Evans Bancorp Net Income Increases 16% to $4.4 Million in the 2019 Second Quarter

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 second quarter ended June 30, 2019.

SECOND QUARTER 2019 HIGHLIGHTS (compared with prior-year period unless otherwise noted)

• Net income of $4.4 million, up 16%; Earnings per diluted share grew 14% to $0.88

• Net interest income increased 8% to $13 million

• Non-interest income of $4.7 million increased 30% on strength of insurance business

• Loan portfolio of $1.2 billion up $27 million in the quarter, or 9% on an annualized basis

• Total deposits grew 8%, or $100 million, year-over-year

Net income was $4.4 million, or $0.88 per diluted share, in the second quarter of 2019, compared with $3.7 million, or $0.75 per diluted share, in the first quarter of 2019 and $3.8 million, or $0.77 per diluted share, in last year’s second quarter. The increase over comparative periods reflects higher net interest income due to loan growth and higher insurance service and fee revenue primarily resulting from the Richardson and Stout, Inc. (“R&S”) acquisition which was effective July 1, 2018, partially offset by an increase in non-interest expense. Return on average equity was 12.71% for the second quarter of 2019, compared with 11.19% in the first quarter of 2019 and 12.39% in the second quarter of 2018.

“Continuing loan growth and diversified revenue streams along with efforts to manage our balance sheet are reflected in the strength of our second quarter results. We are encouraged by the growth in income from insurance services, the sequential expansion of the net interest margin and the resiliency of our markets,” said David J. Nasca, President and CEO of Evans Bancorp, Inc. “Ongoing strategic investments in talent and infrastructure, strengthened marketing and sales efforts and continuous focus on value-added service to our clients resulted in measurable growth in loans and deposits.”

Net Interest Income
($ in thousands)
		2Q 2019				1Q 2019				2Q 2018
Interest income		$	16,325			$	15,542			$	14,247
Interest expense			3,191				3,034				2,051
Net interest income			13,134				12,508				12,196
Provision for loan losses			90				538				659
Net interest income after provision		$	13,044			$	11,970			$	11,537

Net interest income increased $0.6 million, or 5%, from the first quarter of 2019, and $0.9 million, or 8%, from the prior-year second quarter. The increases were driven by 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, partially offset by an increase in interest expense. Average commercial loans, including commercial real estate and commercial and industrial loans, were $965 million, up $30 million from the 2019 first quarter and $67 million from the 2018 second quarter.

Second quarter net interest margin of 3.87% increased 8 basis points from the 2019 first quarter, but decreased 2 basis points from the second quarter of 2018. The changes from the prior periods reflect increased yields on loans, offset by higher funding costs. The higher yield on loans when compared with the first quarter of 2019 and second quarter of 2018 reflects an increase of 8 and 31 basis points, respectively. 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 1.23% compared with 1.20% in the first quarter of 2019 and 0.86% in the second quarter of 2018. Consistent with the industry, the Company has experienced the migration of deposits from low-cost legacy savings products to higher-rate time deposits. Average time deposits comprised 23% of average total deposits during the second quarter of 2019, compared with 19% in the second quarter of 2018.

The provision for loan losses reflects strong loan growth in the current and comparative quarters. The lower provision during the second quarter of 2019 was the result of a decrease in non-performing loans during the quarter, primarily due to the successful restructure and payoff of a single commercial construction loan of $8 million.

Asset Quality
($ in thousands)
		2Q 2019				1Q 2019				2Q 2018
Total non-performing loans		$	11,020			$	19,987			$	23,210
Total net loan charge-offs			49				115				117
Non-performing loans/ Total loans			0.91	%			1.69	%			2.06	%
Net loan charge-offs/ Average loans			0.02	%			0.04	%			0.04	%
Allowance for loan losses/ Total loans			1.26	%			1.28	%			1.35	%

“We continue to make excellent progress in growing the business and earnings while maintaining a strong balance sheet and improved credit metrics. Our continued focus on consistent sound underwriting standards was demonstrated by positive performance in credit quality as nonperforming loans are less than half of the levels from a year ago,” stated John Connerton, Chief Financial Officer of Evans Bank.

Non-Interest Income
($ in thousands)
		2Q 2019				1Q 2019				2Q 2018
Deposit service charges		$	602			$	533			$	525
Insurance service and fee revenue			2,901				2,442				1,952
Bank-owned life insurance			173				159				178
Other income			1,054				1,061				984
Total non-interest income		$	4,730			$	4,195			$	3,639

The increase in insurance revenue over the first quarter of 2019 reflects new commercial and personal lines business and seasonally higher policy renewals, while the year-over-year increase also reflects the impact of the R&S acquisition.

Non-Interest Expense
($ in thousands)
		2Q 2019				1Q 2019				2Q 2018
Salaries and employee benefits		$	7,469			$	7,160			$	6,475
Occupancy			872				836				727
Advertising and public relations			214				167				326
Professional services			929				745				626
Technology and communications			1,099				893				847
Amortization of intangibles			112				112				28
FDIC insurance			150				207				246
Other expenses			1,304				1,104				958
Total non-interest expenses		$	12,149			$	11,224			$	10,233

Second quarter non-interest expense increased 19% from the prior-year period and 8% when compared with the first quarter of 2019. The most significant component of the increase was higher salaries and benefit costs, reflecting the R&S acquisition and the addition of strategic personnel hires to support the Company’s continued growth.

The increase in professional service fees was largely a result of one-time legal and accounting expenses. The increase in technology and communications was due to higher ATM card fees, online banking activity, software costs and equipment repair and maintenance expenses. The other expenses line item was up on higher loan expenses and seasonally higher travel expenses. The increase in amortization of intangibles from the prior year was related to assets obtained in the R&S acquisition.

The Company’s efficiency ratio in the second quarter of 2019 was 67.5% compared with 66.5% in the first quarter of 2019 and 64.5% in last year’s second quarter.

Income tax expense was $1.2 million, or an effective tax rate of 22.1%, for the second quarter of 2019 compared with 24.7% in the first quarter of 2019 and 23.3% in the second quarter of 2018.

Balance Sheet Highlights

Total assets were $1.47 billion as of June 30, 2019, an increase of 1% from $1.46 billion on March 31, 2019 and 9% from $1.35 billion at June 30, 2018, reflecting the Company’s strong loan growth. Loans were up $87 million, or 8%, to $1.21 billion since the end of last year’s second quarter. Loan growth was predominantly in the commercial real estate loan portfolio.

Investment securities were $137 million at quarter-end, $3 million lower than at the end of the first quarter of 2019 and $11 million lower than at the end of last year’s second quarter. 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.

Total deposits grew $7 million to $1.28 billion since March 31, 2019, and were $100 million, or 8%, higher than the balance at the end of last year’s second quarter. The year-over-year increase reflects growth of $49 million in time deposits, $24 million in NOW deposits, and $19 million in demand deposits. Total savings deposits increased $8 million from prior-year period, which reflected $23 million in additional commercial deposits and $11 million in municipal deposits, offset by lower consumer deposits. The deposit mix has changed industry wide as consumer preferences move toward term products with higher rates. Consumer savings deposits declined $26 million year-over-year, while consumer time deposits increased $29 million.

Capital Management

The Company consistently maintains regulatory capital ratios measurably above the Federal “well capitalized” standard, including a Tier 1 leverage ratio of 9.99% at June 30, 2019 compared with 9.74% at March 31, 2019 and 9.94% at June 30, 2018. Book value per share increased to $28.74 at June 30, 2019 compared with $27.66 at March 31, 2019 and $25.63 at June 30, 2018.

Outlook

Mr. Nasca concluded, “We are expanding our presence as a competitive alternative, serving more clients and a larger share of our market. While the current rate environment provides some challenges, opportunities are present to continue that expansion. With a focus on cost discipline and continued emphasis on retaining and building relationships that are sources of asset growth and stable core deposits, we believe we can maintain our sound earnings performance.”

Webcast and Conference Call

The Company will host a conference call and webcast on Thursday, July 25, 2019 at 4:45 p.m. ET. Management will review the financial and operating results for the second quarter of 2019, 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, August 1, 2019. To listen to the archived call, dial [phone] and enter conference ID number 13691914, 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 $1.5 billion in assets and $1.3 billion in deposits at June 30, 2019. 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)
		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018
ASSETS
Investment Securities		$	137,438			$	140,731			$	133,788			$	137,909			$	148,628
Loans			1,212,699				1,185,429				1,155,930				1,155,566				1,125,895
Allowance for loan losses			(15,248)				(15,207)				(14,784)				(15,213)				(15,235)
Goodwill and intangible assets			12,768				12,880				12,992				13,104				8,496
Operating lease right-of-use asset			4,003				4,142				-				-				-
All other assets			119,460				128,206				100,281				89,557				78,307
Total assets		$	1,471,120			$	1,456,181			$	1,388,207			$	1,380,923			$	1,346,091
LIABILITIES AND STOCKHOLDERS'
EQUITY
Demand deposits			243,860				242,156				231,902				236,079				224,373
NOW deposits			145,620				122,204				110,450				110,768				121,170
Savings deposits			603,180				618,471				571,479				574,262				595,500
Time deposits			290,251				292,892				301,227				294,514				241,425
Total deposits			1,282,911				1,275,723				1,215,058				1,215,623				1,182,468
Borrowings			25,298				23,812				24,472				24,309				25,348
Operating lease liability			4,449				4,594				-				-				-
Other liabilities			17,175				17,617				17,031				15,331				14,700
Total stockholders' equity			141,287				134,435				131,646				125,660				123,575
SHARES AND CAPITAL RATIOS
Common shares outstanding			4,915,678				4,860,316				4,852,868				4,827,701				4,821,381
Book value per share		$	28.74			$	27.66			$	27.13			$	26.03			$	25.63
Tier 1 leverage ratio			9.99	%			9.74	%			9.73	%			9.60	%			9.94	%
Tier 1 risk-based capital ratio			11.86	%			11.68	%			11.84	%			11.34	%			11.63	%
Total risk-based capital ratio			13.11	%			12.93	%			13.09	%			12.59	%			12.88	%
ASSET QUALITY DATA
Total non-performing loans		$	11,020			$	19,987			$	18,991			$	23,090			$	23,210
Total net loan charge-offs			49				115				153				274				117
Non-performing loans/Total loans			0.91	%			1.69	%			1.64	%			2.00	%			2.06	%
Net loan charge-offs/Average loans			0.02	%			0.04	%			0.05	%			0.10	%			0.04	%
Allowance for loans losses/Total loans			1.26	%			1.28	%			1.28	%			1.32	%			1.35	%

EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED OPERATIONS DATA (UNAUDITED)
(in thousands, except share and per share data)
		2019				2019				2018				2018				2018
		Second Quarter				First Quarter				Fourth Quarter				Third Quarter				Second Quarter
Interest income		$	16,325			$	15,542			$	15,309			$	14,690			$	14,247
Interest expense			3,191				3,034				2,936				2,604				2,051
Net interest income			13,134				12,508				12,373				12,086				12,196
Provision (credit) for loan losses			90				538				(276)				252				659
Net interest income after provision			13,044				11,970				12,649				11,834				11,537
Deposit service charges			602				533				571				571				525
Insurance service and fee revenue			2,901				2,442				2,233				3,215				1,952
Bank-owned life insurance			173				159				166				165				178
Loss on tax credit investment			-				-				(2,705)				(165)				-
Refundable NY state historic tax credit			-				-				1,832				150				-
Other income			1,054				1,061				941				828				984
Total non-interest income			4,730				4,195				3,038				4,764				3,639
Salaries and employee benefits			7,469				7,160				7,220				7,090				6,475
Occupancy			872				836				855				795				727
Advertising and public relations			214				167				362				258				326
Professional services			929				745				599				588				626
Technology and communications			1,099				893				909				874				847
Amortization of intangibles			112				112				112				112				28
FDIC insurance			150				207				251				295				246
Other expenses			1,304				1,104				1,124				1,445				958
Total non-interest expenses			12,149				11,224				11,432				11,457				10,233
Income before income taxes			5,625				4,941				4,255				5,141				4,943
Income tax provision (benefit)			1,243				1,221				(196)				346				1,152
Net income			4,382				3,720				4,451				4,795				3,791
PER SHARE DATA
Net income per common share-diluted		$	0.88			$	0.75			$	0.90			$	0.97			$	0.77
Cash dividends per common share		$	-			$	0.52			$	-			$	0.46			$	-
Weighted average number of diluted shares			4,953,072				4,932,451				4,928,551				4,940,822				4,933,522
PERFORMANCE RATIOS
Return on average total assets			1.21	%			1.04	%			1.26	%			1.40	%			1.13	%
Return on average stockholders' equity			12.71	%			11.19	%			13.86	%			15.35	%			12.39	%
Efficiency ratio			67.54	%			66.53	%			69.52	%			66.88	%			64.45	%

EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED AVERAGE BALANCES AND YIELDS/RATES (UNAUDITED)
(in thousands)
		2019				2019				2018				2018				2018
		Second Quarter				First Quarter				Fourth Quarter				Third Quarter				Second Quarter
AVERAGE BALANCES
Loans, net		$	1,183,379			$	1,153,067			$	1,128,015			$	1,127,173			$	1,098,391
Investment securities			148,465				141,249				137,175				145,122				155,089
Interest-bearing deposits at banks			28,132				44,024				60,061				12,641				4,013
Total interest-earning assets			1,359,976				1,338,340				1,325,251				1,284,936				1,257,493
Non interest-earning assets			85,720				86,386				83,482				87,402				81,113
Total Assets		$	1,445,696			$	1,424,726			$	1,408,733			$	1,372,338			$	1,338,606
NOW			123,515				112,571				110,612				115,417				120,510
Savings			605,524				591,641				581,048				581,484				576,197
Time deposits			289,794				298,586				301,957				274,275				214,410
Total interest-bearing deposits			1,018,833				1,002,798				993,617				971,176				911,117
Other borrowings			24,231				25,746				25,340				25,749				50,917
Total interest-bearing liabilities			1,043,064				1,028,544				1,018,957				996,925				962,034
Demand deposits			244,142				242,030				247,619				233,393				239,546
Other non-interest bearing liabilities			20,609				21,219				13,689				17,045				14,614
Stockholders' equity			137,881				132,933				128,468				124,975				122,412
Total Liabilities and Equity		$	1,445,696			$	1,424,726			$	1,408,733			$	1,372,338			$	1,338,606
YIELD/RATE
Loans, net			5.13	%			5.05	%			4.94	%			4.81	%			4.82	%
Investment securities			2.77	%			2.67	%			2.68	%			2.60	%			2.67	%
Interest-bearing deposits at banks			2.22	%			2.29	%			2.24	%			1.98	%			1.50	%
Total interest-earning assets			4.81	%			4.71	%			4.58	%			4.54	%			4.54	%
NOW			0.37	%			0.30	%			0.30	%			0.27	%			0.26	%
Savings			0.87	%			0.80	%			0.74	%			0.70	%			0.59	%
Time deposits			2.18	%			2.16	%			2.07	%			1.89	%			1.55	%
Total interest-bearing deposits			1.18	%			1.15	%			1.10	%			0.99	%			0.77	%
Other borrowings			3.13	%			3.01	%			2.97	%			2.96	%			2.30	%
Total interest-bearing liabilities			1.23	%			1.20	%			1.14	%			1.04	%			0.86	%
Interest rate spread			3.58	%			3.51	%			3.44	%			3.50	%			3.68	%
Contribution of interest-free funds			0.29	%			0.28	%			0.26	%			0.23	%			0.21	%
Net interest margin			3.87	%			3.79	%			3.70	%			3.73	%			3.89	%

 

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