SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
(Amendment No. [ ] )
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FIRST KEYSTONE CORPORATION
(Exact name of registrant as specified in its Charter)
_______________________________________________________
(Name of Person(s) Filing Proxy Statement if other
than Registrant)
Payment of Filing Fee (check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or
14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(1)(3)
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11
[X] No Fee Required
1) Title of each class of securities to which transaction applies:
_______________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration No.:
3) Filing party:
4) Date filed:
_____________
*Set forth the amount on which the filing fee is calculated and state
how it was determined.
FIRST KEYSTONE CORPORATION LOGO - 1K First Keystone Corporation
_____________________________________________________________________
111 West Front Street
Berwick, Pennsylvania 18603
March 27, 2001
DEAR SHAREHOLDER:
It is my pleasure to invite you to attend the 2001 Annual Meeting
of Shareholders of First Keystone Corporation to be held on Tuesday,
April 17, 2001, at 10:00 a.m., Eastern Daylight Time. The Annual
Meeting this year will be held at the main office of The First
National Bank of Berwick, 111 West Front Street, Berwick, Pennsylvania
18603.
The Notice of the Annual Meeting and the Proxy Statement on the
following pages address the formal business of the meeting. The
formal business schedule includes:
* The election of 3 Class B Directors; and
* The ratification of the selection of the independent
auditors for 2001.
At the meeting, members of the corporation's management will
review the corporation's operations during the past year and be
available to respond to questions.
We strongly encourage you to vote your shares, whether or not you
plan to attend the meeting. It is very important that you sign, date
and return the accompanying proxy form as soon as possible, in the
postage-prepaid envelope. If you do attend the meeting and wish to
vote in person, you must give written notice of your intentions to the
Secretary of the corporation so that any ballot you submit at the
meeting will supersede your prior proxy.
Thank you for your continued support. I look forward to seeing
you at the Annual Meeting if you are able to attend.
Sincerely,
/s/ J. Gerald Bazewicz
J. Gerald Bazewicz
President
[THIS PAGE INTENTIONALLY LEFT BLANK]
FIRST KEYSTONE CORPORATION
________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 17, 2001
________________________________________
TO THE SHAREHOLDERS OF FIRST KEYSTONE CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders of
First Keystone Corporation will be held at 10:00 a.m., Eastern
Daylight Time, on Tuesday, April 17, 2001, at the main office of The
First National Bank of Berwick, 111 West Front Street, Berwick,
Pennsylvania 18603, for the following purposes:
1. To elect 3 Class B Directors to serve for a three-year term
and until their successors are properly elected and qualified;
2. To ratify the selection of J. H. Williams & Co., LLP as the
independent auditors for the corporation for the year ending December
31, 2001; and
3. To transact such other business as may properly come before
the Annual Meeting and any adjournment or postponement of the meeting.
In accordance with the by-laws of the corporation and action of
the Board of Directors, the corporation is giving notice of the Annual
Meeting only to those shareholders on the corporation's records as of
the close of business on March 13, 2001, and only those shareholders
may vote at the Annual Meeting and any adjournment.
A copy of the corporation's Annual Report for the fiscal year
ended December 31, 2000, is being mailed with this Notice. Copies of
the corporation's Annual Report for the 1999 fiscal year may be
obtained at no cost by contacting J. Gerald Bazewicz, President, First
Keystone Corporation, 111 West Front Street, Berwick, Pennsylvania
18603, telephone: (570) 752-3671.
Whether or not you expect to attend the Annual Meeting in person,
you are requested to complete, sign, date, and promptly return the
enclosed proxy form in the accompanying postage-prepaid envelope. By
so doing, you will ensure your proper representation at the meeting.
The prompt return of your signed proxy will also save the corporation
the expense of additional proxy solicitation. The execution and
delivery of the enclosed proxy does not affect your right to vote in
person if you attend the meeting and give written notice to the
Secretary of the corporation.
By Order of the Board of Directors,
/s/ J. Gerald Bazewicz
J. Gerald Bazewicz, President
March 27, 2001
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
OF FIRST KEYSTONE CORPORATION TO BE HELD ON APRIL 17, 2001
Table of Contents
_________________
Page
General Information 3
Introduction, Date, Time and Place of Annual Meeting 3
Voting Procedures 3
Solicitation and Voting of Proxies 3
Revocability of Proxy 3
Voting Securities, Record Date and Quorum 4
Vote Required for Approval 4
Principal Beneficial Owners of the Corporation's Stock 4
Principal Owners 4
Proposal No. 1: Election of Directors 6
Information as to Nominees and Directors 7
Beneficial Ownership by Officers, Directors
and Nominees 8
Committees of the Board of Directors 9
Procedures for Nominating Directors 10
Compensation of Directors 10
Report of the Audit Committee 11
Board Compensation Committee Report on
Executive Compensation 12
Base Salary 13
Cash Bonuses 13
Long-Term Incentives 13
Compensation Committee Interlocks and Insider
Participation 14
Executive Compensation 14
Aggregated Option Exercises in 2000 and
2000 Year-End Options Values 15
401(k) Plan 16
Supplemental Employee Retirement Plan 16
Performance Graph 17
Certain Relationships and Related Transactions 18
Principal Officers of the Bank 19
Legal Proceedings 20
Proposal No. 2: Ratification of Independent
Auditors 20
Shareholder Proposals 20
Other Matters 21
Appendix A: Charter of the Audit Committee
of the Board of Directors 22
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
OF FIRST KEYSTONE CORPORATION TO BE HELD ON APRIL 17, 2001
GENERAL
INTRODUCTION, DATE, TIME AND PLACE OF ANNUAL MEETING
First Keystone Corporation, a Pennsylvania business corporation
and registered bank holding company, is furnishing this Proxy
Statement in connection with the solicitation by its Board of
Directors of proxies to be voted at the Annual Meeting of Shareholders
of the corporation and at any adjournment or postponement of the
Annual Meeting. The corporation will hold the meeting on Tuesday,
April 17, 2001, at 10:00 a.m., Eastern Daylight Time, at the main
office of The First National Bank of Berwick, 111 West Front Street,
Berwick, Pennsylvania 18603.
The principal executive office of the corporation is located at
The First National Bank of Berwick, 111 West Front Street, Berwick,
Pennsylvania 18603. The bank is a wholly-owned subsidiary of the
corporation and its sole subsidiary. The telephone number for the
corporation is (570) 752-3671. All inquiries should be directed to J.
Gerald Bazewicz, President of the corporation and the bank.
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement and the enclosed proxy form are first being
sent to shareholders of the corporation on or about March 27, 2001.
By properly completing and returning the accompanying proxy, a
shareholder is appointing the proxy holders to vote his or her shares
as the shareholder specifies on the proxy. If a shareholder signs the
proxy but does not make any selection, the proxy holders will vote the
proxy:
* FOR the election of the nominees for Class B Director named
below, and
* FOR the ratification of the selection of J. H. Williams & Co.
as the independent auditors for the corporation for the year
ending December 31, 2001.
The execution and return of the enclosed proxy will not affect a
shareholder's right to attend the Annual Meeting and vote in person,
after giving written notice to the Secretary of the corporation of
this.
The corporation will pay the cost of preparing, assembling,
printing, mailing and soliciting proxies, and any additional material
which the corporation may furnish shareholders in connection with the
Annual Meeting. In addition to the use of the mail, certain
directors, officers and employees of the corporation and the bank may
solicit proxies personally, by telephone, telecopier or other
electronic means. The corporation will not pay any additional
compensation for the solicitation. The corporation will make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries to forward proxy solicitation material to the beneficial
owners of stock held of record by these persons and will reimburse
them for their reasonable forwarding expenses.
REVOCABILITY OF PROXY
A shareholder who returns a proxy may revoke the proxy at any
time before it is voted only:
* By giving written notice of revocation to John L. Coates,
Secretary of First Keystone Corporation, at 11 West Front
Street, Berwick, Pennsylvania, 18603;
* By executing a later-dated proxy and giving written notice
of this fact to the Secretary of the corporation; or
Proxy Statement Page 3
* By voting in person after giving written notice to the
Secretary of the corporation, in person or at the above
address.
VOTING SECURITIES, RECORD DATE AND QUORUM
At the close of business on March 13, 2001, the corporation had
outstanding 2,833,727 shares of common stock, par value $2.00 per
share, the only issued and outstanding class of stock. The
corporation also had 100,000 shares held in treasury as issued but not
outstanding shares as of that date. The corporation's Articles of
Incorporation authorize the issuance of up to 10,000,000 shares of
common stock, par value of $2.00 per share. The corporation also has
500,000 shares of preferred stock, par value $10.00 per share,
authorized. As of March 13, 2001, no shares of preferred stock were
issued.
Only shareholders of record as of the close of business on March
13, 2001, may vote at the Annual Meeting. Cumulative voting rights do
not exist with respect to the election of directors. On all matters
to come before the Annual Meeting, each shareholder is entitled to one
vote for each share of common stock outstanding on the record date.
Pennsylvania law and the by-laws of the corporation require the
presence of a quorum for each matter that shareholders will vote on at
the Annual Meeting. The presence, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes which
all shareholders are entitled to cast shall constitute a quorum for
the transaction of business at the Annual Meeting. The corporation
will count votes withheld and abstentions in determining the presence
of a quorum for a particular matter. The corporation will not count
broker non-votes in determining the presence of a quorum for a
particular matter. A broker non-vote occurs when a broker nominee,
holding shares for a beneficial owner, does not vote on a particular
proposal because the nominee does not have discretionary voting power
with respect to that item, and has not received instructions from the
beneficial owner. Those shareholders present, in person or by proxy,
may adjourn the meeting to another time and place if a quorum is
lacking.
VOTE REQUIRED FOR APPROVAL OF PROPOSALS
Assuming the presence of a quorum, the 3 nominees for director
receiving the highest number of votes cast by shareholders will be
elected. Votes withheld from a nominee and broker non-votes will not
be cast for the nominee.
Assuming the presence of a quorum, ratification of the selection
of independent auditors requires the affirmative vote of a majority of
all votes cast by shareholders, in person or by proxy, on the matter.
Abstentions and broker non-votes are not votes cast and therefore do
not count either for or against ratification. Abstentions and broker
non-votes, however, have the practical effect of reducing the number
of affirmative votes required to achieve a majority for each matter by
reducing the total number of shares voted from which the majority is
calculated.
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S STOCK
PRINCIPAL OWNERS
The following table sets forth, as of March 13, 2001, the name
and address of each person who owns of record or who is known by the
Board of Directors to be the beneficial owner of more than 5% of the
corporation's outstanding common stock, the number of shares
beneficially owned by the person and the percentage of the
corporation's outstanding common stock so owned.
Page 4 First Keystone Corporation
Amount and Percent of
Nature of Outstanding
Beneficial Common Stock
Name and Address Ownership Beneficially Owned
________________ _____________ __________________
Berbank 339,975 12.00%
First National Bank of
Berwick Trust Department
111 West Front Street
Berwick, PA 18603
Robert E. Bull 180,497 6.37%
323 West Fourth Street
Nescopeck, PA 18635
Robert J. Wise 159,582 5.63%
115 West Third Street
Berwick, PA 18603
Frederick E. Crispin, Jr. 148,617 5.24%
3 Cedarbrook Terrace
Princeton, NJ 08540
____________________
The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after March
13, 2001. Beneficial ownership may be disclaimed as to certain of the
securities.
Nominee registration for the common stock held by the Trust Department of
the bank on behalf of various trusts, estates and other accounts for which
the bank acts as fiduciary with sole voting and dispositive power over
280,617 shares and as fiduciary with shared voting and dispositive power
over 59,358 shares. Total does not include 39,197 shares held by the Trust
Department of the bank for which the bank does not have sole or shared
voting or dispositive power. The Trust Department intends to cast all
shares under its voting power for the election of the nominees for director
named below and for the ratification of J. H. Williams & Co., LLP,
independent auditors of the corporation.
Includes 124,057 shares held individually by Mr. Bull, 1,995 shares held by
Bull, Bull & Knecht, LLP, a law firm of which Mr. Bull is a partner, 3,850
held by Bull, Bull & Knecht, LLP Profit Sharing Trust, and 50,595 shares
held by the Sara E. Bull Trust of which Mr. Bull is trustee.
Includes 139,821 shares held individually by Mr. Wise and 19,761 shares
held jointly with his spouse.
Includes 15,972 shares held individually by Mr. Crispin, 7,986 shares held
individually by his spouse and 124,659 shares held by the Frederick E.
Crispin Sr. Trust in which Mr. Crispin is trustee and has sole voting
authority.
Proxy Statement Page 5
PROPOSAL NO. 1: ELECTION OF CLASS B DIRECTORS
The by-laws of the corporation provide that its Board of
Directors shall manage the corporation's business. Sections 10.2 and
10.3 of the By-laws provide that the number of directors on the Board
shall not be less than 7 nor more than 25 and that the Board of
Directors shall be classified into 3 classes, each class to be elected
for a term of 3 years. Within the foregoing limits, the Board of
Directors may, from time to time, fix the number of directors and
their classifications. No person over 70 may serve as director with
the exception of Messrs. Beyer, Bull, Crispin, and Wise. Section 11.1
of the by-laws requires that a majority of the remaining members of
the Board of Directors, even if less than a quorum, will select and
appoint directors to fill vacancies on the Board, and each person so
appointed shall serve as director until the expiration of the term of
office of the class of directors to which he or she was appointed.
Section 10.3 of the by-laws provides for a classified Board of
Directors with staggered three-year terms of office. Accordingly, at
the 2001 Annual Meeting of Shareholders, 3 Class B Directors shall be
elected to serve for a three-year term and until their successors are
properly elected and qualified. The Board of Directors of the
corporation has nominated the current Class B Directors to serve as
Class B Directors for the next three-year term of office. The
nominees for re-election this year are as follows:
* John E. Arndt, director since 1995
* J. Gerald Bazewicz, director since 1986
* Robert E. Bull, director since 1983
Each nominee has consented to serve a three-year term of office
and until his successor is elected and qualified.
Unless otherwise instructed, the proxy holders will vote the
proxies for the election of these 3 nominees. If any nominee should
become unavailable for any reason, proxies will be voted in favor of a
substitute nominee by the Board of Directors of the corporation. A
majority of the directors of the corporation in office may appoint a
new director to fill any vacancy occurring on the Board for any
reason, and the new director shall serve until the expiration of the
term of the class of directors to which he or she was appointed.
The Articles of Incorporation of the corporation provide that
cumulative voting rights shall not exist with respect to the election
of directors. Accordingly, each share of common stock entitles its
owner to cast one vote for each nominee. For example, if a
shareholder owns 10 shares of common stock, he or she may cast up to
10 votes for each director to be elected.
The Board of Directors recommends that shareholders vote FOR the
election of the above named nominees.
BOARD OF DIRECTORS AND MANAGEMENT
GOVERNANCE
The Board of Directors of the corporation oversees all business,
property and affairs of the corporation. The Chairman and the
corporation's officers keep the members of the Board informed of the
corporation's business through discussions at Board meetings and the
dissemination of information to them. The directors of the
corporation also serve as the directors of the corporation's wholly-owned
bank subsidiary, The First National Bank of Berwick, upon
election by the corporation, the bank's sole shareholder.
Page 6 First Keystone Corporation
INFORMATION AS TO DIRECTORS AND NOMINEES
The following biographics contain selected information about the
directors and nominees for director. The information is accurate as
of March 13, 2001, and includes each person's business experience for
a least the past 5 years.
CURRENT CLASS B DIRECTORS WHOSE TERM EXPIRES IN 2001
AND NOMINEES FOR CLASS B DIRECTOR WHOSE TERM WILL EXPIRE IN 2004
John E. Arndt Mr. Arndt (age 39) is an insurance
broker and the owner of Arndt Insurance
Agency in Berwick, Pennsylvania. He has
served as a director of the corporation
and the bank since 1995.
J. Gerald Bazewicz Mr. Bazewicz (age 52) serves as the
President and Chief Executive Officer of
the corporation and the bank, a position
he has held since 1987. He has served
as a director of the corporation and the
bank since 1986.
Robert E. Bull Mr. Bull (age 78), now retired,
practiced as an attorney at the law firm
Bull, Bull & Knecht, LLP, of which he
remains a partner. He has been the
Chairman of the Board of the corporation
since 1983 and of the bank since 1981.
He has served as a director of the
corporation since 1983 and of the bank
since 1956.
CLASS C DIRECTORS WHOSE TERM EXPIRES IN 2002
John L. Coates Mr. Coates (age 64) is the President and
owner of Tri-County Hardware, Inc. He
has served as the Secretary of the
corporation and the bank since 1995, and
as a director of the corporation and the
bank since 1987.
Dudley P. Cooley Mr. Cooley (age 62), is a financial
consultant and the former controller for
Wise Foods, a division of Borden, Inc.
He has been a director of the
corporation and the bank since 1987.
CLASS A DIRECTORS WHOSE TERM EXPIRES IN 2003
Budd L. Beyer Mr. Beyer (age 73), now retired, was an
owner and a principal shareholder of
Sunshine Textile Services, Inc. Mr.
Beyer has served as a director of the
corporation since 1983 and of the bank
since 1976.
Frederick E. Crispin, Jr. Mr. Crispin (age 69) is a retired
business and financial consultant. He
has served as a director of the
corporation since 1983 and of the bank
since 1964.
Jerome F. Fabian Mr. Fabian (age 58) is the President and
owner of Tile Distributors of America,
Inc., located in Wilkes-Barre,
Pennsylvania. He has served as a
director of the corporation and the bank
since 1998.
Robert J. Wise Mr. Wise (age 71), now retired, has
served as a director of the corporation
since 1983 and of the bank since 1967.
Mr. Wise is also the Vice Chairman of
the Board of the corporation and the
bank, a position he has held since 1996.
Proxy Statement Page 7
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES
The following table sets forth as of March 13, 2001, the amount
and percentage of the common stock of the corporation beneficially
owned by each director, nominee for director, and other named
executive officer of the corporation. The table also indicates the
total number of shares owned by all directors, nominees for director,
and executive officers of the corporation and the bank as a group. A
person owns his shares directly as an individual unless otherwise
indicated.
Number of
Name Shares Owned Percentage
____ _____________ _______
Nominees for Class B Directors
(to serve until 2004)
And Class B Director
John E. Arndt 5,117 --
J. Gerald Bazewicz 17,295 --
Robert E. Bull 180,497 6.37%
Class C Directors
(to serve until 2002)
John L. Coates 7,029 --
Dudley P. Cooley 4,293 --
Class A Director
(to serve until 2003
Budd L. Beyer 37,932 1.34%
Frederick E. Crispin, Jr. 148,617 5.24%
Jerome F. Fabian 15,814 --
Robert J. Wise 159,582 5.63%
Other Named Executive Officer
David R. Saracino 6,343 --
All Directors and Executive 582,519 20.56%
Officers as a Group
(10 Persons in Total)
____________________
The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after March
13, 2001. Beneficial ownership may be disclaimed as to certain of the
securities.
Information furnished by the directors and the corporation.
Less than 1% unless otherwise indicated.
Includes 3,815 shares held individually by Mr. Arndt, 572 shares held
individually by his spouse, and 730 shares held by Arndt Insurance Profit
Sharing.
Includes 7,690 shares held individually by Mr. Bazewicz, 2,010 shares held
jointly with his spouse, 605 shares held individually by his spouse, 660
shares held jointly with his children, and 330 shares held as custodian for
the benefit of his children and 6,000 shares which may be purchased upon
the exercise of stock options.
Page 8 First Keystone Corporation
Includes 124,057 shares held individually by Mr. Bull, 1,995 shares held by
Bull, Bull & Knecht, LLP, a law firm of which Mr. Bull is a partner, 3,850
held by Bull, Bull & Knecht, LLP Profit Sharing Trust, and 50,595 shares
held by the Sara E. Bull Trust of which Mr. Bull is trustee.
Includes 5,433 shares held individually by Mr. Coates and 1,596 shares held
jointly with his spouse.
Includes 15,972 shares held individually by Mr. Crispin, 7,986 shares held
individually by his spouse and 124,659 shares held by the Frederick E.
Crispin Sr. Trust in which Mr. Crispin is trustee and has sole voting
authority.
Includes 500 shares held individually by Mr. Fabian, 6,440 shares by the
Jerome F. Fabian Trust Under Agreement for which Mr. Fabian exercises
dispositive power, 7,286 shares held jointly with his spouse, and 1,588
shares held by Tile Distributors of America, Inc. of which Mr. Fabian is
100% owner.
Includes 139,821 shares held individually by Mr. Wise and 19,761 shares
held jointly with his spouse.
Includes 2,545 shares held individually by Mr. Saracino, 798 shares held
jointly with his spouse, and 3,000 shares which may be purchased upon the
exercise of stock options.
COMMITTEES OF THE BOARD OF DIRECTORS
Asset/
Liability
Name Trust Management Marketing
____
John E. Arndt X X X
J. Gerald Bazewicz X X X
Budd L. Beyer X X
Robert E. Bull X
John L. Coates X
Dudley P. Cooley X
Frederick E. Crispin, Jr. X X
Jerome F. Fabian X
Robert J. Wise X X
Number of Meetings
Held in 2000 12 4 4
Loan Human
Name Administration Audit Resources
____
John E. Arndt
J. Gerald Bazewicz X X
Budd L. Beyer X
Robert E. Bull X X X
John L. Coates X X X
Dudley P. Cooley X X X
Frederick E. Crispin, Jr. X
Jerome F. Fabian X X
Robert J. Wise X
Number of Meetings
Held in 2000 4 2 1
Trust Committee - This committee ensures that all trust
activities of the bank are performed in a manner that is consistent
with the legal instrument governing the account, prudent trust
administration practices, and approved trust policy.
Asset/Liability Committee - This committee reviews
asset/liability committee reports and provides support and discretion
in managing the bank's net interest income, liquidity, and interest
rate sensitivity positions.
Proxy Statement Page 9
Marketing Committee - This committee provides guidance to
management in formulating marketing/sales plans and programs to assist
in evaluating the performance of the bank relative to these plans.
Loan Administration Committee - This committee monitors loan
review and compliance activities. Also, the committee ensures that
loans are made and administered in accordance with the loan policy.
Audit Committee - This committee recommends the appointment of
the independent certified public accountant to examine the affairs of
the bank. Also, the committee reviews findings of the auditor and
ensures an independent, effective audit function.
Human Resources Committee - This committee helps ensure that a
sound human resources management system is developed and maintained.
This committee also acts as the Compensation Committee for non-executive
officers and employees. The Board of Directors determines
compensation for executive officers.
The above listed committees are committees of the bank and not of
the corporation. The Board of Directors of the corporation has at
present no standing committees.
BOARD MEETINGS AND ATTENDANCE
The members of the Board of Directors of the corporation also
serve as members of the Board of Directors of The First National Bank
of Berwick. During 2000, the bank's Board of Directors held 25
meetings, and the corporation's Board of Directors held 5 meetings.
Each of the Directors attended at least 75% of the combined total
number of meetings of the corporation's and the bank's Boards of
Directors and the committees of which he is a member, except Robert J.
Wise.
PROCEDURES FOR NOMINATING DIRECTORS
The corporation's Board of Directors nominates individuals for
the position of director. Neither the corporation nor the bank has a
nominating committee. In addition, a shareholder who desires to
propose an individual for consideration by the Board of Directors as a
nominee for director should submit a proposal in writing to the
Secretary of the corporation in accordance with Section 10.1 of the
corporation's by-laws. Any shareholder who intends to nominate any
candidate for election to the Board of Directors must notify the
Secretary of the corporation in writing not less than 45 days prior to
the date of any meeting of shareholders called for the election of
directors and must provide the specific information listed in Section
10.1. You may obtain a copy of the corporation's by-laws by writing
to John L. Coates, Secretary, First Keystone Corporation, 111 West
Front Street, Berwick, Pennsylvania 18603.
COMPENSATION OF DIRECTORS
During 2000, each member of the corporation's Board of Directors
received $450.00 for his attendance at the Annual Meeting. Other
corporate Board meetings met concurrently with the bank's Board, and
directors received no additional compensation. The bank's directors
received $450.00 for each directors' meeting attended. Non-employee
directors received a $4,000.00 retainer and $225.00 for each committee
meeting attended. All directors received a bonus of $1,000.00. In
addition, Chairman Bull received an annual stipend of $1,000.00, and
Vice Chairman Wise and Secretary Coates each received an annual
stipend of $750.00. In the aggregate, the Board of Directors received
$182,400.00 for all Board of Directors' meetings and committee
meetings attended in 2000, including all fees, bonuses, and stipends
paid to all directors in 2000.
Page 10 First Keystone Corporation
REPORT OF THE AUDIT COMMITTEE
During fiscal 2000, the Audit Committee of the Board of Directors
developed and updated the charter for the Committee, which was
approved by the Board of Directors and attached to this Proxy
Statement as Appendix A. The Audit Committee's primary
responsibilities fall into three categories:
* first, the Committee is charged with monitoring the
preparation of quarterly and annual financial reports by the
corporation's management, including discussions with
management and the corporation's outside auditors about
draft annual financial statements and key accounting and
reporting matters;
* second, the Committee is responsible for matters relating to
the relationship between the company and its outside
auditors, including recommending their appointment or
removal, reviewing the scope of their audit services and
related fees, as well as any other services being provided
to the corporation, and determining whether the outside
auditors are independent (based in part on the annual letter
provided to the corporation pursuant to Independence
Standards Board Standard No. 1); and
* third, the Committee oversees management's implementation of
effective systems of internal controls and review of the
activities and recommendations of the corporation's auditing
program.
The Committee has implemented procedures to ensure that during
the course of each fiscal year it devotes the attention that it deems
necessary or appropriate to each of the matters assigned to it under
the committee's charter.
In overseeing the preparation of the corporation's financial
statements, the Committee met with both management and the
corporation's outside auditors to review and discuss all financial
statements prior to their issuance and to discuss significant
accounting issues. Management advised the Committee that all
financial statements were prepared in accordance with generally
accepted accounting principals, and the Committee discussed the
statements with both management and the outside auditors. The
Committee's review included discussion with the outside auditors of
matters required to be discussed pursuant to Statement on Auditing
Standards No. 61 (Communication with Audit Committees).
With respect to the corporation's outside auditors, the
Committee, among other things, discussed with J.H. Williams & Co., LLP
matters relating to its independence, including the written
disclosures made to the Committee by the outside auditors and the
letter from the outside auditors as required by the Independence
Standards Board No. 1 (Independence Discussions with Audit
Committees).
Aggregate fees billed to the corporation and the bank by J. H.
Williams & Co., LLP for services rendered during the year ended
December 31, 2000, were as follows:
Audit fees - J. H. Williams & Co., LLP billed
the corporation in 2000 for services
rendered for the audit of the
corporation's annual financial
statements for the year ended
December 31, 2000, and the
reviews of the financial
statements included in the
corporation's reports on SEC Form
10Q for the quarters ended March 31,
June 30, and September 30, 2000 $54,800.00
Financial Information Systems Design and
Implementation Fees None
All other fees - J. H. Williams & Co., LLP
billed the corporation in 2000
for other services rendered.
These other services were for
performance of agreed upon
procedures with respect to the
Trust and Commercial Banking
Departments of the bank and
Tax Return preparation services $43,258.00
Proxy Statement Page 11
Based upon all of the reviews and discussions described above,
the Committee recommended to the Board of Directors that the audited
financial statements for the year ended December 31, 2000, be included
in the corporation's Annual Report on Form 10-K for the 2000 fiscal
year end filed with the Securities and Exchange Commission.
The Audit Committee is comprised of 4 directors, all of whom are
considered "independent" as defined by the National Association of
Securities Dealers (NASD) listing standards. The Board of Directors
has determined that no member of the Committee has a relationship with
the corporation that may interfere with his independence from the
corporation or its management.
The foregoing report has been furnished by the current members of
the Audit Committee.
MEMBERS OF THE AUDIT COMMITTEE
John L. Coates, Chairman
Robert E. Bull
Dudley P. Cooley
Jerome F. Fabian
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the corporation's officers and directors, and persons who own
more than 10% of the registered class of the corporation's equity
securities, to file reports of ownership of the corporation's common
stock and changes in such ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than 10%
shareholders are required by SEC regulation to furnish the corporation
with copies of all Section 16(a) forms they file.
Based solely on its review of copies of Section 16(a) forms
received by it, or written representations from reporting persons that
no Forms 5 were required for those persons, the corporation believes
that during the period January 1, 2000, through December 31, 2000, its
officers, directors and reporting shareholders were in compliance with
all filing requirements applicable to them.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The basic mission of the corporation's executive compensation
policy is to provide executives of First Keystone Corporation's
subsidiary, The First National Bank of Berwick, with a competitive
compensation package that attracts and retains qualified executives
while placing a portion of total pay at risk. The Board of Directors
serves as the Compensation Committee for the bank and develops the
bank's and the corporation's executive compensation policy, with
guidance from the Human Resources Committee. The four components of
the total compensation package are:
* Base salary
* Regular employee bonus
* Senior management bonus
* Long-term incentives
Page 12 First Keystone Corporation
BASE SALARY
The Board of Directors determines compensation for executive
officers of The First National Bank of Berwick with guidance from the
Human Resources Committee. For the base salary paid to executive
officers other than the Chief Executive Officer, the Board of
Directors considers information provided by the Chief Executive
Officer as to each executive officer's level of individual
performance, contribution to the organization, and salary history.
For the base salary paid to the Chief Executive Officer, the Board of
Directors, with Mr. Bazewicz not being present, considers his
performance level, the results of management decisions made by him,
and the earnings of the organization. No particular weight is
assigned to any of the foregoing individual performance factors. The
executive compensation established by the Board of Directors is based
on its overall subjective assessment of the value of the services
provided by each executive officer with consideration to the
performance factors discussed in this paragraph and peer group
compensation information.
The peer group of banks chosen by the Board of Directors for
purposes of making a comparative analysis of executive compensation
does not include all of the same banks incorporated in the peer group
established to compare shareholder returns as indicated in the
performance graph included in this proxy statement. The Board of
Directors uses data from compensation surveys of the banking industry
to assist in determining executive pay. This group of Pennsylvania
banking organizations bears no direct relationship to those banking
organizations represented in the performance graph.
The Board of Directors established Mr. Bazewicz's base salary,
not including director fees, at $138,500 in 2000 and increased his
salary to $145,000 effective January 1, 2001. This placed Mr.
Bazewicz's base compensation between the median and slightly above the
median for chief executive officers of comparable bank holding
companies, as reflected in the peer group compensation data reviewed
by the Board of Directors. This salary has been deemed by the Board
of Directors to be commensurate with the above average performance by
First Keystone Corporation over the past year including 2000 as
measured by return on assets (ROA) and return on equity (ROE).
CASH BONUSES
The cash bonuses serve as short-term incentives which align
executive pay with the annual performance of the corporation. The
regular employee bonus program is for all employees, including
executives. It is based solely on the corporation's return on equity
for the year. The bonus has averaged between 5.0% and 8.7% of each
employee's salary for the past five years. The senior management
bonus provides further short-term incentive for senior executives of
the corporation. This bonus is earned through the achievement of
overall annual earnings objectives. Both bonus programs help to align
management's interests with those of shareholders because, generally,
the higher the net income for the year, the larger the bonuses paid to
management.
LONG-TERM INCENTIVES: STOCK OPTIONS
The Board of Directors believes that stock option awards under
the First Keystone Corporation's 1998 Stock Incentive Plan provide a
vehicle for long-term incentive compensation through financial rewards
dependent on future increases in the market value of the corporation's
stock. Thus, executive officers are encouraged to manage the
corporation with a view toward maximizing long-term shareholder value.
Under the Stock Incentive Plan, the corporation makes grants of
options to purchase shares of the corporation's common stock to
employees, including executives, and the corporation has absolute
power to determine what, to whom, when and under what facts and
circumstances awards are made. The Board of Directors bases decisions
relating to such awards on its overall subjective assessment of the
value of the services provided by each executive officer with
consideration to performance of the corporation and peer group
compensation information. The options generally vest 6 months after
issue and expire ten years from the date of the grant. On September
26, 2000, the corporation granted 12,250 incentive stock options under
the plan, which are not exercisable until March 26, 2001. The average
per share exercise price is $17.00, which was not less than the full
market value of the shares as of September 26, 2000. The total number
of shares which may be issued under the plan is 100,000.
Proxy Statement Page 13
BOARD OF DIRECTORS
Robert E. Bull, Chairman Budd L. Beyer
Robert J. Wise, Vice Chairman Dudley P. Cooley
J. Gerald Bazewicz, President Frederick E. Crispin, Jr.
John L. Coates, Secretary Jerome F. Fabian
John E. Arndt
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Board of Directors, which includes J. Gerald Bazewicz, Chief
Executive Officer, functions as the Compensation Committee. For
compensation paid to executive officers other than the Chief Executive
Officer, the Board of Directors considers information provided by the
Chief Executive Officer. For compensation paid to the Chief Executive
Officer, the Board of Directors, with Mr. Bazewicz not being present,
determines his compensation as outlined previously under "Base
Salary".
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below shows information concerning the annual and long-term
compensation for services rendered in all capacities to the
corporation and the bank for the fiscal years ended December 31, 2000,
1999, and 1998 of those persons who were:
* the Chief Executive Officer during 2000, and
* the other 4 most highly compensated executive officers of
the corporation and the bank at December 31, 2000, whose
total annual salary and bonus exceeded $100,000 during 2000.
SUMMARY COMPENSATION TABLE
Annual Compensation
(a) (b) (c) (d) (e)
Other
Annual
Name and Compen-
Principal Salary Bonus sation
Position Year ($) ($) ($)
J. Gerald Bazewicz 2000 150,200 19,119 0
President and CEO 1999 141,400 29,290 0
of the corporation 1998 133,500 24,720 0
and the bank
David R. Saracino 2000 90,500 12,535 0
Treasurer and 1999 86,000 20,086 0
Assistant Secretary 1998 81,500 16,712 0
of the corporation
and Vice President,
Cashier and Assistant
Secretary of the bank
Long-Term Compensation
Awards Payouts
(f) (g) (h) (i)
Restricted All Other
Name and Stock Options/ LTIP Compen-
Principal Award(s) SARs sation
Position ($) Payouts ($)
(#) ($)
J. Gerald Bazewicz 0 2,000 0 50,032
President and CEO 0 2,000 0 46,123
of the corporation 0 2,000 0 43,949
and the bank
David R. Saracino 0 1,000 0 47,039
Treasurer and 0 1,000 0 43,474
Assistant Secretary 0 1,000 0 41,208
of the corporation
and Vice President,
Cashier and Assistant
Secretary of the bank
Page 14 First Keystone Corporation
____________________
Amounts shown for Mr. Bazewicz consist of base salary and fees paid for
attendance at Board of Directors meetings of $11,700 in 2000, $10,400 in
1999, and $10,000 in 1998.
Bonus information is reported by the year in which earned.
Stock Appreciation Rights.
All amounts listed indicate options granted pursuant to First Keystone
Corporation's 1998 Stock Incentive Plan.
Long-Term Incentive Plan Awards.
Amounts shown for Mr. Bazewicz include contributions to the bank's 401(k)
Plan of $17,613 for 2000, $15,933 for 1999, and $15,828 for 1998, accrual
for the bank's Supplemental Employee Retirement Plan (SERP) of $30,944 in
2000, $28,715 in 1999, and $26,646 in 1998 and premiums on term life
insurance of $1,475 for 2000, 1999, and 1998. Amounts shown for Mr.
Saracino include contributions to the bank's 401(k) Plan of $11,677 for
2000, $10,573 for 1999, and $10,591 for 1998, accrual for the bank's
Supplemental Employee Retirement Plan (SERP) of $34,164 in 2000, $31,703 in
1999, and $29,419 in 1998, and premiums on term life insurance of $1,198 in
2000, 1999, and 1998.
STOCK OPTION GRANTS IN FISCAL YEAR 2000
The corporation granted stock options to executive officers and
other employees during fiscal year ended December 31, 2000. All
options were granted under the First Keystone Corporation 1998 Stock
Incentive Plan. The table shows information about these grants to the
named officers:
INDIVIDUAL GRANTS
(a) (b) (c)
Number of % of Total
shares Options
underlying Granted to
Options Employees
Granted in in Fiscal
Name Fiscal Year Year
____ ______________ ________
J. Gerald Bazewicz 2,000 16.33%
David R. Saracino 1,000 8.16%
(d) (e) (f) (g)
Potential
Realizable
Value at
Assumed
Annual Rates
Exercise of Stock
or Base Appreciation
Price Expiration for Option
Name ($/Sh) Date Term
5%($) 10%($)
____ _____ ________ _____ _____
J. Gerald Bazewicz 17.00 9/26/10 21,380 54,180
David R. Saracino 17.00 9/26/10 10,690 27,090
____________________
The options were granted under the First Keystone Corporation's 1998 Stock
Incentive Plan on September 26, 2000, and are not exercisable until March
26, 2001.
AGGREGATED OPTION EXERCISES IN 2000 AND 2000 YEAR-END OPTION VALUES
The following table sets forth information about the number of
unexercised options and the value of unexercised options at December
31, 2000, held by the executive officers of the corporation named in
the Summary Compensation Table. In 2000, these executive officers did
not exercise any stock options.
Proxy Statement Page 15
Shares
Acquired
on Value
Name Exercise Realized
____ ________ _______
J. Gerald Bazewicz -- --
David R. Saracino -- --
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
December 31, December 31,
2000 2000
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
____ ____________ ____________
J. Gerald Bazewicz 4,000/2,000 $0 / $0
David R. Saracino 2,000/1,000 $0 / $0
__________________
All options granted through December 31, 2000, are reported.
Exercisable options are fully vested. Options which will vest in the
future are reported as unexercisable.
Represents the difference between $15.875 the last sale price of the
common stock on December 31, 2000, and the exercise price per share of
options multiplied by the number of exercisable and unexercisable
options held, respectively. None of the options were in-the-money as
of December 31, 2000.
401(K) PLAN
The bank maintains a 401(k) Plan which has a combined tax
qualified savings feature and profit sharing feature. The plan
provides benefits to employees who have completed at least one year of
service and are at least 21 years of age. The plan agreement provides
that the bank will match employee deferrals to the plan up to 3% of
their respective eligible compensations. Additionally, the bank may
make a discretionary contribution annually to the plan, which when
combined with the employee's deferral and bank's matching
contributions, cannot exceed 15% of total eligible compensation.
Contributions made by the bank to the plan are allocated to
participants in the same portions that each participant's compensation
bears to the aggregate compensation of all participants. Each
participant in the plan is 100% vested at all times. Benefits are
payable under the plan upon termination of employment, disability,
death, or retirement. Contributions reflected as expense under this
plan in 2000 and 1999 were:
2000 1999
____ ____
Matching contribution to savings plan $ 81,262 $ 75,725
Contribution to profit sharing plan 217,107 193,481
_______ ________
Total Expense $298,369 $269,206
Of the $298,369 total expenses during 2000, $44,815 was credited
among the individual accounts of the 4 most highly compensated
executive officers of the bank. Of the $44,815, Mr. Bazewicz was
credited with $17,613, and Mr. Saracino with $11,677. Each has been a
member of the plan for 15 years.
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
The corporation maintains a Supplemental Employee Retirement Plan
("SERP") covering 4 of the bank's executive officers, Mr. Bazewicz,
Mr. Saracino, Mr. Bodle, and Mrs. Rishkofski. The SERP, which is a
salary continuation agreement, provides that if the executive officer
continues to serve as an officer of the bank until a stated retirement
age of either 60 years or 62 years, the bank will pay 240 guaranteed
consecutive monthly payments commencing on the first day of the month
following the officer's 60th or 62nd birthday in the amounts indicated
below.
The salary continuation agreement allows the executive officers
to achieve a retirement income percentage that is more consistent with
their experience and years of service to the bank. The plan objective
is to provide the executive officers with a final wage replacement
ratio of approximately 75% of projected final salary
Page 16 First Keystone Corporation
including projected benefits from the bank 401(k), social security,
and salary continuation provided through the agreement. The
established retirement benefit under the salary continuation plan for
Messrs. Bazewicz, Saracino, Bodle, and Mrs. Rishkofski will be $3,750
per month, $2,333 per month, $1,750 per month, and $417 per month,
respectively, and is not subject to change. If the executive officer
attains their stated retirement age, but dies before receiving all of
the guaranteed monthly payments, then the bank will make the remaining
payments to the officer's beneficiary. In the event the officer dies
while serving as an officer, prior to their stated retirement age, the
bank will remit the guaranteed monthly payment to the officer's
beneficiary commencing the month following the executive's death. In
the event of a change of control and the termination of the officer's
employment, the guaranteed monthly payments will commence the month
following the executive's termination of service. No benefit shall be
paid if the executive officer voluntarily terminates employment prior
to attaining the stated retirement age.
OTHER EXECUTIVE BENEFITS
The corporation maintains the First Keystone Corporation 1998
Stock Incentive Plan to advance the development, growth and financial
condition of the corporation. Please refer to the description of the
1998 Stock Incentive Plan in the Board Compensation Committee Report
above. The corporation also maintains a bonus program for employees
and for senior management, which is also described above in the Board
Compensation Committee Report.
The bank has obtained term life insurance, designating the bank
as the beneficiary, on the life of each participating executive
officer in an amount which is intended to cover the bank's obligation
until the expense for the plan is fully accrued, based upon certain
actuarial assumptions. In 2000, the Bank expensed $97,929 for the
accrual of the salary continuation plan for the four executive
officers. In addition, $6,038 was paid to cover the year's premium on
the term insurance policies.
PERFORMANCE GRAPH
The following graph and table compare the cumulative total
shareholder return on the corporation's common stock during the period
December 31, 1995, through and including December 31, 2000, with
* the cumulative total return on the SNL Securities
Corporate Performance Index for banks with less than
$500 million in total assets in the Middle Atlantic
area , and
* the cumulative total return for all United States
stocks traded on the NASDAQ Stock Market.
The comparison assumes $100 was invested on December 31, 1995, in
the corporation's common stock and in each of the indices below and
assumes further the reinvestment of dividends into the applicable
securities. The shareholder return shown on the graph and table below
is not necessarily indicative of future performance.
Proxy Statement Page 17
(Performance Graph omitted)
(The following is a description of the performance graph in tabular
format)
FIRST KEYSTONE CORPORATION
Total Return Performance
Period Ending
12/31/95 12/31/96 12/31/97
First Keystone Corporation 100.00 131.59 248.20
NASDAQ - Total US 100.00 123.04 150.69
SNL less than $500M Bank Index 100.00 128.71 219.41
Period Ending
12/31/98 12/31/99 12/31/00
First Keystone Corporation 430.34 274.90 224.95
NASDAQ - Total US 212.51 394.92 237.62
SNL less than $500M Bank Index 200.34 185.44 178.90
__________________
[FN]
SNL Securities is a research and publishing firm specializing in the
collection and dissemination of data on the banking, thrift and
financial services industries.
The Middle Atlantic area comprises the states of Delaware,
Pennsylvania, Maryland, New Jersey, New York, the District of Columbia
and Puerto Rico.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than described below, there have been no material
transactions between the corporation and the bank, nor any material
transactions proposed, with any director or executive officer of the
corporation and the bank, or any associate of these persons. The law
firm Bull, Bull & Knecht, LLP, of which Director Bull and his son,
Robert A. Bull, are partners, provided routine legal services to the
bank according to the firm's normal fee schedule and billing rates,
and the bank intends to continue to engage the firm's services in the
future. The bank paid total fees of $49,750 to the law firm during
2000. In addition, the corporation and the bank have engaged in and
intend to continue to engage in banking and financial transactions in
the ordinary course of business with directors and officers of the
corporation and the bank and their associates on comparable terms and
with similar interest rates as those prevailing from time to time for
other customers of the corporation and the bank.
Page 18 First Keystone Corporation
Total loans outstanding from the corporation and the bank at
December 31, 2000, to the corporation's and the bank's officers and
directors as a group and members of their immediate families and
companies in which they had an ownership interest of 10% or more was
$1,455,475 or approximately 3.97% of the total equity capital. Loans
to such persons were made in the ordinary course of business, were
made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than the
normal risk of collectibility or present other unfavorable features.
All loans are current and being paid as agreed. The largest aggregate
amount of indebtedness outstanding at any time during fiscal year 2000
to officers and directors of the corporation and the bank, and their
affiliates as a group was $2,042,943. The aggregate amount of
indebtedness outstanding as of the latest practicable date, March 2,
2001, to the above described group was $1,399,218.
PRINCIPAL OFFICERS OF THE BANK
The following table presents selected information as of March 13,
2001, about the principal officers of the bank, each of whom is
elected by the Board of Directors and each of whom holds office at the
discretion of the Board of Directors:
Office and Position Held
Name with the Bank Since
____ ____________ _____
Robert E. Bull Chairman of the Board 1981
Robert J. Wise Vice Chairman 1996
of the Board
J. Gerald Bazewicz President and CEO 1987
John L. Coates Secretary 1995
David R. Saracino Vice President, 1983
Cashier and
Assistant Secretary
Leslie W. Bodle Vice President and 1985
Trust Officer
Sally A. Rishkofski Vice President 1997
Number of
Bank Shares Age as of
Employee Beneficially March 13,
Name Since Owned 2001
____ _______ __________ _______
Robert E. Bull 180,497 78
Robert J. Wise 159,582 71
J. Gerald Bazewicz 1973 17,295 52
John L. Coates 7,029 64
David R. Saracino 1972 6,343 56
Leslie W. Bodle 1985 5,915 53
Sally A. Rishkofski 1964 3,577 61
____________________
Messrs. Bull, Wise, and Coates are not employees of the bank.
For information on specific nature of ownership, please refer to
"Beneficial Ownership by Officers, Directors and Nominees".
Includes 3,000 shares which may be purchased upon the exercise of stock
options.
Proxy Statement Page 19
LEGAL PROCEEDINGS
In the opinion of the management of First Keystone Corporation
and its banking subsidiary, there are no proceedings pending to which
the corporation or its banking subsidiary is a party or to which their
property is subject, which, if determined adversely to the corporation
or the bank, would have a material effect on their undivided profits
or financial condition. There are no proceedings pending other than
routine litigation incident to the business of the corporation and its
banking subsidiary. In addition, to the Board's knowledge, no
government authorities have initiated, threatened to initiate, or
contemplated any material proceedings against First Keystone
Corporation or its banking subsidiary.
PROPOSAL NO. 2: RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed J. H. Williams & Co., LLP,
Certified Public Accountants, located at 270 Pierce Street, Kingston,
Pennsylvania 18705, as the corporation's independent auditors for its
2001 fiscal year. The Board proposes that shareholders ratify this
selection. J. H. Williams & Co., LLP, has advised the corporation
that none of its members has any financial interest in the
corporation. Ratification of J. H. Williams & Co., LLP, will require
the affirmative vote of a majority of the votes cast in person or by
proxy at the Annual Meeting by shareholders entitled to vote. J. H.
Williams & Co., LLP served as the corporation's independent auditors
for the 2000 fiscal year, assisted the corporation and the bank with
preparation of their federal and state tax returns, and provided
assistance in connection with regulatory matters, charging the bank
for such services at its customary hourly billing rates. The
corporation's and the bank's Board of Directors approved these
non-audit services after due consideration of the accountants'
objectivity and after finding them to be wholly independent.
Representatives of J. H. Williams & Co., LLP, will attend the
Annual Meeting of Shareholders, will have the opportunity to make a
statement and are expected to be available to respond to any
questions. In the event that the shareholders do not ratify the
selection of J. H. Williams & Co, LLP, as the corporation's
independent auditors for the 2001 fiscal year, another accounting firm
may be chosen to provide independent audit services for the 2001
fiscal year.
The Board of Directors recommends that the shareholders vote for
the ratification of the selection of J. H. Williams & Co., LLP, as
the independent auditors for the corporation for the year ending
December 31, 2001.
ANNUAL REPORT
A copy of the corporation's Annual Report for its fiscal year
ended December 31, 2000, is enclosed with this Proxy Statement.
Additional copies of the Annual Report may be obtained by contacting
J. Gerald Bazewicz, President, 111 West Front Street, Berwick,
Pennsylvania 18603, telephone: (570) 752-3671. We furnish the Annual
Report to shareholders for their information, it is not incorporated
in this Proxy Statement.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject to the
provisions of the proxy rules of the Securities and Exchange
Commission, wishes to submit a proposal for inclusion in the
corporation's Proxy Statement for its 2002 Annual Meeting of
Shareholders must deliver such proposal in writing to the President of
First Keystone Corporation at its principal executive offices, 111
West Front Street, Berwick, Pennsylvania 18603, not later than
Tuesday, November 27, 2001. Also, if the corporation receives notice
of any shareholder proposal after February 11, 2002, the persons named
as proxies for the 2002 Annual Meeting will have discretionary voting
authority to vote on such proposal at that meeting.
Page 20 First Keystone Corporation
OTHER MATTERS
The Board of Directors does not know of any matters to be
presented for consideration other than the matters described in the
accompanying Notice of Annual Meeting of Shareholders, but if any
matters are properly presented, the persons named in the accompanying
proxy intend to vote on such matters as they determine to be in the
best interest of the corporation.
ELECTRONIC ACCESS TO PROXY MATERIALS
AND
FINANCIAL STATEMENTS
The corporation is subject to the information reporting
requirements of the Securities Exchange Act of 1934 and must file
periodic financial reports, proxy statements and other information
with the SEC. You may obtain these documents, including the
corporation's report on Form 10-K for its fiscal year ended December
31, 2000, which contains the corporation's audited financial
statements, at the SEC's web site at http://www.sec.gov. You may also
obtain a copy of the corporation's report on Form 10-K for its fiscal
year ended December 31, 2000, without charge, by submitting a written
request to David R. Saracino, Treasurer, First Keystone Corporation,
111 West Front Street, Berwick, Pennsylvania 18603, telephone: (570)
752-3671.
Proxy Statement Page 21
Appendix A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
The Board of Directors has oversight responsibilities to promote
an environment where First Keystone Corporation maintains adequate
systems of internal control, presents reliable financial reports and
complies with applicable laws, regulations and corporation's policies.
Through this Charter, the Board delegates certain responsibilities to
the Audit Committee to assist the Board in the fulfillment of its
oversight responsibilities.
Authority - The Committee shall be given the resources and
assistance necessary to discharge its responsibilities, including
unrestricted access to the corporation's personnel and documents and
the corporation's outside auditors. The Committee shall also have
authority to engage outside advisors as it deems necessary.
Membership - The Committee shall consist of three or more
directors. Each committee member shall meet the independence
requirements set out by the National Association of Securities Dealers
(NASD). All committee members shall be financially literate, having
basic understanding of financial controls and reporting. At least one
committee member shall also have accounting or related financial
management expertise.
Meetings - The Committee shall meet at least quarterly each
fiscal year and may call special meetings as required. The meeting
agenda, draft minutes from prior meeting and supporting materials
shall be provided to committee members. The results of the meetings
shall be reported to the full Board.
Scope of Responsibilities - The corporation's executive
management bears primary responsibility for the corporation's
financial and other reporting, for establishing the system of internal
controls and for ensuring compliance with laws, regulations and
corporate policies. The Committee provides directions and controls
over internal audit function and the outside auditors. It is not the
Committee's duty to conduct audits or to determine that the
corporation's financial statements are complete and accurate. The
Committee's responsibilities and related key processes are described
below. From time to time, the Committee may take on additional
responsibilities, at the request of the Board.
Financial Reporting - The Committee shall monitor the preparation
by management of the corporation's quarterly and annual external
financial reports. In carrying out this responsibility, the Committee
shall:
* Review with management the significant judgments and
estimates used in developing the financial reports
and the major issues addressed;
* Review the accounting and reporting treatment of
significant transactions outside the corporation's
ordinary operations;
* Review with management and the corporation's outside
auditors significant changes to the corporation's accounting
principles or their application as reflected in the
financial reports;
* Meet with the corporation's outside auditors
(a) to review their reasoning in accepting or questioning
significant decisions made by management in preparing
the financial reports;
(b) to review any outstanding disagreements with
management that would cause them to issue a
non-standard report on the corporation's financial
statements;
Page 22 First Keystone Corporation
(c) to examine the appropriateness of the corporation's
accounting principles (including the quality, not
just the acceptability, of accounting principle) and
the clarity of disclosure practices used or proposed;
(d) to determine if any restrictions have been placed by
management on the scope of their audit, and
(e) to discuss any other matters the Committee deems
appropriate;
* Review the draft annual financial statements and discuss
their appropriateness with management and the corporation's
outside auditors; and
* Review the corporation's quarterly financial results with
management and the corporation's outside auditors, with a
particular emphasis on understanding any new or unusual
transactions.
Relationship with Outside Auditors - The outside auditors are
responsible primarily to the Board and the Committee, which have the
ultimate authority to select, evaluate and replace the outside
auditors, if necessary. In carrying out this responsibility, the
Committee shall:
* Recommend to the Board the appointment or removal of
the outside auditors;
* Review the scope and extent of audit services to be
provided and related fees;
* Review the overall audit plan, including risk factors
considered in determining the audit scope;
* Review the outside auditors' annual letter pursuant to
Independence Standards Board Standard No. 1, outlining
all relationships that may impact its independence and
engage in discussions with the outside auditors about
the outside auditors' independence;
* Review with the outside auditors the extent of non-audit
services provided and related fees;
* Determine whether the Committee believes the outside
auditors are independent; and
* Review the responsiveness of the outside auditors to
the corporation's needs.
Internal Control - The Committee shall have responsibility for
overseeing that management has implemented and effective system of
internal control that helps promote the reliability of financial and
operating information and compliance with applicable laws, regulations
and corporate policies, including those related to ethics and
conflicts of interest. In carrying out this responsibility, the
Committee shall:
* Inquire of management, management auditors and the
corporation's outside auditors, concerning any
deficiencies in the corporation's policies and procedures
that could adversely affect the adequacy of internal
controls and the financial reporting process and review the
timeliness and reasonableness of proposed corrective actions;
* Review significant management audit findings and
recommendations, and management's responses thereto;
* Review management's responses to the outside auditors'
recommendations for improving internal controls;
* Review the corporation's polices and practices related to
compliance with laws, ethical conduct and conflicts of
interest;
Proxy Statement Page 23
* Review significant cases of conflicts of interest,
misconduct or fraud;
* Review significant issues between the corporation and
the regulatory agencies; and
* Review as appropriate material litigation involving
the corporation.
Relationship with Management Auditor - The Committee shall have
responsibility for determining that the Management Auditor is
effectively discharging his responsibilities. In carrying out this
responsibility, the Committee shall:
* Review and approve the Management Auditor;
* Review the appropriateness of the operational independence
of Management Auditor;
Other Committee Activities and Reporting - The Committee shall:
* Annually review the Committee's discharge of its
responsibilities under this Charter;
* Review this Charter annually and propose any recommended
changes for the Board's approval; and
* Prepare the Committee's annual report for inclusion in the
corporation's proxy statement.
Page 24 First Keystone Corporation
FIRST KEYSTONE CORPORATION
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 17, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints and William
Selden, Jr. and Francis J. Radice, each or any of them, proxies of the
undersigned, with full power of substitution, to vote all of the
shares of First Keystone Corporation (the "Corporation") that the
undersigned may be entitled to vote at the Annual Meeting of
Shareholders of the Corporation to be held at the main office of The
First National Bank of Berwick, 111 West Front Street, Berwick,
Pennsylvania 18603 on Tuesday, April 17, 2001, at 10:00 a.m., Eastern
Daylight Time, and at any adjournment or postponement thereof as
follows:
1. PROPOSAL #1: ELECTION OF CLASS B DIRECTORS TO SERVE FOR A
THREE-YEAR TERM
John Arndt J. Gerald Bazewicz Robert E. Bull
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
above (except as marked to vote for all
to the contrary below) nominees listed above
(INSTRUCTION: IF YOU WISH TO WITHHOLD THE PROXIES' AUTHORITY TO VOTE
FOR ANY INDIVIDUAL NOMINEE FOR DIRECTOR LISTED ABOVE, WRITE THAT
NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
___________________________________________________________________
2. PROPOSAL #2: PROPOSAL TO RATIFY THE SELECTION OF J. H. WILLIAMS
& CO., LLP AS THE INDEPENDENT AUDITORS FOR THE CORPORATION FOR
THE YEAR ENDING DECEMBER 31, 2001.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
3. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting and any
adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED ABOVE AND FOR
PROPOSAL 2.
Dated: ____________________ , 2001
__________________________________
__________________________________
__________________________________
Signature(s) (Seal)
THIS PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND RETURNED
PROMPTLY TO THE CORPORATION IN THE ENCLOSED ENVELOPE. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE. IF MORE THAN ONE TRUSTEE, ALL SHOULD SIGN. IF STOCK IS
HELD JOINTLY, EACH OWNER SHOULD SIGN.