-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GmllRWVam6lOGmKHdhS5pv05FiDkaarMOBJBaK9pL5qU0PNW17Itw60rFZouAj7+ k7HlV3ORXqc7zalq8LQkmA== 0000717809-97-000015.txt : 19970520 0000717809-97-000015.hdr.sgml : 19970520 ACCESSION NUMBER: 0000717809-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYSTONE FINANCIAL INC CENTRAL INDEX KEY: 0000717809 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 232289209 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11460 FILM NUMBER: 97608887 BUSINESS ADDRESS: STREET 1: ONE KEYSTONE PLZ - FRONT & MARKET STS STREET 2: P O BOX 3660 CITY: HARRISBURG STATE: PA ZIP: 17105-3660 BUSINESS PHONE: 7172331555 MAIL ADDRESS: STREET 1: ONE KEYSTONE PLZ STREET 2: PO BOX 3660 CITY: HARRISBURG STATE: PA ZIP: 171053660 FORMER COMPANY: FORMER CONFORMED NAME: NCB FINANCIAL CORP DATE OF NAME CHANGE: 19850115 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ____________to ______________ Commission File Number 0-11460 KEYSTONE FINANCIAL, INC. Pennsylvania 23-2289209 (State of Incorporation) (IRS Employer I.D. No.) ONE KEYSTONE PLAZA FRONT & MARKET STREETS P.O. BOX 3660 HARRISBURG, PA 17105-3660 (Address of principal executive offices) (717) 231-1555 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X or No_______ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock ($2 par value): 37,220,000 as of April 30, 1997. 1 KEYSTONE FINANCIAL, INC. INDEX PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Statements of Condition - March 31, 1997 and December 31, 1996 3 Consolidated Statements of Income - Three months ended March 31, 1997 and 1996 4 Consolidated Statements of Cash Flows - Three months ended March 31, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Items 1,2,3,4 and 5 have been omitted since they are not applicable to the registrant. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 14 (b) Reports on Form 8-K Signatures 15 2 CONSOLIDATED STATEMENTS OF CONDITION March 31, December 31, 1997 1996 - -------------------------------------------------------------------------------- ASSETS (in thousands) (UNAUDITED) (NOTE) - -------------------------------------------------------------------------------- Cash and due from banks $139,843 $167,403 Federal funds sold and other 101,230 78,354 Investment securities available for sale 655,986 856,380 Investment securities held to maturity(market values 1997-$373,829; 1996-$383,526) 374,655 379,958 Loans held for resale 281,165 51,225 Loans and leases 3,494,457 3,553,662 Allowance for credit losses (45,882) (45,016) - -------------------------------------------------------------------------------- Net Loans 3,448,575 3,508,646 Premises and equipment 75,735 74,407 Other assets 112,508 114,895 - -------------------------------------------------------------------------------- TOTAL ASSETS $5,189,697 $5,231,268 ================================================================================ LIABILITIES - -------------------------------------------------------------------------------- Noninterest-bearing deposits $501,670 $511,931 Interest-bearing deposits 3,578,410 3,585,180 - -------------------------------------------------------------------------------- Total Deposits 4,080,080 4,097,111 Fed Funds purchased and security repurchase agreements 246,781 299,895 Other short-term borrowings 26,029 26,175 - -------------------------------------------------------------------------------- Total Short-Term Borrowings 272,810 326,070 FHLB borrowings 239,261 205,929 Long-term debt 1,928 2,154 Other liabilities 104,370 92,697 - -------------------------------------------------------------------------------- TOTAL LIABILITIES 4,698,449 4,723,961 - -------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- Preferred stock; $1.00 par value, authorized 8,000,000 shares; none issued or outstanding --- --- Common stock: $2.00 par value, authorized 75,000,000; issued 38,357,448 - 1997 and 38,228,160 - 1996 76,715 76,456 Surplus 74,993 73,201 Retained earnings 375,610 368,172 Deferred KSOP benefit expense (1,125) (1,249) Treasury stock: 1,139,271 - 1997 and 320,000 - 1996 shares at cost (30,309) (8,186) Net unrealized securities losses, net of tax (4,636) (1,087) - -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 491,248 507,307 - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,189,697 $5,231,268 ================================================================================ Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying notes are an integral part of the consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) - -------------------------------------------------------------------------------- Three Months Ended March 31, 1997 1996 (unaudited) - -------------------------------------------------------------------------------- INTEREST INCOME - -------------------------------------------------------------------------------- Loans and fees on loans $77,705 $75,417 Investments - taxable 15,832 16,207 Investments - tax exempt 1,894 1,820 Federal funds sold & other 800 1,528 Loans held for resale 1,616 443 - -------------------------------------------------------------------------------- 97,847 95,415 - -------------------------------------------------------------------------------- INTEREST EXPENSE - -------------------------------------------------------------------------------- Deposits 38,507 37,223 Short-term borrowings 3,137 2,863 FHLB borrowings 3,183 2,642 Long-term debt 8 96 - -------------------------------------------------------------------------------- 44,835 42,824 - -------------------------------------------------------------------------------- NET INTEREST INCOME 53,012 52,591 Provision for credit losses 3,674 1,988 - -------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 49,338 50,603 - -------------------------------------------------------------------------------- NONINTEREST INCOME - -------------------------------------------------------------------------------- Trust and investment advisory fees 4,136 3,681 Service charges on deposit accounts 3,508 3,462 Fee income 4,086 3,309 Mortgage banking income 1,518 1,698 Other secondary market income 513 459 Reinsurance income 884 586 Other income 4,202 2,231 Net gains-equity securities --- 104 Net gains-debt securities 19 348 - -------------------------------------------------------------------------------- 18,866 15,878 NONINTEREST EXPENSE - -------------------------------------------------------------------------------- Salaries 18,426 16,971 Employee benefits 3,997 3,830 Occupancy expense (net) 3,489 3,488 Furniture and equipment expense 4,060 3,355 Other expense 13,748 13,853 - -------------------------------------------------------------------------------- 43,720 41,497 - -------------------------------------------------------------------------------- Income before income taxes 24,484 24,984 Income tax expense 7,355 8,127 - -------------------------------------------------------------------------------- NET INCOME $17,129 $16,857 - -------------------------------------------------------------------------------- PER SHARE DATA - -------------------------------------------------------------------------------- Net income $0.46 $0.44 Dividends $0.26 $0.24 Average number of shares outstanding 37,552,848 37,950,453 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited) Three Months Ended March 31, 1997 1996 (in thousands) - -------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income $17,129 $16,857 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 3,674 1,988 Provision for depreciation & amortization 3,586 3,198 Deferred income taxes 7,355 8,127 Sale of loans held for resale 16,463 45,018 Origination of loans held for resale (82,293) (61,933) Decrease in interest receivable 3,319 2,202 Increase (decrease)in interest payable 990 (115) Other 4,199 (1,812) - -------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES (25,578) 13,530 - -------------------------------------------------------------------------------- INVESTING ACTIVITIES: Net (increase)decrease in interest-earning deposits 15,714 (3,180) Available for sale securities: Sales 61,669 15,926 Maturities 237,534 373,586 Purchases (104,685) (343,305) Held to maturity securities: Maturities 6,845 63,415 Purchases (1,606) (47,986) Net (increase) decrease in loans (112,482) 7,940 Proceeds from sales of loans 4,837 23,177 Purchases of premises and equipment (4,975) (2,689) Other 580 (403) - -------------------------------------------------------------------------------- NET CASH PROVIDED BY INVESTING ACTIVITIES 103,431 86,481 - -------------------------------------------------------------------------------- FINANCING ACTIVITIES: Net decrease in deposits (17,031) (71,509) Net decrease in short-term borrowings (53,260) (46,496) Proceeds from FHLB borrowings 137,952 26,069 Repayments of FHLB borrowings (104,620) ( 19,621) Net decrease in long-term debt (226) (448) Acquisition of treasury stock (22,123) --- Cash dividends (9,691) (10,685) Other 2,176 1,653 - -------------------------------------------------------------------------------- NET CASH USED BY FINANCING ACTIVITIES (66,823) (121,037) - -------------------------------------------------------------------------------- INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS 11,030 (21,026) Cash and cash equivalents at beginning of period 209,203 258,659 - -------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $220,233 $237,633 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements. 5 Notes To Consolidated Financial Statements BASIS OF PRESENTATION - --------------------- The accompanying unaudited consolidated financial statements for the interim periods do not include all of the information and footnotes required by generally accepted accounting principles. However, in the opinion of management, all adjustments necessary for a fair presentation have been included, and such adjustments were of a normal recurring nature. Operating results for the three-month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for 1997. For further information, refer to the audited consolidated financial statements, footnotes thereto, and the Financial Review for the year ended December 31, 1996, as contained in the Annual Report to Shareholders. NEW ACCOUNTING PRONOUNCEMENTS - ----------------------------- Various provisions of Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" became effective for transactions occurring in 1997. Adoption of the provisions of this statement, which provides new accounting and reporting standards for sales, securiti- zations, and servicing of receivables and other financial assets, for certain secured borrowing and collateral transactions, and for extinguishments of liabilities, did not have a significant impact on Keystone's financial condition or results of operations. During the first quarter of 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, "Earnings per Share", which will be effective for reporting periods ending after December 15, 1997. This statement will require disclosure of both basic and diluted earnings per share. The statement will require restatement of all prior period earnings per share data pre- sented. This standard, if implemented, would not have significantly impacted reported earnings per share amounts for the first quarter of 1997 and is not expected to have a significant impact on Keystone's historical or future earnings per share amounts. RECENTLY APPROVED ACQUISITIONS - ------------------------------ On May 8, 1997 the shareholders of First Financial Corporation of Western Maryland (FFWM) approved Keystone's acquisition of FFWM. Keystone's acquisition of Financial Trust Corp. (FTC) was approved by FTC shareholders on May 7, 1997, and by Keystone shareholders on May 8, 1997. Both transactions are expected to be completed in the second quarter of 1997. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS - ------------------------------------ The purpose of this review is to provide additional information necessary to fully understand the consolidated financial condition and results of operations of Keystone Financial, Inc. (Keystone). Throughout this review, net interest income and the yield on earning assets are stated on a fully taxable-equivalent basis. In addition, balances represent daily average balances, unless otherwise indicated. SUMMARY - ------- Keystone recorded improved financial performance in the first quarter of 1997, as net income reached $17,129,000 and earnings per share grew to $0.46. This performance reflected increases from first quarter 1996 net income of $16,857,000 and earnings per share of $0.44. Growth in earnings per share was 4.5% in the first quarter as return on average assets (ROA) and return on average equity (ROE) in 1997 were 1.34% and 13.91%, respectively, virtually constant with first quarter 1996 measures. Performance in 1997 has been affected by stable net interest income, continued improvement in noninterest income, and controlled growth in overhead expenses. Interest income grew nearly 3% and was bolstered by loan growth of approximately 6.4%, including increases in commercial real estate and consumer credit. The improvement in interest income performance was attributable to higher loan volumes but was partially offset by higher funding costs, including the higher costs of deposit products with interest rates comparable to alternative investment offerings with similar risk characteristics. Noninterest revenues continued to be influenced by the strength of the improving level of trust and investment management fees which grew 12% from the first quarter of 1996. Performance was also aided by higher levels of ATM fees and a $2,500,000 gain from the sale of community offices pursuant to Keystone's office reconfiguration strategy. Overhead expenses grew 5.4% due to the impact of a slight increase in full-time equivalent employees and Keystone's efforts to provide market competitive compensation. Keystone was also able to improve the allowance to loans ratio to 1.31% from 1.27% at the end of 1996. The loan loss provision, which grew to $3,674,000 in 1997 from $1,988,000 in the first quarter of 1996, was responsive to increased loan growth and higher charge-off levels. Keystone continued to manage its capital base through acquisition of treasury shares as authorized by its Board of Directors. Shares totaling approximately 1.1 million have been acquired through March 31, 1997, pursuant to this authorization. 7 AVERAGE STATEMENT OF CONDITION - ------------------------------- The average balance sheets for the three-months ended March 31, 1997 and 1996 were as follows (in thousands): Change 1997 1996 Volume % - ------------------------------------------------------------------------------- Cash and due from banks $146,113 $143,239 $2,874 2% Federal funds sold and other 57,771 114,703 (56,932) (50) Investments 1,153,485 1,193,590 (40,105) ( 3) Loans held for resale 73,186 21,052 52,134 248 Loans 3,608,887 3,392,181 216,706 6 Allowance for credit losses (45,429) (45,101) (328) 1 - ------------------------------------------------------------------------------- Net loans 3,563,458 3,347,080 216,378 6 Other assets 179,987 163,939 16,048 10 - ------------------------------------------------------------------------------- TOTAL ASSETS $5,174,000 $4,983,603 $190,397 4% - ------------------------------------------------------------------------------- Noninterest-bearing deposits $485,216 $486,975 ($1,759) -% Interest-bearing deposits 3,579,027 3,502,319 76,708 2 Short-term borrowings 290,358 261,202 29,156 11 FHLB borrowings 215,862 167,145 48,717 29 Other liabilities 104,260 83,730 20,530 25 - ------------------------------------------------------------------------------- TOTAL LIABILITIES 4,674,723 4,501,371 173,352 4 - ------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY 499,277 482,232 17,045 4 - ------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,174,000 $4,983,603 $190,397 4% - ------------------------------------------------------------------------------- Substantive loan growth occurred during the quarter in consumer leases, commercial loans, and dealer floor plan financings. The growth was funded by a combination of maturing investments, deposit growth, and increased borrowings. The growth that occurred in deposits was offset, to some degree, by branch sales occurring during the quarter. 8 NET INTEREST INCOME - ------------------- The following table summarizes, on a fully taxable equivalent basis, changes in net interest income and net interest margin for the quarter ended March 31, 1997 and 1996 (in thousands):
Increase/ 1997 1996 (Decrease) YIELD/ YIELD/ YIELD/ AMOUNT RATE AMOUNT RATE AMOUNT RATE - ----------------------------------------------------------------------------------------- Interest income $99,119 8.18% $96,614 8.21% $2,505 (0.03) Interest expense 44,835 4.45% 42,824 4.38% 2,011 0.07 - ----------------------------------------------------------------------------------------- Net interest income $54,284 $53,790 $494 Interest spread 3.73% 3.83% (0.10) Impact of noninterest funds 0.73% 0.73% -- - ----------------------------------------------------------------------------------------- Net interest margin 4.46% 4.56% (0.10) - ----------------------------------------------------------------------------------------- *The change in net interest income consisted primarily of favorable volume variances.
Keystone's primary source of revenue is net interest income, which represents the difference between interest income on earning assets and interest expense on deposits and other borrowed funds. Competitive pricing pressures both reduced earning asset yields and increased funding costs from 1996. Interest income grew 2.6% during the first quarter of 1997 compared to the same quarter in 1996, while the yield on earning assets, influenced by competitive pressures, declined three basis points. Loan growth was primarily responsible for the increase in interest income and occurred primarily in consumer leases, commercial loans and dealer floor plan financings. Interest expense increased 4.7% during the first quarter of 1997 compared to 1996, due primarily to a seven basis point increase in the cost of funds. Customers continued to move deposits from transaction accounts to higher cost time deposits such as the variable rate CD. Funding trends during the quarter included increases in higher cost short-term and FHLB borrowings. The decline in earning asset yields and higher funding costs narrowed the spread ten basis points from 3.83% for the first quarter of 1996 to 3.73% for the same quarter of 1997. The net interest margin declined a similar amount, from 4.56% to 4.46%, as the impact of noninterest funds remained stable. PROVISION FOR CREDIT LOSSES - --------------------------- The provision for credit losses increased $1,686,000 or 84.8% in the first quarter of 1997 compared to 1996, and was influenced by both a 6.4% increase in average loans and a 35.1% increase in net charge-offs from the first quarter of 1996 to the same quarter in 1997. Consistent with the trend occurring throughout much of the industry, Keystone experienced higher consumer loan charge-offs towards the end of 1996 and during the first quarter of 1997. 9 NONINTEREST INCOME - -------------------- Total noninterest income increased $2,988,000 or 18.8% from the first quarter of 1996 to the same quarter of 1997. Growth of 12.4% occurred in trust and investment advisory fees, as assets under management increased 7%. Fee income, which was benefitted by the ATM machines added through the contract with Sheetz convenience stores, increased $777,000 or 23.5%. Pursuant to Keystone's office reconfiguration strategy, community offices were sold in the first quarter of 1997 which contributed approximately $2,500,000 to other income. First quarter 1996 results had benefitted from a $2,000,000 gain recognized on the sale of the credit card portfolio. Excluding these gains in both 1997 and 1996, other income increased approximately $1,500,000 primarily from increased sales of annuity products through Key Investor Services. NONINTEREST EXPENSES - -------------------- Growth in noninterest expenses totaled $2,223,000 or 5.4% from the first quarter of 1996 to the same period in 1997. Over half of the increase occurred in salary expense, which increased 8.6%, and was impacted by merit increases, the implementation of an integrated performance-based compensation program, and a 2% increase in employees added for the KeyCall phone center and Key Investor Services. Furniture and equipment expense, which increased 21% in the first quarter of 1997, was impacted by equipment maintenance and rent on the ATM machines added through the contract with Sheetz. In addition, continued technological investments in fixed assets, including purchases to start up KeyCall, resulted in higher levels of depreciation expense in the first quarter of 1997 compared to the same quarter in 1996. Although other expense for the first quarter of 1997 remained comparable to 1996, prior year amounts included various nonrecurring expense accruals. Absent these accruals, other expense grew approximately 11%. Increases were attributable to expenses directly associated with revenue expansion opportunities including marketing, telephone, reinsurance and merchant card expenses. ASSET QUALITY - ------------- Keystone's allowance for credit losses totaled $45,882,000 at March 31, 1997 compared to an allowance of $45,016,000 at the end of 1996. The increase in the provision for credit losses in the first quarter of 1997 resulted in a ratio of the allowance for credit losses to loans of 1.31%, slightly improved from the year-end 1996 ratio. The ratio of annualized net charge offs to loans of 0.32% for the first quarter of 1997, while higher than the ratio of 0.25% for the first quarter of 1996, reflected slight improvement from the final quarter of 1997. Refer to the Provision for Credit Losses section for additional information. 10 The following table provides a comparative summary of the activity in the allowance for credit losses for the three-month periods ended March 31, 1997 and 1996. 1997 1996 - ------------------------------------------------------------------------ Allowance for Credit Losses: Balance at beginning of period $45,016 $44,377 Loans charged-off: Commercial (318) (218) Real estate secured (555) (563) Consumer (2,101) (1,706) Lease Financing (429) (269) - ------------------------------------------------------------------------ Total loans charged-off (3,403) (2,756) - ------------------------------------------------------------------------ Recoveries: Commercial 82 271 Real estate secured 231 105 Consumer 248 252 Lease financing 34 50 - ------------------------------------------------------------------------- Total recoveries 595 678 - ------------------------------------------------------------------------- Net loans charged-off (2,808) (2,078) Provision for credit losses 3,674 1,988 - ------------------------------------------------------------------------- Balance at end of period $45,882 $44,287 - ------------------------------------------------------------------------- Net loans charged-off to average loans* 0.32% 0.25% - ------------------------------------------------------------------------- Provision for credit losses to average loans* 0.41% 0.24% - ------------------------------------------------------------------------- Allowance for credit losses to loans 1.31% 1.32% - ------------------------------------------------------------------------- *Annualized Total risk elements increased slightly during the first quarter of 1997. As a result, the ratio of total risk elements to loans increased slightly from 1.25% at December 31, 1996 to 1.30% at March 31, 1997. Consumer loan delinquencies, which have increased throughout much of the industry, drove Keystone's slight increase in risk elements and are being monitored closely. 11 The following table has been provided to compare nonperforming assets and total risk elements at March 31, 1997 to the balances at the end of 1996, in both absolute dollars and as a percentage of loans. This presentation is supplemented by a comparison of various coverage ratios. March 31, December 31, (dollars in thousands) 1997 1996 - ------------------------------------------------------------------------- Nonaccrual Loans $19,859 $18,913 Restructurings 371 393 - ------------------------------------------------------------------------- Nonperforming loans 20,230 19,306 Other real estate 6,658 7,414 - ------------------------------------------------------------------------- Nonperforming assets 26,888 26,720 Loans past due 90 days or more 18,457 17,649 - ------------------------------------------------------------------------- Total risk elements $45,345 $44,369 - ------------------------------------------------------------------------- Ratio to period-end loans:* Nonperforming assets .77% .75% 90-days past due .53 .50 - ------------------------------------------------------------------------- Total risk elements 1.30% 1.25% - ------------------------------------------------------------------------- Coverage Ratios: Ending allowance to nonperforming loans 227% 233% Ending allowance to risk elements** 119% 122% Ending allowance to annualized net charge-offs 4.0X 4.9X - -------------------------------------------------------------------------- * The denominator consists of period-end loans and ORE. **Excludes ORE. Based upon the evaluation of loan quality, management believes that the allowance for credit losses is adequate to absorb credit risk in the portfolio. 12 CAPITAL MANAGEMENT - ------------------ In accordance with a board authorized share repurchase program, Keystone held 1,139,000 shares in treasury at March 31, 1997, at a total cost of $30,309,000. These shares were purchased over the course of 1996 and the first quarter of 1997. The program, as amended in January, 1997, allows for up to 1,200,000 shares to be repurchased. In a separate action, the Board of Directors also authorized the repurchase of up to 1,500,000 additional shares to be issued in the previously announced purchase acquisition of First Financial Corporation of Western Maryland (FFWM). Due to share repurchases, shareholders' equity at March 31, 1997 declined to $491,248,000 from $507,307,000 at the end of 1996. Correspondingly, the ratio of equity to assets decreased from 9.70% at December 31, 1996 to 9.47% at March 31, 1997. Keystone's regulatory capital measures, which include the leverage ratio, "Tier 1" capital, and "Total" capital ratios, continued to be well in excess of both regulatory minimums and the thresholds established for "well capitalized" institutions. The following comparative presentation of these ratios and associated regulatory standards is provided: Regulatory Standards --------------------- March 31, December 31, Well Minimum 1997 1996 Capitalized Requirement - --------------------------------------------------------------------------- Leverage ratio 9.34% 9.64% 5.00% 4.00% Tier 1 12.40% 13.54% 6.00% 4.00% Total capital ratio 13.58% 14.77% 10.00% 8.00% On April 18, 1997, Keystone filed a Form S-3 with the Securities and Exchange Commission providing information of its intent to offer up to $400,000,000 of medium term notes for sale to the general public through its subsidiary, Keystone Financial Mid-Atlantic Funding Corp. In May 1997, Keystone intends to sell $100,000,000 of the securities, the proceeds of which will be used for general corporate purposes including to finance the acquisition of FFWM. 13 Item 6(a) Exhibits: Exhibit # Description Page # - ---------- -------------- ------- 27 Financial Data Schedule 16 ITEM 6(b) Reports on Form 8-K: During the quarter ended March 31, 1997, the registrant filed the following reports on Form 8-K: Date of Report Item Description - --------------- ----- --------------------------------------- December 31, 1996 5 Earnings release for the fourth quarter and year ended December 31, 1996 January 23, 1997 5 Press release announcing the share repurchase program 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: May 14 1997 - ----------------------- /s/ Carl L. Campbell - ----------------------- Carl L. Campbell, President and Chief Executive Officer DATE: May 14, 1997 - ----------------------- /s/ Mark L. Pulaski - ----------------------- Mark L. Pulaski, Senior Executive Vice President, Chief Administrative Officer, and Chief Financial Officer DATE: May 14, 1997 - ----------------------- /s/ Donald F. Holt - ----------------------- Donald F. Holt, Senior Vice President, Controller and Principal Accounting Officer 15 EX-27 2 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the first quarter 10-Q and is qualified in its entirety by reference to such 10-Q. 1,000 3-MOS DEC-31-1997 MAR-31-1997 139,843 20,840 80,390 0 655,986 374,655 373,829 3,494,457 45,882 5,189,697 4,080,080 272,810 104,370 241,189 0 0 76,715 414,533 5,189,697 77,705 17,726 2,416 97,847 38,507 44,835 53,012 3,674 19 43,720 24,484 24,484 0 0 17,129 .46 .46 3.73 19,859 18,457 371 0 45,016 3,403 595 45,882 45,882 0 0
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