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, 2022.

SECOND QUARTER 2022 HIGHLIGHTS (compared with prior-year period unless otherwise noted)

• Achieved second quarter net income of $5.7 million or $1.03 per diluted share
• Generated solid net interest income of $18.1 million despite significantly lower PPP fees as the program nears conclusion
• Total loan balances increased 4%, excluding PPP loans
• Total deposits of $1.97 billion increased 4%
• Efficiency ratio improved 142 basis points to 65.2%

Net income was $5.7 million, or $1.03 per diluted share, in the second quarter of 2022, compared with $4.7 million, or $0.86 per diluted share, in the first quarter of 2022 and $6.3 million, or $1.15 per diluted share, in last year’s second quarter. The increase from the sequential first quarter was largely due to higher net interest income. The change from prior year largely reflected lower PPP fees and a sizable credit in provision for loan losses in the second quarter of 2021. Return on average equity was 13.77% for the second quarter of 2022, compared with 10.46% in the first quarter of 2022 and 14.72% in the second quarter of 2021.

“Second quarter results were very solid, reflecting continued growth in commercial business lending, attraction of core deposits, especially checking and savings, significantly improving net interest margins, and a diligent focus on expense management despite the ever-changing market dynamics in which we operate in currently,” said David J. Nasca, President and CEO of Evans Bancorp, Inc. “Our team continues to execute our strategy resulting in new business attraction and market share growth with a strong commitment to our community and relationship driven, customer-centric focus. We expect a rising interest rate environment to drive higher net interest income and margins going forward. We have managed our expenses while simultaneously investing capital in technology to enhance the customer experience and operational effectiveness. While headwinds exist, our outlook remains positive, as we are confident in our team and strategy to deliver value.”

Net interest income increased $1.6 million, or 9%, from the sequential first quarter, but decreased $0.3 million when compared with prior-year second quarter. The increase from the first quarter of 2022 reflected higher interest income on loans of $1.1 million as a result of higher average balances and increases in the fed funds rate by the Federal Reserve of 150 basis points since the beginning of 2022. Also contributing was higher interest income on securities of $0.3 million reflecting a $34.4 million increase in average balances during the second quarter of 2022. The decrease from prior year reflected lower interest income on loans of $1.7 million, including a decrease in PPP fees of $2.3 million partially offset by increases in interest income on investment securities of $1.0 million, interest bearing deposits at banks of $0.2 million and lower interest expense of $0.2 million. The decrease in PPP fees reflects the deceleration in the rate of remaining loan forgiveness as the program approaches its conclusion. PPP fees recognized in interest income were $0.2 million in the second quarter of 2022, $0.5 million in the first quarter of 2022 and $2.5 million in the second quarter of 2021.

Second quarter net interest margin of 3.45% increased 27 basis points from the first quarter of 2022 but decreased 17 basis points from the second quarter of 2021. The yield on loans increased 17 basis points compared with the first quarter of 2022 but decreased 8 basis points compared with the second quarter of 2021. The cost of interest-bearing liabilities was 0.28% compared with 0.27% in the first quarter of 2022 and 0.34% in the second quarter of 2021.

The Company continues to evaluate the credit quality of its loan portfolio in response to the economic impact of the COVID-19 pandemic on clients. During 2020, the Company identified a well-defined weakness in the hotel industry and classified $81 million of loans to clients within that industry as criticized. Since that time, approximately a third of the portfolio was upgraded or paid off, leaving $54 million in criticized status at the end of the 2022 second quarter. The improvement of the remaining criticized hotel credits is dependent on continued positive payment performance.

The $0.3 million provision for loan losses in the current quarter was primarily due to the change in economic trends. Evans has deferred the adoption of the Current Expected Credit Loss Impairment Model (CECL) until January 2023, as permitted by its classification as a Smaller Reporting Company by the Securities and Exchange Commission.

“The quarter’s provision was driven by trending economic conditions rather than the quality of our loan portfolio. Despite a modest increase in non-performing loans, which reflected just one commercial real estate relationship that is well collateralized, our asset quality remains strong,” stated John Connerton, Chief Financial Officer of Evans Bank. “We continue to rely on strong underwriting fundamentals while considering economic data in an effort to counteract the impact of a potential downturn.”

Higher debit card usage drove deposit service charges up 16% over last year’s second quarter.

The increase in insurance service and fee revenue from the sequential first quarter reflects seasonally higher policy renewals for institutional clients.

The changes in other income from the prior periods was largely due to movements in the fair value of mortgage servicing rights.

Total non-interest expense increased $0.3 million, or 2%, from the first quarter of 2022, but decreased $0.4 million, or 3%, from last year’s second quarter.

Salaries and employee benefits expense remained consistent when compared with prior periods. Salaries and employee benefits comprised 64% of total non-interest expense.

Advertising expense increased $0.3 million from the previous quarter due to seasonal marketing campaigns during the second quarter of 2022.

Technology and communications decreased $0.2 million year-over-year due to lower COVID related technology expenses.

The Company’s GAAP efficiency ratio, or noninterest expenses divided by the sum of net interest income and noninterest income, was 65.2% in the second quarter of 2022, 69.1% in the first quarter of 2022, and 66.7% in the second quarter of 2021.

Income tax expense was $1.9 million, for an effective tax rate of 24.7%, in the second quarter of 2022 compared with 24.0% in the first quarter of 2022 and 24.4% in last year’s second quarter.

Balance Sheet Highlights

Total assets were $2.21 billion as of June 30, 2022, a decrease of less than 1% from $2.24 billion at March 31, 2022, but an increase of 2% from $2.16 billion at June 30, 2021. The growth from the prior year resulted from an increase in investment securities of $169 million, partially offset by a decrease in total loans of $83 million, and a decrease in interest-bearing deposits at banks of $39 million. Since last year’s second quarter, PPP loan balances, which are included in commercial and industrial loans, decreased $142 million. Excluding the decrease of PPP loans, commercial and industrial loans increased $13 million from the second quarter of 2021. PPP loans totaled $3.5 million at June 30, 2022, compared with $10 million at March 31, 2022 and $146 million at June 30, 2021. Residential mortgages increased $34 million and commercial real estate loans were up $6 million since the second quarter of 2021.

Investment securities were $403 million at June 30, 2022, $14 million higher than the end of the first quarter of 2022, and $169 million higher than at the end of last year’s second quarter. The increases reflect the use of excess cash balances. 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 $1.97 billion decreased $18 million, or 1%, from March 31, 2022, but increased $85 million, or 4%, from the end of last year’s second quarter. The change from the prior year primarily reflects increases in demand deposits of $63 million, commercial savings of $42 million, consumer deposits of $21 million, municipal deposits of $12 million, and NOW deposits of $4 million, offset by a decrease in time deposits of $58 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 8.73% at June 30, 2022 compared with 8.57% at March 31, 2022 and 8.23% at June 30, 2021.

Book value per share was $29.53 at June 30, 2022 compared with $30.65 at March 31, 2022 and $32.28 at June 30, 2021. Reflected in the book value changes are the Federal Reserve’s aggressive interest rate hikes that have resulted in significant changes in unrealized gains and losses on investment securities, which reduced book value per share at June 30, 2022 by $2.18 when compared with the sequential first quarter and $5.83 from last year’s second quarter. Such unrealized gains and losses are generally 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. The Company had no other-than-temporary impairment charges in its investment portfolio in 2022 or 2021.

Tangible book value per share was $26.97 at June 30, 2022 compared with $28.08 at March 31, 2022 and $29.58 at June 30, 2021.

Webcast and Conference Call

The Company will host a conference call and webcast on Wednesday, July 27, 2022 at 4:45 p.m. ET. Management will review the financial and operating results for the second quarter of 2022, 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 Wednesday, August 3, 2022. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13730929, 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 $2.0 billion in deposits at June 30, 2022. Evans is a full-service community bank with 21 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.

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