FEDERAL DEPOSIT INSURANCE CORPORATION

Keystone Savings Bank
Bethlehem, Pennsylvania
Applications for Consent to Merge, Establish 19 Branches, Participate in an Optional Conversion Transaction, and Exercise Trust Powers

ORDER AND BASIS FOR CORPORATION APPROVAL

Pursuant to Section 18(c) and other provisions of the Federal Deposit Insurance (FDI) Act, an application has been filed on behalf of Keystone Savings Bank (Keystone), Bethlehem, Northampton County, Pennsylvania, currently an insured state-chartered, mutually-owned nonmember bank and Savings Association Insurance Fund (SAIF) member with total resources of $1,063,978,000 and total deposits of $819,905,000 as of June 30, 2003, for the Corporation's consent to merge with Nazareth National Bank and Trust Company (Nazareth), Nazareth, Northampton County, Pennsylvania, an insured National bank and Bank Insurance Fund (BIF) member with total resources of $636,956,000 and total deposits of $512,309,000 as of June 30, 2003, and to establish the 19 offices of Nazareth as branches of the resulting bank. The merger will be consummated under Keystone's charter as a state-chartered stock nonmember savings bank subsequent to its conversion from mutual form, and with the new name of Keystone Nazareth Bank & Trust Company (Resultant Bank). Notice of the proposed transaction, in a form approved by the Corporation, has been published pursuant to the FDI Act. There will be no insurance fund conversion concurrent with the proposed transaction and assessments will continue to be paid to the BIF pursuant to Section 5(d)(3) of the FDI Act.

In connection with the proposed merger, Keystone has filed an application for consent to exercise full trust powers so the Resultant Bank can continue to operate the trust department of Nazareth. Keystone has also filed a mutual-to-stock conversion notice, which is being dealt with in a separate action.

A review of available information, including the Community Reinvestment Act (CRA) performance of the proponents, discloses no inconsistencies with the purposes of the CRA. The resultant institution is expected to continue to meet the credit needs of its entire community, consistent with the safe and sound operation of the institution.

In connection with the merger application, the Corporation has taken into consideration the competitive effects of the proposed transaction as measured by the Herfindahl-Hirschman Index (HHI). The relevant geographic market of the proponent banks and the Resultant Bank, a four-county area of Pennsylvania, is unconcentrated with an HHI of 890.8 before the consummation of the merger, and will remain unconcentrated with an HHI of 955.5 (for an increase of 64.7 points) following the consummation of the merger, based on deposit figures as of June 30, 2002. The FDIC has also taken into consideration the financial and managerial resources and future prospects of the proponent banks and the Resultant Bank; the convenience and needs of the community to be served; and the effectiveness of the insured depository institutions involved in the proposed merger transaction in combating money laundering activities. Having found favorably on these statutory factors and having considered other relevant information, including any reports on the competitive factors furnished by the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, and the Attorney General of the United States, it is the Corporation's judgment that the merger and related applications should be and hereby are approved.

With regard to the application by Keystone for consent to exercise full trust powers, having found favorably on all statutory factors in the merger application and having determined that the exercise of trust powers by the Resultant Bank is not inconsistent with the purposes of the FDI Act, it is the Corporation's judgment that the application to exercise full trust powers should be and hereby is approved.

The approval of these applications is subject to the following conditions:

1. That the transaction shall not be consummated before the fifteenth calendar day following the date of this ORDER, or later than six months after the date of this ORDER, unless such period is extended for good cause by the Corporation;

2. That all necessary and final approvals shall have been received from all involved parties; and

3. That, until the proposed transaction becomes effective, the Corporation shall have the right to alter, suspend, or withdraw its approval should any interim development be deemed to warrant such action.

By Order of the Associate Director of the Division of Supervision and Consumer Protection pursuant to delegated authority of the Board of Directors.

Dated at Washington, D.C., this 9th day of October, 2003.

___________________________
Lisa K. Roy
Associate Director