Evans Bancorp Reports First Quarter 2020 Results

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 first quarter ended March 31, 2020.

FIRST QUARTER 2020 HIGHLIGHTS (compared with prior-year period unless otherwise noted)

• Solid asset growth with loans increasing $20 million in the quarter, or 6%, on an annualized basis
• Net interest income increased 2% to $12.8 million
• Regulatory and FSB shareholder approval received for Fairport Savings Bank acquisition
• An elevated provision for loan loss of $3.0 million reflects the impacts of the COVID-19 pandemic
• The Bank’s capital and liquidity remain strong as total deposits grew $60 million, or 5%, in the quarter

Net income was $0.2 million, or $0.04 per diluted share, in the first quarter of 2020, compared with $3.7 million, or $0.75 per diluted share, in both the fourth and first quarters of 2019. The Company’s first quarter 2020 results included a $3.0 million provision for loan loss compared with a release of $0.1 million from the allowance for loan losses in the fourth quarter of 2019 and a provision of $0.5 million in the first quarter of 2019. Economic trends and conditions reflecting the impact of the Coronavirus disease (COVID-19) at the end of the first quarter resulted in higher estimates of incurred credit losses in the Company’s loan portfolio compared with prior quarter estimates. While the full impact of COVID-19 on future financial results is uncertain and not currently predictable, the Company believes that the effects could have a material impact on the ability of our clients to meet their borrowing obligations. Also impacting the current quarter was lower non-interest income due to a historic rehabilitation tax credit transaction and higher non-interest expense due to salaries and benefit expenses and merger costs related to the planned Fairport Savings Bank (FSB) acquisition. Return on average equity was 0.55% for the first quarter of 2020 compared with 10.16% in the fourth quarter of 2019 and 11.19% in the first quarter of 2019.

“We believe the Company is in a good position to weather this unprecedented environment while supporting our clients and the community. Our prime focus is on maintaining the safety of our associates and clients, and doing our utmost to assist our communities in responding to the hurdles presented by this pandemic,” said David J. Nasca, President and CEO of Evans Bancorp, Inc. “We have proactively worked with clients and non-clients trying to support their needs through a well-trained and committed team along with investments in technology and infrastructure, while working remotely to control the spread of the virus. I truly appreciate the remarkable and outstanding efforts of all of our associates during these trying times and I am grateful to our clients for their ongoing trust and confidence.

“While the timing for returning to normal operations is not defined, we believe our operations are resilient and can sustainably perform in this environment.”

Mr. Nasca commented on the FSB acquisition, “While dealing with the many challenges created as a result of COVID-19, we continued to successfully move forward with the work required to consummate our acquisition of Fairport Savings Bank. We recently received regulatory and FSB shareholder approval and expect to close on May 1st. We are looking forward to welcoming their customers and associates to Evans, and leveraging our combined strengths for the benefit of all stakeholders.”

Net Interest Income
($ in thousands)
		1Q 2020				4Q 2019				1Q 2019
Interest income		$	15,823			$	16,028			$	15,542
Interest expense			3,047				3,236				3,034
Net interest income			12,776				12,792				12,508
Provision (credit) for loan losses			2,999				(122)				538
Net interest income after provision		$	9,777			$	12,914			$	11,970

Net interest income remained relatively flat from the fourth quarter of 2019, but increased $0.3 million, or 2%, from the prior-year first quarter. The year-over-year increase was driven by average interest-earning asset growth, particularly in the commercial loan portfolio. Average commercial loans, including commercial real estate and commercial and industrial loans, were $1.0 billion, up $72 million from the 2019 first quarter.

First quarter net interest margin of 3.64% declined 3 basis points from the 2019 fourth quarter and 15 basis points from the first quarter of 2019 largely due to the Federal Reserve’s decrease of the fed funds rate by 150 basis points during the first quarter of 2020 to near 0%. The lower yield on loans when compared with the fourth quarter and first quarter of 2019 reflects a decrease of 12 and 25 basis points, respectively. The cost of interest-bearing liabilities decreased to 1.17% compared with 1.24% in the fourth quarter of 2019 and 1.20% in the first quarter of 2019.

The $3.0 million provision for loan losses for the first quarter of 2020 includes a $2.2 million reserve build in response to economic trends and conditions which have been significantly impacted by the economic shutdown precipitated by the COVID-19 pandemic. The remaining provision was due to an increase in specific reserve levels on impaired loans and strong loan growth. The $0.1 million release of allowance for loan losses for the fourth quarter of 2019 was due to improved asset quality on impaired loans and marginal loan growth in that quarter. The Company has deferred the adoption of the Current Expected Credit Loss Impairment Model (CECL), as permitted by its classification as a Smaller Reporting Company by the Securities and Exchange Commission.

Asset Quality
($ in thousands)
		1Q 2020				4Q 2019				1Q 2019
Total non-performing loans		$	16,717			$	14,396			$	19,987
Total net loan charge-offs (recoveries)			17				85				115
Non-performing loans/ Total loans			1.34	%			1.17	%			1.69	%
Net loan charge-offs (recoveries)/ Average loans			0.01	%			0.03	%			0.04	%
Allowance for loan losses/ Total loans			1.46	%			1.24	%			1.28	%

“Evans is financially strong with significant liquidity. We will continue to do our part to serve our clients and communities,” stated John Connerton, Chief Financial Officer of Evans Bank. “We believe our solid balance sheet puts us in good position to weather what will be challenging conditions for our clients. The increase in allowance reflects the estimated losses incurred due to COVID-19 and the potentially offsetting impact from various stimulus programs currently enacted. We are proactively working with borrowers seeking flexibility on loan terms and conditions, and have been active in securing financing through the U.S. Small Business Administration Paycheck Protection Program (PPP). To date, we have secured approximately $140 million through the first phase of PPP for small business customers, including those new to the bank.”

Non-Interest Income
($ in thousands)
		1Q 2020				4Q 2019				1Q 2019
Deposit service charges		$	628			$	747			$	533
Insurance service and fee revenue			2,425				2,120				2,442
Bank-owned life insurance			160				164				159
Loss on tax credit investment			(2,475)				(158)				-
Refundable NY state historic tax credit			1,857				115				-
Other income			743				1,005				1,061
Total non-interest income		$	3,338			$	3,993			$	4,195

The first quarter of 2020 included a $0.6 million net reduction of non-interest income related to an investment in an historic rehabilitation tax credit. There were no significant historic tax credit transactions in the fourth and first quarters of 2019.

The decrease in other income from prior periods was primarily due to a reduction in the fair value of mortgage servicing rights due to lower rates and reduced transaction-based interchange fee income.

The increase in insurance service and fee revenue from the fourth quarter of 2019 reflects seasonally higher policy renewals for institutional clients, including businesses and municipalities.

Non-Interest Expense
($ in thousands)
		1Q 2020				4Q 2019				1Q 2019
Salaries and employee benefits		$	7,797			$	7,355			$	7,160
Occupancy			861				868				836
Advertising and public relations			269				421				167
Professional services			1,374				1,059				745
Technology and communications			1,096				1,075				893
Amortization of intangibles			130				112				112
FDIC insurance			179				74				207
Other expenses			1,164				1,207				1,104
Total non-interest expenses		$	12,870			$	12,171			$	11,224

Salaries and benefits costs increased 6% from the fourth quarter of 2019 and 9% from the prior-year period, reflecting the addition of strategic personnel hires to support the Company’s continued expansion. The increase from the fourth quarter of 2019 also includes seasonally higher employee benefits expenses.

Advertising expenses decreased from the prior quarter as a result of the seasonal timing of the Company’s promotional campaigns.

In the first quarter of 2020 professional service fees included $0.5 million in merger-related costs associated with the previously announced agreement to acquire Fairport Savings Bank. The remaining variance to the prior-year period was related to consulting services associated with business intelligence data systems and their strategic importance to future growth.

The increase in technology and communications from the prior-year period was due to higher online banking activity and software costs.

The Company’s GAAP efficiency ratio, or noninterest expenses divided by the sum of net interest income and noninterest income, was 79.9% in the first quarter of 2020, 72.5% in the fourth quarter of 2019, and 67.2% in the first quarter of 2019. The Company’s non-GAAP efficiency ratio, excluding amortization expense, gains and losses from investment securities, merger-related expenses and the impact of historic tax credit transactions, was 73.4% compared with 70.3% in the fourth quarter of 2019 and 66.5% in last year’s first quarter.

Income tax expense was less than $0.1 million, or an effective tax rate of 16.7%, for the first quarter of 2020 compared with $1.0 million, or an effective tax rate of 20.9%, in the fourth quarter of 2019 and $1.2 million, or an effective tax rate of 24.7%, in last year’s first quarter. Excluding the impact of the historic tax credit transaction, the first quarter 2020 effective tax rate was 25.4%.

Balance Sheet Highlights

Total assets were $1.52 billion as of March 31, 2020, an increase of 4% from $1.46 billion on December 31, 2019 and 5% from $1.46 billion at March 31, 2019, reflecting the Company’s strong loan growth. Since the end of last year’s first quarter loans were up $61 million, or 5%, to $1.25 billion largely due to growth in the commercial loan portfolio.

Investment securities were $162 million at March 31, 2020, $32 million higher than the end of 2019 and $21 million higher than at the end of last year’s first quarter. 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 grew $60 million, or 5%, to $1.33 billion since December 31, 2019, and were $52 million, or 4%, higher than the balance at the end of last year’s first quarter. The year-over-year increase was primarily due to NOW deposit growth of $37 million, or 30%, and demand deposit growth of $31 million or 13%. Savings deposits increased $7 million, which reflected $15 million in additional consumer deposits, partially offset by a decrease of $8 million in municipal balances. Time deposits decreased $24 million, or 8%, of which $15 million were brokered.

Capital Management

The Company has consistently maintained regulatory capital ratios measurably above the Federal “well capitalized” standard, including a Tier 1 leverage ratio of 9.92% at March 31, 2020 compared with 10.33% at December 31, 2019 and 9.74% at March 31, 2019. Book value per share was $29.96 at March 31, 2020 compared with $30.11 at December 31, 2019 and $27.66 at March 31, 2019.

On February 18, 2020, the Company declared a cash dividend of $0.58 per common share, which was paid on April 2, 2020. The semi-annual dividend represented a $0.06, or 12%, increase from the previous semi-annual dividend paid in October 2019.

Webcast and Conference Call

The Company will host a conference call and webcast on Wednesday, April 29, 2020 at 4:45 p.m. ET. Management will review the financial and operating results for the first quarter of 2020, 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 Wednesday, May 6, 2020. To listen to the archived call, dial [phone] and enter conference ID number 13700721, 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 March 31, 2020. 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 Insurance Agency, a wholly owned subsidiary, provides life insurance, employee benefits, and property and casualty insurance through ten 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)
		3/31/2020				12/31/2019				9/30/2019				6/30/2019				3/31/2019
ASSETS
Investment Securities		$	162,038			$	130,308			$	136,977			$	137,438			$	140,731
Loans			1,246,206				1,226,531				1,219,792				1,212,699				1,185,429
Allowance for loan losses			(18,157)				(15,175)				(15,382)				(15,248)				(15,207)
Goodwill and intangible assets			13,421				12,545				12,657				12,768				12,880
Operating lease right-of-use asset			3,577				3,720				3,862				4,003				4,142
All other assets			117,726				102,301				97,826				119,460				128,206
Total assets		$	1,524,811			$	1,460,230			$	1,455,732			$	1,471,120			$	1,456,181
LIABILITIES AND STOCKHOLDERS'
EQUITY
Demand deposits			273,623				263,717				271,633				243,860				242,156
NOW deposits			159,223				140,654				141,384				145,620				122,204
Savings deposits			625,773				587,142				568,156				603,180				618,471
Time deposits			268,978				275,927				277,633				290,251				292,892
Total deposits			1,327,597				1,267,440				1,258,806				1,282,911				1,275,723
Borrowings			23,902				23,755				28,748				25,298				23,812
Operating lease liability			4,002				4,154				4,302				4,449				4,594
Other liabilities			21,214				16,428				19,007				17,175				17,617
Total stockholders' equity			148,096				148,453				144,869				141,287				134,435
SHARES AND CAPITAL RATIOS
Common shares outstanding			4,942,802				4,929,593				4,920,381				4,915,678				4,860,316
Book value per share		$	29.96			$	30.11			$	29.44			$	28.74			$	27.66
Tier 1 leverage ratio			9.92	%			10.33	%			10.11	%			9.99	%			9.74	%
Tier 1 risk-based capital ratio			11.84	%			12.32	%			11.87	%			11.86	%			11.68	%
Total risk-based capital ratio			13.09	%			13.56	%			13.11	%			13.11	%			12.93	%
ASSET QUALITY DATA
Total non-performing loans		$	16,717			$	14,396			$	13,839			$	11,020			$	19,987
Total net loan charge-offs (recoveries)			17				85				(565)				49				115
Non-performing loans/Total loans			1.34	%			1.17	%			1.13	%			0.91	%			1.69	%
Net loan charge-offs (recoveries)/Average loans			0.01	%			0.03	%			(0.19)	%			0.02	%			0.04	%
Allowance for loans losses/Total loans			1.46	%			1.24	%			1.26	%			1.26	%			1.28	%

EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED OPERATIONS DATA (UNAUDITED)
(in thousands, except share and per share data)
		2020				2019				2019				2019				2019
		First Quarter				Fourth Quarter				Third Quarter				Second Quarter				First Quarter
Interest income		$	15,823			$	16,028			$	16,845			$	16,325			$	15,542
Interest expense			3,047				3,236				3,224				3,191				3,034
Net interest income			12,776				12,792				13,621				13,134				12,508
Provision (credit) for loan losses			2,999				(122)				(431)				90				538
Net interest income after provision			9,777				12,914				14,052				13,044				11,970
Deposit service charges			628				747				687				602				533
Insurance service and fee revenue			2,425				2,120				3,225				2,901				2,442
Bank-owned life insurance			160				164				160				173				159
Loss on tax credit investment			(2,475)				(158)				-				-				-
Refundable NY state historic tax credit			1,857				115				-				-				-
Other income			743				1,005				1,092				1,054				1,061
Total non-interest income			3,338				3,993				5,164				4,730				4,195
Salaries and employee benefits			7,797				7,355				7,644				7,469				7,160
Occupancy			861				868				853				872				836
Advertising and public relations			269				421				231				214				167
Professional services			1,374				1,059				1,009				929				745
Technology and communications			1,096				1,075				1,057				1,099				893
Amortization of intangibles			130				112				112				112				112
FDIC insurance			179				74				-				150				207
Other expenses			1,164				1,207				1,370				1,304				1,104
Total non-interest expenses			12,870				12,171				12,276				12,149				11,224
Income before income taxes			245				4,736				6,940				5,625				4,941
Income tax provision (benefit)			41				988				1,776				1,243				1,221
Net income			204				3,748				5,164				4,382				3,720
PER SHARE DATA
Net income per common share-diluted		$	0.04			$	0.75			$	1.04			$	0.88			$	0.75
Cash dividends per common share		$	0.58			$	-			$	0.52			$	-			$	0.52
Weighted average number of diluted shares			4,992,214				4,990,863				4,976,639				4,953,072				4,932,451
PERFORMANCE RATIOS
Return on average total assets			0.05	%			1.02	%			1.41	%			1.21	%			1.04	%
Return on average stockholders' equity			0.55	%			10.16	%			14.29	%			12.71	%			11.19	%
Efficiency ratio			79.87	%			72.51	%			65.35	%			68.01	%			67.20	%
Efficiency ratio (Non-GAAP)*			73.39	%			70.28	%			64.75	%			67.54	%			66.53	%
* 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)
		2020				2019				2019				2019				2019
		First Quarter				Fourth Quarter				Third Quarter				Second Quarter				First Quarter
AVERAGE BALANCES
Loans, net		$	1,219,230			$	1,213,837			$	1,202,634			$	1,183,379			$	1,153,067
Investment securities			136,029				137,354				143,731				148,465				141,249
Interest-bearing deposits at banks			57,319				32,061				24,661				28,132				44,024
Total interest-earning assets			1,412,578				1,383,252				1,371,026				1,359,976				1,338,340
Non interest-earning assets			89,804				89,415				89,513				85,720				86,386
Total Assets		$	1,502,382			$	1,472,667			$	1,460,539			$	1,445,696			$	1,424,726
NOW			144,564				136,077				134,008				123,515				112,571
Savings			605,103				593,694				591,585				605,524				591,641
Time deposits			274,576				274,856				281,798				289,794				298,586
Total interest-bearing deposits			1,024,243				1,004,627				1,007,391				1,018,833				1,002,798
Borrowings			24,708				27,241				25,234				24,231				25,746
Total interest-bearing liabilities			1,048,951				1,031,868				1,032,625				1,043,064				1,028,544
Demand deposits			281,624				272,834				261,089				244,142				242,030
Other non-interest bearing liabilities			22,127				20,375				22,231				20,609				21,219
Stockholders' equity			149,680				147,590				144,594				137,881				132,933
Total Liabilities and Equity		$	1,502,382			$	1,472,667			$	1,460,539			$	1,445,696			$	1,424,726
YIELD/RATE
Loans, net			4.80	%			4.92	%			5.16	%			5.13	%			5.05	%
Investment securities			3.24	%			2.46	%			2.87	%			2.77	%			2.67	%
Interest-bearing deposits at banks			1.27	%			1.65	%			2.56	%			2.22	%			2.29	%
Total interest-earning assets			4.51	%			4.61	%			4.87	%			4.81	%			4.71	%
NOW			0.50	%			0.57	%			0.45	%			0.37	%			0.30	%
Savings			0.87	%			0.94	%			0.90	%			0.87	%			0.80	%
Time deposits			2.02	%			2.09	%			2.17	%			2.18	%			2.16	%
Total interest-bearing deposits			1.13	%			1.21	%			1.20	%			1.18	%			1.15	%
Borrowings			2.78	%			2.64	%			2.92	%			3.13	%			3.01	%
Total interest-bearing liabilities			1.17	%			1.24	%			1.24	%			1.23	%			1.20	%
Interest rate spread			3.34	%			3.36	%			3.63	%			3.58	%			3.51	%
Contribution of interest-free funds			0.30	%			0.31	%			0.31	%			0.29	%			0.28	%
Net interest margin			3.64	%			3.67	%			3.94	%			3.87	%			3.79	%

 

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