The Keystone National Bank was originally a State institution, doing business under the title of the Keystone Bank of Philadelphia. It was converted into a national association July 30, 1875, with C. M. Clingan, president, and J. E. Wisnell, cashier. The board of directors at the time of conversion consisted of C. M. Clingan, Thomas Lewis, Thomas Allman, J. C. Lucas, William Armstrong, H. J. Crump and Irwin H. Torrence. J. C. Lucas was made president of the bank in June, 1880, and continued as such until the date of his death.

A short time before the failure of the institution an examination disclosed that it had sustained losses sufficient to badly impair its capital. An assessment of the stock was ordered by the Comptroller to make good the impairment, but the stockholders were unable to respond. On or about March 18, 1891, the president of the bank, Gideon W. Marsh, called upon the Comptroller in Washington for a conference in regard to the condition of the association. As a result of the disclosures at this conference, the Comptroller instructed the bank examiner to close and take possession of the bank the following morning, March 19, 1891. Subsequent investigation revealed the most reckless and criminal use of the bank's funds by the president, aided and abetted by some of the employees. It developed that the general bookkeeper had aided the president in deceiving the examiner by false entries made at or about the time the bank was due for examination. After his conference with the Comptroller in Washington, the president of the bank absconded, and after suspension the bookkeeper was immediately arrested.

According to the story of this bookkeeper, it appears that he first entered the bank in 1880 as a general utility boy, when Lucas was president. Shortly afterward he was placed in charge of one of the ledgers, in addition to being given work of a minor character. Later he was made general bookkeeper, and in January, 1890, he was appointed assistant cashier, at the same time retaining his position as general bookkeeper. His salary was advanced gradually until it reached the sum of two thousand dollars per annum. A few months after assuming the duties of bookkeeper, he stated, he was instructed by President Lucas to make a false entry in the individual ledger, but he claimed that at the time he did so he did not know that there was anything wrong in the act or in the direction of the president for him to make the entry. This entry, he stated, was for the purpose of covering up an overdraft in Mr. Lucas's account of about $5000, and was made a day or two prior to an examination of the bank by the national bank examiner, and after the examination he altered the books by direction of the president, to conform to the facts. He stated that he did not know whether this transaction was the commencement of the irregularities in the bank's books or not, but was inclined to believe that the president had carried checks in the paying teller's cash drawer which were counted as cash prior to this time. Mr. Marsh was at that time paying teller as well as cashier.

He was unable to state how rapidly the overdraft of the president increased, but he was under the impression that the account never was made good from that time to the date of closing the bank, but that it grew larger and larger until it reached the sum of $330,000. This overdraft, he stated, was never allowed to appear on the ledger, the larger figures being dropped altogether. This, of course, threw the ledger out of balance, and in order to make it balance at the time of the bank examiner's examinations, a sufficient amount was deducted from the various accounts in the ledger to equalize the overdraft. There were other overdrafts, he stated, which were covered in the same way, the bulk of which were in the accounts of the president, who was interested in some real estate investments at Spring Lake and Sea Girt, N. J., with Lucas & Brother, William Lucas and H. H. Yard.

These transactions, he said, occurred mainly in the ledger of which he had charge, but when the overdrafts became so large that a sufficient amount could not be safely taken from accounts in one ledger to make up the deficiency, recourse was had to other ledger accounts. In this manner the ledger summaries had to be altered to a corresponding amount. In other words, if fifty thousand dollars of credit balances were taken from the first ledger the amount called for by the summary of that ledger had to be diminished by fifty thousand dollars, and if these balances were placed to the credit of the president in the second ledger the summary of that ledger had to be increased by that amount.

The assistant cashier stated that these irregularities were the only kind that he was closely identified with, or rather in the making of which he was the prime factor, acting under the directions of the president of the bank. He stated that he was kept at this kind of work even after he was placed in charge of the general ledger, making the alterations usually at night or late in the afternoon. He stated that he had known the president of the bank to go to the paying teller's drawer and take out a handful of notes, count them and say to the teller: "I have ten thousand dollars, for which I will give you a check in a few minutes," but the check was never given. A memorandum was carried in the cash by the teller for the amount. This, he said, was done with the receiving teller's cash, but the receiving teller always passed his memorandum over to the paying teller in his daily settlements.

The old banking house of the association, he stated, was owned by President Lucas, although he was quite sure in his own mind that it was purchased with money taken directly from the bank. The new banking house was built with the bank's money. He stated that he had known the president to buy up various bankrupt concerns and carry on the business himself, placing a manager in charge. He had seen the vaults and cellars of the old bank stocked with imported wines, Bibles, etc., and cases of silverware purchased from the bankrupt concerns. Whatever money was lost in these concerns, the bank had to bear. Whatever was received from the sales of such wares was generally placed to the personal credit of President Lucas.

The discrepancy of $200,000, which was found to exist in the bills discounted account, he stated, was caused by the discount of too many notes from time to time for the various accounts which the president managed in connection with the Sea Girt and Spring Lake properties, which notes were abstracted and destroyed and marked paid on the books, and when examinations were expected, fictitious notes were substituted and carried through the books, as if they had at some prior time been discounted and carried through in the ordinary way.

He stated that H. H. Yard's account was overdrawn as much as $275,000 and that he was so closely identified with President Lucas as to make it impossible to distinguish between them in their transactions with the bank.

The greatest trouble that the bank encountered was in its dealings with the Clearing House. The bank was constantly indebted to this association, and as this indebtedness had to be met daily at twelve o'clock, any means and every means was resorted to to raise the funds required. Every place where the bank could get credit, it would borrow for periods of varying length, generally from day to day. In the hurry and stress with which these loans were effected, there was much done of which no record was made. This occasioned no end of trouble in settling accounts at the close of the day. A number of loans were made to the bank by some of the other banks for comparatively long periods which were renewed from time to time, and no record was made on the books of the bank of such liabilities. When large deposits were made, especially in new accounts, or when certificates of deposit were issued, Cashier Marsh, it was alleged, would retain the deposit ticket in his desk and rush off with the funds to pay a loan, or part of a loan that was due or past due, and the deposit ticket was not seen again for several days, if ever. When checks were received against such deposits, or when the certificates were presented for payment, no funds were to the credit of the accounts to meet them, and in order to straighten out such accounts false entries were resorted to.

On various occasions the Clearing House Committee made objection to the bank's line of discounts, protesting that it was too large, or that the reserve was too low, or that the foreign reserve was out of proportion to the home reserve. When such objections were raised, arbitrary changes were made in these accounts, increasing or diminishing the balances to adjust proportions. So many alterations and realterations were made in the bank's books that it was difficult in many cases to separate the false from the genuine entries.

J. C. Lucas, the president of the bank, who, the assistant cashier claimed, was responsible for his wrong-doing, died before the bank failed, and G. W. Marsh, the cashier, was made president. Marsh was indicted in 1891 for wilfully misapplying the funds of the association, and was also indicted with Charles Lawrence, the assistant cashier, for making false entries in the books of the bank. Lawrence was also indicted separately for making false entries. After the failure of the bank Marsh absconded and was a fugitive from justice for several years, but he returned in December, 1898, pleaded guilty to the indictments and was sentenced to a term in the penitentiary. Lawrence pleaded guilty in 1891 and was also sentenced to the penitentiary.

The total book value of the assets of this bank at the time of failure was $1,864,795. The losses on assets compounded or sold by the receiver under order of the court were $1,429,122. The stockholders were assessed one hundred per cent., or $500,000. Of this amount $241,511 was collected, and the total collections from all sources amounted to $580,396. Eighteen per cent. dividends were paid to depositors and other creditors, or $147,748, and the receivership was finally closed January 31, 1902.

After the closing of this association and before its affairs were placed in the hands of a receiver, efforts were made by some prominent Philadelphians and stockholders of the bank to raise sufficient funds by voluntary subscription to restore the bank to solvency and resume business under an entirely new board of directors and officers, but when it was discovered that the bank had been completely looted by some of its officers all efforts to revive it were abandoned and a receiver became necessary to wind up its affairs.