Elmira Savings Bank
Annual Report 2016

Plain-text annual report

Hometown service… The People’s Bank 2016 Annual Report …in your community. ELMIRA SAVINGS BANK Board of Directors (Front row l-r) A. Scott Welliver, Chairman & Chief Executive Officer, Welliver McGuire, Inc.; Michael P. Hosey, Chairman of the Board; Thomas M. Carr, President & Chief Executive Officer; John R. Alexander, Vice Chairman and Corporate Secretary of the Board & Managing Partner, Sayles & Evans (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. Not pictured: Kristin A. Swain, Executive Director, The Rockwell Museum 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. (left to right): Kevin J. Berkley, Executive Vice President & Senior Loan officer; Donna J. Tangorre, Senior Vice President & Branch Administrator; Jason T. Sanford, Senior Vice President & Chief Financial Officer; Thomas M. Carr, President & Chief Executive Officer The People’s Bank Thomas M. Carr President & Chief Executive Officer TO OUR Shareholders The People’s Bank I am pleased to provide this report highlighting the accomplishments of Elmira Savings Bank in 2016. First, I would like to provide some perspective on developments in our local economic environment. In 2016, New York State’s Downtown Revitalization Initiative awarded the City of Elmira $10 million to aid in inner city development. The Elmira/Corning Regional Airport received $50 million of Federal and State aid to assist in creating the “Airport of Tomorrow” as the gateway to our community. These events augment the Upstate Revitalization Initiative, which in 2015 pledged $1.5 billion of support to markets we serve and, is beginning to produce meaningful development projects across the region. These initiatives enhance the potential for dramatic improvement of the local economies and provide us the opportunity to participate in a regional transformation. As I reflect on the Bank’s achievements of the year recently passed, I am pleased to report the following: we achieved strong financial results, continued to execute our strategic initiatives, further invested in our network of branches, implemented new technologies that provide convenience, security, and efficiency, and continued to focus on developing our staff. The financial results of this past year, 2016, are highlighted by a 5% increase in net income, expansion of our net interest income by 6%, an increase of 9% in non-interest income, and deposit growth of 7%. Net income totaled $4.3 million for 2016, an increase of $215,000 or 5%, from the $4.1 million recorded for 2015. This was the result of an increase of $900,000 in net interest income and $500,000 in non-interest income, partially offset by an increase in operating expenses of $1.0 million. The increase of $900,000 or 6% in net interest income, our primary source of revenue, was due to our ability to pay down borrowed funds and replace them with deposits. This less expensive source of funding reduced our interest expense and helped to expand our net interest margin from 3.07% in 2015 to 3.21% in 2016. This net interest margin expansion is contrary to what many of our peers are currently experiencing. Our second primary source of revenue, non-interest income, increased by $500,000 or 9% in 2016. The primary component of this revenue stream is gain on sale of mortgage loans which increased by 29% during 2016 from $2.4 million in 2015 to $3.1 million in 2016. This increase is attributable to a larger percentage of our residential mortgage originations being sold into the secondary market. In 2016, the Bank originated $111 million of residential mortgages, consistent with the level of originations in 2015. In early 2016, as we prepared for a higher interest rate environment in the future, we developed a strategy to decrease the amount of loans originated for our loan portfolio and instead sell this production to investors. In 2015, we sold $59 million of residential mortgages to the secondary market which represented 50% of our originations. In 2016, we sold $76 million to the secondary market which represented 69% of our production. In addition to increased sales volume, we also expanded the average gross margin on each loan sold. Page 4 : Elmira Savings Bank : 2016 ANNUAL REPORT Partially offsetting the $1.4 million increase in revenue was a $1 million increase in operating expenses. This increase in operating expense is composed of a $600,000 increase in salary and benefit expense due to annual merit increases and four new positions; three in sales roles and one in a support role. Much of the remaining variance in operating expense is attributable to an increase in expense on loans sold in 2016. Total assets increased by $12.1 million or 2% to total $573.5 million at December 31, 2016. Our strategy to sell a larger portion of residential mortgage originations limited our overall level of balance sheet growth. Our loan portfolio increased by $4.6 million or 1% year-to-year to total $455.9 million at December 31, 2016. Our investment portfolio declined by $10.6 million year- to-year to total $41.1 million at the end of 2016. Deposits increased by $29.1 million or 7% in 2016. This increase was composed of a $17.8 million increase in time deposits, a $5.5 million increase in money market accounts, a $3.7 million increase in savings accounts, and a $3.4 million increase in non-interest bearing accounts, partially offset by a $1.3 million decrease in interest bearing transaction accounts. Every branch in our growth markets increased their deposits from 2015 to 2016. Shareholders’ equity increased by $1.0 million to total $55.7 million on December 31, 2016. This increase in shareholder equity produced an increase in book value per common share of $0.21 to total $16.74 at the end of 2016. The Bank paid $0.92 of cash dividends per common share in 2016. This equates to a 4.7% dividend yield. This dividend yield is one of the highest in the nation for publicly traded banks. Our asset quality remains strong. Our ratio of non-performing loans to total loans was 1.10% at December 31, 2016. Net loan charge offs to average loans during 2016 was 0.08%, down from 0.11% for 2015. The allowance for loan losses as a percentage of total loans was 0.94% at December 31, 2016 compared to 0.92% at the same point in 2015. The Bank continues to focus on residential and commercial mortgage lending and on expanding deposit market share across all existing markets. During 2016 the Bank expanded the number of channels available for us to sell residential mortgages. These additional outlets provide us with greater flexibility and the opportunity to increase revenue in the future by originating and selling mortgage products that we have not historically offered. We continue to improve our branch network. We have been vigorously working on renovating a historic building at 602 W. State Street in Ithaca into a full-service branch with a convenient drive-through. We anticipate opening this highly visible new branch during the second quarter of 2017 and relocating our existing operations from 301 E. State Street, Ithaca to this new facility. Additionally, we have been developing plans to expand our branch network into Broome County, and during the first quarter of 2017 purchased a parcel in Vestal, NY which will be available for future development. The Bank continued to upgrade and expand its technology. For our debit card holders, we implemented EMV Chip technology, providing better security for our customers. We also implemented Mobile Passcode and Touch Identification for our mobile banking customers, enhancing convenience and security for this delivery channel. In our residential mortgage area, we implemented digital signature technology providing convenience to our customers, as well as reducing the time required to close a mortgage. We improved our regulatory compliance technology by implementing a new Bank Secrecy Act and Anti-Money Laundering system. Finally, we implemented a new consumer lending platform streamlining the process for customers, as well as adding operating efficiencies. The addition of a fulltime training officer at the beginning of the year has provided a more robust training environment for our staff. We expanded our training for staff members in sales positions, provided personal branding training for all employees, and provided monthly training to all staff, expanding their understanding of key Bank product lines. This report demonstrates the progress the Bank made during 2016 on multiple fronts. This continued progress, combined with the renewed optimism for the upstate economies we serve, positions our institution favorably for continued success. As we move forward, it is apparent that our business is dependent upon meeting the needs and expectations of the people we serve, including shareholders, customers, and employees. We appreciate your support and the opportunity to serve you as “The People’s Bank.” Thomas M. Carr President and Chief Executive Officer Elmira Savings Bank : 2016 ANNUAL REPORT : Page 5 Assets, Deposits, and Net Loans ($000) Total Assets Total Deposits Total Net Loans $536,936 $514,325 $545,969 $409,565 $381,275 $397,733 $390,976 $422,561 $418,146 $561,344 $573,450 $469,547 $459,528 $440,472 $3,665 $454,998 $2,765 SELECTED FINANCIAL DATA (in thousands, except share and per share amounts) FINANCIAL STATEMENT HIGHLIGHTS 2016 2015 Assets $ 573,450 561,344 Loans (including loans held for sale) 459,528 454,998 2012 2013 2014 2015 2016 Per Share Data Diluted Earnings Per Common Share Cash Dividends Per Common Share 1.37 1.40 0.77 0.84 0.99 0.92 0.92 0.92 2012 2013 2014 2015 2016 Net Income ($000) Net Income ($000) Available to Common Shareholders PER SHARE INFORMATION Basic earnings per share $ 1.17 1.25 Diluted earnings per share Allowance for loan losses Deposits Shareholders’ equity Net interest income Provision for loan losses Non-interest income Non-interest expense 4,263 4,148 469,547 440,472 55,723 54,771 16,520 15,634 487 5,900 630 5,391 15,602 14,593 Net income attributable to Elmira Savings Bank 4,337 4,122 Book value per share Cash dividend per share SELECTED RATIOS Return on average assets Return on average equity Shareholders’ equity to assets Dividend payout ratio Efficiency ratio OTHER SELECTED DATA Number of offices Number of automated teller machines 1.26 1.25 16.74 0.92 1.19 1.17 16.53 0.92 0.76% 7.77% 9.72% 0.73% 7.43% 9.76% 73.02% 77.31% 69.59% 69.41% 15 14 16 14 $5,213 $5,054 $3,665 $4,122 $4,337 Weighted average shares outstanding 2,722,243 2,707,491 Weighted average diluted shares outstanding 2,739,668 2,762,332 $3,604 $3,839 $3,222 $3,437 $2,765 2012 2013 2014 2015 2016 Page 6 : Elmira Savings Bank : 2016 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 $8,679 at December 31, 2016, and $9,010 at December 31, 2015 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 Total assets 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, 2016 and at December 31, 2015 Common stock, $1 par value; authorized 5,000,000 shares; 2,844,670 shares issued at December 31, 2016 and 2,820,745 at December 31, 2015 Additional paid-in capital Retained earnings Treasury stock, at cost - 98,118 shares at December 31, 2016 and December 31, 2015 Accumulated other comprehensive (loss) income Total Elmira Savings Bank shareholders’ equity Noncontrolling interest Total shareholders’ equity Total liabilities and shareholders’ equity December 31, 2016 December 31, 2015 $ 24,195 99 24,294 32,581 8,519 9,811 3,597 455,931 4,263 451,668 12,634 13,592 1,552 20 12,320 2,862 $ 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 $ 573,450 $ 561,344 $469,547 42,000 6,180 $440,472 59,525 6,576 517,727 506,573 9,700 2,845 41,644 4,407 (2,907) (19) 55,670 53 9,700 2,821 41,243 3,488 (2,907) 373 54,718 53 55,723 54,771 $573,450 $561,344 Elmira Savings Bank : 2016 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 2015 2014 2016 $ 19,056 $ 18,418 $ 17,709 1,000 832 1,367 949 1,659 899 Total interest and dividend income 20,888 20,734 20,267 INTEREST EXPENSE Interest on deposits Interest on borrowings Total interest expense Net interest income Provision for loan losses 3,055 1,313 4,368 3,016 2,084 5,100 2,986 1,869 4,855 16,520 487 15,634 630 15,412 407 Net interest income after provision for loan losses 16,033 15,004 15,005 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 Total noninterest expense Income before income taxes Income taxes Net income Less: Net income attributable to noncontrolling interest 1,420 3,061 180 728 403 108 1,471 2,382 284 716 398 140 5,900 5,391 7,927 1,416 1,200 794 517 3,748 7,324 1,383 1,061 832 773 3,220 1,437 1,633 422 687 404 175 4,758 7,692 1,416 1,012 884 690 2,809 15,602 14,593 14,503 6,331 1,989 4,342 5 5,802 1,675 4,127 5 5,260 1,590 3,670 5 Net income attributable to Elmira Savings Bank $ 4,337 $ 4,122 $ 3,665 Dividend on preferred stock 900 900 900 Income available to common shareholders $ 3,437 $ 3,222 $ 2,765 Basic earnings per common share Diluted earnings per common share $ $ 1.26 1.25 $ $ 1.19 1.17 $ $ 1.03 0.99 Page 8 : Elmira Savings Bank : 2016 ANNUAL REPORT Consolidated Statements of Comprehensive Income Elmira Savings Bank and Subsidiaries (in thousands) Net income OTHER COMPREHENSIVE (LOSS) INCOME 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, 2016 2015 2014 $ 4,337 $ 4,122 $ 3,665 (459) 177 (282) (180) 70 (110) (392) (493) 191 (302) (284) 110 (174) (476) 757 (293) 464 (422) 163 (259) 205 $ 3,945 $ 3,646 $3,870 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 (Loss) Noncontrolling Interest Total Balance at December 31, 2015 $ 9,700 2,821 41,243 3,488 (2,907) 373 53 54,771 Net income Other comprehensive loss Stock based compensation expense Restricted Stock Grants (9,922 shares) Exercise of stock options, net (14,003 shares) Cash dividend on preferred stock Cash dividend on common stock ($.92 per share) - - - - - - - - - - - - 274 10 (10) 14 137 4,337 - - - - - - - (900) - (2,518) - - - - - - - - (392) - - - - - 5 - - - - 4,342 (392) 274 - 151 (5) (905) - (2,518) Balance at December 31, 2016 $ 9,700 2,845 41,644 4,407 (2,907) (19) 53 55,723 Elmira Savings Bank : 2016 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, 2016 and 2015, and the related consolidated statements of income, comprehensive income, statements of shareholders’ equity, and cash flows (not presented herein) for each of the three years in the period ended December 31, 2016, and in our report dated March 20, 2017, 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. Cranberry Township, Pennsylvania March 20, 2017 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 2016 and 2015. Quarters 2016 2015 High Low High Low First 20.55 16.83 23.00 19.99 Second 20.10 18.06 20.82 19.43 Third 21.50 18.85 20.81 19.05 Fourth 22.25 18.50 21.13 18.41 ANNUAL SHAREHOLDERS’ MEETING The Annual Shareholders’ Meeting will be held at 10:00 a.m. on April 25, 2017 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 : 2016 ANNUAL REPORT ELMIRA SAVINGS BANK Customer Endorsements My wife and I could not be happier to be working with ESB. Brett and Allyson, of Elmira, found themselves unexpectedly thrown into a house-hunt as first time homebuyers. Their experience with Elmira Savings Bank was one of professionalism, responsiveness, and kindheartedness. “My wife and I could not be happier to be working with ESB.” The People’s Bank Allyson and Brett Moore We were very pleased with our experience and with the service we received from Bank employees. Gagik and Zara, from Corning, first purchased their home in 2011 through Elmira Savings Bank, then returned in 2016 to refinance. Gagik stated, “we were very pleased with our experience and with the service we received from Bank employees.” Gagik Parsamian and Zara Melkoumian ELMIRA SAVINGS BANK Customer Endorsements Our dreams are being fulfilled because of your customer service, and we can’ t thank you guys enough for the time and effort you have given us. Ryan and Charla, of Binghamton, came to Elmira Savings Bank for a construction loan. ESB was able to get them cleared to close their loan within two days of their approval. “Our dreams are being fulfilled because of your customer service, and we can’t thank you guys enough for the time and effort you have given us,” noted the Starlipers. Ryan and Charla Starliper The People’s Bank I was very happy and could not believe everything went so smoothly with my experience at Elmira Savings Bank. Jodi was referred to Elmira Savings Bank by a Real Estate Agent who had been working with her as a first-time home buyer. With diligent efforts from Bank employees in Vestal, Elmira Savings Bank quickly processed her paperwork and Jodi closed within 45 days. “I was very happy and could not believe everything went so smoothly with my experience at Elmira Savings Bank.” Jodi Grant ELMIRA SAVINGS BANK Current Staff Cory Eddy Bonnie Elvidge Kelly Ewanyk Shanna Flint Valerie Friedrich Patricia Frisbie Robin Gardner Ilene Girardi Bibi Hack-Kester Kristin Haner Thomas Hill Malissa Hootman Jennifer Hourihan Rachel Houseknecht Margaret Hurd Christine Iles Laura Ingle Mercedes Jerzak Judith F. Johnston Kathleen Kelly Keegan Knoll Ellaminda Leader Shaina Leister Christina M. Losey Trisha Luchaco Colleen Manuel Laurel Mareck Cherry Merrill Kimberly O’Dell Jennifer Orr Katherine Page Christina Allen Janette Allen Amy Allshouse Elizabeth Altmann Theresa Andrus Shannon J. Bailey Dwayne Balcom Kathleen Bange Aimee S. Barton Blair Beavers Mary A. Becker Allison Bellinger April Branston Joyelle Briggs Amber R. Brimmer Susan Campbell Jennifer Canali Andres Cardenas-Rivas Alyssa Carlisle Janet S. Caswell Jennifer Catron Jacqueline Louise Cecce Brenda Cimakasky Lindsey Clapper Mary A. Cleary Jessica Coates Michele Corby Tammi L. Cronin William Brad Dennis Tina Dittler Rachel Dodge Pamela Donovan Nicholas Dutcher Sarah Parker Eileen Payne James Pollen Casandra Ponton Hannah Qualey Steven Reed Courtney Reinhart Laura Reynolds Deborah M. Rockwell Sharla R. Root Kristin Sad Heidi Saks Denise Sarro Taryn Schwartz Jena Senefelder Alexis Senkow James E. Shippy Amber Simms Mark Simon II Christine M. Smith Vicky L. Smith Christine Snyder Jennifer Stampp Desirea Sullivan Rosemary Sullivan Ashley Tallarida Erin Thomas-Allen Michelle M. Tilden Suzanne Walsh Alesia Whipple Tracy Wiles Jenna Wilson Lori Ann Zahradka The People’s Bank Elmira Savings Bank : 2016 ANNUAL REPORT : Page 13 ELMIRA SAVINGS BANK Officers Frank P. Spena, Jr. Assistant Vice President Christopher J. Giammichele Senior Vice President Renee A. Wheeler Vice President Jennifer M. Murphy Assistant Secretary Gary O. Short Senior Vice President Deborah L. Adams Assistant Vice President FINANCE Jason T. Sanford Senior Vice President Chief Financial Officer John J. Stempin Vice President Controller Judy A. Woodruff Assistant Vice President HUMAN RESOURCES Bradley V. Serva Senior Vice President Stacy Ward Assistant Secretary LENDING Kevin J. Berkley Executive Vice President Senior Loan Officer Robert W. Hazelton Vice President Kimberly A. Elliott Assistant Vice President Jason Sorochinsky Vice President Theresa A. Emo Assistant Vice President MANAGEMENT INFORMATION SYSTEMS Joseph L. Walker Vice President John Strong Assistant Vice President Linda S. Confer Assistant Treasurer Phillip J. Collins Assistant Vice President Lorenda D. Gneo Assistant Treasurer OPERATIONS Margaret A. Phillips Vice President RETAIL SERVICES Donna J. Tangorre Senior Vice President Branch Administrator Phylis A. Jensen Assistant Treasurer Debra S. Knowles Assistant Treasurer EXECUTIVE Thomas M. Carr President Chief Executive Officer Anne M. Lavancher Assistant Secretary ADVISORY SERVICES Andrea C. Devon Assistant Treasurer AUDIT AND CONTROL Joseph P. Klaiber Vice President Edith B. Harkness Assistant Vice President Jill M. McConnell Assistant Secretary CREDIT Carrie L. Spencer Vice President Susan M. Cook Assistant Vice President Amy Frisbie Assistant Vice President The People’s Bank Page 14 : Elmira Savings Bank : 2016 ANNUAL REPORT ELMIRA SAVINGS BANK Locations Finger Lakes Region The People’s Bank *ATM available at all locations except for the Vestal Loan Center. MAIN OFFICE ITHACA LOAN CENTER 333 East Water Street 301 East State Street Elmira, NY 14902-9967 607-734-3374 Ithaca, NY 14850 607-257-3584 HORSEHEADS COMMONS 2149 Grand Central Avenue 301 East State Street Horseheads, NY 14845 607-734-3374 Ithaca, NY 14850 607-272-1111 SOUTHPORT SOUTH MEADOW 1136 Pennsylvania Avenue 702 South Meadow Street Elmira, NY 14904 607-734-3374 Ithaca, NY 14850 607-272-2211 WEST ELMIRA TRIPHAMMER 930 West Church Street 2300 North Triphammer Road Elmira, NY 14905 607-734-3374 Ithaca, NY 14850 607-257-8808 BIG FLATS 971 County Route 64 Big Flats, NY 14841 607-734-3374 MORAVIA 142 Main Street Moravia, NY 13118 315-497-1300 ELMIRA HEIGHTS VESTAL LOAN CENTER* 2075 Lake Road 3439 Vestal Parkway E. Elmira Heights, NY 14903 607-734-3374 Vestal, NY 13850 607-729-0386 CORNING WATKINS GLEN 19 East Market Street, Suite 101 712 N. Franklin Street Corning, NY 14830 Watkins Glen, NY 14891 607-962-0812 607-535-4026 ERWIN ARNOT MALL ATM 404 S. Hamilton Street Entrance 4 - Center Court Painted Post, NY 14870 Horseheads, NY 14845 607-936-1806 607-734-3374 Elmira Savings Bank : 2016 ANNUAL REPORT : Page 15 The People’s Bank www.elmirasavingsbank.com Member FDIC | Equal Housing Lender 001CSN27B6 

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