FIRST
KEYSTONE
CORPORATION
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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
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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.
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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~
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In January, the Bank migrated all of its websites and email addresses from fkcbank.com to
the fkc.bank