First Keystone Corporation
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 2019 888-759-2266 | www.fkc.bank FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data) 2019 2018 2017 2016 2015 SUMMARY OF OPERATIONS Interest income Interest expense Net interest income Provision for loan losses Net income PER COMMON SHARE DATA Net income Dividends BALANCE SHEET DATA Total assets Total 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 $ 38,527 $ 35,573 8,620 26,953 200 9,211 10,243 28,284 450 10,227 $ 32,268 6,548 25,720 267 8,648 $ 31,643 5,282 26,361 2,083 9,472 $ 31,711 4,966 26,745 2,277 9,172 $ 1.77 1.08 $ 1.60 1.08 $ 1.52 1.08 $ 1.68 1.08 $ 1.64 1.08 $1,007,226 $1,012,000 317,614 599,647 671,553 116,756 279,861 640,727 761,628 128,752 $990,121 350,218 551,910 778,146 116,719 $984,283 379,641 515,025 725,982 109,685 $983,489 385,267 509,871 720,598 108,438 1.02% 8.17% 61.08% 12.42% 0.92% 8.05% 67.26% 11.39% 0.86% 7.54% 71.05% 11.45% 0.96% 8.23% 64.30% 11.68% 0.96% 8.43% 65.79% 11.40% Dollars in thousands LOANS # OF NEW LOANS 2018 1,024 2019 1,125 DEPOSITS # OF NEW RETAIL DEPOSITS 2018 6,155 2019 6,204 TOTAL NEW LOANS $169,133 $154,562 TOTAL NEW RETAIL DEPOSITS $97,435 $102,982 2019 LOAN PORTFOLIO BREAKDOWN 2019 DEPOSIT BREAKDOWN 74% 18% 7% 1% 69% COMMERCIAL MORTGAGES HOME EQUITY CONSUMER & OTHER CORE DEPOSITS (CHECKING, SAVINGS & MONEY MARKETS) 31% TIME DEPOSITS (CERTIFICATES OF DEPOSIT) PERFORMANCE 2018 2019 RETURN OF ASSESTS 0.92% 1.02% RETURN ON EQUITY 8.05% 8.17% How we generated $45,456 in income: 65% $29,445 S N A O L N O E M O C N I 20% $9,082 S E I T I R U C E S E M O C N I 15% $6,929 E M O C N I R E H T O INCOME STATEMENT IN GRAPHIC FORM COMPONENTS OF OTHER INCOME OTHER NON-INTEREST INCOME ITEMS SERVICE CHARGES & FEES $2,059 $2,224 2018 2019 GAINS ON SALES OF MORTGAGE LOANS $188 $277 ATM FEES & DEBIT CARD INCOME $1,567 $1,650 Dollars in thousands How we used our $45,456 in income: 27% $12,457 23% $10,227 S E E Y O L P M E T I F O R P 16% $7,457 15% $6,650 D A E H R E V O R E H T O S R O T I S O P E D O T D A P I 8% $3,593 I G N W O R R O B S T S O C 8% $3,508 , S R E T U P M O C I S G N D L I U B T N E M P I U Q E & 2% $1,114 E M O C N I X A T E S N E P X E 1% $450 S N O I S I V O R P N A O L R O F S E S S O L Dollars in thousands TO OUR SHAREHOLDERS Making Connections and Corporate Culture There’s been a lot written about the concept of corporate culture, and at First Keystone we are committed to connecting with each other and building a culture that will benefit our employees, customers, communities and shareholders. We are focused on meeting the challenges of increasing revenue from core operating functions and reducing expenses, all while improving our day-to- day interactions and increasing productivity. We are renewing our efforts to provide quality customer service and promoting the benefits of banking with our bank. I am happy to report the progress we made in 2019 and highlight what we believe is our Keystone Advantage. Financial Highlights: For the fiscal year ended December 31, 2019, First Keystone Corporation reported earnings of $10,227,000, as compared to $9,211,000 for 2018, an increase of $1,016,000 or 11.0%. Net income per share increased to $1.77 in 2019 as compared to $1.60 in 2018. Annual dividends per share remained consistent at $1.08. The increase in net income in 2019 was primarily the result of higher interest and fees on loans. Interest income for 2019 was $38,527,000, an increase of $2,954,000 or 8.3% as compared to $35,573,000 in 2018. Interest income was higher in 2019 due to positive loan portfolio growth, primarily in commercial loans, and higher yields on those loan balances. At December 31, 2019 total loans were $647,732,000, an increase of $41,340,000 or 6.8%. Loan growth was centered in commercial real estate loans, while residential mortgage loans declined slightly. The securities portfolio decreased in 2019 to $277,928,000 due to a strategic movement by the Corporation to sell underperforming securities to fund loan growth and replace the remainder with better performing securities in various rate scenarios while having a balanced approach to interest rate risk. We will continue our emphasis on loan growth in 2020 as a primary driver of net interest income. An increase in deposit balances resulted in higher interest expense for the Corporation in 2019. Total deposits increased by $90,075,000 or 13.4% in 2019 as compared to 2018. Interest bearing deposits increased by $81,788,000 or 15.0%. Throughout 2019, the Federal Reserve decreased the federal-funds rate three times, resulting in a target range of 1.50% - 1.75% at year-end. The Corporation is actively monitoring and restructuring its portfolios, which includes scenarios for a rates-down environment, and continued strategies for deposit growth. Non-interest income, excluding net securities gains, was $391,000, or 7.0%, higher for the year ended December 31, 2019 as compared to 2018. Service charges and fees on deposits and ATM and debit card income increased by $248,000 in 2019. Gains on sales of mortgage loans provided income of $277,000 in 2019 as compared to $188,000 in 2018, an increase of $89,000. Non-interest expense amounted to $23,422,000, an increase of $777,000, or 3.4% in 2019. Expenses associated with employees (salaries and employee benefits) continue to be the largest non-interest expenditure. The increase in 2019 was due to performance salaries increases, an increase in commissions and referral fees associated with loan growth and retail non-deposit activity, as well as a 12.4% increase in medical insurance for employees. There was also an increase in expenses associated with foreclosed assets held for resale mainly due to a write down to the agreed upon lead bank repurchase price of a foreclosed asset in 2019. Income tax expense was $1,114,000 for 2019 as compared to $459,000 for 2018, making the effective tax rate 9.8% in 2019 as compared to 4.7% in 2018. The increase in the effective tax rate for 2019 was due to the sale of some underperforming tax-exempt securities and a decrease in loans to state and local units of government. The Corporation continues to maintain a portfolio of tax-exempt bonds in the securities portfolio and tax-free loans, while receiving tax credits from investments in low-income housing partnerships to maintain our effective tax rate in 2020. Total assets decreased to $1,007,226,000 in 2019 from $1,012,000,000 in 2018. As noted above, total loans increased 6.8% with much of the growth in commercial real estate loans. Stockholders’ Equity at year-end 2019 was $128,752,000. Our financial condition remains strong as evidenced by a total risk-based capital ratio of 14.53% and a tier 1 leverage capital ratio of 9.42% at year-end 2019. These key ratios are well above that which federal regulators require for a financial institution to be “well capitalized”. Additional details and related financial information may be found in the Management’s Discussion and Analysis and Financial Statements and notes sections of the 2019 Form 10-K. In conclusion, the solid year we experienced in 2019 makes me optimistic that we can continue that trend in 2020. We are well positioned for continued financial performance in future years as an independent, community bank financial services provider. We thank and recognize our employees, officers and Board of Directors for their outstanding efforts. We also thank you, our shareholders and customers, for your continued support and confidence. Elaine A. Woodland President and Chief Executive Officer KEYSTONE ADVANTAGE MESSAGE First Keystone Community Bank Setting yourself apart isn’t easy in the complex world of banking, especially for local community banks. The wide variety of competitors both large and small, plus a heavily regulated environment, make it harder to stand out from the crowd. It’s one thing to say you offer a certain financial product or service, but it’s another thing altogether to do it well. In the not so distant past, community banks relied on their branch locations and a standard product menu to measure their success. But thanks to shifting demographics, the introduction of electronic banking options, and a greater emphasis on maintaining customer loyalty, it just makes sense to move forward and enter the next decade with the customer in first place. At First Keystone Community Bank, we are renewing our focus on the basics of quality customer service and promoting the benefits of banking with a local billion-dollar institution. This is where the “Keystone Advantage” comes in. By concentrating on a specific set of core fundamentals, the goal at First Keystone is to raise the customer experience to new levels. Keystone Rewards Programs In 2017, we introduced our highly successful suite of products designed to reward our customers with higher interest rates and cashback options for doing the things they already do: using a debit card, accessing online banking, and receiving e-statements instead of paper statements. Our Rewards accounts are among the most popular products offered at FKCB. Great Rates It’s no secret that deposit rates and loan rates can be unpredictable. But we are committed to offering competitive rates along with special custom products that include unique benefits, such as the 9-month “Keystone Advantage CD” that contains some special features to avoid withdrawal penalties. On the loan side, the Bank’s rates reflect the current market and are designed to provide a range of terms and options to suit every borrower’s needs. Friendly, Knowledgeable Keystone Bankers One of the latest trends in banking is the development of ‘universal bankers’ – specially-trained employees who are well-versed in a wide variety of financial skills and tasks. Customers are looking for seamless, efficient solutions when they walk into a branch and our team of “Keystone Bankers” stand ready to assist. Keystone Bankers are a hybrid of several traditional roles in the bank (such as teller and customer service rep), specializing in handling a wide array of financial business transactions from beginning to end. Exceptional customer service is just one example of ‘yesterday’s traditions’ that we are committed to maintaining. Convenient Mobile Services While it may seem like the whole world is ‘going mobile; banking on the run with First Keystone is continually evolving. With convenient services such as online banking and bill pay, banking apps available for your smartphone and tablet, and remote deposit services for both consumers and businesses, we are continuing to position the bank as a safe and secure financial partner. Financial Services Professionals For those who need assistance with a more complex solution for their financial picture, First Keystone’s Financial Services Department features friendly and specialized advocates with access to the latest investment tools and trends. From asset distribution to more complex estate plans and trusts, our experts will help to tailor a plan that meets the needs of all types of customers. Fast, Local Decision Making ‘Local’ is the keyword at First Keystone Community Bank. Having the ability to build relationships with our customers, analyzing their needs, and developing timely solutions to any financial request, provides an advantage that many of the regional and national competitors just can’t promise. Turnaround times are shorter and the communication is personal, honest and accurate. CONNECT Initiatives Beginning in October 2018, we introduced a series of initiatives designed to improve the interactions that our employees have with their colleagues, their family and friends, and the community at large. Through dozens of projects, both large and small, we were able to instill a culture of personal growth and development throughout our entire staff. After a rock-solid 156 years in business, we continue to be a one- stop solution for our customers and a prosperous investment for our shareholders. Just like a keystone is the final stone placed during construction that locks all the other stones into place, Keystone Advantage ties all your financial resources together and provides banking solutions that exceed the expectations of our customers and shareholders. “OUR GOAL IS TO BE: FIRST KEYSTONE COMMUNITY BANK .... THE BANK FOR YOUR COMMUNITY” FIRST KEYSTONE CORPORATION BOARD OF DIRECTORS DON E. BOWER President/Owner Don E. Bower, Inc. MICHAEL L. JEZEWSKI President/Owner Delta Electrical Systems, Inc. DAVID R. SARACINO Secretary Retired Vice President & CFO First Keystone Community Bank JOHN E. ARNDT Vice Chairman Owner Arndt Insurance Agency WILLIAM E. RINEHART President/Owner Gray Chrysler Dodge Jeep Ram and Gray Chevrolet ELAINE A. WOODLAND President & Chief Executive Officer of First Keystone Community Bank ROBERT E. BULL Retired Attorney Bull & Bull LLP ROBERT A. BULL Chairman Attorney Bull & Bull LLP NANCY J. MARR Owner/President Marr Development Companies JEROME F. FABIAN Director Emeritus Retired Owner/President Tile Distributors of America, Inc. JOHN G. GERLACH Director Emeritus Retired President First Keystone Community Bank, Pocono Division DR. JOSEPH B. CONAHAN, JR. Director Emeritus Ophthalmologist ROBERT A. BULL Chairman OFFICERS ELAINE A. WOODLAND President & Chief Executive Officer JOHN E. ARNDT Vice Chairman DIANE C.A. ROSLER Chief Financial Officer/Treasurer DAVID R. SARACINO Secretary CHERYL L. WYNINGS Assistant Secretary FIRST KEYSTONE COMMUNITY BANK OFFICERS* ROBERT A. BULL Chairman of the Board JOHN E. ARNDT Vice Chairman DAVID R. SARACINO Secretary ELAINE A. WOODLAND President Chief Executive Officer EXECUTIVE OFFICERS MATTHEW W. MENSINGER Senior Vice President Director of Lending MARK J. MCDONALD Senior Vice President Chief Credit Officer DIANE C.A. ROSLER Senior Vice President Chief Financial Officer & Cashier JEFFREY T. WOZNIAK Senior Vice President Senior IT Manager & Information Security Officer VICE PRESIDENT JODI L. ALLEY Loan Operations Manager STACIA L. ARNAUD Commercial Services Officer ANTHONY P. CARTIGLIA Commercial Services Officer CARMELITA A. CLEAVER Retail Operations Officer JUNE GEORGE Branch Administrator EDGAR A. GOWER, JR. Commercial Services Officer BRENDA L. GRASLEY Consumer Loan Manager TINA M. GRAY Regional Branch Administrator ASSISTANT VICE PRESIDENT LAUREN DUANE Business Deposit Specialist JILLIAN GUENTHER Fraud Manager & BSA Officer KIMBERLY A. HELLER Human Resource Manager AMANDA JARSKI Credit Analyst II KATHLEEN M. JARSKI Community Office Manager KRISTI A. MCCLINTOCK Commercial Loan Document Specialist ASSISTANT CASHIER TIFFANY BIENKOWSKI Credit Analyst SANDRA L. COLE Community Office Manager SHANE DAVIS Accountant I & Systems Administrator JOHN DOUGHERTY Community Office Manager STACY GORDNER Accounting Reporting Analyst HERBERT HARMON, JR. Facilities Manager OFFICERS LEE A. HESS Loan Review Officer & Security Officer JASON P. HOLLOWAY Commercial Services Officer REBECCA A. HOOPER Senior Trust Officer DONNA KEEFER Training/Systems Support Manager BRIAN M. KLINEFELTER Credit Department Manager KEVIN KRIEGER Compliance Officer & CRA Officer JONATHAN LITTLEWOOD Commercial Services Officer MARISOL LOPEZ Regional Branch Administrator THOMAS MCGRATH Commercial Services Officer KIM R. MURREN Community Office Manager LAURIE NUDO Community Office Manager MARY E. PASCUCCI Training Director KIMBERLY S. SHINER Community Office Manager SHERRI A. SITLER Deposit Review Officer LINDA M. MESHINSKI Regional Branch Administrator EUGENE W. MORRISON Commercial Services Officer MICHAEL REIS Commercial Services Officer MICHAEL C. SANTIAGO Commercial Services Officer FRANCES I. SEWARD Regional Branch Administrator LEIGHTON B. WALSH Mortgage Services Manager CHRISTOPHER ZLOBIK Deposit Operations Officer NATALIE J. STACKHOUSE Accounting Manager KIMBERLY A. VOLKEL Community Office Manager DAVID WARHO Technology Systems Engineer CHERYL L. WYNINGS Executive Administrative Assistant LILIANA HENRICKSON Community Office Manager RACHEL JENNINGS Post-Closing Document Specialist STEVEN M. KOTCH Loan Workout Officer MICHELLE E. KOZAK Marketing Manager MARTIN B. LEANDRI Financial Consultant ANGELA MACKERT Community Office Manager ASHLEY MILLOWAY Mortgage Loan Consultant BONNIE NEVEL Trainer TERRI ROMANOWSKI Assistant Community Office Manager CINDY THORNE Trust Officer *Officers as of December 31, 2019 CORPORATE INFORMATION THE CORPORATION DIVIDEND REINVESTMENT 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, Monroe and Northampton Counties. The Bank engages in general banking business and also provides fiduciary services. CORPORATE HEADQUARTERS First Keystone Corporation 111 West Front Street Berwick, PA 18603 Telephone: 570-752-3671 Fax: 570-752-4022 NOTICE OF ANNUAL MEETING The 2020 Annual Meeting of Shareholders will be held at 10:00 a.m., Eastern Daylight Time, on Thursday, May 7, 2020 at: Berwick Golf Club 473 Martzville Road Berwick, PA 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 writing to: Cheryl Wynings Investor Relations P.O. Box 289 Berwick, PA 18603 Telephone: 1-888-759-2266, extension 1175 Locally: 570-752-3671, extension 1175 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: American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 1-800-937-5449 www.astfinancial.com 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 1-800-937-5449. 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: AST Plan Administration Department Wall Street Station P.O.Box 922 New York, NY 10269-0560 1-800-937-5449 help@astfinancial.com INVESTOR INFORMATION Information regarding First Keystone Corporation is available online at www. 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 LISTING First Keystone Corporation common stock is traded on OTC Pink under the symbol “FKYS”. 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 Nicholaus & Co. Inc., 800-679-5446 Boenning & Scattergood, Inc., 800-883-1212 INDEPENDENT PUBLIC ACCOUNTANTS Baker Tilly Virchow Krause, LLP 1000 Commerce Park Drive, Suite 430 Williamsport, PA 17701 Telephone: 570-323-6023 OFFICE EVOLUTION MAIN OFFICE EST. 1864 111 West Front Street • Berwick, PA 18603 570-752-3671 437 West Third Street Nescopeck, PA 18635 570-759-2767 NESCOPECK OFFICE EST. 1960 400 Fowler Avenue Berwick, PA 18603 570-759-2628 FREAS AVENUE OFFICE EST. 1986 133 West Third Street Mifflinville, PA 18631 570-752-5750 MIFFLINVILLE OFFICE EST. 1994 50 Briar Creek Plaza Berwick, PA 18603 570-802-0541 BRIAR CREEK OFFICE EST. 1999 1049 Bloom Road Danville, PA 17821 570-275-8000 DANVILLE OFFICE EST. 2004 559 Main Street Stroudsburg, PA 18360 570-424-9700 STROUDSBURG OFFICE EST. 2007 2022 Route 209 Brodheadsville, PA 18322 570-402-2008 BRODHEADSVILLE OFFICE EST. 2007 463 West Main Street Plymouth, PA 18651 570-719-1400 PLYMOUTH OFFICE EST. 2011 107 South Main Street Shickshinny, PA 18655 570-542-6060 SHICKSHINNY OFFICE EST. 2013 SALEM OFFICE EST. 1978 400 Fowler Avenue Berwick, PA 18603 570-759-2628 SCOTT TOWNSHIP OFFICE EST. 1989 2301 Columbia Boulevard Bloomsburg, PA 17815 570-784-0354 HANOVER OFFICE EST. 1997 1540 Sans Souci Highway Hanover Township, PA 18706 570-825-7352 KINGSTON OFFICE EST. 2002 299 Wyoming Avenue Kingston, PA 18704 570-718-1110 SWIFTWATER OFFICE EST. 2007 2070 Route 611 Swiftwater, PA 18370 570-839-7880 MOUNTAINHOME OFFICE EST. 2007 1154 Route 390 Cresco, PA 18326 570-595-9700 MOUNTAIN TOP OFFICE EST. 2009 18 North Mountain Boulevard Mountain Top, PA 18707 570-715-0720 DALLAS OFFICE EST. 2013 2325 Memorial Highway Dallas, PA 18612 570-674-1030 LOAN PROCESSING OFFICE EST. 2009 559 Main Street, Suite 114 Bethlehem, PA 18018 Telephone: 610-419-1412 888-759-2266 | www.fkc.bank 

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