Evans Bancorp Reports Fourth Quarter and Full Year 2008 Earnings

Business Wire, Feb 5, 2009

As a result of the increase in non-interest expenses, the efficiency ratio for the fourth quarter of 2008 increased to 66.2% from 65.1% in last year's fourth quarter and 63.2% in the third quarter of 2008. The efficiency ratio has been negatively impacted by the soft insurance market. While TEA has been increasing revenues through acquisitions, the revenue growth has not been high enough to offset the growth in expenses.

Income tax expense totaled $0.11 million for the three month period ended December 31, 2008 reflecting an effective tax rate of 17.9%. The effective tax rate for the fourth quarter of last year was 35.7%. Through the first nine months of each year, the Company records an effective tax rate based on the expected rate for the entire year. The fourth quarter's effective rate can vary depending on actual results.

2008 Year in Review

Net interest income for the year was $19.27 million, an increase of $2.59 million, or 15.6%, over 2007, primarily due to strong growth in the Company's commercial loan and lease portfolio and a sharp decline in borrowing costs as a result of numerous interest rate cuts by the Federal Reserve. A steepened yield curve resulted in a widening of net interest margin from 4.05% in 2007 to 4.53% in 2008.

The Company's provision for loan and lease losses increased from $1.92 million in 2007 to $3.51 million in 2008. The $1.59 million increase was a result of strong commercial loan and lease growth and increased net charge-offs in the leasing portfolio. The allowance for loan and lease losses to total loans and leases was 1.49% at the end of 2008, compared with 1.41% at December 31, 2007.

Non-interest income was $11.68 million for the year, up $2.83 million from 2007. Non-interest income in 2008 was positively impacted by a one-time gain on the curtailment of its defined benefit pension plan of $0.33 million in the first quarter of 2008, while 2007 was negatively impacted by the non-recurring loss of $2.3 million realized on the sale of securities in June 2007. Insurance revenue increased $0.32 million to $6.87 million as the insurance business benefited from two acquisitions of agencies in the last two years. These increases were somewhat offset by a decline in BOLI income of $0.41 million.

Non-interest expenses increased 6.6% to $20.44 million as the Company absorbed additional operating expenses associated with the opening of its 12th branch office in Buffalo, NY in August 2008 and the acquisition of two insurance agencies in the past two years. In addition, the Company made further hires in its back office operations and rolled out a new brand. The branding campaign incurred costs both in its research and development stage and then the subsequent implementation of the new brand on promotional material, branch signs, and elsewhere. Regulatory costs also increased with additional FDIC assessment charges and the cost of auditor fees related to the attestation of the effectiveness of internal controls over financial reporting.