First Keystone Corporation
Annual Report 2015

Plain-text annual report

ANNUAL REPORT 2015 FIRST KEYSTONE CORPORATION FINANCIAL HIGHLIGHTS INCOME STATEMENT IN GRAPHIC FORM (Dollars in thousands, except per share data) 2015 2014 2013 2012 2011 SUMMARY OF OPERATIONS Interest income Interest expense Net interest income Provision for loan losses Net investment securities gains Net income PER COMMON SHARE DATA Net income Dividends BALANCE SHEET DATA Total assets Total investment securities Net loans Total deposits Total stockholders’ equity PERFORMANCE RATIOS Return on average assets Return on average equity Dividend payout Average equity to average assets $ 31,711 4,966 26,745 2,277 2,131 9,172 $ 31,019 4,452 26,567 433 2,756 10,211 $ 30,961 4,954 26,007 1,372 2,900 10,273 $ 34,936 6,514 28,422 1,600 813 10,170 $ 37,028 9,405 27,623 1,900 111 9,907 $ 1.64 1.08 $ 1.84 1.05 $ 1.87 1.04 $ 1.86 1.01 $ 1.82 0.97 $983,489 385,267 509,871 720,598 108,438 $912,353 348,722 481,071 661,562 106,271 $901,514 354,770 439,999 690,075 96,351 $819,966 298,873 427,124 608,834 103,330 $818,546 331,429 410,066 624,349 93,092 0.96% 8.43% 65.79% 11.40% 1.13% 9.90% 56.95% 11.45% 1.23% 10.12% 55.64% 12.10% 1.25% 10.19% 54.18% 12.28% 1.21% 11.57% 53.31% 10.43% LOANS # OF NEW LOANS TOTAL NEW LOANS 2014 1,188 2015 1,191 $147,427 $143,153 DEPOSITS # OF NEW CORE ACCOUNTS NEW CORE DEPOSITS 2014 4,670 2015 4,255 $39,000 $33,000 LOAN BREAKDOWN DEPOSIT BREAKDOWN 67% 21% 11% 1% 74% 26% COMMERCIAL MORTGAGES HOME EQUITY CONSUMER & OTHER CORE DEPOSITS (Checking, Savings & Money Markets) TIME DEPOSITS (Certificates of Deposits) NEW INITIATIVES Launched EMV Chip-enabled Debit cards Introduced New Web address: www.fkc.bank Implemented Enhanced Employee Training Initiative COMMUNITY OFFICES Hanover Township Community Office Remodeled Danville Community Office Remodeled How we generated $39,408 in income: INCOME ON LOANS INVESTMENT INCOME OTHER INCOME $21,607 55% $10,104 26% $7,697 19% How we used our $39,408 in income: PAID TO DEPOSITORS BORROWING COSTS PROVISIONS FOR LOAN LOSSES EMPLOYEES COMPUTERS, BUILDINGS & EQUIPMENT OTHER OVERHEAD INCOME TAX EXPENSE PROFIT $3,159 8% $1,807 5% $2,277 6% $11,012 28% $3,084 8% $6,926 17% $1,971 5% $9,172 23% COMPONENTS OF OTHER INCOME OTHER $XXX NON-INTEREST INCOME ITEMS $XXX TRUST SERVICE CHARGES & FEES NON-DEPOSIT INVESTMENTS GAINS ON SALES OF MORTGAGES ATM FEES & DEBIT CARD INCOME 2014 $1,614 $284 $1,123 2015 $1,773 $548 $1,224 Dollars in thousands Dollars in thousands TO OUR SHAREHOLDERS The cover of this year’s Annual Report to Shareholders features some of the Bank’s customers and employees with their families. Also, there is a list of life events on the cover. The words and pictures convey a message: First Keystone Community Bank provides financial services for a lifetime of needs. Young people are concerned about saving for the future. As we form our own families, borrowing needs become important. And as we get older, assets accumulate and investment management becomes essential. Throughout our lifetimes, safety, cost and convenience are key. The employees of First Keystone Community Bank can provide the products and services to meet your financial needs throughout your lifetime. This year’s Annual Report to Shareholders highlights the full range of products and services the Bank offers to its customers. Whether using your debit card to buy groceries, transferring funds to your savings account with online banking, consulting with our residential mortgage lenders about buying a new home, or getting a free life insurance checkup from our financial services group, First Keystone Community Bank provides superior service with a full range of products to meet your banking needs. During 2015, First Keystone Community Bank continued to enhance its product line. In October, we launched new EMV Chip-enabled Debit Cards. These new cards utilize the latest technology to guard your account from fraudulent charges. Also during the year, we changed our web address to www.fkc.bank. By using this new address to log into your accounts through online banking, you can help ensure that your account information and online transactions will remain safe and secure. These enhanced and secure services are available for customers who opt for using these latest technologies. For those that prefer visiting the Bank, working face-to-face with our professional staff and receiving world-class personal service, we continue to welcome you at each of our 18 local community office locations. FINANCIAL HIGHLIGHTS During the fiscal year ended December 31, 2015, the Corporation had net income of $9,172,000. Net income during 2014 was $1,039,000 higher. The decrease in net income is related to one large commercial real estate loan that was placed on non-accrual status and, after appraisal, resulted in a charge-off of a significant portion of the balance of the loan. Earnings, on a per share basis, were $1.64 in 2015 while dividends per share were $1.08. At December 31, 2015, the Corporation’s total assets were $983,489,000, which was an increase over 2014 of $71,136,000 or 7.8%. The growth in assets was propelled by a 6.0% increase in net loans and a 10.5% increase in investment securities. The respective increases were $28,800,000 and $36,545,000. Commercial and industrial loans increased during the year by $20,418,000 or 31.6%. Municipal and corporate debt securities both increased during 2015 and were responsible for the largest share of the increase in investment securities. Funding for the increase in total assets came from three sources. First, and largest, the deposits increased by $59,036,000, or 8.9% for the year ended December 31, 2015. A major part of the increase came from higher balances carried by a large municipal depositor. Second, borrowings, primarily from the Federal Home Loan Bank of Pittsburgh, increased by $12,309,000 or 8.9%. Long-term borrowing was increased in 2015 to help protect against rising short-term interest rates. Finally, a portion of the funding for the increase in assets came from an increase in stockholders’ equity. Stockholders’ equity rose as a result of the retention of a portion of 2015 earnings and the issuance of common stock through the dividend reinvestment program. Accumulated other comprehensive income decreased as a result of higher long- term interest rates at December 31, 2015. This caused the market value of investment securities to drop slightly as compared to its book value. We continue to be well capitalized by every regulatory measure, and we remain in a position to grow as our local economy improves. Net interest income rose in 2015 even as net interest margin continued to decline. The decline in net interest margin, from 3.43% in 2014 to 3.27% in 2015, was caused primarily by a decrease in yields on average loan and investment security balances. The Corporation still has legacy assets (loans and investments) with higher than current market yields. As these assets reprice, mature or are otherwise repaid, they are often replaced with lower current market yielding assets. Funding costs, as measured by yields on balances due to depositors and the Corporation’s lenders, increased only slightly in 2015. With the recent increase in short-term rates by the Fed, some borrowing costs have begun to rise. Overall, margin compression in 2015 was offset by the growth in the Corporation’s assets. The provision for loan losses increased significantly in 2015 as compared to the prior year. The provision in 2015 was $2,277,000 as compared to $433,000 in 2014. Management does not believe the increase in the provision reflects a significant deterioration in the credit quality of the loan portfolio. Underwriting standards and procedures have not changed in any material way and 2014 represented a low point in net charge-offs over the past 5 years. Non-interest income, not including net investment security gains, increased by $420,000 or 8.2% in 2015. Service charges and fees increased as a result of a re-evaluation of our fee structure in relation to our local competitors. ATM and debit card income increased as a result of increased usage of our debit cards, driven in large part by the success of our Free Rewards Checking line of products. Finally, gains on the sale of mortgage loans increased significantly as a result of our efforts to originate residential mortgage loans throughout our four county market. Net investment security gains decreased by $625,000 or 22.7%. Non-interest expense declined by $186,000 or 0.9%. The largest component of our non-interest expense is salaries and employee benefits. These expenses were reduced by $463,000 or 4.0% in 2015 even as the Corporation experienced a 13.2% increase in the cost of medical insurance for the employees. Staffing levels throughout the organization were re-evaluated to achieve optimal efficiency, resulting in the decline in expense. Occupancy and advertising expenses were also lower in 2015 as compared to 2014. Income tax expense for the year ended December 31, 2015 was lower than the prior year by $646,000, or 24.7%, as a result of an increase in tax-exempt income earned from investments in state and local units of government. The Corporation’s effective tax rate was 17.7% in 2015 as compared to 20.4% in 2014. During 2015, we paid a dividend of $1.08 per share, an increase of 2.86% from 2014. Based upon the closing share price on December 31, 2015 of $25.49, this produced a dividend yield of 4.2%. One dollar invested in the Corporation’s stock on December 31, 2010, with dividends reinvested, would have been worth $1.81 as of December 31, 2015. Our goal at First Keystone Corporation is to provide our shareholders with consistent, safe and reliable returns on the funds you have invested in the company. For our customers, we pledge to provide trusted advice to help meet financial goals through convenient, secure and valuable products and services. To the communities we serve, we will continue to contribute our time and our resources to keep them strong and healthy. And for our employees, we promise an exciting, rewarding and family sustaining work experience. Come in and speak with our staff today. Let them put together the products and services that will address all your banking needs to reach your financial goals. Matthew P. Prosseda President & Chief Executive Officer THE TOTAL FINANCIAL PICTURE First Keystone Community Bank has been helping generations of local families and businesses reach their financial goals since 1864. The financial life cycle of the average consumer may be filled with many milestones and challenges, but the goal of First Keystone is to help its customers with the innovative products and professional guidance needed to navigate today’s rapidly changing banking environment. Whether you are a student opening your first checking account, a couple buying your first home and starting a family, or planning your retirement, banking with First Keystone, your local community bank, is always the best choice. No matter what stage of life you may find yourself, one of the most important elements for a prosperous future is security. First Keystone has you covered on several fronts. We became the first local community bank to implement the .bank (dot bank) website address. By using this designation (instead of .com or .net), an added layer of security is provided to online transactions. As retirement nears, the need for sound investment advice is crucial. The staff in First Keystone’s Trust and Financial Services Department stands ready to assist with the critical decisions on IRAs, pensions, 401(k) Plans, and much more. The Trust Department also lends a hand with estate planning, which allows First Keystone to take on broader responsibilities that can benefit you now and continue to help your family in the future. You can count on First Keystone Community Bank’s estate-planning experts to help tailor a plan that meets the needs of any family situation. By offering a wide array of accounts and services, and by providing friendly hometown customer service, First Keystone Community Bank remains committed to helping to meet the needs of each individual person, family or business in Columbia, Luzerne, Monroe and Montour counties. First Keystone Community Bank: Yesterday’s Traditions, Tomorrow’s Vision. Here to help you every step of the way. In addition, First Keystone Community Bank rolled out its new EMV Chip-enabled debit card which supports the most advanced level of information security available today. As more merchants are able to process EMV transactions, our customers will have a new tool to combat identity theft and eliminate unauthorized access to their bank accounts. As the world becomes more mobile and more reliant on handheld devices, First Keystone introduced a mobile remote deposit capture service which allows customers to snap a photo of a check with their smartphone and forward the image to the bank for crediting. This type of technology, which was unheard of just ten years ago, is changing the way we do banking and improving the process at the same time. Using mobile remote deposit, in conjunction with the bank’s fully functional online banking services, provides the 24/7 access to your bank accounts and financial records that will help to keep you and your budget on track. When it comes time to buy that first home, First Keystone’s Mortgage Loan Consultants are just a phone call away and ready to assist with the daunting amount of details that are required to put you in a new home. If you already own your home, there are many viable options available to refinance your existing mortgage loan or establish a home equity line of credit. With competitive rates, local decision-making, and an online application channel, First Keystone is ready to help you select the right mortgage loan for your situation. “...HELPING GENERATIONS OF LOCAL FAMILIES AND BUSINESSES REACH THEIR FINANCIAL GOALS SINCE 1864” FIRST KEYSTONE CORPORATION BOARD OF DIRECTORS FIRST KEYSTONE COMMUNITY BANK OFFICERS* ROBERT E. BULL Chairman Retired Attorney Bull, Bull & McDonald, LLP J. GERALD BAZEWICZ Vice Chairman Retired President & CEO First Keystone Community Bank JOHN ARNDT Owner Arndt Insurance Agency DON E. BOWER President Don E. Bower, Inc. ROBERT A. BULL Attorney Bull, Bull & McDonald, LLP DR. JOSEPH B. CONAHAN, JR. Ophthalmologist/Managing Partner Pocono Ambulatory Surgery Center JEROME F. FABIAN Owner/President Tile Distributors of America, Inc. JOHN G. GERLACH Retired President First Keystone Community Bank, Pocono Division ROBERT E. BULL Chairman of the Board J. GERALD BAZEWICZ Vice Chairman JOHN ARNDT Secretary EXECUTIVE MANAGEMENT MATTHEW P. PROSSEDA President Chief Executive Officer ELAINE A. WOODLAND Executive Vice President Chief Operating Officer Treasurer MATTHEW W. MENSINGER Senior Vice President Director of Lending DIANE C.A. ROSLER Senior Vice President Chief Financial Officer & Cashier BARBARA J. ROBBINS Senior Vice President Deposit Operations Manager MARK J. MCDONALD Senior Vice President Chief Credit Officer JOHN J. O’REILLY Vice President Senior Trust Officer GABRIEL D. ALESSI Vice President, Mortgage Services Manager JODI L. ALLEY Vice President, Loan Operations Manager LESA A. ANGELL Vice President, Retail Banking & Sales Manager WENDY L. BACHER Asst. Trust Officer, IRA Manager PATRICIA BUCCIERI Asst. Vice President, Asst. Community Office Manager LESLIE COTE Asst. Cashier, Mortgage Loan Consultant ELIZABETH GOLL Asst. Vice President, Asst. Community Office Manager TINA M. GRAY Vice President, Community Office Manager LEE A. HESS Vice President, Commercial Services Officer- Security Officer KATHLEEN M. JARSKI Asst. Vice President, Community Office Manager BRIAN M. KLINEFELTER Asst. Vice President, Credit Department Manager MARTIN B. LEANDRI Asst. Cashier, Community Office Manager ANTHONY P. CARTIGLIA Vice President, Commercial Services Officer CARMELITA A. CLEAVER Vice President, Retail Operations Officer BEVERLY A. CRUIKSHANK Vice President, Community Office Manager MARCIA H. DOBEY Asst. Vice President, Mortgage Underwriter SANDRA L. COLE Asst. Cashier, Asst. Community Office Manager ANDREW S. FAYTKO Vice President, Commercial Services Officer JAMES T. GORMAN Sr. Vice President, Commercial Services Officer- Sr. Market Manager HERBERT HARMON, JR. Asst. Cashier, Facilities Manager EDGAR A. GOWER, JR. Vice President, Commercial Services Officer BRENDA L. GRASLEY Vice President, Consumer Loan Manager HOLLY M. HARTLEY Asst. Cashier, Community Office Manager LILIANA HENRICKSON Asst. Cashier, In Store Sales Manager JASON P. HOLLOWAY Asst. Cashier, Commercial Services Officer JUNE HONOROWSKI Vice President, Regional Branch Administrator REBECCA A. HOOPER Trust Officer Asst. Vice President RACHEL JENNINGS Asst. Cashier, Post Closing Document Specialist KEVIN KRIEGER Vice President, Compliance Officer & BSA Officer JONATHAN LITTLEWOOD Vice President, Commercial Services Officer THERESA E. JOHNSON Asst. Cashier, Community Office Manager STEVEN M. KOTCH Assistant Cashier, Collector KRISTI A. MCCLINTOCK Asst. Cashier, Commercial Loan Document Specialist BONNIE NEVEL Asst. Cashier, Trainer DONNA J. KEEFER Vice President, Training/Systems Support Manager MICHELLE E. KOZAK Asst. Cashier, Marketing Officer LINDA M. MESHINSKI Asst. Vice President, Community Office Manager LAURIE NUDO Asst. Cashier, Customer Service Officer EUGENE W. MORRISON Vice President, Commercial Services Officer KIM R. MURREN Asst. Cashier, Community Office Manager DEBORAH C. ORENDI Asst. Cashier, Community Office Manager MARILYNN PALMER Vice President, Community Office Manager MARY E. PASCUCCI Asst.Vice President, Training Director FRANCES I. SEWARD Asst. Vice President, Community Office Manager KIMBERLY S. SHINER Asst. Vice President, Community Office Manager SHERRI A. SITLER Asst. Vice President, Deposit Review Officer NATALIE J. STACKHOUSE Asst. Cashier, Accounting Manager KIMBERLY A. VOLKEL Asst. Cashier, Community Office Manager MATTHEW P. PROSSEDA President & CEO First Keystone Community Bank DAVID R. SARACINO Retired Vice President & CFO First Keystone Community Bank LEIGHTON B. WALSH Asst. Vice President, Mortgage Loan Consultant ROBERT A. YOUNG Vice President, Loan Review Officer JEFFREY T. WOZNIAK Vice President, IT Manager/Information Security Officer CHRISTOPHER ZLOBIK Asst. Cashier, Asst. IT Manager CHERYL L. WYNINGS Asst. Cashier, Exec. Administrative Asst. & Asst. Secretary LINDA K. YERGES Vice President, Human Resource Manager ROBERT E. BULL Chairman OFFICERS J. GERALD BAZEWICZ Vice Chairman MATTHEW P. PROSSEDA President & Chief Executive Officer DIANE C.A. ROSLER Chief Financial Officer JOHN ARNDT Secretary CHERYL L. WYNINGS Assistant Secretary ELAINE A. WOODLAND Treasurer BLOOMSBURG/DANVILLE Michael E. Boone Walter Deacon Dan W. Hartman Michael H. Kuziak Nancy Marr ADVISORY BOARDS WYOMING VALLEY Timothy Connolly Daniel Fierman Michael Jezewski James Mangan Stephen Phillips Edward H. Poggi, III James V. Reino, Jr. *Officers as of December 31, 2015 POCONO COMMUNITY Richard W. Berkowitz Richard L. Price, Jr. William E. Rinehart Joel D. Rossi Jacob E. Seip, Jr. CORPORATE INFORMATION OFFICE LOCATIONS THE CORPORATION First Keystone Corporation is a bank holding company incorporated under the Pennsylvania Business Corporation Laws. Its assets consist primarily of the assets of its wholly-owned subsidiary, First Keystone Community Bank. First Keystone Community Bank serves Columbia, Montour, Luzerne, and Monroe Counties. The Bank engages in general banking business and also provides fiduciary services. CORPORATE HEADQUARTERS First Keystone Corporation 111 West Front Street Berwick, Pennsylvania 18603 Telephone: 570-752-3671 Fax: 570-752-4022 NOTICE OF ANNUAL MEETING The 2016 Annual Meeting of Shareholders will be held at 10:00 a.m., Eastern Daylight Time, on Thursday, May 5, 2016 at: McBride Memorial Library, Community Room 500 Market Street Berwick, Pennsylvania 18603 ANNUAL REPORT ON FORM 10-K The Annual Report on Form 10-K as filed with the Securities and Exchange Commission may be obtained, without charge, by contacting: Cheryl Wynings Investor Relations P.O. Box 289 Berwick, Pennsylvania 18603 Telephone: 1-888-759-2266, extension 1175 Locally: 570-752-3671, extension 1175 STOCK LISTING First Keystone Corporation common stock is traded on OTC Pink under the symbol “FKYS”. TRANSFER AGENT AND REGISTRAR To change or transfer registration of your stock, report a lost certificate, or other related inquiries, please contact our transfer agent at: Computershare P.O. Box 43078 Providence, RI 02940-3078 Telephone: 1-800-368-5948 Website: computershare.com/investor DIRECT DEPOSIT Shareholders may have their cash dividends deposited directly into the account of their choice at any banking institution, with no charge. Additional information and enrollment materials for direct deposit can be obtained by calling 1-800-368-5948. DIVIDEND REINVESTMENT PLAN The Plan, open to residents of Pennsylvania, provides the opportunity to have dividends automatically reinvested into First Keystone Corporation stock. Participants in the Plan may also elect to make cash contributions to purchase additional shares of common stock. For information regarding the Plan, contact the Plan Administrator at: Computershare P.O. Box 43078 Providence, RI 02940-3078 Telephone: 1-800-368-5948 INVESTOR INFORMATION Information regarding First Keystone Corporation is available online at firstkeystonecorporation.com. The website also includes additional information of interest to shareholders such as: historical stock prices, dividend declarations, press releases and governance documents. Requests for information or assistance regarding the corporation should be directed to Shareholder Relations at: 1-888-759-2266, extension 1175 Locally: 570-752-3671, extension 1175 STOCK PURCHASE INQUIRIES The following brokerage firms make a market in First Keystone Corporation common stock: RBC Dain Rauscher, 800-223-4207 Janney Montgomery Scott LLC, 800-526-6397 Stifel Nicolaus & Co. Inc., 800-223-6807 Boenning & Scattergood, Inc., 800-883-1212 Monroe Securities, 312-327-2530 INDEPENDENT PUBLIC ACCOUNTANTS BDO USA, LLP 945 East Park Drive, Suite 103 Harrisburg, Pennsylvania 17111 United States Telephone: 717-233-8800 LUZERNE Dallas 81 COLUMBIA MONTOUR Berwick Kingston Plymouth Hanover Shickshinny Mountain Top Mifflinville Bloomsburg Nescopeck 80 Danville MONROE Mountainhome Swiftwater 80 Stroudsburg Brodheadsville FIRST KEYSTONE COMMUNITY BANK MAIN OFFICE 111 West Front Street Berwick, PA 18603 570-752-3671 SALEM TOWNSHIP OFFICE 400 Fowler Avenue Berwick, PA 18603 570-759-2628 FREAS AVENUE OFFICE 701 Freas Avenue Berwick, PA 18603 570-752-1244 BRIAR CREEK OFFICE 50 Briar Creek Plaza Berwick, PA 18603 570-802-0541 SCOTT TOWNSHIP OFFICE 2301 Columbia Boulevard Bloomsburg, PA 17815 570-784-0354 KINGSTON OFFICE 299 Wyoming Avenue Kingston, PA 18704 570-718-1110 DALLAS OFFICE 2325 Memorial Highway Dallas, PA 18612 570-674-1030 MOUNTAINHOME OFFICE 1154 Route 390 Cresco, PA 18326 570-595-9700 NESCOPECK OFFICE 437 West Third Street Nescopeck, PA 18635 570-759-2767 DANVILLE OFFICE 1519 Bloom Road Danville, PA 17821 570-275-8000 MIFFLINVILLE OFFICE Third & Race Streets Mifflinville, PA 18631 570-752-5750 HANOVER TOWNSHIP OFFICE 1540 Sans Souci Highway Hanover Township, PA 18706 570-825-7352 MOUNTAIN TOP OFFICE 18 North Mountain Boulevard Mountain Top, PA 18707 570-715-0720 PLYMOUTH OFFICE 463 West Main Street Plymouth, PA 18651 570-719-1400 SHICKSHINNY OFFICE 107 South Main Street Shickshinny, PA 18655 570-542-6060 SWIFTWATER OFFICE 2070 Route 611 Swiftwater, PA 18370 570-839-7880 STROUDSBURG OFFICE 559 Main Street Stroudsburg, PA 18360 570-424-9700 BRODHEADSVILLE OFFICE 2022 Route 209 Brodheadsville, PA 18322 570-402-2008 Martz Technologies, Inc. is an industry leader in industrial automation systems including web handling, motion control, processing, SCADA and information systems. As pictured on our front cover, Lee & Greg Martz, along with their team of engineers and technicians, can take a project from conceptual design through project management, installation and commissioning…“Excellent People Producing Plant Level Solutions.” As a lifelong customer of First Keystone Community Bank, Greg trusted the personal relationship he had established with the Bank to turn to us to also form his business relationship, with the founding of Martz Technologies, Inc., in 2003. First Keystone Community Bank has always been a bank for the individuals, families and businesses that make up the community. As time passes we continue to build relationships with the customers of our community and strive to paint “The Total Financial Picture.” 888-759-2266 | www.fkc.bank 

Continue reading text version or see original annual report in PDF format above