UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2002
Commission File Number: 2-88927
FIRST KEYSTONE CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2249083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
111 West Front Street, Berwick, PA 18603
(Address of principal executive Zip Code)
offices)
Registrant's telephone number, including area code: (570) 752-3671
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, $2 Par Value, 2,966,156 shares as of September 30, 2002.
PART I. - FINANCIAL INFORMATION
Item. 1 Financial Statements
FIRST KEYSTONE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
September December
2002 2001
(Unaudited)
<s> <c> <c>
ASSETS
Cash and due from banks $ 6,619 $ 6,500
Interest bearing deposits with banks 8,485 50
Available-for-sale securities
carried at estimated fair value 208,049 178,099
Investment securities, held to
maturity securities, estimated
fair value of $6,146 and $5,986 6,140 6,009
Loans, net of unearned income 200,716 198,224
Allowance for loan losses 3,152 2,922
________ ________
Net loans $197,564 $195,302
________ ________
Bank premises and equipment 3,480 3,275
Accrued interest receivable 2,928 2,994
Other assets 1,463 1,243
________ ________
Total Assets $434,728 $393,472
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 33,667 $ 25,576
Interest bearing 293,287 269,105
________ ________
Total deposits $326,954 $294,681
Short-term borrowings 7,690 11,566
Long-term borrowings 46,750 45,250
Accrued interest and other expenses 2,042 2,083
Other liabilities 2,882 196
________ ________
Total Liabilities $386,318 $353,776
STOCKHOLDERS' EQUITY
Common stock, par value $2 per share $ 6,150 $ 5,867
Surplus 12,584 9,761
Retained earnings 26,457 26,450
Accumulated other comprehensive
income (loss) 6,532 715
Treasury stock at cost 109,024
shares in 2002 and 100,000 in 2001 (3,313) (3,097)
________ ________
Total Stockholders' Equity $ 48,410 $ 39,696
Total Liabilities and
Stockholders' Equity $434,728 $393,472
======== ========
See Accompanying Notes to Financial Statements
1
FIRST KEYSTONE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED September 30, 2002 AND 2001
(Unaudited)
(Amounts in thousands except per share data)
2002 2001
<s> <c> <c>
INTEREST INCOME
Interest and fees on loans $ 3,788 $ 3,990
Interest and dividend income
on securities 2,743 2,710
Interest on deposits in banks 52 36
_________ _________
Total Interest Income $ 6,583 $ 6,736
INTEREST EXPENSE
Interest on deposits $ 2,049 $ 2,886
Interest on short-term borrowings 33 90
Interest on long-term borrowings 987 602
_________ _________
Total Interest Expense $ 3,069 $ 3,578
Net interest income $ 3,514 $ 3,158
Provision for loan losses 125 100
_________ _________
Net Interest Income After
Provision for Loan Losses $ 3,389 $ 3,058
OTHER INCOME
Service charges on deposit accounts $ 339 $ 284
Other non-interest income 191 202
Investment securities gains
(losses) net 18 45
_________ _________
Total Other Income $ 548 $ 531
OTHER EXPENSES
Salaries and employee benefits $ 1,052 $ 971
Net occupancy and fixed asset
expense 302 246
Other non-interest expense 638 559
_________ _________
Total Other Expenses $ 1,992 $ 1,776
Income before income taxes $ 1,945 $ 1,813
Applicable income tax (benefit) 397 406
_________ _________
Net Income $ 1,548 $ 1,407
========= =========
Per Share Data
Net Income $ .52 $ .47
Cash dividends .21 .19
Weighted average shares
outstanding 2,974,288 2,975,180
See Accompanying Notes to Financial Statements
2
FIRST KEYSTONE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED September 30, 2002 AND 2001
(Unaudited)
(Amounts in thousands except per share data)
2002 2001
<s> <c> <c>
INTEREST INCOME
Interest and fees on loans $ 11,274 $ 11,920
Interest and dividend income
on securities 8,105 8,084
Interest on deposits in banks 61 205
_________ _________
Total Interest Income $ 19,440 $ 20,209
INTEREST EXPENSE
Interest on deposits $ 6,060 $ 9,242
Interest on short-term borrowings 117 286
Interest on long-term borrowings 2,247 1,779
_________ _________
Total Interest Expense $ 8,424 $ 11,307
Net interest income $ 11,016 $ 8,902
Provision for loan losses 425 285
_________ _________
Net Interest Income After
Provision for Loan Losses $ 10,591 $ 8,617
OTHER INCOME
Service charges on deposit
accounts $ 922 $ 861
Other non-interest income 580 619
Investment securities gains
(losses) net 26 96
_________ _________
Total Other Income $ 1,528 $ 1,576
OTHER EXPENSES
Salaries and employee benefits $ 3,076 $ 2,882
Net occupancy and fixed asset
expense 812 773
Other non-interest expense 1,825 1,645
_________ _________
Total Other Expenses $ 5,713 $ 5,300
Income before income taxes $ 6,406 $ 4,893
Applicable income tax (benefit) 1,467 1,039
_________ _________
Net Income $ 4,939 $ 3,854
========= =========
Per Share Data
Net Income $ 1.66 $ 1.30
Cash dividends .61 .57
Weighted average shares
outstanding 2,974,288 2,975,180
See Accompanying Notes to Financial Statements
3
FIRST KEYSTONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED September 30, 2002 AND 2001
(Unaudited)
(Amounts in thousands)
2002 2001
<s> <c> <c>
OPERATING ACTIVITIES
Net income $ 4,939 $ 3,854
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for loan losses 425 285
Provision for depreciation
and amortization 292 298
Premium amortization on
investment securities 369 206
Discount accretion on investment
securities (486) (732)
Gain on sale of mortgage loans (184) (95)
Proceeds from sale of mortgage loans 6,712 6,865
Originations of mortgage loans for
resale (6,930) (3,820)
(Gain) loss on sales of investment
securities (26) (96)
(Gain) loss on sales of other real
estate owned 0 19
Deferred income tax (benefit) (109) (42)
(Increase) decrease in interest
receivable and other assets (244) 1,797
Increase (decrease) in interest
payable, accrued expenses and
other liabilities (203) (127)
________ ________
Net Cash Provided by Operating
Activities $ 4,555 $ 8,412
INVESTING ACTIVITIES
Purchases of investment
securities available-for-sale $(77,489) $(78,918)
Purchase of investment securities
held-to-maturity (983) 0
Proceeds from sales of investment
securities available for sale 41,922 17,372
Proceeds from maturities and
redemptions of investment
securities available for sale 14,600 36,828
Proceeds from maturities and
redemption of investment
securities held to maturity 832 1,150
Net (increase) decrease in loans (2,316) (12,149)
Purchase of premises and equipment (497) (68)
Proceeds from sale of other real
estate owned 75 387
________ ________
Net Cash Used by Investing
Activities $(23,856) $(35,398)
FINANCING ACTIVITIES
Net increase (decrease) in
deposits $ 32,273 $ 27,537
Net increase (decrease) in
short-term borrowings (3,876) 1,188
Net increase (decrease) in
long-term borrowings 1,500 1,000
Acquisition of treasury stock (240) 0
Proceeds from sale of treasury
stock 18 0
Cash dividends (1,820) (1,700)
________ ________
Net Cash Provided by Financing
Activities $ 27,855 $ 28,025
Increase (Decrease) in Cash and
Cash Equivalent 8,554 1,039
Cash and Cash Equivalents, Beginning 6,550 9,161
________ ________
Cash and Cash Equivalents, Ending $ 15,104 $ 10,200
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during period for
Interest $ 8,540 $ 11,642
Income Taxes 1,808 1,075
See Accompanying Notes to Financial Statements
4
FIRST KEYSTONE CORPORATION
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of First Keystone Corporation and
Subsidiary (the "Corporation") are in accordance with accounting
principles generally accepted in the United States of America and
conform to common practices within the banking industry. The more
significant policies follow:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
First Keystone Corporation and its wholly-owned Subsidiary, The First
National Bank of Berwick (the "Bank"). All significant
inter-company balances and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS
The Corporation, headquartered in Berwick, Pennsylvania, provides
a full range of banking, trust and related services through its wholly
owned Bank subsidiary and is subject to competition from other financial
institutions in connection with these services. The Bank serves a
customer base which includes individuals, businesses, public and
institutional customers primarily located in the Northeast Region of
Pennsylvania. The Bank has ten full service offices and 14 ATMs located
in Columbia, Luzerne and Montour Counties. The Corporation and its
subsidiary must also adhere to certain federal banking laws and
regulations and are subject to periodic examinations made by various
federal agencies.
SEGMENT REPORTING
The Corporation's banking subsidiary acts as an independent
community financial services provider, and offers traditional banking
and related financial services to individual, business and government
customers. Through its branch and automated teller machine network, the
Bank offers a full array of commercial and retail financial services,
including the taking of time, savings and demand deposits; the making of
commercial, consumer and mortgage loans; and the providing of other
financial services. The Bank also performs personal, corporate, pension
and fiduciary services through its Trust Department.
Management does not separately allocate expenses, including the
cost of funding loan demand, between the commercial, retail, trust and
mortgage banking operations of the Corporation. Currently, management
measures the performance and allocates the resources of First Keystone
Corporation as a single segment.
USE OF ESTIMATES
The preparation of these consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of these
consolidated financial statements and the reported amounts of income and
expenses during the reporting periods. Actual results could differ from
those estimates.
INVESTMENT SECURITIES
The Corporation classifies its investment securities as either
"Held-to-Maturity" or "Available-for-Sale" at the time of purchase. Debt
securities are classified as Held-to-Maturity when the Corporation has
the ability and positive intent to hold the securities to maturity.
Investment securities Held-to-Maturity are carried at cost adjusted for
amortization of premium and accretion of discount to maturity.
5
Debt securities not classified as Held-to-Maturity and equity
securities are included in the Available-for-Sale category and are
carried at fair value. The amount of any unrealized gain or loss, net of
the effect of deferred income taxes, is reported as other comprehensive
income (loss) in the Consolidated Statement of Stockholders' Equity.
Management's decision to sell
Available-for-Sale securities is based on changes in economic conditions
controlling the sources and applications of funds, terms, availability
of and yield of alternative investments, interest rate risk and the need
for liquidity.
The cost of debt securities classified as Held-to-Maturity or
Available-for-Sale is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion, as
well as interest and dividends is included in interest income from
investments. Realized gains and losses are included in net investment
securities gains. The cost of investment securities sold, redeemed or
matured is based on the specific identification method.
LOANS
Loans are stated at their outstanding unpaid principal balances,
net of deferred fees or costs, unearned income and the allowance for
loan losses. Interest on installment loans is recognized as income over
the term of each loan, generally, by the "actuarial method". Interest on
all other loans is primarily recognized based upon the principal amount
outstanding. Loan origination fees and certain direct loan origination
costs have been deferred with the net amount amortized using the
interest method over the contractual life of the related loans as an
interest yield adjustment.
Mortgage loans held for resale are carried at the lower of cost or
market on an aggregate basis. These loans are sold without recourse to
the Corporation.
Non-Accrual Loans - Generally, a loan is classified as non-accrual and
the accrual of interest on such a loan is discontinued when the
contractual payment of principal or interest has become 90 days past due
or management has serious doubts about further collectibility of
principal or interest, even though the loan currently is performing. A
loan may remain on accrual status if it is in the process of collection
and is either guaranteed or well secured. When a loan is placed on
non-accrual status, unpaid interest credited to income in the current year
is reversed and unpaid interest accrued in prior years is charged
against the allowance for loan losses. Certain
non-accrual loans may continue to perform, that is, payments are still
being received. Generally, the payments are applied to principal. These
loans remain under constant scrutiny and if performance continues,
interest income may be recorded on a cash basis based on management's
judgement as to collectibility of principal.
Allowance for Loan Losses - 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.
A principal factor in estimating the allowance for loan losses is
the measurement of impaired loans. A loan is considered impaired when,
based on current information and events, it is probable that the
Corporation will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Under current accounting
standards, the allowance for loan losses related to impaired loans is
based on discounted cash flows using the effective interest rate of the
loan or the fair value of the collateral for certain collateral
dependent loans.
The allowance for loan losses is maintained at a level estimated
by management to be adequate to absorb potential loan losses.
Management's periodic evaluation of the adequacy of the allowance for
loan losses is based on the Corporation's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, composition
of the loan portfolio, current economic conditions, and other relevant
factors. This evaluation is inherently subjective as it requires
material estimates including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to
significant change.
6
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation computed principally on the straight-line method over the
estimated useful lives of the assets. Maintenance and minor repairs are
charged to operations as incurred. The cost and accumulated depreciation
of the premises and equipment retired or sold are eliminated from the
property accounts at the time of retirement or sale, and the resulting
gain or loss is reflected in current operations.
MORTGAGE SERVICING RIGHTS
The Corporation originates and sells real estate loans to
investors in the secondary mortgage market. After the sale, the
Corporation retains the right to service these loans. When originated
mortgage loans are sold and servicing is retained, a servicing asset is
capitalized based on relative fair value at the date of sale. Servicing
assets are amortized as an offset to other fees in proportion to, and
over the period of, estimated net servicing income. The unamortized cost
is included in other assets in the accompanying consolidated balance
sheet. The servicing rights are periodically evaluated for impairment
based on their relative fair value.
FORECLOSED ASSETS HELD FOR SALE
Real estate properties acquired through, or in lieu of, loan
foreclosure are held for sale and are initially recorded at fair value
on the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the
real estate is carried at the lower of carrying amount or fair value
less cost to sell and is included in other assets. Revenues derived from
and costs to maintain the assets and subsequent gains and losses on
sales are included in other non-interest income and expense.
INVESTMENT IN REAL ESTATE VENTURE
In October of 2000, the Bank became a limited partner in a real
estate venture that owns and operates an affordable residential
low-income housing apartment building for elderly residents. The investment
is accounted for under the effective yield method under the Emerging
Issues Task Force (EITF) 94-1 "Accounting for Tax Benefits Resulting
from Investments in Affordable Housing Projects". The carrying value of
the investment as of September 30, 2002, and December 31, 2001, was
$575,617 and $617,284, respectively, and is carried in Other Assets in
the accompanying consolidated balance sheet.
INCOME TAXES
The provision for income taxes is based on the results of
operations, adjusted primarily for tax-exempt income. Certain items of
income and expense are reported in different periods for financial
reporting and tax return purposes. Deferred tax assets and liabilities
are determined based on the differences between the consolidated
financial statement and income tax bases of assets and liabilities
measured by using the enacted tax rates and laws expected to be in
effect when the timing differences are expected to reverse. Deferred tax
expense or benefit is based on the difference between deferred tax asset
or liability from period to period.
STOCK BASED COMPENSATION
The Corporation accounts for stock options and shares issued under
the Stock Option Incentive Plan in accordance with Accounting Principles
Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees".
Under this method no compensation expense is recognized for stock
options when the exercise price equals the fair value of the options at
the grant date. Under provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock Based Compensation", the
fair value of a stock option is required to be recognized as
compensation expense over the service period (generally the vesting
period). As permitted under SFAS No. 123 the Corporation has elected to
continue to account for its stock option plan in accordance with APB No.
25.
PER SHARE DATA
Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share, requires dual presentation of basic and fully
diluted earnings per share. Basic earnings per share is calculated by
dividing net income by the weighted average number of shares of common
stock outstanding at the end of each period. Diluted earnings per share
is calculated by increasing the denominator for the assumed conversion
of all potentially dilutive
7
securities. The Corporation's dilutive securities are limited to stock
options which currently have no effect on earnings per share since the
market price per share historically has not been greater than the lowest
stock option exercise price.
Per share data has been adjusted retroactively for stock splits
and stock dividends.
CASH FLOW INFORMATION
For purposes of reporting consolidated cash flows, cash and cash
equivalents include cash on hand and due from other banks and interest
bearing deposits in other banks. The Corporation considers cash
classified as interest bearing deposits with other banks as a cash
equivalent since they are represented by cash accounts essentially on a
demand basis.
TRUST ASSETS AND INCOME
Property held by the Corporation in a fiduciary or agency capacity
for its customers is not included in the accompanying consolidated
financial statements since such items are not assets of the Corporation.
Trust Department income is generally recognized on a cash basis and is
not materially different than if it were reported on an accrual basis.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities", is generally effective for transactions
occurring after March 31, 2001. For recognition and reclassification of
collateral and for disclosure related to securitization transactions and
collateral, the effective date is for fiscal years ending after December
15, 2000. SFAS No. 140 replaces SFAS No. 125 and provides revisions to
the standards for accounting and requirements for certain disclosures
relating to securitzations and other transfers of financial assets. The
standard does not have any impact on the Corporation's consolidated
financial condition or results of operations.
REPORTING FORMAT
Certain amounts in the consolidated financial statements of prior
periods have been reclassified to conform with presentation used in the
2002 consolidated financial statements. Such reclassifications have no
effect on the Corporation's consolidated financial condition or net
income.
Note 2. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the periods ended
September 30, 2002, and September 30, 2001, were as follows:
(amounts in thousands)
2002 2001
____ ____
<s> <c> <c>
Balance, January 1 $2,922 $2,702
Provision charged to operations 425 285
Loans charged off (287) (393)
Recoveries 92 59
______ ______
Balance, September 30 $3,152 $2,653
At September 30, 2002, the recorded investment in loans that are
considered to be impaired as defined by SFAS No. 114 was $93,350. No
additional charge to operations was required to provide for the impaired
loans since the total allowance for loan losses is estimated by
management to be adequate to provide for the loan loss allowance
required by SFAS No. 114 along with any other potential losses.
At September 30, 2002, there were no significant commitments to
lend additional funds with respect to non-accrual and restructured
loans.
8
Note 3. SHORT-TERM BORROWINGS
Federal funds purchased, securities sold under agreements to
repurchase and Federal Home Loan Bank advances generally represent
overnight or less than 30-day borrowings. U.S. Treasury tax and loan
notes for collections made by the Bank are payable on demand.
Note 4. LONG-TERM BORROWINGS
Long-term borrowings are comprised of advances from the Federal
Home Loan Bank. Under terms of a blanket agreement, collateral for the
loans are secured by certain qualifying assets of the Corporation's
banking subsidiary which consist principally of first mortgage loans and
certain investment securities.
Note 5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK
The Corporation is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated balance
sheets. The contract or notional amounts of those instruments reflect
the extent of involvement the Corporation has in particular classes of
financial instruments. The Corporation does not engage in trading
activities with respect to any of its financial instruments with
off-balance sheet risk.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of those instruments.
The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
The Corporation may require collateral or other security to
support financial instruments with off-balance sheet credit risk. The
contract or notional amounts at September 30, 2002, and December 31,
2001, were as follows:
<CATPION>
(amounts in thousands) September 30, December 31,
2002 2001
____ ____
<s> <c> <c>
Financial instruments whose
contract amounts represent
credit risk:
Commitments to extend credit $24,340 $23,598
Standby letters of credit $ 3,619 $ 1,055
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 that 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. The Corporation evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Corporation upon extension of credit, is based on
management's credit evaluation of the counter-party. Collateral held
varies but may include accounts receivable, inventory, property, plant
and equipment, and income-producing commercial properties.
9
Standby letters of credit are conditional commitments issued by
the Corporation to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Corporation may hold collateral to support standby
letters of credit for which collateral is deemed necessary.
The Corporation grants commercial, agricultural, real estate
mortgage and consumer loans to customers primarily in the counties of
Columbia, Luzerne, and Montour, Pennsylvania. It is management's opinion
that the loan portfolio was well balanced and diversified at September
30, 2002, to the extent necessary to avoid any significant concentration
of credit risk. However, its debtors ability to honor their contracts
may be influenced by the region's economy.
Note 6. STOCKHOLDERS' EQUITY
Changes in Stockholders' Equity for the period ended September 30,
2002, were are follows:
(Amounts in thousands, except common share data)
Common Common
Shares Stock Surplus
______ ______ _______
<s> <c> <c> <c>
Balance at January 1, 2002 2,933,727 $5,867 $ 9,761
Comprehensive Income:
Net Income
Change in unrealized
gain (loss) on
investment securities
available-for-sale,
net of reclassification
adjustment and tax
effects
Total Comprehensive
income (loss)
Purchase of 10,024 shares
treasury stock
Sale of 1,000 shares
treasury stock (6)
5% Stock Dividend 141,453 283 2,829
Dividends in lieu of
fractional shares
Cash dividends -
$.61 per share
_________ ______ _______
Balance at September 30, 2002 3,075,180 $6,150 $12,584 ========= ====== =======
(Amounts in thousands, except common share data)
Accumulated
Compre- Other
hensive Retained Comprehensive
Income Earnings Income (Loss)
______ ______ _______
<s> <c> <c> <c>
Balance at January 1, 2002 $26,450 $ 715
Comprehensive Income:
Net Income $ 4,939 4,939
Change in unrealized
gain (loss) on
investment securities
available-for-sale,
net of reclassification
adjustment and tax
effects 5,817 5,817
_______
Total Comprehensive
income (loss) $10,756
=======
Purchase of 10,024 shares
treasury stock
Sale of 1,000 shares
treasury stock
5% Stock Dividend (3,112)
Dividends in lieu of
fractional shares (5)
Cash dividends -
$.61 per share (1,815)
_______ ______
Balance at September 30, 2002 $26,457 $6,532
======= ======
(Amounts in thousands, except common share data)
Treasury
Stock Total
<s> <c> <c>
Balance at January 1, 2002 $(3,097) $39,696
Comprehensive Income:
Net Income 4,939
Change in unrealized
gain (loss) on
investment securities
available-for-sale,
net of reclassification
adjustment and tax
effects 5,817
Total Comprehensive
income (loss)
Purchase of 10,024 shares
treasury stock (240) (240)
Sale of 1,000 shares
treasury stock 24 18
5% Stock Dividend
Dividends in lieu of
fractional shares (5)
Cash dividends -
$.61 per share (1,815)
_______ _______
Balance at September 30, 2002 $(3,313) $48,410
======= =======
Note 7. MANAGEMENT'S ASSERTIONS AND COMMENTS REQUIRED TO
BE PROVIDED WITH FORM 10Q FILING
In management's opinion, the consolidated interim financial
statements reflect fair presentation of the consolidated financial
position of First Keystone Corporation and Subsidiary, and the results
of their operations and their cash flows for the interim periods
presented. Further, the consolidated interim financial statements are
unaudited, however they reflect all adjustments, which are in the
opinion of management, necessary to present fairly the consolidated
financial condition and consolidated results of operations and cash
flows for the interim period presented and that all such adjustments to
the consolidated financial statements are of a normal recurring nature.
10
The results of operations for the nine-month period ended
September 30, 2002, are not necessarily indicative of the results to be
expected for the full year.
These consolidated interim financial statements have been prepared
in accordance with requirements of Form 10Q and therefore do not include
all disclosures normally required by accounting principles generally
accepted in the United States of America applicable to financial
institutions as included with consolidated financial statements included
in the Corporation's annual Form 10K filing. The reader of these
consolidated interim financial statements may wish to refer to the
Corporation's annual report or Form 10K for the period ended December
31, 2001, filed with the Securities and Exchange Commission.
11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of First Keystone Corporation:
We have reviewed the accompanying consolidated balance sheet of First
Keystone Corporation and Subsidiary as of September 30, 2002, and the
related consolidated statements of income and cash flows for the three
and nine-month periods ended September 30, 2002 and 2001. These
consolidated financial statements are the responsibility of the
management of First Keystone Corporation and Subsidiary.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with auditing standards generally
accepted in the United States of America, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the consolidated financial statements referred to
above for them to be in conformity with accounting principles generally
accepted in the United States of America..
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated
balance sheet of First Keystone Corporation and Subsidiary as of
December 31, 2001, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated January 10, 2002, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 2001, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ J. H. Williams & Co., LLP
J. H. Williams & Co., LLP
Kingston, Pennsylvania
October 17, 2002
12
Item 2. First Keystone Corporation Management's
Discussion and Analysis of Financial Condition and
Results of Operation as of September 30, 2002
This quarterly report contains certain forward-looking statements
(as defined in the Private Securities Litigation Reform Act of 1995),
which reflect management's beliefs and expectations based on information
currently available. These forward-looking statements are inherently
subject to significant risks and uncertainties, including changes in
general economic and financial market conditions, the Corporation's
ability to effectively carry out its business plans and changes in
regulatory or legislative requirements. Other factors that could cause
or contribute to such differences are changes in competitive conditions,
and pending or threatened litigation. Although management believes the
expectations reflected in such forward-looking statements are
reasonable, actual results may differ materially.
RESULTS OF OPERATIONS
First Keystone Corporation realized earnings for the third quarter
of 2002 of $1,548,000, an increase of $141,000, or 10.0% from the third
quarter of 2001. Nine months net income for the period ended September
30, 2002, amounted to $4,939,000, an increase of 28.2% from the
$3,854,000 net income reported September 30, 2001. The increase in
year-to-date net income for 2002 was primarily the result of an improved
net interest margin resulting in increased net interest income. On a
per share basis, net income per share amounted to $1.66 for the nine
months of 2002, compared to $1.30 for the first nine months of 2001,
while dividends increased to $.61 per share up from $.57 in 2001, or an
increase of 7.0%. Per share data has been adjusted to reflect a 5%
dividend paid August 6, 2002.
Year-to-date net income annualized amounts to a return on average
common equity of 15.33% and a return on assets of 1.62%. For the nine
months ended September 30, 2001, these measures were 13.39% and 1.35%,
respectively on an annualized basis.
NET INTEREST INCOME
The major source of operating income for the Corporation is net
interest income, defined as interest income less interest expense. In
the third quarter of 2002, interest income amounted to $6,583,000, a
decrease of $153,000 or 2.3% from the third quarter of 2001. Interest
expense amounted to $3,069,000 in the third quarter of 2002, a decrease
of $509,000, or 14.2% from the third quarter of 2001. Accordingly, net
interest income amounted to $3,514,000 in the third quarter of 2002, an
increase of $356,000, or 11.3% over the third quarter of 2001.
Year-to-date for the nine months ended September 30, 2002, total
interest income
decreased $769,000, or 3.8% from the first nine months of 2001. Total
interest expense decreased $2,883,000, or 25.5% for the first nine
months of 2002 over 2001. This resulted in net interest income
increasing $2,114,000 to $11,016,000 as of September 30, 2002. The
increased net interest income reflects substantially reduced deposit
costs.
Our net interest margin for the quarter ended September 30, 2002,
was 3.74% compared to 3.62% for the quarter ended September 30, 2001.
For the nine months ended September 30, 2002, our net interest margin
was 4.04% compared to 3.51% for the first nine months of 2001.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the quarter ended September 30,
2002, was $125,000 compared to $100,000 for the third quarter of 2001.
Year-to-date, the provision for loan losses amounts to $425,000 in 2002
as compared to the $285,000 provision for the period ended September 30,
2001. Net charge-offs amounted to $195,000 for the nine months ended
September 30, 2002, as compared to $334,000 for the first nine months of
2001.
13
The allowance for loan losses as a percentage of loans, net of
unearned interest was 1.57% as of September 30, 2002, and 1.47% as of
December 31, 2001.
NON-INTEREST INCOME
Total non-interest or other income was $548,000 for the quarter
ended September 30, 2002, as compared to $531,000 for the quarter ended
September 30, 2001. Excluding investment security gains and losses,
non-interest income was $530,000 for the third quarter of 2002, as
compared to $486,000 in the third quarter of 2001, an increase of 9.1%.
For the nine months ended September 30, 2002, total non-interest income
was $1,528,000, a decrease of $48,000, or 3.0% from the first nine
months of 2001. A decrease in other non-interest income and gains on
securities in the first nine months of 2002 accounts for the overall
reduction in total non-interest or other income.
NON-INTEREST EXPENSES
Total non-interest, or other expenses, was $1,992,000 for the
quarter ended September 30, 2002, as compared to $1,776,000 for the
quarter ended September 30, 2001. The increase of $216,000, or 12.2%,
is comprised of salary and benefits increasing $81,000, occupancy
expense increasing $56,000, and other non-interest expense increasing
$79,000. Much of the increase in non-interest expense in the third
quarter relates to the opening of our tenth full service office in
Kingston, Pennsylvania, during the quarter.
For the nine months ended September 30, 2002, total non-interest
expense was $5,713,000, an increase of $413,000, or 7.8% over the first
nine months of 2001. Expenses associated with employees (salaries and
employee benefits) continue to be the largest category of non-interest
expenses. Salaries and benefits amount to 53.8% of total non-interest
expense for the nine months ended September 30, 2002, as compared to
54.4% for the first nine months of 2001. Salaries and benefits amounted
to $3,076,000 for the nine months ended September 30, 2002, an increase
of $194,000, or 6.7% over the first nine months of 2001. Net occupancy
expense amounted to $812,000 for the nine-months ended September 30,
2002, an increase of $39,000, or 5.0% from 2001. Other non-interest
expenses amounted to $1,825,000 for the nine months ended September 30,
2002, an increase of $180,000, or 10.9% over the first nine months of
2001. Even with the increase in non-interest expenses in 2002, our
overall non-interest expense continues at less than 2% of average assets
on an annualized basis. This places us among the leaders of our peer
financial institutions at controlling non-interest expense.
INCOME TAXES
Effective tax planning has helped produce favorable net income.
The effective total income tax rate was 20.4% for the third quarter of
2002 as compared to 22.4% for the third quarter of 2001. For the nine
months ended September 30, 2002, our tax liability amounted to
$1,467,000 for an effective tax rate of 22.9% as compared to an
effective tax rate of 21.2% for the first nine months of 2001. The
increase in our effective tax rate was due primarily to the limited
opportunities to purchase municipal (tax-free investments) securities at
attractive interest rates within the maturity ranges we desired.
ANALYSIS OF FINANCIAL CONDITION
ASSETS
Total assets increased to $434,728,000 as of September 30, 2002,
an increase of $41,256,000, or 10.5% over year-end 2001. Total deposits
increased to $326,954,000 as of September 30, 2002, an increase of
$32,273,000, or 11.0% over year-end 2001.
14
The Corporation used the increase in total deposits to fund
primarily an increase in earnings assets, in particular, total loans and
investment securities. Borrowings decreased $2,376,000 from December
31, 2001. Short-term borrowings decreased to $7,690,000 as of September
30, 2002, down $3,876,000 from year-end 2001. Long-term borrowings
increased to $46,750,000 as of September 30, 2002, up $1,500,000 from
year-end 2001.
EARNING ASSETS
Our primary earning asset, loans, net of unearned income increased
to $200,716,000 as of September 30, 2002, up $2,492,000, or 1.3% since
year-end 2001. The loan portfolio is well diversified and increases in
the portfolio have been primarily from increased originations of real
estate loans and commercial loans secured by real estate. Asset quality
remains relatively strong with past-due loans being stable and
non-performing loans decreasing due to a large commercial real estate loan
being brought current and restructured.
In addition to loans, another primary earning asset is our
investment portfolio which also increased in size from December 31,
2001, to September 30, 2002. Held-to-maturity securities amounted to
$6,140,000 as of September 30, 2002, an increase of $131,000, or 2.2%
since year-end 2001. Likewise, available-for-sale securities increased
to $208,049,000 as of September 30, 2002, an increase of $29,950,000, or
16.8% from year-end 2001. Interest bearing deposits with banks
increased to $8,485,000 on September 30, 2002, as compared to $50,000 as
of December 31, 2001.
ALLOWANCE FOR LOAN LOSSES
Management performs a quarterly analysis to determine the adequacy
of the allowance for loan losses. The methodology in determining
adequacy incorporates specific allocations together with a risk/loss
analysis on various segments of the portfolio according to an internal
loan review process. Management maintains its loan review and loan
classification standards consistent with those of its regulatory
supervisory authority. Management feels, considering the conservative
portfolio composition, which is largely composed of small retail loans
(mortgages and installments) with minimal classified assets, low
delinquencies, and favorable loss history, that the allowance for loan
loss is adequate to cover foreseeable future losses.
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been disclosed under
Industry Guide 3 do not (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact
future operating results, liquidity, or capital resources, or (ii)
represent material credits about which management is aware of any
information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
The company was required to adopt Financial Accounting Standards
Board Statement No. 114, "Accounting by Creditors for Impairment of a
Loan" - Refer to Note 5 above for details.
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual and restructured
loans, other real estate and foreclosed assets, together with the loans
past-due 90 days or more and still accruing. As of September 30, 2002,
total non-performing assets were $652,940 as compared to $1,394,000 on
December 31, 2001. Non-performing assets to total loans and foreclosed
assets was .33% as of September 30, 2002, and .70% as of December 31,
2001.
Interest income received on non-performing loans as of September
30, 2002, was $13,653 compared to $72,382 as of December 31, 2001.
Interest income, which would have been recorded on these loans under the
original terms as of September 30, 2002, and December 31, 2001, was
$39,100 and $93,258, respectively. As of September 30, 2002 and
December 31, 2001, there was no outstanding commitments to advance
additional funds with respect to these non-performing loans.
15
DEPOSITS AND OTHER BORROWED FUNDS
As indicated previously, total deposits increased by $32,273,000
as non-interest bearing deposits increased by $8,091,000 and interest
bearing deposits increased by $24,182,000 as of September 30, 2002, from
year-end 2001. Total short-term and long-term borrowings decreased by
$2,376,000 from year-end 2001.
CAPITAL STRENGTH
Normal increases in capital are generated by net income, less cash
dividends paid out. Also, accumulated other comprehensive income
derived from unrealized gains on investment securities available-for-sale
increased shareholders' equity, or capital net of taxes, by
$6,532,000 as of September 30, 2002, and $715,000 as of December 31,
2001. Our stock repurchase plan repurchased 109,024 shares as of
September 30, 2002 and 100,000 shares as of December 31, 2001. This had
an effect of our reducing our total stockholders' equity by $3,313,000
on September 30, 2002, and $3,097,000 as of December 31, 2001.
Total stockholders' equity was $48,410,000 as of September 30,
2002, and $39,696,000 as of December 31, 2001. Leverage ratio and risk
based capital ratios remain very strong. As of September 30, 2002, our
leverage ratio was 9.86% compared to 9.79% as of December 31, 2001. In
addition, Tier I risk based capital and total risk based capital ratio
as of September 30, 2002, were 16.24% and 17.58%, respectively. The
same ratios as of December 31, 2001, were 15.01% and 16.26%,
respectively.
LIQUIDITY
The liquidity position of the Corporation remains adequate to meet
customer loan demand and deposit fluctuation. Managing liquidity
remains an important segment of asset liability management. Our overall
liquidity position is maintained by an active asset liability management
committee.
Management feels its current liquidity position is satisfactorily
given a very stable core deposit base which has increased annually.
Secondly, our loan payments and principal paydowns on our mortgage
backed securities provide a steady source of funds. Also, short-term
investments and maturing investment securities represent additional
sources of liquidity. Finally, short-term borrowings are readily
accessible at the Federal Reserve Bank discount window, Atlantic Central
Bankers Bank, or the Federal Home Loan Bank.
Item 3. Controls and Procedures
a) Evaluation of disclosure controls and procedures. The company
maintains controls and procedures designed to ensure that information
required to be disclosed in the reports that the company files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
the rules and forms of the Securities and Exchange Commission. Based
upon their evaluation of those controls and procedures performed within
90 days of the filing date of this report, the chief executive and chief
financial officers of the company concluded that the company's
disclosure controls and procedures were adequate.
b) Changes in internal controls. The Company made no significant
changes in its internal controls or in other factors that could
significantly affect these controls subsequent to the date of the
evaluation of the controls by the Chief Executive and Chief Financial
officers.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Shareholders of First Keystone
Corporation held on Tuesday, April 16, 2002, at 10:00
a.m.
Votes Votes
Directors Elected Votes For Against Withheld
_________________ _________ ______ _______
<s> <c> <c> <c>
Don E. Bower 2,106,444 25,588 0
John L. Coates 2,102,800 29,232 0
Dudley P. Cooley 2,105,869 26,163 0
Broker
Directors Elected Abstentions Non-Votes
_________________ ___________ _________
<s> <c> <c>
Don E. Bower 0 0
John L. Coates 0 0
Dudley P. Cooley 0 0
Directors Continuing:
____________________
Budd L. Beyer, term expires in 2003
Frederick E. Crispin, Jr., term expires in 2003
Jerome F. Fabian, term expires in 2003
Robert J. Wise, term expires in 2003
John Arndt, term expires in 2004
J. Gerald Bazewicz, term expires in 2004
Robert E. Bull, term expires in 2004
Matters Voted Upon:
__________________
Selection of J. H. Williams & Co. LLP, as auditors for the Corporation.
Votes For - 2,095,838
Votes Against - 26,766
Votes Withheld - 0
Abstentions - 9,428
Broker Non-Votes - 0
Item 5. Other Information
None.
17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 Regulation S-K
Exhibit Number Description of Exhibit
______________ ______________________
3i Articles of Incorporation, as amended
(Incorporated by reference to Exhibit 3(i) to
the Registrant's Report on Form 10-Q for the
quarter ended March 31, 2001)
3ii By-Laws, as amended (Incorporated by reference
to Exhibit 3(ii) to the Registrant's Report on
Form 10-Q for the quarter ended March 31, 2001)
10.1 Supplemental Employee Retirement Plan
(Incorporated by reference to Exhibit 10 to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 2000)
10.2 Management Incentive Compensation Plan
(Incorporated by reference to Exhibit 10 to
Registrant's Report on Form 10-Q for the
quarter ended September 30, 2001)
10.3 Profit Sharing Plan (Incorporated by reference
to Exhibit 10 to Registrant's Report on Form
10-Q for the quarter ended September 30, 2001)
10.4 First Keystone Corporation 1998 Stock Incentive
Plan (Incorporated by reference to Exhibit 10
to Registrant's Report on Form
10-Q for the quarter ended September 30, 2001)
11 Statement RE: Computation of Earnings Per
Share.
99.1 Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350
99.2 Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350
(b) During the quarter ended September 30, 2002, the
registrant filed the following reports on Form 8-K:
Date of Report Item Description
______________ ____ ___________
July 30, 2002 5 Press release announcing earnings increase
18
FIRST KEYSTONE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly cause this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST KEYSTONE CORPORATION
Registrant
November 13, 2002 /s/ J. Gerald Bazewicz
J. Gerald Bazewicz
President and
Chief Executive Officer
(Principal Executive Officer)
November 13, 2002 /s/ David R. Saracino
David R. Saracino
Treasurer/Chief Financial Officer
(Principal Accounting Officer)
19
CERTIFICATION
I, J. Gerald Bazewicz, President and Chief Executive Officer, certify,
that:
1. I have reviewed this quarterly report on Form 10-Q for the
period ended September 30, 2002, of First Keystone Corporation.
2. Based on my knowledge, the quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
the internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
the internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ J. Gerald Bazewicz
J. Gerald Bazewicz
President and Chief Executive Officer
Date: November 13, 2002
20
CERTIFICATION
I, David R. Saracino, Treasurer and Chief Financial Officer, certify,
that:
1. I have reviewed this quarterly report on Form 10-Q for the
period ended September 30, 2002, of First Keystone Corporation.
2. Based on my knowledge, the quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
the internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
the internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ David R. Saracino
David R. Saracino
Treasurer and Chief Financial Officer
Date: November 13, 2002
21
INDEX TO EXHIBITS
Exhibit Description
_______ ___________
3i Articles of Incorporation, as amended (Incorporated
by reference to Exhibit 3(i) to the Registrant's
Report on Form 10-Q for the quarter ended March 31,
2001)
3ii By-Laws, as amended (Incorporated by reference to
Exhibit 3(ii) to the Registrant's Report on Form
10-Q for the quarter ended March 31, 2001)
9 None.
10.1 Supplemental Employee Retirement Plan (Incorporated
by reference to Exhibit 10 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
2000)
10.2 Management Incentive Compensation Plan
(Incorporated by reference to Exhibit 10 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 2001)
10.3 Profit Sharing Plan (Incorporated by reference to
Exhibit 10 to Registrant's Report on Form
10-Q for the quarter ended September 30, 2001)
10.4 First Keystone Corporation 1998 Stock Incentive
Plan (Incorporated by reference to Exhibit 10 to
Registrant's Report on Form 10-Q for the quarter
ended September 30, 2001)
11 Compensation of Earning Per Share
99.1 Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350
99.2 Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350
22