FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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): 48,516,000 as of July 31, 1999.
<PAGE>
KEYSTONE FINANCIAL, INC.
INDEX PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Condition - June 30, 1999
and December 31, 1998 3
Consolidated Statements of Income - Three months ended
June 30, 1999 and 1998, and six months ended June 30, 1999 and 1998 4
Consolidated Statements of Comprehensive Income - Three
months ended June 30, 1999 and 1998, and six months ended
June 30, 1999 and 1998 6
Consolidated Statements of Cash Flows - Six months ended
June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk 17
PART II. OTHER INFORMATION
Items 1,2,3, and 5 have been omitted since they are not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 6. Exhibits and Reports on Form 8-K 18
(a) Exhibits
(b) Reports on Form 8-K
Signatures 20
<PAGE>
PART I. ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION (in thousands, except share data)
- -------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- -------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------
Cash and due from banks $205,690 $190,622
Federal funds sold 122,900 141,700
Interest bearing deposits with banks 3,851 5,978
Investment securities available
for sale 983,166 1,129,753
Investment securities held to
maturity(fair values
1999-$625,855; 1998-$670,934) 629,046 659,536
Loans held for resale 91,965 76,423
Loans and leases 4,432,600 4,459,783
Allowance for credit losses (59,971) (60,274)
- -------------------------------------------------------------------------------
Net Loans 4,372,629 4,399,509
Premises and equipment 121,062 124,080
Other assets 218,188 240,626
- -------------------------------------------------------------------------------
TOTAL ASSETS $6,748,497 $6,968,227
- -------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------
Noninterest-bearing deposits $690,621 $710,161
Interest-bearing deposits 4,336,337 4,521,557
- -------------------------------------------------------------------------------
Total Deposits 5,026,958 5,231,718
Federal funds purchased and security
repurchase agreements 343,295 363,739
Other short-term borrowings 100,799 11,306
- -------------------------------------------------------------------------------
Total Short-Term Borrowings 444,094 375,045
FHLB borrowings 430,597 427,027
Long-term debt 129,955 130,239
Other liabilities 140,742 142,533
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 6,172,346 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
48,456,882 - 1999 and 51,448,335 - 1998 96,914 102,897
Surplus 161,347 162,350
Retained earnings 324,811 424,873
Deferred KSOP benefit expense (255) (553)
Treasury stock at cost - 1,013,600 shares-1998 --- (34,186)
Accumulated other comprehensive income (loss) (6,666) 6,284
- -------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 576,151 661,665
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,748,497 $6,968,227
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Three Months Ended
June 30,
1999 1998
- --------------------------------------------------------------------------------
INTEREST INCOME
- --------------------------------------------------------------------------------
Loans and fees on loans $ 92,378 $102,190
Investments - taxable 21,621 23,324
Investments - tax exempt 2,937 2,834
Federal funds sold & other 596 1,228
Loans held for resale 1,878 1,249
- --------------------------------------------------------------------------------
119,410 130,825
- --------------------------------------------------------------------------------
INTEREST EXPENSE
- --------------------------------------------------------------------------------
Deposits 42,892 48,661
Short-term borrowings 3,792 4,466
FHLB borrowings 5,651 5,453
Long-term debt 2,331 2,049
- --------------------------------------------------------------------------------
54,666 60,629
- --------------------------------------------------------------------------------
NET INTEREST INCOME 64,744 70,196
Provision for credit losses 3,950 6,679
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 60,794 63,517
- --------------------------------------------------------------------------------
NONINTEREST INCOME
- --------------------------------------------------------------------------------
Trust and investment advisory fees 7,326 6,364
Service charges on deposit accounts 4,458 4,545
Fee income 6,860 6,249
Mortgage banking income 3,479 3,526
Reinsurance income 1,045 795
Other income 5,487 2,500
Net gains - equity securities 11 5,330
Net gains - debt securities 9 52
- --------------------------------------------------------------------------------
28,675 29,361
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Salaries 21,952 24,362
Employee benefits 3,979 4,310
Occupancy expense (net) 4,494 4,283
Furniture and equipment expense 5,158 5,182
Special charges 650 ---
Other expense 17,813 17,331
- --------------------------------------------------------------------------------
54,046 55,468
- --------------------------------------------------------------------------------
Income before income taxes 35,423 37,410
Income tax expense 11,219 12,129
- --------------------------------------------------------------------------------
NET INCOME $24,204 $25,281
- --------------------------------------------------------------------------------
PER SHARE DATA
- --------------------------------------------------------------------------------
Net income:
Basic $0.49 $0.49
Diluted $0.49 $0.48
Dividends $0.29 $0.28
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Six Months Ended
June 30,
1999 1998
- --------------------------------------------------------------------------------
INTEREST INCOME
- --------------------------------------------------------------------------------
Loans and fees on loans $184,720 $204,063
Investments - taxable 44,256 45,100
Investments - tax exempt 5,652 5,763
Federal funds sold & other 1,867 2,667
Loans held for resale 3,492 2,291
- --------------------------------------------------------------------------------
239,987 259,884
- --------------------------------------------------------------------------------
INTEREST EXPENSE
- --------------------------------------------------------------------------------
Deposits 86,881 97,878
Short-term borrowings 7,505 9,021
FHLB borrowings 11,558 9,717
Long-term debt 4,669 3,918
- --------------------------------------------------------------------------------
110,613 120,534
- --------------------------------------------------------------------------------
NET INTEREST INCOME 129,374 139,350
Provision for credit losses 6,613 10,436
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 122,761 128,914
- --------------------------------------------------------------------------------
NONINTEREST INCOME
- --------------------------------------------------------------------------------
Trust and investment advisory fees 14,000 13,045
Service charges on deposit accounts 8,795 8,750
Fee income 13,119 11,559
Mortgage banking income 7,061 6,271
Reinsurance income 1,892 1,426
Other income 9,444 5,604
Net gains - equity securities 439 6,850
Net gains - debt securities 6 63
- --------------------------------------------------------------------------------
54,756 53,568
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Salaries 45,783 48,657
Employee benefits 9,602 9,655
Occupancy expense (net) 9,233 8,797
Furniture and equipment expense 10,528 10,254
Special charges 19,798 ---
Other expense 35,936 34,212
- --------------------------------------------------------------------------------
130,880 111,575
- --------------------------------------------------------------------------------
Income before income taxes 46,637 70,907
Income tax expense 14,118 21,490
- --------------------------------------------------------------------------------
NET INCOME $32,519 $49,417
- --------------------------------------------------------------------------------
PER SHARE DATA
- --------------------------------------------------------------------------------
Net income:
Basic $0.66 $0.96
Diluted $0.66 $0.94
Dividends $0.58 $0.56
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
- --------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended June 30,
1999 1998
- -------------------------------------------------- ----------------------- ----------------------
Before Net of Before Net of
Tax Tax Tax Tax
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Net Income $ 24,204 $25,281
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period (12,494) (8,121) 1,545 1,004
Less: Reclassification adjustment for gains
included in net income (20) (13) (5,382) (3,498)
- ------------------------------------------------- ----------- ------------ ------------ ---------
(8,134) (2,494)
- ------------------------------------------------- ----------- ------------ ------------ ---------
Comprehensive Income $16,070 $22,787
================================================= =========== ============ ============ =========
- ------------------------------------------------- ----------- ------------ ------------ ---------
Six Months Ended June 30,
1999 1998
- ------------------------------------------------- ----------- ------------ ------------ ---------
Before Net of Before Net of
Tax Tax Tax Tax
----------- ------------ ------------ ---------
Net Income $ 32,519 $49,417
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period (19,478) (12,661) 3,648 2,371
Less: Reclassification adjustment for gains
included in net income (445) (289) (6,913) (4,493)
- ------------------------------------------------- ----------- ------------ ------------ ---------
(12,950) (2,122)
- ------------------------------------------------- ----------- ------------ ------------ ---------
Comprehensive Income $19,569 $47,295
================================================= =========== ============ ============ =========
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
- --------------------------------------------------------------------------------
Six Months Ended
June 30,
1999 1998
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net Income $32,519 $49,417
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Provision for credit losses 6,613 10,436
Provision for depreciation & amortization 11,205 10,224
Deferred income taxes 118 590
Special charges accrual 5,013 (2,962)
Sale of loans held for resale 188,364 123,403
Origination of loans held for resale (240,540) (219,617)
Decrease in interest receivable 6,276 559
Increase in interest payable 1,329 7,295
Other 9,689 (7,895)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 20,586 (28,550)
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits with banks 2,127 864
Available for sale securities:
Sales 7,871 50,121
Maturities 779,283 521,476
Purchases (658,250) (614,757)
Held to maturity securities:
Maturities 78,013 109,914
Purchases (47,681) (174,234)
Net decrease in loans 52,615 159,875
Purchases of loans (5,378) (6,660)
Proceeds from sales of loans 10,078 3,661
Purchases of premises and equipment (4,918) (10,989)
Other (570) (6,975)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 213,190 32,296
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net decrease in deposits (204,760) (54,193)
Net increase(decrease)in short-term borrowings 69,049 (39,029)
Proceeds from FHLB borrowings 14,362 202,542
Repayments of FHLB borrowings (10,792) (71,189)
Issuance of long-term debt --- 30,000
Repayment of long-term debt (284) (629)
Acquisition of treasury stock (88,701) (40,411)
Cash dividends (28,323) (28,875)
Other 11,941 5,016
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (237,508) 3,232
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,732) 6,978
Cash and cash equivalents at beginning of period 332,322 231,523
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $328,590 $238,501
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<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.
Operating results for the six-month period ended June 30, 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
Special charges recognized during 1999 are primarily composed of restructuring
expenses related to Keystone's decision to unify its seven banks under a single
charter. Pursuant to this organizational change, Keystone initiated a formal
restructuring plan which provided for the involuntary termination of
approximately 15% 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.
Of the total $19.8 million of special charges recognized to date in 1999, $15.7
million consisted of a restructuring accrual recognized in the first quarter.
The remaining $4.1 million of expenses were associated with the bank unification
but did not meet the criteria for classification as a restructuring expense.
The following summarizes the components of the restructuring accrual and the
remaining balance at June 30, 1999 (in thousands). The majority of the remaining
unpaid expenses are expected to be paid by December 31, 1999.
Accrual at
Initial Accrual June 30, 1999
- ---------------------------------- ----------------- -----------------
Employee termination $8,208 $3,701
Asset disposals/write-downs 4,094 ---
Professional fees 1,113 120
Other 2,320 1,192
--------------------------------- ---------------- ------------------
Total restructuring costs $15,735 $5,013
--------------------------------- ---------------- ------------------
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.
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 results for the first six months of
1999 compared to the same period 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,
unforeseen changes in the general interest rate environment; the actions and
policy directives of the Federal Reserve Board; competitive factors in the
marketplace, and business risks 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
In the first full quarter of operations since initiating its restructuring
efforts, Keystone Financial, Inc. reported second quarter earnings of $24.2
million and diluted earnings per share of $0.49. These results, combined with
the impact of Keystone's capital management efforts, allowed Keystone to record
a return on average assets of 1.45% and a return on average equity of 17.19% for
the second quarter. During the first half of 1999, Keystone reflected special
charges of $19.8 million related to its restructuring efforts which served to
reduce diluted earnings per share by $0.25 in the first quarter and $0.01 in the
second quarter. Excluding these charges, diluted EPS for the second quarter
reached $0.50 versus $0.48 for the same quarter last year. Year-to-date diluted
earnings per share were $0.92 in 1999, down slightly from $0.94 for the first
six months of 1998.
Performance to date in 1999 has been influenced by declines in net interest
income associated with a lower earning asset base and reduced margin, growth in
noninterest income, and declining levels of overhead expenses.
Net interest income declined 7% in the first half of 1999 compared with the same
period in 1998, as earning assets declined 2%. Though commercial loan growth has
been strong, declines in various commodity loan products have made growth in
aggregate loan balances difficult. Declines in commodity loan products were
influenced by strategic decisions to either curtail activity or to sell
originated loans into the secondary market. Earning asset levels were also
adversely affected by share repurchase activity, which favorably influenced the
leverage of Keystone's capital base but simultaneously reduced earning assets to
provide liquidity for share acquisition. In addition to declining earning asset
levels, net interest income was also impacted by competitive pressures which
affected both loan pricing and the ability to grow deposits.
Excluding securities gains, noninterest revenues increased 16% from the first
half of 1998 to the same period in 1999. Growth continued to occur in trust and
investment advisory fees, electronic banking fees, mortgage banking revenue and
sales of financial products. Second quarter 1999 results also included the
benefit of a pension plan curtailment gain associated with the reduction in the
work force.
Excluding special charges associated with the restructuring, overhead expenses
declined slightly as a result of a 15% reduction in the number of full-time
equivalent employees from June 30, 1998 to June 30, 1999. The expense savings
are expected to escalate during the remainder of 1999 as various system
conversions, operations consolidations and service delivery initiatives occur.
Results for 1999 reflected a reduced provision for loan losses from the prior
year when higher levels of consumer charge-offs resulted in a higher provision.
Underlying asset quality measures at June 30 were comparable to December 31,
1998 measures.
Keystone repurchased an additional 500,000 treasury shares during the second
quarter of 1999, bringing the year to date total to 2.5 million. During the
second quarter, the 2.5 million shares, in addition to approximately one million
shares repurchased in 1998, were retired.
<PAGE>
AVERAGE STATEMENT OF CONDITION
The average balance sheets for the six months ended June 30, 1999 and 1998 were
as follows in thousands):
- --------------------------------------------------------------------------------
Change
1999 1998 Volume %
- --------------------------------------------------------------------------------
Cash and due from banks $194,045 $175,234 $18,811 11%
Federal funds sold and other 76,465 96,964 (20,499) (21)
Investments 1,707,870 1,624,132 83,738 5
Loans held for resale 86,863 57,725 29,138 50
Loans 4,431,406 4,658,522 (227,116) (5)
Allowance for credit losses (60,530) (64,608) 4,078 6
- --------------------------------------------------------------------------------
Net loans 4,370,876 4,593,914 (223,038) (5)
Intangible assets 58,803 61,853 (3,050) (5)
Other assets 245,538 227,986 17,552 8
- --------------------------------------------------------------------------------
TOTAL ASSETS $6,740,460 $6,837,808 $(97,348) (1)%
- --------------------------------------------------------------------------------
Noninterest-bearing deposits $ 672,219 $ 627,849 $ 44,370 7 %
Interest-bearing deposits 4,438,950 4,578,972 (140,022) (3)
Short-term borrowings 355,518 373,639 (18,121) (5)
FHLB borrowings 413,349 336,581 76,768 23
Other long-term debt 130,109 107,638 22,471 21
Other liabilities 141,330 129,996 11,334 9
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 6,151,475 6,154,675 (3,200) ---
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 588,985 683,133 (94,148) (14)
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $6,740,460 $6,837,808 $(97,348) (1)%
- --------------------------------------------------------------------------------
Loan growth totaling $103 million or 2% of total loans occurred in the
categories of commercial and commercial real estate. This growth was offset by
declines attributable to the run-off of indirect automobile 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 sales.
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 1999 as customers continued to invest
more in mutual funds, annuities, and the stock market.
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.
<PAGE>
NET INTEREST INCOME
The following table summarizes, on a fully taxable equivalent basis, changes in
net interest income and net interest margin for the six months ended June 30,
1999 and 1998 (in thousands):
- -------------------------------------------------------------------------------
Increase/
1999 1998 (Decrease)
Yield/ Yield/ Yield/
Amount Rate Amount Rate Amount Rate
- --------------------------------------------------------------------------------
Interest income $244,237 7.80% $264,226 8.26% $(19,989) (0.46)
Interest expense 110,613 4.18 120,534 4.50 (9,921) (0.32)
- --------------------------------------------------------------------------------
Net interest income $133,624 $143,692 $(10,068)
Interest spread 3.62% 3.76% (0.14)
Impact of noninterest funds 0.64 0.73 (0.09)
-------------------------------------------------------------------------------
Net interest margin 4.26% 4.49% (0.23)
-------------------------------------------------------------------------------
Keystone's primary source of revenue is net interest income, which constituted
71% of total revenue (excluding securities gains) year-to-date in 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 $10 million or 7% in 1999 compared to the same
period in 1998, as earning asset levels declined and the decline in asset yields
outpaced the decline in funding costs. As such, the net interest spread
decreased 14 basis points and the net interest margin decreased 23 basis points.
Interest income declined $20 million or 8% during 1999 and was influenced by a
decrease of approximately $134 million in earning assets. Share repurchases and
investments in bank-owned life insurance reduced earning assets and therefore,
interest income. In addition, the overall yield on loans decreased 43 basis
points in 1999 compared to 1998 due in part to a lower interest rates and
continued pricing competition. Similarly, the total yield on investments
decreased in line with the general decline in overall rates.
Interest expense experienced a decline of $10 million or 8%, as interest bearing
liabilities decreased slightly and the total rate paid on all funding sources
decreased 32 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 $6.6 million or 0.30% of average loans for
1999, compared with $10.4 million or 0.45% of average loans for 1998. The
reduced provision was responsive to a reduced level of net charge-offs, which
were 0.31% of average loans for 1999, compared to 0.55% for the same period in
1998. Results in 1998 were influenced by higher levels of charge-offs, primarily
in indirect loans and leases. The ratio of the allowance for credit losses as a
percent of loans outstanding at June 30 remained constant at 1.35%. Refer to the
asset quality section of this report for additional information related to the
allowance for credit losses.
NONINTEREST INCOME
Excluding securities gains from both periods, noninterest income increased $8
million or 16% in 1999 compared to 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 13% due primarily to a 16%
increase in originations in 1999 compared with 1998. Other income increased by
$4 million due to a combination of factors, including a pension curtailment
gain, income earned on bank-owned life insurance purchased in late 1998 and
increased annuity sales volume. The pension plan curtailment gain arose from
reductions in staffing associated with the recent restructuring.
NONINTEREST EXPENSES
During 1999, Keystone incurred special charges primarily associated with the
unification of its seven former banks under a single charter. These charges
amounted to $19.1 million in the first quarter and $650,000 in the second
quarter and 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 $3.9 million associated with the charter
unification 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 decreased slightly in 1999
compared to the same period in 1998. Salaries declined 6% as a 15% reduction in
FTEs was partially offset by merit increases and higher variable compensation
associated with record levels of mortgage originations and sales of financial
products. Salary expense reductions will accelerate throughout the remainder of
1999 as the impact of terminations occurring throughout the first half of the
year is fully reflected. While benefit expenses remained constant with 1998
performance, savings are expected to occur over the remainder of the year as
termination benefits cease.
Occupancy and furniture and equipment expense increased slightly during 1999 due
in part to 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 5% or $1.7 million in 1999 compared to 1998. The
increase was in part 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 Year
2000 (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
implementation phase includes installation, system testing and transition to a
production environment. The ten systems that Keystone identified as corporate
critical are complete with respect to the four phases of the plan.
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 be 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 $6.5 million, of
which $3.6 million were capitalized. Throughout the remainder of 1999, Keystone
expects to spend an additional $700,000, of which $400,000 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 1999 was $14.1 million, resulting in an effective tax
rate of 30%, comparable to Keystone's effective tax rate of 31% for calendar
year 1998.
ASSET QUALITY
Keystone's allowance for credit losses was $60.0 million or 1.35% of loans at
June 30, 1999, comparable to the ratio at the end of 1998. Annualized net
charge-offs expressed as a percentage of average loans decreased from 0.55% for
1998 to 0.31% 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.
<PAGE>
The following table provides a comparative summary of the activity in the
allowance for credit losses for the six-month periods ended June 30, 1999 and
1998(in thousands).
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
Allowance for Credit Losses:
Balance at beginning of period $60,274 $65,091
Loans charged-off:
Commercial (1,199) (938)
Real estate secured (1,477) (1,011)
Consumer (4,840) (8,934)
Lease financing (626) (3,775)
- ------------------------------------------------------------------------
Total loans charged-off (8,142) (14,658)
- ------------------------------------------------------------------------
Recoveries:
Commercial 146 141
Real estate secured 582 912
Consumer 420 700
Lease financing 78 155
- ------------------------------------------------------------------------
Total recoveries 1,226 1,908
- ------------------------------------------------------------------------
Net loans charged-off (6,916) (12,750)
Provision for credit losses 6,613 10,436
- ------------------------------------------------------------------------
Balance at end of period $59,971 $62,777
- ------------------------------------------------------------------------
<PAGE>
The following table has been provided to compare nonperforming assets and total
risk elements at June 30, 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.
June 30, December 31,
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Nonaccrual loans $28,177 $24,675
Restructurings 952 264
Other real estate 3,339 3,982
- --------------------------------------------------------------------------------
Nonperforming assets 32,468 28,921
Loans 90 days or more past due 24,757 28,549
- --------------------------------------------------------------------------------
Total risk elements $57,225 $57,470
- --------------------------------------------------------------------------------
Ratio to period-end loans:*
Nonperforming assets .73% .65%
90-days past due .56 .64
- --------------------------------------------------------------------------------
Total risk elements 1.29% 1.29%
- --------------------------------------------------------------------------------
Coverage Ratios:
Ending allowance to nonperforming loans 206% 242%
Ending allowance to risk elements** 111% 113%
Ending allowance to annualized
net charge-offs 4.3X 2.9X
- --------------------------------------------------------------------------------
* The denominator consists of period-end loans and ORE.
**Excludes ORE.
Total risk elements expressed as a percent of loans at June 30, 1999 was
consistent with year-end 1998 levels. The ratio of the allowance to
nonperforming loans declined slightly since December 31, 1998 as loans moved out
of the 90 days past due category into nonaccrual status. As a result of reduced
consumer charge-offs in 1999, the coverage ratio of the ending allowance to
annualized year-to-date net charge-offs increased from 2.9x for calendar year
1998, to 4.3x for the first half 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 June 30, 1999 was adequate to absorb potential losses within
the loan portfolio.
CAPITAL MANAGEMENT
During the first half of 1999, Keystone purchased 2.5 million shares for
treasury at a total cost of $88.7 million. Keystone currently has board approval
to purchase an additional 500,000 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
--------------------------
June 30, December 31, Well Minimum
1999 1998 Capitalized Requirement
- ---------------------------------------------------------------------------
Leverage ratio 7.93% 8.66% 5.00% 4.00%
Tier 1 11.38% 12.59% 6.00% 4.00%
Total capital ratio 12.63% 13.84% 10.00% 8.00%
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the information on this topic presented in the December 31, 1998 Annual
Report. Interest rate shock simulations prepared as of June 30, 1999, for the
ensuing 12- and 24-month periods have measured potential reductions in net
interest income at approximately 6%. While 6% is within Keystone's defined
tolerance level of 8% for the succeeding 24-month period, it is slightly above
Keystone's tolerance level of 5% for the succeeding 12-month period. Management
continues to monitor the interest rate risk exposure of the organization and
adjusts its market risk management programs as appropriate.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders was held on May 20, 1999. Proxies were
solicited by management pursuant to Regulation 14A under the Securities and
Exchange Act of 1934. A brief description of each matter voted upon and the
shareholder vote thereon was as follows:
Election of Directors:
For Withheld
- -----------------------------------------------------------------
A. Joseph Antanavage 37,402,055 1,761,968
Donald Devorris 37,385,133 1,778,889
Richard G. King 37,421,241 1,742,782
Uzal H. Martz, Jr. 37,416,401 1,747,601
Max A. Messenger 37,424,708 1,739,315
Don A. Rosini 37,423,823 1,740,199
F. Dale Schoeneman 37,423,242 1,740,781
The ratification of the appointment of Ernst & Young, LLP as independent
Auditors of the Corporation for 1999:
Shares in favor of the proposal 38,172,262
Shares against the proposal, and 668,711
Shares abstaining from voting 322,957
Shareholder Proposal 2A recommending the Board of Directors take necessary steps
to achieve a prompt sale or merger of the Corporation:
Shares in favor of the proposal 5,442,541
Shares against the proposal, and 29,466,406
Shares abstaining from voting 1,103,724
Shareholder Proposal 2B recommending to the Board that it take steps to remove
from the Corporation's Restated Articles of Incorporation and Bylaws provisions
previously approved by the shareholders in order to protect the Corporation and
its shareholders from hostile takeover abuse:
Shares in favor of the proposal 10,240,980
Shares against the proposal, and 24,626,444
Shares abstaining from voting 1,145,022
For further information concerning these matters, refer to the definitive proxy
statement dated April 9, 1999 in the registrant's file, which is incorporated
herein by reference.
ITEM 6(a) Exhibits
Exhibit # Description
---------- -------------------------------------------------------------
10 Keystone Financial, Inc. 1992 Director Fee Plan, as amended
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 June 30, 1999, the registrant filed the following
reports on Form 8-K:
Date of Report Item Description
- --------------- ----- ---------------------------------------
April 19, 1999 5 Earnings release for the first quarter
May 20, 1999 5 Press release announcing results of
shareholder proposals
<PAGE>
SIGNATURES
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
- -------------------------------------------------------------------------------
DATE: August 13, 1999
Mark L. Pulaski,
- ----------------------------
President & Chief
Operating Officer
DATE: August 13, 1999
Donald F. Holt,
- ----------------------------
Executive Vice President &
Chief Financial Officer
<PAGE>
-10-
1992 DIRECTOR FEE PLAN
(as amended through Amendment No. 4 adopted May 20, 1999)
SECTION 1
Purpose; Reservation of Shares
The purposes of the 1992 Director Fee Plan (the "Plan") are to provide
Directors (as hereinafter defined) of Keystone Financial, Inc. (the
"Corporation") and its Subsidiaries with payment alternatives for fees payable
for services as a member of a Board (as hereinafter defined) or any committee
thereof ("Director Fees") and to increase the identification of interests
between such Directors and the shareholders of the Corporation by providing
Directors the opportunity to elect to receive payment of Director Fees in shares
of Common Stock, par value $2.00 per share, of the Corporation ("Common Stock").
For purposes of the Plan, the term "Subsidiary" means any corporation in an
unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain. For each
calendar year, the aggregate number of shares of Common Stock which may be
issued under Current Stock Elections or credited to Deferred Stock Compensation
Accounts for subsequent issuance under the Plan is limited to 75,000 shares,
subject to adjustment and substitution as set forth in Section 5(b).
SECTION 2
Eligibility
Any Director of the Corporation or a Subsidiary who is separately
compensated for services on a Board or on any committee of a Board shall be
eligible to participate in the Plan. The term "Director" shall include, in
addition to actual Directors of the Corporation or a Subsidiary, individuals
holding the status of advisory directors (as that term is used in applicable
regulations of the Office of the Comptroller of the Currency) for a Subsidiary
and to whom the Corporation may refer as "consulting directors," "business
development directors," "non-bank board directors" or such other term as the
Corporation may deem appropriate. The term "Board" shall include, in addition to
the Board of Directors of the Corporation or a Subsidiary, any regional or
advisory Board of a Subsidiary to which the Corporation may refer as a "Business
Development Board," "Associate Board," "Regional Board" or such other term as
the Corporation may deem appropriate.
SECTION 3
Elections
(a) General. Each Director may elect to receive current payment of
Director Fees (on the date on which the Director Fees are payable) either in
cash or in shares of Common Stock. Each Director also may elect to defer payment
of Director Fees for a calendar year and to receive such deferred payment either
in cash or in shares of Common Stock. The election by a Director to receive
payment of Director Fees other than in cash on the date on which the Director
Fees are otherwise payable is made by filing with the Secretary of the
Corporation a Notice of Election in the form prescribed by the Corporation (an
"Election"). Director Fees earned at any time for which an Election is not
effective shall be paid in cash on the date when the Director Fees are otherwise
payable. Subject to the terms of the Plan, an Election may be changed, modified
or terminated by filing with the Secretary of the Corporation a new Notice of
Election, with respect to a change or modification, or a Notice of Termination
in the form prescribed by the Corporation, with respect to a termination. Any
Election shall terminate on the date a Director ceases to be a member of all
Boards. Any Notice of Election or Notice of Termination shall become irrevocable
when filed, except by the filing of a new Notice of Election or a Notice of
Termination which thereafter becomes effective in accordance with the provisions
of this Section 3. Notwithstanding the provisions set forth below regarding the
effective date of an Election, no Election filed which changes or modifies an
existing Election shall become effective until the existing Election is
terminated or modified by the new Election under the provisions set forth below.
(b) Current Stock Payment. Subject to the provisions of Sections 3(c)
and 3(d), an Election to receive payment of Director Fees in shares of Common
Stock on the date on which the Director Fees are payable (a "Current Stock
Election") shall be effective on the date on which the Notice of Election is
filed. The Current Stock Election may be terminated (i) by filing a Notice of
Termination, in which case the termination shall be effective on the date the
Notice of Termination is filed or (ii) by filing a Notice of Election changing
the method of payment, in which case the termination shall be effective when the
new Election becomes effective as provided in Section 3(c) or 3(d). During the
period a Current Stock Election is effective, all Director Fees payable shall be
paid by the issuance to the Director of a number of whole shares of Common Stock
equal to the Director Fees payable divided by the Fair Market Value of one share
of the Common Stock, as defined in Section 11 hereof, on the date on which such
Director Fees are payable. Any amount of Director Fees which is not paid in
Common Stock on the date otherwise payable because less than the Fair Market
Value of a whole share shall be accumulated in cash without interest and added
to the amount used in computing the number of shares of Common Stock issuable on
the next succeeding date on which Director Fees are payable under the Current
Stock Election. Any such accumulated fractional amount remaining as of the
effective date of any termination of a Current Stock Election or of the
termination of the Plan shall be paid to the Director in cash on the next
succeeding date on which Director Fees would have been payable to the Director
under the Current Stock Election. The Corporation shall issue share certificates
to the Director for the shares of Common Stock acquired or, if requested in
writing by the Director, the shares acquired shall be added to the Director's
account under the Corporation's Dividend Reinvestment Plan. As of the date on
which the Director Fees are payable in shares of Common Stock, the Director
shall be a shareholder of the Corporation with respect to such shares.
(c) Deferred Cash Payment. Subject to the next succeeding sentence, an
Election to defer the receipt of all or a portion of Director Fees and to
receive eventual payment of such Director Fees in cash (a "Cash Deferral
Election") shall be effective on January 1 of the year following the date on
which the Notice of Election is filed. A Cash Deferral Election shall be
effective on the date the Notice of Election is filed with respect to Director
Fees payable for any portion of a calendar year which remains at the time of a
person's initial election to the office of Director, or any subsequent
re-election if immediately prior thereto such person was not serving as a
Director, provided the Director files such Notice of Election within 30 days
subsequent to being elected or re-elected as a Director. If only a portion of
Director's Fees otherwise payable during a calendar year are deferred pursuant
to a Cash Deferral Election, the Director Fees deferred shall be the first
Director Fees paid during such year after the Cash Deferral Election becomes
effective up to the amount of the Director Fees subject to such Cash Deferral
Election, and any later Director Fees with respect to such calendar year shall
be paid to the Director currently in cash. A Cash Deferral Election may not be
modified or terminated with respect to Director Fees payable for the calendar
year or for any portion of a calendar year for which such Cash Deferral Election
is effective, and such Cash Deferral Election, unless modified or terminated by
filing a new Notice of Election or a Notice of Termination on or before December
31 immediately preceding the calendar year for which such modification or
termination is to be effective, shall be effective for and apply to Director
Fees payable with respect to each subsequent calendar year.
(d) Deferred Stock Payment. Subject to the next succeeding sentence, an
Election to defer the receipt of Director Fees and to receive eventual payment
of such Director Fees in shares of Common Stock (a "Stock Deferral Election")
shall be effective on January 1 of the year following the date on which the
Notice of Election is filed. A Stock Deferral Election shall be effective on the
date the Notice of Election is filed with respect to Director Fees payable for
any portion of a calendar year which remains at the time of a person's initial
election to the office of Director, or any subsequent re-election if immediately
prior thereto such person was not serving as a Director, provided the Director
files such Notice of Election within 30 days subsequent to being elected or
re-elected as a Director. A Stock Deferral Election shall apply to all Director
Fees otherwise payable while such Stock Deferral Election is effective. A Stock
Deferral Election may not be modified or terminated with respect to Director
Fees payable for the calendar year or for any portion of a calendar year for
which such Stock Deferral Election is effective. A Stock Deferral Election may
be modified or terminated with respect to future Director Fees payable, but such
modification or termination shall not be effective until January 1 of the year
following the date on which a new Notice of Election or a Notice of Termination
is filed. A Stock Deferral Election shall continue in effect until the effective
date of any modification or termination.
(e) Transition Provision. To the extent there is any inconsistency
between the provisions of the Plan as amended by Amendment No. 2 and a deferral
election or the time of payment provisions of the Plan prior to such Amendment
No. 2, with respect to deferrals of Director Fees for periods prior to January
1, 1994, the deferral election or prior Plan payment provisions shall control.
(f) Retainer Fees. Notwithstanding any other provision contained in
this Section 3, effective on the date provided in Section 3(f)(3), all retainer
fees payable to Directors who are members of the Board of Directors of the
Corporation or a Subsidiary for service in such capacity ("Retainer Fees")
shall, to the extent shares remain available for such purpose under Section 1,
be payable in shares of Common Stock on a current or deferred basis as provided
in this Section 3(f). As used in this Section 3(f), the term "Director" shall
include only persons who are actual members of the Board of Directors of the
Corporation or a Subsidiary and shall not include any consulting, business
development or similar directors.
(1) Current Payment. Unless a Retainer Deferral Election is
effective for a Director as provided in Section 3(f)(2) or as otherwise
provided in Section 3(f)(3), Retainer Fees shall be payable in the same
manner as if a Current Stock Election had been made and become effective
with respect to such Director Fees under Section 3(b).
(2) Deferred Payment. Subject to the next succeeding sentence,
an Election to defer the receipt of Retainer Fees and to receive
eventual payment of such Director Fees in shares of Common Stock (a
"Retainer Deferral Election") shall be effective on January 1 of the
year following the date on which the Notice of Election is filed. A
Retainer Deferral Election shall be effective on the date the Notice of
Election is filed with respect to Retainer Fees payable during any
portion of a calendar year which remains at the time of a person's
initial election to the office of Director or any subsequent
re-election, if immediately prior thereto such person was not eligible
to participate in the Plan, provided the Director files such Notice of
Election prior to or within 30 days subsequent to being elected or
re-elected as a Director. A Retainer Deferral Election shall apply to
all Retainer Fees otherwise payable while such Retainer Deferral
Election is effective, except that until January 1, 2000, a Retainer
Deferral Election filed on or before December 31, 1998 shall apply only
to Retainer Fees payable for services as a member of the Board of
Directors of the Corporation. A Retainer Deferral Election may not be
modified or terminated with respect to Retainer Fees payable for the
calendar year or for any portion of a calendar year for which such
Retainer Deferral Election is effective. A Retainer Deferral Election
may be modified or terminated with respect to future Retainer Fees
payable, but such modification or termination shall not be effective
until January 1 of the year following the date on which a new Notice of
Election or a Notice of Termination is filed. A Retainer Deferral
Election shall continue in effect until the effective date of any
modification or termination. For all purposes of the Plan other than
this Section 3, a Retainer Deferral Election shall be considered and
treated in the same manner as a Stock Deferral Election under Section
3(d).
(3) Effective Dates; Transition Provisions. This Section 3(f)
is effective for Retainer Fees for services as a Director of the
Corporation payable on or after May 16, 1995 and will be effective for
Retainer Fees for services as a Director of a Subsidiary payable on or
after May 20, 1999. The remaining provisions of this Section 3 and of
the Plan shall continue to apply to all Director Fees other than
Retainer Fees payable for services as a member of the Board of Directors
of the Corporation or a Subsidiary. When this Section 3(f) becomes
effective for a type of Retainer Fees and thereafter, all Elections
other than Retainer Deferral Elections shall be deemed automatically
modified to exclude such Retainer Fees, except that until January 1,
2000, a Stock Deferral Election filed on or before December 31, 1998
shall continue to apply to Retainer Fees payable for services as a
Director of a Subsidiary.
SECTION 4
Deferred Cash Compensation Account
(a) General. The amount of any Director Fees deferred in accordance
with a Cash Deferral Election shall be credited on the date on which such
Director Fees are otherwise payable to a deferred cash compensation account
maintained by the Corporation or a Subsidiary in the name of the Director (a
"Deferred Cash Compensation Account"). A separate Deferred Cash Compensation
Account shall be maintained for each calendar year for which a Director has
elected a different number of payment installments or as otherwise determined by
the Board of the Corporation.
(b) Adjustment for Earnings or Losses. The amount in the Director's
Deferred Cash Compensation Account shall be adjusted on a quarterly basis as of
the last day of each calendar quarter to reflect net earnings, gains or losses
for the quarter. The adjustment for earnings, gains or losses for each quarter
shall be equal to the amount determined under (1) or (2) below as follows:
(1) Moody's Long-Term Corporate Bond Rates. The total amount
determined by multiplying (A) one hundred and five percent (105%) of
the average of the Moody's Long-Term Corporate Bond Rates for the three
(3) months in the current calendar quarter divided by twelve, by (B)
the balance in the Director's Deferred Cash Compensation Account as of
the end of each month in the current quarter; or
(2) Deemed Investment Funds. The total amount determined by
multiplying the rate earned (positive or negative) by each fund
available under the Plan (taking into account earnings distributed and
share appreciation (gains) or depreciation (losses) on the value of
shares of the fund) for each month of the current calendar quarter by
the portion of the balance in the Director's Deferred Cash Compensation
Account as of the end of each such month, respectively, which is deemed
to be invested in the fund pursuant to paragraph (3) below. Subject to
elimination, modification or addition by the Corporation's Board of
Directors, the funds available under the Plan for the Director's
election of deemed investments pursuant to paragraph (3) below shall be
the same as the funds (other than the Keystone Stock Fund) which are
available from time to time for actual investment of participants'
contributions under the Corporation's 401(k) Savings Plan.
(3) Deemed Investment Elections.
(A) The Director shall designate, on a form
prescribed by the Corporation, the percentage, in ten percent
(10%) multiples (or such other percentage as permitted from
time to time by the Board of the Corporation), of the deferred
Director Fees that are to be deemed to be invested in the
available funds under paragraph (2) above, with the balance of
the deferred Director Fees to receive interest credit
according to paragraph (1) above. Said designation shall be
effective on a date specified by the Board of the Corporation
and remain in effect and apply to all subsequent deferred
Director Fees until changed as provided below.
(B) A Director may elect to change, on a calendar
quarter basis, the deemed investment election under paragraph
(A) above with respect to future deferred Director Fees among
one or more of the options then available by written notice to
the Secretary of the Corporation, on a form prescribed by the
Corporation (or by voice or other form of notice permitted by
the Corporation), at least 30 days before the first day of the
calendar quarter as of which the change is to be effective,
with such change to be effective for deferred Director Fees
credited to the Deferred Cash Compensation Account on or after
the effective date.
(C) A Director may elect to reallocate the balance of
his Deferred Cash Compensation Account, subject to limitations
imposed by the Board of the Corporation, on a calendar quarter
basis, in ten percent (10%) multiples (or such other
percentage as permitted from time to time by the Board of the
Corporation), among the deemed investment options then
available. A Director may make such an election by written
notice to the Secretary of the Corporation, on a form
prescribed by the Corporation (or by voice or other form of
notice permitted by the Corporation), at least 30 days before
the first day of the calendar quarter as of which the transfer
election is to be effective, with such transfer to be based on
the value of the Deferred Cash Compensation Account on the
last day of the preceding quarter.
(D) The election of deemed investments among the
options provided above shall be the sole responsibility of
each Director. The Corporation, the Subsidiaries, Directors,
and Board members are not authorized to make any
recommendation to any Director with respect to such election.
Each Director assumes all risk connected with any adjustment
to the value of his Deferred Cash Compensation Account.
Neither the Board, the Corporation, nor any Subsidiary in any
way guarantees against loss or depreciation.
(E) All payments from the Plan shall be made from the
portion of the Director's Deferred Cash Compensation Account
which is deemed to be invested in the Moody's Long-Term
Corporate Bond Rates first, the Fixed Income Fund next, the
Balanced Fund next, the Core Equity Fund next, the Aggressive
Equity Fund next, the Global Fund next, and last from all
other funds in the order established by the Board of the
Corporation.
(4) Other Options. In addition to, or in lieu of, the
investment options described above, other funds may be established from
time to time, as determined by the Corporation's Board of Directors,
and such Board may provide any other form of investment option it
determines to be advisable; provided, however, that such funds and
options shall be made available and communicated to all Directors on a
uniform basis.
(c) Manner of Payment. The balance of a Director's Deferred Cash
Compensation Account will be paid to the Director or, in the event of the
Director's death, to the Director's designated beneficiary, in accordance with
the Cash Deferral Election. A Director may elect at the time of filing of the
Notice of Election for a Cash Deferral Election to receive payment of the
Director Fees in annual installments rather than a lump sum, provided that the
payment period for installment payments shall not exceed ten years following the
Payment Commencement Date, as described in Section 6 hereof. The amount of any
installment shall be determined by multiplying (i) the balance in the Director's
Deferred Cash Compensation Account on the date of such installment by (ii) a
fraction, the numerator of which is one and the denominator of which is the
number of remaining unpaid installments. The balance of the Deferred Cash
Compensation Account shall be appropriately reduced on the date of payment to
the Director or the Director's designated beneficiary to reflect the installment
payments made hereunder. Amounts held pending distribution pursuant to this
Section 4(c) shall continue to be credited with the earnings, gains or losses on
a quarterly basis as described in Section 4(b) hereof. Notwithstanding the
provisions of any Cash Deferral Election, if the balance in any Deferred Cash
Compensation Account (including any separate Account maintained for a Director
as referred to in the second sentence of Section 4(a)) as of the Payment
Commencement Date is less than $5,000, the Corporation may in its discretion pay
the balance of the Account to the Director or the Director's designated
beneficiary in a single lump sum.
SECTION 5
Deferred Stock Compensation Account
(a) General. The amount of any Director Fees deferred in accordance
with a Stock Deferral Election shall be credited to a deferred stock
compensation account maintained by the Corporation or a Subsidiary in the name
of the Director (a "Deferred Stock Compensation Account"). A separate Deferred
Stock Compensation Account shall be maintained for each calendar year for which
a Director has elected a different number of payment installments or as
otherwise determined by the Board of the Corporation. On each date on which
Director Fees are otherwise payable and a Stock Deferral Election is effective
for a Director, the Director's Deferred Stock Compensation Account for that
calendar year shall be credited with a number of shares of Common Stock
(including fractional shares) equal to the Director Fees payable divided by the
Fair Market Value of one share of the Common Stock, as defined in Section 11
hereof, on the date on which such Director Fees are payable. If a dividend or
distribution is paid on the Common Stock in cash or property other than Common
Stock, on the date of payment of the dividend or distribution to holders of the
Common Stock each Deferred Stock Compensation Account shall be credited with a
number of shares of Common Stock (including fractional shares) equal to the
number of shares of Common Stock credited to such Account on the date fixed for
determining the shareholders entitled to receive such dividend or distribution
times the amount of the dividend or distribution paid per share of Common Stock
divided by the Fair Market Value of one share of the Common Stock, as defined in
Section 11 hereof, on the date on which the dividend or distribution is paid. If
the dividend or distribution is paid in property, the amount of the dividend or
distribution shall equal the fair market value of the property on the date on
which the dividend or distribution is paid. The Deferred Stock Compensation
Account of a Director shall be charged on the date of distribution with any
distribution of shares of Common Stock made to the Director from such Account
pursuant to Section 5(c) hereof.
(b) Adjustment and Substitution. The number of shares of Common Stock
credited to each Deferred Stock Compensation Account, and the number of shares
of Common Stock available for issuance or crediting under the Plan in each
calendar year in accordance with Section 1 hereof, shall be proportionately
adjusted to reflect any dividend or other distribution on the outstanding Common
Stock payable in shares of Common Stock or any split or consolidation of the
outstanding shares of Common Stock. If the outstanding Common Stock shall, in
whole or in part, be changed into or exchangeable for a different class or
classes of securities of the Corporation or securities of another corporation or
cash or property other than Common Stock, whether through reorganization,
reclassification, recapitalization, merger, consolidation or otherwise, the
Board of the Corporation shall adopt such amendments to the Plan as it deems
necessary to carry out the purposes of the Plan, including the continuing
deferral of any amount of any Deferred Stock Compensation Account.
(c) Manner of Payment. The balance of a Director's Deferred Stock
Compensation Account will be paid in shares of Common Stock to the Director or,
in the event of the Director's death, to the Director's designated beneficiary,
in accordance with the Stock Deferral Election. A Director may elect at the time
of filing of the Notice of Election for a Stock Deferral Election to receive
payment of the shares of Common Stock credited to the Director's Deferred Stock
Compensation Account in annual installments rather than a lump sum, provided
that the payment period for installment payments shall not exceed ten years
following the Payment Commencement Date as described in Section 6 hereof. The
number of shares of Common Stock distributed in each installment shall be
determined by multiplying (i) the number of shares of Common Stock in the
Deferred Stock Compensation Account on the date of payment of such installment,
by (ii) a fraction, the numerator of which is one and the denominator of which
is the number of remaining unpaid installments, and by rounding such result down
to the nearest whole number of shares. The balance of the number of shares of
Common Stock in the Deferred Stock Compensation Account shall be appropriately
reduced in accordance with Section 5(a) hereof to reflect the installment
payments made hereunder. Shares of Common Stock remaining in a Deferred Stock
Compensation Account pending distribution pursuant to this Section 5(c) shall
continue to be credited with respect to dividends or distributions paid on the
Common Stock pursuant to Section 5(a) hereof and shall be subject to adjustment
pursuant to Section 5(b) hereof. If a lump sum payment or the final installment
payment hereunder would result in the issuance of a fractional share of Common
Stock, such fractional share shall not be issued and cash in lieu of such
fractional share shall be paid to the Director based on the Fair Market Value of
a share of Common Stock, as defined in Section 11 hereof, on the date
immediately preceding the date of such payment. The Corporation shall issue
share certificates to the Director, or the Director's designated beneficiary,
for the shares of Common Stock distributed hereunder, or if requested in writing
by the Director, the shares to be distributed shall be added to the Director's
account under the Corporation's Dividend Reinvestment Plan. As of the date on
which the Director is entitled to receive payment of shares of Common Stock, a
Director shall be a shareholder of the Corporation with respect to such shares.
Notwithstanding the provisions of any Stock Deferral Election, if the Fair
Market Value of any Deferred Stock Compensation Account (including any separate
Account maintained for a Director as referred to in the second sentence of
Section 5(a)) as of the Payment Commencement Date is less than $5,000, the
Corporation may in its discretion pay the balance of the Account to the Director
or the Director's designated beneficiary in a single lump sum.
SECTION 6
Payment Commencement Date
Payment of amounts in a Deferred Cash Compensation Account or a
Deferred Stock Compensation Account shall commence on March 30 (or if March 30
is not a business day, on the first preceding business day) of the calendar year
following the calendar year during which the Director ceases to be a member of
all Boards for any reason, including death or disability.
SECTION 7
Beneficiary Designation
A Director may designate, in the Beneficiary Designation form
prescribed by the Corporation, any person to whom payments of cash or shares of
Common Stock are to be made if the Director dies before receiving payment of all
amounts due hereunder. A beneficiary designation will be effective only after
the signed beneficiary designation form is filed with the Secretary of the
Corporation while the Director is alive and will cancel all beneficiary
designations signed and filed earlier. If the Director fails to designate a
beneficiary, or if all designated beneficiaries of the Director die before the
Director or before complete payment of all amounts due hereunder, any remaining
unpaid amounts shall be paid in one lump sum to the estate of the last to die of
the Director or the Director's designated beneficiaries, if any.
SECTION 8
Non-Alienability of Benefits
Neither the Director nor any beneficiary designated by the Director
shall have the right to, directly or indirectly, alienate, assign, transfer,
pledge, anticipate or encumber (except by reason of death) any amount that is or
may be payable hereunder, nor shall any such amount be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of the Director or the Director's designated
beneficiary or to the debts, contracts, liabilities, engagements, or torts of
any Director or designated beneficiary, or transfer by operation of law in the
event of bankruptcy or insolvency of the Director or any beneficiary, or any
legal process.
SECTION 9
Nature of Deferred Accounts
Any Deferred Cash Compensation Account or Deferred Stock Compensation
Account and any cash fractional amount accumulated under Section 3(c) shall be
established and maintained only on the books and records of the Corporation or a
Subsidiary, and no assets or funds of the Corporation, a Subsidiary or the Plan
or shares of Common Stock of the Corporation shall be removed from the claims of
the Corporation's or a Subsidiary's general or judgment creditors or otherwise
made available until such amounts are actually payable to Directors or their
designated beneficiaries as provided herein. The Plan constitutes a mere promise
by the Corporation or a Subsidiary to make payments in the future. The Directors
and their designated beneficiaries shall have the status of, and their rights to
receive a payment of cash or shares of Common Stock under the Plan shall be no
greater than the rights of, general unsecured creditors of the Corporation or
the applicable Subsidiary. No person shall be entitled to any voting rights with
respect to shares credited to a Deferred Stock Compensation Account and not yet
payable to a Director or the Director's designated beneficiary. The Corporation
and Subsidiaries shall not be obligated under any circumstance to fund their
respective financial obligations under the Plan and the Plan is intended to
constitute an unfunded plan for tax purposes. However, the Corporation or any
Subsidiary may, in its discretion, set aside funds in a trust or other vehicle,
subject to the claims of its creditors, in order to assist it in meeting its
obligations under the Plan, if such arrangement will not cause the Plan to be
considered a funded deferred compensation plan under the Internal Revenue Code
of 1986, as amended, and provided, further, that any trust created by the
Corporation or a Subsidiary, and any assets held by such trust to assist the
Corporation or the Subsidiary in meeting its obligations under the Plan will
conform to the terms of the model trust, as described in Rev. Proc. 92-64,
1992-2 C.B. 422 or any successor.
SECTION 10
Administration of Plan; Hardship Withdrawal
Full power and authority to construe, interpret, and administer the
Plan shall be vested in the Board of the Corporation. Decisions of such Board
shall be final, conclusive, and binding upon all parties. Notwithstanding the
terms of a Cash Deferral Election or a Stock Deferral Election made by a
Director hereunder, the Board of the Corporation may, in its sole discretion,
permit the withdrawal of amounts credited to a Deferred Cash Compensation
Account or shares credited to a Deferred Stock Compensation Account with respect
to Director Fees previously payable, upon the request of a Director or the
Director's representative, or following the death of a Director upon the request
of a Director's beneficiary or such beneficiary's representative, if such Board
determines that the Director or the Director's beneficiary, as the case may be,
is confronted with an unforeseeable emergency. For this purpose, an
unforeseeable emergency is an unanticipated emergency caused by an event that is
beyond the control of the Director or the Director's beneficiary and that would
result in severe financial hardship to the Director or the Director's
beneficiary if an early hardship withdrawal were not permitted. The Director or
the Director's beneficiary shall provide to such Board such evidence as the
Board, in its discretion may require to demonstrate that such emergency exists
and financial hardship would occur if the withdrawal were not permitted. The
withdrawal shall be limited to the amount or to the number of shares, as the
case may be, necessary to meet the emergency. For purposes of the Plan, a
hardship shall be considered to constitute an immediate and unforeseen financial
hardship if the Director has an unexpected need for cash to pay for expenses
incurred by him or a member of his immediate family (spouse and/or natural or
adopted children) such as those arising from illness, casualty loss, or death.
Cash needs arising from foreseeable events, such as the purchase or building of
a house or education expenses will not be considered to be the result of an
unforeseeable financial emergency. Payment shall be made, as soon as practicable
after the Board of the Corporation approves the payment and determines the
amount of the payment or number of shares which shall be withdrawn, in a single
lump sum from the portion of the Deferred Cash Compensation Account or Deferred
Stock Compensation Account, as applicable, for calendar years beginning on or
after January 1, 1994 with the longest number of installment payments first, and
then from the portion of the same account representing calendar years beginning
prior to January 1, 1994 with the latest Payment Commencement Dates first, in
each case in accordance with Section 4(b)(3)(E) if the distribution is from the
Deferred Cash Compensation Account. No Director shall participate in any
decision of such Board regarding such Director's request for a withdrawal under
this Section 10.
SECTION 11
Fair Market Value
Fair market value of the Common Stock shall be the mean between the
following prices, as applicable, for the date as of which fair market value is
to be determined as quoted in The Wall Street Journal (or in such other reliable
publication as the Board of the Corporation or its delegate, in its discretion,
may determine to rely upon): (a) if the Common Stock is listed on the New York
Stock Exchange, the highest and lowest sales prices per share of the Common
Stock as quoted in the NYSE-Composite Transactions listing for such date, (b) if
the Common Stock is not listed on such exchange, the highest and lowest sales
prices per share of Common Stock for such date on (or on any composite index
including) the principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which the Common Stock is listed, or (c) if
the Common Stock is not listed on any such exchange, the highest and lowest
sales prices per share of the Common Stock for such date on the National
Association of Securities Dealers Automated Quotations System or any successor
system then in use ("NASDAQ"). If there are no such sale price quotations for
the date as of which fair market value is to be determined but there are such
sale price quotations within a reasonable period both before and after such
date, then fair market value shall be determined by taking a weighted average of
the means between the highest and lowest sales prices per share of the Common
Stock as so quoted on the nearest date before and the nearest date after the
date as of which fair market value is to be determined. The average should be
weighted inversely by the respective numbers of trading days between the selling
dates and the date as of which fair market value is to be determined. If there
are no such sale price quotations on or within a reasonable period both before
and after the date as of which fair market value is to be determined, then fair
market value of the Common Stock shall be the mean between the bona fide bid and
asked prices per share of Common Stock as so quoted for such date on NASDAQ, or
if none, the weighted average of the means between such bona fide bid and asked
prices on the nearest trading date before and the nearest trading date after the
date as of which fair market value is to be determined, if both such dates are
within a reasonable period. The average is to be determined in the manner
described above in this Section 11. If the fair market value of the Common Stock
cannot be determined on the basis previously set forth in this Section 11 on the
date as of which fair market value is to be determined, the Board of the
Corporation or its delegate shall in good faith determine the fair market value
of the Common Stock on such date. Fair market value shall be determined without
regard to any restriction other than a restriction which, by its terms, will
never lapse.
SECTION 12
Securities Laws; Issuance of Shares
The obligation of the Corporation to issue or credit shares of Common
Stock under the Plan shall be subject to (i) the effectiveness of a registration
statement under the Securities Act of 1933, as amended, with respect to such
shares, if deemed necessary or appropriate by counsel for the Corporation, (ii)
the condition that the shares shall have been listed (or authorized for listing
upon official notice of issuance) upon each stock exchange, if any, on which the
Common Stock shares may then be listed and (iii) all other applicable laws,
regulations, rules and orders which may then be in effect. If, on the date on
which any shares of Common Stock would be issued pursuant to a Current Stock
Election or credited to a Deferred Stock Compensation Account, sufficient shares
of Common Stock are not available under the Plan or the Corporation is not
obligated to issue shares pursuant to this Section 12, then no shares of Common
Stock shall be issued or credited but rather, in the case of a Current Stock
Election, cash shall be paid in payment of the Director Fees payable, and in the
case of a Deferred Stock Compensation Account, Director Fees and dividends which
would otherwise have been credited in shares of Common Stock shall be credited
in cash to a Deferred Cash Compensation Account in the name of the Director. The
Board of the Corporation shall adopt appropriate rules and regulations to carry
out the intent of the immediately preceding sentence if the need for such rules
and regulations arises.
SECTION 13
Governing Law
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
SECTION 14
Effective Date; Amendment and Termination
The Plan was adopted by the Board of Directors of the Corporation on
March 26, 1992 and became effective on May 14, 1992, the date of approval of the
Plan by the shareholders of the Corporation at its 1992 Annual Meeting. The
Board of Directors of the Corporation may amend or terminate the Plan at any
time, provided that no such amendment or termination shall adversely affect
rights with respect to amounts or shares then credited to any Deferred Cash
Compensation Account or Deferred Stock Compensation Account.
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 Six Months Ended
June 30, June 30,
- ---------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------- ---------- --------- ----------
Numerator $24,204 $25,281 $32,519 $49,417
Denominators:
Basic shares outstanding 48,559 51,429 49,074 51,627
Dilutive option effect 368 666 448 698
- ------------------------------------------- ---------- --------- ----------
Dilutive shares outstanding 48,927 52,095 49,522 52,325
- ------------------------------------------- ---------- --------- ----------
EPS:
Basic $0.49 $0.49 $0.66 $0.96
Diluted $0.49 $0.48 $0.66 $0.94
- ------------------------------------------- ---------- --------- ----------
Exhibit 12: Statement Re Computation of Ratios
Ratio of Earnings to Fixed Charges:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------- ----------------------
Three Months Ended Six Months Ended
(in thousands) June 30, June 30,
1999 1998 1999 1998
- ----------------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C>
1. Income before taxes $35,423 $37,410 $46,637 $70,907
2. Fixed charges:
a. Interest expense $54,666 $60,629 $110,613 $120,534
b. Interest component of rent expense 699 724 1,369 1,421
------------------------------------------------------------------------------------------
c. Total fixed charges (line 2a.+ line 2b.) 55,365 61,353 111,982 121,955
d. Interest on deposits 42,892 48,661 86,881 97,878
------------------------------------------------------------------------------------------
e. Fixed charges excluding interest
on deposits (line 2c.-line 2d.) $12,473 $12,692 $25,101 $24,077
------------------------------------------------------------------------------------------
3. Income before taxes plus fixed charges:
a. Including interest on deposits $90,788 $98,763 $158,619 $192,862
(line 1.+ line 2c.)
b. Excluding interest on deposits 47,896 50,102 71,738 94,984
(line 1.+ line 2e.)
------------------------------------------------------------------------------------------
4. Ratio of earnings to fixed charges:
a. Including interest on deposits
(line 3a. divided by line 2c.) 1.64x 1.61x 1.42x 1.58x
b. Excluding interest on deposits
(line 3b. divided by line 2e.) 3.84x 3.95x 2.86x 3.95x
------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the second
quarter 10-Q and is qualified in its entirety by reference to such 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 205,690
<INT-BEARING-DEPOSITS> 3,851
<FED-FUNDS-SOLD> 122,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 983,166
<INVESTMENTS-CARRYING> 629,046
<INVESTMENTS-MARKET> 625,855
<LOANS> 4,432,600
<ALLOWANCE> 59,971
<TOTAL-ASSETS> 6,748,497
<DEPOSITS> 5,026,958
<SHORT-TERM> 444,094
<LIABILITIES-OTHER> 140,742
<LONG-TERM> 560,552
0
0
<COMMON> 96,914
<OTHER-SE> 479,237
<TOTAL-LIABILITIES-AND-EQUITY> 6,748,497
<INTEREST-LOAN> 184,720
<INTEREST-INVEST> 49,908
<INTEREST-OTHER> 5,359
<INTEREST-TOTAL> 239,987
<INTEREST-DEPOSIT> 86,881
<INTEREST-EXPENSE> 110,613
<INTEREST-INCOME-NET> 129,374
<LOAN-LOSSES> 6,613
<SECURITIES-GAINS> 445
<EXPENSE-OTHER> 130,880
<INCOME-PRETAX> 46,637
<INCOME-PRE-EXTRAORDINARY> 32,519
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,519
<EPS-BASIC> .66
<EPS-DILUTED> .66
<YIELD-ACTUAL> 3.62
<LOANS-NON> 28,177
<LOANS-PAST> 24,757
<LOANS-TROUBLED> 952
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 60,274
<CHARGE-OFFS> 8,142
<RECOVERIES> 1,226
<ALLOWANCE-CLOSE> 59,971
<ALLOWANCE-DOMESTIC> 59,971
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
