Evans Bancorp Reports Increase in Net Income for the Third Quarter of 2008

Business Wire, Oct 29, 2008

* Net interest income increased 21.1% in third quarter compared with the prior year.

* Total deposits grew at a 34.4% annualized rate in the third quarter.

* Net loans and leases grew at a 20.4% annualized rate in the third quarter.

* Net interest margin increased 37 basis points from prior year to 4.67% in third quarter.

ANGOLA, N.Y. -- Evans Bancorp, Inc. ("The Company") (NASDAQ: EVBN), today reported its results of operations for the quarter ended September 30, 2008.

Net income for the third quarter of 2008 was $1.43 million, or $0.52 per diluted share, an increase of $0.01 million, or 0.7%, from net income of $1.42 million, or $0.52 per diluted share, in the third quarter of 2007. Return on average equity was 12.32% for the quarter, compared with 13.45% in last year's third quarter. For the nine-month period ended September 30, 2008, net income was $4.40 million, or $1.60 per diluted share, an increase of $1.84 million, or 71.8%, from $2.56 million, or $0.94 per diluted share, in the same period in 2007. In last year's second quarter, the Company restructured its balance sheet by selling $45 million of securities at an after-tax loss of $1.41 million, or $0.51 per diluted share. The return on average equity was 13.03% and 8.36% for the nine-month periods ended September 30, 2008 and 2007, respectively.

"Net operating" income (as defined in the following Supplemental Non-GAAP Disclosure) is net income adjusted for what management considers to be "non-operating" items. Net operating income for the third quarter of 2008 was $1.53 million, or $0.55 per diluted share, an increase of $0.01 million, or 0.7%, from net operating income of $1.52 million, or $0.55 per diluted share, in the third quarter of 2007. For the nine-month period ended September 30, 2008, net operating income of $4.71 million, or $1.71 per diluted share, was 10.6% higher than net operating income of $4.26 million, or $1.55 per diluted share, in the same period in 2007.

David J. Nasca, President and CEO of Evans Bancorp, noted, "We were pleased to see impressive loan and deposit growth continue in the third quarter. While the markets and banking industry have experienced unprecedented turmoil recently, Evans Bancorp remains healthy. We have no exposure to subprime mortgages, private mortgage-backed securities, credit default swaps, or Fannie Mae or Freddie Mac preferred stock investments. Our capital position is significantly above "well-capitalized" federal regulatory guidelines. It is difficult to predict the ultimate repercussions from the economic downturn on our Company, but we have been largely unaffected and will continue to actively manage our risk in an attempt to avoid any future losses."

Supplemental Non-GAAP Disclosure

To provide investors with greater visibility of Evans Bancorp's operating results, in addition to the results measured in accordance with U.S. generally accepted accounting principles ("GAAP"), the Company provides supplemental reporting on "net operating" income, which excludes items that management believes to be non-operating in nature. Specifically, net operating income excludes gains and losses on the sale of securities and the amortization of acquisition-related intangible assets. This non-GAAP information is being disclosed because management believes that providing these non-GAAP financial measures provides investors with information useful in understanding the Company's financial performance, its performance trends, and financial position. While the Company's management uses these non-GAAP measures in its analysis of the Company's performance, this information should not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP, nor is it necessarily comparable with non-GAAP measures which may be presented by other companies. See the reconciliation of net operating income and diluted net operating earnings per share to GAAP net income and GAAP diluted earnings per share in the following table:

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Net Interest Income

Net interest income during the third quarter of 2008 increased to $5.13 million, an increase of $0.89 million, or 21.1%, from $4.24 million in the third quarter of 2008. Loan and lease growth and the reduced cost of interest-bearing liabilities were the main factors in the increase. Net loans and leases were $379.4 million at September 30, 2008, an increase of 5.1% from $361.0 million at June 30, 2008 and 18.7% from $319.6 million at December 31, 2007. This equates to an annualized growth rate of 20.4% for the quarter and 24.9% during the first nine months of the year. Much of the growth continues to be in the Company's commercial real estate portfolio. Total deposits were $403.5 million at September 30, 2008, an increase of 8.6% from $371.5 million at June 30, 2008 and 23.8% from $325.8 million at December 31, 2007. This equates to an annualized growth rate of 34.4% for the quarter and 31.7% during the first nine months of the year. The Company established a new retail money market product during May of this year and its success has been the primary driver of deposit growth. The Company also experienced solid growth in its core checking accounts. Demand deposit balances fluctuate day-to-day based on the high volume of transactions normally associated with the demand product. Average demand deposit growth is a better measure of sustained growth. Average demand deposits in the third quarter were up 8.5% from the second quarter of 2008 and were 5.5% higher than the prior year's third quarter. Time deposit growth tailed off in the third quarter as local competition for certificates of deposit dictated unfavorable pricing conditions which the Company chose to avoid.