IN THIS ISSUE 2 ESB Posts Earnings 3 ESB Employment Benefits/Opportunities 4-5 ESB News 6 Welcome New ESB Employees ESB Employee Promotions

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1 May 2018 A Newsletter for Elmira Savings Bank Shareholders, Customers and Community Vol. 8 No. 3 IN THIS ISSUE 2 ESB Posts Earnings 3 ESB Employment Benefits/Opportunities 4-5 ESB News 6 Welcome New ESB Employees ESB Employee Promotions Calendar of Events Alive After Five Concert Series Downtown Elmira May September Friday on Franklin Watkins Glen First Friday of Every Month Susan G. Komen Race for the Cure May 20 Registration at 7:00 a.m. Big Flats Community Days June Ithaca Reggae Fest June Elmira Street Painting Festival July July Fest Downtown Binghamton July 6-8 Connect with us on Facebook elmirasavingsbank President s Message Thomas M. Carr President, Chief Executive Officer It is my pleasure to present to you the accomplishments of Elmira Savings Bank in I am pleased to report: We achieved strong financial results. We invested in our branch network. We continued to execute our strategic initiatives. We implemented new technologies that provide convenience, security and efficiency. Net income totaled $4.9 million for 2017 compared to $4.3 million for This $514,000 increase is the net result of a decrease in income tax expense of $1.6 million offset by a decrease in noninterest income of $463,000, an increase in provision for loan losses of $408,000 and an increase in operating expenses of $282,000. The enactment of Tax Cuts and the Jobs Act on December 22, 2017 reduced the federal tax rate starting in 2018 from 34% to 21%. This resulted in a $1.2 million reduction of income tax expense for the Bank in The net interest margin, our largest source of revenue, was 3.32% for 2017 compared to 3.21% for the same period in This 3% margin expansion is contrary to what the industry is experiencing. Diluted earnings per share for the twelve months ended December 31, 2017 were $1.28 per share compared to $1.25 per share respectively for We paid cash dividends of $0.92 per share which resulted in a dividend yield, based on our per share price of over 4%, one of the highest in our industry. In 2017 we invested in our branch network by completing, in May, our new full-service branch located at 602 West State Street in Ithaca. The completed facility, showcased in our annual report, is the centerpiece of our franchise in Tompkins County. In addition to the Bank Branch, we have leasable space on the second floor. We also maintain control of several vacant parcels surrounding the State Street Branch that we look forward to developing in the future. In 2017 we restructured our capital, a major strategic objective, first in April with the successful private placement of 548,000 shares of common stock. These shares were placed with select investors with no single investor acquiring more than 5% of total outstanding shares. The proceeds from this issuance totaled $9.5 million. In December, the Bank repurchased all of its shares of preferred stock that were outstanding. The liquidation value of these shares was $10.0 million. They also had a dividend rate of 9.00%. The shares were repurchased at a discount of $600,000 with the total purchase price being $9.4 million. After this transaction, the Bank maintained a core capital ratio of 8.5% as of December 31, 2017, significantly above the well-capitalized level established by Bank regulators. The anticipated effect of retiring preferred shares will be to reduce the overall dividends paid out of earnings, increase the net income available to common shareholders, and improve the Bank s tangible common equity ratio. We were pleased to execute this repurchase and complete the second step of our capital strategy during We continue to work on improving operations and are pleased to have implemented a mortgage loan management system to improve the time it takes us to process a mortgage loan from application to closing. This effort began with an analysis of our 2016 mortgage originations which provided us with key information to standardize our process and establish benchmarks. The implementation of this system has produced early results that are encouraging. In the first half of 2017, our mortgage turn time was approximately 60 days. By the 4th quarter of 2017, the average turn time was 44 days, an improvement of 16 days from application to closing. Finally, we continued to invest in technology. We expanded our Electronic Banking Services through an upgrade to our Bill Pay Services, as well as expansion of the Touch ID and Passcode access within Mobile Banking. Additionally, the Elmira Savings Bank Mobile Banking App was updated to allow users to access all functionalities of the App using a fingerprint or six-digit Passcode of their choice. From a broader perspective moving forward, we will benefit financially from changes in the See President s Message on Page 5

2 Elmira Savings Bank Reports First Quarter Earnings Highlights Net income was $1,131,000 for the three months ended March 31, 2018 compared to $1,079,000 for the same period in Diluted earnings per share were $.34 per share for the three months ended March 31, 2018 compared to $.31 per share for the same period in Return on average assets was.83% for the three months ended March 31, 2018 and.78% for the same period in Return on average equity was 8.03% for the three months ended March 31, 2018 compared to 7.74% for the same period in The increase in net income combined with the effect of our capital restructuring last year has improved diluted earnings per share by 10% from the first quarter of 2018 to the same period one year ago said Thomas M. Carr, President and CEO. Carr continued, We are pleased the Bank s net interest margin continues to improve and that recent asset quality improvements have been sustained. Net Income Net income totaled $1,131,000 for the three months ended March 31, 2018, an increase of $52,000 or 4.8% from the $1,079,000 recorded for the same period in This increase was the net result of an increase in net interest income of $2,000, a decrease in tax expense of $203,000, and consistent levels in noninterest expense, offset by an increase in the provision for loan losses of $2,000 and a decrease in noninterest income of $151,000. Basic and diluted earnings per share for the three months ended March 31, 2018 were both $.34 per share compared to $.31 per share for both for the same period in Net Interest Margin The net interest margin for the three months ended March 31, 2018 was 3.38% compared to 3.32% for the first quarter of The yield on average earning assets was 4.19% for the three months ended March 31, 2018 compared to 4.11% for the same period in The average cost of interest-bearing liabilities was.96% for the three months ended March 31, 2018 compared to.93% for the three months ended March 31, See Earnings on Page 3 PAGE 2 Elmira Savings Bank CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except for share and per share data) March 31, December 31, ASSETS Cash and equivalents $ 16,563 $ 7,897 Investments 40,667 42,316 Net loans 448, ,186 Premises and equipment, net 16,667 16,772 Other assets 31,339 31,389 Total assets $ 553,259 $ 554,560 LIABILITIES AND SHAREHOLDERS EQUITY Deposits $ 456,322 $ 456,762 Borrowings 35,000 35,000 Other liabilities 5,050 6,117 Total liabilities 496, ,879 Shareholders equity 56,887 56,681 Total liabilities and shareholders equity $553,259 $554,560 Elmira Savings Bank CONSOLIDATED STATEMENT OF INCOME (Unaudited) Three Months Ended March 31, (in thousands, except for per share data) Interest and dividend income $ 5,168 $ 5,168 Interest expense Net interest income 4,175 4,173 Provision for loan losses Net interest income after provision for loan losses 4,133 4,133 Noninterest income 1,110 1,261 Noninterest expense 3,828 3,828 Income before income taxes 1,415 1,566 Income taxes Net income 1,131 1,079 Dividend on preferred stock Income available to common shareholders $ 1,131 $ 854 Basic earnings per share $ 0.34 $0.31 Diluted earnings per share $ 0.34 $0.31 Cash dividends per share $ 0.23 $0.23

3 PAGE 3 Earnings (Continued from Page 2) Assets Total assets decreased $1.3 million or 0.2% to $553.3 million at March 31, 2018 compared to $554.6 million at December 31, Loans receivable decreased 1.5% to $451.6 million at March 31, 2018 compared to December 31, The available-for-sale investment portfolio decreased $1.0 million from December 31, 2017 to March 31, 2018, and cash and cash equivalents increased by $8.7 million from December 31, 2017 to March 31, Nonperforming Loans Our nonperforming loans to total loans ratio was.70% at March 31, 2018 and.64% at December 31, Net loan charge-offs to average loans for the three months ended March 31, 2018 was.05% and.01% for the three months ended March 31, The allowance for loan losses was.98% of total loans at March 31, 2018 and.97% at December 31, Liabilities Deposits totaled $456.3 million at March 31, 2018, a decrease of $440,000 or 0.1% from the December 31, 2017 total of $456.8 million. Borrowed funds remained unchanged from December 31, 2017 at $35.0 million. Shareholders Equity Shareholders equity increased $206,000 to $56.9 million at March 31, 2018 compared to December 31, The current level of shareholders equity equates to a book value per share of $17.09 at March 31, 2018, compared to $17.07 at December 31, Dividends paid to common shareholders were $0.23 for the three months ended both March 31, 2018 and As a result of the repurchase of all outstanding preferred shares in December 2017, there were no dividends paid for preferred shares for the three months ended March 31, 2018 versus $225,000 paid in preferred dividends for the same period in Equifax (800) P.O. Box , Atlanta, GA Experian (888) Anton Blvd., Ste. 100, Costa Mesa, CA TransUnion (800) P.O. Box 6790, Fullerton, CA Ithaca s Sciencenter Shaping the Future Throughout the areas served by Elmira Savings Bank, many non-profit organizations work tirelessly to enrich the lives of the communities we proudly call home to our customers and employees. Each year Elmira Savings Bank supports a variety of these organizations, through both fiscal donations and the time of our hardworking employees. One such vital organization is the Sciencenter, a non-profit, hands-on science museum based in the heart of Ithaca. Throughout the years, Elmira Savings Bank and the Sciencenter have partnered together to further the museum s mission statement to inspire excitement for science through interactive exhibits and programs that engage, educate, and empower. Jason Sanford, Senior Vice President and Chief Financial Officer of the Elmira Savings Bank, serves on the Board of Trustees of this important, scholastic organization. The Sciencenter s Free Field Trip program is one of several educational programs they offer to local communities. The scope of the program was recently expanded to include students at nine schools in Cayuga County, along with schools throughout Tompkins County and the City of Cortland. In the future, Sciencenter hopes to continue expansion of this program by offering it to schools throughout Cayuga, Seneca, Cortland, Tioga, Schuyler and Chemung counties. The Free Field Trip program looks to create a generation of children in the community SecurLOCK Equip Power to Protect Your Card who are science educated, with the skills they need to succeed in STEM and beyond. To ensure long-term impacts beyond their visits to the museum, the Sciencenter has taken a multi-pronged approach to science learning, through field trips, classroom activities, at-home activity kits and return passes for the entire family. The Sciencenter also works closely with teachers to help them gain a comfort with teaching science and to provide them with a toolkit of activities and take-home challenges. This tiered approach will certainly help to enrich these children s educational experience, and empower and encourage them in science education. Elmira Savings Bank is proud to support the Sciencenter in offering fun and engaging science experiences, such as the field trip program, to the communities we serve. To learn more about this inspirational organization, visit them online at sciencenter.org/ or at their location on First Street in Ithaca. Elmira Savings Bank Debit MasterCard customers now have the power to control their cards in the palm of their hands. SecurLOCK Equip is a free app providing cardholders with the ability to turn their card OFF and ON, to set controls blocking certain transactions and to establish alerts to notify them when their card is used. By enrolling cards for SecurLOCK Equip, customers are provided yet another way to protect their financial security and to help prevent fraudulent transactions from occurring. The app allows users to block transactions based on geography, transaction types (such as online transactions), merchant types and more. Additionally, even when transactions are permitted to go through based on the controls, customers can receive a notification every time their card is used, allowing them to identify potential fraudulent activity in a timely manner. If a card is lost, users can also temporarily turn the card off until it is found. Taking these measures is a critical part in protecting cardholders security, and just one of several steps Elmira Savings Bank provides. Upon creation, every card is automatically enrolled for our fraud protection service, monitoring the activity of cards 24 hours a day, 365 days a year to assist in identifying fraudulent transactions. Additionally, to help protect against online fraud, cardholders can enroll for MasterCard SecureCode, requiring purchasers to enter a private code established by the cardholder when participating online purchases are initiated. These services, together with our knowledgeable and friendly staff, can help our customers to feel more comfortable in this uncertain era.

4 Branch Spotlight: Erwin Help us congratulate our Erwin Branch, located at 404 South Hamilton Street in Painted Post, for five years of growth and fantastic service to the local community. The Branch opened in January of 2013, expanding our market in Steuben County and becoming our most westward office. Much of the success of this branch is due to the hard work of its employees - Branch Manager Cory Eddy, and his staff Jennifer Stampp and Mary Becker. The Branch has become a staple in the community due to the great customer service and the dedication of the staff to participating in various community organizations. Please stop in and help us celebrate this office on five successful years with Elmira Savings Bank. New Mortgage Loan Program Business Focus: Jubilee Foods In this issue of the Advisor we are highlighting Jubilee Foods, a local grocery store owned and managed by Tom Gaige. The store is located in the Village Plaza at 2898 Westinghouse Road in Horseheads, NY. According to Tom, We are a full-service, neighborhoodfriendly grocery store. We have a full-service Deli, Bakery, Produce, and Meat department with custom meat cutting available. We also have self-checkouts to get you out and on your way quickly. We have a great selection of Gluten Free and Organic products available. Tom is excited to highlight the store s new Quick & Easy Meals program. Real food in real time. Our Quick & Easy prepared meals program provides fresh, delicious and convenient meal solutions, all at a price you can afford. With a wide range of options available throughout the store, this program caters to busy individuals looking to get a highquality meal without the hassle. PAGE 4 Tom Gaige is the owner and manager of Jubilee Foods in Horseheads, NY. Tom recognizes the importance of the community to his business and after more than 20 years, Jubilee and Tom are well-established staples of the area. That support goes both ways. We have always taken pride in supporting our community. We support various youth sporting events, Scouting, United Way, the Elmira Pioneers, Soup Kitchens, Food Pantries, See Business Focus on Page 6 Elmira Savings Bank is pleased to announce the addition of the Public Service Program to its existing suite of mortgage loan programs. This program provides an opportunity for the hard-working men and women who serve our communities to receive a significant discount on closing costs when purchasing a single family, primary residence home. Under our Public Service Program, we will discount the closing costs on the purchase of qualifying primary residences by waiving the application, appraisal, and bank attorney fees for qualifying borrowers. This benefit is applicable to all mortgage products, such as Conventional, FHA, SONYMA, VA, USDA, and construction mortgages. In order to qualify under this program, borrower(s) must be employed, volunteer, or have retired from any of the following public service positions: Military Members (Active Duty and Veterans) Law Enforcement Corrections Officers Firefighters Emergency Medical Technicians (EMT s)/paramedics Additionally, borrowers must meet the standard underwriting criteria requirements under the mortgage product for which they apply; all loan requests are subject to credit, income, and collateral qualification. Visit Elmira Savings Bank s Mortgage Website, to learn more about your mortgage loan options, choose a mortgage originator, and place an application online today.

5 PAGE 5 (Photo at left) What Elmira Savings Bank Main Office looked like in (Above photo) The same location today. Elmira Savings Bank Past, Present, and Future Water Street in downtown Elmira in 1969 It s fascinating to see how things have changed. It will be amazing to see how the Downtown Revitalization project will continue to change Elmira in 2019 and beyond. Try to imagine it, the year is 1969 and Elmira Savings Bank was celebrating its 100th anniversary. Our Main Office was located on Water St., but on the south side of the street where Mark Twain Riverfront Park is now. The John Arnot Building stood where the Elmira Savings Bank Building stands today. Back then we had only the Main Office until November of 69 when the Horseheads branch opened. Today we have 13 branches and are gearing up to celebrate our 150th anniversary. Banking itself has changed dramatically in that time. In 1969 there were no ATMs, no bank debit cards and no internet. Pens, pencils and typewriters were the tools of the trade and electronic hand-held calculators were about to come into vogue. How many people today could imagine a life without computers? Maybe you are one of those who don t have to imagine it When did you first bank with Elmira Savings Bank? What are your memories of that time? We d love to hear from you! We want to hear your thoughts, your stories and your experiences with Elmira Savings Bank and how long you ve been banking with us. Please consider writing or calling us. We might make you, and your story, part of our 150th celebration! President s Message (Continued from Page 1) federal tax code. These changes have reduced our tax burden and will benefit our shareholders, customers and employees. We remain optimistic that regulatory relief will occur in a meaningful way for community banks and provide us with reductions in compliance-related burden in future periods. As I hope you will agree, we had a productive As we moved forward into 2018, I am happy to report that we have continued our progress. Our net income for the first quarter of 2018 was $1,131,000, an increase of $52,000, or 5% over the same period one year ago. This earnings increase, highlighted by a reduction in income tax expense, combined with our capital restructuring, has improved our return on equity ratio, and our earnings per share. Our return on equity improved from 7.74% for the first quarter 2017 to 8.03% for the first quarter of this year. Our diluted earnings per share increased by 10% from $0.31 a year ago to $0.34 for the first quarter of During the first quarter of this year, we continued to invest in technology. We have upgraded our ATM network. We have introduced a new service, SecurLOCK, to protect our debit card holders, and we are working on a website redesign. We have also launched new product offerings across our product lines that have been well received and served to create new business opportunities. Finally, over the last several weeks, we continue to invest in training our staff. We have launched a bank wide sales training program with an outside provider that will help us become better at developing new business. I would like to thank all Bank Officers for the dedication and hard work that is required to continue to move the Company forward. I would also like to thank the Board of Directors for their support, guidance, and dedication to our strategic vision of becoming a regional Community Bank. And, in conclusion, I would like to thank you, our Shareholders, for your continued investment in Elmira Savings Bank.

6 PAGE 6 Business Focus (Continued from Page 4) and the Food Bank of The Southern Tier. We also do a 2-minute shopping spree at the end of the Check Out Hunger campaign to raise additional money for the Food Bank. This has been a feature ending to our Check Out Hunger campaign for 17 years. Elmira Savings Bank is proud to have partnered with Tom and Jubilee for the past 18 years. Tom shared, I worked at Jubilee as manager for five years. When I had the opportunity to purchase the store in 2000, ESB was right there to help with the financing. They ve been with me since the beginning and they have been exceptional to work with. They know me and my business and they also shop with me. ESB will always be my bank. Welcome New Elmira Savings Bank Employees Peter Chaney, Universal Banker I, Southport Branch Sara Wheeler, Risk Management Assistant, Audit Department Jill Peek, Mortgage Originator, Mortgage Originations Department Congratulations to the following Employees for Their Promotions Lorenda Gneo, Branch Manager II, Triphammer Branch Phylis Jensen, Branch Manager II, Corning Branch Shareholder Inquiries The Bank s transfer agent is: Computershare, Inc. Computershare Investor Services P.O. Box 30170, College Station, TX The Bank s annual and quarterly reports, 10-K, and 10-Q will be furnished without charge upon written request to: Thomas M. Carr, President/CEO Elmira Savings Bank 333 E. Water Street, Elmira, NY The brokers currently making a market in the Bank s common stock: Citadel Securities UBS Securities Knight Equity Markets Boenning & Scattergood is published quarterly by Elmira Savings Bank Elmira Savings Bank 333 East Water Street, Elmira, NY Phone: Toll free East Water Street Elmira, NY Bulk Rate Postage PAID Elmira, NY Permit #178