1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For fiscal year ended: December 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 or 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)
Registrant's telephone number (including area code) (716) 549-1000
------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
------------------- ------------------------------------
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.50 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
As of January 31, 2001, the aggregate market value of the registrant's
common stock, $.50 par value, (the "Common Stock") held by nonaffiliates of the
registrant was approximately $66,452,266 based upon the per share sale prices
known to management at which the Company's Common Stock has actually been
transferred in private transactions prior to that date. There is not, and has
never been, an organized public trading market for the registrant's shares.
As of January 31, 2001, 1,759,601 shares of the registrant's Common
Stock were outstanding.
Page 1 of 85
Exhibit Index on Page 35
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Registration Statement on Form 10, as
amended by Amendment Nos. 1 and 2 (Registration No. 0-18539), the Registrant's
Registration Statement on Form S-4 (Registration No. 33-25321), and the
Registrant's Report on form 10-QSB for the period ended March 31, 1995, and the
Registrant's Report on Form 10-KSB for the period ended December 31, 1995 and
the Registrant's Reports on Form 10-Q for the periods ended June 30, 1996, March
31, 1997, September 30, 1999 and March 31, 2000 and the Registrant's Reports on
Form 10-K for the period ended December 31, 1997 and December 31, 1998 are
incorporated by reference in Part IV of this Form 10-K.
Portions of the Registrant's 2000 Annual Report to Shareholders are
incorporated by reference in Part II of this Form 10-K.
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TABLE OF CONTENTS
INDEX
PART I
PAGE
Item 1. BUSINESS.......................................................... 5
Evans Bancorp, Inc. ...............................................5
Evans National Bank ...............................................5
Forward Looking Statements ........................................5
Market Area .......................................................5
Average Balance Sheet Information..................................6
Securities Activities..............................................7
Securities Policy...............................................8
Lending Activities ................................................9
General ........................................................9
Real Estate Loans .............................................10
Commercial Loans...............................................10
Installment Loans..............................................11
Student Loans .................................................11
Other Loans ...................................................11
Direct Financing Lease Loans ..................................11
Loan Maturities................................................12
Loan Losses....................................................12
Sources of Funds - Deposits ......................................14
General .......................................................14
Deposits ......................................................14
Federal Funds Purchased & Other Borrowed Funds.................14
Securities Sold Under Agreements to Repurchase.................14
Asset and Liability Management ...................................15
Monetary Policy ..................................................16
Environmental Matters.............................................16
Competition ......................................................16
Regulation .......................................................16
Subsidiaries of the Bank .........................................18
M&W Agency, Inc ...............................................18
ENB Associates Inc.............................................19
Employees.........................................................19
Item 2. PROPERTIES .......................................................19
Item 3. LEGAL PROCEEDINGS.................................................20
Item 4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS.....................................20
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PART II
Page
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS...................................20
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA..............................22
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS................................22
Item 7a. QUANTATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.................................................29
Item 8. CONSOLIDATED FINANCIAL STATEMENTS ................................29
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES...........................29
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT....................................................29
Item 11. EXECUTIVE COMPENSATION............................................32
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS.................................................33
Item 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS..............................................34
PART IV
Item 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K ...........................35
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Item 1. BUSINESS
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EVANS BANCORP, INC.
Evans Bancorp, Inc. (the "Company") was organized as a New York business
corporation and incorporated under the laws of the State of New York on October
28, 1988 for the purpose of becoming a bank holding company. The Company is
registered with the Federal Reserve Board as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHCA"), and conducts its
business through its wholly-owned subsidiary, Evans National Bank (the "Bank")
and the Bank's wholly-owned subsidiaries, ENB Associates Inc. ("ENB") and M&W
Agency, Inc. ("M&W"). The principal business of the Company, through 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. In addition, the Bank offers deposit products which include
checking and NOW accounts, passbook and statement savings and certificates of
deposit. The Bank also offers electronic banking services including telephone
banking, PC banking, Eas-E check card and is currently developing Internet
Banking.
The Company has no material assets other than its investment in the Bank.
The Company's sole business, therefore, is the ongoing business of the Bank and
its subsidiaries.
EVANS NATIONAL BANK
The Bank was established in 1920 as a national banking association and
currently is regulated by the Comptroller of the Currency. Prior to February
1995, the Bank was known as The Evans National Bank of Angola. Its legal
headquarters is located at 14-16 N. Main Street, Angola, New York 14006.
The Bank is a full service commercial bank offering secured and unsecured
commercial loans, consumer loans, educational loans and mortgages. It also
accepts time and demand deposits.
As of December 31, 2000, the Bank had two subsidiaries, M&W Agency, Inc.
and ENB Associates Inc. See Subsidiaries of the Bank.
As of December 31, 2000, the Bank had total assets of $224,549,143, total
deposits of $186,701,319 and total stockholders' equity of $25,179,072.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K may contain certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1993, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), that involve substantial risks and
uncertainties. When used in this report, or in the documents incorporated by
reference herein, the words "anticipate", "believe", "estimate", "expect",
"intend", "may", and similar expressions identify such forward-looking
statements. Actual results, performance or achievements could differ materially
from those contemplated, expressed or implied by the forward-looking statements
contained herein. These forward-looking statements are based largely on the
expectations of the Company or the Company's management and are subject to a
number of risks and uncertainties, including but not limited to economic,
competitive, regulatory, and other factors affecting the Company's operations,
markets, products and services, as well as expansion strategies and other
factors discussed elsewhere in this report filed by the Company with the
Securities and Exchange Commission. Many of these factors are beyond the
Company's control.
MARKET AREA
The Bank's primary market area is located in southern Erie County, northern
Chautauqua County and northwestern Cattaraugus County, which includes the towns
of Evans, Boston, Hamburg, Eden, Orchard Park, West Seneca and Hanover. This
market area is the primary area where the Bank receives deposits and makes
loans.
AVERAGE BALANCE SHEET INFORMATION
The table on the following page presents the significant categories of the
assets and liabilities of the Company,
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interest income and interest expense, and the corresponding yields earned and
rates paid for the last two years. The assets and liabilities are presented as
daily averages. The average loan balances include both performing and
nonperforming loans. Interest income on loans does not include interest on loans
for which the Bank has ceased to accrue interest. Interest and yield are not
presented on a tax-equivalent basis.
2000 1999
---- ----
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
ASSETS ($000) ($000) ($000) ($000)
Interest-earning assets:
Loans, Net $121,788 $10,616 8.72% $109,780 $9,295 8.47%
Taxable securities 37,715 2,746 7.28% 27,596 1,762 6.38%
Tax-exempt securities 33,385 1,550 4.64% 29,812 1,318 4.42%
Federal funds sold 2,626 159 6.05% 3,648 180 4.93%
------- ----- ----- ------- ------ -----
Total interest-earning assets 195,514 15,071 7.71% 170,836 12,555 7.35%
Noninterest-earning assets
Cash and due from banks 6,768 6,422
Premises and equipment, net 3,790 3,764
Other assets 4,907 3,119
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Total $210,979 $184,141
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LIABILITIES & SHAREHOLDER'S EQUITY
Interest-bearing liabilities:
NOW accounts $8,668 85 .98% $7,721 76 .98%
Savings deposits 60,420 1,664 2.75% 55,308 1,437 2.60%
Time deposits 77,073 4,328 5.61% 64,754 3,209 4.96%
Fed Funds Purchased & Securities
Sold U/A to Repurchase 8,343 414 4.96% 7,251 321 4.43%
------- ----- ----- ------- ------ -----
Total interest-bearing liabilities 154,504 6,491 4.20% 135,034 5,043 3.73%
Noninterest-bearing liabilities:
Demand deposits 33,974 28,273
Other 2,361 2,136
Total liabilities 190,839 165,443
Shareholders' equity 20,140 18,698
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Total $210,979 $184,141
======== ========
Net interest earnings $8,580 $7,512
====== ======
Net yield on interest earning assets 4.40% 4.40%
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In 2000, the Company's interest income increased by $2,515,926 over 1999,
compared to an increase of $703,056 in 1999 over 1998. Also, interest expense on
deposits increased by $1,447,364 in 2000 over 1999 compared to an increase of
$96,586 in 1999 over 1998. The following table segregates these changes for the
past two years into amounts attributable to changes in volume and changes in
rates by major categories of assets and liabilities. The change in interest due
to both volume and rate has been allocated to volume and rate changes in
proportion to the relationship of the absolute dollar amounts of the change in
each.
2000 Compared to 1999 1999 Compared to 1998
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------------------------------------------------------------
($000)
Volume Rate Total Volume Rate Total
------ ---- ------ ------ ------ -----
Interest earned on:
Loans $1,040 $281 $1,321 $462 $ (502) $(40)
Taxable securities 707 277 984 375 54 429
Tax-exempt securities 163 69 232 256 (36) 220
Federal funds sold (77) 56 (21) 101 (70) 94
Time deposits in other banks 0 0 0 0 0 0
------ ---- ------ ------ ------ ----
Total interest-earning assets $1,833 $683 $2,516 $1,194 $ (491) $703
====== ==== ====== ====== ====== ====
Interest paid on:
NOW accounts $9 $0 $9 $4 $1 $5
Savings deposits 138 89 227 213 (57) 156
Time deposits 656 462 1,118 78 (268) (190)
Federal Funds Purchased & 57 36 93 148 (23) 125
Securities Sold U/A Repurch.
------ ---- ------ ------ ------ ----
Total interest-bearing liabilities $860 $587 $1,447 $443 $ (347) $ 96
====== ==== ====== ====== ====== ====
SECURITIES ACTIVITIES
Income from securities represented approximately 28.5% of total interest
income of the Company in 2000 and approximately 24.5% of total interest income
of the Company in 1999. At December 31, 2000, the Bank's securities portfolio of
$73,121,218 consisted primarily of United States ("U.S.") and federal agency
obligations, state and municipal securities, corporate bonds and mortgage-backed
securities issued by the Government National Mortgage Association, Federal
National Mortgage Association and Federal Home Loan Mortgage Corp.
In 1994, the Bank adopted Statement of Financial Accounting Standard No.
115, "Accounting for Certain Investments in Debt and Equity Securities." As a
result, all securities in the Bank's portfolio are either designated as "held to
maturity" or "available for sale".
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The following table summarizes the Bank's securities with those designated
as available for sale at fair value and securities designated as held to
maturity valued at amortized cost as of December 31, 2000 and 1999:
2000 1999
($000) ($000)
------- -------
Available for Sale:
U.S. Treasury and other U.S. government agencies $39,487 $29,299
States and political subdivisions in the U.S. 28,894 29,077
Other 1,265 1,175
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Total Securities Designated as Available for Sale $69,646 $59,551
======= =======
Held to Maturity:
U.S. Treasury and other U.S. government agencies $42 $47
States and political subdivisions in the U.S. 3,433 3,405
Total Securities Designated as Held to Maturity $3,475 $3,449
------- -------
Total Securities $73,121 $63,000
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SECURITIES POLICY. The Bank's asset liability management policy encompasses the
areas of securities, capital, liquidity and interest sensitivity. The primary
objective of the securities portfolio is to provide liquidity while maintaining
safety of principal. Secondary objectives include investment of funds in periods
of decreased loan demand, interest sensitivity considerations, providing
collateral to secure local municipal deposits, supporting local communities
through the purchase of tax-exempt securities and tax planning considerations.
The Board of Directors of the Bank is responsible for establishing overall
policy and reviewing performance.
The Bank's policy provides that acceptable portfolio investments include:
U.S. Government obligations, obligations of federal agencies, municipal
obligations (general obligations, revenue obligations, school districts and
non-rated issues from Bank's general market area), banker's acceptances,
certificates of deposit, Industrial Development Authority Bonds, Public Housing
Authority Bonds, corporate bonds (each corporation limited to the Bank's legal
lending limit), and collateral mortgage obligations, Federal Reserve stock and
Federal Home Loan Bank stock.
The Bank's securities policy is that in-state securities must be rated
Moody's BAA (or equivalent) at the time of purchase. Out-of-state issues must be
rated AA (or equivalent) at the time of purchase. Bonds or securities rated
below A will be reviewed periodically to assure their continued credit
worthiness. The purchase of non-rated municipal securities is permitted, but
limited to those bonds issued by municipalities in the Bank's general market
area which, in the Bank's judgment, possess no greater credit risk than BAA (or
equivalent) bonds. The annual budgets of the issuers are reviewed by the Bank
and a credit file of the issuers is kept on each non-rated municipal security
with relevant financial information. In addition, the Bank's loan policy permits
the purchase of notes issued by various states and municipalities which have not
been rated by Moody's or Standard & Poors. The securities portfolio of the Bank
is priced and rated on a monthly basis.
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The following table sets forth the maturities and weighted average interest
yields of the Bank's securities portfolio (yields on tax-exempt obligations have
been computed on a tax-equivalent basis) as of December 31, 2000:
Maturing
---------------------- ----------------------- ---------------------- ---------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
---------------------- ----------------------- ---------------------- ---------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
($000) ($000) ($000) ($000)
CLASSIFIED AS AVAILABLE FOR SALE AT
FAIR VALUE:
U.S. Treasury and other U.S. $0 0% $3,403 6.96% $13,704 7.68% $22,380 7.08%
government agencies
States and political subdivisions 432 6.48 5,385 7.02 10,332 7.30 12,745 7.93
Other 1,265 6.47 0 0.00 0 0.00 0 0.00
------ ------ ------- -------
Total Available for Sale 1,697 6.47 8,788 7.00 24,036 7.52 35,125 7.39
CLASSIFIED AS HELD TO MATURITY AT
AMORTIZED COST:
U.S. Treasury and other U.S. 0 0.00 0 0.00 0 0.00 42 0.00
government agencies
States and political subdivisions 2,455 6.83 656 7.28 181 8.08 141 8.82
------ ------ ------- -------
Total Held to Maturity 2,455 6.83 656 7.28 181 8.08 183 6.79
------ ------ ------- -------
Total Securities $4,152 6.69 $9,444 7.02 $24,217 7.53 $35,308 7.39
====== ====== ======= =======
At December 31, 2000, approximately $39,529,000 of the Bank's securities
portfolio were obligations of the U.S. Treasury and other U.S. government
agencies.
LENDING ACTIVITIES
GENERAL. The Bank has a loan policy which is approved by the Board of
Directors on an annual basis. The loan policy addresses the lending authorities
of Bank officers, charge off policies, desired portfolio mix, and loan approval
guidelines.
The Bank offers a variety of loan products to its customers including
residential and commercial real estate mortgage loans, commercial loans,
installment loans and student loans. The Bank primarily extends loans to
customers located within the Western New York area. Income on loans represented
approximately 70.4% of the total interest income of the Company in 2000 and
approximately 74.0% of total interest income in 1999. The Bank's loan portfolio
after unearned discounts, loan origination costs and allowances for credit
losses totalled $128,779,052 and $116,433,438 at December 31, 2000 and December
31, 1999, respectively. At December 31, 2000, the Bank had established
$1,428,467 as an allowance for loan losses which is approximately 1.11% of total
loans. This compares with $838,167 at December 31, 1999 which was approximately
0.72% of total loans. The increase to the provision for loan losses reflects the
assessment of the New York State economy, the local economy and is in accordance
with regulations promulgated by the Office of the Comptroller of the Currency.
The net loan portfolio represented approximately 57.4% and 58.6% of the Bank's
total assets at December 31, 2000 and December 31, 1999, respectively.
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REAL ESTATE LOANS. Approximately 83.9% of the Bank's loan portfolio at
December 31, 2000 consisted of real estate loans or loans collateralized by
mortgages on real estate including residential mortgages, commercial mortgages
and other types of real estate loans. The Bank's real estate loan portfolio was
$109,183,854 at December 31, 2000, compared to $98,868,125 at December 31, 1999.
The real estate loan portfolio increased approximately 10.4% in 2000 over 1999
compared to an increase of 1.4% in 1999 over 1998.
The Bank offers fixed rate residential mortgages with terms of ten to thirty
years with up to an 80% loan-to-value ratio. Fixed rate residential mortgage
loans outstanding totaled $21,991,107 at December 31, 2000, which was
approximately 16.9% of total loans outstanding. In 1995, the Bank entered into a
contractual arrangement with the Federal National Mortgage Association ("FNMA")
whereby mortgages can be sold to FNMA and the Bank retains the servicing rights.
In 2000, approximately $705,200 of mortgages were sold to FNMA under this
arrangement compared to $4,354,561 of mortgages sold in 1999. The Bank currently
retains the servicing rights on $8.9 million in mortgages sold to FNMA.
Since 1993 the Bank has offered adjustable rate residential mortgages with
terms of up to thirty years. Rates on these mortgages remain fixed for the first
three years and are adjusted annually thereafter. On December 31, 2000, the
Bank's outstanding adjustable rate mortgages were $2,235,916 or 1.7% of total
loans. This balance did not include any construction mortgages.
The Bank also offers commercial mortgages with up to a 75% loan-to-value
ratio for up to fifteen years on a variable and fixed rate basis. Many of these
mortgages either mature or are subject to a rate call after three to five years.
The Bank's outstanding commercial mortgages were $61,627,630 at December 31,
2000, which was approximately 47.3% of total loans outstanding. This balance
included $5,655,736 in fixed rate and $55,971,894 in variable rate loans, which
include rate calls.
The Bank also offers other types of loans collateralized by real estate such
as home equity loans. The Bank offers home equity loans at variable and fixed
interest rates with terms of up to fifteen years and up to an 80% loan-to-value
ratio. At December 31, 2000, the real estate loan portfolio included $19,971,137
of home equity loans outstanding which represented approximately 15.3% of its
total loans outstanding. This balance included $8,976,245 in variable rate and
$10,994,892 in fixed rate loans.
The Bank also offers both residential and commercial real
estate-construction loans at up to an 80% loan-to-value ratio at fixed interest
or adjustable interest rates and multiple maturities. At December 31, 2000,
fixed rate real estate-construction loans outstanding were $563,200 or 0.43% of
the Bank's loan portfolio, and adjustable rate construction loans outstanding
were $1,402,355 or 1.1% of the portfolio.
As of December 31, 2000, approximately $1,966,000 or 1.8% of the Bank's real
estate loans were 30 to 90 days delinquent, $256,000 or 0.23% of the bank's real
estate loans were more than 90 days delinquent and approximately $1,070,000 or
0.98% of real estate loans were nonaccruing.
COMMERCIAL LOANS. The Bank offers commercial loans on a secured and
unsecured basis including lines of credit and term loans at fixed and variable
interest rates and multiple maturities. The Bank's commercial loan portfolio
totaled $14,783,192 and $14,173,095 at December 31, 2000 and December 31, 1999,
respectively. Commercial loans represented approximately 11.4% and 12.1% of the
Bank's total loans at December 31, 2000 and December 31, 1999, respectively.
As of December 31, 2000, approximately $72,000 or 0.49% of the Bank's
commercial loans were 30 to 90 days past due and $125,000 or 0.85% of its
commercial loans were nonaccruing.
Commercial lending entails significant additional risk as compared with real
estate loans. Collateral, where applicable, may consist of inventory,
receivables, equipment and other business assets. Approximately fifty-five
percent of the Bank's commercial loans are variable rate which are tied to the
prime rate.
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INSTALLMENT LOANS. The Bank's installment loan portfolio (which includes
commercial and automobile loans, personal loans and revolving credit card
balances) totaled $3,140,291 and $2,356,914 at December 31, 2000 and December
31, 1999, respectively, representing approximately 2.4% of the Bank's total
loans at December 31, 2000 and 2.0% of the Bank's total loans at December 31,
1999. Traditional installment loans are offered at fixed interest rates with
various maturities up to 60 months, on a secured and unsecured basis. On
December 31, 2000, the installment loan portfolio included $257,665 in fixed
rate card balances at an interest rate of 15.6% and $39,071 in the variable rate
option. As of December 31, 2000, approximately $16,000 or 0.51% of the Bank's
installment loans were 30-90 days past due and approximately $9,000 or 0.29% of
the Bank's installment loans were more than 90 days past due.
STUDENT LOANS. The Bank's student loan portfolio totaled $337,536 at
December 31, 2000 and $371,453 at December 31, 1999. Student loans represented
0.26% of the Bank's total loans at December 31, 2000 and 0.3% of the Bank's
total loans at December 31, 1999. These loans are guaranteed by the federal
government and the New York State Higher Education Assistance Corporation. The
Bank offers student loans at variable interest rates with terms of up to 10
years. In 1995, the Bank entered into a contract with the Student Loan Marketing
Association ("SLMA"). Under terms of this agreement, SLMA services the Bank's
loans to students who are still in school and subsequently purchases those loans
when the student goes into repayment. The Bank sold $800,135 and $873,257 of its
student loans to SLMA in 2000 and 1999 respectively. Student loan products
include Federal Plus and HEAL loans.
OTHER LOANS. Other loans totaled $1,350,205 at December 31, 2000 and
$1,101,391 at December 31, 1999. Other loans consisted primarily of loans to
municipalities, hospitals, churches and non-profit organizations. These loans
are at fixed or variable interest rates with multiple maturities. Other loans
also include overdrafts.
DIRECT FINANCING LEASE LOANS. The Bank participates as a lessor in a leasing
agreement that is classified as a direct financing lease. The direct financing
lease loan totaled $1,040,722 at December 31, 2000. This loan represented 0.80%
of the Bank's total loans at December 31, 2000.
The Bank's ability to lend larger amounts to any one borrower is subject to
regulation by the Comptroller of the Currency. The Bank continually monitors its
loan portfolio to review compliance with new and existing regulations.
The following table summarizes the major classifications of the Bank's loans
(net of deferred origination costs) at December 31, 2000, and 1999:
December 31,
-------------------------
2000 1999
------- -----
($000)
Real Estate $109,184 $98,868
Commercial 14,783 14,173
Installment 3,140 2,357
Student Loans 337 371
All Other 1,350 1,101
Direct Financing Lease 1,041 0
Net deferred loan origination costs 372 401
Total Loans 130,207 117,271
------- -------
Allowance for credit losses (1,428) (838)
------- -----
Net loans $128,779 $116,433
======== ========
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LOAN MATURITIES. The following table shows the maturities of commercial and
real estate construction loans outstanding as of December 31, 2000 and the
classification of loans due after one year according to sensitivity to changes
in interest rates:
($000)
0-1 Yr. 1-5 Yrs. Over 5 Yrs. Total
------- -------- ----------- -----
Commercial $4,741 $5,408 $4,634 $14,783
Real estate construction 1,411 554 0 1,965
----- --- - -----
$6,152 $5,962 $4,634 $16,748
====== ====== ====== =======
Loans maturing after one year with:
Fixed rates $3,933 $96
Variable rates 2,029 4,538
----- -----
$5,962 $4,634
====== ======
LOAN LOSSES. The following table summarizes the Bank's non-accrual and past due
loans as of December 31, 2000 and December 31, 1999. The Bank had no
restructured loans as of those dates. Any loans classified for regulatory
purposes as loss, doubtful, substandard or special mention that have not been
disclosed do not (i) represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity or capital resources, or (ii) represent material credit about which
management has serious doubts as to the ability of such borrowers to comply with
the loan repayment terms. See also "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Results of Operations -
Provision for Loan Losses."
2000 1999
---- ----
($000)
Nonaccrual loans $1,195 $1,725
Accruing loans past due 90 days or more 265 47
--- --
Total $1,460 $1,772
====== ======
Information with respect to nonaccrual loans at December 31, 2000 and December
31, 1999 is as follows:
2000 1999
---- ----
($000)
Nonaccrual loans $1,195 $1,725
Interest income that would have been recorded 78 76
under the original terms
Interest income recorded during the period 70 43
At December 31, 2000, $1,195,000 of nonaccrual loans are collateralized.
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The following tables summarize the Bank's allowance for loan losses and
changes in the allowance for credit losses by loan categories:
ANALYSIS OF CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
2000 1999
---- ----
BALANCE AT BEGINNING OF YEAR $838,167 $729,199
CHARGE-OFFS
Commercial, Financial, Agricultural (53,799) (26,130)
Real Estate - Mortgages (47,794) (25,447)
Installment Loans (3,463) (18,966)
------ -------
TOTAL CHARGE-OFFS (105,056) (70,543)
RECOVERIES
Commercial, Financial, Agricultural 238 500
Real Estate - Mortgages 1,368 384
Installment Loans 4,750 8,138
Overdrafts 0 489
- ---
TOTAL RECOVERIES 6,356 9,511
----- -----
NET CHARGE-OFFS (98,700) (61,032)
ADDITIONS CHARGED TO OPERATIONS 689,000 170,000
------- -------
BALANCE AT END OF YEAR $1,428,467 $838,167
========== ========
The increase to the allowance for loan losses reflects the continued growth
trend in commercial loans and the Bank's assessment of the local and New York
State economic environment. Both have lagged behind national prosperity. In the
event of an economic downturn, the Bank's market would be more susceptible to
potential credit problems due to the marginal job growth, the declining
population base and the concentration of loans in commercial real estate. The
Bank's increase to the allowance in the fourth quarter of 2000 is in accordance
with the regulations promulgated by the Office of the Comptroller of the
Currency.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
Balance at Balance at Percent of Loans
12/31/00 12/31/99 in Each Category
Attributable to: Attributable to: to Total Loans:
---------------- ---------------- ----------------
2000 1999
----- -----
Real Estate Loans $600,206 $716,035 84.1% 84.7%
Commercial Loans & Leases 95,528 50,297 12.2 12.1
Installment Loans
(Includes Credit Cards) 65,992 56,203 2.4 2.0
Student Loans 0 0 0.3 0.3
All Other Loans 0 0 1.0 0.9
Unallocated 666,741 15,632 n/a n/a
---------- -------- ----- -----
Total $1,428,467 $838,167 100.0% 100.0%
========== ======== ===== =====
14
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SOURCES OF FUNDS - DEPOSITS
GENERAL. Customer deposits represent the major source of the Bank's funds
for lending and other investment purposes. In addition to deposits, other
sources of funds include loan repayments, loan sales on the secondary market,
interest and dividends from investments, matured investments, and borrowings
from the Federal Reserve Bank, Federal Home Loan Bank and First Tennessee Bank.
DEPOSITS. The Bank offers a variety of deposit products including checking,
passbook, statement savings, money market, NOW accounts, certificates of deposit
and jumbo certificates of deposit. Deposits of the Bank are insured up to the
limits provided by the Federal Deposit Insurance Corporation ("FDIC"). At
December 31, 2000, the Bank's deposits totalled $186,701,319 consisting of the
following:
Demand deposits $ 36,607,680
NOW and Money Market accounts 9,550,131
Regular savings 58,142,285
Time deposits, $100,000 and over 30,779,658
Other time deposits 51,621,565
------------
Total $186,701,319
============
The following table shows daily average deposits and average rates paid on
significant deposit categories by the Bank:
2000 1999
---------------- ----------------
Weighted Weighted
Average Average Average Average
Balance Rate Balance Rate
($000) ($000)
Demand Deposits $ 33,973 ---% $ 28,273 ---%
NOW and Money Market Accounts 8,668 .98% 7,721 .98%
Regular Savings 60,056 2.77% 55,308 2.60%
Time Deposits 77,073 5.61% 64,754 4.96%
------ ------
Total $179,770 3.38% $156,056 3.03%
======== ========
The Bank has a very stable deposit base and no material amount of deposits
is obtained from a single depositor or group of depositors (including federal,
state and local governments). The Bank has not experienced any significant
seasonal fluctuations in the amount of its deposits.
FEDERAL FUNDS PURCHASED AND OTHER BORROWED FUNDS. Another source of the Bank's
funds for lending at December 31, 2000 consisted of long term borrowings from
the Federal Home Loan Bank.
Other borrowed funds consisted of a $4,409,068 long-term borrowing.
$4,000,000 of the long-term borrowings consisted of various advances from the
Federal Home Loan Bank with interest rates ranging from 4.83% to 5.07%. The
maturities of other borrowed funds are as follows:
2001 $409,068
2002 1,000,000
2003 2,000,000
2004 1,000,000
---------
Total $ 4,409,068
------------
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. The Bank enters into agreements
with depositors to sell to the depositors securities owned by the Bank and
repurchase the identical security, generally within one day. No physical
15
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movement of the securities is involved. The depositor is informed the securities
are held in safekeeping by the Bank on behalf of the depositor. Securities sold
under agreements to repurchase totaled $3,869,172 at December 31, 2000 compared
to $3,699,829 at December 31, 1999.
ASSET AND LIABILITY MANAGEMENT
Like all financial institutions, the Bank must constantly monitor its
exposure to interest rate risk. Proper management of interest sensitive funds is
necessary to help secure the Bank's earnings against extreme changes in interest
rates. In 1995, an Asset/Liability Management Committee ("ALCO") was established
for the purpose of evaluating the Bank's short-range and long-range liquidity
position and the potential impact of a sudden change in interest rates on the
Bank's capital and earnings. Specific minimum guidelines for liquidity and
capital ratios have been established, and maximum guidelines have been set for
the negative impact acceptable on net interest income and the market value of
assets as a result of a shift in interest rates. These guidelines have been
delineated in the Bank's formal Asset/Liability Policy which also includes
guidelines for investment activities and funds management. The ALCO meets
regularly to review the Bank's liquidity, gap, interest rate risk and capital
positions and to formulate its strategy based on current economic conditions,
interest rate forecasts, loan demand, deposit volatility and the Bank's earnings
objectives.
The following table summarizes the interest rate sensitivity analysis for
the Bank as of December 31, 2000 for the periods indicated:
0 to 3 4 to 12 One to Five Over Five
Months Months Years Years
------ ------ ----- -----
(in millions)
Interest-sensitivity assets $42.8 $26.5 $ 86.2 $47.6
Interest-sensitivity liabilities 46.4 35.9 108.0 4.7
----- ------ ------ -----
Interest sensitivity gap $(3.6) $(9.4) $(21.8) $42.9
===== ====== ====== =====
The primary assets and liabilities in the one year maturity range are
securities, commercial loans and time deposits. As of December 31, 2000, the
Bank's cumulative one year gap ratio (rate sensitive assets divided by rate
sensitive liabilities) was .84 as compared to .72 at December 31, 1999 and .81
as of December 31, 1998. The Bank has more liabilities than assets repricing
over the next twelve months. However, since liabilities tend to reprice less
quickly than assets, management believes that earnings will not be significantly
impaired should rates rise.
The following schedule sets forth the maturities of the Bank's time
deposits as of December 31, 2000:
Time Deposit Maturity Schedule
------------------------------
(in millions)
0-3 3-6 6-12 Over
Mos. Mos. Mos. 12 Mos. Total
Time deposits - $100,000 and over $21.1 $3.2 $4.0 $2.5 $30.8
Other time deposits 10.0 6.4 13.2 22.0 51.6
---- --- ---- ---- ----
Total time deposits $31.1 $9.6 $17.2 $24.5 $82.4
===== ==== ===== ===== =====
16
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MONETARY POLICY
The earnings of the Company and the Bank are also affected by the monetary
policy of the Federal Reserve Board. An important function of the Federal
Reserve System is to regulate the money supply and prevailing interest rates.
Among the instruments used to implement those objectives are open market
operations in U.S. Government securities and changes in reserve requirements
against member bank deposits. These instruments are used in varying combinations
to influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans by the
Bank or paid on its deposits
ENVIRONMENTAL MATTERS
To date, the Bank has not been required to perform any investigation or
clean-up activities, nor has it been subject to any environmental claims. There
can be no assurance, however, that this will remain the case in the future.
In the course of its business, the Bank has acquired and may acquire in the
future, property securing loans that are in default. There is a risk that the
Bank could be required to investigate and clean-up hazardous or toxic substances
or chemical releases at such properties after acquisition by the Bank, and may
be held liable to a governmental entity or third parties for property damage,
personal injury and investigation and clean-up costs incurred by such parties in
connection with such contamination. In addition, the owner or former owners of
contaminated site may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from such
property.
COMPETITION
All phases of the Bank's business are highly competitive. The Bank competes
actively with local commercial banks as well as other commercial banks with
branches in the Bank's market area of southern Erie County, northern Chautauqua
County, and Northwestern Cattaraugus County, New York. The Bank considers its
major competition to be HSBC Bank USA (formerly Marine Midland Bank) and
Manufacturers and Traders Trust Company, both headquartered in Buffalo, New
York. Other major competition consists of Key Bank, N.A., and Fleet National
Bank of New York, both headquartered in Albany, New York and also First Niagara
Bank (formerly Lockport Savings Bank), headquartered in Lockport, New York.
Additional competition includes Charter One Bank, headquartered in Cleveland,
Ohio and Citibank, NA, headquartered in Rochester, New York. The Bank is
generally competitive with all financial institutions in its service area with
respect to interest rates paid on time and savings deposits, service charges on
deposit accounts, and interest rates charged on loans.
REGULATION
The operations of the Bank are subject to federal and state statutes
applicable to banks chartered under the banking laws of the United States, to
members of the Federal Reserve System and to banks whose deposits are insured by
the Federal Deposit Insurance Corporation ("the FDIC"). Bank operations are also
subject to regulations of the Comptroller of the Currency, the Federal Reserve
Board, the FDIC and the New York State Banking Department.
The primary supervisory authority of the Bank is the Comptroller of the
Currency, who regularly examines the Bank. The Comptroller of the Currency has
the authority under the Financial Institutions Supervisory Act to prevent a
national bank from engaging in an unsafe or unsound practice in conducting its
business.
Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, the investments a bank may make, the reserves
against deposits a bank must maintain, the loans a bank makes and collateral it
takes, the activities of a bank with respect to mergers and consolidations and
the establishment of branches. Branches may be established within the permitted
areas of New York State only after approval by the Comptroller of the Currency.
A subsidiary bank (such as the Bank) of a bank holding company is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries and on
taking such stock or securities as
17
-17-
collateral for loans. The Federal Reserve Act and Federal Reserve Board
regulations also place certain limitations and reporting requirements on
extensions of credit by a bank to principal shareholders of its parent holding
company, among others, and to related interests of such principal shareholders.
In addition, such legislation and regulations would affect the terms upon which
any person becoming a principal shareholder of a holding company may obtain
credit from banks with which the subsidiary bank maintains a correspondent
relationship.
Federal law also prohibits acquisitions of control of a bank holding company
(such as the Company) without prior notice to certain federal bank regulators.
Control is defined for this purpose as the power, directly, or indirectly, to
direct the management or policies of the bank or bank holding company or to vote
25% or more of any class of voting securities of the bank holding company.
In addition to the restrictions imposed upon a bank holding company's
ability to acquire control of additional banks, federal law generally prohibits
a bank holding company from acquiring a direct or indirect interest in, or
control of 5% or more of the outstanding voting shares of any company, and from
engaging directly or indirectly in activities other than that of banking,
managing or controlling banks or furnishing services to subsidiaries, except
that a bank holding company may engage in, and may own shares of companies
engaged in certain activities found by the Federal Reserve Board to be closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
The Gramm-Leach-Bliley Act of 1999 modernizes the laws regarding the
financial services industry by expanding considerably the powers of banks and
bank holding companies to sell financial products and services. The Act
authorizes operating subsidiaries of national banks to sell financial products
without geographic limitation, reforms the Federal Home Loan Bank system to
increase access to loan funding, protects banks from certain state insurance
regulation considered discriminatory and includes new provision in the area of
privacy and customer information. The Bank utilized the provisions of this act
to commence the operations of M&W Agency, Inc. and ENB Associates Inc.
From time to time, various types of federal and state legislation have been
proposed that could result in additional regulation of, and restrictions on, the
business of the Bank. It cannot be predicted whether any such legislation will
be adopted or how such legislation would affect the business of the Bank. As a
consequence of the extensive regulation of commercial banking activities in the
United States, the Bank's business is particularly susceptible to being affected
by federal legislation and regulations that may increase the costs of doing
business.
Under the Federal Deposit Insurance Act, the Comptroller of the Currency
possesses the power to prohibit institutions regulated by it (such as the Bank)
from engaging in any activity that would be an unsafe and unsound banking
practice or would otherwise be in violation of law. Moreover, the Financial
Institutions and Interest Rate Control Act of 1978 ("FIRA") generally expands
the circumstances under which officers or directors of a bank may be removed by
the institution's federal supervisory agency, restricts lending by a bank to its
executive officers, directors, principal shareholders or related interests
thereof, restricts management personnel of a bank from serving as directors or
in other management positions with certain depository institutions whose assets
exceed a specified amount or which have an office within a specified geographic
area, and restricts management personnel from borrowing from another institution
that has a correspondent relationship with their bank. Additionally, FIRA
requires that no person may acquire control of a bank unless the appropriate
federal supervisory agency has been given 60 days prior written notice and
within that time has not disapproved of the acquisition or extended the period
for disapproval.
Under the Community Reinvestment Act of 1977, the Comptroller of the
Currency is required to assess the record of all financial institutions
regulated by it to determine if these institutions are meeting the credit needs
of the community (including low and moderate income neighborhoods) which they
serve and to take this record into account in its evaluation of any application
made by any such institutions for, among other things, approval of a branch or
other deposit facility, office relocation, a merger or an acquisition of bank
shares.
The Company must give prior notice to the Federal Reserve Board of certain
purchases or redemptions of its outstanding equity securities. The Federal
Reserve Board has adopted capital adequacy guidelines for bank holding companies
(on a consolidated basis) substantially similar to those that apply to the Bank.
Under guidelines adopted in January 1989, bank holding companies with at least
$150 million in assets are required to maintain a ratio of qualifying total
capital to weighted risk assets of at least 8% effective December 31, 1993. For
bank holding companies with less than $150 million in assets, the
above-described ratio will not apply on a consolidated basis, but
18
-18-
will apply on a bank-only basis unless (i) the parent holding company is engaged
in non-bank activities involving significant leverage, or (ii) the parent
holding company has a significant amount of outstanding debt held by the general
public. The Federal Reserve Board has the discretionary authority to require
higher capital ratios.
In connection with the risk-based capital framework applicable to bank
holding companies described above, the Federal Reserve Board applies a
risk-based capital framework for Federal Reserve member banks, such as the Bank.
The framework requires banks to maintain minimum capital levels based upon a
weighing of their assets according to risk. Since December 31, 1992, Federal
Reserve member banks have been required to maintain a ratio of qualifying total
capital to risk-weighted assets of a minimum of 8%, and Tier 1 Capital to Assets
ratio of 4%. A minimum leverage ratio of 3% is required for banks with the
highest regulatory examination ratings and not contemplating or experiencing
significant growth or expansion. All other banks are required to maintain a
minimum leverage ratio of at least 1-2% above the stated minimum leverage ratio
of 3%.
A comparison of the Bank's capital ratios as of December 31, 2000 and
December 31, 1999 with these minimum requirements is presented below:
Bank
-----------------------
Minimum
2000 1999 Requirements
---- ---- ------------
Total Risk-based Capital 16.6% 16.6% 8%
Tier 1 Risk-based Capital 15.6% 15.9% 4%
Leverage Ratio 9.9% 10.1% 3-5%
As of December 31, 2000, the Bank met all three capital requirements.
Management is not aware of any known trends, events, uncertainties, or
current regulatory recommendations that will have, or that are reasonably
likely, to have a material effect on the Bank's liquidity, capital resources or
operations.
SUBSIDIARIES OF THE BANK
M&W AGENCY, INC. Effective September 1, 2000, the Company completed its
previously announced acquisition of the assets, business and certain liabilities
of M&W Group, Inc., a retail property and casualty insurance agency
headquartered at Silver Creek, New York, with offices located in Angola, North
Collins, South Dayton, Cattaraugus, Randolph and West Seneca, New York. The
insurance agency acquired will be operated through M&W Agency, Inc. ("M&W"), a
newly formed operating subsidiary of the Bank.
M&W's legal headquarters are located at 265 Central Ave., Silver Creek, New
York 14136. M&W is a full-service insurance agency offering personal, commercial
and financial services products. It also has a small consulting department. As
of December 31, 2000, on an annualized basis, M&W had a premium volume of
$13,000,000 and total income of $2,158,870.
M&W's primary market area is southern Erie, Chautauqua and Cattaraugus
counties. M&W maintains offices in Silver Creek, Angola, North Collins, West
Seneca, Cattaraugus, South Dayton and Randolph, New York. All lines of personal
insurance are provided including automobile, homeowners, umbrellas, boats,
recreational vehicles and landlord coverages. Commercial insurance products are
also provided, consisting of property, liability, automobile, inland marine,
workers compensation, umbrellas, bonds and crop insurance. M&W also provides the
following financial services products: life and disability insurance, medicare
supplements, long term care, annuities, mutual funds, retirement programs and
New York State Disability.
M&W has a small consulting division which does work almost exclusively with
school districts. The majority of the work is done in preparing specifications
for bidding and reviewing existing insurance programs. The majority of the
consulting accounts are located in Central and Eastern New York. In the personal
insurance area the majority of M&W's competition comes from direct writers as
well as some small local agencies located in the same towns and villages in
which M&W has offices. In the commercial business segment the majority of the
competition comes from
19
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larger agencies located in and around Buffalo, New York. With the large number
of carriers it has available, they have been able to remain competitive in all
aspects of their business.
M&W is regulated by the New York State Insurance Department. It meets and
maintains all licensing and continuing education requirements required by the
State of New York.
ENB ASSOCIATES INC. ENB Associates Inc., a wholly-owned subsidiary of the Bank,
was established during the first quarter of 2000 and provides non-deposit
investment products, such as mutual funds and annuities, to bank customers at
bank branch locations. ENB Associates Inc. has an investment services agreement
with O'Keefe Shaw & Co.,Inc., through which ENB can purchase and sell securities
to its customers. Prior to 2000, there was no impact on the Company's financial
statements for this subsidiary.
Commencing in 2000, the Company operates in two reportable segments-banking
and insurance. For the years ended December 31, 1999 and 1998 the Company
determined that its business was comprised of banking activity only.
EMPLOYEES
As of February 28, 2001, the Bank employed 84 persons on a full-time basis
and 10 part-time employees. In addition, ENB Associates Inc. employed 1 person
on a full-time basis. M&W Agency, Inc. also employed 29 persons on a full-time
basis and 3 part-time employees.
Item 2. PROPERTIES
----------
The Bank conducts its business from its main office and six branch offices.
The main office is located at 14-16 North Main Street in Angola, New York. The
main office facility is 9,344 square feet and is owned by the Bank. This
facility is occupied by the Office of the President as well as the Loan and
Administration Divisions.
The Bank also owns three of its six branch offices. One is a 3,900 square
foot facility located at 8599 Erie Road in the Town of Evans. Another is a 1,530
square foot facility located at 25 Main Street, Forestville, New York and the
third is a 3,650 square foot branch located at 6480 Erie Road, Derby, New York.
In 1995, the Bank purchased property adjacent to the Derby Office,
providing additional parking facilities for customers and enabling future
expansion. An existing building on the property was leased to a tenant for a
five year term which expired November 30, 2000. The Bank is extending the lease
on a month to month basis until the present tenant vacates the building in 2001.
At that time the Bank will renovate the building for its own use.
The Bank purchased a vacant lot across from the North Boston Branch in 1991.
Preliminary work has been done on the site. The construction and furnishing of a
new office in North Boston, on the vacant lot, is anticipated to be ready for
occupancy the fourth quarter of 2001. At this time the current lease agreement
with the existing North Boston Branch will continue through December 31, 2001.
The Bank leases branch offices in North Boston, Hamburg and West Seneca. The
1,280 square foot branch office at 7186 Boston State Road, North Boston, New
York is occupied pursuant to a land lease which provides for monthly payments of
$1,375 through January 1, 2001, with an option to be renewed for an additional
five year term. This lease has been extended through January 1, 2002 and
provides for monthly payments of $1,583.33 during the extended period. The 3,000
square foot branch office at 5999 South Park Avenue, Hamburg, New York, is
occupied pursuant to a twenty year lease which provides for monthly payments of
$5,875 for the first five years through October 31, 2000. Thereafter, monthly
payments increase annually from $6,162.50 in Year Six to $7,967.50 in Year
Twenty. In September 1999, the Bank relocated its West Seneca branch office to
3864 square feet of space at 938 Union Road, West Seneca, N.Y. 14224, in the
Southgate Plaza. In addition the Bank leases 726 square feet for a drive-thru
facility. The term of the lease is five years extending through August 31, 2004
with an option provided of an additional five years. Monthly payments during the
initial term of the lease are $4250.40 per month for the branch office space and
an additional $399.30 per month for the drive-thru facility. Monthly payments
during the option period equal $4590.44 and $439.23 respectively.
The Bank has located a cash dispensing style ATM at Bauer Service Inc. 4298
South Buffalo Road, Orchard Park, N.Y. 14127. There are no lease payments
required.
20
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The Bank opened an in-school branch banking facility in the West Seneca East
High School, 4760 Seneca Street, West Seneca, N.Y. 14224. The in-school branch
has a cash dispensing style ATM located at the site. There are no lease payments
required.
M&W leases the following offices from Millpine Enterprises, a partnership
owned by Mr. Robert Miller and his family: 265 Central Avenue, Silver Creek, New
York; 5 Commercial Street, Angola, New York; 11 Main Street, Cattaraugus, New
York; 213 Pine Street, South Dayton, New York. Each lease is dated September 1,
2000 and extends for a period of four years with three options to renew for an
additional three year term each.
M&W also leases the following offices on a month to month basis: 10510 Main
Street, North Collins, New York; 7 Bank Street, Randolph, New York.
Item 3. LEGAL PROCEEDINGS
-----------------
There are no legal proceedings to which the Company is a party.
The nature of the Bank's business generates a certain amount of litigation
involving matters arising in the ordinary course of business. However, in the
opinion of management of the Bank, there are no proceedings pending to which the
Bank is a party or to which its property is subject, which, if determined
adversely to the Bank, would be material in relation to the Bank's financial
condition, nor are there any proceedings pending other than ordinary routine
litigation incident to the business of the Bank. In addition, no material
proceedings are pending or are known to be threatened or contemplated against
the Bank by governmental authorities or others.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
(a) MARKET. 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 Common
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(s). The prices for these transactions do not
include any retail markup, markdown or commission.
2000 1999
QUARTER High Low High Low
------- ---- --- ---- ---
FIRST $47.00 $47.00 $45.00 $45.00
SECOND $47.00 $47.00 $46.00 $45.00
THIRD $47.00 $47.00 $47.00 $46.00
FOURTH $47.00 $47.00 $47.00 $47.00
(b) HOLDERS. As of January 31, 2001, 1,759,601 shares of the Company's
Common Stock were outstanding and the number of holders of record of the Common
Stock at that date was 1237.
21
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(c) DIVIDENDS.
CASH DIVIDENDS.
The Company paid a cash dividend of $.23 per share on April 1,
1999 to holders of record on February 23, 1999.
The Company paid a cash dividend of $.24 per share on October
8, 1999 to holders of record on September 21, 1999.
The Company paid a cash dividend of $.25 per share on April 5,
2000 to holders of record on February 15, 2000.
The Company paid a cash dividend of $.27 per share on October 5,
2000 to holders of record on .. September 21, 2000.
The Company has declared a cash dividend of $.27 per share
payable on March 27, 2001 to holders of record on February 27, 2001.
The amount, if any, of future dividends will be determined by
the Company's Board of Directors . and will depend upon the
Company's earnings, financial conditions and other factors
considered by the Board of Directors to be relevant. Banking
regulations limit the amount of dividends that may be paid without
prior approval of the Comptroller of the Currency. See Footnote 18
to the Consolidated Financial Statements.
STOCK DIVIDENDS. There was no stock dividend in 2000 or 1999. On
April 29, 1997, the shareholders approved a five for one stock split
which was effective May 1, 1997.
The following table shows consolidated operating and capital ratios for the
Company for the last three years:
2000 1999 1998
---- ---- ----
Return on Average Assets 1.53% 1.10% 1.24%
Return on Average Equity 15.25% 10.72% 11.63%
Dividend Payout Ratio 28.41% 39.50% 30.84%
Equity to Assets Ratio 11.54% 10.17% 10.81%
22
-22-
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
For the Year Ended December 31, 2000 1999 1998 1997 1996
RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Income $ 15,070,769 $ 12,554,843 $ 11,851,787 $ 11,072,851 $ 9,799,815
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Expense 6,490,680 5,043,316 4,946,730 4,588,056 3,912,761
- ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 8,580,089 7,511,527 6,905,057 6,484,795 5,887,054
- ---------------------------------------------------------------------------------------------------------------------------------
Non-Interest Income 3,648,181 1,342,918 1,220,194 950,662 930,986
- ---------------------------------------------------------------------------------------------------------------------------------
Non-Interest Expense 7,535,034 6,050,175 5,196,900 4,849,182 4,555,398
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income 3,222,986 2,027,270 2,043,351 1,802,275 1,614,642
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 224,549,143 $ 198,788,383 $ 174,120,230 $ 158,542,163 $ 140,898,057
- ---------------------------------------------------------------------------------------------------------------------------------
Loans - Net 128,779,052 116,433,438 110,526,449 101,627,427 92,087,902
- ---------------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses 1,428,467 838,167 729,199 609,539 546,954
- ---------------------------------------------------------------------------------------------------------------------------------
Securities 73,121,218 62,999,678 50,059,972 40,400,374 36,054,324
- ---------------------------------------------------------------------------------------------------------------------------------
Total Deposits 186,701,319 169,948,899 144,083,636 138,391,327 123,461,379
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity 25,179,072 18,284,938 18,623,413 17,039,300 15,510,083
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.83 $ 1.19 $ 1.20 $ 1.06 $ 0.95
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Dividend $ 0.52 $ 0.47 $ 0.37 $ 0.30 $ 0.22
- ---------------------------------------------------------------------------------------------------------------------------------
Book Value at Year End $ 14.31 $ 10.76 $ 10.96 $ 10.03 $ 9.13
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value $ 47.00 $ 47.00 $ 45.00 $ 38.00 $ 27.20*
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Average Shares 1,756,695 1,698,523 1,698,612 1,698,950 1,698,950
- ---------------------------------------------------------------------------------------------------------------------------------
*Retroactively adjusted for stock dividends and stock splits
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------
This discussion is intended to compare the performance of the Company for
the years ended December 31, 2000, 1999 and 1998. The review of the information
presented should be read in conjunction with the consolidated financial
statements and accompanying notes.
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.
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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.
On February 15, 2000 the Bank entered into an agreement with O'Keefe Shaw & Co.,
Inc. establishing ENB Associates Inc. ("ENB"), a wholly-owned subsidiary of the
Bank. As part of the Bank's banking activities, on March 11, 2000 ENB Associates
Inc. began the activity of providing non-deposit investment products, such as
annuities and mutual funds, to bank customers.
Effective September 1, 2000 the Company completed the acquisition of the assets,
business and certain liabilities of M&W Group, Inc., a retail property and
casualty insurance agency headquartered in Silver Creek, New York, with offices
located in Angola, North Collins, South Dayton, Cattaraugus, Randolph, and West
Seneca, New York. The insurance agency acquired is operated through M&W Agency,
Inc. a wholly-owned subsidiary of the Bank. M&W Agency, Inc. sells various
premium-based insurance policies on a commission basis.
Commencing in 2000, the Company operates in two reportable segments-banking and
insurance. For the years ended December 31, 1999 and 1998, the Company
determined that its business was comprised of banking activity only.
The following discussion of financial condition and results of operations of the
Company and the Bank and its wholly-owned subsidiaries should be read in
conjunction with the consolidated financial statements and accompanying notes.
Statements included in this Management's Discussion and Analysis may contain
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1993, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
involve substantial risks and uncertainties. When used in this report, the words
"anticipate", "believe", "estimate", "expect", "intend", "may", and similar
expressions identify such forward-looking statements. Actual results,
performance or achievements could differ materially from those contemplated,
expressed or implied by the forward-looking statements contained herein. These
forward-looking statements are based largely on the expectations of the Company
or the Company's management and are subject to a number of risks and
uncertainties, including but not limited to economic, competitive, regulatory,
and other factors affecting the Company's operations, markets, products and
services, as well as expansion strategies and other factors discussed elsewhere
in this report filed by the Company with the Securities and Exchange Commission.
Many of these factors are beyond the Company's control.
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
and borrowings, 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 $3,222,986 consists
of $3,178,293 related to the Company's banking activities and $44,693 related to
the Company's insurance activities. The total net income of $3,222,986 or $1.83
per share in 2000 increased considerably over net income of $2,027,270 or $1.19
per share for 1999. This increase is partially attributable to proceeds from a
life insurance policy recorded at the end of December 2000, naming the Bank as
beneficiary. This policy was purchased to indirectly fund a future obligation of
the Bank as part of the Supplemental Employee Retirement Plan ("SERP"). Without
the life insurance proceeds the per share data is comparable to 1999.
NET INTEREST INCOME
Net interest income, before the provision for credit losses, increased 14.2%
from 1999 to 2000, compared to an increase of 8.8% from 1998 to 1999. Average
earning assets increased $25.4 million in 2000 versus an increase of $19.3
million in average interest-bearing liabilities. The tax-equivalent yield on
earning assets increased 36 basis points from 7.71% in 1999 to 8.07% in 2000.
The cost of funds increased 45 basis points, from 3.75% in 1999 to 4.20% in
2000. The Bank's net interest margin remained the same, 4.43% at December 31,
2000 and at December 31, 1999.
24
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In 1999, the increase in net interest income of 8.8% was due to an increase of
$18.5 million in earning assets over 1998. The tax-equivalent yield earned on
those assets dropped 40 basis points from the prior year, to 7.71% from 8.11%.
The average cost of funds on interest-bearing liabilities decreased 34 basis
points over that time period, from 4.09% in 1998 to 3.75% in 1999. The volume of
interest-bearing liabilities increased 11.3% in 1999 over 1998 or $13.6 million.
The Bank's net interest margin narrowed from 4.52% in 1998 to 4.43% in 1999.
Management believes there are two main factors contributing to the net
interest margin remaining the same for 2000 and 1999. One factor is the impact
of the interest rate policy of the Federal Reserve. In its efforts to slow down
the economy, the Federal Reserve Board increased short-term interest rates three
times for a total of 75 basis points in 1999, increasing rates 25 basis points
on three occasions beginning in June. In 2000, Federal Reserve raised rates an
additional 100 basis points, 25 basis points in February, 25 basis points in
March and 50 basis points in May. These moves led to increases in the prime
rate. Interest rates on new securities issues have increased as well.
Investments were made throughout the year to take advantage of the high yields
available.
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, input from regulatory agencies and general economic conditions. In
2000, the Bank increased the amount charged against earnings for loan losses to
$689,000 from $170,000 in 1999. In 1998, $150,000 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 2000, 1999 and
1998, both in dollars and as a percentage of total loans outstanding:
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Actual Loan Losses $105,056 0.08% $70,543 0.06% $71,458 0.06%
- ----------------------------------------------------------------------------------------------------------------------
Non-Performing Loans $1,460,000 1.13% $1,771,625 1.52% $1,452,000 1.32%
- ----------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses $1,428,467 1.11% $838,167 0.72% $729,199 0.66%
- ----------------------------------------------------------------------------------------------------------------------
Although an increase in loan losses was experienced in the past year, the
increase in the reserve is reflective of a continued growth trend in commercial
loans as well as management's assessment of the local economic environment. The
local economy has lagged behind both New York State and national prosperity,
while continuing to be hampered by marginal job growth and a declining
population base. Although not reflected in the Bank's historical performance,
the portfolio may be susceptible in the event of an economic downturn.
Management's increase to the reserve during the fourth quarter of 2000 was a
result of their analysis of the above factors and is deemed to be in compliance
with regulations promulgated by the Office of the Comptroller of the Currency.
25
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NON-INTEREST INCOME
Total non-interest income increased approximately $2,305,000 or 171.7% in 2000
over 1999. This compares to an increase of approximately $123,000 from 1998 to
1999. Non-interest income for 2000 included approximately $1,380,000, which the
Bank recorded as the beneficiary of a life insurance policy on the former
Chairman, President and CEO. Approximately $158,000 was recorded for an increase
in the cash surrender value of life insurance policies held on certain bank
officers. Approximately $114,000 was recorded for an increase in the cash
surrender value of life insurance policies held on certain directors.
In 2000, the Bank received a six-month benefit from the service charge
increase instituted in July 2000. Loan-related income increased in 2000. 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.
Losses realized on the sale of assets totaled approximately $88,000 in 2000
versus approximately $16,000 in gains realized in 1999. In 2000, planned sales
of securities resulted in net losses of $53,000. These losses will be offset by
additional interest income earned on the reinvestment of proceeds in
higher-yielding bonds.
Premiums received on the sale of student loans to the Student Loan Marketing
Association ("SLMA") were approximately $5,600. In 1999, gains on sales to SLMA
were approximately $6,400. About $2,200 in premiums were received on mortgages
sold to the Federal National Mortgage Association ("FNMA") in 2000. This
compares to $7,800 received in 1999. The Bank has been affiliated with both SLMA
and FNMA since 1995. The Bank also sold in 2000, two properties, which it owned
as a result of foreclosure. Total losses of $35,000 were experienced on these
sales.
Other non-interest income reflected an increase of approximately
$646,000 due to sales of insurance by the M&W Agency, Inc., since it was
acquired in September 2000.
NON-INTEREST EXPENSE
Total non-interest expense increased approximately $1.5 million or 24.5% in 2000
over 1999.
In 2000, the ratio of non-interest expense to average assets was 3.55% compared
to 3.24% in 1999 and 3.14% in 1998. Non-interest expense categories include
those most impacted by branch expansion, the acquisition of the M&W Agency, Inc.
and the addition of ENB Associates Inc.-salaries, occupancy, advertising, and
supplies, among others. Salary and benefit expense increased 23.0% in 2000. Of
the $739,000 increase, approximately $374,000 is attributable the addition of
the M&W Agency, Inc. The remainder of the increase included merit/promotional
increases, other additional staffing and expenses related to the Bank's
retirement plans. Occupancy expenses increased about $115,000 or 12.7%. The cost
of the occupancy expense for the acquired M&W Agency, Inc. contributed $42,000
to occupancy expense. Approximately $24,000 in increased expense for supplies
included materials purchased as a result of the Bank's Year 2000 initiative in
January. This included forms and envelopes used to provide each customer with a
bank statement as of December 31, 1999, in addition to their regularly scheduled
statement. This also included the purchase of stationery with the Bank's new
logo. Repairs and maintenance increased approximately $33,000 or 14.1%. This was
largely due to M&W Agency, Inc. Advertising costs went down $13,000 or 8.1% from
the total in 1999. In 1999 advertising costs had increased over the prior year
by $42,000 or 36.0%. About 75% of the increase was attributed to the promotion
of the newly-opened West Seneca branch over that time period. The remaining 25%
of that amount was spent on promoting the Bank's PC and telephone banking
services. Professional services increased about $41,000 or 16.7% due to
increased fees. The FDIC assessment increased 102.3% in 2000. New assessment
rates went into effect on January 1, 2000. Other insurance increased
approximately $85,000 or 30.9% due to premiums paid for life insurance policies
held on certain bank officers and directors.
Miscellaneous other expenses increased 53.9% or approximately $444,000 in
2000.
Expenses associated with originating loans, telephone costs, postal costs,
maintenance on foreclosed properties and correspondent bank service charges also
fall under miscellaneous expenses. All of these categories increased in 2000.
Miscellaneous other expenses were impacted by the M&W Agency, Inc. acquisition,
of approximately $70,000. Expense also related to the M&W Agency, Inc.
acquisition is four months of goodwill expense of approximately $106,000.
TAXES
The provision for income taxes in 2000 of $781,000 reflects an effective tax
rate of 19%. This compares to $607,000 or 23% in 1999 and $735,000 or 27% in
1998. The favorable tax position maintained by the Bank is attributable to the
substantial investments in tax advantaged municipal bonds and the life insurance
proceeds recorded as tax exempt income in 2000. The effective tax rate without
the life insurance proceeds would have been 31%.
26
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FINANCIAL CONDITION
The Bank had total assets of $224.5 million at December 31, 2000, an increase of
$25.8 million or 13.0% over $198.8 million at December 31, 1999. Net loans of
$128.8 million increased 10.6% or $12.3 million over the previous year.
Securities increased $10.1 million or 16.1% and cash and cash equivalents
decreased $2.6 million or 21.9%. Deposits grew by $16.8 million or 9.9%.
Shareholders' equity increased $6.9 million or 37.7%, approximately $2.9 million
of which is attributable to the acquisition of M&W Agency, Inc. Unrealized
gains/losses on investment securities held by the Bank increased $1.7 million
over 1999.
LOANS
Loans comprised 61.8% of the Bank's total average earning assets in 2000. Actual
year-end balances increased 10.6% versus an increase of 5.3% in 1999 and 8.8% in
1998. 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 47.9% of total loans. Residential
mortgages comprise 18.9% of the portfolio and commercial loans account for 14.1%
of outstanding loans. 15.5% are home equity loans and direct financing lease
loans account for 1.0% of outstanding loans.
At December 31, 2000, the Bank had a loan/deposit ratio of 69.7%. This
compares to a loan/deposit ratio of 69.0% at December 31, 1999.
The Bank currently retains the servicing rights to $8.9 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 $800,000 in student loans were sold to SLMA in 2000. Student loans
presently make up 0.26% of total loans.
SECURITIES AND FEDERAL FUNDS SOLD
Securities and federal funds sold made up the remaining 38.2% of the Bank's
total average earning assets at December 31, 2000. These categories provide the
Bank with additional sources of liquidity and income. The Bank's securities
portfolio increased 16.1% over the prior year. It continues to be strongly
concentrated in tax-advantage municipal bonds, which make up 43.0% of the
portfolio, US government-guaranteed mortgage-backed securities which make up
21.6% of bonds, and US government-sponsored agency bonds of various types which
comprise 32.4% of the total. As a member of both the Federal Reserve System and
the Federal Home Loan Bank, the Bank is required to hold stock in those
entities. These investments made up 1.7% of the portfolio at December 31, 2000.
The credit quality of the portfolio is strong, with 89% of the portfolio
carrying the equivalent of a Moody rating of AAA.
Federal funds sold balances are largely maintained for liquidity purposes.
The average balance maintained in fed funds sold declined in 2000 to 1.3% of
total average earning assets from 2.1% the previous year. In 1999, the Bank
maintained higher balances in these overnight investments as part of its
liquidity contingency plan for the Year 2000.
The tax-equivalent yield earned on securities and federal funds sold
increased 57 basis points in 2000 moving from 6.33% in 1999 to 7.00% in 2000.
This compares to 6.58% in 1998. High yields were available on bonds throughout
the year, and new investments were concentrated in longer term bonds with call
protection. Also, low-yielding bonds were sold and replaced with higher-yielding
bonds. Although the Bank experienced $53 thousand in net losses on these sales,
the losses will be made up in additional interest income. As stated earlier, the
volume of federal funds sold decreased in 2000, however, the yield on this
category increased from 4.94% in 1999 to 6.04% in 2000.
Statement of Financial Accounting Standard ("SFAS") 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, 2000, $3,475,401 in securities
were designated as held to maturity. These bonds are primarily investments that
the Bank has made in its local trade area.
The available for sale portfolio totaled $69,645,817 or approximately 95.2%
of the Bank's securities portfolio at December 31, 2000. Net unrealized gains
and losses on available for sale securities resulted in a net unrealized gain of
$786,030 at December 31, 2000 as compared to a net unrealized loss of $1.7
million at December 31, 1999. Rates increased at the end of 1999, driving market
prices down on fixed income bonds held in the portfolio. Although rates did
27
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not decrease until January of 2001, the anticipation of decreasing rates drove
market prices up at the end of 2000. Unrealized gains and losses on available
for sale securities are reported, net of taxes, as a separate component of
shareholders' equity. At December 31, 2000, the impact to equity was a net
unrealized gain of $534,500.
DEPOSITS
Total deposits increased $16.8 million or 9.9% in 2000 over 1999. Although all
of the Bank's branches have experienced deposit growth, the most significant
increases have come from the West Seneca and Hamburg offices opened in 1999 and
1995, respectively. Core deposit growth has been an area the Bank has focused on
and success is evident in the 23.3% increase in Demand Deposits and 18.7%
increase in NOW accounts. Although the year-end balance in regular savings
declined 1.2% from the previous year, the decrease has been concentrated in the
traditional passbook and statement savings products. The tiered rate Premium
Savings product remains a strong product with balances averaging $18.9 million
in 2000. In 2000, the Bank added a new Business Savings account for commercial
customers, which has averaged about $3.4 million in balances per month. Time
deposits of less than $100,000 increased 15.9% in 2000 as customers took
advantage of the favorable rate environment and put money in certificates of
deposit of various terms.
Certificates of deposit in excess of $100,000 increased 6.7%. These funds
are generally not considered core deposits. Most of these deposits are obtained
from municipalities through the competitive bidding process. Others are obtained
from commercial and retail customers looking for the safety of a FDIC-insured
deposit. These deposits have increased significantly over the past several years
due to the Bank's expansion of its trade area.
Evans National Bank remains committed to providing quality products and
making banking convenient for its customers. The Eas-E Line services, which
include telephone and personal computer banking, will soon be supplemented by
Eas-E Net Internet Banking. This new service will enable customers to access
account information and pay bills via the Internet. The Bank's recently
developed website, evansnationalbank.com, is another resource for obtaining
information regarding the Bank's products and services. In March 2000 the Bank
formed ENB, an investment subsidiary, which provides customers with the
opportunity to purchase mutual funds and annuities at their local branch of the
Bank. In September, the Bank acquired an insurance subsidiary, M & W Agency,
Inc., which specializes in property and casualty insurance. M & W has seven
offices throughout the Bank's trade area, including one conveniently located in
the Bank's West Seneca branch.
In 2000, the Bank opened an in-school branch banking facility in West Seneca
East High School. This facility is staffed by students, and provides not only
access to bank services, but also an educational opportunity for students who
may be interested in banking as a career.
LIQUIDITY
The Bank utilizes cash flows from the investment portfolio and federal funds
sold balances to manage the liquidity requirements it experiences due to loan
demand and deposit fluctuations. The Bank also has many borrowing options. As a
member of the Federal Home Loan Bank ("FHLB"), the Bank is able to borrow funds
at competitive rates. Advances of up to $10.8 million can be drawn on the FHLB
via the Overnight Line of Credit Agreement. An amount equal to 25% of the Bank's
total assets could be borrowed through the advance programs under certain
qualifying circumstances. The Bank also has the ability to purchase $4,000,000
in federal funds from one of its correspondent banks. By placing sufficient
collateral in safekeeping at the Federal Reserve Bank, the Bank could also
borrow at the discount window.
The cash flows from the investment portfolio are laddered to provide funds
principal and interest payments at various times as liquidity needs may arise.
Contractual maturities are also laddered, with consideration as to the
volatility of market prices to ensure that a sufficient amount of securities is
available that could be sold without incurring significant losses. At December
31, 2000 approximately 5.7% of the Bank's securities had maturities of one year
or less and approximately 18.6% had maturity dates of five years or less. At
December 31, 2000 the Bank had net short-term liquidity of $18.0 million as
compared to $7.9 million at December 31, 1999. Available assets of $76.3 million
less public and purchased funds of $45.7 million resulted in a long-term
liquidity ratio of 167% versus 149% at December 31, 1999.
Liquidity needs can also be met by aggressively pursuing municipal deposits,
which are normally awarded on the basis of competitive bidding. The Bank
maintains a sufficient level of US government and government agency securities
and New York State municipal bonds that can be pledged as collateral for these
deposits.
Total cash and cash equivalents decreased approximately $2.6 million or
21.9% from 1999 to 2000. Excess cash was kept for the Y2K contingency for
year-end 1999. Since then the excess cash has been reinvested in the securities
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portfolio resulting in the decrease in total cash and cash equivalents for
year-end 2000.
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. 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, 2000 the Bank was in a negative gap position with
$13.0 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 +/- $33.7 million at December 31, 2000. The gap ratio
(rate-sensitive assets/rate-sensitive liabilities) at that date was 84%.
Expected maturity date-
year ended December 31, 2001 2002 2003 2004 2005 There-after Total Fair Value
INTEREST-EARNING
ASSETS ($000S)
- -----------------------------------------------------------------------------------------------------------------------------
Loans Receivable, Fixed Rate 11,581 6,161 5,876 4,336 4,448 18,265 50,667 51,052
Average Interest Rate 8.91% 8.88% 8.76% 8.54% 8.31% 8.03%
- -----------------------------------------------------------------------------------------------------------------------------
Loans Receivable, Adj. Rate 18,836 4,709 3,898 2,311 6,264 42,282 78,300 78,300
Average Interest Rate 9.83% 9.19% 8.93% 9.35% 8.96% 8.70%
- -----------------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 1,250
Average Interest Rate 6.00%
- -----------------------------------------------------------------------------------------------------------------------------
Investments 13,166 6,483 10,496 7,721 8,030 27,225 73,121 73,121
Average Interest Rate 6.87% 7.32% 7.62% 7.12% 7.21% 7.51%
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING
LIABILITIES ($000S)
- -----------------------------------------------------------------------------------------------------------------------------
Deposits 71,095 37,260 14,699 14,332 12,151 557 150,094 150,626
Average Interest Rate 5.22% 5.00% 2.50% 2.41% 2.33% 1.07%
- -----------------------------------------------------------------------------------------------------------------------------
Borrowed Funds 54 1,033 2,000 1,124 84 114 4,409 4,409
Average Interest Rate 10.60% 5.19% 4.90% 5.51% 8.00% 9.00%
- -----------------------------------------------------------------------------------------------------------------------------
Off-balance sheet financial instruments at December 31, 2000 included $8,546,000
in undisbursed lines of credit at an average interest rate of 11.0%, $2,444,000
in fixed rate loan origination commitments at 10.9%, $16,445,000 in adjustable
rate loan origination commitments at 11.1% and $1,203,000 in adjustable rate
letters of credit at an average rate of 11.5%.
MARKET RISK
When rates rise or fall, the market value of the Bank's assets and liabilities
will increase or decrease. As a part of the Bank's asset/liability policy, the
Bank has set limitations on the negative impact to the market value of its
balance sheet that would be acceptable. The Bank's securities portfolio is
priced monthly and adjustments are made on the balance sheet to reflect the
market value of the available for sale portfolio per SFAS No. 115. A limitation
of a negative 25% of total capital before SFAS No. 115 (after tax) has been
established as the maximum impact to equity as a result of marking available for
sale securities to market that would be acceptable. At year-end, the impact to
equity as a result of marking available for sale securities to market was an
unrealized gain of $534,500. On a quarterly basis, the available for sale
portfolio is shocked for immediate rate increases of 100 and 200 basis points.
At December 31, 2000 the Bank determined it would take an immediate increase in
rates in excess of 200 basis points to eliminate the current capital cushion.
The Bank's capital ratios are also reviewed on a quarterly basis. Unrealized
gains and losses on available for sale securities are not included in the
calculation of these ratios.
29
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CAPITAL EXPENDITURES
The construction and furnishing of a new office in North Boston is anticipated
to cost the Bank approximately $715,000 in 2001. The Bank has leased the
existing North Boston office, since that branch was acquired in 1989. The vacant
lot was purchased in 1991 and preliminary work has been done on the site.
Current plans call for the new facility to be ready to be occupied by mid-year
2001. The present tenant in the Erie Road building adjacent to the Derby Office
is expected to vacate the building in 2001. At that time the Bank will renovate
the building for its own use. These renovations are expected to total $150,000.
Other planned expenditures include replacing a number of personal computers,
replacing/adding automated teller machines (ATMs) and miscellaneous other
equipment and software upgrades. 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 repricing frequency of assets and liabilities to avoid a significant
concentration that could result in a negative impact on earnings.
NEW ACCOUNTING STANDARDS
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. Management has determined that this standard will not have a
significant impact on the Company's financial condition and results of
operation.
Item 7a. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------
See discussion under Item 7. Management's Discussion And Analysis Of
Financial Condition And Results Of Operations "Interest Rate Risk" and "Market
Risk"
Item 8. CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
See Part IV, Item 14, "Exhibits, List and Reports on Form 8-K"
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
---------------------------------------------------------------
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The following table sets forth the names, ages and positions of the
Directors of the Company.
Name Age Position Term
---- --- -------- ----
Nominees for Directors: Expires
----------------------- -------
Phillip Brothman 62 Chairman of the Board, 2001
Director
Robert G. Miller, Jr. 44 Director 2001
David M. Taylor 50 Director 2001
30
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James Tilley 59 President, Director 2001
Thomas H. Waring, Jr. 43 Vice Chairman of the Board 2001
Directors:
----------
Robert W. Allen 75 Secretary, Director 2002
William F. Barrett 59 Director 2002
LaVerne G. Hall 63 Director 2003
David C. Koch 65 Director 2002
Each Director is elected to hold office for a three year term and until his
successor is elected and qualified.
Mr. Allen has been a Director since 1960. He was the Executive Vice
President of the Bank until his retirement in 1988.
Mr. Barrett has been a Director since 1971. He has been a property developer
and real estate manager since 1986.
Mr. Brothman has been a Director since 1976 and is a partner in the law firm
of Hurst, Brothman & Yusick. He was elected Chairman of the Board by the Board
of Directors in January, 2001.
Mr. Hall has been a Director since 1981. He has been retired since 1997.
Mr. Koch has been a Director since 1979 and is Chairman and Chief Executive
Officer of New Era Cap Co., Inc.
Mr. Miller was appointed by the Board of Directors in January, 2001 to fill
the vacancy resulting from the retirement of Richard C. Stevenson. Since
September 1, 2000, he has been the President of M&W Agency, Inc., the insurance
agency subsidiary of Evans National Bank. From January 1, 1994 to September 1,
2000, he was the President of M&W Group, Inc., an insurance agency.
Mr. Taylor has been a Director since 1986 and is President of Concord
Nurseries, Inc.
Mr. Tilley was appointed by the Board of Directors in March, 2001 to fill
the vacancy resulting from the death of Richard M. Craig. Since January of 1988,
he has been the Senior Vice President of the Company, and in January of 2001, he
was appointed President of the Company and the Bank.
Mr. Waring has been a Director since 1998. He is the principal of Waring
Financial Group, an insurance and financial services firm.
The committees of the Board of Directors, which are nominated by the Chairman of
the Board and approved by the Board of Directors, are as follows:
LOAN COMMITTEE:
William F. Barrett, Chairman Robert W. Allen Phillip Brothman
David C. Koch James Tilley Thomas H. Waring, Jr.
The Loan Committee met eleven times during 2000. Its purpose is to
review and approve loans exceeding $500,000 or loans that are non-conventional.
31
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PLANNING COMMITTEE:
LaVerne G. Hall, Chairman William F. Barrett Phillip Brothman
David C. Koch Robert G. Miller, Jr. James Tilley
Thomas H. Waring, Jr.
The Planning Committee met twice in 2000. The Planning Committee is
responsible for reviewing the strategic plan of the Bank and actions taken to
obtain those objectives.
LOAN REVIEW COMMITTEE:
Phillip Brothman, Chairman LaVerne G. Hall David M. Taylor
James Tilley
The Loan Review Committee met four times during 2000. Its purpose is to
insure the Bank's provision and reserve for credit losses are adequate. The Loan
Review Committee meets quarterly with the Bank's Loan Review Officer, who
independently conducts the loan review. As a result of her recommendations,
loans are graded based upon payment history, credit strength of borrower and
other factors. This information is then aggregated to determine the overall
adequacy of the credit loss reserve.
AUDIT COMMITTEE:
David M. Taylor, Chairman Phillip Brothman David C. Koch
Robert G. Miller, Jr.
The Audit Committee met four times in 2000. The members of the Audit
Committee receive from the internal auditor a quarterly report which describes
findings for the prior quarter. The function of the Audit Committee is to insure
that the Bank's activities are being conducted in accordance with law, banking
rules and regulations, other regulatory and supervisory authorities, and the
Bank's internal policies. The Audit Committee also discusses with management and
the independent auditors the Company's quarterly reports on SEC Form 10Q prior
to release. In addition, the Audit Committee recommends to the Board of
Directors the services of a reputable certified public accounting firm. The
Committee receives and reviews the reports of the certified public accounting
firm and presents them to the Board of Directors with comments and
recommendations.
INSURANCE COMMITTEE:
William F. Barrett, Chairman Robert W. Allen Phillip Brothman
Robert G. Miller, Jr. James Tilley
The Insurance Committee met once in 2000. This committee reviews the
coverage of insurance policies of the Bank and monitors costs.
COMPENSATION COMMITTEE:
LaVerne G. Hall, Chairman William F. Barrett Phillip Brothman
David C. Koch James Tilley Thomas H. Waring, Jr.
The Compensation Committee met once during 2000. Its purpose is to
review management's recommendation as it relates to job classification, salary
ranges and annual merit increases. The committee also reviews fringe benefits.
The Compensation Committee also establishes the compensation of the Executive
Officers of the Company.
The Board of Directors of the Company met twelve times during 2000.
Each incumbent director of the Company, except for Mr. Koch, attended at least
75% of the aggregate of all the meetings of the Board of Directors and the
Committees of which they were members.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's stock, to file initial reports of
ownership and
32
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reports of changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than ten percent beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during 2000 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent beneficial owners were complied with by such persons, except that
Mr. Miller filed an amendment to his Form 3 to include shares owned by his
children.
Item 11. EXECUTIVE COMPENSATION
----------------------
There is shown below information concerning the annual and long-term
compensation for service in all capacities to the Company for the years 2000,
1999, and 1998 of the Chief Executive Officer, Senior Vice President of
Administration, Senior Vice President of the Loan Division, and President of M&W
Agency, Inc. No other executive officer earned in excess of $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
================================ ===========================================
AWARDS PAYOUTS
NAME OF AND STOCK LONG-TERM
PRINCIPAL OPTION INCENTIVE ALL OTHER
POSITION YEAR SALARY BONUS OTHER(1) (SHARES) PAYOUTS COMPENSATION
- ----------- ---- -------- ------- -------- -------- --------- ------------
Richard M. Craig 2000 $179,730 $ 8,000 $3,594 -0- -0- -0-
President & CEO 1999 $169,769 $15,000 $3,395 -0- -0- -0-
1998 $160,308 $20,000 $3,206 -0- -0- -0-
James Tilley 2000 $122,412 $12,500 $2,448 -0- -0- -0-
Senior Vice 1999 $115,820 $10,500 $2,316 -0- -0- -0-
President 1998 $109,335 $14,000 $2,187 -0- -0- -0-
William R. Glass 2000 $115,022 $12,500 $2,300 -0- -0- -0-
Senior Vice 1999 $109,614 $10,500 $2,192 -0- -0- -0-
President 1998 $102,945 $14,000 $2,059 -0- -0- -0-
Robert G. Miller, Jr. 2000 $40,752 -0- -0- -0- -0- -0-
President
M&W Agency, Inc.
- --------------
(1) Includes the Bank's contribution to the Employee Savings Plan made for
the benefit of Mr. Craig of $3,594 in 2000, $3,395 in 1999, and $3,206
in 1998; for the benefit of Mr. Tilley of $2,448 in 2000, $2,316 in
1999, and $2,187 in 1998; and for the benefit of Mr. Glass of $2,300 in
2000, $2,192 in 1999, and $2,059 in 1998. See "EMPLOYEE SAVINGS PLAN".
Does not include personal benefits which did not exceed 10% of Mr.
Craig's, Mr. Tilley's, Mr. Glass' or Mr. Miller's salary and bonus in
any year.
EMPLOYMENT AGREEMENTS
Mr. James Tilley and Mr. William Glass have each entered into an
Employment Agreement with the Bank which runs through December 31, 2005. Each
Employment Agreement provides that salary will be set annually by the Board of
Directors. If the Bank terminates the Employment Agreement without cause, the
Bank is obligated to continue to pay base salary for the longer of three months
or the remainder of the term of the Employment Agreement.
Mr. Miller has entered into an Employment Agreement with M&W Agency,
Inc. which runs through December 31, 2005. Under the Employment Agreement, he
receives an annual salary of $150,000 plus a bonus based upon the earnings
before interest and taxes of M&W Agency, Inc. in excess of specific target
amounts, up to $100,000 annually. If M&W Agency, Inc. terminates the Employment
Agreement without cause, it is obligated to pay his salary, plus benefits, for
the longer of three months or the remainder of the term of the Employment
Agreement.
33
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PENSION PLAN
The Bank maintains a defined benefit pension plan for all eligible
employees, including employees of its subsidiaries. An employee becomes vested
in a pension benefit after five years of service. Upon retirement at age 65,
vested participants are entitled to receive a monthly benefit. Prior to a May 1,
1994 amendment to the plan, the monthly benefit under the pension plan was 3% of
average monthly compensation multiplied by years of service up to a maximum of
fifteen years of service. In 1994, the pension plan was amended to change the
benefit to 1% of average monthly compensation multiplied by years of service up
to a maximum of thirty years of service. However, the benefits already accrued
by employees prior to this amendment were not reduced by the amendment. Mr.
Tilley, Mr. Glass, and Mr. Miller are participants in the pension plan, and as
of December 31, 2000, Mr. Tilley had eleven years of credited service and his
average monthly compensation under the plan was $9,996; Mr. Glass had seven
years of credited service and his average monthly compensation under the plan
was $9,473; and Mr. Miller had no accrued benefit under the plan.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS
In 1995, the Bank entered into non-qualified Supplemental Executive
Retirement Plans ("SERP's") with Mr. Craig and Mr. Tilley to provide retirement
benefits to supplement their benefits under the Bank's pension plan and replace
the benefits reduced by the 1994 amendment to the Pension Plan. See "PENSION
Plan". In 1999, the Bank amended Mr. Tilley's agreement, and also entered into
an agreement with Mr. Glass. Under the SERP's, as amended, Mr. Tilley and Mr.
Glass are entitled to additional annual pension payments of $66,943 and $30,000,
respectively, for 20 years after retirement at age 65, unless their employment
is terminated earlier. The SERP's, as amended, also provide death benefits in
the same annual amounts in the event the executive dies prior to age 65, which
are payable over 10 years. Under Mr. Craig's SERP, as amended in 2000, his
beneficiary will receive $92,776 per year, payable monthly for 20 years. A life
insurance policy held by the Bank will assist it in funding this obligation. The
Bank has also purchased life insurance policies on Mr. Tilley and Mr. Glass to
assist in funding its obligations under their SERP's.
EMPLOYEE SAVINGS PLAN
The Bank also maintains a 401(k) salary deferral plan to assist
employees, including employees of its subsidiaries, in saving for retirement.
All employees are eligible to participate on the first of the month
following one year of service, provided they have completed 1,000 hours of
service. Eligible employees can contribute up to a maximum of 15% of their base
pay. An automatic 1% of base pay contribution is made by the Bank and in
addition, the Bank makes a matching contribution at a rate of 25% of the first
4% contributed by a participant. Participants are always 100% vested in their
own contributions and the Bank's matching contribution is also 100% vested.
Individual account earnings will depend on the performance of the
investment funds in which the participant invests. Specific guidelines govern
adjustments to contribution levels, investment decisions and withdrawals from
the plan. The benefit is paid as an annuity unless the employee elects one of
the optional forms of payment available under the plan. See "Summary
Compensation Table" for a summary of the amounts contributed by the Bank to this
Plan for the benefit of Mr. Craig, Mr. Tilley, Mr. Glass, and Mr. Miller.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
The following table sets forth, as of January 31, 2001, the number
(rounded to the nearest whole share) of outstanding shares of Common Stock
beneficially owned by (i) each shareholder known by the Company to beneficially
own more than 5% of the Company's Common Stock, (ii) all directors and nominees
of the Company individually, and (iii) by all executive officers and directors
as a group:
Name and Address of Beneficial Nature and Amount of Percent of
Owner Owning More Than 5% Beneficial Ownership Class
------------------------------ -------------------- -----
Robert W. Allen (1) 30,356 1.73%
William F. Barrett (2) 161,345 9.17%
8685 Old Mill Run
Angola, NY 14006
Phillip Brothman (3) 23,591 1.34%
34
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Name and Address of Beneficial Nature and Amount of Percent of
Owner Owning More Than 5% Beneficial Ownership Class
------------------------------ -------------------- -----
LaVerne G. Hall (4) 51,380 2.92%
David C. Koch (5) 26,298 1.49%
Robert G. Miller, Jr. (6) 46,411 2.64%
David M. Taylor (7) 4,290 0.24%
James Tilley (8) 532 0.03%
Thomas H. Waring, Jr. 520 0.03%
Directors and Officers as a Group (11 345,723 19.65%
persons) (1)(2)(3)(4)(5)(6)(7)(8)(9)(10)
(1) Includes 2,824 shares owned by Mr. Allen's wife.
(2) Includes 12,850 shares owned by Mr. Barrett's wife, 30,940 shares owned
jointly by Mr. Barrett and his wife and 6,345 shares held for Mr. Barrett's
son, as to which he disclaims beneficial ownership.
(3) Includes 1,511 shares owned by Mr. Brothman's wife and 2,762 shares held by
a pension plan of which Mr. Brothman is a trustee and a participant.
(4) Includes 20,230 shares owned by Mr. Hall's wife.
(5) Includes 1,485 shares owned jointly by Mr. Koch and his wife, and 775
shares owned by Mr. Koch's son, as to which he disclaims beneficial
ownership.
(6) Includes 9,218 shares held for Mr. Miller's benefit under an escrow
agreement dated September 1, 2000 entered into in connection with the
acquisition of the assets and business of M&W Group, Inc. by the Company;
106 shares held by Mr. Miller's son, as to which he disclaims beneficial
ownership; and 212 shares held by Mr. Miller's daughter, to which he
disclaims beneficial ownership.
(7) Includes 300 shares owned jointly by Mr. Taylor and his wife.
(8) Includes 445 shares owned by Mr. James Tilley, President of Evans Bancorp,
Inc., 10 shares held by Mr. Tilley in trust for his grandson, and 77 shares
owned jointly by Mr. Tilley and his mother.
(9) Includes 1,000 shares owned by Mr. William Glass, Treasurer of Evans
Bancorp, Inc., held jointly with Mr. Glass's wife.
(10) Excludes 8,078 shares owned by the Estate of Richard M. Craig and his wife.
Mr. Craig was a director, President and Chief Executive Officer of Evans
Bancorp, Inc. until his death on December 29, 2000.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Bank has had, and in the future expects to have, banking and
fiduciary transactions with Directors and Executive Officers of the Company and
some of their affiliates. All such transactions have been in the ordinary course
of business and on substantially the same terms (including interest rates on
loans) as those prevailing at the time for comparable transactions with others.
Mr. Phillip Brothman is a partner of the law firm of Hurst, Brothman &
Yusick which served as general counsel to the Company and received legal fees.
35
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In 2000, the Company paid approximately $297,685 in life insurance
premiums to Massachusetts Mutual. Waring Financial Group, which is owned by
Thomas H. Waring, Jr., received commissions on such premium payments.
In 2000, the Company paid approximately $146,425 in insurance premiums
to M&W Group, Inc., which was owned by Robert G. Miller, Jr. and his brother
prior to September 1, 2000 when its assets and business were acquired for 60,651
shares of common stock of the Company by M&W Agency, Inc., a subsidiary of Evans
National Bank. M&W Agency, Inc. also leases certain offices from Millpine
Enterprises, a partnership of Mr. Miller, his father, and his brother.
PART IV
-------
Item 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K
--------------------------------------
The following financial statements and independent auditors' report
thereon are included herein or are incorporated by reference are included from
2000 Annual Report to Shareholders pages 49 through 83 in response to Part II,
Item 7.
(a) Documents filed as a part of this Report:
None
(b) Documents Incorporated by Reference:
1. CONSOLIDATED FINANCIAL STATEMENTS.
Independent Auditors' Report of Deloitte & Touche LLP
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. EXHIBITS
Exhibit Page
No Name No.
-------- ---- ---
3.1 Certificate of Incorporation (1) n/a
3.2 Certificate of Amendment to
Certificate of Incorporation (3) n/a
3.3 By-Laws (1) n/a
3.4 Amended Section 204 of By-Laws (4) n/a
3.5 Amended Section 203 of By-Laws (6) n/a
36
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4.1 Specimen common stock certificate (3) n/a
10.1 Employment Agreement dated August 19, 1997 n/a
between the Bank and Richard M. Craig (6)
10.2 Employment Agreement dated August 19, 1997 n/a
between the Bank and James Tilley (6)
10.3 Employment Agreement dated August 19, 1997 n/a
between the Bank and William R. Glass (6)
10.4 Specimen 1984 Director Deferred Compensation
Agreement (2) n/a
10.5 Specimen 1989 Director Deferred Compensation
Agreement (2) n/a
10.6 Summary of Provisions of Director Deferred
Compensation Agreements (2) n/a
10.7 Evans National Bank Supplemental Executive n/a
Retirement Plan for Richard M. Craig dated
February 16, 1999 (7)
10.8 Evans National Bank Supplemental Executive n/a
Retirement Plan for James Tilley dated
February 16, 1999 (7)
10.9 Evans National Bank Supplemental Executive n/a
Retirement Plan for William R. Glass dated
February 16, 1999 (7)
10.10 Evans National Bank Amended Supplemental 40
Executive Retirement Plan for Richard M. Craig
dated October 17, 2000 (10)
10.11 Employment Agreement dated September 1, 2000 43
between the Bank and Robert Miller (10)
10.12 Investment Service Agreement between n/a
O'Keefe Shaw & Co.,Inc.
and ENB Associates Inc. (9)
13.1 2000 Annual Report to Shareholders (10) 49
21.1 Subsidiaries of the Registrant (6) n/a
23.1 Independent Auditors' Consent (10) 85
37
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FOOTNOTES
(1) Filed as Exhibits to the Company's Registration Statement on Form S-4
(Registration No. 33-25321) and incorporated herein by reference.
(2) Filed as Exhibits to the original Form 10 (Registration No. 0-18539) and
incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Form 10-Q for the quarter ended March
31, 1997 (File No. 0-18539) and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Form 10-Q for the quarter ended June
30, 1996 (File No. 0-18539) and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Form 10-QSB for the quarter ended March
31, 1995 (File No. 0-18539) and incorporated herein by reference.
(6) Filed as an Exhibit to the Company's Form 10-K for the year ended December
31, 1997 (File No.0-18539) and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Form 10-K for the year ended December
31, 1998 (File No. 0-18539) and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Form 10-Q for the quarter ended
September 30, 1999 (File No. 0-18539) and incorporated herein by reference.
(9) Filed as an Exhibit to the Company's Form 10-Q for the quarter ended March
31, 2000 (File No. 0-18539) and incorporated herein by reference.
(10) Filed herewith.
(b) REPORTS ON FORM 8-K.
None.
38
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, EVANS BANCORP, INC. has duly caused this Annual Report to be signed on its
behalf by the undersigned thereunto duly authorized:
EVANS BANCORP, INC.
By: /s/James Tilley
-------------------------
James Tilley, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/James Tilley President March 29, 2001
- --------------------------
James Tilley
/s/William R. Glass Treasurer March 29, 2001
- --------------------------
William R. Glass
/s/Phillip Brothman Chairman of the Board March 29, 2001
- --------------------------
Phillip Brothman
/s/Thomas H. Waring, Jr. Vice Chairman March 29, 2001
- -------------------------
Thomas H. Waring, Jr. of the Board
/s/Robert W. Allen Secretary/Director March 29, 2001
- --------------------------
Robert W. Allen
/s/LaVerne G. Hall Director March 29, 2001
- --------------------------
LaVerne G. Hall
/s/David M. Taylor Director March 29, 2001
- --------------------------
David M. Taylor
/s/David C. Koch Director March 29, 2001
- --------------------------
David C. Koch