Exhibit 99.1
FIRST 22 West State Street
KEYSTONE Media, PA 19063
FINANCIAL, INC. 610-565-6210
FOR IMMEDIATE RELEASE
FIRST KEYSTONE FINANCIAL ANNOUNCES
YEAR END RESULTS AND DECLARES CASH DIVIDEND
Media, PA November 25, 2005 - (Nasdaq: FKFS) The Company reported
today net income for the quarter ended September 30, 2005 of $62,000, or $0.03
per diluted share, compared to net income of $207,000, or $0.12 per diluted
share, for the same period last year. The decline in earnings in the fourth
quarter primarily reflected the effects of the implementation of a balance
sheet restructuring designed to improve the Company's capital ratios, to
mitigate margin compression and to enhance future earnings performance. Net
income for the fiscal year ended September 30, 2005 was $610,000, or $0.33 per
diluted share, as compared to $2.2 million, or $1.21 per diluted share, for
fiscal 2004 and reflected the fourth quarter deleveraging strategy as well as
the $1.6 million provision for loan losses during the third quarter.
Net income for the quarter was significantly affected by the Company's
implementation of a deleveraging strategy to restructure its balance sheet.
The Company's deleveraging strategy involved:
* The sale of approximately $47.5 million of investment and mortgage-
related securities with a weighted average book yield of 3.97%
resulting in a pre-tax gain of approximately $168,000;
* The repayment of $20 million of Federal Home Loan Bank ("FHLB")
fixed-rate convertible advances with a weighted average cost of
approximately 5.44% and a final maturity of 2008 resulting in a
pre-tax charge of approximately $486,000; and
* The repayment of approximately $26 million in floating-rate borrowings
from the FHLB.
"While there were significant costs associated with executing this
strategy, the Company's balance sheet and interest rate risk profile have been
improved", said Thomas M. Kelly, President and Chief Executive Officer of First
Keystone Financial, Inc. "The deleveraging strategy has reduced the negative
impact associated with high cost fixed-rate borrowings. By repaying certain
floating-rate advances with the proceeds from the sales of lower coupon
fixed-rate investments, we have also reduced the potential impact of further
increases in short-term borrowing costs over the next year. In addition, this
strategy has improved the overall capital ratios of the Bank."
The Company also announced that its Board of Directors, at the November
22, 2005 meeting, declared a $0.11 cash dividend on each share of common stock
of the Company, payable on January 2, 2006 to shareholders of record at the
close of business on December 16, 2005.
For the three months ended September 30, 2005, net interest income
decreased by $141,000, or 5.0%, as compared to the same period in 2004.
Interest income increased $312,000, or 4.8%, for the quarter ended September
30, 2005 compared to the same period in the prior year primarily due to a 33
basis point increase in the average yield earned on interest-earning assets.
However, such increase was offset by a $453,000, or 12.2%, increase in interest
expense for the quarter ended September 30, 2005 as compared to the fourth
quarter of fiscal 2004 primarily due to a 37 basis point increase in the
average rate paid on interest-bearing liabilities. The further compression of
the Company's net interest margin was largely due to continued increases in the
cost of overnight borrowings and adjustable rate trust preferred securities
which outpaced the upward adjustments of yields on interest-earning assets.
The Company's interest rate margin on a tax-equivalent basis decreased to
2.11% for the quarter ended September 30, 2005 as compared to 2.17% for the
same period last year. (See footnote 2 to the table below.)
On a linked quarter basis, net interest income decreased $123,000 in the
fourth quarter of fiscal 2005 compared to the third quarter of fiscal 2005.
The net interest margin on a tax-equivalent basis decreased 6 basis points
from 2.17% for the three months ended June 30, 2005. (See footnote 2 to the
table below). During the fourth quarter of fiscal 2005 as compared to the
third, the Company experienced a 17 basis point increase in the rates paid on
interest-bearing liabilities which was partially offset by a 15 basis point
increase in the yield earned on average interest-earning assets.
For the quarter ended September 30, 2005, non-interest income increased
$815,000 to $906,000 from the same period last year. The increase was
primarily the result of a $727,000 increase in gains on sale of investment and
mortgage-related securities, a substantial portion of which related to the
sales made in connection with the balance sheet restructuring.
Non-interest expense for the quarter ended September 30, 2005 increased
$797,000, or 28.2%, from the same period last year. The increase in
non-interest expense was primarily due to the pre-tax charge of $486,000
incurred as a result of the retirement of FHLB advances. In addition, the
Company experienced increases of $181,000 and $117,000 in professional fees
and salaries and employee benefits, respectively, during the fourth quarter
of fiscal 2005. The increase in professional fees was due to the additional
auditing and legal fees incurred as a result of complying with additional
regulatory requirements combined with professional costs incurred in
connection with a non-performing loan. Salaries and employee benefits
increased due to additional personnel and increased medical insurance costs.
As a result of the deleveraging strategy, the Company's total assets
decreased to $518.1 million at September 30, 2005 from $571.9 million at
September 30, 2004. Investment and mortgage-related securities available for
sale decreased $56.7 million to $104.5 million mainly due to sales conducted
as a part of the implementation of the deleveraging strategy. Offsetting this
decrease, in part, was a $9.3 million increase in the Company's held to
maturity portfolios mainly due to the reinvestment of proceeds and cash flows
from the available for sale securities portfolio in order to minimize the
effect of price volatility on the Company's equity. Although loans receivable
decreased slightly to $302.0 million at September 30, 2005 from $304.2 million
at September 30, 2004, the composition of the loan portfolio continued to
shift to more interest-sensitive assets. Commercial and multi-family real
estate, construction, home equity and commercial business loans accounted for
53.7% of the total loan portfolio at September 30, 2005 as compared to 48.7%
at September 30, 2004. Total deposits increased $4.8 million, or 1.4%, to
$349.7 million at September 30, 2005 from $344.9 million at September 30, 2004.
The level of the Company's borrowings decreased $57.8 million, or 33.8%, from
September 30, 2004 as the Company used the proceeds of the securities sales to
retire the debt during the fourth quarter. Stockholders' equity decreased
$1.5 million to $28.2 million resulting from a decline in other comprehensive
income of $1.9 million primarily due to increases in market rates of interest
combined with dividend payments totaling $810,000 partially offset by net
income of $610,000 for the fiscal year ended September 30, 2005.
Total non-performing assets totaled $5.8 million at September 30, 2005 as
compared to $3.3 million at September 30, 2004 and $5.7 million at June 30,
2005. The Company's ratio of non-performing assets to total assets was 1.12%
at September 30, 2005 compared to 0.57% at September 30, 2004. The increase in
non-performing assets was primarily due to a $3.8 million commercial real
estate relationship being placed on a non-accrual status partially offset by
a $530,000 commercial loan returning to current status and a $469,000 decrease
in real estate owned.
First Keystone Bank, the Company's wholly owned subsidiary, serves its
customers from eight 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
5
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 Year Ended
September 30, September 30,
______________________________________________
2005 2004 2005 2004
______________________________________________
Net interest income $2,702 $2,843 $11,308 $11,431
Provision for loan losses 45 75 1,780 300
Non-interest income 906 91 3,589 3,899
Non-interest expense 3,624 2,827 12,820 12,501
______________________________________________
(Loss) income before taxes (61) 32 297 2,529
Income tax (benefit) expense (123) (175) (313) 326
______________________________________________
Net income $ 62 $ 207 $ 610 $ 2,203
==============================================
Basic earnings per share $ 0.03 $ 0.12 $ 0.33 $ 1.21
Diluted earnings per share 0.03 0.11 0.33 1.14
Dividends per share 0.11 0.11 0.44 0.44
Number of shares outstanding
at end of period 2,023,534 1,927,744 2,023,534 1,927,744
Weighted average basic shares
outstanding 1,885,711 1,786,047 1,842,434 1,820,137
Weighted average diluted
shares outstanding 1,916,447 1,893,033 1,875,605 1,937,612
_______________________________________________________________________________
FIRST KEYSTONE FINANCIAL, INC.
SELECTED FINANCIAL DATA
(In thousands except per share data)
(Unaudited)
September 30, September 30,
2005 2004
_______________________________
Total assets $518,124 $571,919
Loans receivable, net 301,979 304,248
Investment and mortgage-related securities
available for sale 104,546 161,235
Investment and mortgage-related securities
held to maturity 50,921 42,650
Cash and cash equivalents 16,155 17,975
Deposits 349,694 344,880
Borrowings 113,303 171,149
Junior subordinated debt 21,520 21,557
Loan loss allowance 3,475 2,039
Total stockholders' equity 28,193 29,698
Book value per share $13.93 $15.41
_______________________________________________________________________________
6
FIRST KEYSTONE FINANCIAL, INC.
OTHER SELECTED DATA
(Unaudited)
At or for the At or for the
Three Months Ended Year Ended
September 30, September 30,
____________________________________
2005 2004 2005 2004
____________________________________
Return on average assets (1) 0.04% 0.15% 0.11% 0.39%
Return on average equity (1) 0.86% 2.88% 2.08% 7.13%
Interest rate spread (1) (2) 2.12% 2.16% 2.16% 2.21%
Net interest margin (1) (2) 2.11% 2.17% 2.18% 2.23%
Interest-earning assets/interest-bearing
liabilities(2) 99.80% 100.60 100.52 100.69%
Operating expenses to average assets (1) 2.57% 1.99% 2.26% 2.23%
Ratio of non-performing assets to total
assets at end of period 1.12% 0.57% 1.12% 0.57%
Ratio of allowance for loan losses to
gross loans receivable 1.14% 0.67% 1.14% 0.67%
Ratio of loan loss allowance to
non-performing loans at end of period 68.79% 100.29% 68.79% 100.29%
(1) Annualized.
(2) 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
investments. Without the adjustment for taxes, the interest rate
spread was 2.05% and 2.10% for the quarter ended September 30, 2005
and 2004, respectively, while the net interest margin was 2.04% and
2.11% for the quarter ended September 30, 2005 and 2004, respectively.
Without the adjustment for taxes, the interest rate spread was 2.10%
and 2.14% for the twelve months ended September 30, 2005 and 2004,
respectively, while the net interest margin was 2.11% and 2.16% for
the twelve months ended September 30, 2005 and 2004, respectively. In
addition, with respect to June 30, 2005, without the adjustment for
taxes, the interest rate margin was 2.14%.
CONTACT: Thomas M. Kelly, President and Chief Executive Officer
Rose M. DiMarco, Chief Financial Officer
(610) 565-6210
7