Evans Bancorp Reports Second Quarter 2007 Financial Results

Evans Bancorp, Inc. (NASDAQ: EVBN), today reported its results of operations for the second quarter which ended June 30, 2007.

In the second quarter of 2007, Evans Bancorp recorded a net loss of $(139) thousand, or $(0.05) per diluted share, compared with net income of $1.07 million, or $0.39 per diluted share, in the second quarter of 2006. When adjusted for what management considers to be “non-operating” items, “net operating” income for the second quarter of 2007 was $1.17 million, up 7.3% from $1.09 million during last year’s second quarter, and diluted operating earnings per share increased $0.02, or 5.0%, to $0.42 per share.

For the six months ended June 30, 2007, net income was $1.15 million, or $0.42 per diluted share, down from $2.48 million, or $0.91 per diluted share, in the year earlier period. For the same period, net operating income was $2.48 million, down slightly from $2.51 million for the same period in 2006, and diluted net operating earnings per share was $0.91 compared with $0.92 last year.

In accordance with U.S. generally accepted accounting principles (“GAAP”), included in the computation of earnings for the 2007 second quarter period were a $(1.41) million, or $(0.51) per diluted share, after-tax loss on the sale of securities and a $0.11 million, or $0.04 per diluted share, after-tax gain related to a correction in SFAS 91 loan fee income. Management considers these two items to be non-operating in nature and is therefore presenting supplemental reporting of its results on a “net operating” basis. This non-GAAP information is being disclosed because management believes that providing these non-GAAP financial measures provides investors with information useful in understanding the Company’s financial performance, its performance trends, and financial position. Specifically, the Company provides measures based on “net operating earnings,” which excludes transactions and other revenue and expenses that are not reflective of ongoing operations or not expected to recur. While the Company’s management uses these non-GAAP measures in its analysis of the Company’s performance, this information should not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP, nor is it necessarily comparable with non-GAAP measures which may be presented by other companies. A reconciliation of net (loss) income and diluted (loss) earnings per share with net operating income and diluted net operating earnings per share is provided in Table 1.

As was announced on June 27, 2007, Evans sold $45 million of investment securities at a loss in order to restructure its balance sheet to de-lever its investment in lower-margin assets with the objective of reducing higher-cost wholesale borrowings. This transaction has provided excess capital compared with historical levels. Management may consider various alternatives for deploying this capital, including share buybacks, increased or special dividends, acquisitions, and other investment and capital management initiatives.

David J. Nasca, president and CEO, of Evans Bancorp, commented, “When viewed on a comparable basis, we believe our performance is beginning to demonstrate our efforts to strengthen the financial performance of the Company. We are taking measures to change the operating and sales environment at Evans in order to improve our efficiency and grow revenue. We are implementing accountability measures that should drive better execution of everything we do.” He added, “Importantly, our branch marketing activities and cross-selling program are demonstrating results through the growth in core deposits. We are focused on getting better returns on our earning assets, and despite the interest rate environment, to keep the cost of funds from accelerating at a rate faster than our asset yield. Our improved net interest margin is a reflection of this focus.”

Gary A. Kajtoch, Senior Vice President and Treasurer of Evans Bancorp, commented, “The restructuring of our balance sheet was a significant first step toward increasing shareholder value by freeing up capital that will provide us greater financial flexibility. We believe that the reduction in assets and the associated loss in the second quarter were short term events that enable us to create more value over the long term.”

Revenue and Expenses

Net interest income of $4.19 million for the second quarter of 2007 was up $0.56 million, or 15.5%, from the second quarter 2006. Total interest income for the second quarter of 2007 was $7.40 million, up $0.88 million, or 13.5%, from the same period last year, primarily due to higher interest income from loans and leases which increased $1.15 million, or 23.3%, to $6.09 million on growth in the Company’s commercial loan portfolio, particularly its leasing company. Interest expense increased $0.32 million, or 11.0%, from $2.89 million in the second quarter of last year as a result of an increase in average time deposit balances along with higher rates being paid on those time deposits.

The Company’s net interest margin for the quarter was 3.97%, up 49 basis points from last year’s second quarter net interest margin of 3.48% and a sequential increase of 37 basis points from the first quarter of 2007. The SFAS 91 loan fee income accounting adjustment accounts for 13 bps of the improvement from the prior year second quarter. Other contributing factors to the improvement in net interest margin were the growth in the Company’s commercial loan portfolio, particularly the leasing portfolio through Evans National Leasing, and the growth of interest free funds. The Company continues to have success in penetrating its market area with core transactional demand deposits. The contribution of free funds increased 16 bps from last year’s second quarter.

Net interest income after the provision for loan and lease losses was $3.85 million in the second quarter of 2007, up $0.45 million, or 13.1%, from $3.40 million in the same period of 2006. A higher provision for loan and lease losses, which affects the income statement, reflects the continued strong growth of the Company’s leasing portfolio.

Non-interest income was $0.3 million in the second quarter of 2007, down $2.2 million from $2.5 million in the same period of 2006. The decrease was due to the loss on the sale of securities. Excluding the loss on the sale of securities, all other non-interest income increased $0.10 million in the second quarter of 2007 compared with the same period in 2006. Higher income from deposit service charges, bank-owned life insurance and other income, which includes service fees for loans and leases, more than offset the decline in insurance revenue. The insurance business is facing a soft market in which lower premiums are offsetting the growth in the number of new accounts and premiums from existing relationships.

Non-interest expense for the second quarter of 2007 increased 5.1% to $4.71 million from $4.48 million in the second quarter of 2006. A large part of the increase was due to the personnel and occupancy expenses associated with the Company’s newest branch office, which opened in Tonawanda, NY in December 2006. The Company has also incurred higher professional services expenses as management has engaged consultants to aid in analyzing the bank’s distribution network and to strengthen its investor relations program. Accounting and legal fees have also increased from last year.

Loan Growth

At June 30, 2007, total assets were $469.5 million compared with $468.1 million at June 30, 2006 and $473.9 million at December 31, 2006. Net loans increased 10.8% to $298.5 million from $269.4 million at June 30, 2006, and increased from $285.4 million at December 31, 2006. The increase in net loans was offset by the sale of securities resulting in a decline in total assets at the end of the current quarter when compared with December 31, 2006.

Core Deposit Expansion

Deposits increased 8.8% and 4.9% to $373.1 million when compared with the second quarter last year and December 31, 2006, respectively. Sequentially, deposits declined 1.8% when compared with the March 31, 2007 balance. This slight decline occurred primarily in time deposits as the Company began to allow some of its higher-cost time deposits to roll off as part of its previously announced de-leverage strategy.

Asset Quality

Nonperforming loans and leases to total loans and leases decreased to 0.26%, an 11 basis point improvement over June 30, 2006. On the balance sheet, the allowance for loan and lease losses to total loans and leases was 1.28% compared with 1.32% at June 30, 2006.

Stockholders’ equity was $41.1 million as of June 30, 2007, up from $39.5 million at December 31, 2006.

Outlook

Mr. Nasca concluded, “We believe that we are making headway in our efforts to grow our business in Western New York, improve our capabilities for cross selling services and strengthen our earnings momentum. We are evaluating all aspects of our business to remain competitive in the current environment and intend to continue to strategically increase our presence and grow our franchise in this market.”

About Evans Bancorp, Inc.

Evans Bancorp, Inc., a registered financial holding company under the Bank Holding Company Act of 1956, is the parent company of Evans National Bank, a commercial bank with $469 million in assets and $373 million in deposits at June 30, 2007. The Bank has 11 branches located in Western New York. Evans National Leasing, Inc., an indirect wholly-owned subsidiary of Evans National Bank is a general business equipment leasing company with customers throughout the U.S. ENB Insurance Agency, Inc. is an indirect, wholly-owned subsidiary of Evans Bancorp and provides retail and commercial property and casualty insurance through 12 agencies in the Western New York region. ENB Associates Inc., a wholly-owned subsidiary of ENB Insurance Agency, provides non-deposit investment products such as annuities and mutual funds. More information on Evans Bancorp, Inc and Evans National Bank can be found at: www.evansbancorp.com and www.evansnationalonline.com.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, statements concerning future business, revenues and earnings. These statements are not historical facts or guarantees of future performance, events or results. There are risks, uncertainties and other factors that could cause the actual results of Evans Bancorp to differ materially from the results expressed or implied by such statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, include competitive pressures among financial services companies, interest rate trends, general economic conditions, changes in legislation or regulatory requirements, effectiveness at achieving stated goals and strategies, difficulties in achieving operating efficiencies and difficulties in integrating acquired companies’ businesses. These risks and uncertainties are more fully described in Evans Bancorp’s Annual and Quarterly Reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. Evans Bancorp undertakes no obligation to publicly update or revise forward-looking information, whether as a result of new, updated information, future events or otherwise.

Contacts:

Evans Bancorp, Inc.
Gary A. Kajtoch, 716-926-2000
Senior Vice President and Treasurer
gkajtoch@evansnational.com
or
Kei Advisors LLC
Deborah K. Pawlowski, 716-843-3908
dpawlowski@keiadvisors.com