Evans Bancorp said Wednesday that first-quarter profits fell 25 percent, almost entirely because the bank returned to setting aside money for future loan losses instead of releasing money from its reserves.
The Hamburg-based parent of Evans Bank reported net income of $1.8 million, or 43 cents per share, down from $2.4 million, or 58 cents per share, in the same quarter a year ago.
Operating results were basically flat, as revenues held steady, while operating expenses rose 2.4 percent. But the bank set aside $450,000 for uncollectible loans – “a more normalized level,” it said – after releasing $249,000 from its backup fund in the first quarter of 2012. That’s a swing of $700,000 before taxes.
“Our operating results were relatively stable. The story revolves around a return to a more normal provision level,” said President and CEO David Nasca. “We are growing. We didn’t expect to keep taking it back forever.“
Nasca said the bank “grew at a slower pace than recent quarters, due mainly to loan payoffs and slower loan closings.” The bank has “a really strong pipeline” of loan applications, and “May and June are expected to be pretty strong.”
“Loans haven’t gotten to the closing table as fast as we expected or hoped,” he said. “We just have to make sure we get some of these deals closed.”
But the competition for loans also is quite heavy, he said, and borrowers are often getting several bids for their business, with multiple banks vying for regular business loans, and insurance companies and Wall Street loan “conduits” joining the battle for commercial mortgages.
“We’re not chasing terms or risk down the curve. We’re going to do what we do with our conservative credit nature,” he said. “People are negotiating like crazy. There’s a lot of liquidity in the market. We’re not going to reach. This isn’t the right time to reach.”
Net interest income from taking deposits and making loans – a bank’s core business – was flat at $6.8 million, as both interest income and interest expense fell, and the profit margin narrowed.
Total loans grew 2.1 percent to $587.2 million and were up just 1 percent since year-end. Deposits rose 7.5 percent from a year ago and 2.8 percent from year’s end, to $698.3 million, driven by growth in savings and checking accounts.
Total assets rose 6.2 percent from last year and 1.7 percent from year’s end, to $823.7 million.
The bank had been releasing funds from its loss reserve last year – a total of more than $1 million for the full year – as it ran off most of its struggling equipment leasing portfolio and loan credit improved. The credit trend continued this year, but the bank also grew.
Fee and other income was also flat at about $3.3 million, representing 32.7 percent of total revenues.
Insurance commissions rose 2.8 percent to $2 million because of higher profit-sharing and commercial lines revenues, while deposit service fees rose 10.6 percent to $482,000.
Operating expenses rose to $7.1 million, led by 19.1 percent higher occupancy costs from writing off the cost of software that will no longer be used.