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EB

EVANS BANCORP INC (EVBN)·Q2 2024 Earnings Summary

Executive Summary

  • Net income rose 26% sequentially to $2.95 million ($0.53 diluted EPS) on higher net interest income and lower expenses; ROE improved to 6.76% and ROA to 0.52% . Net interest margin was 2.71%, modestly down 8 bps QoQ but explicitly “above expectations” due to balance sheet optimization and deposit pricing strategy; efficiency ratio improved to 75.11% from 79.92% .
  • Year-over-year, earnings declined versus Q2 2023 ($4.93 million, $0.90 EPS) as deposit competition lifted funding costs; noninterest income fell after divesting The Evans Agency (TEA) in Nov-2023; NIM down 39 bps YoY and efficiency ratio worsened vs 2Q23 .
  • Commercial loan momentum accelerated: loans +$43 million YTD and +$94 million YoY; strong pipeline at $137 million with origination yields ~7.5% on term loans and prime-plus on lines; total deposits +10% YTD to $1.89 billion, aided by brokered CDs and municipal inflows .
  • Guidance: management expects NIM to trough at ~2.68% in Q3 2024 before slowly improving in Q4 and 2025; 2024 bank-only operating expenses to decline 1–2% YoY; tax rate ~22.5% . Consensus estimates via S&P Global were unavailable for EVBN; we attempted retrieval but no mapping was found.

What Went Well and What Went Wrong

What Went Well

  • Net interest margin outperformed internal expectations: “Second quarter net interest margin of 2.71% was above expectations due to balance sheet adjustments in the first quarter and ongoing deposit pricing strategy” .
  • Strong loan production and pipeline: “Total loan balances of $1.77 billion increased $43 million YTD… Strong loan pipeline of $137 million,” with commercial and industrial momentum; management added two C&I RMs in Rochester to drive growth .
  • Disciplined expense control: noninterest expenses fell 3% QoQ and 11% YoY; efficiency ratio improved to 75.11% QoQ; salaries and benefits down 6% QoQ and 15% YoY (post-TEA sale) .

What Went Wrong

  • Funding costs remain elevated: cost of interest-bearing liabilities rose to 3.27% (vs 3.04% in Q1 and 2.18% YoY), compressing NIM by 8 bps QoQ and 39 bps YoY .
  • Noninterest income lower YoY after TEA divestiture: total noninterest income $2.40 million vs $4.70 million last year; insurance service & fee revenue declined $2.5 million YoY, partially offset by higher other income .
  • EPS and net income down YoY: Q2 2024 $0.53 EPS vs $0.90 in Q2 2023; net income $2.95 million vs $4.93 million, reflecting higher interest expense and TEA sale impact .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Interest Income ($USD Millions)$23.99 $25.37 $27.82
Interest Expense ($USD Millions)$8.31 $11.47 $13.50
Net Interest Income ($USD Millions)$15.68 $13.91 $14.32
Total Non-Interest Income ($USD Millions)$4.70 $2.27 $2.40
Total Non-Interest Expense ($USD Millions)$14.17 $12.93 $12.56
Net Income ($USD Millions)$4.93 $2.33 $2.95
Diluted EPS ($USD)$0.90 $0.42 $0.53
Net Interest Margin (%)3.10% 2.79% 2.71%
Efficiency Ratio (%)69.53% 79.92% 75.11%
ROA (%)0.91% 0.44% 0.52%
ROE (%)12.25% 5.28% 6.76%
Vs EstimatesN/AN/AN/A

Segment/Rate Drivers

MetricQ2 2023Q1 2024Q2 2024
Loan Yield (%)5.26% 5.56% 5.63%
Cost of Interest-Bearing Liabilities (%)2.18% 3.04% 3.27%
Interest Rate Spread (%)2.57% 2.05% 1.99%

KPIs and Balance Sheet

MetricQ2 2023Q1 2024Q2 2024
Total Loans ($USD Millions)$1,670.75 $1,721.88 $1,765.12
Total Deposits ($USD Millions)$1,786.62 $1,891.37 $1,891.54
NPL / Total Loans (%)1.66% 1.62% 1.42%
Net Charge-offs / Avg Loans (%)0.01% 0.02% 0.01%
Allowance / Total Loans (%)1.28% 1.29% 1.28%
OREO ($USD Millions)$0.00 $0.00 $6.90
Book Value per Share ($)$29.12 $31.62 $32.15
Tangible Book Value per Share ($)$26.61 $31.29 $31.81
Tier 1 Leverage Ratio (%)9.43% 10.52% 10.04%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest MarginQ2 2024~2.65% (from Q1 call) Actual 2.71% (above expectations) Beat vs internal expectation
Net Interest MarginQ3 2024N/A~2.68% expected; trough in Q3, gradual improvement in Q4 and 2025 New
Bank-only Operating ExpensesFY 2024Down ~1.5% YoY (Q4 call) Down 1–2% YoY (Q2 call) Maintained/slightly widened range
Commercial Loan GrowthFY 2024~4% (Q4 call) Mid-single digits; ~5% indicated, supported by $137M pipeline Raised
Tax RateOngoing~22% (Q4 call) ~22.5% (Q2 call) Raised slightly
CD Offering RatesNear-termMarket ≥5% (Q1 call) ~4.5% currently; competition easing Lowered
DepositsFY 2024Low single-digit growth expected (Q4 call) Solid YTD growth (+10%); expect modest cost increases and seasonal patterns Maintained outlook; stronger YTD execution
DividendsFY 2024Commitment to support dividend; $0.66 declared Feb-2024 (paid Apr-9) No change reiterated; capital supports dividend Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023)Previous Mentions (Q1 2024)Current Period (Q2 2024)Trend
NIM outlookFlat in Q1-24; pressure moderating thereafter Q2 NIM guided to ~2.65%; deposit betas decelerating Q3 NIM ~2.68% trough; gradual improvement in Q4 and next year Stabilizing then improving
Deposit pricing/betasCompetition intense; pricing strategy balancing liquidity/profitability Customers shifting to interest-bearing; CD repricing continues Rate increases decelerating; competition lowering rates, easing funding pressure Pressure easing
Loan growth and pipelinePipeline ~$75M; 2024 growth ~4% Pipeline ~$95M; 2024 growth ~5%; Rochester hiring Pipeline ~$137M; strong C&I originations; term yields ~7.5% Accelerating
Technology initiativesInvestments to improve efficiency and CX Ongoing tech investments for scale and efficiencies E-signature pads deployed; electronic account opening; digital capabilities focus Execution progressing
Credit qualityNPLs flat; criticized down; tax rate ~22% Sound metrics; criticized down; muted provision NPLs declined; hotel moved to OREO, sale pending with no expected loss Stable/improving
Capital & buybacksCapital flexibility post-TEA; buybacks considered Small buyback (~$0.5M) executed; priority on growth and dividend support Tier 1 leverage 10.04%; capital supports growth and shareholder returns Balanced capital deployment

Management Commentary

  • CEO on performance and margin: “Strong performance… growth in core banking… resulted in a net interest margin that exceeded expectations. Additionally, disciplined expense management contributed to the 26% increase in net income on a sequential basis.”
  • CFO on NIM path: “We anticipate our NIM to come down a few basis points to approximately 2.68% in the third quarter of 2024… margins start to improve slowly in the fourth quarter and next year.”
  • CFO on loan yields and deposit strategy: “Longer-term commercial and commercial real estate are going somewhere in the 7.5% and above… CDs ~4.5% seems competitive, and we’re holding that liquidity.”
  • CFO on expenses: “Our expectation for the bank-only 2024 year expense… is a decrease between 1% and 2%.”
  • CFO on tax rate: “22.5% is a good go-forward tax rate.”

Q&A Highlights

  • Origination yields: Term loans ~7.25–7.5% and C&I “better than prime”; variable-rate portfolio ~$300 million .
  • Deposit dynamics: Municipal seasonality expected with low points in September and December; CD offers ~4.5% vs 5%+ in market earlier; competition easing .
  • NIM vs potential Fed cuts: A 25 bps cut likely neutral; impact depends on local pricing by larger regional competitors .
  • Fee run-rate: “Other” line slightly elevated but not significantly; wealth management fees embedded in insurance line .
  • Credit update: OREO is a hotel asset; sale pending to strong operators with no expected loss; NPL decline driven by classification change .

Estimates Context

  • Wall Street consensus estimates via S&P Global could not be retrieved for EVBN due to missing mapping; therefore, beats/misses vs consensus are not available. We attempted to fetch EPS and revenue estimates for Q2/Q1/Q3 2024 but no CIQ mapping was found for EVBN in the SPGI dataset.

Key Takeaways for Investors

  • Sequential improvement was driven by higher net interest income and lower expenses; NIM of 2.71% was above internal expectations—this positive surprise is a near-term support for sentiment .
  • Funding costs remain the key headwind, though management reports decelerating increases and easing competitive pricing—CD offers now ~4.5% vs ≥5% last quarter, pointing to stabilizing margins into Q4 .
  • Commercial loan momentum is robust (pipeline $137M) with attractive yields; Rochester expansion adds capacity—supports mid-single-digit loan growth in 2024 and asset-side revenue resilience .
  • Expense discipline continues; 2024 bank-only OpEx targeted to decline 1–2% YoY, bolstering operating leverage despite NIM compression .
  • Credit quality remains solid; NPLs/loans fell to 1.42%, OREO sale expected without loss; net charge-offs minimal—limits downside risk from asset quality .
  • Capital position is strong (Tier 1 leverage 10.04%); management prioritizes supporting dividend and selective buybacks while funding growth—balanced capital allocation .
  • Near-term trading implication: stock may respond to confirmation of NIM trough in Q3 and signs of deposit cost moderation; medium-term thesis centers on asset repricing, controlled costs, and loan growth to lift ROE gradually back toward pre-pressure levels .