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

Business Wire, Oct 29, 2008

The increase in the cash surrender value of the Company's bank-owned life insurance ("BOLI") polices was $31 thousand for the third quarter of 2008, lower than the $151 thousand increase in the third quarter of 2007. Other income increased $81 thousand, or 18.1%, from the third quarter of 2007 to $529 thousand in the third quarter of 2008. Most of the increase is attributable to appreciation in the value of the Company's mortgage servicing rights.

Non-Interest Expense

Total non-interest expenses were $5.25 million for the third quarter of 2008, an increase of 8.1% from $4.86 million in the third quarter of 2007. Salaries and employee benefits increased $0.22 million, or 8.2%, to $2.94 million for the quarter due to the addition of new employees, including those working the Company's new branch office in Buffalo, an enhanced incentive compensation system, and increased contributions to the 401(k) savings plan. These increases were partially offset by savings related to the freezing of the defined benefit pension plan in the 1st quarter of 2008. The new branch office also drove the increase in occupancy expenses. Advertising and public relations expenses increased $57 thousand in the third quarter of 2008 compared with the prior year as a result of the Company's new branding campaign. Other expenses increased $79 thousand, or 16.7%, from the third quarter of 2007 to $553 thousand in the third quarter of 2008. A large portion of that increase was due to higher FDIC assessment charges, which was effective as of the second quarter.

Mr. Nasca noted, "Assessment charges by the FDIC will be increasing significantly in 2009. When the current proposal to raise assessment charges is implemented, high quality community banks such as Evans will be measurably impacted to pay for the meltdown of the financial system."

The efficiency ratio for the third quarter of 2008 improved to 63.2% from 65.9% in last year's third quarter and 63.9% in the second quarter of 2008. The improvement is largely due to strong revenue growth, particularly in net interest income.

Income tax expense totaled $0.8 million for the three month period ended September 30, 2008 for an effective tax rate of 35.6%. The effective tax rate for the third quarter of last year was 28.3%. The increase in the effective rate is a result of tax-exempt income such as interest earned on municipal bonds and the increase in value of bank-owned life insurance being a smaller portion of total income.

Capital Management

The Company consistently maintains regulatory capital ratios above federal "well capitalized" standards with a Tier 1 leverage ratio of 9.26%. Average equity as a percentage of average assets was 9.39% in the three months ended September 30, 2008, compared with 9.71% in the three months ended June 30, 2008, and 9.47% in the three months ended September 30, 2007. Book value per outstanding common share was $16.53 at September 30, 2008, compared with $16.44 at June 30, 2008, and $15.24 at September 30, 2007. The Company announced a $0.41 per common share dividend in the third quarter of 2008 that was paid on October 2, 2008 to shareholders of record on September 10, 2008. The $0.41 dividend is a 10.8% increase from the previous $0.37 dividend paid April 1, 2008.