ANNUAL REPORT 2011
A look back…
Twelve years ago, as the newly appointed President of Piscataqua Savings Bank, I remarked in the Bank’s January 2000 newsletter that it was my privilege to have been given the opportunity to lead this special institution which has been such an important part of the Portsmouth community since 1877.
Although the challenges that would be ahead were unknown, I knew how important it would be to do the best that I could to continue the Bank’s well-established commitment to our customers, staff, and our community…it’s what we have often called the “Piscataqua Difference.”
I am now in my 40th year with Piscataqua Savings Bank. I have been very fortunate to work with such a dedicated group of exceptionally capable officers, staff, and trustees that are equally passionate about the Bank and the difference we make to our customers. Knowing the depth of our team’s abilities and commitment to the Bank has allowed me to coordinate my plans for retirement.
The Board and senior management have worked continuously to ensure a succession plan which will uphold the Bank’s values of putting our customers and the community first. Our tradition of promoting from within is a strong component of making the “difference.” I know our customers and employees, as well as community leaders are pleased to learn that our transition plans are founded on leaders who embrace the culture, mission, and values which have been such an integral part of this Bank’s long history and success.
It has been an honor and with pride that I have served the Bank. With enthusiasm and confidence, I congratulate Rick Wallis on his forthcoming appointment as President/CEO and extend a hearty thank you and well wishes to him, the rest of the Bank’s leadership team and the entire staff.
“New Leadership. Same Commitment”
Jay S. Gibson
A look ahead…
Early in 2011 the Board and Management completed a five year strategic plan to answer the question, “Is our current business model sustainable over the next 3 to 5 years?” What we discovered is that the business model of being a single office, independent mutual savings bank is viable. Our current corporate structure allows staff to focus on service to our customers and commitment to the community.
Although the model will remain the same, the Bank will need to adapt to changes in customer needs, regulations, and the economy. Over the next 3 to 5 years we have plans to roll out financial products that will enhance the customer experience. We will need to work diligently to adopt the regulatory changes imposed by the Dodd-Frank Act and the creation of the Consumer Financial Protection Bureau. Also, we will continue to be challenged by historically low interest rates and a troubled economy.
To carry out the Bank’s mission, we need an experienced team of management and staff. In 2011, David Bryan joined the team as Treasurer and Financial Officer. David brings years of experience as a banker and regulator to this key senior management position and, more importantly, he shares the Bank’s values.
The rest of the team is in place and is a driving force behind the Bank’s success. Many of our staff members have a long tenure with the Bank, some with over 25 years of experience. This employee longevity is a benefit to our customers, providing greater product knowledge and enhanced customer relations.
Although Jay is stepping down as President/CEO, his impact on the organization will remain for years to come. Jay has been a mentor and friend to everyone who has worked alongside him over the past 40 years. Thanks to his leadership the Bank is on solid footings; an institution that is financially strong and a corner stone of the Portsmouth community. The staff and I wish Jay and Mary Pat well as they begin a new chapter in their lives; and thank both for their devotion to and stewardship of Piscataqua Savings Bank.
Richard M. Wallis, Executive Vice President
David H. Bryan, Treasurer/Financial Officer
The year ending 2011 resulted in strong performance for the Bank with respect to balance sheet development and operating results. Growth of over 2.5% was centered in core deposits, as more people sought out a community bank in light of displeasure with regional banks. The growth is also a tribute to our reputation within the community that has evolved through 135 years of commitment to organizations close to home and exceptional personal service to local citizenry. Despite rhetoric that bank’s are not lending, portfolio balances at Piscataqua Savings remained level during a year when demand for credit was off and an abundance of consumers were focused on paying off debt. An extremely productive year in loan origination was necessary to off-set customer appetite to consolidate, reduce and/or eliminate their debt. A difficult investment environment and little opportunity for higher yields without taking undue risk brought a transfer of assets from securities into liquid cash balances the Bank maintains at correspondent banks. With these balances up $15 million from the end of 2010 as a result of deposit growth and maturing securities, the Bank stands ready to increase investment balances with improving economic conditions.
A protracted period of record low interest rates has put pressure on the Bank’s margin- or the difference in interest received on earning assets vs. interest paid on deposits. Net Income was down a modest $87 thousand relative to 2010. Offsetting this margin pressure has been the strong performance of the Bank’s Trust Department. The existence of the Trust Department augments a diverse array of services offered to our customers and enables the Bank to operate more efficiently. The Bank was able to garner a .57% Return on Assets which was generally better than the earnings performance of comparable financial institutions. Efficiency is monitored closely by management. It is the measure by which we can quantify the percentage of a dollar needed to support the generation of that dollar. In our case, it is taking approximately 75 cents in operating expenses to realize a dollar in revenue (refer to Net Income chart). Through capitalizing on the multitude of services offered without a costly branch network, the Bank continues to generate strong returns internally and for the community at large.
Another strong earnings year combined with controlled growth has enabled the Bank to maintain a Capital ratio in excess of 16%. Most financial institutions operate with more leverage, or a lower Capital ratio, for the benefit of shareholder returns. At Piscataqua Savings Bank, the Capital accounts are viewed as the foundation of the financial base that enables the Bank to continue being a vibrant and productive force in the community. As you continue reading on in this Annual Report, please take note of the positive trends depicted in the financial charts relative to growth, net income/efficiency, asset quality, and capital.
Debra S. Perry, Vice President/Loan Officer
2011 was a transition year for the loan department. Rick Wallis, our Senior Loan Officer, was departing from his everyday duties in the department in order to work closely with Jay in preparation for his transition to his new position. I was fortunate enough, with Rick’s guidance, to take over the everyday operations of the department. In addition, it was determined that we needed to hire an additional loan officer. Denise Magnant, who has been with the bank and in the loan department for 35 years, has done a tremendous job of filling this position along with her many other duties. As the fourth quarter approached, it became apparent that we also needed to add an additional support person. We were fortunate to be able to hire from within again and Laura Griswold, who came from the teller line, has joined us.
The loan department consists of a team of four loan officers and three support staff. This outstanding small team originated $56 million of mortgage loans in 2011 and $7 million in home equity lines of credit. None of this could have been accomplished without the support and tremendous hard work of everyone in the department.
Our Values Statement ends with the words “WE ARE DIFFERENT” and this is obvious in so many ways in the loan department. We offer loan products that enable us to provide financing to customers that were turned down by other lending institutions because they didn’t meet their underwriting guidelines. Our portfolio loan programs are a great alternative for these borrowers. Because we keep our portfolio loans in house, we can underwrite the loans without having to meet investor guidelines. In addition, we offer a modification program for those customers who have a portfolio loan. For a nominal fee, the customer can modify their existing mortgage from a higher rate down to a lower rate without having to refinance. This program has been offered to our customers since 1998 and, during low interest rate environments, like we are in now, has enabled the bank to retain mortgage customers.
Another way that separates us from the rest is our fixed rate loan product. Although we sell our fixed rate products to an investor, one of the programs we offer is not subject to loan level pricing adjustments or “add-on fees” that can make the closing costs extremely expensive for the borrower. We are able to give our customer a competitive fixed rate with closing costs that are much lower than our competitors. In addition, we service the loan so they are able to come in with questions or call and talk to a real person.
We are in one of the lowest rate environments in history and yet the word on the street is “banks aren’t lending”. The financial crisis of 2008 brought a landslide of changes to our industry and many lending institutions including mortgage companies were forced to make some underwriting changes. Gone are the days when a borrower could buy a home with no money down and no job. Market values have declined and a lot of borrowers are finding themselves owing more than their home is worth. Thus, some borrowers are finding it very difficult to buy a home or refinance an existing home so the perception is banks aren’t lending. Piscataqua is lending. Our prudent underwriting guidelines have not changed and we find more and more borrowers coming to us to get away from the “big banks”.
The way we deal with our customers is different. We know them well; many of them on a first name basis. We treat them with respect and constantly strive to meet their needs while giving them exceptional service. When a customer runs into hard times and they aren’t able to make their payments, we work with them whenever possible. This effort and the relationships that we have with our customers, helps us to keep our delinquencies at a very low level. Our delinquency ratio at the end of 2011 was 1.13% of total loans, down from last year’s 1.42%. This ratio, in comparison to the national delinquency ratio of 10.20%, is very favorable.
Piscataqua Saving Bank’s loan volume compared favorably to that of other lenders. According to Real Data Corporation, Piscataqua Savings Bank was the ninth highest mortgage volume lender (out of approx. 250 lenders) in a market area made up of eight surrounding communities (Greenland, Hampton, North Hampton, New Castle, Newington, Portsmouth, Rye and Stratham). This volume represented a 2.56% share of the market which was slightly below 2010 when the Bank’s market share was 3.2%.
To sum it up, a new customer recently sent back a questionnaire survey that we had sent. When asked what they liked or didn’t like about our loan application and approval process, their response was “After dealing with a number of large financial institutions, there was nothing to dislike!”
Deposit Operations and Compliance Results
Joan W. Gile, Senior Vice President/Operations
In a recent Seacoast Online posting a customer stated that they would take out of town visitors to Piscataqua Savings Bank to show off that there were no plastic shields and bars in front of the living and breathing people. ÒIt was so friendly.Ó Our customers regularly express with enthusiasm their appreciation for the efforts the staff makes to personally assist them. Our Value Statement states ÒWe are DifferentÓ and we truly are. We have someone personally answer every call that comes into the Bank during the day. We have senior officers that sit in the lobby and are approachable and available to everyone. Our employees are dedicated to providing service to our customers that exceed expectations. The Bank continues to attract new customers as people are increasingly more aware of the benefits of doing business with locally owned and operated organizations. We welcomed over 400 new customers to Piscataqua Savings Bank during the year.
Online banking customers have enjoyed the new and improved bill payment product that we implemented late in 2010. This year we streamlined the online banking activation process. A new customer can now get online in as little as 10 minutes where they used to have to wait up to one week to get a user name and password. There were almost 300 new customers added to online banking during 2011. We now have over 1500 customers who are using the online banking feature and over 300 are paying their bills online.
Finding ways to keep costs low is very important during these difficult economic times. In an effort to reduce expenses for our customers, we established a new relationship for our check printing services. Main Street Checks is a check printing company that specializes in working with community banks. They hold many of the same values as Piscataqua Savings and offer a high level personal service. Their products are high in quality and low in price. Our customers are seeing some significant savings when purchasing printed checks and check products.
Piscataqua Savings Bank continues to support employees’ career development and 2011 was a busy year. Last summer we hired two college interns which provided an opportunity for one teller to gain some experience in another area of the Bank. Macey Roberge spent the summer in the Trust Department learning Trust Operations and Administration. By the end of the summer, Macey had demonstrated her strengths and a desire to excel in this area. The Trust Department determined that this should grow into a full-time position and she began working in the department full time in August.
Late in the year the Loan Department developed a new position to fulfill staffing needs. Laura Griswold, another teller who has demonstrated a desire to learn more about banking, was moved to the department early in 2012. Laura has been with Piscataqua Savings Bank since September 2008 and is another example of our commitment to developing staff and promoting from within.
Trust/Investment Management Results
Richard G. Kaiser, Vice President/Senior Trust Officer
2011 was an exceptionally good year for the Trust Department as the size of the Department’s assets under management reached a record level of $188.7 million. New business development of $32.4 million was the highest since the creation of the Department in 1995. This was achieved in spite of the difficult and volatile year in the stock and bond markets where investors continue to worry about slowing global growth, weak economic recovery in the U.S. and a lack of resolution to the European sovereign debt crisis. 2011, like 2010, saw positive but lower returns in the continuing and ongoing risk on/risk off investment environment. For the S&P 500, 2011 turned out to be something of a Òmuch ado about nothingÓ year. The index began the year at 1,257.64 and ended up the year at 1,256.60 with its dividend of 2.11% being its total return. Large market swings were common as two of every five trading days saw a 100 point drop or rise in the markets. The Dow Jones Industrial Average, on the other hand, fared better than the S&P 500 returning 8.36% for the year and the NASDAQ fell .8%. International markets fared poorly during the year as investors avoided foreign equities because of the continuing European debt crisis problems. The MSCI-EAFE Index, a barometer for the market performance for Europe and Asia, posted a loss of almost 12% and the MSCI Emerging Markets Index for markets such as Brazil, Russia, India and China (BRIC) was off 18% for the year. During the year fixed income (bonds) posted the best returns as investors who stuck with long-term U.S. Treasury Bonds (20 to 30 years) received the
biggest gains of 29.1% for the year. Over the past two years U.S. Treasuries had average annual gains of greater than 19%.
The growth in the Trust Department’s market value came predominately as a result of extremely strong new business development and not market performance. As of 12/31/2011, the Trust Department’s market value catapulted to a new year-end high of $188.7 million; a $21.9 million or 13.15% increase over the end of 2010. As in 2010, we continued to concentrate on increasing the amount of assets under management while at the same time reducing the number of actively managed accounts. At the end of the year, the Department managed 374 accounts, down from 377 accounts a year ago, with the average account size increasing to $504.5 thousand from $442.1 thousand. During 2011, $32.4 million of new business was developed, $12.8 million greater than in 2010. Net new business after distributions and termination was $21.9 million compared with $9 million last year. Robust new business growth continued as a result of our excellent referral program which comes from existing clients, Bank Trustees and Corporators, Bank Officers and staff, as well as qualified referrals received from local professionals, i.e. attorneys, CPA’s, CLU’s and financial planners. As in the past, new clients and existing clients continued to consolidate their affairs with us as they want to have their assets managed locally and not worry about mergers, acquisitions or consolidations of their current provider. The account relationships developed during the past year remained consistent with the previous years as personal trusts and estates comprised 39% of our account base, rollover IRA’s 7%, investment management accounts for individuals and charitable organizations at 43% and custodial relationships at 11%.
Since the Trust Department’s fees are based on the market value of the accounts being managed, the increase in the Trust Department’s market value positively impacted our revenue for 2011. Total revenue received for the year was $1.349 million, $112,232 or 9.07% greater than last year. Trust expenses increased by $56,435 to $1.1 million, a 5.4% increase over 2010 with the resultant net profit after tax to the Bank of $159.8 thousand, $32,941 or 25.96% greater than 2010.
During 2011, with many months of planning and construction, we finally completed the renovations to the Trust Department, moving the Trust Investment and Trust Operations areas to the new third floor offices along with renovating the Trust Administration offices on the second floor. This created two new offices which will allow us to expand our staff to meet the needs of our growing client base.
As we look towards 2012, we look forward to continued strong growth in our Department as a result of our very successful referral network and our extensive outreach into the local community. We are very fortunate in that New Hampshire has become one of the most progressive states with respect to its trust laws and is one of the best states to conduct trust business. In September of 2011 Senate Bill 50 was passed which further enhanced New Hampshire’s flexible trust laws and provides new opportunities for us to work with New Hampshire residents and out-of-staters in developing their trust and estate plans.