Chairman’s
Letter to the shareholders
William P. Hayes
Chairman of the Board and
Chief Executive Officer
Kish Bancorp had an exceptional year in 2013.
The Corporation reported record earnings. Asset growth resumed its
traditional double digit upward momentum. Growth in revenues in the non-
bank units was strong with corresponding increases in profitability. Regulatory
matters were resolved. The strength of the team was augmented. Kish’s market
share rose across all markets. Kish was recognized for the seventh consecutive
year as one of the “Top 200 Community Banks” in America by American Banker
Magazine. In addition, key performance and quality metrics continued to affirm
the Corporation’s strong position relative to our competitors and banking
industry peers.
It is gratifying to report such positive financial results to the shareholders, but
we are also pleased to note that the Corporation validated a number of other
factors critical to Kish’s strong foundation for the future. It is a foundation
that is the cornerstone of Kish’s business model—the culture of service to our
clients. To put this clearly, we simply say: "What matters to our customers,
matters to Kish."
The Corporation’s mission statement captures it well: “With an unwavering
focus on fulfilling client needs, we will achieve superior, long-term shareholder
returns.” The Kish brand, built upon the Corporation’s “expect more” promise,
further underscores our focus on clients. The Kish Bancorp team takes this
promise very seriously, because our focus on client service excellence sets us
apart in the world of increasing economic and regulatory uncertainty, growing
consolidation, and rapidly changing delivery channels.
So whether it is through a robust strategic planning process or in day-to-day
decision-making, the driving force behind all we do is client acquisition and
retention. Inside the Kish team, we recognize and emphasize that the service
excellence chain is one that links profitability, growth, customer acquisition,
customer loyalty, relationship expansion, and employee satisfaction. Our team
knows that customer loyalty is an outgrowth of customer satisfaction, which
can only emanate from the value of services provided by motivated, loyal, and
2013 Annual Report 1
Contents
Chairman’s Letter to
the Shareholders
Doing What Matters
Financial Highlights
Independent
Auditor’s Report
1
4
7
10
With an unwavering focus on fulfilling client needs, we will achieve superior, long-term shareholder returns.
supported employees. Of course, that means the stronger our team, not only in
markets and across markets, but also across Kish’s four business lines, the better
we are able to satisfy our customers and keep the Corporation both profitable
and growing.
We are pleased to report that in 2013, the Kish model served us well.
• Kish’s 2013 net income of $4.2 million represented an increase of $0.6 million,
or 16.17%, from $3.6 million in 2012 and was the highest annual net income in
the Corporation’s history.
• Earnings per share reached $3.54 compared to $3.05 per share in 2012.
(Per share data has been adjusted to reflect the two-for-one stock split
announced in May 2013.)
• The two-for-one stock split was declared in recognition of prospects
for future growth and the Corporation’s strong underlying financial
fundamentals.
• Net interest income after provisions for loan losses, at $18.4 million for 2013,
increased by $1.9 million, or 11.4%, from $16.6 million the prior year.
• Noninterest income, though lower due to reduced margins on mortgage
origination fees and lower gains on securities, was strengthened by the
results of Kish’s wealth management, insurance and travel units.
• Total assets for year end 2013 rose to a record $630 million, an increase of $73
million, or 13.0%, compared to total assets of $558 million at December 31,
2012.
• Total loans for the period ending December 31, 2013 increased by $29 million,
or 8.2%, to $387 million from $356 million the prior year, and total deposits
increased by $34 million to $494 million from $460 million, an increase of
7.4%.
• Loan quality remained exceptionally strong, providing for a reduction in the
loan loss reserve of $0.9 million, which contributed directly to net income.
• Net charge-offs in 2013 remained near zero.
• Delinquent loans remain very low and ranked Kish Bank in the top 5% of its
peers.
• Return on shareholders’ equity was 9.7% compared to 8.61% in 2012.
• Noninterest expense was $19.9 million in 2013, a modest increase of $624
thousand, or 3.2%, from $19.3 million in 2012. Primary drivers of this increase
were employee benefits expenses associated with higher healthcare costs
and employer taxes, and increased core processing expenses related to
customer activity.
We are also pleased to note that as we enter 2014, the Bank does so having
completed a conversion of its banking charter from a national to a Pennsylvania
state charter. Kish Bank is now supervised by the Pennsylvania Department of
Banking and Securities and the FDIC. The holding company will continue to
have the Federal Reserve as its regulator. The charter conversion will have no
impact on Bank customers, will not have a material effect on the Bank’s current
business activities or sources of revenue, and will reduce annual regulatory
assessments. We expect that the Bank and its customers also will benefit
from the experience and insight provided by the Pennsylvania Department of
Banking and Securities through its focus on Pennsylvania community banks and
financial institutions. In addition, the supervision provided by the Pennsylvania
Department of Banking and Securities and the FDIC will be of a similar quality
and thoroughness to that delivered by federal regulators in the past.
In addition to the foregoing key performance metrics, 2013 also witnessed
several enhancements to the Kish team. Paul G. Howes of State College
joined our Board of Directors, bringing with him a wealth of knowledge and
experience in corporate management, strategy, sales, and marketing that will
strengthen the Corporation’s governance body. President and Chief Operating
Officer, J. Bradley Scovill, was also appointed to the Bank’s Board of Directors.
We also are pleased to note new additions to our regional boards: James W.
Felmlee in Mifflin County; Dominick F. Peruso, Jr. in Huntingdon County; and
Alan G. Hawbaker, Adam R. Fernsler and Paul H. Silvis in Centre County. All
understand and support Kish’s unique role in our markets and share a firm
commitment to the communities where we live and work.
We also wish to acknowledge the continuing growth of our senior leadership
team, recognized in the promotions of J. Bradley scovill to the position of
President and Chief Operating Officer, and his appointment to the Bank’s
Board of Directors, and sangeeta Kishore to the position of Senior Executive
Vice President, Chief Financial Officer and Senior Risk Officer. Both of these
individuals bring strong banking and finance experience to Kish, along with a
passionate commitment to the Corporation’s business model. Their leadership
contributes greatly to our success and, indeed, is accelerating progress toward
the achievement of Kish’s long-term corporate goals.
Throughout 2013, Kish has enjoyed and deepened its partnership with Lady Lion
Basketball Coach Coquese Washington, who this season led her young team to
an unprecedented third consecutive Big Ten Championship. Our relationship
with this bright and able woman, a leader in her field and at Penn State, has
deepened the appreciation of the value that Kish brings to our region.
We also wish to acknowledge the many contributions of several directors
whose terms on the Board will end with the 2014 Shareholders Meeting. With
both gratitude and friendship, we extend our appreciation to Alan Metzler,
Owner of Metzler Forest Products, and Delmont Sunderland, President and
CEO of World Marketing of America, Inc. We are grateful not only for the
time they devoted to Kish, but also the insight and guidance they provided the
Board. Although business obligations and time demands prevent them from
standing for reelection in 2014, they will continue to benefit Kish through their
participation on the Kish Regional Boards in Mifflin and Huntingdon counties,
respectively.
As we conclude this review of another year of progress for Kish Bancorp, we
gratefully acknowledge the continued support and encouragement of you,
our shareholders. We are honored by your loyalty and confidence in the Kish
business model, one that contributes greatly to Kish’s extraordinary culture, the
communities we serve, and our ambitious goals for the future.
Sincerely,
William P. Hayes
Chairman of the Board and Chief Executive Officer
2 Kish Bancorp, Inc.
2013 Annual Report 3
Above: Kish team
members pause for a
photo at the United Way
Day of Caring.
Left: Bill Hayes and
Coquese Washington
present Frances Vaughn
and Lisa Mallon of J.C.
Blair Memorial Hospital
with a check from
The Pink Zone. (Photo
courtesy of MJEMs
Photos.)
Kish has a culture that is unique to its people, one that
has been honed for over a century, deeply rooted in
central Pennsylvania, and enlightened consistently by
leadership engagement with the banking and financial
services industry across the Commonwealth and nation.
A community bank, one committed to being a positive
force in the life of our communities, is at our core. That
core is broadened by our non-banking business units:
Kish Insurance, Kish Wealth Management, and Kish Travel.
Ours is a story about how a passionate commitment to
great service defines a company and its team. Ours is
a story that creates sustainability through every twist
in the economic and regulatory environment. Every
single person on the Kish team constructs the human
connection between the numbers that define us and the
clients we serve. Our people connect our shared values
to our diverse business model. They make the difference,
and they bring the Kish experience to life with the firm
conviction—based on experience—that finding solutions,
resolving problems, and creating opportunity for our
clients will build long-term relationships that allow us to
acquire and retain customers in a manner that delivers
performance for our shareholders. They do what matters.
our CLients
Companies like Kish, with a passion for great service as the
means to define our culture and our team, pay attention to
client feedback. We welcome feedback, we respond to it,
and we adjust accordingly.
Kish clients include the full spectrum of people who live in
our three-county market area: Mifflin County, Huntingdon
County, and Centre County. Using our mortgage business
as an example, Kish finances everything from modest
starter homes to grand residences on large tracts of
land, and everything in between. In 2013, Kish prepared
diligently to implement the new mortgage regulations
under Dodd-Frank in January 2014, thereby staying current
and protecting this important business for the future.
Homeownership and investment in residential real estate
generally are still very much part of the American dream.
Financing that dream is an important aspect of the Bank’s
business operations. Indeed, Kish is welcoming members
of the growing international communities in our markets,
who also are pursuing home ownership in the United
States, right here in central Pennsylvania.
Our non-banking businesses reflect the same commitment
to serving the people in our market area. Kish Insurance
insures everything from personal items such as
engagement rings to multi-million-dollar commercial
properties. Kish Wealth Management invests and manages
funds for retired state employees, small business owners,
globally successful entrepreneurs, and high net worth
individuals, many of whom choose to retire amidst the
natural and cultural riches of central Pennsylvania. Kish
Travel books business ranging from airline tickets for
clients visiting family members to extended luxury
domestic and international travel for multi-generational
families. Regardless of the individual need, Kish is
committed to fulfilling the goals and the dreams of those
who live and work in our communities. The common
thread across our business lines is our “expect more”
service promise—a promise that both differentiates and
defines Kish.
What kind of feedback are we receiving? Here are a few
examples that illustrate the efforts behind the numbers:
Commercial Lending
“We were doing a large equipment upgrade and were
basing our decision on ‘when’ by the advice of our CPA
during our fourth quarter meetings. … [A competitor] took
over three weeks to get a financing proposal together for
us. … I wanted to get a feel for a competitive rate. I had
that [from Kish] within a day … [and] everything was set
up for the closing in a matter of a couple days. … Over
the weekend, my wife and I made the decision to move
our checking and credit line to you as well. … And what
totally blew us away is how we were treated during the
change process—we felt like we were your most important
customer. … It was very refreshing.”
Mortgage Lending
“My formerly upset coworker approached me today and
figured that I must have contacted someone for her at Kish.
[She was upset about how Kish dealt with her daughter’s
effort to secure a starter home loan.] She was very pleased
with your bank for reaching out and reconnecting with her
daughter. … Someone did a nice job establishing respect
and trust with her family and she was happy. Thanks for
following up!”
Kish Wealth Management
“A year or two ago, we made the decision to change our
simple IRA to a 401(k) and felt that we wanted to look
at other options. … I thought I would give [Kish Wealth
Management] a shot. Well, to put it mildly, we were
thrilled and moved our retirement accounts to Kish.”
Kish Insurance
“Everyone at Kish Insurance understands customer service
and our unique needs. They really treat us as people, not
just as another account or number. They’re basically like
our friends, willing to help you on any level. When Kish
says ‘expect more,’ they mean it.”
Kish Travel
“One of the Bank’s clients with a significant commercial
loan and deposit relationship reached out to Kish to
provide him with a Disney Travel package that he could
use as a prize for a challenge that he is promoting. After
some general discussions, he asked the Travel team to put
together the package based on a very tight budget with
several undetermined variables. The real challenge to Kish
was that he was planning to launch the program a short
Nationally-acclaimed
broadcast journalist
Gail Buckner speaks
to guests about
Social Security at an
event hosted by Kish.
4 Kish Bancorp, Inc.
2013 Annual Report 5
three days later and he needed marketing information
for his website. The Travel and Marketing teams took the
challenge and truly delivered the Kish experience. … The
materials [needed] were delivered to the client a day early.”
our emPLoYees
Kish employees know that caring for and nurturing our
clients is an absolute organizational priority that requires
collaboration between sales, service, and support, with a
special focus on client information management. They are
not satisfied knowing that existing accounts are managed
properly—they also must anticipate and meet client
needs as they change and grow over time in a rapidly and
constantly changing marketplace of products, ideas, and
needs.
Kish employees know that the value customers assign to
service is directly related to the performance of satisfied,
motivated, and productive employees who are passionate
about the services they deliver.
Kish employees recognize that giving back matters and
they volunteer countless hours in the community, above
and beyond their daily business responsibilities. The same
thing is true of Kish senior officers, most of whom serve on
non-profit boards.
Kish values leaders who are passionate about service and
dedicated to developing teams capable of sustaining a
client-focused culture. Our teams acquired significant
new customers in 2013 and outperformed the competition
in every area.
In 2013, two Service Quality Teams, comprised of our most
promising young leaders, were formed to conduct an
exhaustive analysis of the Corporation’s service channels.
Their work was extensive and their recommendations
comprehensive, many of which have been implemented
and all of which have been included in Kish’s three-
year strategic plan. This is yet further evidence of our
commitment to ensure that Kish’s “expect more” promise
is fresh and continues to stand out in the constantly
changing and competitive environment around us.
What kind of feedback are we receiving about our
employees? Here are a couple of examples:
“Thank you for creating a culture in Kish that makes
business banking a true partnership. And give your staff a
huge raise—they are amazing!”
“I love your team at the South Atherton branch. I walk in
and they know my name, and even though they are usually
busy, no one ever fails to say hello. They’re great. I love
going in there.”
our sHareHoLders
Kish has always been and continues to be blessed by
loyal shareholders who are keenly aware that Kish not
only talks the talk of community banking, but walks the
walk in our market area. They know that local ownership
and local decisions make a measurable difference for the
individuals, businesses, and municipalities that we serve.
Kish shareholders see us working in our markets, finding
solutions, solving problems, and creating opportunities
for individuals, families (often over multiple generations),
small business, and larger corporations.
Financial Highlights
Five-Year Summary
For tHe Year
Net Income
Net Income Before Taxes
Total Dividends Declared
at Year end (in $000s)
Total Assets
Total Loans (Net)
Total Deposits
Stockholders’ Equity
Loan Loss Reserve
Net Loan Losses (Recoveries)
ratio anaLYsis
Return on Average Assets*
Return on Average Equity*
Dividend Declared/Net Income
Loans/Deposits
Primary Capital/Total Assets
Total Capital/Risk Weighted Assets
Loan Loss Reserve/Loans
Net Loan Losses to Total Loans (Net)
Per sHare data**
Basic Earnings
Fully Diluted Earnings
Dividends Paid
Equity (Book Value)
Equity Plus Loan Loss Reserve
2013
2012
2011
2010
2009
$4,216,873
$3,629,794
$3,631,298
$3,556,124
$3,213,423
4,980,589
1,971,992
4,168,872
1,960,051
4,070,114
1,760,493
4,026,669
1,739,714
3,586,370
1,721,575
$630,132
$557,575
$560,069
$556,623
$527,396
381,261
494,374
40,681
5,928
34
0.69%
9.70%
46.76%
77.12%
7.40%
13.17%
1.53%
0.01%
$3.54
3.51
1.62
33.40
38.27
351,040
460,450
46,252
6,867
445
0.65%
8.61%
54.00%
76.24%
9.53%
14.05%
1.92%
0.12%
$3.05
3.05
1.62
38.10
43.76
362,163
454,660
43,517
7,043
3
0.65%
9.82%
48.48%
79.66%
9.03%
13.85%
1.91%
0.00%
$3.37
3.36
1.62
36.48
42.38
367,306
446,002
35,729
6,245
1,001
0.65%
10.31%
48.92%
82.36%
7.54%
11.67%
1.67%
0.27%
$3.36
3.34
1.62
33.27
39.09
367,824
407,721
34,062
5,397
252
0.64%
9.73%
53.57%
90.21%
7.48%
11.26%
1.44%
0.07%
$3.04
3.04
1.62
31.81
36.85
Average Shares Outstanding (#)
1,192,755
1,189,222
1,077,470
1,058,686
1,056,250
Bill Hayes
congratulates
Amanda
Dutrow, the
2013 MVP, at
the Employee
Recognition
Dinner.
Through their support, Kish shareholders enable
the Corporation to continue to work hard to achieve
its considerable goals, embrace the challenges and
opportunities before us, exceed our service quality
standards, execute our business model, and—critically
important—help build and protect the communities where
we work and live, all as our business lines evolve and grow.
*Due to fluctuations in the mark to market valuation for investment securities, we do not include them in our total for average assets and average equity.
**Per share data for the years 2009 through 2012 have been adjusted to post stock split levels for comparability.
6 Kish Bancorp, Inc.
2013 Annual Report 7
$5.0
$4.0
$3.0
$2.0
$1.0
$0.0
$50.0
$40.0
$30.0
$20.0
$10.0
$0.0
Net Income (in millions)
Earnings and Dividends per
Share*
Basic Earnings per Share
Dividends per Share
Loan Loss Reserve/Loans
PA Bank Operating Companies with $500mm to $1B in Assets*
Total Noninterest Income and
Components (in millions)
Kish Bancorp
Bank Svc Fees*
Sec Gains
Insurance KFS
Travel
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
2.00%
1.50%
1.00%
0.50%
0.00%
$8.0
$6.0
$4.0
$2.0
$0.0
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
*EPS and dividends per share have been adjusted to reflect the 2-for-1
stock split in May 2013
*Source: SNL Financial, median values
Stockholders' Equity (in millions)
and ROE
Net Interest Income After
Provision (in millions)
Balance Sheet (in millions)
Stock Valuation (per share)*
Assets
Loans
Deposits
Book Value
Market Value
Stockholders' Equity
ROE
15.00%
$21.0
$18.0
12.00%
$15.0
9.00%
6.00%
3.00%
0.00%
$12.0
$9.0
$6.0
$3.0
$0.0
$700
$600
$500
$400
$300
$200
$100
$0
$40.00
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
*Book Value and Market Value per share have been adjusted to reflect the
2-for-1 stock split in May 2013
8 Kish Bancorp, Inc.
2013 Annual Report 9
Independent Auditor’s report
Consolidated Balance Sheet
KISH BANCORP, INC.
KISH BANCORP, INC.
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET
indePendent auditor's rePort
Board oF direCtors and stoCKHoLders
KisH BanCorP, inC.
rePort on tHe FinanCiaL statements
We have audited the accompanying consolidated financial
statements of Kish Bancorp, Inc. and subsidiaries which
comprise the consolidated balance sheet as of December
31, 2013 and 2012; the related consolidated statements of
income, comprehensive income, changes in stockholders’
equity, and cash flows for the years then ended; and the
related notes to the consolidated financial statements.
management’s resPonsiBiLitY For tHe
FinanCiaL statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements
in accordance with accounting principles generally
accepted in the United States of America; this includes
the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation
of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
auditor’s resPonsiBiLitY
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of
America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures
selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated
financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness
of the entity’s internal control. Accordingly, we express
10 Kish Bancorp, Inc.
no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the
reasonableness of significant accounting estimates
made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
oPinion
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Kish Bancorp, Inc. and subsidiaries
as of December 31, 2013 and 2012, and the results of their
operations and their cash flows for the years then ended in
accordance with accounting principles generally accepted
in the United States of America.
Wexford, Pennsylvania
March 24, 2014
KisH BanCorP, inC.
ConsoLidated audited FinanCiaL
statements
deCemBer 31, 2013
Independent Auditor’s Report
Financial Statements
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Changes
in Stockholders’ Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
10
11
12
13
14
15
16
ASSETS
ASSETS
Cash and due from banks
Cash and due from banks
Interest-bearing deposits with other institutions
Interest-bearing deposits with other institutions
Cash and cash equivalents
Cash and cash equivalents
Certificates of deposit in other financial institutions
Certificates of deposit in other financial institutions
Investment securities available for sale
Investment securities available for sale
Loans held for sale
Loans held for sale
Loans
Loans
Less allowance for loan losses
Less allowance for loan losses
Net loans
Net loans
Premises and equipment
Premises and equipment
Goodwill
Goodwill
Regulatory stock
Regulatory stock
Bank-owned life insurance
Bank-owned life insurance
Accrued interest and other assets
Accrued interest and other assets
TOTAL ASSETS
TOTAL ASSETS
LIABILITIES
LIABILITIES
Deposits:
Deposits:
Noninterest-bearing
Noninterest-bearing
Interest-bearing demand
Interest-bearing demand
Savings
Savings
Money market
Money market
Time
Time
Total deposits
Total deposits
Short-term borrowings
Short-term borrowings
Other borrowings
Other borrowings
Accrued interest and other liabilities
Accrued interest and other liabilities
TOTAL LIABILITIES
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
Preferred stock, $.50 par value; 500,000 shares authorized,
Preferred stock, $.50 par value; 500,000 shares authorized,
no shares issued and outstanding
no shares issued and outstanding
Common stock, $.50 par value; 2,000,000 shares authorized,
Common stock, $.50 par value; 2,000,000 shares authorized,
1,348,750 and 674,375 shares issued in 2013 and 2012,
1,348,750 and 674,375 shares issued in 2013 and 2012,
respectively
respectively
Additional paid-in capital
Additional paid-in capital
Retained earnings
Retained earnings
Accumulated other comprehensive (loss) income
Accumulated other comprehensive (loss) income
Treasury stock, at cost (130,736 and 134,760 shares in 2013
Treasury stock, at cost (130,736 and 134,760 shares in 2013
and 2012, respectively)
and 2012, respectively)
TOTAL STOCKHOLDERS' EQUITY
TOTAL STOCKHOLDERS' EQUITY
December 31,
December 31,
2013
2013
2012
2012
$
$
$
$
7,057,478
7,057,478
7,382,070
7,382,070
14,439,548
14,439,548
980,000
980,000
188,080,483
188,080,483
73,150
73,150
387,188,353
387,188,353
5,927,823
5,927,823
381,260,530
381,260,530
14,132,706
14,132,706
1,668,699
1,668,699
6,867,400
6,867,400
12,936,583
12,936,583
9,693,018
9,693,018
8,944,401
8,944,401
14,848,221
14,848,221
23,792,622
23,792,622
2,374,375
2,374,375
136,214,232
136,214,232
584,380
584,380
357,907,840
357,907,840
6,867,370
6,867,370
351,040,470
351,040,470
15,078,798
15,078,798
1,668,699
1,668,699
4,794,900
4,794,900
12,517,831
12,517,831
9,508,580
9,508,580
$
$
$
$
630,132,117
630,132,117
$
$
557,574,887
557,574,887
$
$
57,821,658
57,821,658
8,361,927
8,361,927
51,305,439
51,305,439
188,625,283
188,625,283
188,259,308
188,259,308
494,373,615
494,373,615
4,414,579
4,414,579
86,073,842
86,073,842
4,589,446
4,589,446
589,451,482
589,451,482
55,046,956
55,046,956
9,658,721
9,658,721
47,336,921
47,336,921
189,715,682
189,715,682
158,691,542
158,691,542
460,449,822
460,449,822
4,157,290
4,157,290
42,121,094
42,121,094
4,594,956
4,594,956
511,323,162
511,323,162
-
-
-
-
674,375
674,375
3,126,097
3,126,097
47,231,553
47,231,553
(5,042,042)
(5,042,042)
(5,309,348)
(5,309,348)
40,680,635
40,680,635
337,187
337,187
3,376,514
3,376,514
45,323,860
45,323,860
2,907,315
2,907,315
(5,693,151)
(5,693,151)
46,251,725
46,251,725
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
$
630,132,117
630,132,117
$
$
557,574,887
557,574,887
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
2
2
2013 Annual Report 11
Consolidated Statement of Income
KISH BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
KISH BANCORP, INC.
Consolidated Statement of Comprehensive Income
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
INTEREST AND DIVIDEND INCOME
Interest and fees on loans:
Taxable
Exempt from federal income tax
Interest and dividends on investment securities:
Taxable
Exempt from federal income tax
Interest-bearing deposits with other institutions
Other dividend income
Total interest and dividend income
INTEREST EXPENSE
Deposits
Short-term borrowings
Other borrowings
Total interest expense
NET INTEREST INCOME
Provision for loan losses
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
NONINTEREST INCOME
Service fees on deposit accounts
Investment securities gains, net
Investment securities other than temporary impairment loss
Gain on sale of loans, net
Earnings on bank-owned life insurance
Insurance commissions
Travel agency commissions
Other
Total noninterest income
NONINTEREST EXPENSE
Salaries and employee benefits
Occupancy and equipment
Data processing
Professional fees
Advertising
Federal deposit insurance
Pennsylvania shares tax
Other
Total noninterest expense
Income before income taxes
Income taxes
NET INCOME
EARNINGS PER SHARE
Basic
Diluted
Year Ended December 31,
2013
2012
$
16,822,468
985,438
$
17,767,995
956,766
2,972,983
1,334,865
61,967
165,741
22,343,462
2,998,445
114,516
1,693,949
4,806,910
2,077,035
1,180,783
128,265
102,529
22,213,373
3,412,997
94,657
1,889,289
5,396,943
17,536,552
(900,000)
16,816,430
270,000
18,436,552
16,546,430
1,597,716
461,842
(117,500)
1,059,328
416,184
931,873
212,552
1,896,595
6,458,590
11,353,347
2,568,023
1,748,436
330,564
311,999
434,577
494,076
2,673,531
19,914,553
4,980,589
763,716
1,573,098
797,324
-
1,901,882
416,414
888,876
194,174
1,141,168
6,912,936
10,449,906
2,435,665
1,683,149
392,961
414,113
743,008
440,052
2,731,640
19,290,494
4,168,872
539,078
$
$
4,216,873
$
3,629,794
3.54 $
3.51
3.05
3.05
See accompanying notes to the consolidated financial statements.
12 Kish Bancorp, Inc.
3
KISH BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Ended December 31,
2013
2012
Net income
Other comprehensive (loss) income:
Securities available for sale:
Change in unrealized holding (losses) gains on
Net income
available-for-sale securities
Other comprehensive (loss) income:
Tax effect
Securities available for sale:
Change in unrealized holding (losses) gains on
Reclassification adjustment for net gains
available-for-sale securities
realized in net income
Tax effect
Tax effect
Reclassification adjustment for net gains
Impairment losses included in net income
realized in net income
Tax effect
Tax effect
Total other comprehensive (loss) income
Impairment losses included in net income
Tax effect
Total comprehensive (loss) income
Total other comprehensive (loss) income
Total comprehensive (loss) income
$
$
$
$
4,216,873
$
Year Ended December 31,
3,629,794
2013
2012
$
4,216,873
(11,700,139)
3,978,048
3,629,794
1,464,984
(498,095)
(11,700,139)
(461,842)
3,978,048
157,026
117,500
(461,842)
(39,950)
157,026
(7,949,357)
117,500
(39,950)
(3,732,484)
$
1,464,984
(797,324)
(498,095)
271,091
-
(797,324)
-
271,091
440,656
-
-
4,070,450
(7,949,357)
440,656
(3,732,484)
$
4,070,450
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
4
4
2013 Annual Report 13
Consolidated Statement of Changes in Stockholders’ Equity
Consolidated Statement of Cash Flows
KISH BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
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OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses
Investment securities gains, net
Investment securities impairment loss
Proceeds from sale of loans held for sale
Origination of loans held for sale
Gain on sales of loans, net
Depreciation, amortization, and accretion
Deferred income taxes
Increase (decrease) in accrued interest receivable
Increase (decrease) in accrued interest payable
Earnings on bank-owned life insurance
Decrease in prepaid federal deposit insurance
Loss on sale of other assets
Other, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Maturities of certificates of deposit
Purchase of certificates of deposit
Investment securities available for sale:
Proceeds from sale of investments
Proceeds from repayments and maturities
Purchases
(Increase) decrease in loans, net
Purchase of regulatory stock
Redemption of regulatory stock
Purchase of premises and equipment
Proceeds from sale of other real estate owned
Net cash used for investing activities
FINANCING ACTIVITIES
Increase in deposits, net
Increase (decrease) in short-term borrowings, net
Proceeds from other borrowings
Repayments of other borrowings
Proceeds from sale of common stock
Purchases of treasury stock
Proceeds from sale of treasury stock
Cash dividends
Net cash provided by (used for) financing activities
Decrease in cash and cash equivalents
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest on deposits and borrowings
Income taxes
SUPPLEMENTAL DISCLOSURE OF NON-CASH CASH FLOW INFORMATION
Real estate acquired in settlement of loans
Payment of stock dividend
Investment sales not settled
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2012
2013
$
4,216,873
$
3,629,794
(900,000)
(461,842)
117,500
31,374,585
(29,804,027)
(1,059,328)
1,324,709
160,625
(271,137)
24,633
(416,184)
19,663
-
2,173,573
6,499,643
270,000
(797,324)
-
47,056,498
(44,337,620)
(1,901,882)
1,112,213
31,885
282,921
(182,013)
(416,414)
709,737
-
(364,059)
5,093,736
1,394,375
-
250,000
(1,004,542)
16,873,095
17,242,435
(95,876,698)
(29,809,849)
(3,095,200)
1,022,700
(117,586)
490,910
(91,875,818)
33,923,793
257,289
54,946,653
(10,993,905)
-
(201,013)
62,276
(1,971,992)
76,023,101
21,211,034
28,756,606
(72,690,346)
10,025,751
(962,436)
206,000
(1,901,683)
894,098
(15,215,518)
5,786,760
(1,538,872)
2,000,000
(11,928,824)
625,057
(269,245)
17,808
(1,960,051)
(7,267,367)
$
$
$
(9,353,074)
(17,389,149)
23,792,622
41,181,771
14,439,548
$
23,792,622
$
$
4,782,277
395,000
489,793
337,188
-
5,578,956
685,000
826,710
-
2,066,250
14 Kish Bancorp, Inc.
6
2013 Annual Report 15
Notes to Consolidated Financial Statements
KISH BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment Securities (Continued)
KISH BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting and reporting policies applied in the presentation of the accompanying
consolidated financial statements follows:
Nature of Operations and Basis of Presentation
Kish Bancorp, Inc. (the “Company”) is a diversified financial services organization whose principal activity is the
ownership and management of its subsidiaries, Kish Bank (the “Bank”), Kish Travel Services, Inc., and the Bank’s
subsidiary, Kish Agency, Inc. The Company generates commercial and industrial, agricultural, commercial
mortgage, residential real estate, and consumer loans and deposit services to its customers located primarily in
central Pennsylvania and the surrounding areas. The Bank operates under a Pennsylvania Department of Banking
and Securities bank charter and provides full banking services. Deposits are insured by the Federal Deposit
Insurance Corporation (“FDIC”) to the extent provided by law. Kish Agency, Inc. provides insurance products and
services. Kish Travel Services, Inc. is a Pennsylvania business established to provide travel services to its
customers.
The consolidated financial statements include the accounts of Kish Bancorp, Inc., and its subsidiaries, Kish Bank
and Kish Travel Services, Inc., after elimination of all intercompany transactions.
The accounting principles followed by the Company and the methods of applying these principles conform to U.S.
generally accepted accounting principles (“GAAP”) and to general practice within the banking industry.
Management is required to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the Consolidated Balance Sheet date and revenues
and expenses for that period. Actual results could differ from those estimates.
Investment Securities
Investment securities are classified at the time of purchase, based on management’s intention and ability, as
securities held to maturity, available for sale, or trading. Debt securities acquired with the intent and ability to hold
to maturity are stated at cost, adjusted for amortization of premium and accretion of discount, which are computed
using the interest method and recognized as adjustments of interest income. Debt securities which are held
principally as a source of liquidity are classified as available for sale. Unrealized holding gains and losses for
available-for-sale securities are reported as a separate component of stockholders’ equity, net of tax, until realized.
Realized security gains and losses are computed using the specific identification method for debt securities and the
average cost method for marketable equity securities. Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as trading securities and reported at fair
value, with unrealized gains and losses included in current earnings. Realized securities gains and losses are
computed using the specific identification method. The Company does not have trading securities or securities
held to maturity as of December 31, 2013 and 2012. Interest and dividends on investment securities are recognized
as income when earned.
Securities are evaluated on at least a quarterly basis and more frequently when economic or market conditions
warrant such an evaluation to determine whether a decline in their value is other than temporary. For debt
securities, management considers whether the present value of cash flows expected to be collected are less than the
security’s amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline,
the reasons underlying the decline and the Company’s intent to sell the security or whether it is more likely than
not that the Company would be required to sell the security before its anticipated recovery in market value, to
determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than
temporary, if the investor does not intend to sell the security, and it is more likely than not that it will not be
required to sell the security before recovery of the security’s amortized cost basis, the charge to earnings is limited
to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference
16 Kish Bancorp, Inc.
7
defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes.
Otherwise, the entire difference between fair value and amortized cost is charged to earnings.
Common stock of the Federal Home Loan Bank (“FHLB”) of Pittsburgh and Federal Reserve Bank represents
ownership in institutions that are wholly owned by other financial institutions. These equity securities are
accounted for at cost and are shown separately on the Consolidated Balance Sheet as regulatory stock.
The Bank is a member of the FHLB and, as such, is required to maintain a minimum investment in stock of the
FHLB that varies with the level of advances outstanding with the FHLB. The stock is bought from and sold to the
FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and, as such, is
classified as restricted stock, carried at cost and evaluated by management. The stock’s value is determined by the
ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of
whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the
significance of the decline in net assets of the FHLB as compared with the capital stock amount and the length of
time this situation has persisted; (b) commitments by the FHLB to make payments required by law or regulation
and the level of such payments in relation to the operating performance; (c) the impact of legislative and regulatory
changes on the customer base of the FHLB; and (d) the liquidity position of the FHLB. Management evaluated the
stock and concluded that the stock was not impaired for the periods presented herein.
Loans
Loans are reported at their principal amount net of the allowance for loan losses and deferred origination fees or
costs. Interest on loans is recognized as income when earned on the accrual method. Generally, the policy has
been to stop accruing interest on loans when it is determined that a reasonable doubt exists as to the collectability
of additional interest. Interest previously accrued but deemed uncollectible is deducted from current interest
income. Payments received on nonaccrual loans are recorded as income or applied against principal according to
management’s judgment as to the collectability of such principal. Nonaccrual loans will generally be put back on
accrual status after demonstrating six consecutive months of no delinquency.
The allowance for loan losses is established through provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized is
accounted for as an adjustment of the related loan’s yield. Management is amortizing these amounts over the
contractual life of the related loans.
In general, fixed rate, permanent residential mortgage loans originated by the Bank are held for sale and are carried
in the aggregate at the lower of cost or fair value. The Bank sells these loans to various other financial institutions.
Currently, the Bank retains the servicing of those loans sold to the FHLB and releases the servicing of loans sold to
all other institutions.
8
2013 Annual Report 17
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses
Goodwill
The allowance for loan losses represents the amount that management estimates is adequate to provide for probable
losses inherent in its loan portfolio as of the Consolidated Balance Sheet date. The allowance method is used in
providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited
to it. The allowance for loan losses is established through a provision for loan losses charged to operations. The
provision for loan losses is based on management’s periodic evaluation of individual loans, economic factors, past
loan loss experience, changes in the composition and volume of the portfolio, and other relevant factors. The
estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of
future cash flows expected on impaired loans, are particularly susceptible to change in the near term.
Impaired loans are those for which it is probable the Company will not be able to collect all amounts due according
to the contractual terms of the loan agreement. The Company evaluates commercial and industrial, agricultural,
state and political subdivisions, commercial real estate, and all troubled debt restructuring loans for possible
impairment. Consumer and residential real estate loans are also evaluated if part of a commercial lending
relationship. The Company individually evaluates such loans for impairment and does not aggregate loans by
major risk classifications. The definition of “impaired loans” is not the same as the definition of “nonaccrual
loans,” although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to
payment delinquency or uncertain collectability while not classifying the loan as impaired, provided the loan is not
a commercial or commercial real estate classification. Factors considered by management in determining
impairment include payment status and collateral value. The amount of impairment for these types of loans is
determined by the difference between the present value of the expected cash flows related to the loan using the
original interest rate and its recorded value, or as a practical expedient in the case of collateralized loans, the
difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is
probable, impairment is measured based on the fair value of the collateral.
Mortgage loans secured by one-to-four family properties and all consumer loans are large groups of smaller-
balance homogenous loans and are measured for impairment collectively. Loans that experience insignificant
payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management
determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances
concerning the loan, the creditworthiness and payment history of the borrower, the length of the payment delay,
and the amount of shortfall in relation to the principal and interest owed.
In addition to the allowance for loan losses, the Company also estimates probable losses related to unfunded
lending commitments, such as letters of credit, financial guarantees and unfunded loan commitments. Unfunded
lending commitments are subject to individual reviews and are analyzed and segregated by risk according to the
Company’s internal risk rating scale. These risk classifications, in conjunction with an analysis of historical loss
experience, current economic conditions, performance trends within specific portfolio segments and any other
pertinent information, result in the estimation of the reserve for unfunded lending commitments. Provision for
credit losses related to the loan portfolio and unfunded lending commitments are reported in the Consolidated
Statement of Income.
The Company accounts for goodwill using a two-step process for testing the impairment of goodwill on at least an
annual basis. This approach could cause more volatility in the Company’s reported net income because impairment
losses, if any, could occur irregularly and in varying amounts.
Bank-Owned Life Insurance (“BOLI”)
The Company purchased life insurance policies on certain key employees. BOLI is recorded at its cash surrender
value, or the amount that can be realized.
Real Estate Owned
Real estate acquired by foreclosure is included with other assets on the Consolidated Balance Sheet at the lower of
the recorded investment in the property or its fair value less estimated costs of sale. Prior to foreclosure, the value
of the underlying collateral is written down by a charge to the allowance for loan losses if necessary. Any
subsequent write-downs are charged against operating expenses. Operating expenses of such properties, net of
related income and losses on their disposition, are included in other noninterest expense.
Treasury Stock
Treasury stock is carried at cost. Sales are determined by the first-in, first-out method.
Advertising Costs
Advertising costs are expensed as the costs are incurred. Advertising expense amounted to $311,999 and $414,113
for 2013 and 2012, respectively.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. Deferred tax assets and liabilities
are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Earnings Per Share
The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share are
calculated utilizing net income as reported in the numerator and average shares outstanding in the denominator.
The computation of diluted earnings per share differs in that the dilutive effects of any stock options, warrants, and
convertible securities are adjusted in the denominator.
Premises and Equipment
Stock Split
Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is
computed on the straight-line method over the estimated useful lives of the related assets, which range from 3 to 7
years for furniture, fixtures, and equipment, and 31 to 39½ years for building premises and leasehold
improvements. Expenditures for maintenance and repairs are charged against income as incurred. Costs of major
additions and improvements are capitalized.
The Board of Directors declared a two-for-one stock split effected in the form of a stock dividend payable May 27,
2013. All references to share and per share amounts in the consolidated financial statements, except the
Consolidated Balance Sheet, and accompanying notes to the consolidated financial statements have been
retroactively restated to reflect the stock split.
Stock Options
As of December 31, 2013 and 2012, the Company recorded compensation expense of $34,527 and $46,863 related
to share-based compensation awards. At December 31, 2013, there was approximately $17,367 in unrecognized
compensation cost related to unvested share-based compensation awards granted. That cost is expected to be
recognized over the next three years.
18 Kish Bancorp, Inc.
2013 Annual Report 19
9
10
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.
EARNINGS PER SHARE
Stock Options (Continued)
For purposes of computing stock compensation expense, the Company estimated the fair values of stock options
using the Black-Scholes option-pricing model. The model requires the use of subjective assumptions that can
materially affect fair value estimates. The fair value of each option is amortized into compensation expense on a
straight-line basis between the grant date for the option and each vesting date. The fair value of each stock option
granted was estimated using the following weighted-average assumptions:
Grant
Year
2013
2012
Expected
Dividend
Yield
Risk-Free
Interest Rate
Expected
Volatility
Expected
Life (in Years)
4.86
5.79
%
%
1.95
3.27
%
%
10.66
17.71
%
%
10.00
10.00
The weighted-average fair value of each stock option granted for 2013 and 2012 was $0.86 and $0.95, respectively.
There were no stock options exercised during the years ended December 31, 2013 and 2012.
Mortgage Servicing Rights (“MSRs”)
The Company has agreements for the express purpose of selling loans in the secondary market. The Company
retains servicing rights for certain loans. Originated MSRs are recorded by allocating total costs incurred between
the loan and servicing rights based on their relative fair values. MSRs are amortized in proportion to the estimated
servicing income over the estimated life of the servicing portfolio. The Company performs an impairment review
of the MSRs and recognizes impairment through a valuation account. MSRs are a component of accrued interest
and other assets on the Consolidated Balance Sheet. Gains and losses on sales of loans are recognized at settlement
dates and are determined by the difference between the sales proceeds and the carrying value of the loans. All
sales are made with limited recourse. For the years ended December 31, 2013 and 2012, the Company recorded
gross servicing rights of $742,128 and $671,967 with a reserve for impairment of $259,865 and $315,477,
respectively.
Transfer of Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Company;
(2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets; and (3) the Company does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity.
Cash Flow Information
The Company has defined cash and cash equivalents as those amounts included in the balance sheet captions “Cash
and due from banks” and “Interest-bearing deposits with other institutions” that have original maturities of less
than 90 days.
Reclassification of Comparative Amounts
Certain items previously reported have been reclassified to conform to the current year’s format. Such
reclassifications did not affect net income or stockholders’ equity.
There are no convertible securities that would affect the numerator in calculating basic and diluted earnings per
share; therefore, net income as presented on the Consolidated Statement of Income will be used as the numerator.
The following table sets forth the composition of the weighted-average common shares (denominator) used in the
basic and diluted earnings per share computation.
Weighted-average common shares outstanding
Average treasury stock shares
Average unearned nonvested restricted
share plan shares
Weighted-average common shares and
common stock equivalents used to
calculate basic earnings per share
Additional common stock equivalents
(nonvested stock) used to calculate
diluted earnings per share
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share
2013
2012
1,348,748
1,344,764
(132,493)
(134,606)
(23,500)
(20,936)
1,192,755
1,189,222
318
544
7,696
1,846
1,200,769
1,191,612
Options to purchase 111,752 shares of common stock at a price of $33.25 to $48.38 as of December 31, 2013, and
19,404 shares of restricted stock ranging in price from $25.50 to $35.00 were not included in the computation of
diluted earnings per share. To include these shares would have been antidilutive.
Options to purchase 137,252 shares of common stock at a price of $25.50 to $48.38, as of December 31, 2012, and
17,602 shares of restricted stock ranging in price from $25.50 to $38.18 were not included in the computation of
diluted earnings per share. To include these shares would have been antidilutive.
3.
INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of investment securities available for sale are as follows:
2013
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
18,561,953
65,628,145
$ $
-
31,431
(1,201,833)
(5,081,769)
$
17,360,120
60,577,807
62,046,304
15,811,281
33,524,915
195,572,598
147,340
1,363,020
92,517
183,434
1,670,402
81,523
(1,460,544)
(453,734)
61,948,780
15,450,064
(1,193,500)
(9,391,380)
-
32,514,849
187,851,620
228,863
U.S. treasury securities
U.S. government agency securities
Obligations of states and political
subdivisions
Corporate securities
Mortgage-backed securities in
government-sponsored entities
Total debt securities
Equity securities in financial institutions
Total
$
195,719,938
$
1,751,925
$
(9,391,380)
$
188,080,483
20 Kish Bancorp, Inc.
2013 Annual Report 21
11
12
3.
INVESTMENT SECURITIES AVAILABLE FOR SALE (Continued)
3.
INVESTMENT SECURITIES AVAILABLE FOR SALE (Continued)
2012
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
4,992,428
44,667,778
$
114,029
680,635
$
$
(27,397)
(74,593)
5,079,060
45,273,820
48,039,353
4,015,236
29,931,421
131,646,216
162,990
3,241,734
9,806
872,420
4,918,624
55,254
(50,758)
(408,537)
(7,567)
(568,852)
-
51,230,329
3,616,505
30,796,274
135,995,988
218,244
U.S. treasury securities
U.S. government agency securities
Obligations of states and political
subdivisions
Corporate securities
Mortgage-backed securities in
government-sponsored entities
Total debt securities
Equity securities in financial institutions
Total
$
131,809,206
$
4,973,878
$
(568,852)
$
136,214,232
The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment
category and length of time that the individual securities have been in a continuous unrealized loss position, at
December 31, 2013 and 2012.
Less than Twelve Months
Gross
Unrealized
Losses
Fair
Value
2013
Twelve Months or Greater
Fair
Value
Gross
Unrealized
Losses
Total
Fair
Value
Gross
Unrealized
Losses
$
15,510,740
$
(1,013,136)
$
1,849,380
$
(188,697)
$
17,360,120
$
(1,201,833)
53,959,407
(4,606,460)
4,598,130
(475,309)
58,557,537
(5,081,769)
23,469,685
11,718,297
(1,308,822)
(450,044)
1,218,147
496,310
(151,722)
(3,690)
24,687,832
12,214,607
(1,460,544)
(453,734)
20,855,574
125,513,703
$
(1,193,500)
(8,571,962)
$
-
$
8,161,967
$
-
(819,418)
$
20,855,574
133,675,670
$
(1,193,500)
(9,391,380)
U.S. treasury
securities
U.S. government
agency securities
Obligations of states
and political
subdivisions
Corporate securities
Mortgage-backed
securities in govern-
ment-sponsored
entities
Total
Less than Twelve Months
Gross
Unrealized
Losses
Fair
Value
2012
Twelve Months or Greater
Fair
Value
Gross
Unrealized
Losses
Total
Fair
Value
Gross
Unrealized
Losses
$
3,010,780
$
(27,397)
$
12,999,055
(74,593)
3,206,412
877,282
(50,758)
(8,571)
-
-
-
1,567,534
$
-
-
$
3,010,780
$
(27,397)
12,999,055
(74,593)
-
(399,966)
3,206,412
2,444,816
(50,758)
(408,537)
1,079,860
21,173,389
$
(7,567)
(168,886)
$
-
$
1,567,534
$
-
(399,966)
$
1,079,860
22,740,923
$
(7,567)
(568,852)
U.S. treasury
securities
U.S. government
agency securities
Obligations of states
and political
subdivisions
Corporate securities
Mortgage-backed
securities in govern-
ment-sponsored
entities
Total
U.S. treasury securities. The unrealized loss on ten investments in U.S. treasury notes was caused by interest rate
increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less
than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and
it is not more likely than not that the Company will be required to sell the investments before recovery of their
amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-
temporarily impaired at December 31, 2013.
U.S. government agency securities. The unrealized loss on 51 investments in U.S. government obligations and
direct obligations of U.S. government agencies was caused by interest rate increases. The contractual terms of
these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the
investments. Because the Company does not intend to sell the investments and it is not more likely than not that
the Company will be required to sell the investments before recovery of their amortized cost basis, which
may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at
December 31, 2013.
Obligations of states and political subdivisions. The Company’s unrealized losses on 44 municipal bonds relate to
investments within the governmental service sector. The unrealized losses are primarily caused by interest rate
increases. The contractual terms of these investments do not permit the issuer to settle the security at a price less
than the par value of the investment. The Company currently does not believe it is probable that it will be unable
to collect all amounts due according to the contractual terms of the investments. Because the Company does not
intend to sell the investments and it is not more likely than not that the Company will be required to sell the
investments before recovery of their par value, which may be maturity, it does not consider these investments to be
other-than-temporarily impaired at December 31, 2013.
Mortgage-backed securities in government-sponsored entities. The unrealized losses on 15 of the Company’s
investments in mortgage-backed securities were caused by interest rate increases. The Company purchased 14 of
these investments at a premium relative to its face amount, and the contractual cash flows of the investments are
guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be
settled at a price less than the amortized cost basis of the Company’s investment. Because the decline in market
value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to
sell the investments and it is not more likely than not that the Company will be required to sell the investments
before recovery of its amortized cost basis, which may be maturity, the Company does not consider these
investments to be other-than-temporarily impaired at December 31, 2013.
22 Kish Bancorp, Inc.
2013 Annual Report 23
13
14
3.
INVESTMENT SECURITIES AVAILABLE FOR SALE (Continued)
4.
LOANS
Corporate securities. The Company had unrealized losses on investments in 20 different debt securities that were
primarily the result of interest rate increases. The Company currently does not believe it is probable that it will be
unable to collect all amounts due, other than the security described below, according to the contractual terms of the
investments. Because the Company does not intend to sell these securities and it is not more likely than not that
the Company will be required to sell the investments before recovery of the amortized cost basis, it does not
consider these investments to be other- than- temporarily impaired at December 31, 2013.
During the year ended December 31, 2013, management recorded an other-than-temporary impairment loss of
$117,500 on a pre-tax basis for one security. It was determined by management in the current year to utilize a
Level II valuation for the security instead of the Level III method utilized in prior years due to improvements in the
activity for the security. Of the recorded loss, all $117,500 was determined to be credit related and recognized in
earnings and none was determined to be attributable to other factors and recognized in accumulated other
comprehensive (loss) income.
Furthermore, the Company does not intend to sell these securities and it is not more likely than not that the
Company will be required to sell these securities before recovery of their cost basis, which may be maturity.
Therefore, it does not consider these investments to be other-than-temporarily impaired at December 31, 2013.
The amortized cost and fair value of debt securities at December 31, 2013, by contractual maturity, are shown
below. Expected maturities of mortgage-backed securities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
Available for Sale
$
Amortized
Cost
2,675,686
14,793,316
104,322,383
73,781,213
$
Fair
Value
2,701,747
15,177,414
99,933,848
70,038,611
$
195,572,598
$
187,851,620
Major classifications of loans are summarized as follows:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
Less allowance for loan losses
Net loans
$
2013
2012
$
125,959,918
51,447,386
19,588,155
30,282,161
7,219,608
152,691,125
387,188,353
5,927,823
113,792,683
54,280,110
19,824,927
24,657,876
6,551,541
138,800,703
357,907,840
6,867,370
$
381,260,530
$
351,040,470
Mortgage loans serviced by the Company for others amounted to $74,621,700 and $69,900,031 at December 31,
2013 and 2012, respectively.
The Company grants residential, commercial, and consumer loans to customers throughout its trade area, which is
concentrated in central Pennsylvania. Such loans are subject to, at origination, credit risk assessment by
management following the Company’s lending policy. Although the Company has a diversified loan portfolio at
December 31, 2013 and 2012, a substantial portion of its debtors’ ability to honor their loan agreements is
dependent upon the economic stability of its immediate trade area.
In the normal course of business, loans are extended to directors, executive officers, and their associates. A
summary of loan activity for those directors, executive officers, and their associates with loan balances in excess of
$60,000 for the year ended December 31, 2013, is as follows:
2012
Additions
Amounts
Collected
2013
$
8,989,462
$
7,931,823
$
12,451,249
$
4,470,036
Investment securities with a carrying value of $71,388,656 and $75,688,114 at December 31, 2013 and 2012,
respectively, were pledged to secure deposits and other purposes as required by law.
5.
ALLOWANCE FOR LOAN LOSSES
The following is a summary of proceeds received, gross gains, and gross losses realized on the sale of investment
securities available for sale for the years ended December 31:
Proceeds from sales
Gross gains
Gross losses
Other-than-temporary impairment loss
2013
2012
$
$
16,873,095
512,423
50,581
117,500
21,211,034
814,552
17,228
-
Management has an established methodology to determine the adequacy of the allowance for loan losses that
assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan
losses, the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the
following pools: commercial real estate loans, commercial and industrial loans, agricultural loans, state and
political subdivision loans, consumer loans, and residential real estate loans. Historical loss percentages for each
risk category are calculated and used as the basis for calculating allowance allocations. These historical loss
percentages are calculated over a three-year period for all portfolio segments. Certain qualitative factors are then
added to the historical loss percentages to get the adjusted factor to be applied to nonclassified loans.
24 Kish Bancorp, Inc.
2013 Annual Report 25
15
16
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
The following qualitative factors are analyzed to determine allocations for nonclassified loans for each portfolio
segment:
State and political subdivision loans carry the lowest risk as most state and political subdivision loans are either
backed by the full taxing authority of a municipality or the revenue of a municipal authority.
Changes in lending policies and procedures
Changes in economic and business conditions
Changes in nature and volume of the loan portfolio
Changes in lending staff experience and ability
Changes in past-due loans, nonaccrual loans, and classified loans
Changes in loan review
Changes in underlying value of collateral-dependent loans
Levels of credit concentrations
Effects of external factors, such as legal and regulatory requirements
These qualitative factors are reviewed each quarter and adjusted based upon relevant changes within the Bank’s
operating environment. During 2013, management elevated the qualitative factors reserve percentage for the
residential real estate pool of loans because of the changes in the volume of loans and changes in the lending policy
due to the new regulations for residential lending. In 2012, changes in lending staff experience and ability
contributed to the increase in factor percentages for various loan pools. The change in credit staff experience and
ability factor percentage was increased because of the resignation of the Chief Credit Officer. Late in 2012, the
bank hired a new Chief Credit Officer with over 40 years of experience in the banking industry. Over the year, the
addition of an experienced Chief Credit Officer has resulted in lowered potential risk and has led the Bank to revert
the increase in this reserve factor for commercial loans. Changes in the volume and severity of past dues, non-
accruals, and classified loans have also contributed to a decrease in the reserve levels of commercial loans with
continued improvement in the level of classified loans. With improvement in the competitive landscape, the
reserve factors related to commercial loans were decreased slightly. All other pools of loans were left unchanged
due to continued severity of regulatory requirements as a consequence of the Dodd-Frank Act. No significant
changes have been noted in the market value of real estate or the unemployment numbers within the Bank’s
primary market area; accordingly, the reserve levels related to these factors were left unchanged from 2012.
We consider commercial real estate loans, commercial and industrial loans, agricultural loans, and consumer loans
to be riskier than one-to-four family residential mortgage loans. Commercial real estate loans entail significant
additional credit risks compared to one-to-four family residential mortgage loans, as they involve large loan
balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience
on loans secured by income-producing properties typically depends on the successful operation of the related real
estate project and/or business operation of the borrower who is also the primary occupant, and thus may be subject
to a greater extent to adverse conditions in the real estate market and in the general economy. Commercial and
industrial loans, along with agricultural loans, involve a higher risk of default than residential mortgage loans of
like duration since their repayment is generally dependent on the successful operation of the borrower’s business
and the sufficiency of collateral, if any. The repayment of agricultural loans can also be impacted by commodity
prices going up and down. Although a customer’s ability to repay for both one-to-four family residential mortgage
loans and consumer loans is highly dependent on the local economy, especially employment levels, consumer
loans as a group generally present a higher degree of risk because of the nature of collateral, if any.
The following tables present, by portfolio segment, the changes in the allowance for loan losses and the recorded
investment in loans as of and for the years ended December 31:
Commercial
Real Estate
Commercial
and
Industrial
Agricultural
2013
State and
Political
Subdivisions
Consumer
Residential
Real Estate
Unallocated
Total
2,646,720
(5,658)
1,349
(96,821)
2,545,590
$
1,692,945
$
-
1,390
(611,835)
1,082,500
$
$
223,688
-
3,600
(8,162)
219,126
498,957
$
390,932
$
-
$
$
$
132,014
-
-
32,334
164,348
-
$
$
$
56,185
(16,772)
2,754
11,565
53,732
-
$
$
$
814,169
(27,341)
1,131
298,527
1,086,486
$ 1,301,649
$
-
-
(525,608)
776,041
$
3,000
$
-
6,867,370
(49,771)
10,224
(900,000)
5,927,823
892,889
2,046,633
$
691,568
$
219,126
$
164,348
$
53,732
$
1,083,486
$
776,041
$
5,034,934
5,532,518
$
1,172,958
$
439,606
$
106,720
$
1,800
$
853,983
$
120,427,400
50,274,428
19,148,549
30,175,441
7,217,808
151,837,142
Ending balance
$
125,959,918
$
51,447,386
$ 19,588,155
$ 30,282,161 $
7,219,608
$
152,691,125 $
-
-
-
$
8,107,585
379,080,768
$
387,188,353
Commercial
Real Estate
Commercial
and
Industrial
Agricultural
2012
State and
Political
Subdivisions
Consumer
Residential
Real Estate
Unallocated
Total
2,714,374
(270,731)
3,208
199,869
2,646,720
$
$
1,736,219
(23,732)
2,148
(21,690)
1,692,945
$
$
229,406
(23,376)
-
17,658
223,688
309,060
$
642,765
$
-
$
$
$
135,388
-
-
(3,374)
132,014
-
$
$
$
57,623
(108,292)
3,439
103,415
56,185
-
$
$
$
834,980
(28,205)
-
7,394
814,169
$ 1,334,921
$
-
-
(33,272)
$ 1,301,649
25,240
$
-
7,042,911
(454,336)
8,795
270,000
6,867,370
977,065
2,337,660
$
1,050,180
$
223,688
$
132,014
$
56,185
$
788,929
$ 1,301,649
$
5,890,305
4,263,950
$
1,138,112
$
407,170
$
-
$
-
$
1,294,374
$
109,528,733
53,141,998
19,417,757
24,657,876
6,551,541
137,506,329
-
-
-
$
7,103,606
350,804,234
$
357,907,840
2013 Annual Report 27
Allowance for loan
losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Ending balance
individually evaluated
for impairment
Ending balance
collectively evaluated
for impairment
Loans:
Individually evaluated
for impairment
Collectively evaluated
for impairment
$
$
$
$
$
Allowance for loan
losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Ending balance
individually evaluated
for impairment
Ending balance
collectively evaluated
for impairment
Loans:
Individually evaluated
for impairment
Collectively evaluated
for impairment
$
$
$
$
$
$
$
$
$
26 Kish Bancorp, Inc.
17
18
Ending balance
$
113,792,683
$
54,280,110
$ 19,824,927
$ 24,657,876 $
6,551,541
$
138,800,703 $
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
Reserve requirement for commercial real estate loans decreased by $101,130 from 2013 to 2012, while those for
commercial and industrial loans decreased by $610,445 during the same period. This was a direct result of
decreases during 2013 of criticized and classified assets which at $10.8 million at December 31, 2013, indicates a
4.40 percent or $0.5 million decrease from December 31, 2012. While the reduced balances in criticized and
classified assets signify better management of the portfolio and reduced risk to the Bank, management has chosen
to adopt a more conservative approach and evaluate sustained performance of these loans.
Credit Quality Information (Continued)
For consumer and residential real estate loans, the Company evaluates credit quality based on whether the loan is
considered performing or nonperforming. Nonperforming loans are those loans past due 90 days or more and loans
on nonaccrual. The following tables present the balances of consumer and residential real estate loans by classes
of loan portfolio based on payment performance as of December 31:
Credit Quality Information
The following tables represent the commercial credit exposures by internally-assigned grades for the years ended
December 31, 2013 and 2012, respectively. The grading analysis estimates the capability of the borrower to repay
the contractual obligations under the loan agreements as scheduled or at all. The Company’s internal credit risk
grading system is based on experiences with similarly graded loans.
The Company’s internally-assigned grades are as follows:
Pass loans are loans which are protected by the current net worth and paying capacity of the obligor or by the value
of the underlying collateral. Special Mention loans are loans where a potential weakness or risk exists, which
could cause a more serious problem if not corrected. Substandard loans are loans that have a well-defined
weakness based on objective evidence and are characterized by the distinct possibility that the Company will
sustain some loss if the deficiencies are not corrected. Doubtful loans have all the weaknesses inherent in a
substandard asset and these weaknesses make collection or liquidation in full highly questionable and improbable,
based on existing circumstances. Finally, loans classified as Loss are considered uncollectible, or of such value
that continuance as an asset is not warranted.
$
Commercial
Real Estate
$
115,161,687
2,901,867
7,857,972
38,392
-
Commercial
and
Industrial
2013
Agricultural
$
47,349,424
2,712,998
1,384,964
17,457,107
886,505
1,244,543
-
-
-
-
State and
Political
Subdivisions
$
30,282,161
$
-
-
-
-
Total
210,250,379
6,501,370
10,487,479
38,392
-
$
125,959,918
$
51,447,386
$
19,588,155
$
30,282,161
$
227,277,620
Commercial
Real Estate
Commercial
and
Industrial
$
$
102,497,213
4,970,737
6,285,096
39,637
-
$
46,361,397
5,320,354
2,362,688
235,671
-
2012
Agricultural
18,396,130
784,330
563,974
80,493
-
State and
Political
Subdivisions
$
24,657,876
$
-
-
-
-
Total
191,912,616
11,075,421
9,211,758
355,801
-
$
113,792,683
$
54,280,110
$
19,824,927
$
24,657,876
$
212,555,596
Pass
Special Mention
Substandard
Doubtful
Loss
Total
Pass
Special Mention
Substandard
Doubtful
Loss
Total
Performing
Nonperforming
Total
Performing
Nonperforming
Total
Consumer
7,169,056
50,552
7,219,608
Consumer
6,551,541
-
6,551,541
$
$
$
$
$
$
$
$
2013
Residential
Real Estate
152,078,369
612,756
152,691,125
2012
Residential
Real Estate
137,973,341
827,362
138,800,703
$
$
$
$
Total
159,247,425
663,308
159,910,733
Total
144,524,882
827,362
145,352,244
Age Analysis of Past-Due Loans by Class
The following are tables which show the aging analysis of past-due loans as of December 31:
30-59 Days
Past Due
60-89 Days
Past Due
Commercial real estate
Commercial and industrial
Agricultural
State and political
subdivisions
Consumer
Residential real estate
Total
$ 1,686,378
104,510
-
-
50,262
207,702
$ 2,048,852
$
$
-
46,041
-
-
290
17,792
64,123
$
$
2013
Total
Past Due
3,856,354
757,726
-
-
50,552
612,755
5,277,387
$
$
90 Days or
Greater
Past Due
2,169,976
607,175
-
-
-
387,261
3,164,412
$
$
Current
122,103,564
50,689,661
19,588,155
30,282,161
7,169,056
152,078,369
381,910,966
$
$
Total
Loans
125,959,918
51,447,387
19,588,155
30,282,161
7,219,608
152,691,124
387,188,353
$
$
Recorded
Investment
90 Days
and Accruing
-
-
-
-
-
-
-
28 Kish Bancorp, Inc.
2013 Annual Report 29
19
20
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
Age Analysis of Past-Due Loans by Class (Continued)
Impaired Loans (Continued)
30-59 Days
Past Due
60-89 Days
Past Due
Commercial real estate
$
Commercial and industrial
Agricultural
State and political
subdivisions
Consumer
Residential real estate
Total
$
145,128
92,461
-
112,696
139,288
418,378
907,951
$
$
27,099
81,851
3,675
-
5,339
37,862
155,826
$
$
Impaired Loans
2012
Total
Past Due
3,380,774
198,809
326,677
112,696
144,627
1,283,602
5,447,185
$
$
90 Days or
Greater
Past Due
3,208,547
24,497
323,002
-
-
827,362
4,383,408
$
$
Current
110,411,909
54,081,301
19,498,250
24,545,180
6,406,914
137,517,101
352,460,655
$
$
Total
Loans
113,792,683
54,280,110
19,824,927
24,657,876
6,551,541
138,800,703
357,907,840
$
$
Recorded
Investment
90 Days
and Accruing
-
-
-
-
3,676
-
3,676
Management considers commercial real estate loans, commercial and industrial loans, agricultural loans, and state
and political subdivision loans which are 90 days or more past due to be impaired. After becoming 90 days or
more past due, these categories of loans are measured for impairment. Any consumer and residential real estate
loans related to these delinquent loans are also considered to be impaired. Troubled debt restructurings are
measured for impairment at the time of restructuring. These loans are analyzed to determine if it is probable that
all amounts will not be collected according to the contractual terms of the loan agreement. If management
determines that the fair value of the impaired loan is less than the recorded investment in the loan (net of previous
charge-offs, deferred loan fees or costs, and unamortized premium or discount), impairment is recognized through
a provision or through a charge to the allowance for loan losses.
The following tables include the recorded investment and unpaid principal balances for impaired loans with the
associated allowance amount as of December 31:
Recorded
Investment
Unpaid
Principal
Balance
2013
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
With no related allowance recorded:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
$
$
4,941,131
513,708
439,606
106,720
1,800
830,136
$
4,941,131
513,708
439,606
106,720
1,800
830,136
6,833,101
6,833,101
-
-
-
-
-
-
-
$
$
3,786,578
272,439
309,261
113,558
150
723,120
5,205,106
With an allowance recorded:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
Total:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
591,387
659,250
-
-
-
23,847
591,387
659,250
-
-
-
23,847
1,274,484
1,274,484
5,532,518
1,172,958
439,606
106,720
1,800
853,983
5,532,518
1,172,958
439,606
106,720
1,800
853,983
498,957
390,932
-
-
-
3,000
892,889
498,957
390,932
-
-
-
3,000
-
-
216
181
26,883
27,280
43,204
58,859
-
-
-
-
741,525
754,885
-
-
-
89,302
1,585,712
102,063
4,528,103
1,027,324
309,261
113,558
150
812,422
43,204
58,859
216
181
-
26,883
Total
$
8,107,585
$
8,107,585
$
892,889
$
6,790,818
$
129,343
30 Kish Bancorp, Inc.
2013 Annual Report 31
21
22
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
Impaired Loans (Continued)
Troubled Debt Restructuring
Recorded
Investment
Unpaid
Principal
Balance
2012
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
With no related allowance recorded:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
$
With an allowance recorded:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
Total:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
$
3,315,295
206,195
407,170
-
-
862,373
$
3,315,295
206,195
407,170
-
-
862,373
4,791,033
4,791,033
$
-
-
-
-
-
-
-
948,655
931,917
-
-
-
432,001
948,655
931,917
-
-
-
432,001
2,312,573
2,312,573
4,263,950
1,138,112
407,170
-
-
1,294,374
4,263,950
1,138,112
407,170
-
-
1,294,374
309,060
642,765
-
-
-
25,240
977,065
309,060
642,765
-
-
-
25,240
$
3,486,939
303,323
252,420
-
-
943,036
4,985,718
1,746,439
950,295
6,251
-
35,377
404,004
3,142,366
5,233,378
1,253,618
258,671
-
35,377
1,347,040
Total
$
7,103,606
$
7,103,606
$
977,065
$
8,128,084
$
32,786
10,993
-
-
-
753
44,532
-
2,955
-
-
-
-
2,955
32,786
13,948
-
-
-
753
47,487
Nonaccrual Loans
Loans are considered nonaccrual upon reaching 90 days of delinquency even though the Company may be
receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed on
nonaccrual status, previously accrued but unpaid interest is deducted from interest income.
On the following table are the loan balances on nonaccrual status as of December 31:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
Total
2013
$
4,307,478
763,760
290,389
-
-
576,149
$
2012
4,263,945
1,127,286
407,170
-
-
1,305,205
$
5,937,776
$
7,103,606
The Company’s loan portfolio also includes certain loans that have been modified in a troubled debt restructuring,
where economic concessions have been granted to borrowers who have experienced or are expected to experience
financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could
include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions.
When the Company modifies a loan, management evaluates any possible impairment based on the present value of
expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when
the sole remaining source of repayment for the loan is the operation or liquidation of the collateral. In these cases,
management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If
management determines that the value of the modified loan is less than the recorded investment in the loan,
impairment is recognized by segment of class of loan, as applicable, through a charge-off to the allowance.
Segment and class status is determined by the loan’s classification at origination. As of December 31, 2013,
a specific reserve allocation of $19,000 has been established against the troubled debt restructurings. Also, as of
December 31, 2013, no charge-offs for the troubled debt restructurings were required.
Loan modifications that are considered troubled debt restructurings completed during the years ended December 31
were as follows:
2013
Pre-Modification
Number of Outstanding Recorded
Contracts
Investment
Post-Modification
Outstanding Recorded
Investment
Troubled debt restructurings:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
$
5
5
-
1
1
2
$
1,988,730
525,680
-
109,487
68,528
154,370
Total
14
$
2,846,795
$
1,988,730
525,680
-
109,487
68,528
154,370
2,846,795
Troubled debt restructurings:
Commercial real estate
Commercial and industrial
Agricultural
Residential real estate
Total
2012
Pre-Modification
Number of Outstanding Recorded
Contracts
Investment
Post-Modification
Outstanding Recorded
Investment
2
2
1
3
8
$
$
$
121,576
668,167
85,993
323,287
1,199,023
$
121,576
668,167
85,993
323,287
1,199,023
32 Kish Bancorp, Inc.
2013 Annual Report 33
23
24
6.
PREMISES AND EQUIPMENT
10. OTHER BORROWINGS
Major classifications of premises and equipment are summarized as follows:
The following table sets forth information concerning other borrowings:
Land and land improvements
Building and leasehold improvements
Furniture, fixtures, and equipment
Less accumulated depreciation
Total
2013
2012
$
$
793,458
16,699,029
5,559,109
23,051,596
8,918,890
793,458
16,623,584
5,530,468
22,947,510
7,868,712
$
14,132,706
$
15,078,798
Description
Fixed rate
Fixed rate amortizing
Mid-term repos
Subordinated capital notes
Note payable
Maturity Range
From
To
02/28/22
01/02/14
04/24/23
07/08/15
n/a
n/a
03/02/21
03/23/19
11/23/35
03/17/35
Weighted-
Average
Interest Rate
1.26
1.97
n/a
7.84
4.21
Stated Interest
Rate Range
From
To
1.68
n/a
3.86
2.31
6.53
n/a
8.50
6.11
% 0.24 % 4.96 % $
At December 31,
2013
59,359,450
15,878,392
$
-
4,650,000
6,186,000
2012
25,014,605
3,170,489
3,000,000
4,750,000
6,186,000
Depreciation and amortization charged to operations was $1,063,679 in 2013 and $1,034,512 in 2012.
7.
GOODWILL
As of each of the years ended December 31, 2013 and 2012, goodwill had a carrying amount of $1,668,699. The
gross carrying amount of goodwill was tested for impairment in the third quarter, after the annual forecasting
process. There was no impairment for the years ended December 31, 2013 and 2012.
8.
DEPOSITS
The scheduled maturities of time deposits approximate the following:
Year Ending
December 31,
2014
2015
2016
2017
2018
Thereafter
Amount
81,538,278
28,826,249
18,964,312
10,851,753
24,879,773
23,198,943
188,259,308
$
$
The aggregate of all time deposit accounts of $100,000 or more amounted to $77,823,755 and $54,466,112 at
December 31, 2013 and 2012, respectively.
9.
SHORT-TERM BORROWINGS
Short-term borrowings include overnight repurchase agreements through the FHLB, federal funds purchased, and
repurchase agreements with customers. Short-term borrowings also include a $5,000,000 unsecured line of credit
with a commercial bank for the years ended December 31, 2013 and 2012, respectively. The line of credit
agreement contains various covenants requiring the Company to maintain certain levels of financial performance.
The outstanding balances and related information for short-term borrowings are summarized as follows:
Balance at year-end
Average balance outstanding
Maximum month-end balance
Weighted-average rate at year-end
Weighted-average rate during the year
$
2013
2012
$
4,414,579
7,146,587
14,546,188
2.51%
1.60%
4,157,290
6,354,923
11,001,139
2.50%
1.43%
Maturities of other borrowings at December 31, 2013, are summarized as follows:
$
86,073,842
$
42,121,094
Year Ending
December 31,
2014
2015
2016
2017
2018
2019 and after
$
Amount
12,217,600
7,825,268
19,512,000
8,059,118
6,711,203
31,748,653
$
86,073,842
Weighted-
Average Rate
1.33 %
1.74
0.77
1.78
1.30
3.17
1.95 %
Borrowing capacity consists of credit arrangements with the FHLB. FHLB borrowings are subject to annual
renewal, incur no service charges, and are secured by a blanket security agreement on certain investment and
mortgage-backed securities, outstanding residential mortgages, and the Bank’s investment in FHLB stock. As of
December 31, 2013, the Bank’s maximum borrowing capacity with the FHLB was approximately $191 million.
The Company formed a special purpose entity (“Entity”) to issue $3,093,000 of fixed/floating rate subordinated
debt securities with a stated maturity of March 17, 2035. The rate on these securities is determined quarterly and
floats based on three-month LIBOR plus 2.00 percent. The Entity may redeem them, in whole or in part, at face
value on or after March 17, 2010. The Company borrowed the proceeds from the Entity in the form of a
$3,093,000 note payable, which is included in the liabilities section of the Company’s Consolidated Balance Sheet.
The Company formed an additional special purpose entity to issue $3,093,000 of fixed/floating rate subordinated
debt securities with a stated maturity of November 23, 2035. These securities bear a fixed rate of 6.11 percent until
November 23, 2015, at which time the rate is determined quarterly and floats based on three-month LIBOR plus
1.50 percent. The Entity may redeem them, in whole or in part, at face value on or after November 23, 2010. The
Company borrowed the proceeds from the Entity in the form of a $3,093,000 note payable, which is included in the
liabilities section of the Company’s Consolidated Balance Sheet.
The Company’s minority interests in these entities were recorded at the initial investment amount and are included
in the accrued interest and other assets on the Consolidated Balance Sheet. These entities are not consolidated as
part of the Company’s consolidated financial statements.
The Bank may request a Federal Reserve Advance secured by acceptable collateral. The Bank’s maximum
borrowing capacity with the Federal Reserve Bank as of December 31, 2013, is approximately $14.8 million.
34 Kish Bancorp, Inc.
25
26
2013 Annual Report 35
10. OTHER BORROWINGS (Continued)
11.
INCOME TAXES (Continued)
The Bank also maintains a $10.0 million and $5.0 million federal funds line of credit with two other financial
institutions. The Bank did not have outstanding borrowings related to these lines of credit at December 31, 2013.
The Company issued $3,000,000 of fixed rate subordinated debt securities with stated maturities of
March 23, 2019 through June 26, 2019. These securities bear a fixed annual rate of 8.5 percent. The Company
may redeem them, in whole or in part, at face value on or after March 23, 2014. These borrowings are included in
the liabilities section of the Company’s Consolidated Balance Sheet.
The Company issued $1,700,000 of fixed rate subordinated debt securities with stated maturities of November 12,
2020 through February 10, 2021, and $50,000 of adjustable rate subordinated debt securities with a stated maturity
of March 2, 2021. The fixed securities bear an annual rate of 6.75 percent and the adjustable rate securities bear a
rate of three-month LIBOR plus 3.50 percent and adjust quarterly. The Company may redeem them, in whole or in
part, at face value on or after November 12, 2015. These borrowings are included in the liabilities section of the
Company’s Consolidated Balance Sheet.
11.
INCOME TAXES
The provision for federal income taxes consists of:
Current
Deferred
Total provision
2013
603,091
160,625
$
2012
507,193
31,885
763,716
$
539,078
$
$
The tax effects of deductible and taxable temporary differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities are as follows:
Deferred tax assets:
Allowance for loan losses
Deferred compensation
Core deposit intangible assets
Alternative minimum tax carryforward
Asset valuation allowances
Employee compensation accruals
Nonaccrual interest receivable
Capital loss carryforward
Unrealized loss on available-for-sale securities
Other
Deferred tax assets
Deferred tax liabilities:
Premises and equipment
Goodwill
Deferred loan fees
Partnerships
Other
Unrealized gain on available-for-sale securities
Deferred tax liabilities
$
2013
2012
$
2,015,460
245,420
24,382
653,531
230,344
330,512
231,618
117,401
2,597,415
2,000
6,448,083
942,803
550,876
99,472
272,332
17,840
-
1,883,323
2,334,906
213,444
24,382
519,020
348,672
275,083
166,997
232,403
-
2,940
4,117,847
1,088,401
550,359
116,088
229,620
5,417
1,497,709
3,487,594
Net deferred tax assets
$
4,564,760
$
630,253
No valuation allowance was established at December 31, 2013 and 2012, in view of the Company’s ability to
carryback taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income
as evidenced by the Company’s earnings potential.
The reconciliation between the federal statutory rate and the Company’s effective consolidated income tax rate is
as follows:
Provision at statutory rate
Tax-exempt interest
Life insurance income
Other
Actual tax expense and
effective rate
$
$
2013
Amount
1,693,400
(788,903)
(106,239)
(34,542)
% of
Pretax Income
% $
34.0
(15.9)
(2.1)
(0.7)
Amount
1,417,418
(726,767)
(96,343)
(55,230)
2012
% of
Pretax Income
%
34.0
(17.4)
(2.3)
(1.3)
763,716
15.3 % $
539,078
13.0 %
The Company prescribes a recognition threshold and a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax
positions should be recognized in the financial statements only when it is more likely than not that the tax position
will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all
relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the
largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax
positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the
first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that
no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent
financial reporting period in which that threshold is no longer met.
There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company
recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income
taxes in the Consolidated Statement of Income. The Company’s federal and state income tax returns for taxable
years through 2009 have been closed for purposes of examination by the Internal Revenue Service and the
Pennsylvania Department of Revenue.
12. EMPLOYEE BENEFITS
Savings Plan
The Bank maintains a qualified 401(k) salary reduction and profit sharing plan that covers substantially all
employees. Under the plan, employees make voluntary, pretax contributions to their accounts, and the Bank
contributions to the plan are at the discretion of the Board of Directors. Contributions by the Bank charged to
operations were $269,876 and $251,048 for the years ended December 31, 2013 and 2012, respectively. The fair
value of plan assets includes $822,066 and $705,376 pertaining to the value of the Company’s common stock that
is held by the plan as of December 31, 2013 and 2012, respectively.
Deferred Compensation Plan
The Company has a nonqualified deferred compensation plan that allows directors to defer fees. Outstanding
balances under this arrangement for 2013 and 2012 were $721,824 and $627,775, respectively, and are reported as
“Other liabilities” on the Consolidated Balance Sheet. Expenses related to this plan were $101,914 and $50,398
for December 31, 2013 and 2012, respectively.
36 Kish Bancorp, Inc.
2013 Annual Report 37
27
28
12. EMPLOYEE BENEFITS (Continued)
12. EMPLOYEE BENEFITS (Continued)
Restricted Stock Plan
Restricted Stock Plan
The Company maintains a Restricted Stock Plan (the “Plan”). Employees and non-employee corporate directors
The Company maintains a Restricted Stock Plan (the “Plan”). Employees and non-employee corporate directors
are eligible to receive awards of restricted stock based upon performance-related requirements. Awards granted
are eligible to receive awards of restricted stock based upon performance-related requirements. Awards granted
under the Plan are in the form of the Company’s common stock and are subject to certain vesting requirements
under the Plan are in the form of the Company’s common stock and are subject to certain vesting requirements
including continuous employment or service with the Company. The Company has authorized 24,000 shares of the
including continuous employment or service with the Company. The Company has authorized 24,000 shares of the
Company’s common stock. The Plan assists the Company in attracting, retaining and motivating employees and
Company’s common stock. The Plan assists the Company in attracting, retaining and motivating employees and
non-employee directors to make substantial contributions to the success of the Company and to increase the
non-employee directors to make substantial contributions to the success of the Company and to increase the
emphasis on the use of equity as a key component of compensation. Compensation expense recognized related to
emphasis on the use of equity as a key component of compensation. Compensation expense recognized related to
the vesting of shares was $237,596 and $203,857 for the years ended December 31, 2013 and 2012, respectively.
the vesting of shares was $237,596 and $203,857 for the years ended December 31, 2013 and 2012, respectively.
The following is a summary of the status of the Company’s restricted stock as of December 31, 2013, and changes
The following is a summary of the status of the Company’s restricted stock as of December 31, 2013, and changes
therein during the year then ended:
therein during the year then ended:
Nonvested at January 1, 2013
Nonvested at January 1, 2013
Granted
Granted
Vested
Vested
Forfeited
Forfeited
Number of
Number of
Shares of
Shares of
Restricted Stock
Restricted Stock
20,288
20,288
9,877
9,877
(7,233)
(7,233)
(2,440)
(2,440)
Weighted-
Weighted-
Average
Average
Grant Date
Grant Date
Fair Value
Fair Value
$ 30.77
$ 30.77
33.43
33.43
31.65
31.65
34.35
34.35
Nonvested at December 31, 2013
Nonvested at December 31, 2013
20,492
20,492
$ 31.78
$ 31.78
Stock Option Plan
Stock Option Plan
The Company has a fixed director and employee stock-based compensation plan. The plan has total options
The Company has a fixed director and employee stock-based compensation plan. The plan has total options
available to grant of 190,000 shares of common stock. The exercise price for the purchase of shares subject to a
available to grant of 190,000 shares of common stock. The exercise price for the purchase of shares subject to a
stock option may not be less than 100 percent of the fair market value of the shares covered by the option on the
stock option may not be less than 100 percent of the fair market value of the shares covered by the option on the
date of the grant. The term of stock options will not exceed ten years from the date of grant. Options granted are
date of the grant. The term of stock options will not exceed ten years from the date of grant. Options granted are
primarily vested evenly over a three-year period from the grant date.
primarily vested evenly over a three-year period from the grant date.
The following table presents share data related to the outstanding options:
The following table presents share data related to the outstanding options:
Outstanding, January 1, 2013
Outstanding, January 1, 2013
Granted
Granted
Exercised
Exercised
Forfeited
Forfeited
Outstanding, December 31, 2013
Outstanding, December 31, 2013
Exercisable at year-end
Exercisable at year-end
Number of
Number of
Options
Options
158,272
158,272
28,100
28,100
-
-
(6,336)
(6,336)
180,036
180,036
119,701
119,701
Weighted-
Weighted-
Average
Average
Exercise
Exercise
Price
Price
37.62
37.62
33.34
33.34
-
-
45.63
45.63
36.67
36.67
30.19
30.19
$
$
$
$
$
$
12. EMPLOYEE BENEFITS (Continued)
Stock Option Plan (Continued)
The following table summarizes the characteristics of stock options at December 31, 2013:
Grant Date
03/16/04
05/26/04
06/30/04
01/05/05
02/03/05
02/09/05
02/10/05
02/24/05
03/29/05
04/26/05
07/08/05
12/08/05
12/10/05
12/16/05
12/22/05
01/25/07
02/23/07
01/31/08
03/26/09
10/27/09
04/01/10
04/28/11
10/11/11
12/22/11
04/02/12
04/01/13
$
Exercise
Price
45.63
47.00
48.38
46.50
46.50
46.50
47.50
48.00
48.00
48.00
48.00
47.50
47.63
47.50
47.50
44.00
45.00
38.18
25.50
35.00
34.13
29.75
31.00
28.00
30.00
33.25
Shares
6,900
1,468
5,236
16,254
760
52
200
84
6
882
666
2,802
6
300
8,880
1,090
1,050
13,500
19,600
2,000
20,600
23,600
1,000
600
24,400
28,100
180,036
Outstanding
Contractual
Average
Life
Average
Exercise
Price
0.20 $
0.40
0.49
1.01
1.09
1.11
0.21
1.15
1.24
1.32
1.52
1.93
1.94
1.96
1.97
3.07
3.15
3.08
5.23
5.82
6.25
7.24
7.77
7.98
8.24
9.25
45.63
47.00
48.38
46.50
46.50
46.50
47.50
48.00
48.00
48.00
48.00
47.50
47.63
47.50
47.50
44.00
45.00
38.18
25.50
35.00
34.13
29.75
31.00
28.00
30.00
33.25
Exercisable
Average
Exercise
Price
45.63
47.00
48.38
46.50
46.50
46.50
47.50
48.00
48.00
48.00
48.00
47.50
47.63
47.50
47.50
44.00
45.00
38.18
25.50
35.00
34.13
29.75
31.00
28.00
30.00
33.25
$
Shares
6,900
1,468
5,236
16,254
760
52
200
84
6
882
666
2,802
6
300
8,880
1,090
1,050
13,500
19,200
2,000
13,596
15,576
660
400
8,133
-
119,701
13. COMMITMENTS
In the normal course of business, there are outstanding commitments and contingent liabilities such as
commitments to extend credit, financial guarantees, and letters of credit that are not reflected in the accompanying
consolidated financial statements. The Company does not anticipate any losses as a result of these transactions.
These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount
recognized in the Consolidated Balance Sheet.
38 Kish Bancorp, Inc.
2013 Annual Report 39
29
29
30
13. COMMITMENTS (Continued)
The contract or notional amounts of those instruments reflect the extent of involvement the Company has in the
particular classes of financial instruments that consisted of the following:
Commitments to extend credit
Standby letters of credit
Total
2013
2012
$
$
103,035,768
5,146,000
$
106,638,654
5,424,804
108,181,768
$
112,063,458
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit represent conditional commitments issued by the Company to guarantee the performance
of a customer to a third party. These instruments are issued primarily to support bid or performance-related
contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option
subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon
expiration of the commitment period. For secured letters of credit, the collateral is typically Bank deposit
instruments or real estate.
The Bank has committed to various operating leases for its branch and office facilities. Some of these leases
include renewal options as well as specific provisions relating to rent increases. The minimum annual rental
commitments under these leases outstanding at December 31, 2013, are as follows:
2014
2015
2016
2017
2018
Thereafter
Total
Minimum
Lease Payment
290,569
286,609
252,940
252,940
252,940
3,658,435
4,994,433
$
$
Rent expense under leases for each of the years ended December 31, 2013 and 2012, was $300,945 and $364,896,
respectively.
Contingent Liabilities
The Company from time to time may be a party in various legal actions from the normal course of business
activities. Management believes the liability, if any, arising from such actions will not have a material adverse
effect on the Company’s financial position.
14. REGULATORY RESTRICTIONS
Restriction on Cash and Due from Banks
The Bank is required to maintain reserve funds in cash or on deposit with the Federal Reserve Bank. The required
reserve at December 31, 2013 and 2012, was $1,656,000 and $1,503,000, respectively.
Loans
Federal law prevents the Company from borrowing from the Bank unless the loans are secured by specific
obligations. Further, such secured loans are limited in amount to 10 percent of the Bank’s common stock and
capital surplus.
Dividends
The Pennsylvania Banking Code restricts the availability of capital surplus for dividend purposes. At December 31,
2013, the Bank had a capital surplus of $3,236,250, which was not available for distribution to the Company as
dividends.
15. REGULATORY CAPITAL
Federal regulations require the Company and the Bank to maintain minimum amounts of capital. Specifically, each
is required to maintain certain minimum dollar amounts and ratios of Total and Tier I capital to risk-weighted
assets and of Tier I capital to average total assets.
In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”)
established five capital categories ranging from “well capitalized” to “critically undercapitalized.” Should any
institution fail to meet the requirements to be considered “adequately capitalized,” it would become subject to a
series of increasingly restrictive regulatory actions.
As of December 31, 2013 and 2012, the FDIC categorized the Company and the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be classified as a well capitalized financial institution,
Total risk-based, Tier I risk-based, and Tier I leverage capital ratios must be at least 10 percent, 6 percent, and 5
percent, respectively.
40 Kish Bancorp, Inc.
2013 Annual Report 41
31
32
15. REGULATORY CAPITAL (Continued)
16.
FAIR VALUE MEASUREMENTS
The Company’s actual capital ratios are presented in the following table that shows the Company met all
regulatory capital requirements:
2013
2012
Amount
Ratio
Amount
Ratio
Total capital
(to risk-weighted assets)
Actual
For capital adequacy purposes
To be well capitalized
Tier I capital
(to risk-weighted assets)
Actual
For capital adequacy purposes
To be well capitalized
Tier I capital
(to average assets)
Actual
For capital adequacy purposes
To be well capitalized
$
$
$
61,373,773
37,294,894
46,618,618
% $
13.17
8.00
10.00
58,458,296
33,288,986
41,611,233
50,568,087
18,647,447
27,971,171
% $
10.85
4.00
6.00
48,203,132
16,644,493
24,966,740
50,568,087
25,415,096
31,768,871
% $
7.96
4.00
5.00
48,203,132
22,334,023
27,917,528
%
14.05
8.00
10.00
%
11.58
4.00
6.00
%
8.63
4.00
5.00
The Bank’s actual capital ratios are presented in the following table which shows the Bank met all regulatory
capital requirements:
Total capital
(to risk-weighted assets)
Actual
For capital adequacy purposes
To be well capitalized
Tier I capital
(to risk-weighted assets)
Actual
For capital adequacy purposes
To be well capitalized
Tier I capital
(to average assets)
Actual
For capital adequacy purposes
To be well capitalized
2013
2012
Amount
Ratio
Amount
Ratio
$
$
$
62,402,925
37,115,336
46,394,171
% $
13.45
8.00
10.00
58,557,150
33,124,360
41,405,450
56,302,396
18,557,668
27,836,502
% $
12.14
4.00
6.00
53,100,024
16,562,180
24,843,270
56,302,396
25,339,017
31,673,771
% $
8.89
4.00
5.00
53,100,024
22,247,473
27,809,341
%
14.14
8.00
10.00
%
12.82
4.00
6.00
%
9.55
4.00
5.00
The following disclosures show the hierarchical disclosure framework associated with the level of pricing
observations utilized in measuring assets and liabilities at fair value. The three broad levels of pricing observations
are as follows:
Level I:
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II:
Pricing inputs are other than the quoted prices in active markets, which are either directly or
indirectly observable as of the reported date. The nature of these assets and liabilities includes items
for which quoted prices are available but traded less frequently and items that are fair-valued using
other financial instruments, the parameters of which can be directly observed.
Level III:
Valuations derived from valuation techniques in which one or more significant inputs or significant
value drivers are unobservable.
This hierarchy requires the use of observable market data when available.
The following tables present the assets reported on the Consolidated Balance Sheet at their fair value as of
December 31, 2013 and 2012, by level within the fair value hierarchy. Financial assets and liabilities are classified
in their entirety based on the lowest level of input that is significant to the fair value measurement.
December 31, 2013
Level I
Level II
Level III
Total
$
Assets:
U.S. treasury securities
U.S. government agency securities
Obligations of states and
political subdivisions
Corporate securities
Mortgage-backed securities in
government-sponsored entities
Total debt securities
Equity securities in financial institutions
-
-
-
-
$
17,360,120 $
60,577,807
61,948,780
15,450,064
-
-
228,863
32,514,849
187,851,620
-
Total
$
228,863
$
187,851,620
$
-
-
-
-
-
-
-
-
$
17,360,120
60,577,807
61,948,780
15,450,064
32,514,849
187,851,620
228,863
$
188,080,483
December 31, 2012
Level I
Level II
Level III
Total
$
Assets:
U.S. treasury securities
U.S. government agency securities
Obligations of states and
political subdivisions
Corporate securities
Mortgage-backed securities in
government-sponsored entities
Total debt securities
Equity securities in financial institutions
-
-
-
-
$
5,079,060 $
45,273,820
-
-
$
5,079,060
45,273,820
51,230,329
3,495,781
-
-
218,244
30,796,274
135,875,264
-
-
120,724
-
120,724
-
51,230,329
3,616,505
30,796,274
135,995,988
218,244
33
34
Total
$
218,244
$
135,875,264
$
120,724
$
136,214,232
42 Kish Bancorp, Inc.
2013 Annual Report 43
16.
16.
FAIR VALUE MEASUREMENTS (Continued)
FAIR VALUE MEASUREMENTS (Continued)
16.
FAIR VALUE MEASUREMENTS (Continued)
Financial instruments are considered Level III when their values are determined using pricing models, discounted
Financial instruments are considered Level III when their values are determined using pricing models, discounted
cash flow methodologies or similar techniques, and at least one significant model assumption or input is
cash flow methodologies or similar techniques, and at least one significant model assumption or input is
unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments
unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments
typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial
typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial
instruments also include those for which the determination of fair value requires significant management judgment
instruments also include those for which the determination of fair value requires significant management judgment
or estimation. The following table presents the changes in the Level III fair-value category for the years ended
or estimation. The following table presents the changes in the Level III fair-value category for the years ended
December 31, 2013 and 2012.
December 31, 2013 and 2012.
Balance, January 1, 2012
Balance, January 1, 2012
Sales
Sales
Net change on unrealized gain on investment
Net change on unrealized gain on investment
securities available for sale
securities available for sale
Balance, January 1, 2013
Balance, January 1, 2013
Sales
Sales
Net change on unrealized gain on investment
Net change on unrealized gain on investment
securities available for sale
securities available for sale
Transfer out of Level III
Transfer out of Level III
Balance, December 31, 2013
Balance, December 31, 2013
Corporate
Corporate
Securities
Securities
$
$
100,317
100,317
-
-
20,407
20,407
120,724
120,724
-
-
229,276
229,276
(350,000)
(350,000)
$
$
-
-
The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at
The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at
their fair value as of December 31, 2013 and 2012, by level within the fair value hierarchy. Impaired loans that are
their fair value as of December 31, 2013 and 2012, by level within the fair value hierarchy. Impaired loans that are
collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used
collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used
to value the collateral that secure the impaired loans include: quoted market prices for identical assets classified as
to value the collateral that secure the impaired loans include: quoted market prices for identical assets classified as
Level I inputs and observable inputs employed by certified appraisers for similar assets classified as Level II
Level I inputs and observable inputs employed by certified appraisers for similar assets classified as Level II
inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and
inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and
assumptions developed by management based on the best information available under each circumstance, the asset
assumptions developed by management based on the best information available under each circumstance, the asset
valuation is classified as Level III input. Other real estate owned is measured at fair value, less cost to sell at the
valuation is classified as Level III input. Other real estate owned is measured at fair value, less cost to sell at the
date of foreclosure. Valuations are periodically performed by management and the assets are carried at the lower
date of foreclosure. Valuations are periodically performed by management and the assets are carried at the lower
of carrying amount, or fair value less cost to sell. The fair value for mortgage servicing rights is estimated by
of carrying amount, or fair value less cost to sell. The fair value for mortgage servicing rights is estimated by
discounting contractual cash flows and adjusting for prepayment estimates. Discount rates are based upon rates
discounting contractual cash flows and adjusting for prepayment estimates. Discount rates are based upon rates
generally charged for such loans with similar characteristics.
generally charged for such loans with similar characteristics.
Assets:
Assets:
Impaired loans
Impaired loans
Other real estate owned
Other real estate owned
Mortgage servicing rights
Mortgage servicing rights
Assets:
Assets:
Impaired loans
Impaired loans
Other real estate owned
Other real estate owned
Mortgage servicing rights
Mortgage servicing rights
$
$
$
$
Level I
Level I
Level II
Level II
Level III
Level III
Total
Total
December 31, 2013
December 31, 2013
$
$
-
-
-
-
-
-
$
$
-
-
-
-
-
-
7,214,696 $
7,214,696 $
237,150
237,150
482,263
482,263
7,214,696
7,214,696
237,150
237,150
482,263
482,263
Level I
Level I
Level II
Level II
Level III
Level III
Total
Total
December 31, 2012
December 31, 2012
$
$
-
-
-
-
-
-
6,126,541 $
6,126,541 $
287,385
287,385
356,490
356,490
6,126,541
6,126,541
287,385
287,385
356,490
356,490
$
$
-
-
-
-
-
-
35
35
The following tables provide a listing of significant unobservable inputs used in the fair value measurement
process for items valued utilizing Level III techniques as of December 31, 2013 and 2012.
December 31, 2013
Impaired loans
Fair Value
7,214,696
$
Other real estate owned
$
239,150
Mortage servicing rights $
482,263
Valuation
Techniques
Property
appraisals
Property
appraisals
Discounted
cash flows
December 31, 2012
Corporate securities
Impaired loans
$
$
Fair Value
120,724
Valuation
Techniques
Discounted
cash flows
6,126,541
Property
appraisals
Other real estate owned
$
287,385
Mortage servicing rights $
356,490
Property
appraisals
Discounted
cash flows
Unobservable Inputs
Management discount for
property type and recent
market volatility
Management discount for
property type and recent
market volatility
Range
0% - 15% discount
0% - 15% discount
Discount rate
2.96 - 3.98% discount
Prepayment speeds
1.23 - 3.71 prepayment factor
Unobservable Inputs
Projected defaults
Range
0 projected defaults
Discount rate
17.76% discount rate
Management discount for
property type and recent
market volatality
Management discount for
property type and recent
market volatality
0% - 15% discount
0% - 15% discount
Discount rate
2.11 - 2.75% discount
Prepayment speeds
2.49 - 4.29 prepayment factor
36
44 Kish Bancorp, Inc.
2013 Annual Report 45
17.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
17.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company’s financial instruments at December 31 are as follows:
Carrying
Value
Fair
Value
2013
Level
I
Level
II
Level
III
$
14,439,548
980,000
$
14,439,548
980,000
$
14,439,548
980,000
$
$
-
-
188,080,483
73,150
381,260,530
6,867,400
12,936,583
2,077,235
482,263
188,080,483
73,150
381,396,348
6,867,400
12,936,583
2,077,235
482,263
228,863
73,150
-
6,867,400
12,936,583
2,077,235
-
187,851,620
Financial assets:
Cash and cash equivalents
Certificates of deposit
Investment securities
available for sale
Loans held for sale
Net loans
Regulatory stock
Bank-owned life insurance
Accrued interest receivable
Mortgage servicing rights
Financial liabilities:
Deposits
Short-term borrowings
Other borrowings
Accrued interest payable
$
$
494,373,615
4,414,579
86,073,842
791,220
494,836,282
4,414,841
85,169,364
791,220
$
306,114,306
4,414,841
$
-
791,220
Carrying
Value
Fair
Value
2012
Level
I
Level
II
Financial assets:
Cash and cash equivalents
Certificates of deposit
Investment securities
available for sale
Loans held for sale
Net loans
Regulatory stock
Bank-owned life insurance
Accrued interest receivable
Mortgage servicing rights
Financial liabilities:
$
23,792,622
2,374,375
$
23,792,622
2,374,375
$
23,792,622
2,374,375
$
136,214,232
584,380
351,040,470
4,794,900
12,517,831
1,806,098
356,490
136,214,232
584,380
361,572,848
4,794,900
12,517,831
1,806,098
356,490
218,244
584,380
-
4,794,900
12,517,831
1,806,098
-
Deposits
Short-term borrowings
Other borrowings
Accrued interest payable
$
$
460,449,822
4,157,290
42,121,094
766,587
465,777,223
4,157,290
42,741,294
766,587
$
301,758,279
4,157,290
$
-
766,587
135,875,264
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
381,396,348
-
-
-
482,263
$
188,721,976
-
85,169,364
-
-
-
Level
III
$
120,724
-
361,572,848
-
-
-
356,490
$
164,018,944
-
42,741,294
-
Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates
an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction
between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial
instrument, the estimated fair value would be calculated based upon the market price per trading unit of the
instrument.
If no readily available market exists, the fair value estimates for financial instruments should be based upon
management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future
estimated losses, and other factors as determined through various option pricing formulas or simulation modeling.
As many of these assumptions result from judgments made by management based upon estimates, which are
inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of
a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based
may have a significant impact on the resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments,
the estimated fair value of financial instruments would not represent the full value of the Company.
The Company employed simulation modeling in determining the estimated fair value of financial instruments for
which quoted market prices were not available based upon the following assumptions:
Cash and Cash Equivalents, Certificates of Deposit, Loans Held for Sale, Regulatory Stock, Accrued
Interest Receivable, Accrued Interest Payable, and Short-Term Borrowings
The fair value is equal to the current carrying value.
Investment Securities Available for Sale
The fair value of investment securities is equal to the available quoted market price. If no quoted market price is
available, fair value is estimated using the quoted market price for similar securities. Fair values for certain
corporate bonds were determined utilizing discounted cash flow models, due to the absence of a current market to
provide reliable market quotes for the instruments.
Loans
The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar
terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were
available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair
value.
Bank-Owned Life Insurance
The fair value is equal to the cash surrender value of the life insurance policies.
Mortgage Servicing Rights
The fair value for mortgage servicing rights is estimated by discounting contractual cash flows and adjusting for
prepayment estimates. Discount rates are based upon rates generally charged for such loans with similar
characteristics.
Deposits
The fair values of certificates of deposit are based on the discounted value of contractual cash flows. The discount
rates are estimated using rates currently offered for similar instruments with similar remaining maturities.
Demand, savings, and money market deposit accounts are valued at the amount payable on demand as of year-end.
Other Borrowings
Fair values for other borrowings are estimated using a discounted cash flow calculation that applies contractual
costs currently being offered for similar borrowings.
37
38
46 Kish Bancorp, Inc.
2013 Annual Report 47
17.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (Continued)
Commitments to Extend Credit
These financial instruments are generally not subject to sale, and estimated fair values are not readily available.
The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of
credit, and the fair value, determined by discounting the remaining contractual fee over the term of the
commitment using fees currently charged to enter into similar agreements with similar credit risk, are not
considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are
presented in Note 13.
18. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following table presents the changes in accumulated other comprehensive (loss) income by component net of
tax for the year ended December 31, 2013:
Accumulated other comprehensive
(loss) income, January 1, 2013
Other comprehensive loss before
reclassification
Amounts reclassified from accumulated
other comprehensive (loss) income
Accumulated other comprehensive
(loss) income, December 31, 2013
$
$
Net Unrealized
Gains (Losses) on
Investment Securities
2,907,315
(7,722,091)
(227,266)
(5,042,042)
The following table presents significant amounts reclassified out of each component of accumulated other
comprehensive (loss) income for the year ended December 31, 2013:
Unrealized gains (losses) on investment
securities
Other than temporary impairment losses
Amount Relcassified
from Accumulated
Other Comprehensive
(Loss) Income
Affected Line Item
in the Statement
Where Net Income
Is Presented
$
$
$
$
(461,842)
157,026
(304,816)
117,500
(39,950)
77,550
Investment securities gains, net
Income taxes
Investment securities impairment loss
Income taxes
19. SUBSEQUENT EVENTS
Management has reviewed events occurring through March 24, 2014, the date the financial statements were issued,
and no subsequent events occurred requiring accrual or disclosure.
39
48 Kish Bancorp, Inc.
senior oFFiCers
gregory t. Hayes, Senior Vice
President, Systems and Client
Solutions Director
Walter J. Kay, Senior Vice President,
Senior Information Officer
amy m. muchler, Senior Vice
President, Bank Operations and
Support Director
gerhard royer, Senior Vice
President, Commercial Lender
debra K. Weikel, Senior Vice
President, Loan Administration
Director
stanley n. ayers, Vice President,
Special Assets Manager
Kathleen m. Boop, Vice President,
Personal Lines Insurance Manager
Larry e. Burger, Vice President,
Commercial Relationship
Manager
Carol m. Herrmann, Vice President,
Marketing, Administration, and
Communications Director/CEO,
Kish Travel
daniel L. Keane, CTFA, AEP®, Vice
President, Wealth Management
Advisor & Trust Officer
marsha K. Kuhns, Vice President,
Branch Manager
John Q. massie, Vice President,
Commercial Relationship
Manager
Jeremy g. mattern, Vice President,
Credit Administration Manager
denise F. Quinn, Vice President,
Commercial Relationship
Manager
melissa K. royer, Vice President,
Service Support Manager
Cheryl e. shope, Vice President,
Residential Lender
Kayelene g. sunderland, Vice
President, Wealth Management/
Trust Administrator
suzanne m. White, Vice President,
Human Resource Director
Jeffrey d. Wilson, Vice President/
CEO, Kish Agency
William W. Yaudes, Vice President,
Regional Market Manager
Board oF direCtors
oF KisH BanCorP, inC.
William P. Hayes, Chairman
miFFLin CountY
regionaL Board
michael a. Buffington, Member
James J. Lakso, Vice Chairman
Christina Calkins-mazur, Member
William L. dancy, Secretary
ronald m. Cowan, Member
spyros a. degleris, Member
William L. dancy, Member
Paul g. Howes, Member
William s. Lake, Member
alan J. metzler, Member
Phyllis L. Palm, Member
James W. Felmlee, Member
eric K. Fowler, Member
William s. Lake, Member
Harvard K. mcCardle, Member
delmont r. sunderland, Member
alan J. metzler, Member
gary L. oden, Member
Phyllis L. Palm, Member
John Pannizzo, Member
exeCutive oFFiCers
William P. Hayes, Chairman and
Chief Executive Officer
Board oF direCtors
oF KisH BanK
William P. Hayes, Chairman
James J. Lakso, Vice Chairman
William L. dancy, Secretary
spyros a. degleris, Member
Paul g. Howes, Member
William s. Lake, Member
alan J. metzler, Member
Phyllis L. Palm, Member
J. Bradley scovill, President, Chief
david a. Coble, Vice President,
Operating Officer
Branch Manager
sangeeta Kishore, Senior Executive
Vice President, Chief Financial
Officer and Senior Risk Officer
John P. Cunningham, ii, Vice
President, Regional Market
Manager
Wade e. Curry, LUTCF, Vice
President, Investment Services
ann K. guss, Vice President,
Residential Lender
allana L. Hartung, Vice President,
Commercial Relationship
Manager
J. Bradley scovill, Member
John e. arrington, Executive Vice
President, Sales & Retail Banking
Manager
William J. Hoyne, Executive Vice
President, Chief Credit Officer
robert s. mcminn, Executive Vice
President, General Counsel
James L. shilling, Jr., Executive Vice
President, Senior Lending Officer
Centre CountY
regionaL Board
thomas F. Brown, Member
spyros a. degleris, Member
adam r. Fernsler, Member
alan g. Hawbaker, Member
michael J. Krentzman, Member
Paul H. silvis, Member
Brandon m. Zlupko, Member
Huntingdon CountY
regionaL Board
arthur J. deCamp, Member
Wayne a. Hearn, Member
steven Huston, Member
James J. Lakso, Member
dominick F. Peruso, Jr., Member
Pamela Prosser, Member
Burgess a. smith, Member
delmont r. sunderland, Member
4255 East Main Street, Belleville, PA 17004 | 1-888-554-4748 | www.KishBank.com