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Evans Bancorp Reports 33% Increase in Net Income in 2016 Fourth Quarter and Record Net Income for 2016

Company Release - 2/6/2017 4:15 PM ET

HAMBURG, N.Y., Feb. 06, 2017 (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 fourth quarter and year ended December 31, 2016.

FOURTH QUARTER AND FULL YEAR 2016 HIGHLIGHTS (compared with prior year periods unless noted otherwise)

  • Fourth quarter net income grew 33% to $2.3 million, or $0.53 per diluted share
  • Net interest income in fourth quarter of 2016 increased 11% driven by expanded loan portfolio
  • Record annual net income of $8.3 million, an increase of 5% from 2015
  • Record loan growth in 2016:  Loans up 22%, or $169 million, to $943 million
  • Strong year-over-year deposit growth across all product categories.  Total deposits up 17% to $940 million.

Net income was $2.3 million, or $0.53 per diluted share, in the fourth quarter of 2016, compared with $2.2 million, or $0.51 per diluted share, in the trailing third quarter of 2016 and $1.8 million, or $0.41 per diluted share, in last year’s fourth quarter.  The increase from the 2016 trailing third quarter reflects higher net interest income, lower provision for loan loss, and the benefit of a historic tax credit, partially offset by lower noninterest income and higher expenses.  The 33% increase from the fourth quarter of 2015 is due to higher net interest income and the benefit of historic tax credits. 

Return on average equity increased 53 basis points to 9.70% for the fourth quarter of 2016 compared with the trailing third quarter and was up 198 basis points over the prior-year period.

For the full year 2016, net income was $8.3 million, up 5% from $7.8 million in 2015.  Earnings per diluted share increased from $1.82 in 2015 to $1.90 in 2016.  The return on average equity was 8.74% for 2016, compared with 8.82% in 2015.

“2016 was an outstanding year for Evans with record growth and strong returns further fueling already robust momentum and carrying the organization over the $1 billion in assets level.  We have capitalized on our community commitment and unprecedented market transformation to gain new customers, increase deposits, and develop a more diversified loan portfolio.  Our loan portfolio grew 22% as we focused on complementing our long-established commercial real estate expertise with small and mid-market business lending,” said David J. Nasca, President and CEO of Evans Bancorp.    

Mr. Nasca added, “We recently completed a successful follow-on capital raise with net proceeds of over $14 million.  This additional capital will be deployed to further support our significant expected organic growth in light of expanding market opportunities.  We believe this capital will enhance our ability to leverage operating scale to deliver greater earnings.”

 
Net Interest Income
($ in thousands)
            
  4Q 2016  3Q 2016  4Q 2015
            
Interest income $ 10,664   $ 10,241   $ 9,437 
Interest expense   1,261     1,172     1,001 
Net interest income   9,403     9,069     8,436 
Provision for loan losses   371     1,006     204 
Net interest income after provision $ 9,032   $ 8,063   $ 8,232 
            

Net interest income increased $0.3 million, or 4%, from the trailing third quarter of 2016 and $1.0 million, or 11%, from the prior-year fourth 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 $745 million in the fourth quarter, up 5%, or 19% on an annualized basis, from $712 million in the trailing third quarter and 27% from $588 million in the 2015 fourth quarter.

Net interest margin of 3.68% declined 23 basis points from the 2015 fourth quarter, but improved 1 basis point from the third quarter of 2016.  In last year’s fourth quarter, there was a payoff of a large investment security that resulted in the recognition of $0.3 million in interest income.  This payoff contributed 15 basis points to the net interest margin in the fourth quarter of 2015.  The remaining margin contraction from last year reflects a decline in loan yields as market rates remained historically low in a highly competitive market.  The slight uptick in net interest margin from the trailing third quarter resulted from an improvement in loan yields in the current quarter.  This improvement in loan yields was somewhat offset by an increase in the cost of deposits as the Company garnered $16 million in average time deposits.

The decrease in loan loss provision reflects favorable credit quality trends including lower non-performing loans to total loans ratio at December 31, 2016, a sustained charge-off ratio that is historically low and a moderately lower rate of loan growth during the quarter compared with the trailing period.  The decrease in non-performing loans at the end of the recent quarter is primarily due to the upgrade of a large commercial loan to performing status.

             
Asset Quality 
($ in thousands) 
             
  4Q 2016  3Q 2016  4Q 2015 
             
Total non-performing loans $ 12,020   $ 15,279   $ 16,042  
Total net loan charge-offs (recoveries)   167     67     776  
Non-performing loans/ Total loans   1.28 %   1.67 %   2.07 %
Net loan charge-offs/ Average loans   0.07 %   0.03 %   0.42 %
Allowance for loan losses/ Total loans   1.48 %   1.50 %   1.66 %
             

John B. Connerton, Executive Vice President and Chief Financial Officer, noted, “Even at the strong pace that we are growing our loan portfolio, we are booking high quality assets and have solid credit fundamentals.  In addition, we have prudently managed the interest rate risk on our balance sheet in a competitive pricing environment and believe we are positioned to benefit in a rising interest rate environment.”

            
Non-Interest Income
($ in thousands)
            
  4Q 2016  3Q 2016  4Q 2015
            
Deposit service charges $ 429    $ 475   $ 461 
Insurance service and fee revenue   1,344      1,855     1,572 
Bank-owned life insurance   135      144     140 
Loss on tax credit investment   (883)    -     - 
Refundable NY state historic tax credit   609      -     - 
Other income   1,009      861     748 
Total non-interest income $ 2,643    $ 3,335   $ 2,921 
            

Evans is actively engaged in the community by financing historic rehabilitation projects in Buffalo and enhances its yield by investing in related tax credits.  When a project is completed, Evans begins to recognize tax benefits with a related reduction in the investment.  In the current quarter, the net benefit to the bottom line was $0.3 million as a $0.6 million refundable New York State tax credit was recorded in non-interest income and a corresponding $0.6 million tax benefit was realized in income tax expense, offset by a $0.9 million write-off on the investment.  The write-off was contemplated when management priced the initial investment in the tax credit project.  There were no comparable transactions in the third quarter of 2016 or fourth quarter of 2015.

Insurance revenue decreased $0.5 million from the trailing third quarter due to the seasonal decrease in commercial lines insurance commissions.  The $0.2 million decline from the previous year’s fourth quarter was primarily due to a decrease in financial services sales revenue and insurance claims revenue.

            
Non-Interest Expense
($ in thousands)
            
  4Q 2016  3Q 2016  4Q 2015
            
Salaries and employee benefits $ 5,838   $ 5,402   $ 5,365 
Occupancy   744     732     722 
Repairs and maintenance   222     200     204 
Advertising and public relations   315     232     227 
Professional services   445     535     499 
Technology and communications   399     304     308 
FDIC insurance   210     201     161 
Other expenses   965     1,105     1,179 
Total non-interest expenses $ 9,138   $ 8,711   $ 8,665 
            

Salaries and benefits costs in the recent fourth quarter increased $0.4 million and $0.5 million when compared with the third quarter of 2016 and fourth quarter of 2015, respectively, reflecting increased incentive compensation.  Technology expenses increased $0.1 million in the fourth quarter when compared with each of the third quarter of 2016 and the fourth quarter of 2015 due to maintenance costs for the Company’s new core banking system.  Higher advertising expenses in the fourth quarter included a marketing campaign targeted toward obtaining new customers impacted by bank merger activity in Western New York.  Professional services costs declined in the fourth quarter by $0.1 million when compared with the trailing and prior year quarters, reflecting costs in the prior periods related to the implementation of the new core banking system.

Income tax expense of $0.2 million was recorded for the fourth quarter of 2016, down from $0.5 million in the third quarter of 2016 and $0.7 million in last year’s fourth quarter.  The effective tax rate for the quarter was 7.8% compared with 17.5% in the third quarter of 2016 and 29.5% in the fourth quarter of 2015.  The lower effective tax rate over the two most recent quarters reflects the impact of two tax credit investment transactions in 2016. 

2016 Year-end Balance Sheet Highlights

Total assets reached $1.10 billion as of December 31, 2016, a 1% increase from $1.08 billion at September 30, 2016 and 17% higher than $939 million at December 31, 2015.  The Company experienced the highest loan growth in its history this year as the loan portfolio increased by $169 million, or 22%, to $943 million.  Loan growth from the end of the third quarter was $30 million, or 3%, which equates to a 13% annualized growth rate for the quarter.  Loan growth in both periods was predominantly in the commercial real estate and commercial and industrial loan portfolios.

Deposit growth was also strong in 2016 increasing 17% to $940 million at December 31, 2016.  The year-over-year growth was across all of the Company’s product categories, including demand deposit growth of 10%, NOW account growth of 6%, savings deposit growth of 16%, and time deposit growth of 46%.  Deposits grew $42 million, or 5%, during the fourth quarter, which is the equivalent of a 19% annualized growth rate.  The biggest component of deposit growth in the recent fourth quarter was an increase in time deposits of $23 million.

2016 Year in Review

Net interest income for 2016 was $35.2 million, up 11% over 2015, primarily due to strong growth in the Company’s commercial loan portfolio and core deposit balances.  Net interest margin was 3.67% in 2016, a decrease of 13 basis points from 3.80% in 2015 mainly due to lower yields on loans and investment securities.

The Company’s provision for loan losses remained unchanged at $1.2 million as the impact of loan growth was offset by improving credit quality trends.  Net charge-offs expressed as a percentage of average loans was 0.02% in 2016, down from 0.12% in 2015.  The ratio of non-performing loans to total loans decreased from 2.07% at the previous year-end to 1.28% at the end of 2016.

Non-interest income of $11.3 million in 2016 was down $2.5 million from 2015, due to $0.9 million net loss recorded in non-interest income related to tax credit investments in 2016, a $0.7 million gain from an insurance settlement in 2015, and a $0.7 million decrease in insurance revenue.

Non-interest expense increased $2.4 million, or 7%, to $35.1 million in 2016.  The increase in expense reflects higher salaries and employee benefits of $1.7 million, or 9%, due to merit increases, higher benefits costs and the addition of new employees as part of the Company’s planned growth strategy.

Income tax expense for the year was $1.9 million, representing an effective tax rate of 18.9% compared with an effective tax rate of 32.4% in 2015.  The difference was driven by two tax credit investment transactions in 2016.  Excluding the impact of the historic tax credit and the write-off of the tax credit investment recognized in non-interest income, the 2016 effective tax rate was 32.7%.

Capital Management

The Company consistently maintains regulatory capital ratios measurably above the Federal “well capitalized” standard, including a Tier 1 leverage ratio of 9.49% at December 31, 2016.  Book value per share increased to $22.50 at December 31, 2016 compared with $22.20 at September 30, 2016 and $21.44 at December 31, 2015. 

Outlook

Mr. Nasca concluded, “The organization realized record net income in 2016 as a result of solid execution and the capture of market opportunities driven by disruption in the competitive landscape.  We believe we have momentum and the right strategic plan in place to deliver another year of strong growth and performance in 2017.  We expect that the investment in talent, systems and infrastructure in the last few years along with our enhanced capital position can be leveraged into increased returns for our shareholders.”

Webcast and Conference Call

The Company will host a conference call and webcast on Monday, February 6, 2017 at 4:45 p.m. ET. Management will review the financial and operating results for the fourth quarter and full year of 2016, 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 Monday, February 13, 2017. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13652602, 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 $940 million in deposits at December 31, 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)
                     
  12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
ASSETS                    
Investment Securities $97,205   $104,859   $110,629   $116,294   $98,758  
Loans  942,512    912,852    853,306    796,773    773,984  
Allowance for loan losses  (13,916)   (13,712)   (12,773)   (13,119)   (12,883) 
Goodwill and intangible assets  8,406    8,101    8,101    8,101    8,101  
All other assets  66,502    72,563    62,335    81,866    71,147  
Total assets $1,100,709   $1,084,663   $1,021,598   $989,915   $939,107  
                     
LIABILITIES AND STOCKHOLDERS' EQUITY                    
Demand deposits  201,741    195,869    187,774    174,276    183,098  
NOW deposits  88,632    87,047    88,993    95,622    83,674  
Savings deposits  508,652    496,926    480,290    463,672    439,993  
Time deposits  140,949    118,123    112,828    115,479    96,217  
Total deposits  939,974    897,965    869,885    849,049    802,982  
Borrowings  49,689    74,136    41,841    34,224    32,151  
Other liabilities  14,298    17,364    15,083    14,482    12,718  
Total stockholders' equity  96,748    95,198    94,789    92,160    91,256  
                     
SHARES AND CAPITAL RATIOS                    
Common shares outstanding  4,300,634    4,287,400    4,286,939    4,279,296    4,257,179  
Book value per share $22.50   $22.20   $22.11   $21.54   $21.44  
Tier 1 leverage ratio  9.49 %  9.55 %  10.06 %  10.18 %  10.45 %
Tier 1 risk-based capital ratio  10.82 %  10.82 %  11.45 %  11.94 %  11.82 %
Total risk-based capital ratio  12.07 %  12.07 %  12.70 %  13.20 %  13.07 %
                     
ASSET QUALITY DATA                    
Total non-performing loans $12,020   $15,279   $16,076   $17,941   $16,042  
Total net loan charge-offs (recoveries)  167    67    (30)   (28)   776  
                     
Non-performing loans/Total loans  1.28 %  1.67 %  1.88 %  2.25 %  2.07 %
Net loan charge-offs/Average loans  0.07 %  0.03 %  (0.01)%  (0.02)%  0.42 %
Allowance for loans losses/Total loans  1.48 %  1.50 %  1.50 %  1.65 %  1.66 %
                     


                     
EVANS BANCORP, INC. AND SUBSIDIARIES
SELECTED OPERATIONS DATA  (UNAUDITED)
(in thousands, except share and per share data)
                     
  2016 2016 2016 2016 2015
  Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter
Interest income  10,664    10,241   9,694    9,356   9,437 
Interest expense  1,261    1,172   1,178    1,096   1,001 
Net interest income  9,403    9,069   8,516    8,260   8,436 
Provision for loan losses (credit)  371    1,006   (376)   208   204 
Net interest income after provision  9,032    8,063   8,892    8,052   8,232 
                     
Deposit service charges  429    475   403    443   461 
Insurance service and fee revenue  1,344    1,855   1,572    1,748   1,572 
Bank-owned life insurance  135    144   141    136   140 
Loss on tax credit investment  (883)   -   (2,139)   -   - 
Refundable NY state historic tax credit  609    -   1,508    -   - 
Other income  1,009    861   795    667   748 
Total non-interest income  2,643    3,335   2,280    2,994   2,921 
                     
Salaries and employee benefits  5,838    5,402   5,467    5,514   5,365 
Occupancy  744    732   740    699   722 
Repairs and maintenance  222    200   212    176   204 
Advertising and public relations  315    232   190    285   227 
Professional services  445    535   656    580   499 
Technology and communications  399    304   339    422   308 
FDIC insurance  210    201   182    159   161 
Other expenses  965    1,105   933    693   1,179 
Total non-interest expenses  9,138    8,711   8,719    8,528   8,665 
                     
Income before income taxes  2,537    2,687   2,453    2,518   2,488 
Income tax provision  198    471   450    804   734 
Net income  2,339    2,216   2,003    1,714   1,754 
                     
PER SHARE DATA                    
Net income per common share-diluted $0.53   $0.51  $0.46   $0.40  $0.41 
Cash dividends per common share $-   $0.38  $-   $0.38  $- 
Weighted average number of diluted shares    4,390,553    4,362,479   4,346,599    4,328,034   4,315,489 
                     
PERFORMANCE RATIOS                    
Return on average total assets  0.86 %  0.84%  0.80 %  0.71%  0.75%
Return on average stockholders' equity  9.70 %  9.23%  8.56 %  7.43%  7.72%
Efficiency ratio  74.17 %  70.23%  76.30 %  75.78%  76.30%
                     


                     
EVANS BANCORP, INC. AND SUBSIDIARIES
SELECTED AVERAGE BALANCES AND YIELDS/RATES  (UNAUDITED)
(in thousands)
  2016 2016 2016 2016 2015
  Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter
AVERAGE BALANCES                    
                     
Loans, net $915,095  $875,999  $801,115  $772,672  $740,337 
Investment securities  105,319   112,025   115,610   103,094   103,940 
Interest bearing deposits at banks  1,537   1,162   15,916   18,862   19,185 
Total interest-earning assets  1,021,951   989,186   932,641   894,628   863,462 
Non interest-earning assets  71,247   69,489   65,539   66,375   66,115 
Total Assets $1,093,198  $1,058,675  $998,180  $961,003  $929,577 
                     
NOW  85,279   86,428   88,966   88,220   80,810 
Savings  504,394   487,168   473,791   447,318   439,108 
Time deposits  131,479   115,644   114,545   108,954   96,478 
Total interest-bearing deposits  721,152   689,240   677,302   644,492   616,396 
Other borrowings  61,076   69,307   36,031   34,250   32,443 
Total interest-bearing liabilities  782,228   758,547   713,333   678,742   648,839 
                     
Demand deposits  198,616   187,201   178,106   176,074   175,362 
Other non-interest bearing liabilities    15,873   16,860   13,142   13,879   14,549 
Stockholders' equity  96,481   96,067   93,599   92,308   90,827 
                     
Total Liabilities and Equity $1,093,198  $1,058,675  $998,180  $961,003  $929,577 
                     
YIELD/RATE                    
                     
Loans, net  4.42%  4.39%  4.43%  4.52%  4.59%
Investment securities  2.13%  2.21%  2.71%  2.39%  3.59%
Interest bearing deposits at banks  0.49%  0.34%  0.83%  0.23%  0.29%
Total interest-earning assets  4.17%  4.14%  4.16%  4.18%  4.37%
                     
NOW  0.23%  0.23%  0.35%  0.39%  0.40%
Regular savings  0.48%  0.47%  0.51%  0.47%  0.43%
Time deposits  1.25%  1.22%  1.23%  1.26%  1.29%
Total interest-bearing deposits  0.59%  0.57%  0.61%  0.60%  0.56%
Other borrowings  1.27%  1.13%  1.57%  1.60%  1.64%
Total interest-bearing liabilities  0.65%  0.62%  0.66%  0.65%  0.62%
                     
Interest rate spread  3.52%  3.52%  3.50%  3.53%  3.75%
Contribution of interest-free funds  0.16%  0.15%  0.15%  0.16%  0.16%
Net interest margin  3.68%  3.67%  3.65%  3.69%  3.91%
                     


          
EVANS BANCORP, INC. AND SUBSIDIARIES         
SELECTED OPERATIONS DATA  (UNAUDITED)         
(in thousands, except share and per share data)         
          
  2016  2015  
  Year to Date Year to Date % Change
Interest income  39,955   35,628 12 %
Interest expense  4,707   3,824 23 %
Net interest income  35,248   31,804 11 %
Provision for loan losses (credit)  1,209   1,216 (1)%
Net interest income after provision  34,039   30,588 11 %
          
Deposit service charges  1,750   1,736 1 %
Insurance service and fee revenue  6,519   7,194 (9)%
Bank-owned life insurance  556   563 (1)%
Loss on tax credit investment  (3,022)  - - %
Refundable NY state historic tax credit  2,117   - - %
Gain on insurance proceeds  -   734 (100)%
Other income  3,332   3,493 (5)%
Total non-interest income  11,252   13,720 (18)%
          
Salaries and employee benefits  22,221   20,478 9 %
Occupancy  2,915   2,789 5 %
Repairs and maintenance  810   822 (1)%
Advertising and public relations  1,022   857 19 %
Professional services  2,216   2,354 (6)%
Technology and communications  1,464   1,183 24 %
FDIC insurance  752   607 24 %
Other expenses  3,696   3,608 2 %
Total non-interest expenses  35,096   32,698 7 %
          
Income before income taxes  10,195   11,610 (12)%
Income tax provision  1,923   3,767 (49)%
Net income  8,272   7,843 5 %
          
PER SHARE DATA         
Net income per common share-diluted $1.90  $1.82 4 %
Cash dividends per common share $0.76  $0.72   
Weighted average number of diluted shares  4,358,517   4,307,368   
          
PERFORMANCE RATIOS         
Return on average total assets  0.80   0.87   
Return on average stockholders' equity  8.74   8.82   
Efficiency ratio  74.03   71.83   
          

 

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.