Evans Bank(US:EVBN)2024-03-03 16:00Regulatory 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].