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Evans Bancorp sets aside $1 million for fair lending fight

Evans Bancorp has been unable to reach an agreement with Attorney General Eric Schneiderman over state allegations that the bank’s mortgage lending practices may violate fair lending laws, prompting the bank to set aside $1 million in reserve to cover expenses or possibly even a fine.

The Hamburg-based community banking company, which first disclosed the state investigation in Securities and Exchange Commission filings, cited the litigation expense when it reported second-quarter earnings on Monday, which fell 15.8 percent as a result of the charge. The bank said it has not yet “incurred actual payments related to the investigation,” but “recorded a reserve based on estimated outcomes from legal proceedings.”

“We are disappointed that we have thus far been unable to reach agreement with the state Attorney General,” Evans President and CEO David J. Nasca said. “Our bank has a long, demonstrated history of community involvement and positive reports regarding our banking practices from our primary federal regulator, the Office of the Controller of the Currency, more commonly known as the OCC.”

In an interview, Nasca declined to go into details about the state’s investigation of the bank’s mortgage lending, which he said is “ongoing,” but he also said the bank didn’t know exactly what the state was looking at. He said Evans was “still in discussions” with the state “about what we agree with or disagree with.”

But he also defended the bank’s practices, and insisted the bank would hold firm. “It’s our expectation that our practices are right where they’re supposed to be,” Nasca said. “We’ve received that kind of information from the OCC in the past. It’s in our public record that our lending practices are appropriate, and they’re questioning some of those. We’re confident and steadfast in our claim that we’ve done all the right things.”

The reserve is expected to cover any costs that may be incurred, whether legal fees, a settlement or a fine. “We’re not sure which way it will go,” Nasca said. “Our hope and our expectation is that it will go in a direction for what we believe, that what they’re looking into is unfounded and without merit.”

Evans on Monday reported net income of $1.6 million, or 37 cents per share, down from $1.9 million, or 46 cents per share, in the same quarter a year ago. Not including the legal expense, which equaled $600,000 after taxes, or 14 cents per share, profits rose by the same percentage – 15.8 percent – to $2.2 million.

“We had another very strong quarter, so we continue to be focused on the business,” Nasca said. “Our performance is strong enough to absorb this unusual event and still have us not far off last year’s pace.”

Net interest income from taking deposits and making loans rose 9.7 percent to $7.7 million, as loans grew 9.2 percent to $663.4 million, while deposits rose 2.1 percent to $707.2 million, led by low-cost checking accounts. Despite doubling the provision for loan losses to $200,000, credit quality remains strong, with lower bad loans on the books. Fee income fell 5 percent to $3.1 million, on lower insurance revenues, while expenses rose 14.8 percent to $8.3 million on bonuses and new hires.

“We continue to see it be competitive in the marketplace,” Nasca said. “Good deals are fought over competitively, but I think there’s really good markers of things happening in Western New York. So we like where the market is right now.”