Evans Bancorp Reports Net Income of $4.9 Million in Second Quarter 2023

WILLIAMSVILLE, N.Y., July 27, 2023--(BUSINESS WIRE)--Evans Bancorp, Inc. (the "Company" or "Evans") (NYSE American: EVBN), a community financial services company serving Western New York since 1920, today reported results of operations for the second quarter ended June 30, 2023.

SECOND QUARTER 2023 REVIEW (compared with prior-year period unless otherwise noted)

• Net income of $4.9 million reflected continued net interest margin pressure, partially offset by non-interest income growth and prudent expense management

• Total non-interest income of $4.7 million increased 2% year-over-year and up 14% sequentially

• Total non-interest expense declined 4% to $14.2 million, down 2% sequentially

• Total loan balances of $1.67 billion up 3.5% year-over-year

• The average rate paid on interest-bearing deposits was 2.18%, up from 0.28% a year ago

Net income was $4.9 million, or $0.90 per diluted share, in the second quarter of 2023, compared with $5.8 million, or $1.06 per diluted share, in the first quarter of 2023 and $5.7 million, or $1.03 per diluted share, in last year’s second quarter. The change from the first quarter of 2023 reflected a decrease in net interest income and reduced release of allowance for credit losses, partially offset by higher non-interest income and lower non-interest expense. The change from the prior year’s second quarter was largely due to a reduction in net interest income, partially offset by lower non-interest expense and a release of allowance. Return on average equity was 12.25% for the second quarter of 2023, compared with 14.97% in the first quarter of 2023 and 13.77% in the second quarter of 2022.

David J. Nasca, President and CEO of Evans Bancorp, Inc., said, "We believe we are executing well given the challenging market forces and backdrop of margin pressure. Staying close to clients and cultivating prospective relationships remains paramount as we maintain stable liquidity and pursue opportunities to continue driving growth and loan production. Equally important is our focus on controlling costs and efforts to improve efficiencies, which is evidenced by our non-interest expense decline both quarter-over-quarter and year-over-year."

He added, "The net interest margin reduction during the quarter reflects ongoing market forces that have driven deposits costs higher. Overall, we believe we are maintaining our posture against stiff competition as our team has continued to retain key deposits. Looking ahead, we expect market dynamics and pricing pressures will continue to have an impact on our margin in the third quarter and then begin to moderate heading into the end of the year."

Net Interest Income
($ in thousands)
		2Q 2023				1Q 2023				2Q 2022
Interest income		$	23,988			$	23,365			$	19,097
Interest expense			8,307				6,040				1,045
Net interest income			15,681				17,325				18,052
Provision for credit losses			(116)				(654)				267
Net interest income after provision		$	15,797			$	17,979			$	17,785

Net interest income of $15.7 million was down $1.6 million, or 9%, from the sequential first quarter and $2.4 million, or 13%, from last year’s second quarter due to higher interest expense given the cost increase of interest-bearing liabilities as a result of competitive pricing on deposits.

Second quarter net interest margin of 3.10% declined 36 basis points over the trailing first quarter and 35 basis points from the prior-year period. The yield on loans improved both sequentially and year-over-year, up 10 basis points and 102 basis points, respectively. The cost of interest-bearing liabilities was 2.18% compared with 1.65% in the first quarter of 2023 and 0.28% in the second quarter of 2022.

The $0.1 million release of allowance in the current quarter was largely due to lower criticized loan balances, and lower specific reserves on impaired loans, partially offset by loan growth.

"Given external market forces and current headwinds, we believe our liquidity position is solid and backed by a diversified deposit base as well as other alternative sources of funding. Total deposits on an end of period basis did decline during the recent quarter, though the vast majority – approximately $48 million – consisted of typical seasonal municipal outflows," commented John Connerton, Chief Financial Officer of Evans Bank. "Credit quality remains strong despite the rise in non-performing loans, which reflects a single commercial credit of $6.5 million that is well collateralized and still accruing."

Asset Quality
($ in thousands)
		2Q 2023				1Q 2023				2Q 2022
Total non-performing loans		$	27,789			$	24,084			$	22,010
Total net loan charge-offs (recoveries)			35				(4)				66
Non-performing loans / Total loans			1.66	%			1.45	%			1.36	%
Net loan charge-offs / Average loans			0.01	%			-	%			0.02	%
Allowance for loan losses / Total loans			1.28	%			1.30	%			1.17	%

Non-Interest Income
($ in thousands)
		2Q 2023				1Q 2023				2Q 2022
Deposit service charges		$	645			$	613			$	703
Insurance service and fee revenue			2,720				2,429				2,567
Bank-owned life insurance			238				224				171
Other income			1,098				847				1,171
Total non-interest income		$	4,701			$	4,113			$	4,612

Total non-interest income increased $0.6 million, or 14%, from the first quarter of 2023, and was up $0.1 million, or 2%, from last year’s second quarter.

Insurance service and fee revenue increased 12% over the sequential first quarter and was up 6% over last year’s second quarter. The increase from the first quarter of 2023 reflects seasonally higher policy renewals for institutional clients, while the year-over-year increase was due to commissions from higher premiums and new commercial lines insurance sales.

Other income increased $0.3 million from the sequential first quarter primarily due to movements in mortgage servicing rights and higher loan fees.

Non-Interest Expense
($ in thousands)
		2Q 2023				1Q 2023				2Q 2022
Salaries and employee benefits		$	8,649			$	9,413			$	9,436
Occupancy			1,145				1,173				1,131
Advertising and public relations			407				156				438
Professional services			808				883				843
Technology and communications			1,542				1,356				1,237
Amortization of intangibles			100				100				100
FDIC insurance			350				350				250
Other expenses			1,171				1,071				1,349
Total non-interest expenses		$	14,172			$	14,502			$	14,784

Total non-interest expense decreased $0.3 million, or 2%, from the first quarter of 2023, and was down $0.6 million, or 4%, from last year’s second quarter.

Salaries and employee benefits were down $0.8 million, or 8%, from both comparative periods. Included in salaries and employee benefits during the first quarter of 2023 was the funding of employee’s health savings accounts and payroll taxes that are typically higher in the first quarter. Compared with last year’s second quarter, the decrease was primarily due to lower incentive accruals of $1.2 million partially offset by merit increases and strategic hires.

Technology and communications increased $0.2 million from the sequential first quarter and $0.3 million from last year’s second quarter primarily due to higher ATM card fees and software costs.

FDIC insurance increased $0.1 million from the second quarter of 2022 reflecting changes to the FDIC’s assessment rate schedules intended to raise the reserve ratio of the Deposit Insurance Fund.

Other expenses increased from the sequential first quarter primarily due to charitable contributions. The decrease from last year’s second quarter was due to lower loan fees.

The Company’s GAAP efficiency ratio, or noninterest expenses divided by the sum of net interest income and noninterest income, was 69.5% in the second quarter of 2023, 67.6% in the first quarter of 2023, and 65.2% in the second quarter of 2022.

Income tax expense was $1.4 million, for an effective tax rate of 22.0%, in the second quarter of 2023 compared with 23.6% in the first quarter of 2023 and 24.7% in last year’s first quarter. The decrease is due to stable non-taxable income on a decreasing overall pre-tax income base.

Balance Sheet Highlights

Total assets were $2.15 billion as of June 30, 2023, an increase of less than 1% since March 31, 2023, though down 2% from $2.21 billion at June 30, 2022. The change from last year’s second quarter was due to a reduction in interest-bearing deposits at banks of $78 million and investment securities of $49 million, partially offset by an increase in loan balances of 3.5% or $57 million. The loan balance increase reflects higher commercial real estate loans of $55 million and residential mortgages of $12 million, partially offset by commercial and industrial loans which decreased $8 million.

Investment securities were $354 million at June 30, 2023, $16 million lower than the end of the first quarter of 2023 and $49 million lower than the end of last year’s second quarter. The decrease reflects changes in unrealized gains and losses on investment securities and maturities within our available-for-sale investment portfolio. The primary objectives of the Company’s investment portfolio are to provide liquidity, secure municipal deposits, and maximize income while preserving the safety of principal.

Total deposits of $1.79 billion decreased $63 million, or 3%, from March 31, 2023, and $182 million, or 9%, from the end of last year’s second quarter. The change from the sequential first quarter reflects a decrease in demand deposits of $42 million, municipal savings deposits of $32 million, consumer savings of $30 million, commercial savings of $19 million and brokered deposits of $6 million, partially offset by an increase in NOW deposits of $35 million and time deposits of $24 million.

When compared with the end of last year’s second quarter, there were deposit decreases in consumer savings of $196 million, demand deposits of $108 million, commercial savings of $64 million, municipal savings of $29 million, and brokered deposits of $6 million. Offsetting those decreases were higher consumer time deposits of $183 million and NOW deposits of $38 million.

While the Company has not experienced a significant outflow of deposits, in the event of such occurrences, the Bank has access to alternate sources of funding to meet withdrawal demands. As of June 30, 2023, the Bank had $34 million in overnight borrowings at the FHLB. Given the current collateral available at FHLB, advances up to $337 million can be drawn on the FHLB via the banks overnight line of credit. Additionally, the Bank has the ability to borrow from the Federal Reserve and participates in the Bank Term Funding Program. At June 30, 2023 the Bank had $100 million in short-term borrowings with the Federal Reserve and had $54.5 million in additional availability to borrow against collateral.

Capital Management

The Company has consistently maintained regulatory capital ratios measurably above the Federal "well capitalized" standard, including a Tier 1 leverage ratio of 9.43% at June 30, 2023 compared with 9.13% at March 31, 2023 and 8.73% at June 30, 2022.

Book value per share was $29.13 at June 30, 2023 compared with $28.97 at March 31, 2023 and $29.53 at June 30, 2022. Reflected in the book value changes are the Federal Reserve’s aggressive interest rate hikes that have resulted in significant unrealized losses on investment securities, which reduced book value per share at June 30, 2023 by $2.94 when compared with the last year’s second quarter. Such unrealized gains and losses are 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.

Tangible book value per share was $26.62 at June 30, 2023 compared with $26.44 at March 31, 2023 and $26.97 at June 30, 2022.

Webcast and Conference Call

The Company will host a conference call and webcast on Thursday, July 27, 2023 at 4:45 p.m. ET. Management will review the financial and operating results for the second quarter of 2023, as well as the Company’s strategy and outlook. A question and answer session will follow.

The conference call can be accessed by calling (201) 689-8471. Alternatively, the webcast can be monitored at www.evansbancorp.com .

A telephonic replay will be available from 8:00 p.m. ET on the day of the teleconference until Thursday, August 10, 2023. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13739491, or access the webcast replay at www.evansbancorp.com , where a transcript will be posted once available.

About Evans Bancorp, Inc.

Evans Bancorp, Inc. is a financial holding company and the parent company of Evans Bank, N.A., a commercial bank with $2.2 billion in assets and $1.8 billion in deposits at June 30, 2023. Evans is a full-service community bank with 18 branches providing comprehensive financial services to consumer, business and municipal customers throughout Western New York. Evans Insurance Agency, a wholly owned subsidiary, provides life insurance, employee benefits, and property and casualty insurance through eight offices in the Western New York region. Evans Investment Services provides non-deposit investment products, such as annuities and mutual funds.

Evans Bancorp, Inc. and Evans Bank routinely post news and other important information on their websites, at www.evansbancorp.com and www.evansbank.com.

Safe Harbor Statement: This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, statements concerning future business, revenue and earnings. These statements are not historical facts or guarantees of future performance, events or results. There are risks, uncertainties and other factors that could cause the actual results of Evans Bancorp to differ materially from the results expressed or implied by such statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include the impacts from COVID-19, competitive pressures among financial services companies, interest rate trends, general economic conditions, changes in legislation or regulatory requirements, effectiveness at achieving stated goals and strategies, and difficulties in achieving operating efficiencies. These risks and uncertainties are more fully described in Evans Bancorp’s Annual and Quarterly Reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. Evans Bancorp undertakes no obligation to publicly update or revise forward-looking information, whether as a result of new, updated information, future events or otherwise.

EVANS BANCORP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
(in thousands, except shares and per share data)
			6/30/2023					3/31/2023					12/31/2022					9/30/2022					6/30/2022
ASSETS
Interest-bearing deposits at banks		$	10,334				$	3,832				$	6,258				$	6,813				$	88,190
Investment Securities			353,836					369,636					371,275					376,713					403,322
Loans			1,670,753					1,658,576					1,672,369					1,626,457					1,613,834
Allowance for credit losses			(21,368	)				(21,523	)				(19,438	)				(18,630	)				(18,819	)
Goodwill and intangible assets			13,729					13,829					13,929					14,029					14,129
All other assets			127,679					123,920					134,117					124,323					107,698
Total assets		$	2,154,963				$	2,148,270				$	2,178,510				$	2,129,705				$	2,208,354
LIABILITIES AND STOCKHOLDERS'
EQUITY
Demand deposits			442,195					483,958					493,710					558,805					550,079
NOW deposits			303,159					268,283					273,359					263,648					265,181
Savings deposits			726,687					807,532					801,943					913,383					1,015,511
Time deposits			314,574					290,141					202,667					137,910					137,561
Total deposits			1,786,615					1,849,914					1,771,679					1,873,746					1,968,332
Borrowings			190,697					120,002					231,223					83,456					59,028
Other liabilities			18,167					20,103					21,615					22,652					18,319
Total stockholders' equity			159,484					158,251					153,993					149,850					162,675
SHARES AND CAPITAL RATIOS
Common shares outstanding			5,477,505					5,462,763					5,437,048					5,509,917					5,508,663
Book value per share		$	29.12				$	28.97				$	28.32				$	27.20				$	29.53
Tangible book value per share		$	26.61				$	26.44				$	25.76				$	24.65				$	26.97
Tier 1 leverage ratio			9.43		%			9.13		%			9.13		%			9.00		%			8.73		%
Tier 1 risk-based capital ratio			12.73		%			12.55		%			12.29		%			12.40		%			12.47		%
Total risk-based capital ratio			13.98		%			13.80		%			13.48		%			13.57		%			13.68		%
ASSET QUALITY DATA
Total non-performing loans		$	27,789				$	24,084				$	24,728				$	25,961				$	22,010
Total net loan charge-offs (recoveries)			35					(4	)				115					1,518					66
Non-performing loans/Total loans			1.66		%			1.45		%			1.48		%			1.60		%			1.36		%
Net loan charge-offs (recoveries)/Average loans			0.01		%			-		%			0.03		%			0.38		%			0.02		%
Allowance for credit losses/Total loans			1.28		%			1.30		%			1.16		%			1.15		%			1.17		%

EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED OPERATIONS DATA (UNAUDITED)
(in thousands, except share and per share data)
			2023					2023					2022				2022				2022
			Second Quarter					First Quarter					Fourth Quarter				Third Quarter				Second Quarter
Interest income		$	23,988				$	23,365				$	22,381			$	20,487			$	19,097
Interest expense			8,307					6,040					3,167				1,299				1,045
Net interest income			15,681					17,325					19,214				19,188				18,052
Provision for credit losses			(116	)				(654	)				923				1,328				267
Net interest income after provision for credit losses			15,797					17,979					18,291				17,860				17,785
																				...
Deposit service charges			645					613					684				782				703
Insurance service and fee revenue			2,720					2,429					2,204				3,383				2,567
Bank-owned life insurance			238					224					221				161				171
Other income			1,098					847					1,352				1,441				1,171
Total non-interest income			4,701					4,113					4,461				5,767				4,612
Salaries and employee benefits			8,649					9,413					9,498				10,450				9,436
Occupancy			1,145					1,173					1,190				1,118				1,131
Advertising and public relations			407					156					125				417				438
Professional services			808					883					871				839				843
Technology and communications			1,542					1,356					1,437				1,339				1,237
Amortization of intangibles			100					100					100				100				100
FDIC insurance			350					350					250				255				250
Other expenses			1,171					1,071					1,429				1,273				1,349
Total non-interest expenses			14,172					14,502					14,900				15,791				14,784
Income before income taxes			6,326					7,590					7,852				7,836				7,613
Income tax provision			1,394					1,790					1,809				1,972				1,879
Net income			4,932					5,800					6,043				5,864				5,734
PER SHARE DATA
Net income per common share-diluted		$	0.90				$	1.06				$	1.10			$	1.06			$	1.03
Cash dividends per common share		$	-				$	0.66				$	-			$	0.64			$	-
Weighted average number of diluted shares			5,474,462					5,475,790					5,500,810				5,546,764				5,550,436
PERFORMANCE RATIOS
Return on average total assets			0.91		%			1.07		%			1.12	%			1.08	%			1.04	%
Return on average stockholders' equity			12.25		%			14.97		%			16.07	%			14.15	%			13.77	%
Return on average tangible common stockholders' equity*			13.39		%			16.44		%			17.72	%			15.46	%			15.06	%
Efficiency ratio			69.53		%			67.65		%			62.94	%			63.28	%			65.23	%
Efficiency ratio (Non-GAAP)**			69.04		%			67.18		%			62.51	%			62.88	%			64.79	%
* The calculation of the average tangible common stockholders' equity ratio excludes goodwill and intangible assets from average stockholders equity.
** The calculation of the non-GAAP efficiency ratio excludes amortization of intangibles, gains and losses from investment securities, merger-related expenses and the impact of historic tax credit transactions.

EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED AVERAGE BALANCES AND YIELDS/RATES (UNAUDITED)
(in thousands)
			2023				2023				2022				2022				2022
			Second Quarter				First Quarter				Fourth Quarter				Third Quarter				Second Quarter
AVERAGE BALANCES
Loans, net		$	1,646,502			$	1,641,162			$	1,627,028			$	1,597,382			$	1,591,971
Investment securities			373,922				382,329				382,125				406,703				392,371
Interest-bearing deposits at banks			7,235				9,824				10,416				42,788				111,457
Total interest-earning assets			2,027,659				2,033,315				2,019,569				2,046,873				2,095,799
Non interest-earning assets			129,793				133,936				135,035				122,321				116,202
Total Assets		$	2,157,452			$	2,167,251			$	2,154,604			$	2,169,194			$	2,212,001
NOW			281,910				260,242				265,313				269,359				258,197
Savings			776,020				796,793				874,816				964,051				1,020,004
Time deposits			304,575				257,733				174,362				132,319				143,677
Total interest-bearing deposits			1,362,505				1,314,768				1,314,491				1,365,729				1,421,878
Borrowings			163,338				173,053				151,259				65,990				63,203
Total interest-bearing liabilities			1,525,843				1,487,821				1,465,750				1,431,719				1,485,081
Demand deposits			451,990				503,945				518,666				549,625				542,827
Other non-interest bearing liabilities			18,532				20,487				19,798				22,073				17,562
Stockholders' equity			161,087				154,998				150,390				165,777				166,531
Total Liabilities and Equity		$	2,157,452			$	2,167,251			$	2,154,604			$	2,169,194			$	2,212,001
Average tangible common stockholders' equity*			147,299				141,111				136,406				151,690				152,345
YIELD/RATE
Loans, net			5.26	%			5.16	%			4.88	%			4.47	%			4.24	%
Investment securities			2.47	%			2.53	%			2.36	%			2.23	%			2.09	%
Interest-bearing deposits at banks			4.45	%			3.97	%			3.16	%			2.01	%			0.81	%
Total interest-earning assets			4.75	%			4.66	%			4.40	%			3.97	%			3.65	%
NOW			1.24	%			0.75	%			0.36	%			0.10	%			0.09	%
Savings			1.58	%			0.95	%			0.33	%			0.19	%			0.14	%
Time deposits			3.10	%			2.63	%			1.61	%			0.64	%			0.49	%
Total interest-bearing deposits			1.85	%			1.24	%			0.51	%			0.22	%			0.16	%
Borrowings			4.98	%			4.74	%			3.88	%			3.27	%			2.95	%
Total interest-bearing liabilities			2.18	%			1.65	%			0.86	%			0.36	%			0.28	%
Interest rate spread			2.57	%			3.01	%			3.54	%			3.61	%			3.37	%
Contribution of interest-free funds			0.53	%			0.45	%			0.23	%			0.11	%			0.08	%
Net interest margin			3.10	%			3.46	%			3.77	%			3.72	%			3.45	%
* Average tangible common stockholders' equity excludes goodwill and intangible assets from average stockholders equity.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230727906774/en/

Contacts

For more information contact:
John B. Connerton
Executive Vice President and Chief Financial Officer
(716) 926-2000
jconnerton@evansbank.com

Media Contact:
Kathleen Rizzo Young
Group VP/Public & Community Relations Director
716-343-5562
krizzoyoung@evansbank.com

-OR-
Deborah K. Pawlowski/Craig Mychajluk
Kei Advisors LLC
(716) 843-3908
dpawlowski@keiadvisors.com
cmychajluk@keiadvisors.com