Evans Bancorp Reports Net Income of $4.9 Million in Second Quarter 2023

Evans Bancorp, Inc. (the “Company” or “Evans”) (NYSE American: EVBN), a community financial services company serving Western New York since 1920, today reported results of operations for the second quarter ended June 30, 2023.

SECOND QUARTER 2023 REVIEW (compared with prior-year period unless otherwise noted)

Net income of $4.9 million reflected continued net interest margin pressure, partially offset by non-interest income growth and prudent expense management
Total non-interest income of $4.7 million increased 2% year-over-year and up 14% sequentially
Total non-interest expense declined 4% to $14.2 million, down 2% sequentially
Total loan balances of $1.67 billion up 3.5% year-over-year
The average rate paid on interest-bearing deposits was 2.18%, up from 0.28% a year ago

Net income was $4.9 million, or $0.90 per diluted share, in the second quarter of 2023, compared with $5.8 million, or $1.06 per diluted share, in the first quarter of 2023 and $5.7 million, or $1.03 per diluted share, in last year’s second quarter. The change from the first quarter of 2023 reflected a decrease in net interest income and reduced release of allowance for credit losses, partially offset by higher non-interest income and lower non-interest expense. The change from the prior year’s second quarter was largely due to a reduction in net interest income, partially offset by lower non-interest expense and a release of allowance. Return on average equity was 12.25% for the second quarter of 2023, compared with 14.97% in the first quarter of 2023 and 13.77% in the second quarter of 2022.

David J. Nasca, President and CEO of Evans Bancorp, Inc., said, “We believe we are executing well given the challenging market forces and backdrop of margin pressure. Staying close to clients and cultivating prospective relationships remains paramount as we maintain stable liquidity and pursue opportunities to continue driving growth and loan production. Equally important is our focus on controlling costs and efforts to improve efficiencies, which is evidenced by our non-interest expense decline both quarter-over-quarter and year-over-year.”

He added, “The net interest margin reduction during the quarter reflects ongoing market forces that have driven deposits costs higher. Overall, we believe we are maintaining our posture against stiff competition as our team has continued to retain key deposits. Looking ahead, we expect market dynamics and pricing pressures will continue to have an impact on our margin in the third quarter and then begin to moderate heading into the end of the year.”

Net Interest Income

($ in thousands)

2Q 2023

1Q 2023

2Q 2022

Interest income

23,988

23,365

19,097

Interest expense

8,307

6,040

1,045

Net interest income

15,681

17,325

18,052

Provision for credit losses

(116)

(654)

267

Net interest income after provision

15,797

17,979

17,785

Net interest income of $15.7 million was down $1.6 million, or 9%, from the sequential first quarter and $2.4 million, or 13%, from last year’s second quarter due to higher interest expense given the cost increase of interest-bearing liabilities as a result of competitive pricing on deposits.

Second quarter net interest margin of 3.10% declined 36 basis points over the trailing first quarter and 35 basis points from the prior-year period. The yield on loans improved both sequentially and year-over-year, up 10 basis points and 102 basis points, respectively. The cost of interest-bearing liabilities was 2.18% compared with 1.65% in the first quarter of 2023 and 0.28% in the second quarter of 2022.

The $0.1 million release of allowance in the current quarter was largely due to lower criticized loan balances, and lower specific reserves on impaired loans, partially offset by loan growth.

“Given external market forces and current headwinds, we believe our liquidity position is solid and backed by a diversified deposit base as well as other alternative sources of funding. Total deposits on an end of period basis did decline during the recent quarter, though the vast majority – approximately $48 million – consisted of typical seasonal municipal outflows,” commented John Connerton, Chief Financial Officer of Evans Bank. “Credit quality remains strong despite the rise in non-performing loans, which reflects a single commercial credit of $6.5 million that is well collateralized and still accruing.”

Asset Quality

($ in thousands)

2Q 2023

1Q 2023

2Q 2022

Total non-performing loans

27,789

24,084

22,010

Total net loan charge-offs (recoveries)

(4)

Non-performing loans / Total loans

1.66

1.45

1.36

Net loan charge-offs / Average loans

0.01

0.02

Allowance for loan losses / Total loans

1.28

1.30

1.17

Non-Interest Income

($ in thousands)

2Q 2023

1Q 2023

2Q 2022

Deposit service charges

645

613

703

Insurance service and fee revenue

2,720

2,429

2,567

Bank-owned life insurance

238

224

171

Other income

1,098

847

1,171

Total non-interest income

4,701

4,113

4,612

Total non-interest income increased $0.6 million, or 14%, from the first quarter of 2023, and was up $0.1 million, or 2%, from last year’s second quarter.

Insurance service and fee revenue increased 12% over the sequential first quarter and was up 6% over last year’s second quarter. The increase from the first quarter of 2023 reflects seasonally higher policy renewals for institutional clients, while the year-over-year increase was due to commissions from higher premiums and new commercial lines insurance sales.

Other income increased $0.3 million from the sequential first quarter primarily due to movements in mortgage servicing rights and higher loan fees.

Non-Interest Expense

($ in thousands)

2Q 2023

1Q 2023

2Q 2022

Salaries and employee benefits

8,649

9,413

9,436

Occupancy

1,145

1,173

1,131

Advertising and public relations

407

156

438

Professional services

808

883

843

Technology and communications

1,542

1,356

1,237

Amortization of intangibles

100

FDIC insurance

350

250

Other expenses

1,171

1,071

1,349

Total non-interest expenses

14,172

14,502

14,784

Total non-interest expense decreased $0.3 million, or 2%, from the first quarter of 2023, and was down $0.6 million, or 4%, from last year’s second quarter.

Salaries and employee benefits were down $0.8 million, or 8%, from both comparative periods. Included in salaries and employee benefits during the first quarter of 2023 was the funding of employee’s health savings accounts and payroll taxes that are typically higher in the first quarter. Compared with last year’s second quarter, the decrease was primarily due to lower incentive accruals of $1.2 million partially offset by merit increases and strategic hires.

Technology and communications increased $0.2 million from the sequential first quarter and $0.3 million from last year’s second quarter primarily due to higher ATM card fees and software costs.

FDIC insurance increased $0.1 million from the second quarter of 2022 reflecting changes to the FDIC’s assessment rate schedules intended to raise the reserve ratio of the Deposit Insurance Fund.

Other expenses increased from the sequential first quarter primarily due to charitable contributions. The decrease from last year’s second quarter was due to lower loan fees.

The Company’s GAAP efficiency ratio, or noninterest expenses divided by the sum of net interest income and noninterest income, was 69.5% in the second quarter of 2023, 67.6% in the first quarter of 2023, and 65.2% in the second quarter of 2022.

Income tax expense was $1.4 million, for an effective tax rate of 22.0%, in the second quarter of 2023 compared with 23.6% in the first quarter of 2023 and 24.7% in last year’s first quarter. The decrease is due to stable non-taxable income on a decreasing overall pre-tax income base.

Balance Sheet Highlights

Total assets were $2.15 billion as of June 30, 2023, an increase of less than 1% since March 31, 2023, though down 2% from $2.21 billion at June 30, 2022. The change from last year’s second quarter was due to a reduction in interest-bearing deposits at banks of $78 million and investment securities of $49 million, partially offset by an increase in loan balances of 3.5% or $57 million. The loan balance increase reflects higher commercial real estate loans of $55 million and residential mortgages of $12 million, partially offset by commercial and industrial loans which decreased $8 million.

Investment securities were $354 million at June 30, 2023, $16 million lower than the end of the first quarter of 2023 and $49 million lower than the end of last year’s second quarter. The decrease reflects changes in unrealized gains and losses on investment securities and maturities within our available-for-sale investment portfolio. 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 of $1.79 billion decreased $63 million, or 3%, from March 31, 2023, and $182 million, or 9%, from the end of last year’s second quarter. The change from the sequential first quarter reflects a decrease in demand deposits of $42 million, municipal savings deposits of $32 million, consumer savings of $30 million, commercial savings of $19 million and brokered deposits of $6 million, partially offset by an increase in NOW deposits of $35 million and time deposits of $24 million.

When compared with the end of last year’s second quarter, there were deposit decreases in consumer savings of $196 million, demand deposits of $108 million, commercial savings of $64 million, municipal savings of $29 million, and brokered deposits of $6 million. Offsetting those decreases were higher consumer time deposits of $183 million and NOW deposits of $38 million.

While the Company has not experienced a significant outflow of deposits, in the event of such occurrences, the Bank has access to alternate sources of funding to meet withdrawal demands. As of June 30, 2023, the Bank had $34 million in overnight borrowings at the FHLB. Given the current collateral available at FHLB, advances up to $337 million can be drawn on the FHLB via the banks overnight line of credit. Additionally, the Bank has the ability to borrow from the Federal Reserve and participates in the Bank Term Funding Program. At June 30, 2023 the Bank had $100 million in short-term borrowings with the Federal Reserve and had $54.5 million in additional availability to borrow against collateral.

Capital Management

The Company has consistently maintained regulatory capital ratios measurably above the Federal “well capitalized” standard, including a Tier 1 leverage ratio of 9.43% at June 30, 2023 compared with 9.13% at March 31, 2023 and 8.73% at June 30, 2022.

Book value per share was $29.13 at June 30, 2023 compared with $28.97 at March 31, 2023 and $29.53 at June 30, 2022. Reflected in the book value changes are the Federal Reserve’s aggressive interest rate hikes that have resulted in significant unrealized losses on investment securities, which reduced book value per share at June 30, 2023 by $2.94 when compared with the last year’s second quarter. Such unrealized gains and losses are due to changes in interest rates and represent the difference, net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities classified as available-for-sale.

Tangible book value per share was $26.62 at June 30, 2023 compared with $26.44 at March 31, 2023 and $26.97 at June 30, 2022.

Webcast and Conference Call

The Company will host a conference call and webcast on Thursday, July 27, 2023 at 4:45 p.m. ET. Management will review the financial and operating results for the second quarter of 2023, as well as the Company’s strategy and outlook. A question and answer session will follow.

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 8:00 p.m. ET on the day of the teleconference until Thursday, August 10, 2023. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13739491, 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 $2.2 billion in assets and $1.8 billion in deposits at June 30, 2023. Evans is a full-service community bank with 18 branches 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 eight 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)

6/30/2023

3/31/2023

12/31/2022

9/30/2022

6/30/2022

ASSETS

Interest-bearing deposits at banks

10,334

3,832

6,258

6,813

88,190

Investment Securities

353,836

369,636

371,275

376,713

403,322

Loans

1,670,753

1,658,576

1,672,369

1,626,457

1,613,834

Allowance for credit losses

(21,368

)

(21,523

)

(19,438

)

(18,630

)

(18,819

)

Goodwill and intangible assets

13,729

13,829

13,929

14,029

14,129

All other assets

127,679

123,920

134,117

124,323

107,698

Total assets

2,154,963

2,148,270

2,178,510

2,129,705

2,208,354

LIABILITIES AND STOCKHOLDERS'

EQUITY

Demand deposits

442,195

483,958

493,710

558,805

550,079

NOW deposits

303,159

268,283

273,359

263,648

265,181

Savings deposits

726,687

807,532

801,943

913,383

1,015,511

Time deposits

314,574

290,141

202,667

137,910

137,561

Total deposits

1,786,615

1,849,914

1,771,679

1,873,746

1,968,332

Borrowings

190,697

120,002

231,223

83,456

59,028

Other liabilities

18,167

20,103

21,615

22,652

18,319

Total stockholders' equity

159,484

158,251

153,993

149,850

162,675

SHARES AND CAPITAL RATIOS

Common shares outstanding

5,477,505

5,462,763

5,437,048

5,509,917

5,508,663

Book value per share

29.12

28.97

28.32

27.20

29.53

Tangible book value per share

26.61

26.44

25.76

24.65

26.97

Tier 1 leverage ratio

9.43

9.13

9.00

8.73

Tier 1 risk-based capital ratio

12.73

12.55

12.29

12.40

12.47

Total risk-based capital ratio

13.98

13.80

13.48

13.57

13.68

ASSET QUALITY DATA

Total non-performing loans

27,789

24,084

24,728

25,961

22,010

Total net loan charge-offs (recoveries)

)

115

1,518

Non-performing loans/Total loans

1.66

1.45

1.48

1.60

1.36

Net loan charge-offs (recoveries)/Average loans

0.01

0.03

0.38

0.02

Allowance for credit losses/Total loans

1.28

1.30

1.16

1.15

1.17

EVANS BANCORP, INC AND SUBSIDIARIES

SELECTED OPERATIONS DATA (UNAUDITED)

(in thousands, except share and per share data)

2023

2022

Second Quarter

First Quarter

Fourth Quarter

Third Quarter

Second Quarter

Interest income

23,988

23,365

22,381

20,487

19,097

Interest expense

8,307

6,040

3,167

1,299

1,045

Net interest income

15,681

17,325

19,214

19,188

18,052

Provision for credit losses

(116

)

(654

)

923

1,328

267

Net interest income after provision for credit losses

15,797

17,979

18,291

17,860

17,785

Deposit service charges

645

613

684

782

703

Insurance service and fee revenue

2,720

2,429

2,204

3,383

2,567

Bank-owned life insurance

238

224

221

161

171

Other income

1,098

847

1,352

1,441

1,171

Total non-interest income

4,701

4,113

4,461

5,767

4,612

Salaries and employee benefits

8,649

9,413

9,498

10,450

9,436

Occupancy

1,145

1,173

1,190

1,118

1,131

Advertising and public relations

407

156

125

417

438

Professional services

808

883

871

839

843

Technology and communications

1,542

1,356

1,437

1,339

1,237

Amortization of intangibles

100

FDIC insurance

350

250

255

250

Other expenses

1,171

1,071

1,429

1,273

1,349

Total non-interest expenses

14,172

14,502

14,900

15,791

14,784

Income before income taxes

6,326

7,590

7,852

7,836

7,613

Income tax provision

1,394

1,790

1,809

1,972

1,879

Net income

4,932

5,800

6,043

5,864

5,734

PER SHARE DATA

Net income per common share-diluted

0.90

1.06

1.10

1.06

1.03

Cash dividends per common share

0.66

0.64

Weighted average number of diluted shares

5,474,462

5,475,790

5,500,810

5,546,764

5,550,436

PERFORMANCE RATIOS

Return on average total assets

0.91

1.07

1.12

1.08

1.04

Return on average stockholders' equity

12.25

14.97

16.07

14.15

13.77

Return on average tangible common stockholders' equity*

13.39

16.44

17.72

15.46

15.06

Efficiency ratio

69.53

67.65

62.94

63.28

65.23

Efficiency ratio (Non-GAAP)**

69.04

67.18

62.51

62.88

64.79

* The calculation of the average tangible common stockholders' equity ratio excludes goodwill and intangible assets from average stockholders equity.

** 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)

2023

2022

Second Quarter

First Quarter

Fourth Quarter

Third Quarter

Second Quarter

AVERAGE BALANCES

Loans, net

1,646,502

1,641,162

1,627,028

1,597,382

1,591,971

Investment securities

373,922

382,329

382,125

406,703

392,371

Interest-bearing deposits at banks

7,235

9,824

10,416

42,788

111,457

Total interest-earning assets

2,027,659

2,033,315

2,019,569

2,046,873

2,095,799

Non interest-earning assets

129,793

133,936

135,035

122,321

116,202

Total Assets

2,157,452

2,167,251

2,154,604

2,169,194

2,212,001

NOW

281,910

260,242

265,313

269,359

258,197

Savings

776,020

796,793

874,816

964,051

1,020,004

Time deposits

304,575

257,733

174,362

132,319

143,677

Total interest-bearing deposits

1,362,505

1,314,768

1,314,491

1,365,729

1,421,878

Borrowings

163,338

173,053

151,259

65,990

63,203

Total interest-bearing liabilities

1,525,843

1,487,821

1,465,750

1,431,719

1,485,081

Demand deposits

451,990

503,945

518,666

549,625

542,827

Other non-interest bearing liabilities

18,532

20,487

19,798

22,073

17,562

Stockholders' equity

161,087

154,998

150,390

165,777

166,531

Total Liabilities and Equity

2,157,452

2,167,251

2,154,604

2,169,194

2,212,001

Average tangible common stockholders' equity*

147,299

141,111

136,406

151,690

152,345

YIELD/RATE

Loans, net

5.26

5.16

4.88

4.47

4.24

Investment securities

2.47

2.53

2.36

2.23

2.09

Interest-bearing deposits at banks

4.45

3.97

3.16

2.01

0.81

Total interest-earning assets

4.75

4.66

4.40

3.97

3.65

NOW

1.24

0.75

0.36

0.10

0.09

Savings

1.58

0.95

0.33

0.19

0.14

Time deposits

3.10

2.63

1.61

0.64

0.49

Total interest-bearing deposits

1.85

1.24

0.51

0.22

0.16

Borrowings

4.98

4.74

3.88

3.27

2.95

Total interest-bearing liabilities

2.18

1.65

0.86

0.36

0.28

Interest rate spread

2.57

3.01

3.54

3.61

3.37

Contribution of interest-free funds

0.53

0.45

0.23

0.11

0.08

Net interest margin

3.10

3.46

3.77

3.72

3.45

* Average tangible common stockholders' equity excludes goodwill and intangible assets from average stockholders equity.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230727906774/en/

For more information contact: John B. Connerton Executive Vice President and Chief Financial Officer (716) 926-2000 jconnerton@evansbank.com Media Contact: Kathleen Rizzo Young Group VP/Public & Community Relations Director 716-343-5562 krizzoyoung@evansbank.com

-OR- Deborah K. Pawlowski/Craig Mychajluk Kei Advisors LLC (716) 843-3908 dpawlowski@keiadvisors.com cmychajluk@keiadvisors.com

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