ANNUAL REPORT 2015 - Piscataqua Savings Bank

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President’s Message

Looking to the future of Piscataqua Savings Bank was the theme for 2015. The Board of Trustees and management completed an update of the 3-5 year strategic plan. The goals that resulted from this planning address the fast-paced changes occurring in the financial services industry. Being relevant to the next generation of bank customers while continuing to serve existing customers, in a manner they are accustomed, will be key to the Bank’s success.

In addition to strategic planning, a group of forty Corporators, Board and Staff met for a “Town Hall” meeting as part of a facility space needs study to discuss what makes Piscataqua Savings Bank special. As we plan for our future space needs, it is important to have an understanding of those facility features that should be retained, enhanced and/or eliminated. Resoundingly, the attendees agreed that: the current location is important to retain; staying in one location lends to the Bank’s unique way of serving customers and the community; and any facility design changes should enhance accessibility and the customer’s banking experience.

In December of 2015, the Federal Reserve raised interest rates amid signs of an improving labor market and economy, but additional rate hikes have been delayed due to concerns over other world economies. In August, the stock market experienced one of the largest corrections seen in several years creating uncertainty for many investors. Despite all this uncertainty, the Bank continued to grow while maintaining a strong capital position thereby providing a safe harbor and peace of mind for customers.

The Seacoast market has become a cure-all for banks from other regions of NH as well as out-of-state banks. Over the past few years there have been a number of banks that have opened offices to take advantage of the strong Seacoast economy. The Bank’s reputation and product pricing place Piscataqua Savings Bank among the most competitive banks in the area, but this new and existing competition will keep us ever-vigilant.

Long-tenured staff supports the existing culture and institutional knowledge of the organization. When possible, promoting from within preserves this culture and provides opportunity for those who are committed to the ideals of the organization. However, hiring the right person from outside the Bank brings in new talent, skills and perspective that provide our customers with expert knowledge and solutions. In 2015, we were fortunate to be able to both promote from within and hire staff to support the exceptional customer service for which Piscataqua Savings Bank is known.

At the core of the Bank’s staffing changes is a succession plan. The plan is a management and Board tool that helps: identify areas of the Bank that need staffing; develop existing staff; and keeps a forward-looking eye on key positions that will need to be replaced or supported. Successfully replacing long-tenured key positions is so important in maintaining the customer/community-centric culture of the Bank.

Last year the Annual Meeting of the Corporation was a successful evening event intended to better accommodate those Corporators with work conflicts and it also provided an opportunity for you to meet all of the Bank’s officers. Again this year the meeting is being held in the evening and is a Corporator-only meeting. We are working on scheduling a Corporator Social in the evening on Tuesday, September 6, 2016 aboard the M/V Thomas Laighton when spouses and guests will be welcome. More information on the Social will be coming, but in the meantime please mark your calendars and save the date. We look forward to seeing you all at the Annual Meeting on May 18th.


Richard M. Wallis, President/CEO

Financial Report

David H. Bryan, Vice President/Treasurer

The year ending 2015 was a strong year for deposit growth on the Balance Sheet. While the economy continued to plod along at a moderate pace, financial markets were generally sluggish. Various world events and currency fluctuation caused some periodic volatility in stocks. The fourth quarter brought the long anticipated Federal Reserve move to raise interest rates. A flattening of the yield curve with some upward movement on the long end pressured bonds. Labor market indicators remained positive. Even the flagging employment participation rate’s freefall seemed to bottom out. Commodities, particularly oil, were hit very hard. A surging dollar put a crimp on the manufacturing sector and export companies. Lower gas prices did not result in robust consumer spending with the savings rates moving upward. Customers at the Bank have been stretching longer in seeking a return with substantially more money pouring into the five-year certificate product. Strong local standing and presence in the community appear to be reaping continued benefit with core deposits building.

Loan balances in the Bank’s portfolio were flat. Deposit funding growth not put to work in the lending area had to be invested. Management continued to develop the investment portfolio through increased diversification into various sectors along with evolution of the maturity ladder. A tame outlook with regard to inflation has made the decision-making process a bit easier in terms of extending longer with some purchases to capture additional return. Strategically placing additional money in mortgage-backed securities has also ensured an increasing return of additional monthly cash flow.

In terms of earnings, the Bank came in at near the same level as 2014. The Net Interest Margin came under pressure with the slumping loan portfolio and a modest uptick in the cost of funds. An increase in rates to drive the Bank’s interest income did not materialize during the year. Non-interest income continues to be bolstered by a growing Trust Department. Operating expense control was critical in maintaining the bottom line. Management continues to be hopeful with respect to a positive impact on Net Interest Income in the near term through the rate environment. The Bank’s model of delivering personal service with a landmark local presence still resonates in the Port City and surrounding towns. Examinations and audits deem the Bank to be meeting the highest regulatory and accounting standards.

Lending Report

Debra S. Perry, Vice President/Senior Loan Officer

It was an interesting albeit frustrating year in lending in 2015. Our loan portfolio remained virtually flat as persistent low interest rates coupled with an extremely competitive market resulted in substantial payoff activity. In one of every five transactions during 2015 the borrower selected a fixed-rate product which the Bank does not hold in portfolio and is subsequently sold into the secondary market. Additionally, many of our borrowers took advantage of the lower rates and modified their existing loans. Although we are always grateful that we don’t lose the borrower, modification transactions do not help expand the existing portfolio. Meanwhile, Seacoast real estate sales were strong and home values continued to rise. The Seacoast Board of Realtors, in an analysis of its 13 sample communities, reported that single-family sales easily set a new volume record of 1,165 units at a combined record median sale price of $398,500, 7.7% ahead of last year’s median sale price. “Any way you look at it, 2015 was a huge year for Seacoast real estate” said Linda Ruppe, President of the Seacoast Board of Realtors. One of the state’s leading economists, Russ Thibeault of Applied Economic Research, recently stated that “both the New Hampshire economy and the housing market are performing well and are likely to continue to perform well next year.” In addition, he declared that “the state unemployment rate of 3.6% is among the lowest in the country and is lower still in the Seacoast, owing to the success of job creation at the Pease International Tradeport” which he described as a huge success.

All of this news serves as a huge source of frustration because we certainly see this strong purchase activity as an opportunity to build our loan portfolio with new borrower relationships. As mentioned earlier, the competition is fierce and we are seeing more and more lenders moving into this market area. The Warren Group© provides data that compares our lending activity to over 250 other lenders in the Seacoast area. The data indicates that we have a strong presence as a residential lender in the Seacoast purchase market. Our lending activity in Portsmouth represented 6.1% of the market overall and we were ranked third out of hundreds of lenders. We continue to look at new lending strategies to offset this competition and to continue to fulfill the credit needs of our community.

The Bank’s mortgage delinquencies, 30 days or more past due, increased from .85% at the end of 2014, to 1.81% at the end of 2015. The increase was due to the holiday season with borrowers choosing to pay for gifts instead of paying their mortgages. It should be noted that the ratio dropped back to .56% in January of this year. Overall, delinquencies remain very manageable at the Bank. Nationally, the mortgage delinquency rate continues to improve from 6.71% in 2014 to 5.27% at the end of 2015.

Operations Report

Joan W. Gile, Executive Vice President/Operations Officer

For the past several years, Piscataqua Savings Bank has been concentrating on the development and implementation of products and services to give customers choices for their banking experience. Customers who choose high touch can come into the Bank where a highly qualified and experienced staff member will take care of all of their banking needs. When customers call, someone answers and directs the caller to the appropriate specialist. There are no automated menus to choose from and no computers to talk to. Having one office means that there is always a manager or senior officer available to answer any question or make a decision in a timely and efficient way. For customers who enjoy technology, we have many options to meet any banking need:

Online Account Opening and Online Mortgage Application – New and existing customers can open an account or apply for a mortgage online in the comfort and convenience of home.eBank Online Banking – Customers can monitor account activity, view transaction history and copies of checks, transfer funds and pay bills easily from their

own computer. With Popmoney®, they can make payments to anyone via an email address or cell phone number. eMobile – When customers are on the go there is 24/7 access to their money. They can check their account balance or transfer funds between accounts or even pay a bill from their phone or tablet, anywhere, anytime.

eDeposit – This is an added feature with our Android® or Apple® app for mobile devices. This feature allows the ability to deposit a check by taking a picture of the front and back of it with an Android phone, iPhone or iPad.eAlerts – Customers can stay on top of account balances and transactions with eAlerts. An email or text message can be sent each time a specific event occurs such as when reaching a balance threshold, transactions are posted, or checks are being processed.

The safety and security of our customers’ information is our top priority and all our systems maintain the highest level of security the industry has to offer. Our technology suite of products integrates seamlessly to enable customers to manage accounts from a variety of devices. Our commitment to providing current technology enhances our commitment to providing personal customer service. Our office is open and inviting and we encourage everyone to come in and talk to us any time. As the Bank’s Value Statement says: We are the friendliest bank in town.

Trust/Investment Department Report

Kathleen N. Donovan, Vice President/Trust Officer

The year 2015 was an interesting one in many ways, and the most often-repeated conversation with clients begins with how Piscataqua is “different”. The Bank has a great reputation in the community in terms of personalizing its services and contributing locally on many levels, and our department carries out that mantra as well. We are mindful of our niche in providing fiduciary and investment management services in a customized manner, and appreciative of both our internal and external referral sources. Recently it was pointed out to me that we are like Goldilocks and the Three Bears – not too big, not too small, just right. We are small enough to be nimble and able to apply common sense solutions with all decision-makers on site, and large enough to have a talented team of experts and robust operating infrastructure.

Staffing News – Welcome Brianna!
In December we welcomed Brianna Adams as a new Vice President/Trust Officer. She has quickly become a valuable member of our team with more than 10 years of fiduciary experience in estate and trust administration (most recently as a regional fiduciary officer for a Boston trust company where she facilitated successful solutions for her clients).

Brianna obtained a Master of Laws degree in estate planning and Juris Doctor from the University of Miami School of Law, as well as a Bachelor of Arts degree from Bates College. She is a member of the Maine, New Hampshire and Florida Bar Associations, has been a wish grantor and fundraiser for the Make-A-Wish Foundation® and served as a court-appointed special advocate representing the interests of abused, neglected and abandoned children. Brianna has been meeting clients, community members and local professionals while embracing the Seacoast area as her soon-to-be new home. Stop by and say hello!

Our Profile and 2015 at a Glance:
Strategically, our profile remains consistent in terms of composition and overall number of accounts and relationships as we thoughtfully welcome new clients while settling and closing estates and trusts. Growing our fiduciary relationships is an important component and we understand that the Bank has been named in many estate planning documents based on our local and personalized services. We are also pleased to offer customized investment management services for IRAs, individuals, trusts and non-profit organizations.


John P. Fredette, CFA/Trust Investment Officer

On the investment side, 2015 was a challenging year of low and negative returns. The S&P 500 Index ended down on a price basis; however dividends and their reinvestment helped push the index to a small positive total return of 1.38%. The Barclays Aggregate Bond Index returned .55%, while tax-exempt municipal bonds returned 3.30%.

Oil’s significant decline and the dollar’s substantial move upwards, coupled with policy divergence expectations and Chinese growth scares, helped remind investors that volatility does exist and risky assets are not a panacea to low bond yields. While oil’s decline does have repercussions, there are more positives than negatives in such a substantial decline specifically for importers of the commodity and consumer oriented economies.

The market will have to deal over the coming months with a Federal Reserve rate hike possibility in June, monetary policy divergences, a contested U.S. presidential election, reform / stability / currency / debt issues in China, fears of the British withdrawal from the European Union (Brexit) and high yield defaults rising in addition to other risks. Volatility is playing out after years of the Federal Reserve suppressing it, and with volatility comes opportunity. Lastly, one must remember that the stock market has predicted 11 of the past 27 recessions. That equates to 16 false alarms in the last sixty years. Unfortunately, the “glass is half empty crowd” would respond, “economists have yet to forecast even one recession.”