SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
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: 000-25328
FIRST KEYSTONE FINANCIAL, INC.
---------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0469351
- ------------------------------------ -----------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
22 West State Street
Media, Pennsylvania 19063
- ---------------------------------------------- -----------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (610) 565-6210
Indicate by check mark whether the Registrant (1) has filed all reports required
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] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
Number of shares of Common Stock outstanding as of February 8, 2005: 1,972,984
Transitional Small Business Disclosure Format Yes [ ] No [X]
FIRST KEYSTONE FINANCIAL, INC.
CONTENTS
PAGE
----
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition as of
December 31, 2004 and September 30, 2004 1
Unaudited Consolidated Statements of Income for the Three
Months Ended December 31, 2004 and 2003 2
Unaudited Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended December 31, 2004 3
Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 2004 and 2003 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities, Unregistered Sales of
Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits 19
SIGNATURES 21
-i-
FIRST KEYSTONE FINANCIAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
(dollars in thousands)
December 31 September 30
ASSETS 2004 2004
--------- ---------
Cash and amounts due from depository institutions $ 3,759 $ 5,185
Interest-bearing deposits with depository institutions 14,331 12,790
--------- ---------
Total cash and cash equivalents 18,090 17,975
Investment securities available for sale 48,906 63,615
Mortgage-related securities available for sale 99,385 97,620
Loans held for sale -- 172
Investment securities held to maturity - at amortized cost (approximate fair
value of $5,338 at December 31, 2004
and $5,370 at September 30, 2004) 5,281 5,287
Mortgage-related securities held to maturity - at amortized cost
(approximate fair value of $54,268 at December 31, 2004
and $37,312 at September 30, 2004) 54,512 37,363
Loans receivable (net of allowance for loan loss of $2,063
and $2,039 at December 31, 2004 and September 30, 2004, respectively) 304,413 304,248
Accrued interest receivable 2,463 2,577
Real estate owned 1,200 1,229
Federal Home Loan Bank stock at cost 9,880 9,827
Office properties and equipment, net 5,005 4,275
Deferred income taxes 835 657
Cash surrender value of life insurance 16,370 16,110
Prepaid expenses and other assets 2,541 10,964
--------- ---------
TOTAL ASSETS $ 568,881 $ 571,919
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 343,014 $ 344,880
Advances from Federal Home Loan Bank and other borrowings 168,343 171,149
Junior subordinated debentures 21,547 21,557
Accrued interest payable 1,071 1,095
Advances from borrowers for taxes and insurance 1,903 815
Accounts payable and accrued expenses 3,342 2,725
--------- ---------
Total liabilities 539,220 542,221
--------- ---------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued
Common stock, $.01 par value, 20,000,000 shares authorized; issued 2,712,556
shares; outstanding at December 31, 2004 and September 30, 2004, 1,930,754
and 1,927,744 shares, respectively 14 14
Additional paid-in capital 13,621 13,622
Employee stock ownership plan (3,254) (3,189)
Treasury stock at cost: 781,802 shares at December 31, 2004 and 787,219 shares
at September 30, 2004 (11,867) (11,913)
Accumulated other comprehensive income 1,389 1,734
Retained earnings - partially restricted 29,758 29,430
--------- ---------
Total stockholders' equity 29,661 29,698
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 568,881 $ 571,919
========= =========
See notes to unaudited consolidated financial statements.
-1-
FIRST KEYSTONE FINANCIAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Three months ended
December 31
------------------
2004 2003
------ ------
INTEREST INCOME:
Interest and fees on loans $4,463 $4,445
Interest and dividends on:
Mortgage-related securities 1,402 1,229
Investment securities:
Taxable 435 639
Tax-exempt 208 241
Dividends 86 64
Interest-bearing deposits 41 18
------ ------
Total interest income 6,635 6,636
------ ------
INTEREST EXPENSE:
Interest on:
Deposits 1,453 1,588
Federal Home Loan Bank advances and other borrowings 1,928 1,739
Junior subordinated debentures 434 413
------ ------
Total interest expense 3,815 3,740
------ ------
NET INTEREST INCOME 2,820 2,896
PROVISION FOR LOAN LOSSES 45 75
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,775 2,821
------ ------
NON-INTEREST INCOME:
Service charges and other fees 420 267
Net gain on sales of:
Loans held for sale 19 7
Investment securities 75 405
Increase in cash surrender value of insurance 260 273
Other income 125 112
------ ------
Total non-interest income 899 1,064
------ ------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,530 1,530
Occupancy and equipment 362 305
Professional fees 245 231
Federal deposit insurance premium 13 13
Data processing 128 111
Advertising 96 98
Net cost of operation of real estate owned 2 87
Deposit processing 162 155
Other 508 403
------ ------
Total non-interest expense 3,046 2,933
------ ------
INCOME BEFORE INCOME TAX EXPENSE 628 952
INCOME TAX EXPENSE 105 209
------ ------
NET INCOME $ 523 $ 743
====== ======
BASIC EARNINGS PER COMMON SHARE $ 0.29 $ 0.40
====== ======
DILUTED EARNINGS PER COMMON SHARE $ 0.28 $ 0.37
====== ======
See notes to unaudited consolidated financial statements.
-2-
FIRST KEYSTONE FINANCIAL, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)
Employee Accumulated Retained
Additional stock other earnings- Total
Common paid-in ownership Treasury comprehensive partially stockholders'
stock capital plan stock income restricted equity
----- ------- ---- ----- ------ ---------- ------
BALANCE AT OCTOBER 1, 2004 $14 $13,622 $(3,189) $(11,913) $1,734 $29,430 $29,698
Net income 523 523
Other comprehensive income, net of tax:
Net unrealized loss on securities
net of reclassification adjustment(1) (345) (345)
------ -------
Comprehensive income 178
-------
ESOP stock committed to be released 7 7
Common stock acquired by stock benefit plan (72) (72)
Excess of fair value above cost of
ESOP shares committed to be released 9 9
Exercise of stock options (10) 46 36
Dividends paid (195) (195)
--- ------- ------- -------- ------ ------- -------
BALANCE AT DECEMBER 31, 2004 $14 $13,621 $(3,254) $(11,867) $1,389 $29,758 $29,661
=== ======= ======= ======== ====== ======= =======
(1) Disclosure of reclassification amount, net of tax for the three months
ended December 31, 2004:
Net unrealized depreciation arising during the period $(395)
Less: reclassification adjustment for net gains included in net income
(net of tax $25) 50
------
Net unrealized loss on securities $(345)
=====
See notes to unaudited consolidated financial statements.
-3-
FIRST KEYSTONE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Three months ended
December 31
-----------
2004 2003
-------- --------
OPERATING ACTIVITIES:
Net income $ 523 $ 743
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Provision for depreciation and amortization 125 109
Amortization of premiums and discounts 75 22
Increase in cash surrender value of life insurance (260) (279)
Gain on sales of:
Loans held for sale (19) (7)
Investment securities available for sale (75) (405)
Provision for loan losses 45 75
Amortization of ESOP 16 130
Changes in assets and liabilities which provided (used) cash:
Origination of loans held for sale (2,722) (1,923)
Loans sold in the secondary market 2,894 1,988
Accrued interest receivable 114 (92)
Prepaid expenses and other assets 8,423 1,086
Accrued interest payable (24) (61)
Accrued expenses 617 (1,201)
-------- --------
Net cash provided by operating activities 9,732 185
-------- --------
INVESTING ACTIVITIES:
Loans originated (28,351) (27,122)
Purchases of:
Mortgage-related securities available for sale (8,256) (7,060)
Investment securities available for sale (1,673) --
Mortgage-related securities held to maturity (18,591) (11,951)
Redemption (purchase) of FHLB stock (53) 20
Insurance proceeds on real estate owned 29 --
Proceeds from sales of investment securities 16,075 2,204
Principal collected on loans 28,183 26,860
Proceeds from maturities, calls, or repayments of:
Investment securities available for sale 201 2,295
Mortgage-related securities available for sale 6,072 11,112
Mortgage-related securities held to maturity 1,417 360
Purchase of property and equipment (855) (230)
-------- --------
Net cash used in investing activities (5,802) (3,512)
-------- --------
FINANCING ACTIVITIES:
Net decrease in deposit accounts (1,866) (15,905)
Net (decrease) increase in FHLB advances (2,806) 13,836
Net increase in advances from borrowers for taxes and insurance 1,088 986
Exercise of stock options 36 71
Purchase of treasury stock -- (1,044)
Common stock acquired by ESOP (72) --
Cash dividend (195) (208)
-------- --------
Net cash used in financing activities (3,815) (2,264)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 115 (5,591)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,975 21,190
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,090 $ 15,599
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION:
Cash payments for interest on deposits and borrowings $ 3,839 $ 3,801
Transfer of loans held for sale to loan portfolio -- 4,186
Cash refund of income taxes (255) --
See notes to unaudited consolidated financial statements.
-4-
FIRST KEYSTONE FINANCIAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America
for complete financial statements. However, such information reflects
all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement
of results for the periods.
The results of operations for the three month period ended December 31,
2004 are not necessarily indicative of the results to be expected for
the fiscal year ending September 30, 2005 or any other period. The
consolidated financial statements presented herein should be read in
conjunction with the audited consolidated financial statements and
related notes thereto included in the First Keystone Financial, Inc.
(the "Company") Annual Report on Form 10-K for the year ended September
30, 2004.
2. INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities
available for sale and held to maturity, by contractual maturities, are
as follows:
December 31, 2004
-----------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
---- ---- ---- ----------
Available for Sale:
U.S. Government and agency bonds:
Less than 1 year $ 1,695 $ -- $ (8) $ 1,687
Municipal obligations
5 to 10 years 130 5 -- 135
Over 10 years 11,836 392 -- 12,228
Corporate bonds
Less than 1 year 1,000 29 -- 1,029
1 to 5 years 3,021 182 -- 3,203
5 to 10 years 2,000 -- (7) 1,993
Over 10 years 6,005 182 (2) 6,185
Asset-backed securities
1 to 5 years 988 6 -- 994
Mutual funds 14,009 -- (252) 13,757
Preferred stocks 3,900 -- (225) 3,675
Other equity investments 1,755 2,265 -- 4,020
------- ------- ------- -------
Total $46,339 $ 3,061 $ (494) $48,906
======= ======= ======= =======
Held to Maturity:
Municipal obligations
5 to 10 years $ 3,259 $ 44 $ -- $ 3,303
Corporate bonds
Less than 1 year 1,001 8 -- 1,009
1 to 5 years 1,021 5 -- 1,026
------- ------- ------- -------
Total $ 5,281 $ 57 $ -- $ 5,338
======= ======= ======= =======
-5-
Provided below is a summary of investment securities available for sale and
held to maturity which were in an unrealized loss position at December 31,
2004.
Loss Position Loss Position
Less than 12 12 Months or
Months Longer Total
------ ------ -----
Unrealized Unrealized Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
---------- ------ ---------- ------ ---------- ------
U.S. Government
and agency bonds $ 1,687 $ (8) $ -- $ -- $ 1,687 $ (8)
Corporate bonds 3,115 (9) -- -- 3,115 (9)
Mutual fund -- -- 13,757 (252) 13,757 (252)
Preferred
securities 3,656 (225) -- -- 3,656 (225)
-------- -------- -------- -------- -------- --------
Total $ 8,458 $ (242) $ 13,757 $ (252) $ 22,215 $ (494)
======== ======== ======== ======== ======== ========
At December 31, 2004, investment securities in a gross unrealized loss
position for twelve months or longer consisted of shares in mutual funds
that at such date had an aggregate depreciation of 1.8% from the Company's
amortized cost basis. Management believes that the estimated fair value of
the securities disclosed above is primarily dependent upon the movement in
market interest rates. The Company has the ability and intent to hold these
securities until the anticipated recovery of fair value occurs. Management
does not believe any individual unrealized loss as of December 31, 2004
represents an other-than-temporary impairment.
September 30, 2004
------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
---- ---- ---- ----------
Available for Sale:
U.S. Government and agency bonds
1 to 5 years $14,694 $ -- $ (199) $14,495
Municipal obligations
5 to 10 years 130 6 -- 136
Over 10 years 11,833 412 -- 12,245
Corporate bonds
Less than 1 year 1,000 43 -- 1,043
1 to 5 years 4,968 479 -- 5,447
5 to 10 years 2,000 -- (5) 1,995
Over 10 years 5,341 248 -- 5,589
Asset-backed securities
1 to 5 years 1,189 8 -- 1,197
Mutual funds
Over 10 years 14,009 -- (205) 13,804
Preferred stocks 3,900 -- -- 3,900
Other equity investments 1,755 2,009 -- 3,764
------- ------- ------- -------
Total $60,819 $ 3,205 $ (409) $63,615
======= ======= ======= =======
Held to Maturity:
Municipal obligations
5 to 10 years $ 3,260 $ 50 $ -- $ 3,310
Over 10 years -- -- -- --
Corporate bonds
Less than 1 year 1,002 21 -- 1,023
1 to 5 years 1,025 12 -- 1,037
------- ------- ------- -------
Total $ 5,287 $ 83 $ -- $ 5,370
======= ======= ======= =======
-6-
3. MORTGAGE-RELATED SECURITIES
Mortgage-related securities available for sale and mortgage-related
securities held to maturity are summarized as follows:
December 31, 2004
-----------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
---- ---- ---- ----------
Available for Sale:
FHLMC pass-through certificates $ 5,575 $ 12 $ (64) $ 5,523
FNMA pass-through certificates 44,155 172 (340) 43,987
GNMA pass-through certificates 1,110 23 -- 1,133
Collateralized mortgage obligations 49,008 144 (410) 48,742
------- ------- ------- -------
Total $99,848 $ 351 $ (814) $99,385
======= ======= ======= =======
Held to Maturity:
FHLMC pass-through certificates $19,788 $ 51 $ (138) $19,701
FNMA pass-through certificates 34,260 53 (212) 34,101
Collateralized mortgage obligations 464 2 -- 466
------- ------- ------- -------
Total $54,512 $ 106 $ (350) $54,268
======= ======= ======= =======
Provided below is a summary of mortgage-related securities available for
sale and held to maturity which were in an unrealized loss position at
December 31, 2004.
Loss Position Loss Position
Less than 12 Months 12 Months or Longer Total
------------------- ------------------- -----
Unrealized Unrealized Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
---------- ------ ---------- ------ ---------- ------
Pass-through
certificates $ 69,782 $ (583) $ 6,541 $ (171) $ 76,323 $ (754)
Collateralized
mortgage obligations 21,303 (280) 6,008 (130) 27,311 (410)
-------- -------- -------- -------- -------- --------
Total $ 91,085 $ (863) $ 12,549 $ (301) $103,634 $ (1,164)
======== ======== ======== ======== ======== ========
At December 31, 2004, mortgage-related securities in a gross unrealized
loss position for twelve months or longer consisted of seven securities
that at such date had an aggregate depreciation of 2.4% from the Company's
amortized cost basis. Management does not believe any individual
unrealized loss as of December 31, 2004 represents an other-than-temporary
impairment. The unrealized losses reported for mortgage-related securities
relate primarily to securities issued by the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation and private
institutions. The majority of the unrealized losses associated with
mortgage-related securities are primarily attributable to changes in
interest rates and not due to the deterioration of the creditworthiness of
the issuer. The Company has the ability and intent to hold these
securities until the securities mature.
-7-
September 30, 2004
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
---- ---- ---- ----------
Available for Sale:
FHLMC pass-through certificates $ 5,838 $ 15 $ (42) $ 5,811
FNMA pass-through certificates 42,805 259 (203) 42,861
GNMA pass-through certificates 1,250 20 -- 1,270
Collateralized mortgage obligations 47,895 141 (358) 47,678
------- ------- ------- -------
Total $97,788 $ 435 $ (603) $97,620
======= ======= ======= =======
Held to Maturity:
FHLMC pass-through certificates $16,226 $ 85 $ (101) $16,210
FNMA pass-through certificates 20,613 74 (106) 20,581
Collateralized mortgage obligations 524 -- (3) 521
------- ------- ------- -------
Total $37,363 $ 159 $ (210) $37,312
======= ======= ======= =======
4. LOANS RECEIVABLE
Loans receivable consist of the following:
December 31 September 30
2004 2004
--------- ---------
Real estate loans:
Single-family $ 159,259 $ 163,907
Construction and land 39,796 38,078
Multi-family and commercial 64,612 64,509
Home equity and lines of credit 45,412 43,621
Consumer loans 1,417 1,471
Commercial loans 10,826 10,624
--------- ---------
Total loans 321,322 322,210
Loans in process (14,759) (15,807)
Allowance for loan losses (2,063) (2,039)
Deferred loan fees (87) (116)
--------- ---------
Loans receivable - net $ 304,413 $ 304,248
========= =========
The following is an analysis of the allowance for loan losses:
Three Months Ended
December 31
-----------
2004 2003
------- -------
Balance beginning of period $ 2,039 $ 1,986
Provisions charged to income 45 75
Charge-offs (21) (83)
Recoveries -- 39
------- -------
Total $ 2,063 $ 2,017
======= =======
At December 31, 2004 and September 30, 2004, non-performing loans (which
include loans in excess of 90 days delinquent) amounted to approximately
$2,860 and $2,033, respectively. At December 31, 2004, non-performing
loans primarily consisted of single-family residential mortgage loans
aggregating $772,000, a $770,000 construction loan and commercial real
estate loans totaling $676,000.
-8-
5. DEPOSITS
Deposits consist of the following major classifications:
December 31 September 30
2004 2004
-------- --------
Amount Percent Amount Percent
-------- -------- -------- --------
Non-interest bearing $ 19,085 5.6% $ 21,046 6.1%
NOW 56,998 16.6 55,864 16.2
Passbook 50,418 14.7 51,371 14.9
Money market demand 52,053 15.2 51,682 15.0
Certificates of deposit 164,460 47.9 164,917 47.8
-------- -------- -------- --------
Total $343,014 100.0% $344,880 100.0%
======== ======== ======== ========
6. EARNINGS PER SHARE
Basic net income per share is based upon the weighted average number of
common shares outstanding, while diluted net income per share is based
upon the weighted average number of common shares outstanding and common
share equivalents that would arise from the exercise of dilutive
securities. All dilutive shares consist of options the exercise price of
which is lower than the market price of the common stock covered thereby
at the end of the periods presented.
The calculated basic and diluted earnings per share ("EPS") is as follows:
Three Months Ended
December 31
-----------
2004 2003
---------- ----------
Numerator $ 523 $ 743
Denominators:
Basic shares outstanding 1,785,415 1,834,220
Effect of dilutive securities 104,653 153,630
---------- ----------
Dilutive shares outstanding 1,890,068 1,987,850
========== ==========
Earnings per share:
Basic $ 0.29 $ 0.40
Diluted $ 0.28 $ 0.37
-9-
7. STOCK-BASED COMPENSATION
The Company currently applies APB Opinion No. 25 in accounting for stock
options. Since the exercise price of the options equaled the fair value
of the common stock covered thereby at the date of grant, no
compensation expense has been recognized in the financial statements.
Had the Company determined compensation expense based on the fair value
at the grant date for its stock option in accordance with the fair value
method set forth in SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below.
Three Months Ended
December 31,
2004 2003
-------- --------
Net income, as reported $ 523 $ 743
Less: Total stock-based employee compensation
expense determined under fair value method for
all options, net of tax 4 5
-------- --------
Pro forma net income $ 519 $ 738
======== ========
Earnings per share:
Basic - as reported $ 0.29 $ 0.40
Basic - pro forma $ 0.29 $ 0.40
Diluted - as reported $ 0.28 $ 0.37
Diluted - pro forma $ 0.27 $ 0.37
In December 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123 (Revised 2004), "Share-Based Payment" (SFAS 123(R)).
This Statement revises SFAS No. 123 by eliminating the option to account
for employee stock options under APB No. 25 and generally requires
companies to recognize the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair
value of those awards (the "fair-value-based" method). The Company will
adopt SFAS 123(R) on July 1, 2005 and plans to use the modified
prospective method. The impact of adopting SFAS 123(R) will be
consistent with the impact disclosed above pursuant to the pro forma
disclosure requirements of SFAS No. 123.
-10-
8. RECENT ACCOUNTING PRONOUNCEMENTS
In March 2004, the FASB Emerging Issues Task Force ("EITF") reached a
consensus regarding EITF 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." The consensus
provides guidance for evaluating whether an investment is
other-than-temporarily impaired and was effective for
other-than-temporary impairment evaluations made in reporting periods
beginning after June 15, 2004. However, the guidance contained in
paragraphs 10-20 of this Issue has been delayed by FASB Staff Position
("FSP") EITF Issue 03-1-1, "Effective Date of Paragraphs 10-20 of EITF
Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments," posted September 30, 2004. The
delay of the effective date for paragraphs 10-20 will be superseded
concurrent with the final issuance of proposed FSP EITF Issue 03-1a,
"Implication Guidance for the Application of Paragraph 16 of EITF Issue
No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments." The proposed FSP would provide
implementation guidance with respect to debt securities that are
impaired solely due to interest rates and/or sector spreads and analyzed
for other-than-temporary impairment. The disclosures continue to be
effective for the Company's consolidated financial statements for fiscal
years ending after December 15, 2003, for investments accounted for
under SFAS No. 115 and No. 124. For all other investments within the
scope of this Issue, the disclosures continue to be effective for fiscal
years ending after June 15, 2005. The additional disclosures for cost
method investments continue to be effective for fiscal years ending
after June 15, 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information, this Quarterly Report on Form 10-Q
includes certain "forward-looking statements" based on management's current
expectations. The Company's actual results could differ materially, as such term
is defined in the Securities Act of 1933 and the Securities Exchange Act of
1934, from management's expectations. Such forward-looking statements include
statements regarding management's current intentions, beliefs or expectations as
well as the assumptions on which such statements are based. These
forward-looking statements are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are not subject to
the Company's control. Stockholders and potential stockholders are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Factors that could cause future results to vary from current management
expectations include, but are not limited to, general economic conditions,
legislative and regulatory changes, monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal, state and
local tax authorities, changes in interest rates, deposit flows, the cost of
funds, demand for loan products, demand for financial services, competition,
changes in the quality or composition of the Company's loan and investment
portfolios, changes in accounting principles, policies or guidelines,
availability and cost of energy resources and other economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and fees.
The Company undertakes no obligation to update or revise any forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results that occur subsequent to the date
such forward-looking statements are made.
GENERAL
First Keystone Financial, Inc. is a Pennsylvania corporation and sole
stockholder of First Keystone Bank, a federally chartered stock savings bank
(the "Bank"), which converted to the stock form of organization in January 1995.
The Bank is a community-oriented bank emphasizing customer service and
convenience. The Bank's primary business is attracting deposits from the general
public and using those funds together with other available sources of funds,
primarily borrowings, to originate loans. The Bank's management remains focused
on its long-term strategic plan to continue to shift the Bank's loan composition
toward commercial business, construction and home equity loans and lines of
credit in order to provide a higher yielding loan portfolio with generally
shorter contractual terms.
-11-
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2004 AND SEPTEMBER 30, 2004
Total assets of the Company decreased by $3.0 million from $571.9 million at
September 30, 2004 to $568.9 million at December 31, 2004. Mortgage-related
securities held to maturity increased by $17.1 million from $37.4 million at
September 30, 2004 mainly due to implementation of the Company's asset liability
strategy of reinvesting the proceeds from the sale of investment securities into
the held to maturity portfolio in order to minimize volatility of the Company's
equity in the future as market rates of interest increase as expected. Loans
receivable increased slightly to $304.4 million at December 31, 2004 as the
Company continued to modestly increase its percentage of its portfolio
consisting of construction and home equity and lines of credit, partially offset
by a decrease in single-family residential loans. Prepaid expenses and other
assets decreased $8.4 million due to funds received for settlement of securities
sales. Deposits decreased $1.9 million, or 0.55%, from $344.9 million at
September 30, 2004 to $343.0 million at December 31, 2004, while borrowings
decreased $2.8 million, or 1.6%, from $171.1 million at September 30, 2004. The
decrease in deposits resulted from decreases of $1.4 million, or 0.8%, in core
deposits (which consist of passbook, money market, NOW and non-interest bearing
accounts) combined with decreases of $457,000, or 0.3%, in certificate of
deposits. Such declines reflected the effects of competition as local
competitors offered higher rates.
Stockholders' equity decreased $37,000 to $29.7 million primarily due to the
decrease of $345,000 in the accumulated other comprehensive income combined with
dividend payments totaling $195,000, partially offset by net income of $523,000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2004
AND 2003
NET INCOME.
Net income was $523,000 for the three months ended December 31, 2004 as compared
to $743,000 for the same period in 2003. The $220,000, or 29.6%, decrease in net
income for the three months ended December 31, 2004 was primarily due to a
$76,000 decrease in net interest income, a $165,000 decrease in non-interest
income, and a $113,000 increase in non-interest expense partially offset by a
$30,000 decrease in the provision for loan losses and a $104,000 decrease in
income tax expense.
NET INTEREST INCOME.
Net interest income decreased $76,000, or 2.6%, to $2.8 million for the three
months ended December 31, 2004 as compared to the same period in 2003. The
decrease was primarily due to a $75,000, or 2.0%, increase in interest expense
which was primarily due to an increase of $18.2 million, or 3.5%, in the average
balance of such liabilities for the three months ended December 31, 2004, as
compared to the same period in 2003 partially offset by a four basis point (on a
fully tax-equivalent basis) decrease in the weighted average rate paid on
interest-bearing liabilities. Interest income remained at the same level as a 17
basis point (on a fully tax-equivalent basis) decrease in the weighted yield
earned on the Company's interest-earning assets was offset by a $16.8 million,
or 3.2%, increase in the average balance of such assets.
The interest rate spread and net interest margin, on a fully tax equivalent
basis, were 2.15% and 2.16%, respectively, for the three months ended December
31, 2004 as compared to 2.28% and 2.30%, respectively, for the same period in
2003. Due to the continued repayments during the year, the yield on
interest-earning assets decreased to a greater degree than the rates paid on
interest-bearing liabilities. The continued rise in short-term interest rates
could negatively impact the Company's interest rate margin as shorter term
liabilities will reprice faster than the Company's longer term assets.
-12-
The following table presents the average balances for various categories of
assets and liabilities, and income and expense related to those assets and
liabilities for the three months ended December 31, 2004 and 2003. The
adjustment of tax exempt securities to a tax equivalent yield in the table below
may be considered to include non-GAAP financial information. Management believes
that it is a common practice in the banking industry to present net interest
margin, net interest rate spread and net interest income on a fully tax
equivalent basis when a significant proportion of interest-earning assets are
tax-free. Therefore, management believes, these measures provide useful
information to investors by allowing them to make peer comparisons. AGAAP
reconciliation also is included below.
FOR THE THREE MONTHS ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost(4) Balance Interest Cost(4)
------- -------- ------- ------- -------- -------
Interest-earning assets:
Loans receivable(1)(2) $306,002 $4,463 5.83% $290,683 $4,445 6.12%
Mortgage-related securities(2) 142,387 1,402 3.94 127,640 1,229 3.85
Investment securities(2) 75,389 813 4.31 90,407 1,040 4.60
Other interest-earning assets 14,037 41 1.17 12,268 18 0.58
-------- ------ -------- ------
Total interest-earning assets 537,815 $6,719 5.00 520,998 $6,732 5.17
-------- ------ -------- ------
Non-interest-earning assets 32,471 36,724
-------- --------
Total assets $570,286 $557,722
======== ========
Interest-bearing liabilities:
Deposits $343,454 $1,453 1.69 $352,429 $1,588 1.80
FHLB advances and other borrowings 170,770 1,928 4.52 143,540 1,739 4.85
Trust preferred securities 21,553 434 8.05 21,590 413 7.65
-------- ------ -------- ------
Total interest-bearing liabilities 535,777 3,815 2.85 517,559 3,740 2.89
-------- ------ -------- ------
Interest rate spread 2.15% 2.28%
====== ======
Non-interest-bearing liabilities 4,903 8,505
-------- --------
Total liabilities 540,680 526,064
Stockholders' equity 29,606 31,658
-------- --------
Total liabilities and stockholders' equity $570,286 $557,722
======== ========
Net interest-earning assets $2,038 $3,439
======== ========
Net interest income $2,904 $2,992
====== ======
Net interest margin(3) 2.16% 2.30%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 100.38% 100.66%
====== ======
- ---------------------------
(1) Includes non-accrual loans.
(2) Includes assets classified as either available for sale or held for sale.
(3) Net interest income divided by interest-earning assets.
(4) Presented on a tax-equivalent basis.
-13-
Although management believes that the above mentioned non-GAAP financial
measures enhance investor's understanding of the Company's business and
performance, these non-GAAP financials measures should not be considered an
alternative to GAAP. The reconciliation of these non-GAAP financials measures
from GAAP to non-GAAP is presented below.
FOR THE THREE MONTHS ENDED
--------------------------
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
AVERAGE AVERAGE
(Dollars in thousands) INTEREST YIELD/COST INTEREST YIELD/COST
-------- ---------- -------- ----------
Investment securities - nontaxable $ 729 3.87% $ 944 4.18%
Tax equivalent adjustments 84 96
------ ------
Investment securities - nontaxable to
a taxable equivalent yield $ 813 4.31% $1,040 4.60%
====== ======
Net interest income $2,820 $2,896
Tax equivalent adjustment 84 96
------ ------
Net interest income, tax equivalent $2,904 $2,992
====== ======
Net interest rate spread, no tax
adjustment 2.09% 2.20%
Net interest margin, no tax adjustment 2.10% 2.22%
PROVISION FOR LOAN LOSSES.
Provisions for loan losses are charged to earnings to maintain the total
allowance for loan losses at a level believed by management to cover all known
and inherent losses in the loan portfolio which are both probable and reasonably
estimable. Management's analysis includes consideration of the Company's
historical experience, the volume and type of lending conducted by the Company,
the amount of the Company's classified assets, the status of past due principal
and interest payments, general economic conditions, particularly as they relate
to the amount of the Company's primary market area, and other factors related to
the collectibility of the Company's loan and loans held for sale portfolios. For
the three months ended December 31, 2004 and 2003, the provision for loan losses
amounted to $45,000 and $75,000, respectively. The decrease in provision for
loan loss was based on the Company's monthly review of the credit quality of its
loan portfolio, the net charge-offs during the first quarter of fiscal 2005 and
other factors.
At December 31, 2004, non-performing assets increased to $4.1 million, or .71%,
of total assets, from $3.3 million at September 30, 2004. The increase in
non-performing assets was primarily the result of commercial loans totaling
$423,000 becoming past due 90 days or more as to principal but still accruing.
In addition, subsequent to December 31, 2004, $253,000 in non-performing
commercial loans has paid off and a $770,000 non-accrual construction loan has
returned to current status. The coverage ratio, which is the ratio of the
allowance for loan losses to non-performing loans, was 72.1% and 100.3% at
December 31, 2004 and September 30, 2004, respectively.
Included in non-performing assets is $1.2 million of real estate owned consisted
primarily of a $1.1 commercial real estate property. The Bank owns a 25%
participation interest in an 18-hole golf course and a golf house located in
Avondale, Pennsylvania. The golf facility is fully operational and continues to
generate revenues. However, in connection with the operations of the facility,
the Company has incurred its representative share of expenses totaling
approximately $75,000 for the three months ended December 31, 2003. Although the
agreement of sale has expired, the prospective buyer is operating and incurring
the operating costs of the facility under the expired agreement. The lead lender
is currently in the process of preparing an agreement extending the term of the
original sales agreement.
Including in the Company's delinquent loans at December 31, 2004 was a $3.8
million commercial real estate loan to one borrower secured by a restaurant in
Chesapeake City, Maryland which was less than 60 days delinquent at such date.
The loan as well as a related business line of credit extended to the borrower
was classified as special mention due to the borrower's poor payment history and
financial condition.
-14-
Management continues to review its loan portfolio to determine the extent, if
any, to which further additional loss provisions may be deemed necessary. There
can be no assurance that the allowance for losses will be adequate to cover
losses which may in fact be realized in the future and that additional
provisions for losses will not be required.
NON-INTEREST INCOME.
Non-interest income decreased $165,000 or 15.5% to $899,000 for the three months
ended December 31, 2004 as compared to the same period in 2003. The decrease for
the three months ended December 31, 2004 was primarily due to a $330,000
decrease on the gain on sale of investment securities resulting from certain
market opportunities which occurred in the prior fiscal year. The decrease in
gains on sale was partially offset by a $153,000, or 57.3%, increase in the
service charges and other fees mainly due to the implementation of the Overdraft
Honor Program, a deposit service provided to the Bank's checking accounts, to
enhance the Company's non-interest income.
NON-INTEREST EXPENSE.
Non-interest expense increased $113,000 or 3.9% during the three months ended
December 31, 2004 compared to the same period in 2003. The increase was
primarily due to increases of $57,000 and $105,000 in occupancy and equipment
and other non-interest expense, respectively, partially offset by an $85,000
decrease in real estate operations. The increase in occupancy and equipment was
related to branch expansion which occurred in the fourth quarter of 2004. Other
non-interest expense increased due to the implementation of a training program
re-affirming the Company's commitment to maximizing customer service as well as
increased general administrative expenses. In addition, the increase in
non-interest expense also reflected increases of $14,000 and $17,000 in
professional fees and data processing expenses, respectively.
INCOME TAX EXPENSE.
Income tax expense decreased $104,000 to $105,000 during the three months ended
December 31, 2004 as compared to the same period in 2003. The decrease reflected
the decrease in income before income taxes as compared to the same period in
2003. The effective tax rate decreased to 16.7% for the three months ended
December 31, 2004 from 22.9% for the same period in 2003 due to the effect of
tax free investments.
CRITICAL ACCOUNTING POLICIES.
The Company has identified the evaluation of the allowance for loan losses as a
critical accounting estimate where amounts are sensitive to material variation.
Critical accounting estimates are significantly affected by management judgment
and uncertainties and there is a likelihood that materially different amounts
would be reported under different, but reasonably plausible, conditions or
assumptions. The allowance for loan losses is considered a critical accounting
estimate because there is a large degree of judgment in (i) assigning individual
loans to specific risk levels (pass, special mention, substandard, doubtful and
loss), (ii) valuing the underlying collateral securing the loans, (iii)
determining the appropriate reserve factor to be applied to specific risk levels
for criticized and classified loans (special mention, substandard, doubtful and
loss) and (iv) determining reserve factors to be applied to pass loans based
upon loan type. To the extent that loans change risk levels, collateral values
change or reserve factors change, the Company may need to adjust its provision
for loan losses which would impact earnings.
The determination of the allowance for loan losses requires management to make
significant estimates with respect to the amounts and timing of losses and
market and economic conditions. Accordingly, a decline in the economy could
increase loan delinquencies, foreclosures or repossessions resulting in
increased charge-off amounts and the need for additional loan loss allowances in
future periods. The Bank will continue to monitor and adjust its allowance for
loan losses through the provision for loan losses as economic conditions and
other factors dictate. Management reviews the allowance for loan losses and
generally on a monthly basis. Although the Bank maintains its allowance for loan
losses at levels considered adequate to provide for the inherent risk of loss in
its loan portfolio, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods. In addition, the Bank's determination as to the
amount of its allowance for loan losses is subject to review by its primary
regulator, the Office of Thrift Supervision (the "OTS"), as part of its
examination process, which may result in additional allowances based upon the
judgment and review of the OTS.
-15-
LIQUIDITY AND CAPITAL RESOURCES.
The Company's liquidity, represented by cash and cash equivalents, is a product
of its operating, investing and financing activities. The Company's primary
sources of funds are deposits, amortization, prepayment and maturities of
outstanding loans and mortgage-related securities, sales of loans, maturities of
investment securities and other short-term investments, borrowing and funds
provided from operations. While scheduled payments from the amortization of
loans and mortgage-related securities and maturing investment securities and
short-term investments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition. In addition, the Company invests excess
funds in overnight deposits and other short-term interest-earning assets which
provide liquidity to meet lending requirements. The Company has been able to
generate sufficient cash through its deposits as well as borrowings to satisfy
its funding commitments. At December 31, 2004, the Company had short-term
borrowings (due within one year or currently callable by the FHLB) outstanding
of $167.9 million, all of which consisted of advances from the FHLB of
Pittsburgh.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer term basis, the Company maintains a
strategy of investing in various lending products, mortgage-related securities
and investment securities. The Company uses its sources of funds primarily to
meet its ongoing commitments, to fund maturing certificates of deposit and
savings withdrawals, fund loan commitments and maintain a portfolio of
mortgage-related and investment securities. At December 31, 2004, total approved
loan commitments outstanding amounted to $15.5 million, not including loans in
process. At the same date, commitments under unused lines of credit amounted to
$38.4 million. Certificates of deposit scheduled to mature in one year or less
at December 31, 2004 totaled $86.2 million. Based upon the Company's historical
experience, management believes that a significant portion of maturing deposits
will remain with the Company.
As of December 31, 2004, the Bank had regulatory capital which was in excess of
applicable requirements. The Bank is required under applicable federal banking
regulations to maintain tangible capital equal to at least 1.5% of its adjusted
total assets, core capital equal to at least 4.0% of its adjusted total assets
and total capital to at least 8.0% of its risk-weighted assets. At December 31,
2004, the Bank had tangible capital and core capital equal to 8.3% of adjusted
total assets and total capital equal to 15.0% of risk-weighted assets.
IMPACT OF INFLATION AND CHANGING PRICES.
The Consolidated Financial Statements of the Company and related notes presented
herein have been prepared in accordance with generally accepted accounting
principles which requires the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the price
of goods and services, since such prices are affected by inflation to a larger
extent than interest rates. In the current interest rate environment, liquidity
and the maturity structure of the Company's assets and liabilities are critical
to the maintenance of acceptable performance levels.
-16-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's asset and liability management policies, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" in the Company's Annual Report for the year ended September 30, 2004.
The Company utilizes reports prepared by the OTS to measure interest rate risk.
Using data from the Bank's quarterly thrift financial reports, the OTS models
the net portfolio value ("NPV") of the Bank over a variety of interest rate
scenarios. The NPV is defined as the present value of expected cash flows from
existing assets less the present value of expected cash flows from existing
liabilities plus the present value of net expected cash inflows from existing
off-balance sheet contracts. The model assumes instantaneous, parallel shifts in
the U.S. Treasury Securities yield curve up to 300 basis points, and a decline
of 100 basis points.
The interest rate risk measures used by the OTS include an "Exposure Measure" or
"Post-Shock" NPV ratio and a "Sensitivity Measure". The "Post-Shock" NPV ratio
is the net present value as a percentage of assets over the various yield curve
shifts. A low "Post-Shock" NPV ratio indicates greater exposure to interest rate
risk and can result from a low initial NPV ratio or high sensitivity to changes
in interest rates. The "Sensitivity Measure" is the decline in the NPV ratio, in
basis points, caused by a 2% increase or decrease in rates, whichever produces a
larger decline.
As of December 31, 2004, there were no material changes from the information
provided in the Annual Report on Form 10-K for the fiscal year ended September
30, 2004 as it relates to market risk.
ITEM 4. CONTROLS AND PROCEDURES
Our management evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this report. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rule
13a-15(f) under the Securities Exchange Act of 1934) occurred during the most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
-17-
PART II
Item 1. Legal Proceedings
No material changes in the legal proceedings previously disclosed in
Item 3 of the Company's Form 10-K for the year ended September 30,
2004.
Item 2. Changes in Securities, Unregistered Sales of Equity Securities and Use
of Proceeds
(a) - (b) Not applicable
(c) The following table sets forth information with respect to
purchases made by or on behalf of the Company of shares of common
stock of the Company during the indicated periods.
Total Number of
Total Average Shares Purchased Maximum Number of
Number Price as Part of Shares that May Yet
of Shares Paid per Publicly Be Purchased Under
Period (1) Purchased Share Announced Plan the Plan
---------- --------- ----- -------------- --------
October 1-31, 2004 -- -- -- 56,332
November 1-30, 2004 -- -- -- 56,332
December 1-31, 2004 -- -- -- 56,332
------ ------ ------
Total -- -- -- 56,332
====== ===== ====== ======
- -------------------------
(1) On January 31, 2003, the Company announced its current program to
repurchase up to 101,000 of shares of common stock of the Company. The
program has no expiration date. No shares were repurchased during the
quarter in other than the publicly announced repurchase program.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On January 26, 2005, the Annual Meeting of Stockholders of the Company
was held to elect management's nominees for director and to ratify the
appointment of the Company's independent auditors. No other nominations
for directors were submitted. With respect to the election of
directors, the results were as follows:
Votes
-----------------------
Nominee For Withheld
------- --------- --------
Donald G. Hosier, Jr. 1,759,357 30,380
Marshall J. Soss 1,758,151 31,587
With respect to the ratification of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending September 30,
2005, the results were as follows: 1,779,866 votes for, 9,771 votes
against and 101 votes abstaining.
-18-
Item 5. Other Information
(a) None
(b) No changes in procedures.
Item 6. Exhibits
List of Exhibits
Exhibit
No Description
-- -----------
3.1 Amended and Restated Articles of Incorporation of First Keystone
Financial, Inc. 1
3.2 Amended and Restated Bylaws of First Keystone Financial, Inc. 1
4 Specimen Stock Certificate of First Keystone Financial, Inc. 1
10.1 Employee Stock Ownership Plan and Trust of First Keystone
Financial, Inc. 1, *
10.2 401(K)/ Profit-sharing Plan of First Keystone Federal Savings
Bank 1, *
10.3 Employment Agreement between First Keystone Financial, Inc. and
Donald S. Guthrie dated December 1, 2004 3,*
10.4 Employment Agreement between First Keystone Financial, Inc. and
Stephen J. Henderson dated December 1, 2004 2
10.5 Employment Agreement between First Keystone Financial, Inc. and
Thomas M. Kelly dated December 1, 2004 3,*
10.6 Severance Agreement between First Keystone Financial, Inc. and
Elizabeth M. Mulcahy dated December 1, 2004 3,*
10.8 Severance Agreement between First Keystone Financial, Inc. and
Carol Walsh dated December 1, 2004 3,*
10.9 1995 Stock Option Plan 4, *
10.10 1995 Recognition and Retention Plan and Trust Agreement 4,*
10.11 1998 Stock Option Plan 5, * 10.12 Employment Agreement between
First Keystone Bank and Donald S. Guthrie dated December 1, 2004 3, *
10.13 Employment Agreement between First Keystone Federal Savings Bank
and Stephen J. Henderson dated December 1, 2004 2
10.14 Employment Agreement between First Keystone Bank and Thomas M.
Kelly dated December 1, 2004 3, *
10.15 Severance Agreement between First Keystone Bank and Elizabeth M.
Mulcahy dated December 1, 2004 3, *
10.16 Severance Agreement between First Keystone Bank and
Carol Walsh dated December 1, 2004 3, *
10.17 First Keystone Bank Supplemental Executive Retirement Plan 6,*
10.18 Consulting Agreement between First Keystone Bank and Edmund Jones 7,*
11 Statement re: computation of per share earnings. See Note 2 to
the Consolidated Financial Statements included in Item 8 hereof.
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.1 Codes of Ethics 8
-19-
- ----------
(1) Incorporated by reference from the Registration Statement Form S-1
(Registration No. 33-84824) filed by the Registrant with the SEC on October
6, 1994, as amended.
(2) Incorporated by reference from the Form 10-K filed by the Registrant with
the SEC on December 29, 1999 (File No. 000-25328).
(3) Incorporated by reference from the Form 8-K filed by the Registrant with
the SEC on December 7, 2004 (File No. 000-25328).
(4) Incorporated by reference from the Form 10-K filed by the Registrant with
SEC on December 29, 1995 (File No. 000-25328).
(5) Incorporated from Appendix A of the Registrant's definitive proxy statement
dated December 24, 1998 (File No. 000-25328).
(6) Incorporated by reference from the Form 10-Q filed by the Registrant with
the SEC on May 17, 2004.
(7) Incorporated by reference from the Form 10-K filed by the Registrant with
the SEC on December 29, 2004.
(8) Incorporated by reference from the Form 10-K filed by the Registrant with
the SEC on December 23, 2003.
(*) Consists of a management contract or compensatory plan
-20-
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.
FIRST KEYSTONE FINANCIAL, INC.
Date: February 14, 2005 By: /s/ Donald S. Guthrie
---------------------------------
Donald S. Guthrie
Chairman and Chief Executive Officer
Date: February 14, 2005 By: /s/ Rose M. DiMarco
---------------------------------
Rose M. DiMarco
Chief Financial Officer
-21-