Press Release: Evans Bancorp Reports Net Income of $6.0 Million in Fourth Quarter 2020
Evans Bancorp Reports Net Income of $6.0 Million in Fourth Quarter 2020
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 fourth quarter and full year ended December 31, 2020. Results include the acquisition of Fairport Savings Bank, effective May 1, 2020.
FOURTH QUARTER 2020 HIGHLIGHTS (compared with prior-year period unless otherwise noted)
"I am proud of what the team achieved in 2020. It was a year of monumental upheaval that tested the fortitude and resiliency of all. We responded rapidly to support the people and businesses in our region and help them navigate the many challenges presented by the pandemic. This was accomplished while adjusting quickly to a new work environment and the many changes that presented. Importantly, we continued to demonstrate one of Evan's Core Values of Valuing Others," said David J. Nasca, President and CEO of Evans Bancorp, Inc.
He continued, "The execution of our strategy occurred where we were able, and flexibility was demonstrated where execution was hampered by the environment. This supported a focused effort to position our company for long-term growth and success. This was evidenced by significant participation in the PPP program, which added almost 1,000 new commercial customers and more than $200 million of loans. Of equal importance was the expansion of our franchise in the Western New York market with the Benefits Brokers of WNY and Fairport Savings Bank acquisitions. Systems and customer accounts were successfully integrated from these combinations during a most unprecedented operating environment. Additionally, there are positive signs of recovery in our markets. We released $126 thousand of loan loss provision in the quarter based on improving economic indicators, successfully closed on the sale of our former administration building and saw net interest income increase 28% over the prior-year fourth quarter."
He added, "Looking toward the new year, even as our world continues to operate in a drastically altered environment, we are enthused about the opportunities ahead. We are optimistic that the pockets of recovery within our markets will continue to strengthen and the building developments with vaccinations can return the country to a more normal state. Regardless of the challenges, our commitment to community engagement will not waver, from community development lending, direct investments to drive progress in underserved areas, social justice and equity or partnering with local schools to improve educational opportunity. These actions are engrained in our culture, set us apart and serve as a compass to drive our efforts."
Net income was $6.0 million, or $1.11 per diluted share, in the fourth quarter of 2020, compared with $4.5 million, or $0.84 per diluted share, in the third quarter of 2020 and $3.7 million, or $0.75 per diluted share, in last year's fourth quarter. The Company's fourth quarter 2020 results included a $0.1 million release of provision for loan loss primarily reflecting adjustment for improvement in macroeconomic indicators such as decreases in unemployment from the beginning of the pandemic. The fourth quarter of 2020 also included higher net interest income, in part, due to fees earned in connection with PPP and the recognition of a $0.7 million gain on the sale of the Company's previous administrative headquarters building. Return on average equity was 14.51% for the fourth quarter of 2020, compared with 11.09% in the third quarter of 2020 and 10.16% in the fourth quarter of 2019.
For the full year 2020, net income was $11.2 million, or $2.13 per diluted share, down from $17.0 million, or $3.42 per diluted share, in 2019. The decrease reflected higher loan loss provision as the Company responded to the economic uncertainty from the COVID-19 pandemic and incurred $6 million of one-time merger related expenses reflecting the acquisition of FSB. The return on average equity was 7.06% for 2020 compared with 12.08% in 2019.
Net interest income increased $0.8 million, or 5%, from the third quarter of 2020, and $3.6 million, or 28%, from the prior-year fourth quarter. The increase from the sequential third quarter reflects the acceleration of the amortization of PPP loan fees, as the Company recognized the first of its PPP loans to be forgiven by the Federal Government. As the loans are forgiven the Company is accelerating the recognition of the fees that were being amortized over the original life of the loan. As a result, Evans recognized an additional $0.4 million in interest income due to this acceleration. The increase over last year's fourth quarter was primarily driven by higher average interest-earning assets as the Company recognized the impact of the FSB acquisition and PPP lending.
Fourth quarter net interest margin of 3.38% increased 19 basis points from the third quarter of 2020, reflecting the accelerated PPP fee amortization and reduced interest expense as the Company continues to align rates on deposits. Net interest margin was down 29 basis points from the fourth quarter of 2019, largely due to the Federal Reserve's decrease of the fed funds rate by 150 basis points early in 2020, and changes in the mix of interest-earning assets, including greater interest earning cash balances, PPP loans and residential mortgages from FSB. The yield on loans increased 8 basis points when compared with the third quarter of 2020 and decreased 83 basis points when compared with the fourth quarter of 2019. The cost of interest-bearing liabilities decreased to 0.49% compared with 0.59% in the third quarter of 2020 and 1.24% in the fourth quarter of 2019.
The Company continues to evaluate its loan portfolio in response to the economic impact of the COVID-19 pandemic. As part of the Company's evaluation, provision for loan losses can be adjusted for the impact that economic trends, such as unemployment, will have on our clients. The $0.1 million release of provision for loan losses in the fourth quarter of 2020 reflects the response to current positive macroeconomic trends. 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.
During the third quarter of 2020, the Company classified the loans to clients within the hotel industry as criticized, where further assistance is required given their level of seasonality and ongoing challenges during the COVID-19 pandemic. At year-end, criticized assets totaled $139.6 million, with the hotel portfolio comprising 58% of that amount. The Company continues to monitor each client in that industry including on-going conversations with the borrowers. The $6.7 million increase in non-performing assets during the fourth quarter reflects two hotel borrowers that have longer-term implications beyond typical seasonality performance.
"As expected, during the fourth quarter the remaining $8.0 million of loan deferrals moved back to normal status. Our focus has been on the hotel portfolio, and while the majority continue to pay either interest only or full principal and interest, as part of our ongoing reviews we did identify two credits that will have longer-term stresses, and as a result moved them to non-performing status," stated John Connerton, Chief Financial Officer of Evans Bank. "The hotel portfolio continues to be well-collateralized with an average loan to value of 67%, and we believe that we are appropriately reserved for any near-term economic uncertainty."
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