Core Viewpoint - First Keystone Corporation reported significant financial improvements for the year ended December 31, 2025, including increased interest income and net income, primarily driven by growth in commercial real estate loans and a prior goodwill impairment charge in 2024 [1][4]. Financial Performance - Interest income increased by $5,777,000 or 8.1% compared to 2024, mainly due to growth in commercial real estate loans [1]. - Total interest expense rose by $405,000 or 1.0%, with a notable increase of $2,225,000 in deposit-related expenses, offset by a decrease in short- and long-term borrowings [1]. - Non-interest income increased by $626,000 or 9.3%, with net securities gains improving to $224,000 from $105,000 in 2024 [2]. - Non-interest expense decreased by $16,670,000 or 33.0%, largely due to a goodwill impairment charge of $19,133,000 recognized in 2024 [3]. - Net income for 2025 was $6,152,000, with earnings per share at $0.99, reflecting an increase of $19,355,000 compared to 2024 [4]. Asset and Equity Growth - Total assets increased to $1,530,977,000, a rise of $102,394,000 or 7.2% from 2024 [5]. - Deposits grew by $91,557,000 or 8.8%, with a significant increase in retail CDs by $135,733,000 [6]. - Stockholders' equity rose by $6,278,000 or 5.9%, primarily due to improvements in accumulated other comprehensive loss [6].

Financial Data and Key Metrics Changes - The company reported adjusted net income of $30 million or $0.06 per diluted share in Q4 2025, compared to a net loss of $0.07 per diluted share in the previous quarter [5][6] - The unadjusted pre-provision, pre-tax net revenue improved by $51 million quarter-over-quarter, while adjusted pre-provision, pre-tax net revenue improved by $45 million versus Q3 [14] - The net interest margin (NIM) expanded by 14 basis points quarter-over-quarter, reaching 2.14%, including a one-time hedge gain of approximately $20 million [17][19] Business Line Data and Key Metrics Changes - The company experienced a 2% growth in net commercial and industrial (C&I) loans on a linked quarter basis, with a total commitment increase of 28% to $3 billion and originations rising by 22% to $2.1 billion [7][10] - The overall commercial real estate (CRE) exposure was reduced by $2.3 billion, with a concentration ratio now below 400% [7][22] - The multifamily portfolio declined by 13% or $4.3 billion year-over-year, with a reserve coverage of 1.83% [22][24] Market Data and Key Metrics Changes - Total CRE balances decreased by $12.1 billion or 25% since year-end 2023, aiding the strategy to diversify the loan portfolio [22] - The company reported a significant reduction in criticized and classified loans, down $330 million quarter-over-quarter, and a decrease in non-accrual loans by $267 million [26] Company Strategy and Development Direction - The company aims to solidify its balance sheet and reposition for growth, focusing on diversifying the loan portfolio and reducing reliance on wholesale funding [9][10] - The strategic initiatives over the past couple of years are expected to drive sustainable growth and profitability going forward [10][30] - The company plans to generate deposit growth across various business lines while maintaining discipline on pricing [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the bank's earning power continuing to strengthen in 2026, driven by growth in net interest income and margin expansion [8][30] - The management team highlighted the importance of proactive management of CRE exposure and improving the bank's credit profile [8][30] - The company anticipates a full year of profitability in 2026, with adjusted EPS forecasted to be in the range of $0.65-$0.70 [16] Other Important Information - The company reduced brokered deposits by almost $8 billion during the year, enhancing its liquidity position [10][19] - The CET1 capital ratio increased by almost 400 basis points, now ranking among the highest capitalized regional banks [9][18] Q&A Session Summary Question: Can you talk about the drivers behind the lowered net interest income guidance? - Management indicated that higher payoff activity, particularly related to multifamily and CRE loans, was the primary driver for the reduction [34][35] Question: How comfortable are you with funding loan growth through core deposit growth? - Management expressed confidence in core deposit growth, leveraging bank branches and new C&I relationships to drive deposits [46][50] Question: What are the prospects for capital return and stock buybacks? - Management noted that the board will consider how to deploy excess capital based on balance sheet growth and non-performing loans [52][53] Question: Can you provide updates on the rent-regulated portfolio and potential impacts from rent freezes? - Management stated that there is ongoing dialogue regarding rent regulations and emphasized that they have not seen a decline in liquidity in the multifamily portfolio [71][76] Question: What is the expected roll-on yield for new C&I and CRE loans? - New C&I loans are coming on at a spread to SOFR of 175 to 300 basis points, while new CRE loans are at 200-225 basis points [89]

Financial Highlights - GAAP NIM increased 12 bps QoQ to 2.51%[7] - Core NIM expands 24 bps QoQ to 2.49%[7] - Average total deposits increased 6.8% YoY and 1.5% QoQ to $7.6 billion[7] - Liquidity remains strong with $4.0 billion of undrawn lines and resources at quarter end[6] - Tangible common equity ratio of 7.79%, stable QoQ[5] Loan Portfolio & Credit Quality - Loan to deposit ratio was 87.2% in 1Q25 compared to 94.0% a year ago and 93.9% in the prior quarter[7] - Net charge-offs total 18 bps for the past twelve months[7] - NPAs to assets of 71 bps at 1Q25 compared to 53 bps YoY and 57 bps QoQ[7] - Asian Communities – Total Loans $737.8 million and Deposits $1.3 billion[44] - Over three years ended December 31, 2027, loan repricing interest income would cumulatively increase by $50 million[19] Outlook - 2025 core noninterest expense expected to increase 5-8% from the 2024 base of $159.6 million[51]