Q1 2021 Evans Bancorp Inc Earnings Call
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Ross, greetings, welcome to the evansbank Corp. First quarter, fiscal year, 2021 Financial results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note, this conference is being recorded, I will now turn the car off over to your host Deborah pawlowski. Please go ahead.
Thank you and good afternoon everyone. We certainly appreciate your interest in Evans Bancorp and for your taking the time today to join us on our call. I have here with me, David Bowie, our president, and chief executive officer, and John Connerton, our Chief Financial Officer David, and John will review our results for the first quarter of 2021, and then we will open the call for questions. You should have a copy of the financial results that were released today, after markets closed. If not, you can't access them on our website. At ww.w., Evansbank said, you are away with me, make some forward-looking statements during the formal discussion as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today's call these risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed, by the company with Securities and Exchange Commission, you can find those dead.
On our website or at www.sec.gov with that. Let me turn it over to David to begin. Thank you. Debbie good afternoon everyone. We appreciate you joining us for the bank today, as we begin. I'd like to once again, take this opportunity to thank all our Associates for their continued outstanding efforts, and ongoing commitment to support, the needs of our clients. And communities wage has been more than a full year. Now, since the onset of the COVID-19 pandemic in the US and this has certainly been a difficult operating environment, but we are starting to see light at the end of the tunnel while we're not out of the woods yet. The first quarter felt more like a typical quarter of business operations, especially considering the other significant activities that took place this past year with two Acquisitions and our headquarters office over all the first quarter marked. A very solid start to the year, reflecting the strength of our diverse business model are focused actions in support of our clients and communities and the execution,
One of our long-term strategy.
We are reporting earnings of $0.89 per diluted share on net income of 4.9 million dollars, including a $313,000 provision primarily due to One commercial real life, John will provide more detail but absent that credit we would have experienced a release of provision reflecting solid. Credit quality across our portfolio and continued not positive macroeconomic trends.
Loan and deposit levels were up significantly year-over-year. Given the addition of Fairport Savings Bank or FSB and active engagement with the paycheck Protection Program. Both last year. And this, in fact, as part of phase, two of the PPP, we funded approximately 950 loans for $89 during the quarter, the average size of a PPP loan. This quarter has tended to be smaller while 70% of the loans originated, went to businesses with less than ten employees. We estimate our work, help. The businesses just received these loans, protect approximately 11,000 jobs in the communities. We serve
We've continued to assist many existing and new clients gained in the first round of to navigate and secure funding for phase. Too many of those newer clients would not serviced or had been turned away by other banks. In the first round. This is continued to be an important platform and opportunity for us to build and deepen relationships and ultimately offer other products and services.
It is important to note that while our loan growth for the corner of 53 million reflected, the latest, round of PPP funding. We did experience very healthy, commercial origination ninety million dollars. Those origination. However, we're offset by a heightened level of refinancing and payoffs given the low-rate environment and excess liquidity that exists in the market wage, given the ongoing pandemic impact. We are still unable to pursue many of the activities that we would normally such as full attendance at community events and greater in person customer interaction, despite the restrictions on our interactions. We are experiencing a Resurgence and Loan demand in both commercial real estate and cni projects. We remain confident in our ability to drive future loan. Growth is our commercial pipeline is at a record level of approximately one hundred million dollars in addition during the first quarter approximately 15% off
Of our origination and a similar amount of the pipeline came from the Rochester Market given the current operating environment. We are pleased with the progress in that market and anticipate great traction, as economic recovery further unfolds,
Are strong performance focus on Capital Management and shareholder returns enabled us to increase the company's cash dividend. Once again, marking the 11th increase over the last nine years is $0.60 per share per common share semi annual dividend was paid in early April, approximating a 3.5% annualized return in support of our commitment to deliver value shareholders. We announced in February. Also, a renewal of our stock repurchase program authorizing the repurchase of up to 300,000 shares of the company's outstanding common stock, finally regarding the investment Market based upon public analysis. It is the bank's expectation that we will along with perhaps eighty to ninety other financial institutions dropped out of the Russell stock index upon reconstitution in May due to increase market capitalization rates for inclusion.
Well disappointing.
We do not anticipate, but will remain Vigilant to any impact to our stock values from the move and will seek to continue growing. Our book value through operating performance package, looking ahead, while there will be lingering headwinds, we are pleased to see, encouraging signs of economic recovery and positive developments with vaccinations currently. We anticipate having our Associates returned to our headquarters in early July. There is a sense of normalcy returning as the market recovers, and reopens, and we get back to the basics of relationship. Banking believe we are in a strong position to continue to drive forward with our strategy and deliver performance with that. I'll hand it over to John to run through our results. And then we'll be happy to take any questions, John wage.
Million dollars or $0.89 per diluted share in the first quarter compared with 0.2 million or 4 cents per diluted share in last year's. The increase reflected higher net interest income tax due to be and fees earned in connection with PPP. Also last year's first-quarter had an elevated loan-loss provision to reserve for the deterioration of economic Trends and conditions related to age. COVID-19 pandemic the decrease in net income from the linked quarter was due to a zero point four million increase in provision for loan laws and a zero point seven million gain recognized on the sale of our former headquarters during the fourth quarter. Net interest income increased 1% from the fourth quarter of 2020 and 30% from the prior to your first quarter. The year-over-year increase reflected higher average, just earning assets as we recognized the benefits of the FSB acquisition and PPP lending during the quarter. We realize one point seven million in deferred ptpp fees. Yep.
With one point four million in the fourth quarter of 2020 of the original Seven point four million in fees. From the first round of PPP there is 2.9. Million remaining to be booked to income. On a second round of PPP originations produce 4.1 million of additional fees to date. That will be realized over their five-year terms or one forgiving as David reference. The first quarter of vision for a loan lost is reflected one point. 1 million in specific reserved associated with a single commercial customer relationship.
This was a commercial construction loan that experience unanticipated, cost overruns for environmental, cleanups excluding, this one relationship. The bank would have realized released Reserve during the quarter would just for improvement and economic conditions, including stabilizing employment, and improving GDP numbers. We continue to monitor how our hotel portfolio and I can report that we speak with these relationships on a weekly basis. Due to the seasonality associated, with many of the properties, we expect to have a better feel for their long-term performance. Over the coming spring, and summer months. We are, however, making progress is evidenced by the following occupy occupancy statistics, excluding properties, and Construction in December, the average occupancy was 19% currently, we are running at 38% and both of notes that portfolio continues to be well, collateralized for first-quarter net interest, margin of 3.43% Increase five basis points from the sequential fourth-quarter reflecting the birth
PPP fee recognition.
And reduced interest expense as the bank continued to align rates on deposits the 21 basis points declined from last year's first quarter. Reflects the federal reserve's, decrease of the FED funds rate by a fifty basis points, early in 2020 and changes in mix of interest-earning assets, including the greater interest, earning cash balances PPP loans and Residential Mortgages from FSB, we believe the net interest margin is stabilized though. There continues to be some variability. As the margin will be dependent on the speed of forgiveness of PPP loans, which can accelerate or slow the amortization of the month fee.
Not interest income for the quarter of four point six million increased about 1.2 million from last year's. Which included a zero point six million reduction of non-interest income related to an investment of historic Rehabilitation tax credit. We also benefited from higher loan fees and an increase in the fair value of mortgage servicing rights. Non-interest income was down about 240,000 from the link, largely driven by the gain on sale of our former headquarters during that period, which can be found in the other income line.
Total non-interest expense declined. 1% from the fourth quarter of 2020, due to discipline expense management. When comparing the prior-year. The addition of FSB impacted several not interest expense Lines line items, including higher, salaries, and benefits.
The effective tax rate for the quarter was 25.2% compared with 12% in the fourth quarter of 2020. And 16.7% in last year's first quarter accent the historic tax credit from last year. The effective tax rate was 22.1% and 25.4% in the fourth. In first quarters of 2020 respectively turning to the balance sheet, the loan portfolio. Increased $500 or 40% compared with last year's first quarter which reflects $271 billion in loans from FSB. The previous PPP portfolio funded during twenty-twenty of 203 million has experienced a total of $55 million and forgiveness to date of which $39 million was forgiven during the first quarter of 2021. The ending balance of all PPP loans. As of March, 31st was 837 million compared with the link. Twenty twenty fourth quarter loans, grew $53 million or 3%. As David mentioned, this increase reflected our rapid response to the needs of customers dead.
For the latest round of PPP funding. As we originated 89 million + PPP loans during the quarter, we also funded a healthy level of commercial origination, which included 70 million in commercial, real estate office paid twenty million in C and I about half of the commercial real estate. Originations were construction. Loans largely for multi family and Community Development projects. These loans were mostly unfunded and did not add to Thursday, and balances, but are expected to fund it the construction season ramps up. Additionally, we have seen lower line, usage impact commercial balance growth as customers have benefited from the liquidity provided by government stimulus package.
Commercial loan.
Payoffs excluding PPP during the quarter totaled, $44 million, which comprised mostly of early, pay down some continuing customers in a smaller number of payoffs due to customers which have sold their companies. The foundation, of all this activity. Resulted in slight decline in the commercial loan, portfolio compared to the fourth quarter of 2020. When excluding ptpp loans residential originations were thirty-two million for the first quarter but those two stars substantial refinances and payoffs that resulted in growth of eight million dollars for the quarter.
Total deposits of 1.9 billion. Grew 41% or $544 million since last year's. And was driven by FSB which added $239 million of deposits. We also benefiting tighten, liquidity levels of commercial customers including deposits related to Pele owns increases in consumer deposits from government. Stimulus payments as well as slower consumer spending those factors large town for the 101 million or 6% increase in deposits from the sequential fourth-quarter that concludes my comments. So we would now like to open the line for questions.
At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. Hey confirmation. Total indicate your line is in the quad Q. You may press star to if you would like to remove your question from the Q4, participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Alex Cordell with Piper Sandler, please go ahead.
Hey, good afternoon.
Good afternoon, Alex. Good afternoon, Alex.
It first off, John, appreciate your comment on expecting an instability from here. Can you just talk a little bit about what underlying those that assumption is it whether or not in fact, since like TP, forgiveness and a second quarter, and what it contemplates, in terms of the size of the average, balance sheet and liquidity, Etc,
sure. I think what's going to drive the Nim, we we continue to have some yield pressure down on the loans and the on the commercial side. However there has been some uptick from our origination fourth quarter to two first-quarter on our origination due to the increase in the on the yield curve. So we're benefiting from that but we also still have some ability to reprice some of our, some, our deposits. It's not as much in there at this point, but there is still some opportunity going forward. So the so those the the outcome of those two is going to lead to some home ability. And then included in there is about the similar PPP fees through the second and third quarter with our expectation. That most of the TPP fees from around 1 will be exhausted through the income, through the income statement, through the, through the end of the third quarter, beginning of the fourth quarter and we in our we're not anticipating dead.
NEP around to hear.
Um deferral fees to start forgiveness until until the end of the fourth quarter, beginning of next year. So those are kind of the major assumptions driving as far as growth David long, we have about a hundred million dollars in in our pipeline which we feel that you know, the growth should start turning around such that it should overcome some of the major faiths payoffs and refinances that we've seen in the past.
Okay, appreciate all those all that, so if I put it together, sounds like an instability, plus the balance sheet growing a little bit, means the nii trends a bit higher as the year progresses.
That's the safe conclusion. Yes.
Perfect. Thank you. And then can you talk a little bit about the tax rate? Came in a bit higher. Obviously didn't have the the tax credit impact from last year, carrying through with the 26% that are 25.2% the right tax rate to come to be using for for the remainder of the Year. There are some seasonality to some of the tax, some of the tax in off-site. Excuse me. Some of the tax things that we utilize from the limit our tax rate. And so our expectation is it'll be it'll come further down to closer to the 24% off on an annual basis.
Great. Thank you for taking my questions.
Okay, once again, if you would like to ask a question please press star one on your telephone keypad. Our next question, comes from Bryce Rowe. Please go ahead.
Hi good. Good afternoon. Appreciate you taking the the call here. How are you? I'm good good. Can we talk a little bit about the kind of the payoff activity that you're you're seeing and that I think it's a pretty common theme across the space. Uh but any visibility into, you know what, what you might see as we as we work into the the second and third quarters, especially considering the the the the I guess the record commercial pipeline you have right now
So I'll take that I think just I guess to note on the payoffs that we've seen kind of as I suggested in the in the commentary Thursday we're not seeing it from from competition that they're taking away. There is some of that but it's mostly that there's excess liquidity in the market so that our current customers are paying down a lot. Sometimes early some of those some of those credits as well as there has been the market has, there is some a lot of activity around m&a in our customers Industries. So we have seen those. So the good news is we you know those payoffs that we are losing we're not losing the competition when we do have an opportunity to to get in front of our customers. If they're looking to refinance we typically Our Winning those but we expect there, we're seeing those things continue to some degree, but we think a lot of them have kind of played out to some level.
We're our expectation on payoffs.
Is should start to moderate in the second and third quarter. But we do expect that they'll still be some of that going forward. And that's obviously in the commercial book. He's talking we have seen refinance and payoff activity in the consumer book and some of that, you know, we didn't acquisition. We're seeing a little bit of that, but we expect that to stabilize a bit too. Okay. Okay. And then, you know, maybe you all can can speak to, you know, the opportunity in Rochester. I think you called it out in terms of percentage of origination and, and supply line, um, you know, tied to the Rochester market. So, um, you know, maybe I mean, I'd love to hear just just some commentary around what the what the opportunity and took the opportunity might be framed the opportunity for us in that market.
All right, I'll try to do that for you Bryce. I'm not going to, you know, it's hard to be real specific, but I would say that. We think there's opportunity. It is a bit of a smaller Market wage are seeing, uh, a fairly strong, robust activity, especially in the, the crease side of the house. There is a fair amount of financing wage Tire kicking going on right now, is we talk to them. We are trying hard to make sure that we get relationships built up with c and credits as well. The dog has produced like we said, right now, about 15% of the, the stuff that we've seen in the last quarter was coming out of Rochester. The issue we've had is getting awareness wage that we're we've entered the market. We have been there, we have been there for twelve years. Lending, this was a boots-on-the-ground play a little bit and it's been a little tough to get in front page.
People with COVID-19 still going on, but we're starting to see that thaw. A bit where we can get out in front of people, let them know. We're in the market, we did put a team out there. A lending team out there on the commercial side. They had a big mortgage operation that helped us. Stand up a bigger, mortgage operation for ourselves and the deposit base is five branches. That again, there was. There weren't a lot of people coming into the branches, lobbies were closed for a period of time, so off all that awareness, that will start to happen. With being out in the market, should help us get greater traction, but we think there is a fairly reasonable opportunity. There, there are less, you know, when a look at our Market or Market probably has, I'm at ease about 63% of this Market, you've got keycorp 17% of this Market when you look out in Rochester, MN wage,
Is more like 20% and then you've got some other Community Banks out there. So we think we set up pretty well to do well in that market and we'll see.
Okay, it's it detail there and then maybe just a question around the insurance business and whether you're, you know, you're seeing a little bit of growth year-over-year. First quarter first quarter, just curious, if you know with with the potential that you know, we get some we we get some economy reopening. Does that does that, you know, give you some opportunity there on the insurance side to maybe drive, a little bit of fee income.
The short answer is yes. The longer answer is it's a little more complicated. We think that the the legs of the stool our P&C, which is Property, and Casualty is a commercial side. We expect bigger growth on that side. Certainly, as the economy opens up talking to businesses opens, the personal lines has been a challenging growth story over the last couple of years, as some of the big players, whether it's Geico or Allstate, or, you know, Nationwide really have taken too much greater digital capacity. And and, you know, a lot of advertising. We've maintained our client base. It's been a little slower to grow. We've moved to a more direct service model on that, which is helped us. And then the Third Leg of the stool is, is employee benefits. We acquired a company at the end of nineteen, so really start off.
In January. And we are starting to see a lot of activity, not necessarily translating to sales just yet but we are seeing good activity getting out and making people aware our existing customers and then new customers, we did hire a new salesperson that area that cuts between both Buffalo and Rochester. Well, known in that space and we think that's making a difference in getting the awareness there. So we do think there's opportunity as the Market opens, but it's going to be a little nuanced in in where the opportunities are going to come back.
That's good stuff. All right, thank you so much too. Good to talk to you all.
Thank you, turn the floor over to David for closing remarks.
All right. I'd like to say thank you to everyone for participating in the teleconference today. We're certainly appreciate your continued interest in support. Please feel free to reach out to us, John, or my cellphone, no time. We look forward to talking with you all again. As we report, our second quarter 2021 results and we hope you all have a great day.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Thank you, Stacey.
Ross dead, dead dead.