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 September 30, 1997
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) 233-1555
(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):51,947,468 as of October 31, 1997.
1
<PAGE>
KEYSTONE FINANCIAL, INC.
INDEX PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Condition -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income - Three months ended
September 30, 1997 and 1996, and nine months ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows - nine months ended
September 30, 1997 and 1996 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 1,2,3,4 and 5 have been omitted since they are not
applicable to the registrant.
ITEM 6. Exhibits and Reports on Form 8-K 16
(a) Exhibits
(b) Reports on Form 8-K
Signatures 17
2
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITION
September 30, December 31,
1997 1996
- --------------------------------------------------------------------------------
(in thousands, except share data)
ASSETS
- --------------------------------------------------------------------------------
Cash and due from banks $230,214 $206,972
Interest bearing deposits with banks 44,398 36,913
Federal funds sold 42,150 44,500
Investment securities available
for sale 1,022,384 1,210,094
Investment securities held to
maturity(market values
1997-$503,585; 1996-$383,526) 495,786 379,958
Loans held for resale 40,667 51,225
Loans and leases 4,735,762 4,336,470
Allowance for credit losses (65,006) (56,256)
- --------------------------------------------------------------------------------
Net Loans 4,670,756 4,280,214
Premises and equipment 112,924 97,932
Other assets 178,955 142,771
- --------------------------------------------------------------------------------
TOTAL ASSETS $6,838,234 $6,450,579
================================================================================
LIABILITIES
- --------------------------------------------------------------------------------
Noninterest-bearing deposits $652,568 $625,536
Interest-bearing deposits 4,664,109 4,434,185
- --------------------------------------------------------------------------------
Total Deposits 5,316,677 5,059,721
Federal funds purchased and security
repurchase agreements 365,263 368,886
Other short-term borrowings 27,894 29,078
- --------------------------------------------------------------------------------
Total Short-Term Borrowings 393,157 397,964
FHLB borrowings 204,329 224,203
Long-term debt 101,950 2,573
Other liabilities 144,172 105,712
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 6,160,285 5,790,173
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Preferred stock; $1.00 par value,
authorized 8,000,000 shares;
none issued or outstanding --- ---
Common stock: $2.00 par value,
authorized 100,000,000; issued
53,019,054 - 1997 and
52,320,142 - 1996 106,038 104,640
Surplus 155,874 139,213
Retained earnings 443,022 422,018
Deferred KSOP benefit expense (1,299) (1,249)
Treasury stock:1,105,931 - 1997
and 333,966 - 1996 shares at cost (29,876) (8,412)
Net unrealized securities gains,
net of tax 4,190 4,196
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 677,949 660,406
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $6,838,234 $6,450,579
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Three Months Ended
September 30,
1997 1996
- --------------------------------------------------------------------------------
INTEREST INCOME
- --------------------------------------------------------------------------------
Loans and fees on loans $104,314 $92,096
Investments - taxable 21,422 20,505
Investments - tax exempt 2,986 3,205
Federal funds sold & other 1,485 1,668
Loans held for resale 2,008 1,596
- --------------------------------------------------------------------------------
132,215 119,070
- --------------------------------------------------------------------------------
INTEREST EXPENSE
- --------------------------------------------------------------------------------
Deposits 50,247 47,655
Short-term borrowings 4,676 3,851
FHLB borrowings 3,640 2,355
Long-term debt 1,883 94
- --------------------------------------------------------------------------------
60,446 53,955
- --------------------------------------------------------------------------------
NET INTEREST INCOME 71,769 65,115
Provision for credit losses 4,319 2,494
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 67,450 62,621
- --------------------------------------------------------------------------------
NONINTEREST INCOME
- --------------------------------------------------------------------------------
Trust and investment advisory fees 5,442 4,276
Service charges on deposit accounts 4,409 4,337
Fee income 5,303 3,999
Mortgage banking income 2,665 1,727
Other secondary market income 503 1,255
Reinsurance income 702 735
Other income 1,801 1,532
Net gains - equity securities 2,917 10
Net gains - debt securities 607 19
- --------------------------------------------------------------------------------
24,349 17,890
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Salaries 24,348 21,024
Employee benefits 4,473 4,095
Occupancy expense (net) 4,166 3,980
Furniture and equipment expense 4,832 4,078
Other expense 17,712 16,539
- --------------------------------------------------------------------------------
55,531 49,716
- --------------------------------------------------------------------------------
Income before income taxes 36,268 30,795
Income tax expense 11,668 8,508
- --------------------------------------------------------------------------------
NET INCOME $24,600 $22,287
- --------------------------------------------------------------------------------
PER SHARE DATA
- --------------------------------------------------------------------------------
Net income $0.48 $0.43
Dividends $0.26 $0.24
Average number of shares outstanding 51,834,406 52,243,456
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Nine Months Ended
September 30,
1997 1996
- --------------------------------------------------------------------------------
INTEREST INCOME
- --------------------------------------------------------------------------------
Loans and fees on loans $299,271 $275,778
Investments - taxable 61,446 59,182
Investments - tax exempt 9,296 9,551
Federal funds sold & other 3,993 4,685
Loans held for resale 5,459 3,360
- --------------------------------------------------------------------------------
379,465 352,556
- --------------------------------------------------------------------------------
INTEREST EXPENSE
- --------------------------------------------------------------------------------
Deposits 144,754 138,750
Short-term borrowings 13,191 10,439
FHLB borrowings 11,021 7,351
Long-term debt 2,878 291
- --------------------------------------------------------------------------------
171,844 156,831
- --------------------------------------------------------------------------------
NET INTEREST INCOME 207,621 195,725
Provision for credit losses 11,772 6,935
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 195,849 188,790
- --------------------------------------------------------------------------------
NONINTEREST INCOME
- --------------------------------------------------------------------------------
Trust and investment advisory fees 15,441 12,881
Service charges on deposit accounts 12,814 12,765
Fee income 14,732 11,653
Mortgage banking income 6,927 5,386
Other secondary market income 1,304 2,360
Reinsurance income 2,490 2,121
Other income 8,472 4,761
Net gains - equity securities 2,917 526
Net gains - debt securities 312 347
- --------------------------------------------------------------------------------
65,409 52,800
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Salaries 68,257 60,905
Employee benefits 13,153 13,130
Occupancy expense (net) 12,309 12,095
Furniture and equipment expense 13,821 11,857
Special charges 11,410 ---
Other expense 51,711 48,783
- --------------------------------------------------------------------------------
170,661 146,770
- --------------------------------------------------------------------------------
Income before income taxes 90,597 94,820
Income tax expense 28,244 28,103
- --------------------------------------------------------------------------------
NET INCOME $62,353 $66,717
- --------------------------------------------------------------------------------
PER SHARE DATA
- --------------------------------------------------------------------------------
Net income $1.21 $1.28
Dividends $0.78 $0.72
Average number of shares outstanding 51,595,821 52,133,957
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1997 1996
(in thousands)
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net Income $62,353 $66,717
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for credit losses 11,772 6,935
Provision for depreciation & amortization 13,758 11,764
Deferred income taxes 16,160 10,097
Sale of loans held for resale 295,808 326,342
Origination of loans held for resale (295,321) (389,207)
(Increase)decrease in interest receivable (1,689) 390
Increase in interest payable 9,266 8,528
Other 8,566 1,521
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 120,673 43,087
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net (increase)decrease in interest-earning deposits (6,824) 7,316
Net cash paid for acquisition (24,256) - - -
Available for sale securities:
Sales 168,249 79,351
Maturities 665,889 946,415
Purchases (636,706) (1,127,476)
Held to maturity securities:
Maturities 67,735 96,445
Purchases (136,646) (89,279)
Net increase in loans (277,085) (182,514)
Proceeds from sales of loans 172,028 40,732
Purchases of premises and equipment (17,896) (11,894)
Other (7,908) (1,455)
- --------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (33,420) (242,359)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (15,730) 93,400
Net increase (decrease) in short-term borrowings (4,807) 55,931
Proceeds from FHLB borrowings 168,242 259,120
Repayments of FHLB borrowings (223,167) (248,409)
Issuance of long-term debt 100,000 ---
Repayments of long-term debt (623) (1,581)
Acquisition of treasury stock (61,349) (1,645)
Cash dividends (41,349) (35,035)
Other 12,422 5,434
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY(USED BY) FINANCING ACTIVITIES (66,361) 127,215
- --------------------------------------------------------------------------------
INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS 20,892 (72,057)
Cash and cash equivalents at beginning of
period 251,472 308,598
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $272,364 $236,541
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
Notes To Consolidated
Financial Statements
BASIS OF PRESENTATION
- ---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, these statements 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 three-month and nine-month periods ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997.
For further information, refer to the audited consolidated financial statements,
footnotes thereto, and the Financial Review for the year ended December 31,
1996, as contained in the Annual Report to Shareholders.
SPECIAL CHARGES EXPENSE
- -----------------------
During the second quarter, Keystone recorded previously announced special
charges associated with the merger of Financial Trust. These charges, which
totaled $11.4 million, included the estimated expenses for professional
services, employment matters, system conversions and occupancy and equipment.
The following summarizes the activity in the special charges accrual (in
thousands):
Initial Paid Balance at
Accrual to date Sept. 30, 1997
- --------------------------------------------------------------------------------
Professional $2,400 $2,067 $333
Employment matters 1,700 373 1,327
Integration and conversion 2,785 1,955 830
Net occupancy and equipment 2,575 1,194 1,381
Other 1,950 897 1,053
- --------------------------------------------------------------------------------
$11,410 $6,486 $4,924
- --------------------------------------------------------------------------------
7
<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. Balances represent daily average balances, unless otherwise indicated.
Prior period information has been restated to give effect to the merger of
Financial Trust Corp (Financial Trust), which was accounted for under the
pooling of interests method of accounting. The results of First Financial
Corporation of Western Maryland (First Financial), which was acquired through a
purchase acquisition, have been included herein from the consummation date of
May 29, 1997.
SUMMARY
- -------
Keystone recorded earnings growth as third quarter net income reached
$24,600,000 or $0.48 per share, compared to $22,287,000 or $0.43 per share for
the same period last year. Growth in earnings per share reached 11.6% from the
third quarter of 1996 to the same period in 1997.
Net income for the nine month period declined to $62,353,000 or $1.21 per share,
from $66,717,000 or $1.28 per share, in 1996. Excluding the impact of the
special charges and post-consummation portfolio restructuring losses taken
during the second quarter of 1997, net income per share for the nine months was
$1.37, up from $1.28 for the same period in 1996, resulting in a return on
average assets of 1.44% and a return on average equity of 14.44%.
Operating performance for Keystone continued to reflect underlying strength and
was influenced by both stable net interest margin and growth in noninterest
revenues, including security gains. Net interest income increased over 10% since
the third quarter of 1996, fueled by loan growth of over 11% and a net interest
margin of 4.62%. Excluding net securities gains, noninterest revenues grew in
excess of 16%, reflecting increases in nearly all revenue categories.
During the third quarter, Keystone completed the conversions of Financial Trust
Corporation and First Financial Corporation of Western Maryland to Keystone's
various systems and applications. This effort will position Keystone's new
partners and their customers to take full advantage of the complete array of
financial products and services available through Keystone.
The additional time and effort to convert and consolidate operating systems of
merger partners resulted in increased salary expenses during the third quarter.
However, this effort is expected to improve the operating efficiency in
subsequent periods. Despite the increase from conversion and consolidation
expenses, Keystone's ratio of noninterest expenses to revenues remained constant
at 58.51% for the third quarter of 1997.
Asset quality ratios continue to reflect underlying strength, despite national
trends of higher consumer delinquency levels. Key measures included ratios of
nonperforming assets to loans of 0.59% and total risk elements to loans of
1.10%, both of which are stable compared to historical results.
8
<PAGE>
AVERAGE STATEMENT OF CONDITION
- -------------------------------
The average balance sheets for the nine-months ended September 30, 1997 and 1996
were as follows (in thousands):
Change
1997 1996 Volume %
- -------------------------------------------------------------------------------
Cash and due from banks $186,239 $185,669 $ 570 - %
Federal funds sold and other 95,625 117,915 (22,290) (19)
Investments 1,502,862 1,524,545 (21,683) (1)
Loans held for resale 88,535 57,184 31,351 55
Loans 4,521,902 4,145,277 376,625 9
Allowance for credit losses (60,604) (56,170) (4,434) 8
- -------------------------------------------------------------------------------
Net loans 4,461,298 4,089,107 372,191 9
Other assets 259,197 217,825 41,372 19
- --------------------------------------------------------------------------------
TOTAL ASSETS $6,593,756 $6,192,245 $401,511 6 %
- --------------------------------------------------------------------------------
Noninterest-bearing deposits $608,493 $602,715 $5,778 1 %
Interest-bearing deposits 4,529,347 4,386,895 142,452 3
Short-term borrowings 373,319 313,373 59,946 19
FHLB borrowings 241,645 152,357 89,288 59
Other long-term debt 51,251 3,826 47,425 100+
Other liabilities 134,705 102,119 32,586 32
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 5,938,760 5,561,285 377,475 7
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 654,996 630,960 24,036 4
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $6,593,756 $6,192,245 $401,511 6 %
- -------------------------------------------------------------------------------
Loan growth of approximately 9% was strongest in the categories of commercial
real estate, leases and consumer installment loans. The impact of loans added
through the second quarter acquisition of First Financial of Western Maryland
was substantially offset by sales of consumer mortgages.
Other assets were impacted by goodwill and other intangible assets resulting
from the second quarter acquisition of First Financial.
Funding for loan growth was obtained from deposit growth, maturities and sales
of investments, and increased borrowing activity.
Long-term debt increased due to the May 1997 issuance of $100 million in medium
term notes.
9
<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 nine months ended September
30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Increase/
1997 1996 (Decrease)
YIELD/ YIELD/ YIELD/
AMOUNT RATE AMOUNT RATE AMOUNT RATE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $386,160 8.30% $358,911 8.19% $27,249 0.11
Interest expense 171,844 4.42 156,831 4.32 15,013 (0.10)
- -----------------------------------------------------------------------------------------
Net interest income $214,316 $202,080 $12,236
Interest spread 3.88% 3.87% 0.01
Impact of noninterest funds 0.72 0.73 (0.01)
- -----------------------------------------------------------------------------------------
Net interest margin 4.60% 4.60% - - -
- -----------------------------------------------------------------------------------------
*The change in net interest income consisted primarily of favorable rate 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. Year-to-date net interest income increased 6%
from the same period in 1996, while the net interest margin remained stable at
4.60%
Interest income grew 8% during the first nine months of 1997 compared to the
same period in 1996, due primarily to core loan growth, the addition of First
Financial, and an eleven basis point increase in the total yield on earning
assets. Interest expense increased 10% during the first nine months of 1997
compared to the same period in 1996, as the cost of funds increased ten basis
points. The increase in interest expense was attributed to the continued
movement of deposits into higher rate CD's, the second quarter acquisition of
First Financial and the medium term notes issued in the latter part of May.
As a result of the cost of funds keeping pace with the increased yield on
earning assets, the interest spread remained stable at 3.88% versus 3.87% in
1996. Similarly, the margin was 4.60% on a year-to-date basis for both 1997 and
1996, as the impact of the reinvestment of noninterest funds was relatively
unchanged.
PROVISION FOR CREDIT LOSSES
- ---------------------------
The provision for credit losses increased $4,837,000 or 70% for the first nine
months of 1997 compared to 1996, and was influenced by increases in both loans
and net charge-offs. Consistent with national trends, Keystone is experiencing a
higher level of consumer loan charge-offs in 1997. Expressed as a percentage of
average loans, the annualized provision reached 0.35% for the first nine months
of 1997 versus 0.22% for the same period in 1996.
10
<PAGE>
NONINTEREST INCOME
- --------------------
Noninterest revenues continued to demonstrate significant growth and increased
$12,609,000 or 24% from the first nine months of 1996 to 1997. Excluding net
securities gains of $3,229,000 in 1997 and $873,000 in 1996, the increase
totaled $10,253,000 or 20%. Keystone has undertaken a variety of initiatives in
the past few years in order to expand revenue from noninterest sources.
Trust and investment management fees increased $2,560,000 or 20% compared to
last year, as Keystone's assets under management increased by 11% due in part to
expanded product offerings such as Key Premier mutual funds and the expertise of
Martindale Andres & Co., Keystone's registered investment advisory firm
subsidiary. During the third quarter of 1997, Keystone acquired MMC&P, a
retirement benefit services firm, that also contributed to the growth in
revenue.
Fee income, which includes revenue from credit card activities and electronic
banking services, increased $3,079,000 or 26% compared to last year. Such fees
were benefitted by the expansion of our ATM network into convenience stores, and
the increased popularity of the KeyCheck debit card.
Mortgage banking income demonstrated an increase of $1,541,000 or 29% compared
to the first nine months of 1996. The increase in 1997 resulted from both higher
loan sales and increases in loans serviced for others.
Other secondary market income declined $1,056,000 or 45% for the first nine
months of 1997 compared to 1996. Such income consists primarily of servicing
fees on securitized and serviced indirect loans. Keystone discontinued both the
origination and securitization of indirect loans during 1997.
Pursuant to Keystone's strategy of office reconfiguration, community offices
were sold in the first half of 1997 which contributed approximately $3.8 million
to other income. First quarter 1996 results had benefitted from a $2,000,000
gain recognized on the sale of the credit card portfolio. Excluding these gains
in both 1997 and 1996, other income increased approximately $1,911,000,
primarily from increased sales of investment products.
NONINTEREST EXPENSES
- --------------------
Excluding special charges associated with the Financial Trust merger, growth in
noninterest expenses totaled $12,481,000 or 8.5% from the first nine months of
1996 to the same period in 1997. Over half of the increase occurred in salary
expense, which increased 12% and was impacted by: merit increases; the
implementation of an integrated performance-based compensation program; and an
increase in employees due to the acquisitions of MMC&P and First Financial,
expanded services at the KeyCall phone center, and full implementation of Key
Investor Services. The late third quarter conversions of merger partners onto
Keystone's systems also resulted in higher salary expense. Now that the
conversions are complete, we expect to benefit more fully from operating
efficiencies.
Furniture and equipment expense, which increased 17% in 1997, was impacted by
higher equipment maintenance and rent on ATM machines due to the expansion of
Keystone's network into convenience stores. In addition, continued technological
investments in fixed assets resulted in higher levels of depreciation in 1997
year-to-date expenses as compared to 1996.
Excluding various nonrecurring expense accruals made in the first quarter of
1996, the other expense category increased nearly 9% for the first nine months
of 1997 compared to the same period in 1996. Increases were primarily related to
revenue expansion activities and occurred in the categories of reinsurance
expense, marketing, telephone, intangible amortization, ATM processing and
merchant card fees.
11
<PAGE>
INCOME TAXES
- ------------
Income tax expense for the first nine-months of 1997 reached $28,244,000,
resulting in an effective tax rate of 31.2% compared with 29.6% for the same
period in 1996. The slight increase was attributable to nondeductible merger
expenses incurred in 1997.
ASSET QUALITY
- -------------
Keystone's allowance for credit losses reached $65,006,000 or 1.37% of loans at
September 30, 1997, compared to 1.30% of loans at the end of 1996. The increase
in the allowance expressed as a percentage of loans was responsive to an
increase in the level of net charge-offs, which reached 0.34% of outstanding
loans on an annualized basis for the first nine months of 1997 compared to 0.21%
for the same period in 1996.
The following table provides a comparative summary of the activity in the
allowance for credit losses for the nine-month periods ended September 30, 1997
and 1996(in thousands).
1997 1996
- --------------------------------------------------------------------------------
Allowance for Credit Losses:
Balance at beginning of period $56,256 $55,415
Allowance obtained through merger 8,311 ---
Loans charged-off:
Commercial (1,407) (1,126)
Real estate secured (1,802) (1,772)
Consumer (7,618) (4,863)
Lease financing (2,253) (608)
- --------------------------------------------------------------------------------
Total loans charged-off (13,080) (8,369)
- --------------------------------------------------------------------------------
Recoveries:
Commercial 205 404
Real estate secured 525 465
Consumer 846 860
Lease financing 171 128
- --------------------------------------------------------------------------------
Total recoveries 1,747 1,857
- --------------------------------------------------------------------------------
Net loans charged-off (11,333) (6,512)
Provision for credit losses 11,772 6,935
- --------------------------------------------------------------------------------
Balance at end of period $65,006 $55,838
- --------------------------------------------------------------------------------
Net loans charged-off to average loans* 0.34% 0.21%
- --------------------------------------------------------------------------------
Provision for credit losses to average loans* 0.35% 0.22%
- --------------------------------------------------------------------------------
Allowance for credit losses to loans 1.37% 1.31%
- --------------------------------------------------------------------------------
*Annualized
Two important ratios for measuring asset quality, total risk elements expressed
as a percentage of loans, and the allowance for credit losses expressed as a
percentage of total risk elements, were 1.10% and 141% respectively, relatively
unchanged from the comparable ratios at December 31, 1997.
Delinquent loans, which consist of loans more than 30 days past due and still
accruing interest, increased as a percentage of total loans, from 1.93% at
December 31, 1996 to 2.15% at September 30, 1997.
12
<PAGE>
The following table has been provided to compare nonperforming assets and total
risk elements at September 30, 1997 to the balances at the end of 1996, in both
absolute dollars and as a percentage of loans. This presentation is supplemented
by a comparison of various coverage ratios.
September 30, December 31,
(dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------
Nonaccrual loans $21,498 $19,350
Restructurings 491 393
- --------------------------------------------------------------------------------
Nonperforming loans 21,989 19,743
Other real estate 6,178 8,305
- --------------------------------------------------------------------------------
Nonperforming assets 28,167 28,048
Loans past due 90 days or more 24,109 20,141
- --------------------------------------------------------------------------------
Total risk elements $52,276 $48,189
- --------------------------------------------------------------------------------
Ratio to period-end loans:*
Nonperforming assets .59% .65%
90-days past due .51 .46
- --------------------------------------------------------------------------------
Total risk elements 1.10% 1.11%
- --------------------------------------------------------------------------------
Coverage Ratios:
Ending allowance to nonperforming loans 296% 285%
Ending allowance to risk elements** 141% 141%
Ending allowance to annualized
net charge-offs 4.3X 6.1X
- --------------------------------------------------------------------------------
* The denominator consists of period-end loans and ORE.
**Excludes ORE.
Based upon the evaluation of loan quality and other relevant factors, management
believes that the allowance for credit losses is adequate to absorb credit risk
in the portfolio.
13
<PAGE>
CAPITAL MANAGEMENT
- ------------------
In accordance with board authorized share repurchase programs, Keystone
purchased 2.6 million shares for treasury during 1996 and the first half of
1997, at a cost of nearly $70 million. Approximately 1.5 million of the
repurchased shares were reissued in connection with the purchase acquisition of
First Financial.
As previously announced, and in accordance with the board of directors'
authorization, Keystone's share repurchase programs terminated concurrent with
the consummation of the Financial Trust merger (to satisfy pooling of
interests accounting requirements.)
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:
Regulatory Standards
---------------------
September 30, December 31, Well Minimum
1997 1996 Capitalized Requirement
- --------------------------------------------------------------------------------
Leverage ratio 9.06% 10.03% 5.00% 4.00%
Tier 1 12.27% 14.43% 6.00% 4.00%
Total capital ratio 13.52% 15.66% 10.00% 8.00%
The decline in the above ratios can be attributed to the influence of the
planned share repurchases as well as the acquisition of First Financial.
14
<PAGE>
ITEM 6(a) Exhibits:
Exhibit # Description
---------- -------------
3 Amended By-Laws of Keystone Financial
27 Financial Data Schedule
ITEM 6(b) Reports on Form 8-K:
During the quarter ended September 30, 1997, the registrant filed the following
reports on Form 8-K:
Date of Report Item Description
- --------------- ----- ---------------------------------------
July 18, 1997 5 Earnings release for the quarter ended
June 30, 1997.
July 18, 1997 5 Combined operations following the
merger of Financial Trust.
August 11, 1997 2,7 Proforma financial information
following the merger of Financial
Trust.
15
<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: November 13, 1997
- -----------------------
/S/ Carl L. Campbell
- -----------------------
Carl L. Campbell,
President and Chief
Executive Officer
DATE: November 13, 1997
- -----------------------
/s/ Mark L. Pulaski
- -----------------------
Mark L. Pulaski,
Vice Chairman,
Chief Operating Officer,
and Chief Financial Officer
DATE: November 13, 1997
- -----------------------
/s/ Donald F. Holt
- -----------------------
Donald F. Holt,
Senior Vice President,
Controller and Principal
Accounting Officer
16
<PAGE>
BYLAWS
of
KEYSTONE FINANCIAL, INC.
(a Pennsylvania corporation)
November 21, 1996
<PAGE>
KEYSTONE FINANCIAL, INC.
BYLAWS
ARTICLE I
SHAREHOLDERS
Section 1.01. Annual Meetings. Annual meetings of the shareholders shall be
held on the last Thursday of April in each year at 2:00 p.m., at the principal
business office of the Corporation, or at such other date, time and place as may
be fixed by the Board of Directors. Written notice of the annual meeting shall
be given at least ten days prior to the meeting to each shareholder entitled to
vote thereat. Any business may be transacted at the annual meeting irrespective
of whether or not the notice calling such meeting shall contain a reference
thereto, except otherwise expressly required herein or by law.
Section 1.02. Special Meetings. Special meetings of the shareholders may be
called at any time, for the purpose or purposes set forth in the call, by the
Chairman of the Board, the President or the Board of Directors, by delivering a
written request to the Secretary. Special meetings shall be held at the
principal business office of the Corporation or at such other place as may be
fixed by the Board of Directors. Written notice of special meetings shall be
given at least ten days prior to the meeting to each shareholder entitled to
vote thereat. No business may be transacted at any special meeting other than
that stated in the notice of meeting and business which is germane thereto.
Section 1.03. Organization. The Chairman of the Board, if one has been
elected and is present, or in his absence, the President, or in his absence, any
Vice President designated by the Board, shall preside, and the Secretary, or in
his absence, any Assistant Secretary, shall take the minutes at all meetings of
the shareholders. In the absence of the Secretary and an Assistant Secretary,
the presiding officer at the meeting shall designate any other person to take
the minutes of the meeting.
ARTICLES II
DIRECTORS
Section 2.01. Number, Election and Term of Office. The number of Directors
which shall constitute the full Board of Directors shall be fixed by the Board
of Directors, pursuant to a resolution adopted by a majority vote of the
Disinterested Directors then in office, but shall not be less than five or more
than twenty-five. Between annual meetings of the shareholders, the Board of
Directors by a vote of a majority of the Disinterested Directors then in office,
may increase the membership of the Board, within the maximum above prescribed,
by not more than three members and, by like vote, appoint qualified persons to
fill the vacancies created thereby in accordance with Section 2.10 hereof. No
decrease in the number of Directors constituting the full Board of Directors
shall shorten the term of any incumbent Director. The Directors shall be
classified with respect to the time for which they shall severally hold office
by dividing them into three classes, each class being as nearly equal in number
as possible. If such classes of Directors are not equal, the Board of Directors,
by a majority vote of the Disinterested Directors then in office, shall
determine which class shall contain an unequal number of Directors. At each
annual meeting of shareholders, the shareholders shall elect Directors of the
class whose term then expires, to hold office until the third succeeding annual
meeting. Each Director of the Corporation shall hold office for the term for
which elected and until his or her successor shall be elected and shall qualify.
Each Director shall hold office from the time of his election but shall be
responsible as a Director from such time only if he consents to his election;
otherwise from the time he accepts office or attends his first meeting of the
Board. As used herein, the term "Disinterested Director" shall have the meaning
provided in Article 10.1(g) of the Restated Articles.
<PAGE>
Section 2.02 Regular Meetings; Notice. Regular meetings of the Board of
Directors shall be held at such time and place as shall be designated by the
Board of Directors from time to time. Notice of such regular meetings of the
Board shall not be required to be given, except as otherwise expressly required
herein or by law. However, whenever the time or place of regular meetings shall
be initially fixed and then changed, notice of such action shall be given
promptly by telephone or otherwise to each Director not participating in such
action. Any business may be transacted at any regular meeting.
Section 2.03. Annual Meeting of the Board. The annual meeting of the Board
of Directors each year shall be held immediately after the annual meeting of the
shareholders at such place as may be fixed by the Board.
Section 2.04. Special Meetings; Notice. Special meetings of the Board may
be called at any time by the Board itself by vote at a meeting, or by the
Chairman, the President, or not less than one- fourth in number of the members
of the Board, to be held at such place, day, and hour as shall be specified by
the person(s) calling the meeting. Notice of every special meeting of the Board
of Directors stating the place, day, and hour thereof shall be given to each
Director by being mailed, sent by telecopier, telex, telegraph or electronic
mail or given personally or by telephone, in each case at least 24 hours before
the time at which the meeting is to be held. Any business may be transacted at
any special meeting regardless of whether the notice calling such meeting
contains a reference thereto, except as otherwise required herein or by law.
Section 2.05. Meetings by Telephone. One or more of the Directors may
participate in any special meeting of the Board of Directors or any committee
thereof by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting are able to hear each
other. Participation in a special meeting in this manner by a Director will by
considered to be attendance in person for all purposes under these Bylaws. This
Section 2.05 shall not apply to the annual meting or to the regular meetings of
the Board of Directors.
<PAGE>
Section 2.06. Organization. At all meetings of the Board of Directors, the
presence of at least a majority of the Directors at the time in office shall be
necessary and sufficient to constitute a quorum for the transaction of business.
If a quorum is not present at any meeting, the meeting may be adjourned from
time to time by a majority of the Directors present until a quorum as aforesaid
shall be present; but notice of the time and place to which such meeting is
adjourned shall be given to any Directors not present either by being sent by
telecopier, telex telegraph, or electronic mail or given personally or by
telephone at least 8 hours prior to the hour of reconvening. Except as otherwise
provided herein, the Restated Articles or by law, resolutions of the Board shall
be adopted, and any action of the Board at a meeting upon any matter shall be
valid and effective, with the affirmative vote of at least a majority of the
Directors present at a meeting duly convened. The Chairman of the Board, if one
has been elected and is present, or if not, the President, shall preside at each
meeting of the Board. In the absence of both the Chairman and the President, the
Directors present shall designate one of their number to preside at the meeting.
The Secretary, or in his absence any Assistant Secretary, shall take the minutes
at all meetings of the Board of Directors. In is absence of the Secretary and an
Assistant Secretary, the presiding officer shall designate any person to take
the minutes of the meeting.
Section 2.07. Director Nominations and Qualifications.
(a) The Board of Directors shall establish a Nominating Committee from
among its members. This Nominating Committee shall establish criteria for
selection of nominees to stand for election or reelection at any annual meeting
of the shareholders and shall report its recommendations to the Board for its
action. Any shareholder who desires to have an individual considered for
nomination must submit his recommendation in writing to the Secretary of the
Corporation at least ninety (90) days prior to any annual meeting at which the
election of Directors will occur.
(b) Any Director or nominee who has attained the age of 70 on or prior to
date of any annual meeting shall not stand for reelection or election at that
annual meeting. Furthermore, the term of any Director who has attained the age
of 70 on or prior to the date of any annual meeting shall expire at that annual
meeting.
(c) Any Director who becomes more than 50% retired from a principal
occupation on or prior to the date of any annual meeting shall not stand for
reelection at that annual meeting. Furthermore, the term of any Director who
becomes more than 50% retired from a principal occupation on or prior to the
date of any annual meeting, shall expire at that annual meeting.
(d) Any Director who shall no longer be engaged in his usual and customary
occupation on or prior to the date of any annual meeting shall not stand for
reelection at that annual meeting. Furthermore, the term of any Director who
shall no longer be engaged in his usual and customary occupation on or prior to
the date of any annual meeting shall expire at that annual meeting. The Board
may waive the application of this subsection (d) by a majority vote at any
regular or special meeting of the Board.
(e) Any Director who shall move his residence from the trade area of the
corporation on or prior to the date of any annual meeting shall not stand for
reelection at that annual meeting. Furthermore, the term of any Director who
shall move his residence from the trade area of the corporation on or prior to
the date of any annual meeting shall expire at that annual meeting. For the
purposes of this subsection (e) "trade area" shall be defined as any county in
which the Corporation or any of its banking subsidiaries has an office or branch
and any county contiguous thereto.
(f) Any vacancy created by virtue of this section shall be filled according
to the provisions of Section 2.10 of these Bylaws.
Section 2.08 Presumption of Assent.
Minutes of each meeting of the Board shall be made available to each
Director at or before the next succeeding regular meeting. Each Director shall
be presumed to have assented to the correctness of such minutes unless his
objection thereto shall be made to the Secretary within two business days after
such succeeding regular meeting.
Section 2.09. Resignations. Any Director may resign by submitting to the
Chairman of the Board, if one has been elected, or to the President or the
Secretary, his resignation which shall become effective upon its receipt by such
officer or as otherwise specified herein.
Section 2.10. Vacancies. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of Directors, shall be filled
only by a majority vote of the Disinterested Directors (as defined in Article
10.1(g) of the Restated Articles) then in office, though less than a quorum,
except as otherwise required by law. All such Directors elected to fill
vacancies shall hold office for a term expiring at the annual meeting of
shareholders at which the term of the class to which they have been elected
expires.
Section 2.11. Committees. (a) General. Standing or temporary committees may
be appointed from its own number by the Board of Directors from time to time,
and the Board may from time to time invest committees with such power and
authority, subject to such conditions as it may see fit. Any action taken by any
committee shall be subject to alteration or revocation by the Board of
Directors; provided, however, that third parties shall not be prejudiced by such
alteration or revocation.
(b) Executive Committee. An Executive Committee may be appointed by a
majority of the full Board; it shall have all the powers and exercise all the
authority of the Board in the management of the business and affairs of the
Corporation except as specifically limited by the Board and except as to matters
for which action by the full Board is required by the Restated Articles or
Section 1731(a)(2) of the Pennsylvania Business Corporation Law.
(c) Audit Committee. An Audit Committee shall be appointed by a majority of
the full Board. The Audit Committee shall be composed of Directors who are
independent of management of the Corporation, are free of any relationship that,
in the opinion of the Board of Directors, would interfere with their exercise of
independent judgment as a Committee member and comply with the requirements of
applicable laws and regulations as to the composition of Audit Committee.
The Audit Committee shall assist the Board in fulfilling its oversight
responsibilities in the areas of internal controls, financial reporting, the
Corporation's internal and external audit programs, compliance with significant
laws and regulations in areas in which it has oversight responsibility and in
other related areas from time to time assigned to it.
The Audit Committee shall, at least once in each year, make or cause to be
made by independent certified public accountants selected by the Board or
shareholders for the purpose, an audit of the books and affairs of the
Corporation. Such audit shall be performed in accordance with Generally Accepted
Auditing Standards. Upon completion of the audit, the Committee shall make a
report thereof and its recommendations to the Board of Directors at its next
regular meeting.
Section 2.12. Emergency Preparedness. Notwithstanding any other
provisions of law, the Articles or these Bylaws, during any emergency period
caused by a national catastrophe or local disaster, a majority of the surviving
members (or the sole survivor) of the Board of Directors who have not been
rendered incapable of acting because of incapacity or the difficulty of
communication or transportation to the place of meeting shall constitute a
quorum for the sole purpose of electing Directors to fill such emergency
vacancies; and a majority of the Directors present at such a meeting may act to
fill such vacancies. Directors so elected shall serve until such absent
Directors are able to attend meetings or until the shareholders act to elect
Directors for such purpose. During such an emergency period, if the Board is
unable to or fails to meet, any action appropriate to the circumstances may be
taken by such officers of the Corporation as may be present and able. Questions
as to the existence of a national catastrophe or local disaster and the number
of surviving members capable of acting shall be conclusively determined at the
time by the Board of Directors or the officers so acting.
ARTICLE III
OFFICERS AND EMPLOYEES
Section 3.01. Executive Officers. The Executive Officers of the Corporation
shall be the Chairman, the President, the Secretary, the Treasurer, and one or
more Vice Presidents as the Board may from time to time determine, all of whom
shall be elected by the Board of Directors. Any two or more offices may be held
by the same person. Each Executive Officer shall hold office at the pleasure of
the Board of Directors, or until his death or resignation.
Section 3.02. Additional Officers; Other Agents and Employees. The Board of
Directors may from time to time appoint or hire such additional officers,
assistant officers, agents, employees and independent contractors as the Board
deems advisable; the Board or the President shall prescribe their duties,
conditions of employment and compensation; and the Board shall have the right to
dismiss them at any time, without prejudice to their contract rights, if any.
Subject to the power of the Board, the President may employ from time to time
such other agents, employees, and independent contractors as he may deem
advisable for the prompt and orderly transaction of the business of the
Corporation, and he may prescribe their duties and the conditions of their
employment, fix their compensation and dismiss them at any time, without
prejudice to their contract rights, if any.
Section 3.03. The Chairman. The Chairman of the Board shall be elected from
among the Directors. The Chairman (and in his absence, the President) shall
preside at all meetings of the shareholders and of the Board and shall have such
other powers and duties as from time to time may be prescribed in these Bylaws
or by the Board of Directors.
Section 3.04. The President. Subject to the control of the Board of
Directors, the President shall have general policy supervision of and general
management and executive powers over all the property, business, operations,
affairs and employees of the Corporation, and shall see that the policies and
programs adopted or approved by the Board are carried out.
<PAGE>
In absence of the Chairman, the President shall preside at all meetings of
the shareholders and of the Board. The President shall exercise such other
powers and duties as from time to time may be prescribed in these Bylaws or by
the Board of Directors. In his absence for reasons other than disability, the
President may designate any officer or Director of the Corporation to exercise
all of the powers and duties of the President. In case of the disability of the
President, the Board shall designate an officer or Director to exercise such
powers.
Section 3.05. The Vice Presidents. The Vice Presidents may be given by
resolution of the Board general executive powers, subject to the control of the
President, concerning one or more or all segments of the operations of the
Corporation. The Vice Presidents shall exercise such other powers and duties as
from time to time may be prescribed in these Bylaws or by the Board of Directors
or by the President.
Section 3.06. The Secretary and Assistant Secretaries. It shall be the duty
of the Secretary (a) to keep or cause to be kept at the registered office of the
Corporation an original or duplicate record of the proceedings of the
shareholders and the Board of Directors and a copy of the Articles and of the
Bylaws; (b) to attend to the giving of notices of the Corporation as may be
required by law or these Bylaws; (c) to be responsible for the corporate records
and the seal of the Corporation and see that the seal is affixed to such
documents as may be necessary or advisable; (d) to have charge of and keep at
the registered office of the Corporation, or cause to be kept at the office of a
transfer agent or registrar, the stock books of the Corporation and an original
or duplicate share register, giving the names of the shareholders in
alphabetical order and showing their respective addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the shares, and the date of cancellation of every certificate surrendered for
cancellation; and (e) to exercise all powers and duties incident to the office
of Secretary and such other powers and duties as may be prescribed by the Board
of Directors or by the President from time to time. The Secretary by virtue of
his office shall be an Assistant Treasurer. The Assistant Secretaries shall
assist the Secretary in the performance of his duties and shall also exercise
such other powers and duties as from time to time may be assigned to them by the
Board of Directors, the President or the Secretary. At the direction of the
Secretary or in his absence or disability, an Assistant Secretary shall perform
the duties of the Secretary.
Section 3.07. The Treasurer and Assistant Treasurers. The Treasurer shall
exercise all powers and duties incident to the office of Treasurer and such
other duties as may be prescribed by the Board of Directors or by the President
from time to time. The Treasurer, by virtue of his office, shall be an Assistant
Secretary. The Assistant Treasurers shall assist the Treasurer in the
performance of his duties and shall also exercise such other powers and duties
as from time to time may be assigned to them by the Board of Directors, the
President or the Treasurer. At the direction of the Treasurer or in his absence
or disability, an Assistant Treasurer shall perform the duties of the Treasurer.
Section 3.08. Compensation. The compensation of all Executive Officers,
elected pursuant to Section 3.01 of these Bylaws, shall be fixed from time to
time by the Board of Directors or by any committee authorized by the Board of
Directors to do so. The President may fix the compensation of all other
officers, agent and employees. The Board may direct that additional compensation
be paid to any officers or employees for any year or years, based upon the
performance of such persons during such year, or on the success of the
operations of the Corporation during such year, or for any other reason deemed
appropriate.
<PAGE>
Section 3.09. Vacancies. Any vacancy in any office or position by reason of
death, resignation, removal, disqualification, disability or other cause, shall
be filled in the manner provided in this Article III for regular election or
appointment to such office.
Section 3.10. Delegation of Duties. The Board of Directors may in its
discretion delegate for the time being the powers and duties, or any of them, of
any officer to any other person whom it may select.
ARTICLE IV
SHARES OF CAPITAL STOCK
Section 4.01. Share Certificates. Every holder of fully-paid stock of the
Corporation shall be entitled to a certificate or certificates, to be in such
form as the Board of Directors may from time to time prescribe, and signed (in
facsimile or otherwise, as permitted by law) by the President or a Vice
President and the Secretary or the Treasurer or an Assistant Secretary or an
Assistant Treasurer which shall represent and certify the number and class of
shares of stock owned by such holder. The Board may authorize the issuance of
certificates for fractional shares or, in lieu thereof, scrip or other evidence
of ownership, which may (or may not) as determined by the Board entitle the
holder thereof to voting, dividends or other rights of shareholders.
Section 4.02. Transfer of Shares. Transfers of shares of the stock of the
Corporation shall be made on the books of the Corporation only upon surrender to
the Corporation of the certificate or certificates for such shares properly
endorsed by the shareholder or by his assignee, agent or legal representative,
who shall furnish proper evidence of assignment, authority or legal succession,
or by the agent of one of the foregoing thereunto duly authorized by an
instrument duly executed and filed with the Corporation in accordance with
regular commercial practice.
Section 4.03. Lost, Stolen, Destroyed or Mutilated Certificates. New
certificates for shares of stock may be issued to replace certificates lost,
stolen, destroyed or mutilated upon such conditions as the Board of Directors
may from time to time determine.
Section 4.04. Regulations Relating to Shares. The Board of Directors shall
have power and authority to make all such rules and regulations not inconsistent
with these Bylaws as it may deem expedient concerning the issue, transfer and
registration of certificates representing shares of the Corporation.
Section 4.05. Holders of Record. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock of the Corporation as the
holder and owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise expressly provided by the laws of Pennsylvania.
<PAGE>
ARTICLE V
MISCELLANEOUS CORPORATE TRANSACTIONS AND DOCUMENTS
Section 5.01. Notes, Checks, etc. All notes, bonds, drafts, acceptances,
checks, endorsements (other than for deposit), guarantees, and all evidences of
indebtedness of the Corporation whatsoever, shall be signed by such officers or
agents of the Corporation, subject to such requirements as to countersignature
or other conditions, as the Board of Directors from time to time may determine.
Facsimile signatures on checks may be used if authorized by the Board of
Directors.
Section 5.02. Execution of Instruments Generally. Except as provided in
Section 5.01, all deeds, mortgages, contracts and other instruments requiring
execution by the Corporation may be signed by the President, any Vice President
or the Treasurer; and authority to sign any of the foregoing, which may be
general or confined to specific instances, may be conferred by the Board of
Directors upon any other person or persons. Any person having authority to sign
on behalf of the Corporation may delegate from time to time by instrument in
writing all or any part of such authority to any other person or persons if
authorized to do so by the Board of Directors, which authority may be general or
confined to specific instances.
Section 5.03. Voting of Investment Securities Owned by Corporation.
Investment securities owned by the Corporation and having voting power in any
other corporation shall be voted by the President or his designee, unless the
Board confers authority to vote with respect thereto, which may be general or
confined to specific investments, upon some other person. Any person authorized
to vote such securities shall have the power to appoint proxies with general
power of substitution.
ARTICLE VI
GENERAL PROVISIONS
Section 6.01. Offices. The principal business office of the Corporation
shall be at One Keystone Plaza, Front & Market Streets, P.O. Box 3660,
Harrisburg, Pennsylvania 17105-3660. The Corporation may also have offices at
such other places within or without the Commonwealth of Pennsylvania as the
business of the Corporation may require.
Section 6.02. Corporate Seal. The Board of Directors shall prescribe the
form of a suitable corporate seal which shall contain the full name of the
Corporation and the year and state of incorporation.
Section 6.03. Fiscal Year The fiscal year of the Corporation shall end on
the 31st day of December of every year unless the Board from time to time shall
otherwise prescribe.
Section 6.04. Financial Reports to Shareholders. The Board shall have
discretion to determine whether financial reports shall have discretion to
determine whether financial reports shall be sent to shareholders, what such
reports shall contain, and whether they shall be audited or accompanied by the
report of an independent certified public accountant.
<PAGE>
Section 6.05. Prior Board Approval of Certain Matters. The following
matters or actions shall be subject to the prior consideration and approval of
the Board of Directors:
(1) Proposed budget of all subsidiaries of the Corporation.
(2) All proposed changes in the duties or titles of Executive Management
of Keystone Financial, Inc. (Corporate CEO, Corporate Executive
Officers, Bank CEOs), including any salary adjustments, promotions or
demotions related thereto.
Section 6.06. Non-Applicability of Statute. Subchapter 25G (Control-Share
Acquisitions) and Subchapter 25H (Disgorgement by Certain Controlling
Shareholders Following Attempts to Acquire Control) of the Pennsylvania Business
Corporation Law, added by the Act of April 27, 1990 (P.L. _________ No. 36),
shall not be applicable to the Corporation. (This By-Law provision was adopted
by action of the Board of Directors on July 26, 1990).
ARTICLE VII
VALIDATION OF CERTAIN CONTRACTS
Section 7.01. General. A contract or transaction between the Corporation
and one or more of its Directors or officers or between the Corporation and
another person in which one or more Directors or officers of the Corporation are
directors or officers or have a financial or other interest, shall not be void
or voidable solely for that reason, or solely because the Director or officer is
present at or participants in the meeting of the Board of Directors that
authorizes the contract or transaction, or solely because his or their votes are
counted for that purpose, if:
(1) the material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors, and the Board authorizes the contract or transaction by the
affirmative votes of the disinterested Directors even though the
disinterested Directors are less than a quorum;
(2) the material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is
specifically approved by vote of those shareholders;
(3) or the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors
or the shareholders.
Common or interested Directors may be counted in determining the presence
of a quorum at a meeting of the Board that authorizes a contract or transaction
referred to in this Section. As used in this Section, the term "person" includes
a corporation for profit or not-for-profit, partnership, joint venture, firm,
association, trust or other enterprise or legal entity.
<PAGE>
ARTICLE VIII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 8.01. Indemnification of, and Advancement of Expenses to,
Directors, Officers and Others. (a) Right to Indemnification. Except as
prohibited by law, every Director and officer of the Corporation shall be
entitled as of right to be indemnified by the Corporation against expenses and
any liability paid or incurred by such person in connection with any actual or
threatened claim, action, suit or proceeding, civil, criminal, administrative,
investigative or other, whether brought by or in the right of the Corporation or
otherwise, in which he or she may be involved in any manner, as a party, witness
or otherwise, or is threatened to be made so involved, by reason of such person
being or having been a Director or officer of the Corporation or a subsidiary of
the Corporation or by reason of the fact that such person is or was serving at
the request of the Corporation as a director, officer, employee, fiduciary or
other representative of another corporation, partnership, joint venture, trust,
employee benefit plan or other entity (such claim, action, suit or proceeding
hereinafter being referred to as an "Action"); provided, that no such right of
indemnification shall exist with respect to an Action initiated by an indemnitee
(as hereinafter defined) against the Corporation (an "Indemnitee Action") other
than an Action for indemnity or advancement of expenses as provided in
Subsection (c). Persons who are not Directors or officers of the Corporation may
be similarly indemnified in respect of service to the Corporation or to another
such entity at the request of the Corporation to the extent the Board of
Directors at any time denominates such person as entitled to the benefits of
this Section. As used in this Section 8.01, "indemnitee" shall include each
Director and officer of the Corporation and each other person denominated by the
Board of Directors as entitled to the benefits of this Section 8.01; "expenses"
shall include fees and expenses of counsel selected by an indemnitee; and
"liability" shall include amounts of judgments, excise taxes, fines, penalties
and amounts paid in settlement.
(b) Right to Advancement of Expenses. Every indemnitee shall be entitled as
of right to have his or her expenses in defending any Action, or in initiating
and pursuing any Indemnitee Action for indemnity or advancement of expenses
under Subsection (c) of this Section 8.01, paid in advance by the Corporation
prior to final disposition of such Action or Indemnitee Action, provided that
the Corporation receives a written undertaking by or on behalf of the indemnitee
to repay the amount advanced if it should ultimately be determined that the
indemnitee is not entitled to be indemnified for such expenses.
(c) Right of Indemnitee to Initiate Action. If a written claim under
Subsection (a) or Subsection (b) of this Section 8.01 is not paid in full by the
Corporation within thirty days after such claim has been received by the
Corporation, the indemnitee may at any time thereafter initiate an Indemnitee
Action to recover the unpaid amount of the claim and, if successful in whole or
in part, the indemnitee shall also be entitled to be paid the expense of
prosecuting such Indemnitee Action. The only defense to an Indemnitee Action to
recover a claim for indemnification under Subsection(a) of this Section 8.01
shall be that the indemnitee's conduct was such that under Pennsylvania law the
Corporation is prohibited from indemnifying the indemnitee for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel and its shareholders) to have made a determination
prior to the commencement of such Indemnitee Action that indemnification of the
indemnitee is proper in the circumstances, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or its
shareholders) that the indemnitee's conduct was such that indemnification is
prohibited by Pennsylvania law, shall be a defense to such Indemnitee Action or
create a presumption that the indemnitee's conduct was such that indemnification
is prohibited by Pennsylvania's law. The only defense under Subsection (b) of
this Section 8.01 shall be the indemnitee's failure to provide the undertaking
required by Subsection (b) of this Section 8.01.
<PAGE>
(d) Insurance and Funding. The Corporation may purchase and maintain
insurance to protect itself and any person eligible to indemnified hereunder
against any liability or expense asserted or incurred by such person in
connection with any Action, whether or not the Corporation would have the power
to indemnify such person against such liability or expense by law or under the
provisions of this Section 8.01. The Corporation may create a trust fund, grant
a security interest, cause a letter of credit to be issued or use other means
(whether or not similar to the foregoing) to ensure the payment of such sums as
may become necessary to effect indemnification as provided herein.
(e) Non-Exclusivity; Nature and Extent of Rights. The rights to
indemnification and advancement of expenses provided for in this Section 8.01
shall (i) not be deemed exclusive of any other rights, whether now existing or
hereafter created, to which any indemnitee may be entitled under any agreement,
bylaw, charter provision, vote of shareholders or Directors or otherwise, (ii)
be deemed to create contractual rights in favor of each indemnitee who serves
the Corporation at any time while this Section 8.01 is in effect (and each such
indemnitee shall be deemed to be so serving in reliance on the provisions of
this Section) and (iii) continue as to each indemnitee who has ceased to have
the status pursuant to which he or she was entitled or was denominated as
entitled to indemnification under this Section 8.01 and shall inure to the
benefit of the heirs and legal representatives of each indemnitee. Any amendment
of repeal of this Section 8.01 or adoption of any other Bylaw or provision of
the Articles of Incorporation which limits in any way the right to
indemnification or the right to advancement of expenses provided for in this
Section 8.01 shall operate prospectively only and shall not affect any action
taken, or failure to act, by an indemnitee prior to the adoption of such
amendment, repeal, Bylaw or other provision.
(f) Partial Indemnity. If an indemnitee is entitled under any provision of
this Section 8.01 to indemnification by the Corporation for some or a portion of
the expenses or a liability paid or incurred by the indemnitee in the
preparation, investigation, defense, appeal or settlement of any Action or
Indemnitee Action but not, however, for the total amount thereof, the
Corporation shall indemnify the indemnitee for the portion of such expenses or
liability to which the indemnitee is entitled.
(g) Applicability of Section. This Section 8.01 shall apply to every Action
other than an Action filed prior to January 27, 1987, except that it shall not
apply to the extent that Pennsylvania law does not permit its application to any
breach of performance of duty or any failure of performance of duty by an
indemnitee occurring prior to January 27, 1987.
Section 8.02. Personal Liability of Directors. (a) To the fullest extent
that the laws of the Commonwealth of Pennsylvania, as in effect on January 27,
1987 or as thereafter amended, permit elimination or limitation of the liability
of directors, no Director of the Corporation shall be personally liable for
monetary damages as such for any action taken, or any failure to take any
action, as a Director.
<PAGE>
(b) This Section 8.02 shall not apply to any action, suit or proceeding
filed prior to January 27, 1987 nor to any breach of performance of duty of any
failure of performance of duty by a Director of the Corporation occurring prior
to January 27, 1987. The provisions of this Section shall be deemed to be a
contract with each Director of the Corporation who serves as such at any time
while this Section is in effect, and each such Director shall be deemed to be so
serving in reliance on the provisions of this Section. Any amendment or repeal
of this section or adoption of any other Bylaws or any provision of the Articles
of the Corporation which has the effect of increasing director liability shall
operate prospectively only and shall not affect any action taken, or any failure
to act, prior to the adoption of such amendment, repeal, other Bylaw or
provision.
ARTICLE IX
AMENDMENTS
Section 9.01. Amendments. (a) Except with respect to those matters which
are, by statute, reserved exclusively to the shareholders, these Bylaws may be
amended, altered and repealed, and new Bylaws may be adopted, by a vote of the
majority or the Board of Directors of the Corporation, including a majority of
the Disinterested Directors (as defined in Section 10.1(g) of the Restated
Articles) then in office, at any regular or special meeting of the Board.
(b) When the Bylaws are to be amended, altered or repealed, or new Bylaws
adopted by the Board of Directors, written notice of any such proposed change
shall be given to each Director at least ten (10) days prior to the regular or
special meeting at which the proposed change is to be considered. The notice
shall include the text of the Bylaws which is to be amended, altered or
repealed, and the text of the change which is being proposed.
(c) These Bylaws may also be amended, altered and repealed, and new Bylaws
may be adopted, by the shareholders at any regular or special meeting by the
votes required by Section 8.3 of the Restated Articles of the Corporation or, if
no special vote is required by Section 8.3 of the Restated Articles or otherwise
by law, by a majority of the votes cast thereon by all shareholders entitled to
vote on the proposal. When the Bylaws are to be amended, altered, or repealed,
or new Bylaws adopted by the shareholders, written notice that the purpose, or
one of the purposes, of the meeting is to consider the adoption, amendment or
repeal of the Bylaws shall be given to each shareholder at least ten (10) days
prior to the regular or special meeting at which the proposed change is to be
considered. There shall be included in, or enclosed with, the notice a copy of
the proposed amendment or a summary of the changes to be effected thereby.
<PAGE>
(d) No provision of these Bylaws shall vest in any person any property or
(except as provided in Sections 8.01(e) and 8.02 of these Bylaws) any contract
right.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the third
quarter 10-Q and is qualified in its entirety by reference to such 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 230,214
<INT-BEARING-DEPOSITS> 44,398
<FED-FUNDS-SOLD> 42,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,022,384
<INVESTMENTS-CARRYING> 495,786
<INVESTMENTS-MARKET> 503,585
<LOANS> 4,735,762
<ALLOWANCE> 65,006
<TOTAL-ASSETS> 6,838,234
<DEPOSITS> 5,316,677
<SHORT-TERM> 393,157
<LIABILITIES-OTHER> 144,172
<LONG-TERM> 306,279
0
0
<COMMON> 106,038
<OTHER-SE> 571,911
<TOTAL-LIABILITIES-AND-EQUITY> 6,838,234
<INTEREST-LOAN> 299,271
<INTEREST-INVEST> 70,742
<INTEREST-OTHER> 9,452
<INTEREST-TOTAL> 379,465
<INTEREST-DEPOSIT> 144,754
<INTEREST-EXPENSE> 171,844
<INTEREST-INCOME-NET> 207,621
<LOAN-LOSSES> 11,772
<SECURITIES-GAINS> 3,229
<EXPENSE-OTHER> 170,661
<INCOME-PRETAX> 90,597
<INCOME-PRE-EXTRAORDINARY> 90,597
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,353
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
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<LOANS-NON> 21,498
<LOANS-PAST> 24,109
<LOANS-TROUBLED> 491
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 56,256
<CHARGE-OFFS> 13,080
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</TABLE>
