Evans Bancorp Reports Record Net Income for 2018

Evans Bancorp, Inc. (the “Company” or “Evans”) (NYSE American: EVBN), a community financial services company serving Western New York since 1920, today reported its results of operations for the fourth quarter and year ended December 31, 2018.

FOURTH QUARTER AND FULL YEAR 2018 HIGHLIGHTS (compared with prior-year period unless otherwise noted)

• Record annual net income of $16.4 million compared with $10.5 million in 2017, a 56% increase

  Excluding the prior year impact of a $2.1 million write-down of deferred tax asset related to Tax Cuts and Jobs Act (“TCJA”), 2018 net income increased $3.8 million or 30%

• Achieved fourth quarter net income of $4.5 million, or $0.90 per diluted share, compared with $1.0 million, or $0.20 per diluted share

  Excluding the 2017 TCJA write-down of deferred tax asset, net income was up $1.4 million or 44%

• Net interest income in the fourth quarter increased 11% to $12.4 million driven by higher average loans
• Average demand deposits in the fourth quarter grew 13%
• Acquisition of Richardson & Stout Insurance Agency (“R&S”) contributed to total insurance revenue of $9.4 million, an increase of 19%
• 2018 efficiency ratio improved to 66.87% from 68.50%
• Opened new Financial Center in downtown Buffalo during fourth quarter 2018

For the full year 2018, net income increased 56% to $16.4 million, or $3.32 per diluted share, from $10.5 million, or $2.16 per diluted share, in 2017. Excluding the impact of TCJA, net income was up $3.8 million, or 30%. The return on average equity was 13.20% for 2018 compared with 9.11% in 2017.

Net income was $4.5 million, or $0.90 per diluted share, in the fourth quarter of 2018, compared with $4.8 million, or $0.97 per diluted share, in the trailing third quarter of 2018 and $1.0 million, or $0.20 per diluted share, in last year’s fourth quarter. The decrease from the linked quarter reflects lower insurance fee revenue due to typically higher seasonal commercial lines revenue in the third quarter. The increase over prior-year period reflects higher interest income due to loan growth, a decrease in loan loss provision, and lower income tax expense related to the impact of TCJA. Return on average equity was 13.86% for the fourth quarter of 2018, compared with 15.35% in the trailing third quarter of 2018 and 3.32% in the fourth quarter of 2017.

“In the fourth quarter we extended the very strong results experienced through 2018, including growth across the board in deposits, loans and fee income, culminating in an outstanding year for earnings with net income up 56%,” said David J. Nasca, President and CEO of Evans Bancorp, Inc. “Initiatives and investments remain aimed at enhancing the client experience and building relationships, scaling our growth from an operational and cost perspective, bolstering our fee-based businesses, and investing back into the communities in which we operate.”

Net Interest Income ($ in thousands)
				4Q 2018					3Q 2018				4Q 2017
Interest income				$	15,309				$	14,690			$	12,794
Interest expense					2,936					2,604				1,634
Net interest income					12,373					12,086				11,160
(Credit) provision for loan losses					(276	)				252				602
Net interest income after provision				$	12,649				$	11,834			$	10,558

Net interest income increased $0.3 million, or 2%, from the third quarter of 2018, and $1.2 million, or 11%, from the prior-year fourth quarter. The increase was driven by average interest-earning asset growth, particularly loans, partially offset by an increase in interest expense. The increase in interest income reflects growth in the commercial loan portfolio as well as the benefit from the re-pricing of variable rate loans tied to the Company’s prime rate. Average commercial loans, including commercial real estate and commercial and industrial loans, were $913 million, up $91 million from the 2017 fourth quarter. The increase in net interest income from the linked quarter was mainly due to prime rate movements.

Fourth quarter net interest margin of 3.70% decreased 3 basis points from the 2018 third quarter and 9 basis points from the fourth quarter of 2017. The margin has been impacted by rising funding costs due to increases in short-term interest rates, along with very competitive deposit market pricing. The cost of interest-bearing liabilities was 1.14% compared with 1.04% in the third quarter of 2018 and 0.73% in the fourth quarter of 2017. The Company has experienced a shift in deposit mix as consumers in low-cost legacy savings products have migrated to higher-rate time deposits consistent with the industry. Average time deposits comprised 24% of average total deposits during the fourth quarter of 2018, compared with 23% and 17% in the third quarter of 2018 and the fourth quarter of 2017, respectively.

The $0.3 million release of allowance for loan losses for the fourth quarter of 2018 reflects a decrease in non- performing loans and marginal loan growth in the quarter.

Asset Quality ($ in thousands)
				4Q 2018					3Q 2018					4Q 2017
Total non-performing loans				$	18,991				$	23,090				$	13,715
Total net loan charge-offs (recoveries)					153					274					765
Non-performing loans/ Total loans					1.64	%				2.00	%				1.29	%
Net loan charge-offs (recoveries)/ Average loans					0.05	%				0.10	%				0.30	%
Allowance for loan losses/ Total loans					1.28	%				1.32	%				1.32	%

“Our loan production remains focused upon originating within our consistent and prudent risk appetite, which is reflected in our strong credit quality,” stated John Connerton, Chief Financial Officer of Evans Bank. “While many of our credit quality metrics improved during the quarter, we continue to make progress with a small number of larger commercial credits that make up our non-performing loans.”

Non-Interest Income ($ in thousands)
				4Q 2018					3Q 2018					4Q 2017
Deposit service charges				$	571				$	571				$	481
Insurance service and fee revenue					2,233					3,215					1,649
Bank-owned life insurance					166					165					464
Loss on tax credit investment					(2,705	)				(165	)				(1,740	)
Refundable NY state historic tax credit					1,832					150					1,224
Other income					941					828					949
Total non-interest income				$	3,038				$	4,764				$	3,027

The increase in deposit service charges from last year’s fourth quarter reflects higher fees related to overdrafts as the Company and its clients continue to benefit from a new product that provides overdraft protection to small businesses.

Insurance revenue decreased $1.0 million from the trailing third quarter due to the seasonal decrease in commercial lines insurance commissions and a decrease in profit sharing revenue. The increase in insurance revenue from the fourth quarter of 2017 primarily relates to the R&S acquisition, which added incremental commercial and personal lines revenue of $0.5 million.

The fourth quarter of 2018 included a $0.9 million net reduction of non-interest income related to an investment in an historic rehabilitation tax credit compared with $0.5 million in the prior-year period. There were no significant historic tax credit transactions in the third quarter of 2018.

In last year’s fourth quarter the Company realized a $0.3 million gain on bank-owned life insurance claim, while there were no claims in the current or linked quarters.

Non-Interest Expense ($ in thousands)
				4Q 2018				3Q 2018				4Q 2017
Salaries and employee benefits				$	7,220			$	7,090			$	6,248
Occupancy					855				795				844
Advertising and public relations					362				258				378
Professional services					599				588				594
Technology and communications					909				874				740
Amortization of intangibles					112				112				29
FDIC insurance					251				295				189
Other expenses					1,124				1,445				1,364
Total non-interest expenses				$	11,432			$	11,457			$	10,386

Fourth quarter salaries and benefits costs increased 16% from the prior-year period, and reflect the R&S acquisition and the addition of strategic personnel hires to support the Company’s continued growth. The increase in salaries and employee benefits from the linked quarter was due to year-end incentive adjustments based on the Company’s performance.

The linked quarter increase in advertising and public relations expense reflects additional promotional campaigns for the Company’s lending and insurance products. The increase in technology and communications was due to higher ATM card fees, online banking activity and software costs. The amortization of intangible assets was higher due to the acquisition of R&S.

The decrease in other expense in the fourth quarter of 2018 reflects a $0.3 million contribution to the Evans Bank Foundation Fund (“the Foundation”) made during the fourth quarter of 2017, and a community contribution accrual of $0.4 million recorded in the third quarter of 2018. Evans contributes to, and invests in, community organizations that provide positive, meaningful impact to the Western New York region. Evans has elevated its resource commitment to the community as a function of our continued growth and performance.

The Company’s efficiency ratio in the fourth quarter of 2018 was 69.5% compared with 66.9% in the third quarter of 2018 and 70.4% in last year’s fourth quarter.

During fourth quarter 2018 the Company recognized an income tax benefit of $0.2 million. Excluding the impact of historic tax credit transactions, the fourth quarter 2018 effective tax rate was 23.1%. In the third quarter 2018 income tax expense was $0.3 million, or an effective tax rate of 6.7%. Income taxes were reduced by $0.7 million in the third quarter of 2018 due to a change in estimate of when certain state historic tax credits will be taxable for federal purposes. Excluding this adjustment, the third quarter 2018 effective tax rate was 20.5%. Fourth quarter 2017 income tax expense was $2.2 million, or an effective tax rate of 69.0%. The effective tax rate in the fourth quarter of 2017, excluding TCJA and historic tax credit impact, was 29.8%.

2018 Year-end Balance Sheet Highlights

Total assets were $1.39 billion as of December 31, 2018, up $7 million, or 1%, from September 30, 2018 and $93 million, or 7%, higher than year-end 2017. The Company had strong loan growth as the portfolio increased $91 million, or 9%, to $1.16 billion during 2018 with the increase predominantly in commercial real estate.

Investment securities were $134 million at December 31, 2018, $4 million lower than the third quarter of 2018, and $16 million lower than at the end of 2017. The primary objectives of the Company’s investment portfolio are to provide liquidity, secure municipal deposits, and maximize income while preserving safety of principal. With the yield curve continuing to flatten, there is a reduced advantage to purchasing longer-term investment securities.

Deposit growth was strong in 2018, increasing 16% to $1.22 billion at December 31, 2018. The year-over-year increase was across all of the Company’s product categories, including demand deposit growth of 6%, NOW account growth of 1%, savings deposit growth of 7%, and time deposit growth of 62%. The largest components of deposit growth during 2018 were time deposits of $115 million, of which $41 million were brokered, and municipal saving deposits of $53 million. Total average demand deposits were $248 million for the 2018 fourth quarter, an increase of $28 million from the fourth quarter of 2017, which was mostly attributable to growth in commercial demand deposits.

The deposit mix has changed industry wide as consumer preferences move toward term products with higher rates. Consumer savings deposits declined $52 million year-over-year, while consumer time deposits increased $74 million.

2018 Year in Review

Net interest income for 2018 was $48.1 million, up 14%, primarily due to strong growth in the Company’s commercial loan portfolio, partially offset by an increase in deposit interest expense and a compressed net interest margin. Net interest margin was 3.77% in 2018, a decrease of 3 basis points.

The Company’s provision for loan losses of $1.4 million was up from $0.7 million due to loan growth, an increase in criticized loans, and an increase in non-performing loans. The ratio of non-performing loans to total loans was 1.64% at December 31, 2018 compared with 1.29% at the end of 2017.

Non-interest income was up $2.2 million, or 17%, to $15.2 million, mainly due to the increase in insurance service and fee revenue of $1.5 million, reflecting the R&S acquisition and commercial lines organic growth.

Non-interest expense increased $4.7 million, or 12%, to $43.3 million. The increase reflects higher salaries and employee benefits of $3.0 million, or 12%, due to the R&S acquisition, merit increases, higher incentive compensation and the addition of new employees as part of the Company’s planned growth strategy. Technology expenses were up 18%, or $0.5 million, to $3.4 million largely due to increased ATM card fees, online banking activity and software costs. FDIC insurance expense increased $0.3 million, or 38%, as a result of higher average assets due to loan growth. Amortization of intangibles increased $0.2 million due to the acquisition of R&S.

The efficiency ratio for 2018 improved to 66.87% from 68.50%.

Income tax expense for the year was $2.3 million, representing an effective tax rate of 12.2% compared with an effective tax rate of 33.2% in 2017. The decrease in the effective tax rate was due to the $2.1 million charge relating to TCJA in 2017, the lowering of the Company’s federal tax rate from 35% to 21% effective January 1, 2018, and historic tax credit transactions.

Capital Management

The Company consistently maintains regulatory capital ratios measurably above the Federal “well capitalized” standard, including a Tier 1 leverage ratio of 9.73% at December 31, 2018 compared with 9.60% at September 30, 2018 and 10.11% at December 31, 2017. Book value per share increased to $27.13 at December 31, 2018 compared with $26.03 at September 30, 2018 and $24.74 at December 31, 2017.

In 2018, the Company paid cash dividends of $0.92 per common share, up 15%.

Outlook

Mr. Nasca concluded, “We are especially pleased that our strategic focus on acquiring and retaining top talent, building client relationships, and adding value to those relationships continues to produce strong financial performance. This performance allows us to grow and deliver for our clients while reinvesting in the community and strengthening the economic and social fabric of our markets.

“We are approaching a century of serving Western New York, and we firmly believe that our long-term success reflects our commitment to continuing to perform, as shown by our record earnings in 2018 and over the last several years. We believe we can further build on this momentum.”

Webcast and Conference Call

The Company will host a conference call and webcast on Thursday, January 31, 2019 at 4:45 p.m. ET. Management will review the financial and operating results for the fourth quarter and full year of 2018, as well as the Company’s strategy and outlook. A question and answer session will follow the formal presentation.

The conference call can be accessed by calling [phone]. Alternatively, the webcast can be monitored at www.evansbancorp.com.

A telephonic replay will be available from 7:45 p.m. ET on the day of the teleconference until Thursday, February 7, 2019. To listen to the archived call, dial [phone] and enter conference ID number 13686188, 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 $1.4 billion in assets and $1.2 billion in deposits at December 31, 2018. Evans is a full- service community bank, with 15 financial centers providing comprehensive financial services to consumer, business and municipal customers throughout Western New York. Evans Bancorp's wholly owned insurance subsidiary, The Evans Agency, LLC, provides life insurance, employee benefits, and property and casualty insurance through ten insurance 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 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)
				12/31/2018				9/30/2018				6/30/2018				3/31/2018				12/31/2017
ASSETS
Investment Securities				$	133,788			$	137,909			$	148,628			$	164,471			$	149,732
Loans					1,155,930				1,155,566				1,125,895				1,109,961				1,065,315
Allowance for loan losses					(14,784	)			(15,213	)			(15,235	)			(14,693	)			(14,019	)
Goodwill and intangible assets					12,992				13,104				8,496				8,525				8,553
All other assets					100,281				89,557				78,307				85,434				86,052
Total assets				$	1,388,207			$	1,380,923			$	1,346,091			$	1,353,698			$	1,295,633
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits					231,902				236,079				224,373				238,827				219,664
NOW deposits					110,450				110,768				121,170				124,997				109,378
Savings deposits					571,479				574,262				595,500				566,314				535,730
Time deposits					301,227				294,514				241,425				204,295				186,457
Total deposits					1,215,058				1,215,623				1,182,468				1,134,433				1,051,229
Borrowings					24,472				24,309				25,348				83,114				108,869
Other liabilities					17,031				15,331				14,700				16,278				17,193
Total stockholders' equity					131,646				125,660				123,575				119,873				118,342
SHARES AND CAPITAL RATIOS
Common shares outstanding					4,852,868				4,827,701				4,821,381				4,803,334				4,782,505
Book value per share				$	27.13			$	26.03			$	25.63			$	24.96			$	24.74
Tier 1 leverage ratio					9.73	%			9.60	%			9.94	%			9.81	%			10.11	%
Tier 1 risk-based capital ratio					11.84	%			11.34	%			11.63	%			11.48	%			11.72	%
Total risk-based capital ratio					13.09	%			12.59	%			12.88	%			12.73	%			12.97	%
ASSET QUALITY DATA
Total non-performing loans				$	18,991			$	23,090			$	23,210			$	14,771			$	13,715
Total net loan charge-offs (recoveries)					153				274				117				93				765
Non-performing loans/Total loans					1.64	%			2.00	%			2.06	%			1.33	%			1.29	%
Net loan charge-offs (recoveries)/Average loans					0.05	%			0.10	%			0.04	%			0.03	%			0.30	%
Allowance for loans losses/Total loans					1.28	%			1.32	%			1.35	%			1.32	%			1.32	%

EVANS BANCORP, INC AND SUBSIDIARIES SELECTED OPERATIONS DATA (UNAUDITED) (in thousands, except share and per share data)
		2018				2018				2018				2018				2017
		Fourth Quarter				Third Quarter				Second Quarter				First Quarter				Fourth Quarter
Interest income		$	15,309			$	14,690			$	14,247			$	13,366			$	12,794
Interest expense			2,936				2,604				2,051				1,914				1,634
Net interest income			12,373				12,086				12,196				11,452				11,160
Provision for loan losses			(276	)			252				659				767				602
Net interest income after provision			12,649				11,834				11,537				10,685				10,558
Deposit service charges			571				571				525				509				481
Insurance service and fee revenue			2,233				3,215				1,952				1,965				1,649
Bank-owned life insurance			166				165				178				171				464
Loss on tax credit investment			(2,705	)			(165	)			-				-				(1,740	)
Refundable NY state historic tax credit			1,832				150				-				-				1,224
Other income			941				828				984				1,141				949
Total non-interest income			3,038				4,764				3,639				3,786				3,027
Salaries and employee benefits			7,220				7,090				6,475				6,627				6,248
Occupancy			855				795				727				758				844
Advertising and public relations			362				258				326				124				378
Professional services			599				588				626				653				594
Technology and communications			909				874				847				764				740
Amortization of intangibles			112				112				28				28				29
FDIC insurance			251				295				246				232				189
Other expenses			1,124				1,445				958				985				1,364
Total non-interest expenses			11,432				11,457				10,233				10,171				10,386
Income before income taxes			4,255				5,141				4,943				4,300				3,199
Income tax provision			(196	)			346				1,152				981				2,207
Net income			4,451				4,795				3,791				3,319				992
PER SHARE DATA
Net income per common share-diluted		$	0.90			$	0.97			$	0.77			$	0.68			$	0.20
Cash dividends per common share		$	-			$	0.46			$	-			$	0.46			$	-
Weighted average number of diluted shares			4,928,551				4,940,822				4,933,522				4,912,289				4,904,270
PERFORMANCE RATIOS
Return on average total assets			1.26	%			1.40	%			1.13	%			1.01	%			0.32	%
Return on average stockholders' equity			13.86	%			15.35	%			12.39	%			11.15	%			3.32	%
Efficiency ratio			69.52	%			66.88	%			64.45	%			66.56	%			70.44	%

EVANS BANCORP, INC AND SUBSIDIARIES SELECTED AVERAGE BALANCES AND YIELDS/RATES (UNAUDITED) (in thousands)
				2018			2018				2018				2017				2017
				Fourth Quarter			Third Quarter				Second Quarter				First Quarter				Fourth Quarter
AVERAGE BALANCES
Loans, net				$	1,128,015		$ 1,127,173			$ 1,098,391				$ 1,067,282				$ 1,009,497
Investment securities					137,175		145,122			155,089				160,739				155,475
Interest-bearing deposits at banks					60,061		12,641			4,013				2,712				2,380
Total interest-earning assets					1,325,251		1,284,936			1,257,493				1,230,733				1,167,352
Non interest-earning assets					83,482		87,402			81,113				80,644				79,234
Total Assets				$	1,408,733		$ 1,372,338			$ 1,338,606				$ 1,311,377				$ 1,246,586
NOW					110,612		115,417			120,510				114,268				92,089
Savings					581,048		581,484			576,197				552,546				549,466
Time deposits					301,957		274,275			214,410				194,223				181,291
Total interest-bearing deposits					993,617		971,176			911,117				861,037				822,846
Other borrowings					25,340		25,749			50,917				92,893				70,986
Total interest-bearing liabilities					1,018,957		996,925			962,034				953,930				893,832
Demand deposits					247,619		233,393			239,546				223,176				219,291
Other non-interest bearing liabilities					13,689		17,045			14,614				15,161				14,097
Stockholders' equity					128,468		124,975			122,412				119,110				119,366
Total Liabilities and Equity				$	1,408,733		$ 1,372,338			$ 1,338,606				$ 1,311,377				$ 1,246,586
YIELD/RATE
Loans, net					4.94	%		4.81	%			4.82	%			4.70	%			4.65	%
Investment securities					2.68	%		2.60	%			2.67	%			2.51	%			2.45	%
Interest-bearing deposits at banks					2.24	%		1.98	%			1.50	%			1.50	%			0.67	%
Total interest-earning assets					4.58	%		4.54	%			4.54	%			4.40	%			4.35	%
NOW					0.30	%		0.27	%			0.26	%			0.27	%			0.22	%
Savings					0.74	%		0.70	%			0.59	%			0.55	%			0.48	%
Time deposits					2.07	%		1.89	%			1.55	%			1.42	%			1.34	%
Total interest-bearing deposits					1.10	%		0.99	%			0.77	%			0.71	%			0.64	%
Other borrowings					2.97	%		2.96	%			2.30	%			1.82	%			1.71	%
Total interest-bearing liabilities					1.14	%		1.04	%			0.86	%			0.81	%			0.73	%
Interest rate spread					3.44	%		3.50	%			3.68	%			3.59	%			3.62	%
Contribution of interest-free funds					0.26	%		0.23	%			0.21	%			0.18	%			0.17	%
Net interest margin					3.70	%		3.73	%			3.89	%			3.77	%			3.79	%

EVANS BANCORP, INC AND SUBSIDIARIES SELECTED OPERATIONS DATA (UNAUDITED) (in thousands, except share and per share data)
			2018				2017
			Year to Date				Year to Date				% Change
Interest income			$	57,612			$	47,748			21	%
Interest expense				9,505				5,731			66	%
Net interest income				48,107				42,017			14	%
Provision for loan losses				1,402				738			90	%
Net interest income after provision				46,705				41,279			13	%
Deposit service charges				2,176				1,747			25	%
Insurance service and fee revenue				9,365				7,898			19	%
Bank-owned life insurance				680				864			(21)	%
Loss on tax credit investment				(2,870	)			(3,997	)		(28)	%
Refundable NY state historic tax credit				1,982				2,843			(30)	%
Other income				3,894				3,648			7	%
Total non-interest income				15,227				13,003			17	%
Salaries and employee benefits				27,412				24,408			12	%
Occupancy				3,135				3,199			(2)	%
Advertising and public relations				1,070				1,095			(2)	%
Professional services				2,466				2,260			9	%
Technology and communications				3,394				2,881			18	%
FDIC insurance				1,024				740			38	%
Amortization of intangibles				280				113			148	%
Other expenses				4,512				3,898			16	%
Total non-interest expenses				43,293				38,594			12	%
Income before income taxes				18,639				15,688			19	%
Income tax provision				2,283				5,209			(56)	%
Net income				16,356				10,479			56	%
PER SHARE DATA
Net income per common share-diluted			$	3.32			$	2.16			54	%
Cash dividends per common share			$	0.92			$	0.80			15	%
Weighted average number of diluted shares				4,933,743				4,860,828
PERFORMANCE RATIOS
Return on average total assets				1.20	%			0.89	%
Return on average stockholders' equity				13.20	%			9.11	%
Efficiency ratio				66.87	%			68.50	%
Net interest margin				3.77	%			3.80	%
Net loan charge-offs/Average loans				0.06	%			0.07	%

View source version on businesswire.com: https://www.businesswire.com/news/home/20190131005917/en/