SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS
PERMITTED BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
FIRST KEYSTONE CORPORATION
_____________________________________________________
(Exact name of registrant as specified in its Charter)
_____________________________________________________
(Name of Person(s) Filing Proxy Statement if other
than Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applied:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rul 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
FIRST KEYSTONE CORPORATION
_________________________________________________________________
111 West Front Street
Berwick, Pennsylvania 18603
March 28, 2005
Dear Fellow Shareholders of First Keystone Corporation:
It is my pleasure to invite you to attend the 2005 Annual
Meeting of Shareholders of First Keystone Corporation to be held
on Tuesday, April 19, 2005, at 10:00 a.m., Eastern Daylight Time.
The Annual Meeting this year will be held at the main office of
The First National Bank of Berwick, 111 West Front Street,
Berwick, Pennsylvania 18603.
The Notice of the Annual Meeting and the Proxy Statement on
the following pages address the formal business of the meeting.
The formal business schedule includes:
* The election of 3 Class C Directors; and
* The ratification of the selection of J. H. Williams & Co.,
LLP, as the independent
auditors for the corporation for the fiscal year ending
December 31, 2005.
At the meeting, members of the corporation's management will
review the corporation's operations during the past year and will
be available to respond to questions.
We strongly encourage you to vote your shares, whether or
not you plan to attend the meeting. It is very important that
you sign, date and return the accompanying proxy form as soon as
possible, in the postage-prepaid envelope. If you do attend the
meeting and wish to vote in person, you must give written notice
of your intentions to the Secretary of the corporation so that
any ballot you submit at the meeting will supersede your prior
proxy.
Thank you for your continued support. I look forward to
seeing you at the Annual Meeting if you are able to attend.
Sincerely,
/s/ J. Gerald Bazewicz
J. Gerald Bazewicz
President
[THIS PAGE INTENTIONALLY LEFT BLANK]
FIRST KEYSTONE CORPORATION
________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON April 19, 2005
________________________________________
TO THE SHAREHOLDERS OF FIRST KEYSTONE CORPORATION:
Notice is hereby given that the Annual Meeting of
Shareholders of First Keystone Corporation will be held at 10:00
a.m., Eastern Daylight Time, on Tuesday, April 19, 2005, at the
main office of The First National Bank of Berwick, 111 West Front
Street, Berwick, Pennsylvania 18603, for the following purposes:
1. To elect 3 Class 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 fiscal year
ending December 31, 2005; and
3. To transact any 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 8,
2005, and only those shareholders may vote at the Annual Meeting
and any adjournment or postponement of the Annual Meeting.
A copy of the corporation's Annual Report for the fiscal
year ended December 31, 2004, is mailed with this Notice. Copies
of the corporation's Annual Report for the 2003 fiscal year may
be obtained, at no cost, by contacting J. Gerald Bazewicz,
President, First Keystone Corporation, 111 West Front Street,
Berwick, Pennsylvania 18603, telephone: (570) 752-3671.
Whether or not you expect to attend the Annual Meeting in
person, we ask you to complete, sign, date, and promptly return
the enclosed proxy form in the accompanying postage prepaid
envelope. By so doing, you will ensure your proper
representation at the meeting. The prompt return of your signed
proxy will also save the corporation the expense of additional
proxy solicitation. The execution and delivery of the enclosed
proxy does not affect your right to vote in person if you attend
the meeting and give written notice to the Secretary of the
corporation.
By Order of the Board of Directors,
/s/ J. Gerald Bazewicz
J. Gerald Bazewicz, President
Berwick, Pennsylvania
March 28, 2005
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
OF FIRST KEYSTONE CORPORATION TO BE HELD ON April 19, 2005
Table of Contents
_________________
Page
____
General Information 3
Introduction, Date, Time and Place of
Annual Meeting 3
Solicitation and Voting of Proxies 3
Revocability of Proxy 4
Voting Securities, Record Date and Quorum 4
Vote Required for Approval of Proposals 4
Governance Of The Company 5
Committees Of The Board of Directors 5
Committees Of The Bank 5
Board Meetings and Attendance 7
Shareholder Communications 7
Nomination of Directors 7
Submission of Shareholder Proposals 7
Employee Code of Ethics 7
Proposal No. 1: Election of Directors 8
Information as to Nominees and Directors 8
Share Ownership 10
Principal Owners 10
Beneficial Ownership by Officers,
Directors and Nominees 11
Report Of The Audit Committee 12
Compensation of Directors 14
Executive Compensation 14
Summary Compensation Table 15
Board Compensation Committee Report On
Executive Compensation 19
Performance Graph 21
Principal Officers Of The Bank
And The Corporation 22
Legal Proceedings 22
Proposal No. 2: Ratification Of Independent
Auditors 23
Section 16(A) Beneficial Ownership Reporting
Compliance 23
Annual Report 23
Other Matters 24
Electronic Access To Proxy Materials
and Financial Statements 24
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
OF FIRST KEYSTONE CORPORATION TO BE HELD ON April 19, 2005
GENERAL
INTRODUCTION, DATE, TIME AND PLACE OF ANNUAL MEETING
____________________________________________________
First Keystone Corporation, a Pennsylvania business
corporation and registered bank holding company, furnishes this
Proxy Statement in connection with the solicitation, by its Board
of Directors, of proxies to be voted at the Annual Meeting of
Shareholders and at any adjournment or postponement of the Annual
Meeting. The corporation will hold the meeting on Tuesday, April
19, 2005, at 10:00 a.m., Eastern Daylight Time, at the main
office of The First National Bank of Berwick, 111 West Front
Street, Berwick, Pennsylvania 18603.
The principal executive office of the corporation is located
at The First National Bank of Berwick, 111 West Front Street,
Berwick, Pennsylvania 18603. The bank is the sole, wholly owned
subsidiary of the corporation. The telephone number for the
corporation is (570) 752-3671. All inquiries should be directed
to J. Gerald Bazewicz, President of the corporation and the bank.
SOLICITATION AND VOTING OF PROXIES
__________________________________
This Proxy Statement and the enclosed proxy form are first
being sent to shareholders of the corporation on or about March
28, 2005.
By properly completing and returning the accompanying proxy,
a shareholder is appointing the proxy holders to vote his or her
shares as the shareholder specifies on the proxy. If a
shareholder signs the proxy but does not make any selection, the
proxy holders will vote the proxy:
* FOR the election of the nominees for Class C Director
named below, and
* FOR the ratification of the selection of J. H.
Williams & Co. as the independent auditors for the
corporation for the year ending December 31, 2005.
The execution and return of the enclosed proxy will not
affect your right to attend the Annual Meeting and vote in
person, after giving written notice to the Secretary of the
corporation.
The corporation will pay the cost of preparing, assembling,
printing, mailing and soliciting proxies, and any additional
material that the corporation may furnish shareholders in
connection with the Annual Meeting. In addition to the use of
the mail, directors, officers and employees of the corporation
and the bank may solicit proxies personally, by telephone,
telecopier or other electronic means. The corporation will not
pay any additional compensation for the solicitation. The
corporation will make arrangements with brokerage houses and
other custodians, nominees and fiduciaries to forward proxy
solicitation material to the beneficial owners and will reimburse
them for their reasonable forwarding expenses.
Proxy Statement Page 3
REVOCABILITY OF PROXY
_____________________
A shareholder who returns a proxy may revoke the proxy at
any time before it is voted only:
* By giving written notice of revocation to John L.
Coates, Secretary of First Keystone Corporation,
at 111 West Front Street, Berwick, Pennsylvania,
18603;
* By executing a later-dated proxy and giving
written notice of this fact to the Secretary of
the corporation; or
* By attending the Annual Meeting and voting in
person, after giving written notice to the
Secretary of the corporation, in person or at the
above address.
VOTING SECURITIES, RECORD DATE AND QUORUM
_________________________________________
At the close of business on March 8, 2005, the corporation
had 4,392,846 shares of common stock outstanding, par value $2.00
per share. Our common stock is the corporation's only issued and
outstanding class of stock. The corporation also had 146,727
shares held in treasury, as issued but not outstanding shares on
that date. The corporation's Articles of Incorporation authorize
the issuance of up to 10,000,000 shares of common stock and up to
500,000 shares of preferred stock. As of March 8, 2005, no
shares of preferred stock were issued or outstanding.
Only shareholders of record as of the close of business on
March 8, 2005, 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 held on the record date.
Pennsylvania law and the bylaws of the corporation require
the presence of a quorum for each matter that shareholders will
vote on at the Annual Meeting. The presence, in person or by
proxy, of shareholders entitled to cast at least a majority of
the votes that all shareholders are entitled to cast constitutes
a quorum for the transaction of business at the Annual Meeting.
The corporation will count votes withheld and abstentions in
determining the presence of a quorum for a particular matter.
The corporation will not count broker non votes in determining
the presence of a quorum for a particular matter. A broker non
vote occurs when a broker nominee, holding shares for a
beneficial owner, does not vote on a particular proposal because
the nominee does not have discretionary voting power with respect
to that item, and has not received instructions from the
beneficial owner. Those shareholders present, in person or by
proxy, may adjourn the meeting to another time and place if a
quorum is lacking.
VOTE REQUIRED FOR APPROVAL OF PROPOSALS
_______________________________________
Assuming the presence of a quorum, the 3 nominees for
director receiving the highest number of votes cast by
shareholders will be elected. Votes withheld from a nominee and
broker non votes will not be cast for the nominee.
Assuming the presence of a quorum, ratification of the
selection of independent auditors requires the affirmative vote
of a majority of all votes cast by shareholders, in person or by
proxy, on the matter. Abstentions and broker non votes are not
votes cast and, therefore, do not count either for or against
ratification. Abstentions and broker non-votes, however, have
the practical effect of reducing the number of affirmative votes
required to achieve a majority for each matter by reducing the
total number of shares voted from which the majority is
calculated.
Page 4 First Keystone Corporation
GOVERNANCE OF THE COMPANY
Our Board of Directors believes that the purpose of
corporate governance is to ensure that we maximize shareholder
value in a manner consistent with legal requirements and the
highest standards of integrity. The Board has adopted and adheres
to corporate governance practices which the Board and senior
management believe promote this purpose, and are sound and
represent best practices.
The corporation's Board of Directors oversees all business,
property and affairs of the corporation. The Chairman and the
corporation's officers keep the members of the Board informed of
the corporation's business through discussions at Board meetings
and by providing them with reports and other materials. The
directors of the corporation also serve as the directors of the
corporation's wholly owned bank subsidiary, The First National
Bank of Berwick, upon election by the corporation.
COMMITTEES OF THE BOARD OF DIRECTORS
The corporation's board of directors has, at present, an
audit committee.
AUDIT COMMITTEE. Members of the Audit Committee, during
2004, were Dudley P. Cooley, Chairman, Don E. Bower, John L.
Coates, and Jerome F. Fabian, each of whom the Board of Directors
has determined satisfies the independence and audit committee
qualification standards as defined by the Securities and Exchange
Commission (the "SEC") and NASDAQ. The Audit Committee met 4
times during 2004. The principal duties of the Audit Committee,
as set forth in its charter, is available on our website at
www.firstkeystonecorporation.com, include reviewing significant
audit and accounting principles, policies and practices,
reviewing performance of internal auditing procedures, reviewing
reports of examination received from regulatory authorities, and
recommending annually, to the Board of Directors the engagement
of an independent certified public accountant.
The Board of Directors has determined that Dudley P. Cooley
is an "audit committee financial expert" and "independent" as
defined under applicable SEC and NASDAQ rules. The Board deems
Mr. Cooley a "financial expert" as he possess the following
attributes:
* An understanding of financial statements;
* Proficiency in assessing the general utilization of such
principles in connection with accounting for estimates,
accruals and reserves;
* Lengthy experience preparing, auditing, analyzing and
evaluating financial statements;
* Understanding of internal controls and procedures for
financial reporting; and
* Understanding of audit committee functions.
COMMITTEES OF THE BANK
During 2004, the bank's board of directors maintained
standing committees: trust, asset liability management,
marketing, loan administration, human resources, building and
executive. The composition of these committees is described
below:
Proxy Statement Page 5
Asset/
Liability
Name Trust Management Marketing
____ _____ __________ ________
John E. Arndt X X
J. Gerald Bazewicz X X X
Budd L. Beyer X X
Don E. Bower X
Robert E. Bull X X
John L. Coates X
Dudley P. Cooley X
Frederick E. Crispin, Jr. X X*
Jerome F. Fabian X*
Robert J. Wise X* X
Number of Meetings
Held in 2004 12 4 4
Loan Human
Name Administration Resources
____ _____________ ________
John E. Arndt X*
J. Gerald Bazewicz X X
Budd L. Beyer X X
Don E. Bower X X
Robert E. Bull X
John L. Coates X*
Dudley P. Cooley X
Frederick E. Crispin, Jr.
Jerome F. Fabian X
Robert J. Wise X
Number of Meetings
Held in 2004 4 1
Name Executive Building
____ _________ ________
John E. Arndt
J. Gerald Bazewicz X X
Budd L. Beyer X
Don E. Bower X
Robert E. Bull X* X
John L. Coates X X
Dudley P. Cooley
Frederick E. Crispin, Jr. X
Jerome F. Fabian X
Robert J. Wise X X*
Number of Meetings
Held in 2004 1 0
*Denotes Chairman of Respective Committee
Trust Committee - This committee ensures that all trust
activities of the bank are performed in a manner that is
consistent with the legal instrument governing the account,
prudent trust administration practices, and approved trust
policy.
Asset/Liability Committee - This committee reviews
asset/liability committee reports and provides support and
discretion in managing the bank's net interest income, liquidity,
and interest rate sensitivity positions.
Marketing Committee - This committee provides guidance to
management in formulating marketing/sales plans and programs to
assist in evaluating the performance of the bank relative to
these plans.
Loan Administration Committee - This committee monitors
loan review and compliance activities. Also, the committee
ensures that loans are made and administered in accordance with
the loan policy.
Human Resources Committee - This committee helps ensure
that a sound human resources management system is developed and
maintained. This committee acts as the Compensation Committee
for the corporation and determines compensation for non-executive
officers and employees. The entire Board of Directors also acts
as the Compensation Committee for the corporation and determines
compensation for the executive officers.
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 Board of
Directors meetings.
Building Committee - This committee makes recommendations
to the Board relating to the bank's physical assets, including
both current and proposed physical assets.
Page 6 First Keystone Corporation
BOARD MEETINGS AND ATTENDANCE
_____________________________
The members of the Board of Directors of the corporation
also serve as members of the Board of Directors of The First
National Bank of Berwick. During 2004, the bank's Board of
Directors held 24 meetings, and the corporation's Board of
Directors held 8 meetings. There were a total of 30 meetings of
the various committees of the Board of Directors in 2004. Each
of the Directors attended at least 75% of the combined total
number of meetings of the corporation's and the bank's Boards of
Directors and the committees of which he is a member.
SHAREHOLDER COMMUNICATIONS
__________________________
The Board of Directors does not have a formal process for
shareholders to send communications to the Board. Due to the
infrequency of shareholder communications to the Board of
Directors, the Board does not believe that a formal process is
necessary.
NOMINATION OF 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 bylaws. Any shareholder who
intends to recommend nomination of any candidate for election to
the Board of Directors must notify the Secretary of the
corporation in writing not less than 45 days prior to the date of
any meeting of shareholders called for the election of directors
and must provide the specific information listed in Section 10.1
of the bylaws. You may obtain a copy of the corporation's bylaws
by writing to John L. Coates, Secretary, First Keystone
Corporation, 111 West Front Street, Berwick, Pennsylvania 18603.
SUBMISSION OF SHAREHOLDER PROPOSALS
___________________________________
If a shareholder wants us to include a proposal in our proxy
statement for presentation at our 2006 Annual Meeting of
Shareholders, the proposal must be received by us at our
principal executive offices at 111 West Front Street, Berwick,
Pennsylvania 18603, no later than November 22, 2005. For
proposals received after February 8, 2006, the proxy holders may
vote on the proposal at their discretion.
A shareholder may also nominate directors before the 2006
Annual Meeting by submitting the nomination to us on or after
January 1, 2006, and on or before March 3, 2006, in accordance
with our by laws. The nomination must be delivered to our
executive offices at 111 West Front Street, Berwick, Pennsylvania
18603, to the attention of our corporate Secretary. We are not
required to include any nomination received after March 3, 2006,
in our proxy materials for the 2006 Annual Meeting.
EMPLOYEE CODE OF ETHICS
_______________________
Since 1983, we have had a code of conduct. In 2003, as
required by law and regulation, we amended our code of conduct.
Our employee code of ethics is applicable to our directors,
officers and employees.
The code of conduct encourages individuals to report any
conduct that they believe in good faith to be an actual or
apparent violation of the code of ethics. The Board periodically
receives reports on our compliance program. The Code of Ethics
is posted on our website at
Proxy Statement Page 7
www.firstkeystonecorporation.com, which was filed with the SEC as
an exhibit to our December 31, 2003, Annual Report on Form 10K.
PROPOSAL NO. 1: ELECTION OF CLASS C DIRECTORS
The corporation's bylaws provide that its Board of Directors
will manage the corporation's business. Sections 10.2 and 10.3
of the Bylaws provide that the number of directors on the Board
will not be less than 7 nor more than 25 and that the Board of
Directors will be classified into 3 classes, each class to be
elected for a term of 3 years. Within the foregoing limits, the
Board of Directors may, from time to time, fix the number of
directors and their classifications. No person over 70 years old
may serve as director with the exception of Messrs. Beyer, Bull,
Crispin, and Wise. Section 11.1 of the bylaws require 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 will 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 bylaws provide for a classified Board of
Directors with staggered three year terms of office.
Accordingly, at the 2005 Annual Meeting of Shareholders, 3 Class
C Directors will 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 reelection this year
are as follows:
* Don E. Bower, director since 2001;
* John L. Coates, director since 1987; and
* Dudley P. Cooley, 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 for the election of these 3 nominees. If any nominee
should become unavailable for any reason, proxies will be voted
in favor of a substitute nominee named by the Board of Directors
of the corporation. A majority of the directors of the
corporation, in office, may appoint a new director to fill any
vacancy occurring on the Board for any reason, and the new
director will serve until the expiration of the term of the class
of directors to which he or she was appointed.
The corporation's Articles of Incorporation provide that
cumulative voting rights will not exist with respect to the
election of directors. Accordingly, each share of common stock
entitles its owner to cast one vote for each nominee. For
example, if a shareholder owns 10 shares of common stock, he or
she may cast up to 10 votes for each director to be elected.
The Board of Directors recommends that shareholders vote FOR
the election of the above named nominees.
INFORMATION AS TO DIRECTORS AND NOMINEES
________________________________________
The following selected biographical information about the
directors and nominees for director is accurate as of March 8,
2005, and includes each person's business experience for at least
the past 5 years.
Page 8 First Keystone Corporation
CURRENT CLASS C DIRECTORS WHOSE TERM EXPIRES IN 2005
AND NOMINEES FOR CLASS C DIRECTOR WHOSE TERM WILL EXPIRE IN 2008
Don E. Bower Mr. Bower (age 56) is the President
and owner of Don E. Bower, Inc., an
excavation contracting corporation
located in Berwick, Pennsylvania.
He has been a director of the
corporation and the bank since
2001.
John L. Coates Mr. Coates (age 68) is the
President and owner of Tri County
Hardware, Inc. He has served as
the Secretary of the corporation
and the bank since 1995, and as a
director of the corporation and the
bank since 1987.
Dudley P. Cooley Mr. Cooley (age 66), is a financial
consultant and the former
controller for Wise Foods, a
division of Borden, Inc. He has
been a director of the corporation
and the bank since 1987.
CLASS A DIRECTORS WHOSE TERM EXPIRES IN 2006
Budd L. Beyer Mr. Beyer (age 77), now retired,
was an owner and a principal
shareholder of Sunshine Textile
Services, Inc., located in
Bloomsburg, Pennsylvania. Mr.
Beyer has served as a director of
the corporation since 1983 and of
the bank since 1976.
Frederick E. Crispin, Jr. Mr. Crispin (age 73) is a retired
business and financial consultant.
He has served as a director of the
corporation since 1983 and of the
bank since 1964.
Jerome F. Fabian Mr. Fabian (age 62) is the
President and owner of Tile
Distributors of America, Inc.,
located in Wilkes Barre,
Pennsylvania. He has served as a
director of the corporation and the
bank since 1998.
Robert J. Wise Mr. Wise (age 75), now retired, has
served as a director of the
corporation since 1983 and of the
bank since 1967. Mr. Wise is also
the Vice Chairman of the Board of
the corporation and the bank, a
position he has held since 1996.
CLASS B DIRECTORS WHOSE TERM EXPIRES IN 2007
John E. Arndt Mr. Arndt (age 43) is an insurance
broker and the owner of Arndt
Insurance Agency in Berwick,
Pennsylvania. He has served as a
director of the corporation and the
bank since 1995.
J. Gerald Bazewicz Mr. Bazewicz (age 56) serves as the
President and Chief Executive
Officer of the corporation and the
bank, a position he has held since
1987. He has served as a director
of the corporation and the bank
since 1986.
Robert E. Bull Mr. Bull (age 82), now retired,
practiced as an attorney at the law
firm Bull, Bull & Knecht, LLP, of
which he remains a partner. He has
been the Chairman of the Board of
the corporation since 1983 and of
the bank since 1981. He has served
as a director of the corporation
since 1983 and of the bank since
1956.
Proxy Statement Page 9
SHARE OWNERSHIP
PRINCIPAL OWNERS
________________
The following table sets forth, as of March 8, 2005, the
name and address of each person who owns of record or who is
known by the Board of Directors to be the beneficial owner of
more than 5% of the corporation's outstanding common stock, the
number of shares beneficially owned by the person and the
percentage of the corporation's outstanding common stock so
owned.
________________________________________________________________________
Amount and Percent of
Nature of Outstanding
Beneficial Common Stock
Name and Address Ownership Beneficially Owned
________________________________________________________________________
Berbank 506,898 11.42%
First National Bank of
Berwick Trust Department
111 West Front Street
Berwick, PA 18603
Robert E. Bull 236,260 5.38%
323 West Fourth Street
Nescopeck, PA 18635
Robert J. Wise 222,391 5.06%
115 West Third Street
Berwick, PA 18603
____________________
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 8, 2005. Beneficial ownership may be disclaimed as to certain
of the securities.
Nominee registration for the common stock held by the Trust Department of
the bank on behalf of various trusts, estates and other accounts for which
the bank acts as fiduciary with sole voting and dispositive power over
417,943 shares and as fiduciary with shared voting and dispositive power
over 88,955 shares. Total does not include 90,284 shares held by the
Trust Department of the bank for which the bank does not have sole or
shared voting or dispositive power. The Trust Department intends to cast
all shares under its voting power for the election of the nominees for
director named below and for the ratification of J. H. Williams & Co.,
LLP, independent auditors of the corporation.
Includes 153,042 shares held individually by Mr. Bull, 3,532 shares held
by Bull, Bull & Knecht, LLP, a law firm of which Mr. Bull is a partner,
and 79,686 shares held by the Sara E. Bull Decedent Estate Trust of which
Mr. Bull is the trustee.
Includes 188,534 shares held individually by Mr. Wise and 33,857 shares
held jointly with his spouse.
Page 10 First Keystone Corporation
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES
________________________________________________________
The following table sets forth, as of March 8, 2005, the
amount and percentage of the outstanding common stock
beneficially owned by each director, nominee for director, and
other named executive officer of the corporation. The table also
indicates the total number of shares owned by all directors,
nominees for director, and executive officers of the corporation
and the bank as a group. A person owns his shares directly as an
individual unless otherwise indicated.
Number of
Name Shares Owned Percentage
____ _____________ _______
Nominee for Class C Directors
(to serve until 2008)
And Class C Director
____________________
Don E. Bower 27,851 --
John L. Coates 13,676 --
Dudley P. Cooley 6,760 --
Class A Director
(to serve until 2006)
_____________________
Budd L. Beyer 61,317 1.40%
Frederick E. Crispin, Jr. 186,828 4.25%
Jerome F. Fabian 28,142 --
Robert J. Wise 222,391 5.06%
Class B Director
(to serve until 2007)
_____________________
John E. Arndt 7,797 --
J. Gerald Bazewicz 39,828 --
Robert E. Bull 236,260 5.38%
Other Named Executive Officer
_____________________________
David R. Saracino 14,011 --
Leslie W. Bodle 12,385 --
Timothy K. Kishbach 9,144 --
All Directors and Executive 866,390 19.73%
Officers as a Group
(13 Persons in Total)
____________________
The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission
and may include securities owned by or for the individual's spouse and
minor children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment
power or has the right to acquire beneficial ownership within 60 days
after March 8, 2005. Beneficial ownership may be disclaimed as to certain
of the securities.
Information furnished by the directors and the corporation.
Less than 1% unless otherwise indicated.
Includes 9,364 shares held individually by Mr. Coates and 4,312 shares
held jointly with his spouse.
Proxy Statement Page 11
Includes 25,155 shares held individually by Mr. Crispin, 12,577 shares
held individually by his spouse and 149,096 shares held by the Frederick
E. Crispin Sr. Trust of which Mr. Crispin is the trustee and has sole
voting authority.
Includes 3,197 shares held individually by Mr. Fabian, 11,402 shares by
the Jerome F. Fabian Trust Under Agreement for which Mr. Fabian exercises
dispositive power, and 13,543 shares held jointly with his spouse.
Includes 188,534 shares held individually by Mr. Wise and 33,857 shares
held jointly with his spouse.
Includes 6,745 shares held individually by Mr. Arndt, and 1,052 shares
held individually by his spouse.
Includes 17,288 shares held individually by Mr. Bazewicz, 5,867 shares
held in his bank 401K plan, 4,661 shares held jointly with his spouse,
1,071 shares held individually by his spouse, 141 shares held by his
child, and 10,800 shares which may be purchased upon the exercise of stock
options.
Includes 153,042 shares held individually by Mr. Bull, 3,532 shares held
by Bull, Bull & Knecht, LLP, a law firm of which Mr. Bull is a partner,
and 79,686 shares held by the Sara E. Bull Decedent Estate Trust of which
Mr. Bull is the trustee.
Includes 4,458 shares held individually by Mr. Saracino, 3,403 shares held
in his bank 401K plan, and 6,150 shares which may be purchased upon the
exercise of stock options.
Includes 5,650 shares held individually by Mr. Bodle, 321 shares held
jointly with his spouse, 152 shares held jointly with his child, 2,612
shares held in his bank 401K plan, and 3,650 shares which may be purchased
upon the exercise of stock options.
Includes 2,813 shares held individually by Mr. Kishbach, 970 shares held
in his bank 401K plan, and 5,361 shares which may be purchased upon the
exercise of stock options.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the corporation's financial
reporting process on behalf of the Board of Directors. In that
connection, the committee, along with the Board of Directors, has
formally adopted an audit committee charter setting forth its
responsibilities.
Management has the primary responsibility for the financial
statements and the reporting process including the systems of
internal control. In fulfilling its oversight responsibilities,
the committee reviewed the audited financial statements in the
Annual Report with management including a discussion of the
quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments and the
clarity of disclosures in the financial statements.
Page 12 First Keystone Corporation
The committee reviewed with the independent auditors, who
are responsible for expressing an opinion on the conformity of
those audited financial statements with generally accepted
accounting principles, their judgments as to the quality, not
just the acceptability, of the corporation's accounting
principles and such other matters as are required to be discussed
with the committee under generally accepted auditing standards.
In addition, the committee has discussed with the independent
auditors the auditors' independence from management and the
corporation including the matters in written disclosures required
by the Independence Standards Board and considered the
compatibility of non-audit services with the auditors'
independence.
The committee discussed the overall scope and plans for
their audits with the corporation's internal and independent
auditors. The committee meets with the internal and independent
auditors, with and without management present, to discuss the
results of their examinations, their evaluations of the
corporation's internal controls and the overall quality of the
corporation's financial reporting. The corporation believes that
it has established appropriate policies and procedures to comply
with requirements of the Sarbanes Oxley Act of 2002. The
committee held 4 meetings during fiscal year 2004 in addition to
reviewing the quarterly results with the financial auditors prior
to press release.
In reliance on the reviews and discussions referred to
above, the committee recommended to the Board of Directors (and
the Board has approved) that the audited financial statements be
included in the Annual Report on Form 10K for the year ended
December 31, 2004, for filing with the Securities and Exchange
Commission. The committee and the Board of Directors have also
approved the selection of the corporation's independent auditors
for 2005.
With respect to the corporation's outside auditors, the
committee, among other things, discussed with J.H. Williams &
Co., LLP matters relating to its independence, including the
written disclosures made to the Committee by the outside auditors
and the letter from the outside auditors as required by the
Independence Standards Board No. 1 (Independence Discussions with
Audit Committees).
Aggregate fees billed to the corporation and the bank by J.
H. Williams & Co., LLP for services rendered during the year
ended December 31, 2004 were as follows:
Year Ended December 31,
2004 2003
____ ____
Audit fees $78,100 $71,300
Audit related fees 0 0
Tax fees 5,900 5,700
All other fees 0 0
_______ _______
Total $84,000 $77,000
======= =======
___________________
Audit Fees include fees billed for profession services rendered
for the audit of annual financial statement and fees billed for
the review of financial statements included in First Keystone
Corporation's Forms 10Q or services that are normally provided by
J. H. Williams & Co., LLP in connection with statutory and
regulatory filings or engagements.
Audit Related Fees include fees billed for assurance and related
services by J. H. Williams & Co., LLP that are reasonable related
to the performance of the audit or review of the registrant's
financial statements and are not reported under the Audit Fees
section of the table above. These services include agreed upon
procedure engagements related to the Information Systems
Department and Investment Center for Non Deposit Investment
Products for the year ended December 31, 2004.
Proxy Statement Page 13
Tax Fees include fees billed for professional services rendered
by J. H. Williams & Co., LLP for tax compliance, tax advice, tax
planning. These services include preparation of Federal and
State Annual Tax Returns for the Corporation.
All Other Fees include fees billed for products and services
provided by J. H. Williams & Co., LLP, other than the services
reported under the Audit Fees, Audit Related Fees, or Tax Fees.
The committee is comprised of 3 directors, all of whom are
considered "independent" as defined by the National Association
of Securities Dealers (NASD) listing standards. The Board of
Directors has determined that no member of the committee has a
relationship with the corporation that should interfere with his
independence from the corporation or its management.
The foregoing report has been furnished by the current
members of the committee.
MEMBERS OF THE AUDIT COMMITTEE
Dudley P. Cooley, Chairman
Don E. Bower
John L. Coates
Jerome F. Fabian
COMPENSATION OF DIRECTORS
_________________________
During 2004, each member of the corporation's Board of
Directors received $500 for his attendance at the Annual Meeting.
Other corporate Board meetings met concurrently with the bank's
Board, and directors received no additional compensation. The
bank's directors received $500 for each directors' meeting
attended. Nonemployee directors received a $5,000 retainer and
$250 for each committee meeting attended. In addition, Chairman
Bull received an annual stipend of $1,000, and Vice Chairman Wise
and Secretary Coates each received an annual stipend of $750. In
the aggregate, the Board of Directors received $200,000 for all
Board of Directors' meetings and committee meetings attended in
2004, including all fees, bonuses, and stipends paid to all
directors in 2004.
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, 2004, 2003, and 2002 of those persons who were:
* the Chief Executive Officer during 2004, and
* the other 4 most highly compensated executive
officers of the corporation and the bank at
December 31, 2004, whose total annual salary and
bonus exceeded $100,000 during 2004.
Page 14 First Keystone Corporation
SUMMARY COMPENSATION TABLE
Annual Compensation
___________________
(a) (b) (c) (d) (e)
Other
Annual
Name and Compen-
Principal Salary Bonus sation
Position Year ($) ($) ($)
_________ _____ ______ _____ _____
J. Gerald Bazewicz 2004 165,500 9,575 12,500
President and CEO 2003 158,300 35,215 14,000
of the corporation 2002 151,500 34,763 13,500
and the bank
David R. Saracino 2004 107,000 6,325 0
Treasurer and 2003 102,500 25,600 0
Assistant Secretary 2002 98,500 25,293 0
of the corporation
and Vice President,
Cashier and Assistant
Secretary of the bank
Leslie W. Bodle 2004 99,500 5,463 0
Vice President 2003 96,000 15,038 0
and Trust Officer 2002 92,500 14,875 0
of the bank
Long-Term Compensation
______________________
Awards Payouts
(f) (g) (h) (i)
Long
Term All
Name and Restricted Incentive Other
Principal Stock Options/ Plan Compen-
Position Award(s) SARs Payouts sation
($) (#) ($) ($)
_______ ____ ______ _____ _____ ___
J. Gerald Bazewicz 0 0 0 80,749
President and CEO 0 2,000 0 65,704
of the corporation 0 2,000 0 61,677
and the bank
David R. Saracino 0 0 0 67,469
Treasurer and 0 1,000 0 37,137
Assistant Secretary 0 1,000 0 56,707
of the corporation
and Vice President,
Cashier and Assistant
Secretary of the bank
Leslie W. Bodle 0 0 0 64,644
Vice President 0 1,000 0 36,059
and Trust Officer 0 1,000 0 34,159
of the bank
______________________
Amounts shown for Mr. Bazewicz include a Management Incentive Bonus of
$26,000 for 2003 and $26,000 for 2002, 5% cash bonus award of $9,575 in
2004, $9,215 in 2003, and $8,763 in 2002.
Amounts shown for Mr. Saracino include a Management Incentive Bonus of
$19,500 in 2003 and $19,500 in 2002, 5% cash bonus award of $6,325 in
2004, $6,100 in 2003, and $5,793 in 2002.
Amounts shown for Mr. Bodle include a Management Incentive Bonus of $9,750
in 2003 and $9,750 in 2002, 5% cash bonus award of $5,463 in 2004, $5,288
in 2003, and $5,125 in 2002.
Amounts shown for Mr. Bazewicz consist of fees paid for attendance at
Board of Directors meetings.
All amounts listed indicate options granted pursuant to First Keystone
Corporation's 1998 Stock Incentive Plan.
Amounts shown for Mr. Bazewicz include contributions to the bank's 401(k)
Plan of $22,118 for 2004, $27,092 for 2003, and $25,742 for 2002, accrual
for the bank's Supplemental Employee Retirement Plan (SERP) of $58,631 in
2004, $38,612 in 2003, and $35,935 in 2002.
Amounts shown for Mr. Saracino include contributions to the bank's 401(k)
Plan of $14,611 in 2004, $17,934 for 2003, and $17,032 for 2002, accrual
for the bank's Supplemental Employee Retirement Plan (SERP) of $52,858 in
2004, $19,203 in 2003, and $39,675 in 2002.
Amounts shown for Mr. Bodle include contributions to the bank's 401(k)
Plan of $12,618 for 2004, $15,545 for 2003 and $15,068 for 2002, accrual
for the bank's Supplemental Employee Retirement Plan (SERP) of $52,026 in
2004, $20,514 in 2003 and $19,091 in 2002.
Proxy Statement Page 15
STOCK OPTION GRANTS IN FISCAL YEAR 2004
_______________________________________
The corporation did not grant any stock options in 2004.
AGGREGATED OPTION EXERCISES IN 2004 AND 2004 YEAR-END OPTION
VALUES
____________________________________________________________
The following table shows information about all exercises of
stock options by the named officer under the 1998 Stock Incentive
Plan. The options and information shown on the table have been
adjusted to reflect a 3 for 2 stock split in the form of a 50%
stock dividend paid May 11, 2004.
Shares
Acquired
on Value
Name Exercise Realized
____ _______ _______
J. Gerald Bazewicz 1,500 10,980
David R. Saracino 0 0
Leslie W. Bodle 1,000 7,530
Timothy K. Kishbach 0 0
Number of
Securities Value of
Underlying Unexercised
Unexercised In the Money
Options at Options at
December 31, December 31,
2004 2004
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
____ _____________ _____________
J. Gerald Bazewicz 10,800/0 $34,854/$0
David R. Saracino 6,150/0 $22,542/$0
Leslie W. Bodle 3,650/0 $6,332/$0
Timothy K. Kishbach 5,361/0 $26,076/$0
__________________
All options granted through December 31, 2004, are reported.
Represents the difference between $22.65 (the last sale price of
the common stock on December 31, 2004), and the exercise price per
share of options multiplied by the number of exercisable and
unexercisable options held, respectively.
EQUITY COMPENSATION PLAN INFORMATION
____________________________________
The following table provides information about our shares of
common stock that may be issued under our existing equity
compensation plans as of December 31, 2004.
Page 16 First Keystone Corporation
Number of
Securities to
Be Issued
Upon Exercise
of Outstanding
Options
(A) (#)
______________
Equity Compensation Plans
Approved by Stockholders 71,175
Number of
Securities
Remaining
Available
For Future
Issuance
Weighted Under Equity
Average Compensation
Exercise Plans Excluding
Price Of Securities
Outstanding Reflected In
Options Column (A)
(B) ($) (C) (#)
______ ___________
Equity Compensation Plans
Approved by Stockholders $17.35 86,325
____________________
Includes shares issued under the corporation's 1998 Stock Incentive
Plan.
The shares authorized and awarded under this plan have been
adjusted to reflect a 3 for 2 split in the form of a 50% stock
dividend paid by the corporation on May 11, 2004. The
corporation has no plans, contracts or arrangements under which
the corporation's common stock may be issued to employees or non
employees that have not been approved by shareholders.
401(K) PLAN
___________
The bank maintains a 401(k) Plan which has a combined tax
qualified savings feature and profit sharing feature. The plan
provides benefits to employees who have completed at least one
year of service and are at least 21 years of age. The plan
agreement provides that the bank will match employee deferrals to
the plan up to 3% of their respective eligible compensations.
Additionally, the bank may make a discretionary contribution
annually to the plan. Contributions made by the bank to the plan
are allocated to participants in the same portions that each
participant's compensation bears to the aggregate compensation of
all participants. Each participant in the plan is 100% vested at
all times. Benefits are payable under the plan upon termination
of employment, disability, death, or retirement. Contributions
reflected as expense under this plan in 2004 and 2003 were:
2004 2003
____ ____
Matching contribution to savings plan $100,922 $ 92,937
Contribution to profit sharing plan 288,176 357,301
________ ________
Total Expense $389,098 $450,238
======== ========
Of the $389,098 total expenses during 2004, $59,228 was
credited among the individual accounts of the 4 most highly
compensated executive officers of the bank. Of the $59,228, Mr.
Bazewicz was credited with $22,118, Mr. Saracino with $14,611,
Mr. Bodle with $12,618, and Mr. Kishbach with $9,881. Messrs.
Bazewicz and Saracino have been members of the plan for 19 years,
Mr. Bodle for 18 years, and Mr. Kishbach for 15 years.
Proxy Statement Page 17
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
_____________________________________
The corporation maintains a Supplemental Employee Retirement
Plan ("SERP") covering 3 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 a
stated retirement age of 60 years, the bank will pay 240
guaranteed consecutive monthly payments commencing on the first
day of the month following the officer's 60th birthday and the
termination of employment in the amounts indicated below.
The salary continuation agreement allows the executive
officers to achieve a retirement income percentage that is more
consistent with their experience and years of service to the
bank. The plan objective is to provide the executive officers
with a final wage replacement ratio of approximately 75% of
projected final salary including projected benefits from the bank
401(k), social security, and salary continuation provided through
the agreement. The established retirement benefit under the
salary continuation plan for Messrs. Bazewicz, Saracino, and
Bodle will be $3,750 per month, $2,333 per month and $1,750 per
month, respectively, and is not subject to change. If the
executive officer attains their stated retirement age, but dies
before receiving all of the guaranteed monthly payments, then the
bank will make the remaining payments to the officer's
beneficiary. In the event the officer dies while serving as an
officer, prior to their stated retirement age, the bank will
remit the guaranteed monthly payment to the officer's beneficiary
commencing the month following the executive's death. In the
event of a change of control and the termination of the officer's
employment, the guaranteed monthly payments will commence the
month following the executive's termination of service. No
benefit will be paid if the executive officer voluntarily
terminates employment prior to attaining the stated retirement
age.
OTHER EXECUTIVE BENEFITS
________________________
The corporation maintains the First Keystone Corporation
1998 Stock Incentive Plan to advance the development, growth and
financial condition of the corporation. Please refer to the
description of the 1998 Stock Incentive Plan in the Board
Compensation Committee Report on page 19. The corporation also
maintains a bonus program for employees and for senior
management, which is also described in the Board Compensation
Committee Report on page 19.
In 2004, the bank expensed $167,185 for the accrual of the
salary continuation plan for the three executive officers and one
retired executive officer.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
__________________________________________________
Other than described below, there have been no material
transactions between the corporation or the bank, nor any
material transactions proposed, with any director or executive
officer of the corporation or the bank, or any associate of these
persons. The law firm Bull, Bull & Knecht, LLP, of which
Director Bull and his son, Robert A. Bull, are partners, provided
routine legal services to the bank according to the firm's normal
fee schedule and billing rates, and the bank intends to continue
to engage the firm's services in the future. The bank paid total
fees of $12,435.40 to the law firm during 2004. 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, 2004, to the corporation's and the bank's executive
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 $3,041,653, or approximately 5.71% of the total
equity capital. Loans to such persons were made in the
Page 18 First Keystone Corporation
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
2004 to officers and directors of the corporation and the bank,
and their affiliates as a group was $3,659,694. The aggregate
amount of outstanding indebtedness as of the latest practicable
date, March 1, 2005, to the above described group was $2,994,924.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The basic mission of the corporation's executive
compensation policy is to provide executives of First Keystone
Corporation's subsidiary, The First National Bank of Berwick,
with a competitive compensation package that attracts and retains
qualified executives while placing a portion of total pay at
risk. The Board of Directors serves as the Compensation Committee
for the bank and develops the bank's and the corporation's
executive compensation policy, with guidance from the Human
Resources Committee. The four components of the total
compensation package are:
* Base salary
* Regular employee bonus
* Senior management bonus
* Long-term incentives
BASE SALARY
___________
The Board of Directors determines compensation for executive
officers of The First National Bank of Berwick with guidance from
the Human Resources Committee. For the base salary paid to
executive officers other than the Chief Executive Officer, the
Board of Directors considers information provided by the Chief
Executive Officer as to each executive officer's level of
individual performance, contribution to the organization, and
salary history. For the base salary paid to the Chief Executive
Officer, the Board of Directors, with Mr. Bazewicz not being
present, considers his performance level, the results of
management decisions made by him, and the earnings of the
organization. No particular weight is assigned to any of the
foregoing individual performance factors. The executive
compensation established by the Board of Directors is based on
its overall subjective assessment of the value of the services
provided by each executive officer with consideration to the
performance factors discussed in this paragraph and peer group
compensation information.
The peer group of banks chosen by the Board of Directors for
purposes of making a comparative analysis of executive
compensation does not include all of the same banks incorporated
in the peer group established to compare shareholder returns as
indicated in the performance graph included in this proxy
statement. The Board of Directors uses data from compensation
surveys of the banking industry to assist in determining
executive pay. This group of Pennsylvania banking organizations
bears no direct relationship to those banking organizations
represented in the performance graph.
The Board of Directors established Mr. Bazewicz's base
salary, not including director fees, at $165,500 in 2004 and
increased his salary to $179,775 effective January 1, 2005. This
placed Mr. Bazewicz's base compensation between the median and
slightly above the median for chief executive officers of
comparable bank holding companies, as reflected in the peer group
compensation data reviewed by the Board of Directors. This
salary has been deemed by the Board of Directors to be
commensurate with the performance by First Keystone Corporation
over the past year including 2003, as measured by return on
assets (ROA) and return on equity (ROE).
Proxy Statement Page 19
CASH BONUSES
____________
The cash bonuses serve as short term incentives that 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 and was 5.0% in 2004. The bonus
has averaged approximately 5.0% 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 the shareholders because,
generally, the higher the net income for the year, the larger the
bonuses paid to management.
LONG-TERM INCENTIVES: STOCK OPTIONS
___________________________________
The Board of Directors believes that stock option awards
under the 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 the
awards on its overall subjective assessment of the value of the
services provided by each executive officer with consideration to
performance of the corporation and peer group compensation
information. The options generally vest 6 months after issuance
and expire ten years from the date of the grant. The total
number of shares that may be issued under the plan is 157,500.
BOARD OF DIRECTORS
Robert E. Bull, Chairman
Robert J. Wise, Vice Chairman
J. Gerald Bazewicz, President
John L. Coates, Secretary
John E. Arndt
Budd L. Beyer
Don E. Bower
Dudley P. Cooley
Frederick E. Crispin, Jr.
Jerome F. Fabian
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
___________________________________________________________
The Board of Directors, which includes J. Gerald Bazewicz,
Chief Executive Officer, functions as the Compensation Committee.
For compensation paid to executive officers other than the Chief
Executive Officer, the Board of Directors considers information
provided by the Chief Executive Officer. For compensation paid
to the Chief Executive Officer, the Board of Directors, with Mr.
Bazewicz not being present, determines his compensation, as
outlined above under "Base Salary".
Page 20 First Keystone Corporation
PERFORMANCE GRAPH
The following graph and table compare the cumulative total
shareholder return on the corporation's common stock during the
period December 31, 1999, through and including
December 31, 2004, with
* the cumulative total return on the SNL Securities
Corporate Performance Index for banks with less than
$500 million in total assets in the Middle Atlantic area
, and
* the cumulative total return for all United States stocks
traded on the NASDAQ Stock Market.
The comparison assumes $100 was invested on December 31,
1999, 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
______________________________
12/31/99 12/31/00 12/31/01
________ ________ ________
First Keystone Corporation 100.00 81.79 105.71
NASDAQ - Total US 100.00 60.82 48.16
SNL <$500M Bank Index 100.00 96.47 133.45
Period Ending
______________________________
12/31/02 12/31/03 12/31/04
________ ________ ________
First Keystone Corporation 152.57 217.69 211.74
NASDAQ - Total US 33.11 49.93 54.49
SNL <$500M Bank Index 170.90 249.47 287.96
__________________
SNL Securities is a research and publishing firm specializing in
the collection and dissemination of data on the banking, thrift
and financial services industries.
The Middle Atlantic area comprises the states of Delaware,
Pennsylvania, Maryland, New Jersey, New York, the District of
Columbia and Puerto Rico.
Proxy Statement Page 21
PRINCIPAL OFFICERS OF THE BANK AND THE CORPORATION
The following table presents selected information as of
March 8, 2005, about the executive officers of the bank and
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 as of Office and Position
Name March 8, 2005 with the Bank
____ _____________ ___________________
Robert E. Bull 82 Chairman of the Board
Robert J. Wise 75 Vice Chairman
of the Board
J. Gerald Bazewicz 56 President and CEO
John L. Coates 68 Secretary
David R. Saracino 60 Vice President,
Cashier and
Assistant Secretary
Leslie W. Bodle 57 Vice President and
Trust Officer
Timothy K. Kishbach 39 Vice President
Age as of Office and Position
Name March 8, 2005 with the Corporation
____ _____________ ___________________
Robert E. Bull 82 Chairman of the Board
Robert J. Wise 75 Vice Chairman
of the Board
J. Gerald Bazewicz 56 President and CEO
John L. Coates 68 Secretary
David R. Saracino 60 Treasurer and
Assistant Secretary
Leslie W. Bodle 57 -----
Timothy K. Kishbach 39 -----
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 to, or 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.
Page 22 First Keystone Corporation
PROPOSAL NO. 2: RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed J. H. Williams & Co.,
LLP, Certified Public Accountants, located at 270 Pierce Street,
Kingston, Pennsylvania 18705, as the corporation's independent
auditors for its 2005 fiscal year. The Board proposes that
shareholders ratify this selection. J. H. Williams & Co., LLP,
has advised the corporation that none of its members has any
financial interest in the corporation. Ratification of J. H.
Williams & Co., LLP, will require the affirmative vote of a
majority of the votes cast in person or by proxy at the Annual
Meeting by shareholders entitled to vote. J. H. Williams & Co.,
LLP served as the corporation's independent auditors for the 2004
fiscal year, assisted the corporation and the bank with
preparation of their federal and state tax returns, and provided
assistance in connection with regulatory matters, charging the
bank for services at its customary hourly billing rates. The
corporation's and the bank's Board of Directors approved these
non-audit services after due consideration of the accountants'
objectivity and after finding them to be wholly independent.
Representatives of J. H. Williams & Co., LLP, will attend
the Annual Meeting of Shareholders, will have the opportunity to
make a statement and are expected to be available to respond to
any questions. In the event that the shareholders do not ratify
the selection of J. H. Williams & Co, LLP, as the corporation's
independent auditors for the 2005 fiscal year, another accounting
firm may be chosen to provide independent audit services for the
2005 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, 2005.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the corporation's officers and directors, and
persons who own more than 10% of the registered class of the
corporation's equity securities, to file reports of ownership of
the corporation's common stock and changes in ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors
and greater than 10% shareholders are required by SEC regulation
to furnish the corporation with copies of all Section 16(a) forms
they file.
Based solely on its review of copies of Section 16(a) forms
received by it, or written representations from reporting persons
that no Forms 5 were required for those persons, the corporation
believes that during the period January 1, 2004, through December
31, 2004, its officers, directors and reporting shareholders were
in compliance with all filing requirements applicable to them.
ANNUAL REPORT
A copy of the corporation's Annual Report for its fiscal
year ended December 31, 2004, 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.
Proxy Statement Page 23
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 the matters as they
determine to be in the best interest of the corporation.
ELECTRONIC ACCESS TO PROXY MATERIALS
AND FINANCIAL STATEMENTS
The corporation is subject to the information reporting
requirements of the Securities Exchange Act of 1934 and must file
periodic financial reports, proxy statements and other
information with the SEC. You may obtain these documents,
including the corporation's report on Form 10K for its fiscal
year ended December 31, 2004, which contains the corporation's
audited financial statements, at the SEC's web site at
http://www.sec.gov. You may also obtain a copy of the
corporation's report on Form 10K for its fiscal year ended
December 31, 2004, without charge, by submitting a written
request to David R. Saracino, Treasurer, First Keystone
Corporation, 111 West Front Street, Berwick, Pennsylvania 18603,
telephone: (570) 752-3671.
Page 24 First Keystone Corporation
[THIS PAGE INTENTIONALLY LEFT BLANK]
FIRST KEYSTONE CORPORATION
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 19, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints and William
Selden, Jr. and Francis J. Radice, each or any of them, proxies
of the undersigned, with full power of substitution, to vote all
of the shares of First Keystone Corporation (the "Corporation")
that the undersigned may be entitled to vote at the Annual
Meeting of Shareholders of the Corporation to be held at the main
office of The First National Bank of Berwick, 111 West Front
Street, Berwick, Pennsylvania 18603 on Tuesday, April 19, 2005,
at 10:00 a.m., Eastern Daylight Time, and at any adjournment or
postponement thereof as follows:
1. PROPOSAL #1: ELECTION OF CLASS C DIRECTORS TO SERVE FOR A
THREE YEAR TERM
DON E. BOWER JOHN L. COATES DUDLEY P. COOLEY
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to
above (except as marked vote for all nominees
to the contrary below) listed above
(INSTRUCTION: IF YOU WISH TO WITHHOLD THE PROXIES'
AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE FOR
DIRECTOR LISTED ABOVE, WRITE THAT NOMINEE'S NAME ON THE
SPACE PROVIDED BELOW.)
_________________________________________________________
2. PROPOSAL #2: PROPOSAL TO RATIFY THE SELECTION OF J. H.
WILLIAMS & CO., LLP AS THE INDEPENDENT AUDITORS FOR THE
CORPORATION FOR THE YEAR ENDING DECEMBER 31, 2005.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
3. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the meeting
and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES
LISTED ABOVE AND FOR PROPOSAL 2.
Dated: _________________, 2005
______________________________
______________________________
______________________________
Signature(s) (Seal)
THIS PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND RETURNED
PROMPTLY TO THE CORPORATION IN THE ENCLOSED ENVELOPE. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE. IF MORE THAN ONE TRUSTEE, ALL
SHOULD SIGN. IF STOCK IS HELD JOINTLY, EACH OWNER SHOULD SIGN.