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 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.”

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.

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.