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Evans Bancorp Net Income Increases 84% to Record $3.1 Million in the 2017 First Quarter

Company Release - 4/26/2017 4:15 PM ET

HAMBURG, N.Y.--(BUSINESS WIRE)-- Evans Bancorp, Inc. (the “Company” or “Evans”) (NYSE MKT: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, 2017.

FIRST QUARTER 2017 HIGHLIGHTS (compared with prior-year period)

  • Record net income of $3.1 million, up 84%, or $1.4 million; Earnings per diluted share
    grew 65% to $0.66
  • Net interest income increased 17% to $9.6 million
  • Non-interest income of $3.5 million increased 18% on strong insurance business performance
  • Return on average stockholders’ equity was 11.59%, a significant increase from 7.43%
  • Measurably improved efficiency ratio to 68.56% from 75.78%

Net income was $3.1 million, or $0.66 per diluted share, in the first quarter of 2017 compared with $2.3 million, or $0.53 per diluted share, in the trailing fourth quarter of 2016 and $1.7 million, or $0.40 per diluted share, in last year’s first quarter. The increase over each comparative period reflects higher net interest income and non-interest income, along with a reduction in provision for loan losses. Return on average equity was 11.59% for the first quarter of 2017 compared with 9.70% in the trailing fourth quarter and 7.43% in the first quarter of 2016.

“We kicked off the year with an extraordinarily strong first quarter, resulting from continued success in strategically growing our business combined with favorable economic conditions. We believe that our investments in people and services have delivered outsized growth in the past few quarters, while ongoing disruption from bank consolidation coupled with improved competitive strength has also driven performance,” said David J. Nasca, President and CEO of Evans Bancorp. “We achieved a new quarterly record result for net income and our improved efficiency ratio reflects both cost discipline as well as the operating leverage we gain with growth.”

           
Net Interest Income
($ in thousands)
 
1Q 2017 4Q 2016 1Q 2016
 
Interest income $ 10,918 $ 10,664 $ 9,356
Interest expense 1,274 1,261 1,096
Net interest income 9,644 9,403 8,260
(Credit) provision for loan losses   (435 )   371   208
Net interest income after provision $ 10,079 $ 9,032 $ 8,052
 

Net interest income increased $0.2 million, or 3%, from the fourth quarter of 2016 and $1.4 million, or 17%, from the prior-year first quarter. Average commercial loans, including both commercial real estate and commercial and industrial loans, were $747 million in the first quarter compared with $745 million in the trailing fourth quarter, but were 21% higher than $616 million in the 2016 first quarter. The high volume of loan closings in the fourth quarter of 2016 somewhat muted commercial loan growth in the first quarter of 2017. However, the Company expects stronger growth trends through the rest of 2017, given the strength of the commercial loan pipeline at the end of the first quarter. The strong growth of average commercial loans from last year’s first quarter was the primary driver of the improvement in net interest income in the first quarter of 2017 when compared with the first three months of 2016. The 3% increase in net interest income when compared with the fourth quarter of 2016 largely reflected a higher net interest margin.

First quarter net interest margin of 3.77% improved 11 basis points from the 2016 fourth quarter and 6 basis points from the first quarter of 2016. The margin improvement stems from increased yields on interest-earning assets. The higher yields when compared with the fourth quarter reflect an increase of 10 basis points in loan yields and 38 basis points in investment security yields. Loan yields have benefited from variable loan re-pricing, due to an increase in the prime rate after the Federal Reserve increased its target rate by 25 basis points late in 2016 and again in March of 2017. Fourth quarter 2016 investment yields had a higher than typical impact from accelerated premium amortization, resulting in somewhat depressed yields in that quarter. The improved asset yields when compared with last year’s first quarter reflect an asset mix increasingly weighted toward loans. Average loans were 89% of average interest-earning assets in the first three months of 2017 compared with 86% in the prior-year period.

The $0.4 million release of allowance for loan losses reflects favorable credit quality trends and marginal loan growth in the quarter. Strong loan growth in each of the fourth and first quarters of 2016, along with a higher level of non-performing loans in the first quarter of 2016, were the primary factors driving the provision for loan losses in each of the respective periods.

       
Asset Quality
($ in thousands)
1Q 2017 4Q 2016 1Q 2016
 
Total non-performing loans $ 12,285 $ 12,020 $ 17,941
Total net loan (recoveries) charge-offs (98 ) 167 (28 )
Non-performing loans/ Total loans 1.30 % 1.28 % 2.25 %
Net loan (recoveries) charge-offs/ Average loans (0.04 ) % 0.07 % (0.02 ) %
Allowance for loan losses/ Total loans 1.44 % 1.48 % 1.65 %
 

John B. Connerton, Executive Vice President and Chief Financial Officer, noted, “Net interest income continued to benefit from the size and quality of our loan portfolio. The release of allowance for loan losses during the first quarter reflected improving credit quality trends, including a sustained historically low charge-off ratio and a decrease in criticized loans.”

           
Non-Interest Income
($ in thousands)
1Q 2017 4Q 2016 1Q 2016
 
Deposit service charges $ 390 $ 429 $ 443
Insurance service and fee revenue 2,168 1,344 1,748
Bank-owned life insurance 130 135 136
Loss on tax credit investment - (883 ) -
Refundable NY state historic tax credit - 609 -
Other income   834   1,009     667
Total non-interest income $ 3,522 $ 2,643 $ 2,994
 

Insurance revenue increased from the trailing fourth quarter and last year’s first quarter, due to higher profit sharing revenue, including a seasonal impact, compared with the fourth quarter. There was continued growth in commercial lines insurance commissions and personal lines revenue was bolstered by incremental revenue from the two recent insurance agency acquisitions. Two business lines that underperformed in 2016, insurance claims services and financial services, both demonstrated improved results in the first quarter of 2017.

The fourth quarter of 2016 included the impact of a net reduction of non-interest income of $0.3 million related to an investment in an historic rehabilitation tax credit. There were no comparable transactions in each of the first quarters of 2017 and 2016.

           
Non-Interest Expense
($ in thousands)
1Q 2017 4Q 2016 1Q 2016
 
Salaries and employee benefits $ 5,716 $ 5,838 $ 5,514
Occupancy 775 744 699
Advertising and public relations 190 315 285
Professional services 602 445 580
Technology and communications 607 621 598
Amortization of intangibles 28 - -
FDIC insurance 227 210 159
Other expenses   910   965   693
Total non-interest expenses $ 9,055 $ 9,138 $ 8,528
 

First quarter non-interest expenses increased 6% from the prior-year period, but decreased 1% from the trailing fourth quarter. Salaries and benefits costs decreased $0.1 million from the trailing fourth quarter, reflecting seasonal incentive compensation in the fourth quarter. The 4% increase in salaries and benefits from last year’s first quarter reflects strategic personnel hires to support the Company’s continued growth.

Occupancy costs were higher compared with last year’s first quarter, due to additional depreciation costs of the new core banking system. Other expenses in the first quarter of 2017 were higher than the 2016 first quarter, mostly due to the receipt of an insurance claim of $0.1 million in the prior year period related to litigation costs recorded in previous periods. Higher FDIC insurance costs reflect the Company’s balance sheet growth over the past year.

The Company’s efficiency ratio measurably improved to 68.56% in the 2017 first quarter compared with 74.17% and 75.78% in the trailing fourth quarter and 2016 first quarter, respectively. The reduction in the efficiency ratio reflects the Company’s increased revenue while managing expense growth.

Income tax expense was $1.4 million, or an effective tax rate of 30.8%, for the first quarter of 2017 compared with $0.2 million, or 7.8%, in the fourth quarter of 2016 and $0.8 million, or 31.9%, in last year’s first quarter. The 2016 fourth quarter’s effective tax rate reflects the benefit of the previously noted tax credit investment transaction. The year-over-year decrease in the effective tax rate was due to an increase in the value of the Company’s deferred tax asset recorded in the 2017 first quarter, reflecting an increase in the projected marginal federal tax rate due to the growth in taxable income.

Balance Sheet Highlights

Total assets were $1.1 billion as of March 31, 2017, relatively unchanged from December 31, 2016, but up 15% from $990 million at March 31, 2016, reflecting the Company’s record loan growth in 2016. Loan growth from the end of last year’s first quarter was $149 million, or 19%, and was predominantly in the commercial real estate and commercial and industrial loan portfolios. Loans increased slightly from $943 million at December 31, 2016 to $946 million at March 31, 2017. Investment securities were $116 million at March 31, 2017, flat to the prior year, but $19 million higher than at the end of 2016. Management plans to leverage the capital generated by the common stock issuance in the first quarter with loan growth over the long term. In the short term, investment securities were purchased to generate more immediate returns.

Total deposits of $978 million were 4% higher than $940 million at the trailing fourth quarter and 15% higher than the 2016 first quarter-end. The year-over-year increase reflects growth in all deposit products, including demand deposits which grew 12%. In line with their typical seasonal nature, demand deposit balances were down slightly from the trailing fourth quarter. Deposit growth in the first quarter of 2017 was mostly due to higher municipal deposits.

Capital Management

The Company consistently maintains regulatory capital ratios measurably above the Federal “well capitalized” standard, including a Tier 1 leverage ratio of 10.76% at March 31, 2017 compared with 9.49% at December 31, 2016. The increase reflects the impact of the Company’s common stock offering in January 2017 that resulted in the issuance of 440,000 shares of common stock and netted proceeds of $14.1 million. Book value per share increased to $23.64 at March 31, 2017 compared with $22.50 at December 31, 2016 and $21.54 at March 31, 2016.

Outlook

Mr. Nasca concluded, “We expect to see momentum throughout the year as we leverage a stronger platform to drive continued growth. We have a strong and growing pipeline of business and expect recent loan growth trends to resume for the rest of 2017. The Company has added new leadership talent to grow our business and is executing according to our Strategic Plan. Overall, we believe we are well positioned and on track to meet our strategic goals of above trend asset and net income growth, strong returns, improved efficiency and a robust and competitive operating platform.”

Webcast and Conference Call

The Company will host a conference call and webcast on Wednesday, April 26, 2017, at 4:45 p.m. ET. Management will review the financial and operating results for the first quarter of 2017, as well as the Company’s strategy and outlook. A question and answer session will follow the formal discussion.

The conference call can be accessed by calling (201) 689-8562. 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 3, 2017. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13659593, 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 $1.1 billion in assets and $978 million in deposits at March 31, 2017. Evans is a full-service community bank, with 14 branches, 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 property and casualty insurance through seven 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)
 
3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
ASSETS
Investment Securities $ 116,304 $ 97,205 $ 104,859 $ 110,629 $ 116,294
Loans 945,583 942,512 912,852 853,306 796,773
Allowance for loan losses (13,579 ) (13,916 ) (13,712 ) (12,773 ) (13,119 )
Goodwill and intangible assets 8,638 8,406 8,101 8,101 8,101
All other assets 82,714 66,502 72,563 62,335 81,866
Total assets $ 1,139,660 $ 1,100,709 $ 1,084,663 $ 1,021,598 $ 989,915
 
LIABILITIES AND STOCKHOLDERS'
EQUITY
Demand deposits 194,747 201,741 195,869 187,774 174,276
NOW deposits 103,907 88,632 87,047 88,993 95,622
Savings deposits 531,408 508,652 496,926 480,290 463,672
Time deposits 147,915 140,949 118,123 112,828 115,479
Total deposits 977,977 939,974 897,965 869,885 849,049
Borrowings 33,009 49,689 74,136 41,841 34,224
Other liabilities 16,047 14,298 17,364 15,083 14,482
Total stockholders' equity 112,627 96,748 95,198 94,789 92,160
 
SHARES AND CAPITAL RATIOS
Common shares outstanding 4,763,696 4,300,634 4,287,400 4,286,939 4,279,296
Book value per share $ 23.64 $ 22.50 $ 22.20 $ 22.11 $ 21.54
Tier 1 leverage ratio 10.76 % 9.49 % 9.55 % 10.06 % 10.18 %
Tier 1 risk-based capital ratio 12.58 % 10.82 % 10.82 % 11.45 % 11.94 %
Total risk-based capital ratio 13.83 % 12.07 % 12.07 % 12.70 % 13.20 %
 
ASSET QUALITY DATA
Total non-performing loans $ 12,285 $ 12,020 $ 15,279 $ 16,076 $ 17,941
Total net loan (recoveries) charge-offs (98 ) 167 67 (30 ) (28 )
 
Non-performing loans/Total loans 1.30 % 1.28 % 1.67 % 1.88 % 2.25 %
Net loan (recoveries) charge-offs/Average loans (0.04 ) % 0.07 % 0.03 % (0.01 ) % (0.02 ) %
Allowance for loans losses/Total loans 1.44 % 1.48 % 1.50 % 1.50 % 1.65 %
 
                   
EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED OPERATIONS DATA (UNAUDITED)
(in thousands, except share and per share data)
 
2017 2016 2016 2016 2016
First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter
Interest income 10,918 10,664 10,241 9,694 9,356
Interest expense 1,274 1,261 1,172 1,178 1,096
Net interest income 9,644 9,403 9,069 8,516 8,260
(Credit) provision for loan losses (435 ) 371 1,006 (376 ) 208
Net interest income after provision 10,079 9,032 8,063 8,892 8,052
 
Deposit service charges 390 429 475 403 443
Insurance service and fee revenue 2,168 1,344 1,855 1,572 1,748
Bank-owned life insurance 130 135 144 141 136
Loss on tax credit investment - (883 ) - (2,139 ) -
Refundable NY state historic tax credit - 609 - 1,508 -
Other income 834 1,009 861 795 667
Total non-interest income 3,522 2,643 3,335 2,280 2,994
 
Salaries and employee benefits 5,716 5,838 5,402 5,467 5,514
Occupancy 775 744 732 740 699
Advertising and public relations 190 315 232 190 285
Professional services 602 445 535 656 580
Technology and communications 607 621 504 551 598
Amortization of intangibles 28 - - - -
FDIC insurance 227 210 201 182 159
Other expenses 910 965 1,105 933 693
Total non-interest expenses 9,055 9,138 8,711 8,719 8,528
 
Income before income taxes 4,546 2,537 2,687 2,453 2,518
Income tax provision 1,400 198 471 450 804
Net income 3,146 2,339 2,216 2,003 1,714
 
PER SHARE DATA
Net income per common share-diluted $ 0.66 $ 0.53 $ 0.51 $ 0.46 $ 0.40
Cash dividends per common share $ 0.40 $ - $ 0.38 $ - $ 0.38
Weighted average number of diluted shares 4,757,062 4,390,553 4,362,479 4,346,599 4,328,034
 
PERFORMANCE RATIOS
Return on average total assets 1.14 % 0.86 % 0.84 % 0.80 % 0.71 %
Return on average stockholders' equity 11.59 % 9.70 % 9.23 % 8.56 % 7.43 %
Efficiency ratio 68.56 % 74.17 % 70.23 % 76.30 % 75.78 %
           
EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED AVERAGE BALANCES AND YIELDS/RATES (UNAUDITED)
(in thousands)
2017 2016 2016 2016 2016
First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter
AVERAGE BALANCES
 
Loans, net $ 924,612 $ 915,095 $ 875,999 $ 801,115 $ 772,672
Investment securities 107,024 105,319 112,025 115,610 103,094
Interest-bearing deposits at banks   5,943   1,537   1,162   15,916   18,862
Total interest-earning assets 1,037,579 1,021,951 989,186 932,641 894,628
Non interest-earning assets   70,724   71,247   69,489   65,539   66,375
Total Assets $ 1,108,303 $ 1,093,198 $ 1,058,675 $ 998,180 $ 961,003
 
NOW 94,088 85,279 86,428 88,966 88,220
Savings 510,632 504,394 487,168 473,791 447,318
Time deposits   144,888   131,479   115,644   114,545   108,954
Total interest-bearing deposits 749,608 721,152 689,240 677,302 644,492
Other borrowings   38,748   61,076   69,307   36,031   34,250
Total interest-bearing liabilities 788,356 782,228 758,547 713,333 678,742
 
Demand deposits 196,331 198,616 187,201 178,106 176,074
Other non-interest bearing liabilities 15,053 15,873 16,860 13,142 13,879
Stockholders' equity   108,563   96,481   96,067   93,599   92,308
 
Total Liabilities and Equity $ 1,108,303 $ 1,093,198 $ 1,058,675 $ 998,180 $ 961,003
 
YIELD/RATE
 
Loans, net 4.49 % 4.39 % 4.37 % 4.46 % 4.54 %
Investment securities 2.50 % 2.12 % 2.20 % 2.72 % 2.40 %
Interest-bearing deposits at banks 0.82 % 0.52 % 0.34 % 0.83 % 0.23 %
Total interest-earning assets 4.27 % 4.15 % 4.12 % 4.18 % 4.21 %
 
NOW 0.22 % 0.23 % 0.23 % 0.35 % 0.39 %
Savings 0.48 % 0.48 % 0.47 % 0.51 % 0.48 %
Time deposits 1.27 % 1.25 % 1.21 % 1.24 % 1.27 %
Total interest-bearing deposits 0.60 % 0.59 % 0.56 % 0.62 % 0.60 %
Other borrowings 1.65 % 1.26 % 1.12 % 1.59 % 1.61 %
Total interest-bearing liabilities 0.66 % 0.64 % 0.61 % 0.66 % 0.65 %
 
Interest rate spread 3.61 % 3.51 % 3.51 % 3.52 % 3.56 %
Contribution of interest-free funds 0.16 % 0.15 % 0.14 % 0.15 % 0.15 %
Net interest margin 3.77 % 3.66 % 3.65 % 3.67 % 3.71 %

Evans Bancorp
John B. Connerton, 716-926-2000
Executive Vice President and Chief Financial Officer
jconner@evansbank.com
or
Kei Advisors LLC
Deborah K. Pawlowski, 716-843-3908
dpawlowski@keiadvisors.com

Source: Evans Bancorp, Inc.