EVBN - Earnings call 4 2023 | Evans Bancorp, Inc.

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Operator

Greetings, and welcome to the Evans Bancorp Fourth Quarter Fiscal Year 2023 Financial Results.

[Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Deborah Pawlowski, Investor Relations for Evans Bancorp. Thank you, Deborah.

You may begin.

Deborah Pawlowski

good and Alicia, you, afternoon, everyone. Thank your as well appreciate taking Evans the today us join to as time Bancorp. We your in interest

questions. and the XXXX going progress that, to are President the company's results Financial Joining strategic Nasca, fourth review call an David John quarter we update the CEO; the of Officer. are here After Chief provide Connerton, will and John me and for outlook. for open our and Dave and our on

have of markets were And access copy should released today at if can't that You financial results website a the you our after closed. them evansbank.com. the on not,

to today's As that are release uncertainties is and and could make well and or call. differ sec.gov. as future Exchange some the are stated factors you subject risks from Securities as well Commission. formal uncertainties may the as to as the in discussion other materially we well the provided filed company with be other may forward-looking as and statements with find our apply Q&A. documents on as events cause to aware, that risks website what results on by These during during at actual statements those documents factors the Please other and earnings These

with it me begin. over turn that, let So to David to

David Nasca

backdrop banks interest accelerated be resilience. the the completed was and from challenges economic you today. we I us fourth highlights John quarter We detail. year, characterized Reserve industry in our will rates rate strategic yields a can throughout joining rose decades Thank volatility by continued and by to a of that Debbie, hand appreciate than discuss afternoon, this in of pressure with time maintain asset to costs, and Net the liquidity steepest a of review constrained which We thought our XXXX good funding and Evans we'll the to entire faster concern. was we you, the of the relationships, responded everyone. and well of margin increase then including position. to manage to to as in the With a as start one deposits in team key environment it initiatives past Federal believe results. retaining liquidity the income year deliver off that results during due acceleration unique year,

development provided credit growth, The addition, business the to come was losses our for In bank CECL by, beginning difficult increased $X.X and allowance attained of million. activity. which and while XXXX, through instituted at lending commercial of

remained with and Our impact in favorable economic continued improvement credit past trends have XXXX. in as improved year. this charge-offs Combined a saw muted assets we we conditions, experienced provision low criticized

the new scalability improve During the year, proactive we overall control efficiencies technology measures costs, deliver improvements. to process customer and experience and with and continued

has were Of other about and in which or -- X%, of to shareholders focus investments was reflected capital community. and note, which our which as for well initiatives bank by earlier on expense shareholder total noninterest the rationalization maintained returns. year $XXX,XXX as the the partially technology year The in branch offset total decreased return

For X% a X.X%. up was to per yield the totaled equated of share, dividends year, and $X.XX about which

fourth Turning taken strategic quarter. to the actions the during

XXXX, was with for and how were to leadership by realize existed with realize one are did the we A.J. assets was question opportunity million. insurance in with Agency job be and and experiencing sustainability one the research company the associates providing broader greater a benefits entity for optimize exercising Company validated the ensure significant allows do to the sale enhanced The recognition in Evans while the substantial premium to being eliminations A big Growth that a fiduciary For responsibility November recognized no Evans believe value we for believe built resulting completed optimal municipal, with areas more than had the shareholder and products that insurance in sale, flexibility continuity $XX customers' and successful amount XX, significant Bank. working to franchise. of deal, felt breadth was of From direct a and prospective part provide opportunity clients. us price and growth-focused XX On our integral perspective, we of gain insurance additional a goodwill $XX competitive benefits associates expertise redeploy Arthur We was J. their a the of value about to required the share increasingly and a based driven all Ultimately, we was highly we represented opportunities they $X.XX our years, agency the valued. for them. agency compelling. a offered the This finalized and million, associates scale and could were the could years insurance agency of strategically greater provide a Evans In value which we existing of insurance leadership. the talented all of retail Agency and with The back company to commercial, approximately in why almost core It been along how that the become of good Gallagher opportunity investments us improvement. investments to our other sell? for a insurance access our an in public and book for a insurance end, assets, that in was The unlock have insurance sale growth have and million the per at success a resources. $XX part our combination acquisitions stock. experience what the best to banking business provides will commercial clients. unique tangible to also financing value scope rationale capital & on eliminates Gallagher companies is for not of the intangible Of strategic and integrated companies and decision created. was There monetize and with in objectives with was elevate key benefits Gallagher career Gallagher. Clients home current of top the earnings. remain XX-plus world. employees in stakeholders. for our a XX to provides partner personal to with the our team believe will current capital and insurance-first the of positions Evans specialty an after-tax made opportunity services flourish approximately into employee

used a broad the shareholder of the environment, the consisted predominantly restructuring we value. $XX government-sponsored for determine capital. Given options of includes quarter, securities, to portion details in restructuring margin. is the pay to you investment and there that on agency short-term to sensitivity selling totaled securities. continue Proceeds grow sale. by loss John will a million we current This more in returns this realized of that improve and best recognized a opportunities down available-for-sale range million ample of and in from reduces review we net This borrowings Ultimately, balance on and $XX create interest to which a uses will are million, expected moment. to which transaction U.S. completed give bank's believe fourth was sheet XXXX $X the enhancing the treasuries the liability were our

on likely expected for recede. and pressures are margins, growth with regional banks community headwinds forward, until interest rates continue to and funding Looking

and John remarks. We are seeing increases, signs will during cost deposit NIM talk of expectations our to moderation in his

we core impact, banking to is we focused on optimize model do in efficiency. our control economic over Although are and have controlling not we growth our what can which conditions, costs

will greater With that, through then it John? turn take be our and questions. in any results to John happy over to run detail, I'll we to

John Connerton

and Thank you, everyone. good David, afternoon,

For and was expense, periods income, start Federal which we third Insurance of to increases pressure quarter the which intense and gain last in sequential Agency. sale earnings the interest our quarter, given growth from $XX.X the following $X.XX up competitive loss sale at than net year. by from This securities on a interest the increases. pricing, due income. variable of comparable decrease to Offsetting year's interest of began was interest diluted income was both of the portfolios largely the from over investment increases of quarter in Evans fourth the rate higher per the driven Net share, accelerate these million or in Reserve offset delivered by the the deposit impacted more series rate

income points nonaccrual. primarily loan As third of impacted quarter from was our reversal large in of X by interest $XXX,XXX sequential put third call October, on discussed net interest that was margin earnings approximately was basis quarter from the in X commercial resulting the

for portfolio basis, our NIM we quarter due impact, losses metrics analyzed XX expense which quarter driven adjusted the at the interest partially sequential remarks. by economic by was growth credit provision group the higher was saw reduced Therefore, the X.XX%, NIM continues an a increased pace decrease a although this from to basis in Adjusting for at quarters, recent to point be third on X.XX%. from expectations of and on deposit costs predominantly for net loan I will factors. individually higher loans talk end my to The offset to in the and reserves peer $XXX,XXX

a loss quarter. insurance agency Insurance, on income of third and agency XX% seasonal $XXX,XXX which $X.X the only prior largest on The and quarter a fourth gain transactions the quarter by a typically expected down months of linked sale had the revenue November result previous reduce third has in which impacted earned abbreviated and the sale which of had to offset cost net year's income the yielding up The weighted $X gain with interest million The of were sale restructure was an XXXX. to our income was on relating contributor gain have approximately insurance category X is quarter $X.X within operation this the from securities, from also is which approximately the sale the Noninterest year's was income of reduction sale, X.XX% XX, and in of and positive the is length. sequentially. higher This the XX% months balance of a and agency. of fourth in years year's X.XX%. quarter last to of which from X.X were from loss quarter $XX $X.X Noninterest of of after insurance securities, after million commissions fourth earned earn-back as the million of on the onetime sequential from accounted clients. the was removing the institutional the to used the down the borrowings David million discussed the for reflects agency, over decrease both average impact wholesale sheet by million, by

income the The third and recognized $XXX,XXX incentive Other from last due The year's asset sale quarter due relating accruals. from third noninterest movements quarter from revenue due included of and to received million line of gain increases $XXX,XXX the within servicing expense quarter to sequential decrease up these from XXXX benefits year's that to sale. Total increased to rights. and fourth $XXX,XXX acquired the employee acquired quarter. greater and the was the of prior million to XXXX in rents was was of asset driver on decreased quarter from was a mortgage primarily in the fourth largely salaries $X.X foreclosure $X.X in sold of fourth last

year's for Insurance the increases of Offsetting full increased a agency from quarter to million. Agency, salary the employees. in the the and the both $X.X prior $X.X incentive $X.X year million periods expenses execution the agency, XXXX insurance expenses of and to was the sale in decrease the quarter. related insurance strategic was by the quarter of to Evans expenses company expects the million the The Adjusting activity company reduction fourth XXXX fourth to XXXX. due incentive result attributable from X.X% levels of recognized sequential reached from partial of former insurance increased third a corresponding quarter. prior performance the As from

with in movements increased loans or commercial of loans reviewing $XX approximately originations Of and originations $XX million fourth that, were quarter. the during sheet Total $XX were million third million. balance net quarter. million. Net the in the to compared Turning up quarter the commercial $XX X%

muted facilities seeing commercial funding warehouse in our credit opportunities but to estate, We remain impact multifamily parameters. portfolio. and and current decisions, real that are in our meeting The and $XX selective The are being including at in that quarter million continue are C&I pipeline at strong is rates end. stands underwriting growth

be to approximately commercial growth XXXX. We X% loan expect in total

flat $X.XX This remaining to million from was September a loans the of the municipal quarter deposit remained million. deposits quarter XX billion million $XX to $XX year. the total this fourth quarter. the is in slightly with sound $XX Average deposits, as of million metrics reflected Credit $X in of $X.XX the compared quarter, decreased fourth for last balances million $XX by quarter. deposit nonperforming decrease decrease third the end Criticized at when loans the year's is billion decreased of seasonal commercial to and outflow time of which the during typical from

as continue products. has to are occurred in and previous However, balances to have migrate different cycles, into expected

and deposits seeing funds to expect the we to saving uncollateralize At consumer clients XX, accounts and from uninsured at accounts moving demand accounts CDs. are clients percentage and migrate we XX%. the from Specifically, was commercial December funds of continue the deposit sweep

will with rates we Fed for competitive markets. Market bank in the with during stabilized XXXX. funds balancing maintaining have continue fight to strategy include during rates pricing in and due to expectations of managing banks, many being with its pricing liquidity to deposits profitability. deposit The quarter fourth deposit proactive decreases by our As is

pricing offering market reserving include terms CD and clients. preferred Our on core shorter for actions in the products

competition to for pressures trends that continue fourth for although deposits These continued pricing impact margin growth the mute low increase. increase of our deaccelerating betas, our cost the funds. XXXX year single-digit to We will continue for expectation expect to quarter, deposit will is full and a

restructure, quarter of XXXX. flat to our we the with of NIM be first However, the the sheet in impact balance expect

pressure first during it's the future expectation current how difficult year. But forces may NIM to of potential timing the forecast external given of Fed rest competition out. break such macro moves moderates Beyond quarter, and as the play is further our that

that, questions. open like now With for the operator, we line to would

Operator

the with line question from Group. Nick Cucharale Hovde Instructions] [Operator Our comes first of

Nicholas Cucharale

Fed first NIM middle for in the year, to near-term are appreciate we the of to flatness the I the cuts and If commentary benefit start outlook moderating get afterwards. on then the quarter pressure set you in substantially?

John Connerton

Nick. breaks see but start benefit, going to reprice, the be quantify think cost it, our But don't I some it And in to NIM benefit be our down change, NIM. really to should and increase of even won't stem we compression But mean able Fed, a funds. would as begin sea further. our we'll tide to assets hopefully, the moderate not I our especially and yes, would I on -- it's from

Nicholas Cucharale

Okay. the of other sale And or then buybacks table? restructurings there generated looking in another on sounds capital Are what additional Are you're growth. the capital loan light like of the from of insurance operation the there actions moderate and at? year

David Nasca

the Buybacks are on table.

table. on to table, certainly, of in before, in our bulk for continue our We investments it's other those. is We've at but have we Rochester and that, difficult the to we're but things We've growth, talked looked made get on the us X that's That's like pursue that revenues. all them.

Nicholas Cucharale

then Are portfolio? you're that this XX% add -- the quarter, down sales beginning the to still you're we securities mode? And where on point quarter of the Or after sales to or run-off the book assets. this in Okay. the to portfolio, investment at is are

John Connerton

in runoff Still Nick. mode,

Nicholas Cucharale

for Okay. as goodwill to forecast in it commentary tax you the then forward? your the rate What's saw And tax quarter. going regarding effective nondeductible the the rate, relates the

John Connerton

XX%. around be should That

Operator

line the Piper of from Alex Sandler. Our comes next question with Twerdahl

Alexander Roberts Twerdahl

what little guess, like restructure the offset size seems basically exactly insurance securities the more you about, what the about it maybe Is that lost kind sort the basically on the Or of how talk decide completely. So business doing I bit portfolio? you thought how transaction you from you securities the to of did? a did of earnings

John Connerton

the we -- insurance where are the be to David the we taking just that this the be I I our to we as to to flexibility priority, I where the things it our mostly to ratios we think restructure, in as capital looked at was buybacks somewhere capital that Well, give was but do to in looked we the we our like at wanted from gain, of would far think we size when us that like but utilize, Alex, the drove like what probably for business. continue capital probably, capital we currently do think to discussed want we biggest knew utilize invest and levels

David Nasca

worth all I think Alex, I the this say years' along, like one XX also, thing looked I'd thing agency sold been saying people is fast-forwarded when at the it want we we insurance I've know and capital earnings. current in the wanted based wanted earnings John loss on looking as capital said. we position, we the to calibrated as that chance just at a our way. that bring that where to redeploy But and we we're take this we

that. just I'd So reemphasize

Alexander Roberts Twerdahl

guys leverage you at you capital of Yes. When like that you looking metric? are position, you towards ratio? limiting the point that looking what's want guess, would think you TCE as about ratio? at sort Are being metric the where a X Tier I

John Connerton

Tier leverage looking Our at. kind of we're is ratio what X

Alexander Roberts Twerdahl

Okay. above And goal be that sort the would of keep to XX%?

John Connerton

Well, range. close XX% to that in

Alexander Roberts Twerdahl

growth, you're more about is by lower years then in And loan the yield. terms than Is in the And your guided today, maybe types relative coming bit guess market? talk maybe seeing little to bit a about growth about which about you've in the sheet a that yields lower the past. the of little the as balance I Okay. book think opportunities of appetite the you're we seeing driven X% in opportunities more on the or

John Connerton

significantly, and we're I move. our a on I little percentages on we that lines, from that down drawing haven't customers think we're seen still seeing our challenge a their as little C&I seeing side -- draw mentioned, and

see of of good a do that think in and portfolio. temper the it seeing to that But our we're C&I. areas X%, getting do both the in estate, I I and real north The our have our pipeline of term pipeline, is kind X% X.X%, regular rates, growth, some mean, growth. we Back it's on commercial that lot stuff of is within north rates C&I and of that is we does that lines we across So we're a typical the

David Nasca

quality directly say marketplace business we're moment. is getting being sure right we doing pretty and less up, activity now. our we making We're a deals now. out to we're market could credit deals, a open are little living quality and credit right the X little me our at credit sure returns we're the fit that these of as your want move that considerate let seeing a If question that number do But making our But pipeline, one, But for in additively, but have of is we're good heats we're John said, that the quality. we bit. this

Alexander Roberts Twerdahl

as the of -- And question guess, out about about back think bit consider? you're way M&A a and kind -- Okay. sort that bank of more you [indiscernible] uses as of maybe. sort or one capital? and if of capital, of little thinking the -- a branches there the that, I you'd consider not to are there's something is But uses those lot know that you look of things in the capital I like there would other of

David Nasca

Yes.

all -- I opportunities. we're considering we think consider

short is So yes. answer

get think As there's a there's things. growth But our there on our you to too. native but also horizon, operate us growth lot and capital we'd those this helps that we to said, second, opportunities consider of do not that

Operator

O'Connell Instructions] of next [Operator Chris KBW. comes from the Our question line with

Christopher O'Connell

and that in insurance to just Where starting to the of appreciate particularly color the expenses. wanted the of line, item on in incentive starts falloff I as in do bit to get given think the accruals off start little quarter. you kind it the year? line a fourth off comp the the point, guide hoping Just the

John Connerton

Yes.

$X.X that salary first fourth the quarter, quarters, the around -- insurance in our you on any if line our million, normalize if -- salary expectations probably of $X.X So our of would item that line. you was million about take be

Christopher O'Connell

being Great. hit that And OpEx guide does assume the of at does accruals XXX%? the are guidance, percent XXXX like

John Connerton

expectation They'll be to going year just from be. performance our our of this where based reduced is on

Christopher O'Connell

And those you you the think much And Great. Okay. deposit related? come of much first coming if outflows about the then same were of back muni they'll think And you talk quarter and how the product? into base? this be can back in how the quarter

John Connerton

Sure.

we basis. fourth variability the in day-to-day So have can a on quarter,

sometimes are misleading. balances spot little So a

And and I that's do talked back the expect that far have -- So to of close balance, to you balance. and muni almost if the average average that -- look expect all down is we as we get we the it's portfolio. million, why And at $XX as more. to

and come until collections The of utilized our and tax first back in first get when the quarter is and fall. it then and quite sit through through there a in and year the get schools get trail their they the municipals the quarter the bit rest off

that well as So our expectation as is NIM get we back will and more.

Christopher O'Connell

that Do of looks you noninterest it interest-bearing of came like within comes you or or line think -- expense line. different back that products? think out mean, into I noninterest-bearing much it Do deposit

John Connerton

Yes.

back those within our some NOW stories accounts the municipal the line lines item line. rotated our we A expect lot to fully aggregate transactional into it to of continuing a like think story -- accounts. our is move deposit low transactional is our don't I on come accounts at point, line to are interest-earning demand shift. like It customers our the have interest-bearing of is but commercial items, those

Christopher O'Connell

you the I about for NIM Great. bottom? think appreciate basis. quarter. how on Okay. cuts movement I flat guys can the assuming even, just on NIM How or thinking guess, just no And you any I first a do Fed that go-forward far just into XXXX, mean, the think rates. stable side, do the guide

John Connerton

as I right, or assets through is, reprice, say would I paydowns guess principal our what renewals.

beta the to be that. offset chunk good of a expect We by continued

And do on our that here But the and move up we and market quarter, that But we after we most without again, goes, pressure. any some expectation, movement that betas or think could look there, movements, fourth potential, a minimum that in can be the there continued stabilization hope their is as some maybe be Fed fourth that third will forward, expansion. pick quarter. if and quarter takes our likely, is expect a where pressure we Fed then second even based would itself. our there balance out the So reprices see and sheet

David Nasca

The vagary, you competitive of if see is will, Chris, we bit the there. moderation little a environment, and

Christopher O'Connell

Great. the And do XXXX? reprice are guys set of you much have how assets in to

John Connerton

mean runoff, I've million. between that. So loan shared our our investment I $XXX principal runoff, renewals, it's around

Operator

Thank like closing you. There turn at no over questions back are Nasca further Mr. floor to time. the this I'd to comments. for

David Nasca

to I'd you look We appreciate we continued Alicia. the participating again report your you, forward to with your to support any Thank when of Please and questions. feel interest like And the us reach at for out thank and time. talking today. everybody free in XXXX quarter we teleconference all results. certainly first

So you your for interest. we have thank a great you again and day, hope

Operator

teleconference. today's concludes This you. Thank

you at may your your Thank lines time. You this participation. disconnect for

Evans Bancorp (EVBN) 1 Feb 242023 Q4 Earnings call transcript