Empire Bancorp Inc.
Annual Report 2012

Plain-text annual report

HEADQUARTERS 1707 Veterans Highway Suite 8 Islandia, NY 11749 631-348-4444 empirenb.com Member FDIC ANNUAL REPORT FulFilling the ViSiOnExperience, influential people, principles, life lessons: all played a role in shaping my core values. When founding Empire National Bank, I envisioned starting a bank that would serve the backbone of our country and the Long Island local economy – the small business owner. They offer a valuable service to every community. They are the ones who take the risk of starting privately-owned companies. They make the daily commitment to realize their dreams—benefitting themselves and others. They are the ones who create jobs. With that said, I felt a sense of responsibility to focus on helping this group of entrepreneurs succeed. The Bank’s mission would be to offer the highest quality of service with a sense of urgency. This commitment to service required assembling a group of talented, hard working, dedicated people who share the vision; and are empowered to make a difference and work as a cohesive team. I believe that this culture is extremely beneficial to our customers, employees and shareholders. Five years later, Empire National Bank has that team in place. And I am proud to introduce them all to you here. These are the people that help FulFill thE Vision. Douglas C. Manditch Empire National Bank Chairman of the Board and Chief Executive Officer SELECTED FINANCIAL DATA (in thousands, except per share data and financial ratios) FINANCIAL HIGHLIGHTS (in thousands, except per share data and financial ratios) ToTAl ASSETS ToTAl DEPoSiTS For the year ended December 31, 2012 2011 2010 2009 2008 $438,399 $339,733 $328,802 $251,799 $103,289 $363,358 $265,020 $252,190 $201,381 $54,730 ToTAl DEMAnD DEPoSiTS ToTAl loAnS $172,165 $45,765 $38,024 $31,677 $21,806 $243,687 $212,876 $218,488 $203.202 $64,509 ToTAl STocKHolDERS’ EQUiTY BooK VAlUE PER SHARE 2 $42,216 $37,432 $29,965 $28,988 $29,290 $9.64 $8.60 $7.11 $6.88 $7.92 FinAnciAl conDiTion DATA: Total Assets Total Loans Total Deposits Total Demand Deposits Total Stockholders’ Equity SElEcTED STATiSTicAl DATA: Net Interest Margin Return on Average Assets Return on Average Equity Efficiency Ratio RATioS: $ 438,399 $ 339,733 $ 328,802 $ 251,799 $ 103,289 $ 243,687 $ 212,876 $ 218,488 $ 203,202 $ 64,509 $ 363,358 $ 265,020 $ 252,190 $ 201,381 $ 54,730 $ 172,165 $ 45,765 $ 38,024 $ 31,677 $ 21,806 $ 42,216 $ 37,432 $ 29,965 $ 28,988 $ 29,290 3.48% 3.82% 3.85% 3.97% 3.47% 0.90% 1.39% 0.64% (3.10)% (12.82)% 8.90% 13.92% 6.33% (20.02)% (26.04)% 89.30% 86.12% 92.02% 140.39% 456.05% Net Charge-offs to Average Loans 0.01% -- 0.01% -- Non-performing Loans to Total Loans 1.09% 1.03% 1.02% 1.19% Non-performing Assets to Total Assets 0.61% 0.65% 0.68% 0.96% – – – Allowance for Loan Losses to Total Loans 1.84% 1.98% 1.93% 1.70% 1.00% Tier 1 Leverage Capital Ratio 9.52% 10.80% 9.47% 12.22% 35.21% Tier 1 Risk-Based Capital Ratio 14.65% 15.36% 13.31% 12.62% 32.62% Total Risk-Based Capital Ratio 15.90% 16.62% 14.56% 13.87% 33.34% oPERATing DATA: Net Interest Income $ 13,428 $ 12,249 $ 11,155 $ 6,532 $ 1,662 Provision for Loan Losses $ 285 -- $ 772 $ 2,824 Net Securities Gains Other Income Other Expense Net Income (Loss) PER SHARE DATA: Diluted Earnings (Loss) Per Share Book Value $ $ $ 641 1 143 3 $ 1,336 $ 2,119 $ 1,786 $ 605 $ 511 $ 516 $ $ 84 383 $ 12,532 $ 10,989 $ 10,740 $ 9,706 $ 8,240 $ 3,624 $ 4,609 $ 1,945 $ (5,531) $ (7,075) $ $ 0.83 9.64 $ $ 1.09 8.60 $ $ 0.46 7.11 $ (1.47) $ (1.91) $ 6.88 $ 7.92 THE NEXT GENERATION BANKFUlFilling THE ViSionEmpirE NatioNal BaNKAnnuAl RepoRt 2012 DEAR SHAREHOLDER We are pleased to provide the following report as we celebrate the completion of our fifth year of operations. During 2012, we made significant progress not only for the short term, but also for the long term future of our bank. As we celebrate this anniversary, we felt it suiting to highlight the core business philosophy that has brought us to this point in our growth: our business is a people business and through customer service and cultivation of relationships, we will continue to achieve success. We hope you enjoy hearing a little more about our success stories and the people who work hard every day to build Empire National Bank. gRowTH Our growth over the past fiscal year was significant, as our deposits increased $98.3 million, or 37%, to $363.3 million at December 31, 2012. Development of our relationships with traditional small and medium-sized businesses, municipalities and nonprofit organizations contributed to the rise, while the professional practices segment of our business also fueled much of the growth. As a testament to our reputation for high quality service, a longtime customer recommended our services to an associate, which led both to a rewarding expansion opportunity for us as well as to a gratifying banking affiliation for our new customers. As a result, demand deposits grew to $172.2 million from $45.8 million, or 276%; representing $23.0 million of growth in our established traditional customer base described above and $103.4 million of growth in our professional practices customer base. Total assets grew $98.7 million to $438.4 million from $339.7 million, or 29%, from the prior year, including loan growth of $30.8 million, or 14.5%. Our investment securities portfolio totaled over $180.2 million at December 31, 2012, an increase of $65.7 million, or 57.3%, over the prior year end. While this diversification of asset mix negatively impacted our net interest margin in 2012, it also positioned us to better leverage our balance sheet and maximize earnings while focusing on prudent growth of our loan portfolio. EARningS Net income totaled $3,624,000 for the year ended December 31, 2012. Our earnings are significant, although down approximately $1.0 million from 2011. The reduction in net income was primarily the result of a decrease of $783,000 in net securities gains and an 4 increase in our provision for loan loss of $285,000. Our net interest income increased by $1.2 million, primarily as a result of our asset growth, and our other income (excluding net securities gains) increased $94,000. In addition, our income tax benefit increased by $353,000. However, these increases were mostly offset by increases in operating expenses of $1.5 million. We expect our earnings outlook for 2013 to be more challenging for several reasons. First, due to the current interest rate environment, we believe that it is unlikely that we will be able to recognize securities gains similar to those recognized in 2011 and 2012. Second, we recognized income tax benefits of 42% and 18% in 2012 and 2011, respectively, as a result of the reversal of the valuation allowance that had been created before we achieved sustained profitability. We expect our earnings to be fully taxable in 2013 at an effective tax rate of approximately 40%, now that we have fully recovered the valuation allowance. Third, the regulatory burdens associated with operating as a community bank in a post Dodd-Frank environment are expected to continue to be significant. We will be seeking to offset the impact of these factors through asset growth, especially with respect to loans, which represent our highest yielding asset class. However, we are operating in a very competitive environment for loans and may be unable to achieve the loan growth that we desire. We will also continue to look at opportunities to improve our efficiency ratio. Finally, our Board and management team will continue to seek other ways to enhance our net interest income and our net after-tax earnings, without sacrificing asset quality or the safety and soundness of our institution. Nevertheless, we expect the combination of these factors to have an adverse impact on our earnings outlook for 2013. Notwithstanding our earnings outlook, we ended 2012 with a solid capital base of more than $42.2 million, which represented an increase of $4.8 million, primarily resulting from our net income of $3.6 million and $733,000 in additional accumulated other comprehensive income largely resulting from unrealized security gains, net of taxes, on our investment securities portfolio. As a result of our capital levels, we remained “well capitalized” as defined by the Office of the Comptroller of the Currency (“OCC”), the highest capital classification for banks, with leverage, Tier 1 risk based and total risk based capital ratios of 9.52%, 14.65% and 15.90%, respectively. Douglas C. Manditch, Chairman & Chief Executive Officer (right) with Thomas M. Buonaiuto, President & Chief Operating Officer Our book value increased to $9.64 per share at December 31, 2012 from $8.60 at December 31, 2011. coMPliAncE AnD goVERnAncE In February 2012, the OCC terminated the formal agreement we entered into during October 2010. That agreement markedly limited our ability to grow the bank over a period of almost two years by restricting our ability to engage in commercial real estate lending, which has been the bread and butter of the community banking business throughout the country and, more specifically, on Long Island. While we disagreed with the basis for the agreement, we believe our management of the institution was always in a safe and sound manner. Although, we consider our asset quality metrics since our inception to be reflective of our commitment to a strong credit portfolio, the agreement effectively left us without a pipeline for new loan business as we entered 2012. In the absence of the restrictions of the agreement, we were able to return to growth across all asset classes of the bank, including commercial real estate lending. We will continue to seek opportunities to grow our loan portfolio in a safe and sound manner during 2013. While approximately thirty percent of the regulations required under the Dodd-Frank Act have been released, we still face uncertainty regarding the remaining seventy percent of the rules. We also await final rulemaking regarding the Basel III regulations, proposals that were originally meant to be applied strictly for the largest systemic banks on a global basis. While we hope community banks will be given relief from Basel III, we are very concerned that the application of Basel III, either in its proposed or a modified form, may subject community banks, such as ours, to capital requirements and constraints that could permanently change the face of community banking across our nation and adversely affect the millions of small and medium-sized businesses who rely on community banks to enable them to grow their businesses. We believe that community banks continue to be punished for the misdeeds created by the largest banks in the financial meltdown of 2008. We also believe that the subject of “too big to fail” has never been adequately addressed and that those banks are now more dangerous than ever based on their gigantic size and the concentration of our country’s deposit base in those institutions. We stand as we have since 2008 with the opinion that the largest banks should be broken up, lowering the chances for systemic risk. At the same time, we believe that enterprise risk management will remain a critical component of our business plan, as we seek loan and deposit growth opportunities in 2013 and beyond. To this end, we took the step of formally establishing a Chief Risk Officer function in the bank in 2012. Governance and regulation continues to place more stress on our revenues as regulators demand more from all banks. Much of the additional other operating expenses in 2012 are attributable to the added compliance requirements. We estimate that governance and compliance accounts for an estimated 13.25% of total revenues or 5 THE NEXT GENERATION BANKFUlFilling THE ViSionEmpirE NatioNal BaNKAnnuAl RepoRt 2012$2.16 million. While we hope that this percentage will decrease as revenues grow, to date the actual dollar expense has increased every year. We estimated our increase in regulatory compliance costs in 2012 to be as much as $780,000 over the 2011 level of $1.38 million, or 9% of total revenues. ASSET QUAliTY Our primary focus is on maintaining the strength of our balance sheet, especially the quality of our assets. The investment securities portion of our balance sheet is made up of mostly United States agency mortgage backed securities. These securities provide a high level of credit assurance, but they do hold interest rate risk that we manage and evaluate with high frequency. With interest rates being so low for such an extended period, we do consider the risk to be formidable. Our loan portfolio, which is still maturing, has provided a high level of quality over our five year history. As previously noted, our loan portfolio grew 14.5% in 2012 to a total of $243.7 million. Despite our growth, our asset quality metrics have basically remained stable since our inception. At December 31, 2012, our non-performing loans stood at 1.09% of our total loan portfolio and 5.92% of total Tier 1 capital plus the allowance for loan loss, which gives us a better performance with respect to asset quality compared to that of our peers. Our allowance for loan losses at December 31, 2012 was $4,476,000, or 1.84% of total loans. As a final note, we have originated approximately $400 million in loans since the bank opened, although we have only had the benefit of solicitation for three of those five years. Over this period, we have charged off only $46 thousand and have yet to foreclose on any assets. We believe that this record is the best evidence of our commitment to sound asset quality. EconoMY The Long Island economy continues to achieve only anemic economic growth. Although the damage caused by “Superstorm Sandy” contributed to the poor performance of the area’s economy, the economy was not providing the growth needed to move forward prior to the storm. We believe that many factors have contributed to the weak economy, including high income and property taxes, elevating energy and food costs, modest to flat job creation, and a housing sector with only modest upward movement. These factors do not differ that much from our national issues. The uncertainty created in Washington D.C. surrounding the solutions to the country’s fiscal health, as well as the implementation of the Affordable Health Care Act, give rise to more questions than answers as to when our national economy will expand at the level required to reduce unemployment in a meaningful way. The Federal Reserve continues to control short term interest rates at very low levels. We find these artificially low levels to be dangerous not only to banks, but also for our country’s future economic health. Although the stock market seems to be flourishing, the Federal Reserve’s actions have done little to mend the economy, create jobs or increase consumer spending in any meaningful way. We believe, at this time, that any increase in consumer spending is being fueled by lower saving rates and increased credit card debt, rather than wage and salary increases and job creation, which alone would provide significant additional tax revenue to the government and perhaps be a starting point for addressing our nation’s debt crisis. Low interest rates also provide a major concern for our bank, as well as for most other banks in the country. While many are betting on rates not rising in the near term, we believe that rates must rise to enable the country to achieve full economic growth, and it is anyone’s guess if they will rise in a manageable manner. We experienced a significant reduction in our net interest margin in 2012, which was largely attributable to the current lending environment and the growth in our securities portfolio, relative to our loan portfolio. The competitive nature of the current lending environment, coupled with the low interest rate environment, contributed to new loan origination and refinancing of existing loans at lower yields, which are reducing our net interest margin. We believe that this trend will continue as long as this current interest rate environment lingers. The growth of our securities portfolio in this interest rate environment creates similar net interest margin compression. Low rates reduce the interest 6 payments on our national debt of over $16 trillion. After all, keeping rates down also keeps debt payments down and prevents our country’s deficits from climbing even higher. Nevertheless, our Board of Directors, management team and staff will continue to diligently work to increase shareholder value regardless of the challenges that we face, whether as a result of the interest rate environment, the anemic economic recovery or otherwise. By the way, the net interest margin for the year ended December 31, 2012 was 3.48%, a decrease of 8.9% from the prior year of 3.82%. PRoDUcTS AnD SERVicES As we look further into the future, we are continuing our commitment to customer service by introducing a call center to support our customers after normal business hours. We have already invested in and will continue to improve our mobile banking services for those customers that are constantly on the move. And in 2013, we have launched convenient and secure banking applications within the Apple® Store for iPhones® and iPads® as well as the Google Play Place® for Android® devices. FUTURE We expect the future to be filled with both great prospects and challenges, known and unknown. Our first opportunity is the opening of our first Nassau County branch, which will be located at 170 Old Country Road in Mineola, New York. With an anticipated early summer opening, the branch will allow us to provide better service to our Nassau County customers and open a new market to the bank. We will continue to evaluate all new market and strategic opportunities carefully. One opportunity that our Board of Directors is putting forward this year, and is asking your support on, is the formation of a bank holding company. This proposal will be voted on at our 2013 annual shareholders’ meeting. We believe that a bank holding company will enhance our access to capital resources to support growth, facilitate the acquisition of related businesses as opportunities arise, improve our ability to diversify our activities and operations, and enhance our ability to remain competitive in the future with other companies in the financial services industry that are organized in a holding company structure. As a result of the holding company proposal, our shareholders would simply swap the shares of bank stock that they currently own for the same number of shares of holding company stock. Some challenges will be out of our hands, such as regulation requirements and interest rate levels, however a continuing recovery of the economy could provide needed relief for both. We continue to look to all levels of government to address the difficult issues such as pension reform, entitlement reform and tax reform, and they need to display the courage to make hard decisions that will allow our wonderful country to provide individual opportunity to all. We believe all levels of government should have term limits, which will open competition for leadership positions, as opposed to seniority, primarily leading the way for leadership roles. It would also help provide new ideas and forward thinking in our opinion. In closing, we thank our officers and employees for their loyalty, hard work and perseverance as we celebrate our fifth anniversary. We also thank the Board of Directors for their exceptional leadership and professionalism in a challenging economic environment, as we remain committed to the prudent growth of the bank and appreciation of shareholder value. And to our customers, we value your trust and your business as our team is committed to providing the highest level of customer service. On behalf of our Board of Directors and the entire Empire National Bank team, we thank you for your continued support as a valued shareholder. We look forward to seeing you at our shareholder meeting on May 23, 2013 this year being held at a new location, the Hyatt Regency Long Island in Hauppauge. God Bless America Douglas C. Manditch Chairman and Chief Executive Officer Thomas M. Buonaiuto President and Chief Operating Officer 7 THE NEXT GENERATION BANKFUlFilling THE ViSionEmpirE NatioNal BaNKAnnuAl RepoRt 2012OUR MissiOnTo offer the community banking pROdUcTs and seRvices shaped by eMeRging ideas and TechnOlOgies,combined with time-honored values of TRUsT and inTegRiTy; to provide the highest qUaliTy service with a sense of urgency.EXECUTIVE TEAM EXEcUTiVE oFFicERS Douglas c. Manditch Chairman of the Board & Chief Executive Officer Thomas M. Buonaiuto, cPA President & Chief Operating Officer christopher J. Hilton Executive Vice President & Chief Credit Officer John Pinna Executive Vice President & Chief Information Officer Janet T. Verneuille, cPA Executive Vice President & Chief Financial Officer SEnioR VicE PRESiDEnTS Diane l. Murray, cPA Chief Risk & Compliance Officer Michael J. Spolarich Senior Lending Officer VicE PRESiDEnTS william T. Franz Director of Marketing & Investor Relations catherine giamundo, cPA Assistant Controller craig goldstein Commercial Loan Officer Erik griemsmann IT Manager william guiducci Branch Manager Shirley Daniel g. lehan Commercial Loan Officer Edy Meyer Branch Manager Port Jefferson Station Richard A. Miceli Loan Administration Dorothy overton Branch Manager Islandia Raffaella Palazzo Credit Administration Jane Reid Human Resources 8 EXECUTIVE OFFICERS: Janet T. Verneuille; Douglas C. Manditch; Diane L. Murray; Christopher J. Hilton; Michael J. Spolarich; Thomas M. Buonaiuto; John Pinna Mannie Singh Commercial Loan Officer John P. Solensky Commercial Loan Officer Daniel J. Viola Director of Information Technology ASSiSTAnT VicE PRESiDEnTS Krista M. Braccia Branch Manager Mineola Jeanne M. Dahl Assistant Branch Manager Port Jefferson Station Miranda M. D’Angelis Staff Accountant Joseph A. DeVenuti E-Banking Officer Danielle Digrazia Operations Officer Margaret Downing Assistant Branch Manager Shirley Jessica M. Michalski Staff Accountant Matthew Ruppert Loan Portfolio Manager Marguerite Smith Deputy Compliance & BSA Officer Steven Post E-Banking Manager Janet weissman Assistant Branch Manager Islandia MAnAgERS Assistant Branch Managers Suzanne Fox Assistant Branch Manager Shirley Theresa naumann Assistant Branch Manager Shirley cheryl lynn Quilaneta Assistant Branch Manager Port Jefferson Station Michael wilk Assistant Branch Manager Islandia lEgAl coUnSEl geoffrey Scot Kay Fenimore, Kay, Harrison & Ford, LLP Austin, TX inDEPEnDEnT REgiSTERED PUBlic AccoUnTAnTS crowe Horwath llP New York, NY TRAnSFER AgEnT Broadridge corporate issuer Solutions, inc. Philadelphia, Pennsylvania (877) 830-4936 BOARD OF DIRECTORS Douglas c. Manditch Chairman of the Board & Chief Executive Officer Empire National Bank Thomas M. Buonaiuto, cPA President & Chief Operating Officer Empire National Bank John P. Bracken, Esq. Organizer & Vice Chairman of the Board Managing Partner, Bracken Margolin Besunder, LLP Francis F. Boulton Organizer & Director CEO, Long Island Ducks Professional Baseball Club, LLC John D. caffrey, Jr. Organizer & Director Owner, Castle Financial Advisors, LLC John l. ciarelli, Esq. Organizer & Director President, Ciarelli & Dempsey P.C. Dr. Alan M. coren Organizer & Director President, West Hills Animal Hospital P.C. larry R. Davis, Esq. Organizer & Director Principal, Davis & Prager, P.C. Frank A. DiFazio Organizer & Director President, Dekal Services, Inc. Salvatore Ferro Organizer & Director President & CEO, Alure Home Improvements, Alure Basements & Alure Designs Mukeshkumar Patel Organizer & Director President, Shirley Motel, Inc. charles c. Russo, Esq. Organizer & Director Senior Partner, Russo Karl Widmaier & Cordano, PLLC Joseph S. Tantillo, Jr. Organizer & Director Founder & CEO, Nassau Suffolk Electrical & Mechanical Paul J. Tonna Organizer & Director Molloy College’s Executive Director for the Energeia Partnership Chairman, Suffolk County Industrial Development Agency Jeffrey M. weiner Organizer & Director Managing Partner, Marcum, LLP Not Pictured: Dr. Robert J. Frey, Director, Research Professor, Stony Brook University 9 THE NEXT GENERATION BANKFUlFilling THE ViSionEmpirE NatioNal BaNKAnnuAl RepoRt 2012COMMERCIAL LENDING Helping Clients Fulfill Their Own Visions... Christopher J. Hilton, Executive Vice President & Chief Credit Officer (left); Michael J. Spolarich, Senior Vice President & Senior Lending Officer 1 0 John P. Solensky, Vice President & Commercial Loan Officer, Empire National Bank (left) and Jonathan Levy, President Melanie Spare-Oswalt, Chief Executive Officer (left) and Mannie Singh, Vice President & Commercial Loan Officer, Empire National Bank PnEUMERcAToR Jonathon levy, President SAYVillE FoRD Melanie Spare-oswalt, CEo “Despite some stories about banks, my experience over the past two years has been entirely positive. I bought a business and then bought a building adding debt that I never had before. Empire National Bank reviewed my financial history, asked lots of questions, met with my accountant, learned about my business, asked more questions, and then conducted an in depth analysis that led to quality loan structures that enabled me to accomplish my goals and also satisfy the bank’s own stringent credit criteria. It has been an enlightening experience learning about banking and their need to fully understand how they will be repaid for the funds they lend. Everyone at Empire has been entirely supportive of my efforts and they work together to assist my staff with all their needs. All Empire employees are to be congratulated for their attention to detail in helping Pneumercator to be successful, and I am especially grateful for the direct involvement and advice of experienced senior management, including CEO Doug Manditch, CCO Chris Hilton and VP John P. Solensky. I am doubtful that I would have had such invaluable access to senior management at a large commercial bank.” ”2008 proved to be a very difficult year for our industry and like many auto dealerships, we found ourselves in need of securing financing to get us through these hard times. Empire National Bank listened to us, understood our needs, met with our management team, reviewed our business plans and was able to provide us the financing we needed. Empire National Bank based their lending decision not on the headlines but on our bottom line. Since then, Empire National Bank has been instrumental in supporting the ongoing success of our 3rd generation owned and operated dealership and its 65+ employees through their exemplary customer service and personal approach to business.” 1 1 THE NEXT GENERATION BANKFUlFilling THE ViSionEmpirE NatioNal BaNKAnnuAl RepoRt 2012If everyone is moving forward together,then success takes care of itself.henry fordHelping Clients Fulfill Their Own Visions... Craig Goldstein, Vice President & Commercial Loan Officer, Empire National Bank (left) and George Abi Zeid, President & CEO Vincent Striano, President (left) and Daniel G. Lehan, Vice President & Commercial Loan Officer, Empire National Bank Matthew Ruppert, Assistant Vice President & Loan Portfolio Manager, Empire National Bank (left) and Pastor James Ryan AiRPoRT PlAzAS, llc george Abi zeid, President & CEo STRiAno ElEcTRic Vincent Striano, President “The decision to start my banking relationship with Empire National Bank became much easier when Craig Goldstein moved from his prior bank. I had worked successfully with Craig in the past and was delighted to do so again; especially since he joined a bank that is so responsive to my business needs. As a businessman, I appreciate how the bank and especially Craig respond back to me in a timely manner. In addition, I now enjoy working with the founder, chairman and CEO of the bank, Doug Manditch; who can be commended for his hands-on involvement in our banking matters and financing needs. I will continue to expand my relationship with Empire National Bank now and in the future.” “Being responsive can make or break an important business transaction. That’s why we appreciate how responsive Empire National Bank is to our needs. Empire National Bank is unique in that they offer us all the attention of a personal banker and all the resources of a larger institution. Empire has been a significant part of our growth and we feel comfortable knowing we can count on them for superior customer service and proper guidance with our financial needs. It has been a pleasure to work with Empire National Bank as our banking partner.” ligHTHoUSE MiSSion Pastor James Ryan “Empire National Bank has treated Lighthouse Mission, a not-for-profit organization serving the homeless and feeding the hungry in our local communities, like one of their largest customers. I like the bank for a host of reasons: their people are “down to earth”; their availability and policy of open communication make my banking relationship tangible, comfortable and trusting. In addition to the quality of service the bank has provided, the financing made available to Lighthouse Mission has been a real blessing.” Gerardo Lombardi, Vice President (far left); Crescenzo Lombardi, Vice President; Raffaella Palazzo, Vice President & Credit Administration, Empire National Bank; and Quirino Lombardi, President loMBARDi’S on THE BAY gerardo (gerry) lombardi Quirino (guy) lombardi crescenzo (John) lombardi “We have had the opportunity to bank with several banks on Long Island. Very much like the Catering and Restaurant business, while the product you receive may be similar, the delivery is where it matters most. We choose Empire National Bank as our bank because of their customer- minded service. When we were looking to expand our business, the approval process was effortless with the assistance of Raffaella Palazzo who guided us through the process quickly and professionally. I believe Empire National Bank has brought back to Long Island the personal small bank mentality that success happens one satisfied customer at a time.” 1 2 3 1 THE NEXT GENERATION BANKFUlFilling THE ViSionEmpirE NatioNal BaNKAnnuAl RepoRt 2012LOAN SERVICING INFORMATION TECHNOLOGY (Pictured left to right): Rene Aquino, Loan Administrator; Lubna Syed, Loan Administrator; Melissa Cohen, Loan Administrator; Richard Miceli, Vice President, Loan Administration; Yi Lu, Loan Administrator (Pictured front to back, left to right): John Pinna, Executive Vice President & Chief Information Officer; Leon Mootoo, Help Desk Administrator; Daniel J. Viola, Vice President & Director of Information Technology; Joseph A. DeVenuti, Assistant Vice President & Electronic Banking Officer; Steven Post, Assistant Vice President & E-Banking Manager; Erik Griemsmann, Vice President & Information Technology Manager FINANCE & ACCOUNTING DEPOSIT OPERATIONS & PROFESSIONAL BANKING 1 4 5 1 (Pictured left to right): Janet T. Verneuille, Executive Vice President & Chief Financial Officer; Jessica M. Michalski, Assistant Vice President & Staff Accountant; Miranda M. D’Angelis, Assistant Vice President & Staff Accountant; Catherine Giamundo, Vice President & Assistant Controller (Pictured left to right): Pamela Massi, Operations Administrator; John Pinna, Executive Vice President & Chief Information Officer; Danielle DiGrazia, Assistant Vice President & Operations Officer; Jon Petchonka, Operations Administrator; Paul M. Gendreau, Professional Banking Administrator; Michaela Leon, Receptionist THE NEXT GENERATION BANKFUlFilling THE ViSionEmpirE NatioNal BaNKAnnuAl RepoRt 2012RISK, BSA & COMPLIANCE EXECUTIVE ASSISTANT & RECEPTIONIST (Pictured left to right): Marie Girardi, Executive Assistant to the Chairman & Chief Executive Officer and President & Chief Operating Officer; Linda Dimitratos, Receptionist COMMERCIAL LENDING (Pictured left to right): Diane L. Murray, Senior Vice President & Chief Risk & Compliance Officer; Roseann Schaller, BSA & Compliance Assistant; Marguerite Smith, Assistant Vice President & Deputy Compliance & BSA Officer MARKETING, INVESTOR RELATIONS & HUMAN RESOURCES 1 6 FACILITIES Gregory Durso, Senior Credit Analyst 7 1 (Pictured left to right): William T. Franz, Vice President & Director of Marketing & Investor Relations; Jane Reid, Vice President, Human Resources Robert Loring, Facilities Manager THE NEXT GENERATION BANKFUlFilling THE ViSionEmpirE NatioNal BaNKAnnuAl RepoRt 2012ISLANDIA BRANCH 1707 Veterans Highway, Suite 8, Islandia, NY 11749 • 631-348-4444 SHIRLEY BRANCH 1044 William Floyd Parkway, Shirley, NY 11967 • 631-395-9500 1 8 (Pictured above, left to right): Dorothy Overton, Vice President & Branch Manager; Michael Wilk, Assistant Branch Manager; Janet Weissman, Assistant Vice President & Assistant Branch Manager (Pictured left to right): Michael Wilk, Assistant Branch Manager; Erin McDonnell, Teller; Dorothy Overton, Vice President & Branch Manager; Jessica Fochtman, Head Teller; Tara Ramdeo, Customer Service Representative; Janet Weissman, Assistant Vice President & Assistant Branch Manager (Pictured above, left to right): Peggy Downing, Assistant Vice President & Assistant Branch Manager; William Guiducci, Vice President & Branch Manager 9 1 (Pictured left to right): Mary Pierce, Teller; Dianne Smith, Head Teller; Suzanne Fox, Assistant Branch Manager; William Guiducci, Vice President & Branch Manager; Dot Lamboy, Branch Administrator; Chelsea Okler, Teller; Peggy Downing, Assistant Vice President & Assistant Branch Manager THE NEXT GENERATION BANKFUlFilling THE ViSionEmpirE NatioNal BaNKAnnuAl RepoRt 2012PORT JEFFERSON STATION BRANCH 4767 Nesconset Highway, Unit 36, Port Jefferson Station, NY 11776 • 631-928-4444 MINEOLA BRANCH - COMING SOON! 170 Old Country Road, Mineola, NY 11501 • 516-741-0444 2 0 (Pictured above, left to right): Jeanne M. Dahl, Assistant Vice President & Assistant Branch Manager; Edy Meyer, Vice President & Branch Manager; Cheryl Lynn Quilaneta, Assistant Branch Manager (Pictured left to right): Kristin Pierce, Head Teller; Edy Meyer, Vice President & Branch Manager; Jeanne M. Dahl, Assistant Vice President & Assistant Branch Manager; Connor Harvey, Teller; Cheryl Lynn Quilaneta, Assistant Branch Manager; Sueann Rando, Customer Service Representative Krista M. Braccia, Assistant Vice President & Branch Manager INVESTOR INFORMATION 1 2 Empire National Bank’s common stock is listed on the OTCQB marketplace, which is the middle tier of the OTC market, under the symbol, “EMPK.” At December 31, 2012, there were approximately 499 shareholders of record, not including the number of persons or entities holding stock in nominee or street name through various brokers and banks. There were 4,379,970 shares outstanding at December 31, 2012. Our Form 10-K, which is included in this Annual Report, was filed with the Office of the Comptroller of the Currency. Additional copies of Empire National Bank ‘s 2012 Annual Report and our Form 10-K can be obtained in PDF form from the Bank’s website (www.empirenb.com) in the Investor Relations section. THE NEXT GENERATION BANKFUlFilling THE ViSionEmpirE NatioNal BaNKAnnuAl RepoRt 2012

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