Item 4. Controls and Procedures
Item 4. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures. First Keystone Corporation maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those disclosure controls and procedures performed as of the end of the period covered by this report, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the Company’s disclosure controls and procedures were not effective due to a
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material weakness identified as of December 31, 2025. As of March 31, 2026, the material weakness previously identified had not been fully remediated. Accordingly, because the Company’s disclosure controls and procedures rely in part on the effectiveness of its internal control over financial reporting, management concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2026.
Management identified a material weakness in the Company’s internal control over financial reporting related to the operation of the control related to the identification, evaluation, and documentation of certain problem loans, including conclusions related to non-accrual status, individual loan evaluation, and charge-off determination. The control did not operate effectively as of December 31, 2025. While certain loans were appropriately identified and monitored as substandard, the Company’s control activities did not sufficiently identify, evaluate, and document indicators of collectability and need for individual evaluation on a timely basis. Management did not timely conclude upon and process (1) a required move to non-accrual status for a commercial real estate loan relationship, (2) the need for individual evaluation and a specific allocation of the allowance for credit losses related to the commercial real estate loan relationship, and (3) a charge-off on a fully drawn commercial and industrial line of credit for which the collateral was determined insufficient to support the balance of the loan and for which collection was no longer probable. As a result of the ineffectiveness of the control, these matters were identified in the audit process and resulted in adjustments to the allowance for credit losses and related financial statement amounts. Accordingly, there is a reasonable possibility that a material misstatement to the Company’s annual or interim financial statements would not have been prevented or detected on a timely basis.
Management has initiated remediation measures to address the material weakness identified above. These actions include enhancements to the Company’s problem loan governance and review process. Henceforward, as part of the Company’s quarterly problem loan review process, management will consider all loans meeting the following criteria for possible classification as non-accrual status, need for individual loan evaluation, or possible charge-off: (1) any loans that are currently ninety days or more past due or without further payment remittance will be ninety days or more past due at quarter-end, (2) any loans that have been ninety days or more past due at any point during the current quarter, (3) any loans for which (during the current or prior fiscal year) the Company has advanced funds to pay delinquent real estate taxes, (4) any loans for which capitalized advances have caused the current principal balance to exceed the original loan balance or commitment, (5) any loans for which the Company has become aware of a reduction in cash flow of sufficient magnitude to make repayment collaterally-dependent, and (6) any loans for which repayment is contingent upon conversion (to cash) of receivables for which collectability is now in doubt.
Management believes that these actions, when fully implemented and operating for a sufficient period of time, will remediate the material weakness. As management continues to evaluate and work to improve its internal control over financial reporting, management may elect to take additional measures to address control deficiencies or may elect to modify the remediation plan as described above.
b)
Changes in internal control over financial reporting. Other than remediation efforts related to the material weakness described above, there were no other changes in the Company’s internal control over financial reporting during the fiscal quarter ended March 31, 2026, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.