First Keystone Corporation
Annual Report 2016

Plain-text annual report

FIRST KEYSTONE CORPORATION ~o~~ay ,-, A _, 888-759-2266 I www.fkc.bank FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data) 2016 2015 2014 2013 2012 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 $ 31,643 5,282 26,361 2,083 1,764 9,472 $ 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 $ 1.68 1.08 $ 1.64 1.08 $ 1.84 1.05 $ 1.87 1.04 $ 1.86 1.01 $ 984,283 379,641 515,025 725,982 109,685 $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 0.96% 8.23% 64.30% 11.68% 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% 2016 DEPOSITS 2015 4,255 2016 ~3,go~ ~ $33,000 $22,000 # OF NEW CORE ACCOUNTS NEW CORE DEPOSITS DEPOSIT BREAKDOWN LOAN BREAKDOWN ~ COMMERCIAL n MORTGAGES n HOME EQUITY n CONSUMER &OTHER n CORE DEPOSITS (Checking, Savings &Money Markets) n TIME DEPOSITS (Certificates of Deposits) NEW INITIATIVES ~ Introduced New Web address: www.fkc.bank ~ Introduced Card Valet COMMUNITY OFFICES ~ Mifflinville Community Office Branch Remodeled ~ Launched "Banking for Your Future" financial literacy program Dollars in thousands INCOME STATEMENT IN GRAPHIC FORM OTHER INCOME ~7,3H7 19% ~ ' ~ i i How we used our $39,030 in income: PROVISIONS FOR LOAN LOSSES ~Z,OH3 5% OTHER OVERHEAD COMPONENTS OF OTHER INCOME OTHER NON-INTEREST INCOME ITEMS SERVICE CHARGES &FEES GAINS ON SALES OF MORTGAGES ATM FEES &DEBIT CARD INCOME 2016 $1,786 $358 2015 ~ $1,773 $548 $1,224 $x,304 Dollars in thousands TO OUR SHAREHOLDERS Do You Feel Safe? First Keystone Community Bank is committed to providing security for your most valued assets, not just your hard-earned money, but your personal and financial information. In addition to your cash, savings, and investments, you also entrust us to protect your valuable personal data. We pledge to protect these assets from theft, either physical or digital. The cover of this Annual Report to Shareholders shows the massive and ornate vault in our Nescopeck Office. We started business in that branch in 1960 and in those days, a strong vault was the best way to protect our customers' financial future. Today, the greater threat comes from cyber-criminals. The article in the center of this year's Annual Report, At the Forefront: Securing our Future, tells the story of how First Keystone is working to protect you from those who would try to steal your valuable information. These are just a few of the ways we are meeting our commitment to you: Security, Safety, Peace of Mind... First Keystone Community Bank. Financial Highlights During the fiscal year ended December 31, 2016, First Keystone Corporation had net income of $9,472,000 compared to income of $9,172,000 for the same period in 2015. This represents a 3.3% increase in net income and is attributable to lower overhead costs, reduced taxes and continued strength in net interest income. Earnings, on a per share basis, were $1.68 in 2016 as compared to $1.64 in 2015. Dividends per share were $1.08. At December 31, 2016, the Corporation's total assets were $984,283,000, which was very similar to 2015. Net loans increased from $509,871,000 at December 31, 2015 to $515,025,000 at the end of 2016. This was an increase of 1.0%. Loan growth did not meet our target in 2016 due to continued lagging demand, coupled with several large payoffs in the Commercial Real Estate Portfolio. Residential mortgage loans made up a larger share of total loans at the end of 2016 as compared to the same period in 2015. Investment securities declined slightly at year-end, but on average were $19,637,000 higher during 2016 as compared to 2015. As of December 31, 2016, deposits were $725,982,000 as compared to $720,598,000 as of December 31, 2015. However, average deposits for the year 2016 were $720,534,000, while for the same period in 2015 deposit balances averaged $684,419,000, an increase of $36,115,000 or 5.3%. Non-interest bearing deposits at year-end were $110,314,000, an increase of 2.7%compared to year-end 2015. Long- term borrowings increased by $4,884,000, while short-term borrowings fell by $11,249,000. Long-term borrowings were increased in 2016 in order to help protect against rising short-term interest rates. Stockholder's equity rose by 1.2% to $109,685,000. The bank retained $3,382,000 in profits during 2016, and, through its dividend reinvestment program, increased capital by $1,319,000, while accumulated other comprehensive income decreased by $3,454,000. This is a result of higher interest rates at December 31, 2016. Higher rates generally cause the market value of investment securities to drop as compared to book value. First Keystone Corporation continues to be well capitalized by every regulatory measure, and we remain in a position to grow as our local economy improves. Net interest income declined slightly in 2016. Total interest expense, paid to our depositors and to our lenders, rose while interest and dividends on investment securities fell. Net interest income was $26,361,000 through December 31, 2016 as compared to $26,745,000 for the same period in 2015. Interest and fees on loans increased by $345,000, while interest on deposits increased by $266,000. Net interest margin declined from 3.27% in 2015 to 3.16% in 2016. The provision for loan losses in 2016 was $2,083,000. This was a reduction from the $2,277,000 added to the allowance for loan losses in 2015. During the third quarter of 2016, the bank charged-off a portion of one large real estate loan. We believe the remaining principal and interest on that loan is fully collectable. Based upon our analysis of the overall loan portfolio, management believes that there is no significant deterioration in the overall credit quality. Non-interest income declined in 2016. Trust department income and gains on sales of residential mortgage loans were both lower. Service charges and fees and ATM and debit card income both increased. Net investment securities gains were lower and the bank received cone-time gain from proceeds of life insurance. In all, non-interest income was $7,387,000 in 2016 as compared to $7,697,000 in 2015, a decline of $310,000, or 4.0%. Non-interest expense declined by $674,000, or 3.2%. Salaries and benefits make up the largest component of our non-interest expense. These expenses were reduced by $528,000 or 4.8% in 2016. The bank continued to pursue efficiencies in staffing, which lead to the decline. Hospital insurance costs were also lower due to a healthier workforce in 2016. Occupancy and equipment expenses were lower by $113,000, or 4.7%, and FDIC Insurance declined by $50,000, or 9.4%. Income tax expense for the year ended December 31, 2016 was lower than the prior year by $126,000, or 6.4%, as a result of an increase in tax-exempt income earned from investments instate and local units of government. The Corporation's effective tax rate was 16.3% in 2016 as compared to 17.7% in 2015. During 2016, we paid a dividend of $1.08 per share, the same as in 2015. Based upon the closing share price on December 31, 2016 of $24.60, this produced a dividend yield of 4.4%.One dollar invested in the Corporation's stock on December 31, 2006, with dividends reinvested, would have been worth $2.21 as of December 31, 2016. It was another year of consistent growth and profitability at First Keystone Corporation. We continue our commitment to our shareholders, customers, employees and communities. Our goal, in addition to providing sustainable growth for all, is to protect the valuable assets each of you entrust to us. Come in and speak with our staff today. Let them explain to you how we are striving to provide you with deposit, loan and investment services that will help your finances grow, safely. AT THE FOREFRONT: SECURING OUR FUTURE ~ ,,N. y Y 384 ~-' ~ - ~ -. ~ ter'. ' J ~-.~- n. ~ '. ~_, 0 There was a time when security in banking meant a safe walk from the parking lot to the teller window or making sure the cash vault was locked uptight overnight. Jump ahead to the 21st century and the term `security' takes on a whole new meaning. Enter the days of passwords, firewalls, and cybersecurity. Criminals are constantly finding creative new ways to obtain money from banks and customers through fraud and deception because it's become more profitable to steal money from a bank using a computer than a handgun. - At First Keystone Community Bank, we are dedicated to protecting customer's sensitive information and cybersecurity remains a top priority. Over the past 12 months, the bank has taken many steps toward securing its customer's assets and personal data. By implementing sophisticated technology, ongoing monitoring techniques, complex firewalls, and customer education initiatives, First Keystone remains at the forefront of cybersecurity protection. ``' o~ .., ~ + - - In January, the Bank migrated all of its websites and email addresses from fkcbank.com to the fkc.bank

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