Elmira Savings Bank
Annual Report 2015

Plain-text annual report

The People’s Bank 2015 Annual Report The People’s Bank OUR MISSION THE MISSION OF ELMIRA SAVINGS BANK is to provide above average returns to our shareholders while providing a broad range of financial services that meet the needs of the individuals, businesses, and organizations of our community. We will achieve this through our commitment to: • Consistent and superior quality service for our customers. • A culture that incents employees to excel personally and professionally. • Leadership in and support for our community. • Independence as a local community bank. DESIGN PS Graphic Design PHOTOGRAPHY Frank Borkowski ELMIRA SAVINGS BANK BOARD OF DIRECTORS (Back row l-r) Robert K. Lambert, President/Chief Executive Officer, Arnot Health; Marianne W. Young, President/Chief Executive Officer, Market Street Trust Company; Arie J. van den Blink, Chairman/Chief Executive Officer, The Hilliard Corporation; Katherine H. Roehlke, President/Chief Executive Officer, F.M. Howell & Company; Donald G. Quick, Jr., Retired Partner, Mengel, Metzger, Barr & Co. LLP; Kristin A. Swain, Executive Director, The Rockwell Museum (Front row l-r) A. Scott Welliver, Chairman/Chief Executive Officer, Welliver McGuire, Inc.; John R. Alexander, Vice Chairman and Corporate Secretary of the Board/Managing Partner, Sayles & Evans; Thomas M. Carr, President/Chief Executive Officer; Michael P. Hosey, Chairman of the Board DEAR SHAREHOLDERS, It is with great optimism for the future of our regional economy that I report to you our accomplishments of 2015. The Upstate Revitalization Initiative has provided $1.5 billion over the next five years to our region, which includes all markets in which we do business. This generational opportunity which lies before us can systemically alter for the better the long term prospects of our business environment. As a community bank operating across these regions, we are poised to participate in this transformation. Thomas M. Carr President & Chief Executive Officer During 2015 the Bank achieved solid financial performance, expanded its branch network into Watkins Glen, reorganized its credit and retail operations, conducted a process improvement analysis, implemented a mobile deposit product and began a study of our corporate brand. The Bank had total assets of $561.3 million at December 31, 2015 as compared to $546.0 million the previous year. Our loan portfolio increased by $34.0 million to total $451.4 at year end, an increase of 8.1%. Our deposit base increased by $17.9 million to total $440.5 million on December 31, 2015, an increase of 4.2%. This increase in our core business, of attracting deposits and providing credit, was partially offset by a $21.3 million decrease in our investment portfolio and $2.5 million decrease in our borrowed funds. The Bank had net income of $4.1 million in 2015, an increase of $457,000 or 12.5% above the previous year. This increase is due primarily to a 45.9% or $749,000 increase in gain on sale of mortgages and a $222,000 increase in net interest income. The increase in the revenue from gain on sale of mortgages is attributable to a 20.3% or $19.9 million increase in mortgage originations and the expansion of our margin on the sale of mortgages to the secondary market. The increase in net interest income of $222,000 is due primarily to an increase in the loan portfolio of $34.0 million. This loan growth was funded by $17.9 million of deposit growth and a $21.3 million decrease in our investment portfolio. The Bank’s noninterest expense increased by $90,000 or less than one percent. During the year the Bank invested in a process review, reorganized its credit and retail divisions, and conducted a brand evaluation, all resulting in one-time increased expense in 2015. These increases were substantially offset by the absence of the retirement expense recognized in 2014. The Bank’s asset quality remains strong. Our nonperforming loans as a percentage of total loans declined from 1.13% in 2014 to 1.05% in 2015. Our delinquent loans more than 30 days delinquent, excluding nonperforming loans, totaled .38% of total loans. Both aforementioned ratios compare favorably to peers. The Bank’s provision for loan losses was increased by $223,000 during 2015, which resulted in a $174,000 increase in the allowance for loan losses which totaled $4.2 million at December 31, 2015. The increase in the provision was primarily due to the growth in the loan portfolio of 8.1%. The Bank paid 92 cents per common share in cash dividends in 2015. This represents a dividend yield of approximately 5% based on current market price for stocks. This dividend yield is one of the highest in the nation for publicly traded banks. The Bank paid $2.5 million of common stock cash dividends in 2015 the majority of which is returned to shareholders in the markets we serve. In addition, the Bank purchased all outstanding stock warrants for $1.5 million. Page 4 : Elmira Savings Bank : 2015 ANNUAL REPORT In March 2015 the Bank opened its 13th full-service branch office in Watkins Glen, NY. This is the Bank’s first full- service office in Schuyler County. We have many customers and business partners in that community and are pleased with our acceptance by the market. We are happy to report that total deposits at this branch exceeded $20 million at December 31, 2015. In addition we have actively been providing both consumer and commercial credit to the market as highlighted later in this report on pages 12 and 13. Watkins Glen is important geographically to the Bank. It provides us with greater access to the economic development in the Finger Lakes region and helps connect our Corning and Elmira markets to our Ithaca market. In April 2015 the Bank implemented a mobile deposit product providing the highest level of convenience by allowing customers to deposit checks through their mobile devices. This product is a great addition to our mobile and online banking suite of products and has been adopted by thousands of customers during the year. The Bank engaged a marketing research firm during 2015 to conduct a corporate brand evaluation in the markets we serve. We believe that results provided by this study will enable us to strategically better position the organization and our message in each market. The study will be completed in early 2016. During the year the Bank, with outside expertise, conducted an evaluation of its retail and lending operations. The results of this review were the implementation of significant improvements to the Bank’s processes and systems. The Bank also implemented significant changes to its organizational structure, with the formation of a credit department and the addition of key new positions which will help drive our business development efforts. increased visibility and help to create a higher level of awareness of our brand in that market. During the fourth quarter of 2015 the Bank established a credit department which consolidated the underwriting, processing and administration of our three lending divisions, mortgage, consumer and commercial, into one department. This change will allow greater efficiency and utilization of resources for our loan administration. In addition, this change will relieve our loan officers of administrative burden which will allow them to focus more intently on new loan origination. We anticipate increased efficiency and scalability from the credit department and increased production from our loan officers. On the retail side of the organization we established three new positions to support business development. These new resources will drive our business development activities across our branch network, allow greater focus on acquiring commercial deposit market share, and assist us in elevating our employees’ overall skill level. On December 4, 2015, the Bank acquired approximately one acre in the City of Ithaca located between State Street and Seneca Street along North Meadow Street. On the corner of North Meadow and State Street stands a two story brick commercial building which the Bank intends to renovate into a full-service branch office. During January 2016, the Bank received regulatory approval to move its existing branch located at 301 East State Street to 602 West State Street when the renovation is completed. The high level of economic activity in Tompkins County has made that market attractive to the Bank. We believe that the new branch location at 602 West State Street will provide the Bank with Along with the aforementioned parcel at 602 West State Street, the Bank also obtained five other parcels extending from State Street along North Meadow to Seneca Street. The Bank has no immediate plans for those parcels and in the future will look to work with the City of Ithaca and local developers to determine their best economic use. As we look forward to 2016 and beyond, we are committed to obtaining the necessary resources to grow our company. We are looking forward to having a higher profile in the Tompkins County market and capitalizing on the economic development opportunities. We believe the organizational changes we have made will allow us to better execute on future opportunities. We are excited about the prospects which may develop over the next five years in conjunction with the $1.5 billion awarded to the regions we serve through the Upstate Revitalization Initiative. The Board of Directors and management of the Bank are dedicated to improving performance primarily through balance sheet growth and enhancement of noninterest income. We believe there is substantial opportunity in the markets we serve and we are determined to capitalize on them. We appreciate the support of our shareholders and customers and look forward to building new relationships. Thomas M. Carr President and Chief Executive Officer Elmira Savings Bank : 2015 ANNUAL REPORT : Page 5 Assets, Deposits, and Net Loans Assets Deposits Net Loans $523,358 $536,936 $514,325 $545,969 $561,344 SELECTED FINANCIAL DATA (in thousands, except share and per share amounts) $381,729 $348,824 $409,565 $397,733 $422,561 $3,665 $440,472 $381,275 $390,976 $418,146 $454,998 Assets $ 561,344 545,969 $2,765 Loans (including loans held for sale) 454,998 418,146 FINANCIAL STATEMENT HIGHLIGHTS 2015 2014 2011 2012 2013 2014 2015 Allowance for loan losses Deposits Shareholders’ equity Net interest income Provision for loan losses Non-interest income Non-interest expense 4,148 3,974 440,472 422,561 54,771 55,493 15,634 15,412 630 5,391 407 4,758 14,593 14,503 Total Return Performance Net income attributable to Elmira Savings Bank 4,122 3,665 Elmira Savings Bank NASDAQ Composite SNL Mid-Atlantic Thrift SNL Bank NASDAQ SNL Thrift NASDAQ SNL Bank $500M-$1B SNL Mid-Atlantic Bank 225 200 175 150 125 100 75 50 25 0 2010 PER SHARE INFORMATION Basic earnings per share Diluted earnings per share Book value per share Cash dividend per share SELECTED RATIOS Return on average assets Return on average equity 2011 2012 2013 2014 2015 Shareholders’ equity to assets Net Income ($000) Net Income ($000) Available to Common Shareholders $5,213 $5,054 $5,029 Dividend payout ratio Efficiency ratio OTHER SELECTED DATA Number of offices Number of automated teller machines $ 1.19 1.17 16.53 0.92 1.03 0.99 16.91 0.92 0.73% 7.43% 9.76% 0.70% 6.60% 10.16% 77.31% 89.32% 69.41% 71.90% 16 14 16 13 $4,122 Weighted average shares outstanding 2,707,491 2,677,252 $3,665 Weighted average diluted shares outstanding 2,762,332 2,799,670 $3,265 $3,604 $3,839 $2,765 $3,222 2011 2012 2013 2014 2015 Page 6 : Elmira Savings Bank : 2015 ANNUAL REPORT SELECTED FINANCIAL DATA Consolidated Balance Sheets Elmira Savings Bank and Subsidiaries (in thousands, except for share and per share data) ASSETS Cash and due from banks Federal funds sold and other short-term investments Total cash and equivalents Securities available for sale, at fair value Securities held to maturity - fair value of $9,010 at December 31, 2015, and $7,641 at December 31, 2014 Federal Reserve and Federal Home Loan Bank (FHLB) stock, at cost Loans held for sale Loans receivable Less: Allowance for loan losses Net Loans Premises and equipment, net Bank-owned life insurance Accrued interest receivable Intangible assets, net Goodwill Other assets December 31, 2015 December 31, 2014 $ 5,352 102 5,454 42,709 9,003 11,108 3,630 451,368 4,148 447,220 12,130 13,188 1,541 61 12,320 2,980 $ 7,959 606 8,565 65,624 7,389 11,182 787 417,359 3,974 413,385 9,475 12,790 1,566 125 12,320 2,761 Total assets $ 561,344 $ 545,969 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits Borrowings Other liabilities Total liabilities SHAREHOLDERS’ EQUITY: Preferred stock, $1,000 liquidation value per issued share; 5,000,000 shares authorized; 10,000 shares issued at December 31, 2015 and at December 31, 2014 Common stock, $1 par value; authorized 5,000,000 shares; 2,820,745 shares issued at December 31, 2015 and 2,809,364 at December 31, 2014 Additional paid-in capital Retained earnings Treasury stock, at cost - 98,118 shares at December 31, 2015 and 104,418 shares at December 31, 2014 Accumulated other comprehensive income Total Elmira Savings Bank shareholders’ equity Noncontrolling interest Total shareholders’ equity Total liabilities and shareholders’ equity $ 440,472 59,525 6,576 $ 422,561 62,000 5,915 506,573 490,476 9,700 2,821 41,243 3,488 (2,907) 373 54,718 53 9,700 2,809 42,365 2,769 (3,053) 849 55,439 54 54,771 55,493 $ 561,344 $ 545,969 Elmira Savings Bank : 2015 ANNUAL REPORT : Page 7 Consolidated Statements of Income Elmira Savings Bank and Subsidiaries (in thousands, except for per share amounts) INTEREST AND DIVIDEND INCOME Interest and fees on loans Interest and dividends on securities Taxable Non-taxable Years Ended December 31 2014 2013 2015 $ 18,418 $ 17,709 $ 17,733 1,367 949 1,659 899 1,744 776 Total interest and dividend income 20,734 20,267 20,253 INTEREST EXPENSE Interest on deposits Interest on borrowings Total interest expense Net interest income Provision for loan losses 3,016 2,084 5,100 2,986 1,869 4,855 3,224 1,976 5,200 15,634 630 15,412 407 15,053 315 Net interest income after provision for loan losses 15,004 15,005 14,738 NONINTEREST INCOME Service fees Gain on sale of loans held for sale Net gain on sale of securities Other service fees Earnings on bank-owned life insurance Other Total noninterest income NONINTEREST EXPENSE Salaries and benefits Net occupancy Equipment Marketing and public relations Professional fees Other 1,471 2,382 284 716 398 140 1,437 1,633 422 687 404 175 1,357 3,007 61 660 399 73 5,391 4,758 5,557 7,324 1,383 1,061 832 773 3,220 7,692 1,416 1,012 884 690 2,809 7,382 1,259 1,022 676 674 2,849 Total noninterest expense 14,593 14,503 13,862 Income before income taxes Income taxes Net income Less: Net income attributable to noncontrolling interest 5,802 1,675 4,127 5 5,260 1,590 3,670 5 6,433 1,374 5,059 5 Net income attributable to Elmira Savings Bank $ 4,122 $ 3,665 $ 5,054 Dividend on preferred stock 900 900 1,215 Income available to common shareholders $ 3,222 $ 2,765 $ 3,839 Basic earnings per common share Diluted earnings per common share $ $ 1.19 1.17 $ $ 1.03 0.99 $ $ 1.47 1.40 Page 8 : Elmira Savings Bank : 2015 ANNUAL REPORT Consolidated Statements of Comprehensive Income Elmira Savings Bank and Subsidiaries (in thousands) Net income OTHER COMPREHENSIVE INCOME (LOSS): Net unrealized holding (losses) gains on securities available for sale Tax benefit (expense) Realized securities gains included in net income Tax expense Other comprehensive (loss) income, net of tax Comprehensive income Years Ended December 31, 2015 2014 2013 $ 4,122 $ 3,665 $ 5,054 (493) 191 (302) (284) 110 (174) 757 (293) 464 (422) 163 (259) (1,943) 753 (1,190) (61) 23 (38) (476) 205 (1,228) $ 3,646 $ 3,870 $ 3,826 Consolidated Statements of Shareholders’ Equity Elmira Savings Bank and Subsidiaries (in thousands, except for share and per share amounts) Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated other comprehensive income Noncontrolling Interest Total Balance at December 31, 2014 $ 9,700 2,809 42,365 2,769 (3,053) 849 54 55,493 Net income Other comprehensive loss Stock based compensation expense Issuance of common shares (6,925 shares) Exercise of stock options, net (4,456 shares) Repurchase of stock warrant Issuance of treasury stock (6,300 shares) Preferred stock repurchased - noncontrolling interest Cash dividend on preferred stock Cash dividend on common stock ($.92 per share) - - - - - - - - - - - - - 7 5 - - - - - - - 333 (7) 39 (1,486) (1) - - - 4,122 - - - - - - - (900) (2,503) - - - - - - 146 - - - - (476) - - - - - - - - 5 - - - - - - (1) (5) 4,127 (476) 333 - 44 (1,486) 145 (1) (905) - (2,503) Balance at December 31, 2015 $ 9,700 2,821 41,243 3,488 (2,907) 373 53 54,771 Elmira Savings Bank : 2015 ANNUAL REPORT : Page 9 To the Board of Directors and Shareholders of Elmira Savings Bank We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Elmira Savings Bank and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows (not presented herein) for each of the three years in the year ended December 31, 2015, and in our report dated March 21, 2016, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying consolidated financial statements is fairly stated, in all material respects, in relation to the financial statements from which it has been derived. Wexford, Pennsylvania March 21, 2016 MARKET PRICE INFORMATION The Bank’s common stock was first offered in March 1985, and is now listed on the NASDAQ exchange under the symbol ESBK. This table summarizes the high and low market price for the Bank’s stock during 2015 and 2014. Quarters 2015 2014 High Low High Low First 23.00 19.99 26.97 22.25 Second 20.82 19.43 24.78 21.92 Third 20.81 19.05 24.54 20.16 Fourth 21.13 18.41 23.00 20.50 ANNUAL SHAREHOLDERS’ MEETING The Annual Shareholders’ Meeting will be held at 10:00 a.m. on April 26, 2016 at the Clemens Center, 207 Clemens Center Parkway, Elmira, NY 14901 SHAREHOLDER INQUIRIES The Bank’s transfer agent is: Computershare, Inc. Computershare Investor Services PO Box 30170, College Station, TX 77842 (800) 368-5948 • The Bank’s Annual Report on Form 10-K will be furnished without charge upon written request to: Thomas M. Carr President/Chief Executive Officer Elmira Savings Bank 333 E. Water Street, Elmira, NY 14901 Page 10 : Elmira Savings Bank : 2015 ANNUAL REPORT Elmira Savings Bank Watkins Glen Office On March 16, 2015 we officially opened our Watkins Glen branch office at 712 North Franklin Street. We have been warmly received by the community and are very pleased with our first year of operations. The People’s Bank Tops Plaza The Bank provided permanent financing to the investor group, Ten Patels Realty, LLC, who purchased the Tops Plaza located at 504 South Franklin Street, Watkins Glen. We were delighted to provide this funding in support of the local economy. Watkins Brewery Apartments We were pleased to provide financing to Watkins Brewery Holdings, LLC for their project located at 106-118 Lake Shore Drive, Watkins Glen. This project was started in 2015 and is expected to be completed in 2017 providing seasonal townhouse rental property to the market. ELMIRA SAVINGS BANK OFFICERS In Memoriam George L. Howell George L. Howell was elected to the Bank’s Board of Directors in 1992. Mr. Howell served in a number of key board positions highlighted by his tenure as Chairman from 2002 to 2012. During Mr. Howell’s tenure as Chairman of the Board, the Bank expanded into Steuben and Tompkins Counties, NY. He continued to serve as Chairman Emeritus until his death in November 2015. Mr. Howell gave tirelessly of his time and talents as a leader of the Bank and will be missed by every- one at Elmira Savings Bank and in our community. Gary O. Short Senior Vice President Robert W. Hazelton Vice President Jason Sorochinsky Vice President MANAGEMENT INFORMATION SYSTEMS Joseph L. Walker Vice President Phillip J. Collins Assistant Vice President OPERATIONS Margaret A. Phillips Vice President RETAIL SERVICES Donna J. Tangorre Senior Vice President Renee A. Wheeler Vice President Deborah L. Adams Assistant Vice President Kimberly A. Elliott Assistant Vice President Theresa A. Emo Assistant Vice President John Strong Assistant Vice President Janette Allen Assistant Treasurer Linda Confer Assistant Treasurer Joan Ferreira Assistant Treasurer Lorenda D. Gneo Assistant Treasurer Margaret Hurd Assistant Treasurer Phylis A. Jensen Assistant Treasurer Debra S. Knowles Assistant Treasurer EXECUTIVE Thomas M. Carr President Chief Executive Officer Shirley A. Weigand Assistant Secretary AUDIT AND CONTROL Joseph P. Klaiber Vice President Edith B. Harkness Assistant Vice President Jill M. McConnell Assistant Secretary COLLECTIONS Tricia Rennells Assistant Vice President CREDIT Carrie L. Spencer Vice President Susan M. Cook Assistant Vice President Amy Frisbie Assistant Vice President Frank P. Spena, Jr. Assistant Vice President Jennifer M. Murphy Assistant Secretary FINANCE Jason T. Sanford Senior Vice President Chief Financial Officer John J. Stempin Vice President Controller Judy A. Woodruff Assistant Secretary HUMAN RESOURCES Bradley V. Serva Vice President Stacy Ward Assistant Secretary LENDING Kevin J. Berkley Executive Vice President Senior Loan Officer Tamara S. Pabis Senior Vice President Page 14 : Elmira Savings Bank : 2015 ANNUAL REPORT ELMIRA SAVINGS BANK LOCATIONS MAIN OFFICE 333 East Water Street Elmira, NY 14902-9967 607-734-3374 CORNING 19 East Market Street, Suite 101 Corning, NY 14830 607-962-0812 HORSEHEADS 2149 Grand Central Avenue Horseheads, NY 14845 607-734-3374 SOUTHPORT 1136 Pennsylvania Avenue Elmira, NY 14904 607-734-3374 WEST ELMIRA 930 West Church Street Elmira, NY 14905 607-734-3374 BIG FLATS 971 County Route 64 Big Flats, NY 14841 607-734-3374 ERWIN 404 S. Hamilton Street Painted Post, NY 14870 607-936-1806 ITHACA LOAN CENTER 301 East State Street Ithaca, NY 14850 607-257-3584 COMMONS 301 East State Street Ithaca, NY 14850 607-272-1111 The People’s Bank Finger Lakes Region MORAVIA 142 Main Street Moravia, NY 13118 315-497-1300 WATKINS GLEN 712 N. Franklin Street Watkins Glen, NY 14891 607-535-4026 SOUTH MEADOW 702 South Meadow Street Ithaca, NY 14850 607-272-2211 CORTLAND LOAN CENTER* 77 South West Street Homer, NY 13077 607-749-7251 ARNOT MALL ATM Entrance 4 - Center Court Horseheads, NY 14845 607-734-3374 ELMIRA HEIGHTS 2075 Lake Road Elmira Heights, NY 14903 607-734-3374 TRIPHAMMER 2300 North Triphammer Road Ithaca, NY 14850 607-257-8808 VESTAL LOAN CENTER* 3439 Vestal Parkway E. Vestal, NY 13850 607-729-0386 *ATM available at all locations except for the Cortland Loan Center and Vestal Loan Center. Mobile Deposit In April 2015 Elmira Savings Bank implemented mobile deposit complementing its online banking suite of products enabling the customer to make a check deposit from their personal device. Elmira Savings Bank : 2015 ANNUAL REPORT : Page 15 The People’s Bank www.elmirasavingsbank.com Member FDIC | Equal Housing Lender 002CSN63EE 

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