase shareholder value, expand product lines, and
provide added convenience to our customers.
Our dedicated employees make Evans National Bank a successful corporation.
Many of our staff continue to advance their business skills through further
education. In addition, our officers and employees devote significant amounts of
time to local organizations. Their commitment strengthens the Bank's involvement
in the community, as well as provides support to the many groups they serve.
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During 1999, the following employees were recognized for their years of
service: Karen M. Blecha (30 years); Rita A. Boyland, Julie Gornikiewicz, Rose
Marie Hinckley, and Linda T. Tambs (20 years); Mary E. Doeing (15 years); Mary
Ellen Cecala, Mary Jane Gonzalez, and Salvatore Sack (10 years).
Mary Jane Gonzalez, manager of our North Boston office, passed away in
October, 1999. Jane's death meant the loss of not only a valuable employee, but
also a friend. Her many contributions to the Bank and the community will be
missed.
In closing, I would like to express my appreciation to our employees, Board
of Directors, and customers for their on-going support. I would also like to
thank you, our loyal stockholders, for your continued confidence. The new
millennium will be a time of challenge and change in the banking industry. We
approach the year 2000 with enthusiasm for continued success.
Richard M. Craig
Chairman of the Board
President and Chief Executive Officer
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SELECTED FINANCIAL INFORMATION
For the Year Ended December 31, 1999 1998 1997 1996 1995
RESULTS OF OPERATIONS
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Interest Income $ 12,554,843 $ 11,851,787 $ 11,072,851 $ 9,799,815 $ 9,226,500
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Interest Expense 5,043,316 4,946,730 4,588,056 3,912,761 3,418,782
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Net Interest Income 7,511,527 6,905,057 6,484,795 5,887,054 5,807,718
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Non-Interest Income 1,342,918 1,220,194 950,662 930,986 763,054
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Non-Interest Expense 6,050,175 5,196,900 4,849,182 4,555,398 4,228,922
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Net Income 2,027,270 2,043,351 1,802,275 1,614,642 1,664,783
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BALANCE SHEET DATA
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Total Assets $198,788,383 $174,120,230 $158,542,163 $140,898,057 $125,308,204
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Loans - Net 116,433,438 110,526,449 101,627,427 92,087,902 75,468,504
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Allowance for Loan Losses 838,167 729,199 609,539 546,954 557,961
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Securities 62,999,678 50,059,972 40,400,374 36,054,324 38,954,494
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Total Deposits 169,948,899 144,083,636 138,391,327 123,461,379 109,020,551
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Stockholders' Equity 18,284,938 18,623,413 17,039,300 15,510,083 14,485,510
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PER SHARE DATA
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Net Income $ 1.19 $ 1.20 $ 1.06 $ 0.95 $ 0.97
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Cash Dividend $ .47 $ .37 $ 0.30 $ 0.22 $ 0.14
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Book Value at Year End $ 10.76 $ 10.96 $ 10.03 $ 9.13 $ 8.53
Market Value $ 47.00 $ 45.00 $ 38.00 $ 27.20* $ 22.00*
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Weighted Average Shares 1,698,523 1,698,612 1,698,950 1,698,950 1,698,950
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* Retroactively adjusted for stock dividends and stock splits
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Management Discussion and Analysis of
Financial Condition and Results of Operations
Evans National Bank (the "Bank"), a wholly-owned subsidiary of Evans Bancorp,
Inc. (the "Company"), is a nationally chartered bank founded in 1920 which is
headquartered in Angola, New York. The Bank's principal business is to provide
full banking services to consumer and commercial customers in Erie, Chautauqua
and Cattaraugus Counties of Western New York. The Bank serves its market through
seven banking offices located in Angola, Derby, Evans, Forestville, Hamburg,
North Boston and West Seneca, New York. The Bank's principal source of funding
is through deposits which it reinvests in the community in the form of loans and
investments. Deposits are insured to the applicable limit by the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC"). The Bank is
regulated by the Office of the Comptroller of the Currency.
The following discussion of financial conditions and results of operations
of the Company and the Bank should be read in conjunction with the consolidated
financial statements and accompanying notes.
RESULTS OF OPERATIONS
Net interest income, the difference between interest income and fee income on
earning assets, such as loans and securities, and interest expense on deposits,
provides the basis for the Bank's results of operations. These results are also
impacted by non-interest income, the provision for credit losses, non-interest
expense and income taxes. Net income of $2,027,270 or $1.19 per share in 1999 is
down slightly compared to net income of $2,043,351 or $1.20 per share for 1998.
The startup costs associated with the opening of the Bank's seventh location in
West Seneca, NY on February 1, 1999 offset the growth in earnings for the Bank's
existing branch system in 1999. This is similar to the decline in income in 1996
when the Bank added the Evans, NY and Hamburg, NY branch offices.
NET INTEREST INCOME
Net interest income, before the provision for credit losses, increased 8.8% from
1998 to 1999, compared to an increase of 6.5% from 1997 to 1998. Average earning
assets increased $18.5 million in 1999 versus an increase of $13.6 million in
average interest-bearing liabilities. The tax-equivalent yield on earning assets
decreased 40 basis points from 8.11% in 1998 to 7.71% in 1999. The cost of
funds, however, decreased only 34 basis points, from 4.09% in 1998 to 3.75% in
1999. As a result, the Bank's net interest margin narrowed from 4.52% at
December 31, 1998 to 4.43% at December 31, 1999.
In 1998, the increase in net interest income of 6.5% was due to an increase
of $12.4 million in earning assets over 1997. The tax-equivalent yield earned on
those assets dropped 20 basis points from the prior year, to 8.11% from 8.31%.
The average cost of funds on interest-bearing liabilities decreased only two
basis points over that time period, from 4.11% in 1997 to 4.09% in 1998. The
volume of interest-bearing liabilities increased 8.3% in 1998 over 1997 or $9.3
million. The Bank's net interest margin narrowed from 4.59% in 1997 to 4.52% in
1998.
Management believes there are two main factors contributing to the
decreasing net interest margin. One factor is the impact of the interest rate
policy of the Federal Reserve. In its efforts to keep the economy from
overheating and to keep inflation at bay, the Federal Reserve Board decreased
short-term interest rates three times for a total of 75 basis points in 1998.
These moves immediately led to decreases of the prime rate in the marketplace,
impacting the yield earned on most variable rate loans. These moves also
impacted the offering rates on new investment securities, which provide a source
of income as well as liquidity for the Bank.
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Although these rate movements also have an effect on the cost of funds,
decreases in the rates paid on most interest-bearing liabilities take longer to
have an impact, since many of these funds are in time deposits which remain at
the higher rates until maturity.
The Federal Reserve gave back the 75 basis points in 1999, increasing rates
25 basis points on three occasions beginning in June. These moves led to
increases in the prime rate. Interest rates on new securities issues have
increased as well. However, much of the Bank's deposit growth traditionally
occurs earlier in the year and available funds from these deposits were invested
in a less favorable rate environment.
The second factor is competition. Banks are not only competing with each
other for available business, but with other providers of loan and investment
products, such as credit unions and insurance companies. A wealth of information
is easily obtained by consumers via the Internet, from television and through
print media. Competitors exist beyond the geographic trade area and to continue
to be successful, banks have increased business volumes by offering higher
deposit rates and lower loan rates, looking to other potential sources of
income, such as fees and service charges, to increase earnings.
The Bank constantly monitors its exposure to interest rate risk. The proper
management of interest-sensitive funds will help protect the Bank's earnings
against extreme changes in interest rates. The Bank's Asset/Liability Management
Committee ("ALCO") meets monthly for the purpose of evaluating the Bank's
short-range and long-range liquidity position and the potential impact on
capital and earnings as a result of sudden changes in interest rates. The Bank
has adopted an asset/liability policy that specifies minimum limits for
liquidity and capital ratios. Maximum limits have been set for the negative
impact acceptable on net interest income and the market value of investments as
a result of a shift in interest rates. The asset/liability policy also includes
guidelines for investment activities and funds management. At its monthly
meeting, the ALCO reviews the Bank's status and formulates its strategy based on
current economic conditions, interest rate forecasts, loan demand, deposit
volatility and the Bank's earnings objectives.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents the amount charged against the Bank's
earnings to establish a reserve of allowance sufficient to absorb expected loan
losses based on management's evaluation of the loan portfolio. Factors
considered include loan concentrations, charge-off history, delinquent loan
percentages and general economic conditions. In 1999, the Bank increased the
amount charged against earnings for loan losses to $170,000 from $150,000 in
1998. In 1997, $60,000 was charged against earnings for this purpose.
The following table summarizes the Bank's actual loan losses, total of
non-performing loans and total allowance for loan losses for 1999, 1998 and
1997, both in dollars and as a percentage of total loans outstanding:
1999 1998 1997
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Actual Loan Losses $ 70,543 0.06% $ 71,458 0.06% $ 46,858 0.05%
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Non-Performing Loans $1,771,625 1.52% $1,452,000 1.32% $ 987,000 0.96%
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Allowance for Loan Losses $ 838,167 0.72% $ 729,199 0.66% $ 609,539 0.59%
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In 1999, non-performing loans increased approximately $320,000 over 1998
and were $738,000 over 1997. All of the above loans are well-secured by real
estate with no loss anticipated.
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Although actual loan losses were similar over the past two years, the
increase in the reserve is warranted based on the increase in the size of the
portfolio and the results of the evaluation process described above.
NON-INTEREST INCOME
Total non-interest income increased approximately $123,000 or 10.1% in 1999 over
1998. This compares to an increase of approximately $270,000 from 1997 to 1998.
In 1999, the Bank received a full year of benefit from the service charge
increases instituted in June 1998. Income from the merchant VISA program, which
began in late 1997, more than doubled as did servicing fees on loans sold to the
Federal National Mortgage Association ("FNMA"). Other loan-related income
increased in 1999. This included prepayment penalties collected on loans and
dividends received as a result of the Bank's participation in the New York State
Bankers Group Insurance Trust. The Bank also received income from properties it
owns as a result of foreclosure.
Non-interest income for 1999 included approximately $158,000 for an
increase in the cash surrender value of life insurance policies held on certain
bank officers. This compares to approximately $165,000 in 1998. The 1998 figure
included a one-time gain of $97,000 that resulted when the original policies
were surrendered due to a change of insurer.
Gains realized on the sale of assets totaled approximately $16,000 in 1999
versus approximately $66,000 in 1998. In 1999, planned sales of securities
resulted in net losses of less than $1,000. In 1998, a gain of $14,513 was
realized when one of the Bank's residual bonds was called for redemption. This
offset losses of $4,450 on planned sales that year.
Premiums received on the sale of student loans to the Student Loan
Marketing Association (`SLMA") were approximately $6,400. In 1998, gains on
sales to SLMA of $43,000 included $28,000 received when the Bank sold the
majority of its remaining student loan portfolio to SLMA. About $7,800 in
premiums were received on mortgages sold to the Federal National Mortgage
Association ("FNMA") in 1999. This compares to $12,800 received in 1998. The
Bank has been affiliated with both SLMA and FNMA since 1995. In addition to the
sales of loans and securities in 1999, the Bank sold two properties which it
owned as a result of foreclosure experiencing a total gain on the sales of
$2,700.
NON-INTEREST EXPENSE
In 1999, the ratio of non-interest expense to average assets was 3.24% compared
to 3.14% in 1998 and 3.18% in 1997. Non-interest expense categories include
those most impacted by branch expansion - salaries, occupancy, advertising, and
supplies, among others. Salary and benefit expense increased 14.5% in 1999. Of
the $406,606 increase, approximately $214,430 is attributable to staffing the
West Seneca office. A full-time position was added in the Loan Division, which
also contributed to the increase over the prior year. The remainder of the
increase included merit/promotional increases, other additional staffing and
expenses related to the Bank's retirement plans. Occupancy expenses increased
$146,924 or 19.3%. The cost of leasing the West Seneca facility and related
expenditures contributed $100,726 to this increase. Advertising costs were up
$42,459 or 36.0%. About 75% of the increase in advertising expense can be
attributed to the promotion of the new branch. The remaining 25% of that amount
was spent on promoting the Bank's PC and telephone banking services.
Approximately $58,000 in increased expense for supplies not only included
purchases totaling $20,674 related to the West Seneca, NY branch, but also
materials purchased as a result of the Bank's Year 2000 initiative. This
included informational material distributed to customers regarding the Bank's
readiness for the Year 2000 event, as well as the forms and envelopes used to
provide each customer with a bank statement as of December 31, 1999 in addition
to their regularly scheduled statement.
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Miscellaneous other expenses increased 22.1% in 1999. These expenses
include costs relating to the maintenance of foreclosed properties. The premiums
paid for life insurance policies held on certain bank officers and directors are
also included in this category. Expenses associated with originating loans,
telephone costs, postal costs and correspondent bank service charges also fall
under miscellaneous expenses. All of these categories increased in 1999.
TAXES
The provision for income taxes in 1999 of $607,000 reflects an effective tax
rate of 23%. This compares to $735,000 or 27% in 1998 and $724,000 or 28% in
1997. The Bank maintains a substantial investment in tax-advantaged municipal
bonds which contributes to its favorable tax position. Additionally, the Bank
recorded a total of approximately $170,000 in non-taxable income in 1999 due to
the increase in the cash surrender value of life insurance policies held on
certain bank officers and directors.
FINANCIAL CONDITION
The Bank had total assets of $198.8 million at December 31, 1999, an increase of
$24.7 million or 14.1% over $174.1 million at December 31, 1998. Net loans of
$116.4 million increased 5.3% or $5.9 million over the previous year. Securities
increased $12.9 million or 25.9% and cash and cash equivalents increased $4.7
million or 64.1%. Deposits grew by $25.9 million or 18%. Shareholders' equity,
however, decreased approximately $338,000 or 1.8%, due to unrealized losses of
$1,185,096 on investment securities held by the Bank. See "Securities and
Federal Funds Sold" below.
LOANS
Loans comprised 64.2% of the Bank's total average earning assets in 1999. Actual
year-end balances increased 5.3%, slowing somewhat from an increase of 8.8% in
1998 and 10.4% in 1997. The Bank continues to focus its lending on commercial
and residential mortgages, commercial loans and home equity loans. Commercial
mortgages make up the largest segment of the portfolio at 45.1% of total loans.
Residential mortgages comprise 19.6% of the portfolio and commercial loans
account for 16.4% of outstanding loans. Sixteen percent are home equity loans.
At December 31, 1999, the Bank had a loan/deposit ratio of 69.0%. This
compares to a loan/deposit ratio of 77.22% at December 31, 1998.
The Bank currently retains the servicing rights to $8.7 million in
long-term mortgages sold to the Federal National Mortgage Association ("FNMA")
since becoming a member in 1995. This arrangement allows the Bank to offer
long-term mortgages without exposure to the associated interest rate risks,
while retaining customer account relationships.
The Bank continues its contractual arrangement with the Student Loan
Marketing Association (`SLMA") whereby SLMA services the Bank's loans to
borrowers who are still in school and subsequently purchases those loans.
Approximately $873,000 in student loans were sold to SLMA in 1999. Student loans
presently make up 0.32% of total loans. In December 1998, the Bank sold $1.2
million in student loans to SLMA, which contributed to a 75% decrease in
balances that year. Growth of 2.3% occurred from 1996 to 1997.
SECURITIES AND FEDERAL FUNDS SOLD
Securities and federal funds sold made up the remaining 35.8% of the Bank's
total average earning assets at December 31, 1999. Since deposit growth outpaced
loan growth during 1999, excess funding was channeled into securities and
federal funds sold, providing the Bank with additional sources of liquidity and
interest income. At year-end 1999, the portfolio was made up of tax-advantaged
municipal bonds, which comprised 52.2% of the portfolio, US
government-guaranteed mortgage-backed securities which constituted 24.0% of the
portfolio, and US government-sponsored agency bonds of various types, which made
up 24.6% of the total. As a
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member of the Federal Reserve System and as a member of the Federal Home Loan
Bank, the Bank is required to hold stock in those entities. These investments
made up 1.9% of the portfolio at December 31, 1999.
As part of its Year 2000 liquidity contingency plan, the Bank maintained
higher balances in federal funds sold in 1999. These balances made up 2.1 % of
total average earning assets in 1999 compared to 1.00% in 1998.
The tax-equivalent yield earned on securities and federal funds sold was
6.33% in 1999, down fifteen basis points from the 1998 level of 6.48%. The yield
in 1997 was 6.57%. The decline in 1999 is due to the large volume of investments
made in the first half of 1999, prior to the increases in market rates that
occurred after Federal Reserve Board rate hikes later in the year. Another
reason for the decline was the Bank's increased investment in federal funds
sold, which yielded 4.94% in 1999 versus 5.51 % in 1998.
Financial Accounting Standard No. 115 outlines accounting and reporting
requirements for investment securities. All securities are designated at the
time of purchase as either "held to maturity" or "available for sale".
Securities designated as held to maturity are stated on the balance sheet at
amortized cost. Those designated as available for sale are reported at fair
market value. At December 31, 1999, the Bank had designated $3.4 million of its
securities as held to maturity. The majority of these bonds represent the Bank's
investment in local municipalities.
Bonds designated as available for sale totaled $59.6 million, or
approximately 95% of the Bank's portfolio. Net unrealized gains and losses on
available for sale securities resulted in an unrealized loss of $1.7 million at
December 31, 1999. Due to the increases in market rates at the end of 1999, all
fixed income bonds held in the portfolio decreased in value. Unrealized gains
and losses on available for sale securities are reported, net of taxes, as a
separate component of shareholders' equity. At December 31, 1999, the impact to
equity was a net unrealized loss of $1.2 million. Actual sales from the
portfolio totaled $3,122,225 in 1999 for a net loss of less than $1,000. These
sales were negotiated for portfolio restructuring purposes.
DEPOSITS
Total deposits increased $25.9 million or 18% in 1999 over 1998. The Bank was
especially successful in attracting additional core deposits. Demand deposits
increased 14.8% over the course of the year. Regular savings increased 23.4%.
Balances in the tiered rate Premium Savings product introduced in May 1997
continue to grow. Average balances in this product increased from $7.5 million
in 1998 to $13.8 million in 1999. At year-end, $17.0 million was on deposit in
Premium accounts. NOW account balances increased 6.5% in 1999 over 1998 and time
deposits increased 16.5% overall. Growth occurred in time deposits over $100,000
that are generally obtained from local municipalities through the competitive
bidding process and from commercial and retail customers looking for the safety
of an FDIC-insured deposit. Certificates of less than $100,000 also increased in
1999, after a decline the previous year. Although the Bank's products are priced
comparatively to those of other banks in the marketplace, other providers of
financial services are also aggressively pursuing available funds, intensifying
the level of competition.
Providing excellent customer service remains a key focus for the Bank.
Eas-E Line telephone and personal computer banking was introduced in late 1998
to provide customers with access to their accounts during banking and
non-banking hours. The Bank also introduced Eas-E Check in late 1999. This is a
debit card that works like a check. With the addition of Eas-E Net Internet
Banking in 2000, customers will have the added convenience of bill-paying via
personal computer. In 1999, the Bank began a process that will be concluded in
2000 to add two subsidiaries, M&W Agency, Inc., an insurance agency specializing
in property and casualty insurance, and Evans Associates, Inc., which will sell
mutual funds and annuities.
LIQUIDITY
The Bank seeks to manage its liquidity so that it is able to meet day to day
loan demand and deposit fluctuations, while attempting to maximize the amount of
net interest income on earning assets. Traditionally, the Bank has utilized its
federal funds balances and cash flows from the investment portfolio to fulfill
its liquidity requirements. As a member and shareholder of the Federal Home Loan
Bank ("FHLB") the Bank also has many borrowing options. The FHLB will make cash
advances of various terms at competitive rates to its members. Advances of up to
$9.2 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. As part of
the Year 2000 liquidity contingency plan, the Bank obtained a Guaranteed
Liquidity Line of $5 million at the FHLB, which was not in use at December 31,
1999. This line will expire March 31, 2000. The Bank also has the ability to
purchase up to $4,000,000 in federal funds from one of its correspondents.
Borrowing at the Federal Reserve Discount Window is another option for
liquidity. At December 31, 1999, the Bank had approximately $7 million in
securities in safekeeping at the Federal Reserve Bank that could be used as
collateral for discount window borrowing.
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The cash flows from the investment portfolio are laddered to provide funds
from principal and interest payments at such times as liquidity needs may arise.
Contractual maturities are also laddered, with consideration as to the
volatility of market prices to ensure that a sufficient amount of securities is
available that could be sold without incurring significant losses. At December
31, 1999, approximately 8% of the Bank's securities had maturities of one year
or less and approximately 32% had maturity dates of five years or less. At
December 31, 1999 the Bank had net short-term liquidity of $7.9 million as
compared to $4.0 million at December 31, 1998. Available assets of $67.3 million
less public and purchased funds of $45.2 million resulted in a long-term
liquidity ratio of 149% compared to 128% at December 31, 1998.
Liquidity needs may also be met by aggressively pursuing municipal
deposits, which are normally awarded on the basis of competitive bidding. The
Bank maintains a sufficient amount of US government and government agency
securities and New York State municipal bonds that can be pledged as collateral
for these deposits.
INTEREST RATE RISK
Interest rate risk occurs when interest-earning assets and interest-bearing
liabilities mature or reprice at different times or on a different basis. The
Bank's ALCO analyzes the gap position on a monthly basis to determine the Bank's
exposure to interest rate risk. The gap position is the difference between the
total of the Bank's rate-sensitive assets and rate-sensitive liabilities
maturing or repricing during a given time frame. A "positive" gap results when
more assets than liabilities reprice and a "negative" gap results when more
liabilities than assets reprice within a given time period. Because assets
historically reprice faster than liabilities, a slightly negative gap position
is considered preferable. At December 31, 1999, the Bank was in a negative gap
position, with $24.3 million more in rate-sensitive liabilities repricing over
the next year than in rate-sensitive assets. The Bank's asset/liability limit,
as defined in its asset/liability policy, is a difference of +/-15% of the
Bank's total assets, which amounted to +/-$29.8 million at December 31, 1999.
The gap ratio (rate-sensitive assets /rate-sensitive liabilities) at that date
was 72%.
The following table provides information about the Bank's on-balance sheet
instruments that are sensitive to changes in interest rates. Expected maturity
date values for interest-earning assets were calculated by adjusting the
contractual maturity date for expectations of prepayments. Expected maturity
date values for interest-bearing core deposits were calculated based upon
estimates of the period over which the deposits would be outstanding.
Expected maturity date -
year ended December 31, 2000 2001 2002 2003 2004 There-after Total Fair Value
INTEREST-EARNING
ASSETS ($000S)
- ----------------------------------------------------------------------------------------------------------------------
Loans Receivable, Fixed Rate 10,380 5,693 4,602 4,564 3,202 17,131 45,572 39,996
Average Interest Rate 8.62% 8.48% 8.60% 8.45% 8.30% 8.00%
- ----------------------------------------------------------------------------------------------------------------------
Loans Receivable, Adj. Rate 22,140 3,498 3,864 3,593 1,819 35,847 70,761 70,761
Average Interest Rate 9.27% 9.24% 9.15% 9.09% 9.15% 8.30%
- ----------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 3,450
Average Interest Rate 4.43%
- ----------------------------------------------------------------------------------------------------------------------
Investments 8,379 6,390 5,485 6,020 8,295 28,431 63,000 63,000
Average Interest Rate 5.95% 6.52% 6.58% 6.94% 7.00% 7.17%
- ----------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING
LIABILITIES ($000S)
- ----------------------------------------------------------------------------------------------------------------------
Deposits 75,445 19,488 12,876 12,322 11,291 8,843 140,265 140,334
Average Interest Rate 4.73% 3.45% 2.57% 2.48% 2.57% 2.61%
- ----------------------------------------------------------------------------------------------------------------------
Borrowed Funds 4,700 0 1,000 2,000 1,000 8,700 8,700
Average Interest Rate 3.44% 0.00% 4.91% 4.90% 5.07%
- ----------------------------------------------------------------------------------------------------------------------
Off-balance sheet financial instruments at December 31, 1999 included
$7,064,000 in undisbursed lines of credit at an average interest rate of 10.04%,
$2,044,000 in fixed rate loan origination commitments at 11%, $13,489,000 in
adjustable rate loan origination commitments at 9.85% and $1,283,000 in
adjustable rate letters of credit at an average rate of 10.50%.
15
-53-
MARKET RISK
When rates rise or fall the market value of the Bank's assets and liabilities
will increase or decrease. As part of the Bank's asset/liability policy, the
Bank has set limitations on the negative impact to the market value of its
balance sheet that would be acceptable. The Bank's securities portfolio is
priced monthly and adjustments are made on the balance sheet to reflect the
market value of the available for sale portfolio per Financial Accounting
Standard No. 115. A limitation of a negative 25% of total capital before FAS 115
(after tax) has been established as the maximum impact to equity that would be
acceptable. At year-end, the impact to equity as a result of marking available
for sale securities to market was an unrealized loss of $1,185,096. On a
quarterly basis, the available for sale portfolio is shocked for immediate rate
increases of 100 and 200 basis points. At December 31, 1999, the Bank determined
it would take an immediate increase in excess of 200 basis points to eliminate
the current capital cushion. The Bank's capital ratios are also reviewed on a
quarterly basis. Unrealized gains or losses on available for sale securities are
not included in the calculation of these ratios.
CAPITAL EXPENDITURES
The Eas-E Net Internet Banking product is estimated to cost the Bank
approximately $82,000 in the year 2000. This product will provide customers with
the ability to pay bills via personal computer and will complement Eas-E Line
telephone and PC banking which are already operational. Planned software
purchases include a Windows upgrade of the Bank's mainframe software and an
E-mail program. Miscellaneous equipment is scheduled to be replaced and new
equipment will be purchased, which will include additional ATM purchases.
Repairs and remodeling totaling approximately $234,500 are also planned at the
Bank's various locations. The Bank believes it has a sufficient capital base to
support these capital expenditures with current assets and retained earnings.
IMPACT OF INFLATION AND CHANGING PRICES
There will always be economic events, such as the changes in the economic
policies of the Federal Reserve Board that will have an impact on the
profitability of the Company. Inflation may result in impaired asset growth,
reduced earnings and substandard capital ratios. The net interest margin can be
adversely impacted by the volatility of interest rates throughout the year.
Since these factors are unknown, management attempts to structure the balance
sheet and the repricing frequency of its interest-sensitive assets and
liabilities to avoid a significant concentration that could result in a material
negative impact on earnings.
16
-54-
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
EVANS BANCORP, INC.
We have audited the accompanying consolidated balance sheets of Evans
Bancorp, Inc. and subsidiary (the "Company") as of December 31, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and 1998 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Buffalo, New York
January 25, 2000
17
-55-
EVANS BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998 1999 1998
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 8,528,778 $ 7,300,780
Federal funds sold 3,450,000 0
------------- -------------
Total cash and cash equivalents 11,978,778 7,300,780
Securities:
Available for sale, at fair value 59,550,786 45,969,587
Held to maturity 3,448,892 4,090,385
Loans, net of allowance for loan losses of
$838,167 in 1999 and $729,199 in 1998 116,433,438 110,526,449
Properties and equipment, net 3,834,496 3,696,658
Other assets 3,541,993 2,536,371
------------- -------------
TOTAL ASSETS $ 198,788,383 $ 174,120,230
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 29,683,357 $ 25,857,037
NOW and money market 8,048,455 7,554,104
Regular savings 58,819,156 47,676,615
Time 73,397,931 62,995,880
------------- -------------
Total deposits 169,948,899 144,083,636
Federal funds purchased 0 2,225,000
Other borrowed funds 5,000,000 7,000,000
Other liabilities 5,554,546 2,188,181
------------- -------------
Total liabilities 180,503,445 155,496,817
------------- -------------
CONTINGENT LIABILITIES AND COMMITMENTS
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 7,629,839 6,400,764
Accumulated other comprehensive (loss) income (net of tax) (1,185,096) 443,308
------------- -------------
18,284,938 18,684,267
Less: Treasury stock, at cost (1,352 shares at December 31, 1998) 0 (60,854)
------------- -------------
Total stockholders' equity 18,284,938 18,623,413
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 198,788,383 $ 174,120,230
============= =============
See notes to consolidated financial statements.
18
-56-
EVANS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1999, 1998 and 1997 1999 1998 1997
INTEREST INCOME:
Loans $ 9,294,995 $ 9,336,407 $ 8,632,716
Federal funds sold 180,292 84,316 122,516
Securities:
Taxable 1,761,594 1,333,268 1,372,883
Non-taxable 1,317,962 1,097,796 944,736
----------- ----------- -----------
Total interest income 12,554,843 11,851,787 11,072,851
INTEREST EXPENSE ON DEPOSITS AND BORROWINGS 5,043,316 4,946,730 4,588,056
----------- ----------- -----------
NET INTEREST INCOME 7,511,527 6,905,057 6,484,795
PROVISION FOR LOAN LOSSES 170,000 150,000 60,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,341,527 6,755,057 6,424,795
NON-INTEREST INCOME:
Service charges 741,232 708,482 670,366
Gains on sales of assets, net 16,103 66,208 33,809
Other 585,583 445,504 246,487
----------- ----------- -----------
Total non-interest income 1,342,918 1,220,194 950,662
----------- ----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 3,212,869 2,807,223 2,592,120
Occupancy 909,304 762,380 761,383
Supplies 173,698 115,588 101,534
Repairs and maintenance 232,428 186,772 163,189
Advertising and public relations 160,480 118,021 127,127
Professional services 245,575 290,858 308,617
FDIC assessments 17,041 16,395 15,328
Other 1,098,780 899,663 779,884
----------- ----------- -----------
Total non-interest expense 6,050,175 5,196,900 4,849,182
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,634,270 2,778,351 2,526,275
INCOME TAXES 607,000 735,000 724,000
----------- ----------- -----------
NET INCOME $ 2,027,270 $ 2,043,351 $ 1,802,275
=========== =========== ===========
Net income per common share - basic $ 1.19 $ 1.20 $ 1.06
=========== =========== ===========
Weighted average number of common shares 1,698,523 1,698,612 1,698,950
=========== =========== ===========
See notes to consolidated financial statements.
19
-57-
EVANS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31,
1999, 1998 and 1997
Accumulated Other
Common Capital Retained Comprehensive Treasury
Stock Surplus Earnings (Loss) Income Stock Total
Balance, January 1, 1997 $ 849,475 $ 10,990,720 $ 3,692,659 $ (22,771) $ 0 $ 15,510,083
Comprehensive income:
1997 net income 1,802,275 1,802,275
Unrealized gain (loss) on
available for sale securities,
net of reclassification
adjustment and tax effect
of $100,638 236,627 236,627
------------
Total comprehensive
income 2,038,902
------------
Five-for-one stock split
Purchase of 3,966 shares
for treasury (130,878) (130,878)
Cash dividends ($.30 per
common share) (509,685) (509,685)
Reissuance of treasury stock
under stock dividend plan
of 3,966 shares 130,878 130,878
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 849,475 10,990,720 4,985,249 213,856 - 17,039,300
Comprehensive income:
1998 net income 2,043,351 2,043,351
Unrealized gain (loss) on
available for sale securities,
net of reclassification
adjustment and tax effect
of $107,977 229,452 229,452
------------
Total comprehensive
income 2,272,803
------------
Cash dividends ($.37 per
common share) (627,836) (627,836)
Purchase of 3,881 shares
for treasury (174,645) (174,645)
Reissuance of treasury stock
under stock dividend plan
of 2,529 shares 113,791 113,791
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 849,475 10,990,720 6,400,764 443,308 (60,854) 18,623,413
Comprehensive income:
1999 net income 2,027,270 2,027,270
Unrealized gain (loss) on
available for sale securities,
net of reclassification
adjustment and tax effect
of $766,297 (1,628,404) (1,628,404)
------------
Total comprehensive
income 398,866
------------
Cash dividends ($.47 per
common share) (798,195) (798,195)
Purchase of 4,434 shares
for treasury (205,368) (205,368)
Reissuance of treasury stock
under stock dividend plan
of 5,786 shares 266,222 266,222
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 $ 849,475 $ 10,990,720 $ 7,629,839 $ (1,185,096) $ 0 $ 18,284,938
============ ============ ============ ============ ============ ============
See notes to consolidated financial statements.
20
-58-
EVANS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997 1999 1998 1997
OPERATING ACTIVITIES:
Interest received $ 12,559,167 $ 11,805,241 $ 11,027,381
Fees received 1,283,956 1,136,626 968,072
Interest paid (5,052,915) (4,952,879) (4,543,895)
Cash paid to employees and suppliers (5,750,114) (4,944,895) (4,680,322)
Income taxes paid (842,482) (863,365) (786,000)
------------ ------------ ------------
Net cash provided by operating activities 2,197,612 2,180,728 1,985,236
------------ ------------ ------------
INVESTING ACTIVITIES:
Available for sale securities:
Purchases (30,158,490) (35,657,818) (26,075,499)
Proceeds from sales 3,121,468 19,652,675 22,306,088
Proceeds from maturities 8,423,564 7,686,003 686,306
Held to maturity securities:
Purchases (3,952,558) (3,722,629) (2,618,319)
Proceeds from maturities 7,099,039 2,790,562 1,736,862
Additions to properties and equipment (643,470) (414,541) (466,472)
Increase in loans, net of repayments (11,666,342) (13,857,709) (12,236,511)
Proceeds from sales of loans 5,241,973 4,863,285 2,597,162
Proceeds from sale of other real estate owned 299,515 49,070 0
Proceeds from life insurance polices surrendered 0 224,009 0
------------ ------------ ------------
Net cash used in investing activities (22,235,301) (18,387,093) (14,070,383)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from (repayments of) borrowing (412,234) 8,165,920 1,059,080
Increase in deposits 25,865,263 5,693,383 14,929,948
Dividends paid (798,196) (627,836) (679,580)
Purchase of treasury stock (205,368) (174,645) (130,878)
Sale of treasury stock 266,222 113,791 130,878
------------ ------------ ------------
Net cash provided by financing activities 24,715,687 13,170,613 15,309,448
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 4,677,998 (3,035,752) 3,224,301
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 7,300,780 10,336,532 7,112,231
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 11,978,778 $ 7,300,780 $ 10,336,532
============ ============ ============
(Continued)
21
-59-
EVANS BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997 1999 1998 1997
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 2,027,270 $ 2,043,351 $ 1,802,275
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 611,579 381,115 356,663
Provision for loan losses 170,000 150,000 60,000
Gains on sales of assets (16,103) (66,208) (33,809)
Gains on life insurance policies surrendered 0 (97,580) 0
Changes in assets and liabilities affecting cash flow:
Other assets (832,205) (225,835) (367,243)
Other liabilities 237,071 (4,115) 167,350
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,197,612 $ 2,180,728 $ 1,985,236
=========== =========== ===========
(Concluded)
See notes to consolidated financial statements.
22
-60-
EVANS BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years ended December 31, 1999, 1998 and 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and General - Evans Bancorp, Inc. (the "Company") was organized in
October 1988, under the Business Corporation Law of the State of New York as a
bank holding company. In January 1989, the shareholders of the Evans National
Bank (the "Bank") approved an Agreement and Plan of Reorganization (the
"Reorganization") whereby the Bank effectively became a wholly-owned subsidiary
of the Company. The Bank is in the commercial banking business, attracting
deposits from and making loans to the general public in its immediate
geographical area. The Bank's main office is located in Angola, New York and it
has branches in Derby, Evans, Forestville, Hamburg, North Boston, and West
Seneca.
Regulatory Requirements - The Bank is subject to the rules, regulations, and
reporting requirements of various regulatory bodies, including the Federal
Reserve Board ("FRB"), the Federal Deposit Insurance Corporation ("FDIC"), and
the Office of the Comptroller of the Currency ("OCC").
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and the Bank. All material intercompany accounts and
transactions are eliminated in consolidation.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Securities - Securities for which the Bank has the positive intent and ability
to hold to maturity are stated at cost, adjusted for discounts and premiums that
are recognized in interest income over the period to the earlier of call date or
maturity using a method that approximates level yield. Securities held to
maturity have been designated as unavailable to be sold as part of the Bank's
asset-liability management activities.
Securities classified as available for sale are stated at fair value, with
unrealized gains and losses excluded from earnings and reported, net of deferred
income taxes, in stockholders' equity. Gains and losses on sales of securities
are computed using the specific identification method.
Securities which have experienced an other than temporary decline in fair value
are written down to a new cost basis with the amount of the writedown included
in earnings as a realized loss. The new cost basis is not changed for subsequent
recoveries in fair value. Factors which management considers in determining
whether an impairment in value of an investment is other than temporary include
the issuer's financial performance and near term prospects, the financial
condition and prospects for the issuer's geographic region and industry, and
recoveries in fair value subsequent to the balance sheet date.
The Bank does not engage in securities trading activities.
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 adequate to absorb losses on existing loans that may
become uncollectible. 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.
Foreclosed Real Estate - Foreclosed real estate is initially recorded at the
lower of book or fair value (net of costs of disposal) at the date of
foreclosure. Costs relating to development and improvement of property are
capitalized, whereas costs relating to the holding of property are expensed.
Valuations are periodically performed by management, and an allowance for
potential additional losses is established by a charge to operations if the
carrying value of a property exceeds fair value. Foreclosed real estate is
classified as other assets on the consolidated balance sheets.
23
-61-
Properties and Equipment - Properties and equipment are stated at cost less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets which range from 3 to 31
years.
The Bank regularly assesses all of its long-lived assets for impairment and
recognizes a loss when the carrying value of an asset exceeds its fair value.
The Bank determined that no impairment loss needs to be recognized for
applicable assets in 1999 or 1998.
Interest Income on Loans - Interest on loans is accrued and credited to income
based on the principal amount outstanding. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an indication that the
borrower may be unable to meet payments as they become due. Upon such
discontinuance, all unpaid accrued interest is reversed and any cash received is
credited to the outstanding principal balance. Such loans are returned to
accrual status when they are made current and, in the opinion of management, the
borrower has the ability to continue making timely payments. Loan origination
and commitment fees and certain direct loan origination costs are deferred and
recognized over the lives of the related assets as an adjustment of the loans'
yields using the level yield method.
Income Taxes - Deferred tax assets and liabilities are recorded for temporary
differences between the financial statement and tax bases of assets and
liabilities using the tax rate expected to be in effect when the taxes are
actually paid or recovered.
Net Income per Common Share - Net income per common share is based on the
weighted average number of shares outstanding during each year, retroactively
adjusted for stock dividends. Only basic earnings per share is disclosed because
the Company does not have any dilutive securities or other contracts to issue
common stock or convert to common stock.
Dividend Reinvestment Plan - The Company has a Dividend Reinvestment Plan (the
"Plan") which provides each holder of record of the Bank's common stock the
opportunity to reinvest automatically the cash dividends they receive on shares
of the Bank's common stock. Stockholders who do not wish to participate in the
Plan will continue to receive cash dividends, as declared, in the usual manner.
Fifth Third Bank Corporate Trust Services (the "Agent") is the administrator of
the Plan. Shares purchased under the Plan are held in safekeeping by the Agent
until the stockholder terminates his/her participation in the Plan. The Agent
also acts as transfer agent and registrar for the Bank's common stock.
Employee Benefits and Deferred Compensation Plan - Costs are charged to salaries
and employee benefits expense in the periods in which the services are rendered.
Pension costs are funded on a current basis in compliance with the Employee
Retirement Income Security Act and are accounted for in compliance with SFAS No.
132, "Employers' Accounting for Pensions".
Off Balance Sheet Financial Instruments - In the ordinary course of business the
Bank has entered into off balance sheet financial instruments consisting of
commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when the transactions are
executed.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks, interest bearing deposits in other
banks and federal funds sold. Generally, federal funds sold are purchased for
one-day periods.
Cash and due from banks includes reserve balances that the Bank is required to
maintain with Federal Reserve Banks. The required reserves are based upon
deposits outstanding and were approximately $885,000 and $720,000 at December
31, 1999 and 1998, respectively.
Accounting Standards Pronouncements - In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
130, Reporting Comprehensive Income, which became effective for the Company in
1998. SFAS No. 130 established standards for reporting and disclosure of
comprehensive income and its components in financial statement format.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. Items considered comprehensive income including foreign
currency items, minimum pension liability adjustments and unrealized gains and
losses on certain investments in debt and equity securities. The Company has
elected to display comprehensive income in the statements of stockholders'
equity, net of reclassification adjustments. Reclassification adjustments are
made to avoid double counting in comprehensive income items that are displayed
as part of net income for a period that also had been displayed as part of other
comprehensive income in that period or earlier periods. The reclassification
adjustments, net of tax, for the years ended December 31, 1999, 1998, and 1997
amounted to $242, $3,026 and $1,357, respectively.
24
-62-
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information was issued in 1997 by the Financial Accounting Standards Board. This
statement established 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. 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 during 1998. The realized and
unrealized gains on the securities transferred were not material to the
Company.
2. SECURITIES
The amortized cost of securities and their approximate fair value at December 31
were as follows:
1999
--------------------------------------------------------------------
Unrealized
-------------------------------
Amortized Fair
Cost Gains Losses Value
Available for Sale:
U.S. Government and Agency Securities $15,506,351 $ 312 $ (563,399) $14,943,264
Mortgage Backed Securities 15,136,101 0 (780,540) 14,355,561
State and Municipal Securities 29,476,371 43,679 (442,839) 29,077,211
Other Securities 1,174,750 0 1,174,750
----------- ----------- ---------- -----------
Total $61,293,573 $ 43,991 $(1,786,778) $59,550,786
=========== =========== =========== ===========
Held to Maturity:
U.S. Government and Agency Securities $ 3,405,097 $ 0 $ 0 $ 3,405,097
State and Municipal Securities 43,795 0 0 43,795
----------- ----------- ----------- -----------
Total $ 3,448,892 $ 0 $ 0 $ 3,448,892
=========== =========== =========== ===========
1998
-----------------------------------------------------------------------
Unrealized
------------------------------
Amortized Fair
Cost Gains Losses Value
Available for Sale:
U.S. Government and Agency Securities $ 9,648,523 $ 27,031 $ (13,104) $ 9,662,450
Mortgage Backed Securities 12,534,756 0 (92,511) 12,442,245
State and Municipal Securities 22,182,635 730,507 0 22,913,142
Other Securities 951,750 0 0 951,750
----------- ----------- ----------- -----------
Total $45,317,664 $ 757,538 $ (105,615) $45,969,587
=========== =========== =========== ===========
Held to Maturity:
U.S. Government and Agency Securities $ 47,565 $ 0 $ 0 $ 47,565
State and Municipal Securities 4,042,820 0 0 4,042,820
----------- ----------- ----------- -----------
Total $ 4,090,385 $ 0 $ 0 $ 4,090,385
=========== =========== =========== ===========
Available for sale securities with a total fair value of $36,478,110 at December
31, 1999 were pledged as collateral to secure public deposits and for other
purposes required or permitted by law.
25
-63-
The scheduled maturities of debt securities at December 31, 1999 are summarized
below. Actual maturities may differ from contractual maturities because certain
issuers have the right to call or prepay obligations with or without call
premiums.
Available for Held to Maturity
Sale Securities Securities
------------------------------ ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $ 1,964,288 $ 1,962,732 $ 2,872,333 $ 2,872,333
Due after year one through five years 14,919,702 14,825,591 171,664 171,664
Due after five years through ten years 18,056,128 17,615,570 196,931 196,931
Due after ten years 26,353,455 25,146,893 207,964 207,964
----------- ----------- ----------- -----------
Total $61,293,573 $59,550,786 $ 3,448,892 $ 3,448,892
=========== =========== =========== ===========
Realized gains and losses from sales of securities for the years ended December 31, 1999 , 1998 and 1997 are
summarized as follows:
1999 1998 1997
Gross gains $ 3,084 $ 55,727 $ 65,150
Gross losses (3,841) (45,664) (67,145)
-------- -------- --------
Net gain (loss) $ (757) $ 10,063 $ (1,995)
======== ======== ========
3. LOANS NET
Major categories of loans at December 31, 1999 and 1998 are summarized as follows:
1999 1998
Real estate - mortgages $ 95,330,046 $ 92,434,304
Real estate - construction 3,538,079 5,105,251
Commercial 14,173,095 9,835,866
Installment 2,356,914 2,166,133
Student loans 371,453 438,670
Other 1,101,391 891,669
Net deferred loan origination costs 400,627 383,755
------------- -------------
117,271,605 111,255,648
Allowance for loan losses (838,167) (729,199)
------------- -------------
Loans, net $ 116,433,438 $ 110,526,449
============= =============
Changes in the allowance for loan losses for the years ended December 31, 1999, 1998 and 1997 were as follows:
1999 1998 1997
Balance, beginning of year $ 729,199 $ 609,539 $ 546,954
Provision for loan losses 170,000 150,000 60,000
Recoveries 9,511 41,118 49,443
Loans charged off (70,543) (71,458) (46,858)
--------- --------- ---------
Balance, end of year $ 838,167 $ 729,199 $ 609,539
========= ========= =========
26
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Loans evaluated for impairment, for which an allowance for loan impairment was
not required under SFAS No. 114 due to the adequacy of related collateral values
totaled approximately $1,725,000 and $754,000 at December 31, 1999 and 1998,
respectively. The average recorded investment in these loans during 1999, 1998,
and 1997 was approximately $889,500, $690,500, and $403,500, respectively. If
such loans had been in an accruing status, the Bank would have recorded
additional interest income of approximately $76,000, $71,000 and $58,000 in
1999, 1998 and 1997, respectively.
The Bank had no loan commitments to borrowers in non-accrual status at December
31, 1999.
As of December 31, 1999 and 1998, the Bank had no other loans which were
impaired as defined by SFAS No. 114.
4. PROPERTIES AND EQUIPMENT
Properties and equipment at December 31 were as follows:
1999 1998
Land $ 268,485 $ 268,485
Buildings and improvements 3,648,930 3,362,419
Equipment 3,110,305 2,753,351
----------- -----------
7,027,720 6,384,255
Less accumulated depreciation (3,193,224) (2,687,597)
----------- -----------
Properties and equipment, net $ 3,834,496 $ 3,696,658
=========== ===========
Depreciation expense totaled $506,381 in 1999, $428,020 in 1998, and $423,564 in
1997.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Cash and Cash Equivalents - For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Securities - For securities, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans Receivable - The fair value of fixed rate loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities, net of the appropriate portion of the allowance for loan
losses. For variable rate loans, the carrying amount is a reasonable estimate of
fair value.
Deposits - The fair value of demand deposits, NOW and money market accounts and
regular savings accounts is the amount payable on demand at the reporting date.
The fair value of time deposits is estimated using the rates currently offered
for deposits of similar remaining maturities.
Federal Funds Purchased - The carrying amount of federal funds purchased
approximate their fair values due to their short-term nature.
Other Borrowed Funds - The fair value of the short-term portion of other
borrowed funds approximates its carrying value. The fair value of the long-term
portion of other borrowed funds is estimated using a discounted cash flow
analysis based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Commitments to extend credit and standby letters of credit - As described in
Note 12, the Company was a party to financial instruments with off-balance sheet
risk at December 31, 1999 and 1998. Such financial instruments consist of
commitments to extend permanent financing and letters of credit. If the options
are exercised by the prospective borrowers, these financial instruments will
become interest-earning assets of the Company. If the options expire, the
Company retains any fees paid by the counterparty in order to obtain the
commitment or guarantee. The fair value of commitments is estimated based upon
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present
27
-65-
creditworthiness of the counterparties. For fixed-rate commitments, the fair
value estimation takes into consideration an interest rate risk factor. The fair
value of guarantees and letters of credit is based on fees currently charged for
similar agreements. The fair value of these off-balance sheet items at December
31, 1999 and 1998 approximates the recorded amounts of the related fees, which
are not considered material.
At December 31, 1999 and 1998, the estimated fair values of the Company's
financial instruments were as follows:
1999 1998
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets:
Cash and cash equivalents $ 8,528,778 $ 8,528,778 $ 7,300,780 $ 7,300,780
============ ============ ============ ============
Securities $ 62,999,678 $ 62,999,678 $ 50,059,972 $ 50,059,972
============ ============ ============ ============
Loans $117,271,605 $111,255,648
Less: allowance for loan losses (838,167) (729,199)
------------ ------------
Loans, net $116,433,438 $110,857,593 $110,526,449 $110,804,706
============ ============ ============ ============
Financial Liabilities:
Deposits $169,948,899 $170,018,032 $144,083,636 $144,603,189
============ ============ ============ ============
Federal funds purchased $ 0 $ 0 $ 2,225,000 $ 2,225,000
============ ============ ============ ============
Other borrowings $ 5,000,000 $ 5,000,000 $ 7,000,000 $ 6,986,000
============ ============ ============ ============
6. DEPOSITS
Time deposits, with minimum denominations of $100,000 each, totaled $28,856,320
and $24,208,290 at December 31, 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of time deposits are as follows:
2000 $63,323,268
2001 8,009,272
2002 1,076,732
2003 522,048
2004 442,599
Thereafter 24,012
-----------
$73,397,931
===========
7. FEDERAL FUNDS PURCHASED AND OTHER BORROWED FUNDS
Other borrowed funds consisted of a $5,000,000 long-term borrowing. The
long-term borrowing consisted of various advances with interest rates ranging
from 4.83% to 5.07%. The maturities of other borrowed funds are as follows:
2000 $ 1,000,000
2001 0
2002 1,000,000
2003 2,000,000
2004 1,000,000
- ---- ------------
Total $ 5,000,000
============
28
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8. EMPLOYEE BENEFITS AND DEFERRED COMPENSATION PLAN
The Bank has a defined benefit pension plan covering substantially all
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 amortization method the Bank is using recognizes the prior
service cost and net gains or losses over the average remaining service period
of active employees which exceeds the required amortization.
The following are reconciliations of the benefit obligation and the fair value
of plan assets, the funded status of the plan, the amounts not recognized in the
statements of financial position, and the amounts recognized in the statement of
financial position.
1999 1998
Change in benefit obligation:
Benefit obligation at beginning of year $ 1,696,760 $ 1,518,858
Service cost 89,062 62,689
Interest cost 132,676 117,378
Employer contributions 0 80,333
Actuarial gain (19,488) (45,276)
Benefits paid (47,904) (37,222)
----------- -----------
Benefit obligations at end of year 1,851,106 1,696,760
----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year 1,828,978 1,686,230
Actual return on plan assets 151,320 99,637
Employer contributions 0 80,333
Benefits paid (47,904) (37,222)
----------- -----------
Fair value of plan assets at end of year 1,932,394 1,828,978
----------- -----------
Funded status 81,288 132,218
Unrecognized net actuarial loss (gain) (25,602) 7,831
Unrecognized prior service cost (227,110) (241,817)
----------- -----------
Accrued benefit cost $ (171,424) $ (101,768)
=========== ===========
The Plan's assets are primarily invested in a money market fund, stocks, and
bonds. Valuations of the pension plan as shown above were conducted as of
October 1, 1999 and 1998. Assumptions used by the Bank in both years in the
determination of pension plan information consisted of the following:
Weighted-average discount rate 7.50 %
Rate of increase in compensation levels 4.75 %
Expected long-term rate of return on plan assets 7.50 %
The components of net periodic benefit cost consisted of the following:
1999 1998 1997
Service cost $ 89,062 $ 62,689 $ 51,817
Interest cost 132,676 117,378 104,601
Expected return on plan assets (135,913) (128,242) (106,550)
Net amortization and deferral (16,169) (16,169) (16,169)
--------- --------- ---------
Net periodic benefit cost $ 69,656 $ 35,656 $ 33,699
========= ========= =========
The Bank also maintains a nonqualified supplemental executive retirement plan
covering certain members of senior management. The plan provides a fixed benefit
which is specific to the participant. The obligations related to the plan are
indirectly funded by life insurance contracts (naming the Bank as beneficiary)
with aggregate cash surrender values of approximately $219,000 and $61,000 at
December 31, 1999 and 1998, respectively. The face values of these policies at
both dates were approximately $3,400,000. The Bank uses an actuarial method of
amortizing unrecognized net gains or losses which result from actual
29
-67-
experience and assumptions being different than those that are projected. The
amortization method the Bank is using recognizes the net gains or losses over
the average remaining service period of active employees which exceeds the
required amortization.
The following are reconciliations of the benefit obligation and the fair value
of plan assets, the funded status of the plan, the amounts not recognized in the
statement of financial position, and the amounts recognized in the statement of
financial position.
1999 1998
Change in benefit obligation:
Benefit obligation at beginning of year $ 568,183 $ 480,874
Service cost 83,898 56,415
Interest cost 63,592 40,297
Actuarial (gain) loss 169,579 (9,403)
--------- ---------
Benefit obligation at end of year 885,252 568,183
--------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year 0 0
Actual return on plan assets 0 0
Contributions to the plan 0 0
Benefits paid 0 0
--------- ---------
Fair value of plan assets at end of year 0 0
--------- ---------
Funded status (885,252) (568,183)
Unrecognized net actuarial loss 274,069 156,092
--------- ---------
Accrued benefit cost $(611,183) $(412,091)
========= =========
Valuations of the nonqualified supplemental executive retirement plans as shown
above were conducted as of October 1, 1999 and 1998. Assumptions used by the
Bank in both years in the determination of pension plan information consisted of
the following:
Expected long-term rate of return on plan assets 7.50 %
The components of net periodic benefit cost consisted of the following:
1999 1998 1997
Service cost $ 83,898 $ 56,415 $ 39,900
Interest cost 63,592 40,297 34,194
Net amortization and deferral 51,602 22,215 22,215
-------- -------- --------
Net periodic benefit cost $199,092 $118,927 $ 96,309
======== ======== ========
The Bank also maintains a non-qualified deferred compensation plan for certain
directors. Accrued costs under this plan were approximately $73,000, $70,000 and
$67,000 in 1999, 1998 and 1997, respectively. The estimated present value of the
benefit obligation, included in other liabilities, was $772,000 and $734,000 at
December 31, 1999 and 1998, respectively. This obligation is indirectly funded
by life insurance contracts (naming the Bank as beneficiary) with aggregate cash
surrender values of approximately $171,000 and $159,000 at December 31, 1999 and
1998, respectively. The face values of these policies at both dates was
approximately $1,036,000. Premiums on the aforementioned life insurance
contracts were paid by the Bank in lieu of payment of directors' fees.
The Bank also has a deferred contribution Retirement and Thrift 401(k) Plan for
its employees who meet certain length of service and age requirements. The
provisions of the 401(k) Plan allow eligible employees to contribute between 1%
and 15% of their annual salary, with a matching contribution by the Bank equal
to 25% of the employees contribution up to 4% of their annual salary. The Bank
can also make discretionary contributions to the Plan. The Bank's expense under
this Plan was approximately $39,000, $36,000 and $35,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
30
-68-
9. STOCK OPTION PLAN
On April 21, 1999 the stockholders approved the Company's Stock Option Plan (the
"Plan"). Under the provisions of the Plan, awards, up to an aggregated 85,000
shares of common stock, may be granted for employees and consultants under the
Plan, awards may consist of stock options, stock appreciation rights (SARs), and
Restricted Stock awards. With respect to stock options, the Committee of the
Company's Board of Directors determines the option price (not to be less than
fair market value) at the date of grant. The Committee will determine the
applicable vesting periods for all awards as well as expiration dates, which
will generally not be more than ten years. The Committee is authorized to
determine all terms, restrictions, and conditions for all types of awards under
the Plan. As of December 31, 1999 no awards have been granted.
10. INCOME TAXES
The components of the provision for income taxes were as follows:
1999 1998 1997
Income taxes currently payable $ 769,000 $ 839,000 $ 798,000
Deferred (benefit) income taxes (162,000) (104,000) (74,000)
--------- --------- ---------
Net provision $ 607,000 $ 735,000 $ 724,000
========= ========= =========
At December 31, 1999 and 1998 the components of the net deferred tax asset were
as follows:
1999 1998
Deferred Tax Assets:
Allowance for loan losses $ 265,000 $ 208,000
Pension premiums 313,000 205,000
Deferred compensation 308,000 293,000
Unrestricted gains/losses on securities 696,000 0
Other 38,000 32,000
---------- ----------
Gross deferred tax assets 1,620,000 738,000
---------- ----------
Deferred Tax Liabilities:
Depreciation 24,000 22,000
Prepaid expenses 160,000 153,000
Unrestricted gains/losses on securities 0 209,000
---------- ----------
Gross deferred tax liabilities 184,000 384,000
---------- ----------
Net deferred tax assets $1,436,000 $ 354,000
========== ==========
The net deferred tax asset at December 31, 1999 and 1998 is included in other
assets in the accompanying consolidated financial statements.
31
-69-
The Company's provision for income taxes differs from the amounts computed by
applying the Federal income tax statutory rates to income before income taxes. A
reconciliation of the differences is as follows:
December 31,
------------------------------------------------------------------------------------
1999 1998 1997
Amount Percent Amount Percent Amount Percent
--------- --------- --------- --------- --------- ---------
Tax provision at
statutory rate $ 896,000 34 % $ 945,000 34 % $ 859,000 34 %
Increase (decrease) in
taxes resulting from:
Tax-exempt income (448,000) (17) (373,000) (13) (321,000) (13)
State taxes, net of
federal benefit 159,000 6 162,000 6 136,000 5
Other items, net 0 0 1,000 0 50,000 2
--------- --------- --------- --------- --------- ---------
Provision for income taxes $ 607,000 23 % $ 735,000 27 % $ 724,000 28 %
========= ========= ========= ========= ========= =========
11. RELATED PARTY TRANSACTIONS
The Bank has entered into loan transactions with its directors, significant
shareholders and their affiliates (related parties). The aggregate amount of
loans to such related parties at December 31, 1999 and 1998 was $4,486,346 and
$4,226,739, respectively. During 1999 and 1998, new loans to such related
parties amounted to $11,290,531 and $6,720,286, respectively, and repayments
amounted to $11,030,923 and $6,019,753.
12. 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 December 31, 1999 and 1998 is as follows:
1999 1998
Commitments to extend credit $22,597,000 $21,902,497
Standby letters of credit 1,283,000 1,007,055
----------- -----------
Total $23,880,000 $22,909,552
=========== ===========
Commitments to extend credit and standby letters of credit all 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.
13. CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments and standby letters of credit have been
granted to customers in the Bank's market area. Investments in state and
municipal securities also involve governmental entities within the Bank's market
area. The concentrations of credit by type of loan are set forth in Note 3. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Standby letters of credit were granted primarily to
commercial borrowers. The Bank, as a matter of policy, does not extend credit to
any single borrower or group in excess of 15% of capital.
32
-70-
14. ACQUISITION OF M&W GROUP, INC.
In September 1999, the Company signed a letter of intent to acquire
substantially all of the assets and to assume substantially all of the
liabilities of M&W Group, Inc. a full service insurance agency, for shares of
common stock of the Company. The transaction will be accounted for under the
purchase method of accounting. Closing of the transaction, which is anticipated
during the first quarter of 2000, is subject to reaching a definitive Purchase
Agreement.
15. REGULATORY MATTERS
The Bank is subject to the dividend restrictions set forth by the Comptroller of
the Currency. Under such restrictions, the Bank may not, without the prior
approval of the Comptroller of the Currency, declare dividends in excess of the
sum of the current year's earnings (as defined) plus the retained earnings (as
defined) from the prior two years.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999 and 1998, that
the Bank met all capital adequacy requirements to which it is subject.
As of December 31, 1999 , the most recent notification from its regulators
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios were as follows:
1999
------------------------------------------------------------------------------------------
Minimum To Be Well Capitalized
Minimum For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------- ------------------------ -------------------------
Amount Ratio Amount Ratio Amount Ratio
Total Capital (to Risk
Weighted Assets) $ 20,304,000 16.6 % $ 9,770,000 8.0 % $ 12,213,000 10.0 %
============ ==== ============ === ============ ====
Tier I Capital (to Risk
Weighted Assets) $ 19,466,000 15.9 % $ 4,885,000 4.0 % $ 7,328,000 6.0 %
============ ==== ============ === ============ ===
Tier I Capital
(to Average Assets) $ 19,466,000 10.1 % $ 7,366,000 4.0 % $ 9,207,000 5.0 %
============ ==== ============ === ============ ===
1998
------------------------------------------------------------------------------------------
Minimum To Be Well Capitalized
Minimum For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------------------------- ------------------------ -------------------------
Total Capital (to Risk
Weighted Assets) $ 18,889,000 16.9 % $ 8,926,000 8.0 % $ 11,158,000 10.0 %
============ ==== ============ === ============ ====
Tier I Capital (to Risk
Weighted Assets) $ 18,170,000 16.3 % $ 4,463,000 4.0 % $ 6,695,000 6.0 %
============ ==== ============ === ============ ===
Tier I Capital
(to Average Assets) $ 18,170,000 10.5 % $ 6,599,000 4.0 % $ 8,249,000 5.0 %
============ ==== ============ === ============ ===
33
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16. PARENT COMPANY ONLY FINANCIAL INFORMATION
Parent company (Evans Bancorp, Inc.) only condensed financial information is as
follows:
CONDENSED BALANCE SHEETS
December 31, 1999 and 1998 1999 1998
ASSETS
Cash $ 39,018 $ 38,699
Investment in subsidiary 18,245,920 18,584,714
------------ ------------
Total assets $ 18,284,938 $ 18,623,413
============ ============
STOCKHOLDERS' EQUITY
Stockholders' Equity:
Common stock $ 849,475 $ 849,475
Capital surplus 10,990,720 10,990,720
Accumulated other comprehensive income (1,185,096) 443,308
Retained earnings 7,629,839 6,400,764
------------ ------------
18,284,938 18,684,267
Less: Treasury stock, at cost (1,352 shares at December 31, 1998) 0 (60,854)
------------ ------------
Total stockholders' equity $ 18,284,938 $ 18,623,413
============ ============
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997 1999 1998 1997
Dividends from subsidiary $ 798,195 $ 627,836 $ 509,685
Other revenue 50,000 75,000 50,000
Expenses (49,681) (42,949) (50,249)
----------- ----------- -----------
Income before equity in undistributed earnings of subsidiary 798,514 659,887 509,436
Equity in undistributed earnings of subsidiary 1,228,756 1,383,464 1,292,839
----------- ----------- -----------
Net income $ 2,027,270 $ 2,043,351 $ 1,802,275
=========== =========== ===========
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997 1999 1998 1997
Operating Activities:
Net income $ 2,027,270 $ 2,043,351 $ 1,802,275
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiary (1,228,756) (1,383,464) (1,292,839)
----------- ----------- -----------
Net cash provided by operating activities 798,514 659,887 509,436
Financing Activities - Cash dividends paid (798,195) (627,836) (509,685)
----------- ----------- -----------
Net (increase) decrease in cash 319 32,051 (249)
Cash, beginning 38,699 6,648 6,897
----------- ----------- -----------
Cash, ending $ 39,018 $ 38,699 $ 6,648
=========== =========== ===========
34
-72-
BOARD OF DIRECTORS
Evans Bancorp, Inc. and Evans National Bank
Board of Directors
(standing)
David M. Taylor
President - Concord Nurseries, Inc.
Richard M. Craig
Chairman of the Board
President and CEO -
Evans National Bank
William F. Barrett
Property and Investment Manager
Robert W. Allen
Secretary
Retired
LaVerne G. Hall
Former Chairman - L.G. Hall Building
Contractors, Inc.
(seated)
Phillip Brothman
Partner - Hurst, Brothman & Yusick
Thomas H. Waring, Jr.
Principal - Waring Financial Group
Richard C. Stevenson
Chairman - Evans Land Corp.
David C. Koch
Chairman and CEO -
New Era Cap Co., Inc.
DIRECTORS EMERITUS
Floyd H. Hurst
Carl F. Ulmer
OFFICERS
Evans Bancorp, Inc.
Richard M. Craig, COB
President and CEO
Robert W. Allen
Secretary
James Tilley
Assistant Secretary
William R. Glass
Treasurer
ADVISORY BOARD
Derby
Richard A. Gradl
Raymond S. Hazard
MANAGEMENT TEAM
(left)
Richard M. Craig, Chairman of the
Board, President and CEO;
(center)
William R. Glass, Senior Vice President -
Loan Division;
(right)
James Tilley, Senior Vice President -
Administration
35
-73-
EVANS NATIONAL BANK OFFICERS
CHAIRMAN OF THE BOARD PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Richard M. Craig
SENIOR VICE PRESIDENT
William R. Glass
James Tilley
VICE PRESIDENT
Katherine M. Allen
George L. Catalano
Mary E. Doeing
Emily S. Hazlett
Susan J. Herold
Timothy F. Jachlewski
William J. Gray
Michael R. Noville
Jeffrey M. Werdein
Jeffrey L. White
ASSISTANT VICE PRESIDENT
Rita A. Boyland
Rose Marie Hinckley
Robert A. Hohti
Elizabeth A. Mac
Howard M. Martin, Jr.
Cathy E. Rohrich
Mary Jo Shults
BANK OFFICER
Karen M. Blecha
Michelle A. Bress
Nadine G. Houghton
Lori L. Kuczka
Mary K. Nytz
Mary D. Philbin
CORPORATE INFORMATION
There has never been an organized public trading market for the Company's
outstanding common stock. The following table represents the highest and lowest
per share prices known to management at which the Company's stock has actually
been transferred in private transactions during the periods indicated. In each
period for which prices are shown, management has price information for the
transaction. The prices do not include any retail markup, markdown or
commission.
1999 1998
----------------------------- -------------------------------
Quarter High Low High Low
---------- ----------- --------- -----------
First $ 45.00 $ 45.00 $ 40.00 $ 38.00
Second $ 46.00 $ 45.00 $ 43.00 $ 40.00
Third $ 47.00 $ 46.00 $ 45.00 $ 43.00
Fourth $ 47.00 $ 47.00 $ 45.00 $ 45.00
Total shares outstanding were 1,698,950 as of December 31, 1999. There were
1,193 shareholders of record on December 31, 1999. Upon written request of any
shareholder, a copy of the Company's report on Form 10-K for its fiscal year
ended December 31, 1999, including the financial statements and the schedules
thereto, required to be filed with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, may be obtained, without
charge, from Michelle A. Baumgarden, Evans Bancorp, Inc., 14-16 N. Main Street,
Angola, N.Y. 14006.
THE ANNUAL MEETING
The Annual Meeting of the Shareholders of the Company will be held on Tuesday,
April 18, 2000 at 12:30 p.m. at Romanello's South Restaurant, 5793 South Park
Avenue, Hamburg, NY.
INQUIRIES
For information or assistance regarding individual stock records, transactions,
dividend reinvestment accounts, dividend checks, or stock certificates, contact:
Corporate Trust Services, Fifth Third Bank, 38 Fountain Square Plaza, Mail Drop
1090F5-4129, Cincinnati, OH 45263.