UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2024
[ ]
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: 001-35021
EVANS BANCORP, INC.
(Exact name of registrant as specified in its charter)
New York
16-1332767
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
6460 Main Street, Williamsville, New York
14221
(Address of principal executive offices)
(Zip Code)
(716) 926-2000
Registrant’s telephone number (including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.50 par value
EVBN
NYSE American LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
X
No
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
X
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
X
Non-accelerated filer
Smaller reporting company
X
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ X ]
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements. [ ]
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No X
On June 30, 2024, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $149 million, based upon the closing sale price of a share of
the registrant’s common stock on NYSE American, LLC.
As of March 3, 2025, 5,567,382 shares of the registrant’s common stock were outstanding.
Page 1 of 110
Exhibit Index on Page 106
Table of Contents
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
INDEX
PART I
Item 1.
BUSINESS
4
Item 1A.
RISK FACTORS
13
Item 1B.
UNRESOLVED STAFF COMMENTS
22
Item 1C.
CYBERSECURITY
22
Item 2.
PROPERTIES
23
Item 3.
LEGAL PROCEEDINGS
23
Item 4.
MINE SAFETY DISCLOSURES
24
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
24
Item 6.
[RESERVED]
25
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
25
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
45
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
46
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
103
Item 9A.
CONTROLS AND PROCEDURES
103
Item 9B.
OTHER INFORMATION
103
Item 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS
103
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
104
Item 11.
EXECUTIVE COMPENSATION
104
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
104
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
104
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
104
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
105
Item 16.
FORM 10-K SUMMARY
108
SIGNATURES
110
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PART I
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties.
When used in this report, or in the documents incorporated by reference herein, the words “will,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,”
“plan,” “seek,” “look to,” “goal,” “target” and similar expressions identify such forward-looking statements. These forward-looking statements include statements
regarding the business plans, prospects, growth and operating strategies of Evans Bancorp, Inc. (the “Company"), statements regarding the asset quality of the
Company’s loan and investment portfolios, and estimates of the Company’s risks and future costs and benefits.
These forward-looking statements are based largely on the expectations of the Company’s management and are subject to a number of risks and uncertainties,
including but not limited to: the successful completion and timing of the Company’s proposed merger with NBT Bancorp, Inc. (“NBT”), general economic
conditions, either nationally or in the Company’s market areas, that are worse than expected; increased competition among depository or other financial institutions;
our ability to maintain liquidity, including the percentage of uninsured deposits in our portfolio; inflation and changes in the interest rate environment that reduce
the Company’s margins or reduce the fair value of financial instruments; changes in laws or government regulations affecting financial institutions, including
changes in regulatory fees and capital requirements; changes in government fiscal or monetary policy; the Company’s ability to enter new markets successfully and
capitalize on growth opportunities; the Company’s ability to successfully integrate acquired entities; loan losses in excess of the Company’s allowance for credit
losses; changes in accounting pronouncements and practices, as adopted by financial institution regulatory agencies, the Financial Accounting Standards Board
(“FASB”) and the Public Company Accounting Oversight Board; the impact of such changes in accounting pronouncements and practices being greater than
anticipated; the ability to realize the benefit of deferred tax assets; changes in the financial performance and/or condition of the Company’s borrowers; changes in
consumer spending, borrowing and saving habits; changes in the Company’s organization, compensation and benefit plans; changes in consumer behavior and other
factors discussed elsewhere in this Annual Report on Form 10-K including the risk factors described in Item 1A, as well as in the Company’s periodic reports filed
with the Securities and Exchange Commission (the “SEC”). Many of these factors are beyond the Company’s control and are difficult to predict.
Because of these and other uncertainties, the Company’s actual results, performance or achievements could differ materially from those contemplated, expressed or
implied by the forward-looking statements contained herein. Forward-looking statements speak only as of the date they are made. The Company undertakes no
obligation to publicly update or revise forward-looking information, whether as a result of new, updated information, future events or otherwise, except to the extent
required by law.
Item 1.
BUSINESS
EVANS BANCORP, INC.
Evans Bancorp, Inc. (the “Company”) is a New York business corporation which is registered as a financial holding company under the Bank Holding Company
Act of 1956, as amended (the “BHCA”). The principal office of the Company is located at 6460 Main Street, Williamsville, NY 14221 and its telephone number is
(716) 926-2000. The Company was incorporated on October 28, 1988, but the continuity of its banking business is traced to the organization of the Evans National
Bank of Angola on January 20, 1920. Except as the context otherwise requires, the Company and its direct and indirect subsidiaries are collectively referred to in
this report as the “Company.” The Company’s common stock is traded on the NYSE American, LLC under the symbol “EVBN.”
At December 31, 2024, the Company had consolidated total assets of $2.2 billion, deposits of $1.9 billion and stockholders’ equity of $183 million.
The Company’s primary business is the operation of its subsidiaries. It does not engage in any other substantial business activities. The Company operates two
direct wholly-owned subsidiaries: (1) Evans Bank, N.A. (the “Bank”), which provides a full range of banking services to consumer and commercial customers in
Western New York (“WNY”) and the Finger Lakes Region; and (2) Evans National Financial Services, LLC (“ENFS”), which owns 100% of the membership
interests in The Evans Agency, LLC (“TEA”), which sold various premium-based insurance policies on a commission basis until its sale in 2023.
On September 9, 2024, Evans Bancorp, Inc. and NBT Bancorp Inc. (“NBT”) announced that they had entered into a definitive agreement pursuant to which Evans
will merge with and into NBT. In accordance with the merger agreement, NBT will acquire 100% of the outstanding shares of Evans Bancorp, Inc. in exchange for
common shares of NBT. The exchange ratio will be fixed at 0.91 NBT shares for each share of Evans, resulting in an aggregate transaction value of approximately
$236 million based on NBT’s closing stock price of $46.28 on September 6, 2024. On December 20, 2024, the shareholders of Evans Bancorp, Inc. voted to
approve the merger. In addition, the Company received regulatory approvals and waivers from the Office of the Comptroller of the Currency (the “OCC”) and the
Federal
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Reserve Bank of New York necessary for NBT to complete its acquisition of Evans Bancorp, Inc. The merger is expected to close in the second quarter of 2025.
On November 30, 2023, the Company completed the sale of its insurance subsidiary, The Evans Agency, LLC, to Arthur J. Gallagher & Co. and Arthur J. Gallagher
Risk Management Services, LLC (collectively, “Gallagher”). As defined in the asset purchase agreement, TEA sold substantially all of its assets to Gallagher for a
purchase price of $40.0 million in cash. For more information on the divestiture of TEA see Note 2 to the Company’s Consolidated Financial Statements included
under Item 8 of this Annual Report on Form 10-K.
At December 31, 2024, the Bank represented 99% and ENFS represented 1% of the consolidated assets of the Company. Further discussion of our segments is
included in Note 19 to the Company’s Consolidated Financial Statements included under Item 8 of this Annual Report on Form 10-K.
EVANS BANK, N.A.
The Bank is a nationally chartered bank that has its headquarters at 6460 Main Street, Williamsville, NY, and a total of 18 full-service banking offices in Erie
County, Niagara County, Monroe County and Chautauqua County, NY.
At December 31, 2024, the Bank had total assets of $2.2 billion, investment securities of $263 million, net loans of $1.8 billion and deposits of $1.9 billion. The
Bank offers deposit products, which include checking and negotiable order of withdrawal (“NOW”) accounts, savings accounts, and certificates of deposit, as its
principal source of funding. The Bank’s deposits are insured up to the maximum permitted by the Deposit Insurance Fund of the Federal Deposit Insurance
Corporation (“FDIC”). The Bank offers a variety of loan products to its customers, including commercial and consumer loans and commercial and residential
mortgage loans.
As is the case with banking institutions generally, the Bank’s operations are significantly influenced by general economic conditions and by related monetary and
fiscal policies of banking regulatory agencies, including the Federal Reserve Board (“FRB”) and FDIC. The Bank is also subject to the supervision, regulation and
examination of the OCC.
THE EVANS AGENCY, LLC
TEA was a full-service insurance agency that offered personal, commercial and financial services products. TEA’s insurance revenue and expenses are consolidated
into the Company’s financials through November 30, 2023. For the eleven months ended November 30, 2023, TEA had total revenue of $10 million.
TEA’s primary market area was Erie, Chautauqua, Cattaraugus and Niagara Counties, NY. Most lines of personal insurance were provided, including automobile,
homeowners, boat, recreational vehicle, landlord, and umbrella coverage. Commercial insurance products were also provided, consisting of property, liability,
automobile, inland marine, workers compensation, bonds, crop and umbrella insurance. TEA also provided the following financial services products: employee
benefits, life and disability insurance, Medicare supplements, long term care, annuities, mutual funds, retirement programs and New York State Disability. See Note
2 to the Company’s Consolidated Financial Statements included under Item 8 of this Annual Report on Form 10-K for more information on the sale of TEA.
OTHER SUBSIDIARIES
In addition to the Bank, the Company has the following direct and indirect wholly-owned subsidiaries:
Evans National Holding Corp. (“ENHC”). ENHC, a wholly-owned subsidiary of the Bank, operates as a real estate investment trust that holds commercial real
estate loans and residential mortgages, providing additional flexibility and planning opportunities for the business of the Bank.
Evans National Financial Services, LLC (“ENFS”). ENFS is a wholly-owned subsidiary of the Company. ENFS's primary business is to own the business and
assets of the Company’s non-banking financial services subsidiaries.
The Company also has two special purpose entities: Evans Capital Trust I, a statutory trust formed in September 2004 under the Delaware Statutory Trust Act,
solely for the purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the trust, investing the proceeds thereof in
certain debentures of the Company and engaging in those activities necessary, advisable or incidental thereto; and ENB Employers Insurance Trust, a Delaware trust
company formed in February 2003 for the sole purpose of holding life insurance policies under the Bank’s bank-owned life insurance (“BOLI”) program.
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The Company’s main operating segment as of December 31, 2024 are banking activities. Through November 30, 2023 the Company had two operating segments –
banking activities and insurance agency activities. See Note 19 to the Company’s Consolidated Financial Statements included under Item 8 of this Annual Report
on Form 10-K for more information on the Company’s operating segments.
MARKET AREA
The Company’s footprint is in Western New York and the Finger Lakes Region, primarily Erie County, Monroe County, Niagara County, northern Chautauqua
County and northwestern Cattaraugus County, NY. This primary market area is the area where the Bank principally receives deposits and makes loans.
MARKET RISK
For information about, and a discussion of, the Company's "Market Risk," see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk" of this Annual Report on Form 10-K.
COMPETITION
All phases of the Company’s business are highly competitive. The Company competes actively with local, regional and national financial institutions, as well as
with bank branches in the Company’s primary market area. The Company’s market area has a high density of financial institutions, many of which are significantly
larger and have greater financial resources than the Company. The Company faces competition for loans and deposits from other commercial banks, savings banks,
internet banks, savings and loan associations, mortgage banking companies, credit unions, and other financial services companies. The Company faces additional
competition from non-depository competitors such as the mutual fund industry, and securities and brokerage firms.
As an approximate indication of the Company’s competitive position, the Bank had the seventh most deposits in the Buffalo, NY metropolitan statistical area
according to the FDIC’s annual deposit market share report as of June 30, 2024 with 3% of the total market’s deposits of $62 billion. By comparison, the market
leaders, M&T Bank and KeyBank, had 78% of the Buffalo, NY metropolitan statistical area deposits combined. The Company attempts to be 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.
HUMAN CAPITAL
At December 31, 2024, we employed 266 full-time equivalent employees. At that date, the average tenure of all of our full-time employees was approximately 6.9
years while the average tenure of our executive officers was approximately 13.2 years. None of our associates are represented by collective bargaining agreements.
We believe our employee relations to be good.
Oversight of our corporate culture is an important element of our Board of Directors’ oversight of risk because our people are critical to the success of our corporate
strategy. Our Board sets the “tone at the top,” and holds senior management accountable for embodying, maintaining, and communicating our culture to employees.
In that regard, our culture is designed to embrace associates and create opportunities. We uphold that principle in everything we do. That commitment has been a
central pillar in our approach to our employees and the communities we have proudly served for over 100 years. Our culture is designed to adhere to the timeless
values of integrity, valuing others, talent, passion, ownership and alignment, and customer focus. In keeping with those values, we expect our people to treat each
other and our customers with the highest level of honesty and respect and go out of their way to do the right thing. We dedicate resources to promote a safe and
inclusive workplace; attract, develop and retain talented, diverse employees; promote a culture of integrity, caring and excellence; and reward and recognize
employees for both the results they deliver and, importantly, how they deliver them. We seek to design careers that are fulfilling, with competitive compensation
and benefits alongside a positive work-life balance. We also dedicate resources to fostering professional and personal growth with continuing education, on-the-job
training and development programs.
Our associates are key to our success as an organization. We are committed to attracting, retaining and promoting top quality talent regardless of race, color, creed,
religion, sex, national origin, age, disability, marital status, citizenship status, military status, sexual orientation, victims of domestic violence, protected veterans
status, gender identity, genetic information, genetic predisposition or carrier status and any other category protected by law. We are dedicated to providing a
workplace for our employees that is inclusive, supportive, and free of any form of discrimination or harassment; rewarding and recognizing our employees based on
their individual results and performance as well as that of their department and the company overall; and recognizing and respecting all of the characteristics and
differences that make each of our employees unique.
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SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both federal and state laws and regulations that are intended to protect depositors and
customers. Additionally, because the Company is a public company with shares traded on the NYSE American, it is subject to regulation by the SEC, as well as the
listing standards required by NYSE American. To the extent that the following summary describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations, or a change in the way such laws or regulations are
interpreted by regulatory agencies or courts, may have a material adverse effect on the Company's business, financial condition and results of operations.
Bank Holding Company Regulation
As a bank holding company registered under the BHCA, the Company and its non-banking subsidiaries are subject to regulation and supervision under the BHCA
by the FRB. The FRB requires periodic reports from the Company, and is authorized by the BHCA to make regular examinations of the Company and its non-bank
subsidiaries.
The Company is required to obtain the prior approval of the FRB before merging with or acquiring all or substantially all of the assets of, or direct or indirect
ownership or control of more than 5% of the voting shares of, a bank or bank holding company. The FRB regulations set out thresholds involving various relations
and factors that may establish presumptions of control or a “controlling influence” for BHCA purposes. The FRB will not approve any acquisition, merger or
consolidation that would have a substantial anti-competitive result, unless the anti-competitive effects of the proposed transaction are outweighed by a greater
public interest in meeting the needs and convenience of the public. The FRB also considers managerial, capital and other financial factors in acting on acquisition
or merger applications.
Subject to various exceptions, the Change in Bank Control Act of 1978 (the “CIBCA”), and its implementing regulations, require FRB approval before any person
or company acquires “control” of a bank holding company. Control is deemed to exist under the CIBCA if an individual or company acquires 25% or more of any
class of voting securities of the bank holding company. There is a rebuttable presumption of control under the CIBCA’s regulations if a person or company acquires
10% or more, but less than 25%, of any class of the bank holding company’s voting securities under certain circumstances including where, as is the case with the
Company, the bank holding company has its shares registered under the Exchange Act.
A bank holding company may not engage in, or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in any non-banking
activity, unless such activity has been determined by the FRB to be closely related to banking or managing banks. The FRB has identified by regulation various
non-banking activities in which a bank holding company may engage with notice to, or prior approval by, the FRB. A bank holding company that meets specified
criteria may elect to be regulated as a “financial holding company” and thereby engage in a broader range of non-banking financial activities. The Company has
made such an election.
The FRB has enforcement powers over financial holding companies and their non-bank subsidiaries, among other things, to enjoin activities that represent unsafe or
unsound practices or constitute violations of law, regulation, administrative orders, or certain written agreements. These powers may be exercised through the
issuance of cease and desist orders, civil monetary penalties or other actions.
Under federal law, a bank holding company must serve as a source of financial and managerial strength for its subsidiary banks and must not conduct its operations
in an unsafe or unsound manner. The expectation is that a holding company will use available resources to provide capital and other support to its subsidiary
institutions in times of financial stress.
A bank holding company is generally required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months,
is equal to 10% or more of the company’s consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would
constitute an unsafe and unsound practice, or would violate any law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the
FRB. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions. As of December 31, 2024,
the Company has qualified for this exception.
Notwithstanding the above requirements, the FRB has issued a supervisory bulletin which indicates that a holding company should notify and consult with the FRB
under certain circumstances prior to redeeming or repurchasing common stock or perpetual preferred stock. The supervisory bulletin indicates that such notification
is for purposes of allowing FRB supervisory review of, and possible objection to, the proposed repurchase or redemption.
The FRB’s supervisory bulletin also covers the payment of dividends. In general, the FRB’s policy is that dividends should be paid only out of current earnings and
only if the prospective rate of earnings retention by the holding company is consistent with the organization’s capital needs, asset quality and overall financial
condition. The supervisory bulletin provides for prior consultation with, and supervisory review of, proposed dividends by the FRB in certain situations, such as
where a proposed dividend exceeds earnings
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for the period for which the dividend would be paid (e.g., calendar quarter) or where the company’s net income for the past four quarters, net of dividends
previously paid over that period, is insufficient to fully fund a proposed dividend. The guidance also provides for FRB consultation for material increases in the
amount of a bank holding company’s common stock dividend.
Under the prompt corrective action laws, discussed later, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes
undercapitalized.
These laws, regulations and policies may inhibit the Company’s ability to pay dividends, engage in stock repurchases or otherwise make capital distributions.
Supervision and Regulation of the Bank
The Bank is a nationally chartered banking corporation, primarily subject to supervision, examination and regulation by the OCC. The FDIC has certain backup
regulatory authority as the deposit insurer. The operations of the Bank are subject to numerous statutes and regulations. Such statutes and regulations relate to
investments, loans, mergers and consolidations, issuance of securities, payment of dividends, establishment of branches and other aspects of the Bank’s operations.
Federal statutes and OCC regulations govern the Bank’s investment authority. A national bank has authority to originate and purchase all types of loans, including
commercial, commercial real estate, consumer and residential mortgage loans. Federal law generally limits a national bank’s extensions of credit to a single
borrower (or related borrowers) to 15% of the bank’s capital and surplus. An additional 10% may be lent if secured by specified readily marketable collateral.
Generally, a national bank is prohibited from investing in corporate equity securities for its own account. Under OCC regulations, a national bank may invest in
investment securities, which are generally defined as marketable securities in the form of a note, bond or debenture. The OCC classifies investment securities into
five different types and, depending on its type, a national bank may have the authority to purchase, and possibly deal in and underwrite the security, pursuant to
specified limits. The OCC has also permitted national banks to purchase certain noninvestment grade securities that can be reclassified and underwritten as loans.
The federal banking agencies have adopted uniform regulations prescribing standards for extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other improvements to real estate. Under these regulations, all insured depository institutions,
such as the Bank, are required to adopt written policies that establish appropriate limits and standards for extensions of credit that are secured by liens or interests in
real estate or are made for the purpose of financing permanent improvements to real estate. The policies must establish loan portfolio diversification standards,
prudent underwriting standards (including loan-to-value limits) that are clear and measurable, loan administration procedures, and documentation, approval and
reporting requirements. The real estate lending policies must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies that have been
adopted by the federal bank regulators.
The Bank is subject to Sections 23A and 23B of the Federal Reserve Act and Regulation W thereunder, which govern certain “covered transactions”, by a bank with
its affiliates, including its parent holding company. Covered transactions include a bank’s loans and extensions of credit to an affiliate, purchases of assets from an
affiliate, and similar transactions. Covered transactions by the Bank with any affiliate (including the Company) are limited in amount to 10% of the Bank’s capital
stock and surplus, and covered transactions with all affiliates are limited in the aggregate to 20% of the Bank’s capital stock and surplus. Furthermore, covered
transactions, such as loans and extensions of credit to affiliates are subject to various collateral requirements. In general, the Bank’s transactions with an affiliate
(including the Company) must be on terms and under circumstances that are substantially the same, or at least as favorable to, the Bank as comparable transactions
between the Bank and nonaffiliates. These laws and regulations may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds
for acquisitions, and the payment of dividends, interest and operating expenses.
The Bank is prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property or furnishing of services.
For example, subject to certain exceptions, the Bank generally may not require a customer to obtain other services from the Bank or the Company, and may not
require the customer to promise not to obtain other services from a competitor as a condition to an extension of credit.
The Bank is also subject to certain restrictions imposed by the Federal Reserve Act and its implementing regulation, Regulation O, on extensions of credit to the
Bank’s and its affiliates’ executive officers, directors, principal stockholders, and/or any related interest of such persons (“Insiders”). Under these restrictions, the
aggregate amount of loans to any Insiders and his or her related interests may not exceed the loans-to-one-borrower limit discussed above. Aggregate loans by a
bank to its Insiders and their related interests may not exceed the bank’s unimpaired capital and unimpaired surplus. Loans to an executive officer, other than loans
for the education of the officer’s children and certain loans secured by the officer’s residence, may generally not exceed the lesser of (1) $100,000 or (2) the greater
of $25,000 or 2.5% of the bank’s unimpaired capital and surplus. The Federal Reserve Act and Regulation O require that any
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proposed loan to an Insider, or a related interest of that Insider, be approved in advance by a majority of the board of directors of the bank, if that loan, combined
with previous loans by the bank to the Insiders and his or her related interests, exceeds specified amounts.
Generally, loans to Insiders and their related interests must be made on substantially the same terms as, and follow credit underwriting procedures that are not less
stringent than, those that are prevailing at the time for comparable transactions with persons not affiliated with the institution. Regulation O contains a general
exception for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank or affiliate and that
does not give any preference to Insiders of the bank or affiliate over other employees.
As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct special examinations of and to require reporting by, national banks. It may
also prohibit an insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the Deposit Insurance Fund.
The FDIC has the authority to initiate enforcement actions against insured institutions under certain circumstances. The FDIC may terminate the deposit insurance
of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an
agreement with the FDIC. Bank management does not know of any practice, condition or violation that might lead to termination of FDIC deposit insurance.
Deposit insurance premiums are based on an institution’s quarterly average total assets minus average tangible equity. For institutions of the Bank’s asset size, the
FDIC operates a risk-based premium system that determines assessment rates from financial modelling designed to estimate the probability of the bank’s failure
over a three year period. The FDIC has authority to increase insurance. As of January 1, 2023, total assessment rates for institutions of the Bank’s size ranged from
2.5 to 32 basis points.
In addition to the foregoing, federal law required the federal regulators to adopt regulations establishing “safety and soundness” standards to promote the safe
operation of insured institutions. Such standards specifically address, among other things: (i) internal controls, information systems and internal audit systems; (ii)
loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset growth; (vi) ratio of classified assets to capital; (vii) minimum earnings; (viii)
compensation and benefits standards for management officials; (ix) information security and (x) residential mortgage lending practices. An institution found to be
noncompliant with any such standard may be required to submit a compliance plan and may be subject to enforcement action if an acceptable plan is not submitted
and complied with.
Dividends paid by the Bank have been the Company’s primary source of operating funds and are expected to be for the foreseeable future. Capital adequacy
requirements serve to limit the amount of dividends that may be paid by the Bank. Under OCC regulations, the Bank may not pay a dividend, without prior OCC
approval, if the total amount of all dividends declared during the calendar year, including the proposed dividend, exceed the sum of its retained net income to date
during the calendar year combined with its retained net income over the preceding two years (less dividends paid over the period). As of December 31,
2024, approximately $33 million was available for the payment of dividends without prior OCC approval. The Bank’s ability to pay dividends is also subject to the
Bank being in compliance with regulatory capital requirements. At December 31, 2024, the Bank was in compliance with these requirements.
Because the Company is a legal entity separate and distinct from the Bank, the Company’s right to participate in the distribution of assets of the Bank in the event of
the Bank’s liquidation or reorganization would be subject to the prior claims of the Bank’s creditors. In the event of a liquidation or other resolution of an insured
depository institution, the claims of depositors and other general or subordinated creditors are entitled to a priority of payment over the claims of unsecured, non-
deposit creditors, including a parent bank holding company (such as the Company) or any shareholder or creditor thereof.
The OCC has broad enforcement powers over national banks, including the power to issue cease and desist orders, impose substantial civil money penalties, remove
directors and officers, and appoint a conservator or receiver for the institution. Failure to comply with applicable laws, regulations, conditions, and supervisory
agreements could subject the Bank, as well as officers, directors and other institution-affiliated parties of the Bank, to potential enforcement actions and civil money
penalties.
Under the Community Reinvestment Act, or “CRA,” as implemented by OCC, a national bank has a continuing and affirmative obligation, consistent with its safe
and sound operation, to help meet the credit needs of the communities served by the bank, including low- and moderate-income neighborhoods. The CRA requires
the OCC to assess an institution’s record of meeting the credit needs of its communities and to take such record into account in its evaluation of certain applications
by that institution, including applications to establish branches and acquire other financial institutions. The FRB also must consider the subsidiary bank’s CRA
rating in connection with bank holding company applications to acquire additional institutions. The CRA currently requires the OCC to provide a written evaluation
of an institution’s CRA performance utilizing a four-tiered descriptive rating system. The Bank’s most recent OCC CRA rating was “Satisfactory.”
On October 24, 2023, the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency (“OCC”) issued a
final rule to strengthen and modernize the CRA regulations. Under the final rule, banks with assets of at
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least $2 billion as of December 31 in both of the prior two calendar years will be a “large bank.” The agencies will evaluate large banks under four performance
tests: the Retail Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test.
The applicability date for the majority of the provisions in the CRA regulations was set as January 1, 2026, with additional requirements to become applicable on
January 1, 2027. However, the final rule was challenged in litigation and a federal district court issued a preliminary injunction of the new CRA regulations,
enjoining federal banking agencies from enforcing the regulations against the plaintiff bank industry trade groups, and extending the regulations’ implementation
dates day-for-day for each day the injunction is in place. Accordingly, the legacy CRA regulations remain in effect.
Capital Adequacy
The Company and its subsidiary bank are required to comply with applicable capital adequacy standards established by the federal banking agencies. In July 2013,
the FRB, the OCC, and the FDIC approved final rules (the “Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations.
These rules went into effect as to the Company and the Bank on January 1, 2015, subject to phase-in periods. Effective August 2018, holding companies with less
than $3 billion of consolidated assets, including the Company, are generally not subject to the Capital Rules unless otherwise directed by the FRB. The Bank
remains subject to the Capital Rules.
Basel III and the Capital Rules. The Capital Rules generally implemented the Basel Committee’s December 2010 final capital framework referred to as “Basel III”
for strengthening international capital standards. The Capital Rules substantially revised the risk-based capital requirements applicable to bank holding companies
and their depository institution subsidiaries. The Capital Rules revised the definitions and the components of regulatory capital, and addressed other issues affecting
the numerator in banking institutions’ regulatory capital ratios. The Capital Rules also addressed asset risk weights and other matters affecting the denominator in
banking institutions’ regulatory capital ratios.
Among other matters, the Capital Rules: (i) introduced a “Common Equity Tier 1” (“CET1”) capital measure and related regulatory capital ratio of CET1 to risk-
weighted assets; (ii) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (iii) mandated
that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expanded the scope of the
deductions from and adjustments to capital as compared to the previous regulations.
Pursuant to the Capital Rules, the minimum capital ratios are as follows:
4.5% CET1 to risk-weighted assets;
6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;
8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
4.0% Tier 1 capital to average consolidated assets as reported on the consolidated financial statements (known as the “leverage ratio”).
The Capital Rules also introduced a new “capital conservation buffer,” composed entirely of CET1, on top of the minimum risk-weighted asset ratios described
above, which was designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the
minimum but below the capital conservation buffer face constraints on dividends, equity and other capital instrument repurchases and executive compensation
based on the amount of the shortfall. The additional capital conservation buffer of 2.5% of CET1 on top of the minimum risk-weighted asset ratios, effectively
results in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5% and (iii) Total capital to risk-
weighted assets of at least 10.5%.
The Capital Rules provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights,
deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non-
consolidated financial entities be deducted from CET1, subject to specified limits. In addition, the Capital Rules include certain exemptions to address concerns
about the regulatory burden on community banks. For example, banking organizations with less than $15 billion in consolidated assets as of December 31, 2009 are
permitted to include in Tier 1 capital trust preferred securities and cumulative perpetual preferred stock issued and included in Tier 1 capital prior to May 19, 2010
on a permanent basis, without any phase out (subject to a limit of 25% of Tier 1 capital). Also, community banks were able to elect, in their March 31, 2015
quarterly filings, to permanently opt-out of the requirement to include most accumulated other comprehensive income (“AOCI”) components in the calculation of
common equity Tier 1 capital. Such an election, in effect, continued the AOCI treatment under the previous capital regulations. Under the Capital Rules, the Bank
made the one-time, permanent election to continue to exclude AOCI from capital.
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The Federal Deposit Insurance Act (the “FDIA”) establishes a system of regulatory remedies to resolve the problems of undercapitalized institutions, referred to as
“prompt corrective action.” The federal banking regulators have established five capital categories (“well-capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized” and “critically undercapitalized”) and must take certain mandatory supervisory actions, and are authorized to take other
discretionary actions, with respect to institutions which are undercapitalized, significantly undercapitalized or critically undercapitalized. The severity of these
mandatory and discretionary supervisory actions depends upon the capital category in which the institution is placed. The federal regulators have specified by
regulation the relevant capital levels for each category, which are set forth below.
he Federal Deposit Insurance Act (the “FDIA”) establishes a system of regulatory
remedies to resolve the problems of undercapitalized institutions, referred to as
prompt corrective action. The federal banking regulators have established five
capital categories (“well-capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized” and “critically undercapitalized”) and must take
certain mandatory supervisory actions, and are authorized to take other
discretionary actions, with respect to institutions which are undercapitalized,
significantly undercapitalized or critically undercapitalized. The severity of these
mandatory and discretionary supervisory actions depends upon the capital category
in which the institution is placed. The federal regulators have specified by
regulation the relevant capital levels for each category, which are set forth below.
“Well-Capitalized”
“Adequately Capitalized”
CET1 ratio of 6.5%,
Leverage Ratio of 5%,
Tier 1 Capital ratio of 8%,
Total Capital ratio of 10%, and
Not subject to a written agreement, order, capital directive or prompt corrective
action directive requiring a specific capital level.
CET1 ratio of 4.5%,
Leverage Ratio of 4%,
Tier 1 Capital ratio of 6%, and
Total Capital ratio of 8%.
“Undercapitalized”
“Significantly Undercapitalized”
CET1 Ratio of less than 4.5%,
Leverage Ratio less than 4%,
Tier 1 Capital ratio less than 6%, or
Total Capital ratio less than 8%.
CET1 Ratio of less than 3%,
Leverage Ratio less than 3%,
Tier 1 Capital ratio less than 4%, or
Total Capital ratio less than 6%.
“Critically Undercapitalized”
Tangible equity to total assets equal to or less than 2%.
For purposes of these regulations, the term “tangible equity” includes capital elements counted as Tier 1 Capital for purposes of the risk-based capital standards plus
the amount of outstanding cumulative perpetual preferred stock (including related surplus) not included in Tier 1 capital.
An institution that is classified as well-capitalized based on its capital levels may be reclassified as adequately capitalized, and an institution that is adequately
capitalized or undercapitalized based upon its capital levels may be treated as though it were undercapitalized or significantly undercapitalized, respectively. Such
reclassification can occur if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an
unsafe or unsound practice warrants such treatment.
An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital
restoration plan to its appropriate federal banking regulator. In order for the capital restoration plan to be accepted by the appropriate federal banking agency, the
law requires that any parent holding company guarantee that its subsidiary depository institution will comply with its capital restoration plan, subject to certain
limitations. The obligation of a controlling bank holding company under the FDIA to fund a capital restoration plan is limited to the lesser of 5.0% of an
undercapitalized subsidiary institution’s assets or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except in accordance
with an accepted capital restoration plan or with regulatory approval. Institutions that are significantly undercapitalized or undercapitalized and either fail to submit
an acceptable capital restoration plan or fail to implement an approved capital restoration plan may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from
correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator.
The Bank’s regulatory capital ratios under risk-based capital rules in effect through December 31, 2024 are presented in Note 21 to the Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K.
In an effort to reduce regulatory burden, legislation enacted in May 2018 required the federal banking agencies to establish an optional “community bank leverage
ratio” of between 8% to 10% tangible equity to average total consolidated assets for qualifying institutions with assets of less than $10 billion. Pursuant to federal
legislation enacted in 2020, the community bank leverage ratio was set at 9% for 2022 and thereafter. Institutions with capital meeting the specified requirements
and electing to follow the alternative framework are deemed to comply with the applicable regulatory capital requirements, including the risk-based requirements,
and are considered well-capitalized under the prompt corrective action framework. Eligible institutions may opt into and out of the community bank ratio
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framework on their quarterly call report. The Bank has not exercised its option to use the community bank leverage ratio alternative as of December 31, 2024.
Other Laws and Regulations
In addition to the laws and regulations discussed above, the Bank is also subject to certain fair lending and consumer laws that are designed to protect consumers in
transactions with banks. Many of these laws are implemented through regulations issued by the Consumer Financial Protection Bureau (the “CFPB”) though, for
institutions of the Bank’s asset size, compliance is subject to examination by the federal banking regulator, i.e., the OCC in the Bank’s case. These laws include, but
are not limited to, the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit
Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Right to Financial Privacy Act, the Fair
and Accurate Credit Transactions Reporting Act, and federal financial privacy laws. These laws, and their implementing regulations, generally regulate the manner
in which financial institutions must deal with customers when taking deposits or making loans to such customers.
The USA PATRIOT Act of 2001 gave the federal government new additional powers to address terrorist threats through enhanced domestic security measures,
expanded surveillance powers, and increased information sharing and broadened anti-money laundering requirements for financial institutions. The USA Patriot Act
placed additional responsibilities upon financial institutions in terms of broadened anti-money laundering compliance programs and due diligence policies and
controls to facilitate detection and prevention of money laundering and terrorist financing and the reporting of suspicious activity. Such requirements build on
previously existing requirements, also applicable to financial institutions, under the Bank Secrecy Act. The Bank has established policies, procedures and systems
designed to comply with these laws. The USA PATRIOT Act also requires the federal banking agencies to take into consideration the effectiveness of such controls
in determining whether to approve a merger or other acquisition application. Accordingly, if the Bank seeks to engage in a merger or other acquisition, the Bank’s
controls designed to combat money laundering are considered as part of the application process.
Monetary Policy and Economic Control
The commercial banking business is affected not only by general economic conditions, but also by the monetary policies of the FRB. Changes in the discount rate
on member bank borrowing, availability of borrowing at the “discount window,” open market operations and the imposition of, and changes in, reserve
requirements are some of the instruments of monetary policy available to the FRB. These monetary policies are used in varying combinations to influence overall
growth and distributions of bank loans, investments and deposits, and this use may affect interest rates charged on loans or paid on deposits. The monetary policies
of the FRB have had a significant effect on the operating results of commercial banks and are expected to continue to do so in the future. These monetary policies
are influenced by various factors, including inflation, unemployment, and short-term and long-term changes in the international trade balance and in the fiscal
policies of the United States Government. Future monetary policies and the effect of such policies on the future business and earnings of the Company cannot be
predicted.
AVAILABLE INFORMATION
The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished
by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act are available without charge on the “SEC Filings” section of the Company's website,
www.evansbancorp.com, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The Company is providing the address to
its Internet site solely for the information of investors. The Company does not intend its Internet address to be an active link or to otherwise incorporate the
contents of the website into this Annual Report on Form 10-K or into any other report filed with or furnished to the SEC. In addition, the SEC maintains an internet
site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC on its website,
www.sec.gov.
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Item 1A.
RISK FACTORS
The following factors identified by the Company's management represent significant potential risks that the Company faces in its operations.
Risks Related to our Pending Merger with NBT
The Number of Shares of NBT Common Stock to be Exchanged per Share of Company Common Stock is Fixed and Will Not Be Adjusted if NBT’s Share
Price Changes
Upon the consummation of the merger, each share of Company common stock will be converted into 0.91 shares of NBT common stock. The exchange ratio is
fixed in the merger agreement and will not be adjusted for changes in the market price of NBT common stock between the execution of the merger agreement and
the completion of the merger. Changes in the market price of shares of NBT common stock prior to the merger will affect the market value of the consideration that
the Company’s shareholders will receive on the closing date of the merger. Stock price changes may result from a variety of factors, many of which are beyond
NBT’s control, including market sentiment regarding the merger, changes in NBT’s business and operations, and general market and economic conditions.
Therefore, while the number of shares of NBT common stock to be issued per share of Company common stock is fixed, the Company’s shareholders cannot be
sure of the market value of the consideration they will receive upon completion of the merger.
The Company Will Be Subject to Business Uncertainties and Contractual Restrictions While the Merger is Pending.
Uncertainty about the effect of the merger on the Company’s employees, suppliers and customers may have an adverse effect on the Company. These uncertainties
may impair our ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers, suppliers and others who deal with the
Company to seek to change existing business relationships. Employee retention and recruitment may be particularly challenging prior to the effective time of the
merger, as employees and prospective employees may experience uncertainty about their future roles with NBT.
The pursuit of the merger and the preparation for the integration may place a significant burden on management and internal resources. Any significant diversion of
management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect the financial results of the
Company. In addition, the merger agreement requires that the Company operate in the ordinary course of business consistent with past practice and restricts the
Company from taking certain actions prior to the effective time of the merger or termination of the merger agreement without NBT’s written consent. These
restrictions may prevent the Company from retaining existing customers or pursuing attractive business opportunities that may arise prior to the completion of the
merger.
NBT and the Company cannot provide any assurances with respect to the timing of the closing of the merger.
The Merger Agreement Contains Provisions that Limit the Company’s Ability to Pursue Alternatives to the Merger and May Discourage Other
Companies From Trying to Acquire the Company.
The merger agreement contains covenants that restrict the Company’s ability to, directly or indirectly, initiate, solicit, induce, knowingly encourage, or knowingly
facilitate inquiries, offers or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by the Company’s Board
of Directors, engage in any negotiations concerning, or provide any confidential or non-public information or data relating to, any alternative acquisition proposals.
The Merger Agreement May Be Terminated in Accordance With Its Terms and the Merger May Not Be Completed.
NBT and the Company can mutually agree to terminate the merger agreement at any time before the merger has been completed, and either company can terminate
the merger agreement if:
the other party materially breaches any of its representations, warranties, covenants or other agreements set forth in the merger agreement (provided that
the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement), which
breach is not cured within 30 days of written notice of the breach, or by its nature cannot be cured prior to the closing of the merger, and such breach would
entitle the non-breaching party not to consummate the merger; or
merger is not consummated by September 15, 2025, unless the failure to consummate the merger by such date is due to a material breach of the merger
agreement by the terminating party.
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Failure to Complete the Merger Could Negatively Impact the Stock Prices and Future Business and Financial Results of the Company.
The consummation of the merger may be delayed, the merger may be consummated on terms different than those contemplated by the merger agreement, or the
merger may not be consummated at all. If the merger is not completed, the ongoing businesses of the Company may be adversely affected, and the Company will be
subject to several risks, including the following:
the Company could incur substantial costs relating to the proposed merger, such as legal, accounting, financial advisor, filing, printing and mailing fees;
the Company is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to
execute certain of its business strategies; and
the Company’s management’s and employees’ attention may be diverted from our day-to-day business and operational matters as a result of efforts relating
to the attempt to consummate the merger.
In addition, if the merger is not completed, the Company may experience negative reactions from the financial markets and from their respective customers and
employees. The Company also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against the
Company to perform their respective obligations under the merger agreement. Such events could materially affect the Company’s stock prices and business and
financial results.
Shareholder Litigation Could Prevent or Delay the Closing of the Merger or Otherwise Negatively Affect the Business and Operations of the Company.
The Company may incur costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the proposed merger. Such
litigation could have an adverse effect on the financial condition and results of operations of the Company and could prevent or delay the consummation of the
merger.
Credit Risks
Commercial Real Estate and Commercial Business Loans Expose the Company to Increased Credit Risks
At December 31, 2024, the Company's portfolio of commercial real estate loans totaled $1.0 billion, or 56% of total loans outstanding, and the Company's portfolio
of commercial and industrial ("C&I") loans totaled $260 million, or 15% of total loans outstanding. The Company plans to continue to emphasize the origination of
commercial loans as they generally earn a higher rate of interest than other loan products offered by the Bank. However, commercial loans generally expose a
lender to greater risk of non-payment and loss than one-to-four family residential mortgage loans because repayment of commercial real estate and C&I loans often
depends on the successful operations and the income stream of the borrowers. Commercial mortgages are collateralized by real property while C&I loans are
typically secured by business assets such as equipment and accounts receivable. Commercial loans typically involve larger loan balances to single borrowers or
groups of related borrowers compared to one-to-four-family residential mortgage loans. Also, many of the Company's commercial borrowers have more than one
commercial real estate or C&I loan outstanding with the Company. Consequently, an adverse development with respect to one loan or one credit relationship can
expose the Company to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four-family residential mortgage loan.
Commercial real estate loans in non-accrual status at December 31, 2024 were $12.4 million, compared with $20.2 million at December 31, 2023. C&I loans in
non-accrual status were $1.5 million and $1.8 million at December 31, 2024 and December 31, 2023, respectively. Increases in the delinquency levels of
commercial real estate and C&I loans could result in an increase in non-performing loans and the provision for credit losses, which could have a material adverse
effect on the Company's results of operations and financial condition.
Continuing Concentration of Loans in the Company's Primary Market Area May Increase the Company's Risk
Unlike larger banks that are more geographically diversified, the Company provides banking and financial services to customers located primarily in Western New
York and the Finger Lakes Region of New York State. Therefore, the Company's success depends primarily on the general economic conditions in those areas. The
Company's business lending and marketing strategies focus on loans to small and medium-sized businesses in this geographic region. Moreover, the Company's
assets are heavily concentrated in mortgages on properties located in Western New York and the Finger Lakes Region of New York State. Accordingly, the
Company's business and operations are vulnerable to downturns in the economy of those areas. A downturn in the economy or recession in these regions could
result in a decrease in loan originations and increases in delinquencies and foreclosures, which would more greatly affect the Company than if the Company's
lending were more geographically diversified. In addition, the Company may suffer losses if there is a decline in the value of properties underlying the Company's
mortgage loans which would have a material adverse impact on the Company's operations.
In the Event the Company's Allowance for Credit Losses is Not Sufficient to Cover Actual Loan Losses, the Company's Earnings Could Decrease
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The Company maintains an allowance for credit losses which represents the amount of losses expected in the loan portfolio. There is a risk that the Company may
experience significant loan losses which could exceed the recorded amount of the allowance for credit losses. The Company adopted Current Expected Credit Loss
(CECL), effective January 1, 2023 which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the
expected credit losses as allowances for credit losses. When determining the allowance, expected credit losses over the contractual term of the loans (taking into
account prepayments) will be estimated based on various assumptions and judgments about the collectability of its loan portfolio, considering relevant information
about past events, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The emphasis on the origination
of commercial real estate and C&I loans is a significant factor in evaluating the allowance for credit losses. As the Company continues to increase the amount of
these loans in the portfolio, additional or increased provisions for credit losses may be necessary and would adversely affect the results of operations. In addition,
bank regulators periodically review the Company's loan portfolio and credit underwriting procedures, as well as its allowance for credit losses, and may require the
Company to increase its provision for credit losses or recognize further loan charge-offs. An increase in our allowance for credit losses may have a material adverse
effect on our financial condition and results of operations.
At December 31, 2024, the Company had a gross loan portfolio of $1.8 billion and the allowance for credit losses was $24.2 million, which represented 1.36% of
the total amount of gross loans. If the Company's assumptions and judgments prove to be incorrect or bank regulators require the Company to increase its provision
for credit losses or recognize further loan charge-offs, the Company may have to increase its allowance for credit losses or loan charge-offs which could have an
adverse effect on the Company's operating results and financial condition. Additionally, there can be no assurances that the Company's allowance for credit losses
will be adequate to protect the Company against loan losses that it may incur.
Environmental Factors May Create Liability
In the course of its business, the Bank has acquired, and may acquire in the future, property securing loans that are in default. There is a risk that the Bank could be
required to investigate and clean-up hazardous or toxic substances or chemical releases at such properties after acquisition by the Bank in a foreclosure action, and
that the Bank may be held liable to a governmental entity or third parties for property damage, personal injury and investigation and clean-up costs incurred by such
parties in connection with such contamination. The Bank may in the future be required to perform an investigation or clean-up activities in connection with
environmental claims. Any such occurrence could have a material adverse effect on our business, financial condition, and results of operations.
Liquidity Risks
A Lack of Liquidity Could Adversely Affect the Company’s Financial Condition and Results of Operations and Result in Regulatory Restrictions.
The Company must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been the Company’s primary source
of funds for use in lending and investment activities and are emphasized due to the relatively lower cost of these funds. The Company also receives funds from loan
repayments, investment maturities and income on other interest-earning assets, as well as borrowings. If the Company is required to rely more heavily on more
expensive funding sources to support liquidity and future growth, its revenues may not increase proportionately to cover its increased costs, which would adversely
affect its operating margins, profitability and growth prospects. Alternatively, the Company may need to sell a portion of its investment securities portfolio to raise
funds, which, as discussed below, could result in a loss.
Any decline in funding could adversely impact the Company’s ability to originate loans, invest in securities, pay expenses, or fulfill obligations such as repaying its
borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of
operations. A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed by regulators. Depending on the capitalization status
and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, regulatory
restrictions and prohibitions may include restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends
and restrictions on the acceptance of brokered deposits.
Rising Interest Rates Have Decreased the Value of the Company’s Securities Portfolio, and the Company Would Realize Losses if it Were Required to Sell
Such Securities to Meet Liquidity Needs
As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other
fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the
Company’s, resulting in unrealized losses embedded in the securities portfolios. While the Company does not currently intend to sell these securities, if the
Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and
results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company
has taken
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actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.
Interest Rate Risks
Changes in Interest Rates Could Adversely Affect the Company's Business, Results of Operations and Financial Condition
The Company's results of operations and financial condition are significantly affected by changes in interest rates. The Company's results of operations depend
substantially on its net interest income, which is the difference between the interest income earned on its interest-earning assets and the interest expense paid on its
interest-bearing liabilities. Because the Company's interest-bearing liabilities generally re-price or mature more quickly than its interest-earning assets, changes in
interest rates could result in a decrease in its net interest income. Management is unable to predict fluctuations in market interest rates, which are affected by many
factors, including inflation, recession, unemployment, monetary policy, domestic and international disorder and instability in domestic and foreign financial
markets, and investor and consumer demand. During 2022 and 2023, in response to accelerated inflation, the Federal Reserve implemented monetary tightening
policies, resulting in significantly increased interest rates. In 2024, however, the Federal Reserve decreased the federal funds rate three times, resulting in an
aggregate decrease of 100 basis points.
Changes in interest rates also affect the value of the Company's interest-earning assets, and in particular, the Company's securities portfolio. Generally, the value of
securities fluctuates inversely with changes in interest rates. At December 31, 2024, the Company's securities available for sale totaled $259 million. Net unrealized
losses on securities available for sale amounted to $42.5 million, net of tax, at December 31, 2024, compared to $40.7 million, net of tax, at December 31, 2023.
Included in the net unrealized losses for 2023 was the impact of the $5 million loss on sale of securities as well as the changing interest rate environment in 2023.
Decreases in the fair value of securities available for sale could have an adverse effect on stockholders' equity or earnings. For additional information on the loss on
sale of securities see Note 3 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
The Company also is subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and
mortgage-related securities. Decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to
reduce borrowing costs. Under these circumstances, the Company is subject to reinvestment risk to the extent that it is unable to reinvest the cash received from
such prepayments at rates that are comparable to the rates on existing loans and securities. Additionally, increases in interest rates may decrease loan demand and
make it more difficult for borrowers to repay adjustable rate loans.
A significant portion of our loans have fixed interest rates and longer terms than our deposits and borrowings. As is the case with many banks and savings
institutions, our emphasis on increasing the development of core deposits, those with no stated maturity date, has resulted in our interest-bearing liabilities having a
shorter duration than our assets. Accordingly, in a rising interest rate environment, our net interest income could be adversely affected if the rates we pay on
deposits and borrowings increase more rapidly than the rates we earn on loans. Rising interest rates may also result in increased loan delinquencies and loan losses
and a decrease in demand for our products and services.
Regulatory Risks
The Company Operates in a Highly Regulated Environment and May Be Adversely Affected By Changes in Laws and Regulations
The Company and its subsidiaries are subject to regulation, supervision and examination by the OCC, FRB, and by the FDIC, as insurer of its deposits. Such
regulation and supervision govern the activities in which a bank and its holding company may engage and are intended primarily for the protection of the deposit
insurance funds and depositors. Regulatory requirements affect the Bank's lending practices, capital structure, investment practices, dividend policy and growth.
These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the
operation of a bank, the imposition of deposit insurance premiums and other assessments, the classification of assets by a bank and the adequacy of a bank's
allowance for credit losses. Any change in such regulation and oversight could have a material adverse impact on the Bank, the Company and their business,
financial condition and results of operations.
Additionally, the CFPB has the authority to issue consumer finance regulations and is authorized, individually or jointly with bank regulatory agencies, to conduct
investigations to determine whether any person is, or has, engaged in conduct that violates new and existing consumer financial laws or regulations. Because we
have less than $10 billion in total consolidated assets, the FRB and OCC, not the CFPB, are responsible for examining and supervising our compliance with these
consumer protection laws and regulations.
Noncompliance with applicable regulations may lead to adverse consequences for the Company. A successful regulatory challenge to an institution's performance
under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including
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the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on
expansion. Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation. Such actions
could have a material adverse effect on our business, financial condition and results of operations.
The Company also faces a risk of noncompliance and subsequent enforcement action in connection with federal Bank Secrecy Act and other anti-money laundering
and counter terrorist financing statutes and regulations. The federal banking agencies and the U.S. Treasury Department's Financial Crimes Enforcement Network
are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against
banks and other financial services providers with the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. If the Company
or the Bank violates these laws and regulations, or its policies, procedures and systems are deemed deficient, they would be subject to liability, including fines and
regulatory actions, which may include restrictions on the Company’s ability to pay dividends and the necessity to obtain regulatory approvals to proceed with
certain aspects of their business plans, including acquisition plans. Any of these results could have a material adverse effect on the Company's business, financial
condition, results of operations and growth prospects.
Future FDIC Insurance Premium Increases May Adversely Affect the Company's Earnings
The Company is generally unable to control the amount of premiums that it is required to pay for FDIC insurance. The FDIC increased initial base insurance
deposit assessment rates by 2 basis points effective January 1, 2023. If there are additional bank or financial institution failures or other similar occurrences, the
FDIC may again increase the premiums assessed upon insured institutions. Such increases and any future increases or required prepayments of FDIC insurance
premiums may adversely impact the Company's results of operations.
The Company is a Financial Holding Company and Depends on Its Subsidiaries for Dividends, Distributions and Other Payments
The Company is a legal entity separate and distinct from its banking and other subsidiaries. The Company's principal source of cash flow, including cash flow to
pay dividends to the Company's stockholders and principal and interest on its outstanding debt, is dividends from the Bank. There are statutory and regulatory
limitations on the payment of dividends by the Bank, as well as the payment of dividends by the Company to its stockholders. Regulations of the OCC affect the
ability of the Bank to pay dividends and other distributions and to make loans to the Company. If the Bank is unable to make dividend payments and sufficient
capital is not otherwise available, the Company may not be able to make dividend payments to its common stockholders or principal and interest payments on its
outstanding debt.
If Regulators Impose Limitations on the Company's Commercial Real Estate Lending Activities, Earnings Could Be Adversely Affected
In 2006, the federal bank regulatory agencies issued joint guidance entitled "Concentrations in Commercial Real Estate Lending, Sound Risk Management
Practices" (the "CRE Guidance"). Although the CRE Guidance did not establish specific lending limits, it provides that a bank's commercial real estate lending
exposure may receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by apartment buildings,
investor commercial real estate and construction and land loans, represent 300% or more of an institution's total risk-based capital and the outstanding balance of
the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months. The Bank's non-owner occupied commercial real estate
level equaled 295% of total risk-based capital at December 31, 2024. Including owner-occupied commercial real estate, the ratio of commercial real estate loans to
total risk-based capital ratio would be 371% at December 31, 2024. If the Bank’s regulators were to impose restrictions on the amount of commercial real estate
loans it can hold in its portfolio, or require higher capital ratios as a result of the level of commercial real estate loans held, the Company's earnings would be
adversely affected.
Operational Risks
The Company’s Internal Controls May Fail or Be Circumvented
Management regularly reviews and updates our internal controls and corporate governance policies and procedures. Any system of controls, however well-designed
and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. A failure to
implement and maintain effective internal control over financial reporting could result in errors in our financial statements that may lead to a restatement of our
financial statements or cause us to fail to meet our reporting obligations. Any failure or circumvention of our controls and procedures, or failure to comply with
regulations related to controls and procedures, could have a material adverse effect on our operations, net income, financial condition, reputation, compliance with
laws and regulations, or may result in untimely or inaccurate financial reporting.
The Potential for Business Interruption Exists Throughout the Company's Organization
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Integral to the Company's performance is the continued efficacy of our technical systems, operational infrastructure, relationships with third parties and the vast
array of associates and key executives in the Company's day-to-day and ongoing operations. Failure by any or all of these resources subjects the Company to risks
that may vary in size, scale and scope. This includes, but is not limited to, operational or technical failures, pandemics, ineffectiveness or exposure due to
interruption in third party support as expected, as well as the loss of key individuals or failure on the part of key individuals to perform properly. Such events could
affect the stability of the Company's deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause
significant property damage, result in loss of revenue, cause the Company to incur additional expenses, or disrupt our third party vendors' operations, any of which
could result in a material adverse effect on the Company's financial condition and results of operations. Although the Company has established disaster recovery
plans and procedures, the occurrence of any such events could have a material adverse effect on the Company.
Lack of System Integrity or Credit Quality Related to Funds Settlement Could Result in a Financial Loss
The Bank settles funds on behalf of financial institutions, other businesses and consumers and receives funds from clients, card issuers, payment networks and
consumers on a daily basis for a variety of transaction types. Transactions facilitated by the Bank include debit card, credit card and electronic bill payment
transactions, supporting consumers, financial institutions and other businesses. These payment activities rely upon the technology infrastructure that facilitates the
verification of activity with counterparties and the facilitation of the payment. If the continuity of operations or integrity of processing were compromised this could
result in a financial loss to the Bank, and therefore the Company, due to a failure in payment facilitation. In addition, the Bank may issue credit to consumers,
financial institutions or other businesses as part of the funds settlement. A default on this credit by a counterparty could result in a financial loss to the Bank, and
therefore to the Company.
Financial Services Companies Depend on the Accuracy and Completeness of Information about Customers and Counterparties
In deciding whether to extend credit or enter into other transactions, the Company may rely on information furnished by or on behalf of customers and
counterparties, including financial statements, credit reports, and other financial information. The Company may also rely on representations of those customers,
counterparties, or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading
financial statements, credit reports, or other financial information could cause the Company to enter into unfavorable transactions, which could have a material
adverse effect on the Company's financial condition and results of operations.
Because the Nature of the Financial Services Business Involves a High Volume of Transactions, the Company Faces Significant Operational Risks
The Company relies on the ability of its employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from the
Company's operations, including but not limited to, the risk of fraud by employees or persons outside of the Company, the execution of unauthorized transactions by
employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements, and business continuation
and disaster recovery. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of
noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity.
In the event of a breakdown in the internal control system, improper operation of systems or improper employee actions, the Company could suffer financial loss,
face regulatory action and suffer damage to its reputation, any of which could have a material adverse effect on the Company's financial condition or results of
operation.
The Company's Information Systems May Experience an Interruption or Breach in Security
The Company relies heavily on communications and information systems to conduct its business. As a financial institution, we process a significant number of
customer transactions and possess a significant amount of sensitive customer information. As technology advances, the ability to initiate transactions and access
data has become more widely distributed among mobile phones, personal computers, automated teller machines, remote deposit capture sites and similar access
points. Any failure, interruption, or breach in security or operational integrity of our communications and information systems, or the systems of third parties on
which we rely to process transactions, could result in failures or disruptions in the Company's customer relationship management, general ledger, deposit, loan, and
other systems. There can be no assurance that failures, interruptions, or security breaches of the Company's information systems will not occur or, if they do occur,
that they will be adequately addressed. Unauthorized third parties regularly seek to gain access to nonpublic, private and other information through computer
systems. If customers' personal, nonpublic, confidential, or proprietary information in the Company's possession were to be mishandled or misused, we could suffer
significant regulatory consequences, reputational damage, and financial loss. Such mishandling or misuse could include, for example, if such information were
erroneously provided to parties who are not permitted to have the information, either by fault of the Company's systems, employees or counterparties, or where such
information is intercepted or otherwise inappropriately taken by third parties. The occurrence of any failures, interruptions, or security breaches of the Company's
information systems could, among other consequences, damage the
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Company's reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, result in increased insurance premiums, or
expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company's financial condition and
results of operations.
In addition, as cybersecurity and data privacy risks for banking organizations and the broader financial system have significantly increased in recent years,
cybersecurity and data privacy issues have become the subject of increasing legislative and regulatory focus. The federal bank regulatory agencies have proposed
enhanced cyber risk management standards, which would apply to a wide range of large financial institutions and their third-party service providers, and would
focus on cyber risk governance and management, management of internal and external dependencies, and incident response, cyber resilience and situational
awareness. We may become subject to new legislation or regulation concerning cybersecurity or the privacy of personally identifiable information and personal
financial information or of any other information we may store or maintain. We could be adversely affected if new legislation or regulations are adopted or if
existing legislation or regulations are modified such that we are required to alter our systems or require changes to our business practices or privacy policies. If
cybersecurity, data privacy, data protection, data transfer or data retention laws are implemented, interpreted or applied in a manner inconsistent with our current
practices, we may be subject to fines, litigation or regulatory enforcement actions or ordered to change our business practices, policies or systems in a manner that
adversely impacts our operating results In addition, increased cost of compliance with cybersecurity regulations, at the federal and state level, could have a material
adverse effect on the Company's financial condition and results of operations.
The Company May Be Adversely Affected by the Soundness of Other Financial Institutions
Financial services institutions are interrelated as a result of counterparty relationships. The Company has exposure to many different industries and counterparties,
and routinely executes transactions with counterparties in the financial services industry. As a result, defaults by, or even rumors or questions about, one or more
financial services institutions, or the financial services industry generally, could lead to losses or defaults by us or by other institutions and impact our business.
Many of these transactions expose us to credit risk in the event of default of our counterparty or customer. In addition, our credit risk may be further increased when
the collateral held by us cannot be relied upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due to us. Any
such losses could materially and adversely affect our results of operations.
The most important counterparty for the Company, in terms of liquidity, is the Federal Home Loan Bank of New York ("FHLBNY"). The Company uses FHLBNY
as its primary source of borrowed overnight funds and also has several long-term advances with FHLBNY. At December 31, 2024, the Company had a total of $80
million in borrowed funds with FHLBNY. The Company has placed sufficient collateral in the form of commercial and residential real estate loans at FHLBNY. As
a member of the Federal Home Loan Bank System, the Bank is required to hold stock in FHLBNY. The Bank held FHLBNY stock with a carrying value of $6.2
million as of December 31, 2024.
There are 11 branches of the FHLB, including New York. If a branch were at risk of breaching risk-based capital requirements, it could suspend dividends, cut
dividend payments, and/or not buy back excess FHLB stock that members hold. FHLBNY has stated that they expect to be able to continue to pay dividends,
redeem excess capital stock, and provide competitively priced advances in the future. Nonetheless, the 11 FHLB branches are jointly liable for the consolidated
obligations of the FHLB system. To the extent that one FHLB branch cannot meet its obligations to pay its share of the system's debt; other FHLB branches can be
called upon to make the payment.
Systemic weakness in the FHLB could result in higher costs of FHLB borrowings, reduced value of FHLB stock, and increased demand for alternative sources of
liquidity that are more expensive, such as brokered time deposits, the discount window at the Federal Reserve, or lines of credit with correspondent banks.
A Decline in the Value of the Company's Deferred Tax Assets Could Adversely Affect the Company's Operating Results and Regulatory Capital Ratios
The Company's tax strategies depend on the ability to generate taxable income in future periods. The Company's tax strategies will be less effective in the event the
Company fails to generate anticipated amounts of taxable income. The value of the Company's deferred tax assets is subject to an evaluation of whether it is more
likely than not that they will be realized for financial statement purposes. In making this determination, management considers all positive and negative evidence
available, including the Company's historical levels of taxable income, the opportunity for net operating loss carrybacks, and projections for future taxable income
over the statutory tax loss carryover period. If the Company were to conclude that a significant portion of deferred tax assets were not more likely than not to be
realized, the required valuation allowance could adversely affect the Company's financial position, results of operations and regulatory capital ratios. In addition, the
value of the Company's deferred tax assets could be adversely affected by a change in statutory tax rates.
Strategic Risks
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Expansion or Contraction of the Company's Branch Network May Adversely Affect its Financial Results
The Company cannot assure that the opening of new branches will be accretive to earnings or that it will be accretive to earnings within a reasonable period of time.
Numerous factors contribute to the performance of a new branch, such as suitable location, qualified personnel, and an effective marketing strategy. Additionally, it
takes time for a new branch to gather sufficient loans and deposits to generate income sufficient to cover its operating expenses. Difficulties the Bank experiences in
opening new branches may have a material adverse effect on the Company's financial condition and results of operations. The Company cannot assure that the
closing of branches will not be dilutive to earnings.
Mergers and Acquisitions Involve Numerous Risks and Uncertainties
The Company may pursue mergers and acquisitions opportunities. Mergers and acquisitions involve a number of risks and challenges, including the expenses
involved; diversion of management’s time and attention; integration of branches and operations acquired; potential exposure to unknown risks; increased regulatory
scrutiny; the outflow of customers from the acquired branches; the successful retention of personnel from acquired companies or branches; competing effectively in
geographic areas not previously served; managing growth resulting from the transaction; and dilution in the acquirer's book and tangible book value per share.
Anti-Takeover Laws and Certain Agreements and Charter Provisions May Adversely Affect Share Value
Certain provisions of the Company's certificate of incorporation and state and federal banking laws, including regulatory approval requirements, could make it more
difficult for a third party to acquire control of the Company without approval of the Company's board of directors. Under federal law, subject to certain exemptions,
a person, entity or group must notify the FRB before acquiring control of a bank holding company. Acquisition of 10% or more of any class of voting stock of a
bank holding company, including shares of the Company's common stock, creates a rebuttable presumption that the acquiror "controls" the bank holding company if
certain other conditions are met. Also, a bank holding company must obtain the prior approval of the FRB before, among other things, acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any bank, including the Bank. There also are provisions in the Company's certificate of incorporation
that may be used to delay or block a takeover attempt. Taken as a whole, these statutory provisions and provisions in the Company's certificate of incorporation
could result in the Company being less attractive to a potential acquiror and thus could adversely affect the market price of the Company's common stock.
General Risk Factors
The Company May Incur Impairment to its Goodwill
Goodwill arises when a business is purchased for an amount greater than the fair value of the net assets acquired. The Company has recognized $1.8 million of
goodwill as an asset on our balance sheet in connection with the acquisition of Fairport Savings Bank on May 1, 2020. The Company evaluates goodwill for
impairment at least annually. Although the Company determined that goodwill was not impaired during 2023, a significant and sustained decline in the Company’s
stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate, slower growth
rates or other factors could result in impairment of goodwill. If the Company were to conclude that a future write-down of the goodwill was necessary, it would
record the appropriate charge to earnings, which could be materially adverse to its financial condition and results of operations.
The Company's Business May Be Adversely Affected by Conditions in the Financial Markets and Economic Conditions Generally
The Company's financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value
of collateral securing those loans, is highly dependent upon the business environment in the markets where the Company operates, in Western New York and the
Finger Lakes Region of New York State, and in the United States as a whole.
A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, high business and
investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by: declines in economic growth,
declines in housing and real estate valuations, business activity or investor or business confidence; changes in monetary or fiscal policy of the federal government;
limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; public health emergencies; geopolitical conflicts;
natural disasters; or a combination of these or other factors.
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The Company's performance could be negatively affected to the extent there is deterioration in business and economic conditions, including persistent inflation,
rising prices, and supply chain issues or labor shortages, which have direct or indirect material adverse impacts on us, our customers, and our counterparties.
Recessionary conditions may significantly affect the markets in which we do business, the financial condition of our borrowers, the value of our loans and
investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and increased unemployment levels may result in
higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services. Such
events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.
Strong Competition Within the Company's Market Area May Limit the Company's Growth and Profitability
Competition in the banking and financial services industry is intense. The Company competes with commercial banks, savings institutions, mortgage brokerage
firms, credit unions, finance companies, mutual funds, brokerage and investment banking firms, and financial technology companies operating locally within the
Company's market area and elsewhere. Many of these competitors (whether regional or national institutions) have substantially greater resources and lending limits
than the Company does, and may offer certain services that the Company does not or cannot provide. The Company's profitability depends upon its continued
ability to successfully compete in this market area.
Loss of Key Employees May Disrupt Relationships with Certain Customers
The Company’s success depends, in large part, on its ability to attract and retain skilled people. The Company's business is primarily relationship-driven in that
many of the key employees of the Bank have extensive customer relationships. Loss of a key employee with such customer relationships may lead to the loss of
business if the customers were to follow that employee to a competitor. While management believes that the Company's relationships with its key business
producers are good, the Company cannot guarantee that all of its key personnel will remain with the organization. Further, competition for highly talented people
can be intense, and we may not be able to hire sufficiently skilled people or retain them. Loss of such key personnel, particularly if they enter into an employment
relationship with one of the Company's competitors, could result in the loss of some of the Company's customers. Such losses could have a material adverse effect
on the Company's business, financial condition and results of operations.
Damage to the Company's Reputation Could Adversely Impact Our Business
The Company's business reputation is important to its success. The ability to attract and retain customers, investors, employees and advisors may depend upon
external perceptions of the Company. Damage to the Company's reputation could cause significant harm to its business and prospects and may arise from numerous
sources, including litigation or regulatory actions, failing to deliver minimum standards of service and quality, compliance failures, unethical behavior and the
misconduct of employees, advisors and counterparties. Negative perceptions or publicity regarding these matters could damage the Company's reputation among
existing and potential customers, investors, employees and advisors. Adverse developments with respect to the financial services industry may also, by association,
negatively impact the Company's reputation or result in greater regulatory or legislative scrutiny or litigation against the Company. Preserving and enhancing the
Company's reputation also depends on maintaining systems and procedures that address known risks and regulatory requirements, as well as its ability to identify
and mitigate additional risks that arise due to changes in businesses and the marketplaces in which the Company operates, the regulatory environment and client
expectations. If any of these developments has a material effect on the Company's reputation, its business could suffer.
Furthermore, shareholders and other stakeholders have begun to consider how corporations are addressing environmental, social and governance (“ESG”) issues.
Governments, investors, customers and the general public are increasingly focused on ESG practices and disclosures, and views about ESG are diverse and rapidly
changing. These shifts in investing priorities may result in adverse effects on the trading price of the Company’s common stock if investors determine that the
Company has not made sufficient progress on, or has overly focused, on ESG matters. The Company could also face potential negative publicity in traditional
media or social media if shareholders or other stakeholders determine that we have not adequately considered or addressed, or has overly focused on, ESG matters.
If the Company, or our relationships with certain customers, vendors or suppliers became the subject of negative publicity, our ability to attract and retain customers
and employees, and our financial condition and results of operations, could be adversely impacted.
Changes in the Company’s Accounting Policies or in Accounting Standards Could Materially Affect How the Company Reports its Financial Results
Our accounting policies are fundamental to understanding our financial results and condition. Some of these policies require the use of estimates and assumptions
that may affect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to make
difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported
under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect, we may experience
material losses.
Additionally, from time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern
the preparation of our external financial statements. These changes are beyond our control, can be hard
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to predict and could materially impact how we report our results of operations and financial condition. We could be required to apply a new or revised standard
retroactively, resulting in our restating prior period financial statements in material amounts.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 1C. CYBERSECURITY
Overall Risk Management and Strategy
The Company manages its cybersecurity risk in a manner consistent with its overall risk management process in which recognized and emerging risks are identified,
assessed, controlled, and monitored on a continual basis. The Company’s cybersecurity risk management follows the “Three Lines of Defense” framework, which is
as follows: (1) in the first line of defense, our Information Security function manages cybersecurity risks and controls; (2) in the second line of defense, independent
internal risk management provides cybersecurity risk governance oversight; and (3) our Internal Audit function provides independent assurance over cybersecurity
practices as the third line of defense.
The Company leverages third parties to support the development and independent validation of cybersecurity risk management practices. Third-party cybersecurity
risk oversight includes engaging consultants in the development and deployment of cybersecurity control processes, and a managed security services provider to
provide 24/7 alert monitoring and remediation services, semi-annual independent vulnerability and penetration tests from rotating providers, and an annual
information security audit coordinated by the Company’s Internal Audit function.
All third-party service providers to the Company are subject to risk assessments to identify the risks, including cybersecurity-related risks, posed by that individual
third-party. Changes in vendor services result in a reassessment of risk. Based on the results of the risk assessment, the Company requires each third-party service
provider to meet certain due diligence requirements. These due diligence requirements require third-party service providers to provide the Company with evidence
of appropriate policies, an independent examination of their control environment, financial results, and operational resilience, as appropriate.
To date, no prior internal cybersecurity incident has materially affected the Company, however, external incidents have increased attention to risk management
processes which continually identify and assess threats to the Company’s operations with consideration to strategy, financial results, and business resilience.
Governance
The Enterprise Risk Committee of the Board of Directors is responsible for the oversight of cybersecurity risk at the Company. The Company has established a
Cyber and Technology Risk Appetite Statement, which is approved annually by the Enterprise Risk Committee. Changes in cybersecurity risk are monitored
throughout the year and are reported to the Enterprise Risk Committee.
The Enterprise Risk Committee is kept informed of these risks through reporting by the Chief Information Security Officer (“CISO”) and is also charged with
reviewing cybersecurity policies, results of an annual information security risk assessment, NYS DFS Compliance Status, and other information security risk
assessments or analysis of significant events that may occur throughout the year. The Enterprise Risk Committee additionally reviews the results of vulnerability
and penetration testing, tabletop exercises, and other examinations performed, whether internal or external, with a focus on cybersecurity. The Enterprise Risk
Committee is kept informed of cybersecurity risks through the Company’s first and second lines of defense, including the Company’s CISO, which provide the
following to the Enterprise Risk Committee on a quarterly basis, or more frequently as needed: an analysis comparing actual results against the Company’s Cyber
and Technology Risk Appetite Statement, an evaluation on current cybersecurity risks facing the company, and identification of any new or emerging risks
associated with cybersecurity. The Audit Committee of the Board of Directors is also informed of any cybersecurity risk that is identified in annual information
security specific internal audits or material cybersecurity risks that may have an impact on the financial statements and related disclosures of the Company.
The Company has established a clear chain of command in the management of cybersecurity risks by designating a CISO and Chief Information Officer (“CIO”),
who jointly lead the Company’s incident response team, which also includes the company’s management team. The CISO has certifications in information security,
and together, the CISO and CIO have over 25 years of cybersecurity experience combined. The CISO and CIO meet with Company senior leadership at least
quarterly through an Information Technology Steering Committee in which management assess information security risk. The Company has subscribed to threat
intelligence feeds that are reviewed throughout the day to ensure risks are identified and assessed in a timely manner.
In alignment with enterprise risk management processes and the National Institute of Standards and Technology (NIST) Cybersecurity Framework, the Company
has developed a control environment to prevent, detect, respond to, and recover from cybersecurity risk
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events. The Company’s control environment includes policies that set consistent cybersecurity control benchmarks across the organization and inform the CISO
about the prevention, detection, mitigation, and remediation of cybersecurity incidents on an ongoing basis.
The Company’s policies require it to maintain and control an inventory of the enterprise assets throughout their life cycle, including end-user devices, network
devices, servers, operating systems and applications used throughout the Company. These assets are subject to secure configuration requirements as well as data
protection requirements before they may be used in operations. Once appropriate configuration requirements are met, access to these assets is based on account
management procedures, which include determining appropriate ownership of the account and monitoring controls over accounts using administrator privileges.
Access is generally provisioned on the “least privilege” principle, meaning that a user is given the minimum levels of access or permissions needed to perform their
job functions, and consistent with the requirements of the role being provisioned. On a continuous basis, these assets are monitored to assess and track
vulnerabilities within the Company’s infrastructure. Any identified vulnerabilities are remediated on a scheduled basis in alignment with an assessment of the
associated risk. Upon termination or transfer of the user, processes are in place to remove user access from these assets, and additional monitoring controls are in
place to certify access on a recurring basis.
The Company monitors industry events and leverages additional resources to monitor any new threats and vulnerability information. Systemic prevention controls
are deployed to protect endpoints, as well as to prevent malicious code, emails, and websites from attempts to gain access to the network. Company personnel are
trained on a recurring basis on best practices to protect the Company from cybersecurity risks. The Company’s assets are subject to recovery procedures to bring the
asset back to its required state of operations, and these recovery procedures are tested internally by the Company to verify the capabilities of these procedures. The
Company has developed an Incident Response Policy and Plan that assigns appropriate responsibilities in the event of an incident. This assignment of
responsibilities allows the Company to assess and respond to any incident in a timely manner. This plan is tested on a recurring basis to maintain preparedness in the
event of an actual incident.
Item 2.
PROPERTIES
At December 31, 2024, the Bank conducted its business from its administrative office and 18 branch offices. The administrative offices of the Company and the
Bank are located at 6460 Main Street in Williamsville, NY. The administrative office facility is 50,000 square feet and is owned by the Bank. This facility is
occupied by the Office of the President and Chief Executive Officer of the Company, as well as the Administrative and Loan Divisions of the Bank. The Bank also
owns a building in Derby, NY.
Item 3.
LEGAL PROCEEDINGS
The nature of the Company’s business generates a certain amount of litigation involving matters arising in the ordinary course of business.
In addition, in connection with the Company’s proposed merger with NBT, following the announcement of the merger, between October 30, 2024 and December 9,
2024, the Company received a total of eight demand letters from counsel representing purported shareholders of the Company (collectively, the “Demand Letters”)
and became aware of two complaints, James Jones v. Evans Bancorp, Inc. et al., Index No. 659506/2024, filed in the Supreme Court of New York, County of New
York, on December 3, 2024, and Ryan Smith v. Evans Bancorp, Inc. et al., Index No. 659452/2024, filed in the Supreme Court of New York, County of New York,
on December 5, 2024 (together, the “Complaints”). The Demand Letters and Complaints allege, among other things, that the Company and/or its directors caused a
materially incomplete and misleading proxy statement relating to the merger to be filed with the SEC in violation of Section 14(a) and Section 20(b) of the
Securities Exchange Act of 1934, as amended, and Rule 14a-9 promulgated thereunder.
The Company believes that the allegations in the Demand Letters and the Complaints are without merit and that the disclosures in the proxy statement/prospectus
complied fully with applicable laws. However, in order to avoid the risk that the Demand Letters and Complaints might delay or otherwise adversely affect the
merger, and to avoid the cost and distraction of litigation, and without admitting any liability or wrongdoing, the Company and NBT determined to supplement the
proxy statement/prospectus by means of additional disclosure provided via Current Report on Form 8-K filed with the SEC on December 13, 2024. The Company
and its directors deny that they have violated any laws, negligently misrepresented or concealed any information, or breached any fiduciary duties. In addition to
filing a Current Report on Form 8-K with the SEC, the Company provided copies of the disclosure to representatives of the purported shareholders identified in the
Demand Letters and Complaints. The Company is unaware of any further activity with respect to the Demand Letters and Complaints.
23
Table of Contents
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information. The Company’s common stock is listed on the NYSE American under the symbol “EVBN.”
Holders. The approximate number of holders of record of the Company’s common stock as of February 19, 2025 was 1,148.
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total stockholder return on its common stock for a five-year period (December 31, 2019 to
December 31, 2024) with the cumulative total return of the NYSE American Composite Index and NASDAQ Bank Index. The comparison for each of the periods
assumes that $100 was invested on December 31, 2019 in each of the Company's common stock and the stocks included in the NYSE American Composite Index
and NASDAQ Bank Index and that all dividends were reinvested without commissions. This table does not forecast future performance of the Company's stock.
Index
12/31/19
12/31/20
12/31/21
12/31/22
12/31/24
12/31/24
Evans Bancorp, Inc.
100.00
71.85
108.65
104.12
91.46
130.62
NASDAQ Bank
100.00
89.37
124.84
101.92
95.12
111.03
NYSE American - Composite Index
100.00
92.49
134.27
162.01
179.99
185.59
24
Table of Contents
In accordance with and to the extent permitted by applicable law or regulation, the information set forth above under the heading "Performance Graph" shall not be
deemed to be "soliciting material" or to be "filed" with the SEC under the Securities Act or the Exchange Act, or subject to the liabilities of Section 18 of the
Exchange Act, except to the extent that we specifically request that such information be treated as soliciting material or specifically incorporate it by reference into
such a filing.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Issuer Purchases of Equity Securities
Period
Total Number of
Shares Purchased
Average Price Paid
per Share
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
Maximum Number of Shares
that May Yet be Purchased
Under the Plans or Programs
October 1, 2024 - October 31, 2024
Repurchase program(1)
-
$
-
-
180,932
Employee transactions
-
$
-
N/A
N/A
November 1, 2024 - November 30, 2024
Repurchase program(1)
-
$
-
-
180,932
Employee transactions
6,824
$
44.92
N/A
N/A
December 1, 2024 - December 31, 2024
Repurchase program(1)
-
$
-
-
180,932
Employee transactions
23,614
$
44.10
N/A
N/A
Total:
Repurchase program(1)
-
$
-
-
180,932
Employee transactions
30,438
$
44.29
N/A
N/A
(1) On February 25, 2021, the Board of Directors authorized the Company to repurchase up to 300,000 shares of the Company’s common stock (the “2021
Repurchase Program”). The 2021 Repurchase program does not expire and may be suspended or discontinued by the Board of Directors at any time. The
remaining number of shares that may be purchased under the 2021 Repurchase Program as of December 31, 2024 was 180,932.
Item 6.
[RESERVED]
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This discussion is intended to compare the performance of the Company for the years ended December 31, 2024 and 2023. The review of the information presented
should be read in conjunction with Part I, Item 1: “Business” and Part II, Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form
10-K.
The Company is a financial holding company registered under the BHCA. The Company currently conducts its business through its two direct wholly-owned
subsidiaries: the Bank, and the Bank’s subsidiaries, ENL and ENHC; and ENFS. The Company does not engage in any other substantial business. Unless the
context otherwise requires, the term “Company” refers collectively to Evans Bancorp, Inc. and its subsidiaries.
25
Table of Contents
Selected Financial Data
As of and for the year ended December 31,
2024
2023
2022
(in thousands, except for per share data)
Balance Sheet Data
Assets
$
2,187,465
$
2,108,663
$
2,178,510
Interest-earning assets
2,060,498
1,988,380
2,043,975
Investment securities
263,024
277,739
371,275
Loans and leases, net
1,759,488
1,698,832
1,652,931
Deposits
1,866,477
1,718,761
1,771,679
Borrowings
117,865
185,775
231,223
Stockholders' equity
183,143
178,219
153,993
Income Statement Data
Net interest income
$
58,968
$
61,208
$
72,955
Non-interest income
10,958
32,922
19,271
Non-interest expense
53,422
59,382
59,935
Net income
11,954
24,524
22,389
Per Share Data
Earnings per share - basic
$
2.16
$
4.49
$
4.07
Earnings per share - diluted
2.16
4.48
4.04
Cash dividends
1.32
1.32
1.26
Book value
32.89
32.40
28.32
Performance Ratios
Return on average assets
0.54 %
1.14 %
1.02 %
Return on average equity
6.65 %
15.47 %
13.49 %
Return on average tangible
common stockholders' equity (Non-GAAP)*
6.72 %
16.82 %
14.74 %
Net interest margin
2.81 %
3.02 %
3.53 %
Efficiency ratio
76.40 %
63.09 %
64.99 %
Efficiency ratio (Non-GAAP) **
74.23 %
74.69 %
64.55 %
Dividend payout ratio
61.11 %
29.40 %
30.96 %
Capital Ratios
Tier 1 capital to average assets
10.37 %
10.37 %
9.13 %
Equity to assets
8.37 %
8.45 %
7.07 %
Asset Quality Ratios
Total non-performing assets to
total assets
0.93 %
1.30 %
1.14 %
Total non-performing loans
to total loans
1.14 %
1.59 %
1.48 %
Net charge-offs to
average loans
0.01 %
- %
0.11 %
Allowance for credit losses
to non-accrual loans
121.28 %
81.33 %
87.19 %
Allowance for credit losses
to total loans
1.36 %
1.28 %
1.16 %
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* The calculation of the average tangible common stockholders’ equity ratio excludes goodwill and intangible assets from average stockholders’ equity. See Reconciliation of GAAP to Non-GAAP
Financial Measures below.
** The calculation of the non-GAAP efficiency ratio excludes amortization of intangibles, gains and losses from investment securities, gains from sale of subsidiaries, merger-related expenses and the
impact of historic tax credit transactions. See Reconciliation of GAAP to Non-GAAP Financial Measures below.
Reconciliation of GAAP to Non-GAAP Financial Measures
We believe the non-GAAP financial measures included above provide useful information to management and investors that is supplementary to our financial
condition, results of operations and cash flows computed in accordance with GAAP; however, we acknowledge that our non-GAAP financial measures have a
number of limitations. The following reconciliation table provides a more detailed analysis of the non-GAAP financial measures:
2024
2023
2022
(in thousands)
Return on average tangible common stockholders' equity
Net income (GAAP)
$
11,954
$
24,524
$
22,389
Average shareholders' equity (GAAP)
$
179,873
$
158,538
$
165,982
Deduct: Average goodwill and intangible assets
1,855
12,711
14,136
Average tangible shareholders' equity (non-GAAP)
$
178,018
$
145,827
$
151,846
Return on average tangible common stockholders' equity (non-GAAP)
6.72%
16.82%
14.74%
Efficiency ratio
Non-interest expense (GAAP)
$
53,422
$
59,382
$
59,935
Deduct: Merger related expense
1,673
Deduct: Intangible amortization expense
17
367
400
Adjusted non-interest expense (non-GAAP)
$
51,732
$
59,015
$
59,535
Net interest income (GAAP)
$
58,968
$
61,208
$
72,955
Non-interest income (GAAP)
10,958
32,922
19,271
Add: Historic tax credit losses, net
(236)
-
-
Add: Loss on sale of securities
-
5,044
-
Deduct: Gain on sale of insurance agency
-
20,160
-
Adjusted total revenue (non-GAAP)
$
69,690
$
79,014
$
92,226
Efficiency ratio (non-GAAP)
74.23%
74.69%
64.55%
See Item 8, “Consolidated Financial Statements and Supplementary Data,” of this Report on Form 10-K for further information and analysis of changes in the
Company's financial condition and results of operations.
Summary
Net income in 2024 was $12.0 million, a decrease from 2023 net income of $24.5 million. The decrease in net income was due to the gain on sale of the insurance
agency in the previous year. Net interest income was $59.0 million in 2024 compared with $61.2 million in 2023. The yield on loans increased 40 basis points
while competition on deposits and changes in customer behaviors contributed to an 82 basis point increase in cost of funds during 2024. Cost of funds was 3.15%
during 2024 compared with 2.33% during 2023. Net interest margin was 2.81% and 3.02% in 2024 and 2023, respectively.
The Company’s provision for credit loss was $2.2 million, which reflected a reserve taken on one loan previously categorized as non-performing in addition to loan
growth during the year. Provision for credit loss of less than $0.1 million in 2023, reflected improving
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economic conditions including peer group metrics, partially offset by loan growth and specific reserves related to individually analyzed loans. The ratio of non-
performing loans to total loans was 1.14% at December 31, 2024 compared with 1.59% at December 31, 2023.
Non-interest income was $11.0 million in 2024 compared with $32.9 million in 2023. The decrease was mostly due to the gain on the sale of TEA in 2023 of $20.2
million, lower insurance service and fee revenue of $9.6 million as a result of the sale of TEA, partially offset by loss on sale of investment securities in 2023 of $5
million, gain on sale of other real estate owned in 2024 of $0.6 million, and historic tax credit investment activity during 2024 of $0.7 million.
Non-interest expense decreased $6.0 million, or 10%, to $53.4 million. The majority of the decrease was related to lower salaries and employee benefits of $6.4
million primarily related to the sale of TEA and lower advertising costs of $0.3 million, partially offset by merger related expenses of $1.7 million.
Strategy
In the fourth quarter of 2024, The Company’s shareholders approved the merger with NBT. This partnership will enhance the ability of the combined company to
better deliver exceptional service, strengthen market position and generate value to stakeholders throughout its expanded footprint. Our strategy is to do everything
necessary to ensure the merger is consummated effectively to conduct business as usual up until then, and to hand over the Company in good standing.
During this transition period to the close of the merger the Company will continue to increase market share and achieve scale while improving profitability and
returning value to shareholders. The Company’s biggest strength and earnings driver is commercial and small business lending. The Company expects to continue
to focus on building on this competitive advantage by adding personnel in this area. In addition, management intends to continue to develop strategies to deepen
existing customer relationships with tailored product sets that reward the Company’s most loyal customers.
The Company’s strategies are designed to direct tactical investment decisions supporting its financial objectives. While the Company intends to focus its efforts on
the pursuit of these strategies, there can be no assurance that the Company will successfully implement these strategies or that the strategies will produce the desired
results. The Company’s most significant revenue source continues to be net interest income, defined as total interest income less interest expense. Net interest
income accounted for 84% of total revenue in 2024. To produce net interest income and consistent earnings growth over the long-term, the Company must generate
loan and deposit growth at acceptable margins within its market area. To generate and grow loans and deposits, the Company must focus on a number of areas
including, but not limited to, sales practices, customer and employee satisfaction and retention, competition, evolving customer behavior, technology, product
innovation, interest rates, credit performance of its customers and vendor relationships.
The Company also considers non-interest income important to its continued financial success. Fee income generation is partly related to the Company’s loan and
deposit operations, such as deposit service charges. Improved performance in non-interest income can help increase capital ratios because most of the non-interest
income is generated without recording assets on the balance sheet. The Company has and will continue to face challenges in increasing its non-interest income as
the regulatory environment changes.
The Company has focused its efforts on targeted groups in its community such as (1) smaller businesses with smaller credit needs but rich in deposits and other
service needs; (2) middle market commercial businesses; (3) commercial real estate lending; (4) retail customers; and (5) municipal customers. The overarching
goal is to cross-sell between financial services and banking lines of business to deepen our relationships with all of our customers.
The Company strives to provide a personal touch to customer service and is committed to maintaining a local, community-based philosophy. The Bank has
emphasized hiring local branch and lending personnel with strong ties to the specific local communities it serves.
The Bank serves its market through 18 banking offices in Western New York and the Finger Lakes Region of New York State. The Company’s principal source of
funding is through deposits, which it reinvests in the community in the form of loans and investments. Deposits are insured up to the maximum permitted by the
Deposit Insurance Fund of the FDIC. The Bank is regulated by the OCC.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The Company’s Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow general
practices within the industries in which it operates. Application of these principles requires management to make estimates, assumptions and judgments that affect
the amounts reported in the Company’s Consolidated Financial Statements and Notes. These estimates, assumptions and judgments are based on information
available as of the date of the Consolidated Financial Statements. Accordingly, as this information changes, the Consolidated Financial Statements could reflect
different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments, and as such,
have a greater possibility of producing results that could be materially different than originally reported.
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Table of Contents
The most significant accounting policies followed by the Company are presented in Note 1 to the Consolidated Financial Statements included in Item 8 of this
Annual Report on Form 10-K. These policies, along with the disclosures presented in the other Notes to the Consolidated Financial Statements contained in this
Annual Report on Form 10-K and in this financial review, provide information on how significant assets and liabilities are valued in the Company’s Consolidated
Financial Statements and how those values are determined.
The more significant area in which management of the Company applies critical assumptions and estimates includes the allowance for credit losses.
Allowance for Credit Losses
The allowance for credit losses (“ACL”) on loans is management’s estimate of expected lifetime credit losses on loans carried at amortized cost. The ACL on loans
is established through a provision of credit losses recognized in the Consolidated Statements of Income. Additionally, the ACL on loans is reduced by charge-offs
on loans and increased by recoveries of amounts previously charged-off.
At December 31, 2024 the ACL on loans totaled $24.2 million, compared to $22.1 million at December 31, 2023. A significant portion of our ACL is allocated to
the commercial portfolio (both commercial real estate and commercial and industrial (“C&I”) loans). As of December 31, 2024 and December 31, 2023 the ACL
allocated to the total commercial portfolio was $18.8 million and $17.8 million, respectively.
Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors. The methodology for
evaluating quantitative factors consists of two basic components: pooling loans into portfolio segments for loans that share similar risk characteristics and
identifying individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments.
For pooled loan portfolio segments, the Company utilizes a discounted cash flow (“DCF”) methodology to estimate credit losses over the expected life of the loan.
The methodology incorporates a probability of default and loss given default framework. Loss given default is estimated based on historical credit loss experience
of a peer group. Probability of default is estimated utilizing a regression model that incorporates economic factors. The model utilizes forecasted econometric
factors with a one-year reasonable and supportable forecast period and one-year straight-line reversion period in order to estimate the probability of default for each
loan portfolio segment. The DCF methodology combines the probability of default, the loss given default, prepayment speeds and the remaining life of the loan to
estimate a reserve for each loan.
The ACL for individually analyzed loans is measured using a DCF method based upon the loan’s contractual effective interest rate, or at the loan’s observable
market price, or, if the loan was collateral dependent, at the fair value of the collateral.
Quantitative loss factors are also supplemented by certain qualitative risk factors reflecting management’s evaluation of various conditions. Management’s
evaluation of these factors includes a weighted rate and risk range category assigned to each factor. The weighted rates and risk range categories vary between loan
segments.
Because the methodology is based upon historical experience and trends, current economic data, reasonable and supportable forecasts, as well as management’s
judgement, factors may arise that result in different estimations. Deteriorating conditions or assumptions could lead to further increases in the ACL on loans;
conversely, improving conditions or assumptions could lead to further reductions in the ACL on loans.
In estimating the ACL on loans, management considers the sensitivity of the model and significant judgments and assumptions that could result in an amount that is
materially different from management’s estimate. Given the concentration of ACL allocation to the total commercial portfolio and the significant judgments made
by management in deriving the qualitative loss factors, management analyzed the impact that changes in judgments could have within the established risk range.
The result was an ACL allocated to the total commercial loan portfolio that ranged between $13.2 million and $33.6 million at December 31, 2024. The sensitivity
and related range of impact is a hypothetical analysis and is not intended to represent management’s judgments or assumptions of qualitative loss factors that were
utilized at December 31, 2024 in estimation of the ACL on loans recognized on the Consolidated Balance Sheet.
If the assumptions underlying the determination of the ACL prove to be incorrect, the ACL may not be sufficient to cover actual loan losses and an increase to the
ACL may be necessary to allow for different assumptions or adverse developments. In addition, a problem with one or more loans could require a significant
increase to the ACL.
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Table of Contents
Management’s methodology and policy in determining the allowance for credit losses can be found in Note 1 to the Consolidated Financial Statements included in
Item 8 of this Annual Report on Form 10-K. The activity in the allowance for credit losses is depicted in supporting tables in Note 4 to the Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2024 AND DECEMBER 31, 2023
Net Income
Net income was $12.0 million in 2024, or $2.16 per diluted share, a decrease from $24.5 million, or $4.48 per diluted share, in 2023. For further information on net
income by business segments see Note 19 to the Company’s Consolidated Financial Statements included under Item 8 of this Annual Report on Form 10-K.
Net Interest Income
Net interest income, the difference between interest income and fee income on interest earning assets, such as loans and securities, and interest expense on deposits
and borrowings, provides the primary basis for the Company’s results of operations.
Net interest income is dependent on the amounts of and yields earned on interest earning assets as compared to the amounts of and rates paid on interest bearing
liabilities.
AVERAGE BALANCE SHEET INFORMATION
The following table presents the significant categories of the assets and liabilities of the Company, interest income and interest expense, and the corresponding
yields earned and rates paid in 2024, 2023, and 2022. The assets and liabilities are presented as daily averages. The average loan balances include both performing
and non-performing loans. Interest income on loans does not include interest on loans for which the Bank has ceased to accrue interest. Available-for-sale
securities are stated at fair value. Interest and yield are not presented on a tax-equivalent basis.
30
Table of Contents
2024
2023
2022
Average
Interest
Average
Interest
Average
Interest
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
Balance
Paid
Rate
Balance
Paid
Rate
Balance
Paid
Rate
(in thousands)
(in thousands)
(in thousands)
ASSETS
Interest-earning assets:
Loans, net (1)
$
1,731,729
$
98,288
5.68%
$
1,657,114
$
87,448
5.28%
$
1,595,944
$
70,562
4.42%
Taxable securities
271,896
6,801
2.50%
351,903
8,755
2.49%
373,589
8,037
2.15%
Tax-exempt securities
6,715
247
3.68%
7,791
244
3.13%
11,320
287
2.54%
Interest bearing deposits at banks
84,647
4,582
5.41%
7,741
403
5.21%
85,268
596
0.70%
Total interest-earning assets
2,094,987
$
109,918
5.25%
2,024,549
$
96,850
4.78%
2,066,121
$
79,482
3.85%
Non interest-earning assets:
Cash and due from banks
18,152
16,411
15,556
Premises and equipment, net
14,863
16,277
17,392
Other assets
87,799
99,180
88,075
Total Assets
$
2,215,801
$
2,156,417
$
2,187,144
LIABILITIES &
STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
NOW
$
374,019
$
9,257
2.48%
$
297,159
$
4,544
1.53%
$
261,514
$
427
0.16%
Regular savings
699,797
16,991
2.43%
741,798
11,835
1.60%
970,401
1,899
0.20%
Time deposits
383,355
16,528
4.31%
306,173
10,099
3.30%
151,719
1,263
0.83%
Other borrowed funds
119,264
5,812
4.87%
137,423
6,789
4.94%
48,731
1,136
2.33%
Subordinated debt
31,226
2,212
7.08%
31,125
2,186
7.02%
31,023
1,791
5.77%
Securities sold U/A to repurchase
7,969
150
1.88%
13,056
189
1.45%
6,827
11
0.16 %
Total interest-bearing liabilities
1,615,630
$
50,950
3.15%
1,526,734
$
35,642
2.33%
1,470,215
$
6,527
0.44%
Noninterest-bearing liabilities:
Demand deposits
400,135
451,261
530,879
Other
20,163
19,884
20,068
Total liabilities
$
2,035,928
$
1,997,879
$
2,021,162
Stockholders' equity
179,873
158,538
165,982
Total Liabilities and Equity
$
2,215,801
$
2,156,417
$
2,187,144
Net interest earnings
$
58,968
$
61,208
$
72,955
Net interest margin
2.81%
3.02%
3.53%
Interest rate spread
2.10%
2.45%
3.41%
(1) Included in interest earned as of December 31, 2022 were PPP loans fees of $0.8 million. There were no PPP loans recorded in 2024 and 2023. Other loan fees included in interest earned were
not material during 2024, 2023, and 2022.
31
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The following table segregates changes in interest earned and paid 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 income and expense due to both volume and rate has been allocated in the table to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the change in each. There are no out-of-period item adjustments included in the
following table.
2024 Compared to 2023
2023 Compared to 2022
Increase (Decrease) Due to
Increase (Decrease) Due to
(in thousands)
Volume
Rate
Total
Volume
Rate
Total
Interest earned on:
Loans
$
4,049
$
6,791
$
10,840
$
2,791
$
14,095
$
16,886
Taxable securities
(2,001)
47
(1,954)
(486)
1,204
718
Tax-exempt securities
(36)
39
3
(101)
58
(43)
Interest-bearing deposits at banks
4,162
17
4,179
(974)
781
(193)
Total interest-earning assets
$
6,174
$
6,894
$
13,068
$
1,230
$
16,138
$
17,368
Interest paid on:
NOW accounts
$
1,390
$
3,323
$
4,713
$
66
$
4,050
$
4,116
Savings deposits
(704)
5,860
5,156
(548)
10,484
9,936
Time deposits
2,899
3,530
6,429
2,261
6,575
8,836
Other
(1,190)
200
(990)
4,314
1,913
6,227
Total interest-bearing liabilities
$
2,395
$
12,913
$
15,308
$
6,093
$
23,022
$
29,115
Net interest income decreased by $2.2 million, or 3.7%, to $59.0 million in 2024 from $61.2 million in 2023. The yield on loans was 5.68% during 2024 compared
with 5.28% in the prior year.
The total commercial loan portfolio average balance, including commercial real estate and C&I loans, increased $74.7 million, or 6%, from a $1.15 billion average
balance in 2023 to a $1.23 billion average balance in 2024. Average consumer loans, including residential mortgages and home equity lines of credit, increased by
less than 1% from $524.3 million in 2023 to $525.9 million in 2024. The increase in the commercial loan portfolio was primarily due to higher levels of
commercial real estate originations during the year.
On the funding side, average interest-bearing deposits increased $112 million, while average overnight and short-term borrowings decreased $23 million. The rate
on savings deposits increased 83 basis points to 2.43% from 2023 while average savings deposits decreased $42 million. Changes in customer behavior contributed
to the $77 million increase in average time deposits as customers shifted to higher yielding deposit products. The rate on time deposits was 4.31% at December 31,
2024 compared with 3.30% at December 31, 2023.
The Company’s net interest margin decreased from 3.02% in 2023 to 2.81% in 2024. The net interest spread, or the difference between yield on interest-earning
assets and rate on interest-bearing liabilities, decreased from 2.45% in 2023 to 2.10% in 2024. The yield on interest-earning assets increased 47 basis points to
5.25% during 2024 mostly due to higher loan yields. Cost of interest-bearing liabilities increased 82 basis points to 3.15% during 2024. The increase in the cost of
interest-bearing liabilities is the result of higher deposit rates as the Company continues to provide competitive pricing on deposits, as well as the increased cost of
borrowings. The rate paid on average time deposits increased from 3.30% in 2023 to 4.31% in 2024. Average time deposits were 24% of total interest-bearing
liabilities in 2024, compared with 20% in 2023.
The Bank regularly monitors its exposure to interest rate risk. Management believes that the proper management of interest-sensitive funds will help protect the
Bank’s earnings against changes in interest rates. The Bank’s Asset/Liability Management Committee (“ALCO”) meets monthly for the purpose of evaluating the
Bank’s short-term and long-term liquidity position and the potential impact on capital and earnings of changes in interest rates. The Bank has adopted an
asset/liability policy that specifies minimum limits for liquidity and capital ratios. This policy includes setting ranges for the negative impact acceptable on net
interest income and on the fair value of equity as a result of a shift in interest rates. The asset/liability policy also includes guidelines for investment activities and
funds management. At its monthly meetings, ALCO reviews the Bank’s status and formulates its strategies based on current economic conditions, interest rate
forecasts, loan demand, deposit volatility and the Bank’s earnings objectives.
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Allowance for Credit Losses
The Company’s provision for credit loss was $2.2 million for the year ended 2024, which reflected a reserve taken on one loan previously categorized as non-
performing and loan growth during the year. Provision for credit loss of less than $0.1 million in 2023 reflected improving economic conditions including peer
group metrics, partially offset by loan growth and specific reserves related to individually analyzed loans. The ratio of non-performing loans to total loans was
1.14% compared with 1.59% in 2023.
A description of how the allowance for credit loan is determined along with tabular data depicting the key factors in calculating the allowance is set forth in Notes 1
and 4 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Non-accrual, Past Due and Restructured Loans
Non-performing loans decreased $7.1 million from $27.3 million at December 31, 2023 to $20.2 million at December 31, 2024. The decrease in 2024 was driven
by one commercial real estate loan totaling $7.1 million that was acquired by the Bank in foreclosure and sold during the third quarter of 2024. Non-performing
loans included $19.9 million of non-accruing loans at December 31, 2024 compared with $27.2 million at December 31, 2023. Total non-accrual loans to total
loans was 1.12% and 1.58% at December 31, 2024 and 2023, respectively. There were $0.3 million of accruing loans categorized as 90 days or more past due at
December 31, 2024.
Total non-performing loans to total assets was 0.93% at December 31, 2024 compared with 1.30% at December 31, 2023. Total non-performing loans to total loans
at December 31, 2024 and 2023 was 1.14% and 1.59%, respectively.
See Note 4 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information about the
Company's non-accrual, past due, and loans modified to borrowers experiencing financial difficulty.
Allowance for Credit Losses
The following table summarizes the Bank’s allocation of the allowance for credit losses by portfolio type for years 2024 and 2023.
Balance at
12/31/2024
Percent of loans to total
loans
Balance at
12/31/2023
Percent of loans to total
loans
(in thousands)
Residential mortgages*
$
4,831
25 %
$
3,883
26 %
Commercial mortgages*
13,298
56 %
12,548
56 %
Home equities
488
4 %
434
5 %
Commercial and industrial
5,550
15 %
5,241
13 %
Consumer loans**
9
- %
8
- %
Total
$
24,176
100 %
$
22,114
100 %
* includes construction loans
** includes other loans
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During 2024, the Company had net loan charge-offs of $0.2 million, compared with of $0.1 million in 2023. The ratio of net loan charge-offs to average net loans
outstanding was 0.01% in 2024 and less than 0.01% in 2023. There were no significant charge-offs or recoveries during 2024 and 2023. The following table
presents by loan category net loan charge-offs to average loans outstanding ratios for 2024 and 2023.
2024
2023
Residential mortgages*
(0.02)%
- %
Commercial mortgages*
-%
- %
Home equities
-%
0.02 %
Commercial loans
0.03 %
(0.03)%
Consumer loans**
14.71 %
6.58 %
* includes construction loans
** includes other loans
Commercial mortgages comprised 55% of the allowance for credit losses, and correspondingly, the commercial mortgage portfolio made up the largest proportion,
or 56%, of the total loan portfolio as of December 31, 2024, as compared with 57% of the allowance and 56% of the total loan portfolio at December 31, 2023.
C&I loans comprised 23% of the allowance for credit losses and 15% of the loan portfolio as of December 31, 2024, as compared with 24% of the allowance and
13% of the total loan portfolio at December 31, 2023.
Residential mortgages comprised 20% of the allowance for credit losses and 25% of the loan portfolio as of December 31, 2024, as compared with 18% of the
allowance and 26% of the total loan portfolio at December 31, 2023.
Overall, the ratio of the allowance for credit losses to total loans increased from 1.28% at December 31, 2023 to 1.36% on December 31, 2024 primarily due to the
reserve taken on one loan previously in non-performing and loan growth during the full year 2024.
The Company evaluates the loan portfolio to ensure that specific credits are appropriately graded and reserved. At least annually, commercial borrowers’ financial
information is reviewed by the individual relationship managers. Independent of the individual relationship managers, the Company has engaged an independent
vendor to perform independent reviews and to monitor the management of the Company’s commercial loan portfolio. The Company’s loan review function reviews
a percentage of the commercial loan portfolio based on an annual risk assessment, typically ranging from 40% to 50%. The Company believes that the allowance
for credit losses is reflective of a fair assessment of the current environment and credit quality trends.
Non-Interest Income
Total non-interest income decreased from $32.9 million in 2023 to $11.0 million in 2024. The decrease was due to the pretax gain on the sale of TEA in 2023 of
$20.2 million, reduced insurance service and fee income of $9.6 million in 2024, partially offset by a loss on sale of investment securities in 2023 of $5.0 million,
and increases in 2024 in historic tax credit investment activity of $0.7 million, gain on sale of other real estate owned of $0.6 million and service charges revenue of
$0.2 million. Additional information on the sale of TEA is included within Note 2 to the Company’s Consolidated Financial Statements included in item 8 of this
Annual Report on Form 10-K.
Non-Interest Expense
Total non-interest expense decreased $6.0 million, or 10%, from $59.4 million in 2023 to $53.4 million in 2024. The decrease was due to a reduction of $6.4 million
in salaries and employee benefits resulting from the sale of TEA and lower advertising costs of $0.3 million, partially offset by $1.7 million of merger related
expenses.
The efficiency ratio expresses the relationship of operating expenses to revenues. The Company's GAAP efficiency ratio, or non-interest operating expenses
divided by the sum of net interest income and non-interest income, was 76.4% in 2024 compared with 63.1% in
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2023. The Company’s non-GAAP efficiency ratio, which excludes amortization expense, gains and losses from investment securities, gain on sale of subsidiary,
and the impact of historic tax credit transactions, was 74.23% in 2024 compared with 74.7% in 2023.
Taxes
Income tax expense for the year was $2.3 million, representing an effective tax rate of 16.2% compared with an effective tax rate of 29.4% in 2023. For further
discussion of the Company’s income taxes, including a reconciliation from the statutory rate to the actual rate for 2024 and 2023, see Note 14 to the Consolidated
Financial Statements included in Item 8 of this Annual Report on Form 10-K.
FINANCIAL CONDITION
The Company had total assets of $2.2 billion at December 31, 2024, an increase of $79 million, or 4% from December 31, 2023. Net loans of $1.8 billion at the
most recent year end were $61 million, or 4%, higher than at December 31, 2023. Total investment securities decreased $15 million, or 5%, from $278 million at
December 31, 2023 to $263 million at December 31, 2024. Deposits increased by $148 million, or 9%, to $1.9 billion as of the end of 2024. Stockholders’ equity
was $183 million at the conclusion of 2024, a $5 million, or 3% increase from $178 million at the previous year end.
Securities Activities
The primary objectives of the Bank’s securities portfolio are to provide liquidity and maximize income while preserving safety of principal. Secondary objectives
include: providing collateral to secure local municipal deposits, the investment of funds during periods of decreased loan demand, interest rate sensitivity
considerations, supporting local communities through the purchase of tax-exempt securities and tax planning considerations. The Bank’s Board of Directors is
responsible for establishing overall policy and reviewing performance of the Bank’s investments.
Under the Bank’s policy, acceptable portfolio investments include: United States Government obligations, obligations of federal agencies or U.S. Government-
sponsored enterprises, mortgage-backed securities, municipal obligations (general obligations, revenue obligations, school districts and non-rated issues from the
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), collateralized mortgage obligations, Small Business Investment Companies (SBIC), Federal
Reserve stock and Federal Home Loan Bank stock.
In regard to municipal securities, the Company’s general investment policy is that in-state securities must be rated at least Moody’s Baa (or equivalent) at the time
of purchase. The Company reviews the ratings report and municipality financial statements and prepares a pre-purchase analysis report before the purchase of any
municipal securities. Out-of-state issues must be rated by Moody’s at least Aa (or equivalent) at the time of purchase. The Company did not own any out-of-state
municipal bonds at December 31, 2024 or December 31, 2023. Bonds rated below A are reviewed periodically to ensure their continued creditworthiness. While
purchase of non-rated municipal securities is permitted, such purchases are limited to bonds issued by municipalities in the Company’s general market area. Those
municipalities are typically customers of the Bank whose financial situation is familiar to management. The financial statements of the issuers of non-rated
securities are reviewed by the Bank and a credit file of the issuers is kept on each non-rated municipal security with relevant financial information.
The Company has not experienced any credit troubles in its municipal bond portfolio and does not believe any credit troubles are imminent. Aside from the non-
rated municipal securities to local municipalities discussed above that are considered held-to-maturity, all of the Company’s available-for-sale municipal bonds are
investment-grade government obligation (“G.O.”) bonds. G.O. bonds are generally considered safer than revenue bonds because they are backed by the full faith
and credit of the government while revenue bonds rely on the revenue produced by a particular project. All of the Company’s municipal bonds are to municipalities
in New York State. To the Company’s knowledge, there has never been a default on a NY G.O. bond in the history of the state. The Company believes that its risk
of loss on default of a G.O. municipal bond for the Company is relatively low. However, historical performance does not guarantee future performance.
All fixed and adjustable rate mortgage pools backing the Company’s mortgage-backed securities contain a certain amount of risk related to the uncertainty of
prepayments of the underlying mortgages. Interest rate changes have a direct impact on prepayment rates. The Company uses a third-party developed model to
monitor the average life and yield volatility of mortgage pools under various interest rate assumptions.
The Company designates all securities at the time of purchase as either “held to maturity” or “available for sale.” Securities designated as held to maturity are
reported at amortized cost and consist of municipal investments that the Bank has made in its local market area. At December 31, 2024, $4.3 million in securities
were designated as held to maturity. Debt and mortgage backed securities designated as available for sale are reported at fair market value.
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Table of Contents
Fair values for available for sale securities are determined using independent pricing services and market-participating brokers. The Company utilizes a third-party
for these pricing services. The third-party utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market
information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the
third-party service provider’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector
groupings, and matrix pricing, to prepare evaluations. In addition, our third-party pricing service provider uses model processes, such as the Option Adjusted
Spread model, to assess interest rate impact and develop prepayment scenarios. The models and the process take into account market convention. For each asset
class, a team of evaluators gathers information from market sources and integrates relevant credit information, perceived market movements and sector news into
the evaluated pricing applications and models. The third party, at times, may determine that it does not have sufficient verifiable information to value a particular
security. In these cases the Company will utilize valuations from another pricing service.
Management believes that it has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value
of securities to enable management to maintain an appropriate system of internal control. On a quarterly basis the Company reviews changes, as submitted by our
third-party pricing service provider, in the market value of its securities portfolio. Individual changes in valuations are reviewed for consistency with general
interest rate movements and any known credit concerns for specific securities. Additionally, on a quarterly basis the Company has its entire securities portfolio
priced by a second pricing service to determine consistency with another market evaluator. If, on the Company’s review or in comparing with another servicer, a
material difference between pricing evaluations were to exist, the Company may submit an inquiry to our third party pricing service provider regarding the data
used to value a particular security. If the Company determines it has market information that would support a different valuation than our third-party pricing
service provider’s evaluation it can submit a challenge for a change to that security’s valuation. There were no material differences in valuations noted in 2024 or
2023.
The available for sale portfolio totaled $259 million or approximately 99% of the Company’s securities portfolio at December 31, 2024. Net unrealized gains and
losses on available for sale securities resulted in an unrealized loss of $57.3 million at December 31, 2024, as compared with $55.0 million at December 31, 2023.
The change in net unrealized losses was due to changes in market interest rates during the year. Unrealized gains and losses on available-for-sale securities are
reported, net of taxes, as a separate component of stockholders’ equity. For the year ended December 31, 2024, the change in net unrealized losses, net of taxes, on
stockholders’ equity was $1.7 million.
Management assessed available for sale securities in an unrealized loss position at December 31, 2024 and determined the decline in fair value below amortized
cost to be primarily related to market interest rate fluctuations and not to the credit deterioration of the individual issuer. As of December 31, 2024, the Company
does not intend to sell nor is it anticipated that it would be required to sell any of its impaired securities before recovery of their amortized cost.
The Company’s securities portfolio outstanding balances decreased from $278 million at December 31, 2023 to $263 million at December 31, 2024. At December
31, 2024 and December 31, 2023, the Company’s concentration in U.S. government-sponsored agency bonds was 35% of the total securities balance. Government-
sponsored mortgage-backed securities comprised 62% of the portfolio at December 31, 2024 and December 31, 2023, and tax-advantaged municipal bonds made up
4% of the portfolio at December 31, 2024 versus 3% of the portfolio at December 31, 2023.
Income from securities held in the Bank’s investment portfolio represented 6% and 9% of total interest income of the Company in 2024 and 2023, respectively.
Taxable securities yields increased to 2.50% in 2024 from 2.49% in 2023, while tax-exempt yields were 3.68% in 2024 and 3.14% in 2023.
The Company’s interest-bearing deposits at banks increased from $4 million to $28 million from the prior year end. The interest-bearing deposits at banks consist
of liquid interest-bearing cash accounts at correspondent banks and Federal Reserve Bank.
As a member of both the Federal Reserve System and the FHLB, the Bank is required to hold stock in those entities. The Bank held $6.2 million and $4.9 million
in FHLB stock as of December 31, 2024 and 2023, respectively, and $3.7 million in FRB stock compared to $3.1 million at December 31, 2024 and December 31,
2023, respectively.
Available for sale securities with a total fair value of $120 million at December 31, 2024 were pledged as collateral to secure public deposits and for other purposes
required or permitted by law.
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The following table sets forth the contractual maturities and weighted average interest yields of the Bank’s securities portfolio that are not carried at fair value
through earnings (yields on tax-exempt obligations are not presented on a tax-equivalent basis) as of December 31, 2024. Expected maturities will differ from
contracted maturities since issuers may have the right to call or prepay obligations without penalties.
Maturing
Within
After One But
After Five But
After
One Year
Within Five Years
Within Ten Years
Ten Years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
($ in thousands)
Available for Sale:
Debt Securities
U.S. treasuries and government agencies
$
-
- %
$
38,918
1.70%
$
35,825
1.70%
$
16,612
1.81%
States and political subdivisions
1,155
2.36%
4,144
2.83%
-
- %
-
- %
Total debt securities
$
1,155
2.36%
$
43,062
1.81%
$
35,825
1.70%
$
16,612
1.81%
Mortgage-backed securities
FNMA
$
-
- %
$
7,124
2.12%
$
10,084
2.02%
$
33,164
2.07%
FHLMC
-
- %
6,194
1.91%
3,330
1.89%
20,460
2.07%
GNMA
3
3.74%
-
- %
-
- %
30,273
2.12%
SBA
-
- %
-
- %
3,505
2.90%
13,045
2.70%
CMO
-
- %
-
- %
228
1.66%
34,613
2.06%
Total mortgage-backed securities
$
3
- %
$
13,318
2.02%
$
17,147
2.17%
$
131,555
2.14%
Total securities designated as available for sale
$
1,158
2.05%
$
56,380
1.86%
$
52,972
1.86%
$
148,167
2.10%
Held to Maturity:
Debt Securities
States and political subdivisions
$
2,751
4.60%
$
468
3.96%
$
1,128
4.28%
$
-
- %
Total securities designated as held to maturity
$
2,751
4.60%
$
468
3.96%
$
1,128
4.28%
$
-
- %
Total securities
$
3,909
3.93%
$
56,848
1.88%
$
54,100
1.91%
$
148,167
2.10%
LENDING ACTIVITIES
The Bank has a loan policy which is approved by its Board of Directors on an annual basis. The loan policy governs the conditions under which loans may be
made, addresses the lending authority of Bank officers, documentation requirements, appraisal policy, charge-off policies and desired portfolio mix. The Bank’s
lending limit to any one borrower is subject to regulation by the OCC. The Bank continually monitors its loan portfolio to review compliance with new and existing
regulations.
The Bank offers a variety of loan products to its customers, including residential and commercial real estate mortgage loans, commercial loans, and installment
loans. The Bank primarily extends loans to customers located within the Company’s footprint. Interest income on loans represented 89% of the total interest
income earned by the Company in 2024 compared with 90% in 2023. The Bank’s loan portfolio, net of the allowances for loan losses, totaled $1.8 billion at
December 31, 2024 and $1.7 billion at December 31, 2023. The average net loan portfolio represented 83% and 82% of the Company’s average interest-earning
assets during 2024 and 2023, respectively.
Real Estate Loans
Approximately 85% of the Bank’s total loan portfolio at December 31, 2024 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 $1.52 billion at December 31,
2024, compared with $1.50 billion at December 31, 2023. The real estate loan portfolio increased by 2% in 2024 over 2023, primarily as a result of higher
commercial construction loans.
Residential Mortgages
The Bank offers fixed rate residential mortgage loans with terms of 10 to 30 years with, typically, up to an 80% loan-to-value (“LTV”) ratio. Fixed rate residential
mortgage loans outstanding totaled $437 million at December 31, 2024 compared with $435 million at December 31, 2023, which was 25% of total loans
outstanding in both periods. This balance did not include any construction residential
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Table of Contents
mortgage loans, which are discussed below. Residential mortgage originations in 2024 were $57 million compared with $44 million in 2023. The increase was
primarily the result of declining interest rates.
The Bank has contractual arrangements with FNMA and FHLB, pursuant to which the Bank sells certain mortgage loans to FNMA and FHLB and the Bank retains
the servicing rights to those loans. The Bank determines with each origination of residential real estate loans which desired maturities, within the context of overall
maturities in the loan portfolio, provide the appropriate mix to optimize the Bank’s ability to absorb the corresponding interest rate risk within the Company’s
tolerance ranges. In 2024, the Bank sold $18.5 million in mortgages to FNMA and FHLB under this arrangement, compared with $8.3 million in mortgages sold in
2023. No loans were sold to FHLMC by the Company during the years 2024 and 2023.
At December 31, 2024, the Company had $119 million in unpaid principal balances of loans that it serviced for FNMA, FHLB, and FHLMC, compared with $113
million at December 31, 2023. The Company recorded a net servicing asset for such loans of $1.2 million at December 31, 2023 and $1.1 million at December 31,
2024.
The Bank offers adjustable rate residential mortgage loans with terms of up to 30 years. Rates on these mortgage loans remain fixed for a predetermined time and
are adjusted annually thereafter. The Bank’s outstanding adjustable rate residential mortgage loans were $7 million at December 31, 2024 compared with $8
million at December 31, 2023. At each respective time period, adjustable rate residential mortgage loans represented less than 1% of total loans outstanding.
Overall, residential real estate loans decreased from $444 million at December 31, 2023 to $439 million at December 31, 2024.
Commercial Real Estate
The Bank also offers commercial mortgage loans with up to an 80% LTV ratio for up to 20 years on a variable and fixed rate basis. Many of these mortgage loans
either mature or are subject to a rate call after three to five years. To the extent required, loans exceeding an 80% LTV are reported on an exception report to the
Board of Directors. The Bank’s outstanding commercial mortgage loans were $859 million at December 31, 2024, which was 48% of total loans outstanding, and
$855 million or 50% of total loans outstanding at December 31, 2023. The balance at December 31, 2024 included $806 million in fixed rate and $53 million in
variable rate commercial mortgage loans, which include interest rate calls. These balances do not include commercial mortgage construction loans.
Commercial real estate loan originations were $171 million during 2024 compared with $179 million during 2023.
The commercial real estate portfolio, consisting of both mortgage and construction loans, totaled $1.0 billion at December 31, 2024. The commercial real estate
portfolio is comprised of loans secured by non-owner occupied or income producing property types, and owner-occupied real estate loans. The commercial real
estate portfolio consisted of $810 million non-owner occupied, or 81% of the portfolio and $190 million, or 19% owner occupied real estate loans. The majority of
the non-owner occupied commercial real estate portfolio is made up of five concentrations as seen in the table below.
Percent of Portfolio
Multi-Family
47.60%
Industrial
15.06%
Retail
8.98%
Office
9.22%
Hotel
5.92%
Other
13.22%
The Banks multi-family portfolio consists of properties mainly in the Bank’s market area which are at market rates and does not include rent control buildings.
The other category includes concentration segments with aggregate balances that are less than 6% of the total non-owner occupied CRE portfolio.
Home Equity 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 15 years and up to an 85% combined LTV ratio. At December 31, 2024, the real
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Table of Contents
estate loan portfolio included $79 million of home equity loans, which represented 4% of total loans outstanding, compared with $81 million and 5% at December
31, 2023, respectively. The total home equity portfolio included $65 million in variable rate loans and $14 million in fixed rate loans. Home equity loan
originations were $15 million during 2024.
Construction Loans
The Bank also offers both residential and commercial real estate construction loans at up to an 80% LTV ratio at fixed interest or adjustable interest rates and
multiple maturities. At December 31, 2024, adjustable rate construction loans outstanding totaled $137 million, or 8% of total loans outstanding, and fixed rate real
estate construction loans outstanding totaled $10 million, or less than 1% of total loans outstanding. At December 31, 2023, adjustable rate construction loans
outstanding totaled $105 million, or 6% of total loans outstanding, and fixed rate real estate construction loans outstanding totaled $12 million, or 1% of total loans
outstanding.
Commercial and Industrial Loans
The Bank offers C&I 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 C&I loan portfolio totaled $260 million at December 31, 2024, compared with $223 million at December 31, 2023, a 17% increase. C&I loans
represented 15% and 13% of the Bank’s total loans at the end of 2024 and 2023, respectively.
Collateral for C&I loans, where applicable, may consist of inventory, receivables, equipment and other business assets. At December 31, 2024, 54% of the Bank’s
C&I loans were at variable rates which are tied to the prime rate or SOFR.
Consumer Loans
The Bank’s consumer installment and other loan portfolio totaled $0.7 million at December 31, 2024 compared with $1.0 million at December 31, 2023,
representing less than 1% of the Bank’s total loans outstanding at those dates. Traditional installment loans are offered at fixed interest rates with various maturities
of up to 60 months, on a secured and unsecured basis. This segment of the portfolio is done on an accommodation basis for customers. The Company does not
actively try to grow the portfolio in a significant way. Other loans consisted primarily of cash reserves, overdrafts, and loan clearing accounts.
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Table of Contents
Loan Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table shows the maturities of loans outstanding as of December 31, 2024 and the classification of those loans according to sensitivity to changes in
interest rates.
(in thousands)
Within 1 Year
After 1 - 5 Years
After 5 - 15 Years
After 15 Years
Total
Commercial and Industrial
Interest rates:
Fixed Rate
$
2,442
$
68,751
$
47,415
$
-
$
118,608
Variable Rate
78,888
48,454
13,868
364
141,574
Total
$
81,330
$
117,205
$
61,283
$
364
$
260,182
Commercial Real Estate *
Interest rates:
Fixed Rate
$
45,741
$
350,955
$
414,014
$
282
$
810,992
Variable Rate
52,230
54,982
82,638
-
189,850
Total
$
97,971
$
405,937
$
496,652
$
282
$
1,000,842
Residential Real Estate **
Interest rates:
Fixed Rate
$
81
$
5,426
$
64,951
$
366,737
$
437,195
Variable Rate
-
72
404
6,667
7,143
Total
$
81
$
5,498
$
65,355
$
373,404
$
444,338
Home Equity
Interest rates:
Fixed Rate
$
14
$
988
$
12,656
$
508
$
14,166
Variable Rate
-
521
5,399
58,580
64,500
Total
$
14
$
1,509
$
18,055
$
59,088
$
78,666
Consumer and other loans
Interest rates:
Fixed Rate
$
177
$
244
$
195
$
17
$
633
Variable Rate
13
-
-
84
97
Total
$
190
$
244
$
195
$
101
$
730
*Includes commercial real estate construction loans
**Includes residential real estate construction loans
SOURCES OF FUNDS
General
Customer deposits represent the primary 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 dividend income from investments, matured investments, borrowings from the FHLB or
FRB, and issuance of securities.
Deposits
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The Bank offers a variety of deposit products, including checking, savings, NOW accounts, certificates of deposit and jumbo certificates of deposit. Bank deposits
are insured up to the limits provided by the FDIC.
As of December 31, 2024 the amount of total uninsured deposits, deposits that exceed the limits provided by the FDIC, was $0.6 billion, compared with $0.5 billion
at December 31, 2023.
The following schedule indicates the amount of time deposits in uninsured accounts by time remaining until maturity at December 31, 2024:
Dollar Amount
At December 31, 2024:
(in thousands)
Three months or less
$
30,925
Over three through six months
23,722
Over six through twelve months
18,000
Over twelve months
5,618
Total
$
78,265
Total deposits of $1.9 billion at December 31, 2024 increased $148 million or 9% from the end of 2023. Included in the increase were time deposits of $61 million,
NOW deposits of $54 million and total savings deposits of $50 million. Offsetting those increases were a decrease in non-interest-bearing demand deposits of $17
million. Competitive deposit pricing within the current market played a role in the changes in deposit mix from prior year.
Federal Funds Purchased and Other Borrowed Funds
Another source of the Bank’s funds for lending and investing activities is borrowings from the FHLB and FRB. The Bank had $40 million outstanding on its
overnight line of credit with the FHLB as of December 31, 2024, compared with $53 million the year earlier. The Company’s use of its overnight line of credit with
FHLBNY varies depending on its ability to fund investment and loan growth with deposits along with the line usage’s impact on interest rate risk.
At December 31, 2024, the Bank had $40 million in FHLB long-term advances compared with $6 million at December 31, 2023. In addition to the FHLB, the
Company has the ability to borrow from the Federal Reserve. At December 31, 2024, the Company did not have any short-term borrowings with the FRB but had
$96 million in additional availability to borrow against collateral.
Subordinated Debt
On October 1, 2004, Evans Capital Trust I, a statutory business trust wholly-owned by the Company (the “Trust”), issued $11.0 million in aggregate principal
amount of floating rate preferred capital securities due November 23, 2034 to investors (the “Capital Securities”) and $0.3 million of common securities to the
Company (the “Common Securities”). The Capital Securities represent preferred undivided interests in the assets of the Trust. The Common Securities are wholly-
owned by the Company and are the only class of the Trust’s securities possessing general voting powers. In connection with the issuance and sale of the Capital
Securities, the Company issued an $11.3 million floating rate junior subordinated debt security, due October 1, 2037, to the Trust. Payments from the Company
under the junior subordinated debt security are the sole source of cash flow for the Trust and fund the Trust’s payments on its Capital Securities. The interest rate
payable to holders of the Capital Securities was 7.43% at December 31, 2024.
On July 9, 2020, the Company issued and sold $20 million in aggregate principal amount of its 6.00% Fixed-to-Floating Rate Subordinated Notes due July 15,
2030.
Securities Sold Under Agreements to Repurchase
The Bank enters into agreements with certain customers to sell securities owned by the Bank to those customers and repurchase the identical security within one
day. No physical movement of the securities is involved. The customer is informed that the securities are held in safekeeping by the Bank on behalf of the
customer. Securities sold under agreements to repurchase totaled $6.6 million and $9.5 million at December 31, 2024 and 2023, respectively. Balances can vary
day to day based on customer needs.
Liquidity
The Bank utilizes cash flows from the investment portfolio and federal funds sold balances to manage the liquidity requirements related to loan demand and deposit
fluctuations. The Bank also has many borrowing options. The Company uses the FHLBNY as its primary source of overnight funds and has long-term advance with
FHLBNY. The Company’s use of its overnight line of credit with FHLBNY varies depending on its ability to fund investment and loan growth with core deposits
along with the line usage’s impact on interest rate
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risk. The Company has pledged sufficient collateral in the form of residential and commercial real estate loans at FHLBNY that meets FHLB collateral
requirements. As a member of the FHLB, the Bank is able to borrow funds at competitive rates. As of December 31, 2024, advances of up to $381 million could be
drawn on the FHLB via an Overnight Line of Credit Agreement between the Bank and the FHLB. The Bank also has the ability to borrow from the Federal Reserve.
At December 31, 2024 the Bank had $96 million in additional availability to borrow against collateral at the Federal Reserve. By placing sufficient collateral in
safekeeping at the Federal Reserve Bank, the Bank could borrow at the discount window. The Bank’s liquidity needs also can be met by more aggressively pursuing
time deposits, or accessing the brokered time deposit market, including the Certificate of Deposit Account Registry Service (“CDARS”) network.
Cash flows from the Bank’s investment portfolio are laddered, so that securities mature at regular intervals, to provide funds from principal and interest payments at
various times as liquidity needs may arise. Contractual maturities are also laddered, with consideration as to the volatility of market prices. At December 31, 2024,
approximately 1% of the Bank’s securities had contractual maturity dates of one year or less and approximately 18% had maturity dates of five years or less.
Additionally, mortgage-backed securities, which comprised 62% of the investment portfolio at December 31, 2024, provide consistent cash flows for the Bank.
Management, on an ongoing basis, closely monitors the Company’s liquidity position for compliance with internal policies, and believes that available sources of
liquidity are adequate to meet funding needs in the normal course of business. As part of that monitoring process, management calculates the 90-day liquidity each
month by analyzing the cash needs of the Bank. Included in the calculation are assumptions of some significant deposit run-off as well as funds needed for loan
closings and investment purchases. In the Company’s internal stress test at December 31, 2024, the Company had net short-term liquidity of $353 million as
compared with $333 million at December 31, 2023.
Management does not anticipate engaging in any activities, either currently or over the long-term, for which adequate funding would not be available and which
would therefore result in significant pressure on liquidity.
However, an economic recession could negatively impact the Company’s liquidity. The Bank relies heavily on FHLBNY as a source of funds, particularly with its
overnight line of credit. In past economic recessions, some FHLB branches have suspended dividends, cut dividend payments, and not bought back excess FHLB
stock that members hold in an effort to conserve capital. FHLBNY has stated that it expects to be able to continue to pay dividends, redeem excess capital stock,
and provide competitively priced advances in the future. The 11 FHLB branches are jointly liable for the consolidated obligations of the FHLB system. To the
extent that one FHLB branch cannot meet its obligations to pay its share of the system’s debt, other FHLB branches can be called upon to make the payment.
Systemic weakness in the FHLB could result in higher costs of FHLB borrowings and increased demand for alternative sources of liquidity that are more expensive,
such as brokered time deposits, the discount window at the Federal Reserve, or lines of credit with correspondent banks.
Contractual Obligations
The Company is party to contractual financial obligations, including repayment of borrowings, operating lease payments, commitments to extend credit, and
purchase agreements.
At December 31, 2024, the Company had commitments to extend credit of $438 million, compared with $435 million at December 31, 2023. For additional
information regarding future financial commitments, this disclosure should be read in conjunction with Note 17 to the Company’s Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K.
Capital
Total Company stockholders’ equity was $183 million at December 31, 2024, an increase from $178 million at December 31, 2023. Equity as a percentage of assets
was 8.37% and 8.45% at December 31, 2024 and 2023, respectively. Book value per share of common stock increased to $32.89 at December 31, 2024 from
$32.40 at December 31, 2023. Reflected in the book value changes are the Federal Reserve’s aggressive interest rate hikes during 2022-2023, which resulted in
significant unrealized losses on investment securities. As of December 31, 2024 this amounted to $7.63 per share impact to book value. The increase in
stockholders’ equity was primarily the result of $12 million of net income in 2024, partially offset by $7.3 million in dividends paid to common stockholders.
The aggregate dividend paid in 2024 and 2023 was $1.32 per share. The Company typically pays a semi-annual dividend in April and October of each year.
Management and the Board of Directors of the Company believe that the dividend level is prudent to maintain available capital to support the continued growth of
the Company, as well as to manage the Company’s and the Bank’s capital ratios, while providing a dividend yield (dividend per share divided by stock price)
competitive with peers in the industry at an annualized rate of 3.05% at December 31, 2024.
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Included in stockholders’ equity is accumulated other comprehensive income/(loss) which includes the net after-tax impact of unrealized gains or losses on
investment securities classified as available for sale. Net unrealized losses after tax were $42.5 million at December 31, 2024, compared with $40.7 million at
December 31, 2023. Such unrealized gains and losses are generally due to changes in interest rates and represent the difference, net of applicable income tax effect,
between the estimated fair value and amortized cost of investment securities classified as available-for-sale.
The Company and the Bank have consistently maintained regulatory capital ratios above well capitalized standards. For further detail on capital and capital ratios,
see Note 21 to the Company’s Consolidated Financial Statements included under Item 8 of this Annual Report on Form 10-K.
Market Risk
Market risk is the risk of loss from adverse changes in market prices and/or interest rates of the Bank’s financial instruments. The primary market risk the Company
is exposed to is interest rate risk. The core banking activities of lending and deposit-taking expose the Bank to interest rate risk, which occurs when assets and
liabilities re-price at different times and by different amounts as interest rates change. As a result, net interest income earned by the Bank is subject to the effects of
changing interest rates. The Bank measures interest rate risk by calculating the variability of net interest income in the future periods under various interest rate
scenarios using projected balances for interest-earning assets and interest-bearing liabilities. Management’s philosophy toward interest rate risk management is to
limit the variability of net interest income. The balances of financial instruments used in the projections are based on expected growth from forecasted business
opportunities, anticipated prepayments of loans and investment securities and expected maturities of investment securities, loans and deposits. Management
supplements the modeling technique described above with the analysis of market values of the Bank’s financial instruments and changes to such market values
given changes in interest rates.
ALCO, which includes members of the Bank’s senior management, monitors the Bank’s interest rate sensitivity with the aid of a model that considers the impact of
ongoing lending and deposit gathering activities, as well as the interrelationships between the magnitude and timing of the re-pricing of financial instruments,
including the effect of changing interest rates on expected prepayments and maturities. When deemed prudent, the Bank’s management has taken actions and
intends to do so in the future, to mitigate the Bank's exposure to interest rate risk through the use of on or off-balance sheet financial instruments. Possible actions
include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of interest-earning assets and interest-bearing
liabilities, and the purchase of other financial instruments used for interest rate risk management purposes. In 2024 and 2023, the Bank did not use off-balance
sheet financial instruments to manage interest rate risk.
SENSITIVITY OF NET INTEREST INCOME TO CHANGES IN INTEREST RATES
Calculated increase
in projected annual net interest income
(in thousands)
December 31, 2024
December 31, 2023
Changes in interest rates
+200 basis points
$
(4,512)
$
(4,618)
+100 basis points
779
219
-100 basis points
(769)
(168)
-200 basis points
(1,587)
(310)
Many assumptions are utilized by the Bank to calculate the impact that changes in interest rates may have on net interest income. The more significant assumptions
relate to the rate of prepayments of mortgage-related assets, loan and deposit volumes and pricing, and deposit maturities. The Bank also assumes immediate
changes in rates, including 100 and 200 basis point rate changes. In the event that a 100 or 200 basis point rate change cannot be achieved, the applicable rate
changes are limited to lesser amounts, such that interest rates cannot be less than zero. These assumptions are inherently uncertain and, as a result, the Bank cannot
precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly due to the timing, magnitude, and frequency
of interest rate changes in market conditions and interest rate differentials (spreads) between maturity/re-pricing categories, as well as any actions, such as those
previously described, which management may take to counter such changes. At each of December 31, 2024 and December 31, 2023, the Bank's projected net
interest income benefitted more from a 100 basis point increase in market rates compared with lower net interest income resulting from a 200 basis point increase in
rates. This relationship was due in part to expected increases in deposit rates needed to retain deposit customers if rates moved up 200 basis points but were not
required if rates only moved 100 basis points higher. In light of the uncertainties and assumptions associated with the process, the amounts presented in the table,
and changes in such amounts, are not considered significant to the Bank’s projected net interest income.
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Financial instruments with off-balance sheet risk at December 31, 2024 included $380 million in undisbursed lines of credit at an average interest rate of 7.32% and
$3 million in adjustable rate letters of credit, which if drawn upon, would typically earn an interest rate equal to the prime lending rate plus 2%. Unused overdraft
protection lines totaled $20 million.
The following table represents expected maturities of interest-bearing assets and liabilities and their corresponding average interest rates.
Expected maturity year ended December 31,
2025
2026
2027
2028
2029
Thereafter
Total
Fair Value
(in thousands)
Interest-bearing Assets
Gross loan and lease
receivables
$
97,373
$
109,344
$
117,013
$
131,331
$
172,699
$
1,156,998
$
1,784,758
$
1,674,236
Average interest
6.24%
5.73%
5.29%
6.13%
6.40%
5.26%
5.52%
5.52%
Investment securities
$
1,155
$
4,784
$
17,568
$
15,645
$
5,066
$
218,806
$
263,024
$
262,918
Average interest
2.36%
1.97%
1.69%
1.85%
1.93%
2.08%
2.35%
2.35%
Interest-bearing Liabilities
Interest-bearing
deposits
$
1,460,265
$
27,210
$
2,661
$
1,099
$
2,002
$
-
$
1,493,237
$
1,492,470
Average interest
2.46%
2.21%
1.28%
2.75%
3.18%
- %
2.46%
2.46%
Other borrowed funds
$
40,000
$
-
$
40,000
$
-
$
-
$
-
$
80,000
$
80,242
Average interest
4.61%
- %
4.68%
- %
- %
- %
4.65%
4.65%
Securities sold under
agreements to repurchase
$
6,586
$
-
$
-
$
-
$
-
$
-
$
6,586
$
6,586
Average interest
1.52%
- %
- %
- %
- %
- %
1.52%
1.52%
Subordinated debt
$
-
$
-
$
-
$
-
$
-
$
31,279
$
31,279
$
30,487
Average interest
- %
- %
- %
- %
- %
6.83%
6.83%
6.83%
Operating lease
obligations
$
1,011
$
939
$
681
$
530
$
405
$
874
$
4,440
$
4,072
Average interest
2.98%
2.98%
3.23%
3.04%
2.90%
3.16%
3.05%
3.05%
The amounts in the above table exclude acquisition fair value adjustments, yield adjustments on loans, and debt issuance costs.
When rates rise or fall, the market value of the Company’s rate-sensitive assets and liabilities increases or decreases. As a part of the Company’s asset/liability
policy, the Company has set limitations on the acceptable level of the negative impact of such rate fluctuations on the market value of the Company’s balance sheet.
On a quarterly basis, the balance sheet is shocked for immediate rate movement of 200 basis points. At December 31, 2024, the Company determined it would take
an immediate movement in rates in excess of 200 basis points to eliminate the current capital cushion in excess of regulatory requirements. The Company’s and the
Bank’s capital ratios are also reviewed by management on a quarterly basis.
Impact of Inflation and Changing Prices
There will continually be economic events, such as changes in the economic policies of the FRB, which 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,
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management attempts to structure the balance sheet and re-pricing frequency of assets and liabilities to avoid a significant concentration that could result in a
negative impact on earnings.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this Item is incorporated by reference to the discussion of "Liquidity" and "Market Risk”, including the discussion under the caption
"Sensitivity of Net Interest Income to Changes in Interest Rates" included in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations of this Annual Report on Form 10-K.
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Table of Contents
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Supplementary Data consist of the financial statements as indexed and presented below.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (Crowe LLP - PCAOB ID: 173)
47
Consolidated Balance Sheets – December 31, 2024 and 2023
50
Consolidated Statements of Income – Years Ended December 31, 2024, 2023 and 2022
51
Consolidated Statements of Comprehensive Income (Loss) – Years Ended December 31, 2024, 2023 and 2022
52
Consolidated Statements of Changes in Stockholders’ Equity – Years Ended December 31, 2024, 2023 and 2022
53
Consolidated Statements of Cash Flows – Years Ended December 31, 2024, 2023 and 2022
54
Notes to Consolidated Financial Statements
56
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors
Evans Bancorp, Inc.
Williamsville, New York
Opinion on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Evans Bancorp, Inc. (the "Company") as of December 31, 2024 and 2023, the related
consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period
ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over
financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the
results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Explanatory Paragraph – Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023 due to
the adoption of ASC 326.
Basis for Opinion
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over
financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the
47
Table of Contents
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Allowance for Credit Losses (ACL) – Loans Collectively Evaluated for Impairment
As described in Notes 1 and 4 to the consolidated financial statements, the ACL represents management’s estimate of expected credit losses over the contractual
term of the loan. As of December 31, 2024, the Company’s loan portfolio totaled $ 1.8 billion and the associated ACL was $24.2 million.
Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors. The methodology for
evaluating quantitative factors consists of two basic components: pooling loans into portfolio segments for loans that share similar risk characteristics and
identifying individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments.
For pooled loan portfolio segments, which are collectively evaluated for impairment, the Company utilizes a discounted cash flow (“DCF”) methodology to
estimate credit losses over the expected life of the loan. The methodology incorporates a probability of default and loss given default framework. Loss given
default is estimated based on historical credit loss experience of a peer group. Probability of default is estimated utilizing a regression model that incorporates
economic factors. The model utilizes forecasted econometric factors with a one-year reasonable and supportable forecast period and one-year straight-line
reversion period in order to estimate the probability of default for each loan portfolio segment. The DCF methodology combines the probability of default, the loss
given default, prepayment speeds and the remaining life of the loan to estimate a reserve for each loan.
Quantitative loss factors are also supplemented by certain qualitative risk factors reflecting management’s evaluation of various conditions. Management’s
evaluation of these factors includes a weighted rate and risk range category assigned to each factor. The weighted rates and risk range categories vary between loan
segments.
Auditing the ACL on loans collectively evaluated for impairment was identified by us as a critical audit matter because of the extent of auditor judgment applied
and significant audit effort to evaluate the significant subjective and complex judgments made by management related to the determination of both the quantitative
and qualitative calculations.
The primary procedures performed to address the critical audit matter included:
Testing the effectiveness of management’s controls addressing:
Evaluation of the quantitative model, including the appropriateness of the DCF methodology; the relevance and reliability of data used; and the
reasonableness of key assumptions and judgments related to the probability of default and loss given default frameworks.
Evaluation of qualitative factors, including the appropriateness of the methodology; relevance and reliability of data used in determining qualitative
factors; and reasonableness of weighted rate and risk range category assigned to each factor.
Evaluation of the overall ACL calculation.
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Substantive testing included:
Utilizing internal specialists to perform procedures to assist in evaluating the appropriateness of the quantitative DCF model; relevance and reliability of
data used in quantitative model; and reasonableness of key assumptions and judgments related to the probability of default and loss given default
frameworks.
Evaluating the appropriateness of the qualitative framework, including evaluation of the relevance and reliability of data used in determining qualitative
factors and reasonableness of weighted rate and risk range category assigned to each factor.
Evaluating the reasonableness of the Company’s overall ACL calculation.
Crowe LLP
We have served as the Company's auditor since 2020.
Columbus, Ohio
March 5, 2025
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EVANS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2024 AND DECEMBER 31, 2023
(in thousands, except share and per share amounts)
December 31,
December 31,
2024
2023
ASSETS
Cash and due from banks
$
14,621
$
19,669
Interest-bearing deposits at banks
28,095
3,798
Securities:
Available for sale, at fair value (amortized cost: $315,930 at December 31, 2024;
258,677
275,680
$330,725 at December 31, 2023)
Held to maturity, at amortized cost (fair value: $4,241 at December 31, 2024;
4,347
2,059
$1,988 at December 31, 2023)
Federal Home Loan Bank common stock, at cost
6,194
4,914
Federal Reserve Bank common stock, at cost
3,697
3,097
Loans, net of allowance for credit losses of $24,176 at December 31, 2024
and $22,114 at December 31, 2023
1,759,488
1,698,832
Properties and equipment, net of accumulated depreciation of $14,126 at December 31, 2024
and $12,538 at December 31, 2023
14,152
15,397
Goodwill
1,768
1,768
Intangible assets
78
94
Bank-owned life insurance
43,764
42,758
Operating lease right-of-use asset
3,828
3,781
Other assets
48,756
36,816
TOTAL ASSETS
$
2,187,465
$
2,108,663
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand
$
373,240
$
390,238
NOW
399,046
345,279
Savings
699,635
649,621
Time
394,556
333,623
Total deposits
1,866,477
1,718,761
Securities sold under agreement to repurchase
6,586
9,475
Other borrowings
80,000
145,123
Operating lease liability
4,072
4,063
Other liabilities
15,908
21,845
Subordinated debt
31,279
31,177
Total liabilities
2,004,322
1,930,444
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value, 10,000,000 shares authorized; 5,623,197
and 5,601,308 shares issued at December 31, 2024 and December 31, 2023,
respectively, and 5,567,833 and 5,499,772 outstanding at December 31, 2024
and December 31, 2023, respectively
2,814
2,803
Capital surplus
83,207
82,712
Treasury stock, at cost, 55,364 and 101,536 shares at December 31, 2024 and
December 31, 2023, respectively
(1,878)
(3,656)
Retained earnings
142,943
138,631
Accumulated other comprehensive loss, net of tax
(43,943)
(42,271)
Total stockholders' equity
183,143
178,219
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
2,187,465
$
2,108,663
See Notes to Consolidated Financial Statements
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EVANS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2024, 2023, AND 2022
(in thousands, except share and per share amounts)
2024
2023
2022
INTEREST INCOME
Loans
$
98,288
$
87,448
$
70,562
Interest bearing deposits at banks
4,582
403
596
Securities:
Taxable
6,801
8,755
8,037
Non-taxable
247
244
287
Total interest income
109,918
96,850
79,482
INTEREST EXPENSE
Deposits
42,776
26,478
3,589
Other borrowings
5,962
6,978
1,147
Subordinated debt
2,212
2,186
1,791
Total interest expense
50,950
35,642
6,527
NET INTEREST INCOME
58,968
61,208
72,955
PROVISION FOR CREDIT LOSSES
2,236
18
2,739
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES
56,732
61,190
70,216
NON-INTEREST INCOME
Deposit service charges
2,774
2,593
2,861
Insurance service and fees
655
10,261
10,453
Gain on loans sold
-
179
95
Gain on sale of other real estate owned
598
-
-
Loss on tax credit investment
(484)
-
-
Refundable NY state historic tax credit
720
-
-
Bank-owned life insurance
1,006
932
707
Loss on sale of securities
-
(5,044)
-
Interchange fee income
2,015
2,047
2,071
Gain on sale of insurance agency
-
20,160
-
Other
3,674
1,794
3,084
Total non-interest income
10,958
32,922
19,271
NON-INTEREST EXPENSE
Salaries and employee benefits
30,637
37,047
38,854
Occupancy
4,357
4,506
4,619
Advertising and public relations
935
1,207
1,159
Professional services
3,533
3,563
3,425
Technology and communications
5,984
5,959
5,187
Amortization of intangibles
17
367
400
Merger-related expenses
1,673
-
-
FDIC insurance
1,315
1,400
1,025
Other
4,971
5,333
5,266
Total non-interest expense
53,422
59,382
59,935
INCOME BEFORE INCOME TAXES
14,268
34,730
29,552
INCOME TAX PROVISION
2,314
10,206
7,163
NET INCOME
$
11,954
$
24,524
$
22,389
Net income per common share-basic
$
2.16
$
4.49
$
4.07
Net income per common share-diluted
$
2.16
$
4.48
$
4.04
Weighted average number of common shares outstanding
5,527,422
5,456,250
5,495,044
Weighted average number of diluted shares outstanding
5,541,373
5,471,033
5,536,375
See Notes to Consolidated Financial Statements
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EVANS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2024, 2023, AND 2022
(in thousands)
2024
2023
2022
NET INCOME
$
11,954
$
24,524 $
22,389
OTHER COMPREHENSIVE (LOSS) INCOME , NET OF TAX:
Unrealized (loss) gain on available-for-sale securities:
Unrealized (loss) gain on available-for-sale securities
(1,725)
10,340
(44,188)
Reclassification of loss on sale of securities
-
(3,733)
-
Total
(1,725)
6,607
(44,188)
Defined benefit pension plans:
Amortization of prior service cost
-
-
22
Amortization of actuarial loss
69
80
200
Actuarial (losses) gains
(16)
320
359
Total
53
400
581
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
(1,672)
7,007
(43,607)
COMPREHENSIVE INCOME (LOSS)
$
10,282
$
31,531 $
(21,218)
See Notes to Consolidated Financial Statements
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EVANS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2024, 2023, AND 2022
(in thousands, except share and per share amounts)
Accumulated
Other
Common
Capital
Retained
Comprehensive
Treasury
Stock
Surplus
Earnings
Income (Loss)
Stock
Total
Balance, December 31, 2021
$
2,744
$
78,795
$
108,024
$
(5,671)
$
-
$
183,892
Net Income
22,389
22,389
Other comprehensive income
(43,607)
(43,607)
Cash dividends ($1.26 per common share)
(6,942)
(6,942)
Stock compensation expense
1,206
1,206
Repurchased 112,068 shares of Common Stock
(4,140)
(4,140)
Issued 18,844 restricted shares
9
(9)
-
Reissued 7,244 restricted shares in stock option exercises
10
(115)
249
144
Forfeitures 2,467 shares of restricted stock
-
Issued 7,738 shares under Dividend Reinvestment Plan
4
291
295
Issued 12,731 shares in Employee Stock Purchase Plan
7
377
384
Issued 22,270 shares in stock option exercises
11
361
372
Balance, December 31, 2022
$
2,775
$
81,031
$
123,356
$
(49,278)
$
(3,891)
$
153,993
Cumulative effect of change in accounting principle— credit losses
-
-
(2,026)
-
-
(2,026)
Beginning balance after cumulative effect adjustment
2,775
$
81,031
$
121,330
$
(49,278)
$
(3,891)
$
151,967
Net Income
24,524
24,524
Other comprehensive income
7,007
7,007
Cash dividends ($1.32 per common share)
(7,223)
(7,223)
Stock compensation expense
1,138
1,138
Reissued 6,228 restricted shares
(235)
235
-
Issued 17,500 restricted shares, net of forfeitures
8
(8)
-
Issued 15,344 shares in stock option exercises, net
7
180
187
Issued 9,746 shares under Dividend Reinvestment Plan
5
293
298
Issued 13,906 shares in Employee Stock Purchase Plan
8
313
321
Balance, December 31, 2023
$
2,803
$
82,712
$
138,631
$
(42,271)
$
(3,656)
$
178,219
Net Income
11,954
11,954
Other comprehensive loss
(1,672)
(1,672)
Cash dividends ($1.32 per common share)
(7,288)
(7,288)
Stock compensation expense
1,283
1,283
Repurchased 7,000 shares of Common Stock
-
(204)
(204)
Issued 13,610 shares in stock option exercises
8
105
113
Reissued 30,474 restricted shares, net of forfeitures
-
(1,004)
(170)
1,174
-
Reissued 22,698 shares in stock option exercises
-
(158)
(184)
808
466
Issued 8,279 shares under Dividend Reinvestment Plan
3
269
272
Balance, December 31, 2024
$
2,814
$
83,207
$
142,943
$
(43,943)
$
(1,878)
$
183,143
See Notes to Consolidated Financial Statements
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EVANS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2024, 2023, AND 2022
(in thousands)
2024
2023
2022
OPERATING ACTIVITIES:
Interest received
$
108,942
$
95,988
$
76,390
Fees received
8,904
17,741
17,958
Interest paid
(51,064)
(34,465)
(6,513)
Cash paid to employees and vendors
(61,062)
(55,066)
(58,294)
Income tax paid
(8,962)
(8,681)
(3,327)
Proceeds from sale of loans held for sale
18,988
8,447
4,897
Originations of loans held for sale
(18,503)
(8,265)
(4,704)
Net cash (used in) provided by operating activities
(2,757)
15,699
26,407
INVESTING ACTIVITIES:
Available for sales securities:
Purchases
(2,616)
-
(144,413)
Proceeds from sales
-
72,827
-
Proceeds from maturities, calls, and payments
17,466
25,358
19,066
Held to maturity securities:
Purchases
(3,816)
(1,344)
(6,651)
Proceeds from maturities, calls, and payments
1,528
6,225
2,867
Purchases of Federal Reserve Bank Stock
(600)
-
-
Purchases of FHLB Stock
(1,280)
-
-
Cash paid for bank owned life insurance
-
-
(6,830)
Proceeds from bank-owned life insurance claims
-
-
378
Additions to properties and equipment
(343)
(517)
(1,008)
Proceeds from sales of assets
-
370
-
Proceeds from tax credit investments
387
88
191
Cash investment in tax credit
(674)
Gain on sale of other real estate owned
598
-
1,380
Net cash from sale of subsidiary
-
34,249
-
Net increase in loans
(61,759)
(47,889)
(101,555)
Net cash (used in) provided by investing activities
(51,109)
89,367
(236,575)
FINANCING ACTIVITIES:
Proceeds from Long Term Borrowings
40,000
-
-
(Repayments of) proceeds of short-term borrowings, net
(101,890)
(31,872)
176,236
Repayments of long-term borrowings
(6,078)
(13,470)
(12,598)
Net increase (decrease) in deposits
147,724
(52,895)
(165,314)
Dividends paid
(7,288)
(7,223)
(6,942)
Repurchase of treasury stock
(204)
-
(4,140)
Issuance of common stock
385
743
1,051
Reissuance of treasury stock
466
64
144
Net cash provided by (used in) financing activities
73,115
(104,653)
(11,563)
Net increase (decrease) in cash and equivalents
19,249
413
(221,731)
CASH AND CASH EQUIVALENTS:
Beginning of year
23,467
23,054
244,785
End of year
$
42,716
$
23,467
$
23,054
See Notes to Consolidated Financial Statements
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EVANS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2024, 2023, AND 2022
(in thousands)
2024
2023
2022
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income
$
11,954
$
24,524
$
22,389
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion
1,236
1,559
1,647
Deferred tax (benefit) expense
(966)
(900)
251
Provision for credit losses
2,236
18
2,739
Loss on tax credit investment
484
-
-
Changes in refundable state historic tax credits
(720)
-
-
Net (gain) loss on sales of assets and other real estate owned
(598)
31
(196)
Loss on sales of securities
-
5,044
-
Gain on sale of subsidiary
-
(20,160)
-
Gain on loans sold
(483)
(179)
(95)
Stock compensation expense
1,283
980
1,206
Proceeds from sale of loans held for sale
18,988
8,447
4,897
Originations of loans held for sale
(18,503)
(8,265)
(4,704)
Changes in assets and liabilities affecting cash flow:
Other assets
(9,197)
73
2,914
Other liabilities
(8,471)
4,527
(4,641)
NET CASH PROVIDED BY OPERATING ACTIVITIES
$
(2,757)
$
15,699
$
26,407
See Notes to Consolidated Financial Statements
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12, 2011 AND 2010
EVANS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and General
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. Through August 2004, the Company was registered with the Federal Reserve Board (“FRB”) as a bank
holding company under the Bank Holding Company Act of 1956, as amended. In August 2004, the Company filed for, and was approved as, a Financial Holding
Company under the Bank Holding Company Act. The Company currently conducts its business through its two subsidiaries: Evans Bank, N.A. (the “Bank”), a
nationally chartered bank, and its subsidiary, Evans National Holding Corp. (“ENHC”); and Evans National Financial Services, LLC (“ENFS”) and its subsidiary,
The Evans Agency LLC (“TEA”). Unless the context otherwise requires, the term “Company” refers collectively to Evans Bancorp, Inc. and its subsidiaries. The
Company conducts its business through its subsidiaries. It does not engage in any other substantial business.
On September 9, 2024, Evans Bancorp, Inc. entered into an agreement and plan of merger with NBT Bancorp Inc. (“NBT”) and NBT Bank, National Association,
pursuant to which NBT will acquire Evans Bancorp, Inc. Under the terms of the merger agreement, each outstanding share of Evans common stock will be
converted into the right to receive 0.91 shares of NBT common stock. On December 20, 2024, the Company held a Special Meeting of Shareholders at which the
proposal of the Agreement and Plan of Merger was approved by Evans Bancorp, Inc. shareholders. In addition, the Company received regulatory approvals and
waivers from the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York necessary for NBT to complete its acquisition of Evans
Bancorp, Inc.
Expenses related to the merger are included on the “merger related” expense line in the consolidated statements of income for the twelve-month period ended
December 31, 2024. For further information on the merger agreement, see the Current Report on Form 8-K filed with the Securities and Exchange Commission (the
“SEC”) on September 9, 2024.
On November 30, 2023 the Company sold substantially all of the assets of TEA to Gallagher and ceased its insurance business for the Company. See Note 2 to the
Company’s Consolidated Financial Statements included under Item 8 of this Annual Report on Form 10-K for further information on the sale of TEA.
Regulatory Requirements
The Company is subject to the rules, regulations, and reporting requirements of various regulatory bodies, including the FRB, the Federal Deposit Insurance
Corporation (“FDIC”), the Office of the Comptroller of the Currency (“OCC”), the New York State Department of Financial Services (“NYSDFS”), and the
Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Bank, ENFS and their subsidiaries. All material inter-company accounts and
transactions are eliminated in consolidation.
Accounting Estimates
Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and disclosure of contingent assets and liabilities in
order to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. These estimates and assumptions are
based on management’s best estimates and judgment and management evaluates them on an ongoing basis using historical experience and other factors, including
the current economic environment, which management believes to be reasonable under the circumstances. We adjust our estimates and assumptions when facts and
circumstances dictate. As future events cannot be determined with precision, actual results could differ significantly from our estimates. Changes in those estimates
resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in periods as they occur.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and interest-bearing deposits at banks.
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Securities
Securities which the Bank has the positive intent and ability to hold to maturity are classified as held to maturity and are stated at cost, adjusted for discounts and
premiums that are recognized in interest income over the period to the earlier of the call date or maturity using the level yield method. These securities represent
debt issuances of local municipalities in the Bank’s market area for which market prices are not readily available. Management periodically evaluates the financial
condition of the municipalities for any indication that the Bank does not expect to recover the entire amortized cost basis of their bonds.
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 accumulated other comprehensive income or loss, a component of stockholders’ equity. Gains and losses on sales of securities are computed using the specific
identification method.
In instances where fair value of an available-for-sale debt security is less than its amortized cost basis and the Company does not intend to sell the available-for-sale
debt security and it is not more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis, the difference
between the fair value and the amortized cost basis is separated into (a) the amount representing the credit loss and (b) the amount related to all other factors. The
amount related to the credit loss is recognized as an allowance for credit losses while the amount related to other factors is recognized in other comprehensive
income, net of applicable income taxes. If the Company intends to sell the security or it is more likely than not to be required to sell the security before recovery of
the amortized cost basis, the security is written down to fair value with the entire amount recognized in earnings. Subsequently, the Company accounts for the debt
security as if the security had been purchased on the measurement date of the write down at an amortized cost basis equal to the previous amortized cost basis less
the amount of the write down recognized in earnings.
The Bank does not engage in securities trading activities.
Federal Home Loan Bank Stock
The Bank is a member of the Federal Home Loan Bank (“FHLB”) System. Members are required to own a certain amount of stock based on the level of borrowings
and other factors, and may invest in additional amounts. FHLB stock is carried at cost and periodically evaluated for impairment based on ultimate recovery of par
value. Both cash and stock dividends are recorded as a component of interest income.
Federal Reserve Bank Stock
The Bank is a member of the FRB. FRB stock is carried at cost, classified as a restricted security. Both cash and stock dividends are recorded as a component of
interest income.
Loan Servicing Assets
Servicing assets are related to residential mortgage loans sold and are recognized at the time of sale when servicing is retained with the income statement effect
recorded in gains on loans sold. Servicing assets are initially recorded at fair value based on the present value of the contractually specified servicing fee, net of
estimated servicing costs, over the estimated life of the loan. The servicing assets are subsequently amortized into noninterest income in proportion to, and over the
period of, the estimated future net servicing income of the underlying loans. The Company periodically evaluates servicing assets for impairment based upon the
fair value of the assets as compared to their carrying amount.
Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be
surrendered when the assets have been legally isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage
of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets.
Loans
Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, generally are reported at their outstanding unpaid
principal balances adjusted for unamortized deferred fees or costs. Interest income is accrued on the unpaid principal balance and is recognized using the interest
method. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the effective yield
method of accounting for amortizing loans and straight line over an estimated life for lines of credit.
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Loans become past due when the payment date has been missed. If payment has not been received within 30 days, then the loan is delinquent. Delinquent loans are
placed into three categories; 30-59 days past due, 60-89 days past due, or 90+ days past due. Loans 90 or more days past due are considered non-performing.
The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent, unless the credit is well secured and in process of collection. If the credit
is not well secured and in the process of collection, the loan is placed on non-accrual status and is subject to charge-off if collection of principal or interest is
considered doubtful. A loan can also be placed on nonaccrual before it is 90 days delinquent if management determines that it is probable that the Bank will be
unable to collect principal or interest due according to the contractual terms of the loan.
All interest due but not collected for loans that are placed on non-accrual status or charged off is reversed against interest income. The interest on these loans is
accounted for on the cost-recovery method, until it again qualifies for an accrual basis. Any cash receipts on non-accrual loans reduce the carrying value of the
loans. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current, the adverse circumstances which resulted
in the delinquent payment status are resolved, and payments are made in a timely manner for a period of time sufficient to reasonably assure their future
dependability.
Loans placed on non-accrual status are individually assessed for impairment. Loan impairment is measured based on the present value of expected cash flows
discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral, less costs to sell, if
the loan is collateral dependent. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions
from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business. The Company has an
appraisal policy in which appraisals are obtained upon a loan being downgraded on the Company’s internal loan rating scale to special mention or substandard
depending on the amount of the loan, the type of loan and the type of collateral. All individually evaluated loans are either graded special mention or substandard
on the internal loan rating scale. Subsequent to the downgrade, if the loan remains outstanding and individually evaluated for at least one year more, management
may require another follow-up appraisal. Between receipts of updated appraisals, if necessary, management may perform an internal valuation based on any known
changing conditions in the marketplace such as sales of similar properties, a change in the condition of the collateral, or feedback from local appraisers.
The Bank monitors the credit risk in its loan portfolio by reviewing certain credit quality indicators (“CQI”). The primary CQI for its commercial mortgage and
commercial and industrial (“C&I”) portfolios is the individual loan’s credit risk rating. The following list provides a description of the credit risk ratings that are
used internally by the Bank when assessing the adequacy of its allowance for credit losses:
Acceptable or better: Credits with a slight risk of loss. The loan is secured by collateral of sufficient value to cover the loan by an acceptable margin. The
financial statements of the company demonstrate sufficient net worth and repayment ability. The company has established an acceptable credit history
with the bank and typically has a proven track record of performance. Management is experienced, and has an at least average ability to manage the
company. The industry has an average or less than average susceptibility to wide fluctuations in business cycles.
Watch: Credits are generally acceptable but warrant greater attention than those rated acceptable or better. Temporary performance issues, if left
unresolved, may result in above average risk. The borrower’s financial position is not typically strong. Earnings, while still positive, may be inconsistent.
Industry issues or external events (such as possible litigation exposure) may cause concern. Although ability to repay is not an immediate concern, more
regular monitoring may be necessary as a result of the short-term performance issues or sensitivities to external events that may result in a weakening
condition. Any perceived weaknesses are acceptable when viewed against the overall credit and collateral risks assumed. Borrowers are likely fully
leveraged when compared to others in a similar industry and their ability to raise capital may be limited.
Special Mention: Credits that have potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may
result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not
adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
Borrowers in this category may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet. Adverse
economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial
reasons for rating a credit exposure as special mention include management problems, pending litigation, stale financial statements, an ineffective loan
agreement or other material structural weakness, and any other significant deviation from prudent lending practices.
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Potential weaknesses in commercial real estate loans may include, construction delays, changes in concept or project plan, slow leasing, rental concessions,
deteriorating market conditions, impending expiry of a major lease, or other adverse events that do not currently jeopardize repayment.
Substandard: Credits that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.
Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct
possibility of loss if the deficiencies are not corrected.
Substandard assets have a high probability of payment default, or they have other well-defined weaknesses. They are generally characterized by current or
expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral
or other credit risk mitigants. Although substandard assets in the aggregate will have distinct potential for loss, an individual asset’s loss potential does not
have to be distinct for the asset to be rated substandard.
A well-defined weakness may manifest itself via:
•
significant deterioration in financial condition of the borrower;
•
impairment of primary repayment source;
•
material deviation from planned absorption of rental or sales units; or
•
material deterioration in market conditions.
Commercial real estate credits evidencing one or more of the following characteristics are evaluated for a possible substandard classification:
•
slower than projected leasing or sales activity that threatens to result in protracted repayment or default;
•
lower than projected lease rates or sales prices that jeopardize repayment capacity;
•
changes in concept or plan due to unfavorable market conditions;
•
construction or tax liens;
•
inability to obtain necessary zoning or permits necessary to develop the project as planned;
•
a diversion of needed cash from an otherwise viable property to satisfy the demands of a troubled borrower or guarantor;
•
material imbalances in the construction budget;
•
significant construction delays;
•
expiration of a major lease or default by a major tenant;
•
poorly structured of overly liberal repayment terms.
When a project has slowed or stalled and the guarantor is providing some support but the loan has not been restructured, unless the guarantor is providing
support of principal payments sufficient to retire the debt under reasonable terms, a substandard classification is typically warranted. If the guarantor is
keeping interest payments current and shows a documented willingness and capacity to do so in the future, and collateral values protect against loss, the
loan should generally be left on accrual. This level of support; however, does not fully mitigate the well-defined weaknesses in the credit and does not
preclude a substandard classification.
Doubtful: Credits that have all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or
liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. A doubtful asset has a high
probability of total or substantial loss but because of specific pending events that may strengthen the assets, its classification as loss is deferred. Borrowers
in this category are usually in default, lack adequate liquidity or capital and lack the resources necessary to remain an operating entity. Because of high
probability of loss, nonaccrual accounting treatment is required for doubtful assets.
Circumstances that might warrant a doubtful classification for commercial real estate loans could include collateral values that are uncertain due to a lack
of comparisons in an inactive market, impending changes such as zoning classification, environmental issues, or the pending resolution of legal issues that
may affect the realization of value in a sale.
Loss: Credits that are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does
not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless
asset even though partial recovery may be affected in the future. Borrowers in this category are often in bankruptcy, have formally suspended debt
repayments, or have otherwise ceased normal business operations. The Company does not maintain an asset on the balance sheet if realizing its value
would require long-term litigation or other lengthy recovery efforts.
The Company’s consumer loans, including residential mortgages and home equities, are not individually risk rated or reviewed in the Company’s loan review
process. Consumers are not required to provide the Company with updated financial information as is a
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commercial customer. Consumer loans also carry smaller balances. Given the lack of updated information since the initial underwriting of the loan and small size
of individual loans, the Company does not have credit risk ratings for consumer loans and instead uses delinquency status as the credit quality indicator for
consumer loans. However, once a consumer loan is identified as individually evaluated, it is measured for impairment.
Loans acquired in a business combination are recorded at fair value with no carry-over of an acquired entity’s previously established allowance for credit losses.
Purchased credit deteriorated loans represent specifically identified loans with evidence of credit deterioration for which it was probable at acquisition that the
Company would be unable to collect all contractual principal and interest payments. For purchased credit deteriorated loans, the excess of cash flows expected at
acquisition over the estimated fair value of acquired loans is recognized as interest income over the remaining lives of the loans. Subsequent decreases in the
expected principal cash flows require the Company to evaluate the need for additions to the Company’s allowance for credit losses. Subsequent improvements in
expected cash flows result first in the recovery of any related allowance for credit losses and then in recognition of additional interest income over the then
remaining lives of the loans. For all other acquired loans, the difference between the fair value and outstanding principal balance of the loans is recognized as an
adjustment to interest income over the lives of those loans.
Allowance for Credit Losses
The provision for credit losses represents the amount charged against the Bank’s earnings to maintain an allowance level deemed necessary based on management’s
evaluation of expected credit losses at the balance sheet date. In estimating expected losses in the loan portfolio, borrower-specific financial data and macro-
economic assumptions are utilized to project losses over a reasonable and supportable forecast period.
On a quarterly basis, management of the Bank meets to review and determine the adequacy of the allowance for credit losses. In making this determination, the
Bank’s management analyzes the ultimate collectability of the loans in its portfolio by incorporating feedback provided by the Bank’s internal loan staff, an
independent internal loan review function and information provided by examinations performed by regulatory agencies.
The analysis of the allowance for credit losses is composed of two components: individually analyzed loans and pooled loan portfolio allocation. Each individually
analyzed loan includes a detailed review and an allocation is made based on this analysis. Factors may include the appraisal value of the collateral, the age of the
appraisal, the type of collateral, the performance of the loan to date, the performance of the borrower’s business based on financial statements, and legal judgments
involving the borrower. For pooled portfolio loans that share similar risk characteristics, the Bank utilizes statistically developed models to estimate amounts and
timing of expected future cash flows, correlations of credit losses with various macroeconomic assumptions including unemployment and gross domestic product,
as well as other factors used to determine the borrowers’ abilities to repay obligations.
For both the criticized and non-criticized loans in the pooled loan portfolio allocation, additional qualitative factors are applied. The qualitative factors applied to
the pooled loan portfolio allocation reflect management’s evaluation of various conditions. The conditions evaluated include the following: levels and trends in
delinquencies, non-accruals, and criticized loans; trends in volume and terms of loans; effects of any changes in lending policies and credit quality underwriting
standards; experience, ability, and depth of management; national and economic trends and conditions; changes in the quality of the loan review system;
concentrations of credit risk; changes in collateral value; and large loan risk.
The total possible qualitative allocation is the difference between the maximum loss rate and the quantitative model loss rate. Management uses the same model to
calculate the maximum loss rates and expected loss rates for each segment by stressing the model to worse-case economic environment scenarios. The economic
forecasts in the maximum loss rate calculation reflect the worst economic environment observed for each economic factor. In addition, prepayment and curtailment
rate speeds are adjusted to the 10th percentile, slowest observation. The resulting maximum loss rate calculation represents a lifetime reserve and is inputted into
the qualitative framework within the current calculation. The difference between the quantitative model and the maximum model results are then allocated based on
weight and risk assignments.
Foreclosed Real Estate
Foreclosed real estate is initially recorded at fair value (net of costs of disposal) at the date of foreclosure. Costs relating to development and improvement of
property are capitalized, whereas costs relating to the holding of property are expensed. Assessments are periodically performed by management, and an allowance
for losses is established through a charge to operations if the carrying value of a property exceeds fair value.
Operating Leases
The Company determines if an arrangement is a lease at inception by assessing whether there is an identified asset and whether the contract conveys the right to
control the use of the identified asset for a period of time in exchange for consideration. Operating leases
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with a term of more than one year are included in operating lease Right-of-Use (“ROU”) assets and operating lease liabilities. The Company made a policy election
to apply the short-term lease exemption to any operating leases with an original term of less than 12 months, therefore no ROU asset or lease liability is recorded for
these operating leases.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising
from the lease. Operating lease ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the
lease term. The Company uses the incremental borrowing rate commensurate with the lease term based on the information available at the lease commencement
date in determining the present value of lease payments.
Insurance Service and Fees
Commission revenue from selling commercial and personal property and casualty insurance on behalf of the insurance carriers is recognized at the time of the sale
of the policy or when a policy renews. Commission revenue from selling benefit plans to commercial customers on behalf of the insurance carriers is recognized
each month when the customer continues with the benefit plan. The Company also receives contingent commissions from insurance companies which are based on
the overall profitability of their relationship based primarily on the loss experience of the insurance placed by the Company. Contingent commissions from
insurance companies are accrued throughout the year based on recent historical results. As loss events occur and overall performance becomes known, accrual
adjustments are recorded until the cash is ultimately received. Financial services commissions and insurance claims services revenue are recognized when the
services are rendered. Information on insurance service and fee revenue is included in Note 15 to these Consolidated Financial Statements, “Revenue Recognition
of Non-interest Income.”
Goodwill and Other Intangible Assets
The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as
goodwill. The Company does not amortize goodwill and any acquired intangible asset with an indefinite useful economic life, but reviews them for impairment at a
reporting unit level on an annual basis, or when events or changes in circumstances indicate that the carrying amounts may be impaired. The Company has selected
December 31 as the date to perform the annual impairment test. A reporting unit is defined as any distinct, separately identifiable component of one of our
operating segments for which complete, discrete financial information is available and reviewed regularly by the segment’s management. Goodwill is the only
intangible asset with an indefinite life on the Company’s balance sheet. The Company amortizes acquired intangible assets with definite useful economic lives,
consisting of core deposit intangibles, customer relationships and trade names, over their useful economic lives, which range from 5 to 10 years, utilizing the
straight-line method.
Business Combinations
The company accounts for business combinations under the acquisition method of accounting. Upon obtaining control of the acquired entity, the Company records
all identifiable assets and liabilities at their estimated fair values. Goodwill is recorded when the consideration paid for an acquired entity exceeds the estimated fair
value of the net assets acquired. Changes to the acquisition date fair values of assets acquired and liabilities assumed may be made as adjustments to goodwill over
a 12-month measurement period following the date of acquisition. Such adjustments are attributable to additional information obtained related fair value estimates
of the assets acquired and liabilities assumed. Certain costs associated with business combinations are expensed as incurred.
Subordinated Debt
Long-term borrowings are carried at cost, adjusted for amortization of premiums and accretion of discounts, which are recognized in interest expense using the
interest method. Debt issuance costs are recognized in interest expense over the life of the instrument.
Bank-Owned Life Insurance
The Bank has purchased insurance on the lives of Company directors and certain members of the Company’s management. The policies accumulate asset values to
meet future liabilities, including the payment of employee benefits, such as retirement benefits. Increases in the cash surrender value are recorded as other income
in the Company’s Consolidated Statements of Income.
Properties and Equipment
Land is carried at cost. Properties and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from 3 to 39 years. Impairment losses on properties and equipment are realized if the carrying amount is not
recoverable from its undiscounted cash flows and exceeds its fair value.
Income Taxes
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Deferred tax assets and liabilities are recognized for the future tax effects attributable to differences between the financial statement value of existing assets and
liabilities and their respective tax bases and carryforwards. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the
periods in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through income tax expense.
Earnings Per Share
Earnings per common share is determined by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per
common share is based on increasing the weighted-average number of shares of common stock by the number of shares of common stock that would be issued
assuming the exercise of stock options. Such adjustments to weighted-average number of shares of common stock outstanding are made only when such
adjustments are expected to dilute earnings per common share. Potential common shares that would have the effect of increasing diluted earnings per share are
considered to be anti-dilutive and are not included in calculating diluted earnings per share. There were 71,910, 82,979 and 55,555 anti-dilutive shares in 2024,
2023 and 2022, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) includes both net income and other comprehensive income (loss), including the change in unrealized gains and losses on securities
available for sale, and the change in the liability related to pension costs, net of tax.
Employee Benefits
The Bank maintains a non-contributory, qualified, defined benefit pension plan (the “Pension Plan”) that covered substantially all employees before it was frozen on
January 31, 2008. All benefits eligible participants had accrued in the Pension Plan until the freeze date have been retained. Employees have not accrued additional
benefits in the Pension Plan from that date. The actuarially determined pension benefit in the form of a life annuity is based on the employee’s combined years of
service, age and compensation. The Bank’s policy is to fund the minimum amount required by government regulations. Employees are eligible to receive these
benefits at normal retirement age.
The Bank maintains a defined contribution 401(k) plan and accrues contributions due under this plan as earned by employees. In addition, the Bank maintains a
non-qualified Supplemental Executive Retirement Plan for certain members of senior management, a non-qualified Deferred Compensation Plan for directors and
certain members of management, and a non-qualified Executive Incentive Retirement Plan for certain members of management, as described more fully in Note 12
to these Consolidated Financial Statements, “Employee Benefits and Deferred Compensation Plans.”
Stock-based Compensation
Stock-based compensation expense is recognized over the requisite service period of the stock-based grant based on the estimated grant date value of the stock-
based compensation that is expected to vest. The Company accounts for forfeitures of stock awards when they occur. When stock awards are granted, the
Company assumes that the service condition will be achieved when determining the initial amount of compensation cost recognized. Information on the
determination of the estimated value of stock-based awards used to calculate stock-based compensation expense is included in Note 13 to these Consolidated
Financial Statements, “Stock-Based Compensation.”
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable
and an amount or range of loss can be reasonably estimated.
Financial Instruments with Off-Balance Sheet Risk
In the ordinary course of business, the Bank has entered into off-balance sheet financial arrangements consisting of commitments to extend credit and standby
letters of credit. The Bank provides guarantees in the form of standby letters of credit, which represent an irrevocable obligation to make payments to a third party
if the borrower defaults on its obligation under a borrowing or other contractual arrangement with the third party. The Bank could potentially be required to make
payments to the extent of the amount guaranteed by the standby letters of credit based on the terms of the agreement. There were no liabilities recorded on the
Consolidated Balance Sheets related to standby letters of credit as of December 31, 2024 and 2023, reflecting management’s assessment of the value of the
guarantee given the lack of historical activity and the likelihood of current customers to draw on the letters of credit. The Bank has not incurred any losses on its
commitments during the past three years and has not recorded a reserve for its commitments.
Fair Value of Assets and Liabilities
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Fair value estimates involve uncertainties and matters of significant judgement regarding interest rates, credit risk, prepayments, and other factors, especially in the
absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.
Advertising Costs
Advertising costs are expensed as incurred.
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
The FASB establishes changes to U.S. GAAP in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards Codification. The
Company considers the applicability and impact of all ASUs when they are issued by FASB. Effective January 1, 2024, the Company adopted ASU No. 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Excluding that ASU, the Company did not adopt any accounting
pronouncements during its current fiscal year that had a material impact on the Company’s consolidated financial position, results of operations, cash flows or
disclosures.
ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures – The Company adopted this ASU effective January 1,
2024. The updated accounting guidance requires expanded reportable segment disclosures, primarily related to significant segment expenses which are regularly
provided to the company’s Chief Operating Decision Maker. The adoption of ASU 2023-07 did not have a material impact on the Company’s financial condition,
results of operations or cash flows, but did affect the financial statement disclosures
Accounting standards that have been recently issued but not yet required to be adopted as of December 31, 2024, to the extent management believes their adoption
will have not have a material impact on the Company’s financial condition, results of operations, cash flows or disclosures, are discussed below.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The updated accounting guidance
requires expanded income tax disclosures, including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid. The
guidance is effective for annual periods beginning after December 15, 2024. Prospective application is required, with retrospective application permitted. The
Company is currently evaluating the effect the updated guidance will have on the Company's financial statement disclosures.
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2.
DIVESTITURE
On November 30, 2023, the Company completed the sale of significantly all of the assets of TEA to Arthur J. Gallagher & Co. and Arthur J. Gallagher Risk
Management Services, LLC and ceased insurance related activities for the Company. Pursuant to the terms and conditions of the purchase agreement, as amended,
at the closing of the transaction, Gallagher distributed $37.6 million in cash to TEA, of which $2.0 million was placed in a third party escrow account as security for
the indemnification obligations of the Company and TEA relating to the representations and warranties included in the purchase agreement, and retained an
additional $2.4 million to be payable to TEA at the end of a two year period based on the performance of certain customer accounts.
The purchase agreement contains customary representations and warranties regarding the parties. The purchase agreement provides that, for a period of five years
following the closing of the transaction, the Company and its subsidiaries will not, subject to certain limited exceptions, engage in a business that is competitive
with Gallagher’s business.
TEA recorded insurance revenue of $9.7 million in 2023 and $9.8 million in 2022. Total net income for 2023 and 2022 was $15.7 million and $1.5 million,
respectively. TEA’s 2023 net income included a pretax gain of $20.2 million and income tax expense of $6.6 million related to the sale. There was no activity in
2024 related to the operations of TEA. Details of the pretax gain on the sale is summarized below:
(in thousands)
Gross purchase price pursuant to Asset Purchase Agreement
$
40,000
Transaction costs
(3,775)
Working capital adjustment settled at closing
(60)
Contingent Consideration
(2,377)
Contractual adjustment of other assets & liabilities
(1,929)
Write-off of goodwill & intangibles
(11,699)
Gain on sale of insurance agency
$
20,160
Prior to the sale of TEA, management evaluated the accounting treatment of the potential sale as it relates to held-for-sale and any succeeding discontinued
operations financial impact. Based on management’s review of ASC 205-20-45-1E it was determined not to have met all necessary criteria to be considered
discontinued operations.
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3.
SECURITIES
The amortized cost of securities and their approximate fair value at December 31 were as follows:
2024
(in thousands)
Amortized
Unrealized
Fair
Cost
Gains
Losses
Value
Available for Sale:
Debt securities:
U.S. treasuries and government agencies
$
109,364
$
-
$
(18,009)
$
91,355
States and political subdivisions
5,495
1
(197)
5,299
Total debt securities
$
114,859
$
1
$
(18,206)
$
96,654
Mortgage-backed securities:
FNMA
$
62,388
$
3
$
(12,019)
$
50,372
FHLMC
35,855
2
(5,873)
29,984
GNMA
38,391
2
(8,117)
30,276
SBA
18,876
-
(2,326)
16,550
CMO
45,561
-
(10,720)
34,841
Total mortgage-backed securities
$
201,071
$
7
$
(39,055)
$
162,023
Total securities designated as available for sale
$
315,930
$
8
$
(57,261)
$
258,677
Held to Maturity:
Debt securities
States and political subdivisions
$
4,347
$
4
$
(110)
$
4,241
Total securities designated as held to maturity
$
4,347
$
4
$
(110)
$
4,241
2023
(in thousands)
Amortized
Unrealized
Fair
Cost
Gains
Losses
Value
Available for Sale:
Debt securities:
U.S. government agencies
$
114,152
$
-
$
(17,912)
$
96,240
States and political subdivisions
6,258
2
(231)
6,029
Total debt securities
$
120,410
$
2
$
(18,143)
$
102,269
Mortgage-backed securities:
FNMA
$
66,262
$
2
$
(11,294)
$
54,970
FHLMC
36,743
-
(5,569)
31,174
GNMA
38,793
-
(7,683)
31,110
SBA
20,776
-
(2,291)
18,485
CMO
47,741
-
(10,069)
37,672
Total mortgage-backed securities
$
210,315
$
2
$
(36,906)
$
173,411
Total securities designated as available for sale
$
330,725
$
4
$
(55,049)
$
275,680
Held to Maturity:
Debt securities
States and political subdivisions
$
2,059
$
1
$
(72)
$
1,988
Total securities designated as held to maturity
$
2,059
$
1
$
(72)
$
1,988
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At year-end 2024 and 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10%
of shareholders’ equity.
Available for sale securities with a total fair value of $120 million and $172 million were pledged as collateral to secure public deposits and for other purposes
required or permitted by law at December 31, 2024 and 2023, respectively.
The scheduled maturity of debt and mortgage-backed securities at December 31, 2024 is summarized below. All maturity amounts are contractual maturities.
Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations with or without call premiums.
December 31, 2024
Amortized
Estimated
cost
fair value
(in thousands)
Debt securities available for sale:
Due in one year or less
$
1,168
$
1,155
Due after one year through five years
46,544
43,062
Due after five years through ten years
43,151
35,825
Due after ten years
23,996
16,612
114,859
96,654
Mortgage-backed securities
available for sale
201,071
162,023
Total
$
315,930
$
258,677
Debt securities held to maturity:
Due in one year or less
$
2,751
$
2,755
Due after one year through five years
468
452
Due after five years through ten years
1,128
1,034
Due after ten years
-
-
Total
$
4,347
$
4,241
Contractual maturities of the Company’s mortgage-backed securities generally exceed ten years; however, the effective lives may be significantly shorter due to
prepayments of the underlying loans and due to the nature of these securities.
There were no realized gains or losses from sales of securities in 2024 or 2022. The Company realized gross losses on sales of securities of $5 million, in 2023.
The proceeds from the sale was $73 million. There were no realized gains in 2023.
Information regarding unrealized losses within the Company’s available for sale securities at December 31, 2024 and 2023 for which an allowance for credit losses
has not been recorded is summarized below. The securities are primarily U.S. government sponsored entities securities or municipal securities. All unrealized
losses are related to market interest rate fluctuations.
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2024
Less than 12 months
12 months or longer
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
(in thousands)
Available for Sale:
Debt securities:
U.S. government agencies
$
-
$
-
$
91,355
$
(18,009)
$
91,355
$
(18,009)
States and political subdivisions
-
-
4,619
(197)
4,619
(197)
Total debt securities
$
-
$
-
$
95,974
$
(18,206)
$
95,974
$
(18,206)
Mortgage-backed securities:
FNMA
$
1
$
-
$
50,037
$
(12,019)
$
50,038
$
(12,019)
FHLMC
1,318
(18)
28,315
(5,855)
29,633
(5,873)
GNMA
1,247
(17)
28,895
(8,100)
30,142
(8,117)
SBA
-
-
16,550
(2,326)
16,550
(2,326)
CMO
-
-
34,841
(10,720)
34,841
(10,720)
Total mortgage-backed securities
$
2,566
$
(35)
$
158,638
$
(39,020)
$
161,204
$
(39,055)
Held to Maturity:
Debt securities:
States and political subdivisions
$
1,015
$
(50)
$
471
$
(60)
$
1,486
$
(110)
Total securities
$
3,581
$
(85)
$
255,083
$
(57,286)
$
258,664
$
(57,371)
2023
Less than 12 months
12 months or longer
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
(in thousands)
Available for Sale:
Debt securities:
U.S. government agencies
$
-
$
-
$
95,240
$
(17,912)
$
95,240
$
(17,912)
States and political subdivisions
878
(2)
4,194
(229)
5,072
(231)
Total debt securities
$
878
$
(2)
$
99,434
$
(18,141)
$
100,312
$
(18,143)
Mortgage-backed securities:
FNMA
$
-
$
-
$
54,831
$
(11,294)
$
54,831
$
(11,294)
FHLMC
-
-
31,174
(5,569)
31,174
(5,569)
GNMA
-
-
31,110
(7,683)
31,110
(7,683)
SBA
-
-
18,485
(2,291)
18,485
(2,291)
CMO
-
-
37,674
(10,069)
37,674
(10,069)
Total mortgage-backed securities
$
-
$
-
$
173,274
$
(36,906)
$
173,274
$
(36,906)
Held to Maturity:
Debt securities:
States and political subdivisions
$
444
$
(1)
$
643
$
(71)
$
1,087
$
(72)
Total securities
$
1,322
$
(3)
$
273,351
$
(55,118)
$
274,673
$
(55,121)
Management has assessed the securities available for sale in an unrealized loss position at December 31, 2024 and determined that it expected to recover the
amortized cost basis of its securities. As of December 31, 2024, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its
impaired securities before recovery of their amortized cost. Management believes the decline in fair value is primarily related to market interest rate fluctuations
and not to the credit deterioration of the individual issuers. As a result, the Company does not hold an allowance for credit losses relating to securities. The
Company holds
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no securities backed by sub-prime or Alt-A residential mortgages or commercial mortgages and also does not hold any trust-preferred securities.
The creditworthiness of the Company’s portfolio is largely reliant on the ability of U.S. government agencies such as the Federal Home Loan Bank (“FHLB”),
Federal National Mortgage Association (“FNMA”), and the Federal Home Loan Mortgage Corporation (“FHLMC”), and municipalities throughout New York State
to meet their obligations. In addition, dysfunctional markets could materially alter the liquidity, interest rate, and pricing risk of the portfolio. The stable past
performance is not a guarantee for similar performance going forward.
4.
LOANS AND THE ALLOWANCE FOR CREDIT LOSSES
Major categories of loans at December 31, 2024 and 2023 are summarized as follows:
December 31, 2024
December 31, 2023
Mortgage loans on real estate:
(in thousands)
Residential mortgages
$
438,779
$
443,788
Commercial and multi-family
858,745
854,565
Construction-Residential
5,559
3,255
Construction-Commercial
142,097
114,623
Home equities
78,666
81,412
Total real estate loans
1,523,846
1,497,643
Commercial and industrial loans
260,182
223,100
Consumer and other loans
730
1,066
Unaccreted yield adjustments*
(1,094)
(863)
Total gross loans
1,783,664
1,720,946
Allowance for credit losses
(24,176)
(22,114)
Loans, net
$
1,759,488
$
1,698,832
*Includes net premiums and discounts on acquired loans and net deferred fees and costs on loans originated.
The outstanding principal balance and the carrying amount of acquired credit-deteriorated loans both totaled $0.7 million at December 31, 2024, compared with
$0.8 million and $0.7 million, respectively at December 31, 2023. There were no valuation allowances for specifically identified impairment attributable to
acquired credit-deteriorate loans at December 31, 2024 or 2023.
There were $933 million and $566 million in residential and commercial mortgage loans pledged to FHLBNY to serve as collateral for potential borrowings as of
December 31, 2024 and 2023, respectively.
Residential Mortgages, including Construction: The Company originates adjustable-rate and fixed-rate, one-to-four-family residential real estate loans for the
construction, purchase, or refinancing of a mortgage. These loans are collateralized by owner-occupied properties located in the Company’s market area and are
amortized over a period of 10 to 30 years. Loans on one-to-four-family residential real estate are mostly originated in amounts of no more than 80% of the
property’s appraised value or have private mortgage insurance. Mortgage title insurance and hazard insurance are normally required. Construction loans have a
unique risk, because they are secured by an incomplete dwelling.
The Company, in its normal course of business, sells certain residential mortgages which it originates and sells to FNMA, FHLMC and FHLB while maintaining the
servicing rights for those mortgages. The Bank determines with each origination of residential real estate loans which desired maturities, within the context of
overall maturities in the loan portfolio, provide the appropriate mix to optimize the Bank’s ability to absorb the corresponding interest rate risk within the
Company’s tolerance ranges. This practice allows the Company to manage interest rate risk, liquidity risk, and credit risk. At December 31, 2024 and 2023, the
Company’s loan servicing portfolio principal balances was $119 million and $113 million, respectively, upon which it earned servicing fees. For the years ended
December 31, 2024 and 2023, the Company sold $18.5 million and $8.3 million, respectively, in loans to FNMA and FHLB and realized gains on those sales of
$0.5 million and $0.2 million, respectively. Gains or losses recognized upon the sale of loans are determined on a specific identification basis. No loans were sold
to FHLMC by the Company during the years 2024 and 2023.
The Company had a related asset carried at fair value of approximately $1.2 million and $1.1 million for the servicing portfolio rights at December 31, 2024 and
2023, respectively. There were no residential mortgages held for sale at December 31, 2024 and December 31, 2023.
68
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Commercial and Multi-Family Mortgages and Commercial Construction Loans: Commercial real estate loans are made to finance the purchases of real estate with
completed structures or in the midst of being constructed. These commercial real estate loans are secured by first liens on the real estate, which may include
apartments, hotels, retail stores or plazas, healthcare facilities, and other non-owner-occupied facilities. These loans are generally less risky than commercial and
industrial loans since they are secured by real estate and buildings. The Company offers commercial mortgage loans with up to an 80% LTV ratio for up to 20 years
on a variable and fixed rate basis. Many of these mortgage loans either mature or are subject to a rate call after three to five years. The Company’s underwriting
analysis includes credit verification, independent appraisals, a review of the borrower's financial condition, and the underlying cash flows. Construction loans have
a unique risk, because they are secured by an incomplete dwelling.
Home Equities: The Company originates home equity lines of credit and second mortgage loans (loans secured by a second lien position on one-to-four-family
residential real estate). These loans carry a higher risk than first mortgage residential loans because they are in a second position with respect to collateral. Risk is
reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows. A
security interest, with title insurance when necessary, is taken in the underlying real estate.
Commercial and Industrial Loans: These loans generally include term loans and lines of credit. Such loans are made available to businesses for working capital
(including inventory and receivables), business expansion (including acquisition of real estate, expansion, and improvements) and equipment purchases. As a
general practice, a collateral lien is placed on equipment or other assets owned by the borrower. These loans generally carry a higher risk than commercial real
estate loans based on the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable. To reduce the risk,
management also attempts to secure real estate as collateral and obtain personal guarantees of the borrowers. To further reduce risk and enhance liquidity, these
loans generally carry variable rates of interest, re-pricing in three- to five-year periods, and have a maturity of five years or less. Lines of credit generally carry
floating rates of interest (e.g. prime plus a margin).
Consumer Loans: The Company funds a variety of consumer loans, including direct automobile loans, recreational vehicle loans, boat loans, home improvement
loans, and personal loans (collateralized and uncollateralized). Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging up
to five years, based upon the nature of the collateral and the size of the loan. The majority of consumer loans are underwritten on a secured basis using the
underlying collateral being financed. A minimal amount of loans are unsecured, which carry a higher risk of loss. These loans included overdrawn deposit accounts
classified as loans of $0.1 million at December 31, 2024 and 2023.
Credit Quality Indicators
The Company monitors the credit risk in its loan portfolio by reviewing certain credit quality indicators (“CQI”). The primary CQI for the commercial mortgage
and commercial and industrial portfolios is the individual loan’s credit risk rating. The following list provides a description of the credit risk ratings that are used
internally by the Bank when assessing the adequacy of its allowance for credit losses:
Acceptable or better
Watch
Special Mention
Substandard
Doubtful
Loss
“Special mention” and “substandard” loans are weaker credits with a higher risk of loss and are categorized as “criticized” assets.
The Company’s consumer loans, including residential mortgages and home equities, are not individually risk rated or reviewed in the Company’s loan review
process. Unlike commercial customers, consumer loan customers are not required to provide the Company with updated financial information. Consumer loans
also carry smaller balances. Given the lack of updated information after the initial underwriting of the loan and small size of individual loans, the Company uses
delinquency status as the primary credit quality indicator for consumer loans. However, once a consumer loan is identified as individually evaluated, it is
individually measured for impairment.
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Table of Contents
The following tables summarize the amortized cost of loans by year of origination and internally assigned credit grades:
(in thousands)
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2024
2024
2023
2022
2021
2020
Prior
Revolving Loans
Amortized Cost
Basis
Total
Commercial and
industrial loans
Risk rating
Pass
$
53,499
$
25,213
$
21,934
$
15,999
$
6,030
$
9,125
$
91,728
$
223,528
Special Mention
6,499
-
755
271
230
830
17,859
26,444
Substandard
63
785
2,261
96
7
214
6,779
10,205
Doubtful/Loss
-
-
-
-
-
-
-
-
Total
$
60,061
$
25,998
$
24,950
$
16,366
$
6,267
$
10,169
$
116,366
$
260,177
Current period gross
writeoffs
$
-
$
59
$
-
$
-
$
-
$
13
$
-
$
72
Commercial real estate
mortgages
Risk rating
Pass
$
128,691
$
150,285
$
186,261
$
118,259
$
90,052
$
275,697
$
-
$
949,245
Special Mention
2,688
-
1,504
379
-
14,141
-
18,712
Substandard
-
2,414
5,808
16,709
-
7,499
-
32,430
Doubtful/Loss
-
-
-
-
-
-
-
-
Total
$
131,379
$
152,699
$
193,573
$
135,347
$
90,052
$
297,337
$
-
$
1,000,387
Current period gross
writeoffs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer and other
Payment performance
Performing
$
408
$
324
$
89
$
16
$
4
$
9
$
118
$
968
Nonperforming
-
-
-
-
-
-
-
-
Total
$
408
$
324
$
89
$
16
$
4
$
9
$
118
$
968
Current period gross
writeoffs
$
193
$
27
$
-
$
-
$
-
$
2
$
-
$
222
Residential mortgages
Payment performance
Performing
$
34,646
$
37,524
$
67,959
$
90,801
$
63,209
$
144,973
$
-
$
439,112
Nonperforming
-
298
526
947
241
3,352
-
5,364
Total
$
34,646
$
37,822
$
68,485
$
91,748
$
63,450
$
148,325
$
-
$
444,476
Current period gross
writeoffs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
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Home equities
Payment performance
Performing
$
3,239
$
5,435
$
2,176
$
362
$
443
$
2,053
$
63,300
$
77,008
Nonperforming
-
42
38
-
-
-
568
648
Total
$
3,239
$
5,477
$
2,214
$
362
$
443
$
2,053
$
63,868
$
77,656
Current period gross
writeoffs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
(in thousands)
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2023
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized Cost
Basis
Total
Commercial and
industrial loans
Risk rating
Pass
$
24,338
$
42,967
$
21,614
$
12,174
$
5,686
$
6,539
$
86,459
$
199,777
Special Mention
10
1,955
2,739
510
268
1,867
11,705
19,054
Substandard
-
2
3
460
-
838
2,955
4,258
Doubtful/Loss
-
-
-
-
-
-
-
-
Total
$
24,348
$
44,924
$
24,356
$
13,144
$
5,954
$
9,244
$
101,119
$
223,089
Current period gross
writeoffs
$
-
$
-
$
-
$
-
$
4
$
3
$
-
$
7
Commercial real estate
mortgages
Risk rating
Pass
$
132,525
$
194,197
$
169,943
$
95,264
$
66,243
$
263,628
$
-
$
921,800
Special Mention
-
6,634
397
861
9,988
8,094
-
25,974
Substandard
-
-
11,737
-
6,733
3,617
-
22,087
Doubtful/Loss
-
-
-
-
-
-
-
-
Total
$
132,525
$
200,831
$
182,077
$
96,125
$
82,964
$
275,339
$
-
$
969,861
Current period gross
writeoffs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer and other
Payment performance
Performing
$
597
$
176
$
27
$
12
$
13
$
20
$
144
$
989
Nonperforming
-
-
-
-
-
-
-
-
Total
$
597
$
176
$
27
$
12
$
13
$
20
$
144
$
989
Current period gross
writeoffs
$
145
$
18
$
1
$
-
$
-
$
1
$
-
$
165
Residential mortgages
Payment performance
71
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Performing
$
37,536
$
72,624
$
100,308
$
69,454
$
17,829
$
144,499
$
-
$
442,250
Nonperforming
156
270
576
351
204
3,044
-
4,601
Total
$
37,692
$
72,894
$
100,884
$
69,805
$
18,033
$
147,543
$
-
$
446,851
Current period gross
writeoffs
$
-
$
-
$
-
$
1
$
-
$
-
$
-
$
1
Home equities
Payment performance
Performing
$
7,833
$
2,768
$
590
$
588
$
571
$
2,126
$
65,165
$
79,641
Nonperforming
-
-
-
-
-
1
514
515
Total
$
7,833
$
2,768
$
590
$
588
$
571
$
2,127
$
65,679
$
80,156
Current period gross
writeoffs
$
-
$
-
$
-
$
-
$
-
$
25
$
-
$
25
Past Due Loans
The following tables provide an analysis of the age of the amortized cost of loans that are past due and nonaccrual as of the dates indicated:
2024
(in thousands)
Current
Non-accruing
Total
Balance
30-59 days
60-89 days
90+ days
Loans
Balance
Commercial and industrial
$
255,565
$
2,894
$
-
$
220
$
1,498
$
260,177
Residential real estate:
Residential
421,602
8,786
3,042
121
5,363
438,914
Construction
5,562
-
-
-
-
5,562
Commercial real estate:
Commercial
831,546
14,005
-
-
12,393
857,944
Construction
138,101
4,342
-
-
-
142,443
Home equities
75,154
1,461
393
-
648
77,656
Consumer and other
943
22
3
-
-
968
Total Loans
$
1,728,473
$
31,510
$
3,438
$
341
$
19,902
$
1,783,664
2023
(in thousands)
Current
Non-accruing
Total
Balance
30-59 days
60-89 days
90+ days
Loans
Balance
Commercial and industrial
$
220,602
$
518
$
130
$
-
$
1,839
$
223,089
Residential real estate:
Residential
437,471
1,173
341
-
4,602
443,587
Construction
3,264
-
-
-
-
3,264
Commercial real estate:
Commercial
831,375
4,360
-
134
19,000
854,869
Construction
110,727
2,326
671
-
1,268
114,992
Home equities
77,080
1,906
655
-
515
80,156
Consumer and other
959
27
3
-
-
989
Total Loans
$
1,681,478
$
10,310
$
1,800
$
134
$
27,224
$
1,720,946
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Allowance for Credit Losses
Effective January 1, 2023 the Company adopted ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments
which requires an allowance for credit losses be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is
expected to be collected over the contractual term of the asset. In determining the allowance for credit losses, accruing loans with similar risk characteristics are
generally evaluated collectively. The Company utilizes discounted cash flow models considering relevant information about past events, current conditions, and
reasonable and supportable forecasts that affect the collectability of the reported amount to project principal balances over the remaining contractual lives of the
loan portfolios and to determine estimated credit losses through a reasonable and supportable forecast period. The models have been statistically developed based
on historical correlations of credit losses with prevailing economic metrics, including unemployment and gross domestic product. The Company utilizes a
reasonable and supportable forecast period of one year. Subsequent to this forecast period the Company reverts, on a straight-line basis over a one-year period, to
historical loss experience to inform its estimate of losses for the remaining contractual life of each portfolio. Model forecasts may be adjusted for inherent
limitations of biases that have been identified through independent validation and back-testing of model performance to actual realized results. The Company also
considered the impact of qualitative factors, including portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts,
geopolitical conditions and other risk factors that might influence its loss estimation process.
The Company also estimates losses attributable to specific troubled credits identified through both normal and targeted credit review processes and includes all
loans on nonaccrual status. The amounts of individually analyzed losses are determined through a loan-by-loan analysis. Such loss estimates are typically based on
expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. To the extent that those loans are collateral-dependent,
they are evaluated based on recent estimations of the fair value of the loan’s collateral. In those cases where current appraisals may not yet be available, prior
appraisals are utilized with adjustments, as deemed necessary, for estimates of subsequent declines in values as determined by line of business and/or loan workout
personnel. Those adjustments are reviewed and assessed for reasonableness by the Company’s credit risk personnel. Accordingly, for real estate collateral securing
larger nonaccrual commercial loans and commercial real estate loans, estimated collateral values are based on current appraisals and estimates of value. For non-
real estate loans, collateral is assigned a discounted estimated liquidation value and, depending on the nature of the collateral, is verified through field exams or
other procedures. In assessing collateral, real estate and non-real estate values are reduced by an estimate of selling costs. Charge-offs are based on recent
indications of value from external parties that are generally obtained shortly after a loan becomes nonaccrual. Loans to consumers that file for bankruptcy are
generally charged-off to estimated net collateral value shortly after the Company is notified of such filings. When evaluating individual home equity loans and lines
of credit for charge off and for purposes of estimating losses in determining the allowance for credit losses, the Company considers the required repayment of any
first lien positions related to collateral property.
The following tables present the activity in the allowance for credit losses according to portfolio segment for the periods ended December 31, 2024, 2023 and 2022.
2024
(in thousands)
Commercial and
Industrial
Commercial Real
Estate Mortgages*
Consumer and
Other
Residential
Mortgages*
Home Equities
Total
Allowance for credit losses:
Beginning balance
$
5,241 $
12,548 $
8 $
3,883 $
434 $
22,114
Charge-offs
(72)
-
(222)
-
-
(294)
Recoveries
7
-
18
95
-
120
Provision (Credit)
374
750
205
853
54
2,236
Ending balance
$
5,550
$
13,298
$
9
$
4,831
$
488
$
24,176
Allowance for credit
losses:
Ending balance:
Individually evaluated
for impairment
208
926
-
7
-
1,141
Collectively evaluated
for impairment
5,342
12,372
9
4,824
488
23,035
Total
$
5,550 $
13,298 $
9 $
4,831 $
488 $
24,176
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Loans:
Ending balance:
Individually evaluated
for impairment
1,857
14,450
-
5,946
1,005
23,258
Collectively evaluated
for impairment
258,325
986,392
730
438,392
77,661
1,761,500
Total
$
260,182 $
1,000,842 $
730 $
444,338 $
78,666 $
1,784,758
* includes construction loans
2023
(in thousands)
Commercial and
Industrial
Commercial Real
Estate Mortgages*
Consumer and
Other
Residential
Mortgages*
Home Equities
Total
Allowance for credit losses:
Beginning balance
$
4,980 $
11,595 $
153 $
2,102 $
608 $
19,438
Adoption of new accounting
standard
324
1,145
(147)
1,618
(205)
2,735
Beginning balance after
cumulative effect adjustment
$
5,304 $
12,740 $
6 $
3,720 $
403 $
22,173
Charge-offs
(7)
-
(165)
(1)
(25)
(198)
Recoveries
83
-
26
7
5
121
Provision (Credit)
(139)
(192)
141
157
51
18
Ending balance
$
5,241
$
12,548
$
8
$
3,883
$
434
$
22,114
Allowance for credit
losses:
Ending balance:
Individually evaluated
for impairment
$
36
719
-
-
-
755
Collectively evaluated
for impairment
5,205
11,829
8
3,883
434
21,359
Total
$
5,241 $
12,548
$
8
$
3,883
$
434 $
22,114
Loans:
Ending balance:
Individually evaluated
for impairment
$
1,869
23,044
-
5,146
761
30,820
Collectively evaluated
for impairment
221,231
946,144
1,066
441,897
80,651
1,690,989
Total
$
223,100 $
969,188
$
1,066
$
447,043
$
81,412
$
1,721,809
* includes construction loans
74
Table of Contents
2022
(in thousands)
Commercial and
Industrial
Commercial Real
Estate Mortgages*
Consumer and
Other
Residential
Mortgages*
Home Equities
Total
Allowance for credit
losses:
Beginning balance
$
3,309 $
12,367 $
54 $
2,127 $
581 $
18,438
Charge-offs
(1,546)
-
(170)
(125)
(30)
(1,871)
Recoveries
114
-
18
-
-
132
Provision (Credit)
3,103
(772)
251
100
57
2,739
Ending balance
$
4,980 $
11,595 $
153 $
2,102 $
608 $
19,438
* includes construction loans
The Company’s reserve for off-balance sheet credit exposures was not material at December 31, 2024 and 2023.
Nonaccrual Loans
The following tables provide amortized costs, at the class level, for nonaccrual loans as of the dates indicated:
Year Ended
December 31, 2024
December 31, 2024
Amortized Cost with
Allowance
Amortized Cost
without Allowance
Total
Interest Income Recognized
(in thousands)
Commercial and industrial
$
294
$
1,204
$
1,498
$
31
Residential real estate:
Residential
152
5,211
5,363
41
Construction
-
-
-
-
Commercial real estate:
Commercial
4,957
7,436
12,393
35
Construction
-
-
-
-
Home equities
-
648
648
13
Consumer and other
-
-
-
-
Total nonaccrual loans
$
5,403
$
14,499
$
19,902
$
120
Year Ended
December 31, 2023
December 31, 2023
Amortized Cost with
Allowance
Amortized Cost
without Allowance
Total
Interest Income Recognized
(in thousands)
Commercial and industrial
$
73
$
1,766
$
1,839
$
17
Residential real estate:
Residential
-
4,602
4,602
49
Construction
-
-
-
-
Commercial real estate:
Commercial
6,568
12,432
19,000
219
Construction
1,268
-
1,268
-
Home equities
-
515
515
11
Consumer and other
-
-
-
-
Total nonaccrual loans
$
7,909
$
19,315
$
27,224
$
296
75
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The following table provides data, at the class level, as of December 31, 2022.
2022
Average Recorded
Investment
Interest Income Recognized
With no related allowance recorded:
Commercial and industrial
$
2,654
$
82
Residential real estate:
Residential
4,522
57
Construction
-
-
Commercial real estate:
Commercial
7,928
288
Construction
3,715
282
Home equities
778
24
Consumer and other
-
-
Total impaired loans
$
19,597
$
733
2022
Average Recorded
Investment
Interest Income Recognized
With a related allowance recorded:
Commercial and industrial
$
-
$
-
Residential real estate:
Residential
59
-
Construction
-
-
Commercial real estate:
Commercial
-
-
Construction
1,360
-
Home equities
58
2
Consumer and other
-
-
Total impaired loans
$
1,477
$
2
2022
Average Recorded
Investment
Interest Income Recognized
Total:
Commercial and industrial
$
2,654
$
82
Residential real estate:
Residential
4,581
57
Construction
-
-
Commercial real estate:
Commercial
7,928
288
Construction
5,075
282
Home equities
836
26
Consumer and other
-
-
Total impaired loans
$
21,074
$
735
76
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Collateral-dependent loans are loans that we expect the repayment to be provided substantially through the operation or sale of the collateral of the loan and we
have determined that the borrower is experiencing financial difficulty. In such cases, expected credit losses are based on the fair value of the collateral at the
measurement date, adjusted for selling costs. As of December 31, 2024 and December 31, 2023 there were $19 million and $27 million, respectively, of collateral-
dependent loans secured mainly by real estate and equipment.
Modifications to Borrowers Experiencing Financial Difficulty
The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructurings and
Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt
restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.
The tables below detail the amortized cost of gross loans held for investment made to borrowers experiencing financial difficulty that were modified during the
twelve months ended December 31, 2024 and December 31, 2023.
December 31, 2024
(in thousands)
Term Extension
Total Class of Receivable
Commercial and industrial
$
-
-
%
Residential real estate:
Residential
969
0.22
Construction
-
-
Commercial real estate:
Commercial
5,289
0.53
Construction
-
-
Home equities
-
-
Consumer and other
-
-
-
Total nonaccrual loans
$
6,258
0.35
%
December 31, 2023
(in thousands)
Term Extension
Total Class of Receivable
Commercial and industrial
$
451
0.20
%
Residential real estate:
Residential
686
0.15
Construction
-
-
Commercial real estate:
Commercial
6,817
0.70
Construction
-
-
Home equities
-
-
Consumer and other
-
-
-
Total nonaccrual loans
$
7,954
0.46
%
The financial impacts of residential mortgage loan modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31,
2024 were maturity extensions ranging from six months to 360 months. Commercial real estate loan modifications made to borrowers experiencing financial
difficulty, included in the table above, was a maturity extension of nine months. Commercial and industrial loan modifications made to borrowers experiencing
financial difficulty during the twelve months
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ended December 31, 2023 was a maturity extension of six months. Residential mortgage loan modifications made to borrowers experiencing financial difficulty
during that same period were ranging from six months to 164 months. Commercial real estate loan modifications made to borrowers experiencing financial
difficulty ranged from six to seven months during the twelve months ended December 31, 2023.
The company has not committed to lend any additional amounts to the borrowers included in the previous table.
As of December 31, 2024 and 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during 2024 and
2023, respectively, that subsequently defaulted. Payment default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its
modification efforts. The payment status of all loans modified to borrowers experiencing financial difficulties were current during the twelve months ending 2024
and 2023.
5.
PROPERTIES AND EQUIPMENT
Properties and equipment at December 31 were as follows:
2024
2023
(in thousands)
Land
$
845
$
845
Buildings and improvements
17,828
17,813
Furniture, fixtures, and equipment
9,605
9,277
28,278
27,935
Less accumulated depreciation
(14,126)
(12,538)
Properties and equipment, net
$
14,152
$
15,397
Depreciation expense totaled $1.5 million in 2024, $1.7 million in 2023, and $1.7 million in 2022.
6.
LEASES
The Company’s leases, consisting of property leases for certain bank branches, are classified as operating leases. Operating lease Right of Use (“ROU”) assets and
liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets were $3.8 million as of December
31, 2024 and 2023. Lease liabilities were $4.1 million as of December 31, 2024 and 2023. As these leases do not provide an implicit rate, we use our incremental
borrowing rate in determining the present value of lease payments. Our lease terms include options to extend or terminate the lease when it is reasonably certain that
we will exercise that option. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Lease expense is recognized on a straight-line basis over the lease term. Operating lease expenses were $1.1 million during each of the years ended December 31,
2024, 2023 and 2022, and are included in occupancy expense on the consolidated statement of income. Cash paid for amounts included in the measurement of lease
liabilities were $1.0 million and $1.1 million during the years ended December 31, 2024 and 2023, respectively, and are included in cash flows from operating
activities on the consolidated statement of cash flows. The weighted average discount rate related to the Company’s leases were 3.0%, and 2.8% as of December 31,
2024 and December 31, 2023, respectively. The weighted average remaining lease term related to the Company’s leases was 5.5 years and 6.0 years as of
December 31, 2024 and 2023, respectively. Future minimum lease payments under non-cancellable leases as of December 31, 2024 were as follows:
Year Ending December 31,
(in thousands)
2025
$
1,011
2026
939
2027
681
2028
530
2029
405
Thereafter
874
Total future minimum lease payments
4,440
Less imputed interest
368
Total
$
4,072
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ROU assets obtained in exchange for lease obligations were $1.0 million and $0.4 million during the years ended December 31, 2024 and 2023, respectively.
7.
GOODWILL AND INTANGIBLE ASSETS
Assets and liabilities acquired in a business combination are recorded at their estimated fair values as of the acquisition date. The excess of the purchase price of the
acquisition over the fair value of net assets acquired is recorded as goodwill. The Company had $1.8 million in goodwill at December 31, 2024 and 2023.
On November 30, 2023 the Company wrote-off $10.9 million of goodwill and $0.8 million of intangible assets in connection with the sale of TEA. See Note 2 to
the Company’s Consolidated Financial Statements included under Item 8 of this Annual Report on Form 10-K for more information on the sale of TEA.
Goodwill of $1.8 million at December 31, 2024 relates to the banking activities segment of the Company. There were no additions to goodwill during 2024 or
2023.
Goodwill is evaluated for impairment on an annual basis, or whenever events or changes in circumstances indicate that the fair value of a reporting unit may be
below its carrying value. The Company measures the fair value of its reporting unit annually, as of December 31. There was no impairment of goodwill recognized
during 2024 or 2023.
There were no additions to intangible assets during 2024 or 2023. The gross carrying amount and accumulated amortization of other intangible assets at December
31, 2024 and December 31, 2023 were as follows:
2024
2024
Gross Carrying Amount
Accumulated
Amortization
Gross Carrying Amount
Accumulated
Amortization
(in thousands)
(in thousands)
Amortized intangible asset:
Core deposit intangibles
$
166
(88)
$
166
(72)
Total
$
166
(88)
$
166
(72)
Core deposit intangibles have an estimated remaining life of 5.3 years. Amortization expense related to intangibles for the years ended December 31, 2024, 2023,
and 2022 were less than $0.1 million, $0.4 million, and $0.4 million, respectively. Amortization expense of $0.3 million recorded during 2023 included
amortization of other insurance intangibles through November 30, 2023. There was no impairment of intangible assets recognized during 2024 or 2023.
Estimated amortization expense for core deposit intangibles for each of the five succeeding fiscal years is as follows:
Year Ending December 31
Amount
(in thousands)
2025
$
16
2026
15
2027
15
2028
14
2029
13
Thereafter
5
$
78
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8.
DEPOSITS
Time deposits of $250 thousand and over, excluding brokered deposits, totaled $78.3 million and $74.6 million at December 31, 2024 and 2023, respectively.
Brokered time deposits totaled $67 million at December 31, 2024. There were no brokered time deposits at December 31, 2023.
At December 31, 2024, the scheduled maturities of all time deposits were as follows:
(in thousands)
2025
$
361,584
2026
27,210
2027
2,661
2028
1,099
2029
2,002
$
394,556
9.
BORROWED FUNDS AND SUBORDINATED DEBT
Other borrowings at December 31, 2024 consisted of FHLB overnight line of credit advance of $40 million, and FHLB advances of $40 million.
The maturities and weighted average rates of other borrowed funds at December 31, 2024 are as follows:
Maturities
Weighted Average Rate
(in thousands)
2025
$
40,000
4.61 %
2026
-
- %
2027
40,000
4.68 %
Total
$
80,000
4.65 %
The Bank has the ability to borrow additional funds from the FHLB based on the securities or real estate loans that can be used as collateral and to purchase
additional federal funds through one of the Bank’s correspondent banks. Given the current collateral available, additional advances of up to $381 million can be
drawn on the FHLB via the Bank’s Overnight Line of Credit Agreement. There were $933 million and $566 million in residential and commercial mortgage loans
pledged to FHLBNY to serve as collateral for potential borrowings as of December 31, 2024 and 2023, respectively.
As a member of the Federal Home Loan Bank System, the Bank is required to hold stock in FHLBNY. The Bank held FHLBNY stock with a carrying value of $6.2
million and $4.9 million as of December 31, 2024 and December 31, 2023, respectively.
The Bank has the ability to borrow from the Federal Reserve. At December 31, 2024 the Bank had $96 million in additional availability to borrow against
collateral. By placing sufficient collateral in safekeeping at the Federal Reserve Bank, the Bank could borrow at the discount window.
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The amounts and interest rates of other borrowed funds, excluding purchased discounts of less than $0.1 million at December 31, 2024 and 2023 and $0.3 million at
December 31, 2022, were as follows:
FHLB Overnight Line of Credit
FHLB Advances
FRB Borrowings
Total Other Borrowings
(in thousands)
At December 31, 2024
Amount outstanding
$
40,000 $
40,000 $
- $
80,000
Weighted-average interest rate
4.61%
4.68%
-%
4.65%
For the year ended December 31, 2024
Highest amount at a month end
$
59,000 $
43,000 $
88,000
Daily average amount outstanding
$
10,250 $
32,218 $
73,333 $
115,801
Weighted-average interest rate
5.97%
4.54%
5.10%
5.02%
At December 31, 2023
Amount outstanding
$
53,000 $
6,077 $
86,000 $
145,077
Weighted-average interest rate
5.64%
3.11%
5.28%
5.32%
For the year ended December 31, 2023
Highest amount at a month end
$
168,000 $
19,346 $
126,000
Daily average amount outstanding
$
62,217 $
8,853 $
74,182 $
145,252
Weighted-average interest rate
5.33%
3.00%
4.61%
4.82%
At December 31, 2022
Amount outstanding
$
173,200 $
19,547 $
- $
192,747
Weighted-average interest rate
4.61%
2.77%
-%
4.42%
For the year ended December 31, 2022
Highest amount at a month end
$
173,200 $
31,756 $
-
Daily average amount outstanding
$
24,519 $
23,721 $
- $
48,240
Weighted-average interest rate
3.96%
2.72%
-%
3.35%
Subordinated debt comprised $20.0 million of subordinated notes and $11.3 million of trust preferred capital securities at December 31, 2024 and 2023.
On July 9, 2020, the Company issued $20.0 million of fixed to floating rate subordinated notes. The subordinated notes have an initial fixed interest rate of 6.00%
to, but excluding, July 15, 2025, payable semi-annually in arrears. From and including July 15, 2025 but excluding the maturity date or early redemption date, the
interest rate will reset quarterly to an interest rate per annum initially equal to the then-current three-month Secured Overnight Financing Rate provided by the
Federal Reserve Bank of New York plus 590 basis points, payable quarterly in arrears. The subordinated notes mature on July 15, 2030. The Company is entitled to
redeem the notes, in whole or in part, at any time on or after July 15, 2025, and to redeem the subordinated notes at any time in whole upon certain other events.
On October 1, 2004, Evans Capital Trust I, a statutory business trust wholly-owned by the Company (the “Trust”), issued $11.0 million in aggregate principal
amount of floating rate preferred capital securities due November 23, 2034 to various investors (the “Capital Securities”) and $0.3 million of common securities to
the Company (the “Common Securities”). The Capital Securities represent preferred undivided interests in the assets of the Trust. The Common Securities
represent the initial capital contribution of the Company to the Trust, which have not been consolidated and are included in “Other Assets” on the Company’s
consolidated balance sheet. Under the Federal Reserve Board’s current risk-based capital guidelines, the Capital Securities are includable in the Company’s Tier 1
(Core) capital. The Common Securities are wholly-owned by the Company and are the only class of the Trust’s securities possessing general voting powers.
The Capital Securities have a distribution rate of three-month SOFR plus 2.65%, and the distribution dates are February 23, May 23, August 23, and November 23.
The distribution rate was 7.43% at December 31, 2024.
The proceeds from the issuances of the Capital Securities and Common Securities were used by the Trust to purchase $11.3 million in aggregate liquidation amount
of floating rate junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of the Company, due October 1, 2037.
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The Junior Subordinated Debentures represent the sole assets of the Trust, and payments under the Junior Subordinated Debentures are the sole source of cash flow
for the Trust. The interest rate payable on the Junior Subordinated Debentures was 7.43% at December 31, 2024.
Holders of the Capital Securities receive preferential cumulative cash distributions on each distribution date at the stated distribution rate, unless the Company
exercises its right to extend the payment of interest on the Junior Subordinated Debentures for up to twenty quarterly periods, in which case payment of
distributions on the respective Capital Securities will be deferred for comparable periods. During an extended interest period, in accordance with terms as defined
in the indenture relating to the Capital Securities, the Company may not pay dividends or distributions on, or repurchase, redeem, or acquire any shares of its capital
stock. The agreements governing the Capital Securities, in the aggregate, provide a full, irrevocable, and unconditional guarantee by the Company of the payment
of distributions on, the redemption of, and any liquidation distribution with respect to the Capital Securities. The obligations under such guarantee and the Capital
Securities are subordinate and junior in right of payment to all senior indebtedness of the Company.
The Capital Securities will remain outstanding until the Junior Subordinated Debentures are repaid at maturity, are redeemed prior to maturity, or are distributed in
liquidation to the Trust. The Capital Securities are mandatorily redeemable in whole, but not in part, upon repayment at the stated maturity dates of the Junior
Subordinated Debentures or the earlier redemption of the Junior Subordinated Debentures in whole upon the occurrence of one or more events (“Events”) set forth
in the indentures relating to the Capital Securities, and in whole or in part at any time contemporaneously with the optional redemption of the related Junior
Subordinated Debentures in whole or in part. The Junior Subordinated Debentures are redeemable prior to their stated maturity dates at the Company’s option: (i)
on or after the stated optional redemption dates, in whole at any time, or in part from time to time; or (ii) in whole, but not in part, at any time within 90 days
following the occurrence and during the continuation of one or more of the Events, in each case subject to possible regulatory approval. The redemption price of
the Capital Securities and the related Junior Subordinated Debentures upon early redemption would be at the liquidation amount plus accumulated but unpaid
distributions.
10.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Bank enters into agreements with customers to sell securities owned by the Bank to the customers and repurchase the identical security, within one business
day. No physical movement of the securities is involved. The Bank had $6.6 million and $9.5 million in securities sold under agreement to repurchase at December
31, 2024 and December 31, 2023, respectively.
11.
COMPREHENSIVE INCOME (LOSS)
The following tables display the components of other comprehensive income (loss), net of tax:
Balance at December 31,
2023
Net Change
Balance at December 31,
2024
(in thousands)
Net unrealized loss on investment securities
$
(40,741)
$
(1,725)
$
(42,466)
Net defined benefit pension plan adjustments
(1,530)
53
(1,477)
Total
$
(42,271)
$
(1,672)
$
(43,943)
Balance at December 31,
2022
Net Change
Balance at December 31,
2023
(in thousands)
Net unrealized loss on investment securities
$
(47,348)
$
6,607
$
(40,741)
Net defined benefit pension plan adjustments
(1,930)
400
(1,530)
Total
$
(49,278)
$
7,007
$
(42,271)
Balance at December 31,
2021
Net Change
Balance at December 31,
2022
(in thousands)
Net unrealized loss on investment securities
$
(3,160)
$
(44,188)
$
(47,348)
Net defined benefit pension plan adjustments
(2,511)
581
(1,930)
Total
$
(5,671)
$
(43,607)
$
(49,278)
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2024
Before-Tax Amount
Income Tax (Provision)
Benefit
Net-of-Tax Amount
Unrealized loss on investment securities:
(in thousands)
Unrealized loss on investment securities
$
(2,208)
$
483
$
(1,725)
Defined benefit pension plans adjustments:
Net actuarial (loss) gain
$
(21)
$
5
$
(16)
Reclassifications from accumulated other
comprehensive income for gains (losses)
Amortization of prior service cost
-
-
-
Amortization of actuarial loss
99
(30)
69
Net change
78
(25)
53
Other Comprehensive Loss
$
(2,130)
$
458
$
(1,672)
2023
Before-Tax Amount
Income Tax (Provision)
Benefit
Net-of-Tax Amount
Unrealized gain on investment securities:
(in thousands)
Unrealized gain on investment securities
$
13,890
$
(3,550)
$
10,340
Reclassification from accumulated other
comprehensive income for losses
(5,044)
1,311
(3,733)
Net change
8,846
(2,239)
6,607
Defined benefit pension plans adjustments:
Net actuarial gain (loss)
$
430
$
(110)
$
320
Reclassifications from accumulated other
comprehensive income for gains (losses)
Amortization of prior service cost
-
-
-
Amortization of actuarial loss
108
(28)
80
Net change
538
(138)
400
Other Comprehensive Income
$
9,384
$
(2,377)
$
7,007
2022
Before-Tax Amount
Income Tax (Provision)
Benefit
Net-of-Tax Amount
Unrealized loss on investment securities:
(in thousands)
Unrealized loss on investment securities
$
(59,621)
$
15,433
$
(44,188)
Defined benefit pension plans adjustments:
Net actuarial loss gain
$
481
$
(122)
$
359
Reclassifications from accumulated other
comprehensive income for gains (losses)
Amortization of prior service cost
31
(9)
22
Amortization of actuarial loss
274
(74)
200
Net change
786
(205)
581
Other Comprehensive Loss
$
(58,835)
$
15,228
$
(43,607)
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12.
EMPLOYEE BENEFITS AND DEFERRED COMPENSATION PLANS
Employees’ Pension Plan
The Bank has a defined benefit pension plan that covered substantially all employees of the Company and its subsidiaries (the “Pension Plan”). The Pension 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 uses 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 Pension Plan was frozen effective January 31, 2008. Under the freeze, eligible employees will receive the benefits already earned through
January 31, 2008 at retirement, but will not be able to accrue any additional benefits. As a result, service cost will no longer be incurred.
Selected Financial Information for the Pension Plan is as follows:
2024
2023
Change in benefit obligation:
(in thousands)
Benefit obligation at the beginning of the year
$
4,734
$
4,912
Interest cost
230
237
Assumption change
(256)
102
Actuarial loss
18
4
Settlements
-
(263)
Benefits paid
(271)
(258)
Benefit obligation at the end of the year
4,455
4,734
Change in plan assets:
Fair value of plan assets at the beginning of year
4,980
4,998
Actual return on plan assets
185
503
Benefits paid
(271)
(521)
Fair value of plan assets at the end of year
4,894
4,980
Funded status
$
439
$
246
Amount recognized in the Consolidated Balance Sheets consist of:
Accrued benefit liabilities
$
439
$
246
Amount recognized in the Accumulated Other Comprehensive Loss consists of:
Net actuarial loss
$
1,634
$
1,879
Prior service cost
-
-
Net amount recognized in equity - pre-tax
$
1,634
$
1,879
Accumulated benefit obligation at year end
$
4,455
$
4,734
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Assumptions used by the Bank in the determination of Pension Plan information consisted of the following:
2024
2023
2022
Discount rate for projected benefit obligation
5.57 %
5.00 %
5.22 %
Discount rate for net periodic pension cost
5.00 %
5.22 %
2.77 %
Expected long-term rate of return of plan assets
5.50 %
5.50 %
5.50 %
The components of net periodic benefit cost consisted of the following:
2024
2023
2022
(in thousands)
Interest cost
$
230
$
237
$
179
Expected return on plan assets
(266)
(259)
(353)
Net amortization and deferral
88
97
97
Settlement cost
-
114
-
Net periodic benefit cost
$
52
$
189
$
(77)
The components of net periodic benefit cost are included in the line item “other expense” in the income statement.
The Company did not contribute to the Pension Plan in 2024 and expects that it will not contribute to the Pension Plan in 2025.
The expected long-term rate of return on Pension Plan assets assumption was determined based on historical returns earned by equity and fixed income securities,
adjusted to reflect future return expectations based on plan targeted asset allocation. Equity and fixed income securities were assumed to earn returns in the ranges
of 4.5% to 11% and 4% to 5%, respectively. When these overall return expectations are applied to the Pension Plan’s targeted allocation, the expected rate of return
was determined to be 5.50%, which is within the range of expected return. The Company’s management will continue to evaluate its actuarial assumptions,
including the expected rate of return, at least annually, and will adjust as necessary.
The weighted average asset allocation of the Pension Plan at December 31, 2024 and 2023, the Pension Plan measurement date, was as follows:
Asset Category:
2024
2023
Equity mutual funds
31.00 %
35.39 %
Fixed income mutual funds
66.99 %
62.05 %
Cash/Short-term investments
2.01 %
2.56 %
100.00 %
100.00 %
The portfolio is invested in accordance with sound investment practices. Consistent with this approach, the investment strategy is to diversify the portfolio in order
to reduce risk and to maintain sufficient liquidity to meet the obligations of the Plan. The Plan’s long-term asset allocation under normal market conditions is 31%
equity investment and 69% fixed income assets and other short term investments and cash equivalents. The investment objective of the allocation in equity
investments emphasizes long term capital appreciation. These equity investments are diversified across market capitalization, industries, style and geographical
location. The investment objective of the fixed income allocation is to generally provide a diversified source of income with an awareness of capital preservation.
The primary objective of the investment philosophy is capital preservation.
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The major categories of assets in the Bank’s Pension Plan as of year-end are presented in the following table. Assets are segregated according to their investment
objective by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (see Note 20 – Fair Value of Financial Instruments).
2024
2023
(in thousands)
Level 1:
Cash
$
-
$
-
Mutual funds:
Short-term investments:
Money market
98
128
Fixed Income:
3,279
3,225
Equities:
Small cap
315
283
Mid-Cap
202
149
Large cap
652
713
International large cap
348
482
$
4,894
$
4,980
The mutual funds are actively traded with market quotes available on at least a daily basis. Therefore, they are Level 1 assets.
The discount rate utilized by the Company for determining future pension obligations is based on a review of long-term bonds that receive one of the two highest
ratings given by a recognized rating agency. The discount rate determined on this basis increased from 5.00% at December 31, 2023 to 5.57% at December 31,
2024 for the Company's Pension Plan.
Expected benefit payments under the Pension Plan over the next ten years at December 31, 2024 are as follows:
(in thousands)
2025
$
327
2026
324
2027
319
2028
314
2029
313
Year 2030 - 2034
1,661
Supplemental Executive Retirement Plans
The Bank also maintains a non-qualified supplemental executive retirement plan (the “SERP”) covering certain members of the Company’s senior management.
The SERP was amended during 2003 to provide a benefit based on a percentage of final average earnings, as opposed to the fixed benefit that was provided for in
the superseded plan.
On April 8, 2010, the Compensation Committee of the Board of Directors of the Company approved the adoption of the Evans Bank, N.A. Supplemental Executive
Retirement Plan for Senior Executives (“the Senior Executive SERP”). The “old” SERP plan will keep its participants at the time of the creation of the Senior
Executive SERP, but any future executives identified by the Board of Directors as eligible for SERP benefits will participate in the Senior Executive SERP. A
participant is generally entitled to receive a benefit under the Senior Executive SERP upon a termination of employment, other than for “cause”, after the participant
has completed 10 full calendar years of service with the Bank. No benefit is payable under the Senior Executive SERP if the participant’s employment is terminated
for “cause” or if the participant voluntarily terminates before completing 10 full calendar years of service with the Bank. In addition, the payment of benefits under
the Senior Executive SERP is conditioned upon certain agreements of the participant related to confidentiality, cooperation, non-competition, and non-solicitation.
A participant will be entitled to a retirement benefit under the Senior Executive SERP if his or her employment with the Bank terminates other than for “cause”.
The “accrued benefit” is based on a percentage of the participant’s final average earnings, which is determined based upon the participant’s total annual
compensation over the highest consecutive five calendar years of the participant’s employment with the Bank, accrued over the participant’s “required benefit
service”. The percentages and years of service requirements are set forth in each participant’s Participation Agreement, and range from 25% to 35% and from 15 to
20 years.
The obligations related to the two SERP plans are indirectly funded by various life insurance contracts naming the Bank as beneficiary. The Bank has also
indirectly funded the SERPs, as well as other benefits provided to other employees, through bank-owned life insurance. 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.
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Selected financial information for the two SERP plans is as follows:
2024
2023
Change in benefit obligation:
(in thousands)
Benefit obligation at the beginning of the year
$
4,969
$
5,048
Service cost
136
144
Interest cost
236
250
Actuarial gain
167
(188)
Benefits paid
(285)
(285)
Benefit obligation at the end of the year
5,223
4,969
Change in plan assets:
Fair value of plan assets at the beginning of year
-
-
Actual return on plan assets
-
-
Employer contributions
285
285
Benefits paid
(285)
(285)
Fair value of plan assets at the end of year
-
-
Funded status
$
(5,223)
$
(4,969)
Amount recognized in the Consolidated Balance Sheets consist of:
Accrued benefit liabilities
$
(5,223)
$
(4,969)
Amount recognized in the Accumulated Other Comprehensive Loss consists of:
Net actuarial loss
$
355
$
188
Prior service cost
-
-
Net amount recognized in equity - pre-tax
$
355
$
188
Accumulated benefit obligation at year end
$
5,152
$
4,842
Assumptions used by the Bank in the determination of SERP information consisted of the following:
2024
2023
2022
Discount rate for projected benefit obligation
5.33 %
4.89 %
5.10 %
Discount rate for net periodic pension cost
4.89 %
5.10 %
2.23 %
Salary scale
3.00 %
3.00 %
3.00 %
The discount rate utilized by the Company for determining future pension obligations is based on a review of long-term bonds that receive one of the two highest
ratings given by a recognized rating agency. The discount rate determined on this basis increased from 4.89% at December 31, 2023 to 5.33% at December 31,
2024 (i.e. the measurement date) for the SERP.
The components of net periodic benefit cost consisted of the following:
2024
2023
2022
(in thousands)
Service cost
$
136
$
144
$
131
Interest cost
236
250
124
Net amortization and deferral
-
-
209
Net periodic benefit cost
$
372
$
394
$
464
Expected benefit payments under the SERP over the next ten years at December 31, 2024 are as follows:
(in thousands)
2025
$
3,007
2026
285
2027
285
2028
285
2029
285
Year 2030 - 2034
1,226
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Other Compensation Plans
The Company has a non-qualified deferred compensation plan whereby directors and certain officers may defer a portion of their base pre-tax compensation.
Additionally, the Company has a non-qualified executive incentive retirement plan, whereby the Company defers on behalf of certain officers a portion of their base
compensation until retirement or termination of service, subject to certain vesting arrangements. Aggregate expense under these plans was approximately $0.1
million in 2024 and 2023, and $0.2 million in 2022. The benefit obligation, included in other liabilities in the Company’s consolidated balance sheets, was $1.8
million at December 31, 2024 and December 31, 2023.
These benefit plans are indirectly funded by bank-owned life insurance contracts with a total aggregate cash surrender value of approximately $43.8 million and
$42.8 million at December 31, 2024 and 2023, respectively. Increases in cash surrender value are included in other non-interest income on the Company’s
Consolidated Statements of Income. Endorsement split-dollar life insurance benefits have also been provided to directors and certain officers of the Bank and its
subsidiaries during employment.
The Company acquired a deferred compensation plan from Fairport Savings Bank during 2020 which requires the Company to make scheduled payments to the
participants. At December 31, 2024, this plan consisted of one participant that receives $5 thousand in monthly payments through June 2033. The benefit
obligation, included in other liabilities in the Company’s consolidated balance sheets, was $0.5 million at December 31, 2024.
The Company also has a defined contribution retirement and thrift 401(k) Plan (the “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 a portion of their annual salary, up to the IRS statutory limit. The 401(k)
plan includes a Qualified Automatic Contribution Arrangement (“QACA”). This arrangement features automatic deferred contributions with annual escalation, a
QACA matching contribution, and an additional matching contribution. Employees vest in employer contributions over six years. The Company’s expense under
the 401(k) Plan was approximately $1.0 million in 2024 and $1.4 million in each of 2023 and 2022.
13.
STOCK-BASED COMPENSATION
At December 31, 2024, the Company had two stock-based compensation plans, which are described below. The compensation cost charged against income for
those plans was $1.0 million in 2024, and $0.9 million in 2023 and 2022, and is included in “Salaries and Employee Benefits” in the Company’s Consolidated
Statements of Income. All stock option and restricted stock expense is recorded on a straight-line basis over the requisite service period. In addition, expenses for
director stock-based compensation were recognized to reflect $0.3 million in each of 2024, 2023 and 2022, as part of “Other” expense in the Company’s
Consolidated Statements of Income.
2019 Long-Term Equity Incentive Plan
Under the Company’s 2019 Long-Term Equity Incentive Plan (the “2019 Plan”) and, prior to the adoption of the 2019 Plan by shareholders in April 2019, under the
Company’s 2009 Long-Term Incentive Plan (the “2009 Plan” and together with the 2019 Plan, the “Equity Plans”), the Company has granted options or restricted
stock to officers, directors and key employees of the Company and its subsidiaries. Under the Equity Plans, the Company was authorized to issue up to 603,883
shares of common stock. Under the Equity Plans, the exercise price of each option is not to be less than 100% of the market price of the Company’s stock on the
date of grant and an option’s maximum term is ten years. If available, the Company normally issues shares out of its treasury for any options exercised or restricted
shares issued. The options have vesting schedules from 12 months through 5 years. At December 31, 2024, there were a total of 157,236 shares available for grant
under the 2019 Plan. The Company may no longer make grants under the 2009 Plan.
There were no options granted as part of the 2024, 2023 and 2022 compensation plan.
Stock options activity for 2024 was as follows:
Options
Weighted Average Exercise
Price
Weighted Average Remaining
Contractual Term (years)
Aggregate Intrinsic Value
(in thousands)
Balance, December 31, 2023
155,360
$
32.25
Granted
-
-
Exercised
(72,147)
28.88
Expired
(6,710)
30.67
Forfeited
-
-
Balance, December 31, 2024
76,503
$
35.41
3.60
$
680
Exercisable, December 31, 2024
67,112
$
36.07
3.24
$
561
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Future compensation cost expected to be expensed over the weighted average remaining contractual term for remaining outstanding options is less than $0.1
million. The unrecognized compensation cost is scheduled to be recognized as follows:
(in thousands)
2025
$
26
Restricted stock award, unit, and performance unit activity for 2024 was as follows:
Shares
Weighted Average Grant Date Fair Value
Balance, December 31, 2023
57,258
$
35.85
Granted
54,544
28.97
Vested
(30,386)
34.24
Forfeited
(2,172)
32.55
Balance, December 31, 2024
79,244
$
31.83
As of December 31, 2024, there was $1.3 million in unrecognized compensation cost related to restricted share-based compensation arrangements granted under the
Equity Plans. The unrecognized compensation cost is scheduled to be recognized as follows:
(in thousands)
2025
$
589
2026
422
2027
221
2028
37
During fiscal years 2024, 2023, and 2022, the following activity occurred under the Company’s plans:
2024
2023
2022
(in thousands)
Total intrinsic value of stock options exercised
$
922
$
378
$
621
Total fair value of restricted stock awards vested
$
1,092
$
825
$
828
Employee Stock Purchase Plan
Prior to the expiration of the Employee Stock Purchase Plan (the “Purchase Plan”) on December 31, 2023, there were 34,175 shares of common stock available to
issue to full-time employees of the Company and its subsidiaries. Under the terms of the Purchase Plan, employees could choose each year to have up to 15% of
their annual base earnings withheld to purchase the Company’s common stock. Employees could purchase stock only on June 30 and December 31 each year
during the term of the Purchase Plan for 85% of the price on the purchase date. Under the Purchase Plan, the Company issued 13,906 and 12,731 shares to
employees in 2023 and 2022, respectively. Compensation cost is calculated by the value of the 15% discount only. The compensation cost that was charged against
income for the Purchase Plan was less than $0.1 million in 2023 and 2022.
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14.
INCOME TAXES
The components of the provision for income taxes were as follows:
2024
2023
2022
(in thousands)
Current federal tax expense
$
2,773
$
8,462
$
5,472
Current state tax expense
507
2,644
1,440
Total current tax expense
3,280
11,106
6,912
Deferred federal tax (benefit) expense
$
(814)
$
(702)
$
153
Deferred state tax (benefit) expense
(152)
(198)
98
Total deferred tax (benefit) expense
(966)
(900)
251
Total income tax provision
$
2,314
$
10,206
$
7,163
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:
2024
2023
2022
Amount
Percent
Amount
Percent
Amount
Percent
(in thousands)
Tax provision at statutory rate
$
2,996
21 %
$
7,293
21 %
$
6,206
21 %
Change in taxes resulting from:
Tax-exempt income
(272)
(2)
(257)
(1)
(224)
(1)
Historic tax credit
(76)
(1)
-
-
-
-
State taxes, net of federal benefit
280
2
1,933
5
1,215
4
Gain on disposition of TEA
-
-
1,177
3
-
-
Other items, net
(614)
(4)
60
1
(34)
-
Income tax provision
$
2,314
16 %
$
10,206
29 %
$
7,163
24 %
Other items typically include provision to return adjustments.
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At December 31, 2024 and 2023 the components of the net deferred tax asset were as follows:
2024
2023
(in thousands)
Deferred tax assets:
Pension and SERP plans
$
1,378
$
1,383
Allowance for credit losses
6,198
5,700
Deferred compensation
491
494
Stock options granted
300
262
State tax credit carryforward
185
185
Lease liabilities
1,051
1,056
State net operating loss
349
363
Net unrealized losses on securities
14,785
14,304
Fair value adjustments of business combinations
254
366
Other
411
186
Gross deferred tax assets
$
25,402
$
24,299
Deferred tax liabilities:
Depreciation and amortization
$
52
$
270
Right of use assets
989
982
Prepaid expenses
264
337
Gain on investment in tax credit
-
156
Deferred loan fees and costs
-
155
Mortgage servicing asset
307
276
Other
283
40
Gross deferred tax liabilities
$
1,895
$
2,216
Net deferred tax asset
$
23,507
$
22,083
The net deferred tax asset at December 31, 2024, 2023 and 2022 is included in “other assets” in the Company’s consolidated balance sheets.
In assessing the ability of the Company to realize the benefit of the deferred tax assets, management considers whether it is more-likely-than-not that some portion
or all of the deferred tax assets will not be realized, including assessing all positive and negative evidence and the weight of such evidence. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, availability of operating loss carrybacks, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical taxable income, the opportunity for net operating loss carrybacks, and projections for future
taxable income over the periods which deferred tax assets are deductible, management believes it is more likely than not that the Company will generate sufficient
taxable income to realize the benefits of these deductible differences at December 31, 2024.
The state tax credit carryforward has an indefinite life with no expiration date in which to utilize the credit.
The Company did not have any unrecognized tax benefits for the years ended December 31, 2024, 2023, and 2022.
Accrued penalties and interest were immaterial at December 31, 2024, 2023 and 2022.
The Company is subject to routine audits of its tax returns by the Internal Revenue Service (“IRS”) and various state taxing authorities. The tax years 2021-2023
remain subject to examination by the IRS.
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15. REVENUE RECOGNITION OF NON-INTEREST INCOME
Insurance Service and Fees earned in 2024: Insurance services revenue relates to services provided by the Bank.
Insurance Service and Fees earned in 2023 and 2022: Insurance services revenue relates to various revenue streams from services provided by TEA and the Bank.
As a result of the sale of TEA on November 30, 2023, insurance service and fees revenue reflects eleven months of TEA activity as well as the full year of the
Banks’ wealth management activity. See Note 2 to the Company’s Consolidated Financial Statements included under Item 8 of this Annual Report on Form 10-K
for more information on the sale of TEA.
A description of the Company’s material revenue streams in non-interest income accounted for under ASC 606 follows:
Financial services commission revenue from the Bank related to wealth management such as life insurance, annuities, and mutual funds sales is
included in the “insurance service and fees” line of the income statement.
The Company earns wealth management fees from its contracts with customers for certain financial services. Fees that are transaction-based are
recognized at the point in time that the transaction is executed. Other related services provided include financial planning services and the fees the Bank
earns are recognized when the services are rendered.
TEA earned commission revenue from selling commercial and personal property and casualty (“P&C”) insurance as well as employee benefits (“EB”)
solutions to commercial customers.
TEA had agreements with various insurance companies to sell policies to customers on behalf of the carriers. The performance obligation for TEA is to sell
annual P&C policies to commercial customers and consumers. This performance obligation is met when a new policy is sold or when an existing policy
renews. The policies are generally one year terms. In the agreements with the respective insurance companies, a commission rate is agreed upon. The
commission is recognized at the time of the sale of the policy or when a policy renews.
TEA has signed contracts with insurance carriers that enable TEA to sell benefit plans to commercial customers on behalf of the insurance carriers. The
performance obligation for TEA is to sell the plans to commercial customers. After the initial sale when the customer signs an agreement to purchase the
offered benefit plan, the performance obligation is met each month when a customer continues utilizing benefit plans from the carrier. The customer does
not commit to a specific length of time with the carrier. In the agreements with the respective insurance companies, a commission rate is agreed upon.
Revenue is recognized each month when the customer continues with the benefit plan sold by TEA.
TEA also earned contingent profit sharing revenue. The insurance companies measure the loss ratio for TEA’s customers and pay TEA according to how
profitable TEA customers are.
TEA has signed written agreements with insurance carriers that document payouts to TEA based on the loss ratios of its customers. The performance
obligation for TEA is to maintain a customer base with loss ratios below the agreed upon thresholds. In the contracts with the insurance companies, payout
rates based on loss ratios are documented. The consideration is variable as loss ratios vary based on customer experience. TEA’s performance obligation is
over the course of the year as its customers’ performance with insurance carriers is measured throughout the year as losses occur. Due to the variable nature
of contingent profit sharing revenue, TEA accrued contingent profit sharing revenue throughout the year based on recent historical results. As loss events
occur and overall performance becomes known to TEA, accrual adjustments were made until the cash was ultimately received.
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A disaggregation of the total insurance service and other fees at December 31, 2024, 2023, and 2022:
2024
2023
2022
(in thousands)
Commercial property and casualty insurance commissions
$
-
$
4,232
$
4,308
Personal property and casualty insurance commissions
-
3,328
3,363
Employee benefits sales commissions
-
763
851
Profit sharing and contingent revenue
-
1,198
1,164
Wealth management and other financial services
655
600
632
Insurance claims services revenue
-
-
-
Other insurance-related revenue
-
140
135
Total insurance service and other fees
$
655
$
10,261
$
10,453
Service charges on deposit accounts
The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft. Transaction-based fees, which include services such
as ATM use fees, stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the
Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month,
representing the period over which the Company satisfies the performance obligation. Similarly, overdraft fees are recognized at the point in time that the overdraft
occurs as this corresponds with the Company's performance obligation. Service charges on deposit accounts are withdrawn from the customer's account balance.
Interchange fee income
The Company earns interchange fees from cardholder transactions conducted through the Mastercard payment network. Interchange fees from cardholder
transactions represent a percentage of the underlying transaction value and are recognized concurrent with the transaction processing services provided to the
cardholder. Interchange income is presented on the Consolidated Statements of Income net of expenses.
16.
RELATED PARTY TRANSACTIONS
The Bank has entered into loan transactions with certain directors, executive officers, significant shareholders and their affiliates (related parties) in the ordinary
course of its business. The aggregate outstanding principal balance of loans to such related parties on December 31, 2024 and 2023 was $0.2 million and $0.3
million, respectively. During 2024, there were $0.1 million of advances and new loans to such related parties, and repayments amounted to $0.2 million. Deposits
from related parties were $1.2 million and $1.3 million as of December 31, 2024 and 2023, respectively.
17.
CONTINGENT LIABILITIES AND COMMITMENTS
The Company’s 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. The Company’s commitments to extend credit are mostly variable rate loans. Commitments to extend credit are generally made for periods
of 180 days or less. A summary of the Bank’s commitments and contingent liabilities at December 31, 2024 and 2023 is as follows:
December 31,
December 31,
2024
2023
(in thousands)
Commitments to extend credit
$
435,370
$
431,085
Standby letters of credit
2,652
3,883
Total
$
438,022
$
434,968
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Commitments to extend credit and standby letters of credit all include exposure to some credit loss in the event of non-performance 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.
The Company has entered into contracts with third parties, some of which include indemnification clauses. Examples of such contracts include contracts with third-
party service providers, brokers and dealers, correspondent banks, and purchasers of residential mortgages. Additionally, the Company has bylaws, policies, and
agreements under which it agrees to indemnify its officers and directors from liability for certain events or occurrences while the directors or officers are, or were,
serving at the Company’s request in such capacities. The Company indemnifies its officers and directors to the fullest extent allowed by law. The maximum
potential amount of future payments that the Company could be required to make under these indemnification provisions is unlimited, but would be affected by all
relevant defenses to such claims, as well as directors’ and officers’ liability insurance maintained by the Company. Due to the nature of these indemnification
provisions, it is not possible to quantify the aggregate exposure to the Company resulting from them.
Certain lending commitments for construction residential mortgage loans are considered derivative instruments under the guidelines of GAAP. The changes in the
fair value of these commitments, due to interest rate risk, are not recorded on the consolidated balance sheets as the fair value of these derivatives is not considered
to be material.
The Company leases certain offices, land and equipment under long-term operating leases. The aggregate minimum annual rental commitments under these leases
total approximately $1.0 million in 2025, $0.9 million in 2026, $0.7 million in 2027, $0.5 million in 2028, $0.4 million in 2029 and $0.9 million thereafter. The
rental expense under operating leases contained in the Company’s Consolidated Statements of Income was $1.1 million in each of the years ended December 31,
2024, 2023, and 2022.
18.
CONCENTRATIONS OF CREDIT
All of the Bank’s loans, commitments, and standby letters of credit have been granted to customers in the Bank’s primary market areas of the Western New York
and the Finger Lakes Region of New York State. Investments in state and municipal securities also involve governmental entities within the Bank’s primary market
area. The concentrations of credit by type of loan are set forth in Note 4 to these Consolidated Financial Statements, "Loans and the Allowance for Credit Losses."
The distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit were granted 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.
19.
SEGMENT INFORMATION
The Company conducts operations through a single business segment throughout Western New York and Finger Lakes Region, which derives interest and fee
income. The Bank earns interest income on loans as well as fee income from the origination of loans and from fees charged on deposit accounts. Lending activities
include loans to individuals, which primarily consist of home equity lines of credit, residential real estate loans, and consumer loans, and loans to commercial
clients, which include commercial loans and commercial real estate loans. Residential real estate loans are either kept in our loan portfolio or sold to FNMA,
FHLMC or FHLB, with gains or losses from the sales being recognized. In addition, the Bank offers non-deposit investment products, such as annuities and mutual
funds. All sources of segment specific revenues and expenses contributed to management’s definition of net income.
Pursuant to FASB Accounting Standards Codification (“ASC”) 280, Segment Reporting, operating segments represent components of an enterprise for which
separate financial information is available that is regularly evaluated by the chief operating decision maker in determining how to allocate resources and in
assessing performance.
For the first eleven months of 2023 the Company was comprised of two primary business segments: banking activities and insurance agency activities. On
November 30, 2023 the Company sold significantly all of the assets of the insurance agency to Gallagher, and ceased insurance related activities for the Company.
As a result of the sale, insurance revenue and expenses reported within this Annual Report on Form 10-K reflect the first eleven months of 2023. See Note 2 to the
Company’s Consolidated Financial Statements included under Item 8 of this Annual Report on Form 10-K for more information on the sale of TEA.
While the operating segments were separately managed, the chief operating decision maker, our President and Chief Executive Officer, used and continues to use
consolidated net income to assess performance by comparing to and monitoring against budget and prior year results. This information is used to manage resources
to drive business and net earnings growth, including investment in key strategic priorities, as well as determine the Company's ability to return capital to
shareholders.
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Prior to the sale, insurance agency activities included the selling of various premium-based insurance policies on a commission basis, including business and
personal insurance, employee benefits, surety bonds, risk management, life, disability and long-term care coverage, as well as providing claims adjusting services to
various insurance companies.
Revenues from transactions between the two segments during 2023 and 2022 were not significant.
The Evans Agency was sold in 2023. As a result, the following table presents financial information solely for the banking segment for the year ended December 31,
2024. Segment information for the years ended December 31, 2023 and 2022 have been recast to conform to the presentation required by ASU 2023-07.
The following table set forth information regarding banking activities for the years ended December 31, 2024, 2023, and 2022.
Banking Activities
(in thousands)
2024
2023
2022
Net interest income
$
58,968 $
61,208
$
72,955
Provision for credit losses
2,236
18
2,739
Net interest income after
provision for credit losses
56,732
61,190
70,216
Loss on sale of securities
-
(5,044)
-
Other non-interest income
10,958
8,095
9,434
Amortization expense
17
17
19
Other non-interest expense
53,405
52,644
52,119
Income before income taxes
14,268
11,580
27,512
Income tax provision
2,314
2,799
6,636
Net income
$
11,954 $
8,781
$
20,876
December 31,
December 31,
2024
2023
(in thousands)
Identifiable Assets, Net
Banking activities
$
2,187,465
$
2,106,632
Insurance agency activities
-
2,031
Consolidated Total Assets
$
2,187,465
$
2,108,663
20.
FAIR VALUE OF ASSETS AND LIABILITIES
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.
There are three levels of inputs to fair value measurements:
Level 1 inputs are quoted prices for identical instruments in active markets;
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs.
Observable market data should be used when available.
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
The following table presents for each of the fair-value hierarchy levels as defined in this footnote, those assets and liabilities which are measured at fair value on a
recurring basis at December 31, 2024 and 2023:
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(in thousands)
Level 1
Level 2
Level 3
Fair Value
December 31, 2024
Securities available-for-sale:
US treasuries and government agencies
$
- $
91,355 $
- $
91,355
States and political subdivisions
-
5,299
-
5,299
Mortgage-backed securities
-
162,023
-
162,023
Mortgage servicing rights
-
-
1,190
1,190
December 31, 2023
Securities available-for-sale:
US treasuries and government agencies
$
- $
96,240 $
- $
96,240
States and political subdivisions
-
6,029
-
6,029
Mortgage-backed securities
-
173,411
-
173,411
Mortgage servicing rights
-
-
1,061
1,061
Securities available for sale
Fair values for available for sale securities are determined using independent pricing services and market-participating brokers. The Company utilizes a third-party
for these pricing services. The third-party utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market
information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the
third-party service provider’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector
groupings, and matrix pricing, to prepare evaluations. In addition, our third-party pricing service provider uses model processes, such as the Option Adjusted
Spread model, to assess interest rate impact and develop prepayment scenarios. The models and the process take into account market convention. For each asset
class, a team of evaluators gathers information from market sources and integrates relevant credit information, perceived market movements and sector news into
the evaluated pricing applications and models. The third-party, at times, may determine that it does not have sufficient verifiable information to value a particular
security.
On a quarterly basis the Company reviews changes, as submitted by our third-party pricing service provider, in the market value of its securities portfolio.
Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities.
Additionally, on a quarterly basis the Company has its entire securities portfolio priced by a second pricing service to determine consistency with another market
evaluator. If, on the Company’s review or in comparing with another servicer, a material difference between pricing evaluations were to exist, the Company may
submit an inquiry to our third-party pricing service provider regarding the data used to value a particular security. If the Company determines it has market
information that would support a different valuation than our third-party service provider’s evaluation it can submit a challenge for a change to that security’s
valuation. There were no material differences in valuations noted in 2024 or 2023.
Securities available for sale are classified as Level 2 in the fair value hierarchy as the valuation provided by the third-party provider uses observable market data.
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A NONRECURRING BASIS
The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets or provide valuation allowances related to certain assets using fair
value measurements.
The following table presents for each of the fair-value hierarchy levels as defined in this footnote, those assets and liabilities which are measured at fair value on a
nonrecurring basis at December 31, 2024 and 2023:
(in thousands)
Level 1
Level 2
Level 3
Fair Value
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December 31, 2024
Collateral dependent individually analyzed loans
$
-
$
-
$
4,680
$
4,680
December 31, 2023
Collateral dependent individually analyzed loans
$
-
$
-
$
7,147
$
7,147
The following table presents qualitative information about Level 3 fair value measurements for financial instruments which are measured at fair value on a
nonrecurring basis at December 31, 2024 and December 31, 2023:
December 31, 2024
(In thousands)
Fair Value
Valuation Technique
Unobservable Input(s)
Range
(Weighted Average)
Individually evaluated collateral dependent loans:
Commercial Real Estate
$
4,032
Income approach
Capitalization rate
8.00%
8.00%
Commercial and industrial
$
502
Cost approach
Book value
50.00%
50.00%
Residential Real Estate
$
146
Sales comparison
approach
Adjustment to comparables
(14%) - 1%
-8.70%
December 31, 2023
(In thousands)
Fair Value
Valuation Technique
Unobservable Input
Range
(Weighted Average)
Individually evaluated collateral dependent loans:
Commercial Real Estate
$
7,110
Sales comparison
approach
Adjustment to comparables
(0.6%) - 16%
8.82%
Income approach
Capitalization rate
8.50%
8.50%
Commercial and industrial
$
37
Sales comparison
approach
Adjustment to comparables
N/A
N/A
Individually evaluated collateral dependent loans
When a loan is individually evaluated, it is valued at the lower of cost or fair value. Collateral dependent loans which are individually evaluated and carried at fair
value have been partially charged off or receive provisions in the allowance for credit losses. For collateral
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dependent loans, fair value is generally based on appraisal values performed by licensed appraisers, except for certain circumstances in which book value is used.
Appraisals have multiple valuation methodologies to arrive at the fair value, these methodologies include the sales comparison approach, cost approach, and the
income capitalization approach. The methodology chosen is reliant on the data available, and adjustments are made by independent appraisers to reflect differences
between the asset valued and the comparable data used. These adjustments result in Level 3 classification for determining fair value. Collateral may be adjusted or
discounted based on management's historical knowledge, changes in market conditions, management's expertise, and knowledge of the customer and related
business. Individually analyzed loans are evaluated on a quarterly basis for additional impairment, and valuations for collateral dependent loans are updated by a
new independent appraisal or a validation of the existing appraisal by an internal licensed appraiser, in accordance with Company policy. Appraisals are obtained
upon a commercial loan being downgraded on the Company’s internal loan rating scale to a special mention or a substandard depending on the amount of the loan,
the type of loan and the type of collateral. All individually analyzed commercial loans are graded substandard or worse on the internal loan rating scale. For
consumer loans, the Company obtains appraisals when a loan becomes 90 days past due or is determined to be individually analyzed, whichever occurs
first. Subsequent to the downgrade or reaching 90 days past due, if the loan remains outstanding and individually analyzed for at least one year or more,
management may require another follow-up appraisal. Between receipts of updated appraisals, if necessary, management may perform an internal valuation based
on any known changing conditions in the marketplace such as sales of similar properties, a change in the condition of the collateral, or feedback from local
appraisers.
Three types of valuation techniques generally used: 1. Income approach valuations typically use the net operating income of the business divided by the
capitalization rate as determined by the appraiser. Management applies a 10% discount to income approach values which management expects will cover
disposition costs, including selling costs. 2. Sales comparison approach valuations typically use the values of similar sales of listings in the market area, adjusted for
differences in the assets sold as determined by the appraiser. Management applies a 10% discount to income approach values which management expects will cover
disposition costs, including selling costs. 3. Cost comparison approach valuations are based on either the existing book value in which appraisals are not obtained,
or the cost necessary to replace or reproduce the asset based on current prices. Management applies a discount dependent on the underlying asset, according to
policy which ranges from 10%-50%.
Collateral dependent individually evaluated loans had a gross value of $6.1 million, with an allowance for credit loss of $1.1 million, at December 31, 2024
compared with $7.9 million and $0.8 million, respectively, at December 31, 2023.
At December 31, 2024 and 2023, the estimated fair values of the Company’s financial instruments, including those that are not measured and reported at fair value
on a recurring basis or nonrecurring basis, were as follows:
December 31, 2024
December 31, 2023
Carrying
Fair
Carrying
Fair
Amount
Value
Amount
Value
(in thousands)
(in thousands)
Financial assets:
Level 1:
Cash and cash equivalents
$
42,716
$
42,716
$
23,467
$
23,467
Level 2:
Available for sale securities
258,677
258,677
275,680
275,680
FHLB and FRB stock
9,891
N/A
8,011
N/A
Level 3:
Held to maturity securities
4,347
4,241
2,059
1,988
Loans, net
1,759,488
1,674,236
1,698,832
1,606,666
Financial liabilities:
Level 1:
Demand deposits
$
373,240
$
373,240
$
390,238
$
390,238
NOW deposits
399,046
399,046
345,279
345,279
Savings deposits
699,635
699,635
649,621
649,621
Level 2:
Securities sold under agreement to
repurchase
6,586
6,586
9,475
9,475
Other borrowed funds
80,000
80,242
145,123
145,055
Subordinated debt
31,279
30,487
31,177
29,563
Level 3:
Time deposits
394,556
393,789
333,623
331,675
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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.
FHLB and FRB stock
The carrying value of FHLB and FRB stock, which are non-marketable equity investments, approximates fair value.
Loans
Fair value for pooled loans is estimated using discounted cash flow analyses.
Deposits
The fair value of demand deposits, NOW accounts, muni-vest 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.
Borrowed Funds and Securities Sold Under Agreement to Repurchase
The fair value of securities sold under agreement to repurchase approximates its carrying value. The fair value of other borrowed funds was estimated using a
discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.
Subordinated Debt
Subordinated debt consists of subordinated notes and trust preferred capital securities. There is no active market for the Company’s trust preferred capital securities
and there have been no issuances of similar instruments in recent years. The Company looked at a market bond index to estimate a discount margin to value the
debentures. The discount margin was very similar to the spread to LIBOR established at the issuance of the debentures. As a result, the Company determined that
the fair value of the adjustable-rate debentures approximates their face amount. The Company utilizes active markets with similar assets to determine the fair value
of the subordinated notes.
Pension Plan Assets
Refer to Note 12 to these Consolidated Financial Statements, “Employee Benefits and Deferred Compensation Plans” for the fair value analysis of the Pension Plan
assets.
21.
REGULATORY MATTERS
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table that
follows) of Common Equity Tier I, Total Capital, and Tier I Capital (as defined in FRB regulations) to risk-weighted assets (as defined in FRB regulations), and of
Tier I capital (as defined in FRB regulations) to average assets (as defined in FRB regulations). Management believes that as of December 31, 2024 and 2023 the
Bank met all capital adequacy requirements to which they are subject.
The most recent notification from their 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 Common Equity Tier I, 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 rating.
The Bank’s actual capital amounts and ratios were as follows:
December 31, 2024
(in thousands)
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Bank
Minimum for Capital Adequacy
Purposes
Minimum to be Well Capitalized Under
Prompt Corrective Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
Common Equity Tier I
(to Risk Weighted Assets)
$
252,841
14.57%
$
78,071
4.5 %
$
112,770
6.5 %
Total Capital
(to Risk Weighted Assets)
$
274,558
15.83%
$
138,793
8.0 %
$
173,492
10.0 %
Tier I Capital
(to Risk Weighted Assets)
$
252,841
14.57%
$
104,095
6.0 %
$
138,793
8.0 %
Tier I Capital
(to Average Assets)
$
252,841
11.09%
$
91,185
4.0 %
$
113,981
5.0 %
December 31, 2023
(in thousands)
Bank
Minimum for Capital Adequacy
Purposes
Minimum to be Well Capitalized
Under Prompt Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
Common Equity Tier I
(to Risk Weighted Assets)
$
239,167
14.33%
$
75,080
4.5 %
$
108,449
6.5%
Total Capital
(to Risk Weighted Assets)
$
260,038
15.59%
$
133,476
8.0 %
$
166,845
10.0%
Tier I Capital
(to Risk Weighted Assets)
$
239,167
14.33%
$
100,107
6.0 %
$
133,476
8.0%
Tier I Capital
(to Average Assets)
$
239,167
10.84%
$
88,258
4.0 %
$
110,322
5.0 %
Dividends are paid as declared by the Board of Directors. Under New York law, the Company may pay dividends only if it is solvent and would not be rendered
insolvent by the dividend payment and only from unrestricted and unreserved earned surplus, or if there is no surplus, out of its net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
The Company and the Bank are subject to dividend restrictions imposed by the FRB and the OCC, respectively. In general, it is the policy of the FRB that
dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company is consistent with the
organization’s capital needs, asset quality and overall financial condition. Dividends may be paid by the Bank only if it would not impair the Bank’s capital
structure, if the Bank’s surplus is at least equal to its common capital and if the dividends declared in any year do not exceed the total of retained net profits in that
year combined with retained profits of the preceding two years.
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22.
PARENT COMPANY ONLY FINANCIAL INFORMATION
Parent company (Evans Bancorp, Inc.) only condensed financial information is as follows:
CONDENSED BALANCE SHEETS
December 31,
2024
2023
(in thousands)
ASSETS
Cash
$
4,587
$
15,822
Other assets
577
526
Investment in subsidiaries
210,726
200,126
Total assets
$
215,890
$
216,474
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Subordinated debt
$
31,279
$
31,177
Other liabilities
1,468
7,078
Total liabilities
32,747
38,255
STOCKHOLDERS’ EQUITY
Total Stockholders’ Equity
$
183,143
$
178,219
Total liabilities and stockholders’ equity
$
215,890
$
216,474
CONDENSED STATEMENTS OF INCOME
December 31,
2024
2023
2022
(in thousands)
Dividends from subsidiaries
$
3,000
$
42,746
$
11,500
Income
-
-
-
Expenses
(3,688)
(8,776)
(2,497)
Income before equity in undistributed
earnings of subsidiaries
(688)
33,970
9,003
Equity in undistributed earnings of subsidiaries
12,642
(9,446)
13,386
Net income
$
11,954
$
24,524
$
22,389
Comprehensive income (loss)
$
10,282
$
31,531
$
(21,218)
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended
2024
2023
2022
(in thousands)
Operating Activities:
Net income
$
11,954
$
24,524
$
22,389
Adjustments to reconcile net income to
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net cash provided by operating activities:
Undistributed earnings of subsidiaries
(12,642)
9,446
(13,386)
Changes in assets and liabilities affecting cash flow:
Other assets
(51)
(8)
(56)
Other liabilities
(5,610)
6,032
(147)
Other
364
115
352
Net cash provided (used) by operating activities
(5,985)
40,109
9,152
Investing Activities:
Investment in subsidiaries
1,391
(19,000)
-
Net cash provided by (used in) investing activities
1,391
(19,000)
-
Financing Activities:
Proceeds from issuance of common stock
385
743
1,051
Cash dividends paid
(7,288)
(7,223)
(6,942)
Repurchase of treasury stock
(204)
-
(4,140)
Reissuance of treasury stock
466
64
144
-
-
Net cash (used in) provided by financing activities
(6,641)
(6,416)
(9,887)
Net increase (decrease) in cash
(11,235)
14,693
(735)
Cash beginning of year
15,822
1,129
1,864
Cash ending of year
$
4,587
$
15,822
$
1,129
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Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
Item 9A.
CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. An evaluation was performed under the supervision and with the participation of the Company's management, including
the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures
(as defined in Rule l3a-l5(e) promulgated under the Securities Exchange Act of 1934, as amended) as of December 31, 2024. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures as of December 31,
2024 were effective.
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believes that the audited consolidated financial statements
contained in this Annual Report on Form 10-K fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows
for the fiscal years presented in conformity with GAAP.
(b) Management's Annual Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange Act Rule 13a- 15(f). The Company's internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance
with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies and procedures may
deteriorate.
Our management under the direction of the audit committee conducted an assessment of the effectiveness of the system of internal control over financial
reporting as of December 31, 2024 using the criteria set forth in the report of the Treadway Commission’s Committee on Sponsoring Organizations (“COSO”) -
Internal Control - Integrated Framework (2013). Based on that assessment, our management believes that, as of December 31, 2024, the Company’s internal
control over financial reporting was effective based on the COSO criteria.
The attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting is included in Item 8
of this Annual Report on Form 10-K.
(c) Changes in Internal Control Over Financial Reporting. No changes in the Company's internal control over financial reporting were identified in the fiscal
quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
Item 9B.
OTHER INFORMATION
During the three months ended December 31, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written
plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1
trading arrangement,” as that term is used in SEC regulations.
Item 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
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PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be provided within 120 days of December 31, 2024.
Item 11.
EXECUTIVE COMPENSATION
The information required by this item will be provided within 120 days of December 31, 2024.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this item will be provided within 120 days of December 31, 2024.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item will be provided within 120 days of December 31, 2024.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be provided within 120 days of December 31, 2024.
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PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this Report on Form 10-K:
1.
Financial statements: The following audited consolidated financial statements and notes thereto and the material under the caption "Report of Independent
Registered Public Accounting Firm" in Part II, Item 8 of this Annual Report on Form 10-K are incorporated herein by reference:
Report of Independent Registered Public Accounting Firm (Crowe LLP)
Consolidated Balance Sheets - December 31, 2024 and 2023
Consolidated Statements of Income - Years Ended December 31, 2024, 2023 and 2022
Consolidated Statements of Comprehensive Income (Loss) - Years Ended December 31, 2024, 2023 and 2022
Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 2024, 2023 and 2022
Consolidated Statements of Cash Flows - Years Ended December 31, 2024, 2023 and 2022
Notes to Consolidated Financial Statements
2.
All other financial statement schedules are omitted because they are not applicable or the required information is included in the Company’s Consolidated
Financial Statements or Notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.
3.
Exhibits
The following exhibits are filed as a part of this report:
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EXHIBIT INDEX
2.1
Agreement and Plan of Merger, dated September 9, 2024, by and among NBT Bancorp Inc., NBT Bank, National Association, Evans Bancorp, Inc. and
Evans Bank, National Association (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (Registration No. 001-35021)
filed on September 9, 2024).
3.1
Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3a to the Company’s Registration Statement on Form S-4 (Registration
No. 33-25321), as filed on November 7, 1988). (Filed on paper – hyperlink is not required pursuant to Rule 105 of Regulation S-T)
3.1.1
Certificate of Amendment to the Company’s Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Company’s Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1997, as filed on May 14, 1997). (Filed on paper – hyperlink is not required pursuant to Rule 105 of
Regulation S-T)
3.2
Amended and Restated Bylaws of the Company, effective as of January 24, 2023 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report
on Form 8-K filed on January 30, 2023).
4.1
Indenture between the Company, as Issuer, and Wilmington Trust Company, as Trustee, dated as of October 1, 2004 (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004, as filed on November 4, 2004).
4.2
Form of Floating Rate Junior Subordinated Debt Security due 2034 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2004, as filed on November 4, 2004).
4.3
Amended and Restated Declaration of Trust of Evans Capital Trust I, dated as of October 1, 2004 (incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004, as filed on November 4, 2004).
4.4
Guarantee Agreement of the Company, dated as of October 1, 2004 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2004, as filed on November 4, 2004).
4.5
Description of Evans Bancorp, Inc. Securities (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2019, as filed on March 12, 2020).
4.6
Indenture, dated as of July 9, 2020, by and between Evans Bancorp, Inc. and UMB Bank, National Association, as trustee, including form of 6.00% Fixed-
to-Floating Rate Subordinated Note due 2030 of Evans Bancorp, Inc. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-
K, as filed on July 9, 2020).
10.1
Evans Bancorp, Inc. Dividend Reinvestment Plan, (incorporated by reference to the Company's Registration Statement on Form S-3D (Registration No.
333-249269), as filed on October 2, 2020).
10.2* Evans Bancorp, Inc. 2013 Employee Stock Purchase Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on
Schedule 14A, as filed on March 21, 2013).
10.3* Evans Bancorp, Inc. 2009 Long-Term Equity Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on
Schedule 14A, as filed on April 1, 2009).
10.4* Evans National Bank Deferred Compensation Plan for Officers and Directors (incorporated by reference to Exhibit 10.12 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2003, as filed on March 18, 2004).
10.5* Form of Deferred Compensation Participatory Agreement (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2004, as filed on March 28, 2005).
10.6* Evans National Bank Executive Life Insurance Plan (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2003 as filed on March 18, 2004).
10.7* Form of Executive Life Insurance Split-Dollar Endorsement Participatory Agreement (incorporated by reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2004, as filed on March 28, 2005).
10.8* First Amendment to the Evans National Bank Executive Life Insurance Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K, as filed on May 2, 2007).
10.9* Evans National Bank Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2003, as filed on March 18, 2004).
10.10* Form of Supplemental Executive Retirement Participatory Agreement (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2004, as filed on March 28, 2005).
10.11* Summary of Evans Excels Plan (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2017, as filed on March 1, 2018).
10.12* Evans Bank, N.A. Supplemental Executive Retirement Plan for Senior Executives (incorporated by reference to Exhibit 10.18 to the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2013, as filed on March 3, 2014).
10.13* Restricted Stock Award Agreement granted by Evans Bancorp, Inc. to Directors under the Evans Bancorp, Inc. 2009 Long-Term Equity Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010, as filed on August 4,
2010).
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10.14* Stock Option Agreement granted by Evans Bancorp, Inc. to Directors under the Evans Bancorp, Inc. 2009 Long-Term Equity Incentive Plan (incorporated
by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010, as filed on August 4, 2010).
10.15* Restricted Stock Award Agreement granted by Evans Bancorp, Inc. to Employees under the Evans Bancorp, Inc. 2009 Long-Term Equity Incentive Plan
(incorporated by reference to Exhibit10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010, as filed on August 4,
2010).
10.16* Employment Agreement by and among Evans Bank, N.A., the Company and David J. Nasca, executed and delivered by the Company and the Bank on
September 14, 2009 and effective as of September 9, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as
filed on September 17, 2009).
10.17* Stock Option Agreement granted by Evans Bancorp, Inc. to Employees under the Evans Bancorp, Inc. 2009 Long-Term Equity Incentive Plan (incorporated
by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010, as filed on August 4, 2010).
10.18* Letter Agreement Regarding Insurance Coverage for James Tilley (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2007, as filed on August 14, 2007).
10.19* Evans Bancorp, Inc. Executive Severance Plan, as revised on July 26, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K, as filed on July 29, 2016).
10.20* Evans Bancorp, Inc. Change in Control Agreement (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2015, as filed on March 3, 2016).
10.21* Evans Bank, N.A. 2010 Amended and Restated Executive Incentive Retirement Plan on September 24, 2010 and effective October 1, 2010 (incorporated by
reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed on March 3, 2016).
10.22* Evans Bancorp, Inc. Amended and Restated 2019 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, as filed on April 26, 2019).
10.23* 2020 Evans Bank, N.A. Executive Incentive Retirement Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as
filed on December 23, 2019)
10.24* Form of Employee Restricted Stock Award Agreement granted by Evans Bancorp, Inc. under the Evans Bancorp, Inc. Amended and Restated 2019 Long
Term Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form S-8 Registration Statement, filed on May 20, 2019).
10.25* Form of Employee Stock Option Award Agreement granted by Evans Bancorp, Inc. under the Evans Bancorp, Inc. Amended and Restated 2019 Long Term
Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form S-8 Registration Statement, filed on May 20, 2019).
10.26* Form of Director Restricted Stock Award Agreement granted by Evans Bancorp, Inc. under the Evans Bancorp, Inc. Amended and Restated 2019 Long Term
Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Form S-8 Registration Statement, filed on May 20, 2019).
10.27* Form of Director Stock Option Award Agreement granted by Evans Bancorp, Inc. under the Evans Bancorp, Inc. Amended and Restated 2019 Long Term
Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Form S-8 Registration Statement, filed on May 20, 2019).
10.28* Evans Bank Short Term Incentive Compensation Program for Named Executive Officers & Senior Leadership Team Members (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on February 14, 2024)
10.29* Amendment Number One, dated as of September 21, 2020, to the Employment Agreement by and among Evans Bank, N.A., Evans Bancorp, Inc. and David
J. Nasca, executed and delivered by the Company and the Bank on September 14, 2009 and effective as of September 9, 2009 (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on September 25, 2020).
10.30* Form of Amended and Restated Change in Control Agreement, effective as of May 9, 2024, by and between Evans Bancorp, Inc. and certain executives
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on May 9, 2024)
10.31* Amendment to the 2020 Executive Incentive Retirement Plan Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K, as filed on May 9, 2024)
19
Evans Bancorp, Inc. Insider Trading Policy (filed herewith)
21.1
Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2019, as filed on March 12, 2020).
23.1
Independent Registered Public Accounting Firm’s Consent from Crowe LLP (filed herewith).
24
Power of Attorney (included on the signature page of this Annual Report on Form 10-K).
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
32.1
Certification of Principal Executive Officer pursuant to 18 USC Section 1350 Chapter 63 of Title18, United States Code, as adopted pursuant to section 906
of the Sarbanes-Oxley Act of 2002 (filed herewith).
107
Table of Contents
32.2
Certification of Principal Financial Officer pursuant to 18 USC Section 1350 Chapter 63 of Title18, United States Code, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith).
97
Evans Bancorp, Inc. Clawback Policy.
101 The following materials from Evans Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2024, formatted in XBRL (eXtensible
Business Reporting Language): (i) Consolidated Balance Sheets – December 31, 2024 and 2023; (ii) Consolidated Statements of Income – years ended
December 31, 2024, 2023, and 2022; (iii) Consolidated Statements of Comprehensive Income (Loss) – years ended December 31, 2024, 2023, and 2022; (iv)
Consolidated Statements of Stockholder’s Equity – years ended December 31, 2024, 2023, and 2022; (v) Consolidated Statements of Cash Flows – years
ended December 31, 2024, 2023 and 2022; and (vi) Notes to Consolidated Financial Statements.
* Indicates a management contract or compensatory plan or arrangement.
Item 16.
FORM 10-K SUMMARY
Not applicable
108
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized:
EVANS BANCORP, INC.
By:
/s/ David J. Nasca
David J. Nasca
President and Chief Executive Officer
Date: March 6, 2025
109
Table of Contents
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints, jointly and severally, David J. Nasca and John B.
Connerton and each of them, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him, and in his name, place and stead, in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with Exhibits thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or
necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
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 and in the capacities and
on the dates indicated:
Signature
Title
Date
/s/ David J. Nasca
President and Chief Executive Officer/ Director
(Principal Executive Officer)
March 6, 2025
David J. Nasca
/s/ John B. Connerton
Treasurer (Principal Financial Officer and Principal Accounting Officer)
March 6, 2025
John B. Connerton
/s/ Lee C. Wortham
Chairman of the Board / Director
March 6, 2025
Lee C. Wortham
/s/ Michael A. Battle
Director
March 6, 2025
Michael A. Battle
/s/ Dawn DePerrior
Director
March 6, 2025
Dawn DePerrior
/s/ Robert A. James
Director
March 6, 2025
Robert A. James
/s/ Jody L. Lomeo
Director
March 6, 2025
Jody L. Lomeo
/s/ Kimberley A. Minkel
Director
March 6, 2025
Kimberley A. Minkel
Director
March 6, 2025
Christina P. Orsi
/s/ David R. Pfalzgraf, Jr.
Director
March 6, 2025
David R. Pfalzgraf, Jr.
/s/ Michael J. Rogers
Director
March 6, 2025
Michael J. Rogers
Director
March 6, 2025
Nora B. Sullivan
/s/ Thomas H. Waring, Jr.
Director
March 6, 2025
Thomas H. Waring, Jr.
110
Exhibit 19
EVANS BANCORP, INC. INSIDER TRADING POLICY SECTION 16 OF THE
SECURITIES EXCHANGE ACT OF 1934 RULE 144 OF THE SECURITIES ACT OF
1933
David J. Nasca, President and Chief Executive Officer
May 2, 2023
Evans Bancorp, Inc. Insider Trading Policy; Statement and Review; Purpose and Coverage
Overview
Directors, officers or employees of Evans Bancorp, Inc. and its subsidiaries may from time to time be aware of material
nonpublic information about Evans Bancorp (including its subsidiaries), Evans Bancorp’s securities or other companies.
The federal and state securities laws prohibit the purchase or sale of a company’s securities by persons who are aware of
material information about that company that is not generally known or available to the public. These laws also prohibit persons
who are aware of such material nonpublic information from disclosing this information to others who may trade in the
company’s securities. Companies and their controlling persons are also subject to liability if they fail to take reasonable steps to
prevent insider trading by company personnel.
It is important that you understand the breadth of activities that constitute illegal insider trading and the consequences, which
can be severe. Both the Securities and Exchange Commission (the “SEC”) and the National Association of Securities Dealers
investigate and are very effective at detecting insider trading. The SEC, together with the U.S. Attorneys, pursues insider trading
violations vigorously. Cases have been successfully prosecuted against trading by employees through foreign accounts, trading
by family members and friends, and trading involving only a small number of shares.
In addition to possessing material nonpublic information about Evans Bancorp (including its subsidiaries), Evans Bancorp
directors, executive officers and employees can become temporary insiders of companies other than Evans Bancorp by virtue of
having access to confidential information relating to another company as a result of performing their duties
for Evans Bancorp. For example, one can become a temporary insider of another company:
(i)
during negotiations regarding contracts, mergers and acquisitions; (ii) during consideration of loans; or (iii) during
consideration of any other transaction or other matter, even if the transaction is not ultimately consummated.
Evans Bancorp’s Board of Directors has adopted an Insider Trading Policy (see below) both to satisfy Evans Bancorp’s
obligation to prevent insider trading and to help Evans Bancorp directors, executive officers and employees avoid the severe
consequences associated with violations of the insider trading laws. Evans Bancorp’s Insider Trading Policy also is intended to
prevent even the appearance of improper conduct on the part of anyone employed by or associated with Evans Bancorp (not just
so‐called “insiders”). We have all worked hard over the years to establish a reputation for integrity and ethical conduct, and we
cannot afford to have that reputation damaged. It is your obligation to understand and comply with the Evans Bancorp Insider
Trading Policy. Should you have any questions regarding the Evans Bancorp Insider Trading Policy, please contact David J.
Nasca, President and Chief Executive Officer of Evans Bancorp, Inc., at 716‐926‐2002.
Statement of Policy
Evans Bancorp, Inc. Insider Trading Policy
It is the policy of Evans Bancorp, Inc. that no director, officer or employee of Evans Bancorp may trade in the securities of
Evans Bancorp, directly or indirectly through family members or other persons or entities, while aware of material
nonpublic information relating to Evans Bancorp (including its subsidiaries). Similarly, no director, officer or employee of
Evans Bancorp may trade in the securities of any other company if he or she becomes aware of material nonpublic
information about that company which he or she obtained in the course of his or her employment with Evans Bancorp.
No director, officer or employee of Evans Bancorp may pass material nonpublic information on to others or recommend to
anyone the purchase or sale of any securities when he or she is aware of such information. This practice, known as
“tipping,” also violates the securities laws and can result in the same civil and criminal penalties that apply to insider
trading, even though the director, officer or employee did not trade and did not gain any benefit from another’s trading.
Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency
expenditure) are not excepted from this policy. The securities laws do not recognize such mitigating circumstances, and, in
any event, even the appearance of an improper transaction must be avoided to preserve Evans Bancorp’s reputation for
adhering to the highest standards of conduct.
THIS INSIDER TRADING POLICY APPLIES TO ALL DIRECTORS, OFFICERS AND EMPLOYEES OF
EVANS BANCORP, INC.
Scope of Policy
Persons Covered (including Family Members). As a director, officer or employee of Evans Bancorp or its subsidiaries, the
Evans Bancorp Insider Trading Policy applies to you. The same restrictions that apply to you apply to your family members
who reside with you, anyone else who lives in your household and any family members who do not live in your household but
whose transactions in Evans Bancorp securities are directed by you or are subject to your influence or control (such as parents
or children who consult with you before they trade in Evans Bancorp securities). You are responsible for the transactions of
these other persons, and therefore you are responsible for making sure that the purchase or sale of any security covered by the
Evans Bancorp Insider Trading Policy by any such person complies with the policy.
Companies Covered. The prohibition on insider trading in the Evans Bancorp Insider Trading Policy is not limited to trading in
Evans Bancorp securities. It includes trading in the securities of other firms, such as customers of Evans Bancorp and those with
which Evans Bancorp may be negotiating major transactions, such as an acquisition, investment or sale. Information that is not
material to Evans Bancorp may nevertheless be material to one of those other firms.
Transactions Covered. For purposes of the Evans Bancorp Insider Trading Policy, “trading” includes purchases and sales of
stock, derivative securities such as put and call options and convertible debentures or preferred stock, and debt securities
(debentures, bonds and notes). Trading also includes certain transactions under Evans Bancorp’s employee plans, as follows:
·
Stock Option Exercises. The Evans Bancorp Insider Trading Policy trading restrictions generally do not apply to the
exercise of a stock option, or to the exercise of a tax withholding right pursuant to which you elect to have Evans
Bancorp withhold shares subject to an option to satisfy tax withholding requirements. The trading restrictions do apply,
however, to any sale of the underlying stock or to a cashless exercise of the option through a broker, as this entails
selling a portion of the underlying stock to cover the costs of exercise of the option.
·
Employee Stock Purchase Plan. The Evans Bancorp Insider Trading Policy trading restrictions do not apply to
purchases of Evans Bancorp stock in the employee stock purchase plan resulting from your periodic payroll
contributions to the plan under an election you made at the time of enrollment in the plan. The trading
restrictions do apply to your election to participate in the plan and to your sales of Evans Bancorp stock purchased
under the plan.
·
Dividend Reinvestment Plan. The Evans Bancorp Insider Trading Policy trading restrictions do not apply to purchases
of
Evans
Bancorp
stock
under
Evans
Bancorp’s
dividend reinvestment plan resulting from your reinvestment of dividends paid on
Evans Bancorp securities. The trading restrictions do apply, however, to voluntary purchases of Evans Bancorp stock
resulting from additional contributions you choose to make to the plan, and to your election to participate in the plan or
increase your level of participation in the plan. This policy also applies to your sale of any Evans Bancorp stock
purchased pursuant to the plan.
Post‐Termination Transactions. The Evans Bancorp Insider Trading Policy continues to apply to your transaction in Evans
Bancorp securities even after you have terminated your employment with Evans Bancorp. If you are aware of material
nonpublic information when your employment terminates, you may not trade in Evans Bancorp securities until that information
has become public or is no longer material.
Addendum to Insider Trading Policy and Pre‐clearance. To help prevent inadvertent violations of the federal securities laws and
to avoid even the appearance of trading on the basis of inside information, the Evans Bancorp Board of Directors has adopted an
Addendum to Insider Trading Policy that applies to directors and executive officers of Evans Bancorp subject to Section 16 of
the Securities Exchange Act of 1934 (“executive officers”), and certain designated employees of Evans Bancorp and its
subsidiaries who have access to material nonpublic information about Evans Bancorp. Evans Bancorp will notify you if you are
subject to the Addendum. The Addendum generally limits trading in Evans Bancorp’s securities to quarterly trading windows
and requires directors and executive officers to provide prior notice of any proposed transactions in Evans Bancorp securities.
Guidance
Material Information. Material information is any information that a reasonable investor would consider important in making a
decision to buy, hold, or sell securities. In short, it is any information that could reasonably be expected to affect Evans
Bancorpʹs stock price, whether it is positive or negative. Some examples of information that ordinarily would be regarded as
material are:
"
annual, quarterly or monthly financial results;
"
projections of earnings or significant changes in revenue or earnings trends;
"
negotiations or agreements regarding a merger, acquisition or tender offer or an acquisition or disposition of
significant assets;
"
changes in dividend policies;
"
declaration of a stock split or the offering of additional securities;
"
proposed or contemplated restructurings or recapitalizations;
"
information that might have a significant impact on the business or financial affairs of a major customer to the extent
that it could significantly affect the quality of Evans Bancorp’s loan portfolio or its earnings;
"
internal financial information that departs from what the market would expect;
"
actual or threatened major litigation, or the resolution of such litigation;
"
impending bankruptcy or financial liquidity problems;
"
new major contracts, suppliers, orders, customers or finance sources, or the loss thereof;
"
labor matters;
"
material financing transactions by Evans Bancorp or its subsidiaries;
"
unexpected or unusual gains or losses;
"
significant regulatory changes; or
"
changes in management.
This list is not intended to be exhaustive ‐ many other types of information may be material.
IF THERE IS ANY DOUBT, ASSUME THAT INFORMATION IS MATERIAL AND DO NOT TRADE.
Remember, anyone scrutinizing your transactions will be doing so after the fact, with the benefit of hindsight.
When Information is ʺPublicʺ and Timing of Transactions. If you are aware of material nonpublic information, you may not
trade until the information has been disclosed (or disseminated) in a manner sufficient to ensure its availability to the investing
public and to allow investors the opportunity to evaluate the information.
Dissemination of material information can be effected by filing or furnishing a Form 8‐K with the SEC or by other methods
ʺreasonably designed to achieve broad non‐exclusionary distribution of the information to the public,ʺ which methods include
(1) press releases distributed through a widely circulated news or wire service, or (2) announcements made through press
conferences or conference calls that interested members of the public may attend or listen to either in person, by telephonic
transmission, or by other electronic transmission, including the Internet; provided, the public is given adequate prior notice of
the conference or call and the means for accessing it. Whatever the alternative method, it must be ʺreasonably designed to
provide broad, non‐exclusionary distribution of information to the public.ʺ
One common misconception is that material information loses its “nonpublic” status as soon as a press release is issued
disclosing the information. In fact, information is considered to be available to the public only when it has been released broadly
to the marketplace (such as by a press release or an SEC filing) and the investing public has had time to absorb the information
fully. A reasonable period of time must lapse after a public announcement before trading to allow the market to react to newly
announced information. The appropriate period between an announcement and a subsequent trade depends on the type of
information disclosed and the nature of the dissemination. Generally, information will be deemed to have been adequately
disseminated to and absorbed by the market by the beginning of the third full trading day after the information has been publicly
released. If, for example, Evans Bancorp were to make an announcement on a Monday, you should not trade in Evans Bancorp’s
securities until Thursday. If an announcement were made on a Friday, Wednesday generally would be the first eligible trading
day. Moreover, individuals should not trade in Evans Bancorp securities if a development of major importance is
expected to be announced within a few months and should wait until after the public announcement of any such material
development before trading in Evans Bancorp securities.
Tipping Information to Others. A person may be liable for “tipping” by communicating, on other than a need‐to‐know basis,
material nonpublic information in his or her possession to third parties, or recommending, suggesting or discussing the purchase
or sale of a security while aware of such information, particularly if the person receives a direct or indirect personal benefit from
the tip. The benefit received need not be monetary; it could take other forms, such as a gift or enhancement of reputation. The
Evans Bancorp Insider Trading Policy prohibits directors, executive officers and all employees of Evans Bancorp from passing
on to other entities or persons, including friends, relatives or business associates, material, nonpublic information about Evans
Bancorp or its securities or about companies with whom Evans Bancorp does business, including customers or suppliers, or
potential parties to contracts, mergers or acquisitions.
ʺTipping” does not have to involve express or explicit communications; rather, it can occur when the context of a
communication suggests the existence or significance of material nonpublic information.
Additional Guidance
Evans Bancorp considers it improper and inappropriate for those employed by or associated with the Company to engage in
short‐term or speculative transactions in Evans Bancorp securities or in other transactions in Evans Bancorp securities that may
lead to inadvertent violations of the insider trading laws. Accordingly, your trading in Evans Bancorp securities is subject to the
following additional guidance.
Short Sales. You may not engage in short sales of Evans Bancorp’s securities (that is, sales of securities that are not owned
when sold), including a “sale against the box” (that is, a sale with delayed delivery).
Standing Orders. Standing orders should be used only for a very brief period of time. A standing order placed with a broker to
sell or purchase stock at a specified price leaves you with no control over the timing of the transaction. A standing order
transaction executed by the broker when you are aware of material nonpublic information may result in unlawful
insider trading.
Margin Accounts. Securities held in a margin account may be sold without your consent by the broker if you fail to meet a
margin in call. Because a margin sale may occur at a time when you are aware of material nonpublic information or otherwise
are not permitted to trade in Evans Bancorp securities, you are prohibited from holding Evans Bancorp securities in a
margin account.
Penalties for Non‐Compliance
The consequences of insider trading violations can be severe.
Civil and Criminal Penalties. Rule l0b‐5 violations can expose Evans Bancorp and its insiders to tremendous liability.
Employees and others who trade on inside information may be liable for civil fines of up to three times the profit gained or loss
avoided, and for criminal penalties. The Sarbanes‐Oxley Act increased the maximum criminal fine for individuals from $1
million to $5 million and the maximum jail sentence from 10 years to 20 years. The Sarbanes‐Oxley Act also increased the
maximum fine on corporations tenfold, from $2.5 million to $25 million.
Controlling Person Liability. Rule l0b‐5 violations can also expose Evans Bancorp and its directors, officers and other
supervisory personnel to “controlling person liability”. Generally, any person who controls a person who commits an insider
trading violation may be independently liable for a civil penalty of up to the greater of $1 million and three times the profit
gained or loss avoided resulting from the violation. A controlling person can be an individual director, officer or supervisor or
anyone with power to influence or control another person, as well as the company.
Other Consequences. The consequences of insider trading are not limited to civil damages and criminal penalties. Premature
disclosure of material nonpublic information can:
"
subject Evans Bancorp to possible civil liability for the breach of contracts with third parties in which Evans Bancorp
agrees not to divulge certain confidential information;
"
force Evans Bancorp to publicly announce the material nonpublic information at a disadvantageous time;
"
subject the person disclosing the information, as well as Evans Bancorp, to possible civil and criminal liability under
state securities laws; and
"
subject the person disclosing the information and Evans Bancorp to potential civil liability under the federal securities
laws to third parties who bought or sold securities.
Maintaining the confidentiality of Evans Bancorp information is essential for competitive, security and other business reasons,
as well as to comply with securities laws. You should treat all information you learn about Evans Bancorp or its business plans
in connection with your employment as confidential and proprietary to Evans Bancorp. Inadvertent disclosure of confidential or
inside information may expose Evans Bancorp and you to significant risk of investigation and litigation.
The timing and nature of Evans Bancorp’s disclosure of material information to outsiders is subject to legal rules, the breach of
which could result in substantial liability to you, Evans
Bancorp and its management. Accordingly, it is important that responses to inquiries about Evans Bancorp by the press,
investment analysts or others in the financial community be made on Evans Bancorp’s behalf only through authorized
individuals.
Please consult David J. Nasca, President and Chief Executive Officer of Evans Bancorp, Inc., at 716‐926‐2002 for more details
regarding Evans Bancorp’s policy on speaking to the media, financial analysts and investors.
Any of the above consequences, even an SEC investigation that does not result in prosecution, can tarnish a reputation and
irreparably damage a career. Moreover, insider trading by directors, executive officers and employees of Evans Bancorp may
damage Evans Bancorp’s reputation for integrity and ethical conduct. Evans Bancorp considers this reputation a critical
corporate asset.
Personal Responsibility
You should remember that the ultimate responsibility for adhering to the Evans Bancorp, Inc. Insider Trading Policy and
avoiding improper trading rests with you. If you violate this policy, Evans Bancorp may take disciplinary action, including
dismissal for cause.
Company Assistance
Your compliance with the Evans Bancorp Insider Trading Policy is of the utmost importance both for you and for Evans
Bancorp. If you have any questions about this policy or its application to any proposed transaction, you may obtain additional
guidance from David J. Nasca, President and Chief Executive Officer of Evans Bancorp, Inc., at 716‐ 926‐2002. Do not try to
resolve uncertainties on your own, as the rules relating to insider trading are often complex, not always intuitive and carry
severe consequences.
The Evans Bancorp Insider Trading Policy is dated May 2, 2023 and supersedes any previous policy of the Company
concerning insider trading.
ADDENDUM TO INSIDER TRADING POLICY —Prior Notice and Blackout Procedures
David Nasca, President and Chief Executive Officer May 2, 2023
To help prevent inadvertent violations of the federal securities laws and to avoid even the appearance of trading on inside
information, Evans Bancorp’s Board of Directors has adopted this Addendum to Insider Trading Policy. This Addendum applies
to directors and executive officers subject to Section 16 of the Securities Exchange Act of 1934 (“executive officers”) and to
certain designated employees and consultants of Evans Bancorp and its subsidiaries (“covered persons”) who have access to
material nonpublic information about the Company. The names of the covered persons subject to this Addendum are listed on
the attached Schedule I. The Company may from time‐to‐time designate other individuals who are subject to this Addendum
(including consultants to Evans Bancorp who are at risk of being exposed to material nonpublic information about Evans
Bancorp (including its subsidiaries)) and will amend Schedule I from time to time as necessary to reflect such changes or the
resignation or change in status of any individual.
This Addendum is in addition to and supplements the Evans Bancorp Insider Trading Policy.
Directors and executive officers are also subject to additional procedures designed to address the two‐day Form 4 filing
requirement under Section 16. These procedures are covered in a separate memorandum.
Prior‐notice Procedures
Evans Bancorp’s directors and executive officers are covered by the following prior‐notice procedures.
Directors and executive officers, together with their family members and other members of their household, may not engage in
any transaction involving Evans Bancorp securities (including a stock plan transaction such as an option exercise, or a gift, loan,
or contribution to a trust or any other transfer) without first providing prior notice of the transaction to
David J. Nasca, President and Chief Executive Officer or Jessica L. Brosius, Assistant Controller. The prior notice should be
provided at least two business days in advance of the proposed transaction. The Assistant Controller must provide the
Company’s Chief Executive Officer with prior notice of his / her proposed trade(s) in Evans Bancorp’s securities.
Window Periods and Blackout Procedures
All directors, executive officers and covered persons are subject to the following blackout procedures.
Quarterly Trading Black‐Out Periods. Evans Bancorp’s announcement of its quarterly financial results almost always has a
potential to have a material effect on the market for Evans Bancorp’s securities. Therefore, to avoid even the appearance of
trading on the basis of material nonpublic information, you (including your family members) are prohibited from trading in
Evans Bancorp securities during quarterly black‐out periods. Each quarterly black‐out period begins ten calendar days prior to
each calendar quarter end and ends on the second trading day after Evans Bancorp publicly announces its quarterly (or annual)
financial results. Therefore, if Evans Bancorp publicly announces its quarterly financial results on a Monday, the trading
window will open on Wednesday. IF YOU ARE AWARE OF MATERIAL NON‐PUBLIC INFORMATION YOU ARE
PROHIBITED FROM TRADING UNDER EVANS BANCORP’S INSIDER TRADING POLICY WHETHER OR NOT
IT IS DURING A QUARTERLY BLACK‐OUT.
Persons subject to these quarterly trading windows include the persons currently listed on Schedule I attached to this Addendum
and all other persons who are informed by Michelle
A. Baumgarden, the Insider Trading Compliance Officer, that they are subject to the quarterly trading windows.
Interim Earnings Guidance and Event‐Specific Blackouts. Evans Bancorp may on occasion issue interim earnings guidance or
other potentially material information by means of a press release, an SEC filing on Form 8‐K or other means designed to
achieve widespread dissemination of the information. You should anticipate that trading by you in Evans Bancorp securities will
be prohibited while Evans Bancorp is in the process of assembling the information to be released and until the information has
been released and fully absorbed by the market.
From time to time, an event may occur that is material to Evans Bancorp and is known by only a few directors or executives. So
long as the event remains material and nonpublic, the persons who are aware of the event, as well as other persons subject to the
quarterly black‐ out periods, may not trade in Evans Bancorp’s securities regardless of whether the trading window is “open.”
The existence of an event‐specific blackout will not be announced, other
than to those who are aware of the event giving rise to the blackout. However, a person whose trades are subject to prior‐notice
and who provides the President, Assistant Controller, or Insider Trading Compliance Officer with notice of a trade in Evans
Bancorp’s securities during an event‐specific blackout, will be informed of the existence of a blackout period, without
disclosing the reason for the blackout. Any person made aware of the existence of an event‐specific blackout should not disclose
the existence of the blackout to any other person. The failure of the Insider Trading Compliance Officer to designate a person as
being subject to an event‐specific blackout will not relieve that person of the obligation not to trade while aware of material
nonpublic information.
Pension Fund Blackout Periods. Directors and executive officers may also be subject to event‐ specific blackouts pursuant to
the SEC’s Regulation Blackout Trading Restriction (“BTR”), which prohibits sales and other transfers by insiders during certain
pension plan blackout periods.
Even if a blackout period is not in effect (that is, the trading window is “open” and there is no event specific or BTR blackout),
at no time may you trade in Evans Bancorp securities if you are aware of material nonpublic information about Evans Bancorp.
Hardship Exceptions. Under no circumstance will a hardship exception be granted.
Exception for Approved 10b5‐1 Plans
Trades by covered persons in Evans Bancorp securities that are executed pursuant to an approved 10b5‐1 plan are not subject to
the prohibition on trading on the basis of material nonpublic information contained in the Insider Trading Policy or to the
restrictions set forth above relating to prior‐notice and blackout periods.
Rule 10b5‐1 provides an affirmative defense from insider trading liability under the federal securities laws for trading plans that
meet certain requirements. In general, a 10b5‐1 plan must be entered into before you are aware of material nonpublic
information. Once the plan is adopted, you must not exercise any influence over the amount of securities to be traded, the price
at which they are to be traded or the date of the trade. The plan must either specify (including by formula) the amount, pricing
and timing of transactions in advance or delegate discretion on those matters to an independent third party.
Evans Bancorp requires that all 10b5‐1 plans be approved in writing in advance by the Board of Directors. 10b5‐1 plans may
not be adopted during a blackout period.
Hedging Transactions
You are prohibited from engaging in any hedging or monetization transactions involving Evans Bancorp securities.
Post‐Termination Transactions
If you are aware of material nonpublic information when you terminate employment or services, you may not trade in Evans
Bancorp securities until that information has become public or is no longer material. In all other respects, the procedures set
forth in this Addendum will cease to apply to your transactions in Evans Bancorp securities upon the expiration of any “blackout
period” that is applicable to your transactions at the time of your termination of employment or services with Evans Bancorp.
Company Assistance
Your compliance with this Addendum and the Evans Bancorp, Inc. Insider Trading Policy is of the utmost importance both for
you and for the Company. If you have any questions about this Addendum, the Evans Bancorp, Inc. Insider Trading Policy or
their application to any proposed transaction, you may obtain additional guidance from the Insider Trading Compliance Officer.
This Addendum is dated May 2, 2023 and supersedes any previous policy of Evans Bancorp concerning insider trading
restrictions applicable to directors, executive officers and covered
persons.
Schedule I
Covered Persons
Name
Title
Michael A. Battle
Director
Dawn DePerrior
Director
Robert A. James
Director
Jody L. Lomeo
Director
Kimberley A. Minkel
Director
David J. Nasca
Director
President and Chief Executive Officer of Evans Bancorp,
Inc.
President and Chief Executive Officer of Evans Bank,
N.A.
Christina P. Orsi
Director
David R. Pfalzgraf, Jr.
Director
Michael J. Rogers
Vice Chairman
Nora B. Sullivan
Director
Thomas H. Waring, Jr.
Director
Lee C. Wortham
Chairman
John B. Connerton
Treasurer of Evans Bancorp, Inc.
Executive Vice President of Evans Bank, N.A.
[others]
EVANS BANCORP, INC.
ADDENDUM TO INSIDER TRADING POLICY REGARDING PRIOR‐NOTICE AND
BLACKOUT PROCEDURES
Acknowledgment of Receipt
To Evans Bancorp, Inc.:
I,
(name), have received and read a copy of the Evans Bancorp, Inc. Insider Trading
Policy dated May 2, 2023 and the Addendum to Insider Trading Policy dated May 2, 2023 regarding prior‐notice and blackout procedures.
(Signature)
(Date)
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements (No 333-160262, No. 333-181018, No. 333-188164, and
No. 333-231605) on Form S-8 and (No. 333-230819 and No. 333-249269) on Form S-3 of Evans Bancorp, Inc. of our report dated
March 6, 2025 relating to the financial statements and effectiveness of internal control over financial reporting, appearing in this
Annual Report on Form 10-K.
/s/ Crowe LLP
Columbus, Ohio
March 6, 2025
Exhibit 31.1
Certification
I, David J. Nasca, certify that:
1.
I have reviewed this report on Form 10-K of Evans Bancorp, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 6, 2025
/s/ David J. Nasca
David J. Nasca
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
Certification
I, John B. Connerton, certify that:
1.
I have reviewed this report on Form 10-K of Evans Bancorp, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 6, 2025
/s/ John B. Connerton
John B. Connerton
Treasurer
(Principal Financial Officer and Principal Accounting Officer)
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, David J. Nasca, the President and Chief Executive Officer of Evans Bancorp, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) the Annual Report of Evans Bancorp, Inc. on Form 10-K
for the fiscal year ended December 31, 2024 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934 and (2) the information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the
financial condition and results of operations of Evans Bancorp, Inc.
Date: March 6, 2025
By:
/s/ David J. Nasca
Name:
David J. Nasca
Title:
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, John B. Connerton, the Treasurer of Evans Bancorp, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) the Annual Report of Evans Bancorp, Inc. on Form 10-K for the fiscal year ended
December 31, 2024 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and (2)
the information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of
operations of Evans Bancorp, Inc.
Date: March 6, 2025
By:
/s/ John B. Connerton
Name:
John B. Connerton
Title:
Treasurer
(Principal Financial Officer and Principal Accounting Officer)