ANNUAL REPORT 2019
Be The Change
ANNUAL MEETING OF THE CORPORATION
Rick Wallis, President/CEO
It’s been quite the year since the vote to become a certified B Corporation in May of 2019. We have seen many of the benefits of becoming a B Corporation come to fruition. I’ve had opportunities to speak with several potential new clients that made the decision to move from their current bank to Piscataqua Savings Bank because of our commitment to B Corporation values.
B Lab is the company that certifies B Corporations. Each year they review the highest scores in each of the five B Corporation impact categories: Community, Environment, Customers, Governance and Workers and award the top ten percent of all B Corporations in the world in those categories. In September, Piscataqua Savings Bank was awarded the Best for the World in the Worker category. The Bank was measured by how well we support our staff. B Lab looks at compensation, benefits, employee transparency, advancement opportunities, commitment to training, internal communication, job flexibility, corporate culture, and overall work environment. Our corporate culture is reflected in the sixteen (16) employees who celebrated ten (10) or more years with the Bank during 2019. These long-tenured employees have great institutional and product knowledge that translates to exemplary customer service. Happy employees make for happy customers.
One of the outcomes of becoming a B Corporation is reflected in the way management makes decisions. With our new designation and broader responsibilities, management considers the impact of decisions on customers, employees, community and the environment. One such decision made in November of 2019 was when the Bank signed an energy contract and purchased Renewable Energy Credits (RECs), while also reducing our energy costs. Now the Bank can be proud that 100% of its electricity is from renewable energy sources.
In the fall of 2019, we engaged with the University of New Hampshire (UNH) Center for Social Innovation and Enterprise to aid with developing our B Corporation status and promotion. We are one of four companies having students provide recommendations for our B Impact Assessment as part of their Social Innovation Internship program. It is also our hope to hire an intern from the Center to work with us over the summer to develop systems for tracking our results and enhancing employee engagement. With their help, Joan Gile, the Bank’s designated B Corporation Officer, has completed our first B Impact Report that was submitted to the Secretary of State in April of this year and will be provided to you, our customers and the community.
“Happy employees make for happy customers.”
One way we’ve already begun to engage employees was to designate Wanda Fontaine as the Bank’s Volunteer Coordinator. Through her leadership we took part in the United Way’s Day of Caring, held our first Shred It Day where customers and the community came to properly dispose of sensitive documents; and other community support activities.
In the end, the Bank continues to do the things that it always has done – provide the best service to our customers and be a good corporate citizen. We’d like to think that we’ve been a B Corporation since 1877.
David H. Bryan, Vice President/Treasurer
National economic conditions were generally favorable in 2019, with some volatility mainly centered around a global slowdown (particularly in Europe), and international trade relations. The end of the year brought what looks like a resolution to the Brexit situation, with the conservatives winning a substantial majority in Parliament. What is being termed a ‘phase 1’ deal was agreed to between the United States and China. The latter has made commitments regarding agricultural purchases, protection of intellectual property, and currency manipulation. We’ll see. Amid impeachment proceedings for the 45th President, the United States-Mexico-Canada Agreement was approved by the House of Representatives. Both sides of the aisle claimed victory for the American economy, with Democrats quick to point out concessions they won in the form of labor and environmental safeguards. The labor market remained tight, with the unemployment rate at levels not seen since the late 1960s, despite flagging participation. Housing prices continued their steady march upward. Small business optimism remained very strong, and personal consumption was the carrying factor in the nation’s growth in gross domestic product of 2.3%. Inflation was tame, with just a brief upward move in the consumer price index to 2008 levels. Wage inflation was contained with solid productivity. The ten-year Treasury Note hit its highest yield of 2.79% in mid-January. In early September, it fell below 1.50% before rates rebounded some during the fourth quarter. The Federal Open Market Committee (FOMC) lowered short-term rates three times during the year in response to a yield curve that inverted beginning in May with the 3-month Treasury Bill yielding more than the 10-year Note. By August, the more classic measure of two and ten-year Notes had also inverted. The FOMC hopes to have achieved a soft landing. Economic analysts’ odds of a 2020 recession have indeed backed off estimates that were approaching 40% during the third quarter, just as the Fed was starting to ease. Sovereign debt volume around the world yielding 0% and less has been on the rise. Zero interest rate policy has proven to be ineffective but remains prevalent in Europe and Japan. The FOMC has signaled no appetite for negative yields and has indicated that policy is on hold through 2020 barring a dramatic change in conditions.
“The Bank’s model of delivering personal service with a landmark local presence still resonates in the Port City and surrounding towns.”
Funding growth was explosive in 2019, with just under $23 million in deposits added, while a $5 million borrowing was extinguished. Money market accounts, and certificates of deposit led the charge with the Bank paying higher rates- particularly during the first three quarters of the year. A 13-month certificate special, that topped out with over $27 million in volume, was discontinued in August. Management introduced a new 25-month product (the ‘UP’ CD), which is tied to the two-year rate, but can never go down. It has been very popular. Combined NOW and Savings account balances were off modestly, which was a reversal of what had been substantive outflow from these core deposits the last few years. The Bank’s loan portfolio shrank modestly in volume after two blistering years which saw balances climb by $44 million during 2017 and 2018. Consequently, the Finance area resumed investment activity that had been dormant due to loan growth and construction activity. Several mortgage-backed security pools were added to the portfolio, along with corporate and municipal securities. After about two years, the renovation project wound down during the third quarter, and was fully placed on the books at the end of September. A total project cost of about $8 million was realized.
A shift in earning asset composition, with some loan run-off, contributed to a decline in the Bank’s Net Interest Margin, along with an increased cost of funds. Moreover, the Bank received no help from the long end of the Treasury Curve, and the yield on the loan portfolio steadily declined after peaking in the early spring. Operating expenses, with some impact from the renovation project depreciation, are trending higher. There was a benefit related to the construction expense that management was able to book. Slightly over $100 thousand was capitalized to total income in association with borrowing charges incurred. Net Interest Income decreased by about $596 thousand compared with 2018. Total operating expenses increased close to $400 thousand. The Bank made a substantively lower provision for loan loss expense and booked income taxes at near 58% of the 2018 level. All in all, earnings were off $453 thousand, but 2018 was inflated by over $200 thousand due to a loan expense accounting change. Net income for 2019 totaled $1.03 million. The Bank’s model of delivering personal service with a landmark local presence still resonates in the Port City and surrounding communities. Attaining B Corporation status solidifies and validates this prominent nature. Examinations and audits deem the Bank to be meeting the highest regulatory and accounting standards.
Debra S. Perry, Vice President/Senior Loan Officer
We went into 2019 anticipating the continued growth of the loan portfolio that we had in 2017 and 2018. It turned out to be a very different year than expected. The loan portfolio at the end of December was down by $2 million or essentially flat. Several factors contributed to this: normal amortization of the portfolio, a lack of inventory for new purchase activity, and lower rates than anticipated that sparked payoff activity, particularly in the last quarter. In addition, we had many borrowers make large principal reductions to their existing loans, something that you just can’t predict. Total portfolio originations of $41.8 million, including correspondent loans, totaled $10 million less than 2018. There were no fixed rate loans sold to the Mortgage Partnership Finance Program (MPF) through the Federal Home Loan Bank (FHLB) Boston. Management made the decision early in the year to book any fixed rate loan that would have qualified for the program in order to grow the portfolio.
“Despite fierce local competition, we ranked 4th overall for the number of loans originated in Portsmouth in 2019…”
At the beginning of the year, home equity lines of credit (HELOCs) were at 5.50% and we were expecting at least two more rate hikes. The exact opposite happened, and the current rate is 4.75% with no rate hikes anticipated. We originated $7 million in HELOCs for the year.
Despite fierce local competition, we ranked 4th overall for the number of loans originated in Portsmouth in 2019. As a point of reference, we were one of 271 lenders that originated loans in Portsmouth alone. Remaining competitive with such high market saturation on the Seacoast has been no easy task.
The Seacoast real estate market finished 2019 with record-breaking prices for single-family homes and residential condominiums. The top single-family home sold for $5 million and the top condo sold for $2.2 million. The median sale price of a home on the Seacoast in 2019 was $479,000, 4.1% more than 2018. The median home value in Portsmouth was $468,362, an increase of almost 6% from 2018’s value of $442,600. Zillow® predicts these figures will rise at least 3.4% in 2020. The median price of homes currently listed in Portsmouth is $625,000. The problem continues to be a lack of inventory. Because of this, we are seeing more and more borrowers looking at homes in surrounding towns outside the Seacoast area. This has caused sales prices to increase in these communities as well. For someone selling their home, this is all good news, as they are more than likely to get top dollar. However, for some who are trying to achieve the dream of homeownership, the Seacoast real estate market is simply unaffordable.
In a recent article in the November 2019 Housing Market Report, the third in a series presented by the New Hampshire Housing Finance Agency (NHHFA), Russ Thibeault, President of Applied Economic Research in Laconia, New Hampshire talks about millennials and how for many of them the idea of owning their own home has become a distant dream. He references a recent article in the Wall Street Journal that highlighted young households earning $100,000 + a year who have been priced out of ownership in our booming, high-priced markets. The Seacoast area is one of these markets. It is surprising to learn there are more millennials than there are baby boomers. Correlate that with a recent study by Federal Reserve economists that found today’s millennials are the first American generation in decades whose economic prospects are worse than their parents’. They face a housing market of limited choice, in which rents and home prices are often climbing faster than their incomes. Census data bears out that New Hampshire’s young households are less likely to own today than at the start of the last decade. Mr. Thibeault goes on to say that “NHHFA housing data accurately depicts a New Hampshire housing market with rising prices and climbing rents, alarmingly low vacancy rates and a persistent drop in availability of ‘affordable’ homes—priced under $300,000. These are daunting trends for New Hampshire’s young households, of which we desperately need more.”
Economic indicators continue to reflect a strong economy in New Hampshire, with job opportunities throughout the state. They also show household income has increased over the past five years but may be starting to slow. New Hampshire also boasts one of the lowest unemployment rates in the nation at 2.6%. New Hampshire’s rate of mortgage delinquencies is lower than that of the regional and national rates. Additionally, foreclosures in the state continue to decline. The Bank’s mortgage delinquencies, 30 days or more past due, were at 1.13% as of the end of 2019, an improvement from the 1.37% reported at year-end 2018. Nationally, the mortgage delinquency rate also improved to 2.35% in comparison to 2.83% at the end of 2018. Despite having such a strong economy overall at this time, it remains to be seen when or how the State of New Hampshire will address the affordable housing issue along with the growing lack of inventory.
Joan W. Gile, Executive Vice President/Operations Officer
The only thing constant in this world is change. (unknown)
No truer words are there to describe Piscataqua Savings Bank in the past year and the banking industry in general.
The Operations Department spent much of 2019 adjusting to their new space. The redesign opened up opportunities to reevaluate processes and create new efficiencies. Jennifer Dumont was promoted to Teller Supervisor in addition to her Universal Banker role. She is able to react to changes in the workflow and staffing needs quickly and easily. We hired a new Universal Banker in June, Hunter Jackson. Hunter came to us from another financial institution with experience in the Universal Banker concept. Jenn, Hunter and Susan Hauge, as Universal Bankers, can help customers with any transaction and assist with most questions or issues. Our seasoned staff on the front lines and in the Deposit Operations Department ensure our customers receive the best possible service and experience when they come to the bank or call on the phone.
Our History Committee has been working on designing a mural which will be located on the wall behind our Teller Pods. This mural will depict our long-standing commitment to Portsmouth and include a timeline incorporating the theme of Family, Neighborhoods, and Community. This timeline takes the bank through history with pictures of the building, staff and Pleasant Street. The wall will also display copies of original signatures from many of our first depositors. The deposit ledger from the first day the bank was opened shows 22 of the first 40 bank depositors were women.
“Our seasoned staff on the front lines and in the Deposit Operations Department ensure our customers receive the best possible service and experience.”
As I write this, we are in the early stages of the Covid-19 Pandemic, and it’s not business as usual. We are implementing phases of our pandemic plan and limiting personal contact while providing the best care possible. Customers can come into the walk up and drive up as usual but the lobby, safe deposit box area, Loan and Trust Departments are by appointment only. We have developed these plans over the years in hopes that we would never have to use them, and it is satisfying to see them working as envisioned.
Despite this unusual situation, we are still moving forward with a few new projects for the year.
Transfer NOW® – is a feature we will be adding to the online banking suite of products. This new feature will allow customers to transfer funds between their Piscataqua Savings account and their accounts at other financial institutions. This transfer, once set up, will happen electronically and only take 1-2 days.
Zelle® is a widely accepted person-to-person payment network that we will be implementing in early fall. This system, which replaces POP Money®, will make sending money to another person fast and easy through online banking or the mobile app.
Lastly, after almost 20 years, we will be upgrading the Teller system. The current system, while it meets our needs adequately, is technologically dated. The new system will be more automated and more efficient. Change can be hard, especially for those who have been using the system all 20 years, but change can also be exciting, and we look forward to continuing to find ways to improve our delivery systems.
Trust/Investment Department Report
Thomas Queeney, Vice President/Senior Trust Officer
The Trust & Investment Department concluded 2019 with assets under management of $316,782,002 up 10.93% for the year. The increase in assets under management was solely attributed to market appreciation as we experienced net organic outflows of $6,802,531; with organic inflows of $26,360,636 offset by outflows of $33,163,167. The large outflows were mostly attributed to the settlement of the prior year client deaths that continued into 2019 at a grim pace.
Total fiduciary fees for the year was $2,000,947 off by $144,000 from our budgeted goal, but closely matching the prior year. Net income after taxes totaled $283,461, off $72,253 from the prior year. The shortfall from the prior year was due to unanticipated depreciation expense in 2019 of approximately $115,000.
Operationally, the new tax firm hired for the preparations of fiduciary tax returns was a success and transition from the expensive Bloomberg system to YCharts was seamless.
Trust Operations was busy dividing or transferring accounts to the next generation, preparing quarter-end regulatory reports, compiling information for our new auditing firm, and cross-training staff.
Two years remain on our trust accounting contract, so we will review the effectiveness of our current system and prepare due diligence on alternatives.
Our mission statement includes helping our clients and their beneficiaries achieve their long-term financial goals by providing quality trust service in an objective and personalized manner. As trust officers we work hard to accomplish this goal and are deeply committed to respect the grantor’s intent. We are committed to the highest standards of business practice, client satisfaction, community involvement, and conservative and consistent pursuit of financial growth and performance. We have deep empathy for our clients and their beneficiaries. We treasure their successes and bemoan their setbacks.
On the educational front, trust staff attended New Hampshire Estate Planning Council meetings throughout the year on a wide array of trust and estate topics. Jenna Ranauro took a series of ABA online classes on trust and investment services in general and will focus on trust operations studies in the new year. Brianna Adams participated in a week-long program at the Heckerling Institute on Estate Planning presented by the University of Miami School of Law. This annual event is the preeminent program on trust and estate planning. Laurie Siergiewicz attended trust school to learn the fiduciary side of the business. Macey Roberge attended the New Hampshire Bankers Emerging Leaders’ Summit. Brianna and Laurie attended the Tri State Trust Forum. The team participated in a four-part webinar on “Mastering the Art of Client Development” and joined the rest of Piscataqua Savings Bank on a team-building exercise at the “Escape Room”.
On the networking and client development front, Laurie and Joan Gile hosted a table at the Seacoast Women’s Network annual networking night spotlighting Piscataqua Savings Bank’s products and services. Laurie and Macey worked on expanding our center of influence base by adding another two dozen attorneys and Certified Public Accountants (CPAs) to our contact list as we focus on reaching out to existing and new prospects. We now hold our continuing education telephone programs at the Bank’s disaster recovery location at Griffin Park. The location has been well received by our guests for its convenient location and ample parking. This site allowed us to grow our attendance base as we invite new professionals.
“Our mission statement includes helping our clients and their beneficiaries achieve their long-term financial goals by providing quality trust service in an objective and personalized manner.”
We rolled out a new trust marketing campaign that created awareness of our services to existing Piscataqua Savings Bank customers and new prospects. This included radio and billboard advertising, magazine articles authored by staff, and collateral material and website updates.
We experienced positive feedback for Piscataqua Savings Bank’s B Corporation status with existing and future clients.
The year was filled with client appreciation and Trust development. With the magic of video editing, a camera crew along with Jack Heath arrived to discuss Trust services, we hosted a “What’s It Worth?” night for clients and prospects, and hosted a Halloween-themed Trust open house for attorneys, accountants, and other centers of influence.
To kick off the Trust & Investment Department’s 25th anniversary in 2020, we mailed celebratory jam to our clients. We continue to make progress in being named in documents for a fiduciary role at death or disability and work hard to build our book of business organically.
On the community service front, Macey served as a judge for the business plan competition at Portsmouth High School. Laurie participated at the UNH Therapeutic Riding Program. Macey and Jenna participated in the United Way-sponsored Day of Caring event spending the day cleaning and organizing the Kittery Library. Brianna continues her work with Make-A-Wish Foundation. Tom and Seacoast Rotary were at the YMCA’s Camp Gundalow to clean up the tear down remains of a large shed, raked leaves for the Richie McFarland Center, and hosted the Seacoast Rotary Turkey Trot fundraiser. (Special thanks to Piscataqua Savings Bank for its generous sponsorship!)
Piscataqua Savings Bank’s “Shred Day” had a very good showing of trust clients.
The uncertainty of events can be unsettling; we endeavor to persevere.
Mike Rodier, CFP®/Vice President/Senior Portfolio Manager
US stocks rose 31.5% in 2019, the largest gain since 2013. Progress on trade negotiations, modestly improved economic data, and an accommodative Federal Reserve helped propel stocks higher. Once again, technology was by far the best performing sector of the stock market, soaring over 50% in 2019. However, unlike in previous years, the strength in technology stocks was broad based, including seven of the top ten performing stocks in the S&P 500. The financial sector was the second-best performer, adding 32% while energy stocks underperformed, rising just under 12%. Large and medium market capitalization stock outperformed small capitalization stocks, and growth stocks beat value stocks by nearly 10%.
Despite turmoil in the Middle East and uncertainty about Brexit, most major international stock markets rose in 2019, with European stocks gaining over 20%, emerging markets rising nearly 16%, and Japan’s Nikkei stock index advancing 18%. Even with the bullish global stock markets, safe haven assets including bonds and gold were also strong performers.
After three quarter-point interest rate cuts in 2019, the Federal Reserve indicated that further cuts are not planned under current economic conditions. The ten-year US Treasury yield rose to 1.91% from 1.68% during the fourth quarter. At its December meeting the Federal Open Market Committee left its 2020 and 2021 US GDP growth projections unchanged at 2.2% and 2.0%, respectively. The Organization for Economic Co-operation and Development (OECD) estimated that world GDP growth was 2.9% in 2019, the slowest growth since the financial crisis. The OECD projects 2020 growth will remain at 2.9% and that 2021 growth will rise slightly to 3.0%.