Evans Bancorp Reports Second Quarter 2020 Results

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 second quarter ended June 30, 2020. Results include the results of Fairport Savings Bank, which was acquired on May 1, 2020.

SECOND QUARTER 2020 HIGHLIGHTS (compared with prior-year period unless otherwise noted)

• Successful acquisition of Fairport Savings Bank (FSB): added five branches, $271 million of loans and $245 million of deposits

• Originated $195 million of Small Business Administration’s Paycheck Protection Program (PPP) loans

• Net interest income increased 14% to $14.9 million reflecting FSB acquisition and PPP lending

• Results include $5.0 million of one-time merger costs and $0.6 million loan loss provision

• Significant deposit growth of $482 million, or 36%, in the quarter

• Subsequent to quarter-end, Evans completed a private placement of $20 million of subordinated notes

Net income was $0.5 million, or $0.09 per diluted share, in the second quarter of 2020, compared with $0.2 million, or $0.04 per diluted share in the first quarter of 2020 and $4.4 million, or $0.88 per diluted share in last year’s second quarter. The Company’s second quarter 2020 results included $5.0 million in one-time merger costs related to the acquisition of Fairport Savings Bank (“FSB”) and a $0.6 million provision for loan loss reflecting the continued significant estimated economic impact of the coronavirus pandemic (“COVID-19”). Net interest income of $14.9 million increased over the prior-year and trailing periods as the Company recognized the benefit of the acquired loan portfolio and fees earned in connection with the Small Business Administration’s Paycheck Protection Program loans (“PPP”) under the CARES Act. Return on average equity was 1.19% for the second quarter of 2020, compared with 0.55% in the first quarter of 2020 and 12.71% in the second quarter of 2019.

“We are extremely proud of the ongoing commitment shown by our associates as they have continued to work tirelessly to support and meet the needs of our clients and communities during these challenging times. Despite our bottom-line being impacted by elevated credit reserves and merger-related expenses, our second quarter performance was relatively solid and demonstrated ongoing operating strength,” said David J. Nasca, President and CEO of Evans Bancorp, Inc. “During the quarter we were also pleased to be able to successfully close on our acquisition of FSB and have been diligently moving our combined strategy forward to leverage our commercial business model with FSB’s solid retail and consumer lending presence.”

Mr. Nasca added, “While the duration of this pandemic and resulting impact continues to be unknown, we are confident in the entire Evans’ team and our operating strategy. We fortified an already strong balance sheet increasing our capital with the private placement of $20 million of subordinated notes in July, and measurably grew our deposit base, both organically and through the acquisition. We believe we are in a position of strength to navigate this volatile environment and well positioned for the long-term.”

Net Interest Income
($ in thousands)
	2Q 2020		1Q 2020		2Q 2019
Interest income	$	17,069	$	15,823	$	16,325
Interest expense		2,136		3,047		3,191
Net interest income		14,933		12,776		13,134
Provision for loan losses		597		2,999		90
Net interest income after provision	$	14,336	$	9,777	$	13,044

Net interest income increased $2.2 million, or 17%, sequentially, and $1.8 million, or 14% from the prior-year second quarter. The increase from both periods was primarily driven by higher average interest-earning assets as a result of the FSB acquisition and PPP lending. The Company acquired $271 million of FSB loans, largely consisting of residential real estate. PPP lending added $195 million in loan growth during the quarter. Included in interest income during the current quarter was approximately $0.6 million of amortized PPP loan fees.

Second quarter net interest margin of 3.36% declined 28 basis points from the first quarter of 2020 and 51 basis points from the second quarter of 2019. The decrease was largely due to the Federal Reserve’s decrease of the fed funds rate by 150 basis points during the first quarter of 2020, and changes in the mix of interest earning assets including higher interest earning cash balances and a higher percentage of residential mortgages in the loan portfolio. The lower yield on loans when compared with the first quarter of 2020 and second quarter of 2019 reflects a decrease of 58 and 91 basis points, respectively. The cost of interest-bearing liabilities decreased to 0.65% compared with 1.17% in the first quarter of 2020 and 1.23% in the second quarter of 2020.

The $0.6 million provision for loan losses reflects changes in credit quality indicators as the economy continues to be impacted by the COVID-19 pandemic. While the full impact of COVID-19 on future financial results is uncertain, the Company believes that the effects could have a material impact on the ability of some clients to meet their borrowing obligations. The Company has deferred the adoption of the Current Expected Credit Loss Impairment Model (CECL), as permitted by its classification as a Smaller Reporting Company by the Securities and Exchange Commission.

Asset Quality
($ in thousands)
	2Q 2020			1Q 2020			2Q 2019
Total non-performing loans	$	19,718		$	16,717		$	11,020
Total net loan charge-offs		-			17			49
Non-performing loans / Total loans		1.17	%		1.34	%		0.91	%
Net loan charge-offs / Average loans		-	%		0.01	%		0.02	%
Allowance for loan losses / Total loans		1.11	%		1.46	%		1.26	%

During the quarter, the Company implemented a customer payment deferral program, which allows the deferral of principal and interest payments for 90 days, to assist both consumer and business borrowers who indicated they may be experiencing financial hardship due to COVID-19 related challenges. During the quarter, the Company gave deferrals of $372.1 million to commercial customers. The Company has communicated with these commercial customers and expect that of those first deferral requests $120.0 million will need a second 90 day deferral assistance and the remaining customers will go back to paying status.

“While there are pockets of continued weakness, our overall portfolio is solid, which reflects our prudent underwriting and in-market relationship focus. Over the coming months, we expect a significant amount of deferrals to end, and the majority of second deferral requests to be largely centered on hotels, which makes up approximately seven percent of our total commercial portfolio,” stated John Connerton, Chief Financial Officer of Evans Bank.

Non-Interest Income
($ in thousands)
	2Q 2020		1Q 2020		2Q 2019
Deposit service charges	$	397	$	628	$	602
Insurance service and fee revenue		2,667		2,425		2,901
Bank-owned life insurance		178		160		173
Loss on tax credit investment		-		(2,475)		-
Refundable NY state historic tax credit		-		1,857		-
Other income		997		743		1,054
Total non-interest income	$	4,239	$	3,338	$	4,730

The decrease in deposit service charges reflects lower consumer spending and the temporary suspension of certain fees to assist customers affected by COVID-19.

The increase in insurance service and fee revenue from the first quarter of 2020 reflects seasonally higher policy renewals for institutional clients. The change from last year’s second quarter was primarily the result of lower contingent profit sharing and claims service revenue.

The first quarter of 2020 included a $0.6 million net reduction of non-interest income related to an investment in an historic rehabilitation tax credit. There were no significant historic tax credit transactions in the second quarter of 2020 and 2019.

The sequential increase in other income was largely due to a gain on sale of loans and increased loan servicing fees as a result of the FSB acquisition, partially offset by a reduction in the fair value of mortgage servicing rights due to lower rates.

Non-Interest Expense
($ in thousands)
	2Q 2020		1Q 2020		2Q 2019
Salaries and employee benefits	$	8,005	$	7,797	$	7,469
Occupancy		1,062		861		872
Advertising and public relations		123		269		214
Professional services		872		914		929
Technology and communications		1,467		1,096		1,099
Amortization of intangibles		134		130		112
FDIC insurance		282		179		150
Merger-related expenses		4,974		460		-
Other expenses		1,093		1,164		1,304
Total non-interest expenses	$	18,012	$	12,870	$	12,149

Salaries and benefits costs increased 3% from the first quarter of 2020 and 7% from the prior-year period. The most significant component of the increase from both periods related to the addition of personnel related to the FSB acquisition. The variance to the prior year also included annual merit increases.

Advertising expenses decreased from the prior periods as a result of the timing of the Company’s promotional campaigns.

The increase in technology and communications was due to higher online banking activity, ATM card fees, and software costs primarily as a result of the FSB acquisition, in addition to expenditures related to COVID-19.

Merger-related expenses in the second quarter of 2020 included system contract termination and deconversion charges, and legal and other professional services.

The Company’s GAAP efficiency ratio, or noninterest expenses divided by the sum of net interest income and noninterest income, was 93.9% in the second quarter of 2020, 79.9% in the first quarter of 2020, and 68.0% in the second quarter of 2019. The Company’s non-GAAP efficiency ratio, excluding amortization expense, gains and losses from investment securities, merger-related expenses and the impact of historic tax credit transactions, was 67.3% compared with 73.4% in the first quarter of 2020 and 67.5% in last year’s second quarter.

Income tax expense was $0.1 million, or an effective tax rate of 16.7%, for the second quarter of 2020 compared an effective tax rate of 16.7% in the first quarter of 2020 and 22.1% in last year’s second quarter. Excluding the impact of the 2020 historic tax credit transaction, the effective tax rate was 25.9% and 25.4% in the second and first quarters of 2020, respectively.

Balance Sheet Highlights

Total assets were $2.1 billion as of June 30, 2020, an increase of 35% from $1.52 billion on March 31, 2020 and 40% from $1.47 billion at June 30, 2019, reflecting $271 million of acquired FSB loans and the Company’s strong loan growth over the last year. Since the end of last year’s second quarter loans were up $473 million, or 39%, to $1.69 billion largely due to the acquisition and growth in the commercial loan portfolio. During the second quarter of 2020 the Company recorded $195 million in PPP loans.

Investment securities were $170 million at June 30, 2020, $8 million higher than the end of the first quarter of 2020 and $33 million higher than at the end of last year’s second quarter. FSB contributed approximately $15 million to the investment securities portfolio during the second quarter of 2020. 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 grew $482 million, or 36%, to $1.81 billion since March 31, 2020, and were $526 million, or 41%, higher than the balance at the end of last year’s second quarter. FSB contributed approximately $245 million in total deposits. The increase excluding the acquisition was primarily a result of an accumulation of liquidity by commercial customers in response to the pandemic, increases in consumer deposits from government stimulus payments and lower consumer spending, and deposits related to PPP loans.

The deposit increase from the first quarter of 2020 reflects higher demand deposits of $155 million, consumer savings of $90 million, time deposits of $87 million, NOW deposits of $71 million, commercial savings of $44 million, and municipal savings of $35 million. The year-over-year increase reflects higher demand deposits of $185 million, commercial savings of $106 million, NOW deposits of $84 million, time deposits of $66 million, municipal savings of $44 million, and consumer savings of $40 million.

Capital Management

The Company has consistently maintained regulatory capital ratios measurably above the Federal “well capitalized” standard, including a Tier 1 leverage ratio of 8.44% at June 30, 2020 compared with 9.92% at March 31, 2020 and 9.99% at June 30, 2019. Book value per share was $30.13 at June 30, 2020 compared with $29.96 at March 31, 2020 and $28.74 at June 30, 2019.

Webcast and Conference Call

The Company will host a conference call and webcast on Wednesday, July 29, 2020 at 4:45 p.m. ET. Management will review the financial and operating results for the second quarter of 2020, 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 [phone]. 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, August 5, 2020. To listen to the archived call, dial [phone] and enter conference ID number 13705868, 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 $2.1 billion in assets and $1.8 billion in deposits at June 30, 2020. Evans is a full-service community bank with 20 financial centers 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 ten 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)
	6/30/2020				3/31/2020				12/31/2019				9/30/2019				6/30/2019
ASSETS
Interest-bearing deposits at banks	$	109,943			$	40,760			$	28,280			$	14,757			$	13,961
Investment Securities		169,975				162,038				130,308				136,977				137,438
Loans		1,685,761				1,246,206				1,226,531				1,219,792				1,212,699
Allowance for loan losses		(18,754	)			(18,157	)			(15,175	)			(15,382	)			(15,248	)
Goodwill and intangible assets		15,222				13,421				12,545				12,657				12,768
All other assets		103,793				80,543				77,741				86,931				109,502
Total assets	$	2,065,940			$	1,524,811			$	1,460,230			$	1,455,732			$	1,471,120
LIABILITIES AND STOCKHOLDERS'
EQUITY
Demand deposits		428,655				273,623				263,717				271,633				243,860
NOW deposits		229,788				159,223				140,654				141,384				145,620
Savings deposits		794,513				625,773				587,142				568,156				603,180
Time deposits		356,147				268,978				275,927				277,633				290,251
Total deposits		1,809,103				1,327,597				1,267,440				1,258,806				1,282,911
Borrowings		67,715				23,902				23,755				28,748				25,298
Other liabilities		27,124				25,216				20,582				23,309				21,624
Total stockholders' equity		161,998				148,096				148,453				144,869				141,287
SHARES AND CAPITAL RATIOS
Common shares outstanding		5,376,872				4,942,802				4,929,593				4,920,381				4,915,678
Book value per share	$	30.13			$	29.96			$	30.11			$	29.44			$	28.74
Tier 1 leverage ratio		8.44		%		9.92		%		10.33		%		10.11		%		9.99		%
Tier 1 risk-based capital ratio		11.14		%		11.84		%		12.32		%		11.87		%		11.86		%
Total risk-based capital ratio		12.39		%		13.09		%		13.56		%		13.11		%		13.11		%
ASSET QUALITY DATA
Total non-performing loans	$	19,718			$	16,717			$	14,396			$	13,839			$	11,020
Total net loan charge-offs (recoveries)		-				17				85				(565	)			49
Non-performing loans/Total loans		1.17		%		1.34		%		1.17		%		1.13		%		0.91		%
Net loan charge-offs (recoveries)/Average loans		-		%		0.01		%		0.03		%		(0.19	)	%		0.02		%
Allowance for loans losses/Total loans		1.11		%		1.46		%		1.24		%		1.26		%		1.26		%

EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED OPERATIONS DATA (UNAUDITED)
(in thousands, except share and per share data)
	2020			2020				2019				2019				2019
	Second Quarter			First Quarter				Fourth Quarter				Third Quarter				Second Quarter
Interest income	$	17,069		$	15,823			$	16,028			$	16,845			$	16,325
Interest expense		2,136			3,047				3,236				3,224				3,191
Net interest income		14,933			12,776				12,792				13,621				13,134
Provision (credit) for loan losses		597			2,999				(122	)			(431	)			90
Net interest income after provision		14,336			9,777				12,914				14,052				13,044
Deposit service charges		397			628				747				687				602
Insurance service and fee revenue		2,667			2,425				2,120				3,225				2,901
Bank-owned life insurance		178			160				164				160				173
Loss on tax credit investment		-			(2,475	)			(158	)			-				-
Refundable NY state historic tax credit		-			1,857				115				-				-
Other income		997			743				1,005				1,092				1,054
Total non-interest income		4,239			3,338				3,993				5,164				4,730
Salaries and employee benefits		8,005			7,797				7,355				7,644				7,469
Occupancy		1,062			861				868				853				872
Advertising and public relations		123			269				421				231				214
Professional services		872			914				827				1,009				929
Technology and communications		1,467			1,096				1,075				1,057				1,099
Amortization of intangibles		134			130				112				112				112
FDIC insurance		282			179				74				-				150
Merger-related expenses		4,974			460				232				-				-
Other expenses		1,093			1,164				1,207				1,370				1,304
Total non-interest expenses		18,012			12,870				12,171				12,276				12,149
Income before income taxes		563			245				4,736				6,940				5,625
Income tax provision		94			41				988				1,776				1,243
Net income		469			204				3,748				5,164				4,382
PER SHARE DATA
Net income per common share-diluted	$	0.09		$	0.04			$	0.75			$	1.04			$	0.88
Cash dividends per common share	$	-		$	0.58			$	-			$	0.52			$	-
Weighted average number of diluted shares		5,243,581			4,992,214				4,990,863				4,976,639				4,953,072
PERFORMANCE RATIOS
Return on average total assets		0.10	%		0.05		%		1.02		%		1.41		%		1.21	%
Return on average stockholders' equity		1.19	%		0.55		%		10.16		%		14.29		%		12.71	%
Efficiency ratio		93.95	%		79.87		%		72.51		%		65.35		%		68.01	%
Efficiency ratio (Non-GAAP)*		67.30	%		73.39		%		70.28		%		64.75		%		67.54	%

* 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)
	2020			2020			2019			2019			2019
	Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter
AVERAGE BALANCES
Loans, net	$	1,535,206		$	1,219,230		$	1,213,837		$	1,202,634		$	1,183,379
Investment securities		179,677			136,029			137,354			143,731			148,465
Interest-bearing deposits at banks		73,973			57,319			32,061			24,661			28,132
Total interest-earning assets		1,788,856			1,412,578			1,383,252			1,371,026			1,359,976
Non interest-earning assets		107,738			89,804			89,415			89,513			85,720
Total Assets	$	1,896,594		$	1,502,382		$	1,472,667		$	1,460,539		$	1,445,696
NOW		203,458			144,564			136,077			134,008			123,515
Savings		721,578			605,103			593,694			591,585			605,524
Time deposits		337,187			274,576			274,856			281,798			289,794
Total interest-bearing deposits		1,262,223			1,024,243			1,004,627			1,007,391			1,018,833
Borrowings		51,493			24,708			27,241			25,234			24,231
Total interest-bearing liabilities		1,313,716			1,048,951			1,031,868			1,032,625			1,043,064
Demand deposits		399,807			281,624			272,834			261,089			244,142
Other non-interest bearing liabilities		25,540			22,127			20,375			22,231			20,609
Stockholders' equity		157,531			149,680			147,590			144,594			137,881
Total Liabilities and Equity	$	1,896,594		$	1,502,382		$	1,472,667		$	1,460,539		$	1,445,696
YIELD/RATE
Loans, net		4.22	%		4.80	%		4.92	%		5.16	%		5.13	%
Investment securities		2.12	%		3.24	%		2.46	%		2.87	%		2.77	%
Interest-bearing deposits at banks		0.08	%		1.27	%		1.65	%		2.56	%		2.22	%
Total interest-earning assets		3.84	%		4.51	%		4.61	%		4.87	%		4.81	%
NOW		0.24	%		0.50	%		0.57	%		0.45	%		0.37	%
Savings		0.37	%		0.87	%		0.94	%		0.90	%		0.87	%
Time deposits		1.40	%		2.02	%		2.09	%		2.17	%		2.18	%
Total interest-bearing deposits		0.62	%		1.13	%		1.21	%		1.20	%		1.18	%
Borrowings		1.41	%		2.78	%		2.64	%		2.92	%		3.13	%
Total interest-bearing liabilities		0.65	%		1.17	%		1.24	%		1.24	%		1.23	%
Interest rate spread		3.19	%		3.34	%		3.36	%		3.63	%		3.58	%
Contribution of interest-free funds		0.17	%		0.30	%		0.31	%		0.31	%		0.29	%
Net interest margin		3.36	%		3.64	%		3.67	%		3.94	%		3.87	%