UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended June 30, 1996
Commission File Number: 0-13775
KEYSTONE HERITAGE GROUP, INC.
(Registrant)
PENNSYLVANIA 23-2219740
(State of incorporation) (I.R.S. Employer
Identification No.)
555 WILLOW STREET, LEBANON, PENNSYLVANIA 17046
(Address of principal executive offices) (Zip Code)
717-274-6800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 12, 1996
Common Stock ($5.00 par value) 4,069,283 shares
<PAGE>
KEYSTONE HERITAGE GROUP, INC.
Index
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 (Unaudited) 3
Consolidated Statements of Income for the
Three and Six Months ended June 30, 1996 and
1995 (Unaudited) 4
Consolidated Statements of Stockholders' Equity
for the Six Months ended June 30, 1996 and
1995 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 1996 and 1995 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 4 - Submission of Matters To A Vote Of Security Holders 20
Signature Page 22
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<PAGE>
KEYSTONE HERITAGE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
<S> <C> <C>
ASSETS
Cash and due from banks $ 19,016 $ 23,766
Interest bearing deposits with banks 158 246
Federal funds sold 3,600 0
Investment securities available for sale 55,269 65,799
Investment securities held to maturity
(fair value of $83,944 and $88,052
for 1996 and 1995, respectively) 83,876 86,885
Loans, net of unearned income of
$2,203 for 1996 and $2,830 for 1995 408,393 391,009
Allowance for possible loan losses (7,654) (8,025)
--------- ---------
Loans, net 400,739 382,984
Premises and equipment, net 7,717 7,933
Accrued interest receivable 3,648 3,844
Other real estate owned 741 913
Deferred tax asset, net 2,907 3,100
Other assets 2,550 2,307
--------- ---------
Total assets $ 580,221 $ 577,777
========= =========
LIABILITIES
Non-interest bearing deposits $ 65,829 $ 65,530
Interest bearing deposits 426,993 422,387
--------- ---------
Total deposits 492,822 487,917
Short-term borrowings 11,348 8,640
Other borrowings 8,530 14,009
Accrued interest payable 4,006 5,284
Other liabilities 2,387 3,048
--------- ---------
Total liabilities 519,094 518,898
STOCKHOLDERS' EQUITY
Common stock - $5 par value;
Authorized 10,000,000 shares;
Outstanding 4,071,683 shares at
June 30, 1996 and
December 31, 1995, respectively 20,358 20,358
Capital surplus 22,078 22,078
Retained earnings 18,479 16,107
Net unrealized gain on investment securities
available for sale, net of taxes 212 336
--------- ---------
Total stockholders' equity 61,127 58,879
Total liabilities and stockholders'
equity $ 580,221 $ 577,777
========= =========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
KEYSTONE HERITAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 8,977 $ 8,743 $17,730 $17,224
Interest on investment securities
available for sale:
Taxable investment securities 696 650 1,433 1,312
Equity investments 49 47 104 90
Interest on investment securities held to maturity:
Taxable investment securities 1,074 1,180 2,219 2,036
Non-taxable investment securities 126 113 251 229
------- ------- ------- -------
Total interest on investment
securities 1,945 1,990 4,007 3,667
Interest on money market investments 30 113 67 247
------- ------- ------- -------
Total interest income 10,952 10,846 21,804 21,138
INTEREST EXPENSE
Interest on deposits 4,451 4,496 8,954 8,452
Interest on short-term borrowings 113 112 234 243
Interest on other borrowings 160 222 322 404
------- ------- ------- -------
Total interest expense 4,724 4,830 9,510 9,099
Net interest income 6,228 6,016 12,294 12,039
Provision for possible loan losses 0 0 0 0
------- ------- ------- -------
Net interest income after provision
for possible loan losses 6,228 6,016 12,294 12,039
OTHER OPERATING INCOME
Trust income 292 322 609 637
Service charges on deposits 331 328 637 639
Net realized gain on investment
securities available for sale 0 65 23 58
Net gain on sale of mortgage loans 249 38 323 78
Other income 582 527 1,065 1,008
------- ------- ------- -------
Total other operating income 1,454 1,280 2,657 2,420
OTHER OPERATING EXPENSE
Salaries and employee benefits 2,486 2,308 4,850 4,745
Occupancy expense, net 299 326 627 643
Equipment expense 546 495 1,052 961
Deposit insurance expense 0 259 1 518
Other expense 1,350 1,197 2,626 2,338
------- ------- ------- -------
Total other operating expense 4,681 4,585 9,156 9,205
Income before income taxes 3,001 2,711 5,795 5,254
Income taxes 923 847 1,794 1,633
------- ------- ------- -------
Net income $ 2,078 $ 1,864 $ 4,001 $ 3,621
======= ======= ======= =======
PER COMMON SHARE
Net income $ .51 $ .46 $ .98 $ .89
======= ======= ======= =======
Cash dividends paid $ .20 $ .18 $ .40 $ .35
</TABLE>
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<PAGE>
KEYSTONE HERITAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30
(Dollars in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss) on
Investment
Securities
Available for
Common Capital Retained Sale, Net
Stock Surplus Earnings of Taxes Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 15,231 $ 30,053 $ 8,269 ($ 1,451) $ 52,102
Net Income -0- -0- 3,621 -0- 3,621
Cash dividends ($.35 per share) -0- -0- (1,400) -0- (1,400)
Stock issued under dividend
reinvestment plan 20 83 -0- -0- 103
Change in unrealized gain (loss) on
investment securities available
for sale, net of taxes -0- -0- -0- 1,373 1,373
-------- -------- -------- -------- --------
Balance, June 30, 1995 $ 15,251 $ 30,136 $ 10,490 ($ 78) $ 55,799
======== ======== ======== ======== ========
Balance, December 31, 1995 $ 20,358 $ 22,078 $ 16,107 $ 336 $ 58,879
Net income 4,001 4,001
Cash dividends ($.40 per share) -0- -0- (1,629) -0- (1,629)
Change in unrealized gain (loss) on
investment securities available for
sale, net of taxes -0- -0- -0- (124) (124)
-------- -------- -------- -------- --------
Balance, June 30, 1996 $ 20,358 $ 22,078 $ 18,479 $ 212 $ 61,127
======== ======== ======== ======== ========
</TABLE>
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<PAGE>
KEYSTONE HERITAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1996 1995
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 4,001 $ 3,621
Adjustments to reconcile net income to cash:
Provision for possible loan losses 0 0
Depreciation and amortization 816 697
Deferred income taxes 249 (37)
Decrease in accrued interest receivable 196 9
(Decrease) increase in
accrued interest payable (1,278) 881
Net gain on sale of mortgage loans (323) (78)
Net realized gain on investment
securities available for sale (23) (58)
Other, net (796) (554)
-------- --------
Net cash provided by operating activities 2,842 4,481
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase)decrease in money market investments (3,512) 1,300
Maturities of investment securities
held to maturity 12,447 32,127
Maturities of investment securities
available for sale 13,375 3,230
Sale of investment securities available for sale 63 401
Funds invested in investment securities
held to maturity (9,393) (58,437)
Funds invested in investment securities
available for sale (3,236) (616)
Net (increase) decrease in loans
made to customers (15,584) 6,186
Originations of residential mortgage loans sold (20,763) (6,298)
Proceeds from sale of residential mortgage loans 18,900 3,610
Net expenditures for premises and equipment (600) (566)
Proceeds from sale of other real estate owned 206 524
-------- --------
Net cash used by investing activities (8,097) (18,539)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 4,905 10,071
Net increase (decrease) in short-term borrowings 2,708 (1,769)
Net (decrease) increase in other borrowings (5,479) 1,739
Proceeds from issuance of common stock 0 103
Cash dividends paid (1,629) (1,400)
-------- --------
Net cash provided from financing activities 505 8,744
Net decrease in cash and due from banks (4,750) (5,314)
Cash and due from banks at beginning of period 23,766 23,568
Cash and due from banks at end of period $ 19,016 $ 18,254
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 4,826 $ 5,034
Income taxes paid 1,683 1,900
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Loans charged-off 575 314
</TABLE>
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<PAGE>
KEYSTONE HERITAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements of Keystone Heritage
Group, Inc. have not been reviewed by independent certified public
accountants. However, in management's opinion, the statements reflect all
adjustments and disclosures necessary for a fair presentation of the
consolidated balance sheet of the Company as of June 30, 1996 and December
31, 1995, the consolidated statements of income for the three and six month
periods ended June 30, 1996 and 1995 and the consolidated statements of
cash flows for the six months ended June 30, 1996 and 1995. The accounting
policies followed in the presentation of interim financial results are the
same as those followed on an annual basis except for SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" and SFAS 122, "Accounting for Mortgage Servicing Rights an
Amendment of FASB statement No. 65" which were adopted during the first
quarter of 1996, with the exception of the accounting policies discussed
below, which were adopted during the quarter ended June 30, 1996. The
consolidated financial statements of Keystone Heritage Group, Inc. and
subsidiaries include the accounts of the Company and its wholly owned
subsidiaries, Lebanon Valley National Bank and Keystone Heritage Life
Insurance Company. All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements. For purposes
of comparability, certain prior year amounts have been reclassified.
2. In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, Accounting for and
Servicing of Financial Assets and Extinguishment of Liabilities (the
Statement). This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components
approach that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it controls
and liabilities it has incurred and derecognizes financial assets it no
longer controls and liabilities that have been extinguished. The financial-
components approach focuses on the assets and liabilities that exist after
the transfer. Many of these assets and liabilities are components of
financial assets that existed prior to the transfer. If a transfer does not
meet the criteria for a sale, the transfer is accounted for as a secured
borrowing with pledge of collateral.
This Statement extends the "available-for-sale" or "trading" approach in
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, to non-security financial assets that can contractually be
prepaid or otherwise settled in such a way that the holder of the asset
would not recover substantially all of its recorded investment. Thus, non-
security financial assets (no matter how acquired) that are subject to
prepayment risk that could prevent recovery of substantially all of the
recorded amount are to be reported at fair value with the change in fair
value accounted for depending on the asset's classification as "available-
for-sale" or "trading". The Statement also amends Statement No. 115 to
prevent a security from being classified as held-to-maturity if the
security can be prepaid or otherwise settled in such a way that the holder
of the security would not recover substantially all of its recorded
investment.
This Statement requires that a liability be derecognized if and only if
either (a) the debtor pays the creditor and is relieved of its obligation
for the liability or (b) the debtor is legally released from being the
primary obligor under the liability either judicially or by the creditor.
-7-
<PAGE>
Currently, management has not determined the impact on the Company's
financial condition or results of operations upon adoption of the
provisions of the Statement. Statement No. 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively.
Earlier or retroactive application is not permitted. Also, the extension of
the Statement No. 115 approach to certain non-security financial assets and
the amendment to Statement No. 115 is effective for financial assets held
on or acquired after January 1, 1997.
3. On June 12, 1996 the Company announced its intentions to repurchase up to 5
percent or 203,584 shares of its outstanding common stock. These
repurchased shares will be available for reissuance through the Company's
Dividend Reinvestment or Stock Option Plans or for other general corporate
purposes.
4. Earnings per common share are based upon the weighted average number of
shares outstanding. The weighted average number of shares outstanding was
4,071,683 and 4,064,673 for the three month periods ended June 30, 1996 and
1995, respectively, and 4,071,683 and 4,063,154 for the six months ended
June 30, 1996 and 1995, respectively. All prior period per share data has
been restated to give effect for the 4-for-3 stock split that was effective
for January 1996.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Keystone Heritage Group, Inc. (the "Company") is a bank holding company
organized under the laws of Pennsylvania and registered under the Federal Bank
Holding Company Act of 1956. The Company's principal subsidiary is Lebanon
Valley National Bank (the "Bank").
Results of Operations
Net income for the Company for the three months ended June 30, 1996 was
$2.078 million or $.51 per share, compared to $1.864 million or $.46 per share
for the three months ended June 30, 1995. Return on average stockholders' equity
and return on average assets for the 1996 period were 13.83 percent and 1.46
percent, respectively.
Net income for the six months ended June 30, 1996 was $4.001 million or
$.98 per share, compared to net income of $3.621 million or $.89 per share for
1995. Return on average stockholders' equity and return on average assets for
the 1996 period were 13.45 percent and 1.41 percent, respectively.
Net Interest Income
Net interest income is the primary source of income for the Company. Net
interest income is the difference between interest earned on loans and
investments and interest paid on deposits and other funding sources. Deposits
are the primary source of funds for the Company. The factors which influence net
interest income include changes in interest rates and changes in asset and
liability balances.
For purposes of this discussion, interest income and the average yield
earned on loans and investments are presented on a taxable equivalent basis.
This provides a basis for comparison of tax exempt loans and investments with
taxable loans and investments by giving effect to interest earned on tax exempt
loans and investments by an amount equivalent to federal income taxes which
would have been paid on the assumption that the interest earned on those assets
was taxable at the Company's statutory tax rate of 35 percent.
The tables presented on pages 18 and 19 are comparative statements of
average balances of interest earning assets and interest bearing liabilities,
interest income and interest expense, and interest rates for the three months
ended June 30, 1996 and 1995, and for the six months ended June 30, 1996 and
1995.
Net interest income for the three months ended June 30, 1996 was $6.4
million, a $196 thousand or 3.2 percent increase from the same period of 1995.
The net interest margin for the second quarter of 1996 was 4.71 percent compared
to 4.69 percent for the same period of 1995. Average earning assets for the
three month period ended June 30, 1996 were $544.6 million, a $16.8 million or a
3.2 percent increase from the same period of 1995. For the three month
comparative periods, net interest income increased in 1996 primarily as a result
of an increase in average loans outstanding of $26.9 million or 7.1 percent.
This loan growth was primarily funded by increases in average interest bearing
deposit balances of $8.7 million, or 2.1 percent, an increase in average
non-interest bearing demand deposits of $6.1 million or 11.6 percent and by the
decrease in the average balances in the investment portfolio and money market
investments of $10.1 million or 6.7 percent.
Net interest income for the six months ended June 30, 1996 was $12.6
million, a $248 thousand or 2.0 percent increase from the same period of 1995.
The net interest margin for the six months ended June 30, 1996 was 4.68 percent
compared to 4.77 percent for the same period of 1995. Average earning assets for
the six month period ended June 30, 1996 were $541.1 million, a $19.0 million or
a 3.6 percent increase from the same period of 1995.
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<PAGE>
Provision and Allowance for Possible Loan Losses
There was no provision for possible loan losses charged to net income
during the six month period ended June 30, 1996 or 1995.
Net charge-offs of $122 thousand were recorded for the three months ended
June 30, 1996 compared to net charge-offs of $89 thousand for the same period of
1995. For the six month comparative period the Company recorded net charge-offs
of $371 thousand and $78 thousand for the 1996 and 1995 periods, respectively.
The primary reason for the increase in net charge-offs from 1995 to 1996 was due
to a $264 thousand commercial loan which was charged-off during the first
quarter of 1996.
The allowance for possible loan losses was $7.7 million or 1.87 percent of
total loans outstanding at June 30, 1996 and $8.0 million or 2.05 percent at
December 31, 1995. The allowance for possible loan losses is a reserve for
estimated potential loan losses in the loan portfolio. Losses occur primarily
from the loan portfolio, but may also be derived from commitments to extend
credit and standby letters of credit. Loan losses and recoveries of previously
charged-off loans are charged or credited directly to the allowance for possible
loan losses. The allowance for possible loan losses is an amount which, in
management's judgement, is considered adequate to absorb potential losses
inherent in the loan portfolio. Management performs a quarterly assessment of
the Bank's loan portfolio to determine the appropriate level of the allowance
for possible loan losses. The factors considered in this evaluation include, but
are not necessarily limited to, estimated loan losses identified through the
review of loans by the Company's personnel; general economic conditions;
deterioration in loan concentrations or pledged collateral; historic loss
experience; and trends in portfolio volume, composition, delinquencies, and
non-accruals. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for possible
loan losses.
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<PAGE>
The following is a summary of the activity in the allowance for possible
loan losses for the three and six month periods ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(Dollars in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Allowance for possible loan losses
at beginning of period $7,776 $8,151 $8,025 $8,140
Loans charged-off:
Commercial 142 98 406 113
Agriculture 0 0 0 0
Real estate construction 0 0 0 0
Loans to individuals 88 79 169 201
Real estate - residential mortgage 0 0 0 0
------ ------ ------ ------
Total loans charged-off 230 177 575 314
Recoveries of loans previously charged-off:
Commercial 90 57 171 183
Agriculture 0 0 0 0
Real estate construction 8 22 12 31
Loans to individuals 10 9 21 22
Real estate - residential mortgage 0 0 0 0
------ ------ ------ ------
Total recoveries of loans previously
charged-off 108 88 204 236
Net loans charged-off 122 89 371 78
Current period's provision for
possible loan losses 0 0 0 0
------ ------ ------ ------
Allowance for possible loan
losses at end of period $7,654 $8,062 $7,654 $8,062
====== ====== ====== ======
</TABLE>
Other Operating Income and Expense
Other operating income was $1.5 million and $1.3 million for the three
months ended June 30, 1996 and 1995, respectively. Other operating income was
$2.7 million and $2.4 million for the six months ended June 30, 1996 and 1995,
respectively. For the three and six month period, the increase in other
operating income is primarily attributable to mortgage banking operations;
results from this line of business were increased significantly following the
acquisition, during the first quarter of 1996, of the business assets and
operations of a mortgage banking company located in Lancaster, Pennsylvania.
Other operating income is generated from mortgage banking activities through the
sale of originated mortgage loans in the secondary market. The Company
recognized $323 thousand from selling $18.9 million of mortgages in the
secondary market in the six month period of 1996 compared to recognizing $78
thousand from selling $5.4 million in the secondary market in the same period of
1995.
Other operating expense for the three months ended June 30, 1996 was $4.7
million, a 2.1 percent increase over the $4.6 million reported for the same
period of 1995. For the six months ended June 30, 1996 and 1995, other operating
expense was $9.2 million.
Salaries and benefits expense increased by $178 thousand or 7.7 percent for
the three months ended June 30, 1996 compared to the same period of 1995. For
the six months ended June 30, 1996, salaries and benefits increased by $105
thousand or 2.2 percent, compared to the same period of 1995. The increase in
salary and benefit expenses is a result of adding staffing for the acquisition
of the mortgage banking operations during the first quarter of 1996 combined
with overall merit increases of 4 percent which was applied to base salaries as
of January 1, 1996. The effects of adding these staffing positions were somewhat
offset as a result of an internal productivity enhancement program that has
strengthened the Company's sales efforts of the Bank's products while maximizing
its overhead efficiency. This plan resulted in a 3 percent reduction in staffing
positions, during the first quarter, which were realized through attrition.
Other expense increased by $153 thousand and $288 thousand for the three
and six month comparative periods from 1995 to 1996. This increase was
attributable to increased expenses related to the acquisition of the mortgage
banking company, increased marketing and advertising expenses and an increase in
advisory and consulting fees related to the Company's internal productivity
enhancement program. The Company's FDIC deposit insurance substantially offset
the increase in expenses for the three and six month periods compared to 1995.
The Bank expense for FDIC insurance for the first six months of 1995 totalled
$518 thousand compared to $1 thousand for the same period of 1996. The Bank is
currently paying an assessment rate of $500 per quarter.
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<PAGE>
Non-Performing Assets
Loans, other than consumer loans not secured by real estate, are typically
classified as non-accrual at the time they reach 90 days past due as to
principal or interest. Loans may also be placed on non-accrual status when, in
management's opinion, the collectability of principal or interest is doubtful,
or should management believe that circumstances warrant such action. Consumer
loans not secured by residential real estate are charged-off when they become
120 days past due.
Non-performing loans at June 30, 1996 totalled $1.6 million or .38 percent
of total loans outstanding, compared to $1.5 million or .39 percent of loans at
December 31, 1995 and $2.2 million or .58 percent of loans at June 30, 1995.
Non-performing assets at June 30, 1996 were $2.3 million or .56 percent of loans
plus other real estate owned compared to $2.5 million or .62 percent of loans
plus other real estate owned at December 31, 1995 and $3.6 million or .95
percent of loans plus other real estate owned at June 30, 1995. The improvement
in non-performing assets at June 30, 1996 as compared to June 30, 1995 was a
result of decreased levels of non-accrual loans and other real estate owned.
The following is a presentation of non-performing assets as of June 30,
1996, December 31, 1995, and June 30, 1995:
June 30 Dec. 31 June 30
(Dollars in thousands) 1996 1995 1995
Non-performing loans $1,251 $ 741 $1,806
Loans past due 90 days or more as to
principal or interest 303 793 384
------ ------ ------
Total non-performing loans 1,554 1,534 2,190
Other real estate owned, net 741 913 1,448
------ ------ ------
Total non-performing assets $2,295 $2,447 $3,638
====== ====== ======
Allowance for possible loan losses to
non-performing loans 4.93x 5.23x 3.68x
Non-performing loans as a
percent of loans outstanding .38% .39% .58%
Non-performing assets as a
percent of loans outstanding
plus other real estate owned .56% .62% .95%
Interest income of approximately $18 thousand and $39 thousand would have
been recognized during the three and six month periods ended June 30, 1996, had
these loans been current in accordance with their original terms and been
outstanding through the period or since origination. Interest income on these
loans of $9 thousand and $22 thousand was recognized during the three and six
months ended June 30, 1996.
Group concentrations of credit are considered to exist if a number of
counterparties are engaged in similar activities and have similar economic
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic or other conditions.
Agriculture-related borrowings at June 30, 1996 totalled $99 million or 24.2
percent of total loans outstanding. These loans may be impacted by adverse
climate or economic conditions not common to other industries. The Company's
exposure to possible loss in the event of nonperformance by these borrowers is
represented by the contractual amount of those instruments. The Company's policy
is to require supporting collateral for these loans which is generally in the
form of agriculture real estate, livestock, and farm equipment. At June 30, 1996
there were no significant agriculture related borrowings which were classified
as non-performing assets and there were no charge-offs of agriculture related
loans during the three or six months ended June 30, 1996.
Financial Position
Total assets at June 30, 1996 were $580 million compared to $578 million at
December 31, 1995. Total loans outstanding at June 30, 1996 were $408 million
compared to $391 million at December 31, 1995. Total deposits at June 30, 1996
were $493 million compared to $488 million at December 31, 1995. The $17 million
or 4.4 percent growth in loans outstanding from December 31, 1995 to June 30,
1996 was funded by a $13.5 million reduction in the Company's investment
maturity and a $4.9 million increase in deposit balances. Loan balances have
increased as a result of an increased sales and marketing. The reduction in the
investment portfolio, which was used to fund the loan growth was achieved
through the contractual maturities of the investment portfolio.
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<PAGE>
Capital Adequacy
The Company's stockholders' equity was $61.1 million at June 30, 1996 and
$58.9 million at December 31, 1995. Total stockholders' equity increased by 3.8
percent from December 31, 1995 which was the net effect of the recognition of
$4.0 million in net income for the six month period, cash dividend payments to
stockholders of $1.6 million and an unfavorable change in net unrealized gains
or losses on investment securities available for sale of $124 thousand. Net
unrealized gains on investment securities available for sale of $212 thousand
and $336 thousand were included as a component of stockholders' equity at June
30, 1996 and December 31, 1995, respectively.
On June 12, 1996, the Company announced its intentions to repurchase up to
5 percent or 203,584 shares of its outstanding common stock. These repurchased
shares will be available for reissuance through the Company's Dividend
Reinvestment or Stock Option Plans or for other general corporate purposes.
The maintenance of an appropriate level of capital is a priority of the
Company's management. The Company's capital adequacy and dividend policy are
closely monitored by management and are reviewed regularly by the Board of
Directors of the Company. The Company intends to provide an adequate return to
its stockholders while retaining a sufficient capital base to provide for future
growth and to comply with regulatory standards.
Banking regulators' risk-based capital guidelines address the capital
adequacy of banking organizations. These guidelines include a definition of
capital and a framework for calculating risk-weighted assets by assigning assets
and off-balance sheet items to broad risk categories, as well as minimum ratios
to be maintained by banking organizations. The risk-based capital ratios are
calculated by dividing qualifying capital by risk-weighted assets.
Under the risk-based capital guidelines, Total Capital is defined as the
sum of core or "Tier 1" Capital and "Tier 2" Capital. As the guidelines apply to
Keystone Heritage Group, Inc., Tier 1 Capital is total stockholders' equity and
Tier 2 Capital includes a portion of the allowance for possible loan losses. The
rules require that banking organizations must have ratios of 4.00 percent and
8.00 percent for Tier 1 and Total Capital, respectively. At June 30, 1996 the
Company's Tier 1 and Total Capital ratios were 13.65 percent and 14.97 percent,
respectively. Tier 1 and Total Capital ratios were 13.59 percent and 14.93
percent respectively, at December 31, 1995. In addition to the risk-based
capital ratio, a bank is also required to maintain a "Leverage ratio" of Tier 1
capital to average total assets of 3 percent or higher. At June 30, 1996, the
Company's Leverage ratio was 10.57 percent and was 10.29 percent at December 31,
1995.
Off-Balance Sheet Items
The Company's loan portfolio consists of loans to businesses and
individuals primarily in its five-county market area of Lebanon, Lancaster,
Berks, Dauphin, and Schuylkill counties.
In the ordinary course of business, the Company enters into agreements with
customers, such as commitments to extend credit and standby letters of credit
which involve, to varying degrees, elements of credit and interest rate risk in
excess of the amounts presented in the balance sheet. The Company's exposure to
possible loss in the event of nonperformance by the other party to the financial
instruments for commitments to extend credit and financial guarantees written is
represented by the contractual amount of those instruments. The Company may not
be obligated to advance funds if the customer's financial condition deteriorates
or if the customer fails to meet certain terms.
Commitments and conditional obligations generally have fixed expiration
dates or termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being used, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis, applying the
same credit standards used in the lending process, through periodic
reassessments of the customer's creditworthiness and through ongoing credit
reviews. The amount of collateral obtained, if deemed necessary by the Company
upon extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties.
-13-
<PAGE>
The Bank is presently party to several interest rate swap contracts as part
of its asset-liability management activities. These contracts are used primarily
for the purpose of managing interest rate risk against specific assets and
liabilities in order to minimize mismatches in the Bank's interest rate
sensitivity and interest rate risk positions.
Interest rate swap contracts generally involve the exchange of fixed and
floating-rate interest payment obligations without the exchange of the
underlying principal amounts. Entering into interest rate contracts involves not
only the risk of dealing with counterparties and their ability to meet the terms
of the contracts but also the interest rate risk associated with unmatched
positions should the counterparties fail to perform. Notional principal amounts
often are used to express the volume of these transactions.
The interest income or interest expense differential from interest rate
swap contracts is recognized on the accrual basis as a component of interest
income or interest expense over the life of the contract. Interest income or
interest expense resulting from the cap and collar contracts is recognized on
the accrual basis when the national prime rate moves below or above a
predetermined interest rate level. Gains or losses from early termination of
swap contracts are deferred and amortized over the remaining term of the
underlying assets or liabilities. The Company is not exposed to credit risk in
terms of the notional amounts of these contracts, however, the receipt of
payments representing the interest differential is based on the creditworthiness
of the counterparty to each contract.
Interest rate sensitivity is a function of the repricing characteristics of
the Company's assets and liabilities. Each asset and liability reprices either
at maturity or during the life of the instrument. Interest rate sensitivity
measures the difference between the volume of assets and liabilities that are
subject to repricing at a future period of time. These differences are known as
interest sensitivity gaps.
The principal objectives of asset-liability management are to manage the
funding and investment strategies necessary to maintain an appropriate balance
of the sensitivity between assets and liabilities to potential movements in
interest rates and to provide adequate liquidity while enhancing profitability
through returns from managed levels of interest rate risk. The Company actively
manages the interest rate sensitivity of its assets and liabilities. Several
techniques are used for measuring interest rate sensitivity. The traditional
maturity "gap" analysis, which reflects the volume difference between interest
rate sensitive assets and liabilities during a given time period, is reviewed
regularly by management. An interest rate risk simulation model is used to
assess the level of interest rate risk inherent in the Company's assets and
liabilities under various interest rate scenarios. The Company recognizes the
importance of managing both assets and liabilities simultaneously for the
purpose of managing interest rate risk, providing liquidity, and enhancing the
market value of the Company.
Managing interest rate sensitivity is an inexact science. The repricing
intervals between assets and liabilities change on a daily basis. Contractual
maturities are not always the same as actual maturities as a result of
prepayments prior to scheduled maturities. Additionally, demand deposits, NOW
accounts, and money market fund accounts may be withdrawn upon demand, and
savings deposits may be withdrawn upon a very short period of notice. However,
for asset-liability management purposes, the Company considers a portion of each
of these types of deposits to be "core" amounts which may be considered to have
various maturities.
The Company manages its interest rate sensitivity by changing mix and
repricing characteristics of its assets and liabilities through its investment
securities portfolio, its loan and deposit terms, and through the use of
off-balance sheet derivatives, primarily interest rate swap contracts. The
interest rate contracts presently in effect will have a negative effect on net
interest income in a rising rate environment and a positive effect on net
interest income in a decreasing rate environment.
The Company's use of these interest rate contracts is closely monitored by
the Company's Board of Directors and is closely controlled as to levels of
exposure. At June 30, 1996 the Company had five interest rate agreements
outstanding having a total notional amount of $50 million. These agreements are
in the form of interest rate swap agreements each with a notional amount of $10
million having remaining maturities ranging from one to three years.
-14-
<PAGE>
The Company entered into two interest rate swap contracts during the first
quarter of 1996. On March 4, 1996, the Company entered into an interest rate
swap contract with a notional amount of $10 million. This contract states that
the Company would receive a fixed rate of 8.25 percent and pay a floating prime
rate based on the national prime rate and expires on March 4, 1998. The Company
entered into another interest rate swap contract on March 14, 1996 with a
notional amount of $10 million. This contract states that the Company would
receive a fixed rate of 8.65 percent and pay a floating prime rate based on the
national prime rate and expires on March 15, 1999.
The Company does not obtain collateral or other security to support
financial instruments subject to credit risk but monitors the credit standing of
counterparties. The counterparties of the aforementioned interest rate contracts
are commercial banks having a rating of A1 from Moody's Investor Service.
The interest rate swap contracts were entered into to protect the Company's
interest rate risk in a declining or stable interest rate environment.
Specifically, these contracts protect the Company's risk from negative movements
in its prime rate based asset portfolio which would not be perfectly matched by
repricing liabilities. These contracts were entered into to minimize the
negative effects that the Bank would realize, in falling rate environments (e.g.
reduction in prime based rates).
The following is the amount of financial instruments with off-balance sheet
risk not reflected in the consolidated balance sheets at June 30, 1996 and
December 31, 1995:
Contractual Amounts
June 30 December 31
(Dollars in thousands) 1996 1995
Financial instruments whose
contractual
amounts represent credit risk:
Commitments to extend credit $100,300 $ 88,242
Standby letters of credit 8,159 8,862
Contractual amounts of off-balance
sheet financial instruments not
constituting credit risk:
Interest rate swap, notional
value 50,000 30,000
Interest rate cap/collar,
notional value -0- 10,000
Supervision and Regulation
During 1994, Congress passed legislation to remove geographic restrictions
on bank expansion. The Riegle-Neal Interstate Banking and Branch Efficiency Act
of 1994 will allow banks to expand across state lines to merge existing
multi-state branching operations into a single institution or to acquire new
branches in other states. Interstate banking and branching authority will be
subject to certain conditions and restrictions, such as capital adequacy,
management, CRA compliance and limits on deposit concentrations. The effective
date for this legislation will be June 1, 1997. Individual states will have the
option to opt in early or to opt out completely prior to June 1, 1997.
Although the passage of this legislation should have the impact of
quickening the pace of consolidation within the banking industry, the Company
does not anticipate any immediate impact upon its financial condition or its
operations as a result of this new law.
The Bank is a national bank, chartered under the National Bank Act, and is
subject to the primary supervision of, and is examined by, the Comptroller of
the Currency. As a member of the Federal Reserve System, the Bank is subject to
provisions of the Federal Reserve Act, which restricts the ability of a bank to
extend credit to its parent holding company or to certain of the parent's
subsidiaries, or to invest in the Company's common stock or to take such stock
as collateral for loans to any borrower. The operations of the Bank are also
subject to regulation by the FDIC.
The Company is affected by the monetary and credit policies of the Federal
Reserve System. The Federal Reserve System regulates the national supply of bank
credit through open market operations in U. S. Government securities, changes in
the discount rate charged for bank borrowing, and changes in reserve
requirements on bank deposits.
-15-
<PAGE>
New Accounting Standards
On January 1, 1996 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS provides guidance for recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles and goodwill related both to
assets held and used and assets to be disposed of.
SFAS 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, an entity
should estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Otherwise, an impairment loss is
not recognized. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset.
SFAS 121 requires that long lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. The implementation of SFAS 121 did not materially
impact the Company's financial condition or results of operation.
On January 1, 1996, the Company adopted the provisions of the Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65" (SFAS 122). SFAS 122 amends
Statement 65 to require an institution to recognize as separate assets the
rights to service mortgage loans for others when a mortgage loan is sold or
securitized and servicing rights retained. SFAS 122 also requires an entity to
measure the impairment of servicing rights based on the difference between the
carrying amount of the servicing rights and their current fair value.
Presently, the Company does not sell or securitize mortgage loans with
servicing rights retained. Accordingly, the Company has not been impacted by the
provisions of SFAS 122.
On January 1, 1996 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 establishes a new method of accounting for
stock-based compensation arrangements with employees. The new method is a fair
value based method rather than the intrinsic value based method that is
currently utilized. However, SFAS 123 does not require an entity to adopt the
new fair value based method for purposes of preparing basic financial
statements. If an entity chooses not to adopt the fair value based method, SFAS
123 requires an entity to display in the footnotes pro forma net income and
earnings per share information as if the fair value based method had been
adopted.
The Company has not adopted the fair value method as described in SFAS 123.
The Company will disclose in the footnotes, in the 1996 Annual Report, pro forma
net income and earnings per share information as if the fair value method had
been adopted.
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, Accounting for and
Servicing of Financial Assets and Extinguishment of Liabilities (Statement).
This Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial-components
approach focuses on the assets and liabilities that exist after the transfer.
Many of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral.
-16-
<PAGE>
This Statement extends the "available-for-sale" or "trading" approach in
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, to non-security financial assets that can contractually be prepaid
or otherwise settled in such a way that the holder of the asset would not
recover substantially all of its recorded investment. Thus, non-security
financial assets (no matter how acquired) that are subject to prepayment risk
that could prevent recovery of substantially all of the recorded amount are to
be reported at fair value with the change in fair value accounted for depending
on the asset's classification as "available-for-sale" or "trading". The
Statement also amends Statement No. 115 to prevent a security from being
classified as held-to-maturity if the security can be prepaid or otherwise
settled in such a way that the holder of the security would not recover
substantially all of its recorded investment.
This Statement requires that a liability be derecognized if and only if
either (a) the debtor pays the creditor and is relieved of its obligation for
the liability or (b) the debtor is legally released from being the primary
obligor under the liability either judicially or by the creditor.
Currently, management has not determined the impact on the Company's
financial condition or results of operations upon adoption of the provisions of
the Statement. Statement No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. Earlier or retroactive application is
not permitted. Also, the extension of the Statement No. 115 approach to certain
non-security financial assets and the amendment to Statement No. 115 is
effective for financial assets held on or acquired after January 1, 1997.
-17-
<PAGE>
AVERAGE BALANCE SHEETS, RATES AND INTEREST INCOME AND EXPENSE
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1996 Three Months Ended June 30, 1995
Average Average Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans $405,215 $ 9,056 8.99% $378,365 $ 8,830 9.36%
Money market investments 2,201 30 5.54 7,436 113 6.10
Investment securities:
Taxable 125,294 1,819 5.84 131,853 1,878 5.78
Non-taxable 11,926 193 6.52 10,224 174 6.82
------- -------- ---- ------- -------- ----
Total investment securities 137,220 2,012 5.90 142,077 2,052 5.79
Total earning assets 544,636 $ 11,098 8.20% 527,878 $ 10,995 8.35%
======== ==== ======== ====
Other assets 29,240 26,476
-------- --------
Total assets $573,876 $554,354
======== ========
Liabilities and stockholders' equity
Interest bearing deposits:
Now accounts $ 55,008 $ 172 1.26% $ 54,638 $ 197 1.45%
Savings and money market 130,755 1,014 3.12 119,171 917 3.12
Time 235,446 3,264 5.58 238,735 3,382 5.68
------- -------- ---- ------- -------- ----
Total interest bearing deposits 421,209 4,450 4.25 412,544 4,496 4.37
Short-term borrowings 10,860 114 4.20 11,207 112 4.02
Long-term debt 10,966 160 5.87 12,392 209 6.84
------- -------- ---- ------- -------- ----
Total interest bearing liabilities 443,035 $ 4,724 4.29% 436,143 $ 4,817 4.43%
======== ==== ======== ====
Non-interest bearing deposits 63,566 56,958
Other liabilities 6,838 6,817
Stockholders' equity 60,437 54,436
-------- --------
Total liabilities and
stockholders' equity $573,876 $554,354
======== ========
Net interest income $ 6,374 $ 6,178
Total yield on earning assets 8.20% 8.35%
Rate on supporting liabilities 3.49% 3.66%
---- ----
Net interest margin 4.71% 4.69%
==== ====
</TABLE>
Interest and average interest rates are presented on a fully taxable equivalent
basis, using an effective tax rate of 35%. For purposes of calculating loan
yields, average loan balances include non-accrual loans. Loan fees are included
in interest income.
-18-
<PAGE>
AVERAGE BALANCE SHEETS, RATES AND INTEREST INCOME AND EXPENSE
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 Six Months Ended June 30, 1995
Average Average Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans $397,782 $ 17,890 9.04% $380,081 $ 17,381 9.22%
Money market investments 2,465 67 5.47 8,337 247 5.97
Investment securities:
Taxable 128,975 3,756 5.86 123,396 3,438 5.61
Non-taxable 11,894 386 6.53 10,344 353 6.88
-------- -------- ---- -------- -------- ----
Total investment securities 140,869 4,142 5.91 133,740 3,791 5.72
Total earning assets 541,116 $ 22,099 8.21% 522,158 $ 21,419 8.27%
======== ==== ======== ====
Other assets 28,132 26,331
-------- --------
Total assets $569,248 $548,489
======== ========
Liabilities and stockholders' equity
Interest bearing deposits:
Now accounts $ 55,035 $ 362 1.32% $ 55,927 $ 399 1.44%
Savings and money market 129,272 1,999 3.11 119,066 1,711 2.90
Time 234,591 6,592 5.65 233,954 6,342 5.47
-------- -------- ---- -------- -------- ----
Total interest bearing deposits 418,898 8,953 4.30 408,947 8,452 4.17
Short-term borrowings 11,182 234 4.21 12,167 243 4.03
Long-term debt 11,039 323 5.87 11,540 383 6.69
-------- -------- ---- -------- -------- ----
Total interest bearing liabilities 441,119 $ 9,510 4.34% 432,654 $ 9,078 4.23%
======== ==== ======== ====
Non-interest bearing deposits 60,813 55,757
Other liabilities 7,488 6,507
Stockholders' equity 59,828 53,571
-------- --------
Total liabilities and
stockholders' equity $569,248 $548,489
======== ========
Net interest income $ 12,589 $ 12,341
Total yield on earning assets 8.21% 8.27%
Rate on supporting liabilities 3.53% 3.50%
---- ----
Net interest margin 4.68% 4.77%
==== ====
</TABLE>
Interest and average interest rates are presented on a fully taxable equivalent
basis, using an effective tax rate of 35%. For purposes of calculating loan
yields, average loan balances include non-accrual loans. Loan fees are included
in interest income.
-19-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1996 Annual Stockholders' Meeting
The 1996 Annual Meeting of Stockholders' for the Company was held on April
16, 1996. Stockholders' of the Company voted on the following issues: Election
of Directors Harry J. Gensemer, Albert B. Murry, Thomas I. Siegel, Brett H.
Tennis and Earnest D. Williams, Jr.; a proposal to Approve and Adopt the
Keystone Heritage Group, Inc. 1996 Independent Directors Stock Option Plan for
non-employee directors of the Company; to Vote on the Stockholder Proposal
described on page 6 of the March 7, 1996 proxy statement; and a proposal to
ratify the selection of KPMG Peat Marwick LLP as the Company's Independent
Public Accountants for the fiscal year ending December 31, 1996. Seventy seven
percent of the 4,071,683 shares eligible to vote were voted in either proxy form
or in person at the meeting.
All matters subject to a vote at the Annual Meeting were approved as a
result of the votes cast at the Annual Meeting. The following is a presentation
of the voting results from the April 16, 1996 Annual Stockholders' Meeting:
Election of Directors: FOR Withheld Total
Harry J. Gensemer 3,060,847 63,572 3,124,419
Albert B. Murry 2,980,338 144,081 3,124,419
Thomas I. Siegel 3,050,740 73,679 3,124,419
Brett H. Tennis 2,967,721 156,698 3,124,419
Earnest D. Williams, Jr. 3,063,986 60,433 3,124,419
The term of the Directors elected at the Annual Meeting expires in 1999 or
when the director would reach the mandatory retirement age of 72. The following
directors remain on the Company's Board of Directors until the expiration of
their terms in 1997 and 1998 or when the director would reach the mandatory
retirement age of 72:
Directors Term Expiring in 1997:
Raymond M. Dorsch, Jr.
Wendie DiMatteo Holsinger
Donald W. Lesher, Jr.
Mark Randolph Tice
Directors Term Expiring in 1998:
Lance M. Frehafer
Charles V. Henry, III
Bruce A. Johnson
John E. Wengert
The proposal to Approve and Adopt the Keystone Heritage Group, Inc 1996
Independent Directors Stock Option Plan for non-employee directors of the
Company was voted as follows:
For Against Abstain
2,721,554 375,942 26,913
-20-
<PAGE>
The proposal to approve the Stockholder Proposal described on page 6 of the
March 7, 1996 proxy statement was defeated and was voted as follows
Broker
For Against Abstain Non-vote
365,902 2,465,532 47,932 245,053
The proposal to ratify the selection of KPMG Peat Marwick LLP as the
Company's Independent Public Accountants for the fiscal year ending December 31,
1996 was voted as follows:
For Against Abstain
2,958,958 129,167 36,294
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) None.
(b.) The Company did not file any reports on Form 8-K during the quarter ended
June 30, 1996.
-21-
<PAGE>
KEYSTONE HERITAGE GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Keystone Heritage Group, Inc.
(Registrant)
Date August 12, 1996 By /s/ Kurt A. Phillips
-----------------------------------------
Kurt A. Phillips
Chief Financial and Accounting Officer
-22-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000715366
<NAME> KEYSTONE HERITAGE GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 19,016
<INT-BEARING-DEPOSITS> 158
<FED-FUNDS-SOLD> 3,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,269
<INVESTMENTS-CARRYING> 83,876
<INVESTMENTS-MARKET> 83,944
<LOANS> 408,393
<ALLOWANCE> 7,654
<TOTAL-ASSETS> 580,221
<DEPOSITS> 492,822
<SHORT-TERM> 11,348
<LIABILITIES-OTHER> 6,393
<LONG-TERM> 8,530
0
0
<COMMON> 20,358
<OTHER-SE> 40,769
<TOTAL-LIABILITIES-AND-EQUITY> 580,221
<INTEREST-LOAN> 17,730
<INTEREST-INVEST> 4,007
<INTEREST-OTHER> 67
<INTEREST-TOTAL> 21,804
<INTEREST-DEPOSIT> 8,954
<INTEREST-EXPENSE> 9,510
<INTEREST-INCOME-NET> 12,294
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 23
<EXPENSE-OTHER> 9,156
<INCOME-PRETAX> 5,795
<INCOME-PRE-EXTRAORDINARY> 5,795
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,001
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
<YIELD-ACTUAL> 4.68
<LOANS-NON> 1,251
<LOANS-PAST> 303
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,025
<CHARGE-OFFS> 575
<RECOVERIES> 204
<ALLOWANCE-CLOSE> 7,654
<ALLOWANCE-DOMESTIC> 7,654
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
