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 March 31, 1999
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): 48,775,000 as of April 30, 1999.
<PAGE>
KEYSTONE FINANCIAL, INC.
INDEX PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Condition - March 31, 1999
and December 31, 1998 3
Consolidated Statements of Income - Three months
ended March 31, 1999 and 1998 4
Consolidated Statements of Comprehensive Income - Three months
ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows - Three months ended
March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk 16
PART II. OTHER INFORMATION
Items 1,2,3,4 and 5 have been omitted since they are not applicable.
ITEM 6. Exhibits and Reports on Form 8-K 17
(a) Exhibits
(b) Reports on Form 8-K
Signatures 18
<PAGE>
PART I. ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION (in thousands, except share data)
- --------------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
ASSETS
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $201,407 $190,622
Federal funds sold 122,700 141,700
Interest bearing deposits with banks 5,441 5,978
Investment securities available for sale 1,090,437 1,129,753
Investment securities held to
maturity(fair values
1999-$643,014; 1998-$670,934) 634,972 659,536
Loans held for resale 82,783 76,423
Loans and leases 4,413,283 4,459,783
Allowance for credit losses (59,857) (60,274)
- --------------------------------------------------------------------------------------------
Net Loans 4,353,426 4,399,509
Premises and equipment 123,882 124,080
Other assets 214,461 240,626
- --------------------------------------------------------------------------------------------
TOTAL ASSETS $6,829,509 $6,968,227
- --------------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------------------
Noninterest-bearing deposits $677,305 $710,161
Interest-bearing deposits 4,432,516 4,521,557
- --------------------------------------------------------------------------------------------
Total Deposits 5,109,821 5,231,718
Federal funds purchased and security
repurchase agreements 407,433 363,739
Other short-term borrowings 30,373 11,306
- --------------------------------------------------------------------------------------------
Total Short-Term Borrowings 437,806 375,045
FHLB borrowings 416,235 427,027
Long-term debt 130,096 130,239
Other liabilities 152,201 142,533
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,246,159 6,306,562
- --------------------------------------------------------------------------------------------
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
51,673,031 - 1999 and 51,448,335 - 1998 103,346 102,897
Surplus 166,680 162,350
Retained earnings 419,053 424,873
Deferred KSOP benefit expense (404) (553)
Treasury stock at cost - 3,000,000 shares-1999
and 1,013,600 shares-1998 (106,793) (34,186)
Accumulated other comprehensive income 1,468 6,284
- --------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 583,350 661,665
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,829,509 $6,968,227
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
1999 1998
- --------------------------------------------------------------------------------
INTEREST INCOME
- --------------------------------------------------------------------------------
Loans and fees on loans $ 92,342 $101,873
Investments - taxable 22,635 21,776
Investments - tax exempt 2,715 2,929
Federal funds sold & other 1,271 1,439
Loans held for resale 1,614 1,042
- --------------------------------------------------------------------------------
120,577 129,059
- --------------------------------------------------------------------------------
INTEREST EXPENSE
- --------------------------------------------------------------------------------
Deposits 43,989 49,217
Short-term borrowings 3,713 4,555
FHLB borrowings 5,907 4,264
Long-term debt 2,338 1,869
- --------------------------------------------------------------------------------
55,947 59,905
- --------------------------------------------------------------------------------
NET INTEREST INCOME 64,630 69,154
Provision for credit losses 2,663 3,757
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 61,967 65,397
- --------------------------------------------------------------------------------
NONINTEREST INCOME
- --------------------------------------------------------------------------------
Trust and investment advisory fees 6,674 6,681
Service charges on deposit accounts 4,337 4,205
Fee income 6,259 5,310
Mortgage banking income 3,582 2,745
Reinsurance income 847 631
Other income 3,957 3,104
Net gains - equity securities 428 1,520
Net gains (losses) - debt securities (3) 11
- --------------------------------------------------------------------------------
26,081 24,207
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Salaries 23,831 24,295
Employee benefits 5,623 5,345
Occupancy expense (net) 4,739 4,514
Furniture and equipment expense 5,370 5,072
Special charges 19,148 ---
Other expense 18,123 16,881
- --------------------------------------------------------------------------------
76,834 56,107
- --------------------------------------------------------------------------------
Income before income taxes 11,214 33,497
Income tax expense 2,899 9,361
- --------------------------------------------------------------------------------
NET INCOME $ 8,315 $24,136
- --------------------------------------------------------------------------------
PER SHARE DATA
- --------------------------------------------------------------------------------
Net income:
Basic $0.17 $0.47
Diluted $0.17 $0.46
Dividends $0.29 $0.28
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------- ---------------------------------------------------------
Three Months Ended March 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Before Net of Before Net of
Tax Tax Tax Tax
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Net Income $ 8,315 $24,136
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period (6,984) (4,540) 2,103 1,367
Less: Reclassification adjustment for gains
included in net income (425) (276) (1,531) (995)
- ----------------------------------------------------------- ------------ --------------- ------------ ---------------
(4,816) 372
- ----------------------------------------------------------- ------------ --------------- ------------ ---------------
Comprehensive Income $3,499 $24,508
=========================================================== ============ =============== ============ ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
=======================================================================================
Three Months Ended
March 31,
1999 1998
- ---------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $8,315 $24,136
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for credit losses 2,663 3,757
Provision for depreciation & amortization 6,253 5,008
Deferred income taxes (4,101) 5,961
Special charges accrual 8,220 ---
Sale of loans held for resale 76,450 58,067
Origination of loans held for resale (84,729) (67,197)
Decrease in interest receivable 8,031 2,036
Increase in interest payable 3,105 5,680
Other 18,839 (6,568)
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 43,046 30,880
- ----------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net (increase)decrease in interest-bearing deposits
with banks 537 (707)
Available for sale securities:
Sales 7,633 5,215
Maturities 532,013 332,336
Purchases (505,210) (395,154)
Held to maturity securities:
Maturities 43,196 42,942
Purchases (18,721) (59,497)
Net decrease in loans 42,174 56,994
Purchases of loans (3,368) (3,998)
Proceeds from sales of loans 6,803 1,757
Purchases of premises and equipment (3,937) (6,090)
Other (496) (1,569)
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)INVESTING ACTIVITIES 100,624 (27,771)
- ----------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (121,897) 165
Net increase (decrease) in short-term borrowings 62,761 (53,822)
Proceeds from FHLB borrowings --- 131,000
Repayments of FHLB borrowings (10,792) (20,111)
Repayment of long-term debt (143) (170)
Acquisition of treasury stock (72,607) (20,291)
Cash dividends (14,134) (14,514)
Other 4,927 2,803
- ---------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (151,885) 25,060
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,215) 28,169
Cash and cash equivalents at beginning of
period 332,322 231,523
- ---------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $324,107 $259,692
- ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
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.
Operating results for the three-month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
For further information, refer to the audited consolidated financial statements,
footnotes thereto, and the Financial Review for the year ended December 31,
1998, as contained in the annual report to shareholders.
SPECIAL CHARGES EXPENSE
During the first quarter of 1999, Keystone recorded special charges totaling
$19.1 million. These charges consisted primarily of restructuring expenses of
$15.7 million directly related to Keystone's decision to unify its seven banks
under a single charter. The remaining charge consisted of $3.4 million of
expenses incurred during the first quarter that were associated with the
decision to unify the bank charters but were deemed not to meet the criteria for
classification as a restructuring expense.
Pursuant to the decision to unify its bank charters and modify its
organizational structure, Keystone initiated a formal restructuring plan which
provided for the involuntary termination of approximately 10% of its work force.
Under the provisions of the plan, management established formal benefit
arrangements for affected employees and communicated the specifics of such
arrangements to those employees during the first quarter of 1999. In addition to
the expenses associated with these benefit arrangements, Keystone also incurred
expenses associated with the consolidation of certain operations facilities,
lease termination expenses, facility closures, directors severance, legal
expenses and professional fees.
The following summarizes the restructuring expenses incurred and the remaining
balance in the restructuring accrual at March 31, 1999 (in thousands). The
remaining unpaid expenses are expected to be paid by December 31, 1999.
Initial Accrual Accrual at
March 31, 1999
- --------------------------------- ----------------- ----------------------
Employee termination $8,208 $5,495
Asset disposals/write-downs 4,094 ---
Professional fees 1,113 589
Other 2,320 2,136
-------------------------------- ---------------- -----------------------
Total restructuring costs $15,735 $8,220
-------------------------------- ---------------- -----------------------
CONTINGENCIES
Keystone and its subsidiaries are subject to various legal proceedings that
arise in the ordinary course of business. In late 1997, an investment advisor
not affiliated with Keystone ("investment advisor") was accused by the
Securities and Exchange Commission of defrauding its clients, which were
primarily school districts and municipalities, resulting in losses alleged to
approximate $70 million. A Keystone subsidiary had been previously engaged to
maintain custody of certain funds and investments of the unaffiliated investment
advisor. In an effort to recover the alleged losses, legal proceedings were
subsequently initiated by the court-appointed trustee for the investment advisor
and by its clients. These proceedings included individual and class actions
against Keystone, its subsidiaries, and some of its employees alleging that
these entities or individuals were responsible for, and contributed to, the
loss. Management is vigorously contesting these actions. The loss, if any, to
Keystone or its subsidiaries resulting from the actions cannot be reasonably
estimated at this time. Because of the complexity of these actions, it is
expected that final resolution of these matters will not occur for a number of
years.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Keystone Financial, Inc. (Keystone) is the fourth largest financial institution
headquartered in Pennsylvania. Keystone offers a wide-range of financial
products and services through its bank and specialized nonbank subsidiaries
located in Pennsylvania, Maryland, West Virginia and Delaware.
The purpose of this review is to provide additional information necessary to
fully understand the consolidated financial condition and results of operations
of Keystone. Throughout this review, net interest income and the yield on
earning assets are stated on a fully taxable-equivalent basis. Balances
represent average daily balances, unless otherwise indicated. In addition,
income statement comparisons are based on the first quarter of 1999 compared to
the first quarter of 1998 unless otherwise indicated.
Forward-Looking Statements
From time to time, Keystone has and will continue to make statements which may
include "forward-looking" information. Keystone cautions that "forward-looking"
information disseminated through financial presentations should not be construed
as guarantees of future performance. Furthermore, actual results may differ from
expectations contained in such "forward-looking" information as a result of
factors which are not predictable. Financial institution performance can be
affected by any number of factors, many of which are outside of management's
direct control. Examples include, but are not limited to, the effect of
prevailing economic conditions; the overall direction of government policies;
unforseen changes in the general interest rate environment; the actions and
policy directives of the Federal Reserve Board; competitive factors in the
marketplace, and business risk associated with the management of the credit
extension function and fiduciary activities. Each of these factors could affect
estimates, assumptions, uncertainties, and risks considered in the development
of "forward-looking" information, and could cause actual results to differ
materially from management's expectations regarding future performance.
SUMMARY OF FINANCIAL RESULTS
Keystone reported operating results for the first quarter of 1999, including
earnings per share of $0.17 and net income of $8.3 million. Results were
influenced by the impact of special charges which aggregated $19.1 million and
reduced diluted EPS and net income by $0.25 and $12.8 million, respectively.
Exclusive of the impact of the charges on operating results, ROA and ROE were
1.26% and 13.81%, respectively.
The special charges incurred during the quarter consisted primarily of employee
termination and fixed asset disposition costs associated with the unification of
Keystone's seven banks under a single charter and single name, Keystone
Financial Bank. Such charges were incurred in connection with Keystone's formal
restructuring plan which was implemented in order to streamline operations and
provide more effective delivery of financial products and services. Keystone is
expected to begin realizing the performance-related benefits of the plan
beginning in the second quarter of 1999. Such benefits are expected to
accelerate throughout the remainder of 1999 as various system conversions,
operation consolidations, and service delivery initiatives become fully
operational.
Core operating performance for the quarter included the impact of increased
competition on net interest margin and net interest income, an improving credit
quality picture resulting in lower provision expense, and continued strong
growth in fee-based revenue production.
Net interest margin for the first quarter dropped to 4.22%, from 4.43% in the
same quarter last year. Loan pricing continued to be highly competitive. In
addition, while growth occurred in core loan products, it was offset by runoff
from commodity products, particularly indirect automobile loans and leases.
Earning asset levels were also reduced to fund share repurchases during the
quarter. Revenue expansion opportunities will continue to require expanded
management focus, primarily through the organizational emphasis on three major
lines of business: commercial, retail, and asset management.
Noninterest revenues remained strong, including continuing momentum in asset
management and investment advisory fees. Sales of annuities and brokerage
services demonstrated particularly strong growth during the quarter. Mortgage
banking income benefited from continued high levels of originations.
While nonaccrual loans increased during the quarter due to a single commercial
credit, most measures of asset quality remained stable or reflected slight
improvement. Improvement was noted in consumer delinquencies and charge-offs
during the quarter. As a result, net charge-offs as a percent of average loans,
0.28%, declined substantially from 1998 levels.
During the first quarter, Keystone completed a three million share repurchase
program announced in late 1998 at a total cost of $107 million, and announced a
new authorization to acquire an additional one million shares.
<PAGE>
AVERAGE STATEMENT OF CONDITION
The average balance sheets for the three months ended March 31, 1999 and 1998
were as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Change
1999 1998 Volume %
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $182,718 $176,432 $6,286 4%
Federal funds sold and other 103,007 105,790 (2,783) (3)
Investments 1,749,994 1,572,899 177,095 11
Loans held for resale 81,314 52,536 28,778 55
Loans 4,444,509 4,670,305 (225,796) (5)
Allowance for credit losses (60,978) (65,068) 4,090 (6)
- ----------------------------------------------------------------------------------------
Net loans 4,383,531 4,605,237 (221,706) (5)
Intangible assets 59,853 61,884 (2,031) (3)
Other assets 226,585 223,928 2,657 1
- ----------------------------------------------------------------------------------------
TOTAL ASSETS $6,787,002 $6,798,706 $(11,704) ---%
- ----------------------------------------------------------------------------------------
Noninterest-bearing deposits $661,527 $ 615,563 $ 45,964 7%
Interest-bearing deposits 4,468,226 4,599,252 (131,026) (3)
Short-term borrowings 353,721 375,513 (21,792) (6)
FHLB borrowings 421,325 294,199 127,126 43
Other long-term debt 130,190 101,730 28,460 28
Other liabilities 138,410 125,270 13,140 10
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,173,399 6,111,527 61,872 1
- ----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 613,603 687,179 (73,576) (11)
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $6,787,002 $6,798,706 $(11,704) ---%
- ----------------------------------------------------------------------------------------
</TABLE>
Loan growth totaling $105 million or 2% occurred in the categories of
commercial, commercial real estate and consumer. This growth occurring in
Keystone's core products was offset by declines attributable to the run-off of
indirect loans and leases and sales of fixed-rate mortgages. As a result, total
loans decreased 5%. Average investments and FHLB borrowings increased during
1999 due to limited leveraged investment purchases. Increases in loans held for
resale are due to a higher volume of mortgage loan originations and the timing
of loan shipments.
While deposit products such as free checking, indexed money market accounts, and
variable-rate certificates of deposits reflected stable growth, total
interest-bearing deposits declined during the quarter.
The increase in other long-term debt is attributable to the issuance of $30
million of medium-term notes in the second quarter of 1998. The decline in
shareholders equity is attributable to share repurchase activity pursuant to
Keystone's capital management plan.
NET INTEREST INCOME
The following table summarizes, on a fully taxable equivalent basis, changes in
net interest income and net interest margin for the three months ended March 31,
1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Increase/
1999 1998 (Decrease)
Yield/ Yield/ Yield/
Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $122,647 7.77% $131,220 8.22% $(8,573) (0.45)
Interest expense 55,947 4.22 59,905 4.52 (3,958) (0.30)
----------------------------------------------------------------------------------------------
Net interest income $ 66,700 $ 71,315 $(4,615)
Interest spread 3.55% 3.70% (0.15)
Impact of noninterest funds 0.67 0.73 (0.06)
----------------------------------------------------------------------------------------------
Net interest margin 4.22% 4.43% (0.21)
----------------------------------------------------------------------------------------------
</TABLE>
Keystone's primary source of revenue is net interest income, which comprised 72%
of total revenue (excluding securities gains) for the first quarter of 1999. Net
interest income represents the difference between interest income on earning
assets and interest expense on deposits and other borrowed funds, and is heavily
dependent on the volume and composition of earning assets and interest bearing
liabilities as well as the yield or rate earned or paid on these earning assets
or funding sources.
Net interest income declined during the first quarter compared to the same
quarter last year, as the decline in asset yields outpaced the decline in
funding costs. As such, the net interest spread decreased 15 basis points and
the net interest margin decreased 21 basis points.
Interest income declined $8.6 million during the first quarter of 1999 and was
influenced by a decrease of approximately $23 million in earning assets. Share
repurchases and investments in bank-owned life insurance reduced earning assets
and therefore, interest income. In addition to a total decline in earning
assets, the composition of earning assets changed from the first quarter of 1998
to 1999. For example, in the first quarter of 1999, loans constituted 70% of
total earning assets, compared to 73% in 1998. The reduced mix of loans
occurring in commodity-based loan products contributed to the overall decline in
interest income. In addition, the overall yield on loans decreased 16 basis
points in the first quarter of 1999 compared to the same quarter in 1998 due in
part to a lower prime rate and continued pricing competition. Similarly, the
total yield on investments decreased in line with the general decline in overall
rates.
Interest expense also declined a total of $4 million, as interest bearing
liabilities increased slightly, but the total rate paid on such funding sources
decreased 30 basis points. The benefit of a lower interest rate environment on
funding costs was mitigated by an increased reliance on higher cost funding
sources such as FHLB borrowings and medium-term notes.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $2.7 million or 0.24% of average loans, when
annualized, for 1999, compared with $3.8 million or 0.33% of average loans for
1998. The reduced provision was responsive to a reduced level of charge-offs,
which were 0.28% of average loans for the first quarter of 1999, compared to
0.40% for the same period in 1998. The ratio of the allowance for credit
losses as a percent of loans outstanding remained constant at 1.36%.
NONINTEREST INCOME
Excluding securities gains from both periods, noninterest income increased $3
million or 13% in 1999 compared to the first quarter of 1998. Notable increases
occurred in fee income, mortgage banking revenue, and other income. Fee income
was favorably impacted by ATM surcharges, increased usage of the Keystone Visa
Check Card, and increased activity related to the processing of merchants'
credit card transactions. Mortgage banking income increased 30% due primarily to
a 22% increase in originations in 1999 compared with 1998. Other income
increased by 27% due to income earned on bank-owned life insurance purchased in
late 1998 and due to increased annuity sales volume.
NONINTEREST EXPENSES
During the first quarter of 1999, Keystone incurred previously announced special
charges primarily associated with the unification of its seven former banks
under a single charter. These charges included nonrecurring costs of $3.4
million and restructuring costs of $15.7 million which are described in greater
detail in the footnotes to the financial statements. Throughout the remainder of
1999, Keystone expects to incur additional expenses of approximately $5 million
associated with the conversion process. Such expenses are expected to consist
primarily of nonrecurring marketing expenses which will coincide with scheduled
bank conversions and related customer notifications.
Excluding special charges, total noninterest expense increased $1.6 million or
3% in the first quarter of 1999 compared to the same period in 1998. Salaries
declined slightly due to a reduction in FTEs. Late in the first quarter of 1999,
Keystone reduced its workforce by approximately 10% pursuant to its
restructuring plan. Expense reductions will accelerate throughout the remainder
of 1999 as other initiatives associated with the restructuring become fully
operational.
Employee benefits expense increased by 5% in 1999, primarily due to higher
healthcare and pension expense. Occupancy and equipment expense also
demonstrated increases of 5% and 6%, respectively. Such expenses were impacted
by delivery channel enhancements and Year 2000 compliant software upgrades.
Various components of these expense categories are also expected to be favorably
influenced by the organizational change.
Other expenses increased 7% or $1.2 million in the first quarter of 1999
compared to 1998. The increase occurred due to higher levels of activity in
processing merchant credit card transactions and reinsurance, both of which
demonstrated corresponding increases in revenue.
Year 2000
Keystone's formal plan to resolve issues attendant to the approach of the Y2K
consists of four major phases: inventory; assessment; distribution; and
implementation. The four phases of the plan are primarily being performed using
internal resources and are explained fully in Keystone's 1998 annual report to
its shareholders.
Keystone has completed the first three phases of its Y2K plan. The final, or
implementation phase includes installation, system testing and transition to a
production environment. Of the ten systems that Keystone identified as corporate
critical, all are in production, with eight complete. The remaining two require
minor additional testing; and will be completed in the second quarter of 1999.
It has been determined that all identified corporate critical replacement or
updated systems meet the standards necessary for Y2K readiness. The risk
associated with Y2K readiness, therefore, is primarily associated with the
implementation of these systems and can be remedied, if necessary, via standard
vendor support channels or by redirecting internal or external resources.
Keystone has no significant exposure due to non-IT components with embedded
technology. Management's current risk assessment is that should difficulties be
encountered with implementation, only minor delays in transaction processing or
information availability will occur. If delays in either transaction processing
or information availability would occur for extended periods for corporate
critical systems, or if timely modification could not be made, Y2K issues could
have a material effect on both customers and on the operations of Keystone. In a
worst case scenario, which management does not consider to be likely, Keystone
may be unable to clear checks, process payments, or obtain customer account
information. In addition, customers' access to funds could be delayed. Failure
to achieve Y2K readiness could also subject Keystone or its subsidiaries to
potential sanctions or directives from various regulatory agencies responsible
for supervisory oversight of financial institutions.
The impact of Year 2000 issues on Keystone will depend not only on steps taken
by Keystone to address and prevent potential Y2K problems but also on the way in
which Y2K issues are addressed by governmental agencies, businesses and other
third parties that provide services or data to, or receive services or data
from, Keystone, or whose financial condition or operational capability is
important to Keystone. Keystone is engaged in an effort to survey the readiness
of such third party suppliers, vendors, and major customers, and to date,
Keystone is not aware of any third party problems which would materially impact
Keystone's results of operations, liquidity or capital resources. However,
Keystone has no means to determine with absolute assurance that external parties
will by Y2K ready, or that such parties failure to be Y2K ready would not have a
material impact on Keystone.
Expenditures since the inception of the project have aggregated $6.2 million, of
which $3.3 million were capitalized. Throughout the remainder of 1999, Keystone
expects to spend an additional $1 million, of which $600,000 will be capitalized
and amortized over a three- to five-year period. All expenditures will be funded
through operating cash flows.
Keystone's estimate of costs and the time required to complete Y2K
modifications, as well as the assessment of readiness to deal with Y2K issues,
are based on forward-looking information and are dependent upon assumptions
regarding future events. There can be no guarantee that estimates of costs or
completion dates will be achieved or that all risk has been appropriately
identified and assessed. Specific factors that might cause differences include,
but are not limited to, the availability and cost of personnel, satisfactory Y2K
upgrade execution, the ability to identify all issues, and similar
uncertainties.
INCOME TAXES
Income tax expense for the first quarter of 1999 was $2.9 million, resulting in
an effective tax rate of 26%, compared to Keystone's effective tax rate of 31%
for calendar year 1998. The reduction is attributable to the restructuring
charges which reduced pre-tax income, and caused tax-free income to be a
disproportionately higher amount of pre-tax income. Excluding the impact of the
special charges on both noninterest expense and income tax expense, the
effective tax rate for the first quarter of 1999 was 30%.
ASSET QUALITY
Keystone's allowance for credit losses was $59.9 million or 1.36% of loans at
March 31, 1999, compared to 1.35% of loans at the end of 1998. Annualized net
charge-offs expressed as a percentage of average loans decreased from 0.40% for
the first quarter of 1998 to 0.28% in the same period of 1999. Consumer loan and
lease charge-offs declined in conjunction with Keystone's curtailment of
indirect lending activities in 1997.
The following table provides a comparative summary of the activity in the
allowance for credit losses for the three-month period ended March 31, 1999 and
1998(in thousands).
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
Allowance for Credit Losses:
Balance at beginning of period $60,274 $65,091
Commercial (773) (564)
Real estate secured (900) (576)
Consumer (1,888) (3,375)
Lease financing (146) (959)
- ------------------------------------------------------------------------
Total loans charged-off (3,707) (5,474)
- ------------------------------------------------------------------------
Recoveries:
Commercial 112 64
Real estate secured 306 425
Consumer 171 350
Lease financing 38 78
- ------------------------------------------------------------------------
Total recoveries 627 917
- -------------------------------------------------------------------------
Net loans charged-off (3,080) (4,557)
Provision for credit losses 2,663 3,757
- -------------------------------------------------------------------------
Balance at end of period $59,857 $64,291
- -------------------------------------------------------------------------
<PAGE>
The following table has been provided to compare nonperforming assets and total
risk elements at March 31, 1999 to the balances at the end of 1998, in both
absolute dollars and as a percentage of loans. This presentation is supplemented
by a comparison of various coverage ratios.
March 31, December 31,
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------
Nonaccrual loans $30,307 $24,675
Restructurings 431 264
Other real estate 3,677 3,982
- ------------------------------------------------------------------
Nonperforming assets 34,415 28,921
Loans 90 days or more past due 25,435 28,549
- ------------------------------------------------------------------
Total risk elements $59,850 $57,470
- ------------------------------------------------------------------
Ratio to period-end loans:*
Nonperforming assets .78% .65%
90-days past due .57 .64
- -----------------------------------------------------------------
Total risk elements 1.35% 1.29%
- -------------------------------------------------------------------------
Coverage Ratios:
Ending allowance to nonperforming loans 195% 242%
Ending allowance to risk elements** 107% 113%
Ending allowance to annualized
net charge-offs 4.8X 2.9X
- --------------------------------------------------------------------------
* The denominator consists of period-end loans and ORE.
**Excludes ORE.
Total risk elements expressed as a percent of loans increased slightly during
the first quarter of 1999 as a $5.5 million commercial loan was placed on
nonaccrual status. This increase was offset by a reduction in 90-days past due
category, primarily attributable to more favorable trends in consumer
delinquencies. As a result of the reduced consumer charge-offs during the
quarter, the coverage ratio of the ending allowance to annualized year-to-date
net charge-offs increased from 2.9x for calendar year 1998, to 4.8x for the
first quarter of 1999.
Management's determination of the adequacy of the allowance is based on periodic
evaluations of the loan portfolio and other relevant factors. This evaluation is
inherently subjective as it requires material estimates, including, but not
limited to, the amounts and timing of expected future cash flows or the fair
value of collateral on impaired loans; estimated losses on installment and
residential mortgage loans; and general amounts for historical loss experience,
economic conditions, known deterioration in certain classes of loans or
collateral, trends in delinquencies, uncertainties in estimating losses, and
inherent risks in the various portions of the loan portfolio, all of which may
be susceptible to significant change.
In determining the adequacy of the allowance for loan losses, management also
makes allocations to specific problem commercial loans or pools of loans with
consideration given to the above factors. While allocations are made to specific
loans and pools of loans, the allowance is available for all loan losses. Based
on its evaluation of loan quality, management believes that the allowance for
credit losses at March 31, 1999 was adequate to absorb potential losses within
the loan portfolio.
<PAGE>
CAPITAL MANAGEMENT
During the first quarter of 1999, Keystone purchased 2 million shares for
treasury at a total cost of $72.6 million, under a 3 million share repurchase
program announced in late 1998. Following completion of that plan, Keystone
announced a new plan to acquire up to 1 million additional shares.
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
---------------------------
March 31, December 31, Well Minimum
1999 1998 Capitalized Requirement
- ---------------------------------------------------------------------------
Leverage ratio 7.78% 8.66% 5.00% 4.00%
Tier 1 11.13% 12.59% 6.00% 4.00%
Total capital ratio 12.37% 13.84% 10.00% 8.00%
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Through March 31, 1999 there have been no material changes to the information on
this topic presented in the December 31, 1998 Annual Report.
<PAGE>
PART II.
ITEM 6(a) Exhibits:
Exhibit # Description
---------- -------------
3 Restated Articles of Incorporation
11 Statement Re Computation of Per Share Earnings
12 Statement Re Computation of Ratios
27 Financial Data Schedule
ITEM 6(b) Reports on Form 8-K:
During the quarter ended March 31, 1999, the registrant filed the following
reports on Form 8-K:
Date of Report Item Description
- --------------- ----- ---------------------------------------
January 19, 1999 5 Earnings release for the fourth quarter
and year ended December 31, 1998
March 26, 1999 5 Press release announcing share buyback plan
and dividend
<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: May 14, 1999
Mark L. Pulaski,
- -------------------------
President & Chief
Operating Officer
DATE: May 14, 1999
Donald F. Holt,
- -------------------------
Senior Vice President &
Chief Financial Officer
<PAGE>
-8-
As Amended Through May 19, 1997
RESTATED ARTICLES OF INCORPORATION
OF
KEYSTONE FINANCIAL, INC.
1. Corporate Name. The name of the Corporation is Keystone Financial, Inc.
2. Registered Office. The location and post office address of the
Corporation's registered office in this Commonwealth is One Keystone Plaza,
North Front and Market Streets, Harrisburg, Pennsylvania 17101.
3. Purposes. The purpose or purposes for which the Corporation is incorporated
are to engage in and do any lawful act concerning any or all lawful
business for which corporations may be incorporated under the Pennsylvania
Business Corporation Law.
4. Governing Statute. The Corporation is incorporated under the Pennsylvania
Business Corporation Law.
5. Term Of Existence. The term for which the Corporation is to exist is
perpetual.
6. Capital Stock. The aggregate number of shares which the Corporation shall
have authority to issue is 108,000,000, of which 8,000,000 shares shall be
Preferred Stock, par value $1.00 per share, issuable in one or more series,
and 100,000,000 shares shall be Common Stock, par value $2.00 per share.
The description of each such class of shares and a statement of the
authority hereby vested in the Board of Directors of the Corporation to
divide the Preferred Stock into series and to fix and determine the
designations, preferences, voting rights, qualifications, privileges,
limitations, options, conversion rights, restrictions and other special
or relative rights to be granted to or imposed upon the shares of each
class and series is as follows:
A. Preferred Stock. The Board of Directors is hereby expressly authorized,
at any time or from time to time, to divide any or all of the shares of the
Preferred Stock into one or more series, and in the resolution or resolutions
establishing a particular series, before issuance of any of the shares thereof,
to fix and determine the number of shares and the designation of such series, so
as to distinguish it from the shares of all other series and classes, and to fix
and determine the preferences, voting rights, qualifications, privileges,
limitations, options, conversion rights, restrictions and other special or
relative rights of the Preferred Stock or of such series, to the fullest extent
now or hereafter permitted by the laws of the Commonwealth of Pennsylvania,
including, but not limited to, variations between different series in the
following respects:
(a) the distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased or
decreased (but not below the number of shares thereof then
outstanding) from time to time by the Board of Directors;
(b) the annual dividend rate for such series, and the date or dates from
which dividends shall commence to accrue;
(c) the price or prices at which, and the terms and conditions on which,
the shares of such series may be made redeemable;
(d) the purchase or sinking fund provisions, if any, for the purchase or
redemption of shares of such series;
(e) the preferential amount or amounts payable upon shares of such series
in the event of the liquidation, dissolution or winding up of the
Corporation;
(f) the voting rights, if any, of shares of such series;
(g) the terms and conditions, if any, upon which shares of such series may
be converted and the class or classes or series of shares of the
Corporation into which such shares may be converted;
(h) the relative seniority, parity or junior rank of such series as to
dividends or assets with respect to any other classes or series of
stock then or thereafter to be issued; and
(i) such other terms, qualifications, privileges, limitations, options,
restrictions and special or relative rights and preferences, if any,
of shares of such series as the Board of Directors may, at the time of
such resolutions, lawfully fix and determine under the laws of the
Commonwealth of Pennsylvania.
Unless otherwise provided in a resolution establishing any particular
series, the aggregate number of authorized shares of Preferred Stock
may be increased by an amendment of the Articles approved solely by a
majority vote of the outstanding shares of Common Stock (or solely
with a lesser vote of the Common Stock, or solely by action of the
Board of Directors, if permitted by law at any time).
All shares of any one series shall be alike in every particular,
except with respect to the accrual of dividends prior to date of
issuance.
B. Common Stock. Except for and subject to those rights expressly granted
to holders of the Preferred Stock or any series thereof by resolution or
resolutions adopted by the Board of Directors pursuant to paragraph A of this
Article 6 and except as may be provided by the laws of the Commonwealth of
Pennsylvania, holders of the Common Stock shall have exclusively all other
rights of shareholders. All shares of Common Stock issued or to be issued shall
be alike in every particular.
7. 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.
(b) This Article 7 shall not apply to any action, suit or proceeding filed
prior to January 27, 1987, nor to any breach of performance of duty or any
failure of performance of duty by a director of the Corporation occurring
prior to January 27, 1987. The provisions of this Article shall be deemed
to be a contract with each director of the Corporation who serves as such
at any time while this Article is in effect, and each such director shall
be deemed to be so serving in reliance on the provisions of this Article.
Any amendment or repeal of this Article or adoption of any By-Law or other
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, By-Law or other provision.
8. Board Of Directors.
8.1. Number, Election, Etc. The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors comprised as
follows:
(a) Number. The Board of Directors shall consist of such number of
persons as may from time to time be fixed by the Board pursuant to a
resolution adopted by a majority vote of the Disinterested Directors
then in office, plus such number of additional directors as the
holders of any class or series of stock having a preference over the
Common Stock as to dividends or assets, voting separately as a class
or series, shall have the right from time to time to elect.
(b) Classes, Election and Terms. The directors elected by the holders
of Voting Stock shall be classified in respect of the time for which they
shall severally hold office by dividing them into three classes, 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 shall hold office
for the term for which elected and until his or her successor shall be
elected and shall qualify.
(c) Removal of Directors. Any director, any class of directors or the
entire Board of Directors may be removed from office by shareholder vote at
any time, without assigning any cause, but only if shareholders entitled to
cast at least 75% of the votes which all shareholders would be entitled to
cast at an annual election of directors or of such class of directors shall
vote in favor of such removal; provided, however, that the shareholders
shall have such power of removal without cause only if and so long as the
general corporate law of the Corporation's state of incorporation specifi-
cally mandates such power. If such power of removal without cause is not
mandated by statute, the shareholders may remove a director or directors
from office at any time only for cause and only if, in addition to any vote
required by any other provision of law, these Articles or the By-Laws of
the Corporation, such removal is approved by the affirmative vote of at
least a majority of the voting power of the outstanding shares of Voting
Stock of the Corporation which are not beneficially owned by an Interested
Shareholder.
(d) Vacancies. Vacancies in the members of the Board of Directors elected
by the holders of Voting Stock, including vacancies resulting from an
increase in the number of directors, shall be filled only by a majority
vote of the Disinterested Directors 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. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
(e) Nominations of Director Candidates. Nominations for the election of
directors may be made only by the Board of Directors or a committee
appointed by the Board of Directors or by any holder of record of stock
entitled to vote in the election of the directors to be elected; but a
nomination may be made by a shareholder only if written notice of such
nomination has been received by the Secretary of the Corporation not later
than 120 days in advance of the meeting at which the election is to be
held. Each such notice shall set forth: (1) the name and address of the
shareholder who intends to make the nomination and of the person or persons
to be nominated; (2) a representation that the shareholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (3) a description of all
arrangements or understandings between the shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the shareholder; (4)
such other information regarding each nominee proposed by such shareholder
as would be required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission, had the nominee
been nominated by the Board of Directors; and (5) the consent of each
nominee to serve as a director of the Corporation if so elected. Only
candidates who have been nominated in accordance with this Section 8.1(e)
shall be eligible for election by the shareholders as directors of the
Corporation.
8.2. Exception For Preferred Stock. Whenever the holders of any clas or
series of stock having a preference over the Common Stock of the Corporation
as to dividends or assets shall have the right, voting separately as a class or
series, to elect one or more directors of the Corporation or to take any other
action, none of the provisions of Section 8.1 shall apply with respect to the
director or directors elected or the action taken by the holders of such class
or series.
8.3. Authority To Amend By-Laws. The Board of Directors may adopt, amend
and repeal the By-Laws with respect to those matters which are not, by
statute, reserved exclusively to the shareholders, provided that such power may
be exercised only by a vote including a majority of the Disinterested Directors
then in office. No By-Law may be adopted, amended or repealed by the
shareholders unless, in addition to any other affirmative vote required by law,
these Articles or otherwise, such action is approved by the affirmative votes of
(a) the holders of at least 75% of the voting power of all then outstanding
shares of Voting Stock, voting together as a single class, and (b) the holders
of at least a majority of the voting power of the then outstanding shares of
Voting Stock which are not beneficially owned by an Interested Shareholder,
voting together as a single class; provided, however, that the additional
affirmative votes required by this Section 8.3 shall not apply to any
shareholder adoption, amendment or repeal of any By-Law provision if (a) such
action is recommended and submitted to the shareholders for their consideration
by the affirmative vote of a majority of the Disinterested Directors and (b) at
the time of such recommendation the Disinterested Directors constitute at least
a majority of the full Board of Directors, excluding any directors elected by
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or assets.
9. Vote Required For Certain Transactions.
9.1. Special Vote For Certain Transactions. In addition to any affirmative
vote required by law, these Articles or otherwise, and except as otherwise
expressly provided in Section 9.2:
(a) any merger, consolidation or share exchange of the Corporation or any
Subsidiary with (1) any Interested Shareholder or with (2) any other person
(whether or not itself an Interested Shareholder) which is, or after such
merger, consolidation or share exchange would be, an Affiliate or Associate
of an Interested Shareholder or which does not include in its articles of
incorporation the substance of the terms of this Article 9, in each case
without regard to which person is the surviving person;
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition or security arrangement, investment, loan, advance, guarantee,
agreement to purchase, agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a series of
transactions) to, with or for the benefit of any Interested Shareholder or
any Affiliate or Associate of any Interested Shareholder involving any
assets, securities or commitments of the Corporation or any Subsidiary
having an aggregate Fair Market Value and/or involving aggregate commit-
ments equal to 5% or more of Total Assets;
(c) the issuance or transfer by the Corporation or any Subsidiary to any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder (in one transaction or a series of transactions) of any secu-
ities of the Corporation or any Subsidiary having an aggregate Fair Market
Value equal to 5% or more of Total Assets;
(d) the adoption of any plan or proposal for the liquidation or dissolution
of the Corporation proposed by or on behalf of any Interested Shareholder
or any Affiliate or Associate of any Interested Shareholder;
(e) any reclassification of securities (including any reverse stock split),
or recapitalization of the Corporation, or any merger or consolidation of
the Corporation with any of its Subsidiaries or any other transaction
(whether or not with or into or otherwise involving an Interested Share-
holder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity
securities or securities convertible into equity securities of the Corpor-
ation or any Subsidiary which is directly or indirectly beneficially
owned by any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder; or
(f) any other transaction or series of transactions similar in
purpose or effect to, or any agreement, contract or other arrangement
providing for, any one or more of the transactions specified in the
foregoing subparagraphs (a) through (e); shall require the affirmative
votes of (i) the holders of at least 75% of the voting power of all
then outstanding shares of Voting Stock, voting together as a single
class, and (ii) the holders of at least a majority of the voting power
of the then outstanding shares of Voting Stock which are not
beneficially owned by such Interested Shareholder, voting together as a
single class. Such affirmative votes shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage may
be specified, by law or in any agreement with any national securities
exchange or otherwise.
9.2. Exception To Special Vote Requirements. The provisions of section
9.1 shall not be applicable to any transaction, and such transaction shall
require only such affirmative vote (if any) as is required by law, any other
provision of these Articles, any agreement with any national securities exchange
or otherwise, if the transaction shall have been approved by a majority of the
Disinterested Directors.
10. Definitions; Interpretation; Amendments.
10.1. Definitions. For The Purposes Of Articles 8, 9, 10 And 11 Of These
articles:
(a) A "person" shall mean any individual, firm, corporation, partnership,
joint venture, trust or other entity and shall include any group comprised
of any person and any other person with whom such person or any
Affiliate or Associate of such person has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring,
holding, voting or disposing of Voting Stock. As used herein, the pronouns
"which", "that" and "it" in relation to persons that are individuals
shall be construed to mean "who" or "whom", "he" or "she" and "him" or
"her", as appropriate.
(b) "Interested Shareholder" at any particular time shall mean any person
(other than the Corporation or a Subsidiary, or an employee benefit plan
of the Corporation or a Subsidiary, or a trustee or fiduciary of any
such plan when acting in such capacity) which:
(1) is at such time the beneficial owner, directly or
indirectly, of more than 20% of the voting power of the
outstanding Voting Stock;
(2) is at such time an Affiliate of the Corporation
and at any time within the two-year period immediately prior
to such time was the beneficial owner, directly or indirectly,
of more than 20% of the voting power of the then outstanding
Voting Stock; or
(3) is at such time an assignee of or has otherwise
succeeded to the beneficial ownership of any shares of Voting
Stock which were at any time within the two-year period
immediately prior to such time beneficially owned by any
Interested Shareholder, if such assignment or succession shall
have occurred in the course of a transaction or series of
transactions not involving a public offering within the
meaning of the Securities Act of 1933.
With respect to any particular transaction, the term "Interested
Shareholder" means any Interested Shareholder involved in such
transaction, any Affiliate or Associate of such Interested Shareholder
and any other member of a group acting in concert with such Interested
Shareholder.
(c) A person shall be a "beneficial owner" of any shares of Voting Stock:
(1) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
(2) which such person or any of its Affiliates or Asssociates
has (A) the right to acquire (whether or not such right is exercisable
immediately) pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants
or options, revocation of a trust, or otherwise, or (B) the right to vote,
or to direct the voting of, pursuant to any agreement, arrange-
ment or understanding; or
(3) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock. For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph (b) of this Section 10.1,
the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned by an Interested Shareholder through
application of this paragraph (c) but shall not include any other
shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise.
(d) An "Affiliate" of a specified person shall mean any person
which, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the person
specified.
(e) An "Associate" of a specified person shall mean (1) any
director, officer or partner of, or any beneficial owner, directly or
indirectly, of 5% or more of any class of equity security of, such
person or any of its Affiliates, (2) any corporation or organization
(other than the Corporation or a Subsidiary) of which such person is a
director, officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (3)
any trust or other estate (other than an employee benefit plan of the
Corporation or a Subsidiary) in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in
a similar fiduciary capacity, (4) any relative or spouse of such
person, or any relative of such spouse, who has the same home as such
person or who is a director or officer of the Corporation or any of its
parents or Subsidiaries and (5) any investment company registered under
the Investment Company Act of 1940 for which such person or any
Affiliate or Associate of such person serves as investment advisor.
(f) "Subsidiary" shall mean any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation, as well as any Affiliate of the
Corporation which is controlled by the Corporation; provided, however,
that for purposes of the definition of Interested Shareholder set forth
in paragraph (b) of this Section 10.1, the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity security
is owned, directly or indirectly, by the Corporation.
(g) "Disinterested Director" shall mean a director of the
Corporation who is not an Interested Shareholder or an Affiliate,
Associate or representative of an Interested Shareholder and either (1)
was a director of the Corporation immediately prior to the time the
Interested Shareholder became an Interested Shareholder or (2) is a
successor to a Disinterested Director and is recommended or elected to
succeed a Disinterested Director by a majority of the then
Disinterested Directors. Whenever the holders of any class or series of
stock having a preference over the Common Stock as to dividends or
assets shall have the right, voting separately as a class or series, to
elect one or more directors of the Corporation, the term "Disinterested
Director" shall not include any director elected by the holders of such
class or series. As used with respect to any particular transaction in
Article 9 or with respect to a determination or interpretation as to
such transaction under Section 10.1(h) or Section 10.2, the term
"Disinterested Director" shall include all directors who are
Disinterested Directors with respect to the Interested Shareholders
involved in such transaction. In all other cases, unless the context
otherwise clearly requires, the term "Disinterested Director" shall
mean only those directors who are Disinterested Directors with respect
to all persons who are then Interested Shareholders.
(h) "Fair Market Value" shall mean (1) in the case of stock,
the highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
consolidated transactions reporting system, or, if such stock is not
quoted on such system, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which
such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing sale price or, if none, the highest
closing bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotation System or
any similar system then in use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock
as determined in good faith by a majority vote of the Disinterested
Directors; and (2) in the case of property other than stock or cash,
the fair market value of such property on the date in question as
determined in good faith by a majority vote of the Disinterested
Directors or by a qualified appraiser retained by them for such
purpose.
(i) "Voting Stock" shall mean capital stock of the Corporation
entitled to vote generally in an annual election of directors of the
Corporation.
(j) "Total Assets" shall mean the consolidated total assets of
the Corporation and its consolidated subsidiaries as of the close of
the most recent fiscal quarter ended on or prior to the date of the
first public announcement of the transaction in question, as shown on
the consolidated balance sheet published by the Corporation for such
quarter.
(k) "Substantial Part" shall mean more than twenty percent of
the total consolidated assets of the Corporation, as shown on its
consolidated balance sheet as of the end of the most recent fiscal
year.
10.2. Powers Of The Disinterested Directors. The Disinterested Directors, by a
majority vote, are authorized to interpret all the terms and provisions of these
Articles and to determine, on the basis of information known to them after
reasonable inquiry, any fact necessary to determine compliance with any such
term or provision including, without limitation (a) whether a person is an
Interested Shareholder, (b) the number of shares of Voting Stock beneficially
owned by any person, (c) whether a person is an Affiliate or Associate of
another person, (d) whether any articles of incorporation provision required by
Section 9.1(a) complies with such Section and is valid and enforceable and (e)
whether the assets which are the subject of any transaction referred to in
Section 9.1(b) have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any transaction
referred to in Section 9.1(c) has, an aggregate Fair Market Value equal to 5% or
more of Total Assets. Any such interpretation or determination made in good
faith shall be binding and conclusive for all purposes of these Articles.
10.3. Amendment, Repeal, Etc. In addition to any affirmative vote required
by law, these Articles or otherwise, any amendment, alteration, change or
repeal of any provision of these Articles, or the adoption of any new
provision thereof, shall require the affirmative votes of (a) the holders of at
least 75% of the voting power of all then outstanding shares of Voting Stock,
voting together as a single class, and (b) the holders of at least a majority of
the voting power of the then outstanding shares of Voting Stock which are not
beneficially owned by any Interested Shareholder, voting together as a single
class; provided, however, that the additional affirmative votes required by this
Section 10.3 shall not apply to any amendment, alteration, change, repeal or
provision if (a) it is recommended and submitted to the shareholders for their
consideration by the affirmative vote of a majority of the Disinterested
Directors and (b) at the time of such recommendation the Disinterested Directors
constitute at least a majority of the full Board of Directors, excluding any
directors elected by the holders of any class or series of stock having a
preference over the Common Stock as to dividends or assets.
11. Consideration Of Other Factors. The Board of Directors of the Corporation,
when evaluating any proposal:
(a) involving a tender or exchange offer for any security of the
Corporation;
(b) to merge with or consolidate the Corporation with another corporation
or person; or
(c) to purchase or otherwise acquire all or a Substantial Part of the
properties or assets of the Corporation,
shall, in connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and its shareholders, give due
consideration to all relevant factors, including without limitation, the
economic effect, both immediate and long-term, upon the Corporation's
shareholders, including shareholders, if any, not to participate in the
transaction, the social and economic effects on the employees, suppliers and
customers of, and others dealing with, the Corporation or any of its
subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located. The definitions set forth in Section 10.1
of Article 10 of these Articles shall apply to this Article 11.
12. No Cumulative Voting. The shareholders shall not have the right of
cumulative voting.
Exhibit 11: Statement Re Computation of Per Share Earnings
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations (in thousands, except per
share data):
- -------------------------------------- -----------------------------------
Three Months Ended
March 31,
1999 1998
- -------------------------------------- ---------------- ------------------
Numerator - Net Income $ 8,315 $24,136
Denominators:
Basic shares outstanding 49,595 51,827
Dilutive option effect 519 730
- -------------------------------------- ---------------- ------------------
Dilutive shares outstanding 50,114 52,557
EPS:
Basic $0.17 $0.47
Diluted $0.17 $0.46
- -------------------------------------- ---------------- ------------------
Exhibit 12: Statement Re Computation of Ratios
Ratio of Earnings to Fixed Charges:
(in thousands)
- ------------------------------------------------------------------------
Three Months Ended
March 31,
1999 1998
- ------------------------------------------------------------------------
1. Income before taxes $11,214 $33,497
2. Fixed charges:
a. Interest expense $55,947 $59,905
b. Interest component of rent 670 697
expense
- ------------------------------------------------------------------------
c. Total fixed charges(line 2a.+ $56,617 $60,602
line 2b.)
d. Interest on deposits 43,989 49,217
- ------------------------------------------------------------------------
e. Fixed charges excluding interest
on deposits (line 2c.-line 2d.) $12,628 $11,385
- ------------------------------------------------------------------------
3. Income before taxes plus fixed charges:
a. Including interest on deposits
(line 1.+ line 2c.) $67,831 $ 94,099
b. Excluding interest on deposits
(line 1.+ line 2e.) $23,842 $44,882
- -----------------------------------------------------------------------
4. Ratio of earnings to fixed charges:
a. Including interest on deposits
(line 3a. divided by line 2c.) 1.20x 1.55x
b. Excluding interest on deposits
(line 3b. divided by line 2e.) 1.89x 3.94x
- -----------------------------------------------------------------------
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 201,407
<INT-BEARING-DEPOSITS> 5,441
<FED-FUNDS-SOLD> 122,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,090,437
<INVESTMENTS-CARRYING> 634,972
<INVESTMENTS-MARKET> 643,014
<LOANS> 4,413,283
<ALLOWANCE> 59,857
<TOTAL-ASSETS> 6,829,509
<DEPOSITS> 5,109,821
<SHORT-TERM> 437,806
<LIABILITIES-OTHER> 152,201
<LONG-TERM> 546,331
0
0
<COMMON> 103,346
<OTHER-SE> 480,004
<TOTAL-LIABILITIES-AND-EQUITY> 6,829,509
<INTEREST-LOAN> 92,342
<INTEREST-INVEST> 25,350
<INTEREST-OTHER> 2,885
<INTEREST-TOTAL> 120,577
<INTEREST-DEPOSIT> 43,989
<INTEREST-EXPENSE> 55,947
<INTEREST-INCOME-NET> 64,630
<LOAN-LOSSES> 2,663
<SECURITIES-GAINS> 425
<EXPENSE-OTHER> 76,834
<INCOME-PRETAX> 11,214
<INCOME-PRE-EXTRAORDINARY> 8,315
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,315
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<YIELD-ACTUAL> 3.55
<LOANS-NON> 30,307
<LOANS-PAST> 25,435
<LOANS-TROUBLED> 431
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 60,274
<CHARGE-OFFS> 3,707
<RECOVERIES> 627
<ALLOWANCE-CLOSE> 59,857
<ALLOWANCE-DOMESTIC> 59,857
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
