Kish Bancorp : 2020 Fourth Quarter Financial Statement

TO OUR SHAREHOLDERS

We are pleased to release fourth quarter and full year financial results (unaudited) that reflect the very complex and challenging crosscurrents and opportunities created by COVID-19 during 2020. The fourth quarter witnessed the continued impact of extremely low interest rates, extraordinary residential mortgage demand, the commencement of Paycheck Protection Program (PPP) forgiveness and PPP revenue recognition, as well as other fee income generated by loan and interest rate concessions. The high level of fee income generation was offset to some extent by risk mitigation in the form of significant additions to the loan loss reserve, COVID- 19 mitigation measures, higher liquidity that resulted in a narrowing net interest margin, the one-time costs of the core conversion

in May, costs associated with the Kish Innovation Center in Reedsville, which is now nearing completion and final move-in, and management additions as we expand into new markets. There were also some costs related to the acquisition of the Sausman Insurance Agency, as well higher fee income associated with that addition.

BALANCE SHEET

The Corporation's total assets ended the period at $1.107 billion, an increase of $189.8 million, or 20.70%, compared to total assets of $916.8 million as of December 31, 2019. Total loans outstanding grew year over year by $78.7 million to $765.7 million, or 11.46%. Loans originated to businesses in our communities as part of the PPP totaled $43.4 million, after customers received forgiveness of $33 million during the fourth quarter. The loan loss reserve increased to $9.78 million from $7.5 million at year end 2019. Requests for PPP forgiveness continue to be received and processed, even as the next round of PPP is being rolled out. Investment securities remained relatively flat at $141.2 million, a $1 million increase over the prior year. Total deposits grew by $167.6 million to $877.8 million, an increase of 23.59% from $710.2 million a year ago, with a continued notable expansion in core deposits. Borrowings increased to $134 million, compared to $126.8 million as of December 31, 2019, reflecting the importance of hedging interest rate risk in this low rate environment.

NET INCOME

Net income for the year ended 2020 was $8.04 million, an increase of $1.03 million, or 14.72%, compared to $7.01 million for the year ended 2019. The increase includes expansion in both net interest income, up 12.52% over the prior year, and noninterest income, which increased 19.07% overall. Net income was negatively impacted by market value declines in the equity portfolio and an increased loan loss provision, reflecting the elevated risks inherent in the current economic environment and an expanding loan portfolio. Loan charge-offs during the year were minimal. Overall credit quality metrics remain at excellent levels, as is reflected in low delinquencies and non-performing loan levels; however, the potential for loan quality deterioration cannot be underestimated as economic activity is restored following the recession created by the pandemic.

NET INTEREST INCOME

Strong growth in loans and core deposits supported an expansion of net interest income before provision to $31 million as of December 31, 2020, an increase of $3.4 million, or 12.52%, compared to $27.5 million as of December 31, 2019. Contributions to the loan loss reserve from earnings equaled $2.3 million in 2020, compared to $390 thousand in 2019. Supporting the increased provision was fee income recognized during the second and third quarters related to the origination of PPP loans.

NONINTEREST INCOME

Noninterest income was $10.1 million for the year ended 2020, which is an increase of $1.6 million, or 19.07%, when compared to 2019. When unrealized gains/losses from equity securities are excluded, noninterest income increased by $2.2 million, or 26.21%, year over year. Residential mortgage originations resulted in a 107.00% increase in fee income from mortgage loan sales. Fees derived from deposit activities remained steady, while revenues from benefits consulting and wealth management activities both showed good growth when compared to 2019. The bank completed the acquisition of Sausman Insurance Agency during the second quarter, providing an additional $819 thousand in noninterest income in the form of insurance commissions during the second, third, and fourth quarters.

NONINTEREST EXPENSE

Year over year, noninterest expense increased by $1.8 million, or 6.54%, to $29.5 million as of December 31, 2020, compared to $27.7 million the prior year. In part, the increase reflects non- recurring data processing costs of $322,000 related to the core processing conversion. It should be noted that a marked decline in data processing expense is projected to follow the core conversion that was completed during the second quarter. All other expense categories were well controlled when compared to the prior year.

DIVIDEND

The Board of Directors has declared a quarterly dividend in the amount of $0.27 per share, payable January 29, 2021, to shareholders of record as of January 15, 2021.

OTHER

2020 truly was an unprecedented period in our history. Despite the many measures taken to mitigate the threat of the contagion to our team member and customers, we are proud of the capacity of the team to adjust, adapt, and pivot to meet the urgent and varied needs of our customers and communities. This was accomplished while the conversion team completed the first virtual conversion of a core operating system of its size in the country. The completion of the Kish Innovation Center, while suspended for a period of time under the governor's order, is now complete and will support further initiatives that will lead to the long-term sustainability of the Corporation. While we are all being tested in many ways, we are proud that the entire Kish team responded to every challenge as an opportunity to deliver often life-sustaining solutions. As we await the delivery of life-saving vaccines, I can only reiterate my confidence in the Kish team to continue its incredible effort to provide timely and effective responses to the financial challenges faced by our customers and communities, while producing positive results for our shareholders. As we continue on the path to full economic recovery, I invite you to keep abreast of our public communications on our investor relations website, ir.kishbancorp.com.

Thank you for your continuing support and confidence.

William P. Hayes

Chairman and CEO

CONSOLIDATED BALANCE SHEET

(Unaudited; in thousands)

	Dec. 31, 2020		Dec. 31, 2019
ASSETS
$	12,443	$	6,878
Cash and due from banks
Interest-bearing deposits with		117,223			29,332
other institutions
Cash and cash equivalents		129,666			36,210
Certificates of deposit in other		490			1,474
financial institutions
Investment securities available		128,038			131,181
for sale
Equity securities		2,132			1,695
Investment securities held to		11,023			7,250
maturity
Loans held for sale		5,667			3,465
Loans		765,731			687,018
Less allowance for loan losses		9,771			7,499
Net Loans		755,960			679,519
Premises and equipment		24,269			15,635
Goodwill		3,561			1,844
Regulatory stock		6,875			6,915
Bank-owned life insurance		16,237			15,830
Accrued interest and other assets		22,691			15,822
TOTAL ASSETS	$	1,106,609	$	916,840
LIABILITIES
Noninterest-bearing deposits	$	135,622	$	99,839
Interest-bearing deposits		742,174			610,387
Total Deposits		877,796			710,226
Short-term borrowings		69,360			46,740
Other borrowings		64,657			80,029
Accrued interest and other		24,834			15,493
liabilities
TOTAL LIABILITIES		1,036,647			852,488
STOCKHOLDERS' EQUITY
Common stock, $0.50 par value;
8,000,000 shares authorized,		1,349			1,349
2,697,500 shares issued
Additional paid-in capital		3,826			3,663
Retained earnings		69,538			64,304
Accumulated other		(1,009)			(1,015)
comprehensive income
Treasury stock, at cost (94,460		(3,742)			(3,949)
and 113,937 shares)
TOTAL STOCKHOLDERS' EQUITY		69,962			64,352
TOTAL LIABILITIES AND	$		$
STOCKHOLDERS' EQUITY	1,106,609	916,840

CONSOLIDATED STATEMENT OF INCOME

(Unaudited; in thousands)
		Twelve Months Ended
	Dec. 31, 2020	Dec. 31, 2019
INTEREST AND DIVIDEND
INCOME
Interest and fees on loans:
Taxable	$	33,849		$	32,147
Exempt from federal income tax		1,312			1,230
Investment securities:
Taxable		2,881			2,606
Exempt from federal income tax		437			825
Interest-bearing deposits with		206			645
other institutions
Other dividend income		769			644
TOTAL INTEREST AND DIVIDEND
INCOME		39,454			38,097
INTEREST EXPENSE
Deposits		5,322			7,481
Short-term borrowings		85		69
Other borrowings		3,085			3,031
TOTAL INTEREST EXPENSE		8,492		10,581
NET INTEREST INCOME		30,962			27,516
Provision for loan losses		2,268			390
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		28,694			27,126
NONINTEREST INCOME
Service fees on deposit accounts		1,581			1,679
Investment securities gains, net		108			161
Equity securities gains, net		(313)			233
Gain on sale of loans, net		2,424			1,171
Earnings on Bank-owned life		486			473
insurance
Insurance commissions		2,174			1,254
Travel agency commissions		88			371
Wealth management		1,780			1,643
Benefits consulting		599			585
Other		1,196			932
TOTAL NONINTEREST INCOME		10,123			8,502
NONINTEREST EXPENSE
Salaries and employee benefits		17,984			16,533
Occupancy and equipment		2,909			3,091
Data processing		2,167			2,519
Professional fees		573			523
Advertising		398			264
Federal deposit insurance		500			208
Other		5,007			4,586
TOTAL NONINTEREST EXPENSE		29,538			27,724
INCOME BEFORE INCOME TAXES		9,279			7,904
Income taxes		1,240			897
NET INCOME	$	8,039		$	7,007

SELECTED FINANCIAL HIGHLIGHTS

(Unaudited; in thousands, except for per share data)

		Twelve Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Net Income	$	8,039	$	7,007
Total Assets	$	1,106,609	$	916,840
Loans Outstanding	$	765,731	$	687,018
Total Deposits	$	877,796	$	710,226
ROA (annual)		0.79%		0.79%
ROE (annual)		12.86%		11.56%
Earnings per Share	$	3.09	$	2.71
Dividends per Share	$	1.08	$	1.00

MARKET MAKERS

BOENNING & SCATTERGOOD, INC.

Contact: Eugene Bodo 1-800-883-1212

4 Tower Bridge, 200 Barr Harbor Drive, Suite 300 West Conshohocken, PA 19428-2979

RAYMOND JAMES AND ASSOCIATES, INC.

Contact: Anthony LanFranca 312-655-2961

222 South Riverside Plaza, 7th Floor Chicago, IL 60606

Kish Bancorp, Inc. stock is traded on the OTCQX market under the stock ticker symbol: KISB. For more information, please visit ir.kishbancorp.com.

4255 East Main Street, Belleville, PA 17004

1-800-981-5474 | www.KishBank.com

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