Exhibit 99.1
FIRST 22 West State Street
KEYSTONE Media, PA 19063
FINANCIAL, INC. 610-565-6210
FOR IMMEDIATE RELEASE
_____________________
FIRST KEYSTONE FINANCIAL ANNOUNCES
QUARTER AND YEAR END RESULTS
Media, PA November 21, 2006 - (Nasdaq: FKFS) The Company
reported today net income for the quarter ended September 30, 2006
of $304,000, or $0.16 per diluted share, compared to net income of
$62,000, or $0.03 per diluted share, for the same period last year.
Net income for the fiscal year ended September 30, 2006 was $1.0
million, or $0.54 per diluted share, as compared to $610,000, or
$0.33 per diluted share, for fiscal 2005.
The Company's net income was adversely impacted both for the
fourth quarter, and to a lesser extent for the fiscal year, due to
the substantially increased provision for possible loan losses
established during the fourth quarter. The provision for loan
losses for the quarter ended September 30, 2006 amounted to
$555,000 as compared to $45,000 for the fourth quarter of fiscal
2005. The Company recently underwent an examination by the Office
of Thrift Supervision (the "OTS"), its primary banking regulator.
In connection with the examination, the Company reviewed its asset
classifications, resulting in a substantial increase in criticized
and classified assets from $8.7 million at June 30, 2006 to $19.9
million at September 30, 2006 of which $11.7 million consisted of
classified assets primarily related to commercial and multi-family
and commercial business loans. The significant increase in the
provision for loan losses reflected management's assessment of a
number of factors including the implementation of refinements to
its rating system, the increased level of classified and criticized
assets, continued growth of the commercial and multi-family real
estate and commercial business loan portfolio as well as extensive
discussions with the OTS examination staff in connection with the
examination.
As previously announced in February 2006, the Company and its
wholly owned subsidiary, First Keystone Bank, entered into
supervisory agreements with the OTS which required a number of
actions to be taken by the Company or the Bank as well as imposing
a number of restrictions on their operations including a growth
limitation on the Bank and a prohibition in the payment of
dividends by the Company to its shareholders. Although the Company
and the Bank were determined to be in full or partial compliance
with substantially all of the provisions of the supervisory
agreements, the examination did note a number of areas for
improvement with respect to the Bank's loan underwriting, credit
analysis and asset classification policies and procedures. The
Bank is aggressively addressing the areas for improvement in its
lending operations to be able to be in full compliance with the
terms of the supervisory agreements as soon as possible.
"Needless to say, we are disappointed in the level of the
provision for loan losses required for the fourth quarter as well
as the concerns noted by the OTS. We believed that the significant
steps taken by the Company and the Bank in accordance with the
terms of the supervisory agreements had addressed the OTS'
concerns. However, we are committed to addressing the OTS'
remaining concerns as soon as possible," stated President and Chief
Executive Officer Thomas M. Kelly. "We will remain focused on
reducing the level of our classified and criticized assets and
decreasing further the level of non-performing assets," continued
Kelly. "To date, the level of non-performing assets has declined
and net interest margin has increased from the same period in the
prior year. We are confident that the Company and the Bank will be
able to achieve compliance with the terms of the agreements in a
satisfactory and expeditious manner," added Kelly.
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For the three months ended September 30, 2006, net interest
income decreased by $74,000, or 2.7%, as compared to the same
period in 2005. Interest income increased $308,000, or 4.5%, for
the quarter ended September 30, 2006 compared to the same period in
the prior year primarily due to a 72 basis point increase in the
average yield earned on interest-earning assets. However, such
increase was offset by a $382,000, or 9.2%, increase in interest
expense for the quarter ended September 30, 2006 as compared to the
fourth quarter of fiscal 2005 primarily due to a 58 basis point
increase in the average rate paid on interest-bearing liabilities.
The increase in the Company's net interest margin was primarily due
to the combined effects of the impact of the de-leveraging strategy
implemented at the end of fiscal 2005. The Company's interest rate
margin on a tax-equivalent basis increased to 2.23% for the quarter
ended September 30, 2006 as compared to 2.11% for the same period
last year.
On a linked quarter basis, net interest income decreased
$214,000 in the fourth quarter of fiscal 2006 compared to the third
quarter of fiscal 2006. The net interest margin on a tax-
equivalent basis decreased 17 basis points from 2.40% for the three
months ended June 30, 2006. During the fourth quarter of fiscal
2006, as compared to the third, the Company experienced a 28 basis
point increase in the rates paid on interest-bearing liabilities
which was partially offset by a 12 basis point increase in the
yield earned on average interest-earning assets. The compression
of the Company's net interest margin was largely due to the
repricing of interest-bearing liabilities which outpaced the upward
adjustments on interest-earning assets.
For the quarter ended September 30, 2006, non-interest income
increased $340,000 to $1.3 million from the same period last year.
The increase during the quarter was primarily the result of the
receipt of death-benefit proceeds of $565,000 from the Company's
bank owned life insurance partially offset by the Company
experiencing a decrease of $170,000 in gain on sales of assets.
During the fourth quarter of fiscal 2005, the Company experienced
gains related to the sales made in connection with the de-
leveraging strategy implemented in such quarter.
Non-interest expense for the quarter ended September 30, 2006
decreased $339,000, or 9.3%, from the same period last year. Non-
interest expense was higher in the fourth quarter of fiscal 2005
primarily due to the pre-tax charge of $486,000 incurred as a
result of the retirement of FHLB advances as part of the de-
leveraging strategy in fiscal 2005. In addition, the Company
experienced a decrease of $56,000 in the fourth quarter of fiscal
2006 in the other non-interest expense due to completion of a bank-
wide customer service training program during the fourth quarter
of fiscal 2005.
The Company's total assets increased to $523.0 million at
September 30, 2006 from $518.1 million at September 30, 2005.
Continuing emphasis on loan originations has led to net growth in
the loan portfolio of $21.2 million, or 7.0%, to $323.2 million
at September 30, 2006 from September 30, 2005. The majority of
the loan growth has occurred in the home equity portfolio, and to
a lesser extent, in the commercial business loan portfolio. The
investment and mortgage-related securities portfolios were
reduced in connection with the Company's continued expansion of
its loan portfolio and to assist the Bank in controlling its
asset growth as required by the terms of the supervisory
agreement. Deposits increased $8.8 million, or 2.5%, from $349.7
million at September 30, 2005 to $358.8 million at September 30,
2006 as a result of a $12.8 million, or 7.4%, increase in
certificates of deposit partially offset by $3.7 million, or
2.1%, in core deposits. The level of the Company's borrowings
decreased $6.1 million, or 5.4%, to $107.2 million at September
30, 2006 from $113.3 million at September 30, 2005.
Stockholders' equity increased $466,000, or 1.7%, due to net
income of $1.0 million for the fiscal year ended September 30,
2006 partially offset by a $578,000 decline in comprehensive
income combined with dividend payments in the first quarter of
fiscal 2006 totaling $209,000. As a result of entering into the
supervisory agreement, the Company was required to cease paying
dividends after the first quarter of fiscal 2006.
For the three months ended September 30, 2006, the provision
for loan losses increased $510,000 to $555,000 as compared to the
same period in 2005. The increase in the provision for loan
losses was required as a result of an increase in the Company's
criticized and classified assets at September 30, 2006 as well as
the ongoing evaluation of its loan portfolio 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
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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 1215.61%
and 68.79% at September 30, 2006 and September 30, 2005,
respectively, while the ratio of the allowance to gross loans
receivable was 1.03% and 1.14% at the same dates.
Total non-performing assets totaled $2.7 million at September
30, 2006 as compared to $3.2 million at June 30, 2006 and $5.8
million at September 30, 2005. The decrease during the fourth
quarter of 2006 was primarily due to a $256,000 decrease in real
estate owned and a decrease in non-performing home equity and
commercial business loans aggregating $193,000. The Company's
ratio of non-performing assets to total assets was 0.52% at
September 30, 2006, 0.60% at June 30, 2006 and 1.12% at September
30, 2005.
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 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,
______________________________________________________
2006 2005 2006 2005
______________________________________________________
Net interest income $ 2,628 $ 2,702 $ 11,078 $ 11,308
Provision for loan losses 555 45 1,206 1,780
Non-interest income 1,269 929 3,512 3,609
Non-interest expense 3,308 3,647 12,708 12,840
______________________________________________________
Income (loss) before taxes 34 (61) 676 297
Income tax benefit (270) (123) (359) (313)
______________________________________________________
Net income $ 304 $ 62 $ 1,035 $ 610
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Basic earnings per share $ 0.16 $ 0.03 $ 0.55 $ 0.33
Diluted earnings per share 0.16 0.03 0.54 0.33
Dividends per share -- 0.11 0.11 0.44
Number of shares outstanding at end of period 2,027,928 2,023,534 2,027,928 2,023,534
Weighted average basic shares outstanding 1,898,177 1,885,711 1,892,510 1,842,434
Weighted average diluted shares outstanding 1,913,998 1,916,447 1,912,282 1,875,605
______________________________________________________
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FIRST KEYSTONE FINANCIAL, INC.
SELECTED FINANCIAL DATA
(In thousands except per share data)
(Unaudited)
September 30, September 30,
2006 2005
________________________________
Total assets $522,960 $518,124
Loans receivable, net 323,220 301,979
Investment and mortgage-related
securities available for sale 103,416 104,546
Investment and mortgage-related
securities held to maturity 41,612 50,921
Cash and cash equivalents 12,787 16,155
Deposits 358,816 349,694
Borrowings 107,241 113,303
Junior subordinated debt 21,483 21,520
Loan loss allowance 3,367 3,475
Total stockholders' equity 28,659 28,193
Book value per share $14.13 $13.93
____________________________________________________________________
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,
________________________________________
2006 2005 2006 2005
________________________________________
Return on average assets (1) 0.23% 0.04% 0.20% 0.11%
Return on average equity (1) 4.38% 0.86% 3.73% 2.08%
Interest rate spread (1) (2) 2.26% 2.12% 2.38% 2.16%
Net interest margin (1) (2) 2.23% 2.11% 2.37% 2.18%
Interest-earning assets/interest-bearing liabilities(2) 99.25% 99.80% 99.67% 100.52%
Operating expenses to average assets (1) 2.53% 2.57% 2.46% 2.26%
Ratio of non-performing assets to total assets at
end of period 0.52% 1.12% 0.52% 1.12%
Ratio of allowance for loan losses to gross loans
receivable 1.03% 1.14% 1.03% 1.14%
Ratio of loan loss allowance to
non-performing loans at end of period 1215.61% 68.79% 1215.6% 68.79%
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(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 2.20% and 2.05% for the quarters ended
September 30, 2006 and 2005, respectively, while the net
interest margin was 2.17% and 2.05% for the quarters
ended September 30, 2006 and 2005, respectively. Without
the adjustment for taxes, the interest rate spread was
2.32% and 2.10% for the twelve months ended September 30,
2006 and 2005, respectively, while the net interest
margin was 2.30% and 2.11% for the twelve months ended
September 30, 2005 and 2004, respectively. In addition,
with respect to June 30, 2006, without the adjustment for
taxes, the interest rate margin was 2.34%.
CONTACT: Thomas M. Kelly, President and Chief Executive Officer
Rose M. DiMarco, Chief Financial Officer
(610) 565-6210
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