FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____________to ______________
Commission File Number 0-11460
KEYSTONE FINANCIAL, INC.
Pennsylvania 23-2289209
(State of Incorporation) (IRS Employer I.D. No.)
ONE KEYSTONE PLAZA
FRONT & MARKET STREETS
P.O. BOX 3660
HARRISBURG, PA 17105-3660
(Address of principal executive offices)
(717) 231-1555
(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 or No_______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock ($2 par value): 25,445,498 as of July 31, 1996.
<PAGE>
<TABLE>
<CAPTION>
KEYSTONE FINANCIAL, INC.
INDEX PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Condition - June 30, 1996
and December 31, 1995 3
Consolidated Statements of Income - Three months ended
June 30, 1996 and 1995 and six months ended June 30,
1996 and 1995 4
Consolidated Statements of Cash Flows - Six months ended
June 30, 1996 and 1995 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
Items 1,2,3 and 5 have been omitted since they are not
applicable to the registrant.
Item 4. Submission of Matters to a Vote of Security 17
Holders
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits 18
(b) Reports on Form 8-K
During the quarter ended June 30, 1996, the registrant
filed a report on Form 8-K dated April 18, 1996 reporting
under Item 5 its earnings for the quarter ended March 31,
1996.
Signatures 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION
June 30, December 31,
1996 1995
<S> <C> <C>
___________________________________________________________________________
ASSETS (in thousands) (UNAUDITED) (NOTE)
___________________________________________________________________________
Cash and due from banks $160,295 $182,459
Federal funds sold and other 100,666 109,422
Investment securities available
for sale 799,511 837,910
Investment securities held to
maturity(market values
1996-$374,107; 1995-$393,835) 375,275 385,262
Assets held for resale 47,971 57,454
Loans and leases 3,397,203 3,365,716
Allowance for credit losses (44,271) (44,377)
_________________________________________________________________________
Net Loans 3,352,932 3,321,339
Premises and equipment 71,821 70,888
Other assets 112,508 110,051
__________________________________________________________________________
TOTAL ASSETS $5,020,979 $5,074,785
==========================================================================
LIABILITIES
__________________________________________________________________________
Noninterest-bearing deposits $517,363 $532,663
Interest-bearing deposits 3,541,403 3,529,225
__________________________________________________________________________
Total Deposits 4,058,766 4,061,888
Fed Funds purchased and security
repurchase agreements 224,445 260,543
Other short-term borrowings 26,945 19,298
__________________________________________________________________________
Total Short-Term Borrowings 251,390 279,841
FHLB borrowings 128,963 163,771
Long-term debt 2,979 4,048
Other liabilities 87,564 84,543
__________________________________________________________________________
TOTAL LIABILITIES 4,529,662 4,594,091
__________________________________________________________________________
SHAREHOLDERS' EQUITY
__________________________________________________________________________
Preferred stock; $1.00 par value,
authorized 8,000,000 shares;
none issued or outstanding
Common stock: $2.00 par value,
authorized 50,000,000; issued
25,356,662 - 1996 and
25,256,369 - 1995 50,713 50,512
Surplus 95,382 93,177
Retained earnings 352,331 337,557
Deferred KSOP benefit expense (1,500) (1,750)
Net unrealized securities gains
(losses) net of tax (5,609) 1,198
__________________________________________________________________________
TOTAL SHAREHOLDERS' EQUITY 491,317 480,694
__________________________________________________________________________
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $5,020,979 $5,074,785
==========================================================================
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
________________________________________________________________________________
Three Months Ended
June 30,
1996 1995
(unaudited)
________________________________________________________________________________
INTEREST INCOME
________________________________________________________________________________
<S> <C> <C>
Loans and fees on loans $74,398 $71,878
Investments - taxable 15,659 13,937
Investments - tax exempt 1,879 2,146
Federal funds sold & other 1,339 1,915
Assets held for resale 1,321 225
________________________________________________________________________________
94,596 90,101
________________________________________________________________________________
INTEREST EXPENSE
________________________________________________________________________________
Deposits 37,357 36,287
Short-term borrowings 2,489 2,251
FHLB borrowings 2,229 2,737
Long-term debt 86 103
________________________________________________________________________________
42,161 41,378
________________________________________________________________________________
NET INTEREST INCOME 52,435 48,723
Provision for credit losses 2,036 2,258
________________________________________________________________________________
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 50,399 46,465
________________________________________________________________________________
NONINTEREST INCOME
________________________________________________________________________________
Trust and investment advisory fees 3,726 3,156
Service charges on deposit accounts 3,689 3,284
Mortgage banking income 1,986 1,787
Fee income 3,492 2,883
Reinsurance income 538 559
Other income 1,351 342
Net gains-equity securities 97 76
Net gains-debt securities 4 278
________________________________________________________________________________
14,883 12,365
NONINTEREST EXPENSE
________________________________________________________________________________
Salaries 16,819 15,039
Employee benefits 3,064 2,349
Occupancy expense (net) 3,329 3,119
Furniture and equipment expense 3,405 2,981
Deposit insurance 171 2,149
Other expense 12,731 11,920
________________________________________________________________________________
39,519 37,557
________________________________________________________________________________
Income before income taxes 25,763 21,273
Income tax expense 8,030 6,252
________________________________________________________________________________
NET INCOME $17,733 $15,021
_______________________________________________________________________________
PER SHARE DATA
_______________________________________________________________________________
Net income $0.70 $0.64
Average number of shares outstanding 25,348,613 23,465,047
Dividends $0.36 $0.34
_______________________________________________________________________________
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
___________________________________________________________________
Six Months Ended
June 30,
1996 1995
(unaudited)
___________________________________________________________________
INTEREST INCOME
___________________________________________________________________
<S> <C> <C>
Loans and fees on loans $149,815 $142,172
Investments - taxable 31,866 28,905
Investments - tax exempt 3,699 4,304
Federal funds sold & other 2,867 3,058
Assets held for resale 1,764 420
___________________________________________________________________
190,011 178,859
___________________________________________________________________
INTEREST EXPENSE
___________________________________________________________________
Deposits 74,580 70,172
Short-term borrowings 5,352 4,866
FHLB borrowings 4,871 5,154
Long-term debt 182 218
___________________________________________________________________
84,985 80,410
___________________________________________________________________
NET INTEREST INCOME 105,026 98,449
Provision for credit losses 4,024 4,342
___________________________________________________________________
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 101,002 94,107
___________________________________________________________________
NONINTEREST INCOME
___________________________________________________________________
Trust and investment advisory fees 7,407 6,355
Service charges on deposit accounts 7,151 6,450
Mortgage banking income 3,684 3,026
Fee income 6,801 5,730
Reinsurance income 1,124 1,082
Other income 4,041 822
Net gains-equity securities 201 103
Net gains-debt securities 352 283
___________________________________________________________________
30,761 23,851
NONINTEREST EXPENSE
___________________________________________________________________
Salaries 33,790 29,991
Employee benefits 6,894 5,760
Occupancy expense (net) 6,817 6,368
Furniture and equipment expense 6,760 6,005
Deposit insurance 386 4,295
Other expense 26,369 23,071
___________________________________________________________________
81,016 75,490
___________________________________________________________________
Income before income taxes 50,747 42,468
Income tax expense 16,157 12,791
___________________________________________________________________
NET INCOME $34,590 $29,677
___________________________________________________________________
PER SHARE DATA
___________________________________________________________________
Net income $1.37 $1.27
Average number of shares outstanding 25,324,457 23,448,250
Dividends $0.72 $0.68
___________________________________________________________________
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)
Six Months Ended
June 30,
1996 1995
(in thousands)
____________________________________________________________________________
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $34,590 $29,677
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for credit losses 4,024 4,342
Provision for depreciation & amortization 6,494 5,601
Deferred income taxes 7,157 4,991
Sale of assets held for resale 274,551 61,278
Origination of assets held for resale (271,786) (99,578)
(Increase)decrease in interest receivable (961) 1,902
Increase in interest payable 3,201 5,427
Other (6,725) (12,076)
_____________________________________________________________________________
NET CASH PROVIDED BY OPERATING ACTIVITIES 50,545 1,564
_____________________________________________________________________________
INVESTING ACTIVITIES:
Net decrease in interest-earning deposits 5,106 15,715
Available for sale securities:
Sales 67,156 77,260
Maturities 590,856 318,431
Purchases (630,776) (205,875)
Held to maturity securities:
Maturities 83,473 50,290
Purchases (73,545) (12,779)
Net increase in loans (52,030) (58,235)
Proceeds from sales of loans 25,035 15,160
Purchase of loans --- (17,314)
Purchases of premises and equipment (6,457) (6,476)
Other (572) (273)
____________________________________________________________________________
NET CASH PROVIDED BY INVESTING ACTIVITIES 8,246 175,904
____________________________________________________________________________
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (3,121) 19,380
Net decrease in short-term borrowings (28,451) (83,253)
Proceeds from FHLB borrowings 34,544 128,352
Repayments of FHLB borrowings (69,350) (82,319)
Net decrease in long-term debt (1,069) ( 1,125)
Acquisition of treasury stock --- ( 2,888)
Cash dividends (19,814) (15,942)
Other 2,656 4,241
____________________________________________________________________________
NET CASH USED BY FINANCING ACTIVITIES (84,605) (33,554)
____________________________________________________________________________
INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS (25,814) 143,914
Cash and cash equivalents at beginning of
period 258,659 204,942
____________________________________________________________________________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $232,845 $348,856
____________________________________________________________________________
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
Notes To Consolidated
Financial Statements
BASIS OF PRESENTATION
- ---------------------
The accompanying unaudited consolidated financial statements for
the interim periods do not include all of the information and
footnotes required by generally accepted accounting principles.
However, in the opinion of management, all adjustments necessary
for a fair presentation have been included, and such adjustments
were of a normal recurring nature.
Operating results for the six-month period ended June 30, 1996 are
not necessarily indicative of the results that may be expected for
1996.
For further information, refer to the audited consolidated
financial statements, footnotes thereto, and the Financial Review
for the year ended December 31, 1995, as contained in the Annual
Report to Shareholders.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of this review is to provide additional information
necessary to fully understand the consolidated financial condition
and results of operations of Keystone Financial, Inc. (Keystone).
Throughout this review, net interest income and the yield on
earning assets are stated on a fully taxable-equivalent basis. In
addition, balances represent daily average balances, unless
otherwise indicated.
SUMMARY
Keystone's performance results for the second quarter of 1996 continued to
reflect the benefit of performance-enhancing strategic initiatives. Net
income grew to $17,733,000 for the quarter versus $15,021,000 in the
comparable period of 1995. On an earnings-per-share basis, net income
grew from $0.64 in the second quarter of 1995 to $0.70 in 1996, an increase
of 9%. Second quarter results produced a return on average assets of 1.43%
and a return on average equity of 14.60%, compared to 1.28% and 14.02% in
the same period of 1995.
Performance for the six months ended June 30, 1996 exhibited
similar improvement as net income and earnings-per-share rose to
$34,590,000 and $1.37 in 1996, compared to $29,677,000 and $1.27
in 1995, an increase in earnings-per-share of 8%. Return on
average assets and return on average equity grew to 1.39% and
14.31%, respectively, for the first six months of the year.
Revenue performance in 1996 continued to be influenced by
strategies designed to transform the revenue stream through the
expansion of fee-based activities combined with prudent management
of net interest income. Growth rates in earning assets and net
interest income were influenced by both these strategic initiatives
and by the favorable impact of loans and deposits added from merger
activity in the fourth quarter of 1995.
Second quarter net interest income grew 7% from the same quarter
of 1995 as earning assets added in the fourth quarter mergers and
the growth in relationship-focused loan and deposit products
contributed to improved performance. Net interest margin remained
relatively stable at 4.56% compared to 4.51% in the second quarter
of 1995.
Noninterest income exhibited substantial growth as revenues rose
20% during the second quarter. Performance is being influenced by
expanded investment management fees attributable to the acquisition
of Martindale Andres & Company and by continuing strength from
mortgage banking activities through the Keystone Financial Mortgage
Company. Additionally, Keystone completed its second securiti-zation of
indirect loans originated through the Keystone Dealer Finance Center,
which provides Keystone with an expanded loan servicing revenue stream.
<PAGE>
Relative levels of noninterest expenses declined during the quarter
as the efficiency ratio, or the ratio of noninterest expenses to
revenues, declined from 60.02% in the second quarter of 1995 to
57.73% in 1996. The growth rate in expenses of 5% in the second
quarter was influenced primarily by expenses added from the banks
merged in late 1995.
National delinquency trends, particularly consumer delinquencies,
have raised concern within the banking industry. Keystone closely
monitors its credit quality trends, which have been a traditional
source of strength. The second quarter included increases in risk
elements, including loans 90-days past due and other less severe
delinquent categories. Keystone's allowance for credit losses is
established at a level considerate of these credit delinquency
trends and continues to reflect appropriate coverage of loss. The
allowance was stable at 1.30% of loans.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE STATEMENT OF CONDITION
The average balance sheets for the six-months ended June 30, 1996
and 1995 were as follows (in thousands):
Change
1996 1995 Volume %
___________________________________________________________________
<S> <C> <C> <C> <C>
Cash and due from banks $145,389 $149,932 $(4,543) (3)%
Federal funds sold and
other 108,421 100,006 8,415 8
Investments 1,175,066 1,094,279 80,787 7
Assets held for resale 51,279 11,773 39,506 336
Loans 3,379,647 3,248,108 131,539 4
Allowance for credit losses (45,086) (43,883) (1,203) 3
___________________________________________________________________
Net loans 3,334,561 3,204,225 130,336 4
Other assets 165,552 142,136 23,416 16
___________________________________________________________________
TOTAL ASSETS $4,980,268 $4,702,351 $277,917 6%
___________________________________________________________________
Noninterest-bearing deposits $490,983 $464,514 $26,469 6%
Interest-bearing deposits 3,512,589 3,357,704 154,885 5
Short-term borrowings 251,354 197,241 54,113 27
FHLB borrowings 151,653 176,013 ( 24,360) (14)
Other liabilities 89,020 86,896 2,124 2
___________________________________________________________________
TOTAL LIABILITIES 4,495,599 4,282,368 213,231 5
___________________________________________________________________
SHAREHOLDERS' EQUITY 484,669 419,983 64,686 15
___________________________________________________________________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $4,980,268 $4,702,351 $277,917 6%
___________________________________________________________________
</TABLE>
Balance sheet growth rates continued to be affected by lower levels
of deposit growth as well as the impact of loan securitization of
both consumer mortgages and indirect loans. While year-to-date
loan and deposit growth rates reached 4% and 5%, respectively,
approximately half of this growth was related to loans and deposits
acquired in the mergers completed in late 1995. Core loan growth
has occurred principally in consumer lending and automobile leasing
and is reflective of Keystone's focus on relationship banking. On
the funding side, the popularity of the variable rate CD continues
to influence deposit trends.
<PAGE>
NET INTEREST INCOME
The following table summarizes, on a fully taxable equivalent
basis, changes in net interest income and net interest margin for
the six months ended June 30, 1996 and 1995 (in thousands):
<TABLE>
1996 1995 INCREASE/(DECREASE)
YIELD/ YIELD/ YIELD/
AMOUNT RATE AMOUNT RATE AMOUNT RATE
____________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest Income $192,444 8.18% $181,817 8.21% $10,627 (0.03)
Interest Expense 84,984 4.36 80,410 4.34 4,574 0.02
____________________________________________________________________________
Net Interest Income $107,460 $101,407 $ 6,053*
Interest Spread 3.82% 3.87% (0.05)
Impact of Noninterest
Funds .74 .70 0.04
____________________________________________________________________________
Net Interest Margin 4.56% 4.57% (0.01)
____________________________________________________________________________
*The change in net interest income consisted primarily of favorable volume
variances.
</TABLE>
Keystone's primary source of revenue is net interest income, which
represents the difference between interest income on earning assets
and interest expense on deposits and other borrowed funds. Higher
interest rates influenced competitive pressures on core funding
sources while earning asset yields reflected little change from
1995.
Interest income grew by 6% despite the fact that overall asset
yields showed only a modest change from 8.21% in 1995 to 8.18% for
the six months ended June 30, 1996. The growth in interest income
was attributable primarily to overall growth in both loans and
earning assets, including those loans added in the late 1995
mergers. Loan growth continues to occur in consumer credit
principally in the area of home equity loans and automobile loans
and leases.
Funding costs grew slightly as the cost of funds increased from
4.34% in the first six months of 1995 to 4.36% in the first half of
1996. The growth in interest expense on funding sources, which was
approximately 6%, was similar to the growth achieved in interest
income and was influenced by two major trends. Deposits added in
the late 1995 mergers accounted for the majority of the 5% increase
in deposit volumes between 1996 and 1995. The composition of
deposits has also experienced changes due to the disintermediation
in the form of consumer preference for the variable rate CDs and
reductions in both savings and transaction accounts.
As a result of the growth in the balance sheet attributable to both
the mergers and core growth, net interest income grew $6,053,000,
or 6%, during the period ended June 30, 1996. Net interest spread,
or the difference between earning asset yield and the cost of funds
declined only slightly and was substantially offset by the positive
<PAGE>
impact of noninterest funding sources. Accordingly, net interest
margin remained relatively constant at 4.56% compared to 4.57% in
1995.
NONINTEREST INCOME
The most significant improvement in earnings performance occurred
in noninterest income. Keystone has undertaken a number of
strategic initiatives designed to increase the relative revenue
contributions of fee-based activities and services. These
strategies, which included the late 1995 acquisition of Martindale
Andres and Company and the expansion of mortgage banking activities
through its KFMC subsidiary, have been driven by Keystone's efforts
to become a more diversified financial services company.
Trust and investment advisory revenues grew 17% from $6,355,000 for
the first six months of 1995, to $7,407,000 for the first half of
1996. This increase is attributed to an increase in assets under
management which were $2.1 billion at June 30, 1995 and rose to
$2.6 billion at June 30, 1996. Mortgage banking income, which
includes both origination and mortgage servicing revenues, grew
nearly 22%. The growth in mortgage banking activity can be
measured by the increase in mortgage loans serviced for others"
which grew from $349,264,000 at the end of the second quarter of
1995 to $540,088,000 at June 30, 1996.
Keystone continues to see improvement in other forms of noninterest
revenue. Service charges grew from $6,450,000 at June 30, 1995 to
$7,151,000 at June 30, 1996, an increase of 11%. Other income,
which increased by $3,219,000, included the $2 million gain from
the sale of the credit card portfolio in the first quarter of 1996
as well as servicing income from Keystone's securitization of
indirect loans. During the second quarter of 1996, Keystone
completed its second securitization and now services $120,824,000
of securitized indirect loans. Keystone also continued to expand
its fee generation capacity through expanded merchant bank card
services and increased ATM fees.
NONINTEREST EXPENSES
Noninterest expenses reached $81,016,000 through June 30, 1996,
compared to $75,490,000 through the first half of 1995, an increase
of 7%. Nearly 55% of the increase in noninterest expenses of
$5,526,000 was attributable to the late 1995 mergers, implying core
growth in noninterest expenses of approximately 3-4%. Despite this
increase, Keystone's efficiency ratio, or the relationship of its
expense levels to revenue generation declined from 60.3% to 58.8%
and was primarily related to the third quarter, 1995 reduction in
FDIC insurance premiums.
Nearly 70% of the increase in total noninterest expenses was
related to increases in salary costs. Overall salary expenses grew
nearly 13% and included the impact of the annual merit increase of
4% and the salary costs associated with personnel added in the late
1995 mergers. These additional costs from merged banks accounted
for nearly half of the 13% growth in salary expenses. In addition
to personnel added through mergers and the merit increase, salary
expense was impacted by growth in overall employee levels, much of
<PAGE>
which was related to revenue expansion activities, including
mortgage banking. Total average full-time equivalent employees
rose to 2,440 for the first half of 1996 versus 2,310 in the same
period of 1995.
Benefit expenses grew substantially during the first half of 1996.
During the first half of 1995, Keystone had realized the benefits
of favorable claims experience in earlier periods which had reduced
benefit expenses below normalized levels. Expenses during the
first half of 1996 reflect more normalized activity and were also
affected by the growth in the level of full-time equivalent
employees.
Growth in both occupancy and equipment expenses was also related to
the cost of facilities and equipment added in the late 1995 mergers
and to Keystone's continuing investment in office reconfiguration
initiatives and continuing improvements to its delivery channels.
Keystone will continue to make investments in expanding its ability
to provide convenient customer delivery channels through
initiatives such as the Key Call Center and office reconfiguration.
The reduction in FDIC insurance premiums served to mitigate
increases in overall expenses as premiums declined $3,909,000
during 1996. The full funding of the Banking Insurance Fund has
precluded the need for additional premiums, though Congress
continues to debate the future of both the Savings Association
Insurance Fund (SAIF) and the Financing Corp. (FICO) bond issues.
Keystone, which has a small proportionate share of SAIF-insured
deposits, could be affected by congressional initiatives designed
to rescue SAIF or the FICO bond funding by expanding bank
participation in such efforts. Based on Keystone's current
understanding of recent proposals, such initiatives are not
expected to have a material impact on the operating results of
Keystone.
Other expenses were affected by increased marketing and merchant
card costs, both of which were associated with revenue expansion
efforts, as well as various nonrecurring expense accruals which
occurred in the first quarter of 1996.
<PAGE>
ASSET QUALITY
Keystone's allowance for credit losses was virtually unchanged from
the end of 1995 at $44,271,000 compared to $44,377,000. The ratio
of the allowance to loans declined slightly from 1.32% at December
31, 1995, to 1.30% at June 30, 1996, while the ratio of annualized
net charge offs to loans remained relatively constant at .25% for
the first six months of 1996 versus .21% for all of 1995.
Keystone did experience a rise in the ratio of total risk elements
to loans from 1.22% at the end of 1995 to 1.32% at the end of the
first half of 1996. This increase was related principally to a
rise in the 90-day past due category, which grew to $19,475,000
from $14,995,000 at the end of 1995. This increase was
attributable to two major factors. Keystone has been affected by
many of the national trends influencing consumer delinquency which
contributed to the increase in 90-days past due and to increases in
less severe past-due loan categories such as 30-days past due and
60-days past due. Additionally, Keystone consolidated its
collection function during the first half of 1996 in order to
realize both cost efficiencies available through centralization and
the benefits associated with improved collection technology.
During this period, delinquency trends were affected by the initial
disruption normally associated with consolidation. Keystone
continues to monitor changes in its delinquency trends.
<PAGE>
The following table has been provided to compare nonperforming
assets and total risk elements at June 30, 1996 to the balances
at the end of 1995, in both absolute dollars and as a percentage of
loans. This presentation is supplemented by a comparison of
various coverage ratios.
<TABLE>
<CAPTION>
6/30/96 12/31/95
(dollars in thousands)
<S> <C> <C>
Nonaccrual loans $16,999 $16,740
Restructurings 954 503
- -------------------------------------------------------------------
Nonperforming loans 17,953 17,243
Other real estate 7,678 8,984
- -------------------------------------------------------------------
Nonperforming assets 25,631 26,227
Loans past due 90 days or more 19,475 14,995
- -------------------------------------------------------------------
Total risk elements $45,106 $41,222
===================================================================
Ratio to period-end loans:*
Nonperforming assets .75% .78%
90-days past due .57 .44
- -------------------------------------------------------------------
Total risk elements 1.32% 1.22%
===================================================================
Coverage Ratios:
Ending allowance to nonper-
forming loans 247% 257%
Ending allowance to risk elements** 118% 138%
Ending allowance to net charge-offs
(annualized) 5.4X 6.5X
___________________________________________________________________
* The denominator consists of period-end loans and ORE.
** Excludes ORE.
</TABLE>
Based upon the evaluation of loan quality, management believes that
the allowance for credit losses is adequate to absorb credit risk
in the portfolio.
<PAGE>
SHAREHOLDERS' EQUITY
Shareholders' equity at June 30, 1996 was $491,317,000 and was
comparable to the capital base of $480,694,000 recorded at the end
of 1995. Retained earnings were offset by net unrealized losses of
$5,609,000 on investment securities held in the available for sale
category.
Keystone's regulatory capital measures, which include the leverage
ratio, "Tier 1" capital, and "Total" capital ratios, continued to
be well in excess of both regulatory minimums and the thresholds
established for "well capitalized" institutions. The following
comparative presentation of these ratios and associated regulatory
standards is provided:
<TABLE>
<CAPTION>
Regulatory Standards
--------------------
6/30/96 12/31/95 "Well- Minimum
Capitalized" Requirement
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Leverage ratio 9.53% 9.28% 5.00% 4.00%
"Tier 1" ratio 13.83% 13.65% 6.00% 4.00%
"Total" 15.02% 14.83% 10.00% 8.00%
capital ratio
</TABLE>
<PAGE>
PART II - ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on May 15, 1996.
Proxies were solicited by management pursuant to Regulation 14A
under the Securities and Exchange Act of 1934. Nominees for the
seven director positions were elected. All other matters submitted
to a vote of shareholders were also approved, and the shareholder
vote thereon was as follows:
<TABLE>
<CAPTION>
Election of Directors: For Withheld
- ----------------------- --- --------
<S> <C> <C>
A. Joseph Antanavage 18,231,416 235,740
Donald Devorris 18,239,005 228,152
Uzal H. Martz, Jr. 18,237,047 230,110
Max A. Messenger 18,234,900 232,256
Don A. Rosini 18,239,005 228,152
F. Dale Schoeneman 18,238,972 228,185
June B. Barry 18,222,418 243,528
</TABLE>
<TABLE>
<CAPTION>
For Against Abstaining
--- ------- ----------
<S> <C> <C> <C>
The ratification of
the appointment of
Ernst & Young LLP as
independent auditors
of the Corporation
for 1996. 18,297,796 58,596 110,763
</TABLE>
For further information concerning these matters, refer to the
definitive proxy statement dated April 3, 1996 in
the registrant's file, which is incorporated herein by reference.
<PAGE>
Exhibit Index
- -------------
<TABLE>
<CAPTION>
Exhibit # Description Page #
- --------- ------------------------ ------
<C> <S> <C>
27 Financial Data Schedule 20
</TABLE>
<PAGE>
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.
DATE: August 12, 1996
- ----------------------
- ------------------------------------
Carl L. Campbell,
President and Chief Executive Officer
DATE: August 12, 1996
- ----------------------
- --------------------------------
Mark L. Pulaski,
Senior Executive Vice President,
Chief Administrative Officer,
and Chief Financial Officer
DATE: August 12, 1996
- ----------------------
- --------------------------------
Donald F. Holt,
Senior Vice President,
Controller and Principal
Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the first
quarter 10-Q and is qualified in its entirety by reference to such 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 160295
<INT-BEARING-DEPOSITS> 28116
<FED-FUNDS-SOLD> 72550
<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 375275
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<LOANS> 3397203
<ALLOWANCE> 44271
<TOTAL-ASSETS> 5020979
<DEPOSITS> 4058766
<SHORT-TERM> 251390
<LIABILITIES-OTHER> 87564
<LONG-TERM> 131942
0
0
<COMMON> 50713
<OTHER-SE> 440604
<TOTAL-LIABILITIES-AND-EQUITY> 5020979
<INTEREST-LOAN> 149815
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</TABLE>
