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Evans Bancorp Net Income Increases 29% to $4.8 Million in the 2018 Third Quarter

Company Release - 10/25/2018 4:15 PM ET

HAMBURG, N.Y.--(BUSINESS WIRE)-- 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 third quarter ended September 30, 2018.

THIRD QUARTER 2018 HIGHLIGHTS (compared with prior-year period unless otherwise noted)

  • Net income increased 29% to $4.8 million; Earnings per diluted share grew 28% to $0.97
  • Net interest income increased 9% to $12.1 million
  • Loan portfolio of $1.2 billion up $30 million in the quarter, or 11% on an annualized basis
  • 9% growth of average demand deposits
  • Acquisition of Richardson & Stout Insurance Agency (“R&S”) contributed to total insurance revenue of $3.2 million, an increase of 48%
  • Recognized $350,000 of community investments in the third quarter

Net income was $4.8 million, or $0.97 per diluted share, in the third quarter of 2018, compared with $3.8 million, or $0.77 per diluted share, in the trailing second quarter of 2018 and $3.7 million, or $0.76 per diluted share, in last year’s third quarter. The increase over both comparative periods reflects higher interest income due to loan growth, an increase in non-interest income due to higher insurance revenue and lower income tax provision. Return on average equity was 15.35% for the third quarter of 2018, compared with 12.39% in the trailing second quarter of 2018 and 12.71% in the third quarter of 2017.

“Evans continues to experience meaningful client growth both organically and through acquisition. The strong performance in loans and deposits and the significant increase in insurance revenue is evidence of our expanding market presence,” said David J. Nasca, President and CEO of Evans Bancorp. “The new business we are capturing has allowed us to offset margin pressures related to interest rate increases and significant competition for funding. Successful results have enabled us to execute our plan to make significant community investments, the details of which will be announced in the next several weeks.”

         
Net Interest Income
($ in thousands)
 
3Q 2018 2Q 2018 3Q 2017
 
Interest income $ 14,690 $ 14,247 $ 12,574
Interest expense 2,604 2,051 1,479
Net interest income 12,086 12,196 11,095
Provision for loan losses   252   659   161
Net interest income after provision $ 11,834 $ 11,537 $ 10,934
 

Net interest income decreased $0.1 million from the second quarter of 2018, but increased $1.0 million, or 9%, from the prior-year third quarter. The year-over-year increase was driven by average interest-earning asset growth, particularly loans, partially offset by an increase in interest expense. Average commercial loans, including commercial real estate and commercial and industrial loans, were $918 million, up $20 million from the second quarter of 2018 and up $129 million from the 2017 third quarter. The net interest income decrease from the second quarter reflects net interest margin compression, offset by higher interest income from loan growth.

Third quarter net interest margin of 3.73% decreased 16 basis points from the 2018 second quarter, and 18 basis points from the third quarter of 2017. Net interest income in last year’s third quarter benefited $0.4 million, or 14 basis points to net interest margin, from the repayment in full of two unrelated loans that were formerly in nonaccrual status.

Margin has been impacted by rising funding costs. The cost of interest-bearing liabilities was 1.04% compared with 0.86% in the second quarter of 2018 and 0.69% in the third quarter of 2017. The increase in short-term market interest rates, along with a very competitive deposit market caused the increase in funding costs. The Company has experienced a shift in deposit mix as consumers in low-cost legacy savings deposit products have migrated to higher-rate time deposits. The Company has also increased its brokered time deposit activity as part of its funding strategy. Average time deposits comprised 23% of average total deposits during the third quarter of 2018 compared with 19% and 16% in the second quarter of 2018 and the third quarter of 2017, respectively.

The $0.3 million provision for loan losses for the third quarter of 2018 reflects loan growth and an increase in net charge-offs. The second quarter 2018 provision included the impact of an increase in non-performing loans during the quarter as a single commercial construction loan of $9 million was downgraded to nonaccrual status.

         
Asset Quality
($ in thousands)
 
3Q 2018 2Q 2018 3Q 2017
 
Total non-performing loans $ 23,090 $ 23,210 $ 13,389
Total net loan charge-offs (recoveries) 274 117 157
Non-performing loans/ Total loans 2.00 % 2.06 % 1.34 %
Net loan charge-offs (recoveries)/ Average loans 0.10 % 0.04 % 0.06 %
Allowance for loan losses/ Total loans 1.32 % 1.35 % 1.42 %
 

“Our credit quality metrics have remained consistent during the quarter. We are persistent in our efforts to strengthen the performance of the small number of larger commercial credits that make up the non-performing loan balance,” stated John Connerton, Chief Financial Officer of Evans Bank. “Based on these efforts and management’s analysis, we believe we remain appropriately reserved.”

         
Non-Interest Income
($ in thousands)
3Q 2018 2Q 2018 3Q 2017
 
Deposit service charges $ 571 $ 525 $ 448
Insurance service and fee revenue 3,215 1,952 2,169
Bank-owned life insurance 165 178 128
Loss on tax credit investment (165 ) - (1,338 )
Refundable NY state historic tax credit 150 - 972
Other income   828     984   986  
Total non-interest income $ 4,764 $ 3,639 $ 3,365
 

The increase in deposit service charges reflects higher fees related to overdrafts as the Company continues to benefit from a new product offered to clients that provides overdraft protection to small businesses.

Evans acquired the business of R&S effective July 1, 2018, which contributed $0.8 million in revenue in the quarter. The remaining increase was due to seasonally higher profit-sharing revenue.

The decrease in other income was due to the loss on sale of equity securities of $0.1 million in the third quarter of 2018.

Historic tax credit investment activity resulted in a net loss of $0.4 million being recorded in non-interest income in the third quarter of 2017. There were no new significant historic tax credit investments in the third quarter of 2018.

         
Non-Interest Expense
($ in thousands)
3Q 2018 2Q 2018 3Q 2017
 
Salaries and employee benefits $ 7,090 $ 6,475 $ 6,271
Occupancy 795 727 805
Advertising and public relations 258 326 311
Professional services 588 626 514
Technology and communications 874 847 730
Amortization of intangibles 112 28 28
FDIC insurance 295 246 195
Other expenses   1,445   958   982
Total non-interest expenses $ 11,457 $ 10,233 $ 9,836
 

Third quarter non-interest expenses increased 16% from the prior-year period and 12% from the second quarter of 2018. The most significant component of the increase was due to higher salaries and employee benefits relating to the R&S acquisition and the addition of strategic personnel hires to support the Company’s continued growth.

The increase in technology and communications from last year’s third quarter was due to an increase in ATM card fees and online banking activity.

The amortization of intangible assets was higher due to the acquisition of R&S.

The increase in other expenses reflects a community contribution accrual of $0.4 million during the third quarter of 2018. Evans contributes to community organizations that provide positive, meaningful impact to the Western New York region. Evans has elevated its resource commitment to the community in response to the benefits it has received through federal tax reform.

The Company’s efficiency ratio in the third quarter of 2018 was 66.9% compared with 64.5% in the second quarter of 2018 and 66.2% in last year’s third quarter.

Income tax expense was $0.3 million, or an effective tax rate of 6.7%, for the third quarter of 2018 compared with $1.2 million, or 23.3%, in the second quarter of 2018 and $0.7 million, or 16.6%, in last year’s third quarter. Income taxes were reduced by $0.7 million in the current quarter due to a change in estimate of when certain state historic tax credits will be taxable for federal purposes. The Company has determined that these tax credits will be subject to lower federal tax rates resulting from recent tax reform. Historic tax credit transactions lowered the effective tax rate by 13.8% in the third quarter of 2018 compared with no impact on the second quarter of 2018, and 12.4% in last year’s third quarter. The effective rate in the second and third quarters of 2018 also reflects the benefit of federal tax reform, which decreased the Company’s marginal federal income tax rate from 35% to 21%.

Balance Sheet Highlights

Total assets were $1.38 billion as of September 30, 2018, up $35 million from June 30, 2018 and $161 million, or 13%, higher than $1.22 billion at September 30, 2017, reflecting the Company’s strong loan growth. Loan balances grew $158 million, or 16%, to $1.16 billion since the end of last year’s third quarter with the growth predominantly in the commercial real estate and commercial and industrial portfolios.

Investment securities were $138 million at September 30, 2018, $11 million lower than the second quarter of 2018, and $15 million lower than at the end of last year’s third quarter. The primary objectives of the Company’s investment portfolio are to provide liquidity, provide collateral to 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 and as a result, there has been a corresponding increase in the Company’s short-term investments and interest-earning cash.

Total deposits grew $33 million during the quarter to $1.22 billion at September 30, 2018, and were $183 million, or 18%, higher than the balance at the end of last year’s third quarter. The largest component of the deposit growth during the quarter was in time deposits of $53 million, including $12 million of brokered time deposits. Total average demand deposits were $233 million for the 2018 third quarter, an increase of $19 million from the third quarter of 2017, which was mostly attributable to growth in commercial demand deposits.

The Company experienced growth of $9 million in its commercial deposit portfolio during the third quarter of 2018. Municipal deposits decreased $10 million when compared with the balance at June 30, 2018 due to seasonal fluctuations. Consumer savings deposit growth has been challenging as preferences move toward term products with higher rates and local market competition has stiffened. Consumer savings deposits declined $20 million during the quarter, while consumer time deposits grew $41 million in the past three months and $97 million in the past year.

Capital Management

The Company consistently maintains regulatory capital ratios measurably above the Federal “well capitalized” standard, including a Tier 1 leverage ratio of 9.60% at September 30, 2018 compared with 9.94% at June 30, 2018 and 10.38% at September 30, 2017. Book value per share increased to $26.03 at September 30, 2018 compared with $25.63 at June 30, 2018 and $24.60 at September 30, 2017.

Outlook

Mr. Nasca concluded, “We have delivered net income growth of 25% in the first nine months of 2018 on the heels of last year’s historic performance, providing a strong foundation of growth and momentum to finish the year. In addition, the opening of a new Business and Relationship Center in the downtown core of Buffalo will allow us to continue our expansion and proactively meet the needs of a resurgent Western New York economy.”

Webcast and Conference Call

The Company will host a conference call and webcast on Thursday, October 25, 2018 at 4:45 p.m. ET. Management will review the financial and operating results for the third quarter of 2018, 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 (201) 689-8471. 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, November 1, 2018. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13683725, 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 $1.4 billion in assets and $1.2 billion in deposits at September 30, 2018. 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)
 
9/30/2018   6/30/2018   3/31/2018   12/31/2017 9/30/2017  
ASSETS
Investment Securities $ 137,909 $ 148,628 $ 164,471 $ 149,732 $ 153,367
Loans 1,155,566 1,125,895 1,109,961 1,065,315 998,005
Allowance for loan losses (15,213 ) (15,235 ) (14,693 ) (14,019 ) (14,182 )
Goodwill and intangible assets 13,104 8,496 8,525 8,553 8,581
All other assets 89,557 78,307 85,434 86,052 74,383
Total assets $ 1,380,923 $ 1,346,091 $ 1,353,698 $ 1,295,633 $ 1,220,154
 
LIABILITIES AND STOCKHOLDERS'
EQUITY
Demand deposits 236,079 224,373 238,827 219,664 216,250
NOW deposits 110,768 121,170 124,997 109,378 96,741
Savings deposits 574,262 595,500 566,314 535,730 552,559
Time deposits 294,514 241,425 204,295 186,457 166,769
Total deposits 1,215,623 1,182,468 1,134,433 1,051,229 1,032,319
Borrowings 24,309 25,348 83,114 108,869 54,310
Other liabilities 15,331 14,700 16,278 17,193 16,033
Total stockholders' equity 125,660 123,575 119,873 118,342 117,492
 
SHARES AND CAPITAL RATIOS
Common shares outstanding 4,827,701 4,821,381 4,803,334 4,782,505 4,776,360
Book value per share $ 26.03 $ 25.63 $ 24.96 $ 24.74 $ 24.60
Tier 1 leverage ratio 9.60 % 9.94 % 9.81 % 10.11 % 10.38 %
Tier 1 risk-based capital ratio 11.34 % 11.63 % 11.48 % 11.72 % 12.33 %
Total risk-based capital ratio 12.59 % 12.88 % 12.73 % 12.97 % 13.59 %
 
ASSET QUALITY DATA
Total non-performing loans $ 23,090 $ 23,210 $ 14,771 $ 13,715 $ 13,389
Total net loan charge-offs (recoveries) 274 117 93 765 157
 
Non-performing loans/Total loans 2.00 % 2.06 % 1.33 % 1.29 % 1.34 %
Net loan charge-offs (recoveries)/Average loans 0.10 % 0.04 % 0.03 % 0.30 % 0.06 %
Allowance for loans losses/Total loans 1.32 % 1.35 % 1.32 % 1.32 % 1.42 %
 
             
EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED OPERATIONS DATA (UNAUDITED)
(in thousands, except share and per share data)
 
2018   2018 2018 2017   2017  
Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter
Interest income $ 14,690 $ 14,247 $ 13,366 $ 12,794 $ 12,574
Interest expense 2,604 2,051 1,914 1,634 1,479
Net interest income 12,086 12,196 11,452 11,160 11,095
Provision for loan losses 252 659 767 602 161
Net interest income after provision 11,834 11,537 10,685 10,558 10,934
 
Deposit service charges 571 525 509 481 448
Insurance service and fee revenue 3,215 1,952 1,965 1,649 2,169
Bank-owned life insurance 165 178 171 464 128
Loss on tax credit investment (165 ) - - (1,740 ) (1,338 )
Refundable NY state historic tax credit 150 - - 1,224 972
Other income 828 984 1,141 949 986
Total non-interest income 4,764 3,639 3,786 3,027 3,365
 
Salaries and employee benefits 7,090 6,475 6,627 6,248 6,271
Occupancy 795 727 758 844 805
Advertising and public relations 258 326 124 378 311
Professional services 588 626 653 594 514
Technology and communications 874 847 764 740 730
Amortization of intangibles 112 28 28 29 28
FDIC insurance 295 246 232 189 195
Other expenses 1,445 958 985 1,364 982
Total non-interest expenses 11,457 10,233 10,171 10,386 9,836
 
Income before income taxes 5,141 4,943 4,300 3,199 4,463
Income tax provision 346 1,152 981 2,207 740
Net income 4,795 3,791 3,319 992 3,723
 
PER SHARE DATA
Net income per common share-diluted $ 0.97 $ 0.77 $ 0.68 $ 0.20

 

$ 0.76
Cash dividends per common share $ 0.46 $ - $ 0.46 $ - $ 0.40
Weighted average number of diluted shares 4,940,822 4,933,522 4,912,289 4,904,270 4,896,967
 
PERFORMANCE RATIOS
Return on average total assets 1.40 % 1.13 % 1.01 % 0.32 % 1.24 %
Return on average stockholders' equity 15.35 % 12.39 % 11.15 % 3.32 % 12.71 %
Efficiency ratio 66.88 % 64.45 % 66.56 % 70.44 % 66.15 %
 
             
EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED AVERAGE BALANCES AND YIELDS/RATES (UNAUDITED)
(in thousands)
2018 2018 2018 2017 2017
Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter
AVERAGE BALANCES
 
Loans, net $ 1,127,173 $ 1,098,391 $ 1,067,282 $ 1,009,497 $ 970,988
Investment securities 145,122 155,089 160,739 155,475 152,991
Interest-bearing deposits at banks   12,641   4,013   2,712   2,380   1,713
Total interest-earning assets 1,284,936 1,257,493 1,230,733 1,167,352 1,125,692
Non interest-earning assets   87,402   81,113   80,644   79,234   72,887
Total Assets $ 1,372,338 $ 1,338,606 $ 1,311,377 $ 1,246,586 $ 1,198,579
 
NOW 115,417 120,510 114,268 92,089 91,962
Savings 581,484 576,197 552,546 549,466 545,900
Time deposits   274,275   214,410   194,223   181,291   163,087
Total interest-bearing deposits 971,176 911,117 861,037 822,846 800,949
Other borrowings   25,749   50,917   92,893   70,986   51,224
Total interest-bearing liabilities 996,925 962,034 953,930 893,832 852,173
 
Demand deposits 233,393 239,546 223,176 219,291 214,228
Other non-interest bearing liabilities 17,045 14,614 15,161 14,097 15,035
Stockholders' equity   124,975   122,412   119,110   119,366   117,143
 
Total Liabilities and Equity $ 1,372,338 $ 1,338,606 $ 1,311,377 $ 1,246,586 $ 1,198,579
 
YIELD/RATE
 
Loans, net 4.81 % 4.82 % 4.70 % 4.65 % 4.76 %
Investment securities 2.60 % 2.67 % 2.51 % 2.45 % 2.35 %
Interest-bearing deposits at banks 1.98 % 1.50 % 1.50 % 0.67 % 1.62 %
Total interest-earning assets 4.54 % 4.54 % 4.40 % 4.35 % 4.43 %
 
NOW 0.27 % 0.26 % 0.27 % 0.22 % 0.22 %
Savings 0.70 % 0.59 % 0.55 % 0.48 % 0.48 %
Time deposits 1.89 % 1.55 % 1.42 % 1.34 % 1.30 %
Total interest-bearing deposits 0.99 % 0.77 % 0.71 % 0.64 % 0.62 %
Other borrowings 2.96 % 2.30 % 1.82 % 1.71 % 1.76 %
Total interest-bearing liabilities 1.04 % 0.86 % 0.81 % 0.73 % 0.69 %
 
Interest rate spread 3.50 % 3.68 % 3.59 % 3.62 % 3.74 %
Contribution of interest-free funds 0.23 % 0.21 % 0.18 % 0.17 % 0.17 %
Net interest margin 3.73 % 3.89 % 3.77 % 3.79 % 3.91 %
 

Evans Bancorp, Inc.
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.