EXHIBIT 99.1
FIRST 22 West State Street
KEYSTONE Media, PA 19063
FINANCIAL, INC. 610-565-6210
FOR IMMEDIATE RELEASE
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CONTACT: THOMAS M. KELLY, PRESIDENT
(610) 565-6210
FIRST KEYSTONE FINANCIAL ANNOUNCES
SECOND QUARTER RESULTS
Media, PA May 5, 2004 - Donald S. Guthrie, Chairman and
Chief Executive Officer of First Keystone Financial, Inc.
(Nasdaq: FKFS) reported today net income for the quarter ended
March 31, 2004 of $627,000, or $0.32 per diluted share,
compared to $693,000, or $0.34 per diluted share, for the same
period last year. Net income for the six months ended March
31, 2004 was $1.4 million, or $0.70 per diluted share, as
compared to $1.5 million, or $0.73 per diluted share, for the
same period in 2003.
"Like most of the banking industry, we continue to
experience margin compression this quarter due to the continued
low interest rate environment, however, I am pleased to report
that the quarter was bolstered by significant gains on equity
investments," said Guthrie. "Management will continue to
actively pursue various strategies to improve our net interest
margin as well as our fee-based income," added Guthrie.
For the three and six months ended March 31, 2004, net
interest income decreased $209,000, or 7.0%, and $393,000, or
6.5%, respectively. The decline in net interest income
reflected the continued interest rate compression being
experienced by the Company as the weighted average yield on
interest-earning assets continued to decrease more rapidly than
the cost of interest-bearing liabilities. Interest income
decreased $534,000, or 7.7%, for the quarter ended March 31,
2004 compared to the same period in the prior year primarily
due to a 76 basis point decrease in the average yield earned on
interest-earning assets partially offset by a $32.8 million
increase in the average balance of such assets. Interest
expense also decreased $325,000, or 8.1%, for the quarter ended
March 31, 2004 as compared to the second quarter of fiscal 2003
primarily due to a 46 basis point decrease in rates paid on
interest-bearing liabilities partially offset by a $35.1
million increase in the average balance of such liabilities.
As a result of the compression in the Company's yields when
compared to its liability costs, its interest rate margin on a
tax equivalent basis decreased to 2.16% for the quarter ended
March 31, 2004 as compared to 2.48% for the second quarter of
fiscal 2003.
On a linked quarter basis, net interest income decreased
$123,000 in the second quarter of fiscal 2004 compared to the
first quarter of fiscal 2004. In addition, the net interest
margin on a tax equivalent basis decreased 14 basis points from
2.30% for the three months ended December 31, 2003. During the
second quarter of fiscal 2004 as compared to the first, the
Company experienced a 24 basis point decrease in the yield
earned on average interest-earning assets which was partially
offset by a 8 basis point decline in the rates paid on interest-
bearing liabilities. The compression in the net interest
margin was primarily the result of reinvesting at current low
interest rates the cash flows resulting from the continued
elevated rate of repayments of mortgage-related securities and
the calls on investment securities resulting from the low
interest rate environment.
The provision for loan losses decreased $120,000, or
61.5%, to $75,000 for the three months ended December 31, 2003
compared to the same period in the prior year. The decrease in
the provision was primarily due to the decrease in non-
performing assets from March 31, 2003. Total non-performing
assets decreased to $2.9 million at March 31, 2004 from $3.6
million at March 31, 2003. The Company's ratio of
non-performing assets to total assets decreased to 0.51% at
March 31, 2004 compared to 0.66% at March 31, 2003.
For the quarter ended March 31, 2004, non-interest income
increased $1.6 million to $2.2 million from the same period last
year. Non-interest income increased $2.1 million to $3.2 million
for the six months ended March 31, 2004 in comparison to the same
period last year. For the three months ended March 31, 2004, the
increase was primarily the result of an increase in the gain on sale
of investment securities and other non-interest income. The gain on
sales of investment securities reflected the proceeds from the sale
or exchange of securities of entities which were acquired in which
the Company had an equity interest. Other non-interest income
increased because the Company recognized income of $550,000 in
connection with a repayment of a commercial real estate loan. Under
the terms of the loan, certain additional contingent payments were
due upon repayment of the loan in full.
Non-interest expense for the quarter ended March 31, 2004
increased $1.6 million from the same period last year primarily due
to compensation and employee benefit expenses and other non-interest
expenses. The increase in compensation and employee benefit
expenses was due to an additional $598,000 benefit expense relating
to the funding of non-qualified supplemental retirement plan for
certain executive officers and the prepayment of the outstanding
loan balance on the original loan to the Company's employee stock
ownership plan ("ESOP") which resulted in an additional $452,000
expense. The partial funding of the retirement benefits and
prepayment of the loan for the Company's ESOP will decrease the cost
of these benefit plans over the next several years. In addition, the
increase in non-interest expense was also due to increases of
$104,000 and $73,000 in professional fees and real estate
operations, respectively. Non-interest expense for the six months
ended March 31, 2004 increased $2.0 million, or 40.1%, by comparison
to the same period in the prior year.
The Company's total assets increased to $570.8 million at March
31, 2004, an $11.2 million, or 2.0%, increase from $559.6 million at
September 30, 2003. Mortgage-related securities held to maturity
increased to $28.6 million from $3.5 million at September 30, 2003
mainly due to the Company's strategy to reinvest the cash flows from
the loan and securities portfolio into the held to maturity
portfolio in order to minimize the effect of price volatility to the
Company's financial statements. Loans receivable increased to $293.4
million from $286.4 million at September 30, 2003 reflecting the
Company's strategy of increasing its investment in higher yielding
assets. The increase in loans receivable was primarily the result
of increases in multi-family and commercial real estate loans and
home equity loans and lines of credit partially offset by a decline
in single-family residential loans. Total deposits decreased $9.6
million, or 2.7%, to $353.0 million at March 31, 2004 from $362.6
million at September 30, 2003. The Company increased $17.0 million,
or 12.5%, in borrowings from September 30, 2003. Borrowings were
considered an appropriate source of funds to offset the decrease in
deposits and fund asset growth. Stockholders' equity increased due
to net income of $1.4 million, partially offset the cost of
repurchasing 51,092 shares of its common stock combined with
dividend payments totaling $420,000.
First Keystone Bank, the Company's wholly owned subsidiary,
serves its customers from seven full-service offices located in
Delaware and Chester Counties.
Certain information in this release may constitute forward-
looking statements as that term is defined in the Private Securities
Litigation Act of 1995. Such forward-looking statements are subject
to risks and uncertainties that could cause actual results to differ
materially from those estimated due to a number of factors. Persons
are cautioned that such forward-looking statements are not
guarantees of future performance and are subject to various factors,
which could cause actual results to differ materially from those
estimated. These factors include, but are not limited to, changes
in general economic and market conditions and the development of an
interest rate environment that adversely affects the interest rate
spread or other income from the Company's and the Bank's investments
and operations. The Company does not undertake and specifically
disclaims any obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to
reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
This press release contains financial information determined by
methods other than in accordance with accounting principles
generally accepted in the United States of America ("GAAP") as
discussed below. Management of the Company uses these non-GAAP
measures in its analysis of the Company's performance.
FIRST KEYSTONE FINANCIAL, INC.
SELECTED OPERATIONS DATA
(In thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
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2004 2003 2004 2003
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<s> <c> <c> <c> <c>
Net interest income (1) $2,773 $2,982 $5,669 $6,062
Provision for loan losses 75 195 150 390
Non-interest income 2,169 551 3,233 1,176
Non-interest expense (1) 4,094 2,507 7,028 5,017
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Income before taxes 773 831 1,724 1,831
Income tax expense 146 138 355 357
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Net income $627 $693 $1,369 $1,474
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Basic earnings per share $0.34 $0.36 $0.75 $0.77
Diluted earnings per share 0.32 0.34 0.70 0.73
Dividends per share 0.11 0.10 0.22 0.20
Number of shares outstanding at end of period 1,924,871 2,011,541 1,924,871 2,011,541
Weighted average basic shares outstanding 1,826,967 1,912,579 1,832,759 1,909,516
Weighted average diluted shares outstanding 1,951,360 2,044,182 1,955,761 2,026,365
____________________________________________________________________________________________
FIRST KEYSTONE FINANCIAL, INC.
SELECTED FINANCIAL DATA
(In thousands except per share data)
(Unaudited)
March 31, September 30,
2004 2003
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<s> <c> <c>
Total assets $570,757 $559,612
Loans receivable, net 293,425 286,421
Investment and mortgage-related securities available for sale 180,707 202,356
Investment and mortgage-related securities held to maturity 34,891 9,802
Cash and cash equivalents 24,698 21,190
Deposits 352,956 362,605
Borrowings 153,278 136,272
Junior subordinated debt (2) 21,575 21,593
Loan loss allowance 2,084 1,986
Total stockholders' equity 33,091 32,388
Book value per share $17.19 $16.82
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FIRST KEYSTONE FINANCIAL, INC.
OTHER SELECTED DATA
(Unaudited)
At or for the At or for the
Three Months Ended Six Months Ended
March 31, March 31,
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2004 2003 2004 2003
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<s> <c> <c> <c> <c>
Return on average assets (3) 0.44% 0.53% 0.49% 0.57%
Return on average equity (3) 7.81% 8.40% 8.59% 8.99%
Interest rate spread (1) (2) (3) (4) 2.12% 2.41% 2.18% 2.50%
Net interest margin (1) (2) (3) (4) 2.16% 2.48% 2.22% 2.55%
Interest-earning assets/interest-bearing liabilities(2) (4) 101.41% 101.98% 101.36% 101.61%
Operating expenses to average assets (1) (2) (3) 2.91% 1.90% 2.51% 1.92%
Ratio of non-performing assets to total assets at
end of period (2) 0.51% 0.66% 0.51% 0.66%
Ratio of loan loss allowance to non-performing assets
at end of period 71.85% 75.35% 71.85% 75.35%
(1) Due to the adoption of FIN 46, the interest on trust preferred
securities is presented as interest expense. Amounts presented
as non-interest expense in the prior year have been reclassified
to conform with this presentation.
(2) The Company adopted FIN 46 on December 31, 2003. The adoption
resulted in the deconsolidation of certain trust preferred security
trusts previously consolidated. As such, the Company's trust
preferred securities are presented as debt. Reclassifications
have been made to the prior year to conform with the presentation.
(3) Annualized.
(4) Adjusted for the effects of tax-free investments. This is a non-GAAP
presentation. Management believes that presentation of its interest
rate spread and net interest margin on a tax-equivalent basis provides
useful information that is essential to a proper understanding of the
operating results of the Company's business. These disclosures should
not be viewed as a substitute for operating results determined in
accordance with GAAP nor are they necessarily comparable to non-GAAP
performance measures which may be presented by other companies. In
order to provide accurate comparisons of yields and margins for all
earning assets, the interest income earned on tax-exempt assets has
been increased to make them fully equivalent to other taxable interest
income investments. Without the adjustment for taxes, the interest
rate spread would be 2.05% and 2.34% for the quarter ended March 31,
2004 and 2003, respectively, while the net interest margin would be
2.09% and 2.40% for the quarter ended March 31, 2004 and 2003,
respectively. Without the adjustment for taxes, the interest rate
spread would be 2.11% and 2.41% for the six months ended March 31,
2004 and 2003 respectively, while the net interest margin would be
2.15% and 2.47% for the six months ended March 31, 2004 and 2003,
respectively.