EVANS BANCORP INC - Quarter Report: 2023 March (Form 10-Q)

evbn-20230331x10q

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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended March 31, 2023

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to ______

Commission file number 001-35021

EVANS BANCORP, INC.

(Exact name of registrant as specified in its charter)

New York 16-1332767

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

6460 Main St. Williamsville, NY 14221

(Address of principal executive offices) (Zip Code)

(716) 926-2000

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed

since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.50 par value	EVBN	NYSE American

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer x		Smaller reporting company x
Emerging growth company ¨

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $.50 par value, 5,462,763 shares as of April 28, 2023.

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INDEX

EVANS BANCORP, INC. AND SUBSIDIARIES



PART 1. FINANCIAL INFORMATION		PAGE

Item 1.	Financial Statements

	Unaudited Consolidated Balance Sheets – March 31, 2023 and December 31, 2022	1

	Unaudited Consolidated Statements of Income – Three months ended March 31, 2023 and 2022	2

	Unaudited Consolidated Statements of Comprehensive (Loss) Income – Three months ended March 31, 2023 and 2022	3

	Unaudited Consolidated Statements of Changes in Stockholders’ Equity – Three months ended March 31, 2023 and 2022	4

	Unaudited Consolidated Statements of Cash Flows – Three months ended March 31, 2023 and 2022	5

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosure	37

Item 5.	Other Information	37

Item 6.	Exhibits	37

	Signatures	38

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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2023 AND DECEMBER 31, 2022
(in thousands, except share and per share amounts)
	March 31,		December 31,
	2023		2022
ASSETS
Cash and due from banks	$	12,272	$	16,796
Interest-bearing deposits at banks		3,832		6,258
Securities:
Available for sale, at fair value and net of valuation allowance		365,929		364,326
(amortized cost: $424,935 at March 31, 2023; $428,216 at December 31, 2022)
Held to maturity, at amortized cost and net of valuation allowance		3,707		6,949
(fair value: $3,613 at March 31, 2023; $6,809 at December 31, 2022)
Federal Home Loan Bank common stock, at cost		5,364		10,437
Federal Reserve Bank common stock, at cost		3,080		3,074
Loans, net of allowance for credit losses of $21,523 at March 31, 2023
and $19,438 at December 31, 2022		1,637,053		1,652,931
Properties and equipment, net of accumulated depreciation of $11,482 at March 31, 2023
and $11,596 at December 31, 2022		16,520		16,999
Goodwill		12,702		12,702
Intangible assets		1,127		1,227
Bank-owned life insurance		42,050		41,826
Operating lease right-of-use asset		4,537		4,392
Other assets		40,097		40,593

TOTAL ASSETS	$	2,148,270	$	2,178,510

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand	$	483,958	$	493,710
NOW		268,283		273,359
Savings		807,532		801,943
Time		290,141		202,667
Total deposits		1,849,914		1,771,679

Securities sold under agreement to repurchase		9,264		7,147
Other borrowings		79,637		193,001
Operating lease liability		4,856		4,723
Other liabilities		15,247		16,892
Subordinated debt		31,101		31,075
Total liabilities		1,990,019		2,024,517

STOCKHOLDERS' EQUITY:
Common stock, $0.50 par value, 10,000,000 shares authorized; 5,564,449 and 5,544,339 shares issued at
March 31, 2023 and December 31, 2022, respectively, and 5,462,763 and 5,437,048 shares outstanding at
March 31, 2023 and December 31, 2022, respectively.		2,787		2,775
Capital surplus		81,210		81,031
Treasury stock, at cost, 101,686 and 107,291 shares at March 31, 2023 and
December 31, 2022, respectively		(3,656)		(3,891)
Retained earnings		123,533		123,356
Accumulated other comprehensive income (loss), net of tax		(45,623)		(49,278)
Total stockholders' equity		158,251		153,993

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,148,270	$	2,178,510

See Notes to Unaudited Consolidated Financial Statements

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EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(in thousands, except share and per share amounts)
	Three Months Ended March 31,
	2023		2022
INTEREST INCOME
Loans	$	20,886	$	15,724
Interest-bearing deposits at banks		96		70
Securities:
Taxable		2,294		1,677
Non-taxable		89		46
Total interest income		23,365		17,517
INTEREST EXPENSE
Deposits		4,015		568
Other borrowings		1,499		47
Subordinated debt		526		401
Total interest expense		6,040		1,016
NET INTEREST INCOME		17,325		16,501
PROVISION FOR CREDIT LOSSES		(654)		221
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES		17,979		16,280
NON-INTEREST INCOME
Deposit service charges		613		692
Insurance service and fees		2,429		2,299
Bank-owned life insurance		224		154
Interchange fee income		493		492
Other		354		794
Total non-interest income		4,113		4,431
NON-INTEREST EXPENSE
Salaries and employee benefits		9,413		9,470
Occupancy		1,173		1,180
Advertising and public relations		156		179
Professional services		883		872
Technology and communications		1,356		1,174
Amortization of intangibles		100		100
FDIC insurance		350		270
Other		1,071		1,215
Total non-interest expense		14,502		14,460
INCOME BEFORE INCOME TAXES		7,590		6,251
INCOME TAX PROVISION		1,790		1,503
NET INCOME	$	5,800	$	4,748
Net income per common share-basic	$	1.07	$	0.86
Net income per common share-diluted	$	1.06	$	0.86
Weighted average number of common shares outstanding		5,444,352		5,494,782
Weighted average number of diluted shares outstanding		5,475,790		5,547,548

See Notes to Unaudited Consolidated Financial Statements

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EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(in thousands)
	Three Months Ended March 31,
		2023		2022

NET INCOME		$	5,800	$	4,748
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized gain (loss) on available-for-sale securities:			3,635		(16,705)
Defined benefit pension plans:
Amortization of prior service cost			-		5
Amortization of actuarial loss			20		50
Total			20		55
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:			3,655		(16,650)
COMPREHENSIVE INCOME (LOSS)		$	9,455	$	(11,902)

See Notes to Unaudited Consolidated Financial Statements

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EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(in thousands, except share and per share amounts)
							Accumulated
							Other
	Common		Capital		Retained		Comprehensive		Treasury
	Stock		Surplus		Earnings		Loss		Stock		Total
Balance, December 31, 2021	$	2,744	$	78,795	$	108,024	$	(5,671)	$	-	$	183,892
Net Income						4,748						4,748
Other comprehensive loss								(16,650)				(16,650)
Cash dividends ($0.62 per common share)						(3,406)						(3,406)
Stock compensation expense				333								333
Issued 18,244 restricted shares, net of forfeitures		9		(9)								-
Issued 18,831 shares in stock option exercises		9		277								286
Balance, March 31, 2022	$	2,762	$	79,396	$	109,366	$	(22,321)	$	-	$	169,203

Balance, December 31, 2022	$	2,775	$	81,031	$	123,356	$	(49,278)	$	(3,891)	$	153,993
Cumulative effect of change in accounting principle— credit losses		-		-		(2,026)		-		-		(2,026)
Beginning balance after cumulative effect adjustment	$	2,775	$	81,031	$	121,330	$	(49,278)	$	(3,891)	$	151,967
Net Income						5,800						5,800
Other comprehensive income								3,655				3,655
Cash dividends ($0.66 per common share)						(3,597)						(3,597)
Stock compensation expense				306								306
Reissued 6,228 restricted shares		-		(235)						235		-
Issued 12,421 shares in stock option exercises		6		114								120
Issued 12,671 restricted shares, net of forfeitures		6		(6)								-
Balance, March 31, 2023	$	2,787	$	81,210	$	123,533	$	(45,623)	$	(3,656)	$	158,251

See Notes to Unaudited Consolidated Financial Statements

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EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(in thousands)
	Three Months Ended March 31,
		2023		2022
OPERATING ACTIVITIES:
Interest received	$	23,428	$	17,088
Fees received		5,640		5,142
Interest paid		(5,409)		(1,094)
Cash paid to employees and vendors		(18,409)		(18,781)
Income taxes paid		(4,967)		(1,200)
Proceeds from sale of loans held for sale		4,828		2,957
Originations of loans held for sale		(4,800)		(2,815)

Net cash provided by operating activities		311		1,297

INVESTING ACTIVITIES:
Available for sales securities:
Purchases		-		(109,990)
Proceeds from sales, maturities, calls, and payments		8,400		7,726
Held to maturity securities:
Purchases		(309)		(412)
Proceeds from maturities, calls, and payments		3,551		560
Additions to properties and equipment		(364)		(226)
Proceeds from sales of assets		370		-
Net decrease (increase) in loans		13,898		(31,622)

Net cash used in investing activities		25,546		(133,964)

FINANCING ACTIVITIES:
Repayments from long-term borrowings, net		(8,685)		(5,888)
(Repayments) proceeds from short-term borrowings, net		(102,484)		2,364
Net increase in deposits		78,242		49,795
Issuance of common stock		120		286

Net cash (used in) provided by financing activities		(32,807)		46,557

Net (decrease) increase in cash and cash equivalents		(6,950)		(86,110)

CASH AND CASH EQUIVALENTS:
Beginning of period		23,054		244,785
End of period	$	16,104	$	158,675

See Notes to Unaudited Consolidated Financial Statements

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EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(in thousands)
	Three Months Ended March 31,
		2023		2022

RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:

Net income	$	5,800	$	4,748

Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		387		497
Deferred tax expense		252		262
Provision for credit losses		(654)		221
Loss on sales of assets		31		-
Gain on loans sold		(26)		(43)
Stock compensation expense		306		333
Proceeds from sale of loans held for sale		4,828		2,957
Originations of loans held for sale		(4,800)		(2,815)
Changes in assets and liabilities affecting cash flow:
Other assets		(7,199)		303
Other liabilities		1,386		(5,166)

NET CASH PROVIDED BY OPERATING ACTIVITIES	$	311	$	1,297

See Notes to Unaudited Consolidated Financial Statements

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EVANS BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTH PERIOD ENDED MARCH 31, 2023 AND 2022

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies followed by Evans Bancorp, Inc. (the “Company”), a financial holding company, and its two direct, wholly-owned subsidiaries: (i) Evans Bank, National Association (the “Bank”), and the Bank’s subsidiaries, Evans National Leasing, Inc. (“ENL”), and Evans National Holding Corp. (“ENHC”); and (ii) Evans National Financial Services, LLC (“ENFS”), and ENFS’s subsidiary, The Evans Agency, LLC (“TEA”), and TEA’s subsidiary ENB Associates Inc. (“ENBA”), in the preparation of the accompanying interim unaudited consolidated financial statements conform with U.S. generally accepted accounting principles (“GAAP”) and with general practice within the industries in which it operates. Except as the context otherwise requires, the Company and its direct and indirect subsidiaries are collectively referred to in this report as the “Company.”

The Financial Accounting Standards Board (“FASB”) establishes changes to GAAP in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs when they are issued by FASB.

Prior to January 1, 2023, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date. Based on portfolio composition, then current economic conditions, and reasonable and supportable forecasts of future conditions, the Company recognized an increase to the allowance for credit losses of $2.7 million upon adoption of the standard as of January 1, 2023 as compared with the allowance for credit losses recognized on its consolidated balance sheet at December 31, 2022. The $2.7 million increase was recognized as a net of tax cumulative effect adjustment to retained earnings of $2.0 million.

All other ASUs adopted by the Company during the current fiscal year are not expected to have a material impact on the Company’s consolidated financial position, results of operations, cash flows or disclosures.

The results of operations for the three month period ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements and the Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “10-K”). Except for the changes to the measurement of credit losses to financial instruments disclosed above, there have been no significant changes to the Company’s significant accounting policies as disclosed in Note 1 to the 10-K.

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2. SECURITIES

The amortized cost of securities and their approximate fair value at March 31, 2023 and December 31, 2022 were as follows:



	March 31, 2023
	(in thousands)

	Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value

Available for Sale:
Debt securities:
U.S. treasuries and government agencies	$	165,479	$	-	$	(22,417)	$	143,062
States and political subdivisions		23,452		2		(1,286)		22,168
Total debt securities		188,931		2		(23,703)		165,230

Mortgage-backed securities:
FNMA	$	75,087	$	1	$	(11,677)	$	63,411
FHLMC		46,435		-		(6,042)		40,393
GNMA		39,740		-		(6,698)		33,042
SBA		21,905		-		(2,099)		19,806
CMO		52,837		-		(8,790)		44,047
Total mortgage-backed securities	$	236,004	$	1	$	(35,306)	$	200,699

Total securities designated as available for sale	$	424,935	$	3	$	(59,009)	$	365,929

Held to Maturity:
Debt securities
States and political subdivisions	$	3,707	$	-	$	(94)	$	3,613

Total securities designated as held to maturity	$	3,707	$	-	$	(94)	$	3,613



	December 31, 2022
	(in thousands)

	Amortized			Unrealized				Fair
	Cost			Gains		Losses		Value

Available for Sale:
Debt securities:
U.S. treasuries and government agencies	$	165,495		$	1	$	(24,814)	$	140,682
States and political subdivisions		23,480			4		(1,662)		21,822
Total debt securities		188,975			5		(26,476)		162,504

Mortgage-backed securities:
FNMA	$	75,921		$	-	$	(12,819)	$	63,102
FHLMC		46,922			-		(6,695)		40,227
GNMA		40,039			-		(6,580)		33,459
SBA		22,556			-		(2,419)		20,137
CMO		53,803			-		(8,906)		44,897
Total mortgage-backed securities	$	239,241	$		-	$	(37,419)	$	201,822

Total securities designated as available for sale	$	428,216		$	5	$	(63,895)	$	364,326

Held to Maturity:
Debt securities
States and political subdivisions	$	6,949		$	-	$	(140)	$	6,809

Total securities designated as held to maturity	$	6,949		$	-	$	(140)	$	6,809

Available for sale securities with a total fair value of $290 million and $226 million were pledged as collateral to secure public deposits and for other purposes required or permitted by law at March 31, 2023 and December 31, 2022, respectively.

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The scheduled maturities of debt and mortgage-backed securities at March 31, 2023 are summarized below. All maturity amounts are contractual maturities. Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations with or without call premiums.




	March 31, 2023
	Amortized		Estimated
	cost		fair value
	(in thousands)

Debt securities available for sale:

Due in one year or less	$	6,846	$	6,806
Due after one year through five years		91,456		85,576
Due after five years through ten years		61,639		52,446
Due after ten years		28,990		20,402
	$	188,931	$	165,230

Mortgage-backed securities
available for sale	$	236,004	$	200,699
Total	$	424,935	$	365,929

Debt securities held to maturity:

Due in one year or less	$	2,900	$	2,887
Due after one year through five years		395		370
Due after five years through ten years		412		356
Due after ten years		-		-
Total	$	3,707	$	3,613

Contractual maturities of the Company’s mortgage-backed securities generally exceed ten years; however, the effective lives may be significantly shorter due to prepayments of the underlying loans and due to the nature of these securities.

There were no gross realized gains or losses from sales of investment securities for the three month periods ended March 31, 2023 or 2022.

As described in note 1, on January 1, 2023 the Company adopted amended accounting guidance that requires an allowance for credit losses be deducted from the amortized cost basis of financial assets, including investment securities held to maturity, to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset. The Company estimated no allowance for credit losses for its investment securities classified as held-to-maturity at January 1, 2023 or March 31, 2023, as the portfolio of held-to-maturity securities consists entirely of states and political subdivisions investments.

Management has assessed the securities available for sale in an unrealized loss position at March 31, 2023 and December 31, 2022 and determined the decline in fair value below amortized cost to be temporary. In making this determination, management considered the period of time the securities were in a loss position, the percentage decline in comparison to the securities’ amortized cost, and the financial condition of the issuer (primarily government or government-sponsored enterprises). In addition, management does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost. Management believes the decline in fair value is primarily related to market interest rate fluctuations and not to the credit deterioration of the individual issuers. The Company holds no securities backed by sub-prime or Alt-A residential mortgages or commercial mortgages and also does not hold any trust-preferred securities.

The Company did not record any other-than-temporary impairment charges during the three month periods ended March 31, 2023 and 2022. The creditworthiness of the Company’s portfolio is largely reliant on the ability of U.S. government agencies such as the Federal Home Loan Bank (“FHLB”), Federal National Mortgage Association (“FNMA”), and the Federal Home Loan Mortgage Corporation (“FHLMC”), and municipalities throughout New York State to meet their obligations. In addition, dysfunctional markets could materially alter the liquidity, interest rate, and pricing risk of the portfolio. The stable past performance is not a guarantee for similar performance going forward.
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Information regarding unrealized losses within the Company’s available for sale securities at March 31, 2023 and December 31, 2022 is summarized below.



	March 31, 2023

		Less than 12 months				12 months or longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
		(in thousands)
Available for Sale:
Debt securities:
U.S. treasuries and government agencies	$	11,835	$	(165)	$	130,227	$	(22,252)	$	142,062	$	(22,417)
States and political subdivisions		1,589		(60)		18,717		(1,226)		20,306		(1,286)
Total debt securities		13,424		(225)		148,944		(23,478)		162,368		(23,703)

Mortgage-backed securities:
FNMA	$	630	$	(22)	$	62,722	$	(11,655)	$	63,352	$	(11,677)
FHLMC		7,838		(251)		32,511		(5,791)		40,349		(6,042)
GNMA		6,005		(290)		27,037		(6,408)		33,042		(6,698)
SBA		-		-		19,806		(2,099)		19,806		(2,099)
CMO		6,954		(149)		37,093		(8,641)		44,047		(8,790)
Total mortgage-backed securities	$	21,427	$	(712)	$	179,169	$	(34,594)	$	200,596	$	(35,306)

Held to Maturity:
Debt securities:
States and political subdivisions	$	2,887	$	(13)	$	726	$	(81)	$	3,613	$	(94)

Total temporarily impaired
securities	$	37,738	$	(950)	$	328,839	$	(58,153)	$	366,577	$	(59,103)


	December 31, 2022

		Less than 12 months				12 months or longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
		(in thousands)
Available for Sale:
Debt securities:
U.S. treasuries and government agencies	$	68,292	$	(5,929)	$	71,389	$	(18,885)	$	139,681	$	(24,814)
States and political subdivisions		19,540		(1,645)		418		(17)		19,958		(1,662)
Total debt securities		87,832		(7,574)		71,807		(18,902)		159,639		(26,476)

Mortgage-backed securities:
FNMA	$	23,242	$	(3,081)	$	39,860	$	(9,738)	$	63,102	$	(12,819)
FHLMC		11,927		(790)		28,300		(5,905)		40,227		(6,695)
GNMA		10,763		(1,298)		22,696		(5,282)		33,459		(6,580)
SBA		16,996		(1,971)		3,141		(448)		20,137		(2,419)
CMO		11,288		(673)		33,609		(8,233)		44,897		(8,906)
Total mortgage-backed securities	$	74,216	$	(7,813)	$	127,606	$	(29,606)	$	201,822	$	(37,419)

Held to Maturity:
Debt securities:
States and political subdivisions	$	6,627	$	(118)	$	182	$	(22)	$	6,809	$	(140)

Total temporarily impaired
securities	$	168,675	$	(15,505)	$	199,595	$	(48,530)	$	368,270	$	(64,035)

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3. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

Loan Portfolio Composition

The following table presents selected information on the composition of the Company’s loan portfolio as of the dates indicated:


	March 31, 2023		December 31, 2022
Mortgage loans on real estate:	(in thousands)
Residential mortgages	$	437,416	$	440,123
Commercial and multi-family		772,061		778,714
Construction-Residential		3,472		3,626
Construction-Commercial		123,878		117,403
Home equities		80,673		82,414
Total real estate loans		1,417,500		1,422,280

Commercial and industrial loans		241,041		250,069
Consumer and other loans		604		572
Unaccreted yield adjustments*		(569)		(552)
Total gross loans		1,658,576		1,672,369

Allowance for credit losses		(21,523)		(19,438)

Loans, net	$	1,637,053	$	1,652,931

* Includes net premiums and discounts on acquired loans and net deferred fees and costs on loans originated.

The outstanding principal balance and the carrying amount of acquired credit-impaired loans totaled $0.8 million and $0.7 million at March 31, 2023 and December 31, 2022. There were no valuation allowances for specifically identified impairment attributable to acquired credit-impaired loans at March 31, 2023 or December 31, 2022. The Company is not recording interest on the acquired credit-impaired loans due to the uncertainty of the cash flows relating to such loans.

There were $607 million and $495 million in residential and commercial mortgage loans pledged to FHLBNY to serve as collateral for potential borrowings as of March 31, 2023 and December 31, 2022, respectively.

At March 31, 2023, the Company’s FHLMC loan servicing portfolio had $58 million in principal balances of residential real estate loans that were sold to FHLMC and the servicing rights are retained by the Company. No loans were sold to FHLMC by the Company during the three month periods ending March 31, 2023 and 2022.

The Company may also sell certain fixed rate residential mortgages to FNMA while maintaining the servicing rights for those mortgages. At March 31, 2023, the Company’s FNMA loan servicing portfolio was $57 million in principal balances. In the three month period ended March 31, 2023, the Company sold $1.3 million residential mortgages to FNMA. The Company did not sell any mortgages to FNMA in the three month period ended March 31, 2022.

At March 31, 2023 and December 31, 2022, the Company had loan servicing portfolio principal balances of $115 million and $116 million, respectively, upon which it earned servicing fees. The fair value of the mortgage servicing rights for that portfolio was $1.1 million at March 31, 2023 and December 31, 2022.

There were no residential mortgages held for sale at March 31, 2023 and December 31, 2022.

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Credit Quality Indicators

The Company monitors the credit risk in its loan portfolio by reviewing certain credit quality indicators (“CQI”). The primary CQI for the commercial mortgage and commercial and industrial portfolios is the individual loan’s credit risk rating. The following list provides a description of the credit risk ratings that are used internally by the Bank when assessing the adequacy of its allowance for loan losses:

Acceptable or better

Watch

Special Mention

Substandard

Doubtful

Loss

“Special mention” and “substandard” loans are weaker credits with a higher risk of loss and are categorized as “criticized” assets.

The Company’s consumer loans, including residential mortgages and home equities, are not individually risk rated or reviewed in the Company’s loan review process. Unlike commercial customers, consumer loan customers are not required to provide the Company with updated financial information. Consumer loans also carry smaller balances. Given the lack of updated information after the initial underwriting of the loan and small size of individual loans, the Company uses delinquency status as the primary credit quality indicator for consumer loans. However, once a consumer loan is identified as impaired, it is individually evaluated for impairment.

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The following tables summarize amortized cost of loans by year of origination and internally assigned credit grades:



(in thousands)	Term Loans Amortized Cost Basis by Origination Year
As of March 31, 2023	Three months ended March 31, 2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial loans
Risk rating
Pass	$	2,555	$	43,132	$	24,725	$	12,475	$	10,580	$	10,162	$	103,071	$	206,700
Special Mention		-		9,062		447		4,503		1,329		1,417		6,903		23,661
Substandard		-		71		4,036		152		1,715		1,380		3,338		10,692
Doubtful/Loss		-		-		-		-		-		-		-		-
Total	$	2,555	$	52,265	$	29,208	$	17,130	$	13,624	$	12,959	$	113,312	$	241,053

Current period gross writeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Commercial real estate mortgages
Risk rating
Pass	$	10,003	$	201,796	$	184,437	$	92,391	$	70,404	$	275,966	$	6,163	$	841,160
Special Mention		-		1,262		410		6,178		10,250		6,987		-		25,087
Substandard		-		-		5,499		336		7,741		17,241		-		30,817
Doubtful/Loss		-		-		-		-		-		-		-		-
Total	$	10,003	$	203,058	$	190,346	$	98,905	$	88,395	$	300,194	$	6,163	$	897,064

Current period gross writeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer and other
Payment performance
Performing	$	86	$	249	$	37	$	26	$	23	$	40	$	135	$	596
Nonperforming		-		-		-		-		-		-		-		-
Total	$	86	$	249	$	37	$	26	$	23	$	40	$	135	$	596

Current period gross writeoffs	$	15	$	15	$	-	$	-	$	-	$	-	$	-	$	30

Residential mortgages
Payment performance
Performing	$	6,251	$	74,388	$	105,951	$	73,201	$	18,829	$	158,100	$	-	$	436,720
Nonperforming		-		147		169		57		167		3,331		-		3,871
Total	$	6,251	$	74,535	$	106,120	$	73,258	$	18,996	$	161,431	$	-	$	440,591

Current period gross writeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Home equities
Payment performance
Performing	$	2,947	$	3,342	$	699	$	690	$	709	$	2,399	$	68,039	$	78,825
Nonperforming		-		-		-		-		-		4		443		447
Total	$	2,947	$	3,342	$	699	$	690	$	709	$	2,403	$	68,482	$	79,272

Current period gross writeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

The amortized cost of criticized assets of $93 million included $29 million of loans in the Company’s hotel loan portfolio at March 31, 2023 and December 31, 2022.

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Past Due Loans

The following tables provide an analysis of the age of the amortized cost of loans that are past due as of the dates indicated:



	March 31, 2023
	(in thousands)

		Current							Non-accruing		Total
		Balance	30-59 days		60-89 days		90+ days		Loans		Balance

Commercial and industrial	$	236,523	$	2,010	$	-	$	-	$	2,520	$	241,053
Residential real estate:
Residential		428,354		4,663		233		-		3,871		437,121
Construction		3,305		165		-		-		-		3,470
Commercial real estate:
Commercial		758,478		599		6,628		565		6,561		772,831
Construction		108,061		5,958		-		1,648		8,566		124,233
Home equities		78,189		595		41		-		447		79,272
Consumer and other		592		4		-		-		-		596
Total Loans	$	1,613,502	$	13,994	$	6,902	$	2,213	$	21,965	$	1,658,576



	December 31, 2022
	(in thousands)

		Current							Non-accruing		Total
		Balance	30-59 days		60-89 days		90+ days		Loans		Balance

Commercial and industrial	$	246,412	$	235	$	684	$	139	$	2,625	$	250,095
Residential real estate:
Residential		434,393		1,105		-		472		3,738		439,708
Construction		3,502		-		-		-		-		3,502
Commercial real estate:
Commercial		771,871		1,083		-		75		6,648		779,677
Construction		107,369		-		-		1,648		8,765		117,782
Home equities		79,320		759		206		100		563		80,948
Consumer and other		652		3		1		1		-		657
Total Loans	$	1,643,519	$	3,185	$	891	$	2,435	$	22,339	$	1,672,369

Allowance for credit losses

Effective January 1, 2023 the Company adopted ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which requires an allowance for credit losses be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset. In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company utilizes discounted cash flow models considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount to project principal balances over the remaining contractual lives of the loan portfolios and to determine estimated credit losses through a reasonable and supportable forecast period. The models have been statistically developed based on historical correlations of credit losses with prevailing economic metrics, including unemployment and gross domestic product. The Company utilizes a reasonable and supportable forecast period of one year. Subsequent to this forecast period the Company reverts, on a straight-line basis over a one-year period, to historical loss experience to inform its estimate of losses for the remaining contractual life of each portfolio. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. The Company also considered the impact of qualitative factors, including portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, geopolitical conditions and other risk factors that might influence its loss estimation process.

The Company also estimates losses attributable to specific troubled credits identified through both normal and targeted credit review processes and includes all loans on nonaccrual status. The amounts of specific losses are determined through a loan-by-loan analysis. Such loss estimates are typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. To the extent that those loans are collateral-dependent, they are evaluated based on recent estimations of the fair value of the loan’s collateral. In those cases where current appraisals may not yet be available, prior appraisals are utilized with adjustments, as deemed necessary, for estimates of subsequent declines in values as determined by line of business and/or loan workout personnel. Those adjustments are reviewed and assessed for reasonableness by the Company’s credit risk personnel. Accordingly, for real estate collateral securing larger nonaccrual commercial loans and commercial real estate loans, estimated collateral values are based on current

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appraisals and estimates of value. For non-real estate loans, collateral is assigned a discounted estimated liquidation value and, depending on the nature of the collateral, is verified through field exams or other procedures. In assessing collateral, real estate and non-real estate values are reduced by an estimate of selling costs. Charge-offs are based on recent indications of value from external parties that are generally obtained shortly after a loan becomes nonaccrual. Loans to consumers that file for bankruptcy are generally charged-off to estimated net collateral value shortly after the Company is notified of such filings. When evaluating individual home equity loans and lines of credit for charge off and for purposes of estimating losses in determining the allowance for credit losses, the Company gives consideration to the required repayment of any first lien positions related to collateral property.

Prior to 2023, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date. A description of the methodologies used by the Company to estimate its allowance for credit losses prior to January 1, 2023 is included in note 4 of Notes to Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The following table presents the activity in the allowance for credit losses according to portfolio segment for the three month period ended March 31, 2023.




	Three months ended March 31, 2023
	(in thousands)
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for credit losses:
Beginning balance	$	4,980	$	11,595	$	153	$	2,102	$	608	$	19,438
Adoption of new accounting
standard		324		1,145		(147)		1,618		(205)		2,735
Beginning balance after
cumulative effect adjustment	$	5,304	$	12,740	$	6	$	3,720	$	403	$	22,173
Charge-offs		-		-		(30)		-		-		(30)
Recoveries		30		-		4		-		-		34
Provision		(67)		(186)		24		(342)		(83)		(654)
Ending balance	$	5,267	$	12,554	$	4	$	3,378	$	320	$	21,523

*Includes construction loans

Prior to the adoption of ASU 2016-13 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred loss methodology. The following table presents the activity in the allowance for loan losses by segment for the three month period ended March 31, 2022.



	Three months ended March 31, 2022
	(in thousands)
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for credit losses:
Beginning balance	$	3,309	$	12,367	$	54	$	2,127	$	581	$	18,438
Charge-offs		(24)		-		(40)		-		-		(64)
Recoveries		17		-		6		-		-		23
Provision		386		(88)		24		(10)		(91)		221
Ending balance	$	3,688	$	12,279	$	44	$	2,117	$	490	$	18,618

* Includes construction loans

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The following tables present the allowance for credit losses and recorded investment on loans by segment as of March 31, 2023 and December 31, 2022.



	Three months ended March 31, 2023
	(in thousands)
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for credit
losses:
Ending balance:

Individually evaluated for impairment		-		212		-		35		29		276

Collectively evaluated for impairment		5,267		12,342		4		3,343		291		21,247
Total	$	5,267	$	12,554	$	4	$	3,378	$	320	$	21,523

Loans:
Ending balance:

Individually evaluated for impairment		2,582		17,869		-		4,244		826		25,521

Collectively evaluated for impairment		238,459		878,070		604		436,644		79,847		1,633,624
Total	$	241,041	$	895,939	$	604	$	440,888	$	80,673	$	1,659,145



	December 31, 2022
	(in thousands)
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for credit
losses:
Ending balance:
Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-

Individually evaluated for impairment		-		251		-		28		77		356

Collectively evaluated for impairment		4,980		11,344		153		2,074		531		19,082
Total	$	4,980	$	11,595	$	153	$	2,102	$	608	$	19,438

Loans:
Ending balance:
Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	687	$	-	$	687

Individually evaluated for impairment		2,697		18,144		-		4,020		949		25,810

Collectively evaluated for impairment		247,372		877,973		572		439,042		81,465		1,646,424
Total	$	250,069	$	896,117	$	572	$	443,749	$	82,414	$	1,672,921

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The Company’s reserve for off-balance sheet credit exposures was not material at March 31, 2023 and upon adoption of ASU 2016-13,

Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.

Nonaccrual Loans

The following tables provide amortized costs, at the class level, for nonaccrual loans as of the dates indicated:



									Three Months Ended
	March 31, 2023						January 1, 2023		March 31, 2023
	Amortized Cost with Allowance		Amortized Cost without Allowance		Total		Amortized Cost		Interest Income Recognized
	(in thousands)
Commercial and industrial	$	-	$	2,520	$	2,520	$	2,625	$	-
Residential real estate:
Residential		151		3,720		3,871		3,738		8
Construction		-		-		-		-		-
Commercial real estate:
Commercial		-		6,561		6,561		6,648		-
Construction		1,301		7,265		8,566		8,765		-
Home equities		29		418		447		563		-
Consumer and other		-		-		-		-		-
Total nonaccrual loans	$	1,481	$	20,484	$	21,965	$	22,339	$	8



									Three Months Ended
	March 31, 2022						January 1, 2022		March 31, 2022
	Amortized Cost with Allowance		Amortized Cost without Allowance		Total		Amortized Cost		Interest Income Recognized
	(in thousands)
Commercial and industrial	$	93	$	4,619	$	4,712	$	4,919	$	2
Residential real estate:
Residential		303		3,114		3,417		3,020		4
Construction		-		-		-		-		-
Commercial real estate:
Commercial		171		6,010		6,181		5,758		70
Construction		1,536		836		2,372		2,942		-
Home equities		108		529		637		755		5
Consumer and other		-		-		-		-		-
Total nonaccrual loans	$	2,211	$	15,108	$	17,319	$	17,394	$	81

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Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The table below details the amortized cost of gross loans held for investment made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023:



	(in thousands)	Term Extension		Total Class of Receivable
Commercial and industrial		$	-	-	%
Residential real estate:
Residential			104	0
Construction			-	-
Commercial real estate:
Commercial			-	-
Construction			-	-
Home equities			-	-
Consumer and other			-	-	-
Total nonaccrual loans		$	104	0	%

The financial impacts of residential mortgage loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2023 were maturity extensions ranging from 159 months to 164 months.

The Company has not committed to lend any additional amounts to the borrowers included in the previous table.

As of March 31, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first quarter of 2023 that subsequently defaulted. Payment default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The payment status of all loans modified to borrowers experiencing financial difficulties during the first quarter of 2023 was current as of March 31, 2023.

Troubled debt restructurings

Information on loan modifications prior to the adoption of ASU 2022-02 on January 1, 2023 is presented in accordance with the applicable accounting standards in effect at that time. During the three months ended March 31, 2022, the Company modified only one loan that was determined to be a troubled debt restructuring, a Home Equity loan with an outstanding balance of $38 thousand that included extension of maturity and interest rate reduction concessions.

4. COMMON EQUITY AND EARNINGS PER SHARE DATA

The common stock per share information is based upon the weighted average number of shares outstanding during each period. For the three month period ended March 31, 2023 and 2022, the Company had an average of 31,438 and 52,766 dilutive shares outstanding, respectively.

Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive and not included in calculating diluted earnings per share. For the three month period ended March 31, 2023 and 2022 there was an average of 53,910 and 21,560 potentially anti-dilutive shares outstanding, respectively, that were not included in calculating diluted earnings per share because their effect was anti-dilutive.

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5. OTHER COMPREHENSIVE INCOME

The following tables summarize the changes in the components of accumulated other comprehensive income during the three month period ended March 31, 2023 and 2022:


	Balance at December 31, 2022		Net Change		Balance at March 31, 2023
	(in thousands)
Net unrealized (loss) gain on investment securities	$	(47,348)	$	3,635	$	(43,713)
Net defined benefit pension plan adjustments		(1,930)		20		(1,910)
Total	$	(49,278)	$	3,655	$	(45,623)


	Balance at December 31, 2021		Net Change		Balance at March 31, 2022
	(in thousands)
Net unrealized gain (loss) on investment securities	$	(3,160)	$	(16,705)	$	(19,865)
Net defined benefit pension plan adjustments		(2,511)		55		(2,456)
Total	$	(5,671)	$	(16,650)	$	(22,321)



	Three months ended March 31, 2023						Three months ended March 31, 2022
	(in thousands)						(in thousands)
	Before-Tax Amount		Income Tax (Provision) Benefit		Net-of-Tax Amount		Before-Tax Amount		Income Tax (Provision) Benefit		Net-of-Tax Amount
Unrealized gain (loss) on investment
securities:
Unrealized gain (loss) on investment
securities	$	4,884	$	(1,249)	$	3,635	$	(22,537)	$	5,832	$	(16,705)

Defined benefit pension plan
adjustments:
Amortization of prior service cost		-		-		-		8		(3)		5
Amortization of actuarial loss		27		(7)		20		68		(18)		50
Net change		27		(7)		20		76		(21)		55

Other comprehensive income (loss)	$	4,911	$	(1,256)	$	3,655	$	(22,461)	$	5,811	$	(16,650)

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6. NET PERIODIC BENEFIT COSTS

On January 31, 2008, the Bank froze its defined benefit pension plan. The plan covered substantially all Bank employees. The plan provides benefits that are based on the employees’ compensation and years of service. Under the freeze, eligible employees will receive, at retirement, the benefits already earned through January 31, 2008, but have not accrued any additional benefits since then. As a result, service cost is no longer incurred.

The Bank uses an actuarial method of amortizing prior service cost and unrecognized net gains or losses which result from actual expense and assumptions being different than those that are projected. The amortization method the Bank used recognized the prior service cost and net gains or losses over the average remaining service period of active employees.

The Bank also maintains a nonqualified supplemental executive retirement plan covering certain members of the Company’s senior management. The Bank uses an actuarial method of amortizing unrecognized net gains or losses which result from actual expense and assumptions being different than those that are projected. The amortization method the Bank uses recognizes the net gains or losses over the average remaining service period of active employees.

The following table presents the net periodic cost for the Bank’s defined benefit pension plan and supplemental executive retirement plan for the three month period ended March 31, 2023 and 2022:




		Three months ended March 31,

		(in thousands)
					Supplemental Executive
	Pension Benefits				Retirement Plan

	2023		2022		2023		2022

Service cost	$	-	$	-	$	36	$	33
Interest cost		62		44		62		31
Expected return on plan assets		(67)		(88)		-		-
Amortization of prior service cost		-		-		-		8
Amortization of the net loss		27		24		-		44
Net periodic (benefit) cost	$	22	$	(20)	$	98	$	116

The components of net periodic benefit cost other than the service cost component are included in the line item “other expense” in the income statement.

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7. REVENUE RECOGNITION OF NON-INTEREST INCOME

A description of the Company’s material revenue streams in non-interest income accounted for under ASC 606 follows:

Insurance Service and Fees: Insurance services revenue relates to various revenue streams from services provided by TEA and the Bank:

TEA earns commission revenue from selling commercial and personal property and casualty (“P&C”) insurance as well as employee benefits solutions to commercial customers.

TEA has agreements with various insurance companies to sell policies to customers on behalf of the carriers. The performance obligation for TEA is to sell annual P&C policies to commercial customers and consumers. This performance obligation is met when a new policy is sold or when an existing policy renews. The policies are generally one year terms. In the agreements with the respective insurance companies, a commission rate is agreed upon. The commission is recognized at the time of the sale of the policy or when a policy renews.

TEA has signed contracts with insurance carriers that enable TEA to sell benefit plans to commercial customers on behalf of the insurance carriers. The performance obligation for TEA is to sell the plans to commercial customers. After the initial sale when the customer signs an agreement to purchase the offered benefit plan, the performance obligation is met each month when a customer continues utilizing benefit plans from the carrier. The customer does not commit to a specific length of time with the carrier. In the agreements with the respective insurance companies, a commission rate is agreed upon. Revenue is recognized each month when the customer continues with the benefit plan sold by TEA.

TEA also earns contingent profit sharing revenue. The insurance companies measure the loss ratio for TEA’s customers and pay TEA according to how profitable TEA customers are.

TEA has signed written agreements with insurance carriers that document payouts to TEA based on the loss ratios of its customers. The performance obligation for TEA is to maintain a customer base with loss ratios below the agreed upon thresholds. In the contracts with the insurance companies, payout rates based on loss ratios are documented. The consideration is variable as loss ratios vary based on customer experience. TEA’s performance obligation is over the course of the year as its customers’ performance with insurance carriers is measured throughout the year as losses occur. Due to the variable nature of contingent profit sharing revenue, TEA will accrue contingent profit sharing revenue throughout the year based on recent historical results. As loss events occur and overall performance becomes known to TEA, accrual adjustments will be made until the cash is ultimately received.

Financial services commission revenue from the Bank related to wealth management such as life insurance, annuities, and mutual funds sales is also included in the “insurance service and fees” line of the income statement.

The Company earns wealth management fees from its contracts with customers for certain financial services. Fees that are transaction-based are recognized at the point in time that the transaction is executed. Other related services provided include financial planning services and the fees the Bank earns are recognized when the services are rendered.

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A disaggregation of the total insurance service and other fees for the three months ended March 31, 2023 and 2022 is provided in the tables below:



		Three months ended March 31,
		2023		2022
		(in thousands)
Commercial property and casualty insurance commissions	$	889	$	788
Personal property and casualty insurance commissions		739		723
Employee benefits sales commissions		194		234
Profit sharing and contingent revenue		427		370
Wealth management and other financial services		127		141
Other insurance-related revenue		53		43
Total insurance service and other fees	$	2,429	$	2,299

8. FAIR VALUE MEASUREMENT

Fair value is defined in ASC Topic 820 “Fair Value Measurement” as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

There are three levels of inputs to fair value measurement:


				Level 1 inputs are quoted prices for identical instruments in active markets;
				Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
				Level 3 inputs are unobservable inputs.

Observable market data should be used when available.

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE ON A RECURRING BASIS

The following table presents, for each of the fair-value hierarchy levels as defined in this footnote, those financial instruments which are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, respectively:


(in thousands)		Level 1		Level 2		Level 3		Fair Value

March 31, 2023
Securities available-for-sale:
US treasuries and government agencies	$	-	$	143,062	$	-	$	143,062
States and political subdivisions		-		22,168		-		22,168
Mortgage-backed securities		-		200,699		-		200,699

December 31, 2022
Securities available-for-sale:
US treasuries and government agencies	$	-	$	140,682	$	-	$	140,682
States and political subdivisions		-		21,822		-		21,822
Mortgage-backed securities		-		201,822		-		201,822

Securities available for sale

Fair values for available for sale securities are determined using independent pricing services and market-participating brokers. The Company utilizes a third-party for these pricing services. The third-party utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the third-party service provider’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. In addition, our third-party pricing service provider uses model processes, such as the Option Adjusted Spread model, to assess interest rate impact and develop prepayment scenarios. The models and the process take into account market convention. For each asset class, a team of evaluators gathers information from market sources and integrates relevant credit information, perceived

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market movements and sector news into the evaluated pricing applications and models. The third-party, at times, may determine that it does not have sufficient verifiable information to value a particular security. In these cases the Company will utilize valuations from another pricing service.

On a quarterly basis the Company reviews changes, as submitted by our third-party pricing service provider, in the market value of its securities portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. Additionally, on a quarterly basis the Company has its entire securities portfolio priced by a second pricing service to determine consistency with another market evaluator. If, on the Company’s review or in comparing with another servicer, a material difference between pricing evaluations were to exist, the Company may submit an inquiry to our third-party pricing service provider regarding the data used to value a particular security. If the Company determines it has market information that would support a different valuation than our third-party service provider’s evaluation it can submit a challenge for a change to that security’s valuation.

Securities available for sale are classified as Level 2 in the fair value hierarchy as the valuation provided by the third-party provider uses observable market data.

ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A NONRECURRING BASIS

The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets or provide valuation allowances related to certain assets using fair value measurements. The following table presents for each of the fair-value hierarchy levels as defined in this footnote, those financial instruments which are measured at fair value on a nonrecurring basis March 31, 2023 and December 31, 2022:



(in thousands)		Level 1		Level 2		Level 3		Fair Value

March 31, 2023
Collateral dependent impaired loans	$	-	$	-	$	1,200	$	1,200

December 31, 2022
Collateral dependent impaired loans	$	-	$	-	$	1,170	$	1,170

Impaired loans

Collateral dependent loans carried at fair value have been partially charged-off or receive specific allocations of the allowance for credit losses. The Company evaluates and values collateral dependent impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral value has a unique appraisal and management’s discount of the value is based on factors unique to each impaired loan. The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan, which ranges from 10%-50%. Fair value is estimated based on the value of the collateral securing these loans. Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business.

The Company has an appraisal policy in which appraisals are obtained upon a commercial loan being downgraded on the Company’s internal loan rating scale to a special mention or a substandard depending on the amount of the loan, the type of loan and the type of collateral. All impaired commercial loans are graded substandard or worse on the internal loan rating scale. For consumer loans, the Company obtains appraisals when a loan becomes 90 days past due or is determined to be impaired, whichever occurs first. Subsequent to the downgrade or reaching 90 days past due, if the loan remains outstanding and impaired for at least one year more, management may require another follow-up appraisal. Between receipts of updated appraisals, if necessary, management may perform an internal valuation based on any known changing conditions in the marketplace such as sales of similar properties, a change in the condition of the collateral, or feedback from local appraisers. Collateral dependent impaired loans had a gross value of $1.5 million, with an allowance for credit loss of $0.3 million, at March 31, 2023 compared with $1.5 million and $0.4 million, respectively, at December 31, 2022.
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The table below depicts the estimated fair values of the Company’s financial instruments, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis.


	March 31, 2023				December 31, 2022
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
		(in thousands)				(in thousands)
Financial assets:
Level 1:
Cash and cash equivalents	$	16,104	$	16,104	$	23,054	$	23,054
Level 2:
Available for sale securities		365,929		365,929		364,326		364,326
FHLB and FRB stock		8,444		N/A		13,511		N/A
Level 3:
Held to maturity securities		3,707		3,613		6,949		6,809
Loans, net		1,637,053		1,565,824		1,652,931		1,564,641

Financial liabilities:
Level 1:
Demand deposits	$	483,958	$	483,958	$	493,710	$	493,710
NOW deposits		268,283		268,283		273,359		273,359
Savings deposits		807,532		807,532		801,943		801,943
Level 2:
Securities sold under agreement to
repurchase		9,264		9,264		7,147		7,147
Other borrowed funds		79,637		79,293		193,001		192,443
Subordinated debt		31,101		30,035		31,075		30,263
Level 3:
Time deposits		290,141		286,883		202,667		199,910

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9. SEGMENT INFORMATION

The Company comprises two primary business segments, banking and insurance agency activities. The following tables set forth information regarding these segments for the three month period ended March 31, 2023 and 2022.




	Three months ended March 31, 2023
		Banking		Insurance Agency
		Activities		Activities		Total
		(in thousands)

Net interest income	$	17,325	$	-	$	17,325
Provision for credit losses		(654)		-		(654)
Net interest income after
provision for credit losses		17,979		-		17,979
Insurance service and fees		123		2,306		2,429
Other non-interest income		1,684		-		1,684
Amortization expense		5		95		100
Other non-interest expense		12,557		1,845		14,402
Income before income taxes		7,224		366		7,590
Income tax provision		1,707		83		1,790
Net income	$	5,517	$	283	$	5,800




	Three months ended March 31, 2022
		Banking		Insurance Agency
		Activities		Activities		Total
		(in thousands)

Net interest income	$	16,501	$	-	$	16,501
Provision for credit losses		221		-		221
Net interest income after
provision for credit losses		16,280		-		16,280
Insurance service and fees		139		2,160		2,299
Other non-interest income		2,132		-		2,132
Amortization expense		5		95		100
Other non-interest expense		12,502		1,858		14,360
Income before income taxes		6,044		207		6,251
Income tax provision		1,449		54		1,503
Net income	$	4,595	$	153	$	4,748

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10. CONTINGENT LIABILITIES AND COMMITMENTS

The unaudited consolidated financial statements do not reflect various commitments and contingent liabilities, which arise in the normal course of business, and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities consist of commitments to extend credit and standby letters of credit. A summary of the Bank’s commitments and contingent liabilities is as follows:



	March 31,		December 31,
	2023		2022
	(in thousands)

Commitments to extend credit	$	422,843	$	376,167
Standby letters of credit		3,027		3,673
Total	$	425,870	$	379,840

Commitments to extend credit and standby letters of credit include some exposure to credit loss in the event of nonperformance by the customer. The Bank’s credit policies and procedures for credit commitments and financial guarantees are the same as those for extensions of credit that are recorded on the Company’s unaudited consolidated balance sheets. Because these instruments have fixed maturity dates, and because they may expire without being drawn upon, they do not necessarily represent cash requirements of the Bank. The Bank did not incur any losses on its commitments and did not record a reserve for its commitments during the first three months of 2023 or during 2022.

Certain lending commitments for construction residential mortgage loans are considered derivative instruments under the guidelines of GAAP. The changes in the fair value of these commitments, due to interest rate risk, are not recorded on the consolidated balance sheets as the fair value of these derivatives is not considered to be material.

11. RECENT ACCOUNTING PRONOUNCEMENTS

The FASB establishes changes to U.S. GAAP in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs when they are issued by FASB. Effective January 1, 2023 the Company adopted both ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses of Financial Instruments and ASU 2022-02, Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. Excluding those ASUs, the Company did not adopt any accounting pronouncements during its current fiscal year that had a material impact on the Company’s consolidated financial position, results of operations, cash flows or disclosures. There have been no accounting standards that have been recently issued but not yet required to be adopted as of March 31, 2023 that management expects will have a material impact on the Company’s financial condition, results of operations, cash flows or disclosures.

ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments – The Company adopted this ASU (commonly known as the Current Expected Credit Loss Impairment Model, or CECL) effective January 1, 2023. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in CECL replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. See Note 3 – “Loans and the Allowance for Credit Losses” to this Quarterly Report on Form 10-Q for further details regarding the Company’s accounting policy for determining the Allowance for Credit Losses under this new accounting standard.

Upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, the Company recognized a $2.7 million increase in the allowance for credit losses as of January 1, 2023 with a net of tax cumulative effect adjustment to retained earnings of $2.0 million.

ASU 2022-02, Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures – The Company adopted this ASU effective January 1, 2023. This ASU eliminates the accounting guidance for troubled debt restructurings ("TDRs") in ASC 310-40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the CECL model introduced by ASU 2016-13. ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, "Financial Instruments—Credit Losses—Measured at Amortized Cost". The adoption of ASU 2022-02 did not have a material impact on the Company’s financial condition, results of operations or cash flows, but did affect the financial statement disclosures.

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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. When used in this report, or in the documents incorporated by reference herein, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” and similar expressions identify such forward-looking statements. These forward-looking statements include statements regarding the Company’s business plans, prospects, growth and operating strategies, statements regarding the asset quality of the Company’s loan and investment portfolios, and estimates of the Company’s risks and future costs and benefits.

These forward-looking statements are based largely on the expectations of the Company’s management and are subject to a number of risks and uncertainties, including but not limited to: adverse changes in general economic conditions, either nationally or in the Company’s market areas; increased competition among depository or other financial institutions; inflation and changes in the interest rate environment that reduce the Company’s margins or reduce the fair value of financial instruments; changes in laws or government regulations affecting financial institutions, including changes in regulatory fees, monetary policy, and capital requirements; the Company’s ability to enter new markets successfully and capitalize on growth opportunities; the Company’s ability to successfully integrate acquired entities; credit losses in excess of the Company’s allowance for credit losses; changes in accounting pronouncements and practices, as adopted by financial institution regulatory agencies, the Financial Accounting Standards Board and the Public Company Accounting Oversight Board; the impact of such changes in accounting pronouncements and practices being greater than anticipated; the ability to realize the benefit of deferred tax assets; changes in tax policies, rates and regulations of federal, state and local tax authorities; changes in consumer spending, borrowing and saving habits; changes in the Company’s organization, compensation and benefit plans; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q, as well as in the Company’s periodic reports filed with the SEC, in particular the “Risk Factors” discussed in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and this Quarterly Report on Form 10-Q. Many of these factors are beyond the Company’s control and are difficult to predict.

Because of these and other uncertainties, the Company’s actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to publicly update or revise forward-looking information, whether as a result of new, updated information, future events or otherwise, except to the extent required by law.

The Discussion and Analysis of Financial Condition and Results of Operations that follows includes comparisons to the quarter ended March 31, 2022 as well as the trailing quarter ended December 31, 2022.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The Company’s Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q are prepared in accordance with U.S. GAAP and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the Company’s Unaudited Consolidated Financial Statements and Notes. These estimates, assumptions, and judgments are based on information available as of the date of the Unaudited Consolidated Financial Statements. Accordingly, as this information changes, the Unaudited Consolidated Financial Statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments, and as such, have a greater possibility of producing results that could be materially different than originally reported.

Significant accounting policies followed by the Company are presented in Note 1 – “Organization and Summary of Significant Accounting Policies” to the Audited Consolidated Financial Statements included in Item 8 in its Annual Report on Form 10-K for the year ended December 31, 2022. These policies, along with the disclosures presented in the other Notes to the Company's Audited Consolidated Financial Statements contained in its Annual Report on Form 10-K and in this financial review, provide information on how significant assets and liabilities are presented in the Company’s Unaudited Consolidated Financial Statements and how those values are determined.

Effective January 1, 2023 the Company adopted ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. See Note 3 – “Loans and the Allowance for Credit Losses” to this Quarterly Report on Form 10-Q for the accounting policy for determining the Allowance for Credit Losses (“ACL”).

The more significant areas in which management of the Company applies critical assumptions and estimates includes the allowance for credit losses.

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Allowance for Credit Losses

The ACL on loans is management’s estimate of expected lifetime credit losses on loans carried at amortized cost. The ACL on loans is established through a provision for credit losses recognized in the Consolidated Statements of Income. Additionally, the ACL on loans is reduced by charge-offs on loans and increased by recoveries of amounts previously charged-off. At March 31, 2023 the ACL on loans totaled $21.5 million, compared to $22.2 million recorded upon adoption of ASU 2016-13 at January 1, 2023. A significant portion of our ACL is allocated to the commercial portfolio (both commercial real estate and commercial and industrial (“C&I”) loans). As of March 31, 2023 and January 1, 2023, the ACL allocated to the total commercial portfolio was $17.8 million and $18.0 million, respectively.

Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors. The methodology for evaluating quantitative factors consists of two basic components; pooling loans into portfolio segments for loans that share similar risk characteristics and identifying individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments.

For pooled loan portfolio segments, the Company utilizes a discounted cash flow (“DCF”) methodology to estimate credit losses over the expected life of the loan. The methodology incorporates a probability of default and loss given default framework. Loss given default is estimated based on historical credit loss experience. Probability of default is estimated utilizing a regression model that incorporates econometric factors. The model utilizes forecasted econometric factors with a one-year reasonable and supportable forecast period and one-year straight-line reversion period in order to estimate the probability of default for each loan portfolio segment. The DCF methodology combines the probability of default, the loss given default, prepayment speeds and the remaining life of the loan to estimate a reserve for each loan.

The ACL for individually analyzed loans is measured using a DCF method based upon the loan’s contractual effective interest rate, or at the loan’s observable market price, or, if the loan was collateral dependent, at the fair value of the collateral.

Quantitative loss factors are also supplemented by certain qualitative risk factors reflecting management’s view of how losses may vary from those represented by quantitative loss rates. Qualitative loss factors are applied to each portfolio segment with the amounts determined by historical loan charge-offs of a peer group of similar-sized regional banks.

Because the methodology is based upon historical experience and trends, current economic data, reasonable and supportable forecasts, as well as management’s judgment, factors may arise that result in different estimations. Deteriorating conditions or assumptions could lead to further increases in the ACL on loans; conversely, improving conditions or assumptions could lead to further reductions in the ACL on loans.

In estimating the ACL on loans, management considers the sensitivity of the model and significant judgments and assumptions that could result in an amount that is materially different from management’s estimate. Given the concentration of ACL allocation to the total commercial portfolio and the significant judgments made by management in deriving the qualitative loss factors, management analyzed the impact that changes in judgments could have. The result was an ACL allocated to the total commercial loan portfolio that ranged between $13.4 million and $28.2 million at March 31, 2023. The sensitivity and related range of impact is a hypothetical analysis and is not intended to represent management’s judgments or assumptions of qualitative loss factors that were utilized at March 31, 2023 in estimation of the ACL on loans recognized on the Consolidated Balance Sheet.

If the assumptions underlying the determination of the ACL prove to be incorrect, the ACL may not be sufficient to cover actual loan losses and an increase to the ACL may be necessary to allow for different assumptions or adverse developments. In addition, a problem with one or more loans could require a significant increase to the ACL.

ANALYSIS OF FINANCIAL CONDITION

Loan Activity

Total gross loans were $1.7 billion at March 31, 2023 and December 31, 2022 compared with $1.6 billion at March 31, 2022. Loans secured by real estate were $1.4 billion at March 31, 2023, December 31, 2022 and March 31, 2022. Residential real estate loans, including construction loans, were $441 million at March 31, 2023, $3 million or less than 1% lower than at December 31, 2022, but $18 million or 4% higher than at March 31, 2022. The increase in residential real estate loans from March 31, 2022 reflects management’s decision to retain the majority of residential mortgages within our loan portfolio. Commercial real estate loans, including construction loans, were $895 million at March 31, 2023, $1 million or less than 1% lower than at December 31, 2022, but $36 million or 4% higher than the balance at March 31, 2022. Commercial real estate is the largest part of the Company’s loan portfolio and has historically been the highest growth segment of the portfolio.

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In the first quarter of 2023, residential mortgage originations were $8 million compared with the previous quarter’s originations of $15 million and $22 million in the first quarter of 2022. The decrease in residential mortgage originations as compared to the prior year was primarily due to the impact of the rising interest rate environment. The Company sold $1 million of residential mortgages during the first three months of 2023 compared with $3 million during the year earlier period. The Company did not sell any residential mortgages during the fourth quarter of 2022. Management decides to keep or sell residential mortgage loans at the time of origination based on interest rate risk management practices and the risk-adjusted return of alternative investment sources such as mortgage-backed securities.

The Company has also focused on growth opportunities in C&I lending as a way to diversify its overall loan portfolio. The C&I portfolio was $241 million at March 31, 2023, representing a $9 million or 4% decrease from December 31, 2022. When compared with last year’s first quarter, commercial and industrial loans increased $8 million or 4%, excluding Paycheck Protection Program loan balances.

Credit Quality of Loan Portfolio

Non-performing loans, defined as accruing loans greater than 90 days past due and nonaccrual loans, totaled $24 million, or 1.45% of total loans outstanding at March 31, 2023, compared with $25 million, or 1.48% of total loans outstanding, as of December 31, 2022 and $21 million, or 1.29% of total loans outstanding, as of March 31, 2022.

Commercial credits graded as “special mention” and “substandard,” or the criticized loan portfolio, were $90 million at March 31, 2023, a $3 million decrease from $93 million at December 31, 2022, and a $20 million decrease from $110 million at March 31, 2022. The level of criticized loans can fluctuate as new information is constantly received on the Company’s borrowers and their financial circumstances change over time. Internal risk ratings are the credit quality indicators used by management to monitor credit risk in its commercial loan portfolio. “Special mention” and “substandard” loans are weaker credits with a higher risk of loss and are categorized as “criticized” credits rather than “pass” or “watch” credits.

Prior to January 1, 2023, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date. Based on portfolio composition, then current economic conditions, and reasonable and supportable forecasts of future conditions, the Company recognized an increase to the allowance for credit losses of $2.7 million upon adoption of the new credit loss accounting standard, ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, as of January 1, 2023 as compared with the allowance for credit losses recognized on its consolidated balance sheet at December 31, 2022. The $2.7 million increase was recognized as a net of tax cumulative effect adjustment to retained earnings of $2.0 million.

The Company recorded a $0.7 million release of allowance during the three months ended March 31, 2023, primarily due to lower loan balances, a benefit from the reduction in rate of increases in home prices in the Company’s market and lower specific reserves on individually analyzed loans.

Prior to the adoption of ASU 2016-13, loans acquired in a business combination were recorded at fair value with no carry-over of an acquired entity’s previously established allowance for credit losses. Acquired loans that previously did not have an allowance valuation totaled $129 million at January 1, 2023. Upon adoption of the new ACL accounting standard these loans contributed $1 million to the allowance for credit losses. The allowance for credit losses totaled $21.5 million or 1.30% of total loans outstanding at March 31, 2023, compared with $19.4 million, or 1.16% of total loans outstanding as of December 31, 2022 and $18.6 million, or 1.16% of total loans outstanding at March 31, 2022. The increase in the percentage of allowance for credit losses to total loans outstanding from both comparative periods was the result of the adoption of the new accounting standard.

Investing Activities

Total investment securities were $370 million at March 31, 2023, compared with $371 million at December 31, 2022 and $389 million at March 31, 2022. The decreases reflect changes in unrealized gains and losses on investment securities. Interest-bearing deposits at other banks, which consist of overnight funds kept at correspondent banks and the Federal Reserve, were $4 million at March 31, 2023 compared to $6 million at December 31, 2022, and $147 million at March 31, 2022. The primary objectives of the Company’s investment portfolio are to provide liquidity, provide collateral to secure municipal deposits, and maximize income while preserving safety of principal. Average investment securities and interest-bearing cash were 19% of average interest-earning assets in both the first quarter of 2023 and fourth quarter of 2022 and 26% in the first quarter of 2022.

The Company’s highest concentration in its securities portfolio was in available for sale U.S. government sponsored mortgage-backed securities which were 54% of total investment securities at March 31, 2023 and December 31, 2022, and 56% of total investment securities at March 31, 2022. Tax-advantaged debt securities issued by state and political subdivisions were 2%, 3% and 2% of the total securities portfolio at March 31, 2023, December 31, 2022, and March 31, 2022, respectively.

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The total net unrealized loss position of the available-for-sale investment portfolio was $59 million at March 31, 2023, compared with $64 million at December 31, 2022 and $27 million at March 31, 2022. The securities in an unrealized loss position generally reflect an increase in market interest rates. Management believes that the credit quality of the securities portfolio as a whole is strong.

The Company monitors extension and prepayment risk in the securities portfolio to limit potential exposures. The Company has no direct exposure to subprime mortgages, nor does the Company hold private mortgage-backed securities, credit default swaps, or FNMA or FHLMC preferred stock investments in its investment portfolio.

Funding Activities

Total deposits at March 31, 2023 were $1.8 billion, a $78 million or 4% increase from December 31, 2022, but a $137 million or 7% decrease from March 31, 2022. The increase from the fourth quarter of 2022 reflects an increase in time deposits of $87 million or 43%, municipal savings deposits of $52 million or 31%, and commercial savings of $15 million or 8%, partially offset by a decrease in consumer savings of $62 million or 14%, demand deposits of $9 million or 2%, and NOW deposits of $5 million or 2%. The decrease from March 31, 2022 largely reflects deposit decreases in consumer savings of $163 million or 42%, commercial savings of $51 million or 26%, demand deposits of $45 million or 9%, municipal savings of $30 million or 13%, and brokered deposits of $2 million or 29%. Offsetting those decreases were higher consumer time deposits of $143 million or 51% and NOW deposits of $11 million or 4%. Average demand deposits were $504 million in the first quarter of 2023, a 3% decrease from $519 million in the fourth quarter of 2022, and a 2% decrease from $512 million in the first quarter of 2022.

The Company had $11 million in long-term Federal Home Loan Bank of New York (“FHLBNY”) advances at March 31, 2023, compared with $20 million at December 31, 2022 and $27 million at March 31, 2022. This represents long-term advances from the FHLBNY that were acquired in the FSB acquisition. The Company’s use of its overnight line of credit with FHLBNY varies depending on its ability to fund investment and loan growth with deposits along with the line usage’s impact on interest rate risk. There were $69 million in overnight borrowings with the FHLBNY at March 31, 2023.

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ANALYSIS OF RESULTS OF OPERATIONS

Average Balance Sheet

The following tables present the significant categories of the assets and liabilities of the Company, interest income and interest expense, and the corresponding yields earned and rates paid for the periods indicated. The assets and liabilities are presented as daily averages. The average loan balances include both performing and non-performing loans. Interest income on loans does not include interest on loans for which the Bank has ceased to accrue interest. Investments are included at book value. Yields are presented on a non-tax-equivalent basis.




	Three months ended March 31, 2023						Three months ended March 31, 2022
	Average		Interest				Average		Interest
	Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/
	Balance		Paid		Rate		Balance		Paid		Rate
	(dollars in thousands)						(dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net	$	1,641,162	$	20,886	5.16	%	$	1,566,716	$	15,724	4.07	%
Taxable securities		370,798		2,294	2.51	%		347,123		1,677	1.96	%
Tax-exempt securities		11,531		89	3.13	%		10,807		46	1.73	%
Interest bearing deposits at banks		9,824		96	3.97	%		178,729		70	0.16	%

Total interest-earning assets		2,033,315	$	23,365	4.66	%		2,103,375	$	17,517	3.38	%

Non interest-earning assets:

Cash and due from banks		16,796						13,302
Premises and equipment, net		16,900						17,698
Other assets		100,240						79,316

Total Assets	$	2,167,251					$	2,213,691

LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW	$	260,242	$	482	0.75	%	$	252,965	$	56	0.09	%
Savings		796,793		1,860	0.95	%		1,024,447		344	0.14	%
Time deposits		257,733		1,673	2.63	%		156,534		168	0.44	%
Other borrowed funds		134,719		1,496	4.50	%		29,280		45	0.62	%
Subordinated debt		31,086		526	6.86	%		30,984		401	5.25	%
Securities sold U/A to repurchase		7,248		3	0.17	%		4,890		2	0.17	%

Total interest-bearing liabilities		1,487,821	$	6,040	1.65	%		1,499,100	$	1,016	0.27	%

Noninterest-bearing liabilities:
Demand deposits		503,945						512,118
Other		20,487						20,897
Total liabilities	$	2,012,253					$	2,032,115

Stockholders' equity		154,998						181,576

Total Liabilities and Equity	$	2,167,251					$	2,213,691

Net interest income			$	17,325					$	16,501

Net interest margin					3.46	%					3.18	%

Interest rate spread					3.01	%					3.11	%

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Net Income

Net income was $5.8 million, or $1.06 per diluted share, in the first quarter of 2023, compared with $6.0 million, or $1.10 per diluted share, in the fourth quarter of 2022 and $4.7 million, or $0.86 per diluted share, in last year’s first quarter. The change from the prior quarter was largely due to a reduction in net interest income in the current period, partially offset by a release of allowance for credit losses. The change from prior year period reflected higher net interest income and a reduction in provision for credit losses in the current period, partially offset by lower non-interest income.

Return on average equity was 14.97% for the first quarter of 2023, compared with 16.07% in the fourth quarter of 2022 and 10.46% in the first quarter of 2022.

Other Results of Operations – Quarterly Comparison

Net interest income decreased $1.9 million, or 10%, from the sequential fourth quarter due to higher interest expense, given the cost increase of interest-bearing liabilities as a result of competitive pricing on deposits. When compared to the first quarter of 2022 net interest income increased $0.8 million, or 5%, resulting from a 128 basis point increase in yields on interest-earning assets and higher average loan and investment balances. The increase in rates paid on interest-bearing liabilities and yields on interest-earning assets resulted from the 450 basis point increase in the federal funds rate.

First quarter net interest margin of 3.46% decreased 31 basis points from the fourth quarter of 2022 but increased 28 basis points from the first quarter of 2022. The yield on loans increased 28 basis points compared with the fourth quarter of 2022 and 109 basis points when compared to the first quarter of 2022. The cost of interest-bearing liabilities increased to 1.65% compared with 0.86% in the fourth quarter of 2022 and 0.27% in the first quarter of 2022.

The $0.7 million release of allowance in the current quarter was largely due to lower loan balances, a reduction in the rate of increases in home prices in the Company’s market and lower specific reserves on individually analyzed loans.

Non-interest income was $4.1 million in the first quarter of 2023, compared with $4.5 million in the fourth quarter of 2022 and $4.4 million in the prior year first quarter. Included in the fourth quarter of 2022 was a $0.2 million gain on the sale of an asset that was acquired in foreclosure as well as $0.2 million of revenue recognized relating to rent payments received on the acquired asset. The decrease from last year’s first quarter was primarily due to decreases in mortgage servicing rights and loan fees. Insurance service and fee revenue, increased 10% over the fourth quarter and was up 6% from last year’s first quarter, due to higher profit sharing revenue and commissions from higher premiums and new commercial lines insurance business.

Non-interest expenses of $14.5 million in the first quarter of 2023 decreased $0.4 million or 3% when compared with the fourth quarter of 2022 and were relatively flat from last year’s first quarter. Salaries and employee benefits were down slightly as merit increases and strategic hires were offset by lower incentive accruals of $0.6 million. FDIC insurance expense increased $0.1 million from both comparative periods, reflecting changes to the FDIC’s assessment rate schedule intended to raise the reserve ratio of the Deposit Insurance Fund. Other expenses decreased from the sequential fourth quarter primarily due to lower loan fees of $0.3 million and expenses relating to a foreclosed property of $0.1 million in the fourth quarter.

The Company’s GAAP efficiency ratio, or noninterest expenses divided by the sum of net interest income and noninterest income, was 67.6% in the first quarter of 2023, 62.9% in the fourth quarter of 2022, and 69.1% in the first quarter of 2022.

Income tax expense was $1.8 million, for an effective tax rate of 23.6%, in the first quarter of 2023 compared with 23.0% in the fourth quarter of 2022 and 24.0% in last year’s first quarter.

CAPITAL

The Company consistently maintains regulatory capital ratios significantly above the federal “well capitalized” standard, including a Tier 1 leverage ratio of 9.13% at March 31, 2023 and December 31, 2022, compared with 8.57% at March 31, 2022.

On February 22, 2023, the Company declared a cash dividend of $0.66 per common share, which was paid on April 4, 2023. The semi-annual dividend represented a $0.02, or 3%, increase from the previous semi-annual dividend paid in October 2022.

Book value per share was $28.97 at March 31, 2023, compared with $28.32 at December 31, 2022 and $30.65 at March 31, 2022. Reflected in the book value changes are the Federal Reserve’s aggressive interest rate hikes that have resulted in significant unrealized losses on investment securities, which reduced book value per share at March 31, 2023 by $4.37 when compared with the last year’s

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first quarter. Such unrealized gains and losses are generally due to changes in interest rates and represent the difference, net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities classified as available-for-sale.

The Company has also issued subordinated capital notes and junior subordinated debentures associated with trust preferred securities to provide liquidity and enhance regulatory capital ratios. The Company had $11.3 million of junior subordinated debentures associated with trust preferred securities outstanding at March 31, 2023 and December 31, 2022 which are considered Tier 1 capital and are includable in total regulatory capital. On July 9, 2020, the Company executed a private offering of $20 million of its 6.00% Fixed-to-Floating Rate Subordinated Notes due 2030. During 2020, $15 million of the proceeds from the sale of the Notes were moved to the Company’s Evans Bank, N.A. subsidiary as Tier 1 capital.

While we are currently classified as well capitalized, an extended economic recession could adversely impact our reported and regulatory capital ratios. The Company relies on cash on hand as well as dividends from its subsidiary bank to service its debt. If the Company’s subsidiary bank’s capital deteriorates such that it is unable to pay dividends to the Company for an extended period of time, the Company may not be able to service its debt that was issued.

LIQUIDITY

The Bank utilizes cash flows from the investment portfolio and federal funds sold balances to manage the liquidity requirements related to loan demand and deposit fluctuations. The Bank also has many borrowing options. The Company uses the FHLBNY as its primary source of overnight funds and has long-term advance with FHLBNY. The Company’s use of its overnight line of credit with FHLBNY varies depending on its ability to fund investment and loan growth with core deposits along with the line usage’s impact on interest rate risk. The Company’s funding strategy has resulted in significant deposit growth, resulting in less usage of the FHLBNY overnight line of credit. The Company has pledged sufficient collateral in the form of residential and commercial real estate loans at FHLBNY that meets FHLB collateral requirements. As a member of the FHLB, the Bank is able to borrow funds at competitive rates. As of March 31, 2023, advances of up to $404 million could be drawn on the FHLB via an Overnight Line of Credit Agreement between the Bank and the FHLB. As of March 31, 2023, the Bank also had the ability to purchase up to $18 million in federal funds from its correspondent banks. By placing sufficient collateral in safekeeping at the Federal Reserve Bank, the Bank could borrow at the discount window. Furthermore, the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments. The Bank’s liquidity needs also can be met by more aggressively pursuing time deposits, or accessing the brokered time deposit market, including the Certificate of Deposit Account Registry Service (“CDARS”) network.

Cash flows from the Bank’s investment portfolio are laddered, so that securities mature at regular intervals, to provide funds from principal and interest payments at various times as liquidity needs may arise. Contractual maturities are also laddered, with consideration as to the volatility of market prices. At March 31, 2023, approximately 3% of the Bank’s securities had contractual maturity dates of one year or less and approximately 26% had maturity dates of five years or less. Additionally, mortgage-backed securities, which comprise 54% of the investment portfolio at March 31, 2023, provide consistent cash flows for the Bank.

The Company’s primary source of liquidity is dividends from the Bank. Additionally, the Company has access to capital markets as a funding source.

Management, on an ongoing basis, closely monitors the Company’s liquidity position for compliance with internal policies and believes that available sources of liquidity are adequate to meet funding needs in the normal course of business. As part of that monitoring process, management calculates the Company’s 90-day liquidity ratio each month by analyzing the cash needs of the Bank. Included in the calculation are liquid assets and potential liabilities. Management stresses the potential liabilities calculation to ensure a strong liquidity position. Included in the calculation are assumptions of some significant deposit run-off as well as funds needed for loan closings and investment purchases. In the Company’s internal stress test at March 31, 2023, the Company had net short-term liquidity of $433 million as compared with $209 million at December 31, 2022. Available assets of $375 million, divided by public and purchased funds of $505 million, resulted in a long-term liquidity ratio of 74% at March 31, 2023, compared with 75% at December 31, 2022.

Management does not anticipate engaging in any activities, either currently or in the long term, for which adequate funding would not be available and which would therefore result in significant pressure on liquidity.

The Company believes that the Bank maintains a sufficient level of U.S. government and government agency securities and New York State municipal bonds that can be pledged as collateral for municipal deposits.

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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Additional information responsive to this Item is contained in the Liquidity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, which information is incorporated herein by reference.

Market risk is the risk of loss from adverse changes in market prices and/or interest rates of the Bank’s financial instruments. The primary market risk that the Company is exposed to is interest rate risk. The core banking activities of lending and deposit-taking expose the Bank to interest rate risk, which occurs when assets and liabilities reprice at different times and by different amounts as interest rates change. As a result, net interest income earned by the Bank is subject to the effects of changing interest rates. The Bank measures interest rate risk by calculating the variability of net interest income in future periods under various interest rate scenarios using projected balances for interest-earning assets and interest-bearing liabilities. Management’s philosophy toward interest rate risk management is to limit the variability of net interest income to changes in net interest rates. The balances of financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of loans, and expected maturities of investment securities, loans, and deposits. Management supplements the modeling technique described above with analysis of market values of the Bank’s financial instruments and changes to such market values given changes in the interest rates.

The Bank’s Asset-Liability Committee, which includes members of senior management, monitors the Bank’s interest rate sensitivity with the aid of a model that considers the impact of ongoing lending and deposit taking activities, as well as interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities. When deemed prudent, management has taken actions, and intends to do so in the future, to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments. Possible actions include, but are not limited to, changing the pricing of loan and deposit products, and modifying the composition of interest-earning assets and interest-bearing liabilities, and reliance on other financial instruments used for interest rate risk management purposes.

The following table demonstrates the possible impact of changes in interest rates on the Bank’s net interest income over a 12-month period of time:

SENSITIVITY OF NET INTEREST INCOME TO CHANGES IN INTEREST RATES



	Calculated increase (decrease)
	in projected annual net interest income
	(in thousands)

		March 31, 2023		December 31, 2022
Changes in interest rates

+200 basis points	$	(2,734)	$	(2,867)
+100 basis points		528		770

-100 basis points		(679)		(962)
-200 basis points		(1,588)		(2,661)

Many assumptions were utilized by management to calculate the impact that changes in interest rates may have on the Bank’s net interest income. The more significant assumptions related to the rate of prepayments of mortgage-related assets, loan and deposit volumes and pricing, and deposit maturities. The Bank assumed immediate changes in rates including 200 basis point rate changes. In the 200 basis point rate reduction scenario, the applicable rate changes may be limited to lesser amounts such that interest rates are not less than zero. The assumptions in the Company’s projections are inherently uncertain and, as a result, the Bank cannot precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly due to the timing, magnitude, and frequency of interest rate changes in market conditions and interest rate differentials (spreads) between maturity/repricing categories, as well as any actions such as those previously described, which management may take to counter such changes. In light of the uncertainties and assumptions associated with the process, the amounts presented in the table and changes in such amounts are not considered significant to the Bank’s projected net interest income.

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ITEM 4 - CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2023 (the end of the period covered by this Report). Based on that evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2023.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Effective January 1, 2023, Evans Bancorp, Inc. adopted the CECL accounting standard. The Company designed new controls and modified existing controls as part of its adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data.

Except for the change in controls relating to the adoption of the CECL accounting standard, there were no other changes in the Company’s internal control over financial reporting in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

The nature of the Company’s business generates a certain amount of litigation involving matters arising in the ordinary course of business.

In the opinion of management, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely, would have a material effect on the Company’s results of operations or financial condition.

ITEM 1A – RISK FACTORS

Other than the risk factors set forth below, there have been no material changes to the risk factors previously disclosed in Item 1A. Part I of the Company’s Annual Report on Form 10- K for the fiscal year ended December 31, 2022.

Recent Negative Developments Affecting the Banking Industry, and Resulting Media Coverage, May Erode Customer Confidence in the Banking System

The March 2023 high-profile bank failures involving Silicon Valley Bank and Signature Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, community banks like the Company. These market developments have negatively impacted customer confidence in the safety and soundness of community banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in community banks and the banking system more broadly.

A Lack of Liquidity Could Adversely Affect the Company’s Financial Condition and Results of Operations and Result in Regulatory Restrictions

The Company must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been the Company’s primary source of funds for use in lending and investment activities and are emphasized due to the relatively lower cost of these funds. The Company also receives funds from loan repayments, investment maturities and income on other interest-earning assets, as well as borrowings. If the Company is required to rely more heavily on more expensive funding sources to support liquidity and future growth, its revenues may not increase proportionately to cover its increased costs, which would adversely affect its operating margins, profitability and growth prospects. Alternatively, the Company may need to sell a portion of its investment securities portfolio to raise funds, which, as discussed below, could result in a loss.

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Any decline in funding could adversely impact the Company’s ability to originate loans, invest in securities, pay expenses, or fulfill obligations such as repaying its borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations. A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed by regulators. Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, regulatory restrictions and prohibitions may include restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits.

Rising Interest Rates Have Decreased the Value of the Company’s Securities Portfolio, and the Company Would Realize Losses if it Were Required to Sell Such Securities to Meet Liquidity Needs

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the securities portfolios. While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
January 1, 2023 - January 31, 2023
Repurchase program(1)		-	$	-	-	187,932
Employee transactions(2)		215	$	37.68	N/A	N/A

February 1, 2023 - February 28, 2023
Repurchase program(1)		-	$	-	-	187,932
Employee transactions(2)		7,130	$	39.99	N/A	N/A

March 1, 2023 - March 31, 2023
Repurchase program(1)		-	$	-	-	187,932
Employee transactions(2)		-	$	-	N/A	N/A

Total:
Repurchase program(1)		-	$	-	-	187,932
Employee transactions(2)		7,345	$	39.92	N/A	N/A

(1)On February 25, 2021, the Board of Directors authorized the Company to repurchase up to 300,000 shares of the Company’s common stock (the “2021 Repurchase Program”). The 2021 Repurchase program does not expire and may be suspended or discontinued by the Board of Directors at any time. The maximum number of shares that may be purchased under the 2021 Repurchase Program as of March 31, 2023 was 187,932.

(2)The total shares purchased in the period consist of shares constructively tendered to the Company by attestation in satisfaction of the exercise price due upon exercise of options issued pursuant to the Company’s 2019 Long-Term Incentive Plan. The “average price paid per share” reported in the table above, with respect to such shares, reflects the fair market value of the Company’s common stock on the exercise date, which was the closing sales price of the Company’s common stock as reported on the NYSE American on that date.

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ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

(Not Applicable.)

ITEM 4 – MINE SAFETY DISCLOSURE

(Not Applicable.)

ITEM 5 – OTHER INFORMATION

(Not Applicable.)

ITEM 6 – EXHIBITS

The following exhibits are filed as a part of this report:


		EXHIBIT INDEX

Exhibit No.		Name

3.1		Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3a to the Company’s Registration Statement on Form S-4 (Registration No. 33-25321), as filed on November 7, 1988). (Filed on paper – hyperlink is not required pursuant to Rule 105 of Regulation S-T)

3.1.1		Certificate of Amendment to the Company’s Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997, as filed on May 14, 1997). (Filed on paper – hyperlink is not required pursuant to Rule 105 of Regulation S-T)

3.2		Amended and Restated Bylaws of the Company, effective as of January 24, 2023 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 30, 2023)

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer pursuant to 18 USC Section 1350 Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer pursuant to 18 USC Section 1350 Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from Evans Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Consolidated Balance Sheets – March 31, 2023 and December 31, 2022; (ii) Unaudited Consolidated Statements of Income – Three months ended March 31, 2023 and 2022; (iii) Unaudited Statements of Consolidated Comprehensive Income – Three months ended March 31, 2023 and 2022; (iv) Unaudited Consolidated Statements of Stockholders' Equity – Three months ended March 31, 2023 and 2022; (v) Unaudited Consolidated Statements of Cash Flows – Three months ended March 31, 2023 and 2022; and (vi) Notes to Unaudited Consolidated Financial Statements.

104		The cover page from the Evans Bancorp, Inc’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Evans Bancorp, Inc.

DATE

May 02, 2023

/s/ David J. Nasca

David J. Nasca

President and CEO

(Principal Executive Officer)

DATE

May 02, 2023

/s/ John B. Connerton

John B. Connerton

Treasurer

(Principal Financial Officer and Principal Accounting Officer)