<PAGE> 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, 1997
[ ] 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
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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 February 28, 1998, the aggregate market value of the registrant's
common stock, $.50 par value, (the "Common Stock") held by nonaffiliates of the
registrant was approximately $53,152,240 based upon the per share 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 February 28, 1998, 1,698,950 shares of the registrant's Common
Stock were outstanding.
Page 1 of 89
Exhibit Index on Page 34
<PAGE> 2
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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 and
March 31, 1997 are incorporated by reference in Part IV of this Form 10-K.
Portions of the Registrant's 1997 Annual Report to Shareholders are
incorporated by reference in Part II of this Form 10-K.
<PAGE> 3
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TABLE OF CONTENTS
INDEX
PART I
Page
----
Item 1. BUSINESS..........................................................5
--------
Evans Bancorp, Inc. ..............................................5
Evans National Bank ..............................................5
Market Area ......................................................5
Average Balance Sheet Information.................................5
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
Loan Maturities...........................................12
Credit Losses.............................................12
Sources of Funds - Deposits .....................................14
General...................................................14
Deposits..................................................14
Employees .......................................................14
Competition .....................................................14
Asset and Liability Management ..................................15
Regulation ......................................................15
Monetary Policy..................................................17
Item 2. PROPERTIES.......................................................18
----------
Item 3. LEGAL PROCEEDINGS................................................18
-----------------
Item 4. SUBMISSION OF MATTERS
---------------------
TO A VOTE OF SECURITY HOLDERS....................................18
-----------------------------
<PAGE> 4
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PART II
Page
----
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
-------------------------------------
AND RELATED STOCKHOLDER MATTERS..................................19
-------------------------------
Item 6. SELECTED FINANCIAL DATA .........................................20
-----------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................21
------------------------------------------------
Item 8. FINANCIAL STATEMENTS ............................................27
--------------------
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURES..........................27
---------------------------------------
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF
-----------------------------------
THE REGISTRANT...................................................27
--------------
Item 11. EXECUTIVE COMPENSATION...........................................31
----------------------
Item 12. SECURITY OWNERSHIP OF CERTAIN
-----------------------------
BENEFICIAL OWNERS AND MANAGEMENT.................................33
--------------------------------
Item 13. CERTAIN RELATIONSHIPS AND
-------------------------
RELATED TRANSACTIONS.............................................34
--------------------
PART IV
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Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
---------------------------------------
AND REPORTS ON FORM 8-K .........................................34
-----------------------
<PAGE> 5
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Item 1. BUSINESS
--------
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").
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 in commercial loans, commercial mortgages, business loans,
residential mortgages, home equity loans, consumer loans, and investment
securities.
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.
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, 1997, the Bank had total assets of $158,542,163,
total deposits of $138,391,327 and total stockholders' equity of $17,039,300.
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 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, 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.
<PAGE> 6
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<TABLE>
<CAPTION>
1997 1996
---- ----
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
Assets ($000) ($000) ($000) ($000)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, Net $ 96,511 $ 8,633 8.95% $ 81,591 $ 7,382 9.05%
Taxable securities 21,071 1,373 6.52% 22,837 1,428 6.25%
Tax-exempt securities 20,524 945 4.60% 15,676 765 4.88%
Federal funds sold 2,266 123 5.43% 3,791 202 5.33%
Time deposits in other banks 0 0 0.00% 428 23 5.37%
-------- -------- -------- -------- --------
Total interest-earning assets 140,372 11,074 7.89% 124,323 9,800 7.88%
Noninterest-earning assets
Cash and due from banks 5,407 5,531
Premises and equipment, net 3,830 3,362
Other assets 2,228 1,888
-------- --------
Total $151,837 $135,104
======== ========
LIABILITIES & SHAREHOLDER'S EQUITY
Interest-bearing liabilities:
NOW accounts $ 6,700 $ 71 1.06% $ 6,402 $ 80 1.25%
Savings deposits 44,610 1,203 2.70% 45,042 1,250 2.78%
Time deposits 60,257 3,302 5.48% 46,568 2,583 5.55%
Fed Funds Purchased & Securities 425 12 2.82% 0 0 0%
-------- -------- -------- -------- -------- -------
Sold U/A to Repurchase
Total interest-bearing liabilities 111,992 4,588 4.10% 98,012 3,913 3.99%
Noninterest-bearing liabilities:
Demand deposits 21,756 20,360
Other 1,899 1,805
-------- --------
135,647 120,177
Shareholders' equity 16,190 14,927
-------- --------
Total $151,837 $135,104
======== ========
Net interest earnings $ 6,486 $ 5,887
======== ========
Net yield on interest earning assets 4.19% 4.67%
</TABLE>
<PAGE> 7
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In 1997, the Company's interest income increased by $1,273,036 over 1996,
compared to an increase of $573,315 in 1996 over 1995. Also, interest expense on
deposits increased by $675,295 in 1997 over 1996 compared to an increase of
$493,979 in 1996 over 1995. 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.
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------------------------------------------------------
(thousands)
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $ 1,335 $ (83) $ 1,251 $ 820 $ (198) $ 622
Taxable securities (120) 65 (55) 20 26 46
Tax-exempt securities 219 (40) 179 20 (17) 3
Federal funds sold (83) 4 (79) (50) (25) (75)
Time deposits in other banks (23) 0 (23) (18) (5) (23)
------- ------- ------- ------- ------- -------
Total interest-earning assets $ 1,328 $ (54) $ 1,273 $ 792 $ (219) $ 573
======= ======= ======= ======= ======= =======
Interest paid on:
NOW accounts $ 4 $ (13) $ (9) $ (5) $ (15) $ (20)
Savings deposits (12) (35) (47) (59) 7 (52)
Time deposits 750 (31) 719 551 15 566
Federal Funds Purchased & 12 0 12 0 0 0
------- ------- ------- ------- ------- -------
Securities Sold U/A Repurch
Total interest-bearing liabilities $ 754 $ (79) $ 675 $ 487 $ 7 $ 494
======= ======= ======= ======= ======= =======
</TABLE>
SECURITIES ACTIVITIES
Income from securities represented approximately 20.9% of total interest
income of the Company in 1997 and approximately 22.4% of total interest income
of the Company in 1996. At December 31, 1997, the Bank's securities portfolio of
$40,400,374 consisted primarily of United States ("U.S.") and federal agency
obligations, state and municipal securities, corporate bonds and mortgage-backed
securities 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 now 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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
($000) ($000)
Available for Sale:
U.S. Treasury and other U.S. government agencies $ 13,025 $ 14,570
States and political subdivisions in the U.S. 19,867 14,808
Other 930 823
-------- --------
Total Securities Designated as Available for Sale $ 33,822 $ 30,201
======== ========
Held to Maturity:
U.S. Treasury and other U.S. government agencies 3,483 3,948
States and political subdivisions in the U.S. 3,095 1,905
-------- --------
Total Securities Designated as Held to Maturity $ 6,578 $ 5,853
======== ========
Total Securities $ 40,400 $ 36,054
======== ========
</TABLE>
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 and the annual budgets of the issuers are reviewed by the
Bank. 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.
<PAGE> 9
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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, 1997:
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S. $ 0 0% $ 7,732 6.19% $ 4,653 6.94% $ 640 9.74%
government agencies
States and political subdivisions 1,138 6.79 4,581 6.58 9,741 7.15 4,407 7.38
Other 930 6.37 0 0.00 0 0.00 0 0.00
------- ------ ------- ------- ------- ----- -------
Total Available for Sale $ 2,068 6.60 $12,313 6.33 $14,394 7.08 $ 5,047 7.67
CLASSIFIED AS HELD TO MATURITY
AT AMORTIZED COST:
U.S. Treasury and other U.S. 0 0.00 0 0.00 0 0.00 3,483 6.40
government agencies
States and political subdivisions 2,606 6.26 216 8.37 63 8.74 210 8.75
------- ------- ---- ------- ------- -------
Total Held to Maturity 2,606 6.26 216 8.37 63 8.74 3,693 6.53
------- ------- ---- ------- ------- -------
Total Securities $ 4,674 6.41 $12,529 6.36 $14,457 7.08 $ 8,740 7.18
======= ======= ======= =======
</TABLE>
At December 31, 1997, approximately $16,508,000 of the Bank's securities
portfolio were obligations of the U.S. Treasury and other U.S. government
agencies. Additionally, at December 31, 1997, the Bank had $4,515,000 in Federal
Funds Sold.
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, loan approval
guidelines and loan pricing.
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 78.0% of the total interest income of the Company in 1997 and
approximately 75.3% of total interest income in 1996. The Bank's loan portfolio
after unearned discounts, loan origination costs and allowances for credit
losses totalled $101,627,427 and $92,087,902 at December 31, 1997 and December
31, 1996, respectively. At December 31, 1997, the Bank had established $609,539
as an allowance for credit losses which is approximately 0.59% of total loans.
This compares with $546,954 at December 31, 1996 which was also approximately
0.59% of total loans. The net loan portfolio represented approximately 64.1% and
65.4% of the Bank's total assets at December 31, 1997 and December 31, 1996,
respectively.
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REAL ESTATE LOANS. Approximately 86.2% of the Bank's loan portfolio at
December 31, 1997 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
$88,137,842 at December 31, 1997, compared to $80,110,342 at December 31, 1996.
The real estate loan portfolio increased approximately 10.0% in 1997 over 1996
compared to an increase of 28.2% in 1996 over 1995.
Commercial real estate loan growth of 15.2% during 1997 reflected a
continued strong market resulting partially from low interest rates which
encouraged real estate acquisition and expansion. This represented a more
normalized growth rate from the 44.4% experienced in 1996. The residential real
estate loan portfolio declined by 6.9% as the Bank continued to sell the
majority of mortgage originations to the Federal National Mortgage Association
("FNMA"), while retaining servicing rights. This arrangement allows the Bank to
offer long term fixed rate mortgages without undue rate risk, while retaining
customer relationships. The Bank also earns an annual servicing fee on all
mortgages sold.
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 totalled $19,897,821 at December 31, 1997, which was
approximately 19.5% 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 1997, approximately $1,225,475 of mortgages were sold to FNMA under this
arrangement compared to $1,316,180 of mortgages sold in 1996. The Bank currently
retains the servicing rights on $2.7 million in mortgages sold to FNMA.
In 1993, the Bank began offering 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, 1997,
the Bank's outstanding adjustable rate mortgages were $3,977,168 or 3.9% 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 $44,594,435 at December 31,
1997, which was approximately 43.6% of total loans outstanding. This balance
included $6,949,346 in fixed rate and $37,645,089 in variable rate loans.
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 a 80%
loan-to-value ratio. At December 31, 1997, the real estate loan portfolio
included $15,817,342 of home equity loans outstanding which represented
approximately 15.5% of its total loans outstanding. This balance included
$8,388,085 in variable rate and $7,429,257 in fixed rate loans.
The Bank also offers real estate-construction loans at up to a 80%
loan-to-value ratio at fixed interest rates and multiple maturities. At December
31, 1997, fixed rate real estate-construction loans outstanding were $615,808 or
0.61% of the Bank's loan portfolio, and adjustable rate construction loans
outstanding were $2,154,910 or 2.1% of the portfolio.
As of December 31, 1997, approximately $1,276,000 or 1.4% of the Bank's
real estate loans were 30 to 90 days delinquent, $339,000 or 0.38% of the bank's
real estate loans were more than 90 days delinquent and approximately $550,000
or 0.62% 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 $8,938,560 and $6,993,852 at December 31, 1997 and December 31, 1996,
respectively. Commercial loans represented approximately 8.7% and 7.6% of the
Bank's total loans at December 31, 1997 and December 31, 1996, respectively. The
commercial loan portfolio increased $1,944,708 or 27.8% in 1997.
Commercial lending entails significant additional risk as compared with
real estate loans. These loans typically involve larger loan balances to single
borrowers or groups of related borrowers. Collateral, where
<PAGE> 11
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applicable, may consist of inventory, receivables, equipment and other business
assets. Eighty-seven percent of the Bank's commercial loans are variable rate
which are tied to the prime rate. 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.
As of December 31, 1997, approximately $75,000 or 0.84% of the Bank's
commercial loans were 30 to 90 days past due, none of its commercial loans were
more than 90 days past due and $50,000 or 0.56% of its commercial loans were
nonaccruing.
INSTALLMENT LOANS. The Bank's installment loan portfolio (which includes
commercial and automobile loans, personal loans and revolving credit card
balances) totaled $2,517,892 and $2,646,246 at December 31, 1997 and December
31, 1996, respectively, representing approximately 2.5% of the Bank's total
loans at December 31, 1997 and 2.9% of the Bank's total loans at December 31,
1996. 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, 1997, the installment loan portfolio included $223,071 in fixed
rate card balances at an interest rate of 15.6% and $33,542 in the variable rate
option. As of December 31, 1997, approximately $118,000 or 4.7% of the Bank's
installment loans were 30-90 days past due and approximately $17,000 or 0.7% of
the Bank's installment loans were more than 90 days past due. Approximately
$27,000 or 1.07% of the Bank's installment loans were nonaccruing.
STUDENT LOANS. The Bank's student loan portfolio totaled $1,731,492 at
December 31, 1997 and $1,692,334 at December 31, 1996. Student loans represented
1.7% of the total loan portfolio in 1997 and 1.8% of the total loan portfolio in
1996. 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. 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 $1,087,051 and $1,242,276 of its student loans to SLMA in 1997 and
1996 respectively. Student loan products have been expanded to include Federal
Plus and HEAL loans.
OTHER LOANS. Other loans totaled $509,935 at December 31, 1997 and
$769,322 at December 31, 1996. 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.
The following table summarizes the major classifications of the Bank's
loans (net of deferred origination costs) at December 31, 1997, and 1996:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Real Estate $ 88,138 $ 80,111
Commercial 8,939 6,994
Installment 2,518 2,646
Student Loans 1,731 1,692
All Other 510 769
Net deferred loan origination costs 401 423
--------- ---------
Total Loans $ 102,237 $ 92,635
--------- ---------
Allowance for credit losses (610) (547)
--------- ---------
Net loans $ 101,627 $ 92,088
========= =========
</TABLE>
<PAGE> 12
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LOAN MATURITIES. The following table shows the maturities of commercial
and real estate construction loans outstanding as of December 31, 1997 and the
classification of loans due after one year according to sensitivity to changes
in interest rates:
<TABLE>
<CAPTION>
(in thousands)
0-1 Yr. 1-5 Yrs. Over 5 Yrs. Total
------- -------- ---------- -----
<S> <C> <C> <C> <C>
Commercial $ 2,351 $ 2,321 $ 4,267 $ 8,939
Real estate construction 1,109 1,421 240 2,770
------- ------- ------- -------
$ 3,460 $ 3,742 $ 4,507 $11,709
======= ======= ======= =======
Loans maturing after one year with:
Fixed rates $ 641 $ 240
Variable rates 3,101 4,267
------- -------
$ 3,742 $ 4,507
======= =======
</TABLE>
CREDIT LOSSES
The following table summarizes the Bank's non-accrual and past due loans
as of December 31, 1997 and December 31, 1996. 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
Credit Losses."
<TABLE>
<CAPTION>
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Nonaccrual loans $627 $180
Accruing loans past due 90 days or more 360 96
---- ----
Total $987 $276
==== ====
</TABLE>
Information with respect to nonaccrual loans at December 31, 1997 and December
31, 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Nonaccrual loans $627 $180
Interest income that would have been 58 19
recorded under the original terms
Interest income recorded during the period 0 0
</TABLE>
At December 31, 1997, $627,000 of nonaccrual loans are collateralized.
<PAGE> 13
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The following tables summarize the Bank's allowance for credit losses
and changes in the allowance for credit losses by loan categories:
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES
1997 1996
---- ----
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 546,954 $ 557,961
CHARGE-OFFS
Commercial, Financial, Agricultural (394) (33,741)
Real Estate - Mortgages (25,000) 0
Installment Loans (21,464) (42,863)
Overdrafts 0 0
--------- ---------
TOTAL CHARGE-OFFS (46,858) (76,604)
RECOVERIES
Commercial, Financial, Agricultural 7,381 538
Real Estate - Mortgages 32,367 0
Installment Loans 8,495 3,859
Overdrafts 1,200 1,200
--------- ---------
TOTAL RECOVERIES 49,443 5,597
NET (CHARGEOFFS) RECOVERIES 2,585 (71,007)
ADDITIONS (REDUCTIONS) CHARGED TO OPERATIONS 60,000 60,000
--------- ---------
BALANCE AT END OF YEAR $ 609,539 $ 546,954
========= =========
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
Balance at Balance at Percent of Loans in
12/31/97 12/31/96 Each Category to
Attributable to: Attributable to: Total Loans:
---------------- ---------------- ------------
1997 1996
---- ----
<S> <C> <C> <C> <C>
Real Estate Loans $424,257 $259,102 86.6% 86.9%
Commercial Loans 58,306 118,461 8.7 7.6
Installment Loans (Includes Credit Cards) 49,189 45,231 2.5 2.9
Student Loans 0 0 1.7 1.8
All Other Loans 0 0 0.5 0.8
Unallocated 77,787 124,160 n/a n/a
-------- -------- ----- -----
Total $609,539 $546,954 100.0% 100.0%
======== ======== ===== =====
</TABLE>
<PAGE> 14
- 14 -
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, 1997, the Bank's deposits totalled $138,391,327 consisting of
the following:
<TABLE>
<S> <C>
Demand deposits $ 21,680,839
NOW and Money Market accounts 7,093,959
Regular savings 44,264,697
Time deposits, $100,000 and over 22,873,379
Other time deposits 42,478,453
----------
$138,391,327
============
</TABLE>
The following table shows daily average deposits and average rates paid on
significant deposit categories by the Bank:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
Weighted Weighted
Average Average Average Average
Balance Rate Balance Rate
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Demand Deposits $ 21,756 ---% $ 20,122 ---%
NOW and Money Market Accounts 6,700 1.06% 6,402 1.25%
Regular Savings 44,610 2.66% 45,280 2.76%
Time Deposits 60,256 5.48% 46,568 5.55%
-------- -------
Total $133,322 3.43% $118,372 3.30%
======== ========
</TABLE>
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.
EMPLOYEES
As of February 28, 1998, the Bank employed 73 persons on a full-time
basis. There were also 11 part-time employees.
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 Marine Midland Bank, and Manufacturers and
Traders Trust Company, both headquartered in Buffalo, New York, and also Key
Bank, N.A. headquartered in Albany, 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.
<PAGE> 15
- 15 -
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, 1997 for the periods indicated:
<TABLE>
<CAPTION>
0 to 3 4 to 12 One to Five Over Five
Months Months Years Years
(in millions)
<S> <C> <C> <C> <C>
Interest-earning assets $ 35.6 $ 22.4 $ 56.9 $ 31.6
Interest-bearing liabilities 44.4 26.1 68.8 0
------- ------- ------- -------
Interest sensitivity gap $ (8.8) $ (3.7) $ (11.9) $ 31.6
======= ======= ======= =======
</TABLE>
The primary assets and liabilities in the one year maturity range are
securities, commercial loans and time deposits. As of December 31, 1997, the
Bank's cumulative one year gap ratio (rate sensitive assets divided by rate
sensitive liabilities) was .82 as compared to .83 at December 31, 1996 and .88
as of December 31, 1995. 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, 1997:
<TABLE>
<CAPTION>
Time Deposit Maturity Schedule
(in millions)
0-3 3-6 6-12 Over
Mos. Mos. Mos. 12 Mos. Total
<S> <C> <C> <C> <C> <C>
Time deposits - $100,000 and over $ 16.8 $ 2.8 $ 1.7 $ 1.5 $ 22.8
Other time deposits 17.3 6.5 7.6 11.1 42.5
------- ------ ------ ------- -------
Total time deposits $ 34.1 $ 9.3 $ 9.3 $ 12.6 $ 65.3
======= ====== ====== ======= =======
</TABLE>
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.
<PAGE> 16
- 16 -
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 maximum interest rates a bank may pay on deposits, 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 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.
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.
The Depository Institutions Deregulation and Monetary Control Act of
1980 became effective in March 1980. The principal effects of this law are to:
phase in the deregulation of the interest rates paid on personal deposits by
gradually eliminating regulatory ceilings on interest rate differential allowed
thrifts and savings institutions; enable all banks to offer personal interest
bearing checking type accounts; phase in mandatory and uniform reserve
requirements; and override certain usury limits on loan interest rates
established by state laws. On October 1, 1983, the Depository Institutions'
Deregulation Committee, acting under the provisions of this Act, removed all
remaining interest rate ceilings and other regulations on time deposits, except
for early withdrawal penalties.
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.
<PAGE> 17
- 17 -
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 of
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. In January 1989, the Federal Reserve Board adopted new risk-based
capital adequacy guidelines. Under these new guidelines, bank holding companies
with at least $150 million in assets are required to maintain a ratio or
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
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. Effective December 31, 1992, Federal
Reserve member banks were required to maintain a ratio of qualifying total
capital to risk-weighted assets of a minimum of 8.00%, and Tier 1 Capital to
Assets ratio of 4.00%. A minimum leverage ratio of 3.00% 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.
A comparison of the Bank's capital as of December 31, 1997 and December
31, 1996 with these minimum requirements is presented below:
<TABLE>
<CAPTION>
Bank
---------------------------------------------
Minimum
1997 1996 Requirements
---- ---- ------------
<S> <C> <C> <C>
Total Risk-based Capital 16.9% 17.7% 8%
Tier 1 Risk-based Capital 16.3% 17.1% 4%
Leverage Ratio 10.8% 11.1% 3-5%
</TABLE>
As of December 31, 1997, 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.
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.
<PAGE> 18
- 18 -
Item 2. PROPERTIES
The Bank conducts its business from its main office and five 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 five 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 has been leased to a tenant for
a five year term commencing December 1, 1995. The lease provides for monthly
payments of $5,217 in Year One and increasing annually to $5,445 in Year Five.
The Bank leases branch offices in North Boston and Hamburg. The 1,280
square foot branch office at 7186 North Boston State Road, 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. 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.
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.
<PAGE> 19
- 19 -
PART II
-------
Item 5. MARKET FOR 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, the management has
price information for the transaction(s). The prices for these transactions do
not include any retail markup, markdown or commission.
<TABLE>
<CAPTION>
1997 1996
-------------------------- ---------------------------
QUARTER High Low High Low
- ------- ---- --- ---- ---
<S> <C> <C> <C> <C>
FIRST $27.20 $27.20 $23.00 $22.00
SECOND $32.00 $27.20 $27.00 $23.00
THIRD $33.00 $32.00 $27.20 $27.00
FOURTH $38.00 $33.00 $27.20 $27.20
</TABLE>
Adjusted for five for one stock split which was effective May 1, 1997.
(b) HOLDERS. As of January 31, 1998, 1,698,950 shares of the Company's
Common Stock were outstanding and the number of holders of record of the Common
Stock at that date was 1049.
(c) DIVIDENDS.
CASH DIVIDENDS.
The Company paid a cash dividend of $.124 per
share (adjusted for the five for one stock split) on
October 1, 1996 to holders of record on August 20, 1996.
The Company paid a cash dividend of $.10 per
share (adjusted for the five-for-one stock split) on
February 1, 1997 to holders of record on November 26,
1996.
The Company paid a cash dividend of $.30 per
share (after the five-for-one stock split) on October 21,
1997 to holders of record on October 1, 1997.
The Company has declared a cash dividend of
$.17 per share (after the five-for-one stock split)
payable on March 26, 1998 to holders of record on March 2,
1998.
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 12 to the
Financial Statements.
STOCK DIVIDENDS. There was no stock dividend in 1997. For
the year ending December 31, 1996 the Company paid a stock
dividend of 7.14% on April 1, 1996. This amounted to one
share for every 14 shares in 1996. On April 29, 1997, the
shareholders approved a five for one stock split which was
effective May 1, 1997.
<PAGE> 20
- 20 -
The following table shows consolidated operating and capital ratios for
the Company for the last three years:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Return on Average Assets 1.19% 1.20% 1.34%
Return on Average Equity 11.06% 10.75% 11.59%
Dividend Payout Ratio 28.30% 23.58% 15.31%
Equity to Assets Ratio 10.95% 11.37% 11.85%
</TABLE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION
For the Year Ended December 31 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Interest Income $ 11,072,851 $ 9,799,815 $ 9,226,500 $ 8,206,596 $ 7,989,392
- ---------------------------------------------------------------------------------------------------------------------------
Interest Expense 4,588,056 3,912,761 3,418,782 2,747,297 2,680,003
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income 6,484,795 5,887,054 5,807,718 5,459,299 5,309,389
- ---------------------------------------------------------------------------------------------------------------------------
Non-Interest Income 950,662 930,986 763,054 785,551 672,015
- ---------------------------------------------------------------------------------------------------------------------------
Non-Interest Expense 4,849,182 4,555,398 4,228,922 3,981,801 3,581,929
- ---------------------------------------------------------------------------------------------------------------------------
Net Income 1,802,275 1,614,642 1,664,783 1,617,049 1,612,392
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $158,542,163 $140,898,057 $125,308,204 $114,565,971 $112,465,797
- ---------------------------------------------------------------------------------------------------------------------------
Loans - Net 101,627,427 92,087,902 75,468,504 71,998,929 67,754,002
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses 609,539 546,954 557,961 628,957 612,921
- ---------------------------------------------------------------------------------------------------------------------------
Securities 40,400,374 36,054,324 38,954,494 32,341,350 33,371,944
- ---------------------------------------------------------------------------------------------------------------------------
Total Deposits 138,391,327 123,461,379 109,020,551 100,532,031 99,860,851
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity 17,039,300 15,510,083 14,485,510 12,723,940 11,489,412
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.06 $ 0.95 $ 0.97 $ 0.95 $ 0.95
- ---------------------------------------------------------------------------------------------------------------------------
Cash Dividend $ 0.30 $ 0.22 $ 0.14 $ 0.09 $ 0.07
- ---------------------------------------------------------------------------------------------------------------------------
Book Value at Year End $ 10.03 $ 9.13 $ 8.53 $ 7.49 $ 6.76
- ---------------------------------------------------------------------------------------------------------------------------
Market Value $ 38.00 $ 27.20 $ 22.00 $ 14.00 $ 13.10
- ---------------------------------------------------------------------------------------------------------------------------
Shares Outstanding 1,698,950 339,790 317,481 296,613 277,170
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Average Shares 1,698,950 1,698,950 1,698,950 1,698,950 1,698,950
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Retroactively adjusted for stock dividends and stock split)
<PAGE> 21
- 21 -
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, 1997, 1996 and 1995. The review of the
information presented should be read in conjunction with the consolidated
financial statements and accompanying notes.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Evans National Bank (the "Bank"), a wholly-owned subsidiary of Evans Bancorp,
Inc. (the "Company"), is a nationally chartered bank founded in 1920 which is
headquartered in Angola, New York. The Bank's principal business is to provide
full banking services to consumer and commercial customers in Erie, Chautauqua
and Cattaraugus Counties of Western New York. The Bank serves its market through
six banking offices located in Angola, Derby, Evans, Forestville, Hamburg and
North Boston, New York. The Bank's principal source of funding is through
deposits which it reinvests in the community in the form of loans and
investments. Deposits are insured to the applicable limit by the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC"). The Bank is
regulated by the Office of the Comptroller of the Currency.
The following discussion of financial conditions and results of operations
of the Company and the Bank should be read in conjunction with the consolidated
financial statements and accompanying notes.
RESULTS OF OPERATIONS
Net income in 1997 of $1,802,275 resulted in earnings per share of $1.06, which
compares with net income of $1,614,642, or $.95 per share, in 1996 and
$1,664,783, or $.97 per share, in 1995. The increase of 11.6% in net income in
1997 over 1996 illustrates the income benefit of the Bank's increased presence
in the Western New York area. Net income had declined 3% from 1995 to 1996 due
to increased overhead related to the Bank's $2.2 million expansion plan
implemented over those two years. In 1997, new business attributable to the
operation of two additional locations, a branch office in Hamburg, NY, which
opened in October, 1995, and the Evans, NY branch, which opened in May, 1996,
contributed to the Bank's asset growth and improved earnings.
NET INCOME ($ Millions)
- -----------------------
1993 1.6
1994 1.6
1995 1.7
1996 1.6
1997 1.8
Net interest income, the difference between interest income and fees on
earning assets, such as loans and securities, and interest expense on deposits,
provides the basis for the Bank's results of operations. These results are also
affected by non-interest income, the provision for credit losses, non-interest
expense, and income taxes.
NET INTEREST INCOME
Net interest income, before the provision for credit losses, increased 10.2%
from 1996 to 1997, compared to an increase of 1.4% from 1995 to 1996. Average
earning assets increased $15.8 million or 12.7% in 1997. The tax-equivalent
yield earned on those assets was 8.31% compared to 8.27% in 1996. The increase
in both rate and volume was sufficient to offset an increase of $13.3 million,
or 13.6%, in average interest-bearing liabilities in 1997 over 1996 and an
increase in the average cost of funds of 12 basis points, from 3.99% in 1996 to
4.11% in 1997. In 1997, the Bank's net interest margin was 4.59% compared to
4.64% in 1996.
The increase of only 1.4% in net interest income in 1996 over 1995 was
largely the result of an increase in the average cost of funds versus virtually
no change in the tax-equivalent yield on earning assets. The average cost of
funds increased 22 basis points from 3.77% in 1995 to 3.99% in 1996. The
tax-equivalent yield on earning assets changed only one basis point over that
time period, declining from 8.28% in 1995 to 8.27% in 1996. Average earning
assets increased 7.7% in 1996 over 1995 versus a volume increase of 8.2% in
interest-bearing liabilities. The net interest margin was 4.64% compared to
4.99% in 1995.
The Federal Reserve Board increased the federal funds rate a quarter of a
percent at its March 26, 1997 meeting. This was the only move in rates in 1997,
and only the second in two years. The Federal Reserve Board had reduced the
federal funds rate a quarter of a percent in January of 1996.
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. In 1995, the Bank established an
Asset/Liability
<PAGE> 22
- 22 -
Management Committee ("ALCO") 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
adopted an asset/liability policy which 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 assets as a result of
a shift in interest rates. The asset/liability policy also includes guidelines
for investment activities and funds management. The ALCO meets monthly to review
the Bank's status and formulate its strategy based on current economic
conditions, interest rate forecasts, loan demand, deposit volatility, and the
Bank's earnings objectives.
PROVISION FOR CREDIT LOSSES
Credit losses represent the amount charged against earnings to establish a
reserve of allowance sufficient to absorb expected loan losses based on
management's evaluation of the loan portfolio. In 1997, $60,000 was charged
against earnings for credit losses. This amount was also charged against
earnings in 1996. In 1995, the Bank updated the methodology it uses to calculate
the reserve amount for credit losses. After considering loan concentrations,
charge-off history, delinquent loan percentages and general economic conditions,
the Bank reversed $86,933 of its provision for credit losses in 1995. The
following table summarizes the Bank's actual credit losses, total of
non-performing loans and total allowance for credit losses for 1997, 1996 and
1995, both in dollars and as a percentage of total loans outstanding:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
Actual Credit
Losses $ 47,000 0.05% $ 77,000 0.08% $ 11,000 0.014%
- -------------------------------------------------------------------------------
Non-Performing
Loans $987,000 0.96% $230,000 0.20% $312,000 0.470%
- -------------------------------------------------------------------------------
Allowance for
Credit Losses $609,539 0.59% $546,954 0.59% $557,961 0.730%
- -------------------------------------------------------------------------------
</TABLE>
Although, during 1997, nonperforming loans increased over the unusually low
level of the prior year, all loans in this category are considered
well-collateralized and in the process of collection. As a result, no
significant losses are anticipated.
NON-INTEREST INCOME
Total non-interest income increased approximately $20,000 in 1997 from 1996
compared with an increase of approximately $168,000 in 1996 from 1995. In 1997,
service charge income was $670,366 compared to $667,839 in 1996. Service charge
income had increased approximately $106,000 in 1996 over the prior year as the
result of an increase in the Bank's service charges which was implemented in
September of 1995.
Other non-interest income decreased approximately $6,000 in 1997 from
1996. In 1996, the Bank received $15,000 in state and federal tax refunds for
the 1994 tax year and the Bank's loan activity resulted in a high level of
loan-related income. In 1997, the increase in the cash surrender value of life
insurance policies carried on certain bank officers was approximately $64,000
versus an increase in value of approximately $45,000 in 1996.
Gains realized on the sale of assets increased $23,000 in 1997 from 1996.
Net losses on the sales of securities were $2,000 in 1997 whereas in 1996 net
losses totalled $23,000. In 1996, the Bank experienced a loss of $61,000 on a
residual bond that was called for redemption in full. This loss was partially
offset by net gains on planned sales of securities of $38,000 that year.
Premiums received on sales of student loans to the Student Loan Marketing
Association ("SLMA") were $28,000 in both 1996 and 1997 and premiums received on
sales of mortgages to the Federal National Mortgage Association ("FNMA") were
$8,000 in 1997 as compared to $6,000 in 1996. The Bank became affiliated with
both SLMA and FNMA in 1995.
NON-INTEREST EXPENSE
In 1997, the ratio of non-interest expense to average assets was 3.18% compared
to 3.37% in 1996 and 3.40% in 1995. Non-interest expense categories include
salaries, occupancy expenses, repairs and maintenance, advertising and
professional services , among others. Occupancy expenses increased 19.5% in 1997
over 1996. This increase included a full year of depreciation on the Town of
Evans office and additional depreciation costs resulting from capital
expenditures in 1997. A new mainframe computer system, a new telephone system,
check imaging hardware and software and additional personal computers and
printers were all purchased during the course of the year. Changes in check
processing and computer operations which resulted from these purchases have also
reduced staffing requirements in these areas, and through staffing
reassignments, attrition and the use of part-time employees, the Bank has been
able to control salary and benefit expenses. These expenses declined $11,000
from 1996 to 1997. The cost of professional services increased $96,000 in 1997
over 1996. The Bank incurred additional fees due to work done by its accountants
and attorneys in reference to the five-for-one stock split in 1997
<PAGE> 23
- 23 -
STOCKHOLDERS' EQUITY ($ Millions)
1993 11.5
1994 12.7
1995 14.5
1996 15.5
1997 17.0
and the implementation of the dividend reinvestment plan for shareholders. The
Bank also hired a consultant in 1997 to study the Bank's daily operating
procedures to identify areas where efficiencies could be improved.
Recommendations resulting from this study are in the process of being
implemented. The income benefit is expected to be ongoing and is expected to
surpass the cost of the study in the first year.
In 1997, the Bank's FDIC insurance assessment increased from $2,000 to
$15,328. In 1996, as a well-capitalized institution, the Bank was assessed the
minimum $2,000 premium. This minimum is no longer required by law. However,
starting January 2, 1997 as a Bank Insurance Fund ("BIF") member, the Bank is
being assessed for FICO interest payments at a rate of 1.28 cents per $100 in
deposits annually. In 1996, the Bank's insurance assessment had dropped to
$2,000 from $120,231 in 1995 as the FDIC responded to the full funding of the
BIF by decreasing premiums. In 1995, the premium was reduced from $.23 per $100
of deposits to $.04 per $100 of deposits. In 1996, the rate was reduced to zero
with a minimum charge of $500 per quarter for well capitalized banks. The Bank
was assessed at the minimum rate, and it remains well above the regulatory
minimums for the key measures of capital adequacies as disclosed in note 12 of
the financial statements.
TAXES
The provision for taxes in 1997 of $724,000 reflects an effective tax rate of
28%. This compares to $588,000 and 26% in 1996 and $764,000 and 31% in 1995. In
1997, the Bank increased its holdings of tax-advantaged municipal bonds by 38%,
benefitting its overall tax position. Additionally, $75,000 in income recorded
in 1997 as the result of the increase in the cash surrender value of life
insurance policies held on certain bank officers and directors is non-taxable.
In 1996, there was a change in the composition of the deferred tax calculation,
resulting in an overall decrease in the effective tax rate from 1995. This
decrease was over and above that which was expected due to tax-exempt securities
income, untaxed CSVLI income and tax refunds received, which are not taxable.
FINANCIAL CONDITION
The Bank had total assets of $158.5 million at December 31, 1997, increasing
$17.6 million or 12.5% over December 31, 1996. Net loans increased $9.5 million
or 10.3% in 1997 over 1996. Loan growth was funded by an increase of $14.9
million in deposits, or 12.1%. Excess funds were invested in securities
resulting in an increase of $4.3 million, or 12.1% in the securities portfolio.
Capital increased $1.5 million or 9.7%, basically due to the retention of
earnings.
LOANS
Loans comprised 68.7% of the Bank's total average earning assets in 1997. For
the first time, the Bank surpassed the $100 million mark in net loans, reaching
$101.6 million by year-end. The increase of 10.4% in actual year-end balances in
1997 over 1996 compares to an increase of 22% in 1996 over 1995. The Federal
Reserve lowered rates in July and December of 1995 and again in January of 1996
contributing to increased loan demand throughout 1996. The Federal Reserve
raised rates 25 basis points in early 1997, but despite this increase, loan
demand remained strong through 1997. The expansion of the Bank's trade area
since 1995 has also had a positive impact on loan activity.
NET LOANS ($ Millions)
1993 67.8
1994 72.0
1995 75.5
1996 92.1
1997 101.6
The Bank continues to focus its lending on commercial and residential
mortgages, small commercial loans and home equity loans. Commercial mortgages
make up the largest segment of the portfolio at 43.8%. Residential mortgages
comprise 23.4% of the portfolio and commercial loans total 12.6%. Home equity
loans make up 15.5% of total loans.
The Bank currently retains the servicing rights to $2.7 million in
long-term mortgages sold to the Federal National
<PAGE> 24
- 24 -
Mortgage Association ("FNMA") since becoming a member in 1995. This arrangement
allows the Bank to offer long-term mortgages without exposure to the associated
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
students who are still in school and subsequently purchases those loans when the
student goes into repayment. In 1997, student loan balances increased 2.3% over
1996. Student loan balances had decreased 13.4% in 1996 from 1995 and decreased
60% in 1995 from 1994 levels, due to the sale of loans to SLMA.
At December 31, 1997, the Bank had a loan-to-deposit ratio of 73.9%, and
estimated its unloaned core deposits at $4.6 million. The Bank monitors the
level of its unloaned core deposits to ensure that it is sufficient to fund
anticipated loan growth as it expands its market area and develops new products.
SECURITIES
Securities and federal funds sold made up the remaining 31.3% of the Bank's
earning assets at December 31, 1997.
SECURITIES ($ Millions)
1993 33.4
1994 32.3
1995 39.0
1996 36.1
1997 40.4
Since deposit growth exceeded the volume necessary to fund loan demand, an
additional $4.3 million was directed into the securities portfolio in 1997. In
1996, deposit growth was insufficient to support loan growth. Proceeds from
matured and sold securities were used to provide the additional funding
necessary. As a result, the securities portfolio decreased $2.9 million from
1995 to 1996. The portfolio remains concentrated in US government and government
agency securities and tax-exempt municipal bonds of varied maturity. By
increasing the percentage of tax-advantaged municipal bonds in the portfolio and
reducing the average balance maintained in federal funds sold, the
tax-equivalent yield on securities and federal funds sold improved to 6.57% in
1997 from 6.51% in 1996.
In 1994, the Bank adopted Financial Accounting Standard No. 115 which
outlines accounting and reporting procedures for investment securities. At that
time, all securities in the Bank's portfolio were designated as either "held to
maturity" or "available for sale", as were all subsequent purchases. Securities
which the Bank designates as held to maturity are stated on the balance sheet
at amortized cost, and those designated as available for sale are reported at
fair market value. The unrealized gains and losses on available for sale
securities are recorded, net of taxes, as a separate component of shareholders'
equity. Transferring a security from one category to another results in certain
accounting consequences. In 1995, Financial Accounting Standards Board allowed
a one-time reclassification of securities without penalty. As a result of this
one-time window of opportunity, the Bank reclassified the majority of its bonds
in the held to maturity category as available for sale. This reclassification
was made after careful consideration of the Bank's anticipated liquidity needs
and the present and future impact of such a transfer on the Bank's earnings and
capital.
DEPOSITS
Total deposits increased $14.9 million in 1997 over 1996. All categories of
deposits increased, with the most significant growth occurring in demand
deposits and time accounts with balances in excess of $100,000. Actual year-end
balances of $21.7 million in demand deposits reflect an increase of 7.6% over
1996 levels. Time accounts over $100,000 increased 62% in 1997 over 1996.
Although large time accounts have traditionally been obtained from municipal
depositors through the competitive bidding process, new accounts have been
attracted from commercial and retail customers over the past two years as a
result of the Bank's broadened market.
TOTAL DEPOSITS ($ Millions)
1993 99.9
1994 100.5
1995 109.0
1996 123.5
1997 138.4
The Bank continues to evaluate ways to improve its existing deposit
products to meet customer needs, as well as
<PAGE> 25
- 25 -
develop new products which will keep the Bank competitive in the marketplace.
With both of these goals in mind, the Bank introduced the Premium Savings, a
tiered rate retail savings product, in May of 1997. This product is designed to
provide an option for high balance customers who prefer the liquidity and safety
of an insured savings product, but are looking for a competitive rate. At
December 31, 1997, Premium Savings balances totalled $5.5 million. About half of
the initial deposits made have been identified as new money, with the remainder
transferring into the Premium from other Bank deposit accounts.
LIQUIDITY
The Bank seeks to manage its liquidity so that it is able to meet day to day
loan demand and deposit fluctuations, while attempting to maximize the amount of
net interest income on earning assets. Traditionally, the Bank has utilized its
federal funds balances and cash flows from the investment portfolio to fulfill
its liquidity requirements. In 1997, overnight federal funds balances averaged
$2.3 million. The maturities of the Bank's investments are laddered in such a
way as to provide runoff at times that a liquidity need may arise. At December
31, 1997, approximately 11.6% of the Bank's securities had contractual
maturities of one year or less and 40.1% had maturity dates of five years or
less. At December 31, 1997, the Bank had net short-term liquidity of $5.9
million compared to $8.1 million at December 31, 1996. Available assets of $44.4
million less public and purchased liabilities of $29.7 million resulted in a
long-term liquidity ratio of 149% compared to 204% at December 31, 1996.
Although the Bank believes it has sufficient resources in its securities
portfolio to meet its short-term and long-term liquidity needs, the Bank also
has the option to purchase up to $4,000,000 in federal funds from one of its
correspondents.
The Bank is a member and shareholder of the Federal Home Loan Bank ("FHLB")
which will make cash advances of various terms at competitive rates to its
members. Advances of up to $7.7 million can be drawn on the FHLB, via the
Overnight Line of Credit Agreement, and an amount equal to 25% of the Bank's
total assets could be borrowed through the advance programs under certain
qualifying circumstances.
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 amount of US government and US government agency
securities and New York State municipal bonds that can be pledged as collateral
for these deposits.
INTEREST RATE RISK
Interest rate risk occurs when interest-earning assets and interest-bearing
liabilities mature or reprice at different times or on a different basis. The
Bank's ALCO analyzes the gap position on a monthly basis to determine the Bank's
exposure to interest rate risk. The gap position is the difference between the
total of the Bank's rate sensitive assets and rate sensitive liabilities
maturing or repricing during a given time frame. A "positive" gap results when
more assets than liabilities reprice and a "negative" gap results when more
liabilities than assets reprice in a given time period. Because assets
historically reprice faster than liabilities, a slightly negative gap position
is considered preferable. At December 31, 1997, the Bank was in a negative gap
position, with $12.5 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 +/- $23.8 million at December 31, 1997.
Therefore, the Bank's negative gap position was well within its policy limits.
The gap ratio (rate sensitive assets/rate sensitive liabilities) at that date
was 82%.
MARKET RISK
When rates rise or fall, the market value of the Bank's assets and liabilities
will increase or decrease. As part of the Bank's asset/liability policy, the
Bank has set limitations on the negative impact to the market value of its
balance sheet that would be accepted. The Bank's securities portfolio is priced
monthly and adjustments are made on the balance sheet to reflect the market
value of the available for sale portfolio per Financial Accounting Standard No.
115. A limitation of a negative ten percent of total capital before FAS 115
(after tax) has been set forth in the asset/liability policy as the maximum
impact to equity that would be acceptable. At year end, the impact to equity as
a result of marking available for sale securities to market was an unrealized
gain of approximately $214,000. On a quarterly basis, the available for sale
portfolio is shocked for immediate rate increases of 100 and 200 basis points.
At December 31, 1997, the Bank determined that it would take an immediate
increase in excess of 200 basis points to eliminate the current capital cushion.
The Bank also reviews the Bank's capital ratios on a quarterly basis. Unrealized
gains or losses on available for sale securities are not included in the
calculation of these ratios.
<PAGE> 26
- 26 -
The following table provides information about the Bank's on-balance sheet
financial instruments that are sensitive to changes in interest rates. Expected
maturity date values for interest-earning assets were calculated by adjusting
the contractual maturity date for expectations of prepayments. Expected maturity
date values for interest-bearing core deposits were calculated based upon
estimates of the period over which the deposits would be outstanding.
Off-balance sheet financial instruments at December 31, 1997 included
$6,537,000 in undisbursed lines of credit at an average interest rate of 9.48%,
$1,030,000 in fixed rate loan origination commitments at 12.23%, $8,383,000 in
adjustable rate loan origination commitments at 9.85%, and $551,000 in
adjustable rate letters of credit at an average rate of 10.50%.
<TABLE>
<CAPTION>
Expected maturity date-
year ended December 31, 1998 1999 2000 2001 2002 Thereafter Total Fair Value
INTEREST-EARNING
ASSETS ($000S)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Loans Receivable, Fixed Rate 7,953 4,536 5,115 3,591 3,184 15,514 39,893 39,944
Average Interest Rate 8.87% 9.16% 9.24% 8.88% 8.75% 8.71%
- ---------------------------------------------------------------------------------------------------------------------------
Loans Receivable, Adj. Rate 13,341 3,642 3,711 4,618 3,422 33,538 62,344 62,425
Average Interest Rate 9.65% 9.28% 9.33% 9.05% 9.12% 8.92%
- ---------------------------------------------------------------------------------------------------------------------------
Investments 4,938 2,544 5,128 1,182 4,665 21,943 40,400 40,437
Average Interest Rate 6.51% 6.52% 5.99% 6.92% 6.87% 7.04%
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING
LIABILITIES ($000S)
- ---------------------------------------------------------------------------------------------------------------------------
Deposits 64,596 22,431 12,827 12,024 4,822 10 116,710 117,053
Average Interest Rate 4.80% 3.92% 2.67% 2.51% 2.99% 7.75%
- ---------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement 1,059 0 0 0 0 0 1,059 1,059
Average Interest Rate 3.00%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
CAPITAL EXPENDITURES
Large capital expenditures scheduled for 1998 include the equipment and software
necessary to provide our customers with the option of conducting banking
transactions by telephone or via a personal home computer. This project is
expected to cost approximately $240,000. In 1997, the Bank purchased statement
imaging equipment and upgraded its mainframe and archiving systems. This kind of
expenditure enable the Bank to continue to provide quality customer service
despite increased work volumes. The Bank believes that it has a sufficiently
strong 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 changes in the economic policies
of the Federal Reserve Board, that will have an impact on the profitability of
the Company. Inflation may result in impaired asset growth, reduced earnings and
substandard capital ratios. The net interest margin can be adversely impacted by
the volatility of interest rates throughout the year. Since these factors are
unknown, management attempts to structure the balance sheet and the repricing
frequency of its interest-sensitive assets and liabilities to avoid a
significant concentration that could result in a material negative impact on
earnings.
THE NEW MILLENNIUM
The Year 2000 poses serious challenges to all industries, including banking. An
action plan has been formulated and accompanying timetable established for Year
2000 compliance. Representatives from each area of the Bank and the computer
systems and programming analyst meet monthly to discuss Year 2000 issues and
track the Bank's progress. At present, the Bank is on schedule in completing its
Year 2000 initiatives. Since the Bank is continually upgrading and improving its
technology, it is not anticipated these initiatives will materially impact
normal budgeted software costs.
<PAGE> 27
- 27 -
Item 8. FINANCIAL STATEMENTS
See Part IV, Item 14, "Exhibits, Financial Statements Schedules and
Reports on Form 8-K"
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
--------
Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION REGARDING DIRECTORS
-------------------------------
The following table sets forth the names, ages and positions of the
Directors of the Company.
<TABLE>
<CAPTION>
Term
Name Age Position Expires
---- --- -------- -------
Nominees for Directors:
-----------------------
<S> <C> <C> <C> <C>
Phillip Brothman 59 Director 1998
David M. Taylor 46 Director 1998
Thomas H. Waring, Jr. 40 Director 1998
Directors:
---------
Robert W. Allen 72 Secretary, Director 1999
William F. Barrett 56 Director 1999
Richard M. Craig 60 Chairman of Board, President, 2000
CEO, Director
LaVerne G. Hall 60 Director 2000
David C. Koch 62 Director 1999
Richard C. Stevenson 89 Director 2000
</TABLE>
Each Director is elected to hold office for a three year term and until
his successor is elected and qualified.
Mr. Brothman has been a Director since 1976 and is a partner in the law
firm of Hurst, Brothman & Yusick.
Mr. Taylor has been a Director since 1986 and is President of Concord
Nurseries, Inc.
Mr. Waring has been a Director since January 1, 1998. He is the
principal of Waring Financial Group, an insurance and financial services firm.
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 is currently self
employed as a property and investment manager and the former President of Carl
E. Barrett, Ltd., an insurance agency.
Mr. Craig joined Evans National Bank (the "Bank") in 1987 and has
served as President and Director since 1988. In 1989 he was appointed Chief
Executive Officer, and was, in January 1998, also elected Chairman of the Board.
Previously, he was the Administrative Vice President of M&T Bank.
Mr. Hall has been a Director since 1981. He is the former Chairman of
the Board of L.G. Hall Building Contractors, Inc.
<PAGE> 28
- 28 -
Mr. Koch has been a Director since 1979 and is Chairman and Chief
Executive Officer of New Era Cap Co., Inc.
Mr. Stevenson has been a Director since 1958 and is President of
Stevenson Realtors and Chairman of the Board of Evans Land Corp.
Mr. Carl F. Ulmer served as a director (since 1967) and the Chairman of
the Board of Directors (since 1975) until his retirement on December 31, 1997.
Mr. Ulmer also served as President and CEO of the Bank from 1967 until 1989.
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:
<TABLE>
<CAPTION>
Loan Committee:
---------------
<S> <C> <C> <C>
William F. Barrett, Chairman Robert W. Allen Richard M. Craig
David C. Koch
</TABLE>
The Loan Committee met ten times during 1997. Its purpose is to review
and approve loans exceeding $250,000 or loans that are non-conventional.
<TABLE>
<CAPTION>
Investment Committee:
---------------------
<S> <C> <C>
Richard M. Craig, Chairman David M. Taylor
</TABLE>
The Investment Committee met once in 1997. The Investment Committee
meets a minimum of once a year to review the liquidity of the investment
portfolio and discuss investment strategies.
<TABLE>
<CAPTION>
Planning Committee:
-------------------
<S> <C> <C> <C>
LaVerne G. Hall, Chairman William F. Barrett Richard M. Craig
David C. Koch
</TABLE>
The Planning Committee met twice in 1997. The Planning Committee is
responsible for reviewing the strategic plan of the Bank and actions taken to
obtain those objectives.
<TABLE>
<CAPTION>
Loan Review Committee:
----------------------
<S> <C> <C> <C>
Phillip Brothman, Chairman Richard M. Craig LaVerne G. Hall
David M. Taylor
</TABLE>
The Loan Review Committee met four times during 1997. 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.
<TABLE>
<CAPTION>
Audit Committee:
----------------
<S> <C> <C> <C>
Phillip Brothman, Chairman Robert W. Allen Richard M. Craig
David C. Koch David M. Taylor
</TABLE>
<PAGE> 29
- 29 -
The Audit Committee met three times in 1997. 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. 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.
<TABLE>
<CAPTION>
Insurance Committee:
--------------------
<S> <C> <C> <C>
William F. Barrett, Chairman Robert W. Allen Richard M. Craig
</TABLE>
The Insurance Committee met once during 1997. This committee reviews
the coverage of insurance policies of the Bank and monitors costs.
<TABLE>
<CAPTION>
Human Resource Committee:
-------------------------
<S> <C> <C> <C>
Richard C. Stevenson, Chairman William F. Barrett Richard M. Craig
LaVerne G. Hall David C. Koch
</TABLE>
The Human Resource Committee met twice during 1997. 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 Human Resource Committee also establishes the compensation of the Executive
Officers of the Company. See "Human Resource Committee Report on Executive
Compensation".
The Board of Directors of the Company met twelve times during 1997.
Each incumbent director of the Company, except for Mr. Koch and Mr. Ulmer,
attended at least 75% of the aggregate of all the meetings of the Board of
Directors and the Committees of which they were members.
<PAGE> 30
- 30 -
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
-------------------------------------------------------
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 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 1997 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. Hall and Mr. Brothman each filed one late report for one transaction in
1997.
<PAGE> 31
- 31 -
Item 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
-------------------------
For the year 1997, members of the Board of Directors were compensated
at the rate of $700 per meeting, with the Secretary receiving $750 per meeting.
Total directors' fees during 1997 amounted to $131,450 (including committee fees
and $36,915 of deferred compensation).
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 1997,
1996 and 1995 of the Chief Executive Officer, the Senior Vice President of
Administration, and the Senior Vice President of the Loan Division. No other
executive officer earned in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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
- -------- ---- ------ ----- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard M. Craig 1997 $151,308 $ 14,013 $ 3,026 -0- -0- -0-
President & CEO 1996 $142,385 $ 13,840 $ 2,848 -0- -0- -0-
1995 $135,631 $ 12,596 $ 2,692 -0- -0- -0-
James Tilley 1997 $103,059 $ 9,991 $ 2,061 -0- -0- -0-
Senior Vice 1996 $ 97,095 $ 9,875 $ 1,942 -0- -0- -0-
President 1995 $ 93,146 $ 9,464 $ 1,836 -0- -0- -0-
William R. Glass 1997 $ 96,630 $ 9,868 $ 1,933 -0- -0- -0-
Senior Vice 1996 $ 90,235 $ 9,743 $ 1,805 -0- -0- -0-
President 1995 $ 85,300 $ 8,799 $ 1,706 -0- -0- -0-
- ---------------------
<FN>
(1) Includes the Bank's contribution to the Employee Savings Plan made for the benefit of Mr.
Craig of $3,026 in 1997, $2,848 in 1996, and $2,692 in 1995, for the benefit of Mr. Tilley
of $2,061 in 1997, $1,942 in 1996, and $1,836 in 1995, and for the benefit of Mr. Glass of
$1,933 in 1997, $1,805 in 1996, and $1,706 in 1995. See "EMPLOYEE SAVINGS PLAN". Does not
include personal benefits which did not exceed 10% of Mr. Craig's, Mr. Tilley's, or Mr.
Glass' salary and bonus in any year.
</FN>
</TABLE>
<PAGE> 32
- 32 -
Employment Agreements
---------------------
Mr. Richard Craig, Mr. James Tilley, and Mr. William Glass have each
entered into an Employment Agreement with the Bank which runs through December
31, 2002. 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.
Pension Plan
- ------------
The Bank maintains a defined benefit pension plan for all eligible
employees. 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. Craig, Mr. Tilley, and
Mr. Glass are participants in the pension plan, and as of December 31, 1997,
Mr. Craig had nine years of credited service and $12,450 of average monthly
compensation; Mr. Tilley had eight years of credited service and $8,429 of
average monthly compensation; and Mr. Glass had four years of credited service
and $8,198 of average monthly compensation.
Supplemental Executive Retirement Plans
---------------------------------------
In 1995, the Bank entered into non-qualified Supplemental Executive
Retirement Plans ("SERP's") with both 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". Under the SERP's Mr. Craig and Mr. Tilley are entitled to
additional annual pension payments of $63,882 and $60,319, respectively, for 20
years after retirement at age 65, unless their employment is terminated earlier.
The SERP's also provide death benefits in the event the executive dies prior to
age 65 which are payable over 10 years. As of December 31, 1997, the annual
death benefit amounts for Mr. Craig and Mr. Tilley were $63,577 and $45,335,
respectively. The Bank has purchased a life insurance policy on both Mr. Craig
and Mr. Tilley to assist in funding its obligations under the SERP's.
Employee Savings Plan
---------------------
The Bank also maintains a 401(k) salary deferral plan to assist
employees 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, and Mr. Glass.
<PAGE> 33
- 33 -
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
-------------------------------------------------------
OWNERS
------
The following table sets forth, as of January 31, 1998, 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:
<TABLE>
<CAPTION>
Nature and Amount of Percent of
Name Beneficial Ownership Class
- ---- -------------------- -----
<S> <C> <C>
Robert W. Allen (1) 29,775 1.8%
William F. Barrett (2) 161,345 9.5%
Phillip Brothman (3) 23,910 1.4%
Richard M. Craig (4) 8,022 .5%
LaVerne G. Hall (5) 57,782 3.4%
David C. Koch (6) 25,590 1.5%
Richard C. Stevenson (7) 54,880 3.3%
David M. Taylor (8) 6,840 .4%
Thomas H. Waring, Jr. 500 .1%
Directors and Officers as a Group 370,144 21.8%
(11 persons)
(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)
<FN>
(1) Includes 2,740 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 1,473 shares owned by Mr. Brothman's wife and 2,704 shares held by a pension plan of
which Mr. Brothman is a trustee and a participant.
(4) Includes 5,343 shares owned jointly by Mr. Craig and his wife and 161 shares owned by Mr. Craig's
daughter, as to which he disclaims beneficial ownership.
(5) Includes 26,349 shares owned by Mr. Hall's wife.
(6) 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.
(7) Includes 3,225 shares owned by Mr. Stevenson's wife, also includes
12,635 shares held by Mr. Stevenson as conservator for Evelyn Simonsen
and 1,060 shares held in a trust for F. Evelyn Beardsley as to which he
disclaims beneficial ownership.
(8) Includes 300 shares owned by Mr. Taylor and his wife.
(9) Includes 413 shares owned by Mr. James Tilley, Assistant Secretary of
Evans Bancorp, Inc., 10 shares held by Mr. Tilley in trust for his
grandson, and 75 shares owned jointly by Mr. Tilley and his mother.
(10) Includes 1,000 shares owned by Mr. William Glass, Treasurer of Evans
Bancorp, Inc., held jointly with Mr. Glass's wife.
</TABLE>
<PAGE> 34
- 34 -
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.
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
1997 Annual Report to Shareholders pages 57 through 87 in response to Part
II, Item 7.
(a) Documents filed as a part of this Report:
None
(b) Documents Incorporated by Reference:
1. 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 Statement
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 n/a
3.2 Certificate of Amendment to
Certificate of Incorporation n/a
3.3 By-Laws (1) n/a
3.4 Amended Section 204 of By-Laws (4) n/a
<PAGE> 35
- 35 -
3.5 Amended Section 203 of By-Laws (6) 37
4.1 Specimen common stock certificate (3) n/a
10.1 Employment Agreement dated August 19, 1997
between the Bank and Richard M. Craig (6) 39
10.2 Employment Agreement dated August 19, 1997
between the Bank and James Tilley (6) 45
10.3 Employment Agreement dated August 19, 1997
between the Bank and William R. Glass (6) 51
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
Retirement Plan for Richard M. Craig dated
March 29, 1995 (5) n/a
10.8 Evans National Bank Supplemental Executive
Retirement Plan for James Tilley dated
March 28, 1995 (5) n/a
13.1 1997 Annual Report to Shareholders (6) 57
21.1 Subsidiaries of the Registrant (6) 89
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. Q-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. Q-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. QSB-18539) and incorporated
herein by reference.
(6) Filed herewith.
(b) Reports on Form 8-K.
None.
<PAGE> 36
- 36 -
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/Richard M. Craig
--------------------------------
Richard M. Craig,
Chairman
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
--------- ----- ----
Chairman
/s/ Richard M. Craig President March 28, 1998
- -------------------------- (Chief Executive
Richard M. Craig Officer), Principal
Accounting Officer and
Director
/s/ James Tilley Assistant Secretary March 28, 1998
- --------------------------
James Tilley
/s/ William R. Glass Treasurer March 28, 1998
- --------------------------
William R. Glass
/s/ Robert W. Allen Director March 28, 1998
- --------------------------
Robert W. Allen
/s/ LaVerne G. Hall Director March 28, 1998
- --------------------------
LaVerne G. Hall
/s/ Richard C. Stevenson Director March 28, 1998
- --------------------------
Richard C. Stevenson
/s/ David M. Taylor Director March 28, 1998
- --------------------------
David M. Taylor
/s/ Thomas H. Waring Director March 28, 1998
- --------------------------
Thomas H. Waring
<PAGE> 1
- 37 -
EXHIBIT 3.5
AMENDED SECTION 203 OF BY-LAWS
On December 16, 1997, Section 203 of the By-Laws of Evans Bancorp, Inc.
was amended by changing the words "Par Value" to "Market Value" and
increasing the amount to $10,000 so that said section as amended reads
as follows:
Section 203
Every director must be a shareholder of the Corporation and
shall own in his/her right a minimum of $10,000 aggregate market
value of stock in the Corporation in order to qualify as such
director. Any director shall forthwith cease to be a director
when he/she no longer holds such shares, which fact shall be
reported to the Board of Directors by the Secretary, whereupon
the Board of Directors shall declare the seat of such director
vacated.
<PAGE> 1
- 38 -
EXHIBIT 10.1
<PAGE> 2
- 39 -
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into this 19th day of August, 1997, by and
between EVANS NATIONAL BANK, a national banking corporation with offices at
14-16 North Main Street, Angola, New York, hereinafter referred to as the
"Bank," and RICHARD M. CRAIG referred to as the "Employee," for the employment
of Employee by the Bank.
WHEREAS, the parties entered into an Employment Agreement on
the 1st day of July, 1987 and
WHEREAS, the parties now wish to update and modify said agreement, the
parites hereby agreement to the following terms and conditions:
1.TERM OF EMPLOYMENT: Unless terminated pursuant to the terms of this
Agreement, the Bank and Employee agree that the term of employment shall be for
a period commencing on January 1, 1997, and terminating December 31, 2002. Such
term of employment shall be extended for one (1) additional year on or before
June 30, 1998 and annually thereafter so that the term of this Agreement and any
extensions thereto shall be for five (5) years unless shortened by mutual
agreement. In the event the Bank does not extend by June 30th of each year, this
agreement will automatically renew for one (1) additional year.
2.COMPENSATION: Employee shall receive, in exchange for his services,
hereunder, compensation as fixed annually by the Bank Board of Directors at its
January meeting.
3.DUTIES:
A) During the term of his employment hereunder, Employee agrees to
serve as President and Chief Executive Officer of the Bank and be primarily
responsible for the direct management of the institution's resources toward the
achievement of strategic and financial objectives in a manner which is
consistent with Board philosophy and policy, and with various regulatory
requirements; communicating with the Board on all decisions affecting the
institution that must be made at Board level; may provide direct management to
key functions as appropriate; represents the institution in the community and in
industry-related activities or in such other executive capacity with duties and
responsibilities of a similar nature, as those initially undertaken by him, as
the Board of Directors may from time to time determine. Employee also agrees to
perform such other services and duties consistent with the office or offices in
which he is serving and its responsibilities as may from time to time be
prescribed by the Board of Directors.
B) Employee shall also serve as a Director of the Bank, or elected, and
as an officer of the Bank.
C) Employee shall devote his full time, energies and
<PAGE> 3
- 40 -
attention, during normal business hours (excluding vacation) to
the business and affairs of the Bank.
D) Employee agrees to cooperate with the Bank including taking such
reasonable medical examinations, as may be necessary, in the event the Bank
shall desire or be required to obtain life insurance insuring Employee's life.
E) Employee shall, except as otherwise provided herein, be subject to
the Bank's rules, practices and policies applicable to the Bank's Executive
Employees.
4.BENEFITS:
A) Employee shall participate in all life, disability and medical
insurance plans, pensions and other similar plans which the Bank may have or may
establish from time to time, in which Employee is eligible to participate
pursuant to the. terms thereof. The foregoing, however, shall not be construed
to require the Bank to establish any such plans or to prevent the Bank from
modifying or terminating such plans and no such action or failure thereof shall
effect this Agreement.
B) Employee shall be entitled to vacation as determined by the Board of
Directors for all Bank officers.
C) Employee shall attend such continuing education seminars and obtain
membership in such organizations as required by the Board; provided, however,
that the Bank shall bear the expenses of such activities.
5.WORKING AND OTHER FACILITIES. During the term of this Agreement,
Employee shall be furnished with such working facilities, secretarial help and
other services, as are suitable to his position and adequate for the performance
of his duties.
6.EXPENSES: The Bank will reimburse Employee for reasonable expenses,
including automobile and travelling expenses, incurred by him in connection with
his employment in the business of the Bank upon the presentation by Employee of
appropriate substantiation for such expenses.
7.CONFIDENTIALITY AND NON-INTERFERENCE: In the course of his employment
by the Bank, Employee shall have and has had access to confidential or
proprietary data or information of the Bank. Employee shall not at any time,
divulge or communicate to any person, nor shall he direct any Bank employee to
divulge or communicate to any person (other than to a person bound by
confidentiality obligation similar to those contained herein.,and other than is
necessary in performing his duties hereunder) or used to the detriment of the
Bank or for the benefit of any other person, any of such data or information.
The provisions of this section shall survive Employee's employment hereunder,
whether by the normal expiration thereof or otherwise. The term "confidential"
or "proprietary data or information" as used in this Agreement, shall mean
information not generally available to t he public including, without
limitation, personnel information,
<PAGE> 4
- 41 -
financial information, customer lists, computer programs, marketing and
advertising data. Employee acknowledges and agrees
that any confidential or proprietary data or information
heretofore acquired was received in confidence.
8.EARLY TERMINATION: Employee's employment hereunder shall terminate
prior to the expiration of this Agreement or any extensions thereof, on the
following terms and conditions:
A) This Agreement shall terminate automatically on the death of
Employee. Notwithstanding the foregoing, the Bank shall pay to Employee's estate
any compensation and reimbursable expenses accrued to the date of his death
which otherwise would have been paid to the Employee.
B) This Agreement shall be terminated, at the Bank's election, if
Employee is unable to perform his duties hereunder, for a period of six months
(180) days in any 365 day period (or at such time as the Bank's "salary
continuation" insurance becomes effective) by reason of physical or mental
disability. For purposes of this Agreement, "physical or mental disability"
shall mean Employee's inability, due to health reasons, to discharge properly
his duties of employment supported by the opinion of a physician satisfactory to
the parties. Should Employee be subsequently able to return to work after
termination as provided herein, Bank may in its discretion, employ Employee in
the same capacity or in such other capacity as may be mutually agreeable under
such terms and conditions as the parties may so agree prior to such return
however, Employee shall provide a physicians opinion certifying has ability to
return to work.
C) In the event of PERSONAL DISHONESTY, WILLFUL MISCONDUCT, GROSS
NEGLIGENCE, INCOMPETENCY on Employee's part, conduct unbecoming a banker,
insubordination, or in the event of his deliberate failure to fulfill his
obligations under this Agreement, the Board of Directors may terminate this
Agreement by giving the Employee two (2) weeks written notice thereof. Such
termination shall be effective at the expiration of such two (2) week notice.
Thereafter the Bank shall not be obligated under any of the provisions herein,
except as required by any statute in effect at that time.
D) Employee may voluntarily terminate his employment upon giving the
Bank four (4) weeks written notice of his decision to terminate. Such a
termination shall not constitute a breach of this Agreement; provided, however,
that Employee shall be obligated after the date of such termination, to continue
to be bound by the conditions outlined in Section 7 hereof.
E) The parties may mutually agree to terminate this Agreement in
writing on such terms as they may determine.
F) The Bank may terminate Employee's employment without cause and
without notice; provided, however, that the Bank shall be obligated to continue
to pay Employee's base salary for the longer of three (3) months after the date
of such termination or the remainder of the term of the Agreement and provided
further
<PAGE> 5
- 42 -
that Employee shall be relieved of all further obligations under this Agreement
except for provisions pursuant to Paragraph 7.
G) In the event of a change of control of the Bank, as defined
herein, Employee may, at his option, upon ninety (90) days written notice,
terminate his employment and shall be entitled to all benefits due him pursuant
to this agreement, including but not limited to salary, for the remainder of
this agreement.
"Change of Control" shall be defined as the acquisition of 25% or
more of the Bank's outstanding shares or such lower percent which may constitute
a change in control for Bank regulatory purposes, a change in the composition of
a majority of the members of the Board of Directors, a merger or reorganization
such that the Bank is not a surviving entity, or the sale of substantially all
of the Bank's assets.
9.MODIFICATION: This Agreement constitutes the full and complete
understanding of the parties and supersedes all prior agreements and
understandings oral or written, between the parties, with respect to the subject
matter hereof. This Agreement may not be modified or amended except by an
instrument in writing, signed by the party against which enforcement thereof may
be sought.
10.SEVERABILITY: Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or un-enforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or effecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
11. WAIVER OF BREACH: The waiver by either party of a breach of any
provision of this Agreement shall not operate as, or be construed as a waiver of
any subsequent breach.
12.NOTICE: All notices hereunder shall be in writing and shall be sent
by express mail or by certified or registered mail, postage prepaid, return
receipt requested, to Employee at his residence as listed in the Bank's records,
and to the Bank, c/o Evans National Bank of Angola, 14-16 North Main Street,
Angola, New York 14006, Attention: Mr. Carl F. Ulmer, Chairman.
13.ASSIGNABILITY: BINDING EFFECT: This Agreement shall not be
assignable by Employee without the written consent of the Board of Directors of
the Bank. This Agreement shall be binding upon and inure to the benefit of
Employee, his legal representatives, heirs and distributees and shall be binding
upon and inure to the benefit of the Bank, its successors and assigns.
14.GOVERNING LAW: All questions pertaining to the validity,
construction, execution and performance of this Agreement shall be construed and
governed in accordance with the law of the State of New York.
<PAGE> 6
- 43 -
15.HEADINGS: The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
IN WITNESS WHEREOF, parties hereto have set their hands and seals the
day and year above written.
EVANS NATIONAL BANK
By /s/Carl F. Ulmer
--------------------------------
Carl F. Ulmer, Chairman
/s/Richard M. Craig
--------------------------------
Richard M. Craig
<PAGE> 1
- 44-
EXHIBIT 10.2
<PAGE> 2
- 45 -
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into this 19TH day of August, 1997, by and
between EVANS NATIONAL BANK, a national banking corporation with offices at
14-16 North Main Street, Angola, New York, hereinafter referred to as the
"Bank," and JAMES TILLEY, residing at 81 Rutland Street, Buffalo, New York
14220, referred to as the "Employee," for the employment of Employee by the
Bank.
WHEREAS, the parties entered into an Employment Agreement on
the 1st day of April, 1988 and
WHEREAS, the parties now wish to update and modify said agreement, the
parties hereby agreement to the following terms and conditions:
1.TERM OF EMPLOYMENT: Unless terminated pursuant to the terms of this
Agreement, the Bank and Employee agree that the initial term of employment shall
be for a period commencing on January 1, 1997, and terminating December 31,
2002. Such term of employment shall be extended for one (1) additional year on
or before December 31, 1998, and annually thereafter so that the term of this
Agreement and any extensions thereto shall be for five (5) years unless
shortened by mutual agreement. In the event the Bank does not extend by June
30th of each year, this agreement will automatically renew for one (1)
additional year.
2.COMPENSATION: Employee shall receive, in exchange for his
services, hereunder, the following compensation as fixed annually
by the Bank Board of Directors at its January meeting.
3.DUTIES:
A) During the term of his employment hereunder, Employee agrees to
serve as Senior Vice President of the Bank and be primarily responsible for the
direct management of institution operations, through appropriate department
personnel, in order to achieve qualitative and quantitative objections as
established by the organization's Chief Executive Officer and Board of
Directors; establishing and maintaining effective systems of management and
control throughout the organization; providing direction and supervision to key
management personnel or in such other executive capacity with duties and
responsibilities of a similar nature, as those initially undertaken by him, as
the Board of Directors may from time to time determine. Employee also agrees to
perform such other services and duties consistent with the office or offices in
which he is serving and its responsibilities as may from time to time be
prescribed by the Board of Directors.
<PAGE> 3
- 46 -
B) Employee shall devote his full time, energies and attention, during
normal business hours (excluding vacation) to the business and affairs of the
Bank.
C) Employee agrees to cooperate with the Bank including taking such
reasonable medical examinations, as may be necessary, in the event the Bank
shall desire or be required to obtain life insurance insuring Employee's life.
D) Employee shall, except as otherwise provided herein, be subject to
the Bank's rules, practices and policies applicable to the Bank's Executive
Employees.
4.BENEFITS:
A) Employee shall participate in all life, disability and medical
insurance plans, pensions and other similar plans which the Bank may have or may
establish from time to time, in which Employee is eligible to participate
pursuant to the terms thereof. The foregoing, however, shall not be construed to
require the Bank to establish any such plans or to prevent the Bank from
modifying or terminating such plans and no such action or failure thereof shall
effect this Agreement.
B) Employee shall be entitled to vacation as determined by the Board of
Directors for all Bank officers.
C) Employee shall attend such continuing education seminars and obtain
membership in such organizations as required by the Board; provided, however,
that the Bank shall bear the expenses of such activities.
5.WORKING AND OTHER FACILITIES. During the term of this Agreement,
Employee shall be furnished with such working facilities, secretarial help and
other services, as are suitable to his position and adequate for the performance
of his duties.
6.EXPENSES: The Bank will reimburse Employee for reasonable expenses,
including automobile and travelling expenses, incurred by him in connection with
his employment in the business of the Bank upon the presentation by Employee of
appropriate substantiation for such expenses.
7.CONFIDENTIALITY AND NON-INTERFERENCE: In the course of his employment
by the Bank, Employee shall have and has had access to confidential or
proprietary data or information of the Bank. Employee shall not at any time,
divulge or communicate to any person, nor shall he direct any Bank employee to
divulge or communicate to any person (other than to a person bound by
confidentiality obligation similar to those contained herein and other than is
necessary in performing his duties hereunder) or used to the detriment of the
Bank or for the benefit of any other
<PAGE> 4
- 47 -
person, any of such data or information. The provisions of this section shall
survive Employee's employment hereunder, whether by the normal expiration
thereof or otherwise. The term "confidential" or "proprietary data or
information" as used in this Agreement, shall mean information not generally
available to the public including, without limitation, personnel information,
financial information, customer lists, computer programs, marketing and
advertising data. Employee acknowledges and agrees that any confidential or
proprietary data or information heretofore acquired was received in confidence.
8.EARLY TERMINATION: Employee's employment hereunder shall terminate
prior to the expiration of this Agreement or any. extensions thereof, on the
following terms and conditions:
A) This Agreement shall terminate automatically on the death of
Employee. Notwithstanding the foregoing, the Bank shall pay to Employee's estate
any compensation and reimbursable expenses accrued to the date of his death
which otherwise would have been paid to the Employee.
B) This Agreement shall be terminated, at the Bank's election, if
Employee is unable to perform his duties hereunder, for a period of six months
(180) days in any 365 day period (or at such time as the Bank's "salary
continuation" insurance becomes effective) by reason of physical or mental
disability. For purposes of this Agreement, "physical or mental disability"
shall mean Employee's inability, due to health reasons, to discharge properly
his duties of employment supported by the opinion of a physician satisfactory to
the parties. Should Employee be subsequently able to return to work after
termination as provided herein, Bank may in its discretion, employ Employee in
the same capacity or in such other capacity as may be mutually agreeable under
such terms and conditions as the parties may so agree prior to such return
however, Employee shall provide a physicians opinion certifying has ability to
return to work.
C) In the event of PERSONAL DISHONESTY, WILLFUL MISCONDUCT, GROSS
NEGLIGENCE, INCOMPETENCY on Employee's part, conduct unbecoming a banker,
insubordination, or in the event of his deliberate failure to fulfill his
obligations under this Agreement, the Board of Directors may terminate this
Agreement by giving the Employee two (2) weeks written notice thereof. Such
termination shall be effective at the expiration of such two (2) week notice.
Thereafter the Bank shall not be obligated under any of the provisions herein,
except as required by any statute in effect at that time.
D) Employee may voluntarily terminate his employment upon giving the
Bank four (4) weeks written notice of his decision to terminate. Such a
termination shall not constitute a breach of
<PAGE> 5
- 48 -
this Agreement; provided, however, that Employee shall be obligated after the
date of such termination, to continue to be bound by the conditions outlined in
Section 7 hereof.
E) The parties may mutually agree to terminate this Agreement in
writing on such terms as they may determine.
F) The Bank may terminate Employee's employment without cause and
without notice; provided, however, that the Bank shall be obligated to continue
to pay Employee's base salary for the longer of three (3) months after the date
of such termination or the remainder of the term of the Agreement and provided
further that Employee shall be relieved of all further obligations under this
Agreement except for provisions pursuant to Paragraph 7.
G) In the event of a change of control of the Bank, as defined
herein, Employee may, at his option, upon ninety (90) days written notice,
terminate his employment and shall be entitled to all benefits due him pursuant
to this agreement, including but not limited to salary, for the remainder of
this agreement.
"Change of Control" shall be defined as the acquisition of 25% or
more of the Bank's outstanding shares or such lower percent which may constitute
a change in control for Bank regulatory purposes, a change in the composition of
a majority of the members of the Board of Directors, a merger or reorganization
such that the Bank is not a surviving entity, or the sale of substantially all
of the Bank's assets.
9.MODIFICATION: This Agreement constitutes the full and complete
understanding of the parties and supersedes all prior agreements an
understandings oral or written, between the parties, with respect to the subject
matter hereof. This Agreement may not be modified or amended except by an
instrument in writing, signed by the party against which enforcement thereof may
be sought.
10.SEVERABILITY: Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or un-enforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or effecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
11. WAIVER OF BREACH: The waiver by either party of a breach of any
provision of this Agreement shall not operate as, or be construed as a waiver of
any subsequent breach.
12. NOTICE: All notices hereunder shall be in writing and shall be
sent by express mail or by certified or registered mail, postage prepaid,
return receipt requested, to Employee at his residence as listed in the Bank's
records, and to the Bank, c/o Evans National Bank of Angola, 14-16 North Main
Street, Angola, New York 14006, Attention: Mr. Richard M. Craig, President and
CEO.
<PAGE> 6
- 49 -
13.ASSIGNABILITY: BINDING EFFECT: This Agreement shall not be
assignable by Employee without the written consent of the Board of Directors of
the Bank. This Agreement shall be binding upon and inure to the benefit of
Employee, his legal representatives, heirs and distributees and shall be binding
upon and inure to the benefit of the Bank, its successors and assigns.
14.GOVERNING LAW: All questions pertaining to the validity,
construction, execution and performance of this Agreement shall be construed and
governed in accordance with the law of the State of New York.
15.HEADINGS: The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
IN WITNESS WHEREOF, parties hereto have set their hands and seals the
day and year above written.
EVANS NATIONAL BANK
By /s/Richard M. Craig
-------------------------------
Richard M. Craig, President & CEO
/s/James Tilley
-------------------------------
James Tilley
<PAGE> 1
- 50 -
EXHIBIT 10.3
<PAGE> 2
- 51 -
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into this 19TH day of August, 1997, by and
between EVANS NATIONAL BANK, a national banking corporation with offices at
14-16 North Main Street, Angola, New York, hereinafter referred to as the
"Bank," and WILLIAM R. GLASS, residing at 31 Braunview Way, Orchard Park, New
York 14127, referred to as the "Employee," for the employment of Employee by the
Bank.
WHEREAS, the parties now wish to update and modify said agreement, the
parties hereby agree to the following terms and conditions:
1.TERM OF EMPLOYMENT: Unless terminated pursuant to the terms of this
Agreement, the Bank and Employee agree that the initial term of employment shall
be for a period commencing on January 1, 1997, and terminating December 31,
2002. Such term of employment shall be extended for one (1) additional year on
or before December 31, 1998, and annually thereafter so that the term of this
Agreement and any extensions thereto shall be for five (5) years unless
shortened by mutual agreement. In the event the Bank does not extend by June
30th of each year, this agreement will automatically renew for one (1)
additional year.
2.COMPENSATION: Employee shall receive, in exchange for his services,
hereunder, the base compensation as fixed annually by the Bank Board of
Directors at its January meeting.
3.DUTIES:
A) During the term of his employment hereunder, Employee agrees to serve
as Senior Vice President of the Bank and be primarily responsible for the
management, supervision, and direction of all loan activities, and loan
department personnel.
B) Employee shall devote his full time, energies and attention, during
normal business hours (excluding vacation) to the business and affairs of the
Bank.
C) Employee agrees to cooperate with the Bank including taking such
reasonable medical examinations, as may be necessary, in the event the Bank
shall desire or be required to obtain life insurance insuring Employee's life.
D) Employee shall, except as otherwise provided herein, be subject to
the Bank's rules, practices and policies applicable to the Bank's Executive
Employees.
<PAGE> 3
- 52 -
4.BENEFITS:
A) Employee shall participate in all life, disability and medical
insurance plans, pensions and other similar plans which the Bank may have or may
establish from time to time, in which Employee is eligible to participate
pursuant to the terms thereof. The foregoing, however, shall not be construed to
require the Bank to establish any such plans or to prevent the Bank from
modifying or terminating such plans and no such action or failure thereof shall
effect this Agreement.
B) Employee shall be entitled to vacation as determined by the Board of
Directors for all Bank officers.
C) Employee shall attend such continuing education seminars and obtain
membership in such organizations as required by the Board; provided, however,
that the Bank shall bear the expenses of such activities.
5.WORKING AND OTHER FACILITIES. During the term of this Agreement,
Employee shall be furnished with such working facilities, secretarial help and
other services, as are suitable to his position and adequate for the performance
of his duties.
6.EXPENSES: The Bank will reimburse Employee for reasonable expenses,
including automobile and travelling expenses, incurred by him in connection with
his employment in the business of the Bank upon the presentation by Employee of
appropriate substantiation for such expenses.
7.CONFIDENTIALITY AND NON-INTERFERENCE: In the course of his employment
by the Bank, Employee shall have and has had access to confidential or
proprietary data or information of the Bank. Employee shall not at any time,
divulge or communicate to any person, nor shall he direct any Bank employee to
divulge or communicate to any person (other than to a person bound by
confidentiality obligation similar to those contained herein and other than is
necessary in performing his duties hereunder) or used to the detriment of the
Bank or for the benefit of any other person, any of such data or information.
The provisions of this section shall survive Employee's employment hereunder,
whether by the normal expiration thereof or otherwise. The term "confidential"
or "proprietary data or information" as used in this Agreement, shall mean
information not generally available to the public including, without limitation,
personnel information, financial information, customer lists, computer programs,
marketing and advertising data. Employee acknowledges and agrees that any
confidential or proprietary data or information heretofore acquired was received
in confidence.
8.EARLY TERMINATION: Employee's employment hereunder shall terminate
prior to the expiration of this Agreement or any. extensions thereof, on the
following terms and conditions:
<PAGE> 4
- 53 -
A) This Agreement shall terminate automatically on the death of
Employee. Notwithstanding the foregoing, the Bank shall pay to Employee's estate
any compensation and reimbursable expenses accrued to the date of his death
which otherwise would have been paid to the Employee.
B) This Agreement shall be terminated, at the Bank's election, if
Employee is unable to perform his duties hereunder, for a period of six months
(180) days in any 365 day period (or at such time as the Bank's "salary
continuation" insurance becomes effective) by reason of physical or mental
disability. For purposes of this Agreement, "physical or mental disability"
shall mean Employee's inability, due to health reasons, to discharge properly
his duties of employment supported by the opinion of a physician satisfactory to
the parties. Should Employee be subsequently able to return to work after
termination as provided herein, Bank may in its discretion, employ Employee in
the same capacity or in such other capacity as may be mutually agreeable under
such terms and conditions as the parties may so agree prior to such return
however, Employee shall provide a physicians opinion certifying has ability to
return to work.
C) In the event of PERSONAL DISHONESTY, WILLFUL MISCONDUCT, GROSS
NEGLIGENCE, INCOMPETENCY on Employee's part, conduct unbecoming a banker,
insubordination, or in the event of his deliberate failure to fulfill his
obligations under this Agreement, the Board of Directors may terminate this
Agreement by giving the Employee two (2) weeks written notice thereof. Such
termination shall be effective at the expiration of such two (2) week notice.
Thereafter the Bank shall not be obligated under any of the provisions herein,
except as required by any statute in effect at that time.
D) Employee may voluntarily terminate his employment upon giving the
Bank four (4) weeks written notice of his decision to terminate. Such a
termination shall not constitute a breach of this Agreement; provided, however,
that Employee shall be obligated after the date of such termination, to continue
to be bound by the conditions outlined in Section 7 hereof.
E) The parties may mutually agree to terminate this Agreement in writing
on such terms as they may determine.
F) The Bank may terminate Employee's employment without cause and
without notice; provided, however, that the Bank shall be obligated to continue
to pay Employee's base salary for the longer of three (3) months after the date
of such termination or the remainder of the term of the Agreement and provided
further that Employee shall be relieved of all further obligations under this
Agreement except for provisions pursuant to Paragraph 7.
G) In the event of a "change of control of the Bank", resulting in a
"substantial change in employee's duties", both as defined herein, Employee may,
at his option, upon ninety (90) days written notice, terminate his employment
and shall be entitled to all benefits due him pursuant to this agreement,
including but not limited to salary, for the remainder of this agreement.
<PAGE> 5
- 54 -
"Change of Control" shall be defined as the acquisition of 25% or more
of the Bank's outstanding shares or such lower percent which may constitute a
change in control for Bank regulatory purposes, a change in the composition of a
majority of the members of the Board of Directors, a merger or reorganization
such that the Bank is not a surviving entity, or the sale of substantially all
of the Bank's assets.
"Substantial Change in Employee's Duties" shall mean a demotion or
diminishment of employees job description and responsibilities such as would
result in a constructive firing or resignation of employee.
This paragraph is intended to protect employee in the event of a hostile
takeover of the Bank and a reduction of employee's title, position benefits
and/or duties in an attempt to force employee to resign.
9.MODIFICATION: This Agreement constitutes the full and complete
understanding of the parties and supersedes all prior agreements an
understandings oral or written, between the parties, with respect to the subject
matter hereof. This Agreement may not be modified or amended except by an
instrument in writing, signed by the party against which enforcement thereof may
be sought.
10.SEVERABILITY: Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or un-enforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or effecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
11.WAIVER OF BREACH: The waiver by either party of a breach of any
provision of this Agreement shall not operate as, or be construed as a waiver of
any subsequent breach.
12.NOTICE: All notices hereunder shall be in writing and shall be sent
by express mail or by certified or registered mail, postage prepaid, return
receipt requested, to Employee at his residence as listed in the Bank's records,
and to the Bank, c/o Evans National Bank of Angola, 14-16 North Main Street,
Angola, New York 14006, Attention: Mr. Richard M. Craig, President and CEO.
13.ASSIGNABILITY: BINDING EFFECT: This Agreement shall not be assignable
by Employee without the written consent of the Board of Directors of the Bank.
This Agreement shall be binding upon and inure to the benefit of Employee, his
legal representatives, heirs and distributees and shall be binding upon and
inure to the benefit of the Bank, its successors and assigns.
<PAGE> 6
- 55 -
14.GOVERNING LAW: All questions pertaining to the validity,
construction, execution and performance of this Agreement shall be construed and
governed in accordance with the law of the State of New York.
15.HEADINGS: The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
IN WITNESS WHEREOF, parties hereto have set their hands and seals the
day and year above written.
EVANS NATIONAL BANK
By /s/Richard M. Craig
-----------------------------
Richard M. Craig, President& CEO
/s/William R. Glass
-----------------------------
William R. Glass
<PAGE> 1
- 56 -
EXHIBIT 13.1
<PAGE> 2
- 57 -
Annual Report
1997
Evans Bancorp, Inc.
<PAGE> 3
- 58 -
Contents
Profile
1
President's
Message
2
Selected
Financial
Information
4
Management
Discussion
and Analysis
5
Independent
Auditor's Report
11
Consolidated
Financial
Statements
12
Corporate
Information
29
<PAGE> 4
- 59 -
PROFILE
Evans Bancorp, Inc. is a bank holding company headquartered in Angola, New York
and conducts its business through its wholly-owned subsidiary, Evans National
Bank. The Bank is a FDIC full-service commercial bank and as of December 31,
1997 had total assets of $158,542,163, total deposits of $138,391,327 and total
stockholders' equity of $17,039,300. The Bank's primary market area is located
in Western New York State and specifically in southern Erie County, northern
Chautauqua County and northwestern Cattaraugus County.
The principal business of the Bank is commercial banking and consists of,
among other things, attracting deposits from the general public and using these
funds to extend credit and to invest in securities. The Bank offers a variety of
loan products to its customers including commercial loans, commercial and
residential mortgage loans, and consumer loans. In addition, the Bank offers
deposit products to include checking and NOW accounts, passbook and statement
savings, and certificates of deposits.
1
<PAGE> 5
- 60 -
PRESIDENT'S MESSAGE
It gives me great pleasure to report that 1997 was a year of excellent
performance, profitability, and growth for Evans Bancorp, Inc. and its
subsidiary, Evans National Bank.
Record earnings of $1.8 million for 1997 resulted in an increase in
earnings per share of $.11 to $1.06, for a gain of 11.6%. The increase in net
income was $187,633, or 11.6% over 1996. Other key performance indicators were a
1.19% return on average assets as compared to 1.20% in 1996, and an 11.06%
return on average equity as compared to 10.72% the previous year. Total capital
increased from $15.5 million to $17.0 million, or 9.7%. The Tier I capital ratio
of 16.33%, total capital ratio of 16.93%, and leveraged ratio of 10.84%
substantially exceeded the regulatory requirements of 8.0%, 4.0%, and 4.0%
respectively.
There was excellent news on the common stock front as well. On April 29,
1997, the shareholders approved a common stock split, changing each issued share
of common stock, par value $2.50, into five shares of common stock with a par
value of $.50 per share. The shareholders also increased the number of shares of
common stock the Company is authorized to issue from 1,000,000 shares, par value
$2.50 per share, to 10,000,000 shares with a par value of $.50 per share. The
market value of the stock was $136.00 per share before the split and $27.20
following the split. On December 31, 1997, the market value was $38.00 per
share, an increase of $10.80, or 39.7%. The Board of Directors declared a cash
dividend of $.30 per share in August 1997.
A major contributing factor in our gain in net income was a $9.5 million
increase, or 10.3% in our loan portfolio. A record year, 1997 saw total loans
surpass the $100 million level, increasing from $92.1 million to $101.6 million.
In addition, loan charge-offs were down for 1997 as we continue to ensure that
appropriate credit standards are consistently maintained. Charge-offs totalled
$47,000, or .05% of outstanding loans, compared to $77,000, or .08%, in 1996.
Our strong loan portfolio growth was funded by a $14.9 million increase in
deposits, a 12.09% increase, from $123.4 million to $138.3 million. Higher
yielding certificates of deposit accounted for the majority of the growth in
deposits, with our new premium savings account also playing a role.
Technological enhancements initiated in 1996 and completed in 1997 will, I
am confident, help keep the Bank on track and growing as we approach the year
2000. These important and exciting improvements included the replacement of our
mainframe computer and upgrading to a Unix-based operating system last February,
followed by installation of a state-of-the-art archival system. This system
provides the Bank with a highly efficient record storage and retrieval network.
In July, the final phase of our new check-processing technology was completed,
which provides our customers with laser-printed images of their cancelled
checks, allowing improved record keeping and more efficient check storage, as
well as reducing the Bank's paper and postage costs.
Providing our customers with the most convenient methods of banking
possible in order for the Bank to remain competitive in our marketplace is of
prime importance to us. Toward that aim, we have been evaluating systems for
banking by telephone or personal computer. Our evaluation is now completed, and
we anticipate making these innovative services available to our customers in the
PROVIDING
OUR CUSTOMERS
WITH THE MOST
CONVENIENT
METHODS OF
BANKING
POSSIBLE
IN ORDER FOR
THE BANK TO
REMAIN
COMPETITIVE
IN OUR
MARKETPLACE
IS OF PRIME
IMPORTANCE
TO US.
2
<PAGE> 6
- 61 -
second quarter of 1998. Shortly thereafter, our ATM network will be upgraded to
provide on-line capability at our automated teller machines. Lastly, in order to
increase flexibility to our customers for access to their funds at points of
sale, introduction of a debit card product is planned.
As we approach the new Millennium, I want to assure you that the Bank is
aggressively planning and preparing for the year 2000. We have appointed a
project team with senior management and vendor participation that is tasked with
ensuring all internal systems and procedures are compliant with year 2000
requirements. Our plan is comprehensive and mission-critical. Testing is
scheduled to complete by year-end 1998.
Our heartfelt thanks go to Carl F. Ulmer for his wise advice, constant
support, and innumerable contributions during his 32 years of service to the
Company and the Bank. Mr. Ulmer's retirement as Chairman of the Board of
Directors was effective December 31, 1997. He has been elected a Director
Emeritus of the Board. Thomas H. Waring, Jr. was appointed by the Board as a
Board member effective January 1, 1998 to fill Mr. Ulmer's unexpired term. At
that time, I was also elected Chairman of the Board.
In other personnel matters, I am pleased to report the following officer
promotions during 1997: Susan J. Herold, Assistant Vice President; Howard M.
Martin, Jr., Assistant Vice President; and Mary K. Nytz, Banking Officer. We
recognized the following employees during 1997 for their years of service as
noted: Antoinette Pinter, Nancy Ferraro, Cathy Rohrich, Michelle Bress (20
years); Susan Eberhardt, Beverly Iskra (15 years); Paula Kramer, Pamela
Marchant, Barbara Page (10 years); Melissa Brooks, Jennifer Warnes (5 years).
In September 1997, I was elected to a one-year term as President of the
Independent Bankers Association of New York State. My responsibilities in this
position include representing the interests of community banks across the state
which support legislation for the betterment of community banking, as well as
the communities they serve.
The management and employees of Evans National Bank remain committed to
actively support the communities served by the Bank through credit extensions,
diverse volunteer work, service to local municipalities and school districts,
and association with a wide range of community, charitable, and philanthropic
organizations and groups.
I wish to express my sincere appreciation to our Board of Directors and
employees, as well as to our shareholders and customers, for their support
during the past year. We pledge to continue our efforts to seek out
opportunities for further growth, market presence, professional development, and
improved technology as we strive to address the challenges that lie ahead.
/s/ Richard M. Craig
Richard M. Craig / Chairman of the Board, President and Chief Executive Officer
3
<PAGE> 7
- 62 -
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION
For the Year Ended December 31 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Interest Income $ 11,072,851 $ 9,799,815 $ 9,226,500 $ 8,206,596 $ 7,989,392
- ---------------------------------------------------------------------------------------------------------------------------
Interest Expense 4,588,056 3,912,761 3,418,782 2,747,297 2,680,003
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income 6,484,795 5,887,054 5,807,718 5,459,299 5,309,389
- ---------------------------------------------------------------------------------------------------------------------------
Non-Interest Income 950,662 930,986 763,054 785,551 672,015
- ---------------------------------------------------------------------------------------------------------------------------
Non-Interest Expense 4,849,182 4,555,398 4,228,922 3,981,801 3,581,929
- ---------------------------------------------------------------------------------------------------------------------------
Net Income 1,802,275 1,614,642 1,664,783 1,617,049 1,612,392
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $158,542,163 $140,898,057 $125,308,204 $114,565,971 $112,465,797
- ---------------------------------------------------------------------------------------------------------------------------
Loans - Net 101,627,427 92,087,902 75,468,504 71,998,929 67,754,002
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses 609,539 546,954 557,961 628,957 612,921
- ---------------------------------------------------------------------------------------------------------------------------
Securities 40,400,374 36,054,324 38,954,494 32,341,350 33,371,944
- ---------------------------------------------------------------------------------------------------------------------------
Total Deposits 138,391,327 123,461,379 109,020,551 100,532,031 99,860,851
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity 17,039,300 15,510,083 14,485,510 12,723,940 11,489,412
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.06 $ 0.95 $ 0.97 $ 0.95 $ 0.95
- ---------------------------------------------------------------------------------------------------------------------------
Cash Dividend $ 0.30 $ 0.22 $ 0.14 $ 0.09 $ 0.07
- ---------------------------------------------------------------------------------------------------------------------------
Book Value at Year End $ 10.03 $ 9.13 $ 8.53 $ 7.49 $ 6.76
- ---------------------------------------------------------------------------------------------------------------------------
Market Value $ 38.00 $ 27.20 $ 22.00 $ 14.00 $ 13.10
- ---------------------------------------------------------------------------------------------------------------------------
Shares Outstanding 1,698,950 339,790 317,481 296,613 277,170
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Average Shares 1,698,950 1,698,950 1,698,950 1,698,950 1,698,950
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Retroactively adjusted for stock dividends and stock split)
4
<PAGE> 8
- 63 -
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Evans National Bank (the "Bank"), a wholly-owned subsidiary of Evans Bancorp,
Inc. (the "Company"), is a nationally chartered bank founded in 1920 which is
headquartered in Angola, New York. The Bank's principal business is to provide
full banking services to consumer and commercial customers in Erie, Chautauqua
and Cattaraugus Counties of Western New York. The Bank serves its market through
six banking offices located in Angola, Derby, Evans, Forestville, Hamburg and
North Boston, New York. The Bank's principal source of funding is through
deposits which it reinvests in the community in the form of loans and
investments. Deposits are insured to the applicable limit by the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC"). The Bank is
regulated by the Office of the Comptroller of the Currency.
The following discussion of financial conditions and results of operations
of the Company and the Bank should be read in conjunction with the consolidated
financial statements and accompanying notes.
RESULTS OF OPERATIONS
Net income in 1997 of $1,802,275 resulted in earnings per share of $1.06, which
compares with net income of $1,614,642, or $.95 per share, in 1996 and
$1,664,783, or $.97 per share, in 1995. The increase of 11.6% in net income in
1997 over 1996 illustrates the income benefit of the Bank's increased presence
in the Western New York area. Net income had declined 3% from 1995 to 1996 due
to increased overhead related to the Bank's $2.2 million expansion plan
implemented over those two years. In 1997, new business attributable to the
operation of two additional locations, a branch office in Hamburg, NY, which
opened in October, 1995, and the Evans, NY branch, which opened in May, 1996,
contributed to the Bank's asset growth and improved earnings.
NET INCOME ($ Millions)
- -----------------------
1993 1.6
1994 1.6
1995 1.7
1996 1.6
1997 1.8
Net interest income, the difference between interest income and fees on
earning assets, such as loans and securities, and interest expense on deposits,
provides the basis for the Bank's results of operations. These results are also
affected by non-interest income, the provision for credit losses, non-interest
expense, and income taxes.
NET INTEREST INCOME
Net interest income, before the provision for credit losses, increased 10.2%
from 1996 to 1997, compared to an increase of 1.4% from 1995 to 1996. Average
earning assets increased $15.8 million or 12.7% in 1997. The tax-equivalent
yield earned on those assets was 8.31% compared to 8.27% in 1996. The increase
in both rate and volume was sufficient to offset an increase of $13.3 million,
or 13.6%, in average interest-bearing liabilities in 1997 over 1996 and an
increase in the average cost of funds of 12 basis points, from 3.99% in 1996 to
4.11% in 1997. In 1997, the Bank's net interest margin was 4.59% compared to
4.64% in 1996.
The increase of only 1.4% in net interest income in 1996 over 1995 was
largely the result of an increase in the average cost of funds versus virtually
no change in the tax-equivalent yield on earning assets. The average cost of
funds increased 22 basis points from 3.77% in 1995 to 3.99% in 1996. The
tax-equivalent yield on earning assets changed only one basis point over that
time period, declining from 8.28% in 1995 to 8.27% in 1996. Average earning
assets increased 7.7% in 1996 over 1995 versus a volume increase of 8.2% in
interest-bearing liabilities. The net interest margin was 4.64% compared to
4.99% in 1995.
The Federal Reserve Board increased the federal funds rate a quarter of a
percent at its March 26, 1997 meeting. This was the only move in rates in 1997,
and only the second in two years. The Federal Reserve Board had reduced the
federal funds rate a quarter of a percent in January of 1996.
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. In 1995, the Bank established an
Asset/Liability
5
<PAGE> 9
- 64 -
Management Committee ("ALCO") 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
adopted an asset/liability policy which 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 assets as a result of
a shift in interest rates. The asset/liability policy also includes guidelines
for investment activities and funds management. The ALCO meets monthly to review
the Bank's status and formulate its strategy based on current economic
conditions, interest rate forecasts, loan demand, deposit volatility, and the
Bank's earnings objectives.
PROVISION FOR CREDIT LOSSES
Credit losses represent the amount charged against earnings to establish a
reserve of allowance sufficient to absorb expected loan losses based on
management's evaluation of the loan portfolio. In 1997, $60,000 was charged
against earnings for credit losses. This amount was also charged against
earnings in 1996. In 1995, the Bank updated the methodology it uses to calculate
the reserve amount for credit losses. After considering loan concentrations,
charge-off history, delinquent loan percentages and general economic conditions,
the Bank reversed $86,933 of its provision for credit losses in 1995. The
following table summarizes the Bank's actual credit losses, total of
non-performing loans and total allowance for credit losses for 1997, 1996 and
1995, both in dollars and as a percentage of total loans outstanding:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
Actual Credit
Losses $ 47,000 0.05% $ 77,000 0.08% $ 11,000 0.014%
- -------------------------------------------------------------------------------
Non-Performing
Loans $987,000 0.96% $230,000 0.20% $312,000 0.470%
- -------------------------------------------------------------------------------
Allowance for
Credit Losses $609,539 0.59% $546,954 0.59% $557,961 0.730%
- -------------------------------------------------------------------------------
</TABLE>
Although, during 1997, nonperforming loans increased over the unusually low
level of the prior year, all loans in this category are considered
well-collateralized and in the process of collection. As a result, no
significant losses are anticipated.
NON-INTEREST INCOME
Total non-interest income increased approximately $20,000 in 1997 from 1996
compared with an increase of approximately $168,000 in 1996 from 1995. In 1997,
service charge income was $670,366 compared to $667,839 in 1996. Service charge
income had increased approximately $106,000 in 1996 over the prior year as the
result of an increase in the Bank's service charges which was implemented in
September of 1995.
Other non-interest income decreased approximately $6,000 in 1997 from
1996. In 1996, the Bank received $15,000 in state and federal tax refunds for
the 1994 tax year and the Bank's loan activity resulted in a high level of
loan-related income. In 1997, the increase in the cash surrender value of life
insurance policies carried on certain bank officers was approximately $64,000
versus an increase in value of approximately $45,000 in 1996.
Gains realized on the sale of assets increased $23,000 in 1997 from 1996.
Net losses on the sales of securities were $2,000 in 1997 whereas in 1996 net
losses totalled $23,000. In 1996, the Bank experienced a loss of $61,000 on a
residual bond that was called for redemption in full. This loss was partially
offset by net gains on planned sales of securities of $38,000 that year.
Premiums received on sales of student loans to the Student Loan Marketing
Association ("SLMA") were $28,000 in both 1996 and 1997 and premiums received on
sales of mortgages to the Federal National Mortgage Association ("FNMA") were
$8,000 in 1997 as compared to $6,000 in 1996. The Bank became affiliated with
both SLMA and FNMA in 1995.
NON-INTEREST EXPENSE
In 1997, the ratio of non-interest expense to average assets was 3.18% compared
to 3.37% in 1996 and 3.40% in 1995. Non-interest expense categories include
salaries, occupancy expenses, repairs and maintenance, advertising and
professional services , among others. Occupancy expenses increased 19.5% in 1997
over 1996. This increase included a full year of depreciation on the Town of
Evans office and additional depreciation costs resulting from capital
expenditures in 1997. A new mainframe computer system, a new telephone system,
check imaging hardware and software and additional personal computers and
printers were all purchased during the course of the year. Changes in check
processing and computer operations which resulted from these purchases have also
reduced staffing requirements in these areas, and through staffing
reassignments, attrition and the use of part-time employees, the Bank has been
able to control salary and benefit expenses. These expenses declined $11,000
from 1996 to 1997. The cost of professional services increased $96,000 in 1997
over 1996. The Bank incurred additional fees due to work done by its accountants
and attorneys in reference to the five-for-one stock split in 1997
6
<PAGE> 10
- 65 -
STOCKHOLDERS' EQUITY ($ Millions)
1993 11.5
1994 12.7
1995 14.5
1996 15.5
1997 17.0
and the implementation of the dividend reinvestment plan for shareholders. The
Bank also hired a consultant in 1997 to study the Bank's daily operating
procedures to identify areas where efficiencies could be improved.
Recommendations resulting from this study are in the process of being
implemented. The income benefit is expected to be ongoing and is expected to
surpass the cost of the study in the first year.
In 1997, the Bank's FDIC insurance assessment increased from $2,000 to
$15,328. In 1996, as a well-capitalized institution, the Bank was assessed the
minimum $2,000 premium. This minimum is no longer required by law. However,
starting January 2, 1997 as a Bank Insurance Fund ("BIF") member, the Bank is
being assessed for FICO interest payments at a rate of 1.28 cents per $100 in
deposits annually. In 1996, the Bank's insurance assessment had dropped to
$2,000 from $120,231 in 1995 as the FDIC responded to the full funding of the
BIF by decreasing premiums. In 1995, the premium was reduced from $.23 per $100
of deposits to $.04 per $100 of deposits. In 1996, the rate was reduced to zero
with a minimum charge of $500 per quarter for well capitalized banks. The Bank
was assessed at the minimum rate, and it remains well above the regulatory
minimums for the key measures of capital adequacies as disclosed in note 12 of
the financial statements.
TAXES
The provision for taxes in 1997 of $724,000 reflects an effective tax rate of
28%. This compares to $588,000 and 26% in 1996 and $764,000 and 31% in 1995. In
1997, the Bank increased its holdings of tax-advantaged municipal bonds by 38%,
benefitting its overall tax position. Additionally, $75,000 in income recorded
in 1997 as the result of the increase in the cash surrender value of life
insurance policies held on certain bank officers and directors is non-taxable.
In 1996, there was a change in the composition of the deferred tax calculation,
resulting in an overall decrease in the effective tax rate from 1995. This
decrease was over and above that which was expected due to tax-exempt securities
income, untaxed CSVLI income and tax refunds received, which are not taxable.
FINANCIAL CONDITION
The Bank had total assets of $158.5 million at December 31, 1997, increasing
$17.6 million or 12.5% over December 31, 1996. Net loans increased $9.5 million
or 10.3% in 1997 over 1996. Loan growth was funded by an increase of $14.9
million in deposits, or 12.1%. Excess funds were invested in securities
resulting in an increase of $4.3 million, or 12.1% in the securities portfolio.
Capital increased $1.5 million or 9.7%, basically due to the retention of
earnings.
LOANS
Loans comprised 68.7% of the Bank's total average earning assets in 1997. For
the first time, the Bank surpassed the $100 million mark in net loans, reaching
$101.6 million by year-end. The increase of 10.4% in actual year-end balances in
1997 over 1996 compares to an increase of 22% in 1996 over 1995. The Federal
Reserve lowered rates in July and December of 1995 and again in January of 1996
contributing to increased loan demand throughout 1996. The Federal Reserve
raised rates 25 basis points in early 1997, but despite this increase, loan
demand remained strong through 1997. The expansion of the Bank's trade area
since 1995 has also had a positive impact on loan activity.
NET LOANS ($ Millions)
1993 67.8
1994 72.0
1995 75.5
1996 92.1
1997 101.6
The Bank continues to focus its lending on commercial and residential
mortgages, small commercial loans and home equity loans. Commercial mortgages
make up the largest segment of the portfolio at 43.8%. Residential mortgages
comprise 23.4% of the portfolio and commercial loans total 12.6%. Home equity
loans make up 15.5% of total loans.
The Bank currently retains the servicing rights to $2.7 million in
long-term mortgages sold to the Federal National
7
<PAGE> 11
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Mortgage Association ("FNMA") since becoming a member in 1995. This arrangement
allows the Bank to offer long-term mortgages without exposure to the associated
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
students who are still in school and subsequently purchases those loans when the
student goes into repayment. In 1997, student loan balances increased 2.3% over
1996. Student loan balances had decreased 13.4% in 1996 from 1995 and decreased
60% in 1995 from 1994 levels, due to the sale of loans to SLMA.
At December 31, 1997, the Bank had a loan-to-deposit ratio of 73.9%, and
estimated its unloaned core deposits at $4.6 million. The Bank monitors the
level of its unloaned core deposits to ensure that it is sufficient to fund
anticipated loan growth as it expands its market area and develops new products.
SECURITIES
Securities and federal funds sold made up the remaining 31.3% of the Bank's
earning assets at December 31, 1997.
SECURITIES ($ Millions)
1993 33.4
1994 32.3
1995 39.0
1996 36.1
1997 40.4
Since deposit growth exceeded the volume necessary to fund loan demand, an
additional $4.3 million was directed into the securities portfolio in 1997. In
1996, deposit growth was insufficient to support loan growth. Proceeds from
matured and sold securities were used to provide the additional funding
necessary. As a result, the securities portfolio decreased $2.9 million from
1995 to 1996. The portfolio remains concentrated in US government and government
agency securities and tax-exempt municipal bonds of varied maturity. By
increasing the percentage of tax-advantaged municipal bonds in the portfolio and
reducing the average balance maintained in federal funds sold, the
tax-equivalent yield on securities and federal funds sold improved to 6.57% in
1997 from 6.51% in 1996.
In 1994, the Bank adopted Financial Accounting Standard No. 115 which
outlines accounting and reporting procedures for investment securities. At that
time, all securities in the Bank's portfolio were designated as either "held to
maturity" or "available for sale", as were all subsequent purchases. Securities
which the Bank designates as held to maturity are stated on the balance sheet
at amortized cost, and those designated as available for sale are reported at
fair market value. The unrealized gains and losses on available for sale
securities are recorded, net of taxes, as a separate component of shareholders'
equity. Transferring a security from one category to another results in certain
accounting consequences. In 1995, Financial Accounting Standards Board allowed
a one-time reclassification of securities without penalty. As a result of this
one-time window of opportunity, the Bank reclassified the majority of its bonds
in the held to maturity category as available for sale. This reclassification
was made after careful consideration of the Bank's anticipated liquidity needs
and the present and future impact of such a transfer on the Bank's earnings and
capital.
DEPOSITS
Total deposits increased $14.9 million in 1997 over 1996. All categories of
deposits increased, with the most significant growth occurring in demand
deposits and time accounts with balances in excess of $100,000. Actual year-end
balances of $21.7 million in demand deposits reflect an increase of 7.6% over
1996 levels. Time accounts over $100,000 increased 62% in 1997 over 1996.
Although large time accounts have traditionally been obtained from municipal
depositors through the competitive bidding process, new accounts have been
attracted from commercial and retail customers over the past two years as a
result of the Bank's broadened market.
TOTAL DEPOSITS ($ Millions)
1993 99.9
1994 100.5
1995 109.0
1996 123.5
1997 138.4
The Bank continues to evaluate ways to improve its existing deposit
products to meet customer needs, as well as
8
<PAGE> 12
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develop new products which will keep the Bank competitive in the marketplace.
With both of these goals in mind, the Bank introduced the Premium Savings, a
tiered rate retail savings product, in May of 1997. This product is designed to
provide an option for high balance customers who prefer the liquidity and safety
of an insured savings product, but are looking for a competitive rate. At
December 31, 1997, Premium Savings balances totalled $5.5 million. About half of
the initial deposits made have been identified as new money, with the remainder
transferring into the Premium from other Bank deposit accounts.
LIQUIDITY
The Bank seeks to manage its liquidity so that it is able to meet day to day
loan demand and deposit fluctuations, while attempting to maximize the amount of
net interest income on earning assets. Traditionally, the Bank has utilized its
federal funds balances and cash flows from the investment portfolio to fulfill
its liquidity requirements. In 1997, overnight federal funds balances averaged
$2.3 million. The maturities of the Bank's investments are laddered in such a
way as to provide runoff at times that a liquidity need may arise. At December
31, 1997, approximately 11.6% of the Bank's securities had contractual
maturities of one year or less and 40.1% had maturity dates of five years or
less. At December 31, 1997, the Bank had net short-term liquidity of $5.9
million compared to $8.1 million at December 31, 1996. Available assets of $44.4
million less public and purchased liabilities of $29.7 million resulted in a
long-term liquidity ratio of 149% compared to 204% at December 31, 1996.
Although the Bank believes it has sufficient resources in its securities
portfolio to meet its short-term and long-term liquidity needs, the Bank also
has the option to purchase up to $4,000,000 in federal funds from one of its
correspondents.
The Bank is a member and shareholder of the Federal Home Loan Bank ("FHLB")
which will make cash advances of various terms at competitive rates to its
members. Advances of up to $7.7 million can be drawn on the FHLB, via the
Overnight Line of Credit Agreement, and an amount equal to 25% of the Bank's
total assets could be borrowed through the advance programs under certain
qualifying circumstances.
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 amount of US government and US government agency
securities and New York State municipal bonds that can be pledged as collateral
for these deposits.
INTEREST RATE RISK
Interest rate risk occurs when interest-earning assets and interest-bearing
liabilities mature or reprice at different times or on a different basis. The
Bank's ALCO analyzes the gap position on a monthly basis to determine the Bank's
exposure to interest rate risk. The gap position is the difference between the
total of the Bank's rate sensitive assets and rate sensitive liabilities
maturing or repricing during a given time frame. A "positive" gap results when
more assets than liabilities reprice and a "negative" gap results when more
liabilities than assets reprice in a given time period. Because assets
historically reprice faster than liabilities, a slightly negative gap position
is considered preferable. At December 31, 1997, the Bank was in a negative gap
position, with $12.5 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 +/- $23.8 million at December 31, 1997.
Therefore, the Bank's negative gap position was well within its policy limits.
The gap ratio (rate sensitive assets/rate sensitive liabilities) at that date
was 82%.
MARKET RISK
When rates rise or fall, the market value of the Bank's assets and liabilities
will increase or decrease. As part of the Bank's asset/liability policy, the
Bank has set limitations on the negative impact to the market value of its
balance sheet that would be accepted. The Bank's securities portfolio is priced
monthly and adjustments are made on the balance sheet to reflect the market
value of the available for sale portfolio per Financial Accounting Standard No.
115. A limitation of a negative ten percent of total capital before FAS 115
(after tax) has been set forth in the asset/liability policy as the maximum
impact to equity that would be acceptable. At year end, the impact to equity as
a result of marking available for sale securities to market was an unrealized
gain of approximately $214,000. On a quarterly basis, the available for sale
portfolio is shocked for immediate rate increases of 100 and 200 basis points.
At December 31, 1997, the Bank determined that it would take an immediate
increase in excess of 200 basis points to eliminate the current capital cushion.
The Bank also reviews the Bank's capital ratios on a quarterly basis. Unrealized
gains or losses on available for sale securities are not included in the
calculation of these ratios.
9
<PAGE> 13
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The following table provides information about the Bank's on-balance sheet
financial instruments that are sensitive to changes in interest rates. Expected
maturity date values for interest-earning assets were calculated by adjusting
the contractual maturity date for expectations of prepayments. Expected maturity
date values for interest-bearing core deposits were calculated based upon
estimates of the period over which the deposits would be outstanding.
Off-balance sheet financial instruments at December 31, 1997 included
$6,537,000 in undisbursed lines of credit at an average interest rate of 9.48%,
$1,030,000 in fixed rate loan origination commitments at 12.23%, $8,383,000 in
adjustable rate loan origination commitments at 9.85%, and $551,000 in
adjustable rate letters of credit at an average rate of 10.50%.
<TABLE>
<CAPTION>
Expected maturity date-
year ended December 31, 1998 1999 2000 2001 2002 Thereafter Total Fair Value
INTEREST-EARNING
ASSETS ($000S)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Loans Receivable, Fixed Rate 7,953 4,536 5,115 3,591 3,184 15,514 39,893 39,944
Average Interest Rate 8.87% 9.16% 9.24% 8.88% 8.75% 8.71%
- ---------------------------------------------------------------------------------------------------------------------------
Loans Receivable, Adj. Rate 13,341 3,642 3,711 4,618 3,422 33,538 62,344 62,425
Average Interest Rate 9.65% 9.28% 9.33% 9.05% 9.12% 8.92%
- ---------------------------------------------------------------------------------------------------------------------------
Investments 4,938 2,544 5,128 1,182 4,665 21,943 40,400 40,437
Average Interest Rate 6.51% 6.52% 5.99% 6.92% 6.87% 7.04%
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING
LIABILITIES ($000S)
- ---------------------------------------------------------------------------------------------------------------------------
Deposits 64,596 22,431 12,827 12,024 4,822 10 116,710 117,053
Average Interest Rate 4.80% 3.92% 2.67% 2.51% 2.99% 7.75%
- ---------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement 1,059 0 0 0 0 0 1,059 1,059
Average Interest Rate 3.00%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
CAPITAL EXPENDITURES
Large capital expenditures scheduled for 1998 include the equipment and software
necessary to provide our customers with the option of conducting banking
transactions by telephone or via a personal home computer. This project is
expected to cost approximately $240,000. In 1997, the Bank purchased statement
imaging equipment and upgraded its mainframe and archiving systems. This kind of
expenditure enable the Bank to continue to provide quality customer service
despite increased work volumes. The Bank believes that it has a sufficiently
strong 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 changes in the economic policies
of the Federal Reserve Board, that will have an impact on the profitability of
the Company. Inflation may result in impaired asset growth, reduced earnings and
substandard capital ratios. The net interest margin can be adversely impacted by
the volatility of interest rates throughout the year. Since these factors are
unknown, management attempts to structure the balance sheet and the repricing
frequency of its interest-sensitive assets and liabilities to avoid a
significant concentration that could result in a material negative impact on
earnings.
THE NEW MILLENNIUM
The Year 2000 poses serious challenges to all industries, including banking. An
action plan has been formulated and accompanying timetable established for Year
2000 compliance. Representatives from each area of the Bank and the computer
systems and programming analyst meet monthly to discuss Year 2000 issues and
track the Bank's progress. At present, the Bank is on schedule in completing its
Year 2000 initiatives. Since the Bank is continually upgrading and improving its
technology, it is not anticipated these initiatives will materially impact
normal budgeted software costs.
10
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors EVANS BANCORP, INC.
We have audited the accompanying consolidated balance sheets of Evans Bancorp,
Inc. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Evans Bancorp, Inc. and subsidiary as of
December 31, 1997 and 1996 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Buffalo, New York
January 23, 1998
11
<PAGE> 15
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<TABLE>
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, 1997 and 1996 1997 1996
ASSETS
<S> <C> <C>
Cash and due from banks $ 5,821,532 $ 5,662,231
Federal funds sold 4,515,000 1,450,000
------------ ------------
Cash and cash equivalents 10,336,532 7,112,231
Securities:
Available for sale, at fair value 33,822,334 30,201,120
Held to maturity, at amortized cost (fair value of
$6,614,369 and $5,868,386, respectively) 6,578,040 5,853,204
Loans receivable, net of allowance for loan losses of
$609,539 and $546,954, respectively 101,627,427 92,087,902
Properties and equipment, net 3,827,672 3,748,663
Other assets 2,350,158 1,894,937
------------ ------------
TOTAL ASSETS $158,542,163 $140,898,057
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 21,680,839 $ 20,149,152
NOW and money market 7,093,959 6,437,613
Regular savings 44,264,697 42,136,290
Time ($100,000 and over) 22,873,379 14,096,821
Other time 42,478,453 40,641,503
------------ ------------
Total deposits 138,391,327 123,461,379
Other liabilities 3,111,536 1,926,595
------------ ------------
Total liabilities 141,502,863 125,387,974
CONTINGENT LIABILITIES AND COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value, 10,000,000 shares authorized and $2.50 par value,
1,000,000 shares authorized, respectively;
1,698,950 and 339,790 shares issued and outstanding, respectively 849,475 849,475
Capital surplus 10,990,720 10,990,720
Retained earnings 4,985,249 3,692,659
Unrealized gain (loss) on available for sale securities, net
of deferred taxes of $101,000 and $11,000, respectively 213,856 (22,771)
------------ ------------
Total stockholders' equity 17,039,300 15,510,083
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $158,542,163 $140,898,057
============ ============
See notes to consolidated financial statements.
</TABLE>
12
<PAGE> 16
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<TABLE>
<CAPTION>
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997, 1996 and 1995 1997 1996 1995
INTEREST INCOME
<S> <C> <C> <C>
Loans $ 8,632,716 $ 7,381,871 $ 6,760,511
Federal funds sold 122,516 201,831 276,698
Securities:
Taxable 1,372,883 1,427,890 1,381,740
Non-taxable 944,736 765,123 761,741
Deposits with banks 0 23,100 45,810
------------ ------------ ------------
Total interest income 11,072,851 9,799,815 9,226,500
INTEREST EXPENSE ON DEPOSITS AND BORROWINGS 4,588,056 3,912,761 3,418,782
------------ ------------ ------------
NET INTEREST INCOME 6,484,795 5,887,054 5,807,718
PROVISION FOR LOAN LOSSES 60,000 60,000 (86,933)
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,424,795 5,827,054 5,894,651
NON-INTEREST INCOME
Service charges 670,366 667,839 561,525
Gains on sales of assets, net 33,809 11,103 55,477
Other 246,487 252,044 146,052
------------ ------------ ------------
Total non-interest income 950,662 930,986 763,054
NON-INTEREST EXPENSE
Salaries and employee benefits 2,592,120 2,602,752 2,389,838
Occupancy 761,383 637,007 504,648
Supplies 101,534 118,740 109,226
Repairs and maintenance 163,189 147,383 132,620
Advertising and public relations 127,127 131,753 97,116
Professional services 308,617 212,601 224,269
FDIC assessments 15,328 2,000 120,231
Other 779,884 703,162 650,974
------------ ------------ ------------
Total non-interest expense 4,849,182 4,555,398 4,228,922
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,526,275 2,202,642 2,428,783
PROVISION FOR INCOME TAXES 724,000 588,000 764,000
NET INCOME $ 1,802,275 $ 1,614,642 $ 1,664,783
============ ============ ============
Net income per common share - basic $ 1.06 $ 0.95 $ 0.97
============ ============ ============
Weighted average number of common shares 1,698,950 1,698,950 1,698,950
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 17
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<TABLE>
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Years ended December 31, Common Stock Unrealized
1997, 1996 and 1995 --------------------- (Loss) Gain
on Available
No. of Capital Retained Treasury for Sale
Shares Amount Surplus Earnings Stock Securities, Net Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 296,613 $ 741,533 $ 7,183,912 $ 5,009,467 $ 0 $ (210,972) $12,723,940
1995 Net Income 1,664,783 1,664,783
Stock dividends, with
fractional shares
redeemed for cash 20,868 52,170 1,408,590 (1,483,065) (22,305)
Cash dividends ($.14 per
common share) (238,110) (238,110)
Change in unrealized gain
(loss) on available for sale
securities, net of deferred
taxes of $266,000 357,202 357,202
--------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1995 317,481 793,703 8,592,502 4,953,075 146,230 14,485,510
1996 Net Income 1,614,642 1,614,642
Stock dividends, with
fractional shares
redeemed for cash 22,309 55,772 2,398,218 (2,494,493) (40,503)
Cash dividends ($.22 per
common share) (380,565) (380,565)
Change in unrealized (loss)
gain on available for sale
securities, net of deferred
taxes of $120,000 (169,001) (169,001)
--------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1996 339,790 849,475 10,990,720 3,692,659 (22,771) 15,510,083
1997 Net Income 1,802,275 1,802,275
Five-for-one stock split 1,359,160
Purchase of 3,966 shares
for treasury (3,966) (130,878) (130,878)
Cash dividends ($.30 per
common share) (509,685) (509,685)
Sale of 3,966 shares
from treasury 3,966 130,878 130,878
Change in unrealized gain
(loss) on available for sale
securities, net of deferred
taxes of $101,000 236,627 236,627
--------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1997 1,698,950 $ 849,475 $10,990,720 $ 4,985,249 $ 0 $ 213,856 $17,039,300
========= =========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 18
- 73 -
<TABLE>
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31, 1997, 1996 and 1995 1997 1996 1995
OPERATING ACTIVITIES
<S> <C> <C> <C>
Interest received $ 11,027,381 $ 10,047,637 $ 9,172,841
Fees received 968,072 1,025,437 856,806
Interest paid (4,543,895) (3,847,407) (3,261,153)
Cash paid to employees and suppliers (4,680,322) (4,443,431) (4,207,102)
Income taxes paid (786,000) (743,444) (790,017)
------------ ------------ ------------
Net cash provided by operating activities 1,985,236 2,038,792 1,771,375
INVESTING ACTIVITIES
Available for sale securities:
Purchases (26,075,499) (16,562,178) (15,256,737)
Proceeds from sales 22,306,088 14,414,736 4,019,578
Proceeds from maturities 686,306 4,597,881 3,090,254
Held to maturity securities:
Purchases (2,618,319) (1,177,002) (4,650,173)
Proceeds from maturities 1,736,862 1,314,873 7,154,605
Additions to properties and equipment (466,472) (1,482,935) (1,344,741)
Increase in loans, net of repayments (12,236,511) (19,258,136) (7,671,007)
Proceeds from sales of loans 2,597,162 2,593,290 4,179,236
------------ ------------ ------------
Net cash used in investing activities (14,070,383) (15,559,471) (10,478,985)
FINANCING ACTIVITIES
Proceeds from repurchase agreement 1,059,080 0 0
Increase in deposits 14,929,948 14,440,828 8,488,520
Dividends paid (679,580) (251,173) (260,415)
------------ ------------ ------------
Net cash provided by financing activities 15,309,448 14,189,655 8,228,105
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 3,224,301 668,976 (479,505)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 7,112,231 6,443,255 6,922,760
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 10,336,532 $ 7,112,231 $ 6,443,255
============ ============ ============
(Continued)
</TABLE>
15
<PAGE> 19
- 74 -
<TABLE>
EVANS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31, 1997, 1996 and 1995 1997 1996 1995
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 1,802,275 $ 1,614,642 $ 1,664,783
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 356,663 344,086 221,359
Provision for loan losses 60,000 60,000 (86,933)
Gains on sales of assets (33,809) (11,103) (55,477)
Changes in assets and liabilities affecting cash flow:
Other assets (367,243) 96,609 (177,558)
Other liabilities 167,350 (65,442) 205,201
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,985,236 $ 2,038,792 $ 1,771,375
============ ============ ============
</TABLE>
(Concluded)
See notes to consolidated financial statements.
16
<PAGE> 20
- 75 -
EVANS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997, 1996 and 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and General - Evans Bancorp, Inc. (the "Company") was organized in
October 1988, under the Business Corporation Law of the State of New York as a
bank holding company. In January 1989, the shareholders of the Evans National
Bank (the "Bank") approved an Agreement and Plan of Reorganization (the
"Reorganization") whereby the Bank effectively became a wholly-owned subsidiary
of the Company. The Bank is in the commercial banking business, attracting
deposits from and making loans to the general public in its immediate
geographical area. The Bank's main office is located in Angola, New York and it
has branches in Derby, Evans, Forestville, Hamburg and North Boston.
Regulatory Requirements - The Bank is subject to the rules, regulations, and
reporting requirements of various regulatory bodies, including the New York
State Banking Department ("NYSBD") and the Federal Deposit Insurance Corporation
("FDIC").
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and the Bank. All material intercompany accounts and
transactions are eliminated in consolidation.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Securities - Securities for which the Bank has the positive intent and ability
to hold to maturity are stated at cost, adjusted for discounts and premiums that
are recognized in interest income over the period to the earlier of call date or
maturity using a method that approximates level yield. Securities held to
maturity have been designated as unavailable to be sold as part of the Bank's
asset-liability management activities.
Securities classified as available for sale are stated at fair value, with
unrealized gains and losses excluded from earnings and reported, net of deferred
income taxes, in stockholders' equity. Gains and losses on sales of securities
are computed using the specific identification method.
Securities which have experienced an other than temporary decline in fair value
are written down to a new cost basis with the amount of the writedown included
in earnings as a realized loss. The new cost basis is not changed for subsequent
recoveries in fair value. Factors which management considers in determining
whether an impairment in value of an investment is other than temporary include
the issuer's financial performance and near term prospects, the financial
condition and prospects for the issuer's geographic region and industry, and
recoveries in fair value subsequent to the balance sheet date.
The Bank does not engage in securities trading activities.
Allowance for Loan Losses - The allowance for loan losses is established through
a provision for loan losses. Recoveries on loans previously charged off are
credited directly to the allowance for loan losses. The allowance is an amount
that management believes adequate to absorb losses on existing loans that may
become uncollectible. Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan-loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrowers'
ability to repay, estimated value of any underlying collateral, and current
economic conditions.
In addition, various regulatory agencies, as part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.
Foreclosed Real Estate - Foreclosed real estate is initially recorded at the
lower of book or fair value (net of costs of disposal) at the date of
foreclosure. Costs relating to development and improvement of property are
capitalized, whereas costs relating to the holding
17
<PAGE> 21
- 76 -
of property are expenses. Valuations are periodically performed by management,
and an allowance for potential additional losses is established by a charge to
operations if the carrying value of a property exceeds fair value. Foreclosed
real estate is classified as other assets on the consolidated balance sheets.
Properties and Equipment - Properties and equipment are stated at cost less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets which range from 3 to 31
years.
The Bank regularly assesses all of its long-lived assets for impairment and
recognizes a loss when the carrying value of an asset exceeds its fair value.
The Bank determined that no impairment loss needs to be recognized for
applicable assets in 1997 or 1996.
Interest Income on Loans - Interest on loans is accrued and credited to income
based on the principal amount outstanding. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an indication that the
borrower may be unable to meet payments as they become due. Upon such
discontinuance, all unpaid accrued interest is reversed and any cash received is
credited to the outstanding principal balance. Such loans are returned to
accrual status when they are made current and, in the opinion of management, the
borrower has the ability to continue making timely payments. Loan origination
and commitment fees and certain direct loan origination costs are deferred and
recognized over the lives of the related assets as an adjustment of the loans'
yields using the level yield method.
Income Taxes - Deferred tax assets and liabilities are recorded for temporary
differences between the financial statement and tax bases of assets and
liabilities using the tax rate expected to be in effect when the taxes are
actually paid or recovered.
Net Income per Common Share - Net income per common share is based on the
weighted average number of shares outstanding during each year, retroactively
adjusted for stock dividends. The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," during the fourth
quarter of 1997. Only basic earnings per share is disclosed because the Company
does not have any dilutive securities or other contracts to issue common stock
or convert to common stock.
Dividend Reinvestment Plan - During 1997, the Board of Directors approved a
Dividend Reinvestment Plan (the "Plan") which provides each holder of record of
the Bank's common stock the opportunity to reinvest automatically the cash
dividends they receive on shares of the Bank's common stock. Stockholders who do
not wish to participate in the Plan will continue to receive cash dividends, as
declared, in the usual manner. American Stock Transfer and Trust Company (the
"Agent") is the administrator of the Plan. Shares purchased under the Plan are
held in safekeeping by the Agent until the stockholder terminates his/her
participation in the Plan. The Agent also acts as transfer agent and registrar
for the Bank's common stock.
Employee Benefits and Deferred Compensation Plan - Costs are charged to salaries
and employee benefits expense in the periods in which the services are rendered.
Pension costs are funded on a current basis in compliance with the Employee
Retirement Income Security Act and are accounted for in compliance with SFAS No.
87, "Employers' Accounting for Pensions".
Off Balance Sheet Financial Instruments - In the ordinary course of business the
Bank has entered into off balance sheet financial instruments consisting of
commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when the transactions are
executed.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks, interest bearing deposits in other
banks and federal funds sold. Generally, federal funds sold are purchased for
one-day periods.
Cash and due from banks includes reserve balances that the Bank is required to
maintain with Federal Reserve Banks. The required reserves are based upon
deposits outstanding and were approximately $657,000 and $591,000 at December
31, 1997 and 1996, respectively.
New Accounting Standards Pronouncement - In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes standards for reporting and disclosure of comprehensive income
and its components in financial statement format and is effective for financial
statements for fiscal years beginning after December 15, 1997. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. Items considered comprehensive income include foreign currency items,
minimum pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities.
18
<PAGE> 22
- 77 -
2. SECURITIES
The amortized cost of securities and their approximate fair value at December 31
were as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
Unrealized
Amortized ---------------------------- Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Government and Agency Securities $ 11,618,094 $ 23,843 $ (67,225) $ 11,574,712
Mortgage Backed Securities 1,419,658 30,799 0 1,450,457
State and Municipal Securities 19,477,751 402,202 (13,238) 19,866,715
Other Securities 930,450 0 0 930,450
------------ ------------ ------------ ------------
Total $ 33,445,953 $ 456,844 $ (80,463) $ 33,822,334
============ ============ ============ ============
Held to Maturity:
U.S. Government and Agency Securities $ 3,483,199 $ 36,333 $ 0 $ 3,519,532
State and Municipal Securities 3,094,841 0 (4) 3,094,837
------------ ------------ ------------ ------------
Total $ 6,578,040 $ 36,333 $ (4) $ 6,614,369
============ ============ ============ ============
1996
----------------------------------------------------------
Unrealized
Amortized ---------------------------- Fair
Cost Gains Losses Value
Available for Sale:
U.S. Government and Agency Securities $ 12,976,948 $ 25,450 $ (167,765) $ 12,834,633
Mortgage Backed Securities 1,694,066 41,553 0 1,735,619
State and Municipal Securities 14,638,658 183,826 (14,466) 14,808,018
Other Securities 822,850 0 0 822,850
------------ ------------ ------------ ------------
Total $ 30,132,522 $ 250,829 $ (182,231) $ 30,201,120
============ ============ ============ ============
Held to Maturity:
U.S. Government and Agency Securities $ 3,948,322 $ 15,194 $ 0 $ 3,963,516
State and Municipal Securities 1,904,882 0 (12) 1,904,870
------------ ------------ ------------ ------------
Total $ 5,853,204 $ 15,194 $ (12) $ 5,868,386
============ ============ ============ ============
</TABLE>
Assets, principally securities, with an amortized cost of $3,413,142 for held to
maturity securities and a fair value of $19,782,680 for available for sale
securities at December 31, 1997 were pledged as collateral to secure public
deposits and for other purposes required or permitted by law.
19
<PAGE> 23
- 78 -
The scheduled maturities of debt securities at December 31, 1997 are summarized
below. Actual maturities may differ from contractual maturities because certain
issuers have the right to call or prepay obligations with or without call
premiums.
<TABLE>
<CAPTION>
Available for Held to Maturity
Sale Securities Securities
--------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,063,259 $ 2,068,197 $ 2,606,485 $ 2,606,485
Due after year one through five years 12,307,228 12,312,896 215,718 215,714
Due after five years through ten years 14,105,037 14,393,969 63,330 63,330
Due after ten years 4,970,429 5,047,272 3,692,507 3,728,840
------------ ------------ ------------ ------------
Total $ 33,445,953 $ 33,822,334 $ 6,578,040 $ 6,614,369
============ ============ ============ ============
</TABLE>
Gains and losses from sales of securities for the years ended December 31, 1997,
1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Gross gains $ 65,150 $ 103,865 $ 22,705
Gross losses (67,145) (127,595) (13,266)
------------ ----------- ------------
Net (loss) gain $ (1,995) $ (23,730) $ 9,439
============ =========== ============
</TABLE>
3. LOANS RECEIVABLE, NET
Major categories of loans at December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Real estate - mortgages $ 85,367,123 $ 78,706,052
Real estate - construction 2,770,719 1,404,290
Commercial 8,938,560 6,993,852
Installment 2,517,892 2,646,246
Student loans 1,731,492 1,692,334
Other 509,935 769,322
Net deferred loan origination costs 401,245 422,760
------------ ------------
102,236,966 92,634,856
Allowance for loan losses (609,539) (546,954)
------------ ------------
Loans, net $101,627,427 $ 92,087,902
============ ============
</TABLE>
Changes in the allowance for loan losses for the years ended December 31, 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance, beginning of year $ 546,954 $ 557,961 $ 628,957
Provision for loan losses 60,000 60,000 (86,933)
Recoveries 49,443 5,597 23,281
Loans charged off (46,858) (76,604) (7,344)
------------ ------------ ------------
Balance, end of year $ 609,539 $ 546,954 $ 557,961
============ ============ ============
</TABLE>
20
<PAGE> 24
- 79 -
Loans evaluated for impairment totaled approximately $627,000 and $180,000 at
December 31, 1997 and 1996, respectively. However, an allowance for loan
impairment was not required under SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," due to the adequacy of related collateral values. If such
loans had been in an accruing status, the Bank would have recorded additional
interest income of approximately $58,000, $19,000 and $29,000 in 1997, 1996 and
1995, respectively.
The Bank had no loan commitments to borrowers with impaired loans at December
31, 1997.
As of December 31, 1997 and 1996, the Bank had no other loans which were
impaired as defined by SFAS No. 114.
4. PROPERTIES AND EQUIPMENT
Properties and equipment at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 268,485 $ 268,485
Buildings and improvements 3,313,404 3,310,902
Equipment 2,828,996 2,365,026
------------ ------------
6,410,885 5,944,413
Less accumulated depreciation (2,583,213) (2,195,750)
------------ ------------
Properties and equipment, net $ 3,827,672 $ 3,748,663
============ ============
</TABLE>
Depreciation expense totaled $423,564 in 1997, $348,671 in 1996 and $271,507 in
1995.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Cash and Cash Equivalents - For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Securities - For securities, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans Receivable - The fair value fixed rate loans is estimated by discounting
the future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities, net of the appropriate portion of the allowance for loan losses. For
variable rate loans, the carrying amount is a reasonable estimate of fair value.
Deposits - The fair value demand deposits, NOW and money market accounts and
regular savings accounts is the amount payable on demand at the reporting date.
The fair value of time deposits is estimated using the rates currently offered
for deposits of similar remaining maturities.
Repurchase Agreement - For these short-term instruments, the carrying amount is
a reasonable estimate of fair value.
Commitments to extend credit and standby letters of credit - As described in
Note 9, the Company was a party to financial instruments with off-balance sheet
risk at December 31, 1997. Such financial instruments consist of commitments to
extend permanent financing and letters of credit. If the options are exercised
by the propective borrowers, these financial instruments will become
interest-earning assets of the Company. If the options expire, the Company
retains any fees paid by the counterparty in order to obtain the commitment or
guarantee. The fair value of commitments is estimated based upon fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate commitments, the fair value estimation takes into consideration
an interest risk factor. The fair value of guarantees and letters of credit is
based on fees currently charged for similar agreements. The fair value of these
off-balance sheet items at December 31, 1997 approximates the recorded amounts
of the related fees, which are not material.
21
<PAGE> 25
- 80 -
At December 31, 1997 and 1996, the estimated fair values of the Company's
financial instruments were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 10,336,532 $ 10,336,532 $ 7,112,231 $ 7,112,231
============ ============ ============ ============
Securities $ 40,400,374 $ 40,436,703 $ 36,054,324 $ 36,069,506
============ ============ ============ ============
Loans $102,236,966 $ 92,634,856
Less: allowance for loan losses (609,539) (546,954)
------------ ------------
Loans, net $101,627,427 $102,368,624 $ 92,087,902 $ 92,056,134
============ ============ ============ ============
Financial Liabilities:
Deposits $138,391,327 $138,734,550 $123,461,379 $123,863,439
============ ============ ============ ============
Repurchase agreement $ 1,059,081 $ 1,059,081 $ 0 $ 0
============ ============ ============ ============
</TABLE>
6. Employee Benefits and Deferred Compensation Plan
The Bank has a defined benefit pension plan covering substantially all
employees. The plan provides benefits that are based on the employees'
compensation and years of service. The Bank uses an actuarial method of
amortizing prior service cost and unrecognized net gains or losses which result
from actual experience and assumptions being different than those that are
projected. The amortization method the Bank is using recognizes the prior
service cost and net gains or losses over the average remaining service period
of active employees which exceeds the required amortization. The amount charged
to expense for this plan totaled $33,699 in 1997, $35,335 in 1996 and $52,201 in
1995. The components of the pension cost charged to expense for 1997, 1996 and
1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost $ 51,817 $ 44,615 $ 46,891
Interest cost on projected benefit obligation 104,601 94,565 85,948
Actual return on plan assets (106,550) (87,676) (67,352)
Net amortization and deferral (16,169) (16,169) (13,286)
------------ ------------ ------------
Total $ 33,699 $ 35,335 $ 52,201
============ ============ ============
</TABLE>
The following table sets forth the Plan's funded status as of October 1, 1997
and 1996, the end of the Plan's fiscal year, and the amounts recognized in the
accompanying consolidated financial statements as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Vested benefits $ 1,068,423 $ 1,002,977
============ ============
Accumulated benefit obligation $ 1,086,205 $ 1,012,721
============ ============
Projected benefit obligation $ 1,518,858 $ 1,354,390
Plan assets available for benefits at fair value 1,686,230 1,373,109
------------ ------------
Plan assets in excess of projected benefit obligations 167,372 18,719
Unrecognized net (gain) loss (41,212) 71,556
Unrecognized net obligation (16,081) (17,543)
Unrecognized prior service cost (256,524) (271,231)
------------ ------------
Amount included in other liabilities $ (146,445) $ (198,499)
============ ============
</TABLE>
22
<PAGE> 26
- 81 -
The Plan's assets are primarily invested in a money market fund, stocks, and
bonds. Valuations of the pension plan as shown above were conducted as of
October 1, 1997 and 1996. Assumptions used by the Bank in both years in the
determination of pension plan information consisted of the following:
Weighted-average discount rate 7.50 %
Rate of increase in compensation levels 4.75 %
Expected long-term rate of return on plan assets 7.50 %
During the year ended December 31, 1995, the Bank adopted nonqualified
supplemental executive retirement plans covering certain members of senior
management. The plans provide a fixed benefit which is specific to the
participant. The obligations related to these plans are indirectly funded by
life insurance contracts (naming the Bank as beneficiary) with aggregate cash
surrender values of approximately $72,000 and $45,000 at December 31, 1997 and
1996, respectively. The face values of these policies at both dates was
approximately $1,650,000. The Bank uses an actuarial method of amortizing
unrecognized net gains or losses which result from actual experience and
assumptions being different than those that are projected. The amortization
method the Bank is using recognizes the net gains or losses over the average
remaining service period of active employees which exceeds the required
amortization. The amount charged to expense for these plans totaled $96,309,
$97,633, and $87,058 in 1997, 1996 and 1995, respectively. The components of the
pension cost charged to expense consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost $ 39,900 $ 50,138 $ 44,562
Interest cost on projected benefit obligation 34,194 25,280 20,281
Net amortization and deferral 22,215 22,215 22,215
------------ ------------ ------------
Total $ 96,309 $ 97,633 $ 87,058
============ ============ ============
</TABLE>
The following table sets forth the Plans' funded status as of October 1, 1997
and 1996, and the amount recognized in the accompanying consolidated financial
statements as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Vested benefits $ 468,709 $ 356,685
============ ============
Accumulated benefit obligation $ 468,709 $ 356,685
============ ============
Projected benefit obligation $ 468,709 $ 356,685
Plan assets available for benefits at fair value 0 0
------------ ------------
Projected benefit obligation in excess of plan assets (468,709) (356,685)
Unrecognized net loss (gain) 28,499 (9,432)
Unrecognized net obligation 159,211 181,426
------------ ------------
Accrued pension cost (280,999) (184,691)
Adjustment required to recognize minimum liability (187,710) (171,994)
------------ ------------
Amount included in other liabilities $ (468,709) $ (356,685)
============ ============
</TABLE>
Valuations of the pension plans as shown above were conducted as of October 1,
1997 and 1996. Assumptions used by the Bank in both years in the determination
of pension plan information consisted of the following:
Weighted-average discount rate 7.50 %
The Bank also maintains a non-qualified deferred compensation plan for certain
directors. Accrued costs under this plan were approximately $67,000, $64,000 and
$64,000 in 1997, 1996 and 1995, respectively. The estimated present value of the
benefit obligation, included in other liabilities, was $700,000 and $671,000 at
December 31, 1997 and 1996, respectively. This obligation is
23
<PAGE> 27
- 82 -
indirectly funded by life insurance contracts (naming the Bank as beneficiary)
with aggregate cash surrender values of approximately $140,000 and $130,000
December 31, 1997 and 1996, respectively. The face values of these policies at
both dates was approximately $1,036,000. Premiums on the aforementioned life
insurance contracts were paid by the Bank in lieu of payment of directors' fees.
The Bank also has a deferred contribution Retirement and Thrift 401(k) Plan for
its employees who meet certain length of service and age requirements. The
provisions of the 401(k) Plan allow eligible employees to contribute between 1%
and 15% of their annual salary, with a matching contribution by the Bank equal
to 25% of the employees contribution up to 4% of their annual salary. The Bank
can also make discretionary contributions to the Plan. The Bank's expense under
this Plan was $35,395, $34,209 and $47,701 for the years ended December 31,
1997, 1996 and 1995, respectively.
7. Stock Split and Cash Dividends
On April 29, 1997, the stockholders approved a split of the Company's common
stock by changing each issued share of common stock, par value $2.50 per share,
into five shares of common stock, par value $.50 per share. At that time, the
stockholders also approved the increase in the number of shares of common stock
which the Company is authorized to issue from 1,000,000 shares, par value $2.50
per share to 10,000,000 shares, par value $.50 per share.
On October 21, 1997, the Company purchased 3,966 of its common shares to fund
the Dividend Reinvestment Plan for the cash dividend issued on October 21, 1997.
A cash dividend of $.30 per common share was declared on August 19, 1997, and
paid on October 21, 1997 to stockholders of record on October 1, 1997.
Stockholders elected to fully or partially reinvest their dividend in 3,966 of
the Company's common shares at a market value of $33.00 per share on October 21,
1997.
Cash dividends of prior years have been restated to show the effects of the
five-for-one stock split that occurred during 1997.
8. Income Taxes
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income taxes currently payable $ 798,000 $ 728,000 $ 741,000
Deferred (benefit) income taxes (74,000) (140,000) 23,000
------------ ------------ ------------
Net provision $ 724,000 $ 588,000 $ 764,000
============ ============ ============
</TABLE>
At December 31, 1997 and 1996 the components of the net deferred tax asset were
as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred Tax Assets:
Allowance for loan losses $ 173,000 $ 148,000
Pension premiums 171,000 153,000
Deferred compensation 280,000 268,000
SFAS No. 115 0 11,000
Other 32,000 22,000
------------ ------------
Gross deferred tax assets 656,000 602,000
Deferred Tax Liabilities:
Depreciation 25,000 25,000
Prepaid expenses 160,000 169,000
SFAS No. 115 101,000 0
------------ ------------
Gross deferred tax liabilities 286,000 194,000
------------ ------------
Net deferred tax assets $ 370,000 $ 408,000
============ ============
</TABLE>
The net deferred tax asset at December 31, 1997 and 1996 was included in other
assets in the accompanying consolidated financial statements.
24
<PAGE> 28
- 83 -
The Company's provision for income taxes differs from the amounts computed by
applying the Federal income tax statutory rates to income before income taxes. A
reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------
1997 1996 1995
Amount Percent Amount Percent Amount Percent
-------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at
statutory rate $ 859,000 34 % $ 749,000 34 % $ 826,000 34 %
Increase (decrease) in
taxes resulting from:
Tax-exempt income (321,000) (13) (260,000) (12) (259,000) (11)
State taxes, net of
federal benefit 136,000 5 110,000 5 154,000 6
Other items, net 50,000 2 (11,000) (1) 43,000 2
Provision for ------------ ---- ------------ ---- ------------ ----
income taxes $ 724,000 28 % $ 588,000 26 % $ 764,000 31 %
============ ==== ============ ==== ============ ====
</TABLE>
9. Related Party Transactions
The Bank has entered into loan transactions with its directors, significant
shareholders and their affiliates (related parties). The aggregate amount of
loans to such related parties at December 31, 1997 and 1996 was $3,526,206 and
$2,247,931, respectively. During 1997 and 1996, new loans to such related
parties amounted to $3,366,701 and $746,980, respectively, and repayments
amounted to $2,088,427 and $1,867,538.
10. CONTINGENT LIABILITIES AND COMMITMENTS
The consolidated financial statements do not reflect various commitments and
contingent liabilities which arise in the normal course of business and which
involve elements of credit risk, interest rate risk and liquidity risk. These
commitments and contingent liabilities are commitments to extend credit and
standby letters of credit. A summary of the Bank's commitments and contingent
liabilities at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Commitments to extend credit $ 15,770,264 $ 15,115,000
Standby letters of credit 551,218 515,000
------------ ------------
Total $ 16,321,482 $ 15,630,000
============ ============
</TABLE>
Commitments to extend credit and standby letters of credit all include exposure
to some credit loss in the event of nonperformance of the customer. The Bank's
credit policies and procedures for credit commitments and financial guarantees
are the same as those for extensions of credit that are recorded on the
consolidated balance sheets. Because these instruments have fixed maturity
dates, and because they may expire without being drawn upon, they do not
necessarily represent cash requirements to the Bank. The Bank has not incurred
any losses on its commitments during the past three years.
11. CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments and standby letters of credit have been
granted to customers in the Bank's market area. Investments in state and
municipal securities also involve governmental entities within the Bank's market
area. The concentrations of
25
<PAGE> 29
- 84 -
credit by type of loan are set forth in Note 3. The distribution of commitments
to extend credit approximates the distribution of loans outstanding. Standby
letters of credit were granted primarily to commercial borrowers. The Bank, as a
matter of policy, does not extend credit to any single borrower or group in
excess of 15% of capital.
12. REGULATORY MATTERS
The Bank is subject to the dividend restrictions set forth by the Comptroller of
the Currency. Under such restrictions, the Bank may not, without the prior
approval of the Comptroller of the Currency, declare dividends in excess of the
sum of the current year's earnings (as defined) plus the retained earnings (as
defined) from the prior two years.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997 and 1996, that
the Bank met all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from its regulators
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios were as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------- ------------------------- -------------------------
Amount Percent Amount Percent Amount Percent
-------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets) $ 17,422,000 16.9 % $ 8,234,000 8.0 % $ 10,292,000 10.0 %
============ ==== ============ === ============ ====
Tier I Capital (to Risk
Weighted Assets) $ 16,812,000 16.3 % $ 4,117,000 4.0 % $ 6,175,000 6.0 %
============ ==== ============ === ============ ===
Tier I Capital
(to Average Assets) $ 16,812,000 10.8 % $ 6,366,080 4.0 % $ 7,958,000 5.0 %
============ ==== ============ === ============ ===
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------- ------------------------- -------------------------
Amount Percent Amount Percent Amount Percent
-------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets) $ 16,063,000 17.7 % $ 7,250,000 8.0 % $ 9,065,000 10.0 %
============ ==== ============ === ============ ====
Tier I Capital (to Risk
Weighted Assets) $ 15,516,000 17.1 % $ 3,625,000 4.0 % $ 5,438,000 6.0 %
============ ==== ============ === ============ ===
Tier I Capital
(to Average Assets) $ 15,516,000 11.1 % $ 5,581,000 4.0 % $ 6,976,000 5.0 %
============ ==== ============ === ============ ===
</TABLE>
26
<PAGE> 30
- 85 -
13. PARENT COMPANY ONLY FINANCIAL INFORMATION
Parent company (Evans Bancorp, Inc.) only condensed financial information is as
follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
Years ended December 31, 1997 and 1996 1997 1996
<S> <C> <C>
ASSETS
Cash $ 6,648 $ 6,897
Dividends receivable 0 169,895
Investment in subsidiary 17,032,652 15,503,186
------------ ------------
Total assets $ 17,039,300 $ 15,679,978
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable $ 0 $ 169,895
Stockholders' Equity:
Common stock 849,475 849,475
Capital surplus 10,990,720 10,990,720
Retained earnings 4,985,249 3,692,659
Unrealized gain (loss) on available for sale securities, net 213,856 (22,771)
------------ ------------
Total stockholders' equity 17,039,300 15,510,083
------------ ------------
Total liabilities and stockholders' equity $ 17,039,300 $ 15,679,978
============ ============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1997, 1996 and 1995 1997 1996 1995
<S> <C> <C> <C>
Dividends from subsidiary $ 509,685 $ 421,068 $ 260,415
Other revenue 50,000 0 0
Expenses (50,249) (30,831) (17,542)
------------ ------------ ------------
Income before equity in undistributed earnings of subsidiary 509,436 390,237 242,873
Equity in undistributed earnings of subsidiary 1,292,839 1,224,405 1,421,910
------------ ------------ ------------
Net income $ 1,802,275 $ 1,614,642 $ 1,664,783
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995 1997 1996 1995
<S> <C> <C> <C>
Operating Activities:
Net income $ 1,802,275 $ 1,614,642 $ 1,664,783
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiary (1,292,839) (1,224,405) (1,421,910)
Increase in dividends receivable 0 (169,895) 0
------------ ------------ ------------
Net cash provided by operating activities 509,436 220,342 242,873
Financing Activities - Cash dividends paid (509,685) (251,173) (260,415)
------------ ------------ ------------
Net decrease in cash (249) (30,831) (17,542)
Cash, beginning 6,897 37,728 55,270
------------ ------------ ------------
Cash, ending $ 6,648 $ 6,897 $ 37,728
============ ============ ============
</TABLE>
27
<PAGE> 31
- 86 -
BOARD OF DIRECTORS
EVANS BANCORP, INC. AND EVANS NATIONAL BANK
[photo]
BOARD OF DIRECTORS
(from left to right)
David M. Taylor
President - Concord Nurseries, Inc.
David C. Koch
Chairman and CEO
New Era Cap Co., Inc.
Carl F. Ulmer
Retired
Richard M. Craig
President and CEO
Evans National Bank
LaVerne G. Hall
Former Chairman - L.G. Hall Building
Contractors, Inc.
Richard C. Stevenson
Chairman - Evans Land Corp.
William F. Barrett
Property and Investment Manager
Phillip Brothman
Partner - Hurst, Brothman & Yusick
Robert W. Allen
Secretary
Retired
Thomas H. Waring, Jr.
Principal - Waring Financial Group
(not pictured)
DIRECTORS EMERITUS
Floyd H. Hurst
Carl F. Ulmer
OFFICERS
Evans Bancorp, Inc.
Richard M. Craig,
Chairman of the Board,
President and CEO
Robert W. Allen
Secretary
James Tilley
Assistant Secretary
William R. Glass
Treasurer
ADVISORY BOARDS
Derby
Richard A. Gradl
Raymond S. Hazard
[PHOTO]
MANAGEMENT TEAM
(front center) Richard M. Craig, Chairman
of the Board, President and CEO;
(left) William R. Glass, Senior Vice President - Loan Division and
(right) James Tilley, Senior Vice
President - Administration
28
<PAGE> 32
- 87 -
EVANS NATIONAL BANK OFFICERS
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF EXECUTIVE OFFICER
Richard M. Craig
SENIOR VICE PRESIDENT
William R. Glass
James Tilley
VICE PRESIDENT
George L. Catalano
Mary E. Doeing
John S. Eagleton
William J. Gray
Jeffrey L. White
ASSISTANT VICE PRESIDENT
Katherine M. Allen
Ramon Gallardo, Jr.
Susan J. Herold
Rose Marie Hinckley
Elizabeth A. Mac
Howard M. Martin, Jr.
Cathy E. Rohrich
BANK OFFICER
Rita A. Boyland
Karen M. Blecha
Michelle A. Bress
Nancy A. Ferraro
M. Jane Gonzalez
Nadine G. Houghton
Mary K. Nytz
Mary D. Philbin
CORPORATE INFORMATION
There has never been an organized public trading market for the Company's
outstanding common stock. The following table represents the highest and lowest
per share prices known to management at which the Company's stock has actually
been transferred in private transactions during the periods indicated. In each
period for which prices are shown, management has price information for the
transaction. The prices do not include any retail markup, markdown or
commission.
<TABLE>
<CAPTION>
1997 1996
---------------------------- ---------------------------
QUARTER High Low High Low
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
First $ 27.20 $ 27.20 $ 23.00 $ 22.00
Second $ 32.00 $ 27.20* $ 27.00 $ 23.00
Third $ 33.00 $ 32.00 $ 27.20 $ 27.00
Fourth $ 38.00 $ 33.00 $ 27.20 $ 27.20
* Adjusted for five for one stock split
</TABLE>
As a result of the stock split on May 1, 1997, total shares outstanding were
increased to 1,698,950 as of December 31, 1997. There were 1,049 shareholders of
record on December 31, 1997.
Upon written request of any shareholder, a copy of the Company's report on Form
10-K for its fiscal year ended December 31, 1997, including the financial
statements and the schedules thereto, required to be filed with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
may be obtained, without charge, from Michelle A. Baumgarden, Evans Bancorp,
Inc., 14-16 N. Main Street, Angola, N.Y. 14006.
THE ANNUAL MEETING
The Annual Meeting of the Shareholders of the Company will be held on Wednesday,
April 29, 1998 at 12:30 p.m. at Romanello's South, 5793 South Park Avenue,
Hamburg, NY.
INQUIRIES
For information or assistance regarding individual stock records, transactions,
dividend reinvestment accounts, dividend checks, or stock certificates, contact:
Corporate Trust Services, Fifth Third Bank, 38 Fountain Square Plaza, Mail Drop
1090F5-4129, Cincinnati, OH 45263.
<PAGE> 1
- 88 -
EXHIBIT 21.1
<PAGE> 2
- 89 -
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Evans National Bank (formerly known as Evans National Bank of Angola).
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EVANS
BANCORP BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000842518
<NAME> EVANS BANCORP INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1997
<CASH> 5,821,533
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,515,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,822,334
<INVESTMENTS-CARRYING> 6,578,040
<INVESTMENTS-MARKET> 0
<LOANS> 101,627,427
<ALLOWANCE> (609,539)
<TOTAL-ASSETS> 158,542,163
<DEPOSITS> 138,391,327
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,111,535
<LONG-TERM> 0
0
0
<COMMON> 849,475
<OTHER-SE> 16,189,825
<TOTAL-LIABILITIES-AND-EQUITY> 158,542,163
<INTEREST-LOAN> 8,632,716
<INTEREST-INVEST> 2,317,619
<INTEREST-OTHER> 122,516
<INTEREST-TOTAL> 11,072,851
<INTEREST-DEPOSIT> 4,576,397
<INTEREST-EXPENSE> 4,588,055
<INTEREST-INCOME-NET> 6,484,795
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> (1,995)
<EXPENSE-OTHER> 4,849,182
<INCOME-PRETAX> 2,526,275
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,802,275
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.31
<LOANS-NON> 626,899
<LOANS-PAST> 35,725
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 546,954
<CHARGE-OFFS> 46,858
<RECOVERIES> 49,443
<ALLOWANCE-CLOSE> 609,539
<ALLOWANCE-DOMESTIC> 60,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
