Exhibit 99.1
FIRST 22 West State Street
KEYSTONE Media, PA 19063
FINANCIAL, INC. 610-565-6210
FOR IMMEDIATE RELEASE
FIRST KEYSTONE FINANCIAL ANNOUNCES
THIRD QUARTER RESULTS
Media, PA July 27, 2006 - (Nasdaq:FKFS) First Keystone
Financial, Inc., the holding company for First Keystone Bank
(the "Bank"), reported today net income for the quarter
ended June 30, 2006 of $267,000, or $0.14 per diluted share,
compared to a net loss of $(613,000), or $(0.32) per diluted
share, for the same period last year. Net income for the
nine months ended June 30, 2006 increased to $730,000, or
$0.38 per diluted share, as compared to $548,000, or $0.30
per diluted share, for the same period in 2005. Net income
increased $248,000 from $19,000, or $0.01 per diluted share,
for the three months ended March 31, 2006.
"We experienced strong loan growth in the third quarter
as total loans grew by $17.3 million, or 5.4%, with
construction, commercial real estate and commercial business
loans growing by $11.1 million. Our recent effort to
integrate our business development officers, branch managers
and commercial lenders has begun to produce results and is
expected to continue to drive loan demand and growth over
the next year. As a result of our increased lending
activities and our balance sheet management, our net
interest margin remained relatively stable for the quarter
and increased by 23 basis points from the comparable period
in 2005. Unfortunately, costs incurred in connection with a
property taken into real estate owned in March 2006 and
regulatory compliance costs adversely affected our quarterly
results. However, we are optimistic that our operating
performance will improve over the next several quarters,"
said Thomas M. Kelly, President and Chief Executive Officer.
Net interest income for the three months ended June 30, 2006
increased by $17,000, or 0.6%, to $2.8 million as compared to the
same period in 2005. The increase in net interest income was
primarily the result of a $276,000, or 4.1%, increase in interest
income for the quarter ended June 30, 2006 reflecting primarily
the effects of a 75 basis point increase in the weighted average
yield earned on interest-earning assets to 5.87% on a tax-
equivalent basis. Such increase in the yield was partially
offset by the decline in the average balance of interest-earning
assets of $50.4 million, or 9.4%, due in large part to the
disposition of certain assets as part of the Company's
deleveraging strategy implemented in the fourth quarter of fiscal
2005. Interest expense increased $259,000, or 6.5%, for the
quarter ended June 30, 2006 as compared to the third quarter of
fiscal 2005 primarily due to a 47 basis point increase in the
weighted average rate paid on interest-bearing liabilities to
3.45%, offset in part, by a $43.0 million decrease in the average
balance of interest-bearing liabilities reflecting the effects of
the deleveraging strategy. The Company's net interest margin, on
a tax-equivalent basis, increased by 23 basis points in the third
quarter of fiscal 2006 to 2.40% as compared to 2.17% for the
third quarter of fiscal 2005.
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On a linked quarter basis, net interest income slightly
increased by $14,000, or 0.5% from the quarter ended March
31, 2006. However, the net interest margin, on a tax
equivalent basis, decreased 4 basis points from 2.44% in the
prior quarter. During the third quarter of fiscal 2006, as
compared to the second quarter, the Company experienced a 21
basis point increase in the rates paid on average interest-
bearing liabilities which was substantially offset by a 19
basis point improvement in the yield earned on average
interest-earning assets. The compression in the net
interest margin was primarily the result of higher cost of
funds due to the continued increase in interest rates on the
short-term end of the yield curve shifting consumers toward
higher yielding deposit products.
Non-interest expense increased $235,000 to $3.2 million for
the quarter ended June 30, 2006 as compared to the same period
last year. The increase for the quarter ended June 30, 2006 was
primarily due to increases of $147,000, $56,000, $40,000, and
$32,000 in professional fees, salaries and employee benefits,
real estate owned operations and advertising, respectively,
partially offset by decreases of $60,000 and $11,000 in other non-
interest expense and deposit processing costs, respectively.
Professional fees were substantially higher in the 2006 period
due to expenses incurred pursuant to the terms of the supervisory
agreements entered into with the Office of Thrift Supervision as
well as legal expenses incurred in connection with a commercial
real estate property which became real estate owned in March
2006. The increase in real estate operations also was a result
of costs incurred in connection with the same real estate
property. Salaries and employee benefits costs increased due to
additional personnel and related medical benefits. 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. On a linked
quarter basis, non-interest expense decreased $45,000, or 1.4%.
Total non-performing assets were $3.2 million at June 30,
2006 as compared to $3.5 million at March 31, 2006 and $5.8
million at September 30, 2005. The decrease during the quarter
was primarily due to a decrease of $282,000 in single-family
residential loans. The Company's ratio of non-performing assets
to total assets was 0.60% at June 30, 2006, 0.68% at March 31,
2006 and 1.12% at September 30, 2005.
The Company's total assets increased to $528.9 million at
June 30, 2006 from $518.1 million at September 30, 2005. A
continued emphasis on quality loan originations has led to net
growth in the loan portfolio of $22.2 million, or 7.4%, to $324.2
million at June 30, 2006 from September 30, 2005. The majority of
the loan growth has occurred in the commercial real estate,
commercial business and home equity loan portfolios. The
investment and mortgage-related portfolios were reduced as part
of the Company's strategy to meet the funding needs of new higher
yielding commercial loans and to assist the Bank in controlling
its asset growth as required by the terms of the supervisory
agreement. Deposits increased $6.5 million, or 2.1%, from $349.7
million at September 30, 2005 to $356.2 million at June 30, 2006
as a result of a $5.5 million, or 3.2%, increase in certificates
of deposit. Total borrowings increased $3.3 million, or 2.9%, to
$116.6 million at June 30, 2006 from $113.3 million at September
30, 2005 in order to fund its asset growth. Stockholders' equity
declined $937,000, or 3.3%, due to a $1.6 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 $730,000 for the nine months ended June 30, 2006.
For the three months ended June 30, 2006, the provision
for loan losses decreased $1.6 million to $81,000 as compared
to the same period in 2005. The $1.6 million provision for
loan losses in the 2005 period reflected the establishment of a
reserve for the large commercial real estate loan referenced
earlier as well as increases deemed necessary due to various
factors including increases in the level of non-performing
loans and the changing nature of the commercial and multi-
family real estate and commercial business loan portfolios. The
Company focuses on its loan portfolio management and credit
review process to address the risk profile of the portfolio and
manage troubled credits. This analysis includes evaluations of
concentrations of credit, past loss experience, current
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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 provision for loan losses of $81,000 for the current
quarter was based on $45,000 of net charge-offs incurred during
the third quarter of fiscal 2006 and increasing the allowance
for loan losses to the level deemed appropriate by management
based on the Company's overall portfolio review. The Company's
coverage ratio, which is the ratio of the allowance for loan
losses to non-performing loans, was 637.18% and 68.8% at June
30, 2006 and September 30, 2005, respectively, while the ratio
of the allowance to gross loans receivable was 0.90% and 1.14%
at the same dates.
At March 31, 2006 and June 30, 2006, the Bank exceeded the
asset growth limitation contained in the supervisory agreement
with the Office of Thrift Supervision. The OTS has advised the
Bank that it will not take any regulatory action against the Bank
provided it is in compliance as of September 30, 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 Nine Months Ended
June 30, June 30,
------------------------------------------------
2006 2005 2006 2005
------------------------------------------------
<c> <s> <s> <s> <s>
Net interest income $2,842 $2,825 $8,450 $8,606
Provision for loan losses 81 1,645 651 1,735
Non-interest income 668 683 2,242 2,683
Non-interest expense 3,181 2,946 9,400 9,196
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Income (loss) before taxes 248 (1,083) 641 358
Income tax benefit (19) (470) (89) (190)
------------------------------------------------
Net income (loss) $ 267 $ (613) $ 730 $ 548
================================================
Basic earnings (loss) per share $ 0.14 $ (0.33) $ 0.39 $ 0.30
Diluted earnings (loss) per share 0.14 (0.32) 0.38 0.30
Dividends per share -- 0.11 0.11 0.33
Number of shares outstanding at end of period 2,024,074 2,022,378 2,024,074 2,022,378
Weighted average basic shares outstanding 1,892,876 1,874,143 1,890,601 1,827,849
Weighted average diluted shares outstanding 1,915,564 1,912,779 1,913,431 1,846,321
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FIRST KEYSTONE FINANCIAL, INC.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
(Unaudited)
June 30, September 30,
2006 2005
-------- -------------
<c> <s> <s>
Total assets $528,922 $518,124
Loans receivable, net 324,214 301,979
Investment and mortgage-related securities available for sale 105,205 104,546
Investment and mortgage-related securities held to maturity 43,535 50,921
Cash and cash equivalents 15,750 16,155
Deposits 356,178 349,694
Borrowings 116,554 113,303
Junior subordinated debt 21,493 21,520
Loan loss allowance 2,931 3,475
Total stockholders' equity 27,257 28,193
Book value per share $13.47 $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 Nine Months Ended
June 30, June 30,
--------------------------------------
2006 2005 2006 2005
--------------------------------------
<c> <s> <s> <s> <s>
Return on average assets (1) 0.20% (0.43)% 0.19% 0.13%
Return on average equity (1) 3.91% (8.26)% 3.50% 2.45%
Interest rate spread (1) (2) 2.42% 2.14% 2.43% 2.19%
Net interest margin (1) (2) 2.40% 2.17% 2.43% 2.21%
Interest-earning assets/interest-bearing liabilities(2) 99.47% 100.90% 99.75% 100.62%
Operating expenses to average assets (1) 2.43% 2.07% 2.43% 2.16%
Ratio of non-performing assets to total assets at
end of period 0.60% 1.00% 0.60% 1.00%
Ratio of allowance for loan losses to gross loans receivable
at end of period 0.90% 1.13% 0.90% 1.13%
Ratio of loan loss allowance to non-performing loans
at end of period 637.18% 72.38% 637.18% 72.38%
(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 2.35%
and 2.08% for the quarter ended June 30, 2006 and 2005,
respectively, while the net interest margin was 2.33% and
2.10% for the quarter ended June 30, 2006 and 2005,
respectively. Without the adjustment for taxes, the
interest rate spread was 2.36% and 2.12% for the nine
months ended June 30, 2006 and 2005, respectively, while
the net interest margin was 2.35% and 2.14% for the nine
months ended June 30, 2006 and 2005, respectively. In
addition, with respect to March 31, 2006, without the
adjustment for taxes, the interest rate margin was 2.36%.
CONTACT: Thomas M. Kelly, President
Rose M. DiMarco, Chief Financial Officer
(610) 565-6210
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