Q4 2016 evbn 8-K Earnings

News

Release

Evans Bancorp, Inc. One Grimsby Drive Hamburg, NY 14075

Evans Bancorp Reports 33% Increase in Net Income
in 2016 Fourth Quarter and Record Net Income for 2016

HAMBURG, NY, February 6, 2017 – Evans Bancorp, Inc. (the “Company” or “Evans”) (NYSE MKT: EVBN),
a community financial services company serving Western New York since 1920, today reported its results of operations for the fourth quarter and year ended December 31, 2016.

FOURTH QUARTER AND FULL YEAR 2016 HIGHLIGHTS (compared with prior year periods unless noted otherwise)

Fourth quarter net income grew 33% to $2.3 million, or $0.53 per diluted share

Net interest income in fourth quarter of 2016 increased 11% driven by expanded loan portfolio

Record annual net income of $8.3 million, an increase of 5% from 2015

Record loan growth in 2016: Loans up 22%, or $169 million, to $943 million

Strong year-over-year deposit growth across all product categories. Total deposits up 17%
to $940 million.

Net income was $2.3 million, or $0.53 per diluted share, in the fourth quarter of 2016, compared with
$2.2 million, or $0.51 per diluted share, in the trailing third quarter of 2016 and $1.8 million, or $0.41 per diluted share, in last year’s fourth quarter. The increase from the 2016 trailing third quarter reflects higher net interest income, lower provision for loan loss, and the benefit of an historic tax credit, partially offset by lower noninterest income and higher expenses. The 33% increase from the fourth quarter of 2015 is due to higher net interest income and the benefit of historic tax credits.

Return on average equity increased 53 basis points to 9.70% for the fourth quarter of 2016 compared with the trailing third quarter and was up 198 basis points over the prior-year period.

For the full year 2016, net income was $8.3 million, up 5% from $7.8 million in 2015. Earnings per diluted share increased from $1.82 in 2015 to $1.90 in 2016. The return on average equity was 8.74% for 2016, compared with 8.82% in 2015.

“2016 was an outstanding year for Evans with record growth and strong returns further fueling already robust momentum and carrying the organization over the $1 billion in assets level. We have capitalized on our community commitment and unprecedented market transformation to gain new customers, increase deposits, and develop a more diversified loan portfolio. Our loan portfolio grew 22% as we focused on complementing our long-established commercial real estate expertise with small and mid-market business lending,” said David J. Nasca, President and CEO of Evans Bancorp.

Mr. Nasca added, “We recently completed a successful follow-on capital raise with net proceeds of over $14 million. This additional capital will be deployed to further support our significant expected organic growth in light of expanding market opportunities. We believe this capital will enhance our ability to leverage operating scale to deliver greater earnings.”

Evans Bancorp Reports 33% Increase in Net Income in 2016 Fourth Quarter

February 6, 2017

Page 2 of 9



Net Interest Income
($ in thousands)

	4Q 2016		3Q 2016		4Q 2015

Interest income	$	10,664	$	10,241	$	9,437
Interest expense		1,261		1,172		1,001
Net interest income		9,403		9,069		8,436
Provision for loan losses		371		1,006		204
Net interest income after provision	$	9,032	$	8,063	$	8,232

Net interest income increased $0.3 million, or 4%, from the trailing third quarter of 2016 and $1.0 million, or 11%, from the prior-year fourth quarter, reflecting strong loan and demand deposit growth. The Company’s commercial loan portfolio continued to grow at a significant rate as average commercial loans, including both commercial real estate and commercial and industrial loans, were $745 million in the fourth quarter, up 5%, or 19% on an annualized basis, from $712 million in the trailing third quarter and 27% from $588 million in the 2015 fourth quarter.

Net interest margin of 3.68% declined 23 basis points from the 2015 fourth quarter, but improved 1 basis point from the third quarter of 2016. In last year’s fourth quarter, there was a payoff of a large investment security that resulted in the recognition of $0.3 million in interest income. This payoff contributed 15 basis points to the net interest margin in the fourth quarter of 2015. The remaining margin contraction from last year reflects a decline in loan yields as market rates remained historically low in a highly competitive market. The slight uptick in net interest margin from the trailing third quarter resulted from an improvement in loan yields in the current quarter. This improvement in loan yields was somewhat offset by an increase in the cost of deposits as the Company garnered $16 million in average time deposits.

The decrease in loan loss provision reflects favorable credit quality trends including lower non-performing loans to total loans ratio at December 31, 2016, a sustained charge-off ratio that is historically low and a moderately lower rate of loan growth during the quarter compared with the trailing period. The decrease in non-performing loans at the end of the recent quarter is primarily due to the upgrade of a large commercial loan to performing status.



Asset Quality
($ in thousands)

	4Q 2016			3Q 2016			4Q 2015

Total non-performing loans	$	12,020		$	15,279		$	16,042
Total net loan charge-offs (recoveries)		167			67			776
Non-performing loans/ Total loans		1.28	%		1.67	%		2.07	%
Net loan charge-offs/ Average loans		0.07	%		0.03	%		0.42	%
Allowance for loan losses/ Total loans		1.48	%		1.50	%		1.66	%

John B. Connerton, Executive Vice President and Chief Financial Officer, noted, “Even at the strong pace that we are growing our loan portfolio, we are booking high quality assets and have solid credit fundamentals. In addition, we have prudently managed the interest rate risk on our balance sheet in a competitive pricing environment and believe we are positioned to benefit in a rising interest rate environment.”

Evans Bancorp Reports 33% Increase in Net Income in 2016 Fourth Quarter

February 6, 2017

Page 3 of 9

Non-Interest Income
($ in thousands)

	4Q 2016		3Q 2016		4Q 2015

Deposit service charges	$	429	$	475	$	461
Insurance service and fee revenue		1,344		1,855		1,572
Bank-owned life insurance		135		144		140
Loss on tax credit investment		(883)		-		-
Refundable NY state historic tax credit		609		-		-
Other income		1,009		861		748
Total non-interest income	$	2,643	$	3,335	$	2,921

Evans is actively engaged in the community by financing historic rehabilitation projects in Buffalo and enhances its yield by investing in related tax credits. When a project is completed, Evans begins to recognize tax benefits with a related reduction in the investment. In the current quarter, the net benefit to the bottom line was $0.3 million as a $0.6 million refundable New York State tax credit was recorded in non-interest income and a corresponding $0.6 million tax benefit was realized in income tax expense, offset by a $0.9 million write-off on the investment. The write-off was contemplated when management priced the initial investment in the tax credit project. There were no comparable transactions in the third quarter of 2016 or fourth quarter of 2015.

Insurance revenue decreased $0.5 million from the trailing third quarter due to the seasonal decrease in commercial lines insurance commissions. The $0.2 million decline from the previous year’s fourth quarter was primarily due to a decrease in financial services sales revenue and insurance claims revenue.



Non-Interest Expense
($ in thousands)

	4Q 2016		3Q 2016		4Q 2015

Salaries and employee benefits	$	5,838	$	5,402	$	5,365
Occupancy		744		732		722
Repairs and maintenance		222		200		204
Advertising and public relations		315		232		227
Professional services		445		535		499
Technology and communications		399		304		308
FDIC insurance		210		201		161
Other expenses		965		1,105		1,179
Total non-interest expenses	$	9,138	$	8,711	$	8,665

Salaries and benefits costs in the recent fourth quarter increased $0.4 million and $0.5 million when compared with the third quarter of 2016 and fourth quarter of 2015, respectively, reflecting increased incentive compensation. Technology expenses increased $0.1 million in the fourth quarter when compared with each of the third quarter of 2016 and the fourth quarter of 2015 due to maintenance costs for the Company’s new core banking system. Higher advertising expenses in the fourth quarter included a marketing campaign targeted toward obtaining new customers impacted by bank merger activity in Western New York. Professional services costs declined in the fourth quarter by $0.1 million when compared with the trailing and prior year quarters, reflecting costs in the prior periods related to the implementation of the new core banking system.

Income tax expense of $0.2 million was recorded for the fourth quarter of 2016, down from $0.5 million in the

Evans Bancorp Reports 33% Increase in Net Income in 2016 Fourth Quarter

February 6, 2017

Page 4 of 9

third quarter of 2016 and $0.7 million in last year’s fourth quarter. The effective tax rate for the quarter was 7.8% compared with 17.5% in the third quarter of 2016 and 29.5% in the fourth quarter of 2015. The lower effective tax rate over the two most recent quarters reflects the impact of two tax credit investment transactions in 2016.

2016 Year-end Balance Sheet Highlights

Total assets reached $1.10 billion as of December 31, 2016, a 1% increase from $1.08 billion at September 30, 2016 and 17% higher than $939 million at December 31, 2015. The Company experienced the highest loan growth in its history this year as the loan portfolio increased by $169 million, or 22%, to $943 million. Loan growth from the end of the third quarter was $30 million, or 3%, which equates to a 13% annualized growth rate for the quarter. Loan growth in both periods was predominantly in the commercial real estate and commercial and industrial loan portfolios.

Deposit growth was also strong in 2016 increasing 17% to $940 million at December 31, 2016. The year-over-year growth was across all of the Company’s product categories, including demand deposit growth of 10%, NOW account growth of 6%, savings deposit growth of 16%, and time deposit growth of 46%. Deposits grew $42 million, or 5%, during the fourth quarter, which is the equivalent of a 19% annualized growth rate. The biggest component of deposit growth in the recent fourth quarter was an increase in time deposits of $23 million.

2016 Year in Review

Net interest income for 2016 was $35.2 million, up 11% over 2015, primarily due to strong growth in the Company’s commercial loan portfolio and core deposit balances. Net interest margin was 3.67% in 2016, a decrease of 13 basis points from 3.80% in 2015 mainly due to lower yields on loans and investment securities.

The Company’s provision for loan losses remained unchanged at $1.2 million as the impact of loan growth was offset by improving credit quality trends. Net charge-offs expressed as a percentage of average loans was 0.02% in 2016, down from 0.12% in 2015. The ratio of non-performing loans to total loans decreased from 2.07% at the previous year-end to 1.28% at the end of 2016.

Non-interest income of $11.3 million in 2016 was down $2.5 million from 2015, due to $0.9 million net loss recorded in non-interest income related to tax credit investments in 2016, a $0.7 million gain from an insurance settlement in 2015, and a $0.7 million decrease in insurance revenue.

Non-interest expense increased $2.4 million, or 7%, to $35.1 million in 2016. The increase in expense reflects higher salaries and employee benefits of $1.7 million, or 9%, due to merit increases, higher benefits costs and the addition of new employees as part of the Company’s planned growth strategy.

Income tax expense for the year was $1.9 million, representing an effective tax rate of 18.9% compared with an effective tax rate of 32.4% in 2015. The difference was driven by two tax credit investment transactions in 2016. Excluding the impact of the historic tax credit and the write-off of the tax credit investment recognized in non-interest income, the 2016 effective tax rate was 32.7%.

Capital Management

The Company consistently maintains regulatory capital ratios measurably above the Federal “well capitalized” standard, including a Tier 1 leverage ratio of 9.49% at December 31, 2016. Book value per share increased to $22.50 at December 30, 2016 compared with $22.20 at September 30, 2016 and $21.44 at December 31, 2015.

Outlook

Mr. Nasca concluded, “The organization realized record net income in 2016 as a result of solid execution and the capture of market opportunities driven by disruption in the competitive landscape. We believe we have momentum and the right strategic plan in place to deliver another year of strong growth and performance in 2017. We expect that the investment in talent, systems and infrastructure in the last few years along with our enhanced capital position can be leveraged into increased returns for our shareholders.”

Evans Bancorp Reports 33% Increase in Net Income in 2016 Fourth Quarter

February 6, 2017

Page 5 of 9

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 $1.1 billion in assets and $940 million in deposits at December 31, 2016. Evans is a full-service community bank, with 14 branches, providing comprehensive financial services to consumer, business and municipal customers throughout Western New York. Evans Bancorp's wholly-owned insurance subsidiary, The Evans Agency, LLC, provides property and casualty insurance through seven insurance 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 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.


For more information contact:	-OR-
John B. Connerton Executive Vice President and Chief Financial Officer	Deborah K. Pawlowski Kei Advisors LLC
Phone: (716) 926-2000 Email: jconner@evansbank.com	Phone: (716) 843-3908 Email: dpawlowski@keiadvisors.com

TABLES FOLLOW

Evans Bancorp Reports 33% Increase in Net Income in 2016 Fourth Quarter

February 6, 2017

Page 6 of 9



EVANS BANCORP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
(in thousands, except shares and per share data)

	12/31/2016			9/30/2016			6/30/2016			3/31/2016			12/31/2015
ASSETS
Investment Securities	$	97,205		$	104,859		$	110,629		$	116,294		$	98,758
Loans		942,512			912,852			853,306			796,773			773,984
Allowance for loan losses		(13,916)			(13,712)			(12,773)			(13,119)			(12,883)
Goodwill and intangible assets		8,406			8,101			8,101			8,101			8,101
All other assets		66,502			72,563			62,335			81,866			71,147
Total assets	$	1,100,709		$	1,084,663		$	1,021,598		$	989,915		$	939,107

LIABILITIES AND STOCKHOLDERS'
EQUITY
Demand deposits		201,741			195,869			187,774			174,276			183,098
NOW deposits		88,632			87,047			88,993			95,622			83,674
Savings deposits		508,652			496,926			480,290			463,672			439,993
Time deposits		140,949			118,123			112,828			115,479			96,217
Total deposits		939,974			897,965			869,885			849,049			802,982
Borrowings		49,689			74,136			41,841			34,224			32,151
Other liabilities		14,298			17,364			15,083			14,482			12,718
Total stockholders' equity		96,748			95,198			94,789			92,160			91,256

SHARES AND CAPITAL RATIOS
Common shares outstanding		4,300,634			4,287,400			4,286,939			4,279,296			4,257,179
Book value per share	$	22.50		$	22.20		$	22.11		$	21.54		$	21.44
Tier 1 leverage ratio		9.49	%		9.55	%		10.06	%		10.18	%		10.45	%
Tier 1 risk-based capital ratio		10.82	%		10.82	%		11.45	%		11.94	%		11.82	%
Total risk-based capital ratio		12.07	%		12.07	%		12.70	%		13.20	%		13.07	%

ASSET QUALITY DATA
Total non-performing loans	$	12,020		$	15,279		$	16,076		$	17,941		$	16,042
Total net loan charge-offs (recoveries)		167			67			(30)			(28)			776

Non-performing loans/Total loans		1.28	%		1.67	%		1.88	%		2.25	%		2.07	%
Net loan charge-offs/Average loans		0.07	%		0.03	%		(0.01)	%		(0.02)	%		0.42	%
Allowance for loans losses/Total loans		1.48	%		1.50	%		1.50	%		1.65	%		1.66	%

Evans Bancorp Reports 33% Increase in Net Income in 2016 Fourth Quarter

February 6, 2017

Page 7 of 9



EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED OPERATIONS DATA (UNAUDITED)
(in thousands, except share and per share data)

	2016			2016			2016			2016			2015
	Fourth Quarter			Third Quarter			Second Quarter			First Quarter			Fourth Quarter
Interest income		10,664			10,241			9,694			9,356			9,437
Interest expense		1,261			1,172			1,178			1,096			1,001
Net interest income		9,403			9,069			8,516			8,260			8,436
Provision for loan losses (credit)		371			1,006			(376)			208			204
Net interest income after provision		9,032			8,063			8,892			8,052			8,232

Deposit service charges		429			475			403			443			461
Insurance service and fee revenue		1,344			1,855			1,572			1,748			1,572
Bank-owned life insurance		135			144			141			136			140
Loss on tax credit investment		(883)			-			(2,139)			-			-
Refundable NY state historic tax credit		609			-			1,508			-			-
Other income		1,009			861			795			667			748
Total non-interest income		2,643			3,335			2,280			2,994			2,921

Salaries and employee benefits		5,838			5,402			5,467			5,514			5,365
Occupancy		744			732			740			699			722
Repairs and maintenance		222			200			212			176			204
Advertising and public relations		315			232			190			285			227
Professional services		445			535			656			580			499
Technology and communications		399			304			339			422			308
FDIC insurance		210			201			182			159			161
Other expenses		965			1,105			933			693			1,179
Total non-interest expenses		9,138			8,711			8,719			8,528			8,665

Income before income taxes		2,537			2,687			2,453			2,518			2,488
Income tax provision		198			471			450			804			734
Net income		2,339			2,216			2,003			1,714			1,754

PER SHARE DATA
Net income per common share-diluted	$	0.53		$	0.51		$	0.46		$	0.40		$	0.41
Cash dividends per common share	$	-		$	0.38		$	-		$	0.38		$	-
Weighted average number of diluted shares		4,390,553			4,362,479			4,346,599			4,328,034			4,315,489

PERFORMANCE RATIOS
Return on average total assets		0.86	%		0.84	%		0.80	%		0.71	%		0.75	%
Return on average stockholders' equity		9.70	%		9.23	%		8.56	%		7.43	%		7.72	%
Efficiency ratio		74.17	%		70.23	%		76.30	%		75.78	%		76.30	%

Evans Bancorp Reports 33% Increase in Net Income in 2016 Fourth Quarter

February 6, 2017

Page 8 of 9



EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED AVERAGE BALANCES AND YIELDS/RATES (UNAUDITED)
(in thousands)
	2016			2016			2016			2016			2015
	Fourth Quarter			Third Quarter			Second Quarter			First Quarter			Fourth Quarter
AVERAGE BALANCES

Loans, net	$	915,095		$	875,999		$	801,115		$	772,672		$	740,337
Investment securities		105,319			112,025			115,610			103,094			103,940
Interest bearing deposits at banks		1,537			1,162			15,916			18,862			19,185
Total interest-earning assets		1,021,951			989,186			932,641			894,628			863,462
Non interest-earning assets		71,247			69,489			65,539			66,375			66,115
Total Assets	$	1,093,198		$	1,058,675		$	998,180		$	961,003		$	929,577

NOW		85,279			86,428			88,966			88,220			80,810
Savings		504,394			487,168			473,791			447,318			439,108
Time deposits		131,479			115,644			114,545			108,954			96,478
Total interest-bearing deposits		721,152			689,240			677,302			644,492			616,396
Other borrowings		61,076			69,307			36,031			34,250			32,443
Total interest-bearing liabilities		782,228			758,547			713,333			678,742			648,839

Demand deposits		198,616			187,201			178,106			176,074			175,362
Other non-interest bearing liabilities		15,873			16,860			13,142			13,879			14,549
Stockholders' equity		96,481			96,067			93,599			92,308			90,827

Total Liabilities and Equity	$	1,093,198		$	1,058,675		$	998,180		$	961,003		$	929,577

YIELD/RATE

Loans, net		4.42	%		4.39	%		4.43	%		4.52	%		4.59	%
Investment securities		2.13	%		2.21	%		2.71	%		2.39	%		3.59	%
Interest bearing deposits at banks		0.49	%		0.34	%		0.83	%		0.23	%		0.29	%
Total interest-earning assets		4.17	%		4.14	%		4.16	%		4.18	%		4.37	%

NOW		0.23	%		0.23	%		0.35	%		0.39	%		0.40	%
Regular savings		0.48	%		0.47	%		0.51	%		0.47	%		0.43	%
Time deposits		1.25	%		1.22	%		1.23	%		1.26	%		1.29	%
Total interest-bearing deposits		0.59	%		0.57	%		0.61	%		0.60	%		0.56	%
Other borrowings		1.27	%		1.13	%		1.57	%		1.60	%		1.64	%
Total interest-bearing liabilities		0.65	%		0.62	%		0.66	%		0.65	%		0.62	%

Interest rate spread		3.52	%		3.52	%		3.50	%		3.53	%		3.75	%
Contribution of interest-free funds		0.16	%		0.15	%		0.15	%		0.16	%		0.16	%
Net interest margin		3.68	%		3.67	%		3.65	%		3.69	%		3.91	%

Evans Bancorp Reports 33% Increase in Net Income in 2016 Fourth Quarter

February 6, 2017

Page 9 of 9



EVANS BANCORP, INC AND SUBSIDIARIES
SELECTED OPERATIONS DATA (UNAUDITED)
(in thousands, except share and per share data)

	2016		2015
	Year to Date		Year to Date		% Change
Interest income		39,955		35,628	12	%
Interest expense		4,707		3,824	23	%
Net interest income		35,248		31,804	11	%
Provision for loan losses (credit)		1,209		1,216	(1)	%
Net interest income after provision		34,039		30,588	11	%

Deposit service charges		1,750		1,736	1	%
Insurance service and fee revenue		6,519		7,194	(9)	%
Bank-owned life insurance		556		563	(1)	%
Loss on tax credit investment		(3,022)		-	-	%
Refundable NY state historic tax credit		2,117		-	-	%
Gain on insurance proceeds		-		734	(100)	%
Other income		3,332		3,493	(5)	%
Total non-interest income		11,252		13,720	(18)	%

Salaries and employee benefits		22,221		20,478	9	%
Occupancy		2,915		2,789	5	%
Repairs and maintenance		810		822	(1)	%
Advertising and public relations		1,022		857	19	%
Professional services		2,216		2,354	(6)	%
Technology and communications		1,464		1,183	24	%
FDIC insurance		752		607	24	%
Other expenses		3,696		3,608	2	%
Total non-interest expenses		35,096		32,698	7	%

Income before income taxes		10,195		11,610	(12)	%
Income tax provision		1,923		3,767	(49)	%
Net income		8,272		7,843	5	%

PER SHARE DATA
Net income per common share-diluted	$	1.90	$	1.82	4	%
Cash dividends per common share	$	0.76	$	0.72
Weighted average number of diluted shares		4,358,517		4,307,368

PERFORMANCE RATIOS
Return on average total assets		0.80		0.87
Return on average stockholders' equity		8.74		8.82
Efficiency ratio		74.03		71.83



New York	0-18539	161332767
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)


One Grimsby Drive, Hamburg, New York		14075
_________________________________ (Address of principal executive offices)		___________ (Zip Code)



	Evans Bancorp, Inc.

February 7, 2017	By:	/s/ David J. Nasca

		Name: David J. Nasca
		Title: President and Chief Executive Officer


Exhibit No.	Description
99.1	Press Release of Evans Bancorp, Inc. dated February 6, 2017

cto

Date of Report (Date of Earliest Event Reported):		February 6, 2017



Registrant’s telephone number, including area code:		716-926-2000