BUSINESS
Evans Bancorp, Inc. primarily operates as the financial holding company for Evans Bank, N.A. that provides a range of banking products and services to consumer and commercial customers in Western New York and the Finger Lakes Region of New York State. It operates in two segments, Banking Activities and Insurance Agency Activities. The company offers deposit products, which include checking and negotiable order of withdrawal accounts, savings accounts, and certificates of deposit.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, EVBN is expected to continue to be a modest Value Builder.
Evans Bancorp has a current Value Trend Rating of C (Neutral). The Value Trend Rating reflects highly consistent signals from PTR’s two proprietary measures of a stock’s attractiveness. Evans Bancorp has a neutral Appreciation Score of 50 and a neutral Power Rating of 60, producing the Neutral Value Trend Rating.
Evans Bancorp’s stock is selling well below targeted value. The current stock price of $28.92 compares to targeted value 12 months forward of $37.
This neutral appreciation potential results in an appreciation score of 50 (50% of the universe has greater appreciation potential.)
Evans Bancorp has a Power Rating of 60. (This neutral Power Rating indicates that EVBN’s chances of enjoying attractive investment performance over the near to intermediate term are only average.) Factors contributing to this neutral Power Rating include: the Commercial Banks comparison group is in a strong phase currently; and recent price action has been slightly favorable. An offsetting factor is EVBN’s earnings estimates have fallen very significantly in recent months.
INVESTMENT PROFILE
EVBN’s financial strength is high. Financial strength rating is 77.
Relative to the S&P 500 Composite, Evans Bancorp Inc has significant Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that EVBN is lower risk. Low financial leverage is a positive for EVBN. Relative weaknesses include: low forecasted profitability, and low expected growth. EVBN’s valuation is low: high dividend yield, moderate P/E ratio, and low price/book ratio. EVBN has unusually low market capitalization.
CURRENT SIGNALS
Evans Bancorp’s current operations are strong. Return on equity is rising, reflecting: and improving asset utilization.
Evans Bancorp’s current technical position is very strong. The stock price is in a 7.0 month up move. The stock has appreciated 35.3% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Recent small positive changes in fundamentals have benefitted Evans Bancorp Inc (NYSEAMERICAN: EVBN): significant quarterly earnings acceleration occurred. The stock is currently rated C. On 4/2/24, Evans Bancorp Inc (NYSEAMERICAN: EVBN) stock declined modestly by -1.5%, closing at $28.92. However, this decline was accompanied by exceptionally low trading volume at 35% of normal. Relative to the market the stock has been strong over the last nine months but has declined -1.7% during the last week.CASH FLOW
In 2023, Evans Bancorp experienced a very significant reduction in cash of -$221.73 million (-91%). Sources of cash were much lower than uses. Cash generated from 2023 EBITDA totaled +$46.01 million. Non-operating uses consumed -$14.76 million (-32% of EBITDA). Cash taxes consumed -$7.16 million (-16% of EBITDA). Re-investment in the business amounted to -$356.30 million (-774% of EBITDA). On a net basis, debt investors furnished +$162.77 million (+354% of EBITDA) while equity investors received -$52.29 million (-114% of EBITDA).
Evans Bancorp’s Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Evans Bancorp Peer Group. (Since 2021 Non-operating Income, %EBITDA has accelerated very sharply.) In most years, Evans Bancorp was in the third quartile and lower quartile. Currently, Evans Bancorp is at the upper quartile at -32% of EBITDA (-$14.76 million).
Evans Bancorp’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Evans Bancorp Peer Group as well. In most years, Evans Bancorp was in the top quartile and lower quartile. Currently, Evans Bancorp is lower quartile at -16% of EBITDA (-$7.16 million).
Evans Bancorp’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Evans Bancorp Peer Group. In most years, Evans Bancorp was in the top quartile and lower quartile. Currently, Evans Bancorp is lower quartile at -774% of EBITDA (-$356.30 million).
Evans Bancorp’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Evans Bancorp Peer Group. In most years, Evans Bancorp was in the top quartile and lower quartile. Currently, Evans Bancorp is upper quartile at +354% of EBITDA (+$162.77 million).
Evans Bancorp’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Evans Bancorp Peer Group. (Since 2021 Equity Investors, %EBITDA has accelerated very sharply.) In most years, Evans Bancorp was in the top quartile and second quartile. Currently, Evans Bancorp is lower quartile at -114% of EBITDA (-$52.29 million).
Evans Bancorp’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Evans Bancorp Peer Group. In most years, Evans Bancorp was in the lower quartile and top quartile. Currently, Evans Bancorp is lower quartile at -482% of EBITDA (-$221.73 million).
Evans Bancorp’s Cash, %Revenue has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Evans Bancorp Peer Group. In most years, Evans Bancorp was in the lower quartile and third quartile. Currently, Evans Bancorp is lower quartile at +23%.
PROFITABILITY
Evans Bancorp’s return on equity has improved very significantly since 2014. The current level of 13.8% is 1.41X the low for the period and is -5.4% from the high.
This very significant improvement was due to strong positive trend in pretax operating return and small positive trend in non-operating factors.
The productivity of Evans Bancorp’s assets declined over the full period 2014-2023: asset turnover has experienced a downtrend but it experienced a very sharp recovery after the 2021 low.
More than offsetting this trend, however, pretax margin enjoyed a strong overall uptrend that accelerated very sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had a minor positive influence on return on equity.
Evans Bancorp’s return on equity is upper quartile (13.8%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is upper quartile (1.6%) reflecting asset turnover that is above median (0.05X) and upper quartile pretax margin (31.7%).
Tax “keep” rate (income tax management) is lower quartile (70.6%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is at the upper quartile (11.83X).
GROWTH RATES
Overall, Evans Bancorp’s growth rate has slowed very considerably in recent years. Evans Bancorp’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.Annual revenue growth has been 6.7% per year.
Total asset growth has been 8.3% per year. (More recently it has been 0.5%.)
Annual E.P.S. growth has been 5.4% per year.
Equity growth has been 5.7% per year. (More recently it has been 0.6%.)
No consensus growth rate forecast is available for Evans Bancorp.
Relative to the Evans Bancorp Peer Group, Evans Bancorp’s historical growth measures are erratic. Total asset growth (8.3%) has been at the upper quartile. Revenue growth (6.7%) has been at median. Equity growth (5.7%) has been at median. E.P.S. growth (5.4%) has been below median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Evans Bancorp’s stock price performance has been variable and below market. Between June, 2013 and April, 2024, Evans Bancorp’s stock price rose +65%; relative to the market, this was a -49% loss.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -20.4% is lower quartile relative to the S&P 500 Composite. In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -20.4% is below median relative to Evans Bancorp Inc Peer Group.
Current 5-year total return performance of 0.1% is lower quartile relative to the S&P 500 Composite.
Through February, 2024, with lower quartile current 5-year total return of 0.1% relative to S&P 500 Composite, Evans Bancorp’s total return performance is at median relative to Evans Bancorp Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, EVBN’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the ratio of enterprise value/revenue, followed by the ratio of enterprise value/earnings before interest and taxes, then by the price/equity ratio, then by the price/earnings ratio. The lowest factor, ratio of enterprise value/assets, is lower quartile.
Relative to Evans Bancorp Peer Group, EVBN’s overall valuation is quite low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is at the lower quartile. Ratio of enterprise value/assets is below median. Price/equity ratio is below median. Ratio of enterprise value/revenue is at the lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
Evans Bancorp has a very large value gap compared to the median. For EVBN to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 3.19X to 3.53X. If EVBN’s ratio of enterprise value/revenue were to rise to 3.53X, its stock price would be higher by $7 to $36. For EVBN to achieve upper quartile valuation relative to the Evans Bancorp Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 3.19X to 4.45X. If EVBN’s ratio of enterprise value/revenue were to rise to 4.45X, its stock price would increase by $26 from the current level of $29.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, EVBN is expected to continue to be a modest Value Builder.
Evans Bancorp’s current Price Target of $40 represents a +38% change from the current price of $28.92.
This neutral appreciation potential results in an appreciation score of 50 (50% of the universe has greater appreciation potential.)
Reinforcing this neutral Appreciation Score of 50, the neutral Power Rating of 60 contributes to an Value Trend Rating of C.
Evans Bancorp’s current Price Target is $40 (-20% from the 2023 Target of $50 but +38% from the 04/02/24 price of $28.92). This fall in the Target is the result of a -5% decrease in the equity base and a -15% decrease in the price/equity multiple. The forecasted decline in growth has a very large negative impact on the price/equity multiple and the forecasted decline in return on equity has a large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very large positive impact.
PTR’s return on equity forecast is 8.3% — in line with our recent forecasts. Forecasted return on equity exhibited a modest, erratic increase between 2015 and 2023. The current forecast is below the 2019 peak of 13%.
PTR’s growth forecast is 0.0% — significantly below our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2017 and 2023. The current forecast is below the 2017 low of 4%.
PTR’s cost of equity forecast is 6.2% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is below the 2019 peak of 9.6%.
At Evans Bancorp’s current price of $28.92, investors are placing a negative value of $-2 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 10.0% per year, and a return on equity of 9.1% versus a cost of equity of 7.4%.
PTR’s 2025 Price Target of $40 is based on these forecasts and reflects an estimated value of existing assets of $52 and a value of future investments of $-12.
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