Financial Performance - Net income for the first quarter of 2024 was $2.3 million, or $0.42 per diluted share, a decrease of 77.6% from $10.2 million in the fourth quarter of 2023 and a decrease of 60.3% from $5.8 million in the first quarter of 2023[4]. - Evans Bancorp reported a net income of $2.3 million for the first quarter of 2024, compared to $5.8 million in the same quarter of 2023, reflecting a decrease of approximately 60% year-over-year[34]. - Non-interest income totaled $2.3 million, down $16.3 million from the sequential quarter, primarily due to the absence of a $20.2 million gain on the sale of TEA recognized in the fourth quarter of 2023[12]. - Evans Bancorp's total non-interest income for Q1 2024 was $2.27 million, a significant drop from $18.55 million in Q4 2023, primarily due to a loss on the sale of investment securities[34]. Loan and Deposit Growth - Total loan balances increased by $63 million, or 4%, year-over-year, reaching $1.7 billion, with a robust loan pipeline of approximately $95 million[6]. - The bank's total deposits rose to $1.89 billion, an increase of 10% from $1.72 billion in the previous quarter[33]. - Average net loans increased to $1,703.32 million, up from $1,641.16 million in the first quarter of 2023, representing a growth of 3.8% year-over-year[36]. Interest Income and Margin - Net interest income was $13.9 million, flat compared to the fourth quarter of 2023, but down $3.4 million, or 20%, from the first quarter of 2023 due to higher interest expenses[7]. - Interest income for Q1 2024 was $25.37 million, up from $23.37 million in Q1 2023, reflecting a year-over-year increase of approximately 8.6%[34]. - The net interest margin for the first quarter of 2024 was 2.79%, an increase of 4 basis points from the previous quarter but a decrease of 67 basis points from the prior-year period[8]. - The net interest margin improved to 2.79% compared to 2.75% in the previous quarter, indicating a positive trend in interest income[36]. Asset Management - Total assets increased by $151 million, or 7%, since December 31, 2023, reaching $2.26 billion as of March 31, 2024[20]. - Total assets increased to $2.26 billion as of March 31, 2024, up from $2.15 billion a year earlier, representing a growth of about 5%[33]. - Total assets decreased to $2,120.83 million from $2,167.25 million in the first quarter of 2023, a decline of 2.1%[36]. Capital Ratios - The Tier 1 leverage ratio was 10.52% at March 31, 2024, compared to 10.37% at December 31, 2023, and 9.13% at March 31, 2023, indicating strong capital management[24]. - The Tier 1 risk-based capital ratio stood at 13.63% as of March 31, 2024, compared to 12.04% a year prior, indicating improved capital strength[33]. - The company continues to focus on maintaining a strong capital position with stockholders' equity rising to $176.96 million from $154.99 million in the first quarter of 2023[36]. Efficiency and Expenses - The Company's GAAP efficiency ratio was 79.92% in the first quarter of 2024, compared to 50.2% in the fourth quarter of 2023 and 67.6% in the first quarter of 2023[17]. - Non-interest expenses decreased by $3.4 million from the previous quarter to $12.9 million, and decreased by $1.6 million from the first quarter of 2023[14]. - The efficiency ratio for Q1 2024 was reported at 79.92%, significantly higher than 50.16% in the previous quarter, indicating increased operational costs[34]. Asset Quality - Non-performing loans as a percentage of total loans were 1.62% for Q1 2024, up from 1.45% in Q1 2023, suggesting a slight deterioration in asset quality[33]. - The yield on loans increased to 5.56% from 5.16% in the first quarter of 2023, indicating improved loan performance[36]. Shareholder Value - The bank's book value per share decreased to $31.62 from $32.40 in the previous quarter, indicating a decline in shareholder equity value[33].

Regulatory Environment - The Company is subject to extensive regulation under federal and state laws, which may materially affect its business and financial condition [34]. - The Company must obtain prior approval from the FRB for any merger or acquisition involving more than 5% of voting shares of a bank or bank holding company [36]. - The FDIC's risk-based premium system for institutions of the Bank's asset size has assessment rates ranging from 2.5 to 32 basis points, effective January 1, 2023 [56]. - The Bank was in compliance with regulatory capital requirements as of December 31, 2023 [58]. - The minimum capital ratios established by the Capital Rules include a CET1 ratio of at least 4.5%, a Tier 1 capital ratio of at least 6%, and a Total capital ratio of at least 8% [68]. - Institutions categorized as "well-capitalized" must maintain a CET1 ratio of at least 6.5% and a Total Capital ratio of at least 10% [70]. - The Federal Deposit Insurance Act establishes five capital categories, with specific mandatory supervisory actions for undercapitalized institutions [67]. - The Bank has not opted to use the community bank leverage ratio alternative as of December 31, 2023 [75]. - The Company has qualified for an exception allowing it to redeem or repurchase its outstanding equity securities without prior FRB approval as of December 31, 2023 [41]. - The Company may face increased regulatory scrutiny and restrictions if liquidity declines, impacting its ability to originate loans and meet obligations [92]. Financial Performance - Total interest income for 2023 increased to $96,850,000, up 21.9% from $79,482,000 in 2022 [313]. - Net income for 2023 was $24,524,000, representing a 9.5% increase compared to $22,389,000 in 2022 [314]. - Non-interest income rose significantly to $32,922,000 in 2023, up 70.9% from $19,271,000 in 2022 [313]. - The provision for loan losses was $18,000 in 2023, a substantial decrease from $2,739,000 in 2022 [313]. - Stockholders' equity increased to $178,219,000 in 2023, up from $153,993,000 in 2022, reflecting a growth of 15.7% [312]. - Comprehensive income for 2023 was $31,531,000, a significant recovery from a loss of $21,218,000 in 2022 [314]. - The company declared cash dividends of $1.32 per common share in 2023, compared to $1.26 in 2022 [316]. - The company reported a net income of $15.7 million for 2023, which included a pretax gain of $20.2 million from the sale of TEA [383]. Loan Portfolio and Credit Risk - The Company’s loan portfolio totaled $1.7 billion as of December 31, 2023, with an allowance for credit losses of $22.1 million, reflecting an increase of $2.7 million due to the adoption of ASC 326 [305]. - The allowance for credit losses was $22.1 million, which is 1.28% of the total gross loan portfolio of $1.7 billion as of December 31, 2023 [88]. - Non-accrual commercial real estate loans increased to $20.2 million at December 31, 2023, compared to $15.3 million at the end of 2022 [85]. - The Bank monitors credit risk in its loan portfolio using credit quality indicators, with a focus on individual loan credit risk ratings [340]. - The provision for credit losses is charged against earnings to maintain an adequate allowance level based on expected credit losses [348]. - Management reviews the adequacy of the allowance for credit losses quarterly, incorporating feedback from internal loan staff and regulatory examinations [349]. - Qualitative factors in the pooled loan portfolio allocation reflect management's evaluation of delinquencies, credit risk concentrations, and economic trends [351]. Economic and Market Conditions - The Company’s financial performance is highly dependent on economic conditions in Western New York, the Finger Lakes Region, and the broader U.S. market [125]. - The company is heavily concentrated in the Western New York and Finger Lakes regions, making it vulnerable to economic downturns in these areas [86]. - The Company’s financial condition may be adversely impacted by economic factors such as persistent inflation and supply chain issues [127]. - Rising interest rates have led to a significant decrease in the value of the company's securities portfolio, which could impair its financial condition if sales are necessary [93]. Operational Risks - The Company faces significant operational risks due to high transaction volumes and reliance on internal controls, which could lead to financial losses [112]. - Cybersecurity and data privacy risks have increased, leading to potential regulatory scrutiny and compliance costs [114]. - The Company’s ability to attract and retain skilled employees is critical, as the loss of key personnel could adversely affect customer relationships and business [129]. - The Company relies on accurate information from customers and counterparties; inaccuracies could lead to unfavorable transactions [111]. Asset Management - The Company’s securities available for sale decreased to $275.7 million in 2023 from $364.3 million in 2022, a decline of approximately 24.4% [311]. - The amortized cost of available-for-sale securities was $330.7 million, with a fair value of $275.7 million as of December 31, 2023 [387]. - Available-for-sale securities with a total fair value of $172 million were pledged as collateral at December 31, 2023 [388]. - The fair value of total securities designated as available for sale decreased by $55.0 million from the amortized cost [387]. Corporate Strategy - The Company has made an election to be regulated as a "financial holding company," allowing it to engage in a broader range of non-banking financial activities [38]. - The Company may pursue mergers and acquisitions, which involve risks such as management distraction and integration challenges [122]. - The company sold substantially all assets of The Evans Agency LLC on November 30, 2023, ceasing its insurance business [322]. - The company will not engage in a business competitive with Gallagher's for five years following the sale of TEA [384].

WILLIAMSVILLE, N.Y.--(BUSINESS WIRE)--Evans Bancorp, Inc. (the “Company” or “Evans”) (NYSE American: EVBN), a community financial services company serving Western New York since 1920, announced today that its Board of Directors declared a cash dividend of $0.66 per share on its outstanding common stock. The dividend is payable on April 9, 2024, to shareholders of record as of March 12, 2024. The Company has approximately 5.5 million shares outstanding. About Evans Bancorp, Inc. Evans Bancorp, Inc. is a f ...

WILLIAMSVILLE, N.Y.--(BUSINESS WIRE)--Evans Bancorp, Inc. (the “Company” or “Evans”) (NYSE American: EVBN), a community financial services company serving Western New York since 1920, today reported results of operations for the fourth quarter and full year ended December 31, 2023. HIGHLIGHTS Completed the sale of The Evans Agency (“TEA”) to Arthur J. Gallagher & Co, netting a pretax gain of $20.2 million in the fourth quarter Repositioned balance sheet with sale of $78 million of investment securiti ...

Loan and Credit Quality - As of September 30, 2023, the Allowance for Credit Losses (ACL) on loans totaled $21.8 million, a decrease from $22.2 million at January 1, 2023[111]. - Total gross loans were $1.7 billion at September 30, 2023, compared to $1.6 billion at September 30, 2022, reflecting a year-over-year increase[120]. - Residential real estate loans increased by $8 million, or 2%, to $444 million from September 30, 2022, while commercial real estate loans rose by $88 million, or 10%[120]. - Non-performing loans amounted to $27 million, or 1.60% of total loans outstanding, as of September 30, 2023, compared to $26 million, or 1.60%, at September 30, 2022[123]. - The criticized loan portfolio decreased to $76 million at September 30, 2023, down from $93 million at December 31, 2022[124]. - The Company recorded a $0.5 million provision for credit losses during the three months ended September 30, 2023, primarily due to loan growth[126]. - The provision for credit losses in Q3 2023 was $0.5 million, largely attributed to loan growth[143]. Investment and Securities - Total investment securities were $337 million at September 30, 2023, down from $371 million at December 31, 2022[129]. - The total net unrealized loss position of the available-for-sale investment portfolio was $77 million at September 30, 2023, compared to $64 million at December 31, 2022[131]. - Average investment securities and interest-bearing cash were 18% of average interest-earning assets in the third quarter of 2023, down from 22% in the third quarter of 2022[129]. Deposits and Borrowings - Total deposits increased by $34 million, or 2%, from December 31, 2022, to $1.8 billion as of September 30, 2023, but decreased by $68 million, or 4%, from September 30, 2022[133]. - Total borrowings decreased from $193 million at December 31, 2022, to $151 million at September 30, 2023, primarily due to growth in deposits[134]. - The Company had net short-term liquidity of $332 million as of September 30, 2023, compared to $209 million at December 31, 2022[162]. - The Company had the ability to draw up to $312 million from the FHLB as of September 30, 2023[158]. Financial Performance - Net income for Q3 2023 was $3.6 million, or $0.66 per diluted share, down from $4.9 million, or $0.90 per diluted share, in Q2 2023 and $5.9 million, or $1.06 per diluted share, in Q3 2022[139]. - Net income for the first nine months of 2023 was $14.4 million, or $2.62 per diluted share, down from $16.3 million, or $2.95 per diluted share, in the same period of 2022[140]. - Non-interest income for Q3 2023 was $5.6 million, up from $4.7 million in Q2 2023, but down from $5.8 million in Q3 2022[144]. - Non-interest expenses increased to $14.4 million in Q3 2023, a 2% increase from Q2 2023, but down 9% from Q3 2022[145]. - The GAAP efficiency ratio was 72.7% in Q3 2023, compared to 69.5% in Q2 2023 and 63.3% in Q3 2022[146]. - Net interest income for the first nine months of 2023 was $47.3 million, a 12% decrease from the same period in 2022[148]. - The net interest margin for Q3 2023 was 2.79%, a decline of 31 basis points from Q2 2023 and 93 basis points from Q3 2022[142]. - The net interest margin decreased to 3.12% in the first nine months of 2023, down 33 basis points from 3.45% in the same period of 2022[149]. Cost of Funds and Efficiency - Net interest income decreased by $1.4 million, or 9%, from Q2 2023 and by $4.9 million, or 26%, from Q3 2022, primarily due to higher interest expenses on interest-bearing liabilities[141]. - The cost of interest-bearing liabilities was 2.59% in Q3 2023, compared to 2.18% in Q2 2023 and 0.36% in Q3 2022[142]. - The return on average equity for Q3 2023 was 9.06%, compared to 12.25% in Q2 2023 and 14.15% in Q3 2022[139]. - The effective tax rate for Q3 2023 was 26.2%, compared to 22.0% in Q2 2023 and 25.2% in Q3 2022[147]. Shareholder Value - Book value per share was $27.52 at September 30, 2023, down from $29.12 at June 30, 2023[155].

Credit Losses and Loan Performance - As of June 30, 2023, the Allowance for Credit Losses (ACL) on loans totaled $21.4 million, a decrease from $22.2 million at January 1, 2023[107]. - Non-performing loans amounted to $28 million, or 1.66% of total loans outstanding, as of June 30, 2023, up from $25 million, or 1.48%, at December 31, 2022[119]. - The criticized loan portfolio decreased to $74 million at June 30, 2023, down from $93 million at December 31, 2022[120]. - The Company recorded a $0.1 million release of allowance during the three months ended June 30, 2023, primarily due to lower criticized loan balances[122]. - The Company adopted ASU 2016-13 on January 1, 2023, resulting in a $2.7 million increase in the allowance for credit losses[121]. - The Company released $0.8 million in allowance for credit losses in the first half of 2023, compared to a provision of $0.5 million in the same period of 2022[148]. Loan and Deposit Trends - Total gross loans were $1.7 billion at June 30, 2023, compared to $1.6 billion at June 30, 2022, with real estate-secured loans remaining stable at $1.4 billion[116]. - Total deposits as of June 30, 2023, were $1.8 billion, reflecting a $15 million (1%) increase from December 31, 2022, but a decrease of $182 million (9%) from June 30, 2022[129]. - The C&I portfolio was $228 million at June 30, 2023, representing a $22 million or 9% decrease from December 31, 2022[118]. - Residential mortgage originations were $10 million in Q2 2023, compared to $8 million in Q1 2023 and $18 million in Q2 2022[117]. - Consumer clients are migrating from savings accounts to higher-yielding accounts, such as time deposits, with an increase of $183 million in consumer time deposits[129]. Financial Performance - Net income for Q2 2023 was $4.9 million, or $0.90 per diluted share, down from $5.8 million (1.06 per diluted share) in Q1 2023 and $5.7 million (1.03 per diluted share) in Q2 2022[135]. - Net income for the first six months of 2023 was $10.7 million, or $1.96 per diluted share, compared to $10.5 million (1.89 per diluted share) in the same period of 2022[136]. - Non-interest income increased to $4.7 million in Q2 2023, up from $4.1 million in Q1 2023 and $4.6 million in Q2 2022, driven by higher insurance service and fee revenue[141]. - Net interest income decreased by $1.6 million (9%) from Q1 2023 and $2.4 million (13%) from Q2 2022, primarily due to higher interest expenses on interest-bearing liabilities[138]. - Net interest income for the first six months of 2023 was $33.0 million, a decrease of $1.5 million or 4% from the same period in 2022, attributed to higher costs of interest-bearing liabilities[146]. Efficiency and Expenses - Non-interest expenses decreased to $14.2 million in Q2 2023, down 2% from Q1 2023 and 4% from Q2 2022, with salaries and employee benefits down 8% compared to both periods[142]. - Total non-interest expense for the first six months of 2023 was $28.7 million, a 2% decrease from the prior year, primarily due to lower salaries and employee benefits[151]. - The GAAP efficiency ratio was 69.5% in Q2 2023, compared to 67.6% in Q1 2023 and 65.2% in Q2 2022, indicating increased operational costs relative to income[144]. Capital and Liquidity - The Tier 1 leverage ratio was 9.43% as of June 30, 2023, compared to 9.13% at March 31, 2023, indicating strong capital position[154]. - The Company had net short-term liquidity of $352 million as of June 30, 2023, compared to $209 million at December 31, 2022, showing improved liquidity management[162]. - The effective tax rate for the first half of 2023 was 22.9%, down from 24.4% in the same period of 2022, reflecting stable non-taxable income[153]. Interest Margin and Borrowings - The net interest margin for Q2 2023 was 3.10%, a decline of 36 basis points from Q1 2023 and 35 basis points from Q2 2022[139]. - The net interest margin was 3.28% in the first half of 2023, down 4 basis points from 3.32% in the same period of 2022, with loan yields increasing by 105 basis points[147]. - Total borrowings decreased from $193 million at December 31, 2022, to $140 million at June 30, 2023, due to growth in deposits and securities under agreement to repurchase[130]. - The yield on loans increased by 10 basis points from Q1 2023 and 102 basis points from Q2 2022, while the cost of interest-bearing liabilities was 2.18% in Q2 2023, up from 1.65% in Q1 2023[139].

Financial Data and Key Metrics Changes - The company reported earnings of $4.9 million or $0.90 per diluted share, down from the previous year's second quarter primarily due to reduced net interest income [28] - Net interest margin decreased by 36 basis points to 3.10% due to higher interest expenses from competitive deposit pricing [30] - Non-interest income was $4.7 million, up approximately 2% year-over-year and 14% sequentially, driven by insurance and other income [31][33] Business Line Data and Key Metrics Changes - Total loans increased by approximately $12 million, with commercial loans rising by 1% or $11 million [35] - The current loan pipeline stood at $87 million at quarter-end, indicating ongoing opportunities despite a slowdown in commercial real estate loans [23][36] - Non-interest expense decreased by 2% from the sequential first quarter and was down 4% from last year's second quarter, largely due to lower salaries and employee benefits [34] Market Data and Key Metrics Changes - Average total deposit balances were stable at $1.82 billion compared to the first quarter, although there was a decrease of $63 million or 3% from the first quarter [7][38] - The percentage of uninsured and uncollateralized deposits remained steady at 19% as of June 30 [39] - Seasonal municipal outflows contributed to the decrease in total deposits, with $48 million attributed to typical seasonal patterns [38] Company Strategy and Development Direction - The company is focusing on maintaining and growing deposits, proven asset growth, expense management, and strengthening capital to navigate current market conditions [4][20] - Investment in technology and talent is critical for scaling the organization and enhancing client experience [24] - The company aims to build a diverse portfolio of high-quality loans while managing credit standards effectively [23] Management's Comments on Operating Environment and Future Outlook - Management expects to confront ongoing headwinds in the second half of the year but remains focused on short-term stability and long-term strategic goals [4][19] - The competitive landscape and regulatory environment are influencing changes in deposit pricing and service charges [32] - There is an expectation of approximately 20 basis points of net interest margin compression in the third quarter of 2023, with potential moderation towards the end of the year [41] Other Important Information - The company was re-added to the Russell 2000 index, which may enhance demand and liquidity for its stock [26] - A $1 million investment was made with Launch New York to support high-growth potential startups in Western New York [27] Q&A Session Summary Question: What is the full-year expectation for overall loan growth? - The company expects most of the growth to be in the commercial portfolio, projecting a 3% growth for 2023 [44] Question: How will expenses trend in the second half of the year? - Both quarters are expected to contribute equally to the total gross expense, with a target of a 1% decrease by year-end [45][46] Question: What rates are being offered on core commercial real estate products? - The company is currently offering rates in the high 6% range, approximately 2.25% to 2.50% over current funding sources [47] Question: How is the company positioned regarding asset sensitivity? - The company has shifted from an asset-sensitive to a liability-sensitive position, with minimal material impact expected from a down 200 basis point scenario [49] Question: What is the outlook for insurance fees? - The strength in insurance fees is expected to continue into the back half of the year due to a hardening market and increased premiums [68]

Loan Portfolio - As of March 31, 2023, the Allowance for Credit Losses (ACL) on loans totaled $21.5 million, a decrease from $22.2 million at January 1, 2023, with a significant portion allocated to the commercial portfolio [108]. - Total gross loans were $1.7 billion at March 31, 2023, unchanged from December 31, 2022, and up from $1.6 billion at March 31, 2022 [116]. - Residential real estate loans were $441 million at March 31, 2023, reflecting a decrease of $3 million or less than 1% from the previous quarter, but an increase of $18 million or 4% from the same quarter last year [116]. - Non-performing loans totaled $24 million, or 1.45% of total loans outstanding, at March 31, 2023, compared to $25 million or 1.48% at December 31, 2022 [119]. - The criticized loan portfolio, graded as "special mention" and "substandard," decreased to $90 million at March 31, 2023, down from $93 million at December 31, 2022 [120]. - The Company recorded a $0.7 million release of allowance during the three months ended March 31, 2023, primarily due to lower loan balances and reduced specific reserves [122]. Investment Securities - Total investment securities were $370 million at March 31, 2023, compared to $371 million at December 31, 2022, and $389 million at March 31, 2022 [124]. - The total net unrealized loss position of the available-for-sale investment portfolio was $59 million at March 31, 2023, down from $64 million at December 31, 2022 [127]. Deposits and Liquidity - Total deposits increased by $78 million or 4% from December 31, 2022, to $1.8 billion as of March 31, 2023, but decreased by $137 million or 7% from March 31, 2022 [129]. - The Company had $11 million in long-term Federal Home Loan Bank advances as of March 31, 2023, down from $20 million at December 31, 2022 [130]. - The Company had net short-term liquidity of $433 million as of March 31, 2023, compared to $209 million at December 31, 2022 [150]. - The long-term liquidity ratio was 74% at March 31, 2023, slightly down from 75% at December 31, 2022 [150]. - Management believes available sources of liquidity are adequate to meet funding needs in the normal course of business [150]. - The Company maintains a sufficient level of U.S. government and agency securities that can be pledged as collateral for municipal deposits [151]. Financial Performance - Net income for Q1 2023 was $5.8 million, or $1.06 per diluted share, compared to $6.0 million, or $1.10 per diluted share, in Q4 2022, and $4.7 million, or $0.86 per diluted share, in Q1 2022 [134]. - Net interest income decreased by $1.9 million or 10% from Q4 2022 due to higher interest expenses, but increased by $0.8 million or 5% compared to Q1 2022 [136]. - The net interest margin for Q1 2023 was 3.46%, a decrease of 31 basis points from Q4 2022, but an increase of 28 basis points from Q1 2022 [137]. - Non-interest income was $4.1 million in Q1 2023, down from $4.5 million in Q4 2022 and $4.4 million in Q1 2022 [139]. - Non-interest expenses were $14.5 million in Q1 2023, a decrease of $0.4 million or 3% from Q4 2022, and relatively flat compared to Q1 2022 [140]. - The Company's GAAP efficiency ratio was 67.6% in Q1 2023, compared to 62.9% in Q4 2022 and 69.1% in Q1 2022 [141]. Capital and Ratios - The Tier 1 leverage ratio was 9.13% as of March 31, 2023, consistent with December 31, 2022, and up from 8.57% as of March 31, 2022 [142]. - Book value per share was $28.97 at March 31, 2023, down from $30.65 at March 31, 2022, reflecting unrealized losses on investment securities [143]. Interest Rate Sensitivity - The Bank's projected annual net interest income could decrease by $2,734,000 with a +200 basis points change in interest rates as of March 31, 2023 [156]. - A +100 basis points change in interest rates could increase projected annual net interest income by $528,000 [156]. - The Bank's Asset-Liability Committee monitors interest rate sensitivity and takes actions to mitigate exposure to interest rate risk [155]. - Management's philosophy is to limit the variability of net interest income to changes in net interest rates [154]. Accounting and Internal Controls - The Company adopted ASU 2016-13 on January 1, 2023, which resulted in a $2.7 million increase to the allowance for credit losses recognized as a cumulative effect adjustment to retained earnings [121]. - The Company adopted the CECL accounting standard effective January 1, 2023, implementing new and modified controls over financial reporting [159]. - There were no significant changes in the Company's internal control over financial reporting during the fiscal quarter ended March 31, 2023, except for the CECL adoption [160].

Financial Data and Key Metrics Changes - The company reported net income of $5.8 million, a 22% increase year-over-year, reflecting a provision release and solid performance despite margin pressure from rising interest rates [13][36] - Net interest income decreased by 10% from the previous quarter due to higher interest expenses, although interest income increased by 4% driven by growth in variable rate portfolios [8][36] - The net interest margin (NIM) contracted by 31 basis points to 3.46% compared to the previous quarter, with expectations of further compression of approximately 35 basis points in Q2 2023 [37][42] Business Line Data and Key Metrics Changes - Insurance revenue, the largest contributor in this category, increased by 6% year-over-year and 10% from the previous quarter due to higher written premiums and new commercial clients [18] - Total loans decreased by $14 million, with commercial loans down less than 1% or $9 million, while net originations were $56 million, down from $71 million in the previous quarter [40] - Total deposits increased by $78 million or 4% from the previous quarter, attributed to seasonal inflows of municipal deposits and growth in consumer deposit balances [41] Market Data and Key Metrics Changes - The company maintained a diverse portfolio of high-quality loans, with average loan balances up 5% year-over-year and 1% from the previous quarter [6] - The competitive landscape has intensified, leading to increased deposit costs and impacting the company's margin [12][35] Company Strategy and Development Direction - The company is focused on cultivating core relationships, managing expenses, maintaining credit risk discipline, and making strategic investments to optimize operations [5] - Leadership realignment has been undertaken to enhance focus on strategic pillars such as growth, operational effectiveness, and digital migration [34] Management Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by macroeconomic factors, including rapid Fed rate increases and negative sentiment in the financial industry, but emphasized the company's resilience and strategic focus [12][33] - The company expects to continue facing headwinds but aims to support clients thoughtfully and profitably while managing volatility and risk [7] Other Important Information - The company adopted the Current Expected Credit Loss (CECL) methodology, resulting in a $2.7 million addition to the allowance for credit losses [17] - Non-interest income was $4.1 million, down approximately 7% year-over-year, primarily due to movements in mortgage servicing rights and lower loan fees [38] Q&A Session Summary Question: What assumptions are being made regarding average balance sheet size and NIM? - The company expects loan growth of about 3% for the full year, with correlated deposit growth [23] Question: Can you elaborate on the expense guidance reduction? - The guidance was lowered due to lower incentive accruals and management of discretionary spending [24] Question: Is the 6% growth in insurance revenue a reasonable indicator for the full year? - A 6% growth is reasonable based on market conditions and previous growth [25] Question: How should the provision expense be viewed now that CECL has been adopted? - The provision for each quarter will be consistent as it has been historically, barring economic volatility [26] Question: What is the current outlook on credit quality and risk? - The company is seeing a positive migration from commercial real estate to commercial and industrial loans, indicating a favorable credit environment [49][60]

Market Position and Regulatory Environment - The Company had approximately 3% of the total market's deposits in the Buffalo, NY metropolitan area, amounting to $1.92 billion out of $64 billion as of June 30, 2022[31]. - The Company is subject to extensive regulation under federal and state laws, which may materially affect its business and financial condition[36]. - The Company must obtain prior approval from the Federal Reserve Board (FRB) for mergers or acquisitions involving more than 5% of voting shares[38]. - The Company is required to notify the FRB before redeeming or repurchasing its outstanding equity securities if the gross consideration equals 10% or more of its consolidated net worth[44]. - The Bank is primarily supervised by the Office of the Comptroller of the Currency (OCC), with the FDIC having backup regulatory authority[48]. - The FDIC has the authority to terminate deposit insurance if the Bank engages in unsafe practices or violates applicable laws[58]. - The Bank's loans to insiders are subject to strict limits, generally not exceeding $100,000 or 2.5% of the bank's unimpaired capital and surplus[56]. - Total assessment rates for institutions of the Bank's size will range from 2.5 to 32 basis points effective January 1, 2023[60]. - The minimum capital ratios under the Capital Rules are CET1 to risk-weighted assets of at least 7%, Tier 1 capital to risk-weighted assets of at least 8.5%, and Total capital to risk-weighted assets of at least 10.5%[70]. - The Bank remains subject to the Capital Rules established by the federal banking agencies[66]. Financial Performance and Condition - Net income for 2022 was $22.39 million, a decrease from $24.04 million in 2021 and an increase from $11.25 million in 2020[305]. - Total interest income for 2022 was $794.83 million, an increase from $580.68 million in 2021, representing a growth of 36.8%[303]. - Total interest expense for 2022 was $652.74 million, compared to $595.99 million in 2021, reflecting an increase of 9.5%[303]. - Net interest income after provision for loan losses was $702.17 million in 2022, up from $578.55 million in 2021, indicating a growth of 21.4%[303]. - Non-interest income for 2022 was $192.71 million, a decrease from $284.71 million in 2021, showing a decline of 32.3%[303]. - Total non-interest expenses were $388.85 million in 2022, compared to $612.32 million in 2021, a reduction of 36.7%[303]. - The company reported a provision for credit losses of $27.39 million in 2022, compared to a provision of $15.13 million in 2021, indicating an increase of 81.2%[303]. - Total assets decreased from $2,210,640 thousand on December 31, 2021, to $2,178,510 thousand on December 31, 2022, representing a decline of approximately 1.45%[300]. - Total deposits fell from $1,937,037 thousand in 2021 to $1,771,679 thousand in 2022, a decrease of about 8.56%[301]. - Loans, net of allowance for loan losses, increased from $1,553,467 thousand in 2021 to $1,652,931 thousand in 2022, reflecting a growth of approximately 6.42%[300]. Risk Factors and Challenges - The COVID-19 pandemic has caused significant economic dislocation, affecting demand for the Company's products and services, potentially leading to increased loan delinquencies and foreclosures[122]. - The company faces reinvestment risk due to changes in interest rates, which may affect the average life of loans and mortgage-related securities[96]. - Economic conditions, including persistent inflation and rising prices, could adversely affect the Company's financial performance and lead to higher loan delinquencies[132]. - The Company may face operational risks due to reliance on internal controls, which, if failed, could result in material adverse effects on financial reporting and operations[108]. - Cybersecurity and data privacy risks have increased, leading to potential regulatory scrutiny and financial liabilities if breaches occur[115]. - The Company’s ability to manage and mitigate risks related to economic conditions and competition is essential for maintaining its financial health and operational stability[132]. Loan Portfolio and Allowance for Loan Losses - As of December 31, 2022, the company's portfolio of commercial real estate loans totaled $896 million, representing 54% of total loans outstanding[88]. - The company's allowance for loan losses was $19.4 million, which is 1.16% of the total gross loan portfolio of $1.7 billion[92]. - Non-accrual commercial real estate loans increased to $15.3 million at December 31, 2022, compared to $8.7 million at December 31, 2021[88]. - The allowance for loans collectively evaluated for impairment is a critical audit matter due to the subjective judgments involved in estimating losses[298]. - The provision for loan losses is charged against earnings to maintain an allowance for probable incurred loan losses, considering factors such as collectability, charge-off history, and economic conditions[339]. Strategic Initiatives and Future Outlook - The company plans to expand its market presence through new product offerings and strategic partnerships in 2023[303]. - The company is focusing on enhancing its technology infrastructure to improve operational efficiency and customer experience[303]. - Future guidance indicates a projected increase in net interest income for 2023, driven by anticipated growth in loan volumes and interest rates[303]. Shareholder and Equity Information - The company repurchased 112,068 shares of common stock in 2022, costing $4,140,000[308]. - Cash dividends paid in 2022 were $6,942,000, up from $6,541,000 in 2021, representing a 6.1% increase[308]. - Total stockholders' equity decreased from $183,892 thousand in 2021 to $153,993 thousand in 2022, a decline of approximately 16.25%[302]. - The common stock issued increased slightly from 5,482,756 shares in 2021 to 5,544,339 shares in 2022[302]. Accounting and Financial Reporting - The company adopted the Current Expected Credit Loss (CECL) accounting standard effective January 1, 2023, requiring increased allowances for loan losses[90]. - Changes in accounting standards or policies could materially impact how the Company reports its financial results, potentially requiring restatements of prior financial statements[139]. - The company assesses the fair value of assets and liabilities, which involves significant judgment regarding interest rates and credit risk[366]. - The company evaluates goodwill for impairment at least annually, and while no impairment was recognized in 2022, significant declines in stock price or market conditions could lead to future write-downs[128].