Exhibit 99.1
FIRST 22 West State Street
KEYSTONE Media, PA 19063
FINANCIAL, INC. 610-565-6210
FOR IMMEDIATE RELEASE
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FIRST KEYSTONE FINANCIAL ANNOUNCES
SECOND QUARTER RESULTS
Media, PA May 15, 2006 - (Nasdaq:FKFS) First Keystone Financial,
Inc., the holding company for First Keystone Bank (the "Bank"), reported
today net income for the quarter ended March 31, 2006 of $19,000, or
$0.01 per diluted share, compared to $638,000, or $0.34 per diluted
share, for the same period last year. Net income for the six months
ended March 31, 2006 amounted to $464,000, or $0.24 per diluted share,
as compared to $1.2 million, or $0.63 per diluted share, for the same
period in 2005. The substantial decline in net income in the 2006
periods was due primarily to a significant increase in the Company's
provision for loans losses as well as increased foreclosure costs
incurred during the second quarter of fiscal 2006. The increase in the
provision reflected the effects of a $1.1 million charge to the loan
loss allowance and the increased foreclosure costs were due to the transfer
to real estate owned of a large non-performing commercial real estate loan
at the end of the second quarter of fiscal 2006.
"We are very disappointed by the impact of the foreclosure on the
quarter's results," stated President and Chief Executive Officer Thomas M.
Kelly. "The Company has moved aggressively to resolve our largest non-
performing credit and will aggressively market the property for sale. We
remain focused on maintaining and increasing our core deposits and attracting
higher yielding loans," continued Kelly. "To date for fiscal 2006, total
deposits are up by $13.0 million, including $4.3 million of core deposits, our
loan portfolio has increased $4.5 million, the level of non-performing assets
has declined and the net interest margin has improved from the same period in
the prior year," added Kelly.
Net interest income for the three months ended March 31, 2006 decreased
$133,000, or 4.5%, to $2.8 million as compared to the same period in 2005.
The decrease in net interest income was primarily the result of an $83,000, or
1.2% decrease, in interest income for the quarter ended March 31, 2006. As a
result of the deleveraging strategy implemented in the fourth quarter of
fiscal 2005, the average balance of interest-earning assets decreased $54.8
million, or 10.3%, which was partially offset by a 53 basis point increase in
the weighted average yield earned on such assets to 5.68% on a tax-equivalent
basis. The decrease in net interest income was also attributable to a
$50,000, or 1.3%, increase in interest expense for the quarter ended March 31,
2006 as compared to the second quarter of fiscal 2005 primarily due to 36
basis point increase in the weighted average rate paid on interest-bearing
liabilities to 3.24%, offset in part, by a $52.1 million decrease in the
average balance of interest-bearing liabilities. The Company's net interest
margin, on a tax-equivalent basis, increased by 15 basis points in the second
quarter of fiscal 2006 to 2.44% as compared to 2.29% for the second quarter of
fiscal 2005.
On a linked quarter basis, net interest income increased by $48,000, or
1.7% from the quarter ended December 31, 2005. During the second quarter of
fiscal 2006, as compared to the first quarter of fiscal 2006, the Company
experienced an eight basis point increase in the yield earned on average
interest-earning assets which was partially offset by a six basis point
increase in the rates paid on interest-bearing liabilities. Notwithstanding
the difficult interest rate environment combined with the intense competition
being experienced in the marketplace, the Company was able to improve its net
interest margin by two basis points to 2.44% compared to the prior quarter.
For the quarter ended March 31, 2006, non-interest income decreased
$301,000 to $800,000 from the same period last year due primarily to the
Company not experiencing any gain on sales of investment securities in the
2006 period. During the quarter ended March 31, 2005, the Company recognized
$449,000 of gains on sales of investment securities resulting from the
implementation of certain asset/liability strategies. The decrease in non-
interest income was partially offset by a $158,000 pre-tax gain on the sale of
a real estate owned property described below.
Non-interest expense increased $22,000 to $3.2 million for the quarter
ended March 31, 2006 as compared to the same period last year. The increase
for the quarter ended March 31, 2006 was primarily due to an increase of
$269,000 in professional fees, partially offset by decreases of $209,000 and
$84,000 in salaries and employee benefits and other non-interest expense,
respectively. Professional fees were substantially higher in the 2006 period
due to expenses incurred in connection with the foreclosure of a non-
performing commercial loan credit. Salaries and employee benefits costs were
higher in the 2005 period due to certain benefits incurred as part of a
retirement package as well as accruals for certain incentive programs. Other
non-interest expense decreased due to the completion of a bank-wide customer
service training program in October 2005 as well as decreases in general
administrative expenses.
Non-performing loans decreased from $5.1 million at September 30, 2005
to $811,000 at March 31, 2006 primarily due to the transfer of a $3.3 million
commercial real estate loan to real estate owned and a charge-off of $500,000
for a related commercial business loan combined with the repayment in full of
a $770,000 residential construction loan. As of March 31, 2006, the Company
transferred to real estate owned a property located in Chesapeake City,
Maryland that secured a $3.3 million commercial real estate loan as a result
of the Company taking possession of the property. The Company also had a
$500,000 commercial business loan secured by the property in connection with
this loan relationship. The Company previously allocated reserves of $959,000
as of the quarter ended June 30, 2005. In connection with the Company's review
of the fair value of the collateral supporting the loans, the Company recognized
an additional reserve of $178,000 in the three months ended March 31, 2006,
increasing the total reserve for the loans to approximately $1.1 million. As
a result of the transfer of the property to real estate owned, the Company
charged-off $1.1 million against the allowance for loan losses in the quarter
ended March 31, 2006. The Company is actively marketing the property for sale
but realizes that, due to the unique nature of the property as a waterfront
restaurant, it might take an extended period to find a buyer. In addition,
the Company anticipates that certain repairs and improvements will be necessary
to improve the property's marketability, a significant portion of which will
be capitalized.
Offsetting the increase in real estate owned was the sale during the
quarter of a golf facility in which the Company held a 25% participation
interest. The sale of the property, which was carried at a value of $760,000,
resulted in a pre-tax gain of $158,000 which was included in non-interest
income. As a result, the net increase in real estate owned was $1.9 million.
The net effect of the transfer, sales and repayments was to reduce the
Company's total non-performing assets from $5.8 million or 1.12% of total
assets at September 30, 2005 to $3.5 million or 0.68% of total assets at March
31, 2006.
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For the three months ended March 31, 2006, the provision for loan losses
increased $480,000 to $525,000 as compared to the same period in 2005. The
increase of $480,000 in the provision for loan losses was due to the
additional reserve of $180,000 discussed above as well as a determination that
an additional provision of $345,000 was required as result of the continual
evaluation of the classified and pass loan portfolios to bring the overall
allowance for loan losses to a level deemed appropriate. The Company focuses
on its loan portfolio management and credit review process to address the
current risk profile of the portfolio and manage troubled credits. This
analysis includes evaluations of concentrations of credit, past loss experience,
current economic conditions, the amount and composition of the loan portfolio,
the estimated fair value of underlying collateral, loan commitments outstanding,
delinquencies and other factors. The Company's coverage ratio, which is the
ratio of the allowance for loan losses to non-performing loans, was 356.7% and
68.8% at March 31, 2006 and September 30, 2005, respectively, while the ratio
of the allowance to gross loans receivable was 0.94% and 1.14% at the same
dates.
The Company's total assets increased slightly to $519.8 million at March
31, 2006 from $518.1 million at September 30, 2005. Loans receivable increased
$4.5 million, or 1.5%, to $306.5 million at March 31, 2006 as the Company
continued its emphasis on originating commercial business loans, commercial
real estate loans and home equity loans. Deposits increased $13.0 million, or
3.7%, from $349.7 million at September 30, 2005 to $362.7 million at March 31,
2006 as a result of an $8.7 million, or 5.1%, increase in certificates of
deposit and, to a lesser extent, an increase of $4.3 million, or 2.4%, in core
deposits (which consist of passbook, money market, NOW and non-interest
bearing accounts). Total borrowings decreased $11.3 million, or 10.0%, to
$102.0 million at March 31, 2006 from $113.3 million at September 30, 2005 as
the Company used deposit flows to fund its asset growth. Stockholders' equity
declined slightly due to a $1.2 million decline in comprehensive income
combined with dividend payments in the first quarter of fiscal 2006 totaling
$208,000, offset partially by net income of $464,000 for the six months ended
March 31, 2006.
First Keystone Bank, the Company's wholly owned subsidiary, serves its
customers from eight full-service offices 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, 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 and the effects
of the supervisory agreements entered into by the Company and the Bank with
the Office of Thrift Supervision. 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.
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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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2006 2005 2006 2005
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<s> <c> <c> <c> <c>
Net interest income $ 2,828 $ 2,961 $ 5,608 $ 5,781
Provision for loan losses 525 45 570 90
Non-interest income 800 1,101 1,573 2,000
Non-interest expense 3,226 3,204 6,217 6,250
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Income (loss) before taxes (123) 813 394 1,441
Income tax (benefit) expense (142) 175 (70) 280
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Net income $ 19 $ 638 $ 464 $ 1,161
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Basic earnings per share $ 0.01 $ 0.35 $ 0.25 $ 0.64
Diluted earnings per share 0.01 0.34 0.24 0.63
Dividends per share -- 0.11 0.11 0.22
Number of shares outstanding at end of period 2,023,974 2,002,132 2,023,974 2,002,132
Weighted average basic shares outstanding 1,890,608 1,824,419 1,889,463 1,804,703
Weighted average diluted shares outstanding 1,913,500 1,873,905 1,913,029 1,853,511
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FIRST KEYSTONE FINANCIAL, INC.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
(Unaudited)
March 31, September 30,
2006 2005
--------------------------
<s> <c> <c>
Total assets $519,755 $518,124
Loans receivable, net 306,465 301,979
Investment and mortgage-related securities available for sale 111,965 104,546
Investment and mortgage-related securities held to maturity 45,564 50,921
Cash and cash equivalents 16,752 16,155
Deposits 362,710 349,694
Borrowings 101,977 113,303
Junior subordinated debt 21,502 21,520
Loan loss allowance 2,893 3,475
Total stockholders' equity 27,320 28,193
Book value per share $13.50 $13.93
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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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2006 2005 2006 2005
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<s> <c> <c> <c> <c>
Return on average assets (1) 0.01% 0.45% 0.18% 0.41%
Return on average equity (1) 0.27% 8.51% 3.32% 7.79%
Interest rate spread (1) (2) 2.44% 2.27% 2.43% 2.21%
Net interest margin (1) (2) 2.44% 2.29% 2.43% 2.22%
Interest-earning assets/interest-bearing liabilities(2) 100.10% 100.60% 99.96% 100.49%
Operating expenses to average assets (1) 2.52% 2.27% 2.44% 2.20%
Ratio of non-performing assets to total assets at
end of period 0.68% 0.98% 0.68% 0.98%
Ratio of allowance for loan losses to gross loans
receivable at end of period 0.94% 0.67% 0.94% 0.67%
Ratio of loan loss allowance to non-performing loans
at end of period 356.74% 43.79% 356.74% 43.79%
(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
neither 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 2.36% and 2.21% for the quarters ended March 31, 2006 and
2005, respectively, while the net interest margin was 2.37% and 2.22%
for the quarters ended March 31, 2006 and 2005, respectively. Without
the adjustment for taxes, the interest rate spread was 2.36% and 2.15%
for the six months ended March 31, 2006 and 2005, respectively, while
the net interest margin was 2.36% and 2.16% for the six months ended
March 31, 2006 and 2005, respectively. In addition, with respect to
December 31, 2005, without the adjustment for taxes, the interest rate
margin was 2.35%.
CONTACT: Thomas M. Kelly, President
Rose M. DiMarco, Chief Financial Officer
(610) 565-6210
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