EXHIBIT 99
DEFINITIVE PROXY STATEMENT, NOTICE OF ANNUAL MEETING AND
FORM OF PROXY FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD APRIL 20, 1999
25
<FIRST KEYSTONE CORPORATION LOGO - 1K> First Keystone Corporation
111 West Front Street
Berwick, Pennsylvania 18603
March 26, 1999
DEAR SHAREHOLDER:
It is my pleasure to invite you to attend the 1999 Annual Meeting
of Shareholders of First Keystone Corporation to be held on Tuesday,
April 20, 1999, at 10:00 a.m., Eastern Standard 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:
(bullet) The election of three (3) Class C Directors; and
(bullet) The ratification of the selection of the independent
auditors for 1999
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.
Sincerely,
/s/ J. Gerald Bazewicz
J. Gerald Bazewicz
President
<BLANK PAGE>
FIRST KEYSTONE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 20, 1999
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
Standard Time, on Tuesday, April 20, 1999, 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 three (3) Class C 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, 1999; 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 16, 1999, and only those shareholders
may vote at the Annual Meeting and any adjournment or postponement.
A copy of the corporation's Annual Report for the fiscal year
ended December 31, 1998, is being mailed with this Notice. Copies of
the corporation's Annual Report for the 1997 fiscal year may be
obtained at no cost by contacting J. Gerald Bazewicz, President, 111
West Front Street, Berwick, Pennsylvania 18603, telephone: (570) 752-
3671.
You are urged to mark, sign, date and promptly return your proxy
in the enclosed postage-prepaid envelope to assure that your shares
are voted in accordance with your wishes, whether or not you
personally attend the meeting, and that a quorum is present. The
prompt return of your signed proxy, regardless of the number of shares
you hold, will aid the corporation in reducing 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 26, 1999
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
OF FIRST KEYSTONE CORPORATION TO BE HELD ON APRIL 20, 1999
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 to be held on Tuesday, April 20, 1999, at 10:00
a.m., Eastern Standard Time, at the main office of The First National
Bank of Berwick, 111 West Front Street, Berwick, Pennsylvania 18603,
and at any adjournment or postponement of the Annual Meeting.
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.
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 26, 1999.
By properly filling out, signing and returning the accompanying
proxy in the enclosed, postage-prepaid envelope, a shareholder is
appointing the proxy holders to vote his or her shares in accordance
with the shareholder s directions as marked on the proxy. Unless a
proxy specifies to the contrary, the proxy holders will vote the
proxy:
(bullet) FOR the election of the nominees for Class C Director
named below, and
(bullet) FOR the ratification of the selection of J. H. Williams
& Co. as the independent auditors for the corporation
for the year ending December 31, 1999
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
such intent.
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 mails, certain
directors, officers and employees of the corporation and the bank may
solicit proxies personally, by telephone, telegraph and telecopier.
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, upon request, the corporation 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:
(bullet) By giving written notice of revocation to John L.
Coates, Secretary of First Keystone Corporation, at 111 West Front
Street, Berwick, Pennsylvania, 18603;
(bullet) By executing a later-dated proxy and giving written
notice of this fact to the Secretary of the corporation; or
Page 2 First Keystone Corporation
(bullet) By voting in person after giving written notice to the
Secretary of the corporation, in person or at the above address, of
such intent.
VOTING SECURITIES, RECORD DATE AND QUORUM
At the close of business on March 16, 1999, the Corporation had
outstanding 2,877,993 shares of common stock, par value $2.00 per
share, the only issued and outstanding class of stock. The
corporation has 500,000 shares of preferred stock, par value $10.00
per share, authorized. As of March 16, 1999, no shares of preferred
stock were issued.
Only holders of common stock on the corporation s records as of
close of business on March 16, 1999 (the record date), 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. Pursuant to Article 3, Section 3.1, of the
By-laws of the Corporation, 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. Votes withheld and
abstentions will be counted in determining the presence of a quorum
for a particular matter. Broker non-votes will not be counted in
determining the presence of a quorum for a particular matter as to
which the broker withheld authority. 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 three nominees for
director receiving the highest number of votes cast by shareholders
entitled to vote for the election of directors shall be elected.
Votes withheld from a nominee and broker non-votes will not be cast
for such nominee.
Assuming the presence of a quorum, the affirmative vote of a
majority of all votes cast by shareholders, in person or by proxy, on
such matter is required for the ratification of the selection of
independent auditors. Abstentions and broker non-votes are not votes
cast and therefore do not count either for or against the approval and
adoption or 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 16, 1999, 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 five
percent (5%) of the corporation's outstanding common stock, the number
of shares beneficially owned by such person and the percentage of the
corporation's outstanding common stock so owned. The footnotes to
this table follow the "Beneficial Ownership by Officers, Directors and
Nominees" table, found immediately after the "Principal Owners" table.
Proxy Statement Page 3
Amount and
Nature of Percent of Outstanding
Beneficial Common Stock
Name and Address Ownership <F1> Beneficially Owned
Berbank 295,160 <F5> 10.26%
First National Bank of
Berwick Trust Department
111 West Front Street
Berwick, PA 18603
Robert E. Bull 201,733 <F6> 7.01%
323 West Fourth Street
Nescopeck, PA 18635
Robert J. Wise 174,382 <F4> 6.06%
115 West Third Street
Berwick, PA 18603
Frederick E. Crispin, Jr. 148,617 <F8> 5.16%
3
Cedarbrook
Terrace
Princeton, NJ 08540
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES
The following table sets forth as of March 16, 1999, the amount
and percentage of the common stock beneficially owned by each
director, each nominee and all officers, directors and nominees of the
corporation as a group. All shares are individually owned by the
reporting person unless otherwise indicated.
Name of Individual Amount and Nature of Percent
or Identity of Group Beneficial Ownership of Class
<F1> <F2> <F3> <F7>
Nominees for Class C Directors
(to serve until 2002)
And Current Class C Director
John L. Coates 7,229 <F11> --
Dudley P. Cooley 4,293 --
Stanley E. Oberrender 4,791 --
Class A Directors
(to serve until 2000)
Budd L. Beyer 37,932 1.32%
Frederick E. Crispin, Jr. 148,617 <F8> 5.16%
Jerome F. Fabian 17,176 <F12> --
Robert J. Wise 174,382 <F4> 6.06%
Class B Directors
(to serve until 2001)
John Arndt 5,658 <F9> --
J. Gerald Bazewicz 10,903 <F10> --
Robert E. Bull 201,733 <F6> 7.01%
All Officers, Directors and 615,867 21.40%
Nominees as a Group
(11 Persons in Total)
______________________
Page 4 First Keystone Corporation
<FN>
<F1>
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
16, 1999. Beneficial ownership may be disclaimed as to certain of the
securities.
<F2>
Does not include common stock held in fiduciary accounts under the control
of the bank's Trust Department.
<F3>
Information furnished by the directors and the corporation.
<F4>
Includes 154,621 shares held individually by Mr. Wise and 19,761 shares
held jointly with his spouse.
<F5>
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
244,352 shares and as fiduciary with shared voting and dispositive power
over 50,808 shares. Total does not include 42,677 shares held by the Trust
Department of the bank for which the bank does not have sole 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.
<F6>
Includes 141,157 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, 7,986
held by Bull, Bull & Knecht, LLP Profit Sharing Trust, and 50,595 shares
held by the Estate of Sara Bull in which Mr. Bull is executor.
<F7>
Less than one percent (1%) unless otherwise indicated.
<F8>
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.
<F9>
Includes 3,697 shares held individually by Mr. Arndt, 441 shares held
individually by his spouse, and 1,520 shares held by Arndt Insurance Profit
Sharing.
<F10>
Includes 7,373 shares held individually by Mr. Bazewicz, 1,980 shares held
jointly with his spouse, 560 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. Mr. Bazewicz has the right to acquire an
additional 2,000 shares pursuant to the exercise of stock options.
<F11>
Includes 5,433 shares held individually by Mr. Coates and 1,796 shares held
jointly with his spouse.
<F12>
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, 6,936 shares held jointly with his spouse, and 3,300
shares held by Tile Distributors of America, Inc. of which Mr. Fabian is
100% owner.
</FN>
Proxy Statement Page 5
PROPOSAL NUMBER 1: RE-ELECTION OF CLASS C 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 seven nor more than twenty-five and that the
Board of Directors shall be classified into three classes, each class
to be elected for a term of three 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 1999 Annual Meeting of Shareholders, three (3) Class C 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 C Directors to
serve as Class C Directors for the next three-year term of office.
The nominees for re-election this year are as follows:
(Bullet) John L. Coates (director since 1987)
(Bullet) Dudley P. Cooley (director since 1987)
(Bullet) Stanley E. Oberrender (director since 1987)
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 received by them for the election of these three nominees. If
any nominee should become unavailable for any reason, proxies will be
voted in favor of a substitute nominee as the Board of Directors of
the corporation shall determine. The Board of Directors has no reason
to believe that the nominees named will be unable to serve, if
elected. A majority of the directors of the corporation may fill any
vacancy occurring on the Board of Directors of the corporation for any
reason by appointing a replacement, and the replacement shall serve
until the expiration of the term of the vacancy.
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 case one vote for each nominee. For example, if a
shareholder owns ten shares of common stock, he or she may cast up to
ten votes for each director to be elected.
INFORMATION AS TO NOMINEES AND DIRECTORS
The following table contains certain information with respect to
the nominees for Class C Director whose term expires in 2002 and who
are also the current Class C Directors whose term expires in 1999 and
the Class A Directors and Class B Directors whose terms expire in 2000
and 2001, respectively:
Page 6 First Keystone Corporation
Principal Occupation
for Past Five Years Director
Name and Age as of and Position Held Since
Current March 16, with Corporation Corporation
Committees 1999 and Bank /Bank
(Numbers refer to
committee listing
below table)
NOMINEES FOR CLASS C DIRECTOR WHOSE TERM EXPIRES IN 2002
AND
CURRENT CLASS C DIRECTORS WHOSE TERM EXPIRES IN 1999
John L. Coates 62 President and sole
Committees 1,3,5,6,7 shareholder, 1987/1987
Tri-County Hardware
Inc.; Secretary of
the Corporation
and the Bank
Dudley P. Cooley 60 Personal Financial
Committees 3,5,6,7 Consultant; 1987/1987
Former Controller,
Wise Foods, Borden,
Inc. (Snack food
processor)
Stanley E. Oberrender 57 Owner,
Suntex
1987/1987
Committees 3,4,6,7,8 (Dry cleaning)
CLASS A DIRECTORS WHOSE TERM EXPIRES IN 2000
Budd L. Beyer 71 Investor 1983/1976
Committees 1,2,4,7
Frederick E. Crispin, Jr. 67 Financial Consultant,
Committees 1,2,3,5 d.b.a., F.E. Crispin 1983/1964
& Associates
Jerome F. Fabian 56 President and sole
Committees 3,5 shareholder, Tile 1998/1998
Distributors of
America, Inc.
Robert J. Wise 69 Retired, former 1983/1967
Committees 1,2,4,7,8 investor; Vice
Chairman of the
Corporation and
the Bank
Proxy Statement Page 7
CLASS B DIRECTORS WHOSE TERM EXPIRES IN 2001
John Arndt 37 Insurance Broker, 1995/1995
Committees 2,3,4,8 Owner of Arndt
Insurance Agency
(general insurance
agency)
J. Gerald Bazewicz 50 President and Chief 1986/1986
Committees 1,2,3,4,5, Executive Officer of
7,8 the Corporation
and the Bank
Robert E. Bull 76 Attorney and Partner, 1983/1956
Committees 1,4,5,6, Bull, Bull & Knecht,
7,8 LLP,; Chairman of the
Corporation and
the Bank
____________________
<FN>
Committee 1 - Executive Committee This committee exercises the
authority of the Board of Directors in the management of the business of
the bank between the dates of regular meetings of the Board of Directors.
This committee did not meet in 1998.
Committee 2 - 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. This committee met twelve (12) times
in 1998.
Committee 3 - 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. This committee met four (4) times in 1998.
Committee 4 - Marketing Committee This committee provides guidance to
management in formulating marketing and sales plans and programs and to
assist in evaluating the performance of the Bank relative to plans. This
committee met four (4) times in 1998.
Committee 5 - 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. This
committee met four (4) times in 1998.
Committee 6 - 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. This committee met
two (2) times in 1998.
Committee 7 - 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. This committee met one (1) time in 1998.
Committee 8 - Building Committee This committee makes
recommendations to the Board relating to the Bank's physical assets,
including both current and proposed physical assets. This committee did
not meet in 1998.
</FN>
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.
Page 8 First Keystone Corporation
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 1998, the bank's Board of Directors held twenty-
five (25) meetings and the corporation's Board of Directors held eight
(8) meetings. Each of the Directors attended at least 75% of the
combined total number of meetings of the corporation's and the bank's
Board of Directors and the committees of which he is a member, except
Robert J. Wise who attended 68% of all combined meetings.
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 forty-five (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
COMPENSATION OF DIRECTORS
During 1998, the corporation's Board of Directors received Four
Hundred Dollars ($400.00) for each Director's 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 Four Hundred Dollars ($400.00) for each
Directors' meeting attended. Non-employee Directors received a Four
Thousand Dollar ($4,000.00) retainer and Two Hundred Dollars ($200.00)
for each committee meeting attended. All Directors received a bonus
of One Thousand Dollars ($1,000.00). In addition, Chairman Bull
received an annual stipend of One Thousand Dollars ($1,000.00) and
Vice Chairman Wise and Secretary Coates each received an annual
stipend of Seven Hundred Fifty Dollars ($750.00). In the aggregate,
the Board of Directors received $163,250.00 for all Board of
Directors' meetings and committee meetings attended in 1998, including
all fees, bonuses, and stipends paid to all Directors in 1998.
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 ten percent (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 ten percent (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 the copies of such forms received
by it, or written representations from certain reporting persons that
no Forms 5 were required for those persons, the corporation believes
that during the period January 1, 1998, through December 31, 1998, its
officers and directors were in compliance with all filing requirements
applicable to them.
Proxy Statement Page 9
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:
(Bullet) Base salary
(Bullet) Regular employee bonus
(Bullet) Senior management bonus
(Bullet) Long-term incentives
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 at
$133,500, a 5.28% increase over his 1997 salary level. This placed
Mr. Bazewicz s base compensation at approximately the median base
compensation of chief executive officers of comparable bank holding
companies, as reflected in the peer group compensation data reviewed
by the Board of Directors.
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 8.6% 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.
Page 10 First Keystone Corporation
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 six (6) months
after issue and expire ten years from the date of the grant. On
September 22, 1998, the corporation granted 11,000 incentive stock
options under the plan, which are not exercisable until March 22,
1999. The average per share exercise price is $33.50, which was not
less than the full market value of the shares as of September 22,
1999. The total number of shares which may be issued under the Plan
is 100,000.
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 Stanley E. Oberrender
EXECUTIVE COMPENSATION
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, 1998,
1997, and 1996 of those persons who were (
i
) the Chief Executive
Officer during 1998, and (ii) the other four most highly compensated
executive officers of the corporation and the bank whose total annual
salary and bonus exceeded $100,000 at December 31, 1998.
SUMMARY COMPENSATION TABLE
Annual Compensation
(a) (b) (c) (d) (e)
Other
Annual
Name and Compen-
Principal Salary Bonus sation
Position Year ($) <F1> ($) <F2> ($)
J. Gerald Bazewicz 1998 133,500 24,720 0
President and CEO 1997 126,800 27,972 0
of the Corporation 1996 116,800 35,397 0
and the Bank
Long-Term Compensation
Awards Payouts
(f) (g) (h) (i)
Restricted All Other
Name and Stock Options/ LTIP Compen-
Principal Award(s) SARs <F5> sation
Position ($) <F3> Payouts ($)
(#) <F4> ($) <F6>
J. Gerald Bazewicz 0 2,000 0 43,949
President and CEO 0 0 0 40,003
of the Corporation 0 0 0 13,701
and the Bank
_________________
Proxy Statement Page 11
<FN>
<F1>
Amounts
shown consist of base salary and fees for attendance at Board of
Directors meetings of $10,000 in 1998, $9,800 in 1997, and $9,800 in 1996.
<F2>
Bonus information is reported by the year in which earned.
<F3>
Stock Appreciation Rights.
<F4>
Options granted in September 1998 pursuant to First Keystone Corporation's
1998 Stock Incentive Plan.
<F5>
Long-Term Incentive Plan Option Awards.
<F6>
Amounts shown include contributions to the Bank's 401(k) Plan of $15,828
for 1998, $15,872 for 1997, and $13,701 for 1996. The amounts for 1998 and
1997 include each year s accrual for the Bank's Supplemental Employee
Retirement Plan (SERP) of $26,646 in 1998 and $22,803 in 1997, and the
premiums on term life insurance relative to the SERP of $1,475 in 1998 and
$1,328 in 1997. See Other Executive Benefits on Page 13.
</FN>
STOCK OPTION GRANTS IN FISCAL YEAR 1998
Stock options were granted to executive officers and other
employees during fiscal year ended December 31, 1998. All options
were granted under the First Keystone Corporation 1998 Stock Incentive
Plan. The table shows information about such grants to the named
officers:
INDIVIDUAL GRANTS
(a) (b) (c)
Number of % of Total
shares Options
underlying Granted to
Options Employees
Granted in in Fiscal
Name Fiscal
Year <F1 > Year
J. Gerald Bazewicz 2,000 18.18%
President and CEO
David R. Saracino 1,000 9.09%
Treasurer and
Assistant Secretary
(d) (e) (f)
Exercise Grant
or Base Date
Price Expiration Present
Name ($/Sh) Date Value
($) <F2>
J. Gerald Bazewicz 33.50 9/22/08 67,000
President and CEO
David R. Saracino 33.50 9/22/08 33,500
Treasurer and
Assistant Secretary
<FN>
<F1>
The options were granted under the First Keystone Corporation's 1998 Stock
Incentive Plan on September 22, 1998, and are not exercisable until March
22, 1999.
<F2>
Based on closing market price per share on September 22, 1998, the grant
date.
</FN>
AGGREGATED STOCK OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-
END OPTION VALUES
No options were exercisable in fiscal year 1998.
Page 12 First Keystone Corporation
401(K) PLAN
The corporation does not have a retirement or pension 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 not to exceed 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 one hundred percent (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 1998 and 1997 were:
1998 1997
Matching contribution to savings plan $ 67,377 $ 59,395
Contribution to profit sharing plan 167,497 151,574
Total Expense $234,874 $210,969
Of the $234,874 total expenses during 1998, $42,548 was credited
among the individual accounts of the four (4) most highly compensated
executive officers of the Bank. Of the $42,548, Mr. Bazewicz was
credited with $15,828 and has been a member of the Plan for thirteen
years.
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
The corporation maintains a Supplemental Employee Retirement Plan
("SERP") covering three of the bank's executive officers, Mr.
Bazewicz, Mr. Saracino, and Mr. Bodle. The SERP, which is a salary
continuation agreement, provides that if the executive officer
continues to serve as an officer of the bank until he attains sixty
(60) years of age, the bank will pay him 240 guaranteed consecutive
monthly payments commencing on the first day of the month following
the officer's 60th 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 75% of projected final salary including projected benefits
from the Bank 401(k), social security, and salary continuation
provided through the agreement. The retirement benefit under the
salary continuation plan for Messrs. Bazewicz, Saracino, and Bodle
will be $3,750 per month, $2,333 per month, and $1,750 per month,
respectively. If the executive officer attains sixty (60) years of
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 age sixty (60), then 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 his employment prior to the
age of sixty (60).
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.
Proxy Statement Page 13
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 1998, the Bank
expensed
$70,222 for the
accrual of the salary continuation plan for the three executive
officers. In addition, $5,741 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, 1993, through and including December 31, 1998, with (
i
)
the cumulative total return on the
SNL
Securities Corporate
Performance Index <F1> for banks with less than $500 million in total
assets in the Middle Atlantic area <F2>, and (ii) the cumulative total
return for all United States stocks traded on the NASDAQ Stock Market.
The comparison assumes $100 was invested on December 31, 1993, 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.
(Performance Graph omitted)
(The following is a description of the performance graph in tabular
format)
FIRST KEYSTONE CORPORATION
Total Return Performance
Period Ending
12/31/93 12/31/94 12/31/95
First Keystone Corporation 100.00 112.52 123.79
NASDAQ - Total US 100.00 97.75 138.26
SNL <$500M Bank Index 100.00 107.55 147.13
Period Ending
12/31/96 12/31/97 12/31/98
First Keystone Corporation 162.89 307.25 532.72
NASDAQ - Total US 170.01 208.58 293.21
SNL <$500M Bank Index 189.37 322.82 294.76
____________________
Page 14 First Keystone Corporation
[FN]
<F1>
SNL Securities is a research and publishing firm specializing in the
collection and dissemination of data on the banking, thrift and
financial services industries.
<F2>
The Middle Atlantic area comprises the states of Delaware,
Pennsylvania, Maryland, New Jersey, New York, the District of Columbia
and Puerto Rico.
CERTAIN 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 Mr. Bull is a partner,
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. 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.
Total loans outstanding from the corporation and the bank at
December 31, 1998, 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
$2,032,334 or approximately 6.48% of the total equity capital of the
bank. 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 1998 to officers and directors of the corporation
and the bank as a group was $2,374,602. The aggregate amount of
indebtedness outstanding as of the latest practicable date, February
1, 1999, to the above described group was $1,808,886.
Proxy Statement Page 15
PRINCIPAL OFFICERS OF THE CORPORATION
The following table shows selected information about the
principal officers of the corporation, each of whom is elected by the
Board of Directors and each of whom holds office at the discretion of
the Board of Directors:
Age
Number as of
Corporation of Shares March
Held Employee Beneficially 16,
Name and Position Since Since Owned 1999
Robert E. Bull 1983 <F1> 201,733 76
Chairman of the Board
Robert J. Wise 1996 <F1> 174,382 69
Vice Chairman
of the Board
J. Gerald Bazewicz 1987 1973 10,903 50
President and Chief
Executive Officer
John L. Coates 1995 <F1> 7,229 62
Secretary
David R. Saracino 1983 1972 3,153 <F2> 54
Treasurer
_________________
<FN>
<F1>
Messrs. Bull, Wise, and Coates are not employees of the corporation.
<F2>
Includes 2,355 shares of common stock held individually by Mr. Saracino and
798 shares of common stock held jointly with his spouse. Mr. Saracino has
the right to acquire an additional 1,000 shares pursuant to the exercise of
stock options.
</FN>
PRINCIPAL OFFICERS OF THE BANK
The following table presents selected information 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:
Page 16 First Keystone Corporation
Office and Position Held
Name with the Bank Since
Robert E. Bull Chairman of the Board 1983
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
Bank Number of Age as of
Employee Shares Bene- March 16,
Name Since ficially Owned 1999
Robert E. Bull <F1> 201,733 76
Robert J. Wise <F1> 174,382 69
J. Gerald Bazewicz 1973 10,903 50
John L. Coates <F1> 7,229 62
David R. Saracino 1972 3,153 54
Leslie W. Bodle 1985 3,315 <F2> 51
Sally A. Rishkofski 1964 435 <F3> 59
_________________
<FN>
<F1>
Messrs. Bull, Wise, and Coates are not employees of the bank.
<F2>
Includes 1,250 shares of common stock held individually by Mr. Bodle, 920
shares of common stock held jointly with his spouse, and 1,145 shares of
common stock held jointly with his daughter. Mr. Bodle has the right to
acquire an additional 1,000 shares pursuant to the exercise of stock
options.
<F3>
Ms. Rishkofski has the right to acquire an additional 1,000 shares pursuant
to the exercise of stock options.
</FN>
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 NUMBER 2: RATIFICATION OF INDEPENDENT AUDITORS
Unless instructed to the contrary, the proxy holders will cast
all votes represented by proxies for the ratification of the selection
of J. H. Williams & Co., LLP, Certified Public Accountants, located at
270 Pierce Street, Kingston, Pennsylvania 18705, as the corporation's
independent auditors for its 1999 fiscal year. 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
shares of common stock represented in person or by proxy at the
Annual Meeting. J. H. Williams & Co.,
LLP
served as the corporation's
independent auditors for the 1998 fiscal year, assisted the
corporation and the bank
Proxy Statement Page 17
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 effect of the
performance on such services on the independence of the auditors and
after the conclusion by the corporation's and the bank's Board of
Directors that there was no effect on the independence of the
auditors. The corporation s Board of Directors has appointed J. H.
Williams & Co., LLP, Certified Public Accountants as the corporation s
auditors for the fiscal year-ending December 31, 1999.
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 1999 fiscal year, another accounting firm
may be chosen to provide independent audit services for the 1999
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, 1999.
ANNUAL REPORT
A copy of the corporation's Annual Report for its fiscal year
ended December 31, 1998, 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 2000 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 Monday,
November 29, 1999.
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 in accordance with their best
judgment.
ADDITIONAL INFORMATION
Any shareholder may obtain a copy of the corporation s report on
Form 10-K for its fiscal year ended December 31, 1998, including the
financial statements and the schedules thereto, required to be filed
with the Securities and Exchange Commission, without change, by
submitting a written request to David R. Saracino, Treasurer, First
Keystone Corporation, 111 West Front Street, Berwick, Pennsylvania
18603, telephone: (570) 752-3671.
Page 18 First Keystone Corporation