Keystone Financial Inc. of Harrisburg, Pa., which late last year agreed to pay $30 million to settle a lawsuit, seems to have dodged another potentially costly legal action.
Last week the $6.8 billion-asset banking company agreed to settle a suit brought by the Williamsport Lycoming Community Foundation, whose 68 trusts are managed by Keystone Financial Bank. The charity sued in September, claiming breach of fiduciary duty.
The foundation sought no money in the suit, said its president, Kimberly P. Schulz, but a Keystone spokesman said the high cost of litigation was one reason for the agreement.
Ms. Schulz said the dispute centered on whether the trusts would be considered separate trusts or component trusts, an important consideration for tax purposes. "The bank saw them as separate trusts, while we saw them as component trusts of the foundation," she said. The difference is important, Ms. Schulz said, "because component trusts would be considered part of our organization" and would not be subject to excise taxation.
The parties agreed Jan. 21 that the trusts will be viewed as component trusts and fall under the foundation's corporate umbrella, Ms. Schulz said. The remaining aspects of the settlement - such as whether Keystone will continue to provide custodial services for the trusts - have yet to be hammered out, she said.
Timothy A. Hoy, the Keystone spokesman, said a final settlement will be completed soon. It would require approval by the state attorney general and the court, he said.
Close ties between the two organizations made the dispute particularly awkward, Mr. Hoy said. A Keystone predecessor, Northern Central Bank and Trust, established the foundation in 1916. It was operated by Keystone until 1990, when it became a separate corporation but continued to use Keystone's trust services.
The foundation provides scholarships and grants for a wide array of community projects, Ms. Schulz said.
In December, Keystone agreed to pay $30 million to settle an unrelated lawsuit with 43 Pennsylvania school districts. The districts claimed Mid-State Bank and Trust Co. of Altoona, which Keystone bought Jan. 1, 1999, had mismanaged their funds. Mid-State has since been absorbed into Keystone Financial Bank.