Evans Bancorp Posts 2009 1Q Results

Apr 25, 2009 (Close-Up Media via COMTEX) -- EVBN | Quote | Chart | News | PowerRating -- Evans Bancorp, Inc., a community financial services company serving Western New York, has reported its results of operations for the quarter ended March 31.

In a release on April 22, the Company noted it recorded a net loss for the first quarter of 2009 of $1.2 million, or $0.45 per diluted share, compared with net income of $1.6 million, or $0.58 per diluted share, in the first quarter of 2008. The net loss was primarily due to a $1.2 million after-tax and non-cash charge for impairment of the entire $2.0 million of goodwill associated with the Company's leasing business. First quarter results were additionally impacted from the recording of a $3.3 million provision for loan and lease losses, or a $2.8 million increase over first quarter 2008, of which $2.5 million was the result of credit deterioration in the leasing portfolio. Return on average equity was (10.81 percent) for the quarter, compared with 14.45 percent in last year's first quarter.

"Net operating income" is net income adjusted for what management considers to be "non-operating" items. Net operating income for the first quarter of 2009 was $0.10 million, or $0.04 per diluted share, a decrease of $1.6 million, or (93.9 percent), from net operating income of $1.7 million, or $0.62 per diluted share, in the first quarter of 2008.

David J. Nasca, President and CEO of Evans Bancorp stated, "We understand that this quarter's results are disappointing amidst what has been strong forward momentum and growth by the Company. In the past two years our goal has been to strengthen the balance sheet and our capital position. As a step to reduce additional credit exposure, we have elected to exit our national leasing operations. The actions taken this quarter will help us reduce risk and also enable the reallocation of capital back into our core businesses of banking, insurance and investment services, which have been performing strongly. In addition, our strong capital position allows us to weather this type of economic storm, enables flexibility as opportunities for expansion present themselves, and provides an ability to return capital to our shareholders."

Nasca continued, "This quarter we have had strong growth in loans and deposits within our core business franchise and measurable growth in insurance. Our financial services solutions provide us the platform to capture market share in an uncertain environment and drive exceptional customer experience."

Net Interest Income

Net interest income increased to $5.21 million during the first quarter of 2009, an increase of $0.27 million, or 5.4 percent, from $4.95 million in the fourth quarter of 2008, and an increase of 19.6 percent from $4.36 million in the first quarter 2008. Growth of the core loan portfolio and the reduced cost of interest-bearing liabilities continue to be the main factors driving this increase. The core loan portfolio is defined as total loans and leases less direct financing leases. Core loans were $363.4 million at March 31, an increase of 4.1 percent from $349.1 million at December 31, 2008. This equates to a 16.4 percent annualized growth rate. The Company continued to experience strong growth in commercial real estate. Origination of residential mortgages was also very strong in the first quarter of 2009 with $6.1 million in originations, compared with $2.6 million in last year's first quarter. Residential mortgage balances are lower, however, as the Company does not hold 30-year loans and has sold most of the mortgages to Fannie Mae, resulting in a gain on sale of $29 thousand, compared with a gain of $1 thousand in the previous year's first quarter. The Company continues to service all mortgage loans it originates. The direct financing lease portfolio declined $3.2 million to $55.4 million at the end of the 2009 first quarter as the Company measurably slowed lease originations through the first three months of 2009. In April, the Company ceased the origination of new leases outside of the Western New York market.

Total deposits were $460.0 million at March 31, an increase of 13.9 percent from $404.0 million at December 31, 2008. This equates to a 55.6 percent annualized growth rate. The Company continued to benefit from account acquisition in its retail money market product during the first quarter of 2009. Seasonal growth in the Company's muni-vest municipal savings account was also a significant factor for the increase in deposits in the first quarter 2009. Municipal deposits trend higher in the first quarter when municipalities collect taxes. These deposits tend to diminish throughout the fiscal year as municipalities use the funds for operations.

Nasca noted, "One of our core strategies is to acquire and retain customers who maintain their primary transactional accounts with Evans. We believe the success in our money market account provides our sales and service force a product which helps to deepen our customer relationships and cultivate opportunities to meet other financial and insurance needs."

The Company's net interest margin continued to perform well at 4.31 percent in the first quarter of 2009, down slightly from 4.32 percent fourth quarter 2008. The Company's net interest margin for the first quarter decreased from 4.44 percent in the first quarter of 2008. The decreased margin was partly due to a higher concentration of investments in the first quarter 2009, which typically have lower yields than loans, and a higher concentration in interest-bearing savings accounts due to the growth in the money market account. Limiting the effect of these factors was strong demand deposit growth. Compared with the first quarter of 2008, the Company's average demand deposits were 13.2 percent higher in the first quarter of 2009.

Allowance for Loan and Lease Losses and Asset Quality

Net charge-offs to average total loans and leases increased to 1.59 percent compared with 0.71 percent in the fourth quarter of 2008 and 0.44 percent for the 2008 first quarter. This increase in net charge-offs was primarily related to the direct finance national lease portfolio. Excluding the lease portfolio, there were only $9 thousand in net charge-offs.

The ratio of non-performing loans and leases to total loans and leases increased to 0.98 percent at March 31, compared with 0.88 percent at December 31, and 0.13 percent at the end of last year's first quarter. The increase in non-performing loans and leases of $0.5 million from December 31, 2008 was a result of further weakness in the leasing portfolio as non-accruing leases increased from $0.8 million at December 31, 2008 to $1.6 million at March 31.

The increased net charge-offs and non-performing loans resulted in an increased provision for loan and lease losses of $3.3 million in the first quarter of 2009, compared with $1.7 million in the fourth quarter of 2008 and

$0.6 million in the first quarter of 2008. $2.9 million of the $3.3 provision was related to the national lease portfolio. The allowance for loan and lease losses to total loans and leases ratio was 1.86 percent at March 31, compared with 1.49 percent at December 31, 2008, and 1.40 percent at March 31, 2008.

Gary Kajtoch, Senior Vice President and CFO of Evans Bank, the Company's wholly-owned subsidiary, commented, "With the economy in a deep recession, we have been proactive in our approach to managing asset quality and reducing exposure on our balance sheet. The expansion of our loan loss reserve provides increased coverage on both performing and non-performing assets. Although we expect weakness in the economy to continue over the next few quarters, with our recent move to exit the national leasing business we are better positioned for this environment."

Non-Interest Income

Non-interest income, which represented 42.8 percent of total revenue compared with 44.8 percent in last year's first quarter, increased 10.3 percent, or $0.36 million, from last year's first quarter to $3.89 million in the first quarter of 2009.

Insurance service and fee income, the largest component of non-interest income, improved 9.0 percent to $2.33 million for the first quarter of 2009. Personal lines revenue was the fastest growing product line for The Evans Agency ("TEA"), the Company's insurance agency subsidiary. This was primarily due to the purchase of the Fitzgerald Insurance Agency in August of 2008. Bank-owned life insurance ("BOLI") revenue increased from $0.06 million in revenue in last year's first quarter to $0.22 million in the first quarter of 2009. The increased BOLI revenue was a result of proceeds from a life insurance policy collected in the first quarter of 2009 along with the poor performance during last year's first quarter of two equity-based BOLI policies which have subsequently been sold. Other income increased $0.28 million from the first quarter of 2008 to the first quarter of 2009 due to revenue generated by Suchak Data Systems, Inc. ("SDS"), a data processing company which was acquired by the Company on December 31, 2008. Last year's first quarter was also impacted by a one-time gain of $0.33 million due to the curtailment of its pension plan after freezing the plan on January 31, 2008.

Non-Interest Expense

Total non-interest expenses were $7.68 million for the first quarter of 2009, an increase of 51.0 percent from $5.09 million in the first quarter of 2008. Included in the increase was a $2.0 million non-cash goodwill impairment charge. The charge was the result of the re-evaluation of the Company's goodwill in light of its decision to exit the national leasing business. The impairment does not impact the Company's regulatory capital ratios nor have any impact on the liquidity of the Company.

Excluding the goodwill impairment charge, total non-interest expenses were $5.70 million for the first quarter of 2009, an increase of 12.0 percent from first quarter 2008. The largest component of the increase in total non-interest expenses was salaries and employee benefits, which increased $0.43 million, or 15.0 percent, to $3.30 million for the quarter. Salaries and benefits were higher because of the addition of 18 new employees working in the Company's new branch office in the Elmwood Village in Buffalo, and from the acquisitions of SDS and the Fitzgerald Agency.

As a result of the strong growth in net interest income and non-interest income, the efficiency ratio for the first quarter of 2009 improved to 60.3 percent from 62.4 percent in last year's first quarter and 66.2 percent in the fourth quarter of 2008. Goodwill impairment and amortization are excluded from the efficiency ratio calculation.

Income tax benefit totaled ($0.64) million for the three month period ended March 31, reflecting an effective tax benefit rate of (34.0 percent). The effective tax rate for the first quarter of last year was 29.0 percent. Excluding the tax benefit from the impairment charge, the Company records an effective tax rate based on the expected rate for the entire year. The Company recognized a $0.11 million reduction in its deferred tax asset related to its leasing business as management estimates that the Company will be unable to utilize all of its deferred tax assets.

Conclusion

Nasca concluded, "Our strategy to acquire a larger share of the Western New York market by optimizing our core businesses of banking, insurance and investment advisory services was successful in the first quarter of this year. Reallocating capital from the national leasing business into our core community banking franchise will allow aggressive pursuit of our business model to expand Evans' market position. While disappointed by the first quarter loss, we are confident that our strong capital base will allow us to regain the positive momentum exhibited in recent quarters once we have completed the exit of the national leasing business."

Evans Bancorp, Inc. is a financial holding company and the parent company of Evans Bank, N.A., a commercial bank with $556 million in assets and $460 million in deposits at March 31. The bank has twelve branches located in Western New York. Evans National Leasing, Inc., an indirect wholly-owned subsidiary of Evans Bank is a general business equipment leasing company with customers throughout the U.S. Evans Bancorp's wholly-owned insurance subsidiary, The Evans Agency, provides retail property and casualty insurance through 15 insurance offices in the Western New York region. Evans Investment Services, a wholly-owned subsidiary of Evans Bank, provides non-deposit investment products such as annuities and mutual funds.

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