2 0 2 0 A N N U A L R E P O R T
2 0 2 0
You
are
why.
We
are
Kish.
C O N T E N T S
1
Chairman’s Letter
to the Shareholders
8
You Are Why ...
We Are Kish.
13
Financial Highlights
14
Independent
Auditor’s Report
15
Financial Statements
20
Notes to Consolidated
Financial Statements
62
Board of Directors
and Officers
C H A I R M A N ’ S L E T T E R T O T H E S H A R E H O L D E R S
1
THE STORY OF KISH IN 2020 IS NOT ONE THAT CAN BE SUMMARIZED QUICKLY,
ESPECIALLY IF WE ARE TO DO JUSTICE TO THE TEAM’S EXTRAORDINARY
PERFORMANCE. THE YEAR WAS A PHENOMENON UNLIKE ANY OTHER, ONE OF WHICH
KISH’S INVESTORS, CUSTOMERS, AND COMMUNITIES SHOULD BE FULLY AWARE.
Kish began 2020 with a robust agenda of
the adjoining lot, would provide for the
projects critical to the long-term sustainability
construction of a visionary new Kish
of the Corporation. The very aggressive plans
Innovation Center. The Center, or KIC
for the year included important initiatives
as we now call it, would support
that were critical to our continued drive to
our focus on transforming
elevate the Kish experience and advance
Kish’s customer fulfillment
our goal of touching more lives across our
through digital technology
expanding central Pennsylvania market. The
adoption, data management,
implementation of these projects had been
information security, client support,
under strategic development for years. The
enhanced team collaboration, and a
years of planning across multiple fronts
streamlined and digitally-enabled “branch
were coming to fruition and the team’s full
of the future” concept.
attention would now shift to execution.
As we entered 2020, we also had very specific
The execution of our vision for “Kish 2020”
objectives for continuing to aggressively and
centered around the conversion of Kish’s
profitably grow the franchise. These included
core processing system to a nimbler platform
leveraging the growing capacity of the team
that would expand our ability to deliver
to deliver across the full range of our banking
advanced technology solutions and more
and non-banking services. In addition to
efficiently support our growing customer
team development, that included recruiting
base. The core conversion would touch every
talented new team members to support
banking relationship and every element of our
relationship acquisition and expansion and
banking operation. The second pillar of our
intensify our focus on serving the Juniata
vision was the migration to a cloud-based IT
County market, and expansion into Altoona
architecture which would bring the flexibility
and Blair County.
and scalability necessary to support future
growth. The migration to an Amazon Web
Services hosted virtual environment, Office
365, and a cloud-based phone solution
would also prove to be critical throughout
the pandemic by providing a “work from
anywhere” framework. While a separate
undertaking, the accompanying work to
reimagine Kish’s Reedsville campus was also a
critical part of the vision. The reconfiguration
of the Reedsville Financial Center and
branch, coupled with the development of
With our sights clearly set on execution and
backed by multiple years of strong financial
performance and an expanding economy,
we entered 2020 ready to tackle the tasks
and opportunities at hand. Then, with little
warning and incredible swiftness, COVID-19
descended upon us all. With rapidly mounting
evidence of the disease’s spread and severity,
and against a backdrop of dire predictions,
the U.S. economy ground to a halt within a
matter of weeks. The COVID-19 Recession had
arrived with the same speed and alarming
William P. Hayes
Chairman of the Board
and Chief Executive
Officer
2
3
“
As all eyes
turned first to
the nation’s
healthcare
system, and
then to the
banking
system, the
Kish team
pivoted. And
all other
priorities were
suddenly set
aside.
”
impact as the contagion itself. The Fed and
the unprecedented and sustained level of
to deliver, word spread quickly. To support
of the Sausman team and then the conversion
Treasury undertook massive fiscal stimulus
demand. By year end, with more than 800
the ensuing demand, our credit and lending
of their operating core to the Kish Insurance
initiatives. Rates fell to near zero. As all eyes
mortgages closed, most originators were
teams, even retail branch managers, worked
core system. It was all hands on deck for both
turned first to the nation’s healthcare system,
astonished to realize that they had more than
around the clock to triage and process
insurance teams as well as Kish’s HR team,
and then to the banking system, the Kish team
doubled their mortgage originations from the
requests. In response to the desire for
and just one of many projects supported by
pivoted. And all other priorities were suddenly
record production levels of 2019. Additionally,
constant communications, we developed a
the impressive Kish IT team.
set aside.
there was an equal level of requests for
two-way communication channel that allowed
mortgage loan modifications that Kish offered
borrowers to stay abreast of progress with
in lieu of refinancing. It was a creative solution
their application process. As Treasury and
to support existing mortgage customers that
the SBA struggled with implementation, we
otherwise we would not have been able to
actively engaged in industry discussions at
support given the extraordinary level of new
the state and national levels that would help
RESPONSE TO COVID-19
We immediately took steps to safeguard the
health of our customers and team members.
Branch access was limited to drive-ups
and remote delivery. Enabled by previous
investments in technology, we quickly moved
over 40% of our workforce to remote work
mortgage demand.
SUPPORT FOR SMALL BUSINESSES
status. Other teams could then be physically
After Treasury announced the Paycheck
distanced from each other, thereby reducing
Protection Program (PPP), providing little in
the risk of spread that could compromise
the way of initial guidance, we seized the
those teams and the delivery of mission
challenge of this ill-defined program and
critical services. When normal outside
developed an advanced application
professional services were suspended by
portal. As awareness of our
the governor’s orders, we developed
application portal and personal
innovative solutions to sustain the delivery
attention to applications
of banking services.
SUPPORT FOR HOMEOWNERS
In every area of the company, we became
more agile and adaptive. When the regulatory
agencies provided us with greater latitude
to provide relief to borrowers, the credit
administration and lending teams quickly
moved forward to implement payment
deferral programs to both residential
mortgage and commercial customers.
When the Fed reduced interest rates to
unprecedented levels, we found ways to
sustain the closing of residential mortgages
that reduced rates and payments and
provided housing solutions to first-time
homeowners, even as other market
participants suspended all mortgage lending
activity. Mortgage lenders, working remotely
from their origination support teams,
were unflagging in their drive to handle
became more widespread,
and local businesses
found access when
other banks
were unable
Todd Erdley
CEO and Founder of
Videon, a live streaming
video encoder business in
State College, and Kish PPP
loan recipient
CORE CONVERSION INTO THE TEETH
OF A GALE
The conversion to the new CSI core system
was a massive undertaking that had been
scheduled for May 2020 more than a year in
advance so all the resources necessary for
a successful conversion could be locked in
place. As the pandemic worsened and travel
became restricted, and as conversion drew
nearer, it became clear that this conversion
would need to be conducted virtually, without
a single representative of CSI’s conversion
team on site and most of the Kish team
working remotely as well. It would be the first
virtual conversion of its size in the country.
Our analogy going into conversion was that
it would be like changing the engines on the
plane while it was in flight. What we did not
know in advance was that the CSI pilots and
mechanics would be on the ground, talking
the Kish conversion team through it.
Following the successful conversion over
the weekend of May 15, and after a few
challenging weeks that followed, we all
could reflect on a high stakes undertaking
that represented yet another triumph for the
entire Kish team. It was an accomplishment
that validated our growing confidence in
the “team of teams” approach to executing
to shape the PPP submission, approval, and
funding processes. When the smoke began
to clear, we were surprised to discover that,
in a few short months, we had received,
processed, approved, and funded more than
double the commercial loan requests that we
had historically handled in a year—all this in
addition to the regular lending activity that
has kept us growing and active for the last
several years.
As the year wore on, the team moved through
the second phase of PPP and then right into
the PPP forgiveness process for the more
than 800 relationships that had received PPP
loans. Building on established technology
relationships, Kish was a leader in providing
PPP technology that put our borrowers at the
front of the line for SBA consideration every
step of the way. By year end, more than half
of Kish’s 2020 PPP loans had been forgiven,
even as the team geared up for the next round
of PPP lending.
INSURANCE AGENCY ACQUISITION
Although delayed several times by the
across multiple, mission-critical fronts
coronavirus, the acquisition of Sausman
simultaneously.
Insurance Agency by Kish Insurance
closed in the second quarter of the year
and represented the first major insurance
acquisition by Kish since the landmark
Thompson-Wilson Agency acquisition in 1997.
The closing was followed by the assimilation
CLOUD MIGRATION AT THE PERFECT TIME
Another critical part of Kish’s transformation
for the future was the migration to cloud-
based IT structure that will support growth
and long-term sustainability. In 2019, the
“
In a few short
months, we
had received,
processed,
approved,
and funded
more than
double the
commercial
loan requests
that we had
historically
handled in
a year.
”
4
5
“
The KIC
will support
a new
capability to
work more
effectively,
efficiently, and
collaboratively.
”
Kish IT team had transitioned our network
there were some delays in the delivery of key
from exceptional support from the IT team
development of an Altoona-based team and
architecture from a traditional MPLS
building components, we were pleased by
to prepare for the switch-over of systems.
we are excited about the potential for growth
connection to a much faster, more redundant,
year end to bring this enormously important
We also should express our appreciation to
in that market.
and flexible architecture called SDWAN.
and transformative project to fruition with
Alexander Construction for their effective
Beginning in January of 2020, the team
only slight modifications to both budget
construction management and coordination
started the final phase of our cloud migration
and the KIC’s completion date. The finished
of the primarily local sub-contractors. Credit
for our phone system, the Microsoft Office
building’s striking architectural design has
also goes to Fernsler Hutchinson Architecture
365 productivity suite, and a virtual desktop
already attracted attention far and wide, but
for their exceptional work in designing
environment hosted in the cloud. Through
the true beauty of the technology-enabled
a facility reflective of the Kish culture of
a partnership with the cloud computing
KIC is in its layout and internal systems. The
innovation and collaboration.
company, Summit Technology Group, Kish
interior space will provide a new working
rolled out these new systems just in time
environment for our “team of teams”
to support the pandemic response and
approach to solving problems, delivering
migration to a virtual work environment. Years
solutions, and supporting our customers. Not
of strategy and planning came together very
only will it house multiple support teams
fortuitously to quickly execute the migration
working within the facility, but it will be a
while permanently establishing a scalable IT
point of engagement for multi-disciplinary
infrastructure that will benefit our clients, our
teams from across the company and across
employees, and our shareholders with more
Kish’s growing footprint. The KIC will support
efficient, flexible, and faster technology.
a new capability to work more effectively,
REEDSVILLE CAMPUS AND THE KIC
Concurrent with the conversion project, a
smaller but intensely focused team was
also working hard on the Reedsville
campus reformulation and the
construction of the new KIC.
While work on this critical
facilities project was
suspended under
the governor’s
order and
efficiently, and collaboratively to transform
how we advance our strategic priorities and
support our customers, communities, and
team members.
Although we regret not being able to share
the KIC through in-person tours until the
COVID-19 crisis is behind us, the marketing
team is developing a virtual tour of the
facility with President and COO Greg Hayes.
It was his vision for the Reedsville campus
and Kish Innovation Center that drove this
through to a final plan and that will make
this transformational facility central to
Kish’s growth and expansion for decades
to come. Recognition also goes to Facilities
and Security Officer, Glenn Snyder, who
was relentless in his management of all
the various pieces of this complex and
multi-phased project. The final execution
stages of this facility project benefitted
The new Kish Innovation Center on the
Reedsville campus
GROWTH AND EXPANSION
Finally, there was the focus on the critical
priority of expanding our client base and
geographic presence. We began the year with
a strong focus on our stated goal of expansion
into Juniata County. This was augmented by
our agreement to acquire Sausman Insurance
Agency, which not only provided us with an
established base of business, but also with
an existing office located just off the
Mifflintown exit of Route 322. Following the
closing of the transaction and the acquisition
of the real estate, we quickly moved to have
the office approved as a Limited Purpose
Office (LPO) of Kish Bank (no deposits
accepted or loans disbursed). Shortly
thereafter, we began the selection of a Juniata
regional advisory board and dedicated several
commercial and mortgage lenders and a
financial advisor to the market.
Our attention to market expansion in the
Altoona/Blair County market did not lag
far behind. In October, we were pleased to
announce that Robert Bilger was joining Kish
as a senior commercial lender and Market
Leader. Bob brings more than 32 years of
banking experience to Kish, all of it in the Blair
region. Earlier in the year, we were pleased to
announce that Ed Henderson had joined Kish
as a Wealth and Trust Advisor. Ed is a native of
Blair County and had spent the majority of his
career as an advisor in that market. Together,
Bob and Ed form a great nucleus for the
Additionally, we were pleasantly surprised
when a northeastern Ohio commercial real
estate lending team, with whom we had a
longstanding working partnership, called
to say they were interested in joining the
Kish Bank team. Ken Goetz and Gary Wimer,
seasoned bankers and commercial real estate
development lenders, came to us following
an unpleasant post-merger experience with
their former employer. Because of the number
of loans we had participated in over the
prior five years, we were very familiar with
the quality of their work and their borrowers
and welcomed the opportunity to bring them
on board. In a related development, shortly
after year-end, Peter Collins stepped down as
Kish’s Chief Credit Officer to assume a Senior
Portfolio Manager and Commercial Lender
role working out of the Hudson, Ohio, office
with Ken and Gary. Pete’s home and family
are in Cleveland, as were many of Pete’s prior
years of commercial lending experience, so
this move made sense for both Kish and Pete.
We are now very well-positioned to have this
satellite office, for which we recently received
regulatory LPO approval, become a meaningful
part of our growth strategy going forward.
I am sure all of you are familiar with the circus
act of plate spinning where the performer
spins multiple plates simultaneously balanced
on thin poles. It will not surprise you that
this analogy has come to mind frequently
as I have been writing this letter. The
miraculous performance of the versatile and
multi-talented Kish team was very akin to
plate spinning on a massive scale. Amazingly,
not a single plate was dropped. It will be a
performance that goes down in the annals of
Kish lore and in the stories told by our clients
for many years to come.
6
“
Our long-
term strategic
focus of
developing
residential
mortgage
lending as
a linchpin
relationship
acquisition
tool has
been an
overwhelming
success.
”
7
I will close with the final chapter in the
sufficient to fund rising loan demand, thereby
Benefits consulting achieved positive
are as proud as I am of the positive impact
amazing story of 2020, one in which our
preserving the bank’s net interest margin with
results given that many relationships under
the Kish team had on the region we serve. As
shareholders will have added interest. In
only a modest decline of 9 basis points versus
development chose not to move due to
our reach expands and Kish’s business model
addition to producing life-sustaining solutions
a 35 basis point decline for the bank’s peers.
the uncertainties of the environment.
attracts new clients and new partners, we will
for our customers, communities, and fellow
Deposits finished the year up by $167.6
Nevertheless, earnings for benefits consulting
continue to trust in the capacity of this team
team members, the extraordinary work of
million to $877.8 million, an increase of
rose modestly higher to $599 thousand
to deliver for our customers, communities,
this team also generated exceptional results
23.59% from $710.2 million a year ago, with a
from $585 thousand in 2019. Travel quite
and, ultimately, for you, our shareholders.
for Kish shareholders. I will simply preface
continued notable expansion in core deposits.
expectedly experienced steep declines as
Thank you for your loyalty and support. Please
by saying that 2020 was a remarkable year
for performance in almost every respect, and
clearly differentiated Kish from its peers.
FINANCIAL RESULTS
Unprecedented activity in almost every area
of the company produced unprecedented
revenue expansion in almost every area of the
company. The bottom line was that net income
for the year reached $8.04 million, an increase
of $1.03 million, or 14.72%, compared to
$7.01 million for the year ended 2019. Fully
diluted earnings per share increased to $3.12
per share from $2.70 per share in 2019, up
15.60%. The increases reflect expansion in
The expansion in noninterest income was
equally impressive. Most notable was the
more than 100% growth in fee income from
the sale of residential mortgage loans to the
secondary market, which increased to $2.4
revenues dropped to $88 thousand from
stay safe and well.
$371 thousand the year prior. We expect
pent-up demand for both employee benefits
consulting and travel to rebound as COVID
subsides later this year.
Sincerely,
million from $1.2 million in 2019. It was
Noninterest expense was generally in line
truly a blowout year for the Kish residential
with the expansion of business activity,
mortgage lenders and underwriters, as well
but also reflected the investment Kish is
as our mortgage unit leader, Deb Weikel.
making in the future. While most conversion
Our long-term strategic focus of developing
costs were covered in prior periods, there
residential mortgage lending as a linchpin
were some non-recurring consultancy costs
relationship acquisition tool has been an
incurred during the year, as well as some
overwhelming success as preparation met
significant overtime cost related to the
with opportunity over the past several years.
conversion. Of significant comparison was
William P. Hayes
Chairman of the Board and
Chief Executive Officer
both net interest income, up 12.52% over
Other centers of noninterest income
the prior year, and noninterest income, which
generation are evident from the income
increased 19.07% overall.
The strong growth in net interest income to
$31.1 million in 2020, an increase of $3.6
million, or 12.52%, compared to $27.5 million
in 2019, was delivered because of several key
contributors. Interest income benefitted from
rising loan activity, net of PPP activity, with
statement. The insurance agency, which
achieved 10% internal revenue growth,
was augmented by the addition of Sausman
Insurance Agency. Consequently, insurance
a year ago. The bank’s interest in significant
agency acquisition opportunities remains high.
total loans closing the year up $78.7 million,
Despite the incredible volatility in financial
or 11.46%, at $765.7 million. Net interest
markets, the performance of the wealth
the rise in FDIC insurance costs, reflecting the
2019 credit from prior period events related
to the funding of large non-banks choosing
the bank charter and the benefits of FDIC
insurance. Otherwise, most areas of expense
were well-controlled in 2020.
The extraordinary team at Kish responded
to every challenge that came their way
during the most challenging year in our
history. Never once did I hear “no way” or
agency income grew to $2.2 million from $1.3
CONCLUSION BUT NOT AN END
income, including fees from PPP lending, was
management unit delivered impressive results
“we can’t,” only, “we can find a way” and “we
more than sufficient to offset contributions
of an 8.4% increase in revenues from 2019.
will get it done.” As shareholders, I hope you
to the loan loss reserve from earnings of $2.3
Both the licensed advisory unit and the trust
million in 2020, compared to $390 thousand
unit were successful in generating positive
in 2019.
Despite the dramatic fall in interest rates
results for the year, with revenue increasing to
$1.78 million from $1.64 million.
created by the COVID-19 Recession, balance
Several units hit hardest by the COVID
sheet management strategies coupled with a
shutdown were the employee benefits
dramatic rise in core deposits were more than
consulting group and the travel group.
Sausman Insurance Agency,
a division of Kish
8
Y O U A R E W H Y . . . W E A R E K I S H .
9
At Kish, it’s not about what we do,
it’s about why we do it.
JOHN R. WALD COMPANY – HUNTINGDON
Nearly 100 years ago, John R. Wald—a visionary, engineer, and businessperson—
had the idea to design equipment that would automate the production of
license plates. The company he established would employ community
members to manufacture production lines for correctional industries,
Our “why” is the driving force behind everything: we believe in our hearts that we can make the
lives of those around us—our employees, our clients, and our communities—better. Our team
members act on this belief every day. We know we’re making a difference because we hear
the stories from our customers and our communities, and we celebrate their successes
alongside them. Here are stories of people like you who started out with a vision and
chose Kish to be their partner. We’re honored to be part of their journey.
DUMOR, INC. – MIFFLINTOWN
DuMor, Inc., in Mifflintown, started 37 years ago with two friends who
discovered a need for high quality, custom outdoor commercial and
public site furnishings. Dick Rudy and Don Saner, the company’s
while, at the same time, helping with prisoner rehabilitation by
providing meaningful jobs for inmates. Today, the John R. Wald
Company not only builds license plate digital printing and
production lines, but they also make and sell license
plates to jurisdictions that would rather buy them
from private companies. The company has engaged
Kish Bank on key projects to modernize
production facilities and to introduce
products to better serve their customers,
such as a powerful new digital color
license plate printing system.
founders and only two employees, began operations in a newly
constructed 4,800 square foot manufacturing facility with just
a few designs for wood benches, trash receptacles, park
grills, and a picnic table. Their steadfast commitment to
quality and exceptional customer service propelled
them to become one of the leading names in
the site furnishings industry internationally,
with 70 employees operating in an 85,000
square foot facility. They now offer over
78 bench designs, 35 receptacle designs,
23 table designs, and many more custom
furnishings made out of a variety of materials.
DuMor products are placed domestically and
internationally in many types of venues. In Pennsylvania,
the company’s creations can be seen in places like
Hersheypark, Penn State University, and the City of Pittsburgh,
and in other states like in the City of Boston and Walt Disney
World. Their unwavering focus on their core values remains strong
today with the family’s second and third generation management.
“My family has always worked with Kish Bank. They’re a small, hometown bank
with the capabilities and resources of a much larger bank, so it’s really the best of
both worlds. They have great customer service, and you are dealing with people
that you know and trust. We will be staying with Kish Bank.”
Anita Rudy
President, DuMor, Inc.
“Kish has done a wonderful job of
maintaining a focus on our business
needs and working to deliver creative
solutions so that we can continue to make
this business successful. Like Wald itself, Kish
is rooted in the community and cares about
people. They’re just as interested as we are in
making the company successful, because they know
when a company is successful, the people are successful ...
and they will bring good things to the community.”
Eric Pizzuti
CEO, John R. Wald Company
10
11
FOXPRO, INC. – LEWISTOWN
GIV LOCAL – STATE COLLEGE
FOXPRO, Inc. began in the basement of Mike Dillon’s parents’ home with his father’s
A passion for giving back, a background in banking, and entrepreneurial creativity
determination to create a portable electronic predator calling device for his sons to
inspired three State College area friends to design a unique business model that
take into the woods. 25 years later, FOXPRO, Inc. now is the number one predator
allows local non-profits to benefit from credit card swipes. Kish customers
calling manufacturer and distributor in the world, with 70 employees working
Shizuka Buckley, along with her husband Sam and friend Christian Baum,
from a 50,000 square foot facility.
“We’re a very successful Mifflin County based business with what
is today an expanding global reach. Being able to work with a
local bank like Kish that is growing like us and reinvesting in
our community is a great fit. They make it easy for us as
we continue to focus on growth, knowing we can rely
on the Kish team for the best advice available for
our banking and financial needs.”
Mike Dillon
General Manager, FOXPRO, Inc.
recognized that while many small business owners want to give back,
they don’t have the means to donate from their bottom line. The
three founded Giv Local in 2018 to connect businesses and
non-profits and put money back into the community. When a
business selects Giv Local for their credit card processing
services, Giv Local seamlessly donates 20% of the
standard processing fees to a verified non-profit of
that business’s choice. With typical merchant
services providers, those fees would go to
a large processing company or bank.
Fitting with Kish Bank’s commitment
to community alignment, Kish
switched its merchant services
for business customers from
a large national provider
to Giv Local.
“I give kudos to Kish because they saw
outside the box and rallied behind us.
Kish saw what we had created and bought
into our vision to enable businesses and their
merchant services customers to make an impact
in their communities. It’s very heartwarming to know
that we’re part of that, and there’s no better feeling.
Actually, there is one better feeling—being able to issue
the checks to the non-profits. Kish Bank and Giv Local share
in underwriting the cost of the charitable contributions.”
Shizuka Buckley
Charity Sorceress, Giv Local
12
F I N A N C I A L H I G H L I G H T S
13
STRAWBERRY FIELDS, INC. – STATE COLLEGE
Strawberry Fields was founded out of love for children with intellectual disabilities on a farm
in Yarnell, PA, in 1972. The founders had a dream of a time when people with disabilities would
be accepted and recognized for their unique contributions to our community. Today, they
FOR THE YEAR
Net Income
Net Income Before Taxes
Total Dividends Declared
2020
2019
2018
2017
2016
$
8,039,287
$
7,006,914
$
6,029,683
$
4,139,770
$
4,616,894
9,278,885
2,804,385
7,903,452
2,585,445
6,670,247
2,396,453
5,141,399
2,301,564
5,254,277
2,130,197
have grown from that farm to an organization that offers a continuum of services, enhancing
AT YEAR END (in $000s)
the lives of individuals and families with developmental delays, intellectual disabilities, and
mental illness. With Kish’s help, they have opened two stores where they employ individuals
with disabilities and mental illness, providing them with a greater sense of purpose and
accomplishment.
“Kish Bank and Strawberry Fields share a common mission—to improve the lives
of the people we serve. There is no better example of Kish’s focus on us than
when the pandemic first struck. We really had no idea how we were going
to continue to operate our stores and keep our group residences safe
and open. Kish Bank, on the other hand, was a step ahead of us. They
put together a team very quickly that helped us get one of the first
PPP loans. The PPP loan enabled us to keep our staff working
and stores open prior to the mandated shutdown. We never
had any doubt that moving to Kish Bank was the right
decision, but during the pandemic, it was absolutely a
blessing that they were there for us. There are no
doubts that our relationship was meant to be.”
Cindy Pasquinelli
CEO, Strawberry Fields, Inc.
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
$
1,106,609
$
918,309
$
850,508
$
811,192
$
725,071
755,960
877,796
69,962
9,771
(4)
0.79%
12.90%
34.88%
86.12%
7.21%
12.32%
1.28%
0.00%
679,519
710,226
64,352
7,499
(467)
0.79%
11.56%
36.90%
95.68%
7.82%
11.86%
1.09%
-0.07%
630,440
682,350
59,728
6,642
10
0.72%
10.71%
39.74%
92.39%
7.80%
11.95%
1.04%
0.00%
569,010
653,687
56,339
5,698
913
0.54%
7.45%
55.60%
87.05%
7.65%
11.65%
0.99%
0.17%
488,588
561,928
53,593
6,011
271
0.65%
8.54%
46.14%
86.95%
8.22%
13.10%
1.22%
0.06%
$
3.20
3.12
1.08
26.93
30.69
$
2.80
2.70
1.00
24.90
27.80
$
2.44
2.35
0.94
23.41
26.01
$
1.69
1.67
0.92
22.50
24.77
$
1.90
1.89
0.86
21.63
24.06
Average Shares Outstanding (#)
2,597,978
2,499,536
2,499,673
2,459,168
2,430,134
NET INCOME (in millions)
EARNINGS & DIVIDENDS (per share)**
STOCK VALUATION (per share)**
Watch videos of more
customer stories on
Kish Bank’s YouTube channel:
https://bit.ly/38zxake
*Due to fluctuations in the mark to market valuation for investment securities, these are not included in the totals for average assets and average equity.
**For comparability, per share data for 2016 and 2017 have been adjusted to reflect the two-for-one stock split in 2018.
14
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
C O N S O L I D AT E D B A L A N C E S H E E T
15
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 sheets as of December 31, 2020 and 2019; 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, 2020 and 2019, 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.
Cranberry Township, Pennsylvania
March 12, 2021
KISH BANCORP, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
Cash and due from banks
Interest-bearing deposits with other institutions
Cash and cash equivalents
Certificates of deposit in other financial institutions
Investment Securities available for sale, at fair value
Investment Securities held to maturity, fair value of $11,158,435
and $7,378,098
Equity Securities
Loans held for sale
Loans
Less allowance for loan losses
Net loans
Premises and equipment, net
Goodwill
Regulatory stock
Bank-owned life insurance
Accrued interest and other assets
TOTAL ASSETS
LIABILITIES
Deposits:
Noninterest-bearing
Interest-bearing demand
Savings
Money market
Time
Total deposits
Short-term borrowings
Other borrowings
Accrued interest and other liabilities
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY
December 31,
2020
2019
$
12,442,465 $
117,223,023
129,665,488
6,878,336
29,331,755
36,210,091
490,000
128,037,046
1,474,000
131,180,513
11,023,499
2,132,287
5,666,999
765,730,956
9,770,563
755,960,393
24,268,706
3,560,942
6,875,100
16,236,506
22,692,322
$ 1,106,609,288 $
$
135,621,817 $
70,550,356
91,167,858
328,846,611
251,609,787
877,796,429
69,360,211
64,656,810
24,833,601
1,036,647,051
7,250,000
1,695,342
3,464,876
687,018,196
7,499,402
679,518,794
15,635,486
1,843,699
6,915,000
15,830,426
17,290,797
918,309,024
99,838,645
13,496,720
69,073,873
248,203,646
279,612,736
710,225,620
46,740,021
80,029,248
16,961,740
853,956,629
Preferred stock, $.50 par value; 500,000 shares authorized,
no shares issued and outstanding
Common stock, $.50 par value; 8,000,000 shares authorized,
2,697,500 shares issued; 2,603,040 and 2,583,294 shares outstanding
at December 31, 2020 and 2019, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (94,460 and 114,206 shares at December 31,
2020 and 2019, respectively)
TOTAL STOCKHOLDERS' EQUITY
-
-
1,348,750
2,703,924
69,539,219
(1,009,136 )
(2,620,520 )
69,962,237
1,348,750
2,494,671
64,304,317
(1,014,506 )
(2,780,837 )
64,352,395
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 1,106,609,288 $
918,309,024
See accompanying notes to consolidated financial statements.
S.R. Snodgrass, P.C. • 2009 Mackenzie Way, Suite 340 • Cranberry Township, Pennsylvania 16066 • Phone: 724-934-0344 • Fax: 724-934-0345
2
16
C O N S O L I D AT E D S TAT E M E N T O F I N C O M E
C O N S O L I D AT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E
17
KISH BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
KISH BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net income
Other comprehensive income
Securities available for sale:
Year Ended December 31,
2019
2020
7,006,914
8,039,287 $
$
Change in unrealized holding gains on
available for sale securities
Tax effect
Change in comprehensive income related to cash flow hedges
Tax effect
Reclassification adjustment for net investment
securities gains realized in net income
Tax effect
Total other comprehensive income
3,133,307
(657,993 )
(3,045,609 )
639,578
(80,903 )
16,990
5,370
2,150,086
(451,520 )
(1,624,812 )
341,211
(161,638 )
33,944
287,271
Total comprehensive income
$
8,044,657 $
7,294,185
See accompanying notes to consolidated financial statements.
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
Year Ended December 31,
2019
2020
$
33,850,246 $
1,309,814
2,880,753
436,694
206,080
769,576
39,453,163
5,321,683
84,843
2,938,290
8,344,816
31,108,347
2,267,500
32,146,548
1,230,229
2,605,465
824,667
645,350
644,456
38,096,715
7,480,980
68,749
3,009,361
10,559,090
27,537,625
390,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
28,840,847
27,147,625
NONINTEREST INCOME
Service fees on deposit accounts
Investment securities gains, net
Equity securities gains (losses), net
Gain on sale of loans
Earnings on bank-owned life insurance
Insurance commissions
Travel agency commissions
Wealth management
Benefit management
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 tax expense
NET INCOME
EARNINGS PER SHARE
Basic
Diluted
See accompanying notes to consolidated financial statements.
1,580,854
80,903
(313,055 )
2,424,082
485,614
2,173,549
87,837
1,780,460
598,997
1,223,451
10,122,692
17,983,683
3,055,611
2,167,218
572,625
398,380
500,000
664,625
4,342,512
29,684,654
9,278,885
1,239,598
1,678,651
161,638
232,874
1,171,428
473,054
1,253,906
371,349
1,642,592
584,926
931,434
8,501,852
16,533,267
3,112,385
2,519,299
523,490
263,780
207,871
627,977
3,957,956
27,746,025
7,903,452
896,538
$
8,039,287 $
7,006,914
$
$
3.20 $
3.12 $
2.80
2.70
3
4
18
C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N S T O C K H O L D E R S ’ E Q U I T Y
C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S
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S
KISH BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
Year Ended December 31,
2020
2019
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
8,039,287 $
7,006,914
Provision for loan losses
Investment securities gains, net
Equity security (gains) losses
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
Decrease (increase) in accrued interest receivable
(Decrease) increase in accrued interest payable
Earnings on bank-owned life insurance
Gain on sale of other assets
Non-cash compensation - equity awards
Other, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Maturities of certificates of deposit
Investment securities available for sale:
Proceeds from sale of investments
Proceeds from repayments and maturities
Purchases
Investment held to maturity:
Purchases
Equity securities:
Proceeds from sale of securities
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
5
5
Net cash provided by financing activities
Increase 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
Right of use assets and lease liability
See accompanying notes to consolidated financial statements.
$
$
$
6
2,267,500
(80,903 )
313,055
51,499,353
(51,277,394 )
(2,424,082 )
1,264,142
(666,073 )
(198,448 )
(512,129 )
(485,614 )
-
607,370
(837,756 )
7,508,308
390,000
(161,638 )
(232,874 )
44,070,616
(46,207,499 )
(1,171,428 )
1,210,994
(314,366 )
51,779
247,948
(473,054 )
(6,335 )
393,071
1,411,654
6,215,782
984,000
1,646,000
-
62,650,078
(60,320,838 )
9,694,054
30,612,964
(44,731,980 )
-
(250,000 )
-
(750,000 )
(78,709,100 )
(1,025,400 )
1,065,300
(9,723,327 )
-
(85,829,287 )
167,570,809
22,620,190
1,824,236
(17,196,674 )
(753,388 )
699,630
(184,042 )
(2,804,385 )
171,776,376
93,455,397
36,210,091
129,665,488 $
1,987,549
-
(49,504,658 )
(1,404,700 )
600,400
(2,532,174 )
35,918
(53,846,627 )
27,875,579
24,255,852
6,589,000
(4,584,707 )
(853,543 )
709,265
(333,843 )
(2,585,445 )
51,072,158
3,441,313
32,768,778
36,210,091
9,003,543 $
1,950,000
10,311,142
-
- $
149,739
36,000
4,989,184
20
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
21
KISH BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Nature of Operations and Basis of Presentation
Investment Securities (Continued)
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 subsidiaries, Tri-Valley Properties, LLC, Kish Agency, Inc., and Kish
Equities, LLC. 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. Kish Equities, LLC is a subsidiary established to hold investments in equity
securities.
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 significant 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.
Risks and Uncertainties
The impact of the COVID-19 pandemic is fluid and continues to evolve, adversely affecting many of the
Company’s customers. The pandemic and its associated impacts on trade, travel, employee productivity,
unemployment, and consumer spending has resulted in less economic activity and volatility and disruption
in the financial markets. The ultimate extent of the impact of the COVID-19 pandemic on the Company’s
business, financial condition, and results of operations is currently uncertain and will depend on various
developments and other factors, including, among others: the duration and scope of the pandemic;
governmental, regulatory, and private sector responses to the pandemic; and the associated impacts on the
economy, financial markets, and our customers, employees, and vendors. While the full effects of the
pandemic remain unknown, the Company is committed to supporting its customers, employees, and
communities during this difficult time.
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. Debt 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 as of December 31, 2020
and 2019. Interest and dividends on investment securities is recognized as income when earned.
Securities are evaluated at least on 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 fair 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 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.
Equity Securities
Equity securities are held at fair value. Holding gains and losses are recorded in noninterest income.
Dividends are recognized as income when earned.
Regulatory Stock
Common stock of the Federal Home Loan Bank (“FHLB”) of Pittsburgh represents ownership in an
institution that is 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 that management has the intent and ability to hold for the foreseeable future or until maturity or
payoff generally 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.
7
8
22
23
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
Allowance for Loan Losses (Continued)
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.
Allowance for Loan Losses
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 homogeneous 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. Leasehold improvements are depreciated over shorter of the term of the lease or useful life.
Expenditures for maintenance and repairs are charged against income as incurred. Costs of major additions
and improvements are capitalized.
Goodwill
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.
9
10
24
25
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Transfer of Assets
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 and restricted stock awards are adjusted in the denominator. Treasury shares are not deemed
outstanding for earnings per share calculations.
Stock Options
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
2020
2019
Expected
Dividend
Yield
3.94 %
3.04 %
Risk-Free
Interest Rate
0.47 %
2.50 %
Expected
Volatility
25.91 %
9.47 %
Expected
Life (in Years)
6.0
10.0
The weighted-average fair value of each stock option granted for 2020 and 2019 was $3.63 and $2.24,
respectively.
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, 2020 and 2019, the Company recorded gross servicing rights of
$426,527 and $485,562, respectively, with a reserve for impairment of $226,221 and $187,634,
respectively.
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.
Derivatives and Hedging Activities
The Company engages in a number of business activities that are vulnerable to interest rate risk. The
associated variability in cash flows related to interest rate risk may impact the results of operations of the
Company. The Company’s hedging objective is to reduce, to the extent possible, unpredictable cash flows
associated with interest rate risk, via approved hedging strategies, related to business strategies and
business objectives.
All derivatives are recorded on the Consolidated Balance Sheet at fair value. The accounting for changes
in the fair value of derivatives depends on whether the Company has elected to designate a derivative in a
hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the
criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the
exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular
risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a
hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions,
are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of
gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings
effect of the hedged forecasted transactions in a cash flow hedge.
Changes in the fair value of derivatives designated as fair value hedges are recorded in earnings, together
and in the same income statement line item with changes in the fair value of the related hedged item.
Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other
comprehensive income (loss) and are reclassified into the line item in the income statement in which the
hedged item is recorded and in the same period in which the hedged item affects earnings. Hedge
ineffectiveness and gains and losses on the excluded component of a derivative in assessing hedge
effectiveness are recorded in earnings.
11
12
26
27
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.
INVESTMENT SECURITIES
Revenue Recognition
The amortized cost, gross unrealized gains and losses, and fair value of investment securities are as follows:
The Company’s revenue is comprised of net interest income on financial assets and liabilities, which is
explicitly excluded from the scope of ASC 606, and noninterest income. Certain components of noninterest
income such as interest rate swap income, income from rabbi trust investments, trading securities gains,
gains on sales of mortgage loans, and gains on sales of securities available for sale are accounted for under
other U.S. GAAP standards, and are therefore out of scope of the ASC 606 revenue standard. Insurance
commissions, service charges on deposit accounts, debit card processing fees, and trust and investment
advisory fees are within the scope of the ASC 606 revenue standard. As such, the Company reviewed
contracts related to these revenue streams and there were not any material changes to revenue recognition
upon adoption.
2. EARNINGS PER SHARE
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.
2020
2019
Weighted-average common shares issued
2,697,500 2,697,500
Weighted-average treasury stock shares
(99,522 )
(112,861 )
Weighted-average unvested restricted stock awards
(82,595 )
(85,103 )
Basic weighted-average shares outstanding
2,515,383 2,499,536
Dilutive effect of outstanding restricted stock awards
37,365
44,138
Dilutive effect of outstanding stock options
23,407
49,605
Diluted weighted-average shares outstanding
2,576,155 2,593,279
For the year ended December 31, 2020, the Company has excluded from the computation of diluted
weighted-average shares the impact of 114,021 options to purchase shares of the Company’s common
stock and 850 shares of restricted stock, as the effect would have been anti-dilutive.
For the year ended December 31, 2019, the Company has excluded from the computation of diluted
weighted-average shares the impact of 41,058 options to purchase shares of the Company’s common stock,
as the effect would have been anti-dilutive.
Available for Sale:
Cost
Gains
Losses
Amortized Unrealized Unrealized
Fair
Value
Gross
2020
Gross
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 Available for Sale
$ 2,006,566 $
37,974 $
- $ 2,044,540
26,216,418
652,364
(9,135 )
26,859,647
44,701,805
1,187,094
13,209,467 282,784
(84,068 ) 45,804,831
(505 ) 13,491,746
38,545,580
(49,251 ) 39,836,282
$ 124,679,836 $ 3,500,169 $ (142,959 ) $ 128,037,046
1,339,953
Held to Maturity:
Corporate Securities
$ 11,023,499 $ 145,127 $
(10,191 ) $ 11,158,435
Gross
2019
Gross
Available for Sale:
Cost
Gains
Losses
Amortized Unrealized Unrealized
Fair
Value
$ 2,011,276 $
- $
(3,936 ) $ 2,007,340
45,750,235
173,682
(64,705 )
45,859,212
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 Available for Sale
31,878,494
196,940
15,381,522 212,511
(92,845 ) 31,982,589
(39,887 ) 15,554,146
35,854,180
172,080 (249,034 ) 35,777,226
$ 130,875,707 $ 755,213 $ (450,407 ) $ 131,180,513
Held to Maturity:
Corporate Securities
$ 7,250,000 $ 128,098 $
- $ 7,378,098
13
14
28
29
3.
INVESTMENT SECURITIES (Continued)
3.
INVESTMENT SECURITIES (Continued)
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, 2020 and 2019.
Less than Twelve
Months
2020
Twelve Months or
Greater
Total
Fair
Value
Gross
Unrealized Fair
Value
Losses
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Available for Sale:
U.S. government agency
securities
Obligations of states and
political subdivisions
Corporate securities
Mortgage-backed securities
in government-sponsored
entities
Total Available for Sale
Held to Maturity:
$ 6,152,860 $
(9,135 ) $
6,211,972
499,495
(84,068 )
(505 )
1,970,833
(49,251 )
$ 14,835,160 $ (142,959 ) $
Corporate Securities
$ 3,763,308 $
(10,191 ) $
- $
-
-
-
- $
- $
- $ 6,152,860 $
(9,135 )
- 6,211,972
- 499,495
(84,068 )
(505 )
- 1,970,833
(49,251 )
- $ 14,835,160 $ (142,959 )
- $ 3,763,308 $
(10,191 )
Less than Twelve
Months
2019
Twelve Months or
Greater
Total
Fair
Value
Gross
Unrealized Fair
Value
Losses
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
$ 2,007,340 $
(3,936 ) $
- $
- $ 2,007,340 $
(3,936 )
12,300,685
(55,361 ) 4,491,030
(9,344 ) 16,791,715
(64,705 )
5,198,142
525,295
(91,999 ) 459,319
(14,384 ) 1,463,330
(846 ) 5,657,461
(13,818 ) 1,988,625
(92,845 )
(28,202 )
16,984,833 (245,244 ) 836,110
$ 37,016,295 $ (410,924 ) $ 7,249,789 $
(3,790 ) 17,820,943 (249,034 )
(27,798 ) $ 44,266,084 $ (438,722 )
$
- $
- $ 738,315 $
(11,685 ) $ 738,315 $
(11,685 )
Available for Sale:
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 Available for Sale
Held to Maturity:
Corporate Securities
The Company had 20 investment securities, consisting of 4 U.S. government obligations and direct
obligations of U.S. government agencies, 9 obligations of states and political subdivisions, 6 different
corporate securities, and 1 mortgage-backed security that were in unrealized loss positions at December
31, 2020. 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 their amortized cost basis or
par value, which may be maturity, the Company does not consider those investments to be other-than-
temporarily impaired at December 31, 2020.
The amortized cost and fair value of debt securities at December 31, 2020, 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.
Available for Sale
Held to Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
$ 7,831,140 $ 7,900,475 $
- $
39,776,640
26,298,890
50,773,066
40,933,975
27,103,524
52,099,072
1,750,000
9,273,499
-
-
1,749,982
9,408,453
-
Total
$ 124,679,736 $ 128,037,046 $ 11,023,499 $ 11,158,435
Investment securities with a carrying value of $112,227,920 and $110,586,946 at December 31, 2020 and
2019, 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 and
calls of investment securities available for sale for the years ended December 31:
2020
2019
Proceeds from sales
Proceeds from calls
Gross gains
Gross losses
$
17,384,109
80,903
-
- $ 9,694,054
6,607,143
162,275
(637 )
Equity Securities
The Company recognized changes in fair value of equity securities in net equity securities gains (losses).
The following is a summary of unrealized and realized gains and losses recognized in net income on equity
securities during the years ended December 31, 2020 and December 31, 2019:
Net gains (losses) recognized in equity securities during the year
Less: Net gains realized on sale of equity securities during the year
Unrealized gains (losses) recognized in equity securities
2019
2020
$ (313,055 ) $ 232,874
230,053
2,821
$ (313,055 ) $
-
15
16
30
31
4. LOANS
4. LOANS (Continued)
Major classifications of loans are summarized as follows at December 31:
COVID-19 Loan Forbearance Programs (Continued)
Commercial real estate
Commercial and industrial
Agricultural
State and political subdivisions
Consumer
Residential real estate
Less allowance for loan losses
Net loans
2020
2019
$ 291,727,044 $ 249,990,170
100,376,943
126,181,773
30,829,832
27,608,446
36,726,830
41,967,923
6,909,273
5,628,425
262,185,148
272,617,345
687,018,196
765,730,956
9,770,563
7,499,402
$ 755,960,393 $ 679,518,794
Mortgage loans serviced by the Company for others amounted to $43,354,290 and $49,164,176 at
December 31, 2020 and 2019, 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, 2020 and 2019, a substantial portion of its debtors’ ability to
honor their loan agreements is dependent upon the economic stability of its immediate trade area.
Paycheck Protection Program
During 2020 the Company participated in the Paycheck Protection Program (“PPP”), administered directly
by the U.S. SBA. The PPP provides loans to small businesses who were affected by economic conditions
as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll
(including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on
existing debt during the COVID-19 emergency. As of December 31, 2020, the Company had outstanding
PPP loan principal balances of $43,367,158. The loans are fully guaranteed by the SBA and may be eligible
for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest
costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain
conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for
forgiveness by the SBA will be repaid by the SBA to the Company. PPP loans are included in the
Commercial and Industrial category.
In accordance with the SBA terms and conditions on these PPP loans, the Company received
approximately $3.2 million in fees associated with the processing of these loans. Upon funding of the
loans, these fees were deferred and amortized as earned as adjustments to yield in accordance with FASB
ASC 310-20-25-2. Deferred PPP fees of $827,099 are included in loans receivable at December 31, 2020.
COVID-19 Loan Forbearance Programs
Section 4013 of the CARES Act provides that banks may elect not to categorize a loan modification as a
TDR if the loan modification is (1) related to COVID-19; (2) executed on a loan that was not more than
30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A)
60 days after the date on which the national emergency concerning the novel coronavirus disease (COVID–
19) outbreak declared by the President on March 13, 2020, under the National Emergencies Act terminates,
or (B) December 31, 2020.
On April 7, 2020, federal banking regulators issued a revised interagency statement that included guidance
on their approach for the accounting of loan modifications in light of the economic impact of the COVID-
19 pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude
that a borrower is not experiencing financial difficulty if short-term modifications are made in response to
COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in
payment that are insignificant related to the loans in which the borrower is less than 30 days past due on
its contractual payments at the time a modification program is implemented.
According to the Interagency Statement on Loan Modifications and Reporting for Financial Institutions
Working with Customers Affected by the Coronavirus (Revised) issued by the federal bank regulatory
agencies on April 7, 2020, short-term loan modifications not otherwise eligible under Section 4013 that
are made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief
are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee
waivers, extensions of repayment terms, or other delays in payment that are insignificant.
During 2020, our customers requested loan payment deferrals or payments of interest only on 271 loans
with balances totaling approximately $121.0 million. As of December 31, 2020, 37 loans remain in deferral
status, with outstanding balances totaling approximately $28.2 million. In accordance with Section 4013
of the CARES Act and the interagency guidance issued on April 7, 2020, these short-term deferrals are not
considered troubled debt restructurings.
In addition, the risk-rating on COVID-19 modified loans did not change, and these loans will not be
considered past due until after the deferral period is over and scheduled payments resume. The credit
quality of these loans will be reevaluated after the deferral period ends.
Loans to Officers and Directors
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 years ended December 31, 20120 and 2019, is as follows:
Balance
Amounts Balance
Amounts
Balance
2018
Additions Collected
2019
Additions Collected
2020
$ 17,036,261 $ 7,790,420 $ (6,129,819 ) $ 18,696,862 $ 3,392,844 $ (13,568,549 ) $ 8,521,157
Loan amounts collected during 2020 includes $10,649,715 for six loans to an individual who is no longer
a director as of December 31, 2020.
17
18
32
33
5. ALLOWANCE FOR LOAN LOSSES
5. ALLOWANCE FOR LOAN LOSSES (Continued)
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 five-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.
The following qualitative factors are analyzed to determine allocations for non-classified loans for each
portfolio segment:
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 credit risk management
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 2020, the emergence of the novel coronavirus (“COVID-19”)
pandemic caused significant disruption to local and national economies, with adverse effects evident across
a wide range of industries, including banking and financial services. Management considered the broad
potential effects and financial uncertainties posed by the COVID-19 environment when assessing the
qualitative factors used in evaluating risk exposures within our loan pools. In response, during the second
quarter of 2020 management increased the qualitative factor related to “changes in economic and business
conditions” across all loan pools other than our loan pool representing loans to state and political
subdivisions. The largest factor increases were applied to the commercial real estate loan pool, reflecting
the downturn already evident in hotel and restaurant business. Factor increases were applied to the
commercial real estate loan pool as well as the commercial and industrial loan pool as local unemployment
rates began to show substantial increases, and in consideration of the loans collateralized by assets of
borrowers in the hospitality and real estate businesses, among others. Additionally, due to the wide-
ranging economic uncertainties resulting from the current COVID-19 environment, management
determined a general increase in loss reserves across the entire loan portfolio was appropriate. The
additional reserves will continue to be evaluated and allocated with respect to the specific loan pools as
the economic impacts by loan types becomes more apparent.
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.
Repayment of agricultural loans can also be impacted by fluctuations in commodity prices. 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. 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:
2020
Commercial
and
State and
Political
Commercial
Real Estate Industrial Agricultural Subdivisions Consumer Real Estate Unallocated Total
Residential
Allowance for
loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
$ 2,753,352 $ 1,434,140 $
(5,236 )
-
11,000
2,640
(276,343 )
1,544,922
517,523 $
-
-
(196,729 )
167,108 $ 71,358 $ 1,684,940 $
-
5,333
181,015
- (20,531 )
- 10,455
(4,128 )
23,846
870,981 $ 7,499,402
(25,767 )
29,428
994,917 2,267,500
-
-
Ending balance
$ 4,300,914 $ 1,163,561 $
320,794 $
190,954 $ 57,154 $ 1,871,288 $ 1,865,898 $ 9,770,563
Ending balance
individually
evaluated for
impairment
Ending balance
collectively
evaluated for
impairment
Loans:
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Ending balance
$
25,378 $
38,546 $
50,056 $
- $
2,742 $
36,803 $
- $
153,525
4,275,536 1,125,015
270,738
190,954 54,412 1,834,485 1,865,898 9,617,038
$ 4,300,914 $ 1,163,561 $
320,794 $
190,954 $ 57,154 $ 1,871,288 $ 1,865,898 $ 9,770,563
$
307,637 $
193,672 $
313,444 $
- $
2,742 $
658,170
$ 1,475,665
291,419,407 125,988,101 27,295,002 41,967,923 5,625,683 271,959,175
$ 291,727,044 $ 126,181,773 $ 27,608,446 $ 41,967,923 $ 5,628,425 $ 272,617,345
764,255,291
$ 765,730,956
19
20
34
35
5. ALLOWANCE FOR LOAN LOSSES (Continued)
5. ALLOWANCE FOR LOAN LOSSES (Continued)
$
31,593 $
14,823 $
59,233 $
- $
- $
29,221 $
- $
134,870
2020
Commercial
and
2019
State and
Political
Commercial
Real Estate Industrial Agricultural Subdivisions Consumer Real Estate Unallocated Total
Residential
Allowance for
loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
$ 2,659,259 $ 1,428,801 $
-
-
7,175
526,930
(1,836 )
(432,837 )
500,230 $
-
-
17,293
188,661 $ 96,537 $ 1,606,577 $
(5,333 )
1,685
82,011
- (71,764 )
8,299
-
(21,553 ) 38,286
162,345 $ 6,642,410
(77,097 )
544,089
390,000
-
-
708,636
Ending balance
$ 2,753,352 $ 1,434,140 $
517,523 $
167,108 $ 71,358 $ 1,684,940 $
870,981 $ 7,499,402
Ending balance
individually
evaluated for
impairment
Ending balance
collectively
evaluated for
impairment
Loans:
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Ending balance
2,721,759 1,419,317
458,290
167,108 71,358 1,655,719
870,981 7,364,532
$ 2,753,352 $ 1,434,140 $
517,523 $
167,108 $ 71,358 $ 1,684,940 $
870,981 $ 7,499,402
$
332,244 $
20,414 $
298,703 $
- $
- $
470,146
$ 1,121,507
249,657,926 100,356,529 30,531,129 36,726,830 6,909,273 261,715,002
$ 249,990,170 $ 100,376,943 $ 30,829,832 $ 36,726,830 $ 6,909,273 $ 262,185,148
685,896,689
$ 687,018,196
From 2019 to 2020, our reserve requirement by loan pool for Commercial Real Estate and Residential Real
Estate increased by approximately $1.5 million and $0.2 million, respectively, due to increases in
outstanding loan balances combined with managements’ decision to increases certain qualitative factors in
response to economic conditions evolving from the COVID-19 environment. Reserves for Agricultural
loans decreased by approximately $0.2 million, a net effect of decreased outstanding loan balances and an
increase applied to qualitative factors. Reserves for Commercial and Industrial loans decreased overall
during 2020 by approximately $0.3 million, a net effect of decreased balances of loans within the pool
other than PPP loans, and an increase applied to qualitative factors. The loan pool for Commercial and
Industrial includes outstanding PPP loans of approximately $43.4 million at December 31, 2020, for which
the qualitative risk factors used for calculating reserves are substantially lower due to the unique loan
principal forgiveness and SBA loan guarantee features of the PPP loan program.
Credit Quality Information
The following tables represent the commercial credit exposures by internally-assigned grades for the years
ended December 31, 2020 and 2019, 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.
Credit Quality Information (Continued)
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
and
State and
Political
Commercial
Real Estate Industrial Agricultural Subdivisions
Total
$ 285,972,827 $ 122,513,801 $ 27,133,299 $ 41,967,923 $ 477,587,850
- 2,976,440
1,553,853 1,422,587
- 6,642,190
4,182,555 2,082,635
278,706
-
162,750
$ 291,727,044 $ 126,181,773 $ 27,608,446 $ 41,967,923 $ 487,485,186
-
377,000
98,147
17,809
2019
Commercial
and
State and
Political
Commercial
Real Estate Industrial Agricultural Subdivisions
Total
$ 244,520,026 $ 88,229,710 $ 26,121,832 $ 36,726,830 $ 395,598,398
- 14,582,988
5,470,144 9,112,844
- 7,655,212
87,177
-
$ 249,990,170 $ 100,376,943 $ 30,829,832 $ 36,726,830 $ 417,923,775
-
- 3,019,566 4,635,646
72,354
-
14,823
Pass
Special Mention
Substandard
Doubtful
Total
Pass
Special Mention
Substandard
Doubtful
Total
21
22
36
37
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:
Consumer
2020
Residential
Real Estate
Total
Performing
Nonperforming
Total
$
$
5,628,425 $ 272,147,356 $ 277,775,781
469,989
5,628,425 $ 272,617,345 $ 278,245,770
469,989
-
Consumer
2019
Residential
Real Estate
Total
Performing
Nonperforming
Total
$
$
6,903,682 $ 261,962,106 $ 268,865,788
228,633
6,909,273 $ 262,185,148 $ 269,094,421
223,042
5,591
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:
2020
30-59
Days
Past Due Past Due Past Due Past Due Current
90 Days or
Greater
60-89
Days
Total
Total
Loans
90 Days
and
Accruing
$
- $ 107,880 $
17,809 $ 125,689 $ 291,601,355 $ 291,727,044 $
-
375,747
61,561
165,288
602,596
125,579,177
126,181,773
-
-
98,147
98,147 27,510,299 27,608,446
2,538
-
-
7,326
-
-
71,751 225,109 786,727 1,083,587 271,533,758 272,617,345 469,989
$ 454,824 $ 394,550 $ 1,070,713 $ 1,920,087 $ 763,810,869 $ 765,730,956 $ 472,527
- 41,967,923 41,967,923
10,068 5,618,357 5,628,425
-
2,742
-
-
Commercial real estate
Commercial and
industrial
Agricultural
State and political
subdivisions
Consumer
Residential real estate
Total
30-59
Days
Past Due Past Due Past Due Past Due Current
90 Days or
Greater
60-89
Days
Total
Total
Loans
90 Days
and
Accruing
2019
Commercial real estate
Commercial and
industrial
Agricultural
State and political
subdivisions
Consumer
Residential real estate
Total
$
- $
6,058 $
- $
6,058 $ 249,984,112 $ 249,990,170 $
836
369,245
349,276
-
14,823
72,354 421,630 30,408,202 30,829,832
100,376,943
99,992,039
384,904
-
11,434
- 36,726,830 36,726,830
17,025 6,892,248 6,909,273
701,037 11,907 223,042 935,986 261,249,162 262,185,148
$ 1,062,583 $ 387,210 $ 315,810 $ 1,765,603 $ 685,252,593 $ 687,018,196 $
-
5,591
-
-
-
-
-
-
-
-
-
Consumer mortgage loans held by the Company in the process of foreclosure amounted to $287,307 as of
December 31, 2020.
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.
23
24
38
39
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:
2020
Unpaid
Recorded Principal Related
Investment Balance
Average
Recorded
Interest
Income
Allowance Investment Recognized
With no related allowance
recorded:
Commercial real estate
Commercial and
industrial
Agricultural
State and political
subdivisions
Consumer
Residential real estate
With an allowance recorded:
Commercial real estate
Commercial and
industrial
Agricultural
State and political
subdivisions
Consumer
Residential real estate
Total:
Commercial real estate
Commercial and
industrial
Agricultural
State and political
subdivisions
Consumer
Residential real estate
$
17,809 $
17,809 $
- $
15,745 $
152,641
152,641
72,662
72,662
-
-
126,983
6,055
-
-
-
-
-
406,999
-
-
406,999
-
-
-
-
-
348,900
-
-
9,712
650,111
650,111
-
497,683
9,712
289,828
289,828
25,378
309,394
19,032
41,031
240,782
41,031
240,782
38,546
50,056
46,721
280,410
1,521
11,236
-
2,742
251,171
-
2,742
251,171
-
2,742
36,803
-
4,600
198,358
-
-
10,162
825,554
825,554
153,525
839,483
41,951
307,637
307,637
25,378
325,139
19,032
193,672
313,444
193,672
313,444
38,546
50,056
173,704
286,465
1,521
11,236
-
2,742
658,170
-
2,742
658,170
-
2,742
36,803
-
4,600
547,258
-
-
19,874
Unpaid
Recorded Principal Related
Investment Balance
Average
Recorded
Interest
Income
Allowance Investment Recognized
2019
$
- $
- $
- $
432,900 $
-
5,591
35,432
5,591
35,432
-
-
32,230
44,622
-
-
296,741
-
-
296,741
-
-
-
-
466
259,129
-
2,475
-
-
4,164
337,764
337,764
-
769,347
6,639
332,244
332,244
31,593
243,942
21,159
14,823
263,271
14,823
263,271
14,823
59,233
6,984
258,393
-
14,620
-
-
173,405
-
-
173,405
-
-
29,221
-
793
188,320
-
-
10,024
783,743
783,743
134,870
698,432
45,803
332,244
332,244
31,593
676,842
21,159
20,414
298,703
20,414
298,703
14,823
59,233
39,214
303,015
-
17,095
-
-
470,146
-
-
470,146
-
-
29,221
-
1,259
447,449
-
-
14,188
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
Total
$ 1,121,507 $ 1,121,507 $
134,870 $ 1,467,779 $
52,442
Total
$ 1,475,665 $ 1,475,665 $
153,525 $ 1,337,166 $
51,663
25
26
40
41
5. ALLOWANCE FOR LOAN LOSSES (Continued)
6.
PREMISES AND EQUIPMENT
Nonaccrual Loans
Major classifications of premises and equipment are summarized as follows:
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.
Interest income that would have been recorded on nonaccrual loans in accordance with their original terms
totaled approximately $40,600 in 2020 and $23,000 in 2019.
The following table includes the loan balances on nonaccrual status as of December 31:
Commercial real estate
Commercial and industrial
Agricultural
Consumer
Residential real estate
Total
Troubled Debt Restructuring (TDR’s)
2019
2020
$ 17,809 $
162,750
98,147
2,742
-
14,823
72,354
5,591
316,738 223,042
$ 598,186 $ 315,810
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. If management determines that the value of the modified loan is less than the recorded
investment in the loan, impairment is recognized either through a charge-off to the allowance or a specific
reserve. As of December 31, 2020 and 2019, specific reserve allocations of $107,860 and $83,124,
respectively, had been established against the troubled debt restructurings and no charge-offs for the
troubled debt restructurings were required.
There were no loans modified in a troubled debt restructuring from January 1, 2018 through December 31,
2019, that subsequently defaulted (i.e., 90 days or more past due following a modification) during the years
ended December 31, 2020 and 2019, respectively.
Loan modifications considered troubled debt restructurings completed during the year ended December
31, 2020 consist of one commercial loan and one residential real estate loan. The Company’s outstanding
recorded investment in the loans at the time of the restructuring was $30,922 and $108,688, for the
commercial loan and the real estate loan, respectively. The Company’s outstanding recorded investment
amount in these loans was not changed by the TDR modifications. There were no loan modifications that
were considered troubled debt restructurings during the year ended 2019.
27
Land and land improvements
Buildings and leasehold improvements
Buildings - construction in progress
Furniture, fixtures, and equipment
Less accumulated depreciation
Total
2020
2019
$ 2,394,918 $ 2,394,918
19,334,135 18,548,238
9,882,297 1,745,185
8,541,569 7,741,252
40,152,919 30,429,593
15,884,213 14,794,107
$ 24,268,706 $ 15,635,486
Depreciation charged to operations was $1,090,106 in 2020 and $1,085,331 in 2019.
7. GOODWILL
As of December 31, 2020 and 2019, goodwill had a gross carrying amount of $4,174,955 and $2,457,712,
respectively, and accumulated amortization of $614,013 for a net carrying value of $3,560,942 and
$1,843,699, respectively. The carrying amount of goodwill was reduced by $300,000 during 2019 to offset
and eliminate a related liability balance of $262,498, which was included in Accrued Interest and Other
Liabilities at December 31, 2018, and increased 2019 non-cash compensation expense by $37,502. The
reclasses reflect an amendment drafted during 2019 to clarify the terms of a restricted stock award issued
in conjunction with the acquisition of Benefit Management Group in December 2017, and include the
award with all other outstanding restricted stock awards representing incentive compensation awards
issued by the Company for future employee services during the period the awards are subject to restriction.
The carrying amount of goodwill was tested for impairment in the fourth quarter, after the annual
forecasting process. There was no impairment for the years ended December 31, 2020 and 2019.
Insurance Agency Acquisition
During 2020 the Company completed the acquisition of a property and casualty insurance agency located
in Juniata County. The acquisition included the current book of business, assets and liabilities of the
agency, and the real estate where the agency office is located. Goodwill increased by $1,717,243 during
2020, representing the residual of the acquisition price of the agency after allocation of the purchase price
to identified assets and assumed liabilities.
8. DEPOSITS
The scheduled maturities of time deposits approximate the following:
Year Ending
December 31,
2021
2022
2023
2024
2025
Thereafter
Amount
159,089,556
69,275,996
14,028,113
4,883,432
2,954,444
1,378,246
251,609,787
$
$
28
42
43
8. DEPOSITS (Continued)
10. OTHER BORROWINGS (Continued)
The aggregate of all time deposit accounts of $250,000 or more amounted to $52,704,946 and $71,658,616
at December 31, 2020 and 2019, respectively. There were no brokered deposits as of December 31, 2020.
As of December 31, 2020, there were no individual depositors representing over 5% of total deposits.
9.
SHORT-TERM BORROWINGS
Short-term borrowings include overnight repurchase agreements through the FHLB, federal funds
purchased, and repurchase agreements with customers. 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
2020
2019
$ 69,360,211 $ 46,740,021
62,163,630 41,837,265
69,390,211 47,937,322
0.45 %
0.17 %
1.95 %
0.25 %
The collateral pledged on the repurchase agreements by the remaining contractual maturity of the
repurchase agreements in the Consolidated Balance Sheet as of years ended December 31, 2020 and 2019,
is presented in the following table.
Remaining
Contractual Maturity
Overnight and Continuous
December 31, December 31,
2020
2019
Securities of U.S. Government Agencies, U.S. Treasuries, and
obligations of state and political subdivisions pledged, fair value $
Repurchase agreements
4,116,853 $
1,151,378
5,310,216
1,060,022
10. OTHER BORROWINGS
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
To
From
Weighted-
Average
Interest
Rate
Stated Interest
Rate Range
To
From
At December 31,
2020
2019
01/13/21 08/04/26
02/03/21 07/15/24
05/10/21 05/10/21
2.19 %
1.68
2.75
1.40 %
1.33
2.75
2.68 % $ 37,534,000 $ 53,075,499
7,612,749
1.96
3,135,000
2.75
5,356,810
3,135,000
08/25/24 03/03/26
03/17/35 11/23/35
4.97
1.97
4.75
1.71
5.25
2.23
12,445,000
6,186,000
10,020,000
6,186,000
$ 64,656,810 $ 80,029,248
Maturities of other borrowings at December 31, 2020, are summarized as follows:
Year Ending
December 31,
2021
2022
2023
2024
2025
2026 and after
$
$
Amount
11,033,424
12,916,000
11,420,601
13,068,785
3,359,000
12,859,000
64,656,810
Weighted-
Average Rate
2.07 %
1.69
2.10
3.60
2.50
3.39
2.59
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, 2020, the Bank’s maximum borrowing capacity with the FHLB was
approximately $363.3 million.
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, 2020 is approximately $90.5
million.
The Bank also maintains a $10.0 million, $10.0 million, and $5.0 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, 2020.
In 2014, 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.
In 2015, 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 had a fixed
rate of 6.11 percent until November 23, 2015, at which time the rate converted to floating, 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.
In 2014, the Company issued $3,620,000 of fixed rate subordinated capital notes 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, with a current balance of $1,770,000, are included in the liabilities section of the Company’s
Consolidated Balance Sheet.
29
30
44
45
10. OTHER BORROWINGS (Continued)
11. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
In 2015, the Company issued $6,500,000 of fixed rate subordinated capital notes with stated maturities of
September 22, 2025 through March 3, 2026. The fixed securities bear an annual rate of 5.25 percent. The
Company may redeem them, in whole or in part, at face value on or after September 22, 2020. These
borrowings, with a current balance of $5,550,000, are included in the liabilities section of the Company’s
Consolidated Balance Sheet.
In 2020, the Company issued $5,125,000 of fixed rate subordinated capital notes with stated maturities of
June 23, 2030 through December 30, 2030. 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 June 23, 2025. These borrowings
are 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.
11. DERIVATIVE FINANCIAL INSTRUMENTS
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic
conditions. The Company principally manages its exposures to a wide variety of business and operational
risks through management of its core business activities. The Company manages economic risks, including
interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets
and liabilities and through the use of derivative financial instruments. Specifically, the Company enters
into derivative financial instruments to manage exposures that arise from business activities that result in
the receipt or payment of future known and uncertain cash amounts, the value of which are determined by
interest rates. The Company’s derivative financial instruments are used to manage differences in the
amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected
cash payments principally related to certain variable rate borrowings. The Company also has interest rate
derivatives that result from a service provided to certain qualifying customers and, therefore, are not used
to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book
with respect to its derivative instruments in order to minimize its net risk exposure resulting from such
transactions.
The Company has contracted with a third party to engage pay-fixed interest rate swap contracts and the
outstanding as of December 31, 2020, is being utilized to hedge $65.0 million in floating rate debt. At
December 31, 2020 and 2019, the information pertaining to outstanding interest rate swap agreements is
as follows:
Notional amount
Weighted-average pay rate
Receive rate
Weighted-average maturity in years
Unrealized loss relating to interest rate swaps
2020
2019
$ 120,518,422
$ 69,316,000
2.99 %
3.26 %
1 or 3-Month
Libor
6.5
1 or 3-Month
Libor
6.3
(4,634,000 )
(1,588,991 )
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest income and
expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company
has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate
swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a
counterparty in exchange for the Company making fixed interest payments. As of December 31, 2020, the
Company had six interest rate swaps with a notional of $65.0 million associated with the Company’s cash
outflows associated with various floating-rate amounts.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the
derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and
subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective
portion of changes in the fair value of the derivative is recognized directly in earnings. The Company
assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the
derivative hedging instrument with the changes in cash flows of the designated hedged transactions. The
Company did not recognize any hedge ineffectiveness in earnings during the period ended December 31,
2020. Amounts reported in accumulated other comprehensive income related to derivatives will be
reclassified to interest expense as interest payments are made on the Company’s variable-rate liabilities.
During the next twelve months, the Company estimates that $0 will be reclassified as an increase in interest
expense.
Credit-Risk-Related Contingent Features
The Company has agreements with certain of its derivative counterparties that contain the following
provisions:
if the Company defaults on any of its indebtedness, including default where repayment of the
indebtedness has not been accelerated by the lender, then the Company could also be declared in
default on its derivative obligations;
if the Company fails to maintain its status as a well/adequately capitalized institution, then the
counterparty could terminate the derivative positions, and the Company would be required to settle its
obligations under the agreements;
if the Company fails to maintain a specified minimum leverage ratio, then the Company could be
declared in default on its derivative obligations.
At December 31, 2020, the fair value of derivatives in a net liability position, which includes accrued
interest and any credit valuation adjustments related to these agreements, was $4,634,600. At
December 31, 2020, the Company had required cash collateral with certain of its derivative counterparties
in the amount of $9,960,772 and was not holding cash collateral of certain derivative counterparties. If the
Company had breached any of the above provisions at December 31, 2020, it would have been required to
settle its obligations under the agreements at termination value and would have been required to pay any
additional amounts due in excess of amounts previously posted as collateral with the respective
counterparty.
31
32
46
47
11. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
11. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
Fair Values of Derivative Instruments on the Balance Sheet
Derivative Instruments (Continued)
The following table presents the fair values of derivative instruments in the balance sheet:
Assets
Liabilities
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Other assets
$
5,074,982 Other liabilities $
(9,709,582 )
Other assets
$
1,805,370 Other liabilities $
(3,394,361 )
December 31, 2020
Interest rate derivatives
December 31, 2019
Interest rate derivatives
Derivative Instruments
The Company enters into interest rate swaps that allow our commercial loan customers to effectively
convert a variable-rate commercial loan agreement to a fixed-rate loan agreement. Under these agreements,
the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap
agreement, which serves to effectively swap the customer’s variable-rate into a fixed-rate. The Company
then enters into a swap agreement with a third party in order to economically hedge its exposure through
the customer agreement.
Although the Company has determined that the majority of the inputs used to value its derivatives fall
within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives
may use Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by
itself and its counterparties. However, at December 31, 2020, the Company has assessed the significance
of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has
determined they are not significant. As a result, the Company has determined that its derivative valuations
in their entirety are classified in Level 2 of the fair value hierarchy.
Notional Amount
December 31,
2020
2019
Cash flow interest rate swap
Maturing in 2024
Maturing in 2025
Maturing in 2026
Maturing in 2027
Maturing in 2030
$ 6,000,000 $ 6,000,000
22,000,000 14,000,000
22,000,000 14,000,000
10,000,000 10,000,000
-
5,000,000
Interest
Rate
Paid
Fixed
Fixed
Fixed
Fixed
Fixed
Interest
Rate
Received
Fair Value
December 31,
2020
2019
3 Mo. Libor
3 Mo. Libor
3 Mo. Libor
3 Mo. Libor
3 Mo. Libor
$ (354,829 ) $
(79,454 )
(1,330,524 ) (508,940 )
(1,728,609 ) (694,322 )
(1,039,595 ) (306,275 )
-
(181,043 )
$ 65,000,000 $ 44,000,000
$ (4,634,600 ) $ (1,588,991 )
Customer interest rate swap
Maturing in 2025
Maturing in 2026
Maturing in 2027
Maturing in 2029
Maturing in 2030
Maturing in 2031
Maturing in 2035
1 Mo. Libor + Margin
972,564
$ 9,100,000 $ 9,100,000
9,266,000 9,266,000
-
10,379,025 4,950,000
19,629,449 2,000,000
-
2,500,000
-
3,671,384
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
7,303
$ 1,051,004 $ 618,947
1,364,263 858,291
-
1,010,039 298,610
29,522
1,616,774
-
44,509
-
(18,910 )
$ 55,518,422 $ 25,316,000
$ 5,074,982 $ 1,805,370
Third party interest rate swap
Maturing in 2025
Maturing in 2026
Maturing in 2027
Maturing in 2029
Maturing in 2030
Maturing in 2031
Maturing in 2035
972,564
$ 9,100,000 $ 9,100,000
9,266,000 9,266,000
-
10,379,025 4,950,000
19,629,449 2,000,000
-
2,500,000
-
3,671,384
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
1 Mo. Libor + Margin $ (1,051,004 ) $ (618,947 )
1 Mo. Libor + Margin (1,364,263 ) (858,291 )
1 Mo. Libor + Margin
-
1 Mo. Libor + Margin (1,010,039 ) (298,610 )
(29,522 )
1 Mo. Libor + Margin (1,616,774 )
-
(44,509 )
1 Mo. Libor + Margin
-
18,910
1 Mo. Libor + Margin
(7,303 )
$ 55,518,422 $ 25,316,000
$ (5,074,982 ) $ (1,805,370 )
12.
INCOME TAXES
The provision for federal income taxes consists of:
Current
Deferred
$
2020
1,905,671 $
(666,073 )
2019
1,210,904
(314,366 )
Total provision
$
1,239,598 $
896,538
33
34
48
49
12.
INCOME TAXES (Continued)
12.
INCOME TAXES (Continued)
The tax effects of deductible and taxable temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 are as follows:
Deferred tax assets:
$
Allowance for loan losses
Deferred compensation
Core deposit intangible assets
Asset valuation allowances
Employee compensation accruals
Nonaccrual interest receivable
Unrealized loss on swaps - balance sheet hedge
Fair value adjustment - equity securities
Lease liability
Other
Deferred tax assets
Deferred tax liabilities:
Premises and equipment
Goodwill
Deferred loan fees
Partnerships
Unrealized gain on available-for-sale securities
Fair value adjustment - equity securities
Deferred gain - intercompany transaction
Right of use asset
Other
Deferred tax liabilities
2020
2019
2,051,818 $
370,849
17,159
88,091
363,688
10,233
973,266
22,765
979,312
1,174
4,878,355
605,522
369,342
80,213
48,058
705,015
-
99,465
967,121
3,346
2,878,082
1,574,874
300,076
17,159
79,988
317,360
4,842
333,688
-
998,852
1,175
3,628,014
528,015
345,281
80,448
135,423
64,010
42,977
99,465
993,421
3,346
2,292,386
Net deferred tax assets
$
2,000,273 $
1,335,628
No valuation allowance was established at December 31, 2020 and 2019, 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 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 2016 have been closed for purposes of examination by the
Internal Revenue Service and the Pennsylvania Department of Revenue.
13. 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 $445,991 and $409,077 for the years ended December 31, 2020 and 2019,
respectively. The fair value of plan assets includes $2,374,480 and $2,373,014 pertaining to the value of
the Company’s common stock that is held by the plan as of December 31, 2020 and 2019, 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 as of December 31, 2020 and 2019
were $1,765,947 and $1,428,933, respectively, and are reported as “Other liabilities” on the Consolidated
Balance Sheet. Expenses related to this plan were $200,445 and $244,630 for the years ended December
31, 2020 and 2019, respectively.
The reconciliation between the federal statutory rate and the Company’s effective consolidated income tax
rate is as follows:
Restricted Stock Plan
Provision at statutory rate
Tax-exempt interest
Life insurance income
Other
Income tax expense and
effective rate
2020
% of
Pretax
2019
% of
Pretax
Amount
$ 1,948,566
(366,767 )
(64,568 )
(277,633 )
Income
21.0 %
(4.0 )
(0.7 )
(3.0 )
Amount
$ 1,659,725
(431,528 )
(72,566 )
(259,093 )
Income
21.0 %
(5.5 )
(0.9 )
(3.3 )
$ 1,239,598
13.3 %
$ 896,538
9.6 %
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. Since inception of
the Plan in 1988, the Company has authorized share pools totaling 480,000 shares of the Company’s
common stock to the plan. The Plan has a remaining available share pool of 226,565 shares and 4,808
shares as of December 31, 2020 and 2019, respectively. 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.
35
36
50
51
13. EMPLOYEE BENEFITS (Continued)
Restricted Stock Plan (Continued)
Compensation expense recognized related to restricted stock awards was $518,842 and $361,590 for the
years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, unrecognized
compensation cost related to restricted stock awards was $1,121,624, which is expected to be recognized
over a weighted average life of 2.93 years.
The following is a summary of the status of the Company’s outstanding restricted stock awards as of
December 31, 2020 and 2019, and changes therein during the years then ended:
Shares of
Restricted
Stock
Outstanding
Weighted-
Average
Grant Date
Fair Value
Outstanding at December 31, 2018
Granted
Released from Restrictions
Forfeited
Outstanding at December 31, 2019
Granted
Released from Restrictions
Forfeited
Outstanding at December 31, 2020
84,258 $
15,805
(16,829 )
(1,314 )
81,920
18,458
(19,059 )
(215 )
81,104 $
24.03
31.57
20.79
24.95
26.13
25.94
21.80
29.20
27.10
Stock Option Plan
The Company has a stock option plan available for granting stock-based compensation awards to
employees and board members. The Company authorized a share pool of 760,000 shares of the Company’s
common stock for granting incentive stock options and non-qualified stock option awards. The stock
option plan has a remaining available share pool of 185,509 and 224,913 shares as of December 31, 2020
and 2019, respectively. 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. Compensation expense recognized related to
stock option awards was $88,528 and $68,983 for the years ended December 31, 2020 and 2019,
respectively. As of December 31, 2020, unrecognized compensation cost related to stock option awards
was $360,882, which is expected to be recognized over a weighted-average life of 2.0 years.
13. EMPLOYEE BENEFITS (Continued)
Stock Option Plan (Continued)
The following table presents share data related to the outstanding option awards:
Incentive Stock Options
Weighted-
Average
Exercise
Price
Options
Outstanding
116,344 $
36,250
(19,651 )
(4,174 )
128,769
32,893
(15,438 )
(666 )
22.63
31.62
17.19
28.93
25.79
26.03
19.80
29.23
Outstanding, January 1, 2019
Granted
Exercised
Forfeited/Expired
Outstanding, December 31, 2019
Granted
Exercised
Forfeited/Expired
Non-Qualified Stock
Options
Weighted-
Average
Exercise
Price
20.38
31.60
17.86
26.27
21.73
25.96
19.32
28.15
Options
Outstanding
92,930 $
5,580
(19,896 )
(1,389 )
77,225
8,312
(14,988 )
(1,135 )
Outstanding, December 31, 2020
145,558 $
26.46
69,414 $
22.65
Exercisable at December 31, 2020
78,746 $
24.68
57,598 $
21.60
37
38
52
53
13. EMPLOYEE BENEFITS (Continued)
Stock Option Plan (Continued)
Option awards outstanding and exercisable as of December 31, 2020:
Incentive Stock Options
Expiration
Date
Exercise
Price
Share
Awards
Outstanding
Share
Awards
Exercisable
Remaining
Contractual
Life (years)
$
04/28/21
04/02/22
04/01/23
04/01/24
09/22/24
04/01/25
03/30/26
10/31/26
12/12/26
04/03/27
04/02/28
03/01/29
04/01/29
04/03/30
12/01/30
14.88
15.00
16.63
18.25
19.75
19.48
22.00
22.40
22.38
27.00
29.63
32.00
31.60
25.65
30.00
1,800
4,000
6,980
3,582
500
7,468
9,700
1,000
1,000
10,185
31,200
1,500
33,750
29,993
2,900
145,558
1,800
4,000
6,980
3,582
500
7,468
9,700
1,000
1,000
10,185
20,791
500
11,240
-
-
78,746
0.32
1.25
2.25
3.25
3.73
4.25
5.24
5.83
5.95
6.25
7.25
8.16
8.25
9.25
9.92
Non-Qualified Stock Options
Expiration
Date
Exercise
Price
Share
Awards
Outstanding
Share
Awards
Exercisable
Remaining
Contractual
Life (years)
$
04/28/21
08/22/21
09/30/21
04/02/22
04/01/23
04/01/24
09/22/24
04/01/25
03/30/26
10/31/26
12/12/26
04/03/27
04/02/28
04/01/29
04/03/30
10/28/30
14.88
31.60
27.00
15.00
16.63
18.25
19.75
19.48
22.00
22.40
22.38
27.00
29.63
31.60
25.65
28.25
1,800
443
350
5,000
5,980
4,182
500
8,704
12,906
1,000
1,000
12,477
1,596
1,660
-
-
57,598
0.32
0.64
0.75
1.25
2.25
3.25
3.73
4.25
5.24
5.83
5.95
6.25
7.25
8.25
9.25
9.82
1,800
443
350
5,000
5,980
4,182
500
8,704
12,906
1,000
1,000
12,477
2,400
4,980
6,692
1,000
69,414
39
14. COMMITMENTS
In the normal course of business, there are outstanding commitments and contingent liabilities such as
commitments to extend credit, financial guarantees, and letters of credit that are not reflected in the
accompanying consolidated financial statements. The Company does not anticipate any losses as a result
of these transactions. These instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the Consolidated Balance Sheet.
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
2020
2019
$ 202,620,543 $ 172,809,626
5,408,070
5,365,456
$ 207,985,999 $ 178,217,696
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.
Lease Commitments
The Company leases office space and real estate for its bank branches with terms ranging from two years
to eighteen years. The Company’s leases are classified as operating leases, and, therefore, were not
recognized on the Company’s consolidated balance sheet prior to the adoption of the revised lease standard,
ASC 842. With the adoption of ASC 842, operating lease agreements are required to be recognized on the
consolidated balance sheet as a right-of-use (ROU) asset and a corresponding lease liability. A combined
ROU asset balance of $4,605,388 and $4,730,575 related to these operating leases is included in Accrued
Interest and Other Assets on the consolidated balance sheet as of December 31, 2020 and 2019,
respectively. A combined lease liability of $4,663,391 and $4,756,436 related to these operating leases is
included in Accrued Interest and Other Liabilities on the consolidated balance sheet as of December 31,
2020 and 2019, respectively.
40
54
55
14. COMMITMENTS (Continued)
Lease Commitments (Continued)
Maturities of our lease liabilities for all operating leases for each of the next five years and thereafter are
as follows:
$
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
Present value of lease liabilities $
Operating Lease
Payments
399,275
392,220
401,294
410,370
387,309
4,055,701
6,046,169
1,382,778
4,663,391
The calculated amount of the lease liability in the preceding table is impacted by the length of the lease
term and the discount rate used to present value the minimum lease payments. The Company’s lease
agreement includes one or more options to renew at the Company’s discretion. If at lease inception the
Company considers the exercising of a renewal option to be reasonably certain, the Company will include
the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic
842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As most of
our leases do not provide an implicit rate, we use the fully collateralized FHLB borrowing rate,
commensurate with the lease terms based on the information available at the lease commencement date in
determining the present value of the lease payments.
Our combined operating leases have a weighted-average discount rate of 3.31% and 3.63%, and a
weighted-average remaining lease term of 15.4 years and 16.2 years as of December 31, 2020 and 2019,
respectively.
Contingent Liabilities
The Company from time to time may be a party in various legal actions from the normal course of business
activities. Management believes the liability, if any, arising from such actions will not have a material
adverse effect on the Company’s financial position.
15. 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, 2020 and 2019 was $0 and $2,832,000, 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. There were no such borrowings by the Company during 2020 and 2019.
15. REGULATORY RESTRICTIONS (Continued)
Dividends
The Pennsylvania Banking Code restricts the availability of capital surplus for dividend purposes. At
December 31, 2020, the Bank had a capital surplus of $5,723,535 which was not available for distribution
to the Company as dividends.
16. 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 Tier I and
Common Equity Tier 1 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, 2020 and 2019, 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, Common Equity Tier I, Tier I risk-based, and Tier I leverage capital
ratios must be at least 10 percent, 6.50 percent, 8 percent, and 5 percent, respectively.
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
Common Equity Tier I
(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
2020
2019
Amount
Ratio
Amount
Ratio
$ 95,279,053 12.32 %
61,874,268
8.00
77,342,835 10.00
$ 86,899,041 11.86 %
58,626,829
8.00
73,283,536 10.00
$ 68,158,230
34,804,276
50,272,842
8.81 %
4.50
6.50
$ 63,910,378
32,977,591
47,634,299
8.72 %
4.50
6.50
$ 74,158,230
46,405,701
61,874,268
9.59 %
6.00
8.00
$ 69,910,378
43,970,122
58,626,829
9.54 %
6.00
8.00
$ 74,158,230
42,342,062
52,927,578
7.01 %
4.00
5.00
$ 69,910,378
36,607,111
45,758,888
7.64 %
4.00
5.00
41
42
56
57
16. REGULATORY CAPITAL (Continued)
17. FAIR VALUE MEASUREMENTS (Continued)
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
Common Equity Tier I
(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
2020
2019
Amount
Ratio
Amount
Ratio
$ 94,267,202 12.17 %
61,988,287
8.00
77,485,359 10.00
$ 86,800,059 11.80 %
58,853,023
8.00
73,566,278 10.00
$ 84,303,378 10.88 %
4.50
34,868,411
6.50
50,365,483
$ 79,107,396 10.75 %
4.50
33,104,825
6.50
47,818,081
$ 84,303,378 10.88 %
6.00
46,491,215
8.00
61,988,287
$ 79,107,396 10.75 %
6.00
44,139,767
8.00
58,853,023
$ 84,303,378
42,296,429
52,870,536
7.97 %
4.00
5.00
$ 79,107,396
36,526,539
45,658,174
8.66 %
4.00
5.00
17. FAIR VALUE MEASUREMENTS
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:
Level II:
Quoted prices are available in active markets for identical assets or liabilities as of the
reported date.
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 and liabilities reported on the Consolidated Balance Sheet at their
fair value on a recurring basis as of December 31, 2020 and 2019, 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.
Level I
Level II
Level III
Total
December 31, 2020
Investment and equity securities at fair value:
$
U.S. treasury securities
U.S. government agency securities
Obligations of states and
political subdivisions
Corporate securities
Mortgage-backed securities in
government-sponsored entities
Equity securities
- $ 2,044,540 $
- 26,859,647
- $ 2,044,540
- 26,859,647
-
45,804,831
- 13,491,746
-
45,804,831
- 13,491,746
-
39,836,282
2,132,287
-
-
39,836,282
- 2,132,287
Total
$ 2,132,287 $ 128,037,046 $
- $ 130,169,333
Derivatives at fair value: (1)
Assets
Liabilities
$
$
- $ 5,074,982 $
- $ (9,775,453 ) $
- $ 5,074,982
- $ (9,775,453 )
Level I
Level II
Level III
Total
December 31, 2019
Investment and equity securities at fair value:
$
U.S. treasury securities
U.S. government agency securities
Obligations of states and
political subdivisions
Corporate securities
Mortgage-backed securities in
government-sponsored entities
Equity securities
- $ 2,007,340 $
- 45,859,212
- $ 2,007,340
- 45,859,212
31,982,589
-
- 15,554,146
31,982,589
-
- 15,554,146
-
35,777,226
1,695,342
-
-
35,777,226
- 1,695,342
Total
$ 1,695,342 $ 131,180,513 $
- $ 132,875,855
Derivatives at fair value: (1)
Assets
Liabilities
$
$
- $ 1,805,370 $
- $ (3,391,549 ) $
- $ 1,805,370
- $ (3,391,549 )
(1) Derivative assets and liabilities at fair value are included in our Consolidated Balance Sheet in
Accrued interest and other assets and Accrued interest and other liabilities, respectively.
Investment Securities
The fair market 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
value for certain held to maturity securities were determined utilizing discounted cash flow models, due to
the absence of a current market to provide reliable market quotes for the instruments.
43
44
58
59
17. FAIR VALUE MEASUREMENTS (Continued)
17. FAIR VALUE MEASUREMENTS (Continued)
Impaired Loans
The Company has measured impairment on loans generally based on the fair value of the loan’s collateral
on a non-recurring basis. Fair value is generally determined based upon independent third-party appraisals
of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal,
changes in market conditions, or observable deterioration of the property since the appraisal was
completed. Additionally, management makes estimates about expected costs to sell the property which are
also included in the net realizable value. If the fair value of the collateral dependent loan is less than the
carrying amount of the loan, a specific reserve for the loan is made in the allowance for loan losses, or a
charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and
the loan is included in the table above as a Level III measurement.
Derivatives
Derivative instruments are recorded at fair value based upon commercially reasonable industry and market
practices for valuing similar financial instruments. Certain inputs to the credit valuation models may be
based on assumptions and best estimates that are not readily observable in the marketplace. Valuations do
not reflect trading costs or counterparty charges that could apply if positions are terminated.
Mortgage Servicing Rights
Mortgage servicing rights are accounted for under the amortization method and are adjusted to the lower
of aggregate cost or estimated fair value on a semi-annual basis or more frequently as deemed
appropriate. Fair value is estimated by projecting and discounting future cash flows. Various assumptions
including future cash flows, market discount rates, expected prepayment rates, servicing costs, and other
factors are used in the valuation of mortgage servicing rights.
The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance
Sheet at their fair value as of December 31, 2020 and 2019, 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 Level I inputs and observable inputs employed by certified
appraisers for similar assets classified as Level II inputs. In cases where valuation techniques included
inputs that are unobservable and are based on estimates and assumptions developed by management based
on the best information available under each circumstance, the asset valuation is classified as Level III
input. Other real estate owned is measured at fair value, less cost to sell at the 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
Mortgage servicing rights
Assets:
Impaired loans
Mortgage servicing rights
Level I
Level II
Level III
Total
December 31, 2020
$
- $
-
- $ 1,322,141 $ 1,322,141
200,306
-
200,306
Level I
Level II
Level III
Total
December 31, 2019
$
- $
-
- $
-
986,637 $
297,928
986,637
297,928
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, 2020 and 2019.
December 31, 2020
Valuation
Impaired loans
Fair Value Techniques Unobservable Inputs
$ 660,932
Discount Rate
Discounted
Cash Flows
Impaired loans
$ 661,209
Property
appraisals
Management discount
for property type and
recent market volatility
Mortgage servicing
rights
$ 200,306
Discounted
cash flows
Discount rate
Prepayment speeds
December 31, 2019
Valuation
Impaired loans
Fair Value Techniques Unobservable Inputs
$ 722,572
Discount Rate
Discounted
Cash Flows
Impaired loans
$ 264,065
Property
appraisals
Management discount
for property type and
recent market volatility
Mortgage servicing
rights
$ 297,928
Discounted
cash flows
Discount rate
Prepayment speeds
Range
4.00% - 8.50%
discount
Weighted Average
(5.18%)
15.00% - 100.00%
discount
Weighted Average
(28.93%)
2.68 - 3.28% discount
Weighted Average
(2.98%)
1.47 - 2.99
prepayment factor
Weighted Average
(1.83%)
Range
4.00% - 8.50%
discount
Weighted Average
(5.18%)
15.00% - 100.00%
discount
Weighted Average
(28.93%)
2.68 - 3.28% discount
Weighted Average
(2.98%)
1.47 - 2.99
prepayment factor
Weighted Average
(1.83%)
45
46
60
61
18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
19. ACCUMULATED OTHER COMPREHENSIVE INCOME
The estimated fair values of the Company’s financial instruments not required to be measured or reported
at fair value at December 31, 2020 and 2019 are as follows:
The following table presents the changes in accumulated other comprehensive income (loss) by component
net of tax for the year ended December 31, 2020 and 2019:
Carrying
Value
Fair
Value
2020
Level
I
Level
II
Level
III
Financial assets:
Investment securities
held to maturity
Net loans
Financial liabilities:
Deposits
Other borrowings
$ 11,023,499 $ 11,158,436 $
755,960,393
756,802,249
- $ 11,158,436 $
-
-
756,802,249
-
$ 877,796,429 $ 879,819,942 $ 626,186,642 $
64,656,810
66,159,726
-
- $ 253,633,300
131,159,726
-
For cash and cash equivalents, certificates of deposits, loans held for sale, regulatory stock, bank-owned
life insurance, accrued interest receivable, short-term borrowings, and accrued interest payable, the
carrying value is a reasonable estimate of fair value.
Carrying
Value
Fair
Value
2019
Level
I
Level
II
Level
III
7,250,000 $
$
679,518,794
7,378,098 $
682,935,106
- $
-
7,378,098 $
-
682,935,106
-
Financial assets:
Investment securities
held to maturity
Net loans
Financial liabilities:
Deposits
Other borrowings
Net Unrealized
Gains
on Investment
Securities
Cash Flow
Hedges
Total
Accumulated other comprehensive
income (loss) , January 1, 2019
Other comprehensive income before
reclassification
Amounts reclassified from
accumulated other comprehensive loss
Amounts from change to AOCI
related to cash flow hedges
Accumulated other comprehensive
income (loss), December 31, 2019
Other comprehensive income before
reclassification
Amounts reclassified from
accumulated other comprehensive loss
Amounts from change to AOCI
related to cash flow hedges
Accumulated other comprehensive
income (loss), December 31, 2020
$
(1,317,858 ) $
16,081 $
(1,301,777 )
1,698,566
-
1,698,566
(127,694 )
-
(127,694 )
-
(1,283,601 )
(1,283,601 )
$
253,014 $
(1,267,520 ) $
(1,014,506 )
2,475,314
-
2,475,314
(63,913 )
-
(63,913 )
-
(2,406,031 )
(2,406,031 )
$
2,664,415 $
(3,673,551 ) $
(1,009,136 )
$ 710,225,620 $ 711,098,065 $ 430,612,859 $
80,029,248
80,242,399
-
- $ 280,485,206
80,242,399
-
The following table presents significant amounts reclassified out of each component of accumulated other
comprehensive income (loss) for the year ended December 31, 2020 and 2019:
For cash and cash equivalents, certificates of deposits, loans held for sale, regulatory stock, bank-owned
life insurance, accrued interest receivable, short-term borrowings, and accrued interest payable, the
carrying value is a reasonable estimate of fair value.
Unrealized gains on investment
securities, December 31, 2020
Amount Reclassified
from Accumulated
Other Comprehensive
Income
Affected Line Item
in the Consolidated
Statement of Income where
Net Income is Presented
$
$
$
80,903
(16,990 )
Investment securities gains, net
Income tax expense
63,913
161,638
(33,944 )
Investment securities gains, net
Income tax expense
Unrealized gains on investment
securities, December 31, 2019
$
127,694
20. SUBSEQUENT EVENTS
Management has reviewed events occurring through March 12, 2021, the date the financial statements
were issued, and no additional subsequent events occurred requiring accrual or disclosure.
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62
B O A R D O F D I R E C T O R S A N D O F F I C E R S
63
BOARD OF DIRECTORS OF KISH
BANCORP, INC.
William P. Hayes, Chairman
James J. Lakso, Vice Chairman
Eric J. Barron, Member
William L. Dancy, Member
Spyros A. Degleris, Member
Gregory T. Hayes, Member
Paul G. Howes, Member
William S. Lake, Member
Kathleen L. Rhine, Member
Paul H. Silvis, Member
James A. Troha, Member*
Frances V. Vaughn, Member
George V. Woskob, Member
BOARD OF DIRECTORS OF KISH BANK
William P. Hayes, Chairman
James J. Lakso, Vice Chairman
William L. Dancy, Member
Spyros A. Degleris, Member
Gregory T. Hayes, Member
Paul G. Howes, Member
William S. Lake, Member
Kathleen L. Rhine, Member
Paul H. Silvis, Member
James A. Troha, Member*
Frances V. Vaughn, Member
George V. Woskob, Member
CENTRE COUNTY REGIONAL BOARD
A. Christian Baum, Member
Spyros A. Degleris, Member
Adam R. Fernsler, Member
H. Amos Goodall, Jr., Member
Alan G. Hawbaker, Member
Paul G. Howes, Member
Oscar W. Johnston, Member
Michael J. Krentzman, Member
Maureen L. Mulvihill, Member
Kathleen L. Rhine, Member
Paul H. Silvis, Member
George V. Woskob, 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
Pamela F. Prosser, Member
Burgess A. Smith, Member
Delmont R. Sunderland, Member
Angela D. Thompson, Member
James A. Troha, Member
Frances V. Vaughn, Member
JUNIATA COUNTY REGIONAL BOARD
Philip Bomberger, Member
Jeff Brown, Member
Ronald N. Colledge, Member
Maxwell Manbeck, Member
Robert Rowles, Member
Anita Rudy, Member
MIFFLIN COUNTY REGIONAL BOARD
Christina Calkins-Mazur, Member
Susan L. Cannon, Member
William L. Dancy, Member
James W. Felmlee, Member
Michael K. Halloran, Member
Melinda K. Kenepp, Member
William S. Lake, Member
Harvard K. McCardle, Member
Alan J. Metzler, Member
Phyllis L. Palm, Member
John Pannizzo, Member
James L. Shilling, Jr., Member
KISH BANK EXECUTIVE OFFICERS
William P. Hayes, Chairman and Chief Executive
Officer
Gregory T. Hayes, President and Chief
Operating Officer
Mark J. Cvrkel, Executive Vice President, Chief
Financial Officer
Robert S. McMinn, Executive Vice President,
General Counsel
Richard A. Sarfert, Executive Vice President,
Chief Lending Officer
KISH BANK SENIOR OFFICERS
Douglas C. Baxter, Senior Vice President,
Accounting and Controls Manager
Robert L. Bilger, Senior Vice President, Market
Leader
Kimberly A. Bubb, Senior Vice President,
Director of Digital Technology Innovation
Peter D. Collins, Senior Vice President, Senior
Portfolio Manager and Commercial Lender
Wade E. Curry, LUTCF, Senior Vice President,
Investment Services
Terra L. Decker, Senior Vice President, Risk
Officer
Kenneth M. Goetz, Senior Vice President,
Managing Director - Ohio
Thomas Minichiello, III, Senior Vice President,
Director of Retail Banking
Amy M. Muchler, Senior Vice President,
Educational Outreach and Service Quality
Manager
Debra K. Weikel, Senior Vice President, Retail
Credit Officer
Suzanne M. White, Senior Vice President,
Human Resources and Organizational
Development Director
Jeffrey D. Wilson, Senior Vice President, CEO of
Kish Agency
Gary L. Wimer, Senior Vice President, Managing
Director - Ohio
Allan F. Bills, Vice President, Finance Reporting
and Analytics Manager
Tina M. Collins, Vice President, Controller
Alta Corman-Wolf, Vice President, Residential
Lender
Beth N. Metz Gilmore, Vice President, Human
Resources Manager
Roxanne R. Greising, Vice President, Credit Risk
Director
Jeffrey A. Gum, Vice President, Managing
Director of Kish Benefits Consulting
Allana L. Hartung, Vice President, Commercial
Relationship Manager
Jeffrey T. Hayes, Vice President, Financial
Advisor
Edward M. Henderson, Vice President, Wealth
Advisor and Trust Officer
Ashley L. Henry, Vice President, Lending
Services Manager
Terry P. Horner, Vice President, Business
Development Officer
Garen M. Jenco, Vice President, Client
Experience
Holly A. Johnson, Vice President, Mortgage
Banking Manager
Marsha K. Kuhns, Vice President, Residential
Lender
John Q. Massie, Vice President, Commercial
Relationship Manager
Virginia A. McAdoo, Vice President, Retail
Banking Manager
Kristie R. McKnight, Vice President, Commercial
Relationship Manager
Seth J. Napikoski, Vice President, Commercial
Relationship Manager
Peter K. Ort, Vice President, Branch Manager
Denise F. Quinn, Vice President, Commercial
Relationship Manager
Kevin D. Rimmey, Vice President, Credit
Administration Manager
Melissa K. Royer, Vice President, Technical
Advisor
Cheryl E. Shope, Vice President, Residential
Lender
Glenn E. Snyder, Jr., Vice President, Facilities
and Security Officer
Wendy S. Strohecker, Vice President, Bank
Operations Manager
N. Robert Sunday, III, Vice President,
Compliance Officer
Penny L. Zesiger, Vice President, Residential
Lender
*Appointed at the January 2021 Board meeting.
The Board of Directors of Kish Bancorp, Inc.
Front row: Kathleen Rhine, Bill Hayes, Greg Hayes, and Fran Vaughn. Back row: Eric
Barron, Bill Lake, George Woskob, Paul Howes, Bill Dancy, Jim Lakso, Paul Silvis, and
Spyros Degleris. Not pictured: Jim Troha*.
In Memoriam
EDWARD A. FRIEDMAN
1948–2020
Member of the Board of Directors of
Kish Bancorp, Inc. and Kish Bank,
and of the Centre County Regional Board
4255 East Main Street, Belleville, PA 17004 | 1-800-981-5474 | www.KishBank.com