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Evans Bancorp Reports Record Loan Growth in 2016 Third Quarter

Company Release - 10/27/2016 4:15 PM ET

HAMBURG, N.Y., Oct. 27, 2016 (GLOBE NEWSWIRE) -- 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 third quarter ended September 30, 2016.

THIRD QUARTER 2016 HIGHLIGHTS

  • Record loan growth: Loan portfolio of $913 million, up 25% year-over-year and 7% from the trailing second quarter
  • Net interest income increased 11% from last year’s third quarter to $9.1 million
  • Strong year-over-year deposit growth across all product categories; Total deposits up 15% to $898 million
  • New account openings up 32% compared with the second quarter
  • Net income was $2.2 million, or $0.51 per diluted share

Net income was $2.2 million, or $0.51 per diluted share, in the third quarter of 2016 compared with $2.0 million, or $0.46 per diluted share, in the trailing second quarter of 2016 and $2.5 million, or $0.58 per diluted share, in last year’s third quarter.  The increase from the 2016 trailing second quarter reflects higher net interest income and noninterest income, partially offset by higher provision for loan loss.  The decline from the third quarter of 2015 reflects the after-tax gain of $0.5 million, or $0.11 per diluted share, last year from an insurance settlement related to a fire sustained at a branch location.  Return on average equity was 9.23% for the third quarter of 2016 compared with 8.56% in the trailing second quarter and 11.20% in the third quarter of 2015.

“We continue to deliver strong growth and increasing revenue as both our loan and deposit portfolios have been expanding at a very healthy pace.  This has driven a double-digit increase in net interest income, even as we face continued headwinds from interest rates and a very competitive market environment,” said David J. Nasca, President and CEO of Evans Bancorp.  “Over the last year, we have organically grown loans by 25% and deposits by 15%.  New account openings were 32% higher in the third quarter.  We believe these are an excellent indicator of the strong customer response to Evans’ value proposition as a full service, locally-based community bank and our ability to execute our strategy and acquire new clients in a market going through transition.” 

Mr. Nasca added, “Our significant investments over the last few years in talent, technology and infrastructure have enabled us to capitalize on opportunities from the area’s economic expansion, the market disruption related to KeyCorp’s recent acquisition of First Niagara, and our enhanced competitive positioning.”

            
Net Interest Income
($ in thousands)
            
  3Q 2016  2Q 2016  3Q 2015
            
Interest income $ 10,241   $  9,694    $ 9,099 
Interest expense   1,172      1,178      960 
Net interest income   9,069      8,516      8,139 
Provision (credit) for loan losses   1,006      (376)    396 
Net interest income after provision (credit) $ 8,063   $  8,892    $ 7,743 
            

Net interest income increased $0.6 million, or 6%, from the second quarter of 2016 and $0.9 million, or 11%, from the prior-year third quarter, reflecting strong loan and demand deposit growth.  The Company’s commercial loan portfolio continued to grow at a significant rate as average commercial loans, including both commercial real estate and commercial and industrial loans, were $712 million in the third quarter, up 11% from $642 million in the trailing second quarter and up 28% from $557 million in the 2015 third quarter.

Net interest margin of 3.67% declined 18 basis points from the 2015 third quarter, but improved 2 basis points from the second quarter of 2016.  The margin contraction from last year reflects a continued decrease in loan yields as market rates remain historically low in a highly competitive market.  The margin improvement from the trailing second quarter was due to a decrease in the cost of interest-bearing liabilities as interest-bearing deposit rates declined 4 basis points.  This improvement in deposit pricing was somewhat offset by a decrease in loan yields.

The increase in loan loss provision reflects the Company’s significant loan growth and a small increase of commercial loan relationships to criticized status, partially offset by favorable credit quality trends including lower non-performing loans at September 30, 2016 compared with June 30, 2016 and a sustained charge-off ratio that is historically low.  The increase in non-performing loans at the end of the recent quarter when compared with the end of the third quarter of 2015 was primarily due to the downgrade of a single loan relationship in the fourth quarter of 2015.

             
Asset Quality 
($ in thousands) 
             
  3Q 2016  2Q 2016  3Q 2015 
             
Total non-performing loans $ 15,279   $  16,076    $ 8,170  
Total net loan charge-offs (recoveries)   67      (30)    50  
Non-performing loans/ Total loans   1.67 %    1.88  %   1.12 %
Net loan charge-offs/ Average loans   0.03 %    (0.01)%   0.03 %
Allowance for loan losses/ Total loans   1.50 %    1.50  %   1.84 %
             

John B. Connerton, Executive Vice President and Chief Financial Officer, noted, “Asset quality remains very strong.  We have grown our loan portfolio without compromising our disciplined underwriting standards.  Our overall favorable credit fundamentals are reflected by continued low charge-off rates and strong reserve levels in comparison to peers.”

            
Non-Interest Income
($ in thousands)
            
  3Q 2016  2Q 2016  3Q 2015
            
Deposit service charges $ 475   $  403    $ 455 
Insurance service and fee revenue   1,855      1,572      1,972 
Bank-owned life insurance   144      141      134 
Loss on tax credit investment   -      (2,139)    - 
Refundable NY state historic tax credit   -      1,508      - 
Gain on insurance proceeds   -      -      734 
Other income   861      795      962 
Total non-interest income $ 3,335   $  2,280    $ 4,257 
            

Previous quarters included the impact of large transactions, such as a net reduction of noninterest income of $0.6 million related to an investment in a historic rehabilitation tax credit in the second quarter of 2016 and a $0.7 million gain in the third quarter of 2015 from an insurance settlement related to a fire sustained at a branch location.  There were no comparable transactions in the third quarter of 2016.

Insurance revenue increased $0.3 million from the trailing second quarter due to the seasonal increase in commercial lines insurance commissions.  The $0.1 million decline from the previous year’s third quarter was due to a decrease in personal lines insurance commissions and financial services sales revenue, partially offset by strong commercial lines insurance revenue growth.

            
Non-Interest Expense
($ in thousands)
            
  3Q 2016  2Q 2016  3Q 2015
            
Salaries and employee benefits $ 5,402   $ 5,467   $  5,253  
Occupancy   732     740      675  
Repairs and maintenance   200     212      230  
Advertising and public relations   232     190      188  
Professional services   535     656      674  
Technology and communications   304     339      354  
FDIC insurance   201     182      151  
Litigation expense   -     -      (175)
Other expenses   1,105     933      930  
Total non-interest expenses $ 8,711   $ 8,719   $  8,280  
            

The Company experienced stability across most expense categories when compared with the second quarter of 2016 as efforts continue to optimize returns from the investments management has made during a rapid growth phase in recent years.  The third quarter of 2015 included a $0.2 million reversal of the Company’s litigation reserve after settling a legal matter during the period.

Salaries and benefits costs decreased $0.1 million in the recent third quarter when compared with the second quarter of 2016, reflecting stabilization in the number of employees at the Company.  The modest increase from last year’s third quarter reflects annual merit increases and strategic hires to support the Company’s continued growth, most notably in the expansion of its commercial banking team with new commercial loan officers, business development officers and related support staff.

Income tax expense of $0.5 million was recorded for the third quarter of 2016, roughly flat to the second quarter of 2016, but $0.7 million less than the $1.2 million income tax provision recognized in last year’s third quarter.  The effective tax rate for the quarter was 17.5% compared with 18.3% in the second quarter of 2016 and 32.6% in the third quarter of 2015.  The lower effective tax rate over the two most recent quarters reflects the impact of the tax credit investment transaction in the second quarter of 2016. 

Balance Sheet Highlights

Total assets reached $1.1 billion as of September 30, 2016, a 6% increase from $1.0 billion at June 30, 2016 and 18% higher than $921 million at September 30, 2015.  The Company experienced the highest loan growth in its history this quarter as the loan portfolio increased from the 2016 second-quarter end by $60 million, or 7%, to $913 million.  Loan growth from the end of last year’s third quarter was $182 million, or 25%, and was predominantly in the commercial real estate and commercial and industrial loan portfolios.

Total deposits of $898 million were 3% higher than $870 million at the end of this year’s second quarter and 15% higher than the 2015 third quarter-end.  The year-over-year growth was across all of the Company’s product categories, including demand deposit growth of 15%, NOW account growth of 9%, savings deposit growth of 14%, and time deposit growth of 23%.

Capital Management

The Company consistently maintains regulatory capital ratios measurably above the Federal “well capitalized” standard, including a Tier 1 leverage ratio of 9.55% at September 30, 2016.  Book value per share increased to $22.20 at September 30, 2016 compared with $22.11 at June 30, 2016 and $21.16 at September 30, 2015.  Tangible book value per share was $20.31 at September 30, 2016, compared with $20.22 at the end of the second quarter of 2016 and $19.25 at the end of last year’s third quarter.

Outlook

Mr. Nasca concluded, “2016 has been a year of great momentum as Evans’ business and franchise have grown, most notably passing the $1 billion in assets milestone at mid-year.  Our strategies to benefit from market disruption have delivered excellent results to date, and we see continued opportunity going forward.  Our track record of successful execution gives us confidence as we move into the next phase of our 2020 strategic plan focused on leveraging a stronger platform and significant investments made in talent and infrastructure to drive continued growth in our business with greater earnings power and returns.”

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 $898 million in deposits at September 30, 2016.  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.


TABLES FOLLOW

                     
                     
EVANS BANCORP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
(in thousands, except shares and per share data)
                     
  9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015
ASSETS                    
Investment Securities $ 104,859   $ 110,629   $ 116,294   $ 98,758   $ 106,651  
Loans   912,852     853,306     796,773     773,984     731,239  
Allowance for loan losses   (13,712)    (12,773)    (13,119)    (12,883)    (13,456) 
Goodwill and intangible assets   8,101     8,101     8,101     8,101     8,101  
All other assets   72,563     62,335     81,866     71,147     88,356  
Total assets $ 1,084,663   $ 1,021,598   $ 989,915   $ 939,107   $ 920,891  
                     
LIABILITIES AND STOCKHOLDERS'                    
EQUITY                    
Demand deposits   195,869     187,774     174,276     183,098     170,022  
NOW deposits   87,047     88,993     95,622     83,674     79,983  
Regular savings deposits   496,926     480,290     463,672     439,993     436,331  
Time deposits   118,123     112,828     115,479     96,217     95,967  
Total deposits   897,965     869,885     849,049     802,982     782,303  
Borrowings   74,136     41,841     34,224     32,151     32,640  
Other liabilities   17,364     15,083     14,482     12,718     16,275  
Total stockholders' equity   95,198     94,789     92,160     91,256     89,673  
                     
SHARES AND CAPITAL RATIOS                    
Common shares outstanding   4,287,400     4,286,939     4,279,296     4,257,179     4,238,448  
Book value per share $ 22.20   $ 22.11   $ 21.54   $ 21.44   $ 21.16  
Tangible book value per share $ 20.31   $ 20.22   $ 19.64   $ 19.53   $ 19.25  
Tier 1 leverage ratio   9.55 %   10.06 %   10.18 %   10.45 %   10.32 %
Tier 1 risk-based capital ratio   10.82 %   11.45 %   11.94 %   11.82 %   12.03 %
Total risk-based capital ratio   12.07 %   12.70 %   13.20 %   13.07 %   13.29 %
                     
ASSET QUALITY DATA                    
Total non-performing loans $ 15,279   $ 16,076   $ 17,941   $ 16,042   $ 8,170  
Total net loan charge-offs (recoveries)   67     (30)    (28)    776     50  
                     
Non-performing loans/Total loans   1.67 %   1.88 %   2.25 %   2.07 %   1.12 %
Net loan charge-offs/Average loans   0.03 %   (0.01)%   (0.02)%   0.42 %   0.03 %
Allowance for loans losses/Total loans   1.50 %   1.50 %   1.65 %   1.66 %   1.84 %
                     


                     
EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED OPERATIONS DATA  (UNAUDITED)
(in thousands, except share and per share data)
                     
  2016 2016 2016 2015 2015
  Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter
Interest income  10,241    9,694     9,356    9,437    9,099  
Interest expense  1,172    1,178     1,096    1,001    960  
Net interest income  9,069    8,516     8,260    8,436    8,139  
Provision for loan losses (credit)  1,006    (376)    208    204    396  
Net interest income after provision  8,063    8,892     8,052    8,232    7,743  
                     
Deposit service charges  475    403     443    461    455  
Insurance service and fee revenue  1,855    1,572     1,748    1,572    1,972  
Bank-owned life insurance  144    141     136    140    134  
Loss on tax credit investment  -    (2,139)    -    -    -  
Refundable NY state historic tax credit  -    1,508     -    -    -  
Gain on insurance proceeds  -    -     -    -    734  
Other income  861    795     667    748    962  
Total non-interest income  3,335    2,280     2,994    2,921    4,257  
                     
Salaries and employee benefits  5,402    5,467     5,514    5,365    5,253  
Occupancy  732    740     699    722    675  
Repairs and maintenance  200    212     176    204    230  
Advertising and public relations  232    190     285    227    188  
Professional services  535    656     580    499    674  
Technology and communications  304    339     422    308    354  
FDIC insurance  201    182     159    161    151  
Litigation expense  -    -     (100)   -    (175) 
Other expenses  1,105    933     793    1,179    930  
Total non-interest expenses  8,711    8,719     8,528    8,665    8,280  
                     
Income before income taxes  2,687    2,453     2,518    2,488    3,720  
Income tax provision  471    450     804    734    1,211  
Net income  2,216    2,003     1,714    1,754    2,509  
                     
PER SHARE DATA                    
Net income per common share-diluted $0.51  $ 0.46   $ 0.40   $0.41  $ 0.58  
Cash dividends per common share $0.38  $ -   $ 0.38   $-  $ 0.36  
Weighted average number of diluted shares  4,362,479    4,346,599     4,328,034    4,315,489    4,312,275  
                     
PERFORMANCE RATIOS                    
Return on average total assets  0.84%   0.80 %   0.71 %  0.75%   1.10 %
Return on average stockholders' equity  9.23%   8.56 %   7.43 %  7.72%   11.20 %
Efficiency ratio  70.23%   76.30 %   75.78 %  76.30%   66.79 %
                     


                     
EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED AVERAGE BALANCES AND YIELDS/RATES  (UNAUDITED)
(in thousands)
  2016 2016 2016 2015 2015
  Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter
AVERAGE BALANCES                    
                     
Loans, net $875,999  $801,115  $772,672  $740,337  $706,568 
Investment securities  112,025   115,610   103,094   103,940   112,339 
Interest bearing deposits at banks  1,162   15,916   18,862   19,185   27,501 
Total interest-earning assets  989,186   932,641   894,628   863,462   846,408 
Non interest-earning assets  69,489   65,539   66,375   66,115   66,102 
Total Assets $1,058,675  $998,180  $961,003  $929,577  $912,510 
                     
NOW  86,428   88,966   88,220   80,810   78,335 
Regular savings  487,168   473,791   447,318   439,108   431,127 
Time deposits  115,644   114,545   108,954   96,478   97,321 
Total interest-bearing deposits  689,240   677,302   644,492   616,396   606,783 
Other borrowings  69,307   36,031   34,250   32,443   32,113 
Total interest-bearing liabilities  758,547   713,333   678,742   648,839   638,896 
                     
Demand deposits  187,201   178,106   176,074   175,362   168,883 
Other non-interest bearing liabilities  16,860   13,142   13,879   14,549   15,122 
Stockholders' equity  96,067   93,599   92,308   90,827   89,609 
                     
Total Liabilities and Equity $1,058,675  $998,180  $961,003  $929,577  $912,510 
                     
YIELD/RATE                    
                     
Loans, net  4.39%  4.43%  4.52%  4.59%  4.76%
Investment securities  2.21%  2.71%  2.39%  3.59%  2.42%
Interest bearing deposits at banks  0.34%  0.83%  0.23%  0.29%  0.23%
Total interest-earning assets  4.14%  4.16%  4.18%  4.37%  4.30%
                     
NOW  0.23%  0.35%  0.39%  0.40%  0.40%
Regular savings  0.47%  0.51%  0.47%  0.43%  0.41%
Time deposits  1.22%  1.23%  1.26%  1.29%  1.27%
Total interest-bearing deposits  0.57%  0.61%  0.60%  0.56%  0.55%
Other borrowings  1.13%  1.57%  1.60%  1.64%  1.64%
Total interest-bearing liabilities  0.62%  0.66%  0.65%  0.62%  0.60%
                     
Interest rate spread  3.52%  3.50%  3.53%  3.75%  3.70%
Contribution of interest-free funds  0.15%  0.15%  0.16%  0.16%  0.15%
Net interest margin  3.67%  3.65%  3.69%  3.91%  3.85%
                     
For more information contact:
John B. Connerton
Executive Vice President and Chief Financial Officer
Phone: (716) 926-2000
Email: jconner@evansbank.com

-OR-

Deborah K. Pawlowski
Kei Advisors LLC
Phone:  (716) 843-3908
Email:  dpawlowski@keiadvisors.com

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Source: Evans Bancorp, Inc.