CLEARLY
FOCUSED
2014 ANNUAL REPORT
CHAIRMAN’S LETTER
TO THE SHAREHOLDERS
Kish Bancorp registered another year of strong performance in 2014.
The Corporation had positive gains in earnings, loans and deposits, and in the revenues
from its related affiliates, Kish Financial Solutions, Kish Insurance, and Kish Travel. At
the same time, the Kish team made significant progress in improving the Corporation’s
structure, processes, and capacity to deliver and maintain superior client services. We
were pleased to announce that Kish Bank was recognized for the eighth 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 the competition and banking industry peers. With a healthy
balance sheet, an improved tolerance for risk, and the team’s focus on learning and
mastering new and better ways to serve internal and external clients, there is good
cause for optimism regarding the Corporation’s ability not only to sustain the strong
performance trends of recent years, but also to seize opportunities for growth.
In 2014, the team achieved this strengthened position in a competitive marketplace
by maintaining an unwavering focus on Kish’s customers. During the year, clients
validated this focus by giving Kish very high marks in a Customer Satisfaction Survey
conducted for Kish Bank by an experienced survey company widely recognized within
the financial services industry. It was gratifying to learn that a robust sample of Kish Bank
customers across the three-county region rated their experiences with Kish in the high 90
percentages in areas including staff knowledge, speed of service, accuracy, timeliness of
statements, and the design and comfort of our facilities—all high priority areas. What was
the one thing they liked best about Kish? The people: their knowledge, friendliness, and
professionalism. Indeed, in a world that grows less service-oriented with each passing
year, the Kish team’s professionalism and client focus is clearly a differentiating factor
for Kish.
At Kish, we get that. It is the reason why the theme of the 2014 Annual Report is a simple
one: Clearly Focused. After one of the most difficult periods in banking history, we
believe the stars for Kish are clearly aligned, and that the clear focus on serving clients
exceptionally well can now lead to a period of strong growth and sustained financial
performance. The basis for that positive outlook is rooted in the excellent foundation laid
over the past several years and the record performance achieved in 2014.
Highlights for the year are as follows:
• Record net income and net interest income
• New highs for loans outstanding
• Growth in the depth and breadth of the Kish team
• Continued strength in Kish Bank’s credit quality measures
• Robust results by the wealth management, insurance, and travel divisions
• Reduced noninterest expenses
• Double-digit expansion in total shareholders’ equity
• Increased dividend levels
William P. Hayes
Chairman of the Board, President
and Chief Executive Officer
With an unwavering focus
on fulfilling client needs,
we will achieve long-term
shareholder returns.
CONTENTS
Chairman’s Letter to the Shareholders
Clearly Focused—Kish Gets It Right
Financial Highlights
Independent Auditor’s Report
1
3
7
9
ii Kish Bancorp, Inc.
2014 Annual Report 1
Lady Lion Pink Zone, which raises funds to help support
breast cancer programs at our local hospitals in Centre,
Huntingdon, and Mifflin counties. Kish has supported
this effort for three consecutive years and has raised a
total of $46,441. Kish Travel and Kish Insurance served as
the presenting sponsor for the 2014–2015 season of Lady
Lion Basketball, which brought attention, goodwill, and
business to Kish. In addition, Kish supported literally
dozens of other worthy causes across all of our markets,
both financially and in person. These efforts are discussed
later in this report.
As we conclude this review of another year of progress
for Kish Bancorp, we want to express our heartfelt
gratitude to you, our shareholders, for your continued
support and encouragement. We are buoyed by your
loyalty and confidence in Kish’s business model, one that
is central to the Corporation’s extraordinary culture, the
people and communities we serve, and our ambitious
goals for the future.
Sincerely,
William P. Hayes
Chairman of the Board, President and
Chief Executive Officer
In addition to the foregoing key performance metrics,
2014 also registered several enhancements to the Kish
team. We welcomed Ed Friedman to the Kish Bank and
Kish Bancorp Boards of Directors, bringing with him not
only a wealth of knowledge in residential and commercial
development, but also a deep commitment to the long-
term future of the central Pennsylvania areas we serve.
We also are pleased to note new additions to our regional
boards in Huntingdon and Centre counties. Francis
Vaughn, Vice President for Human Resources at Mutual
Benefit Group in Huntingdon, joined the Huntingdon
County Regional Board in August. Paul Silvis, the founder
of Restek Corporation and currently Head Coach of
SilcoTek Corporation, joined the Centre County Regional
Board. Paul is a leader and innovator strongly committed
to providing opportunities to employees on his team, as
well as supporting the central Pennsylvania community.
We also gratefully acknowledge the continued growth of
our leadership team recognized in the appointment of
Peter Collins to the position of Executive Vice President
and Chief Credit Officer at the Bank. Peter brings thirty
years of increasing responsibility in credit at both large
and intermediate size banks, ranging across and including
commercial and industrial lending, credit policy, credit
analysis, real estate lending, and commercial real estate
lending. We expanded our wealth management and trust
services in Centre County with the addition in 2014 of
Daniel Keane, Vice President and Wealth Management
Advisor and Trust Officer. Dan comes to us with twenty-
five years of experience in the industry. We also enhanced
our Finance Department with the addition of Robert
Crane as Senior Vice President and Profitability Director,
who brings more than twenty years of experience in
accounting and finance to Kish. Suzanne White was
promoted to Senior Vice President and Human Resource
Director, recognizing the expanding role that she plays
in the growth and strategic progress of the Company. In
addition, the promotions of Gregory Hayes and Debra
Weikel to the positions of Executive Vice President, Head
of Retail Banking and Client Solutions and Senior Vice
President, Loan Administration, respectively, further
enhanced Kish’s focus on client services. The promotions
support Kish’s new structural alignment that focuses on
proactive, centralized support of the Bank’s sales and
service functions, coupled with a centralized focus on
providing direct client solutions.
I am also proud to say that the Kish family once again did
its part in giving back to the community, working hard to
support those causes important to Kish’s communities,
customers, and employees. During 2014, the team once
again partnered with Kish’s ambassador and advocate,
Coquese Washington, Head Coach of Women’s Basketball
at Penn State. She has been a leader in growing the
2 Kish Bancorp, Inc.
Clearly focused—
Kish gets it right
For 115 years, Kish Bank and Kish Bancorp have maintained a clear and
consistent client-focused approach to banking and financial services.
The Corporation’s highest priority, understanding and meeting
clients’ needs with exceptional care and quality, is built into Kish’s
brand promise with two simple words: Expect More. In 2014, the
Corporation worked diligently across its four business lines—Kish
Bank, Kish Financial Solutions, Kish Insurance, and Kish Travel—to
sharpen its focus on providing superior client service while achieving
strong and sustained results for shareholders. For every team member
at Kish, this means getting it right every time.
Taking care of business and getting the details right is mission
critical to any enterprise, but more so for financial service
companies like Kish, companies that operate in a highly
competitive environment subject to significant regulatory
oversight, volatile economic forces, and global fraud threats.
Kish must be able to manage all of these, while operating
successfully for shareholders and our communities. The
financial results and highlights included in this report validate
that, in 2014, the Corporation achieved strong results across all
key performance measures.
Kish Bancorp, a financial services and bank holding company,
has at its core a successful and deeply rooted regional
community bank. Kish Bank is guided by its locally focused
board of directors and management team, and disciplined by
a forward looking strategic planning process that has
enabled it to grow and expand in a manner that is
designed to provide the services of a big bank
with the feel and care of a local bank.
Decisions are made promptly in the
local communities Kish serves.
Terri Whitsel, Owner, TAZ Fitness
Burnham
2014 Annual Report 3
This, combined with an unwavering commitment to customer service of the highest order, is the
Kish hallmark. It is foundational to the business model and key to the Corporation’s future growth
and development.
So, in 2014, Kish set an important corporate objective to test performance relative to service quality
standards. This effort included both one-on-one customer interviews conducted by internal staff,
as well as a formal and anonymous questionnaire delivered online by a survey company widely
respected in the industry. The one-on-one customer interviews engaged relationship managers
across all of Kish’s business lines. Customers who do business across multiple business units were
identified to determine their assessment of the Kish business model.
The conversations that resulted led to a clear conclusion that these clients like doing business with
Kish because Kish puts them first. What they said was that Kish listened to them, took the time
to understand their goals, counseled them on their options, and ultimately provided them the
financing and/or financial solutions they needed to help them achieve something that was important
to them. They told us, most importantly, that what matters to them also matters to Kish. And
that became the theme of a campaign that commenced in 2014 and continues into 2015. It is also
represented in these pages.
At the end of this process, these clients allowed Kish to tell their stories across its three-county
marketplace. Their stories were not only moving and inspiring; they also validated the role that a
financial services company like Kish plays in the community. They provided an intimate behind-the-
numbers understanding of the impact Kish has had on their lives. Featured clients were:
• A first time business owner who can’t imagine banking anywhere else because Kish Bank has
been able to deliver everything he has needed without losing the hometown feel he values.
• A local dentist who is intentional about pursuing business opportunities in his drive to provide
a secure future for his young children. He feels that Kish actively partnered with him to find
solutions tailored to his needs.
• A retiree and his wife, who trust Kish Financial Solutions with their personal investments; feel
comfortable with everything about Kish Bank, from the tellers, to the assistant managers, to the
executive team; and who consider Kish Travel services to be “bend-over-backwards” excellent.
• Women and small business owners who enjoy everything at Kish, from the one-stop shop
service of our business bankers, to the tellers, to the travel team. For them, Kish’s Wealth
Management team makes it simple to offer a 401(k) to their employees, a nice benefit for them.
• A first time female business owner without extensive business experience who got not only the
financing, but the encouragement and advice she needed to proceed in a manner that allows
her to balance business and family life.
• A young, upwardly mobile professional couple with student loans who were so happy with
their first mortgage experience with Kish Bank that they did not even consider looking
anywhere else when they were ready to buy a larger home for their growing family, one they
could share more widely with their extended family and friends.
These customers exemplify the kinds of business relationships Kish values. The knowledge that the
work done by Kish associates helps businesses, individuals, families, and communities grow and
prosper is a major force in motivating employees.
Kish also engaged the services of a widely respected survey research firm that worked to design
and distribute a formal and anonymous online Customer Satisfaction Survey. Close to 500 clients
responded promptly to the survey. With the exception of rating the convenience of the Bank’s ATM
locations, which was rated Truly Exceptional or Good by 81 percent of the respondents, all scores
were in the nineties to high nineties. On the question, “Taking everything into consideration, how
would you rate your overall experience with Kish Bank?”—95 percent of the respondents rated
the Bank Truly Exceptional or Good. While it was gratifying to see data on this and other points of
interest, the Corporation does not intend to rest on its laurels. Customer feedback will be secured
routinely as a means to help Kish continue to improve the delivery of client service. At Kish, happy
customers lead to the kinds of positive financial results contained in the pages of this report.
THE KISH TEAM
Kish Bancorp has an extraordinarily talented, dedicated, and responsive family of employees who
diligently learn new skills to adjust to rapid changes in the industry. Kish Bank and its affiliate
companies focused in 2014 on improving collaboration between sales and sales support. This
resulted in several strategic realignments in the Corporation that have rapidly produced stronger
processes and stronger alliance between the front line and centralized service support, allowing
customer service to reach higher levels both internally and externally. An important part of the
Corporation’s carefully considered realignment had been to establish a Mortgage unit under
centralized leadership. The objective, going forward, is to sharply increase Kish’s market share of
mortgages in the Centre County region.
The Corporation also further elevated its Human Resource management activities, leading to
positive improvements in recruiting, training, and internal communication efforts. In addition,
advancements in the Corporation’s employee performance evaluation process were implemented.
These and other noteworthy improvements in Human Resources help to expand Kish’s reputation as
an employer of choice in the region, reflected in the increasing talent pool at Kish, from the entry to
the executive level.
KISH IN THE COMMUNITY
The engagement of the Kish family in the community is a core value and strategic priority for the
Corporation. Individuals who come together in a powerful way make positive differences. Although
the focus of the Corporation’s engagement varies according to emerging needs in the community,
Kish targets four general areas: children, health, housing, and economic development.
The establishment of Kish’s Community Action Teams several years ago has helped to make more
visible the commendable work by members of the Kish team. Kish employees are supported by the
availability of three days of paid time off each year as an incentive for them to volunteer their time to
assist with community needs. In 2014, employee activities ranged from raising money to contribute
to activities designed to improve health, to plunging into frigid water to raise funds to improve
water safety in an area where there was a tragic accident, to building an extensive garden for a local
school, to teaching thousands of young students at local schools about financial literacy under the
American Bankers Association’s Teach Children to Save program. In addition, Kish executives are
Top: Deb Shawley
and Karen Bower
Owners,
IFC Services, Inc.
Mt. Union
Bottom: Jim Porter
Owner, J Porter
Enterprises, LLC
McAlevy’s Fort
2014 Annual Report 5
Top: Richard and
Shirley Hoffman
Lewistown
Middle: Dr. Robert
Jeanmenne
State College
Bottom: Valerie,
David, and Dr.
Christian Long
Huntingdon
4 Kish Bancorp, Inc.
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
2014
2013
2012
2011
2010
$4,358,608
$4,216,873
$3,629,794
$3,631,298
$3,556,124
5,130,129
2,005,848
4,980,589
1,971,992
4,168,872
1,960,051
4,070,114
1,760,493
4,026,669
1,739,714
$659,600
$630,132
$557,575
$560,069
$556,623
414,061
508,616
48,853
6,009
219
0.67%
9.54%
46.02%
81.41%
8.32%
13.07%
1.43%
0.05%
$3.63
3.60
1.64
39.96
44.87
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
Average Shares Outstanding (#)
1,199,207
1,192,755
1,189,222
1,077,470
1,058,686
encouraged to give back to the community by volunteering for at least one non-profit board. Kish
Bank has always supported its communities by directing funds where they are needed. In addition,
the Corporation tries to leverage its gifts through volunteer support and action. For several years,
Kish has been a leader in Relay for Life, the signature event for the American Cancer Society. In
2014, Penn State’s Lady Lion Basketball program presented the Hank Gambocurta Service Award
to “The People of Kish,” for their creative efforts and outstanding fundraising results for The Pink
Zone, a major annual philanthropic effort of the Lady Lions that supports breast cancer awareness,
education, programs, and research. Beneficiaries include all three of the local hospitals in Kish’s
three-county market.
KISH BANK PARTNER AND AMBASSADOR, LADY LION BASKETBALL HEAD COACH,
COQUESE WASHINGTON
Kish Bank’s partnership with Ms. Washington deepened in 2014, and she continues to
make appearances sponsored by Kish. In October, Ms. Washington promoted breast
health at J.C. Blair Memorial Hospital in Huntingdon, where she and Kish were very
well received. In addition, Kish Insurance and Kish Travel were presenting co-sponsors
for the 2014–2015 Lady Lion Basketball season. These sponsorships produced highly
visible recognition for both Kish affiliates at Penn State’s Bryce Jordan Center during
all Lady Lion Basketball games played there. Kish Bank is sponsoring Ms. Washington’s
remarks on “Building Championship Teams” at an upcoming Pennsylvania Bankers
Association meeting. Kish Bank’s relationship with Ms. Washington, a leader in her
field and at Penn State, continues to expand appreciation of the value that Kish brings to
the region.
KISH SHAREHOLDERS
Loyal shareholders are a highly valued part of Kish’s corporate culture and are in keeping
with the long-term commitment the Corporation has to the central Pennsylvania region.
Kish Bancorp is fortunate to have shareholders that truly understand the benefit and the
opportunities inherent to a community bank. A number of Kish shareholders have seen
Kish create opportunities and solve problems consistently, over a long period of time,
and in a select few cases, over multiple generations. Such shareholder loyalty and
support allows Kish not only to deliver the positive financial results noted herein, but
also to provide the proven benefits of a community bank to the people and businesses
in the region.
As Kish Bank and its affiliates continue to deliver their services focused ever more
clearly on what matters to its clients and communities, the benefits will accrue to the
shareholders, both those who know the Corporation well, and those who want to know
it better.
Coquese Washington
Head Coach, Penn State® Lady Lion
Basketball Team and Kish Client
*Per share data for the years 2010 through 2012 have been adjusted to post stock split levels for comparability.
2014 Annual Report 7
Net Income (in millions)
Net Interest Income After Provision (in millions)
INDEPENDENT AUDITOR'S REPORT
$21.0
$18.0
$15.0
$12.0
$9.0
$6.0
$3.0
$0.0
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Balance Sheet (in millions)
Stockholders' Equity (in millions) and ROE
Assets
Loans
Deposits
Stockholders' Equity
ROE
$60.0
$50.0
$40.0
$30.0
$20.0
$10.0
$0.0
2010
2011
2012
2013
2014
15.00%
12.00%
9.00%
6.00%
3.00%
0.00%
2010
2011
2012
2013
2014
Earnings and Dividends per Share
Stock Valuation (per share)
Basic Earnings per Share
Dividends per Share
Book Valuation
e
Market Value
$60.00
$40.00
$20.00
$0.00
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
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, 2014 and 2013; 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
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, 2014 and 2013, 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 11, 2015
KISH BANCORP, INC.
CONSOLIDATED AUDITED FINANCIAL
STATEMENTS
DECEMBER 31, 2014
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
9
10
11
12
13
14
15
$5.0
$4.0
$3.0
$2.0
$1.0
$0.0
$700
$600
$500
$400
$300
$200
$100
$0
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
8 Kish Bancorp, Inc.
2014 Annual Report 9
CONSOLIDATED BALANCE SHEET
KISH BANCORP, INC.
KISH BANCORP, INC.
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF INCOME
KISH BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
ASSETS
ASSETS
Cash and due from banks
Interest-bearing deposits with other institutions
Cash and due from banks
Interest-bearing deposits with other institutions
Cash and cash equivalents
Cash and cash equivalents
Certificates of deposit in other financial institutions
Investment securities available for sale
Certificates of deposit in other financial institutions
Investment securities available for sale
Loans held for sale
Loans held for sale
Loans
Less allowance for loan losses
Loans
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 shares issued
1,348,750 shares issued
Additional paid-in capital
Additional paid-in capital
Retained earnings
Retained earnings
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss)
Treasury stock, at cost (124,778 and 130,736 shares in 2014
Treasury stock, at cost (124,778 and 130,736 shares in 2014
and 2013, respectively)
and 2013, respectively)
TOTAL STOCKHOLDERS' EQUITY
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
2
2
10 Kish Bancorp, Inc.
December 31,
December 31,
2014
2014
2013
2013
$
$
$
$
$
$
$
$
7,008,968 $
7,008,968 $
8,680,120
8,680,120
15,689,088
15,689,088
2,753,312
184,323,726
2,753,312
184,323,726
75,050
75,050
420,069,812
420,069,812
6,008,601
6,008,601
414,061,211
414,061,211
13,392,122
13,392,122
1,668,699
1,668,699
6,634,200
6,634,200
14,120,894
14,120,894
6,881,312
6,881,312
659,599,614 $
659,599,614 $
65,435,614 $
65,435,614 $
10,465,169
10,465,169
53,877,709
53,877,709
195,721,101
195,721,101
183,115,908
183,115,908
508,615,501
508,615,501
11,206,134
3,706,134
86,195,352
93,695,352
4,729,471
4,729,471
610,746,458
610,746,458
7,057,478
7,057,478
7,382,070
7,382,070
14,439,548
14,439,548
980,000
188,080,483
980,000
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
630,132,117
630,132,117
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
-
-
674,375
674,375
2,932,003
2,932,003
49,584,308
49,584,308
550,729
550,729
(4,888,259)
(4,888,259)
48,853,156
48,853,156
659,599,614 $
659,599,614 $
-
-
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
630,132,117
630,132,117
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
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,
2014
2013
$
17,323,124
1,152,588
$
16,822,468
985,438
3,273,010
1,474,594
58,284
310,561
23,592,161
3,220,026
111,283
1,630,742
4,962,051
2,972,983
1,334,865
61,967
165,741
22,343,462
2,998,445
114,516
1,693,949
4,806,910
18,630,110
300,000
17,536,552
(900,000)
18,330,110
18,436,552
1,709,309
519,346
-
649,675
424,465
1,067,665
286,797
1,834,912
6,492,169
11,568,198
2,630,711
1,702,035
403,077
256,269
373,062
384,973
2,373,830
19,692,155
5,130,124
771,521
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
$
$
4,358,603
$
4,216,873
3.63 $
3.60
3.54
3.51
See accompanying notes to the consolidated financial statements.
3
2014 Annual Report 11
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
KISH BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
KISH BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2014
Year Ended December 31,
2013
Net income
Other comprehensive income (loss):
Securities available for sale:
Change in unrealized holding gains (losses) on
Net income
available-for-sale securities
Other comprehensive income (loss):
Tax effect
Securities available for sale:
Change in unrealized holding gains (losses) 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 income (loss)
Impairment losses included in net income
Total comprehensive income (loss)
Tax effect
Total other comprehensive income (loss)
Total comprehensive income (loss)
$
$
$
$
4,358,603 $
Year Ended December 31,
4,216,873
2014
2013
4,358,603 $
8,993,241
(3,057,702)
4,216,873
(11,700,139)
3,978,048
8,993,241
(519,346)
(3,057,702)
176,578
(11,700,139)
(461,842)
3,978,048
157,026
-
(519,346)
-
176,578
5,592,771
-
9,951,374 $
-
117,500
(461,842)
(39,950)
157,026
(7,949,357)
117,500
(3,732,484)
(39,950)
5,592,771
(7,949,357)
9,951,374 $
(3,732,484)
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
4
12 Kish Bancorp, Inc.
4
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2014 Annual Report 13
CONSOLIDATED STATEMENT OF CASH FLOWS
KISH BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
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 other than temporary impairment loss
Proceeds from sale of loans held for sale
Origination of loans held for sale
Gain on sales of loans
Depreciation, amortization, and accretion
Deferred income taxes
Increase 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
Purchase of bank-owned life insurance
Investment securities available for sale:
Proceeds from sale of investments
Proceeds from repayments and maturities
Purchases
Increase 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 in short-term borrowings, net
Proceeds from other borrowings
Repayments of other borrowings
Purchases of treasury stock
Proceeds from sale of treasury stock
Exercise of Stock Options
Cash dividends
Net cash provided by financing activities
Increase (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
See accompanying notes to consolidated financial statements.
14 Kish Bancorp, Inc.
6
Year Ended December 31,
2013
2014
$
4,358,603 $
4,216,873
300,000
(519,346)
-
17,094,834
(16,447,059)
(649,675)
1,283,772
(73,365)
(19,473)
(29,450)
(424,465)
-
(46,151)
416,512
5,244,737
490,000
(2,263,312)
(775,943)
24,782,208
13,367,014
(25,622,254)
(33,138,681)
(982,400)
1,215,600
(274,006)
57,372
(23,144,402)
14,241,886
6,791,555
17,394,587
(17,273,077)
(255,898)
292,421
(36,421)
(2,005,848)
19,149,205
1,249,540
14,439,548
(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
1,394,375
-
-
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
(9,353,074)
23,792,622
$
$
$
15,689,088 $
14,439,548
4,991,500 $
685,000
4,782,277
395,000
38,000 $
-
489,793
337,188
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2014 and 2013. 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
7
2014 Annual Report 15
KISH BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment Securities (Continued)
Allowance for Loan Losses
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.
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. 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.
Premises and Equipment
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.
16 Kish Bancorp, Inc.
8
9
2014 Annual Report 17
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill
Stock Options (Continued)
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 $256,269 and $311,999
for 2014 and 2013, 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.
Stock Options
As of December 31, 2014 and 2013, the Company recorded compensation expense of $24,058 and $34,527 related
to share-based compensation awards. At December 31, 2014, there was approximately $22,140 in unrecognized
compensation cost related to unvested share-based compensation awards granted. That cost is expected to be
recognized over the next three years.
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
2014
2013
Expected
Dividend
Yield
Risk-Free
Interest Rate
Expected
Volatility
Expected
Life (in Years)
4.44 %
4.86 %
2.74 %
1.95 %
10.52 %
10.66 %
10.00
10.00
The weighted-average fair value of each stock option granted for 2014 and 2013 was $1.63 and $0.86, respectively.
Stock options exercised during the years ended December 31, 2014 and 2013 were 5,481 and 6,380.
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, 2014 and 2013, the Company recorded gross
servicing rights of $732,590 and $742,128 with a reserve for impairment of $257,685 and $259,865, 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.
18 Kish Bancorp, Inc.
2014 Annual Report 19
10
11
2.
EARNINGS PER SHARE
3.
INVESTMENT SECURITIES AVAILABLE FOR SALE (Continued)
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
2014
2013
1,348,750
1,348,748
(126,184)
(132,493)
(23,359)
(23,500)
1,199,207
1,192,755
228
318
10,052
7,696
1,209,487
1,200,769
Options to purchase 135,641 shares of common stock at a price of $25.50 to $48.00, as of December 31, 2014, and
19,556 shares of restricted stock ranging in price from $28.00 to $39.50 were not included in the computation of
diluted earnings per share. To include these shares would have been antidilutive.
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.
3.
INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost and fair value of investment securities available for sale are as follows:
2014
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
11,874,760 $
64,166,317
-
110,599
$
(123,180) $
(1,072,973)
11,751,580
63,203,943
62,818,588
14,142,440
28,691,421
181,693,526
1,795,759
1,804,696
300,279
320,568
2,536,142
122,875
(189,183)
(174,093)
64,434,101
14,268,626
(246,266)
(1,805,695)
(18,881)
28,765,723
182,423,973
1,899,753
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
$
183,489,285 $
2,659,017 $
(1,824,576) $
184,323,726
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
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, 2014 and 2013.
Less than Twelve Months
Gross
Unrealized
Losses
Fair
Value
2014
Twelve Months or Greater
Gross
Unrealized
Losses
Fair
Value
Total
Fair
Value
Gross
Unrealized
Losses
$
-
$
-
$
11,751,580 $
(123,180) $
11,751,580 $
(123,180)
3,980,680
(19,078)
46,936,583
(1,053,895)
50,917,263
(1,072,973)
2,413,441
321,794
(7,058)
(6,483)
10,715,337
4,786,877
(182,125)
(167,610)
13,128,778
5,108,671
(189,183)
(174,093)
2,764,210
(30,008)
13,041,453
(216,258)
15,805,663
(246,266)
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
Equity securities in
financial institutions
$
Total
730,617
10,210,742 $
(18,881)
(81,508) $
-
87,231,830 $
-
(1,743,068) $
730,617
97,442,572 $
(18,881)
(1,824,576)
20 Kish Bancorp, Inc.
2014 Annual Report 21
12
13
3.
INVESTMENT SECURITIES AVAILABLE FOR SALE (Continued)
3.
INVESTMENT SECURITIES AVAILABLE FOR SALE (Continued)
Less than Twelve Months
Gross
Unrealized
Losses
Fair
Value
2013
Twelve Months or Greater
Gross
Unrealized
Losses
Fair
Value
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
U.S. treasury securities. The unrealized loss on 6 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, 2014.
U.S. government agency securities. The unrealized loss on 41 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, 2014.
Obligations of states and political subdivisions. The Company’s unrealized losses on 23 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, 2014.
Corporate securities. The Company had unrealized losses on investments in 7 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, 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, 2014.
Mortgage-backed securities in government-sponsored entities. The unrealized losses on 11 of the Company’s
investments in mortgage-backed securities were caused by interest rate increases. The Company purchased 11 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, 2014.
Equity Securities. The Company had unrealized losses on investments in 5 different equity securities. 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 these securities and it is not
more likely than not that the Company will be required to sell the investments before recovery of the book value, it
does not consider these investments to be other- than- temporarily impaired at December 31, 2014
The amortized cost and fair value of debt securities at December 31, 2014, 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
$
1,006,675 $
19,133,538
100,368,651
61,184,662
Fair
Value
1,016,706
19,386,022
100,485,411
61,535,834
$
181,693,526 $
182,423,973
Investment securities with a carrying value of $84,298,315 and $71,388,656 at December 31, 2014 and 2013,
respectively, were pledged to secure deposits and other purposes as required by law.
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
2014
2013
$
24,782,208 $
615,334
95,988
-
16,873,095
512,423
50,581
117,500
22 Kish Bancorp, Inc.
2014 Annual Report 23
14
15
4.
LOANS
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
Major classifications of loans are summarized as follows:
The following qualitative factors are analyzed to determine allocations for nonclassified loans for each portfolio
segment:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
Less allowance for loan losses
Net loans
$
2014
2013
139,885,732 $
57,253,972
19,504,821
36,357,220
8,097,292
158,970,775
420,069,812
6,008,601
125,959,918
51,447,386
19,588,155
30,282,161
7,219,608
152,691,125
387,188,353
5,927,823
$
414,061,211 $
381,260,530
Mortgage loans serviced by the Company for others amounted to $73,230,046 and $74,621,700 at December 31,
2014 and 2013, 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, 2014 and 2013, 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, 2014, is as follows:
Balance
2012
Additions
Amounts
Collected
Balance
2013
Additions
Amounts
Collected
Balance
2014
$
8,989,462 $
7,931,823 $
12,451,249 $
4,470,036 $
8,319,121 $
4,905,042 $
7,884,115
5.
ALLOWANCE FOR LOAN LOSSES
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 non-classified loans.
• 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 2014, management elevated the qualitative factors reserve percentage for the
consumer and commercial real estate pool of loans because of the changes in the volume and severity of past dues,
non-accrual and classified loans as well as changes in competitive, legal and regulatory environment. In 2013,
qualitative factors were elevated for residential real estate loans because of increased regulations for residential
lending. These factors were kept at the same level for 2014. In 2013, the change in credit staff experience and
ability factor percentage was increased because of the resignation of the Chief Credit Officer. In 2014, a new chief
credit officer was hired along with additional credit staff with greater expertise in commercial and industrial
lending. While qualitative factors related to changes in lending staff experience and ability were kept at the same
level for all the pools, it was decreased for commercial and industrial lending. With improvement in the economic
and business conditions, the reserve factors related to agricultural loans were decreased slightly. All other pools of
loans were left unchanged due to immaterial changes in the environmental trends. 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 2013.
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.
24 Kish Bancorp, Inc.
2014 Annual Report 25
16
17
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
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.
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
2014
State and
Political
Subdivisions
Consumer
Residential
Real Estate
Unallocated
Total
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
2,545,590
(38,393)
1,501
469,760
2,978,458
$
$
1,082,500
(196,294)
9,510
(86,059)
809,657
$
$
219,126
-
1,600
(10,346)
210,380
821,321
$
81,828
$
-
$
$
$
164,348
-
-
26,141
190,489
-
$
$
$
53,732
(952)
3,806
9,456
66,042
$
$
1,086,486
$
-
-
67,539
1,154,025
$
776,041
-
-
(176,491)
599,550
3,306
$
35,000
$
-
$
$
$
5,927,823
(235,639)
16,417
300,000
6,008,601
941,455
2,157,137
$
727,829
$
210,380
$
190,489
$
62,736
$
1,119,025
$
599,550
$
5,067,146
7,205,504
$
837,052
$
362,362
$
98,843
$
8,092
$
926,597
$
9,438,450
132,680,228
56,416,920
19,142,459
36,258,377
8,089,200
158,044,178
410,631,362
Ending balance
$
139,885,732
$
57,253,972
$
19,504,821
$
36,357,220
$
8,097,292
$
158,970,775
$
420,069,812
Commercial
Real Estate
Commercial
and
Industrial
Agricultural
2013
State and
Political
Subdivisions
Consumer
Residential
Real Estate
Unallocated
Total
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
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
$
8,107,585
120,427,400
50,274,428
19,148,549
30,175,441
7,217,808
151,837,142
379,080,768
Reserve requirement for commercial real estate loans increased by $467,868 from 2013 to 2014, while those for
commercial and industrial loans decreased by $272,843 during the same period. This was a direct result of
increases in outstanding balances in commercial real estate loans during 2014 and decrease in impaired, criticized
and classified assets for commercial and industrial loans which at $2.2 million at December 31, 2014, indicates a
41 percent or $1.5 million decrease from December 31, 2013.
Credit Quality Information
The following tables represent the commercial credit exposures by internally-assigned grades for the years ended
December 31, 2014 and 2013, 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
$
130,084,660 $
2,302,154
7,498,918
-
-
$
139,885,732 $
Commercial
and
Industrial
54,721,479 $
2,189,688
312,956
29,849
-
57,253,972 $
Pass
Special Mention
Substandard
Doubtful
Loss
Total
$
Commercial
Real Estate
115,161,687 $
2,901,867
7,857,972
38,392
-
$
125,959,918 $
Commercial
and
Industrial
47,349,424 $
2,712,998
1,384,964
-
-
51,447,386 $
Pass
Special Mention
Substandard
Doubtful
Loss
Total
2014
Agricultural
17,944,555 $
211,321
1,348,945
-
-
19,504,821 $
2013
Agricultural
17,457,107 $
886,505
1,244,543
-
-
19,588,155 $
State and
Political
Subdivisions
36,357,220 $
-
-
-
-
36,357,220 $
State and
Political
Subdivisions
30,282,161 $
-
-
-
-
30,282,161 $
Total
239,107,914
4,703,163
9,160,819
29,849
-
253,001,745
Total
210,250,379
6,501,370
10,487,479
38,392
-
227,277,620
Ending balance
$
125,959,918
$
51,447,386
$
19,588,155
$
30,282,161
$
7,219,608
$
152,691,125
$
387,188,353
26 Kish Bancorp, Inc.
2014 Annual Report 27
18
19
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
Credit Quality Information (Continued)
Age Analysis of Past-Due Loans by Class (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:
Performing
Nonperforming
Total
Performing
Nonperforming
Total
2014
Residential
Real Estate
Consumer
$
$
$
$
8,089,200 $
8,092
8,097,292
$
158,492,274
478,501
158,970,775
2013
Residential
Real Estate
Consumer
7,169,056
50,552
7,219,608
$
$
152,078,370
612,755
152,691,125
$
$
$
$
Total
166,581,474
486,593
167,068,067
Total
159,247,426
663,307
159,910,733
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:
2014
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
Greater
Past Due
Total
Past Due
Current
Total
Loans
Recorded
Investment
90 Days
and Accruing
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
Greater
Past Due
Total
Past Due
Current
Total
Loans
Recorded
Investment
90 Days
and Accruing
2013
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
-
2,169,976 $
607,175
-
3,856,354 $
757,726
-
122,103,564 $
50,689,660
19,588,155
125,959,918 $
51,447,386
19,588,155
-
290
17,792
64,123 $
-
-
387,261
3,164,412 $
-
50,552
612,755
5,277,387 $
30,282,161
7,169,056
152,078,370
381,910,966 $
30,282,161
7,219,608
152,691,125
387,188,353 $
-
-
-
-
-
-
-
Impaired Loans
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.
Commercial real estate
Commercial and industrial
Agricultural
State and political
subdivisions
Consumer
Residential real estate
Total
$ 1,177,425 $
261,814
330,426
-
19,638
234,314
$ 2,023,617 $
150,000 $
-
-
6,028,078 $
191,753
-
7,355,503 $
453,567
330,426
132,530,229 $
56,800,405
19,174,395
139,885,732 $
57,253,972
19,504,821
-
-
-
150,000 $
-
8,092
478,501
6,706,424 $
-
27,730
712,815
8,880,041 $
36,357,220
8,069,562
158,257,960
411,189,771 $
36,357,220
8,097,292
158,970,775
420,069,812 $
-
-
-
-
-
-
-
28 Kish Bancorp, Inc.
2014 Annual Report 29
20
21
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
Impaired Loans (Continued)
Impaired Loans (Continued)
The following tables include the recorded investment and unpaid principal balances for impaired loans with the
associated allowance amount as of December 31:
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
Recorded
Investment
Unpaid
Principal
Balance
2014
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
4,164,729 $
755,224
362,362
98,844
-
891,597
4,164,729 $
755,224
362,362
98,844
-
891,597
6,272,756
6,272,756
$
-
-
-
-
-
-
-
3,790,302 $
650,586
243,449
103,054
839
1,041,076
5,829,306
119,559
33,696
10,973
4,783
-
16,383
185,394
3,040,774
81,828
-
-
8,092
35,000
3,040,774
81,828
-
-
8,092
35,000
3,165,694
3,165,694
7,205,504
837,052
362,362
98,843
8,092
926,597
7,205,503
837,052
362,362
98,844
8,092
926,597
821,321
81,828
-
-
3,306
35,000
941,455
821,321
81,828
-
-
3,306
35,000
1,053,788
299,952
2,083
-
4,070
2,917
1,362,810
4,844,090
950,538
245,532
103,054
4,909
1,043,993
-
-
-
-
-
-
-
119,559
33,696
10,973
4,783
-
16,383
Total
$
9,438,450 $
9,438,450 $
941,455 $
7,192,116 $
185,394
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
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
$
2014
6,028,078
191,753
-
-
8,092
478,501
$
2013
4,307,478
763,760
290,389
-
-
576,149
$
6,706,424
$
5,937,776
30 Kish Bancorp, Inc.
2014 Annual Report 31
22
23
5.
ALLOWANCE FOR LOAN LOSSES (Continued)
6.
PREMISES AND EQUIPMENT
Troubled Debt Restructuring
Major classifications of premises and equipment are summarized as follows:
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, 2014,
a specific reserve allocation of $0 has been established against the troubled debt restructurings. Also, as of
December 31, 2014, no charge-offs for the troubled debt restructurings were required.
The restructuring of the loans was either an extension of the maturity date or temporary reduction or moratorium
on the payment terms or amounts. No modifications involved any changes in principal balance for 2014 or 2013.
There were no loans modified in a troubled debt restructuring from January 1, 2012 through December 31, 2013,
that subsequently defaulted (i.e., 90 days or more past due following a modification) during the years ended
December 31, 2014 and 2013.
Loan modifications that are considered troubled debt restructurings completed during the years ended December 31
were as follows:
2014
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
Total
- $
3
3
-
-
4
10 $
- $
316,054
262,690
-
-
309,143
887,887 $
-
316,054
262,690
-
-
309,143
887,887
2013
Pre-Modification
Number of Outstanding Recorded
Contracts
Investment
Post-Modification
Outstanding Recorded
Investment
1,988,730 $
525,680
-
109,487
68,528
154,370
2,846,795 $
5 $
5
-
1
1
2
14 $
24
1,988,730
525,680
-
109,487
68,528
154,370
2,846,795
Troubled debt restructurings:
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
Total
32 Kish Bancorp, Inc.
Land and land improvements
Building and leasehold improvements
Furniture, fixtures, and equipment
Less accumulated depreciation
Total
2014
2013
$
790,550 $
16,771,799
5,706,234
23,268,583
9,876,461
793,458
16,699,029
5,559,109
23,051,596
8,918,890
$
13,392,122 $
14,132,706
Depreciation and amortization charged to operations was $1,060,741 in 2014 and $1,063,679 in 2013.
7.
GOODWILL
As of each of the years ended December 31, 2014 and 2013, goodwill had a carrying amount of $1,668,699. The
gross carrying amount of goodwill was tested for impairment in the 4th quarter, after the annual forecasting
process. There was no impairment for the years ended December 31, 2014 and 2013.
8.
DEPOSITS
The scheduled maturities of time deposits approximate the following:
Year Ending
December 31,
2015
2016
2017
2018
2019
Thereafter
Amount
64,930,796
26,290,797
12,864,223
25,381,450
19,724,085
33,924,557
183,115,908
$
$
The aggregate of all time deposit accounts of $250,000 or more amounted to $12,397,255 and $16,041,379 at
December 31, 2014 and 2013, respectively. Total amount of Brokered Deposits for each of the years ended
December 31, 2014 and 2013 were $7,450,000 and $7,650,000 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, 2014 and 2013, 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
$
2014
2013
11,206,134 $
6,778,791
12,165,513
1.00%
1.67%
4,414,579
7,146,587
14,546,188
2.51%
1.60%
25
2014 Annual Report 33
10. OTHER BORROWINGS
10. OTHER BORROWINGS (Continued)
The following table sets forth information concerning other borrowings:
Description
Fixed rate
Fixed rate amortizing
Mid-term repos
Subordinated capital notes
Note payable
Maturity Range
From
To
12/18/23
08/26/15
04/24/23
07/08/15
07/08/16
01/28/15
12/26/24
11/12/20
11/23/35
03/17/35
Weighted-
Average
Interest Rate
1.76
1.76
0.63
5.35
4.18
Stated Interest
Rate Range
From
To
1.08
0.36
3.76
2.24
6.53
0.99
6.75
6.11
% 0.93 % 4.96 % $
At December 31,
2014
27,639,850 $
20,599,502
26,500,000
5,270,000
6,186,000
2013
32,859,450
15,878,392
26,500,000
4,650,000
6,186,000
Maturities of other borrowings at December 31, 2014, are summarized as follows:
$
86,195,352 $
86,073,842
Year Ending
December 31,
2015
2016
2017
2018
2019
2020 and after
$
Amount
12,619,749
19,512,000
7,647,961
6,676,920
4,300,201
35,438,521
$
86,195,352
Weighted-
Average Rate
1.19 %
0.77
1.70
1.27
1.19
2.80
1.81 %
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, 2014, the Bank’s maximum borrowing capacity with the FHLB was approximately $201 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, 2014, is approximately $8.4 million.
34 Kish Bancorp, Inc.
26
The Bank also maintains a $10.0 million, $5.0 million and a $4.0 million federal funds line of credit with three
other financial institutions. The Bank did not have outstanding borrowings related to these lines of credit at
December 31, 2014.
The Company issued $3,620,000 of fixed rate subordinated debt securities with stated maturities of
March 24, 2024 through December 26, 2024. These securities bear a fixed annual rate of 4.75 percent. The
Company may redeem them, in whole or in part, at face value on or after March 24, 2019. 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. $100,000 of these notes were redeemed in June 2013. 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
2014
844,886 $
(73,365)
2013
603,091
160,625
771,521 $
763,716
$
$
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
$
2014
2013
2,042,924 $
261,879
24,382
602,640
257,452
330,636
223,286
91,681
-
2,000
3,836,880
871,965
95,779
550,876
271,052
6,498
283,712
2,079,882
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
Net deferred tax assets
$
1,756,998 $
4,564,760
27
2014 Annual Report 35
11.
INCOME TAXES (Continued)
No valuation allowance was established at December 31, 2014 and 2013, 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
$
$
2014
Amount
1,744,244
(893,242)
(102,113)
22,632
% of
Pretax Income
34.0 % $
(17.4)
(2.0)
0.8
Amount
1,693,400
(788,903)
(106,239)
(34,542)
2013
% of
Pretax Income
34.0 %
(15.9)
(2.1)
(0.7)
771,521
15.4 % $
763,716
15.3 %
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 2010 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 $284,999 and $269,876 for the years ended December 31, 2014 and 2013, respectively. The fair
value of plan assets includes $989,672 and $822,066 pertaining to the value of the Company’s common stock that
is held by the plan as of December 31, 2014 and 2013, respectively.
Deferred Compensation Plan
The Company has a nonqualified deferred compensation plan that allows directors and senior executives to defer
fees and salaries. Outstanding balances under this arrangement for 2014 and 2013 were $770,231 and $721,824,
respectively, and are reported as “Other liabilities” on the Consolidated Balance Sheet. Expenses related to this
plan were $46,098 and $101,914 for December 31, 2014 and 2013, respectively.
12. EMPLOYEE BENEFITS (Continued)
Restricted Stock Plan
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
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
Company’s common stock to the plan. 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 emphasis on the use of equity as a key component of compensation. Compensation expense
recognized related to the vesting of shares was $202,835 and $237,596 for the years ended December 31, 2014 and
2013, respectively.
The following is a summary of the status of the Company’s restricted stock as of December 31, 2014, and changes
therein during the year then ended:
Nonvested at January 1, 2014
Granted
Vested
Forfeited
Number of
Shares of
Restricted Stock
20,492
9,250
(7,762)
(2,424)
Weighted-
Average
Grant Date
Fair Value
$ 31.78
36.69
32.36
32.50
Nonvested at December 31, 2014
19,556
$
33.71
Stock Option Plan
The Company has a fixed director and employee stock-based compensation plan. The plan has total options
available to grant of 380,000 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
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.
The following table presents share data related to the outstanding options:
Outstanding, January 1, 2014
Granted
Exercised
Forfeited
Outstanding, December 31, 2014
Exercisable at year-end
Number of
Options
180,036
17,280
(5,481)
(56,194)
135,641
98,782
Weighted-
Average
Exercise
Price
36.67
36.63
30.07
37.20
35.10
35.45
$
$
$
36 Kish Bancorp, Inc.
2014 Annual Report 37
28
29
12. EMPLOYEE BENEFITS (Continued)
Stock Option Plan (Continued)
The following table summarizes the characteristics of stock options at December 31, 2014:
Grant Date
01/05/05
02/09/05
02/10/05
02/24/05
07/08/05
12/20/05
12/22/05
01/25/07
02/23/07
01/31/08
03/26/09
10/27/09
04/01/10
04/28/11
04/02/12
04/01/13
08/01/13
09/12/13
04/01/14
09/22/14
11/03/14
$
Exercise
Price
46.50
47.50
47.50
48.00
47.50
47.50
47.50
44.00
45.00
38.18
25.50
35.00
34.13
29.75
30.00
33.25
34.05
35.00
36.50
39.50
38.90
Shares
13,124
52
200
84
666
2,802
6,360
654
1,050
10,800
12,600
2,000
13,800
15,200
18,200
20,769
2,000
300
13,980
500
500
135,641
Outstanding
Contractual
Average
Life
Average
Exercise
Price
0.01 $
0.10
0.11
0.15
0.51
0.96
0.97
2.06
2.14
3.08
4.23
4.82
5.25
6.32
7.25
8.25
8.58
8.70
9.25
9.73
9.84
46.50
47.50
47.50
48.00
47.50
47.50
47.50
44.00
45.00
38.18
25.50
35.00
34.13
29.75
30.00
33.25
34.05
35.00
36.50
39.50
38.90
Exercisable
Average
Exercise
Price
46.50
47.50
47.50
48.00
47.50
47.50
47.50
44.00
45.00
38.18
25.50
35.00
34.13
29.75
30.00
33.25
34.05
35.00
36.50
39.50
38.90
Shares
13,124 $
52
200
84
666
2,802
6,360
654
1,050
10,800
12,600
2,000
13,800
15,200
12,122
6,504
666
98
-
-
-
98,782
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
2014
2013
$
$
103,938,735 $
5,447,421
103,035,768
5,146,000
109,386,156 $
108,181,768
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, 2014, are as follows:
2015
2016
2017
2018
2019
Thereafter
Total
Minimum
Lease Payment
295,112
257,076
257,076
257,076
257,076
3,425,738
4,749,154
$
$
13. COMMITMENTS
Contingent Liabilities
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.
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.
Rent expense under leases for each of the years ended December 31, 2014 and 2013, was $300,880 and $300,945,
respectively.
38 Kish Bancorp, Inc.
2014 Annual Report 39
30
31
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, 2014 and 2013, was $1,771,000 and $1,656,000, 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,
2014, 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, 2014 and 2013, 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.
15. REGULATORY CAPITAL (Continued)
The Company’s actual capital ratios are presented in the following table that shows the Company 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
2014
2013
Amount
Ratio
Amount
Ratio
$
$
$
64,697,824
39,598,293
49,497,866
13.07 % $
8.00
10.00
61,373,773
37,294,894
46,618,618
53,147,425
19,799,146
29,698,720
10.74 % $
4.00
6.00
50,568,087
18,647,447
27,971,171
53,147,425
26,516,759
33,145,949
8.02 % $
4.00
5.00
50,568,087
25,415,096
31,768,871
13.17 %
8.00
10.00
10.85 %
4.00
6.00
7.96 %
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
2014
2013
Amount
Ratio
Amount
Ratio
$
$
$
64,845,014
39,441,798
49,302,247
13.15 % $
8.00
10.00
62,402,925
37,115,336
46,394,171
58,611,413
19,720,899
29,581,348
11.89 % $
4.00
6.00
56,302,396
18,557,668
27,836,502
58,611,413
26,449,196
33,061,495
8.86 % $
4.00
5.00
56,302,396
25,339,017
31,673,771
13.45 %
8.00
10.00
12.14 %
4.00
6.00
8.89 %
4.00
5.00
40 Kish Bancorp, Inc.
32
33
2014 Annual Report 41
16.
FAIR VALUE MEASUREMENTS (Continued)
16.
FAIR VALUE MEASUREMENTS
16.
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, 2014 and 2013, 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, 2014
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
-
-
-
-
-
-
$
11,751,580 $
63,203,943
64,434,101
14,268,626
28,765,723
182,423,973
1,899,753
-
Total
$
1,899,753 $
182,423,973 $
-
-
-
-
-
-
-
-
$
11,751,580
63,203,943
64,434,101
14,268,626
28,765,723
182,423,973
1,899,753
$
184,323,726
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
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
FAIR VALUE MEASUREMENTS (Continued)
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
Financial instruments are considered Level III when their values are determined using pricing models, discounted
instruments also include those for which the determination of fair value requires significant management judgment
cash flow methodologies or similar techniques, and at least one significant model assumption or input is
or estimation. The following table presents the changes in the Level III fair-value category for the years ended
unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments
December 31, 2013.
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
or estimation. The following table presents the changes in the Level III fair-value category for the years ended
December 31, 2013.
Balance, January 1, 2013
Sales
Net change on unrealized gain on investment
securities available for sale
Balance, January 1, 2013
Transfer out of Level III
Sales
Net change on unrealized gain on investment
Balance, December 31, 2013
securities available for sale
Transfer out of Level III
-
229,276
(350,000)
120,724
Corporate
-
Securities
229,276
120,724
(350,000)
-
Corporate
Securities
$
$
$
Balance, December 31, 2013
$
-
The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at
their fair value as of December 31, 2014 and 2013, 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
to value the collateral that secure the impaired loans include: quoted market prices for identical assets classified as
The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at
Level I inputs and observable inputs employed by certified appraisers for similar assets classified as Level II
their fair value as of December 31, 2014 and 2013, by level within the fair value hierarchy. Impaired loans that are
inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and
collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used
assumptions developed by management based on the best information available under each circumstance, the asset
to value the collateral that secure the impaired loans include: quoted market prices for identical assets classified as
valuation is classified as Level III input. Other real estate owned is measured at fair value, less cost to sell at the
Level I inputs and observable inputs employed by certified appraisers for similar assets classified as Level II
date of foreclosure. Valuations are periodically performed by management and the assets are carried at the lower
inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and
of carrying amount, or fair value less cost to sell. The fair value for mortgage servicing rights is estimated by
assumptions developed by management based on the best information available under each circumstance, the asset
discounting contractual cash flows and adjusting for prepayment estimates. Discount rates are based upon rates
valuation is classified as Level III input. Other real estate owned is measured at fair value, less cost to sell at the
generally charged for such loans with similar characteristics.
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
discounting contractual cash flows and adjusting for prepayment estimates. Discount rates are based upon rates
generally charged for such loans with similar characteristics.
Assets:
Impaired loans
Other real estate owned
Mortgage servicing rights
Assets:
Impaired loans
Other real estate owned
Mortgage servicing rights
Assets:
Impaired loans
Other real estate owned
Mortgage servicing rights
Assets:
Impaired loans
Other real estate owned
Mortgage servicing rights
8,496,995 $
200,531
Level III
474,905
8,496,995 $
200,531
474,905
7,214,696 $
237,150
Level III
482,263
7,214,696 $
237,150
482,263
8,496,995
200,531
Total
474,905
8,496,995
200,531
Total
474,905
7,214,696
237,150
Total
482,263
7,214,696
237,150
482,263
-
-
Level I
-
-
-
Level I
-
-
-
Level I
-
-
-
-
- $
-
-
- $
-
-
- $
-
-
- $
-
-
December 31, 2013
December 31, 2013
December 31, 2014
December 31, 2014
Level III
Level III
Level II
Level II
Level II
Level II
Level I
Total
$
$
$
$
$
$
$
$
35
42 Kish Bancorp, Inc.
2014 Annual Report 43
34
35
16.
FAIR VALUE MEASUREMENTS (Continued)
17.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
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, 2014 and 2013.
December 31, 2014
Impaired loans
Fair Value
8,496,995
$
Other real estate owned
$
200,531
Mortage servicing rights $
474,905
December 31, 2013
Impaired loans
Fair Value
7,214,696
$
Other real estate owned
$
237,150
Mortage servicing rights $
482,263
Valuation
Techniques
Property
appraisals
Property
appraisals
Unobservable Inputs
Management discount for
property type and recent
market volatility
Management discount for
property type and recent
market volatility
Range
0% - 70% discount
Weighted Average (17.88%)
0% - 15% discount
Weighted Average (8.44%)
Discounted
cash flows
Discount rate
Prepayment speeds
2.65 - 3.48% discount
Weighted Average (3.07%)
1.32 - 3.70 prepayment factor
Weighted Average (1.88%)
Valuation
Techniques
Property
appraisals
Property
appraisals
Unobservable Inputs
Management discount for
property type and recent
market volatility
Management discount for
property type and recent
market volatility
Range
0% - 15% discount
Weighted Average (15%)
0% - 15% discount
Weighted Average (7.00%)
Discounted
cash flows
Discount rate
Prepayment speeds
2.96 - 3.98% discount
Weighted Average (3.47%)
1.23 - 3.71 prepayment factor
Weighted Average (2.02%)
The estimated fair values of the Company’s financial instruments at December 31 are as follows:
Carrying
Value
Fair
Value
2014
Level
I
Level
II
Level
III
$
15,689,088 $
2,753,312
15,689,088 $
2,753,312
15,689,088 $
2,753,312
$
-
-
184,323,726
75,050
414,061,211
6,634,200
14,120,894
2,096,708
474,905
184,323,726
75,050
413,000,346
6,634,200
14,120,894
2,096,708
474,905
1,899,753
75,050
-
6,634,200
14,120,894
2,096,708
-
182,423,973
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
$
508,615,501 $
3,706,134
93,695,352
761,770
510,517,363 $
3,706,134
92,638,893
761,770
325,499,593 $
3,706,134
-
761,770
Carrying
Value
Fair
Value
2013
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:
$
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
-
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
187,851,620
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
413,000,346
-
-
-
474,905
$
185,017,770
-
92,638,893
Level
III
$
-
-
-
-
-
381,396,348
-
-
-
482,263
$
188,721,976
-
85,169,364
-
36
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.
37
44 Kish Bancorp, Inc.
2014 Annual Report 45
17.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (Continued)
17.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (Continued)
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.
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.
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.
18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
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:
The following table presents the changes in accumulated other comprehensive (loss) income by component net of
tax for the year ended December 31, 2014:
Accumulated other comprehensive
(loss) income, January 1, 2013
Other comprehensive loss before
reclassification
Amounts reclassified from accumulated
other comprehensive (loss) income
Accumulated other comprehensive
Accumulated other comprehensive
(loss) income, December 31, 2013
Other comprehensive income before
reclassification
Amounts reclassified from accumulated
other comprehensive (loss) income
Accumulated other comprehensive
(loss) income, December 31, 2014
Net Unrealized
Gains (Losses) on
Investment Securities
$
2,907,315
(7,722,091)
(227,266)
(5,042,042)
5,935,539
(342,768)
$
550,729
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.
46 Kish Bancorp, Inc.
2014 Annual Report 47
38
39
18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Continued)
The following table presents significant amounts reclassified out of each component of accumulated other
comprehensive income (loss) for the year ended December 31, 2014, and 2013:
Unrealized gains on investment
securities December 31, 2014
Unrealized gains on investment
securities December 31, 2013
Other-than-temporary impairment losses
December 31, 2013
Amount Reclassified
from Accumulated
Other Comprehensive
Income (Loss)
Affected Line Item
in the Consolidated Statement of Income
Where Net Income
Is Presented
$
$
$
$
$
$
(519,346)
176,578
(342,768)
(461,842)
157,026
(304,716)
117,500
(39,950)
77,550
Investment securities gains, net
Income taxes
Investment securities gains, net
Income taxes
Investment securities impairment loss
Income taxes
19.
SUBSEQUENT EVENTS
Management has reviewed events occurring through March 11, 2015, the date the financial statements were issued,
and no subsequent events occurred requiring accrual or disclosure.
40
48 Kish Bancorp, Inc.
BOARD OF DIRECTORS OF KISH BANCORP, INC.
William P. Hayes, Chairman
EXECUTIVE OFFICERS
William P. Hayes, Chairman, President and Chief Executive Officer
Sangeeta Kishore, Senior Executive Vice President, Chief Financial Officer
and Senior Risk Officer
Peter D. Collins, Executive Vice President, Chief Credit Officer
Gregory T. Hayes, Executive Vice President, Head of Retail Banking and Client
Solutions
Robert S. McMinn, Executive Vice President, General Counsel
James L. Shilling, Jr., Executive Vice President, Senior Lending Officer
SENIOR OFFICERS
Robert L. Crane, Senior Vice President, Profitability Director
Walter J. Kay, Senior Vice President, Chief Technology 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
Suzanne M. White, Senior Vice President, Human Resource Director
Stanley N. Ayers, Vice President, Special Assets Manager
Douglas C. Baxter, Vice President, Accounting and Controls Manager
Kathleen M. Boop, Vice President, Personal Lines Insurance Manager
Kimberly A. Bubb, Vice President, Services and Systems Manager
Larry E. Burger, Vice President, Commercial Relationship Manager
David A. Coble, Vice President, Branch Manager
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
Carol M. Herrmann, Vice President, Marketing, Administration, and
Communications Director/CEO, Kish Travel
Daniel L. Keane, CTFA, AEP®, Vice President, Wealth Management Advisor
and Trust Officer
Marsha K. Kuhns, Vice President, Branch Manager
John Q. Massie, Vice President, Commercial Relationship Manager
Denise F. Quinn, Vice President, Commercial Relationship Manager
Melissa K. Royer, Vice President, Service Support Manager
N. Robert Sunday, III, Vice President, Compliance Officer
Cheryl E. Shope, Vice President, Residential Lender
Kayelene G. Sunderland, Vice President, Wealth Management/Trust
Administrator
Jeffrey D. Wilson, Vice President/CEO, Kish Agency
William W. Yaudes, Vice President, Regional Market Manager
James J. Lakso, Vice Chairman
William L. Dancy, Secretary
Spyros A. Degleris, Member
Edward A. Friedman, Member
Paul G. Howes, Member
William S. Lake, Member
Phyllis L. Palm, Member
Paul H. Silvis, Member
BOARD OF DIRECTORS OF KISH BANK
William P. Hayes, Chairman
James J. Lakso, Vice Chairman
William L. Dancy, Secretary
Spyros A. Degleris, Member
Edward A. Friedman, Member
Paul G. Howes, Member
William S. Lake, Member
Phyllis L. Palm, Member
Paul H. Silvis, Member
CENTRE COUNTY REGIONAL BOARD
Spyros A. Degleris, Member
Adam R. Fernsler, Member
Edward A. Friedman, Member
Alan G. Hawbaker, Member
Paul G. Howes, 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
Stephen C. Huston, Member
James J. Lakso, Member
Dominick F. Peruso, Jr., Member
Pamela Prosser, Member
Burgess A. Smith, Member
Delmont R. Sunderland, Member
Frances V. Vaughn, Member
MIFFLIN COUNTY REGIONAL BOARD
Michael A. Buffington, Member
Christina Calkins-Mazur, Member
Ronald M. Cowan, Member
William L. Dancy, Member
James W. Felmlee, Member
Eric K. Fowler, Member
William S. Lake, Member
Harvard K. McCardle, Member
Alan J. Metzler, Member
Gary L. Oden, Member
Phyllis L. Palm, Member
John Pannizzo, Member
4255 East Main Street, Belleville, PA 17004 | 1-888-554-4748 | www.KishBank.com